REGENERON PHARMACEUTICALS, INC. quarterly report, Q2 FY2023

Regeneron Pharmaceuticals, Inc. — Q2 2023 Form 10-Q Summary

Business context and reporting period

Regeneron is an integrated biotechnology company that discovers, develops, manufactures, and commercializes medicines for serious diseases, including ophthalmic, inflammatory, oncology, cardiovascular, infectious, and rare diseases. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.

Financial performance and position

Metric	Three months ended June 30, 2023	Three months ended June 30, 2022	Six months ended June 30, 2023	Six months ended June 30, 2022
Revenue	$3,158.1 million	$2,857.2 million	$6,320.2 million	$5,822.3 million
Net income	$968.4 million	$852.1 million	$1,786.2 million	$1,825.6 million
Diluted EPS	$8.50	$7.47	$15.68	$16.07
Income from operations	$1,016.5 million	$1,109.9 million	$1,963.2 million	$2,368.4 million
Operating margin	32.2%	38.8%	31.1%	40.7%
Net margin	30.7%	29.8%	28.3%	31.4%

Second-quarter revenue increased 10.5%, while six-month revenue increased 8.6%.
Second-quarter net income increased 13.6%, primarily benefiting from higher revenue and substantially improved other income versus the prior-year investment losses. Six-month net income declined 2.2%.
Net product sales were $1,772.1 million in the quarter and $3,440.1 million year to date. Q2 EYLEA U.S. sales declined 7.5% to $1,500.1 million, primarily due to lower net selling prices and increased competition.
Collaboration revenue rose to $1,316.7 million in Q2 from $1,043.6 million, driven mainly by higher Sanofi collaboration revenue. Sanofi collaboration revenue was $943.7 million, including $751.1 million of antibody collaboration profit share. Bayer collaboration revenue was $376.7 million.
Dupixent and Kevzara global net product sales recorded by Sanofi increased 32.9% to $2,888.9 million in Q2. Regeneron's reported share of related collaboration profits, after reimbursement of Sanofi development costs, was $751.1 million.
Research and development expense increased 36.6% in Q2 and 33.5% for the six-month period, reflecting expanded development activity, clinical manufacturing, and changes in the Sanofi arrangements. SG&A increased 36.9% in Q2, primarily due to commercialization, Libtayo integration, headcount, and patient-assistance contributions.
Other income, net, was $85.3 million in Q2 versus other expense of $133.6 million in the prior-year quarter. The improvement reflected higher interest income and lower unrealized losses on equity securities.
Net cash provided by operating activities was $2,390.0 million for the six months, compared with $2,666.1 million in 2022. Capital expenditures were $291.2 million.
Investing cash use was $2,622.6 million, including purchases of marketable securities and $121.8 million of contingent consideration payments for the Libtayo intangible asset. Financing cash use was $936.7 million, including $1,399.5 million of share repurchases.
At June 30, 2023, cash and cash equivalents were $1,937.2 million and marketable securities totaled $13,317.7 million. Working capital was $13,818.6 million.
Long-term debt was $1,982.2 million, finance lease liabilities were $720.0 million, and total indebtedness under senior notes and the lease financing facility was approximately $2.702 billion. The company also had $750.0 million available under its revolving credit facility.

Material changes versus the prior comparable period

EYLEA U.S. sales declined, while Dupixent-related collaboration economics, Libtayo sales, Praluent, Evkeeza, and Inmazeb contributed growth. Global Libtayo sales increased 49% in Q2; Regeneron began recording worldwide Libtayo sales after obtaining exclusive rights effective July 1, 2022.
Reported collaboration revenue benefited from higher Sanofi antibody profits but no comparable 2023 Sanofi sales milestone was recognized; Q2 2022 included $28.9 million of other Sanofi collaboration revenue.
Roche collaboration revenue was negative $3.8 million in Q2, compared with positive revenue of $8.2 million in Q2 2022. Six-month Roche revenue remained significant because of a $222.2 million gross-profit payment recognized in the first quarter.
Operating margin contracted substantially as R&D, SG&A, collaboration manufacturing costs, and cost of goods sold increased faster than revenue. The prior-year period also included a $197.0 million Q2 acquired in-process R&D charge related to Checkmate, which was not repeated.
Share repurchases totaled $1,416.7 million during the first six months, compared with $745.5 million in the prior-year period. The January 2023 repurchase authorization had $2,332.0 million remaining at June 30.
Cash and cash equivalents declined by approximately $1,168.7 million from year-end, mainly reflecting securities purchases, share repurchases, capital expenditures, and Libtayo-related payments.

Guidance, outlook, commentary, risks, and unusual items

Management expects 2023 capital expenditures of approximately $760 million to $830 million, primarily for Tarrytown and Rensselaer campus and manufacturing expansion, including a fill/finish facility.
The FDA issued a Complete Response Letter for aflibercept 8 mg solely because of unresolved observations from an inspection at third-party contract manufacturer Catalent. The filing states that no additional clinical data or trials were requested. Regeneron resubmitted the BLA and expected FDA action on aflibercept 8 mg and pozelimab before the end of the third quarter 2023, although timing remained uncertain.
EYLEA U.S. sales represented 46% of total revenue for the first six months of 2023. U.S. regulatory exclusivity for EYLEA expires after May 17, 2024, creating a significant biosimilar-competition risk.
Regeneron reported positive two-year aflibercept 8 mg DME data and positive Dupixent COPD trial results, but development remains subject to regulatory, clinical, manufacturing, and commercial uncertainty. A Dupixent Phase 3 trial in chronic cold-induced urticaria failed to meet required efficacy endpoints, and certain programs were discontinued.
Enrollment in combination cohorts of REGN5678 with full-dose Libtayo was discontinued after an emerging safety profile that included two immune-mediated Grade 5 adverse events, including one in July 2023.
The company is subject to extensive patent litigation involving EYLEA, EYLEA pre-filled syringe, Praluent, and REGEN-COV, as well as government investigations and civil litigation concerning patient assistance, promotional practices, discounts, rebates, and price reporting. Accrued legal loss contingencies were not material, but certain reasonably possible losses were not estimable.
Key business risks include dependence on EYLEA and Dupixent, biosimilar and branded competition, pricing and reimbursement pressure, reliance on Sanofi and Bayer, manufacturing and fill/finish capacity, regulatory approval risk, clinical-trial safety and efficacy, intellectual-property challenges, government healthcare investigations, cybersecurity, privacy, and foreign-exchange exposure.
Management stated that existing capital resources, operating cash flows, collaboration funding, and borrowing availability are expected to satisfy anticipated operating needs for the foreseeable future.

Important facts for investors to verify

Assess the pace and magnitude of EYLEA U.S. erosion from price pressure, competing products, and biosimilar entry after May 17, 2024.
Verify the FDA resolution and approval timing for aflibercept 8 mg and pozelimab following Catalent manufacturing observations.
Monitor Dupixent growth, Sanofi profit-sharing economics, and the increasing reimbursement obligation associated with Sanofi-funded development costs.
Evaluate whether rising R&D, SG&A, manufacturing, and commercialization costs are consistent with the company’s expected pipeline and launch requirements.
Review the outcome and potential financial exposure from EYLEA patent proceedings, Praluent litigation, REGEN-COV litigation, and Department of Justice and payor investigations.
Confirm planned capital expenditures, manufacturing expansion progress, and the company’s ability to maintain adequate supply and fill/finish capacity.
Track share repurchases, liquidity, investment-portfolio volatility, debt maturities, and the remaining $2.332 billion authorization.