Shares of Regeneron Pharmaceuticals
How it got there
What a year for Regeneron! It hasn't been flawless, but shareholders just about couldn't ask for much more.
The primary growth driver behind Regeneron's ascent has been its wet age-related macular degeneration drug, Eylea, which has had sales estimates revised dramatically higher twice since it was launched in November. Eylea's cost comes in just below the already-approved wet AMD treatment owned by Roche and Novartis
However, since the last time we really looked at Regeneron, we've been privy to some new potential growth drivers. The Food and Drug Administration approved Zaltrap this month, a drug co-developed by Regeneron and Sanofi
But, like I said, it hasn't been a flawless year. Although Regeneron's Arcalyst is approved to treat a rare genetic autoinflammatory disease, cyropyrin-associated periodic syndromes, it was yet again denied by the FDA as a treatment for gout. The drug isn't a total loss, as the FDA is requesting additional clinical information, but there are clear indications that the FDA is concerned about the potential for serious side effects from the drug.
How it stacks up
Let's see how Regeneron stacks up next to its peers.
Going from no approved drugs to three FDA-approved drugs has drastically lifted Regeneron's performance far beyond its peers.
|
Company |
Price/Book |
Price/Cash Flow |
Forward P/E |
Dividend Yield |
|---|---|---|---|---|
|
Regeneron Pharmaceuticals |
23.4 |
NM |
43.2 |
0% |
|
Novartis |
2.3 |
10.1 |
12.0 |
4.1% |
|
Eli Lilly |
3.6 |
7.9 |
11.1 |
4.6% |
|
Bristol-Myers Squibb |
3.4 |
11.5 |
15.5 |
4.2% |
Source: Morningstar. NM = not meaningful.
It's pretty easy to see that Regeneron's Eylea has been the impetus that has propelled it higher, but it really lacks the pipeline diversification (and dividend) that you can get with these other biotechs. Regeneron does have superior growth prospects, but it'll need to continue to demonstrate that it can successfully launch new drugs and further improve the indications of its existing drugs if it hopes to maintain its premium valuation relative to Novartis, Eli Lilly, and Bristol-Myers Squibb.
What's next
Now for the $64,000 question: What's next for Regeneron Pharmaceuticals? The answer depends on whether the company can get additional treatment indications for its existing drugs approved by the FDA, if it can continue to rapidly grow Eylea, and if it can successfully launch Zaltrap despite going up against Eli Lilly, Bristol-Myers, and Roche's deep pockets.
Our very own CAPS community gives the company a dreaded one-star rating (out of five), with just 72.5% of members expecting it to outperform. Unfortunately for me, my CAPScall of underperform is my second-worst performing pick out of more than 640 CAPScalls -- it's down a disappointing 145 points.
Although I've been dead wrong about Regeneron thus far, I still feel quite strongly that it's overvalued at its current levels. If Lucentis' sales get hammered enough by Eylea, I wouldn't discount the idea that Roche goes after a wet-AMD indication for Avastin. Given Avastin's considerably cheaper costs, this could spell trouble for Eylea. Also, the failure of Arcalyst to gain approval as a treatment for gout is a reminder that not all of Regeneron's drugs may have additional indications. However, the stock is currently priced as if each FDA-approved drug does! There's absolutely no value left in the company at 43 times forward earnings, period!
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