On November 6, 2018 Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) reported financial results for the third quarter of 2018 and provided a business update (Press release, Regeneron, NOV 6, 2018, View Source [SID1234530860]).

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"Regeneron continues to grow and diversify our business, while continuing to deliver very strong financial results. In addition to EYLEA reaching over $1 billion in quarterly U.S. net sales, we also made significant progress with Dupixent, a key driver of future growth, and launched Libtayo, our first immuno-oncology therapy," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron. "Dupixent is now approved in the U.S. for both atopic dermatitis and asthma and under regulatory review for the treatment of adolescents with atopic dermatitis – with another submission planned in chronic rhinosinusitis with nasal polyps. We also recently reported positive Phase 3 results for EYLEA in diabetic retinopathy, and expect an FDA action on our supplemental application for this indication in the first half of 2019."

Third Quarter 2018 Business Highlights

Key Pipeline Progress
Regeneron has twenty product candidates in clinical development, which consist of EYLEA and fully human antibodies generated using the Company’s VelocImmune technology, including eight in collaboration with Sanofi. Updates from the clinical pipeline include:
EYLEA (aflibercept) Injection
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The FDA approved EYLEA for an every 12-week dosing regimen option after one year of effective therapy in patients with wet AMD.
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The FDA accepted for review the supplemental Biologics License Application (sBLA) of EYLEA for the treatment of diabetic retinopathy, with a target action date of May 13, 2019.
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The Company announced that the Phase 3 PANORAMA trial evaluating EYLEA in patients with moderately severe and severe non-proliferative diabetic retinopathy met its one-year primary endpoint and key secondary endpoints, including both the improvement of diabetic retinopathy and a reduction in the rate of vision-threatening complications.
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The FDA issued a Complete Response Letter regarding the Chemistry, Manufacturing, and Controls Prior-Approval Supplement (PAS) for the EYLEA pre-filled syringe. The Company expects to compile all the requested information and resubmit the PAS in the first half of 2019.

Dupixent (dupilumab) Injection
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In October 2018, the FDA approved Dupixent as an add-on maintenance therapy in patients with moderate-to-severe asthma aged 12 years and older with an eosinophilic phenotype or with oral corticosteroid-dependent asthma.
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The Company and Sanofi submitted an sBLA and a Marketing Authorization Application (MAA) for an expanded atopic dermatitis indication in adolescent patients (12–17 years of age). In November 2018, the FDA accepted for priority review the sBLA for atopic dermatitis in adolescent patients, with a target action date of March 11, 2019.
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The Company and Sanofi announced positive top-line results from both pivotal Phase 3 placebo-controlled trials evaluating Dupixent in adults with inadequately-controlled CRSwNP.
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A Phase 2/3 study in eosinophilic esophagitis and a Phase 2 study in peanut allergy were initiated.

Praluent (alirocumab) Injection
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The FDA approved Praluent for the treatment of patients with heterozygous familial hypercholesterolemia (HeFH) undergoing apheresis.
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An sBLA for Praluent as a potential treatment to reduce major adverse cardiovascular events was accepted for review by the FDA, with a target action date of April 28, 2019.
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The FDA also accepted for review an sBLA for Praluent for first-line treatment of hyperlipidemia, with a target action date of April 29, 2019.
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A Phase 3 study in pediatric patients with homozygous familial hypercholesterolemia (HoFH) was initiated.

Kevzara (sarilumab) Injection
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A Phase 3 study in polymyalgia rheumatica was initiated.

2

Libtayo (cemiplimab-rwlc) Injection
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On September 28, 2018, the FDA approved Libtayo (cemiplimab-rwlc) for the treatment of patients with metastatic or locally advanced CSCC who are not candidates for curative surgery or curative radiation.

Fasinumab is an antibody targeting Nerve Growth Factor (NGF).
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The Company and Teva announced positive top-line results from a Phase 3 study of fasinumab in patients with chronic pain from osteoarthritis of the knee or hip.

REGN3500 is an antibody to IL-33.
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A Phase 2 study in chronic obstructive pulmonary disease (COPD) was initiated.

Business Development Update
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In the third quarter of 2018, the Company entered into a collaboration agreement with bluebird bio, Inc. to research, develop, and commercialize novel immune cell therapies for cancer.

