Regeneron Pharmaceuticals (NASDAQ:REGN) reported its fourth-quarter 2015 earnings results on Feb. 9, and the markets weren't impressed with the results. The company's shares shed more than 6% of their value on the day of the report.
So what was in the report that put investors in a foul mood? Let's dig in.
By the numbers
|Metric||Q4 2015||Q4 2014||Change %|
|Eylea U.S. sales||$746 million||$518 million||44%|
|Total revenue||$1,098 million||$802 million||37%|
|Non-GAAP net income||$327 million||$328 million||flat|
Total revenue grew 37% compared with a year ago to $1.09 billion, driven by strong growth in Regeneron's U.S. Eylea business and a healthy $329 million in revenue from its collaboration agreements with Sanofi (NASDAQ:SNY) and Bayer Healthcare (OTC:BAYRY). While these results were strong in absolute terms, they came up a bit shy of the $1.17 billion analysts were expecting.
Regeneron's bottom line was another story. The $2.83 in earnings per share the company recorded during the period was far below the $3.31 Wall Street was looking for.
Beyond the numbers
Lets see how the company's fourth-quarter results stacked up against the three areas I previously suggested investors should pay attention to.
1. Eylea's sales
Eylea -- Regeneron's best selling medication for treating a variety of eye-related diseases -- continues to put up solid growth, though its pace of sales growth appears to be decelerating. Sales grew 44% year over year in the U.S. to $746 million, and the company's marketing partner, Bayer Healthcare, increased Eylea sales in international markets to $413 million, up 39% versus a year ago. Regeneron's share of the international sales revenue grew to $140 million, up 59% from the $88 million it recognized in the same quarter last year.
In absolute terms, both of those numbers look solid. However, on its last earnings call, Regeneron's management team had guided for U.S. Eylea sales growth of between 50% and 55%. So, the reported 44% was a huge miss. In addition, management is calling for Eylea U.S. sales growth of just 20% in 2016, which is a huge deceleration from the 54% it put up in all of 2015.
2. The Praluent launch
Two quarters ago, Regeneron and its partner Sanofi launched their new cholesterol-busting drug Praluent for sale in the United States. In its first quarter on the market, Sanofi was able to sell only $4 million worth of the drug -- but that low number wasn't all that surprising, given that Praluent didn't yet have reimbursement in place. Sales of Praluent did grow 75% quarter over quarter to $7 million, but since this is off such a small base, it's hard to call that a fast start for a drug that many believe holds multibillion-dollar sales potential.
We knew sales growth was likely to remain relatively muted during the rollout, as Regeneron stated on its last call that it was providing plenty of samples and free product to patients who want to get started on Praluent but lacked insurance coverage for it. So it's probably still too early to draw any conclusions from the drug's initial numbers.
Regeneron CEO Leonard Schleifer told investors that the company has big plans for Praluent in 2016: "We look forward to driving increased physician education, patient access, and reimbursement for Praluent in the United States and to launching this important medicine in other countries around the world."
On the plus side, the company's phase 3 cardiovascular outcomes study has been fully enrolled. If the study can show that Praluent successfully reduces the risk of cardiovascular events such as heart attacks or strokes, then it's likely that sales will eventually kick into high gear.
3. Pipeline updates
Regeneron currently counts 13 product candidates at various stages of clinical development, including four that include Sanofi as a collaborator. These products are aimed at treating a variety of diseases, such as asthma, infectious diseases, and cancer. While there are plenty of compounds in this pipeline to be excited about, I suggested that investors keep their ears peeled for updates on two drugs in particular -- sarilumab and dupilumab.
Sarilumab, which is a potential treatment for rheumatoid arthritis was submitted to the FDA for regulatory review in December. Regeneron reminded investors that the agency expects to have a decision by Oct. 30, and the company also shared that it plans to submit the compound to European regulators in the second half of the year.
Turning to dupilumab, the drug remains in clinical trials and is being testing as a potential treatment for a range of diseases, such as atopic dermatitis, asthma, nasal polyps, and eosinophilic esophagitis. The company confirmed that phase 3 pivotal trials for both atopic dermatitis and asthma are fully enrolled, and it's reminding investors that the FDA has granted the drug breakthrough designation. Top-line data from the atopic dermatitis study is expected in the first half of the year, and the company plans to initiate a rolling regulatory submission in the latter half of the year.
While investors were disappointed with the quarterly results for Eylea and Praluent, I think there are plenty of reasons to be optimistic. Regeneron's management team is notoriously conservative with its Eylea sales guidance at the start of the year, and it has a history of raising expectations as the year progresses. It's also too early to draw any conclusions about Praluent's future based on the early sales results. Meanwhile, data from Praluent's cardiovascular outcomes study could prove to be a meaningful catalyst in 2016. Add in the potential for sarilumab to win regulatory approval, and there plenty of events for investors to look forward to in 2016. Investors with an above average tolerance for risk might want to consider adding a few shares to their portfolio, especially now that they are off more than 40% from their all-time highs.