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Better Buy: Amgen Inc. vs. Celgene Corp.

By Keith Speights - Apr 1, 2016 at 2:43PM

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These two big biotechs are both attractively priced after the recent downturn in the sector. But which has the more compelling growth outlook?

Image Source: Celgene 

Many biotech stocks have taken a beating since last August, and it hasn't just been smaller players feeling the pain. Shares of two of the biggest biotechs -- Amgen (AMGN 0.93%) and Celgene (CELG) -- are down 15% and 23%, respectively. There's a good case to be made that both Amgen and Celgene present compelling opportunities for investors after these declines. But which is the better buy? Here are the arguments for each stock.

The case for Amgen
We could talk a lot about Amgen's storied history as biotech pioneer, but succeeding in the stock market requires more of a focus on the future than the past. Amgen's near future appears to hold both good news and bad news.

First, the bad news. Sales for two of Amgen's biggest moneymakers are falling. Blockbuster anemia drug Epogen brought in 9% less revenue in 2015 than it did the prior year. Sales also fell 9% year-over-year for bone marrow stimulant Neupogen. A couple of other major drugs in Amgen's lineup, Aranesp and Neulasta, saw sales grow -- but only by low single-digit percentages. With patents expiring for Epogen and Neulasta, expect those numbers to worsen in the coming years. 

Next, the good news. Amgen's earnings grew by a solid 19% in 2015. The company owns four blockbuster drugs that continue grow by double-digit percentages -- Enbrel, Sensipar/Mimpara, Xgeva, and Prolia. Kyprolis didn't make the billion-dollar-plus blockbuster list, but the multiple myeloma drug generated $512 million -- a whopping 55% increase. All of these drugs should keep their momentum going.

Even better, Amgen has other rising stars that should make a big difference in the coming years. High-cholesterol treatment Repatha stands at the top of that list, with peak annual sales projected to be as high as $5 billion. Amgen also has 12 late-stage clinical trials under way and several promising biosimilars in development. 

The case for Celgene
Celgene's success in years past has been driven mainly by Revlimid. The biotech's future success will likely continue to be heavily influenced by the blood cancer drug. Fortunately for Celgene, sales for Revlimid keep going up.

In 2015, Revlimid raked in revenue of $5.8 billion -- a year-over-year increase of 16.5%. Celgene expects 15% sales growth for the drug in 2016. That trend should be sustainable, especially considering that the company has seven clinical trials in progress that could expand indications for the drug. 

Although Revlimid is Celgene's biggest seller, the biotech is no one-trick pony. Abraxane and Pomalyst/Imonovid came awfully close to hitting the $1 billion sales mark in 2015, and both will most likely attain billion-dollar blockbuster status this year. Otezla, which treats psoriasis and psoriatic arthritis, is also coming on strong with sales of nearly $472 million in its first full year on the market. 

Celgene's pipeline looks strong as well. The biotech has multiple clinical studies in progress for treatments for blood diseases including myelodysplastic syndrome and acute myeloid leukemia. It's also continuing to expand its research into other areas, especially solid tumors and immunology.

Better buy
So which biotech is the better investment pick? I think Celgene is the clear winner.

Amgen has a lot going for it, including a dividend yield of almost 2.7%. The company has a strong balance sheet and an impressive free cash flow of $8.5 billion. Repatha's potential is tremendous. However, I don't see Amgen's earnings growing as briskly over the next few years as Celgene's.

Celgene isn't facing the sort of key patent losses that Amgen is. Revlimid should keep on trucking, and its other drugs will be hitting their strides in the near future. I especially look for good results from Otezla.

And although Amgen might appear to be valued more attractively based on earnings multiples, there's more to the story. Celgene's forward earnings multiple of 14 is higher than Amgen's multiple of 12, but that doesn't factor in the two biotechs' earnings growth. When you include growth potential, Celgene beats Amgen hands down in terms of valuation.

My view is that either of these stocks would be a good addition to an investor's portfolio. Both are well off their 52-week highs. Both are well-run. But if you could only buy one, I'd go with Celgene. 

 

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Celgene Corporation Stock Quote
Celgene Corporation
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Amgen Inc. Stock Quote
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