This Pharma Stock Is Ready to Reach New Heights
Kanak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Earlier this year, in May, Regeneron Pharmaceuticals (NASDAQ: REGN) was soaring on news of FDA approval of the Eylea injection. The market valued the company at almost $27 billion at that time. It has come down quite a bit now to nearly $25 billion. Things are now happening again at this counter, with the company preparing to submit an application for approval of Eylea for a new indication, and an extremely encouraging set of Q2 2013 earnings numbers.
Regeneron is a joint developer with Bayer AG (NASDAQOTH: BAYRY.PK) for Eylea. Eylea was initially approved by the FDA for wet age-related macular degeneration (AMD) in November 2011. Later, in September 2012, Eylea injection was approved for treatment of macular degeneration following central retinal vein occlusion.
The company has now announced positive Phase III results for Eylea after evaluation of the drug for the treatment of diabetic macular edema (DME). Since the primary endpoint of vision improvement as compared to laser surgery was met, the road is now clear for the company to approach the FDA for approval for the new indication, which may be as soon as late this year. Bayer will apply for a similar approval with the European regulator, EMA. If approved, this would mark the entry of Eylea in the DME market a year earlier than expected.
Eylea is Regeneron's first approved drug and has been on a roll since its approval, generating $124 million for the company in the first quarter of its launch. After the 2012 approval, the drug contributed $837.9 million in FY 2012 to the company’s total revenue of $1.38 billion.
Although Bayer launched the drug later -- in Q4 2012 -- Eylea has not done badly for it with quarterly sales of $18 million. With the road cleared by the U.K.’s cost effectiveness agency, NICE, Eylea is now staged for inclusion in the country’s National Health Service (NHS) for treatment of AMD.
The second happening news on the counter relates to Regeneron's quarterly earnings. Q2 FY 2013 earnings of the company beat analyst estimates. The consensus estimate was of $0.86 per share -- with high EPS forecast at $1.04 and a low of $0.64. The company surprised everyone and reported earnings of $1.33 per share.
Riding on the success of Eylea, revenue surged 50.7% (year over year). However, total revenue at $470 million, which includes revenue from sales, collaborations, and licensing and other income was lower than what was expected. Eylea contributed $333 million to total product sales, which was 40% more than the same quarter last year.
Zaltrap, which Regeneron developed in collaboration with Sanofi (NYSE: SNY), was approved by the FDA in August 2012 and in February 2013 by the EMA, for treatment of metastatic colorectal cancer in adults who do not respond or are resistant to treatment regimen that uses oxaliplatin. Sanofi reported Zaltrap sales at $19 million for Q2 2013 and it shares profit from the global sales of the drug, except for Japan, for which it pays a royalty on net sales to Regeneron.
Sanofi, the France-based pharmaceutical giant, recently entered into an agreement for production of the active ingredient of Vivus’ erectile dysfunction drug, avanafil. The company reported a 50% drop in net income -- $589.38 million against $1.53 billion in the same quarter the prior year -- for Q2, 2013. The drop in profit is attributed mostly to patent expiration of its cancer drug, Eloxatin and blood thinner, Plavix. There were also issues of “bad management practices” in Brazil in inventory management and losses due to forex fluctuations.
Approval of Eylea, and its subsequent availability under NHS for U.K. patients, now allows Bayer to seriously compete with Roche’s Lucentis, marketed in Europe by Novartis, which dominates the wet AMD market. Whereas Regeneron markets Eylea by itself in the U.S., it is an equal partner with Bayer in profit from its sales outside of the U.S. except Japan, for which it gets royalty on sales.
Although both drugs are restricted to the same indication and both are available at a discount through a patient access system, Eylea scores over Lucentis in the matter of frequency of treatment. As such, it can only eat into the market share of Lucentis, which has been a standard treatment for wet AMD since its approval by NICE in 2008.
On Aug. 5, 2013, Bayer announced a deal with Compugen, an early stage biotech company, for development of two antibody-based immunotherapies for cancer. Bayer pays $10 million upfront and has committed to $530 million in milestone payments for commercialization rights for any product that gets approved. Based in Switzerland, Bayer reported annual income of $1.6 billion on revenue of $1.36 billion.
DME is a primary cause of vision loss in diabetics above the age of fifty and the estimated worldwide population of people with treatable DME is approximately 6.2 million. Considering positive late-stage results of Eylea for DME, the edge that Lucentis has over Eylea -- approval for DME-- may also soon vanish if things proceed as per plan.
Considering these positives and the fact that the stock has come off its all-time high achieved in May, when it was trading at 41.43 P/E, Regeneron is a good buy.
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