Regeneron Misses on Earnings in Q2, Eylea Drives Sales Beat

Zacks Equity Research
August 5, 2014

Regeneron Pharmaceuticals’ (REGN) second quarter 2014 adjusted earnings (including stock-based compensation expense) of $1.89 per share were well short of the Zacks Consensus Estimate of $2.33. The company had earned $1.36 per share in the year-ago quarter. Results were impacted by higher costs.

Regeneron Pharmaceuticals Inc - Earnings Surprise | FindTheBest

 

 

Including one-time items, earnings increased 3.8% to 82 cents per share. A higher tax rate affected results. Excluding stock based compensation expenses the company earned $2.47 per share in the second quarter of 2014, up 42.8%.

Total revenue in the reported quarter soared 45% year over year to $666 million driven by strong sales of eye drug, Eylea, as well as impressive collaboration revenues. The drug was launched in the U.S. in Nov 2011 for treating patients suffering from the neovascular form of age-related macular degeneration. In Sep 2012, the label of the drug was successfully expanded to treat patients suffering from macular edema following central retinal vein occlusion. In Jul 2014, the FDA approved Eylea for the treatment of diabetic macular edema (:DME).

We note that Regeneron has co-developed Eylea with the HealthCare unit of Bayer (BAYRY). Regeneron is solely responsible for the U.S. sales of the eye drug and is entitled to the entire U.S. profits. Regeneron and Bayer equally share the profits and losses from ex-U.S. Eylea sales, except for Japan, where Regeneron receives a royalty on net sales.

Revenues easily beat the Zacks Consensus Estimate of $642 million. The stock gained in early trading thanks to strong Eylea sales in the second quarter of 2014.

Total revenue included net product sales, collaboration revenue and technology licensing revenue.

Quarterly Highlights

Net product sales jumped to $418 million in the quarter from $334 million a year ago. The majority of sales ($415 million, up 25.8% year over year) came from Eylea in the U.S. Sales of Eylea in ex-U.S. markets were $247 million.

Collaboration revenues came in at $240 million in the quarter compared with $117 million a year ago. The substantial rise was due to higher net profit from Eylea sales in the ex-U.S. markets and higher reimbursement of costs pertaining to antibody development by partner Sanofi (SNY).  

Regeneron is developing 14 human monoclonal antibodies, utilizing its VelocImmune technology. The company is developing six of the antibodies in partnership with Sanofi. Collaboration revenues in the quarter were also boosted by the receipt of sales milestones worth $15 million from Bayer. Revenues from technology licensing increased 9.4% to $7.8 million.

Both research and development (R&D) expenses and selling, general and administrative (SG&A) expenses were on the upswing during the reported quarter.

2014 Outlook

Regeneron continues to expect U.S. Eylea sales in the range of $1.7 billion to $1.8 billion in 2014. The company now expects adjusted unreimbursed R&D expenses in the range of $470 million to $510 million (previous guidance: $425 million to $475 million). Adjusted SG&A costs are now projected in the band of $310 million to $350 million (old guidance: $330 million to $380 million).

Our Take

Though U.S. sales of Eylea in the second quarter improved 15.6% sequentially after a disappointing first quarter, we believe sales of the eye drug will have to improve significantly in the remaining quarters in order to meet the 2014 guidance. The FDA approval for the DME indication will come in handy in this respect. Regeneron is looking to get Eylea approved for the macular edema after branch retinal vein occlusion indication (target date: Oct 23, 2014).

Favorable FDA decision will further boost the drug’s sales potential. We believe investor focus will remain on the company's efforts to expand Eylea's label.

Regeneron carries a Zack Rank #3 (Hold). Some better-ranked stocks in the health care sector are Actelion (ALIOF) and Celgene Corp. (CELG). While Actelion carries a Zacks Rank #1 (Strong Buy), Celgene sports a Zacks Rank #2 (Buy).

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