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The main problem
Regeneron (REGN) has enjoyed tremendous success in the stock market for almost 7 years since the approval of its mega-blockbuster drug for retinal diseases, Eylea, by the FDA. The title rose from about $ 55 in October 2011 to $ 404 at Friday's close, a CAGR of 33%. However, at the peak of about $ 600 in 2015, the CAGR was closer to 100%. REGN at around US $ 400 represents a stock that has not moved anywhere since late October 2014, underperforming both the S & P 500 (SPY) and a large, large-cap, biotech ETF (BWI) . The biggest problem is Eylea's reliance on cash flow. Eylea has new competitive threats pending, largely from Novartis (NVS) and Roche (OTCQX: RHHBY), but none of their new drugs will enter the market in the near future. Internally, there is a clear and current threat that the US government is finding a way to hurt Eylea's sales by putting pressure on prices and / or market shares. Finally, on a global scale, the problem of reconstitution not indicated on the Avastin label is ongoing and, when it is applied in the eye, it is much cheaper per dose than Eylea or its main competitor, Lucentis.
With the pitiful commercial performance of Praluent, a once promising cholesterol reducer, the only product to have been used with Eylea was Dupixent. This is on track for major product status. "Dupi" has its limits to elevate the course of action of REGN. Some of them include:
- Sanofi partner (SNY) achieves a (modest) majority of Dupi's profit flow
- intense competition for marketed products and pipeline products
- uncertain success of additional indications expected from Dupi
- a patent infringement action by Amgen (AMGN) and other counterfeit actions that may arise.
Thus, although Eylea is a large known quantity, Dupi is, for the moment, a small REGN asset with a wide range of potential future profits.
These problems have left REGN for the past year turning into a higher value than growth stocks, especially when it has been overwhelmed by a negative publicity of less than $ 300.
The stock is now halfway to a bearish-bullish conversion:
In order to master the technical aspects, the early approval of the first product from the REGN-SNY immuno-oncology collaboration could begin to deflect the feeling that the 2010-5 opinion was that REGN is a growth stock and not a game of boring value. Here is the basic story, followed by my thoughts on its implications, then a mention of some other catalysts that could help the stock to reach the $ 450 level.
Libtayo shopping at the market
After closing Friday, the companies announced that the FDA had approved the marketing of cemiplimab, an anti-I-O antibody, brand Libtayo. This medicine is a PD-1 inhibitor. It joins 5 other drugs of the "PD" class approved by the FDA and is the 3rd PD-1i; the others are PD-L1is. The question of whether there is a subclass difference between PD-1 and PD-L1 is the subject of debate. All we know pretty much, is that Merck's PD-L1i Keytruda (MRK) has an exceptionally potent efficacy in survival data in the most common forms of inoperable lung cancer, NSCLC.
Getting a PD-1i on the market quickly has been a great success, but its commercial value is uncertain. According to the REGN press release, Friday, announcing the new (slightly modified for readability):
REGN and SNY announced today that the FDA has approved Libtayo® (cemiplimab-rwlc) for the treatment of patients with metastatic cutaneous squamous cell carcinoma (CCSCC) or locally advanced SCCCC who are not candidates for curative surgery nor to curative irradiation. Libtayo is a fully human monoclonal antibody targeting the immune control point PD-1 receptor (programmed cell death protein) and is the first and only treatment specifically approved and available for advanced CSCC in the United States.
The FDA approval took place after Libtayo for CSCC got the breakthrough status and was then subject to priority review by the FDA. The date of the PDUFA was 28 October. The approval came a month earlier, which means that compliments are due to REGN and SNY for presenting a BLA clean and to the FDA to move the cases forward quickly.
The FDA press release on this approval deserves to be read in its entirety for more information.
Libtayo's rapid trajectory between entering the clinic and full FDA approval with only Phase 1 and 2 studies speaks for SNY and REGN. I think this offsets the embarrassment of the circumstances behind the late approval of Kevzara.
Another positive element for REGN / SNY is that, although studies have been conducted with doses every 2 weeks and every 3 weeks, the label (P.I.) designates a 350 mg vial to be administered every 3 weeks. The treatment continues ad lib.
