Investors have had a love/hate relationship with biotech stocks for years, and it’s easy to see why. Between drug trial results and patent expirations, it’s important to stay on top of each company’s prospects. In this piece, I compared two biotech stocks to see which is best.
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Gilead Sciences (NASDAQ:GILD) has soared in the last six months, climbing 49%, while Amgen (NASDAQ:AMGN) has done less well, climbing 15% in the last six months. Both stocks look risky, although for different reasons that make one look fairly valued and the other potentially look undervalued.
Gilead Sciences (GILD)
Gilead Sciences has been riding high on its treatment for COVID-19, which sent its stock through the roof during the pandemic. The shares have come back down to earth, settling at a P/E ratio of around 33.4 times. Between its shortage of patent expirations and high P/E ratio versus that of its peers, Gilead Sciences looks fairly valued, warranting a neutral rating. However, things can change suddenly and rapidly in biotech, so this stock is worth watching for a potential re-rating.
Much of the company’s revenue comes from sales of its HIV drugs, which generated $15.3 billion of its total $27.3 billion in sales in 2021. However, it has been expanding into oncology and other areas. Notably, Gilead recently settled patent feuds with five generic-drug makers over its HIV drug Descovy, delaying competition for the highly-profitable treatment until 2031.
With 83% institutional ownership, Gilead enjoys a strong vote of confidence among the so-called “smart money.” Hedge funds boosted their holdings in the company over the last quarter, although insiders unloaded $1.8 million worth of shares over the last three months. However, it makes sense for insiders to sell following such a large runup in the share price.
What is the Price Target for GILD Stock?
Gilead Sciences has a Moderate Buy consensus rating based on 10 Buy ratings, 10 Hold ratings, and zero Sell ratings over the last three months. At $84.63, the average price target for Gilead Sciences implies downside potential of 1.5%.
Amgen (AMGN)
Unfortunately, Amgen is facing the potential of a massive patent cliff in the coming years, which is why some investors may see its current P/E ratio of around 22 times as fair value. However, the company recently sealed the deal to acquire Horizon Therapeutics (NASDAQ:HZNP), which should offset those lost sales. Thus, a bullish view may be appropriate for Amgen — provided the $28 billion bet on Horizon pays off.
The biggest problem for Amgen is patent expirations. A report from last year noted that patents on nine of its drugs were set to expire between 2021 and 2030, and an analyst from Mizuho Securities recently suggested that 40% of Amgen’s 2022 revenue could disappear by 2030. However, the acquisition of Horizon Therapeutics was a huge win after Sanofi bowed out of the bidding war. If Amgen plays its cards right, Horizon could replace $5 billion to $6 billion of the $10 billion lost on patent expirations, according to Mizuho. Horizon recently boosted its sales estimates for its two lead drugs and offers a portfolio of autoimmune treatments that could pay dividends in the coming years.
Additionally, Amgen’s obesity drug, AMG133, which is currently undergoing early-stage trials, could fill some of the rest of that lost revenue. Amgen announced earlier this month that a Phase I trial found that patients who lost weight using the highest-tested dose of the drug were able to keep it off for 70 days.
However, at 150 days after the last dose, maintained weight loss fell to 11.2% below the original weight at the beginning of the trial. Nonetheless, if all goes well with future tests, AMG133 could launch in 2026 or 2027, just in time to offset some of the remaining patent expirations in 2030.
What is the Price Target for AMGN Stock?
Amgen has a Hold consensus rating based on four Buy ratings, seven Hold ratings, and four Sell ratings over the last three months. At $261.93, the average price target for Amgen implies downside potential of 0.8%.
Conclusion: Neutral on GILD, Bullish on AMGN
In the near term, Gilead Sciences looks fairly valued, while Amgen looks slightly undervalued. However, the biotech industry is notoriously fickle, and all it takes is one positive or negative report on drug trials to generate sizable moves in stock prices. At the end of the day, both companies look like solid dividend plays – Gilead with a yield of 3.4% and Amgen with a yield of 3.2% – so it’s hard to go wrong with either one over the long term.
