Regeneron Pharmaceuticals, Inc. — Q3 2022 Form 10-Q Summary
Business context and reporting period
Regeneron is an integrated biotechnology company that discovers, develops, manufactures, and commercializes medicines. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
The primary commercial drivers were EYLEA, the Sanofi collaboration products Dupixent and Kevzara, and Libtayo. REGEN-COV sales declined sharply after the Company completed final U.S. government deliveries in 2021. Effective July 1, 2022, Regeneron obtained exclusive worldwide rights to Libtayo.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Change |
|---|---|---|---|
| Revenue | $2,936.2 million | $3,452.8 million | Down 15.0% |
| Income from operations | $1,223.7 million | $1,847.2 million | Down 33.8% |
| Net income | $1,315.7 million | $1,632.2 million | Down 19.4% |
| Diluted EPS | $11.66 | $14.33 | Down 18.6% |
| Operating margin | 41.7% | 53.5% | Down 11.8 points |
| Net margin | 44.8% | 47.3% | Down 2.5 points |
| Metric | Nine months 2022 | Nine months 2021 | Change |
|---|---|---|---|
| Revenue | $8,758.5 million | $11,120.0 million | Down 21.2% |
| Income from operations | $3,592.1 million | $6,307.1 million | Down 43.0% |
| Net income | $3,141.3 million | $5,846.3 million | Down 46.3% |
| Diluted EPS | $27.73 | $52.29 | Down 47.0% |
| Operating margin | 41.0% | 56.7% | Down 15.7 points |
| Net margin | 35.9% | 52.6% | Down 16.7 points |
- Product sales: Q3 net product sales were $1,801.4 million, down from $2,279.9 million. EYLEA U.S. sales increased 10.6% to $1,629.4 million, while REGEN-COV U.S. sales fell from $676.7 million to zero. Libtayo U.S. sales increased to $94.7 million, and Regeneron began recording $31.0 million of Libtayo rest-of-world sales.
- Collaboration revenue: Q3 collaboration revenue was $1,050.6 million, broadly comparable with $1,073.9 million in 2021. Sanofi revenue increased to $711.4 million, while Bayer revenue declined to $332.8 million and Roche revenue declined to $6.4 million.
- Expenses: Q3 research and development expense increased 37.0% to $911.3 million, and selling, general, and administrative expense increased 18.9% to $529.1 million. Q3 cost of goods sold declined 40.8% to $141.3 million.
- Other income: Q3 other income, net, was $301.4 million, primarily reflecting $254.3 million of net unrealized gains on equity securities. The prior-year period included a $29.1 million net unrealized loss.
- Cash flow: Net cash provided by operating activities for the first nine months was $3,295.0 million, down from $4,708.8 million. Investing cash outflows were $1,926.9 million, including $926.8 million for Libtayo rights, $230.3 million for the Checkmate acquisition, and $437.9 million of capital expenditures.
- Liquidity: Cash and cash equivalents were $3,491.3 million, and marketable securities totaled $9,499.0 million at September 30, 2022. The Company also had $750.0 million available under its revolving credit facility.
- Debt and leases: Long-term debt was $1,981.1 million, and finance lease liabilities were $720.0 million. Total indebtedness under senior notes and the lease financing facility was approximately $2.701 billion.
- Capital allocation: Regeneron repurchased 2.7 million shares for $1,658.6 million during the first nine months. $1.186 billion remained available under the November 2021 $3.0 billion repurchase authorization.
Material changes versus the prior comparable period
- Revenue and earnings declined primarily because REGEN-COV sales and related Roche collaboration revenue largely disappeared after final U.S. government deliveries were completed in 2021.
- EYLEA U.S. sales grew due to higher volume, partially offset by higher sales deductions. Dupixent and Kevzara collaboration product sales reported by Sanofi increased to $2,418.2 million in Q3 from $1,760.7 million, with Regeneron’s reported share of collaboration profits increasing to $551.1 million from $387.0 million.
- Beginning July 1, 2022, Regeneron became solely responsible for Libtayo worldwide, paid Sanofi a $900.0 million upfront amount, began recording ex-U.S. Libtayo sales, and became obligated to pay an 11% royalty on Libtayo net sales through March 2034.
- The Sanofi antibody agreement was amended to increase the portion of Regeneron’s collaboration profits used to reimburse Sanofi development costs from 10% to 20%. A $56.9 million one-time payment related to the amendment reduced Q3 collaboration revenue.
- Research and development expense increased due to higher personnel, clinical manufacturing, and other development costs, reduced collaborator reimbursements, and the loss of Sanofi reimbursement for half of certain Libtayo development costs.
- The Company completed the Checkmate acquisition in May 2022. The transaction resulted in a $195.0 million acquired in-process research and development charge and a $250.0 million approximate total equity value.
- Regeneron discontinued further clinical development of fasinumab and recorded $44.4 million of other operating income related to the completion of development obligations under the Teva and MTPC arrangements.
Guidance, outlook, commentary, and risks
- Management expected 2022 capital expenditures of approximately $580 million to $615 million, primarily for manufacturing expansions in Rensselaer, New York and Limerick, Ireland, including fill-finish capacity, and expansion of the Tarrytown campus.
- The filing states that existing capital resources, borrowing availability, anticipated EYLEA sales, and collaboration funding are expected to meet anticipated operating needs for the foreseeable future, but no specific revenue or earnings guidance is provided.
- Key near-term development milestones included planned submission of aflibercept 8 mg applications for wet AMD and diabetic macular edema, regulatory decisions for EYLEA and Libtayo supplemental applications, and planned submissions for odronextamab and pozelimab.
- REGEN-COV was not authorized in any U.S. jurisdiction because dominant Omicron-lineage variants were not susceptible to the treatment. FDA review of the related BLA remained ongoing.
- Material risks include dependence on EYLEA and Dupixent, EYLEA biosimilar and other competitive threats, reimbursement and drug-pricing changes including the Inflation Reduction Act, clinical and regulatory uncertainty, manufacturing and supply-chain constraints, foreign-exchange exposure, and reliance on Sanofi and Bayer.
- Legal and regulatory matters include patent proceedings involving EYLEA, Praluent, and REGEN-COV; Department of Justice investigations and litigation concerning patient assistance, marketing, discounts, and price reporting; and related actions by payors and shareholders. Accrued legal loss contingencies were not material as of September 30, 2022, but outcomes remain uncertain.
Investor verification checklist
- Verify the sustainability of EYLEA U.S. volume growth and the timing and commercial impact of EYLEA biosimilar competition after the disclosed exclusivity period.
- Assess whether Dupixent growth and Sanofi collaboration profits can offset the loss of REGEN-COV revenue and the increased development-cost reimbursement percentage.
- Review the economics, royalties, milestones, transition arrangements, and future costs associated with Regeneron’s newly acquired worldwide Libtayo rights.
- Monitor aflibercept 8 mg, Libtayo, odronextamab, pozelimab, and other pipeline regulatory milestones and clinical readouts.
- Evaluate cash generation after the Libtayo payment, Checkmate acquisition, manufacturing capital expenditures, and share repurchases.
- Review the potential financial and operational impact of pending patent litigation, government investigations, payor lawsuits, and related compliance matters.
- Consider marketable-securities volatility, foreign-exchange movements, tax-law changes, and the Company’s approximately $2.701 billion of debt and lease financing.