Regeneron Pharmaceuticals (NASDAQ:REGN) reported better-than-expected earnings on Thursday, based on surging sales of its flagship vision treatment Eylea.
The midcap biotech reported total revenue of $870 million during the quarter, up 39% from the first quarter of 2014. Eylea sales were up 51% year over year, reaching $541 million, and easily topping consensus estimates of $527 million.
In the post-earnings call, executives credited Eylea's surging sales to the drug's rapid adoption for treating a diabetic eye disease that is a leading cause of blindness in adults. Eylea was cleared to fight the disease -- diabetic retinopathy -- last month, after a head-to-head study demonstrated it performed better than Roche Holding AG's (NASDAQOTH:RHHBY) rival drugs, Avastin and Lucentis.
Regeneron's management also upped its view on Eylea, saying it expects net sales to be 30%-35% higher this year than last year. In February, Regeneron had forecast sales growth of 25%-30% for Eylea.
Regeneron's stock climbed as much as 3% to $482.99 on the news, before paring those gains to trade slightly down for the day. Let's see how things are shaping up for Regeneron, and why today's good news failed to move the stock higher.
Eylea is old news; the focus is on the pipeline
Eylea's remarkable sales growth has been the major growth driver of Regeneron's stock over the years.
Regeneron's shares have risen nearly eight-fold since Eylea's launch, pushing the stock's considerable valuation very high. With Regeneron's trailing P/E ratio now hovering around 152, cautious investors are weighing the upside potential against the downside risks.
In particular, even with a very solid quarter such as this one, many shareholders and analysts believe the growth potential for Eylea is already priced in. They look strictly to the biotech's pipeline for future value drivers.
Fortunately, Regeneron has multiple upcoming pipeline catalysts, including a few potential "sleeper" hits. Still, Eylea's future potential shouldn't be entirely discounted. Eylea is continuing to build market share, as sales outside the U.S. ramp up, and uses in additional indications such as diabetic macular edema take hold.
In addition, the strong sales growth in Eylea this quarter was especially impressive in a seasonally weak quarter, and it helped the company's adjusted profit handsomely beat the average analyst estimate. Despite higher costs related to increased R&D spending tied to its broad late-stage pipeline, Regeneron's adjusted EPS increased 27% to $2.88 compared to $2.26 a year prior. The consensus estimate was $2.69.
In terms of the raised outlook for Eyelea sales, management reported that physicians appeared impressed by the recently completed Protocol-T study. "According to our qualitative survey, the market share for Eylea now surpasses Lucentis in the United States," said Robert Terifay, Regeneron's senior vice president.
The line-up of blockbusters
Regeneron's early and late-stage pipelines are both extremely full, supported by its mAB research partnership with Sanofi (NASDAQ:SNY). Management reported that Regeneron has three potential launches with blockbuster potential coming over the next few years: Praluent, salirumab in rheumatoid arthritis, and dupilumab.
According to the earnings call, Regeneron's key Praluent program is on track for a third-quarter launch, with a regulatory decision expected on July 24, 2015.
Praluent is a PCSK9 targeting monoclonal antibody, aimed at the millions of people who don't benefit from (or can't tolerate) widely-used cholesterol-lowering statins. Regeneron is currently in a fierce race to be first to this multibillion-dollar market with Amgen Inc (NASDAQ:AMGN), which is developing a similar drug.
On the downside, management was noticeably cautious about Praluent's initial sales in the post-earnings call, saying Regeneron anticipates an initial "gradual" uptake. Executives were clearly concerned about pricing pushback, something they are already encountering with another Regeneron drug, Zaltrap, used to treat colorectal cancer.
In addition, U.S. gatekeepers, such as pharmacy benefits manager Express Scripts (NASDAQ:ESRX), have made it clear that PCSK9 inhibitors are high on the hit list as they attempt to slash specialty drug prices. Regeneron's management cited as a main challenge for Praluent a "complex and carefully managed" reimbursement environment.
"Sleepers" in the pipeline
While attention is focused on Praluent, an allergy drug called dupilumab in Regeneron's pipeline is a bit of a sleeper, possibly with equal blockbuster potential. Management has been very enthusiastic about this drug in the past, and it pointed out in the recent call that the drug has shown excellent results and is being tested for a wide range of ailments, including atopic dermatitis, asthma, nasal polyps in patients with chronic sinusitis, and eosinophilic esophagitis.
In addition, the company moved up its timeline on REGN2222, an antibody targeting the respiratory syncytial virus. Management said the drug has progressed faster than expected.
Overall, Regeneron has over 15 antibody programs running concurrently, many of which are in the fast-growing field of immuno-oncology. With Eylea showing serious sales growth this quarter, management touting an expected second-half of 2015 launch of a game-changing cholesterol drug, and a pipeline that more than one major drug company would likely kill for, Regeneron looks promising.
The big question is: Does the Street just expect too much from this biotech for future gains to materialize? Or is it simply taking a short breather? My bet is that Regeneron's stock will regenerate itself yet again, but it could well be a bumpy ride.