Regeneron Pharmaceuticals, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. Regeneron is a fully integrated biotechnology company operating as one reportable segment, focused on discovering, developing, manufacturing, and commercializing medicines. Key products include EYLEA, Dupixent, Libtayo, Praluent, Evkeeza, and Inmazeb.
Financial performance and position
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Revenue | $12.173 billion | $16.072 billion | (24.2%) |
| Net income | $4.338 billion | $8.075 billion | (46.3%) |
| Diluted EPS | $38.22 | $71.97 | (46.9%) |
| Income from operations | $4.739 billion | $8.947 billion | (47.0%) |
| Operating margin | 38.9% | 55.7% | Down 16.8 points |
| Net margin | 35.6% | 50.2% | Down 14.6 points |
| Operating cash flow | $5.015 billion | $7.081 billion | (29.2%) |
| Capital expenditures | $590.1 million | $551.9 million | Up 6.9% |
- Revenue mix: Net product sales were $6.894 billion, down from $12.117 billion, primarily because 2021 included $5.828 billion of U.S. REGEN-COV sales. Collaboration revenue increased to $4.914 billion from $3.673 billion.
- Core products: U.S. EYLEA sales increased 8.2% to $6.265 billion. Regeneron's reported Dupixent-related collaboration economics increased as global Dupixent and Kevzara sales rose; Regeneron's share of antibody collaboration profits was $2.082 billion versus $1.363 billion.
- Libtayo: Regeneron began recording global Libtayo sales after obtaining exclusive worldwide rights effective July 1, 2022. Reported Libtayo sales were $447.5 million, including $73.0 million outside the United States.
- Expenses: Research and development increased 25.6% to $3.593 billion; SG&A increased 15.9% to $2.116 billion. Acquired in-process R&D was $255.1 million, including $195.0 million related to the Checkmate acquisition.
- Unusual inventory charges: Cost of goods sold included $258.7 million of REGEN-COV inventory write-offs and reserves, including $157.4 million in the fourth quarter, compared with $457.1 million in 2021.
- Cash and investments: Cash and cash equivalents were $3.106 billion. Marketable securities totaled $11.228 billion, including $1.210 billion of equity securities. Working capital was $12.743 billion.
- Debt and liquidity: Long-term debt was $1.981 billion and finance lease liabilities were $720.0 million. The company had no borrowings under its $750.0 million revolving credit facility and was in compliance with its debt covenants.
- Share repurchases: Regeneron repurchased approximately 3.3 million shares for $2.100 billion during 2022. $745.2 million remained available under the November 2021 authorization; in January 2023, the board authorized an additional $3.0 billion.
Material changes versus the prior comparable period
- Revenue and earnings declined substantially because REGEN-COV U.S. government sales recorded in 2021 did not recur in 2022. REGEN-COV had no U.S. net product sales in 2022.
- REGEN-COV’s U.S. authorization was revised in January 2022 to exclude regions where Omicron-lineage variants were prevalent. The FDA issued a complete response letter on the REGEN-COV BLA in December 2022.
- Regeneron assumed exclusive worldwide development, commercialization, and manufacturing rights for Libtayo effective July 1, 2022, making a $900.0 million upfront payment and a $100.0 million regulatory milestone payment to Sanofi. The company also pays Sanofi an 11% royalty on Libtayo net sales through March 2034.
- The Sanofi antibody collaboration amendment increased the portion of Regeneron's profit share used to reimburse Sanofi development costs from 10% to 20%. The related contingent reimbursement obligation was approximately $2.864 billion at year-end.
- Regeneron completed its acquisition of Checkmate Pharmaceuticals for approximately $250 million, obtaining vidutolimod and recording $195.0 million of acquired in-process R&D.
- Research and development spending increased as Regeneron assumed more Libtayo costs, shared additional Sanofi collaboration costs, expanded clinical programs, and increased manufacturing investment.
- Regeneron submitted aflibercept 8 mg applications for wet AMD and diabetic macular edema after Phase 3 trials met primary endpoints. FDA action was expected in the third quarter of 2023.
Guidance, outlook, commentary, risks, and contingencies
- Capital spending: Management expected 2023 capital expenditures of approximately $825 million to $950 million, principally for Tarrytown and manufacturing expansion, including the Rensselaer fill/finish facility.
- Funding outlook: Management stated that existing capital resources, expected product sales, collaboration funding, and revolving-credit availability should fund anticipated operating needs for the foreseeable future, while noting that R&D and commercialization spending will continue to increase.
- Commercial concentration: EYLEA and Dupixent remain central to profitability. U.S. EYLEA sales represented 51% of total 2022 revenue, and EYLEA faces biosimilar competition after U.S. regulatory exclusivity expires after May 17, 2024.
- Collaboration exposure: Regeneron relies on Sanofi for important Dupixent and Kevzara activities and on Bayer for EYLEA commercialization outside the United States. Termination or underperformance by either collaborator could materially affect results.
- Pipeline and regulatory uncertainty: Drug development, clinical trial results, manufacturing scale-up, regulatory review, reimbursement, and commercialization remain highly uncertain. The company discontinued further development of fasinumab and certain other programs because of futility or strategic decisions.
- Legal and regulatory matters: The filing describes patent proceedings involving EYLEA, Praluent, and REGEN-COV, as well as Department of Justice investigations and litigation concerning patient assistance, physician payments, EYLEA pricing and discounts, and alleged Anti-Kickback Statute and False Claims Act violations. Accruals for loss contingencies were not material, but some reasonably possible losses were not estimable.
- Tax contingencies: Unrecognized tax benefits totaled $542.8 million at December 31, 2022. The Inflation Reduction Act may affect future taxes, drug pricing, Medicare reimbursement, and stock repurchase costs.
- Market and investment risk: A 100-basis-point unfavorable rate change was estimated to reduce the fair value of the investment portfolio by approximately $102.7 million. The company recognized $39.8 million of net unrealized losses on equity securities in 2022.
Most important facts for investors to verify
- Whether EYLEA sales remain resilient as biosimilar competitors approach the U.S. market and as pricing and Medicare negotiation provisions under the Inflation Reduction Act develop.
- The regulatory outcome and commercial uptake of aflibercept 8 mg, including whether it offsets future EYLEA erosion.
- Growth and profitability of Dupixent and the effect of the increased Sanofi development-cost reimbursement percentage on Regeneron's profit share.
- The commercial and financial impact of Regeneron's assumption of worldwide Libtayo rights, including the 11% Sanofi royalty and other milestone obligations.
- Progress in resolving the EYLEA, Praluent, and REGEN-COV patent proceedings and the potential impact on exclusivity, royalties, damages, or commercialization.
- The status and potential financial exposure of the Department of Justice investigations, patient-assistance litigation, payor lawsuits, and related shareholder proceedings.
- Execution of the planned $825 million to $950 million 2023 capital program and the ability to expand manufacturing and fill/finish capacity on schedule.
- The sustainability of liquidity after share repurchases, Libtayo payments, acquisition spending, continued R&D investment, and required reimbursements to Sanofi and Bayer.