Analyst Conference Summary

Biotechnology

conference date: August 6, 2019 @ 5:30 AM Pacific Time
for quarter ending: June 30, 2019 (Q2, second quarter 2019)

Forward-looking statements

Overview: Strong revenue growth. Note large difference between GAAP and non-GAAP profit numbers.

Basic data (GAAP):

Revenue was $1.93 billion, up 13% sequentially from $1.71 billion and up 20% from $1.61 billion in the year-earlier quarter.

Net income was $193 million, down 58% sequentially from $461 million, and down 65% from $551 million year-earlier.

Diluted Earnings Per Share (EPS) was $1.68, down 58% sequentially from $3.99 and down 65% from $4.82 year-earlier.

Guidance:

Updated 2019 guidance highlight is a slight decrease in the high end of expected Sanofi collaboration revenue to $530 million from $535 million. Expense projections increased slightly. Capital expense guidance slightly decreased.

Conference Highlights:

Leonard S. Schleifer, CEO, said "We had a great quarter marked by top and bottom-line growth as well as important advances across our innovative R&D engine. We are further unlocking Eylea's potential to help patients with the recent approval in diabetic retinopathy, and are advancing a high-dose formulation into the clinic later this year. Dupixent is growing rapidly in moderate-to-severe atopic dermatitis and asthma, and we continue to receive new indications in younger patients and additional Type 2 diseases, including the recent U.S. approval for chronic rhinosinusitis with nasal polyposis. Lastly, our immuno-oncology platform, which includes Libtayo and our portfolio of bispecific antibodies, is progressing well, with the most advanced bispecific program, REGN1979 (CD20xCD3), entering a potentially pivotal Phase 2 trial in follicular lymphoma."

Dupixent was approved by the EU for severe asthma in Q2, following the March 2019, FDA approval of Dupixent for adolescent patients 12 to 17 years of age with moderate-to-severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies. Dupixent as an add-on maintenance treatment for adults with inadequately controlled severe chronic rhinosinusitis with nasal polyps (CRSwNP), was approved in Q2 2019. In Europe the CHMP recommended Dupixent as an add-on maintenance treatment for severe asthma. In Q1 2019 also initiated a Phase 3 study in COPD.

Revenue by type: product sales $1.21 billion. Sanofi collaboration revenue $349 million. Bayer collaboration revenue $289 million. Other income $90 million.

In April 2019, Regeneron entered into a collaboration with Alnylam (ALNY) to discover, develop, and commercialize new RNA interference, or RNAi, therapeutics for diseases of the eye, central nervous system, and targets expressed in the liver. Regeneron will make an up-front payment of $400 million and purchase $400 million of Alnylam common stock. It will also provide Alnylam with a specified amount of funding at program initiation and at lead candidate designation, with Alnylam eligible to receive up to $200 million in clinical milestones.

Libtayo (cemiplimab) was approved by the FDA of advanced cutaneous squamous cell carcinoma on September 28, 2018. Q2 sales were $41 million; Q1 sales were $26.8 million. Decision in the EU expected in 2019, following CHMP recommendation for conditional approval in CSCC. 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.

In the coming years expects to bring an extensive line of bispecific antibodies to the clinic.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of $74 million, up 16% sequentially from $63.9 million and flat from $74 million year-earlier. Regeneron shares any profits or losses with Sanofi.

Eylea (aflibercept) revenue from U.S. sales increased to $1.16 billion, up 8% sequentially from $1.07 billion and up 17% from $992 million year-earlier. Regeneron recognized $289 million from Bayer's ex-U.S. sales of $715 million.

Dupixent (Dupilumab) for moderate to severe atopic dermatitis and asthma global sales by Sanofi were $557 million, up 49% sequentially from $374 million, and up 167% from $209 million year-earlier. Reported positive Phase 3 results in chronic rhinosinusitis with nasal polyps in Q2 2019. On August 6, 2019 that the Phase 3 trial to treat severe atopic dermatitis in children 6 to 11 years of age met its primary and secondary endpoints.

Kevzara (Sarilumab) for rheumatoid arthritis $59 million in global sales by Sanofi, up sequentially from $35 million and up from $24 million year-earlier. Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $26.6 million, down 6% from $28.4 million year-earlier.

Arcalyst sales in Q2 109 were $4.2 million.

Non-GAAP results: net income $690 million, up 33% sequentially from $518 million and up 11% from $624 million year earlier. Diluted EPS $6.02, up 35% sequentially from $4.45 and up 10% from $5.45 year-earlier. The main difference between GAAP and non-GAAP results was a $400 million expense, an up-front payment on a license and collaboration agreement. Share based compensation expense was $59 million. Loss on equity investment $131 million.

Fasinumab for pain due to osteoarthritis Phase 3 study reported positive 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 four bispecifics, to the clinic this year. REGN4018 (MUC16 and CD3) has shown encouraging results so far in platinum-resistant ovarian cancer.

REGN1979 Phase 2 trial in advanced follicular lymphoma started in Q2, 2019, is being followed by a cohort of DLBCL.

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

REGN3500 Phase 2 program for asthma had positive results, but not better than Dupixent. Studies for COPD, and atopic dermatitis should present results later in 2019. Could be complementary to Dupixent. Partnered with Sanofi.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $5.55 billion, down sequentially from $5.57 billion. $916 million free cash flow in 1H. Cap ex was $95 million for Q2. No long term debt.

GAAP expenses of $1.62 billion consisted of: cost of goods sold $67 million; research and development $1.05 billion; selling, general and administrative $417 million; collaboration manufacturing costs $86 million. Leaving income from operations of $316 million. Interest and other net expense was $91 million. Income tax was $32 million.

Q&A:

CD20 responses, 1979 mechanism, drug positioning? We have seen antigen loss with both CD20 and CD19, in these very late stage patients we are not seeing it affect the response rates. So at this point it is not the major issue.

BCMA data to be presented, what is the comparison? Our thought is if we can deliver anything close to what a CAR-T can deliver, then a bispecific should offer a lot of value in the marketplace. We think we can compete, but we have to see activity data. We hope our bispecifics are top of the class. There are a lot of combination opportunities.

Dupixent 6 to 11 atopic dermatitis population size? In the US for adults 300 to 400 thousand patients have greatest need of therapy. We think we have only reached only about 18% of the adult population. We do not have a size yet for the adolescent population yet. We think there is great unmet medical need, with some having 60% of their bodies covered with lesions.

Dupixent q/q growth source? Not breaking out by indication yet. Asthma patients prescribed are biologic-naive, about 80%, the remaining are switches. Both asthma and atopic dermatitis showed strong growth in Q2.

1979 study, could it be pivotal in all the subtypes? Each arm is dedicated to a subtype. Depending on the data, each would have registrational possibilities. We have an arm specifically for CAR-T failures which could be a separate registration opportunity.

Longer Eylea outlook? We are seeing good growth, demographics are having a positive impact. As to competition, we have the best drug for safety and efficacy. As to health care policy, we watch that, we don't believe US prices should be tied to prices outside the US, because so many US drugs are licensed to non-US companies for sale outside the US.

Avastin shortage? The impact was modest, and was in specific US geographies. We are prepared for competitive launches.

REGN3500 development strategy? The hope would be there would be particular asthma patients who respond better to it than to Dupixent.

Praluent, a point where you make a tough business decision? Heart disease is still a tremendous killer and Praluent is still a great drug.

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