Regeneron stock toppled Thursday after the Department of Justice filed a lawsuit saying the drugmaker fraudulently inflated the price of its blockbuster eye drug, Eylea.
In afternoon trading, shares of Regeneron Pharmaceuticals slipped 2.6% to 911.99. Regeneron stock hit a record high at 998.33 on Feb. 28, but has since pulled back more than 6% as of Wednesday's close. The move on Thursday put shares below the lower bounds of a flat base, MarketSurge.com shows. The stock's record high is its buy point.
But RBC Capital Markets analyst Brian Abrahams says this could be a buying opportunity for investors in Regeneron stock.
"Shares had already been coming down to increasingly attractive levels of late," he said in a client report. "Today's weakness already looks like it reflects a worst-case scenario for the DOG outcome."
He has an outperform rating and a 1189 price target on Regeneron stock.
A Buying Opportunity For Regeneron Stock?
The DOJ alleges that Regeneron falsely inflated Medicare reimbursement rates for Eylea by submitting false average sales price reports to the Centers for Medicare and Medicaid Services that excluded some price concessions. Specifically, Regeneron paid the credit card processing fees for drug distributors who bought Eylea.
"According to the complaint, Regeneron paid these credit card fees so that distributors would accept credit cards for Eylea purchases while still charging a lower, cash price for the drug," Leerink Partners analyst David Risinger said in a report. This allowed the drug distributors to "receive credit card benefits for their purchases, such as 'cash back' and other credit card rewards."
But Risinger kept his outperform rating on Regeneron stock.
RBC's Abrahams noted there may be some gray area and reasonable counterarguments that Regeneron could make. Medicare Part B guidance doesn't specify whether credit card reimbursements count as price concessions, he added.
Eylea Is Highly Effective
Further, the argument that distributors latched onto Eylea in order to receive those reimbursements doesn't hold much water, Abrahams said.
"Our doctor feedback has consistently highlighted Eylea's perceived superior clinical (effectiveness) and safety as the main driver for physician use of branded Eylea vs. lower-cost (rival) therapies like compounded Avastin — making us believe that it may be challenging to prove whether Regeneron's credit card transaction fee reimbursement played any role," he said.
Eylea is a blockbuster drug, bringing in $5.89 billion in U.S. sales last year. That includes the company's new high-dose regimen, which allows for fewer injections in the eye. RBC's Abrahams noted the DOJ complaint only refers to sales from before 2021, which wouldn't include the new high-dose formulation.
Regeneron stock has undercut its 50-day line recently, but remains above its 200-day moving average.
Follow Allison Gatlin on X, the platform formerly known as Twitter, at @IBD_AGatlin.
