Over the past 12 months, shares of Regeneron Pharmaceuticals (NASDAQ: REGN) have climbed more than 90% to all-time highs.

Last quarter, Regeneron's earnings and revenue rose by 13.9% and 50.3%, respectively, year over year, boosted by strong demand for its top product, Eylea. As we draw closer to Regeneron's third-quarter earnings report on Nov. 5, should investors expect Regeneron's rally to continue?

REGN Chart

Source: YCharts.

A rapidly growing, undiversified portfolio
Regeneron's revenue comes from three sources: its eye disease treatment Eylea, the orphan drug Arcalyst -- which treats cryopyrin-associated periodic syndromes -- and collaboration revenues.

However, Eylea accounts for the lion's share of Regeneron's top line, as seen in the following chart.

Revenue Source

Second-Quarter Revenue

Growth (YOY)

Percentage of Total Revenue

Eylea

$330 million

65%

72%

Arcalyst

$4 million

(50%)

1%

Collaboration revenues

$117 million

19%

26%

Sources: Regeneron Q2 report, author's calculations.

Regeneron co-markets Eylea with Bayer (NASDAQOTH: BAYRY). Regeneron retains marketing rights in the U.S., while Bayer markets the drug outside the United States, where profits from sales are evenly divided. Japan is an exception, where Regeneron receives a royalty on net sales.

Two competitors in eye care: Lucentis and Avastin
However, Novartis' (NYSE: NVS) Lucentis is a major threat to Eylea. Both Eylea and Lucentis are anti-VEGF treatments, which reduce the growth of new blood vessels to reduce swelling.

Both Lucentis and Eylea are approved to treat wet age-related macular degeneration and macular edema following central retinal vein occlusion, but Lucentis has been expanded to three additional indications, as seen in the following chart.

Indication

Eylea

Lucentis

Wet Age-related macular degeneration (AMD)

approved in the U.S. and Europe

approved in the U.S. and Europe

Diabetic macular edema (DME)

Phase 3

approved in U.S. and Europe

Macular edema following central retinal vein occlusion (CRVO)

approved in the U.S. and Europe

approved in the U.S. and Europe

Macular Edema following branch retinal vein occlusion (BRVO)

Phase 3

approved in the U.S. and Europe

Choroidal neovascularization (CNV) secondary to pathologic myopia (myopic CNV)

Phase 3

approved in Europe

Sources: Company websites, press releases.

Another competitor is Roche's (NASDAQOTH: RHHBY) Avastin, an older cancer treatment, which uses a similar blood vessel blocking mechanism as anti-VEGF treatments. Although Avastin is not explicitly approved to treat these eye diseases, doctors have been using it off-label to treat wet AMD and DME cases.

There are two primary reasons for this -- cost and efficacy.

Lucentis and Eylea cost $2,000 and $1,850 per dose, respectively. A single dose of Avastin only costs $50. Earlier this year, a study funded by the National Eye Institute found that Avastin and Lucentis were equally effective at treating wet AMD.

As a result, insurers, doctors, and patients are now favoring the use of Avastin for wet AMD and DME cases, which explains Regeneron and Novartis' efforts to expand their label to include other diseases that haven't yet been tested with Avastin. Regeneron recently announced positive phase 3 data from two trials testing Eylea on patients with DME and macular edema following BRVO.

However, a study from earlier this year by BioTrends Research Group indicated that Avastin is dominating the DME market with a 67% market share despite the availability of Lucentis as a viable alternative. Therefore, even if Eylea were approved for DME, it still faces the threat of being rendered obsolete by Avastin.

Will new collaborations and treatments pay off?
Besides Eylea, collaboration revenues are Regeneron's most important source of growth.

Sanofi (NYSE: SNY), which agreed to pay Regeneron $160 million in annual research funding up to 2017, is Regeneron's top partner. Earlier this year, Sanofi also announced that it would increase its stake in Regeneron from 16% to 30%, thanks to their "extremely productive" relationship.

Sanofi and Regeneron's previous effort, the cancer drug Zaltrap, failed to leave a mark due to unfavorable pricing and efficacy comparisons to Avastin. However, Sanofi is continuing to work with Regeneron in the development of "fully human" (as opposed to "humanized") monoclonal antibodies. Fully human monoclonal antibodies are harvested from transgenic mice rather than regular mice -- which should reduce unfavorable immune system responses.

To date, five of these fully human antibodies have entered clinical trials, and the two companies intend to introduce 20 to 30 more.

Two lucrative opportunities for growth
Investors should also pay close attention to Sanofi and Regeneron's sarilumab and alirocumab, two human monoclonal antibodies, which are both in phase 3 trials.

Sarilumab is a human monoclonal antibody that is intended to treat rheumatoid arthritis. Rheumatoid arthritis is currently one of the most profitable markets for pharmaceutical companies, and is dominated by three major treatments -- Remicade (Johnson & Johnson and Merck), Humira (AbbVie), and Enbrel (Amgen).

Of these treatments, only Remicade and Humira are monoclonal antibodies. Remicade is a chimeric (mouse/human) antibody, and Humira is a human one, like sarilumab. Therefore, if sarilumab is approved, it could be considered a viable alternative treatment to both.

Alirocumab is another human monoclonal antibody that could become a next-generation treatment for high cholesterol. Older statin treatments (Lipitor, Crestor, Zocor) inhibit the production of LDL ("bad") cholesterol in the liver by targeting an enzyme known as HMG-CoA. However, statin treatments can stimulate the production of another enzyme, PCSK9, which degrades the performance of crucial LDL receptors that are responsible for controlling LDL levels. Alirocumab directly inhibits the production of PCSK9 instead, thereby allowing LDL receptors to stay healthy and keep LDL cholesterol levels low.

Therefore, both sarilumab and alirocumab can bring something new to the table in these two markets, and could become Regeneron's second and third pillars of growth.

The Foolish takeaway
In closing, Regeneron's future does not depend on Eylea. Rather, Eylea is simply a means to an end -- it provides the company with a steady stream of revenue that it can use to fund the research and development of new treatments.

Therefore, Regeneron is wise to push ahead with its collaborations with Sanofi to develop human monoclonal antibody treatments targeted at two very lucrative markets, which could unlock the company's full growth potential.

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