REGENERON PHARMACEUTICALS, INC. quarterly report, Q3 FY2021

Regeneron Pharmaceuticals, Inc. — 2021 Q3 Form 10-Q Summary

Reporting period: Three and nine months ended September 30, 2021, compared with the corresponding 2020 periods. Regeneron is an integrated biotechnology company focused on discovering, developing, manufacturing, and commercializing medicines. Results are unaudited interim results and may not indicate full-year performance.

Financial Performance and Position

Metric	Q3 2021	Q3 2020	9M 2021	9M 2020
Revenue	$3,452.8 million	$2,294.0 million	$11,120.0 million	$6,074.2 million
Net income	$1,632.2 million	$842.1 million	$5,846.3 million	$2,364.0 million
Diluted EPS	$14.33	$7.39	$52.29	$20.36
Income from operations	$1,847.2 million	$1,053.1 million	$6,307.1 million	$2,409.6 million
Operating margin	53.5%	45.9%	56.7%	39.7%
Net margin	47.3%	36.7%	52.6%	38.9%

Q3 revenue increased approximately 50.5% year over year, while nine-month revenue increased approximately 83.0%. Q3 net income increased approximately 93.8%, and nine-month net income increased approximately 147.3%.

Revenue Drivers

Net product sales: $2,279.9 million in Q3 and $8,142.0 million for nine months, versus $1,482.2 million and $3,945.8 million, respectively, in 2020.
REGEN-COV: Q3 sales were $1,195.5 million, including $676.7 million in the United States; nine-month sales were $4,703.3 million. These sales were primarily tied to U.S. government supply agreements.
EYLEA: Total reported product sales were $2,404.2 million in Q3 and $6,904.0 million for nine months, up 15% and 21%, respectively. U.S. EYLEA sales were $1,473.4 million in Q3 and $4,245.1 million for nine months.
Dupixent: Global sales recorded by Sanofi were $1,662.9 million in Q3 and $4,424.8 million for nine months, up 55% and 54%, respectively. Regeneron's share of Sanofi collaboration profits contributed materially to results.
Collaboration revenue: $1,073.9 million in Q3 and $2,783.0 million for nine months. Q3 included $581.8 million from Sanofi, $365.0 million from Bayer, and $127.1 million from Roche.

Expenses and Other Items

Q3 operating expenses increased to $1,605.6 million from $1,240.9 million; nine-month expenses increased to $4,812.9 million from $3,664.6 million.
Q3 selling, general, and administrative expense rose $118.1 million, primarily from higher headcount and commercialization costs, including EYLEA advertising.
Q3 cost of goods sold increased $107.8 million, primarily due to REGEN-COV manufacturing costs. Inventory write-offs and reserves were $38.7 million in Q3 and $188.0 million for nine months, primarily related to REGEN-COV for the nine-month period.
Q3 included a $66.9 million cumulative catch-up reduction to other operating income related to an updated estimate of research and development costs under the Sanofi immuno-oncology collaboration.
Other income for the nine-month period benefited substantially from $523.8 million of net unrealized gains on equity securities. Q3 recorded $29.1 million of net unrealized losses on equity securities.
Effective tax rates were 10.2% in Q3 2021 and 14.3% for the first nine months of 2021, compared with 15.6% and 8.6% in the comparable 2020 periods.

Cash Flow, Liquidity, Debt, and Capital Allocation

Net cash provided by operating activities was $4,708.8 million for the first nine months of 2021, compared with $1,387.1 million in 2020.
Investing activities used $3,372.0 million, reflecting increased purchases of marketable securities and $397.0 million of capital expenditures.
Financing activities used $99.2 million, including $778.5 million of share repurchases and $450.3 million of employee tax-withholding payments, partly offset by $1,129.6 million of proceeds from common-stock issuances.
Cash, cash equivalents, and restricted cash increased to $3,444.9 million at September 30, 2021, from $2,207.3 million at December 31, 2020.
Cash and cash equivalents were $3,432.4 million. Current and noncurrent marketable securities totaled $7,986.5 million, including $1,371.6 million of equity securities. Total financial assets were $11,418.9 million.
Working capital was $10,060.6 million, compared with $7,081.7 million at year-end 2020. The company also had $750.0 million available under a revolving credit facility.
Long-term debt was $1,979.6 million, consisting primarily of 1.750% senior notes due 2030 and 2.800% senior notes due 2050. The filing also identifies $719.0 million of current finance lease liabilities; management’s risk discussion refers to aggregate indebtedness of approximately $2.699 billion including lease financing.
Regeneron repurchased $802.7 million of common stock during the first nine months and had $697.3 million remaining under its $1.5 billion January 2021 authorization at September 30, 2021.

