recognized as contract research and development revenue. Since the first quarter of 2004, we have not received, and do not expect to receive, any further contract research and development revenue from Novartis.
Contract research and development revenue earned from Procter & Gamble also decreased in 2005 compared to 2004, resulting from the June 2005 amendment to our December 2000 collaboration agreement with Procter & Gamble, as described above under “Collaborations — The Procter & Gamble Company.”Gamble. Under the terms of the modified agreement, Procter & Gamble funded Regeneron’s research for the first two quarters of 2005, compared with a full year of collaborative research funding in 2004. WeSince the second quarter of 2005, we have not received, and do not expect to receive, any further contract research and development revenue from Procter & Gamble.
In December 2004, we earned a $25.0 million research progress payment from sanofi-aventis, which was received in January 2005, upon achievement of an early-stage VEGF Trap clinical milestone. In March 2004, Novartis forgave all of its outstanding loans, including accrued interest, to Regeneron totaling $17.8 million, based upon Regeneron’s achieving a pre-defined IL-1 Trap development milestone. These amounts were recognized as research progress payments in 2004.
Contract manufacturing revenue relates to our long-term agreement with Merck, which expiresexpired in October 2006, to manufacture a vaccine intermediate at our Rensselaer, New York facility.2006. Contract manufacturing revenue decreased to $13.7 million in 2005 from $18.1 million in 2004, principally due to a decrease in product shipments to Merck in 2005 compared to 2004. Revenue and the related manufacturing expense arewere recognized as product iswas shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2005 and 2004 arewere $1.4 million and $3.6 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped to Merck based on the total amount of product expected to be shipped over the term of the agreement. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. As a result, in 2005 we began recognizing the remaining deferred balance of Merck’s capital improvement reimbursements as of December 31, 2004, which totaled $2.7 million, as revenue as product is shipped to Merck, based upon Merck’s order quantities through October 2006.
Research and Development Expenses:
Research and development expenses exclusive of Stock Option Expense, increased to $143.7$155.6 million for the year ended December 31, 2005 from $136.1 million for 2004.2004 due, in part, to the inclusion of $11.9 million of Stock Option Expense in 2005 research and development expenses, resulting from the adoption of SFAS 123, effective January 1, 2005. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2005 and 2004:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, | | | For the Year Ended December 31, | |
| | 2005 | | 2004 | | | 2005 (1) | | 2004 (1)(2) | |
| | Expenses as
| | Stock Option
| | Expenses Exclusive of
| | Expenses as
| | | Expenses Before
| | | | | | | |
Research and development expenses | | Reported | | Expense | | Stock Option Expense | | Reported(2) | | |
| | | Inclusion of Stock
| | Stock Option
| | Expenses as
| | Expenses as
| |
Research and Development Expenses | | | Option Expense | | Expense | | Reported | | Reported | |
| | (In millions) | | | (In millions) | |
|
Payroll and benefits | | $ | 59.2 | | | $ | 10.9 | | | $ | 48.3 | | | $ | 43.6 | | | $ | 43.1 | | | $ | 10.5 | | | $ | 53.6 | | | $ | 38.6 | |
Clinical trial expenses | | | 18.2 | | | | — | | | | 18.2 | | | | 10.3 | | | | 18.2 | | | | | | | | 18.2 | | | | 10.3 | |
Clinical manufacturing costs (1) | | | 33.6 | | | | 1.0 | | | | 32.6 | | | | 36.4 | | |
Clinical manufacturing costs (3) | | | | 40.2 | | | | 1.4 | | | | 41.6 | | | | 42.8 | |
Research and preclinical development costs | | | 20.7 | | | | — | | | | 20.7 | | | | 23.1 | | | | 19.2 | | | | | | | | 19.2 | | | | 22.2 | |
Occupancy and other operating costs | | | 23.9 | | | | — | | | | 23.9 | | | | 22.7 | | | | 23.0 | | | | | | | | 23.0 | | | | 22.2 | |
| | | | | | | | | | | | | | | | | | |
Total research and development | | $ | 155.6 | | | $ | 11.9 | | | $ | 143.7 | | | $ | 136.1 | | | $ | 143.7 | | | $ | 11.9 | | | $ | 155.6 | | | $ | 136.1 | |
| | | | | | | | | | | | | | | | | | |
| | |
(1) | | For the major categories of research and development expenses, amounts for the years ended December 31, 2005 and 2004 have been reclassified to conform with, and be comparable to, the current year’s presentation. Total research and development expenses for the years ended December 31, 2005 and 2004 are unchanged from amounts previously reported. |
|
(2) | | In 2004, research and development expenses as reported in our Statement of Operations did not include Stock Option Expense. |
|
(3) | | Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. |
|
(2) | | In 2004, researchfacility, and, development expenses as reported in our Statement of Operations did not include2005 only, Stock Option Expense. |
32
Payroll and benefits, exclusive of Stock Option Expense, increased $4.7$4.5 million in 2005 from 2004 due primarily to 2005 wage and salary increases, higher employee benefit costs, and severance costs (totaling $2.2 million in 2005) associated with our workforce reduction plan that we initiated in October 2005. Clinical trial expenses increased $7.9 million in 2005 from 2004 due primarily to higher IL-1 Trap costs associated with commencing clinical studies in new indications and discontinuing the Phase 2b study in adult rheumatoid arthritis. Clinical manufacturing costs, exclusive of Stock Option Expense, decreased $3.8$2.6 million in 2005 from 2004, as lower costs in 2005 related to manufacturing clinical supplies of the VEGF Trap and the IL-4/13 Trap were partly offset by higher costs related to manufacturing clinical supplies of the IL-1 Trap. Research and preclinical development costs decreased $2.4$3.0 million in 2005 from 2004 due primarily to lower VEGF Trap preclinical development costs and lower costs for general research supplies in 2005. Occupancy and other operating costs increased by $1.2$0.8 million in 2005 from 2004, due primarily to higher costs for utilities, taxes, and operating expenses associated with our leased research facilities in Tarrytown, New York.
Contract Manufacturing Expenses:
Contract manufacturing expenses exclusive of Stock Option Expense, decreased to $9.2$9.6 million in 2005, compared to $15.2 million in 2004, primarily because we shipped less product to Merck in 2005 and we incurred unfavorable manufacturing costs in 2004, which were expensed in the period incurred.
General and Administrative Expenses:
General and administrative expenses exclusive of Stock Option Expense, increased to $17.8$25.4 million in 2005 from $17.1 million in 2004, asdue primarily to the inclusion of $7.6 million of Stock Option Expense in 2005 general and administrative expenses,
40
resulting from the adoption of SFAS 123, effective January 1, 2005. In addition, in 2005 administrative wage and salary increases, higher employee benefits costs and higher administrative facility costs were partly offset by (i) lower legal expenses related to Company litigation and general corporate matters and (ii) lower professional fees, principally associated with accounting and other services related to our first year of compliance in 2004 with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Other Income and Expense:
In June 2005, we and Procter & Gamble amended our collaboration agreement and agreed that the research activities of both companies under the collaboration agreement were completed. In connection with the amendment, Procter & Gamble made a one-time $5.6 million payment to us, which we recognized as other contract income in 2005. In January 2005, we and sanofi-aventis amended our collaboration agreement to exclude rights to develop and commercialize the VEGF Trap for intraocular delivery to the eye. In connection with the amendment, sanofi-aventis made a one-time $25.0 million payment to us, which we recognized as other contract income in 2005. In the first quarter of 2004, Novartis notified us of its decision to forgo its right under the collaboration to jointly develop the IL-1 Trap and subsequently paid us $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine-month period following its notification and for the two months prior to that notice. The $42.75 million was included in other contract income in 2004.
Investment income increased to $10.4 million in 2005 from $5.5 million in 2004, due primarily to higher effective interest rates on investment securities in 2005. Interest expense decreased slightly to $12.0 million in 2005 from $12.2 million in 2004. Interest expense is attributable primarily to $200.0 million of convertible notes issued in October 2001, which mature in 2008 and bear interest at 5.5% per annum.
33
Years Ended December 31, 2004 and 2003
Revenues:
Revenues for the years ended December 31, 2004 and 2003 consist of the following:
| | | | | | | | |
| | 2004 | | | 2003 | |
| | (In millions) | |
|
Contract research & development revenue | | | | | | | | |
Sanofi-aventis | | $ | 78.3 | | | $ | 14.3 | |
Novartis | | | 22.1 | | | | 21.4 | |
Procter & Gamble | | | 10.5 | | | | 10.6 | |
Other | | | 2.2 | | | | 1.1 | |
| | | | | | | | |
Total contract research & development revenue | | | 113.1 | | | | 47.4 | |
| | | | | | | | |
Research progress payments | | | | | | | | |
Sanofi-aventis | | | 25.0 | | | | | |
Novartis | | | 17.8 | | | | | |
| | | | | | | | |
Total research progress payments | | | 42.8 | | | | | |
| | | | | | | | |
Contract manufacturing revenue | | | 18.1 | | | | 10.1 | |
| | | | | | | | |
Total revenue | | $ | 174.0 | | | $ | 57.5 | |
| | | | | | | | |
Our total revenue increased to $174.0 million in 2004 from $57.5 million in 2003, due primarily to higher revenues related to our collaboration with sanofi-aventis on the VEGF Trap and our prior collaboration with Novartis on the IL-1 Trap. Collaboration revenue earned from sanofi-aventis and Novartis is comprised of contract research and development revenue and research progress payments. Contract research and development revenue, as detailed below, consists partly of reimbursement for research and development expenses and partly of the recognition of revenue related to non-refundable, up-front payments. Non-refundable up-front payments are recorded as deferred revenue and recognized ratably over the period over which we are obligated to perform services in accordance with SAB 104 (see Critical Accounting Policies and Significant Judgments and Estimates). In the first quarter of 2004, Novartis provided notice of its intention not to proceed with the joint development of the IL-1 Trap and the $22.1 million remaining balance of the $27.0 million up-front payment received from Novartis in March 2003 was recognized as contract research and development revenue.
Sanofi-aventis and Novartis contract research & development revenues for 2004 and 2003 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Up-front Payments to Regeneron | |
| | 2004 Regeneron
| | | | | | | | | Deferred Revenue at
| | | Total Revenue
| |
| | Expense
| | | Total
| | | Amount Recognized
| | | December 31,
| | | Recognized
| |
| | Reimbursement | | | Payment | | | in 2004 | | | 2004 | | | in 2004 | |
| | (In millions) | |
|
Sanofi-aventis | | $ | 67.8 | | | $ | 80.0 | | | $ | 10.5 | | | $ | 65.8 | | | $ | 78.3 | |
Novartis | | | — | | | | 27.0 | | | | 22.1 | | | | — | | | | 22.1 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 67.8 | | | $ | 107.0 | | | $ | 32.6 | | | $ | 65.8 | | | $ | 100.4 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Up-front Payments to Regeneron | |
| | 2003 Regeneron
| | | | | | | | | Deferred Revenue at
| | | Total Revenue
| |
| | Expense
| | | Total
| | | Amount Recognized
| | | December 31,
| | | Recognized
| |
| | Reimbursement | | | Payment | | | in 2003 | | | 2003 | | | in 2003 | |
| | (In millions) | |
|
Sanofi-aventis | | $ | 10.7 | | | $ | 80.0 | | | $ | 3.6 | | | $ | 76.4 | | | $ | 14.3 | |
Novartis | | | 16.5 | | | | 27.0 | | | | 4.9 | | | | 22.1 | | | | 21.4 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 27.2 | | | $ | 107.0 | | | $ | 8.5 | | | $ | 98.5 | | | $ | 35.7 | |
| | | | | | | | | | | | | | | | | | | | |
34
In December 2004, we earned a $25.0 million research progress payment from sanofi-aventis, which was received in January 2005, upon achievement of an early-stage VEGF Trap clinical milestone. In March 2004, Novartis forgave all its outstanding loans, including accrued interest, to Regeneron totaling $17.8 million, based upon Regeneron’s achieving a pre-defined IL-1 Trap development milestone. These amounts were recognized as research progress payments in 2004.
Contract manufacturing revenue relates to our long-term agreement with Merck, which expires in October 2006. Contract manufacturing revenue increased to $18.1 million in 2004 from $10.1 million in 2003, principally due to an increase in product shipments to Merck in 2004 compared to 2003. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2004 and 2003 are $3.6 million and $1.7 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped to Merck based on the total amount of product expected to be shipped over the life of the manufacturing agreement. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006.
Research and Development Expenses:
Research and development expenses increased slightly to $136.1 million in 2004 from $136.0 million in 2003. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2004 and 2003:
| | | | | | | | |
| | 2004 | | | 2003 | |
| | (In millions) | |
|
Research and development expenses: | | | | | | | | |
Payroll and benefits | | $ | 43.6 | | | $ | 38.5 | |
Clinical trial expenses | | | 10.3 | | | | 25.0 | |
Clinical manufacturing costs (1) | | | 36.4 | | | | 29.8 | |
Research and preclinical development costs | | | 23.1 | | | | 19.6 | |
Occupancy and other operating costs | | | 22.7 | | | | 23.1 | |
| | | | | | | | |
Total research and development | | $ | 136.1 | | | $ | 136.0 | |
| | | | | | | | |
| | |
(1) | | Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. |
Payroll and benefits increased $5.1 million in 2004 from 2003 as we added research and development personnel to support our clinical and research programs, especially for the VEGF Trap and IL-1 Trap. Clinical trial expenses decreased $14.7 million in 2004 from 2003 due primarily to the completion of the double-blind treatment portion of our AXOKINE phase 3 clinical trial for the treatment of obesity in 2003, the completion of other AXOKINE trials in 2004, and the completion of our IL-4/13 Trap phase 1 trial in 2004. These decreases were partly offset by higher clinical trial expenses related to our VEGF Trap and IL-1 Trap clinical programs. Clinical manufacturing costs increased $6.6 million in 2004 from 2003, as we manufactured supplies of our clinical product candidates in our expanded Rensselaer manufacturing facility for the full year of 2004. Research and preclinical development costs increased $3.5 million due primarily to higher preclinical development costs related to our VEGF Trap program and higher research-related costs for outside services in 2004 than in 2003. Occupancy and other operating costs decreased slightly by $0.4 million in 2004 from 2003 resulting primarily from lower depreciation costs due to extending the lease on our Tarrytown, New York facilities in early 2004.
Contract Manufacturing Expenses:
Contract manufacturing expenses increased to $15.2 million in 2004, compared to $6.7 million in 2003, primarily because more product was shipped to Merck in 2004 and the Company incurred unfavorable manufacturing costs, which were expensed in the period incurred, in 2004 compared to 2003.
35
General and Administrative Expenses:
General and administrative expenses increased to $17.1 million in 2004 from $14.8 million in 2003, due primarily to a $1.4 million increase in professional fees, principally associated with accounting and other services related to our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The remainder of the 2004 increase was principally due to increases in payroll and related costs associated, in part, with higher administrative headcount in 2004 to support the Company’s operations.
Other Income and Expense:
In the first quarter of 2004, Novartis notified us of its decision to forego its right under our collaboration to jointly develop the IL-1 Trap and subsequently paid us $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine-month period following its notification and for the two months prior to that notice. The $42.75 million was included in other contract income in 2004.
Investment income increased to $5.5 million in 2004 from $4.5 million in 2003 due primarily to higher effective interest rates on investment securities. Interest expense increased slightly to $12.2 million in 2004 from $11.9 million in 2003. Interest expense is attributable primarily to $200.0 million of convertible notes issued in October 2001, which mature in 2008 and bear interest at 5.5% per annum.
Liquidity and Capital Resources
Since our inception in 1988, we have financed our operations primarily through offerings of our equity securities, a private placement of convertible debt, revenue earned under our past and present research and development and contract manufacturing agreements, including our agreements with sanofi-aventis, Novartis, Procter & Gamble,Bayer, and Merck, and investment income.
Change in Classification
We have revised in our previously issued financial statements included in this Report onForm 10-K the classification of our investments in auction rate securities from cash and cash equivalents to short-term investments. Auction rate securities are securities that have stated maturities beyond three months, but are priced and traded as short-term investments due to the liquidity provided through the auction mechanism that generally resets interest rates every 28 or 35 days. The change in classification resulted in a decrease in cash and cash equivalents and corresponding increase in short-term marketable securities at each balance sheet date. In addition, we revised our statements of cash flows included in this Report onForm 10-K to reflect the purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification had no impact on our previously reported current assets, net income (loss), or cash flows from operations. We held no auction rate securities at December 31, 2005.
The impact of the revision to the classification of our investments in auction rate securities on previously reported amounts for cash and cash equivalents and short-term marketable securities at December 31, 2004 and 2003, and cash flows provided by (used in) investing activities for the three month, six month, and nine month
36
periods ended March 31, 2004, June 30, 2004, and September 30, 2004, respectively, and the years ended December 31, 2004 and 2003, is as follows:
| | | | | | | | |
Balance Sheet Impact at December 31, 2004 and 2003 | | 2004 | | | 2003 | |
| | (In millions) | |
|
As originally reported: | | | | | | | | |
Cash and cash equivalents | | $ | 101.2 | | | $ | 118.3 | |
Short-term marketable securities | | | 194.8 | | | | 164.6 | |
| | | | | | | | |
Total | | $ | 296.0 | | | $ | 282.9 | |
| | | | | | | | |
Revised to reflect auction rate securities as short-term investments: | | | | | | | | |
Cash and cash equivalents | | $ | 95.2 | | | $ | 97.5 | |
Short-term marketable securities | | | 200.8 | | | | 185.4 | |
| | | | | | | | |
Total | | $ | 296.0 | | | $ | 282.9 | |
| | | | | | | | |
Statement of Cash Flows Impact for the three month, six month, and nine month periods ended March 31, June 30, and September 30, 2004, respectively, and the years ended December 31, 2004 and 2003
| | | | | | | | | | | | | | | | | | | | |
| | March 31,
| | | June 30,
| | | September 30,
| | | December 31, | |
| | 2004 | | | 2004 | | | 2004 | | | 2004 | | | 2003 | |
| | (In millions) | |
|
As originally reported: | | | | | | | | | | | | | | | | | | | | |
Cash flows provided by (used in) investing activities | | $ | 70.2 | | | $ | 1.2 | | | $ | (12.1 | ) | | $ | (4.6 | ) | | $ | (63.8 | ) |
Revised to reflect auction rate securities as short-term investments: | | | | | | | | | | | | | | | | | | | | |
Cash flows provided by (used in) investing activities | | $ | 73.2 | | | $ | 4.2 | | | $ | (4.7 | ) | | $ | 10.2 | | | $ | (49.6 | ) |
These revised amounts, as applicable, are reflected in this Annual Report onForm 10-K for the year ended December 31, 2005.
Years Ended December 31, 20052006 and 20042005
Cash Used in Operations:
At December 31, 2005,2006, we had $316.7$522.9 million in cash, cash equivalents, and marketable securities compared with $348.9$316.7 million at December 31, 2004.2005. In January 2006, we received a $25.0 million up-front payment from sanofi-aventis, which was receivable at December 31, 2005, in connection with an amendment to our collaboration agreement to include Japan. In January 2005,October 2006, we received two $25.0a $75.0 million payments from sanofi-aventis. Oneup-front payment was related to ain connection with our new VEGF Trap clinical milestone that was earned in 2004. The second payment related to changes to ourTrap-Eye license and collaboration agreement with sanofi-aventis that were made in January 2005.Bayer. In November 2006, we completed a public offering of 7.6 million shares of our Common Stock and received proceeds, after expenses, of $174.6 million.
Cash Provided by (Used in) Operations:
Net cash provided by operations was $23.1 million in 2006, compared to net cash used in operations wasof $30.3 million in 2005 compared to $16.92005. Our net losses of $102.3 million in 2004. In 2005, our net loss of2006 and $95.4 million in 2005 included $18.7 million and $21.9 million, respectively, of non-cash stock-based employee compensation costs, of which $18.4 million and $19.9 million, representsrespectively, represented Stock Option Expense resulting from ourthe adoption of SFAS 123R in January 2006 and SFAS 123 in January 2005. Our deferred revenueIn 2006,end-of-year accounts receivable balances increaseddecreased by $14.5$29.0 million in 2005 compared to 2004,2005, due primarily to the January 2006 receipt of the $25.0 million up-front payment from sanofi-aventis, (asas described above), which was receivable at December 31,above, and lower amounts due from sanofi aventis for reimbursement of VEGF Trap development expenses. Also, our deferred revenue balances increased by $60.8 million in 2006 compared to 2005, due primarily to the October 2006 $75.0 million up-front payment from Bayer, as described above, partly offset by 20052006 revenue recognition of $9.5$11.4 million from deferred sanofi-aventis up-front payments. In addition,2005,end-of-year accounts receivable balances decreased by $6.6 million in 2005 compared to 2004, due to lower amounts due from sanofi-aventis for reimbursement of VEGF Trap development expenses and the June 2005 completion of funding for Regeneron research activities under our collaboration with Procter & Gamble. In 2004,Also, our net income of $41.7 million included (i) the March 2004 forgiveness of all outstanding loans from Novartis in an amount, including accrued interest, of $17.8 million, which we recognized as a research progress payment and (ii)deferred revenue recognition of (a) $10.5 million from the deferred $80.0 million up-front payment received from sanofi-aventis in September 2003 and (b) $22.1 million which represents the remaining deferred balance of the $27.0 million up-front payment received from Novartis in March 2003. In addition,end-of-year accounts receivablebalances increased
3741
balances increased by $27.6$14.5 million in 2005 compared to 2004, due primarily to the January 2006 $25.0 million milestoneup-front payment from sanofi- aventis thatsanofi-aventis, which was earned in 2004 and paid in January 2005.receivable at December 31, 2005, partly offset by 2005 revenue recognition of $9.5 million from deferred sanofi-aventis up-front payments. The majority of cash used in our operations in both 20052006 and 20042005 was to fund research and development, primarily related to our clinical programs.
In connection with our collaboration agreement with sanofi-aventis to jointly developboth 2006 and commercialize the VEGF Trap, we have received up-front payments of $80.0 million in September 2003 and $25.0 million in January 2006 (which was receivable at December 31, 2005). Both up-front payments were recorded to deferred revenue and are being recognized as contract research and development revenue ratably over the period during which we expect to perform services. In 2005, and 2004, we recognized $9.5 million and $10.5 million of revenue, respectively, related to these up-front payments and we anticipate, based on current VEGF Trap product development plans, that we will recognize approximately $12.2 million of revenue over each of the next 6 years and approximately $2.8 million for the subsequent 3 years. Under the collaboration agreement, agreed upon worldwide development expenses incurred by both companies under the agreement will be funded by sanofi-aventis. Sanofi-aventis funded $43.4 million, $67.8 million, and $10.7 million, respectively, of our VEGF Trap development costs in 2005, 2004, and 2003, of which $10.5 million, $13.9 million, and $8.9 million, respectively, were included in accounts receivable as of December 31, 2005, 2004, and 2003.
In both 2005 and 2004, we made two semi-annual interest payments totaling $11.0 million per year on our convertible senior subordinated notes.
Cash Provided by Investing Activities:
Net cash used in investing activities was $155.1 million in 2006 compared to net cash provided by investing activities increased toof $115.5 million in 2005, from $10.2 million in 2004, due primarily to an increase in sales or maturitiespurchases of marketable securities net of purchases.sales or maturities. In 2006, purchases of marketable securities exceeded sales or maturities by $150.7 million, whereas in 2005, sales or maturities of marketable securities exceeded purchases by $120.5 million, whereas in 2004, sales or maturities of marketable securities exceeded purchases by $16.4 million.
Cash Provided by Financing Activities:
Cash provided by financing activities decreasedincreased to $185.4 million in 2006 from $4.1 million in 2005 from $4.4due primarily to our completed public offering of 7.6 million shares of Common Stock in 2004.November 2006, as described above. In 2005, cash provided by financing activities resultedaddition, proceeds from issuances of Common Stock in connection with exercises of employee stock options. In 2004, cash provided by financing activities related primarilyoptions increased from $4.1 million in 2005 to 2004 borrowings under a loan from Novartis. In accordance with our collaboration agreement with Novartis, we elected to fund our share of 2003 IL-1 Trap development expenses through a loan that was forgiven by Novartis$10.4 million in March 2004, as described above. In the first quarter of 2004, we drew $3.8 million, excluding interest, against this loan facility for expenses incurred during 2003.2006.
Collaboration with the sanofi-aventis Group:
Under our collaboration agreement with sanofi-aventis, as described under “Collaborations” above, agreed upon worldwide VEGF Trap development expenses incurred by both companies during the term of the agreement, including costs associated with the manufacture of clinical drug supply, will be funded by sanofi-aventis. If the collaboration becomes profitable, we will be obligated to reimburse sanofi-aventis for 50% of these development expenses, including 50% of the $25.0 million payment received in connection with the January 2005 amendment to our collaboration agreement, in accordance with a formula based on the amount of development expenses and our share of the collaboration profits and Japan royalties, or at a faster rate at our option. In addition, if the first commercial sale of a VEGF Trap product for intraocular delivery to the eye predates the first commercial sale of a VEGF Trap product under the collaboration by two years, we will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses in accordance with a formula until the first commercial VEGF Trap sale under the collaboration occurs. Since inception of the collaboration agreement through December 31, 2005,2006, we and sanofi-aventis have incurred $130.5$205.0 million in agreed upon development expenses related to the VEGF Trap program. We and sanofi-aventis plan to initiate in 20062007 multiple additional clinical studies to evaluate the VEGF Trap as both a single agent and in combination with other therapies in various cancer indications.
