Magazine Article | February 13, 2011

Combining Good Science & Good Business

Source: Life Science Leader

By Cliff Mintz Ph.D.

Despite its humble beginnings in the late 1970s, the biotechnology industry has grown into one of the most vibrant sectors of the American economy. In fact, most pharmaceutical company executives now concede protein-based molecules rather than traditional small molecule drugs will likely be one of the main drivers of the life sciences industry in the not-so-distant future.

The financial success of the biotechnology industry is mainly founded in the ability of entrepreneurial scientists to translate their passion for “good science” into commercial products that address unmet medical needs. A biotechnology company that has wholly embraced this concept is Tarrytown, NY-based Regeneron.

Regeneron was founded in 1988 by Leonard Schleifer, M.D., Ph.D. who recognized an opportunity to use modern molecular biological techniques to identify neurotrophic growth factors that could help to fight chronic neurological diseases. While he and Chief Scientific Officer George Yancopoulos, M.D., Ph.D. — who is a member of the National Academy of Sciences and one of Regeneron’s first employees — were able to realize their goal, Schleifer eventually determined that commercializing neurotrophic growth factors to treat progressive neurodegenerative diseases like Amyotrophic Lateral Sclerosis (ALS or Lou Gehrig’s Disease) and Parkinson’s Disease may be extremely difficult and not very cost-effective.

Recognizing the implications of this potentially devastating setback, Schleifer and his team decided to shift the emphasis of the company from discovering drugs to treat neurological diseases to developing scientifically robust technology platforms to identify commercially viable, protein-based drugs that could be developed across multiple therapeutic indications. The bet paid off. Today, Regeneron has a marketed product — ARCALYST (rilonacept), an IL-1 antagonist used to treat a rare hereditary condition called Cryopyrin-Associated Periodic Syndromes (CAPS) — and 11 drug candidates in early-to-late stage clinical development for no fewer than 17 therapeutic indications!

In late 2007, Regeneron entered into a multi-billion dollar strategic partnership with sanofi-aventis to discover, develop, and commercialize fully human therapeutic antibodies utilizing Regeneron’s proprietary VelociSuite of technologies (including VelocImmune). Extended and expanded in 2009, the 10-year (through 2017) deal provides $160 million per year in research funding and pays 100% of development expenses. The collaboration has given Regeneron the necessary financial resources to expand its R&D operations and shore up its long-term development and commercialization capabilities.

Over the past two years, Regeneron (which currently employs approximately 1,500) has hired nearly 600 new employees and plans on possibly adding several hundred more. In addition to the company’s corporate headquarters and research laboratories in Tarrytown, NY, Regeneron has a large-scale biologics manufacturing facility in Rensselaer, NY and a satellite office in Bridgewater, NJ. A publicly traded company, Regeneron’s current market capitalization is $2.8 billion.

I had an opportunity to chat with Schleifer about Regeneron, its product pipeline, its future, and what it takes to build a successful company in the fast-paced and highly competitive biotechnology industry.

LSL: Regeneron is almost 23 years old and didn’t get its first product (Arcalyst) approved until 2008. How did the company sustain itself over the past two decades to ultimately achieve commercial success?

SCHLEIFER: When I look back over the years since I started Regeneron, there are a few “rules of the road” that made a difference for us. Most companies start out with an idea that they are going to do something important to address unmet medical needs. In our case, there were a lot of growth factors at the time that were being used to treat hematopoetic diseases like anemia (Epogen), neutropenia (Neupogen), and other similar indications.

I was trained as an M.D.-Ph.D. neurologist and interested in identifying neurotrophic growth factors that could be used to treat chronic, degenerative neurological disorders like ALS and Parkinson’s. So, the initial idea that resulted in the creation of Regeneron was to find these factors, cure some very important diseases, and then sail off into the sunset with a great sense of pride and satisfaction that we made a contribution to biomedical science.

Luckily, I had the good fortune to hire George Yancopoulos — a brilliant and extremely talented young scientist — as one of my first employees. Our original idea, coupled with an entrepreneurial desire and George’s enormous scientific skills, enabled us to clone many novel neurotrophic factors and attract lots of funding to develop these products into commercial entities. Unfortunately, the problem was that we couldn’t find a way to cost-effectively monetize these products to ultimately make a difference for patients suffering from devastating diseases like ALS and MS.

In most cases, this is the end of the line for a company: You had an idea, it didn’t work out, and you shut off the lights on your way out the building. But, at the time, we were convinced — even though our original idea made sense but didn’t work out — that if we leveraged our substantial resources, did first- rate science, and maintained our focus on making a difference for patients, then we would ultimately be successful. Put simply, we had a rare combination of talented people and a hearty dose of enthusiasm that was moderated by an extra amount of naiveté. In other words, we really didn’t know how hard this was going to be! Nevertheless, despite formidable challenges, we believed that if other start-ups like Genentech and Amgen could be successful, then so could we!

