Analyst Conference Summary

Biotechnology

conference date: May 7, 2019 @ 5:30 AM Pacific Time
for quarter ending: March 31, 2019 (Q1, first quarter 2019)

Forward-looking statements

Overview: Continued strong revenue ramp, but usual Q1 down sequentially and net income down y/y.

Basic data (GAAP):

Revenue was $1.71 billion, down 11% sequentially from $1.93 billion and up 13% from $1.51 billion in the year-earlier quarter.

Net income was $461 million, down 44% sequentially from $820 million, and down 4% from $478 million year-earlier.

Diluted Earnings Per Share (EPS) was $3.99, down 44% sequentially from $7.15 and down 4% from $4.16 year-earlier.

Guidance:

Lowered 2019 Sanofi collaboration revenue reimbursement of commercialization expenses to $500 to $535 million, but also decreased spend ranges, notably SG&A to $1.795 billion GAAP or $1.58 billion non-GAAP. Effective tax rate lowered to 11% to 13% (due to Alnylam partnership expenses). Also lowered top end of capital spending to $475 million.

Conference Highlights:

Leonard S. Schleifer, CEO, said "In the first quarter, aggregate sales of all Regeneron-invented products, recorded by the Company and its collaborators, were $2.27 billion, an increase of 23% over the same period last year. This was driven by an 8% increase in Eylea net sales, 185% increase in Dupixent net sales, and a strong initial launch for Libtayo in advanced cutaneous squamous cell carcinoma. We continue to unlock the full potential of Dupixent, which is now FDA-approved in atopic dermatitis and asthma in both adults and adolescents and is currently under Priority Review by the FDA for chronic rhinosinusitis with nasal polyps. Regeneron also continues to invest in a broad immuno-oncology portfolio. At the June European Hematology Association meeting, we look forward to presenting updated promising results of the Phase 1 study of REGN1979 in relapsed or refractory B-cell non-hodgkin lymphoma, including in patients who have failed previous CAR-T therapy."

Announced Dupixent was approved by the EU for severe asthma. In March 2019, the FDA approved 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), has an FDA PDUFA a target action date of June 26, 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 $1.10 billion. Sanofi collaboration revenue $246 million. Bayer collaboration revenue $276 million. Other income $85 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. 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 $63.9 million, down 31% sequentially from $93.2 million and up 7% from $59.9 million year-earlier. Regeneron shares any profits or losses with Sanofi.

Eylea (aflibercept) revenue from U.S. sales increased to $1.07 billion, down 1% sequentially from $1.08 billion and up 9% from $984 million year-earlier. Regeneron recognized $276 million from Bayer's ex-U.S. sales of $669 million.

Dupixent (Dupilumab) for moderate to severe atopic dermatitis and asthma global sales by Sanofi were $374 million, up 17% sequentially from $319 million, and up 17% from $131.4 million year-earlier. Reported positive Phase 3 results in chronic rhinosinusitis with nasal polyps. In October 2018, the FDA approved Dupixent as an add-on maintenance therapy in patients with moderate-to-severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid-dependent asthma. In December 2018, with Sanofi submitted an sBLA for chronic rhinosinusitis with nasal polyposis. With Sanofi submitted a sBLA and a Marketing Authorization Application for an expanded atopic dermatitis indication in adolescent patients. The FDA set a target action date of March 11, 2019.

Kevzara (Sarilumab) for rheumatoid arthritis $33.7 million in global sales by Sanofi, down sequentially from $35 million and up from $12.4 million year-earlier. Phase 3 studies in giant cell arteritis and polymyalgia rheumatica are planned to initiate.

Zaltrap global sales were $24.5 million, down 7% from $26.3 million year-earlier.

Non-GAAP results: net income $518 million, down 34% sequentially from $786 million and down 4% from $537 million year earlier. Diluted EPS $4.45, down 35% sequentially from $6.84 and down 5% from $4.67 year-earlier. Excludes the usual GAAP items, notably non-cash share-based compensation expense of $ million.

Fasinumab for pain due to osteoarthritis Phase 3 study reported postive 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 one bispecific, REGN4018 (MUC16 and CD3) to the clinic this year with encouraging results so far in platinum-resistant ovarian cancer.

REGN1979 Phase 2 trial in advanced follicular lymphoma will start in Q2, 2019, followed by a trial in DLBCL in the second half.

REGN2477 for FOP (fibrodysplasia ossificans progressiva) continues 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. Parnered with Sanofi.

See also the Regeneron Pipeline.

Cash and equivalents balance ended at $5.57 billion, up sequentially from $4.56 billion. $823 million free cash flow. Cap ex was $74 million. No long term debt.

GAAP expenses of $1.23 billion consisted of: cost of goods sold $71 million; research and development $642 million; selling, general and administrative $411 million; collaboration manufacturing costs $108 million. Leaving income from operations of $480 million. Interest and other net income was $66 million. Income tax was $85 million.

Q&A:

Dupixent trends so far in asthma? Growth of asthma biologic market has been about 10% since launch, including dupixent. We see early favorable indicators from the profile showcased by allergists and pulmonologists. Good reimbursement response from payers so far.

REGN1979 trials, will they be registration enabling? We will let you know: they will be registrational if the data is adequate. Combining the PD-1 appears to amplify the immune response, but avoiding cytokine release syndrome may be possible with right dosing.

Bispecific programs, 1979 durability vs. CAR-T? We reported durability data. Patients remaining on treatment maintain their responses. We will be reporting on promising early results in patients who have failed CAR-T. We hope to be able to move rapidly into the frontline setting. We saw high percentages of complete responses in patients at the dose we are going forward with.

CRISPR program? NGF got the go ahead to continue. When we unblind we will see the efficacy and safety and be able to make a decision about going forward.

Libtayo adjuvent studies? In cutaneous squamous cell carcinoma the data give us a lot of confidence for earlier stage patients. In lung cancer we are excited for first-line setting opportunity.

Dupixent new brande scripts are seeing an increase in scripts per quarter, and growth in all of our indications. For asthma we are seeing a good start. We are seeing good results in the adolescent launch.

Our payer feedback says samples are inadequate? We have a sample program, we want the payers to make a decision, they won't initiate as long as there is free drug available.

We have bispecifics that we hope to target at cancers where you normally don't get any responses at all.

2019 EPS growth? Not giving EPS guidance. We did have high cost of collaboration in Q1. For R&D we raised the lower end of guidance because of the Alnylam deal. We see the business with a growing pipeline, which requires higher research expense. We believe our research investment has the potential to deliver great returns.

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