Regeneron Pharmaceuticals, Inc. — FY2011 Form 10-K
Business context and reporting period
Regeneron is an integrated biopharmaceutical company focused on discovery, development, manufacturing, and commercialization of medicines. This filing covers the fiscal year ended December 31, 2011; the fourth quarter ended December 31, 2011 is also presented in the quarterly data.
The company marketed EYLEA (aflibercept) in the United States for wet age-related macular degeneration and ARCALYST (rilonacept) for CAPS. Its pipeline included 13 clinical candidates, with significant programs involving EYLEA, ZALTRAP, ARCALYST, sarilumab, and REGN727.
Financial performance and liquidity
| Metric | FY2011 | FY2010 | Change |
|---|---|---|---|
| Total revenue | $445.8 million | $459.1 million | Down 2.9% |
| Collaboration revenue | $369.7 million | $386.7 million | Down 4.4% |
| Net product sales | $44.7 million | $25.3 million | Up 77.0% |
| Research and development expense | $529.5 million | $489.2 million | Up 8.2% |
| SG&A expense | $117.3 million | $65.2 million | Up 79.8% |
| Operating loss | $205.2 million | $97.5 million | Loss increased |
| Net loss | $221.8 million | $104.5 million | Loss increased |
| Basic and diluted loss per share | $2.45 | $1.26 | Loss increased |
| Net cash used in operations | $141.7 million | Net cash provided of $99.2 million | Adverse swing |
FY2011 operating margin was approximately negative 46.0% and net margin was approximately negative 49.7%. EYLEA generated $24.8 million of 2011 net product sales, while ARCALYST generated $19.9 million, compared with $25.3 million of ARCALYST sales in 2010. The filing states that fourth-quarter revenue was $123.0 million and fourth-quarter net loss was $53.4 million, or $0.58 per share.
- Cash, cash equivalents, and marketable securities totaled $810.6 million at December 31, 2011, including $7.7 million of restricted amounts, versus $626.9 million at December 31, 2010.
- Marketable securities totaled $325.2 million, primarily consisting of U.S. government obligations and government-guaranteed securities.
- Stockholders’ equity was $485.7 million and total assets were $1.32 billion.
- The company issued $400.0 million of 1.875% convertible senior notes due October 2016 and received approximately $391.1 million of net proceeds before the net cost of related hedge transactions.
- Reported notes payable were $275.0 million after debt discount. Facility lease obligations were $160.5 million and capital lease obligations were $2.5 million.
- Capital expenditures were $57.2 million in 2011. Management expected approximately $50 million to $70 million of capital expenditures in 2012.
Material changes versus the prior comparable period
- EYLEA received FDA approval for wet AMD in November 2011 and was launched in the United States, creating the company’s second marketed product and a new commercial revenue stream.
- Product sales increased substantially because of EYLEA, but total revenue declined because 2010 included $20.0 million of Bayer milestone revenue and higher licensing revenue.
- Sanofi collaboration revenue increased to $326.6 million from $311.3 million, primarily because of higher antibody discovery reimbursements. Bayer collaboration revenue declined to $43.1 million from $75.4 million, largely because 2010 included $20.0 million of substantive milestone payments.
- R&D expense increased $40.3 million, driven by higher headcount, antibody discovery and manufacturing activities, and expanded development programs. Clinical trial expense declined as several programs progressed or were placed on hold.
- SG&A increased $52.1 million, primarily due to EYLEA commercialization, increased personnel and recruitment costs, higher stock compensation, and Genentech patent litigation.
- Operating cash flow shifted from a $99.2 million source in 2010 to a $141.7 million use in 2011, reflecting the larger net loss, increased receivables, and reduced deferred revenue.
- Average headcount increased from 1,249 to 1,568. Management expected 2012 average headcount of approximately 1,800 to 1,850.
Guidance, outlook, commentary, risks, and unusual items
Management stated that future profitability and positive operating cash flow depend substantially on the commercial success and market penetration of EYLEA. It expected continued substantial R&D, commercialization, manufacturing, and infrastructure spending. Management believed existing capital, anticipated EYLEA sales, and collaboration funding would support projected operating needs, but cautioned that additional financing could become necessary if revenues are delayed or expenses rise.
- EYLEA: The FDA decision target for the CRVO supplemental BLA was September 23, 2012. Bayer was pursuing foreign approvals for wet AMD and planned additional studies in DME, BRVO, and other retinal diseases.
- ZALTRAP: The VELOUR trial met its overall-survival endpoint in previously treated metastatic colorectal cancer. Sanofi submitted applications to the EMA and FDA; potential milestones and profit sharing remained contingent on approvals and commercialization.
- ARCALYST: The FDA decision target for prevention of gout flares was July 30, 2012. Management expected CAPS sales to remain insignificant relative to the company’s broader opportunity.
- REGN475 remained on FDA clinical hold because of class safety concerns involving anti-NGF compounds. Sanofi subsequently elected not to continue co-development, leaving Regeneron with sole global rights while Sanofi remained obligated to fund agreed costs through 2012.
- Genentech litigation: The parties entered into a U.S. ophthalmic license and partial settlement covering EYLEA. Regeneron agreed to a $60 million payment when cumulative U.S. EYLEA sales reach $400 million, plus royalties of 4.75% on cumulative sales from $400 million to $3 billion and 5.5% above $3 billion. Separate U.S. and European litigation remained outstanding, and the filing did not provide a loss estimate.
- Commercial risks include competition from Lucentis and lower-cost off-label Avastin, reimbursement uncertainty, the absence of a unique EYLEA J-code at filing, manufacturing capacity constraints, reliance on single-source suppliers and collaborators, regulatory delays, clinical failures, and patent disputes.
- Contractual obligations totaled approximately $925.4 million, including convertible notes, operating and facility leases, purchase obligations, and other long-term liabilities. This excludes uncertain contingent reimbursement obligations to Sanofi and Bayer tied to future collaboration profitability.
Most important facts for investors to verify
- Quarterly and annual EYLEA sales growth, gross-to-net deductions, payer reimbursement, inventory levels, and the timing of cash collections.
- Whether EYLEA obtains the anticipated foreign and additional-indication approvals, particularly CRVO, DME, and wet AMD outside the United States.
- Regulatory outcomes for ZALTRAP and ARCALYST in gout, including commercialization responsibilities, milestone economics, and development-cost reimbursements.
- Cash burn, collaboration funding from Sanofi and Bayer, deferred-revenue recognition, and the timing of any need for additional financing.
- The economic effect of the Genentech license, remaining litigation, potential damages, and royalty obligations on EYLEA margins.
- Manufacturing capacity, supply-chain reliability, and the company’s ability to support simultaneous commercial and clinical demand.
- Progress, safety, and partner commitment across the antibody pipeline, including the status of REGN475, REGN846, and REGN1154.