On May 5, 2020 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the first quarter of 2020 and provided a business update (Press release, Regeneron, MAY 5, 2020, View Source [SID1234557012]).
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"Over 30 years, the Regeneron team has built a science and technology engine uniquely suited to address the COVID-19 pandemic and we are applying our signature passion, innovation, and drive to advance solutions. Our novel antibody cocktail, REGN-COV2, which is specifically-designed for both prevention and treatment, is expected to begin human studies in June and we are working in parallel to have large-scale quantities available by late summer," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "Beyond our COVID-19 efforts, we maintain our commitment to the many other patients with serious diseases who are counting on us. In the first quarter, we saw continued growth with EYLEA, Dupixent, and Libtayo in the U.S. driven by underlying demand despite the impact of the pandemic. Moreover, we continue to advance our broad immuno-oncology platform, including the PD-1 inhibitor Libtayo, for which we plan regulatory submissions this year in both non-small cell lung cancer and basal cell carcinoma, based on recent promising late-stage results."
"We believe our recent revision to the accounting presentation better reflects the nature of revenues earned and costs incurred and simplifies our financial reporting," said Robert E. Landry, Executive Vice President, Finance and Chief Financial Officer of Regeneron. "We were also pleased to close the Praluent restructuring transaction with Sanofi, which we expect to be accretive beginning in the second quarter of 2020."
Business Highlights
Key Pipeline Progress
Regeneron has more than 20 product candidates in clinical development, including five marketed products for which it is investigating additional indications. Updates from the clinical pipeline include:
EYLEA (aflibercept) Injection
In February 2020, the Company announced positive two-year results from the Phase 3 PANORAMA trial evaluating EYLEA in patients with moderately severe to severe non-proliferative diabetic retinopathy (NPDR). The two-year data demonstrated that EYLEA reduced the likelihood of developing vision-threatening events by at least 75% in patients with NPDR.
In March 2020, the Ministry of Health, Labour and Welfare (MHLW) approved EYLEA for the treatment of neovascular glaucoma (NVG) in Japan.
Dupixent (dupilumab)
The U.S. Food and Drug Administration (FDA) accepted for priority review the supplemental Biologics License Application (sBLA) for children aged 6 to 11 years with moderate-to-severe atopic dermatitis, with a target action date of May 26, 2020. In addition, a Marketing Authorization Application (MAA) for children aged 6 to 11 years with moderate-to-severe atopic dermatitis has also been submitted in the European Union (EU).
In March 2020, the MHLW approved Dupixent for chronic rhinosinusitis with nasal polyposis (CRSwNP) in Japan.
The sBLA for the 300 mg auto-injector is under review by the FDA, with a target action date of June 20, 2020.
Oncology Program
In April 2020, the Company and Sanofi announced that the primary endpoint was met in the Phase 3 trial of Libtayo (cemiplimab) as monotherapy in first-line non-small cell lung cancer (NSCLC). The Independent Data Monitoring Committee recommended that the trial be stopped early due to highly significant improvement in overall survival. The data from the trial will form the basis of regulatory submissions in the U.S. and EU in the second half of 2020.
Patient enrollment in the Libtayo Phase 3 first-line NSCLC chemotherapy combination study is expected to be completed in the second half of 2020.
In May 2020, the Company and Sanofi announced that Libtayo demonstrated clinically-meaningful and durable responses in a pivotal, single-arm, open-label trial in patients with advanced basal cell carcinoma and plan regulatory submissions in 2020.
The Company now has 6 bispecific antibodies in clinical development for various blood cancers and solid tumors. These include multiple classes of bispecifics including CD3 bispecifics, a CD28 costimulatory bispecific, and other classes of bispecifics.
Praluent (alirocumab)
In March 2020, the Company announced that the Phase 3 trial in adult patients with homozygous familial hypercholesterolemia (HoFH) met its primary endpoint and plans to submit an sBLA in mid-2020.
Evinacumab, an antibody to ANGPTL3
In March 2020, the Company presented positive, detailed results from the Phase 3 trial in patients with HoFH. The Company has also initiated a rolling BLA submission for HoFH and plans to submit an MAA in the EU in the second half of 2020.
