Regeneron Pharmaceuticals, Inc.

+7.30 (+0.69%)
4:35:07 PM EDT: $1,072.13 +0.94 (+0.09%)
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Why Regeneron Stock Has Great Promise

image Fundamentals

##Date##07 Jul 2015

REGN has 1 product in Phase II trials and 5 products in the Phase III trials. Keep those numbers in mind as we walk through what has become a large cap biotech on the back of one spectacular product. While REGN isn't as known (or as large) as the mega bios (like Gilead (GILD) ), it shows promise of one day joining those ranks.

Regeneron has a blockbuster called "Eylea" which is a treatment for essentially preventing blindness in aging adults that have a severe case of macular degeneration. Eyelea sales are up over 50% year-over-year and made up over 60% of REGN's total quarterly revenue. And in reality, most of the rest of revenue came from international sales of the drug that are owned by partner Bayer Healthcare. But one trick ponies aren't a new thing to biotech and are in fact the beginnings of often times massive companies. The firm has been called "formidable" by Brian Skorney of Robert Baird, and he's right.

This single drug has driven REGN revenue over $3 billion annually up from less than half a billion in 2012. But REGN does have a pipeline, and it's promising. Another potential huge drug could be a cholesterol fighter called "Praluent." The FDA is likely to announce approval for the drug by late July (this month), although analysts expect one of those labels that have narrow or limited usage (that's standard stuff in the biotech world). If you're in the mood to feel bullish, here's what Skorney said about Praluent:

"Praluent could potentially be bigger than Eylea [sales could reach] several billion dollars. But it might take a few years. (Source: Investors Business Daily).

JP Morgan echoes that sentiment, emphasizing both the multi billion dollar potential and the slower release to full blown usage from its expected limited usage label. As we know, everything about a biotech's fundamentals can change in a single day when the FDA makes a definitive decision on a late stage drug trial.

REGN's revenue (TTM) has risen for more than five consecutive quarters. One year ago the firm reported $2.3 billion in revenue. For the most recent year it reported $3.1 billion, a 33.73% one-year rise. Revenue is up 93% over the last two-years. We'll focus in great detail on the fundamentals driving this remarkable company.

Technicals   |   Support: 504.97   |   Resistance: 522.28    image

Golden Cross Alert: The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

REGN has a four bull (high rated) technical rating because it's trading above both its 50- and 200-day moving averages. We do note that the stock is trading below the short-term 10-day moving average.

Here are the consensus estimates for next quarter. Note that last quarter's actual result is included at the far right.
Earnings Date EPS Revenue (Mean) Revenue (Median) Last Quarter (Actual)
2015-08-04 $1.81 $887.8 M $875.2 M $869.6 M Provided by ZACKS

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 3,063 2,291 1,586 image

Operating Margin (QTR) 1.484 1.44 1.53 RISING

Net Income (TTM US$ Millions) 356 394 837 FALLING

Levered Free Cash Flow (TTM US$ Millions) 476 442 -242 RISING


Stock Returns and Chart

REGN is up +16.9% over the last three months and up +24.9% over the last six months. The stock price is up +64.6% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom). image
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Now let's examine the visualizations of the critical financial measures.


Revenue (TTM US$ Millions) 3,0632,2911,586image

Revenue (TTM) has increased for at least five consecutive quarters which triggers a "trend" (in this case it's 13 consecutive quarters). In the time series chart below, we can see the consecutive quarter growth.

I Note again that REGN is growing revenue by 34% year-over-year. Any number over 20% has an added impact on the fundamental (star) rating. The chart below is breathtaking.

What do all these numbers mean?
REGN's fundamental rating benefited these results:
1. The one-year change was positive.
2. The one-year change was greater than +20% (an extra boost to the rating).
3. The two-year change was positive.
Finally, the five+ consecutive quarters of an upward trend in revenue benefited the fundamental (star) rating.

Let's look at Revenue (TTM US$ Millions) in the chart below.

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REGN's revenue is impressive for another reason. The company generates more revenue per employee than any other bio/pharma with a market between $15billion and $75 billion. We can see that in the image below, with the x-axis equal spacing the companies (rank) and they-axis displaying revenue per employee in $million.

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Net Income (TTM US$ Millions) 356394837FALLING

Net Income (after tax profit) over the trailing twelve months (TTM) for REGN is falling and that's noteworthy. In fact, the net income drop is one of the factors that take the star rating down from five to four. For the most recent trailing-twelve-months (TTM) the company reported net income of $356 million. That's actually a 10% drop year-over year and a 58% drop from two-years ago. But, expenses often times mount for biotechs in the early stages, so as long as earnings are positive and revenue continues to explode, this could be seen as "forgiveable."

In our next chart we plot Net Income (TTM US$ Millions) in the blue bars and the quarterly results in the gold line. Note the falling bars from a year ago (four quarters ago).

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Levered Free Cash Flow (TTM US$ Millions) 476442-242RISING

Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For REGN the metric is rising (it was $442 million last year). For the most recent trailing-twelve-months REGN reported FCG of $476 million (a 7.6% increase). Most importantly, I note that REGN FCF was negative $242 million two-years ago and is up nearly 3/4 of a billion since then. There may be no better way to measure a company's strength that that kind of FCF growth.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the rising bars from a year ago (four quarters ago).


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REGN does have a very odd classification for some its expenses. It doesn't report R&D (?) which is totally bizarre for a bio/pharma. The company does however report Capital Expenditures (TTM), so let's look at that quickly.


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I note that REGN CapEx has exploded from below $50 million in 2012, to now over $382 million. There's no doubt that the firm is investing heavily in its future and that expense (investment) is hurting the bottom line today, in hopes of a wild success with the new pipeline.

REGN has a blockbuster drug that has pushed it into the realm of mid cap biotechnology. Revenue (TTM) is at an all-time high and has broken $3 billion. But the firm has a pipepline, and one product in particular that is looking for approval by the FDA this month. A host of analysts from various banks believe this new treatment (Praluent) could be larger than the company's current blockbuster (Eylea) and addresses a totally different market. The fundamentals are strong for REGN, the pipeline is strong, and the future is bright. The bullish thesis for this company is quite clear. Of course, one word of caution, FDA approvals and drug prescriptions don't always (ever?) follow exactly the planned trajectory. There's still risk here for a firm with one product (as of right now) on the market that's going gang-busters. REGN's future is better than "cautiously optimistic," but there's still risk. For now, though, the future looks quite bright for this firm.