UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,WASHINGTON, D.C. 20549
Form 10-K
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FORM 10-K
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x | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year endedDecember 31, 20062009 |
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| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | For the transition period from to |
For the transition period from _____ to _____
Commission File Number 0-19034
REGENERON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| New York | | 13-3444607 |
New York | | 13-3444607 |
(State or other jurisdiction of
| (I.R.S. Employer |
| incorporation or organization) | | (I.R.S. Employer Identification No) |
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| 777 Old Saw Mill River Road, Tarrytown, New York | | 10591-6707 |
| (Address of principal executive offices) | (Zip code) |
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| (914) 347-7000 |
| (Registrant’s telephone number, including area code) |
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| Securities registered pursuant to Section 12(b) of the Act: |
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(Zip code)Title of each class | Name of each exchange on which registered |
| Common Stock - par value $.001 per share | Nasdaq Global Select Market |
(914) 347-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Sectionsection 12(g) of the Act:
Common Stock — par value $.001 per share
(Title of Class)None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a non-accelerated filer.smaller reporting company. See definitionthe definitions of “accelerated filer and large“large accelerated filer”, “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act.
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Large accelerated filer oþ | Accelerated filer þo | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ
The aggregate market value of the common stock held by non-affiliates of the registrant was approximately $678,078,000,$1,355,426,000, computed by reference to the closing sales price of the stock on NASDAQ on June 30, 2006,2009, the last trading day of the registrant’s most recently completed second fiscal quarter.
The number of shares outstanding of each of the registrant’sregistrant's classes of common stock as of February 28, 2007:12, 2010:
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Class of Common Stock | | Number of Shares | |
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| Class A Stock, $.001 par value | 2,211,698 | 2,270,355 |
| Common Stock, $.001 par value | 79,441,680 | 63,360,389 |
DOCUMENTS INCORPORATED BY REFERENCE:
Specified portions of the Registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its 20072010 Annual Meeting of Shareholders are incorporated by reference into Part III of thisForm 10-K. Exhibit index is located on pages 5065 to 5268 of this filing.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
This Annual Report onForm 10-K contains forward-looking statements that involve risks and uncertainties relating to future events and the future financial performance of Regeneron Pharmaceuticals, Inc., and actual events or results may differ materially. These statements concern, among other things, the possible success and therapeutic applications of our product candidates and research programs, the commercial success of our marketed product, the timing and nature of the clinical and research programs now underway or planned, and the future sources and uses of capital and our financial needs. These statements are made by us based on management’s current beliefs and judgment. In evaluating such statements, stockholders and potential investors should specifically consider the various factors identified under the caption “Risk Factors” which could cause actual events or results to differ materially from those indicated by such forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
General
Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company that discovers, develops, and intends to commercializecommercializes pharmaceutical products for the treatment of serious medical conditions. We currently have one marketed product: ARCALYST® (rilonacept) Injection for Subcutaneous Use, which is available for prescription in the United States for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS) in adults and children 12 and older.
We have eight product candidates in clinical development, including three that are currently focused on three development programs: IL-1 Trap (rilonacept) in various inflammatory indications,late-stage (Phase 3) clinical development. Our late stage programs are rilonacept, which is being developed for the prevention and treatment of gout-related flares; VEGF Trap in oncology, and the VEGF Trap eye formulation (VEGF Trap-Eye)Trap-Eye, which is being developed in eye diseases using intraocular delivery. The VEGF Trapdelivery in collaboration with Bayer HealthCare LLC; and aflibercept (VEGF Trap), which is being developed in oncology in collaboration with the sanofi-aventis Group. In October 2006, we entered intoOur earlier stage clinical programs are REGN475, an antibody to Nerve Growth Factor (NGF), which is being developed for the treatment of pain; REGN88, an antibody to the interleukin-6 receptor (IL-6R), which is being developed in rheumatoid arthritis; REGN421, an antibody to Delta-like ligand-4 (Dll4), which is being developed in oncology; REGN727, an antibody to PCSK9, which is being developed for low density lipoprotein (LDL) cholesterol reduction; and REGN668, an antibody to the interleukin-4 receptor (IL-4R), which is being developed for certain allergic and immune conditions. All five of our earlier stage clinical programs are fully human antibodies that are being developed in collaboration with Bayer HealthCare LLC for the development of the VEGF-Trap-Eye. Our preclinical research programs are in the areas of oncology and angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain, and cardiovascular diseases. We expect that our next generation of product candidates will be based on our proprietary technologies for discovering and producing human monoclonal antibodies. Developing and commercializing new medicines entails significant risk and expense. Since inception we have not generated any sales or profits from the commercialization of any of our product candidates.sanofi-aventis.
Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technologytechnologies and combine that foundation with our manufacturing and clinical development capabilitiesand manufacturing capabilities. Our long-term objective is to build a successful, integrated biopharmaceutical company. company that provides patients and medical professionals with new and better options for preventing and treating human diseases. However, developing and commercializing new medicines entails significant risk and expense.
We believe that our ability to develop product candidates is enhanced by the application of ourVelociSuite™ technology platforms. Our discovery platforms are designed to identify specific genes of therapeutic interest for a particular disease or cell type and validate targets through high-throughput production of mammalian models. Our human monoclonal antibody (VelocImmunetechnology (VelocImmune®) and cell line expression technologies (VelociMab™) may then be utilized to design and produce new product candidates directed against the disease target. Based onOur five antibody product candidates currently in clinical trials were developed using VelocImmune. Under the VelocImmune platformterms of our antibody collaboration with sanofi-aventis, which we believe, in conjunction with our other proprietary technologies, can accelerate the development of fully human monoclonal antibodies,was expanded during 2009, we plan to move twoadvance an average of four to five new antibody product candidates into clinical trialsdevelopment each year, going forward beginning aroundfor an anticipated total of 30-40 candidates over the end of 2007.next eight years. We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, manufacture, and commercialize new product candidates.
Clinical Programs:Commercial Product:
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1. | IL-1 Trap — Inflammatory Diseases |
ARCALYST® (rilonacept) – Cryopyrin-Associated Periodic Syndromes (CAPS)
The IL-1 TrapIn February 2008, we received marketing approval from the U.S. Food and Drug Administration (FDA) for ARCALYST® (rilonacept) Injection for Subcutaneous Use for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS) in adults and children 12 and older. We shipped $20.0 million of ARCALYST® (rilonacept) to our distributors in 2009, compared to $10.7 million in 2008. We own worldwide rights to ARCALYST.
In October 2009, rilonacept was approved under exceptional circumstances by the European Medicines Agency (EMEA) for the treatment of CAPS with severe symptoms in adults and children aged 12 years and older. Such authorizations are permissible for products for which a company can demonstrate that comprehensive data cannot be provided, for example, because of the rarity of the condition. Each year, we will need to provide for review by the EMEA any new or follow-up information that may become available. Rilonacept is not currently marketed in the European Union.
ARCALYST is a protein-based product candidate designed to bind the interleukin-1 (called IL-1) cytokine and prevent its interaction with cell surface receptors. We are evaluating the IL-1 Trap in a number of diseases and disorders in which IL-1 may play an important role, including a spectrum of rare diseases called Cryopyrin-Associated Periodic Syndromes (CAPS) and other diseases associated with inflammation.
In October 2006, we announced positive data from a Phase 3 clinical program designed to provide two separate demonstrations of efficacy for the IL-1 Trap within a single group of adult patients suffering from CAPS. The Phase 3 program of the IL-1 Trap included two studies (Part A and Part B). Both studies met their primary endpoints (Part A: p < 0.0001 and Part B: p < 0.001). The primary endpoint of both studies was the change in disease activity,
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which was measured using a composite symptom score composed of a daily evaluation of fever/chills, rash, fatigue, joint pain, and eye redness/pain.
We plan to submit a Biologics License Application (BLA) with the U.S. Food and Drug Administration (FDA)ARCALYST is approved in the second quarter of 2007, following completion ofUnited States for patients with CAPS, a24-week open-label extension phase. The FDA has granted Orphan Drug status and Fast Track designation to the IL-1 Trap for the treatment of CAPS.
The first study (Part A) was a double-blind and placebo-controlled6-week trial, in which patients randomized to receive the IL-1 Trap had an approximate 85% reduction in their mean symptom score compared to an approximate 13% reduction in patients treated with placebo (p<0.0001). Following a9-week interval during which all patients received the IL-1 Trap, a “randomized withdrawal” study (Part B) was performed, in which the same patients were re-randomized to either switch to placebo or continue treatment with the IL-1 Trap in a double-blind manner. During the9-week randomized withdrawal period, patients who were switched to placebo had a five-fold increase in their mean symptom score, compared with those remaining on the IL-1 Trap who had no significant change (p=.0002). Both the Part A and Part B studies achieved statistical significance in all of their pre-specified secondary and exploratory endpoints.
Preliminary analysis of the safety data from both studies indicated that there were no drug-related serious adverse events. Injection site reactions and upper respiratory tract infections, all mild to moderate in nature, occurred more frequently in patients while on the IL-1 Trap than on placebo. In these two studies, the IL-1 Trap appeared to be well tolerated; 46 of 47 randomized patients completed the Part A study, and 44 of 45 randomized patients completed the Part B study. The24-week open-label extension phase is ongoing.
CAPS is a spectrum group of rare, inherited, inflammatoryauto-inflammatory conditions including Familial Cold Autoinflammatory Syndrome (FCAS), Muckle-Wells Syndrome (MWS), and Neonatal Onset Multisystem Inflammatory Disease (NOMID). These syndromes are characterized by spontaneous systemic inflammationlife-long, recurrent symptoms of rash, fever/chills, joint pain, eye redness/pain, and are termed autoinflammatory disorders. A novel feature of these conditions (particularly FCAS and MWS) is thatfatigue. Intermittent, disruptive exacerbations or flares can be triggered at any time by exposure to mild degrees of cold temperature can provoke a major inflammatory episode that occurs within hours.cooling temperatures, stress, exercise, or other unknown stimuli. CAPS areis caused by a range of mutations in the geneCIAS1 NLRP3(alsoformerly known as NALP3)CIAS1) which encodes a protein named cryopyrin (“icy-fire”)cryopyrin. In addition to FCAS and MWS, CAPS includes Neonatal Onset Multisystem Inflammatory Disease (NOMID). Currently, there are no medicines approvedARCALYST has not been studied for the treatment of CAPS.NOMID.
Clinical Programs:
1. Rilonacept – Inflammatory Diseases
We are also evaluating the potential use of the IL-1 Traprilonacept in other indicationsgout, a disease in which, as in CAPS, IL-1 may play a role. Based on preclinical evidence that IL-1 appears to play a criticalan important role in pain and inflammation. In September 2008, we announced the results of a Phase 2 study which evaluated the efficacy and safety of rilonacept versus placebo in the prevention of gout we initiated a proofflares induced by the initiation of concepturate-lowering drug therapy. In this 83-patient, double-blind, placebo-controlled study, the mean number of flares per patient over the first 12 weeks of urate-lowering therapy was 0.79 with placebo and 0.15 with rilonacept (p=0.0011), an 81% reduction. This was the primary endpoint of the study. All secondary endpoints also were met with statistical significance. In the first 12 weeks of treatment, 45.2% of patients treated with placebo experienced a gout flare and, of those, 47.4% had more than one flare. Among patients treated with rilonacept, only 14.6% experienced a gout flare (p=0.0037 versus placebo) and none had more than one flare. Injection-site reaction was the most commonly reported adverse event with rilonacept and no serious drug-related adverse events were reported.
Results from this study after the first 16 weeks of urate-lowering therapy were reported at the annual meeting of the European League Against Rheumatism (EULAR) in June 2009. Through 16 weeks, the mean number of flares per patient was 0.93 with placebo and 0.22 with rilonacept (p=0.0036). In the first 16 weeks of treatment, 47.6% of patients treated with placebo experienced a gout flare and, of those, 55.0% had more than one flare. Among patients treated with rilonacept, 22.0% experienced a gout flare (p=0.0209 versus placebo) and none had more than one flare. Adverse events after 16 weeks of treatment were similar to those reported after 12 weeks with the most frequently reported categories being infection and musculoskeletal complaints.
Gout is characterized by high blood levels of uric acid, a bodily waste product normally excreted by the kidneys. The uric acid can form crystals in the joints of the toes, ankles, knees, wrists, fingers, and elbows. Chronic treatment with uric acid-lowering medicines, such as allopurinol, is prescribed to eliminate the uric acid crystals and prevent reformation. During the first months of allopurinol therapy, while uric acid blood levels are being reduced, the break up of the uric acid crystals can result in stimulation of inflammatory mediators, including IL-1, Trapresulting in gout inacute flares of joint pain and inflammation. These painful flares generally persist for at least five days.
During the first quarter of 2007.2009, we initiated a Phase 3 clinical development program with rilonacept for the treatment of gout. The program includes four clinical trials. Two Phase 3 clinical trials (called PRE-SURGE 1 and PRE-SURGE 2) are evaluating rilonacept versus placebo for the prevention of gout flares in patients initiating urate-lowering drug therapy. A third Phase 3 trial in acute gout (SURGE) is evaluating treatment with rilonacept alone versus rilonacept in combination with a non-steroidal anti-inflammatory drug (NSAID) versus an NSAID alone. The fourth Phase 3 trial is a placebo-controlled safety study (RE-SURGE) of rilonacept in patients receiving urate-lowering therapy. SURGE and PRE-SURGE 1 are fully enrolled. We are also preparingexpect to initiate exploratory proofreport initial data from SURGE and PRE-SURGE 1 during the first half of concept studies2010 and from PRE-SURGE 2 and RE-SURGE during the first half of the IL-1 Trap in other indications.2011.
UnderRoyalty Agreement with Novartis Pharma AG
In June 2009, we entered into a March 2003 collaborationroyalty agreement with Novartis Pharma AG we retain the right to elect to collaborate in the future developmentthat replaced a previous collaboration and commercialization of a Novartis IL-1 antibody, which is in clinical development. Following completion of Phase 2 development and submission to us of a written report on the Novartis IL-1 antibody, we have the right, in consideration for an opt-in payment, to elect to co-develop and co-commercialize the Novartis IL-1 antibody in North America. If we elect to exerciselicense agreement. Under this right,agreement, we are responsible for paying 45% of post-election North American development costs for the antibody product. In return, we are entitled to co-promote the Novartis IL-1 antibody and to receive 45% of net profits on sales of the antibody product in North America. Under certain circumstances, we are also entitled to receive royalties on worldwide sales of the Novartis IL-1 antibody in Europe.
In addition, under the collaboration agreement, Novartis has theNovartis’ canakinumab, a fully human anti-interleukin-IL1ß antibody. We waived our right to electopt-in to collaborate in the development and commercialization of canakinumab. Canakinumab is approved to treat Cryopyrin-Associated Periodic Syndrome (CAPS) and is in development for chronic gout, type 2 diabetes, and a second generation IL-1number of other inflammatory diseases.
2. VEGF Trap-Eye – Ophthalmologic Diseases
VEGF Trap-Eye is a specially purified and formulated form of VEGF Trap following completionfor use in intraocular applications. We and Bayer HealthCare are testing VEGF Trap-Eye in a Phase 3 program in patients with the neovascular form of itsage-related macular degeneration (wet AMD). We and Bayer HealthCare are also conducting a Phase 2 development, shouldstudy of VEGF Trap-Eye in patients with diabetic macular edema (DME). Wet AMD and diabetic retinopathy (which includes DME) are two of the leading causes of adult blindness in the developed world. In both conditions, severe visual loss is caused by a combination of retinal edema and neovascular proliferation. We and Bayer HealthCare also initiated a Phase 3 program in central retinal vein occlusion (CRVO) in July 2009. In connection with the dosing of the first patient in a Phase 3 study in CRVO, we decide to clinically develop suchreceived a second generation product candidate. Novartis does not have any rights or options with respect to our IL-1 Trap currently in clinical development.$20.0 million milestone payment from Bayer HealthCare.
The Phase 3 trials in wet AMD, known as VIEW 1 and VIEW 2 (VEGF Trap: Investigation of Efficacy and Safety in Wet age-related macular degeneration), are comparing VEGF Trap-Eye and Lucentis® (ranibizumab injection), marketed by Genentech, Inc., an anti-angiogenic agent approved for use in wet AMD. VIEW 1 is being conducted in North America and VIEW 2 is being conducted in Europe, Asia Pacific, Japan, and Latin America. The VIEW 1 and VIEW 2 trials are both evaluating VEGF Trap-Eye doses of 0.5 milligrams (mg) and 2.0 mg at dosing intervals of four weeks and 2.0 mg at a dosing interval of eight weeks (after three monthly doses) compared with Lucentis (Genentech) dosed according to its U.S. label, which specifies doses of 0.5 mg administered every four weeks over the first year. As-needed dosing (PRN) with both agents will be evaluated in the second year of the studies. VIEW 1 and VIEW 2 were fully enrolled in 2009, and initial data are expected in late 2010.
We and Bayer HealthCare have conducted a Phase 2 study in wet AMD which demonstrated that patients treated with VEGF Trap-Eye achieved durable improvements in visual acuity and retinal thickness for up to one year. These one-year study results were reported at the 2008 annual meeting of the Retina Society. In this double-masked Phase 2 trial, known as CLEAR-IT 2, 157 patients were initially treated for three months with VEGF Trap-Eye: two groups received monthly doses of 0.5 or 2.0 mg (at weeks 0, 4, 8, and 12) and three groups received quarterly doses of 0.5, 2.0, or 4.0 mg (at baseline and week 12). Following the initial three-month fixed-dosing phase, patients continued to receive VEGF Trap-Eye at the same dose on a PRN dosing schedule through one year, based upon the physician assessment of the need for re-treatment in accordance with pre-specified criteria.
In this Phase 2 study, patients receiving monthly doses of VEGF Trap-Eye of either 2.0 or 0.5 mg for 12 weeks followed by PRN dosing achieved mean improvements in visual acuity versus baseline of 9.0 letters (p<0.0001 versus baseline) and 5.4 letters (p<0.085 versus baseline), respectively, at the end of one year. The proportion of patients with vision of 20/40 or better (part of the legal minimum requirement for an unrestricted driver’s license in the U.S.) increased from 23% at baseline to 45% at week 52 in patients initially treated with 2.0 mg monthly and from 16% at baseline to 47% at week 52 in patients initially treated with 0.5 mg monthly. Patients receiving monthly doses of VEGF TrapTrap-Eye of either 2.0 or 0.5 mg also achieved mean decreases in retinal thickness versus baseline of 143 microns (p<0.0001 versus baseline) and 125 microns (p<0.0001 versus baseline) at week 52, respectively. After
week 12 to week 52 in the PRN dosing period, patients initially dosed on a 2.0 mg monthly schedule received, on average, only 1.6 additional injections and those initially dosed on a 0.5 mg monthly schedule received, on average, 2.5 additional injections.
While PRN dosing following a fixed quarterly dosing regimen (with dosing at baseline and week 12) also yielded improvements in visual acuity and retinal thickness versus baseline at week 52, the results generally were not as robust as those obtained with initial fixed monthly dosing.
All patients who completed the one year CLEAR-IT 2 study were eligible to participate in an extension stage of the study. Twenty-four-month results of the extension stage were presented in October 2009 at the 2009 American Academy of Ophthalmology meeting. After receiving VEGF Trap-Eye for one year, the 117 patients who elected to enter the extension stage were dosed on a 2.0 mg PRN basis, irrespective of the dose at which they were treated earlier in the study. On a combined basis, for these 117 patients, the mean gain in visual acuity was 7.3 letters (p<0.0001 versus baseline) at the three-month primary endpoint of the original Phase 2 study, 8.4 letters (p<0.0001 versus baseline) at one year, and 6.1 letters (p<0.0001 versus baseline) at month 12 of the extension stage. Thus, after 24 months of dosing with VEGF Trap-Eye in the Phase 2 study, patients continued to maintain a highly significant improvement in visual acuity versus baseline, while receiving, on average, only 4.6 injections over the 21-month PRN dosing phase that extended from month three to month 24. The most common adverse events were those typically associated with intravitreal injections and included conjunctival hemorrhage at the injection site and transient increased intraocular pressure following an injection.
The DME study, known as the DA VINCI study, is a double-masked, randomized, controlled trial that is evaluating four different VEGF Trap-Eye dosing regimens versus laser treatment. A total of 240 patients with clinically significant DME with central macular involvement were randomized to five groups. VEGF Trap-Eye achieved the primary endpoint of the study, a statistically significant improvement in visual acuity compared to focal laser therapy, the standard of care in DME. Visual acuity was measured by the mean number of letters gained over the initial 24 weeks of the study. Patients in each of the four dosing groups receiving VEGF Trap-Eye achieved statistically significantly greater mean improvements in visual acuity (8.5 to 11.4 letters of vision gained) compared to patients receiving focal laser therapy (2.5 letters gained) at week 24 (p< 0.01 for each VEGF Trap-Eye group versus focal laser). VEGF Trap-Eye was generally well-tolerated, and no ocular or non-ocular drug-related serious adverse events were reported in the study. The adverse events reported were those typically associated with intravitreal injections or the underlying disease. Following the initial 24 weeks of treatment, patients continue to be treated for another 24 weeks on the same dosing regimens. Initial one-year results will be available later in 2010.
VEGF Trap-Eye is also in Phase 3 development for the treatment of central retinal vein occlusion (CRVO), another cause of blindness. The COPERNICUS (COntrolled Phase 3 Evaluation of Repeated iNtravitreal administration of VEGF Trap-Eye In Central retinal vein occlusion: Utility and Safety) study is being led by Regeneron and the GALILEO (General Assessment Limiting InfiLtration of Exudates in central retinal vein Occlusion with VEGF Trap-Eye) study is being led by Bayer HealthCare. Patients in both studies will receive six monthly intravitreal injections of either VEGF Trap-Eye at a dose of 2 mg or sham control injections. The primary endpoint of both studies is improvement in visual acuity versus baseline after six months of treatment. At the end of the initial six months, patients will be dosed on a PRN basis for another six months. All patients will be eligible for rescue laser treatment. Enrollment in the COPERNICUS study began during the third quarter of 2009, and enrollment in the GALILEO study began in October 2009. Initial data are anticipated in early 2011.
Collaboration with Bayer HealthCare
In October 2006, we entered into a collaboration agreement with Bayer HealthCare for the global development and commercialization outside the United States of VEGF Trap-Eye. Under the agreement, we and Bayer HealthCare will collaborate on, and share the costs of, the development of VEGF Trap-Eye through an integrated global plan that encompasses wet AMD, DME, and CRVO. Bayer HealthCare will market VEGF Trap-Eye outside the United States, where the companies will share equally in profits from any future sales of VEGF Trap-Eye. If VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States, we will be obligated to reimburse Bayer HealthCare for 50% of the development costs that it has incurred under the agreement from our share of the collaboration profits. Within the United States, we retain exclusive commercialization rights to VEGF Trap-Eye and are entitled to all profits from any such sales. We received an up-front payment of $75.0 million from Bayer HealthCare. In 2007, we received a $20.0 million milestone payment from Bayer HealthCare following dosing
of the first patient in a Phase 3 study of VEGF Trap-Eye in wet AMD. In July 2009, we received a $20.0 million milestone payment from Bayer HealthCare following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in CRVO. We can earn up to $70 million in additional development and regulatory milestones related to the development of VEGF Trap-Eye and marketing approvals in major market countries outside the United States. We can also earn up to $135 million in sales milestones if total annual sales of VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200 million.
3. Aflibercept (VEGF Trap) – Oncology
Aflibercept is a protein-based product candidate designed to bind all forms of Vascular Endothelial Growth Factor-A (called VEGF-A, also known as Vascular Permeability Factor or VPF), VEGF-B, and the related Placental Growth Factor (called PlGF), and prevent their interaction with cell surface receptors. VEGF-A (and to a less
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validated degree, PlGF) is required for the growth of new blood vessels (a process known as angiogenesis) that are needed for tumors to grow and is a potent regulator of vascular permeability and leakage.
The VEGF TrapAflibercept is being developed globally in cancer indications in collaboration with sanofi-aventis. Currently,We and sanofi-aventis are enrolling patients in three Phase 3 trials that combine aflibercept with standard chemotherapy regimens for the collaborationtreatment of cancer. One trial (called VELOUR) is conductingevaluating aflibercept as a 2nd line treatment for metastatic colorectal cancer in combination with FOLFIRI (folinic acid (leucovorin), 5-fluorouracil, and irinotecan). A second trial (VITAL) is evaluating aflibercept as a 2nd line treatment for metastatic non-small cell lung cancer in combination with docetaxel. A third trial (VENICE) is evaluating aflibercept as a 1st line treatment for metastatic androgen independent prostate cancer in combination with docetaxel/prednisone. All three trials are studying the current standard of chemotherapy care for the cancer being studied with and without aflibercept. VITAL and VENICE are fully enrolled, and the VELOUR study is approximately 95% enrolled. In addition, a Phase 2 study (called AFFIRM) of aflibercept in 1st line metastatic colorectal cancer in combination with FOLFOX (folinic acid (leucovorin), 5-fluorouracil, and oxaliplatin) is approximately 75% enrolled.
Each of the Phase 3 studies is monitored by an Independent Data Monitoring Committee (IDMC), a body of independent clinical experts. The IDMCs meet periodically to evaluate data from the studies and may recommend changes in study design or study discontinuation. Both interim and final analyses will be conducted when a prespecified number of events have occurred in each trial. Based on current enrollment and event rates, (i) an interim analysis of VELOUR is expected to be conducted by an IDMC in the second half of 2010, (ii) final results are anticipated in the first half of 2011 from the VITAL study and in the second half of 2011 from the VELOUR study, and (iii) an interim analysis of VENICE is expected to be conducted by an IDMC in mid-2011, with patient enrollment underwayfinal results anticipated in 2012.
A fourth Phase 3 trial (VANILLA) that was evaluating aflibercept as a 1st line treatment for metastatic pancreatic cancer in combination with gemcitabine was discontinued in September 2009 following a planned interim efficacy analysis by that study’s IDMC. The IDMC determined that the addition of aflibercept to gemcitabine would be unable to demonstrate a statistically significant improvement in the primary endpoint of overall survival compared to placebo plus gemcitabine in this study. The types and frequencies of adverse events reported in the combination arm with aflibercept were generally as anticipated.
During 2009, summary results were reported for a randomized, placebo-controlled Phase 2 single-agent study of aflibercept in advanced ovarian cancer (AOC), non-small cell lung adenocarcinoma (NSCLA), and AOC patients with symptomatic malignant ascites (SMA). In 2004,, an abnormal build-up of fluid in the United States Foodabdominal cavity. Patients receiving aflibercept experienced a statistically significant improvement (55 days with aflibercept as compared to 23 days for patients receiving placebo (p=0.0019)) in the primary study endpoint, mean time to first repeat paracentesis (removal of fluid from the abdominal cavity), versus placebo control. There was a statistically similar incidence of deaths in both treatment groups. Four fatal events were assessed by the investigators as aflibercept treatment related. The types and Drug Administration (FDA) granted Fast Track designation to the VEGF Trap for the treatmentfrequencies of SMA. Sanofi-aventisadverse events reported with aflibercept in this study were generally consistent with those reported in February 2007clinical studies with other anti-VEGF therapies in AOC patients. Although the study demonstrated that aflibercept is a registration filing is possibleclinically active agent in this setting, given the small number of patients enrolled in this study and their fragile health status, we and sanofi-aventis concluded that it was difficult to definitively assess the overall clinical benefit that might be derived from treatment in the real-world clinical practice setting and, therefore, the data were not sufficient to submit for regulatory approval in the VEGF Trap in at least one of these single-agent indications in 2008.SMA indication.
In addition, five new Phase 2 single-agent studies have begun in conjunction with the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP) in relapsed/refractory multiple myeloma, metastatic colorectal cancer, recurrent or metastatic cancer of the urothelium, locally advanced or metastatic gynecological soft tissue sarcoma, and recurrent malignant gliomas. An additional study is expected to begin shortly in metastatic breast cancer. The companies are working to finalize plans with NCI/CTEP for at least four additional trials in different cancer types.
We and sanofi-aventis intend to initiate five Phase 3 trials evaluating the safety and efficacy of the VEGF Trap in combination with standard chemotherapy regimens in specific cancer types, the first three of which are planned to begin in 2007. The companies plan to initiate these Phase 3 trials in the following indications:
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| • | first-line metastatic hormone resistant prostate cancer in combination with Taxotere®, |
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| • | first-line metastatic pancreatic cancer in combination with gemcitabine-based regimen, |
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| • | first-line gastric cancer in combination with Taxotere®, |
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| • | second-line non-small cell lung cancer in combination with Taxotere®, and |
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| • | second-line metastatic colorectal cancer in combination with FOLFIRI (Folinic Acid, Fluorouracil, and irinotecan). |
Five safety and tolerability studies of the VEGF Trap in combination with standard chemotherapy regimens are continuing in a variety of cancer types to support the planned Phase 3 clinical program. The companies have previously summarized information from two of these safety and tolerability trials. One study is evaluating the VEGF Trap in combination with oxaliplatin, 5-flourouracil, and leucovorin (FOLFOX4) in a Phase 1 trial of patients with advanced solid tumors. Another study is evaluating the VEGF Trap in combination with irinotecan, 5-fluorouracil, and leucovorin (LV5FU2-CPT11) in a Phase 1 trial of patients with advanced solid tumors. Abstracts published in the2006 ASCO Annual Meeting Proceedings reported that the VEGF Trap could be safely combined with either FOLFOX4 or LV5FU2-CPT11 at the dose levels studied. The companies are also evaluating the VEGF Trap in separate Phase 1b studies in combination with Taxotere®, cisplatin, and fluouracil; with Taxotere® and cisplatin; and with gemcitabine-erlotinib.
Cancer is a heterogeneous set of diseases and one of the leading causes of death in the developed world. A mutation in any one of dozens of normal genes can eventually result in a cell becoming cancerous; however, a common feature of cancer cells is that they need to obtain nutrients and remove waste products, just as normal cells do. The vascular system normally supplies nutrients to and removes waste from normal tissues. Cancer cells can use the vascular system either by taking over preexisting blood vessels or by promoting the growth of new blood vessels (a process known as angiogenesis). VEGF is secreted by many tumors to stimulate the growth of new blood vessels to supply nutrients and oxygen to the tumor. VEGF blockers have been shown to inhibit new vessel growth; and, in some cases, can cause regression of existing tumor vasculature. Countering the effects of VEGF, thereby blocking the blood supply to tumors, has demonstrated therapeutic benefits in clinical trials. This approach of inhibiting angiogenesis as a mechanism of action for an oncology medicine was validated in February 2004, when the FDA approved Genentech, Inc.’s VEGF inhibitor, Avastin®. Avastin is an antibody product designed to inhibit VEGF and interfere with the blood supply to tumors.
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Aflibercept Collaboration with the sanofi-aventis Group
In September 2003, we entered into a collaboration agreement with We and sanofi-aventis U.S. (successor to Aventis Pharmaceuticals, Inc. (predecessor to sanofi-aventis U.S.) toglobally collaborate on the development and commercialization of the VEGF Trap in all countries other than Japan, where we retained the exclusive right to develop and commercialize the VEGF Trap. In January 2005, we and sanofi-aventis amended the collaboration agreement to exclude from the scope of the collaboration the development and commercialization of the VEGF Trap for intraocular delivery to the eye. In December 2005, we and sanofi-aventis amended our collaboration agreement to expand the territory in which the companies are collaborating on the development of the VEGF Trap to include Japan.aflibercept. Under the terms of our September 2003 collaboration agreement, as amended, we and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trapaflibercept outside of Japan for disease indications included in our collaboration. WeIn Japan, we are entitled to a royalty of approximately 35% on annual sales of the VEGF Trap in Japan,aflibercept, subject to certain potential adjustments. We may also receive up to $400.0$400 million in milestone payments upon receipt of specified marketing approvals. This total includesapprovals, including up to $360.0$360 million in milestone payments related to the receipt of marketing approvals for up to eight VEGF Trapaflibercept oncology and other indications in the United States or the European Union. Another $40.0Union and up to $40 million of milestone payments relaterelated to the receipt of marketing approvals for up to five VEGF Trap oncology indications in Japan.
Under the aflibercept collaboration 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, we will be obligated to reimburse sanofi-aventis for 50% of the VEGF Trapaflibercept development expenses 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.
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3. | VEGF Trap — Eye Diseases |
4. REGN475 (Anti-NGF Antibody) for pain
The VEGF Trap-Eye Nerve growth factor (NGF) is a formmember of the VEGF Trapneurotrophin family of secreted proteins. NGF antagonists have been shown to prevent increased sensitivity to pain and abnormal pain response in animal models of neuropathic and chronic inflammatory pain. Mutations in the genes that code for the NGF receptors were identified in people suffering from a loss of deep pain perception. For these and other reasons, we believe blocking NGF could be a promising therapeutic approach to a variety of pain indications.
REGN475 is a fully human monoclonal antibody to NGF generated using our VelocImmune® technology. Preclinical experiments indicate that REGN475 specifically binds to and blocks NGF activity and does not bind to or block cell signaling for closely related neurotrophins such as NT-3, NT-4/5, or BDNF.
In the third quarter of 2009, we began a Phase 2 double-blind, placebo-controlled, dose-ranging, proof-of-concept study of REGN475 in persons with osteoarthritis of the knee. Preliminary data from that study are expected in the first half of 2010. Additionally, four Phase 2 proof-of-concept studies in other pain indications (sciatica, vertebral fracture, chronic pancreatitis, and thermal injury) were initiated in late 2009 and early 2010. REGN475 is being developed in collaboration with sanofi-aventis.
5. REGN88 (Anti-IL-6R Antibody) for inflammatory diseases
Interleukin-6 (IL-6) is a key cytokine involved in the pathogenesis of rheumatoid arthritis, causing inflammation and joint destruction. A therapeutic antibody to the IL-6 receptor (IL-6R), tocilizumab, developed by Roche, has been purified and formulated with excipients and at concentrations suitableapproved for direct injection into the eye. The VEGF Trap-Eye currentlytreatment of rheumatoid arthritis.
REGN88 is being testeda fully human monoclonal antibody to IL-6R generated using our VelocImmune technology that is in a Phase 2 trial in patients with the neovascular form of age-related macular degeneration (wet AMD) and in a small pilot2/3 double-blind, placebo-controlled, dose-ranging study in patients with diabetic macular edema (DME).active rheumatoid arthritis and a Phase 2 double-blind, placebo-controlled, dose-ranging study in ankylosing spondylitis, a form of arthritis that primarily affects the spine. REGN88 is being developed in collaboration with sanofi-aventis.
6. REGN421 (Anti-Dll4 Antibody) for advanced malignancies
In many clinical settings, positively or negatively regulating blood vessel growth could have important therapeutic benefits, as could the second quarterrepair of 2006, we initiated a 150 patient, 12 week, Phase 2 trial of thedamaged and leaky vessels. VEGF Trap-Eye in wet AMD. The trial is evaluating the safety and biological effect of treatment with multiple doses of the VEGF Trap-Eye using different doses and different dosing regimens. We expect to report initial three-month data fromwas the first 75 patients enrolled in the Phase 2 trial in early 2007 and complete three-month data on all 150 patients enrolled in the study by the end of the year. We are also conducting a Phase 1 safety and tolerability trial of a new formulation of the VEGF Trap-Eye in wet AMD. An initial Phase 3 trial of the VEGF Trap-Eye in wet AMD utilizing the new formulation is planned to begin in the second half of 2007, and a second Phase 3 trial is planned once the full data from the Phase 2 trial has been analyzed.
Also in the second quarter of 2006, we initiated a small pilot study of the VEGF Trap in patients with DME.
At the 2006 American Society of Retinal Specialists (ASRS) annual meeting in France, we updated the positive preliminary results from a Phase 1 trial of the VEGF Trap-Eye in patients with wet AMD. A total of 21 patients received a single dose of VEGF Trap-Eye at doses of 0.05, 0.15, 0.5, 1, 2, and 4 milligrams (mg) intravitreally (direct injection into the eye). Patients were evaluated for six weeks to measure the durability of effects and provide guidance for dosing regimens to be used in future trials. All dose levels were generally well tolerated, and a maximum tolerated dose was not reached in the study. In wet AMD, the leakiness of the abnormal blood vessels in the eye can lead to increased retinal thickness. On average, patients receiving the VEGF Trap-Eye demonstrated large, rapid, and sustained (at least six weeks) reductions in retinal thickness. Excess retinal thickness, as determined by ocular coherence tomography (OCT), is a clinical measure of disease activity in wet AMD. As measured by the OCT reading center (posterior pole OCT scans), the median excess retinal thickness resulting from the disease process was 194 microns at baseline. Following a single intravitreal dose of the VEGF Trap-Eye, median excess retinal thickness was reduced to 60 microns, an improvement that was sustained over a six week period. As measured by the computerized Fast Macular Scan protocol, the median excess retinal thickness was 119 microns at baseline, which was reduced to 27 microns at six weeks after the single dose of the VEGF Trap-Eye.
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Of the 20 patients evaluable for efficacy, 95 percent had stabilization or improvement in visual acuity, defined as 15 letter loss on the Early Treatment of Diabetic Retinopathy Study (ETDRS) eye chart. Patients were also evaluated for best-corrected visual acuity (BCVA), the best acuity a person can achieve with glasses. BCVA for all patients in the study increased by a mean of 4.8 letters at six weeks. In the two highest dose groups (2 mg and 4 mg), the mean improvement in BCVA was 13.5 letters, with three of six patients showing an improvement in BCVA of 15 or more letters.
VEGF-A both stimulates angiogenesis and increases vascular permeability. It has been shown in preclinical studies to be a major pathogenicgrowth factor in both wet AMD and diabetic retinopathy, and it is believed to be involved in other medical problems affecting the eyes. In clinical trials, blocking VEGF-A has been shown to be effectivespecific for blood vessels, by virtue of having its receptor specifically expressed on blood vessel cells. In the December 21, 2006 issue of the journal Nature, we reported data from a preclinical study demonstrating that blocking an important cell signaling molecule, known as Delta-like ligand 4 (Dll4), inhibited the growth of experimental tumors by interfering with their ability to produce a functional blood supply. The inhibition of tumor growth was seen in patients with wet AMD,a variety of tumor types, including those that were resistant to blockade of VEGF, suggesting a novel anti-angiogenesis therapeutic approach. Moreover, inhibition of tumor growth is enhanced by the combination of Dll4 and Macugen® (OSI Pharmaceuticals, Inc.) and Lucentis® (Genentech, Inc.) have been approved to treat patients with this condition.VEGF blockade in many preclinical tumor models.
Wet AMDREGN421 is a fully human monoclonal antibody to Dll4 generated using our VelocImmune technology. REGN421 is being developed in collaboration with sanofi-aventis and diabetic retinopathy (DR)is in Phase 1 clinical development.
7. REGN727 (Anti-PCSK9 Antibody) for LDL cholesterol reduction
Elevated low density lipoprotein (LDL) levels is a validated risk factor leading to cardiovascular disease. Statins are twoa class of drugs that lower LDL by upregulating the expression of the leading causes of adult blindness in the developed world. In both conditions, severe vision loss is caused by a combination of retinal edema and neovascular proliferation. It is estimated that in the U.S. 6% of individuals aged65-74 and 20% of those older than 75 are affected with wet AMD. DRLDL receptor (LDLR), which removes LDL from circulation. PCSK9 (proprotein convertase substilisin/kexin type 9) is a major complicationprotein that binds to LDLR, which prevents LDLR from binding to LDL and removes it from circulation. People who have a mutation that reduces the activity of diabetes mellitus that can leadPCSK9 have lower levels of LDL, as well as a reduced risk of adverse cardiovascular events. We used our VelocImmune® technology to significant vision impairment. DR is characterized, in part, by vascular leakage, which results in the collection of fluid in the retina. When the macula, the central area of the retinaderive a fully human monoclonal antibody called REGN727 that is responsible for fine visual acuity,designed to bind to PCSK9 and prevent it from inhibiting LDLR. REGN727 is involved, loss of visual acuity occurs. Thisbeing developed in collaboration with sanofi-aventis and is referred to as diabetic macular edema (DME). DME is the most prevalent cause of moderate visual loss in patients with diabetes.Phase 1 clinical development.
