Its treatment for a common eye disease made Regeneron Pharmaceuticals a star. Now, a new dermatitis medication could bring superstardom to the fast-growing biotechnology company.
[ibd-display-video id=2326965 width=50 float=left autostart=true]Other breakthrough Regeneron ( REGN ) drugs treat arthritis and cholesterol, and the company is developing promising asthma and cancer treatments. Those are just some of the reasons that Investor’s Business Daily named Regeneron a winner in the inaugural IBD Biotech Innovator Awards .
Regeneron’s financials back up the optimism. Earnings per share minus various items shot up 39% to $11.32 last year, impressive for a company that posted losses until 2012. Revenue has skyrocketed more than tenfold since 2011, to $4.86 billion last year.
“Regeneron has been a fantastically successful company and story,” said Piper Jaffray analyst Edward Tenthoff.
Tenthoff began covering the company in 2007, “when the stock was $14 and change.” Now, he estimates 2017 total revenue of $5.68 billion and EPS of $14.38 a share, rising to $6.43 billion and $16.01 in 2018.
How IBD Chose The Biotech Innovator Award Winners: IBD asked equity analysts, ETF and mutual fund managers, and university professors to identify the top biotech companies based on their innovative research. We asked them to focus on companies with pioneering drugs likely to launch in the next several years and reach blockbuster, or near-blockbuster, sales of $1 billion or more a year. The award winners selected by IBD editors are the six most-cited companies. To find profiles of all the award winners and details of their work, go to our full Biotech Innovators special report .)
Even in 2007, Regeneron stock was rolling, having traded below 11 as recently as 2006. A meteoric decade-plus found shares peaking above 600 in August 2015. The stock hit a 20-month high of 543 in June but now trades near 445 after taking a hit from potential competition in eczema from AbbVie ( ABBV ). Tenthoff’s price target is 557.
Regeneron’s ascent began in 2011 with the approval of its drug Eylea, which treats a disease called wet-eye age-related macular degeneration, the major cause of blindness in the elderly.
A relationship with French drug giant Sanofi ( SNY ), a suite of key development tools, and a focus on pure science have enabled Regeneron to grow into a biotech titan.
Its future? A family of antibody drugs, some that can be used to treat a number of common diseases and thus address multibillion-dollar markets.
All humans have antibodies, proteins that fight disease. Antibody drugs are proteins manufactured to fight specific diseases.
‘Purest Scientific Company’ In Biotech
Science is at the heart of Regeneron’s corporate culture and success, according to analysts and company executives.
“They’ve taken on the mantle of the purest scientific company in the industry,” said Geoffrey Porges, an analyst with Leerink Partners. “They pride themselves on the rigor of their scientific enquiry.”
He rates the stock outperform, or buy, with a price target of 511.
Porges says Regeneron’s commitment to its research and development is “virtually unique in the industry .”
In 2016, Regeneron spent $2.052 billion on R&D, 42% of its total revenue. That’s well above the norm. The 10 largest pharma companies averaged 17% of revenue for R&D last year, according to an April report by the online newsletter Fierce Biotech.
Tarrytown, N.Y.-based Regeneron has had help funding R&D thanks to relationships with other companies, including a 10-year relationship with Sanofi.
Regeneron and Sanofi have agreements for the ongoing development of immunotherapy cancer drugs. But their agreement for antibody drug development and licensing will terminate at the end of 2017. Under that pact, Regeneron got R&D funding and Sanofi certain licensing rights. The end of that pact poses no problems, say analysts and a Regeneron executive.
Regeneron has become “so big that they really don’t need Sanofi,” analyst Tenthoff said. “They can make the discoveries on their own and commercialize them.”
True, says Regeneron.
“We have become a very self-sufficient end-to-end R&D house,” David Weinreich, Regeneron’s senior vice president of global clinical development, told IBD. “We are self-reliant on our own income stream such that we don’t need the Sanofi contribution to research.”
