We are maintaining our Neutral recommendation on Regeneron Pharmaceuticals Inc. (REGN) with a target price of $38.00.
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 February 2011, the company presented fourth quarter 2010 results. Net loss of 17 cents per share was narrower than the Zacks Consensus Estimate of a net loss of 32 cents. The company suffered a loss of 46 cents per share in the year-ago quarter. The narrower loss was attributable to higher revenues which more than offset the rise in operating expenses.
(Read our full coverage on this earnings report: Q4 Loss at Regeneron Narrows)
Currently, the company’s only marketed product is Arcalyst (rilonacept). In February 2008, the US Food and Drug Administration (FDA) approved the injection for subcutaneous use for treating CAPS, a group of rare genetic inflammatory conditions, including familial cold auto-inflammatory syndrome and Muckle-Wells Syndrome. The FDA approved the drug for treating adults and children of 12 years and above.
We believe the approval and launch 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, currently 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.
In February 2011, Regeneron submitted a biologics license application (BLA) to the FDA seeking approval to market its VEGF trap-eye therapy to treat patients suffering from age-related macular degeneration (wet AMD).
Moreover, partner Bayer (BAYRY) intends to seek European approval for the eye treatment in the first half of 2011. The approval of the candidate would not only bolster Regeneron’s top line, it will also provide additional options for patients suffering from the eye-disease which currently has only one FDA approved therapy.
Moreover, Regeneron’s associations with major players like Bayer and Sanofi-Aventis (SNY) have helped not only 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. We are also concerned about the potential competition awaiting Regeneron’s pipeline candidates. Regeneron’s only marketed candidate Arcalyst is facing competition from Novartis’ (NVS) Ilaris (canakinumab), which received FDA approval in 2009, for CAPS.
In December 2010, Regeneron suffered a pipeline setback when the FDA put the development of REGN475 on clinical hold due to safety concerns.
The candidate was being co-developed with Sanofi-Aventis for treating pain associated with osteoarthritis. Regeneron had also suffered a pipeline setback when the development of late-stage pipeline candidate, aflibercept, was halted. Regeneron/Sanofi were studying the candidate for the treatment of pancreatic cancer.
The study showed that patients on aflibercept were not surviving significantly longer than those in the placebo group. Pipeline setbacks of a similar nature will weigh heavily on Regeneron’s shares.
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. The stance is supported by the Zacks #3 Rank (Short-term Hold rating) currently assigned to the company.
BAYER A G -ADR (BAYRY): Free Stock Analysis Report
NOVARTIS AG-ADR (NVS): Free Stock Analysis Report
REGENERON PHARM (REGN): Free Stock Analysis Report
SANOFI-AVENTIS (SNY): Free Stock Analysis Report
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