Based on recent history, Celgene Corporation (CELG) and Merck & Co. (MRK -0.05%) stocks don't even belong in the same league. Celgene stock is up more than 270% over the past five years, while Merck stock has increased in price less than 50%.
But the past is the past. And Merck now has one of the hottest cancer drugs around with Keytruda. Could the big pharma stock actually be the better pick for investors over the long run, or will Celgene continue its winning ways? Here's how Celgene and Merck compare.
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The case for Celgene
Two numbers pretty much sum up the argument for buying Celgene stock: 25% and 22%. The first number, 25%, represents Celgene's annual earnings growth over the past five years. That growth was driven primarily by blood cancer drug Revlimid. The second number, 22%, is the level of annual earnings growth over the next few years that both Celgene and Wall Street project. If Celgene hits this number (or even comes close), it's a foregone conclusion that the stock will continue to perform very well in the future.
The obvious question, though, is: Can Celgene really achieve that kind of growth? I think so. Revlimid's momentum continues. It's projected to be the top-selling cancer drug in the world by 2022, with sales of more than $14 billion -- double the current level. Sales for Celgene's other blockbuster blood cancer drug, Pomalyst, are growing even faster than Revlimid's.
Celgene seems likely to extend its dominance in the blood cancer arena with several promising pipeline candidates. Luspatercept could be the biggest winner of all. The drug is being evaluated in late-stage studies for treating beta-thalassemia and myelodysplastic syndromes (MDS) as well as a phase 2 study targeting myelofibrosis.
The big biotech is also rapidly becoming a major player in the immunology world. Otezla is Celgene's first autoimmune disease drug. It could be joined in the near future by other potential blockbusters, particularly ozanimod and mongersen (GED-0301). Ozanimod seems likely to also give Celgene a foothold in the neurology market: Its first regulatory approval could be in treating multiple sclerosis.
Some stocks with such tremendous growth prospects are valued at stratospheric levels. That isn't the case with Celgene. The biotech stock trades at only 16 times expected earnings. With a strong likelihood of annual earnings growth above 20%, Celgene could legitimately be viewed as a bargain.
The case for Merck
The biggest reason for investors to consider Merck centers on Keytruda. First approved in 2014 for treating advanced melanoma, Keytruda has gone on to obtain approvals for eight other indications, including the biggie -- non-small cell lung cancer.
Merck hopes to have more wins for Keytruda in the future. The company is evaluating the powerful immuno-oncology drug in late-stage studies for treating several other types of cancer, including breast cancer, colorectal cancer, renal cancer, and small cell lung cancer.
Keytruda isn't Merck's top-selling drug just yet, however. That distinction belongs to blockbuster diabetes drug Januvia. Merck appears to be in good position to continue its success in the diabetes market with regulatory decisions expected in the coming months for ertugliflozin as a stand-alone treatment for diabetes and in combination with Januvia and with metformin.
The big drugmaker has also made a splash in the hepatitis C market with Zepatier, which generated revenue of $895 million in the first half of this year. Merck has a couple of other experimental hep C combination therapies in phase 2 testing. In addition, the company's vaccines continue to deliver solid growth, led by HPV vaccine Gardasil.
Another plus for investors with Merck is the company's dividend, which currently yields 2.85%. Merck has raised its dividend for the last seven consecutive years.
Better buy
There are plenty of things to like about Merck. Unfortunately, there are plenty of negatives as well. Sales are slipping for several of the company's top drugs. As a result, the consensus among Wall Street analysts is that the drugmaker will increase earnings by an average annual rate of around 6% over the next few years. That's not terrible, but it's not great, either.
Celgene, on the other hand, doesn't really have too many negatives that stand out. The biotech enjoys patent exclusivity for Revlimid for several more years. Although sales for a handful of Celgene's older drugs are declining, growth from newer products is more that offsetting those decreases. Celgene looks to be one of the most exciting growth stocks in biotech. It's the clear winner in a matchup against Merck.
