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Better Buy: Biogen vs. Gilead Sciences

By George Budwell - Oct 10, 2019 at 9:22AM

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Which of these two biotech titans is the better buy right now?

Biogen (BIIB 0.63%) and Gilead Sciences (GILD 5.16%) are both biotech royalty. In the not-so-distant past, these two top biotech stocks clobbered the broader markets in terms of their share price performance, and they did so for several years running.

However, Biogen and Gilead have both hit a rough patch over the past few years, causing their shares to lag behind the high-flying biotech industry. Which of these elite biotech companies is in the best position to get back to their winning ways? Let's take a look at how Biogen and Gilead stack up in several key areas to find out.  

A hand wearing a latex glove holding a vial with glowing enlarged strands of DNA.

Image Source: Getty Images.

The case for Biogen

Biogen is a company in search of its next golden goose. The biotech's core multiple sclerosis franchise has clearly plateaued, the spinal muscular atrophy medicine Spinraza is facing a serious competitive threat from Novartis' gene therapy Zolgensma, and its bet on biosimilars could take the better part of the next decade to truly pay dividends. The net result is that Biogen's top line is expected to enter negative territory in 2020. 

Where is Biogen headed? No one knows, quite frankly. Although the biotech did enter the gene therapy field with the acquisition of Nightstar Therapeutics, this transaction isn't expected to yield a big-time commercial-stage product anytime soon. To be fair, Biogen did report a whopping 27 clinical-stage programs in development per its last update, and management made a cogent argument that some of these programs could form a strong growth platform over the next decade.

Wall Street, though, clearly isn't convinced that Biogen can change the narrative around its stock through organic means (pipeline development). The company's stock, after all, has lost over 31% of its value so far this year. The long and short of it is that Biogen needs to go big-game hunting to buy its next flagship medicine -- or at least a handful of modest revenue generators to bide time while its pipeline matures. Unfortunately, management hasn't shown much interest in going down this path. 

The case for Gilead

Gilead is a company in flux. New CEO Daniel O'Day has carved the cell cancer immunotherapy unit Kite Pharma out into a separate business with its own leadership team, deepened its ties with the checkpoint inhibitor specialist Agenus, and drastically upped the biotech's stake in the anti-inflammatory space through a broader partnership with Galapagos NV.

So, as things stand now, Gilead essentially has three core value drivers: Biktarvy as its big-ticket item in HIV, Yescarta as the heart and soul of the Kite Pharma operation, and filgotinib as the headliner in the wide-ranging Galapagos collaboration. This trio of products is slated to deliver modest top-line growth (1.1%) in 2020, according to FactSet's consensus estimate. 

Now, the most exciting aspect about this large-cap biotech is its massive financial capacity. At the end of the last quarter, Gilead had a jaw-dropping $30.2 billion in cash and cash equivalents. How will Gilead's war chest create value for shareholders? O'Day's strategy appears to center around large research and development partnerships, rather than mergers and acquisitions.

This "road less traveled" approach should prove to be a smart move. The vast majority of acquisitions in biopharma, after all, have failed to live up their stately price tags and, more often than not, end up as impairment charges on a quarterly report.  

What this all means is that Gilead is probably going to end up striking numerous partnering deals to boost its footprint in oncology, nonviral liver diseases, and immunomodulation over the next few quarters. This partnering strategy approach spreads out the company's risk across multiple assets, rather than concentrating it in one or perhaps two megadeals. 

Bottom line: Gilead is far from a finished product. So, if you're buying the stock here, you're essentially betting on O'Day's long-term vision for the company. The only drawback is that it's not entirely clear where O'Day plans on taking Gilead.

Verdict

Gilead is unquestionably the better stock to buy right now. Although Gilead's future remains shrouded in mystery, the company has a solid core of new growth products in hand and the financial capacity to take risks on the business development front. Biogen, by contrast, has a lot of holes to fill but only a modest cash position ($3.1 billion) with which to get the job done.   

 

George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Biogen and Gilead Sciences. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
GILD
$66.21 (5.16%) $3.25
Biogen Inc. Stock Quote
Biogen Inc.
BIIB
$222.38 (0.63%) $1.39

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