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2 Drug Approvals and Shares Drop? That's Biotech!

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The good news just keeps coming for Regeneron Pharmaceuticals (Nasdaq: REGN  ) . On Friday, the company got it from both sides of the pond.

First Eylea was recommended for approval in patients with wet age-related macular degeneration by the Committee for Medicinal Products for Human Use. That's essentially an approval in Europe since the final step is just a rubber stamp by the European Commission.

And then the Food and Drug Administration approved Eylea to treat macular edema following central retinal vein occlusion.

Neither was unexpected. Eylea is already approved in the U.S. for treating wet age-related macular degeneration, so the approval in Europe was widely expected. And the phase 3 trials used to support the expanded approval produced solid results. Roche's rival drug Lucentis is already approved to treat macular edema following central retinal vein occlusion.

The results were so widely expected that shares fell slightly on the combined news on Friday.

That valuation is the only downside to Regeneron I see at the moment. The company sports a market cap of $13.7 billion, which puts it trading at around 18 times expected sales of Eylea this year.

Regeneron needs to accelerate sales of Eylea to grow into that P/S ratio because its other drugs aren't going to help out much. Regeneron's first approved drug, Arcalyst, competes for a very limited number of patients with Novartis' (NYSE: NVS  ) Ilaris. It recently gained approval for its third drug, Zaltrap, which it'll sell with Sanofi (NYSE: SNY  ) , but even if the duo can make money treating colorectal cancer patients that have failed other treatments such as Eli Lilly (NYSE: LLY  ) and Bristol-Myers Squibb's (NYSE: BMY  ) Erbitux, Regeneron's share of the profits will be limited, at least initially.

The new approvals should help increase sales, but with sky-high expectations, investors should be careful investing even if the biotech seems to be able to deliver nothing but good news.

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Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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