01—Abstract
Summary
Summary of the 10-K filed February 26, 2009. Cited figures are marked; the original filing is the authoritative source.
Regeneron's FY2008 10-K shows a company in transition from a pure clinical-stage biotech to one with its first approved product.
Revenue more than doubled to $238.5 milliona (from $125.0 million), driven mainly by sanofi-aventis antibody collaboration reimbursements ($154.0 million total sanofi-aventis contract R&D revenue), Bayer HealthCare VEGF Trap-Eye revenue ($31.2 million), $40.0 million of VelocImmune technology licensing from AstraZeneca and Astellas, and $6.2 million of first ARCALYST net product sales. Despite this, the net loss narrowed only modestly to $82.7 million ($1.05 per share) from $105.6 million, because R&D spending rose 38% to $278.0 million as the antibody program and VEGF Trap-Eye Phase 3 trials scaled up. Operating cash burn was $89.1 million in 2008, and cash, equivalents and marketable securities fell to $527.5 million from $846.3 million, partly reflecting repayment of $200 million of 5.5% convertible notes in 2008.
The key investor takeaways are the dependence on partners and the pipeline timeline. Much of the company's funding is reimbursement from sanofi-aventis and Bayer HealthCare, and both can terminate on notice. Management states that existing resources, including collaboration funding, should last through at least 2012.
Management also expects R&D expense to rise substantially in 2009, and it expects ARCALYST's CAPS launch to have no material cash flow impact that year. Major catalysts include VEGF Trap-Eye VIEW 1 and VIEW 2 Phase 3 data expected in late 2010, aflibercept Phase 3 oncology data expected in 2010, and a Phase 2 gout flare prevention result that showed an 81%b reduction in flares and supports planned Phase 3 gout trials. Risks are concentrated in a few areas.
The company has an accumulated deficit of $875.9 millionc and has never reported profitability. Its lead programs face competition from Genentech's Avastin and Lucentis and from Novartis' IL-1 antibody.
CAPS is an ultra-rare indication, with incidence around 1 in 1,000,000. Ownership is concentrated: the five largest holders plus the CEO control 55.9%d of shares, and Class A stock carries 10 votes per share. sanofi-aventis holds about 19.1% of shares under standstill and lock-up provisions.
02—Key points
Key Highlights
- Total revenue rose 91% to $238.5 million in 2008, led by $154.0 million from sanofi-aventis collaborations and $40.0 million in technology licensing fees.
- Net loss narrowed to $82.7 million ($1.05 per share) from $105.6 million, while R&D expense grew to $278.0 million (up from $201.6 million).
- ARCALYST (rilonacept) received FDA approval in February 2008 for CAPS, the first commercial product, with $6.3 million in net product sales recognized in 2008 and $20-24 million expected to ship in 2009.
- Cash, cash equivalents, restricted cash and marketable securities declined to $527.5 million from $846.3 million; the company says existing capital, including collaboration funding, should last through at least 2012.
- Late-stage pipeline includes aflibercept (four Phase 3 oncology trials, initial data expected 2010), VEGF Trap-Eye (VIEW 1/VIEW 2 wet AMD Phase 3, data expected late 2010), and ARCALYST for gout (Phase 2 showed 81% fewer flares).
- Major dependence on partners: the sanofi-aventis antibody collaboration can fund up to $100 million per year through 2012, and both sanofi-aventis and Bayer HealthCare can terminate their agreements on notice.
- Concentrated control: the five largest shareholders plus the CEO hold 55.9% of shares, and Class A holders control 22.5% of votes through 10-votes-per-share stock.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2008, Regeneron Pharmaceuticals lost $0.33.
- Revenue$238.5M100.0%
- Cost of revenue−$923,0000.4%
- Gross profit$237.5M99.6%
- Operating costs−$323.8M135.8%
- Operating income−$86.2M36.2%
- Interest, other & tax$7.1M3.0%
- Net income−$79.1M33.2%
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 26, 2009Financial Statements
| Revenue | $238.46M |
| Cost of Revenue | $923K |
| Gross Profit | $237.53M |
| R&D Expenses | $274.90M |
| SG&A Expenses | $48.88M |
| Operating Expenses | $324.71M |
| Operating Income | -$86.25M |
| Interest Expense | $7.75M |
| Net Income | -$79.13M |
05—Questions
Frequently Asked Questions
Is Regeneron profitable, and when might it become profitable?
No. Regeneron reported a 2008 net loss of $82.7 million and has an accumulated deficit of $875.9 million since inception in 1988. Management expects substantial operating losses to continue for at least the next several years, driven by expanding R&D, including the antibody program with sanofi-aventis and the VEGF Trap-Eye Phase 3 trials. Profitability depends on successful commercialization of its product candidates and on collaboration revenue, and the company cannot predict when that will occur.
How much cash does Regeneron have, and is it enough to fund operations?
At December 31, 2008, the company held $527.5 million in cash, cash equivalents, restricted cash and marketable securities, down from $846.3 million a year earlier. Management believes existing resources, including funding from collaborators, will sustain operations through at least 2012. That estimate depends on the operating plan, and it could shorten if collaborations end or expenses rise. The company also notes it has no bank credit line and may need additional equity or debt financing.
What drives Regeneron's revenue, and how dependent is it on partners?
Most revenue is collaboration income. In 2008, sanofi-aventis contributed $154.0 million, mainly reimbursement of expenses for the aflibercept and antibody programs, plus deferred up-front payments. Bayer HealthCare contributed $31.2 million for VEGF Trap-Eye, and AstraZeneca and Astellas licensing fees contributed $40.0 million. ARCALYST product sales were only $6.3 million. The company is heavily dependent on sanofi-aventis, which can terminate its aflibercept collaboration with 12 months notice and its discovery program with 3 months notice.
What are the main near-term catalysts for investors?
Key 2009-2010 events include the aflibercept initial Phase 3 oncology data (2010), the OVARIAN malignant ascites Phase 2 data (mid-2009), enrollment completion in the VIEW 1 and VIEW 2 wet AMD Phase 3 trials (2009) with data expected in late 2010, initiation of Phase 3 gout trials for ARCALYST, and Phase 1 data for REGN88 in rheumatoid arthritis. Each program has significant development and regulatory risk, and the company warns that most programs will not succeed.
What risks could affect shareholders most significantly?
Key risks include clinical trial failure or safety signals (VEGF inhibitors carry bleeding, hypertension and stroke risks, and ARCALYST carries infection risk), strong competition from Genentech's Avastin and Lucentis and from Novartis' IL-1 antibody, the very small CAPS patient population, dependence on partners, and dilution from future financings. Ownership concentration also limits minority shareholders' influence over key corporate decisions, and sanofi-aventis holds about 19.1% of shares, subject to standstill and lock-up restrictions.
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