Regeneron Pharmaceuticals (NASDAQ:REGN) reported its fourth-quarter numbers before the bell this morning, slightly missing consensus on diluted earnings per share but beating on revenue.
The Street expected diluted EPS of $2.82, but the company posted earnings of only $2.79 per share. On the revenue side, Regeneron's $802 million for the quarter beat the Street's $781.52 million consensus estimate by 2.6%.
Regeneron reported full-year diluted earnings of $10 per share, missing the consensus forecast by just $0.03. Revenue of $2.82 billion was narrowly higher than the Street's expectation of $2.8 billion.
Given that Regeneron has been one of the best-performing biotech stocks over the last couple years, let's take a deeper look at the company's earnings report and consider if this stock belongs in your portfolio.
Eylea sales drive Regeneron earnings
Not surprisingly, Regeneron's earnings centered around the strength of its blockbuster injected eye drug Eylea. For the quarter, U.S. sales grew by a hefty 29% to $519 million, compared to the same period a year ago. Per management's comments, a fair amount of this growth can be attributed to the drug's recent label expansion for diabetic macular edema. When adding revenue from its licensing agreement for foreign sales with Bayer HealthCare, Eylea composed 75% of the company's total revenue during the quarter.
For the full year, Eylea's U.S. sales grew by a stately 23% to $1.73 billion. Including licensing revenue, the drug provided roughly 72% of total annual revenue, showing the company's massive dependence on this single drug for top-line growth.
The good news is that Eylea should continue posting monster numbers for years to come, particularly if it gains another label expansion for diabetic retinopathy. The Food and Drug Administration is expected to review supplemental biologics license application for this indication by March 30, 2015.
Even excluding this label expansion, management forecasts 25% to 30% sales growth for the drug in 2015.
How about that pipeline?
Management also updated investors on the progress of its monoclonal antibody pipeline and licensing agreements with French biopharma Sanofi. Chief among the updates, Regeneron said closely-watched next-generation cholesterol drug Praluent -- co-developed with Sanofi -- is nearing a July 24 FDA regulatory decision, and the drug's regulatory filing was recently accepted for review in the EU.
While other similar drugs are expected to hit the market over the next few years, the sheer size of the cholesterol and high triglyceride markets suggests competition won't stop most, if not all, of these new drugs from eventually becoming blockbusters. Given Regeneron's need to diversify its revenue base, Praluent's regulatory date should be etched into investors' minds.
Is Regeneron a strong buy on the back of its fourth-quarter earnings?
Regeneron has undoubtedly been a top biotech stock since Eylea's first regulatory approval. That said, investors have built in a massive premium in this biologics specialist. At current levels, for instance, the stock trades at a forward price-to-earnings ratio of 34, well over the sector's average.
Based on the clinical data made publicly available thus far, Praluent appears on track to be approved in the U.S. later this year. But Regeneron does not own the exclusive worldwide rights to this drug.
With little else to fill in this valuation gap, Regeneron might have trouble pushing higher this year. It's probably worth keeping on your watchlist in case a pullback takes place, but the price simply isn't attractive here, in my opinion -- despite Eylea's amazing growth profile.