What is the size of the market?
Companies estimate that about 7,000 Americans die each year from the CSCC. However, the range of estimates is broad and no one even knows this number with certainty. It is to guess what is the addressable market. The studies on cemiplimab showed overall response rates of the order of 48%. According to the label, 4% of the patients studied had a complete response; this number could increase if more respondents transitioned to full respondent status in the next few months after the lockout.
Many unknown details about Libtayo's selling potential for this first indication.
While the Libtayo list price is about 9,000 USD per dose, the net price in the United States, then in the EU, is approved next year as hoped, is not known. The absorption of this unique treatment for advanced CSCC and the average duration of treatment are also not. It is also unclear how long one of the other PD drugs will take to get the same indication. So, strictly as a placeholder, the sales goal of this drug in the United States is 250 million USD, based on current clinical data. I draw this from these kinds of assumptions:
- Net price of $ 6000-7000 per dose
- 4000 to 5000 patients treated with Libtayo per year
- average number of treatments per patient = 8.
This estimate, a shot in the dark at this point, reminds me of about $ 400 million in global sales from the United States. But I expect to compete with one or more PD drugs, so even these numbers can not be extended for years.
Thus, with a REGN greater than $ 45 billion in diluted market capitalization, Libtayo for CSCC does not seem likely to move the needle. But finally, there are two major advantages to marketing this PD-1i:
The next indication can arrive faster and the combinations move better
As George Yancopoulos, head of R & D and Chief Scientist at REGN, said during the second quarter teleconference in August:
We are pursuing a broad development strategy in lung cancer that encompasses patients with low and high levels of PD-L1 …
Following our review of recent data from competing PD-1s on non-small cell lung cancer, we plan to increase the size of our ongoing monotherapy phase 3 trial and expect it to be read in 2020.
If it is the following indication for Libtayo, the sBLA indicating that REGN / SNY will comply more quickly with the FDA than if the drug had not yet been approved. Reading the data in 2020, which should build on the history of PD-1is, involves a deployment to the 2021-2 horizon of lung cancer.
More important perhaps than the sBLA rather than the complete BLA pathway for an indication of lung cancer is that with the certainty that the drug is on the market, the combo part of the strategy can be pursued with greater confidence and confidence. 'commitment. As Dr. Yancopoulos continued:
In addition to its use as monotherapy, we believe that cemiplimab will be the foundation upon which we will build combination therapies to treat various types of tumors. To this end, we have two additional control point inhibitors, LAG3 and CTLA-4, in clinical development. We are also exploring our checkpoint inhibitors in collaborative combinations with vaccines and self-care approaches.
It's pretty clear. (In addition to developing a CTLA-4 antibody, the REGN / SNY partnership is studying Libtayo with Yervoy, which works through this channel.)
One of the shortcomings of the SNY partnership so far is that SNY has brought little synergy to the table. As far as I know, the trio of drugs in partnership – Dupi, Praluent and Kevzara – does not see sales supported by SNY complementary drugs despite its Big Pharma status. This could change with the I-O partnership. For example, SNY / REGN has begun a Phase 1/2 study (this link takes you to a description of other clinical trials on Libtayo) of SNY antibody, isatuximab, in combination with Libtayo in the myeloma. SNY hopes that "isa" could be an improvement over the important drug J & J (JNJ) Darzalex.
SNY has put in place an extensive clinical program for isatuximab, including various studies involving Libtayo and unrelated drugs for myeloma and other diseases.
So, in its context, we now hope that …
REGN's I-O Program Can Become an Undervalued Asset
The stock market is a strange place. Insiders from REGN and SNY, as well as savvy companies such as CVS (CVS), have seen Praluent and the other three PCSK9 inhibitors in Phase 2 or Phase 3 development in 2014 at least become fast blockbusters. According to CVS, this class of drugs would become the best-selling category of drugs to date, with annual sales exceeding $ 100 billion. While more than three years after its launch, Praluent and Repatha of AGMN are in the combined range. Amazon's Fire Phone fiasco (AMZN) has also made a splash in its success.
