Amgen Inc. (AMGN 0.36%) and Gilead Sciences, Inc. (GILD +0.39%) have several things in common. They're both big, successful biotechs. They both generate tremendous cash flow. And both Amgen and Gilead face challenges from declining sales of important products.
In recent years, Gilead's problems have caused its stock to perform much worse than Amgen. However, the story has changed somewhat over the past 12 months. But which of these two big biotech stocks is the better buy now? Here's how Amgen and Gilead Sciences compare.
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The case for Amgen
I can think of seven reasons investors might want to buy Amgen. The first five are the "compelling long-term growth drivers" identified by Amen CEO Bob Bradway at the J.P. Morgan Healthcare Conference earlier this year.
Three of the long-term growth drivers Bradway identified are drugs already in Amgen's product lineup -- osteoporosis drug Prolia, multiple myeloma drug Kyprolis, and cholesterol drug Repatha. Prolia is the only blockbuster of the group right now, generating sales of nearly $2 million last year. There could be significant growth potential for Kyprolis and Repatha, though.
Amgen reported impressive overall survival improvement for patients taking Kyprolis in a late-stage study in December. The biotech hopes to win approval from the FDA to add this data to the label for Kyprolis, which could boost sales for the drug.
There's a similar story for Repatha. The drug faced considerable payer resistance in 2016 and 2017. However, Amgen thinks that positive cardiovascular outcomes data added to Repatha's label could help improve access to the cholesterol drug.
Another of the growth drivers Bradway listed is actually a group of drugs -- the company's biosimilars. Amgen has already received U.S. and European approval for Amjevita, a biosimilar to Humira, and Mvasi, a biosimilar to Avastin, The company awaits regulatory approval for ABP 980, a biosimilar to Herceptin. Mvasi and ABP 980 were developed in partnership with Allergan.
Bradway's final growth driver is Aimovig. The FDA should announce its decision by May 17 on approval for the migraine drug Amgen and partner Novartis have developed.
The other couple of reasons to buy Amgen are tied together. One is the company's nice dividend, which currently yields 2.8%. Amgen has raised its dividend every year since initiating the program in 2011, with a total increase of more than 370%.
Finally, there's the strong cash flow that make that dividend possible. Amgen generated free cash flow of $10.5 billion over the past 12 months. Thanks to this cash flow, the biotech reported cash, cash equivalents, and marketable securities of $41.7 billion at the end of 2017. There's little doubt that Amgen will use its cash flow and cash to make strategic acquisitions that fuel more growth.
The case for Gilead Sciences
Gilead Sciences has its own growth drivers. The biotech continues to dominate in HIV, with eight blockbuster drugs. Genvoya is Gilead's top HIV drug right now, with sales soaring 148% year over year in 2017 to nearly $3.7 billion.
The main HIV drug to watch, though, is Biktarvy. Gilead won FDA approval for the drug in February. The company thinks Biktarvy is the best HIV drug to ever reach the market, and analysts think it will reach peak annual sales in the ballpark of $6 billion.
Thanks to its acquisition of Kite Pharma, Gilead now stands as a leader in cell therapy, one of the most exciting fronts in the battle against cancer. CAR-T drug Yescarta won FDA approval in October as a third-line treatment for large B-cell lymphoma. Gilead is also evaluating the drug as an earlier line of therapy in the indication and in treating other malignancies. Yescarta holds the potential to become another megablockbuster for the biotech.
Gilead's pipeline includes two especially promising late-stage candidates. Selonsertib is Gilead's lead asset targeting treatment of non-alcoholic steatohepatitis (NASH). Gilead also hopes to enter the autoimmune-disease market with filgotinib. The drug is currently being evaluated in late-stage studies targeting treatment of rheumatoid arthritis and inflammatory bowel disease.
I'm particularly intrigued by Gilead's potential in NASH. The disease is expected to become the leading cause for liver transplants by 2020. There's currently no approved treatment for NASH. Projections for the annual market size for NASH treatments range from $20 billion to $35 billion. In addition to selonsertib, Gilead has two other experimental NASH drugs in phase 2 clinical studies.
Like Amgen, Gilead offers an attractive dividend. Its yield currently stands at 2.95%. Gilead implemented its dividend program in 2015 and has increased the dividend nearly 33% since then.
Also like Amgen, Gilead's strong dividend is the result of the company's impressive cash flow. Over the past 12 months, Gilead generated free cash flow of $11.3 billion. The biotech's cash flow allowed it to build up a nice cash stockpile, which totaled $36.7 billion at the end of 2017 -- including cash, cash equivalents, and marketable securities.
Gilead might use some of its financial flexibility provided by its strong cash flow and cash position to make more deals. CEO John Milligan said recently that the company has "been open about our desire to increase our pipeline through acquisitions and partnerships with other companies."
Better buy
Making the cases for Amgen and Gilead left out the challenges the companies face. Amgen must deal with falling sales for its three top-selling drugs, Enbrel, Neulasta, and Aranesp. Gilead continues to reel from steep sales declines for its hepatitis C franchise. However, Amgen is probably at the early stage of its headwinds, while Gilead thinks the hepatitis C market could stabilize in the near future.
In my view, this is one of the key differentiating factors between the two stocks. Another big difference is Gilead's pipeline, which I consider to be stronger than Amgen's.
I think both of these big biotechs will deploy their cash in smart ways to ensure success over the long run. However, I think Gilead Sciences is the better stock to buy right now.
