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Better Buy: GlaxoSmithKline plc vs. Bristol-Myers Squibb

Keith Speights, The Motley Fool

You would have been better off not owning either GlaxoSmithKline plc (NYSE: GSK) or Bristol-Myers Squibb (NYSE: BMY) over the last few years. GlaxoSmithKline's share price fell during the most recent five-year period, while Bristol-Myers Squibb generated gains but not nearly enough to keep up with the S&P 500 index.

But the future won't necessarily repeat the past. Could either of these big pharma stocks be a winner over the next few years? If so, which is the better pick for long-term investors? Here's how GlaxoSmithKline and Bristol-Myers Squibb compare on several key criteria.

Two scientists standing side by side in a lab

Image source: Getty Images.

Current product lineup

On the plus side, GlaxoSmithKline claims several products for which sales are growing robustly. The company's Ellipta and Nucala respiratory drugs are at the top of the list. New shingles vaccine Shingrix is also enjoying a strong launch. In addition, GlaxoSmithKline's Tivicay and Triumeq continue to compete very well in the HIV drug market. 

But GlaxoSmithKline also has plenty of challenges. Sales for a large number of its older drugs are falling. It's the same story for several of the company's top vaccines. A major problem is also on the horizon with the possibility that a generic version of asthma and COPD drug Advair could be entering the market soon.

Bristol-Myers Squibb's brightest current stars are cancer drug Opdivo and anticoagulant Eliquis, which the company co-markets with Pfizer. Market research firm EvaluatePharma projects that the two drugs will rank No. 4 and No. 5, respectively, among the biggest blockbusters in the world by 2024. BMS also has other solid winners in its current lineup, including immunology drug Orencia and chemotherapy Sprycel. 

Of course, Bristol-Myers Squibb faces some problems, too. Sales for its hepatitis B drug Baraclude, HIV drugs Sustiva and Reyataz, and its older hepatitis C drugs continue to decline as newer and more effective rivals gain market share.

Pipeline

GlaxoSmithKline's pipeline has several promising HIV candidates in phase 3 clinical testing, notably including a combination of dolutegravir (Tivicay) and lamivudine (Epivir). The company also hopes to add to its already-strong respiratory lineup, especially with its triple-drug asthma combo of fluticasone furoate, vilanterol, and umeclidinium. Overall, GSK claims eight products in its late-stage pipeline. 

The drugmaker could run into a setback, though. A few weeks ago an FDA advisory committee voted against recommending mepolizumab for approval in treating COPD. While the FDA could still approve the drug anyway, the chances of the agency doing so are pretty low based on historical precedent.

Much of Bristol-Myers Squibb's pipeline activity is centered on combination therapies featuring Opdivo, including combinations with the company's other immunotherapy, Yervoy. BMS is also exploring additional indications for Eliquis, Empliciti, and Orencia in phase 3 studies. 

However, the company doesn't have many new drugs in late-stage development. Bristol-Myers Squibb canceled two phase 3 studies for one of those new drugs, IDO inhibitor BMS-986205, after Incyte reported a late-stage failure for its IDO inhibitor, epacadostat

Dividend

GlaxoSmithKline certainly wins in a competition based on current dividend yield. GSK's dividend yields 5.29% compared to Bristol-Myers Squibb's yield of 2.66%.

However, GlaxoSmithKline can't keep paying dividends at current levels unless something changes. The company's CEO, Emma Walmsley, stated last year that GSK will tie dividends to cash flow generation after 2018. That means that GlaxoSmithKline will only declare a dividend on a quarter-by-quarter basis.  

Valuation

GlaxoSmithKline stock appears to be more attractive based on forward price-to-earnings multiples. Its shares trade at 13.4 times expected earnings, while Bristol-Myers Squibb stock trades at 15.5 times forward earnings.

Better buy

I think the overall nod goes to Bristol-Myers Squibb as the better stock to buy. The company's current lineup is stronger than GlaxoSmithKline's. Neither drugmaker claims a really impressive pipeline, but I like the prospects for Opdivo in combination therapies. Although GlaxoSmithKline enjoys advantages in the dividend and valuation categories, my view is that these advantages aren't enough to overcome the company's negatives.

But while I think Bristol-Myers Squibb is the better pick between these two pharma stocks, I wouldn't go as far as calling BMS a stock to go buy. Too much of the company's fortunes ride on Opdivo and Eliquis. BMS hasn't done a great job in my opinion of diversifying its revenue. I think there are better stocks to buy than either Bristol-Myers Squibb or GlaxoSmithKline.

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Keith Speights owns shares of Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.