Campbell: Kristine, I'm wicked excited to talk about this company.

Harjes: Wicked excited, that's such a Northeast thing to say.

Campbell: I'm using the New England wicked. Because, again, you hit on, we talk a lot about companies like Celgene, one of my favorite stocks out there. But Regeneron is a very interesting stock. It's a little bit smaller than those three upper echelon players -- Gilead, Amgen, and Celgene. It has a $50 billion market cap instead of $100 billion market cap. But there are reasons to think this company could take that next step higher and become part of that commonly discussed group on this show and elsewhere. I thought it would be a lot of fun to dive in and talk about the different things that are going on at the company, because there's a tremendous amount of research and development activity going on at the company. Again, it's a big company. This is a substantial, investable idea that we can talk to our listeners about. They have 5,400 employees, a $50 billion market cap. They did almost $5 billion in revenue last year. They're profitable, and they make a lot of money. So I'm looking forward to it.

Harjes: Yeah, this is definitely not one of your tiny pre-clinical stocks that we sometimes talk about on this show, but rather an established player that is clawing its way up to be at the top of the hill of biotechs. This is a company that, for a long, long time, was known for just one drug called Eylea. This is their flagship product, which was first approved in 2011 for various retinal diseases. They're just recently, within the past few years or so, starting to branch out and diversify into other drugs. They now have a handful of approved drugs and an incredibly deep pipeline. But let's start at the beginning and talk a little bit about Eylea.

Campbell: Kristine, I think one of the listeners' favorite shows based on responses that we got in the past has been the catching-lightning-in-a-bottle type shows, where we've highlighted CEOs that have successfully developed drugs and then sold their companies and are now trying to do it again. I think we should really give a shout out to two proven leaders, CEOs at companies that don't leave and start over, but still catch lightning in a bottle over and over and over again at the companies that they stay at. And one of those leaders is Regeneron's CEO, Leonard Schleifer, who has proven that he's developed a very good model for discovering, developing, and now winning FDA [Food and Drug Administration] approval of drugs across a few different indications. You mentioned Eylea being the No. 1 drug, the most important drug right now for the company, in terms of revenue and everything else. But they've actually had six different drugs that they've found internally that have made it through the FDA gauntlet and have made it to market -- four of those being significant drugs, which I define as drugs that either already have $1 billion in sales, Eylea, or could end up having $1 billion in sales, which would be these three more recently discovered drugs: Praluent, Dupixent, and Kevzara.

Harjes: Yes. Looking at these drugs, as you mentioned, a lot of them do have the potential to eventually hit that blockbuster status. But I think it's also important to look at Eylea and its own growth, because this is a pretty established drug that has been bringing in a lot of revenue for Regeneron for quite a while, but it's still growing fairly quickly. Sales in the U.S. were up 11% year over year. Regeneron just reported its earnings on August 3 -- we're talking about the second quarter here. In that quarter, it sold nearly a billion, just in the quarter alone. This is at nearly a $4 billion run rate just with U.S. sales. It's important to note that Regeneron receives just a share of profit from ex-U.S. sales because it's partnered with Bayer on this drug.

Campbell: Right. Bayer and Regeneron are working together on commercializing the drug globally. This is a monster drug in a huge indication. I think you mentioned briefly that it's approved to treat wet stage age-related macular degeneration and diabetic macular edema. These are two increasingly common causes of vision loss within older patients. If you think about this for a second, what's the argument for the growth that you're referencing? You've got 76 million baby boomers, and they're turning 65 at a pace of 10,000 people per day. The incidence of these two indications within this patient population, as they're getting older and living longer, is increasing. What's really intriguing about Eylea and its success, this is a drug that did $1.5 billion in global sales last quarter alone. So, it has a $6 billion global run rate. That growth has come not because of price increases, but because it's being more increasingly used -- more patients are being diagnosed with these conditions, and then some market-share wins. There's other players. We'll talk about the competition, because I think that's important, too. I think this is an important drug. It's likely to remain an important drug for the company, especially given the fact that they have patent protection on the drug that stretches out into the 2020s.

