Investors haven't been happy with either Biogen (NASDAQ:BIIB) or Celgene (NASDAQ:CELG) lately. But the level of discontent is much higher with Celgene. The biotech stock has dropped more than 20% so far in 2018, compared to a single-digit percentage decline for Biogen.
But recent stock performance is about as useful at determining what's in store for a company in the future as a thermometer is at forecasting the weather. Which of these two biotech stocks is the better pick for long-term investors? Here's how Biogen and Celgene compare.
The case for Biogen
I think there are four primary arguments for buying Biogen stock. One is the company's soon-to-be blockbuster drug Spinraza. The spinal muscular atrophy (SMA) drug, which Biogen licensed from Ionis Pharmaceuticals (NASDAQ:IONS), won Food and Drug Administration approval near the end of 2016. Spinraza didn't quite hit the $1 billion sales level in 2017, but it's on track to easily top the magic sales mark this year. Analysts think the drug will reach peak annual sales in the ballpark of $2.5 billion.
Another reason to consider buying Biogen is the nice cash flow generated by its multiple sclerosis (MS) franchise. Although sales are declining for Tysabri and the biotech's interferon products, Biogen's top-selling Tecfidera continues to perform well. Even with overall MS revenue slipping, the company's MS franchise still spins off most of Biogen's strong free cash flow.
The third key reason to buy Biogen is what the company is doing with its cash flow: investing in its pipeline. Biogen only has three pipeline candidates in phase 3, but one of them could be a game changer. Aducanumab could be the most promising treatment for Alzheimer's disease ever. If the drug is successful in clinical studies, some think aducanumab could achieve peak annual sales of $12 billion.
Biogen's pipeline includes 14 candidates in phase 2 clinical studies targeting a broad range of indications. The company also expanded its relationship with Ionis, paying $1 billion to forge a new 10-year collaboration agreement to develop novel antisense drug candidates for several neurological diseases. This deal included Biogen buying over 11.5 million shares of Ionis.
Investors also should like Biogen's valuation. The stock currently trades at 11.4 times expected earnings.
The case for Celgene
Why buy Celgene? The arguments for Biogen largely apply to Celgene also, although with a few twists.
Celgene doesn't just have one current product that's enjoying strong sales momentum -- it has three. The most important of the group is blood cancer drug Revlimid, which ranked as the No. 2 best-selling drug in the world last year with sales of nearly $8.2 billion. Another blood cancer drug, Pomalyst, and anti-inflammatory drug Otezla are also blockbuster drugs that are enjoying tremendous sales growth.
The company's cancer drug Abraxane isn't growing as much as Celgene's top three products, but it's still on track to top $1 billion in sales this year. Roche's recent phase 3 clinical study success with a combination of Tecentriq, carboplatin, and Abraxane in treating non-squamous non-small cell lung cancer could bode well for future sales growth for Abraxane.
Celgene's pipeline is loaded with potential winners. Although the company experienced a setback earlier this year with the FDA rejection of ozanimod in treating MS, Celgene expects to resubmit for approval in 2019 Q1. Ozanimod is also being evaluated in phase 3 studies targeting treatment of ulcerative colitis and Crohn's disease.
Celgene plans to submit for approval of fedratinib in treating myelofibrosis later this year. The biotech's pipeline also includes several other promising late-stage candidates, including blood disease drugs CC-486 and luspatercept as well as PD-1 inhibitor BGB-A317.
In addition to these solid phase 3 candidates, Celgene also has several solid contenders in earlier clinical development. Two of the most promising experimental drugs are CAR-T therapies JCAR017 and bb2121, which Celgene is co-developing with bluebird bio.
You won't find many biotech stocks with a more attractive valuation than Celgene. The stock trades at 7.6 times expected sales. Celgene's projected annual earnings growth of around 19% over the next several years makes the stock an even better bargain.
I think that Celgene is the better pick. It has a stronger current product lineup than Biogen does. Celgene also claims a larger late-stage pipeline. Biogen's fortunes ride largely on one candidate -- aducanumab. While the drug could be a huge success, many once-promising Alzheimer's disease treatments have flopped. Plus, Celgene stock is dirt cheap right now.
The biotech does face risks, though. Celgene's experiences with the late-stage failure of Crohn's disease drug GED-0301 and the setback for ozanimod underscore its pipeline risks. The company also remains heavily dependent on Revlimid, which is in the middle of a patent challenge.
Still, I think Celgene has been beaten down more than it should be considering its strengths. My view is that the stock will be a big winner over the next few years.