However, a well-funded and creative company can come back in force, as AMZN clearly did. Sometimes the memory of a high-profile disc outing can scare investors away from bullish complacency and lead them to caution on the next round – perhaps unduly cautious as the future is revealed.
This state of mind may allow the REGN / SNY I-O collaboration to exceed the low expectations of the street in this regard. In addition, REGN has a non-specific set of bispecific antibodies for development of I-O, which could be commercially significant. According to Dr. Yancopoulos again from the teleconference (emphasis added):
Our main bi-specific program is a 100% owned CD20xCD3 molecule, which validated the concept and gave us confidence in the platform as a whole. We remain very encouraged by the high response rates we have observed to date for both indolent and aggressive non-Hodgkin's lymphoma, and we expect advance this program in enrollment studies in 2019.
It's an encouraging comment, indeed. I guess the time limit for approval is 2023-4, but the timeframes for the study could extend a little longer, especially because so many lymphoma patients are being studied by so many drugs that recruitment is not going as fast as before going.
There is more; Dr. Yancopoulos continued:
We are also advancing other bi-specific candidates in clinical development. Our bi-specific MUC16xCD3 for ovarian cancer has entered clinical development and our bi-specific BCMAxCD3 for multiple myeloma will enter the clinic later this year. These bi-specificities will be studied both as monotherapy and in combination with cemiplimab.
Even more intriguing:
Early next year, we plan to advance the clinical development of a brand new class of bi-specific antibodies, which we will investigate in association with the CD3 class of bi-specific, as well as that with cemiplimab.
It's intriguing. Two different bispecifics will be studied one with the other, which seems to be at the forefront of technology.
Provisional summary
In itself, the FDA's approval of Libtayo does not seem to me to be a particularly important event for REGN's financial performance over the next few years. However, this implies a well-received level of competence in the SNY / REGN IO partnership, which gives me greater confidence in the fact that a substantial profit stream can occur in the 2020s. Moreover, the l & # 39; Libtayo's approval is important in practice: the next BLA will be complementary, implying a faster and more predictable path to FDA approval for the proposed new indication. It is also important, perhaps more importantly, that studies of combination with cemiplimab, a risky asset, have now evolved into association studies with the approved Libtayo drug, hence less risky. .
REGN now has a lengthy lead in its long-term strategic plan to become a major competitor in the field of oncology, both through its collaboration with SNY and alone.
There is still a lot going on, among which …
Other catalysts for the stock
REGN becomes large enough and diversified so that, between its own deadlines and the news announcements of its competitors, the relevant news arrives frequently. Two news are expected soon regarding Dupi. The FDA's approval of Dupi for asthma, based on three pivotal studies, should be the first. This sBLA for indication of refractory asthma (or associated term) is based on solid data and the market opportunities are large. Marion McCourt of REGN reported in the teleconference that:
Currently, there are approximately 900,000 patients in the United States who are being treated for moderate-to-severe uncontrolled asthma, who would be considered appropriate biological therapeutic candidates. However, less than 10% of these patients are currently treated with a biological product.
REGN hopes a differentiated label for Dupi for asthma from other biologic drugs; if and when the FDA approval arrives, I expect REGN to be volatile (assuming approval) depending on the language and specific indications that the FDA allows REGN to say. (I will probably comment on this event after REGN announced its third quarter results, usually in early November.)
If 5% of these 900,000 patients are treated with Dupi and the average income for REGN / SNY is $ 30,000 a year, the partnership will benefit from an additional $ 1.35 billion in income. Given the size of the non-US market, this indication would be a significant improvement for REGN's upper and lower lines. The scenarios up and down are of course at stake.
It is also important that Phase 3 data on Dupi in the indication of nasal polyps / sinusitis be expected in the fourth quarter. I expect positive results, based on solid Phase 2 data and Dupi's superior safety profile. If REGN / SNY succeeds with nasal polyps, REGN will have developed the first drug to treat the three elements of an allergic triad (or atopic): asthma, nasal polyps and atopic dermatitis (the specific conditions of the triad vary but are similar )).