Harjes: Right. When you look at the indications that it is approved for, you can see the demographic trends hidden in the name of the diseases. You have wet age-related macular degeneration, wet AMD, it's age related. As you mentioned, that's a huge growing population. Its other approved indication is diabetic macular edema. This is a diabetic condition, and the population of diabetics is also something that is growing. It's also approved for diabetic retinopathy in patients with diabetic macular edema. You can see exactly why this drug will continue to grow. You mentioned that it does have some competition. It's competing with a drug called Lucentis. There could potentially be some biosimilars to Lucentis, which are copycat versions of it that could be a little bit cheaper once the Lucentis patent expires in 2020. There's also an interesting competition going on between Lucentis and Eylea and Roche'sdrug called Avastin, which is a cancer drug that's being used off-label in this indication because it's so much cheaper.

Campbell: Yeah, it's way cheaper, and as a result, its market share is, I want to say it's 30%-40% in wet AMD.

Harjes: It's interesting. For me, it's one of the most high-profile times that we see an off-label drug being used across an indication with any sort of huge reach.

Campbell: And you take this one step further. You see Avastin being used so commonly, and that's eating up a big share of the market. Then you look at and say, wow, Eylea's sales are already $6 billion annualized, even though you have Avastin controlling so much of it. And then you throw Lucentis in the mix, and that's another $3 to $4 billion-a-year drug. This is a huge market -- it's getting bigger. I think the big question for Regeneron and for investors is going to be, can Regeneron maintain its market share over time as we get 10 years out against some of these other competing therapies? Maybe they're coming through the pipeline by companies like Allergan, which is working on wet AMD treatment, as well. I think the answer is ultimately going to be yes, Kristine. Bayer and Regeneron are teamed up on another combination drug where they're taking a brand-new drug and mixing it with Eylea. That's in mid-stage studies. If those late-stage studies end up panning out, theoretically you could transition over time off of Eylea to this other drug. I'm looking further out here, and anything can and will happen in clinical-stage trials, but I think it's important for investors to know that Regeneron is looking ahead. They recognize how important this indication is to their future financially, and they're taking some steps to try ensure themselves up long term.

Harjes: Yeah. This is a company that recognizes it has a really strong foothold in retinal diseases. It knows how important Eylea is to it, but it also knows that it needs to diversify. It reminds me of a lot of other companies in this regard. For example, let's compare it to Gilead Sciences. This would be like Gilead Sciences saying, "We know HIV is super important. That's been the foundation of our business," and I'm talking a couple years ago now. At that point, they said, "We need to do something other than HIV, as well, to continue having new growth drivers." And still today, you see Gilead branching out into new indications and trying to find that next step, what's going to drive future growth.

Campbell: Yeah. Similar to Celgene, right Kristine? You talk about Revlimid, $8 billion in sales from Revlimid, and they're spreading out into some other indications, too. You're right, it's very important for these companies to be expanding. And Regeneron is doing it.

Harjes: Yeah, it's a story that you see a lot. When you think about the life cycle of biotechs, they often do strike it big with one indication or one drug, and then they're established and they have cash flow coming in and they need to use it to fund clinical development to keep that growth moving and keep investors satisfied.

We've talked a whole ton about Eylea, and don't get me wrong, that's a very important component of Regeneron. But we think it's even more exciting to discuss what else Regeneron has going on, both in its product portfolio and in its pipeline.

Campbell: There are so many moving pieces to this company since 2015. It's really important for investors who are interested in buying Regeneron to understand both the positives, what the market opportunity could be for its newest drugs, but also some of the risks and the challenges that are facing these drugs. I think a great place to start, Kristine, would be to look at Praluent, which is the first of the three most recently launched drugs. That won approval in summer of 2015 for use in treating bad cholesterol -- high bad cholesterol -- in patients in which it was genetically caused. A pretty tough-to-treat indication. That drug launched with these multi-billion-dollar blockbuster expectations, but it's been a little bit disappointing. It's still selling pretty well, but it's nowhere near what those expectations were.

