French Benefits

I was having dinner with a former Sanofi (SNY) executive last month and he said something that’s been rattling around in my head ever since.

“You know, John,” he told me, swirling his glass, “the smartest thing we ever did was betting on Regeneron (REGN) back in ’07 when everyone thought the world was ending.”

He was talking about their partnership deal struck right in the middle of the financial crisis – November 2007, to be exact – when most companies were slashing budgets and laying off employees.

That handshake agreement has since produced not one but two blockbuster drugs worth tens of billions. Sometimes the best business decisions happen when everyone else is too panicked to think clearly.

Which brings me to why I’ve been quietly adding to my Regeneron position on these dips while everyone else is running for the exits.

The stock’s down 22.5% over the past six months, trading around $560, and frankly, that’s exactly when you want to be paying attention.

My Sanofi contact wasn’t just reminiscing about old times – he was dropping hints about something most Wall Street analysts are completely missing.

The current market fixation on Eylea’s revenue decline tells only half the story. Yes, their eye drug dropped to $1.04 billion in Q1, down 25.6% year-over-year, and the itepekimab trial failure has spooked investors.

But while everyone’s having a collective meltdown over these short-term hiccups, there’s a massive financial shift coming that could fundamentally change Regeneron’s profitability.

The real story revolves around something called the “development balance,” which sounds boring as watching grass grow but is actually financial dynamite.

Back when Regeneron partnered with Sanofi in 2007, the French company essentially gave them an interest-free loan to fund drug development. Regeneron has been paying back its 50% share from future profits ever since, like the world’s most expensive installment plan.

Think of it this way: imagine you and a friend start a restaurant together. Your friend puts up all the money upfront, but you have to pay back half from your share of the profits until the debt is cleared.

That’s exactly what’s happening here, except the restaurant is worth billions and the debt is almost gone.

As for that remaining balance? Just $1.453 billion according to the latest filings.

On top of these, current CFO Chris Fenimore expects it to be completely wiped out by the end of 2026.

What happens in 2027 is financial magic: Regeneron starts keeping its full share of collaboration profits without any deductions. Even if sales stayed flat, which they won’t, this represents a massive jump in free cash flow.

Their anti-inflammatory blockbuster Dupixent just generated 3.48 billion euros in sales, up 22.8% year-over-year.

That translates to $1.18 billion in collaboration revenue for Regeneron in Q1 alone, representing 30% growth. This isn’t some experimental shot in the dark – this is a proven cash machine that’s still accelerating.

But here’s where the math gets exciting, and why that Sanofi executive was grinning into his whiskey.

Right now, Regeneron only keeps a portion of Dupixent profits after servicing that development debt.

Once the $1.453 billion is cleared, they’ll be pocketing significantly more of every dollar Dupixent generates.

Industry projections suggest the drug could hit 29.3 billion euros by 2029, implying double-digit growth rates of 14% to 21% annually.

The pipeline story gets even better when you look at their oncology franchise.

Lynozyfic, their newly approved cancer treatment, showed 70% objective response rates in multiple myeloma, with 45% achieving complete responses.

Those are numbers that get oncologists excited at conferences. Meanwhile, their other cancer drug Libtayo continues growing despite fierce competition, pulling in $285 million quarterly.

What really sealed my conviction was examining the valuation metrics.

The company sports a non-GAAP P/E of just 12.36 times, which is 27.7% below the sector median and 22.9% under their five-year average.

They’re buying back stock aggressively too – $1.05 billion in Q1, up 64.7% year-over-year. Management only does that when they think shares are dirt cheap.

Plus, the average price target is $727.59, implying 31% upside. This company traded above $1,000 during COVID when they were basically a one-trick pony with their antibody treatment.

Today’s business is infinitely stronger, more diversified, and with clearer cash flow visibility.

The risk-reward equation here reminds me of other situations where temporary setbacks created long-term opportunities. Sure, Regeneron faces the usual biotech risks – trial failures, regulatory hurdles, competitive pressures.

But with their balance sheet strength, diversified revenue streams, and that pending financial liberation in 2027, they’re setting up for what could be a significant re-rating.

My Sanofi contact was right about timing. The best opportunities often come disguised as temporary setbacks, when short-term noise drowns out long-term value creation.

Those executives who shook hands in 2007 during a global financial meltdown probably never imagined they were creating a pharmaceutical empire.

But that’s exactly what happened, and based on the fundamentals I’m seeing, the best chapters of this story are still being written. I suggest you buy the dip.