Better Buy: Celgene Corporation vs. Johnson & Johnson
Celgene (NASDAQ: CELG) stepped onto Johnson & Johnson's (NYSE: JNJ) turf in 2014 with its launch of Otezla. The drug competes head-to-head with J&J's Stelara in the psoriasis and psoriatic arthritis markets. That's a fight that Johnson & Johnson is still winning, although Celgene has achieved significant success. But what about a match-up between the stocks of the two companies? Here's how Celgene and J&J compare.
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The case for Celgene
Otezla is a key component of the investing case for Celgene. Sales for the drug in the first nine months of 2016 soared nearly 147% over the prior-year period to $712 million. More indications could be on the way. Late-stage studies are underway to evaluate Otezla in treating inflammatory disorders ankylosing spondylitis andBehet's disease.
The bigger story for Celgene, though, continues to center on Revlimid. Sales for the blood cancer drug during the first nine months of this year topped $5.16 billion, up nearly 22% year over year. Celgene abandoned plans to pursue approval for Revlimid in treating diffuse large B-cell lymphoma (DLBCL)after disappointing results in a late-stage study. However, the biotech still hopes for success in several other phase 3 studies targeting lymphomas.
Another blood cancer drug is also making a big difference for Celgene. Sales for Pomalyst/Imnovid in the first nine months of 2016 climbed 35% year over year to nearly $933 million. The drug is approved in the U.S. and Europe as a third-line treatment for multiple myeloma.
Celgene's pipeline also looks strong. Outside of expanding indications for current drugs on the market, the biotech has eight late-stage studies in progress. Luspatercept, which Celgene is developing with partner Acceleron, is being evaluated for treating blood diseases myelodisplastic syndromes (MDS) and beta-thalassemia. Analysts think the drug could achieve peak annual sales of more than $2 billion if approved.
Otezla could also be joined by other autoimmune disease drugs if all goes well.GED-0301 (also known as mongersen) is in a late-stage study targeting treatment ofCrohn's disease and a mid-stage study for treatingulcerative colitis.Analysts project peak annual sales could be between $2 billion and $3 billion.
The crown jewel in Celgene's pipeline is probably ozanimod. Phase 3 studies are underway to evaluate the drug as a potential treatment for multiple sclerosis and ulcerative colitis. Celgene thinks ozanimod could hit peak annual sales of at least $4 billion if approved for both indications.
With its lead products performing well and several solid pipeline candidates, Wall Street thinks that Celgene will grow earnings by an average of nearly 23% annually over the next five years. That kind of growth makes the biotech's seemingly high earnings multiple of 44 not nearly as scary.
The case for Johnson & Johnson
Stelara remains one of the brightest spots in Johnson & Johnson's lineup. Sales for the anti-inflammatory drug jumped nearly 36% year over year in the first nine months of 2016 to $2.35 billion.
J&J is also seeing solid growth for its other autoimmune disease drugs. Sales for Simponi during the first nine months of the year totaled $1.3 billion, an increase of more than 33% compared to the prior-year period. Meanwhile, the company's top-selling drug, Remicade, recorded year-to-date sales of $5.3 billion as of the end of the third quarter -- up over 9% year over year.
Looking at other therapeutic areas, Johnson & Johnson's winners include blood thinner Xarelto, diabetes drug Invokana, and antipsychotic Invega Sustenna. All are blockbuster drugs with year-over-year growth in the double-digit percentages.
The one J&J drug with the fastest-growing sales, though, is Imbruvica. Sales for the cancer drug totaled $905 million in the first nine months of 2016, nearly doubling the amount from the prior-year period.
And Imbruvica is just getting warmed up. Some analysts project the drug will reach peak annual sales of $6 billion. That could be on the low end of Imbruvica's potential. Johnson & Johnson won't see all of that amount, however. It splits revenue with partner AbbVie.
What about J&J's pipeline prospects? They look pretty good considering that the giant company claims over 30 late-stage clinical studies in progress. Some of these studies are pursuing additional indications for existing drugs. However, several new candidates are in the mix, notably including autoimmune disease drugs sirukumab and guselkumab.
Johnson & Johnson's earnings growth is expected to average less than 7% over the next five years. The company's other business segments,consumer and medical devices, will likely hold back its pharmaceuticals sales growth. However, J&J's strong dividend, which currently has a yield of 2.78%, helps compensate for the less-than-spectacular growth prospects.
Better buy
Johnson & Johnson is a good stock (especially with its dividend track record), but Celgene is the better pick for now. The biotech's growth prospects dwarf those of J&J.
I must emphasize the two words "for now," though. The biopharmaceutical world is constantly changing. If, for example, Revlimid lost steam due to competition or if Johnson & Johnson spun off its other segments, the dynamics would be much different. I don't see either of those scenarios happening anytime soon, but they're not out of the realm of possibility.
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Keith Speights owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool recommends Johnson and Johnson. 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.