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Avastin Problems Are No Panacea for Regeneron


Eye-drug maker Regeneron continues to trade up on any bad news about Avastin safety, but the issues appear to be a problem at the pharmacies. The stock may be getting ahead of itself.

Once again, eye-drug developer Regeneron Pharmaceuticals (REGN) is trading on forces well beyond its own control.

The stock shot up Wednesday, posting double-digit increases before closing up 9%. This morning, the shares are trading down almost 3% to $68.45. But the stock has seen an almost 30% run-up in the past month.

The recent surge is related to a decision by the Department of Veterans Affairs (VA) to cease use of an older medicine, Avastin, to treat a blinding disease because of safety concerns. Regeneron is awaiting word from the US Food and Drug Administration on Eylea, an injectable treatment for the eye disorder age-related macular degeneration, or AMD.

Regeneron is expected to charge a big price for Eylea but there have been concerns that the widespread use of Avastin, a cancer drug made by Roche, will limit sales of Eylea. Avastin isn't approved for treatment of the eye disease but studies have shown that small amounts of the drug can be administered to effectively treat the condition. Ironically, the use of the older Roche drug actually hinders sales of the company's newer, pricier treatment Lucentis, which would be a direct competitor to Eylea. (One study found $50 worth of Avastin worked as well as $2,000 of Lucentis. Regeneron hasn't said how much it will charge for Eylea but it's reasonable to expect something comparable to Lucentis.)

Lately, there have been concerns about the side effects of using Avastin, and each time a problem with the older medicine arises, Regeneron's stock pops. (See Regeneron Shoots Up, Then Falls on Eye Drug.)

But before you go out and snap up all that Regeneron stock based on Avastin safety issues, bear in mind that the controversy over use of the older drug has so far been related to the way the medicine is compounded by pharmacists.

Stifel Nicolaus analyst Maged Shenouda, for one, thinks the VA will resolve the issue of how Avastin is dispensed to patients. So far, the reports of safety issues -- largely infections -- aren't believed to be problems with the drug but rather the way the medicine is prepared at the pharmacies. Avastin isn't intended to be split into small portions. The American Society of Retinal Specialists is compiling a list of certified compounding pharmacies to help doctors secure Avastin for AMD, the leading cause of blindness among the elderly, Shenouda says.

"We believe this VA-related setback for Avastin provides a market opportunity for higher priced Lucentis and, by extension, Eylea," Shenouda says. "However, given that the compounding pharmacy issues appear isolated and the subsequent steps of the retinal specialist community to address the problems, we expect concern regarding the safety of compounded Avastin to dissipate."

So, it may be a short-term gain for the higher-priced eye medicines but a cash-strapped government entity like the VA is hardly going to want to pay up for such expensive treatments, Shenouda argues.

That's not to say Regeneron doesn't have a potentially big-selling drug on the verge of being approved -- Shenouda expects Eylea's sales will reach $1 billion by 2015. But the stock has gotten way ahead of itself (it shot up to almost $80 Wednesday). He estimates a fair value of $47 a share and has a hold rating on the stock. Regeneron expects to hear word from the FDA on Eylea approval by November 18. (See Regeneron's Eye Drug Faces Delay.)

Twitter: @brettchase
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