Regeneron's Blockbuster Eylea And The Emerging Competition

Due to the success of its drug Eylea, Regeneron Pharmaceuticals (NASDAQ:REGN) is now a biotech darling on Wall Street with a trailing price-to-earnings ratio of 32.

Eylea treats the leading cause of adult blindness, wet AMD (age-related macular degeneration).

The drug is administered less frequently to each patient than Roche/Genentech's (OTCQX:RHHBY) Lucentis (bi-monthly instead of monthly), and priced lower. It is selling fantastically well, and is now a $1-billion-a-year blockbuster.

However, success like this draws out the competition. And at least in one doctor's opinion, the treatment's effects are not sustainable in the long run.

Eylea shines...

Increasing U.S. Sales: U.S. sales were $330 million in the second quarter, which represents a 70 percent year-over-year growth.

Launch outside the U.S.: Eylea has been launched outside the U.S. with partner Bayer Healthcare Sales (OTCPK:BAYZF), with net sales of $96 million for the second quarter. Regeneron's share of this was $34 million.

Increased use by doctors: In August, BioTrend Research Group surveyed U.S. ophthalmologists and found that in terms of their total number of wet AMD patients, now they treat 26 percent with Eylea, a significant increase from a year ago and a higher percentage than the use of Roche/Genentech's Lucentis, which stands at 21 percent.

However, off-label use of Roche/Genentech's Avastin still dominates the wet AMD market, largely due to its low cost and proven efficacy.

The physician preference for Eylea is likely driven by its convenient bi-monthly dosing. Wet AMD patients receive significantly fewer Eylea injections than Avastin or Lucentis injections during the first two years of treatment.

Promising trial in diabetics: New indications represent the next leg of growth for Eylea. In August, Regeneron and partner Bayer announced results from the Phase 3 VIVID-DME and VISTA-DME trials, which studied the treatment of DME (diabetic macular edema).

Eylea 2 milligrams dosed monthly and Eylea 2 mg dosed every two months (after 5 initial monthly injections) achieved a significantly greater improvement in visual acuity (clearness of vision) from baseline than laser photocoagulation at 52 weeks.

Regeneron now plans to submit an application for FDA approval in 2013, one year ahead of schedule. Bayer also plans to apply for European approval in 2013.

The prospect of an earlier-than-expected approval will put the squeeze once again on Lucentis, which has seen stagnation in sales in its biggest indication, macular degeneration, as a result of competition.

An approval for diabetics would expand Eylea's market.

In the U.S., 570,000 patients are diagnosed with diabetic macular edema. Currently, 40 percent of these patients are treated with an anti-VEGF (vascular endothelial growth factor) agent, and the number is growing in each quarter. It is estimated that half of the DME patients may have bilateral disease (both eyes affected), therefore, the market opportunity for Eylea in diabetics could be as large as the opportunity in wet AMD.

Plant expansion: Regeneron will spend $250 million to $300 million on capital projects through next year, including buying and renovating the former Dell (NASDAQ:DELL) computer plant in Limerick, Ireland. That figure includes expansion and new offices at its manufacturing center in Rensselaer, NY, as well as new offices and laboratories at its Tarrytown, NY headquarters.

Regeneron is now in the second phase of a $70 million upgrade of its plant in East Greenbush, NY to meet demand for Eylea.

Last July, the company announced plans for a $75 million project that comprised 44,000 square feet of added manufacturing space and 27,000 square feet for offices.

Rising sales forecast: Eyleas's sales for 2013 now are forecast to reach $1.3 to and $1.35 billion.

The company's market research shows that in the second quarter, approximately 60 percent of the Eylea-treated patients were continuing on from previous months.

18 percent were switches from Lucentis and Avastin, and 21 percent were new to anti-VEGF treatment. New patients represented a larger share than switchover patients for the first time.

The treatment of AMD through anti-VEGF monotherapy is groundbreaking. Doctors went from being unable to treat AMD to maintaining vision in 90 percent of their patients. Vision was improved for 30 to 40 percent of patients. The treatment is terrific in preventing the growth of the abnormal blood vessels under the retina that lead to vision loss.

... but is the treatment sustainable?

But permanent improvement in the patient's eyesight proves to be unsustainable, as explained by Dr Pravin U. Dugel.

Patients may find that after years of monthly anti-VEGF injections, they either lose vision or go on to develop dry AMD. After an initial treatment period of two to four months with improvement in visual acuity, an indefinite plateau follows.

What happens? After monthly treatments of one or two years, the neovascular structure of the eye does not decrease in size. In some cases, even with excellent visual improvements, its size increases. And as the Marina and Anchor studies (7 year updates in the condition of AMD patients) -- which laid the groundwork for today's anti-VEGF AMD therapy -- have shown, patients generally did not experience neovascular membrane regression. Despite impressive functional outcomes for a time, two-thirds of study subjects failed to achieve significant vision gains, and most did not gain more than 3 lines of vision.

When wet AMD develops, abnormal blood vessels grow under the retina and lead to vision loss. The vessels grow largely (but not exclusively) because they are stimulated by a protein called VEGF (vascular endothelial growth factor). Anti-VEGF medicines block the protein's effect and slow vision loss.

At the same time, anti-VEGF monotherapy may accelerate maturation of abnormal blood vessels by recruiting pericytes. These pericytes form a protective armor, shielding the neovascular complex from anti-VEGF drugs.

The neovascular complex expands with a specialized group of cells, the so called tip cells, which produce PDGF (platelet-derived growth factor). PDGF stimulates the recruitment of pericytes, cells that supply VEGF, protect and cover the neovascular complex and act as protective armor against anti-VEGF monotherapy.

