While the coronavirus is top of mind for many of us these days, Regeneron's (REGN 0.99%) REGEN-COV antibody treatment was just the fourth topic discussed on the company's most recent earnings call in February. Blockbusters Eyelea and Dupixent came first, as well as the company's self-described "strong and growing core brand," Libtayo.
Libtayo is a checkpoint inhibitor, a form of cancer immunotherapy that targets "immune checkpoints," allowing a signal to be sent that lets the immune system kill cancer cells. The market for these drugs has grown consistently over the decade since Bristol Myers Squibb's (BMY +0.46%) Yervoy was the first to be approved in 2011 -- Merck's (MRK 0.41%) Keytruda has grown to $14 billion in sales in less than seven years. Libtayo, which was launched in September 2018 for advanced cutaneous squamous cell carcinoma (a type of skin cancer), recorded a 24% increase in year-over-year quarterly U.S. sales for the quarter ending Dec. 31, to $74 million, with a 53% increase in full-year U.S. sales to $271 million. While Libtayo sales outside the U.S. were up as well, all of those proceeds go to Sanofi (SNY 0.15%) as per the two companies' agreement. Libtayo's accelerating growth means it is poised to become a big earner for Regeneron.
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Ready for more growth
In February 2021, Libtayo was approved as a monotherapy for first-line treatment of certain types of advanced non-small cell lung cancer. Not only that, but early in February 2021, Libtayo also received approval for locally advanced and metastatic basal cell carcinoma -- making it the first immunotherapy approved for the latter indication. And Regeneron expects additional data in late 2021 or early 2022 to support Libtayo's usage in combination with chemotherapy as a first-line combination treatment for non-small cell lung cancer and as a monotherapy as a second-line agent for cervical cancer.
According to the American Cancer Society, there are more than 200,000 cases of non-small cell lung cancer annually in the U.S. alone, and approximately 15,000 cases of cervical cancer. At a ticket price of just above $150,000 annually for Libtayo, that's an additional $30 billion-plus total addressable market beyond their already approved indications.
Management believes that the current market for Libtayo's already approved markets, skin cancer and non-small cell lung cancer, is north of $25 billion. The behemoth of the checkpoint inhibitors, Keytruda, soaked up $14.3 billion in sales in FY 2020, with $4 billion coming in Q4 alone. If Regeneron can garner just 10% of the market for which it already has approval, that would amount to more than $2 billion annually -- a 24% increase from 2020 full-year revenue if all else remained equal.
How does its valuation stack up?
Regeneron sports a forward price-to-earnings ratio of 10.3 and no dividend, and management is guiding for about a 15% year-over-year sales increase for 2021. Compared with its peers, that puts it at a slight bargain -- Roche Holdings (RHHBY +0.46%), which makes a similar drug called Tecentriq, has a forward P/E of 14, a 3.1% dividend, and sales expected to grow in only the low- to mid-single digits for 2021. Bristol Myers Squibb, which makes Opdivo and Yervoy, rocks a slightly lower forward P/E at 8.1 as well as a 3.2% dividend, but annual sales growth there is also anticipated in the low single digits. And Merck has a forward P/E of 11 and a 3.6% yield, yet also guides for lower sales growth than Regeneron -- 8% to 12% for 2021. Given that average P/E for the SPDR S&P Pharmaceuticals ETF (NYSEMKT: XPH) is a touch higher than 12, Regeneron looks like a deal among its peers thanks to its below-average P/E and above-average growth.
While Regeneron's COVID treatments are icing on the cake, they may not necessarily have the staying power to materially contribute to the bottom line for years to come the way Libtayo can. COVID numbers are (finally) declining, having reached their lowest levels since mid-October according to The New York Times, and many of REGN-COV's target audience is being sought out by public health officials for early vaccinations. Also, Eli Lilly's (LLY +0.31%) bamlanivimab has seemingly cornered the market on monoclonal antibodies given to patients in an attempt to stave off hospitalizations, raking in $871 million in the fourth quarter of 2020 (compared with $146 million for Regeneron's REGN-COV treatment during the same time period).
There are numerous headwinds to REGN-COV's future growth -- with falling COVID cases, an increasingly vaccinated public, and some growing concerns over the efficacy of these monoclonal antibody therapies, it's not a stretch to believe that REGN-COV sales may have peaked and are likely to decline over time.
Regeneron's recent FDA wins for Libtayo are likely the start of a new age of growth for the company -- and these financial tailwinds are agnostic of the future COVID climate. Keytruda became a blockbuster within two years, Tecentriq within three. It's a competitive market out there, but not a stretch to think Libtayo could become a blockbuster within four or five years of its introduction -- say, 2022 or 2023. Healthcare investors looking for the safety of a big pharmaceutical company with the potential for growth may want to add Regeneron to their watch list.
