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Regeneron Pharmaceuticals, Inc. (REGN - Analyst Report) recently announced that the approval of partner Novartis’ (NVS - Analyst Report) llaris (canakinumab, ACZ885) in the EU for the acute gouty arthritis (gout) indication has opened up an additional royalty stream for it. The European Commission cleared the drug for treating adults suffering from frequent attacks of acute gout.

We remind investors that in Jun 2009, Regeneron inked a deal with Novartis following which the former receives royalties on global sales of Ilaris in the range of 4%–15%.  Under the terms of the deal, Regeneron is entitled to receive the maximum royalty of 15% when the global sales of the drug go past $1.5 billion. Regeneron stated in its press release that it received royalties of $2.8 million in 2012 from Ilaris sales.

We note that gout – a serious, chronic and progressive inflammatory disease – is characterized by a high prevalence of comorbidities, such as hypertension, kidney ailment, diabetes, dyslipidemia and cardiovascular disorder. Patients experience attacks of gout when the body has a strong inflammatory response to the uric acid crystals forming in the affected joint. Moreover, the symptoms of such attacks cannot or should not be managed with existing therapies.

The approval of Ilaris makes it the first biologic to be cleared in the EU for symptomatic pain relief in a gouty arthritis indication. The drug has to be administered to the gout patients through a single, subcutaneous 150 mg injection.

However, Novartis has not yet tasted success with Ilaris for the gout indication in the US. In Aug 2011, the US Food and Drug Administration (FDA) issued a complete response letter (CRL) to the company refusing to approve Ilaris for gout on the basis of the available data. The US regulatory body asked for additional data while issuing the CRL. Novartis is working with the FDA to address the issues.

Both Novartis and Regeneron carry a Zacks Rank #3 (Hold). Favorably placed stocks in the pharma space include Array Biopharma (ARRY - Snapshot Report) and Eli Lilly and Company (LLY - Analyst Report). Both companies carry a Zacks Rank #2 (Buy).

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