Anti-VEGF therapy kills only the unprotected tip cells, which explains why patients need to have injections monthly, possibly forever. The pericytes that have been recruited form a protective armor around the remainder of the neovascular complex and allow it to stay in place.

The current treatment also has a social aspect to it, Dr Dugel remarks.

Monotherapy patients are mostly elderly people who have to sit in a doctor's office for long periods of time waiting for treatment, and often need the help of relatives who may have to take off from work to assist their elderly infirm kin.

Typically, patients are enthusiastic at first, but after, say, the 13th or 14th or 20th injection, they feel "this is becoming a burden for me."


One possible solution is combining Lucentis with Ophthotech's experimental drug, Fovista. This means a pairing of the anti-VEGF with anti-PDGF agents that target the pericytes.

The combination had been successfully tested in a Phase 2b study, with 449 patients and demonstrated superior visual outcomes applying combination therapy of Fovista 1.5 mg dose and Lucentis compared to Lucentis alone. The Phase 2b trial showed patients gaining 10.6 letters of vision using the combination treatment compared to 6.5 when using only Lucentis. Significantly, visual benefits were greater at six months than at three months.

The anti-PDGF treatments chemically strip pericytes from the neovascular complex, making it exposed to anti-VEGF treatments, which have a chance to work more efficiently.

If the upcoming Phase 3 trial confirms the phase 2b results, the combination therapy may bring a dramatic change in the treatment of wet AMD patients.

The Phase 3 trial, which is scheduled to start in a few months, is a big one: it will involve 1,900 patients in 200 centers around the world. The trial will study patients for at least one year and include at least one year of follow-up studies.

Fovista is an aptamer. Aptamers are DNA or RNA molecules that represent a new technology. While aptamers are analogous to antibodies in their ability of target recognition and variety of applications, they possess several key advantages.

They are easier and more economical to produce on a large scale. In contrast to peptides, proteins and to some small chemicals, DNA aptamers are made by chemical synthesis, a process that is well defined, highly reproducible and can be readily scaled up. Their production does not depend on bacteria, cell cultures or animals.

Ophthotech Corporation is a privately held, New Jersey-based, venture capital-backed biotech. Earlier this year, it raised $175 million, and recently another $36 million from venture capital sources to fund late stage clinical trials.

Ophthotech has recently filed paperwork with the SEC to secure up to $85 million more in an initial public offering.


Eylea is less expensive than Lucentis, and also it has a safety advantage: Lucentis has a fatality warning and Eylea does not have one.

But Lucentis has plans to strike back, like the combination treatment with Fovista. Novo A/S, a limited liability company owned by the Novo Nordisk Foundation, is betting $125 million that the combination will become the standard of care. The company bought up rights on future royalties of Fovista ahead of the Phase 3 trial.


Allegro Ophthalmics' integrin peptide (ALG-1001) is a new type of anti-VEGF agent that is designed to shut off VEGF production at its source.

Integrin Peptide Therapy comes from a Caltech research. It turns off the production, reduces the leakage and inhibits the growth of aberrant blood vessels in the eye.

This new approach has the potential to be used alone or in combination with existing drugs. The drug showed good efficacy in a small study of diabetic macular edema patients and is tested in a Phase 1b/2a trial as monotherapy.

Allegro Ophthalmics LLC is a San Juan Capistrano, California-based developer collaborating with Japanese Senju Pharmaceutical.

Ohr Pharma

One of the really new ideas is Squalamine eyedrops, developed by Ohr Pharmaceutical (NASDAQ:OHRP). These self-administered eye drops would replace the intravitreal injections into the eye by a doctor, the current practice.

Squalamine is an anti-angiogenic small molecule with a novel mechanism of action, which counteracts multiple growth factors playing role in the angiogenesis process.

The eye-drop formulation of Squalamine may provide a non-invasive approach that is more convenient for patients and physicians.

Ohr is running Phase 2 trials and has been awarded a fast track designation by the FDA.

Investors' summary

Regeneron's revenues in the second quarter were $458 million, compared to $304 million in the second quarter of 2012.

Total revenues include collaboration revenues of $117 million in the second quarter of 2013, compared to $98 million in the second quarter of 2012. Collaborations were reduced by two $10 million up-front payments made to Sanofi (NYSE:SNY) to acquire full rights to antibodies to PDGF and antibodies to Ang2 in opthalmology.

Zaltrap (a drug for colorectal cancer that has spread) sales in the second quarter were $19 million compared to $14 million in the first quarter of 2013. Zaltrap is now approved in 30 countries around the world, and commercialization expenses are being incurred. The company's share of Zaltrap losses in the quarter was $8 million.

Regeneron does not expect Zaltrap to be profitable in the near term due to an obligation to repay Sanofi for half of Zaltrap development expenses that Sanofi has funded. At the end of 2012, that repayment obligation was $419 million.

The company reported non-GAAP net income of $198 million, or $1.73 earnings per diluted share.

At the end of June, cash and marketable securities totaled $711 million, compared to $588 million at the end of December. In addition, accounts receivable related to sales of Eylea totaled $766 million at June 30, 2013, compared to $592 million at December 31, 2012.

By all forecasts, Regeneron's Eylea has a great run ahead of it. But the success of Eylea stimulated the whole eye care field and competitors with new ideas and delivery methods are anxious to break in. If you are a current investor in Regeneron or in one of the smaller startups, this race requires and deserves your full attention.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.