On February 6, 2020 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the fourth quarter and full year 2019 and provided a business update (Press release, Regeneron, FEB 6, 2020, View Source [SID1234553973]).
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"Regeneron had a very productive 2019 marked by strong commercial growth for our core franchises, significant pipeline and regulatory progress, and positive financial results," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "In 2020, we are focused on driving continued growth with EYLEA, Dupixent, and Libtayo and anticipate several new regulatory approvals and submissions across our portfolio. Our expanding pipeline of innovative and complementary immuno-oncology therapies continues to advance, and we feel confident that we are positioned to bring new breakthroughs to cancer patients and be a leader in this rapidly evolving field."
"We continue to work constructively with Sanofi to finalize our modified antibody agreement for Praluent and Kevzara, which we expect to be accretive in 2020," said Robert E. Landry, Executive Vice President, Finance and Chief Financial Officer of Regeneron. "We will provide financial guidance for full year 2020 by no later than the end of the first quarter."
Financial Highlights
Business Highlights
Key Pipeline Progress
Regeneron has 22 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 December 2019, the Company launched the EYLEA pre-filled syringe in the United States.
Dupixent (dupilumab)
In October 2019, the European Commission (EC) approved Dupixent in chronic rhinosinusitis with nasal polyposis (CRSwNP).
The 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 was recently submitted in the European Union.
A Phase 2/3 study in bullous pemphigoid and Phase 3 studies in prurigo nodularis and chronic spontaneous urticaria were initiated.
Libtayo (cemiplimab)
A Phase 2 neoadjuvant study in cutaneous squamous cell carcinoma (CSCC) was initiated.
REGN1979, a bispecific antibody targeting CD20 and CD3
In December 2019, the Company reported updated results from the initial clinical trial in patients with non-Hodgkin lymphoma.
The potentially pivotal Phase 2 study has been expanded to include patients with diffuse large B-cell lymphoma (DLBCL) and other non-Hodgkin lymphomas.
REGN5458, a bispecific antibody targeting BCMA and CD3
In December 2019, the Company announced positive preliminary results from an initial clinical trial in patients with relapsed or refractory multiple myeloma.
Pozelimab, an antibody to C5
In December 2019, the Company announced positive top-line results from a Phase 2 trial in paroxysmal nocturnal hemoglobinuria (PNH).
Garetosmab, an antibody to Activin A
In January 2020, the Company announced encouraging results from a Phase 2 trial in fibrodysplasia ossificans progressiva (FOP).
REGN-EB3, a multi-antibody therapy to Ebola virus infection
The New England Journal of Medicine published results from the randomized, controlled PALM trial showing that Regeneron’s REGN-EB3 and another agent provided the highest overall survival rates among four investigational treatments for Ebola.
Business Development Update
The Company and Sanofi announced their intent to restructure their antibody collaboration for Kevzara and Praluent and enter into a royalty-based arrangement. Under the proposed terms of the agreement, Sanofi is expected to gain sole global rights to Kevzara and sole rights to Praluent outside of the United States. Regeneron is expected to gain sole U.S. rights to Praluent. Under the proposed terms, each party will be solely responsible for funding development and commercialization expenses in their respective territories. The proposed agreement, which is expected to be finalized in the first quarter of 2020, will not impact the companies’ existing collaboration relating to Dupixent and REGN3500.
The Company entered into a research collaboration and option licensing agreement with Vyriad, Inc. to discover and develop new oncolytic (cancer-killing) virus-based treatments for various forms of cancer.
