Better Biotech Buy: Biogen vs. Celgene

Buying big pharma stocks isn't the only way you can invest in today's best-selling drugs without taking a gamble on a small, risky biotech. Some of yesterday's fledgling biotech companies have become today's powerhouses, boasting substantial pipelines and strong sales. Biogen Idec (NASDAQ: BIIB  ) and Celgene (NASDAQ: CELG  ) have emerged as two of the top companies in the "big biotech" industry, and both stocks have rewarded shareholders handsomely recently: Celgene's stock has rocketed up 50% over the past year, while Biogen's has impressed by rising 46%.

There's no doubting these stocks' place at the top of the biotech arena, but the question is: Which one is the better buy?

Looking at the basics
Biogen hasn't had much trouble on the financial side of things lately. The company's driven revenue higher consistently in the last couple years, posting 9.2% growth in 2012 after 2011's revenue rose 7% year-over-year. Those are appealing numbers for growth investors, and with Biogen following up by growing its diluted earnings per share in both 2011 and 2012, this company's having no trouble showing shareholders the money.

Not that Celgene's having much trouble, either. It actually outperformed  Biogen on a purely financial basis over the last couple years, raking in revenue growth of 13.7% in 2012 after a phenomenal 2011 brought in year-over-year growth of nearly 34%. Like Biogen, Celgene's also done well in growing EPS over the past two years.

With success comes a cost, however: You'll be paying a hefty premium for either of these hot stocks. Biogen trades at a price-to-earnings ratio of 30.7, with Celgene at an even stiffer 34.6 after its recent run-up. That's in line with some of the other top biotech and pharmaceutical stocks, but these two companies will have to keep producing top-notch growth in order to keep up with investors' optimism.

Can they do that? Fortunately, Celgene and Biogen both sport a number of drugs on the market and solid pipelines.

Celgene's Revlimid advantage
Five drugs currently make up most of Celgene's sales, but multiple myeloma drug Revlimid is the engine that makes the company go. The company's top seller sold more than $3.7 billion last year, growing an outstanding 17.4% year-over-year. Revlimid's patent won't expire until 2027 in the U.S. and 2024 in Europe, offering Celgene plenty of time to take advantage of the exploding multiple myeloma market.

Research and advisory firm Decision Resources expects the market to climb to $7.2 billion by 2021 from $4.4 billion in 2011, and forecasts Revlimid to capture 64% of that market. That forecasts sales of more than $4.6 billion for Celgene's leading drug, and while it still faces competition from Johnson & Johnson's (NYSE: JNJ  ) Velcade -- which has become one of J&J's fastest growing blockbusters -- Decision Resources predicts Velcade to remain in second place in this lucrative and growing market.

Celgene's other drugs pale in comparison to Revlimid, unfortunately. The company's nearly $3 billion acquisition of Abraxis BioScience in 2010 brought cancer drug Abraxane into the fold, but it currently only brings in about 11% of what Revlimid does. Its 10.6% growth in 2012 underperformed Celgene's total revenue growth, and it's looking like the Abraxis purchase might not have been the best decision. Abraxane still has a long time to prove itself -- the drug doesn't lose patent exclusivity until 2026 in the U.S. and 2022 in Europe -- but so far, its effect has been limited.

MDS drug Vidaza ranks as Celgene's second-best seller and has posted strong growth, but with its U.S. patent protection having expired in 2011, any generic competitor that successfully rises will strain sales. Don't put your faith going forward in this drug.

This all makes Celgene excessively dependent on Revlimid's success, but the company's pipeline isn't bare. Its new multiple myeloma drug Pomalyst won FDA approval in February and is expected to hit peak sales of $1 billion or more. Celgene's oral psoriasis candidate Apremalist hit a road bump recently in phase 3 trials, reporting data that failed to match up with mid-stage efficiency results. Apremalist is likely to land FDA approval, but Celgene's rosy peak sales estimates of $1.1 billion or more look like they'll be tough to match -- particularly as Apremalist will have to battle AbbVie's (NYSE: ABBV  ) leading drug, Humira, the blockbuster behemoth that made more than $9.2 billion last year. Gulp.

Biogen's growing portfolio
Celgene has its perks, but Biogen has plenty to keep investors happy as well.

Biogen's success begins and ends with the multiple scleroris market, and its tried-and-true drug Avonex leads the way. Avonex pulled in more than $2.9 billion in 2012, posting year-over-year growth of 8.4%. Fellow MS drug Tysabri also pulls its weight at Biogen, racking up more than $1.1 billion in revenue last year with smaller growth. Both drugs remain key players in an MS market that's expected to grow by more than $4 billion between 2011 and 2016.

To keep up with that trend, Biogen bought out Tysabri co-marketer Elan's (UNKNOWN: ELN.DL2  ) stake in the drug to capitalize fully on its growth. Biogen paid Elan a hefty $3.2 billion for the stake, but Tysabri's expected to remain a critical cog in MS treatment that analysts expect could hit sales of $1.9 billion by 2018. Elan will still receive a percentage of global sales of Tysabri in the future, but the move gives Biogen full control over its blockbuster drug. Combined with the company's victory in gaining extended patent protection for Avonex until 2026, Biogen's looking good in this growing market for the future.

