I have never seen Regeneron (NASDAQ:REGN) as a novel coronavirus play, but that’s exactly what Regeneron stock is.
I see it as a company with a system for drug discovery. As I wrote in July 2018, when the shares were a little over $300, “Regeneron Chairman Roy Vagelos, CEO Len Schleifer, and President George Yancopoulos are all scientists. They’re not marketers or number crunchers.”
Regeneron’s Velocisuite is a system for drug discovery, based on mouse models. This is its secret sauce.
Regeneron’s Covid-19 antibody cocktail, now in Phase 3 study, has made Regeneron an expensive stock. It’s up 65% so far in 2020, now trading at $620 per share.
But unlike many other companies involved in fighting the pandemic, that price is not unreasonable.
Real Profits, Real Drugs
Regeneron already has several drugs on the market. Its flagship is Eylea, for treatment of macular degeneration. It also sells Dupixent for dermatitis, an arthritis drug called Kevzara, and a heart drug called Praluent.
Eylea had $6.7 billion in sales during 2019, but the patents are starting to expire. This would be a big concern except Regeneron’s pipeline has nine drugs in Phase 3 trials, and another dozen in Phase 2 trials. Altogether it has 20 product candidates and is studying additional treatment options for five existing drugs.
For the three months ending in June, Regeneron had net income of $897 million, $7.61 per share, on revenue of $1.95 billion. Revenues were up 24% over the previous year. It also announced that Phase 3 endpoints were reached for Libtayo, a cancer drug, and Fasinumab, a pain medication. More recently it got a fast track review on Evicanumab, a cholesterol drug.
All this means Regeneron still has a reasonable price-earnings multiple less than 24 and sells at just 8x its annual revenue. These are not out of line for a company growing at 24% per year.
That may be why the California Public Employees’ Retirement System, the largest retirement fund in the country, tripled its investment in Regeneron during the quarter, while selling shares in Apple (NASDAQ:AAPL).
Regeneron Stock and Covid-19
REGN-COV2, Regeneron’s COVID-19 drug, isn’t a vaccine. Instead it’s a cocktail of antibodies that could treat the virus and prevent infection for front-line workers and elderly patients, while waiting for vaccines to become available.
If REGN-COV2 works, there’s $450 million in production funding waiting for it under the government’s Warp Speed program.
A Phase 3 trial for REGN-COV2 began in July. The prevention trial has enrolled 2,000 people in the U.S., and almost 3,000 patients as a treatment for people already infected. As with other Regeneron drugs, REGN-COV2 was produced with its Velocimmune mice, genetically modified to have a human immune system, which is part of Velocisuite.
The Bottom Line
Regeneron is my favorite biotechnology stock.
I held it for a time but sold my position. That was a mistake.
Regeneron stock is very pricey right now because of Covid-19, but there’s a lot more to the company. It’s the kind of stock you should buy as a long-term holding. Genetic-based drugs are going to be one of the main investment themes of the coming decade, and Regeneron is an early leader.
The stock hasn’t moved much since May because Sanofi is in the process of selling its $11.7 billion stake. That means Regeneron is the only player in the Covid-19 game whose shares have a reasonable valuation, along with a reasonable chance of cashing-in on the virus.
If you want to play the Covid-19 game, Regeneron stock is the card to play.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL.