Biotech giant Regeneron Pharmaceuticals (REGN 1.17%) has been on fire over the past three years. The company has delivered solid clinical progress and an important regulatory approval, and its financial results have generally been robust excluding its coronavirus antibody, whose sales are dropping.
However, every company, even the best ones, sometimes encounters headwinds. Regeneron is no exception. The drugmaker recently received a rejection letter from U.S. regulators regarding an application it submitted for one of its pipeline candidates. Let's look at what this means for the business and its shareholders.
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Regeneron's oncology plans delayed
Regeneron is looking to become a leader in developing cancer drugs. Oncology is one of the largest areas in the biotech industry and although it is highly competitive, there remains a dire need for newer and better therapies. Last year, Regeneron submitted an application to the U.S. Food and Drug Administration (FDA) for odronextamab, a potential treatment for lymphoma.
The application was based on results from a phase 2 study during which odronextamab achieved a 73% complete response rate, with the objective response rate (the proportion of patients at least partially responding to treatment) coming in at 80%. Drugmakers typically request regulatory nods after phase 3 studies. But Regeneron decided to seek accelerated approval, which means that if odronextamab had been approved, the company would have had to run a confirmatory phase 3 trial.
The FDA decided to reject the application, citing issues with the enrollment status of Regeneron's confirmatory trial for odronextamab. The agency did not flag problems with the medicine's safety or efficacy. Still, Regeneron's shares dipped on the news. But long-term investors shouldn't care. Here's why.
It's just a drop in the ocean
If odronextamab had been expected to become a significant growth driver for Regeneron, the FDA rejection might have changed the company's fundamental thesis. But that's not the case. Though estimates vary, revenue projections for odronextamab aren't that impressive. Some expected the medicine to reach sales of $468 million by 2029. That's not bad, but it isn't huge, either -- not for a company the size of Regeneron. And odronextamab might still reach these peaks, just a little later. There is still a good chance the FDA will approve the medicine given there were no issues with safety or efficacy.
Meanwhile, Regeneron is awaiting approval for another investigational cancer medicine, linvoseltamab, a potential treatment for multiple myeloma. The FDA should decide to approve or reject Regeneron's application by late August. So the company's oncology hopes don't depend entirely on odronextamab.
Perhaps most importantly, Regeneron's most significant growth drivers -- eye medicine Eylea and eczema treatment Dupixent -- should continue to generate solid top-line growth. Last year, the company's revenue increased by 8% year over year to $13.12 billion. Minus its coronavirus portfolio, the top line rose 12%. Dupixent was Regeneron's biggest growth driver. It is currently seeking a label expansion for treating COPD that could come by late June.
That, combined with a much smaller negative impact from declining COVID-19 sales, should work wonders for Regeneron's sales growth this year. Furthermore, the company has several exciting candidates in the pipeline. Regeneron is looking to jump into the hot and fast-growing weight loss space.
The company is taking a different approach than most other drugmakers. Regeneron has emphasized the dramatic muscle loss patients experience when taking medicines like Wegovy. It is looking to develop drugs that can be taken in combination with GLP-1s like Wegovy to help patients keep their muscle mass (mostly) intact. Of course, Regeneron still has a long way to go in this area. But the point is, given its solid lineup and deep pipeline, the company's latest regulatory setback isn't a deal breaker -- far from it. Investors can still safely add this stock to their portfolios.
