01—Abstract
Summary
Summary of the 10-K filed February 9, 2017. Cited figures are marked; the original filing is the authoritative source.
Regeneron (REGN) reported a strong 2016 for its 10-K filed February 9, 2017.
Total revenues rose 18% to $4,860.4 milliona from $4,103.7 million, and net income increased 41% to $895.5 million, or $7.70 per diluted share, versus $5.52 in 2015. Growth was driven by U.S. EYLEA net product sales of $3,323.1 million (up 24.2%), along with collaboration revenue of $1,403.0 million from Sanofi and Bayer and early Praluent sales. EYLEA remains the core of the business: U.S. sales were 68% of total 2016 revenue, and the company is heavily concentrated in this single product, with three customers accounting for 99% of gross product revenue.
The pipeline and regulatory picture is mixed. Dupixent (dupilumab) has a March 29, 2017 FDA action date for atopic dermatitis, and the Phase 3 asthma study (LIBERTY ASTHMA QUEST) completed enrollment. Sarilumab received a Complete Response Letter in October 2016 tied to a third-party fill-finish facility, with resubmission expected in Q1 2017.
Praluent faces a significant overhang: a federal court granted a permanent injunction against U.S. commercialization in the Amgen patent case, but the injunction is stayed pending appeal. Separately, a DOJ subpoena relating to patient financial assistance programs was received in January 2017. The ODYSSEY OUTCOMES cardiovascular trial remains ongoing, and the company has a $720 millionb Tarrytown property purchase pending.
Balance sheet and cash flow remain solid. Cash and marketable securities were $1.9 billionc, operating cash flow was $1.47 billion, and the company retired its convertible notes and paid $643 million to reduce warrants.
Capital expenditures are expected to be $375d-450 million in 2017, largely for manufacturing expansion in Limerick and Rensselaer. Two items affect comparability: the 2016 effective tax rate fell to 32.7% partly due to ASU 2016-09 adoption, and the company's share of Praluent commercialization losses grew as launch spending increased.
02—Key points
Key Highlights
- Total revenues grew 18.5% to $4.86 billion in 2016, and diluted EPS rose 39% to $7.70, supported by a lower effective tax rate after ASU 2016-09 adoption.
- U.S. EYLEA net product sales reached $3.32 billion (up 24.2%), representing 68% of total revenue and creating substantial single-product dependence.
- Praluent faces a permanent U.S. injunction, stayed pending Federal Circuit appeal, in Amgen patent litigation; ex-U.S. Praluent sales were $21.9 million in 2016.
- Dupixent has an FDA target action date of March 29, 2017 for atopic dermatitis, with priority review and Breakthrough Therapy designation; the asthma Phase 3 trial is fully enrolled.
- Sarilumab's BLA received a CRL in October 2016 related to a Sanofi fill-finish facility; resubmission was planned for Q1 2017 and FDA action expected in Q2 2017 if successful.
- Cash and marketable securities totaled $1.90 billion at year-end, with operating cash flow of $1.47 billion, while $720 million in Tarrytown property purchase financing is pending.
- The company received a DOJ subpoena in January 2017 concerning patient financial assistance programs and is cooperating with the investigation.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Regeneron Pharmaceuticals kept $0.18.
- Revenue$4.86B100.0%
- Cost of revenue−$194.6M4.0%
- Gross profit$4.67B96.0%
- Operating costs−$3.34B68.6%
- Operating income$1.33B27.4%
- Interest, other & tax−$435.2M9.0%
- Net income$895.5M18.4%
Where FY2016 revenue went
$4.86B- R&D: $2.05B, 42% of revenue
- SG&A: $1.18B, 24% of revenue
- Net income: $895.5M, 18% of revenue
- Cost of revenue: $194.6M, 4.0% of revenue
- Other operating costs: $105.1M, 2.2% of revenue
- Interest, other & tax: $435.2M, 9.0% of revenue
Kept 18% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 9, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $4.86B$4.10B | +18.4% |
| Cost of Revenue | $194.62M$241.70M | −19.5% |
| Gross Profit | $4.67B$3.86B | +20.8% |
| R&D Expenses | $2.05B$1.62B | +26.6% |
| SG&A Expenses | $1.18B$838.53M | +40.4% |
| Operating Expenses | $3.53B$2.85B | +23.8% |
| Operating Income | $1.33B$1.25B | +6.3% |
| Interest Expense | $7.20M$14.24M | −49.4% |
| Net Income | $895.50M$636.06M | +40.8% |
| EPS (Basic) | $8.55$6.17 | +38.6% |
| EPS (Diluted) | $7.70$5.52 | +39.5% |
| Shares Outstanding (Basic) | 104.70M103.06M | +1.6% |
| Shares Outstanding (Diluted) | 116.30M115.23M | +0.9% |
05—Questions
Frequently Asked Questions
How dependent is Regeneron on EYLEA, and what are the main risks to that revenue?
Very dependent. U.S. EYLEA sales were 68% of total 2016 revenue, and ex-U.S. EYLEA profits via Bayer add further exposure. Key risks include competition from Lucentis, off-label repackaged Avastin, and biosimilars in development; reimbursement pressure from Medicare and private payers; and the Bayer collaboration, which Bayer can terminate on six or twelve months' notice.
What is the status of the Praluent patent litigation with Amgen?
In January 2017 the District of Delaware denied post-trial motions and granted a permanent injunction barring U.S. commercialization, effective February 21, 2017. The court stayed the injunction pending appeal on February 8, 2017, and the Federal Circuit appeal briefing was scheduled to finish by March 31, 2017. Separate Amgen suits in the UK, Germany and France also target Praluent in Europe.
What catalysts should investors watch in 2017?
Key 2017 events include the Dupixent FDA decision (March 29, 2017), the sarilumab resubmission and FDA action (Q2 2017 if successful), the Praluent monthly dosing sBLA PDUFA date (April 24, 2017), the Federal Circuit ruling on the Praluent injunction, data from the ODYSSEY OUTCOMES cardiovascular trial, and the expected completion of the Tarrytown property purchase in Q1 2017.
How is the company funding its large investment and capital spending plans?
Regeneron had $1.9 billion in cash and marketable securities and a $750 million undrawn revolving credit facility at year-end 2016. Operating cash flow was $1.47 billion. Capital expenditures are expected to be $375-450 million in 2017. The company plans to finance the $720 million Tarrytown purchase through a lease financing arrangement with Banc of America Leasing & Capital, which is not guaranteed.
06—Continue