Better Buy: Gilead Sciences vs. Biogen

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If you're looking for hot biotech stocks, neither Gilead Sciences (NASDAQ: GILD) nor Biogen (NASDAQ: BIIB) is likely to appeal to you right now. Gilead is up by a single-digit percentage so far in 2019, but its performance is far behind that of the S&P 500 index. Shares of Biogen are down close to 20% following the company's major disappointment with experimental Alzheimer's disease drug aducanumab.

There are reasons, though, for investors to consider each of these biotech stocks. Which is the better pick over the long run? Here are the top arguments for Gilead and Biogen.

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The case for Gilead Sciences

Let's first address the elephant in the room. Gilead's hepatitis C virus (HCV) franchise continues to struggle with falling sales. The good news, though, is that the company expects HCV sales to largely stabilize, with much smaller sales declines than in the past.

With its HCV franchise becoming less of a drag on overall revenue, Gilead's HIV successes should shine brighter. Biktarvy is on track to be the biggest HIV drug ever. Although Gilead's older HIV drugs face generic competition now, the strength of its newer Descovy-based HIV drugs should propel solid overall growth for years to come.

Another area of increasing importance to Gilead is oncology. Sales are expected to continue to climb for cell therapy Yescarta, which Gilead picked up with its 2017 acquisition of Kite Pharma. The drug generated $264 million in revenue last year, but analyst project peak annual sales for Yescarta of more than $2.5 billion.

But the most compelling argument for buying Gilead Sciences stock is the biotech's pipeline. The company should extend its dominance in HIV, especially if long-acting therapy GS-6207 is successful. Even though the drug is only in early stage clinical studies, RBC Capital Markets analyst Brian Abrahams thinks it could be a transformative catalyst for Gilead in the future.

Gilead and its partner, Galapagos, have also reported positive results from multiple phase 3 studies for filgotinib in treating rheumatoid arthritis. The drug is also being evaluated in other late-stage studies targeting the treatment of Crohn's disease and ulcerative colitis. Analysts peg peak annual sales for the drug between $4 billion and $6 billion.

Despite announcing disappointing results for selonsertib in treating non-alcoholic steatohepatitis (NASH) patients with compensated cirrhosis (stage F4) earlier this year, Gilead still could see success with its NASH pipeline. The company is also evaluating selonsertib in treating NASH patients with stage F3 bridging fibrosis as well as a combination of the drug with cilofexor (GS-9674) and firsocostat (GS-0976) in treating NASH patients with advanced fibrosis.

Another plus for investors is Gilead's dividend. The company has consistently increased its dividend payout every year since initiating the dividend program in 2015. Gilead's dividend currently yields 3.8%.

The case for Biogen

We've already mentioned the big blow for Biogen's experimental Alzheimer's disease drug aducanumab. There's an argument to be made, though, that Biogen is now a "bad-news buy."

The stock trades at less than eight times expected earnings after its plunge following the announcement of aducanumab's failure in a phase 3 study. But Biogen still has several things going for it.

At the top of the list is Spinraza. Sales for the spinal muscular atrophy drug nearly doubled last year. However, Biogen probably faces a challenge for Spinraza, with Novartis' gene therapy Zogensma expected to launch soon.

The biotech's lineup of biosimilars is also coming on strong. Combined sales of biosimilars Benepali, Flixabi, and Imraldi jumped nearly 44% last year.

There's good news and bad news for Biogen's flagship multiple sclerosis franchise. Sales for Tecfidera and Fampyra edged up slightly in 2018. However, overall sales for the company's MS lineup slipped year over year because of deteriorating performances for Tysabri, Avonex, and Plegridy. It also hurt that Biogen and partner AbbVie withdrew Zinbryta from the market after safety concerns arose.

What about Biogen's pipeline prospects? The company has three late-stage candidates. BIIB093 targets treatment of stroke. BIIB098 is potentially Biogen's next successful MS drug. Elenbecestat is a little iffy, though, considering the past woes for experimental Alzheimer's disease drugs.

Better buy

Had aducanumab proved to be successful in treating Alzheimer's disease, it's possible that Biogen would have gotten the nod in a matchup with Gilead Sciences. But that didn't happen. As a result, Gilead is the clear winner, in my view.

Gilead still faces challenges. However, with its HCV franchise beginning to stabilize, continued momentum in HIV, and some promising pipeline candidates, I still like the stock. The company's strong dividend pays investors to wait for the big biotech to make a comeback.

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