Source: Regeneron Pharmaceuticals.
Biotech big boys Amgen (AMGN -0.19%) and Regeneron Pharmaceuticals (REGN -0.09%) have been in the news a lot recently, and for good reason. Both companies have recently won FDA and European regulatory approval for their new PCSK9 inhibitors. These drugs represent a new class of medication which offers huge potential to help millions of people around the world lower their LDL, or "bad," cholesterol.
While Regeneron was able to snag FDA approval for its PCSK9 inhibitor Praluent at the end of July, Amgen only received stateside approval at the end of August for its drug Repatha. But with the FDA approval hurdle now a thing of the past, which of these companies is the better buy today?
Huge opportunity ahead
Despite using diet, exercise, and statins to lower their LDL cholesterol levels, as many at 10 million patients still struggle to keep their LDL levels in check due to a condition known as heterozygous familial hypercholesterolemia. It is for these patients that PCSK9 inhibitors offer imediate hope, as reducing levels of LDL cholesterol in the blood can increase blood flow and reduce the risk of a having a heart attack or stroke.
To address this huge problem, both companies have been furiously working to bring their medications to market as quickly as possible -- and the revenue potential for these drugs look huge. So big, in fact, that Express Scripts recently published a document stating that these new medicines could grow to cost U.S. patients "more than $100 billion each year, if not managed properly."
While I seriously doubt PCSK9 inhibitors will come anywhere close to reaching that level of sales globally, let alone in the U.S., one thing is certainly clear: These drugs hold blockbuster potential.
Lets talk pricing
Wholesale pricing information for each of these drugs has already been released, and the two companies have taken a similar approach. The cost of using Amgen's Repatha for a year runs about $14,100, while using Regeneron's Praluent is $14,600.
Of course, it should be noted that while that is the listed price for the drugs, the actual cost to patients and insurers will differ wildly form that figure, as it's common practice in the industry for insurers to exchange formulary access for big pricing discounts. As for the patients themselves, their individual out-of-pocket costs for these medicines will vary hugely depending on the details of their health plan.
Are all PCSK9 inhibitors the same?
On a clinical level, both of these drugs have been shown to significantly reduce LDL-cholesterol levels in patients when added to other treatments. Both drugs also need to be injected every two weeks.
However, Amgen's Repatha might have a slight edge over Praulent when it comes to ease of use, as Repatha can be stored outside of the fridge for up to 30 days, where as Praulent shouldn't be out of a refrigerated area for more than 24 hours. While that sounds like a minor difference between the two, that small convenience factor may contribute to increased patient usage and satisfaction, which may give Repatha an edge with insurers and providers.
Needle-moving growth?
Even if both of these drugs go on to produce billions in revenue, the impact they will have on each company's top and bottom lines may differ considerably. As a longtime blue-chip biotech, Amgen racked up more than $20 billion in sales in 2014, so moving its top line in a meaningful way requires additional billions in sales. I think Repatha has a really good chance of making it happen, but Amgen is also fighting against patent expirations that may cause the company's top line to stagnate.
Regeneon, on the other hand, "only" generated $2.8 billion of total sales in 2014, so adding an extra billion or two to the top line represents a huge growth change on a percentage basis. However, while that sounds great, it's important to remember that Regeneron co-developed Praulent with its partner Sanofi, and it has to share profits with them 50/50 in the U.S., with Sanofi taking a slightly bigger slice outside the U.S.
Still, with the potential for Praulent sales to reach into the multiple-billions of dollars, even taking less than half of the total pie will still be a revenue bonanza for Regenron.
Value check
On a relative basis, PCSK9 inhibitors offer far more growth prospects for Regeneron investors, and as such, the market has been bidding up its stock price. When you chart at the trailing price-to-earnings ratios of these companies, the comparison looks ridiculous:
Regeneron is trading for about 125 times earnings, suggesting investors are expecting monstrous growth for the company. Amgen, by comparison, is trading for less than 20 times.
So which is the better buy?
Although I think the growth from PCSK9 inhibitors will be much greater on a percentage basis for Regeneron, when forced to choose between these two companies, I think Amgen's value price tag makes it the better buy today. In addition, while retaining 100% of the upside of Repatha, Amgen also offers investors a slew of other blockbusters drugs that are churning out cash, a big buyback program, and a 1.9% dividend yield that is well protected.
The bigger company's growth rate may be slower, and dealing with patent expirations will certainly be a challenge, but given everything we know, I think Amgen is the better choice today.
