Strong Quarter at Regeneron

Zacks

Regeneron Pharmaceuticals Inc.'s (REGN) third quarter 2012 earnings (excluding special items but including stock-based compensation) of $1.70 per share breezed past the Zacks Consensus Estimate of 93 cents. The company suffered an adjusted loss of 68 cents per share in the year-ago quarter. Higher revenues boosted earnings in the third quarter of 2012.

Total revenue in the reported quarter soared 316% to $428 million, driven by strong sales of eye drug, Eylea. This was the third full quarter of the drug in the market. The drug was launched in the US in November 2011 for treating patients suffering from the neovascular form of age-related macular degeneration (wet AMD). In September 2012, the label of the drug was successfully expanded to treat patients suffering from macular edema following central retinal vein occlusion

Revenues handsomely beat the Zacks Consensus Estimate of $350 million. Total revenue included net product sales, collaboration revenue, technology licensing revenue and contract research and other revenue.

The Quarter in Details

Net product sales jumped to $249 million in the reported quarter from $5.5 million a year ago. Eylea sales came in at $244 million in the reported quarter, up 26% sequentially. Sales of Regeneron’s first marketed product, Arcalyst, for treating cryopyrin-associated periodic syndromes, accounted for the balance.

Moreover, Zaltrap was approved by the US Food and Drug Administration (:FDA) in August 2012 as a combination therapy for treating patients suffering from metastatic colorectal cancer, who are either resistant to or whose disease has progressed following treatment with an oxaliplatin-containing regimen. Regeneron co-developed Zaltrap with Sanofi (SNY).

As per the terms of the agreement, both companies share the global profits of Zaltrap equally after Regeneron's obligation to repay its share of development costs. As per Sanofi, sales of Zaltrap were $8 million in the third quarter of 2012.

Collaboration revenues came in at $172 million, up 91%. Collaboration revenues in the quarter were boosted by milestone payments of $50 million and $10 million from Sanofi and the Healthcare unit of Bayer (BAYRY), respectively. The payment from Sanofi followed the FDA approval of Zaltrap whereas the payment from Bayer followed the Japanese approval of Eylea for wet AMD.

Revenues from technology licensing remained flat at $5.9 million. Revenues from contract research and others accounted for the balance in the reported quarter.

Both research and development (R&D) expenses (up 24%) and selling, general and administrative (SG&A) expenses (up 43%), including stock-based compensation expenses, were on the upswing during the reported quarter.

The rise was primarily attributable to the higher R&D expenses incurred in connection with the efforts to develop the pipeline at Regeneron and the higher employee headcount in connection with the antibody collaboration with Sanofi. Higher costs related to the marketing of Eylea were primarily responsible for pushing the SG&A costs up.

Bright Outlook for Eylea

Encouraged by the strong performance of Eylea, the company increased its forecast for 2012 US Eylea sales for the third successive quarter. Management now expects the eye drug to record 2012 sales in the range of $790-$815 million as opposed to the previously forecasted range of $700-$750 million.

Our Recommendation

We currently have a Neutral recommendation on Regeneron. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

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