Regeneron Pharmaceuticals, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results for the quarter ended December 31, 2019. Regeneron is a fully integrated biotechnology company with seven approved marketed products and 22 clinical-stage product candidates, operating as one business segment.
Financial performance and liquidity
| Metric | 2019 | 2018 | Change |
|---|
| Revenue | $7,863.4 million | $6,710.8 million | +17.2% |
| Net product sales | $4,834.4 million | $4,106.2 million | +17.7% |
| Income from operations | $2,209.8 million | $2,534.4 million | -12.8% |
| Net income | $2,115.8 million | $2,444.4 million | -13.4% |
| Diluted EPS | $18.46 | $21.29 | -13.3% |
| Cash flow from operations | $2,430.0 million | $2,195.1 million | +10.7% |
- Revenue mix: U.S. net product sales were $4,834.4 million, including EYLEA of $4,644.2 million and Libtayo of $175.7 million. Sanofi collaboration revenue was $1,426.8 million and Bayer collaboration revenue was $1,188.8 million.
- Key products: EYLEA global net product sales reported by Regeneron and Bayer totaled $7,541.6 million, up from $6,745.6 million. Sanofi-recorded Dupixent sales increased to $2,315.6 million from $922.0 million.
- Margins: Operating margin was approximately 28.1%, versus 37.8% in 2018. Net margin was approximately 26.9%, versus 36.4% in 2018. Cash-flow-from-operations margin was approximately 30.9%.
- Cash and investments: Cash, cash equivalents, and marketable securities totaled $6,471.1 million at year-end, including $1,617.8 million of cash and cash equivalents and $4,853.3 million of marketable securities at fair value.
- Debt and liquidity: Finance lease liabilities were $713.9 million, primarily related to the Tarrytown facility lease. No borrowings were outstanding under the $750.0 million senior unsecured revolving credit facility, and the company was in compliance with its covenants.
- Balance sheet: Working capital was $5,592.5 million and stockholders’ equity was $11,089.7 million.
- Capital allocation: Operating cash flow was offset by $2,027.8 million of investing outflows and $252.1 million of financing outflows. The company repurchased 722,596 shares for $254.0 million under a $1.0 billion authorization.
Fourth-quarter 2019 results
| Metric | Q4 2019 | Q4 2018 |
|---|
| Revenue | $2,169.5 million | $1,927.8 million |
| Net income | $792.0 million | $820.4 million |
| Diluted EPS | $6.93 | $7.15 |
| Operating expenses | $1,493.8 million | $1,209.7 million |
Material changes versus the prior comparable period
- Revenue increased $1,152.6 million, led by higher U.S. EYLEA volume, the continued launch of Libtayo, higher Bayer EYLEA collaboration revenue, and substantially higher Dupixent-related collaboration profits.
- Research and development expense increased $850.5 million to $3,036.6 million. The increase included a $400.0 million upfront payment to Alnylam and higher investment in clinical programs, personnel, facilities, and manufacturing.
- Selling, general, and administrative expense increased $278.6 million to $1,834.8 million, driven by headcount, commercialization activities, patient assistance contributions, litigation-related accruals, and a $35.2 million fourth-quarter employee-separation charge.
- Cost of goods sold increased to $362.3 million, including $73.8 million of inventory write-downs and reserves compared with $12.5 million in 2018. Cost of collaboration and contract manufacturing increased to $419.9 million, primarily due to higher Dupixent supply volumes.
- Other income, net, increased materially, including $118.3 million of net unrealized gains on equity securities and higher interest income. This partially offset lower operating income.
- The effective tax rate increased to 12.9% from 4.3%. The 2018 rate benefited from a $162.1 million tax benefit related to an intercompany asset sale; 2017 included a $326.2 million charge related to U.S. tax reform.
- Operating cash flow increased despite lower net income, supported in part by higher deferred revenue and non-cash expenses. Investing outflows increased due to marketable-security purchases, a $400.0 million Alnylam equity investment, and $429.6 million of capital expenditures.
Guidance, outlook, commentary, risks, and unusual items
- Management stated that existing capital resources, borrowing availability, anticipated EYLEA and Dupixent sales, and collaboration funding should support anticipated operating needs for the foreseeable future.
- 2020 capital expenditures were expected to be $520 million to $620 million, primarily for manufacturing expansion, the Rensselaer fill/finish facility, equipment, and Tarrytown laboratory expansion and renovations.
- Management expects continued substantial research and development and commercialization spending. Future profitability depends significantly on continued commercialization success for EYLEA and Dupixent.
- In December 2019, Regeneron and Sanofi announced a proposed restructuring for Kevzara and Praluent, expected to close in the first quarter of 2020. Sanofi was expected to obtain sole global rights to Kevzara and sole rights to Praluent outside the United States, while Regeneron would obtain sole U.S. rights to Praluent under a royalty-based structure. The arrangement would not affect Dupixent or REGN3500.
- At year-end, contingent reimbursement obligations were approximately $2.990 billion to Sanofi under the antibody collaboration, $75 million under the immuno-oncology collaboration, and $270 million to Bayer under the EYLEA collaboration. These obligations are generally reimbursed from future collaboration profits.
- The company remains highly dependent on EYLEA; U.S. EYLEA sales represented 59% of total 2019 revenue. Key risks include competition, potential biosimilar EYLEA products, pricing and reimbursement pressure, regulatory changes, manufacturing capacity, and reliance on Bayer and Sanofi.
- Material litigation and contingencies include patent disputes concerning Praluent, Dupixent, and antibody-generation technology. Praluent commercialization had been discontinued in Germany following an injunction, while related appeals and proceedings remained pending elsewhere. Legal-contingency accruals were $100.0 million at December 31, 2019.
- The company was cooperating with Department of Justice investigations concerning patient-assistance support and alleged remuneration to physicians under the federal Anti-Kickback Statute. The ultimate outcome and financial impact were not clear from the filing.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2019. PricewaterhouseCoopers LLP issued unqualified audit opinions.
Investor verification priorities
- Verify the sustainability of EYLEA sales, including volume, pricing, rebates, competitive pressure, and potential biosimilar timing.
- Track Dupixent growth, collaboration profit-sharing economics, and the planned expansion of Regeneron’s international co-commercialization activities.
- Confirm completion and final terms of the Sanofi Kevzara/Praluent restructuring.
- Review the $3.345 billion of contingent Sanofi and Bayer reimbursement obligations and their expected effect on future collaboration cash flows.
- Assess the effect of the $400.0 million Alnylam upfront payment, elevated research spending, and planned $520 million to $620 million of 2020 capital expenditures.
- Monitor Praluent and Dupixent patent proceedings, the Kymab antibody-technology appeal, and the Department of Justice investigations.
- Evaluate customer concentration: two distributors accounted for approximately 90% of gross product revenue, and three customers accounted for 97% of net trade receivables.