Collaboration with Bayer HealthCare8. REGN668 (Anti-IL4R Antibody) for allergic and immune conditions
In October 2006, we entered into a collaboration agreement with Bayer HealthCareInterleukin-4 receptor (IL4Ra) is required for signaling by the global development,cytokines IL-4 and commercialization outsideIL-13. Both of these cytokines are critical mediators of immune response, which, in turn, drives the United States,formation of the VEGF Trap-Eye. Under the agreement weantibodies and Bayer will collaborate on, and share the costs of, the development of allergic responses, as well as the VEGF Trap-Eye through an integrated global planatopic state that encompasses wet AMD, diabetic eye diseases,underlies asthma and other diseasesatopic dermatitis. REGN668 is a fully human VelocImmune antibody that is designed to bind to IL4R. REGN668 is being developed in collaboration with sanofi-aventis and disorders. The companies will share equallyis in profits from any future sales 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, we will be obligated to reimburse Bayer for 50% of the development costs that it has incurred under the agreement from our share of the collaboration profits. Within the United States, we retained exclusive commercialization rights to the VEGF Trap-Eye and are entitled to all profits from any such sales. We received an up-front payment of $75.0 million from Bayer and can earn up to $110.0 million in total development and regulatory milestones related to the development of the VEGF Trap-Eye and marketing approvals in major market countries outside the United States. We can also earn up to $135.0 million in sales milestones if total annual sales of the VEGF Trap outside the United States achieve certain specified levels starting at $200 million.Phase 1 clinical development.
Research and Development Technologies:
One way that a cell communicates with other cells is by releasing specific signaling proteins, either locally or into the bloodstream. These proteins have distinct functions, and are classified into different “families” of molecules, such as peptide hormones, growth factors, and cytokines. All of these secreted (or signaling) proteins travel to and are recognized by another set of proteins, called “receptors,” which reside on the surface of responding cells. These secreted proteins impact many critical cellular and biological processes, causing diverse effects ranging from the regulation of growth of particular cell types, to inflammation mediated by white blood cells. Secreted proteins can at times be overactive and thus result in a variety of diseases. In these disease settings, blocking the action of specific secreted proteins can have clinical benefit.
RegeneronOur scientists have developed two different technologies to design protein therapeutics to block the action of specific secreted proteins. The first technology, termed the “Trap” technology, was used to generate our current clinical pipeline, including the VEGF Trap, thefirst approved product, ARCALYST® (rilonacept), as well as aflibercept and VEGF Trap-Eye, and the IL-1 Trap.all of which are in Phase 3 clinical trials. These novel “Traps” are composed of fusions between two distinct receptor components and the constant region of an antibody molecule called the “Fc region”, resulting in high affinity product candidates.
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Regeneron scientists also have discoveredVelociSuite is our second technology platform and developed a new technology for designing protein therapeutics that focuses on the discovery and production of fully human monoclonal antibodies. We call our technology VelocImmune®and, as described below, believe that it is a unique way of generating a wide variety of high affinity therapeutic, human monoclonal antibodies.
VelocImmune® (Human Monoclonal Antibodies)
We have developed a novel mouse technology platform, called VelocImmune,used for discovering, developing, and producing fully human monoclonal antibodies.
VelociSuiteTM
VelociSuite consists of VelocImmune, VelociGene®, VelociMouse®, and VelociMabTM. The VelocImmune mouse platform is utilized to produce fully human monoclonal antibodies. VelocImmune was generated by exploiting our VelociGene technology platform (see below), in a process in which six megabases of mouse immune gene loci were replaced, or “humanized”“humanized,” with corresponding human immune gene loci. The VelocImmune mice can be used to generate efficiently fully human monoclonal antibodies to targets of therapeutic interest. VelocImmune and our related technologiesentire VelociSuite offer the potential to increase the speed and efficiency through which human monoclonal antibody therapeutics may be discovered and validated, thereby improving the overall efficiency of our early stage drug development activities. We are utilizing the VelocImmune technology to produce our next generation of drug candidates for preclinical development and are exploring possible licensing or collaborative arrangements with third parties related to VelocImmune and related technologies.
License Agreement with AstraZeneca
In February 2007, we entered into a non-exclusive license agreement with AstraZeneca that will allow AstraZeneca to utilize our 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 us. 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. We are entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using our VelocImmune technology.
VelociGene® and VelociMousetm(Target Validation)clinical development.
Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA to produce highly customized alterations of a specified target gene, or genes, and accelerates the production of knock-out and transgenic expression models without using either positive/negative selection or isogenic DNA. In producing knock-out models, a color or fluorescent marker ismay be substituted in place of the actual gene sequence, allowing for high-resolution visualization of precisely where the gene is active in the body during normal body functioning as well as in disease processes. For the optimization of pre-clinical development and toxicology programs, VelociGene offers the
opportunity to humanize targets by replacing the mouse gene with the human homolog. Thus, VelociGene® allows scientists to rapidly identify the physical and biological effects of deleting or over-expressing the target gene, as well as to characterize and test potential therapeutic molecules.
The Our VelociMouse® technology alsoplatform allows for the direct and immediate generation of genetically altered mice from ESembryonic stem cells (ES cells), thereby avoiding the lengthy process involved in generating and breeding knockout mice from chimeras. Mice generated through this method are normal and healthy and exhibit a 100% germ-line transmission frequency.transmission. Furthermore, Regeneron’sthe VelociMice are suitable for direct phenotyping or other studies. We have also developed our VelociMab™platform for the rapid screening of antibodies and rapid generation of expression cell lines for our Traps and our VelocImmune® human monoclonal antibodies.
Antibody Collaboration and License Agreements
sanofi-aventis. In November 2007, we and sanofi-aventis entered into a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement and a License and Collaboration Agreement. We received a non-refundable, up-front payment of $85.0 million from sanofi-aventis under the discovery agreement. In addition, sanofi-aventis is funding research at Regeneron to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. Sanofi-aventis funded approximately $175 million of research from the collaboration’s inception through December 31, 2009. In November 2009, we and sanofi-aventis amended these agreements to expand and extend our antibody collaboration. Sanofi-aventis will now fund up to $160 million per year of our antibody discovery activities over the period from 2010-2017, subject to a one-time option for sanofi-aventis to adjust the maximum reimbursement amount down to $120 million per year commencing in 2014 if over the prior two years certain specified criteria are not satisfied. In addition, sanofi-aventis will fund up to $30 million of agreed-upon costs we incur to expand our manufacturing capacity at our Rensselaer, New York facilities. As under the original 2007 agreement, sanofi-aventis also has an option to extend the discovery program for up to an additional three years for further antibody development and preclinical activities. We will lead the design and conduct of research activities, including target identification and validation, antibody development, research and preclinical activities through filing of an Investigational New Drug Application, toxicology studies, and manufacture of preclinical and clinical supplies. The goal of the expanded collaboration is to advance an average of four to five new antibody product candidates into clinical development each year, for an anticipated total of 30-40 candidates over the next eight years.
For each drug candidate identified under the discovery agreement, sanofi-aventis has the option to license rights to the candidate under the license agreement. If it elects to do so, sanofi-aventis will co-develop the drug candidate with us through product approval. To date, sanofi-aventis has opted into the development of five antibody candidates. Development costs will be shared between the companies, with sanofi-aventis generally funding drug candidate development costs up front, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate will be shared 80% by sanofi-aventis and 20% by us. We are generally responsible for reimbursing sanofi-aventis for half of the total development costs for all collaboration antibody products from our share of profits from commercialization of collaboration products to the extent they are sufficient for this purpose. However, we are not required to apply more than 10% of our share of the profits from collaboration products in any calendar quarter towards reimbursing sanofi-aventis for these development costs.
Sanofi-aventis will lead commercialization activities for products developed under the license agreement, subject to our right to co-promote such products. The parties will equally share profits and losses from sales within the United States. The parties will share profits outside the United States on a sliding scale based on sales starting at 65% (sanofi-aventis)/35% (us) and ending at 55% (sanofi-aventis)/45% (us), and will share losses outside the United States at 55% (sanofi-aventis)/45% (us). In addition to profit sharing, we are entitled to receive up to $250 million in sales milestone payments, with milestone payments commencing after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.
In August 2008, we entered into an agreement with sanofi-aventis to use our VelociGene platform to supply sanofi-aventis with genetically modified mammalian models of gene function and disease. Sanofi-aventis will pay us a minimum of $21.5 million for the term of the agreement, which extends through December 2012, for knock-out and transgenic models of gene function for target genes identified by sanofi-aventis. Sanofi-aventis will use these models for its internal research programs that are outside of the scope of our antibody collaboration.
AstraZeneca UK Limited. In February 2007, we entered into a non-exclusive license agreement with AstraZeneca UK Limited that allows AstraZeneca to utilize our VelocImmune® technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, AstraZeneca made $20.0 million annual, non-refundable payments to us in the first quarter of 2007, 2008, and 2009. AstraZeneca is required to make up to three additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the next annual payment in the first quarter of 2010. We are entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using our VelocImmune technology.
Astellas Pharma Inc. In March 2007, we entered into a non-exclusive license agreement with Astellas Pharma Inc. that allows Astellas to utilize our VelocImmune technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, Astellas made $20.0 million annual, non-refundable payments to us in the second quarter of 2007, 2008, and 2009. Astellas is required to make up to three additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the next annual payment in the second quarter of 2010. We are entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by Astellas using our VelocImmune technology.
National Institutes of Health Grant
In September 2006, we were awarded a five-year grant from the National Institutes of Health (NIH) as part of the NIH’s Knockout Mouse Project. The goal of the Knockout Mouse Project is to build a comprehensive and broadly available resource of knockout mice to accelerate the understanding of gene function and human diseases. We will useare using our VelociGene® technology to take aim at 3,500 of the most difficult genes to target and which are not currently the focus of other large-scale knockout mouse programs. We have also agreed to grant a limited license to a consortium of research institutions, the other major participants in the Knockout Mouse Project, to use components of our VelociGene technology in the Knockout Mouse Project. We will generateare generating a collection of targeting vectors and targeted mouse embryonic stemES cells (ES cells) which can be used to produce knockout mice.
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These materials will be made widelyare available to academic researchers without charge. We will receive a fee for each targeted ES cell line or targeting construct made by us or the research consortium and transferred to commercial entities.
Under the NIH grant, as amended, we will beare entitled to receive a minimum of $17.9$25.3 million over athe five-year period. We will receive another $1.0period beginning September 2006, including $1.5 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium, both of which will beare being supplied to the research consortium for its use in the Knockout Mouse Project. We will have the right to use, for any purpose, all materials generated by us and the research consortium.
Cell Line Expression TechnologiesResearch Programs
Many proteins that are of potential pharmaceutical value are proteins which are “secreted” from the cells into the bloodstream. Examples of secreted proteins include growth factors (such as insulin and growth hormone) and antibodies. Current technologies for the isolation of cells engineered to produce high levels of secreted proteins are both laborious and time consuming. We have developed enabling platforms for the high-throughput, rapid generation of high-producing cell lines for our Traps and VelocImmune human monoclonal antibodies.
Research Programs:
Oncology and Angiogenesis
In many clinical settings, positively or negatively regulating blood vessel growth could have important therapeutic benefits, as could the repair of damaged and leaky vessels. Vascular Endothelial Growth Factor (VEGF) was the first growth factor shown to be specific for blood vessels, by virtue of having its receptor specifically expressed on blood vessel cells. In 1994, we discovered a second family of angiogenic growth factors, termed the Angiopoietins, and we have received patents covering members of this family. The Angiopoietins include naturally occurring positive and negative regulators of angiogenesis, as described in numerous scientific manuscripts published by our scientists and their collaborators. The Angiopoietins are being evaluated in Our preclinical research by us and our academic collaborators. Our preclinical studies have revealed that VEGF and the Angiopoietins normally function in a coordinated and collaborative manner during blood vessel growth. Manipulation of both VEGF and Angiopoietins seems to be of value in blocking vessel growth. We have research programs focusing on several targetsare in the areas of oncology and angiogenesis.
Tumors depend on the growth of new blood vessels (a process called “angiogenesis”) to support their continued growth. Therapies that block tumor angiogenesis, specifically those that block VEGF, the key initiator of tumor angiogenesis, recently have been validated in human cancer patients. However, anti-VEGF approaches do not work in all patients,ophthalmology, metabolic and many tumors can become resistant to such therapies.
In the December 21, 2006 issue of the journalNature,we reported data from a preclinical study demonstrating that blocking an important cell signaling molecule, known as Delta-like Ligand 4 (Dll4), inhibited the growth of experimental tumors by interfering with their ability to produce a functional blood supply. The inhibition of tumor growth was seen in a variety of tumor types, including those that were resistant to blockade of VEGF, suggesting a novel anti-angiogenesis therapeutic approach. A fully human monoclonal antibody to Dll4, that was discovered using our VelocImmune technology, is in preclinical development.
Metabolic and Related Diseases
Food intake and metabolism are regulated by complex interactions between diverse neural and hormonal signals that serve to maintain an optimal balance between energy intake, storage, and utilization. The hypothalamus, a small area at the base of the brain, is critically involved in the integration of peripheral signals which reflect nutritional status and neural outputs which regulate appetite, food seeking behaviors, and energy expenditure. Metabolic disorders, such as type 2 diabetes, reflect a dysregulation in the systems which ordinarily tightly couple energy intake to energy expenditure. Our preclinical research program in this area encompasses the study of peripheral (hormonal) regulators of food intake and metabolism in health and disease. We have identified several targets in these therapeutic areas and are evaluating potential antibodies to evaluate in preclinical studies.
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Muscle Diseases and Disorders
Muscle atrophy occurs in many neuromuscularrelated diseases, muscle diseases and also when muscle is unused, as often occurs during prolonged hospital stays and during convalescence. Currently, physicians have few options to treat subjects with muscle atrophy or other muscle conditions which afflict millions of people globally. Thus, a treatment that has beneficial effects on skeletal muscle could have significant clinical benefit. Our muscle research program is currently focused on conducting in vivo and in vitro experiments with the objective of demonstrating and further understanding the molecular pathways involved in muscle atrophy and hypertrophy, and discovering therapeutic candidates that can modulate these pathways. We have several molecules in late stage research and are evaluating them for possible further development.
Other Therapeutic Areas
We have research programs focusing on inflammatorydisorders, inflammation and immune diseases, pain, bone and cartilage, ophthalmology,pain, cardiovascular diseases, and cardiovascularinfectious diseases.
ManufacturingSales and Marketing
In 1993,We have established a small commercial organization to support sales of ARCALYST® (rilonacept) for the treatment of CAPS in the United States. We have no sales or distribution personnel and distribute the product through third party service providers. We currently have no sales, marketing, commercial, or distribution organization outside the United States. If we purchasedreceive regulatory approval to market and sell additional products in the United States or in other countries, we may either expand our 104,000 square footcommercial organization or rely on third party product licensees or service providers.
Manufacturing
Our manufacturing facilities are located in Rensselaer, New York manufacturing facility, and in 2003 completed a 19,500 square foot expansion. This facility is used to manufacture therapeutic candidates for our own preclinical and clinical studies. We also used the facility to manufacture a product for Merck & Co., Inc. under a contract that expired in October 2006. In July 2002, we leased 75,000consist of three buildings totaling approximately 395,500 square feet in a building near our Rensselaer facility which is being used for the manufacture of Trapsresearch, manufacturing, office, and for warehouse space. We currently have approximately 27,500 liters of cell culture capacity at these facilities and have plans to increase our manufacturing capacity to approximately 54,000 liters in 2010. Up to $30 million of agreed-upon costs related to this expansion will be funded by sanofi-aventis under the terms of our amended antibody collaboration. At December 31, 2006,2009, we employed 188278 people at these owned and leased manufacturingour Rensselaer facilities. There were no impairment losses associated with long-lived assets at these facilities as of December 31, 2006.2009.
Among the conditions for regulatory marketing approval of a medicine is the requirement that the prospective manufacturer’s quality control and manufacturing procedures conform to the GMPgood manufacturing practice (GMP) regulations of the health authority. In complying with standards set forth in these regulations, manufacturers must continue to expend time, money, and effort in the areas of production and quality control to ensure full technical compliance. Manufacturing establishments, both foreign and domestic, are also subject to inspections by or under the authority of the FDA and by other national, federal, state, and local agencies. If our manufacturing facilities fail to comply with FDA and other regulatory requirements, we will be required to suspend manufacturing. This willwould likely have a material adverse effect on our financial condition, results of operations, and cash flow.
Competition
We face substantial competition from pharmaceutical, biotechnology, and chemical companies (see “Risk Factors —– Even if our product candidates are ever approved for marketing, their commercial success is highly uncertain because our competitors have received approval for products with a similar mechanism of action, and competitors may get to the marketplace before we do with better or lower cost drugs or the market for our product candidates may be too small to support commercialization or sufficient profitability.”). Our competitors may include Genentech, Novartis, Pfizer Inc., OSI Pharmaceuticals, Inc., Bayer HealthCare, Onyx Pharmaceuticals, Inc., Eli Lilly and Company, Abbott, Laboratories, sanofi-aventis, Merck & Co., Amgen Inc., Roche, and others. Many of our competitors have substantially greater research, preclinical, and clinical product development and manufacturing capabilities, and financial, marketing, and human resources than we do. OurCompetition from smaller competitors may also be or become more significant if theythose competitors acquire or discover patentable inventions, form collaborative arrangements, or merge with large pharmaceutical companies. Even ifwhen we achieve product commercialization, one or more of our competitors may achieve product commercialization earlier than we do or obtain patent protection that dominates or adversely affects our activities. Our ability to compete will depend on how fast we can develop safe and effective product candidates, complete clinical testing and approval processes, and supply commercial quantities of the product to the market. Competition among product candidates approved for sale will also be based on efficacy, safety, reliability, availability, price, patent position, and other factors.
ARCALYST®(rilonacept). In 2009, Novartis received regulatory approval in the U.S. and Europe for canakinumab (Ilaris®), a fully human anti-interleukin-IL1ß antibody, for the treatment of CAPS. Canakinumab is also in development for chronic gout and a number of other inflammatory diseases. In October 2009, Novartis announced positive Phase 2 results showing that canakinumab is significantly more effective than an injectable corticosteroid at reducing pain and preventing recurrent attacks or “flares” in patients with hard-to-treat gout. In addition, there are both small molecules and antibodies in development by other third parties that are designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli Lilly and Xoma Ltd. are each developing antibodies to interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. These drug candidates could offer competitive advantages over ARCALYST. The successful development and/or commercialization of these competing molecules could delay or impair our ability to successfully develop and commercialize ARCALYST.
VEGF TrapTrap-Eye. The market for eye disease products is also very competitive. Novartis and Genentech are collaborating on the commercialization and further development of a VEGF antibody fragment (Lucentis) for the treatment of wet AMD, DME, and other eye indications. Lucentis (Genentech) was approved by the FDA in June 2006 for the treatment of wet AMD. Many other companies are working on the development of product candidates for the potential treatment of wet AMD and DME that act by blocking VEGF and VEGF Trap-Eye.receptors, and through the use of small interfering ribonucleic acids (siRNAs) that modulate gene expression. In addition, ophthalmologists are using off-label, with success for the treatment of wet AMD, a third-party reformulated version of Genentech’s approved VEGF antagonist, Avastin® (bevacizumab). The relatively low cost of therapy with Avastin (Genentech) in patients with wet AMD presents a significant competitive challenge in this indication. The National Eye Institute (NEI) initiated a Phase 3 trial to compare Lucentis (Genentech) to Avastin (Genentech) in the treatment of wet AMD. Data from this NEI study are expected to be published in 2011. Avastin (Genentech) is also being evaluated in eye diseases in trials that have been initiated in the United Kingdom, Canada, Brazil, Mexico, Germany, Israel, and other areas.
Aflibercept (VEGF Trap).Many companies are developing therapeutic molecules designed to block the actions of VEGF specifically and angiogenesis in general. A variety of approaches have been employed, including antibodies to VEGF, antibodies to the VEGF receptor, small molecule antagonists to the VEGF receptor
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tyrosine kinase, and other anti-angiogenesis strategies. Many of these alternative approaches may offer competitive advantages to our VEGF Trap in efficacy, side-effect profile, or method of delivery. Additionally, some of these molecules are either already approved for marketing or are at a more advanced stage of development than our product candidate.
In particular, Genentech has an approved VEGF antagonist, Avastin,®, on the market for treating certain cancers and a number of pharmaceutical and biotechnology companies are working to develop competing VEGF antagonists, including Novartis, OSI Pharmaceuticals,Amgen, Pfizer, Imclone/Eli Lilly, AstraZeneca, and Imclone Systems Incorporated.GlaxoSmithKline. Many of these molecules are further along in development than the VEGF Trapaflibercept and may offer competitive advantages over our molecule. Novartis has an ongoing Phase 3 clinical development program evaluating an orally delivered VEGF tyrosine kinase inhibitor in different cancer settings. Each of Pfizer and Onyx Pharmaceuticals (together with its partner Bayer) has received approval from the FDA to marketBayer Healthcare) are selling and sell anmarketing oral medicationmedications that targetstarget tumor cell growth and new vasculature formation that fuels the growth of tumors.
The market for eye diseaseMonoclonal Antibodies. Our early-stage clinical candidates in development are all fully human monoclonal antibodies, which were generated using our VelocImmune® technology. Our antibody generation technologies and early-stage clinical candidates face competition from many pharmaceutical and biotechnology companies using various technologies.
Numerous other companies are developing therapeutic antibody products. Companies such as Pfizer, Johnson & Johnson, MedImmune, LLC (a subsidiary of AstraZeneca), Amgen, Biogen Idec, Inc., Novartis, Roche, Genentech, Bristol-Myers Squib, Abbott, and GlaxoSmithKline have generated therapeutic products is also very competitive. Novartis and Genentechthat are collaboratingcurrently in development or on the commercializationmarket that are derived from recombinant DNA that comprise human antibody sequences. As noted above, AstraZeneca and furtherAstellas have licensed our VelocImmune technology as part of their internal antibody development programs.
We are aware of several pharmaceutical and biotechnology companies actively engaged in the research and development of a VEGF antibody fragment (Lucentis®)products against targets that are also the targets of our early-stage product candidates. For example, Pfizer, Johnson & Johnson, and Abbott are developing antibody product candidates against NGF. The Pfizer antibody against NGF is in Phase 3 clinical trials for the treatment of age-related macular degeneration (wet AMD) and other eye indications that was approved by the FDA in June 2006. OSI Pharmaceuticals and Pfizer arepain due to osteoarthritis. Roche is marketing an approved VEGF inhibitor (Macugen®) for wet AMD. Many other companies are working onantibody against the development of product candidates for the potential treatment of wet AMD that act by blocking VEGF, VEGF receptors, and through the use of soluble ribonucleic acids (sRNAs) that modulate gene expression. In addition, ophthalmologists are using off-label a third-party reformulated version of Genentech’s approved VEGF antagonist, Avastin, with successinterleukin-6 receptor (tocilizumab) for the treatment of wet AMD. The National Eye Institue recentlyrheumatoid arthritis, and several other companies, including Centocor Ortho Biotech, Inc. and Bristol Myers Squibb, have antibodies against IL-6 in clinical development for this disease. GlaxoSmithKline, in partnership with OncoMed Pharmaceuticals, Inc., has received fundinga Dll4 antibody in clinical development for a Phase 3 trial to compare Lucentis to Avastin in the treatment of wet AMD.solid tumors. Aerovance has two formulations of a biologic directed against interleukin-4 in clinical development. Amgen previously had an antibody against the interleukin-4 receptor in clinical development for the treatment of asthma. We believe that several companies, including Amgen, have development programs for antibodies against PCSK9.
IL-1 Trap. The availability of highly effective FDA approved TNF-antagonists such as Enbrel® (Amgen), Remicade® (Centocor), and Humira® (Abbott) and the IL-1 receptor antagonist Kineret (Amgen), and other marketed therapies makes it difficult to successfully develop and commercialize the IL-1 Trap. Even if the IL-1Trap is ever approved for sale, it will be difficult for our drug to compete against these FDA approved TNF-antagonists because doctors and patients will have significant experience using these effective medicines. Moreover, there are both small molecules and antibodies in development by third parties that are designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli Lilly and Company and Novartis are each developing antibodies to interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. These drug candidates could offer competitive advantages over the IL-1 Trap. The successful development of these competing molecules could delay or impair our ability to successfully develop and commercialize the IL-1 Trap.
Other Areas.Many pharmaceutical and biotechnology companies are attempting to discover new therapeutics for indications in which we invest substantial time and resources. In these and related areas, intellectual property rights have been sought and certain rights have been granted to competitors and potential competitors of ours, and we may be at a substantial competitive disadvantage in such areas as a result of, among other things, our lack of experience, trained personnel, and expertise. A number of corporate and academic competitors are involved in the discovery and development of novel therapeutics that are the focus of other research or development programs we are now conducting. These competitors include Amgen and Genentech, as well as many others. Many firms and entities are engaged in research and development in the areas of cytokines, interleukins, angiogenesis, and muscle conditions. Some of these competitors are currently conducting advanced preclinical and clinical research programs in these areas. These and other competitors may have established substantial intellectual property and other competitive advantages.
If a competitor announces a successful clinical study involving a product that may be competitive with one of our product candidates or the grant of marketing approval by a regulatory agency for a competitive product, the announcement may have an adverse effect on our operations or future prospects or on the market price of our common stock.Common Stock.
We also compete with academic institutions, governmental agencies, and other public or private research organizations, which conduct research, seek patent protection, and establish collaborative arrangements for the development and marketing of products that would provide royalties or other consideration for use of their technology. These institutions are becoming more active in seeking patent protection and licensing arrangements to
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collect royalties or other consideration for use of the technology that they have developed. Products developed in this manner may compete directly with products we develop. We also compete with others in acquiring technology from these institutions, agencies, and organizations.
Patents, Trademarks, and Trade Secrets
Our success depends, in part, on our ability to obtain patents, maintain trade secret protection, and operate without infringing on the proprietary rights of third parties (see “Risk Factors —– We may be restricted in our developmentand/or commercialization activities by, and could be subject to damage awards if we are found to have infringed, third party patents or other proprietary rights.rights.”). Our policy is to file patent applications to protect technology, inventions, and improvements that we consider important to our business and operations. As of December 31, 2009, we held an ownership interest in a total of approximately 180 issued patents in the United States and over 750 issued patents in foreign countries with respect to our products and technologies. In addition, we held an ownership interest in hundreds of patent applications in the United States and foreign countries.
Our patent portfolio includes granted patents and pending patent applications covering our VelociSuite™ technologies, including our VelocImmune® mouse platform which produces fully human monoclonal antibodies. Our issued patents covering these technologies generally expire between 2020 and 2030. However, we continue to file patent applications directed to improvements to these technology platforms.
Our patent portfolio also includes issued patents and pending applications relating to our marketed product, ARCALYST® (rilonacept), and our product candidates in clinical development. These patents cover the proteins and DNA encoding the proteins, manufacturing patents, method of use patents, pharmaceutical compositions, as well as various methods of using the products. For each of ARCALYST and our late-stage clinical candidates, aflibercept (VEGF Trap) and VEGF Trap-Eye, these patents generally expire between 2020 and 2026. However, the projected patent terms may be subject to extension based on potential patent term extensions in countries where such extensions are available.
We also are the nonexclusive licensee of a number of additional U.S. patents and patent applications. In July 2008 we entered into an Amended and Restated Non-Exclusive License Agreement with Cellectis S.A. pursuant to which we licensed certain patents and patent applications relating to a process for the specific replacement of a copy of a gene in the receiver genome by homologous recombination. Pursuant to this agreement, we agreed to pay Cellectis a low, single-digit royalty based on any future revenue received by us from any future licenses or sales of our VelociGene® or VelocImmune products or services. No royalties are payable on any revenue from commercial sales of antibodies from our VelocImmune technology, including antibodies developed under our collaboration with sanofi-aventis. We also rely upon trade secrets, know-how, and continuing technological innovation in an effort to develop and maintain our competitive position. We or our licensors or collaborators have filed patent applications on various products and processes relating to our product candidates as well as other technologies and inventions in the United States and in certain foreign countries. We intend to file additional patent applications, when appropriate, relating to improvements in these technologiesnon-exclusive license agreements with Amgen and other specific products and processes. We planorganizations for patent rights related to aggressively prosecute, enforce, and defend our patents and other proprietary technology.ARCALYST. In exchange for these licenses, we pay a mid-single digit royalty on net sales of ARCALYST.
Patent law relating to the patentability and scope of claims in the biotechnology field is evolving and our patent rights are subject to this additional uncertainty. The degree of patent protection that will be afforded to our products in the United States and other important commercial markets is uncertain and is dependent upon the scope of protection decided upon by the patent offices, courts, and governments in these countries. There is no certainty that our existing patents or others, if obtained, will provide us protection from competition or provide commercial benefit.
Others may independently develop similar products or processes to those developed by us, duplicate any of our products or processes or, if patents are issued to us, design around any products and processes covered by our patents. We expect to continue, when appropriate, to file product and process patent applications with respect to our inventions. However, we may not file any such applications or, if filed, the patents may not be issued. Patents issued to or licensed by us may be infringed by the products or processes of others.
Defense and enforcement of our intellectual property rights can beis expensive and time consuming, even if the outcome is favorable to us. It is possible that patents issued to or licensed to us will be successfully challenged, that a court may find that we are infringing validly issued patents of third parties, or that we may have to alter or discontinue the development of our products or pay licensing fees to take into account patent rights of third parties.
Government Regulation
Regulation by government authorities in the United States and foreign countries is a significant factor in the research, development, manufacture, and marketing of ARCALYSTand our product candidates (see “Risk Factors —– If we do not obtain regulatory approval for our product candidates, we will not be able to market or sell them.”). All of our product candidates will require regulatory approval before they can be commercialized. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials and other pre-market approval requirements by the FDA and foreign authorities. Many aspects of the structure and substance of the FDA and
foreign pharmaceutical regulatory practices have been reformed during recent years, and continued reform is under consideration in a number of jurisdictions. The ultimate outcome and impact of such reforms and potential reforms cannot be predicted.
The activities required before a product candidate may be marketed in the United States begin with preclinical tests. Preclinical tests include laboratory evaluations and animal studies to assess the potential safety and efficacy of the product candidate and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug Application, which must be reviewed by the FDA before proposed clinical testing can begin. Typically, clinical testing involves a three-phase process. In Phase 1, trials are conducted with a small number of subjects to determine the early safety profile of the product candidate. In Phase 2, clinical trials are conducted with subjects afflicted with a specific disease or disorder to provide enough data to evaluate the preliminary safety, tolerability, and efficacy of different potential doses of the product candidate. In Phase 3, large-scale clinical trials are conducted with patients afflicted with the specific disease or disorder in order to provide enough data to understand the efficacy and safety profile of the product candidate, as required by the FDA. The results of the preclinical and clinical testing of a biologic product candidate are then submitted to the FDA in the form of a
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Biologics License Application, or BLA, for evaluation to determine whether the product candidate may be approved for commercial sale. In responding to a BLA, the FDA may grant marketing approval, request additional information, or deny the application.
Any approval required by the FDA for any of our product candidates may not be obtained on a timely basis, or at all. The designation of a clinical trial as being of a particular phase is not necessarily indicative that such a trial will be sufficient to satisfy the parameters of a particular phase, and a clinical trial may contain elements of more than one phase notwithstanding the designation of the trial as being of a particular phase. The results of preclinical studies or early stage clinical trials may not predict long-term safety or efficacy of our compounds when they are tested or used more broadly in humans.
Approval of a product candidate by comparable regulatory authorities in foreign countries is generally required prior to commencement of marketing of the product in those countries. The approval procedure varies among countries and may involve additional testing, and the time required to obtain such approval may differ from that required for FDA approval.
Various federal, state, and foreign statutes and regulations also govern or influence the research, manufacture, safety, labeling, storage, record keeping, marketing, transport, and other aspects of pharmaceutical product candidates. The lengthy process of seeking these approvals and the compliance with applicable statutes and regulations require the expenditure of substantial resources. Any failure by us or our collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals could adversely affect the manufacturing or marketing of our products and our ability to receive product or royalty revenue.
In addition to the foregoing, our present and future business will be subject to regulation under the United States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, national restrictions, and other current and potential future local, state, federal, and foreign regulations.
Business Segments
Through 2006,We manage our operations were managed in two business segments: research and development, and contract manufacturing. The research and developmentas one segment which 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. ItThis segment also includes revenues and expenses related to (i) research and development activities conducted under our collaboration agreements with third parties and our grant from the developmentNIH, (ii) ARCALYST® (rilonacept) product sales for the treatment of manufacturing processes priorCAPS, (iii) licensing agreements to commencing commercial production of a product under contract manufacturing arrangementsutilize our VelocImmune® technology, and (ii)(iv) the supply of specified, ordered research materials using Regeneron-developed proprietary technology. The contract manufacturing segment includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. During 2006, 2005, and 2004, the Company manufactured a product for Merck under a contract that expired in October 2006. For financial information about these segments, see Note 20, “Segment Information”, beginning onour page F-34VelociGene® in our Financial Statements. Due to the expiration of our manufacturing agreement with Merck, beginning in 2007 we only have a research and development business segment.technology platform.
Employees
As of December 31, 2006,2009, we had 5731,029 full-time employees, of whom 80192 held a Ph.D. and/or M.D. degree, or both.PharmD degree. We believe that we have been successful in attracting skilled and experienced personnel in a highly competitive environment; however, competition for these personnel is intense. None of our personnel are covered by collective bargaining agreements and our management considers its relations with our employees to be good.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,
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Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including Regeneron, that file electronically with the SEC. The public can obtain any documents that we file with the SEC athttp://www.sec.gov.
We also make available free of charge on or through our Internet website(http://www.regn.com)www.regeneron.com) our Annual Report onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
ITEM 1A. RISK FACTORS
We operate in an environment that involves a number of significant risks and uncertainties. We caution you to read the following risk factors, which have affected,and/or in the future could affect, our business, operating results, financial condition, and cash flows. The risks described below include forward-looking statements, and actual events and our actual results may differ substantially from those discussed in these forward-looking statements. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Furthermore, additional risks and uncertainties are described under other captions in this report and should be considered by our investors.
Risks Related to Our Financial Results and Need for Additional Financing
We have had a history of operating losses and we may never achieve profitability. If we continue to incur operating losses, we may be unable to continue our operations.
From inception on January 8, 1988 through December 31, 2006,2009, we had a cumulative loss of $687.6$941.1 million. If we continue to incur operating losses and fail to become a profitable company, we may be unable to continue our operations. We have no products that are available for sale and do not know when we will have products available for sale, if ever. In the absence of substantial revenue from the sale of products or other sources, the amount, timing, nature or source of which cannot be predicted, our losses will continue as we conduct our research and development activities. Until October 31, 2006, we received contract manufacturing revenue from our agreement with Merck and, until June 30, 2005, we received contract research and development revenue from our agreement with The Procter & Gamble Company. Our agreement with Procter & Gamble expired in June 2005 and our agreement with Merck expired in October 2006. The expiration of these agreements has resulted in a significant loss of revenue to the Company.
We willmay need additional funding in the future, which may not be available to us, and which may force us to delay, reduce or eliminate our product development programs or commercialization efforts.
We will need to expend substantial resources for research and development, including costs associated with clinical testing of our product candidates. We believe our existing capital resources, including funding we are entitled to receive under our collaboration agreements, will enable us to meet operating needs through at least early 2010, without taking into consideration the $200.0 million aggregate principal amount2012; however, one or more of convertible senior subordinated notes, which mature in October 2008; however,our collaboration agreements may terminate, our projected revenue may decrease, or our expenses may increase and that would lead to our capital being consumed significantly before such time. We will likelymay require additional financing in the future and we may not be able to raise such additional funds. If we are able to obtain additional financing through the sale of equity or convertible debt securities, such sales may be dilutive to our shareholders. Debt financing arrangements may require us to pledge certain assets or enter into covenants that would restrict our business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our shareholders. If we are unable to raise sufficient funds to complete the development of our product candidates, we may face delay, reduction or elimination of our research and development programs or preclinical or clinical trials, in which case our business, financial condition or results of operations may be materially harmed.
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We have a significant amount of debt and may have insufficient cash to satisfy our debt service and repayment obligations. In addition, the amountThe value of our debt could impedeinvestment portfolio, which includes cash, cash equivalents, and marketable securities, is influenced by varying economic and market conditions. A decrease in the value of an asset in our operations and flexibility.investment portfolio or a default by the issuer may result in our inability to recover the principal we invested and/or a recognition of a loss charged against income.
As of December 31, 2009, cash, cash equivalents, restricted cash, and marketable securities totaled $390.0 million and represented 53% of our total assets. We have invested our excess cash primarily in direct obligations of the U.S. government and its agencies, other debt securities guaranteed by the U.S. government, and money market funds that invest in U.S. Government securities and, to a significant amount of convertiblelesser extent, investment grade debt securities issued by corporations, bank deposits, and semi-annual interest payment obligations. This debt, unless convertedasset-backed securities. We consider assets classified as marketable securities to shares of our common stock, will maturebe “available-for-sale,” as defined by FASB authoritative guidance. Marketable securities totaled $181.3 million at December 31, 2009, are carried at fair value, and the unrealized gains and losses are included in October 2008. We may be unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on our debt. Even if we are able to meet our debt service obligations, the amount of debt we already have could hurt our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes. In addition, our debt obligations could require us to use a substantial portion of cash to pay principal and interest on our debt, instead of applying those funds to other purposes, such as research and development, working capital, and capital expenditures.accumulated
comprehensive income (loss) as a separate component of stockholders’ equity. If the decline in the value of a security in our investment portfolio is deemed to be other-than-temporary, we write down the security to its current fair value and recognize a loss which may be fully charged against income. For example, we recognized other-than-temporary impairment charges related to certain marketable securities of $5.9 million, $2.5 million and $0.1 million in 2007, 2008, and 2009, respectively. The current economic environment, the deterioration in the credit quality of some of the issuers of securities that we hold, and the recent volatility of securities markets increase the risk that we may not recover the principal we invested and/or there may be further declines in the market value of securities in our investment portfolio. As a result, we may incur additional charges against income in future periods for other-than-temporary impairments or realized losses upon a security’s sale or maturity, and such amounts may be material.
Risks Related to ARCALYST® (rilonacept) and the Development of Our Product Candidates
Successful development of any of our product candidates is highly uncertain.
Only a small minority of all research and development programs ultimately result in commercially successful drugs. We have never developed a drug that has been approved for marketing and sale, and we may never succeed in developing an approved drug. Even if clinical trials demonstrate safety and effectiveness of any of our product candidates for a specific disease and the necessary regulatory approvals are obtained, the commercial success of any of our product candidates will depend upon their acceptance by patients, the medical community, and third-party payers and on our partners’ ability to successfully manufacture and commercialize our product candidates. Our product candidates are delivered either by intravenous infusion or by intravitreal or subcutaneous injections, which are generally less well received by patients than tablet or capsule delivery. If our products are not successfully commercialized, we will not be able to recover the significant investment we have made in developing such products and our business would be severely harmed.
We intend to study our lead product candidates, the VEGF Trap,are testing aflibercept, VEGF Trap-Eye, and IL-1 Trap,rilonacept in a number of late-stage clinical trials. Clinical trials may not demonstrate statistically sufficient effectiveness and safety to obtain the requisite regulatory approvals for these product candidates. In a number of instances, we have terminated the development of product candidates due to a lack of or modest effectiveness.
