Seeking Alpha

Regeneron: Onward And Upward

About: Regeneron Pharmaceuticals, Inc. (REGN)
by: Chris Lau

Regeneron stock now on a sustained uptrend.

Three positive takeaways from the earnings report.

Price target over $400.

When Regeneron (REGN) fell to as low as $270 in September, the stock looked as though it would add to the YTD losses. Even as the stock rallies today, up 7% to $334, investors are still down ~17% in 2019. The company's third-quarter results may send the stock higher for three good reasons.

1 - Dupixent Sales

Regeneron reported an incredible 141% increase year-on-year in Dupixent global net sales, to $633 million. This was driven by higher profitability from antibody collaboration with Sanofi (NASDAQ:SNY). TAM (total addressable market) for the drug continues to grow. The company said it broadened its efforts in retinal and type 2 inflammatory diseases. It will start late-stage trials for Dupixent in additional type 2 diseases in the next few months.

Although REGN stock appears somewhat undervalued at an 18 times P/E and 12.4 times forward P/E, recent approvals for Dupixent will sustain the pace of growth. Regeneron noted:

- extended approval from European Commission for Dupixent for adolescents in August 2019

- Phase 3 trials for treating children aged 6 to 11 years met its primary and secondary endpoints

2 - EYLEA Sales Strength

EYLEA sales grew 16% to $1.19 billion, up from $1.022 billion last year, despite new competition from Novartis (NVS). In the last quarter, the company faced no real drop in sales volumes or pricing. Strong momentum for EYLEA continued into the third quarter and should allay investor fears over the generic pressures ahead. The FDA's approval of a pre-filled syringe for EYLEA should enable the company to sustain sales growth.

GAAP SG&A expenses rose to $420 million, up from $369 million last year. The higher headcount and related costs are necessary and will pay off in the quarters ahead. Still, the commercialization-related expenses for EYLEA (and Dupixent) are elevated in the near term and will eventually decline. Net profit for EYLEA outside of the U.S. was up slightly by ~$30 million, to $275 million.

3/ 2019 Financial Guidance

For the full year, the company lowered its collaboration revenue guidance slightly while the low-end of capital expenditure will rise by $10 million:

GAAP Sanofi collaboration revenue

$490 million-$510 million

(previously $500 million-$530 million)

Unreimbursed R&D(4)

$2.360 billion-$2.410 billion

(previously $2.300 billion-$2.380 billion)

Non-GAAP Unreimbursed R&D(1)(3)

$1.680 billion-$1.710 billion

(previously $1.650 billion-$1.710 billion)

GAAP effective tax rate


(previously 11%-13%)

Capital expenditures

$390 million-$420 million

(previously $380 million-$420 million)

Source: Regeneron

Regeneron's outlook raises no alarm bells at this time. Collaboration revenue and R&D reimbursements will come in within the previously expected range.

Price Target

If investors use a valuation based on future cash flow, then the stock's fair value is $446.75. Below, the current price is as of Nov. 4, before the earnings report.

Conversely, in a 5-year DCF Revenue Exit model, investors may assign a modest discount rate of 10%. Even if revenue growth slows from the double digits to the 5% range by FY 2023, the stock's fair value is over $400.

Source: (click on the link to view fair value range)

Your Takeaway

Once again, Regeneron's strong quarterly results should allay investor fears that EYLEA faces any real generic competition. The addressable market for current product lines continues to grow. This will add to cash flow growth for the foreseeable future at the very least. Its long-term growth prospects are even better as the company's branding strength takes hold. The company's drug development in the oncology market also diversifies its revenue stream. It also offsets any potential clinical setbacks. Still, the R&D team has a proven track record and is more likely to post encouraging results.

Disclosure: I/we 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.