Biotech Stock Update: Regeneron Misses on Earnings in Q2

Regeneron Pharmaceuticals’ (REGN) second quarter 2014 adjusted earnings (including stock-based compensation expense) of $1.89 per share were well short of the Consensus Estimate of $2.33. The company had earned $1.36 per share in the year-ago quarter. Results were impacted by higher costs.

Including one-time items, earnings increased 3.8% to 82 cents per share. A higher tax rate affected results. Excluding stock based compensation expenses the company earned $2.47 per share in the second quarter of 2014, up 42.8%.

Total revenue in the reported quarter soared 45% year over year to $666 million driven by strong 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. In Jul 2014, the FDA approved Eylea for the treatment of diabetic macular edema (DME).

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

Revenues easily beat the Consensus Estimate of $642 million. The stock gained in early trading thanks to strong Eylea sales in the second quarter of 2014. Total revenue included net product sales, collaboration revenue and technology licensing revenue.

Regeneron is developing 14 human monoclonal antibodies, utilizing its VelocImmune technology. The company is developing six of the antibodies in partnership with Sanofi. Collaboration revenues in the quarter were also boosted by the receipt of sales milestones worth $15 million from Bayer. Revenues from technology licensing increased 9.4% to $7.8 million.

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Though U.S. sales of Eylea in the second quarter improved 15.6% sequentially after a disappointing first quarter, we believe sales of the eye drug will have to improve significantly in the remaining quarters in order to meet the 2014 guidance. The FDA approval for the DME indication will come in handy in this respect. Regeneron is looking to get Eylea approved for the macular edema after branch retinal vein occlusion indication (target date: Oct 23, 2014).

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