On November 5, 2019 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the third quarter of 2019 and provided a business update (Press release, Regeneron, NOV 5, 2019, View Source [SID1234550339]).
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"Regeneron delivered positive financial and operational results this quarter, marked by significant EYLEA and Dupixent sales growth and progress across our pipeline," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "We are broadening our efforts in retinal and type 2 inflammatory diseases, including initiating late-stage trials of Dupixent in additional type 2 diseases in the coming months. Oncology is a major focus of our research and development efforts, and we are advancing important new potential treatments for patients with a variety of cancers. We currently have six bispecific antibodies in the clinic, and multiple pivotal trials with Libtayo in non-small cell lung, skin, and other cancers."
"This quarter, we realized improving profitability from the Sanofi antibody collaboration, which is contributing to a more diverse earnings base for the Company," said Robert E. Landry, Executive Vice President, Finance and Chief Financial Officer of Regeneron. "Our financial results, strength of our balance sheet, and confidence in our business longer-term allow us to continue deploying capital by investing in internal and external innovation to expand our pipeline, while also returning cash to shareholders with the initiation of a $1 billion share repurchase program."
Key Pipeline Progress
Regeneron has 24 product candidates in clinical development, including five of the Company’s U.S. Food and Drug Administration (FDA) approved products for which it is investigating additional indications. Updates from the clinical pipeline include:
EYLEA (aflibercept) Injection
In August 2019, the FDA approved the EYLEA pre-filled syringe, which is expected to be launched before the end of this year.
A Phase 2 study exploring less frequent dosing intervals using a high-dose formulation of aflibercept in wet AMD was initiated.
A Phase 3 study in retinopathy of prematurity was initiated.
Dupixent (dupilumab)
In August 2019, the European Commission (EC) extended its approval of Dupixent in the European Union to include adolescents 12 to 17 years of age with moderate-to-severe atopic dermatitis who are candidates for systemic therapy.
In August 2019, the Company and Sanofi announced that the Phase 3 trial to treat severe atopic dermatitis in children 6 to 11 years of age met its primary and secondary endpoints. Submissions for a supplemental Biologics License Application (sBLA) and Marketing Authorization Application (MAA) for this expanded atopic dermatitis indication in pediatric patients are expected by the end of the year.
In October 2019, the EC approved Dupixent in chronic rhinosinusitis with nasal polyposis (CRSwNP).
The Company and Sanofi plan to initiate Phase 3 studies in bullous pemphigoid, prurigo nodularis, chronic spontaneous urticaria, and additional type 2 inflammatory diseases.
Praluent (alirocumab)
In August 2019, the Company and Sanofi announced the U.S. District Court for the District of Delaware ruled in their favor and found as a matter of law that Amgen’s asserted patent claims for antibodies targeting PCSK9 are invalid based on lack of enablement.
Evinacumab, an antibody to ANGPTL3
In August 2019, the Company announced positive top-line results from a Phase 3 trial of evinacumab in patients with homozygous familial hypercholesterolemia (HoFH). The Company plans to submit a BLA in mid-2020.
REGN-EB3, a multi-antibody therapy to Ebola virus infection
In August 2019, the Company announced that a randomized, controlled trial evaluating four investigational therapies for Ebola virus infection was stopped early because REGN-EB3 was superior to ZMapp (the control arm of the trial since it was considered standard-of-care) in preventing death. REGN-EB3 and another investigational drug are being further studied as part of the Extension Phase of this trial.
The FDA granted Breakthrough Therapy designation for the treatment of Ebola virus infection and the Company has initiated a rolling BLA submission.
REGN5678, a bispecific antibody targeting PSMA and CD28
A Phase 1 study evaluating this first-in-class co-stimulatory bispecific antibody was initiated in prostate cancer.
REGN5093, a bispecific antibody targeting two distinct MET epitopes
A Phase 1 study evaluating this first-in-class bispecific antibody was initiated in MET-altered advanced non-small cell lung cancer.
Share Repurchase Program
In November 2019, the Company’s board of directors authorized a share repurchase program to repurchase up to $1.0 billion of the Company’s Common Stock. Repurchases may be made from time to time at management’s discretion through a variety of methods. The program has no time limit and can be discontinued at any time. No shares have been repurchased under the program to date.
Third Quarter 2019 Financial Results
Total Revenues: Total revenues increased by 23% to $2.048 billion in the third quarter of 2019, compared to $1.663 billion in the third quarter of 2018.
Net product sales were $1.238 billion in the third quarter of 2019, compared to $1.025 billion in the third quarter of 2018. EYLEA net product sales in the United States were $1.188 billion in the third quarter of 2019, compared to $1.022 billion in the third quarter of 2018. Overall distributor inventory levels for EYLEA in the United States remained within the Company’s one-to-two-week targeted range.
Total revenues also include Sanofi and Bayer collaboration revenues(5) of $707 million in the third quarter of 2019, compared to $521 million in the third quarter of 2018. Sanofi collaboration revenue in the third quarter of 2019 included the Company’s share of profits from collaboration antibodies (Dupixent, Praluent, and Kevzara) of $94 million, while Sanofi collaboration revenue in the third quarter of 2018 included the Company’s share of losses from collaboration antibodies of $39 million. The increase in the Company’s share of profits from collaboration antibodies was primarily driven by higher Dupixent profits.
