Regeneron Pharmaceuticals (NASDAQ: REGN) has four significant medications on the market, including three that have won Food and Drug Administration approval since 2015, and it's investing big money in research and development to provide it with a steady stream of new products. One of the most important drugs in its research pipeline is REGN-2810, a cancer-fighting drug that inhibits PD-1 so that cancer can't hide from the immune system.
In this clip from the Motley Fool's Industry Focus: Healthcare podcast, analyst Kristine Harjes is joined by Todd Campbell to discuss Regeneron Pharmaceuticals' R&D efforts, including REGN-2810's development.
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This video was recorded on Aug. 16, 2017.
Kristine Harjes: They also have a humongous pipeline. We just walked you through the product portfolio -- things that are approved. But the pipeline also has 17 more product candidates in it. Five of them are in Phase III trials. Some of these are label extensions for the drugs we just talked about. For example, Todd, you mentioned earlier extending the label of Eylea. I think you also mentioned Dupixent in asthma that's going on. They're also looking at Praluent in hypercholesterolemia, so expanding that indication to a wider set of people. But they also have completely novel candidates that they're studying. There's one drug called Fasinumab, and they're studying that in osteoarthritis pain, as well as chronic lower back pain. They have a PD-1 drug, which is something we talk a little bit about on this show, and that one is called REGN2810.
Todd Campbell: Kristine, just to interrupt for a second, I think that one might be the one that investors really want to focus on in the pipeline.
Harjes: Yeah, because it could be huge. These PD-1 drugs are absolutely enormous in their scope. Currently, the 2810 drug is being studied in Phase III in non-small cell lung cancer. They initiate it in the second quarter. They also have a potentially pivotal Phase II study in basal cell carcinoma that was indicated in the quarter. Because of the mechanism of action, it could absolutely be possible for this drug to treat a variety of different cancers, and could seriously rack up some sales there.
Campbell: Yeah, we talked about Opdivo and Keytruda a lot on the show. Those are the two top-selling PD-1 drugs. They have combined sales of over $2 billion per quarter right now. Obviously, this is a huge market that could be targeted. What companies like Regeneron are doing, they're a little bit late to the dance, they're looking for indications that are under-treated where they can get fast-track and early accelerated approval, so they can play a little bit of catch-up. So they're smaller indications, but they can get to the market quicker, and then they can file for supplemental approvals after that on a little bit more of an expedited time frame so they start to generate some sales. I think the thing to watch here is data from their trial in cutaneous squamous cell carcinoma, the second most common cause of skin cancer. Data from a pivotal Phase II trial is expected in that soon. If that's good, they think they can file for approval within the next 12 months. So theoretically, depending on if they get fast-tracked or not, you could have this PD-1 drug hitting the market in, we'll call it 18 months.
Harjes: Yeah, when you look at Regeneron's most recent quarterly earnings statement, the press release has this grid on it, and its upcoming catalysts. I believe, if I'm recalling it correctly, it's just for the remainder of the year. And it's packed. There are so many things in this list. If you extend that one year out, it's just incredible how many different pivotal trials will have data, or potential approvals, or filing for FDA approval. This company really has a lot going on for it. One thing that I want to highlight before we sign off, because we haven't talked about this very much, is the collaboration that they have with Sanofi. Sanofi is a partner on almost all of the drugs that we talked about. They have a huge, long-standing relationship. There's also the Bayer partnership on Eylea. So this is a company that plays well with others, and it's been very profitable so far to pursue this kind of partnership strategy.
Campbell: Right. But Sanofi's walking away from this partnership, at least in the antibody development, at the end of this year. People will have to take a look and see what that means. Regeneron will end up getting reimbursed less money for research and development next year from Sanofi. I don't think that's going to be a substantial number, but it could be a number that put a little bit of headwinds on sales growth for some of the smaller drugs like Kevzara. If you lose $30 to $40 million in development revenue per quarter, that could have an impact. So you have to watch and see how that plays out. Sanofi is going to continue to work on the existing drugs with Regeneron, and they do still have a separate pact in immuno-oncology. Again, we were just talking about the PD-1 drug -- that's a Sanofi-shared drug, as well. They're going to continue to develop that together, as well. I think overall, Kristine, this is a financially stable, fast-growing company. Their earnings are growing quicker than Celgene's, for example, year over year. They have a lot going on. I think it's worth having on people's radar.
Harjes: Yeah. I think that the Sanofi collaboration is ending come December, is a little bit of a sign of maturity with this company. When you're an early stage company, it's a lot more important that you have a big brother of sorts handing you money to develop your early stage candidates, get them through all the clinical-trial processes, which are very expensive. But then you have drugs on the market, and you're kicking off your own free cash flow. So that's kind of the place where Regeneron is right now, and it's actually at a point where it can be the big brother, or the big sister, itself. For example, they have an agreement with a smaller company called Intellia Therapeutics, and they're working with them on some CRISPR research. It's very early stage, as with everything CRISPR. But Regeneron is now responsible for shouldering the development costs for Intellia, and it'll pay Intellia some milestones, it'll pay royalties on future sales. But because this company has gotten to be of a size where it has financial weight, it has money at its disposal to do things. The balance sheet is incredibly strong. They have well over $1 billion in cash and equivalents, no long-term debt. They have another $1 billion in long-term investments. This is a company that's really come into its own and deserves to be talked about in this upper echelon of biotech stocks.
Campbell: Yeah, it's not a cheap stock though, Kristine. That's the final takeaway for investors, too. It's a great growth story, but you're paying up a little bit for that growth.
Harjes: Yeah, absolutely. Do you want to share some of the ratios?
Campbell: Forward P/E of this stock is 29. If you compare that to Celgene, Celgene's forward P/E is 15. It's P/E-to-growth ratio is 1.74. If you look at the P/E-to-growth of Celgene, it's 0.82. It's trading at 9.5 times sales, Celgene's trading at 8.4 times sales. So it's a little bit of an expensive company. Again, those ratios are reflecting what we've done so far, not necessarily what we may do going forward. So bear that in mind, as well.