Regeneron: Dissecting The First Quarter Results And Regulatory Setbacks

Shares of Regeneron (NASDAQ:REGN) have held up well despite the first quarter revenue and EPS miss. The stock is up 9% year-to-date, and it is outperforming the biotech benchmark ETFs despite the first quarter miss and the company receiving two complete response letters (‘CRLs’) from the FDA for odronextamab for the treatment of relapsed/refractory follicular lymphoma and relapsed/refractory diffuse large B-cell lymphoma in late March.

The revenue miss was not significant, and it was largely driven by lower-than-expected collaboration revenue. Eylea held up well despite a $40 million inventory drawdown, while the other key growth products, Dupixent and Libtayo, delivered strong YoY growth.

The two CRLs for odronextamab are unfortunate and should not significantly impact Regeneron’s long-term growth trajectory, but they do eliminate another potential growth driver in the near-term.

Overall, not a great start to the year for Regeneron, but I still see Regeneron as well-positioned to continue to deliver long-term value, and the additional $3 billion share authorization on top of the remaining $1.2 billion in the existing program should help defend the stock should it start trending lower.

Q1 revenue miss was driven by lower-than-expected collaboration revenue

First quarter revenues declined less than 1% YoY to $3.15 billion, missing the analyst consensus by $70 million. Excluding Ronapreve (the ex-U.S. name for the Regen-COV antibody cocktail for the treatment of COVID-19), total revenues grew 7% YoY.

Non-GAAP EPS was $9.55 per share, missing the $10.10 consensus.

The largely unpredictable part of the business has driven the revenue miss – collaboration revenues dipped YoY in the first quarter after several quarters of strong YoY growth. And this cannot be explained by the lack of Ronapreve sales by partner Roche (OTCQX:RHHBY) and the associated collaboration revenues Regeneron generates, since there were no Ronapreve sales in the last four quarters.

I have seen headlines saying that the miss was driven by a $460 million revenue miss by the Eylea franchise as the Street consensus was $1.86 billion, but I cannot imagine how this was the actual consensus for a product that was delivering mid- to high-single digit YoY declines in net sales and how it should suddenly surge from $1.46 billion in Q4 2023 to $1.86 billion.

Eylea franchise’s net sales fell 2.2% YoY and 4% sequentially to $1.4 billion. Had it not been for the $40 million inventory drawdown during the quarter, Eylea sales would have grown modestly compared to the first quarter of last year. According to management comments, the YoY decline in sales seems to be driven more by increased pricing pressure rather than Eylea losing patients to the rapidly growing competing product – Roche’s Vabysmo.

The recent launch of high dose Eylea HD has helped stop the bleeding of the franchise. YoY declines improved from mid- and high-single digits to around 2% in the last two quarters. Eylea HD contributed $200 million in net sales in the first quarter as it continues to cannibalize the old, lower dose version. Management also said that there was a slight increase in Eylea HD inventory, which partially offset the $40 million inventory drawdown of Eylea.

As I noted previously, the launch of Vabysmo has impacted Eylea, but not to a degree that one might have expected based on Vabysmo’s quarterly sales. Instead, the launch of Vabysmo has expanded the category at a more rapid clip alongside a relatively modest loss in net sales of Eylea. Combined U.S. net sales of the two products grew 16% YoY in Q1.

The situation is a bit better outside the United States with Regeneron’s partner Bayer (OTCPK:BAYRY) successfully defending Eylea, more recently with the help of Eylea HD as it was approved in Europe and Japan in the first quarter. Regeneron’s share of collaboration profits grew YoY in each of the last four quarters.

I am still very pleased to see the resilience of the Eylea franchise, and it continues to exceed my expectations.

The two key growth products performed well in the first quarter.

Dupixent net sales grew 25% YoY to $3.08 billion, with Regeneron’s share of the antibody collaboration profits rising 26% YoY to $804 million. The collaboration profit margin on Dupixent contracted 150 basis points sequentially to 26.1% but expanded 500 basis points over the same quarter last year.

The steady growth trajectory of Libtayo continued in the first quarter, with net sales increasing 45% YoY to $263 million. Libtayo is on track to become another of Regeneron’s blockbuster products this year.

