01—Abstract
Summary
Summary of the 10-K filed February 11, 2016. Cited figures are marked; the original filing is the authoritative source.
Regeneron's 2015 10-K shows a company whose revenue base is now dominated by EYLEA.
Total revenues rose to $4,103.7 milliona in 2015 from $2,819.6 million in 2014 (about 46% growth), and net income was $636.1 million, or $5.52 per diluted share, versus $338.1 million, or $2.98 per diluted share, a year earlier. U.S. EYLEA net sales of $2,676.0 million (up 54%) made up about 65% of total revenue, so the company remains heavily dependent on a single product. Investors should also note that the 2015 operating expense base grew sharply, with total operating expenses up to $2,851.8 million, and that non-cash stock compensation of $459.0 million is a large share of that cost.
The pipeline is the main source of optionality. Praluent (PCSK9) received FDA approval in July 2015 and launched in the U.S. with Sanofi, though its 2015 net sales were only $10.5 millionb and the company faces competition from Amgen's Repatha. Sarilumab (IL-6R) has a BLA under FDA review with a target action date of October 30, 2016, and dupilumab (IL-4R) is in multiple Phase 3 programs in atopic dermatitis and asthma.
Collaboration economics with Sanofi and Bayer HealthCare were a significant driver of 2015 revenue ($1,339.4 millionc in collaboration revenue), and Sanofi's July 2015 immuno-oncology deal added $640 million in up-front payments, a portion of which is deferred. Balance-sheet strength is solid: cash, equivalents, and marketable securities were $1,677.4 million at year-end, with a $750 million undrawn revolving credit facility. Ongoing risks include a patent dispute with Amgen over Praluent with a trial set for March 2016, the Kymab/Merus/Novo Nordisk antibody-mouse patent litigation, a Genentech/City of Hope patent challenge, shareholder derivative litigation over executive compensation, and a large contingent reimbursement obligation to Sanofi of approximately $1,832 million.
02—Key points
Key Highlights
- Total revenues rose 46% to $4,103.7 million in 2015, and net income more than doubled to $636.1 million ($5.52 diluted EPS) from $338.1 million ($2.98 diluted EPS) in 2014.
- U.S. EYLEA net product sales grew 54% to $2,676.0 million and represented about 65% of total revenues, which highlights a high single-product concentration risk.
- Praluent (PCSK9 antibody) was approved by the FDA in July 2015 and the European Commission in September 2015, but 2015 net product sales were only $10.5 million, and Amgen's competing Repatha is already approved.
- Sarilumab (IL-6R) BLA for rheumatoid arthritis was accepted by the FDA with a target decision date of October 30, 2016; dupilumab is in multiple Phase 3 programs for atopic dermatitis and asthma.
- Collaboration revenue reached $1,339.4 million, including $758.9 million from Sanofi and $580.5 million from Bayer HealthCare; the July 2015 Sanofi immuno-oncology deal brought $640 million in up-front payments, of which $600 million was deferred at year-end.
- Year-end liquidity was $1,677.4 million in cash, equivalents, and marketable securities, plus $750 million of undrawn revolving credit capacity; 2016 capital expenditures are guided to $580-680 million.
- Material legal and contingent exposures include the Amgen patent suit over Praluent (trial set for March 2016), the Genentech/City of Hope patent action, shareholder derivative claims over executive compensation, and a contingent obligation to reimburse Sanofi of about $1,832 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Regeneron Pharmaceuticals kept $0.15.
