Is This Biopharmaceutical Company Ahead Of Its Time?
Sherrie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In most cases, a biopharmaceutical company chooses to develop either high-priced orphan-designated drugs, or therapeutics to treat large patient populations. Yet one company in particular, Regeneron Pharmaceuticals (NASDAQ: REGN), is crossing the line as a dual-threat developer of both kinds of drugs. Here's why that might make it worthy of your investment.
The Difference In Therapeutic Approach
Drugs that earn orphan designations treat rare diseases. Orphan drugs are more expensive, have longer periods of exclusivity, and are harder to develop.
Essentially, orphan drug development starts from scratch. With rare diseases, there are no publications or FDA-approved drugs that can be used as guides in the drug’s development. For the most part, companies have to identify a targeted disease, and successfully become the first company to develop a drug to treat that disease.
This approach is much different from what Big Pharma practices with its pipeline. In recent years, Big Pharma has executed a pipeline approach where it looks at a disease, finds the best treatment, and then biologically/chemically modifies therapies to be better than the best treatment. At least, this is the goal; sometimes it works, and sometimes it does not.
One or the Other
In recent years, Big Pharma's orphan drug development was nonexistent. But Alexion Pharmaceuticals (NASDAQ: ALXN) traded higher last week in response to buyout interest from Roche. However, analysts believe the deal would lack synergy, since common disease drugs are marketed directly to physicians, while orphan drugs are often marketed directly to the patient.
Furthermore, companies who develop orphan drugs spend more of their resources on insurance reimbursement, patient education, and on R&D to expand indications for individual drugs. For common-disease drugs, the goal is mass marketing and building a strong sales team.
As a result, biopharmaceutical companies have elected to pursue one or the other -- common-disease treatments or orphan drugs. Only one company, Regeneron, successfully develops in both areas.
A Unique Therapeutic Approach
Regeneron Pharmaceuticals’ leading orphan drug, Eylea, treats patients with a rare degenerative disease that causes blindness. Prior to Eylea’s FDA approval, patients would need shots in their eye weekly or monthly, but Eylea is only injected bi-monthly, thus giving it an advantage over other therapeutics.
Regeneron also has a colorectal cancer drug, ZALTRAP, which produced sales of more than $30 million in its first four months of launch. Zaltrap has peak sales of $500 million in the U.S. alone, but is not an orphan drug.
Lastly, Arcalyst is a genetic disease drug with an orphan designation and peak sales of $100 million.
Right away, you might notice that two of Regeneron’s products are orphan-designated, while the other is not. This makes Regeneron unique in this space, especially considering its success.
The One-Product, Multi-Indication Approach
Alexion and most orphan-focused companies base their entire future on the shoulders of just one product. Alexion markets and develops Soliris, a drug for genetic diseases, which has returned revenue of $1.23 billion over the last 12 months.
However, Soliris could never earn this revenue with just one indication alone. Therefore, Alexion markets the drug to treat various diseases -- Soliris is being tested in five clinical studies -- and the accumulative use of the drug is what creates blockbuster sales.
Regeneron doesn't have to rely on just one product's success. Sure, Regeneron has Eylea, but it also has two other drugs, and 12 clinical products in its pipeline. Eylea in particular has peak sales potential north of $3 billion globally; the company's Phase 3 product to manage cholesterol called alirocumab has peak global sales over $7 billion. Therefore, Regeneron is a company that could produce countless billions in annual sales, both in treating orphan and common diseases.
Vulnerable To Failure
To me, Regeneron presents a far better option versus other companies that are labeled as orphan developers. Alexion, trading at 17 times current sales, is particularly vulnerable to the possibility of Soliris failing in one or more of its clinical studies, which would jeopardize its potential of reaching $4 billion in peak sales.
Raptor Pharmaceuticals (NASDAQ: RPTP) is a small company – with a market cap of nearly $600 million – but because of successful orphan drug launches, investors expect an exceptional product launch of its drug. Raptor’s recently approved drug, Prochysbi, treats an ultra-rare disease that causes protein to accumulate and shut down vital organs. With peak sales of just $100 million, investors are betting that Prochysbi can be further developed to treat other diseases. However, Raptor’s current market capitalization makes an investment in the company quite risky, which showcases the vulnerability of such stocks.
Regeneron is not as vulnerable because it doesn’t rely entirely on future clinical trials to support its valuation. At 16 times sales, Regeneron looks expensive, but its outlook and diversity makes it enticing. Thus, Regeneron is set apart from others in the space, valued like an orphan developer but operationally more like Big Pharma, which makes it a company ahead of its time.
Sherrie Stone owns Celldex. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!