Bloomy had an prelude this morn:
June 9 (Bloomberg) -- Regeneron Pharmaceuticals Inc. will report study results as early as today on the first of three new drugs that may generate at least $2 billion a year in revenue.
The medicines -- for gout, eye disease and cancer -- are in the final phase of testing needed for U.S. marketing approval. The first finding, on the gout drug Arcalyst, may help generate $500 million a year in additional revenue, said Joseph Pantginis, an analyst with Roth Capital Partners in New York.
Having three drugs in late-stage trials is “pretty uncommon for a stand-alone biotech today,” said Ted Tenthoff, a Piper Jaffray & Co. analyst in New York. The treatments are emerging from Regeneron’s development of a drug discovery technology that may help the 22-year-old company with just one $20 million-a-year product rival Roche Holding AG’s Genentech Inc. unit, with its 10 products and $9.5 billion in sales, said Chief Executive Officer Len Schleifer in an interview.
“We don’t want the company to sink or swim on the back of any one thing, which is why we’re trying to move an army of ideas forward,” said Schleifer, in an interview at Regeneron’s headquarters in Tarrytown, New York. “We’ve modeled ourselves on the companies like Genentech that had a cadre of people and technologies.
Regeneron fell almost 2 percent, or 53 cents, to $26.50 yesterday in Nasdaq Stock Market composite trading after rising 66 percent in the 12 months before today. Shares could increase to $31.22, according to the average price target of nine analysts surveyed by Bloomberg.
‘Better Than 50-50 Chance’
Results from seven late-stage trials on the drugs are expected to be reported within 12 months, Schleifer said. Pantginis, of Roth Capital Partners, gives the treatments a “better than 50-50 chance” of success. If all the studies prove positive, the three products may generate at least $2 billion a year, Pantginis said.
That will represent a turnaround for a company that has had three research failures since it began in 1988.
In March 1994, the company’s shares tumbled 33 percent in a single day after weight loss and flulike symptoms were linked to its experimental drug for amyotrophic lateral sclerosis, also known as Lou Gehrig’s disease. A second Lou Gehrig’s disease drug failed in January 1997, and shares lost about half their value.
In March 2003, an obesity treatment failed and, once again, the company’s value was cut in half.
‘Three Major Failures’
“The difference between a small company and a large company is how you fail,” Schleifer said. “In a large company, you bury the program in the middle of the night and no one comes to the funeral. We do it in the middle of the day, and it is front-page news.”
Following the failure of the two Lou Gehrig’s disease drugs, “it was quite clear we needed to do something different,” said P. Roy Vagelos, the chairman of Regeneron’s board. Vagelos, a physician, led research at Whitehouse, New Jersey-based Merck & Co. from 1976 to 1985, and was the drugmaker’s CEO for 10 years after that.
After the research failures, management met and decided to focus on development of a technology their scientists had been working on, rather than a single drug, Vagelos said. “We came up with the approach of traps to neutralize molecules that might be involved with the disease processes, an approach I liked,” he said.
Chemical “traps” work by binding to certain proteins, stopping them from activating cell receptors that spur a reaction. Arcalyst works by binding to interleukin-1, a protein that can trigger inflammation. Gout, a form of arthritis, occurs when uric acid builds up in the bloodstream, causing a painful swelling of joints in the toes and foot.
Eye Disease, Cancer
Regeneron scientists used the same concept to create an as- yet unnamed drug that works against the eye disease age-related macular degeneration and the cancer therapy aflibercept. In those cases, the binding process prevents blood vessel growth. Aflibercept is being tested as a first medication for prostate tumors and as a treatment for patients who fail initial therapy for colorectal and lung malignancies.
Approval for aflibercept in all three cancer indications would give it “blockbuster potential,” meaning it may sell $1 billion a year or more, according to Roth Capital’s Pantginis. The eye treatment may generate $500 million after regulatory clearance, he said.
Michael Yee, an analyst for RBC Capital Partners in San Francisco, said the company gains from having “strong partners” in Paris-based Sanofi-Aventis SA and Bayer AG, of Leverkusen, Germany, to help support drug development.
‘Big Pharma Partners’
The clinical trial load “is possible only because they have big pharma partners that are funding 50 percent of the studies,” RBC’s Yee, one of three analysts with a hold rating on the company surveyed by Bloomberg, said in a telephone interview. Eight analysts rate the stock a buy.
Bayer is collaborating on the eye drug. Regeneron will get all the U.S. sales, and Regeneron and Bayer will share profits outside the U.S., according to an October 2006 agreement. Bayer made an upfront payment of $75 million, and Regeneron may earn up to $245 million in sales milestones.
Sanofi owns 18.6 percent of Regeneron’s shares and pays the company $160 million a year to help with its research. Regeneron stands to receive as much as $250 million in payments if the products top $1 billion in revenue outside the U.S.
Under the agreement, Sanofi has the option to co-develop each new antibody Regeneron discovers. The profits in the U.S. will be shared equally, and outside the U.S. will be split on a sliding scale, with Sanofi’s share ranging from 65 percent to 55 percent. The partnership began November 2007 and was expanded in November 2009.
‘Excited About Alliance’
“We’re very excited about that alliance,” said Paul Chew, the U.S. chief medical officer for Sanofi. “Sanofi has the resources, and Regeneron has the technology and the know-how. We’ve preserved the strengths of each.”
Genentech too gained from its relationship with a partner. Swiss drugmaker Roche owned 56 percent of the South San Francisco, California-based biotechnology company for more than 18 years, until acquiring Genentech last year. Sanofi’s Chew declined to say whether Sanofi might acquire Regeneron in the future.
Schleifer said his drive to be like Genentech stops at the point when that company was acquired by its partner. He’s not isn’t interested in being bought, he said.
“We’re not building a company to sell a company,” Schleifer said. “We’re building a company to deliver drugs that make a difference and that will deliver value to shareholders. If you really want to capture the innovativeness of a small company, you leave them alone.”
Not ‘Sanofized’
Having Sanofi as a partner will help with that goal, Schleifer said. The French drugmaker hasn’t “Sanofized” Regeneron, he said, and he doesn’t believe they’ll try.
“The diversified strategy is something we like to see in biotech,” said Mark Monane, a New York-based analyst for Needham & Co., in a telephone interview. “It’s an important year for the company, as we’ll get to open the envelope on the late-stage products.”
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