Analyst Conference Summary

Regeneron Pharmaceuticals

conference date: August 6, 5:30 AM
for quarter ending: June 30, 2013 (second quarter 2013)

Forward-looking statements

Overview: Ongoing rapid expansion of revenue and profits.

Basic data (GAAP):

Revenue was $457.6 million, up 50% from $304.4 million in Q2 2012.

Net income was $87.4 million, up 14% from $76.7 million year-earlier.

Diluted Earnings Per Share (EPS) was $0.79, up 13% from $0.70 year-earlier.


Raised full year net sales (not full revenue) forecast to between $1.3 and $1.35 billion.

Non-GAAP unfunded R&D expense for full 2013 now expected at $225 to $275 million down from prior $275 to $325 million.

GAAP tax rate for remainder of year in low 40% range, but does not expect to pay significant cash taxes through at least 2014.

Conference Highlights:

Non-GAAP numbers: net income $198 million or $1.73 per share, down sequentially from $1.78, but up from $102 million or $0.90 per diluted share year-earlier. The sequential EPS decrease was due to the $20 million Sanofi payment and the Genentech royalty expense settlement.

Revenue and net income were each reduced $20 million by payments to Sanofi to acquire full rights to the antibodies PDGF and Ang2 for ophthalmology.

Positive Phase 3 data for Eylea for diabetic macular edema (DME) was reported and Regeneron is planning to submit the drug to the FDA for approval later this year. DME opportunity could be as large as Wet AMD.

Total revenue of $457.6 million consisted of: product sales $333.9 million; Sanofi collaboration revenue $85.5 million; Bayer collaboration revenue $31.1 million; licensing $5.9 million; and other, $1.2 million.

Eylea revenue was $330 million, up 70% from $194 million year-earlier. $34 million was received from Bayer on $96 million of international sales, which continue to expand nation by nation. A variety of Phase 3 trials are underway to expand the label.

However, wet macular degeneration (AMD) market research from physician questionnaires, while showing Eylea now has about one-half the U.S. market for approved products (which in turn account for more than half of the overall market), some specialists are favoring the use of an off-label alternative (Bevacizumab (Avastin)) due to cuts in Medicare from sequestration. In Q2 60% of Eylea treated eyes were continuing from previous months. 18% were switches from other drugs, and 21% were new to anti-VEGF treatment. Pool of patients available for switching has stabilized. This is the first time new patients exceeded switches.

Zaltrap for metastatic colorectal cancer is in collaboration with Sanofi, which recorded sales of $19 million in the quarter. Does not expect for Zaltrap to generate meaningful revenue on 50% royalty on sales until Regeneron's share of research expenses are repaid.

Arcalyst for Cryopyrin-Associated Periodic Syndromes (CAPS) revenue dropped to $4 million from $6 million year-earlier.

Additional Phase 3 trials for Eylea, alirocumab for LDL cholesterol and sarilumab for Rheumatoid arthritis are underway. Has a total of 12 antibodies in clinical development, all of which were developed in-house. See also the Regeneron Pipeline.

Cash and equivalents balance ended at $711 million. Debt in convertible senior notes was $308 million.

Expenses of $299.5 million consisted of: cost of goods sold $27.3 million; research and development $187.5 million; selling, general and administrative $72.5 million; collaboration manufacturing costs $12.3 million. Leaving income from operations of $158.1 million. Interest and other income was negative $10.4 million. Income tax expense was $60.3 million.


Eylea DME compared to Lucentis? Eylea DME data were strong, but results will be presented at a medical conference later this year.

PCSK9 (Alirocumab) change to once per month from twice per? Cholesterol lowering market historically personalized doses for patients. It is not new data, it is just an option for many of the patients. For those who need more, they can take it every two weeks. We believe our injection delivery systems can be a competitive edge.

Inventory reduction at distributors? It was 1 to 2 week range, it fluctuates, we can't predict it. But there was a drawdown in Q2.

For wet AMD has you taken more share from Avastin than Lucentis? You premise is not quite accurate. Lucentis uptake in the U.S. slowed significantly when Eylea was introduced. Regeneron took market share from both Avastin and Lucentis, but there was some stickiness with Lucentis. They have a rebate program, which we don't have. We are at about a 50/50 split with Lucentis. "We expect wet AMD to continue to grow in the United States."

DME deaths? We did not find any dose-dependent increase in deaths with Eylea. The laser (non-drug) arm had the same number of APTC deaths, two, as the Eylea arms.

Eylea DME opportunity size? About 25 million people in the U.S. have diabetes, with about 2 million new per year. Over 65, people have a 25% change of having diabetes. Several million people have diabetic retinopathy. Between 0.5 and 1 million people have DME (diabetic macular edema). So a very significant market opportunity. Diabetes related eye disease is the most common cause of blindness in young people. Our studies show patients could be dosed every other months in a disease where compliance is an issue.

Reimbursement issues, switches to Avastin? Our market research indicates people are figuring out the reimbursement issue and there is still potential to take market share from Avastin.

Regeneron has plenty of drug candidates that we could put into the clinic. If a candidate does not work out, we can kill it early, which is better than having to kill it in Phase 2 or 3.

PCSK9 (Alirocumab) 2 week dosing regimen is not being abandoned. The monthly dosing just adds another treatment option.

AMD dosing interval has been expanding, from 6 weeks at the beginning to 7.2 now, but we believe it will be stable around 7.2. It shows Eylea's strength. We can expand revenue to adding new patients.

In studies you see a lot of statistical fluctuations, including deaths and adverse events in small subgroups. If PDGF really works, it will come out in a sufficiently large study.

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Disclaimer: My analyst call summaries may include both our condensations of statements made by company representatives and my own analysis. They are not covered by any warranty. I cannot guarantee anything said by company representatives is true. I try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2013 William P. Meyers