On August 6, 2019 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the second quarter of 2019 and provided a business update (Press release, Regeneron, AUG 6, 2019, View Source [SID1234538202]).
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"We had a great quarter marked by top- and bottom-line growth as well as important advances across our innovative R&D engine," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "We are further unlocking EYLEA’s potential to help patients with the recent approval in diabetic retinopathy, and are advancing a high-dose formulation into the clinic later this year. Dupixent is growing rapidly in moderate-to-severe atopic dermatitis and asthma, and we continue to receive new indications in younger patients and additional Type 2 diseases, including the recent U.S. approval for chronic rhinosinusitis with nasal polyposis. Lastly, our immuno-oncology platform, which includes Libtayo and our portfolio of bispecific antibodies, is progressing well, with the most advanced bispecific program, REGN1979 (CD20xCD3), entering a potentially pivotal Phase 2 trial in follicular lymphoma."
Key Pipeline Progress
Regeneron has 21 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 May 2019, the FDA approved EYLEA for the treatment of diabetic retinopathy.
The supplemental Biologics License Application (sBLA) for EYLEA in a pre-filled syringe has a target action date of August 12, 2019.
Dupixent (dupilumab)
In May 2019, the European Commission (EC) approved Dupixent for use in adults and adolescents 12 years and older as an add-on maintenance treatment for severe asthma.
In June 2019, the FDA approved Dupixent for use with other medicines to treat chronic rhinosinusitis with nasal polyposis (CRSwNP) in adults whose disease is not controlled.
The European Commission approved Dupixent, extending its approval in the European Union (EU) 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.
Libtayo (cemiplimab)
In June 2019, the EC granted conditional marketing authorization for Libtayo for the treatment of adult patients with metastatic or locally advanced cutaneous squamous cell carcinoma (CSCC) who are not candidates for curative surgery or curative radiation.
A Phase 3 adjuvant study in CSCC was initiated.
REGN1979, a bispecific antibody against CD20 and CD3
In June 2019, the Company presented updated positive results from a study in patients with relapsed or refractory B-cell non-Hodgkin lymphoma at the European Hematology Association (EHA) (Free EHA Whitepaper) meeting.
A Phase 2 study in relapsed or refractory follicular lymphoma (FL) is recruiting patients.
Praluent (alirocumab)
In April 2019, based upon data from the Phase 3 ODYSSEY OUTCOMES trial, the FDA approved a new indication for Praluent to reduce the risk of heart attack, stroke, and unstable angina requiring hospitalization in adults with established cardiovascular disease. The label was also updated to include data showing that treatment with Praluent was associated with a reduction in death from any cause.
REGN3500, an antibody to IL-33
In June 2019, the Company and Sanofi announced that the Phase 2 study in asthma met the primary endpoint of improvement in loss of asthma control when comparing REGN3500 monotherapy to placebo. In the trial, the greatest improvement was observed in patients with blood eosinophil levels ≥300 cells/microliter. Patients treated with Dupixent monotherapy did numerically better than REGN3500 across all endpoints. The combination of REGN3500 and Dupixent did not demonstrate increased benefit compared to Dupixent monotherapy in this trial.
Second Quarter 2019 Financial Results
Total Revenues: Total revenues increased by 20% to $1.934 billion in the second quarter of 2019, compared to $1.608 billion in the second quarter of 2018.
Net product sales were $1.205 billion in the second quarter of 2019, compared to $996 million in the second quarter of 2018. EYLEA net product sales in the United States were $1.160 billion in the second quarter of 2019, compared to $992 million in the second 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 $638 million in the second quarter of 2019, compared to $501 million in the second quarter of 2018. The Company’s Antibody License and Collaboration Agreement with Sanofi achieved profitability in connection with commercialization of antibodies in the second quarter of 2019 for the first time. Consequently, Sanofi collaboration revenue in the second quarter of 2019 included the Company’s share of profits from collaboration antibodies of $39 million, while Sanofi collaboration revenue in the second quarter of 2018 included the Company’s share of losses from collaboration antibodies of $69 million. The increase was primarily driven by higher net product sales of Dupixent.
Refer to Table 4 for a summary of collaboration and other revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $1.048 billion in the second quarter of 2019, compared to $529 million in the second quarter of 2018. The higher R&D expenses in the second quarter of 2019 were principally due to a $400 million up-front payment in connection with the collaboration agreement with Alnylam Pharmaceuticals, Inc. In the second quarter of 2019, R&D-related non-cash share-based compensation expense was $59 million, compared to $60 million in the second quarter of 2018.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $417 million in the second quarter of 2019, compared to $365 million in the second quarter of 2018. The higher SG&A expenses in the second quarter of 2019 were primarily due to higher headcount and related costs, and an increase in commercialization-related expenses for Dupixent. In the second quarter of 2019, SG&A-related non-cash share-based compensation expense was $38 million, compared to $41 million in the second quarter of 2018.
Cost of Goods Sold (COGS): GAAP COGS was $67 million in the second quarter of 2019, compared to $36 million in the second quarter of 2018. The increase in COGS was primarily due to the Company’s commercialization of Libtayo in the United States, including royalties to third parties and the Company’s obligation to pay Sanofi its share of Libtayo gross profits.
Other Income (Expense): GAAP other income (expense), net, in the second quarter of 2019 and 2018 includes the recognition of $117 million of net unrealized losses and $17 million of net unrealized gains, respectively, on equity securities.
Income Taxes: In the second quarter of 2019, GAAP income tax expense was $32 million and the effective tax rate was 14.1%, compared to $105 million and 16.0%, respectively, in the second quarter of 2018. The effective tax rate for the second quarter of 2019 was positively impacted, compared to the U.S. federal statutory rate, primarily by income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate, stock-based compensation, and federal tax credits for research activities.
GAAP and Non-GAAP Net Income(1): GAAP net income was $193 million, or $1.77 per basic share and $1.68 per diluted share, in the second quarter of 2019, compared to GAAP net income of $551 million, or $5.12 per basic share and $4.82 per diluted share, in the second quarter of 2018.
Non-GAAP net income was $690 million, or $6.32 per basic share and $6.02 per diluted share, in the second quarter of 2019, compared to non-GAAP net income of $624 million, or $5.79 per basic share and $5.45 per diluted share, in the second quarter of 2018.
The difference in GAAP net income and non-GAAP net income in the second quarter of 2019 was largely impacted by (i) the Alnylam up-front payment being recognized as GAAP R&D expense during the period and (ii) unrealized losses recorded in GAAP other income (expense) related to Alnylam common shares the Company purchased in connection with the collaboration agreement. A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
2019 Financial Guidance(2)
The Company’s updated full year 2019 financial guidance consists of the following components:
GAAP Sanofi collaboration revenue: Sanofi reimbursement of Regeneron commercialization-related expense
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:
SG&A: Non-cash share-based compensation expense
Unreimbursed R&D represents R&D expenses reduced by R&D expense reimbursements from the Company’s collaborators and/or customers.
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 second quarter 2019 financial and operating results on Tuesday, August 6, 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 30 days.