On February 8, 2018 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the fourth quarter and full year 2017 and provided a business update (Press release, Regeneron, FEB 8, 2018, View Source [SID1234523866]).
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"In 2017, Regeneron’s core EYLEA business continued to grow and we diversified our revenue stream by bringing two new products to patients in need," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "We are anticipating additional pipeline progress in 2018, including regulatory decisions for dupilumab in uncontrolled asthma and cemiplimab in advanced cutaneous squamous cell carcinoma, cardiovascular outcomes data for Praluent, as well as Phase 3 data for EYLEA in diabetic retinopathy."
Financial Highlights
($ in millions, except per share data)
Three Months Ended
December 31,
Year Ended
December 31,
2017
2016
%
Change
2017
2016
%
Change
Total revenues
$
1,582
$
1,227
29%
$
5,872
$
4,860
21%
GAAP net income
$
174
$
253
(31)%
$
1,199
$
896
34%
GAAP net income per share – diluted
$
1.50
$
2.19
(32)%
$
10.34
$
7.70
34%
Non-GAAP net income(2)
$
607
$
353
72%
$
1,901
$
1,319
44%
Non-GAAP net income per share –
diluted(2)
$
5.23
$
3.04
72%
$
16.32
$
11.32
44%
Net Product Sales of Regeneron-Discovered Products*
($ in millions)
Three Months Ended
December 31,
Year Ended
December 31,
2017
2016
% Change
2017
2016
% Change
EYLEA in the United States
$
975
$
858
14%
$
3,702
$
3,323
11%
ARCALYST
4
5
(20)%
16
15
7%
Net product sales recorded by
Regeneron
$
979
$
863
13%
$
3,718
$
3,338
11%
EYLEA outside of the United States*
$
637
$
496
28%
$
2,227
$
1,872
19%
EYLEA global
$
1,612
$
1,354
19%
$
5,929
$
5,195
14%
Global net product sales recorded by Sanofi*:
Praluent
$
63
$
41
54%
$
195
$
116
68%
Dupixent
139
—
**
256
—
**
Kevzara
9
—
**
13
—
**
ZALTRAP
25
16
56%
84
72
17%
Net product sales recorded by Sanofi
$
236
$
57
**
$
548
$
188
**
* Bayer records net product sales of EYLEA outside the United States and Sanofi records global net product sales of Praluent, Dupixent, Kevzara, and ZALTRAP. Dupixent and Kevzara sales in 2017 were primarily in the United States. 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 sales of Praluent, Dupixent, and Kevzara. Sanofi pays the Company a percentage of aggregate net sales of ZALTRAP.
** Percentage not meaningful
Fourth Quarter 2017 Business Highlights
Pipeline Progress
Regeneron has fifteen product candidates in clinical development, which consist of EYLEA and fully human antibodies generated using the Company’s VelocImmune technology, including six in collaboration with Sanofi. Updates from the clinical pipeline include:
EYLEA (aflibercept) Injection for Intravitreal Injection
The supplemental Biologics License Application (sBLA) for a 12-week dosing interval of EYLEA in patients with neovascular age-related macular degeneration (wet AMD) was filed with the U.S. Food and Drug Administration (FDA), with a target action date of August 11, 2018.
Dupixent (dupilumab) Injection
Dupilumab, an antibody that blocks signaling of IL-4 and IL-13, is currently being studied in asthma, pediatric atopic dermatitis, nasal polyps, and eosinophilic esophagitis (EoE).
In January 2018, the Ministry of Health, Labor and Welfare (MHLW) in Japan approved Dupixent for the treatment of atopic dermatitis in adults not adequately controlled with existing therapies.
In the fourth quarter of 2017, a Phase 3 study in pediatric patients (from six to 11 years of age) with severe atopic dermatitis was initiated. Additionally, in the first quarter of 2018, a Phase 2/3 study in younger pediatric patients (from six months to five years of age) with severe atopic dermatitis was initiated.
In the fourth quarter of 2017, the Company and Sanofi announced that the Phase 3 LIBERTY ASTHMA VENTURE study evaluating dupilumab in adults and adolescents with severe, steroid-dependent asthma met its primary endpoint and key secondary endpoints.
An sBLA for asthma in patients aged 12 and over was submitted with the FDA in the fourth quarter of 2017.
In October 2017, the Company and Sanofi presented positive results from the Phase 2 study in adults with active moderate-to-severe EoE at the World Congress of Gastroenterology.
Praluent (alirocumab) Injection for the Treatment of Elevated Low-Density Lipoprotein (LDL) Cholesterol
Data from the 18,000-patient ODYSSEY OUTCOMES study, which is assessing the potential of Praluent to demonstrate cardiovascular benefit, are expected in the first quarter of 2018.
A Phase 3 study in homozygous familial hypercholesterolemia (HoFH) was initiated in the fourth quarter of 2017.
