Regeneron (REGN -0.09%) has been one of the better-performing biotech giants in the past year, with the company's shares rising by 33% in the past 12 months compared to the S&P 500's gains of about 9%. No doubt the drugmaker owes this performance in part to its coronavirus-related work. However, Regeneron is now facing severe headwinds in this market (more on that below).
Should investors still bet on this healthcare giant to continue outperforming the market?
Is Regeneron's COVID-19 tailwind over?
In 2021, Regeneron became one of the leaders in the coronavirus therapy market thanks to REGEN-COV, an antibody cocktail for the prevention and treatment of COVID-19. This product contributed significantly to the company's revenue last year. Regeneron recorded about $6.2 billion in revenue from REGEN-COV last year, representing approximately 39% of its total revenue.
That's not a trivial amount. However, there are at least two problems with REGEN-COV that will almost certainly lead to a significant decrease in sales for the COVID-19 treatment moving forward. First, it is administered via intravenous infusion or subcutaneous injection. That makes it less convenient than newer competing options, including Pfizer's Paxlovid and Merck's molnupiravir, both of which are pills that patients can take in the comfort of their homes.
Second, the U.S. Food and Drug Administration recently restricted the use of REGEN-COV to patients who were probably exposed to variants against which the therapy is likely to be effective. That does not include omicron, which is now responsible for the overwhelming majority of new COVID-19 cases in the U.S.
The worry is that REGEN-COV is unlikely to be effective against omicron. That makes the therapy of little use in the fight against the coronavirus at this point unless another variant against which it is effective arises. Regeneron generated roughly 94% of its REGEN-COV revenue from the U.S. last year.
As things stand, it looks like sales of this product will plummet in the U.S., undoubtedly affecting the company's top line.
Image source: Getty Images.
Other avenues for growth
In 2021, Regeneron reported total revenue of $16.1 billion, representing an increase of 89% compared to the previous fiscal year. That's a rare performance for the biotech giant. The company's net income for the year increased by 130% to $8.1 billion. Excluding sales from REGEN-COV, Regeneron's revenue for the year grew by 19% year over year.
While that's a lot less impressive, it is still an excellent performance. In other words, even without REGEN-COV, Regeneron's business looks strong. The company will face tough year-over-year comparisons in 2022, but it's essential to look beyond that. Several of Regeneron's products look like they have a bright future, most notably Eylea and Dupixent.
The former is a medicine for an eye-related disorder called wet age-related macular degeneration. Regeneron markets Eylea in the U.S. while Bayer does so internationally, and the two entities equally share the profits and losses associated with this medicine in most countries outside the U.S. In 2021, global sales of Eylea increased by 19% year over year to $9.4 billion.
Eczema treatment Dupixent is another promising product for Regeneron. Here, Sanofi holds the commercialization rights to this medicine outside the U.S., while Regeneron markets it in the U.S. The companies equally share profits and losses of Dupixent in the country while they rely on a sliding scale to divide up the costs and sales of the product elsewhere.
In 2021, Dupixent's global sales soared by 53% year over year to $6.2 billion. Meanwhile, Regeneron boasts more than two dozen pipeline programs, including new products and the potential for label expansions for existing medicines. In the past 12 months, Regeneron generated $6.5 billion in free cash flow, a yearly increase of 221.8%.
Expect the company to invest in its future, with greater research and development spending. This picture bodes well for Regeneron's future. Although the loss in sales associated with REGEN-COV will no doubt weigh on the company, the biotech giant has what it takes to continue performing well for many years to come. That's why its shares look like a buy today.
