Regeneron Pharmaceuticals, Inc. — Q1 2011 Form 10-Q Summary
Reporting period: Three months ended March 31, 2011. The interim financial statements are unaudited. Regeneron is a biopharmaceutical company with one marketed product, ARCALYST for CAPS, and 11 product candidates in clinical development, including VEGF Trap-Eye, ZALTRAP, and ARCALYST in late-stage programs.
Financial Results and Liquidity
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Total revenue | $112.2 million | $103.5 million | 8.4% increase |
| Collaboration revenue | $97.8 million | $81.8 million | 19.6% increase |
| Net product sales | $4.4 million | $9.9 million | 55.1% decrease |
| Operating expenses | $153.2 million | $132.4 million | 15.7% increase |
| Loss from operations | $(41.0) million | $(28.9) million | Loss increased |
| Net loss | $(43.4) million | $(30.5) million | Loss increased |
| Basic and diluted loss per share | $(0.49) | $(0.38) | Worsened |
| Net cash used in operations | $(10.6) million | $(9.6) million | Higher use |
Revenue growth was driven primarily by higher sanofi-aventis reimbursement and collaboration revenue. The company remained unprofitable, with an approximate operating margin of negative 36.5% and net margin of negative 38.7%, compared with negative 27.9% and negative 29.5%, respectively, in Q1 2010.
- Sanofi-aventis collaboration revenue increased to $85.3 million from $68.7 million, including $73.2 million of antibody-related expense reimbursement.
- Bayer HealthCare collaboration revenue was $12.5 million, compared with $13.1 million.
- Research and development expense increased to $129.4 million from $117.5 million, principally due to higher payroll, manufacturing, occupancy, and collaboration-related costs.
- Selling, general, and administrative expense increased to $23.4 million from $14.2 million, including higher compensation, market research, legal expense, and non-cash compensation.
- Non-cash compensation expense increased to $14.8 million from $8.8 million.
- Interest expense increased to $3.7 million from $2.1 million, primarily because the company began occupying an additional Tarrytown facility in February 2011.
Balance Sheet and Cash Resources
- Cash, cash equivalents, and marketable securities totaled $607.6 million at March 31, 2011, including $7.5 million of restricted amounts, versus $626.9 million at December 31, 2010.
- Cash and cash equivalents were $135.4 million; marketable securities were $464.7 million unrestricted and $7.0 million restricted at fair value.
- Total assets were $1.074 billion and total liabilities were $556.2 million.
- Facility lease obligations totaled approximately $160.2 million, including $0.8 million current and $159.4 million long term. The filing does not identify conventional funded debt as a material balance-sheet item.
- Stockholders’ equity declined to $518.1 million from $527.8 million, primarily reflecting the quarterly net loss, partly offset by stock issuance and stock-based compensation.
- Management stated that existing capital resources and anticipated collaboration funding were expected to support operating needs through at least 2013, subject to changes in spending, revenue, approvals, and collaboration status.
Cash Flow and Capital Spending
- Operating cash use was $10.6 million.
- Investing activities provided $20.3 million, primarily because sales and maturities of marketable securities exceeded purchases by $42.5 million.
- Capital expenditures were $22.2 million. The company expected additional capital expenditures of approximately $50 million to $65 million during the remainder of 2011.
- Financing activities provided $13.0 million, including $13.3 million of net proceeds from common-stock issuance related primarily to employee stock-option exercises.
- Management estimated that approximately 30% to 40% of 2011 funding requirements would support research and development, 15% to 25% commercialization preparation, 20% to 30% capital expenditures, and the remainder general corporate purposes.
Material Changes Versus Q1 2010
- Total revenue increased 8.4%, but operating expenses increased 15.7%, resulting in a larger operating and net loss.
- ARCALYST net product sales fell to $4.4 million from $9.9 million. Q1 2010 included $4.8 million of previously deferred sales recognized after the company obtained sufficient historical data to estimate returns and rebates; current-quarter sales were $4.4 million of sales generated during the period.
- R&D headcount and average total headcount increased substantially, with average headcount rising to 1,432 from 1,087.
- R&D expenses for VEGF Trap-Eye increased to $39.6 million from $33.6 million, while ARCALYST development costs declined to $8.9 million from $20.1 million.
- Marketable securities declined from $513.9 million at December 31, 2010 to $471.7 million at March 31, 2011 as the company used maturities and sales to fund operations and investments.
- The company recognized no other-than-temporary marketable-security impairment in Q1 2011, compared with a $0.1 million impairment charge in Q1 2010.
Guidance, Outlook, Commentary, and Risks
- The FDA accepted the VEGF Trap-Eye wet-AMD BLA for filing and granted Priority Review after quarter-end; the stated target action date was August 20, 2011.
- Regeneron planned to submit a supplemental BLA for ARCALYST to prevent gout flares in mid-2011, a VEGF Trap-Eye BLA for CRVO in the second half of 2011, and, with sanofi-aventis, regulatory applications for ZALTRAP in second-line metastatic colorectal cancer in the second half of 2011.
- VEGF Trap-Eye achieved positive Phase 3 results in wet AMD and CRVO. ZALTRAP met the primary endpoint for overall survival in the VELOUR metastatic colorectal cancer trial, while the VITAL non-small-cell lung cancer trial did not meet its overall-survival endpoint.
- REGN475 remained on FDA clinical hold following reports of avascular necrosis and joint replacements associated with another company’s anti-NGF program.
- Management expected substantial operating losses to continue for at least the next several years because of ongoing R&D, commercialization preparation, manufacturing expansion, and potential product launches.
- Key risks include failure or delay of regulatory approvals, unfavorable clinical results, competition from Lucentis, Avastin and other therapies, manufacturing and supply limitations, reliance on sanofi-aventis and Bayer HealthCare, reimbursement and pricing pressure, and the need for additional financing if projected resources are insufficient.
- Regeneron and Genentech were engaged in patent litigation concerning VEGF Trap. Genentech asserted counterclaims seeking damages, including for alleged willful infringement. The company stated that the matter was at an early stage and that it could not estimate the probability or amount of any loss.
- The company reported effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Outcome and timing of the FDA review of the VEGF Trap-Eye wet-AMD BLA, including any requests for additional data or a complete response letter.
- Progress and regulatory submissions for VEGF Trap-Eye CRVO, ARCALYST gout prevention, and ZALTRAP metastatic colorectal cancer.
- Sustainability and contractual terms of sanofi-aventis and Bayer HealthCare reimbursement and collaboration funding.
- Cash-burn rate, planned commercialization spending, $50 million to $65 million of expected remaining-2011 capital expenditures, and the stated liquidity runway through at least 2013.
- Development of the Genentech patent litigation and any effect on the manufacture, development, or commercialization of VEGF Trap products.
- Clinical-hold status and safety developments for REGN475, as well as safety and efficacy results from continuing late-stage trials.
- ARCALYST demand and the comparability of future product-sales trends after removing the unusual $4.8 million deferred-revenue recognition recorded in Q1 2010.