Regeneron Pharma is heading towards becoming a hundred billion giant

In recent years, there have been few highlights in the US pharmaceutical sector, with only two GLP-1 giants, Novo Nordisk and Eli Lilly, consistently rising, while other pharmaceutical stocks have been lackluster. The stock prices of other large pharmaceutical companies have lagged behind the index.

However, unnoticed by many, there has been a change in the pharmaceutical industry landscape. Companies with low revenue but recognized technical potential have been fully priced. This year, a pharmaceutical company has entered the 1 trillion market value club, successfully transitioning from biotech to big pharma, surpassing giants like Gilead and Bristol-Myers Squibb in market value, closely following Pfizer.

This company is Regeneron Pharma. Over the past few years, with the stable output of its old product EYLEA and the rapid growth of its new product Dupixent to a billion-dollar sales level, it has achieved steady performance growth. Profits have rapidly multiplied with scale, making its market value exceeding 1 trillion reasonable. Although it currently only has two major drugs, compared to many established pharmaceutical companies, its limited product range indicates a focus on quality.

In the field of antibody drugs, it is one of the few companies that have achieved great success comparable to Merck, AbbVie, and Roche. Its advanced technology platform and rich drug pipeline provide immense room for imagination.

Therefore, a deeper understanding of how Regeneron has reached its current position and the expected future growth is warranted.

I. R&D-driven Progress Amid Challenges

The company's history dates back to 1988 when two young scientists, Leonard Schleifer and George Yancopoulos, founded it. Inspired by the biotech boom initiated by Genentech at the time, they embarked on innovative drug development in the fields of neuroscience and immunology. The company's name is a combination of "regeneration" and "neuron."

From its inception, the company has been a research-driven biotech, but it faced multiple failures in the early stages. After a series of management adjustments, the company brought in industry veteran Roy Vagelos, former CEO of Merck and developer of several well-known drugs, as chairman to steer it back on track. Roy's willingness to help Regeneron stemmed from his recognition of the company's values and his personal connection to one of the founders.

Upon joining Regeneron, Roy emphasized that drug development is not just laboratory research. Regeneron should leverage its expertise in cell signaling research and focus on diseases with clear biological mechanisms and positive clinical outcomes to expand its drug development into multiple areas.

As a result, Regeneron shifted its focus from blind efforts to building its most important technological barriers in future operations - the Trap technology platform and VelocImmune technology The Trap technology platform uses artificial intervention to effectively block the growth of cytokines and growth factors in the human body, thereby achieving the goal of disease treatment, suitable for drug development.

The VelocImmune technology platform includes the general technologies needed for the entire drug research process, such as target identification, animal models, antibody preparation, therapeutic antibody identification, T cell receptors, etc., which is the full-process platform for antibody drug development that we are familiar with today.

This is basically the first-generation version of the technology platform in today's various biotech promotional selling points. To this day, Regeneron is still the benchmark in the minds of many technology-driven biotech companies.

Based on the Trap technology platform at the time, the company began developing drugs related to cytokines and cytokine receptors by fusing receptors into the constant region of antibody molecules, finally achieving some success.

For the development of eye drugs targeting the VEGF target, Eylea, also known as Aflibercept, achieved unprecedented success. It can be used to treat diabetic macular edema and neovascular (wet) age-related macular degeneration in adults.

Based on its outstanding efficacy, Eylea quickly became the top eye drug, leading to Regeneron's first transformation. The market value entered the $50 billion range, until 2022, when the patent for Eylea expired, sales that year were $9.6 billion.

From the stock price chart, it can be seen that before the launch of Eylea, Regeneron's stock price tripled in over a decade, mostly declining. After the launch of Eylea, the stock price multiplied more than tenfold in 4-5 years. It can be said that a successful blockbuster drug is decisive for the value of a biotech company.

During the years when Eylea's growth slowed down and there were no major new products, Regeneron also remained quiet for a period of time until the launch of Dupixent in 2019, creating brilliance once again.

Dupixent is a drug for autoimmune diseases targeting the IL-4Rα receptor, combining Regeneron's VelocImmune technology platform with the most promising immune control targets. Previously, the company launched Praluent based on this platform, a PCSK9 monoclonal antibody drug, but the market size was limited and it did not become a blockbuster drug.

Dupixent's efficacy is significant, with excellent safety, and it has significantly expanded its indications to a wide range of skin and allergic diseases, becoming a broad-spectrum immune drug that no one expected, and has become the second largest self-immune drug after adalimumab

Dupixent's annual sales have reached 13 billion, making it one of the fastest-growing drugs in the market today. This drug, developed in collaboration with Sanofi, has achieved significant results as a single drug in the pipeline. Just by expanding its indications, it can achieve huge sales growth.

With two blockbuster drugs, the company has finally become a big pharma, on par with long-established giants like GlaxoSmithKline and Pfizer after multiple mergers.

It should also be noted that Dupixent is a more successful blockbuster drug than Eylea, with peak sales forecasted to reach 20 billion. However, in terms of catalyzing Regeneron's stock price, it is not as effective as Eylea in the past. The key difference is that this drug is developed in collaboration with Sanofi, with one party contributing to research and the other sharing profits based on a certain ratio, ultimately splitting the benefits equally.

Therefore, the portion that can contribute to Regeneron's performance is discounted. In the financial statements, 70% of Dupixent's revenue goes to Sanofi's table, while only 30% goes to Regeneron's table. Hence, even if this drug eventually reaches an annual sales of 20 billion, in Regeneron's performance, it is equivalent to a fully-owned drug with sales of 10 billion.