- Revenue$4.10B100.0%
- Cost of revenue−$241.7M5.9%
- Gross profit$3.86B94.1%
- Operating costs−$2.61B63.6%
- Operating income$1.25B30.5%
- Interest, other & tax−$615.9M15.0%
- Net income$636.1M15.5%
Where FY2015 revenue went
$4.10B- R&D: $1.62B, 39% of revenue
- SG&A: $838.5M, 20% of revenue
- Net income: $636.1M, 15% of revenue
- Interest, other & tax: $615.9M, 15% of revenue
- Cost of revenue: $241.7M, 5.9% of revenue
- Other operating costs: $151.0M, 3.7% of revenue
Kept 15% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 11, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $4.10B$2.82B | +45.5% |
| Cost of Revenue | $241.70M$129.03M | +87.3% |
| Gross Profit | $3.86B$2.69B | +43.5% |
| R&D Expenses | $1.62B$1.27B | +27.5% |
| SG&A Expenses | $838.53M$519.27M | +61.5% |
| Operating Expenses | $2.85B$2.00B | +42.9% |
| Operating Income | $1.25B$823.92M | +51.9% |
| Interest Expense | $14.24M$37.37M | −61.9% |
| Net Income | $636.06M$338.13M | +88.1% |
| EPS (Basic) | $6.17$3.36 | +83.6% |
| EPS (Diluted) | $5.52$2.98 | +85.2% |
| Shares Outstanding (Basic) | 103.06M100.61M | +2.4% |
| Shares Outstanding (Diluted) | 115.23M113.41M | +1.6% |
05—Questions
Frequently Asked Questions
How dependent is Regeneron on EYLEA, and what would happen if its sales slowed?
Very dependent. U.S. EYLEA net sales were $2,676.0 million in 2015, about 65% of total revenue, and the company also earns profit share from EYLEA sales outside the U.S. through Bayer HealthCare. The 10-K flags competition from Lucentis, off-label repackaged Avastin, and pipeline anti-VEGF agents, as well as reimbursement pressure. A material slowdown in EYLEA would significantly hurt revenue and profitability, which is why the company emphasizes the pipeline and Praluent as future growth drivers.
Is Praluent a meaningful revenue contributor yet?
Not yet. Praluent was approved in the U.S. in July 2015 and launched with Sanofi, but 2015 net product sales recorded by Sanofi were only $10.5 million. Regeneron records its share of Praluent commercialization losses within Sanofi collaboration revenue, which reduced 2015 collaboration revenue. Investor value depends on successful launch uptake, the ODYSSEY OUTCOMES cardiovascular trial expected to complete in 2017, and competition from Amgen's Repatha.
What are the key near-term catalysts and legal risks described in the filing?
Near-term catalysts include the FDA decision on sarilumab (target October 30, 2016), Phase 3 dupilumab asthma and atopic dermatitis readouts, the REGN2222 RSV Phase 3 study, and the Amgen Praluent patent trial beginning March 7, 2016. Key legal risks include the Amgen infringement suit (which seeks injunction and possibly enhanced damages for willfulness), the Genentech/City of Hope patent action with a tentative trial date of September 27, 2016, and the derivative suit over executive compensation. The company says it cannot estimate loss ranges for most of these matters.
How strong is the balance sheet and how much cash does the company have to fund operations?
The company reported $1,677.4 million in cash, cash equivalents, and marketable securities at December 31, 2015, up from $1,360.6 million a year earlier, and had $750 million available under a revolving credit facility. Operating cash flow was $1,330.8 million in 2015. Management believes existing resources are sufficient for the foreseeable future, but the filing notes large contingent reimbursement obligations to Sanofi (about $1,832 million) and Bayer HealthCare (about $258 million) if collaborations become profitable, along with $1,066.8 million of purchase and other commitments.
Why did the company's operating expenses and share-based compensation rise so sharply?
Total operating expenses rose to $2,851.8 million from $1,995.6 million, driven by R&D growth (dupilumab and fasinumab trials, clinical manufacturing), higher selling and marketing costs for EYLEA and Praluent, and a headcount increase to an average of 3,713 from 2,629. Non-cash compensation expense was $459.0 million, up from $321.8 million, mainly because the fair value of the stock on December 2014 option grant dates was much higher than in prior years. Management expects continued expense growth tied to late-stage launches and manufacturing expansion in Limerick, Ireland.
06—Continue