But is the company too focused on multiple sclerosis? Rituxan -- which Biogen co-markets with Roche (NASDAQOTH: RHHBY  ) and is cleared to treat non-Hodgkin's lymphoma, rheumatoid arthritis, and more -- also brought in more than $1 billion in 2012, providing necessary diversity.

However, it's Biogen's future that truly looks promising. Oral MS drug BG-12 still is waiting for an FDA approval, but expectations are through the roof. Peak sales estimates average around $3 billion, a mark that would eclipse any of Biogen's current drugs. With late-stage drugs in the pipeline for lymphomas, hemophilia, and more, Biogen's future looks safe -- especially with BG-12 in hand.

Which stock has the edge?
So, which one of these top biotech stars should you pick?

Celgene has plenty going for investors: With Revlimid's dominant position in the growing multiple myeloma market and years of patent protection ahead, shareholders don't have to worry about sales dropping off any time soon. The company should continue to see strong growth from Revlimid, even as Vidaza continues with the shadow of potential generic competition looming over it and Abraxane continues to chug along underwhelmingly. However, with Apremalist's disappointing recent results, only Pomalyst looks to provide serious growth after Revlimid.

Biogen, on the other hand, offers diversity and growth above and beyond what Celgene does. Its MS-centric portfolio is worrying, but continued revenue from Rituxan and its diverse pipeline -- particularly with the sky-high expectations for BG-12 -- paint a picture of growing sales ahead. BG-12 could strip some of Avonex and Tysabri's sales, and the MS market is a competitive one, but Biogen's positioning itself well for a bright future.

In this battle between two big biotech stars, the edge just goes to Biogen. It's hard to criticize any investor for picking up either of these stocks, however: Celgene and Biogen are positioned well in growing, lucrative markets, and their recent gains look to be the start of something special going forward.

Can Celgene continue to soar?
Celgene's been on a roll recently, and with the company optimistic about the future, all eyes are on this big biotech star. But should you buy the story Celgene is selling? Make sure you understand the key opportunities and risks facing this company by picking up The Motley Fool's brand new premium report on Celgene. To claim your copy today simply click here now.


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  • Report this Comment On March 17, 2013, at 3:27 PM, biotech101invest wrote:

    I think its CELG you want to own. It is STARTING its BIIB run. (BIIB ran from $50 to $180 on basically news on one drug). CELG really has not had its run on its move from 1 huge drug to FIVE. Yes its time for a complete revaluation of Celgene based upon operating leverage, FIVE separate billion $ a yr drugs and likelihood of MM-020 being positive, which Citi says could add $3.31-$7.71 related incremental EPS,

    Barclays presentation last wk showed MM-020 a Q2/Q313 milestone. Clearly people are starting to realize that the odds have increased GREATLY that this trial will be successful.The ML change from bearish on MM-020 to bullish earlier this week, the Bernstein positive MM-020 comments last week and increase target to $137 today and Citi who was first and sees incremental $3.31 to $7.71 on positive data (amazing right?) And this might be low. The front line expansion MM will eventually be WORLDWIDE with 96% margin and 16% tax rate. Revlimid will definitely become the biggest selling per yr cancer drug of all time. If you see great success in lymphoma and in Revlimid-Rituxan and other combinations - it could eventually take on Lipitor as the largest selling drug of all time - yes well over $10 billion. But CELG doesn't even need close to that for this stock to be a $300 stock down the road. ITalso will have FOUR other $billion a yr drugs in addition to Revlimid.

    Out yr EPS is significantly significantly understated. Many analysts are STILL missing this – not understanding the HUGE upside of the international expansion into front line and lymphoma. Pipeline is undervalued. The operating leverage of taking a 96% margin drug to $7-8 billion with a 16% tax rate plus adding 4 other $billion dollar a yr drugs is being lost on investors. This stock is VASTLY undervalued and the valuations are based on WAY conservative estimates. CFO can smile because she knows she can beat 2017 ests easily already. People keep waiting for a pullback – this stock is still under a 1.0 PEG with BS conservative numbers. 0.4 PEG on real 2016 numbers. Our BIIB run is starting - just starting - and they did it mostly on the back of 1 drug. CELG now has 5 drugs that will be $1 billion a yr, including 1 that could approach $10 billion a yr with 96% margins and 3 that will likely be $2 billion plus a yr. Remember Genentech became an $80 billion company with less than what CELG has. Its gross margins were in the mid 80%s - Celgene's are in the mid 90%s. Their tax rate was in the 30% area. Celgene's is near 16%. Celgene has a better pipeline - there is NEGATIVE value for this pipeline - Stay tuned with more on that pipeline at May 6 R&D day. This stock is going to $200 then $300 long term - and that imo is only the beginning. A case for $20 EPS before 2020 can be made now - with at least a 35% growth rate. with a standard 1.0 PEG that is $700. even at a 0.7 PEG that would be $490. Lets not get crazy - but suffice it to say this is a stock that is vastly undervalued. No stock in the S&P 500 has the OPERATING LEVERAGE this stock is about to go through. Sales exploding - ONE billion $ a yr drug to FIVE billion $ a yr drugs. 95%+ margins. 16% tax rate. R&D as a percentage of revenue about to drop significantly.

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