For many healthcare stocks, April 2019 has been like tech’s December 2018. Just 19% of healthcare issues are above their 50-day moving averages. Blame presidential candidate Bernie Sanders. Or blame the Democratic House, which has been holding hearings on a variety of ideas for cutting drug costs. Congress may end the practice of patent “gaming,” in which drug companies make small tweaks to drugs in order to extend patent protection.
But whatever Congress does, it shouldn’t impact Regeneron Pharmaceuticals (NASDAQ:REGN) to the degree it has — Regeneron stock has plunged nearly 20% from over $400 per share on April 9 to an April 22 opening price of $333.
I have long been a fan of Regeneron stock. While most drug companies tie their futures to specific cures, Regeneron has always been focused on their methods for finding drugs.
These include Velocisuite, which offers fast manipulation of mouse DNA, and TRAP, a general method for developing enzyme blockers. Methods mean Regeneron’s pipeline can be constantly renewed for a variety of conditions, from cancer to pulmonary disease to chronic pain.
Methods matter. Methods get companies ahead of trends.
Regeneron doesn’t just know this in its research strategy but in its investment strategy. This is evidenced by a recent $800 million deal with Alnylam (NASDAQ:ALNY) to work on RNA interference, controlling how genes are expressed by interfering with messenger RNA that turns DNA sequences into traits.
If Alnylam were Regeneron’s only big bet, I wouldn’t be listening to bullish forecasts about it. But it’s not. Regeneron has development deals with many other companies, including Sanofi (NASDAQ:SNY) and Bluebird (NASDAQ:BLUE), because its gene manipulation methodology can bring drugs to markets faster.
By having a drug development methodology and cash to spend with companies with specific therapies in mind, Regeneron investors get the ability to spread their bet across many therapies and approaches.
Drugs Out of Fashion
Unfortunately, that’s not how Regeneron is valued. Instead, analysts follow the fate of specific Regeneron cures in the market, acting like competition for a single “blockbuster” is going to sink REGN stock.
Right now, this makes REGN stock a great bargain. Regeneron’s return on equity is 28%. Its price-to-earnings ratio is below 16, with investors paying $333 for over $21 per share of earnings. That’s bargain territory.
Regeneron is expected to earn $5.39 per share on revenues of $1.72 billion when it next reports May 7, but it has lately made a habit of beating earnings estimates, often by a lot. Analysts are whispering it might beat estimates this quarter by 14 cents, but in the last quarter, it beat estimates by $1.24, and the current estimates are lower.
The Bottom Line on Regeneron Stock
I take a long-term view on stocks, looking for the leading edge of technology, where the value added to society is greatest.
The current decade has been all about the cloud, which has brought enormous amounts of computing power to desktops and even mobile platforms.
The next decade will be about using this power to turn DNA into a computer language that can be read and manipulated. A research methodology can act like an old-style PC operating system in this world
This is not a guarantee of long-term success. It only means a company is playing the new game in the right way. That’s what I like about Regeneron stock. It has method amid the madness.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in REGN.