Analyst Conference Summary

Biotechnology

conference date: February 6, 2019 @ 5:30 AM Pacific
for quarter ending: December 31, 2018 (Q4, fourth quarter)

Forward-looking statements

Overview: Continued strong revenue and profit growth. One-time items affected GAAP profits both in 2018 and 2017, so see non-GAAP numbers for more normalized data.

Basic data (GAAP):

Revenue was $1.93 billion, up 16% sequentially from $1.66 billion and up 22% from $1.58 billion in the year-earlier quarter.

Net income was $820 million, up 38% sequentially from $595 million, and up 371% from $174 million year-earlier.

Diluted Earnings Per Share (EPS) was $7.15, up 38% sequentially from $5.17 and up 377% from $1.50 year-earlier.

Guidance:

For the full year 2019 estimated Sanofi collaboration revenue of $510 to $560 million. Unreimbursed R&D GAAP $1.86 to $2.00 billion, non-GAAP $1.59 to $1.71. GAAP SG&A $1.70 to $1.83 billion; non-GAAP $1.50 to $1.60 billion. Tax rate 14% to 16%. Capital expense $410 to $490 million.

Conference Highlights:

Leonard S. Schleifer, CEO, said "In 2019, we plan to strengthen EYLEA's U.S. market leadership position with a potential approval in diabetic retinopathy. With the fourth quarter U.S. approval of Dupixent in asthma, and the potential 2019 approvals in adolescent atopic dermatitis and chronic rhinosinusitis with nasal polyposis in the U.S. and asthma in the EU, Dupixent continues to deliver on its potential as a pipeline in a product. Libtayo, our first approved immuno-oncology therapy, has begun its launch in advanced cutaneous squamous cell carcinoma and we continue to investigate multiple other potential indications, both as monotherapy and in combination. This year we plan to initiate two potentially pivotal lymphoma studies with our most advanced bispecific antibody, CD20xCD3, and to advance two innovative co-stimulatory bispecific antibodies into human clinical studies." Still in the early stage of the Dupixent launch.

Revenue by type: product sales $1.10 billion. Sanofi collaboration revenue $428 million. Bayer collaboration revenue $302 million. Other income $102 million.

Revenue included a one-time benefit of $149 million due to a change in the Sanofi agreement.

Libtayo (cemiplimab) was approved by the FDA of advanced cutaneous squamous cell carcinoma on September 28, 2018. Q4 sales were $15 million. Decision in the EU expected in 2019. The PD-1 space is very crowded, but this will be the first approval for CSCC. Also in Phase 3 non-small cell lung cancer and increasing the trial size. Looking at other solid tumors. Sanofi exercised its option to co-promote in the U.S.

Full year 2018 revenue was $6.71 million, up from $5.87 million in 2017. GAAP net income $2.44 billion, up from $1.20 billion. EPS 21.29, up from $10.34. Non-GAAP net income $2.62 billion, up from $1.90 billion. Non-GAAP EPS $22.84, up from $16.32.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of $93.2 million, up 16% sequentially from $80 million and up 47% from $63.3 million year-earlier. Regeneron shares any profits or losses with Sanofi.

Eylea (aflibercept) revenue from U.S. sales increased to $1.08 billion, up 6% sequentially from $1.02 million and up 11% from $979 million year-earlier. Regeneron recognized $271 million from Bayer's ex-U.S. sales of $724 million up 14% y/y.

Dupixent (Dupilumab) for moderate to severe atopic dermatitis and asthma global sales by Sanofi were $319 million, up 21% sequentially from $263 million, the third quarter with sales. U.S. asthma launch continued. Reported positive Phase 3 results in chronic rhinosinusitis with nasal polyps. European launches underway. In October 2018, the FDA approved Dupixent as an add-on maintenance therapy in patients with moderate-to-severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid-dependent asthma. In December 2018, with Sanofi submitted an sBLA for chronic rhinosinusitis with nasal polyposis. With Sanofi submitted a sBLA and a Marketing Authorization Application for an expanded atopic dermatitis indication in adolescent patients. The FDA set a target action date of March 11, 2019.

