01—Abstract
Summary
Summary of the 10-K filed February 7, 2020. Cited figures are marked; the original filing is the authoritative source.
Regeneron (REGN) reported strong 2019 results in its 10-K filed February 7, 2020.
Total revenues rose 17% to $7.86 billiona (from $6.71 billion), driven by U.S. EYLEA sales of $4.64 billion (up 14%), Sanofi collaboration revenue of $1.43 billion (up 28%), and Bayer collaboration revenue of $1.19 billion (up 10%). Net income fell to $2.12 billion from $2.44 billion, and diluted EPS declined to $18.46 from $21.29, mainly because R&D expense jumped 39% to $3.04 billion, including a $400 million up-front payment to Alnylam. Operating income was $2.21 billion, versus $2.53 billion in 2018.
Effective tax rate rose to 12.9% from 4.3%, reflecting the absence of 2018's one-time benefits. The balance sheet strengthened considerably. Cash and marketable securities reached $6.47 billionb (up from $4.56 billion), and stockholders' equity grew to $11.09 billion.
Operating cash flow was $2.43 billionc, and capital expenditures were $430 million, with 2020 capex guided to $520–620 million for manufacturing and fill/finish expansion. The company repurchased $276 million of stock during 2019 and authorized a new $1.0 billion buyback in November 2019. Investors should weigh substantial concentration and legal risk.
EYLEA U.S. represented 59%d of total revenues. Two customers accounted for about 90% of gross product revenue. Sanofi holds roughly 21.5% of shares and has a significant influence over governance.
The company faces ongoing patent litigation over Praluent (including an injunction in Germany and litigation from Amgen across Europe and Japan), patent disputes over Dupixent, and U.S. Department of Justice investigations into patient assistance programs and physician remuneration. The Sanofi antibody collaboration restructuring for Kevzara and Praluent was expected to close in Q1 2020.
02—Key points
Key Highlights
- Total revenue grew 17% to $7.86B in 2019, led by U.S. EYLEA ($4.64B, +14%), Sanofi collaboration revenue ($1.43B, +28%), and Bayer collaboration revenue ($1.19B, +10%).
- Net income declined 13% to $2.12B and diluted EPS fell to $18.46 from $21.29, as R&D rose 39% to $3.04B, including a $400M up-front payment to Alnylam, and 2018 included one-time tax benefits.
- Cash and marketable securities increased to $6.47B from $4.56B, and operating cash flow was $2.43B, providing funding for pipeline and manufacturing expansion.
- EYLEA concentration remains high: U.S. EYLEA was 59% of total revenue, and two distributors (Besse Medical and McKesson) accounted for roughly 90% of gross product revenue.
- Dupixent is a key growth driver: Sanofi-recorded global sales reached $2.3B in 2019 (vs. $0.9B in 2018), and Regeneron's share of antibody collaboration profits rose to $209M.
- Material litigation exposure includes Amgen's Praluent patent suits (a German injunction halted commercialization there), Immunex's Dupixent patent suit, and U.S. DOJ investigations under the False Claims Act and Anti-Kickback Statute.
- Pipeline catalysts for 2020 include an FDA decision on Dupixent for pediatric atopic dermatitis (target date May 26, 2020), Phase 3 fasinumab osteoarthritis pain data (mid-2020), and a rolling BLA for REGN-EB3 (Ebola).
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Regeneron Pharmaceuticals kept $0.32.
- Revenue$6.56B100.0%
- Cost of revenue−$402.8M6.1%
- Gross profit$6.15B93.9%
- Operating costs−$3.94B60.2%
- Operating income$2.21B33.7%
- Interest, other & tax−$94.0M1.4%
- Net income$2.12B32.3%
Where FY2019 revenue went
$6.56B- R&D: $2.45B, 37% of revenue
- Net income: $2.12B, 32% of revenue
- SG&A: $1.34B, 20% of revenue
- Cost of revenue: $402.8M, 6.1% of revenue
- Other operating costs: $153.1M, 2.3% of revenue
- Interest, other & tax: $94.0M, 1.4% of revenue
Kept 32% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 7, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $6.56B$5.15B | +27.4% |
| Cost of Revenue | $402.80M$237.50M | +69.6% |
| Gross Profit | $6.15B$4.91B | +25.4% |
| R&D Expenses | $2.45B$1.47B | +66.8% |
| SG&A Expenses | $1.34B$1.13B | +19.0% |
| Operating Expenses | $4.35B$2.61B | +66.5% |
| Operating Income | $2.21B$2.53B | −12.8% |
| Interest Expense | $30.20M$28.20M | +7.1% |
| Net Income | $2.12B$2.44B | −13.4% |
| EPS (Basic) | $19.38$22.65 | −14.4% |
| EPS (Diluted) | $18.46$21.29 | −13.3% |
| Shares Outstanding (Basic) | 109.20M107.90M | +1.2% |
| Shares Outstanding (Diluted) | 114.60M114.80M | −0.2% |
05—Questions
Frequently Asked Questions
What drove the decline in net income despite higher revenue?
Revenue rose $1.15B, but operating expenses rose $1.48B. The largest driver was R&D, up $850M to $3.04B, which included a $400M up-front payment to Alnylam. SG&A also rose $279M on higher commercialization costs. 2018 net income also benefited from a $162M tax benefit, while 2019 tax expense rose to $313M.
How dependent is Regeneron on EYLEA, and what are the key threats?
EYLEA U.S. sales were $4.64B, about 59% of total revenue, and Bayer's ex-U.S. EYLEA sales add substantially more through collaboration profit. Threats include competition from Lucentis, Beovu, and off-label bevacizumab; biosimilar entry, which the 10-K flags as a risk to market exclusivity; and Medicare Part B pricing proposals, including international reference pricing. The U.S. EYLEA patent (composition of matter) expires June 2023, extended from May 2020.
What is the Sanofi restructuring, and why does it matter?
In December 2019, Regeneron and Sanofi announced plans to restructure the antibody collaboration for Kevzara and Praluent into a royalty-based arrangement. Sanofi would gain sole global rights to Kevzara and rights to Praluent outside the U.S., while Regeneron would get sole U.S. rights to Praluent. Each party would fund its own territory. The deal was expected to close in Q1 2020, and Regeneron recorded a $35.2M employee separation charge. It does not affect the Dupixent or REGN3500 collaborations.
What are the main legal and regulatory risks to the stock?
Key risks include Amgen's Praluent patent litigation in the U.S., Europe, and Japan (Germany's injunction has already halted sales there, and the EPO Technical Board of Appeal hearing is set for March 2020). There is also Immunex's '487 patent suit over Dupixent, along with DOJ civil investigative demands under the False Claims Act and Anti-Kickback Statute relating to physician payments and patient assistance. The company had $100M in accruals for loss contingencies as of year-end 2019.
06—Continue