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Better Buy: Amgen Inc. vs. Gilead Sciences, Inc.

By Keith Speights – Sep 2, 2018 at 12:35AM

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Which stock wins in a one-on-one matchup between these two big biotechs?

Amgen (AMGN 0.10%) and Gilead Sciences (GILD 1.87%) rank among the elite in the world of biotech. Both companies have long track records of success. Both generate huge cash flow, but both also face headwinds.

So far in 2018, Amgen claims a better stock performance than Gilead. Which of these big biotech stocks is the better pick for investors now? Here's how Amgen and Gilead stack up against each other.

Gloved hands holding test tubes, and a person holding a phone displaying a large question mark

Image source: Getty Images.

The case for Amgen

It's probably best to first address Amgen's challenges. Sales are slipping for several of the company's top products, including No. 1 seller Enbrel. Amgen's No. 2 best-selling product, Neulasta, is headed for fierce competition from Mylan's biosimilar, which won FDA approval in June

The good news, though, is that all of these drugs continue to generate a lot of money for Amgen. They've helped the company build up a cash position of $29 billion, including cash, cash equivalents, and marketable securities. Although sales from these drugs will decline, they will continue to contribute significantly to Amgen's cash flow.

Amgen also has several drugs that should be able to offset the falling sales for its older products. Prolia and Xgeva, both of which treat bone disorders, are blockbusters that continue to enjoy strong sales growth. Other products in Amgen's lineup, especially multiple myeloma drug Kyprolis and cholesterol drug Repatha, should become bigger winners over time. Newly approved migraine drug Aimovig, which Amgen co-markets with Novartis, is expected to be another blockbuster.

The company's pipeline includes nine late-stage programs. Several of these programs target additional indications for already-approved drugs such as Aranesp and Kyprolis. The most notable new candidate in the mix is asthma drug tezepelumab, which Amgen is developing with AstraZeneca. In addition, Amgen has a solid bench of biosimilars in development. 

Amgen seems likely to use its cash stockpile and strong cash flow to make acquisitions to build up its pipeline even more. In the meantime, the company is using its financial strength to reward investors. Amgen's dividend currently yields 2.69%. The company also repurchased nearly $14 billion of its stock in the first half of 2018.

The case for Gilead Sciences

Gilead Sciences has largely been a victim of its own success. Its hepatitis C virus (HCV) drugs, beginning with Sovaldi, have been so effective at curing patients that Gilead's HCV sales have fallen dramatically over the last two years. It didn't help that the biotech also faced increasing competition along the way.

However, Gilead's HCV sales now appear to be stabilizing. Even with lower sales than in the past, the company should still make close to $4 billion annually from its HCV franchise. 

HIV has historically been Gilead's strong suit. That's still the case, especially with the launch earlier this year of Biktarvy, which Gilead expects will become its most successful HIV drug ever. The biotech's cancer cell therapy, Yescarta, is also quietly gaining momentum and is projected to become a blockbuster in the future.

Gilead's pipeline includes seven late-stage programs. The biotech hopes to jump into the immunology space with its promising JAK inhibitor filgotinib, which Gilead licensed from Galapagos. Gilead also appears to be poised to be a leader in treating nonalcoholic steatohepatitis (NASH) with selonsertib.

Like Amgen, Gilead has amassed a large cash stockpile. As of June 30, 2018, the company's cash, cash equivalents, and marketable securities totaled nearly $32 billion. Also like Amgen, Gilead pays an attractive dividend which currently yields 3.1%.

Better buy

I think that Gilead Sciences is the better pick over Amgen for one primary reason. Amgen's challenges for its top-selling products are just getting cranked up, while Gilead's toughest times now appear to be coming to an end.

There are risks for Gilead. A major pipeline setback would hurt a lot. However, I like the prospects for filgotinib and selonsertib. It's possible that competition for current drugs will be greater than expected. My view, though, is that Biktarvy and Gilead's other Descovy-based HIV drugs will keep building momentum. I also expect the biotech will continue to enjoy steady growth for Yescarta.

At some point, Gilead should also use some of its cash to make an acquisition. I thought the company's purchase of Kite Pharma last year was a smart move. I look for Gilead to pick up additional NASH assets in the not-too-distant future and further cement its position in the potentially lucrative space.

All in all, I see more difficult days ahead for Amgen -- and better days ahead for Gilead Sciences.

Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool recommends Amgen and Mylan. The Motley Fool has a disclosure policy.

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