On August 2, 2018 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the second quarter of 2018 and provided a business update (Press release, Regeneron, AUG 2, 2018, View Source [SID1234528311]).
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"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," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "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."
Financial Highlights
Bayer records net product sales of EYLEA outside the United States and Sanofi records global net product sales of Dupixent, Praluent, Kevzara, and ZALTRAP. Refer to Table 4 below for the Company’s share of profits/losses recorded in connection with sales of EYLEA outside the United States and global sales of Dupixent, Praluent, and Kevzara. Sanofi pays the Company a percentage of aggregate net sales of ZALTRAP.
Second Quarter 2018 Business Highlights
Key Pipeline Progress
Regeneron has nineteen product candidates in clinical development, which consist of EYLEA and fully human antibodies generated using the Company’s VelocImmune technology, including eight in collaboration with Sanofi. Updates from the clinical pipeline include:
EYLEA (aflibercept) Injection
The Company recently submitted a supplemental Biologics License Application (sBLA) for EYLEA for the treatment of diabetic retinopathy.
In the second quarter of 2018, the Company submitted an sBLA for EYLEA in a pre-filled syringe.
Dupixent (dupilumab) Injection
Dupixent, an antibody that blocks signaling of IL-4 and IL-13, is being studied in asthma, adolescent and pediatric atopic dermatitis, nasal polyps, eosinophilic esophagitis (EoE), and grass immunotherapy, with additional studies planned in 2018.
In May 2018, the Company and Sanofi reported that a Phase 3 trial evaluating Dupixent to treat moderate-to-severe atopic dermatitis in adolescents (12-17 years of age) met its primary and key secondary endpoints.
In May 2018, the Company and Sanofi announced that the New England Journal of Medicine published detailed, positive results from two Phase 3 trials of Dupixent in moderate-to-severe asthma.
In the second quarter of 2018, a Phase 2 study of Dupixent in grass immunotherapy was initiated.
Praluent (alirocumab) Injection
In May 2018, the Company and Sanofi announced they will lower the net price of Praluent in exchange for straightforward, more affordable patient access from Express Scripts. Praluent has been chosen as the exclusive PCSK9 inhibitor therapy on the Express Scripts national formulary. The agreement took effect on July 1, 2018.
An sBLA and a Marketing Authorization Application (MAA) for Praluent for cardiovascular risk reduction have been recently submitted.
An sBLA for first-line treatment of hyperlipidemia has also been recently submitted.
In the second quarter of 2018, a Phase 3 pediatric study in heterozygous familial hypercholesterolemia (HeFH) was initiated.
Cemiplimab, an antibody to PD-1, is being studied in patients with cancer.
In April 2018, the FDA accepted for priority review the BLA for cemiplimab for the treatment of patients with metastatic cutaneous squamous cell carcinoma (CSCC) or patients with locally advanced CSCC who are not candidates for surgery. The target action date for the FDA decision is October 28, 2018.
In April 2018, the European Medicines Agency (EMA) also accepted for review the MAA for cemiplimab in patients with metastatic CSCC or patients with locally advanced CSCC who are not candidates for surgery.
In June 2018, the Company and Sanofi announced that pivotal data from two trials evaluating cemiplimab in advanced CSCC were published in the New England Journal of Medicine.
In May 2018, the Company and Sanofi announced positive interim results from a Phase 1 study assessing cemiplimab as a potential treatment for advanced non-small cell lung cancer (NSCLC).
Fasinumab, an antibody targeting Nerve Growth Factor (NGF), is being studied in patients with osteoarthritis of the knee or hip.
In April 2018, an independent Data Monitoring Committee monitoring the ongoing safety and efficacy of the fasinumab clinical trials recommended that the higher dose-regimens be discontinued based on the risk benefit assessment and that the program may continue with the lower dose-regimens of fasinumab; the ongoing osteoarthritis trials have been modified accordingly. Since the Phase 3 clinical study in chronic low back pain in patients with concomitant osteoarthritis was only using higher doses, the Company is no longer actively dosing patients in this study.