38
Sanofi-aventis funded $47.8 million, $43.4 million, and $67.8 million, respectively, of our VEGF Trap development costs in 2006, 2005, and 2004, of which $6.8 million, $10.5 million, and $13.9 million, respectively, were included in accounts receivable as of December 31, 2006, 2005, and 2004. In addition, we have received up-front payments of $80.0 million in September 2003 and $25.0 million in January 2006 from sanofi-aventis in connection with our collaboration. Both up-front payments were recorded to deferred revenue and are being recognized as contract research and development revenue ratably over the period during which we expect to perform services. In 2006 and 2005, we recognized $11.4 million and $9.5 million of revenue, respectively, related to these up-front payments.
Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Upon termination of the agreement for any reason, any remaining obligation to reimburse sanofi-aventis for 50% of the VEGF Trap development expenses will terminate and we will retain all rights to the VEGF Trap.
42
Collaboration with Bayer Healthcare:
Under our collaboration agreement with Bayer, as described under “Collaborations” above, agreed upon VEGF Trap-Eye development expenses incurred by both companies, beginning in 2007, under a global development plan, will be shared as follows:
| | |
| 2007: | Up to $50.0 million shared equally; we are solely responsible for up to the next $40.0 million; over $90.0 million shared equally. |
|
| 2008: | Up to $70.0 million shared equally, we are solely responsible for up to the next $30.0 million; over $100.0 million shared equally. |
2009 and thereafter: All expenses shared equally.
Neither party will be reimbursed for any development expenses that it incurred prior to 2007.
We are obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.
If the VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States and the collaboration becomes profitable, we will be obligated to reimburse Bayer out of our share of the collaboration profits for 50% of the agreed upon development expenses that Bayer has incurred in accordance with a formula based on the amount of development expenses that Bayer has incurred and our share of the collaboration profits, or at a faster rate at our option. In wet AMD, we and Bayer plan in 2007 to complete our Phase 2 clinical study of the VEGF Trap-Eye currently in progress and to initiate the Phase 3 clinical program.
In October 2006, we received a $75.0 million up-front payment from Bayer in connection with our collaboration, which was recorded to deferred revenue. When we and Bayer have formalized our projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities of each of the companies under those development plans, we will begin recognizing revenue related to payments from Bayer.
Bayer has the right to terminate the agreement without cause with at least six months or twelve months advance notice depending on defined circumstances at the time of termination. In the event of termination of the agreement for any reason, we retain all rights to the VEGF Trap-Eye.
National Institutes of Health Grant:
Under our five-year grant from the NIH, as described under “Other Agreements” above, we will be entitled to receive a minimum of $17.9 million over a five-year period, subject to compliance with the grant’s terms and annual funding approvals, and another $1.0 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium. In 2006, we recognized $0.5 million of revenue related to the NIH Grant, which was receivable at the end of 2006. In 2007, we expect to receive funding of approximately $5 million for reimbursement of Regeneron expenses related to the NIH Grant.
License Agreement with AstraZeneca:
Under our non-exclusive license agreement with AstraZeneca, as described under “Other Agreements” above, AstraZeneca made a $20.0 million non-refundable up-front payment to us in February 2007. AstraZeneca also will make up to five additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the first three additional payments or if the technology does not meet minimum performance criteria.
Severance Costs:
In September 2005, we announced plans to reduce our workforce by approximately 165 employees in connection with narrowing the focus of our research and development efforts, substantial improvements in manufacturing productivity, the JuneSeptember 2005 expiration of our collaboration with Procter & Gamble, and the expected completion of contract manufacturing for Merck in late 2006. The majority of the headcount reduction occurred in the fourth quarter of 2005, with the remainder planned for2005. The remaining headcount reductions occurred in 2006 following the completion of ouras we completed activities related to contract manufacturing activities for Merck.
43
Costs associated with the workforce reduction arewere comprised principally of severance payments and related payroll taxes, employee benefits, and outplacement services. Termination costs related to 2005 workforce reductions were expensed in the fourth quarter of 2005, and included $0.2 million of non-cash expenses due to the accelerated vesting of certain stock options and restricted stock held by affected employees.expenses. Estimated termination costs associated with the planned workforce reduction in 2006 were measured in October 2005 and are being expensed ratably over the expected service period of the affected employees in accordance with SFAS 146,Accounting for Costs Associated with Exit or Disposal Activities. We estimate that totalTotal costs associated with the 2005 and planned 2006 workforce reductions will approximate $2.7were $2.6 million, of which $2.2 million was charged to expense in the fourth quarter of 2005 and approximately $0.5$0.4 million will be recognized aswas charged to expense in 2006. We anticipate cost savings of approximately $8 million in 2006 resulting from the implementation of our workforce reduction plans.
Convertible Debt:
In 2001, we issued $200.0 million aggregate principal amount of convertible senior subordinated notes in a private placement and received proceeds, after deducting the initial purchasers’ discount and out-of pocket expenses, of $192.7 million. The notes bear interest at 5.5% per annum, payable semi-annually, and mature in 2008. The notes are convertible into shares of our Common Stock at a conversion price of approximately $30.25 per share, subject to adjustment in certain circumstances. We may redeem some or all of the notes if the closing price of our Common Stock has exceeded 140% of the conversion price then in effect for a specified period of time.
As partNew Operating Lease — Tarrytown, New York Facilities
In December 2006, we entered into a new operating lease agreement for approximately 221,000 square feet of this transaction,laboratory and office space at our current Tarrytown location. The new lease includes approximately 27,000 square feet that we pledged $31.6 million of U.S. government securitiescurrently occupy (our retained facilities) and approximately 194,000 square feet to be located in new facilities that will be constructed and which was sufficient upon receipt of scheduled principal and interest paymentsare expected to provide for the paymentbe completed in fullearly-2009. The term of the first six scheduled interestlease is expected to commence in early 2008 and will expire approximately 16 years later. Under the new lease we also have various options and rights on additional space at the Tarrytown site, and will continue to lease our present facilities until the new facilities are ready for occupancy. In addition, the lease contains three renewal options to extend the term of the lease by five years each and early termination options for our retained facilities only. The lease provides for monthly payments onover the notes when due,term of the lastlease related to our retained facilities, the costs of construction and tenant improvements for our new facilities, and additional charges for utilities, taxes, and operating expenses.
In connection with the new lease agreement, in December 2006, we issued a letter of credit in the amount of $1.6 million to our landlord, which was paid in October 2004.is collateralized by a $1.6 million bank certificate of deposit.
Capital Expenditures:
Our additions to property, plant, and equipment totaled $3.3 million in 2006, $4.7 million in 2005, and $6.0 million in 2004, and $16.9 million in 2003.2004. In 2006,2007, we expect to incur approximately $5 to $7$15 million in capital expenditures which primarily consists of equipment forto support our manufacturing, development, and research activities.
Funding Requirements:
Our total expenses for research and development from inception through December 31, 20052006 have been approximately $1,013$1,150 million. We have entered into various agreements related to our activities to develop and commercialize product candidates and utilize our technology platforms, including collaboration agreements, such as those with sanofi-aventis Novartis, and Procter & Gamble,Bayer, and agreements to use our Velocigenetm® technology platform, such as our agreement with Serono S.A.platform. We incurred expenses associated with these agreements, which include an allocable portion of general and administrative costs, of $43.4 million, $42.2 million, and $75.3 million in 2006, 2005, and $56.0 million in 2005, 2004, and 2003, respectively.
We expect to continue to incur substantial funding requirements primarily for research and development activities (including preclinical and clinical testing). WeBefore taking into account reimbursements from collaborators, we currently anticipate that approximately 55%-65% of our expenditures for 20062007 will be directed toward the preclinical and clinical development of product candidates,
39
including the IL-1 Trap, VEGF Trap, VEGF Trap-Eye, and IL-1 Trap;monoclonal antibodies; approximately 20%15%-25% of our expenditures for 20062007 will be applied to our basic research activities and the continued development of our novel technology platforms; and the remainder of our expenditures for 20062007 will be used for capital expenditures and general corporate purposes.
44
In connection with our funding requirements, the following table summarizes our contractual obligations as of December 31, 20052006 for leases and long-term debt. None of these obligations extend beyond 3 years.
| | | | | | | | | | | | |
| | | | | Payments Due by Period | |
| | | | | Less than
| | | 1 to 3
| |
| | Total | | | one year | | | years | |
| | | | | (In millions) | |
|
Convertible Senior Subordinated Notes Payable (1) | | $ | 233.0 | | | $ | 11.0 | | | $ | 222.0 | |
Operating Leases (2) | | | 13.0 | | | | 4.8 | | | | 8.2 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | Payments Due by Period | |
| | | | | Less than
| | | 1 to 3
| | | 3 to 5
| | | Greater than
| |
| | Total | | | one year | | | years | | | years | | | 5 years | |
| | (In millions) | |
|
Convertible senior subordinated notes payable (1) | | $ | 222.0 | | | $ | 11.0 | | | $ | 211.0 | | | | | | | | | |
Operating leases (2) | | | 206.0 | | | | 5.0 | | | | 15.6 | | | $ | 24.0 | | | $ | 161.4 | |
Purchase obligations | | | 461.9 | | | | 210.4 | | | | 251.5 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total contractual obligations | | $ | 889.9 | | | $ | 226.4 | | | $ | 478.1 | | | $ | 24.0 | | | $ | 161.4 | |
| | | | | | | | | | | | | | | | | | | | |
| | |
(1) | | Includes amounts representing interest. |
|
(2) | | Includes projected obligations based, in part, upon budgeted construction and tenant improvement costs related to our new operating lease for facilities to be constructed in Tarrytown, New York, as described above. Excludes future contingent rental costs for utilities, real estate taxes, and operating expenses. In 2005,2006, these costs were $9.5$8.7 million. |
In connection with certain clinical trial contracts with service providers, we may incur early termination penalties if the contracts are cancelled beforeagreed-upon services are completed.
The amount we need to fund operations will depend on various factors, including the status of competitive products, the success of our research and development programs, the potential future need to expand our professional and support staff and facilities, the status of patents and other intellectual property rights, the delay or failure of a clinical trial of any of our potential drug candidates, and the continuation, extent, and success of our collaborationcollaborations with sanofi-aventis.sanofi-aventis and Bayer. Clinical trial costs are dependent, among other things, on the size and duration of trials, fees charged for services provided by clinical trial investigators and other third parties, the costs for manufacturing the product candidate for use in the trials, supplies, laboratory tests, and other expenses. The amount of funding that will be required for our clinical programs depends upon the results of our research and preclinical programs and early-stage clinical trials, regulatory requirements, the duration and results of clinical trials underway plusand of additional clinical trials that we decide to initiate, and the various factors that affect the cost of each trial as described above. In the future, if we are able to successfully develop, market, and sell certain of our product candidates, we may be required to pay royalties or otherwise share the profits generated on such sales in connection with our collaboration and licensing agreements.
We expect that expenses related to the filing, prosecution, defense, and enforcement of patent and other intellectual property claims will continue to be substantial as a result of patent filings and prosecutions in the United States and foreign countries.
We believe that our existing capital resources will enable us to meet operating needs through at least mid-2008.early 2010, without taking into consideration the $200.0 million aggregate principal amount of convertible senior subordinated notes, which mature in October 2008. However, this is a forward-looking statement based on our current operating plan, and there may be a change in projected revenues or expenses that would lead to our capital being consumed significantly before such time. If there is insufficient capital to fund all of our planned operations and activities, we believe we would prioritize available capital to fund preclinical and clinical development of our product candidates. WeOther than the $1.6 million letter of credit issued to our landlord in connection with our new operating lease for facilities in Tarrytown, New York, as described above, we have no off-balance sheet arrangements andarrangements. In addition, we do not guarantee the obligations of any other entity. As of December 31, 2005,2006, we had no established banking arrangements through which we could obtain short-term financing or a line of credit. In the event we need additional financing for the operation of our business, we will consider collaborative arrangements and additional public or private financing, including additional equity financing. In January 2005, we filed a shelf registration statement onForm S-3 to sell, in one or more offerings, up to $200.0 million of equity or debt securities, together or separately, which registration statement was declared effective in February 2005. However, there is no assurance that we will be able to complete any such offerings of securities. Factors influencing the availability of additional financing include our progress in product development, investor perception of our prospects, and the general condition of the financial markets. We may not be able to secure the necessary funding through new collaborative arrangements or additional public or private offerings. If we cannot raise adequate funds to satisfy our
45
capital requirements, we may have to delay, scale-back, or eliminate certain of our research and development activities or future operations. This could materially harm our business.
40
Critical Accounting Policies and Significant Judgments and Estimates
Revenue Recognition:
We recognize revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(SAB 104) and Emerging Issues Task Force00-21,Accounting for Revenue Arrangements with Multiple Deliverables(EITF00-21). During the third quarterWe earn contract research and development revenue and research progress payments in connection with collaboration and other agreements to develop and commercialize product candidates and utilize our technology platforms. The terms of 2003, we elected to change the method we use to recognize revenue under SAB 104 related tothese agreements typically include non-refundable collaborator payments, including up-front licensing payments, payments for development activities, and research progress (milestone) payments, to the Substantive Milestone Method, adopted retroactively to January 1, 2003. Under this method,and payments for non-refundabledevelopment activities. Non-refundable up-front license payments, thatwhere continuing involvement is required of us, are not tied to achieving a specific performance milestone or for which an estimated level of required effort is not available, we recognize revenue ratablydeferred and recognized over the estimatedrelated performance period. We estimate our performance period of time during which we expect to perform services under the agreement based on researchthe specific terms of each agreement, and development plans. These estimated timeadjust the performance periods, if appropriate, based on the applicable facts and circumstances. Our performance period estimates are updatedprincipally based on the results and progress of our research and development activities and revisions to these estimates could result in changes to the amount of revenue recognized each year in the future. In addition, if a collaborator terminates the agreement in accordance with the terms of the contract, we would recognize the remainder of the up-front payment at the time of the termination. Payments for development activities are recognized as revenue as earned, over the period of effort. Payments which are based on achieving a specific substantive performance milestone, involving a degree of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. Previously,Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period. Payments for development activities are recognized as revenue as earned, over the period of effort. In addition, we had recognizedrecord revenue from non-refundable collaborator payments based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, the revenue recognized was limited to the amount of non-refundable payments received. The change in accounting method was made because we believe that it better reflects the substance of our collaborative agreements and is more consistent with current practices in the biotechnology industry.
In connection with our VEGF Trap collaboration agreement with sanofi-aventis, we received non-refundable up-front payments of $80.0 million in September 2003 at the collaboration’s inception and $25.0 million in January 2006 in connection with the December 2005 amendmenta government research grant as we incur expenses related to the collaboration agreementgrant, subject to include Japan. These up-front payments were recorded to deferred revenuethe grant’s terms and are being recognized as contract research and development revenue over the period over which we are obligated to perform services. Also, in connection with our collaboration agreement with Novartis, in the first quarter of 2004, Novartis provided notice of its intention not to proceed with the joint development of the IL-1 Trap. Accordingly, the remaining balance of the $27.0 million up-front payment, or $22.1 million, was recognized as contract research and development revenue.annual funding approvals.
Recognition of Deferred Revenue Related to Contract Manufacturing Agreement:
We have entered into a contract manufacturing agreement with Merck, which expired in October 2006, under which we manufacturemanufactured a vaccine intermediate at our Rensselaer, New York facility and performperformed services. We recognizerecognized contract manufacturing revenue from this agreement after the product iswas tested and approved by, and shipped (FOB Shipping Point) to, Merck, and as services arewere performed. In connection with the agreement, we agreed to modify portions of our Rensselaer facility to manufacture Merck’s vaccine intermediate and Merck agreed to reimburse us for the related capital costs. These capital cost payments were deferred and are recognized as revenue as product iswas shipped to Merck, based upon our estimate of Merck’s order quantities each year through the expected end of the agreement which, for 2004 and prior years, was October 2005. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. Since we commenced production of the vaccine intermediate in November 1999, our estimates of Merck’s order quantities each year havewere not been materially different from Merck’s actual orders.
In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. As a result, in 2005 we began recognizing the remaining deferred balance of Merck’s capital improvement reimbursements as of December 31, 2004, which totaled $2.7 million, as revenue as product is shipped to Merck, based upon Merck’s order quantities through October 2006.
41
Clinical Trial Accrual Estimates:
For each clinical trial that we conduct, certain clinical trial costs, which are included in research and development expenses, are expensed based on the expected total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations are expected to provide services. We believe that this method best aligns the expenses we record with the efforts we expend on a clinical trial. During the course of a trial, we adjust our rate of clinical expense recognition if actual results differ from our estimates. No material adjustments to our past clinical trial accrual estimates were made during the years ended December 31, 2006, 2005, 2004, and 2003.2004.
46
Depreciation of Property, Plant, and Equipment:
Property, plant, and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in operations. The estimated useful lives of property, plant, and equipment are as follows:
| | | | |
Building and improvements | | | 7-30 years | |
Laboratory and computer equipment | | | 3-5 years | |
Furniture and fixtures | | | 5 years | |
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Costs of construction of certain long-lived assets include capitalized interest which is amortized over the estimated useful life of the related asset.
In some situations, the life of the asset may be extended or shortened if circumstances arise that would lead us to believe that the estimated life of the asset has changed. The life of leasehold improvements may change based on the extension of lease contracts with our landlords. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods.
Stock-based Employee Compensation:
Effective January 1, 2005, we adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123,Accounting for Stock-Based Compensation, using the modified prospective method as described in SFAS 148,Accounting for Stock-Based Compensation — Transition and Disclosure.As a result, effective January 1,in 2005, we have been recognizingrecognized compensation expense, in an amount equal to the fair value of share-based payments (including stock option awards) on their date of grant, over the vesting period of the awards.awards using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, we recognize compensation expense for Regeneron is recognized for (a) all share based payments granted on or after January 1, 2005 (including replacement options granted under our stock option exchange program which concluded on January 5, 2005) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date. Prior to the adoption of the fair value method, we accounted for stock-based compensation to employees under the intrinsic value method of accounting set forth in APB 25,Accounting for Stock Issued to Employees, and related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period prior to the first quarter of 2005 and prior period operating results have not been restated.
Effective January 1, 2006, we adopted the provisions of SFAS 123R,Share-Based Payment, which is a revision of SFAS 123. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, and requires the recognition of compensation expense in an amount equal to the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123R requires companies to estimate the number of awards that are expected to be forfeited at the time of grant and to revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Effective January 1, 2005, and prior to our adoption of SFAS 123R, we recognized the effect of forfeitures in stock-based compensation cost in the period when they occurred, in accordance with SFAS 123. Upon adoption of SFAS 123R effective January 1, 2006, we were required to record a cumulative effect adjustment to reflect the effect of estimated forfeitures related to outstanding awards that are not expected to vest as of the SFAS 123R adoption date. This adjustment reduced our loss by $0.8 million and is included in our operating results for the year ended December 31, 2006 as a cumulative-effect adjustment of a change in accounting principle.
We use the Black-Scholes model to estimate the fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of our Common Stock price, (ii) the periods of time over which employees and members of our board of directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on our Common Stock, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Expected volatility which is re-evaluated at least quarterly, has been estimated based on actual movements in our stock price over the most recent historical
47
periods equivalent to the options’ expected lives. Expected lives are principally based on our limited historical exercise experience with option grants with similar exercise prices. The
42
expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future.
Future Impact of Recently Issued Accounting Standards
In December 2004,July 2006, the Financial Accounting Standards Board (FASB) issued SFAS 123R,Share-Based Payment. SFAS 123R is a revision of SFAS 123,FASB Interpretation No. 48 (FIN 48),Accounting for Stock-Based CompensationUncertainty in Income Taxes an interpretation of FASB Statement No. 109.(which we adopted effective January 1, 2005), and supersedes APB 25,This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109,Accounting for Stock IssuedIncome Taxes.FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to Employees,be taken in a tax return. It also provides guidance on derecognition, classification, interest and its related implementation guidance. SFAS 123R focuses primarily onpenalties, accounting for transactions in which an entity obtains employee services in share-based payment transactions,interim periods, disclosure, and requires the recognition of compensation expense in an amount equal to the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123Rtransition. FIN 48 is effective for fiscal years beginning after JuneDecember 15, 2005. In March 2005, the U.S. Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 (SAB 107) which expresses views of the SEC staff regarding the application of SFAS 123R. Among other things, SAB 107 provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations as well as the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies.2006. We arewill be required to adopt SFAS 123RFIN 48 effective for the fiscal year beginning January 1, 2006, and intend to do so using the modified prospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. In addition, we will consider the guidance of SAB 107 as we adopt SFAS 123R. Although the impact of adopting SFAS 123R has not yet been quantified,2007. Our management believes that the adoption of this standard maywill not have a material impact on our financial statements.