Financial Results

Product Revenues: Net product sales were $1.025 billion in the third quarter of 2018, compared to $957 million in the third quarter of 2017. EYLEA net product sales in the United States were $1.022 billion in the third quarter of 2018, compared to $953 million in the third quarter of 2017. Overall distributor inventory levels for EYLEA in the United States remained within the Company’s one-to-two-week targeted range.

Total Revenues: Total revenues, which include product revenues described above, increased by 11% to $1.663 billion in the third quarter of 2018, compared to $1.501 billion in the third quarter of 2017. Total revenues include Sanofi and Bayer collaboration revenues of $521 million in the third quarter of 2018, compared to $482 million in the third quarter of 2017. The increase in Sanofi collaboration revenue in the third quarter of 2018 was primarily due to the Company’s share of higher net sales of Dupixent and Praluent, partly offset by the ceasing of funding by Sanofi in connection with the Company’s Discovery and Preclinical Development Agreement, which ended on December 31, 2017, and an increase in the collaboration’s Dupixent commercialization expenses. Bayer collaboration revenue increased in the third quarter of 2018 primarily due to an increase in net profits in connection with higher sales of EYLEA outside the United States. The increase in other revenue in the third quarter of 2018 was partially due to the recognition of a portion of $80 million in development milestones achieved in the third quarter of 2018 in connection with the Company’s fasinumab collaboration with Teva and Mitsubishi Tanabe Pharma.

The Company adopted Accounting Standard Codification (ASC) 606, Revenue from Contracts with Customers, as of January 1, 2018. The Company adopted the standard using the modified retrospective method, and therefore prior period amounts have not been adjusted. A more complete description of the impact of adopting ASC 606 can be found in the Company’s Form 10-Q for the quarterly period ended September 30, 2018.

Refer to Table 4 for a summary of collaboration and other revenue.

Research and Development (R&D) Expenses: GAAP R&D expenses were $557 million in the third quarter of 2018, compared to $530 million in the third quarter of 2017. The higher R&D expenses in the third quarter of 2018 were principally due to an increase in Libtayo development expenses and higher R&D headcount and facilities-related costs, partly offset by a decrease in Dupixent development expenses. In the third quarter of 2018, R&D-related non-cash share-based compensation expense was $60 million, compared to $70 million in the third quarter of 2017.

Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $369 million in the third quarter of 2018, compared to $307 million in the third quarter of 2017. The higher SG&A expenses in the third quarter of 2018 were primarily due to higher headcount and headcount-related costs and higher contributions to independent not-for-profit patient assistance organizations. In the third quarter of 2018, SG&A-related non-cash share-based compensation expense decreased to $43 million, compared to $48 million in the third quarter of 2017.

Income Tax Expense: In the third quarter of 2018, GAAP income tax expense was $41 million and the effective tax rate was 6.5%, compared to $177 million and 31.3% in the third quarter of 2017. The Company’s effective tax rate for the third quarter of 2018 was significantly impacted by the law known as the Tax Cuts and Jobs Act (the "U.S. Tax Reform Act"), which reduced the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effective tax rate for the third quarter of 2018 was positively impacted, compared to the U.S. federal statutory rate, primarily by the tax benefit associated with tax planning in connection with the U.S. Tax Reform Act, the federal tax credit for research activities, and, to a lesser extent, stock-based compensation and income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate. During the third quarter of 2018, the Company recorded an income tax benefit of $11.9 million as an adjustment to the provisional amount recorded as of December 31, 2017 for the U.S. Tax Reform Act, which was related to the re-measurement of the Company’s U.S. net deferred tax assets.

GAAP and Non-GAAP Net Income(2): GAAP net income was $595 million, or $5.50 per basic share and $5.17 per diluted share, in the third quarter of 2018, compared to GAAP net income of $388 million, or $3.64 per basic share and $3.32 per diluted share, in the third quarter of 2017.

Non-GAAP net income was $675 million, or $6.25 per basic share and $5.87 per diluted share, in the third quarter of 2018, compared to non-GAAP net income of $470 million, or $4.41 per basic share and $3.99 per diluted share, in the third quarter of 2017.

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.

Conference Call Information

Regeneron will host a conference call and simultaneous webcast to discuss its third quarter 2018 financial and operating results on Tuesday, November 6, 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 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.

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 (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.

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.