On August 5, 2020 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the second quarter of 2020 and provided a business update (Press release, Regeneron, AUG 5, 2020, View Source [SID1234562873]).
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"I’m very proud of how the Regeneron team has continued to drive important progress for patients, despite the significant challenges of the COVID-19 pandemic," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "We have advanced REGN-COV2, our antibody cocktail for COVID-19, into late-stage clinical studies in record time and are working to ensure supply is available later this year. We are continuing to drive strong performance with our marketed medicines, including EYLEA, Dupixent, and Libtayo, while also advancing research, development, and regulatory progress across a number of therapeutic areas including cancer, Type 2 inflammatory diseases, pain, and rare diseases."
"Regeneron’s business continues to be resilient during these times, delivering double digit top- and bottom-line growth in the second quarter," said Robert E. Landry, Executive Vice President, Finance and Chief Financial Officer of Regeneron. "Our strong balance sheet, improved competitive outlook, increasingly diversified commercial portfolio, and robust pipeline position Regeneron well for sustained long-term growth."
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
•Phase 3 studies exploring less frequent dosing intervals using a high-dose formulation of aflibercept in neovascular age-related macular degeneration (wet AMD) and diabetic macular edema (DME) were initiated.
•In April 2020, the European Commission approved the EYLEA pre-filled syringe.
Dupixent (dupilumab)
•In May 2020, the U.S. Food and Drug Administration (FDA) approved Dupixent as the first biologic medicine for children aged 6 to 11 years with moderate-to-severe atopic dermatitis.
•In June 2020, the National Medical Products Administration (NMPA) in China approved Dupixent for adults with moderate-to-severe atopic dermatitis.
•In May 2020, the Company and Sanofi announced positive results from Part A of the Phase 3 trial in patients 12 years and older with eosinophilic esophagitis (EoE). The trial met both of its co-primary endpoints, as well as all key secondary endpoints.
•A Phase 3 study in pediatric patients with EoE was initiated.
•In June 2020, the FDA approved a 300 mg single-dose pre-filled pen for Dupixent.
•An ongoing Phase 3 trial in chronic obstructive pulmonary disease (COPD) patients with evidence of Type 2 inflammation met a blinded, stringent early efficacy threshold for continuation. Based on this result, a second confirmatory Phase 3 trial in COPD was initiated.
REGN-COV2
•The Company initiated clinical trials of REGN-COV2, its investigational two-antibody "cocktail" for the treatment and prevention of COVID-19.
•Following review from the Independent Data Monitoring Committee (IDMC) of REGN-COV2 Phase 1 safety results, a Phase 3 trial to evaluate REGN-COV2’s ability to prevent infection among uninfected people who have had close exposure to a COVID-19 patient (such as the patient’s housemate) was initiated and is being run jointly with the National Institute of Allergy and Infectious Diseases (NIAID). In addition, REGN-COV2 moved into the Phase 2/3 portion of two adaptive Phase 1/2/3 trials testing the cocktail’s ability to treat hospitalized and non-hospitalized patients with COVID-19. The Company plans to report initial virology and biomarker results from the REGN-COV2 treatment trials in September 2020.
•Two papers were published in Science describing the creation of REGN-COV2 and highlighting the potential of REGN-COV2 to diminish the risk of viral escape by effectively binding to the virus’s critical spike protein in two separate, non-overlapping locations.
•Non-human primate data were provided as a pre-review publication online for REGN-COV2 showing that treatment with this antibody cocktail can prevent SARS-CoV-2 infection as well as treat infected animals by accelerating viral elimination.
•The Company announced an agreement with the Biomedical Advanced Research and Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) and the U.S. Department of Defense whereby the Company was awarded a $450 million contract to manufacture and supply filled and finished REGN-COV2 to the U.S. Government. The agreement provides for the Company to manufacture a fixed number of bulk lots beginning in the summer of 2020 and fill/finish and storage activities starting in the third quarter of 2020.
Kevzara (sarilumab)
•The Company and Sanofi reported that the Regeneron-led U.S. Phase 3 study of Kevzara 400 mg in COVID-19 patients requiring mechanical ventilation did not meet its primary and key secondary endpoints. Based on the results, the U.S.-based trial has been stopped.