In May 2005,September 2006, the FASB issued SFAS 154,157,Accounting Changes and Error Corrections.Fair Value Measurements SFAS 154 replaces APB 20,Accounting Changes, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and SFAS 3,Reporting Accounting Changes in Interim Financial Statements, and requires retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of a change. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.expands disclosures about fair value measurements. We arewill be required to adopt SFAS 157 effective for the provisions of SFAS 154, as applicable,fiscal year beginning January 1, 2006.2008. Our management is currently evaluating the potential impact of adopting SFAS 157 on our financial statements.
| |
Item 7A. | Quantitative and Qualitative Disclosure About Market Risk |
Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from our investment of available cash balances in investment grade corporate, asset-backed, and U.S. government securities. We do not believe we are materially exposed to changes in interest rates. Under our current policies we do not use interest rate derivative instruments to manage exposure to interest rate changes. We estimated that a one percent change in interest rates would result in changes in the fair market value of our investment portfolio of approximately $0.5$1.7 million and $1.4$0.5 million at December 31, 20052006 and 2004,2005, respectively. The decreaseincrease in the impact of an interest rate change at December 31, 2005,2006, compared to December 31, 2004,2005, is due primarily to the shorter duration ofincreases in our investment portfolioportfolio’s balance and duration to maturity at the end of 2006 versus the end of 2005.
| |
Item 8. | Financial Statements and Supplementary Data |
The financial statements required by this Item are included on pagesF-1 throughF-35 F-36 of this report. The supplementary financial information required by this Item is included atpage F-35F-36 of this report.
| |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
43
| |
Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 ( the(the “Exchange Act”) as of the end of the period covered by this Annual Report onForm 10-K. Based on this evaluation, our chief executive officer and chief financial officer each concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported on a timely basis, and is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
48
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the framework inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation our management has concluded that our internal control over financial reporting was effective as of December 31, 2005.2006. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued a report on management’s assessment and the effectiveness of our internal control over financial reporting as of December 31, 2005,2006, which report is included herein atpage F-2.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended December 31, 20052006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met and cannot detect all deviations. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or deviations, if any, within the company have been detected. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| |
Item 9B. | Other Information |
None
PART III
| |
Item 10. | Directors and Executive Officers of the Registrantand Corporate Governance |
The information required by this item (other than the information set forth in the next paragraph in this Item 10) will be included under the captions “Election of Directors,” “Board Committees and Meetings,” “Executive Officers of the Company,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in our
44
definitive proxy statement with respect to our 20062007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. The full text of our code of business conduct and ethics can be found on the Company’s website(http://www.regn.com) under the Investor Relations heading.
| |
Item 11. | Executive Compensation |
The information called for by this item will be included under the captions “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation” and “Compensation of Directors” in our definitive proxy statement with respect to our 20062007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
49
| |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The information called for by this item will be included under the captions “Stock Ownership of Executive Officers and Directors” and “Stock Ownership of Certain Beneficial Owners” in our definitive proxy statement with respect to our 20062007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
| |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information called forrequired by this item will be included under the caption “Certain Relationshipscaptions “Election of Directors” and “Review of Transactions with Related Transactions”Persons” in our definitive proxy statement with respect to our 20062007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
| |
Item 14. | Principal Accountant Fees and Services |
The information called for by this item will be included under the caption “Information about Fees Paid to Independent Registered Public Accounting Firm” in our definitive proxy statement with respect to our 20062007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
PART IV
| |
Item 15. | Exhibits and Financial Statement Schedules |
(a) 1. Financial Statements
The financials statements filed as part of this report are listed on the Index to Financial Statements onpage F-1.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
3. Exhibits
| | | | | | | | | | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 3 | .1 | | (a) | | — | | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. | 3 | .1 | | (a) | | — | | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. |
| 3 | .1.1 | | (b) | | — | | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996. | 3 | .1.1 | | (b) | | — | | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of October 18, 1996. |
| 3 | .1.2 | | (c) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001. | 3 | .1.2 | | (c) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 17, 2001. |
| 3 | .2 | | (d) | | — | | By-Laws of the Company, currently in effect (amended through November 12, 2004). | 3 | .1.3 | | (s) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 20, 2006. |
| | 3 | .2 | | (d) | | — | | By-Laws of the Company, currently in effect (amended through November 12, 2004) |
| | 10 | .1 | | (e) | | — | | 1990 Amended and Restated Long-Term Incentive Plan. |
| | 10 | .2 | | (f) | | — | | 2000 Long-Term Incentive Plan. |
| | 10 | .3.1 | | (g) | | — | | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. |
| | 10 | .3.2 | | (g) | | — | | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. |
| | 10 | .3.3 | | (h) | | — | | Amendment No. 3 to 2000 Long-term Incentive Plan, effective as of June 14, 2004. |
| | 10 | .3.4 | | (i) | | — | | Amendment No. 4 to 2000 Long-term Incentive Plan, effective as of November 15, 2004. |
| | 10 | .3.5 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers. |
| | 10 | .3.6 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers. |
4550
| | | | | | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .1 | | (e) | | — | | 1990 Amended and Restated Long-Term Incentive Plan. |
| 10 | .2 | | (f) | | — | | 2000 Long-Term Incentive Plan. |
| 10 | .3.1 | | (g) | | — | | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. |
| 10 | .3.2 | | (g) | | — | | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. |
| 10 | .3.3 | | (h) | | — | | Amendment No. 3 to 2000 Long-Term Incentive Plan, effective as of June 14, 2004. |
| 10 | .3.4 | | (i) | | — | | Amendment No. 4 to 2000 Long-Term Incentive Plan, effective as of November 15, 2004. |
| 10 | .3.5 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers. |
| 10 | .3.6 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers. |
| 10 | .3.7 | | (k) | | — | | Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers. |
| 10 | .4* | | (l) | | — | | Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc. |
| 10 | .4.1* | | (d) | | — | | Amendment No. 1 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of September 18, 1995. |
| 10 | .4.2* | | (d) | | — | | Amendment No. 2 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of October 24, 1996. |
| 10 | .4.3* | | (d) | | — | | Amendment No. 3 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of December 9, 1999. |
| 10 | .4.4* | | (d) | | — | | Amendment No. 4 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of July 18, 2002. |
| 10 | .4.5* | | (d) | | — | | Amendment No. 5 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of January 1, 2005. |
| 10 | .5 | | (m) | | — | | Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto. |
| 10 | .6 | | (g) | | — | | Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D. |
| 10 | .7* | | (d) | | — | | Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D. |
| 10 | .8 | | (s) | | — | | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006. |
| 10 | .9 | | (n) | | — | | Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee. |
| 10 | .10 | | (n) | | — | | Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc. |
| 10 | .11* | | (o) | | — | | IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc. |
| 10 | .12* | | (p) | | — | | Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company. |
| 10 | .13* | | (q) | | — | | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
| 10 | .13.1* | | (d) | | — | | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004. |
46
| | | | | | | | | | | | | | | | |
Exhibit
| Exhibit
| | | Exhibit
| | |
Number | Number | | Description | Number | | Description |
|
| 10 | .13.2 | | (r) | | — | | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005. | 10 | .3.7 | | (k) | | — | | Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers. |
| 10 | .13.3* | | | | — | | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005. | 10 | .4 | | (g) | | — | | Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D. |
| 10 | .13.4* | | | | — | | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006. | 10 | .5* | | (d) | | — | | Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D. |
| 10 | .14 | | (q) | | — | | Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. | 10 | .6 | | (q) | | — | | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006. |
| 12 | .1 | | | | — | | Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc. | 10 | .7 | | (l) | | — | | Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee. |
| 23 | .1 | | | | — | | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | 10 | .8 | | (l) | | — | | Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc. |
| 31 | .1 | | | | — | | Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. | 10 | .9* | | (m) | | — | | IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc. |
| 31 | .2 | | | | — | | Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. | 10 | .10* | | (n) | | — | | Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company. |
| 32 | | | | | — | | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350. | 10 | .11* | | (o) | | — | | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
| | 10 | .11.1* | | (d) | | — | | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004 |
| | 10 | .11.2 | | (p) | | — | | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005. |
| | 10 | .11.3* | | (r) | | — | | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005. |
| | 10 | .11.4* | | (r) | | — | | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006. |
| | 10 | .12 | | (o) | | — | | Stock Purchase Agreement, dates as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
| | 10 | .13* | | (s) | | — | | License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and Regeneron Pharmaceuticals, Inc. |
| | 10 | .14* | | | | — | | Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and Regeneron Pharmaceuticals, Inc. |
| | 10 | .15 | | (t) | | — | | Lease, dated as of December 21, 2006, by and betweenBMR-Landmark at Eastview LLC and Regeneron Pharmaceuticals, Inc. |
| | 12 | .1 | | | | — | | Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc. |
| | 23 | .1 | | | | — | | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
| | 31 | .1 | | | | — | | Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
| | 31 | .2 | | | | — | | Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
| | 32 | | | | | — | | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350. |
Description:
| | |
(a) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 1991, filed August 13, 1991. |
|
(b) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1996 filed November 5, 1996.1996 |
51
| | |
(c) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002. |
|
(d) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2004, filed March 11, 2005.2005 |
|
(e) | | Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043). |
|
(f) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the quarterfiscal year ended December 31, 2001, filed March 22, 2002. |
|
(g) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2002, filed March 31, 2003. |
|
(h) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2004, filed August 5, 2004. |
|
(i) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed November 17, 2004. |
|
(j) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005. |
|
(k) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004. |
|
(l) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1995, filed November 14, 1995. |
|
(m) | | Incorporated by reference from theForm 8-A for Regeneron Pharmaceuticals, Inc., filed October 15, 1996. |
|
(n) | | Incorporated by reference from the Company’s registration statement onForm S-3 (filenumber 333-74464). |
|
(o)(m) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002. |
47
| | |
(p)(n) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003. |
|
(q)(o) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003. |
|
(r)(p) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
|
(s)(q) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 25, 2006. |
|
(r) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2005, filed February 28, 2006. |
|
(s) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed October 18, 2006. |
|
(t) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006. |
| | |
* | | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2. |
4852
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Regeneron Pharmaceuticals, Inc.
| | | |
| By: | /s/ Leonard S. Schleifer
| |
Leonard S. Schleifer, M.D., Ph.D.
President and Chief Executive Officer
| |
Dated: | New York, New York |
February 28, 2006March 12, 2007
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard S. Schleifer, President and Chief Executive Officer, and Murray A. Goldberg, Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer, and Assistant Secretary, and each of them, his true and lawfulattorney-in-fact and agent, with the full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities therewith, to sign any and all amendments to this report onForm 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each saidattorney-in-fact and agent full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that each saidattorney-in-fact and agent, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| | | | |
Signature | | Title |
|
| | |
/s/ Leonard S. Schleifer,
Leonard S. Schleifer, M.D., Ph.D. | | President, Chief Executive Officer, and Director (Principal Executive Officer) |
| | |
/s/ Murray A. Goldberg
Murray A. Goldberg | | Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer, and Assistant Secretary (Principal Financial Officer) |
| | |
/s/ Douglas S. McCorkle
Douglas S. McCorkle | | Vice President, Controller, and Assistant Treasurer (Principal Accounting Officer) |
| | |
/s/ George D. Yancopoulos
George D. Yancopoulos, M.D., Ph.D | | Executive Vice President, Chief Scientific Officer, President, Regeneron Research Laboratories, and Director |
| | |
/s/ P. Roy Vagelos
P. Roy Vagelos, M.D. | | Chairman of the Board |
| | |
/s/ Charles A. Baker
Charles A. Baker | | Director |
| | |
/s/ Michael S. Brown
Michael S. Brown, M.D. | | Director |
4953
| | | | |
Signature | | Title |
|
| | |
/s/ Alfred G. Gilman
Alfred G. Gilman, M.D., Ph.D. | | Director |
| | |
/s/ Joseph L. Goldstein
Joseph L. Goldstein, M.D. | | Director |
| | |
/s/ Arthur F. Ryan
Arthur F. Ryan | | Director |
| | |
/s/ Eric M. Shooter
Eric M. Shooter, Ph.D. | | Director |
| | |
/s/ George L. Sing
George L. Sing | | Director |
5054
REGENERON PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
| | |
| | Page
|
| | Numbers |
|
REGENERON PHARMACEUTICALS, INCINC. | | |
| | F-2 to F-3 |
| | F-4 |
| | F-5 |
| | F-6 to F-7 |
| | F-8 |
| | F-9 to F-35F-36 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:
We have completed integrated audits of Regeneron Pharmaceuticals, Inc.’s 2005 and 2004 financial statements and of its internal control over financial reporting as of December 31, 2005 and an audit of its 2003 financial statements2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
Financial statements
In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Regeneron Pharmaceuticals, Inc. at December 31, 20052006 and 2004,2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20052006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in note 2 to the financial statements, effective January 1, 2006, the Company changed its method of accounting for share-based payment, to conform with FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-based Payment.” On January 1, 2005, the Company changed its method of accounting for stock-based employee compensation, to conform with FASB Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation.”
Internal control over financial reporting
Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 20052006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 20052006 based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
F-2
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
F-2
are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York, New York
February 27, 2006March 9, 2007
F-3
REGENERON PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31, 20052006 and 20042005
| | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2006 | | 2005 | |
| | (In thousands,
| | | (In thousands,
| |
| | except share data) | | | except share data) | |
|
ASSETS | | | | | | | | | | | | | | | | |
Current assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 184,508 | | | $ | 95,229 | | | $ | 237,876 | | | $ | 184,508 | |
Marketable securities | | | 114,037 | | | | 200,753 | | | | 221,400 | | | | 114,037 | |
Accounts receivable | | | 36,521 | | | | 43,102 | | | | 7,493 | | | | 36,521 | |
Prepaid expenses and other current assets | | | 3,422 | | | | 1,642 | | | | 3,215 | | | | 3,422 | |
Inventory | | | 2,904 | | | | 3,229 | | | | | | | | 2,904 | |
| | | | | | | | | | |
Total current assets | | | 341,392 | | | | 343,955 | | | | 469,984 | | | | 341,392 | |
Restricted cash | | | | 1,600 | | | | | |
Marketable securities | | | 18,109 | | | | 52,930 | | | | 61,983 | | | | 18,109 | |
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization | | | 60,535 | | | | 71,239 | | | | 49,353 | | | | 60,535 | |
Other assets | | | 3,465 | | | | 4,984 | | | | 2,170 | | | | 3,465 | |
| | | | | | | | | | |
Total assets | | $ | 423,501 | | | $ | 473,108 | | | $ | 585,090 | | | $ | 423,501 | |
| | | | | | | | | | |
| | | | | |
LIABILITIES and STOCKHOLDERS’ EQUITY | | | | | | | | | | | | | | | | |
Current liabilities | | | | | | | | | | | | | | | | |
Accounts payable and accrued expenses | | $ | 23,337 | | | $ | 18,872 | | | $ | 21,471 | | | $ | 23,337 | |
Deferred revenue, current portion | | | 17,020 | | | | 15,267 | | | | 23,543 | | | | 17,020 | |
| | | | | | | | | | |
Total current liabilities | | | 40,357 | | | | 34,139 | | | | 45,014 | | | | 40,357 | |
Deferred revenue | | | 69,142 | | | | 56,426 | | | | 123,452 | | | | 69,142 | |
Notes payable | | | 200,000 | | | | 200,000 | | | | 200,000 | | | | 200,000 | |
| | | | | | | | | | |
Total liabilities | | | 309,499 | | | | 290,565 | | | | 368,466 | | | | 309,499 | |
| | | | | | | | | | |
Commitments and contingencies | | | | | | | | | | | | | | | | |
Stockholders’ equity | | | | | | | | | | | | | | | | |
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding — none | | | | | | | | | | | | | | | | |
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding — 2,347,073 in 2005 and 2,358,373 in 2004 | | | 2 | | | | 2 | | |
Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding — 54,092,268 in 2005 and 53,502,004 in 2004 | | | 54 | | | | 54 | | |
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; | | | | | | | | | |
shares issued and outstanding — 2,270,353 in 2006 and 2,347,073 in 2005 | | | | 2 | | | | 2 | |
Common Stock, $.001 par value; 160,000,000 shares authorized; | | | | | | | | | |
shares issued and outstanding — 63,130,962 in 2006 and 54,092,268 in 2005 | | | | 63 | | | | 54 | |
Additional paid-in capital | | | 700,011 | | | | 675,389 | | | | 904,407 | | | | 700,011 | |
Unearned compensation | | | (315 | ) | | | (2,299 | ) | | | | | | | (315 | ) |
Accumulated deficit | | | (585,280 | ) | | | (489,834 | ) | | | (687,617 | ) | | | (585,280 | ) |
Accumulated other comprehensive loss | | | (470 | ) | | | (769 | ) | | | (231 | ) | | | (470 | ) |
| | | | | | | | | | |
Total stockholders’ equity | | | 114,002 | | | | 182,543 | | | | 216,624 | | | | 114,002 | |
| | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | 423,501 | | | $ | 473,108 | | | $ | 585,090 | | | $ | 423,501 | |
| | | | | | | | | | |
The accompanying notes are an integral part of the financial statements.
F-4
REGENERON PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, 2004, and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| | (In thousands, except per share data) | | | (In thousands, except per share data) | |
|
Revenues | | | | | | | | | | | | | | | | | | | | | | | | |
Contract research and development | | $ | 52,447 | | | $ | 113,157 | | | $ | 47,366 | | | $ | 51,136 | | | $ | 52,447 | | | $ | 113,157 | |
Research progress payments | | | | | | | 42,770 | | | | | | | | | | | | | | | | 42,770 | |
Contract manufacturing | | | 13,746 | | | | 18,090 | | | | 10,131 | | | | 12,311 | | | | 13,746 | | | | 18,090 | |
| | | | | | | | | | | | | | |
| | | 66,193 | | | | 174,017 | | | | 57,497 | | | | 63,447 | | | | 66,193 | | | | 174,017 | |
| | | | | | | | | | | | | | |
Expenses | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | | | 155,581 | | | | 136,095 | | | | 136,024 | | | | 137,064 | | | | 155,581 | | | | 136,095 | |
Contract manufacturing | | | 9,557 | | | | 15,214 | | | | 6,676 | | | | 8,146 | | | | 9,557 | | | | 15,214 | |
General and administrative | | | 25,476 | | | | 17,062 | | | | 14,785 | | | | 25,892 | | | | 25,476 | | | | 17,062 | |
| | | | | | | | | | | | | | |
| | | 190,614 | | | | 168,371 | | | | 157,485 | | | | 171,102 | | | | 190,614 | | | | 168,371 | |
| | | | | | | | | | | | | | |
Income (loss) from operations | | | (124,421 | ) | | | 5,646 | | | | (99,988 | ) | | | (107,655 | ) | | | (124,421 | ) | | | 5,646 | |
| | | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | |
Other contract income | | | 30,640 | | | | 42,750 | | | | | | | | | | | | 30,640 | | | | 42,750 | |
Investment income | | | 10,381 | | | | 5,478 | | | | 4,462 | | | | 16,548 | | | | 10,381 | | | | 5,478 | |
Interest expense | | | (12,046 | ) | | | (12,175 | ) | | | (11,932 | ) | | | (12,043 | ) | | | (12,046 | ) | | | (12,175 | ) |
| | | | | | | | | | | | | | |
| | | 28,975 | | | | 36,053 | | | | (7,470 | ) | | | 4,505 | | | | 28,975 | | | | 36,053 | |
| | | | | | | | | | | | | | |
Net income (loss) before cumulative effect of a change in accounting principle | | | | (103,150 | ) | | | (95,446 | ) | | | 41,699 | |
Cumulative effect of adopting Statement of Financial Accounting Standards No. 123R (“SFAS 123R”) | | | | 813 | | | | | | | | | |
| | | | | | | | |
Net income (loss) | | $ | (95,446 | ) | | $ | 41,699 | | | $ | (107,458 | ) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
| | | | | | | | | | | | | | |
Net income (loss) per share: | | | | | | | | | | | | | |
Basic | | $ | (1.71 | ) | | $ | 0.75 | | | $ | (2.13 | ) | |
Diluted | | $ | (1.71 | ) | | $ | 0.74 | | | $ | (2.13 | ) | |
Net income (loss) per share, basic: | | | | | | | | | | | | | |
Net income (loss) before cumulative effect of a change in accounting principle | | | $ | (1.78 | ) | | $ | (1.71 | ) | | $ | 0.75 | |
Cumulative effect of adopting SFAS 123R | | | | 0.01 | | | | | | | | | |
| | | | | | | | |
Net income (loss) | | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.75 | |
| | | | | | | | |
Net income (loss) per share, diluted | | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.74 | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | | 55,950 | | | | 55,419 | | | | 50,490 | | | | 57,970 | | | | 55,950 | | | | 55,419 | |
Diluted | | | 55,950 | | | | 56,172 | | | | 50,490 | | | | 57,970 | | | | 55,950 | | | | 56,172 | |
The accompanying notes are an integral part of the financial statements.
F-5
REGENERON PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, 2004, and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | | |
| | | | | | | | | | Additional
| | | | | | Other
| | Total
| | | | | | | | | | | | | Additional
| | | | | | Other
| | Total
| | | |
| | Class A Stock | | Common Stock | | Paid-in
| | Unearned
| | Accumulated
| | Comprehensive
| | Stockholders’
| | Comprehensive
| | | Class A Stock | | Common Stock | | Paid-in
| | Unearned
| | Accumulated
| | Comprehensive
| | Stockholders’
| | Comprehensive
| |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Compensation | | Deficit | | Income (Loss) | | Equity | | Income (Loss) | | | Shares | | Amount | | Shares | | Amount | | Capital | | Compensation | | Deficit | | Income (Loss) | | Equity | | Income (Loss) | |
| | (In thousands) | | | (In thousands) | |
|
Balance, December 31, 2002 | | | 2,491 | | | $ | 2 | | | | 41,746 | | | $ | 42 | | | $ | 573,184 | | | $ | (3,643 | ) | | $ | (424,075 | ) | | $ | 471 | | | $ | 145,981 | | | | | | |
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered | | | | | | | | | | | 601 | | | | | | | | 1,941 | | | | | | | | | | | | | | | | 1,941 | | | | | | |
Issuance of Common Stock to Novartis Pharma AG | | | | | | | | | | | 7,527 | | | | 8 | | | | 47,992 | | | | | | | | | | | | | | | | 48,000 | | | | | | |
Issuance of Common Stock to the sanofi-aventis Group | | | | | | | | | | | 2,800 | | | | 3 | | | | 44,997 | | | | | | | | | | | | | | | | 45,000 | | | | | | |
Issuance of Common Stock to Merck & Co. Inc. | | | | | | | | | | | 109 | | | | | | | | 1,500 | | | | | | | | | | | | | | | | 1,500 | | | | | | |
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | 43 | | | | | | | | 747 | | | | | | | | | | | | | | | | 747 | | | | | | |
Conversion of Class A Stock to Common Stock | | | (125 | ) | | | | | | | 125 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures | | | | | | | | | | | 215 | | | | | | | | 2,757 | | | | (2,757 | ) | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | 2,299 | | | | | | | | | | | | 2,299 | | | | | | |
Net loss, 2003 | | | | | | | | | | | | | | | | | | | | | | | | | | | (107,458 | ) | | | | | | | (107,458 | ) | | $ | (107,458 | ) | |
Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (367 | ) | | | (367 | ) | | | (367 | ) | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2003 | | | 2,366 | | | | 2 | | | | 53,166 | | | | 53 | | | | 673,118 | | | | (4,101 | ) | | | (531,533 | ) | | | 104 | | | | 137,643 | | | $ | (107,825 | ) | | | 2,366 | | | $ | 2 | | | | 53,166 | | | $ | 53 | | | $ | 673,118 | | | $ | (4,101 | ) | | $ | (531,533 | ) | | $ | 104 | | | $ | 137,643 | | | | | |
| | | | |
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered | | | | | | | | | | | 286 | | | | 1 | | | | 1,501 | | | | | | | | | | | | | | | | 1,502 | | | | | | | | | | | | | | | | 286 | | | | 1 | | | | 1,501 | | | | | | | | | | | | | | | | 1,502 | | | | | |
Repurchase of Common Stock from Merck & Co., Inc. | | | | | | | | | | | (109 | ) | | | | | | | (888 | ) | | | | | | | | | | | | | | | (888 | ) | | | | | | | | | | | | | | | (109 | ) | | | | | | | (888 | ) | | | | | | | | | | | | | | | (888 | ) | | | | |
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | 64 | | | | | | | | 917 | | | | | | | | | | | | | | | | 917 | | | | | | | | | | | | | | | | 64 | | | | | | | | 917 | | | | | | | | | | | | | | | | 917 | | | | | |
Conversion of Class A Stock to Common Stock | | | (8 | ) | | | | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (8 | ) | | | | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures | | | | | | | | | | | 87 | | | | | | | | 741 | | | | (741 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | 87 | | | | | | | | 741 | | | | (741 | ) | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | 2,543 | | | | | | | | | | | | 2,543 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 2,543 | | | | | | | | | | | | 2,543 | | | | | |
Net income, 2004 | | | | | | | | | | | | | | | | | | | | | | | | | | | 41,699 | | | | | | | | 41,699 | | | $ | 41,699 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 41,699 | | | | | | | | 41,699 | | | $ | 41,699 | |
Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (873 | ) | | | (873 | ) | | | (873 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (873 | ) | | | (873 | ) | | | (873 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2004 | | | 2,358 | | | | 2 | | | | 53,502 | | | | 54 | | | | 675,389 | | | | (2,299 | ) | | | (489,834 | ) | | | (769 | ) | | | 182,543 | | | $ | 40,826 | | | | 2,358 | | | | 2 | | | | 53,502 | | | | 54 | | | | 675,389 | | | | (2,299 | ) | | | (489,834 | ) | | | (769 | ) | | | 182,543 | | | $ | 40,826 | |
| | | | | | |
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered | | | | | | | | | | | | 494 | | | | | | | | 4,081 | | | | | | | | | | | | | | | | 4,081 | | | | | |
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | | 90 | | | | | | | | 632 | | | | | | | | | | | | | | | | 632 | | | | | |
Conversion of Class A Stock to Common Stock | | | | (11 | ) | | | | | | | 11 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeitures of restricted Common Stock under Long-Term Incentive Plan | | | | | | | | | | | | (5 | ) | | | | | | | (54 | ) | | | 54 | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | 19,963 | | | | 1,930 | | | | | | | | | | | | 21,893 | | | | | |
Net loss, 2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | (95,446 | ) | | | | | | | (95,446 | ) | | $ | (95,446 | ) |
Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 299 | | | | 299 | | | | 299 | |
| | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2005 | | | | 2,347 | | | | 2 | | | | 54,092 | | | | 54 | | | | 700,011 | | | | (315 | ) | | | (585,280 | ) | | | (470 | ) | | | 114,002 | | | $ | (95,147 | ) |
| | | | |
(Continued) | | (Continued) |
(Continued)
F-6
REGENERON PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, 2004, and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Accumulated
| | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | | |
| | | | | | | | | | Additional
| | | | | | Other
| | Total
| | | | | | | | | | | | | Additional
| | | | | | Other
| | Total
| | | |
| | Class A Stock | | Common Stock | | Paid-in
| | Unearned
| | Accumulated
| | Comprehensive
| | Stockholders’
| | Comprehensive
| | | Class A Stock | | Common Stock | | Paid-in
| | Unearned
| | Accumulated
| | Comprehensive
| | Stockholders’
| | Comprehensive
| |
| | Shares | | Amount | | Shares | | Amount | | Capital | | Compensation | | Deficit | | Income (Loss) | | Equity | | Income (Loss) | | | Shares | | Amount | | Shares | | Amount | | Capital | | Compensation | | Deficit | | Income (Loss) | | Equity | | Income (Loss) | |
| | (In thousands) | | | (In thousands) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of Common Stock in a public offering at $23.03 per share | | | | | | | | | | | | 7,600 | | | | 8 | | | | 175,020 | | | | | | | | | | | | | | | | 175,028 | | | | | |
Cost associated with issuance of equity securities | | | | | | | | | | | | | | | | | | | | (412 | ) | | | | | | | | | | | | | | | (412 | ) | | | | |
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered | | | | | | | | | | | 494 | | | | | | | | 4,081 | | | | | | | | | | | | | | | | 4,081 | | | | | | | | | | | | | | | | 1,243 | | | | 1 | | | | 10,391 | | | | | | | | | | | | | | | | 10,392 | | | | | |
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | 90 | | | | | | | | 632 | | | | | | | | | | | | | | | | 632 | | | | | | | | | | | | | | | | 121 | | | | | | | | 1,884 | | | | | | | | | | | | | | | | 1,884 | | | | | |
Conversion of Class A Stock to Common Stock | | | (11 | ) | | | | | | | 11 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (77 | ) | | | | | | | 77 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forfeitures of restricted Common Stock under Long-Term Incentive Plan | | | | | | | | | | | (5 | ) | | | | | | | (54 | ) | | | 54 | | | | | | | | | | | | | | | | | | | | | | | | | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation expense | | | | | | | | | | | | | | | | | | | 19,963 | | | | 1,930 | | | | | | | | | | | | 21,893 | | | | | | | | | | | | | | | | | | | | | | | | 18,641 | | | | | | | | | | | | | | | | 18,641 | | | | | |
Net loss, 2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | (95,446 | ) | | | | | | | (95,446 | ) | | $ | (95,446 | ) | |
Adjustment to reduce unearned compensation upon adoption of SFAS 123R | | | | | | | | | | | | | | | | | | | | (315 | ) | | | 315 | | | | | | | | | | | | | | | | | |
Cumulative effect of adopting SFAS 123R | | | | | | | | | | | | | | | | | | | | (813 | ) | | | | | | | | | | | | | | | (813 | ) | | | | |
Net loss, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | | | | (102,337 | ) | | | | | | | (102,337 | ) | | $ | (102,337 | ) |
Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 299 | | | | 299 | | | | 299 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 239 | | | | 239 | | | | 239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2005 | | | 2,347 | | | $ | 2 | | | | 54,092 | | | $ | 54 | | | $ | 700,011 | | | $ | (315 | ) | | $ | (585,280 | ) | | $ | (470 | ) | | $ | 114,002 | | | $ | (95,147 | ) | |
Balance, December 31, 2006 | | | | 2,270 | | | $ | 2 | | | | 63,131 | | | $ | 63 | | | $ | 904,407 | | | | — | | | $ | (687,617 | ) | | $ | (231 | ) | | $ | 216,624 | | | $ | (102,098 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of the financial statements.