Refer to Table 4 for a summary of collaboration and other revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $663 million in the third quarter of 2019, compared to $557 million in the third quarter of 2018. The higher R&D expenses in the third quarter of 2019 were principally due to additional costs incurred in connection with fasinumab as well as our earlier-stage pipeline, and higher headcount and
headcount-related costs. In each of the third quarters of 2019 and 2018, R&D-related non-cash share-based compensation expense was $60 million.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $420 million in the third quarter of 2019, compared to $369 million in the third quarter of 2018. The higher SG&A expenses in the third quarter of 2019 were primarily due to higher headcount and related costs, as well as an increase in commercialization-related expenses for Dupixent and EYLEA. In the third quarter of 2019, SG&A-related non-cash share-based compensation expense was $41 million, compared to $43 million in the third quarter of 2018.
Cost of Goods Sold (COGS): GAAP COGS was $116 million in the third quarter of 2019, compared to $31 million in the third quarter of 2018. The increase in COGS was primarily due to the Company’s obligation to pay Sanofi its share of Libtayo U.S. gross profits, higher period costs at the Company’s Limerick manufacturing facility, and higher inventory reserves and write-offs.
Income Taxes: In the third quarter of 2019, GAAP income tax expense was $99 million and the effective tax rate was 12.9%, compared to $41 million and 6.5%, respectively, in the third quarter of 2018. The effective tax rate for the third quarter of 2019 was positively impacted, compared to the U.S. federal statutory rate, primarily by federal tax credits for research activities and the foreign-derived intangible income deduction, partly offset by the taxation of certain global intangible low-taxed income. The Company’s effective tax rate for the third quarter of 2018 was positively impacted, compared to the U.S. federal statutory rate, primarily by the tax benefit associated with the U.S. Tax Reform Act and the federal tax credit for research activities.
GAAP and Non-GAAP Net Income(1): GAAP net income was $670 million, or $5.86 per diluted share, in the third quarter of 2019, compared to GAAP net income of $595 million, or $5.17 per diluted share, in the third quarter of 2018.
Non-GAAP net income was $762 million, or $6.67 per diluted share, in the third quarter of 2019, compared to non-GAAP net income of $675 million, or $5.87 per diluted share, in the third quarter of 2018.
A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
This press release uses non-GAAP net income, non-GAAP net income per share, non-GAAP unreimbursed R&D, and non-GAAP SG&A, which are financial measures that are not calculated in accordance with U.S. Generally Accepted Accounting Principles (GAAP). These non-GAAP financial measures are computed by excluding certain non-cash and other items from the related GAAP financial measure. Non-GAAP adjustments also include the estimated income tax effect of reconciling items.
The Company makes such adjustments for items the Company does not view as useful in evaluating its operating performance. For example, adjustments may be made for items that fluctuate from period to period based on factors that are not within the Company’s control (such as the Company’s stock price on the dates share-based grants are issued or changes in the fair value of the Company’s equity investments) or items that are not associated with normal, recurring operations. Management uses these non-GAAP measures for planning, budgeting, forecasting, assessing historical performance, and making financial and operational decisions, and also provides forecasts to investors on this basis. Additionally, such non-GAAP measures provide investors with an enhanced understanding of the financial performance of the Company’s core business operations. However, there are limitations in the use of these and other non-GAAP financial measures as they exclude certain expenses that are recurring in nature. Furthermore, the Company’s non-GAAP financial measures may not be comparable with non-GAAP information provided by other companies. Any non-GAAP financial measure presented by Regeneron should be considered supplemental to, and not a substitute for, measures of financial performance prepared in accordance with GAAP. A reconciliation of the Company’s historical GAAP to non-GAAP results is included in Table 3 of this press release.
The Company’s 2019 financial guidance does not assume the completion of any significant business development transactions not completed as of the date of this press release.
A reconciliation of full year 2019 non-GAAP to GAAP financial guidance is included below:
Unreimbursed R&D represents GAAP R&D expenses reduced by GAAP R&D expense reimbursements from the Company’s collaborators and/or customers (refer to Table 4).
The Company’s collaborators provide it with estimates of the collaborators’ respective sales and the Company’s share of the profits or losses from commercialization of products for the most recent fiscal quarter. The Company’s estimates for such quarter are reconciled to actual results in the subsequent fiscal quarter, and the Company’s share of the profit or loss is adjusted on a prospective basis accordingly, if necessary.
Conference Call Information
Regeneron will host a conference call and simultaneous webcast to discuss its third quarter 2019 financial and operating results on Tuesday, November 5, 2019, at 8:30 AM. To access this call, dial (800) 708-4540 (U.S.) or (847) 619-6397 (International). A link to the webcast may be accessed from the "Investors and Media" page of Regeneron’s website at www.regeneron.com. A replay of the conference call and webcast will be archived on the Company’s website and will be available for at least 30 days.