Regeneron Fundamentals Strong

Highlighted stocks include Regeneron Pharmaceuticals, Inc. (REGN - Analyst Report), Sanofi-Aventis SA (SNY - Analyst Report), AstraZeneca plc (AZN - Analyst Report), Bayer AG (BAYRY - Analyst Report) and Astellas Pharma Inc. (ALPMY).

Fundamentals Remain Strong

Regeneron reported 4th quarter financial results on Februay 26, 2009. Although total revenue and net loss fell short of our expectations due to fluctuations in R&D revenue quarter by quarter, Arcalyst sales in 4Q08 were in line with our estimate. The company’s guidance of Arcalyst for 2009 is also in line with our expectation. Also, the company's balance sheet remains strong.

Total revenues decreased to $55.8 million in the 4th quarter of 2008 from $64.7 million in the same quarter of 2007, and increased to $238.5 million for the full year 2008 from $125.0 million for the same period of 2007. The company’s revenue was comprised of contract research and development revenue, technology licensing revenue, and net product sales.

The Company shipped $10.7 million of Arcalyst to its distributors in 2008 and recorded $3.5 million and $6.3 million in product sales revenue for the 3 months and year ended December 31, 2008. Revenue and deferred revenue from product sales are recorded net of applicable provisions for prompt pay discounts, product returns, estimated rebates payable under governmental programs (including Medicaid), distributor fees, and other sales-related costs.

At December 31, 2008, $4.0 million of Arcalyst net product sales were included in deferred revenue in the company’s financial statements. The $3.5 million in Arcalyst sales was in line with our estimate.

The company reported a net loss of $31.5 million, or $0.40 per share (basic and diluted), for the 4th quarter of 2008 compared with a net loss of $13.1 million, or $0.19 per share (basic and diluted), for the 4th quarter of 2007.

At December 31, 2008, cash, restricted cash and marketable securities totaled $527.5 million with no debt. Current cash should be able to last for 2 to 3 years when the company will become profitable and generate positive cash flow.

Pipeline is Robust

Regeneron’s key clinical programs include IL-1 Trap and VEGF-Trap.

The company’s IL-1 Trap (Arcalyst)  for CAPS already got the FDA nod. Although Arcalyst targets the small CAPS market, it is important for Regeneron in terms of infrastructure buildup and gaining commercial experience. The company is expanding Arcalyst for the treatment of gout, and plans to initiate a phase III trial soon.

On the VEGF-Trap front, the company has 2 strong partners: with Sanofi-Aventis (SNY - Analyst Report) for cancers and with Bayer Healthcare (BAYRY - Analyst Report) for eye disorders. Both VEGF-Trap cancer and VEGF-Trap Eye are progressing well under phase III studies.

Proprietary Technology Will Continue to be Monetized

Regeneron recently formed deals with Sanofi-Aventis, AstraZeneca (AZN - Analyst Report) and Astellas (ALPMY) to develop antibodies. The agreements with AztraZeneca and Astellas will allow the two companies to utilize Regeneron’s VelocImmune technology in its internal research programs to discover human monoclonal antibodies.

In the case of Sanofi-Aventis, the deal was a global, strategic collaboration agreement to discover, develop and commercialize fully-human therapeutic antibodies utilizing Regeneron's proprietary VelociSuite of technologies (including VelociGene, VelociMouse, VelocImmune, and VelociMab).

With its platform technology, we believe Regeneron will be able to continue to attract partners to monetize its technology.

We maintain our Buy rating on Regeneron shares with a target price of $28.