Regeneron Reports Third Quarter 2017 Financial and Operating Results

TARRYTOWN, N.Y., Nov. 8, 2017 /PRNewswire/ --

• Third quarter 2017 EYLEA®(aflibercept) Injection U.S. net sales increased 12% to$953 millionversus third quarter 2016

• Third quarter 2017 EYLEA global net sales(1)increased 15% to$1.52 billionversus third quarter 2016

• Third quarter 2017 GAAP net income per diluted share increased 46% to$3.32versus third quarter 2016. Third quarter 2017 non-GAAP net income per diluted share increased 27% to$3.99versus third quarter 2016.

• Phase 3 EYLEA PANORAMA study for the treatment of diabetic retinopathy is fully enrolled with U.S. regulatory submission expected in 2018

• Appellate court ordered a new trial and vacated permanent injunction in U.S. Praluent®patent case

Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) today announced financial results for the third quarter of 2017 and provided a business update.

($ in millions, except per share data)

EYLEA U.S. net product sales

$

953

$

854

12%

Total revenues

$

1,501

$

1,220

23%

GAAP net income

$

388

$

265

46%

GAAP net income per share - diluted

$

3.32

$

2.27

46%

Non-GAAP net income(2)

$

470

$

365

29%

Non-GAAP net income per share - diluted(2)

$

3.99

$

3.13

27%

"In the third quarter, Regeneron made significant progress with our commercialized medicines, including continued strong global sales for our retinal therapy EYLEA and the completion of enrollment in our Phase 3 PANORAMA study in diabetic retinopathy, which represents an important new potential indication for EYLEA.  We also saw robust U.S. launch progress with Dupixent in moderate-to-severe atopic dermatitis, and a favorable U.S. appellate court ruling for Praluent in our ongoing PCSK9 antibody litigation," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron.  "Looking forward, we anticipate a U.S. regulatory submission for dupilumab in uncontrolled asthma later this year and continue to advance a broad dupilumab development program in other Type 2 allergic diseases.  In addition, we are making important strides in our immuno-oncology program and expect to submit our first U.S. regulatory application for cemiplimab, our PD-1 antibody, in advanced cutaneous squamous cell carcinoma in early 2018."

EYLEA®(aflibercept) Injection for Intravitreal Injection

• In the third quarter of 2017, net sales of EYLEA inthe United Statesincreased 12% to$953 millionfrom$854 millionin the third quarter of 2016. Overall distributor inventory levels remained within the Company's one- to two-week targeted range.

• In the third quarter of 2017, enrollment was completed in the Phase 3 PANORAMA study in patients with non-proliferative diabetic retinopathy without diabetic macular edema (DME).

• Bayer commercializes EYLEA outsidethe United States. In the third quarter of 2017, net sales of EYLEA outside ofthe United States(1)were$564 million, compared to$471 millionin the third quarter of 2016. In the third quarter of 2017, Regeneron recognized$205 millionfrom its share of net profit from EYLEA sales outsidethe United States, compared to$171 millionin the third quarter of 2016.

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 the third quarter of 2017, global net sales of Dupixent were$89 million, which were almost exclusively inthe United States. Product sales for Dupixent are recorded by Sanofi, and the Company shares in any profits or losses from the commercialization of Dupixent.

• InSeptember 2017, the European Commission granted marketing authorization for Dupixent for use in adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy.

• InSeptember 2017, the Company and Sanofi presented positive results from the Phase 3 LIBERTY AD CAFÉ study in atopic dermatitis at the annual European Academy of Dermatology and Venereology (EADV) Congress.

• InSeptember 2017, the Company and Sanofi announced that the Phase 3 LIBERTY ASTHMA QUEST study of dupilumab in a broad population of adults and adolescents with uncontrolled, persistent asthma met its two primary endpoints.

• InOctober 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.

• InSeptember 2017, the FDA granted orphan drug designation for the treatment of EoE.

• InOctober 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

• In the third quarter of 2017, global net sales of Praluent were$49 million, compared to$38 millionin the third quarter of 2016. Product sales for Praluent are recorded by Sanofi, and the Company shares in any profits or losses from the commercialization of Praluent.

• InOctober 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.

• A Phase 3 study in homozygous familial hypercholesterolemia (HoFH) was initiated in the fourth quarter of 2017.

