Regeneron Pharmaceuticals (NASDAQ:REGN) is best known for its megablockbuster drug Eylea, a treatment for common causes of vision loss in the elderly and diabetics, but it also markets monoclonal antibody drugs that lower cholesterol, control eczema, and help patients manage their rheumatoid arthritis. On Tuesday, the company reported first-quarter financials including double-digit top-line growth, but shares tumbled after the company's earnings conference call with investors. Here's what's fueling shareholders' disappointment.

Good, but not good enough

First-quarter revenue increased 13% to $1.7 billion. That's solid, but it was $50 million shy of industry watchers' outlook. It also reported underwhelming bottom-line numbers. Its net income and non-GAAP earnings per share slipped 3.5% and 4.7% year over year to $461 million and $4.45, respectively. The EPS figure was far south of the $5.52 per share that Wall Street's number crunchers were modeling.

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Contributing to the lackluster bottom line was a spike in research and development expenses to $642 million from $499 million in the first quarter of 2018 and an increase in selling, general, and administrative expenses to $411 million from $331 million over the period.

The increase in R&D stems from increased early-stage research, higher development costs for its cancer drug, and more employees. SG&A increased because of hiring and an uptick in contributions to patient assistance programs. Its cost of contract manufacturing more than doubled to $108 million from $46 million last year, too, because of "higher expenses in connection with process validation at our Limerick manufacturing facility, higher inventory write-offs and reserves, and the recognition of manufacturing costs associated with higher sales of Dupixent," an eczema drug it markets with Sanofi (NASDAQ:SNY).

Higher expenses made dropping more money to the bottom line difficult, despite Dupixent revenue more than doubling to $374 million in the quarter from $131 million in the same quarter last year. Eylea's U.S. revenue, which is wholly attributable to Regeneron, grew 9% year over year to $1.07 billion, while Eylea's revenue outside the U.S., where it's marketed by Bayer, increased 7% to $669 million.

In addition to those drugs, Regeneron and Sanofi's cholesterol-lowering drug, Praluent, had sales of $64 million, up slightly from $60 million one year ago, and their rheumatoid arthritis drug, Kevzara, produced sales of $34 million, up from $12 million last year.

Regeneron also pocketed $27 million in sales from Libtayo, its wholly owned PD-1 checkpoint inhibitor. Libtayo won approval last year as a treatment for advanced cutaneous squamous cell carcinoma, the second most common form of skin cancer.

A new concern emerges

The worse-than-expected financials weren't' investors only concern, though. During Regeneron's earnings conference call, management disclosed two deaths in a trial evaluating one of its most intriguing early-stage drugs in development, REGN-1979.

A bispecific antibody that can attach itself to multiple targets to increase T-cells' ability to destroy cancer cells, REGN-1979 generated excitement when robust response rates in non-Hodgkin lymphoma were detailed in December.

Specifically, there was a 100% overall response in 10 patients with relapsed or refractory follicular lymphoma, including an 80% complete response rate. Also, higher doses of it resulted in a 60% overall response rate in 10 diffuse relapsing or refractory large B-cell lymphoma (DLBCL) patients.

Importantly, the company said at the time that "REGN1979 demonstrated an acceptable safety and tolerability profile with no observed dose-limiting toxicities (DLTs). There were no clinically significant neurotoxicities, including no occurrence of seizures or encephalopathy." Cytokine release syndrome (CRS) was acknowledged as a treatment-emergent adverse event, but the cases were said to be "generally mild to moderate in severity" and they didn't result "in trial discontinuations."

The impressive efficacy and a seemingly clean safety profile sparked chatter that bispecifics like REGN-1979 could be better options than chimeric antigen receptor T-cell therapies (CAR-T) that have won approval in NHL. CAR-T's are complex, they take longer to manufacture, and they're commonly associated with life-threatening, severe CRS events. The data also contributed to management thinking that combining REGN-1979 with Libtayo could heighten immune responses, further improving outcomes.

Unfortunately, that may not be as simple as it sounds. On Regeneron's conference call, it said 30 people have been dosed in a REGN-1979 plus Libtayo combination study, but that "enhanced" CRS has been observed in patients, with that toxicity potentially causing two fatalities.

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What to watch next

The financial results weren't horrible, but sales are slowing, and plowing money back into development is taking a toll on profitability. In theory, spending on R&D is key to resparking the company's growth rate. However, spending on combination studies that leverage Libtayo might not be as attractive as it once appeared.

Nevertheless, investors should recognize that CRS is a common risk associated with treating stubborn cases of NHL. Those with advanced NHL have limited treatment options and, sadly, a poor prognosis, so this program isn't necessarily destined for the dustbin. In fact, management's modifying its dosing regimen in an attempt to reduce toxicity and maintain efficacy.

The company's REGN-1979 monotherapy program also continues to advance. Regeneron plans to offer updated data at two European Hematology Conferences in June that it says includes "promising early results with higher doses, longer term follow up and efficacy in specific patient's subpopulations such as CAR-T failures."

Based on the data so far, the company intends to begin studies in advanced follicular lymphoma and DLBCL later this year that could support Food and Drug Administration filings for approval, if successful.

Whether the potential of bispecifics is enough to kick-start investor enthusiasm will depend a great deal on the results released in June, so investors will want to pay close attention next month.