REGENERON PHARMACEUTICALS, INC. quarterly report, Q2 FY2021

Regeneron Pharmaceuticals, Inc. — Q2 2021 Form 10-Q Summary

Business context and reporting period

Regeneron is a fully integrated biotechnology company developing, manufacturing, and commercializing medicines across ophthalmology, immunology, oncology, cardiovascular and metabolic disease, infectious disease, and other areas. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.

Financial performance and position

Metric	Three months ended June 30, 2021	Three months ended June 30, 2020	Six months ended June 30, 2021	Six months ended June 30, 2020
Revenue	$5,138.5 million	$1,952.0 million	$7,667.2 million	$3,780.2 million
Net income	$3,098.9 million	$897.3 million	$4,214.1 million	$1,521.9 million
Diluted EPS	$27.97	$7.61	$38.07	$13.03
Income from operations	$3,347.2 million	$656.4 million	$4,459.9 million	$1,356.5 million
Operating margin	65.1%	33.6%	58.2%	35.9%
Net margin	60.3%	46.0%	55.0%	40.3%

Second-quarter revenue increased $3,186.5 million, or approximately 163%, while six-month revenue increased $3,887.0 million, or approximately 103%.
Net product sales were $4,137.8 million in the second quarter and $5,862.1 million for the first half. REGEN-COV contributed $2,591.2 million in the quarter and $2,853.4 million year to date.
Second-quarter collaboration revenue was $954.7 million, including $437.7 million from Sanofi, $349.1 million from Bayer, and $167.9 million from Roche. Six-month collaboration revenue was $1,709.1 million.
Key second-quarter product sales included EYLEA of $2,328.5 million globally, Dupixent of $1,499.0 million, Libtayo of $116.9 million, and Praluent of $99.4 million. Six-month sales increased 25% for EYLEA, 53% for Dupixent, and 41% for Libtayo.
Research and development expense was $714.2 million in the quarter and $1,457.1 million year to date. Selling, general, and administrative expense was $414.7 million and $820.3 million, respectively.
Cost of goods sold rose to $539.4 million in the quarter and included $139.9 million of inventory write-offs and reserves, primarily related to REGEN-COV. Year-to-date write-offs and reserves totaled $149.3 million.
Other income, net, was $420.0 million in the quarter and $574.9 million year to date, primarily reflecting unrealized gains on equity securities. The first-half amount included $552.9 million of net unrealized gains on equity securities.
Effective tax rates were 17.4% for the quarter and 15.8% for the first half, compared with 2.4% and 4.1% in the prior-year periods. The first-half 2021 rate benefited from the reversal of liabilities for uncertain tax positions.
Operating cash flow was $1,295.2 million for the first half, down from $1,641.4 million in the prior-year period. The decrease principally reflected a $2,883.9 million increase in accounts receivable, largely attributable to REGEN-COV sales to the U.S. government.
Capital expenditures were $263.8 million year to date. Management expects full-year 2021 capital expenditures of $590 million to $640 million, primarily for manufacturing and fill/finish expansion.
At June 30, 2021, cash and cash equivalents were $2,072.2 million, marketable securities were $5,738.9 million, working capital was $9,605.2 million, and long-term debt was $1,979.2 million. The company also had $750.0 million of borrowing availability under a revolving credit facility.

Material changes versus the prior comparable period

REGEN-COV was the principal driver of the year-over-year increase in revenue and profit. The U.S. government agreements required purchases of delivered filled and finished doses through June 30, 2021, and the company completed its final deliveries under those agreements.
EYLEA sales benefited from higher U.S. volume and a comparison against COVID-19-affected demand in the second quarter of 2020. Dupixent growth increased Sanofi collaboration profits.
Operating expenses increased $495.7 million in the second quarter and $783.6 million year to date. The largest increase was cost of goods sold related to REGEN-COV, including inventory reserves and write-offs.
Effective April 1, 2021, Kiniksa assumed U.S. sales recording and commercialization responsibility for ARCALYST; Regeneron now receives a share of profits. Effective April 1, 2020, Regeneron became solely responsible for U.S. Praluent commercialization, while Sanofi became responsible outside the United States and pays Regeneron a 5% royalty.
Sanofi did not exercise options to license certain BCMAxCD3 and MUC16xCD3 candidates during the first quarter of 2021. Regeneron retained exclusive development and commercialization rights, subject to royalties on future sales.
The company repurchased 1.3 million shares for $612.1 million during the first half under its $1.5 billion January 2021 authorization. Remaining authorization was $887.9 million at June 30, 2021.

Guidance, outlook, commentary, risks, and unusual items

Management expects continued substantial investment in research and development, commercialization, and manufacturing capacity. It believes existing capital resources, operating cash generation, collaboration funding, and borrowing availability will meet anticipated needs for the foreseeable future.
REGEN-COV received an FDA emergency use authorization for certain COVID-19 treatment uses. The FDA lowered the authorized dose in June 2021 and subsequently expanded authorization for post-exposure prophylaxis in July 2021. The company planned rolling BLA and MAA submissions in the second half of 2021.
Clinical updates included positive results for REGEN-COV in non-hospitalized treatment, prevention, and selected hospitalized-patient populations. However, the company’s hospitalized-patient trial did not achieve statistical significance on its prespecified primary clinical endpoint, and the related RECOVERY trial was subject to an MHRA inspection identifying certain GCP deviations.
Management identified significant uncertainty regarding future REGEN-COV demand, vaccine adoption, viral variants, regulatory status, manufacturing capacity, third-party fill/finish availability, and potential inventory obsolescence.
Major ongoing risks include dependence on EYLEA and Dupixent, competition and biosimilar exposure, pricing and reimbursement pressure, reliance on Sanofi and Bayer, manufacturing and supply-chain constraints, clinical and regulatory uncertainty, and intellectual-property litigation.
Legal and government matters include a Department of Justice civil complaint and investigations concerning patient assistance, physician payments, alleged kickbacks, and EYLEA pricing and reimbursement practices. Additional shareholder, derivative, insurer, and qui tam proceedings were disclosed. Accrued loss contingencies were not material as of June 30, 2021, but adverse outcomes could materially affect results.
Patent proceedings remain relevant to Praluent, EYLEA, EYLEA pre-filled syringes, REGEN-COV, and other products. The filing reports favorable developments in several Praluent and Dupixent matters but does not eliminate broader litigation and market-exclusivity risks.
The filing states that disclosure controls and procedures were effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

Whether REGEN-COV revenue and margins remain sustainable after completion of the disclosed U.S. government deliveries and amid changing COVID-19 variants, vaccines, and treatment demand.
The composition and collectability of the $6,998.6 million accounts receivable balance, including the substantial REGEN-COV-related increase.
The magnitude and timing of additional REGEN-COV inventory write-offs, manufacturing costs, and capacity commitments.
Future EYLEA and Dupixent growth, pricing, reimbursement, competitive pressure, and the potential impact of EYLEA biosimilar entry after the disclosed U.S. exclusivity period.
Developments in the Department of Justice investigations, False Claims Act and anti-kickback litigation, insurer claims, shareholder actions, and related potential financial or operational consequences.
Progress toward the projected $590 million to $640 million of 2021 capital expenditures and the successful expansion of manufacturing and fill/finish capacity.
The sustainability of earnings excluding unrealized equity-security gains and other unusual or nonrecurring items.
Upcoming regulatory and clinical milestones for EYLEA, Dupixent, Libtayo, REGEN-COV, and pipeline candidates, including the effects of COVID-19-related delays.