He says the termination of this Sanofi pact will enable Regeneron to set up “more partnerships” where it makes sense.
Manipulating Mouse DNA
Weinreich cites the company’s development platform, built internally, as key to enabling it to rapidly identify therapies.
Two of Regeneron’s key drug-development tools are VelociGene and VelocImmune. The first aims for rapid, automated manipulation of mouse DNA to speed up the modeling of human disease. The other aims to help identify a multitude of optimized antibody drug candidates efficiently and directly from immunized mice.
“This technology allows us to very quickly screen through lots of antibodies and find ones that have the characteristics we want,” said Weinreich.
“We’re not a huge company in terms of overall size,” he said. “But these technologies allow us to go after a large number of targets simultaneously. And that’s how you wind up with 16 drugs in the development portfolio.”
Regeneron’s science focus helps it attract top talent, he says.
“We live our motto that the science comes first. … There are not many places out there like us,” said Weinreich. “Our scientists can take novel study approaches.”
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Regeneron grants every employee stock options, he says, so all employees can share in the company’s success.
In August, the company reported a 21% jump in Q2 revenue, to a record $1.47 billion. Earnings per share minus items rose 48% to $4.17. Analysts polled by Zachs called for $3.18.
For Q3, analysts polled by Zachs are calling for EPS of $3.79, up 21% from the year-earlier quarter.
Eylea Now, Dupixent Soon
Eylea continues to drive financials, and its Q2 sales beat Wall Street views. Tenthoff says U.S. sales could end the year up 10%, at $3.65 billion. He sees Eylea’s U.S. sales rising 5.5% in 2018, to $3.85 billion.
Eylea is sold by both Regeneron and its partner on the drug, German drug giant Bayer (BAYRY). Regeneron has exclusive rights to U.S. sales of Eylea. Bayer has exclusive marketing rights outside the U.S. The companies share equally in the profits from sales of Eylea, except in Japan where Regeneron receives a royalty on net sales.
But while Eylea is the present, many industry observers say Dupixent is the future. It is being sold to treat atopic dermatitis in the U.S., after gaining FDA approval in March.
Now, Regeneron seeks EU approval for this treatment – but its hopes for the drug go much further.
“(Dupixent) has potential in a number of other diseases,” said Weinreich. It could be used to treat asthma, nasal polyps, multiple allergies (including peanut allergies), esophageal inflammation and more.
“This drug could very well be a pipeline unto itself,” Weinreich said.
Regeneron is conducting Phase 3 trials of Dupixent to treat asthma and could seek FDA approval next year.
“Dupixent could be as big as, if not bigger, than Eylea,” said analyst Tenthoff, who rates Regeneron stock overweight, or buy.
Just as a treatment for asthma alone, annual global sales “could be $5 billion,” he said.
If Dupixent does well in the asthma study, it could be “one of the most notable new drugs” this year, Amy Brown, of research firm Evaluate Pharma, wrote in an August report.
Others, though, temper their enthusiasm.
“Dupixent is a big drug … but people have come to overvalue it,” said Brian Skorney, an analyst at Baird Equity Research. Skorney downgraded Regeneron to underperform from neutral in August.
Kevzara Targets Arthritis
Regeneron has other potential drug hits. This year, the FDA approved its drug Kevzara for treating rheumatoid arthritis. RA affects 1.3 million Americans, according to the Arthritis Foundation and American College of Rheumatology.
Another Regeneron drug, Praulent, is used to treat high levels of bad cholesterol. But Amgen has sued, saying the drug violates patents for Amgen’s competing drug, Repatha. For a time, an injunction prevented Regeneron from selling Praulent. But the injunction was stayed. A ruling on the lawsuit could come soon.
Skorney says that “if Praulent were pulled from market, that would still be a surprise to Wall Street.”
Tenthoff is not worried, saying the lawsuit’s risks are already baked into Regeneron’s stock price.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.