$Regeneron Pharmaceuticals(REGN)$
Today I want to talk about Regeneron Pharmaceuticals—ticker REGN. But this isn’t going to be a deep-dive valuation or a classic stock pitch. Instead, I’m using Regeneron as a jumping-off point for a broader discussion about strategy, understanding your own investing limitations, and the importance of staying within your circle of competence—a concept popularized by Warren Buffett and one that has served me well over the years.
Before we get started, just a quick reminder: this isn’t individual investment advice. It’s simply how I approach stock analysis and think through certain investment decisions.
Why Talk About Regeneron?
Over the past week or so, I’ve had a dozen or more people message me or comment asking what I think about Regeneron. And I’ve had pretty much the same response every time: It’s in my "too hard" pile.
If you’ve watched my articles or read my work before, you’ll know that when I say something is "too hard," it doesn’t mean the business is bad. It means that, for me, it’s too hard to reliably predict the business outcomes and estimate fair value. In this case, Regeneron—like many drug companies—presents a lot of complexity that falls outside my core investing approach.
Regeneron Stock Earnings Overview (Q1 2025)
Regeneron Pharmaceuticals (NASDAQ: REGN) reported its first quarter 2025 financial results on April 29, and the reaction from Wall Street was swift and decidedly negative. Shares fell over 7% in the immediate aftermath, closing in on their 52-week lows around $525–530. While the company remains a biotech powerhouse with a formidable R&D engine, investor sentiment has weakened significantly due to a series of disappointing numbers and mixed forward-looking commentary. Below is an in-depth look at the earnings report, what caused the sell-off, and how the long-term thesis stacks up after Q1.
Financial Performance: Headwinds Hit Top and Bottom Lines
▪️ EPS and Revenue Miss Expectations
Regeneron posted GAAP earnings per share (EPS) of $8.22, which fell short of the consensus estimate that hovered between $8.48 and $8.83. Revenue for the quarter came in at approximately $3.0 billion, missing analyst projections of $3.24 to $3.4 billion and reflecting a roughly 4% decline year-over-year. This was one of the company's most notable revenue shortfalls in recent years and marks a clear deviation from the steady revenue growth investors had grown accustomed to in previous quarters.
Net income for the quarter totaled $928 million, down from over $1 billion a year earlier. The gross margin dipped slightly to approximately 85%, indicating some degree of operating leverage deterioration.
Spotlight: Eylea's Decline and the Uptake of Eylea HD
The biggest contributor to the disappointing quarter was a steep 39% year-over-year decline in U.S. sales of Eylea, Regeneron’s flagship eye disease treatment. Eylea brought in just $736 million in U.S. revenue for Q1 2025, far below both expectations and prior performance.
Management had hoped that the launch of Eylea HD (8mg) — a higher-dose version of the drug aimed at combating declining market share and increasing competition — would offset some of the weakness. However, uptake has been slower than expected, in part due to reduced patient assistance program funding, which limited access and utilization for many patients.
Despite Eylea HD showing promising clinical data and efficacy, the commercial ramp has lagged, and physicians have not yet switched over in sufficient numbers to offset the broader revenue erosion. Analysts at Leerink Partners and Goldman Sachs both reduced their 2025 and 2026 sales forecasts for Eylea as a result.
Valuation: Discounted, But With Caveats
At current levels (around $530/share), Regeneron trades at approximately:
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13.8x forward earnings, which is significantly lower than the broader biotech and pharma sector average (~26–28x)
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A PEG ratio of ~2.34, reflecting solid but not explosive expected growth
This makes Regeneron one of the cheaper large-cap biotech names, especially given its high margins, fortress balance sheet, and dominant market position in key therapeutic areas.
However, the valuation discount reflects legitimate investor concerns about the sustainability of future earnings growth, especially if Eylea HD fails to materially regain share or if key pipeline readouts disappoint.
