Does the 23andMe Acquisition Make Regeneron a Buy Now?

Regeneron has agreed to acquire the bankrupt consumer genetics company 23andMe for $256 million, pending court approval, gaining access to genetic data from over 15 million customers. While 23andMe's revenue reached $60.1 million in the last reported quarter, Regeneron's primary interest lies in the potential for genetic insights to drive future drug development, despite GSK already licensing some of the data. Although the acquisition is not a reason to immediately invest in Regeneron, its depressed stock price and growth in sales of drugs like Eylea HD and Dupixent make it worth consideration.

Analysis

Regeneron Pharmaceuticals (NASDAQ: REGN) has entered into an agreement to acquire the bankrupt consumer genetics company 23andMe for $256 million, a valuation significantly below 23andMe's peak market capitalization of $5.8 billion in 2021. This acquisition, subject to court approval following 23andMe's Chapter 11 bankruptcy filing in March, would grant Regeneron access to genetic data from over 15 million individuals. While 23andMe reported $60.1 million in revenue for the quarter ending September 2023 ($41 million excluding a one-time $19.3 million payment from GSK), its primary value to Regeneron lies in the potential for long-term drug discovery, despite GSK having previously amended its collaboration with 23andMe to a one-year, $20 million data license where GSK retains full ownership of any resulting drugs. Regeneron's bid notably excludes Lemonaid Health, a telehealth operation 23andMe acquired for $400 million. The 23andMe acquisition is unlikely to yield immediate financial returns, with any commercial benefits potentially over a decade away. However, Regeneron's current financial health is supported by strong performance from Eylea HD, with sales surging 54% year-over-year to an annualized $1.2 billion, and Dupixent, for which collaboration revenue with Sanofi increased 30% year-over-year to an annualized $4.7 billion. These successes help offset challenges from biosimilar competition to its older Eylea formulation. Furthermore, Regeneron maintains a robust pipeline with approximately 45 candidates in clinical-stage testing, suggesting a foundation for future growth independent of the 23andMe deal.

Key Decisions for Investors

• Investors should view the 23andMe acquisition as a long-term strategic play for Regeneron, potentially enhancing its R&D capabilities over many years rather than providing an immediate financial uplift.
• Focus should remain on the performance of Regeneron's key commercial products, such as Eylea HD and Dupixent, and the progression of its extensive clinical pipeline, as these are the primary drivers of near-to-medium term value.
• Given Regeneron's recently depressed stock price alongside strong growth in key drug sales and a robust pipeline, consider evaluating the stock for long-term potential, recognizing the 23andMe deal as a secondary, albeit interesting, factor.