Regeneron Pharmaceuticals, Inc. — 2021 Q1 Form 10-Q
Business context and reporting period
Regeneron is an integrated biotechnology company that discovers, develops, manufactures, and commercializes medicines. This Form 10-Q covers the three months ended March 31, 2021, with comparisons to the three months ended March 31, 2020. The interim financial statements are unaudited.
Key commercial products included EYLEA, Dupixent, Libtayo, Praluent, REGEN-COV, Kevzara, Evkeeza, ARCALYST, and ZALTRAP. EYLEA and Dupixent remained the principal drivers of profitability, while REGEN-COV generated new COVID-19-related revenue.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $2,528.7 million | $1,828.2 million | +$700.5 million, 38% |
| Income from operations | $1,112.7 million | $700.1 million | +$412.6 million, 59% |
| Operating margin | 44.0% | 38.3% | +5.7 percentage points |
| Net income | $1,115.2 million | $624.6 million | +$490.6 million, 79% |
| Net margin | 44.1% | 34.2% | +9.9 percentage points |
| Diluted EPS | $10.09 | $5.43 | +86% |
| Cash flow from operations | $668.5 million | $698.0 million | -$29.5 million |
| Capital expenditures | $115.3 million | $170.1 million | -$54.8 million |
Revenue consisted of $1,724.3 million of net product sales, $754.4 million of collaboration revenue, and $50.0 million of other revenue. Product sales increased primarily due to EYLEA growth and $262.2 million of U.S. REGEN-COV sales. Collaboration revenue benefited from higher Sanofi and Bayer revenue and $66.8 million of Roche collaboration revenue.
Operating expenses were $1,416.0 million, up from $1,128.1 million. Research and development expense increased to $742.9 million, including $208.8 million of direct REGEN-COV development expense. Selling, general, and administrative expense was $405.6 million. Cost of goods sold increased to $183.2 million, principally due to REGEN-COV manufacturing and Regeneron's assumption of U.S. Praluent commercialization.
Other income, net, was $154.9 million versus other expense, net, of $25.4 million in the prior-year quarter, primarily reflecting $143.9 million of net unrealized gains on equity securities. The effective tax rate increased to 11.0% from 6.6%, but remained below the U.S. federal statutory rate due to tax benefits including uncertain-tax-position reversals, stock-based compensation, foreign earnings, and research credits.
At March 31, 2021, cash and cash equivalents were $1,437.9 million and marketable securities totaled $5,609.6 million, including $1,002.4 million of equity securities. Total financial assets were $7,047.5 million. Long-term debt was $1,978.9 million, and current finance lease liabilities were $717.8 million; the filing describes aggregate indebtedness of approximately $2.697 billion including the lease financing facility. The company also had $750.0 million available under a revolving credit facility.
Material changes versus the prior comparable period
- EYLEA U.S. sales increased 15% to $1,347.0 million; total EYLEA sales reported by Regeneron and Bayer increased 17% to $2,171.3 million.
- Dupixent global sales increased 48% to $1,262.9 million, driving higher Sanofi collaboration profits.
- REGEN-COV produced $262.2 million of U.S. net product sales and $66.8 million of Roche collaboration revenue; there were no comparable prior-year sales.
- Regeneron now records U.S. Praluent sales and bears U.S. development and commercialization costs. U.S. Praluent sales were $43.3 million in the quarter, while Sanofi records non-U.S. sales and pays Regeneron a 5% royalty.
- Sanofi did not exercise options to license the BCMAxCD3 and MUC16xCD3 programs; Regeneron retained exclusive development and commercialization rights, subject to royalties on potential future sales.
- Cash declined by $756.9 million, reflecting $1,059.0 million of investing outflows and $366.4 million of financing outflows, partly offset by $668.5 million of operating cash flow.
- Regeneron repurchased 690,265 shares for $323.5 million under a new $1.5 billion authorization, with $1.177 billion remaining at March 31, 2021.
Guidance, outlook, commentary, risks, and unusual items
- Management expected 2021 capital expenditures of $585 million to $650 million, primarily for manufacturing expansion in Rensselaer and Limerick, a fill/finish facility, and research facilities.
- The U.S. government agreed to purchase REGEN-COV doses delivered by June 30, 2021, with optional acceptance through September 30, 2021, for potential payments of up to $2.625 billion. The filing notes that manufacturing capacity, dose authorization, and other factors could affect deliveries.
- REGEN-COV had an FDA Emergency Use Authorization rather than full marketing approval. Management planned a BLA and MAA submission in mid-2021 and sought lower-dose and prevention-related EUA amendments.
- COVID-19 continued to present risks to clinical enrollment, regulatory review, manufacturing, supply chains, commercial activity, and product demand. The company also relied entirely on third parties for REGEN-COV fill/finish services.
- Principal commercial risks included concentration in EYLEA and Dupixent, competition and potential biosimilars, reimbursement and drug-pricing pressure, dependence on Sanofi and Bayer, manufacturing constraints, and regulatory uncertainty.
- Material legal and regulatory matters included Praluent patent litigation with Amgen, patent proceedings involving EYLEA and REGEN-COV, a U.S. Department of Justice civil complaint and investigation involving patient-support and physician-payment practices, and litigation concerning the Medicare Most Favored Nation rule. Accrued legal loss contingencies were not material at March 31, 2021, but adverse outcomes could materially affect results.
- The IRS was auditing federal tax returns for 2015 through 2018; audits of 2015 and 2016 were expected to conclude within the following 12 months.
Important facts for investors to verify
- Durability of EYLEA U.S. demand and the timing and impact of potential biosimilar competition; U.S. regulatory exclusivity was expected to expire in November 2023, subject to possible pediatric extension.
- Actual REGEN-COV deliveries, regulatory status, manufacturing capacity, government purchases, and the sustainability of COVID-19-related revenue.
- Growth and profit-sharing economics for Dupixent, including Sanofi collaboration estimates and future co-commercialization plans.
- Cash deployment, planned capital expenditures, share repurchases, lease-financing obligations, and the ability to refinance or repay debt.
- Outcomes and potential financial exposure from the Amgen, EYLEA pre-filled syringe, REGEN-COV, Department of Justice, UnitedHealthcare, and other legal proceedings.
- Effects of reimbursement reforms, the enjoined Most Favored Nation rule, government pricing proposals, and changes in Medicare or Medicaid economics.
- Whether COVID-19 disruptions affect clinical milestones, product demand, supply chains, or regulatory timelines.