Regeneron: An Evaluation, Heading Into 2013

Regeneron (NASDAQ: REGN) has seen a great year, and has a bright future with the sales growth potential of its wet-AMD treatment EYLEA (aflibercept). Wet-AMD is a nasty vision-destroying condition that affects a very large number of people (an estimated 15 million in the United States alone), and has a limited range of treatment options at this point.

REGN is up 224% since the start of the year. I last covered the company here, and noted that it wasn't an expensive stock at all given the extremely quick rate of sales growth seen by EYLEA throughout 2012 (and possibly into 2013).

The success of EYLEA was a big surprise to analysts on Wall Street, which greatly underestimated the treatment's growth prospects right after its FDA approval in 2011. Virtually nobody expected EYLEA to generate the $790-815 million that the company expects to earn in fiscal year 2012 until recently. Due to this, the company has now reached a valuation of $16.8 billion, which isn't that expensive relative to EYLEA's sales revenue if you factor in the enormous sales growth that the product is experiencing.

Although it may feel like the REGN train has already left the station, investors should consider any large and unwarranted drops (like one that could be caused by major trauma in the broader market) as a buying opportunity for REGN if there is nothing wrong with EYLEA's momentum in the market for wet AMD.

It also had another one of its drugs known as ZALTRAP approved by the FDA that will generate more revenue from the colorectal cancer drug market. If Regeneron strikes gold a second time, with ZALTRAP, it would be very impressive and would result in more gains for REGN going into 2013.

Keep in mind that it's much harder for REGN to have high percentage-based returns, since the company's market cap has grown so much. For instance, EYLEA's impressive performance has added about 12 billion to the valuation of Regeneron. If the company had another "EYLEA" that added 12 billion onto its value, the gains would be closer to 70% rather than 224% like we saw this year.

Regeneron investors may want to keep this idea in mind since it does limit the potential on returns in 2013, although it also limits the downside to a large extent as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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