Harjes: Right. Praluent is what's known as a PCSK9 inhibitor. We've talked about them on the show before. It's a drug that works to lower your cholesterol levels in a novel way. When you consider how many Americans take drugs for cholesterol levels, you would think this would be a huge success. The problem is, it's pretty expensive. This drug is $14,000 a year. You compare that to drugs like statins, which are not under patent protection anymore, the generics are pretty darn cheap, especially compared to $14,000 annually. So this drug is really not doing as great as people were expecting. It saw sales of just $46 million in the past quarter, and that was up from $26 million from the quarter of a year ago, so Q2 2016. But still, these numbers are really tiny for a drug that was supposed to be a billion-dollar blockbuster.

Campbell: Yeah. I think a lot of investors were disappointed by that. That's one of the reasons why Regeneron shares underperformed in 2016. But I think they're looking forward now and they're saying, Praluent sales are up pretty substantial year over year. We're now at about a $200 million a year run rate. That's solid. And there is a big Phase III study that's wrapping up at the end of this year. With data coming out early 2018, they could move the needle and make this drug more commonly used, too, and that's an outcome study that's evaluating whether or not using Praluent actually reduces the likelihood of major cardiovascular events like heart attacks and strokes.

Harjes: Which, that data is pretty darn important if you are a payer looking at whether or not a $14,000 price tag is worth it. You might want to know, is this actually going to lower the risk of a cardiovascular event? So there's 18,000 patients in this study, and we should be getting data in early 2018. That could swing things in a positive direction for this company. Let's also look at one big threat to this drug and to Regeneron -- which is the ongoing legal battle that they have with Amgen and its competing drug, Repatha.

Campbell: [Dun-dun-dun.] It's not all roses and fairy tales over here. We do have a big risk, a big challenge that investors have to be aware of when it comes to this drug. And that's that Amgen has sued Regeneron and Sanofi, its partner on the drug, for patent infringement. So far, the courts have been siding with Amgen on it. As a matter of fact, previously, the courts actually said that Sanofi and Regeneron would have to stop selling Praluent in the United States. That was stayed pending appeal, which is why you're still seeing this drug on the market racking up revenue. But depending on how this all shakes out, you could run all sorts of different scenarios. You could say, Amgen ends up winning in the appeal, and as a result, Praluent disappears from the marketplace along with its $200 million in annualized sales. You could say, Amgen wins, and they cut a deal to share royalty streams somehow with Praluent sales. Or you could say, Regeneron comes out on top and Praluent continues as is, the outcome study comes out aces, and the next thing you know, you have a billion-dollar blockbuster on your hands.

Harjes: Right. As with many legal matters, outcome hazy, we'll see what happens with that. But what you need to take away from this is that Praluent has, thus far at least, not lived up to the hype. But fortunately, that was not the only drug that Regeneron was developing to diversify away from Eylea. It was able to launch a drug recently called Dupixent, which is now approved for moderate-to-severe atopic dermatitis.

Campbell: This is a really intriguing drug, and it may even have a bigger commercial opportunity than Praluent does. Moderate-to-severe eczema is very difficult to treat. There's not a lot of treatment options out there. The drug costs $37,000 annually, which sounds like a lot of money, but it's actually not that bad. The payers and insurers basically applauded that price tag when it was announced. The market for Dupixent could be multiple billions of dollars in a year, taken with a grain of salt because we know, as we've seen in the past, peak sales estimates oftentimes fall short. But I have seen people out there saying that if other studies that are evaluating Dupixent in asthma, for example, results coming soon, stay tuned, potential approval application getting filed by the end of this year. You could see this drug generate about $4 billion in annual sales by 2023. Now, I think that's a stretch. But I think what you can look at this drug and say, with its current indication, and with the potential in asthma, and the potential to be used in more patients over time, this absolutely could be a significant driver of sales. And Sanofi and Regeneron will split any profit on it.

