Biotech’s Regeneron Is a New Game Changer Buy

by Hilary Kramer | May 30, 2012 1:00 pm

One sector that has managed to brush off much of the market storm clouds is biotechnology. In fact, biotech ETFs are near all-time highs and looking at gains of around 20% on the year compared to the S&P’s 5%. One reason for that is Regeneron (NASDAQ:REGN[1]).

Regeneron may already be a familiar name to many of you. It carries a large presence in the biotech field and manufactures drugs for numerous medical conditions —  especially those that impact the aging baby boomer population. REGN also has active research and development programs in many disease areas, including ophthalmology, inflammation, cancer and hypercholesterolemia.

The company has had a big year already, achieving key milestones in profitability and drug approvals. With more ahead on the horizon, a recent dip in share price is giving us an attractive entry point for this game-changing biotech.

Regeneron markets two products in the U.S., one of which is the company’s biggest catalyst and is generating a lot of excitement right now.

Eylea was launched in November 2011 as an injection treatment for neovascular (wet) age-related macular degeneration (AMD), the leading cause of acquired blindness in people over 65. What makes this drug so special is that it’s the only FDA-approved treatment for wet AMD labeled for every-other-month dosing that showed clinically equivalent efficacy to competitor and current standard-of-care Lucentis, a once-a-month drug that is developed and marketed by Genentech and Novartis (NYSE:NVS[2]).

This unique product profile has clearly resonated with patients and physicians. Defying the company’s recent disappointing trend of new drug launches, Eylea’s rollout in the U.S. exceeded expectations. Net sales were $25 million in the fourth quarter of 2011 and $124 million in the first quarter of 2012. Bayer (PINK:BAYRY[3]) Healthcare, REGN’s collaborator outside the U.S., has received marketing approval in Australia and is awaiting regulatory decisions in Europe, Japan and other parts of the world.

Longer-term, Regeneron views Eylea as a “pipeline in a product.” It has submitted a supplementary application seeking FDA approval to market Eylea for a second eye condition called central retinal vein occlusion (CRVO). The FDA has set Sept. 23 as the target date for a regulatory decision, and Bayer plans to submit similar applications in other countries. The two companies are also close to completing patient enrollment in two Phase III studies in diabetic macular edema, a potential complication of diabetes that according to the World Health Organization is the second-most common cause of blindness.

Regeneron believes it holds the key elements in place to achieve sustained long-term growth with Eylea, including multiple drivers of product revenue, demonstrated efficacy that was clinically equivalent to the current standard-of-care, and a safety profile typical of drugs in its class. Additionally, the comprehensive reimbursement support program that Regeneron has rolled out has been well-received. Positive reimbursement decisions from regional Medicare administrative contractors and commercial payers give Regneron confidence that payers understand the importance of Eylea as a treatment option for patients with wet AMD.

A Profitable Pipeline

But the company is more than just Eylea. Regeneron’s other main drug, Arcalyst, treats a rare inflammatory condition. The medicine is meant to be taken for 16 weeks, which is how long Regeneron studied it for. Panel members said cancer isn’t typically associated with a drug such as Arcalyst and want the company to do a longer study to rule out the risk. The panel also wanted to see longer study because some patients likely will use the drug for more than 16 weeks, which Regeneron said is the most vulnerable period for gout flares.

In fact, Arcalyst had been submitted to the FDA for the prevention of gout flares in patients initiating uric acid-lowering therapy, but on May 8 failed to win backing of advisers to expand the use of the drug to include patients undergoing gout treatments.

It was this setback that caused share prices to dip, giving us our attractive buying opportunity. Arcalyst still carries a lot of potential, but has a longer time horizon before approval or use is expanded. The FDA has until July 30 to decide on expanded approval that would add $128 million to $200 million in annual sales of the drug by 2015.

A third drug in the pipeline is Zaltrap, which is currently under regulatory review by the FDA as a treatment for patients with previously treated metastatic colorectal cancer. (The drug failed earlier in the year to treat prostate cancer.) Regneron’s collaborator Sanofi applied to both the FDA and the European Medicines Agency for approval to market Zaltrap in this fashion, and was granted priority review by the FDA with Aug. 4 set as the target date for a regulatory decision.

The company also has several ongoing Phase III trials, including a new use for Eylea, REGN727 (LDL cholesterol reduction) and Sarilumab (rheumatoid arthritis).

After the success of the Eylea launch, the anticipated future sales, and the terms of Regeneron’s agreements with collaborators who fund a large portion of research and development expenses, management has said it expects REGN will be profitable on a non-GAAP basis in 2012 – the first in its history. The company took a step toward this when it reported its first profitable quarter on April 26 as a result of Eylea’s product sales.

First-quarter sales of $124 million led Regeneron to increase its full-year U.S. Eylea net sales forecast to a range of $500 million to $550 million. Meeting this forecast would place Eylea among the most successful biotech product launches. I also find the fact that P. Roy Vagelos, former CEO of Merck, serves as chairman is an excellent endorsement of the company and bodes well for its future potential.

The company is off to an incredible year thanks to its game-changing product pipeline and is showing no sign of slowing down. With several FDA approvals pending over the next few months, Regeneron is well-positioned to keep its growth story rolling.

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