Analyst Conference Summary

Biotechnology

conference date: November 6, 2018 @ 5:30 AM Pacific
for quarter ending: September 30, 2018 (Q3, third quarter)

Forward-looking statements

Overview: continued strong revenue growth and pipeline development.

Basic data (GAAP):

Revenue was $1.66 billion, up 3% sequentially from $1.61 billion and up 11% from $1.50 billion in the year-earlier quarter.

Net income was $595 million, up 8% sequentially from $551 million, and up 53% from $388 million year-earlier.

Diluted Earnings Per Share (EPS) was $5.17, up 7% sequentially from $4.82 and up 56% from $3.32 year-earlier.

Guidance:

For full year 2018, reduced Sanofi collaboration revenue guidance for $430 to $455 million. Reduced expected non-GAAP R&:D expense to $1.19 to $1.225 billion, and SG&A expense to $1.33 to $1.37 billion. Reduced effective tax rate to 11% to 13% and cap ex to $360 to $390 million.

Conference Highlights:

Leonard S. Schleifer, CEO, said "In addition to Eylea reaching over $1 billion in quarterly U.S. net sales, we also made significant progress with Dupixent, a key driver of future growth, and launched Libtayo, our first immuno-oncology therapy. Dupixent is now approved in the U.S. for both atopic dermatitis and asthma and under regulatory review for the treatment of adolescents with atopic dermatitis - with another submission planned in chronic rhinosinusitis with nasal polyps. We also recently reported positive Phase 3 results for Eylea in diabetic retinopathy, and expect an FDA action on our supplemental application for this indication in the first half of 2019."

Revenue by type: product sales $1.025 billion. Sanofi collaboration revenue $256 million. Bayer collaboration revenue $264 million. Other income $117 million.

Libtayo (cemiplimab) was approved by the FDA of advanced cutaneous squamous cell carcinoma on September 28, 2018. Decision in the EU expected in 2019. The PD-1 space is very crowded, but this will be the first approval for CSCC. Launch is underway; feedback has been positive. Also in Phase 3 non-small cell lung cancer and increasing the trial size. Looking at other solid tumors. Sanofi has exercised its option to co-promote in the U.S.

Praluent (Alirocumab) a PCSK9 inhibitor for LDL cholesterol control (hypercholesterolemia) global sales by Sanofi of $80 million, up 8% sequentially from $74 million and up from $49 million year-earlier. Regeneron shares any profits or losses with Sanofi.

Eylea (aflibercept) revenue from U.S. sales increased to $1.02 billion, up 2% sequentially from $996 million and up 7% from $953 million year-earlier. Regeneron recognized $256 million from Bayer's ex-U.S. sales of $655 million up 16% y/y. The FDA approved Eylea for a 12-week dosing regimen for wet age-related macular degeneration. The diabetic retinopathy Phase 3 trial showed positive results.

Dupixent (Dupilumab) for moderate to severe atopic dermatitis and asthma global sales by Sanofi were $263 million, up 26% sequentially from $209 million, the third quarter with sales. U.S. asthma launch is now underway. Also being studied for eosinophilic esophagitis. Reported positive Phase 3 results in chronic rhinosinusitis with nasal polyps. European launches underway. 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.

Kevzara (Sarilumab) for rheumatoid arthritis $25 million in global sales by Sanofi, up sequentially from $24 million and up from $3 million year-earlier. In 2018 Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $25 million, up % from $22 million year-earlier.

Non-GAAP results: net income $675 million, up 8% sequentially from $624 million and up 44% from $470 million year earlier. Diluted EPS $5.87, up 8% sequentially from $5.45 and up 47% from $3.99 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 reported postive results. A Phase 3 study for chronic lower back pain continued. But moving forward only with the lower-dose regimen.

Entered into a collaboration with Bluebird Bio for combinations with CART therapies. Includes buying $100 million worth of BLUE stock.

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.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $4.07 billion, up sequentially from $3.7 billion.

GAAP expenses of $1.04 billion consisted of: cost of goods sold $31 million; research and development $557 million; selling, general and administrative $369 million; collaboration manufacturing costs $80 million. Leaving income from operations of $627 million. Interest and other net income was $9 million. Income tax expense was $41 million.

Q&A:

Trends with Dupixent payer access for asthma? It is early, we are making steady progress and are pleased with dialogs with payers.

Part B proposals? It is tough to know what will really become policy. Big question mark at this time.

Dupixent moderate patient opportunity? The market has yet to see a self-administered product. Physicians will often use a new product on their tougher patients first. So we could have success with moderate patients over time. Our label covers a broad group of patients. We have the only biologic that can be administered at home. Also, it is not a new product, it is a new indication, so some doctors have experience with it.

Dupixent peanut alergy study? Reviewed fundamental allergy science. Giving Dupixent should give the kind of desensitization that you want. Drives IGG and prevents IGE, which could work with every allergy.

Dupixent direct to concumer campaign? Broadcasting since August, signs so far are encouraging.

Higher dose Eylea? Eylea has stood up well to competition. Question is whether a higher dose will go beyond this gold standard for efficacy or frequency of dosing.

Bluebird collaboration details? We bring new targets and reagents to be put into CART receptors.

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