Regeneron Pharmaceuticals (NASDAQ:REGN) was down 6% today after releasing third-quarter earnings. While U.S. sales of its flagship drug Eylea rose 23% year over year in the third quarter and sales by its partner Bayer HealthCare outside the U.S. more than doubled, investors clearly aren't happy.

The culprit, as far as I can tell: the company tightened its guidance for the year to the lower end of the previous guidance, pegging sales between $1.7 billion and $1.74 billion from a previous guidance that extended all the way to $1.8 billion.


Q1 2014

Q2 2014

Q3 2014

Q4 2014 estimated

Eylea U.S. Sales in Millions





Quarter-over-quarter growth (decrease)





Source: Company releases

The first quarter of the year was a bit of an anomaly with distributors holding smaller inventory than the fourth quarter. If you average out the first two quarters, quarter-over-quarter growth was 3.2%, so a 7.2% quarter-over-quarter increase in the third quarter doesn't look too bad. And there's potential for it to accelerate into the fourth quarter, but clearly not as much as investors were hoping for.

In July, the company gained FDA approval to market Eylea for diabetic macular edema, or DME. The market is as large as wet age-related macular degeneration, or AMD, which Eylea is already approved for, but the launch is going slower than the launch for wet AMD. Regeneron sold $25 million worth of Eylea when it launched for wet AMD in its first quarter on the market and that was just over a month worth of sales because the approval came toward the end of the quarter.

Source: Regeneron Pharmaceuticals

DME isn't as dangerous -- in terms of losing eyesight -- if patients are left untreated compared to wet AMD, so there's less urgency to treat patients with an anti-VEGF drug or switch them from Roche's Lucentis to Eylea.

DME patients are also more likely to be covered by private insurers compared to wet AMD where most are covered by Medicare, which generally reimburses for drugs immediately after the drug is approved. Gaining reimbursement coverage from private insurers takes more time, although Regeneron said it now has 95% coverage.

Longer term, Eylea should win out over Lucentis because it can be dosed less often. In a head-to-head trial run by the NIH, Eylea improved eyesight in DME patients compared to Lucentis and Roche's Avastin, which is used off label to treat DME. Once that full data set is available, it should help the DME launch.

For now investors are completely focused on Eylea, but by this time next year they could also be talking about another potential blockbuster alirocumab for high cholesterol. Regeneron and its marketing partner Sanofi (NASDAQ:SNY) bought a priority review voucher, which will shave four months off the review time, putting a potential launch of alirocumab in the second half of next year.