Analyst Conference Summary

Biotechnology

conference date: May 3, 2018 @ 5:30 AM Pacific Time
for quarter ending: March 31, 2018 (Q1, first quarter)

Forward-looking statements

Overview: y/y revenue growth remains strong, and profits are growing faster

Basic data (GAAP):

Revenue was $1.51 billion, down 4% sequentially from $1.58 billion and up 15% from $1.32 billion in the year-earlier quarter.

Net income was $478 million, up 275% sequentially from $174 million, and up 92% from $249 million year-earlier.

Diluted Earnings Per Share (EPS) was $4.16, up 177% sequentially from $1.50 and up 93% from $2.16 year-earlier.

Guidance:

Updated 2018 guidance to: $450 to $485 million Sanofi collaboration revenue (lowered top end); $1.23 to $1.31 billion Non-GAAP unreimbursed R&D expense (lowered top end); non-GAAP SG&A $1.325 to $1.395 billion, lowered range; effective tax rate 15% to 18%, lowered top, and $420 to $480 million cap ex (lowered top end).

Conference Highlights:

Leonard S. Schleifer, CEO, said "This year, we have reported positive Phase 3 results for Praluent in cardiovascular risk reduction and for Eylea in diabetic retinopathy - and look forward to continued progress with Dupixent, including a U.S. regulatory decision in uncontrolled asthma and Phase 3 results in both adolescents with atopic dermatitis and adults with nasal polyps. Our immuno-oncology portfolio is advancing rapidly, with a potential first approval for cemiplimab in advanced cutaneous squamous cell carcinoma, and a broad pivotal program in lung cancer."

Sees demand for Eylea growing due to growth in diabetes and eye problems from it. Believes competition will appear in late 2019, but Eylea "sets a very high bar" and are not substantially differentiated. But Regeneron needs to diversify its revenue base. Sees Dupixent as "a pipeline in a product."

Regeneron plans to become a major player in immuno-oncology, starting with PD-1, using cemiplimab.

Revenue by type: product sales $988 million. Sanofi collaboration revenue $189 million. Bayer collaboration revenue $248 million. Other income $86 million.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of $60 million, down sequentially from $63 million but up from $36 million year-earlier. Regeneron shares any profits or losses with Sanofi. The outcomes large-scale cardiovascular benefits study data was positive. Praluent for apheresis has a FDA target action (PDUFA) date of August 24, 2018. Litigation with Amgen continues. The price was lowered for patients of Express Scripts National Preferred Formulary.

Eylea (aflibercept) revenue from U.S. sales increased to $984 million, up 1% sequentially from $975 million and up 15% from $854 million year-earlier. Regeneron recognized $ million from Bayer's ex-U.S. sales of $624 million up % y/y, plus $ million in R&D reimbursement and $ million other revenue from Bayer.

Dupilumab (Dupixent) for moderate to severe atopic dermatitis global sales by Sanofi were $131 million, down sequentially from $139 million, the third quarter with sales. Also being studied for asthma, eosinophilic esophagitis, and chronic sinusitis. European 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 $12 million in global sales by Sanofi, up sequentially fro $9 million. In 2018 Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $26 million, up 53% from $17 million year-earlier.

Non-GAAP results: net income $537 million, down 12% sequentially from $607 million and up 59% from $337 million year earlier. Diluted EPS $4.67, down 11% sequentially from $5.23 and up 60% from $2.92 year-earlier. Excludes the usual GAAP items, notably non-cash share-based compensation expense.

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) has an FDA PDUFA date of October 28, 2018, and a submission in the EU was made in April 2018. The PD-1 space is very crowded, Cemiplimab is foundation for combination approaches in multiple tumor types, including bispecifics. Making commercial preparations for launch.

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 started a Phase 2 program for asthma. Studies for COPD, and atopic dermatitis should begin 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 reported positive data in Q1 2018. Will submit for potential FDA approval later this year.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $3.45 billion, up sequentially from $2.90 billion. Cap ex $79 million. $500 million free cash flow.

GAAP expenses of $0.94 billion consisted of: cost of goods sold $69 million; research and development $499 million; selling, general and administrative $331 million; collaboration manufacturing costs $46 million. Leaving income from operations of $567 million. Interest and other net income was $18 million. Income tax expense was $107 million.

Regeneron may repurchase shares owned by Sanofi.

Q&A:

Existing competing PD-1 therapies vs. yours? Despite the excitement about PD-1, the main active indication is in first line lung cancer, the data is only good for Keytruda. Our series of studies will test whether our molecule is in the class of Keytruda. Our data in squamous cell carcinoma is among the best reported for a PD-1 agent. This gives us hope we will get Keytruda-like data in our other studies and indications.

We believe our bispecifics have great potential to combine with our PD-1. Also, while we use the term monotherapy, we often mean a bundle with traditional chemotherapy.

We don't get as bogged down as you do in predicting the exact quarter sales. Persistence for Dupixent has been good, over longer periods of time 83% have remained on therapy. Our new patient scripts have run about 500 per week.

Timeline for initial combo data in immuno-oncology? Can combine with tradition chemo agents, or with other checkpoint inhibitors, or vaccines or bispecifics. We have started dosing the first bispecific with PD-1 combination.

Pricing for Cemiplimab? In CSCC there is a reasonable sized patient population. Duration is long. We like to price towards value, these are high-value molecules for patients.

Still no dividend or buyback (low stock price)? Still won't overpay to acquire drug candidates. We don't guess at long-term guidance. This is not an environment where price increases can be taken easily, we do take small increases consistent with medical inflation. Our board does look at buybacks, acquisitions, and dividends. We'll let you know if our strategy changes.

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