The early lesson (in retrospect) is that we never strayed from believing the only and ultimate path to success was going to be through doing good science, which could be translated into potential treatments for patients. This prompted us to invest more — not less — in our science and technology because we knew that we had to lay a strong foundation based on solid science to succeed over time. Interestingly, this approach or strategy is the exact opposite of what most venture capitalists tell early stage companies to do; most want companies to focus, not broaden, their R&D efforts.

I have to admit that going public early in our history allowed us to shed some of the venture capital notions about building a biotechnology company. This permitted us to fund many of our earlier R&D activities through public financing (which was possible back in 1991) and gave us the freedom to explore things that we thought were scientifically relevant. Not surprisingly, this resulted in development of our platform technologies that are largely responsible for our current success.

LSL: What do you think was the turning point for Regeneron that enabled it to move from a start-up to the next level?

SCHLEIFER: Our unwavering commitment to continue to do good science and good business. While George and his team did good science, I believe we did good scientific business and supported the company by doing creative transactions with companies that wanted to partner with us.

We never did deals or entered into partnerships with others unless we felt we would be successful and, in the end, that the fruits of our labor would be fairly shared. Many companies do deals and give away too many of their rights to products or ownership of their companies simply because they want to prop up their stock prices in the short term. Unlike them, we always took a long view and tried to do what the science dictated we believed was in the best interest of the company. When it comes to deal making, I like to tell people that we are “patiently impatient” and don’t enter into deals quickly unless there is a clear upside for us.

I believe the turning point for the company was a combination of our unwillingness to compromise our science and the seriousness with which we approached new drug development. This allowed us to attract large sums of investment capital because investors could see we were the “real deal.” Also, as a bit of advice, it is critical to allow your science to dictate your business rather than the other way around. Too often, companies decide to focus on a single therapeutic area whether or not that focus is justified. We always allowed our science to take us wherever it took us, and then we adapted the advances we made to treatments and products that made sense based on our science. That is why our current product pipeline contains treatments for a variety of seemingly disparate indications such as macular degeneration, gout, cancer, pain, and others.

We started out a neurological therapeutics company, but look where we are today. The bottom line: Don’t characterize or label yourself as a pain, oncology, or whatever company; let the science take you where it may, and then follow that lead to develop “commercializable” treatments.

LSL: What do you think differentiates Regeneron from other small to midsize biopharmaceutical companies?

SCHLEIFER: I firmly believe that young companies can only be successful if they permit creative people to do innovative things. Early on, I was willing to risk funding programs I knew weren’t going to immediately bear fruit because I recognized they represented our technology of the future. Even though it took several years to develop technology platforms like VelocImmune, it was worth the investment, because that product is largely responsible for our current success.

To be honest, you do need a fair amount of luck to succeed in this business. But, it is important to understand that innovation is not an institutional quality. People innovate; institutions don’t. One mistake that some life science executives make is that they believe R&D works for management. I contend that people like me — CEOs, CFOs, and other business types — must adopt the attitude that we, in fact, work for R&D if we truly want to succeed!

My role as CEO is to find the resources and create an environment that allows creative people to do innovative things. It is a problem if a CEO thinks that they can order up innovation from the top down — it simply won’t work! By way of analogy, you simply can’t call down to central casting and ask them to send you creative people to do innovative things. Innovation needs to be nurtured at a company, and, if management can accomplish this, then real benefits and value begin to accrue for shareholders.

However, I do believe that leadership matters. And, I strongly believe my scientific and medical training offers me some advantages over some of my nonscience counterparts who run biotechnology companies. This makes perfect sense to me; who better to run a company that revolves around technology and medicine than a person who understands the technology and the application of it to treat patients?

LSL: Roy Vagelos, M.D., a member of the National Academy of Sciences and former Merck CEO, joined Regeneron’s board of directors in January 1996. What impact did he have on helping to shape Regeneron’s future? Would you advise other biopharmaceutical CEOs to invite former or current pharmaceutical executives to sit on their boards?

SCHLEIFER: One of the big things Roy did is he pointed out to us that drug development is not merely about good science. He taught us that in order to do meaningful drug development, you need to have a good assay in the clinic just like you need one in the R&D laboratory. In other words, there needs to be a way to get accurate and meaningful clinical readouts to determine whether a drug candidate is actually hitting its intended target to treat the disease in question.

For example, it would have taken us years and loads of patients to determine whether a treatment for Lou Gehrig’s disease was effective or not. For instance, in marked contrast, we can more quickly, easily, and cost-effectively obtain clinical readouts for drugs to treat macular degeneration, high cholesterol, or pain. A shift to this way of thinking allowed us to make earlier and better decisions about prospective candidates in our product pipeline. Roy modified our mantra of allowing the science to take you where it takes you by adding the corollary, “as long as it leads to successful treatments for patients as soon as possible.”

I can’t generalize about whether former pharmaceutical executives can bring value to other small to midsize biotechnology companies. After all, a Roy Vagelos only comes along once in a generation. That said, if you can find and attract a guy like Roy Vagelos, then sign him up with no questions asked!

