Regeneron Stock: It’s Time To Take Profit (NASDAQ:REGN)

Background

In May 2021, I published the article about Regeneron (NASDAQ:REGN). Then, I expressed my point of view regarding the undervaluation of the company’s shares, which were then trading at $488 per share. After almost a year, I believe that the company’s shares no longer look so attractive, so I fixed my position last week. In this article, I analyzed REGN’s latest reports and news in order to understand how things are going in the company’s business segments. Although the company’s business is developing successfully, I believe that this is already taken into account at the market price. Let’s start with the general points in the reporting and then move on to the analysis of the situation with the sales of individual drugs.

Revenue for the quarter was $4.95 billion (up 9% from $2.42 billion a year earlier). Excluding sales of the drug for Covid-19, the company’s revenue grew by 19% YoY. Non-GAAP net income was $2.3 billion (17% above the consensus, it was $1.08 billion a year earlier). The company ended the year with a net cash position of $9.8 billion (13% of market capitalization). During the year, the company bought back about 3 million shares, spending $1.7 billion on this.

Eylea

Eylea’s US revenue was $1.54 billion (+15% YoY and 2% above expectations). According to management, the drug has a dominant position in the wet AMD and DME treatment market. The market share among branded drugs is about 75%. Nevertheless, the competition in wet AMD and DME indications is growing. The major threat to Eylea is faricimab (brand name Vabysmo, Roche (OTCQX:RHHBY)), which was approved in January for the treatment of age-related macular degeneration (wet AMD) and diabetic macular edema (DME). According to preliminary data, the drug has shown good efficacy and may become a strong competitor to Eylea. However, I would wait for real-world data to be sure of the effectiveness and safety of Vabysmo. A striking example of the difference between clinical trials and real data was the drug Beovu (NVS), which could become the major threat to Eylea at one time. However, after the start of commercial use, the frequency of Beovu’s side effects increased (4% rate of intraocular inflammation and cases of complete loss of vision were recorded), which removed it from the position of Eylea’s competitor.

Another competitor could be KSI 301 from Kodiak Sciences (KOD), but data published in February significantly reduces its competitiveness. At 12-week, 16-week, and 20-week dosing intervals, KSI 301 was less effective than Eylea (8-week dosing frequency) and did not meet primary study targets. Regarding security, Eylea was also better. The incidence of intraocular infection in the Eylea group was 0%, and in the KSI-301 group it was 3.2%, which is critical for drug selection. Given the published data, I do not see a threat to the market position of Eylea from KSI 301.

What else could threaten Eylea’s market position? Biosimilars of Lucentis (Roche) will appear on the market this year, but they are more likely to compete only with Lucentis itself, given the profile of efficacy and side effects of the drugs. The next threat could be the end of Eylea’s patent protection. In the US, the patent protection ends in 2023 and in 2025 in Europe. Patent protection concerns only the dosage of 2 mg. Important to Eylea’s prospects is the possible approval of Eylea at 8mg dosage and 12-week treatment interval. The frequency of administration is especially important, since the drug is as an intraocular injection. The Phase 3 data from the high-dose study is expected in the second half of 2022. As a reminder, for the treatment of wet AMD, Eylea’s approved frequency of dosing is once every 4 weeks for the first three months of treatment, and then the maintenance dose is taken every 8 weeks.

Dupixent

Dupixent’s global sales were $1.66 billion (+42% YoY, 2% below expectations). The possible sales growth remains in both current indications and in the expansion into the new ones. In the current indications, the prospects are represented by the regulatory approval for the use of Dupixent in the treatment of atopic dermatitis in children 6 months to 5 years old. Among the new indications of particular interest are eosinophilic esophagitis (50 thousand addressable patients), prurigo nodularis (75 thousand) and chronic urticaria (300 thousand).

The applications for an approval in the EoE and PN indications are expected this year. The publication of data from phase 3 trials in indications of chronic urticaria is expected this year. Let me remind you that during the trial (PN indication), 60% of patients taking Dupixent achieved the primary research goals, while in the placebo group, this figure was 18%. That demonstrated the effectiveness of the drug. The major advantage of using Dupixent is the absence of risks of side effects in the form of the development of infectious diseases that are associated with the use of steroid drugs.

Libtayo

Libtayo’s sales were $81 million (9% below consensus). The main growth was driven by sales in the indication of cutaneous squamous cell carcinoma, where the drug is the number 1 systemic treatment option. Within the NSCLC indication, sales are off to a good start, but the main driver is the combination of the drug with chemotherapy for treatment as first-line therapy for NSCLC (PDUFA September 19, 2022).

REGN-COV2

REGN-CoV2 generated $2.3 billion in revenue for the company (in-line with consensus). During the 4th quarter, 1.1 million doses were delivered. REGN-COV2’s 2021 total revenue amounted to $5.8 billion. Because of the low effectiveness against the Omicron strain, the drug is not allowed to be used in the United States. Management noted that it plans to begin clinical trials of versions of the drug to treat the Omicron strain in the coming months.

Risks and the final thoughts

As the major risks for the company, I highlight the threat of increased competition from Vabysmo and Lucentis’ biosimilars, increased competition for Dupixent, the refusal to approve pipeline drugs, and the failure of clinical trials of experimental drugs. All risks can be found in the latest financial statements of the company (10-K).

One of the company’s strengths is its VelociSuite technology platform, which has proven its effectiveness several times. However, due to the growth of the company’s share price and the growing competition in the company’s segments, I believe that now is the time to take profit. So I change my view on the company’s shares from bullish to neutral. Although the company still has potential for growth due to the pipeline, I believe that against the backdrop of tightening monetary policy in the United States, it is better to fix REGN’s position, since the ratio of potential growth / downside risk does not look attractive at this level, unlike several other companies that looks more attractive. Some of those more attractive ideas I have considered in my past articles (BioMarin, Vertex, Incyte, Seagen).