The sBLA for use of Praluent with apheresis was filed with the FDA, with a target action date of August 24, 2018.
In October 2017, the U.S. Court of Appeals for the Federal Circuit ordered a new trial on the issues of written description and enablement and vacated the permanent injunction in the ongoing PCSK9 litigation.
Cemiplimab, an antibody to programmed cell death protein 1 (PD-1), is being studied in patients with cancer.
In the fourth quarter, the Company and Sanofi announced positive top-line results from the pivotal Phase 2 EMPOWER-CSCC study of cemiplimab in patients with advanced cutaneous squamous cell carcinoma (CSCC). The Company has commenced a rolling BLA submission to the FDA and expects to complete the submission in the first quarter of 2018.
Fasinumab is an antibody targeting Nerve Growth Factor (NGF).
A Phase 3 study in chronic low back pain in patients with concomitant osteoarthritis was initiated in the fourth quarter of 2017.
A Phase 3 efficacy study with multiple nonsteroidal anti-inflammatory drugs (NSAIDs) in patients with pain due to osteoarthritis was also initiated in the fourth quarter of 2017.
Evinacumab is an antibody to angiopoietin-like protein 3 (ANGPTL3).
A Phase 2 study in refractory hypercholesterolemia (both heterozygous FH and non-FH) was initiated in the fourth quarter of 2017.
A Phase 3 study in HoFH was initiated in the first quarter of 2018.
Nesvacumab/aflibercept is an antibody to angiopoietin2 (Ang2) co-formulated with aflibercept.
In the fourth quarter of 2017, the Company reported that results from two Phase 2 studies that added nesvacumab to EYLEA did not provide sufficient differentiation to warrant Phase 3 development. The RUBY study evaluated patients with diabetic macular edema (DME) and the ONYX study evaluated patients with wet AMD. EYLEA results were consistent with findings in previous clinical studies, and there were no new safety signals in these studies.
Business Development Update
In the fourth quarter of 2017, the Company entered into an agreement with Decibel Therapeutics to discover and develop new potential therapeutics to protect, repair, and restore hearing. The Company will provide access to its proprietary suite of technologies and financial support for Decibel’s research and development efforts, both through research and development funding payments and a strategic equity investment in Decibel.
In the fourth quarter of 2017, the Company and ISA Pharmaceuticals entered into a collaboration agreement to develop ISA101, an immunotherapy targeting human papillomavirus type 16 (HPV16)-induced cancer, in combination with cemiplimab. The Company and ISA will jointly fund and conduct clinical trials of the combination treatment in cervical cancer and head-and-neck cancer.
In January 2018, the Company, along with AbbVie, Alnylam Pharmaceuticals, AstraZeneca, Biogen, and Pfizer, announced the formation of a consortium to fund the generation of genetic exome sequence data from 500,000 volunteer participants who make up the UK Biobank health resource. Regeneron will conduct the sequencing effort, and the other companies will each commit up to $10 million in funding. Consortium members will have a limited period of exclusive access to the sequencing data, before the data will be made available to other health researchers by UK Biobank.
In January 2018, the Company and Sanofi entered into an agreement to accelerate and expand the investment for the clinical development of cemiplimab and dupilumab. Under the terms of the agreement, the total development budget for cemiplimab has been increased to a minimum of $1.640 billion, an increase of approximately $1 billion over the initial 2015 agreement, and Sanofi and Regeneron will continue to equally fund cemiplimab development. The additional investment in the dupilumab development program will help accelerate planned new studies for dupilumab, as well as accelerate and expand development of REGN3500, an IL-33 antibody.
The Company has also agreed to grant a limited waiver of the "lock-up" in the Amended and Restated Investor Agreement between the companies, so that Sanofi may sell up to an aggregate of 1.4 million shares of Regeneron Common Stock, representing approximately 6% of the shares of Regeneron Common Stock Sanofi currently owns, through the end of 2020 to fund a portion of the cemiplimab and dupilumab development expansion. If Sanofi desires to sell shares of Regeneron Common Stock during the term of the agreement to satisfy a portion or all of its funding obligations noted above, the Company may elect to purchase, in whole or in part, such shares from Sanofi. If the Company does not elect to purchase such shares, Sanofi may sell the applicable number of shares (subject to certain daily and quarterly limits) in one or more open-market transactions.