Analyst Ratings and Market Sentiment
Despite the weak quarter, most analysts still rate REGN as a "Moderate Buy", with an average price target in the range of $640–$700. That represents a ~20–30% upside from current levels, assuming the company can reaccelerate growth.
Some notable changes in sentiment include:
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Leerink Partners lowered Q2 EPS projections to $7.71 (from $8.22) and raised concern over continued commercial challenges.
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Morgan Stanley reiterated a Hold, emphasizing strong fundamentals but citing lack of catalysts in the near term.
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JPMorgan maintained an Overweight rating, arguing that the pipeline depth and undervaluation present an attractive long-term opportunity.
Outlook: What To Watch Going Forward
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Q2 2025 Earnings (Expected Late July) Investors will be watching closely to see whether Eylea HD adoption picks up and if Dupixent maintains its momentum.
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Regulatory Decisions on Eylea HD Pre-Filled Syringe A favorable ruling could significantly accelerate uptake and boost sales in the second half of 2025.
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Pipeline Data & Partnerships Progress in oncology and immunology trials, as well as milestones from Sanofi partnerships, could drive sentiment shifts.
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Capital Deployment Strategy Any new buybacks, acquisitions, or capital return announcements may help offset current market skepticism.
Cyclical vs. Secular Predictability
A lot of my investing analysis centers around understanding earnings cycles. I’ve found that, particularly for cyclical businesses, earnings patterns often follow a more predictable arc that allows for forward modeling based on historical performance. Drug companies, however, don’t operate in those types of cycles. They’re not cyclical in the macroeconomic sense—where you can anticipate demand fluctuations based on the broader economy. Instead, they operate on product cycles based on patents, regulatory approvals, and clinical success rates.
These types of cycles are inherently more binary and less forecastable. A company can go years with flat or declining earnings and then suddenly launch a blockbuster drug and triple its profits. Or it can ride high on one or two key drugs and then fall off a cliff when those drugs lose exclusivity.
My Strategy: A Historical, Earnings-First Approach
When I got serious about investing—around 12 or 13 years ago—I started absorbing everything I could about valuation, behavioral finance, and historical analysis. One of the biggest insights that’s stuck with me is this:
A company’s long-term earnings history is often a better predictor of future returns than Wall Street narratives or analyst forecasts.
That sounds obvious, but the market often forgets this in favor of stories. Whether it’s a new technology, a breakthrough drug, or the latest "disruptor," the narrative can easily overpower fundamentals—especially in the short term. But when you zoom out, the market tends to reward consistent, proven earnings performance over speculative projections.
I’m not the only one who thinks this way. Ray Dalio’s work at Bridgewater heavily emphasizes long-term historical cycles. Ben Graham required a 10-year earnings record as part of his analysis. Even dividend investing, in theory, operates on the assumption that a long history of dividend payments implies financial resilience.
Why Stories Are So Dangerous
Markets are story-driven—especially in bull markets. Think back to 2020–2021: SPACs, meme stocks, crypto, IPO mania. All of it was powered by stories. The idea that a company was about to change the world, and that buying today would make you rich tomorrow.
Look at ARK Invest’s flagship fund. Since I launched the Cyclical Investors Club in early 2019, I’ve tracked ARK’s performance for comparison. Their returns? Around 30% total over six years. That’s barely above cash. That entire portfolio was built around story stocks—and while a few of those stories might work out, the odds are stacked against you.
Even if you hit a Palantir or Tesla early on, it’s easy to give that money back chasing the next 19 that don’t work out. Investing in stories is a game of low probabilities and high ego. You might win the first hand, but the house usually wins in the end.
Applying This Lens to Regeneron
So let’s bring it back to Regeneron. It checks a lot of boxes if you look at it from a product-cycle lens. In 2012, they had a breakout drug that turned the company from a zero-profit operation into a highly profitable one. If you bought in early, the returns over the next few years were phenomenal—classic hockey-stick growth.
