They're two of the premiere long-term winners among healthcare stocks. They both have deep pipelines and deep pocketbooks. And they both reward investors with nice dividends. The track records of Amgen (AMGN 2.15%) and Johnson & Johnson (JNJ 0.99%) so far in 2016, however, have been quite different. Amgen's shares are down, while J&J's shares are up. Which of these two stocks is the better choice for investors now?
The case for Amgen
It's easy to point out the problem areas for Amgen. Sales growth for lead drug Enbrel seems to have tapered off. Sales for the biotech's second-biggest drug, bone marrow stimulant Neulasta, were down in the third quarter compared to the prior year period. Two powerhouse drugs of the past, Epogen and Neupogen, continue to see revenue decline.
However, it's not difficult to find positives for Amgen. Several drugs in the company's lineup achieved solid revenue growth in the third quarter. Sales for cancer drug Kyprolis jumped 34% year over year. Bone disease drug Prolia and the Sensipar/Mimpara franchise both grew sales 18% over the prior-year period.
Amgen expects much more growth from Kyprolis, in particular. The biotech's management team thinks that sales for the drug as a second-line treatment for multiple myeloma will continue to improve. Amgen also has high hopes for eventual approval of Kyprolis as a first-line treatment of the disease.
High hopes don't begin to describe Amgen's expectations for Repatha. The cholesterol drug hasn't gotten off to a fast start, primarily due to payers putting hurdles in the way of authorizing reimbursement for the new class of PCSK9 inhibitors. Amgen should announce results from a major cardiovascular outcomes study in the first quarter of 2017 that might convince payers to loosen their purse strings.
Amgen should win with its slate of biosimilars that are in development also. One of those biosimilars, Amjevita (a biosimilar for Humira), has already received regulatory approval in the U.S. However, Amgen must overcome legal hurdles before it can go to market with Amjevita.
Then there's the big cash stockpile that Amgen claims. As of the end of September, the biotech reported cash, cash equivalents, and marketable securities totaling $37.98 billion. Management is actively looking for acquisitions and especially likes to license early-stage candidates.
Amgen is valued attractively, with a forward earnings multiple of 11. Considering the opportunities ahead for Kyprolis, Repatha, and the biotech's pipeline prospects plus Amgen's stated intent to bolster the pipeline, this stock should continue to be a winner for long-term investors.
The case for Johnson & Johnson
Finding weak spots for Johnson & Johnson isn't hard, either. J&J's consumer products segment continues to struggle. Growth for its medical device business is anemic.
It's a different story for J&J's pharmaceuticals segment, though. Immunology continues to be a strong area for the company, led by solid growth in sales of Remicade and soaring sales for Stelara and Simponi.
Johnson & Johnson claims several other blockbuster drugs that are still growing sales. Put Xarelto at the top of that list. Sales for the blood thinner in the third quarter increased at a healthy rate of 14.8% compared to the prior-year period.
The brightest star in J&J's current lineup, though, is Imbruvica. Sales for the cancer drug nearly doubled in the third quarter versus the same period in 2015, putting Imbruvica on track to easily top $1 billion in revenue this year. Even better, J&J has several late-stage clinical studies in progress that could potentially expand the number of indications for the drug.
What about pipeline prospects beyond Imbruvica? They look pretty good. J&J and partner GlaxoSmithKline submitted for U.S. regulatory approval of rheumatoid arthritis candidate sirukumab in September. The company anticipates filing for approval for another 10 experimental drugs by 2019, including imetelstat, which targets treatment of myelofibrosis.
If you like Amgen's cash stockpile, you'll love J&J's. The healthcare giant reported cash, cash equivalents and marketable securities of $40.4 billion at the end of the third quarter. Like Amgen, J&J remains open to acquisitions. The company hinted recently that it might even consider a major acquisition to add a new therapeutic area.
The stock trades at a forward earnings multiple of 16. While that's not as inexpensive as Amgen, J&J still isn't too pricey to buy for investors with a long-term perspective.
My view is that both of these stocks are good picks over the long run. If I had only choose one right now, though, I'd give the edge to Amgen.
Despite its challenges, I think that Amgen should enjoy a little more growth than Johnson & Johnson over the next few years. And while J&J's dividend is solid, Amgen's dividend yield is higher. Amgen hasn't paid out a dividend for nearly as long as J&J has, but its dividend is growing at a faster rate. You won't go wrong with J&J, but Amgen should provide higher growth and income at least into the next decade.