A series of setbacks caused Celgene Corporation (NASDAQ:CELG) stock to tumble around 47% from a peak reached last October. Over the same time frame, Merck & Co. (NYSE:MRK) shares have slipped a bit even though its lead product hit an important mark that will drive billions in additional annual sales toward the big pharma.

Global spending on oncology medicines reached $133 billion in 2017 according to healthcare analytics provider IQVIA, and that figure could reach $200 billion in 2022. Which of these stocks is best poised to ride the trend? Let's look at the case for each to see which drugmaker comes out on top.

Tug-of-war close up

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The case for Celgene Corporation

Celgene's flagship product, Revlimid, made this a top-performing biotech in years past, but the multiple myeloma treatment is going to begin losing market share to generic competition in early 2026. First-quarter sales of the treatment rose an impressive 19% over the previous year to hit an annualized $8.9 billion run rate. Investors don't get to smile at Revlimid sales growth for long before it reminds them the company depends on the therapy for 63% of total product sales.

It's hard to reduce reliance on a product growing as fast as Revlimid, but two more recently launched treatments are putting up big numbers. Second-line multiple myeloma treatment Pomalyst contributed 24% more during the first three months of 2018 than in the previous year, and the company's first foray into psoriasis, Otezla, popped 46% over the same time frame. Combined, the pair finished the three months of 2018 on pace to kick in a combined $3.2 billion in sales, and they've still got room to run.

Perhaps the biggest reason to buy Celgene, though, isn't the drugs it's selling today, but the ones about to emerge from its late-stage pipeline. Celgene recently showed that its experimental CAR-T treatment, called liso-cel, can help patients with aggressive lymphomas that had already relapsed following other treatments. Eliciting any measurable response from this group would be impressive, but liso-cel helped 49% of treated patients achieve complete remission six months after a single treatment. 

Similar CAR-T therapies that liso-cel could begin competing with next year carry list prices that start at $373,000 for a single dose. High efficacy and a high price suggest liso-cel could become a blockbuster, and it isn't the only candidate getting close to the finish line. Celgene's multiple sclerosis and inflammatory bowel disease candidate, ozanimod, hit an embarrassing speed bump during its FDA review, but it could contribute around $4 billion in annual revenue at its peak if approved.

Pills and a syringe on a pile of cash money.

Image source: Getty Images.

The case for Merck & Co.

Sales of Merck's flagship cancer therapy Keytruda finished the first quarter on pace to contribute $6 billion in revenue this year, and I think it'll blow past analyst forecasts and hit $10 billion by 2021. An expansion to the first-line lung cancer indication helped Keytruda sales bound 151% higher in the first quarter, and that was before Merck's salesforce had new unambiguous survival data to work with. Earlier this year, the company showed us that adding it to standard chemotherapy reduced new lung cancer patients' risk of death by half compared to chemo alone.

Unfortunately for Merck shareholders, Keytruda only makes up just 15% of total sales, and its former lead product, Januvia, is showing its age. Sales of the type-2 diabetes medication have stalled, and its cholesterol-lowering drug, Zetia is sliding. Keytruda is a powerful engine, but it can only pull the entire train so far on its own. Overall sales inched 6% higher in the first quarter, or just 3% when you exclude the effects of currency exchange.

Earlier this year, Merck joined forces with AstraZeneca (NYSE:AZN) to market a new kind of ovarian cancer pill that recently earned an approval to treat a large population of breast cancer patients. Total annual Lynparza sales could pass the $2 billion mark, although Merck's portion will be much smaller.

Celgene doesn't offer a dividend, but those buying shares of Merck at recent prices will receive a 3.1% yield. If anything derails Keytruda, though, raising the quarterly payout could be impossible. Over the past year, Merck used 97% of free cash flow to meet this obligation to shareholders. 

The better buy has more cash to invest

Ozanimod and liso-cel were discovered outside Celgene, but the company was able to acquire them with cash its commercial-stage drugs throw off. In 2017, Celgene generated $5.0 billion in free cash flow, which was around $400 million more than Merck produced last year, and Celgene doesn't have a dividend obligation.  

A relative lack of profits to work with in recent years shows itself in Merck's late-stage pipeline. The big pharma doesn't have any candidates on EvaluatePharma's top 20 list of the most valuable R&D projects at the moment, while Celgene boasts two.

There's a lot to like about Merck, but a better capacity to forge new partnerships and acquire new growth drivers make Celgene the better buy right now.