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Regeneron Is Down despite Earnings Beat

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Today, Regeneron (REGN) reported its second-quarter earnings results before the markets opened. REGN reported revenues of $1.93 billion, a year-over-year increase of 20% and ahead of the consensus estimate by $130 million. The company reported net product sales of $1.21 billion, a YoY increase of 21.0%. The company’s collaboration revenues totaled $638 million, a year-over-year increase of 27.34%.

In the second quarter, Regeneron reported non-GAAP net income of $690 million, a YoY rise of 11%. The company also reported non-GAAP earnings per share of $6.02, a YoY rise of 10% and higher than the consensus estimate by $0.60.

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Regeneron’s stock price movements

Regeneron stock traded at $297.40 today, down 0.72% despite the second-quarter revenue and earnings beat. Today, the company reported positive top-line results from the Phase 3 trial, evaluating Dupixent in pediatric atopic dermatitis indication. Regeneron stock is down 19.79% in 2019 on a year-to-date basis.

Key growth drivers

Regeneron’s key growth driver, Eylea, reported US net sales of $1.16 billion in the second quarter, a YoY rise of 17%. In addition to robust revenue growth, the drug also reported label expansion in the second quarter. In May, the FDA approved Eylea in the diabetic retinopathy indication.

To learn more about the diabetic retinopathy opportunity, please read Regeneron Focuses on Expanding Eylea’s Diabetic Retinopathy Label.

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Key risk

Excessive revenue dependence on Eylea has exposed Regeneron to significant business concentration risk. The company also faces a significant risk of generic erosion, as Eylea could lose patent exclusivity in the US in 2020. None of the company’s other assets—including Dupixent, Praluent, Libtayo, or Arcalyst—are capable of offsetting significant revenue declines of Eylea in the coming years.

Guidance for fiscal 2019

In its second-quarter earnings release, Regeneron has guided for capital expenditures of $380 million–$420 million for fiscal 2019. This is lower at the midpoint than the previously estimated capex of $410 million–$475 million.

The company expects its fiscal 2019 GAAP unreimbursed R&D expenses to reach $2.3 billion–$2.38 billion. This expected range is narrower than the previous GAAP R&D guidance of $2.28 billion–$2.40 billion. Regeneron has also guided for non-GAAP unreimbursed R&D expenses of $1.65 billion–$1.71 billion, which is narrower than the previously estimated range of $1.61 billion–$1.71 billion.

Regeneron expects its fiscal 2019 GAAP SG&A (selling, general, and administrative) expenses to reach $1.705 billion–$1.785 billion. The fiscal 2019 SG&A expense range is narrower than the previous GAAP SG&A guidance of $1.695 billion–$1.80 billion.

Regeneron has guided for non-GAAP SG&A expense of $1.53 billion–$1.58 billion, which is narrower than the previously estimated range of $1.50 billion–$1.58 billion. The company reaffirmed its fiscal 2019 GAAP effective tax rate of 11%–13%.

Regeneron valuation

Regeneron is currently trading at a forward PE (price-to-earnings) multiple of 12.37x. Its forward PE multiple is lower than those of biotech peers Amgen and Vertex Pharmaceuticals, but higher than those of Biogen, Celgene, and Gilead Sciences.

The 21 analysts tracking Regeneron have an average target price of $391.89 for its stock, which indicates a potential upside of 30.82% in the next 12 months.

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