* Shares jump five-fold in two years, market value $26 bln
* Bullish forecasts for eye drug, other treatments in
* Risks include high valuation, competitive threats
By Ransdell Pierson
TARRYTOWN, N.Y., May 7 Just two years ago,
Regeneron Pharmaceuticals was a relatively obscure
biotech company in the village of Tarrytown, a picturesque New
York suburb better known for "Rip Van Winkle," "The Legend of
Sleepy Hollow," and other creations of hometown author
The blue jeans, open collars and lively hallway banter among
scientists at Regeneron's headquarters suggests a laid-back
atmosphere. But the company's ambitions, backed by the deeper
pockets of French drugmaker Sanofi, are gigantic.
Regeneron's share price has jumped nearly five-fold to about
$260 since its Eylea eye drug was approved in late 2011 to treat
macular degeneration, the biggest cause of blindness in the
elderly. The company is valued at $26 billion, ranking it among
the world's top 10 biotech companies.
Yet most analysts believe the stock can still power higher
if a new wave of treatments in the pipeline begin to show
promise. They include an injectable treatment for asthma and
atopic dermatitis, the most severe form of eczema.
"We would like to be one of the next generational businesses
in our industry, and the best examples of that would be Merck
and Genentech," Chief Executive Leonard Schleifer said in an
interview. "We would like to become one. Stay Tuned."
To invest in Regeneron is not without risk. The lion's share
of profit comes from Eylea, competitors are fast on its heels,
and the stock is now more expensive than most of its biotech
peers. Regeneron trades at 44 times forward 12-month earnings,
more than double the forward P/E ratio of about 20 times for the
Nasdaq Biotech index.
The high-stakes biotech industry is also as famous for
flameouts like Dendreon Corp as it is for successes
like Gilead Sciences Inc.
"By definition, when a stock goes up this much, this fast it
is vulnerable; there's always the danger of a pullback," said
WBB Securities analyst Steve Brozak.
Still, Regeneron is optimistic about its growth prospects,
pointing to potential new uses for Eylea and potential approvals
for a new cholesterol drug and a promising arthritis treatment
now in late-stage trials. On Wednesday, Eylea received a new
boost after development of a rival eye drug by Allergan Inc
Regeneron is due to release new data on May 21 on a
monoclonal antibody called dupilumab, which is aimed at patients
with moderate to severe asthma. Limited data released so far
from the trial show it reduced the number of asthma flare-ups by
87 percent after 12 weeks of treatment, with side effects
similar to those among patients taking placebos.
Regeneron has said dupilumab also showed strong hints of
safety and effectiveness in two early-stage trials that involved
67 patients with atopic dermatitis. Larger studies are slated to
begin later this year.
"I expect doctors to be excited when the data are
presented," said Leerink Swann analyst Joseph Schwartz. He
predicts dupilumab will capture peak annual sales of $2.8
billion for asthma and atopic dermatitis. He also forecast
Eylea's annual U.S. sales to quadruple to $5.2 billion by 2020.
"In the next five years, a doubling of (Regeneron's) shares
is not outside the realm of possibility," Schwartz said.
Atopic dermatitis is inherited and involves patches of
highly itchy skin on any part of the body. Patients, many of
whom also have asthma and hay fever, have compared the sensation
to having unending poison ivy.
The National Eczema Association estimates 10 percent of
people at some time in their lives, many of them babies and
children, are affected by atopic dermatitis.
"This disease can make the children as well their parents
miserable," said Schwartz, who speculated dupilumab's sales for
the severe form of eczema will likely outstrip its asthma sales.
BACKED BY SANOFI
Regeneron will split profits from dupilumab with Sanofi,
which has provided the biotech company more than $1 billion in
research funding since 2007. Sanofi has committed to providing
Regeneron $160 million per year through 2017, in return for a 50
percent share of U.S. profits from drugs they develop together.
Sanofi is also Regeneron's biggest shareholder, holding 16.5
percent of its common stock. The French drug maker is not
allowed to raise its stake beyond 30 percent until five years
after the planned 2017 conclusion of their collaboration.
Regeneron has exclusive rights to Eylea in the United
States, where it has stolen market share from Roche Holding AG's
7-year-old Lucentis. Few drugs have ever reached
blockbuster status, defined as annual sales of $1 billion or
more, so quickly.
"As we were launching Eylea, our first sales forecast was
$140 million to $160 million for 2012, but sales turned out to
be $838 million," said Michael Aberman, Regeneron's head of
strategy. "Our estimates were off. And you always hope that
happens again," he quipped.
Regeneron is in the process of taking Eylea to overseas
markets, where sales will be shared with partner Bayer AG
Aberman said Eylea sales can climb if it wins approval for
new conditions, especially diabetic macular edema, which some
analysts believe could provide sales as big as for treating
macular degeneration. But he also noted how that could make
Regeneron vulnerable in the case of competitive threats, safety
problems or other setbacks.
"A large part of our valuation is hinged on Eylea and
certainly if something untoward were to happen with Eylea, that
would be a challenge for us and our investors," Aberman
acknowledged. "We're doing everything we can to minimize risks
by making sure our manufacturing is up to date, making sure we
do everything from a regulatory standpoint the right way and
from a commercial front."
One risk Regeneron faces is a patent battle in Europe with
Genentech, which alleges the active ingredients of Eylea and
Regeneron's recently approved Zaltrap colon cancer drug -- which
both target a protein called VEGF - infringe Genentech's patent
on anti-VEGF technology. Lucentis also works by blocking VEGF.
Moreover, other companies are trying to develop
more-sophisticated eye treatments. For instance, last year
privately held Ophthotech Corp reported promising results from a
mid-stage trial of its drug Fovista, which uses a different
mechanism to treat macular degeneration -- by blocking a protein
Starmine, a unit of Thomson Reuters, estimates Regeneron's
intrinsic value at around $90, about 65 percent below its
current stock price. Starmine's intrinsic value estimates the
cumulative annual growth rate in the coming 10 years using a
blend of its own models and analyst estimates.
Still, Roth Capital on Monday raised its target price for
the stock to $314, while the Royal Bank of Canada raised its
target to $286. Eleven analysts recommend investors buy the
stock, and eight recommend investors hold it. There are no sell
ratings, according to Starmine data.
Regeneron is banking on a broader treatment portfolio as a
hedge against any Eylea reversal or other major setbacks.
They include a cholesterol fighter, called alirocumab, that
works by blocking a protein called PCSK9, an approach that is
also being explored by Amgen and Merck.
Regeneron is also conducting large trials of a treatment for
rheumatoid arthritis called sarilumab, which is similar to
Actemra, Roche's fast-growing treatment approved in 2010.
Adnan Butt, an analyst with RBC Capital Markets, expects the
arthritis drug to become a blockbuster and for alirocumab -
which has slashed levels of "bad" LDL cholesterol by up to 70
percent in studies - to be a "massive" product. U.S. profits
from the two drugs would also be split with Sanofi.
"Data from all these studies will be the first step toward a
potential doubling" of Regeneron's share price, Butt said,
noting that findings from the trials will trickle out over the
next 18 months.