Harjes: Despite the little bit of skepticism there is about whether or not this drug will be able to outperform drugs like Novartis' Cosentyx, there's also competition from the likes of GlaxoSmithKline, it's definitely not a market that they have to themselves. This kind of has become the favorite child after Praluent was so disappointing. So, lots of excitement going on around this drug, particularly seeing how it launches in its currently approved indications, as well as how it performs in some of the currently ongoing trials that you mentioned, Todd.

Campbell: Kristine, just to interject before we jump to the next one, Q2 sales of the drug, first quarter on the market, $28 million. So better than a $100 million run rate right out of the gate.

Harjes: Yeah, that's not bad. It's pretty hard to project future sales based on the first quarter on the market, but that's definitely a good sign that payers are accepting the price tag and doctors are prescribing the drug. Off to a good start, and definitely something to keep an eye on. Oh, one more detail before we move on to the next drug: Amgen is also battling over this patent. Which is kind of interesting, because Amgen doesn't even have a rival drug here. They don't even have something in the pipeline, which also means that they can't ask for an injunction that would pull the drug from the market. Amgen is just looking for money here. It's like they're a consistent thorn in the side of Regeneron. Anyway, moving on to the next drug that we wanted to highlight, this one is called Kevzara, and it treats moderately to severely active rheumatoid arthritis, which is another enormous indication.

Campbell: Yeah, a multi-billion-dollar indication with a lot of players, dominated by anti-TNF drugs like Humira, which listeners will probably remember. Humira is the biggest-selling drug on the planet, with about $16 billion in annual sales. Kevzara is not going to be that big. It's going to be more of a niche player, because its approval is for use in patients who have tried and failed on other therapies like DMARDs and Humira and the like. However, a $39,000 annual price tag is cheaper than Humira, and that has some people thinking that Kevzara could win away sales in this indication. Again, grain-of-salt warning. Peak sales estimates could be $1 billion for the drug over time. We'll have to see, though, because again, this is a competitive marketplace, and I'm not entirely sure just how much of this market they'll end up winning.

Harjes: One key question to keep an eye out for is whether doctors will eventually be able to, or want to, prescribe this as a first-line treatment. For context, they actually did test this against Humira in trials and showed that the two had similar safety. That should be really important in making the case to prescribing doctors that you might want to just try Kevzara right away. But for now, that's not going to be the case. Humira is extremely well established. There are plenty of other drugs that are established in the space. I think you're right that, for now, it will be a niche, later-line drug.

Campbell: Yeah. I think you watch it over the course of the next few quarters, you see what the prescription trends look like in the quarterly reports. All of these companies, as listeners should know, they talk about their performance every quarter, you can see the transcripts online, you can go through and read them after they have their discussions. Oftentimes, they'll talk about market share, they'll talk about prescription trends, they'll talk about how these drugs are doing. I think if you evaluate this one over the course of the next three or four quarters, you'll get a feel for whether or not this is going to be a drug that does $200 million a year in sales, or potentially could do much more than that. But it's still going to be a fairly substantial drug, because think about it -- when you start poo-pooing drugs that may only do nine figures in sales, you know you're talking about a pretty strong company.

Harjes: Yeah, exactly. But that's not all. 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.

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.

Harjes: Absolutely. Thanks, Todd. Before we sign off, I know a lot of the Healthcare show listeners are science nerds, which is OK. I am, too. Todd is, too. So I wanted to share something cool that I read in the news this morning, which is that apparently, scientists have created a chewing gum with a peptide sensor that releases a bitter taste in the mouths of patients that have a certain dental disease known as peri-implant disease. This disease increases the production of certain enzymes that interact with the gum to create a bitter taste, which is just crazy. Right now, it's only been tested on artificial tongues, but with real human saliva, riddle me that, to prove out the concept. If it continues to go well, this could be a new way of diagnosing a dental disease by, as they put it, anyone, anywhere, anytime. So there's no investing takeaway on that -- I just thought it was pretty neat. I wanted to share.

As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. This show is produced by Austin Morgan. For Todd Campbell, I'm Kristine Harjes, thanks for listening and Fool on!