Is This Eye Drug Worth The Hype?

Sherrie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Editor’s Note: The original article incorrectly references Lucentis’ and Eylea’s dosage instructions and Roche's vaccine market share. This has been corrected and Motley Fool sincerely apologizes for the error.

Regeneron Pharmaceuticals (NASDAQ: REGN) should spike– every time there’s a slight pullback the stock shoots higher. Last Thursday Regeneron gained almost 10% behind a positive Phase 3 trial for its drug Eylea.

Regeneron Pharmaceuticals is a $25 billion biopharmaceutical company with three approved products and annual sales of $1.59 billion. Right away, that ratio not might look right, as a $25 billion company should have more revenue than $1.59 billion. But, its stock price is counting on growth, as it has 13 products being tested in clinical trials, and three different drugs in Phase 3 (five total studies).

Taking a look at Eylea

Regeneron Pharmaceuticals is one of the most promising drug companies in the market, and it is because of Eylea. Currently, Eylea is used to treat “wet” age-related macular degeneration, the leading cause of blindness in the elderly. It is approved in the U.S., and Regeneron markets the drug exclusively – but Bayer markets the drug oversees and receives a royalty on oversees revenue.

While Regeneron and Bayer are partners in developing and marketing Eylea, there’s no question Eylea has been developed using the technology of Regeneron and is primarily Regeneron’s drug. Its most direct competition comes from Roche Holdings(NASDAQOTH: RHHBY) drug Lucentis. When Eylea was launched many feared that it would not be able to compete with the presence of Roche and its drug.

 Eylea set to expand

Eylea is quickly replacing all competition (including Roche’s Lucentis) as both Regeneron and Bayer have done a great job marketing the drug. Not to mention, Eylea is superior in that it only has to be injected once every two months; compared to monthly like other drugs.

However, there is another drug in the works that must be mentioned, and that is Ampio Pharmaceuticals' (NYSEMKT: AMPE) drug Optina. This drug treats the same condition, but instead of a needle to the eye, it is taken in pill form to repair blood vessels. But, Optina is still in clinical trials, awaiting data, and there are serious doubts the drug will be effective.

If Regeneron believed Optina would challenge its future sales, there's no doubt it would buy the company. Ampio trades at a market cap of just $220 million while Regeneron is a $25 billion powerhouse. And Regeneron has an incredible pipeline along with a drug that is growing and expanding. In short, it has the cash.

Regeneron, not counting proceeds to Bayer, is expected to achieve revenue of $1.3 billion this year. The drug is well on its way to blockbuster status and has accomplished this feat with the one application. Therefore, its 10% rise last Thursday shouldn’t serve as a surprise; as the data shows that Eylea works on other applications as well.

Regeneron produced positive top-line data for the treatment of myopic choroidal neovascularization (mCNV) in a Phase 3 trial. mCNV is a disease where abnormal blood vessels grow into the retina in people who are severely short-sighted. This disease is quite different from age-related macular degeneration, showing the potential diversification of the product.

The addition of mCNV won’t create billions in additional sales, but analysts predict that it could boost sales another $200 million in the U.S. alone. Last year, Roche’s Lucentis saw sales of $1.5 billion and it treats wet age related macular degeneration, diabetic macular edema, and macular edema following retinal vein occlusion. Basically, it treats a variety of diseases of the eye, and its revenue is expected to drop by about half in the next year. This cut is because of Regeneron, and the fact that Eylea is well on its way to offering a wide range of treatments that are superior to existing treatments.

Conclusion

Hopefully you see the Eylea’s upside and why Regeneron has been awarded such a large valuation. With just one indication sales are already projected to be over $1 billion in 2013. In addition to mCNV, the company is also testing Eylea in three other trials. Combined, analysts expect Eylea to easily top $4 billion in annual sales.

While my goal was to discuss Eylea and the progress it has seen in the market, I must also mention Regeneron’s other projects: Zaltrap for colorectal cancer, and a bacterial drug Aralyst. In its pipeline, the company has a cholesterol drug called Alirocumab currently in Phase III trials. Much like Eylea, it is superior to its competition, and has projected sales north of $5 billion.

The bottom line is this is a wonderful company with cutting-edge products that will see growth for many years to come. In many ways, we are seeing the second coming of Gilead Sciences, although possibly better, and I suggest you take a long hard look.

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

 


Sherrie Stone owns shares of Regeneron Pharmaceuticals. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure