Regeneron (REGN)

Biotech company Regeneron (NASDAQ:REGN) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $3.75 billion. Its non-GAAP profit of $11.83 per share was 22.7% above analysts’ consensus estimates.

Company Overview

Founded by scientists who wanted to build a company where science could thrive, Regeneron Pharmaceuticals (NASDAQ:REGN) develops and commercializes medicines for serious diseases, with key products treating eye conditions, allergic diseases, cancer, and other disorders.

Over the next few years, immuno-oncology companies, which harness the immune system to fight illnesses such as cancer, faces strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

Regeneron's competitors vary by therapeutic area. In ophthalmology, EYLEA competes with products from Roche/Genentech, Novartis, and biosimilars from companies like Samsung Bioepis. For Dupixent, competitors include AbbVie, Eli Lilly, Pfizer, and AstraZeneca/Amgen. In oncology, Libtayo faces competition from Merck, Bristol-Myers Squibb, Roche, and AstraZeneca.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $14.25 billion in revenue over the past 12 months, Regeneron has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Regeneron’s 12.4% annualized revenue growth over the last five years was solid. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Regeneron’s recent performance shows its demand has slowed as its annualized revenue growth of 4.3% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Collaboration and Product & Pipeline, which are 52.4% and 42.3% of revenue. Over the last two years, Regeneron’s Collaboration revenue averaged 11% year-on-year growth. On the other hand, its Product & Pipeline revenue averaged 1.6% declines.

This quarter, Regeneron’s $3.75 billion of revenue was flat year on year but beat Wall Street’s estimates by 5.1%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Regeneron has been a well-oiled machine over the last five years. It demonstrated elite profitability for a healthcare business, boasting an average operating margin of 37.4%.

Looking at the trend in its profitability, Regeneron’s operating margin decreased by 29.3 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 6.3 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q3, Regeneron generated an operating margin profit margin of 27.3%, down 4.4 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Regeneron’s EPS grew at a solid 8.7% compounded annual growth rate over the last five years. However, this performance was lower than its 12.4% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of Regeneron’s earnings can give us a better understanding of its performance. As we mentioned earlier, Regeneron’s operating margin declined by 29.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Regeneron reported adjusted EPS of $11.83, down from $12.46 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Regeneron’s full-year EPS of $45.01 to shrink by 10.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Regeneron has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the healthcare sector, averaging an eye-popping 33.2% over the last five years.

Taking a step back, we can see that Regeneron’s margin dropped by 10.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle.

Regeneron’s free cash flow clocked in at $1.42 billion in Q3, equivalent to a 37.8% margin. This result was good as its margin was 9.5 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Regeneron hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 28%, splendid for a healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Regeneron’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Regeneron is a profitable, well-capitalized company with $8.44 billion of cash and $2.71 billion of debt on its balance sheet. This $5.74 billion net cash position is 8.5% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Regeneron blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 4.5% to $611 immediately after reporting.

Updated: December 3, 2025 at 11:13 PM EST

Before making an investment decision, investors should account for Regeneron’s business fundamentals and valuation in addition to what happened in the latest quarter.

Regeneron isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was solid over the last five years, it’s expected to deteriorate over the next 12 months and its diminishing returns show management's prior bets haven't worked out. And while the company’s powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its declining adjusted operating margin shows the business has become less efficient.

Regeneron’s P/E ratio based on the next 12 months is 16.6x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $768.36 on the company (compared to the current share price of $723.19).