Analyst Conference Summary

Biotechnology

Regeneron Pharmaceuticals
REGN

conference date: February 9, 2017 @ 5:30 AM Pacific Time
for quarter ending: December 31, 2017 (Q4, fourth quarter)


Forward-looking statements

Overview: Continued solid revenue growth, with much more rapid profit growth.

Basic data (GAAP):

Revenue was $1.23 billion, up 1% sequentially from $1.22 billion and up 12% from $1.10 billion in the year-earlier quarter.

Net income was $253 million, down 5% sequentially from $265 million, and up 63% from $155 million year-earlier.

Diluted Earnings Per Share (EPS) was $2.19, down 4% sequentially from $2.27 and up 63% from $1.34 year-earlier.

Guidance:

For 2017, Eylea U.S. net product sales are expected to show single digit percentage growth over 2016. Sanofi reimbursement to Regeneron of $400 to $450 million. Non-GAAP R&D expense $950 million to $1.025 billion. SG&A $1.175 to $1.25 billion. 32% to 38% effective tax rate. $375

Conference Highlights:

Leonard S. Schleifer, President and CEO, said "In March, we look forward to the potential U.S. approval of Dupixent, our innovative and breakthrough IL4/13 blocking antibody, in adults with atopic dermatitis.  We believe Dupixent may have the potential to help additional patients with serious allergic diseases, with pivotal Phase 3 data in adult asthma patients expected later this year.  We are also studying Dupixent in patients with nasal polyps and pediatric patients with asthma or atopic dermatitis." Also expects Sarilumab (Kevzara) to get FDA approval in 2017 for rheumatoid arthritis; it was approved last week in Canada.

The permanent injunction won by Amgen against Praluent was stayed pending appeal.

Regeneron expects at least one new drug approval each year for the foreseeable future. Preparing to launch sarilumab upon regulatory approval.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) had global sales by Sanofi of $41 million. Full year 2016 sales were $116 million. The trial of long-term outcomes is ongoing, with results expected before the end of 2017, but a competitor's (Amgen) results were positive.

Eylea (aflibercept) revenue from U.S. sales increased to $858 million, up less than 1% sequentially from $854 million and up 15% from $746 million year-earlier. Bayer's sales outside the U.S. were $496 million, up 20% from $413 million year-earlier. Regeneron recognized $165 million from those ex-U.S. sales.

Non-GAAP results: net income $353 million, down 3% sequentially from $365 million and up 37% from $258 million year earlier. Diluted EPS $3.04, down 3% sequentially from $3.13 and up 36% from $2.23 year-earlier. Excludes the usual GAAP items, notably $154 million in non-cash share-based compensation expense.

Total revenue of $1.23 billion consisted of: product sales $863 million; Sanofi collaboration revenue $131 million; Bayer collaboration revenue (Eylea outside the U.S.) $181 million; licensing and other, $52 million.

Sarilumab (Kevzara) for rheumatoid arthritis is on FDA hold (complete response letter) due to a manufacturing problem at Sanofi, which should be fixed promptly. Expects to resubmit the BLA in Q1 2017.

Dupilumab (Dupixent) is being studied for atopic dermatitis, asthma, and chronic sinusitis. Atopic dermatitis Phase 3 data regulatory filing was submitted to the FDA with a decision due on or before March 29 (PDUFA date). A mid-stage, Phase 2 trial for eosinophilic esophagitis is ongoing. A phase 3 study for persistent asthma completed enrollment. Believes sales could begin in 2017.

Fasinumab for pain due to osteoarthritis is in a Phase 3 study started to test long-term safety and efficacy. Also a Phase 3 study for chronic lower back pain will be initiated in 2017.

REGN2810 antibody for PD-1 for cutaneous squamous cell carcinoma continued a potentially pivotal Phase 2 trial in collaboration with Sanofi. Phase 2 studies in non-small cell lung cancer and basal cell carcinoma should begin in 2017

REGN1500, another dyslipidemia treatment, is in Phase 2 trials. Initial data from a smaller study will be presented soon.

REGN2222 targeting RSV (respiratory syncytial virus) is in Phase 3 clinical studies and should report results in 2017.

REGN2176-3 for neovascular age-related macular degeneration, or wet AMD, is in a Phase 2 trial that should report data in 2016.

REGN 2477 for FOP (fibrodysplasia ossificans progressiva) is completing a Phase 1 study in healthy volunteers and received orphan drug designation.

REGN3470-3471-3479 for Ebola continued a Phase 1 study in healthy volunteers.

REGN3767 began a Phase 1 trial for advanced malignancies. It is an antibody to LAG-3.

Identified antibody candidates for Zika and are doing preclinical tests.

Nesvacumab/aflibercept continued a Phase 2 study in DME and wet AMD, with data expected in 2017.

Regeneron also hope to continue to expand the label for Eylea. A phase 3 study for diabetic retinopathy in patients not having DME is ongoing.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $1.90 billion, down sequentially from $2.19 billion. $401 million in warrants were repurchased, leaving no debt. But does carry $1.06 billion in deferred revenue.

GAAP expenses of $880 million consisted of: cost of goods sold $45 million; research and development $479 million; selling, general and administrative $326 million; collaboration manufacturing costs $30 million. Leaving income from operations of $347 million. Interest and other net expense was $5 million. Income tax expense was $88 million.

Q&A:

Eylea combination trial design rational? We believe that for the blinded, single injection trial the 36 week data will be best for evaluating the value of adding Nesvacumab (Ang2 target) to Eylea. The primary endpoint is 36 week.

Eylea guidance to slowdown causes? This is the last year we will guide for individual products. "Forecasting is always somewhat tenuous." There are a lot of variables that affect the market. Fifth year for the product.

Injunction and Praluent outlook? The opinion can be read online. We believe the court indicated we could win, and we are likely to suffer irreparable harm from the injunction.

I think President Trump is going to find that we do negotiate prices with Medicare providers, just not with one central office. It will take congressional action to change the laws. It is the copays and coinsurances are the real problem, so they might provide some relief there. Breakthrough drugs should be rewarded, while price increases that are not the result of innovation should be pushed back on.

Controversy over prices of Pcsk9 products are not a good indicator for Dupixent. The data is dramatic, it really is a breakthrough. It does not require Methotrexate. We are having good discussions with payers about responsible pricing.

"I want a tough FDA, because I want a high bar. I want a balanced and fair playing field."

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Disclaimer: My analyst call summaries may include both 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 2017 William P. Meyers