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Regeneron (REGN) to Buy Sanofi's Stake in Libtayo, Stock Down

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Regeneron Pharmaceuticals (REGN - Free Report) announced that it will purchase partner Sanofi’s (SNY - Free Report) stake in their collaboration agreement for the oncology drug Libtayo (cemiplimab).

Both companies entered into an immuno-oncology license and collaboration agreement in 2015 whereby they divide Libtayo's worldwide operating profits equally and co-commercialize Libtayo in the United States, with Sanofi solely responsible for commercialization outside the country.

Libtayo is a monoclonal antibody targeting the immune checkpoint receptor PD-1 on T cells. It is currently approved in the United States as cemiplimab-rwlc monotherapy treatment for certain patients with advanced basal cell carcinoma (BCC), advanced cutaneous squamous cell carcinoma (CSCC) and advanced non-small cell lung cancer (NSCLC).

We note that regulatory reviews are also underway for Libtayo in combination with chemotherapy as a first-line treatment in advanced NSCLC in multiple markets, including the U.S. and the European Union.

Per the terms of the deal, Sanofi will transfer the rights to develop, commercialize and manufacture Libtayo entirely to Regeneron on a worldwide basis over the course of a defined transition period. In return, Regeneron will make an upfront payment of $900 million to Sanofi. The latter will also be entitled to receive an 11% royalty on the worldwide net sales of Libtayo. Additionally, Sanofi will be entitled to a regulatory milestone payment of $100 million upon the first approval by either the FDA or the European Commission of Libtayo in combination with chemotherapy for the first-line treatment of certain patients with NSCLC as well as sales-related milestone payments of up to $100 million in total over the next two years.

However, shares of Regeneron were down 4% following the announcement as investors probably think that the deal is overpriced and buying out Libtayo from Sanofi might not reap rewards in the future for the former, given the stiff competition in the innmuno-oncology space from the likes of Merck’s (MRK - Free Report) Keytruda and Bristol Myers’ (BMY - Free Report) Opdivo.

Shares of Regeneron have lost 0.1% in the year so far compared with the industry’s decline of 24.4%.

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Regeneron’s first-quarter results were strong with broad-based growth. Solid demand for Eylea and Dupixent maintained momentum for REGN. However, sales from REGEN-COV took a hit due to the regulatory update.

In January 2022, the FDA revised the authorizations for a few monoclonal antibody treatments, including Regeneron’s REGEN-COV (casirivimab and imdevimab), as data indicated that these treatments are highly unlikely to be active against the Omicron variant.  Therefore, REGEN-COV is not currently authorized for use in any U.S. states, territories or jurisdictions.

Regeneron is looking to diversify in the lucrative oncology space and the buyout of Libtayo was a step forward in the same direction.

Meanwhile, approved for various oncology indications, Keytruda is MRK’s key driver. Continued label expansions of the drug drove Merck’s top line.

Opdivo is one of the top revenue generators for BMY and the continued label expansion of the drug for additional indications should further boost growth. In particular, demand for the drug to treat first-line lung, renal and gastric cancer as well as adjuvant esophageal and bladder cancers already fueled growth.

Regeneron currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.