Regeneron Is Primed for a Second Act

Friday, February 10, 2017

Source: Wall St. Journal

Growth is slowing for Regeneron Pharmaceuticals’ best-selling drug, adding to the long list of biotechs struggling to boost sales. But Regeneron actually has new drugs coming, making it a rare opportunity in the depressed industry.

Regeneron reported fourth-quarter revenue of $1.2 billion and adjusted earnings per share of $3.04. Those results topped expectations, but the news wasn’t entirely positive.

The biotech company said it expects sales of its signature product, the eye treatment Eylea, will grow by a percentage in the single digits this year. Analyst consensus calls for sales growth of about 12%, according to FactSet. In 2016, Eylea accounted for more than two-thirds of company sales.

Meanwhile, the company faces a continuing legal battle with Amgen surrounding the intellectual property of its new cholesterol drug, Praluent. Sales have been slower than Wall Street expected, and it is possible Regeneron will ultimately be barred from selling the drug.

So Regeneron needs to diversify its revenue base to re-energize growth. Unlike many of its competitors, Regeneron has a pipeline, much of it developed in collaboration with French drug giant Sanofi, that offers some solutions.

First up, the company hopes to win Food and Drug Administration approval to begin selling its new dermatitis drug, Dupixent, by the end of March. Chief Executive Leonard Schleifer told investors that preliminary conversations with payers about Dupixent have been productive, a necessary step to ensure the successful launch investors expect. Meanwhile, late-stage clinical trials are under way to test the drug for patients with asthma and nasal polyps. Analysts have high expectations for Dupixent; projections are for Regeneron to book nearly $3 billion in sales by 2022.

Investors might be missing other drugs in the pipeline, however. Regeneron and Sanofi hope to roll out their new rheumatoid arthritis drug, sarilumab, later this year. In a late-stage trial, that drug showed greater efficacy than AbbVie’s Humira, the world’s best-selling drug.

Granted, the rheumatoid arthritis market is highly competitive, and making inroads won’t be easy. But expectations are low. Analysts expect less than $600 million in sales from that drug by 2022. And Dr. Schleifer once again indicated a willingness to price the drug lower than competitors, though details won’t be available until after regulators approve sarilumab.

The stock trades at roughly 23 times forward earnings, according to FactSet. That isn’t a screaming bargain, but does allow for some upside if Regeneron’s pipeline is up to the task. That is a bet shareholders can be comfortable making.

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