FundamentalsRegeneron has quickly become a part of the discussion in large cap biotech, inserting itself into the conversation with Gilead, Amgen, Celgene and Biogen. Given its remarkable July and August news, it's not premature to say that REGN has joined the ranks of the elite. The stock is up 53% in the last year and 85% over the last two-years. The firm has been called "formidable" by Brian Skorney of Robert Baird, and he's right. Here's what's going on:
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. Eylea sales totalled $655 million last quarter, blowing out expectations of $570 million. The firms total revenue last quarter was $999 million, easily topping expectations of $888 million. Incredibly, Eyleas sales grew 21% quarter-over-quarter and has raised estimates to nearly 50% year-over-year growth. Here's the border-line ridiculous revenue chart for REGN.
REGN co-developed Eylea with Bayer. Regeneron is solely responsible for US sales of the eye drug but the two companies split profits from ex-US Eylea sales, except for Japan where Regeneron receives a royalty on net sales (Source: ZACKS).
Eylea growth was in diabetic macular edema (DME) patients and is primarily the result of increased market share driven in part by the Protocol T study showing Eylea's superiority over Lucentis and Avastin in DME. In the quarterly earnings report, the company raised US Eylea sales guidance to 45-50% growth for this year up from a prior 30-35%, which will result in a product driving about $2.5 billion in sales next year. It is an absolute blockbuster, and here's what that looks like in another chart.
We have plotted all biotech, pharma and life science companies with market caps between $10 billion and $70 billion equal spaced on the x-axis, and with revenue per employee on they-axis.
Regeneron not only drives more revenue per employee than every firm in this space, but it's the only company that drives more than $1 million in revenue per employee. But there's more...
While REGN relies heavily on a single product, the pipeline is not only strong, but has already begun to be realized. On July 24th, 2015 Regeneron and partner Sanofi announced that the FDA approved Praluent (alirocumab) Injection, the first PCSK9 inhibitor in the U.S. for the treatment of high LDL cholesterol in adult patients (Source: Regeneron Press Release). The company has jumped on the revenue opportunity instantly with the first commercial patient dosed by July 27 (that's three days after FDA approval).
Here are some snippets from the press release surrounding what appears to be REGN's second blockbuster drug:
"For patients with high LDL, or bad, cholesterol the primary focus of treatment is to lower their levels, but many patients today do not achieve recommended levels despite lifestyle modifications and treatment with statins. In the ODYSSEY clinical trial program, two doses of alirocumab showed significant LDL cholesterol lowering in a variety of patients who were not able to adequately lower their LDL cholesterol with current standard of care alone."
- Christopher Cannon, M.D., Professor of Medicine at Harvard Medical School
In English, the firm has found itself an FDA approved drug with massive potential that addresses a market which simply had no effective treatments.
Estimates focus on the fact that there are 8-10 million adult patients with an inherited form of high LDL cholesterol known as heterozygous familial hypercholesterolemia which is a particularly nasty form of high cholesterol that can cause heart attacks, strokes and even death. The bullish case for Praluent puts it in an addressable market of $58 billion based on 8 million patients at $14,000 per year subject to a 50% discount (Source: ZACKS). This Cholesterol treatment is in direct competition with Amgen (amongst others).
What Else We Need to Know
REGN has gone down the path of partnerships, and the vast majority of its revenue comes from collaborations with Bayer (Eylea) and Sanofi (Praluent). Sanofi owns 20% of REGN and has the right to own up to 50%. SEC filings demonstrate that Sanofi is a buyer.
On the product side, the Sanofi partnership has huge promise on the cancer front with a major new immuno-oncology collaboration to jointly advance PD-1 and other new antibodies. Sanofi committed to an initial investment of up to $2.17 billion in the exclusive collaboration, including $640 million in upfront payments to Regeneron and a potential sales milestone of $375 million.
Finally we note that REGN has 1 product in Phase II trials and 5 products in the Phase III trials. The pipeline is rich and promising, as is the company itself.