Regeneron Receives FDA Approval; Begins to Eye Bright Future
Regeneron Pharmaceuticals (NASDAQ: REGN) announced that it had received approval for Eylea, a treatment for wet macular degeneration. The disease can cause blindness in patients and occurs when fluid leaks from blood vessels and affects the position of the macula in the eye, which initially distorts vision. The drug hopes to compete with the generic Avastin, which has historically been used off label, but has shown to have serious side effects if not packaged properly.
Eylea faces tough competition in the sector with regards to pricing. Regeneron announced that Eylea will cost $1,850 per dose, which equates to $16,000 per year. This is a mild discount compared to Roche's Avastin, which retails for $1,950 per dose or $23,400 per year. However, both drugs face serious competition from Avastin, which is more price conscious at $50 per dose. As long as doctors turn to the lower cost generic, Eylea will struggle to capture significant market share.
To combat this problem, Regeneron has signed a marketing agreement with Bayer to distribute the drug in Europe and Japan. An analyst with Piper Jaffray initially predicted that US sales could reach $1.2B in 2016. BMP Capital analyst Jim Birchenough believes the drug sales could initially top $105M in 2012. "Retinal specialist feedback over the weekend has been extremely positive regarding Eylea price discount, and with extended payment terms and free drug to offset losses MDs bear virtually no financial risk in adopting Eylea immediately," said Birchenough.
In clinical trials, Eylea demonstrated that it could stop vision loss for its patients. This is in direct contrast to early Eylea treatments which merely slow the pace at which vision loss occurred. In comparison with Lucentis, the chairman of the Cole Eye Institute stated that they were identical on all efficacy issues regarding visual acuity. Data from Phase 3 trials showed Eylea displayed non-inferior results to Lucentis. Eylea's biggest advantage is that it only requires biomonthly doses as opposed to monthly doses for Lucentis.
Investors will want to take caution with regards to Regeneron stock. The share price has doubled over the past year, suggesting that a successful Eylea launch has already been priced in. Biotech stocks also typically trade down after FDA approvals, given the runup that they experience prior to the date. Given that Regeneron does not have any more catalysts in the short term, some traders may move their money into more exciting equities in the meantime.
Traders who believe that Eylea will be a successful drug may want to consider the following trades:
- Buy shares in Regeneron. While the stock has run up over the past year, it's still trading well off its 52 week high of $79.90, suggesting that some upside still remains.
- Purchase call options in Regeneron. Investments with less tolerance for risk will want to go this route.
Traders who believe that Eylea could be derailed by genetic alternatives such as Avastin should consider the following trades:
- Traders may short shares in Regeneron. Shares have run up significantly in the past year, and may trade down as investors look for more exciting trades.
- Purchase put options in Regeneron. If the share price declines, put options could become a lucrative investment.
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