Biotech giant Regeneron (REGN -0.84%) has been an outstanding performer over the past year. And although its stock is still up by 20% in the trailing-12-month period, the company's shares recently took a significant blow, dropping by 8% in one day. For a company the size of Regeneron -- with a market capitalization of $78.7 billion -- that's a massive one-day dip.
Regeneron suffered this blow following a regulatory obstacle, as is often the case in the biotech industry (more on that below). Do these developments represent an excellent opportunity to buy Regeneron's shares on the dip? Or should investors stay away from the company? Let's find out.
An important FDA application got the thumbs down
One of Regeneron's most important products is Eylea, a treatment for an eye disease called wet age-related macular degeneration (AMD) that it co-markets with Bayer. Eylea has been an important growth driver for the biotech, but it has recently been under pressure from competitors, most notably Roche's Vabysmo, which earned the green light early last year.
Thankfully, Regeneron developed a high-dose formulation of Eylea that demonstrated a similar safety and efficacy profile in clinical trials but without needing to be administered as often, a major selling point for many patients. But here comes the bad news: The high-dose formulation of Eylea failed to win approval from the U.S. Food and Drug Administration (FDA).
On June 27, Regeneron announced it had received a complete response letter (a notice informing the company that the medicine's application was rejected) for this product from the FDA. The agency cited concerns with one of the therapy's third-party manufacturers as the reason behind the thumbs down. Considering how much Regeneron has riding on this new product, it's not too surprising that its shares stumbled.
But there is more to the story.
What this means for Regeneron's prospects
Notably, the FDA did not question the safety or efficacy of the high-dose formulation of Eylea. The agency did not request additional clinical trials, either. So, while rejections of this type are never ideal for drugmakers, this is about the best-case scenario under these otherwise negative developments.
Regeneron should be able to earn the green light for this product eventually although the approval will be delayed for an unknown amount of time. But it shouldn't take more than a year or so. Meanwhile, there are other weapons in the company's arsenal. Regeneron's other main growth driver is Dupixent, an eczema treatment. Regeneron shares the rights to Dupixent with Sanofi.
This medicine is still performing exceptionally well. In the first quarter, Dupixent's total global sales (recorded by Sanofi) soared by 37% year over year to $2.49 billion. Meanwhile, Regeneron's total revenue of $3.16 billion increased by 7% compared to the year-ago period. Dupixent was the star of the show, and things may soon get even better for this therapy.
A few months ago, Sanofi and Regeneron reported positive results from a phase 3 clinical trial for Dupixent in treating COPD. In a pivotal study, Dupixent became the first biologic to demonstrate significant improvement in quality of life and respiratory symptoms in COPD patients. As COPD is the third-leading cause of death worldwide, this indication could go on to add billions to Dupixent's sales.
Further, Regeneron's pipeline still can yield important approvals down the road. It currently boasts 44 programs, at least a few of which will cross all the clinical and regulatory hurdles necessary to hit the market eventually. While Regeneron shares the rights to both Eylea and Dupixent, these products were originally discovered by the company itself, which is a testament to its innovative potential.
That's one of the reasons why Regeneron's most recent regulatory setback isn't a big deal, not by a long shot. The company should eventually earn approval for the high-dose formulation of Eylea and add the all-important COPD indication to Dupixent. The company remains an excellent biotech stock to buy, especially for those who can take advantage of the recent dip.
