Here's a biotech quiz for you. Name a big biotech that's been tremendously successful for a long time, pays an attractive dividend, and is in a transition period. You could have answered correctly with either Amgen (AMGN 0.10%) or Gilead Sciences (GILD 1.87%).
Gilead has been the bigger winner so far in 2020. Over the last three years, five years, and 10 years, though, Amgen outperformed Gilead. Which of these big biotech stocks is the better pick for investors now?
The case for Amgen
Let's start with Amgen's headwinds. Sales were flat in the first quarter for the company's top-selling product, anti-inflammatory drug Enbrel. Even worse, sales for Amgen's No. 2 best-seller, neutropenia drug Neulasta, plunged 40% year over year. Sales are also sinking for older drugs Epogen, Neupogen, and Sensipar.
But there's plenty of good news for the biotech too. Amgen's overall revenue continues to rise thanks to primarily to the addition of psoriasis and psoriatic arthritis drug Otezla to its lineup. Celgene sold the drug to Amgen last year to clear the way for regulators to approve its acquisition by Bristol Myers Squibb.
Amgen also claims several rising stars in its lineup. Sales for osteoporosis drugs Evenity and Prolia continue to climb. The company's biosimilars are gaining momentum. So are cholesterol drug Repatha and secondary hyperparathyroidism drug Parsabiv. In addition, a recent legal win for Enbrel patents should keep biosimilar rivals at bay for the blockbuster drug for the rest of the decade.
The biotech's pipeline is chock-full of late-stage programs targeting additional approvals for drugs including Evenity, Otezla, Parsabiv, and Prolia. Amgen also claims promising late-stage programs featuring new candidates such as heart failure treatment omecantiv mecarbil and anti-inflammatory drug tezepelumab.
Amgen has used its strong cash position to fund several key deals that improve its growth prospects. It invested heavily in BeiGene and now owns more than 20% of the Chinese biotech. The company also partnered with Adaptive Biotechnologies to develop experimental antibody therapies to potentially prevent or treat COVID-19.
Investors should also like Amgen's dividend program. The biotech has more than doubled its dividend payout over the last five years. Its dividend yield currently stands at close to 2.5%.
The case for Gilead Sciences
Like Amgen, Gilead Sciences faces some challenges. Sales continue to fall for the company's hepatitis C franchise. Gilead's older HIV drugs, including Truvada and Atripla are also rapidly losing market share. Sales are falling for pulmonary arterial hypertension drug and angina drug Letairis due to generic competition.
However, there are silver linings in some of those dark clouds. Gilead's hep-C franchise appears to be near stabilization. And the biotech's older HIV drugs are primarily losing market share to its own Biktarvy, which appears to be on track to become Gilead's biggest HIV blockbuster so far.
Gilead's acquisitions have made the company a key player in oncology. Sales for cancer cell therapy Yescarts continue to rise. Earlier this year, Gilead acquired cancer-focused biotech Forty Seven and established a 10-year partnership to develop cancer immunotherapies with Arcus Biosciences.
Perhaps the most exciting thing about Gilead is its pipeline. The company hopes to soon win U.S. and European regulatory approvals for filgotinib in treating rheumatoid arthritis. It's also evaluating the drug in late-stage studies targeting other autoimmune diseases. Other late-stage programs include long-acting HIV therapy lenacapavir and primary sclerosing cholangitis drug cilofexor.
Gilead has also been at the center of attention this year because of its COVID-19 drug remdesivir. It's still awaiting FDA approval for the drug, but remdesivir received emergency use authorization in May and won European approval.
The biotech has boosted its dividend payout by 58% since initiating the dividend program in late 2015. Gilead's dividend currently yields around 3.5%.
My view is that Gilead Sciences claims more potentially positive catalysts over the next couple of years than Amgen does. I look for the company to win regulatory approvals for filgotinib. I think that remdesivir will also obtain FDA approval and will become yet another blockbuster for the company. And I suspect that lenacapavir could eventually dethrone Biktarvy as Gilead's best-selling HIV drug.
Gilead claims better near-term growth prospects and a better dividend. And with Gilead's shares trading at around 12 times expected earnings compared to Amgen's forward earnings multiple of 16, it also has a better valuation. My take is that Gilead is clearly the better stock to buy right now.