Look for profits with Regeneron

Man having an eye test © iStockphotos
AMD is the main cause of blindness in over-65s

Regeneron, a US biotech company, specialises in treating eye diseases. But it’s far from a one-trick pony.

Diabetic eye disease and age-related macular degeneration (AMD) are becoming increasingly common. AMD is especially serious since it damages the central area of the retina, making it difficult to read and watch television; it is the leading cause of blindness in people over 65. Eylea, a drug produced by US biotech Regeneron (Nasdaq: REGN), is saving the sight of millions of people suffering from these conditions.

It is the market leader, notching up annual sales of $6.7bn a year, helped by its dosing regimen of injections every eight weeks compared to competing drug Lucentis’s every four weeks. Analysts are pencilling in peak sales of $8bn a year for Eylea.

A full pipeline

Eylea is far from the only reason to invest in Regeneron. The company has six other approved and marketed drugs, a well-stocked pipeline with 29 clinical trials in progress, a proprietary antibody technology and a genetics centre. Generating its own antibodies, which are key to drug development, means that the company does not have to pay licence fees to an antibody company. Regeneron’s biotechnologies include Velocigene, which enables rapid automated manipulation of mouse DNA to identify and validate therapeutic targets. The antibody and genetics facilities have helped ensure that all Regeneron’s pipeline drugs have been developed in-house. The technologies have enabled Regeneron to achieve 4,945 patents over the last decade.

Regeneron develops treatments for six main therapeutic areas: ophthalmology, inflammatory diseases, cardiovascular and metabolic diseases, oncology, pain and rare diseases. Beyond Eylea, approved and marketed drugs include Dupixent for atopic dermatitis and asthma, Zaltrap for metastatic colorectal cancer and Arcalyst for rare autoimmune conditions. Some of Regeneron’s revenues appear as partnership revenues; these include non-US Eylea revenues through Bayer and sales of Zaltrap through Sanofi. The Sanofi sales totalled $1.4bn in 2018 with Eylea $6.75bn (US $4.1bn) and others $29.5m.

As with all biotech companies, Regeneron’s potential is determined by the approved drugs likely to emerge from its pipeline. One of its most interesting pipeline areas is an immuno-oncology platform, with one drug, Libtayo, hitherto approved and marketed. Regeneron has nine of its 16 Phase I clinical trials in immuno-oncology with another two in later phases – one each in Phase II and Phase III (the final stage of clinical testing, before a drug is submitted to regulators for approval).

Drugs close to approval

The Phase III trial is of Libtayo for non-small cell lung cancer and cervical cancer. The other six Phase III trials include four on further applications for marketed drugs; they include Dupixent for asthma. The other two are for Fasinumab (for chronic pain in osteoarthritis) and Evinacumab for HoFH, a rare life-threatening condition.

All but one of the 29 pipeline clinical trials are of antibody drugs based on antibodies developed in-house. A total of four new molecules entered clinical trials in 2018 and 4-6 new antibody molecules are expected to enter clinical trials during 2019 demonstrating that research and development is paying off. The Regeneron genetics centre, meanwhile, continues to make discoveries including a new genetic variant that protects against chronic liver disease.

A blockbuster machine going cheap

Regeneron (NASDAQ: REGN)
Investment measure Investment ratio
Share price $322 2020 p/e ratio 12.8
Market value $34.5bn Cash $5.6bn
Recent results 2017 2018 Change
Revenue $5.87bn $6.71bn +14.3%
Operating profit $2.08bn $2.53bn +21.6%*
R&D $2.08bn $2.19bn +5.3%
Earnings per share $16.30 $22.80 +39.9%

Regeneron’s 2018 results are given in the table and show a 14.3% increase in revenue with a 40% rise in earnings per share (EPS).

Research and development (R&D) is a very high 32.6% of sales compared to most biopharma companies which typically devote 15%-25% of sales to R&D (Merck, for example, invested 23% in 2018 and Pfizer 14.9%).

Regeneron also has a healthy cash balance of $5.6bn, which it can use both for advancing the pipeline and for acquiring smaller biotechs. After Eylea, Dupixent is the second-highest selling approved drug with sales of $374m in the first quarter of 2019. It is thus already a blockbuster drug (one with annual sales over $1bn). Dupixent was approved for asthma late last year and has just been given the green light to treat adolecent atopic dermatitis. It could soon be approved for chronic rhinitis too.

These approvals suggest increasing revenue through to at least 2020. Analysts project EPS for Regeneron of $23.1 for 2019, rising to $25.2 for 2020. This gives a forward P/E of 12.8 for 2020 at the recent share price of $322.

Regeneron has one super-blockbuster ($10bn+ sales), Eylea, and one blockbuster, Dupixent, already on the market, five other approved drugs, a substantial cash pile and a pipeline based on its own antibodies with impressive potential in immuno-oncology.

It has proprietary technologies for therapeutic antibody production and gene therapy. The main risk with this stock is of late-stage clinical trial failures that reduce the prospects of replacing and enhancing Eylea revenue should stronger competitors to Eylea emerge and for when Eylea’s patents expire. But the forward price/earnings ratio of 12.8 makes Regeneron an attractive addition to your biopharma portfolio.