Could Celgene Corporation Muscle Its Way Past Amgen Inc.?

By Markets Fool.com

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Source: Celgene

It's a great time to own shares of big biotechs. Just ask Amgen shareholders. They have seen the stock surge more than 150% over the past five years, largely on the strength of growing sales of its Neulasta/Neupogen and Enbrel franchises.

Celgene shareholders would also likely agree wholeheartedly. Celgene's stock has soared more than 275% during the same five-year period, thanks primarily to Revlimid's success. That winning streak has made Celgene the fourth-largest biotech in terms of market cap,behind Gilead Sciences, Amgen, and Biogen.

But now Celgene could be on track to muscle its way past Amgen -- in two different ways. Here's how.

Edging Enbrel?
The market for rheumatoid arthritis and psoriasis drugs has been a lucrative one for several large drugmakers. AbbVie stands as the biggest winner with Humira, which generated worldwide sales last year topping $12.5 billion. Enbrel came in second place, with Amgen recording revenue of nearly $4.7 billion from North American sales and Pfizernotching sales from the rest of the world, where it has the rights to Enbrel, of over $3.8 billion.

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Source: Amgen

Celgene recently announced the results from a phase 3 study of its own drug, Otezla, in treating psoriasis. And both Amgen and Pfizer might have reason to worry about Enbrel's position. While the study didn't directly compare Otezla to Enbrel, there was no statistically significant difference found between the two drugs.

That finding is more important that it might seem at first glance. Enbrel must be taken via injection, but Otezla is a pill. Which do you think patients would rather take if told a clinical study found the drugs to be roughly equivalent in efficacy?

Otezla won't edge out Enbrel in total sales in the immediate future, though. Celgene only has regulatory approval for Otezla in treating psoriasis and psoriatic arthritis at this point. The drug is in phase 2 for another major indication -- rheumatoid arthritis. If all goes well for Celgene, Otezla could one day look at Enbrel in the rearview mirror.

Soaring into second?
The bigger story in the battle between these biotechs goes beyond these two drugs. Celgene appears to be on track to move past Amgen in market cap. Amgen's market cap currently stands at $118.3 billion, while Celgene claims a market cap of $91.5 billion. That's a sizable gap to overcome, but it will happen if the industry analysts are right.

Those analysts estimate that Amgen's earnings will grow at an annual rate of slightly over 11% during the next five years. However, Celgene's annual earnings growth is estimated to top 25%. If we extrapolate that the market cap increases for both biotechs will roughly follow those earnings growth trends, Celgene should eclipse Amgen in size within the next two to three years. If analysts' projections are right, Celgene will edge out Biogen even earlier. The two biotechs have traded the No. 3 spot a couple of times already this year.

Based on analyst earnings growth estimates from Yahoo! Finance.

Amgen's growth could be hindered in large part by patent expirations. Neulasta's U.S. patent expires this year.The FDA approved a biosimilar in early March, which could begin making a dent in Amgen's Neulasta revenue soon.

Meanwhile, Celgene continues to experience solid growth from Revlimid while adding other strong players to its lineup. Abraxane and Pomalyst both appear to already be knocking on the door for blockbuster status. Otezla shouldn't be too far behind.

Changes on the way
Of course, the analysts could be wrong. Amgen could see better-than-expected earnings (and market cap) growth, while Celgene doesn't do as well as predicted. Perhaps Amgen's PCSK9 inhibitor Repatha will succeed even more than anticipated. Maybe other rival drugs could challenge Celgene's drugs.

My view, though, is that we'll see a change in the market cap ranking at some point over the next five years as Celgene's stock grows in value at a faster pace than Amgen's. Come 2020, I suspect we'll still be saying that it's a great time to own shares of big biotechs.

The article Could Celgene Corporation Muscle Its Way Past Amgen Inc.? originally appeared on Fool.com.

Keith Speights owns shares of Celgene and Gilead Sciences. The Motley Fool recommends Celgene and Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.