Regeneron (REGN) Misses on Q4 Earnings & Sales, View Bleak

Regeneron Pharmaceuticals, Inc.REGN reported disappointing results for the fourth quarter of 2016. The outlook for 2017 did not appease investors either.

The company reported fourth-quarter 2016 earnings (including the impact of share-based compensation expenses and tax adjustments) of $2.19 per share, missing the Zacks Consensus Estimate of $2.51 and were down from $0.94 reported in the year-ago quarter.

Excluding share-based compensation expenses, Regeneron's earnings came in at $3.04 per share, up from $2.23 reported in the year-ago quarter.

Total revenue in the fourth quarter increased 11.7% year over year to $1.23 billion driven by strong sales of eye treatment, Eylea.

However, revenues were below the Zacks Consensus Estimate of $1.30 billion. Total revenue consists of net product sales and collaboration revenues.

Regeneron's share price movement shows that the stock has underperformed the Zacks categorized Medical-Biomedical/Genetics industry in the past one year. Specifically, the stock lost 3.9% during this period, while the industry declined 2.9%.

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

Quarterly Highlights

Net product sales increased to $862.5 million in the reported quarter, up 15% year over year. The majority of sales came from Eylea in the U.S. ($858 million, up 15%). Sales of Eylea in ex-U.S. markets were $496 million, up from $413 million reported in the year-ago quarter.

Collaboration revenues came in at $312.6 million in the quarter, compared with $330.5 million a year ago. Praluent recorded global net sales of $41million in the reported quarter, up from $38 in the third quarter of 2016. We note Praluent has been co-developed in collaboration with Sanofi SNY . Product sales for Praluent are recorded by Sanofi, while Regeneron shares profits or losses from the commercialization of the drug.

R&D and selling, general and administrative (SG&A) expenses increased 3.9% and 10.5%, respectively, during the quarter.

2017 Outlook

In 2017, Regeneron expects U.S. Eylea net sales to grow in single digits over 2016. The company now expects adjusted unreimbursed R&D expenses in the range of $950 million to $1,025 million. Adjusted SG&A costs are projected in the range of $1.175 billion to $1.250 billion.

We note that the European Commission approved a dosing regimen of 300mg for Praluent to be given every four weeks. Meanwhile, the FDA extended the review period for the supplemental Biologics License Application (sBLA) for a monthly dosing regimen of Praluent. The extension comes as a result of the agency's decision that Regeneron's and Sanofi's responses to information requested by the FDA during its review of the sBLA were a major amendment. Hence, the Prescription Drug User Fee Act (PDUFA) date has been extended by three months to Apr 24 to allow FDA to review the additional information.

In Oct 2016, 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. The company expects to resubmit the BLA in the first quarter of 2017, contingent upon successful completion of the pre-approval inspection for Dupixent, and anticipates a two-month review cycle for sarilumab with an action date in the second quarter of 2017. A satisfactory resolution of the letter is imperative for the candidate's approval.

Regeneron Pharmaceuticals, Inc. Price and EPS Surprise

Regeneron Pharmaceuticals, Inc. Price and EPS Surprise | Regeneron Pharmaceuticals, Inc. Quote

Our Take

Regeneron's fourth-quarter results were disappointing with the company missing on both earnings and revenue expectations. We expect investors to react negatively to the news.

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.

In Jan 2017, Regeneron received a major setback when the U.S District Court in Delaware granted Amgen's AMGN request for a permanent injunction prohibiting the sale of Praluent. The injunction relates to a patent infringement lawsuit that was filed by Amgen for the two patents (U.S. Patent Nos. 8,829,165, and 8,859,741) pertaining to Repatha. It follows a favorable jury verdict that was received by Amgen in Mar 2016. The jury declared these two patents owned by Amgen, which describe and claim monoclonal antibodies to PCSK9, as valid. However, on Feb 8, the United States Court of Appeals for the Federal Circuit stayed (suspended) the injunction pending appeal. Hence, Regeneron and Sanofi will continue marketing, selling, and manufacturing Praluent in the U.S. during the appeal process. The suspension should somewhat relieve the investors.

A potential approval of Dupixent in the U.S. in Mar 2017 in adults with atopic dermatitis should boost growth prospects. We note that Dupixent is also being evaluated in a phase III study in adult asthma patients and results are expected later this year. The candidate is also being studied in patients with nasal polyps and pediatric patients with asthma or atopic dermatitis.

Zacks Rank

Regeneron carries a Zacks Rank #4 (Sell) stock. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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