Aflibercept is in Phase 3 clinical trials in combination with standard chemotherapy regimens for the treatment of 2nd line metastatic colorectal cancer, 1st line androgen independent prostate cancer, and 2nd line metastatic non-small cell lung cancer. Aflibercept may not demonstrate the required safety or efficacy to support an application for approval in any of these indications. We do not have proof of concept data from early-stage, double-blind, controlled clinical trials that aflibercept will be safe or effective in any of these cancer settings.
We are testing VEGF Trap-Eye in Phase 3 trials for the treatment of wet AMD and the treatment of Central Retinal Vein Occlusion (CRVO). Although we reported positive Phase 2 trial results with VEGF Trap-Eye in wet AMD, based on a limited number of patients, the results from the larger Phase 3 trials may not demonstrate that VEGF Trap-Eye is safe and effective or compares favorably to Lucentis (Genentech). A number of other potential new drugs and biologics which showed promising results in initial clinical trials subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. VEGF Trap-Eye has not been previously studied in CRVO.
Rilonacept is in Phase 3 clinical trials for two different gout indications – the prevention of gout flares in patients initiating urate-lowering drug therapy and acute gout. We do not have proof of concept data from Phase 2 clinical trials that rilonacept will be safe or effective in the acute gout setting. Although we reported positive Phase 2 proof of concept data from a small number of patients initiating urate-lowering drug therapy, there is a risk that the results of the larger Phase 3 trials of rilonacept in patients initiating urate-lowering drug therapy will differ from the previously reported Phase 2 trial. A number of potential new drugs and biologics which showed promising results in initial clinical trials subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.
We are studying our antibody candidates in a wide variety of indications. We intend to study the VEGF Trapindications in a variety of cancer settings, the VEGF Trap-Eye in different eye diseases and ophthalmologic indications, and the IL-1 Trap in a variety of systemic inflammatory disorders.early stage clinical trials. Many of these current trials are exploratory studies designed to evaluate the safety profile of these compounds and to identify what diseases and uses, if any, are best suited for ourthese product candidates. It is likely that our product candidates will not demonstrate the requisite efficacyand/or safety profile to support continued development for most of the indications that are to be studied. In fact, ourThese early stage product candidates may not demonstrate the requisite efficacy andand/or safety profile to support the continued development for anysome or all of the indications that are being, or uses.are planned to be, studied.
Clinical trials required for our product candidates are expensive and time-consuming, and their outcome is highly uncertain. If any of our drug trials are delayed or achieveyield unfavorable results, we will have to delay or may be unable to obtain regulatory approval for our product candidates.
We must conduct extensive testing of our product candidates before we can obtain regulatory approval to market and sell them. We need to conduct both preclinical animal testing and human clinical trials. Conducting these trials is a lengthy, time-consuming, and expensive process. These tests and trials may not achieve favorable results for many reasons, including, among others, failure of the product candidate to demonstrate safety or efficacy, the development of serious or life-threatening adverse events (or side effects) caused by or connected with exposure to the product candidate, difficulty in enrolling and maintaining subjects in the clinical trial, lack of sufficient supplies of the product candidate or comparator drug, and the failure of clinical investigators, trial monitors, and othercontractors, consultants, or trial subjects to comply with the trial plan or protocol. A clinical trial may fail because it did not include a sufficient number of patients to detect the endpoint being measured or reach statistical significance. A clinical trial may also fail because the dose(s) of the investigational drug included in the trial were either too low or too high to determine the optimal effect of the investigational drug in the disease setting.
Many of our clinical trials are conducted under the oversight of Independent Data Monitoring Committees (or IDMCs). These independent oversight bodies are made up of external experts who review the progress of ongoing clinical trials, including available safety and efficacy data, and make recommendations concerning a trial’s continuation, modification, or termination based on interim, unblinded data. Any of our ongoing clinical trials may be discontinued or amended in response to recommendations made by responsible IDMCs based on their review of such interim trial results. For example, we are studying higher dosesin September 2009, a Phase 3 trial that was evaluating aflibercept as a 1st line treatment for metastic pancreatic cancer in combination with gemcitabine was discontinued at the recommendation of the IL-1 Trap in different diseasesan IDMC after a Phase 2planned analysis of interim efficacy data determined that the trial using lower doseswould not meet its efficacy endpoint. The recommended termination of any of our ongoing late-stage clinical trials by an IDMC could harm the IL-1 Trap in subjects with rheumatoid arthritis failed to achieve its primary endpoint.future development of our product candidate(s) and our business may be materially harmed.
We will need to reevaluate any drug candidate that does not test favorably and either conduct new trials, which are expensive and time consuming, or abandon the drug development program. Even if we obtain positive results
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from preclinical or clinical trials, we may not achieve the same success in future trials. Many companies in the biopharmaceutical industry, including us,Regeneron, have suffered significant setbacks in clinical trials, even after promising results have been obtained in earlier trials. The failure of clinical trials to demonstrate safety and effectiveness for the desired indication(s) could harm the development of theour product candidate(s), and our business, financial condition, and results of operations may be materially harmed.
The data fromSerious complications or side effects have occurred, and may continue to occur, in connection with the Phase 3 clinical program for the IL-1 Trapuse of our approved product and in CAPS (Cryopyrin Associated Periodic Syndromes) may be inadequate to support regulatory approval for commercialization of the IL-1 Trap.
The efficacy and safety data from the Phase 3 clinical program for the IL-1 Trap in CAPS may be inadequate to support approval for its commercialization in this indication. Moreover, if the safety data from the ongoing clinical trials testing the IL-1 Trap are not satisfactory, we may not proceed with the filing of a biological license application, or BLA, for the IL-1 Trap or we may be forced to delay the filing. The FDA and other regulatory agencies may have varying interpretations of our clinical trial data, which could delay, limit, or prevent regulatory approval or clearance.
Further, before a product candidate is approved for marketing, our manufacturing facilities must be inspected by the FDA and the FDA will not approve the product for marketing if we or our third party manufacturers are not in compliance with current good manufacturing practices. Even if the FDA and similar foreign regulatory authorities do grant marketing approval for the IL-1 Trap, they may pose restrictions on the use or marketing of the product, or may require us to conduct additional post-marketing trials. These restrictions and requirements would likely result in increased expenditures and lower revenues and may restrict our ability to commercialize the IL-1 Trap profitably.
In addition to the FDA and other regulatory agency regulations in the United States, we are subject to a variety of foreign regulatory requirements governing human clinical trials, marketing and approval for drugs, and commercial sales and distribution of drugs in foreign countries. The foreign regulatory approval process includes all of the risks associated with FDA approval as well as country-specific regulations. Whether or not we obtain FDA approval for a product in the United States, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the IL-1 Trap in those countries.
The development of serious or life-threatening side effects with anysome of our product candidates wouldwhich could cause our regulatory approval to be revoked or otherwise negatively affected or lead to delay or discontinuation of development of our product candidates which could severely harm our business.
During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the drug candidate being studied caused these conditions. Various illnesses, injuries, and discomforts have been reported fromtime-to-time during clinical trials of our product candidates. It is possible as we test our current drug candidates in larger, longer, and more extensive clinical programs, illnesses, injuries, and discomforts that were observed in earlier trials, as well as conditions that did not occur or went undetected in smaller previous trials, will be reported by patients. Many times, side effects are only detectable after investigational drugs are tested in large scale, Phase 3 clinical trials or, in some cases, after they are made available to patients after approval. If additional clinical experience indicates that any of our product candidates has many side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, which would severely harm our business.
Our VEGF Trap Aflibercept (VEGF Trap) is being studied for the potential treatment of certain types of cancer and our VEGF Trap-Eye candidate is being studied in diseases of the eye. There are many potential safety concerns associated with significant blockade of vascular endothelial growth factor, or VEGF.VEGF, that may limit our ability to successfully develop aflibercept and VEGF Trap-Eye. These serious and potentially life-threatening risks, based on the clinical and preclinical experience of systemically delivered VEGF inhibitors, including the systemic delivery of the VEGF Trap, include bleeding, intestinal perforation, hypertension, proteinuria,
congestive heart failure, heart attack, and proteinuria. These serious side effects and other serious side effects have been reported in our systemic VEGF Trap studies in cancer and diseases of the eye.stroke. In addition, patients given infusions of any protein, including the VEGF Trap delivered through intravenous administration, may develop severe hypersensitivity reactions or infusion reactions. Other VEGF blockers have reported side effects that became evident only after large scale trials or after marketing approval and large numbersnumber of patients were treated. These include side effects that we have not yet seen in our trials such as heart attack and stroke. These and other
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complications or side effects could harm the development of the VEGF Trapaflibercept for the treatment of cancer or the VEGF Trap-Eye for the treatment of diseases of the eye.
It is possible that safety or tolerability concerns may ariseWe have tested ARCALYST® (rilonacept) in only a small number of patients. As more patients begin to use our product and as we test higher doses of the IL-1 Trapit in patientsnew disease settings, new risks and side effects associated with other inflammatory diseasesARCALYST may be discovered, and disorders.risks previously viewed as inconsequential could be determined to be significant. Like TNF-antagonistscytokine antagonists such as Kineret® (anakinra), marketed by Biovitrum, Enbrel® (Amgen) (etanercept), marketed by Amgen and Remicade® (Centocor)Wyeth Pharmaceuticals, Inc., the IL-1 Trapand Remicade® (infliximab) marketed by Centocor, ARCALYST affects the immune defense system of the body by blocking some of its functions. Therefore, thereARCALYST may beinterfere with the body’s ability to fight infections. Treatment with Kineret (Biovitrum), a medication that works through the inhibition of IL-1, has been associated with an increased risk forof serious infections, to developand serious, life threatening infections have been reported in patients treated with the IL-1 Trap. In addition, patients given infusions of the IL-1 Trap have developed hypersensitivity reactions or infusion reactions.taking ARCALYST. These or other complications or side effects could impedecause regulatory authorities to revoke approvals of ARCALYST. Alternatively, we may be required to conduct additional clinical trials, make changes in the labeling of our product, or limit or abandon our efforts to develop ARCALYST in new disease settings. These side effects may also result in us abandoninga reduction, or even the developmentelimination, of the IL-1 Trap.sales of ARCALYST in approved indications.
OurARCALYST® (rilonacept) and our product candidates in development are recombinant proteins that could cause an immune response, resulting in the creation of harmful or neutralizing antibodies against the therapeutic protein.
In addition to the safety, efficacy, manufacturing, and regulatory hurdles faced by our product candidates, the administration of recombinant proteins frequently causes an immune response, resulting in the productioncreation of antibodies against the therapeutic protein. The antibodies can have no effect or can totally neutralize the effectiveness of the protein, or require that higher doses be used to obtain a therapeutic effect. In some cases, the antibody can cross react with the patient’s own proteins, resulting in an “auto-immune” type disease. Whether antibodies will be created can often not be predicted from preclinical or clinical experiments, and their detection or appearance is often delayed, so that there can be no assurance that neutralizing antibodies will not be detected at a later date, — in some cases even after pivotal clinical trials have been completed. SubjectsAntibodies directed against the receptor domains of rilonacept were detected in patients with CAPS after treatment with ARCALYST. Nineteen of 55 subjects (35%) who received IL-1 TrapARCALYST for at least 6 weeks tested positive for treatment-emerging binding antibodies on at least one occasion. To date, no side effects related to antibodies were observed in clinical trials have developed antibodies.these subjects and there were no observed effects on drug efficacy or drug levels. It is possible that as we continue to test the VEGF Trapaflibercept and VEGF Trap-Eye with more sensitive assays in different patient populations and larger clinical trials, we will find that subjects given the VEGF Trapaflibercept and VEGF Trap-Eye producedevelop antibodies to these product candidates, and may also experience side effects related to the antibodies, which could adversely impact the development of such candidates.
We may be unable to formulate or manufacture our product candidates in a way that is suitable for clinical or commercial use.
Changes in product formulations and manufacturing processes may be required as product candidates progress in clinical development and are ultimately commercialized. For example, we are currently testing a new formulation of the VEGF Trap-Eye in a Phase 1 Trial. If we are unable to develop suitable product formulations or manufacturing processes to support large scale clinical testing of our product candidates, including the VEGF Trap,aflibercept, VEGF Trap-Eye, and IL-1 Trap,our antibody candidates, we may be unable to supply necessary materials for our clinical trials, which would delay the development of our product candidates. Similarly, if we are unable to supply sufficient quantities of our product or develop product formulations suitable for commercial use, we will not be able to successfully commercialize our product candidates.
Risks Related to Intellectual Property
If we cannot protect the confidentiality of our trade secrets or our patents are insufficient to protect our proprietary rights, our business and competitive position will be harmed.
Our business requires using sensitive and proprietary technology and other information that we protect as trade secrets. We seek to prevent improper disclosure of these trade secrets through confidentiality agreements. If our trade secrets are improperly exposed, either by our own employees or our collaborators, it would help our competitors and adversely affect our business. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of biotechnology companies involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Our patents may be challenged, invalidated, or circumvented. Patent applications filed outside the United States may be challenged by third parties who file an opposition. Such opposition proceedings are increasingly common in the European Union and are costly to defend. We have pending patent applications that are being opposedin the European Patent Office and it is likely that we will need to defend additional patent applications from third party challengers from time to time in the future. Our patent rights may not provide us with a proprietary position or
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competitive advantages against competitors. Furthermore, even if the outcome is favorable to us, the enforcement of our intellectual property rights can be extremely expensive and time consuming.
We may be restricted in our developmentand/or commercialization activities by, and could be subject to damage awards if we are found to have infringed, third party patents or other proprietary rights.
Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Other parties may allege that they have blocking patents to our products in clinical development, either because they claim to hold proprietary rights to the composition of a product or the way it is manufactured or used. Moreover, other parties may allege that they have blocking patents to antibody products made using our VelocImmune® technology, either because of the way the antibodies are discovered or produced or because of a proprietary position covering an antibody or the antibody’s target.
We are aware of patents and pending applications owned by Genentech that claim certain chimeric VEGF receptor compositions. Although we do not believe that the VEGF Trapaflibercept or VEGF Trap-Eye infringes any valid claim in these patents or patent applications, Genentech could initiate a lawsuit for patent infringement and assert that its patents are valid and cover the VEGF Trapaflibercept or VEGF Trap-Eye. Genentech may be motivated to initiate such a lawsuit at some point in an effort to impair our ability to develop and sell the VEGF Trapaflibercept or VEGF Trap-Eye, which represents arepresent potential competitive threatthreats to Genentech’s VEGF-binding products and product candidates. An adverse determination by a court in any such potential patent litigation would likely materially harm our business by requiring us to seek a license, which may not be available, or resulting in our inability to manufacture, develop, and sell the VEGF Trapaflibercept or VEGF Trap-Eye or in a damage award.
We are aware of patents and pending applications owned by Roche that claim antibodies to the interleukin-6 receptor and methods of treating rheumatoid arthritis with such antibodies. We are developing REGN88, an antibody to the interleukin-6 receptor, for the treatment of rheumatoid arthritis. Although we do not believe that REGN88 infringes any valid claim in these patents or patent applications, Roche could initiate a lawsuit for patent infringement and assert its patents are valid and cover REGN88.
We are aware of a U.S. patent jointly owned by Genentech and City of Hope relating to the production of recombinant antibodies in host cells. We currently produce our antibody product candidates using recombinant antibodies from host cells and may choose to produce additional antibody product candidates in this manner. Neither ARCALYST® (rilonacept), aflibercept, nor VEGF Trap-Eye are recombinant antibodies. If any of our antibody product candidates are produced in a manner subject to valid claims in the Genentech patent, then we may need to obtain a license from Genentech, should one be available. Genentech has licensed this patent to several different companies under confidential license agreements. If we desire a license for any of our antibody product candidates and are unable to obtain a license on commercially reasonable terms or at all, we may be restricted in our ability to use Genentech’s techniques to make recombinant antibodies in or to import them into the United States.
Further, we are aware of a number of other third party patent applications that, if granted, with claims as currently drafted, may cover our current or planned activities. We cannot assure you that our products and/or actions in manufacturing and selling our product candidates will not infringe such patents.
Any patent holders could sue us for damages and seek to prevent us from manufacturing, selling, or developing our drug candidates, and a court may find that we are infringing validly issued patents of third parties. In the event that the manufacture, use, or sale of any of our clinical candidates infringes on the patents or violates other proprietary rights of third parties, we may be prevented from pursuing product development, manufacturing, and commercialization of our drugs and may be required to pay costly damages. Such a result may materially harm our business, financial condition, and results of operations. Legal disputes are likely to be costly and time consuming to defend.
We seek to obtain licenses to patents when, in our judgment, such licenses are needed. If any licenses are required, we may not be able to obtain such licenses on commercially reasonable terms, if at all. The failure to obtain any such license could prevent us from developing or commercializing any one or more of our product candidates, which could severely harm our business.
Regulatory and Litigation Risks
If we do not obtain regulatory approval for our product candidates, we will not be able to market or sell them.
We cannot sell or market products without regulatory approval. If we do not obtain and maintain regulatory approval for our product candidates, including ARCALYST® (rilonacept) for the treatment of diseases other than CAPS, the value of our company and our results of operations will be harmed. In the United States, we must obtain and maintain approval from the FDAUnited States Food and Drug Administration (FDA) for each drug we intend to sell. Obtaining FDA approval is typically a lengthy and expensive process, and approval is highly uncertain. Foreign governments also regulate drugs distributed in their country and approval in any country is likely to be a lengthy and expensive process, and approval is highly uncertain. NoneExcept for the FDA approval of ARCALYST and the EMEA approval of rilonacept for the treatment of CAPS, none of our product candidates has ever received regulatory approval to be marketed and sold in the United States or any other country. We may never receive regulatory approval for any of our product candidates.
The FDA enforces good clinical practices and other regulations through periodic inspections of trial sponsors, clinical research organizations (CROs), principal investigators, and trial sites. If we or any of the third parties conducting our clinical studies are determined to have failed to fully comply with Good Clinical Practice regulations (GCPs), the study protocol or applicable regulations, the clinical data generated in our studies may be deemed unreliable. This could result in non-approval of our product candidates by the FDA, or we or the FDA may decide to conduct additional audits or require additional clinical studies, which would delay our development programs and substantially harm our business.
Before approving a new drug or biologic product, the FDA requires that the facilities at which the product will be manufactured be in compliance with current good manufacturing practices,Good Manufacturing Practices, or cGMP requirements. Manufacturing product candidates in compliance with these regulatory requirements is complex, time-consuming, and expensive. To be successful, our products must be manufactured for development, and following approval, in commercial quantities, in compliance with regulatory requirements, and at competitive costs. If we or any of our product collaborators or third-party manufacturers, product packagers, or labelers are unable to maintain regulatory
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compliance, the FDA can impose regulatory sanctions, including, among other things, refusal to approve a pending application for a new drug or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition, and results of operations may be materially harmed.
In addition to the FDA and other regulatory agency regulations in the United States, we are subject to a variety of foreign regulatory requirements governing human clinical trials, manufacturing, marketing and approval of drugs, and commercial sale and distribution of drugs in foreign countries. The foreign regulatory approval process includes all of the risks associated with FDA approval as well as country specific regulations. Whether or not we obtain FDA approval for a product in the United States, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of ARCALYST or any of our product candidates in those countries.
If we fail to meet the stringent requirements of governmental regulation in the manufacture of our marketed product and clinical candidates, we could incur substantial remedial costs, delays in the development of our clinical candidates, and a reduction in sales.
We and our third party providers are required to maintain compliance with current Good Manufacturing Practice, or cGMP, and are subject to inspections by the FDA or comparable agencies in other jurisdictions to confirm such compliance. Changes of suppliers or modifications of methods of manufacturing may require amending our application to the FDA and acceptance of the change by the FDA prior to release of product. Because we produce multiple product candidates at our facility in Rensselaer, New York, there are increased risks associated with cGMP compliance. Our inability, or the inability of our third party service providers, to demonstrate ongoing cGMP compliance could require us to engage in lengthy and expensive remediation efforts, withdraw or recall product, halt or interrupt clinical trials, and/or interrupt commercial supply of our marketed product. Any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging, or storage of our product candidates as a result of a failure of our facilities or the facilities or operations of third parties to pass any regulatory agency inspection or maintain cGMP compliance could significantly impair our ability to develop and commercialize our products. Any finding of non-compliance could increase our costs, cause us to delay the development of our product candidates, and cause us to lose revenue from our marketed product.
If the testing or use of our products harms people, we could be subject to costly and damaging product liability claims. We could also face costly and damaging claims arising from employment law, securities law, environmental law, or other applicable laws governing our operations.
The testing, manufacturing, marketing, and sale of drugs for use in people expose us to product liability risk. Any informed consent or waivers obtained from people who are enrolled insign up for our clinical trials may not protect us from liability or the cost of litigation. We may be subject to claims by CAPS patients who use ARCALYST that they have been injured by a side effect associated with the drug. Our product liability insurance may not cover all potential liabilities or may not completely cover any liability arising from any such litigation. Moreover, we may not have access to liability insurance or be able to maintain our insurance on acceptable terms.
If we market and sell ARCALYST® (rilonacept) in a way that violates federal or state fraud and abuse laws, we may be subject to civil or criminal penalties.
In addition to FDA and related regulatory requirements, we are subject to health care “fraud and abuse” laws, such as the federal False Claims Act, the anti-kickback provisions of the federal Social Security Act, and other state and federal laws and regulations. Federal and state anti-kickback laws prohibit, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any health care item or service reimbursable under Medicare, Medicaid, or other federally or state financed health care programs.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to get a false claim paid. Pharmaceutical companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in promotion for uses that the FDA has not approved, or off-label uses, that caused claims to be submitted to Medicaid for non-covered off-label uses; and submitting inflated best price information to the Medicaid Rebate program.
The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Sanctions under these federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, criminal fines, and imprisonment.
Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which would also harm our financial condition. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of such laws.
In recent years, several states and localities, including California, the District of Columbia, Massachusetts, Maine, Minnesota, Nevada, New Mexico, Vermont, and West Virginia, have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, and file periodic reports with the state or make periodic public disclosures on sales, marketing, pricing, clinical trials, and other activities. Similar legislation is being considered in other states and also at the federal level. Many of these requirements are new and uncertain, and the penalties for failure to comply with these requirements are unclear. Nonetheless, if we are found not to be in full compliance with these laws, we could face enforcement action and fines and other penalties, and could receive adverse publicity.
Our operations may involve hazardous materials and are subject to environmental, health, and safety laws and regulations. We may incur substantial liability arising from our activities involving the use of hazardous materials.
As a biopharmaceutical company with significant manufacturing operations, we are subject to extensive environmental, health, and safety laws and regulations, including those governing the use of hazardous materials. Our research and development and manufacturing activities involve the controlled use of chemicals, viruses, radioactive compounds, and other hazardous materials. The cost of compliance with environmental, health, and safety regulations is substantial. If an accident involving these materials or an environmental discharge were to occur, we could be held liable for any resulting damages, or face regulatory actions, which could exceed our resources or insurance coverage.
Changes in the securities laws and regulations have increased, and are likely to continue to increase, our costs.
The Sarbanes-Oxley Act of 2002, which became law in July 2002, has required changes in some of our corporate governance, securities disclosure, and compliance practices. PursuantIn response to the requirements of that Act, the SEC and the NASDAQ Stock Market have promulgated rules and listing standards covering a variety of subjects. Compliance with these new rules and listing standards has increased our legal costs, and significantly increased our accounting and auditing costs, and we expect these costs to continue. These developments may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors, particularly independent directors, or qualified executive officers.
In future years, if we are unable to conclude that our internal control over financial reporting is effective, the market value of our Common Stock could be adversely affected.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in their annual reports on Form 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the independent registered public accounting firm auditing our financial statements must attest to and report on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm provided us with an unqualified report as to the effectiveness of our internal control over financial reporting as of December 31, 2009, which report is included in this Annual Report on Form 10-K. However, we cannot assure you that management or our independent registered public accounting firm will be able to provide such an unqualified report as of future year-ends. In this event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market value of our Common Stock. In addition, if it is determined that deficiencies in the design or operation of internal controls exist and that they are reasonably likely to adversely affect our ability to record, process, summarize, and report financial information, we would likely incur additional costs to remediate these deficiencies and the costs of such remediation could be material.
Changes in laws and regulations affecting the healthcare industry could adversely affect our business.
All aspects of our business, including research and development, manufacturing, marketing, pricing, sales, litigation, and intellectual property rights, are subject to extensive legislation and regulation. Changes in applicable federal and state laws and agency regulations could have a material adverse effect on our business. These include:
- changes in the FDA and foreign regulatory processes for new therapeutics that may delay or prevent the approval of any of our current or future product candidates;
- new laws, regulations, or judicial decisions related to healthcare availability or the payment for healthcare products and services, including prescription drugs, that would make it more difficult for us to market and sell products once they are approved by the FDA or foreign regulatory agencies;
- changes in FDA and foreign regulations that may require additional safety monitoring prior to or after the introduction of new products to market, which could materially increase our costs of doing business; and
- changes in FDA and foreign current Good Manufacturing Practice, or cGMPs, that make it more difficult for us to manufacture our marketed product and clinical candidates in accordance with cGMPs.
The enactment in the United States of the Medicare Prescription Drug Improvement and Modernization Act of 2003 and current pending legislation which would ease the entry of competing follow-on biologics into the marketplace are examples of changes and possible changes in laws that could adversely affect our business.
Risks Related to Our DependenceReliance on Third Parties
If our antibody collaboration with sanofi-aventis for the VEGF Trap is terminated, our business operations and our ability to discover, develop, manufacture, and commercialize the VEGF Trapour pipeline of product candidates in the time expected, or at all, would be materially harmed.
We rely heavily on the funding from sanofi-aventis to support our target discovery and antibody research and development programs. Sanofi-aventis has committed to pay up to $1.28 billion between 2010 and 2017 to fund our efforts to identify and validate drug discovery targets and pre-clinically develop fully human monoclonal antibodies against such targets. In addition, sanofi-aventis funds almost all of the development expenses incurred by both companies in connection with the clinical development of antibodies that sanofi-aventis elects to co-develop with us. We rely on sanofi-aventis to fund these activities. In addition, with respect to those antibodies that sanofi-aventis elects to co-develop with us, such as REGN88, REGN421, REGN475, REGN727, and REGN668 we rely on sanofi-aventis to lead much of the clinical development efforts and assist with obtaining regulatory approval, particularly outside the United States. We also rely on sanofi-aventis to lead the commercialization efforts to support all of the antibody products that are co-developed by sanofi-aventis and us. If sanofi-aventis does not elect to co-develop the antibodies that we discover or opts-out of their development, we would be required to fund and oversee on our own the clinical trials, any regulatory responsibilities, and the ensuing commercialization efforts to support our antibody products. If sanofi-aventis terminates the antibody collaboration or fails to comply with its payment obligations thereunder, our business, financial condition, and results of operations would be materially harmed. We would be required to either expend substantially more resources than we have anticipated to support our research and development efforts, which could require us to seek additional funding that might not be available on favorable terms or at all, or materially cut back on such activities. While we cannot assure you that any of the antibodies from this collaboration will ever be successfully developed and commercialized, if sanofi-aventis does not perform its obligations with respect to antibodies that it elects to co-develop, our ability to develop, manufacture, and commercialize these antibody product candidates will be significantly adversely affected.
If our collaboration with sanofi-aventis for aflibercept (VEGF Trap) is terminated, or sanofi-aventis materially breaches its obligations thereunder, our business operations and financial condition, and our ability to develop, manufacture, and commercialize aflibercept in the time expected, or at all, would be materially harmed.
We rely heavily on sanofi-aventis to assist withlead much of the development of the VEGF Trap oncology program.aflibercept. Sanofi-aventis funds all of the development expenses incurred by both companies in connection with the VEGF Trap oncologyaflibercept program. If the VEGF Trap oncologyaflibercept program continues, we will rely on sanofi-aventis to assist with funding the VEGF Trapaflibercept program, provide commercial manufacturing capacity, enroll and monitor clinical trials, obtain regulatory approval, particularly outside the United States, and provide sales and marketing support.lead the commercialization of aflibercept. While we cannot assure you that the VEGF Trapaflibercept will ever be successfully developed and commercialized, if sanofi-aventis does not perform its obligations in a timely manner, or at all, our ability to develop, manufacture, and commercialize the VEGF Trapaflibercept in cancer indications will be significantly adversely affected. Sanofi-aventis has the right to terminate its collaboration agreement with us at any time upon twelve months advance notice. If sanofi-aventis were to terminate its collaboration agreement with us, we would not have the resources or skills to replace those of our partner, which could require us to seek additional funding
that might not be available on favorable terms or at all, and could cause significant delays in the developmentand/or manufacture of the VEGF Trapaflibercept and result in
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substantial additional costs to us. We have no sales, marketing, or distributionlimited commercial capabilities and would have to develop or outsource these capabilities. Termination of the sanofi-aventis collaboration agreement for aflibercept would create substantial new and additional risks to the successful development and commercialization of the VEGF Trap oncology program.aflibercept.
If our collaboration with Bayer HealthCare for the VEGF Trap-Eye is terminated, or Bayer HealthCare materially breaches its obligations thereunder, our business, operations and financial condition, and our ability to develop manufacture, and commercialize the VEGF Trap-Eye in the time expected, or at all, would be materially harmed.
We will rely heavily on Bayer HealthCare to assist with the development of the VEGF Trap-Eye. Under our agreement with them, Bayer HealthCare is required to fund approximately half of the development expenses incurred by both companies in connection with the global VEGF Trap-Eye development program. If the VEGF Trap-Eye program continues, we will rely on Bayer HealthCare to assist with funding the VEGF Trap-Eye development program, providing assistance withlead the enrollment and monitoringdevelopment of clinical trials conductedVEGF Trap-Eye outside the United States, obtainingobtain regulatory approval outside the United States, and providingprovide all sales, marketing, and commercial support for the product outside the United States. In particular, Bayer HealthCare has responsibility for selling VEGF Trap-Eye outside the United States using its sales force. While we cannot assure you that the VEGF Trap-Eye will ever be successfully developed and commercialized, if Bayer HealthCare does not perform its obligations in a timely manner, or at all, our ability to develop, manufacture, and commercialize the VEGF Trap-Eye outside the United States will be significantly adversely affected. Bayer HealthCare has the right to terminate its collaboration agreement with us at any time upon six or twelve months advance notice, depending on the circumstances giving rise to termination. If Bayer HealthCare were to terminate its collaboration agreement with us, we would not have the resources or skills to replace those of our partner, which could require us to seek additional funding that might not be available on favorable terms or at all, and could cause significant delays in the developmentand/or commercialization of the VEGF Trap-Eye outside the United States and result in substantial additional costs to us. We have no sales, marketing, or distributionlimited commercial capabilities and would have to develop or outsource these capabilities outside the United States. Termination of the Bayer HealthCare collaboration agreement would create substantial new and additional risks to the successful development and commercialization of the VEGF Trap-Eye development program.Trap-Eye.
Our collaborators and service providers may fail to perform adequately in their efforts to support the development, manufacture, and commercialization of ARCALYST® (rilonacept) and our drug candidates.
We depend upon third-party collaborators, including sanofi-aventis, Bayer HealthCare, and service providers such as clinical research organizations, outside testing laboratories, clinical investigator sites, and third-party manufacturers and product packagers and labelers, to assist us in the manufacture and preclinical and clinical development of our product candidates. If any of our existing collaborators or service providers breaches or terminates its agreement with us or does not perform its development or manufacturing services under an agreement in a timely manner or at all,in compliance with applicable Good Manufacturing Practices (GMPs), Good Laboratory Practices (GLPs), or Good Clinical Practice (GCP) Standards, we could experience additional costs, delays, and difficulties in the manufacture or development or commercialization ofin obtaining approval by regulatory authorities for our product candidates.
We rely on third party service providers to support the distribution of ARCALYST and many other related activities in connection with the commercialization of ARCALYST for the treatment of CAPS. We cannot be certain that these third parties will perform adequately. If these service providers do not perform their services adequately, our efforts to market and sell ARCALYST for the treatment of CAPS will not be successful.
Risks Related to the Manufacture of Our Product Candidates
We have limited manufacturing capacity, which could inhibit our ability to successfully develop or commercialize our drugs.
Our manufacturing facility is likely to be inadequate to produce sufficient quantities of product for commercial sale. We intend to rely on our corporate collaborators, as well as contract manufacturers, to produce the large quantities of drug material needed for commercialization of our products. We rely entirely on third-party manufacturers for filling and finishing services. We will have to depend on these manufacturers to deliver material on a timely basis
and to comply with regulatory requirements. If we are unable to supply sufficient material on acceptable terms, or if we should encounter delays or difficulties in our relationships with our corporate collaborators or contract manufacturers, our business, financial condition, and results of operations may be materially harmed.
We must expand our own manufacturing capacity to support the planned growth of our clinical pipeline. Moreover, we may expand our own manufacturing capacity to support commercial production of active pharmaceutical ingredients, or API, for our product candidates. This will require substantial additional funds,expenditures, and we will need to hire and train significant numbers of employees and managerial personnel to staff our facility.Start-up costs can be
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large andscale-up entails significant risks related to process development and manufacturing yields. We may be unable to develop manufacturing facilities that are sufficient to produce drug material for clinical trials or commercial use. This may delay our clinical development plans and interfere with our efforts to commercialize our products. In addition, we may be unable to secure adequate filling and finishing services to support our products. As a result, our business, financial condition, and results of operations may be materially harmed.
We may be unable to obtain key raw materials and supplies for the manufacture of ARCALYST® (rilonacept) and our product candidates. In addition, we may face difficulties in developing or acquiring production technology and managerial personnel to manufacture sufficient quantities of our product candidates at reasonable costs and in compliance with applicable quality assurance and environmental regulations and governmental permitting requirements.
If any of our clinical programs are discontinued, we may face costs related to the unused capacity at our manufacturing facilities.
We have large-scale manufacturing operations in Rensselaer, New York. We use our facilities to produce bulk product for clinical and preclinical candidates for ourselves and our collaborations. If our clinical candidates are discontinued, we will have to absorb one hundred percent of related overhead costs and inefficiencies.
Certain ofThird-party supply failures, business interruptions, or natural disasters affecting our raw materials are single-sourced from third parties; third-party supply failuresmanufacturing facilities in Rensselaer, New York could adversely affect our ability to supply our products.
We manufacture all of our bulk drug materials for ARCALYST and our product candidates at our manufacturing facilities in Rensselaer, New York. We would be unable to supply our product requirements if we were to cease production due to regulatory requirements or action, business interruptions, labor shortages or disputes, contaminations, fire, natural disasters, or other problems at the facilities.
Certain raw materials necessary for manufacturing and formulation of ARCALYST and our product candidates are provided by single-source unaffiliated third-party suppliers. In addition, we rely on certain third parties to perform filling, finishing, distribution, and other services related to the manufacture of our products. We would be unable to obtain these raw materials or services for an indeterminate period of time if any of these third-party single-source suppliersthird-parties were to cease or interrupt production or otherwise fail to supply these materials, products, or productsservices to us for any reason, including due to regulatory requirements or action, due to adverse financial developments at or affecting the supplier, failure by the supplier to comply with GMPs, business interruptions, or due to labor shortages or disputes. This, in turn, could materially and adversely affect our ability to manufacture or supply ARCALYST or our product candidates for use in clinical trials, which could materially and adversely affect our business and future prospects.
Also, certain of the raw materials required in the manufacturemanufacturing and the formulation of our clinical candidates may be derived from biological sources, including mammalian tissues, bovine serum, and human serum albumin. There are certain European regulatory restrictions on using these biological source materials. If we are required to substitute for these sources to comply with European regulatory requirements, our clinical development activities may be delayed or interrupted.
Risks Related to Commercialization of Products
If we are unable to establish sales, marketing, and distribution capabilities, or enter into agreements with third parties to do so, we will be unable to successfully market and sell future products.
We are marketing and selling ARCALYST for the treatment of CAPS ourselves in the United States, primarily through third party service providers. We have no sales or distribution personnel or capabilitiesin the United States and have only a small staff with commercial capabilities. We currently have no sales, marketing, capabilities.commercial, or distribution
capabilities outside the United States. If we are unable to obtain those capabilities, either by developing our own organizations or entering into agreements with service providers, even if our current or future product candidates receive marketing approval, we will not be able to successfully sell any products that we may obtain regulatory approval for and bring to market in the future.those products. In that event, we will not be able to generate significant revenue, even if our product candidates are approved. We cannot guarantee that we will be able to hire the qualified sales and marketing personnel we need or that we will be able to enter into marketing or distribution agreements with third-party providers on acceptable terms, if at all. Under the terms of our collaboration agreement with sanofi-aventis, we currentlywill rely on sanofi-aventis for sales, marketing, and distribution of the VEGF Trapaflibercept in cancer indications, should it be approved in the future by regulatory authorities for marketing. We will have to rely on a third party or devote significant resources to develop our own sales, marketing, and distribution capabilities for our other product candidates, including the VEGF Trap-Eye in the United States, and we may be unsuccessful in developing our own sales, marketing, and distribution organization.
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There may be too few patients with CAPS to profitably commercialize ARCALYST® (rilonacept) in this indication.
Our only approved product is ARCALYST for the treatment of CAPS, a group of rare, inherited auto-inflammatory diseases. These rare diseases affect a very small group of people. The incidence of CAPS has been reported to be approximately 1 in 1,000,000 people in the United States. Although the incidence rate of CAPS in Europe has not been reported, it is known to be a rare set of diseases. In October 2009 we received European marketing authorization for rilonacept for CAPS. In 2009, Novartis received regulatory approval in the U.S. and Europe for its IL-1 antibody product for the treatment of CAPS. Given the very rare nature of the disease and the competition from Novartis’ IL-1 antibody product, we may be unable to profitably commercialize ARCALYST in this indication.
Even if our product candidates are approved for marketing, their commercial success is highly uncertain because our competitors have received approval for products with the samea similar mechanism of action, and competitors may get to the marketplace before we do with better or lower cost drugs or the market for our product candidates may be too small to support commercialization or sufficient profitability.drugs.
We face There is substantial competition in the biotechnology and pharmaceutical industries from pharmaceutical, biotechnology, and chemical companies. Many of our competitors have substantially greater research, preclinical and clinical product development and manufacturing capabilities, and financial, marketing, and human resources than we do. Our smaller competitors may also enhance their competitive position if they acquire or discover patentable inventions, form collaborative arrangements, or merge with large pharmaceutical companies. Even if we achieve product commercialization, our competitors have achieved, and may continue to achieve, product commercialization before our products are approved for marketing and sale.
Genentech has an approved VEGF antagonist, Avastin,® (Genentech), on the market for treating certain cancers and a number ofmany different pharmaceutical and biotechnology companies are working to develop competing VEGF antagonists, including Novartis, OSI Pharmaceuticals,Amgen, Imclone/Eli Lilly, Pfizer, AstraZeneca, and Pfizer.GlaxoSmithKline. Many of these molecules are furtherfarther along in development than the VEGF Trapaflibercept and may offer competitive advantages over our molecule. Novartis has an ongoing Phase 3 clinical development program evaluating an orally delivered VEGF tyrosine kinase inhibitor in different cancer settings. Each of Pfizer and Onyx, Pharmaceuticals (together with its partner Bayer)Bayer HealthCare) has received approval from the FDA to market and sell an oral medication that targets tumor cell growth and new vasculature formation that fuels the growth of tumors. The marketing approvals for Genentech’s VEGF antagonist, Avastin, and their extensive, ongoing clinical development plan for Avastin in other cancer indications, may make it more difficult for us to enroll patients in clinical trials to support the VEGF Trapaflibercept and to obtain regulatory approval of the VEGF Trapaflibercept in these cancer settings. This may delay or impair our ability to successfully develop and commercialize the VEGF Trap.aflibercept. In addition, even if the VEGF Trapaflibercept is ever approved for sale for the treatment of certain cancers, it will be difficult for our drug to compete against Avastin (Genentech) and the FDA approved kinase inhibitors, because doctors and patients will have significant experience using these medicines. In addition, an oral medication may be considerably less expensive for patients than a biologic medication, providing a competitive advantage to companies that market such products.
