Gilead Sciences, Inc. (GILD 0.07%) and Celgene Corporation (CELG) have both produced tremendous gains for long-term shareholders. Over a three-year period leading up to mid-2015, both of these stocks quadrupled their investors' money.
The past three years haven't been total disasters, but Gilead's underperformed the benchmark S&P 500 index by 67% and Celgene's fared slightly worse.
Given their performance, you'd think these drugmakers were bleeding money, but they're not. In fact, their operations are generating so much cash for their shareholders right now that we'll need to take a closer look to see which is the better pick right now.
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The case for Gilead Sciences
About a year ago, AbbVie Inc. (ABBV -1.03%) earned approval for an effective hepatitis C virus (HCV) treatment to compete with Gilead's and launched it at a price that caught the market leader off guard. In the first quarter, Gilead's HCV sales plummeted 59%, sparking another sell-off of the stock.
With regards to HCV treatment prices, AbbVie and Gilead have been chasing each other to the bottom for a long time. Gilead finished the first quarter on pace to record just $4.2 billion in HCV sales in 2017 from a peak of $19.1 billion in 2015. A recent round of pricing negotiations could allow Gilead to regain its share of the space, but if that fails, a repeat of last year's losses probably wouldn't leave a very large dent in Gilead's income statement now that HCV sales comprise just 21% of total revenue.
GILD Revenue (Quarterly) data by YCharts.
With the hepatitis franchise finally near a bottom, Gilead's top line has a better-than-usual chance to reverse course. Biktarvy, the company's new all-in-one HIV tablet is expected to generate $6 billion in annual sales at its peak.
Biktarvy isn't the only high-profile debut that Gilead investors need to watch. Yescarta launched late last year as the second CAR-T therapy to earn approval and initial uptake has been slow. The one-time treatment is an oncologist's dream come true, but end payers aren't nearly as enthusiastic about its $393,000 price tag.
If Yescarta sales do take off, Gilead stock could see a nice bump because it's just the tip of an iceberg. The company has three more CAR-T therapies in clinical trials at the moment and is investing heavily to develop the next-generation of cell-based cancer treatments.
Outside of the cancer arena, Gilead also has a leading non-alcoholic steatohepatitis (NASH) program that boasts three candidates in mid- to late-stage testing. Many don't know it, but NASH threatens the lives of around 30 million Americans and none have an effective treatment option yet.
The case for Celgene Corporation
This big biotech followed Gilead's lead and acquired a CAR-T pioneer called Juno Therapeutics for around $9 billion earlier this year and that isn't the only way the company plans to cash in on CAR-T. A pivotal study with Juno's lead candidate completed enrollment in April and another CAR-T candidate partnered with bluebird bio (BLUE -4.91%) scored high marks in mid-stage studies last year. Both are trying to repeat earlier performances in larger pivotal trials at the moment, which means Celgene could have two new cancer drugs to market by the end of 2019.
Celgene's lead drug, Revlimid racked up $8.2 billion in sales last year and it's expected to hit $9.4 billion this year. Unfortunately for Celgene, its popular multiple myeloma therapy will begin facing generic competition in March 2022.
Celgene depends on its flagship multiple myeloma drug for 63% of total revenue, so offsetting the impending losses will be an enormous challenge. Earlier this year, an embarrassing oversight caused the Food and Drug Administration to reject a new drug application for a drug the company is depending on to drive growth in the years ahead. The ensuing crisis of confidence has made this one of the worst healthcare stocks of 2018.
In the numbers
Investors have been beating up Celgene stock all year because they're concerned the company won't be able to offset Revlimid's impending losses to generic competition several years from now. At recent prices, the stock trades at just 10.0 times this year's earnings expectations, which is far more attractive than the S&P 500 average, which is at 17.6 times estimates.
GILD Dividend data by YCharts.
Gilead is a bit more expensive than Celgene at the moment, but at just 12.5 times expected earnings, the stock still looks like a bargain for investors interested in creating a growing stream of income. Gilead started paying a dividend in 2015, which management has been able to crank up while buying back heaps of its own shares at the same time.
Celgene doesn't offer a dividend, but it has been taking advantage of a depressed stock price and retiring shares hand over fist. In May, the company set aside another $5 billion that could lower its outstanding share count around 8% further in the near term.
A close call
Gilead's chronic hepatitis losses are almost at an end, and unlike Celgene, its next lead growth driver is already on pharmacy shelves. If Biktarvy falls flat, Gilead could have trouble hiking its dividend in the years ahead, but its stock seems far less risky over the long run than Celgene's. Right now, that makes it the better buy.
