Analyst Conference Summary

Biotechnology

conference date: August 2, 2018 @ 5:30 AM Pacific Time
for quarter ending: June 30, 2018 (Q2, second quarter)

Forward-looking statements

Overview: Modest revenue growth, but strong profit growth.

Basic data (GAAP):

Revenue was $1.61 billion, up 7% sequentially from $1.51 billion and up 9% from $1.47 billion in the year-earlier quarter.

Net income was $551 million, up 15% sequentially from $478 million, and up 42% from $388 million year-earlier.

Diluted Earnings Per Share (EPS) was $4.82, up 16% sequentially from $4.16 and up 44% from $3.34 year-earlier.

Guidance:

Increased Sanofi collaboration estimate to $455 to $485 million. Lowered Non-GAAP unreimbursed R&D to $1.21 to $1.26 billion. Non-GAAP SGandA estimate increased to $1.34 to $1.39 billion. Effective tax rate decreased to 13% to 16%. Capital expenditures reduced to $410 to $450 million.

Conference Highlights:

Leonard S. Schleifer, CEO, said "Regeneron made important commercial progress in the second quarter with continued strong U.S. sales growth for Eylea in retinal diseases and Dupixent in atopic dermatitis. We are particularly pleased by U.S. launch progress with Dupixent for adults with moderate-to-severe atopic dermatitis, driven by a positive experience in the marketplace by patients and physicians in this serious disease; we anticipate continued robust growth as more physicians increase their experience with the product. In the second half of the year, we anticipate two significant U.S. regulatory approvals: cemiplimab for advanced cutaneous squamous cell carcinoma and Dupixent for uncontrolled asthma. We also plan to submit regulatory applications for Dupixent in adolescent atopic dermatitis and to report Phase 3 results in nasal polyps, in addition to other advances across our innovative portfolio for serious diseases."

Pipeline now has 19 drugs or drug candidates.

Revenue by type: product sales $996 million. Sanofi collaboration revenue $238 million. Bayer collaboration revenue $263 million. Other income $73 million.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of $74 million, up 23% sequentially from $60 million and up from $46 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. Lowered price to gain exclusivity at Express Scripts.

Eylea (aflibercept) revenue from U.S. sales increased to $996 million, up 1% sequentially from $984 million and up 8% from $924 million year-earlier. Regeneron recognized $263 million from Bayer's ex-U.S. sales of $666 million up 23% y/y. Bayer announced new extended dosing approach approved for wet AMD in EU. Regeneron will launch a TV campaign in the U.S.

Dupixent (Dupilumab) for moderate to severe atopic dermatitis global sales by Sanofi were $209 million, up 59% sequentially from $131 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. A Phase 3 study in adolescents reported positive results in Q2, with supplemental BLA to be submitted later this year. Will launch a TV campaign.

Kevzara (Sarilumab) for rheumatoid arthritis $24 million in global sales by Sanofi, up sequentially from $12 million. In 2018 Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $28 million, up 40% from $20 million year-earlier.

Non-GAAP results: net income $624 million, up 16% sequentially from $537 million and up 28% from $487 million year earlier. Diluted EPS $5.45, up 17% sequentially from $4.67 and up 31% from $4.17 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. But moving forward only with the lower-dose regimen.

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, but this will be the first approval for CSCC. Cemiplimab is the foundation for combination approaches in multiple tumor types, including bispecifics. Making commercial preparations for launch. Also in Phase 3 non-small cell lung cancer and increasing the trial size. Looking at other solid tumors.

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

REGN3918 (pozelimab) for PNH to report Phase 1 data later this year, and Regeneron is already planning to start a Phase 2 study in early 2019.

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) has started a 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.

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 $3.7 billion, up sequentially from $3.45 billion.

GAAP expenses of $986 million consisted of: cost of goods sold $36 million; research and development $529 million; selling, general and administrative $365 million; collaboration manufacturing costs $56 million. Leaving income from operations of $622 million. Interest and other net income was $34 million. Income tax expense was $105 million.

Q&A:

Fasinumab in OA space? We believe the efficacy means it will be a good addition as a non-opiate for osteoarthritis. It will be longer before we have long-term safety data. "It remains a high-risk, high-reward program."

Roche pre-filled device vs. Eylea? We do not see this as a big shift in market share, based on survey data. We are seeing share growth vs. Lucentis and Avastin. We think the pre-filled syringe available in late 2019 for Eylea will help us.

Q2 free cash flow? No tax payments in Q1 2018. [Did not give the actual number, despite a direct question]

Do you expect the Sanofi joint venture to generate higher losses in the second half of 2018? Not giving guidance on when it will turn profitable. We are entering a very crowded asthma class, so will increase spend in the second half to insure a successful launch.

Did reimbursement environment contribut to Dupixent growth in the quarter? Feedback from patients is "really, really satisfying." We have seen no new side effects. That is the driver. We did pick up another major insurer in the quarter, about 90% coverage, easier to get after fewer topical failures.

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