Evinacumab is an antibody to ANGPTL3. In the second quarter of 2018, a Phase 3 study in severe hypertriglyceridemia was initiated.
REGN3500 is an antibody to IL-33. In the third quarter of 2018, a Phase 2 study in chronic obstructive pulmonary disease (COPD) was initiated.
REGN3918 (pozelimab) is an antibody to C5. The Company expects to report full data from its Phase 1 study in paroxysmal nocturnal hemoglobinuria (PNH) in the second half of 2018, and plans to initiate a Phase 2 study in PNH in early 2019.
REGN4018 is a bi-specific antibody targeting MUC16 and CD3. In the second quarter of 2018, a Phase 1 study in platinum-resistant ovarian cancer was initiated.
REGN4659 is an antibody against CTLA4. In the second quarter of 2018, a Phase 1 study in advanced NSCLC was initiated.
Select Upcoming 2018 Milestones
Programs
Milestones
EYLEA
FDA decision on sBLA for every 12-week dosing interval in wet AMD (target action date of August 11, 2018)
Report one-year data from Phase 3 PANORAMA study for the treatment of non-proliferative diabetic retinopathy in patients without diabetic macular edema (DME)
Dupixent (dupilumab)
FDA decision on sBLA for asthma in adult/adolescent patients (target action date of October 20, 2018)
Additional regulatory agency decisions on applications for atopic dermatitis in adults outside the United States
Submit sBLA and MAA for expanded indication in adolescent patients with atopic dermatitis (12-17 years of age)
Report data from Phase 3 studies in nasal polyps
Initiate Phase 3 study in EoE
Initiate Phase 2 study in peanut allergy
Praluent (alirocumab)
FDA decision on sBLA for use with apheresis (target action date of August 24, 2018)
Initiate Phase 3 pediatric study in homozygous familial hypercholesterolemia (HoFH)
Kevzara (sarilumab)
Initiate Phase 3 study in giant cell arteritis
Initiate Phase 3 study in polymyalgia rheumatica
Cemiplimab (PD-1 Antibody)
FDA decision on BLA for advanced CSCC (target action date of October 28, 2018)
Continue Phase 3 patient enrollment for the treatment of non-small cell lung cancer, as well as various other studies
Fasinumab (NGF Antibody)
Report data from first Phase 3 efficacy study in osteoarthritis pain
Continue patient enrollment in Phase 3 long-term safety and efficacy studies in osteoarthritis
REGN3500 (IL-33 Antibody)
Initiate Phase 2 study in atopic dermatitis
Bispecific Antibodies
Initiate Phase 2 study for REGN1979 (CD20xCD3 Antibody) in follicular lymphoma
Submit Investigational New Drug Application (IND) for BCMAxCD3 antibody
Financial Results
Product Revenues: Net product sales were $996 million in the second quarter of 2018, compared to $924 million in the second quarter of 2017. EYLEA net product sales in the United States were $992 million in the second quarter of 2018, compared to $919 million in the second quarter of 2017. Overall distributor inventory levels remained within the Company’s one- to two-week targeted range.
Total Revenues: Total revenues, which include product revenues described above, increased by 9% to $1.608 billion in the second quarter of 2018, compared to $1.470 billion in the second quarter of 2017. Total revenues include Sanofi and Bayer collaboration revenues of $501 million in the second quarter of 2018, compared to $432 million in the second quarter of 2017. Sanofi collaboration revenue in the second quarter of 2018 increased primarily due to the Company’s share of higher net sales of Dupixent and an increase in reimbursable expenses in connection with late-stage clinical development activities for cemiplimab. These increases were partly offset by the Company’s Discovery and Preclinical Development Agreement with Sanofi ending on December 31, 2017, lower reimbursement for Dupixent development activities, and an increase in the Company’s share of the collaboration’s Dupixent commercialization expenses. Bayer collaboration revenue increased in the second quarter of 2018 primarily due to an increase in the Company’s share of net profits in connection with higher sales of EYLEA outside the United States.
