US Healthcare Reforms And Biosimilars Will Erode Margins

Key Takeaways

• Reliance on a few key products and increasing biosimilar competition threaten revenue growth and earnings stability as healthcare reforms pressure pricing power.
  
• Rising R&D expenses and demographic headwinds may limit the long-term growth potential and sustainability of current revenue streams.
  
• Strong commercial execution, a diversified late-stage pipeline, strategic portfolio transitions, sustained R&D investment, and favorable industry trends position Regeneron for continued long-term growth.

Catalysts

Regeneron Pharmaceuticals, Inc. discovers, invents, develops, manufactures, and commercializes medicines for treating various diseases worldwide.

• Long-term global pricing pressures and political efforts to reform healthcare costs, especially in the United States, threaten to significantly erode Regeneron's pricing power across key franchises such as Dupixent and EYLEA, thus limiting future revenue growth and compressing net margins over the next several years.
  
• Regeneron's heavy reliance on EYLEA and now EYLEA HD for a substantial portion of overall revenues leaves it acutely vulnerable to mounting biosimilar competition and alternative therapies following patent expirations; this is already becoming reality with reported sales declines and is expected to accelerate, risking a rapid erosion of top-line growth and earnings stability.
  
• Demographic headwinds in developed markets-specifically the interplay between aging patient populations and sharply declining birthrates-pose a material long-term risk by eventually shrinking the addressable patient pool for Regeneron's core age-related disease products, constraining growth potential and reducing the sustainability of current revenue trajectories.
  
• Intensifying global competition, not only from established biopharma players but also from smaller, more agile companies employing innovative modalities such as mRNA and gene editing, threatens Regeneron's market share and exclusivity for new and existing biologics, particularly as regulatory agencies expedite rival approvals, further pressuring future sales growth.
  
• Escalating research and development costs tied to increasingly complex biologics and the need to advance a broad and expensive late-stage pipeline may outpace any revenue gains; if new launches or lifecycle enhancements fail to deliver expected returns, this dynamic will compress operating margins and ultimately undermine long-term earnings growth.

Regeneron Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Regeneron Pharmaceuticals compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Regeneron Pharmaceuticals's revenue will grow by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 31.4% today to 17.8% in 3 years time.
• The bearish analysts expect earnings to reach $2.6 billion (and earnings per share of $29.47) by about August 2028, down from $4.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 22.9x on those 2028 earnings, up from 13.1x today. This future PE is greater than the current PE for the US Biotechs industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 3.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Regeneron Pharmaceuticals Future Earnings Per Share Growth

Risks

• Regeneron has demonstrated robust commercial execution with significant year-over-year growth in core products like Dupixent (21% global net sales growth, now annualizing at over $17 billion) and Libtayo (25% global net sales growth), supporting continued revenue and profit expansion over the long term.
  
• The company is transitioning its ophthalmology portfolio from the declining EYLEA franchise to EYLEA HD, which showed strong demand growth (16% sequential increase, $393 million in quarterly US net sales), suggesting Regeneron can mitigate biosimilar erosion and recapture market share, which would help stabilize or enhance overall revenue.
  
• Regeneron's pipeline is highly diversified, with approximately 45 product candidates spanning oncology, obesity, hematology, genetics, and more; late-stage advancements like Lynozyfic, odronextamab, and the obesity/bariatric pipeline offer multiple potential blockbuster launches, which could materially boost future revenue and earnings.
  
• Sustainable R&D investment supported by a robust balance sheet ($17.5 billion in cash/marketable securities, only $2.7 billion in debt) provides the company flexibility to continue pipeline development, strategic acquisitions, and shareholder returns (buybacks and dividends), thus supporting net margin improvement and financial resilience.
  
• Favorable long-term secular trends-including increasing prevalence of chronic and age-related diseases, rising global demand for biologics, and expanding insurance coverage-are tailwinds for Regeneron's product portfolio, which is well-positioned in high-growth therapeutic areas, bolstering the outlook for both top-line and bottom-line growth over the coming years.

Valuation

• The assumed bearish price target for Regeneron Pharmaceuticals is $543.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Regeneron Pharmaceuticals's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $940.0, and the most bearish reporting a price target of just $543.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $14.7 billion, earnings will come to $2.6 billion, and it would be trading on a PE ratio of 22.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $563.0, the bearish analyst price target of $543.0 is 3.7% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that the bearish analysts believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.