Should you go with the biotech that's going away or the one that's bouncing back? That's pretty much the question for investors when it comes to deciding between Celgene (CELG +0.00%) and Gilead Sciences (GILD +1.88%).
Celgene is probably only a few months away from being absorbed by Bristol-Myers Squibb (BMY +0.51%). Gilead appears to be making a comeback after several years of revenue and earnings declines. Which stock is now the better pick for investors?
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The case for Celgene
Investors who buy Celgene stock now could get a nice gain when the Bristol-Myers Squibb acquisition closes if BMS stock rises. That's because the buyout deal includes $50 in cash for every Celgene stock owned plus one BMS share.
Although BMS' share price is down a little from where it was when the Celgene acquisition was first announced, the big pharma stock has been on a roll in recent weeks. It's possible that favorable developments on the U.S. political front with respect to drug pricing changes could push BMS even higher, which would be good news for Celgene shareholders.
Shareholders also will receive a contingent value right (CVR) share for each Celgene share they own. This CVR will pay $9 to Celgene shareholders if ozanimod, liso-cel, and bb2121 receive Food and Drug Administration approval by specified dates, the latest of which is March 31, 2021.
The chances of that CVR payout coming appear to be pretty good right now. Celgene expects FDA approval for ozanimod in treating relapsed multiple sclerosis in March 2020. Filings for liso-cel and bb2121 should be on the way soon, in plenty of time to secure FDA approvals by the deadlines.
So far, we've only looked at the relatively short-term prospects for investors with buying Celgene. What about the longer term? BMS should be in a good position to deliver growth once the acquisition closes. The company already has a couple of big winners, Eliquis and Opdivo, that market researcher EvaluatePharma projects will rank in the top five biggest blockbusters in the world over the next few years. BMS also has Orencia and Yervoy in its stable, both of which continue to generate solid sales growth.
But adding Celgene's products and pipeline candidates improves the outlook for BMS. Revlimid remains a huge winner, although the blood cancer drug faces generic competition in a few years. Multiple myeloma drug Pomalyst and cancer drug Abraxane continue to perform well.
Acquiring Celgene really changes the growth dynamics for BMS. Celgene's Revlimid already stands as one of the best-selling drugs in the world, and sales are still climbing. Multiple myeloma drug Pomalyst and cancer drug Abraxane are two other big winners for Celgene right now. Recently approved myelofibrosis drug fedratinib could be another blockbuster for Celgene, as could pipeline candidates ozanimod, liso-cel, bb2121, and luspatercept.
Don't forget that Celgene investors who hold onto their BMS shares after the deal finalizes will also receive a nice dividend. BMS' dividend yield currently stands at 3.3%.
The case for Gilead Sciences
You'd have to put its market-leading HIV franchise at the top of the list of reasons to buy Gilead Sciences stock. Biktarvy is absolutely crushing it after winning FDA approval last year. The HIV drug is on track to top $4 billion in sales this year and could hit peak annual revenue of at least $6 billion.
Gilead has more room to run in HIV as well. New CEO Dan O'Day noted in his comments at the Morgan Stanley Global Healthcare Conference this week that the company only has penetrated 20% of the pre-exposure prophylaxis (PrEP) market. Gilead is also developing a long-acting HIV treatment and is researching potential ways to cure the disease.
HIV isn't the only area where Gilead holds a leadership position. The big biotech quickly became the top player in the cancer cell therapy arena after its 2017 acquisition of Kite Pharma. Cell therapy Yescarta continues to pick up momentum. Look for Gilead to potentially achieve more growth as it targets additional indications for Yescarta and other experimental cell therapies.
Gilead's hepatitis C virus (HCV) drugs are almost an afterthought these days after sales tanked in recent years. However, the company continues to generate significant cash flow from its HCV franchise. With HCV sales now stabilizing, it sets the stage for Gilead's other products to help the company return to stronger growth.
One critical source for Gilead's growth is its rheumatoid arthritis drug filgotinib. The company plans to soon file for U.S. approval of the drug and has already submitted for approval in Europe. Filgotinib could open up a new blockbuster therapeutic category for Gilead.
There are some question marks about Gilead's potential in the potentially lucrative nonalcoholic steatohepatitis (NASH) market after its lead NASH candidate, selonsertib, failed in late-stage clinical studies. However, the biotech is evaluating combination therapies targeting NASH in additional studies and could accelerate its efforts if those studies are successful. Gilead could still become a leader in the NASH market.
If you like the dividend yield offered by Bristol-Myers Squibb, you should love Gilead's dividend. The big biotech's dividend currently yields 3.7%. Gilead has increased its dividend payout by nearly 47% since initiating a dividend program in 2015.
Better buy
I like both Celgene and Gilead Sciences and own both stocks. If I could only pick one of them, though, it would be Celgene.
Investing in biotech stocks is risky, though. Regulatory setbacks and clinical failures are a constant threat. It's possible that Celgene's pipeline won't deliver the growth that BMS hopes it will. But I'm cautiously optimistic.
My prediction is that Celgene shareholders will get the CVR payout linked to FDA approvals for ozanimod, liso-cel, and bb2121. I also think that BMS will experience a nice boost to its growth from the Celgene acquisition. Gilead's comeback should continue, in my view, but Celgene is more likely to provide bigger gains.
