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Analyst Blog

Regeneron Pharmaceuticals, Inc. (REGN - Free Report) reported third-quarter 2016 earnings (including the impact of share-based compensation expenses and tax adjustments) of $2.41 per share, above the Zacks Consensus Estimate of $2.27. Earnings also surged almost 33% from the year-ago quarter tally.

Excluding share-based compensation expenses, Regeneron’s earnings were up 32% to $3.13 per share in the quarter.

Total revenue in the third quarter increased 7% year over year to $1.22 billion driven by strong sales of eye treatment, Eylea.

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

Revenues were below the Zacks Consensus Estimate of $1.28 billion. Total revenue consists mainly of net product sales and collaboration revenues.

Quarterly Highlights

Net product sales increased to $857.5 million in the quarter, up 16.3% year over year. The majority of sales came from Eylea in the U.S. ($854 million, up 16%). Sales of Eylea in ex-U.S. markets were $471 million, up approximately 27% from the year-ago quarter.

Collaboration revenues came in at $336 million in the quarter, compared with $382 million a year ago. The decline was mainly due to lower reimbursable research and development (R&D) expenses, and an increase in the company's share of losses primarily from the commercialization of Praluent and pre-commercialization activities for sarilumab and Dupixent (under priority review in the U.S. with a response expected by Mar 29, 2017) under its antibody collaboration with Sanofi, partially offset by higher net profit from the commercialization of Eylea outside the U.S.

Praluent recorded global net sales of $38 million in the reported quarter, up from $24 in the second quarter of 2016. We note Praluent has been co-developed in collaboration with Sanofi (SNY - Free Report) . Product sales for Praluent are recorded by Sanofi, while Regeneron shares profits or losses from the commercialization of the drug.

Adjusted R&D and selling, general and administrative (SG&A) expenses increased 27.6% and 27.2%, respectively, during the quarter.

2016 Eylea Outlook Tightened

Regeneron has tightened the Eylea U.S. net sales guidance for 2016. The company now expects U.S. Eylea net sales to grow 23–25% year over year, compared with its prior expectations of 20–25% growth.

The company now expects adjusted unreimbursed R&D expenses in the range of $945 million to $975 million (old guidance: $970–$1.01 billion). Adjusted SG&A costs are projected in the range of $965 million to $995 million (old guidance: $980–$1.02 billion).

We note that Regeneron is developing 15 human monoclonal antibodies utilizing its VelocImmune technology. Five of the antibodies are being developed in partnership with Sanofi.

Late last month, Regeneron and Sanofi announced that the FDA has issued a complete response (CRL) letter for sarilumab, which is being developed for the treatment of rheumatoid arthritis. The CRL relates to certain deficiencies identified at the Sanofi Le Trait facility where sarilumab is filled and finished. A satisfactory resolution of the letter is imperative for the candidate’s approval.

Sanofi has submitted a comprehensive corrective action plan to the FDA, is implementing the corrective actions, and is working closely with the FDA toward a timely resolution. Importantly, the CRL did not raise any concern related to the safety or efficacy of sarilumab.

Our Take

Regeneron’s third-quarter results were mixed with the company beating significantly on earnings but revenues falling short of expectations. However, the top line increased year over year. This was due to persistently strong contribution from Eylea. Meanwhile, Regeneron has tightened its U.S. Eylea net sales guidance for 2016.

Regeneron has recently suffered quite a few setbacks related to its pipeline. We expect investor focus to remain on the performance of Eylea and Praluent, along with other pipeline-related updates.

Zacks Rank & a Stock to Consider

Regeneron is a Zack Rank #3 (Hold) stock. Exelixis, Inc. (EXEL - Free Report) is a better-ranked stock in the health care sector, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Exelixis’ loss per share estimates narrowed from 71 cents to 61 cents for 2016 and from a loss of 16 cents to earnings of 4 cents for 2017 over the last 60 days. The company has posted an average positive surprise of 9.10% over the trailing four quarters. Its share price has surged over 80% year to date.

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