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Better Buy: Celgene Corporation vs. Bristol-Myers Squibb

Cory Renauer, The Motley Fool

This stock is driven by a top-selling cancer therapy that's growing by leaps and bounds, but it's underperformed the market over the past five years. Which drugmaker am I referring to? Well, I could be talking about Celgene Corporation (NASDAQ: CELG) or Bristol-Myers Squibb Company (NYSE: BMY)

The biotech stock has a lot more in common with the big pharma than you might think, but only one can come out on top in this head-to-head battle.

Person in a suit with dollar signs in his hands.

Image source: Getty Images.

The case for Celgene

Investors don't need to look hard for reasons to like this biotech stock. Sales of Celgene's blood cancer therapy, Revlimid, finished the second quarter on pace to hit $9.8 billion this year after surging 21% compared to a year ago.

Recently the company reported successful results from a drug it's developing in partnership with Acceleron Pharma. Analysts could bump up their peak annual sales estimates for luspatercept after the partners present results from a pair of trials with people affected by myelodysplastic syndromes and beta-thalassemia later this year. Investigators are saving the details for an upcoming medical conference, but they're good enough that management plans to submit applications for both indications in the first half of 2019. 

Luspatercept isn't the only potential blockbuster coming through Celgene's pipeline. The company's wholly owned experimental CAR-T therapy called liso-cel produced impressive results for lymphoma patients that had exhausted treatment options and another treatment partnered with bluebird bio called bb2121 produced impressive results for advanced-stage multiple myeloma patients.

Right now shares of Celgene are trading at the ultra-low price of just 10.2 times this year's earnings expectations, which seems awfully pessimistic for a company that just reported 17% year-to-year sales growth. Investors are nervous about the imminent demise of Revlimid because the drug will begin losing ground to generic competition in 2022 and it's still responsible for 64% of total revenue. They're also a bit nervous about the future of CAR-T therapies that haven't proven themselves capable of achieving the sort of sales figures Celgene needs to offset upcoming Revlimid losses.

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Image source: Getty Images.

The case for Bristol-Myers Squibb

This big pharma also sports a top-selling cancer drug, but Opdivo's a lot younger than Revlimid. Since launching in 2014, sales of the PD-1 inhibitor have climbed to an annualized $6.5 billion run rate based on second-quarter sales that came in 36% higher than during the previous year period.

Bristol-Myers Squibb's product lineup also boasts a popular blood thinner called Eliquis that outpaced Opdivo recently. Second-quarter sales of the blockbuster tablets rose 40% to an annualized $6.6 billion run rate. Aging products in Bristol's established brands segment are losing ground, but they make up just 14% of total sales. Eliquis launched a couple years ahead of Opdivo, which means both drugs could still be driving growth for Bristol-Myers long after Revlimid sales dry up for Celgene. 

With fairly mild headwinds to overcome, Eliquis and Opdivo sales could drive Bristol's bottom line and dividend a lot higher in the years ahead. Celgene doesn't have any plans to begin a dividend program, but Bristol-Myers Squibb shares offer a 2.6% yield at the moment. The company generated $4.1 billion in free cash flow over the past year, 63% of which was used to make quarterly payments. That isn't a long runway, but it's enough room to make increases in line with profit growth.

The better buy

Choosing which stock is the better pick right now really depends on your tolerance for risk. Eliquis and Opdivo will probably deliver years of respectable profit growth for Bristol-Myers shareholders, but the company doesn't have any remarkable new drug candidates in its late-stage pipeline.

Bristol-Myers has what it takes to squeak out a market-beating performance over the next five years, but more upside seems impossible without any exciting new candidates nearing the finish line. Celgene has been taking a lot more shots on goal than Bristol-Myers in recent years, but recent missteps will make offsetting Revlimid's eventual demise extra challenging. 

I'm not letting go of my Celgene shares, but large and relatively predictable cash flows ahead make Bristol-Myers Squibb look like the better stock to buy today.  

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Cory Renauer owns shares of Celgene. The Motley Fool owns shares of and recommends Celgene. The Motley Fool has a disclosure policy.