F-7
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005, 2004, and 20032004
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
| | (In thousands) | | | (In thousands) | |
|
Cash flows from operating activities | | | | | | | | | | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (95,446 | ) | | $ | 41,699 | | | $ | (107,458 | ) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
| | | | | | | | | | | | | | |
Adjustments to reconcile net income (loss) to net cash used in operating activities | | | | | | | | | | | | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | | | | | | | | | | | |
Depreciation and amortization | | | 15,504 | | | | 15,362 | | | | 12,937 | | | | 14,592 | | | | 15,504 | | | | 15,362 | |
Non-cash compensation expense | | | 21,859 | | | | 2,543 | | | | 2,562 | | | | 18,675 | | | | 21,859 | | | | 2,543 | |
Non-cash expense related to a license agreement | | | | | | | | | | | 1,500 | | |
Cumulative effect of a change in accounting principle | | | | (813 | ) | | | | | | | | |
Forgiveness of loan payable to Novartis Pharma AG, inclusive of accrued interest | | | | | | | (17,770 | ) | | | | | | | | | | | | | | | (17,770 | ) |
Changes in assets and liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Decrease (increase) in accounts receivable | | | 6,581 | | | | (27,573 | ) | | | (11,512 | ) | | | 29,028 | | | | 6,581 | | | | (27,573 | ) |
Decrease (increase) in prepaid expenses and other assets | | | 74 | | | | (1,799 | ) | | | 589 | | | | 155 | | | | 74 | | | | (1,799 | ) |
Decrease (increase) in inventory | | | 1,250 | | | | 6,914 | | | | (1,049 | ) | |
Decrease in inventory | | | | 3,594 | | | | 1,250 | | | | 6,914 | |
Increase (decrease) in deferred revenue | | | 14,469 | | | | (37,310 | ) | | | 93,869 | | | | 60,833 | | | | 14,469 | | | | (37,310 | ) |
Increase in accounts payable, accrued expenses, and other liabilities | | | 5,413 | | | | 1,025 | | | | 2,429 | | |
(Decrease) increase in accounts payable, accrued expenses, and other liabilities | | | | (652 | ) | | | 5,413 | | | | 1,025 | |
| | | | | | | | | | | | | | |
Total adjustments | | | 65,150 | | | | (58,608 | ) | | | 101,325 | | | | 125,412 | | | | 65,150 | | | | (58,608 | ) |
| | | | | | | | | | | | | | |
Net cash used in operating activities | | | (30,296 | ) | | | (16,909 | ) | | | (6,133 | ) | |
Net cash provided by (used in) operating activities | | | | 23,075 | | | | (30,296 | ) | | | (16,909 | ) |
| | | | | | | | | | | | | | |
Cash flows from investing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Purchases of marketable securities | | | (102,990 | ) | | | (268,244 | ) | | | (284,647 | ) | | | (456,893 | ) | | | (102,990 | ) | | | (268,244 | ) |
Purchases of restricted marketable securities | | | | | | | (11,075 | ) | | | (11,055 | ) | | | | | | | | | | | (11,075 | ) |
Sales or maturities of marketable securities | | | 223,448 | | | | 273,587 | | | | 253,691 | | | | 306,199 | | | | 223,448 | | | | 273,587 | |
Maturities of restricted marketable securities | | | | | | | 22,126 | | | | 22,054 | | | | | | | | | | | | 22,126 | |
Capital expenditures | | | (4,964 | ) | | | (6,174 | ) | | | (29,656 | ) | | | (2,811 | ) | | | (4,964 | ) | | | (6,174 | ) |
Increase in restricted cash | | | | (1,600 | ) | | | | | | | | |
| | | | | | | | | | | | | | |
Net cash provided by (used in) investing activities | | | 115,494 | | | | 10,220 | | | | (49,613 | ) | |
Net cash (used in) provided by investing activities | | | | (155,105 | ) | | | 115,494 | | | | 10,220 | |
| | | | | | | | | | | | | | |
Cash flows from financing activities | | | | | | | | | | | | | | | | | | | | | | | | |
Net proceeds from issuances of Common Stock | | | 4,081 | | | | 1,502 | | | | 94,678 | | |
Net proceeds from the issuance of Common Stock | | | | 185,008 | | | | 4,081 | | | | 1,502 | |
Repurchase of Common Stock | | | | | | | (888 | ) | | | | | | | | | | | | | | | (888 | ) |
Borrowings under loan payable | | | | | | | 3,827 | | | | 13,656 | | | | | | | | | | | | 3,827 | |
Capital lease payments | | | | | | | | | | | (150 | ) | |
Other | | | | 390 | | | | | | | | | |
| | | | | | | | | | | | | | |
Net cash provided by financing activities | | | 4,081 | | | | 4,441 | | | | 108,184 | | | | 185,398 | | | | 4,081 | | | | 4,441 | |
| | | | | | | | | | | | | | |
Net increase (decrease) in cash and cash equivalents | | | 89,279 | | | | (2,248 | ) | | | 52,438 | | | | 53,368 | | | | 89,279 | | | | (2,248 | ) |
Cash and cash equivalents at beginning of period | | | 95,229 | | | | 97,477 | | | | 45,039 | | | | 184,508 | | | | 95,229 | | | | 97,477 | |
| | | | | | | | | | | | | | |
Cash and cash equivalents at end of period | | $ | 184,508 | | | $ | 95,229 | | | $ | 97,477 | | | $ | 237,876 | | | $ | 184,508 | | | $ | 95,229 | |
| | | | | | | | | | | | | | |
Supplemental disclosure of cash flow information | | | | | | | | | | | | | |
Cash paid for interest | | $ | 11,002 | | | $ | 11,007 | | | $ | 11,003 | | |
Supplemental disclosure of cash flow information Cash paid for interest | | | $ | 11,000 | | | $ | 11,002 | | | $ | 11,007 | |
| | | | | | | | | | | | | | |
The accompanying notes are an integral part of the financial statements.
F-8
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
For the Years Endedyears ended December 31, 2006, 2005, 2004, and 2003
2004
(Unless otherwise noted, dollars in thousands, except per share data)
| |
1. | Organization and Business |
Regeneron Pharmaceuticals, Inc. (the “Company” or “Regeneron”) was incorporated in January 1988 in the State of New York. The Company is engaged in research and development programs to discover and commercialize therapeutics to treat human disorders and conditions. The Company’s facilities are located in New York. The Company’s business is subject to certain risks including, but not limited to, uncertainties relating to conducting pharmaceutical research, obtaining regulatory approvals, commercializing products, and obtaining and enforcing patents.
| |
2. | Summary of Significant Accounting Policies |
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in operations. The estimated useful lives of property, plant, and equipment are as follows:
| | | | |
Building and improvements | | | 7-30 years | |
Laboratory and computer equipment | | | 3-5 years | |
Furniture and fixtures | | | 5 years | |
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Costs of construction of certain long-lived assets include capitalized interest which is amortized over the estimated useful life of the related asset. The Company capitalized interest costs of $0.3 million in 2003. The Company did not capitalize any interest costs in 2004 or 2005.
Cash and Cash Equivalents
For purposes of the statement of cash flows and the balance sheet, the Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined based on standards that approximate thefirst-in, first-out method. Inventories are shown net of applicable reserves.
Revenue RecognitionProperty, Plant, and Change in Accounting PrincipleEquipment
a. Contract ResearchProperty, plant, and Development and Research Progress Payments
The Company recognizes revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(“SAB 104”) and FASB Emerging Issue Task Force IssueNo. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables(“EITF 00-21”). SAB 104 superseded Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statement(“SAB 101”), in December 2003. During the third quarter of 2003, the Company elected to change the method it uses to recognize revenue under SAB 101 related to non-refundable collaborator payments, including up-front licensing payments, payments for development activities, and research progress (milestone) payments, to the Substantive Milestone Method, adopted retroactively to January 1, 2003. There was no cumulative effect of this change in accounting
F-9
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
principleequipment are stated at cost. Depreciation is provided on prior periods. Under this method, for non-refundable up-front license payments that are not tied to achieving a specific performance milestone or for which an estimated level of required effort is not available, we recognize revenue ratablystraight-line basis over the estimated perioduseful lives of time duringthe assets. Expenditures for maintenance and repairs which we expectdo not materially extend the useful lives of the assets are charged to perform services underexpense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the agreement based on researchrespective accounts, and development plans. Payments for development activitiesany gain or loss is recognized in operations. The estimated useful lives of property, plant, and equipment are recognized as revenue as earned,follows:
| | | | |
Building and improvements | | | 7-30 years | |
Laboratory and computer equipment | | | 3-5 years | |
Furniture and fixtures | | | 5 years | |
Leasehold improvements are amortized over the periodshorter of effort. Paymentsthe lease term or the estimated useful lives of the assets. Costs of construction of certain long-lived assets include capitalized interest which are based on achieving a specific substantive performance milestone, involving a degreeis amortized over the estimated useful life of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. The change in accounting method was made because the Company believes that it better reflects the substance of the Company’s collaborative agreements and is more consistent with current practices in the biotechnology industry.
Previously, the Company had recognized revenue from non-refundable collaborator payments based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, the revenue recognized was limited to the amount of non-refundable payments received. This accounting method was adopted on January 1, 2000 upon the release of SAB 101. The cumulative effect of adopting SAB 101 at January 1, 2000 amounted to $1.6 million of additional loss, with a corresponding increase to deferred revenue that was recognized in subsequent periods, of which $0.1 million and $0.4 million, respectively, was included in contract research and development revenue in 2004 and 2003. The $1.6 million represented a portion of a 1989 payment received from Sumitomo Chemical Co. Ltd. in consideration for a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan that expired in 2004 (see Note 12d). The effect of income taxes on the cumulative effect adjustment was immaterial.
b. Contract Manufacturing
The Company has entered into a contract manufacturing agreement under which it manufactures product and performs services for a third party. Contract manufacturing revenue is recognized as product is shipped and as services are performed (see Note 13).
Investment Income
Interest income, which is included in investment income, is recognized as earned.asset.
Accounting for the Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of long-lived assets, such as property, plant, and equipment, and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future undiscounted cash flows are less than the carrying amount in accordance with Statement of Financial Accounting Standards No. (“SFAS”) 144,Accounting for the Impairment or Disposal of Long-Lived Assets. For all periods presented, no impairment losses were recorded.
Patents
As a result of the Company’s research and development efforts, itthe Company has obtained, applied for, or is applying for, a number of patents to protect proprietary technology and inventions. All costs associated with patents are expensed as incurred.
F-10F-9
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Revenue Recognition
a. Contract Research and Development and Research Progress Payments
The Company recognizes revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(“SAB 104”) and FASB Emerging Issue Task Force IssueNo. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables (“EITF00-21”). Contract research and development revenue and research progress payments are earned by the Company in connection with collaboration and other agreements to develop and commercialize product candidates and utilize the Company’s technology platforms. The terms of these agreements typically include non-refundable up-front licensing payments, research progress (milestone) payments, and payments for development activities. Non-refundable up-front license payments, where continuing involvement is required of the Company, are deferred and recognized over the related performance period. The Company estimates its performance period based on the specific terms of each agreement, and adjusts the performance periods, if appropriate, based on the applicable facts and circumstances. Payments which are based on achieving a specific substantive performance milestone, involving a degree of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period. Payments for development activities are recognized as revenue as earned, over the period of effort. In addition, we record revenue in connection with a government research grant as we incur expenses related to the grant, subject to the grant’s terms and annual funding approvals.
b. Contract Manufacturing
The Company manufactured product and performed services for a third party under a contract manufacturing agreement which expired in October 2006. Contract manufacturing revenue was recognized as product was shipped and as services were performed (see Note 13).
Investment Income
Interest income, which is included in investment income, is recognized as earned.
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, costs related to research collaboration and licensing agreements (see Note 11e)11d), the cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, expenses related to the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.
For each clinical trial that the Company conducts, certain clinical trial costs, which are included in research and development expenses, are expensed based on the expected total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations are
F-10
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
expected to provide services. During the course of a clinical trial, the Company adjusts its rate of clinical expense recognition if actual results differ from the Company’s estimates.
Per Share Data
Net income (loss) per share, basic and diluted, is computed on the basis of the net income (loss) for the period divided by the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. The basic net income (loss) per share excludes restricted stock awards until vested. The diluted net income per share for the year ended December 31, 2004 is based upon the weighted average number of shares of Common Stock and Class A Stock outstanding, and theof common stock equivalents outstanding when dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock awards under the Company’s Long-Term Incentive Plans, which are included under the treasury stock method when dilutive, and (ii) Common Stock to be issued under the assumed conversion of the Company’s outstanding convertible senior subordinated notes, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for the years ended December 31, 20052006 and 20032005 does not include common stock equivalents, since such inclusion would be antidilutive. The computation of diluted net income per share for the year ended December 31, 2004 includes dilutive common stock equivalents. Disclosures required by SFAS 128,Earnings per Share, have been included in Note 18.19.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is established for deferred tax assets for which realization is uncertain. See Note 16.17.
Comprehensive Income (Loss)
Comprehensive income (loss) represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) of the Company includes net income (loss) adjusted for the change in net unrealized gain or loss on marketable securities. The net effect of income taxes on comprehensive income (loss) is immaterial. Comprehensive income for the year ended December 31, 2004 and comprehensive losses for the years ended December 31, 20052006 and 20032005 have been included in the Statements of Stockholders’ Equity.
F-11
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities, and receivables from the sanofi-aventis Group and Merck & Co., Inc.Group. The Company generally invests its excess cash in obligations of the U.S. government and its agencies, bank deposits, asset-backed securities, investment grade debt securities issued by corporations, governments, and financial institutions, and money market funds that invest in these instruments. The Company has established guidelines that relate to credit quality, diversification, and maturity, and that limit exposure to any one issue of securities.
Risks and Uncertainties
Regeneron has had no sales of its products and there is no assurance that the Company’s research and development efforts will be successful, that the Company will ever have commercially approved products, or that the Company will achieve significant sales of any such products. The Company has generally incurred net losses
F-11
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
and negative cash flows from operations since its inception. Revenues to date have principally been limited to (i) payments from the Company’s collaborators and other entities for the Company’s development activities with respect to product candidates and to utilize the Company’s technology platforms, (ii) payments from two pharmaceutical companies for contract manufacturing, and (iii) investment income. The Company operates in an environment of rapid change in technology and is dependent upon the services of its employees, consultants, collaborators, and certain third-party suppliers, including single-source unaffiliated third-party suppliers of certain raw materials and equipment. Regeneron, as licensee, licenses certain technologies that are important to the Company’s business which impose various obligations on the Company. If Regeneron fails to comply with these requirements, licensors may have the right to terminate the Company’s licenses.
Contract research and development revenue in 20052006 was primarily earned from sanofi-aventis under a collaboration agreement (see Note 12a). The Company recognizes revenue from its collaboration with sanofi-aventis in accordance with SAB 104 and The Procter & Gamble Company under collaboration agreements (see Notes 12a and 12e).EITF00-21, as described above. Under the terms of the collaboration agreement, with sanofi-aventis, agreed upon VEGF Trap development expenses incurred by Regeneron during the term of the agreement will be funded by sanofi-aventis. In addition, the Company earns revenue related to non-refundable, up-front payments from sanofi-aventis under the Substantive Milestone Method in accordance with SAB 104, as described above.sanofi-aventis. The Company also may also receive up to $400.0 million in milestone payments upon receipt of specified VEGF Trap marketing approvals. Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Under the collaboration agreement with Procter & Gamble, as amended, Procter & Gamble made payments to fund Regeneron research of $2.5 million per quarter, plus adjustments for inflation, through June 2005. As of June 30, 2005, the Company and Procter & Gamble agreed that the research activities of the parties under the collaboration agreement were completed. Contract manufacturing revenue in 2005 was earned from Merck under a long-term manufacturing agreement that will expire in October 2006 (see Note 13).
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include (i) useful lives of property, plant, and equipment, (ii) the periods over which certain revenues and expenses will be recognized including contract research and development revenue recognized from non-refundable up-front payments contract manufacturing revenue recognized from reimbursed deferred capital costs, and expense recognition of certain clinical trial costs which are included in research and development expenses, (iii) the extent to which deferred tax assets and liabilities are offset by a valuation allowance, and (iv) the fair value of stock options on their date of grant using the Black-Scholes option-pricing model, based on assumptions with respect to (a) expected volatility of our Common Stock price, (b) the periods of time over which employees and members of the Company’s board of
F-12
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
directors are expected to hold their options prior to exercise (expected lives), (c) expected dividend yield on the Company’s Common Stock, and (d) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. In addition, in connection with the recognition of compensation expense in accordance with the provisions of SFAS 123R,Share-Based Payment, as described below, the Company is required to estimate, at the time of grant, the number of stock option awards that are expected to be forfeited.
Stock-based Employee Compensation
Effective January 1, 2005, the Company adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123,Accounting for Stock-Based Compensation, using the modified prospective method as described in SFAS 148,Accounting for Stock-Based Compensation — Transition and Disclosure. As a result, effective January 1,in 2005, the Company has been recognizingrecognized compensation expense, in an amount equal to the fair value of share-based payments (including stock option awards) on their date of grant, over the vesting period of the awards.awards using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, compensation expense for the Company is recognized for (a) all share based payments granted on or after January 1, 2005 (including replacement options granted under the Company’s stock option exchange program which concluded on January 5, 2005 (see Note 14a)14)) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date.
F-12
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Effective January 1, 2006, the Company adopted the provisions of SFAS 123R,Share-Based Payment, which is a revision of SFAS 123. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, and requires the recognition of compensation expense in an amount equal to the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123R requires companies to estimate, at the time of grant, the number of awards that are expected to be forfeited and to revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Effective January 1, 2005, and prior to the Company’s adoption of SFAS 123R, the Company recognized the effect of forfeitures in stock-based compensation cost in the period when they occurred, in accordance with SFAS 123. Upon adoption of SFAS 123R effective January 1, 2006, the Company was required to record a cumulative effect adjustment to reflect the effect of estimated forfeitures related to outstanding awards that are not expected to vest as of the SFAS 123R adoption date. This adjustment reduced the Company’s loss by $0.8 million and is included in the Company’s operating results in 2006 as a cumulative-effect adjustment of a change in accounting principle.
Prior to the adoption of the fair value method, the Company accounted for stock-based compensation to employees under the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. (“APB”) 25,Accounting for Stock Issued to Employees, and related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period prior to the first quarter of 2005 and prior period results have not been restated. For the yearyears ended December 31, 2006 and 2005, $18.4 million and $19.9 million, respectively, of non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) totaled $20.0 million, of which $19.9 million was recognized in operating expenses andexpenses. In addition, for the year ended December 31, 2005, $0.1 million of Stock Option Expense was capitalized in inventory. For the yearsyear ended December 31, 2004, and 2003 had the Company adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123, Stock Option Expense would have totaled $33.6 million and $42.5 million, respectively, and the effect on the Company’s net income (loss) and net income (loss) per share would have been as follows:
| | | | | | | | | | | | |
| | 2004 | | 2003 | | | 2004 | |
|
Net income (loss), as reported | | $ | 41,699 | | | $ | (107,458 | ) | |
Add: Stock-based employee compensation expense included in reported net income (loss) | | | 2,543 | | | | 2,562 | | |
Net income, as reported | | | $ | 41,699 | |
Add: Stock-based employee compensation expense included in reported net income | | | | 2,543 | |
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards | | | (36,093 | ) | | | (45,048 | ) | | | (36,093 | ) |
| | | | | | | | |
Pro forma net income (loss), basic and diluted | | $ | 8,149 | | | $ | (149,944 | ) | |
Pro forma net income, basic and diluted | | | $ | 8,149 | |
| | | | | | | | |
Basic net income (loss) per share amounts: | | | | | | | | | |
Basic net income per share amounts: | | | | | |
As reported | | $ | 0.75 | | | $ | (2.13 | ) | | $ | 0.75 | |
Pro forma | | $ | 0.15 | | | $ | (2.97 | ) | | $ | 0.15 | |
Diluted net income (loss) per share amounts: | | | | | | | | | |
Diluted net income per share amounts: | | | | | |
As reported | | $ | 0.74 | | | $ | (2.13 | ) | | $ | 0.74 | |
Pro forma | | $ | 0.15 | | | $ | (2.97 | ) | | $ | 0.15 | |
In 2003, the Company’s chief executive officer was granted permission by the board of directors to initiate a net cashless exercise of stock options. Upon completion of the net cashless exercise, the Company recognized $0.3 million of compensation expense, which equaled the excess of the fair market value of the shares over the option exercise price on the date that the board of directors granted its consent for the transaction.
Other disclosures required by SFAS 123 and SFAS 123R have been included in Note 14a.
F-13
REGENERON PHARMACEUTICALS, INC.
14.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
In 2004, and 2003, the Company awarded 105,052 and 219,367 shares respectively, of Restricted Stock under the Regeneron Pharmaceuticals, Inc. Long-Term Incentive Plan (see Note 14a)Notes 14). No Restricted Stock was awarded in 2006 or 2005. The Company records unearned compensation in Stockholders’ Equity related to these awards based on the fair market value of shares of
F-13
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
the Company’s Common Stock on the grant date of the Restricted Stock award, which is expensed, on a pro rata basis, over the period that the restrictions on these shares lapse. In 2006, 2005, 2004, and 2003,2004, the Company recognized $0.3 million, $1.9 million, $2.5 million, and $2.3$2.5 million, respectively, of compensation expense related to Restricted Stock awards.
Included in accounts payable and accrued expenses at December 31, 2006, 2005, and 2004 and 2003 were $0.8 million, $0.2 million, $0.6 million, and $0.8$0.6 million of capital expenditures, respectively.
Included in accounts payable and accrued expenses at December 31, 2005, 2004, and 2003 and 2002 were $1.9 million, $0.6 million, $0.9 million, and $0.7$0.9 million, respectively, of accrued 401(k) Savings Plan contribution expense. During the first quarter of 2006, 2005, 2004, and 2003,2004, the Company contributed 120,960, 90,385, 64,333, and 42,54364,333 shares, respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.
Included in marketable securities at December 31, 2006, 2005, and 2004 and 2003 were $1.5 million, $1.2 million, $2.6 million, and $0.9$2.6 million of accrued interest income, respectively.
Future Impact of Recently Issued Accounting Standards
In December 2004,July 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R,Share-Based Payment.SFAS 123R is a revision of SFAS 123,FASB Interpretation No. 48 (“FIN 48”), Accounting for Stock-Based Compensation(which we adopted effective January 1, 2005, as described above), and supersedes APB 25,Uncertainty in Income Taxes an interpretation of FASB Statement No, 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, Accounting for Stock IssuedIncome Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to Employees,be taken in a tax return. It also provides guidance on derecognition, classification, interest and its related implementation guidance. SFAS 123R focuses primarily onpenalties, accounting for transactions in which an entity obtains employee services in share-based payment transactions,interim periods, disclosure, and requires the recognition of compensation expense in an amount equal to the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123Rtransition. FIN 48 is effective for fiscal years beginning after JuneDecember 15, 2005. In March 2005, the U.S. Securities and Exchange Commission (’SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) which expresses views of the SEC staff regarding the application of SFAS 123R. Among other things, SAB 107 provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations as well as the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies.2006. The Company iswill be required to adopt SFAS 123RFIN 48 effective for the fiscal year beginning January 1, 2006, and intends to do so using the modified prospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. In addition, the Company will consider the guidance of SAB 107 as it adopts SFAS 123R. Although the impact of adopting SFAS 123R has not yet been quantified, management2007. Management believes that the adoption of this standard mayFIN 48 will not have a material impact on the Company’s financial statements.
