Seeing Black Gives Regeneron a 9% Pop

Regeneron Pharmaceuticals' (NAS: REGN) launch of Eylea has been nothing short of amazing. Sales haven't spiked up quite as fast as Vertex Pharmaceuticals' (NAS: VRTX) Incivek, but Eylea was launching into direct competition from Roche's Lucentis and cheap off-label use of Roche's Avastin. By contrast, Incivek was an add-on therapy to the existing standard of care, so there wasn't an entrenched leader that it had to steal market share from.

In the first quarter, Regeneron registered sales of $124 million, a solid increase over the $72 million run rate it exited the fourth quarter with. The biotech estimates it's taken 10% of the macular degeneration market. The ability to inject the drug half as often is a clear advantage, so I'm not shocked it was able to reach that level of penetration -- I'm just surprised it happened so quickly.

Equally surprised, it seems, is Regeneron's management -- or they're just really cautious with guidance. After the solid quarter, Regeneron is guiding for sales between $500 million and $550 million this year, which is nearly double the guidance it put out in February. And that guidance was an increase from just a month prior.

The solid quarter allowed the biotech to become profitable for the first time in its history, which is always a monumental occasion. Given the continuing increase in sales, I imagine Regeneron will be able to stay in the black, something other fledgling biotechs like Onyx Pharmaceuticals (NAS: ONXX) had trouble doing once they turned a profit; research and development for the next blockbuster isn't cheap.

Regeneron's secret to success is the pact it struck with Sanofi (NYS: SNY) a few years ago that has the French pharma giant footing the bill for much of the biotech's research in exchange for a cut of the drugs that are developed. In the first quarter, about 70% of Regeneron's research and development costs were reimbursed by collaborators.

While the launch of Eylea has been nothing short of spectacular, investors' enthusiasm might be getting ahead of itself. With a market cap over $12 billion, Regeneron trades at a whopping 24 times this year's projected sales -- not earnings, sales. Investors are counting on Eylea to continue growing, which seems reasonable given the room to penetrate further, but the biotech will likely need a hit or two from the pipeline to justify that price as well.

Looking for a rule-breaking multibagger stock? Find out the name of this promising health care company and why Fool analysts like it so much in our free report: "Discover the Next Rule-Breaking Multibagger."

At the time this article was published Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.