Select Upcoming 2018 Milestones
Programs
Milestones
EYLEA
•
FDA decision on sBLA for every 12-week dosing interval in wet AMD
•
Report data from Phase 3 PANORAMA study in non-proliferative diabetic retinopathy (NPDR) in patients without DME, and submit sBLA
•
Submit sBLA for pre-filled syringe
Dupilumab
•
FDA filing and decision on sBLA for asthma in adult/adolescent patients
•
Submit for European Union (EU) and Japan regulatory approval in asthma in adult/adolescent patients
•
Report data from Phase 3 study in adolescent patients (12-17 years of age) with atopic dermatitis
•
Report data from Phase 3 studies in nasal polyps
•
Initiate Phase 3 study in EoE
•
Initiate Phase 2 study in peanut allergy
•
Initiate Phase 2 study as an adjunct to immunotherapy for grass allergy
•
Initiate clinical programs in chronic obstructive pulmonary disease (COPD) and co-morbid allergic conditions
Praluent
•
Report results from ODYSSEY OUTCOMES study
•
FDA decision on sBLA for use with apheresis
•
Initiate Phase 3 pediatric studies in HoFH and HeFH
Kevzara
•
Initiate Phase 3 study in giant cell arteritis
•
Initiate Phase 3 study in polymyalgia rheumatica
Cemiplimab (PD-1 Antibody)
•
Complete rolling submission of BLA for CSCC and FDA decision on BLA
•
Submit for regulatory approval in CSCC in the EU
•
Initiate additional studies in non-small cell lung cancer
Fasinumab (NGF Antibody)
•
Report data from first Phase 3 efficacy study in osteoarthritis
•
Advance Phase 3 program in chronic low back pain
Evinacumab (Angptl-3 Antibody)
•
Initiate Phase 2 study in severe hypertriglyceridemia
REGN2477 (Activin A Antibody)
•
Initiate Phase 2 study in patients with fibrodysplasia ossificans progressiva (FOP)
REGN3500 (IL-33 Antibody)
•
Initiate Phase 2 programs in asthma, COPD, and atopic dermatitis
Fourth Quarter and Full Year 2017 Financial Results
Product Revenues: Net product sales were $979 million in the fourth quarter and $3.718 billion for the full year 2017, compared to $863 million in the fourth quarter and $3.338 billion for the full year 2016. EYLEA net product sales in the United States were $975 million in the fourth quarter and $3.702 billion for the full year 2017, compared to $858 million in the fourth quarter and $3.323 billion for the full year 2016. 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 29% to $1.582 billion in the fourth quarter of 2017, compared to $1.227 billion in the fourth quarter of 2016. Total revenues include Sanofi and Bayer collaboration revenues of $497 million in the fourth quarter of 2017, compared to $313 million in the fourth quarter of 2016. Full year 2017 total revenues increased by 21% to $5.872 billion, compared to $4.860 billion for the full year 2016. Total revenues include Sanofi and Bayer collaboration revenues of $1.815 billion for the full year 2017, compared to $1.403 billion for the full year 2016. Sanofi collaboration revenue in the fourth quarter and full year 2017 included higher reimbursements by Sanofi in connection with commercial manufacturing activities and the recognition of a higher amount of previously deferred revenue from up-front and other payments in connection with the Company’s Antibody Discovery Agreement ending on December 31, 2017 without any extension. Bayer collaboration revenue increased in the fourth quarter and full year 2017 primarily due to an increase in the Company’s share of net profits in connection with higher sales of EYLEA outside the United States. In addition, in the fourth quarter of 2017, the Company reported that results from two nesvacumab/aflibercept Phase 2 studies did not provide sufficient differentiation to warrant Phase 3 development (as described above); therefore, the Company accelerated the recognition of deferred revenue from the up-front payment previously received from Bayer.
Other revenue in the fourth quarter and full year 2017 increased primarily due to higher reimbursements of the Company’s research and development expenses in connection with the collaboration agreement the Company entered into with Teva in September 2016. In addition, in the fourth quarter and full year 2017, the Company earned, and recognized as revenue, development milestones from collaboration partners in connection with the Company’s fasinumab clinical program.
Refer to Table 4 for a summary of collaboration and other revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $528 million in the fourth quarter and $2.075 billion for the full year 2017, compared to $479 million in the fourth quarter and $2.052 billion for the full year 2016. The higher R&D expenses in the fourth quarter and full year 2017 were principally due to an increase in cemiplimab and fasinumab clinical trial costs and a $25 million up-front payment made in connection with the Decibel Therapeutics agreement described under "Business Development Update". GAAP R&D expenses for full year 2016 included $75 million and $25 million of up-front payments in connection with license and collaboration agreements with Intellia Therapeutics and Adicet Bio, respectively. R&D-related non-cash share-based compensation expense was $59 million in the fourth quarter and $272 million for the full year 2017, compared to $75 million in the fourth quarter and $313 million for the full year 2016.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $410 million in the fourth quarter and $1.320 billion for the full year 2017, compared to $326 million in the fourth quarter and $1.178 billion for the full year 2016. The higher selling, general, and administrative expenses in the fourth quarter and full year 2017 were primarily due to the launches of Dupixent and Kevzara, an increase in commercialization-related expenses associated with EYLEA, as well as launch preparation for cemiplimab. In addition, for full year 2017, these increases were partly offset by lower commercialization-related expenses associated with Praluent. SG&A-related non-cash share-based compensation expense was $62 million in the fourth quarter and $208 million for the full year 2017, compared to $74 million in the fourth quarter and $231 million for the full year 2016.