In May 2005,September 2006, the FASB issued SFAS 154,Accounting Changes and Error Corrections.SFAS 154 replaces APB 20,Accounting Changes157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and SFAS 3,Reporting Accounting Changes in Interim Financial Statements, and requires retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of a change. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after
F-14
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
December 15, 2005.expands disclosures about fair value measurements. The Company iswill be required to adopt SFAS 157 effective for the provisions of SFAS 154, as applicable,fiscal year beginning January 1, 2006.2008. Management is currently evaluating the potential impact of adopting SFAS 157 on the Company’s financial statements.
In September 2005, the Company announced plans to reduce its workforce by approximately 165 employees in connection with narrowing the focus of the Company’s research and development efforts, substantial improvements in manufacturing productivity, the June 2005 expiration of the Company’s collaboration with The Procter & Gamble Company, and the expected completion of contract manufacturing for Merck & Co., Inc. in late 2006. The majority of the headcount reduction occurred in the fourth quarter of 2005, with2005. The remaining headcount reductions occurred during 2006 as the remainder planned for 2006 following the completion of the Company’sCompany completed activities related to contract manufacturing activities for Merck.
Costs associated with the workforce reduction are comprised principally of severance payments and related payroll taxes, employee benefits, and outplacement services. Termination costs related to 2005 workforce reductions were expensed in the fourth quarter of 2005, and included non-cash expenses due to the accelerated vesting of certain stock options and restricted stock held by affected employees. Estimated termination costs associated with the planned workforce reduction in 2006 were measured in October 2005 and are beingwere expensed ratably over the expected service period of the affected employees in accordance with SFAS 146,Accounting for Costs
F-14
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Associated with Exit or Disposal Activities. The Company estimates that total costs associated with the 2005 and planned 2006 workforce reductions will approximate $2.7were $2.6 million, including $0.2 million of non-cash expenses.
Severance costs associated with the workforce reduction plan that were charged to expense in 2005 and 2006 consist of the following:
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | Accrued liability
| |
| | Costs Charged to
| | Costs Paid or Settled
| | Accrued Liability at
| | | Costs charged to
| | Costs paid or
| | at December 31,
| |
| | Expense | | in 2005 | | December 31, 2005 | | | expense in 2005 | | settled in 2005 | | 2005 | |
|
Employee severance, payroll taxes, and benefits | | $ | 1,786 | | | $ | 879 | | | $ | 907 | | | $ | 1,786 | | | $ | 879 | | | $ | 907 | |
Other severance costs | | | 206 | | | | 30 | | | | 176 | | | | 206 | | | | 30 | | | | 176 | |
Non-cash expenses | | | 221 | | | | 221 | | | | | | | | 221 | | | | 221 | | | | | |
| | | | | | | | | | | | | | |
Total | | $ | 2,213 | | | $ | 1,130 | | | $ | 1,083 | | | $ | 2,213 | | | $ | 1,130 | | | $ | 1,083 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | Accrued liability
| |
| | Costs charged to
| | | Costs paid or
| | | at December 31,
| |
| | expense 2006 | | | settled in 2006 | | | 2006 | |
|
Employee severance, payroll taxes, and benefits | | $ | 315 | | | $ | (1,159 | ) | | $ | 63 | |
Other severance costs | | | 33 | | | | (209 | ) | | | | |
| | | | | | | | | | | | |
Total | | $ | 348 | | | $ | (1,368 | ) | | $ | 63 | |
| | | | | | | | | | | | |
These severance costs are included in the Company’s Statement of Operations for the yearyears ended December 31, 2006 and 2005 as follows:
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | 2006 | | 2005 | |
| | Research &
| | General &
| | | Research &
| | General &
| | Research &
| | General &
| |
| | Development | | Administrative | | | development | | administrative | | development | | administrative | |
|
Employee severance, payroll taxes, and benefits | | $ | 1,734 | | | $ | 52 | | | $ | 317 | | | $ | (2 | ) | | $ | 1,734 | | | $ | 52 | |
Other severance costs | | | 206 | | | | | | | | 33 | | | | | | | | 206 | | | | | |
Non-cash expenses | | | 215 | | | | 6 | | | | | | | | | | | | 215 | | | | 6 | |
| | | | | | | | | | | | | | |
Total | | $ | 2,155 | | | $ | 58 | | | $ | 350 | | | $ | (2 | ) | | $ | 2,155 | | | $ | 58 | |
| | | | | | | | | | | | | | |
For segment reporting purposes (see Note 19)20), all severance-related expenses are included in the Research & Development segment.
The Company considers its unrestricted marketable securities to be“available-for-sale,” as defined by SFAS 115,Accounting for Certain Investments in Debt and Equity Securities. Gross unrealized holding gains
F-15
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
and losses are reported as a net amount in a separate component of stockholders’ equity entitled Accumulated Other Comprehensive Income (Loss). The net change in unrealized holding gains and losses is excluded from operations and included in stockholders’ equity as a separate component of comprehensive income (loss).loss.
F-15
REGENERON PHARMACEUTICALS, INC.
The Company has revised on its balance sheet at December 31, 2004 the classification of its investmentsNOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in auction rate securities from cash and cash equivalents to short-term investments. Auction rate securities are securities that have stated maturities beyond three months, but are priced and traded as short-term investments due to the liquidity provided through the auction mechanism that generally resets interest rates every 28 or 35 days. The change in classification resulted in a decrease in cash and cash equivalents and corresponding increase in short-term marketable securities of $6.0 million at December 31, 2004. The Company held no auction rate securities at December 31, 2005. In addition, the Company revised its statements of cash flows to reflect the purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents, resulting in increases in cash flows from investing activities of $14.8 million and $14.2 million for the years ended December 31, 2004 and 2003, respectively. This change in classification had no impact on the Company’s previously reported current assets, net income (loss), or cash flows from operations.thousands, except per share data)
The following tables summarize the amortized cost basis of marketable securities, the aggregate fair value of marketable securities, and gross unrealized holding gains and losses at December 31, 20052006 and 2004:2005:
| | | | | | | | | | | | | | | | | | | | | |
| | | Amortized
| | Fair
| | Unrealized Holding | |
| | | Cost Basis | | Value | | Gains | | (Losses) | | Net | |
| |
At December 31, 2006 | | | | | | | | | | | | | | | | | | | | | |
Maturities within one year | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | $ | 105,128 | | | $ | 105,082 | | | $ | 11 | | | $ | (57 | ) | | $ | (46 | ) |
U.S. government securities | | | | 22,267 | | | | 22,243 | | | | 1 | | | | (25 | ) | | | (24 | ) |
Asset-backed securities | | | | 94,159 | | | | 94,075 | | | | 6 | | | | (90 | ) | | | (84 | ) |
| | | | | | | | | | | | |
| | | | 221,554 | | | | 221,400 | | | | 18 | | | | (172 | ) | | | (154 | ) |
| | | | | | | | | | | | |
Maturities between one and two years | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | | 6,047 | | | | 6,032 | | | | | | | | (15 | ) | | | (15 | ) |
U.S. government securities | | | | 23,190 | | | | 23,189 | | | | 6 | | | | (7 | ) | | | (1 | ) |
Asset-backed securities | | | | 32,835 | | | | 32,762 | | | | 3 | | | | (76 | ) | | | (73 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | 62,072 | | | | 61,983 | | | | 9 | | | | (98 | ) | | | (89 | ) |
| | Amortized
| | | | Unrealized Holding | | | | | | | | | | | | |
| | Cost Basis | | Fair Value | | Gains | | (Losses) | | Net | | | $ | 283,626 | | | $ | 283,383 | | | $ | 27 | | | $ | (270 | ) | | $ | (243 | ) |
| | | | | | | | | | | |
At December 31, 2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Maturities within one year | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 42,203 | | | $ | 42,122 | | | $ | 5 | | | $ | (86 | ) | | $ | (81 | ) | | $ | 42,203 | | | $ | 42,122 | | | $ | 5 | | | $ | (86 | ) | | $ | (81 | ) |
U.S. government securities | | | 52,959 | | | | 52,763 | | | | | | | | (196 | ) | | | (196 | ) | | | 52,959 | | | | 52,763 | | | | | | | | (196 | ) | | | (196 | ) |
Asset-backed securities | | | 19,231 | | | | 19,152 | | | | | | | | (79 | ) | | | (79 | ) | | | 19,231 | | | | 19,152 | | | | | | | | (79 | ) | | | (79 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 114,393 | | | | 114,037 | | | | 5 | | | | (361 | ) | | | (356 | ) | | | 114,393 | | | | 114,037 | | | | 5 | | | | (361 | ) | | | (356 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
Maturities between one and two years | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | 16,188 | | | | 16,075 | | | | 2 | | | | (115 | ) | | | (113 | ) | | | 16,188 | | | | 16,075 | | | | 2 | | | | (115 | ) | | | (113 | ) |
U.S. government securities | | | 2,055 | | | | 2,034 | | | | | | | | (21 | ) | | | (21 | ) | | | 2,055 | | | | 2,034 | | | | | | | | (21 | ) | | | (21 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | 18,243 | | | | 18,109 | | | | 2 | | | | (136 | ) | | | (134 | ) | | | 18,243 | | | | 18,109 | | | | 2 | | | | (136 | ) | | | (134 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | $ | 132,636 | | | $ | 132,146 | | | $ | 7 | | | $ | (497 | ) | | $ | (490 | ) | | $ | 132,636 | | | $ | 132,146 | | | $ | 7 | | | $ | (497 | ) | | $ | (490 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2004 | | | | | | | | | | | | | | | | | | | | | |
Maturities within one year | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 58,077 | | | $ | 57,971 | | | $ | 8 | | | $ | (114 | ) | | $ | (106 | ) | |
U.S. government securities | | | 137,105 | | | | 136,777 | | | | | | | | (328 | ) | | | (328 | ) | |
Auction rate securities | | | 6,005 | | | | 6,005 | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | 201,187 | | | | 200,753 | | | | 8 | | | | (442 | ) | | | (434 | ) | |
| | | | | | | | | | | | |
Maturities between one and two years | | | | | | | | | | | | | | | | | | | | | |
U.S. government securities | | | 53,265 | | | | 52,930 | | | | | | | | (335 | ) | | | (335 | ) | |
| | | | | | | | | | | | |
| | $ | 254,452 | | | $ | 253,683 | | | $ | 8 | | | $ | (777 | ) | | $ | (769 | ) | |
| | | | | | | | | | | | |
In addition, cash and cash equivalents at December 31, 2006 and 2005 included an unrealized holding gain of $12 thousand and $20 thousand.thousand, respectively.
F-16
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Realized gains and losses are included as a component of investment income. For the years ended December 31, 2006, 2005, 2004, and 2003,2004, gross realized gains and losses were not significant. In computing realized gains and losses, the Company computes the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. The fair value of marketable securities has been estimated based on quoted market prices.
F-16
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
The following table shows the unrealized losses and fair value of the Company’s marketable securities with unrealized losses that are deemed to be only temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 20052006 and 2004.2005. The securities listed at December 31, 20052006 mature at various dates through April 2007.October 2008.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or Greater | | Total | | | Less than 12 Months | | 12 Months or Greater | | Total | |
| | | | | Unrealized
| | | | Unrealized
| | | | Unrealized
| |
| | | Fair Value | | Loss | | Fair Value | | Loss | | Fair Value | | Loss | |
| |
At December 31, 2006 | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | | $ | 28,096 | | | $ | (54 | ) | | $ | 12,191 | | | $ | (18 | ) | | $ | 40,287 | | | $ | (72 | ) |
U.S. government securities | | | | 23,273 | | | | (25 | ) | | | 2,023 | | | | (7 | ) | | | 25,296 | | | | (32 | ) |
Asset-backed securities | | | | 92,544 | | | | (161 | ) | | | 891 | | | | (5 | ) | | | 93,435 | | | | (166 | ) |
| | | | Unrealized
| | | | Unrealized
| | | | Unrealized
| | | | | | | | | | | | | | |
| | Fair Value | | Loss | | Fair Value | | Loss | | Fair Value | | Loss | | | $ | 143,913 | | | $ | (240 | ) | | $ | 15,105 | | | $ | (30 | ) | | $ | 159,018 | | | $ | (270 | ) |
| | | | | | | | | | | | | |
At December 31, 2005 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 36,394 | | | $ | (201 | ) | | | | | | | | | | $ | 36,394 | | | $ | (201 | ) | | $ | 36,394 | | | $ | (201 | ) | | | | | | | | | | $ | 36,394 | | | $ | (201 | ) |
U.S. government securities | | | 2,034 | | | | (21 | ) | | $ | 52,762 | | | $ | (196 | ) | | | 54,796 | | | | (217 | ) | | | 2,034 | | | | (21 | ) | | $ | 52,762 | | | $ | (196 | ) | | | 54,796 | | | | (217 | ) |
Asset-backed securities | | | 19,152 | | | | (79 | ) | | | | | | | | | | | 19,152 | | | | (79 | ) | | | 19,152 | | | | (79 | ) | | | | | | | | | | | 19,152 | | | | (79 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | $ | 57,580 | | | $ | (301 | ) | | $ | 52,762 | | | $ | (196 | ) | | $ | 110,342 | | | $ | (497 | ) | | $ | 57,580 | | | $ | (301 | ) | | $ | 52,762 | | | $ | (196 | ) | | $ | 110,342 | | | $ | (497 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2004 | | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 29,267 | | | $ | (93 | ) | | $ | 7,353 | | | $ | (21 | ) | | $ | 36,620 | | | $ | (114 | ) | |
U.S. government securities | | | 189,707 | | | | (663 | ) | | | | | | | | | | | 189,707 | | | | (663 | ) | |
| | | | | | | | | | | | | | |
| | $ | 218,974 | | | $ | (756 | ) | | $ | 7,353 | | | $ | (21 | ) | | $ | 226,327 | | | $ | (777 | ) | |
| | | | | | | | | | | | | | |
The unrealized losses on the Company’s investments in corporate debt securities, U.S. government securities, and asset-backed securities were primarily caused by interest rate increases, which generally resulted in a decrease in the market value of the Company’s portfolio. Based upon the Company’s currently projected sources and uses of cash, the Company intends to hold these securities until a recovery of fair value, which may be maturity. Therefore, the Company does not consider these marketable securities at December 31, 20052006 and 20042005 to beother-than-temporarily impaired.
Accounts receivable as of December 31, 20052006 and 20042005 consist of the following:
| | | | | | | | |
| | 2005 | | | 2004 | |
|
Receivable from the sanofi-aventis Group (see Note 12a) | | $ | 36,412 | | | $ | 39,362 | |
Receivable from The Procter & Gamble Company (see Note 12e) | | | | | | | 2,345 | |
Receivable from Merck & Co. Inc. (see Note 13) | | | 27 | | | | 1,315 | |
Other | | | 82 | | | | 80 | |
| | | | | | | | |
| | $ | 36,521 | | | $ | 43,102 | |
| | | | | | | | |
| | | | | | | | |
| | 2006 | | | 2005 | |
|
Receivable from sanofi-aventis (see Note 12a) | | $ | 6,900 | | | $ | 36,412 | |
Other | | | 593 | | | | 109 | |
| | | | | | | | |
| | $ | 7,493 | | | $ | 36,521 | |
| | | | | | | | |
Inventory balances at December 31, 2005 and 2004 consist of raw materials, work-in process, and finished products associated with the production of an intermediate for a Merck & Co., Inc. pediatric vaccine under a long-term manufacturing agreement which will expireexpired in October 2006 (see Note 13). The Company held no inventories at December 31, 2006.
F-17
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Inventories as of December 31, 2005 and 2004 consist of the following:
| | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2005 | |
|
Raw materials | | $ | 278 | | | $ | 310 | | | $ | 278 | |
Work-in process | | | 1,423 | | | | 692 | (1) | | | 1,423 | |
Finished products | | | 1,203 | | | | 2,227 | | | | 1,203 | |
| | | | | | | | |
| | $ | 2,904 | | | $ | 3,229 | | | $ | 2,904 | |
| | | | | | | | |
| | |
(1) | | Net of reserves of $0.3 million. |
| |
7. | Property, Plant, and Equipment |
Property, plant, and equipment as of December 31, 20052006 and 20042005 consist of the following:
| | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2006 | | 2005 | |
|
Land | | $ | 475 | | | $ | 475 | | | $ | 475 | | | $ | 475 | |
Building and improvements | | | 56,895 | | | | 56,750 | | | | 57,045 | | | | 56,895 | |
Leasehold improvements | | | 31,192 | | | | 30,451 | | | | 14,662 | | | | 31,192 | |
Construction-in-progress | | | | | | | 172 | | | | 203 | | | | | |
Laboratory and other equipment | | | 57,395 | | | | 55,174 | | | | 59,164 | | | | 57,395 | |
Furniture, fixtures, and computer equipment | | | 4,675 | | | | 5,498 | | |
Furniture, fixtures, software and computer equipment | | | | 5,413 | | | | 4,675 | |
| | | | | | | | | | |
| | | 150,632 | | | | 148,520 | | | | 136,962 | | | | 150,632 | |
Less, accumulated depreciation and amortization | | | (90,097 | ) | | | (77,281 | ) | | | (87,609 | ) | | | (90,097 | ) |
| | | | | | | | | | |
| | $ | 60,535 | | | $ | 71,239 | | | $ | 49,353 | | | $ | 60,535 | |
| | | | | | | | | | |
Depreciation and amortization expense on property, plant, and equipment amounted to $14.3 million, $15.4 million, $15.5 million, and $13.0$15.5 million for the years ended December 31, 2006, 2005, 2004, and 2003,2004, respectively. Included in these amounts was $0.9$0.7 million, $1.1$0.9 million, and $1.1 million of depreciation and amortization expense related to contract manufacturing that was capitalized into inventory for the years ended December 31, 2006, 2005, 2004, and 2003,2004, respectively.
| |
8. | Accounts Payable and Accrued Expenses |
Accounts payable and accrued expenses as of December 31, 20052006 and 20042005 consist of the following:
| | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2006 | | 2005 | |
|
Accounts payable | | $ | 4,203 | | | $ | 4,407 | | | $ | 4,349 | | | $ | 4,203 | |
Accrued payroll and related costs | | | 10,713 | | | | 7,972 | | | | 9,932 | | | | 10,713 | |
Accrued clinical trial expense | | | 3,081 | | | | 2,083 | | | | 2,606 | | | | 3,081 | |
Accrued expenses, other | | | 3,048 | | | | 2,118 | | | | 2,292 | | | | 3,048 | |
Interest payable on convertible notes | | | 2,292 | | | | 2,292 | | | | 2,292 | | | | 2,292 | |
| | | | | | | | | | |
| | $ | 23,337 | | | $ | 18,872 | | | $ | 21,471 | | | $ | 23,337 | |
| | | | | | | | | | |
F-18
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Deferred revenue as of December 31, 20052006 and 20042005 consists of the following:
| | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2006 | | 2005 | |
|
Current portion: | | | | | | | | | | | | | | | | |
Received from the sanofi-aventis Group | | $ | 12,483 | | | $ | 9,405 | | |
Received from Merck & Co., Inc. | | | 1,911 | | | | 4,407 | | |
Received from sanofi-aventis (see Note 12a) | | | $ | 8,937 | | | $ | 12,483 | |
Received from Bayer Healthcare LLC (see Note 12b) | | | | 12,561 | | | | | |
Received from Merck (see Note 13) | | | | | | | | 1,911 | |
Other | | | 2,626 | | | | 1,455 | | | | 2,045 | | | | 2,626 | |
| | | | | | | | | | |
| | $ | 17,020 | | | $ | 15,267 | | | $ | 23,543 | | | $ | 17,020 | |
| | | | | | | | | | |
Long-term portion: | | | | | | | | | | | | | | | | |
Received from sanofi-aventis | | $ | 69,142 | | | $ | 56,426 | | | $ | 61,013 | | | $ | 69,142 | |
Received from Bayer | | | | 62,439 | | | | | |
| | | | | | | | | | |
| | | $ | 123,452 | | | $ | 69,142 | |
| | | | | | |
The Company’s AmendedRestated Certificate of Incorporation, as amended, provides for the issuance of up to 40 million shares of Class A Stock, par value $0.001 per share, and 160 million shares of Common Stock, par value $0.001 per share. Shares of Class A Stock are convertible, at any time, at the option of the holder into shares of Common Stock on ashare-for-share basis. Holders of Class A Stock have rights and privileges identical to Common Stockholders except that Class A Stockholders are entitled to ten votes per share, while Common Stockholders are entitled to one vote per share. Class A Stock may only be transferred to specified Permitted Transferees, as defined. TheUnder the Company’s boardRestated Certificate of directorsIncorporation, as amended, the Company’s Board of Directors (the “Board”) is authorized to issue up to 30 million shares of preferred stock, in series, with rights, privileges, and qualifications of each series determined by the Board.
During 1996, the Company adopted a Shareholder Rights Plan in which Rights were distributed as a dividend at the rate of one Right for each share of Common Stock and Class A Stock (collectively, “Stock”) held by shareholders of record as of the close of business on October 18, 1996. Each Right initially entitles the registered holder to buy a unit (“Unit”) consisting of one-one thousandth of a share of Series A Junior Participating Preferred Stock (“A Preferred Stock”) at a purchase price of $120 per Unit (the “Purchase Price”). Initially the Rights were attached to all Stock certificates representing shares then outstanding, and no separate Rights certificates were distributed. The Rights will separate from the Stock and a “distribution date” will occur upon the earlier of (i) ten days after a public announcement that a person or group of affiliated or associated persons, excluding certain defined persons, (an “Acquiring Person”) has acquired, or has obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Stock or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Stock. The Rights are not exercisable unless a distribution date occurs and will expire at the close of business on October 18, 2006 unless earlier redeemed by the Company, subject to certain defined restrictions, for $.01 per Right. In the event that an Acquiring Person becomes the beneficial owner of 20% or more of the then outstanding shares of Stock (unless such acquisition is made pursuant to a tender or exchange offer for all outstanding shares of the Company, at a price determined by a majority of the independent directors of the Company who are not representatives, nominees, affiliates, or associates of an Acquiring Person to be fair and otherwise in the best interest of the Company and its shareholders after receiving advice from one or more investment banking firms), each Right (other than Rights held by the Acquiring Person) will entitle the holder to purchase, at the Right’s then current exercise price, common shares (or, in certain circumstances, cash, property, or other securities of the Company) having a value twice the Right’s Exercise Price. The Right’s Exercise Price is the Purchase Price times the number of shares of Common Stock associated with each Right (initially, one). Upon the occurrence of any such events, the Rights held by an Acquiring Person become null and void. In certain circumstances, a Right entitles the
F-19
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
holder to receive, upon exercise, shares of common stock of an acquiring company having a value equal to two times the Right’s Exercise Price.
As a result of the Shareholder Rights Plan, the Company’s Board designated 100,000 shares of preferred stock as A Preferred Stock. The A Preferred Stock has certain preferences, as defined.
In October 2001, the Company completed a private placement of $200.0 million aggregate principal amount of senior subordinated notes, which are convertible into shares of the Company’s Common Stock. See Note 11d.
In March 2003, Novartis Pharma AG purchased $48.0 million of newly issued unregistered shares of the Company’s Common Stock. Regeneron issued 2,400,000 shares of Common Stock to Novartis in March 2003 and an additional 5,127,050 shares in May 2003 for a total of 7,527,050 shares based upon the average closing price of the Common Stock for the 20 consecutive trading days ending May 12, 2003. See Note 12b.11c.
In August 2003, Regeneron issued to Merck & Co., Inc., 109,450 newly issued unregistered shares of the Company’s Common Stock as consideration for a non-exclusive license agreement granted by Merck to the Company. In August 2004, the Company repurchased these shares from Merck for a purchase price of $0.9 million based on the fair market value of the shares on August 19, 2004. The shares were subsequently retired. See Note 11e.11d.
