Biogen Inc. (BIIB +0.76%) and Gilead Sciences Inc. (GILD 0.66%) have a lot in common. They're both big biotechs, of course. They both have new drugs that are on track to become huge winners. They both have promising pipeline candidates. And both Biogen and Gilead face big challenges with existing franchises.
So far in 2018, Gilead stock has handily outperformed Biogen. But which of these two biotech stocks is the better pick for long-term investors? Here's how Biogen and Gilead compare.
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Current products
Biogen has good news, bad news, and great news with its current product lineup. The good news is that the company's top-selling product, multiple sclerosis (MS) drug Tecfidera, continues to enjoy sales growth. The bad news, however, is that momentum for the drug is waning in the face of competition from Roche's Ocrevus.
There's even more bad news for Biogen with the rest of its MS franchise. Sales are falling for its interferon products Avonex and Plegridy, longtime winner Tysabri, and Zinbryta. Biogen expects further sales erosion for all of its current MS drugs.
What's the great news? Spinal muscular atrophy (SMA) drug Spinraza appears to be headed for blockbuster status. Biogen reported sales of nearly $364 million for the drug in the first quarter. This great news could be less great in the future, though: Biogen expects Spinraza's rate of growth to moderate due to fewer patient starts and the transition of patients to less frequent dosing.
It's a similar story for Gilead Sciences. The big biotech's good news comes from its existing HIV lineup. Gilead claimed seven blockbuster HIV drugs in 2017, led by Genvoya. The company's other TAF-based drugs, Descovy and Odefsey, are also generating strong sales growth.
Gilead's bad news continues to stem from its hepatitis C virus (HCV) franchise. Sales are plummeting for HCV drugs Harvoni and Sovaldi as patient starts fall. Epclusa faces stiff competition from AbbVie's new HCV drug Mavyret.
The great news for Gilead requires looking back at its HIV franchise. Gilead launched new HIV drug Biktarvy in the first quarter. Market research firm EvaluatePharma projects that Biktarvy will be the biggest new drug launch of 2018. Gilead thinks the drug could become the best HIV treatment to date.
In addition, Gilead's acquisition of Kite Pharma last year gave it a promising CAR-T cancer treatment, Yescarta. While the launch of Yescarta is going slowly -- as was expected due to the complexities associated with CAR-T therapies -- the drug could become a big winner for Gilead over time.
Pipeline
Biogen has three late-stage clinical programs and 10 programs in phase 2 development. The company's most promising candidate by far is aducanumab. The experimental Alzheimer's disease drug is arguably the most valuable pipeline asset in the biopharmaceutical industry. Biogen also has another late-stage Alzheimer's disease drug, BACE1 inhibitor E2609.
Thanks to a licensing deal with Alkermes, Biogen has one MS drug in late-stage development. BIIB098 is a prodrug that metabolizes in the body to produce a drug, monomethyl fumirate (MMF).
Of Biogen's phase 2 candidates, one of the most promising is opicinumab. The drug inhibits the production of a protein known as LINGO-1, which can interfere with the development of myelin, a sheath that protects nerve fibers.
Gilead's pipeline includes seven late-stage programs and 17 phase 2 programs. Two of the biotech's late-stage candidates especially stand out: selonsertib and filgotinib. Selonsertib is being evaluated in phase 3 studies for the treatment of non-alcoholic steatohepatitis (NASH), a rapidly growing liver disease. Filgotinib is currently in five late-stage clinical studies -- three targeting treatment of rheumatoid arthritis and two targeting inflammatory bowel disease (IBD).
NASH is also a target for a couple of Gilead's phase 2 drugs, FXR agonist GS-9674 and ACC inhibitor GS-0976. It's possible that combination treatments could be the most effective therapy for NASH. Gilead claims perhaps the deepest NASH program around, with its three experimental drugs that could be used in combo therapies.
Financial strength
Both of these companies are in great financial shape. Biogen generated free cash flow of around $4.7 billion over the last 12 months. The biotech reported cash, cash equivalents, and marketable securities totaling over $7.1 billion as of March 31, 2018.
Gilead's free cash flow is even more impressive -- $11.3 billion over the last 12 months. The company had $36.7 billion in cash, cash equivalents, and marketable securities at the end of 2017. Gilead also pays a nice dividend, which currently yields more than 3%.
Valuation
Biogen stock trades at 23 times trailing-12-month earnings and 10.6 times expected earnings. Gilead's trailing earnings multiple is a little under 21, while its forward earnings multiple currently stands at just under 11.
Better buy
At first glance, Biogen appears to have the better current product lineup. However, if Gilead's HCV sales stabilize later this year as the company expects, it could begin generating faster growth than Biogen on the heels of success for Biktarvy.
Although Biogen could have a huge pipeline winner with aducanumab, I'm concerned about the risks. Alzheimer's disease has proven to be very tough to treat, with many once-promising late-stage drugs falling by the wayside.
Gilead has a deeper pipeline. I think its pipeline could also be less risky than Biogen's. In my view, Gilead has a good shot at success with its NASH program and with filgotinib.
Gilead is clearly in stronger shape financially, although its revenue, earnings, and cash flow are falling. However, if the biotech's HCV franchise stabilizes, it would likely mean improvement on all of these financial measures. I also expect Gilead to keep the dividends and dividend hikes coming.
On valuation, it's nearly a toss-up. Both stocks appear to be relatively cheap.
So which stock wins overall? I think the nod goes to Gilead Sciences. The dynamics could certainly change depending on how the two companies' pipeline candidates fare. However, Gilead appears to be on track to move past its HCV woes, while Biogen's MS challenges will probably worsen.
