With the COVID-19 pandemic showing no signs of subsiding, investing in companies developing a cure for the virus can be a great hedge for the rest of an investment portfolio. As of July 24, shares of large-cap biotech company Regeneron Pharmaceuticals (REGN -1.12%) have returned more than 62% for investors year to date. An investment of $20,000 at the beginning of the year would have grown to $32,436 in the span of seven months. That's quite impressive, considering that the S&P 500 index fell by about 1% during the same period.
With the stock reaching record-high levels, investors may feel uncomfortable holding onto large profits and wish to sell now to buy it back later for a lower price. On the contrary, I think that Regeneron's winning streak is far from over and will leave little room for investors on the sideline wanting to buy the dip. Let's take a look as to why.
Image source: Getty Images.
A unique treatment for COVID-19
Out of thousands of possible candidates, Regeneron has identified two antibodies with the potential to combat SARS-CoV-2 and combined them into an antibody cocktail called REGN-COV2 to proceed into clinical trials. The company's antibody cocktail is unique in that it can both treat COVID-19 (as a drug would) and prevent healthy individuals from contracting the disease (as a vaccine would), resulting in billions of dollars of savings on healthcare costs if approved.
REGN-COV2 is now entering phase 3 clinical trials for its ability to prevent infection in people who have been in close proximity to someone with COVID-19 but have not themselves contacted the disease. The drug is also in phase 2/3 trials to test its efficacy in treating patients who do have COVID-19. While results are likely due by the end of the summer, the U.S. government has already preordered $450 million worth of the antibody cocktail. The company expects to ramp up its production to 1.6 million doses by the end of the summer. Hence, Regeneron's investors will get a sweet catalyst within this year -- but that's not all.
Robust financials
Not only is Regeneron in the midst of developing a cutting-edge therapy to combat COVID-19, but the company has also seen minimal effects from the pandemic itself. In the first quarter of 2020, Regeneron's revenue and net income stood at $1.8 billion and $771 million, respectively. That represents growth of 33% and 48% compared with Q1 2019.
The company's core portfolio consists of Eylea (a retinal disease treatment), Dupixent (a drug that treats allergic diseases), and Libtayo (a chemotherapy drug). All saw significant growth in Q1 2020. For starters, Eylea's global sales grew by 6% year over year.
Next, sales of Libtayo grew to $75 million. The drug is becoming a rising star in cancer treatments, as it boasts 32.4% improvement in survival compared with standard chemotherapy when given to patients with non-small cell lung cancer. But that's not all -- the drug is now the standard of care for patients with cutaneous squamous cell carcinoma, accounting for 90% of new prescriptions for this condition.
Most notable of all, however, is the company's anti-allergy drug, Dupixent. Dupixent is indicated for many common conditions, including dermatitis and asthma. Thanks to its outstanding efficacy, the drug is well on its way to bringing in over $3.4 billion in revenue for Regeneron this year.
What's the verdict?
Currently, Regeneron is trading at 8.5 times price-to-sales and 20.2 times price-to-earnings going forward. While this may seem expensive at first, keep in mind that Regeneron's revenue and earnings growth place it far ahead of its competitors in the biotech sector. Furthermore, the company has approximately $7.2 billion in cash and investments, with no debt whatsoever, putting it in a superb position with regard to financial health.
If that wasn't enough, Regeneron is also wildly profitable, with a gross margin of 90% and profit margin of 27%. The company also boasts an impressive return on equity of 21.3%. There's no doubt that Regeneron's profits are a result of its commitment to scientific research. Last year, the company devoted $3 billion -- 38% of its overall revenue -- to researching and developing new therapies. All things considered, Regeneron is a leading company in the biotech sector and the perfect choice for investors who are looking to buy high and sell even higher.