Cost of Goods Sold (COGS): GAAP COGS was $53 million in the fourth quarter and $203 million for the full year 2017, compared to $45 million in the fourth quarter and $195 million for the full year 2016. Cost of goods sold increased slightly for full year 2017, compared to 2016, principally due to an increase in start-up costs for the Company’s Limerick manufacturing facility, partly offset due to the fact that, effective May 2016, the Company was no longer obligated to pay royalties to Genentech based on U.S. sales of EYLEA.
Cost of Collaboration and Contract Manufacturing (COCM): GAAP COCM was $53 million in the fourth quarter and $195 million for the full year 2017, compared to $30 million in the fourth quarter and $105 million for the full year 2016. The higher COCM costs for full year 2017 were primarily due to validation activities at the Company’s Limerick manufacturing facility related to products that are in collaboration with Sanofi, partly offset by the fact that 2016 included royalties payable to Genentech based on sales of EYLEA outside the United States (which ended in May 2016). GAAP COCM was also adversely impacted by inventory write-offs and reserves in 2017 primarily related to product that no longer met quality specifications.
Income Tax Expense: GAAP income tax expense was $381 million and the effective tax rate was 68.7% in the fourth quarter of 2017, compared to $88 million and 25.9% in the fourth quarter of 2016. GAAP income tax expense was $880 million and the effective tax rate was 42.3% for the full year 2017, compared to $434 million and 32.7% for the full year 2016. The effective tax rate for both the fourth quarter and full year 2017 was negatively impacted by the provisional charge of $326.2 million related to the re-measurement of the Company’s U.S. net deferred tax assets upon the December 2017 enactment of the bill known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act"), partly offset by the tax benefit associated with stock-based compensation.
The Company’s effective tax rate forecast for 2018 includes the estimated impact of the U.S. Tax Reform Act, which significantly revises U.S. corporate income tax laws by, among other things, reducing the U.S. federal corporate income tax rate from 35% to 21% and changing the taxation of foreign earnings.
GAAP and Non-GAAP Net Income(2): GAAP net income was $174 million, or $1.62 per basic share and $1.50 per diluted share, in the fourth quarter of 2017, compared to GAAP net income of $253 million, or $2.41 per basic share and $2.19 per diluted share, in the fourth quarter of 2016. GAAP net income was $1.199 billion, or $11.27 per basic share and $10.34 per diluted share, for the full year 2017, compared to GAAP net income of $896 million, or $8.55 per basic share and $7.70 per diluted share, for the full year 2016.
Non-GAAP net income was $607 million, or $5.67 per basic share and $5.23 per diluted share, in the fourth quarter of 2017, compared to non-GAAP net income of $353 million, or $3.35 per basic share and $3.04 per diluted share, in the fourth quarter of 2016. Non-GAAP net income was $1.901 billion, or $17.88 per basic share and $16.32 per diluted share, for the full year 2017, compared to non-GAAP net income of $1.319 billion, or $12.60 per basic share and $11.32 per diluted share, for the full year 2016.
A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.
2018 Financial Guidance(3)
The Company’s full year 2018 financial guidance consists of the following components:
Sanofi collaboration revenue: Sanofi reimbursement of
Regeneron commercialization-related expenses
$450 million-$500 million
Non-GAAP unreimbursed R&D(2)(4)
$1.230 billion-$1.330 billion
Non-GAAP SG&A(2)(4)
$1.350 billion-$1.450 billion
Effective tax rate
15%-19%
Capital expenditures
$420 million-$500 million
(1)
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.
(2)
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 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.
(3)
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.
(4)
A reconciliation of full year 2018 non-GAAP to GAAP financial guidance is included below:
Projected Range
(In millions)
Low
High
GAAP unreimbursed R&D (5)
$
1,460
$
1,580
R&D: Non-cash share-based compensation expense
(230)
(250)
Non-GAAP unreimbursed R&D
$
1,230
$
1,330
GAAP SG&A
$
1,545
$
1,675
SG&A: Non-cash share-based compensation expense
(195)
(225)
Non-GAAP SG&A
$
1,350
$
1,450
(5)
Unreimbursed R&D represents R&D expenses reduced by R&D expense reimbursements from the Company’s collaborators and/or customers.
Conference Call Information
Regeneron will host a conference call and simultaneous webcast to discuss its fourth quarter and full year 2017 financial and operating results on Thursday, February 8, 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 & Media" page of Regeneron’s website at View Source A replay of the conference call and webcast will be archived on the Company’s website and will be available for 30 days.