Select 2020 Milestones
Programs
Milestones
Dupixent
–
FDA decision (target action date of May 26, 2020) on sBLA and EC decision for expanded atopic dermatitis indication in pediatric patients (6–11 years of age)
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Report results from Phase 3 study for asthma in pediatric patients (6–11 years of age)
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Report results from Phase 2 portion of Phase 2/3 study in eosinophilic esophagitis (EOE)
Libtayo
–
Interim analysis of overall survival in Phase 3 non-small cell lung cancer (NSCLC) monotherapy study in patients with high PD-L1 expression
–
Report results from potentially pivotal Phase 2 study in basal cell carcinoma (BCC)
REGN1979 (CD20 and CD3 Antibody)
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Report updated results from initial study in certain B-cell malignancies
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Continue to expand potentially pivotal Phase 2 study
REGN5458 (BCMA and CD3 Antibody)
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Report updated results from initial study in multiple myeloma
Evinacumab (ANGPTL3 Antibody)
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Submit BLA and MAA for homozygous familial hypercholesterolemia (HoFH)
Pozelimab (C5 Antibody)
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Initiate Phase 3 program in PNH
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Initiate combination program with Alnylam’s cemdisiran
Garetosmab (Activin A Antibody)
–
Discuss regulatory submission for FOP with regulatory authorities
Fasinumab (NGF Antibody)
–
Report results from Phase 3 studies in osteoarthritis pain of the knee or hip
REGN-EB3 (Multi-antibody therapy to Ebola)
–
Complete rolling BLA submission for Ebola
Fourth Quarter and Full Year 2019 Financial Results
Total Revenues: Total revenues increased by 13% to $2.170 billion in the fourth quarter of 2019, compared to $1.928 billion in the fourth quarter of 2018. Full year 2019 total revenues increased 17% to $7.863 billion, compared to $6.711 billion for the full year 2018.
Net product sales were $1.286 billion in the fourth quarter and $4.834 billion for the full year 2019, compared to $1.096 billion in the fourth quarter and $4.106 billion for the full year 2018. EYLEA net product sales in the United States were $1.222 billion in the fourth quarter and $4.644 billion for the full year 2019, compared to $1.079 billion in the fourth quarter and $4.077 billion for the full year 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(2) of $748 million in the fourth quarter and $2.616 billion for the full year 2019, compared to $729 million in the fourth quarter and $2.188 billion for the full year 2018. Sanofi collaboration revenue in the fourth quarter and full year 2019 included the Company’s share of profits from collaboration antibodies (Dupixent, Praluent, and Kevzara) of $104 million and $209 million, respectively, while Sanofi collaboration revenue in the fourth quarter and full year 2018 included the Company’s share of losses from collaboration antibodies of $(44) million and $(227) million, respectively. The increase in the Company’s share of profits from collaboration antibodies was primarily driven by higher Dupixent profits. Sanofi collaboration revenue in the fourth quarter of 2018 also included the recognition of a cumulative catch-up adjustment of $149 million arising from a change in the estimate of the stage of completion of the collaborations’ immuno-oncology programs primarily in connection with the Amended IO Discovery Agreement.
Refer to Table 4 for a summary of collaboration and other revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $683 million in the fourth quarter and $3.037 billion for the full year 2019, compared to $601 million in the fourth quarter and $2.186 billion for the full year 2018. The higher R&D expenses in the fourth quarter of 2019 were principally due to additional costs incurred in connection with our earlier-stage pipeline and dupilumab, and higher headcount and headcount-related costs. The higher R&D expenses for the full year 2019 were principally due to a $400 million up-front payment to Alnylam, additional costs incurred in connection with our earlier-stage pipeline, and higher headcount and headcount-related costs. R&D-related non-cash share-based compensation expense was $72 million in the fourth quarter and $250 million for the full year 2019, compared to $68 million in the fourth quarter and $229 million for the full year 2018.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $587 million in the fourth quarter and $1.835 billion for the full year 2019, compared to $491 million in the fourth quarter and $1.556 billion for the full year 2018. The higher SG&A expenses in the fourth quarter and full year 2019 were primarily due to higher headcount and headcount-related costs, an increase in commercialization-related expenses for Dupixent and EYLEA, additional accruals for loss contingencies associated with ongoing litigation, and higher contributions to independent not-for-profit patient assistance organizations. In addition, in the fourth quarter of 2019, the Company recorded a charge for restructuring-related costs, primarily related to employee separation costs, as the Company has eliminated certain commercialization activities and related headcount in connection with the proposed restructuring of the antibody agreement with Sanofi (as described above). SG&A-related non-cash share-based compensation expense was $45 million in the fourth quarter and $168 million for the full year 2019, compared to $51 million in the fourth quarter and $169 million for the full year 2018.
