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Specialty medicines are only used by 1-2% of the U.S. population, but they're downright costly. In fact, in 2015 specialty drugs represented 37% of nationwide drug spend, and this figure is expected to reach 50% by 2018. With inflammatory conditions and multiple sclerosis (MS) standing out as the two most expensive specialty drug classes (accounting for $89.10 and $53.31 per member, per year spend respectively), it is no wonder that these are some of the most highly competitive markets for new drug entrants. However, with the news that Biogen (BIIB -2.94%) quietly discontinued future development of their experimental anti-inflammatory and autoimmune product MT-1303, did Biogen just wave the white flag to Celgene (CELG)? It's time for a deeper dive.

Ozanimod vs. MT-1303

Last year, Celgene paid top-dollar to acquire a company called Receptos in order to get its hands on Receptos' leading anti-inflammatory and multiple sclerosis drug candidate, ozanimod. Ozanimod is part of a new class of drugs called S1P1 receptor antagonists currently being studied in a host of autoimmune and inflammatory conditions. Ozanimod showed strong efficacy and safety results in a phase 2 trial as a treatment for relapsing multiple sclerosis in 2014. However, the sticker price of $7.2 billion paid to acquire Receptos had some analysts wondering if perhaps Biogen got the better bargain with its agreement with Mitsubishi Tanabe: for just $60 million (plus potential future milestone payments), Biotech secured exclusive rights to Mitsubishi Tanabe's experimental S1P receptor antagonist product, MT-1303. While MT-1303 was further behind in clinical development at the time of the deal when compared with ozanimod, Biogen's market dominance and expertise within the MS indication gave Biogen a formidable chance of successfully bringing MT-1303 to market.

In the end, however, it appears Celgene can claim victory -- Biogen quietly abandoned future developments of MT-1303 in October of this year. During Biogen's Q3 earnings call, Michael D. Ehlers, Executive Vice-President of Research and Development, cited the regulatory competitive landscape and strategic priorities as primary drivers of this decision.

What does this mean for Biogen?

While Biogen has discontinued future development of MT-1303, this does not mean that the current king of multiple sclerosis has decided to altogether halt its pursuit of new MS treatments. In fact, Biogen has decided to continue advancing its other MS candidate, opicinumab (also known as Anti-LINGO-1) in clinical studies. While opicinumab failed to meet its primary and secondary endpoints in a highly publicized Phase 2 study back in June of this year, Biogen believes opicinumab could be effective in a smaller subset of the original treatment group. If approved, opicinumab could be the first drug to not simply slow the progression of MS, but actually remyelinate the damaged portions of the MS patient's nervous system.

While Biogen continues to design future studies for opicinumab, the most exciting drug, hands down, in Biogen's pipeline is aducanumab, an anti-amyloid moonshot potential treatment for Alzheimer's disease. While estimates vary, some have quoted peak sales of aducanumab as high as $20 billion for this large and under-served patient population. It is important to note, however, that Alzheimer's disease is a complex disorder, and other anti-amyloid treatments have failed in the past. Aducanumab is currently in two Phase 3 trials, "Engage" and "Emerge". However, these trials will not release top-line data until at least mid-2020. Given that 99% of Alzheimer's trials end in failure, optimism unfortunately needs to be tempered regarding aducanumab's chances.

What does this mean for Celgene?

With ozanimod now undeniably the closest-to-market S1P receptor antagonist, Celgene is currently progressing this drug in a host of phase 3 trials for both relapsing multiple sclerosis as well as ulcerative colitis. While estimates vary, Celgene's management has projected peak sales of ozanimod between $4 billion and $6 billion annually. Ozanimod's two Phase 3 multiple sclerosis trials are expected to read out in the first half of 2017 with the potential to support an approval the following year. Ozanimod's ulcerative colitis data should be available sometime next year, potentially making ozanimod first-in-class in this indication.

The better buy?

Biogen's aducanumab is extremely exciting, but it's essential to keep in mind the historically low rate of success for Alzheimer's drugs. Meanwhile, Celgene's historically trustworthy management has reaffirmed its guidance toward revenue of $21 billion and $13 per share in earnings by 2020, making Celgene a steal at today's prices. For the long-term investor, I'd pick Celgene as the better bet today.