The market for eye disease products is also very competitive. Novartis and Genentech are collaborating on the commercialization and further development of a VEGF antibody fragment, (Lucentis®)Lucentis, for the treatment of age-related macular degeneration (wet AMD), DME, and other eye indications thatindications. Lucentis (Genentech) was approved by the FDA in June 2006. OSI Pharmaceuticals and Pfizer are marketing an approved VEGF inhibitor (Macugen®)2006 for the treatment of wet AMD. Many other companies are working on the development of product candidates for the potential treatment of wet AMD and DME that act by blocking VEGF and VEGF receptors,
and through the use of solublesmall interfering ribonucleic acids (sRNAs)(siRNAs) that modulate gene expression. In addition, ophthalmologists are using off-label, a third-party reformulated version of Genentech’s approved VEGF antagonist, Avastin, with success for the treatment of wet AMD.AMD, a third-party repackaged version of Genentech’s approved VEGF antagonist, Avastin. The National Eye Institute recently has received funding foris conducting a Phase 3 trial to comparecomparing Lucentis (Genentech) to Avastin (Genentech) in the treatment of wet AMD. The marketing approval of Macugen and Lucentis (Genentech) and the potential off-label use of Avastin (Genentech) make it more difficult for us to enroll patients in our clinical trials and successfully develop the VEGF Trap-Eye. Even if the VEGF Trap-Eye is ever approved for sale for the treatment of eye diseases, it may be difficult for our drug to compete against Lucentis or Macugen,(Genentech), because doctors and patients will have significant experience using these medicines.this medicine. Moreover, the relatively low cost of therapy with Avastin (Genentech) in patients with wet AMD presents a further competitive challenge in this indication. While we believe that aflibercept would not be well tolerated if administered directly to the eye, if aflibercept is ever approved for the treatment of certain cancers, there is a risk that third parties will attempt to repackage aflibercept for use and sale for the treatment of wet AMD and other diseases of the eye, which would present a potential low-cost competitive threat to the VEGF Trap-Eye if it is ever approved for sale.
The availability of highly effective FDA approved TNF-antagonists such as Enbrel® (Amgen) (Amgen and Wyeth), Remicade® (Centocor), Humira® (adalimumab), marketed by Abbott, and Humira® (Abbott Laboratories)SimponiTM (golimumab), marketed by Centocor, and the IL-1 receptor antagonist Kineret® (Amgen) (Biovitrum), and other marketed therapies makes it more difficult to successfully develop and commercialize the IL-1 Trap.rilonacept in other indications. This is one of the reasons we discontinued the development of the IL-1 Traprilonacept in adult rheumatoid arthritis. In addition, even if the IL-1 Traprilonacept is ever approved for sale in indications where TNF-antagonists are approved, it will be difficult for our drug to compete against these FDA approved TNF-antagonists in indications where both are useful because doctors and patients will have significant experience using these effective medicines. Moreover, in such indications these approved therapeutics may offer competitive advantages over the IL-1 Trap,rilonacept, such as requiring fewer injections.
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There are both small molecules and antibodies in development by third partiesother companies that are designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli Lilly, and CompanyXoma, and Novartis are each developing antibodies to interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. TheseNovartis received marketing approval for its IL-1 antibody for the treatment of CAPS from the FDA in June 2009 and from the European Medicines Agency in October 2009. Novartis is also developing this IL-1 antibody in gout and other inflammatory diseases. Novartis’ IL-1 antibody and these other drug candidates could offer competitive advantages over ARCALYST. For example, Novartis’ IL-1 antibody is dosed once every eight weeks compared to the IL-1 Trap.once-weekly dosing regimen for ARCALYST. The successful development and/or commercialization of these competing molecules could delay or impair our ability to successfully develop and commercialize the IL-1 Trap. For example, we may find it difficult to enroll patients in clinical trials for the IL-1 Trap if the companies developing these competing interleukin-1 inhibitors commence clinical trials in the same indications.ARCALYST.
We are developing the IL-1 Traphave plans to develop rilonacept for the treatment of a spectrumcertain gout indications. In October 2009, Novartis announced positive Phase 2 results showing that canakinumab is more effective than an injectable corticosteroid at reducing pain and preventing recurrent attacks or “flares” in patients with hard-to-treat gout. Novartis’ IL-1 antibody is dosed less frequently for the treatment of rare diseases associated with mutations in theCIAS1 gene. These rare genetic disorders affect a small group of people, estimated to be between several hundredCAPS and a few thousand. There may be too few patients with these genetic disordersperceived as offering competitive advantages over rilonacept in gout by some physicians, which would make it difficult for us to profitablysuccessfully commercialize the IL-1 Traprilonacept in this indication.that disease.
Currently, inexpensive, oral therapies such as analgesics and other non-steroidal anti-inflammatory drugs are used as the standard of care to treat the symptoms of these gout diseases. These established, inexpensive, orally delivered drugs may make it difficult for us to successfully commercialize rilonacept in these diseases.
The successful commercialization of ARCALYST® (rilonacept) and our product candidates will depend on obtaining coverage and reimbursement for use of these products from third-party payers and these payers may not agree to cover or reimburse for use of our products.
Our products,product candidates, if commercialized, may be significantly more expensive than traditional drug treatments. For example, we have announced plans to initiate a Phase 3 program studying the use of rilonacept for the treatment of certain gout indications. Patients suffering from these gout indications are currently treated with inexpensive therapies, including non-steroidal anti-inflammatory drugs. These existing treatment options are likely to be considerably less expensive and may be preferable to a biologic medication for some patients. Our future revenues and profitability will be adversely affected if United States and foreign governmental, private third-party insurers and payers, and other third-party payers, including Medicare and Medicaid, do not agree to defray
or reimburse the cost of our products to the patients. If these entities refuse to provide coverage and reimbursement with respect to our products or provide an insufficient level of coverage and reimbursement, our products may be too costly for many patients to afford them, and physicians may not prescribe them. Many third-party payers cover only selected drugs, making drugs that are not preferred by such payerpayers more expensive for patients, and require prior authorization or failure on another type of treatment before covering a particular drug. Payers may especially impose these obstacles to coverage on higher-priced drugs, as our product candidates are likely to be.
We intend to file an application withmarket and sell ARCALYST in the FDA seeking approval to market the IL-1 TrapUnited States for the treatment of a spectrumgroup of rare genetic disorders called CAPS. We recently received European Union marketing authorization for rilonacept for the treatment of CAPS. There may be too few patients with CAPS to profitably commercialize the IL-1 Trap.ARCALYST. Physicians may not prescribe the IL-1 TrapARCALYST, and CAPS patients may not be able to afford the IL-1 TrapARCALYST, if third party payers do not agree to reimburse the cost of IL-1 TrapARCALYST therapy and this would adversely affect our ability to commercialize the IL-1 TrapARCALYST profitably.
In addition to potential restrictions on coverage, the amount of reimbursement for our products may also reduce our profitability. In the United States, there have been, and we expect will continue to be, actions and proposals to control and reduce healthcare costs. Government and other third-party payers are challenging the prices charged for healthcare products and increasingly limiting, and attempting to limit, both coverage and level of reimbursement for prescription drugs.
Since ARCALYST and our products, including the IL-1 Trap,product candidates in clinical development will likely be too expensive for most patients to afford without health insurance coverage, if our products are unable to obtain adequate coverage and reimbursement by third-party payers our ability to successfully commercialize our product candidates may be adversely impacted. Any limitation on the use of our products or any decrease in the price of our products will have a material adverse effect on our ability to achieve profitability.
In certain foreign countries, pricing, coverage, and level of reimbursement of prescription drugs are subject to governmental control, and we may be unable to negotiate coverage, pricing, and reimbursement on terms that are favorable to us. In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Our results of operations may suffer if we are unable to market our products in foreign countries or if coverage and reimbursement for our products in foreign countries is limited.
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Risk Related to Employees
We are dependent on our key personnel and if we cannot recruit and retain leaders in our research, development, manufacturing, and commercial organizations, our business will be harmed.
We are highly dependent on certain of our executive officers. If we are not able to retain any of these persons or our Chairman, our business may suffer. In particular, we depend on the services of P. Roy Vagelos, M.D., the Chairman of our board of directors, Leonard Schleifer, M.D., Ph.D., our President and Chief Executive Officer, George D. Yancopoulos, M.D., Ph.D., our Executive Vice President, Chief Scientific Officer and President, Regeneron Research Laboratories, and Neil Stahl, Ph.D., our Senior Vice President, Research and Development Sciences. There is intense competition in the biotechnology industry for qualified scientists and managerial personnel in the development, manufacture, and commercialization of drugs. We may not be able to continue to attract and retain the qualified personnel necessary for developing our business.
Risks Related to Our Common Stock
Our stock price is extremely volatile.
There has been significant volatility in our stock price and generally in the market prices of biotechnology companies’ securities. Various factors and events may have a significant impact on the market price of our common stock.Common Stock. These factors include, by way of example:
- progress, delays, or adverse results in clinical trials;
- announcement of technological innovations or product candidates by us or competitors;
- fluctuations in our operating results;
- third party claims that our products or technologies infringe their patents;
- public concern as to the safety or effectiveness of ARCALYST® (rilonacept) or any of our product candidates;
- developments in our relationship with collaborative partners;
- developments in the biotechnology industry or in government regulation of healthcare;
- large sales of our common stock by our executive officers, directors, or significant shareholders;
- arrivals and departures of key personnel; and
- general market conditions.
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| • | progress, delays, or adverse results in clinical trials; |
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| • | announcement of technological innovations or product candidates by us or competitors; |
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| • | fluctuations in our operating results; |
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| • | public concern as to the safety or effectiveness of our product candidates; |
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| • | developments in our relationship with collaborative partners; |
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| • | developments in the biotechnology industry or in government regulation of healthcare; |
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| • | large sales of our common stock by our executive officers, directors, or significant shareholders; |
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| • | arrivals and departures of key personnel; and |
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| • | general market conditions. |
The trading price of our common stockCommon Stock has been, and could continue to be, subject to wide fluctuations in response to these and other factors, including the sale or attempted sale of a large amount of our common stockCommon Stock in the market. Broad market fluctuations may also adversely affect the market price of our common stock.Common Stock.
In future years, if we or our independent registered public accounting firm are unable to conclude that our internal control over financial reporting is effective, the market value of our common stock could be adversely affected.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in their annual reports onForm 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the independent registered public accounting firm auditing our financial statements must attest to and report on management’s assessment and on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm provided us with an unqualified report as to our assessment and the effectiveness of our internal control over financial reporting as of December 31, 2006, which report is included in this Annual Report onForm 10-K. However, we cannot assure you that management or our independent registered public accounting firm will be able to provide such an assessment or unqualified report as of future year-ends. In this event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market value of our common stock.
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Future sales of our common stockCommon Stock by our significant shareholders or us may depress our stock price and impair our ability to raise funds in new share offerings.
A small number of our shareholders beneficially own a substantial amount of our common stock.Common Stock. As of December 31, 2006,2009, our sevenfour largest shareholders including sanofi-aventis,plus Leonard Schleifer, M.D, Ph.D., our Chief Executive Officer, beneficially owned 41.1%41.6% of our outstanding shares of Common Stock, assuming, in the case of Leonard S. Schleifer, M.D. Ph.D., our Chief Executive Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of theirhis Class A Stock into Common Stock and the exercise of all options held by themhim which are exercisable within 60 days of December 31, 2006.2009. As of December 31, 2006,2009, sanofi-aventis beneficially owned 2,799,55214,799,552 shares of Common Stock, representing 4.4%approximately 18.8% of the shares of Common Stock then outstanding. Under our stock purchaseinvestor agreement, as amended, with sanofi-aventis, sanofi-aventis may not sell no more than 500,000these shares until December 20, 2017 except under limited circumstances and subject to earlier termination of these shares in any calendar quarter. Ifrestrictions upon the occurrence of certain events. Notwithstanding these restrictions, if sanofi-aventis, or our other significant shareholders or we, sell substantial amounts of our Common Stock in the public market, or the perception that such sales may occur exists, the market price of our Common Stock could fall. Sales of Common Stock by our significant shareholders, including sanofi-aventis, also might make it more difficult for us to raise funds by selling equity or equity-related securities in the future at a time and price that we deem appropriate.
Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval.
Holders of Class A Stock, who are generally the shareholders who purchased their stock from us before our initial public offering, are entitled to ten votes per share, while holders of Common Stock are entitled to one vote per share. As of December 31, 2006,2009, holders of Class A Stock held 26.5%22.2% of the combined voting power of all shares of Common Stock and Class A Stock then outstanding.outstanding, including any voting power associated with any shares of Common Stock beneficially owned by such Class A Stock holders. These shareholders, if acting together, would be in a position to significantly influence the election of our directors and to effect or prevent certain corporate
transactions that require majority or supermajority approval of the combined classes, including mergers and other business combinations. This may result in our companyus taking corporate actions that you may not consider to be in your best interest and may affect the price of our Common Stock. As of December 31, 2006:2009:
- our current executive officers and directors beneficially owned 14.0% of our outstanding shares of Common Stock, assuming conversion of their Class A Stock into Common Stock and the exercise of all options held by such persons which are exercisable within 60 days of December 31, 2009, and 28.5% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by such persons which are exercisable within 60 days of December 31, 2009; and
- our four largest shareholders plus Leonard S. Schleifer, M.D., Ph.D. our Chief Executive Officer, beneficially owned 41.6% of our outstanding shares of Common Stock, assuming, in the case of our Chief Executive Officer, the conversion of his Class A Stock into Common Stock and the exercise of all options held by him which are exercisable within 60 days of December 31, 2009. In addition, these five shareholders held 48.5% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by our Chief Executive Officer which are exercisable within 60 days of December 31, 2009.
Pursuant to an investor agreement, as amended, sanofi-aventis has agreed to vote its shares, at sanofi-aventis’ election, either as recommended by our board of directors or proportionally with the votes cast by our other shareholders, except with respect to certain change of control transactions, liquidation or dissolution, stock issuances equal to or exceeding 10% of the then outstanding shares or voting rights of Common Stock and Class A Stock, and new equity compensation plans or amendments if not materially consistent with our historical equity compensation practices.
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| • | our current officers and directors beneficially owned 13.3% of our outstanding shares of Common Stock, assuming conversion of their Class A Stock into Common Stock and the exercise of all options held by such persons which are exercisable within 60 days of December 31, 2006, and 30.5% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by such persons which are exercisable within 60 days of December 31, 2006; and |
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| • | our seven largest shareholders beneficially owned 41.1% of our outstanding shares of Common Stock assuming, in the case of Leonard S. Schleifer, M.D., Ph.D., our Chief Executive Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of their Class A Stock into Common Stock and the exercise of all options held by them which are exercisable within 60 days of December 31, 2006. In addition, these seven shareholders held 48.7% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by our Chief Executive Officer and our Chairman which are exercisable within 60 days of December 31, 2006. |
The anti-takeover effects of provisions of our charter, by-laws, and of New York corporate law and the contractual “standstill” provisions in our investor agreement with sanofi-aventis, could deter, delay, or prevent an acquisition or other “change in control” of us and could adversely affect the price of our common stock.Common Stock.
Our amended and restated certificate of incorporation, our by-laws, and the New York Business Corporation Law contain various provisions that could have the effect of delaying or preventing a change in control of our company or our management that shareholders may consider favorable or beneficial. Some of these provisions could discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.Common Stock. These provisions include:
- authorization to issue “blank check” preferred stock, which is preferred stock that can be created and issued by the board of directors without prior shareholder approval, with rights senior to those of our common shareholders;
- a staggered board of directors, so that it would take three successive annual meetings to replace all of our directors;
- a requirement that removal of directors may only be effected for cause and only upon the affirmative vote of at least eighty percent (80%) of the outstanding shares entitled to vote for directors, as well as a requirement that any vacancy on the board of directors may be filled only by the remaining directors;
- any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, only if, prior to such action, all of our shareholders consent, the effect of which is to require that shareholder action may only be taken at a duly convened meeting;
- any shareholder seeking to bring business before an annual meeting of shareholders must provide timely notice of this intention in writing and meet various other requirements; and
- under the New York Business Corporation Law, in addition to certain restrictions which may apply to “business combinations” involving the Company and an “interested shareholder”, a plan of merger or consolidation of the Company must be approved by two-thirds of the votes of all outstanding shares entitled to vote thereon. See the risk factor immediately above captioned “Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval.”
Until the later of the fifth anniversaries of the expiration or earlier termination of our antibody collaboration agreements with sanofi-aventis or our aflibercept collaboration with sanofi-aventis, sanofi-aventis will be bound by certain “standstill” provisions, which contractually prohibit sanofi-aventis from acquiring more than certain specified percentages of our Class A Stock and Common Stock (taken together) or otherwise seeking to obtain control of the Company.
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| • | authorization to issue “blank check” preferred stock, which is preferred stock that can be created and issued by the board of directors without prior shareholder approval, with rights senior to those of our common shareholders; |
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| • | a staggered board of directors, so that it would take three successive annual meetings to replace all of our directors; |
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| • | a requirement that removal of directors may only be effected for cause and only upon the affirmative vote of at least eighty percent (80%) of the outstanding shares entitled to vote for directors, as well as a requirement that any vacancy on the board of directors may be filled only by the remaining directors; |
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| • | any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, only if, prior to such action, all of our shareholders consent, the effect of which is to require that shareholder action may only be taken at a duly convened meeting; |
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| • | any shareholder seeking to bring business before an annual meeting of shareholders must provide timely notice of this intention in writing and meet various other requirements; and |
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| • | under the New York Business Corporation Law, a plan of merger or consolidation of the Company must be approved by two-thirds of the votes of all outstanding shares entitled to vote thereon. See the risk factor immediately above captioned“Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval.” |
In addition, we have a Change in Control Severance Plan and our chief executive officerChief Executive Officer has an employment agreement that provides severance benefits in the event our officers are terminated as a result of a change in control of the Company. Many of our stock options issued under our Amended and Restated 2000 Long-Term Incentive Plan may become fully vested in connection with a “change in control” of our company, as defined in the plan.
ITEM 1B. UNRESOLVED STAFF COMMENTS
| |
Item 1B. | Unresolved Staff Comments |
None.
None.
We conduct our research, development, manufacturing, and administrative activities at our owned and leased facilities. We currentlyUnder our main lease approximately 236,000in Tarrytown, New York, as amended, we lease 537,100 square feet of laboratory and office space in Tarrytown, New York.
In December 2006, we entered into a new operating lease agreement forfacilities, including approximately 221,000406,200 square feet of laboratory and office space at our current Tarrytown location. The new lease includes approximately 27,000 square feet that we currently occupy (our retained facilities) and approximately 194,000130,900 square feet to be located inof additional new facilitiesspace that will be constructedis under construction and which are expected to be completed in early-2009.mid-2011. The term of the lease 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, thein June 2024. 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.on approximately 290,400 square feet of space. The lease provides for monthly payments over theits term of the lease 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. Monthly lease payments on the new space that is under construction will commence in January 2011 and additional charges for utilities, taxes and operating expenses commenced in January 2010.
In December 2009, we leased, on a short-term basis, approximately 16,700 square feet of laboratory and office space at our current Tarrytown location while construction is completed on our additional new facilities, as described above. We expect to lease this space through May 2011. We also entered into a separate agreement in December 2009 to lease approximately 6,600 additional square feet of laboratory and office space at our current Tarrytown location in facilities that are now under construction and expected to be completed in mid-2010. The term of this lease will expire in August 2011 after which time we have the option to include this space in our main Tarrytown lease, as described above. Monthly lease payments on this additional space that is under construction are expected to commence in June 2010.
In October 2008, we entered into an operating sublease for approximately 14,100 square feet of office space in Bridgewater, New Jersey. The term of the lease expires in July 2011.
We own a facilityfacilities in Rensselaer, New York, consisting of twothree buildings totaling approximately 123,500395,500 square feet of research, manufacturing, office, and warehouse space. We also lease an additional 75,000 square feet of manufacturing, office, and warehouse space in Rensselaer.
The following table summarizes the information regarding our current real property leases:
| | | | | | | | | | | | | |
| | | | | | | | Current Monthly
| | | |
| | | Square
| | | | | Base Rental
| | | Renewal Option
|
Location | | Footage | | | Expiration | | Charges (1) | | | Available |
| |
| Tarrytown (2) | | | 209,000 | | | March, 2009 (3) | | $ | 309,000 | | | none |
| Tarrytown (2) | | | 194,000 | | | March, 2024 (3) | | | | | | three5-year terms |
| Tarrytown | | | 27,000 | | | March, 2024 (3) | | $ | 52,000 | | | three5-year terms |
| Rensselaer | | | 75,000 | | | July 11, 2012 | | $ | 25,000 | | | one5-year term |
| | | | | | Current Monthly | | |
| | Square | | | | Base Rental | | Renewal Option |
| Location | | Footage | | Expiration | | Charges(1) | | Available |
| Tarrytown, New York(2) | | 389,500 | | June, 2024 | | | $ | 1,115,000 | | | Three 5-year terms |
| Tarrytown, New York(3) | | 130,900 | | June, 2024 | | | | — | | | Three 5-year terms |
| Tarrytown, New York(2) | | 16,700 | | May, 2011 | | | $ | 7,900 | | | None |
| Tarrytown, New York(4) | | 6,600 | | August, 2011 | | | | — | | | Incorporate into main |
| | | | | | | | | | | Tarrytown lease |
| Bridgewater, New Jersey(5) | | 14,100 | | July 2011 | | | $ | 21,700 | | | None |
____________________
24
| | |
| (1) | | Excludes additional rental charges for utilities, real estate taxes, and operating expenses, as defined.defined, included in our rent. |
| | |
| (2) | | Represents space currently occupied in Tarrytown, New York as described above. |
| (3) | | Represents space currently under construction. Rental payments will commence in January 2011. |
| |
(2)(4) | | Upon completion of the new facilities, as described above, weRepresents space currently under construction. Rental payments will release the 209,000 square feet of spacecommence in our current facility and take over 194,000 square feet in the newly constructed buildings.June 2010. |
| | |
(3)(5) | | Estimated based upon expected completion of our new facilities,Relates to sublease in Bridgewater, New Jersey as described above. |
We believe that our existing owned and leased facilities are adequate for ongoing research, development, manufacturing, and administrative activities.
In the future, we may lease, operate, or purchase additional facilities in which to conduct expanded research and development activities and manufacturing and commercial operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to legal proceedings in the course of our business. We do not expect any such current legal proceedings to have a material adverse effect on our business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
| |
Item 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of our security holders during the last quarter of the fiscal year ended December 31, 2006.
PART II
| ITEM 5. | |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our Common Stock is quoted on The NASDAQ StockGlobal Select Market under the symbol “REGN.” Our Class A Stock, par value $.001 per share, is not publicly quoted or traded.
The following table sets forth, for the periods indicated, the range of high and low sales prices for the Common Stock as reported by The NASDAQ StockGlobal Select Market:
| | | | | | | | | | | High | | Low |
| | | High | | Low | | |
| | |
2005 | | | | | | | | | |
| 2008 | | | | | |
| First Quarter | | $ | 9.36 | | | $ | 4.75 | | | $ | 25.25 | | $ | 15.61 |
| Second Quarter | | | 8.84 | | | | 4.61 | | | 21.68 | | 13.75 |
| Third Quarter | | | 10.67 | | | | 7.36 | | | 24.00 | | 13.29 |
| Fourth Quarter | | | 17.37 | | | | 8.55 | | | 22.82 | | 12.62 |
2006 | | | | | | | | | |
| | | |
| 2009 | | | | | |
| First Quarter | | $ | 18.00 | | | $ | 14.35 | | | $ | 20.08 | | $ | 11.81 |
| Second Quarter | | | 16.69 | | | | 10.97 | | | 18.42 | | 12.11 |
| Third Quarter | | | 17.00 | | | | 10.88 | | | 23.49 | | 16.05 |
| Fourth Quarter | | | 24.85 | | | | 15.27 | | | 24.97 | | 15.02 |
As of February 28, 2007,12, 2010, there were 538462 shareholders of record of our Common Stock and 4439 shareholders of record of our Class A Stock.
We have never paid cash dividends and do not anticipate paying any in the foreseeable future.
The information under the heading “Equity Compensation Plan Information” in our definitive proxy statement with respect to our 20072010 Annual Meeting of Shareholders to be filed with the SEC is incorporated by reference into Item 12 of this Report onForm 10-K.
25
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder return on Regeneron’s Common Stock with the cumulative total return of (i) The NASDAQNasdaq Pharmaceuticals Stocks Index and (ii) The NASDAQNasdaq Stock Market (U.S.) Index for the period from December 31, 20012004 through December 31, 2006.2009. The comparison assumes that $100 was invested on December 31, 20012004 in our Common Stock and in each of the foregoing indices. All values assume reinvestment of the pre-tax value of dividends paid by companies included in these indices. The historical stock price performance of our Common Stock shown in the graph below is not necessarily indicative of future stock price performance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/31/2001 | | | 12/31/2002 | | | 12/31/2003 | | | 12/31/2004 | | | 12/31/2005 | | | 12/31/2006 |
| Regeneron | | | $ | 100.00 | | | | $ | 65.73 | | | | $ | 52.24 | | | | $ | 32.71 | | | | $ | 56.46 | | | | $ | 71.27 | |
| NASDAQ Pharm | | | | 100.00 | | | | | 64.62 | | | | | 94.72 | | | | | 100.88 | | | | | 111.09 | | | | | 108.75 | |
| NASDAQ US | | | | 100.00 | | | | | 69.13 | | | | | 103.36 | | | | | 112.49 | | | | | 114.88 | | | | | 126.22 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 12/31/2004 | | 12/31/2005 | | 12/31/2006 | | 12/31/2007 | | 12/31/2008 | | 12/31/2009 |
| Regeneron | | | $ | 100.00 | | | | $ | 172.64 | | | | $ | 217.92 | | | | $ | 262.21 | | | | $ | 199.35 | | | | $ | 262.54 | |
| Nasdaq Pharm | | | | 100.00 | | | | | 110.12 | | | | | 107.79 | | | | | 113.36 | | | | | 105.48 | | | | | 118.52 | |
| Nasdaq US | | | | 100.00 | | | | | 102.13 | | | | | 112.19 | | | | | 121.68 | | | | | 62.73 | | | | | 84.28 | |
26
ITEM 6. SELECTED FINANCIAL DATA
| |
Item 6. | Selected Financial Data |
The selected financial data set forth below for the years ended December 31, 2006, 2005,2009, 2008, and 20042007 and at December 31, 20062009 and 20052008 are derived from and should be read in conjunction with our audited financial statements, including the notes thereto, included elsewhere in this report. The selected financial data for the years ended December 31, 20032006 and 20022005 and at December 31, 2004, 2003,2007, 2006, and 20022005 are derived from our audited financial statements not included in this report.
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | | Year Ended December 31, |
| | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 |
| | | (In thousands, except per share data) | | | | | | Revised* | | Revised* | | | | | |
| | | (In thousands, except per share data) |
Statement of Operations Data | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenues | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contract research and development | | $ | 51,136 | | | $ | 52,447 | | | $ | 113,157 | | | $ | 47,366 | | | $ | 10,924 | | |
| Research progress payments | | | | | | | | | | | 42,770 | | | | | | | | | | |
| Collaboration revenue | | | $ | 314,457 | | $ | 185,138 | | $ | 87,648 | | $ | 47,763 | | $ | 49,372 | |
| Technology licensing | | | 40,013 | | 40,000 | | 28,421 | | | | | |
| Contract manufacturing | | | 12,311 | | | | 13,746 | | | | 18,090 | | | | 10,131 | | | | 11,064 | | | | | | | | | 12,311 | | 13,746 | |
| | | | | | | | | | | | | |
| | | | 63,447 | | | | 66,193 | | | | 174,017 | | | | 57,497 | | | | 21,988 | | |
| Net product sales | | | 18,364 | | 6,249 | | | | | | | |
| Contract research and other | | | | 6,434 | | | 7,070 | | | 8,955 | | | 3,373 | | | 3,075 | |
| | | | | | | | | | | | | | | 379,268 | | | 238,457 | | | 125,024 | | | 63,447 | | | 66,193 | |
| Expenses | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Research and development | | | 137,064 | | | | 155,581 | | | | 136,095 | | | | 136,024 | | | | 124,953 | | | 398,762 | | 274,903 | | 202,468 | | 137,064 | | 155,581 | |
| Contract manufacturing | | | 8,146 | | | | 9,557 | | | | 15,214 | | | | 6,676 | | | | 6,483 | | | | | | | | | 8,146 | | 9,557 | |
| General and administrative | | | 25,892 | | | | 25,476 | | | | 17,062 | | | | 14,785 | | | | 12,532 | | |
| | | | | | | | | | | | | |
| | | | 171,102 | | | | 190,614 | | | | 168,371 | | | | 157,485 | | | | 143,968 | | |
| Selling, general, and administrative | | | 52,923 | | 48,880 | | 37,929 | | 25,892 | | 25,476 | |
| Cost of goods sold | | | | 1,686 | | | 923 | | | | | | | | | | |
| | | | | | | | | | | | | | | 453,371 | | | 324,706 | | | 240,397 | | | 171,102 | | | 190,614 | |
| Income (loss) from operations | | | (107,655 | ) | | | (124,421 | ) | | | 5,646 | | | | (99,988 | ) | | | (121,980 | ) | | | (74,103 | ) | | | (86,249 | ) | | | (115,373 | ) | | | (107,655 | ) | | | (124,421 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other contract income | | | | | | | 30,640 | | | | 42,750 | | | | | | | | | | | | | | | | | | | 30,640 | |
| Investment income | | | 16,548 | | | | 10,381 | | | | 5,478 | | | | 4,462 | | | | 9,462 | | | 4,488 | | 18,161 | | 20,897 | | 16,548 | | 10,381 | |
| Interest expense | | | (12,043 | ) | | | (12,046 | ) | | | (12,175 | ) | | | (11,932 | ) | | | (11,859 | ) | | (2,337 | ) | | (7,752 | ) | | (12,043 | ) | | (12,043 | ) | | (12,046 | ) |
| Loss on early extinguishment of debt | | | | | | | (938 | ) | | | | | | | | | | |
| | | | | | | | | | | | | | | 2,151 | | | 9,471 | | | 8,854 | | | 4,505 | | | 28,975 | |
| | | | 4,505 | | | | 28,975 | | | | 36,053 | | | | (7,470 | ) | | | (2,397 | ) | |
| | | | | | | | | | | | | |
| Net income (loss) before cumulative effect of a change in accounting principle | | | (103,150 | ) | | | (95,446 | ) | | | 41,699 | | | | (107,458 | ) | | | (124,377 | ) | |
| Cumulative effect of adopting Statement of Accounting Standards No. 123R (“SFAS 123R”) | | | 813 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | | | $ | (107,458 | ) | | $ | (124,377 | ) | |
| | | | | | | | | | | | | |
| Net income (loss) per share, basic: | | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) before cumulative effect of a change in accounting principle | | $ | (1.78 | ) | | $ | (1.71 | ) | | $ | 0.75 | | | $ | (2.13 | ) | | $ | (2.83 | ) | |
| Cumulative effect of adopting SFAS 123R | | | 0.01 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Net income (loss) | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.75 | | | $ | (2.13 | ) | | $ | (2.83 | ) | |
| | | | | | | | | | | | | |
| Net income (loss) per share, diluted | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.74 | | | $ | (2.13 | ) | | $ | (2.83 | ) | |
| Net loss before income tax expense and cumulative effect | | | | | | | | | | | | |
| of a change in accounting principle | | | (71,952 | ) | | (76,778 | ) | | (106,519 | ) | | (103,150 | ) | | (95,446 | ) |
| Income tax (benefit) expense | | | | (4,122 | ) | | | 2,351 | | | | | | | | | | |
| Net loss before cumulative effect of a | | | | | | | | | | | | |
| change in accounting principle | | | | (67,830 | ) | | | (79,129 | ) | | | (106,519 | ) | | | (103,150 | ) | | | (95,446 | ) |
| Cumulative effect of a change in accounting principle | | | | | | | | | | | | |
| related to share-based payments | | | | | | | | | | | | | 813 | | | | |
| Net loss | | | $ | (67,830 | ) | | $ | (79,129 | ) | | $ | (106,519 | ) | | $ | (102,337 | ) | | $ | (95,446 | ) |
| Net loss per share, basic and diluted: | | | | | | | | | | | | |
| Net loss before cumulative effect of | | | | | | | | | | | | |
| a change in accounting principle | | | $ | (0.85 | ) | | $ | (1.00 | ) | | $ | (1.61 | ) | | $ | (1.78 | ) | | $ | (1.71 | ) |
| Cumulative effect of a change in accounting principle | | | | | | | | | | | | | | | | | |
| related to share-based payments | | | | | | | | | | | | | 0.01 | | | | |
| Net loss | | | $ | (0.85 | ) | | $ | (1.00 | ) | | $ | (1.61 | ) | | $ | (1.77 | ) | | $ | (1.71 | ) |
27
| | At December 31, |
| | 2009 | | 2008 | | 2007 | | 2006 | | 2005 |
| | | | | Revised* | | Revised* | | | | | | |
| | (In thousands) |
| Balance Sheet Data | | | | | | | | | | | | | | | |
| Cash, cash equivalents, restricted cash, and marketable | | | | | | | | | | | | | | | |
| securities (current and non-current) | | $ | 390,010 | | $ | 527,461 | | $ | 846,279 | | $ | 522,859 | | $ | 316,654 |
| Total assets | | | 741,202 | | | 724,220 | | | 957,881 | | | 585,090 | | | 423,501 |
| Notes payable - current portion | | | | | | | | | 200,000 | | | | | | |
| Notes payable - long-term portion | | | | | | | | | | | | 200,000 | | | 200,000 |
| Facility lease obligations | | | 109,022 | | | 54,182 | | | 21,623 | | | | | | |
| Stockholders’ equity | | | 396,762 | | | 421,514 | | | 459,348 | | | 216,624 | | | 114,002 |
____________________
| | | | | | | | | | | | | | | | | | | | | |
| | | At December 31, | |
| | | 2006 | | | 2005 | | | 2004 | | | 2003 | | | 2002 | |
| | | (In thousands) | |
| |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
| Cash, cash equivalents, marketable securities, and restricted marketable securities (current and non-current) | | $ | 522,859 | | | $ | 316,654 | | | $ | 348,912 | | | $ | 366,566 | | | $ | 295,246 | |
| Total assets | | | 585,090 | | | | 423,501 | | | | 473,108 | | | | 479,555 | | | | 391,574 | |
| Notes payable — long-term portion | | | 200,000 | | | | 200,000 | | | | 200,000 | | | | 200,000 | | | | 200,000 | |
| Stockholders’ equity | | | 216,624 | | | | 114,002 | | | | 182,543 | | | | 137,643 | | | | 145,981 | |
| * | |
Item 7. | Management’s DiscussionWe have revised our financial statements at December 31, 2008 and Analysis2007 and for the years ended December 31, 2008 and 2007 in connection with the application of authoritative guidance issued by the Financial ConditionAccounting Standards Board (FASB) to our December 2006 lease, as amended, of laboratory and Resultsoffice facilities in Tarrytown, New York. The revisions, and a description of Operationsthe basis for the revisions, are more fully described in Note 11 to our audited financial statements included elsewhere in this report. |
| ITEM 7. | | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
We are a biopharmaceutical company that discovers, develops, and intends to commercializecommercializes pharmaceutical products for the treatment of serious medical conditions. We currently have one marketed product: ARCALYST® (rilonacept) Injection for Subcutaneous Use, which is available for prescription in the United States for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS) in adults and children 12 and older. We also have eight product candidates in clinical development, including three product candidates that are currently focused on three development programs: IL-1 Trap (rilonacept) in various inflammatory indications,late-stage (Phase 3) clinical development. Our late stage programs are rilonacept, which is being developed for the VEGF Trap in oncology,prevention and thetreatment of gout-related flares; VEGF Trap-Eye, formulationwhich is being developed in eye diseases using intraocular delivery. The VEGF Trapdelivery in collaboration with Bayer HealthCare; and aflibercept (VEGF Trap), which is being developed in oncology in collaboration with sanofi-aventis. Our earlier stage clinical programs are REGN475, an antibody to Nerve Growth Factor (NGF), which is being developed for the sanofi-aventis Group. In October 2006, we entered intotreatment of pain; REGN88, an antibody to the interleukin-6 receptor (IL-6R), which is being developed in rheumatoid arthritis; REGN421, an antibody to Delta-like ligand-4 (Dll4), which is being developed in oncology; REGN727, an antibody to PCSK9, which is being developed for LDL cholesterol reduction; and REGN668, an antibody to the interleukin-4 receptor (IL-4R), which is being developed for certain allergic and immune conditions. All five of our early stage clinical programs are fully human antibodies that are being developed in collaboration with Bayer HealthCare LLC for the development of the VEGF Trap-Eye.sanofi-aventis. Our preclinical research programs are in the areas of oncology and angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain, cardiovascular diseases, and cardiovascularinfectious diseases. We expect that our next generation of product candidates will be based on our proprietary technologies for developing human monoclonal antibodies.
Developing and commercializing new medicines entails significant risk and expense. Since inception we have not generated any significant sales or profits from the commercialization of ARCALYST or any of our other product candidates and we may never receive such revenues.candidates. Before significant revenues from the commercialization of ARCALYST or our other product candidates can be realized, we (or our collaborators) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the FDA and regulatory authorities in other countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive, and new developments may render our products and technologies uncompetitive or obsolete.
From inception on January 8, 1988 through December 31, 2006,2009, we had a cumulative loss of $687.6$941.1 million. In the absence of significant revenues from the commercialization of ARCALYST® (rilonacept) or our other product candidates or other sources, the amount, timing, nature, and source of which cannot be predicted, our losses will continue as we conduct our research and development activities. We expect to incur substantial losses over the next several years as we continue the clinical development of the VEGF Trap-Eye and IL-1 Trap;rilonacept in other indications; advance new product candidates into clinical development from our existing research programs utilizing our new technology for designingdiscovering fully human monoclonal antibodies; continue our research and development programs; and commercialize additional product candidates that receive regulatory approval, if any. Also, our activities may expand over time and require additional resources, and we expect our operating losses to be substantial over at least the next several years. Our losses may fluctuate from quarter to quarter and will depend on, among other factors, on the progress of our research and development efforts, the timing of certain expenses, and the amount and timing of payments that we receive from collaborators.
As a company that does not expect to be profitable over the next several years, management of cash flow is extremely important. The most significant use of our cash is for research and development activities, which include drug discovery, preclinical studies, clinical trials, and the manufacture of drug supplies for preclinical studies and clinical trials. In 2006, ourWe are reimbursed for some of these research and development expenses totaled $137.1 million. We expect these expenses to increase substantially in 2007 as we begin Phase 3 clinical trials of the VEGF Trap-Eye, expandactivities by our IL-1 Trap clinical program, advance our antibody development program, and increase our research and development headcount. Thecollaborators. Our principal sources of cash to-date have been from (i) sales of common equity, both in public offerings and convertible debt andto our collaborators, including sanofi-aventis, (ii) funding from our collaborators and licensees in the form of up-front and milestone payments, research progress payments, and payments for our research and development activities.activities, and (iii) a private placement of convertible debt, which was repaid in full during 2008.
28
In 2009, our research and development expenses totaled $398.8 million. In 2010, we expect these expenses to increase substantially as we continue to expand our research and preclinical and clinical development activities, primarily in connection with our antibody collaboration with sanofi-aventis.
