2023-08-02 08:00:00 ET
Summary
- Shares of Regeneron pulled back after the company received a complete response letter for Eylea.
- The CRL can result in a market arrival delay of 9 to 12 months for Eylea and creates a wider opening for Roche's Vabysmo.
- Continued erosion should be assumed for Eylea as Vabysmo continues to gain market share.
- Still, Q2 should not be a terrible quarter for Eylea, and we should see healthy growth of Dupixent profits and Libtayo revenues.
Shares of Regeneron ( REGN ) are down 10% since my previous article focused on the COPD win for Dupixent. Since then, we have seen additional deterioration for Eylea in the United States due to the pressure from Roche's ( RHHBY ) Vabysmo and, more recently, a bigger setback when Regeneron received a complete response letter ((CRL)) for high-dose Eylea. The CRL gives Vabysmo a wider opening in the U.S. market to take more market share as this approval was critical for Regeneron to try to fend off the competition with this less frequent dosing regimen.
I previously assumed Eylea sales will erode under the competitive pressure of Vabysmo in the following years, and this only modestly worsens the outlook for this important franchise.
And while Eylea was holding up well and the company claimed the Q4 2022 net sales miss for the drug was unrelated to the launch of Vabysmo but due to a closing of a fund that provided co-pay assistance for Eylea, cracks did emerge in the first quarter report when the mentioned anomaly causing the Q4 2022 miss largely reversed but sales did not recover, but declined both sequentially (which is not unusual for a first quarter of the year) and 5.5% year-over-year (which was out of character).
Further erosion should be assumed when Regeneron reports second-quarter results on Thursday since Roche reported another strong quarter for Vabysmo, claiming market share gains, switches from Eylea, and guiding for more than CHF2 billion ($2.2 billion) in net sales this year.
Vabysmo's sequential growth in the United States was approximately $84 million, but not all of its gains are coming from Eylea switches. Roche says 70% of growth is coming from switches and that most are from Eylea.
I should also add that Vabysmo's sequential pace of gains has slowed for two quarters in a row - from $140 million in Q4 2022 to $108 million in Q1 2023 and now to $84 million in Q2.
The numbers above imply at worst a $40-50 million sequential impact on Eylea, but that assumes no seasonal recovery of Eylea since Q1 is the worst quarter of the year and no growth for Eylea versus other treatment options. Due to these factors, and notwithstanding other changes such as the access problems in Q4 2022 and early 2023, I do not expect a significant sequential decline in Eylea net sales (up to $30 million) and we may actually see it flat or slightly higher sequentially.
Going back to the CRL for high-dose Eylea, the company noted in the press release that there are no efficacy or safety concerns, trial design, or drug substance manufacturing issues and that no additional clinical data or trials were requested. The CRL was issued "solely due to an ongoing review of inspection findings at a third-party filler." This should not be a very hard issue to address, but Regeneron is losing precious time in the fight against Vabysmo. My base case assumption is that the company will lose 9 to 12 months due to this issue. Any update on resubmission timelines could have an impact on investor sentiment after the second quarter report.
With Vabysmo gaining market share and Regeneron unable to respond with high-dose Eylea, it is up to the rest of the product portfolio to make up for the shortfall.
Partner Sanofi ( SNY ) reported another strong quarter for Dupixent with sales increasing in the mid-30s Y/Y and nearly $300 million sequentially. This should result in a strong increase in antibody collaboration profits for Regeneron in the second quarter.
The other important growth driver for Regeneron is Libtayo. With the company acquiring global rights last year and the recent label expansion, we could see better growth rates in the following quarters.
With these moving parts in mind - the pressure on Eylea and the incremental gains for Dupixent and Libtayo, it appears that the revenue consensus for Q2 2023 is at least appropriate at $3.02 billion, and possibly/likely conservative considering the trends I noted above for Eylea, Dupixent, and Libtayo.
Still, there are also other collaboration revenues that can be volatile quarter-over-quarter and drive a revenue beat or miss. In any case, investors should look at the performance of Eylea and Libtayo to gain a better picture and the additional profits squeezed out of Dupixent since its net sales were already reported by Sanofi.
With the COPD readout of Dupixent out of the way, there are no major pipeline updates this year and the focus in the near term will be predominantly on the commercial products. But as I covered in previous updates, the medium-term picture looks much better with a maturing pipeline with various shots on goal and the big expected expansion in oncology through Libtayo, the LAG3 antibody fianlimab, odronextamab and there is also the emerging CNS pipeline through the Alnylam ( ALNY ) partnership.
Speaking of Alnylam and the CNS pipeline, it is worth mentioning that the two companies have achieved positive proof of concept in CNS, with Alnylam recently reporting additional positive data from the phase 1 trial of ALN-APP in patients with early-onset Alzheimer's disease. There are still no efficacy data, but ALN-APP has achieved significant APP knockdown to date and this has positive implications for the whole CNS pipeline given the high rate of reproducibility of clinical data of RNA candidates (at least in the liver to date) and this trial providing confirmation of good translatability of preclinical data to humans in the CNS.
Conclusion
Regeneron's share price has started to recover after the CRL for high-dose Eylea. I expect the CRL to result in at least a 9 to 12-month delay in its market arrival. However, I believe the current valuation reflects the expected erosion of Eylea and while I do think that high-dose Eylea would have helped, I do not expect it to be enough.
I expect modest to no sequential erosion for Eylea when Regeneron reports second-quarter results, and continued pressure from Vabysmo going forward.
On the positive side, Dupixent profits should continue to increase above its revenue growth rates and Libtayo is another increasingly important medium to long-term growth driver in existing indications and as a backbone for Regeneron's oncology pipeline. I should also add that M&A is a potentially underappreciated long-term driver for Regeneron, considering the expected healthy cash flow generation in the following years.
For further details see:
Regeneron: CRL For High Dose Eylea Gives Vabysmo A Wider Opening