Analyst Conference Summary

Biotechnology

Regeneron Pharmaceuticals
REGN

conference date: August 3, 2017 @ 5:30 AM Pacific Time
for quarter ending: June 30, 2017 (Q2, second quarter)


Forward-looking statements

Overview: Continued rapid revenue and profit growth led by Eylea, with first Dupixent revenue.

Basic data (GAAP):

Revenue was $ 1.47 billion, up 11% sequentially from $1.32 billion and up 21% from $1.21 billion in the year-earlier quarter.

Net income was $388 million, up 56% sequentially from $249 million, and up 98% from $196 million year-earlier.

Diluted Earnings Per Share (EPS) was $3.34, up 55% sequentially from $2.16 and up 98% from $1.69 year-earlier.

Guidance:

Positive 2017update: Eylea U.S. sales up 10% y/y; Sanofi reimbursements $370 to $400 million; non-GAAP R&D expense $925 to $965 million; non-GAAP SG&A $1.12 to $1.16 billion. Effective tax rate 27 to 31%. Capital expenditures $250 to $285 million.

Conference Highlights:

Leonard S. Schleifer, President and CEO, said "We continued to bring our market-leading therapy EYLEA to more patients with retinal diseases, resulting in strong global sales.  We also markedly expanded our positive impact on patient lives with two important new product launches for serious diseases, Dupixent for moderate-to-severe atopic dermatitis and Kevzara for moderately to severely active rheumatoid arthritis. The Dupixent U.S. launch in moderate-to-severe atopic dermatitis is proceeding well, with a very positive reception in the physician and patient community and strong commercial execution. In the second half of the year, we anticipate EU approval for Dupixent in atopic dermatitis, as well as Phase 3 study results and a potential U.S. regulatory submission for Dupixent in uncontrolled asthma."

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) had global sales by Sanofi of $46 million, up sequentially from $36 million. Regeneron shares any profits or losses with Sanofi. Continues to be disappointed by uptake of the PCSK9 inhibitor class, optimistic long term, including the patent dispute with Amgen.

Eylea (aflibercept) revenue from U.S. sales increased to $919 million, up 8% sequentially from $854 million and up 11% from $831 million year-earlier. Bayer's sales outside the U.S. were $542 million, up 12% from $486 million year-earlier. Regeneron recognized $191 million from those ex-U.S. sales.

Dupilumab (Dupixent) for moderate to severe atopic dermatitis global sales by Sanofi were $29 million, the first quarter with sales. Also being studied for asthma, eosinophilic esophagitis, and chronic sinusitis. Hopes for European approval before the end of 2017, having recieved a positive opinion from CHMP in July.

Sarilumab (Kevzara) for rheumatoid arthritis was approved by the FDA in May, but no revenue was reported.

Other revenue was $113.5 million, up from $23.1 million year-earlier on multiple milestone payments.

Non-GAAP results: net income $487 million, up 45% sequentially from $336.5 million and up 48% from $329 million year earlier. Diluted EPS $4.17, up 43% sequentially from $2.92 and up 48% from $2.82 year-earlier. Excludes the usual GAAP items, notably $70 million in non-cash share-based compensation expense.

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. Positive preliminary results from the Phase 1 trial were presented at ASCO in June. Phase 2 studies in non-small cell lung cancer and basal cell carcinoma should begin in 2017. Also, the company agreed to evaluate 2810 in combination with a product from Inovio and also in combination with a product from SillaJen.

REGN1979 received orphas drug designation for diffuse large B-cell lymphoma.

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.

REGN3918 for PNH (paroxysmal nocturnal hemoglobinuria) initiated a Phase 1 study in healthy volunteers in Q2.

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

Evinacumab for hyperlipidermia showed positive Phase 2 results in May.

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 $2.33 billion, up sequentially from $2.27 billion. Cash flow from operations in Q2 were impacted by higher cash taxes and other factors. Cap ex $55 million.

GAAP expenses of $920 million consisted of: cost of goods sold $42 million; research and development $510 million; selling, general and administrative $307 million; collaboration manufacturing costs $61 million. Leaving income from operations of $550 million. Interest and other net expense was $24 million. Income tax expense was $138 million.

26% effective tax rate in Q2. The tax rate will be variable quarter to quarter because of the new rule for stock-based compensation.

Q&A:

Eylea compared to Lucentis? Growing market due to demographics, and gained share, partly related to positive data in diabetic macular edema. Lucentis decline could be due to discounting.

Dupixent patient adds going forward? Payers are coming on board on a regular basis. We are doing education on disease awareness. Did not see a bolus on launch, rather a steady ramp. First patients were most severe, physicians could now go to less severe. Believes patients seeing good results will lead to market share long term.

2810, PD-1, what differentiates it from other PD-1 inhibitors? We have seen PD-1s succeed and fail, so there are differences (and gave several other examples). It is a really difficult business, an industry of failure because the bar is set high. Regeneron has been very good at selecting the right targets and candidates, which is under-appreciated. Yammered on about how great Regeneron management is rather than answering the question.

Dupixent launch, 13,000 prescriptions vs. filled? There is a lag. The number of new prescriptions written has been about 750 per week, steady for months. Too early to give specific numbers for filled prescriptions.

Early data in compliment program? Too early to say yet.

Asthma study, difference between populations in Phase 2 and 3? The populations are very similar. Design is to look in all-comers population, but also can see the high EO population. No one else has data for a biologic that affects the all-comer population.

Dupixent authorization criteria? One third are on label, one third slightly more restrictive, one third have automatic blocks or it will just take time.

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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