An unprecedented pandemic did not stop the US stock market from finishing 2020 on a high note. The S&P 500 ended a highly volatile year at an all time high and overall, was up 16.3%. Meanwhile, several stocks in the healthcare sector fetched attractive returns for investors. However, that list did not include Gilead Sciences and Biogen.
Does Wall Street expect these stocks to recover this year? We used TipRanks’ Stock Comparison tool to find out whether analysts see upside potential in Gilead and Biogen and pick the stock offering a better investment opportunity.
Gilead Sciences (GILD)
Gilead Sciences grabbed headlines last year when its antiviral drug remdesivir (sold under the brand name Veklury) was granted emergency use authorization in May by the US FDA (Food and Drug Administration) for the treatment of COVID-19. In October 2020, remdesivir became the first FDA-approved treatment in the US for COVID-19 patients.
The company generated better-than-anticipated results in 3Q mainly due to remdesivir, which generated $873 million in sales and drove a more than 17% rise in overall 3Q revenue to $6.6 billion. Gilead’s 3Q adjusted EPS increased 29% year-over-year to $2.11. (See GILD stock analysis on TipRanks)
However, the company trimmed its 2020 revenue forecast to the range of $23 billion-$23.5 billion, from the previous outlook of $23 billion-$25 billion, and cautioned that remdesivir revenue is subject to significant volatility and uncertainty. Also, its hepatitis C virus (HCV) business continues to be under pressure amid the pandemic.
Gilead has a strong HIV portfolio, including its lead drug, Biktarvy. Sales from HIV products grew 8% to $4.5 billion in 3Q and accounted for 70% of the company’s overall product sales. That said, there are concerns about sales of HIV drug Truvada due to loss of exclusivity.
Meanwhile, the company is strengthening its business through strategic acquisitions in key growth areas like oncology. Last year, Gilead acquired Immunomedics for $21 billion. This acquisition added Trodelvy, an FDA-approved metastatic triple-negative breast cancer treatment, to Gilead’s portfolio. The company also acquired clinical-stage immuno-oncology company Forty Seven for $4.9 billion in 2020.
Most recently, Gilead announced an agreement to acquire German biotech MYR GmbH, which is focused on developing therapeutics for the treatment of chronic hepatitis delta virus.
Investors were disappointed when Gilead announced in December that it will not pursue the FDA’s approval for filgotinib as a treatment for rheumatoid arthritis in the US, following a meeting with the regulator. The company entered into a new agreement with partner Galapagos, under which, the latter will assume sole responsibility in Europe for filgotinib, where 200 mg and 100 mg doses are approved for the treatment of moderate to severe rheumatoid arthritis, and in all future indications.
In reaction to this development, Oppenheimer analyst Hartaj Singh lowered his price target to $100 from $105. However, the analyst reiterated a Buy rating on Gilead as he continues to believe in his thesis of “(1) a dependable remdesivir/other medicines business against SARS-CoV flares, (2) a base business (HIV/oncology/HCV) growing low-single digits over the next couple of years, (3) operating leverage providing greater earnings growth, and (4) a 3-4% dividend yield.”
Currently, the rest of the Street is cautiously optimistic, with a Moderate Buy analyst consensus based on 10 Buys, 12 Holds and 1 Sell. The average price target of $74 suggests an upside potential of 27% from current levels. Shares declined 10.4% in 2020.
2020 was a tough year for Biogen, which specializes in treatments for neurological disorders. The company faced a setback in November when the FDA’s Peripheral and Central Nervous System Drugs Advisory Committee voted against the effectiveness of aducanumab, an investigational antibody for the treatment of Alzheimer’s disease.
The news led to a major sell-off in Biogen shares as investors saw aducanumab as a potential blockbuster drug for the company. The Advisory Committee’s recommendations are non-binding for consideration by the FDA and the company disclosed that the FDA will continue the review process, with a decision on aducanumab’s approval to be made by March 7, 2021. (See BIIB stock analysis on TipRanks)
To add to investors’ worries, Biogen lost a patent dispute with Mylan in June 2020 for its top-selling multiple sclerosis drug, Tecfidera, which exposes it to competition from Mylan’s generic version. Tecfidera’s revenue fell 15% in 3Q to $953 million, reflecting the impact of multiple generic entrants in the US.
Moreover, Biogen’s spinal muscular atrophy drug, Spinraza, is feeling the impact from Roche’s Evrysdi, with sales of the drug declining 10% to $495 million in 3Q. Overall, the company’s 3Q revenue fell 6.2% to $3.4 billion and adjusted EPS declined 3.6% to $8.84. Biogen lowered its full-year revenue outlook to $13.2 billion-$13.4 billion from $13.8 billion-$14.2 billion, assuming “significant erosion of TECFIDERA” in 4Q.
Biogen has been entering into strategic collaborations to gain access to drugs with promising potential. Recently, it announced a $1.5 billion (plus potential milestone payments) deal with Sage Therapeutics to co-develop and sell zuranolone (SAGE-217) for major depressive disorder (MDD), postpartum depression (PPD) and other psychiatric disorders and SAGE-324 for essential tremor and other neurological disorders.
Following the SAGE deal, Oppenheimer analyst Jay Olson reiterated a Buy rating on Biogen with a $300 price target. Olson explained, “Zuranolone is a potential first-in-class oral therapy for the treatment of MDD and PPD currently in multiple Ph3 studies. Given our view that zuranolone is an active drug and the considerable market opportunity in MDD/PPD, we believe the deal provides BIIB some much-needed revenue growth in the mid-term and better positions BIIB regardless of the aducanumab outcome.”
Meanwhile, the Street is sidelined on Biogen with a Hold analyst consensus based on 11 Buys, 13 Holds and 5 Sells. The average price target stands at $293.74, implying a possible upside of 20% in the months ahead. Biogen shares fell 17.5% last year.
After a rocky 2020, the Street’s sentiment looks better for Gilead than Biogen, backed by factors like the company’s HIV portfolio and prospects in oncology. Also, unlike Biogen, Gilead pays dividends and has a dividend yield of 4.67%.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment