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The biopharmaceutical sector has exhibited strong momentum in recent years, driven by government initiatives to modernize the drug regulatory pathway and higher investments in research and development. Also, the COVID-19 has proven to be a catalyst for the sector’s growth. Now that biotech innovation is perceived more clearly as critical to worldwide human health, we think top players Gilead Sciences (GILD) and Biogen (BIIB) should see sustained demand for their products to their valuation benefit. But let’s find out which of these stocks is a better buy now.
Gilead Sciences, Inc. (GILD) and Biogen Inc. (BIIB) are two leading biopharmaceutical companies in the United States and internationally. GILD has developed Remdesivir, the only antiviral drug for treating COVID-19, and other drugs, such as Trodelvy and Zydelig, for the treatment of hematology and oncology. BIIB offers TYSABRI and FAMPYRA for multiple sclerosis and BIIB101 and BIIB122 for treating Parkinson’s disease, among other drugs.
The biopharmaceutical industry has been playing a pivotal role in fighting the coronavirus public health crisis. In fact, the global biotechnology market is expected to expand at a 5.8% CAGR from 2021 – 2028. As the need for continued research for new drugs and treatments for existing and future diseases continues to rise, biotech players such as GILD and BIIB should continue thriving. Also, the U.S. government is taking steps to ease the regulatory process and speed up the drug approval timeframe, which should bode well for these companies.
GILD has gained 12.9% year-to-date, while BIIB has returned 12.4% over the same period. In terms of past three month’s performance, BIIB is the clear winner with 4.6% gains versus GILD’s 2% returns. But which of these stocks is a better pick now? Let’s find out.
Last month, GILD announced plans to continue supporting the expansion of local manufacturing facilities to rapidly scale up Remdesivir production in response to a rapid surge in COVID-19 cases in India. The company will also be offering additional licenses outside of India to accelerate production.
In April, GILD’s Trodelvy drug for the treatment of adult patients with locally advanced or metastatic triple-negative breast cancer, received accelerated approval from the U.S. Food and Drug Administration (FDA). Given that this disease has very few treatment options, the approval should benefit the company by helping it meet the needs of patients facing some of the most difficult-to-treat cancers.
Also last month, BIIB announced that its supplemental Biologic License Application for a new subcutaneous administration of TYSABRI (natalizumab) for treating relapsing multiple sclerosis did not receive approval from the FDA. It was, however, approved by the European Commission in March. BIIB plans to pursue regulatory filings for the drug in other countries.
Recent Financial Results
During the first quarter ended March 31, GILD’s total revenue increased 15.8% year-over-year to $6.42 billion, attributable primarily to Veklury (Remdesivir) sales, cell therapy growth with Yescarta, and its U.S. launch of the drug Tecartus. The company’s operating income increased 20.3% year-over-year to $2.89 billion, while its net income rose 11.5% from the year-ago value to $1.73 billion. GILD’s non-GAAP EPS came in at $2.08, representing a 24% increase from the prior-year quarter.
In the first quarter, ended March 31, BIIB’s total revenue decreased 24% year-over-year to $2.69 billion. The company’s income from operations was $973.9 million for this period, compared to $1.82 billion in the first quarter of 2020. Its net income declined 70.7% from its year-ago value to $410.2 million. Also, BIIB’s EPS declined 66.7% year-over-year to $2.69 over this period.
Past and Expected Financial Performance
GILD’s revenue has increased at a 1.2% CAGR over the past three years. In comparison, BIIB’s revenue has grown at a 0.03% CAGR over this period. Also, the CAGR of GILD’s levered free cash flow has been 2.9% over the past three years. In contrast, BIIB’s levered free cash flow declined at an annualized rate of 12.7% over the same period.
Analysts expect GILD’s EPS to rise 55.9% in the current quarter ending June 2021, and at the rate of 3% per annum over the next five years. BIIB’s EPS is estimated to decline 54.8% in the current quarter and increase 10.2% next year.
GILD’s trailing-12-month revenue is more than twice BIIB’s. But BIIB is more profitable, with an 85.5% gross profit margin versus GILD’s 84%.
However, GILD’s 40.8% levered free cash flow margin compares favorably with BIIB’s 19.6%.
In terms of trailing-12-month Price/Sales, BIIB is currently trading at 3.40x, 5.3% higher than GILD, which is currently trading at 3.23x. Also, its 10.91x trailing-12-month EV/EBITDA is 24.8% higher than GILD’s 8.74x.
BIIB is also more expensive in terms of trailing-12-month Price/Cash flow (11.74x versus 8.87x).
So, GILD is more affordable here.
GILD has a B overall rating, which equates to a Buy in our proprietary POWR Ratings system, while BIIB has an overall C rating, which represents a Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
In terms of Growth Grade, GILD has a B, which is consistent with its earnings and revenue growth. In contrast, BIIB has a Growth Grade of D, in sync with analysts’ expectations that its earnings will decline.
Also, in terms of Quality Grade, both GILD and BIIB have a B, given their higher-than-industry gross profit margins.
Both GILD and BIIB have an A grade for Value, in sync with their lower-than-industry P/E ratio.
Of the 492 stocks in the F-rated Biotech industry, GILD is ranked #14, while BIIB is ranked #34.
Beyond what we’ve highlighted, our POWR Ratings system has also rated both GILD and BIIB for Sentiment, Stability and Momentum. Get all GILD ratings here. Also, click here to see the additional POWR Ratings for BIIB.
GILD appears to be a better buy based on the factors discussed here. We believe GILD’s strong product portfolio and growing Remdesivir revenue should help it perform better than BIIB.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Biotech industry.
GILD shares were trading at $66.61 per share on Wednesday morning, up $0.97 (+1.48%). Year-to-date, GILD has gained 15.63%, versus a 11.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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