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Better Buy: Regeneron Pharmaceuticals, Inc. vs. Novartis

By Keith Speights – Nov 18, 2016 at 3:43PM

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Which of these two beaten-down drug stocks is better poised for a rebound: Regeneron or Novartis?

Both Regeneron Pharmaceuticals (REGN -0.92%) and Novartis (NVS -0.84%) have had better years. However, both drugmakers also have reasons to remain optimistic about the future. Which of these two beaten-down healthcare stocks is the better pick for long-term investors? Here's how Regeneron and Novartis stack up against each other.

Image source: Getty Images.

The case for Regeneron

Investors flocked to Regeneron in the past primarily because of the company's fast-growing eye-disease drug Eylea. The good news is that Eylea continues to post solid sales numbers. The bad news is that the drug's sales growth is slowing somewhat.

Regeneron's future depends heavily on Praluent. While sales for the cholesterol drug are picking up momentum, Praluent hasn't been a rousing success yet. The problem is that payers have been reluctant to open their purse strings. Regeneron and partner Sanofi (SNY 0.48%) expect that to change once the results from a major cardiovascular outcomes study are available. 

Some had hoped that study would wrap up sooner than planned if an interim analysis found overwhelming positive results. Those hopes were dashed, however, when Regeneron and Sanofi announced on Nov. 17 that the independent data monitoring committee recommended the study continue into next year. Final results probably won't be available until early 2018.

Praluent should eventually be a big winner for Regeneron, though. So should experimental rheumatoid arthritis drug sarilumab. Unfortunately, there's been bad news for sarilumab also. The U.S. Food and Drug Administration (FDA) rejected approval for the drug based on issues at Sanofi's manufacturing facility. This problem should only be a temporary setback.

Another candidate in Regeneron's pipeline also ran into bad luck in October. The FDA placed a clinical hold on a phase 2b study of fasinumab in treating chronic low back pain. Fasinumab is also in a late-stage study targeting osteoarthritis pain. Regeneron will include only low doses of fasinumab in this late-stage study as a result of the FDA's clinical hold on the other study. 

Regeneron could get better news from its pipeline soon. An FDA decision on Dupixent in treating atopic dermatitis is expected by March 29, 2017. The company also has a couple of other late-stage clinical studies in progress: one for Eylea in treating diabetic retinopathy, and the other for experimental respiratory syncytial virus (RSV) antibody REGN2222.   

The case for Novartis

Novartis has more to worry about. The company's sales and earnings are slipping, largely due to loss of patent exclusivity for its blockbuster chemotherapy Gleevec. 

How will Novartis make up for lost Gleevec sales? Multiple sclerosis drug Gilenya is helping, with solid sales growth this year. However, Gilenya loses patent exclusivity in 2019. Novartis must turn to other up-and-coming drugs plus its pipeline to achieve growth in the future.

Cosentyx provides one answer to Novartis' dilemma. The anti-inflammatory drug continues to pick up sales momentum. Novartis is also seeing strong sales growth for its Tafinlar/Mekinist metastatic melanoma combo treatment, bone marrow stimulant Promacta, and blood cancer drug Jakavi. 

Novartis hopes to file for regulatory approval of three new drugs next year along with six new indications for previously approved drugs and three biosimilars. CTL019 might prove to be the biggest winner of the bunch. Novartis is submitting the chimeric antigen receptor T cell (CAR-T) therapy for approval in the initial indication of pediatric acute lymphoblastic leukemia in early 2017. Later next year, the company plans to submit CTL019 for approval of an additional indication in treating diffuse large B-cell lymphoma.

There could be a lot more coming. Novartis' pipeline includes over 200 programs in clinical development. The company anticipates another 17 regulatory filings in 2018 and 2019, with the floodgates opening in 2020 and beyond.

In the meantime, investors owning Novartis stock will get paid nicely to wait on the pipeline to produce. The company's dividend yield stands at 3.78%. 

Better buy

Both of these companies have their challenges. If I had to choose which set of problems I'd rather have, though, it would definitely be Regeneron's. The biotech has had its share of bad luck in 2016, but I suspect next year will be better.

While Eylea might be slowing down a bit, it's still generating tons of money for Regeneron. I expect Praluent will eventually be the blockbuster that it was expected to be. The company's other pipeline prospects should also produce more winners. Regeneron might be down now, but it's not out.

Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

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