Pozelimab, an antibody to C5
A Phase 2 study in the ultra-rare disease CD55-deficient protein-losing enteropathy was initiated.
REGN-EB3, a multi-antibody therapy to Ebola virus infection
The FDA accepted for priority review the BLA submission for Ebola, with a target action date of October 25, 2020.
COVID-19 Update
The Company is advancing REGN-COV2, a novel investigational antibody "cocktail" treatment designed to prevent and treat the SARS-CoV-2 virus. In April, Regeneron moved its leading neutralizing antibodies into pre-clinical and clinical-scale cell production lines and plans to begin clinical studies in June 2020. The Company is working to rapidly scale-up manufacturing, with a goal to have hundreds of thousands of preventative doses available by the end of August 2020.
In April 2020, the Company provided an update on the adaptively-designed Phase 2/3 U.S. study evaluating Kevzara (sarilumab) in patients hospitalized with COVID-19 infection. An Independent Data Monitoring Committee recommended continuing the ongoing Phase 3 trial only in the more advanced "critical" group with the 400 mg dose of Kevzara and discontinuing the study in the less advanced "severe" group, based on initial Phase 2 results.
The Company announced an expanded agreement with the U.S. Department of Health and Human Services (HHS) to fund certain research and development activities related to COVID-19 treatments, including REGN-COV2 and the U.S. Kevzara study.
The Company continues to monitor the potential impact on product sales. For EYLEA in the United States, there was limited impact on net product sales in the first quarter of 2020. In the month of April 2020, overall U.S. EYLEA demand was lower compared to the same period of 2019 with relative improvement seen by the end of the month. The Company expects to see continued adverse impact on new patient starts for all products while social distancing guidelines remain in place.
Regeneron maintains adequate market supply for all commercialized products. The Company’s raw material supplies and contract manufacturing support have also remained stable. In order to enable the U.S. manufacturing site to produce large-scale quantities of REGN-COV2, the Company is working with the FDA to accelerate licensing of additional commercial products manufactured at its Ireland facility.
Regeneron expects fully-recruited clinical studies to remain generally on track. The Company has paused new enrollment in certain studies in light of the pandemic and continues to monitor the evolving situation across global trial sites.
Business Development Update
The Company and Sanofi entered into an agreement, effective April 1, 2020, to restructure its collaboration for Praluent. In the United States, the Company will be solely responsible for the development and commercialization of Praluent and will record net product sales. Sanofi will have sole responsibility for the development and commercialization of Praluent outside the United States, and will pay the Company a 5% royalty on Praluent net product sales.
In December 2019, the Company and Sanofi also announced their intent to restructure their antibody collaboration for Kevzara. The companies continue to assess potential terms of this restructuring in light of the recently launched clinical programs evaluating Kevzara in patients hospitalized with COVID-19.
In April 2020, the Company entered into an agreement with Zai Lab Limited to develop and commercialize REGN1979 (bispecific antibody targeting CD20 and CD3) in mainland China, Hong Kong, Taiwan, and Macau. Under the terms of the agreement, Zai is obligated to make a $30 million up-front payment, and we are eligible to receive up to $160 million in additional regulatory and sales milestone payments. The Company will continue to lead global development activities for REGN1979, and Zai will be responsible for funding a portion of the global development costs for certain clinical trials.
First Quarter 2020 Financial Results
Effective January 1, 2020, Regeneron has implemented changes in the presentation of its financial statements related to certain reimbursements and other payments for products developed and commercialized with collaborators. The Company made these changes in presentation to better reflect the nature of the Company’s costs incurred and revenues earned pursuant to arrangements with collaborators and to enhance the comparability of Regeneron’s financial statements with industry peers. The change in presentation has been applied retrospectively. See Note (4) below for further information.
Revenues
Total revenues increased by 33% to $1.828 billion in the first quarter of 2020, compared to $1.373 billion in the first quarter of 2019.
