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Better Buy: Regeneron Pharmaceuticals, Inc. vs. Novartis

By Keith Speights - Mar 7, 2017 at 6:04AM

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Both Regeneron and Novartis have run into hurdles recently. Which is the better stock now?

Few companies can claim to have helped improve more individuals' eyesight than Regeneron Pharmaceuticals (REGN 0.84%) and Novartis (NVS 3.63%). Regeneron's Eylea and Novartis' Lucentis stand out as two of the most successful eye-care drugs ever. 

On the financial side, Regeneron's stock has been the better performer over the last five years -- up more than 240% compared to Novartis' 40% gain during the period. But which is the better pick for investors now? Here's how Regeneron and Novartis compare. 

Man facing arrows going in different directions

Image source: Getty Images.

The case for Regeneron

There's a good reason behind Regeneron's impressive stock performance in recent years. The company's revenue and earnings have soared. Nearly all of the gains came from Eylea, Regeneron's blockbuster drug approved for treating age-related macular degeneration (AMD), macular edema, and diabetic retinopathy.

While sales for Eylea continue to grow, the rate of that growth is slowing. That's problematic for Regeneron, since Eylea currently generates over 99% of total revenue. The company has poured resources into developing new drugs to reduce its dependence on one product.

A key part of Regeneron's strategy is PCSK9 cholesterol drug Praluent. Regeneron and partner Sanofi (SNY 5.95%) encountered a major hurdle in January when a U.S. District Court sided with Amgen in a patent infringement case. The court blocked Regeneron and Sanofi from marketing Praluent in the U.S. In February, the two companies won a stay of the injunction, but the ultimate outcome of the patent dispute is uncertain. 

Regeneron and Sanofi ran into another problem with experimental rheumatoid arthritis drug sarilumab. The U.S. Food and Drug Administration (FDA) refused to approve the drug because of manufacturing issues. 

This should be only a temporary setback, however. The two partners are resubmitting the regulatory filing for sarilumab. A decision by the FDA is expected in the second quarter of 2017.  

Perhaps the best potential for Regeneron to offset slowing sales for Eylea is with yet another Sanofi collaboration: Dupixent. An FDA decision on the experimental atopic dermatitis drug is expected in March. Analysts think Dupixent could reach peak annual sales of around $3 billion. 

Wall Street thinks Regeneron should be able to grow earnings by an average annual rate of nearly 19% over the next five years thanks to new products like Dupixent. Although that's much less than the company's recent growth, it's still quite strong and should power the stock higher in the coming years.

The case for Novartis

The growth story for Novartis hasn't been nearly as encouraging. Revenue and earnings in 2016 fell from the prior year. The company faced significant headwinds from the loss of patent exclusivity for cancer drug Gleevec and lower sales for its Alcon eye-care division.

Several of Novartis' current products are performing well, however. Multiple sclerosis drug Gilenya and leukemia drug Tasigna grew sales by double-digit percentages. Autoimmune disease drug Cosentyx is off to a great start. Analysts think the drug could eventually generate annual sales of more than $4 billion. 

Entresto hasn't been quite as big a success as Novartis initially hoped. However, the company still expects the heart failure drug to make peak sales of around $5 billion annually. 

Novartis hopes to make up for declining revenue from Gleevec with these current drugs and a strong pipeline. The company expects to submit three new drugs for regulatory approval this year, plus file for six additional indications for currently approved drugs. In addition, Novartis plans submissions for five biosimilars.

The company is partnering with Amgen on one of those new candidates -- experimental migraine drug AMG 334. Analysts think AMG 334 could reach peak annual sales of $1 billion. Novartis' pipeline also includes 12 other candidates that the company believes will be blockbuster drugs if approved. 

Wall Street analysts project that Novartis will grow earnings by around 5% annually over the next five years. That's not exactly awe-inspiring -- but it definitely beats earnings declines. 

Better buy

If you're looking for an income-generating stock, Novartis is clearly the better pick. Novartis claims one of the better dividends around, with a current yield of 3.67%.

However, if you want growth, go with Regeneron. The biotech's earnings multiple is pricier than Novartis', but I think its potential for growth makes the stock the better choice. I don't expect Regeneron's shares to sizzle as they have in recent years, but this stock still looks like a solid pick.

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Stocks Mentioned

Regeneron Pharmaceuticals, Inc. Stock Quote
Regeneron Pharmaceuticals, Inc.
$612.49 (0.84%) $5.10
Sanofi Stock Quote
$53.42 (5.95%) $3.00
Novartis AG Stock Quote
Novartis AG
$84.83 (3.63%) $2.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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