Exclusive: Biotech Regeneron on verge of big leagues

NEW YORK Wed May 12, 2010 5:40pm BST

Regeneron Pharmaceuticals Inc's Head of Research George Yancopoulos, Chief Executive Leonard Schleifer and Chairman of the Board of Directors Roy Vagelos (L-R) pose for a picture at the company's laboratories in Tarrytown, New York, in this undated handout photo made available May 12, 2010. REUTERS/Handout

Regeneron Pharmaceuticals Inc's Head of Research George Yancopoulos, Chief Executive Leonard Schleifer and Chairman of the Board of Directors Roy Vagelos (L-R) pose for a picture at the company's laboratories in Tarrytown, New York, in this undated handout photo made available May 12, 2010.

Credit: Reuters/Handout

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NEW YORK (Reuters) - Regeneron Pharmaceuticals Inc, a relatively unknown biotechnology company based in sleepy Tarrytown, New York, is not exactly a household name. But that is likely to change fast.

The company plans to steal the limelight in the coming year with data from seven late-stage trials of its experimental drugs for gout, colon cancer and a leading cause of blindness. It is rare for a biotech of any size to have so much pivotal news coming out in such a short period of time.

"The cycle is getting to be in full swing," said Chief Executive Leonard Schleifer. "We need a big hit on one of these drugs and then I think the world will start to pay a lot more attention to our pipeline" of new medicines.

In an exclusive interview with Reuters at company headquarters, Schleifer and his research chief George Yancopoulos outlined their plan for leaping from obscurity to the big leagues.

They know from experience, however, that in biotech there is no sure thing. In March 2003, when the company's Axokine obesity treatment stumbled in clinical trials, Regeneron shares lost more than half their value.

But success in even one of its three treatments now in late-stage studies could propel Regeneron from a typical money-losing biotech into a profitable company with a bright future. Its products could eventually take on Roche Holding AG's $6 billion cancer drug, Avastin, and $3 billion Lucentis eye-disease medicine. The gout drug could attract annual sales of $500 million or more, analysts estimate.

Regeneron on Wednesday said two other drugs in earlier-stage trials significantly cut levels of "bad" LDL cholesterol and eased knee pain from osteoarthritis.

But Wall Street is more focused on its drugs in late-stage trials.

"We believe that Regeneron should represent a core holding in biotechnology portfolios, based on the depth of its pipeline and its partnerships," Roth Capital Partners analyst Joseph Pantginis said on Wednesday. He said he is encouraged by new data from the early-stage trials.

Regeneron has some big backers and one of the biggest research budgets of any biotech, at more than $700 million this year. That includes spending by collaborators and $160 million of support from research partner Sanofi-Aventis SA.

It currently sells only one product, called Arcalyst, that brings in less than $20 million a year and treats a rare inherited inflammatory condition.

But the three drugs now wrapping up late-stage studies, the final step before seeking regulatory approval, have far bigger sales potential.

NOT IMMUNE TO FAILURE

Most biotech companies are staking their futures on only one or two drugs and many have gone bankrupt trying. Regeneron, which is now testing eight drugs, plans to have as many as 40 more in trials by 2017 under its lucrative deal with Sanofi to test Regeneron antibodies against a wide range of diseases.

Regeneron claims to have perhaps the most effective drug-making technology -- mice with human immune-system genes that produce better antibodies than rival companies.

It cites another major weapon: the continual hands-on involvement of Merck & Co Inc's legendary former Chief Executive Roy Vagelos.

The stock, with big current stakes held by Sanofi, T. Rowe Price Group affiliates and Carl Icahn, has risen 57 percent over the past year, compared with a 70 percent gain for the NYSARC Biotech Index and a 27 percent advance for the Standard & Poor's 500. In morning trade, it rose a further $1.09 or 4.3 percent to $26.61 on Nasdaq.

Regeneron's market capitalization is about $2 billion, far below industry leaders such as Amgen Inc at $53 billion and $129 billion for Roche, owner of Genentech, a biotech Regeneron emulates.

The company is based in the hometown of author Washington Irving, whose famous tale "Rip Van Winkle" concerns a man who falls asleep for 20 years and awakens to find everything changed. But unlike Rip, who was habitually idle, Regeneron has worked at a feverish pace since 1988 to change everything about drug development.

By next month, Regeneron plans to release data from Phase III trials of its drug to prevent and treat pain from gout, a form of arthritis that often hits the big toe. It uses the same active ingredient as Arcalyst, rilonacept, and works by blocking an inflammation-causing protein called Interleukin-1.

In the second half of the year it plans to provide data from late-stage trials of its macular degeneration product, called VEGF Trap, and its aflibercept drug for colon cancer. Both drugs, like Avastin, block the VEGF protein which is involved in growth of blood vessels.

Schleifer said the company's top commercial opportunity is probably VEGF-Trap, being developed with Bayer AG.

