- Regeneron has developed some truly life changing treatment options and has exposure to some undertreated spaces.
- The stock has run up quite a bit on their stellar performances in the past.
- The R&D pipeline doesn't look as promising as it did in the past implying that growth may be in for a pause in the quarters to come.
Regeneron (NASDAQ:REGN) is a leading-edge biotech and pharmaceutical company that focuses on cytokines and tyrosine kinase receptors at the cellular level. If you think the name Regeneron sounds familiar, the company has been making headlines over the past year. First, Regeneron developed an experimental antibody cocktail to treat COVID-19 called REGN-COV2. This treatment was granted emergency use authorization by the FDA and was even provided to former President Trump when he contracted the virus. They have a diverse product offering outside of COVID-19 offerings and some interesting possibilities in their pipeline. Today we will take a look at Regeneron's upcoming offerings and try to see what investors can expect over the medium term.
The company has made some key advancements in its product pipeline. The interesting thing about Regeneron is the diversity of its offerings. While there is variability in the value an investor can assign to each product, they are all obvious value drivers in the company's growth proposition.
It must be said that in terms of recent movement, the monoclonal antibody treatment or Regen-Cov and Libtayo appear to be the most promising prospects for investors.
Libtayo, in particular, is impressive, and it has been recently approved for treatment in non-small cell lung cancer with a PD-L1 expressing of at least 50%. This is important because some cancer cells are able to trick the immune system to prevent T cells from attacking. When the protein on cancer cells bind to the PD-1 receptor sites on T cells, it renders them inactive. Libtayo works by blocking PD-1 so that the T-cells remain active, which allows them to attack cancer cells. While reports suggest that efficacy varies across the board, the drug's effectiveness seems promising, with as high as 47.2% of tumors shrinking or disappearing for patients with metastatic cutaneous squamous cell carcinoma (CSCC) in the non-advanced stage. The company is now targeting leadership oncology, and you wouldn't bet against them.
Regeneron was recently involved with the groundbreaking trial alongside gene-editing company Intellia Therapeutics (NTLA), which saw the first successful in vivo gene editing therapy. The CRISPR therapy was to treat the liver disease Transthyretin Amyloidosis, otherwise known as ATTR, which saw a mean reduction of 87% across the study group. Regeneron owns the exclusive rights to Intellia's CRISPR technology for liver therapies and currently has over 20 preclinical programs that are being evaluated for further research.
Regeneron recently announced a new partnership with the British pharmaceutical company AstraZeneca (AZN) to research and develop small molecule compounds targeting the GPR75 gene. This is also promising because the Regeneron Genetics Center discovered the GPR75 gene to be a key factor in the development of obesity, a disease that over 650 million people suffer from around the world. It is especially exciting when you consider that the comorbidities associated with obesity can manifest as a significant cost to insurance companies which typically makes the drug more marketable.
Over the past couple of years, the growth of the genetics industry has been staggering, and Regeneron is fast becoming a major player. With the breakthrough that Regeneron had with Intellia, gene editing will gain momentum over the coming decades. It is estimated that the global genome editing market alone will grow to over $10 billion by 2030, with a compound annual growth rate, or CAGR, of anywhere between 15 to 22%.
The successful in vivo treatment may have possibly changed the way we see genetic diseases forever. Currently, there are over 6,000 different genetic diseases that affect an estimated 1 in 50 people around the world. If in vivo treatments can ever become affordable and scalable to the mainstream public, we could potentially see the complete eradication of certain diseases. Once the process is perfected, the sky's the limit for how far we can take gene-editing therapies.
So what's next for Regeneron? COVID-19 treatments may have a larger role in the future as virus variants continue to appear and discussion of regular booster treatment surfaces. Its genetic center may be the key to Regeneron's future success, though, as the facility is developing treatments for the aforementioned obesity, two COPD Phase 3 studies currently in progress, a Phase 1 treatment for early-onset Alzheimer's, as well as a continued focus on genetic therapies for both the liver and eyes. Regeneron is also focused on the continued advancement of siRNA gene silencing, which has more than 20 treatments coming down the pipeline at various stages of clinical testing. Many investors, including Ark Invest's Cathie Wood, are extremely bullish on the gene-editing industry. Regeneron is well-positioned to continue to be a pioneer and leader in this fast-developing future of healthcare.
The company is also seeing steady sales growth across the board, with EYLEA, a diabetic eye disease option leading the way.
The company believes that diabetic eye disease is an underserved opportunity as diabetes prevalence has been increasing at an astonishing rate, recently reaching a staggering 34 million cases in 2020.
Dividends and Share Repurchases
This is where Regeneron becomes a bit complicated. The company focuses its funds on R&D and has done extremely well, but it does not currently pay a dividend. The company announced that it would repurchase up to $5 billion in stock in 2020, but as we can see from the chart below, the company does not have the best track record.
Taking A Look At Valuation
The stock is currently trading at $574, with a 52 week high of $583 and a 52 week low of $441. The stock is currently trading at historical highs, but this may be justified with a staggering 54.45% gross margin.
The stock has been in somewhat of a hyper-growth phase, the pinnacle of which is expected to be when the company reports earnings on August 5. This has been a testament to the product pipeline and their R&D department. We can see that the company has made a habit of demolishing analyst expectations, and Q2 2021 could be its biggest beat yet.
Source: Seeking Alpha
But it looks like analysts are expecting stagnant EPS growth going forward, which is concerning.
Source: Seeking Alpha
This is probably why investors have been bidding at historical lows for a dollar of the company's sales and earnings, respectively. The forward PE ratio stands at just 11.9, which is paltry for a biotech firm of Regeneron's stature. There may just be an opportunity here if Regeneron announces new R&D priorities as biotech growth typically comes from approval expansion and the product pipeline.
Regeneron has provided staggering growth and some truly life-changing products, but perhaps it is suffering from having to compete with past successes. It is difficult to see where long-term growth comes from right now, but this can quickly change if the firm announces new projects. This stock is certainly not expensive, but it isn't cheap either. Therefore, I rate the stock as a Hold until we get more clarity on new projects.
This article was written by
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