Regeneron: Rapid Growth Seems To Be On A Pause

Summary

• 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.

janiecbros/E+ via Getty Images

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.

Source: Regeneron

Product Pipeline

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.

Source: Regeneron

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.

Source: Regeneron

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.

Source: Regeneron

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.

Category Outlook

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.

Company Outlook

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.

Source: Regeneron

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.

Data by YCharts

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.

Data by YCharts

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.

Data by YCharts

Conclusion

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.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

Comments

[Price Holland]

Strange article. Regeneron is firing on all cillinders
Q2-21 revenue increased with 167% and EPS with 260% YoY. What kind of growth are you looking for?

My advice if you can still edit your article: Control Find 'Regeneron' and 'REGN', Replace by 'Chesapeake Energy' and 'CHK'

[applyberry]

Your article was dead wrongo. This stock is heading way north on huge beats 700 plus within a few weeks

[BM Cashflow Detective]

Nothing gets us better on our way than a short break.

$REGN is very poor value based on its 5y PEG ratio 3.09.

But that in no way disturbs my satisfaction with my Regeneron stocks. Breaks to which breaks are due. In this case it is most certainly the case.

[Sharepro]

@BM Cashflow Detective How come that the PEG ratio is this poor now. Your previous comments indicated better value.

[BM Cashflow Detective]

@Sharepro

Obviously, the share price has risen faster than analysts' estimates. That seems to have worsened the valuation of the PEG ratio. In the long term, however, the overall good outlook should not change. Current purchases seem to confirm that too.

However, the current 3y P/OFC/G ratio are much better with 2.27. Certainly not optimal either, but better.

I will continue to hold $REGN for the long term.

Regeneron's year-on-year change in revenues and earnings are better than the median among its peer group and the company's level of capital investment seems appropriate to support the company's growth.

No reason to change anything in my basic conviction. Stocks are a long-term investment and in this sense, long-term really means long-term. In this respect, long-term patience in the truest sense of the word is also required. I would say.

[Sharepro]

@BM Cashflow Detective Thx.

[Epicontact2]

I do not understand why Wall Street and writers continue to under estimate this company. This is truly a great stock for investors who are willing to do the work wise investors do.

[Puche]

For those investors that may be new to REGN, I highly recommend you focus on REGN's deep and broad oncology pipeline! Not just Libtayo that is already doing exceptional well picking up new indications and growing its revenues but the real early stage and mid-stage oncology pipeline!!! IMO REGN is going to be known as a leading oncology player in the next 10-years++. I plan to be a shareholder at that point as long as Leonard and George are running the company!!! Two exceptional individuals focused on the right stuff!!!!!!

My two cents. Slow and steady! Good luck to all!

[Puche]

Having been a long term investor in REGN (more than 15+ years), I was excited when I saw your article on REGN. I was eager to read what you had to especially considering the headline. As a SA member, we all know the headline can be misleading so I wanted to see for myself what you view was. When I read this line near the beginning of your article, "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" I had to admit I stopped and didn't read anything further.

To think that REGN's pipeline DOESN'T look at promising as it did in the past IMO is an investor that either doesn't know REGN's pipeline and research group or someone that is simply trying to get a laugh out of investors.

The SA community knows well what my views on REGN are. No need to reiterate them here other to say I continued to believe REGN made a multi-year low in late September 2019 and now is in a multi-year upward trend. This upward trend is driven primarily because the pipeline is actually the deepest and strongest its been in the history of the company. I've been following the company in depth since the early 2000s!!!! More importantly, REGN owns a much bigger piece of its pipeline than it has in the past. The SNY relationship is still active but much less of an impact on the R&D side than in years past.

Of course this is just my two cents. No issue with you having a different view or believing something else.

Slow and steady! Good luck to you!

[carinini]

@Puche Thanks for your two cents; I've got two more!
We are millions waiting with bated breath for High Dose Eylea!
The author confesses to being "obsessed" - perhaps he has lost sight of Eylea?
Cheers....

[mogall]

@Puche Well said! These analysts continue to prove they know nothing about REGN business.

[Puche]

@mogall thanks for the call out. Much appreciated.

The analyst have been chasing behind the REGN story since way back in 2009 and before. Leonard never embraced the Street and focused on building on unbelievable R&D power house with his partner, George (a total rock star!!!). His commitment to following the science and building a "great" company has served him and his shareholders very well. Having been a shareholder for more than 15+ years and counting, I'm more than willing to continue to enjoy the incredible ride!!!!

What makes me even more excited that over the next 10 years not only will REGN become an oncology mammoth but its going to keep a lot more of the profits for themselves. They no longer need a large cap pharma to finance the pipeline like they did years ago with Sanofi and Bayer.

All just my two cents. Slow and steady! Good luck to you!

[Mpsvk]

Check Sanofi presentation.

[Mpsvk]

DUPIXENT IN €
2020
Q21 697M
Q3 725M
Q4 773M
2021
Q1 793M
Q2 947M

[Et20]

Dupixent is the biggest revenue driver not Libtayo.

Their antibody cocktail against Covid is the treatment of choice having been approved in Europe, Japan and just recently as a post-exposure prophylaxis

[IncomeBent Investments]

@Et20 I'm looking for growth going forward. Libtayo is promising because it could propel Regeneron to being a category leader in oncology as the FDA expands treatment. That is easily the most promising option IMHO