While Regeneron stock (NASDAQ: REGN) is up 38% since the start of the year, it has dropped around 20% from its July highs of around $660. After the recent decline, REGN stock could offer an upside in the near term, as the company’s revenues in the last three quarters have grown by 29%, primarily aided by market share gains for Eylea, a treatment for serious eye conditions, including macular degeneration and diabetic retinopathy. This is likely to bolster the earnings growth rate of the company in the near term – leading to stock price growth.
While better than estimated earnings in Q2 and Q3 has helped REGN stock this year, much of the movement in the stock was based on the developments related to its Covid-19 treatment as well as vaccines developed by other pharmaceutical companies. The company in late November secured the U.S. FDA Emergency Use Authorization (EUA) nod for its antibody cocktail of casirivimab and imdevimab for treating patients with mild to moderate Covid-19. Regeneron’s treatment appears to have more advantages compared to others that are being developed or approved. The Regeneron treatment may be useful in the long-run, as it can help elderly and patients with compromised immune systems, who often do not respond well to vaccines. However, given the development of vaccines. with Pfizer’s vaccine already being approved by the UK today, there will be lower reliance and need for the treatment options.
That said, companies such as Regeneron derive a bulk of their revenue from other established products and the markets likely weren’t assigning a big value to the Coronavirus treatments, in the first place, given the nebulous long-term demand. Also, many of the Coronavirus treatments are drugs that were initially developed for other diseases meaning that development-related costs likely aren’t high. REGN stock looks attractive at current levels despite the 38% rise this year, as it continues to sees market share gains for Eylea and other drugs. Our dashboard ‘Buy Or Sell Regeneron Stock provides the key numbers behind our thinking, and we explain more below.
Looking at a wider time horizon, REGN stock is up 38% since early 2019. Some of the stock price rise over the last year or so is justified by the roughly 17% growth seen in Regeneron’s revenues from $6.7 billion in 2018 to $7.9 billion in 2019, and the figure is $9.2 billion for the last 4 quarters. However, the company’s Net Margin contracted 26% from 36% to 27%, resulting in an earnings decline of 13%. On a per share basis, earnings were down 14% from $22.65 to $19.38, partly due to a 1.4% growth in total shares outstanding due to share issuance. The margin contraction can primarily be attributed to a 39% jump in R&D expenses, due to a $400 million up-front payment to Alnylam related to the collaboration agreement between the two companies. Looking at the first nine months of 2020, R&D expense is up just 5% compared to total revenue growth of 29%.
Finally, Regeneron’s P/E ratio has expanded over the recent years. It grew from 16.5x in 2018 to 19.4x in 2019. While the company’s P/E has now increased to 26.5x trailing earnings, it could see further expansion given the benefit to its business from the expansion of Eylea, and higher revenues and earnings growth in 2020 and beyond.
How Is Coronavirus Impacting REGN Stock?
The global spread of Coronavirus has meant there just aren’t many people visiting doctors for non-emergency cases, and several types of elective surgeries are being postponed, impacting the sales growth of pharmaceutical companies, such as Regeneron. While the company’s Covid-19 treatment may not be a big drug in terms of sales after the vaccines hit the market, Regeneron’s Eylea looks reasonably strong and Dupixent – an antibody used for allergic diseases, co-developed with Sanofi – also holds significant promise. Eylea sales stood at about $4.6 billion and about $2.3 billion for Dupixent in 2019, with Sanofi indicating that Dupixent could have peak sales of over $10 billion. Now with economies opening up, Regeneron can see expansion of sales for these drugs.
Looking at the broader economy, the actual recovery and its timing hinge on the containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. Considering the near-term potential upside from expanding sales of Eylea and strong potential for Dupixent, the company looks like a reasonably good bet, with additional gains looking quite likely. At levels of $515, REGN stock is trading at 14x its 2021 estimated adjusted earnings of $36.81, compared to levels of 16x seen in 2018 and over 15x seen as recently as late 2019, implying the stock still has some room for growth.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.