On November 4, 2016 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the third quarter of 2016 and provided a business update (Press release, Regeneron, NOV 4, 2016, View Source [SID1234516295]).
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Financial Highlights
($ in millions, except per share data)
Three Months Ended
September 30,
2016
2015*
% Change
EYLEA U.S. net product sales
$
854
$
734
16
%
Total revenues
$
1,220
$
1,137
7
%
GAAP net income
$
265
$
210
26
%
GAAP net income per share – diluted
$
2.27
$
1.82
25
%
Non-GAAP net income(2)
$
365
$
276
32
%
Non-GAAP net income per share – diluted(2)
$
3.13
$
2.38
32
%
* See Table 3 of this press release for an explanation of revisions made to 2015 non-GAAP amounts previously reported.
"In the third quarter, we saw continued U.S. sales growth with EYLEA in retinal diseases and with Praluent in hypercholesterolemia," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "We are preparing for a potential approval and launch for Dupixent in atopic dermatitis and continuing to advance our pipeline at all stages."
Business Highlights
Marketed Product Update
EYLEA (aflibercept) Injection for Intravitreal Injection
In the third quarter of 2016, net sales of EYLEA in the United States increased 16% to $854 million from $734 million in the third quarter of 2015. Overall distributor inventory levels remained within the Company’s one- to two-week targeted range.
Bayer commercializes EYLEA outside the United States. In the third quarter of 2016, net sales of EYLEA outside of the United States(1) were $471 million, compared to $371 million in the third quarter of 2015. In the third quarter of 2016, Regeneron recognized $171 million from its share of net profit from EYLEA sales outside the United States, compared to $131 million in the third quarter of 2015.
Praluent (alirocumab) Injection for the Treatment of Elevated Low-Density Lipoprotein (LDL) Cholesterol
In the third quarter of 2016, global net sales of Praluent were $38 million, compared to $4 million in the third quarter of 2015. Product sales for Praluent are recorded by Sanofi, and the Company shares in any profits or losses from the commercialization of Praluent. Praluent was launched in the United States in the third quarter of 2015 and in certain countries in the European Union commencing in the fourth quarter of 2015.
In the second quarter of 2016, the U.S. Food and Drug Administration (FDA) accepted for review a supplemental Biologics License Application (sBLA) for a monthly dosing regimen of Praluent, with a target action date of January 24, 2017. In addition, a regulatory application for a monthly dosing regimen of Praluent was filed in the European Union.
In July 2016, the Japanese Ministry of Health, Labour and Welfare granted marketing and manufacturing authorization for Praluent for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk.
In August 2016, the Company and Sanofi presented data from the Phase 3 ODYSSEY ESCAPE study in patients with heterozygous familial hypercholesterolemia (HeFH) who were undergoing LDL apheresis therapy. The trial demonstrated that adding Praluent to existing therapy reduced LDL cholesterol by approximately 50% from baseline (compared to a 2% increase for placebo). The trial also achieved its primary endpoint, demonstrating that patients who added Praluent to their existing treatment regimen significantly reduced the frequency of their apheresis therapy by 75%, compared to placebo.
The ODYSSEY OUTCOMES trial remains ongoing, and is assessing the potential of Praluent to demonstrate cardiovascular benefit. An independent Data Monitoring Committee will conduct a second interim analysis for futility and overwhelming efficacy (hazard ratio < 0.802 corresponding to p < 0.0001) for the primary endpoint with consistency across subgroups and regions, positive trends for secondary end points including all-cause mortality, and no excess non-cardiovascular mortality. This second interim analysis is expected by the end of this month.
Pipeline Progress
Regeneron has sixteen product candidates in clinical development. These consist of EYLEA and fifteen fully human monoclonal antibodies generated using the Company’s VelocImmune technology, including five in collaboration with Sanofi. In addition to EYLEA and Praluent, highlights from the antibody pipeline include:
Sarilumab, the Company’s antibody targeting IL-6R for rheumatoid arthritis, is currently being studied in the global Phase 3 SARIL-RA program.
On October 28, 2016, the Company and Sanofi announced that the FDA issued a Complete Response Letter (CRL) regarding the Biologics License Application (BLA) for sarilumab. The CRL refers to certain deficiencies identified during a routine good manufacturing practice inspection of the Sanofi fill and finish facility in Le Trait, France. Satisfactory resolution of these deficiencies is required before the BLA can be approved. Sanofi submitted a comprehensive corrective action plan to the FDA, is implementing the corrective actions, and is working closely with the FDA towards a timely resolution. The CRL does not identify any concerns relating to the safety or efficacy of sarilumab.
