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What's Next for Regeneron?

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The biotech won US approval of its eye drug Eylea. Now it has to show it can compete with Roche's Lucentis and a much cheaper alternative in Avastin.

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After winning US approval to sell its drug Eylea, Regeneron (REGN) showed last week it's ready for a bruising fight with rival Roche.

Regeneron is pricing Eylea at a 5% discount to Roche's blockbuster drug Lucentis. Both drugs treat age-related macular degeneration, or AMD, the leading cause of blindness in the elderly. And both companies face a daunting challenge from a much cheaper alternative, the so-called off-label use of cancer drug Avastin (coincidentally also made by Roche).

Avastin isn't approved for treatment of AMD, but it's being prescribed in big numbers by doctors who view it as an effective and much cheaper alternative. A government study earlier this year showed that a small amount of Avastin (about $50 worth) worked as well as a dose of Lucentis (priced at $1,950) for treating AMD.

Lucentis was approved for sale in the US five years ago. Given Roche's head start, market muscle, and the attention given the cost discrepancy of Avastin vs. Lucentis, Regeneron had little choice but to undercut the price. Regeneron, which is delivering the drug to doctors' offices this week, is pricing its product at $1,850 a dose.

Shares of Regeneron are up more than 70% this year, trading at $56.02 Tuesday afternoon. The stock traded above $72 a share in September on anticipation of market approval. Lucentis sales exceed $1 billion a year, and some investors hope that Regeneron can generate big revenue as well.

Regeneron will need to show that it has other benefits to Lucentis to win over doctors. While both Lucentis and Regeneron's products are approved for dosing once every month, Eylea can be dosed every two months after the first three months. So the company can tout convenience of its product. But there's still a question about just how much dosing each Eylea patient needs.

Roche says on average its drug is injected eight times in patients the first year and five times the second year. Annual pricing for Lucentis ranges from $9,750 to $15,600 per patient, according to Roche. The Swiss drugmaker sells its drug through its subsidiary Genentech in the US. Novartis (NVS), which helped develop the drug with Genentech, has marketing rights outside the US.

Before the end of the year, Regeneron is supposed to release its two-year study data for testing Regeneron on patients in clinical trials -- information that will be closely scrutinized by doctors and investors. Again, Lucentis has more years on the market and additional data to show effectiveness. Regeneron needs to show its drug works as well if not better than Lucentis in the second year of treatment.

The other challenge for Regeneron will be competing with the actual price of Lucentis. While there's a suggested price, the company provides volume discounts and rebates. What's more, at least one analyst thinks Roche will respond to Regeneron's pricing.

"We are hard-pressed to see a scenario where Genentech takes no pricing countermeasures," Robert W. Baird analyst Christopher Raymond says.

"Genentech believes the price for Lucentis is appropriate," a spokesman says.

Twitter: @brettchase

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No positions in stocks mentioned.
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