In September 2003, Aventis Pharmaceuticals, Inc. (nowNovember 2006, the Company completed a memberpublic offering of the sanofi-aventis Group) purchased 2,799,552 newly issued unregistered7.6 million shares of the Company’s Common Stock for $45.0 million, based upon the average closingat a price of the Common Stock for the five consecutive trading days ending September 4, 2003. See Note 12a.$23.03 per share and received proceeds, after expenses, of $174.6 million.
| |
11. | Commitments and Contingencies |
a. Operating Leases
The Company currently leases approximately 236,000 square feet of laboratory and office facilities in Tarrytown, New York under operating lease agreementsagreements. In December 2006, the Company entered into a new operating lease agreement for approximately 221,000 square feet of laboratory and office space at the Company’s current Tarrytown location. The new lease includes approximately 27,000 square feet that the Company currently occupies (the “retained facilities”) and approximately 194,000 square feet to be located in new facilities that will be
F-19
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
constructed and which are expected to be completed in early 2009. The term of the lease is expected to commence in early-2008 and will expire through December 2009approximately 16 years later. Under the new lease the Company also has various options and containrights on additional space at the Tarrytown site, and will continue to lease its present facilities until the new facilities are ready for occupancy. In addition, the lease contains three renewal options to extend the term of the lease by five years each and early termination options for the Company’s retained facilities only. The lease extensions on certainprovides for monthly payments over the term of the lease related to the Company’s retained facilities, throughthe costs of construction and tenant improvements for the Company’s new facilities, and additional charges for utilities, taxes, and operating expenses.
In connection with the new lease agreement, in December 2014. 2006, the Company issued a letter of credit in the amount of $1.6 million to its landlord, which is collateralized by a $1.6 million bank certificate of deposit. The certificate of deposit has been classified as restricted cash at December 31, 2006 in the accompanying financial statements.
The Company also leases manufacturing, office, and warehouse facilities in Rensselaer, New York under an operating lease agreement which expires in July 20072012 and contains a renewal optionsoption to extend the lease for twoan additional five-year termsterm and a purchase option. The leases provide for base rent plus additional rental charges for utilities, taxes, and operating expenses, as defined.
The Company leases certain laboratory and office equipment under operating leases which expire at various times through 2009.2010.
AtBased, in part, upon budgeted construction and tenant improvement costs related to our new operating lease for facilities to be constructed in Tarrytown, New York, as described above, at December 31, 2005,2006, the estimated future minimum noncancelable lease commitments under operating leases were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, | | Facilities | | Equipment | | Total | | | Facilities | | Equipment | | Total | |
|
2006 | | $ | 4,571 | | | $ | 205 | | | $ | 4,776 | | |
2007 | | | 4,535 | | | | 95 | | | | 4,630 | | | $ | 4,678 | | | $ | 291 | | | $ | 4,969 | |
2008 | | | 1,800 | | | | 25 | | | | 1,825 | | | | 4,678 | | | | 212 | | | | 4,890 | |
2009 | | | 1,800 | | | | 6 | | | | 1,806 | | | | 10,539 | | | | 124 | | | | 10,663 | |
2010 | | | | 11,876 | | | | 13 | | | | 11,889 | |
2011 | | | | 12,077 | | | | | | | | 12,077 | |
Thereafter | | | | 161,399 | | | | | | | | 161,399 | |
| | | | | | | | | | | | | | |
| | $ | 12,706 | | | $ | 331 | | | $ | 13,037 | | | $ | 205,247 | | | $ | 640 | | | $ | 205,887 | |
| | | | | | | | | | | | | | |
F-20
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Rent expense under operating leases was:
| | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended December 31, | | Facilities | | Equipment | | Total | | |
Year Ending December 31, | | | Facilities | | Equipment | | Total | |
|
2006 | | | $ | 4,492 | | | $ | 307 | | | $ | 4,799 | |
2005 | | $ | 4,606 | | | $ | 319 | | | $ | 4,925 | | | | 4,606 | | | | 319 | | | | 4,925 | |
2004 | | | 5,351 | | | | 303 | | | | 5,654 | | | | 5,351 | | | | 303 | | | | 5,654 | |
2003 | | | 5,394 | | | | 305 | | | | 5,699 | | |
In addition to its rent expense for various facilities, the Company paid additional rental charges for utilities, real estate taxes, and operating expenses of $9.5$8.7 million, $6.0$9.5 million, and $6.0 million for the years ended December 31, 2006, 2005, 2004, and 2003,2004, respectively.
b. Capital LeasesLoan Payable
In 2003 and prior years, the Company had leased equipment under noncancelable capital leases. As of December 31, 2003, the Company had no remaining capital leases outstanding.
In March 2003, the Company entered into a collaboration agreement with Novartis Pharma AG. In accordance with that agreement, Regeneron funded its share of 2003 collaboration development expenses through a loan from
F-20
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Novartis, which bore interest at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly. In March 2004, Novartis forgave its outstanding loan to Regeneron totaling $17.8 million, including accrued interest, based on Regeneron’s achieving a pre-defined development milestone. See Note 12b.12c.
c. Convertible Debt
In October 2001, the Company issued $200.0 million aggregate principal amount of convertible senior subordinated notes (“Notes”) in a private placement for proceeds to the Company of $192.7 million, after deducting the initial purchasers’ discount andout-of-pocket expenses (collectively, “Deferred Financing Costs”). The Notes bear interest at 5.5% per annum, payable semi-annually, and mature on October 17, 2008. Deferred Financing Costs, which are included in other assets, are amortized as interest expense over the period from the Notes’ issuance to stated maturity. The Notes are convertible, at the option of the holder at any time, into shares of the Company’s Common Stock at a conversion price of approximately $30.25 per share, subject to adjustment in certain circumstances. Regeneron may also redeem some or all of the Notes at any time if the closing price of the Company’s Common Stock has exceeded 140% of the conversion price then in effect for a specified period of time. The fair market value of the Notes fluctuates over time. The estimated fair value of the Notes at December 31, 20052006 was approximately $193.1$209.4 million.
With respect to the Notes, the Company pledged as collateral $31.6 million of U.S. government securities (“Restricted Marketable Securities”) which matured at various dates through October 2004. Upon maturity, the proceeds of the Restricted Marketable Securities paid the scheduled interest payments made on the Notes in 2002, 2003,d. Research Collaboration and 2004 when due. At December 31, 2004 there were no remaining Restricted Marketable Securities.Licensing Agreements
| |
e. | Research Collaboration and Licensing Agreements |
As part of the Company’s research and development efforts, the Company enters into research collaboration and licensing agreements with related and unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of the agreements contain provisions which require the Company to pay royalties, as defined, at
F-21
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
rates that range from 0.25% to 16.5%, in the event the Company sells or licenses any proprietary products developed under the respective agreements.
Certain agreements under which the Company is required to pay fees permit the Company, upon 30 to90-day written notice, to terminate such agreements. With respect to payments associated with these agreements, the Company incurred expenses of $1.1 million, $1.0 million, $1.4 million, and $2.7$1.4 million for the years ended December 31, 2006, 2005, and 2004, respectively.
In July 2002, Amgen Inc. and 2003, respectively.Immunex Corporation (now part of Amgen) granted the Company a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of the IL-1 Trap. The license followed two other licensing arrangements under which Regeneron obtained a non-exclusive license to patents owned by ZymoGenetics, Inc. and Tularik Inc. for use in connection with the IL-1 Trap program. These license agreements would require the Company to pay royalties based on the net sales of the IL-1 Trap if and when it is approved for sale. In total, the royalty rate under these three agreements would be in the mid-single digits.
In August 2003, Merck & Co., Inc. granted the Company a non-exclusive license agreement to certain patents and patent applications which may be used in the development and commercialization of products that act on the ciliary neurotrophic factor, or CNTF, receptor for the treatment of obesity. As consideration, the Company issued to Merck 109,450 newly issued unregistered shares of its Common Stock (the “Merck Shares”), valued at $1.5 million based on the fair market value of shares of the Company’s Common Stock on the agreement’s effective date. In August 2004, the Company repurchased from Merck, and subsequently retired, the Merck Shares for $0.9 million based on the fair market value of the shares on August 19, 2004. The Company also made a cash payment of $0.6 million to Merck as required under the license agreement. The agreement also requires the Company to make an additional payment to Merck upon receipt of marketing approval for a product covered by the licensed patents. In
F-21
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
addition, the Company would be required to pay royalties, at staggered rates in the mid-single digits, based on the net sales of products covered by the licensed patents.
| |
12. | Research and Development Agreements |
The Company has entered into various agreements related to its activities to develop and commercialize product candidates and utilize its technology platforms. Amounts earned by the Company in connection with these agreements, which were recognized as contract research and development revenue, research progress payments, or other contract income, as applicable, totaled $51.1 million, $83.1 million, and $198.7 million in 2006, 2005, and $47.4 million in 2005, 2004, and 2003, respectively. Total Company incurred expenses associated with these agreements, which include reimbursable and non-reimbursable amounts and an allocable portion of general and administrative costs, were $43.4 million, $42.2 million and $75.3 million in 2006, 2005, and $56.0 million in 2005, 2004, and 2003, respectively. Significant agreements of this kind are described below.
| |
a. | The sanofi-aventis Group |
a. The sanofi-aventis Group
In September 2003, the Company entered into a collaboration agreement (the “Aventis Agreement”) with the Aventis Pharmaceuticals Inc. (now a member of the sanofi-aventis Group), to jointly develop and commercialize the Company’s Vascular Endothelial Growth Factor (“VEGF”) Trap. In connection with this agreement, sanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of the Company’s Common Stock for $45.0 million, based upon the average closing price of the Common Stock for the five consecutive trading days ending September 4, 2003.million.
In January 2005, the Company and sanofi-aventis amended the Aventis Agreement to exclude intraocular delivery of the VEGF Trap to the eye (“Intraocular Delivery”) from joint development under the agreement, and product rights to the VEGF Trap in Intraocular Delivery reverted to Regeneron. In connection with this amendment, sanofi-aventis made a $25.0 million non-refundable payment to Regeneron (the “Intraocular Termination Payment”) in January 2005.
In December 2005, the Company and sanofi-aventis amended the Aventis Agreement to expand the territory in which the companies are collaborating on the development of the VEGF Trap to include Japan. As a result, the collaboration now includes joint development of the VEGF Trap throughout the world in all indications, except for Intraocular Delivery. In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to the Company, which was received in January 2006. Under the Aventis Agreement, as amended, the Company and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap outside of Japan, for disease indications included in the companies’ collaboration. The Company may also receive upis entitled to $40.0 million in milestone payments upon receipt of specified marketing approvals for up to five VEGF Trap
F-22
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
indications in Japan and a royalty of approximately 35% on annual sales of the VEGF Trap in Japan, subject to certain potential adjustments.
Under the Aventis Agreement, as amended, Regeneron and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap outside of Japan, except for sales in Intraocular Delivery. The Company may also receive up to $400.0 million in additional milestone payments upon receipt of specified marketing approvals, includingapprovals. This total includes up to $360.0 million in milestone payments related to the receipt of marketing approvals for up to eight VEGF Trap oncology and other indications in the United States or the European Union. Another $40.0 million of milestone payments relate to receipt of marketing approvals for up to five VEGF Trap oncology indications in Japan. In December 2004, Regeneronthe Company earned a $25.0 million payment from sanofi-aventis, which was received in January 2005, upon the achievement of an early-stage clinical milestone.
Under the Aventis Agreement, as amended, agreed upon worldwide development expenses incurred by both companies during the term of the agreement will be funded by sanofi-aventis. If the collaboration becomes profitable, Regeneron will be obligated to reimburse sanofi-aventis for 50% of these development expenses, or half of $130.5$205.0 million as of December 31, 2005,2006, in accordance with a formula based on the amount of development expenses and Regeneron’s share of the collaboration profits and Japan royalties, or at a faster rate at Regeneron’s option. Regeneron has the option to conduct additional pre-Phase III studies at its own expense. In connection with the January 2005 amendment to the Aventis Agreement, the Intraocular Termination Payment of $25.0 million will be considered a VEGF Trap development expense and will be subject to 50% reimbursement by Regeneron to
F-22
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
sanofi-aventis, as described above, if the collaboration becomes profitable. In addition, if the first commercial sale of a VEGF Trap product in Intraocular Delivery predates the first commercial sale of a VEGF Trap product under the collaboration by two years, Regeneron will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses in accordance with a formula until the first commercial VEGF Trap sale under the collaboration occurs.
Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Upon termination of the agreement for any reason, Regeneron’s obligation to reimburse sanofi-aventis, for 50% of VEGF Trap development expenses will terminate, and the Company will retain all rights to the VEGF Trap.
Revenue related to payments from sanofi-aventis is being recognized under the Substantive Milestone Method (see Note 2) in accordance with SAB 104.104 and EITF00-21 (see Note 2). The up-front payments received in September 2003 and January 2006, of $80.0 million and $25.0 million, respectively, and reimbursement of Regeneron-incurred development expenses, are being recognized as contract research and development revenue over the developmentrelated performance period. Milestone payments are classified as research progress payments. In addition to the $25.0 million research progress payment earned in 2004, the Company recognized $47.8 million, $43.4 million, $78.3 million, and $14.3$78.3 million of contract research and development revenue in 2006, 2005, 2004, and 2003,2004, respectively, in connection with the Aventis Agreement. The Company also recognized the $25.0 million Intraocular Termination Payment as other contract income in 2005. At December 31, 20052006 and 2004,2005, amounts receivable from sanofi-aventis totaled $36.4$6.9 million and $39.4$36.4 million, respectively, and deferred revenue was $70.0 million and $81.6 million, respectively.
b. Bayer Healthcare LLC
In October 2006, the Company entered into a license and $65.8collaboration agreement (the “Bayer Agreement”) with Bayer HealthCare LLC to globally develop, and commercialize outside the United States, the Company’s VEGF Trap for the treatment of eye disease by local administration (“VEGF Trap-Eye”). Under the terms of the agreement, Bayer made a non-refundable up-front payment to the Company of $75.0 million. In addition, the Company is eligible to receive up to $110.0 million respectively.in development and regulatory milestones, including a total of $40.0 million upon the initiation of Phase 3 trials in defined major indications. The Company is also eligible to receive up to an additional $135.0 million in sales milestones when and if total annual sales of the VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200.0 million.
The Company will share equally with Bayer in any future profits arising from the commercialization of the VEGF Trap-Eye outside the United States. If the VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States and the collaboration becomes profitable, the Company will be obligated to reimburse Bayer out of the Company’s share of the collaboration profits for 50% of the agreed upon development expenses that Bayer has incurred in accordance with a formula based on the amount of development expenses that Bayer has incurred and the Company’s share of the collaboration profits, or at a faster rate at the Company’s option. Within the United States, the Company is responsible for any future commercialization of the VEGF Trap-Eye and has retained exclusive rights to any future profits arising therefrom.
Agreed upon development expenses incurred by both companies, beginning in 2007, under a global development plan will be shared as follows:
| | |
b. | Novartis Pharma AG2007: | Up to $50.0 million shared equally; the Company is solely responsible for up to the next $40.0 million; over $90.0 million shared equally. |
|
| 2008: | Up to $70.0 million shared equally, the Company is solely responsible for up to the next $30.0 million; over $100.0 million shared equally. |
| | |
| 2009 and thereafter: | All expenses shared equally. |
F-23
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Neither party will be reimbursed for any development expenses that it incurred prior to 2007.
Regeneron is obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.
Bayer has the right to terminate the Bayer Agreement without cause with at least six months or twelve months advance notice depending on defined circumstances at the time of termination. In the event of termination of the agreement for any reason, the Company retains all rights to the VEGF Trap-Eye.
Revenue related to the Bayer Agreement will be recognized in accordance with SAB 104 and EITF00-21 (see Note 2). The $75.0 million up-front payment received in October 2006 was deferred upon receipt. When the Company and Bayer have formalized their projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities of each of the companies under such development plans, the Company will begin recognizing contract research and development revenue related to payments from Bayer. At December 31, 2006, there were no amounts receivable from Bayer, and deferred revenue was $75.0 million.
c. Novartis Pharma AG
In March 2003, the Company entered into a collaboration agreement (the “Novartis Agreement”) with Novartis Pharma AG to jointly develop and commercialize the Company’s Interleukin-1 Cytokine Trap (“IL-1 Trap”). In connection with this agreement, Novartis made a non-refundable up-front payment to the Company of $27.0 million and purchased $48.0 million of newly issued unregistered shares of the Company’s Common Stock. Regeneron issued 2,400,000 shares of Common Stock to Novartis in March 2003 and an additional 5,127,050 shares in May 2003 for a total of 7,527,050 shares based upon the average closing price of the Common Stock for the 20 consecutive trading days ending May 12, 2003.million.
Development expenses incurred during 2003 were shared equally by the Company and Novartis. Regeneron funded its share of 2003 development expenses through a loan (the “2003 Loan”) from Novartis, which bore interest
F-23
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly. As of December 31, 2003, the 2003 Loan balance due Novartis, including accrued interest, totaled $13.8 million. In March 2004, Novartis forgave the 2003 Loan and accrued interest thereon, totaling $17.8 million, based on Regeneron’s achieving a pre-defined development milestone.
In February 2004, Novartis provided notice of its intention not to proceed with the joint development of theIL-1 Trap. In March 2004, Novartis agreed to pay the Company $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine month period following its notification and for the two months prior to that notice. The Company recorded the $42.75 million as other contract income in 2004. Regeneron and Novartis each retain rights under the collaboration agreement to elect to collaborate in the future on the development and commercialization of certain other IL-1 antagonists.
Revenue related to payments from Novartis was recognized under the Substantive Milestone Method (see Note 2) in accordance with SAB 104. The up-front payment of $27.0 million and reimbursement of Novartis’ share of Regeneron-incurred development expenses were recognized as contract research and development revenue. Forgiveness in 2004 of the 2003 Loan and accrued interest was recognized as a research progress payment. In 2003, the Company recognized $21.4 million of contract research and development revenue in connection with the Novartis Agreement. In 2004, the Company recognized contract research and development revenue of $22.1 million in connection with the Novartis Agreement, which represented the remaining amount of the $27.0 million up-front payment from Novartis that had previously been deferred. At December 31, 2005 and 2004, there were no amounts receivable from Novartis and no deferred revenue.
In August 1990, the Company entered into a collaboration agreement (the “Amgen Agreement”) with Amgen Inc. to develop and attempt to commercialize two proprietary products (the “Products”). The Amgen Agreement, among other things, provided for Amgen and the Company to form a partnership (“Amgen-Regeneron Partners” or the “Partnership”) to complete the development and to commercialize the Products. Amgen and the Company held equal ownership interests in the Partnership. In November 2005, the Company and Amgen agreed to terminate the Amgen Agreement and Amgen-Regeneron Partners, as there were no ongoing activities to develop the Products, and in December 2005, the Company and Amgen each made capital withdrawals of $0.5 million from the Partnership. Neither party is entitled to receive royalties based on any products arising from the collaboration. The Company accounted for its investment in the Partnership in accordance with the equity method of accounting. In 2005, 2004, and 2003, the Company recognized its shareaddition, forgiveness of the Partnership net income (loss)2003 Loan and accrued interest in the amounts of $10 thousand, $134 thousand, and ($63 thousand), respectively, which represents 50% of the total Partnership net income (loss). Selected financial data of the Partnership2004 was recognized as of and for the years ended December 31, 2005, 2004, and 2003 are not significant.
In July 2002, Amgen and Immunex Corporation (now part of Amgen) granted the Company a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of the IL-1 Trap. The license followed two other licensing arrangements under which Regeneron obtained a non-exclusive license to patents owned by ZymoGenetics, Inc. and Tularik Inc. for use in connection with the IL-1 Trap program. These license agreements would require the Company to pay royalties based on the net sales of the IL-1 Trap if and when it is approved for sale. In total, the royalty rate under these three agreements would be in the mid-single digits.
| |
d. | Sumitomo Chemical Company, Ltd. |
During 1989, Sumitomo Chemical Co., Ltd. entered into a Technology Development Agreement (“TDA”) with Regeneron and paid the Company $5.6 million. In consideration for this payment, Sumitomo Chemical
F-24
REGENERON PHARMACEUTICALS, INC.
research progress payment.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)d. The Procter & Gamble Company
received a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan. In connection with the Company’s implementation of SAB 101 (see Note 2), the Company recognized this payment as revenue on a straight-line basis over the term of the TDA. The TDA expired in March 2004.
| |
e. | The Procter & Gamble Company |
In May 1997, the Company entered into a long-term collaboration agreement with The Procter & Gamble Company to discover, develop, and commercialize pharmaceutical products, and Procter & Gamble agreed to provide funding for Regeneron’s research efforts related to the collaboration.
Effective December 31, 2000, in accordance with the Company and Procter & Gamble entered into a newcompanies’ collaboration agreement (the “P&G Agreement”), replacing the companies’ May 1997 agreement. The P&G Agreement extended Procter & Gamble’s obligationGamble was obligated to fund Regeneron research through December 2005, with no further research obligations by either party thereafter, and focused the companies’ collaborative research on therapeutic areas that were of particular interest to Procter & Gamble.Gamble through December 2005, with no further research obligations by either party thereafter. Under the P&G Agreement, research support from Procter & Gamble was $2.5 million per quarter, plus adjustments for inflation, through December 2005. Procter & Gamble and the Company divided rights to programs from their former collaboration agreement that were no longer part of the P&G Agreement.
F-24
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
In June 2005, the Company and Procter & Gamble amended the P&G Agreement. Pursuant to the terms of the modified agreement, the Company and Procter & Gamble agreed that the research activities of the parties under the P&G Agreement were completed on June 30, 2005, six months prior to the December 31, 2005 expiration date in the P&G Agreement. In connection with the amendment, Procter & Gamble made a one-time $5.6 million payment to Regeneron and the Company paid approximately $1.0 million to Procter & Gamble to acquire certain capital equipment owned by Procter & Gamble and located at the Company’s facilities. Procter & Gamble and the Company divided rights to research programs and pre-clinical product candidates that were developed during the research term of the P&G Agreement. Neither party has the right to participate in the development or commercialization of the other party’s product candidates. The Company is entitled to receive royalties based on any future product sales of a Procter & Gamble pre-clinical candidate arising from the collaboration. In addition, in 1997 through 1999,collaboration, and Procter & Gamble provided research support for the Company’s AXOKINE program and, as a result, will beis entitled to receive a small royalty on any sales of AXOKINE.a single Regeneron candidate that is currently not being developed. Neither party is entitled to receive royalties or other payments based on any other products arising from the collaboration.
Contract research and development revenue related to the Company’s collaboration with Procter & Gamble was $6.0 million $10.5 million, and $10.6$10.5 million in 2005 2004, and 2003,2004, respectively. In addition, the one-time $5.6 million payment made by Procter & Gamble to the Company in connection with the amendment to the P&G Agreement was recognized as other contract income in 2005. At December 31, 2004 and 2003, amounts receivable from Procter & Gamble totaled $2.3 million and $2.7 million, respectively. At December 31, 2005, there were no amounts receivable from Procter & Gamble.
e. Serono, S.A.
In December 2002, the Company entered into an agreement (the “Serono Agreement”) with Serono S.A. to use Regeneron’s proprietary VelociGene® technology platform to provide Serono with knock-out and transgenic mammalian models of gene function (“Materials”). Serono made an advance payment of $1.5 million (the “Retainer”) to Regeneron in December 2002, which was accounted for as deferred revenue. Regeneron recognizes revenue and reduces the Retainer as Materials are shipped to and accepted by Serono. The Serono Agreement contains provisions for minimum yearly order quantities and replenishment of the Retainer when the balance declines below a specified threshold. In 2006, 2005, 2004, and 2003,2004, the Company recognized $1.8 million, $2.2 million, $2.1 million,
F-25
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
and $0.7$2.1 million, respectively, of contract research and development revenue in connection with the Serono Agreement.
f. National Institutes of Health
In September 2006, the Company was awarded a grant from the National Institutes of Health (“NIH”) as part of the NIH’s Knockout Mouse Project. The NIH grant provides a minimum of $17.9 million in funding over a five-year period, subject to compliance with its terms and annual funding approvals, for the Company’s use of its VelociGene technology to generate a collection of targeting vectors and targeted mouse embryonic stem cells (“ES Cells”) which can be used to produce knockout mice. The Company will also receive another $1.0 million in funding to optimize certain existing technology for use in the Knockout Mouse Project. In 2006, the Company recognized contract research and development revenue of $0.5 million from the NIH Grant.
| |
13. | Manufacturing Agreement |
During 1995, the Company entered into a long-term manufacturing agreement with Merck & Co., Inc., as amended, (the “Merck Agreement”) to produce an intermediate (the “Intermediate”) for a Merck pediatric vaccine at the Company’s Rensselaer, New York facility. The Company agreed to modifymodified portions of its facility for manufacture of the Intermediate and to assistassisted Merck in securing regulatory approval for such manufacture in the Company’s facility. The Merck Agreement callscalled for the Company to manufacture Intermediate for Merck for a specified period of time (the “Production Period”), with certain minimum order quantities each year. The Production Period commenced in
F-25
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
November of 1999 and originally extended for six years. In February 2005, the Company and Merck amended the Merck Agreement to extend the Production Period through October 2006, afterat which time the Merck Agreement will terminate.terminated.
