We are maintaining our Neutral recommendation on Regeneron Pharmaceuticals Inc. (REGN) with a target price of $59.00.
Regeneron, a biopharmaceutical company, focuses on the discovery, development, and commercialization of pharmaceutical products for the treatment of serious medical conditions. The company, founded in 1988, is based in Tarrytown, New York. Regeneron also operates a large-scale biologics pharmaceutical manufacturing facility in Rensselaer, New York and a satellite office in Bridgewater, New Jersey.
In May 2011, the company presented first quarter 2011 results. Net loss of 49 cents per share was wider than the year-ago loss and the Zacks Consensus loss estimate by 11 cents each. The wider loss was attributable to higher operating expenses which more than offset the rise in revenues.
Currently, the company’s only marketed product is Arcalyst (rilonacept) for subcutaneous use for treating CAPS, a group of rare genetic inflammatory conditions, including familial cold auto-inflammatory syndrome and Muckle-Wells Syndrome.
We believe the approval and launch of the drug is important to Regeneron as the experience gained from marketing Arcalyst should facilitate future product launches. Moreover, Regeneron’s efforts to develop Arcalyst for gout are encouraging as the market has a huge unmet need.
Furthermore, Regeneron’s unique proprietary trap technology is a new way to develop targeted therapy and has broad applications in drug development. The company is developing the VEGF (Vascular Endothelial Growth Factor) -trap and IL-1 (Interleukin-1) trap for various cancers, eye diseases and inflammatory diseases.
Regeneron could receive approval from the US Food and Drug Administration (FDA) for its VEGF trap-eye therapy later this year. The VEGF trap-eye therapy is currently under priority review for the treatment of patients suffering from the neovascular form of age-related macular degeneration (wet AMD).
A response should be out by August 20, 2011. FDA approval of the candidate would not only bolster Regeneron’s top line but also provide additional options for patients suffering from the eye-disease which currently has only one FDA approved therapy.
In June 2011, partner Bayer (BAYRY) submitted an application seeking approval from the European regulatory body for the same indication. The candidate, which is also being studied for other eye-disorders, represents significant commercial potential for the company.
Moreover, Regeneron’s association with major players like Bayer and Sanofi-Aventis (SNY) has helped not only to bring in funds in the form of upfront and milestone payments but also to validate the company’s trap technology.
However, the low incidence of CAPS leads us to believe that Arcalyst will only contribute a small portion to total revenue and will never be a top growth driver at Regeneron. Arcalyst is facing competition from Novartis’ (NVS) Ilaris (canakinumab), which was approved by the FDA in 2009, for CAPS.
Moreover, pipeline setbacks encountered by Regeneron like the disappointing results of the VITAL study which evaluated the company’s cancer candidate, Zaltrap (aflibercept or VEGF trap), as a second-line therapy for treating patients suffering from non-small cell lung cancer, the clinical hold on the development of osteoarthritis candidate REGN475 and the termination of the development of Zaltrap for metastatic pancreatic cancer concern us.
We believe that the stock is fairly valued at current levels with limited scope for upside. Consequently, we maintain our long-term Neutral stance on the stock.
