Should you buy a discount on this top growth stock?

The biotech giant Regeneron Pharmaceuticals (REG -0.17%) performed quite well this year and over the 12-month period, thanks to solid financial results and exciting clinical and regulatory advances.

However, the company has struggled with some of its most important drugs, Eylea, which treats an eye disease called wet age-related macular degeneration (AMD). And recently, Regeneron received more bad news on the Eylea front, which sent its stock price down about 5% in a single day. For a company of this size, that’s huge.

What exactly is going on with Regeneron’s Eylea? Should investors consider buying the stock today? Let’s try to answer these questions.

Some information about Eylea

Regeneron holds the licensing rights to Eylea in the US and shares these rights with Bayer abroad. The drug’s first sign of trouble was the approval of Vabysmo, a competing wet AMD drug marketed by Roche (OTC: RHHBY)which received the green light in early 2022.

Fortunately, Regeneron has been able to fend off some competition from Vabysmo, thanks to a higher-dose (8 milligrams vs. 2 mg) formulation of Eylea that the US Food and Drug Administration (FDA) approved a year ago. This higher-dose (HD) version could allow patients to receive fewer doses per year without sacrificing efficacy, a major selling point in Regeneron’s battle against Roche.

In the second quarter, combined U.S. sales of Eylea and Eylea HD reached $1.53 billion, up 2% from the year-ago period; Eylea’s HD revenue accounted for $304 million of that amount. Regeneron’s total revenue reached $3.55 billion, up 12% from the year-ago quarter. Thus, sales of Eylea and Eylea HD in the US accounted for 43% of Regeneron’s revenue.

Incoming biosimilar competition

Regeneron sought to enforce Eylea patent exclusivity against companies seeking to market biosimilars for the drug. In August, the FDA approved Pavblu, a biosimilar for the original formulation (2 mg) of Eylea.

Mere regulatory approval is not a license for the biosimilar to be on the market. It may have changed with a new court decision that favored it Amgen (AMGN 0.69%)the creator of Pavblu. Regeneron failed to get a judge to issue a preliminary injunction (a temporary court order stopping the defendant in a lawsuit from engaging in prejudicial actions against the plaintiff) preventing Amgen from launching Pavblu.

Importantly, this decision only applies to Pavblu, even though other biosimilars have been approved by the FDA. That fight is far from over — Regeneron has filed an appeal. But the trial is yet to come. What should investors make of this?

The way forward for Regeneron

It is impossible to predict how Regeneron’s lawsuit against Amgen will turn out. Let’s assume the worst case scenario: Amgen resorts to a risky biosimilar launch. (It would be in jeopardy because if it loses the lawsuit against Regeneron, it will be liable for damages.) But what if Amgen also wins? Where does Regeneron go from there?

First, Regeneron’s Eylea HD can somewhat cannibalize Eylea’s sales. Many eligible patients will switch to the HD formula to benefit from fewer annual injections.

Then it’s crucial to consider Regeneron’s other main growth driver: eczema treatment Dupixent, the rights it shares with Sanofi. In the second quarter, global revenue from Dupixent reported by Sanofi rose 27% year-over-year to $3.56 billion. Dupixent just won a significant indication in the treatment of chronic obstructive pulmonary disease (COPD) in the US; analysts believe that will add at least several billion dollars to its annual sales. So Dupixent should remain one of the best-selling drugs in the world for the foreseeable future and help pull Regeneron’s revenue in the right direction.

Losing patent exclusivity for Eylea would be a blow to Regeneron, but between Eylea HD and Dupixent, the company should recover. And that’s before we consider Regeneron’s rich pipeline, which currently contains more than 50 programs. The company is particularly looking to improve its position in oncology.

So don’t give up on Regeneron because of its Eylea drop. I would advise long-term biotech investors to buy the company’s stock in decline.