Merck agreed to reimburse the Company for the capital costs to modify the facility (“Capital Costs”). Merck also agreed to pay an annual facility fee (the “Facility Fee”) of $1.0 million beginning March 1995, subject to annual adjustment for inflation. During the Production Period, Merck agreed to reimburse the Company for certain manufacturing costs, pay the Company a variable fee based on the quantity of Intermediate supplied to Merck, and make additional bi-annual payments (“Additional Payments”), as defined. In addition, Merck agreed to reimburse the Company for the cost of Company activities performed on behalf of Merck prior to the Production Period and for miscellaneous costs during the Production Period (“Internal Costs”). These payments arewere recognized as contract manufacturing revenue as follows: (i) payments for Internal Costs arewere recognized as the activities arewere performed, (ii) the Facility Fee and Additional Payments arewere recognized over the period to which they relate,related, (iii) payments for Capital Costs were deferred and are recognized as Intermediate iswas shipped to Merck, and (iv) payments related to the manufacture of Intermediate during the Production Period (“Manufacturing Payments”) arewere recognized after the Intermediate iswas tested and approved by, and shipped (FOB Shipping Point) to, Merck.
In 2006, 2005, 2004, and 2003,2004, Merck contract manufacturing revenue totaled $12.3 million, $13.7 million, $18.1 million, and $10.1$18.1 million, respectively. Such amounts include $1.2 million, $1.4 million, $3.6 million, and $1.7$3.6 million of previously deferred Capital Costs, respectively.
| |
14. | Incentive and Stock Purchase Plans |
| |
a. | Long-Term Incentive Plans |
During 2000, the Company established the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan (“2000 Incentive Plan”) which, as amended, provides for the issuance of up to 18,500,000 shares of Common Stock in respect of awards. In addition, shares of Common Stock previously approved by shareholders for issuance under the Regeneron Pharmaceuticals, Inc. 1990 Long-Term Incentive Plan (“1990 Incentive Plan”) that are not issued under the 1990 Incentive Plan, may be issued as awards under the 2000 Incentive Plan. Employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the Company’s board of directors, (collectively, “Participants”) may receive awards as determined by a committee of independent directors (“Committee”). The awards that may be made under the 2000 Incentive Plan include: (a) Incentive Stock Options (“ISOs”) and Nonqualified Stock Options, (b) shares of Restricted Stock, (c) shares of Phantom Stock, (d) Stock Bonuses, and (e) Other Awards.
Stock Option awards grant Participants the right to purchase shares of Common Stock at prices determined by the Committee; however, in the case of an ISO, the option exercise price will not be less than the fair market value of a share of Common Stock on the date the Option is granted. Options vest over a period of time determined by the
F-26
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Committee, generally on a pro rata basis over a three to five year period. The Committee also determines the expiration date of each Option; however, no ISO is exercisable more than ten years after the date of grant.
Restricted Stock awards grant Participants shares of restricted Common Stock or allow Participants to purchase such shares at a price determined by the Committee. Such shares are nontransferable for a period determined by the Committee (“vesting period”). Should employment terminate, as defined by the 2000 Incentive Plan, the ownership of the Restricted Stock, which has not vested, will be transferred to the Company, except under defined circumstances with Committee approval, in consideration of amounts, if any, paid by the Participant to acquire such shares. In addition, if the Company requires a return of the Restricted Shares, it also has the right to require a return of all dividends paid on such shares.
Phantom Stock awards provide the Participant the right to receive, within 30 days of the date on which the share vests, an amount, in cashand/or shares of the Company’s Common Stock as determined by the Committee,
F-26
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
equal to the sum of the fair market value of a share of Common Stock on the date such share of Phantom Stock vests and the aggregate amount of cash dividends paid with respect to a share of Common Stock during the period from the grant date of the share of Phantom Stock to the date on which the share vests. Stock Bonus awards are bonuses payable in shares of Common Stock which are granted at the discretion of the Committee.
Other Awards are other forms of awards which are valued based on the Company’s Common Stock. Subject to the provisions of the 2000 Incentive Plan, the terms and provisions of such Other Awards are determined solely on the authority of the Committee.
During 1990, the Company established the 1990 Incentive Plan which, as amended, provided for a maximum of 6,900,000 shares of Common Stock in respect of awards. Employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the Company’s board of directors, received awards as determined by a committee of independent directors. Under the provisions of the 1990 Incentive Plan, there will be no future awards from the plan. Awards under the 1990 Incentive Plan consisted of Incentive Stock Options and Nonqualified Stock Options which generally vest on a pro rata basis over a three or five year period and have a term of ten years.
The 1990 and 2000 Incentive Plans contain provisions that allow for the Committee to provide for the immediate vesting of awards upon a change in control of the Company, as defined.
As described in Note 2, effective January 1, 2005, the Company adopted the fair value based method of accountingDecember 31, 2006, there were 4,132,249 shares available for stock-based employee compensationfuture grants under the provisions of SFAS 123 using the modified prospective method as described in SFAS 148. As a result, effective January 1, 2005, the Company has been recognizing expense, in an amount equal to the fair value of share-based payments (including stock option awards) on their date of grant, over the vesting period of the awards. Under the modified prospective method, compensation expense for the Company is recognized for (a) all share based payments granted on or after January 1, 2005, (including replacement options granted under the Company’s stock option exchange program which concluded on January 5, 2005) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date. Prior to the adoption of the fair value method, the Company accounted for stock-based compensation to employees under the intrinsic value method of accounting set forth in APB 25 and related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period prior to the first quarter of 2005 and prior period results have not been restated. The effect on the Company’s net income (loss) and net income (loss) per share for the years ended December 31, 2004 and 2003, had compensation costs for the2000 Incentive Plans been determined in accordance with the fair value based method of accounting for stock-based employee compensation as prescribed by SFAS 123, is shown in Note 2.
Prior to the Company’s adoption of SFAS 123, in accordance with APB 25 and related interpretations, the Company recorded compensation expense from issuances of employee Restricted Stock awards. When the terms of
F-27
REGENERON PHARMACEUTICALS, INC.
Plan.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)a. Stock Options
the award were fixed, compensation expense for Restricted Stock awards totaled the grant date intrinsic value, amortized over the vesting period.
Transactions involving stock option awards during 2004, 2005, 2004, and 20032006 under the 1990 and 2000 Incentive Plans are summarized in the table below.
| | | | | | | | |
| | | | | Weighted-Average
| |
| | Number of Shares | | | Exercise Price | |
|
Stock options outstanding at December 31, 2002 | | | 11,563,950 | | | $ | 21.08 | |
2003: | | | | | | | | |
Stock options granted | | | 2,634,570 | | | $ | 13.45 | |
Stock options canceled | | | (265,107 | ) | | $ | 22.62 | |
Stock options exercised | | | (795,114 | ) | | $ | 7.07 | |
| | | | | | | | |
Stock options outstanding at December 31, 2003 | | | 13,138,299 | | | $ | 20.36 | |
2004: | | | | | | | | |
Stock options granted | | | 2,828,484 | | | $ | 9.90 | |
Stock options canceled | | | (514,947 | ) | | $ | 21.10 | |
Stock options exercised | | | (311,268 | ) | | $ | 5.98 | |
| | | | | | | | |
Stock options outstanding at December 31, 2004 | | | 15,140,568 | | | $ | 18.68 | |
2005: | | | | | | | | |
Stock options granted | | | 4,551,360 | | | $ | 10.08 | |
Stock options canceled | | | (4,374,518 | ) | | $ | 25.96 | |
Stock options exercised | | | (597,918 | ) | | $ | 9.50 | |
| | | | | | | | |
Stock options outstanding at December 31, 2005 | | | 14,719,492 | | | $ | 14.23 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Weighted-
| | | Weighted-Average
| | | | |
| | | | | Average
| | | Remaining
| | | | |
Stock Options: | | Number of Shares | | | Exercise Price | | | Contractual Term | | | Intrinsic Value | |
| | | | | | | | (in years) | | | (in thousands) | |
|
Outstanding at December 31, 2003 | | | 13,138,299 | | | $ | 20.36 | | | | | | | | | |
2004: | | | | | | | | | | | | | | | | |
Granted | | | 2,828,484 | | | $ | 9.90 | | | | | | | | | |
Forfeited | | | (343,994 | ) | | $ | 19.53 | | | | | | | | | |
Expired | | | (170,953 | ) | | $ | 24.26 | | | | | | | | | |
Exercised | | | (311,268 | ) | | $ | 5.98 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2004 | | | 15,140,568 | | | $ | 18.68 | | | | | | | | | |
2005: | | | | | | | | | | | | | | | | |
Granted | | | 4,551,360 | | | $ | 10.08 | | | | | | | | | |
Forfeited | | | (1,975,108 | ) | | $ | 20.83 | | | | | | | | | |
Expired | | | (2,399,410 | ) | | $ | 30.18 | | | | | | | | | |
Exercised | | | (597,918 | ) | | $ | 9.50 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2005 | | | 14,719,492 | | | $ | 14.23 | | | | | | | | | |
| | | | | | | | | | | (continued) | | | | | |
F-27
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
| | | | | | | | | | | | | | | | |
| | | | | Weighted-
| | | Weighted-Average
| | | | |
| | | | | Average
| | | Remaining
| | | | |
Stock Options (continued): | | Number of Shares | | | Exercise Price | | | Contractual Term | | | Intrinsic Value | |
| | | | | | | | (in years) | | | (in thousands) | |
|
2006: | | | | | | | | | | | | | | | | |
Granted | | | 2,742,260 | | | $ | 19.59 | | | | | | | | | |
Forfeited | | | (338,122 | ) | | $ | 10.51 | | | | | | | | | |
Expired | | | (172,218 | ) | | $ | 24.23 | | | | | | | | | |
Exercised | | | (1,408,907 | ) | | $ | 9.84 | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Outstanding at December 31, 2006 | | | 15,542,505 | | | $ | 15.54 | | | | 6.8 | | | $ | 96,827 | |
| | | | | | | | | | | | | | | | |
Vested and expected to vest at December 31, 2006 | | | 14,899,611 | | | $ | 15.65 | | | | 6.7 | | | $ | 92,270 | |
Exercisable at December 31, 2004 | | | 8,628,873 | | | $ | 21.05 | | | | | | | | | |
Exercisable at December 31, 2005 | | | 7,321,256 | | | $ | 17.79 | | | | | | | | | |
Exercisable at December 31, 2006 | | | 7,890,856 | | | $ | 17.41 | | | | 5.4 | | | $ | 47,028 | |
In addition, in October 2005, the Company accelerated vestingThe total intrinsic value of certain stock options heldexercised during 2006, 2005, and 2004 was $13.2 million, $1.6 million, and $1.3 million, respectively. The intrinsic value represents the amount by employees affected bywhich the Company’s 2005 workforce reductions (see Note 3).market price of the underlying stock exceeds the exercise price of an option.
The Company grants stock options with exercise prices that are equal to or greater than the fair market valueprice of the Company’s Common Stock on the date of grant. The table below summarizes the weighted-average exercise prices and weighted-average grant-date fair values of options issued during the years ended December 31, 2003, 2004, 2005, and 2005. The total number of options exercisable at December 31, 2005, 2004, and 2003 was 7,321,256, 8,628,873, and 5,940,268, respectively, with weighted average exercise prices of $17.79, $21.05, and $19.45, respectively.2006.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of Options
| | Weighted-Average
| | Weighted-Average
| | | | | Weighted-
| | Weighted-
| |
| | Granted | | Exercise Price | | Fair Value | | | Number of
| | Average Exercise
| | Average Fair
| |
| | Options Granted | | Price | | Value | |
2003: | | | | | | | | | | | | | |
Exercise price equal to market price | | | 2,634,570 | | | $ | 13.45 | | | $ | 10.12 | | |
| |
2004: | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise price equal to market price | | | 2,796,873 | | | $ | 9.89 | | | $ | 7.53 | | | | 2,796,873 | | | $ | 9.89 | | | $ | 7.53 | |
Exercise price greater than market price | | | 31,611 | | | $ | 10.44 | | | $ | 6.10 | | | | 31,611 | | | $ | 10.44 | | | $ | 6.10 | |
| | | | | | |
Total 2004 grants | | | 2,828,484 | | | $ | 9.90 | | | $ | 7.51 | | | | 2,828,484 | | | $ | 9.90 | | | $ | 7.51 | |
| | | | | | |
2005: | | | | | | | | | | | | | | | | | | | | | | | | |
Exercise price equal to market price | | | 4,551,360 | | | $ | 10.08 | | | $ | 6.68 | | | | 4,551,360 | | | $ | 10.08 | | | $ | 6.68 | |
2006: | | | | | | | | | | | | | |
Exercise price equal to market price | | | | 2,742,260 | | | $ | 19.59 | | | $ | 12.82 | |
F-28
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
The following table summarizes stock option information as of December 31, 2005:2006:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Options Outstanding | | | Options Exercisable | |
| | | | | | Weighted Average
| | | Weighted
| | | | | | Weighted
| |
Range of
| | | Number
| | | Remaining
| | | Average
| | | Number
| | | Average
| |
Exercise Prices | | | Outstanding | | | Contractual Life | | | Exercise Price | | | Exercisable | | | Exercise Price | |
|
$ | 4.83 to $ 8.50 | | | | 2,689,022 | | | | 5.32 | | | $ | 8.13 | | | | 760,533 | | | $ | 7.40 | |
$ | 8.52 to $ 9.49 | | | | 3,420,139 | | | | 7.30 | | | $ | 9.24 | | | | 1,593,794 | | | $ | 9.00 | |
$ | 9.50 to $11.64 | | | | 2,970,544 | | | | 8.20 | | | $ | 11.32 | | | | 594,488 | | | $ | 10.14 | |
$ | 11.75 to $16.56 | | | | 2,493,682 | | | | 7.69 | | | $ | 13.17 | | | | 1,422,294 | | | $ | 13.11 | |
$ | 16.59 to $37.78 | | | | 2,996,105 | | | | 6.00 | | | $ | 27.70 | | | | 2,800,147 | | | $ | 28.26 | |
$ | 37.94 to $51.56 | | | | 150,000 | | | | 4.67 | | | $ | 43.39 | | | | 150,000 | | | $ | 43.39 | |
| | | | | | | | | | | | | | | | | | | | | | |
$ | 4.83 to $51.56 | | | | 14,719,492 | | | | 6.90 | | | $ | 14.23 | | | | 7,321,256 | | | $ | 17.79 | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Options Outstanding | | | Options Exercisable | |
| | | | | Weighted-Average
| | | Weighted-
| | | | | | Weighted-
| |
Range of
| | Number
| | | Remaining
| | | Average
| | | Number
| | | Average
| |
Exercise Prices | | Outstanding | | | Contractual Life | | | Exercise Price | | | Exercisable | | | Exercise Price | |
|
$ 4.83 to $ 8.50 | | | 2,281,208 | | | | 4.36 | | | $ | 8.18 | | | | 740,638 | | | $ | 7.66 | |
$ 8.52 to $10.56 | | | 3,164,750 | | | | 6.10 | | | $ | 9.37 | | | | 1,983,333 | | | $ | 9.31 | |
$10.84 to $11.64 | | | 2,226,650 | | | | 8.94 | | | $ | 11.64 | | | | 552,353 | | | $ | 11.63 | |
$11.70 to $17.89 | | | 2,535,210 | | | | 7.22 | | | $ | 13.47 | | | | 1,638,630 | | | $ | 13.15 | |
$18.17 to $24.02 | | | 3,358,328 | | | | 8.76 | | | $ | 20.07 | | | | 999,543 | | | $ | 19.47 | |
$24.60 to $37.94 | | | 1,916,359 | | | | 4.43 | | | $ | 32.71 | | | | 1,916,359 | | | $ | 32.71 | |
$51.56 to $51.56 | | | 60,000 | | | | 3.16 | | | $ | 51.56 | | | | 60,000 | | | $ | 51.56 | |
| | | | | | | | | | | | | | | | | | | | |
$ 4.83 to $51.56 | | | 15,542,505 | | | | 6.79 | | | $ | 15.54 | | | | 7,890,856 | | | $ | 17.41 | |
| | | | | | | | | | | | | | | | | | | | |
Non-cash stock-based employee compensation expense recognized in operating expenses is provided in Note 2. As of December 31, 2006, there was $44.0 million of stock-based compensation cost related to outstanding nonvested stock options, net of estimated forfeitures, which had not yet been recognized in operating expenses. The Company expects to recognize this compensation cost over a weighted-average period of 1.9 years. In addition, there are 723,092 options which are unvested as of December 31, 2006 and would become vested upon the attainment of certain performance and service conditions. Potential compensation cost, measured on the grant date, related to these performance options totals $2.7 million and will begin to be recognized only if, and when, these options’ performance condition is considered to be probable of attainment.
Fair value Assumptions:
The fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Incentive Plan during 2006, 2005, 2004, and 20032004 was estimated on the date of grant using the Black-Scholes option-pricing model. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s Common Stock price, (ii) the periods of time over which employees and members of the Company’s board of directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on the Company’s Common Stock, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. Expected volatility which is re-evaluated at least quarterly, has been estimated based on actual movements in the Company’s stock price over the most recent historical periods equivalent to the options’ expected lives. Expected lives are principally based on the Company’s limited historical exercise experience with option grants with similar exercise prices. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future. The following table summarizes the weighted average values of the assumptions used in computing the fair value of option grants during 2006, 2005, 2004, and 2003.2004.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
|
Expected volatility | | | 71% | | | | 80% | | | | 80% | | | | 67% | | | | 71% | | | | 80% | |
Expected lives from grant date | | | 5.9 years | | | | 7.5 years | | | | 7.3 years | | | | 6.5 years | | | | 5.9 years | | | | 7.5 years | |
Dividend yield | | | 0% | | | | 0% | | | | 0% | | |
Expected dividend yield | | | | 0% | | | | 0% | | | | 0% | |
Risk-free interest rate | | | 4.16% | | | | 4.03% | | | | 3.75% | | | | 4.51% | | | | 4.16% | | | | 4.03% | |
During 2004 and 2003, 105,052 and 219,367 shares, respectively, of Restricted Stock were awarded under the 2000 Incentive Plan. No shares of Restricted Stock were awarded in 2005. These shares are nontransferable with such restriction lapsing (i) for 2004 awards, with respect to 50% of the shares at nine months and eighteen months from date of grant and (ii) for 2003 awards, with respect to 25% of the shares every six months over the approximately two-year period from date of grant. In accordance with generally accepted accounting principles, the Company recorded unearned compensation within Stockholders’ Equity of $1.0 million and $2.9 million in 2004 and 2003, respectively, related to these awards. This amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and will be expensed, on a pro rata basis, over the period that the restriction on these shares lapses. During 2005, 2004, and 2003, 4,601, 18,194, and 4,431 shares, respectively, of Restricted Stock were forfeited due to employee terminations. The Company reduced unearned compensation within Stockholders’ Equity by $0.1 million, $0.3 million, and $0.1 million in 2005, 2004, and 2003, respectively, related to these forfeited awards.
The Company recognized non-cash compensation expense from Restricted Stock awards of $1.9 million, $2.5 million, and $2.3 million in 2005, 2004, and 2003, respectively. In addition, due to the adoption of SFAS 123
F-29
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
effective January 1, 2005 non-cash compensation expense related to stock option awards totaled $20.0 million in 2005, of which $19.9 million was recognized in operating expenses and $0.1 million was capitalized into inventory.
As of December 31, 2005, there were 6,684,884 shares available for future grants under the 2000 Incentive Plan.Stock Option Exchange:
In December 2004, the Company’s shareholders approved a stock option exchange program. Under the program, Company regular employees who work an average of 20 hours per week, other than the Company’s chairman and the Company’s president and chief executive officer, were provided the opportunity to make a one-time election to surrender options granted under the 1990 and 2000 Incentive Plans that had an exercise price of at least $18.00 and exchange them for replacement options granted under the 2000 Incentive Plan in accordance with the following exchange ratios:
| | | | |
| | Exchange Ratio
| |
| | (Number of Eligible
| |
| | Options to be
| |
| | Surrendered and
| |
| | Cancelled for Each
| |
Exercise Price of Eligible Options | | Replacement Option) | |
|
$18.00 to $28.00 | | | 1.50 | |
$28.01 to $37.00 | | | 2.00 | |
$37.01 and up | | | 3.00 | |
Participation in the stock option exchange program was voluntary, and non-employee directors, consultants, former employees, and retirees were not eligible to participate. The participation deadline for the program was January 5, 2005. Eligible employees elected to exchange options with a total of 3,665,819 underlying shares of Common Stock, and the Company issued 1,977,840 replacement options with an exercise price of $8.50 per share on January 5, 2005.
Each replacement option was completely unvested upon grant. Each replacement option granted to an employee other than our executive vice president and senior vice presidents will ordinarily become vested and exercisable with respect to one-fourth of the shares initially underlying such option on each of the first, second, third and fourth anniversaries of the grant date so that such replacement option will be fully vested and exercisable four years after it was granted. Each replacement option granted to our executive vice president and senior vice presidents will ordinarily vest with respect to all shares underlying such option if both (i) the Company’s products have achieved gross sales of at least $100 million during any consecutive twelve month period (either directly by the Company or through its licenses) and (ii) the specific seniorexecutive or executivesenior vice president has remained employed by the Company for at least three years from the date of grant. For all replacement options, the recipient’s vesting and exercise rights are contingent upon the recipient’srecipients continued employment through the applicable vesting date and subject to the other terms of the 2000 Incentive Plan and the applicable option award agreement. As is generally the case with respect to the option award agreements for options that were eligible for exchange pursuant to the stock option exchange program, the option award agreements for replacement options include provisions whereby the replacement options may be fully vested in connection with a “change“Change in control”Control” of the Company, as defined in the 2000 Incentive Plan.
Under the stock option exchange program, each replacement option has a term equal to the greater of (i) the remaining term of the surrendered option it replaces and (ii) six years from the date of grant of the replacement option. This was intended to ensure that the employees who participated in the stock option exchange program would not derive any additional benefit from an extended option term unless the surrendered option had a remaining term of less than six years.
F-30
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
b. ExecutiveRestricted Stock Purchase Plan
A summary of the Company’s activity related to Restricted Stock awards for the years ended December 31, 2004, 2005, and 2006 is summarized below:
| | | | | | | | | | |
| | | | | Weighted-
| |
| | | | | Average
| |
| | | | | Grant Date
| |
Restricted Stock: | | Number of Shares | | | Fair Value | |
|
Outstanding at December 31, 2003 | | | 338,116 | | | $ | 15.74 | |
2004: | | Granted | | | 105,052 | | | $ | 9.55 | |
| | Forfeited | | | (18,194 | ) | | $ | 14.39 | |
| | Released | | | (138,557 | ) | | $ | 18.12 | |
| | | | | | | | | | |
| | Outstanding at December 31, 2004 | | | 286,417 | | | $ | 12.40 | |
2005: | | Forfeited | | | (4,601 | ) | | $ | 11.70 | |
| | Released | | | (186,628 | ) | | $ | 13.05 | |
| | | | | | | | | | |
| | Outstanding at December 31, 2005 | | | 95,188 | | | $ | 11.16 | |
2006: | | Forfeited | | | (1,703 | ) | | $ | 9.74 | |
| | Released | | | (93,485 | ) | | $ | 11.18 | |
| | | | | | | | | | |
| | Outstanding at December 31, 2006 | | | — | | | | | |
| | | | | | | | | | |
In accordance with generally accepted accounting principles, the Company recorded unearned compensation in Stockholders’ Equity related to grants of Restricted Stock awards. This amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and was expensed, on a pro rata basis, over the period that the restriction on these shares lapsed, which was approximately two years for grants issued in 2003 and 18 months for grants issued in 2004. In addition, unearned compensation in Stockholders’ Equity was reduced due to forfeitures of Restricted Stock resulting from employee terminations. Prior to the adoption of SFAS 123R, unearned compensation was included as a separate component of Stockholders’ Equity. Effective January 1, 2006, unearned compensation was combined with additional paid-in capital in accordance with the provisions of SFAS 123R.
In connection with grants of Restricted Stock awards, the Company recorded unearned compensation in Stockholders’ Equity of $1.0 million in 2004 and in connection with forfeitures of these awards, the Company reduced unearned compensation by $17 thousand, $0.1 million, and $0.3 million in 2006, 2005, and 2004, respectively. The Company recognized non-cash compensation expense from Restricted Stock awards of $0.3 million, $1.9 million, and $2.5 million in 2006, 2005, and 2004, respectively. As of December 31, 2006, there were no unvested shares of restricted stock outstanding and all compensation expense related to these awards had been recognized.
| |
15. | Executive Stock Purchase Plan |
In 1989, the Company adopted an Executive Stock Purchase Plan (the “Plan”) under which 1,027,500 shares of Class A Stock were reserved for restricted stock awards. The Plan provides for the compensation committee of the board of directors to award employees, directors, consultants, and other individuals (“Plan participants”) who render service to the Company the right to purchase Class A Stock at a price set by the compensation committee. The Plan provides for the vesting of shares as determined by the compensation committee and, should the Company’s relationship with a Plan participant terminate before all shares are vested, unvested shares will be repurchased by the Company at a price per share equal to the original amount paid by the Plan participant. During
F-31
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
1989 and 1990, a total of 983,254 shares were issued, all of which vested as of December 31, 1999. As of December 31, 2005,2006, there were 44,246 shares available for future grants under the Plan.
| |
15.16. | Employee Savings Plan |
In 1993, the Company adopted the provisions of the Regeneron Pharmaceuticals, Inc. 401(k) Savings Plan (the “Savings Plan”). The terms of the Savings Plan provide for employees who have met defined service requirements to participate in the Savings Plan by electing to contribute to the Savings Plan a percentage of their compensation to be set aside to pay their future retirement benefits, as defined. The Savings Plan, as amended and restated, provides for the Company to make discretionary contributions (“Contribution”), as defined. The Company recorded Contribution expense of $1.3 million in 2006, $2.0 million in 2005, and $0.8 million in 2004, and $0.9 million in 2003;2004; such amounts were accrued as liabilities at December 31, 2006, 2005, 2004, and 2003,2004, respectively. During the first quarter of 2007, 2006, 2005, and 2004,2005, the Company contributed, 64,532, 120,960, 90,385, and 64,33390,385 shares, respectively, of Common Stock to the Savings Plan in satisfaction of these obligations.
