Your time horizon makes a huge difference when choosing between which stocks to buy. For example, suppose it's January 2011, and you're trying to decide between buying Gilead Sciences, Inc. (GILD -0.99%) or Pfizer Inc. (PFE -1.57%). If your focus was only a 12-month period, Pfizer turned out to be the better pick. However, if you had a longer time horizon such as five years, Gilead stock's performance was more than five times better than Pfizer's.
Of course, we're now in January 2018, not January 2011. A longer-term focus still makes sense, though. Which is the better long-term pick between Gilead Sciences and Pfizer now? Here's how the two big drugmakers compare.
The case for Gilead Sciences
It's easy to point out Gilead's problems. Sales are plunging for the biotech's hepatitis C virus (HCV) franchise. As a result, Gilead's overall revenue and earnings continue to fall. Many investors have thrown in the towel on the once-hot stock.
However, there are still many reasons to like Gilead Sciences. Although the sales plunge for HCV drugs Harvoni and Sovaldi isn't over yet, newer HCV drugs Epclusa and Vosevi are enjoying strong momentum. Gilead CEO John Milligan even thinks that the entrance of AbbVie's Mavyret on the market "sets the stage for smoothness to HCV sales for the future." Milligan went so far as to predict that 2018 could be "the beginning of a growth phase" for Gilead.
Meanwhile, Gilead continues to absolutely dominate in the HIV market. Genvoya had the strongest launch ever for an HIV drug. The company expects to win FDA approval for its latest HIV treatment, a bictegravir/F/TAF combo, within a few weeks. This drug should be the biggest new launch of 2018 if all goes as planned. Sales for bictegravir/F/TAF are expected to top $5 billion by 2022.
Thanks to its acquisition of Kite Pharma in 2017, Gilead now stands at the forefront of cell therapy. In October, Kite's Yescarta became only the second chimeric antigen receptor T cell (CAR-T) therapy to win FDA approval. There's a good chance that Gilead emerges as one of the top leaders in cancer drugs with Yescarta and other pipeline candidates picked up with the Kite acquisition.
The big biotech is also aiming to move into a couple of new areas. Gilead has three drugs in its pipeline targeting treatment of non-alcoholic steatohepatitis (NASH), including late-stage ASK-1 inhibitor selonsertib. NASH could be an especially lucrative indication if the company is successful. Gilead also hopes to elbow its way into the autoimmune disease market with JAK1 inhibitor filgotinib, which is currently in late-stage studies for treating rheumatoid arthritis, Crohn's disease, and ulcerative colitis.
Even with HCV sales falling, the drugs, along with Gilead's HIV franchise, still generates enormous cash flow. Gilead has a large cash stockpile that it can and will use to reward shareholders. The company's dividend currently yields 2.59%. Expect dividend increases in the future. There's also a really good chance that Gilead will use some of its cash to make further acquisitions to drive growth.
The case for Pfizer
Since we started with Gilead's weaknesses, it's only fair to point out some drawbacks for Pfizer. The drugmaker's biggest challenge is its essential health business segment. Sales are slipping for many of Pfizer's older drugs that have lost patent exclusivity. Pfizer has also faced headwinds for its sterile injectables business picked up with the 2015 acquisition of Hospira. The company's other business segment, innovative health, also has a few weak spots, especially with declining sales for autoimmune disease drug Enbrel.
With the dirty laundry out of the way, let's turn our attention to Pfizer's positives. I'd put cancer drug Ibrance at the top of the list. Market research firm EvaluatePharma projects that Ibrance will be one of the top five drugs in terms of sales growth in 2018. Pfizer is also enjoying strong sales momentum for smoking cessation product Chantix, anticoagulant Eliquis, and autoimmune-disease drug Xeljanz.
Acquisitions have also given Pfizer promising drugs to add to its lineup. Pfizer bought Medivation in 2016, picking up prostate cancer drug Xtandi. The same year, the big drugmaker acquired Anacor Pharmaceuticals, gaining Eucrisa in the process. Both Xtandi and Eucrisa should become blockbusters.
Pfizer's pipeline includes 28 late-stage programs. The company is hoping to secure additional indications for several already-approved drugs. Pfizer also has quite a few promising new candidates, with breast cancer drug talazoparib, diabetes drug ertugliflozin, and pain drug tanezumab especially standing out.
In 2013, Pfizer spun off its animal health business into a separate entity, Zoetis, a move that benefited shareholders tremendously. The company is now evaluating either spinning off or selling its consumer healthcare business, which could also benefit investors.
Like Gilead, Pfizer generates strong cash flow. The company also pays out one of the more attractive dividends around, with a current yield of 3.72%. In addition, Pfizer could be active soon on the acquisitions front, looking to boost its portfolio with assets that could fuel future growth.
Pfizer has a couple of key advantages. First, it's increasing revenue and earnings, albeit relatively slowly because of the drag from its essential health segment. Second, the company has a more appealing dividend.
However, Gilead has a couple of advantages of its own. The biotech is more attractively valued, with shares trading at less than 12 times expected earnings. Gilead also has, in my view, the better pipeline candidates with the bictegravir/F/TAF combo, Kite's CAR-T therapies, and its emerging NASH franchise.
It's a tough decision. My gut instinct, though, is to go with Gilead. I think the stock has the potential to be a comeback story in the next couple of years. Over the long run, Gilead could become a dominant player in NASH and cell therapy.
Still, I like both Gilead Sciences and Pfizer. In fact, I own both stocks. My take is that investors wouldn't go wrong with buying either of them.