Business Context and Reporting Period
Regeneron Pharmaceuticals, Inc. filed an unaudited Form 10-Q for the quarter and six months ended June 30, 2011. The company was a biopharmaceutical developer with one marketed product, ARCALYST® for CAPS, and a pipeline led by EYLEATM, ZALTRAPTM, and ARCALYST for additional indications. Sanofi and Bayer HealthCare provided substantial collaboration funding and development support.
Financial Performance and Liquidity
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $107.8 million, versus $115.9 million | $220.0 million, versus $219.4 million |
| Operating loss | $60.3 million, versus $23.7 million | $101.3 million, versus $52.6 million |
| Net loss | $62.5 million, or $0.69 per share, versus $25.5 million, or $0.31 per share | $106.0 million, or $1.18 per share, versus $56.0 million, or $0.69 per share |
| Research and development expense | $143.1 million, versus $124.5 million | $272.5 million, versus $242.0 million |
| Selling, general and administrative expense | $24.6 million, versus $14.7 million | $48.0 million, versus $28.9 million |
| Net cash used in operating activities | Not separately provided | $44.6 million, versus $21.4 million |
Approximate operating margins were negative 56.0% for the quarter and negative 46.0% for the six-month period; approximate net margins were negative 58.0% and negative 48.2%, respectively. These margins are derived from reported revenue and loss figures.
- Collaboration revenue was $95.6 million in the second quarter and $193.4 million in the first half. Sanofi revenue increased year over year, while Bayer revenue declined.
- ARCALYST net product sales were $5.0 million in the quarter and $9.5 million in the first half, compared with $5.2 million and $15.0 million, respectively. The 2010 six-month figure included $4.8 million of previously deferred sales.
- Non-cash compensation expense was $12.4 million in the quarter and $27.2 million in the first half, compared with $8.7 million and $17.5 million, respectively.
- At June 30, 2011, cash and cash equivalents were $254.3 million, unrestricted marketable securities were $306.6 million, and restricted cash and securities were $8.2 million, totaling approximately $569.1 million.
- Total liabilities were $568.8 million, including $160.3 million of facility lease obligations. The filing does not report conventional funded debt as a separate material category.
- Net cash provided by investing activities was $163.3 million, primarily because sales and maturities of marketable securities exceeded purchases. Capital expenditures were $37.0 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter revenue decreased 7.0%, while first-half revenue was essentially flat, increasing $0.6 million year over year.
- Operating expenses increased 20.4% in the quarter and 18.1% in the first half, driven by expanded research programs, higher headcount, manufacturing capacity, commercialization preparation, legal costs, and stock-based compensation.
- Research and development expense increased 15.0% in the quarter and 12.6% in the first half. EYLEA development costs increased, while ARCALYST gout and REGN475 costs declined.
- Average headcount increased to 1,497 in the second quarter and 1,464 in the first half, from 1,214 and 1,151, respectively.
- Cash, cash equivalents, and marketable securities declined from approximately $626.9 million at December 31, 2010 to $569.1 million at June 30, 2011, despite a $141.7 million increase in cash and cash equivalents, largely reflecting reallocation of investments.
- Accounts payable and accrued expenses increased to $81.7 million from $53.7 million at year-end, reflecting increased activity, payroll obligations, commercialization costs, and amounts payable to Bayer.
Guidance, Outlook, Commentary, and Risks
- Management expected substantial operating losses for at least the next several years as research, development, manufacturing, and commercialization activities expanded.
- Management estimated remaining 2011 capital expenditures of approximately $35 million to $55 million, primarily for Tarrytown tenant improvements, Rensselaer manufacturing improvements, and equipment.
- Management stated that existing capital resources and anticipated collaboration funding were expected to meet operating needs through at least 2013, but cautioned that higher expenses, lower revenue, collaboration termination, or commercialization spending could accelerate cash usage.
- The FDA’s target action date for the priority-review EYLEA BLA for wet AMD was August 20, 2011. The company also planned regulatory submissions for EYLEA in CRVO, ZALTRAP in previously treated metastatic colorectal cancer, and ARCALYST for gout-flare prevention during the second half of 2011.
- EYLEA received a unanimous positive recommendation from the FDA advisory committee, but approval remained uncertain. The company faced competition from Lucentis and off-label Avastin, as well as regulatory, manufacturing, reimbursement, and launch risks.
- ZALTRAP met the VELOUR overall-survival and progression-free-survival endpoints in previously treated metastatic colorectal cancer, but the VITAL lung-cancer trial failed to meet its primary endpoint. The VENICE prostate-cancer trial was recommended to continue.
- REGN475 remained on FDA clinical hold because of potential class-wide joint-destruction risks associated with anti-NGF therapies. Sanofi elected not to continue co-development of REGN846, although it remained obligated to fund the planned proof-of-concept trial.
- Regeneron and Genentech were engaged in patent litigation concerning VEGF Trap. Genentech asserted counterclaims involving four Davis-Smyth patents and sought damages, including for alleged willful infringement. Regeneron stated that it could not estimate the probability or amount of any loss.
- The company remained dependent on Sanofi and Bayer for funding, development, regulatory support, manufacturing, and commercialization. Termination or underperformance by either collaborator could materially affect operations and liquidity.
- Disclosure controls and procedures were deemed effective as of June 30, 2011, with no reported material change in internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether EYLEA received FDA approval by the August 20, 2011 target date and the resulting launch timing, expenses, pricing, and reimbursement outlook.
- Regulatory filings and subsequent decisions for EYLEA in CRVO, ZALTRAP in colorectal cancer, and ARCALYST for gout-flare prevention.
- Cash burn, collaboration reimbursements, deferred revenue recognition, and whether the stated funding runway through at least 2013 remained achievable.
- The outcome and potential financial or commercialization impact of Genentech’s patent counterclaims in the United States and related foreign proceedings.
- Clinical and regulatory developments for REGN475, REGN846, sarilumab, REGN727, and other pipeline programs.
- Actual capital expenditures, manufacturing capacity, and the company’s ability to support potential commercial launches while continuing broad pipeline investment.