Regeneron Pharmaceuticals Inc (REGN) stock is down 25% this year, and that’s after a near 12.5% gain last Friday. Those gains came after Regeneron announced positive Phase-3 data on a treatment for moderate-to-severe atopic dermatitis, a serious form of eczema that causes itchy and inflamed skin.
Regeneron then disclosed plans to submit the product, dupilumab, for FDA review in the third quarter, which means it will create revenue in no time.
With 1.6 million suffering from moderate to severe atopic dermatitis in the U.S. alone, analysts predict that dupilumab will generate upward of $2.5 billion in worldwide peak sales. Some analysts are more bullish, predicting $4 billion. In other words, dupilumab will be a big-time blockbuster drug.
This adds to an existing product line of growing blockbuster drugs. Eylea is Regeneron’s most established product, a drug that prevents blindness in patients with rare eye diseases, created $2.6 billion of the company’s $4.1 billion in revenue last year.
Arcalyst and Praluent created Regeneron’s remaining $500 million in revenue last year. Looking ahead, Regeneron is expected to grow revenue 25% this year, with Eylea and Praluent responsible for most of this growth.
Praluent belongs to a class of blockbuster drugs for lowering bad cholesterol that make Lipitor look like aspirin. Analysts expect its sales to peak at more than $2 billion. The wildcard is the company’s 18,000-patient Odyssey Outcomes trial, which tests Praluent to reduce major adverse cardiac events following an acute coronary syndrome, like a heart attack. If successful in this trial, which will end in 2017, the expected peak sales from Praluent could easily double, if not more.
As a result, Regeneron will grow for many years to come with its existing product line. The addition of dupilumab, the success of which was very much a wildcard prior to last week, all but solidifies that.
Investors were not certain that the product would clear skin lesions or improve from baselines in two different studies compared to placebo. However, it did, which means the expectations for 24% and 18% growth over the next two years, respectively, will rise considerably.
Why Regeneron Is a Must Own
After falling from an all-time high of $605 last year to just over $400 today, REGN stock sells at a considerably discount to its actual worth.
For a well-established biotech company like Regeneron, the two most important questions are 1) how fast is the company growing and 2) how well is the company developing its pipeline? In both instances, no company does it better than Regeneron. Now that we know dupilumab was a clinical success, it is very likely that Regeneron’s expected growth of 18% in 2017 rises to 25% or more. That’s impressive, but unsurprising nonetheless.
Fact is, it would be next to impossible to find a company with better clinical development results than Regeneron, and that’s why its outlook is so bullish.
In retrospect, the expected $3.2 billion in sales from Eylea this year is still a full billion dollars from its expected peak sales. Meanwhile, Praluent is just warming up, and dupilumab hasn’t even gotten started.
Therefore, even if REGN were to flunk all future trials, unlikely as that is, its existing product line plus dupilumab creates another $5 billion in peak revenue for Regeneron. So, while REGN stock may already look cheap at just 25 times next year’s earnings, which is cheap for a biotech with significant growth, REGN stock is much cheaper when you consider what’s beyond 2017.
Something Else to Consider for REGN Stock
Regeneron is a developmental juggernaut, and I’m bullish on its success in the Odyssey Outcomes trial; and while nice, the true catalyst comes when Sarilumab is FDA approved at the end of this year.
In a 369-patient Phase-3 study, Sarilumab performed better than Humira in treating rheumatoid arthritis. Keep in mind, Humira created more than $14 billion in worldwide sales last year, and Sarilumab is arguably superior.
It does not take a genius to see that the next five years for Regeneron could be quite special, and while it may look expensive based on last year’s earnings, REGN stock trades at just 25 times next year’s earnings with billions and billions of likely dollars soon to come in annual revenue and profits.
That’s why Regeneron is so attractive, and why REGN stock is an absolute must buy right now.
As of this writing, Brian Nichols owns shares of Regeneron