REGN Financial Analysis

Analysis Date: 2/5/2025

Business Model

Regeneron generates revenue primarily from net product sales of its pharmaceutical products, including EYLEA HD, EYLEA, Dupixent, Libtayo, Praluent, Evkeeza, and Inmazeb. Revenue is also derived from collaboration agreements with Sanofi and Bayer, and other revenues including royalties and contract manufacturing.

Revenue Sources

• Net Product Sales: Sales of Regeneron's own products in the US (EYLEA HD, EYLEA, Praluent, Evkeeza, Inmazeb, Inmazeb).
• Sanofi Collaboration Revenue: Regeneron's share of profits from global sales of Dupixent and Kevzara, and reimbursement for manufacturing of commercial supplies related to the Sanofi collaboration.
• Bayer Collaboration Revenue: Regeneron's share of profits from ex-US sales of EYLEA HD and EYLEA, and reimbursement for manufacturing of ex-US commercial supplies related to the Bayer collaboration.
• Other Revenue: Includes royalties on Praluent sales outside the US (from Sanofi) and other miscellaneous revenues.

Income Statement Analysis

• Total revenues increased by 10.3% compared to Q4 2023, driven by growth in net product sales and collaboration revenue, partially offset by a decrease in other revenue.
• Net product sales increased by 8.2% year-over-year, indicating healthy demand for Regeneron's products.
• Collaboration revenue saw a significant increase of 17.2%, primarily due to higher profits from the Sanofi collaboration, driven by Dupixent sales growth.
• Operating expenses increased by 13.7%, with a notable rise in R&D expenses (20.0%) due to the advancement of the clinical pipeline. SG&A and COGS also increased, but at a lower rate.
• Income from operations saw a modest increase of 1.8%, suggesting that while revenue grew, the increase in operating expenses partially offset the gains.
• Other income (expense), net shifted from a gain in Q4 2023 to an expense in Q4 2024, primarily due to net unrealized losses on equity securities in Q4 2024.
• Net income decreased by 20.9% due to increased operating expenses and unfavorable other income (expense), despite revenue growth. This decrease in net income is a con.

Balance Sheet Analysis

• Total assets increased by 14.1% primarily driven by an increase in cash and marketable securities (10.3%), inventories (19.6%) , property, plant, and equipment (10.9%) and deferred tax assets (28.7%). Increase in cash and marketable securities is a pro, indicating improved liquidity.
• Inventories increased by 19.6%, which could be a con if it indicates slow sales, but could also be a pro if it is in anticipation of future demand, especially with new product launches.
• Total liabilities increased by 20.2%, primarily due to a significant increase in accounts payable, accrued expenses, and other liabilities (28.0%) and deferred revenue (38.9%). The increase in deferred revenue is a pro, suggesting strong future revenue pipeline.
• Stockholders' equity increased by 13.0%, reflecting overall growth in the company's net assets. This is a pro, indicating increased value for shareholders.

Capital Allocation

Regeneron announced the initiation of a quarterly cash dividend program ($0.88 per share quarterly, $3.52 annually) and an additional $3 billion share repurchase authorization, bringing total capacity to ~$4.5 billion. This reflects a commitment to returning capital to shareholders. The company emphasizes continued heavy investment in R&D, with 2025 R&D spend projected to be $5.0 to $5.2 billion. Capital expenditures are also significant, projected at $850 to $975 million for 2025, primarily for R&D facility expansion and manufacturing capacity. Management stated that share repurchases will remain the primary means of returning capital, and the dividend is intended to balance capital returns and attract a broader investor base. Business development remains a priority, with cash available for strategic opportunities. (Regeneron Pharmaceuticals 4th Quarter 2024 Earnings Conference Call.pdf, Regeneron Reports Fourth Quarter and Full Year 2024 Financial and Operating Results.pdf)

Management Commentary

Regeneron CAP 2024 with a strong 4th quarter highlighted by 10% revenue growth, reflecting the strength and durability of our key franchises, primarily Dupixent, Libtayo and EYLEA HD.

Dupixent continues to be a transformative medicine with over 1,000,000 patients on treatment around the world across 7 approved indications.

EYLEA HD will offer the broader set of retinal disease indications with the greatest dose and flexibility of any product in the NMEDGEV category, positioning it to become the new standard of care in the category.

We expect continued competitive pressure on EYLEA.

4th quarter net sales for Eylea HD were affected by elevated wholesaler inventory levels at the end of Q3, which were absorbed over the course of the Q4.

We also expect ongoing market dynamics will put downward pressure on EYLEA business.

Overall Sentiment: Positive. Management expresses strong confidence in Regeneron's current performance and future prospects, highlighting robust revenue growth, key product successes (Dupixent, EYLEA HD, Libtayo), and a promising pipeline. While acknowledging competitive pressures on EYLEA, the overall tone is optimistic, driven by pipeline advancements and strategic capital allocation.

Recommendation

Rating: Hold

Reason for Rating: Regeneron shows continued revenue growth and a strong pipeline, but net income decreased in the latest quarter. Initiate dividend and increased share repurchase are positive signals, but competitive pressure on EYLEA and increased operating expenses pose concerns. Hold for now to observe EYLEA HD uptake, pipeline progress, and expense management.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 4:44:00 AM