Kevzara (Sarilumab) for rheumatoid arthritis $35 million in global sales by Sanofi, up sequentially from $25 million and up from $10 million year-earlier. Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $ million, up % from $ million year-earlier.

Non-GAAP results: net income $786 million, up 16% sequentially from $675 million and up %29 from $607 million year earlier. Diluted EPS $6.84, up % sequentially from $5.87 and up 31% from $583 year-earlier. Excludes the usual GAAP items, notably non-cash share-based compensation expense of $465 million.

Fasinumab for pain due to osteoarthritis Phase 3 study reported postive results in Q3. A Phase 3 study for chronic lower back pain continued. But moving forward only with the lower-dose regimen.

Regeneron and Sanofi entered into an agreement to restructure their Immuno-oncology Discovery and Development Agreement narrowing the scope of the existing activities conducted by the Company to developing therapeutic bi-specific antibodies targeting BCMA and CD3 (BCMAxCD3) and MUC16 and CD3 (MUC16xCD3). Regeneron retains full rights to its other immuno-oncology programs that were part of the original agreement.

The Phase 3 PANORAMA trial evaluating Eylea in patients with moderately severe and severe non-proliferative diabetic retinopathy (NPDR) met its one-year primary endpoint and key secondary endpoints, including both the improvement of diabetic retinopathy and reduction in vision-threatening complications.

In Q3 Entered into a collaboration with Bluebird Bio for combinations with CART therapies. Includes buying $100 million worth of BLUE stock.

Has moved one bispecific, REGN4018 (MUC16 and CD3) to the clinic this year with encouraging results so far in platinum-resistant ovarian cancer.

REGN1500, another dyslipidemia treatment, is in Phase 2 trials.

REGN2477 for FOP (fibrodysplasia ossificans progressiva) continues Phase 2 study.

REGN3500 started a Phase 2 program for asthma. Studies for COPD, and atopic dermatitis should begin in 2018. Could be complementary to Dupixent.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $4.56 billion, up sequentially from $4.07 billion.

GAAP expenses of $1.21 billion consisted of: cost of goods sold $44 million; research and development $601 million; selling, general and administrative $491 million; collaboration manufacturing costs $73 million. Leaving income from operations of $718 million. Interest and other net income was $42 million. Income tax benefit was $144 million.

Q&A:

Diabetic Retinopathy 2019 impact? We think it will take time to develop that market. We think the number of patients is higher than previously thought. Should be working for prevention, which works better than treatment.

Pricing trends? Our pricing has been slighly lower due to discounting.

Asthma launch? We see it as important, in addition to atopic dermatitis. We are getting a good response from allergists and other physicians. There are about 1 million patients that could be treated with asthma biologics, only about 100,000 are treated that way so far.

Bispecific antibody tumor penetration properties? Thinks it is pseudoscience that antibodies can't get access to solid tumors. Science says lack of response has to due with specific immune recognition characteristics. Our therapy manipulates the tumor environment to attack the tumor. The activity is not limited by the size of the molecule, per our studies.

Something has to give regarding international reference pricing. The problem is figuring out a system that can really balance that.

Libtayo launch? It is the only therapy for its target indication. We are seeing good uptake based on demand growing monthly. Insurance coverage is good. Told story about a doctor/patient who had exhausted all other options and had a remarkable recovery.

Potential for penetration to moderate patients for asthma for Dupixent? Early on it tends to be severe patients. Allergists who have already used Dupixent in atopic dermatitis has given them confidence for asthma. We believe we can shift the paradigm for treatment, as these are systemic conditions.

Dupixent and food allergies? The science supports systemic immune malfunction leading to the uptick in allergies. We are studying to see if the data support our hypothesis.

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