EYLEA net product sales in the United States were $1.172 billion in the first quarter of 2020, compared to $1.074 billion in the first quarter of 2019. 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(2) of $528 million in the first quarter of 2020, compared to $246 million in the first quarter of 2019. Sanofi collaboration revenue in the first quarter of 2020 included the Company’s share of profits from collaboration antibodies (Dupixent, Praluent, and Kevzara) of $171 million, while Sanofi collaboration revenue in the first quarter of 2019 included the Company’s share of losses from collaboration antibodies of ($28) million. The change in the Company’s share of profits (losses) from collaboration antibodies was primarily driven by higher Dupixent profits.
The higher GAAP and non-GAAP R&D expenses in the first quarter of 2020 were principally due to additional costs incurred in connection with our earlier-stage pipeline, higher headcount and headcount-related costs, and an increase in clinical manufacturing activities.
The higher GAAP and non-GAAP SG&A expenses in the first quarter of 2020 were primarily due to higher headcount and headcount-related costs, an increase in commercialization-related expenses for EYLEA, and higher contributions to independent not-for-profit patient assistance organizations. In addition, GAAP SG&A expenses in the
first quarter of 2020 increased partly due to additional accruals for loss contingencies associated with ongoing litigation.
The increase in COCM was primarily due to the recognition of manufacturing costs associated with higher sales of Dupixent and manufacturing costs in connection with our BARDA Ebola agreement.
Other operating (income) expense, net, includes recognition of a portion of amounts previously deferred in connection with up-front and development milestone payments, as applicable, received in connection with the Company’s collaborative arrangements.
Other Financial Information
GAAP other (expense) income, net, includes the recognition of net losses on equity securities of $57 million in the first quarter of 2020, compared to net gains of $43 million in the first quarter of 2019.
In the first quarter of 2020, the Company’s GAAP effective tax rate was 6.6%, compared to 15.6% in the first quarter of 2019. The GAAP effective tax rate for the first quarter of 2020 was positively impacted, compared to the U.S. federal statutory rate, primarily by stock-based compensation, and, to a lesser extent, income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate and federal tax credits for research activities. In the first quarter of 2020, the non-GAAP effective tax rate was 9.5%, compared to 16.0% in the first quarter of 2019.
GAAP net income per diluted share was $5.43 in the first quarter of 2020, compared to GAAP net income per diluted share of $3.99 in the first quarter of 2019. Non-GAAP net income per diluted share was $6.60 in the first quarter of 2020, compared to non-GAAP net income per diluted share of $4.45 in the first quarter of 2019. A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
During the first quarter of 2020, the Company repurchased 719,167 shares of Common Stock under the Company’s share repurchase program and recorded the cost of the shares received, or $273 million, as Treasury Stock. As of March 31, 2020, the Company had $473 million which remained available for share repurchases under the original $1.0 billion program.
The Company generated $528 million in free cash flow for the first quarter of 2020, compared to $823 million for the first quarter of 2019.
This press release uses non-GAAP R&D, non-GAAP SG&A, non-GAAP COGS, non-GAAP effective tax rate, non-GAAP net income, non-GAAP net income per share, and free cash flow, 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/or other items from the related GAAP financial measure. The Company also includes a non-GAAP adjustment for 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 (such as restructuring-related expenses, including employee separation costs). 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 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.
The Company’s 2020 financial guidance does not assume the completion of any significant business development transactions not completed as of the date of this press release.
Applicable amounts previously reported for the three months ended March 31, 2019 and as of December 31, 2019 have been revised to reflect a change in presentation of cost reimbursements from collaborators who are not deemed to be the Company’s customers from collaboration revenue to a reduction of the corresponding operating expense. The Company also changed the presentation of amounts recognized in connection with up-front and development milestone payments received from collaboration revenue to Other operating income, as well as the presentation of the corresponding balance sheet accounts. The revisions were reclassifications only and had no impact on the Company’s previously reported GAAP and non-GAAP net income and net income per share. Refer to the Company’s Form 10-Q for the quarterly period ended March 31, 2020 (Note 1 of the Notes to Condensed Consolidated Financial Statements) for further details.
Corresponding reimbursements from collaborators and others for manufacturing of commercial supplies is recorded within revenues.
Conference Call Information
Regeneron will host a conference call and simultaneous webcast to discuss its first quarter 2020 financial and operating results on Tuesday, May 5, 2020, at 8:30 AM. To access this call, dial (888) 660-6127 (U.S.) or (973) 890-8355 (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.