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Regeneron Pharmaceuticals’ (REGN - Analyst Report) first quarter 2014 adjusted (including stock-based compensation expense) earnings of $1.58 per share breezed past the Zacks Consensus Estimate of 99 cents. The company earned $1.32 per share in the year-ago quarter. Higher revenues boosted earnings in the first quarter of 2014.

Including one-time items, earnings declined 35.6% to 58 cents per share. Higher tax rate affected results.

Total revenue in the reported quarter soared 42% year over year to $626 million driven by year-over-year growth in the 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.

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

Revenues easily beat the Zacks Consensus Estimate of $602 million. Total revenue included net product sales, collaboration revenue and technology licensing revenue.

The First Quarter in Detail

Net product sales jumped to $362 million in the first quarter of 2014 from $319 million a year ago. Bulk of the sales ($359 million, up 14% year over year) came from Eylea in the U.S. Sales of Eylea in the U.S., however, declined 11% sequentially primarily due to a reduction in distributor inventory. Soft U.S. sales of Eylea adversely impacted the stock in pre market trading. Sales of Eylea in ex-U.S. markets were $218 million.

Sales of Regeneron’s Arcalyst (cryopyrin-associated periodic syndromes) came in at a mere $3 million in the quarter. Collaboration revenues came in at $256 million in the quarter compared to $114 million a year ago. The huge increase was due to a rise in Regeneron’s net profit from Eylea sales in ex-U.S. markets and higher reimbursement of costs pertaining to antibody development by partner Sanofi (SNY - Analyst Report).  

Regeneron is developing fifteen human monoclonal antibodies, utilizing its VelocImmune technology. The company is developing eight of the antibodies in partnership with Sanofi. Collaboration revenues in the quarter were also boosted by the receipt of sales milestones worth $30 million from Bayer. Revenues from technology licensing increased 11.9% to $7.5 million.

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

Outlook for Eylea Maintained

Regeneron continues to expect Eylea sales in the range of $1.7–$1.8 billion in 2014.

Our Take

We are disappointed by the soft U.S. sales of Eylea in the quarter. However, we expect Eylea sales to regain momentum in the coming quarters. Regeneron is looking to get Eylea approved for other indications as well such as diabetic macular edema (U.S. target date: Aug 18, 2014) and macular edema after branch retinal vein occlusion (target date: Oct 23, 2014).

Successful label expansion of Eylea will further boost its sales potential. We believe investor focus will remain on the company’s efforts to expand Eylea’s label.  

Regeneron, a biopharmaceutical company, carries a Zacks Rank #2 (Buy). A better-ranked biopharma stock is Alexion Pharmaceuticals, Inc. (ALXN - Analyst Report), carrying a Zacks Rank #1 (Strong Buy).

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