Kevzara®(sarilumab) Injection

• In the third quarter of 2017, global net sales of Kevzara were$3 million. Product sales for Kevzara are recorded by Sanofi, and the Company shares in any profits or losses from the commercialization of Kevzara.

• InSeptember 2017, the Pharmaceuticals and Medical Devices Agency (PMDA) inJapanapproved Kevzara for the treatment of adult patients with rheumatoid arthritis who have had an inadequate response to conventional treatments.

Regeneron has sixteen product candidates in clinical development, which consist of EYLEA and fully human monoclonal antibodies generated using the Company'sVelocImmune®technology, including six in collaboration with Sanofi.  In addition to EYLEA, Dupixent, Praluent, and Kevzara discussed above, updates from the clinical pipeline include:

Cemiplimab (REGN2810), an antibody to programmed cell death protein 1 (PD-1), is being studied in patients with cancer.

• In the third quarter of 2017, the FDA granted Breakthrough Therapy designation for the treatment of adults with metastatic cutaneous squamous cell carcinoma (CSCC) and adults with locally advanced and unresectable CSCC.

• A pivotal Phase 2 study in metastatic or locally advanced and unresectable CSCC is ongoing.

• A Phase 3 study in cervical cancer was initiated in the third quarter of 2017.

Fasinumabis an antibody targeting Nerve Growth Factor (NGF).  A Phase 3 efficacy study of fasinumab compared to placebo or naproxen in patients with pain due to osteoarthritis of the knee or hip was initiated in the third quarter of 2017.

Suptavumabis an antibody to the Respiratory Syncytial Virus-F (RSV-F).  InAugust 2017, the Company reported that a Phase 3 study evaluating suptavumab did not meet its primary endpoint of preventing medically-attended RSV infections in infants.  Further clinical development of suptavumab has been discontinued.

EYLEA

•

File sBLA with FDA for every 12-week dosing interval inneovascular age-related macular degeneration (wet AMD)

Dupixent

•

Submit sBLA for asthma in adult/adolescent patients

•

Initiate Phase 3 studies in younger pediatric patients inatopic dermatitis

Praluent

•

Complete ODYSSEY OUTCOMES study (with dataexpected in early 2018)

•

File sBLA with FDA for use with apheresis

Cemiplimab (PD-1 Antibody)

•

Report interim data from pivotal Phase 2 CSCC study

Fasinumab (NGF Antibody)

•

Initiate Phase 3 study in patients with both chronic low backpain and osteoarthritis

Nesvacumab/aflibercept(Ang2 Antibody co-formulatedwith aflibercept)

•

Report top-line data from Phase 2 studies in DME (RUBY)and wet AMD (ONYX)

REGN2477 (Activin AAntibody)

•

Initiate Phase 2 study in patients with FibrodysplasiaOssificans Progressiva (FOP)

Product Revenues:Net product sales were$957 millionin the third quarter of 2017, compared to$857 millionin the third quarter of 2016.  EYLEA net product sales inthe United Stateswere$953 millionin the third quarter of 2017, compared to$854 millionin the third quarter of 2016.

Total Revenues:Total revenues, which include product revenues described above, increased by 23% to$1.501 billionin the third quarter of 2017, compared to$1.220 billionin the third quarter of 2016.  Total revenues include Sanofi and Bayer collaboration revenues of$482 millionin the third quarter of 2017, compared to$336 millionin the third quarter of 2016.  Sanofi collaboration revenue in the third quarter of 2017 included higher reimbursements by Sanofi in connection with validating the Company's commercial manufacturing facilities 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 which will end onDecember 31, 2017without any extension.

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

Research and Development (R&D) Expenses:GAAP R&D expenses were$530 millionin the third quarter of 2017, compared to$543 millionin the third quarter of 2016.  The lower R&D expenses in the third quarter of 2017 were principally due to a$25 millionup-front payment made in connection with the license and collaboration agreement with Adicet Bio in the third quarter of 2016 and a decrease in clinical manufacturing activities, partly offset by an increase in cemiplimab clinical trial costs.  In addition, in the third quarter of 2017, R&D-related non-cash share-based compensation expense was$70 million, compared to$81 millionin the third quarter of 2016.

