Regeneron Pharmaceuticals tumbled Thursday after the company announced a $1.1 billion deal to acquire the international rights to Libtayo, the cancer drug it co-produces with Sanofi. Regeneron stock dropped more than 5%.
Libtayo has Food and Drug Administration approval to treat skin and lung cancers. But Regeneron is testing 18 different combinations using Libtayo.
The firm is hoping Libtayo can grab a piece of the market currently owned by Merck's rival blockbuster Keytruda. Both drugs block a protein that inhibits the immune system.
RBC Capital Markets analyst Brian Abrahams says Regeneron is committing to the oncology space. But it could take some time to reap the rewards.
"With Keytruda holding a strong market position, we believe positioning especially in combination approaches will be critical to optimizing Libtayo's potential and driving longer-term value from the deal," he said in a report to clients.
On today's stock market, however, Regeneron stock toppled 4.3% to 630.70. Shares of Sanofi stock rose a fraction to 53.44.
Regeneron Stock: More Options Around Libtayo
Regeneron will pay Sanofi $900 million upfront. Sanofi also receives an 11% royalty on global net sales of Libtayo as well as up to $200 million in regulatory and sales milestones. The deal is expected to close in the third quarter.
The upfront payment "secures more optionality around combinations with Libtayo," Abrahams said. Previously, Regeneron recorded sales of Libtayo in the U.S. and Sanofi recorded sales abroad. The two companies split profits and losses equally.
"Strategically, Regeneron believes, and we agree, that the deal will enable more effective combination approaches between Libtayo and both internal and external assets — something that is likely to be increasingly necessary to remain competitive in oncology," he said.
Abrahams has a sector perform rating and 658 price target on Regeneron stock.
In addition to the Libtayo deal, the companies agreed to an accelerated repayment of an antibody co-development deal. Under that deal, Regeneron will pay Sanofi 20% of profits vs. 10% previously in a bid to speed up Regeneron's repayment of Sanofi-funded development costs.
Shares Consolidate, But Tumble
But the news prodded Regeneron stock to fall for the third straight day.
Shares are now consolidating with a buy point at 747.52, according to MarketSmith.com. But the dive Thursday sent Regeneron stock below its 200-day moving average.
Bullishly, Regeneron stock has a Relative Strength Rating of 90, which puts its 12-month performance in the top 10% of all stocks. Shares also have a strong Composite Rating of 92 out of a best-possible 99. This means Regeneron shares outperform 92% of all stocks in terms of fundamental and technical performance, according to IBD Digital.
Follow Allison Gatlin on Twitter at @IBD_AGatlin.
