Biotech titans Biogen (BIIB -1.35%) and Amgen (AMGN -0.55%) have both been outstanding growth vehicles for investors over the prior two decades. However, these two biotech stalwarts have each hit a serious rough patch in 2019, resulting in their shares lagging well-behind the broader industry this year.
Biogen, for its part, saw its shares tank after its high-profile Alzheimer's disease drug candidate, aducanumab, flopped in two pivotal trials earlier this year. Amgen, on the other hand, has yet to convince investors that its strategy of aggressively buying back shares and plowing cash into an already-rich dividend program is wise in light of the biotech's falling sales for a host of older medications.
Which of these elite biotechs has the best chance of turning the ship around? Here's a look at the strengths and weaknesses of each company.
The case for Biogen
Biogen's value proposition is a bit of a black box. The company's core multiple sclerosis (MS) franchise has flat-lined over the last 12 months. Its top-selling MS drug, Tecfidera, could lose exclusivity within a few short years. And the biotech's main growth driver in the past year -- spinal muscular atrophy medicine Spinraza, which was co-developed with Ionis Pharmaceuticals -- is facing a serious competitive threat from Novartis' newly approved gene therapy Zolgensma.
In short, Biogen badly needed aducanumab to pan out to change the narrative around its anemic growth profile. That didn't happen, and now the company is stuck between a rock and hard place. Biogen's management has attempted to assuage investors' concerns by pointing to the probable approval of its next MS medicine, Vumerity -- developed in conjunction with Alkermes -- later this year, as well as the promise of its earlier-stage pipeline for inherited diseases of the eye, neuroscience, pain management, and cardiovascular disease.
Still, the company lacks a product candidate capable of altering the downward trajectory of its top line in the near term, and that's the core reason investors have steadily marched out of this stock in 2019. Underscoring this point, Biogen's recent acquisition of Nightstar Therapeutics could give it a solid base from which to build a formidable eye disease franchise in the coming decade. But this science project also won't produce a commercial-stage product anytime soon. That's a common theme across the biotech's clinical pipeline at the moment.
Wall Street is also rather skeptical about Vumerity's commercial opportunity, given that the drug is basically a more user-friendly version of Tecfidera. Sell-side analysts, after all, have the drug generating a mere $239 million by 2024. Vumerity, in turn, may not be the answer to Biogen's problems in the rapidly evolving and highly competitive MS space.
What's the take-home point? Biogen arguably needs to acquire a few bolt-on acquisitions to shore up its long-term outlook. Management, though, doesn't seem to be particularly keen on going this route -- at least not yet.
The case for Amgen
There are three clear reasons to be optimistic about Amgen's future. First off, the company's top-notch clinical pipeline and business development efforts have produced a strong portfolio of new growth products. Drugs like multiple myeloma medicine Kyprolis, migraine treatment Aimovig, and cholesterol-lowering drug Repatha all posted strong sales growth in the most recent quarter. Not many companies have such a well-rounded portfolio of newer growth products to lean on.
Secondly, Amgen is also set to be a top producer of high-quality biosimilars in the years ahead. The biotech already has a few major biosimilars on the market in Europe, and this list is only set to grow from here. Amgen thus has an inside track to capturing a significant portion of this high-dollar -- albeit woefully underdeveloped -- market.
Thirdly, Amgen's underlying business, balance sheet, and shareholder rewards program remain in tip-top shape, despite its weakening top line. In the first quarter of 2019, for instance, the biotech generated $1.7 billion in free cash flow, exited with $26.3 billion in cash and cash equivalents, bought back a whopping $3 billion worth of shares, and doled out $900 million in dividends to shareholders during the three-month period.
Amgen does have a dark side, though. The biotech's former all-stars Aranesp, Enbrel, Epogen, Neulasta, and Sensipar are all facing a slew of new competitive threats. As a result, Amgen's top line is forecast to fall by 4.9% this year and essentially flat-line in 2020. That's not the end of the world, but Amgen certainly isn't a compelling growth story at this stage.
Looking ahead, Amgen is betting heavily on its bi-specific T-cell engager (BiTE) therapy oncology platform to move beyond these legacy portfolio headwinds. Unfortunately, this novel oncology platform could take several years to deliver a commercial-stage drug. Amgen, therefore, may have to turn to M&A to tack on some additional growth drivers as well.
Which stock is the better buy?
Amgen is easily the better biotech stock to buy in this comparison. While Amgen's top line is moving in the wrong direction right now, the company has an overall better product portfolio from a revenue-generation standpoint, the financial flexibility to pursue value-creating deals, and an above-average dividend yield of 3.23% to boot. Biogen, by contrast, seems content to let its clinical pipeline drive the narrative around its shares -- a strategy that has proven to be detrimental to shareholders.