In 2006, 2005, 2004, and 2003,2004, the Company recognized a net operating loss for tax purposes and, accordingly, no provision for income taxes has been recorded in the accompanying financial statements. There is no benefit for federal or state income taxes for the years ended December 31, 2006, 2005, 2004, and 20032004 since the Company has incurred net operating losses for tax purposes since inception and established a valuation allowance equal to the total deferred tax asset.
The tax effect of temporary differences, net operating loss carry-forwards, and research and experimental tax credit carry-forwards as of December 31, 2006, 2005, and 2004 was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2005 | | 2004 | | | 2006 | | 2005 | | 2004 | |
|
Deferred tax assets | | | | | | | | | |
Deferred tax assets: | | | | | | | | | | | | | |
Net operating loss carry-forward | | $ | 161,060 | | | $ | 135,099 | | | $ | 177,034 | | | $ | 161,060 | | | $ | 135,099 | |
Fixed assets | | | 12,873 | | | | 9,772 | | | | 15,640 | | | | 12,873 | | | | 9,772 | |
Deferred revenue | | | 34,284 | | | | 28,527 | | | | 58,739 | | | | 34,284 | | | | 28,527 | |
Research and experimental tax credit carry-forward | | | 23,074 | | | | 20,772 | | | | 23,248 | | | | 23,074 | | | | 20,772 | |
Capitalized research and development costs | | | 24,015 | | | | 28,559 | | | | 19,555 | | | | 24,015 | | | | 28,559 | |
Other | | | 12,095 | | | | 4,168 | | | | 18,110 | | | | 12,095 | | | | 4,168 | |
Valuation allowance | | | (267,401 | ) | | | (226,897 | ) | | | (312,326 | ) | | | (267,401 | ) | | | (226,897 | ) |
| | | | | | | | | | | | |
| | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | |
The Company’s valuation allowance increased by $44.9 million in 2006, due primarily to increases in the Company’s net operating loss carry-forward and the temporary difference related to deferred revenue, principally resulting from the non-refundable up-front payment received from Bayer HealthCare in 2006 (see Note 12b). The Company’s valuation allowance increased by $40.5 million in 2005, due primarily to an increase in the Company’s net operating loss carry-forward, and decreased by $14.2 million in 2004, due primarily to a reduction in the temporary difference related to deferred revenue.
F-31
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
For all years presented, the Company’s effective income tax rate is zero. The difference between the Company’s effective income tax rate and the Federal statutory rate of 34% is attributable to state tax benefits and tax credit carry-forwards offset by an increase in the deferred tax valuation allowance.
F-32
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
As of December 31, 2005,2006, the Company had available for tax purposes unused net operating loss carry-forwards of $404.8$446.1 million, which will expire in various years from 20062007 to 2025.2026 and included $3.0 million of net operating loss carry-forwards related to exercises of Nonqualified Stock Options and disqualifying dispositions of Incentive Stock Options, the tax benefit from which, if realized, will be credited to additional paid-in capital. The Company’s research and experimental tax credit carry-forwards expire in various years from 20062007 to 2025.2026. Under the Internal Revenue Code and similar state provisions, substantial changes in the Company’s ownership have resulted in an annual limitation on the amount of net operating loss and tax credit carry-forwards that can be utilized in future years to offset future taxable income. This annual limitation may result in the expiration of net operating losses and tax credit carry-forwards before utilization.
In May 2003, securities class action lawsuits were commenced against Regeneron and certain of the Company’s officers and directors in the United States District Court for the Southern District of New York. A consolidated amended class action complaint was filed in October 2003. The complaint, which was purported to be brought on behalf of a class consisting of investors in the Company’s publicly traded securities between March 28, 2000 and March 30, 2003, alleged that the defendants misstated or omitted material information concerning the safety and efficacy of AXOKINE, in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 andRule 10b-5 promulgated thereunder.
On November 14, 2005, the United States District Court for the Southern District of New York approved the terms of a settlement between plaintiffs and the Company settling all claims against the Company in this lawsuit. The settlement requires no payment by the Company or any of the individual defendants named in the lawsuit. The Company’s primary insurance carrier agreed to make the required payment under the settlement, the amount of which is immaterial to the Company. The settlement includes no admission of wrongdoing by the Company or any of the individual defendants. Separately, the plaintiffs and the individual defendants named in the lawsuit entered into a Stipulation of Voluntary Dismissal, which dismissed all claims against the individuals with prejudice.
From time to time, the Company is a party to other legal proceedings in the course of the Company’s business. The Company does not expect any such other current legal proceedings to have a material adverse effect on the Company’s business or financial condition.
| |
18.19. | Net Income (Loss) Per Share |
The Company’s basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of Common and Class A shares outstanding. The diluted net income per share is based upon the weighted average number of shares of Common Stock and Class A Stock outstanding, and of the common stock equivalents outstanding when dilutive. In 20052006 and 2003,2005, the Company reported net losses and,losses; therefore, no
F-32
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive. The calculations of basic and diluted net loss per share are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
|
Net income (loss) (Numerator) | | $ | (95,446 | ) | | $ | 41,699 | | | $ | (107,458 | ) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
Shares, in thousands (Denominator): | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted-average shares for basic per share calculations | | | 55,950 | | | | 55,419 | | | | 50,490 | | | | 57,970 | | | | 55,950 | | | | 55,419 | |
Effect of stock options | | | | | | | 711 | | | | | | | | | | | | | | | | 711 | |
Effect of restricted stock awards | | | | | | | 42 | | | | | | | | | | | | | | | | 42 | |
| | | | | | | | | | | | | | |
Adjusted weighted-average shares for diluted per share calculations | | | 55,950 | | | | 56,172 | | | | 50,490 | | | | 57,970 | | | | 55,950 | | | | 56,172 | |
| | | | | | | | | | | | | | |
Basic net income (loss) per share | | $ | (1.71 | ) | | $ | 0.75 | | | $ | (2.13 | ) | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.75 | |
Diluted net income (loss) per share | | $ | (1.71 | ) | | $ | 0.74 | | | $ | (2.13 | ) | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.74 | |
F-33
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Shares issuable upon the exercise of options, and warrants, vesting of restricted stock awards, and conversion of convertible debt, which have been excluded from the diluted per share amounts because their effect would have been antidilutive, include the following:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | |
| | 2005 | | 2004 | | 2003 | | | 2006 | | 2005 | | 2004 | |
|
Options and Warrants: | | | | | | | | | | | | | |
Options: | | | | | | | | | | | | | |
Weighted average number, in thousands | | | 13,299 | | | | 10,110 | | | | 11,299 | | | | 14,139 | | | | 13,299 | | | | 10,110 | |
Weighted average exercise price | | $ | 14.59 | | | $ | 23.82 | | | $ | 22.07 | | | $ | 14.41 | | | $ | 14.59 | | | $ | 23.82 | |
Restricted Stock: | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number, in thousands | | | 165 | | | | 6 | | | | 159 | | | | 23 | | | | 165 | | | | 6 | |
Convertible Debt: | | | | | | | | | | | | | | | | | | | | | | | | |
Weighted average number, in thousands | | | 6,611 | | | | 6,611 | | | | 6,611 | | | | 6,611 | | | | 6,611 | | | | 6,611 | |
Conversion price | | $ | 30.25 | | | $ | 30.25 | | | $ | 30.25 | | | $ | 30.25 | | | $ | 30.25 | | | $ | 30.25 | |
In connection with the Company’s stock option exchange program (see Note 14a)14), on January 5, 2005, eligible employees elected to exchange options with a total of 3,665,819 underlying shares of Common Stock, and the Company issued 1,997,840 replacement options with an exercise price of $8.50 per share.
| |
19.20. | Segment Information |
TheThrough 2006, the Company’s operations arewere managed in two business segments: research and development, and contract manufacturing. Due to the expiration of the Company’s manufacturing agreement with Merck in October 2006, beginning in 2007, the Company only has a research and development business segment.
Research and development: Includes all activities related to the discovery of pharmaceutical products for the treatment of serious medical conditions, and the development and commercialization of these discoveries. Also includes revenues and expenses related to (i) the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements and (ii) the supply of specified, ordered research materials using Regeneron-developed proprietary technology (see Note 12).
Contract manufacturing: Includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. During 2006, 2005, 2004, and 2003,2004, the Company produced Intermediate under the Merck Agreement, which expired in October 2006 (see Note 13).
F-33F-34
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
The tables below present information about reported segments for the years ended December 31, 2006, 2005, 2004, and 2003:2004:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Research &
| | Contract
| | Reconciling
| | | | | Research &
| | Contract
| | Reconciling
| | | |
| | Development | | Manufacturing | | Items | | Total | | | Development | | Manufacturing | | Items | | Total | |
|
2005: | | | | | | | | | | | | | | | | | |
2006 | | | | | | | | | | | | | | | | | |
Revenues | | | $ | 51,136 | | | $ | 12,311 | | | | — | | | $ | 63,447 | |
Depreciation and amortization | | | | 13,549 | | | | — | (1) | | $ | 1,043 | | | | 14,592 | |
Non-cash compensation expense | | | | 18,357 | | | | 318 | | | | (813 | ) (3) | | | 17,862 | |
Interest expense | | | | | | | | — | | | | 12,043 | | | | 12,043 | |
Net income (loss) | | | | (111,820 | ) | | | 4,165 | | | | 5,318 | (2) | | | (102,337 | ) |
Capital expenditures | | | | 3,339 | | | | — | | | | — | | | | 3,339 | |
Total assets | | | | 56,843 | | | | 3 | | | | 528,244 | (4) | | | 585,090 | |
2005 | | | | | | | | | | | | | | | | | |
Revenues | | $ | 52,447 | | | $ | 13,746 | | | | — | | | $ | 66,193 | | | $ | 52,447 | | | $ | 13,746 | | | | — | | | $ | 66,193 | |
Depreciation and amortization | | | 14,461 | | | | — | (1) | | $ | 1,043 | | | | 15,504 | | | | 14,461 | | | | — | (1) | | $ | 1,043 | | | | 15,504 | |
Non-cash compensation expense | | | 21,492 | | | | 367 | | | | — | | | | 21,859 | | | | 21,492 | | | | 367 | | | | — | | | | 21,859 | |
Interest expense | | | — | | | | — | | | | 12,046 | | | | 12,046 | | | | — | | | | — | | | | 12,046 | | | | 12,046 | |
Other contract income | | | 30,640 | | | | — | | | | — | | | | 30,640 | | | | 30,640 | | | | — | | | | — | | | | 30,640 | |
Net income (loss) | | | (97,970 | ) | | | 4,189 | | | | (1,665 | )(2) | | | (95,446 | ) | | | (97,970 | ) | | | 4,189 | | | | (1,665 | ) (2) | | | (95,446 | ) |
Capital expenditures | | | 4,667 | | | | — | | | | — | | | | 4,667 | | | | 4,667 | | | | — | | | | — | | | | 4,667 | |
Total assets | | | 95,645 | | | | 4,315 | | | | 323,541 | (3) | | | 423,501 | | | | 95,645 | | | | 4,315 | | | | 323,541 | (4) | | | 423,501 | |
2004: | | | | | | | | | | | | | | | | | |
2004 | | | | | | | | | | | | | | | | | |
Revenues | | $ | 155,927 | | | $ | 18,090 | | | | — | | | $ | 174,017 | | | $ | 155,927 | | | $ | 18,090 | | | | — | | | $ | 174,017 | |
Depreciation and amortization | | | 14,319 | | | | — | (1) | | $ | 1,043 | | | | 15,362 | | | | 14,319 | | | | — | (1) | | $ | 1,043 | | | | 15,362 | |
Non-cash compensation expense | | | 2,543 | | | | — | | | | — | | | | 2,543 | | | | 2,543 | | | | — | | | | — | | | | 2,543 | |
Interest expense | | | 126 | | | | — | | | | 12,049 | | | | 12,175 | | | | 126 | | | | — | | | | 12,049 | | | | 12,175 | |
Other contract income | | | 42,750 | | | | — | | | | — | | | | 42,750 | | | | 42,750 | | | | — | | | | — | | | | 42,750 | |
Net income (loss) | | | 45,395 | | | | 2,876 | | | | (6,572 | )(2) | | | 41,699 | | | | 45,395 | | | | 2,876 | | | | (6,572 | ) (2) | | | 41,699 | |
Capital expenditures | | | 5,972 | | | | — | | | | — | | | | 5,972 | | | | 5,972 | | | | — | | | | — | | | | 5,972 | |
Total assets | | | 111,038 | | | | 6,532 | | | | 355,538 | (3) | | | 473,108 | | | | 111,038 | | | | 6,532 | | | | 355,538 | (4) | | | 473,108 | |
2003: | | | | | | | | | | | | | | | | | |
Revenues | | $ | 47,366 | | | $ | 10,131 | | | | — | | | $ | 57,497 | | |
Depreciation and amortization | | | 11,894 | | | | — | (1) | | $ | 1,043 | | | | 12,937 | | |
Non-cash compensation expense | | | 2,562 | | | | — | | | | — | | | | 2,562 | | |
Interest expense | | | 161 | | | | — | | | | 11,771 | | | | 11,932 | | |
Net income (loss) | | | (103,604 | ) | | | 3,455 | | | | (7,309 | )(2) | | | (107,458 | ) | |
Capital expenditures | | | 16,944 | | | | — | | | | — | | | | 16,944 | | |
Total assets | | | 92,369 | | | | 12,889 | | | | 374,297 | (3) | | | 479,555 | | |
| | |
(1) | | Depreciation and amortization related to contract manufacturing is capitalized into inventory and included in contract manufacturing expense when the product is shipped. |
|
(2) | | Represents investment income net of interest expense related to convertible notes issued in October 2001 (see Note 11d)11c). For the year ended December 31, 2006, also includes the cumulative effect of adopting SFAS 123R (see Note 2). |
|
(3) | | Represents the cumulative effect of adopting SFAS 123R (see Note 2). |
|
(4) | | Includes cash and cash equivalents, marketable securities, restricted cash and restricted marketable securities (where applicable), prepaid expenses and other current assets, and other assets. |
F-34F-35
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
| |
20.21. | Unaudited Quarterly Results |
Summarized quarterly financial data for the years ended December 31, 20052006 and 20042005 are set forth in the following tables.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First Quarter
| | Second Quarter
| | Third Quarter
| | Fourth Quarter
| | | First Quarter
| | Second Quarter
| | Third Quarter
| | Fourth Quarter
| |
| | Ended
| | Ended
| | Ended
| | Ended
| | | Ended
| | Ended
| | Ended
| | Ended
| |
| | March 31,
| | June 30,
| | September 30,
| | December 31,
| | | March 31,
| | June 30,
| | September 30,
| | December 31,
| |
| | 2005 | | 2005 | | 2005 | | 2005 | | | 2006 | | 2006 | | 2006 | | 2006 | |
| | (Unaudited) | | (Unaudited) | | (Unaudited) | | (Unaudited) | | | (Unaudited) | |
|
Revenues | | $ | 16,209 | | | $ | 16,366 | | | $ | 16,194 | | | $ | 17,424 | | | $ | 18,219 | | | $ | 19,258 | | | $ | 15,624 | | | $ | 10,346 | |
Net loss | | | (4,123 | ) | | | (26,999 | ) | | | (34,652 | ) | | | (29,672 | ) | | | (20,380 | ) | | | (23,576 | ) | | | (27,410 | ) | | | (30,971 | ) |
Net loss per share, basic and diluted | | $ | (0.07 | ) | | $ | (0.48 | ) | | $ | (0.62 | ) | | $ | (0.53 | ) | |
Net loss per share, basic and diluted: | | | $ | (0.36 | ) | | $ | (0.41 | ) | | $ | (0.48 | ) | | $ | (0.51 | ) |
| | | | | | | | | | | | | | | | |
| | First Quarter
| | | Second Quarter
| | | Third Quarter
| | | Fourth Quarter
| |
| | Ended
| | | Ended
| | | Ended
| | | Ended
| |
| | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | 2004 | | | 2004 | | | 2004 | | | 2004 | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
|
Revenues | | $ | 61,990 | | | $ | 28,418 | | | $ | 36,519 | | | $ | 47,090 | |
Net income (loss) | | | 64,532 | | | | (14,549 | ) | | | (11,076 | ) | | | 2,792 | |
Basic net income (loss) per share | | $ | 1.17 | | | $ | (0.26 | ) | | $ | (0.20 | ) | | $ | 0.05 | |
Diluted net income (loss) per share | | $ | 1.06 | | | $ | (0.26 | ) | | $ | (0.20 | ) | | $ | 0.05 | |
| | | | | | | | | | | | | | | | |
| | First Quarter
| | | Second Quarter
| | | Third Quarter
| | | Fourth Quarter
| |
| | Ended
| | | Ended
| | | Ended
| | | Ended
| |
| | March 31,
| | | June 30,
| | | September 30,
| | | December 31,
| |
| | 2005 | | | 2005 | | | 2005 | | | 2005 | |
| | (Unaudited) | |
|
Revenues | | $ | 16,209 | | | $ | 16,366 | | | $ | 16,194 | | | $ | 17,424 | |
Net loss | | | (4,123 | ) | | | (26,999 | ) | | | (34,652 | ) | | | (29,672 | ) |
Net loss per share, basic and diluted | | $ | (0.07 | ) | | $ | (0.48 | ) | | $ | (0.62 | ) | | $ | (0.53 | ) |
| |
22. | Subsequent Event — License Agreement |
On February 5, 2007, the Company entered into a non-exclusive license agreement with AstraZeneca that will allow AstraZeneca to utilize the Company’s VelocImmune®technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, AstraZeneca made a $20.0 million non-refundable up-front payment to the Company. AstraZeneca also will make up to five additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the first three additional payments or earlier if the technology does not meet minimum performance criteria. The Company is entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using the Company’s VelocImmune technology.
F-35F-36
EXHIBIT INDEX
| | | | | | |
Exhibit
| | |
Number
| | Description
|
|
3.1 | | (a) | | — | | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. |
3.1.1 | | (b) | | — | | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996. |
3.1.2 | | (c) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001. |
3.2 | | (d) | | — | | By-Laws of the Company, currently in effect (amended through November 12, 2004). |
10.1 | | (e) | | — | | 1990 Amended and Restated Long-Term Incentive Plan. |
10.2 | | (f) | | — | | 2000 Long-Term Incentive Plan. |
10.3.1 | | (g) | | — | | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. |
10.3.2 | | (g) | | — | | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. |
10.3.3 | | (h) | | — | | Amendment No. 3 to 2000 Long-Term Incentive Plan, effective as of June 14, 2004. |
10.3.4 | | (i) | | — | | Amendment No. 4 to 2000 Long-Term Incentive Plan, effective as of November 15, 2004. |
10.3.5 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers. |
10.3.6 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers. |
10.3.7 | | (k) | | — | | Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers. |
10.4* | | (l) | | — | | Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc. |
10.4.1* | | (d) | | — | | Amendment No. 1 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of September 18, 1995. |
10.4.2* | | (d) | | — | | Amendment No. 2 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of October 24, 1996. |
10.4.3* | | (d) | | — | | Amendment No. 3 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of December 9, 1999. |
10.4.4* | | (d) | | — | | Amendment No. 4 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of July 18, 2002. |
10.4.5* | | (d) | | — | | Amendment No. 5 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of January 1, 2005. |
10.5 | | (m) | | — | | Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto. |
10.6 | | (g) | | — | | Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D. |
10.7* | | (d) | | — | | Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D. |
10.8 | | (s) | | — | | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006. |
10.9 | | (n) | | — | | Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee. |
10.10 | | (n) | | — | | Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc. |
10.11* | | (o) | | — | | IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc. |
10.12* | | (p) | | — | | Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company. |
| | | | | | | | |
Exhibit
| | |
Number | | Description |
|
| 3 | .1 | | (a) | | — | | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. |
| 3 | .1.1 | | (b) | | — | | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of October 18, 1996. |
| 3 | .1.2 | | (c) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 17, 2001. |
| 3 | .1.3 | | (s) | | — | | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 20, 2006. |
| 3 | .2 | | (d) | | — | | By-Laws of the Company, currently in effect (amended through November 12, 2004). |
| 10 | .1 | | (e) | | — | | 1990 Amended and Restated Long-Term Incentive Plan. |
| 10 | .2 | | (f) | | — | | 2000 Long-Term Incentive Plan. |
| 10 | .3.1 | | (g) | | — | | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. |
| 10 | .3.2 | | (g) | | — | | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. |
| 10 | .3.3 | | (h) | | — | | Amendment No. 3 to 2000 Long-term Incentive Plan, effective as of June 14, 2004. |
| 10 | .3.4 | | (i) | | — | | Amendment No. 4 to 2000 Long-term Incentive Plan, effective as of November 15, 2004. |
| 10 | .3.5 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers. |
| 10 | .3.6 | | (j) | | — | | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers. |
| 10 | .3.7 | | (k) | | — | | Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers. |
| 10 | .4 | | (g) | | — | | Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D. |
| 10 | .5* | | (d) | | — | | Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D. |
| 10 | .6 | | (q) | | — | | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006. |
| 10 | .7 | | (l) | | — | | Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee. |
| 10 | .8 | | (l) | | — | | Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc. |
| 10 | .9* | | (m) | | — | | IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc. |
| 10 | .10* | | (n) | | — | | Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company. |
| 10 | .11* | | (o) | | — | | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
| 10 | .11.1* | | (d) | | — | | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004. |
| 10 | .11.2 | | (p) | | — | | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005. |
| 10 | .11.3* | | (r) | | — | | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005. |
| 10 | .11.4* | | (r) | | — | | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006. |
| 10 | .12 | | (o) | | — | | Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
| | | | | | |
Exhibit
| | |
Number
| | Description
|
|
10.13* | | (q) | | — | | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
10.13.1* | | (d) | | — | | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004. |
10.13.2 | | (r) | | — | | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005. |
10.13.3* | | | | — | | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005. |
10.13.4* | | | | — | | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006. |
10.14 | | (q) | | — | | Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. |
12.1 | | | | — | | Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc. |
23.1 | | | | — | | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
31.1 | | | | — | | Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
31.2 | | | | — | | Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
32 | | | | — | | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350. |
| | | | | | | | |
Exhibit
| | |
Number | | Description |
|
| 10 | .13* | | (s) | | — | | License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and Regeneron Pharmaceuticals, Inc. |
| 10 | .14* | | | | — | | Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and Regeneron Pharmaceuticals, Inc. |
| 10 | .15 | | (t) | | — | | Lease, dated as of December 21, 2006, by and betweenBMR-Landmark at Eastview LLC and Regeneron Pharmaceuticals, Inc. |
| 12 | .1 | | | | — | | Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc. |
| 23 | .1 | | | | — | | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
| 31 | .1 | | | | — | | Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
| 31 | .2 | | | | — | | Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934. |
| 32 | | | | | — | | Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350. |
Description:
| | |
(a) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 1991, filed August 13, 1991. |
|
(b) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1996 filed November 5, 1996. |
|
(c) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002. |
|
(d) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2004, filed March 11, 2005. |
|
(e) | | Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043). |
|
(f) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the quarterfiscal year ended December 31, 2001, filed March 22, 2002. |
|
(g) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2002, filed March 31, 2003. |
|
(h) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2004, filed August 5, 2004. |
|
(i) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed November 17, 2004. |
|
(j) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005. |
|
(k) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004. |
|
(l) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1995, filed November 14, 1995. |
|
(m) | | Incorporated by reference from theForm 8-A for Regeneron Pharmaceuticals, Inc., filed October 15, 1996. |
|
(n) | | Incorporated by reference from the Company’s registration statement onForm S-3 (filenumber 333-74464). |
| | |
(o)(m) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002. |
|
(p)(n) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003. |
|
(q)(o) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003. |
|
(r)(p) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
|
(s)(q) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 25, 2006. |
|
(r) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2005, filed February 28, 2006. |
|
(s) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed October 18, 2006. |
|
(t) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006. |
|
* | | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2. |