We recently added Christine Poon, who previously ran the worldwide pharmaceutical business for Johnson & Johnson, to our board of directors. Christine comes to us at a very important time in our development as a company because she understands how to build a commercial enterprise. Roy helped us build a formidable R&D enterprise, and we hope Christine can help us become a commercial biotechnology company.

LSL: Sanofi-aventis, Regeneron’s strategic partner since 2007, has publicly stated on numerous occasions it wants to improve its protein-based product pipeline and bolster its biotechnology capabilities. How vital is the relationship with sanofi to the long term health and goals of Regeneron?

SCHLEIFER: The partnership we created with sanofi was truly a transformative transaction. It allows us to think about possibly putting four to five molecules per year into the clinic over the next seven years. This is unprecedented for a company of our size that doesn’t have a major product on the market. Their investment into the company has allowed us to quickly advance eight unique antibody products for a variety of indications into clinical development.

There is no question that sanofi has given us a lot of financial and scientific resources that allow us to take lots of “shots on goal.” Together, we are talking about putting 30 to 40 molecules into clinical development over the life of the collaboration. That said, sanofi is a critical partner for the long-term success of Regeneron.

Sanofi recognized we had a powerful technology platform and that by partnering with us, we could mutually build a terrific biotechnology pipeline. The partnership is really a broad-based strategic alliance that is similar to the Roche-Genentech relationship in the early days before Roche acquired the company. It is truly a win-win situation for both sanofi and us.

LSL: Several of Regeneron’s products are in late-stage clinical development. What will be your approach to differentiate Regeneron’s products from your competitors’, and how will the company compete against larger players with similar products already on the market?

SCHLEIFER: As I previously mentioned, we have always allowed our science to take us where it may. To that end, our early focus on VEGF inhibitors led to development of novel treatments for a variety of oncology and eye indications, most notably wet, age-related, macular degeneration.

While Genentech already sells Lucentis and Avastin (off-label use) to treat this condition, we believe our fusion protein-based VEGF-trap drugs — which represent a unique molecule that affects a well-validated target in the VEGF pathway leading to macular degeneration — represents a potential advance for patients. This is because our phase 3 results showed that treatment will require half as many intraocular injections to get the same results as the macular degeneration drugs already on the market. Although this may appear to be only an incremental change from an innovative standpoint, it is likely to improve patient compliance and clinical outcomes, because instead of getting a monthly injection, patients who use our product (if it is approved) will receive intraocular injections once every other month. The results from Phase 3 clinical trials are encouraging, and we plan on submitting an application for approval in 2011.

Another innovative product in our pipeline that we are very excited about is our cholesterol-lowering drug REGN727, which is an LDL (low density lipoprotein) cholesterol-lowering monoclonal antibody. Initial clinical data from Phase 1 clinical trials indicates that REGN727 can lower LDL cholesterol levels by 50% in patients who are also treated with optimal-dose statin therapy. The drug works by exhibiting its effects on a novel cholesterol pathway, and we are aggressively pursuing its development with sanofi.

LSL: Regeneron is clearly in expansion mode and may hire up to several hundred more new employees. What types of workers is Regeneron hiring, and where is your greatest need?

SCHLEIFER: Over the last year, we have been trying to bolster our capabilities in our preclinical and clinical departments to allow us to conduct the research necessary to bring four to five new molecules per year over the next seven years into the clinic. Next year, we will focus on building our commercial capabilities in anticipation of launching several products during the next few years.

I like to hire people who want to work at Regeneron to make a difference by creating new treatments for patients. Regeneron employees have to be serious, hard-working, and passionate for science. And, most importantly, they must feel comfortable working in a fast-changing and challenging business environment that is characteristic of the biotechnology industry.

LSL: What do you think the life sciences industry will look like in the future?

SCHLEIFER: I am pessimistic about certain aspects of the industry but optimistic about others. I fear that price controls and an unrelenting emphasis on cost containment may be the undoing of the industry. To avoid this, we must remain vigilant about costs of new drug development and continue to explain to patients and payors that we have treatments, regardless of cost, that can drastically change patients’ lives.

On a positive note, I believe there is no end to the innovation in the biomedical sciences that exists in the United States. American scientists will continue to innovate, and I don’t think we are in real danger of losing that edge anytime soon. I say anytime soon because unless we improve the quality of math and science education in this country, it may happen someday. It is incumbent upon life sciences companies to invest in enticing our best and brightest students to consider careers in the life sciences industry. If we fail to make this a priority, then the United States will eventually lose its innovative edge in the biomedical sciences. Unfortunately, American politics have become so partisan that it is becoming increasingly difficult to reach a consensus over any major issues facing most Americans. This has got to stop if we want to remain competitive with the rest of the world.

I think the industry will look different in the future because much of the innovation in the life sciences will come from biotechnology companies rather than big pharma. This is because big pharma continues to shift its focus away from R&D to commercialization, distribution, and marketing and sales. While this may not be good for pharma, it may lead to resurgence in the number of start-up biotechnology companies.