An analyst says Regeneron stock’s current valuation undersells the potential for growth in sales of the drug Dupixent.
Michael Nagle/Bloomberg
Shares of Regeneron Pharmaceuticals soared in the first half of 2020, with the stock rising 66% even as the S&P 500 fell 4%. But the exuberance for the big biotech that developed the monoclonal antibody cocktail in the fall to treat Covid-19 didn’t last. Regeneron shares have fallen 24% over the past six months, while the S&P 500 has climbed 20%.
In a note out Friday morning, Citi analyst Mohit Bansal says that weakness makes it a good time to buy.
Bansal says the stock’s current valuation undersells the potential for growth in sales of the drug Dupixent, which is approved to treat a number of conditions including eczema, and is marketed by Regeneron (ticker: REGN) in partnership with Sanofi (SNY).
Bansal also says that investors are overly concerned about the threat of declining revenue from Regeneron’s drug Eylea, which treats an eye disorder called wet age-related macular degeneration. Eylea could face competition from copycat drugs in 2024 when the company’s patent expires.
“We think recent weakness in the name is overlooking the pace of Dupixent’s growth and expansion potential while fixating on Eylea which is gradually becoming a smaller part of the story,” Bansal wrote.
Bansal upgraded Regeneron to Buy from Neutral, and set a new price target of $575. Shares of Regeneron closed at $481.20 on Thursday. The stock was up 2.2% in premarket trading on Friday morning.
In his note, Bansal wrote that some of the drop in Regeneron’s share price this fall was due to the Food and Drug Administration’s authorization of the company’s Covid-19 antibody cocktail.
“We have seen this with [ Gilead ] and other vaccine manufacturers as well where the stock prices have gone up as the companies were developing COVID-19 drugs and then came down once the drug turned successful and reached markets,” Bansal wrote.
On top of the Covid-19 approval dip, investors are simply underestimating the value of Regeneron’s core business, Bansal argues.
“While Eylea concerns are somewhat valid, the street is still underestimating [Dupixent’s] potential on multiple counts,” he writes.
Dupixent sales are growing more rapidly than Wall Street recognizes, Bansal says, and the drug has enormous room to expand, both by reaching new patients and by achieving new indications. Bansal expects Dupixent sales to have been $4 billion in 2020, climbing to $11 billion in 2025. He says the drug could hit sales of $14 billion a year.
“The story is rapidly moving away from Eylea as [Dupixent] has been growing rapidly and is on track to more than offset any potential Eylea loss,” he wrote.
Bansal also said that the company has a promising oncology pipeline.
Regeneron shares trade at 13 times earnings expected over the next 12 months, well below its 5-year average of 20.9 times earnings, according to FactSet. Of the 25 analysts tracked by FactSet who cover Regeneron, 15 rate it a Buy or Overweight, while 10 rate it a Hold.
Write to Josh Nathan-Kazis at [email protected]
