Regeneron (REGN)

Biotech company Regeneron (NASDAQ:REGN) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 3.7% year on year to $3.03 billion. Its non-GAAP profit of $8.22 per share was 3% below 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 $14.09 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 performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Regeneron’s 15% 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 6.7% 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 50.6% and 46.7% of revenue. Over the last two years, Regeneron’s Collaboration revenue averaged 13.8% year-on-year growth while its Product & Pipeline revenue averaged 2.6% growth.

This quarter, Regeneron missed Wall Street’s estimates and reported a rather uninspiring 3.7% year-on-year revenue decline, generating $3.03 billion of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

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 38.6%.

Analyzing the trend in its profitability, Regeneron’s operating margin decreased by 16.2 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 8.6 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.

This quarter, Regeneron generated an operating profit margin of 19.5%, 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 remarkable 10.6% compounded annual growth rate over the last five years. However, this performance was lower than its 15% 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.

We can take a deeper look into Regeneron’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Regeneron’s operating margin declined by 16.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, Regeneron reported EPS at $8.22, down from $9.55 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Regeneron’s full-year EPS of $44.31 to shrink by 10.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because 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 31.8% over the last five years.

Taking a step back, we can see that Regeneron’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

Regeneron’s free cash flow clocked in at $815.8 million in Q1, equivalent to a 26.9% margin. The company’s cash profitability regressed as it was 16.9 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

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 30.1%, 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. Unfortunately, Regeneron’s ROIC has decreased significantly over the last few years. 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 $8.35 billion of cash and $2.70 billion of debt on its balance sheet. This $5.64 billion net cash position is 9.3% 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 struggled to find many positives in these results. Its revenue missed significantly and its EPS fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 1.7% to $600 immediately after reporting.

Updated: May 22, 2025 at 11:37 PM EDT

Before deciding whether to buy Regeneron or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Regeneron has a few positive attributes, but it doesn’t top our wishlist. First off, its revenue growth was solid over the last five years. And while Regeneron’s diminishing returns show management's prior bets haven't worked out, its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits.

Regeneron’s P/E ratio based on the next 12 months is 14.9x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $797.21 on the company (compared to the current share price of $595).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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