01—Abstract
Summary
Summary of the 10-K filed February 8, 2018. Cited figures are marked; the original filing is the authoritative source.
Regeneron's 2017 10-K shows a company in strong commercial and financial momentum, with total revenues rising to $5,872.2 milliona (up about 21% from $4,860.4 million in 2016) and net income reaching $1,198.5 million, or $10.34 per diluted share.
Results were lifted by EYLEA, which generated U.S. net sales of $3,701.9 millionb (up 11.4%) and ex-U.S. net sales of $2,226.9 million (up 18.9%, recorded by Bayer), along with growing collaboration income from Sanofi and Bayer. Net income was held down by a one-time $326.2 million charge tied to re-measuring U.S. deferred tax assets under the Tax Cuts and Jobs Act, which pushed the effective tax rate to 42.3%. The company's concentration risk remains high: U.S. EYLEA sales accounted for 63% of total revenues in 2017, and three distributors represented 99% of gross product revenue.
Newer launches are beginning to contribute, with Dupixent generating $256.5 millionc and Praluent $194.7 million in global net sales recorded by Sanofi in 2017. Operating expenses rose sharply, with R&D at $2,075.1 million and SG&A at $1,320.4 million, reflecting pipeline expansion and commercialization spending. Cash and marketable securities totaled $2,896.1 million at year-end, and the company has a $750 million undrawn revolving credit facility.
Key risks for investors include ongoing patent litigation over Praluent (Amgen) and Dupixent (Immunex), competition from biosimilars and rival drugs such as Lucentis and Repatha, pricing and reimbursement pressure, and the Sanofi relationship, which includes a large shareholding and funding commitments. Pipeline catalysts for 2018 include the FDA decision on EYLEA's 12-week dosing (target date August 11, 2018), the Praluent apheresis sBLA (target date August 24, 2018), the ODYSSEY OUTCOMES cardiovascular data, and continued cemiplimab and fasinumab development.
02—Key points
Key Highlights
- Total revenues grew about 21% to $5,872.2 million in 2017, while net income rose to $1,198.5 million ($10.34 diluted EPS) despite a $326.2 million one-time deferred tax re-measurement charge.
- EYLEA remains the dominant franchise: U.S. net sales of $3,701.9 million (+11.4%) and ex-U.S. net sales of $2,226.9 million (+18.9%), together about 63% of total revenues.
- Dupixent launched in March 2017 for atopic dermatitis and reached $256.5 million in global net sales recorded by Sanofi in its first partial year; asthma sBLA was submitted in Q4 2017 after positive LIBERTY ASTHMA QUEST and VENTURE Phase 3 results.
- Praluent and Kevzara are growing: Praluent global sales were $194.7 million (up from $116.3 million), and Kevzara received U.S., EU, and Japan approvals for rheumatoid arthritis.
- Heavy R&D investment continued at $2,075.1 million (about 35% of revenues), with 15 clinical-stage candidates including cemiplimab (Breakthrough Therapy designation, rolling BLA), fasinumab, and evinacumab.
- Significant concentration and litigation risk: three customers account for 99% of gross product revenue, and Praluent (Amgen) and Dupixent (Immunex) patent cases remain unresolved.
- Balance sheet is strong, with $2,896.1 million in cash and marketable securities and a $750 million undrawn credit facility, though capital lease obligations rose to $703.5 million after the $720 million Tarrytown facility financing.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Regeneron Pharmaceuticals kept $0.20.
- Revenue$5.87B100.0%
- Cost of revenue−$202.5M3.4%
- Gross profit$5.67B96.6%
- Operating costs−$3.59B61.1%
- Operating income$2.08B35.4%
- Interest, other & tax−$881.1M15.0%
- Net income$1.20B20.4%
Where FY2017 revenue went
$5.87B- R&D: $2.08B, 35% of revenue
- SG&A: $1.32B, 22% of revenue
- Net income: $1.20B, 20% of revenue
- Interest, other & tax: $881.1M, 15% of revenue
- Cost of revenue: $202.5M, 3.4% of revenue
- Other operating costs: $194.6M, 3.3% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 8, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $5.87B$4.86B | +20.8% |
| Cost of Revenue | $202.51M$194.62M | +4.1% |
| Gross Profit | $5.67B$4.67B | +21.5% |
| R&D Expenses | $2.08B$2.05B | +1.1% |
| SG&A Expenses | $1.32B$1.18B | +12.1% |
| Operating Expenses | $3.79B$3.53B | +7.4% |
| Operating Income | $2.08B$1.33B | +56.3% |
| Interest Expense | $25.10M$7.20M | +248.6% |
| Net Income | $1.20B$895.50M | +33.8% |
| EPS (Basic) | $11.27$8.55 | +31.8% |
| EPS (Diluted) | $10.34$7.70 | +34.3% |
| Shares Outstanding (Basic) | 106.30M104.70M | +1.5% |
| Shares Outstanding (Diluted) | 115.90M116.30M | −0.3% |
05—Questions
Frequently Asked Questions
How dependent is Regeneron on EYLEA, and what would change that?
Very dependent. U.S. EYLEA sales represented 63% of 2017 total revenues (68% in 2016), and ex-U.S. EYLEA sales drive Bayer collaboration income. Diversification is building through Dupixent, Praluent, and Kevzara, but EYLEA is still the main driver of profitability. Key threats include competition from Lucentis, off-label repackaged Avastin, biosimilars in development, and the upcoming 12-week dosing decision (August 11, 2018).
Why did 2017 net income look weak relative to revenue growth?
The effective tax rate rose to 42.3% from 32.7% in 2016, mainly because of a $326.2 million provisional charge to re-measure U.S. net deferred tax assets after the December 2017 Tax Cuts and Jobs Act lowered the federal corporate rate from 35% to 21%. Excluding this charge, earnings would have been meaningfully higher. The company also recorded a $30.1 million loss on debt extinguishment tied to its Tarrytown lease transaction.
What are the main near-term catalysts and risks for investors in 2018?
Catalysts include the FDA decision on EYLEA's every-12-week dosing for wet AMD (target August 11, 2018), the Praluent apheresis sBLA (target August 24, 2018), ODYSSEY OUTCOMES cardiovascular data, the cemiplimab BLA for CSCC, and asthma and pediatric data for Dupixent. Risks include the Praluent injunction history and continuing Amgen litigation, the Immunex patent case against Dupixent (trial scheduled for March 2019), biosimilar and Lucentis competition, and reimbursement pressure.
How does the Sanofi relationship affect Regeneron's economics and governance?
Sanofi is the largest shareholder, holding about 22.6% of shares, and co-develops and co-commercializes Dupixent, Praluent, Kevzara, and cemiplimab. Regeneron shares profits and losses with Sanofi, and Sanofi reimburses a large share of R&D. Sanofi's antibody discovery agreement ended December 31, 2017, so Regeneron must fund discovery activities itself from 2018. A January 2018 letter agreement lets Sanofi pay part of its funding obligations by selling up to 1.4 million Regeneron shares through 2020, which could pressure the stock.
What is the outlook for cash generation and capital spending?
Operating cash flow was $1,307.1 million in 2017 (down from $1,473.4 million) because of working capital changes, including a $926.5 million drag from other assets and liabilities. Capital expenditures fell to $272.6 million, but the company expects $420 million to $500 million in 2018 for Rensselaer, Limerick, and Tarrytown expansion. Management believes existing resources and its credit facility are sufficient for foreseeable needs, though it acknowledges that the Tarrytown lease financing of $720 million becomes due after five years.
06—Continue