A primary driver of our expenses is our number of full-time employees. Our annual average headcount in 20062009 was 573980 compared with 696810 in 20052008 and 721627 in 2004.2007. In 2006,2009 and 2008 our average annual headcount decreasedincreased primarily as a result of reductions made in the fourth quarter of 2005 and mid-year in 2006. These workforce reductions were associated with narrowing the focus ofto support our expanded research and development efforts, substantial improvementsactivities in manufacturing productivity, the June 2005 expiration ofconnection with our antibody collaboration with Procter & Gamble, and the completion of contract manufacturing for Merck in October 2006.sanofi-aventis. In 2007 our average headcount increased primarily to support our expanded development programs for VEGF Trap-Eye and rilonacept and our plans to move our first antibody candidate into clinical trials. In 2010, we expect our annual average headcount to increase to approximately 650 due,1,350-1,400, primarily to support the further expansion of our research, development, and marketing activities as described above, especially in part, toconnection with our expanded development programs for the VEGF Trap-Eye and IL-1 Trap, and our plans to move two new antibody candidates into clinical trials every year beginning around the end of 2007.collaboration with sanofi-aventis.
The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, key events in 20062009 and 2010 to date were, and plans for 2007the remainder of 2010 are, as follows:
| Clinical Program | | 2009 and 2010 Events to Date | | 2010 Plans |
Product CandidateRilonacept
(also known as
IL-1 Trap)
| | 2006 EventsInitiated patient enrollment in two Phase 3 trials (PRE-SURGE 1 and PRE-SURGE 2) evaluating rilonacept in the prevention of gout flares associated with the initiation of urate-lowering drug therapy; completed patient enrollment in the PRE-SURGE 1 study
Initiated and completed patient enrollment in a Phase 3 study (SURGE) evaluating rilonacept in the treatment of acute gout flares | | 2007 Events/PlansReport data from SURGE and PRE-SURGE 1 during the first half of 2010
Complete patient enrollment of the remaining Phase 3 studies in gout |
VEGF Trap-Eye
(intravitreal
injection) | | - Completed patient enrollment in the Phase 3 wet AMD program (VIEW 1 and VIEW 2)
- Initiated a Phase 3 CRVO program
- Reported results from the Phase 2 DME trial
| | - Report data from VIEW 1 and VIEW 2 trials in the fourth quarter of 2010
- Complete patient enrollment of the Phase 3 CRVO trials
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Aflibercept
(VEGF Trap — Oncology–
Oncology) | | • - Completed patient enrollment in the Phase 3 studies in non-small cell lung cancer and prostate cancer
- Initiated a Phase 2
studies of the VEGF Trap as a single agent 1st line studyin AOC and NSCLA patients, and in AOC patients with SMA.
• Initiated two safety and tolerability studies of the VEGF Trapmetastatic colorectal cancer in combination with standard chemotherapy regimens
•
Reported preliminary results of the safety and tolerability of intravenous VEGF Trap plus FOLFOX4 and of intravenous VEGF Trap plus LV5FU2-CPT11a Phase 2 single-agent study in separate Phase 1 trials of patients with advanced solid tumors
| | • Sanofi-aventis to initiate at least three of fivesymptomatic malignant ascites (SMA)
Discontinued a Phase 3 studies of the VEGF Trapstudy in metastatic pancreatic cancer in combination with standard chemotherapy regimens | | - Complete patient enrollment in
specificthe Phase 3 study in colorectal cancer indications
• NCI/CTEP initiated five Phase 2 studies
- During the second half of 2010, an Independent Data Monitoring Committee is expected to conduct an interim analysis of the
VEGF Trap as a single agentPhase 3 study in relapsed/refractory multiple myeloma, metastatic colorectal cancer recurrent or metastatic cancer of the urothelium, locally advanced or metastatic gynecological soft tissue sarcoma, and recurrent malignant gliomas
• NCI/CTEP finalized protocol for Phase 2 trial of the VEGF Trap as a single agent in metastatic breast cancer
• NCI/CTEP to initiate at least four new exploratory efficacy/safety studies evaluating the VEGF Trap in a variety of cancer types
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VEGF Trap — EyeMonoclonal
Antibodies | | • Reported positive preliminary results from- REGN475: Initiated a Phase 1 trial in
wet AMD utilizing intravitreal injectionshealthy volunteers, a dose-ranging, proof-of-concept study in 21 patients up toosteoarthritis of the knee, and additional proof-of-concept studies in pain associated with sciatica, vertebral fracture, chronic pancreatitis, and thermal injury - REGN88: Initiated a
top dose of 4 mg
• InitiatedPhase 2/3 dose-ranging study in rheumatoid arthritis and a Phase 2 trialdose-ranging study in wet AMD utilizing intravitreal injections
•ankylosing spondylitis
REGN421: Initiated safety and tolerability study of a new formulation of the VEGF Trap-Eye in patients with wet AMD
• Initiated Phase 1 trial in DME
•oncology
REGN727: Initiated collaboration with Bayer HealthCare
a Phase 1 program in healthy volunteersREGN668: Initiated a Phase 1 program in healthy volunteers | | •- REGN475: Report
interim resultsdata from the study in osteoarthritis of the knee during the first half of 2010 and from the study in sciatica during the second half of 2010 - REGN727: Report proof-of-concept data from the Phase 1 program and initiate a Phase 2
trial in wet AMD utilizing intravitreal injections
program for LDL cholesterol reduction •REGN668: Initiate first Phase 3 trial in wet AMD utilizing intravitreal injections of the VEGF Trap-Eye compared with Lucentis®
• Report final results ofa Phase 2 trialprogram in wet AMD utilizing intravitreal injections
•the treatment of a chronic allergic condition
REGN88: Report results of thedata from a Phase 1 trial in DME
• Explorerheumatoid arthritis
Advance additional eye disease indications
|
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| antibody candidate(s) into clinical development |
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| | | | |
Product Candidate
| | 2006 Events | | 2007 Events/Plans |
|
IL-1 Trap (rilonacept) | | • Reported positive results from efficacy portion of Phase 3 trial of the IL-1 Trap in CAPS
• Reported preliminary results from ongoing Phase 1 trial in SJIA
| | • Submit Biologics License Application (BLA) with the FDA for CAPS
• Initiateproof-of-concept studies evaluating the IL-1 Trap in gout and report initial data
• Evaluate the IL-1 Trap in other disease indications in which IL-1 may play an important role
|
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VelocImmune | | • Discovered multiple antibodies against more than ten different therapeutic targets
| | • Finalize plans to initiate clinical trials of two antibodies against different therapeutic targets
• Advance two new antibodies into preclinical development
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Critical Accounting Policies and Use of Estimates
A summary of the significant accounting policies that impact us is provided in Note 2 to our Financial Statements, beginning on page F-7. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if:
CollaborationsIt requires an assumption (or assumptions) regarding a future outcome; and
- Changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition.
Management believes the current assumptions used to estimate amounts reflected in our financial statements are appropriate. However, if actual experience differs from the assumptions used in estimating amounts reflected in our financial statements, the resulting changes could have a material adverse effect on our results of operations, and in certain situations, could have a material adverse effect on our liquidity and financial condition. The critical accounting estimates that impact our financial statements are described below.
Our currentRevenue Recognition
Collaboration Revenue
We earn collaboration revenue in connection with collaboration agreements to develop and commercialize product candidates and utilize our technology platforms. We currently have collaboration agreements with sanofi-aventis and Bayer HealthCare. The terms of collaboration agreements typically include non-refundable up-front licensing payments, research progress (milestone) payments, and Novartis Pharma AG,payments for development activities. Non-refundable up-front license payments, where continuing involvement is required of us, are deferred and recognized over the related performance period. We estimate our performance period based on the specific terms of each agreement, and adjust 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. Substantive performance milestones typically consist of significant achievements in the development life-cycle of the related product candidate, such as completion of clinical trials, filing for approval with regulatory agencies, and approvals by regulatory agencies. In determining whether a payment is deemed to be a substantive performance milestone, we take into consideration (i) the nature, timing, and value of significant achievements in the development life-cycle of the related development product candidate, (ii) the relative level of effort required to achieve the milestone, and (iii) the relative level of risk in achieving the milestone, taking into account the high degree of uncertainty in successfully advancing product candidates in a drug development program and in ultimately attaining an approved drug product. Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period.
We enter into collaboration agreements that include varying arrangements regarding which parties perform and bear the costs of research and development activities. We may share the costs of research and development activities with our collaborator, such as in our VEGF Trap-Eye collaboration with Bayer HealthCare, or we may be reimbursed for all or a significant portion of the costs of our research and development activities, such as in our aflibercept and antibody collaborations with sanofi-aventis. We record our internal and third-party development costs associated with these collaborations as research and development expenses. When we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration, we record those reimbursable amounts as collaboration revenue proportionately as we recognize our expenses. If the collaboration is a cost-sharing arrangement in which both we and our expired agreement with The Procter & Gamble Companycollaborator perform development work and share costs, in periods when our collaborator incurs development expenses that benefit the collaboration and Regeneron, we also recognize, as additional research and development expense, the portion of the collaborator’s development expenses that we are summarized below.obligated to reimburse.
The sanofi-aventis Group
In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals Inc. (now a member of the sanofi-aventis Group) to collaborate on the development and commercialization of the VEGF Trap in all countries other than Japan, where we retained the exclusive right to develop and commercialize the VEGF Trap. Sanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of our Common Stock for $45.0 million.
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 this amendment, sanofi-aventis madenon-refundable licensing payments, our performance period estimates are principally based on projections of the scope, progress, and results of our research and development activities. Due to the variability in the scope of activities and length of time necessary to develop a $25.0 million non-refundable paymentdrug product, changes to us.
development plans as programs progress, and uncertainty in the ultimate requirements to obtain governmental approval for commercialization, revisions to performance period estimates are likely to occur periodically, and could result in material changes to the amount of revenue recognized each year in the future. In December 2005,addition, our estimated performance periods may change if development programs encounter delays or we and sanofi-aventis amended our collaboration agreementcollaborators decide to expand the territoryor contract our clinical plans for a drug candidate in which the companies are collaborating on the development of the VEGF Trap to include Japan. In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to us, which was received in January 2006. Under the collaboration agreement, as amended, we and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap outside of Japan, forvarious disease indications included in our collaboration. We are entitled to a royalty of approximately 35% on annual sales of the VEGF Trap in Japan, subject to certain potential adjustments. We may also receive up to $400.0 million in milestone payments upon receipt of specified marketing approvals. 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, we earned a $25.0 million payment from sanofi-aventis, which was received in January 2005, upon the achievement of an early-stage clinical milestone.
Regeneron has agreed to manufacture clinical supplies of the VEGF Trap at our plant in Rensselaer, New York. Sanofi-aventis has agreed to be responsible for providing commercial scale manufacturing capacity for the VEGF Trap.
Under the collaboration agreement, as amended, agreed upon worldwide development expenses incurred by both companiesindications. For example, during the termfourth quarter of the agreement will be funded by sanofi-aventis. If the collaboration becomes profitable,2008, we will be obligated to reimburse sanofi-aventis for 50% of these development expenses, including 50% of the $25.0 million payment receivedextended our estimated performance period in connection with the January 2005 amendmentup-front and non-substantive milestone payments previously received from Bayer HealthCare pursuant to the companies’ VEGF Trap-Eye collaboration and shortened our estimated performance period in connection with up-front payments from sanofi-aventis pursuant to the companies’ aflibercept collaboration. The net effect of these changes in our estimates resulted in the recognition of $0.4 million less in collaboration revenue in the fourth quarter of 2008, compared to amounts recognized in connection with these deferred payments in each of the prior three quarters of 2008. In addition, in connection with amendments to expand and extend our antibody collaboration with sanofi-aventis, during the fourth quarter of 2009, we extended our estimated performance period related to the up-front payment previously received from sanofi-aventis pursuant to the companies’ antibody collaboration. The effect of this change in estimate resulted in the recognition of $0.6 million less in collaboration revenue in the fourth quarter of 2009, compared to amounts recognized in each of the prior three quarters of 2009. Also, if a collaborator terminates an agreement in accordance with a formula based on the amount of development expenses and our share of the
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collaboration profits and Japan royalties, or at a faster rate at our option. Since inception of the collaboration through December 31, 2006, we and sanofi-aventis have incurred $205.0 million in agreed upon development expenses related to VEGF Trap program. 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.
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.
Bayer Healthcare LLC
In October 2006, we entered into a license and collaboration agreement with Bayer to globally develop, and commercialize outside the United States, the VEGF Trap-Eye. Under the terms of the agreement, Bayer made a non-refundablewe would recognize any unamortized remainder of an up-front payment to us of $75.0 million. In addition, we are eligible to receive up to $110.0 million in development and regulatory milestones, including a total of $40.0 million upon the initiation of Phase 3 trials in defined major indications such as wet AMD and DME. We are 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.
We 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, 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. Within the United States, we are responsible for any future commercialization of the VEGF Trap-Eye and have 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:
| | |
| 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. |
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| 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.
Bayer has the right to terminate the agreement without cause with at least six months or twelve months advance notice depending on defined circumstancespreviously deferred payment at the time of the termination.
Product Revenue
In March 2008, ARCALYST® (rilonacept) became available for prescription in the United States for the treatment of CAPS. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer is reasonably assured, and we have no further performance obligations. Revenue and deferred revenue from product sales are recorded net of applicable provisions for prompt pay discounts, product returns, estimated rebates payable under governmental programs (including Medicaid), distributor fees, and other sales-related costs. Since we have limited historical return and rebate experience for ARCALYST, product sales revenues are deferred until (i) the right of return no longer exists or we can reasonably estimate returns and (ii) rebates have been processed or we can reasonably estimate rebates. We review our estimates of rebates payable each period and record any necessary adjustments in the current period’s net product sales.
Clinical Trial Expenses
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as contract research organizations, independent clinical investigators, and other third-party service providers to assist us with the execution of our clinical studies. For each clinical trial that we conduct, certain clinical trial costs are expensed immediately, while others are expensed over time 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.
Clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by contract research organizations (CROs). CROs typically perform most of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study visits, training, and program management. On a budgeted basis, these start-up costs are typically 10% to 20% of the total contract value. On an actual basis, this percentage range can be significantly wider, as many of our contracts with CROs are either expanded or reduced in scope compared to the original budget, while start-up costs for the particular trial may not change materially. These start-up costs usually occur within a few months after the contract has been executed and are event driven in nature. The remaining activities and related costs, such as patient monitoring and administration, generally occur ratably throughout the life of the individual contract or study. In the event of early termination of a clinical trial, we accrue and recognize expenses in an amount based on our estimate of the agreement for any reason, we retain all rights toremaining non-cancelable obligations associated with the VEGF Trap-Eye.winding down of the clinical trial and/or penalties.
Novartis Pharma AG
In March 2003,For clinical study sites, where payments are made periodically on a per-patient basis to the institutions performing the clinical study, we entered into a collaboration agreement with Novartis to jointly develop and commercialize the IL-1 Trap. Novartis made a non-refundable payment to us of $27.0 million.
IL-1 Trap development expenses incurred in 2003 were shared equally by Regeneron and Novartis. We funded our share of 2003 development expenses through loans from Novartis. In March 2004, Novartis forgave its outstanding loans to us totaling $17.8 million, including accrued interest,accrue expense on an estimated cost-per-patient basis, based on Regeneron’s achievingsubject enrollment and activity in each quarter. The amount of clinical study expense recognized in a pre-defined development milestone,quarter may vary from period to period based on the duration and progress of the study, the activities to be performed by the sites each quarter, the required level of patient enrollment, the rate at which was recognized aspatients actually enroll in and drop-out of the clinical study, and the number of sites involved in the study. Clinical trials that bear the greatest risk of change in estimates are typically those that have a research progress payment.
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In February 2004, Novartis provided noticesignificant number of its intention not to proceed withsites, require a large number of patients, have complex patient screening requirements, and span multiple years.During the joint developmentcourse of theIL-1 Trap,a trial, we adjust our rate of clinical expense recognition if actual results differ from our estimates. Our estimates and subsequently paid us $42.75 million to satisfy its obligation to fund development costsassumptions for the nine month period following its notification and for the two months prior to that notice. All rights to the IL-1 Trap have reverted to Regeneron. In addition, we recognized contractclinical expense recognition could differ significantly from our actual results, which could cause material increases or decreases in research and development revenue of $22.1 million, which representsexpenses in future periods when the remaining amount of the March 2003 up-front payment from Novartis that had previously been deferred.
Under the collaboration agreement, we retain the right to elect to collaborate in the future development and commercialization of a Novartis IL-1 antibody, which is in clinical development. Following completion of Phase 2 development and submission to us of a written report on the Novartis IL-1 antibody, we have the right, in consideration for an opt-in payment, to elect to co-develop and co-commercialize the Novartis IL-1 antibody in North America. If we elect to exercise this right, we are responsible for paying 45% of post-election North American development costs for the antibody product. In return, we are entitled to co-promote the Novartis IL-1 antibody and to receive 45% of net profits on sales of the antibody product in North America. Under certain circumstances, we are also entitled to receive royalties on sales of the Novartis IL-1 antibody in Europe.
In addition, under the collaboration agreement, Novartis has the right to elect to collaborate in the development and commercialization of a second generation IL-1 Trap following completion of its Phase 2 development, should we decide to clinically develop such a second generation product candidate. Novartis does not have any rights or options with respectactual results become known. No material adjustments to our IL-1 Trap currently inpast clinical development.
The Procter & Gamble Company
In May 1997, we entered into a long-term collaboration with Procter & Gamble to discover, develop, and commercialize pharmaceutical products, and Procter & Gamble agreed to provide funding in support of our research efforts related to the collaboration. Effective December 31, 2000, in accordance with the companies’ collaboration agreement, Procter & Gamble was obligated to fund our research on therapeutic areas thattrial accrual estimates were of particular interest to Procter & Gamble through December 2005, with no further research obligations by either party thereafter. Under the collaboration agreement, research support from Procter & Gamble was $2.5 million per quarter, plus annual adjustments for inflation, through December 2005.
In June 2005, we and Procter & Gamble amended our collaboration agreement. Under the terms of the modified agreement, the two companies agreed that the research activities being pursued under the collaboration agreement were completed on June 30, 2005, six months prior to the December 31, 2005 expiration date in the collaboration agreement. Procter & Gamble agreed to make a one-time $5.6 million payment to Regeneron, which was received in July 2005, and to fund our research under the agreement through the second quarter of 2005. We agreed to pay Procter & Gamble approximately $1.0 million to acquire certain capital equipment owned by Procter & Gamble and located at our facilities. We and Procter & Gamble divided rights to research programs and preclinical product candidates that were developedmade during the research term of the collaboration. Neither party has the right to participate in the development or commercialization of the other party’s product candidates. We are entitled to receive royalties based on any future product sales of a Procter & Gamble preclinical candidate arising from the collaboration, and Procter & Gamble is entitled to receive a small royalty on any sales of a single Regeneron candidate that is not currently being developed. Neither party is entitled to receive either royalties or other payments based on any other products arising from the collaboration.
Other Agreements
AstraZeneca
In February 2007, we entered into a non-exclusive license agreement with AstraZeneca that will allow AstraZeneca to utilize our 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 us. 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. We are entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using our VelocImmune technology.
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National Institutes of Health
In September 2006, we were awarded a five-year grant from the National Institutes of Health (NIH) as part of the NIH’s Knockout Mouse Project. The goal of the Knockout Mouse Project is to build a comprehensive and broadly available resource of knockout mice to accelerate the understanding of gene function and human diseases. We will use our VelociGene® technology to take aim at 3,500 of the most difficult genes to target and which are not currently the focus of other large-scale knockout mouse programs. We have also agreed to grant a limited license to a consortium of research institutions, the other major participants in the Knockout Mouse Project, to use components of our VelociGene technology in the Knockout Mouse Project. We will generate a collection of targeting vectors and targeted mouse embryonic stem cells (ES cells) which can be used to produce knockout mice. These materials will be made widely available to academic researchers without charge. We will receive a fee for each targeted ES cell line or targeting construct made by us or the research consortium and transferred to commercial entities.
Under the NIH grant, we will be entitled to receive a minimum of $17.9 million over a five-year period. We will receive another $1.0 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium, both of which will be supplied to the research consortium for its use in the Knockout Mouse Project. We will have the right to use, for any purpose, all materials generated by us and the research consortium.
Accounting for 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 Statement of Financial Accounting Standards No. (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, in 2005, we recognized 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 using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, compensation expense for Regeneron is recognized for (a) all share based payments granted on or after January 1, 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 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 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. Exclusive of the cumulative-effect adjustment, the effect of the change from applying the provisions of SFAS 123 to applying the provisions of SFAS 123R on our loss from operations, net loss, and net loss per share for the year ended December 31, 2006 was not significant, and there was no impact to our cash flows for the year ended December 31, 2006.
Non-cash stock-based employee compensation expense related to stock option awards (Stock Option Expense) recognized in operating expenses totaled $18.4 million and $19.9 million for the years ended December 31, 2006 and 2005, respectively. In addition, for the year ended December 31, 2005, $0.1 million of Stock Option Expense2009, 2008, or 2007.
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Stock-based Employee Compensation
was capitalized into inventory. As of December 31, 2006, there was $44.0 million of
We recognize stock-based compensation cost relatedexpense for grants of stock option awards and restricted stock to outstanding nonvested stock options, netemployees and non-employee members of estimated forfeitures, which had not yet been recognized in operating expenses. We expect to recognize this compensation cost over a weighted-average periodour board of 1.9 years. In addition, there are 723,092 options which are unvested as of December 31, 2006 and would become vested upondirectors under our products achieving certain sales targets and the optionee satisfying certain service conditions. Potential compensation cost, measuredlong-term incentive plans based on the grant date, related to these performance options totals $2.7 million and will begin to begrant-date fair value of those awards. The grant-date fair value of an award is generally recognized only if, and when, these options’ performance condition is considered to be probable of attainment.as compensation expense over the award’s requisite service period.
Assumptions
We use the Black-Scholes model to estimatecompute the estimated fair value of eachstock option granted under the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan.awards. 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 has been estimated based on actual movements in our stock price over the most recent historical periods equivalent to the options’ expected lives. Expected lives are principally based on our limited historical exercise experience with previously issued employee and board of directors option grants with similar exercise prices.grants. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future. The following table summarizesStock-based compensation expense also includes an estimate, which is made at the weighted average valuestime of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The assumptions we used in computing the fair value of option grants during 2006, 2005awards reflect our best estimates but involve uncertainties related to market and 2004:
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Expected volatility | | | 67% | | | | 71% | | | | 80% | |
| Expected lives from grant date | | | 6.5 years | | | | 5.9 years | | | | 7.5 years | |
| Expected dividend yield | | | 0% | | | | 0% | | | | 0% | |
| Risk-free interest rate | | | 4.51% | | | | 4.16% | | | | 4.03% | |
other conditions, many of which are outside of our control. Changes in any of these estimatesassumptions may materially affect the fair value of stock options granted and the amount of stock-based compensation recognized in any period.future periods.
In addition, we have granted performance-based stock option awards which vest based upon the optionee satisfying certain performance and service conditions as defined in the agreements. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, we estimate that these options will vest, which is based on whether we consider the options’ performance conditions to be probable of attainment. Our estimates of the number of performance-based options that will vest will be revised, if necessary, in subsequent periods. Changes in these estimates may materially affect the amount of stock-based compensation that we recognize in future periods related to performance-based options.
Marketable Securities
We have invested our excess cash primarily in direct obligations of the U.S. government and its agencies, other debt securities guaranteed by the U.S. government, and money market funds that invest in U.S. Government securities and, to a lesser extent, investment grade debt securities issued by corporations, bank deposits, and asset-backed securities. We consider our marketable securities to be “available-for-sale,” as defined by authoritative guidance issued by the Financial Accounting Standards Board (FASB). These assets are carried at fair value and the unrealized gains and losses are included in other accumulated comprehensive income (loss) as a separate component of stockholders’ equity. If the decline in the value of a marketable security in our investment portfolio is deemed to be other-than-temporary, we write down the security to its current fair value and recognize a loss that may be charged against income.
On a quarterly basis, we review our portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost are other-than-temporary. Such factors include the length of time and the extent to which market value has been less than cost, financial condition and near-term prospects of the issuer, recommendations of investment advisors, and forecasts of economic, market, or industry trends. With respect to debt securities, this review process also includes an evaluation of our intent to sell an individual debt security or our need to sell the debt security before its anticipated recovery or maturity. With respect to equity securities, this review process includes an evaluation of our ability and intent to hold the securities until their full value can be recovered. This review is subjective and requires a high degree of judgment.
As a result of our quarterly reviews of our marketable securities portfolio, during 2009, 2008, and 2007 we recorded charges for other-than-temporary impairment of our marketable securities totaling $0.1 million, $2.5 million, and $5.9 million, respectively. The current economic environment and the deterioration in the credit quality of issuers of securities that we hold increase the risk of potential declines in the current market value of marketable securities in our investment portfolio. Such declines could result in charges against income in future periods for other-than-temporary impairments and the amounts could be material.
Depreciation of Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. 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.
Results of Operations
Years Ended December 31, 20062009 and 20052008
Net Loss:Loss
Regeneron reported a net loss of $102.3$67.8 million, or $1.77$0.85 per share (basic and diluted), for the year ended December 31, 2009, compared to a net loss of $79.1 million, or $1.00 per share (basic and diluted) for the year ended December 31, 2006, compared to a2008. The decrease in our net loss in 2009 was principally due to higher collaboration revenue in connection with our antibody collaboration with sanofi-aventis, receipt of $95.4a $20.0 million or $1.71 per (basicsubstantive performance milestone payment in connection with our VEGF Trap-Eye collaboration with Bayer HealthCare, and diluted) for 2005.higher ARCALYST® (rilonacept) sales, partially offset by higher research and development expenses, as detailed below.
Revenues:Revenues
Revenues for the years ended December 31, 2006in 2009 and 20052008 consist of the following:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | (In millions) | |
| |
| Contract research & development revenue | | | | | | | | |
| Sanofi-aventis | | $ | 47.8 | | | $ | 43.4 | |
| Procter & Gamble | | | | | | | 6.0 | |
| Other | | | 3.3 | | | | 3.1 | |
| | | | | | | | | |
| Total contract research & development revenue | | | 51.1 | | | | 52.5 | |
| Contract manufacturing revenue | | | 12.3 | | | | 13.7 | |
| | | | | | | | | |
| Total revenue | | $ | 63.4 | | | $ | 66.2 | |
| | | | | | | | | |
| (In millions) | 2009 | | 2008 |
| Collaboration revenue | | | | | |
| Sanofi-aventis | $ | 247.2 | | $ | 154.0 |
| Bayer HealthCare | | 67.3 | | | 31.2 |
| Total collaboration revenue | | 314.5 | | | 185.2 |
| Technology licensing revenue | | 40.0 | | | 40.0 |
| Net product sales | | 18.4 | | | 6.3 |
| Contract research and other revenue | | 6.4 | | | 7.0 |
| Total revenue | $ | 379.3 | | $ | 238.5 |
| |
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Sanofi-aventis Collaboration Revenue
We recognize The collaboration revenue we earn from sanofi-aventis, in connection with the companies’ VEGF Trap collaboration, 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) (see “Critical Accounting Policies and Significant Judgments and Estimates”). We earn contract research and development revenue from sanofi-aventis which, as detailed below, consists partlyprimarily of reimbursement for research and development expenses and partly of the recognition of revenue related to a totalnon-refundable up-front payments of $105.0 million of non-refundable, up-front payments received in 2003related to the aflibercept collaboration and 2006. Non-refundable up-front payments are recorded as deferred revenue and recognized ratably over$85.0 million related to the period during which we are obligated to perform services.antibody collaboration.
| Years ended |
| December 31, |
| Sanofi-aventis Collaboration Revenue | | 2009 | | 2008 |
| (In millions) | | | | | |
| Aflibercept: | | | | | |
| Regeneron expense reimbursement | $ | 26.6 | | $ | 35.6 |
| Recognition of deferred revenue related to up-front payments | | 9.9 | | | 8.8 |
| Total aflibercept | | 36.5 | | | 44.4 |
| Antibody: | | | | | |
| Regeneron expense reimbursement | | 198.1 | | | 97.9 |
| Recognition of deferred revenue related to up-front payment | | 9.9 | | | 10.5 |
| Recognition of revenue related to VelociGene® agreement | | 2.7 | | | 1.2 |
| Total antibody | | 210.7 | | | 109.6 |
| Total sanofi-aventis collaboration revenue | $ | 247.2 | | $ | 154.0 |
| |
| | | | | | | | | |
| | | December 31, | |
| Sanofi-aventis Contract Research & Development Revenue | | 2006 | | | 2005 | |
| | | (In millions) | |
| |
| Regeneron expense reimbursement | | $ | 36.4 | | | $ | 33.9 | |
| Recognition of deferred revenue related to up-front payments | | | 11.4 | | | | 9.5 | |
| | | | | | | | | |
| Total | | $ | 47.8 | | | $ | 43.4 | |
| | | | | | | | | |
Sanofi-aventis’ reimbursement of Regeneron VEGF Trapour aflibercept expenses increaseddecreased in 20062009 compared to 2005,2008, primarily due to higherlower costs related to our manufacture of VEGF Trapinternal research activities and manufacturing aflibercept clinical supplies during the first half of 2006.supplies. Recognition of deferred revenue related to sanofi-aventis’ up-front aflibercept payments also increased in 2006 from the same period in 2005,2009 compared to 2008 due to our receiptshortening the estimated performance period over which this deferred revenue is being recognized, effective in January 2006the fourth quarter of a $25.0 million non-refundable, up-front payment from sanofi-aventis related to the expansion of the companies’ VEGF Trap collaboration to include Japan.2008. As of December 31, 2006, $70.02009, $42.5 million of the original $105.0 million of up-front payments related to aflibercept was deferred and will be recognized as revenue in future periods.
In 2009, sanofi-aventis’ reimbursement of our antibody expenses consisted of $99.8 million under the discovery agreement and $98.3 million of development costs under the license agreement, compared to $72.2 million and $25.7 million, respectively, in 2008. The higher reimbursement amounts in 2009 compared to 2008 were due to an increase in our research activities conducted under the discovery agreement and increases in our development activities for antibody candidates under the license agreement. Recognition of deferred revenue related to sanofi-aventis’ $85.0 million up-front payment decreased in 2009 compared to 2008 due to the November 2009 amendments to expand and extend the companies’ antibody collaboration. As of December 31, 2009, $63.7 million of the original $85.0 million up-front payment was deferred and will be recognized as revenue in future periods.
In August 2008, we entered into a separate VelociGene agreement with sanofi-aventis. In 2009 and 2008, we recognized $2.7 million and $1.2 million, respectively, in revenue related to this agreement.
Bayer HealthCare Collaboration Revenue
The collaboration revenue we earn from Bayer HealthCare, as detailed below, consists of cost sharing of Regeneron VEGF Trap-Eye development expenses, substantive performance milestone payments, and recognition of revenue related to a non-refundable $75.0 million up-front payment and a $20.0 million milestone payment received in August 2007 (which, for the purpose of revenue recognition, was not considered substantive).
| Years ended |
| December 31, |
| Bayer HealthCare Collaboration Revenue | | 2009 | | 2008 |
| (In millions) | | | | | |
| Cost-sharing of Regeneron VEGF Trap-Eye development expenses | $ | 37.4 | | $ | 18.8 |
| Substantive performance milestone payment | | 20.0 | | | |
| Recognition of deferred revenue related to up-front and other milestone payments | | 9.9 | | | 12.4 |
| Total Bayer HealthCare collaboration revenue | $ | 67.3 | | $ | 31.2 |
| |
Cost-sharing of our VEGF Trap-Eye development expenses with Bayer HealthCare increased in 2009 compared to 2008. Under the terms of the collaboration, in 2009, all agreed-upon VEGF Trap-Eye development expenses incurred by Regeneron and Bayer HealthCare under a global development plan were shared equally. In 2008, the first $70.0 million of agreed-upon VEGF Trap-Eye development expenses were shared equally, and we were solely responsible for up to the next $30.0 million. During the fourth quarter of 2008, we were solely responsible for most of the collaboration’s VEGF Trap-Eye development expenses, which reduced the amount of cost-sharing revenue we earned from Bayer HealthCare in 2008. In addition, cost-sharing revenue increased in 2009, compared to 2008, due
to higher clinical development costs in connection with our VIEW 1 trial in wet AMD, Phase 2 trial in DME, and Phase 3 trial in CRVO. In July 2009, we received a $20.0 million substantive performance milestone payment from Bayer HealthCare in connection with the dosing of the first patient in a Phase 3 trial of VEGF Trap-Eye in CRVO, which was recognized as collaboration revenue. Recognition of deferred revenue related to the up-front and August 2007 milestone payments from Bayer HealthCare decreased in 2009 from 2008 due to an extension of the estimated performance period over which this deferred revenue is being recognized, effective in the fourth quarter of 2008. As of December 31, 2009, $56.8 million of these up-front licensing and milestone payments was deferred and will be recognized as revenue in future periods.
Technology Licensing Revenue
In connection with our VelocImmune® license agreements with AstraZeneca and Astellas, each of the $20.0 million annual, non-refundable payments are deferred upon receipt and recognized as revenue ratably over approximately the ensuing year of each agreement. In both 2009 and 2008, we recognized $40.0 million of technology licensing revenue related to these agreements.
Net Product Sales
In 2009 and 2008, we recognized as revenue $18.4 million and $6.3 million, respectively, of ARCALYST® (rilonacept) net product sales for which both the right of return no longer exists and rebates can be reasonably estimated. At December 31, 2009, deferred revenue related to ARCALYST net product sales totaled $4.8 million.
Contract Research and Other Revenue
Contract research and development revenue earned from Procter & Gamble decreased in 2006 compared to 2005, as the research activities being pursued under our December 2000 collaboration agreement with Procter & Gamble, as amended, were completed on June 30, 2005, as described above under “Collaborations — The Procter & Gamble Company.” Since 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.
As described above, in October 2006 we entered into a VEGF Trap-Eye collaboration with Bayer. We will recognize revenue from Bayer, in connection with the companies’ collaboration, in accordance with SAB 104 and EITF00-21. 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 contract research and development revenue related to payments from Bayer. As a result, there was no contract research and development revenue earned from Bayer in 2006. As of December 31, 2006, the $75.0 million up-front payment received from Bayer in October 2006 was deferred and will be recognized asother revenue in future periods.
Other contract research2009 and development revenue includes $0.52008 included $5.5 million and $4.9 million, respectively, recognized in connection with our five-year grant from the NIH, Grant,which we were awarded in September 2006 as described above.part of the NIH’s Knockout Mouse Project.
Contract manufacturing revenue relates to our long-term agreement with Merck & Co., Inc., which expired in October 2006, to manufacture a vaccine intermediate at our Rensselaer, New York facility. Contract manufacturing revenue decreased in 2006 compared to 2005 due to a decrease in product shipments to Merck in 2006. Revenue and the related manufacturing expense were recognized as product was shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2006 and 2005 were $1.2 million and $1.4 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. We do not expect to receive any further contract manufacturing revenue from Merck and there was no Merck deferred revenue as of the end of 2006.Expenses
Expenses:
Total operating expenses decreasedincreased to $171.1$453.4 million in 20062009 from $190.6$324.7 million in 2005 due,2008. Our average headcount in part,2009 increased to 980 from 810 in 2008 principally as a result of our expanding research and development activities, which are primarily attributable to our lower headcount, as described above. (Also see “Severance Costs” below.)antibody collaboration with sanofi-aventis.
35
Operating expenses in 20062009 and 20052008 include a total of $18.4$31.3 million and $19.9$32.5 million, respectively, of Stock Option Expense, respectively,non-cash compensation expense related to employee stock option and restricted stock awards (Non-cash Compensation Expense), as detailed below:
| | | | | | | | | | | | | | | For the year ended December 31, 2009 |
| | | For the Year Ended December 31, 2006 | | | Expenses before | | | | |
| | | Expenses Before
| | | | | | | inclusion of Non-cash | | Non-cash | | | | |
| | | Inclusion of Stock
| | Stock Option
| | Expenses as
| | | Compensation | | Compensation | | Expenses as |
Expenses | | Option Expense | | Expense | | Reported | | | Expense | | Expense | | Reported |
| (In millions) | | (In millions) | | | | | | | | | | | |
| Research and development | | Research and development | | $380.0 | | | | $18.8 | | | $398.8 | |
| Selling, general, and administrative | | Selling, general, and administrative | | 40.4 | | | | 12.5 | | | | 52.9 | |
| Cost of goods sold | | Cost of goods sold | | 1.7 | | | | | | | | 1.7 | |
| Total operating expenses | | Total operating expenses | | $422.1 | | | | $31.3 | | | $453.4 | |
| | | (In millions) | | | |
| | | For the year ended December 31, 2008 |
| | | Expenses before | | | | |
| | | inclusion of Non-cash | | Non-cash | | | | |
| | | Compensation | | Compensation | | Expenses as |
| Expenses | | | Expense | | Expense | | Reported |
| (In millions) | | (In millions) | | | | | | | |
| Research and development | | $ | 126.9 | | | $ | 10.2 | | | $ | 137.1 | | Research and development | | $255.9 | | | | $19.0 | | | $274.9 | |
| Contract manufacturing | | | 7.8 | | | | 0.3 | | | | 8.1 | | |
| General and administrative | | | 18.0 | | | | 7.9 | | | | 25.9 | | |
| | | | | | | | | |
| Selling, general, and administrative | | Selling, general, and administrative | | 35.4 | | | | 13.5 | | | 48.9 | |
| Cost of goods sold | | Cost of goods sold | | 0.9 | | | | | | | 0.9 | |
| Total operating expenses | | $ | 152.7 | | | $ | 18.4 | | | $ | 171.1 | | Total operating expenses | | $292.2 | | | | $32.5 | | | $324.7 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, 2005 | |
| | | Expenses Before
| | | | | | | |
| | | Inclusion of Stock
| | | Stock Option
| | | Expenses as
| |
Expenses | | Option Expense | | | Expense | | | Reported | |
| | | (In millions) | |
| |
| Research and development | | $ | 143.7 | | | $ | 11.9 | | | $ | 155.6 | |
| Contract manufacturing | | | 9.2 | | | | 0.4 | | | | 9.6 | |
| General and administrative | | | 17.8 | | | | 7.6 | | | | 25.4 | |
| | | | | | | | | | | | | |
| Total operating expenses | | $ | 170.7 | | | $ | 19.9 | | | $ | 190.6 | |
| | | | | | | | | | | | | |
Research and Development Expenses:The decrease in total Non-cash Compensation Expense in 2009 was primarily attributable to the lower fair market value of our Common Stock on the date of our annual employee option grants made in December 2008 as compared to the fair market value of annual employee option grants made in recent years prior to 2008.
