Regeneron: Eylea Competition Coming but Pipeline Could Maintain Growth

The Door is Slightly Open for Eylea Competition

Regeneron is a controversial stock with a fair number of bulls and bears. The key topic at the heart of the discussion is Eylea and how serious a threat upcoming competition is to growth prospects going forward.

Recall that Eylea is a treatment for 1) wet age-related macular degeneration (wAMD), 2) diabetic macular edema (DME) and diabetic retinopathy (DR) in DME, and 3) macular edema following retinal vein occlusion (RVO). Eylea is administered via ocular injection, and is available in a 4 week, 8 week, and now 12 week dose.

Eylea has been a constant topic of discussion among investors over the last several months. Like other big healthcare companies that I have written about recently (AbbVie and Celgene), the drug makes up an outsized portion of revenue (>60% expected for the next several years), and therefore plays a key role in the company's future growth prospects. Investors have more recently begun to worry about the environment for the drug as competition approaches and the market reaches saturation.  

One potential competitor is Roche's faricimab. Eylea's approach is to stop a protein called vascular endothelial growth factor (VEG-F) from working in the eye. This prevents new blood vessel growth, which is a major problem in several different eye conditions. Roche's theory is that anti-VEG-F's could be made more efficacious in combination with anti-angiopoietin-2 (ANG2), and they've pursued this theory with faricimab.

Roche tested faricimab for DME in its phase 2 trial BOULEVARD, which showed a potential benefit over other therapies. This trial is now advancing into pivotal trials YOSEMITE and RHINE, which will go head to head against Eylea for DME.

Roche is also testing faricimab in wAMD, and has completed two phase 2 trials, AVENUE and STAIRWAY. This has been a topic of recent discussion as full results from those trials were released on September 13. The results essentially showed that ANG2 did not provide any benefit to the efficacy of aVEG-F, nor to the duration of the effect. Additionally, there were some safety issues, including an inflammation signal and cardiac events. 

As a result, the risk that faricimab will pose a threat to Eylea moderates. Roche may still decide to take the drug forward, especially in DME, but it does not appear as likely that the drug will be differentiated enough to take significant share from Eylea in wAMD.

However, while one potential competitor now appears less threatening, there are still a host of other competitors that could be entering the market in a couple years. Several of these competitors are pursuing 12 week doses for wAMD, which could prove to be a key differentiating factor in the space given the painful administration by intraocular injection. Competitors include Allergan's abicipar, which I have detailed in the past, and Novartis's brolucizumab, which has shown promising data (superior on secondary endpoints of intra-retinal fluid, sub-retinal fluid, and central subfield thickness) in its phase 3 HAWK and HARRIER trials. Brolucizumab for wAMD is expected to file in December 2018 and is initiating phase 3 studies in DME and RVO. Meanwhile, abicipar awaits its MAPLE study readout in 1H19, which is studying an improved formulation.

With competitors pursuing the 12 week-dosage, and with Roche's development in the area (with faricimab as well as an implantable device that could potentially be used for an even longer period of time), it was important for Eylea to maintain its lead in the market with approval for a 12 week dose.

While the company initially received a CRL from the FDA on August 13, they eventually received approval for the 12-week dosing from the FDA on August 17th. The news was somewhat mixed though, as the updated label states that the 12 week dose is "not as effective as the recommended q8w regimen." Investors were both relieved that Eylea was able to quickly get past the CRL, and concerned that the label still leaves enough room for a competitor to come in and take share.

Where does this leave us on the outlook for Eylea? Investors are still concerned about the growth outlook going forward, as a number of competitors will continue to see readouts and regulatory updates through 2018 and 2019 that could put pressure on the stock. Brolucizumab from Novartis, faricimab and the implantable device from Roche, and abicipar from Allergan are all seen as potential threats that should be monitored by investors.

Additionally, changes to Medicare Advantage Plans could put additional pricing pressure on Eylea. Medicare will be offering Medicare Advantage Plans that allow for drug negotiations under Part B. Plans that allow for this and have a Part D will be able to manage between Part B and Part D, essentially opening up Eylea (which is under Part B) to Part D negotiation schemes. Plans will be allowed to take advantage of this negotiation pricing starting in 2019, and developments here should be monitored as well.

All of these developments are likely to put pricing pressure on Eylea, which, given its high concentration, is a risk for Regeneron as a whole. There seems to be acceptance of this fact, even among bulls, that competition will begin to take share from Eylea over time (especially from brolucizumab). However, there is some disagreement on the timing, as some bulls see competition several years away from market entry.

Consensus estimates currently show that the street expects sales growth to slow from 12% in 2018 to 4% in 2019 and 1% in 2020.

Pipeline Discussion Focused on Dupixent and Fasinumab

While this article focused primarily on Eylea's developments, the pipeline is also important to analyze given its potential to offset some of the slowing growth from Eylea. Recent pipeline discussion has focused on Dupixent and fasinumab, two assets that have seen updates over the last several months:

Dupixent: Investors see Dupixent as a promising biologic representing a major advancement in atopical dermatisis, and a potential source that could drive growth for Regeneron after Eylea. The drug beat 2Q18 expectations significantly with $209 million in worldwide sales vs. consensus of $187 million, and trends appear to suggest accelerating prescriptions. The company is also looking to expand into multiple allergic disease indications, including pediatric atopical dermatitis and asthma, which should drive continued growth for the drug.

However, access still remains somewhat limited to Dupixent. The majority of discontinuations are due to insurance or out of pocket costs, and feedback from doctors shows that many see out of pocket costs as the primary barrier to use. This may put a cap on growth rates, and therefore the company will need to get more aggressive on reimbursements to drive higher upside to estimates.

Additionally, bears have also noted that Dupixent will also see upcoming competition as well. The company's indication expansions will be increasingly important to stay ahead - watch for an FDA decision on asthma on Oct. 20, phase 3 data for nasal polyps later this year, and new pivotal trials initiated in several other potential indications.

Fasinumab: The company announced positive results from its trial examining fasinumab for the treatment of chronic pain due to osteoarthritis (OA) of the knee or hip. Results met both co-primary endpoints but also showed a 2% placebo-adjusted rate of adjudicated arthropathies (joint pain). The risk of joint damage has plagued the fasinumab and the NGF class for some time, as fasinumab was subjected to a clinical hold in a prior trial, and tanezumab has also seen safety imbalances in prior trials. The potential for the drug is significant given the large addressable market (an estimated 30 million people in the US are affected by osteoarthritis) and the limited set of pain relief options. Investors are awaiting long-term safety data to more conclusively determine the viability of the drug.


Eylea remains the primary topic of interest among investors

A key component of any thesis on Regeneron will still revolve around Eylea given its concentration of sales. The debate on the competitive threat will heighten through the year as we get updates from Regeneron as well as competitors. Within the pipeline, Dupixent is a key asset that could offset slowing growth from Eylea, but will need to see increasing traction within atopic dermatitis and indication expansion to stay ahead of the competition.