Eyeing Eylea's heirs, Regeneron spends more and more on R&D

Regeneron ($REGN) is pouring more money than ever into its well-respected R&D operation, spending big on a cadre of late-stage candidates the Big Biotech believes can outshine its blockbuster eye treatment.

The Tarrytown, NY, company spent $338 million on R&D in the third quarter, a 51% hike over the same period in 2013 and a 14% jump over its Q2 figure. About $34 million of that went toward its share of the purchase price for an FDA priority review for alirocumab, the company's top prospect, with partner Sanofi ($SNY) picking up the other half. But the rest of Regeneron's upsized research budget fueled escalatingly pricey work on some make-or-break prospects that will dictate its future.

Alirocumab, a treatment for high cholesterol, is the costliest and perhaps most promising, as Regeneron is on the hook to cover 20% of the drug's more than 20,000-patient Phase III program. Alongside Sanofi, the company plans to file its treatment by year's end, gearing up to contend with offerings from Amgen ($AMGN) and Pfizer ($PFE) in the future market for drugs that slash bad cholesterol by blocking a gene called PCSK9. The injectable antibody was widely considered second in line behind Amgen until Regeneron and its French compatriot bought the aforementioned priority review, setting up alirocumab for marquee billing and an estimated sales peak north of $1 billion.

Then there's sarilumab, an arthritis antibody partnered with Sanofi under the same 80-20 cost split. That drug, which works by halting the IL-6 receptor to tamp down inflammation, is in the midst of the latter stages of a 6-study Phase III program, and the partners expect to file it for approval some time next year. Finally, dupilumab, an IL-4 and IL-13 antibody, has posted promising results in eczema, asthma and nasal polyps, stoking blockbuster hopes for what Regeneron Chief Scientific Officer George Yancopoulos said might be the company's most exciting asset.

Considering that peak sales estimates for Regeneron's top three candidates total well above $10 billion, the company has had little trouble defending its liberal R&D budget, but one or two missteps could put it under the same microscope as rival Amgen. Case in point: Regeneron reported lower-than-expected third-quarter sales for Eylea, its ocular cash cow, and the company reduced its annual projections for the injected treatment by about $400 million, sending shares down as much as 7% on Tuesday morning. Signs of trouble for any of the company's next-in-line treatments will likely be met with similar alarmism.

And, complicating matters for Regeneron, the future of its principal collaborator is suddenly cloudy. Sanofi's surprise ouster of CEO Chris Viehbacher rattles a years-long, deep-seated R&D alliance. In a conference call with analysts, Regeneron CEO Leonard Schleifer noted the departure of his counterpart and said he planned to meet with Sanofi Chairman Serge Weinberg to make sure the two are still on the same page.

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