By most standards, Gilead Sciences (GILD -0.36%) has performed well on the stock market recently. Year to date, shares of the company are up by 19%. However, this performance pales in comparison to that of Novavax (NVAX -1.80%), whose stock is up by more than 3,400% since the beginning of the year.
Both of these companies have been heavily involved in the fight against COVID-19. Gilead Sciences has been testing its antiviral drug remdesivir as a treatment for COVID-19, while Novavax is developing NVX-CoV2373, a potential vaccine for the disease. With that as an overview, let's dig a little deeper into both companies' businesses and figure out which of the two is the better stock pick right now.
The case for Gilead Sciences
Gilead Sciences' remdesivir is arguably the most promising potential COVID-19 treatment. The company recently released a comparative analysis of its phase 3 clinical trial for remdesivir, claiming that the antiviral drug "was associated with an improvement in clinical recovery and a 62% reduction in the risk of mortality compared with standard of care." Although investors should take these results with a grain of salt, Gilead Sciences remains one step ahead of most other companies that are looking to develop treatments for the novel coronavirus. After all, the U.S. Food and Drug Administration (FDA) granted emergency use authorization for the antiviral drug back in May.
Beyond its COVID-19-related work, there are great reasons to buy shares of Gilead Sciences. In particular, the company remains a leader in the HIV treatment space. Gilead Sciences' HIV drugs (and HIV PrEP drugs) hold a solid share of this market, both in the U.S. and abroad. For instance, the company's Biktarvy is the top-prescribed HIV treatment in the U.S., while 38% of patients taking HIV PrEP drugs are on Descovy, which Gilead Sciences also markets.
Further, the company boasts a rich pipeline, including more than half a dozen products in late-stage testing. One of its most promising candidates is filgotinib, a potential treatment for rheumatoid arthritis the company submitted to the FDA for review in December 2019.
Gilead Sciences is also developing filgotinib as a treatment for Crohn's disease, psoriatic arthritis, and ulcerative colitis. The company currently offers a dividend yield of 3.3% and a cash payout ratio of 39.7%, and it has raised its dividends by about 58% over the past five years. All these factors make Gilead Sciences a buy.
The case for Novavax
On top of its massive year-to-date gains, Novavax has several major catalysts on the way that could send its stock even higher. The company is currently running a phase 1/2 clinical trial for NVX-CoV2373. The first phase of the trial, which Novavax is running in Australia, enrolled 130 healthy participants to test the vaccine's safety and immunogenicity. The company expects to release some data from this study before the end of the month. Positive results could send the company's stock to brand-new highs. The phase 2 part of the trial will be conducted in several countries and will test NVX-CoV2373's safety, immunity, and disease reduction in a broader age range of participants.
Once Novavax announces the initiation of this study (pending positive results from phase 1), its stock price could move even higher. Another potential catalyst is the company's NanoFlu, a potential flu vaccine for those aged 65 and older. This vaccine proved safe and effective in a phase 3 clinical trial, the results of which Novavax reported back in March. The company plans to submit a biologics license application under the FDA's accelerated approval pathway soon.
Note that the health industry regulator granted the fast-track designation to NanoFlu back in January. NanoFlu could go on to be a big winner on the market, and so could NVX-CoV2373. With these opportunities lurking, the company's stock may not be done climbing just yet.
Thanks to its robust lineup of products and its rich pipeline, Gilead Sciences generates healthy revenue and earnings year after year. During the first quarter, the company reported revenue of $5.5 billion, representing a 5.1% year-over-year increase. Although the company's GAAP net income decreased by about 21.5% to $1.6 billion, its adjusted (non-GAAP) net income of $2.1 billion fared better and remained flat year over year. The company had $24.3 billion in cash and cash equivalents as of March 31. For Gilead Sciences, remdesivir is just the icing on the cake, as the company possesses many other growth opportunities.
By contrast, Novavax's future is riding heavily on its two most promising programs, NanoFlu and NVX-CoV2373. If either (especially the latter) falls flat, it could be catastrophic for the company and its shareholders. Novavax generated $3.4 million in revenue during the first quarter of 2020, a net loss of $26 million, and it had cash and cash equivalents of $245 million as of March 31. In short, Novavax is significantly more risky than Gilead Sciences, and risk-averse investors will prefer the latter. For those comfortable with the risk, though, Novavax is worth serious consideration.