Why the Risk/Reward Ratio Looks Great for Regeneron Pharmaceuticals Inc.

There’s risk, but there could be vast rewards for Regeneron Pharmaceuticals Inc.

Jan 8, 2014 at 7:25PM

The pharmaceutical sector inevitably serves up companies at different stages in their development.

For instance, take GlaxoSmithKline (NYSE:GSK). It is a well-established pharmaceutical player that has developed a diverse range of drugs and treatments over the years. Although a large proportion of its revenue depends on the success of a relatively small number of drugs, it does enjoy a degree of diversity.

Then there's stable mate Allergan (NYSE:AGN), which focuses on a smaller number of products but attempts to gain approval for those products to be used in a wider range of conditions. For instance, botox is used for facial aesthetics but also for upper limb spasticity, as well as a conditions such as severe underarm sweating. Allergan is seeking approval for further uses, too.

Meanwhile, Regeneron (NASDAQ:REGN) has yet another different set of circumstances, with its first product coming to market in 2008. This makes it a relatively young business, and since then, it has had two further drugs approved by the FDA, one being a partnership with Sanofi.

This means Regeneron could be viewed as risky, since it has a smaller and less diversified stable of products than many of its peers. However, while this could mean greater risk on the one hand, it could also lead to greater reward.

Indeed, Regeneron made a net profit last year for the first time ever, with the company's being able to deliver a bottom line of $750 million in 2012.

Furthermore, 2013 is set to be another profitable year, although earnings are set to dip slightly, by 1%. However, 2014 and 2015 look set to be strong years, with earnings per share forecast to grow by 23% in 2014 and 15% in 2015. This equates to an annualized growth rate of just under 19% in 2014 and 2015: very impressive numbers indeed.

However, the really fascinating thing about Regeneron is not necessarily its products or even its growth in profitability. Rather, it is the potential for how it could perform if the wider market continues to reach higher highs.

This is because Regeneron is a high-beta stock, meaning its shares should outperform the index during a bull run and underperform during a bear phase. For instance, since Regeneron's beta is 1.97, it should (in theory) go up by 1.97% for every 1% gain in the wider market, while the same will (in theory) be true if the wider market falls by 1% -- Regeneron should fall by 1.97%.

Compare this with other pharmaceutical stocks such as GlaxoSmithKline and Allergan, which have betas of 0.54 and 1.15, respectively, and it's clear that Regeneron is a different beast in terms of its risk/reward profile.

This, of course, increases the risk to investors in Regeneron but also means that there are greater potential rewards on offer. Coupled with a growing pipeline of potential drugs, the scope for further FDA approvals, and impressive EPS growth prospects, and, suddenly, the risk/reward ratio for Regeneron looks very appealing.

A new approach to cancer treatement
The best way to play the biotech space is to find companies that shun the status quo and instead discover revolutionary, ground-breaking technologies. In The Motley Fool's brand-new free report "2 Game-Changing Biotechs Revolutionizing the Way We Treat Cancer," find out about a new technology that Big Pharma is endorsing through partnerships, and the two companies that are set to profit from this emerging drug class. Click here to get your copy today.

Fool contributor Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers