Regeneron (Nasdaq: REGN): Have You Missed the Boat?

by Jason Jenkins

In case you didn’t know, three weeks ago was the J.P. Morgan Healthcare Conference in San Francisco. It’s a big deal with a who’s who of bigwigs in the industry.

But one company in attendance particularly got my attention: Regeneron Pharmaceuticals (Nasdaq: REGN) - and here’s why…

Regeneron has been on a torrid pace for the past few years. In 2005 it was trading in the $5 range. Over the last five years, it’s up 700%, and is now trading around $176. Regeneron was the Nasdaq’s top performer for 2012 with a 179% gain.

What’s been pushing sales? Well, a lot of it has to do with their age-related macular degeneration drug, Eylea. It’s totaled over $1 billion in sales in the year after it was introduced to the market. In the United States, Eylea’s revenue totaled $838 million last year.

As the numbers show, Eylea has led Regeneron’s revenue charge and it’s sitting in a great place in the market. It pretty much has only one competitor, Lucentis from Roche (OTC: RHHBY) - and Lucentis came under scrutiny from fears that a distributor contaminated supplies.

Also, Eylea is designed so that it doesn’t have to be administered as much as Lucentis. And when you find out how treatment is administered, you’ll see why this is a big deal.

What Exactly is Age-Related Macular Degeneration?

I haven’t taken a biology course since the 1980s, so bare with me.

Age-related macular degeneration (AMD) is a medical condition that mostly occurs in older adults. It’s where they suffer vision loss in the center of the visual field - or the macula - because of damage to the retina. For adults over 50 years of age, the condition is a major cause of blindness and sight impairment.

AMD occurs in two different forms: dry and wet. For our purposes, we only need to look at the wet AMD, because that’s what Eylea treats. Wet AMD occurs when an abnormal blood vessel formation at the back of the eye forces fluid to leak into the macula, causing scarring that affects vision. Wet AMD is normally treated by means of needle injections into the eye. (Ouch! Told you.)

According to industry research, about 200,000 people in North America are diagnosed every year with wet AMD. Also, specifically in the United States, there’s an estimated 15 million sufferers.

Regeneron “Wows” the Crowd

Founder and CEO Len Schleifer revealed some noteworthy points at the J.P. Morgan Healthcare Conference:

  • As you might expect, Regeneron's star took center stage. Mr. Schleifer spoke of Eylea’s aforementioned past growth and revenue numbers. But he also mentioned for this year that revenue should be up 50% from 2012 - somewhere in the neighborhood of $1.2 to $1.3 billion.

  • Mr. Schleifer went on to say that the wet-AMD opportunity internationally - specifically in the E.U. and Japan - is nearly equal in market size to its domestic U.S. business. Regeneron is in the process of making an overseas launch with licensing partner Bayer AG (OTC: BAYRY). If successful, Eylea’s profits could double.

  • Wet-AMD sales have actually increased by 47%. It isn’t necessarily that Regeneron’s been stealing market share from its competitors. It just seems the market has become bigger. Mr. Schleifer believes this is partly due to an increasing elderly population.

  • There are some new potential growth drivers. Earlier this year, the FDA approved Zaltrap, a drug developed with Sanofi (NYSE: SNY) to treat metastatic colorectal cancer. There’s not much competition out there with only two other treatment drugs. Zaltrap could be able to acquire chunks of market share.

History Says Don’t Bet Against Regeneron

For a while, this company was an underdog. Many people underestimated Eylea after its FDA approval back in 2011. No one expected the numbers it put up last year. The company now has a valuation of $16.8 billion, which isn’t that bad when you factor in its sales growth.

The company has about $1.2 billion in cash. But most of all, what may make this stock a superstar for years to come is the launch of Eylea outside North America - especially in Europe.

For those who’d prefer to take a more diversified approach to investing in Regeneron, consider the iShares Nasdaq Biotechnology Index ETF (Nasdaq: IBB). Regeneron is the fund’s largest holding at 9.33%.

Good Investing,

Jason

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