Forget Eylea: Regeneron's Real Value May Be Hiding in Its Dupixent Profit Share

Regeneron Pharmaceuticals (NASDAQ: REGN) has underperformed broader equities over the past two years. Perhaps the biggest reason for that is the company's declining sales of Eylea, a medicine that treats several eye-related conditions. Regeneron has faced significant competition (biosimilar and otherwise) for Eylea, and despite the company launching a newer formulation of the medicine that is performing well, combined sales of the two versions are still dropping. The good news for Regeneron is that its most important asset continues to perform extremely well.

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Dupixent's rapidly growing sales

Regeneron developed Dupixent in collaboration with Sanofi (NASDAQ: SNY). The latter records global sales of the medicine and the two companies share U.S. profits equally, while Sanofi gets between 55% and 65% of the profits generated by the drug outside the U.S. Beyond eczema, Dupixent is approved for the treatment of COPD -- an indication it earned in the U.S. just about two years ago -- asthma, and several other conditions. The drug has been posting excellent sales growth and has been instrumental in helping Regeneron overcome its recent challenges.

In the second quarter, Regeneron's revenue grew by a healthy 17% year over year to $4.3 billion. Global sales of Dupixent came in at $6 billion, up 38% year over year. Regeneron's revenue generated from its collaboration with Sanofi grew 51% year over year to $2.2 billion thanks to Dupixent's performance. Regeneron's non-GAAP net income per share jumped 11% year over year to $14.29.

The company's performance was strong, despite lingering Eylea-related headwinds. U.S. sales of the original version of Eylea dropped by 45% year over year to $412 million. The newer, higher dose (HD) formulation performed much better. It posted U.S. revenue of $596 million, up 52% compared to the year-ago period. But combined U.S. revenue from both formulations dropped 12% year over year to about $1 billion. The fact that Regeneron posted a solid quarterly update despite its Eylea-related problems is encouraging.

Where will Regeneron be in five years?

Dupixent is already one of the top-selling drugs in the world, and it should remain so through the end of the decade. Sanofi now expects the medicine to hit 25 billion euros ($27.8 billion) in peak revenue by 2030. So, it should remain a meaningful growth driver. However, the medicine could start facing biosimilar competition in the early 2030s.

Can Regeneron survive that threat? In my view, it can, and here are three reasons why. First, Regeneron and Sanofi plan to defend their Dupixent empire, notably by developing and marketing a different formulation of the medicine that could improve dosing convenience and help it retain many patients beyond the original's patent expiration.

This is the playbook Regeneron followed with Eylea. And while combined sales of Eylea and Eylea HD are declining, that's partly because some patients are switching to the newer, more convenient formulation. Things would be a lot worse for Regeneron had it not earned approval for Eylea HD. Second, Regeneron and Sanofi are collaborating to develop medicines to replace Dupixent.

It's too early to tell whether they will be successful, but it is an encouraging sign for investors. Third, Regeneron has exciting pipeline candidates of its own that could help it navigate a patent cliff for Dupixent down the road. For instance, the company licensed olatorepatide, an investigational weight-loss medicine that mimics the actions of the GLP-1 and GIP hormones, from a China-based biotech.

Olatorepatide appears highly promising. In a Phase 3 study conducted in China, the treatment resulted in a mean weight loss of up to 19% over 48 weeks. Regeneron still needs to conduct clinical trials in the U.S., but olatorepatide could enable the company to capitalize on the rapidly growing weight loss market. Regeneron boasts several other promising candidates as well. Dupixent should remain the company's main growth driver for the foreseeable future, but beyond that, the biotech leader could perform well, provided it makes significant clinical and regulatory progress over the next few years. I'd wager that Regeneron can do so and deliver competitive returns over the medium term.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Regeneron Pharmaceuticals. The Motley Fool has a disclosure policy.