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Regeneron Pharmaceuticals: Continuous loss making company delivers 2-year 600% gain in share price

September 08, 2012 | About:
Regeneron Pharmaceuticals (REGN) is an integrated biopharmaceutical company focusing on medicines for the treatment of serious medical conditions. Following its annual filing for 2011, the company stated its core business value: “Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technologies, to combine that foundation with our clinical development and manufacturing capabilities, and to continue to expand our commercialization capabilities in anticipation of possible regulatory approval and launch of one or more of our late-stage product candidates. Our long-term objective is to build a successful, integrated, multi-product biopharmaceutical company that provides patients and medical professionals with innovative options for preventing and treating human diseases.”

For 9 out of 10 years in the past, REGN has consistently making a loss. Operating cash flow and free cash flow were negative most of the time. Like other biopharmaceutical companies, the primary expense has gone into research and development of new medicines. The only thing in the income statement that investors should be positive about is the growth in sales over years. The sales revenue experienced 29% compounded annualized growth. One of the company’s key successes is the ability to introduce new drugs, which are more advantageous over existing ones. The main driver of the company growth was Eylea, wet age-related macular degeneration drug.

USD millions 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Revenue 22 57 174 66 63 125 238 379 459 446
Net Income -124 -107 42 -95 -102 -106 -83 -68 -104 -222
OCF -111 -6 -17 -30 23 27 -89 -72 96 -142
FCF -145 -36 -23 -35 20 9 -124 -170 -3 -199


In the past 52 weeks, its share price has grown from $71.2 to $152.45, marking the growth of 114%. Currently it is trading at 24.6x earnings.

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Insider trades: In August, insiders have actively sold out REGN share. The CFO, Senior VP in R&D, Controller, Independent Director and VP in Regulatory Development have combined sale value of more than $11.5 million.

My take: Even with its past success with stock performance and its research and development in developing new medicines, I would not touch this stock because of three main reasons:

  • It is consistently making loss due to high R&D costs, and creating no operating cash flow.
  • High valuation, even compared with industry average (P/B of REGN is 24.6x whereas industry average is 6.1x)
  • It can be great if the R&D investments turned into great products, which might bring long-term profits to the company. However, there is no high certainty that it can be successful with its next products.



About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


Rating: 3.5/5 (13 votes)

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