Biotech stocks have been outstanding growth vehicles for investors over the better part of the last decade. Top dogs like Celgene Corp. (NASDAQ: CELG) and Gilead Sciences (NASDAQ: GILD), for instance, have produced total returns on capital of 225% and 275%, respectively, since Jan. 1, 2010.
In more recent times, however, these two giants of the industry have run into troubles in both the clinic and from new competitors entering the marketplace. Given this recent turmoil, let's consider which biotech is better equipped to push past these headwinds to create value for shareholders moving forward.
Celgene: The future is unclear
Celgene's core issue is that its flagship multiple myeloma drug Revlimid still makes up a disproportionate amount of its annual revenue. In 2017, Revlimid accounted for a heaping 63% of Celgene's top line.
While this blood cancer drug remains strong from a growth standpoint, it will start facing generic competition by the end of 2022. As such, Celgene desperately needs to rebalance its product portfolio and arguably bring its next flagship product online sooner rather than later.
Compounding matters, Celgene lately has had significant setbacks in both the clinic and on the regulatory front. Not long ago, the biotech reported that its Crohn's disease drug GED-0301 flopped in a late-stage study, potentially wiping billions in sales off the table.
If that wasn't enough, Celgene also received a Refusal to File letter from the Food and Drug Administration (FDA) for ozanimod's New Drug Application to treat relapsing multiple sclerosis. This unexpected turn of events opened the door for rivals to further solidify their positions in this key market.
Celgene does have one of the top clinical pipelines in the business through its recent acquisitions of Impact Biomedicines and Juno Therapeutics, along with its external licensing deals with Acceleron Pharma, bluebird bio., Jounce Therapeutics, among many others.
The main downside here is that Celgene arguably grossly overpaid for Juno Therapeutics -- especially since the biotech has had serious problems in the clinic that have prevented it from catching up to the leaders in the chimeric antigen receptor T cell space.
Gilead: A mixed bag
In large part, Gilead's woes stem from the fact that the company's declining hepatitis C revenues have yet to stabilize. As a result, Wall Street analysts, and even Gilead itself, have generated a wide range of revenue forecasts for the company for this year and next. On the more dire end of this range, for instance, Gilead thinks that its top line could fall by more than 23% this year relative to 2017.
To offset these declines in hep C, Gilead is banking primarily on its new HIV combination drug, Biktarvy. The current consensus among analysts has Biktarvy generating a healthy $3.7 billion in projected sales in 2022 and nearly $900 million for its first full year on the market.
That being said, Biktarvy is set to see some tough competition from GlaxoSmithKline's (NYSE: GSK) two-drug combo therapy called Juluca. Glaxo also recently filed a patent-infringement lawsuit against Gilead over Biktarvy's approval last month and initiated new clinical trials for a novel combo consisting of Tivicay and Epivir that's expected to generate a direct competitor to Biktarvy in the not-so-distant future.
There's no telling how well Biktarvy will ultimately perform, or even how long its growth trajectory will last before competitors start to eat away at sales. The Street seems optimistic that Glaxo will come out the loser in this battle, but no one will know for sure until the sales figures start rolling in later this year.
Looking ahead to the period between 2020 to 2022, Gilead has three additional value drivers in development that could radically change its longer-term outlook. First up, Gilead has built a top-notch oncology pipeline that includes both traditional small molecule drugs and cell-based therapies for a range of high-value malignancies.
Secondly, the biotech sports three drugs in development targeting the $6 billion non-alcoholic steatohepatitis market. And finally, Gilead's anti-inflammatory collaboration with Galapagos NV for the JAK1 inhibitor filgotinib could also produce another blockbuster-level product within the next two-to-three years.
Which biotech is the better buy?
When it comes to biotech stocks, the market only cares about top-line growth. In that sense, Celgene definitely has Gilead beat. Celgene, after all, is forecast to generate top-line growth in excess of at least 13% for the next two years. Gilead, on the other hand, may be a few years away from even returning to growth, thanks to the anemic rollout of its immuno-oncology therapy Yescarta. So Celgene is arguably the better stock to own right now.
Longer term, however, Gilead may have an advantage due to its broader clinical pipeline. Celgene's laser-like focus on hematology and anti-inflammatory disorders could very well produce some significant overlap among its slew of product candidates. Gilead, by contrast, is aiming to build four major franchises that are well-differentiated from each other -- infectious diseases, anti-inflammatory disorders, non-hep C liver diseases, and oncology.
All things considered, Gilead is the winner in this head-to-head matchup, because the biotech is taking a far more diverse approach to clinical development than Celgene. In short, Gilead seems to have learned a hard lesson from its over-reliance on its hep C franchise to drive growth, and that painful lesson is currently being applied to its clinical endeavors.
10 stocks we like better than Gilead SciencesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Gilead Sciences wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of March 5, 2018
George Budwell has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bluebird Bio, Celgene, and Gilead Sciences. The Motley Fool has the following options: short May 2018 $85 calls on Gilead Sciences. The Motley Fool has a disclosure policy.