Regeneron Pharmaceuticals (REGN) reported third-quarter 2014 adjusted earnings (including stock-based compensation expense) of $2.23 per share, up from $2.13 per share earned in the year-ago quarter. Earnings were also above the Zacks Consensus Estimate of $2.10.
Including one-time items, earnings decreased 44% to 70 cents per share. A higher tax rate affected results. Excluding stock-based compensation expenses, the company earned $2.52 per share in the third quarter of 2014, up 5%.
Total revenue in the reported quarter soared 22% year over year to $726 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. The FDA approved Eylea for the treatment of diabetic macular edema (DME) in Jun 2014 and for the treatment of macular edema following retinal vein occlusion in Oct 2014.
We note that 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 beat the Zacks Consensus Estimate of $720 million. Total revenue included net product sales, collaboration revenue and technology licensing revenue.
Quarterly Highlights
Net product sales jumped to $449 million in the quarter from $367 million a year ago. The majority of sales ($445 million, up 23% year over year) came from Eylea in the U.S. Sales of Eylea in ex-U.S. markets were $277 million.
Collaboration revenues came in at $269 million in the quarter compared with $223 million a year ago. The substantial rise was due to higher net profit from Eylea sales in ex-U.S. markets. Collaboration revenues in the quarter were also boosted by the receipt of two sales milestone payments worth $15 million each from Bayer.
Regeneron is developing 16 human monoclonal antibodies, utilizing its VelocImmune technology. The company is developing six of the antibodies in partnership with Sanofi (SNY). Revenues from technology licensing increased 17.2% to $8.2 million.
Both research and development (R&D) and selling, general and administrative (SG&A) expenses were on the upswing during the reported quarter.
2014 Outlook Narrowed
Regeneron narrowed its Eylea guidance. The company now expects U.S. Eylea sales in the range of $1.7 billion to $1.74 billion in 2014 (previous guidance: $1.7 billion to $1.8 billion). The company now expects adjusted unreimbursed R&D expenses in the range of $490 million to $510 million (previous guidance: $470 million to $510 million). Adjusted SG&A costs are now projected in the band of $330 million to $350 million (old guidance: $310 million to $350 million).
Our Take
In the reported quarter U.S. sales of Eylea showed an improvement of 7.2% sequentially. We believe sales of the eye drug could improve going forward benefiting from the inclusion of macular edema after branch retinal vein occlusion indication in its label.
Regeneron carries a Zack Rank #3 (Hold). A better-ranked stock in the health care space is AMAG Pharmaceuticals, Inc. (AMAG), holding a Zacks Rank #1 (Strong Buy).
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