Research and Development Expenses
Research and development expenses decreasedincreased to $137.1$398.4 million for the year ended December 31, 2006in 2009 from $155.6$274.9 million for 2005.in 2008. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2006in 2009 and 2005:
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | | | | | | | Increase
| |
Research and Development Expenses | | 2006 | | | 2005 (1) | | | (Decrease) | |
| | | (In millions) | |
| |
| Payroll and benefits (2) | | $ | 44.8 | | | $ | 53.6 | | | $ | (8.8 | ) |
| Clinical trial expenses | | | 14.9 | | | | 18.2 | | | | (3.3 | ) |
| Clinical manufacturing costs (3) | | | 39.2 | | | | 41.6 | | | | (2.4 | ) |
| Research and preclinical development costs | | | 17.5 | | | | 19.2 | | | | (1.7 | ) |
| Occupancy and other operating costs | | | 20.7 | | | | 23.0 | | | | (2.3 | ) |
| | | | | | | | | | | | | |
| Total research and development | | $ | 137.1 | | | $ | 155.6 | | | $ | (18.5 | ) |
| | | | | | | | | | | | | |
2008:
| Year Ended December 31, | | |
| Research and Development Expenses | | 2009 | | 2008 | | Increase |
| (In millions) | | | | | | | | |
| Payroll and benefits(1) | $ | 99.9 | | $ | 81.7 | | $ | 18.2 |
| Clinical trial expenses | | 111.6 | | | 49.3 | | | 62.3 |
| Clinical manufacturing costs(2) | | 66.7 | | | 53.8 | | | 12.9 |
| Research and preclinical development costs | | 42.3 | | | 29.6 | | | 12.7 |
| Occupancy and other operating costs | | 40.6 | | | 30.5 | | | 10.1 |
| Cost-sharing of Bayer HealthCare VEGF Trap-Eye development expenses(3) | | 37.7 | | | 30.0 | | | 7.7 |
| Total research and development | $ | 398.8 | | $ | 274.9 | | $ | 123.9 |
| ____________________ |
| | |
| (1) | | For the major categoriesIncludes $16.2 million and $16.7 million of researchNon-cash Compensation Expense in 2009 and development expenses, amounts for the year ended December 31, 2005 have been reclassified to conform with, and be comparable to, the current year’s presentation. Total research and development expenses for the year ended December 31, 2005 are unchanged from amounts previously reported.2008, respectively. |
| |
| (2) | | Includes $8.4 million and $10.5 million of Stock Option Expense for the years ended December 31, 2006 and 2005, respectively. |
|
(3) | | Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, Stock OptionNon-cash Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. Includes $1.8$2.6 million and $1.4$2.3 million of Stock OptionNon-cash Compensation Expense in 2009 and 2008, respectively. |
|
| (3) | | Under our collaboration with Bayer HealthCare, in periods when Bayer HealthCare incurs VEGF Trap-Eye development expenses, we also recognize, as additional research and development expense, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. Bayer HealthCare provides us with estimated VEGF Trap-Eye development expenses for the years ended December 31, 2006most recent fiscal quarter. Bayer HealthCare’s estimate is reconciled to its actual expenses for such quarter in the subsequent fiscal quarter and 2005, respectively.our portion of its VEGF Trap-Eye development expenses that we are obligated to reimburse is adjusted accordingly. |
Payroll and benefits decreasedincreased principally due to our lowerthe increase in employee headcount, in 2006. In addition, payroll and benefits in 2006 and 2005 included $0.4 million and $2.2 million, respectively, of severance costs associated with our
36
workforce reduction plan that we initiated in October 2005.as described above. Clinical trial expenses decreasedincreased due primarily due to lower IL-1 Trap costs in 2006 as we discontinued clinical development of the IL-1 Trap in adult rheumatoid arthritis and osteoarthritis in the second half of 2005. This decrease was partly offset by higher 2006 VEGF Trap-Eye costs related to Phaseour clinical development programs for (i) VEGF Trap-Eye, including our VIEW 1 and Phase 2 clinical trials that we are conductingtrial in wet AMD.AMD, DA VINCI trial in DME, and COPERNICUS trial in CRVO, (ii) rilonacept, related to our Phase 3 clinical development program in gout, and (iii) monoclonal antibody candidates, which are in earlier stage clinical development. Clinical manufacturing costs decreased because of lower costs in 2006 relatedincreased due to manufacturing IL-1 Trap clinical supplies, which were partially offset by higher costs related to manufacturing VEGF Trapclinical supplies of rilonacept and monoclonal antibodies, partially offset by lower costs related to manufacturing aflibercept clinical supplies. Research and preclinical development costs decreased principally because of lowerincreased primarily due to higher costs for general research supplies in 2006 as we narrowed the focus ofassociated with our research and development efforts due, in part, to the expiration of our collaboration with Procter & Gamble in June 2005, as described above.antibody programs. Occupancy and other operating costs decreased primarily due to our lower 2006 headcount and lower costs for utilities associatedincreased principally in connection with our higher headcount, expanded research and development activities, and new and expanded leased researchlaboratory and office facilities in Tarrytown, New York. Cost-sharing of Bayer HealthCare’s VEGF Trap-Eye development expenses increased primarily due to higher costs in connection with the VIEW 2 trial in wet AMD and the GALILEO trial in CRVO, both of which are being conducted by Bayer HealthCare.
Contract Manufacturing Expenses:
We prepare estimates of research and development costs for projects in clinical development, which include direct costs and allocations of certain costs such as indirect labor, Non-cash Compensation Expense, and manufacturing and other costs related to activities that benefit multiple projects, and, under our collaboration with Bayer HealthCare, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. Our estimates of research and development costs for clinical development programs are shown below:
Contract manufacturing expenses decreased | Year ended December 31, | | Increase |
| Project Costs | | 2009 | | 2008 | | (Decrease) |
| (In millions) | | | | | | | | | |
| Rilonacept | $ | 67.7 | | $ | 39.2 | | $ | 28.5 | |
| VEGF Trap-Eye | | 109.8 | | | 82.7 | | | 27.1 | |
| Aflibercept | | 23.3 | | | 32.1 | | | (8.8 | ) |
| REGN88 | | 36.9 | | | 21.4 | | | 15.5 | |
| Other antibody candidates in clinical development | | 74.4 | | | 27.4 | | | 47.0 | |
| Other research programs & unallocated costs | | 86.7 | | | 72.1 | | | | 14.6 | |
| Total research and development expenses | $ | 398.8 | | $ | 274.9 | | | $ | 123.9 | |
| |
Drug development and approval in the United States is a multi-step process regulated by the FDA. The process begins with discovery and preclinical evaluation, leading up to $8.1 millionthe submission of an IND to the FDA which, if successful, allows the opportunity for study in 2006, comparedhumans, or clinical study, of the potential new drug. Clinical development typically involves three phases of study: Phases 1, 2, and 3. The most significant costs in clinical development are in Phase 3 clinical trials, as they tend to $9.6 millionbe the longest and largest studies in 2005, primarily becausethe drug development process. Following successful completion of Phase 3 clinical trials for a biological product, a biologics license application (or BLA) must be submitted to, and accepted by, the FDA, and the FDA must approve the BLA prior to commercialization of the drug. It is not uncommon for the FDA to request additional data following its review of a BLA, which can significantly increase the drug development timeline and expenses. We may elect either on our own, or at the request of the FDA, to conduct further studies that are referred to as Phase 3B and 4 studies. Phase 3B studies are initiated and either completed or substantially completed while the BLA is under FDA review. These studies are conducted under an IND. Phase 4 studies, also referred to as post-marketing studies, are studies that are initiated and conducted after the FDA has approved a product for marketing. In addition, as discovery research, preclinical development, and clinical programs progress, opportunities to expand development of drug candidates into new disease indications can emerge. We may elect to add such new disease indications to our development efforts (with the approval of our collaborator for joint development programs), thereby extending the period in which we shipped less productwill be developing a product. For example, we, and our collaborators where applicable, continue to Merckexplore further development of rilonacept, aflibercept, and VEGF Trap-Eye in 2006.different disease indications.
There are numerous uncertainties associated with drug development, including uncertainties related to safety and efficacy data from each phase of drug development, uncertainties related to the enrollment and performance of clinical trials, changes in regulatory requirements, changes in the competitive landscape affecting a product candidate, and other risks and uncertainties described in Item 1A, “Risk Factors” under “Risks Related to ARCALYST® (rilonacept) and the Development of Our Product Candidates,” “Regulatory and Litigation Risks,” and “Risks Related to Commercialization of Products.” The lengthy process of seeking FDA approvals, and subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or delay in obtaining, regulatory approvals could materially adversely affect our business.
For these reasons and due to the variability in the costs necessary to develop a product and the uncertainties related to future indications to be studied, the estimated cost and scope of the projects, and our ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the total cost to bring our product candidates to market are not available. Similarly, we are currently unable to reasonably estimate if our product candidates will generate material product revenues and net cash inflows. In 2008, we received FDA approval for ARCALYST® (rilonacept) for the treatment of CAPS, a group of rare, inherited auto-inflammatory diseases that affect a very small group of people. We shipped $20.0 million and $10.7 million of ARCALYST to our U.S. distributors in 2009 and 2008, respectively.
Selling, General, and Administrative Expenses:Expenses
GeneralSelling, general, and administrative expenses increased to $25.9$52.9 million in 20062009 from $25.4$48.9 million in the same period of 2005 as2008. In 2009, we incurred (i) higher legal expensescompensation expense, (ii) higher patent-related costs, (iii) higher facility-related costs due primarily to increases in administrative headcount, and (iv) higher patient assistance costs related to general corporate mattersARCALYST® (rilonacept). These increases were partially offset by (i) lower marketing costs related to ARCALYST, (ii) a decrease in administrative recruitment costs, and higher patent-and trademark-related costs were partly offset by(iii) lower professional fees related to various corporate matters.
Cost of Goods Sold
During 2008, we began recognizing revenue and cost of goods sold from net product sales of ARCALYST. We began capitalizing inventory costs associated with commercial supplies of ARCALYST subsequent to receipt of marketing approval from the FDA in February 2008. Costs for internal auditmanufacturing supplies of ARCALYST prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these costs are not included in cost of goods sold when revenue is recognized from the sale of those supplies of ARCALYST. Cost of goods sold in 2009 and 2008 was $1.7 million and $0.9 million, respectively, and consisted primarily of royalties and other administrative advisory services and lower administrative facility costs.period costs related to ARCALYST commercial supplies.
Other Income and Expense: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.
Investment income increaseddecreased to $16.5$4.5 million in 20062009 from $10.4$18.2 million in 2005,2008, due primarily to higherlower yields on, and lower balances of, cash and marketable securities. In addition, in 2009 and 2008, deterioration in the credit quality of specific marketable securities (due, in part,our investment portfolio subjected us to the up-front payment received from Bayerrisk of not being able to recover these securities’ carrying values. As a result, in October 2006, as described above,2009 and 2008, we recognized charges of $0.1 million and $2.5 million, respectively, related to these securities, which we considered to be other than temporarily impaired. In 2009 and 2008, these charges were either wholly or partially offset by realized gains of $0.2 million and $1.2 million, respectively, on sales of marketable securities during the receipt of net proceeds from the November 2006 public offering of our Common Stock), as well as higher effective interest rates on investment securities in 2006.year.
Interest expense was $12.0decreased to $2.3 million in 2006 and 2005.2009 from $7.8 million in 2008. Interest expense isin 2009 was attributable primarilyto the imputed interest portion of payments to our landlord, commencing in the third quarter of 2009, to lease newly constructed laboratory and office facilities in Tarrytown, New York. Interest expense in 2008 related to $200.0 million of 5.5% Convertible Senior Subordinated Notes until they were retired. During the second and third quarters of 2008, we repurchased a total of $82.5 million in principal amount of these convertible notes issuedfor $83.3 million. In connection with these repurchases, we recognized a $0.9 million loss on early extinguishment of debt, representing the premium paid on the notes plus related unamortized debt issuance costs. The remaining $117.5 million of convertible notes were repaid in full upon their maturity in October 2001, which mature in 2008 and bear interest at 5.5% per annum.2008.
Income Tax (Benefit) Expense
In 2009, we recognized a $4.1 million income tax benefit, consisting primarily of (i) $2.7 million resulting from a provision in the Worker, Homeownership, and Business Assistance Act of 2009 that allows us to claim a refund of U.S. federal alternative minimum tax that we paid in 2008, as described below, and (ii) $0.7 million resulting from a provision in the American Recovery and Reinvestment Act of 2009 that allows us to claim a refund for a portion of our unused pre-2006 research tax credits.
In 2008, we implemented a tax planning strategy which resulted in the utilization of certain net operating loss carry-forwards that would otherwise have expired over the next several years, to offset income for tax purposes. As a result, we incurred and paid income tax expense of $3.1 million, which relates to U.S. federal and New York State alternative minimum taxes and included $0.2 million of interest and penalties. This expense was partly offset by a $0.7 million income tax benefit, resulting from a provision in the Housing Assistance Tax Act of 2008 that allowed us to claim a refund for a portion of our unused pre-2006 research tax credits.
Years Ended December 31, 20052008 and 20042007
Net Income (Loss):Loss
Regeneron reported a net loss of $95.4$79.1 million, or $1.71$1.00 per share (basic and diluted), for the year ended December 31, 2008, compared to a net loss of $106.5 million, or $1.61 per share (basic and diluted) for the year ended December 31, 2005, compared with net income of $41.7 million, or $0.75 per basic share and $0.74 per diluted share, for 2004. Our2007. The decrease in net loss in 2005 included $19.9 million of Stock Option Expensewas principally due to revenues earned in 2008 in connection with our adoption of SFAS 123 effective January 1, 2005, as described above.
37
Revenues:November 2007 antibody collaboration with sanofi-aventis, partly offset by higher research and development expenses.
Revenues
Revenues for the years ended December 31, 2005in 2008 and 20042007 consist of the following:
| | | | | | | | | |
| | | 2005 | | | 2004 | |
| | | (In millions) | |
| |
| Contract research & development revenue | | | | | | | | |
| Sanofi-aventis | | $ | 43.4 | | | $ | 78.3 | |
| Novartis | | | | | | | 22.1 | |
| Procter & Gamble | | | 6.0 | | | | 10.5 | |
| Other | | | 3.1 | | | | 2.2 | |
| | | | | | | | | |
| Total contract research & development revenue | | | 52.5 | | | | 113.1 | |
| | | | | | | | | |
| Research progress payments | | | | | | | | |
| Sanofi-aventis | | | | | | | 25.0 | |
| Novartis | | | | | | | 17.8 | |
| | | | | | | | | |
| Total research progress payments | | | | | | | 42.8 | |
| | | | | | | | | |
| Contract manufacturing revenue | | | 13.7 | | | | 18.1 | |
| | | | | | | | | |
| Total revenue | | $ | 66.2 | | | $ | 174.0 | |
| | | | | | | | | |
Our total| (In millions) | 2008 | | 2007 |
| Collaboration revenue | | | | | |
| Sanofi-aventis | $ | 154.0 | | $ | 51.7 |
| Bayer HealthCare | | 31.2 | | | 35.9 |
| Total collaboration revenue | | 185.2 | | | 87.6 |
| Technology licensing revenue | | 40.0 | | | 28.4 |
| Net product sales | | 6.3 | | | |
| Contract research and other revenue | | 7.0 | | | 9.0 |
| Total revenue | $ | 238.5 | | $ | 125.0 |
| |
Sanofi-Aventis Collaboration Revenue
The collaboration revenue decreased to $66.2 million in 2005we earn from $174.0 million in 2004, due primarily to lower revenues related to our collaboration with sanofi-aventis, on the VEGF Trap and the absence in the 2005 period of revenues related to our collaboration with Novartis on the IL-1 Trap which ended in 2004. We recognize revenue from the sanofi-aventis and Novartis collaborations in accordance with SAB 104 and EITF00-21 (see Critical Accounting Policies and Significant Judgments and Estimates). 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 partlyprimarily of reimbursement for research and development expenses and partly of the recognition of revenue related to non-refundable up-front payments of $105.0 million related to the aflibercept collaboration and $85.0 million related to the antibody collaboration.
| Years ended |
| December 31, |
| Sanofi-aventis Collaboration Revenue | | 2008 | | 2007 |
| (In millions) | | | | | |
| Aflibercept: | | | | | |
| Regeneron expense reimbursement | $ | 35.6 | | $ | 38.3 |
| Recognition of deferred revenue related to up-front payments | | 8.8 | | | 8.8 |
| Total aflibercept | | 44.4 | | | 47.1 |
| Antibody: | | | | | |
| Regeneron expense reimbursement | | 97.9 | | | 3.7 |
| Recognition of deferred revenue related to up-front payment | | 10.5 | | | 0.9 |
| Recognition of revenue related to VelociGene® agreement | | 1.2 | | | |
| Total antibody | | 109.6 | | | 4.6 |
| Total sanofi-aventis collaboration revenue | $ | 154.0 | | $ | 51.7 |
| |
Sanofi-aventis’ reimbursement of Regeneron’s aflibercept expenses decreased in 2008 compared to 2007, primarily due to lower costs related to manufacturing aflibercept clinical supplies. Recognition of deferred revenue relates to sanofi-aventis’ up-front aflibercept payments. Non-refundableAs of December 31, 2008, $52.4 million of the original $105.0 million of up-front payments are recordedrelated to aflibercept was deferred and will be recognized as revenue in future periods.
In 2008, sanofi-aventis’ reimbursement of Regeneron’s antibody expenses consisted of $72.2 million under the discovery agreement and $25.7 million of development costs, related primarily to REGN88, under the license agreement, compared to $3.0 million and $0.7 million, respectively, in 2007. Recognition of deferred revenue under the antibody collaboration related to sanofi-aventis’ $85.0 million up-front payment. As of December 31, 2008, $73.6 million of this up-front payment was deferred and will be recognized ratablyas revenue in future periods.
In August 2008, we entered into a separate VelociGene® agreement with sanofi-aventis. In 2008, we recognized $1.2 million in revenue related to this agreement.
Bayer HealthCare Collaboration Revenue
The collaboration revenue we earn from Bayer HealthCare, as detailed below, consists of cost sharing of Regeneron VEGF Trap-Eye development expenses and recognition of revenue related to a non-refundable $75.0 million up-front payment and a $20.0 million milestone payment received in August 2007 (which, for the purpose of revenue recognition, was not considered substantive).
| Years ended |
| December 31, |
| Bayer HealthCare Collaboration Revenue | | 2008 | | 2007 |
| (In millions) | | | | | |
| Cost-sharing of Regeneron VEGF Trap-Eye development expenses | $ | 18.8 | | $ | 20.0 |
| Recognition of deferred revenue related to up-front and milestone payments | | 12.4 | | | 15.9 |
| Total Bayer HealthCare collaboration revenue | $ | 31.2 | | $ | 35.9 |
| |
For the period from the collaboration’s inception in October 2006 through September 30, 2007, all up-front licensing, milestone, and cost-sharing payments received or receivable from Bayer HealthCare had been fully deferred and included in deferred revenue. In the fourth quarter of 2007, we and Bayer HealthCare approved a global development plan for VEGF Trap-Eye in wet AMD. The plan included estimated development steps, timelines, and costs, as well as the projected responsibilities of each of the companies. In addition, in the fourth quarter of 2007, we and Bayer HealthCare reaffirmed the companies’ commitment to a DME development program and had initial estimates of development costs for VEGF Trap-Eye in DME. As a result, effective in the fourth quarter of 2007, the Company determined the appropriate accounting policy for payments from Bayer HealthCare. The $75.0 million up-front licensing and $20.0 million milestone payments from Bayer HealthCare are being recognized as collaboration revenue over the period during whichrelated estimated performance period. In periods when we recognize VEGF Trap-Eye development expenses that we incur under the collaboration, we also recognize, as collaboration revenue, the portion of those VEGF Trap-Eye development expenses that is reimbursable from Bayer HealthCare. In periods when Bayer HealthCare incurs agreed upon VEGF Trap-Eye development expenses that benefit the collaboration and Regeneron, we also recognize, as additional research and development expense, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to perform services.reimburse. In the fourth quarter of 2007, we commenced recognizing previously deferred payments from Bayer HealthCare and cost-sharing of our and Bayer HealthCare’s 2007 VEGF Trap-Eye development expenses through a cumulative catch-up.
Contract research & Cost-sharing of our VEGF Trap-Eye development revenues earned from sanofi-aventis and Novartis for 2005 and 2004 were as follows:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Up-front Payments to Regeneron | | | | |
| | | 2005 Regeneron
| | | | | | Amount
| | | Deferred Revenue
| | | Total Revenue
| |
| | | Expense
| | | Total
| | | Recognized
| | | at December 31,
| | | Recognized
| |
| | | Reimbursement | | | Payments | | | in 2005 | | | 2005 | | | in 2005 | |
| | | (In millions) | |
| |
| Sanofi-aventis | | $ | 33.9 | | | $ | 105.0 | | | $ | 9.5 | | | $ | 81.3 | | | $ | 43.4 | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | Up-front Payments to Regeneron | | | | |
| | | 2004 Regeneron
| | | | | | Amount
| | | Deferred Revenue
| | | Total Revenue
| |
| | | Expense
| | | Total
| | | Recognized
| | | at 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 | |
| | | | | | | | | | | | | | | | | | | | | |
Sanofi-aventis’ reimbursement of Regeneron VEGF Trap expenses with Bayer HealthCare decreased in 20052008 compared to 2004, primarily due to lower clinical supply manufacturing costs in 2005. We manufactured clinical supplies2007. Under the terms of the collaboration, in 2008, the first $70.0 million of agreed-upon VEGF Trap throughout 2004, but only manufacturedTrap-Eye development expenses incurred by Regeneron and Bayer HealthCare under a global development plan were shared equally, and we were solely responsible for up to the next $30.0 million. Since both we and Bayer HealthCare incurred higher VEGF Trap clinical suppliesTrap-Eye development expenses in 2008 compared to 2007, during the fourth quarter of 2005. In the first quarter of 2004, Novartis provided notice of its intention not to proceed with the joint development2008, we were solely responsible for most of the IL-1 Trap andcollaboration’s VEGF Trap-Eye development expenses, which partly contributed to the remaining balancerevenue decrease in 2008 compared to 2007. In addition, the decrease was due in part to the cumulative catchup recognized in 2007 from the inception of the $27.0collaboration in October 2006, as described above. Recognition of deferred revenue related to Bayer HealthCare’s $75.0 million up-front payment receivedand $20.0 million milestone payments also decreased in 2008 from Novartis in March 20032007 as a result of the cumulative catch-up. As of December 31, 2008, $66.7 million of the up-front licensing and milestone payments was
38
deferred and will be recognized as contract researchrevenue in future periods.
Technology Licensing Revenue
In connection with our VelocImmune® license agreements with AstraZeneca and development revenue. SinceAstellas, each of the first quarter$20.0 million annual, non-refundable payments are deferred upon receipt and recognized as revenue ratably over approximately the ensuing year of 2004,each agreement. In 2008 and 2007, we have not received,recognized $40.0 million and do not expect$28.4 million, respectively, of technology licensing revenue related to receive, any further contract researchthese agreements.
Net Product Sales
In 2008, we recognized as revenue $6.3 million of ARCALYST® (rilonacept) net product sales for which both the right of return no longer exists and developmentrebates can be reasonably estimated. At December 31, 2008, deferred revenue from Novartis.related to ARCALYST net product sales totaled $4.0 million.
Contract researchResearch 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. 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. Since 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.Other Revenue
In December 2004, Contract research and other revenue in 2008 and 2007 included $4.9 million and $5.5 million, respectively, recognized in connection with our five-year grant from the NIH, which we earned a $25.0 million research progress payment from sanofi-aventis, which was receivedwere awarded in January 2005, upon achievementSeptember 2006 as part 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.the NIH’s Knockout Mouse Project.
Contract manufacturing revenue relates to our long-term agreement with Merck, which expired in October 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 were recognized as product was shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2005 and 2004 were $1.4 million and $3.6 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production.Expenses
Expenses:
Total operating expenses increased to $190.6$324.7 million in 20052008 from $168.4$240.4 million in 2004.2007. Our average headcount in 2008 increased to 810 from 627 in 2007 principally as a result of our expanding research and development activities which are primarily attributable to our antibody collaboration with sanofi-aventis.
Operating expenses in 20052008 and 2007 include a total of $19.9$32.5 million and $28.1 million, respectively, of Stock OptionNon-cash Compensation Expense, as follows:
| | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2005 | | | 2004 | |
| | | Expenses Before
| | | | | | | | | | |
| | | Inclusion of Stock
| | | Stock Option
| | | Expenses as
| | | Expenses as
| |
Expenses | | Option Expense | | | Expense | | | Reported | | | Reported | |
| | | (In millions) | |
| |
| Research and development | | $ | 143.7 | | | $ | 11.9 | | | $ | 155.6 | | | $ | 136.1 | |
| Contract manufacturing | | | 9.2 | | | | 0.4 | | | | 9.6 | | | | 15.2 | |
| General and administrative | | | 17.8 | | | | 7.6 | | | | 25.4 | | | | 17.1 | |
| | | | | | | | | | | | | | | | | |
| Total operating expenses | | $ | 170.7 | | | $ | 19.9 | | | $ | 190.6 | | | $ | 168.4 | |
| | | | | | | | | | | | | | | | | |
detailed below:
In addition, $0.1 million of Stock Option Expense was capitalized into inventory, for a total of $20.0 million of Stock Option Expense recognized during the year ended December 31, 2005. As described under “Accounting for Stock-based Employee Compensation” above, Stock Option Expense was not included in operating expenses in 2004, as reported in our Statement of Operations. In 2004, had we 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. | For the year ended December 31, 2008 |
| Expenses before | | | | | | | | |
| inclusion of Non-cash | | Non-cash | | | | |
| Compensation | | Compensation | | Expenses as |
| Expenses | | Expense | | Expense | | Reported |
| (In millions) | | | | | | | | | | | |
| Research and development | | $255.9 | | | | $19.0 | | | | $274.9 | |
| Selling, general, and administrative | | 35.4 | | | | 13.5 | | | | 48.9 | |
| Cost of goods sold | | 0.9 | | | | | | | | 0.9 | |
| Total operating expenses | | $292.2 | | | | $32.5 | | | | $324.7 | |
| | |
| For the year ended December 31, 2007 |
| Expenses before | | | | | | | | |
| inclusion of Non-cash | | Non-cash | | | | |
| Compensation | | Compensation | | Expenses as |
| Expenses | | Expense | | Expense | | Reported |
| (In millions) | | | | | | | | | | | |
| Research and development | | $186.3 | | | | $16.2 | | | | $202.5 | |
| Selling, general, and administrative | | 26.0 | | | | 11.9 | | | | 37.9 | |
| Total operating expenses | | $212.3 | | | | $28.1 | | | | $240.4 | |
| |
The decreaseincrease in total Stock OptionNon-cash Compensation Expense of $13.6 million in 20052008 was partly due to lower exercise prices of annual employee option grants made by us in December 2004 in comparisonattributable to the exercise prices of annual grants in recent prior years. Exercise prices of these option grants were generally equal to thehigher fair market value of our Common Stock on the date of grant. The decreaseour annual employee option grants made in Stock OptionDecember 2007 in comparison to the fair market value of annual employee option grants made in recent years prior to 2006. In addition, Non-cash Compensation Expense in 2005 was also due, in part, to the exchange of options by eligible employees2008 and 2007 included $2.2 million and $0.1 million, respectively, in connection with our stock option exchange program in January 2005, as the unamortized fair value of the surrendered options on the date of the exchange is being recognized asa December 2007 Restricted Stock Option Expense over a longer time period (the vesting period of the replacement options) in accordance with SFAS 123.award.
39
Research and Development Expenses:Expenses
Research and development expenses increased to $155.6$274.9 million for the year ended December 31, 2005in 2008 from $136.1$202.5 million for 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, 2005.2007. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2005in 2008 and 2004:
| | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, | |
| | | 2005 (1) | | | 2004 (1)(2) | |
| | | Expenses Before
| | | | | | | | | | |
| | | Inclusion of Stock
| | | Stock Option
| | | Expenses as
| | | Expenses as
| |
Research and Development Expenses | | Option Expense | | | Expense | | | Reported | | | Reported | |
| | | (In millions) | |
| |
| Payroll and benefits | | $ | 43.1 | | | $ | 10.5 | | | $ | 53.6 | | | $ | 38.6 | |
| Clinical trial expenses | | | 18.2 | | | | | | | | 18.2 | | | | 10.3 | |
| Clinical manufacturing costs (3) | | | 40.2 | | | | 1.4 | | | | 41.6 | | | | 42.8 | |
| Research and preclinical development costs | | | 19.2 | | | | | | | | 19.2 | | | | 22.2 | |
| Occupancy and other operating costs | | | 23.0 | | | | | | | | 23.0 | | | | 22.2 | |
| | | | | | | | | | | | | | | | | |
| Total research and development | | $ | 143.7 | | | $ | 11.9 | | | $ | 155.6 | | | $ | 136.1 | |
| | | | | | | | | | | | | | | | | |
2007:
| Year ended
December 31, | | | | | |
| Research and Development Expenses | | 2008 | | 2007 | | Increase |
| (In millions) | | | | | | | | | | |
| Payroll and benefits(1) | $ | 81.7 | | $ | 60.6 | | | $ | 21.1 | |
| Clinical trial expenses | | 49.3 | | | 37.6 | | | | 11.7 | |
| Clinical manufacturing costs(2) | | 53.8 | | | 47.0 | | | | 6.8 | |
| Research and preclinical development costs | | 29.6 | | | 23.2 | | | | 6.4 | |
| Occupancy and other operating costs | | 30.5 | | | 23.5 | | | | 7.0 | |
| Cost-sharing of Bayer HealthCare VEGF Trap-Eye development expenses(3) | | 30.0 | | | 10.6 | | | | 19.4 | |
| Total research and development | $ | 274.9 | | $ | 202.5 | | | $ | 72.4 | |
| ____________________ |
| | |
| (1) | | For the major categoriesIncludes $16.7 million and $13.2 million of researchNon-cash Compensation Expense in 2008 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.2007, respectively. |
| |
| (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, Non-cash Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility,facility. Includes $2.3 million and $3.0 million of Non-cash Compensation Expense in 2005 only, Stock Option Expense.2008 and 2007, respectively. |
|
| (3) | | Under our collaboration with Bayer HealthCare, in periods when Bayer HealthCare incurs VEGF Trap-Eye development expenses, we also recognize, as additional research and development expense, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. In the fourth quarter of 2007, we commenced recognizing cost-sharing of our and Bayer Healthcare’s VEGF Trap-Eye development expenses. Bayer HealthCare provides us with estimated VEGF Trap-Eye development expenses for the most recent fiscal quarter. Bayer HealthCare’s estimate is reconciled to its actual expenses for such quarter in the subsequent fiscal quarter and our portion of its VEGF Trap-Eye development expenses that we are obligated to reimburse is adjusted accordingly. |
Payroll and benefits exclusive of Stock Option Expense, increased $4.5 millionprincipally due to the increase 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.headcount, as described above. Clinical trial expenses increased $7.9 million in 2005 from 2004 due primarily to higher IL-1 Trapcosts related to our clinical development programs for (i) VEGF Trap-Eye, which includes our VIEW 1 trial in wet AMD, (ii) rilonacept, which includes our Phase 2 gout flare prevention clinical study, and (iii) monoclonal antibodies, which includes REGN88 as well as clinical-related preparatory activities for REGN421. Clinical manufacturing costs increased due primarily to higher expenses related to VEGF Trap-Eye and monoclonal antibodies, including REGN88. These increases were partially offset by a reduction in manufacturing costs associated with commencing clinical studies in new indicationsrilonacept and discontinuing the Phase 2b study in adult rheumatoid arthritis. Clinical manufacturing costs, exclusive of Stock Option Expense, decreased $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.aflibercept. Research and preclinical development costs decreased $3.0 million in 2005 from 2004increased primarily due primarily to lower VEGF Trap preclinical developmenthigher costs and lower costs for general research supplies in 2005.associated with our antibody programs. Occupancy and other operating costs increased $0.8principally in connection with our higher headcount and expanded research and development activities. Cost-sharing of Bayer HealthCare’s VEGF Trap-Eye development expenses increased primarily due to higher costs in connection with the VIEW 2 trial in wet AMD, which Bayer HealthCare initiated in 2008.
We prepare estimates of research and development costs for projects in clinical development, which include direct costs and allocations of certain costs such as indirect labor, Non-cash Compensation Expense, and manufacturing and other costs related to activities that benefit multiple projects, and, under our collaboration with Bayer HealthCare, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. Our estimates of research and development costs for clinical development programs are shown below:
| Year ended
December 31, | | Increase |
| Project Costs | | 2008 | | 2007 | | (Decrease) |
| (In millions) | | | | | | | | | |
| Rilonacept | $ | 39.2 | | $ | 38.1 | | $ | 1.1 | |
| Aflibercept | | 32.1 | | | 33.7 | | | (1.6 | ) |
| VEGF Trap-Eye | | 82.7 | | | 53.7 | | | 29.0 | |
| REGN88 | | 21.4 | | | 13.6 | | | 7.8 | |
| Other research programs & unallocated costs | | 99.5 | | | 63.4 | | | | 36.1 | |
| Total research and development expenses | $ | 274.9 | | $ | 202.5 | | | $ | 72.4 | |
| |
For the reasons described above in Results of Operations for the years ended December 31, 2009 and 2008, under the caption “Research and Development Expenses”, and due to the variability in the costs necessary to develop a product and the uncertainties related to future indications to be studied, the estimated cost and scope of the projects, and our ultimate ability to obtain governmental approval for commercialization, accurate and meaningful estimates of the total cost to bring our product candidates to market are not available. Similarly, we are currently unable to reasonably estimate if our product candidates will generate material product revenues and net cash inflows. In the first quarter of 2008, we received FDA approval for ARCALYST® (rilonacept) for the treatment of CAPS, a group of rare, inherited auto-inflammatory diseases. These rare diseases affect a very small group of people. We shipped $10.7 million of ARCALYST to our U.S. distributors in 2008.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses increased to $48.9 million in 20052008 from 2004,$37.9 million in 2007. In 2008, we incurred $5.2 million of selling expenses related to ARCALYST for the treatment of CAPS. General and administrative expenses increased in 2008 due to (i) higher compensation expense primarily resulting from increases in administrative headcount to support our expanded research and development activities, (ii) higher recruitment and related costs associated with expanding our headcount, (iii) higher fees for professional services related to various general corporate matters, and (iv) higher administrative facility-related costs.
Cost of Goods Sold
During 2008, we began recognizing revenue and cost of goods sold from net product sales of ARCALYST. We began capitalizing inventory costs associated with commercial supplies of ARCALYST subsequent to receipt of marketing approval from the FDA in February 2008. Costs for manufacturing supplies of ARCALYST prior to receipt of FDA approval were recognized as research and development expenses in the period that the costs were incurred. Therefore, these costs are not being included in cost of goods sold when revenue is recognized from the sale of those supplies of ARCALYST. Cost of goods sold in 2008 was $0.9 million and consisted primarily of royalties and other period costs related to ARCALYST commercial supplies.
Other Income and Expense
Investment income decreased to $18.2 million in 2008 from $20.9 million in 2007, due primarily to higher costslower yields on our cash and marketable securities. In addition, in 2008 and 2007, deterioration in the credit quality of specific marketable securities in our investment portfolio subjected us to the risk of not being able to recover these securities’ carrying values. As a result, in 2008 and 2007, we recognized charges of $2.5 million and $5.9 million, respectively, related to these securities, which we considered to be other than temporarily impaired. In 2008, these charges were partially offset by realized gains of $1.2 million on sales of marketable securities during the year.
Interest expense of $7.8 million and $12.0 million in 2008 and 2007, respectively, was attributable to our 5.5% Convertible Senior Subordinated Notes due October 17, 2008. During the second and third quarters of 2008, we repurchased a total of $82.5 million in principal amount of these convertible notes for utilities,$83.3 million. In connection with these repurchases, we recognized a $0.9 million loss on early extinguishment of debt, representing the premium paid on the notes plus related unamortized debt issuance costs. The remaining $117.5 million of convertible notes were repaid in full upon their maturity in October 2008.
Income Tax Expense
In the third quarter of 2008, we implemented a tax planning strategy which resulted in the utilization of certain net operating loss carry-forwards, that would otherwise have expired over the next several years, to offset income for tax purposes. As a result, we incurred and paid income tax expense of $3.1 million, which relates to U.S. federal and New York State alternative minimum taxes and operating expenses associated withincluded $0.2 million of interest and penalties. This expense was partially offset by a $0.7 million income tax benefit, resulting from a provision in the Housing Assistance Tax Act of 2008 that allowed us to claim a refund for a portion of our unused pre-2006 research tax credits.
Revision of Previously Issued Financial Statements
The application of FASB authoritative guidance, under certain conditions, can result in the capitalization on a lessee’s books of a lessor’s costs of constructing facilities to be leased researchto the lessee. In mid-2009, we became aware that certain of these conditions were applicable to our December 2006 lease, as amended, of new laboratory and office facilities in Tarrytown, New York. As a result, we are deemed, in substance, to be the owner of the landlord’s buildings, and the landlord’s costs of constructing these new facilities were required to be capitalized on our books as a non-cash transaction, offset by a corresponding lease obligation on our balance sheet. In addition, the land element of the lease should have been accounted for as an operating lease; therefore, adjustments to non-cash rent expense previously recognized in connection with these new facilities were also required. Lease payments on these facilities commenced in August 2009.
Contract Manufacturing Expenses: We revised our previously issued financial statements to capitalize the landlord’s costs of constructing the new Tarrytown facilities which we are leasing and to adjust our previously recognized rent expense in connection with these facilities, as described above. These revisions primarily resulted in an increase to property, plant, and equipment and a corresponding increase in facility lease obligation (a long-term liability) at each balance sheet date. We also revised our statements of operations and statements of cash flows to reflect rent expense in connection with only the land element of our lease, with a corresponding adjustment to other long-term liabilities.
Contract manufacturing expenses decreased As previously disclosed in our Quarterly Reports on Form 10-Q for the quarters ended June 30 and September 30, 2009, the above described revisions consisted entirely of non-cash adjustments. They had no impact on our business operations, existing capital resources, or our ability to $9.6 millionfund our operating needs, including the preclinical and clinical development of our product candidates. The revisions also had no impact on our previously reported net increases or decreases in 2005, compared to $15.2 millioncash and cash equivalents in 2004, primarilyany period and, except for the quarter ended March 31, 2009, had no impact on our previously reported net cash flows from operating activities, investing activities, and financing activities. In addition, these revisions had no impact on our previously reported current assets, current liabilities, and operating revenues. We have not amended previously issued financial statements because, after considering both qualitative and quantitative factors, we shipped less product to Merck in 2005 and we incurred unfavorable manufacturing costs in 2004, which were expensed indetermined that the period incurred.judgment of a reasonable person relying on our previously issued financial statements would not have been changed or influenced by these revisions.
General and Administrative Expenses:
For comparative purposes, the impact of the above described revisions to our balance sheet as of December 31, 2008 is as follows:
General and administrative expenses increased to $25.4 million in 2005 from $17.1 million in 2004, due primarily toBalance Sheet Impact at December 31, 2008
(In millions)
| | December 31, |
| | 2008 |
| As originally reported | | | | |
| Property, plant, and equipment, net | | $ | 87.9 | |
| Total assets | | | 670.0 | |
| | | | | |
| Other long-term liabilities | | | 5.1 | |
| Total liabilities | | | 251.2 | |
| | | | | |
| Accumulated deficit | | | (875.9 | ) |
| Total stockholders’ equity | | | 418.8 | |
| Total liabilities and stockholders’ equity | | | 670.0 | |
| | | | | |
| As revised | | | | |
| Property, plant, and equipment, net | | $ | 142.0 | |
| Total assets | | | 724.2 | |
| | | | | |
| Facility lease obligation | | | 54.2 | |
| Other long-term liabilities | | | 2.4 | |
| Total liabilities | | | 302.7 | |
| | | | | |
| Accumulated deficit | | | (873.3 | ) |
| Total stockholders’ equity | | | 421.5 | |
| Total liabilities and stockholders’ equity | | | 724.2 | |
For comparative purposes, the inclusionimpact 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 relatedabove described revisions to our first yearstatements of compliance in 2004 withoperations for the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.period(s) set forth below is as follows:
Other IncomeStatements of Operations Impact for the years ended December 31, 2008 and Expense:2007
(In millions, except per share data)
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 | | December 31, |
| | 2008 | | 2007 |
| As originally reported | | | | | | | | |
| Research and development expenses | | $ | 278.0 | | | $ | 201.6 | |
| Selling, general, and administrative expenses | | | 49.3 | | | | 37.9 | |
| Total expenses | | | 328.3 | | | | 239.5 | |
| Net loss | | | (82.7 | ) | | | (105.6 | ) |
| Net loss per share, basic and diluted | | $ | (1.05 | ) | | $ | (1.59 | ) |
| |
| As revised | | | | | | | | |
| Research and development expenses | | $ | 274.9 | | | $ | 202.5 | |
| Selling, general, and administrative expenses | | | 48.9 | | | | 37.9 | |
| Total expenses | | | 324.7 | | | | 240.4 | |
| Net loss | | | (79.1 | ) | | | (106.5 | ) |
| Net loss per share, basic and diluted | | $ | (1.00 | ) | | $ | (1.61 | ) |
These revised amounts are reflected 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 coststhis Annual Report on Form 10-K 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.year ended December 31, 2009.
