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Better Buy: Celgene vs. Gilead Sciences

If there was a "Bad News Bears" team of biotechs, Celgene (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD) would probably be the star players. Both Celgene and Gilead have experienced more than their fair share of bad news over the last couple of years.

Celgene is clearly the hotter stock right now thanks to Bristol-Myers Squibb stepping in with a proposal to acquire the company. But which biotech stock is the better choice for investors? Here's how Celgene and Gilead compare on several key criteria.

Image source: Getty Images.

Current products

Celgene's lineup is led by its enormously successful blood cancer drug, Revlimid. The company also has three other blockbuster drugs -- Pomalyst, Otezla, and Abraxane -- plus a handful of drugs with lower sales.

The good news for Celgene is that its top drugs continue to generate solid sales growth, driving the biotech's overall revenue nearly 18% higher last year. The bad news is that Celgene relies heavily on Revlimid, and the drug faces a patent challenge. Even if Celgene reaches a settlement or wins in court, Revlimid will have a limited-volume generic rival beginning in 2022 and full-blown competition in 2026.

Gilead Sciences claims two huge franchises. The company dominates the HIV market with six blockbuster drugs led by Biktarvy, Genvoya, and Truvada. Gilead's other major franchise in hepatitis C includes two blockbuster drugs, Epclusa and Harvoni. The big biotech also has several other products in its lineup, most notably including cancer cell therapy Yescarta.

HIV continues to be Gilead's strong point. Biktarvy has enjoyed the best launch of an HIV drug in history. However, the biotech's older HIV drugs now face generic competition in Europe. Gilead's biggest challenge, though, is declining sales for its hepatitis C drugs. So many patients have been cured that there aren't as many new patients remaining to be treated. Gilead also now faces stronger competition in hepatitis C with AbbVie's drug Mavyret.

Pipeline

Celgene arguably has one of the strongest pipelines in the industry. The biotech's pipeline features five drugs that could launch within the next two years and that realistically have blockbuster potential. Celgene has already filed for approval for one of those drugs, fedratinib, in treating myelofibrosis. It plans to submit ozanimod for approval as a treatment for multiple sclerosis soon. Filings for bb2121, liso-cel, and luspatercept shouldn't be too far off if all goes well in clinical testing.

Of course, the problem is that there's no guarantee that all will go well in clinical studies. Celgene's Crohn's disease drug GED-0301 flopped in a late-stage study in 2017.

Gilead's late-stage pipeline doesn't look quite as promising. The company is evaluating HIV drug Descovy as a pre-exposure prophylaxis (PrEP) therapy and is pursuing an additional indication for Yescarta.

However, Gilead recently announced disappointing phase 3 results for its experimental nonalcoholic steatohepatitis (NASH) drug selonsertib. The biotech has a promising immunology drug, filgotinib, in late-stage testing. But Gilead won't be able to file for approval of filgotinib until data from a safety study is available. That safety study isn't scheduled to wrap up until early 2021.

Valuation

Both of these biotech stocks have really low forward earnings multiples. Celgene trades at a little over 7 times expected earnings, while Gilead trades at less than 10 times expected earnings.

Celgene's earnings growth prospects look significantly better than Gilead's, though. This makes its valuation more attractive overall.

Other factors to consider

There are a few other factors that investors should consider when choosing between these two stocks. For Celgene, the potential acquisition by Bristol-Myers Squibb looms large. The big drugmaker's offer price represents a premium of 13% over Celgene's current share price. Shareholders also receive a contingent value right (CVR) that could provide an even greater return if key pipeline drugs win FDA approval by specified dates.

Gilead's dividend is a nice plus for investors who buy the stock. The dividend currently yields more than 3.7% -- and Gilead has steadily increased its payout since initiating the dividend program in 2015. Gilead also has a huge cash stockpile of $31.5 billion, including cash, cash equivalents, and marketable securities. The company definitely has the ability to make acquisitions that could fuel future growth.

Better buy?

If we chose a winner in each of the individual categories discussed, I think most would agree that Celgene gets the prize in current products, pipeline, and valuation. The only areas in which Gilead has an advantage are its dividend and cash position.

I'm not a big fan of the Bristol-Myers Squibb acquisition, but the deal is likely to go through. Assuming it does, anyone who buys Celgene now will be assured of a quick double-digit-percentage profit. In my view, the decision between Celgene and Gilead is pretty easy: Celgene is the better buy.

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Keith Speights owns shares of AbbVie, Celgene, and Gilead Sciences. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool has a disclosure policy.

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