After 55% Rise, Is Regeneron Stock Poised To Decline?

by Trefis Team
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Biotech company Regeneron (NASDAQ:REGN) has seen its stock price rally by over 55% this year with the stock currently trading at about $600 per share, due to anticipation surrounding the company’s experimental Covid treatments. Regeneron has gotten a lot of attention in recent weeks, amid news that President Donald Trump – who just recovered from the Coronavirus – was administered its antibody cocktail REGN-COV2 and also due to the fact that it is seeking emergency use authorization of the cocktail. Could the stock trend higher still or is it poised for a decline? We think Regeneron is a reasonably good bet at current levels, for a couple of reasons, which we outline below.

What Has Driven Regeneron’s Performance In Recent Years?

Let’s take a look at Regeneron’s performance over the last few years for a sense of how the company has been faring and what has driven its stock price gains. Regeneron Pharmaceuticals’ stock price increased from $376 per share at the end of 2017 to about $585 currently, a substantial increase of about 56%. While the company’s Revenues grew from around $6 billion to $8 billion driven partly by growing sales of the EYLEA drug that is meant for the treatment of age-related macular degeneration, Net Income Margins rose from around 20% in 2017 to about 27% in 2019, with Net Income growing from around $1.2 billion to about $2.1 billion. However, Regeneron’s P/E ratio has actually declined from about 33x in 2017 to levels of about 30x presently. See our analysis on What Factors Drove 60% Change In Regeneron Pharmaceuticals Stock Between 2017 And Now?

How Will REGN-COV2 Impact Regeneron?

The global spread of Coronavirus has increased demand for Covid-19 therapeutics. While there are only a handful of drugs that are available presently, including Gilead’s Remdesivir, Regeneron’s drug is showing promise. Early studies have indicated REGN-COV2 helps to reduce the viral load and symptoms in patients. The drug has also proved more effective for patients with a weak immune response. Besides testing its REGN-COV2 to treat both hospitalized and non-hospitalized Covid-19 patients, Regeneron is also studying the use of the cocktail as a preventive measure – which could enhance the potential market for the drug through the pandemic. The company has also partnered with Roche to increase capacity further.

That said, even if the drug is successful, it’s unlikely to generate perpetual revenues for the company. If a safe and effective vaccine is developed or if herd immunity is achieved, demand for Covid treatments such as REGN-COV2 is likely to fall considerably. However, Regeneron does have a lot to fall back on – demand for EYLEA is reasonably strong and Dupixent- an antibody used for allergic diseases, co-developed with Sanofi – also holds significant promise. Over the last fiscal, sales of EYLEA stood at about $4.6 billion and about $2.3 billion for Dupixent, with Sanofi indicating that Dupixent could have peak sales of over $10 billion. Considering the near-term potential upside from REGN-COV2, expanding sales of EYLEA and strong potential for Dupixent, and a relatively fair valuation of about 31x 2019 earnings, the company looks like a reasonably good bet, with additional gains looking quite likely.

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