The pharmaceutical sector in the US stock market has had few highlights in recent years, except for $Novo-Nordisk A/S (NVO.US)$ and $Eli Lilly and Co (LLY.US)$ the two GLP-1 giants that have been consistently rising, while other pharmaceutical stocks are lackluster. Other large pharmaceutical companies have underperformed the index comprehensively in terms of stock price.

However, unnoticed, the seating arrangement in the pharmaceutical industry has changed. Companies with low income but recognized technical potential have been fully priced. This year, a pharmaceutical company has newly entered the 100 billion market cap club, successfully completing the transformation from biotech to big pharma and surpassing the original on market cap. $Gilead Sciences (GILD.US)$Please use your Futubull account to access the feature.$Bristol-Myers Squibb (BMY.US)$ Among the giants, following closely behind is $Pfizer (PFE.US)$ .

This company is $Regeneron Pharmaceuticals (REGN.US)$ in the past few years, with stable output of the old product EYLEA and rapid growth of the new product Dupixent becoming a heavyweight drug with sales in the tens of billions. This has achieved steady performance growth, with profits rapidly increasing several times along with the scale. Therefore, a market cap exceeding one hundred billion is also very reasonable, despite currently having only two major drugs. Compared to many established large pharmaceutical companies, the company has too few products, yet this also indicates that the company excels in producing high-quality products.

In the field of antibody drugs, the company is one of the few that has achieved similar great success to Bristol-Myers Squibb. And its underlying technology platform, along with a rich drug pipeline, provides tremendous room for imagination. $Merck & Co (MRK.US)$Please use your Futubull account to access the feature.$AbbVie (ABBV.US)$Please use your Futubull account to access the feature.$ROCHE HOLDING AG (RHHBY.US)$ Therefore, a deeper understanding should be made about how Regeneron Pharmaceuticals has come to where it is today and the expected future growth.

Therefore, a deeper understanding should be made about how Regeneron Pharmaceuticals has come to where it is today and the expected future growth.

First, the twists and turns driven by research and development.

The company's history can be traced back to 1988, founded by two young scientists Leonard Schleifer and George Yancopoulos. Inspired by the prosperous era of biopharmaceuticals pioneered by Genentech at the time, they embarked on entrepreneurship, focusing on the development of innovative drugs in the fields of neuroscience and immunology. Its name combines regeneration and neurons.

From the beginning, the company has been a research and development-driven biotech. However, in the initial stages, it experienced several failures. After a series of management adjustments, the company brought in the legendary figure in the industry, Roy Vagelos, former CEO of Merck, as chairman of the board, to get back on track. Of course, Roy was willing to help Regeneron because he recognized Regeneron's values and because he was a fellow townsman of one of the founders.

Upon arriving at Regeneron, Roy pointed out that drug development did not mean laboratory research. Regeneron should leverage its advantage in studying cellular signal transduction and start with diseases with clear biological mechanisms and good clinical benefits, expanding its drug development into many other areas.

As a result, Regeneron no longer blindly exerted force, but instead built its most important technological barriers in its future operations in this direction - the Trap technology platform and VelocImmune technology.

The Trap technology platform effectively blocks the growth of cytokines and growth factors in the human body through artificial intervention to achieve the purpose 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 essentially the first generation version of the technology platforms in today's various biotech marketing points. To this day, Regeneron remains 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 targeting cytokines and cytokine receptors by fusing receptors into the constant region of antibody molecules, finally achieving some results.

Eylea, a ophthalmic drug developed targeting the VEGF target, also known as Aflibercept, has achieved unprecedented success. It can be used to treat diabetic macular edema and wet age-related macular degeneration in adults.

With outstanding efficacy, Eylea quickly became the largest ophthalmic drug, marking the first transformation of Regeneron. The market cap entered the 50 billion range, until 2022, when the patent for Eylea expired and sales dropped for the first time to 9.6 billion dollars.

