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After Eylea win, Regeneron execs puzzle over R&D scale-up challenge

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CEO Dr. Leonard "Len" Schleifer

With a new blockbuster drug and more potential hits in development, Regeneron Pharmaceuticals ($REGN) has been successful long enough for top executives to consider the challenges of keeping the entrepreneurial culture behind the R&D streak alive.

The Tarrytown, NY-based biotech powerhouse has been one of the hottest stocks in any industry for the past two years, with the value jumping more than 146% over the 12-month period ending Tuesday, making the company worth $26.3 billion. The growth has come amid the stellar U.S. launch of its eye therapy Eylea and big expectations for the company's PCSK9 candidate in late-stage trials with partner Sanofi ($SNY).

What brought the company to this successful stage? There have been intense collaborations among top scientists who have been working together, in some cases, for more than two decades. They have engineered a mouse model with a fully humanized immune system, which has been one of the key factors in quickly advancing the anti-PCSK9 monoclonal antibody REGN727 and other candidates into development. To pull off such feats, Chief Scientific Officer Dr. George Yancopoulos says that he and his colleagues have "perfected the art of scientific brainstorming here. We really operate in this sort of think-tank fashion."

Regeneron has about 2,100 employees, up from 682 workers just 6 years ago, according to the company. Its executives announced plans for 400 more hires in April, with plans to add 300,000 square feet of lab and office space in Westchester Country, NY. And they worry about how the company will maintain the culture of entrepreneurial science as the company grows.

"That is my biggest concern," Yancopoulos said in an interview with FierceBiotech at his office in Tarrytown on July 12. He has kept a flat management structure in R&D where everyone is accountable and challenged to bring their best ideas to the table every time they meet. "This is how we built our company and this is how we hold people to these [high] standards… But certainly it's a question and challenge about whether we can continue to do so." 

Other biotech companies have faced similar challenges. Take Biogen Idec, which went by just "Biogen" in 1996 when the Boston-area biotech company won approval of its early blockbuster drug, Avonex, for multiple sclerosis. To fuel its growth, Biogen ($BIIB) merged with Idec in San Diego in 2003, gaining Idec's stake in the major cancer drug Rituxan. Yet the Idec researchers struggled to make another hit in oncology, prompting Biogen CEO George Scangos to pull the plug on former Idec research activities in San Diego after he took the helm in 2010.

Biogen has since rebuilt itself into one of the hottest biotech outfits around, but the transformation happened after a series of M&A deals, management shakeups and a very public battle with activist investor Carl Icahn. If Regeneron wants to avoid such hassles, the company faces some challenges. For instance, there may be no recipe for scaling up the kind of scientific ingenuity at the company that led to the discoveries of Eylea and the cholesterol-fighting PCSK9 therapy.

"The history of the pharma industry has shown that research is not scalable," Dr. Michael Aberman, vice president of strategy and investor relations, said in an interview. "Certain tech components of it are, but the creative part about coming up with new drug targets and coming up with new drugs is not scalable because you need the right people and culture."

Regeneron CEO Dr. Leonard "Len" Schleifer, who founded the company in 1988, says he takes pride in the fact that his team is known for doing "zero" acquisitions. All 11 drugs in the company's clinical-stage pipeline stem from in-house discoveries. He prefers a science-first approach to running a biotech company, hiring Yancopoulos to run R&D in 1989, and he endorsed a 2012 pay package for the chief scientist that was more than twice the size of his own compensation last year.

Scientists run Regeneron. Like Yancopoulos, Schleifer is an Ivy League academic scientist turned biotech executive. Regeneron gained early scientific credibility with a 1990 paper in the journal Science on cloning neurotrophin factor, a research area that was part of a partnership with industry giant Amgen ($AMGN). Schleifer has recruited three Nobel Prize-winning scientists to the board of directors, which is led by long-time company Chairman Dr. P. Roy Vagelos, who had a hand in discovering the first statin and delivering a breakthrough treatment for a parasitic cause of blindness to patients in Africa.  

"I remember these people from Pfizer used to go around telling us, 'You know, blockbusters aren't discovered, they're made,' as though commercial people made the blockbuster," Schleifer said in an interview. "Well, get lost. Science, science, science--that's what this business is about."

Regeneron wants to be known as the preeminent biopharma company of its generation, on par with what Merck ($MRK) achieved among its pharma peers decades ago and then Genentech among the early vintage biotech players. Without help from acquisitions, Regeneron needs its antibody-discovery platform and R&D group to keep the hits coming.

Along with Vertex Pharmaceuticals ($VRTX), Regeneron has developed a productive R&D culture based on strong collaborations among its scientists. "Part of it is that George [Yancopoulos] has his hands in everything. It's the institutional knowledge we have," Aberman said. "That's one of our biggest risks. How do we keep that as we grow?"

These are good problems to have in the biotech industry, where most companies fail to ever bring a novel drug to market. Yet like other top groups in the biotech game, Regeneron has no desire to be like most companies. 

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Editor's note: This article is the second in a series of stories about Regeneron (here's the first). Check our website for more series pieces over the next several weeks.