Better Buy: Regeneron Pharmaceuticals, Inc. vs. Roche Holding AG

By Markets

Image source: Getty Images.

Continue Reading Below

Nearly everyone likes a matchup between the little guy and the big guy. David vs. Goliath. Ant-Man vs. Godzilla. What aboutRegeneron Pharmaceuticals (NASDAQ: REGN) vs. Roche (NASDAQOTH: RHHBY)?

Regeneron isn't tiny, but its market cap is only one-fifth the size of Roche's. The two companies compete for market share in the ophthalmology market. But which is the better pick in the battle for investors' dollars?

The case for Regeneron

A strong argument can be made for buying Regeneron from the biotech's financial results alone. In the first half of this year, revenue jumped 29% year over year with earnings soaring almost 40% compared to the prior-year period.

Much of Regeneron's success stems from its blockbuster age-related macular degeneration (AMD) drug Eylea. Over 80% of the company's revenue comes from Eylea. The good news for Regeneron is that sales of the AMD drug continue to grow at an impressive rate.

Continue Reading Below

There's even better news for investors considering Regeneron, though. While the company's new cholesterol drug Praluent got to a slower-than-expected start, it is still expected to contribute significantly to Regeneron's growth. Atopic dermatitis drugDupixent could be an even bigger winner over the long run. Regeneron and partner Sanofi recently filed for regulatory approval for Dupixent. A decision is expected from the FDA by March 29, 2017.

Another Sanofi collaboration could be a potential blockbuster. The FDA is scheduled to make its decision on rheumatoid arthritis drug sarulimab by the end of October. Regeneron and Sanofi are also seeking regulatory approval for sarulimab in Europe.

Wall Street analysts expect Regeneron to grow earnings at an annual rate of nearly 19% over the next five years. That's a far cry from the company's recent earnings growth, but it's still pretty good -- if the analysts prove to be right.

The case for Roche

Roche's financial numbers don't look nearly as great as Regeneron's. The healthcare giant grew revenue and earnings by less than 6% in the first half of 2016. However, there's still plenty for investors to like about Roche.

The company's pipeline probably ranks at the top of the list. Multiple sclerosis drug Oclevus especially seems promising. Analysts project that the drug could eventually reach peak annual sales of $3 billion if approved. The FDA is scheduled to make a decision on Oclevus by the end of this year.

Roche launched four new drugs in 2016: Cotellic, Alecensa, Venclexta, and Tecentriq. The last drug could give the company a big boost. Tecentriq already obtained FDA approval for bladder cancer and approvals for more indications could be on the way. The cancer drug could reach peak annual sales between $2 billion and $3 billion.

Investors shouldn't overlook another key part of Roche's business -- diagnostics. The diagnostics business segment actually grew sales faster in the first half of 2016 than Roche's pharmaceuticals segment did. Roche is experiencing especially good growth from its international diagnostics business outside of Europe and Japan.

One clear advantage that Roche has over Regeneron for investors is the company's dividend. Roche's dividend yields 3.3%. Regeneron doesn't currently pay out a dividend.

Better buy

Which is the better buy? My pick is Regeneron.

Granted, Regeneron faces several risks. Eylea's sales could be threatened by a potential rival drug from Ophthotechthat's now in late-stage testing. Praluent could very well be overshadowed by Amgen's Repatha. Dupixent might be challenged by crisaberole, which belongs to Pfizer after its acquisition of Anacor.

Competition is a reality for most companies, though. I still think Regeneron's prospects appear to be good over the long run. And, for what it's worth, if David fought Goliath in a rematch or Ant-Man went up against Godzilla, I'd choose the little guys in those battles, too.

A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.