Analyst Conference Summary

Biotechnology

conference date: February 8, 2018 @ 5:30 AM Pacific Time
for quarter ending: December 31, 2018 (Q4, fourth quarter)

Forward-looking statements

Overview: Strong revenue growth continues; GAAP figures hit by one-time tax charge due to the changes in the tax law.

Basic data (GAAP):

Revenue was $1.58 billion, up 20% sequentially from $1.50 billion and up 28% from $1.23 billion in the year-earlier quarter.

Net income was $174 million, down 55% sequentially from $388 million, and down 31% from $253 million year-earlier.

Diluted Earnings Per Share (EPS) was $1.50, down 55% sequentially from $3.32 and down 32% from $2.19 year-earlier.

Guidance:

For the full year 2018 expects Sanofi collaboration revenue between $450 and $500 million. Non-GAAP R&D expense $1.23 to $1.33 billion. SG&A $1.35 to $1.45 billion. Effective tax rate between 15% and 19%. Capital expenditures $420 to $500 million.

Conference Highlights:

Leonard S. Schleifer, CEO, said "We are anticipating additional pipeline progress in 2018, including regulatory decisions for dupilumab in uncontrolled asthma and cemiplimab in advanced cutaneous squamous cell carcinoma, cardiovascular outcomes data for Praluent, as well as Phase 3 data for EYLEA in diabetic retinopathy."

Revenue by type: product sales $978.7 million. Sanofi collaboration revenue $199.5 million. Bayer collaboration revenue $297.1 million. Reimbursement of R&D by Teva $33 million. Other R&D reimbursement $3 million. Milestone payment $35 million. Other income $36.1 million.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of 63$ million, up sequentially from $49 million. Regeneron shares any profits or losses with Sanofi. The outcomes large-scale cardiovascular benefits study data is expected in Q1 2018. Praluent for apheresis has a FDA target action (PDUFA) date of August 24, 2018. Litigation with Amgen continues.

Eylea (aflibercept) revenue from U.S. sales increased to $975 million, up 2% sequentially from $953 million and up 14% from $858 million year-earlier. Regeneron recognized $231 million from Bayer's ex-U.S. sales of $637 million up 28% y/y, plus $5 million in R&D reimbursement and $61 million other revenue from Bayer. "In addition, in the fourth quarter of 2017, the Company reported that results from two nesvacumab/aflibercept Phase 2 studies did not provide sufficient differentiation to warrant Phase 3 development (as described above); therefore, the Company accelerated the recognition of deferred revenue from the up-front payment previously received from Bayer. " Demographic trends tend to favor Eylea. Is aware of emerging potential competitors, but none expected until later half of 2019.

Dupilumab (Dupixent) for moderate to severe atopic dermatitis global sales by Sanofi were $139 million, up sequentially from $89 million, the second quarter with sales. Seeing good scripts so far in Q1, but payers are not entirely cooperative. Also being studied for asthma, eosinophilic esophagitis, and chronic sinusitis. Received European approval in September 2017, with launches underway. The asthma sBLA will be filed in 2018. Nasal polyps Phase 3 data should report in 2018. Phase 2 allergy studies should start in 2018. Trials in children also underway.

Sarilumab (Kevzara) for rheumatoid arthritis was approved by the FDA in May 2017. Global sales were luanched by Sanofi and reimbursment approvals have begun. Japan granted commercial approval in September. In 2018 Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate. $9 million in global sales by Sanofi.

Non-GAAP results: net income $607 million, up 29% sequentially from $470 million and up 72% from $353 million year earlier. Diluted EPS $5.23, up 31% sequentially from $3.99 and up 72% from $3.04 year-earlier. Excludes the usual GAAP items, notably $121 million in non-cash share-based compensation expense and the tax charge.

Fasinumab for pain due to osteoarthritis is in a Phase 3 study should report data in 2018. Also a Phase 3 study for chronic lower back pain continued.

Cemiplimab (REGN2810) antibody for PD-1 for cutaneous squamous cell carcinoma (CSCC) should complete a rolling submission to the FDA, and a submission in the EU in 2018. The PD-1 space is very crowded, Cemiplimab is foundation for combination approaches in multiple tumor types, including bispecifics.

Expects to move two bispecifics to the clinic this year.

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

REGN2477 for FOP (fibrodysplasia ossificans progressiva) should start a Phase 2 study in 2018.

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

Regeneron also hope to continue to expand the label for Eylea. A phase 3 study for diabetic retinopathy in patients not having DME should report data in 2018.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $2.90 billion, up sequentially from $2.71 billion. Cap ex $ million.

GAAP expenses of $1.04 billion consisted of: cost of goods sold $53 million; research and development $528 million; selling, general and administrative $410 million; collaboration manufacturing costs $53 million. Leaving income from operations of $539 million. Interest and other net expense was $16 million. Income tax expense was $381 million.

For the full year 2017, Regeneron had revenue of $5.87 billion, GAAP net income of $1.20 billion and EPS of $10.34. Non-GAAP net income was $1.90 billion and EPS of $16.32.

Regeneron may repurchase shares owned by Sanofi.

Q&A:

Oncology plans, PD-1, bispecifics? Found an important indication that was very responsive to our PD-1 antibody, which surprised many. Many combinations are possible, including vaccines we are partnering with, and our own bispecifics. Our first bispecific is getting to dosing levels that are showing efficacy. Could be synergistic in combinations. An enourmous opportunity for us.

Increased SG&A drivers? In Q4 we have an Eylea renewal spend. We are picking up spend for Praluent and the new indications. Also accelerated some January expense into Q4. In 2018 we are spending on Dupixent, which in asthma is in a very competitive field, and more for Praluent.

Dosing for bispecifics? This is an attractive class, may have advantages over CAR-T therapies. We can gradually up the dose for a patient, so we don't get a cytokine release storm. 5 mg to 8 mg are showing 50% efficacy. At 12 mg and beyond we are seeing dramatic increases in efficacy. You can also back off the dose if you need to.

Kevzara, what can be done to inflect revenue upward? People are aware of the risk of increased disease. It may just be because when pain is reduced patients then use the joint more, injuring it. These patients are mostly candidates for joint replacement. If you are relieveing pain in the bulk of the population, it is a profound positive. We are offering favorable pricing, CVS gave us a good position on their formulary, we hope to make strong headway.

Repeated why it will be hard to compete with Eylea.

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