So far in 2022, Regeneron Pharmaceuticals (REGN 0.32%) stock has fallen by 14%. It recently hit a new 52-week low and trades at an incredibly low earnings multiple. But the company won't be able to rely on revenue from its COVID-19 treatment to prop up its financials anymore, and the growth it generated from its older portfolio of products wasn't all that great last quarter.
So is Regeneron a bargain at its current price, or is it a stock destined to go lower -- and one that investors should be avoiding?
Its COVID-19 treatment will no longer bolster growth
In 2022's first quarter, Regeneron's sales were down 40% compared to 2021's fourth quarter. From just under $5 billion in revenue for the last three months of last year, its top line shrank by approximately $2 billion. The gaping hole in the company's financials was due to REGEN-COV, its COVID-19 treatment, which didn't generate any revenue in the U.S. in Q1. A quarter earlier, that figure had totaled $2.3 billion; however, with the Food and Drug Administration limiting the use of the treatment due to its ineffectiveness against the omicron variant, it's not likely that sales of REGEN-COV will bounce back this year.
Regeneron's overall product sales totaled $1.6 billion in Q1, down 5% year over year. The company's collaboration revenue did, however, jump by an impressive 63% to $1.2 billion. Included in that were multiple milestone or one-time payments. But the bulk of the company's collaboration revenue comes from profit-sharing agreements, and it's not something I would rely on to propel the stock's long-term growth.
Multiple deals may strengthen its top line
Slumping sales could be an area of concern, but the good news is that Regeneron is making moves to bolster its portfolio. This month, it announced that it would be acquiring the full rights to cancer medicine Libtayo, on which it has partnered with Sanofi. After the deal closes, which the company expects will happen in the third quarter, Regeneron will record all of the sales and revenue related to the product. Sanofi will receive a $900 million upfront payment plus an 11% royalty on net sales moving forward. Last year, Libtayo's total worldwide revenue was $458.2 million. Of that, $152 million came from outside the U.S. (Sanofi would have recognized that revenue). While the deal will help beef up Regeneron's sales, it was already receiving the bulk of the revenue from Libtayo.
The company also recently closed on its $250 million acquisition of Checkmate Pharmaceuticals, which it believes will bolster its oncology portfolio. Although Checkmate didn't generate any revenue last year, Regeneron is optimistic about vidutolimod, the company's cancer treatment candidate, which is undergoing phase 2 clinical trials for multiple cancer varieties, including head and neck.
The great news is that with more than $14 billion in cash and marketable securities as of the end of Q1, Regeneron could make more of these types of deals to diversify its revenue streams.
How cheap is the stock?
Regeneron stock is trading at a forward price-to-earnings (P/E) multiple between 12 and 13. That's cheaper than the average stock on the Health Care Select Sector SPDR Fund, where the multiple is around 15 -- a discount, but not at an astronomical one.
Its trailing P/E of less than 8 certainly looks low. However, the past year's earnings were skewed upward by significant sales of REGEN-COV, and those don't look likely to recur. The forward P/E multiple is a better gauge of the stock for that reason, and puts its discount in a clearer context.
Not a value trap, but not a steal either
Regeneron's business outlook is a bit hazy. Its growth could be better, but its margins are good, and it still has plenty of liquidity to fund potential deals. As such, I wouldn't be too worried about this healthcare company. The discount certainly makes up for some of that uncertainty, so Regeneron could be a quality investment to add to your portfolio now.
