Two of the biggest biotechs with exceptional track records now find themselves at a crossroads of sorts. Amgen (AMGN 0.06%) is dealing with falling sales for several key products. Gilead Sciences (GILD -0.36%) has a new CEO whose mission is to turn things around after several years of sinking revenue and earnings.
Amgen has beat Gilead in stock performance over the last 12 months. But which of these two biotech stocks is the better pick for investors now? Here's how Amgen and Gilead compare in several key areas.
The good news for Amgen is that its revenue and earnings continue to grow. The bad news is that the company has some serious issues to address. Sales are falling for four of its top seven best-selling products, including No. 1 Enbrel and No. 2 Neulasta.
Amgen should still be able to generate growth over the next few years. Sales continue to climb for already-approved drugs including Prolia, Kyprolis, Parsabiv, and Aimovig. Amgen also has a solid biosimilar program. Murdo Gordon, Amgen's head of global commercial operations, stated in the company's Q4 conference call that Amgen expects its biosimilars "to contribute significantly to Amgen's growth." However, Amgen's growth over the next five years is likely to be weak.
Gilead Sciences, on the other hand, hasn't been growing its top or bottom lines. But the company thinks that it could return to growth as soon as this year. Gilead's problem has been its hepatitis C virus (HCV) franchise. Now, though, the biotech expects HCV sales to stabilize. At the same time, Gilead's HIV revenue should grow thanks to new drugs like Biktarvy.
The company has experienced some setbacks with its pipeline. Selonsertib failed to meet the primary endpoint in one late-stage study for treating nonalcoholic steatohepatitis (NASH). However, Gilead awaits the results from another pivotal NASH study of the drug. It's also having to wait on safety study results before filing for approval of promising immunology drug filgotinib.
Most biotechs don't pay dividends. Both Amgen and Gilead are exceptions.
Amgen's dividend currently yields 3.2%. The biotech has increased its dividend by nearly 84% over the last five years. Gilead's dividend yield stands at 4.03%. The company has grown its dividend by 47% over the last five years.
Can each company's nice dividends keep flowing? Probably so. Both Amgen and Gilead continue to generate strong cash flows. It seems likely that both companies will retain strong dividend programs and keep the dividend hikes coming.
Amgen stock trades at a little over 12 times expected earnings. Gilead's forward earnings multiple of nine is even more attractive. Gilead also claims a lower enterprise value-to-EBITDA ratio than Amgen does -- 7.5 and 9.4, respectively.
Gilead Sciences beats Amgen when it comes to dividend yield. It also has a more attractive valuation than Amgen does. The big question mark, though, is growth.
Amgen has more potential drivers for growth, for sure. Although Gilead's growth prospects are iffier, the company could see its sales and earnings increase on a year-over-year basis if not this year in 2020.
It also remains to be seen which direction Gilead's new CEO, Daniel O'Day, takes the biotech. Gilead's core focus throughout its entire history has been on antiviral programs. O'Day has an oncology background.
Overall, though, my view is that Gilead Sciences gets the nod ever so slightly. I would be more enthusiastic about Gilead if selonsertib had been successful in its first late-stage NASH study. While that didn't happen, I remain cautiously optimistic about the biotech's long-term prospects.