In July 2016, the European Medicines Agency (EMA) accepted for review the Marketing Authorization Application (MAA) for sarilumab. In addition, in October 2016, an application for marketing approval for sarilumab was submitted in Japan.
Dupixent (dupilumab), the Company’s antibody that blocks signaling of IL-4 and IL-13, is currently being studied in atopic dermatitis, asthma, nasal polyps, and eosinophilic esophagitis.
The FDA previously designated Dupixent as a Breakthrough Therapy for the treatment of adult patients with inadequately controlled moderate-to-severe atopic dermatitis, and in September 2016, accepted the BLA for priority review with a target action date of March 29, 2017.
In October 2016, the FDA granted Breakthrough Therapy designation for Dupixent for the treatment of moderate to severe (12 to less than 18 years of age) and severe (6 months to less than 12 years of age) atopic dermatitis in pediatric patients who are not adequately controlled with, or who are intolerant to, topical medication.
In October 2016, additional data from LIBERTY AD SOLO 1 and SOLO 2 atopic dermatitis studies of Dupixent were presented at the European Academy of Dermatology and Venereology conference and simultaneously published in the New England Journal of Medicine.
The pivotal Phase 3 LIBERTY ASTHMA QUEST study of dupilumab for the treatment of asthma completed enrollment during the third quarter of 2016.
Fasinumab, the Company’s antibody targeting Nerve Growth Factor (NGF), is being studied in patients with pain due to osteoarthritis and chronic low back pain.
In October 2016, the FDA placed the Phase 2b study of fasinumab in chronic low back pain on clinical hold and requested an amendment of the study protocol after observing a case of adjudicated arthropathy in a patient receiving high dose fasinumab who had advanced osteoarthritis at study entry. The Company completed an unplanned analysis which showed clear evidence of efficacy with improvement in pain scores in all fasinumab groups compared to placebo at the 8- and 12-week time points, and preliminary safety results are generally consistent with what has been previously reported with the class. The Company and Teva plan to design a pivotal Phase 3 study in chronic low back pain that excludes patients with advanced osteoarthritis.
In October 2016, the Company announced that at the 36-week analysis of the Phase 2/3 clinical study of fasinumab in patients with moderate-to-severe osteoarthritis pain of the hip or knee, the incidence of adjudicated arthropathies was found to be potentially dose-dependent, with a higher rate of patients experiencing arthropathies in the higher dose groups. In the ongoing fasinumab osteoarthritis pivotal Phase 3 program, the Company and Teva are planning to advance only the lower doses from the Phase 2/3 study, subject to discussion with the FDA and other health authorities.
Nesvacumab, the Company’s antibody to Ang2 co-formulated with aflibercept for intravitreal injection, is currently being studied in patients with wet AMD and diabetic macular edema (DME). The Phase 2 RUBY study of nesvacumab/aflibercept for the treatment of DME completed enrollment during the fourth quarter of 2016.
Rinucumab, the Company’s antibody to PDGFR-beta co-formulated with aflibercept for intravitreal injection, is currently being studied in patients with neovascular age-related macular degeneration (wet AMD). In September 2016, the Company announced top-line results from the Phase 2 CAPELLA study. These data showed that at 12 weeks, rinucumab in combination with aflibercept did not add to the improvement in best corrected visual acuity (BCVA) that was demonstrated with intravitreal aflibercept injection monotherapy, the primary endpoint of the study. Results in the EYLEA monotherapy arm of the CAPELLA study were consistent with the efficacy and safety seen in Phase 3 pivotal studies of EYLEA in wet AMD.
REGN3500 entered Phase 1 clinical development for the treatment of inflammatory diseases in the third quarter of 2016. Sanofi exercised its right to opt-in to co-develop REGN3500.
Business Development Update
In July 2016, the Company and Adicet Bio, Inc. entered into a license and collaboration agreement to develop next-generation engineered immune-cell therapeutics with fully human chimeric antigen receptors and T-cell receptors directed to disease-specific cell surface antigens in order to enable the precise engagement and killing of tumor cells.
In September 2016, the Company and Teva Pharmaceuticals International GmbH (Teva), a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd., entered into a collaboration agreement to develop and commercialize fasinumab. Under the terms of the agreement, the Company will lead global development and commercialization in the United States, and Teva will lead development and commercialization in territories outside the United States (excluding certain Asian countries that are subject to a separate collaboration agreement previously entered into between the Company and Mitsubishi Tanabe Pharma Corporation).
