Two Potential High-Growth Shares to Acquire During Market Downturns
Two Potential High-Growth Shares to Acquire During Market Downturns
Over the past half-decade, Eli Lilly (LLY -0.44%) and Regeneron Pharmaceuticals (REGN -0.71%) have been recognized as top performers in the healthcare sector. However, these giants have also experienced some gravity-induced setbacks recently, with both companies displaying a decrease in momentum in recent months. This slowdown was inevitable, as no corporation can sustain uninterrupted growth, no matter how outstanding.
The dilemma for investors now revolves around a single question: Has something shifted in Eli Lilly or Regeneron's business strategies, or is this dip an enticing proposal to invest in these pharmaceutical companies? In my opinion, it's the latter, and I'll elaborate on my reasoning below.
1. Eli Lilly
Eli Lilly has been generating buzz due to its contributions in diabetes and obesity research. Investors, however, expressions of displeasure directed at the company following its third-quarter earnings report. The reason? Eli Lilly fell short of investor expectations, with revenue rising by a mere 20% year-over-year to $11.4 billion.
Eli Lilly's newly launched diabetes and obesity treatments, Mounjaro and Zepbound, didn't quite live up to their billing during the reporting period. Mounjaro sales totaled $3.1 billion, representing a 121% increase compared to the prior year. Zepbound, a recent approval in November 2023, produced $1.3 billion in sales during this period. These impressive figures place them among the best in the industry for other drugmakers.
However, Eli Lilly's unique situation calls for attention. First, the company's shares are highly valued, causing investor expectations to soar sky-high. As shown in the chart below, the average forward price-to-earnings ratio for the healthcare sector sits at 18.3.
Second, Eli Lilly lowered its revenue and earnings per share projections for fiscal year 2024. This statement did not sit well with investors, resulting in a post-earnings stock sell-off.
Regardless, these developments should carry little weight to long-term investors. The consistency in Mounjaro and Zepbound's growth rates is remarkable, and there is potential for further gains, as Eli Lilly expects to secure additional indications for its active ingredient, tirzepatide, which is shared by both medications.
Early this year, tirzepatide demonstrated positive results in treating sleep apnea and minimizing the risk of type 2 diabetes in overweight or obese prediabetic patients during phase 3 trials. Label expansions for both indications should occur within the next 12 months. The study on tirzepatide is ongoing, and Eli Lilly boasts a promising pipeline, particularly in weight loss.
Beyond its niche areas of expertise, Eli Lilly has also garnered approval for key therapies, such as Alzheimer's disease treatment Kisunla, cancer drug Jaypirca, and ulcerative colitis therapy Omvoh. Eli Lilly's roster and pipeline are so strong that they seem unlikely to disappoint in the long run. Consequently, the company's recent decline represents a fantastic opportunity for patient investors.
2. Regeneron
Regeneron's primary concern in recent years has been the various challenges it has faced with Eylea, a medicine for wet age-related macular degeneration, its primary growth driver. It has had to deal with Eylea competition from Roche's Vabysmo and recently lost a legal battle with Amgen, which is now allowed to release a biosimilar while the patent infringement trial between the companies continues.
This ongoing conflict between two biotech giants is far from over, and this disagreement was a significant blow to Regeneron. However, there have been encouraging developments for the company on this front. It was granted a high-dose (HD) formulation of Eylea in 2023, which reduced the number of injections required per year without compromising efficacy, making it an attractive offering for many patients.
The HD version of Eylea has demonstrated its effectiveness in combating the challenge from Vabysmo. In the third quarter, Regeneron's overall revenue increased 11% year-over-year to $3.72 billion. Combined sales of Eylea and Eylea HD in the U.S. grew 3% year-over-year to $1.5 billion, with the HD formulation contributing $392 million to that total. This figure is remarkable, considering the recent launch of the HD formulation.
Regeneron's flagship drug, eczema treatment Dupixent, remains popular. Worldwide sales of Dupixent in the third quarter, recorded by Sanofi in a joint venture, hit $3.82 billion, an uptick of 23% compared to the previous year. Dupixent recently secured a crucial label expansion for chronic obstructive pulmonary disease, an indication that could boost sales by billions annually.
Lastly, Regeneron is an innovative company. One of its drug candidates, trevogrumab, is being developed to treat muscle atrophy associated with weight loss drugs like Zepbound. Elsewhere, it is working on a therapy for genetic deafness with promising results, already curing two patients during a recent phase 1/2 study.
Regeneron's legal skirmish with Amgen might not favorably impact the Eylea company's outcome. However, with its robust product portfolio spearheaded by Dupixent, a rich pipeline, and an impressive track record, long-term investors can still trust it to deliver strong returns. Consequently, it's a smart move to take advantage of Regeneron's current share price decline.
- Despite the legal dispute with Amgen affecting Eylea sales, Regeneron's innovative approach to drug development, as seen in its treatment for genetic deafness, combined with the strong performance of Dupixent and the high demand for the HD formulation of Eylea, provides a compelling case for investors looking to invest in the finance sector.
- Investing in Eli Lilly might be an attractive proposition during this dip, given its ongoing research in diabetes and obesity, such as the phase 3 trials for tirzepatide in sleep apnea and type 2 diabetes, and the approval of key therapies like Kisunla and Jaypirca. These developments, coupled with the high potential of Mounjaro and Zepbound, could offer significant returns to patient investors in the long term.