For the most part, biotech stocks aren't having a great year with only a little over two months left in 2019. The top biotech-focused exchange-traded funds (ETFs) are trailing the S&P 500 year to date. But Geron (GERN 1.51%) and Celgene (CELG) are sizzling hot, with both stocks soaring 50% or more.
Which of these two high-flying biotech stocks is the better pick for long-term investors? Here's how Geron and Celgene compare.
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The case for Geron
The investing argument for Geron centers around the potential for its lead candidate imetelstat. Geron had teamed up with Johnson & Johnson for a while in developing the drug, but the small biotech has had to carry the torch all on its own after J&J opted not to advance imetelstat into late-stage clinical studies last year.
While the decision by J&J clobbered Geron stock, there has been plenty of good news since then. In August, Geron began a pivotal phase 3 clinical study evaluating imetelstat in treating lower-risk myelodysplastic syndromes (MDS). Last month, the U.S. Food and Drug Administration (FDA) granted Fast Track designation to the drug in treating relapsed/refractory myelofibrosis.
Geron hopes to report primary results from the late-stage MDS study in 2022. The company also plans to talk with the FDA in the first quarter of 2020 after the phase 2 study of imetelstat in treating myelofibrosis wraps up. If all goes well, Geron could be in a position to move forward with a pivotal study of its lead drug in the additional indication.
If imetelstat is successful in its phase 3 study targeting MDS, Geron could turn out to be a gold mine for investors who bought the stock early. The drug could have blockbuster sales potential assuming it proves to be both effective and safe. With Geron's market cap currently around $280 million, its shares would soar on a positive outcome from the MDS study. The company would also be a likely acquisition target for a bigger drugmaker.
The challenge for Geron, though, is in funding operations until the pivotal study wraps up. Geron reported cash and marketable securities totaling $162.3 million at the end of June. The company will likely need to raise more cash by mid-2021 if not sooner, which means that a dilution-causing stock offering probably isn't too far down the road.
The case for Celgene
You might wonder whether Celgene is worth buying at this point. After all, the biotech will soon be gobbled up by Bristol-Myers Squibb (BMY -0.55%). However, there are a couple of key reasons to buy Celgene even with its acquisition likely to finalize soon.
Celgene shareholders will receive a contingent value right (CVR) share for every Celgene share that they own as part of the BMS buyout. Each CVR share will pay $9 if three things happen by specified dates: The FDA must approve ozanimod by Dec. 31, 2020; it must approve liso-cel by Dec. 31, 2020; and it must approve ide-cel (bb2121) by March 31, 2021.
Will these approvals come by those dates? I think so. Celgene expects the FDA will approve ozanimod in treating relapsed multiple sclerosis by March 25, 2020. The biotech also anticipates filing for FDA approval of liso-cel soon followed by a regulatory filing for ide-cel in the first half of next year.
The other reason to buy Celgene now is the potential for solid returns after BMS completes its acquisition of the biotech. BMS already has blockbuster winners with anticoagulant Eliquis and cancer immunotherapy Opdivo, both of which are expected to rank among the top four best-selling drugs in the world within the next few years.
Celgene will bring enormously successful blood cancer drugs Revlimid and Pomalyst to BMS' lineup. The biotech also has blockbuster cancer drug Abraxane and a newly approved drug that could become a blockbuster in Inrebic. Even better, Celgene's pipeline includes candidates that are likely to become big winners, including ozanimod, liso-cel, ide-cel, and luspatercept.
Better buy
Successful investing in biotech stocks is all about balancing the inherent risks associated with these stocks with the potential reward if their drugs are successful. In my view, there's no question as to which of these two biotechs has a better risk-reward proposition: It's Celgene.
Geron could ultimately have a winner on its hands with imetelstat. However, there's a long way to go before we'll know if that's the case.
Meanwhile, Celgene already has multiple blockbuster drugs with more probably on the way from its pipeline. Bristol-Myers Squibb's acquisition of Celgene will result in a stock that should be able to deliver solid long-term returns, with respectable growth plus a strong dividend. Geron's a huge gamble; Celgene isn't.
