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Bull of the Day: Regeneron (REGN)

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Regeneron Pharmaceuticals (REGN - Free Report) shares have been on an odyssey in the past year, soaring from $360 last April up to $540 by June and then entering their own private bear market since last autumn to dip below $320 this year.

But with EPS estimates rising since January, the stock became a Zacks #1 Rank Strong Buy again last month and savvy Biotech investors are thinking they be witnessing the start of an important bottom in shares below $350.

Full-year 2018 profit projections have risen 11% from $16.82 to $18.67, representing 14.4% growth this year.

And next year's estimates rose 6.4% from $20.29 to $21.58, representing a 15.6% advance.

At $350 this puts the forward P/E multiple at around 17.5 times, using $20 EPS.

Revenue growth is also expected to be solid with this year's mark of $6.44 billion pushing 9.6% ahead of 2017 and 2019 looking for a nearly 11% advance to $7.14 billion.

With a $41 billion market cap, this puts the price-to-sales ratio around 6 times, which is not unreasonable for a mature big cap Biotech with mid-teens growth.

And that growth is expected to carry the company toward adjusted EPS of $26 in 2020.

Key Growth Franchises

Regeneron’s fourth-quarter results, reported on February 8, were impressive as both earnings and sales beat estimates driven by strong performance of eye-care drug Eylea.

Eylea (aflibercept) can treat age-related macular degeneration (AMD), diabetic macular edema (DME), diabetic retinopathy (DR), and macular edema following retinal vein occlusion (RVO).

Total revenues in the fourth quarter increased 29% year over year to $1.6 billion on the back of Eylea sales. Revenues surpassed the Zacks Consensus Estimate of $1.5 billion.

Regeneron’s Q4 profit consensus called for EPS of $4.68 and the company delivered $5.23, for an 11.75% beat and a 72% increase over the year-ago quarter.

Eylea net sales increased 14% year over year to $975 million in the US and should continue to remain the key growth driver contributing significantly to REGN's top line.

Regeneron has co-developed Eylea with the HealthCare unit of Bayer AG. The company is solely responsible for the sales of the eye drug and is entitled to the profits in the United States. However, it shares profits and losses equally with Bayer from ex-US Eylea sales, except in Japan, where the company receives a royalty on net sales.

Here is the global vs US breakdown for Eylea sales from the company press release...

  • Fourth quarter 2017 EYLEA® (aflibercept) Injection U.S. net sales increased 14% to $975 million versus fourth quarter 2016 and full year 2017 EYLEA U.S. net sales increased 11% to $3.70 billion versus full year 2016
  • Fourth quarter 2017 EYLEA global net sales(1) increased 19% to $1.61 billion versus fourth quarter 2016 and full year 2017 EYLEA global net sales(1) increased 14% to $5.93 billion versus full year 2016

Successful New Product Launches

Dupixent (dupilumab) sales came in at $139 million. The injectible drug was approved by the FDA in 2017 for the treatment of adults with moderate-to-severe atopic dermatitis (AD). Rheumatoid arthritis (RA) drug Kevzara recorded sales of $9 million. Much of the REGN share run-up in mid 2017 was due to the launch of these two drugs.

Kevzara (sarilumab), an anti interleukin (IL)-6 receptor monoclonal antibody was also approved in the US last year for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response to or intolerance to one or more biologic or non-biologic disease-modifying anti-rheumatic drugs.

Sales also include Sanofi (SNY - Free Report) and Bayer collaboration revenues of $497 million, compared with $313 million in the year-ago quarter. Collaboration revenues from Sanofi were $199.5 million in the quarter, compared with $131.2 million a year ago.

Praluent (alirocumab), a cardiovascular drug, recorded global net sales of $63 million in the quarter, up from $41 million in the year-ago quarter. Praluent is was approved by the FDA in 2015 as a second line treatment for high cholesterol in adults whose levels are not controlled by diet and statin treatment.

REGN Total 2017 revenues of $5.9 billion were up 21% from 2016 and surpassed the Zacks Consensus Estimate of $5.78 billion. Earnings per share of $16.32 were up from $11.32 reported in 2016 and topped the Zacks Consensus Estimate of $15.82.

2018 Sales and Pipeline Outlook

Regeneron has 15 product candidates in clinical development, which consist of EYLEA and fully human antibodies generated using the Company's VelocImmune® technology, including six in collaboration with Sanofi.

In the February earnings commentary, Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron, had this to say:

"In 2017, Regeneron's core EYLEA business continued to grow and we diversified our revenue stream by bringing two new products to patients in need. We are anticipating additional pipeline progress in 2018, including regulatory decisions for dupilumab in uncontrolled asthma and cemiplimab in advanced cutaneous squamous cell carcinoma, cardiovascular outcomes data for Praluent, as well as Phase 3 data for EYLEA in diabetic retinopathy."