I would like to think that this realization would place Dupi in a particular category, since many patients seeking biological treatment for any of these three indications also have at least one mild case of one of the two. other members of the allergic triad. . Given the intense competition in autoimmune / allergic conditions, this could be a sustainable differentiating factor for Dupi for years to come.
Risks
Now that REGN is approaching the $ 410 level based on Friday trading after hours, it has exceeded what I considered to be a range of less than or equal to $ 310 and has again begun to incorporate some of my general optimism at the price of the REGN action. Still, no one really knows how Eylea's sales will evolve and, despite all that has been discussed in this article, REGN as a result unit remains a story of Eylea in 2018. It will be a story of Eylea in 2019, and it will be mainly an Eylée. history in 2020; etc.
The risks are therefore high and the street could remain cautious both with Dupi and with the I-O program, given the diversity and intensity of competition in many directions.
Please refer to the information provided by REGN to the SEC in its 10-K form and elsewhere for a more detailed discussion of the risks inherent in investing in REGN.
Concluding remarks – REGN, an innovation font
Aside from individual information, all actions can be traded anywhere the legendary Mr. Market wants. If there is really bad news regarding Eylea's future profits, Mr. Market can focus on the ne degree … or ignore it, just as many negative information has briefly jostled the course of AMZN action since the Great Recession, and then have been ignored. The main point I focus on and Dr. Yancopoulos continues to argue is that all of REGN's approved and developing products have been developed at REGN's headquarters in Tarrytown, NY. They have not been purchased and are therefore not subject to the false accounting treatment known as "adjusted" profit in which the amortization of intangible assets is ignored. (REGN has confusing aspects in its income statement with regard to SNY collaborations, and everyone can handle these points and other accounting elements as they please.) Only time will tell, but as As the least competitive pharmaceutical company with a market capitalization greater than $ 30 BI knows, REGN has the opportunity over time to demonstrate a very high return on its R & D and its vast program of capital expenditures. As always, no warranty exists, but it is in the hunt.
According to the ETrade data, REGN is expected to earn $ 22 per share in 2019. At $ 410, it is trading at 18.6 times EPS forecast for 2019.
On the other hand, with the S & P 500 at 2914, S & P posts a non-GAAP 2019 consensus of $ 177, for a P / E of 16.5X. Using GAAP, the projected EPS is $ 163, for a P / E of 17.9X.
With debt-free finance stronger than the average stock, and high and partly elective R & D spending as a percentage of revenue, REGN seems to me to have above-average quality revenues. While the Fed 's tightening program has clear effects on the traditional canaries of the stock market / economic coal mine, home builders, home builders and financial companies, I like it very much. the idea of holding shares in an innovative biotechnology for a modest premium compared to the P / E of the SPY, especially since it is part of the way forward to carry out a technical transition of the phase from bear to bull.
As noted above and that REGN discusses in more detail related teleconferencing and elsewhere, the company is actively diversifying its future profit drivers and, if successful in this effort, could receive a higher P / E ratio from Mr. Market. . This effort is necessary to move society from the high-level medical bed that it has been in the biotechnology sector to compete with the image of a mature, healthy, and fragile society.
However, the company is not yet "there". The risks are important. It will take time and many new company data, partnerships with SNY and Eylea's partner, Bayer (OTCPK: BAYRY), competitors and payers for us to know the true profit potential and growth rate from REGN. Biotech / pharma is different from most market sectors in its time, and I continue to take a patient approach, anticipating sales and profits by 2025 for this stock.
Thank you for reading and sharing the ideas or knowledge you want to bring.
Submitted Sunday with REGN at Friday prices around $ 404 at the close and about $ 408-410 after hours.
Disclosure: I am / we have been for a long time REGN, RHHBY, AMZN.
I have written this article myself and it expresses my own opinions. I do not receive compensation for this (other than Seeking Alpha). I have no business relationship with a company whose stock is mentioned in this article.
Additional disclosure: No investment advice. I am not an investment advisor.
Editor's Note: This article discusses one or more securities that are not traded on a major US market. Please be aware of the risks associated with these stocks.
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