I like big biotech stocks, and I cannot lie. (My apologies to Sir Mix-a-Lot and to all the fans of his song "Baby Got Back.")
But I really do like big biotech stocks -- for several reasons. They make tons of money. Some of them even give back some of that money to shareholders as dividends. They're not as risky as small biotechs. And they're interesting. You never know when a big biotech will gobble up a surprising smaller player or what new intriguing new development they'll make.
Gilead Sciences (GILD -1.19%) and Amgen (AMGN -2.01%) rank as two of the best-known big biotech stocks. Amgen has been the clear winner in recent years. But which is the better pick for investors now?
The case for Gilead Sciences
After several miserable years of sagging sales weighed down by its hepatitis C drugs, Gilead looks like it might be getting its groove back. The company has a new CEO, industry veteran Dan O'Day. HIV drug Biktarvy is a smashing success. Gilead picked up a key FDA approval for Descovy for HIV pre-exposure prophylaxis (PrEP).
The biotech also remains a leader in the promising arena of cell therapy. Yescarta is picking up momentum in Europe. Gilead recently filed for FDA approval of its second cell therapy, KTE-X19, which targets the treatment of mantle cell lymphoma.
But perhaps the most exciting story for Gilead right now is its pipeline. The company has already filed for European approval of filgotinib in treating rheumatoid arthritis and expects to complete its U.S. submission by the end of the year. The drug should have blockbuster potential and will expand Gilead's focus to a new therapeutic area.
Gilead is evaluating filgotinib, Yescarta, and KTE-X19 in studies targeting additional indications. It anticipates announcing data from a key phase 2 clinical study targeting nonalcoholic steatohepatitis (NASH) by the end of 2019. The biotech also has a very promising early stage HIV pipeline, with especially great potential for its experimental long-acting HIV therapy GS-6207.
Thanks to the biggest cash stockpile of any biotech, Gilead is in a great position for business development deals. The company significantly expanded its immunology collaboration with Galapagos. It's also on the hunt for other collaborations and possible acquisitions to beef up its pipeline.
Gilead offers one of the more attractive dividends in the healthcare sector. Its dividend yield currently stands at nearly 3.8%. The company has increased its dividend by almost 47% since initiating the program in 2015.
The case for Amgen
Amgen's revenue declined in the third quarter as several of its older drugs faced stiff competition from biosimilars and generics. But don't think the big biotech is a has-been. Amgen claims several blockbusters and near-blockbusters for which sales continue to climb by double-digit percentages, notably including osteoporosis drugs Prolia and Xgeva, cholesterol drug Repatha, and multiple myeloma drug Kyprolis.
The biotech also has some rising stars in its lineup. Migraine drug Aimovig, which Amgen co-markets with Novartis, should become a blockbuster in the not-too-distant future. Osteoporosis drug Evenity has plenty of potential as well.
For Bristol-Myers Squibb's acquisition of Celgene to go through, regulators required that Celgene's psoriasis and psoriatic arthritis drug Otezla be divested. Amgen was quick to scoop up the drug, which gives it another blockbuster with fast-rising sales.
The biotech doesn't have an especially impressive late-stage pipeline, although heart failure drug omecantiv mecarbil and asthma drug tezepelumab could be nice winners if approved. Amgen's big bet on bispecific antibodies targeting cancer, with programs in phase 1 and phase 2 clinical studies, could pay off in a major way down the road, though.
While acquiring Otezla cost Amgen $13.4 billion, tax benefits will bring the total net cost down to around $11.2 billion. Amgen's cash stockpile ranks behind only that of Gilead Sciences. The company has plenty of money to make additional deals. One possibility is that Amgen could acquire Amarin to pick up Vascepa. The drug recently won FDA approval for a label expansion for reducing cardiovascular risk and would be a great fit in Amgen's lineup.
Amgen's dividend yield of close to 2.5% is another key plus for the stock. The company recently boosted its dividend by 10%, its eighth consecutive year of dividend increases. Since starting its dividend program in 2011, Amgen's dividend payout has increased by 420%.
My view is that Gilead Sciences is the better pick right now over Amgen. Gilead should have tailwinds with potential approvals next year for filgotinib and KTE-X19. I'm less optimistic about Gilead's NASH program as the company prepares to announce its phase 2 results. But Gilead certainly has the financial flexibility to buy its way into the NASH market if it chose to do so.
Do I think that Gilead will deliver awe-inspiring earnings growth in the near term? No. However, I expect that it should provide solid total returns, including payouts from its juicy dividend, over the long run.