Analyst Conference Summary


Regeneron Pharmaceuticals

conference date: November 4, 2014 @ 5:30 AM Pacific Time
for quarter ending: September 30, 2014 (Q3, third quarter 2014)

Forward-looking statements

Overview: Continued strong growth in Eylea sales while pipeline progresses. Increased R&D and sales expense held back profits.

Basic data (GAAP):

Revenue was $725.8 million, up 9% sequentially from $665.7 million and up 22% from $597.0 million in the year-earlier quarter.

Net income was $79.7 million, down 14% sequentially from $92.7 million, and down 44% from $141.3 million year-earlier.

Diluted Earnings Per Share (EPS) was $0.70, down 15% sequentially from $0.82 and down 44% from $1.25 year-earlier.


$1.7 to $1.74 billion full year 2014 U.S. Eylea revenue, which tightens the range (was $1.7 to $1.8 billion).

Non-GAAP non-reimbursed R&D expense increased to $490 to $510 million. Non-GAAP SG&A increased to $330 to $350 million.

Capital expense $300 to $350 million.

Conference Highlights:

Believes Eylea "is positioned for continued strong growth given recent approvals in macular edema following retinal vein occlusion and diabetic macular edema (DME) as well as top-line results of the NIH-sponsored DRCR Protocol T DME study, in which EYLEA showed significant gains in visual acuity compared to both alternative anti-VEGF therapies."

Non-GAAP numbers: net income $295.1 million, up 2% sequentially from $289 million and up 6% from $277.3 million year earlier. Diluted EPS $2.52, up 2% sequentially from $2.47 and up 5% from $2.40 year-earlier. Excludes the usual GAAP items, plus a $40.6 million branded prescription drug fee one-time adjustment. Includes the $34 million or $0.29 charge included for purchase of a priority review voucher.

Total revenue of $725.8 million consisted of: product sales $449 million; Sanofi collaboration revenue $133 million; Bayer collaboration revenue (Eylea outside the U.S.) $136 million; licensing and other, $8 million. The Bayer revenue included two $15 million milestone payments.

Eylea (aflibercept) U.S. revenue was $445 million, up % sequentially from $415 million and up 23% from $363 million year-earlier. Bayer sales of Eylea outside the U.S. were $277 million, more than doubling the $125 million achieved year-earlier. Regeneron booked $85 million revenue after expenses from ex-U.S. sales. Has about 1/2 the anti-VEGF inhibitor market in the U.S.

The FDA approved Eylea for DME (diabetic macular edema) in July, 2014. Applications have also been submitted in Japan. Also received approval in Europe in August. Also approved for macular edema following branch retinal vein occlusion in the U.S. in October. Regeneron believes there are 600,000 DME patients in the U.S. annually, only about 40% of them already being treated with a anti-VEGF inhibitor. However, believes uptake for DME will be slower than with wet AMD. The DME patients are younger, pre-Medicare, and more likely to be treated with lasers.

Zaltrap for metastatic colorectal cancer is in collaboration with Sanofi, which recorded sales of $23 million, sequentially from $21 million, but for which Regeneron had a net loss from R&D reimbursements of $1 million.

Expects applications for approval for Alirocumab for LDL to be submitted by end of 2014. Nine Phase 3 studies reported positive data in July. In cooperation with Sanofi. Target is 22 million global patients at high risk for heart attacks and strokes. Planning submission to FDA and EMU before the end of 2014. Planning for marketing upon approval. Launch expected second half of 2015, but sharing pre- and post-commercialization expenses with Sanofi. These will be recorded in the SG&A line, and then balanced with Sanofi's expenses within the Sanofi revenue line.

Sarilumab for rheumatoid arthritis in enrolling a Phase 3 trial, with another Phase 3 trial comparing it as a monotherapy against adalimumab expected to begin before the year ends.

Dupilumab is being studied for atopic dermatitis, asthma, and chronic sinusitis. In October a Phase 3 study for atopic dermatitis began enrollment. Data on the 2b asthma study is expected to be reported by the end of the year. In September positive 2a results for sinusitis were reported.

REGN1979 antibody against CD20 and CD3 initiated a Phase 1 oncology study.

REGN910-3 initiated a Phase 1 study in ophthalmology. It is an Ang2 antibody with Eylea.

Regeneron has a total of 14 antibodies in clinical development, all of which were developed in-house, but seven of which are in collaboration with Sanofi. See also the Regeneron Pipeline.

Cash and equivalents balance ended at $1.5 billion, up sequentially from $1.37 billion. Debt of $161 million in convertible senior notes will be settled with cash and shares.

GAAP expenses of $543.1 million consisted of: cost of goods sold $33.7 million; research and development $337.7 million; selling, general and administrative $149.7 million; collaboration manufacturing costs $21.9 million. Leaving income from operations of $182.7 million. Interest and other expense was $6.6 million. Income tax expense was $96.4 million.

While profitability will be hurt short term by preparation for commercializing the late-stage pipeline, Eylea revenue should ramp with little increase in sales expense because the physicians treating DME are largely the same as those already prescribing Eylea.

Will start paying significant cash taxes in 2015 as credits end.


Ophthalmology visits weak this year, effect on Eylea? Retinal specialists are a small subgroup of ophthalmologists. We have not seen a slow down in visits.

Ang-PTL3 target, is anyone else working on it? We are the only company trying to develop a fully human antibody to the receptor. Human genetic evidence shows it can lower LDL and can dramatically lower triglycerides. We are very excited about the target and moving forward.

Moving Eylea guidance to lower end of prior guidance? We are encouraged by DME uptake we have seen. Sample growth has been good. The big difference is the ramp is going to be slower because of reimbursement questions and the need is less urgent.

PCSK9, Alirocumab lawsuit, why not predicted earlier? Amgen has commented. We have skills in the patent arena. We don't believe we infringe any valid claims. [See Amgen lawsuit press release]

Phase 3 atopic dermatitis, size of adult market? The pediatric audience is important; we believe the children suffer. We intend to develop that, but we had to start with adults. Globally the adult target audience is about 2 million.

DRCR study was well-conducted. We believe the top line results will turn out well.

Eylea year guidance implies 12% sequential growth, is that the new growth rate? Your math is correct for the quarter.

Rational for developing PD1 antibody at this point, as opposed to other checkpoint inhibitors? We think it is very early in the game for immune regulators and inhibitors. We want to have our own foundation therapy to use in combinations. It is a long-term strategy. We are going to try to do different things than have been done before with PD1.


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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 2014 William P. Meyers