Yahoo Finance Understanding Regeneron’s Operating Expenses and Margins
Will Impressive 1Q16 Earnings for Regeneron Be Enough?
Regeneron’s operating margins
Historically, Regeneron Pharmaceuticals’ (REGN) adjusted operating and net margins have been quite volatile. In the past ten quarters, REGN’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin has fluctuated between 23% and 41.5%, while its net margin on an adjusted basis has moved in the range of 8%–23%. Over the past ten quarters, REGN’s adjusted gross margin declined from 93.5% in 3Q13 to 89.9% in 4Q15.
Margin expectations
Wall Street analysts are expecting Regeneron’s adjusted EBITDA margin to be ~35.3% and 34.6% during 1Q16 and 2Q16, respectively. This would mean a 90-basis-point improvement in 1Q16 over 1Q15. However, during 2Q16, the 34.6% would mean a 140-basis-point contraction. The potential Sarilumab launch in 4Q16, however, could lead to higher SG&A (sales, general, and administrative) expenses in the second and third quarters of 2016, causing squeezed margins.
For more on the R&D (research and development) expenses of Regeneron during 2016, check out “What’s Eating Regeneron Pharmaceuticals’ Operating Margins?” An in-depth analysis of SG&A can be found in “Why Regeneron Pharmaceuticals’ SG&A Expenses Jumped in 2015.”
Growth phase and pipeline
Regeneron is in a growth phase and hence incurs substantial R&D expenses. Its SG&A expenses in fiscal 2016 are expected to remain on the high side following the ongoing Praluent launch and the potential launch of other two key pipeline drugs, Sarilumab and Dupilumab.
By comparison, the SG&A expenses Amgen (AMGN), Biogen (BIIB), and Celgene (CELG) ranged from 20%–26% during the fourth quarter of 2015. To get exposure to Regeneron, investors can choose to invest in Health Care Select Sector SPDR Fund (XLV), which has ~1.2% in Regeneron.
In the next and final part of this series, we’ll analyze valuation multiples.
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