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). In May 2020, the Company and Sanofi also announced that Libtayo demonstrated clinically-meaningful and durable responses in a pivotal, single-arm, open-label trial in patients with advanced basal cell carcinoma. The data from these trials will form the basis of regulatory submissions in the U.S. and European Union (EU) this year.
•In May 2020, the Company and Sanofi announced new, longer-term data for Libtayo from a pivotal Phase 2 trial in advanced cutaneous squamous cell carcinoma (CSCC). These results demonstrate both longer durability and higher complete response rates than previously reported. Updated data from this trial have also been incorporated into the U.S. label.
•A publication in Science Translational Medicine featured scientific findings highlighting the benefit demonstrated in preclinical research in combining the Company’s novel class of CD28 costimulatory bispecific antibodies with Libtayo. In 2020, the Company plans to enroll patients in clinical trials investigating three different CD28 costimulatory bispecific candidates. Regeneron’s first costimulatory bispecific trial, investigating the combination of PSMAxCD28 (REGN5678) and Libtayo for prostate cancer, is underway and has treated patients in several dose-escalation cohorts.
Praluent (alirocumab)
•The Company submitted a supplemental Biologics License Application (sBLA) for homozygous familial hypercholesterolemia (HoFH) in adults.
Evinacumab, an antibody to ANGPTL3
•The Company completed the rolling BLA submission and a Marketing Authorization Application (MAA) was also submitted for HoFH.
Fasinumab, an antibody to NGF
•Two Phase 3 trials, FACT OA1 and FACT OA2, achieved the co-primary endpoints for fasinumab 1 mg monthly, demonstrating significant improvements in pain and physical function over placebo at week 16 and week 24, respectively. Fasinumab 1 mg monthly also showed nominally significant benefits in physical function in both trials and pain in one trial, when compared to the maximum FDA-approved prescription doses of non-steroidal anti-inflammatory drugs for osteoarthritis.
•The FACT OA1 trial included an additional treatment arm, fasinumab 1 mg every two months, which showed numerical benefit over placebo, but did not reach statistical significance.
•In initial safety analyses from the Phase 3 trials, there was an increase in arthropathies reported with fasinumab. In a sub-group of patients from one Phase 3 long-term safety trial, there was an increase in joint replacement with fasinumab 1 mg monthly treatment during the off-drug follow-up period, although this increase was not seen in the other trials to date. Additional longer-term safety data from the ongoing trials are being collected and are expected to be reported early next year.
COVID-19 Business Impact Update
•Regeneron maintains adequate market supply for all commercialized products. The Company’s raw material supplies and contract manufacturing support have also remained stable.
•The Company continues to evaluate the impact of the COVID-19 pandemic on an individual clinical trial basis and expects fully-recruited clinical studies to remain generally on track. After briefly pausing new enrollment in certain studies due to the pandemic, enrollment in both new and ongoing clinical studies started to resume as regions relaxed their restrictions and healthcare resources started to become more available for non-COVID-19 activities. However, there has been a resurgence of COVID-19 cases in many regions across the world, and any resurgence in the regions in which the Company or its collaborators conduct clinical trials may require the Company to adjust its expectations relating to the impacted studies.
Corporate and 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 is now solely responsible for the development and commercialization of Praluent and records net product sales. The Company does not owe Sanofi royalties on net product sales of Praluent in the United States. Sanofi has sole responsibility for the development and commercialization of Praluent outside the United States, and pays the Company a 5% royalty on Praluent net product sales.
•In May 2020, a secondary offering of approximately 13 million shares of the Company’s common stock held by Sanofi was completed. Concurrent with the secondary offering, the Company purchased approximately 9.8 million shares directly from Sanofi for an aggregate purchase amount of $5 billion. Pursuant to the offering and purchase, Sanofi disposed of all but 400,000 shares of the Company’s common stock that it retained as of the closing date of such transactions.
•In May 2020, the Company expanded its existing collaboration with Intellia Therapeutics, Inc. to provide the Company with rights to develop products for additional in vivo CRISPR/Cas9-based therapeutic targets and for the companies to jointly develop potential products for the treatment of hemophilia A and B. In addition, the Company also received non-exclusive rights to independently develop and commercialize ex vivo gene edited products. In connection with the agreement, the Company made a $70 million up-front payment and purchased Intellia common stock for $30 million.
