What Will Drive Regeneron Pharmaceuticals' Growth Higher From Here?

Regeneron Pharmaceuticals' (REGN -0.49%) $5 billion in sales in 2016 were due mostly to sales of its top-selling vision-restoring drug Eylea. However, a slate of newly Food and Drug Administration-approved drugs could provide significant revenue growth in the coming years. Sales of its bad cholesterol-lowering drug Praluent are starting to pick up, and the eczema drug Dupixent and rheumatoid arthritis drug Kevzara have recently launched.

In this clip from the Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by Todd Campbell to discuss the opportunities -- and the risks -- associated with Regeneron's newest products.

A full transcript follows the video.

This video was recorded on Aug. 16, 2017.

Kristine Harjes: We've talked a whole ton about Eylea, and don't get me wrong, that's a very important component of Regeneron. But we think it's even more exciting to discuss what else Regeneron has going on, both in its product portfolio and in its pipeline.

Todd Campbell: There are so many moving pieces to this company since 2015. It's really important for investors who are interested in buying Regeneron to understand both the positives, what the market opportunity could be for its newest drugs, but also some of the risks and the challenges that are facing these drugs. I think a great place to start, Kristine, would be to look at Praluent, which is the first of the three most recently launched drugs. That won approval in summer of 2015 for use in treating bad cholesterol -- high bad cholesterol -- in patients in which it was genetically caused. A pretty tough-to-treat indication. That drug launched with these multi-billion-dollar blockbuster expectations, but it's been a little bit disappointing. It's still selling pretty well, but it's nowhere near what those expectations were.

Harjes: Right. Praluent is what's known as a PCSK9 inhibitor. We've talked about them on the show before. It's a drug that works to lower your cholesterol levels in a novel way. When you consider how many Americans take drugs for cholesterol levels, you would think this would be a huge success. The problem is, it's pretty expensive. This drug is $14,000 a year. You compare that to drugs like statins, which are not under patent protection anymore, the generics are pretty darn cheap, especially compared to $14,000 annually. So this drug is really not doing as great as people were expecting. It saw sales of just $46 million in the past quarter, and that was up from $26 million from the quarter of a year ago, so Q2 2016. But still, these numbers are really tiny for a drug that was supposed to be a billion-dollar blockbuster.

Campbell: Yeah. I think a lot of investors were disappointed by that. That's one of the reasons why Regeneron shares underperformed in 2016. But I think they're looking forward now and they're saying, Praluent sales are up pretty substantial year over year. We're now at about a $200 million a year run rate. That's solid. And there is a big Phase III study that's wrapping up at the end of this year. With data coming out early 2018, they could move the needle and make this drug more commonly used, too, and that's an outcome study that's evaluating whether or not using Praluent actually reduces the likelihood of major cardiovascular events like heart attacks and strokes.

Harjes: Which, that data is pretty darn important if you are a payer looking at whether or not a $14,000 price tag is worth it. You might want to know, is this actually going to lower the risk of a cardiovascular event? So there's 18,000 patients in this study, and we should be getting data in early 2018. That could swing things in a positive direction for this company. Let's also look at one big threat to this drug and to Regeneron -- which is the ongoing legal battle that they have with Amgen (AMGN 0.05%) and its competing drug, Repatha.

Campbell: [Dun-dun-dun.] It's not all roses and fairy tales over here. We do have a big risk, a big challenge that investors have to be aware of when it comes to this drug. And that's that Amgen has sued Regeneron and Sanofi, its partner on the drug, for patent infringement. So far, the courts have been siding with Amgen on it. As a matter of fact, previously, the courts actually said that Sanofi and Regeneron would have to stop selling Praluent in the United States. That was stayed pending appeal, which is why you're still seeing this drug on the market racking up revenue. But depending on how this all shakes out, you could run all sorts of different scenarios. You could say, Amgen ends up winning in the appeal, and as a result, Praluent disappears from the marketplace along with its $200 million in annualized sales. You could say, Amgen wins, and they cut a deal to share royalty streams somehow with Praluent sales. Or you could say, Regeneron comes out on top and Praluent continues as is, the outcome study comes out aces, and the next thing you know, you have a billion-dollar blockbuster on your hands.