Third Quarter 2016 Financial Results
Product Revenues: Net product sales were $857 million in the third quarter of 2016, compared to $738 million in the third quarter of 2015. EYLEA net product sales in the United States were $854 million in the third quarter of 2016, compared to $734 million in the third quarter of 2015.
Total Revenues: Total revenues, which include product revenues described above, increased by 7% to $1,220 million in the third quarter of 2016, compared to $1,137 million in the third quarter of 2015. Total revenues also include Sanofi and Bayer collaboration revenues of $336 million in the third quarter of 2016, compared to $382 million in the third quarter of 2015. Collaboration revenues in the third quarter of 2016 decreased primarily due to lower reimbursable research and development expenses and an increase in the Company’s share of losses primarily from the commercialization of Praluent and pre-commercialization activities for sarilumab and Dupixent under the Company’s antibody collaboration with Sanofi, partly offset by an increase in the Company’s net profit from commercialization of EYLEA outside the United States.
Refer to Table 4 for a summary of collaboration revenue.
Research and Development (R&D) Expenses: GAAP R&D expenses were $543 million in the third quarter of 2016, compared to $426 million in the third quarter of 2015. The higher R&D expenses in the third quarter of 2016 were principally due to the $25 million up-front payment made in connection with the July 2016 license and collaboration agreement with Adicet, higher development costs, including manufacturing drug supplies, primarily related to fasinumab, Dupixent, and REGN2810, and higher headcount to support the Company’s increased R&D activities, partly offset by lower development costs primarily related to Praluent and sarilumab. In addition, in the third quarter of 2016, R&D-related non-cash share-based compensation expense was $81 million, compared to $64 million in the third quarter of 2015.
Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $270 million in the third quarter of 2016, compared to $210 million in the third quarter of 2015. The increase was primarily due to higher commercialization-related expenses in connection with EYLEA and Praluent, and higher headcount. In addition, in the third quarter of 2016, SG&A-related non-cash share-based compensation expense was $49 million, compared to $36 million in the third quarter of 2015.
Cost of Goods Sold (COGS): GAAP COGS was $30 million in the third quarter of 2016, compared to $67 million in the third quarter of 2015. COGS primarily consists of costs in connection with producing U.S. EYLEA commercial supplies, various start-up costs in connection with the Company’s Limerick, Ireland commercial manufacturing facility, and royalties. COGS decreased principally due to a decrease in royalties since the Company’s obligation to pay Genentech based on U.S. sales of EYLEA ended in May 2016.
Cost of Collaboration and Contract Manufacturing (COCM): GAAP COCM was $14 million in the third quarter of 2016, compared to $42 million in the third quarter of 2015. COCM decreased primarily due to lower royalties since the Company’s obligation to pay Genentech based on sales of EYLEA outside the United States also ended in May 2016.
Income Tax Expense: In the third quarter of 2016, GAAP income tax expense was $101 million and the effective tax rate was 27.6%, compared to $183 million and 46.5% in the third quarter of 2015. The effective tax rate for the third quarter of 2016 was positively impacted, compared to the U.S. federal statutory rate, by the tax benefit associated with stock-based compensation, the domestic manufacturing deduction, the federal tax credit for increased research activities, and changes to tax reserves, partly offset by the negative impact of losses incurred in foreign jurisdictions with rates lower than the federal statutory rate and the non-tax deductible Branded Prescription Drug Fee. As described in Table 3 of this press release, the Company adopted Accounting Standards Update 2016-09 (ASU 2016-09), Compensation – Stock Compensation, Improvements to Employee Share-Based Payment Accounting, during the second quarter of 2016. ASU 2016-09 requires companies to recognize all excess tax benefits and tax deficiencies in connection with stock-based compensation as income tax expense or benefit in the income statement (previously, excess tax benefits were recognized in additional paid-in capital on the balance sheet).
GAAP and Non-GAAP Net Income: The Company reported GAAP net income of $265 million, or $2.53 per basic share and $2.27 per diluted share, in the third quarter of 2016, compared to GAAP net income of $210 million, or $2.04 per basic share and $1.82 per diluted share, in the third quarter of 2015.
The Company reported non-GAAP net income of $365 million, or $3.48 per basic share and $3.13 per diluted share, in the third quarter of 2016, compared to non-GAAP net income of $276 million, or $2.67 per basic share and $2.38 per diluted share, in the third quarter of 2015.
A reconciliation of the Company’s GAAP to non-GAAP results is included in Table 3 of this press release.