The year ahead was supposed to be another great one for shareholders of Regeneron Pharmaceuticals (NASDAQ:REGN). The red-hot biotech made a number of moves in 2015 that positioned it for a year of fast growth. The most significant development was the launch of Praluent, the cholesterol-busting PCSK9 inhibitor that it co-developed with Sanofi (NYSE:SNY). The drug was thought to hold blockbuster potential, but after only a few short months on the market there are already some huge questions in the air about its future.
The battle begins
One big thing standing in the way of Regeneron and Sanofi turning Praluent into a success is another biotech giant. Amgen (NASDAQ:AMGN) won approval for and launched its own PCSK9 inhibitor -- called Repatha -- in 2015, and the companies have been duking it out behind closed doors to position themselves to grab as much market share as they possibly can.
Given that both Repatha and Praluent showed similar results in clinical trials -- lowering LDL-cholesterol levels in patients by roughly 55% -- and they each carry an annual price tag of roughly $14,000 per year, the companies have thus far been turning to reimbursement coverage as a way to give themselves an edge.
Both companies have landed victories over the past few months to put their drugs in favorable positions within insurance formularies. Amgen scored a huge win when it announced an exclusive deal with CVS Health (NYSE:CVS), thereby blocking Praluent from being a choice for millions of patients who use CVS's Pharmacy Benefit Management business. The rationale CVS gave for making the deal was that the two drugs were "therapeutically equivalent," which hints that it was simply able to negotiate such a huge discount from Amgen that it decided to make the drug its only choice. Only time will tell if that move was either brilliant for CVS or a blunder.
Not to be outdone, Sanofi and Regeneron also went on the offensive and secured preferred access for Praluent on UnitedHealth Group's formulary list. UnitedHealth's Oxford division goes so far as to force patients to use Praluent for 12 weeks before they can give Repatha a try.
A new weapon in the fight
While this battle for formulary access rages on, Amgen still has a trump card that could really give it an edge in the fight: a lawsuit.
Amgen filed a suit against Sanofi and Regeneron back in October 2014 claiming that Praluent infringes on two of its PCSK9 inhibitor patents. It turns out that a Delaware jury agreed with that assertion.
Damages have not yet be announced, but Amgen isn't just looking for a big check or even royalty payments on sales. Instead, it's going whole hog and trying to get Praluent removed from the market.
While it's hard to know what kind of chances Amgen has at getting the drug pulled completely, it does show that Amgen really isn't playing around, and even if the courts determine that a royalty payment will suffice, losing the court case clearly puts Regeneron and Sanofi in a bind.
What if the worst happens?
A worst case scenario here for Regeneron and Sanofi is that Amgen is successful and Praluent is yanked off the market for good. The companies have invested millions in research and development costs, and initial sales have been lackluster, so they aren't even close to breaking even yet. Sanofi in particular has been counting on Praluent to help it offset the loss of sales from other hit drugs whose patents have expired, as the company works towards its longer-term growth target. Losing Praluent would blow a hole in its growth projections.
Regeneron is even more dependent on the success of Praluent than Sanofi is, as it's only the company's second drug on the market that holds the potential for huge sales growth. If Praluent turns into a nonstarter, then Regeneron's premium stock price could take a serious hit.
Many irons in the fire
Thankfully, there's more to the Regeneron growth story than just Praluent, so while the loss would be great, it wouldn't be game over by any stretch. After all, Eylea is still growing quickly. Since it grabbed a handful of label expansions in 2015, management is expecting sales growth of 20% in the U.S this year. That's still a pretty healthy pace for a drug that's been on the market for several years.
Investors should also remember that Regeneron has two other potential blockbuster drugs that could be on the markets before the end of 2017. Sarilumab, the company's potential treatment for arthritis, was able to beat out AbbVie's megablockbuster Humira in a phase 3 clinical trial, giving it a decent chance of living up to its billion-dollar peak sales potential. The drug is already in the FDA's hands, and a decision date of Oct. 30, 2016 has been targeted, so it could be on the market before the end of the year if everything goes according to plan.
The second drug, dupilumab, has performed extremely well in clinical trials as a treatment for eczema, atopic dermatitis, and asthma, and the company has plans to submit it for FDA approval in the third quarter of this year. Peak sales estimates for dupilumab are in the $2.5 billion range, so it too could also go a long way toward energizing growth.
A story worth watching
All in all, the news of Amgen winning a suit against Regeneron and Sanofi is troubling, and if Amgen gets what it wants then it could be a major blow to Regeneron shareholders. Still, there's more to the Regeneron growth story that just Praluent, so even if the worst happens, the company looks like it will be OK.
Whether you are bullish or bearish on Regeneron and Sanofi, this is a development that is worth keeping an eye on.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends CVS Health, Regeneron Pharmaceuticals, and UnitedHealth Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.