The Company adopted Accounting Standard Codification (ASC) 606, Revenue from Contracts with Customers, as of January 1, 2018. The Company adopted the standard using the modified retrospective method; prior period amounts have not been adjusted and the adoption of the new standard did not have a material impact on the Company’s total revenues in the second quarter of 2018.
Refer to Table 4 for a summary of collaboration and other revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $529 million in the second quarter of 2018, compared to $510 million in the second quarter of 2017. The higher R&D expenses in the second quarter of 2018 were principally due to an increase in cemiplimab and fasinumab clinical trial costs and higher R&D headcount and facilities-related costs, partly offset by a decrease in Dupixent development expenses and the discontinuation of certain development programs. In the second quarter of 2018, R&D-related non-cash share-based compensation expense was $60 million, compared to $70 million in the second quarter of 2017.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $365 million in the second quarter of 2018, compared to $307 million in the second quarter of 2017. The higher SG&A expenses in the second quarter of 2018 were primarily due to higher headcount and headcount-related costs and an increase in commercialization-related expenses for EYLEA and Dupixent, and, to a lesser extent, for cemiplimab. In the second quarter of 2018, SG&A-related non-cash share-based compensation expense decreased to $40 million, compared to $45 million in the second quarter of 2017.
Income Tax Expense: In the second quarter of 2018, GAAP income tax expense was $105 million and the effective tax rate was 16.0%, compared to $138 million and 26.3% in the second quarter of 2017. The Company’s effective tax rate for the second quarter of 2018 was significantly impacted by the bill known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act"), which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effective tax rate for the second quarter of 2018 was positively impacted, compared to the U.S. federal statutory rate, primarily by the tax benefit associated with stock-based compensation, income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate, the foreign-derived intangible income deduction, and the federal tax credit for research activities.
Other income (expense), net: GAAP other income in the second quarter of 2018 included the recognition of $17 million of net unrealized gains on equity securities. In the first quarter of 2018, the Company adopted Accounting Standards Update ("ASU") 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, as of January 1, 2018, which requires the Company to measure equity investments at fair value with changes in fair value recognized in net income; previously, such changes in fair value were recognized in Other comprehensive income (loss). Refer to Table 3 for the non-GAAP adjustment related to gains and losses on investments in equity securities.
GAAP other expenses in the second quarter of 2017 included a $30 million loss on debt extinguishment related to the 2017 Tarrytown lease transaction.
GAAP and Non-GAAP Net Income(2): GAAP net income was $551 million, or $5.12 per basic share and $4.82 per diluted share, in the second quarter of 2018, compared to GAAP net income of $388 million, or $3.66 per basic share and $3.34 per diluted share, in the second quarter of 2017.
Non-GAAP net income was $624 million, or $5.79 per basic share and $5.45 per diluted share, in the second quarter of 2018, compared to non-GAAP net income of $487 million, or $4.59 per basic share and $4.17 per diluted share, in the second quarter of 2017.
A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
2018 Financial Guidance(3)
Regeneron records net product sales of EYLEA in the United States. Outside the United States, EYLEA net product sales comprise sales by Bayer in countries other than Japan and sales by Santen Pharmaceutical Co., Ltd. in Japan under a co-promotion agreement with an affiliate of Bayer. The Company recognizes its share of the profits (including a percentage on sales in Japan) from EYLEA sales outside the United States within "Bayer collaboration revenue" in its Statements of Operations.
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 (such as changes in applicable laws and regulations). 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 2018 financial guidance does not assume the completion of any significant business development transactions not completed as of the date of this press release.
Conference Call Information
Regeneron will host a conference call and simultaneous webcast to discuss its second quarter 2018 financial and operating results on Thursday, August 2, 2018, at 8:30 AM. To access this call, dial (800) 708-4539 (U.S.) or (847) 619-6396 (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 30 days.