Regeneron Pharmaceuticals (REGN +0.61%) is a growing biotech company that generates a ton of free cash flow. Over the years, it has obtained approval or authorization for 12 medicines. Its strong in-house development has made it one of the larger healthcare stocks in the world, with a market capitalization in excess of $90 billion.
In five years, shares of Regeneron have risen close to 130%, soundly outperforming the S&P 500 index and its more modest 87% gains. The business has been a popular investment option for growth-oriented investors. But where will Regeneron be a year from now, and is it still a good investment to hold in your portfolio today?
A key launch could be coming
One early development that investors should watch for in 2024 is the potential approval and launch of odronextamab. In September, Regeneron announced that the U.S. Food and Drug Administration granted a priority review for its Biologics License Application for odronextamab, which is a treatment for the two most common types of non-Hodgkin lymphoma: relapsed/refractory follicular lymphoma and relapsed/refractory diffuse large B-cell lymphoma. The PDUFA date is set for March 31, 2024.
Analysts at GlobalData project that at its peak, odronextamab could generate $468 million by 2029. While that wouldn't necessarily do much for Regeneron's top line next year, news of an approval could lead to more bullishness and momentum behind the stock.
NASDAQ: REGN
Key Data Points
Could the company pursue more acquisitions?
In September, Regeneron completed its acquisition of Decibel Therapeutics, which has gene therapy programs aimed at treating hearing loss. Regeneron's Chief Scientific Officer George D. Yancopoulos, M.D., said that "we are actively expanding our expertise in cutting-edge genetic medicine approaches, which currently includes gene silencing, gene editing and gene therapy technologies with the potential to address many serious and hard-to-treat diseases."
Depending on whether milestones are reached, Regeneron could end up paying $213 million for Decibel's business. That's a fairly modest amount given that Regeneron has generated nearly $4.4 billion in free cash flow over the trailing 12 months. And as of the end of September, the company had close to $10 billion in cash and marketable securities on its books.
Regeneron does have the resources at its disposal to get bigger. And with many gene-editing companies still relatively small and in their early growth stages, it could be an area that Regeneron continues to target in the coming year; staking out a position in the industry now could help the company secure an advantage.
I would expect Regeneron to acquire another company to further bolster and diversify its business, but whether that happens within the next year is a big question.
Sales should be stronger
In Regeneron's most recent quarter, which ended on Sept. 30, revenue totaled $3.4 billion, up 15% year over year. But those gains were largely due to collaboration revenue. The company's net product sales of just under $1.8 billion declined by 1%.
Next year, however, there could be better numbers as the company only launched its higher-dose version of Eylea, its treatment for eye disease, in August. Called Eylea HD, the recent approval has given the company a way to help fend off competition for its lower-dose version of Eylea -- its sales declined by 11% last quarter. Stronger growth, in turn, could lead to a better bottom line, as Regeneron typically reports a profit margin of at least 30%.
Should you buy Regeneron's stock?
Regeneron's stock is currently trading at a forward price-to-earnings multiple of just under 20, which is in line with the healthcare industry average. While it may not be a cheap buy, there's still good value here for long-term investors. With room for more growth, Regeneron could end up being an excellent investment to build your portfolio around since it still has the potential to be a market-beating stock.
