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ALLISON GATLIN

Medicare Negotiation Undercuts Biotech Stocks Regeneron, Halozyme

Confusion over new Medicare negotiating plans sent Regeneron Pharmaceuticals and Halozyme Therapeutics stocks tumbling Thursday. REGN stock undercut its 50-day line and HALO stock hit a year-low.

Under a new program launching in 2026, the Centers for Medicare and Medicaid Services will begin negotiating the prices of the 10 costliest U.S. drugs. Drugs will become eligible for negotiation 13 years after their approvals. Also, medicines from AbbVie, Bristol Myers Squibb and Pfizer will likely be on the list, according to Reuters.

But specific wording from the CMS draft guidance, unveiled Wednesday, slammed REGN stock and HALO stock. A drug will become eligible for CMS negotiation 13 years after the active ingredient first gained approval. Subsequent approvals for different uses and new formulations won't push back the negotiation eligibility date.

This could have an impact on Regeneron's Eylea and Halozyme's Darzalex, which it coproduces with Johnson & Johnson, analysts said. In response, REGN stock skidded 1.4% to close at 749.75, paring deeper losses in earlier trades. HALO stock fell 9.9% to 36.07. Across the board, biotech stocks gained almost 1%.

REGN Stock: High-Dose Eylea?

The biggest question weighing on investors' minds remains whether Regeneron's high-dose strength of Eylea receives separate consideration from its standard Eylea, RBC Capital Markets analyst Brian Abrahams said in a note to clients. Regeneron filed for approval of high-dose Eylea separately.

Eylea was first approved in 2011, but a high-dose version of the drug is currently under Food and Drug Administration review. Abrahams says Regeneron won't be able to use this loophole to restart the 13-year clock.

But the draft guidance says CMS will delay negotiating the cost of a drug soon to face a biosimilar, Evercore ISI analyst Umer Raffat said in a report. Regeneron is in that boat.

"We interpret (the draft guidance) to mean that the presence of a biosimilar version of standard Eylea, expected to enter the market in mid-2024, could indeed prevent high-dose Eylea from being subject to negotiation," RBC's Abrahams said.

Still, REGN stock flirted with the low side of a flat base, according to MarketSmith.com. The base includes a buy point at 800.58.

Shots And HALO Stock

Halozyme makes a substance that allows the administration of intravenous drugs subcutaneously without tapping a vein. Further, its most notable use is within J&J's Darzalex Faspro, a multiple myeloma drug.

The intravenous form of Darzalex gained approval in 2015, meaning it would be eligible for CMS negotiation in 2028, SVB Securities analyst David Risinger said in a note. But Darzalex Faspro has a longer horizon following its 2020 approval.

The CMS draft guidance "is potentially negative for the company's Darzalex royalty streams and for the value of Halozyme-partnered products' Medicare sales," Risinger said. "In addition, we learned yesterday that a key European Union Darzalex patent was invalidated."

Risinger downgraded HALO stock to a market perform rating and lowered his price target to 42 from 61.

REGN stock crept up on its 50-day line after initially falling much further. Meanwhile, HALO stock is now well below both its key moving averages.

Follow Allison Gatlin on Twitter at @IBD_AGatlin.

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