Regeneron Pharmaceuticals, Inc. — 2022 Q2 Form 10-Q Summary
Business Context and Reporting Period
Regeneron is an integrated biotechnology company that discovers, develops, manufactures, and commercializes medicines. The filing covers the quarter and six months ended June 30, 2022, compared with the corresponding 2021 periods. Key commercial products include EYLEA, Dupixent, Libtayo, Praluent, Evkeeza, and REGEN-COV. The interim financial statements are unaudited.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $2,857.2 million | $5,138.5 million | $5,822.3 million | $7,667.2 million |
| Income from operations | $1,109.9 million | $3,347.2 million | $2,368.4 million | $4,459.9 million |
| Net income | $852.1 million | $3,098.9 million | $1,825.6 million | $4,214.1 million |
| Diluted EPS | $7.47 | $27.97 | $16.07 | $38.07 |
| Operating margin | 38.8% | 65.1% | 40.7% | 58.2% |
| Net margin | 29.8% | 60.3% | 31.4% | 55.0% |
Six-month net cash provided by operating activities was $2,666.1 million, compared with $1,295.2 million in 2021. Investing activities used $2,119.2 million, including $295.4 million of capital expenditures and $230.3 million for the Checkmate acquisition. Financing activities used $36.4 million, including $717.1 million of share repurchases.
At June 30, 2022, cash and cash equivalents were $3,395.1 million and marketable securities totaled $10,587.2 million, including $875.1 million of equity securities. Working capital was $12,496.0 million. Debt consisted primarily of $1,980.7 million of senior unsecured notes and $720.0 million of finance lease liabilities; the company also had $750.0 million available under its revolving credit facility. Management stated that all applicable lease and credit covenants were satisfied.
Material Changes Versus the Prior Comparable Period
- Revenue declined 44.4% in the second quarter and 24.1% for the six months, primarily because 2021 included substantial U.S. government REGEN-COV sales. REGEN-COV U.S. sales were zero in 2022 versus $2,591.2 million in the second quarter of 2021 and $2,853.4 million in the first half of 2021.
- EYLEA U.S. sales increased 13.8% in the quarter and 13.2% year to date, driven by higher volume. Dupixent and Kevzara net product sales reported by Sanofi increased 38.9% in the quarter and 41.2% year to date, supporting higher Sanofi collaboration revenue.
- Collaboration revenue increased 9.3% in the quarter and 33.2% year to date, led by Sanofi and Bayer. Roche collaboration revenue declined sharply in the quarter as REGEN-COV/Ronapreve-related activity decreased.
- Net income and diluted EPS fell materially because of the loss of REGEN-COV revenue and the reversal of 2021 equity-security gains. The company recorded net unrealized losses on equity securities of $163.7 million in the quarter and $374.9 million year to date, compared with gains of $409.0 million and $552.9 million, respectively, in 2021.
- Operating expenses increased 12.3% year to date. Research and development expense increased $181.0 million, selling, general, and administrative expense increased $106.0 million, and acquired in-process research and development expense was $225.1 million, including a $195.0 million Checkmate charge and a $20.0 million Adicet opt-in payment.
- The company completed its approximately $250.0 million Checkmate acquisition in May 2022, obtaining rights to vidutolimod. It also repurchased 1.2 million shares for $745.5 million during the first six months.
- Effective July 1, 2022, Regeneron obtained worldwide rights to develop, commercialize, and manufacture Libtayo. It paid Sanofi $900.0 million in July, will pay an 11% royalty on Libtayo net sales through March 31, 2034, and may owe regulatory and sales milestones.
Guidance, Outlook, Commentary, and Risks
Management expects 2022 capital expenditures of $620 million to $670 million, primarily for manufacturing expansion in Rensselaer, New York and Limerick, Ireland, a fill/finish facility, and the Tarrytown campus. The filing does not provide clear full-year revenue, earnings, or margin guidance.
Management stated that existing capital resources, borrowing availability, expected EYLEA sales, and collaboration funding should support anticipated operating needs for the foreseeable future. The company expects continued substantial research, development, commercialization, and manufacturing expenditures. Results may fluctuate based on product sales, collaboration profits, development activity, taxes, and the timing of expenses.
- REGEN-COV was not authorized for use in any U.S. state or jurisdiction at the filing date because Omicron-lineage variants were dominant and showed reduced susceptibility. FDA review of the REGEN-COV BLA remained ongoing.
- EYLEA and Dupixent remain the principal commercial drivers. EYLEA U.S. sales represented 54% of total revenue for the first six months of 2022, and EYLEA faces branded and biosimilar competition. U.S. regulatory exclusivity for EYLEA was expected to expire November 18, 2023, subject to possible pediatric exclusivity through May 18, 2024.
- Major risks include clinical and regulatory failure, product safety issues, manufacturing and supply-chain constraints, dependence on Sanofi and Bayer, pricing and reimbursement pressure, intellectual-property challenges, competition, cybersecurity and privacy risks, foreign-exchange exposure, and COVID-19-related disruptions.
- The company is involved in patent proceedings concerning Praluent, EYLEA, EYLEA pre-filled syringes, REGEN-COV, and other products. It also faces Department of Justice proceedings and related private lawsuits concerning patient assistance, alleged kickbacks, EYLEA pricing and discounts, and related healthcare-law matters. Accrued legal contingencies were not material at June 30, 2022, but outcomes remain uncertain.
Most Important Facts for Investors to Verify
- Whether EYLEA volume growth offsets future biosimilar, branded, pricing, and reimbursement pressure.
- The durability of Dupixent growth and the financial impact of the July 2022 change to the Sanofi Libtayo and antibody collaboration arrangements.
- The timing and outcome of FDA review for REGEN-COV and the commercial implications of its reduced activity against Omicron-lineage variants.
- Progress and required spending for manufacturing and fill/finish expansion relative to the $620 million to $670 million 2022 capital-expenditure expectation.
- The impact of equity-market volatility on the company’s $875.1 million equity-securities portfolio and reported other income or expense.
- Potential financial, operational, or reputational consequences of the Department of Justice investigations, healthcare-law litigation, and product-related patent proceedings.
- Clinical and regulatory milestones for aflibercept 8 mg, Dupixent indications, Libtayo, odronextamab, pozelimab, and other pipeline programs.