BIG DREAMS, TINY OFFICE

The company was started in 1988 by Schleifer, an assistant professor of neurology at Cornell University Medical College. He planned to discover nerve-growth proteins that could cure some of the grimmest neurological scourges by regenerating neurons, which are nerve cells. Thus the name Regeneron.

"The original idea, which you can find in the original business plan, was that we would discover them and then spritz them on people who needed them. We would cure a couple of diseases such as Lou Gehrig's disease, maybe Parkinson's disease and Alzheimer's disease, and sail off into the sunset," Schleifer said.

Schleifer nurtured those lofty ambitions in a dilapidated studio apartment meant to house Cornell's medical staff, located on Manhattan's Upper East Side.

"The super was thrown out of the building because he was a drunk, so I convinced the hospital to let me sublet it for awhile. The rent was about $500. That was Regeneron's world headquarters. It was just me."

Schleifer, a native of New York City's borough of Queens with a gift of gab to match his scientific enthusiasm, attracted a scientific advisory board that included several Nobel laureates and obtained a $1 million grubstake from a venture capital unit of Merrill Lynch.

He set out to recruit a stable of scientists, most notably Yancopoulos, a 28-year-old molecular immunologist who had just won a kind of genius award for his research at Columbia Medical School and is now Regeneron's head of research.

The company spread its wings in 1989 by renting 15,000 square feet of an empty Union Carbide factory in Tarrytown, where laboratories were built.

Regeneron could afford the bigger digs because earlier that month it won $10 million in funding from Sumitomo Chemical Co Ltd in exchange for giving the company rights to sell up to three of its future drugs in Japan.

At the time, only one protein involved in the growth and survival of neurons -- or neurotrophic factor -- had been discovered: Nerve Growth Factor. But within weeks after Regeneron's lab opened, Yancopoulos discovered a second one that became known as Brain-Derived Neurotrophic Factor (BDNF).

"Literally within a week after that, we cloned another one called Neurotrophin 3 (NT3) and then a third one called Ciliary Neurotrophic Factor (CNTF)," Yancopoulos said.

Yancopoulos became one of the world's most-cited neurologists due to his rapid-fire discoveries. The attention led to a $100 million partnership in 1990 with Amgen, an up-and-coming new biotech, that involved trials of BDNF against Lou Gehrig's disease and of NT3 for nerve pain in diabetics.

Regeneron also began testing CNTF against Lou Gehrig's disease and signed a $135 million deal in 1997 with Procter & Gamble Co to develop a number of Regeneron drugs, including using CNTF to treat obesity.

But none of the drugs ultimately panned out in clinical trials during a 10-year period.

"In many ways you could look at that as a lost decade because the ultimate prize eluded us in terms of applying our first discoveries," Yancopoulos said. "These neurological diseases were really challenging and we recognized maybe we weren't as smart as we thought we were and didn't have the experience that maybe we needed."

A MODEL IN MERCK

Schleifer and Yancopoulos considered remodeling the company after Merck & Co, the U.S. drugmaker nicknamed "the house that research built" under the leadership of Vagelos. Merck spread its bets across many diseases and its many breakthroughs included the first "statin" cholesterol drug.

"Vagelos had always been a hero of mine because I'm also the son of a Greek immigrant," Yancopoulos said. "My father cut out a Greek-language newspaper article for me in the 1970s when Roy became head of research at Merck and said: 'If you're going to become a scientist instead of a doctor,' which was always his dream for me, 'at least become like this scientist.'"

Yancopoulos said he and Schleifer "always talked about Roy. And we thought just like he and Merck followed the science as a foundation, we could do that as well."

Schleifer startled Yancopoulos one day with a suggestion that they hire Vagelos instead of just emulating him.

"At that time, Roy had been a top CEO in America for a half dozen years in a row, so I told Len: 'Roy is not even going to answer your phone calls!'" Yancopoulos said.

"But Len called up Roy, and Roy answered. And he was planning to step down at Merck and wanted to do something different, to get into this biotech-type stuff. And Len convinced him to come visit Regeneron for a couple of days, for me to give him a total overview of the company."

Vagelos became chairman of Regeneron's board in 1995 and made a deep impression. He urged the company to study other diseases and to exploit its understanding of cell receptors -- proteins on the surface of cells that set into motion biological reactions within the cell.

Likewise, Vagelos stressed the company's other strong suit developed during its years of neuroscience research -- its expertise in cell signaling, communication among cells and how errors in that process can lead to disease.

Fifteen years later, Vagelos remains a totally involved company chairman and owns 1.8 percent of Regeneron's shares.

"He comes to every one of our scientific advisory meetings and talks on a daily basis to me and Len," Yancopoulos said. "He's in here at least one or two days a week and knows as much as I do on everything that's going on -- every single one of our programs. At the age of 80, he's in better physical shape than Len or I, and he's still my hero." (Reporting by Ransdell Pierson; editing by Michele Gershberg and Gerald E. McCormick) Keywords: REGENERON/

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