Material Changes Versus the Prior Comparable Period

Results benefited from the launch and government procurement of REGEN-COV, which contributed $4,663.1 million of incremental nine-month net product sales versus 2020.
Dupixent growth materially increased Regeneron’s share of Sanofi collaboration profits, while EYLEA sales also increased on higher volume.
Roche collaboration revenue increased by $361.8 million for the first nine months, reflecting global gross-profit true-up payments for REGEN-COV.
Operating leverage improved despite higher SG&A, manufacturing, and commercialization costs; nine-month operating margin expanded from 39.7% to 56.7%.
Marketable securities increased by approximately $3.5 billion from year-end 2020, while equity securities generated substantial unrealized gains for the nine-month period.
Regeneron’s U.S. product-sales mix changed following the 2020 restructuring of the Praluent collaboration with Sanofi and the April 2021 transfer of U.S. ARCALYST sales recognition to Kiniksa.

Guidance, Outlook, Commentary, and Risks

Management expected 2021 capital expenditures of approximately $545 million to $575 million, primarily for manufacturing expansion in Rensselaer, New York, and Limerick, Ireland, including a fill/finish facility and expanded research and support facilities.
The September 2021 amendment to the U.S. government supply agreement provided for up to 1.4 million additional REGEN-COV doses, with potential aggregate payments of up to $2.940 billion for doses delivered by January 31, 2022. Actual revenue depends on manufacturing, delivery, authorization, and other factors.
Management stated that future profitability and operating cash flow depend significantly on continued EYLEA and Dupixent success. REGEN-COV revenue is expected to remain highly uncertain because of vaccination, variants, competing treatments, regulatory status, demand, and supply constraints.
Key development milestones included planned regulatory submissions for additional EYLEA, Dupixent, Libtayo, pozelimab, and REGEN-COV indications, but the filing cautions that timelines may change.
REGEN-COV hospitalized-patient data supported a request to expand the FDA authorization, but the filing disclosed Good Clinical Practice deviations identified in the RECOVERY trial. The sponsor reported that the issues did not make the data unreliable, although certain data-quality aspects could not be fully assured.
Material risks include dependence on EYLEA and Dupixent, potential EYLEA biosimilar competition and loss of exclusivity, manufacturing and fill/finish capacity, reliance on Sanofi, Bayer, Roche, and other third parties, reimbursement and drug-pricing pressure, clinical and regulatory uncertainty, COVID-19 effects, and product and intellectual-property litigation.
The company disclosed federal and private-party proceedings involving alleged healthcare-marketing, Anti-Kickback Statute, False Claims Act, reimbursement, and related conduct. Accrued legal contingencies were not material at September 30, 2021, but adverse outcomes could materially affect financial condition, results, or cash flows.
Pending intellectual-property matters include proceedings involving EYLEA, EYLEA pre-filled syringes, REGEN-COV, fasinumab, and other products or candidates. The filing does not provide a clear quantified maximum exposure for these matters.

Investor Verification Points

Verify the sustainability and timing of REGEN-COV sales, including deliveries under the amended U.S. government agreement and the effect of changing variants, authorizations, and demand.
Assess EYLEA volume, pricing deductions, competitive pressure, biosimilar timing, and the November 2023 U.S. regulatory exclusivity expiration, subject to possible pediatric extension.
Monitor Dupixent growth, Sanofi profit-sharing calculations, reimbursement obligations, and the continuing dependence on Sanofi and Bayer collaborations.
Reconcile operating cash flow with large increases in accounts receivable and inventories, including REGEN-COV inventory reserves and write-offs.
Review the valuation and volatility of the $1.372 billion equity-security portfolio and its effect on reported other income.
Track the $545 million to $575 million 2021 capital-expenditure outlook, manufacturing expansion, and fill/finish capacity execution.
Evaluate potential exposure from Department of Justice investigations, qui tam and shareholder litigation, and patent proceedings; the filing states existing accruals were not material but does not quantify possible future losses.
Confirm the company’s aggregate debt and lease obligations, including the $720.0 million lease financing facility referenced as due in March 2022 unless extended.