Is This Stock a Buy After Acquiring a Potential Zepbound Competitor?

Regeneron's stock has declined due to competition impacting sales of Eylea, but the company is pursuing new growth opportunities, particularly in weight management. Regeneron acquired rights to HS-20094, a late-stage anti-obesity drug from Hansoh Pharma, for $80 million upfront and potential milestones up to $1.93 billion, aiming to compete with Eli Lilly's Zepbound; simultaneously, Regeneron is also exploring ways to mitigate muscle loss associated with weight loss drugs, and is experiencing growth in its Dupixent sales, which grew 19% year over year.

Analysis

Regeneron (REGN) is currently navigating a challenging period characterized by a decline in its stock price, primarily due to competitive pressures impacting its former growth driver, Eylea, a treatment for wet age-related macular degeneration. In the first quarter, total U.S. sales of Eylea and its newer formulation, Eylea HD, experienced a 26% year-over-year decrease to $1.04 billion. However, Eylea HD demonstrated strong uptake, with its revenue surging 54% year-over-year to $307 million, suggesting its more convenient dosing schedule is resonating with patients and potentially mitigating some of the older version's losses. Concurrently, Regeneron's other key product, Dupixent, co-marketed with Sanofi, continues its robust growth trajectory, with sales increasing 19% year-over-year to $3.67 billion in Q1, further bolstered by a recent FDA approval for COPD. Despite these positive elements, Regeneron's total Q1 sales declined by 4% year-over-year to $3 billion. To reignite growth, Regeneron is strategically expanding into the high-potential weight management market. The company recently secured rights to HS-20094, a late-stage anti-obesity candidate from Hansoh Pharma, for an upfront payment of $80 million and potential milestones up to $1.93 billion. HS-20094, which mimics GLP-1 and GIP hormones similarly to Eli Lilly's Zepbound, has shown promising potential in over 1,000 patients and is currently in Phase 3 trials for obesity. Additionally, Regeneron is addressing a common side effect of weight loss drugs by developing trevogrumab to preserve muscle mass in patients taking semaglutide. While the entry into the weight management market offers significant upside, particularly if HS-20094 achieves Zepbound-like success, the inherent risks of drug development, even in late stages, remain substantial.

Key Decisions for Investors

• Investors should critically evaluate Regeneron's ability to offset declining Eylea revenue with the ramp-up of Eylea HD and sustained growth from Dupixent, alongside its strategic foray into the weight management market.
• Closely monitor upcoming clinical trial data for HS-20094, as positive results comparable to existing market leaders could significantly alter Regeneron's growth trajectory and stock valuation, while being mindful of the high failure rates in pharmaceutical development.
• Consider the current blended performance, with overall Q1 sales down 4% YoY, against the long-term potential of its diversified pipeline, including oncology and innovative approaches to obesity treatment like muscle mass preservation.
• Assess the risk-reward profile given the upfront investment and milestone payments for HS-20094 against the backdrop of a competitive obesity market and Regeneron's existing revenue challenges.