01—Abstract
Summary
Summary of the 10-K filed February 17, 2011. Cited figures are marked; the original filing is the authoritative source.
Regeneron's FY2010 10-K shows a company still in the investment phase, with revenue rising to $459.1 milliona (from $379.3 million in 2009) but a net loss widening to $104.5 million ($1.26 per share) from $67.8 million.
Most of the revenue is collaboration income from sanofi-aventis and Bayer HealthCare, which reimburses much of Regeneron's R&D spend. Operating expenses rose to $556.5 millionb, driven by R&D of $489.3 million, which grew with headcount (average 1,249 vs. 980) and the antibody program. ARCALYST, the only marketed product, generated net product sales of just $25.3 million, and management does not expect material product revenue from CAPS alone.
The balance sheet strengthened materially. Cash, equivalents, and marketable securities reached $626.9 millionc, up from $390.0 million, helped by a $174.8 million October 2010 equity offering and a $165.0 million up-front payment from Astellas. Management says existing resources fund operations through at least 2013.
Deferred revenue ballooned to roughly $286 milliond long-term, so part of the cash is a prepayment for future recognition rather than earned income. The company reports a cumulative loss of $1.0 billion since inception.
The investment case rests on late-stage catalysts in 2011: a planned BLA for VEGF Trap-Eye in wet AMD in the first half, GALILEO and PRE-SURGE 2 data, and VITAL and VELOUR readouts. Offsetting these are the FDA clinical hold on REGN475 (an NGF antibody) over avascular necrosis, a pending lawsuit against Genentech, and high shareholder concentration (four largest holders plus the CEO own 50.9%, and Class A shares carry ten votes each).
02—Key points
Key Highlights
- Total revenue rose 21% to $459.1 million in 2010, with collaboration revenue of $386.7 million (sanofi-aventis $311.3 million; Bayer HealthCare $75.4 million).
- Net loss widened to $104.5 million ($1.26 per share) from $67.8 million, as R&D expense increased to $489.3 million from $398.8 million.
- ARCALYST (the only marketed product, for CAPS) generated $25.3 million in net product sales, and management does not expect material product revenue from CAPS alone.
- Cash, cash equivalents, and marketable securities totaled $626.9 million at year-end 2010 (up from $390.0 million), after a $174.8 million October 2010 equity offering and a $165.0 million Astellas up-front payment; management expects funding through at least 2013.
- Three Phase 3 programs are in play: VEGF Trap-Eye in wet AMD (BLA planned H1 2011, with Bayer filing in Europe), VEGF Trap-Eye in CRVO (GALILEO data expected H1 2011), and aflibercept in oncology (VITAL and VELOUR data expected H1 2011).
- REGN475 (NGF antibody) was placed on FDA clinical hold in December 2010 after an avascular necrosis case in another company's anti-NGF program, and no REGN475 trials are currently enrolling or treating patients.
- Governance concentration: four largest shareholders plus the CEO hold 50.9% of common shares, and Class A holders control 20.0% of votes with ten votes per share, while sanofi-aventis holds about 18.1%.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2010, Regeneron Pharmaceuticals lost $0.23.
- Revenue$459.1M100.0%
- Cost of revenue−$2.1M0.5%
- Gross profit$457.0M99.5%
- Operating costs−$554.5M120.8%
- Operating income−$97.5M21.2%
- Interest, other & tax−$7.0M1.5%
- Net income−$104.5M22.8%
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 17, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $459.07M$379.27M | +21.0% |
| Cost of Revenue | $2.09M$1.69M | +24.1% |
| Gross Profit | $456.98M$377.58M | +21.0% |
| R&D Expenses | $489.25M$398.76M | +22.7% |
| SG&A Expenses | $65.20M$52.92M | +23.2% |
| Operating Expenses | $556.55M$453.37M | +22.8% |
| Operating Income | -$97.47M-$74.10M | −31.5% |
| Interest Expense | $9.12M$2.34M | +290.2% |
| Net Income | -$104.47M-$67.83M | −54.0% |
| EPS (Basic) | $-1.26$-0.85 | −48.2% |
| EPS (Diluted) | $-1.26— | — |
| Shares Outstanding (Basic) | 82.93M— | — |
| Shares Outstanding (Diluted) | 82.93M— | — |
05—Questions
Frequently Asked Questions
How is Regeneron funding its large R&D spending, and how much of it is reimbursed?
Most antibody development costs under the sanofi-aventis collaboration are funded by sanofi-aventis, which committed up to $160 million per year for discovery research through 2017. In 2010 sanofi-aventis funded $137.7 million of discovery research and $138.3 million of antibody development costs, and it funds all aflibercept development expenses. Bayer HealthCare shares VEGF Trap-Eye development costs equally. Regeneron still bears its own internal costs, its share of Phase 3 costs for co-developed antibodies (20% of Shared Phase 3 Trial Costs), and reimbursement obligations if the collaborations later become profitable.
Is Regeneron close to becoming profitable?
Not on the reported numbers. The company has never been profitable, with a cumulative loss of $1.0 billion through 2010 and a 2010 net loss of $104.5 million. Management expects operating losses to continue for at least the next few years as it prepares for potential commercial launches. Profitability depends on regulatory approvals of VEGF Trap-Eye, ARCALYST for gout, or aflibercept, and on collaboration revenue continuing; the filing states it cannot predict whether or when profitability will occur.
What are the biggest near-term catalysts and risks for the stock?
Catalysts include the planned H1 2011 FDA submission for VEGF Trap-Eye in wet AMD, GALILEO CRVO data in H1 2011, VITAL and VELOUR aflibercept data in H1 2011, and PRE-SURGE 2 and RE-SURGE gout data expected in Q1 2011. Key risks include the REGN475 clinical hold (possible class effect for anti-NGF antibodies), the second-year VIEW data that could differ from first-year results, the Genentech patent dispute, the ARCALYST market being very small (about 1 in 1,000,000 people in the US), and competition from Novartis's canakinumab in CAPS and gout, plus Genentech's Avastin in eye disease.
Could sanofi-aventis or other shareholders affect the stock price?
Yes. sanofi-aventis held about 15.8 million shares (roughly 18.1%) at year-end 2010, but its investor agreement restricts sales until December 20, 2017, except in limited cases. Other large holders and insiders could sell in the public market, which the filing identifies as a risk factor for price volatility. Class A holders control 20.0% of voting power with ten votes per share, and sanofi-aventis's standstill and voting commitments limit its ability to influence control transactions.
How strong is the balance sheet and how much of the cash is truly available?
Cash, cash equivalents, and marketable securities were $626.9 million at year-end 2010, but much of the increase came from up-front payments that are deferred on the balance sheet, not earned. Total deferred revenue rose to about $286 million long-term, including $151.7 million tied to the Astellas license. Facility lease obligations were $159.4 million long-term, and there is $200 million of unrecorded commitment for leased facilities over time. Unrestricted marketable securities of $506.8 million are mostly US government obligations, though about $1.9 million of gross unrealized losses were recorded in the portfolio.
06—Continue