Harjes: Right. As with many legal matters, outcome hazy, we'll see what happens with that. But what you need to take away from this is that Praluent has, thus far at least, not lived up to the hype. But fortunately, that was not the only drug that Regeneron was developing to diversify away from Eylea. It was able to launch a drug recently called Dupixent, which is now approved for moderate-to-severe atopic dermatitis.

Campbell: This is a really intriguing drug, and it may even have a bigger commercial opportunity than Praluent does. Moderate-to-severe eczema is very difficult to treat. There's not a lot of treatment options out there. The drug costs $37,000 annually, which sounds like a lot of money, but it's actually not that bad. The payers and insurers basically applauded that price tag when it was announced. The market for Dupixent could be multiple billions of dollars in a year, taken with a grain of salt because we know, as we've seen in the past, peak sales estimates oftentimes fall short. But I have seen people out there saying that if other studies that are evaluating Dupixent in asthma, for example, results coming soon, stay tuned, potential approval application getting filed by the end of this year. You could see this drug generate about $4 billion in annual sales by 2023. Now, I think that's a stretch. But I think what you can look at this drug and say, with its current indication, and with the potential in asthma, and the potential to be used in more patients over time, this absolutely could be a significant driver of sales. And Sanofi and Regeneron will split any profit on it.

Harjes: Despite the little bit of skepticism there is about whether or not this drug will be able to outperform drugs like Novartis' Cosentyx, there's also competition from the likes of GlaxoSmithKline, it's definitely not a market that they have to themselves. This kind of has become the favorite child after Praluent was so disappointing. So, lots of excitement going on around this drug, particularly seeing how it launches in its currently approved indications, as well as how it performs in some of the currently ongoing trials that you mentioned, Todd.

Campbell: Kristine, just to interject before we jump to the next one, Q2 sales of the drug, first quarter on the market, $28 million. So better than a $100 million run rate right out of the gate.

Harjes: Yeah, that's not bad. It's pretty hard to project future sales based on the first quarter on the market, but that's definitely a good sign that payers are accepting the price tag and doctors are prescribing the drug. Off to a good start, and definitely something to keep an eye on. Oh, one more detail before we move on to the next drug: Amgen is also battling over this patent. Which is kind of interesting, because Amgen doesn't even have a rival drug here. They don't even have something in the pipeline, which also means that they can't ask for an injunction that would pull the drug from the market. Amgen is just looking for money here. It's like they're a consistent thorn in the side of Regeneron. Anyway, moving on to the next drug that we wanted to highlight, this one is called Kevzara, and it treats moderately to severely active rheumatoid arthritis, which is another enormous indication.

Campbell: Yeah, a multi-billion-dollar indication with a lot of players, dominated by anti-TNF drugs like Humira, which listeners will probably remember. Humira is the biggest-selling drug on the planet, with about $16 billion in annual sales. Kevzara is not going to be that big. It's going to be more of a niche player, because its approval is for use in patients who have tried and failed on other therapies like DMARDs and Humira and the like. However, a $39,000 annual price tag is cheaper than Humira, and that has some people thinking that Kevzara could win away sales in this indication. Again, grain-of-salt warning. Peak sales estimates could be $1 billion for the drug over time. We'll have to see, though, because again, this is a competitive marketplace, and I'm not entirely sure just how much of this market they'll end up winning.

Harjes: One key question to keep an eye out for is whether doctors will eventually be able to, or want to, prescribe this as a first-line treatment. For context, they actually did test this against Humira in trials and showed that the two had similar safety. That should be really important in making the case to prescribing doctors that you might want to just try Kevzara right away. But for now, that's not going to be the case. Humira is extremely well established. There are plenty of other drugs that are established in the space. I think you're right that, for now, it will be a niche, later-line drug.

Campbell: Yeah. I think you watch it over the course of the next few quarters, you see what the prescription trends look like in the quarterly reports. All of these companies, as listeners should know, they talk about their performance every quarter, you can see the transcripts online, you can go through and read them after they have their discussions. Oftentimes, they'll talk about market share, they'll talk about prescription trends, they'll talk about how these drugs are doing. I think if you evaluate this one over the course of the next three or four quarters, you'll get a feel for whether or not this is going to be a drug that does $200 million a year in sales, or potentially could do much more than that. But it's still going to be a fairly substantial drug, because think about it -- when you start poo-pooing drugs that may only do nine figures in sales, you know you're talking about a pretty strong company.