Gilead Sciences vs Pfizer Stock: Which Is Best?

Gilead Sciences vs Pfizer Stock: Big pharma is big business. Prescription drug sales are expected to hit $500 billion in 2019 and move to $600 billion by 2023.

Companies in this sector are finding new ways to treat diseases and conditions every day. That’s good news for patients as well as investors. When one comes up with a truly novel prescription drug, the payoff can be significant. However, you need to make sure you understand what you are getting into before investing in a drug manufacturer.

Pros & Cons of Investing in Drug Manufacturers

Pharmaceuticals is really a game of cat and mouse.

The companies in this space spend millions of dollars developing cures and treatments – and they are lucky if they find something that works.

Most of the drugs they test fail. The ones that succeed may have too many side effects or produce results that are not statistically significant. The reality is that less than 14% of all drugs in development ever get approval from the FDA and some types of drugs get approval even less often. For instance, the approval rate for cancer drugs is just 3.4%.

When a drug fails, the pharmaceutical company may be able to try that formula for another condition or tweak it in some way. If not (and often it goes this way), that drug manufacturer has to eat the costs. Sometimes, these expenses are significant. After all, a prescription drug can fail at any point in the approval process, including the last step.

When pharmaceutical companies find a drug that works significantly better than a placebo and has minimal side effects, it may receive approval. However, then the drug has to be marketed effectively, priced competitively to other products, manufactured at a reasonable cost, accepted by insurance companies, and well-received. On top of that, the drug maker only has the patent on the drug for a limited time.

If it sounds like an uphill battle for pharma companies to be profitable, it really is. The payoff can be huge, but drug manufacturer stocks can take a real hit when a drug fails.

Before you invest in a pharma stock, make sure that you understand what it is about a particular company that could help it be successful or choose a different investment.

Is Gilead Sciences Stock a Buy?

Gilead Science (GILD) is a research-based drug manufacturer that focuses on hematology/oncology, HIV/AIDS, inflammation/respiratory, and liver diseases.

It has over two dozen principal products, including Biktarvy for HIV, Vosevi® for liver disease, Yescarta for people with large B-cell lymphoma, and Letairis® for pulmonary arterial hypertension (PAH).

Gilead [NASDAQ: GILD] has a far reach. Beyond its large portfolio of pharmaceuticals, it has operations in 36 countries. Most of the drug manufacturer’s revenue comes from wholesale distribution.

Gilead has three big wholesale customers – AmerisourceBergen, Cardinal Health, and McKesson Corporation. Each one contributes 10% or more of Gilead’s total revenue and together they make up 85% of annual sales in the US (62% worldwide).

Would-be investors in Gilead [NASDAQ: GILD] should know that some of the company’s biggest patents are going to be expiring in the next five years, including Letairis, Ranexa, Atripla, Truvada, Descovy, and Zydelig. However, the company also has several drugs in the pipeline.

As of the end of 2018, Gilead [NASDAQ: GILD] had 119 active studies. Over 40 of them were in the third phase of their clinical trials. The company was also involved in 26 collaborations or partnerships.

Should You Invest in Pfizer Stock?

Pfizer, Inc (PFE) manufactures prescription drugs as well as vaccines – and it has been going through some changes. Pfizer also changed its basic structure at the end of 2018.

Previously, the company had operated in two segments:

• Pfizer Essential Health (EH) and
• Pfizer Innovative Health (IH).

As of 2019, the company shifted into three segments. The first is the Pfizer Biopharmaceuticals Group. This section includes Pfizer’s IH functions except OTC medicines and new additions, like the drug maker’s Hospital business unit, its oncology products and its inflammation/immunology offerings.

The second section is called Upjohn. This segment is based in China. It includes Pfizer’s off-patent products as well as its generic medicines.

The final segment in Pfizer’s new operations is a joint venture with GSK.

In December 2018, the company announce that it would enter into an agreement with GlaxoSmithKline in which Pfizer gets a 32% equity stake in the venture while GSK will own the remaining 68%. It will operate under the GSK Consumer Healthcare umbrella and focus on over-the-counter (OTC) drugs.

Combined sales are expected to top $12.7 billion. The joint venture officially closed August 1, 2019, making it the market leader (or runner up) in every key geography, including the US.

After three years, GSK will uncouple the joint venture form the GSK Consumer Healthcare umbrella and list the business on an equity market in the UK.

The GSK joint venture comes after Pfizer [NYSE: PFE] sold its global infusion assets to ICU Medical in February 2017 and its acquisition of small molecule anti-infectives from AstraZeneca in December 2016.

In 2016, Pfizer also bought the biopharmaceutical company Medivation which focuses on oncology and Anacor, another biopharmaceutical company. The latter focuses on boron-based small-molecule therapeutics.

Pfizer [NYSE: PFE] is clearly very strategic. The new organization of its operations combined with its acquisitions and joint venture should allow the drug maker to exploit certain synergies and develop its business further.

Gilead Sciences vs Pfizer Stock: The Bottom Line

Investing in drug makers is a complicated business. While they invariably deal in a portfolio of drugs – hedging their bets in the hope of developing something worth selling – it can be a high-stakes proposition and it depends on when you buy in.

Generally speaking, these stocks will follow investor sentiment around the drugs they develop, seeing a price increase when a phase of the clinical trial is successful, whether or not the company is actually able to make money from the drug at that point.

Because of this, most investors are best suited by investing in a strategic drug maker as a long-term investment or playing the market inefficiencies that happen on clinical trial news. Do your research and stay well-informed if you opt to add a drug maker stock to your investment portfolio.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.