Selling, General, and Administrative (SG&A) Expenses:GAAP SG&A expenses were$307 millionin the third quarter of 2017, compared to$270 millionin the third quarter of 2016.  The higher selling, general, and administrative expenses were primarily due to the launches of Dupixent and Kevzara as well as an increase in commercialization-related expenses associated with EYLEA.  In the third quarter of 2017, SG&A-related non-cash share-based compensation expense was$48 million, compared to$49 millionin the third quarter of 2016.

Cost of Collaboration and Contract Manufacturing (COCM):GAAP COCM was$58 millionin the third quarter of 2017, compared to$14 millionin the third quarter of 2016.  The higher COCM costs were primarily due to validation activities at the Company's Limerick commercial manufacturing facility related to products that are in collaboration with Sanofi.

Income Tax Expense:In the third quarter of 2017, GAAP income tax expense was$177 millionand the effective tax rate was 31.3%, compared to$101 millionand 27.6% in the third quarter of 2016.  The effective tax rate for the third quarter of 2017 was positively impacted, compared to the U.S. federal statutory rate, by the tax benefit associated with stock-based compensation, the domestic manufacturing deduction, and the federal tax credit for research activities, 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.

GAAP and Non-GAAP Net Income(2):The Company reported GAAP net income of$388 million, or$3.64per basic share and$3.32per diluted share, in the third quarter of 2017, compared to GAAP net income of$265 million, or$2.53per basic share and$2.27per diluted share, in the third quarter of 2016.

The Company reported non-GAAP net income of$470 million, or$4.41per basic share and$3.99per diluted share, in the third quarter of 2017, compared to non-GAAP net income of$365 million, or$3.48per basic share and$3.13per diluted share, in the third quarter of 2016.

A reconciliation of the Company's GAAP to non-GAAP results is included in Table 3 of this press release.

The Company's updated full year 2017 financial guidance consists of the following components:

EYLEA U.S. net product sales

Approximately 10% growth over 2016(reaffirmed)

Sanofi reimbursement of Regeneroncommercialization-related expenses

$350 million - $375 million(previously $370 million - $400 million)

Non-GAAP unreimbursed R&D(2)(4)

$885 million - $915 million(previously $925 million - $965 million)

Non-GAAP SG&A(2)(4)

$1.070 billion - $1.100 billion(previously $1.120 billion - $1.160 billion)

Effective tax rate

26% - 29%(previously 27% - 31%)

Capital expenditures

$265 million - $285 million(previously $250 million - $285 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 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.  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 2017 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 2017 non-GAAP to GAAP financial guidance is included below:

GAAP unreimbursed R&D(5)

$

1,145

$

1,190

R&D: Non-cash share-based compensation expense

(260)

(275)

Non-GAAP unreimbursed R&D

$

885

$

915

GAAP SG&A

$

1,270

$

1,325

SG&A: Non-cash share-based compensation expense

(200)

(225)

Non-GAAP SG&A

$

1,070

$

1,100

(5)

Unreimbursed R&D represents R&D expenses reduced by R&D expense reimbursements from the Company's collaborators and/or customers.

Regeneron will host a conference call and simultaneous webcast to discuss its third quarter 2017 financial and operating results on Wednesday, November 8, 2017, at8:30 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 "Events" page of Regeneron's website athttp://investor.regeneron.com/events.cfm.  A replay of the conference call and webcast will be archived on the Company's website and will be available for 30 days.

Regeneron is a leading biotechnology company that invents life-transforming medicines for people with serious diseases.  Founded and led for nearly 30 years by physician-scientists, Regeneron's unique ability to repeatedly and consistently translate science into medicine has led to six FDA-approved treatments and over a dozen product candidates in development, all of which were homegrown in Regeneron's laboratories.  Regeneron's medicines and pipeline are designed to help patients with eye disease, heart disease, allergic and inflammatory diseases, pain, cancer, infectious diseases, and rare diseases.

Regeneron is accelerating and improving the traditional drug development process through its proprietaryVelociSuite®technologies, including VelociGene®and VelocImmune®to yield optimized fully human antibodies, and ambitious initiatives such as the Regeneron Genetics Center, one of the largest genetics sequencing efforts in the world.

For additional information about the Company, please visitwww.regeneron.comor follow @Regeneron on Twitter.

