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Better Buy: Celgene Corporation vs. Bristol-Myers Squibb

By Keith Speights – May 28, 2017 at 7:27AM

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It's Celgene versus Bristol-Myers Squibb in a head-to-head matchup. Which drug stock wins as the better pick for long-term investors?

Investors haven't been too enamored with Celgene (CELG) and Bristol-Myers Squibb (BMY 1.38%) lately. Both have super-successful cancer drugs and are making plenty of money. However, neither stock has performed very well so far in 2017.

Which of these two drug stocks is the better pick for long-term investors? Here's how Celgene and Bristol-Myers Squibb compare.

Two scientists stand in front of a microscope in a lab, looking together at a tablet.

Image source: Getty Images.

The case for Celgene

Celgene's revenue is growing at an impressive rate, up nearly 18% year over year in the first quarter. The biotech's bottom line is also looking great, with first-quarter earnings increasing more than 17% compared over the prior-year period.

These solid results stemmed from continued growth from Celgene's top-selling blood cancer drug, Revlimid, as well as strong contributions from two other drugs. Sales for multiple myeloma drug Pomalyst jumped nearly 33% year over year in the first quarter, while sales for Otezla, which treats psoriasis and psoriatic arthritis, grew more than 23% from the prior-year period.

The best news of all for Celgene, though, is its pipeline potential. Ozanimod presents the best near-term prospect for the biotech. Celgene reported positive results this year from two late-stage studies of the drug in treating relapsing multiple sclerosis (MS) and plans to file for regulatory approval based on these results by the end of the year. Ozanimod is also being evaluated in another late-stage study for treating ulcerative colitis.

Celgene has other pipeline candidates that also look especially promising. Two are experimental cancer drugs. Late-stage studies are underway for CC-486 as a potential treatment for myelodysplastic syndromes (MDS) and acute myeloid leukemia (AML). Celgene and partner AstraZeneca are evaluating PD-L1 inhibitor durvalumab in treating multiple types of blood cancer, including MDS and AML. 

By the end of 2020, Celgene expects to have seven new drugs approved that could become blockbusters. The company projects average annual adjusted earnings growth of 22% over the next few years. Despite this solid growth potential, Celgene stock looks to be inexpensive, with shares trading at only 13 times estimated earnings.

The case for Bristol-Myers Squibb

Bristol-Myers Squibb (BMS) can also claim solid growth in the first quarter. The drugmaker reported a 12% year-over-year revenue increase. Earnings soared more than 26% higher than the prior-year period.

Two drugs largely drove Bristol-Myers Squibb's success: Opdivo and Eliquis. Opdivo has won FDA approvals for several indications over the past three years, including melanoma, lung cancer, and kidney cancer. Eliquis, which BMS co-markets with Pfizer, is the top anticoagulant drug in the world.

BMS also has three other products that are key to the company's fortunes. Sales for rheumatoid arthritis drug Orencia continue to climb by double-digit percentages. The same is true for leukemia drug Sprycel. Sales for melanoma drug Yervoy increased 25% year over year in the first quarter.

Analysts project that these drugs will help Bristol-Myers Squibb grow earnings by an average annual rate of 9% over the next five years. However, except for studies targeting potential new indications for its current products, the company's late-stage pipeline appears to be thin. Prostate cancer immunotherapy Prostvac is the only new candidate in late-stage clinical studies.

BMS stock trades at 17 times expected earnings. That's not a terribly high valuation, but it's not cheap, either. There is a bonus for investors, though: BMS pays a dividend that currently yields 2.9%. In addition, the company's payout ratio of 53% indicates that Bristol-Myers Squibb should be able to increase its dividend in the future.

Better buy

The choice seems pretty clear, in my view. Celgene's growth prospects and valuation make it the more attractive alternative.

There are some potential negatives for Celgene. The company remains highly dependent on Revlimid for the time being. There are certainly risks associated with Celgene's pipeline. Some concerns were raised with the most recent late-stage results for Ozanimod, because the drug didn't show a significant improvement over interferon in delaying the accumulation of physical disabilities in MS patients.

However, none of these issues appear to be too worrisome to me. Celgene is headed in the right direction to reduce its dependence on one drug. The risks with its pipeline are no more concerning than those for any other drugmaker. Ozanimod seems likely to win approval and become a major success despite the lack of disability benefit compared to interferon. I think Celgene will be a big winner for long-term investors. 

Keith Speights owns shares of Celgene and Pfizer. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.

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