Regeneron (REGN) has been a stock market leader the past four years, going from $60 to a high of $600. What pushed the stock Biotech stock to breathtaking highs is its blockbuster drug Eylea which accounts for two-thirds of company revenue. Eylea treats molecular degeneration, the leading cause of blindness in the US, and works better than competing drugs Avastin and Lucentis. The drug also just gained approval for the treatment of diabetic retinopathy in patients with diabetic macular edema.
Now Regeneron has another blockbuster, one that could potentially be bigger than Eylea. Praluent, which lowers “bad” LDL-cholesteral in patients with heart disease who need more than the standard treatment, was approved by the FDA in July. The wholesale cost is $40 a day and the company expects the drug to be adopted slowly.
Regeneron also has a modest pipeline of 15 other drugs in development, including sarilumab, which treats rheumatoid arthritis, and dupilumad which could help asthma and/or atopic dermatitis. REGN is also working on a drug that targets cancer.
One Year Chart
During the past 4 years REGN’s annual profits have zoomed from $-2.41 to $12.18 (est) as Eylea continuously surpassed expectations (REGN now expects US sales of the drug to rise 45-50% this yr, up from earlier estimates of 30-35%).
With REGN making $12 now with Eylea, its possible Praluent could take profits to $24. A 30 to 35 P/E on $24 would mean a $720 to $840 stock, albeit years from now.
Fair Value
Although REGN has been a stock market leader for years, I’ve missed out on the upswing for two reasons. First, Eylea always comes in better than expectations, thus I’ve continuously underestimated its potential. Second, REGN is always high, with the P/E getting into the 50s and 60s at times. Right now, the stock market is taking down P/E ratios, and I feel 44x earnings might be too high for REGN. My target to buy in is between 35 and 40 times earnings.
Sharek’s Take
Regeneron is a much smaller company than Celgene and Gilead, but with two blockbusters and some other drugs in the pipeline, the company is growing rapidly. This is one of the top stocks I haven’t owned, and stock market corrections often give us second chances to get in. With REGN I’ll be looking to get in between $426 and $487, which is 35 to 40 times earnings.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
