Regeneron stock is up 42% so far in 2020, with almost half that gain coming in the last three months, amid the Covid-19 pandemic.
The shares opened May 27 at around $540 each. That’s a market capitalization of $61 billion for a company that reported sales of $1.8 billion in the March quarter.
The announcement has TV analyst Jim Cramer pounding the table for Regeneron and a wider Wall Street rally.
The Sanofi Discount
For Regeneron bulls, what’s most exciting about the stock is the chance to get it “at a discount.”
Sanofi is getting out when Regeneron is trading at 27 times its earnings and over 8 times expected 2020 revenue of $7.6 billion. But is it a good time to get in?
Regeneron Stock’s Secret Sauce
I got into Regeneron last year after writing a piece praising its system for finding new drugs. “Methods get companies ahead of trends,” I wrote. At the time, drug stocks were out of favor, as Democrats hammered the sector for price-gouging and promised reform.
The yammering kept the shares volatile. I made a profit, but I got out before the latest turn of the wheel.
My problem with the current run-up is it’s based entirely on one therapy, for which even Regeneron CEO Len Schleifer admits manufacturing capacity is limited. Regeneron says it is devoting an entire upstate New York facility to making the drug, called REGN-COV2. This is separate from a monoclonal antibody treatment, called Kevzara, entering Phase 3 trials with Sanofi.
We don’t know what Regeneron might charge for the drug, as we don’t know that for any Covid-19 treatment. There’s an assumption this will all be wildly profitable. But most drugs, on a global scale, are bought under government control.
It’s unlikely that per-dose profits will be anything like they are in the United States.
The Bottom Line
The right reason to buy Regeneron, as with Moderna (NASDAQ:MRNA), another big Covid-19 play, has nothing to do with the pandemic.
It’s based on the company having a system for drug development. The system, called VelociSuite, was used to design REGN-COV2. It allows quick design for genetic drugs, and quick development using mice which create human antibodies to disease.
You can buy Regeneron here, or at $515, but it’s a volatile stock.
Regeneron shares traded over $500 each back in 2017 and fell below $275 last September. The current price isn’t even the all-time high. That was over $575, achieved in 2015. Regeneron doesn’t pay a dividend.
That means you should time your purchase carefully. The Sanofi sale may create an attractive entry point, but the Covid-19 drug field will be crowded. Pressure from governments to keep treatment prices down will be intense. If Democrats win in November, there will be new selling pressure on drug stocks like Regeneron.
Once you do get in, however, don’t be like me. Stay in. Regeneron’s method for producing genetic drugs is going to be huge throughout the next two decades. If your investment horizon goes that far out, don’t worry about today’s price.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.