The line between big pharma and big biotech has become increasingly blurry as the four big biotechs have grown up. One started paying a dividend last year; another made an $11-billion purchase. Those aren't characteristics you usually think of in a biotech. There's something for every type of investor here.

Cash galore
Gilead Sciences (Nasdaq: GILD) has been steadily throwing off more and more free cash over the past few years as its HIV drug franchises have become the standard parts of drug cocktails used to treat the disease.

Gilead Sciences Free Cash Flow TTM Chart

Gilead Sciences Free Cash Flow TTM Chart by YCharts

But the success has left investors to wonder what the company would do for an encore. Gilead tried heart drugs, with mixed success: darusentan failed and Letairis and Ranexa are growing well, but only make up about 8% of sales.

The move into cancer might pan out, but unless it in-licenses drug on the market, we're a ways off from calling Gilead an oncology company.

It was that plethora of cash that prompted Gilead's $11 billion purchase of Pharmasset. The company had plenty of hepatitis C drugs in its pipeline already, but they were relatively early in the clinic. The company risked a lot with the expensive purchase, but all will be forgiven if Pharmasset's lead compound is approved.

Hey, look, what's that?
Amgen (Nasdaq: AMGN) is throwing off cash, too -- enough to allow it to start issuing a dividend last August. None of the other big biotechs distributes its cash that way, and I wouldn't expect any of them to start anytime in the immediate future. Longer term, they'll probably all end up offering one if they aren't acquired first.

Amgen is also returning cash in the form of share buybacks. The major decrease in the share count will boost EPS and free cash flow yield, increasing the value of the shares. That's necessary because the potential for substantial earnings growth from new drugs doesn't look all that great.

Part of Amgen's problem is that it's just so big; it's hard to move the revenue needle. On the other hand, it makes the biotech more stable, much like a big pharma.

A takeout candidate?
Celgene (Nasdaq: CELG) has a few catalyst coming over the next year -- approval of Revlimid as a maintenance therapy in Europe, Abraxane melanoma data, and a few others -- but the event that could cause the largest gains is an acquisition by big pharma. The biotech's nice late-stage pipeline could be very attractive to a large drugmaker looking to replace revenue lost to generic competition.

A growth story again
Sales of Biogen Idec's (Nasdaq: BIIB) multiple sclerosis drug Avonex have stagnated of late, but there's growth potential in the rest of its multiple sclerosis drugs.

The risk stratification for Tysabri, which the company sells with Elan (NYSE: ELN), should help drive patients who were otherwise too scared of a rare but potentially fatal brain infection called progressive multifocal leukoencephalopathy, or PML. Tysabri is arguably the best available treatment, and understanding what increases the risk of PML should make patients more comfortable taking the drug if they don't have many of the attributes that increase the risk of taking it.

Biogen is also developing an oral multiple sclerosis drug, BG-12. The drug has performed well in the clinic to date and could capture the newly diagnosed patients who probably wouldn't take Tysabri. BG-12, if it's approved, will cannibalize sales of Avonex a little, but there are plenty of other first-line treatments that it can take market share from as well.

Which one?
Picking the best big biotech is difficult because it depends on your risk tolerance. Amgen doesn't have the most striking growth potential, but the dividend should help the returns and there's less downside risk than with the others. At the other end, Gilead has strong growth potential, but there's a lot built into the expectations that its new acquisition will pan out. Buying in the hopes of a buyout is rarely a good idea, but if you think Celgene is a reasonable value despite the rumors, go ahead and buy. Of the four though, I think Biogen has the best prospects over the next few years, and I like the focus that new CEO George Scangos has brought.

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