This press release includes forward-looking statements that involve risks and uncertainties relating to future events and the future performance of Regeneron Pharmaceuticals, Inc. ("Regeneron" or the "Company"), and actual events or results may differ materially from these forward-looking statements.  Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words.  These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of Regeneron's products, product candidates, and research and clinical programs now underway or planned; the likelihood and timing of achieving any of the anticipated milestones described in this news release; unforeseen safety issues resulting from the administration of products and product candidates in patients, including serious complications or side effects in connection with the use of Regeneron's product candidates in clinical trials; the likelihood and timing of possible regulatory approval and commercial launch of Regeneron's late-stage product candidates and new indications for marketed products, including without limitation EYLEA®(aflibercept) Injection, Dupixent®(dupilumab) Injection, Praluent®(alirocumab) Injection, Kevzara®(sarilumab) Injection, cemiplimab, and fasinumab; the extent to which the results from the research and development programs conducted by Regeneron or its collaborators may be replicated in other studies and lead to therapeutic applications; ongoing regulatory obligations and oversight impacting Regeneron's marketed products (such as EYLEA, Dupixent, Praluent, and Kevzara), research and clinical programs, and business, including those relating to patient privacy; determinations by regulatory and administrative governmental authorities which may delay or restrict Regeneron's ability to continue to develop or commercialize Regeneron's products and product candidates; competing drugs and product candidates that may be superior to Regeneron's products and product candidates; uncertainty of market acceptance and commercial success of Regeneron's products and product candidates and the impact of studies (whether conducted by Regeneron or others and whether mandated or voluntary), on the commercial success of Regeneron's products and product candidates; the ability of Regeneron to manufacture and manage supply chains for multiple products and product candidates; the ability of Regeneron's collaborators, suppliers, or other third parties to perform filling, finishing, packaging, labeling, distribution, and other steps related to Regeneron's products and product candidates; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unanticipated expenses; the costs of developing, producing, and selling products; the ability of Regeneron to meet any of its sales or other financial projections or guidance and changes to the assumptions underlying those projections or guidance, including without limitation those relating to EYLEA U.S. net product sales, Sanofi reimbursement of Regeneron commercialization-related expenses, non-GAAP unreimbursed R&D, non-GAAP SG&A, effective tax rate, and capital expenditures; the potential for any license or collaboration agreement, including Regeneron's agreements with Sanofi, Bayer, and Teva Pharmaceutical Industries Ltd. (or their respective affiliated companies, as applicable), to be cancelled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto, including without limitation the patent litigation proceedings relating to Praluent, the ultimate outcome of any such litigation proceedings, and the impact any of the foregoing may have on Regeneron's business, prospects, operating results, and financial condition.  A more complete description of these and other material risks can be found in Regeneron's filings with the U.S. Securities and Exchange Commission, including its Form 10-K for the fiscal year ended December 31, 2016 and its Form 10-Q for the quarterly period ended September 30, 2017.  Any forward-looking statements are made based on management's current beliefs and judgment, and the reader is cautioned not to rely on any forward-looking statements made by Regeneron.  Regeneron does not undertake any obligation to update publicly any forward-looking statement, including without limitation any financial projection or guidance, whether as a result of new information, future events, or otherwise.

Regeneron uses its media and investor relations website and social media outlets to publish important information about the Company, including information that may be deemed material to investors. Financial and other information about Regeneron is routinely posted and is accessible on Regeneron's media and investor relations website (http://newsroom.regeneron.com) and its Twitter feed (http://twitter.com/regeneron).

This press release and/or the financial results attached to this press release include amounts that are considered "non-GAAP financial measures" under SEC rules.  As required, Regeneron has provided reconciliations of historical non-GAAP financial measures.

