Shares of Regeneron (REGN -0.33%) have declined this year due to issues with one of its former growth drivers, Eylea, a medicine that treats wet age-related macular degeneration. The therapy is facing stiff competition, biosimilar and otherwise, that is eating into its market share.
However, Regeneron is constantly looking for its next billion-dollar medicine. And a recent deal it made with a smaller drugmaker helped it beef up its pipeline by acquiring an asset in the hottest therapeutic area right now: weight management. Is Regeneron stock a buy now?
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Going up against a giant
Regeneron signed a deal with China-based Hansoh Pharma for HS-20094, an investigational, late-stage anti-obesity asset. Per the terms of the agreement, Regeneron will pay an upfront amount of $80 million, with potential clinical and regulatory milestones of up to $1.93 billion, in addition to royalties on future sales.
HS-20094 mimics the action of two gut hormones: GLP-1 and GIP. The only approved medicine that does that is Zepbound, the weight loss therapy marketed by Eli Lilly. Zepbound has been a major hit, with incredibly fast-growing sales. Could HS-20094 become similarly successful? The fact that it's in the same class as Zepbound hardly guarantees so, but, according to Regeneron, the medicine has been tested in over 1,000 patients and has shown a potential similar to Zepbound.
It is currently undergoing a Phase 3 clinical trial for obesity and a Phase 2 study for diabetes. Results that are, in fact, on par with Zepbound might jolt Regeneron's share price. This isn't the only attempt by Regeneron to enter the weight loss market. The biotech company has been working on ways to address one drawback of anti-obesity medicines: muscle loss.
It recently announced top-line data in patients taking semaglutide (the active ingredient in the weight loss drug Wegovy) and trevogrumab, a medicine developed to address muscle atrophy. The trial showed that about 35% of weight loss due to semaglutide comes from lean muscle mass, but combining it with trevogrumab could help retain muscle mass while helping patients lose fat instead.
Does this make Regeneron a buy?
If HS-20094 becomes nearly as successful as Zepbound, the $80 million Regeneron paid -- and the $1.93 billion in milestones -- would represent quite the bargain. However, it is too early to celebrate. Despite Regeneron's confidence in this asset, many weight management candidates in the pharmaceutical industry have flopped. That's the nature of developing novel drugs. Most will never reach the market. But the fact that HS-20094 has reached late-stage studies is a good sign.
And at any rate, this move does not make Regeneron less attractive. There are, however, other reasons to buy the stock. Regeneron is mitigating Eylea-related losses with a new, high-definition (HD) version of the medicine, which will continue to attract patients away from the old version due to its more convenient dosing schedule. In the first quarter, total U.S. sales of Eylea and Eylea HD dropped by 26% year over year to $1.04 billion, but revenue from the latter increased by 54% year over year to $307 million.
Eylea HD should also earn some label expansions. Meanwhile, Regeneron's other growth driver is Dupixent, a medicine for eczema. It shares the rights to Dupixent with Sanofi. In the first quarter, Dupixent's sales came in at $3.67 billion, up 19% compared to the year-ago period. The therapy won an indication in treating COPD last year, so expect its revenue to continue moving in the right direction for a while. Regeneron's total sales in the first quarter dropped by 4% year over year to $3 billion.
However, as Eylea HD gains ground, including with new indications, Dupixent continues to make headway, and the biotech earns new products, including those in oncology, it should eventually start growing its sales again. Regeneron's work in weight management could, eventually, contribute to that. So, despite its recent headwinds, the stock still looks attractive.