Collaboration revenues from Sanofi are projected around $450-$500 million. The company now expects adjusted unreimbursed R&D expenses in the range of $1.2-$1.33 billion.

Dupixent, Kevzara, and Praluent have all been developed in collaboration with Sanofi. Product sales for the three are recorded by Sanofi, while Regeneron shares profits or losses from the commercialization of the drug.

The FDA has accepted for review the company's supplemental Biologics License Application (sBLA) for the label expansion of Eylea Injection. The company is seeking approval a for a 12-week dosing interval of Eylea Injection in patients with wet age-related macular degeneration (wet AMD) based on physician's assessment. The action date set by the FDA is Aug 11, 2018.

The company received a significant boost when the FDA approved Dupixent (dupilumab) injection for the treatment of adults with moderate-to-severe atopic dermatitis and is now looking to expand Dupixent’s label.

A phase III study in pediatric patients (from six to 11 years of age) with severe atopic dermatitis was initiated in the fourth quarter of 2017. Additionally, a phase II/III study in younger pediatric patients (from six months to five years of age) with severe atopic dermatitis was initiated in the first quarter of 2018.

Regeneron also submitted a sBLA to the FDA for the use of Dupixent in the treatment of asthma in patients aged 12 and over in the fourth quarter of 2017.

However, the company suffered a setback last year when it decided not to advance the nesvacumab and Eylea combination study to phase III development. The decision was taken after two phase II studies evaluating the combination therapy failed to show additional benefit over Eylea monotherapy in patients with diabetic macular edema or wet age-related macular degeneration.

New Data from ODYSSEY

On March 10, Regeneron and Sanofi announced that Praluent met its primary and key secondary endpoints in the cardiovascular (CV) outcomes trial called ODYSSEY. The positive results were revealed during a late-breaker session at the American College of Cardiology's 67th Annual Scientific Session in Orlando, FL this past weekend.

The study was evaluating the long-term clinical benefit of Praluent initiation in patients with post-acute coronary syndrome.

The trial met the primary endpoint as results showed that Praluent significantly reduced the risk of major adverse cardiovascular events (“MACE”) in patients with a recent acute coronary syndrome (“ACS”) event such as a heart attack.

The MACE composite endpoint includes patients who experienced a heart attack, ischemic stroke, death from coronary heart disease, or unstable angina requiring hospitalization.

In June 2017, Regeneron and Sanofi announced that two phase IIIb/IV ODYSSEY-DM trials in patients with diabetes met their primary endpoints. While the uptake of the drug hasn’t been encouraging, the cholesterol management market represents huge commercial potential.

And partners Regeneron and Sanofi are planning to accelerate market penetration by offering deep discounts to improve access. The pair announced a reduction in net price for Praluent in alignment with a new value assessment for high-risk patients from the Institute for Clinical and Economic Review.

The companies will take a precision medicine approach to address the burden of CV disease, focusing efforts on high-risk patients most vulnerable to future CV events, such as those who have suffered a previous coronary event and are unable to reduce their LDL cholesterol (LDL-C) below 100 mg/dL despite maximally-tolerated statin therapy. The only significant competition here is Amgen's (AMGN - Free Report) Repatha.

A Long-Term Biotech Winner

Some investment bank analysts have recently lowered their expectations for REGN as an investment. In February, Cannacord Genuity dropped their price target on shares from $522 to $356. And today, Deutsche Bank reiterated a Hold rating and $367 PT following the Praluent data and pricing commentary.

But many others are focused on the long-term potential in these franchises and in the REGN R&D pipeline.

The potential label expansion of Eylea, Dupixent and Praluent will continue to gradually boost results in the coming years.

Here were some other ratings and price target updates after last month's quarterly report...

Jefferies: Hold rating and $380 PT

Morgan Stanley: Equal Weight rating and bumps PT from $401 to $415

SunTrust: Hold rating and $430 PT

Credit Suisse: Buy rating and $440 PT

BMO Capital: Market Perform rating PT boosts from $398 to $444

Cowen & Co.: Hold rating and $450 PT

Leerink Swann: Buy rating and lowers PT from $568 to $502

Guggenheim: Buy rating and $530 PT

In my experience with old guard Biotech's like Gilead (GILD - Free Report) and Biogen (BIIB - Free Report) , it looks like the worst has been discounted in REGN shares under $325. I'd be a buyer of those dips going forward.

Disclosure: I own shares of REGN, BIIB, and GILD for the Zacks Healthcare Innovators portfolio.

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