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Better Buy: Amgen Inc. vs. Celgene Corporation

By Keith Speights – Jul 8, 2017 at 7:27AM

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Which big biotech stock wins in a head-to-head matchup between Amgen and Celgene?

Biotechs don't get to be big biotechs without racking up major successes along the way. That's certainly the case for two of the biggest biotechs around -- Amgen (AMGN 0.57%) and Celgene (CELG). Both companies' stocks have also been successful: Over the last 10 years, Amgen stock has more than tripled in value, while Celgene stock soared more than 350%.

But past performance is no guarantee of future results. Which of these two biotech stocks is the better buy for investors now? Here's how Amgen and Celgene compare. 

3 scientists in lab

Image source: Getty Images.

The case for Amgen

If you're looking for a reason to buy Amgen stock, follow the money. In particular, follow the cash and the cash flow. Amgen claims a cash stockpile of $38.4 billion, including cash, cash equivalents, and marketable securities. The company generated free cash flow over the last 12 months of $6.87 billion. There are three things that Amgen can do with its impressive cash position and cash flow that contribute to a compelling argument for buying shares of the biotech.

One is that the company can increase its dividend, which currently yields a healthy 2.66%. The likelihood that Amgen does raise its dividend should be high, considering that the company has one of the fastest-growing dividends on the market, with average annual increases over the past three years of almost 30%. The biotech also uses only 39% of its earnings to fund the dividend program, indicating plenty of room for future dividend hikes.

Another thing Amgen can do with all that money is buy back shares. The company has already been doing that quite a bit, repurchasing over $11 billion of its stock since the beginning of 2012. Amgen had $3.5 billion remaining in its current stock buyback program as of March 31, 2017.

The biotech can also invest for the future, by pouring money into research and development and making strategic acquisitions. Both are important for investors, because sales are declining for several of Amgen's current top products.

Does this put Amgen's ability to keep its strong cash flow going? Probably not. The company still has 13 programs in its late-stage pipeline (although most are for additional indications of already-approved drugs). Cholesterol drug Repatha could finally take off now that Amgen has positive cardiovascular outcomes data. And with its tremendous cash position, Amgen seems likely to make some acquisitions down the road that add to its product lineup and pipeline.

Female scientist in lab

Image source: Getty Images.

The case for Celgene

The strongest argument for buying Celgene stock is its earnings growth prospects. Over the last five years, the biotech has increased earnings by nearly 25% annually. The next five years for Celgene probably won't be too far below that level.

Celgene's top product, Revlimid, continues to show solid momentum. Last year, the blood cancer drug generated sales of nearly $7 billion, up 20% from 2015. In the first quarter of this year, sales for Revlimid were also up nearly 20% year over year.

The biotech has a couple of other products with even faster-growing sales -- multiple myeloma drug Pomalyst and autoimmune disease drug Otezla. Both are blockbusters, although combined revenue from the two drugs is still less than one-third of the revenue Celgene makes from Revlimid.

Celgene's pipeline, though, is loaded with great prospects. The company should be in good shape maintaining its position in the blood cancer market with candidates including luspatercept, durvalumab, and CC-486. All three experimental drugs hold the potential for peak sales of at least $1.5 billion if approved.

Building on Otezla's success in the inflammation and immunology therapeutic area is also key for Celgene. The company hopes to add more approved indications for Otezla. In addition, Celgene claims two potential megablockbuster candidates in ozanimod and GED-0301. 

Better buy

I think both of these stocks should be winners over the long run -- just as they have been in the past. However, Celgene appears to be the better choice in my view.

Celgene stock might seem expensive, with shares trading at 49 times trailing-12-month earnings. However, the biotech's growth prospects are so good that its valuation actually is appealing, with a PEG ratio of 0.88. Even if Celgene encounters some bumps in the road with its pipeline, the company should still be able to achieve high earnings growth. I expect to hold on to my Celgene stock for a long time to come

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

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