But fast forward a decade, and those investors who bought even a year or two into the boom—when earnings were still growing at 20% a year—have seen no return. Not because the company failed. Not because they’re bad operators. But because the story changed, and the market’s expectations reset.
That’s the nature of biotech. You can go from zero to hero to zero again, all based on the lifespan of a single molecule.
Why I Put It in the "Too Hard" Pile
When I analyze stocks, I like to start with a clean historical earnings trend. I look at normalized earnings power, apply adjustments, and project that trend forward. That’s where 80% of my valuation work happens.
Then, I’ll layer on some qualitative judgment—things like industry positioning, management, and, yes, potential catalysts. But that’s the last 20%. And for a drug company like Regeneron, that last 20% would have to carry 80% of the weight. That’s not a trade I’m comfortable making.
The complexity is just too high. Patent cliffs, FDA approvals, R&D pipelines—it’s a tangled web. Even expert biotech analysts who know the science deeply don’t seem to consistently outperform at picking winners. If they can't do it, I know I probably can't either.
The Exceptions: When I Do Buy Pharma
Now, I’m not completely opposed to drug companies. I do make exceptions—but the bar is high.
Typically, I want:
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A large, diversified portfolio of drugs.
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At least three blockbuster products on the market.
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A pipeline with multiple near-term candidates.
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A very low valuation—ideally under 12x earnings.
That’s what led me to buy Alexion in late 2020. It met those conditions and was trading cheap. Within a few months, they were bought out—nice return, quick win. I’ve also owned Merck since March 2021 for similar reasons.
Merck vs. Regeneron: A Useful Contrast
Merck is four to five times the size of Regeneron. It has a long history, global reach, and a diversified earnings base. Even in its weaker periods, Merck maintained steady earnings thanks to its broad portfolio. There wasn’t the boom-bust pattern you often see with smaller or mid-sized biotechs.
When I bought Merck, ARK Invest and meme stocks were peaking. Most investors were chasing returns, but Merck was sitting quietly at a 12x P/E with little downside and modest upside. That’s the kind of asymmetric bet I like.
Even though Merck has pulled back recently, I’m still up about 30% from my purchase. That’s good enough for me. And importantly—it matched my strategy and circle of competence.
Lessons from Gilead
Years ago, I owned Gilead during its hepatitis cure boom. They had a drug that essentially cured Hep C—huge innovation. The stock exploded upward. But once people were cured, recurring demand fell off a cliff. The stock followed. I got out without too much damage, but it taught me a lesson: one blockbuster does not make a durable business model.
Gilead has since stabilized, and maybe it’ll go on to another growth phase. But at the time, it looked like the next great compounder—and then it wasn’t.
Final Thoughts
So what’s the takeaway?
Regeneron’s Q1 2025 earnings were clearly a disappointment, particularly due to the sharp decline in Eylea sales and a soft launch for Eylea HD. However, this is still a cash-rich, highly profitable biotech firm with a deep pipeline and one of the best track records in the sector. The recent weakness could represent a long-term buying opportunity — but only for investors comfortable with short-term volatility and pipeline-dependent execution risk.
It’s not that Regeneron is a bad company. It’s not that biotech is a scam. It’s simply that for me—and maybe for other investors who approach the market like I do—these kinds of businesses don’t fit my strategy.
I can’t predict which experimental drugs will succeed, how long a blockbuster will last, or whether a pipeline will materialize into earnings. That kind of investing requires a different skill set, more speculation, and a higher tolerance for binary outcomes. I’ve chosen a different path—one built on historical earnings, valuation discipline, and avoiding the seductive pull of story stocks.
If Regeneron ends up quadrupling from here, I’m fine with missing it. I’ve accepted that there are thousands of ways to make money in the market, and I only need a handful that fit me to do very well over time.
Sometimes the best investment decision is the one you choose not to make.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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