TABLE 1

Assets:

Cash and marketable securities

$

2,706,247

$

1,902,944

Accounts receivable - trade, net

1,532,693

1,343,368

Accounts receivable from Sanofi and Bayer

438,756

268,252

Inventories

641,588

399,356

Property, plant, and equipment, net

2,274,529

2,083,421

Deferred tax assets

927,023

825,303

Other assets

180,379

150,822

Total assets

$

8,701,215

$

6,973,466

Liabilities and stockholders' equity:

Accounts payable, accrued expenses, and other liabilities

$

943,985

$

980,659

Deferred revenue

1,003,320

1,062,436

Capital and facility lease obligations

702,317

481,126

Stockholders' equity

6,051,593

4,449,245

Total liabilities and stockholders' equity

$

8,701,215

$

6,973,466

TABLE 2

Revenues:

Net product sales

$

957,367

$

857,468

$

2,739,745

$

2,475,869

Sanofi collaboration revenue

245,175

144,392

677,670

527,500

Bayer collaboration revenue

236,625

191,298

640,919

562,786

Other revenue

61,506

26,964

231,446

67,445

1,500,673

1,220,122

4,289,780

3,633,600

Expenses:

Research and development

529,749

543,047

1,547,159

1,573,089

Selling, general, and administrative

306,766

270,045

910,520

851,760

Cost of goods sold

46,388

29,901

149,774

150,090

Cost of collaboration and contract manufacturing

57,844

14,327

141,547

74,923

940,747

857,320

2,749,000

2,649,862

Income from operations

559,926

362,802

1,540,780

983,738

Other income (expense), net

5,679

3,079

(17,036)

4,550

Income before income taxes

565,605

365,881

1,523,744

988,288

Income tax expense

(177,288)

(101,077)

(498,752)

(345,881)

Net income

$

388,317

$

264,804

$

1,024,992

$

642,407

Net income per share - basic

$

3.64

$

2.53

$

9.66

$

6.14

Net income per share - diluted

$

3.32

$

2.27

$

8.84

$

5.51

Weighted average shares outstanding - basic

106,706

104,833

106,108

104,586

Weighted average shares outstanding - diluted

117,028

116,466

115,994

116,567

TABLE 3

GAAP net income

$

388,317

$

264,804

$

1,024,992

$

642,407

Adjustments:

R&D: Non-cash share-based compensationexpense

70,123

80,572

213,174

237,991

R&D: Upfront payments related to license andcollaboration agreements

—

25,000

—

100,000

SG&A: Non-cash share-based compensationexpense

47,672

49,369

146,192

157,181

COGS and COCM: Non-cash share-basedcompensation expense

7,302

1,438

20,778

10,148

Other expense: Loss on extinguishment of debt

—

—

30,100

466

Income tax effect of reconciling items above

(42,958)

(56,210)

(141,458)

(181,558)

Non-GAAP net income

$

470,456

$

364,973

$

1,293,778

$

966,635

Non-GAAP net income per share - basic

$

4.41

$

3.48

$

12.19

$

9.24

Non-GAAP net income per share - diluted

$

3.99

$

3.13

$

11.09

$

8.28

Shares used in calculating:

Non-GAAP net income per share - basic

106,706

104,833

106,108

104,586

Non-GAAP net income per share - diluted

117,819

116,644

116,616

116,764

TABLE 4

Sanofi collaboration revenue:

Reimbursement of Regeneron research anddevelopment expenses

$

190,188

$

167,615

$

609,464

$

567,074

Reimbursement of Regeneroncommercialization-related expenses

90,339

64,418

251,002

213,957

Regeneron's share of losses in connection withcommercialization of antibodies

(98,315)

(112,001)

(328,998)

(333,530)

Other

62,963

24,360

146,202

79,999

Total Sanofi collaboration revenue

245,175

144,392

677,670

527,500

Bayer collaboration revenue:

Regeneron's net profit in connection withcommercialization of EYLEA outside theUnited States

205,367

170,854

571,126

484,181

Reimbursement of Regeneron developmentexpenses

13,378

9,652

26,447

21,351

Other

17,880

10,792

43,346

57,254

Total Bayer collaboration revenue

236,625

191,298

640,919

562,786

Total Sanofi and Bayer collaboration revenue

$

481,800

$

335,690

$

1,318,589

$

1,090,286

Other revenue:

Reimbursement of Regeneron research anddevelopment expenses - Teva

$

28,537

$

3,064

$

82,068

$

3,064

Reimbursement of Regeneron research anddevelopment expenses - other

150

933

3,562

1,553

Substantive development milestones

—

—

55,000

—

Other

32,819

22,967

90,816

62,828

Total other revenue

$

61,506

$

26,964

$

231,446

$

67,445