Cost of Goods Sold (COGS): GAAP COGS was $109 million in the fourth quarter and $362 million for the full year 2019, compared to $44 million in the fourth quarter and $180 million for the full year 2018. The increase in COGS was primarily due to our obligation to pay Sanofi its share of Libtayo U.S. gross profits, third-party royalties on Libtayo U.S. sales, and higher inventory write-downs and reserves.
Cost of Collaboration and Contract Manufacturing (COCM): GAAP COCM was $115 million in the fourth quarter and $420 million for the full year 2019, compared to $73 million in the fourth quarter and $254 million for the full year 2018. The increase in COCM for the full year 2019 was primarily due to the recognition of manufacturing costs associated with higher sales of Dupixent.
Other Income (Expense): GAAP other income (expense), net, includes the recognition of net gains on equity securities of $189 million in the fourth quarter and $118 million for the full year 2019, compared to net losses of $(63) million in the fourth quarter and $(42) million for the full year 2018.
Income Taxes: GAAP income tax expense was $98 million and the effective tax rate was 11.0% in the fourth quarter of 2019, compared to a GAAP income tax benefit of $(144) million and (21.3%) in the fourth quarter of 2018. GAAP income tax expense was $313 million and the effective tax rate was 12.9% for the full year 2019, compared to $109 million and 4.3% for the full year 2018. The effective tax rate for the fourth quarter and full year 2019 was positively impacted, compared to the U.S. federal statutory rate, primarily by stock-based compensation, income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate, and federal tax credits for research activities. The Company’s effective tax rate for the fourth quarter and full year 2018 was positively impacted, compared to the U.S. federal statutory rate, primarily by the Company’s fourth quarter sale of non-inventory related assets between foreign subsidiaries, which had a net impact on the rate by 24.0% and 6.3% for the fourth quarter and full year 2018, respectively. During the fourth quarter and full year 2018, the Company also recorded an income tax benefit of $56 million and $68 million, respectively, as an adjustment to the provisional amount recorded as of December 31, 2017 for the U.S. Tax Reform Act.
GAAP and Non-GAAP Net Income(1): GAAP net income was $792 million, or $6.93 per diluted share, in the fourth quarter of 2019, compared to GAAP net income of $820 million, or $7.15 per diluted share, in the fourth quarter of 2018. GAAP net income was $2.116 billion, or $18.46 per diluted share, for the full year 2019, compared to GAAP net income of $2.444 billion, or $21.29 per diluted share, for the full year 2018.
Non-GAAP net income was $858 million, or $7.50 per diluted share, in the fourth quarter of 2019, compared to non-GAAP net income of $786 million, or $6.84 per diluted share, in the fourth quarter of 2018. Non-GAAP net income was $2.827 billion, or $24.67 per diluted share, for the full year 2019, compared to non-GAAP net income of $2.622 billion, or $22.84 per diluted share, for the full year 2018.
A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
2020 Financial Guidance
Given the announcement regarding the intent to restructure the antibody collaboration for Kevzara and Praluent with Sanofi, Regeneron will provide financial guidance for full year 2020 by the end of the first quarter of 2020.
This press release uses non-GAAP net income and non-GAAP net income per share, 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 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.
Conference Call Information
Regeneron will host a conference call and simultaneous webcast to discuss its fourth quarter and full year 2019 financial and operating results on Thursday, February 6, 2020, at 8:00 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.