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

During the years when Eylea's growth slowed down and there were no major new products, Regeneron also fell silent for a while. It wasn't until 2019, after the launch of Dupixent, that Regeneron regained its glory.

Dupixent is an autoimmune drug targeting the IL-4Rα target, a combination of Regeneron's VelocImmune technology platform and the most promising immunomodulatory target. Previously, based on this platform, the company launched Praluent, a PCSK9 monoclonal antibody drug, but the market size was limited and did not ultimately become a blockbuster drug.

Dupixent has shown significant efficacy, excellent safety, and has greatly expanded its indications to a wide range of skin and allergic diseases. It is a broad-spectrum immunotherapy drug that no one expected, and has become the second largest self-immunotherapy drug after Adalimumab.

Dupixent's annual sales have reached 13 billion, making it one of the fastest growing drugs on the market today. This drug, jointly developed with Sanofi, has achieved the effect of a full pipeline with a single drug; just by expanding indications, it can achieve huge sales growth.

With two blockbuster drugs, the company has finally become big pharma, on par with market cap giants like GlaxoSmithKline, Novartis, and Bristol-Myers Squibb after multiple mergers.

It should also be noted that Dupixent, a blockbuster drug even more successful than Eylea, with peak sales forecast reaching 20 billion, but its impact on Regeneron's stock price is far less than that of Eylea in the past. The key difference is that this drug is co-owned with Sanofi, with one party in charge of research and the other sharing the profit proportionately, ultimately sharing the benefits equally.

Relatively speaking, the portions contributing to Regeneron's performance will now be discounted. It can be seen from the financial statements that 70% of Dupixent's revenue goes to Sanofi's table, while only 30% goes to Regeneron's table. Therefore, even if this drug eventually reaches an annual sales turnover of 20 billion, in Regeneron's performance, it would only be equivalent to a fully-owned 10 billion sales drug.

The success of a 10 billion dollar drug also adds 50 billion in market cap value, which is a relative decrease from the previous tenfold increase in market cap. For Regeneron, the catalytic effect of future single blockbuster drugs on stock price will also diminish marginally. To join the 200 billion or even 300 billion club in the future, a greater level of success is evidently needed.

2. Behind the Success

Behind Regeneron's success, several details are not difficult to find.

First, the time taken to go from 0 to 1 realization is long, as shown by the stock price trend above. For the first dozen years, there were no surprises; sudden success led to a tenfold increase in just a few years. This value realization curve is common for most innovative drugs, though companies like Regeneron are rare. The majority of company stock prices tend to decline, reflecting the inherent success probability of Biotech.

To transition from biotech to big pharma, only two blockbuster drugs are needed, and the pipeline should be more focused than extensive.

The success of Regeneron is closely related to human factors, and Roy's joining is crucial. The two founders themselves were academic stars before entering the business, studying under Nobel laureates, with a strong technical background. The company is based on these experts in order to implement a strong R&D value system. Currently, Regeneron's board of directors also includes two Nobel Prize winners, Michael Brown and Joseph Goldstein. Personnel changes are almost decisive for biotech.

In addition, collaborations with Regeneron for a long time $Sanofi (SNY.US)$ have half of Dupixent, but have not reaped much dividends. Over the years, both performance and stock prices have been mediocre. Currently, despite a revenue of 40 billion in one year, the profit margin is only half of Regeneron's. With the combined growth rate and profit level of the two companies, the current market cap is only 30 billion apart, which is not surprising.

The growth of Dupixent is basically offset by the decline of other old products of Sanofi. To maintain growth by launching another explosive product? They don't have one themselves and don't have enough money to buy one.

This also explains that large pharmaceutical companies, relying on the MNC model, that is, relying on sales and clinical network advantages to earn predictable profits, have become very difficult. Big pharma has already become a blue chip stock in a lagging form, and giving it a low valuation is reasonable.

