Late last week, the FDA approved a new med called Eylea, which is made by Regeneron Pharmaceuticals (see this), an upstart with board members that include such heavy hitters as former Merck ceo Roy Vagelos and, as of this morning, Marc Tessier-Lavigne, a former executive vp and chief scientific officer at Genentech, who is currently president of Rockefeller University, the medical research institution (read here).
To combat Genentech, the little drugmaker is offering a 5 percent price discount that analysts are calling ’significant’ and a ‘bold step’ that will likely demand a forceful response. And, of course, adding Lavigne – who knows quite well how the Roche unit operates – is designed to send a strong signal that Regeneron is going to work hard to beat Genentech at its own game.
Here is the background: Genentech sells Lucentis, which costs about $1,950 for an injection. By comparison, its Avastin cancer med can cost $50 per injection, although unlike Lucentis, this drug was never approved by the FDA to treat wet AMD. Nonetheless, Avastin is often repackaged for this purpose and opthalmologists use the med because it appears equally effective, but much cheaper.
However, this practice has caused considerable controversy. A US Department of Health & Human Services Office of Inspector General study found that Medicare could have saved more than $1 billion and Medicare patients would have saved $275 million over two years if Avastin had been used instead Lucentis. The National Institutes of Health responded by funding a study showing the drugs are equally effective (see here).
Genentech responded with its own study that reviewed 78,000 Medicare recipients with AMD and found those given Avastin had an 11 percent higher risk of dying (back story). And the drugmaker has consistently warned that off-label use can be perilous, pointing to reports of serious infections and blindness traced to contamination in vials during repackaging, an issue that temporarily led the US Department of Veterans Affairs suspend use (look here).
Approval was based on the results of two Phase III "View" trials, which demonstrated that patients were able to be treated with fewer injections without compromising efficacy, compared with Roche RHHBY Lucentis (the current standard of care). Treatment for wet AMD requires injections directly into the eye, and we think Eylea's superior dosing schedule and Regeneron's commercialization strategy should allow it to capture a meaningful portion of the market. Regeneron has decided to price Eylea at $1,850 per dose, which equates to $16,000 per year compared with $29,000 for Lucentis. Eylea will still cost much more than the lower-dose formulation of cancer drug Avastin, which is used off-label by physicians as a low-cost alternative to Lucentis. We think the firm's decision to price Eylea below its direct rival despite its advantages shows its desire to alter the convenience-cost tradeoff between on-label usage of Lucentis and Eylea and off-label prescribing of Avastin.
Regeneron also seems to be learning from the launch experiences of its biotech peers--such as the reimbursement troubles of its biotech peer Dendreon DNDN --to smooth Eylea's initial uptake in the market; the firm has put in place a payment assistance program, including extended trade terms and credit options for doctors, until reimbursement procedures are complete. We think Eylea is on track for blockbuster sales, especially if Regeneron and partner Bayer BAYRY succeed in expanding its label into other eye disorders such as central vein occlusion and diabetic macular edema. Eylea's approval should provide a dramatic boost to Regeneron's top line, and we think the firm is well on its way to becoming a diversified commercial operation.
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