Regeneron Pharmaceuticals (REGN 1.89%) held a conference call earlier this month to highlight its second-quarter earnings and give investors some insight into the biotech's prospects for the rest of the year. Here are seven things management wants you to know.
1. "We had also heard some concern by investors that the release of Medicare billing information had resulted in a shift away from the branded anti-VEGF therapies toward compounded bevacizumab. This is not a trend that we saw during the quarter."
-- Leonard Schleifer, Regeneron's founder, president, and CEO
Leonard Schleifer. Source: Regeneron.
Off-label use of compounded bevacizumab has been a touchy subject for Regeneron Pharmaceuticals since before it launched its macular degeneration drug Eylea. In addition to competition from Roche's Lucentis, some doctors also use Roche's bevacizumab, known by its brand name Avastin. The cancer drug can be used in fairly small doses for macular degeneration, so when the bottle is split up -- referred to as compounding -- the cost per dose of Avastin is substantially less than Eylea and Lucentis.
Fortunately, compounded Avastin doesn't seem to be eating into Eylea's sales, with second-quarter sales up 26% year over year.
2. "For the full year, we are reaffirming our previously provided full-year U.S. Eylea net sales guidance of $1.7 billion to $1.8 billion."
-- Schleifer
Through the first half of the year, Regeneron generated $774 million in Eylea sales in the U.S., so the company is expecting that it could get more than $1 billion in sales in the second half of the year. That's as much as 15% quarter-over-quarter growth for the next two quarters.
Where's that growth going to come from?
3. "We expect the DME approval to help accelerate growth of Eylea in the second half of the year."
-- Schleifer
Last month, the Food and Drug Administration approved Eylea to treat diabetic macular edema, or DME. This is a big opportunity for Regeneron, considering there are about as many DME patients as there are patients with wet age-related macular degeneration. Lucentis has been approved as a DME treatment for over two years, but Regeneron isn't necessarily counting on having those patients switch.
Only about 40% of DME patients are currently on an anti-VEGF treatment -- the rest are treated with lasers or steroids -- so there's potentially low-hanging fruit if Regeneron can convince doctors that Eylea is a better option. The biotech is also counting on convenience to compete with Lucentis, because Eyela comes in the same strength for DME and wet AMD, so doctors have to stock only one strength of the drug, unlike Lucentis.
4. "The retinal specialists who treat DME are mostly the same as those treating wet AMD and CRVO and already being called on by our specialty sales force. Therefore, we don't anticipate a significant increase in commercial expenses related to Eylea, even following the approval in additional indications. Thus, we anticipate a higher rate of profitability on these incremental DME sales."
-- Robert Landry, Regeneron's CFO and senior vice president of finance
Robert Landry. Source: Regeneron.
This is key to Regeneron's valuation. Read that last sentence again.
Regneneron is guiding for as much as 15% quarter-over-quarter growth in U.S. sales of Eylea for the remainder of the year, but earnings should go up even more because expenses won't increase by the same relative amount.
But enough about Eylea ...
5. "In total, we have a broad pipeline of 14 antibodies in clinical development, six of which are partnered with Sanofi (SNY 1.58%)."
-- Schleifer
The drugs in development weren't given much attention on the conference call, but investors shouldn't forget about them. As much as Eylea is the current driver of growth, Regeneron's pipeline is going to have to take over fairly soon.
One of the more advanced drugs is Regeneron and Sanofi's cholesterol treatment, alirocumab, which did get a highlight on the call because of a unique situation ...
6. "I did want to highlight that with our purchase of a priority review voucher, we expect alirocumab to be reviewed under a priority review designation in the United States, which has the potential to shorten the regulatory review time by four months."
-- Schleifer
Sanofi and Regeneron are in a battle with Amgen (AMGN 1.14%) to brink the first PCSK9 inhibitor to market. To try and get a bit of a jump start, the duo purchased a priority review voucher from BioMarin Pharmaceuticals (BMRN 1.48%), which allows a drug to get a priority review even though it only deserves a standard review .
As Schliefer notes, the voucher reduces the filing and review time from 12 months to eight from the time the application is submitted. Sanofi and Regeneron are on target to submit their application before the end of the year, potentially leapfrogging Amgen, which plans to file its application this quarter.
7. "Bob Landry was kind enough to explain this new term to me, and I think it's worth reflecting on how challenging this business can be, given that it took us over 25 years to finally get to this point of positive retained earnings, which, as I understand it, represents Regeneron earning more money that it has lost on a cumulative basis."
-- Schleifer
The whole reason investors buy money-losing biotechs is in the hopes that they'll one day have positive earnings (or be bought by a larger company expecting to get positive earnings from the drugs in the pipeline).
Getting past there, to where the company has made as much as it lost developing the drugs, is an impressive feat. That Regeneron did it in less than three years after gaining FDA approval for Eylea is quite remarkable.