On the guidance side, the company slightly increased the full-year R&D expense guidance range due to the inclusion of expenses associated with the acquisition of 2seventy bio’s (TSVT) development programs.

Overall, Regeneron’s product portfolio has done well in the first quarter with continued strong YoY growth of Dupixent and Libtayo, and Eylea holding up well despite increased competition.

The FDA issues two complete response letters for odronextamab

Regeneron experienced two regulatory setbacks for odronextamab in late March. The FDA issued complete response letters for odronextamab for the treatment of relapsed/refractory follicular lymphoma and relapsed/refractory diffuse large B-cell lymphoma. There are no efficacy, safety, or manufacturing issues identified in the applications, but the FDA cited the enrollment status of the two confirmatory trials of odronextamab in the two patient populations and that “confirmatory portions of these trials should be underway and that the timelines to completion be agreed prior to resubmission.” The company expects to address this issue through the enrollment of patients in these two trials, and we should have greater clarity on the resubmission timelines later this year.

These late-line indications were by no means big growth drivers for Regeneron in the near- and medium-term, but I believe they would have represented a nice addition to the product portfolio.

The recent launches of the two competing products – Roche’s Columvi and Genmab’s (GMAB) and AbbVie’s (ABBV) Epkinly provide a glimpse into what Regeneron will miss in the next few quarters. Please note that revenues for both Columvi and Epkinly were re-calculated based on end-of-quarter exchange rates for the Swiss franc and the Danish krone, respectively. I should also note that Epkinly and Columvi are still only approved for late-line DLBCL, and that odronextamab would also have had late-line follicular lymphoma in its product label.

The ex-U.S. opportunity is still potentially there, with the European Commission expected to make a decision in the second half of 2024.

However, the real opportunity for all these products is the expansion into earlier lines of therapy where there are many more patients to treat and where they will stay on therapy for much longer, thus increasing the long-term net sales opportunity. As such, while the near-term revenue contribution will be missed, there is no long-term damage for odronextamab and the ongoing confirmatory trials will serve as the basis for a product label that will include earlier lines of therapy.

Upcoming near-term growth opportunities

There are additional growth opportunities in the near-term for Regeneron.

The permanent J-code for Eylea HD was in effect at the start of the second quarter and should help streamline the reimbursement process and help Regeneron defend the franchise in the U.S. going forward.

Chronic obstructive pulmonary disease (‘COPD’) is the next large market for Dupixent. The PDUFA date in the U.S. is in late June, and the European Commission decision is expected in the second half of the year. I wrote about this opportunity last year after the positive phase 3 results and how U.S. sales alone could be $3 billion if Dupixent manages to capture 20% of the market.

The PDUFA date for linvoseltamab for the treatment of relapsed/refractory multiple myeloma is in late August and while earlier lines of therapy represent the much larger opportunity, late-line therapy could also end up being a decent revenue contributor in the following quarters. Johnson & Johnson (JNJ) recently started breaking out net sales of Tecvayli which is the direct competitor to linvoseltamab, and Tecvayli’s uptake shows this could be a decent-sized market for linvoseltamab.

These are the near-term revenue-generating opportunities for Regeneron and many additional will follow in the second half of the decade, most of which I wrote about previously but which I believe are worth mentioning – additional opportunities for Dupixent, itepekimab in COPD with topline results expected next year, the company tackling earlier lines of therapies with odronextamab and linvoseltamab in hematological malignancies, various combination opportunities for Libtayo in solid tumors, starting with the combination with fianlimab in melanoma with phase 3 results expected in 2025, and among others, the opportunity in obesity I covered in my February article, the CNS and C5 collaboration with Alnylam (ALNY), and many additional opportunities that are already there or that will be brought externally through business development deals.

Conclusion

Not a great start to the year for Regeneron, with regulatory setbacks for odronextamab and the first quarter revenue and EPS misses. And while near-term revenues from odronextamab will be missed, they would not have been material and all the other important fundamental developments and growth drivers are still in place and Regeneron still looks very well-positioned to continue to deliver long-term value to shareholders.

The main risks in the near- and long-term are the acceleration of erosion of the Eylea franchise, increasing competition for Dupixent and Libtayo, potential regulatory setbacks for Dupixent and linvoseltamab, and pipeline failures.

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