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Better Buy: Gilead Sciences, Inc. (GILD) vs. Pfizer (PFE)

Keith Speights, The Motley Fool

Gilead Sciences (NASDAQ: GILD) and Pfizer (NYSE: PFE) face different challenges -- but there is some similarity. Gilead is trying to prove that it can return to growth despite falling sales for its blockbuster hepatitis C virus (HCV) franchise. Pfizer is attempting to move past the weight on revenue resulting from older drugs that have lost patent exclusivity.

Neither stock has performed well over the last three years: Gilead's share price dropped 25%, while Pfizer stock increased by only 4% during the period. But which of these two drug stocks is the better buy now for long-term investors? Here's how Gilead Sciences and Pfizer compare in several key areas. 

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Current products

The bad news for Gilead is that its HCV franchise sales continue to slide. Although sales for newer HCV drugs Epclusa and Vosevi are increasing strongly, it isn't nearly enough to offset declines for Harvoni and Sovaldi. Still, Gilead CEO John Milligan stated earlier this year that "the market dynamics for HCV are stabilizing" and that HCV revenue "should be a more predictable, albeit smaller, piece of [Gilead's] financial story."

Gilead's good news is that its HIV franchise is performing well. The biotech claimed seven blockbuster HIV drugs on the market last year. Sales for Genvoya, Descovey, and Odefsey soared. Even better, Gilead now has new HIV therapy Biktarvy, which is probably the single most important drug for Gilead's immediate future. Analysts project peak annual sales for Biktarvy of close to $6 billion. 

Outside of its antiviral drugs, Gilead has several other products that combined for $2.3 billion in sales last year, with pulmonary arterial hypertension drug Letairis leading the pack. Thanks to its acquisition of Kite Pharma, Gilead also has a promising CAR-T therapy with Yescarta. Although the launch of the drug has been slow due to complexities involved with the process for delivering CAR-T treatment, Yescarta could reach peak annual sales of around $2.7 billion.

It's a good news/bad news story for Pfizer also. Sales for the big pharma company's older products, including Enbrel and Viagra, are slipping. In addition, Pfizer has faced challenges from product shortages and technical issues with its sterile injectables business.

On the other hand, Pfizer's current lineup includes several big winners. Eliquis, an anticoagulant that Pfizer co-markets with Bristol-Myers Squibb, continues to enjoy strong sales momentum. Cancer drug Ibrance and arthritis drug Xeljanz are two of the company's rising stars. Pfizer's acquisitions over the last couple of years have also given the company new growth drivers like prostate cancer drug Xtandi and eczema drug Eucrisa. 

Pfizer isn't just a drugmaker, though. The company's consumer healthcare segment generated nearly $3.5 billion in revenue last year. However, Pfizer is considering a potential sale or spin-off of this business, with a decision expected later this year.

Which company has the better current product lineup? I think Pfizer has the advantage over Gilead. Even though the company faces headwinds, its total revenue is still increasing. That's not the case for Gilead right now.

Pipeline

Gilead's pipeline is primarily focused on four areas: HIV, liver diseases, hematology/oncology, and inflammation. Biktarvvy is such an impressive drug that it should dominate the HIV landscape for years. However, Gilead has early-stage drugs that hold the potential to cure HIV. 

Probably the most critical pipeline candidates for Gilead are its experimental drugs targeting treatment of non-alcoholic steatohepatitis (NASH), a liver disease that is expected to become the leading cause for liver transplants within the next two years. Gilead has three NASH candidates, the most advanced of which is selonsertib.

Gilead's hematology/oncology pipeline consists largely of drugs initially developed by Kite. The Kite acquisition positions Gilead as a leader in CAR-T. Gilead has a promising candidate andecaliximab that's in a late-stage study targeting treatment of gastric cancer. In addition, the biotech has a potential winner with its inflammation drug filgotinib.

As for Pfizer, the big pharma company's pipeline includes 29 late-stage programs and another 18 phase 2 programs. Pfizer's candidates target treatment of a wide array of therapeutic areas, including inflammation and immunology, cancer, cardiovascular and metabolic disease, and rare diseases. Pfizer is also developing biosimilars and vaccines.

Many of Pfizer's clinical programs target new indications for already-approved drugs such as Ibrance and Xeljanz. However, the company has several new drugs that hold great potential, notably including lung cancer drug dacomitinib and prostate cancer drug talazoparib.

Pfizer thinks it can secure approval for up to 15 potential blockbusters over the next five years. That's a huge improvement from the five blockbusters launched between 2011 and 2016.

There's no question that Pfizer's pipeline wins when it comes to sheer quantity and breadth. However, Gilead could have the biggest blockbusters if its NASH drugs are successful.

Dividend

Gilead's dividend currently yields a little over 3%. Pfizer's dividend yield stands at 3.8%. Both companies should be in good shape to keep the dividends flowing.  

Valuation

Gilead Sciences stock trades at close to 11.4 times expected earnings. Pfizer's forward earnings multiple is just under 12. However, Pfizer's earnings should grow over the next few years, while Gilead's growth is questionable because of uncertainties over how soon its HCV sales will stabilize.

Better buy

Pfizer has the better current product lineup, the bigger pipeline, and the higher dividend yield. Its valuation is in the same ballpark as Gilead's. There's a strong case to be made that Pfizer is the better pick over Gilead.

But I actually think that Gilead will outperform Pfizer over the next few years. Why? It comes down to the narrative for each company. Gilead has been seen as the beaten-down biotech with plunging revenue and earnings. If the company notches a few successes -- for example, great late-stage results for selonsertib and filgotinib -- Gilead should mount a strong comeback.

Having said that, I like Gilead and Pfizer enough to own both stocks. Over the long run, I think investors will win with either of these big drugmakers.

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Keith Speights owns shares of Gilead Sciences and Pfizer. The Motley Fool owns shares of and recommends Gilead Sciences. The Motley Fool has the following options: short May 2018 $85 calls on Gilead Sciences. The Motley Fool has a disclosure policy.