Bayer Aktiengesellschaft (BAYR.Y -1.70%) and Biogen (BIIB 4.77%) are both massive and multinational healthcare companies, but the case in favor of investing in each company is dramatically different. Whereas Biogen's stock requires a steady drumbeat of new drug approvals and rising revenues from drug sales, Bayer relies heavily on the power of its deeply entrenched healthcare brands and agrochemical business to expand sales in global markets. When deciding which company is a better buy, investors need to pay close attention to each company's core competitive competencies.

In a nutshell, neither of these companies are positioned for rapid growth, largely because they are large and mature, and function in crowded and highly competitive markets. So if one of the two companies isn't able to leverage its core strengths effectively over time, its business might even shrink.

Let's explore each company in detail so that we can discern which is going to deliver the stable growth we'd expect and which might detract from your portfolio.

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Is Bayer a timeless stalwart or an aging giant?

Bayer has been in business since 1863, making it one of the oldest chemical companies in the world. The company's portfolio of products includes common consumer health staples like aspirin and Alka-Seltzer, as well as prescription drugs and controversial agrochemicals, like the weed controller Roundup. It competes in several different industries, giving it a broad revenue base.

For many of its agricultural and consumer health products, Bayer doesn't need to invest in any new research and development to retain its market share, thanks to the strength of its brands. After all, Bayer has been making aspirin for more than 100 years, and it's an undeniably ubiquitous medicine worldwide. Thus, Bayer's long-standing products are a major competitive advantage that will continue to pay off for the long term. 

Bayer's business is far from perfect, however. While its research and development expenses have nearly doubled in the last decade, it hasn't received regulatory approval to sell any new pharmaceutical drugs since late 2018, when it was cleared to market the oncology drug Vitrakvi. But Bayer's pharmaceutical-development pipeline has nine projects in late-stage clinical development, so this may soon change.

Despite its global distribution and brand power, Bayer isn't generating a profit and its quarterly revenue is shrinking by 6.2% year over year, led by faltering pharmaceutical revenues. And while its crop-sciences segment continues to grow at a slower pace, in June, the company agreed to settle a massive class action lawsuit resulting from the negative health impacts of its Roundup herbicide for a sum of around $9.6 billion. Given that the company only has $5.71 billion in cash on hand, it will probably need to dip into its free cash flow to make ends meet, thereby slowing its ability to grow.

Biogen's pipeline pushes forward

As a powerful pharmaceutical company without any aspirations to compete in the agricultural sector or the consumer health industry, Biogen's focus is significantly narrower than Bayer's. Many of Biogen's products and projects aim to treat neurological disorders, like Parkinson's disease and multiple sclerosis. In total, Biogen's drug development pipeline has six projects in the final phase of clinical trials, as well as more than 10 therapies on the market that are generating revenue.

This year, Biogen requested regulatory approval for its newest therapeutic, a biologic called Aducanumab for Alzheimer's disease. Next year, it will submit a different Alzheimer's therapeutic for regulatory approval, and in 2022, it'll do the same, yet again, with another Alzheimer's candidate. These therapies will build opportunities for Biogen to create combinations of its medicines, thereby increasing their efficacy, as well as the lifetime value of each program after they've been approved for sale. 

Unlike Bayer, Biogen doesn't have any ongoing legal issues or problems generating a profit, and its profit margin of 40.91% is quite healthy. Its quarterly revenues are expanding slowly at 1.8% year over year, as are its quarterly earnings, with a rate of 3.2%. Biogen's debts are more than manageable in comparison to its free cash flow and its cash on hand, so it won't need to slow down its operations anytime soon. In short, management and its drug-development efforts are serving the company's shareholders more effectively than Bayer's businesses are.

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Biogen is the obvious choice

Given how these two companies are performing so differently, it's clear that Biogen is the better buy. While Bayer's evergreen healthcare products have delivered revenue for decades, new weakness stemming from the Roundup lawsuits and weakly performing pharmaceutical drug sales show that the company can't continue with business as usual.

In contrast, Biogen's aggressive neurology-development pipeline is proven to be profitable, and the company's leadership shows no sign of stopping the engine of innovation that created its success.