01—Abstract
Summary
Summary of the 10-K filed February 12, 2015. Cited figures are marked; the original filing is the authoritative source.
Regeneron's FY2014 10-K shows a company in transition from a single-product story to a multi-product pipeline.
Total revenues rose 34% to $2,819.6 milliona in 2014 (from $2,104.7 million), and net income was $348.1 million, or $3.07 per diluted share, down from $424.4 million ($3.81) in 2013. The decline in net income reflects a higher effective tax rate of 55.1% (versus 40.5% in 2013), a $427.7 million tax expense, and a sharp rise in operating expenses to $1,981.1 million, driven by R&D up 48% to $1,271.4 million and SG&A up 53% to $504.8 million. Operating income still grew to $838.4 million from $760.0 million.
EYLEA is the core driver. U.S. net product sales were $1,736.4 millionb (up from $1,408.7 million), and it is now approved for DME (July 2014) and macular edema following RVO (October 2014). Outside the U.S., Bayer HealthCare's EYLEA sales reached $1,038.5 million, generating Regeneron net profit of $301.3 million.
Concentration risk is high: EYLEA represented 62%c of total revenues, and a single distributor (Besse Medical) accounted for 73% of gross U.S. product revenue. Competition from Lucentis and off-label repackaged Avastin, plus pending entrants such as Novartis' RTH258, remains a key risk. The pipeline is the main long-term catalyst.
PRALUENT (PCSK9) has a BLA under priority review with a target action date of July 24, 2015, and it is also under EMA review. Sarilumab (IL-6R) and dupilumab (IL-4R) are in Phase 3 programs. Significant risks include the Amgen patent infringement suits against PRALUENT, neurocognitive safety questions raised by the FDA, and the cost of building manufacturing capacity in Rensselaer and Limerick, Ireland.
Capital expenditures are expected to be $650d–800 million in 2015. Cash and marketable securities totaled $1,360.6 million at year-end, against $169.4 million of remaining convertible notes due 2016.
02—Key points
Key Highlights
- Total revenue grew 34% to $2,819.6 million in 2014, with net product sales of $1,750.8 million and collaboration revenue of $1,036.9 million.
- Net income fell to $348.1 million ($3.07 diluted EPS) from $424.4 million ($3.81) as the effective tax rate rose to 55.1% and operating expenses grew 47% to $1,981.1 million.
- EYLEA U.S. net sales reached $1,736.4 million, and worldwide EYLEA sales (including Bayer's ex-U.S. sales of $1,038.5 million) are now the company's primary profit engine.
- Customer concentration is significant: one distributor (Besse Medical) accounted for 73% of gross U.S. product revenue, and EYLEA alone made up 62% of total revenue.
- PRALUENT BLA was accepted with priority review (target date July 24, 2015), supported by ten positive Phase 3 ODYSSEY studies, but it faces Amgen patent litigation and FDA neurocognitive safety questions.
- The company had $1,360.6 million in cash and marketable securities at year-end 2014, with $169.4 million of 1.875% convertible notes remaining due October 2016.
- Dupilumab (atopic dermatitis, asthma, CSwNP, EoE) and sarilumab (RA) advanced in Phase 3, and dupilumab received FDA Breakthrough Therapy designation for atopic dermatitis.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, Regeneron Pharmaceuticals kept $0.12.
- Revenue$2.82B100.0%
- Cost of revenue−$129.0M4.6%
- Gross profit$2.69B95.4%
- Operating costs−$1.87B66.2%
- Operating income$823.9M29.2%
- Interest, other & tax−$485.8M17.2%
- Net income$338.1M12.0%
Where FY2014 revenue went
$2.82B- R&D: $1.27B, 45% of revenue
- SG&A: $519.3M, 18% of revenue
- Interest, other & tax: $485.8M, 17% of revenue
- Net income: $338.1M, 12% of revenue
- Cost of revenue: $129.0M, 4.6% of revenue
- Other operating costs: $76.0M, 2.7% of revenue
Kept 12% as net incomeNet income $338.1M · 12%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 12, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $2.82B$2.10B | +34.0% |
| Cost of Revenue | $129.03M$118.05M | +9.3% |
| Gross Profit | $2.69B$1.99B | +35.4% |
| R&D Expenses | $1.27B$859.95M | +47.8% |
| SG&A Expenses | $519.27M$346.39M | +49.9% |
| Operating Expenses | $2.00B$1.36B | +46.6% |
| Operating Income | $823.92M$743.05M | +10.9% |
| Interest Expense | $37.37M$46.44M | −19.5% |
| Net Income | $338.13M$413.74M | −18.3% |
| EPS (Basic) | $3.36$4.23 | −20.6% |
| EPS (Diluted) | $2.98$3.72 | −19.9% |
| Shares Outstanding (Basic) | 100.61M97.92M | +2.8% |
| Shares Outstanding (Diluted) | 113.41M111.29M | +1.9% |
05—Questions
Frequently Asked Questions
What drove the decline in net income even though revenue grew strongly?
Net income fell to $348.1 million from $424.4 million despite 34% revenue growth. The main causes were a higher effective tax rate (55.1% vs. 40.5%), a non-deductible Branded Prescription Drug Fee, and a 47% increase in operating expenses. R&D rose to $1,271.4 million (up from $859.9 million) to support late-stage programs, and SG&A rose to $504.8 million, including a $40.6 million incremental Branded Prescription Drug Fee charge in Q3 2014.
How dependent is Regeneron on EYLEA, and what are the main threats to it?
Very dependent. EYLEA U.S. sales were 62% of total 2014 revenue, and Bayer's ex-U.S. sales also flow into Regeneron's collaboration revenue. Threats include Genentech's Lucentis, low-cost off-label repackaged Avastin (which the CATT study showed to be non-inferior), and new competitors such as Novartis' RTH258 and Ophthotech's Fovista. Regulatory compliance, third-party reimbursement, and manufacturing capacity for EYLEA also pose risks.
What is the near-term catalyst for PRALUENT and what are the risks?
The FDA target action date for PRALUENT is July 24, 2015, under priority review enabled by a rare pediatric disease priority review voucher. The EMA is also reviewing the application. Risks include Amgen's patent infringement suits filed in October–November 2014, the FDA's request for neurocognitive assessments across PCSK9 programs, and competition from Amgen's evolocumab, which the 10-K notes may be approved first. Sanofi shares development and commercialization costs and profits, and Regeneron funds 20% of Phase 3 costs.
How is Regeneron funding its ambitious pipeline and capacity build-out?
Funding comes from EYLEA cash flow, collaboration reimbursements from Sanofi (up to $160 million per year for antibody discovery through 2017, with Sanofi funding most development costs) and Bayer HealthCare (cost-sharing of EYLEA development), plus the $1,360.6 million cash and securities balance. Management expects 2015 capital expenditures of $650–800 million, mainly for the Limerick, Ireland facility and Tarrytown and Rensselaer expansions. The company also paid $294.6 million to reduce warrants and $220.6 million in cash to settle convertible notes in 2014.
What is the risk from Sanofi's large ownership stake?
Sanofi owned 22,859,144 shares (about 22.8%) at year-end 2014 and has been increasing its stake under a standstill permitting up to 30% ownership. Its ownership gives it significant influence, and the investor agreement sets up a board designee and limits share sales until at least December 20, 2020. Holders of Class A stock (10 votes per share) also hold 16.4% of the voting power. Together, the five largest shareholders and CEO Dr. Schleifer beneficially own about 48.7% of outstanding shares, which limits the public float and can increase stock price volatility.
06—Continue