Amgen Inc. (NASDAQ:AMGN) and Gilead Sciences, Inc. (NASDAQ:GILD) share several things in common. They're both big biotechs with impressive market caps. Unlike most biotechs, both Amgen and Gilead pay dividends. Both stocks have soared over the past five years.
During the last 12 months, though, there's a significant difference between Amgen and Gilead Sciences. While Amgen's shares went up by double-digit percentages, Gilead's stock dropped more than 20%. Which of these two biotech stocks is the better buy for investors? Here's how Amgen and Gilead stack up.
The case for Amgen
Today's Amgen isn't the Amgen of the past. Sales for three of the company's most successful drugs from previous years, anemia drug Epogen and bone marrow stimulants Neulasta and Neupogen, are declining. The good news is that Amgen seems prepared to more than make up for these challenges.
Autoimmune disease drug Enbrel keeps chugging along. The drug, Amgen's top revenue-generator by far, grew sales at a healthy 10% year-over-year rate in the second quarter. Enbrel was joined by six other drugs for which sales grew by double-digit percentages in the period, including multiple myeloma drug Kyprolis. Despite the sales declines for Epogen, Neulasta, and Neupogen, Amgen still managed to increase overall revenue by 6% compared to the prior-year period.
PCSK9 inhibitor Repatha is expected to be a major blockbuster for the company. Although payer pushback on pricing kept the cholesterol drug from performing as well has Amgen hoped it would, I think sales for Repatha will continue to pick up briskly.
Another reason for investors to like Amgen comes from the biotech's pipeline. Amgen has 32 clinical studies in progress. 12 of those are late-stage studies.
Wall Street expects Amgen to grow earnings by nearly 8% annually over the next five years. That's not awe-inspiring, but it is solid growth. And combined with Amgen's 2.4% dividend yield, investors should experience nice returns from this biotech in the future.
The case for Gilead Sciences
You could argue that Gilead Sciences isn't the Gilead of the past, either. The biotech's shares skyrocketed in recent years primarily on the strength of its enormously successful hepatitis C drugs Sovaldi and Harvoni. However, Gilead now faces slowing sales for both hep C drugs.
Although its hepatitis C franchise gets more investor attention these days, Gilead's HIV portfolio was the company's bread and butter for a long time. The biotech still maintains a dominant presence in the HIV market with blockbuster drugs Stribild and Truvada.
Gilead's newer drugs on the market should soon be significant moneymakers as well. Hepatitis C drug Epclusa got off to a great start. As the first single oral treatment for all genotypes of hepatitis C, I expect Epclusa to become Gilead's next big winner for the indication. The company's new HIV drugs Genvoya, Descovey, and Odefsey are also positioned well to become success stories.
Like Amgen, Gilead claims 32 clinical studies in its pipeline (not counting its TAF chronic hepatitis B drug awaiting regulatory approval). Six of these are late-stage studies. I suspect the biggest potential in Gilead's pipeline, however, stems from several phase 2 studies underway for potential treatments of nonalcoholic steatohepatitis (NASH). If those studies go well, NASH could become the next indication for Gilead to dominate with blockbuster drugs.
Analysts aren't expecting much growth from Gilead over the next five years as the company struggles with declining sales for its hep C franchise. However, the company's pipeline holds considerable promise. With Gilead's dividend yield now at 2.5% and likely to climb, investors would be paid to wait for the biotech's newer drugs and pipeline to pay off.
I like both of these stocks. In fact, I think both could be the better buy. How?
Over the short run, I'd pick Amgen. The biotech has already demonstrated that Enbrel and its other drugs can compensate for weakness in its older drugs' sales. I think Amgen should get more traction with Repatha as well.
For the longer run, though, my choice is Gilead Sciences. I don't doubt that Wall Street analysts are right that Gilead's earnings growth could be anemic over the next few years. However, Gilead's stock is dirt cheap. I think the biotech's pipeline potential isn't fully valued at the current share price.
Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. 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.