Two of the biggest biotechs on the planet didn't enjoy their finest year in 2016. Shares of both Gilead Sciences (NASDAQ:GILD) and Amgen (NASDAQ:AMGN) dropped by double-digit percentages this year. Which of these two stocks is now in the best position for a significant comeback? Here's how Gilead and Amgen stack up against each other.
The case for Gilead Sciences
Let's first get the bad and the ugly out of the way before we move on to the good about Gilead. Sales are falling for two of the biotech's top-selling drugs, Harvoni and Sovaldi. In addition, Gilead has experienced multiple setbacks for its pipeline. The stock is at its lowest level since early 2014.
With these problems, why is Gilead a smart pick for investors? For one thing, shares are ridiculously cheap as a result of the biotech's woes. Gilead currently trades at less than seven times earnings. Its enterprise value-to-EBITDA multiple is a super-low 5.43. You're not going to find many companies making as much money as Gilead does whose shares are this inexpensive.
Despite Gilead's challenges with Harvoni and Sovaldi, the drugs still combined for $10.9 billion in sales during the first nine months of 2016. Newer hepatitis C drug Epclusa is also helping offset some of the sales decline for its predecessors. Epclusa made $640 million in the third quarter, its first full quarter on the market.
Gilead's HIV franchise continues to perform well. Recent additions to its HIV lineup -- Genvoya, Descovy, and Odefsey -- are picking up the baton from Gilead's longtime blockbuster drugs Truvada and Atripla.
What about the future? It's true that Gilead has had pipeline failures with simtuzumab and GS-5745. However, the biotech still claims several promising candidates, including experimental autoimmune-disease drug filgotinib and potential nonalcoholic steatohepatitis (NASH) treatments GS-4997, GS-9674, and GS-0976. Gilead also has $31.6 billion of cash, cash equivalents, and marketable securities on hand to bolster its product lineup and pipeline further.
Gilead has used its cash in other ways that benefit shareholders. The company spent $10 billion buying back shares in the first three quarters of 2016. Gilead's dividend yield currently stands at 2.59% and seems likely to rise in years to come.
The case for Amgen
Since we began with Gilead's problems, it's only fair to take the same approach with Amgen. Sales are declining for three of Amgen's biggest products: bone marrow stimulants Neulasta and Neupogen, and anemia drug Epogen. Sales for the biotech's top-selling autoimmune disease drug, Enbrel, were flat in the last quarter.
Amgen does have some bright spots in its current lineup, though. Sales for bone disease drug Prolia and secondary hyperparathyroidism treatment Sensipar are growing by double-digit percentages. Xgeva and Aranesp are also seeing sales increase. Amgen has high expectations for a couple of other drugs as well -- PCSK9 cholesterol drug Repatha and multiple myeloma drug Kyprolis.
The biotech's pipeline includes a dozen late-stage programs, plus another 22 clinical studies in phase 1 or phase 2. Perhaps the most important of the late-stage clinical trials is a cardiovascular outcomes study for Repatha. Although sales for the cholesterol drug haven't taken off yet in a major way, Amgen hopes that results from this study will convince payers to ease reimbursement restrictions.
Amgen and partner Novartis also have a potential winner on the way with erenumab. The two companies recently announced that the experimental treatment for migraine met its primary endpoint of significantly reducing the number of days patients experienced migraine headaches.
If you like Gilead's cash stockpile, you'll love Amgen's. The biotech reported cash, cash equivalents, and marketable securities totaling just under $38 billion at the end of the third quarter. Amgen's CEO, Robert Bradway, has stated in the past that the company is actively looking at potential acquisitions and licensing early-stage candidates.
Like Gilead, Amgen also rewards shareholders through share buybacks and dividend payments. In the first nine months of 2016, Amgen repurchased $2 billion of its stock. The biotech's dividend yield is 2.79%.
I don't think investors would go wrong by buying either of these two biotech stocks. My view is that both Gilead and Amgen are solid long-term investments. If I could choose only one right now, though, I'd go with Gilead.
The decision comes down to valuation. Gilead is simply so cheap at current levels, I think any positive news in 2017 will result in a big rebound for the stock. There are plenty of possibilities for good news, including one that Gilead has control over: a smart acquisition.
I expect the big biotech would make a significant transaction in the new year, plus keep on using its ample cash flow to increase dividends and buy back more shares. All three are ingredients that should result in Gilead Sciences' shareholders enjoying 2017 more than they did 2016.