It's been a terrifying month for biotech stocks across the board. The Nasdaq Biotechnology index has already tumbled 14% in October. That's brought some already attractive biotech stocks down to prices that are hard to ignore.
Shares of Celgene Corporation (CELG +0.00%) and Gilead Sciences Inc. (GILD 2.42%) have tumbled along with their industry despite strong growth for key drugs. Which of these knocked-down biotech stocks is poised to deliver bigger gains in the years ahead? Let's stack them side by side to find out.
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The case for Celgene Corporation
Celgene's lead product, Revlimid, is one of the world's best-selling drugs, and it's still growing, along with the number of newly diagnosed multiple myeloma patients it's approved to treat. In 2018, Revlimid sales are expected to climb $1.5 billion higher than in 2017, to a stunning $9.7 billion.
Revlimid sales will probably keep climbing until generic competition sets in a few years from now. Luckily, Celgene isn't a one-trick pony. Third-quarter sales of the company's psoriasis tablet, Otezla, surged 40% compared to the previous-year period, and the company raised its full-year outlook for the drug to $1.6 billion.
Further ahead, investors could see five new drugs launch by 2020. Celgene's late-stage pipeline includes ozanimod, an oral multiple sclerosis and inflammatory bowel disease candidate expected to generate blockbuster sales.
Altogether, Celgene expects adjusted earnings to rise from $7.44 per share in 2017 to a range between $8.75 and $8.80 per share this year. The biotech stock doesn't offer a dividend, but the company has been able to lower its outstanding share count by 8% in 2018 with $6.0 billion in buybacks.
The case for Gilead Sciences Inc.
While Celgene's lead product is still growing, Gilead Sciences' shareholders have already watched in horror as the company's top franchise went down in flames. Revenue from Gilead's hepatitis C antiviral drugs peaked at $19.1 billion in 2015 and has since plummeted to an annualized run rate of just $3.8 billion.
With the worst problems in the rear view, Gilead will finally be able to report some top-line sales growth in the quarters ahead, driven by sales of its HIV franchise. Earlier this year, Gilead launched Biktarvy, the first and only single-tablet regimen for new HIV patients and for those with experience on other drugs.
Biktarvy is still cannibalizing sales of Gilead's older treatments, but that didn't stop the company from reporting overall HIV sales that rose 12% in the third quarter. Investors can probably look forward to more growth from the HIV segment in the years ahead. Biktarvy sales aren't expected to top out until they reach around $5 billion annually.
In the quarters ahead, Gilead could also launch a new arthritis drug with "future blockbuster" written all over it. Filgotinib is far behind similar oral rheumatoid arthritis treatments but could become a leading option with several billion in annual sales. That's because Gilead and its development partner Galapagos (GLPG 0.28%) recently presented trial results that suggest filgotinib is on par with upadacitinib from AbbVie and Olumiant from Eli Lilly in terms of efficacy. Most importantly, filgotinib scored high marks without any signs of disturbing side effects that have troubled its potential competitors.
Gilead Sciences stock pays a dividend that currently offers an attractive 3.3% yield, and investors can look forward to increased payouts. Over the past year, the company generated a whopping $8.4 billion in free cash flow, just 34% of which was needed to make dividend payments.
The better buy now
Following recent missteps, Celgene shares have been beaten down to just 8.2 times forward earnings estimates. That's awfully low when you consider the average stock in the S&P 500 trades at 16.4 times estimates. While I believe Celgene is attractive at recent prices, Gilead Sciences is trading at the low price of 10.1 times earnings estimates.
Gilead's hepatitis C segment doesn't have much farther to fall, which should make it fairly easy for Biktarvy to move the needle forward at a steady pace. Celgene's putting up impressive sales figures for Revlimid now, but the eventual losses mean we'll probably see more earnings growth from Gilead Sciences over the long run. That makes Gilead the better stock to buy now.
