Regeneron Pharmaceuticals, Inc. — Q1 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 months ended March 31, 2022, compared with the three months ended March 31, 2021. Key commercial products include EYLEA, Dupixent, Libtayo, Praluent, Evkeeza, Kevzara, and REGEN-COV.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $2,965.1 million | $2,528.7 million | 17.3% increase |
| Income from operations | $1,258.5 million | $1,112.7 million | 13.1% increase |
| Operating margin | 42.4% | 44.0% | Decreased |
| Net income | $973.5 million | $1,115.2 million | 12.7% decrease |
| Diluted EPS | $8.61 | $10.09 | 14.7% decrease |
| Net margin | 32.8% | 44.1% | Decreased |
| Net cash from operations | $2,101.7 million | $668.5 million | $1,433.2 million increase |
| Capital expenditures | $141.8 million | $115.3 million | Increase |
Revenue growth was driven primarily by higher collaboration revenue, including Sanofi ($630.9 million), Bayer ($385.3 million), and Roche ($216.3 million), as well as higher U.S. EYLEA sales. Net product sales recorded by Regeneron declined to $1,638.6 million from $1,724.3 million, largely because Q1 2021 included $262.2 million of U.S. REGEN-COV sales and Q1 2022 did not.
U.S. EYLEA sales increased 12.7% to $1,517.6 million, driven by higher volume. Collaboration-related product economics also benefited from higher Dupixent and Kevzara sales reported by Sanofi, with combined sales of $1,916.8 million and Regeneron's share of collaboration profits of $415.3 million. Regeneron earned a $50.0 million Sanofi sales milestone. Bayer collaboration revenue included a $21.9 million one-time payment related to the change in the Japan arrangement.
Operating expenses increased 20.5% to $1,706.6 million. Research and development expense rose to $843.8 million, selling, general, and administrative expense increased to $450.0 million, and collaboration and contract manufacturing costs increased to $197.6 million. Acquired in-process research and development expense was $28.1 million, including a $20.0 million opt-in payment to Adicet Bio.
Net income declined despite higher operating income because other income and expense changed from $140.3 million of income to $197.4 million of expense. The change primarily reflected $211.2 million of net unrealized losses on equity securities in Q1 2022 versus $143.9 million of net unrealized gains in Q1 2021. The effective tax rate decreased to 8.3% from 11.0%.
Cash, cash equivalents, and restricted cash totaled $3,359.2 million at March 31, 2022. Cash and marketable securities totaled approximately $14.1 billion, while long-term debt was $1,980.4 million and finance lease liabilities were $720.0 million. The company also had $750.0 million of revolving credit availability. Operating cash flow benefited significantly from a $1.198 billion reduction in accounts receivable, principally from collections related to 2021 REGEN-COV sales.
Material changes versus the prior comparable period
- Total revenue increased $436.4 million, with collaboration revenue increasing $478.1 million.
- REGEN-COV U.S. sales fell to zero because final U.S. government deliveries were completed by December 31, 2021; Q1 2021 included $262.2 million of U.S. sales.
- REGEN-COV-related research and development expense declined by $206.1 million, but cost of goods sold included $58.0 million of REGEN-COV-related costs, including inventory write-offs and reserves.
- Dupixent total sales reported by Sanofi increased 43% to $1,810.4 million, while EYLEA total sales increased 11% to $2,386.1 million.
- Cash flow from operations increased substantially due primarily to collections of REGEN-COV-related receivables and favorable working-capital movements.
- Regeneron repurchased 566,973 shares for $352.0 million during the quarter. Approximately $2.493 billion remained available under the November 2021 $3.0 billion authorization.
- The company extended its $720.0 million Tarrytown finance lease and related financing maturity to March 2027 and changed the variable-rate mechanism to a SOFR-based rate.
Guidance, outlook, commentary, risks, and unusual items
Management expects 2022 capital expenditures of approximately $630 million to $700 million, primarily for manufacturing expansion in Rensselaer, New York, and Limerick, Ireland, a fill/finish facility, and expansion of the Tarrytown campus. The filing does not provide clear numerical revenue or earnings guidance.
Management expects continued substantial research, development, commercialization, and manufacturing expenditures. Profitability and operating cash flow are expected to depend significantly on the continued commercial success of EYLEA and Dupixent. The company stated that existing capital resources, operating cash flow, collaboration funding, and available borrowing capacity are expected to meet anticipated operating needs for the foreseeable future.
REGEN-COV was not authorized for use in any U.S. state or jurisdiction as of the filing because Omicron-lineage variants were dominant and the product was considered unlikely to be active against them. The FDA extended by three months, to July 13, 2022, its review of the REGEN-COV biologics license application. Future REGEN-COV revenue remained highly uncertain.
Regeneron announced an agreement to acquire Checkmate Pharmaceuticals for approximately $250 million, with closing expected in mid-2022 subject to tender-offer and regulatory conditions. The transaction was entered into after the balance-sheet date.
Significant risks include dependence on EYLEA and Dupixent, pricing and reimbursement pressure, competition and potential biosimilar competition for EYLEA, reliance on Sanofi and Bayer, manufacturing and supply-chain constraints, clinical and regulatory uncertainty, intellectual-property litigation, and government investigations concerning patient assistance, promotional practices, and EYLEA-related pricing and rebates.
Material legal and regulatory matters include patent proceedings involving EYLEA, EYLEA pre-filled syringes, Praluent, REGEN-COV, and other products; Department of Justice and False Claims Act matters; related qui tam and insurer litigation; and shareholder derivative and demand proceedings. Accrued loss contingencies were not material as of March 31, 2022, but adverse outcomes could materially affect financial condition, results, or cash flows.
Important facts for investors to verify
- Whether EYLEA U.S. volume and pricing remain resilient as biosimilar and competing anti-VEGF products advance.
- The durability of Dupixent growth and Regeneron's share of Sanofi collaboration profits.
- The timing and outcome of FDA review of REGEN-COV and the extent of any future COVID-19 product demand.
- Execution of the $630 million to $700 million 2022 capital expenditure plan and the resulting manufacturing capacity.
- The cash impact and closing status of the proposed Checkmate acquisition.
- Potential financial and operational effects of ongoing government investigations, False Claims Act matters, insurer claims, and intellectual-property proceedings.
- Exposure to market-value volatility in equity securities, which generated a $211.2 million unrealized loss in Q1 2022.
- Customer concentration: two customers accounted for 85% of gross product revenue in Q1 2022, and Besse Medical alone accounted for 55%.