Regeneron Pharmaceuticals' (REGN -0.84%) sales growth has been lackluster in recent periods. The company is hoping that a higher-dose version of its eye medication Eylea could be a catalyst for driving sales higher in the future. However, last week the Food and Drug Administration (FDA) rejected the new drug application for it. Should investors be worried?
Why the FDA rejected the new drug application
On June 27, Regeneron issued a press release stating that it received a complete response letter from the FDA, which indicates that the agency has not approved a new drug application for aflibercept 8 mg (the current approved version is for 2 mg). Regeneron says it was "solely due to an ongoing review of inspection findings at a third-party filler." The company says that there weren't any issues relating to labeling, efficacy, or safety.
Although the negative response from the FDA isn't great, Regeneron says it is going to work with the agency and the third-party filler to address the concerns. The positive takeaway from this is that the company doesn't need to do any additional trials. And without any significant safety or efficacy issues, this may only end up being a temporary delay in getting the higher-dose drug to market.
The company needs a catalyst
Regeneron needs a boost to its top line, because while it did get a boost from its COVID treatment REGEN-COV in the past, it can't count on that anymore as COVID becomes less of a concern for the public. As a result, the company's revenue growth rate has been disappointing in recent quarters, often swinging negative:
Data source: YCharts
Eylea's sales for the first quarter totaled $1.4 billion and were down 6% year over year in the U.S. market. The company's total net product sales grew by just 2%, and it was collaboration and other revenue that helped drive much of Regeneron's growth last quarter. Total sales for the period were $3.2 billion, up 7% from the prior-year period.
Regeneron needs to bolster its growth, and a higher-dose version of aflibercept could help the company achieve that. Plus the current version of Eylea faces the loss of patent protection in a few years. Between the patent cliff and a slowing growth rate, it may be difficult for investors to justify the stock's valuation; Regeneron needs aflibercept 8 mg to get the green light from the FDA sooner rather than later.
Is Regeneron a cheap buy?
Shares of Regeneron are little changed year to date, with the recent FDA news sending the healthcare stock down lower. Today Regeneron is trading at about 20 times earnings, which is above its five-year average. And if the company can't generate growth and strengthen its bottom line, that multiple will rise even higher -- provided the shares don't decline.
Data source: YCharts
Should you buy Regeneron stock today?
Regeneron's stock isn't in trouble just yet, as approval from the FDA for aflibercept 8 mg could still come soon. While there is some risk here and the stock is pricier than its historical average, it still isn't overly expensive; the average healthcare stock trades at 24 times earnings. And with Regeneron having some solid assets in its portfolio and a pipeline that features dozens of trials under way, the company still has lots of room to grow in the years ahead.
Overall, this could make for a good investment to buy and hold right now, because there's still no sign that the FDA won't eventually approve the company's higher-dose version of Eylea.
