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Better Buy: Biogen Inc. vs. Gilead Sciences

By Cory Renauer – Sep 8, 2016 at 10:42AM

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Biogen is shooting for the moon as Gilead's hepatitis C sales contract, begging the question: Which stock is a better investment now?

Image source: Getty Images.

A closer look at Biogen's (BIIB -0.98%) most exciting asset recently caught the attention of the wider public, while Gilead Sciences' (GILD 1.29%) hepatitis C virus (HCV) treatment sales have been sliding. Both have provided enormous returns to their long-term investors over the years, but investors want to know which blue chip biotech stock is most attractive now.

To answer, we'll look compare the two on a handful of metrics, beginning with their recent performance.

Ups and downs

In the first half, Biogen's total revenue rose 9.2% compared to the previous-year period to $5.62 billion. The company expects its top line to reach at least $11.2 billion this year, which would beat its annual revenue record of $10.76 billion set last year by about 4.1%.

Gilead Sciences, on the other hand, saw its top line contract slightly. Sales of its HCV antivirals fell 12.4% to about $8.28 billion, dragging total first-half product sales 1.3% lower than the previous year period to $15.3 billion. 

Looking forward

Hands down, Biogen's most exciting asset at the moment is its Alzheimer's disease candidate, aducanumab. It's currently in phase 3 trials designed to support an application, and a closer look at earlier data is somewhat mixed, but extremely encouraging.

The cause of Alzheimer's disease is still a matter of debate, although most investigators agree that buildup of amyloid beta plays a key role, and aducanumab appears to do a great job of removing it. In a phase 1 study with 165 patients broken into five groups that received either a placebo, or one of four increasing doses, positron emission tomography imaging at 52 weeks shows a dose dependant reduction of amyloid beta in patients' brains that looks like a flight of stairs descending from the placebo group down to the group receiving the highest dose.

Image source: Biogen.

More importantly, the patients' scores on the clinical dementia rating sum of boxes (CDR-SB) test at 52 weeks also shows a similar staircase-like improvement with increasing dosage. Earlier, results from the mini-mental state exam (another dementia rating test) were out of whack. Patients receiving 3 mg and 10 mg dosages showed a significant improvement over the placebo group, but the improvement among patients receiving a 6 mg dosage wasn't strong enough to be considered significant.

Biogen shareholders will be glad to know that the main goal of the 2,700-patient phase 3 program is improvement on the CDR-SB test at 78 weeks, with mini-mental state exam improvement relegated to secondary endpoint status. If CDR-SB results from the smaller trial are repeated in the larger population at the expected data readout expected around February 2020, Biogen stock will soar.

Gilead Sciences has been expanding its clinical stage pipeline with promising candidates, but I think its most important asset launched near the end of the second quarter. There are about 3.5 million Americans and about 180 million people worldwide infected with one of six strains of hepatitis C, and Gilead's Epclusa is the only pill approved to treat them all.

Incoming competition from Merck & Co. and AbbVie has pressured Gilead's pricing power for its HCV antivirals, but healthcare providers in the U.S. are finding it increasingly difficult to restrict the pricey treatments to the sickest patients. In other words, demand for HCV antivirals should rise substantially, and Gilead is the clear leader in the space.

Value and profit sharing

At about 17.9 times trailing earnings, Biogen is trading at a lower multiple than the average stock in the benchmark S&P 500 index, but Gilead Sciences stock is silly cheap at just 6.8 times trailing earnings. It's cheap because sinking sales figures for HCV antivirals launched ahead of Epclusa's approval have the market convinced the company reached a peak it won't return to for quite some time.

I think the market is wrong, and it looks like Gilead does, too. Instead of using its massive cash flows to bloat up with huge acquisitions, it's been repurchasing its own shares at a mind-blowing pace. In just two years the company has reduced its outstanding share count by 13%, from about 1.53 billion at the end of June 2014, to just 1.33 billion at the end of this June.

Image source: Getty Images.

Biogen has also been returning profits to shareholders, but its recent $5 billion repurchase authorization pales in comparison to the $12 billion repurchase authorization Gilead's board approved in February. Throw in Gilead's recently initiated dividend that currently offers a yield of about 2.4%, and the antiviral champ clearly has the upper hand when it comes to distributing profits to shareholders.

As much as I would love to hang a gold medal around Biogen's neck, success for its Alzheimer's program is still questionable. With Epclusa's launch in progress, an ultra-low valuation, and a juicy dividend, I have to call Gilead Sciences stock the better buy -- although I wouldn't criticize anyone for buying shares of both.

Cory Renauer owns shares of Gilead Sciences. You can follow Cory on Twitter @TMFang4apples or connect with him on LinkedIn for more healthcare industry insight.

The Motley Fool owns shares of and recommends Biogen and Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Gilead Sciences Stock Quote
Gilead Sciences
$89.03 (1.29%) $1.13
Merck & Stock Quote
Merck &
$110.04 (0.22%) $0.24
Biogen Stock Quote
$298.90 (-0.98%) $-2.95
AbbVie Stock Quote
$163.66 (1.26%) $2.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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