Better Buy: Biogen Inc. vs. Gilead Sciences, Inc.

By Markets

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Two of the biggest biotechs around have also been two of the best long-term investments. If you had bought shares of Biogen (NASDAQ: BIIB) five years ago and held on to the stock, your initial amount would have nearly tripled. If you'd taken the same approach with Gilead Sciences (NASDAQ: GILD), your original investment would have more than tripled.

This year hasn't been as great for these stocks, though -- especially for Gilead. Which of these two biotech stocks is the better pick for investors now? Here's how Biogen and Gilead match up in a head-to-head battle.

The case for Biogen

There are three key reasons for investors to like Biogen. First and foremost is the company's solid multiple sclerosis (MS) franchise. Biogen's five MS drugs combined for sales of over $2.2 billion in the second quarter.

Tecfidera stands at the top of the company's MS lineup in terms of revenue generated, followed by Avonex in second place. However, Biogen's greatest growth is coming from Plegridy, which won FDA approval in August 2014.

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The bad news is that Biogen doesn't have a strong pipeline for the MS indication. An FDA decision on Ocrevus is expected later this year. Analysts think the drug could reach peak annual sales of over $3 billion. However,Roche owns commercialization rights for the drug. Biogen still will receive double-digit percentage royalties if Ocrevus wins approval, but that's not as good as having the drug all to itself.

Another MS pipeline candidate might not be what Biogen hoped for. Opicinumab (also known as anti-LINGO-1) failed to meet its primary and secondary endpoints in a phase 2 study. The biotech doesn't appear to be throwing in the towel on the drug yet, however, and is reportedly continuing to analyze the data in an effort to move forward with development.

The second reason to like Biogen is the forthcoming spin-off of its hemophilia business. Sales for Biogen's two hemophilia drugs, Eloctate and Alprolix, are soaring. The company plans to separate into two entities in early 2017. This spin-off will produce a new company to be known asBioverativ that will focus on hemophilia and other blood disorders. Biogen thinks this move will unlock additional value for shareholders.

What about the third reason to buy Biogen? The biotech could have two more blockbuster drugs on the way. Biogen completed a rolling submission of a New Drug Application (NDA) fornusinersen in September. The drug, which targets treatment ofspinal muscular atrophy, could reach peak annual sales of $1.7 billion.

The real wild card, though, is aducanumab. TheAlzheimer's disease drug is currently in a late-stage study. If aducanumab wins regulatory approval, the drug should become one of Biogen's top-selling products -- but that's a big "if" seeing as how the success rate for Alzheimer's Disease drugs is pretty dismal.

The case for Gilead Sciences

It's fair to say that many investors are bearish on Gilead. The biotech's shares are down close to 30% this year. Gilead's blockbuster hepatitis C drug Harvoni has lost much of its luster, with sales experiencing big declines compared to 2015. That's especially problematic, since Harvoni generated nearly half of Gilead's total revenue last year.

Don't think it's all bad news for Gilead, though. The company's HIV franchise is still performing well. Truvada, Stribild, and Complera/Eviplera all posted solid year-over-year revenue increases for the first half of 2016.

Gilead also claims several new drugs on the market that are definite winners. HIV drug Genvoya appears to be well on its way to becoming another blockbuster for the biotech. Two other HIV drugs, Descovey and Odefsey, are off to good starts as well.

And while Harvoni is declining, another hepatitis C drug is ascending. Gilead won FDA approval for Epclusa on June 28. In just three days at the end of the second quarter, this pan-genotypic hepatitis C treatment generated $64 million. It remains to be seen how sales figures will look over an entire quarter, but that's not a bad start at all.

Gilead counts over 30 clinical studies in its pipeline with six of those in phase 3. The company also awaits regulatory approval in the U.S. and Europe for its TAF chronic hepatitis B drug. Gilead has solid potential with several pipeline candidates in mid-stage studies. A couple ofnonalcoholic steatohepatitis (NASH) drugs, simtuzumab and GS-4997, stand out in particular.

Probably the main thing for investors to like about Gilead Sciences right now is its valuation. The stock trades at only six times earnings. That's ridiculously cheap for a company that generated profit of more than $7 billion in the first half of 2016.

Better buy

If you asked me which stock I thought was more likely to go up in the near future, I'd say Biogen. The upcoming spin-off of its hemophilia business could be a positive catalyst for the biotech. Gilead probably won't have any exciting news soon and could have disappointing results for third quarter.

On the other hand, if I had to pick which stock is likely to be the bigger winner over the next 10 years or more, my vote would go to Gilead. My view is that the stock's current price doesn't reflect the full potential for Gilead's pipeline. I also think the biotech will put its$24.6 billionof cash, cash equivalents, and marketable securities to good use creating value for shareholders. If you're a long-term investor, Gilead Sciences appears to be the better buy.

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Keith Speights owns shares of Gilead Sciences. The Motley Fool owns shares of and recommends Biogen and Gilead Sciences. The Motley Fool has the following options: short October 2016 $85 calls on Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.