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.
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 (which was repaid in 2008), purchases of our equity securities by our collaborators, including sanofi-aventis, revenue earned under our past and present research and development and contract manufacturing agreements, including our agreements with sanofi-aventis and Bayer HealthCare, our past contract manufacturing agreements, and Merck,our technology licensing agreements, ARCALYST® (rilonacept) product revenue, and investment income.
Sources and Uses of Cash for the Years Ended December 31, 20062009, 2008, and 20052007
At December 31, 2006,2009, we had $522.9$390.0 million in cash, cash equivalents, restricted cash, and marketable securities compared with $316.7$527.5 million at December 31, 2005. In January 2006, we received a $25.02008 and $846.3 million up-front payment from sanofi-aventis, which was receivable at December 31, 2005,2007. Under the terms of our non-exclusive license agreements with AstraZeneca and Astellas, each company made $20.0 million annual, non-refundable payments to us in each of 2009, 2008, and 2007. In July 2009 and August 2007, we received $20.0 million milestone payments from Bayer HealthCare in connection with an amendment to our collaboration agreement to include Japan.the dosing of the first patient in a Phase 3 trial of VEGF Trap-Eye in CRVO and wet AMD, respectively. In October 2006,December 2007, we received a $75.0an $85.0 million up-frontupfront payment in connection with our new VEGF Trap-Eye license andoriginal antibody collaboration agreement with Bayer. In November 2006, we completed a public offering of 7.6sanofi-aventis. Sanofi-aventis also purchased 12 million newly issued, unregistered shares of our Common Stock and receivedin December 2007 for gross proceeds after expenses,to us of $174.6$312.0 million.
Cash (Used in) Provided by (Used in) Operations:Operations
Net cash used in operations was $72.2 million in 2009 and $89.1 million in 2008, and net cash provided by operations was $23.1$27.4 million in 2006, compared to net cash used in operations of $30.3 million in 2005.2007. Our net losses of $102.3$67.8 million in 2006 and $95.42009, $79.1 million in 20052008, and $106.5 million in 2007 included $18.7$31.3 million, $32.5 million, and $21.9$28.1 million, respectively, of non-cash stock-based employee compensation costs,Non-cash Compensation Expense. Our net losses also included depreciation and amortization of which $18.4$14.2 million, $11.3 million, and $19.9$11.5 million respectively, represented Stock Option Expense resulting from the adoption of SFAS 123R in January 20062009, 2008, and SFAS 123 in January 2005. In 2006,end-of-year2007, respectively.
At December 31, 2009, accounts receivable balances decreasedincreased by $29.0$30.4 million, compared to 2005,end-of-year 2008, primarily due to a higher receivable balance related to our antibody collaboration with sanofi-aventis. Our deferred revenue balances at December 31, 2009 decreased by $27.5 million, compared to end-of-year 2008, primarily due to the Januaryamortization of previously received deferred payments under our collaborations with sanofi-aventis and Bayer HealthCare. Accounts payable, accrued expenses, and other liabilities increased $13.0 million at December 31, 2009, compared to end-of-year 2008, primarily in connection with our expanded levels of activities and expenditures, including higher liabilities for clinical-related expenses, which were partially offset by an $8.6 million decrease in the cost-sharing payment due to Bayer HealthCare in connection with our VEGF Trap-Eye collaboration.
At December 31, 2008, accounts receivable increased by $16.9 million, compared to end-of-year 2007, primarily due to a higher receivable balance related to our antibody collaboration with sanofi-aventis. Our deferred revenue balances at December 31, 2008 decreased by $26.8 million, compared to end-of-year 2007, primarily due to the amortization of previously received deferred payments under our collaborations with sanofi-aventis and Bayer HealthCare. This decrease was partially offset by the deferral of $4.0 million of ARCALYST® (rilonacept) net product sales at December 31, 2008.
At December 31, 2007, accounts receivable increased by $10.8 million, compared to end-of-year 2006, receipt ofdue to higher receivable balances related to our collaborations with sanofi-aventis and Bayer HealthCare. Also, prepaid expenses and other assets increased $9.6 million at December 31, 2007, compared to end-of-year 2006, due primarily to higher prepaid clinical trial costs. Our deferred revenue balances at December 31, 2007 increased by $89.8 million, compared to end-of-year 2006, due primarily to (i) the $25.0$85.0 million up-front payment received from sanofi-aventis, as described above, and lower amounts due from sanofi aventis for reimbursement of VEGF Trap development expenses. Also, our deferred revenue balances increased by $60.8(ii) the $20.0 million in 2006 compared to 2005, due primarily to the October 2006 $75.0 million up-frontmilestone payment from Bayer HealthCare which was not considered to be substantive for revenue recognition purposes and, therefore, fully deferred, and (iii) the two $20.0 million licensing payments received from each of AstraZeneca and Astellas, all as described above, partly offset by 20062007 revenue recognition, principally from amortization of $11.4 million fromthese deferred sanofi-aventis up-front payments. In 2005,end-of-year accounts receivable balances decreased by $6.6 million compared to 2004, due to lower amounts duepayments and prior year deferred payments from sanofi-aventis for reimbursement of VEGF Trap developmentand Bayer HealthCare. Accounts payable, accrued expenses, and the June 2005 completion of funding for Regeneron research activities under our collaboration with Procter & Gamble. Also, our deferred revenue balancesother liabilities increased
41
by $14.5 $19.1 million in 2005 compared to 2004, due primarily to the January 2006 $25.0 million up-front payment from sanofi-aventis, which was receivable at December 31, 2005, partly offset by 2005 revenue recognition of $9.52007, compared to end-of-year 2006, primarily due to a $4.9 million from deferred sanofi-aventis up-front payments.cost-sharing payment due to Bayer HealthCare in connection with the companies’ VEGF Trap-Eye collaboration and higher accruals in 2007 for payroll costs and clinical-related expenses.
The majority of our cash usedexpenditures in our operations in both 20062009, 2008, and 2005 was2007 were to fund research and development, primarily related to our clinical programs and our preclinical human monoclonal antibody programs.
In both 20062008 and 2005,2007, we made two semi-annual interest payments totaling $9.3 million and $11.0 million, per yearrespectively, on our convertible senior subordinated notes. The convertible notes were repaid in full in 2008.
Cash Provided by (Used in) Investing Activities:Activities
Net cash provided by investing activities was $146 thousand in 2009 and $30.8 million in 2008, and net cash used in investing activities was $155.1$85.7 million in 2006 compared to net cash provided by investing activities of $115.5 million in 2005, due primarily to an increase in purchases2007. In 2009 and 2008, sales or maturities of marketable securities net of sales or maturities. In 2006,exceeded purchases by $97.4 million and $65.7 million, respectively, whereas in 2007, purchases of marketable securities exceeded sales or maturities by $150.7 million, whereas$67.3 million. Capital expenditures in 2005, sales or maturities2009 and 2008 included costs in connection with expanding our manufacturing capacity at our Rensselaer, New York facilities and tenant improvements and related costs in connection with our December 2006 Tarrytown, New York lease, as described below. Capital expenditures in 2007 included the purchase of marketable securities exceeded purchases by $120.5land and a building in Rensselaer for $9.0 million.
Cash Provided by (Used in) Financing Activities:Activities
Cash Net cash provided by financing activities increased to $185.4was $31.4 million in 2006 from $4.12009 and $319.4 million in 2005 due primarily2007, respectively, and net cash used in financing activities was $192.9 million in 2008. In 2009, we received a $23.6 million reimbursement of tenant improvements from our landlord in connection with our new Tarrytown facilities, which we are deemed to own in accordance with FASB authoritative guidance. In the second and third quarters of 2008, we repurchased $82.5 million in principal amount of our completed public offeringconvertible senior subordinated notes for $83.3 million. The remaining $117.5 million of 7.6convertible notes were repaid in full upon their maturity in October 2008. In 2007, sanofi-aventis purchased 12 million newly issued, unregistered shares of our Common Stock in November 2006, as described above.for gross proceeds to us of $312.0 million. In addition, proceeds from issuances of Common Stock in connection with exercises of employee stock options increased from $4.1were $8.6 million in 2005 to $10.42009, $7.9 million in 2006.2008, and $7.6 million in 2007.
CollaborationFair Value of Marketable Securities
At December 31, 2009 and 2008, we held marketable securities whose aggregate fair value totaled $181.3 million and $278.0 million, respectively. The composition of our portfolio of marketable securities on these dates was as follows:
| | 2009 | | 2008 |
| Investment type | | | Fair Value | | Percent | | Fair Value | | Percent |
| U.S. Treasury securities | | | $ | 80.4 | | | 44 | % | | | $ | 113.9 | | | 41 | % |
| U.S. government agency securities | | | | 29.6 | | | 16 | % | | | | 58.3 | | | 21 | % |
| U.S. government-guaranteed corporate bonds | | | | 48.7 | | | 27 | % | | | | 29.8 | | | 11 | % |
| U.S. government guaranteed collateralized mortgage obligations | | | | 3.7 | | | 2 | % | | | | 17.4 | | | 6 | % |
| Corporate bonds | | | | 10.3 | | | 6 | % | | | | 37.1 | | | 13 | % |
| Mortgage-backed securities | | | | 3.2 | | | 2 | % | | | | 10.0 | | | 4 | % |
| Other asset-backed securities | | | | | | | | | | | | 7.8 | | | 3 | % |
| Other | | | | 5.4 | | | 3 | % | | | | 3.7 | | | 1 | % |
| Total marketable securities | | | $ | 181.3 | | | 100 | % | | | $ | 278.0 | | | 100 | % |
In addition, at December 31, 2009 and 2008, we had $208.7 million and $249.5 million, respectively, of cash, cash equivalents, and restricted cash, primarily held in money market funds that invest in U.S. government securities.
During 2009, as marketable securities in our portfolio matured or paid down, we purchased primarily U.S. Treasury securities, U.S. government agency obligations, and U.S. government-guaranteed debt. This shift toward higher quality securities, which we initiated in 2008, reduced the risk profile, as well as the overall yield, of our portfolio during 2009.
In particular, we reduced the proportion of mortgage-backed securities in, and eliminated other asset-backed securities from, the portfolio since they had deteriorated in credit quality and declined in value due to higher delinquency rates on the underlying collateral supporting these securities. The mortgage-backed securities that we
held at December 31, 2009 are backed by prime and sub-prime residential mortgages and home equity loans. The estimated fair value of our mortgage-backed securities generally ranged from 77% to 99% of par value at December 31, 2009. Our mortgage-backed securities are all senior tranches that are paid-down before other subordinated tranches as the loans in the underlying collateral are repaid. Through December 31, 2009, we continued to receive monthly payments of principal and interest on our mortgage-backed securities holdings. If the monthly principal and interest payments continue at approximately the current rate, we anticipate that all of the mortgage-backed securities in our portfolio will be repaid within the next two years, and most would be repaid in 2010. However, higher delinquency rates in the underlying collateral supporting mortgage-backed securities in our investment portfolio could result in future impairment charges related to these securities, which could be material.
We classify our investments using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The three tiers are Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Changes in Level 3 marketable securities during the year ended December 31, 2009 and 2008 were as follows:
| | Level 3 |
| | Marketable |
| | Securities |
| (In millions) | | 2009 | | 2008 |
| Balance January 1 | | $ | 0.1 | | | $ | 7.9 | |
| Settlements | | | | | | | (8.2 | ) |
| Realized gain | | | | | | | 1.1 | |
| Impairments | | | (0.1 | ) | | | (0.7 | ) |
| Balance December 31 | | | | | | $ | 0.1 | |
During the years ended December 31, 2009 and 2008, there were no transfers of marketable securities between Level 2 and Level 3 classifications.
Our methods for valuing our marketable securities are described in Note 2 to our financial statements included in this Annual Report on Form 10-K. With respect to valuations for pricing our Level 2 marketable securities, we consider quantitative and qualitative factors such as financial conditions and near term prospects of the issuer, recommendations of investment advisors, and forecasts of economic, market, or industry trends. For valuations that we determine for our Level 3 marketable securities, we regularly monitor these securities and adjust their valuations as deemed appropriate based on the facts and circumstances.
Collaborations with the sanofi-aventis Group:Group
UnderAflibercept
In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals Inc. (predecessor to sanofi-aventis U.S.) to collaborate on the development and commercialization of aflibercept in all countries other than Japan, where we retained the exclusive right to develop and commercialize aflibercept. Sanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of our Common Stock for $45.0 million.
In January 2005, we and sanofi-aventis amended the collaboration agreement to exclude, from the scope of the collaboration, the development and commercialization of aflibercept for intraocular delivery to the eye. In connection with this amendment, sanofi-aventis made a $25.0 million non-refundable payment to us.
In December 2005, we and sanofi-aventis amended our collaboration agreement to expand the territory in which the companies are collaborating on the development of aflibercept to include Japan. In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to us, which was received in January 2006. Under the collaboration agreement, as described under “Collaborations” above,amended, we and sanofi-aventis will share co-promotion rights and profits on sales, if any, of aflibercept outside of Japan for disease indications included in our collaboration. In Japan, we are entitled to a royalty of approximately 35% on annual sales of aflibercept. We may also receive up to $400 million in milestone payments upon receipt of specified marketing approvals, including up to
$360 million in milestone payments related to the receipt of marketing approvals for up to eight aflibercept oncology and other indications in the United States or the European Union and up to $40 million related to the receipt of marketing approvals for up to five aflibercept oncology indications in Japan.
We have agreed to manufacture clinical supplies of aflibercept at our plant in Rensselaer, New York. Sanofi-aventis has agreed to be responsible for providing commercial scale manufacturing capacity for aflibercept.
Under the collaboration agreement, as amended, agreed upon worldwide VEGF Trapaflibercept 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 Trapan aflibercept product for intraocular delivery to the eye predates the first commercial sale of a VEGF Trapan aflibercept product under the collaboration by two years, we will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trapaflibercept development expenses in accordance with a formula until the first commercial VEGF Trapaflibercept sale under the collaboration occurs. Since inception of the collaboration agreement through December 31, 2006,2009, we and sanofi-aventis have incurred $205.0$598.4 million in agreed upon development expenses related to the VEGF Trap program. We and sanofi-aventis plan to initiate in 2007aflibercept. Currently, multiple additional clinical studies to evaluate the VEGF Trapaflibercept as both a single agent and in combination with other therapies in various cancer indications.indications are ongoing.
Sanofi-aventis funded $47.8$26.6 million, $43.4$35.6 million, and $67.8$38.3 million, respectively, of our VEGF Trapaflibercept development costs in 2006, 2005,2009, 2008, and 2004,2007, of which $6.8$3.6 million, $10.5$6.3 million, and $13.9$10.5 million, respectively, were included in accounts receivable as of December 31, 2006, 2005,2009, 2008, and 2004.2007. In addition, we have receivedthe up-front payments from sanofi-aventis 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 20062009, 2008, and 2005,2007, we recognized $11.4$9.9 million, $8.8 million, and $9.5$8.8 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 Trapaflibercept development expenses will terminate and we will retain all rights to the VEGF Trap.
42
Collaboration with Bayer Healthcare:aflibercept.
Antibodies
In November 2007, we and sanofi-aventis entered into a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement and a License and Collaboration Agreement. We received a non-refundable up-front payment of $85.0 million from sanofi-aventis under the discovery agreement. In addition, sanofi-aventis is funding research at Regeneron to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. Sanofi-aventis funded approximately $175 million of research from the collaboration’s inception through December 31, 2009. In November 2009, we and sanofi-aventis amended these collaboration agreements to expand and extend our antibody collaboration. Sanofi-aventis will now fund up to $160 million per year of our antibody discovery activities in 2010 through 2017, subject to a one-time option for sanofi-aventis to adjust the maximum reimbursement amount down to $120 million per year commencing in 2014 if over the prior two years certain specified criteria are not satisfied. The discovery agreement will expire on December 31, 2017; however, sanofi-aventis has an option to extend the agreement for up to an additional three years for further antibody development and preclinical activities.
For each drug candidate identified under the discovery agreement, sanofi-aventis has the option to license rights to the candidate under the license agreement. If it elects to do so, sanofi-aventis will co-develop the drug candidate with us through product approval. Under our collaborationthe license agreement, with Bayer, as described under “Collaborations” above, agreed upon VEGF Trap-Eyeworldwide development expenses incurred by both companies beginning in 2007, underduring the term of the agreement will be funded by sanofi-aventis, except that following receipt of the first positive Phase 3 trial results for a global development plan,co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate (called Shared Phase 3 Trial Costs) will be shared as follows:
| | |
| 2007: | Up to $50.0 million shared equally;80% by sanofi-aventis and 20% by us. If the collaboration becomes profitable, 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 reimbursedobligated to reimburse sanofi-aventis for any50% of development expenses that it incurred prior to 2007.were fully funded by sanofi-aventis (or half of $140.2 million as of December 31, 2009)
and 30% of Shared Phase 3 Trial Costs, in accordance with a defined formula based on the amounts of these expenses and our share of the collaboration profits from commercialization of collaboration products. However, we are not required to apply more than 10% of our share of the profits from collaboration products in any calendar quarter towards reimbursing sanofi-aventis for these development costs. If sanofi-aventis does not exercise its option to license rights to a particular drug candidate under the license agreement, we will retain the exclusive right to develop and commercialize such drug candidate, and sanofi-aventis will receive a royalty on sales, if any.
Sanofi-aventis will lead commercialization activities for products developed under the license agreement, subject to our right to co-promote such products. The parties will equally share profits and losses from sales within the United States. The parties will share profits outside the United States on a sliding scale based on sales starting at 65% (sanofi-aventis)/35% (us) and ending at 55% (sanofi-aventis)/45% (us), and losses outside the United States at 55% (sanofi-aventis)/45% (us). In addition to profit sharing, we are entitled to receive up to $250 million in sales milestone payments, with milestone payments commencing only if and after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.
We are obligated to use commercially reasonable efforts to supply clinical andrequirements of each drug candidate under the collaboration until commercial product requirements.supplies of that drug candidate are being manufactured. In connection with the November 2009 amendment of the collaboration’s discovery agreement, sanofi-aventis will fund up to $30 million of agreed-upon costs incurred by us to expand our manufacturing capacity at our Rensselaer, New York facilities, of which $0.5 million were included in accounts receivable at December 31, 2009.
In 2009, 2008, and 2007, sanofi-aventis funded $99.8 million, $72.2 million, and $3.0 million, respectively, of our expenses under the collaboration’s discovery agreement and $98.3 million, $25.7 million, and $0.7 million, respectively, of our development costs under the license agreement. Of these amounts, $57.9 million and $25.5 million were included in accounts receivable as of December 31, 2009 and 2008, respectively. The $85.0 million up-front payment received from sanofi-aventis in December 2007 was recorded to deferred revenue and is being recognized as collaboration revenue over the period during which we expect to perform services. In 2009, 2008, and 2007, we recognized $9.9 million, $10.5 million, and $0.9 million of revenue, respectively, related to this up-front payment. In addition, reimbursements by sanofi-aventis of our costs to expand our manufacturing capacity will be recorded to deferred revenue and recognized prospectively as collaboration revenue over the same period applicable to recognition of the $85.0 million up-front payment, as described above.
In connection with the antibody collaboration, in August 2008, we entered into a separate agreement with sanofi-aventis to use our proprietary VelociGene® technology platform to supply sanofi-aventis with genetically modified mammalian models of gene function and disease. The agreement provides for minimum annual order quantities for the term of the agreement, which extends through December 2012, for which we expect to receive payments totaling a minimum of $21.5 million, of which $5.1 million had been received as of December 31, 2009.
With respect to each antibody product which enters development under the license agreement, sanofi-aventis or we may, by giving twelve months notice, opt-out of further development and/or commercialization of the product, in which event the other party retains exclusive rights to continue the development and/or commercialization of the product. We may also opt-out of the further development of an antibody product if we give notice to sanofi-aventis within thirty days of the date that sanofi-aventis elects to jointly develop such antibody product under the license agreement. Each of the discovery agreement and the license agreement contains other termination provisions, including for material breach by the other party. Prior to December 31, 2017, sanofi-aventis has the right to terminate the discovery agreement without cause with at least three months advance written notice; however, except under defined circumstances, sanofi-aventis would be obligated to immediately pay to us the full amount of unpaid research funding during the remaining term of the research agreement through December 31, 2017. Upon termination of the collaboration in its entirety, our obligation to reimburse sanofi-aventis for development costs out of any future profits from collaboration products will terminate.
In December 2007, we sold sanofi-aventis 12 million newly issued, unregistered shares of Common Stock at an aggregate cash price of $312.0 million, or $26.00 per share of Common Stock. As a condition to the closing of this transaction, sanofi-aventis entered into an investor agreement with us. This agreement, which was amended in November 2009, contains certain demand rights, “stand-still provisions”, and other restrictions, which are more fully described in Note 12 to our Financial Statements.
Collaboration with Bayer HealthCare
In October 2006, we entered into a license and collaboration agreement with Bayer HealthCare to globally develop, and commercialize outside the United States, VEGF Trap-Eye. Under the terms of the agreement, Bayer HealthCare made a non-refundable up-front payment to us of $75.0 million. In August 2007, we received a $20.0 million milestone payment (which, for the purpose of revenue recognition, was not considered substantive) from Bayer HealthCare following dosing of the first patient in the Phase 3 study of VEGF Trap-Eye in wet AMD. In July 2009, we received a $20.0 million substantive performance milestone payment from Bayer HealthCare following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in CRVO. We are eligible to receive up to $70 million in additional development and regulatory milestones related to the VEGF Trap-Eye program. We are also eligible to receive up to an additional $135 million in sales milestones if total annual sales of VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200 million.
We will share equally with Bayer HealthCare in any future profits arising from the commercialization of 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, we will be obligated to reimburse Bayer HealthCare out of our share of the collaboration profits for 50% of the agreed upon development expenses that Bayer HealthCare has incurred (or half of $138.4 million at December 31, 2009) in accordance with a formula based on the amount of development expenses that Bayer HealthCare has incurred and our share of the collaboration profits, or at a faster rate at our option. In wet AMD,Within the United States, we are responsible for any future commercialization of VEGF Trap-Eye and retain exclusive rights to any future profits from such commercialization in the United States. To date, we and Bayer planHealthCare have initiated Phase 3 programs of VEGF Trap-Eye in 2007 to complete ourwet AMD and CRVO and a Phase 2 clinical study of the VEGF Trap-Eye currently in progressDME. We are also obligated to use commercially reasonable efforts to supply clinical and to initiate the Phase 3 clinical program.commercial product requirements.
In October 2006, we received a The $75.0 million up-front payment and the $20.0 million milestone payment received in August 2007 from Bayer in connection with our collaboration, which wasHealthCare were recorded to deferred revenue. WhenIn 2009, 2008, and 2007, we recognized $9.9 million, $12.4 million, and Bayer have formalized our projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities$15.9 million, respectively, of each of the companies under those development plans, we will begin recognizing revenue related to paymentsthese deferred payments. The $20.0 million substantive performance milestone payment received from Bayer.Bayer HealthCare in July 2009 was recognized as revenue in 2009.
Under the terms of the agreement, in 2009 and thereafter, all agreed upon VEGF Trap-Eye development expenses incurred by both companies under a global development plan will be shared equally. In 2009, this resulted in a net payment by us of $0.3 million to Bayer HealthCare. In 2008, the first $70.0 million of VEGF Trap-Eye development expenses were shared equally and we were solely responsible for up to the next $30.0 million, which resulted in a net payment by us of $11.3 million to Bayer HealthCare. In 2007, the first $50.0 million of VEGF Trap-Eye development expenses were shared equally and we were solely responsible for up to the next $40.0 million, which resulted in a net reimbursement of $9.4 million from Bayer HealthCare to us. At December 31, 2009 and 2008, accrued expenses included $1.2 million and $9.8 million, respectively, due to Bayer HealthCare.
Bayer HealthCare 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.
License Agreements with AstraZeneca and Astellas
Under these non-exclusive license agreements, AstraZeneca and Astellas each made $20.0 million annual, non-refundable payments to us in each of 2009, 2008, and 2007. AstraZeneca and Astellas are each required to make up to three additional annual payments of $20.0 million, subject to each licensee’s ability to terminate its license agreement with us after making the next annual payment in 2010.
National Institutes of Health Grant:Grant
Under our five-year grant from the NIH, as described under “Other Agreements” above,amended, we will beare entitled to receive a minimum of $17.9$25.3 million over athe five-year period beginning in September 2006, subject to compliance with the grant’s terms and annual funding approvals, and another $1.0including $1.5 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium. In 2006,2009, 2008, and 2007, we recognized $0.5$5.5 million, $4.9 million, and $5.5 million, respectively, of
revenue related to the NIH Grant, of which $1.2 million and $1.3 million, respectively, was receivable at the end of 2006.2009 and 2008. In 2007,2010, we expect to receive funding of approximately $5$5.5 million for reimbursement of Regeneron expenses related to the NIH Grant.
License Agreement with AstraZeneca:Cellectis
Under our non-exclusiveIn July 2008, we and Cellectis S.A. entered into an Amended and Restated Non-Exclusive License Agreement. The amended license agreement resolved a dispute between the parties related to the interpretation of a license agreement entered into by the parties in December 2003 pursuant to which we licensed certain patents and patent applications relating to a process for the specific replacement of a copy of a gene in the receiver genome by homologous recombination. Pursuant to the amended license agreement, in July 2008, we made a non-refundable $12.5 million payment to Cellectis and agreed to pay Cellectis a low single-digit royalty based on revenue received by us from any future licenses or sales of our VelociGene® or VelocImmune® products and services. No royalties are payable with respect to our VelocImmune license agreements 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 paymentsand Astellas or our antibody collaboration with sanofi-aventis. In addition, no royalties are payable on any revenue from commercial sales 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.antibodies from our VelocImmune technology.
Severance Costs: We are amortizing our $12.5 million payment to Cellectis in proportion to past and anticipated future revenues under our license agreements with AstraZeneca and Astellas and our antibody discovery agreement with sanofi-aventis (as amended in November 2009). In 2009 and 2008, we recognized $2.3 million and $2.7 million, respectively, of expense related to the Cellectis agreement.
In September 2005,July 2008, we announced plansand Cellectis also entered into a Subscription Agreement pursuant to reduce our workforce by approximately 165 employeeswhich we purchased 368,301 ordinary shares of Cellectis in connection with narrowingNovember 2008 at a price of EUR 8.63 per share (which was equivalent to $10.98 at the focusEUR exchange rate on the date of our research and development efforts, substantial improvements in manufacturing productivity, the September 2005 expiration of our collaboration with Procter & Gamble, and the completion of contract manufacturing for Merck in late 2006. The majority of the headcount reduction occurred in the fourth quarter of 2005. The remaining headcount reductions occurred in 2006 as we completed activities related to contract manufacturing for Merck.
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Costs associated with the workforce reduction were 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. Estimated termination costs associated with the workforce reduction in 2006 were measured in October 2005 and 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.Total costs associated with the 2005 and 2006 workforce reductions were $2.6 million, of which $2.2 million was charged to expense in the fourth quarter of 2005 and $0.4 million was charged to expense in 2006.purchase).
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.
New Operating Lease —– Tarrytown, New York FacilitiesFacilities:
In December 2006, we entered into a new operating We lease agreement for approximately 221,000537,100 square feet of laboratory and office space at our currentfacilities in Tarrytown, location. The newNew York, under a December 2006 lease includesagreement, as amended. These facilities include approximately 27,000230,000 square feet of newly constructed space in two new buildings (Buildings A and B) that we currently occupy (our retained facilities)were completed during the third quarter of 2009 and, under a December 2009 amendment to the lease, approximately 194,000130,900 square feet to be locatedof additional new space that is under construction in a third new facilities that will be constructed andbuilding (Building C), which areis expected to be completed in early-2009.mid-2011. The term of the lease is expected to commence in early 2008 and will expire approximately 16 years later. Under the new lease we also have various optionsin June 2024 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, andas well as early termination options for our retained facilities only.on approximately 290,400 square feet of space. The lease provides for monthly payments over theits term of the lease 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. Certain premises under the lease are accounted for as operating leases. However, for the newly constructed space that we are leasing, we are deemed, in substance, to be the owner of the landlord’s buildings in accordance with the application of FASB authoritative guidance (as described above under “Revision of Previously Issued Financial Statements”), and the landlord’s costs of constructing these new facilities are required to be capitalized on our books as a non-cash transaction, offset by a corresponding lease obligation on our balance sheet.
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 is collateralized by a $1.6 million bank certificate of deposit.
Capital Expenditures: In connection with Buildings A and B, we capitalized our landlord’s costs of constructing these new facilities, which totaled $58.2 million as of December 31, 2009, and recognized a corresponding facility lease obligation of $58.2 million. We also recognized, as an additional facility lease obligation, reimbursements totaling $23.6 million from our landlord during 2009 for tenant improvement costs that we incurred since, under FASB authoritative guidance, these reimbursements from our landlord are deemed to be a financing obligation. Monthly lease payments on these facilities are allocated between the land element of the lease (which is accounted for as an operating lease) and the facility lease obligation, based on the estimated relative fair values of the land and buildings. The imputed interest rate applicable to the facility lease obligation is approximately 11%. At December 31, 2009 and 2008, the facility lease obligation balance in connection with these new facilities was $81.0 million and $54.2 million, respectively.
In addition, as described above, we amended our lease in December 2009 to include additional new laboratory and office space in Building C that is under construction. As of December 31, 2009, we capitalized $27.8 million of our landlord’s costs of constructing these new facilities, and recognized a corresponding facility lease obligation of $27.8 million. Monthly lease payments on these facilities will commence in January 2011 and additional charges for utilities, taxes, and operating expenses commenced in January 2010. Rent expense in connection with the land element of these additional facilities, which is accounted for as an operating lease, commenced in December 2009 and is recorded as a deferred liability until lease payments commence in January 2011. In addition, interest expense is imputed at a rate of approximately 9%, and is capitalized and deferred in connection with this facility lease obligation. At December 31, 2009, the facility lease obligation balance in connection with these additional new facilities was $28.0 million.
Capital Expenditures
Our additions tocash expenditures for property, plant, and equipment totaled $3.3$97.3 million in 2006, $4.72009, $34.9 million in 2005,2008, and $6.0$18.4 million in 2004. In 2007,2007. As described above, $23.6 million of tenant improvement costs we incurred in Tarrytown were reimbursed by our landlord in 2009. We expect to incur capital expenditures of approximately $15$80 to $110 million in 2010 and approximately $40 to $60 million in 2011, primarily in connection with expanding our Rensselaer, New York manufacturing facilities and tenant improvements at our newly leased Tarrytown facilities in Building C. In February 2010, we received $47.5 million from our landlord in connection with tenant improvement costs in Tarrytown. We also expect to be reimbursed for a portion of the capital expenditures primarilyfor our Rensselaer facilities by sanofi-aventis, with the remaining amount to supportbe funded by our manufacturing, development, and research activities.existing capital resources.
Funding Requirements:Requirements
Our total expenses for research and development from inception through December 31, 20062009 have been approximately $1,150 million.$2.0 billion. 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 and Bayer HealthCare, and agreements to use our Velocigene® technology platform. We incurred expenses associated with these agreements, which include reimbursable and non-reimbursable amounts, an allocable portion of general and administrative costs, and cost sharing of $43.4a collaborator’s development expenses, where applicable, of $333.7 million, $42.2$230.6 million, and $75.3$108.2 million in 2006, 2005,2009, 2008, and 2004,2007, respectively.
We expect to continue to incur substantial funding requirements primarily for research and development activities (including preclinical and clinical testing). Before taking into account reimbursements from our collaborators, and exclusive of anticipated funding for capital expenditures as described above, we currently anticipate that approximately 55%-65%65-75% of our expenditures for 20072010 will be directed toward the preclinical and clinical development of product candidates, including the IL-1 Trap, VEGF Trap,rilonacept, aflibercept, VEGF Trap-Eye, and clinical stage monoclonal antibodies; approximately 15%-25%15-25% of our expenditures for 20072010 will be applied to our basic research activities and early preclinical activities; and the remainder of our expenditures for 2010 will be used for the continued development of our novel technology platforms; and the remainder of our expenditures for 2007 will be used for capital expendituresplatforms and general corporate purposes. While we expect that funding requirements for our research and development activities will continue to increase in 2010, we also expect that a greater proportion of our research and development expenditures will be reimbursed by our collaborators, especially in connection with our amended and expanded antibody collaboration with sanofi-aventis.
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In connection with our funding requirements, the following table summarizes our contractual obligations as of December 31, 2006 for leases2009. These obligations and long-term debt.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | |
| | | | | | | | | | | | | | | | | | | | | |
commitments assume non-termination of agreements and represent expected payments based on current operating forecasts, which are subject to change:
| | Payments Due by Period |
| | | | | Less than | | | | | | | | | | | | Greater than |
| | Total | | one year | | 1 to 3 years | | 3 to 5 years | | 5 years |
| | (In millions) |
| Operating leases(1) | | $ | 96.2 | | | $ | 6.3 | | | | $ | 11.6 | | | | $ | 12.4 | | | | $ | 65.9 | |
| Purchase obligations(2) | | | 150.6 | | | | 112.5 | | | | | 38.1 | | | | | | | | | | | |
| Other long-term liabilities(3) | | | 205.4 | | | | 8.2 | | | | | 22.4 | | | | | 26.6 | | | | | 148.2 | |
| Total contractual obligations | | $ | 452.2 | | | $ | 127.0 | | | | $ | 72.1 | | | | $ | 39.0 | | | | $ | 214.1 | |
_______________ | | |
| (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.expenses included in our rent. In 2006,2009, these costs were $8.7$8.4 million. See Note 11(a) to our Financial Statements. |
|
| (2) | | Purchase obligations primarily relate to (i) research and development commitments, including those related to clinical trials, (ii) capital expenditures for equipment acquisitions, and (iii) license payments. Our obligation to pay certain of these amounts may increase or be reduced based on certain future events. Open purchase orders for the acquisition of goods and services in the ordinary course of business are excluded from the table above. |
|
| (3) | | Represents payments with respect to facility lease obligations in connection with our lease of facilities in Tarrytown, New York, as described above. See Note 11(a) to our Financial Statements. |
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.
As described above, in February 2010, we received $47.5 million from our landlord in connection with tenant improvement costs in Tarrytown. As a result, total contractual obligations, as detailed in the table above, will increase (i) from 127.0 million to $130.9 million for the year ending December 31, 2010, (ii) from $72.1 million to $80.0 million for the two-year period beginning January 1, 2011, (iii) from $39.0 million to $47.0 million for the two-year period beginning January 1, 2013, and (iv) from $214.1 million to $251.6 million for the fiscal years beginning January 1, 2015 and thereafter.
Under our collaboration with Bayer HealthCare, over the next several years we and Bayer HealthCare will share agreed upon VEGF Trap-Eye development expenses incurred by both companies, under a global development plan, as described above. In addition, under our collaboration agreements with sanofi-aventis and Bayer HealthCare, if the applicable collaboration becomes profitable, we have contingent contractual obligations to reimburse sanofi-aventis and Bayer HealthCare for a defined percentage (generally 50%) of agreed-upon development expenses incurred by sanofi-aventis and Bayer HealthCare, respectively. Profitability under each collaboration will be measured by calculating net sales less agreed-upon expenses. These reimbursements would be deducted from our share of the collaboration profits (and, for our aflibercept collaboration with sanofi-aventis, royalties on product sales in Japan) otherwise payable to us unless we agree to reimburse these expenses at a faster rate at our option. Given the uncertainties related to drug development (including the development of aflibercept and co-developed antibody candidates in collaboration with sanofi-aventis and VEGF Trap-Eye in collaboration with Bayer HealthCare) such as the variability in the length of time necessary to develop a product candidate and the ultimate ability to obtain governmental approval for commercialization, we are currently unable to reliably estimate if our collaborations with sanofi-aventis and Bayer HealthCare will become profitable.
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 collaborations with sanofi-aventis and Bayer.Bayer HealthCare. 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, and for 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 and of additional clinical trials that we decide to initiate, and the various factors that affect the cost of each trial as described above. Currently, we are required to remit royalties on product sales of ARCALYST® (rilonacept) for the treatment of CAPS. In the future, if we are able to successfully develop, market, and sell ARCALYST for other indications or 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 patentpatents 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.substantial.
We believe that our existing capital resources, including funding we are entitled to receive under our collaboration agreements, will enable us to meet operating needs through at least early 2010, without taking into consideration the $200.0 million aggregate principal amount of convertible senior subordinated notes, which mature in October 2008.2012. 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. For example, if we choose to commercialize products that are not licensed to a third party, we could incur substantial pre-marketing and commercialization expenses that
could lead us to consume our cash at a faster rate. If there is insufficient capital to fund all of our planned operations and activities, we believe we would expect to prioritize available capital to fund selected preclinical and clinical development of our product candidates.programs or license selected products.
Other than theour operating leases and a $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. In addition, we do not guarantee the obligations of any other entity. As of December 31, 2006,2009, 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. 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
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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.
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). We 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 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 us, are deferred and recognized over the related performance period. We estimate our performance period based on the specific terms of each agreement, and adjust the performance periods, if appropriate, based on the applicable facts and circumstances. Our performance period estimates are principally 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 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.
Recognition of Deferred Revenue Related to Contract Manufacturing Agreement:
We entered into a contract manufacturing agreement with Merck, which expired in October 2006, under which we manufactured a vaccine intermediate at our Rensselaer, New York facility and performed services. We recognized contract manufacturing revenue from this agreement after the product was tested and approved by, and shipped (FOB Shipping Point) to, Merck, and as services were 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 recognized as revenue as product was 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 were not materially different from Merck’s actual orders.
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, and 2004.
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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, in 2005, we recognized 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 using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, compensation expense for Regeneron is recognized for (a) all share based payments granted on or after January 1, 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 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 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 July 2006,October 2009, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48),Accounting for 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 Income Taxes.FIN 48 prescribes a recognition thresholdamended its authoritative guidance on multiple-deliverable revenue arrangements. The amended guidance provides greater ability to separate and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be takenallocate arrangement consideration in a tax return. Itmultiple-element revenue arrangement by requiring the use of estimated selling prices to allocate arrangement consideration, thereby eliminating the use of the residual method of allocation. The amended guidance also providesrequires expanded qualitative and quantitative disclosures surrounding multiple-deliverable revenue arrangements. This guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effectivemay be applied retrospectively or prospectively for fiscal years beginning after December 15, 2006.new or materially modified arrangements. We will beare required to adopt FIN 48this amended guidance effective for the fiscal year beginning January 1, 2007. Our management believes2011, although earlier adoption is permitted. We are currently evaluating the impact that the adoption of this standardguidance will not have a material impact on our financial statements.
In September 2006, the FASB issued SFAS 157,Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. We will be required to adopt SFAS 157 effective for the fiscal year beginning January 1, 2008. Our management is currently evaluating the potential impact of adopting SFAS 157 on our financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| |
Item 7A. | Quantitative and Qualitative Disclosure About Market Risk |
Interest Rate Risk
Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily fromprincipally in connection with our investment of availableexcess cash balances in direct obligations of the U.S. government and its agencies, other debt securities guaranteed by the U.S. government, and money market funds that invest in U.S. Government securities and, to a lesser extent, investment grade corporate,debt securities issued by corporations, bank deposits, and 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 estimatedestimate that a one percent unfavorable change in interest rates would resulthave resulted in changesapproximately a $0.6 million and $1.9 million decrease in the fair market value of our investment portfolio of approximately $1.7 million and $0.5 million at December 31, 20062009 and 2005,2008, respectively.
