Regeneron (REGN 0.97%) has encountered several headwinds over the past two years, including the loss of patent exclusivity for one of its growth drivers, Eylea, a medicine for wet age-related macular degeneration. Even as its long-term returns remain solid, the stock has not performed particularly well over the last 24 months. There are several reasons why Regeneron could bounce back -- in fact, it has already begun to do so, with its shares up 35% over the past six months.
But does the biotech have what it takes to crush the market over the long run and turn average investors into multimillionaires?
Image source: Getty Images.
What the medium term looks like
Over the next five years, Regeneron's performance will depend on several assets. First, its most important product, Dupixent, a medicine for eczema and several other conditions, including COPD. This therapy should still record sales growth through the early 2030s. Second, although Eylea lost patent exclusivity, Regeneron earned approval for a high-dose (HD) formulation of the drug that comes with a friendlier dosing schedule.
As Eylea HD attracts many of the old version's patients, top-line growth could improve. Third, Regeneron could make significant progress with its pipeline. Notably, the company is working on a gene therapy for genetic hearing loss, which it could launch within the next few years, provided data from clinical trials is strong enough. This would be a nice addition to Regeneron's portfolio and would further boost sales growth.
NASDAQ: REGN
Key Data Points
However, the company's most important pipeline candidates right now might be its weight loss products. Regeneron is working on two approaches to the weight loss market. One of its candidates is a GLP-1 medicine that recently performed well in a phase 3 study in China. The other is being developed for use alongside GLP-1 therapies to help maintain lean mass as patients lose weight -- since much of the weight they shed is from muscle, which can cause issues. Regeneron's strategy could make it a notable player in the rapidly growing weight loss market.
What about the long-term?
For a drugmaker to achieve significantly above-average returns, it's essential to consistently innovate, launch new products, and overcome patent cliffs. Regeneron is showing that it has the means to do that. It is bouncing back nicely after losing patent exclusivity for Eylea. However, doing so over two or three decades -- what it would likely have to pull off to generate the returns needed to turn average investors into multimillionaires -- is a different story.
And with a market cap of $79 billion, it's highly unlikely that Regeneron can register even better performances than it did in the past (its performance more or less matches that of the S&P 500 over the past 35 years), when it was a smaller biotech company whose stock price was much more sensitive to significant clinical or regulatory milestones. So, is Regeneron a multimillionaire-maker? My view is that, like most stocks, it isn't. However, it can still deliver respectable returns over the next decade (and perhaps beyond).
