01—Abstract
Summary
Summary of the 10-K filed February 21, 2012. Cited figures are marked; the original filing is the authoritative source.
Regeneron's FY2011 10-K shows a company at an inflection point: its first major launch, EYLEA (aflibercept) for wet AMD, was approved in November 2011 and generated $24.8 milliona of net product sales in its first weeks, while ARCALYST sales fell to $19.9 million.
Total revenue was $445.8 millionb, roughly flat versus $459.1 million in 2010, as collaboration revenue from Sanofi ($326.6 million) and Bayer HealthCare ($43.1 million) held up. Operating expenses rose 17% to $651.0 million, driven by R&D of $529.5 million and SG&A of $117.3 million (up from $65.2 million on launch preparation). The net loss widened to $221.8 million, or $2.45 per share, from $104.5 million, and cumulative losses since 1988 reached $1.3 billion.
The balance sheet is stronger than the income statement suggests. Cash, equivalents and marketable securities totaled $810.6 millionc at year-end, up from $626.9 million, after a $400 million 1.875% convertible note offering in October 2011. Sanofi funds most antibody and ZALTRAP development costs, which cushions R&D spending, though management said it cannot estimate when these programs will become profitable.
Stockholders' equity fell to $485.7 milliond. Management states that existing capital, plus EYLEA revenue and collaboration funding, should meet projected operating needs. The key risks for investors are concentrated.
Value depends heavily on EYLEA competing against Genentech's Lucentis and off-label Avastin, which the CATT study showed to be non-inferior and far cheaper. Reimbursement, a missing J-code until January 2013, and a Davis-Smyth patent dispute with Genentech add uncertainty. Several catalysts fall in 2012: an FDA decision on EYLEA for CRVO (September 23), an FDA decision on ARCALYST for gout flares (July 30), an FDA Advisory Committee on anti-NGF safety (March 12) affecting REGN475, and Sanofi's ZALTRAP review.
02—Key points
Key Highlights
- EYLEA received FDA approval in November 2011 for wet AMD, with first-period net product sales of $24.8 million; management says future operating results depend largely on EYLEA's market penetration.
- Total revenue was $445.8 million, down 3% from $459.1 million, with Sanofi collaboration revenue of $326.6 million making up about 73% of the total.
- Net loss widened to $221.8 million ($2.45 per share) from $104.5 million, as operating expenses rose 17% to $651.0 million and SG&A nearly doubled to $117.3 million on launch preparation.
- Cash, cash equivalents and marketable securities reached $810.6 million after a $400 million 1.875% convertible senior notes offering (net proceeds $391.1 million) in October 2011.
- Sanofi funds most antibody and ZALTRAP development costs, and Bayer HealthCare shares EYLEA development costs equally outside the U.S.; both partners can terminate with 6 to 12 months' notice.
- Litigation risk: Genentech has filed Davis-Smyth patent claims. Regeneron settled U.S. EYLEA claims for a $60 million payment at $400 million cumulative sales plus royalties of 4.75% to 5.5%, but cases remain pending on other matters.
- Near-term regulatory catalysts include ARCALYST gout decision (July 30, 2012), EYLEA CRVO decision (September 23, 2012), and the March 12, 2012 FDA Advisory Committee on anti-NGF safety, which placed REGN475 on clinical hold.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2011, Regeneron Pharmaceuticals lost $0.50.
- Revenue$445.8M100.0%
- Cost of revenue−$4.2M0.9%
- Gross profit$441.6M99.1%
- Operating costs−$646.8M145.1%
- Operating income−$205.2M46.0%
- Interest, other & tax−$16.6M3.7%
- Net income−$221.8M49.7%
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 21, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $445.82M$459.07M | −2.9% |
| Cost of Revenue | $4.22M$2.09M | +101.4% |
| Gross Profit | $441.61M$456.98M | −3.4% |
| R&D Expenses | $529.51M$489.25M | +8.2% |
| SG&A Expenses | $117.26M$65.20M | +79.8% |
| Operating Expenses | $650.98M$556.55M | +17.0% |
| Operating Income | -$205.16M-$97.47M | −110.5% |
| Interest Expense | $21.28M$9.12M | +133.4% |
| Net Income | -$221.76M-$104.47M | −112.3% |
| EPS (Basic) | $-2.45$-1.26 | −94.4% |
| EPS (Diluted) | $-2.45$-1.26 | −94.4% |
| Shares Outstanding (Basic) | 90.61M82.93M | +9.3% |
| Shares Outstanding (Diluted) | 90.61M82.93M | +9.3% |
05—Questions
Frequently Asked Questions
How much revenue did Regeneron actually generate from its own products in 2011?
Very little. Net product sales were $44.7 million in total: $24.8 million from EYLEA, which launched in November 2011, and $19.9 million from ARCALYST for CAPS. Most revenue came from collaborations (about $369.7 million), mainly Sanofi reimbursement of antibody and ZALTRAP R&D costs, with technology licensing adding $24.9 million.
Why did the net loss more than double in 2011?
Operating expenses rose $94.5 million, mainly from higher R&D (up $40.3 million to $529.5 million on antibody and clinical programs) and higher SG&A (up $52.1 million to $117.3 million on EYLEA commercialization, headcount and Genentech litigation costs). Revenue was roughly flat, and interest expense rose to $21.3 million from $9.1 million, including $15.6 million of imputed interest on Tarrytown facility lease obligations.
Does Regeneron have enough cash to fund operations?
Management believes existing capital, EYLEA sales and collaboration funding will meet projected operating needs. The company ended 2011 with $810.6 million in cash and investments, against $400 million of convertible notes due 2016. Its disclosed 2012 capital expenditure plan is $50 to $70 million. Management warns that a collaboration termination, slower EYLEA sales, or faster spending could consume capital sooner, and that additional financing could be dilutive.
What are the main risks to EYLEA's commercial success?
Competition from Lucentis, which has been on the market for years, and from off-label Avastin, which is far cheaper and showed non-inferiority in the CATT study. Other risks include reimbursement and the lack of a unique J-code (expected January 2013), safety issues with VEGF blockade and intravitreal injections, and the dependence of the U.S. market on the Genentech patent dispute.
How concentrated is Regeneron's ownership and control?
Highly concentrated. Holders of Class A stock, which carries ten votes per share, control 18.9% of combined voting power. The six largest shareholders plus CEO Leonard Schleifer held 61.9% of the outstanding shares. Sanofi owns about 17.4% and has standstill and voting arrangements. Management and directors held 25.0% of combined voting power, which could limit the influence of other shareholders in a change-of-control decision.
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