Similarly, the success of a 10 billion dollar drug also adds 50 billion in market value, which is a relative increase of 10 times in the past, but now it is only 1 time. For Regeneron, the catalytic effect of future blockbuster drugs on stock price will also decrease marginally. To enter the 200 billion or even 300 billion club in the future, obviously greater success is needed.

II. Behind the Success

Behind Regeneron's success, several details are worth noting.

Firstly, the time taken to go from 0 to 1 in terms of realization is long. As shown by the stock price above, there were calm waters for over a decade, and then a sudden tenfold increase in a few years. This value realization curve is typical for most innovative drugs, with the success rate of becoming a company like Regeneron being rare. Most companies' stock prices only decline, as the success rate in Biotech is naturally low.

To transition from biotech to big pharma, only two blockbuster drugs are needed, with a focus on quality rather than quantity in the pipeline The success of Regeneron Pharma is closely related to human factors, with Roy's joining being crucial. Both founders were academic stars before entering the business, studying under Nobel laureates with a strong technical background. The company is based on these experts, enabling the implementation of a strong research and development value system. Currently, Regeneron Pharma's board of directors also includes two Nobel Prize winners, Michael Brown and Joseph Goldstein. Personnel changes are almost decisive for biotech companies.

In addition, Sanofi, which has been collaborating with Regeneron Pharma for a long time, owns half of Dupixent but has not reaped significant benefits. Over the years, both performance and stock prices have been mediocre. Despite having annual revenue of 40 billion, the profit margin is only half of Regeneron Pharma's. With the combined growth rate and profit level of these two companies, the current market value difference of 30 billion is not surprising.

The growth of Dupixent has been basically offset by the decline of Sanofi's other old products. To maintain growth with another explosive product? They don't have one themselves, and they don't have enough money to buy externally.

This also indicates that large pharmaceutical companies, relying on the MNC model, which depends on sales and clinical network advantages to earn certain profits, are finding it increasingly difficult. Big pharma has already become a blue-chip stock in a lagging state, and undervaluation is reasonable.

Without self-developed innovation, it is difficult to achieve high returns through external drug acquisitions. Look at the recent summit, a blockbuster drug with certainty won't be overlooked, and a 200 billion acquisition can only bring in 30 billion in cash flow over the next 10 years. Therefore, many old big pharma companies are stuck in a cycle of mature drug patent expiration, using the money earned in the past for mergers to maintain income scale, with limited shareholder return capabilities.

In the future, rapid changes in the market value of leading companies in the pharmaceutical industry will remain the norm.

The success of Dupixent is also unexpected. Before its launch, this target was not highly popular, with few related papers at the time, and even now, there are not many followers of IL-4Rα. This indicates that a few years ago, not many pharmaceutical companies saw its potential. Yet, it turned out to be a super blockbuster

It can be said that the emergence of many blockbuster drugs is often accompanied by the unknown. Those targets with recognized potential must already have good drugs on the market, facing fierce competition and difficulties in further enhancing drug efficacy. For example, before 2009, there were only over 300 literature searches related to the IL-4Rα target, which was very few.

Not only IL-4Rα, but also PD-1, before the clinical trials of O drugs began in 2007, there were very few related target search papers. Achieving high returns in pharmaceutical R&D definitely requires exploring uncharted territories rather than following the same old path.

III. The Future of Regeneron Pharma

Finally, Regeneron Pharma, which currently has a market value of 110 billion, has a wide range of opinions on its future direction. Eylea has already expired its patent, and Roche's VEGF bispecific antibodies have rapidly increased in volume, starting to replace Eylea, leading to its decline. Although Dupixent still has room for growth, its overall growth rate will definitely be affected by Eylea. People are worried that after becoming a big pharma, their return on investment will also be compared to them.

Among the current new products, Libtayo, a PD-1 monoclonal antibody, although showing significant efficacy as a monotherapy and having the fastest growth rate among all Regeneron Pharma products, it is still difficult to become a blockbuster drug in such a competitive PD-1 market where bispecific antibodies are gradually emerging.

It can be seen that Regeneron Pharma is also working hard to explore various fields. Currently, in its pipeline, there are multiple immune therapy products, including some bispecific products covering solid tumors and hematology. In addition, there are weight loss and gene therapy products.

The pipeline is quite rich, but the newly covered tracks are all quite popular, making it not easy to develop a blockbuster drug.

The bispecific antibody field overlaps the most with the company's past strengths, but both consecutive products, Odronextamab (CD20xCD3) and REGN7075, have shown unfavorable data performance. It will take some time for the blockbuster potential bispecific antibodies to emerge.

The market believes in Regeneron Pharma's R&D and platform technology capabilities. In the fields of cellular immunotherapy and autoimmunity, the development path lies in bispecific antibodies, multi-targeting, safety control, and specificity enhancement.

Bispecific antibodies are also antibodies. By persisting in exploration, it is not difficult to develop another major drug. Looking at the performance, it is not expensive, and it may even have better shareholder return capabilities than those low PE multinational corporations.

However, developing a new blockbuster drug worth billions is not that simple. If the performance slows down without new highlights, it is reasonable for the stock price to stagnate for a few years, just like in 2016 Regeneron Pharma is poised to continue growing and moving towards the next level. The road ahead is long, and based on the current pipeline and scale, the hope lies in a comprehensive expansion of multiple product categories, contributing billions in revenue growth.

If a blockbuster drug with full equity worth around 20 billion is developed (such as Merck's Keytruda and AbbVie's Humira), the market value could naturally surpass 200 billion. However, if a blockbuster drug with full equity worth around 30 billion is introduced (such as GLP-1), then the market value could reach 400 billion. This indicates that achieving a doubling in market value is no easy task.

The growth journey of Regeneron Pharma is worth referencing for all biotech companies. It is important to assess the current position of investments, as well as reasonable market value and growth expectations