Excitement for Regeneron's (REGN -1.75%) potential new coronavirus treatment has been soaring along with the stock's price, and investors are wondering how much further it can climb.
Is Regeneron a good coronavirus stock to buy now, or has the stock market's enthusiasm for this coronavirus stock been overblown? Let's weigh reasons to buy Regeneron against the risks its new shareholders are taking on to find out.
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Reasons to buy Regeneron
Regeneron's dual antibody cocktail for the treatment and prevention of COVID-19, called REGN-COV2, is progressing through adaptive clinical trials with different groups of patients. Earlier this month, the company began the phase 3 portion of a study treating healthy people who have had close exposure to COVID-19. Following successful results from the phase 1 portions of trials, Regeneron has begun the next stages of clinical trials with thousands of hospitalized and non-hospitalized COVID-19 patients.
There's still a lot we don't know about the novel coronavirus, which makes it a good idea to fill your portfolio with stocks that can still provide positive returns if their coronavirus candidates flop. With multiple blockbuster drugs in pharmacies now and more on the way, Regeneron fits this description perfectly.
Regeneron's lead drug, Eylea, could experience a great deal of competitive pressure in the years ahead, but it's rising steadily at the moment. First-quarter sales of the blindness preventing injection rose 6% year over year to an annualized $7.4 billion.
Dupixent, a treatment for eczema and asthma that Regeneron discovered for Sanofi (SNY 5.90%) has become increasingly popular. First-quarter sales of the anti-inflammatory injection soared 129% to an annualized $3.4 billion.
Sales of Regeneron's cancer immunotherapy Libtayo have languished as a treatment for advanced skin cancer patients, but they could take off as a new treatment option for the large lung cancer patient population next year. During a study with newly diagnosed lung cancer patients, Libtayo reduced patients' risk of death by 32.4% compared to standard chemotherapy.
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Reasons to wait
Shares of Regeneron have risen around 72% in 2020, and at recent prices, the stock looks a little pricey at 24 times forward earnings expectations. If REGN-COV2 flops, new shareholders could quickly suffer significant losses.
Regeneron isn't the only company developing an antibody-based COVID-19 treatment. Eli Lilly's (LLY -1.00%) COVID-19 treatment candidate, LY-CoV555, leapt past REGN-CoV-2 to begin its first clinical trial in early June. Lilly's treatment candidate doesn't necessarily need to outperform REGN-COV2 to pressure its sales. Providing insurers and government payers with multiple treatment options goes a long way toward strengthening their bargaining position.
Regeneron has new growth drivers, but the company still relies on U.S. sales of Eylea for the vast majority of total revenue. The main U.S. patent protecting Eylea's market exclusivity has been extended for three years through June 2023. After this, biosimilar competition could begin pressuring sales of Regeneron's top drug.
A buy now?
Regeneron is a steadily profitable company now, and it will continue delivering those profits to its shareholders even if REGN-COV2 never gets off the ground. With Dupixent and Libtayo pushing up sales at a hair-raising pace, success with REGN-COV2 could allow Regeneron stock to provide market-beating gains over the long run.
The stock's current valuation is high, but probably not too high for investors with a large tolerance for risk. If you're nearing retirement, though, it might be best to stand back and hope for a better entry point.
