01—Abstract
Summary
Summary of the 10-K filed February 7, 2019. Cited figures are marked; the original filing is the authoritative source.
Regeneron's FY2018 10-K shows a company at an inflection point: total revenue rose 14% to $6,710.8 million and net income more than doubled to $2,444.4 milliona (diluted EPS $21.29), versus $1,198.5 million in 2017.
The result was helped by a low 4.3% effective tax rate, which benefited from a $162.1 millionb net tax benefit tied to an intra-group asset sale between foreign subsidiaries, so investors should view the earnings jump as partly non-recurring. Underlying growth was driven by EYLEA, which generated U.S. net product sales of $4,076.7 million and total worldwide net product sales of $6,745.6 million (U.S. plus rest-of-world, with Bayer recording ex-U.S. sales), and by collaboration revenue from Sanofi and Bayer. The company remains heavily dependent on EYLEA, which represented 61% of total revenues in 2018 (63% in 2017).
Management flagged growing competition from Lucentis biosimilars and other anti-VEGF agents, pricing pressure from Medicare and payers, and a patent dispute with Amgen over Praluent that remains unresolved, with a new jury trial scheduled for February 2019. Pipeline progress was substantial: Dupixent gained approvals for asthma and advanced into new indications, and Libtayo received FDA approval for advanced cutaneous squamous cell carcinoma in September 2018. Cash, cash equivalents and marketable securities totaled $4,564.9 millionc at year-end, and the company holds a $750 million undrawn revolving credit facility.
Key risks to monitor include EYLEA concentration, the timing of FDA decisions (including EYLEA diabetic retinopathy with a May 13, 2019 target date and Dupixent adolescent atopic dermatitis with a March 11, 2019 target), collaboration dependence on Sanofi and Bayer, and the $720 milliond Tarrytown lease financing that comes due in 2022 unless extended. Capital expenditures are guided to $410 million to $490 million in 2019, reflecting continued manufacturing expansion.
02—Key points
Key Highlights
- Revenue grew 14.3% to $6,710.8 million in 2018, driven by EYLEA (U.S. net sales of $4,076.7 million, up 10%) and higher Sanofi and Bayer collaboration revenue ($2,187.8 million combined).
- Net income more than doubled to $2,444.4 million (diluted EPS $21.29), but was boosted by a 4.3% effective tax rate including a $162.1 million tax benefit from an intra-group asset sale, which is largely non-recurring.
- EYLEA concentration remains high: 61% of 2018 total revenues came from U.S. EYLEA sales, versus 63% in 2017, leaving the company exposed to competition from Lucentis and emerging anti-VEGF therapies.
- Dupixent advanced with FDA approval for add-on asthma maintenance therapy in October 2018, positive Phase 3 CRSwNP results, and a pending FDA decision on adolescent atopic dermatitis (target date March 11, 2019).
- Libtayo received FDA approval on September 28, 2018 as the first and only treatment specifically approved for advanced cutaneous squamous cell carcinoma in the U.S.
- Strong liquidity: $4,564.9 million in cash and marketable securities at year-end 2018, plus $750 million undrawn revolving credit facility, with 2019 capex guided to $410–490 million.
- Ongoing litigation includes the Amgen Praluent patent case (new jury trial scheduled February 19, 2019) and a U.S. DOJ investigation into patient financial assistance programs, which the company is cooperating with.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Regeneron Pharmaceuticals kept $0.48.
- Revenue$5.15B100.0%
- Cost of revenue−$237.5M4.6%
- Gross profit$4.91B95.4%
- Operating costs−$2.37B46.1%
- Operating income$2.53B49.3%
- Interest, other & tax−$90.0M1.7%
- Net income$2.44B47.5%
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 7, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $5.15B$5.87B | −12.4% |
| Cost of Revenue | $237.50M$202.51M | +17.3% |
| Gross Profit | $4.91B$5.67B | −13.4% |
| R&D Expenses | $1.47B$2.08B | −29.2% |
| SG&A Expenses | $1.13B$1.32B | −14.6% |
| Operating Expenses | $2.61B$3.79B | −31.2% |
| Operating Income | $2.53B$2.08B | +21.9% |
| Interest Expense | $28.20M$25.10M | +12.4% |
| Net Income | $2.44B$1.20B | +104.0% |
| EPS (Basic) | $22.65$11.27 | +101.0% |
| EPS (Diluted) | $21.29$10.34 | +105.9% |
| Shares Outstanding (Basic) | 107.90M106.30M | +1.5% |
| Shares Outstanding (Diluted) | 114.80M115.90M | −0.9% |
05—Questions
Frequently Asked Questions
How much of Regeneron's 2018 earnings jump came from one-time or non-operating items?
Net income rose to $2,444.4 million from $1,198.5 million, but the effective tax rate fell to 4.3% from 42.3%. Management attributed a $162.1 million net income tax benefit to the sale of non-inventory assets between foreign subsidiaries and recorded a $68.0 million benefit to finalize the 2017 Tax Act provisional charge. These items, together with $135.0 million of cumulative catch-up revenue adjustments tied to the amended IO discovery agreement, mean the reported profit is not a clean measure of recurring performance. Income from operations, at $2,534.4 million versus $2,079.6 million, is a better indicator of underlying operating growth.
What is the biggest risk to Regeneron's revenue base?
EYLEA is the dominant risk. It accounted for 61% of total 2018 revenues through U.S. sales and also drives Bayer's ex-U.S. collaboration profits. The company faces competition from Lucentis and its biosimilars, Novartis' brolucizumab, Allergan's abicipar pegol, Roche's faricimab, and off-label repackaged Avastin. The filing also notes pricing pressure from Medicare Part B reform proposals, including CMS pilot programs for reference pricing and step therapy. Any erosion in EYLEA share or pricing would materially affect results.
Are Regeneron's collaboration partners a source of stability or risk?
Both. Sanofi and Bayer together contributed $2,187.8 million of 2018 revenue, and Sanofi co-funds major programs like Dupixent, Praluent, Kevzara and Libtayo. However, Bayer can terminate its EYLEA ex-U.S. collaboration on six to twelve months' notice, and Sanofi holds about 22.1% of the common stock with a lock-up expiring December 20, 2020 subject to waivers. Sanofi's shares sold to fund development costs also add supply overhang. The company's contingent reimbursement obligations to Sanofi (about $2.786 billion for the Antibody Collaboration) could absorb a portion of future collaboration profits.
What regulatory catalysts should investors watch in 2019?
Key 2019 events include the FDA decision on EYLEA for diabetic retinopathy (target action date May 13, 2019), the FDA decision on Dupixent for adolescent atopic dermatitis (March 11, 2019), FDA and EMA decisions on Praluent for cardiovascular risk reduction (April 28, 2019), and an FDA decision on Praluent first-line hyperlipidemia treatment (April 29, 2019). Also pending are the resubmission of the EYLEA pre-filled syringe after a 2018 Complete Response Letter and several EU and Japan regulatory actions for Dupixent asthma and Libtayo. The filing notes that a U.S. government shutdown could delay FDA actions.
How is Regeneron's balance sheet positioned for its investment program?
The balance sheet is strong. Total assets grew to $11,734.5 million and stockholders' equity to $8,757.3 million, with no convertible debt outstanding after the 2016 maturity. Cash and marketable securities of $4,564.9 million exceed capital and facility lease obligations of $708.5 million. The main debt-like item is the $720 million Tarrytown lease financing, which becomes due in March 2022 unless extended or purchased. Working capital was $5,004.8 million at year-end. The company expects existing resources and anticipated EYLEA sales to fund operations for the foreseeable future.
06—Continue