•In July 2020, HHS exercised its option under the existing agreement for the treatment of Ebola virus infection to provide additional funding for the manufacture and supply of REGN-EB3. REGN-EB3 is currently under priority review by the FDA, with a target action date of October 25, 2020. Contingent on FDA approval, Regeneron expects to deliver an established number of treatment doses over the course of approximately six years.
Second 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 24% to $1.952 billion in the second quarter of 2020, compared to $1.578 billion in the second quarter of 2019.
EYLEA net product sales in the United States were $1.114 billion in the second quarter of 2020, compared to $1.160 billion in the second quarter of 2019. EYLEA’s second quarter 2020 net product sales in the United States were negatively impacted by the COVID-19 pandemic. 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 $513 million in the second quarter of 2020, compared to $353 million in the second quarter of 2019. Sanofi collaboration revenue increased primarily due to the Company’s share of profits from commercialization of antibodies, which increased to $172 million in the second quarter of 2020 from $39 million in the second quarter of 2019. The change 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 revenue.
Other revenues in the second quarter of 2020 include recognition of revenue in connection with the Company’s agreements with BARDA related to funding of certain development activities for REGN-EB3 for the treatment of Ebola and antibodies for the treatment of COVID-19.
•GAAP R&D expenses in the second quarter of 2020 included $85 million in up-front payments in connection with the collaboration agreement with Intellia. GAAP R&D expenses in the second quarter of 2019 included a $400 million up-front payment in connection with the collaboration agreement with Alnylam Pharmaceuticals, Inc. Non-GAAP R&D expenses increased in the second quarter of 2020 principally due to additional costs incurred in connection with COVID-19 related development activities, higher headcount and headcount-related costs, and an increase in clinical manufacturing activities.
•The higher GAAP and non-GAAP SG&A expenses in the second quarter of 2020 were primarily due to higher headcount-related costs, higher contributions to independent not-for-profit patient assistance organizations, and the Company no longer receiving Praluent-related cost reimbursements from Sanofi.
•The increase in cost of collaboration and contract manufacturing in the second quarter of 2020 was primarily due to the recognition of manufacturing costs associated with higher sales of Dupixent, process validation costs in connection with manufacturing REGN-EB3 under the BARDA Ebola agreement, and recognition of costs in connection with manufacturing ex-U.S. commercial supplies of Praluent for Sanofi under the new 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 income (expense), net, includes the recognition of net unrealized gains on equity securities of $228 million in the second quarter of 2020, compared to net unrealized losses of $117 million in the second quarter of 2019. GAAP other income (expense), net, also includes the recognition of net realized gains on sales of debt securities.
In the second quarter of 2020, the Company’s GAAP effective tax rate was 2.4%, compared to 14.1% in the second quarter of 2019. The GAAP effective tax rate for the second 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 second quarter of 2020, the non-GAAP effective tax rate was 0.9%, compared to 19.1% in the second quarter of 2019. The Company expects its full year 2020 GAAP effective tax rate to be 9–11% and its non-GAAP effective tax rate to be 10–12% (see financial guidance table below).
GAAP net income per diluted share was $7.61 in the second quarter of 2020, compared to GAAP net income per diluted share of $1.68 in the second quarter of 2019. Non-GAAP net income per diluted share was $7.16 in the second quarter of 2020, compared to non-GAAP net income per diluted share of $6.02 in the second quarter of 2019. A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
As described above, during the second quarter of 2020, the Company purchased 9,806,805 shares of Common Stock from Sanofi and recorded the cost of the shares received, or $5 billion, as Treasury Stock.
The Company generated $943 million of net cash provided by operating activities in the second quarter of 2020, compared to $188 million in the second quarter of 2019, which led to $814 million in free cash flow for the second quarter of 2020, compared to $94 million for the second quarter of 2019.
This press release uses non-GAAP R&D, non-GAAP SG&A, non-GAAP COGS, non-GAAP other income (expense) net, 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. With respect to free cash flows, the Company believes that this non-GAAP measure provides a further measure of the Company’s operations’ ability to generate cash flows. 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.
(2)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.(3) 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.(4)Applicable amounts previously reported for the three and six months ended June 30, 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 June 30, 2020 (Note 1 of the Notes to Condensed Consolidated Financial Statements) for further details.(5) 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 second quarter 2020 financial and operating results on Wednesday, August 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.