Without self-developed innovation, it is basically difficult to have a high ROI by outsourcing drugs. Just look at the recent summit, a promising blockbuster drug, won't be overlooked, but can only acquire a future 10 billion in cash flow for 3 billion over the next 10 years. Therefore, many old big pharma companies have fallen into a cycle of expiring patents for mature drugs - using previous earnings to acquire and maintain income scale, with no good shareholder return capabilities.

In the future, rapid replacement and changes in market cap among leading companies in the pharmaceutical industry will continue to be the norm.

The success of Dupixent was unexpected. Before its launch, the target of this drug was not particularly popular, with few related research papers at the time and a limited number of subsequent IL-4Rα competitors. This indicates that a few years ago, not many pharmaceutical companies saw the potential. Nevertheless, it turned out to be a super blockbuster.

It can be said that the emergence of many blockbuster drugs is accompanied by the unknown. Those targets with recognized potential inevitably already have good drugs on the market, facing strong competition and difficulty in improving efficacy. For example, the IL-4Rα target had only over 300 citations before 2009, which is very few.

Not only IL-4Rα, but PD-1 as well. Before the clinical trials of O medicine started in 2007, there were also very few related target research papers. High returns in pharmaceutical research and development require exploration in uncharted territories rather than imitation.

III. The Future of Regeneron

Finally, Regeneron has already reached a market cap of 110 billion. There is a significant difference in opinions on its future direction. With Eylea's patent expiration and Roche's rapid increase in VEGF dual antibodies to replace Eylea, causing a decline, Dupixent can still grow further. However, the overall growth rate will definitely be affected by Eylea. Concerns arise after becoming a big pharma, and their ROI is also under scrutiny.

Currently, among the new products, Libtayo, a PD-1 monoclonal antibody, although effective as a single therapy with the fastest growth rate among all Regeneron products, it is challenging to become a blockbuster drug in a competitive PD-1 market where multiple dual antibodies are gradually emerging.

It is evident that Regeneron is working hard in various fields. However, within its pipeline, there are multiple immune therapy and dual antibody products, covering solid tumors and hematology. In addition, there are weight-loss and gene therapy products. The pipeline is quite extensive, but the newly covered tracks are all quite competitive, making it challenging to develop a blockbuster.

The range is quite diverse, with Regeneron exploring various areas diligently. In the current pipeline, there are several immune therapy products, including some dual antibody products that target solid tumors and hematology. Additionally, there are weight-loss and gene therapy products. The offerings are quite abundant; however, the newly covered tracks are quite popular, making it difficult to develop a blockbuster.

The bispecific antibody sector overlaps the company's past strengths the most, but both consecutive products Odronextamab (CD20xCD3) and REGN7075 have shown unfavorable data. The explosive potential of bispecific antibodies still needs to be waited.

The market believes in the research and platform technology capabilities of Regeneron Pharmaceuticals, in the fields of cellular immunotherapy and autoimmune diseases, the development path involves multiple antibodies, multiple targets, safety control, and increased specificity.

Bispecific antibodies are also antibodies, persisting in exploration investment. It is not difficult to develop another major drug. Judging by performance, it is not expensive, and may even have better shareholder return capabilities than those with lower PEs among multinational corporations.

But developing new blockbuster drugs worth billions is not that simple. If the performance slows down without new highlights, it would be reasonable for the stock price to stagnate for a few years, like it did back in 2016.

Regeneron Pharmaceuticals must continue to grow, move to the next level, the road ahead is still long. Based on the current pipeline and scale, the hope lies in a wide array of products contributing to incremental revenue of several billion.

If a blockbuster drug worth 20 billion is released (e.g., Merck's Keytruda and AbbVie's Humira), naturally the market cap can approach 200 billion plus; however, if a blockbuster drug worth 30 billion is unveiled (e.g., GLP-1), then the market cap can only reach 400 billion. This also indicates that achieving a doubled upsurge is quite challenging.

Regeneron Pharmaceuticals' growth journey is worth all biotech companies' reference. Where the current investment stands, what are the reasonable market cap expectations, and growth prospects?

Editor/Somer