Credit Quality Risk
We have an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. Nonetheless, deterioration of the credit quality of an investment security subsequent to purchase may subject us to the risk of not being able to recover the full principal value of the security. We have recognized other-than-temporary impairment charges related to certain marketable securities of $0.1 million, $2.5 million, and $5.9 million in 2009, 2008, and 2007, respectively.
The increasecurrent economic environment and the deterioration in the impactcredit quality of an interest rate change at December 31, 2006, compared to December 31, 2005, is due primarily to increasesissuers of securities that we hold increase the risk of potential declines in the current market value of marketable securities in our investment portfolio’s balanceportfolio. Such declines could result in charges against income in future periods for other-than-temporary impairments and duration to maturity at the end of 2006 versus the end of 2005.
amounts could be material.
| |
Item 8. | Financial Statements and Supplementary Data |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this Item are included on pages F-1 through F-36F-35 of this report. The supplementary financial information required by this Item is included atpage F-36F-35 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
| |
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 “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, 2006. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued a report on management’s assessment and the2009. The effectiveness of our internal control over financial reporting as of December 31, 2006,2009 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which report is included herein atpage F-2.appears herein.
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, 20062009 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.
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Item 9B. | Other Information |
None
ITEM 9B. OTHER INFORMATION
PART III None.
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Item 10. | Directors and Executive Officers and Corporate Governance |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND 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 definitive proxy statement with respect to our 20072010 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)www.regeneron.com) under the Investor Relations heading.
“Corporate Governance” heading on the “About Us” page.
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Item 11. | Executive Compensation |
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 20072010 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 |
| |
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 20072010 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
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Item 13. | Certain Relationships and Related Transactions, and Director Independence |
The information required by this item will be included under the captions “Election of Directors” and “Review of Transactions with Related Persons” in our definitive proxy statement with respect to our 20072010 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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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 20072010 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.
PART IV
PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
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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
| | |
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. |
50
| | | | | | | | | |
Exhibit
| | |
Number | | Description |
| |
| | 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, 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:
| Exhibit | | | | |
| Number | | | | Description |
| 3.1 | | (o) | - | Restated Certificate of Incorporation. |
| 3.2 | | (a) | - | By-Laws, as amended. |
| 10.1 + | | (b) | - | 1990 Amended and Restated Long-Term Incentive Plan. |
| 10.2 + | | (p) | - | Amended and Restated 2000 Long-Term Incentive Plan. |
| 10.2.1 + | | (c) | - | 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. |
| 10.2.2 + | | (c) | - | 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. |
| 10.2.3 + | | (d) | - | 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. |
| 10.2.4 + | | (d) | - | Form of option agreement and related notice of grant for use in connection with the grant of stock options to certain of the Registrant’s executive officers in connection with a January 2005 Option Exchange Program. |
| 10.2.5 + | | (t) | - | Form of option agreement and related notice of grant for use in connection with the grant of time based vesting stock options to the Registrant’s non-employee directors and executive officers. |
| 10.2.6 + | | (t) | - | Form of option agreement and related notice of grant for use in connection with the grant of performance based vesting stock options to the Registrant’s executive officers. |
| 10.3 + | | (s) | - | Amended and Restated Employment Agreement, dated as of November 14, 2008, between the Registrant and Leonard S. Schleifer, M.D., Ph.D. |
| 10.4* + | | (e) | - | Employment Agreement, dated as of December 31, 1998, between the Registrant and P. Roy Vagelos, M.D. |
| 10.5 + | | (s) | - | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, amended and restated effective as of November 14, 2008. |
| 10.6* | | (f) | - | IL-1 License Agreement, dated June 26, 2002, by and among the Registrant, Immunex Corporation, and Amgen Inc. |
| 10.7* | | (u) | - | IL-1 Antibody Termination Agreement by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation and the Registrant, dated as of June 8, 2009. |
| 10.8* | | (u) | - | Trap-2 Termination Agreement by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation and the Registrant, dated as of June 8, 2009. |
| 10.9* | | (g) | - | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and the Registrant. |
| 10.9.1* | | (e) | - | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of December 31, 2004. |
| 10.9.2 | | (h) | - | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of January 7, 2005. |
| 10.9.3* | | (i) | - | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of December 21, 2005. |
| 10.9.4* | | (i) | - | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and the Registrant, effective as of January 31, 2006. |
| 10.10* | | (j) | - | License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and the Registrant. |
| 10.11* | | (k) | - | Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and the Registrant. |
| 10.12 | | (l) | - | Lease, dated as of December 21, 2006, by and between BMR-Landmark at Eastview LLC and the Registrant. |
| 10.12.1* | | (n) | - | First Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of October 24, 2007. |
| 10.12.2 | | (r) | - | Second Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of September 30, 2008. |
| 10.12.3 | | (t) | - | Third Amendment to lease, by and between BMR-Landmark at Eastview LLC and the Registrant, entered into as of April 29, 2009. |
| 10.12.4 | | (v) | - | Fourth Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of December 3, 2009. |
| 10.12.5 | | (w) | - | Fifth Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, entered into as of February 11, 2010. |
| 10.13* | | (m) | - | Non Exclusive License and Material Transfer Agreement, dated as of March 30, 2007, by and between Astellas Pharma Inc. and the Registrant. |
| 10.14* | | | - | Amended and Restated Discovery and Preclinical Development Agreement, dated as of November 10, 2009, by and between Aventis Pharmaceuticals Inc. and the Registrant. |
| 10.15* | | | - | Amended and Restated License and Collaboration Agreement, dated as of November 10, 2009, by and among Aventis Pharmaceuticals Inc., sanofi-aventis Amerique Du Nord, and the Registrant. |
| 10.16 | | (o) | - | Stock Purchase Agreement, dated as of November 28, 2007, by and among sanofi-aventis Amerique Du Nord, sanofi-aventis US LLC, and the Registrant. |
| 10.17 | | (o) | - | Investor Agreement, dated as of December 20, 2007, by and among sanofi-aventis, sanofi-aventis US LLC, Aventis Pharmaceuticals Inc., sanofi-aventis Amerique du Nord, and the Registrant. |
| 10.17.1 | | | - | First Amendment to the December 20, 2007 Investor Agreement, dated as of November 10, 2009, by and among sanofi-aventis US LLC, Aventis Pharmaceuticals Inc., sanofi-aventis Amerique du Nord, and the Registrant. |
| 10.18* | | (q) | - | Amended and Restated Non-Exclusive License Agreement, dated as of July 1, 2008 by and between Cellectis, S.A. and the Registrant. |
| 23.1 | | | - | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. |
| 24.1 | | | - | Power of Attorney (included on the signature page of this Annual Report on Form 10-K) |
| 31.1 | | | - | Certification of CEO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. |
| 31.2 | | | - | Certification of CFO pursuant to Rule 13a-14(a) under the Securities 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-Q8-K 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, 199613, 2007. |
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 |
|
(e)(b) | | Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043). |
| | | |
(f) | (c) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal 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) | (d) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004. |
| | | |
(l) | (e) | | Incorporated by reference from the Company’s registration statement onForm S-3 (filenumber 333-74464).10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2004, filed March 11, 2005. |
| | | |
(m) | (f) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2002, filed August 13, 2002. |
| | | |
(n) | (g) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003. |
|
(o) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2003, filed November 11,12, 2003. |
| | | |
(p) | (h) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
| | | |
(q) | (i) | | 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. |
| (j) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2006, filed November 6, 2006. |
| |
(s) | (k) | | Incorporated by reference from theForm 8-K10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2006, filed October 18, 2006.March 12, 2007. |
| |
(t) | (l) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006. |
| | |
* | (m) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended March 31, 2007, filed May 4, 2007. |
| |
| (n) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2007, filed November 7, 2007. |
| |
| (o) | | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2007, filed February 27, 2008. |
| |
| (p) | | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed June 17, 2008. |
| |
| (q) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2008, filed August 1, 2008. |
| |
| (r) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2008, filed November 5, 2008. |
| |
| (s) | | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2008, filed February 26, 2009. |
| |
| (t) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended March 31, 2009, filed April 30, 2009. |
| |
| (u) | | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2009, filed August 4, 2009. |
| |
| (v) | | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed December 8, 2009. |
| |
| (w) | | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed February 16, 2010. |
| * | | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2. |
|
| + | | Indicates a management contract or compensatory plan or arrangement. |
52
SIGNATURESIGNATURES
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.
| | REGENERON PHARMACEUTICALS, INC. |
|
| | BY: | /S/ LEONARD S. SCHLEIFER | |
| | | Leonard S. Schleifer, M.D., Ph.D. |
| | | President and Chief Executive Officer |
| Dated: | Tarrytown, New York | | |
| By: February 18, 2010 | /s/ Leonard S. Schleifer
| |
Leonard S. Schleifer, M.D., Ph.D.
President and Chief Executive Officer
| |
Dated: | New York, New York |
March 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 annual 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 and thing requisite and necessary to be done, as fully to all intents and purposes as such person might or could do 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, | | President, Chief Executive Officer, and |
| Leonard S. Schleifer, M.D., Ph.D. | | Director (Principal Executive Officer) |
| | | | |
Signature
/s/ | MURRAY A. GOLDBERG | 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, |
| Murray A. Goldberg | | Chief
Financial Officer, Treasurer, and Assistant Secretary
|
| | | (Principal Financial Officer) |
| | | | |
/s/ | Douglas DOUGLAS S. McCorkleMC
CDouglas S. McCorkleORKLE | | Vice President, Controller, and |
| Douglas S. McCorkle | | Assistant Treasurer
(Principal (Principal Accounting Officer) |
| | | | |
/s/ | George GEORGE D. YancopoulosYANCOPOULOS
George D. Yancopoulos, M.D., Ph.D | | Executive Vice President, Chief Scientific Officer,
|
| George D. Yancopoulos, M.D., Ph.D. | | President, Regeneron Research Laboratories,
and Director |
| | | | |
/s/ | P. Roy VagelosROY
VP. Roy Vagelos, M.D.AGELOS | | Chairman of the Board |
| P. Roy Vagelos, M.D. | | |
/s/ Charles A. Baker
Charles A. Baker | | Director |
| | |
/s/ Michael S. Brown
Michael S. Brown, M.D. | | Director |
53
| | | | |
Signature
/s/ | CHARLES A. BAKER | | Director |
| Charles A. Baker | | |
| | Title
| |
/s/ | Alfred MICHAEL S. BROWN | | Director |
| Michael S. Brown, M.D. | | |
| | | |
| /s/ | ALFRED G. GilmanGILMAN
| | Director |
| Alfred G. Gilman, M.D., Ph.D. | | Director |
| | | | |
/s/ | Joseph JOSEPH L. GoldsteinGOLDSTEIN
| | Director |
| Joseph L. Goldstein, M.D. | | Director |
| | | | |
/s/ | Arthur ARTHUR F. RyanRYAN
| | Director |
| Arthur F. Ryan | | Director |
| | | | |
/s/ | Eric ERIC M. ShooterSHOOTER
| | Director |
| Eric M. Shooter, Ph.D. | | Director |
| | | | |
/s/ | George GEORGE L. SingSING
| | Director |
| George L. Sing | | Director |
54
REGENERON PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
| | Page |
| | Page
|
| REGENERON PHARMACEUTICALS, INC. | | Numbers |
|
REGENERON PHARMACEUTICALS, INC.
| | |
| | F-2 to F-3 |
| 2008 | | F-4F-3 |
| 2007 | | F-5F-4 |
| 2007 | | F-6 to F-7F-5 |
| 2007 | | F-8F-6 |
| | F-9F-7 to F-36F-35 |
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 financial statements and of its internal control over financial reporting as of December 31, 2006 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 financialaccompanying balance sheets and the related statements listed in the accompanying indexof operations, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Regeneron Pharmaceuticals, Inc. at December 31, 20062009 and 2005,December 31, 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20062009 in conformity with accounting principles generally accepted in the United States of America. TheseAlso in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, are the responsibilityfor maintaining effective internal control over financial reporting and for its assessment of the Company’s management.effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express an opinionopinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated 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 auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An auditmisstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements includesincluded 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
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, 2006 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, 2006 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 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 18, 2010
March 9, 2007
F-3
REGENERON PHARMACEUTICALS, INC.
BALANCE SHEETS
BALANCE SHEETS
December 31, 20062009 and 20052008
(In thousands, except share data)
| | | | | | | | | | |
| | | 2006 | | 2005 | | |
| | | (In thousands,
| | 2009 | | 2008 |
| | | except share data) | | | | | (Revised - |
| | | | | see Note 11) |
ASSETS | | | | | | | | | ASSETS |
| Current assets | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 237,876 | | | $ | 184,508 | | $ | 207,075 | | $ | 247,796 | |
| Marketable securities | | | 221,400 | | | | 114,037 | | | 134,255 | | 226,954 | |
| Accounts receivable | | | 7,493 | | | | 36,521 | | |
| Accounts receivable from the sanofi-aventis Group | | | 62,703 | | 33,302 | |
| Accounts receivable - other | | | 2,865 | | 1,910 | |
| Prepaid expenses and other current assets | | | 3,215 | | | | 3,422 | | | 18,610 | | | 11,480 | |
| Inventory | | | | | | | 2,904 | | |
| | | | | | | |
| Total current assets | | | 469,984 | | | | 341,392 | | | 425,508 | | 521,442 | |
| Restricted cash | | | 1,600 | | | | | | | 1,600 | | 1,650 | |
| Marketable securities | | | 61,983 | | | | 18,109 | | | 47,080 | | 51,061 | |
| Property, plant, and equipment, at cost, net of accumulated depreciation and amortization | | | 49,353 | | | | 60,535 | | |
| Property, plant, and equipment, at cost, net of accumulated | | | | | | |
| depreciation and amortization | | | 259,676 | | 142,035 | |
| Other assets | | | 2,170 | | | | 3,465 | | | 7,338 | | | 8,032 | |
| | | | | | | |
| Total assets | | $ | 585,090 | | | $ | 423,501 | | $ | 741,202 | | $ | 724,220 | |
| | | | | | | |
| | | |
LIABILITIES and STOCKHOLDERS’ EQUITY | | | | | | | | | LIABILITIES and STOCKHOLDERS’ EQUITY |
| Current liabilities | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 21,471 | | | $ | 23,337 | | $ | 49,031 | | $ | 36,168 | |
| Deferred revenue, current portion | | | 23,543 | | | | 17,020 | | |
| Deferred revenue from sanofi-aventis, current portion | | | 17,523 | | 21,390 | |
| Deferred revenue - other, current portion | | | 27,021 | | | 26,114 | |
| Total current liabilities | | | 93,575 | | 83,672 | |
| | | | | | | |
| Total current liabilities | | | 45,014 | | | | 40,357 | | |
| Deferred revenue | | | 123,452 | | | | 69,142 | | |
| Notes payable | | | 200,000 | | | | 200,000 | | |
| | | | | | | |
| Deferred revenue from sanofi-aventis | | | 90,933 | | 105,586 | |
| Deferred revenue - other | | | 46,951 | | 56,835 | |
| Facility lease obligations | | | 109,022 | | 54,182 | |
| Other long term liabilities | | | 3,959 | | | 2,431 | |
| Total liabilities | | | 368,466 | | | | 309,499 | | | 344,440 | | | 302,706 | |
| | | | | | | |
| 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 — 2,270,353 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 | | |
| 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 - 2,244,698 in 2009 and 2,248,698 in 2008 | | | 2 | | 2 | |
| Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued | | | | | | |
| and outstanding - 78,860,862 in 2009 and 77,642,203 in 2008 | | | 79 | | 78 | |
| Additional paid-in capital | | | 904,407 | | | | 700,011 | | | 1,336,732 | | 1,294,813 | |
| Unearned compensation | | | | | | | (315 | ) | |
| Accumulated deficit | | | (687,617 | ) | | | (585,280 | ) | | (941,095 | ) | | (873,265 | ) |
| Accumulated other comprehensive loss | | | (231 | ) | | | (470 | ) | |
| | | | | | | |
| Accumulated other comprehensive income (loss) | | | 1,044 | | | (114 | ) |
| Total stockholders’ equity | | | 216,624 | | | | 114,002 | | | 396,762 | | | 421,514 | |
| | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 585,090 | | | $ | 423,501 | | $ | 741,202 | | $ | 724,220 | |
| | | | | | | |
The accompanying notes are an integral part of the financial statements.
F-4
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2006, 2005,2009, 2008, and 20042007
(In thousands except share data)
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | (In thousands, except per share data) | |
| |
| Revenues | | | | | | | | | | | | |
| Contract research and development | | $ | 51,136 | | | $ | 52,447 | | | $ | 113,157 | |
| Research progress payments | | | | | | | | | | | 42,770 | |
| Contract manufacturing | | | 12,311 | | | | 13,746 | | | | 18,090 | |
| | | | | | | | | | | | | |
| | | | 63,447 | | | | 66,193 | | | | 174,017 | |
| | | | | | | | | | | | | |
| Expenses | | | | | | | | | | | | |
| Research and development | | | 137,064 | | | | 155,581 | | | | 136,095 | |
| Contract manufacturing | | | 8,146 | | | | 9,557 | | | | 15,214 | |
| General and administrative | | | 25,892 | | | | 25,476 | | | | 17,062 | |
| | | | | | | | | | | | | |
| | | | 171,102 | | | | 190,614 | | | | 168,371 | |
| | | | | | | | | | | | | |
| Income (loss) from operations | | | (107,655 | ) | | | (124,421 | ) | | | 5,646 | |
| | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | |
| Other contract income | | | | | | | 30,640 | | | | 42,750 | |
| Investment income | | | 16,548 | | | | 10,381 | | | | 5,478 | |
| Interest expense | | | (12,043 | ) | | | (12,046 | ) | | | (12,175 | ) |
| | | | | | | | | | | | | |
| | | | 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) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
| | | | | | | | | | | | | |
| 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 | | | 57,970 | | | | 55,950 | | | | 55,419 | |
| Diluted | | | 57,970 | | | | 55,950 | | | | 56,172 | |
| 2009 | | 2008 | | 2007 |
| | | | | (Revised - | | (Revised - |
| | | | | see Note 11) | | see Note 11) |
| Revenues | | | | | | | | | | | |
| Sanofi-aventis collaboration revenue | $ | 247,140 | | | $ | 153,972 | | | $ | 51,687 | |
| Other collaboration revenue | | 67,317 | | | | 31,166 | | | | 35,961 | |
| Technology licensing | | 40,013 | | | | 40,000 | | | | 28,421 | |
| Net product sales | | 18,364 | | | | 6,249 | | | | | |
| Contract research and other | | 6,434 | | | | 7,070 | | | | 8,955 | |
| | | 379,268 | | | | 238,457 | | | | 125,024 | |
| Expenses | | | | | | | | | | | |
| Research and development | | 398,762 | | | | 274,903 | | | | 202,468 | |
| Selling, general, and admistrative | | 52,923 | | | | 48,880 | | | | 37,929 | |
| Cost of goods sold | | 1,686 | | | | 923 | | | | | |
| | | 453,371 | | | | 324,706 | | | | 240,397 | |
| Loss from operations | | (74,103 | ) | | | (86,249 | ) | | | (115,373 | ) |
| Other income (expense) | | | | | | | | | | | |
| Investment income | | 4,488 | | | | 18,161 | | | | 20,897 | |
| Interest expense | | (2,337 | ) | | | (7,752 | ) | | | (12,043 | ) |
| Loss on early extinguishment of debt | | | | | | (938 | ) | | | | |
| | | 2,151 | | | | 9,471 | | | | 8,854 | |
| Net loss before income tax expense | | (71,952 | ) | | | (76,778 | ) | | | (106,519 | ) |
| |
| Income tax (benefit) expense | | (4,122 | ) | | | 2,351 | | | | | |
| Net loss | $ | (67,830 | ) | | $ | (79,129 | ) | | $ | (106,519 | ) |
| Net loss per share, basic and diluted | $ | (0.85 | ) | | $ | (1.00 | ) | | $ | (1.61 | ) |
| Weighted average shares outstanding, basic and diluted | | 79,782 | | | | 78,827 | | | | 66,334 | |
The accompanying notes are an integral part of the financial statements.
F-5
REGENERONPHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS’EQUITY
For the Years Ended December 31, 2009, 2008, and 2007
(In thousands)
| | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | |
| | | | | | | | | | | | | | Additional | | | | | | Other | | Total | | | | |
| Class A Stock | | Common Stock | | Paid-in | | Accumulated | | Comprehensive | | Stockholders’ | | Comprehensive |
| Shares | | Amount | | Shares | | Amount | | Capital | | Deficit | | Income (Loss) | | Equity | | Loss |
| Balance, December 31, 2006 | 2,270 | | | | $2 | | | 63,131 | | $ | 63 | | | $ | 904,407 | | | $ | (687,617 | ) | | $ | (231 | ) | | $ | 216,624 | | | | | |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| exercise of stock options, net of shares tendered | | | | | | | | 886 | | | 1 | | | | 7,618 | | | | | | | | | | | | 7,619 | | | | | |
| Issuance of Common Stock to sanofi-aventis | | | | | | | | 12,000 | | | 12 | | | | 311,988 | | | | | | | | | | | | 312,000 | | | | | |
| Cost associated with issuance of equity securities to sanofi-aventis | | | | | | | | | | | | | | | (219 | ) | | | | | | | | | | | (219 | ) | | | | |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company 401(k) Savings Plan contribution | | | | | | | | 65 | | | | | | | 1,367 | | | | | | | | | | | | 1,367 | | | | | |
| Issuance of restricted Common Stock under | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long- Term Incentive Plan | | | | | | | | 500 | | | 1 | | | | (1 | ) | | | | | | | | | | | | | | | | |
| Conversion of Class A Stock to Common Stock | (10 | ) | | | | | | 10 | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | | | | 28,075 | | | | | | | | | | | | 28,075 | | | | | |
| Net loss, 2007 | | | | | | | | | | | | | | | | | | | (106,519 | ) | | | | | | | (106,519 | ) | | $ | (106,519 | ) |
| Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | 401 | | | | 401 | | | | 401 | |
| |
| Balance, December 31, 2007 (Revised- see Note 11) | 2,260 | | | | 2 | | | 76,592 | | | 77 | | | | 1,253,235 | | | | (794,136 | ) | | | 170 | | | | 459,348 | | | $ | (106,118 | ) |
| |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| exercise of stock options, net of shares tendered | | | | | | | | 980 | | | 1 | | | | 7,948 | | | | | | | | | | | | 7,949 | | | | | |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company 401(k) Savings Plan contribution | | | | | | | | 59 | | | | | | | 1,107 | | | | | | | | | | | | 1,107 | | | | | |
| Conversion of Class A Stock to Common Stock | (11 | ) | | | | | | 11 | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | | | | 32,523 | | | | | | | | | | | | 32,523 | | | | | |
| Net loss, 2008 | | | | | | | | | | | | | | | | | | | (79,129 | ) | | | | | | | (79,129 | ) | | $ | (79,129 | ) |
| Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | (284 | ) | | | (284 | ) | | | (284 | ) |
| |
| Balance, December 31, 2008 (Revised - see Note 11) | 2,249 | | | | 2 | | | 77,642 | | | 78 | | | | 1,294,813 | | | | (873,265 | ) | | | (114 | ) | | | 421,514 | | | $ | (79,413 | ) |
| |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| exercise of stock options, net of shares tendered | | | | | | | | 1,134 | | | 1 | | | | 9,269 | | | | | | | | | | | | 9,270 | | | | | |
| Issuance of Common Stock in connection with | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Company 401(k) Savings Plan contribution | | | | | | | | 81 | | | | | | | 1,391 | | | | | | | | | | | | 1,391 | | | | | |
| Conversion of Class A Stock to Common Stock | (4 | ) | | | | | | 4 | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | | | | 31,259 | | | | | | | | | | | | 31,259 | | | | | |
| Net loss, 2009 | | | | | | | | | | | | | | | | | | | (67,830 | ) | | | | | | | (67,830 | ) | | $ | (67,830 | ) |
| Change in net unrealized gain (loss) on marketable securities, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| net of tax effect of $0.7 million | | | | | | | | | | | | | | | | | | | | | | | 1,158 | | | | 1,158 | | | | 1,158 | |
| |
| Balance, December 31, 2009 | 2,245 | | | | $2 | | | 78,861 | | $ | 79 | | | $ | 1,336,732 | | | $ | (941,095 | ) | | $ | 1,044 | | | $ | 396,762 | | | $ | (66,672 | ) |
| |
The accompanying notes are an integral part of the financialstatements.
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005,2009, 2008, and 2004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | | | | | | | | | | Additional
| | | | | | | | | Other
| | | Total
| | | | |
| | | Class A Stock | | | Common Stock | | | Paid-in
| | | Unearned
| | | Accumulated
| | | Comprehensive
| | | Stockholders’
| | | Comprehensive
| |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Compensation | | | Deficit | | | Income (Loss) | | | Equity | | | Income (Loss) | |
| | | (In thousands) | |
| |
Balance, December 31, 2003 | | | 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 | | | | | |
| Repurchase of Common Stock from Merck & Co., Inc. | | | | | | | | | | | (109 | ) | | | | | | | (888 | ) | | | | | | | | | | | | | | | (888 | ) | | | | |
| Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | 64 | | | | | | | | 917 | | | | | | | | | | | | | | | | 917 | | | | | |
| Conversion of Class A Stock to Common Stock | | | (8 | ) | | | | | | | 8 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures | | | | | | | | | | | 87 | | | | | | | | 741 | | | | (741 | ) | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | | | | | | | | | | | | 2,543 | | | | | | | | | | | | 2,543 | | | | | |
| Net income, 2004 | | | | | | | | | | | | | | | | | | | | | | | | | | | 41,699 | | | | | | | | 41,699 | | | $ | 41,699 | |
| Change in net unrealized gain (loss) on marketable securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (873 | ) | | | (873 | ) | | | (873 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2004 | | | 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) |
F-6
REGENERON PHARMACEUTICALS, INC.2007
STATEMENTS OF STOCKHOLDERS’ EQUITY — (Continued) | 2009 | | 2008 | | 2007 |
| (In thousands) |
| Cash flows from operating activities | | | | | | | | | | | |
| Net loss | $ | (67,830 | ) | | $ | (79,129 | ) | | $ | (106,519 | ) |
| Adjustments to reconcile net loss to net cash (used in) | | | | | | | | | | | |
| provided by operating activities | | | | | | | | | | | |
| Depreciation and amortization | | 14,247 | | | | 11,287 | | | | 11,487 | |
| Non-cash compensation expense | | 31,259 | | | | 32,523 | | | | 28,075 | |
| Other non-cash expenses | | (382 | ) | | | | | | | | |
| Loss on early extinguishment of debt | | | | | | 938 | | | | | |
| Net realized (gain) loss on marketable securities | | (56 | ) | | | 1,310 | | | | 5,943 | |
| Changes in assets and liabilities | | | | | | | | | | | |
| Increase in accounts receivable | | (30,356 | ) | | | (16,892 | ) | | | (10,827 | ) |
| Increase in prepaid expenses and other assets | | (4,574 | ) | | | (6,560 | ) | | | (9,649 | ) |
| (Decrease) increase in deferred revenue | | (27,497 | ) | | | (26,834 | ) | | | 89,764 | |
| Increase (decrease) in accounts payable, accrued expenses, | | | | | | | | | | | |
| and other liabilities | | 12,959 | | | | (5,729 | ) | | | 19,098 | |
| Total adjustments | | (4,400 | ) | | | (9,957 | ) | | | 133,891 | |
| Net cash (used in) provided by operating activities | | (72,230 | ) | | | (89,086 | ) | | | 27,372 | |
| |
| Cash flows from investing activities | | | | | | | | | | | |
| Purchases of marketable securities | | (199,997 | ) | | | (581,139 | ) | | | (594,446 | ) |
| Sales or maturities of marketable securities | | 297,411 | | | | 646,861 | | | | 527,169 | |
| Capital expenditures | | (97,318 | ) | | | (34,857 | ) | | | (18,446 | ) |
| Decrease (increase) in restricted cash | | 50 | | | | (50 | ) | | | | |
| Net cash provided by (used in) investing activities | | 146 | | | | 30,815 | | | | (85,723 | ) |
| |
| Cash flows from financing activities | | | | | | | | | | | |
| Repurchases or repayment of notes payable | | | | | | (200,807 | ) | | | | |
| Proceeds in connection with facility lease obligation | | 23,640 | | | | | | | | | |
| Payments in connection with facility lease obligation | | (875 | ) | | | | | | | | |
| Net proceeds from the issuance of Common Stock | | 8,598 | | | | 7,949 | | | | 319,400 | |
| Net cash provided by (used in) financing activities | | 31,363 | | | | (192,858 | ) | | | 319,400 | |
| |
| Net (decrease) increase in cash and cash equivalents | | (40,721 | ) | | | (251,129 | ) | | | 261,049 | |
| |
| Cash and cash equivalents at beginning of period | | 247,796 | | | | 498,925 | | | | 237,876 | |
| |
| Cash and cash equivalents at end of period | $ | 207,075 | | | $ | 247,796 | | | $ | 498,925 | |
| |
| Supplemental disclosure of cash flow information | | | | | | | | | | | |
| Cash paid for interest | $ | 2,525 | | | $ | 9,348 | | | $ | 11,000 | |
| Cash paid for income taxes | | | | | $ | 3,079 | | | | | |
For the Years Ended December 31, 2006, 2005, and 2004
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | Accumulated
| | | | | | | |
| | | | | | | | | | | | | | | Additional
| | | | | | | | | Other
| | | Total
| | | | |
| | | Class A Stock | | | Common Stock | | | Paid-in
| | | Unearned
| | | Accumulated
| | | Comprehensive
| | | Stockholders’
| | | Comprehensive
| |
| | | Shares | | | Amount | | | Shares | | | Amount | | | Capital | | | Compensation | | | Deficit | | | Income (Loss) | | | Equity | | | Income (Loss) | |
| | | (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 | | | | | | | | | | | 1,243 | | | | 1 | | | | 10,391 | | | | | | | | | | | | | | | | 10,392 | | | | | |
| Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution | | | | | | | | | | | 121 | | | | | | | | 1,884 | | | | | | | | | | | | | | | | 1,884 | | | | | |
| Conversion of Class A Stock to Common Stock | | | (77 | ) | | | | | | | 77 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Forfeitures of restricted Common Stock under Long-Term Incentive Plan | | | | | | | | | | | (2 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock-based compensation expense | | | | | | | | | | | | | | | | | | | 18,641 | | | | | | | | | | | | | | | | 18,641 | | | | | |
| 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 239 | | | | 239 | | | | 239 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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, and 2004
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| | | (In thousands) | |
| |
| Cash flows from operating activities | | | | | | | | | | | | |
| Net income (loss) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
| | | | | | | | | | | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | | | | | | | | | | |
| Depreciation and amortization | | | 14,592 | | | | 15,504 | | | | 15,362 | |
| Non-cash compensation expense | | | 18,675 | | | | 21,859 | | | | 2,543 | |
| Cumulative effect of a change in accounting principle | | | (813 | ) | | | | | | | | |
| Forgiveness of loan payable to Novartis Pharma AG, inclusive of accrued interest | | | | | | | | | | | (17,770 | ) |
| Changes in assets and liabilities | | | | | | | | | | | | |
| Decrease (increase) in accounts receivable | | | 29,028 | | | | 6,581 | | | | (27,573 | ) |
| Decrease (increase) in prepaid expenses and other assets | | | 155 | | | | 74 | | | | (1,799 | ) |
| Decrease in inventory | | | 3,594 | | | | 1,250 | | | | 6,914 | |
| Increase (decrease) in deferred revenue | | | 60,833 | | | | 14,469 | | | | (37,310 | ) |
| (Decrease) increase in accounts payable, accrued expenses, and other liabilities | | | (652 | ) | | | 5,413 | | | | 1,025 | |
| | | | | | | | | | | | | |
| Total adjustments | | | 125,412 | | | | 65,150 | | | | (58,608 | ) |
| | | | | | | | | | | | | |
| Net cash provided by (used in) operating activities | | | 23,075 | | | | (30,296 | ) | | | (16,909 | ) |
| | | | | | | | | | | | | |
| Cash flows from investing activities | | | | | | | | | | | | |
| Purchases of marketable securities | | | (456,893 | ) | | | (102,990 | ) | | | (268,244 | ) |
| Purchases of restricted marketable securities | | | | | | | | | | | (11,075 | ) |
| Sales or maturities of marketable securities | | | 306,199 | | | | 223,448 | | | | 273,587 | |
| Maturities of restricted marketable securities | | | | | | | | | | | 22,126 | |
| Capital expenditures | | | (2,811 | ) | | | (4,964 | ) | | | (6,174 | ) |
| Increase in restricted cash | | | (1,600 | ) | | | | | | | | |
| | | | | | | | | | | | | |
| Net cash (used in) provided by investing activities | | | (155,105 | ) | | | 115,494 | | | | 10,220 | |
| | | | | | | | | | | | | |
| Cash flows from financing activities | | | | | | | | | | | | |
| Net proceeds from the issuance of Common Stock | | | 185,008 | | | | 4,081 | | | | 1,502 | |
| Repurchase of Common Stock | | | | | | | | | | | (888 | ) |
| Borrowings under loan payable | | | | | | | | | | | 3,827 | |
| Other | | | 390 | | | | | | | | | |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 185,398 | | | | 4,081 | | | | 4,441 | |
| | | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | 53,368 | | | | 89,279 | | | | (2,248 | ) |
| Cash and cash equivalents at beginning of period | | | 184,508 | | | | 95,229 | | | | 97,477 | |
| | | | | | | | | | | | | |
| Cash and cash equivalents at end of period | | $ | 237,876 | | | $ | 184,508 | | | $ | 95,229 | |
| | | | | | | | | | | | | |
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 ended December 31, 2006, 2005,2009, 2008, and 2004
2007
(Unless otherwise noted, dollars in thousands, except per share data)
| |
1. | Organization and Business |
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 the research, development, and development programs to discover and commercializecommercialization of therapeutics to treat human disorders and conditions. In 2008, the Company received marketing approval from the U.S. Food and Drug Administration (“FDA”) for the Company’s first commercial drug product, ARCALYST® (rilonacept) Injection for Subcutaneous Use for the treatment of Cryopyrin-Associated Periodic Syndromes (“CAPS”). The Company’s facilities are primarily 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 |
2. Summary of Significant Accounting Policies
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.
InventoriesMarketable Securities
Inventories The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. The Company has invested its excess cash primarily in direct obligations of the U.S. government and its agencies, other debt securities guaranteed by the U.S. government, and money market funds that invest in U.S. Government securities, and, to a lesser extent, investment grade debt securities issued by corporations, bank deposits, and asset-backed securities. The Company considers its marketable securities to be “available-for-sale,” as defined by authoritative guidance issued by the Financial Accounting Standards Board (“FASB”). These assets are statedcarried at fair value and the lowerunrealized gains and losses are included in other accumulated comprehensive income (loss) as a separate component of stockholders’ equity. If the decline in the value of a marketable security in the Company’s investment portfolio is deemed to be other-than-temporary, the Company writes down the security to its current fair value and recognizes a loss that may be charged against income. As described under “Use of Estimates” below, on a quarterly basis, the Company reviews its portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost or market. Cost is determined based on standards that approximate thefirst-in, first-out method. Inventories are shown net of applicable reserves.other-than-temporary.
Capitalization of Inventory Costs
The Company does not capitalize inventory costs associated with commercial supplies of drug product until it has received marketing approval from the FDA. Prior to receipt of FDA approval, costs for manufacturing supplies of drug product are recognized as research and development expenses in the period that the costs were incurred. Therefore, these pre-approval manufacturing costs are not included in cost of goods sold when revenue is recognized from the sale of those supplies of drug product.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost.cost, net of accumulated depreciation. 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 | | | 7-307-35 years | |
Laboratory and computerother equipment | | | 3-53-10 years | |
| Furniture and fixtures | | | 5 years | |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.assets or the lease term, without assuming renewal features, if any, are exercised. Costs of construction of certain long-lived assets include capitalized interest which is amortized over the estimated useful life of the related 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.amount. For all periods presented, no impairment losses were recorded.
Patents
As a result of the Company’s research and development efforts, the Company has obtained, applied for, or is applying for, a number of patents to protect proprietary technology and inventions. All costs associated with patents for product candidates under development are expensed as incurred.
F-9
REGENERON PHARMACEUTICALS, INC. Patent costs related to commercial products are capitalized and amortized over the remaining patent term. To date, the Company has no capitalized patent costs.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Revenue RecognitionOperating Leases
a. Contract Research On certain of its operating lease agreements, the Company may receive rent holidays and Development and Research Progress Payments
other incentives. The Company recognizes revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,operating lease costs on a straight-line basis without regard to deferred payment terms, such as rent holidays that defer the commencement date of required payments. In addition, lease incentives that the Company receives are treated as a reduction of rent expense over the term of the related agreements.
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
Certain reclassifications have been made to our prior year revenue and research progress payments are earned byamounts to conform to the 2009 presentation.
a. Collaboration Revenue
The Company earns collaboration revenue 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 amountmilestone. Substantive performance milestones typically consist of time has passed betweensignificant achievements in the development life-cycle of the related product candidate, such as completion of clinical trials, filing for approval with regulatory agencies, and receipt of an up-frontapprovals by regulatory agencies. In determining whether a payment is deemed to be a substantive performance milestone, the Company takes into consideration (i) the nature, timing, and achievementvalue of significant achievements in the development life-cycle of the related development product candidate, (ii) the relative level of effort required to achieve the milestone, and (iii) the amountrelative level of risk in achieving the milestone, payment is reasonabletaking into account the high degree of uncertainty in relation to the effort, value,successfully advancing product candidates in a drug development program and risk associated with achieving the milestone.in ultimately attaining an approved drug product. Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period. Payments for
The Company enters into collaboration agreements that include varying arrangements regarding which parties perform and bear the costs of research and development activities. The Company may share the costs of research and development activities with a collaborator, such as in the Company’s VEGF Trap-Eye collaboration with Bayer
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
HealthCare LLC, or the Company may be reimbursed for all or a significant portion of the costs of the Company’s research and development activities, such as in the Company’s aflibercept and antibody collaborations with the sanofi-aventis Group. The Company records its internal and third-party development costs associated with these collaborations as research and development expenses. When the Company is entitled to reimbursement of all or a portion of the research and development expenses that it incurs under a collaboration, the Company records those reimbursable amounts as collaboration revenue proportionately as the Company recognizes its expenses. If the collaboration is a cost-sharing arrangement in which both the Company and its collaborator perform development work and share costs, in periods when the Company’s collaborator incurs development expenses that benefit the collaboration and Regeneron, the Company also recognizes, as additional research and development expense, the portion of the collaborator’s development expenses that the Company is obligated to reimburse.
In connection with non-refundable licensing payments, the Company’s performance period estimates are principally based on projections of the scope, progress, and results of its research and development activities. Due to the variability in the scope of activities and length of time necessary to develop a drug product, changes to development plans as programs progress, and uncertainty in the ultimate requirements to obtain governmental approval for commercialization, revisions to performance period estimates are likely to occur periodically, and could result in material changes to the amount of revenue recognized as revenue as earned, overeach year in the period of effort.future. In addition, we record revenueestimated performance periods may change if development programs encounter delays, or the Company and its collaborators decide to expand or contract the clinical plans for a drug candidate in various disease indications. For example, during the fourth quarter of 2008, the Company extended its estimated performance period in connection with a government research grant as we incur expensesthe up-front and non-substantive milestone payments previously received from Bayer HealthCare pursuant to the companies’ VEGF Trap-Eye collaboration and shortened its estimated performance period in connection with up-front payments from sanofi-aventis pursuant to the companies’ aflibercept collaboration. The net effect of these changes in the Company’s estimates resulted in the recognition of $0.4 million less in collaboration revenue in the fourth quarter of 2008, compared to amounts recognized in connection with these deferred payments in each of the prior three quarters of 2008. In addition, in connection with amendments to expand and extend the Company’s antibody collaboration with sanofi-aventis, during the fourth quarter of 2009, the Company extended its estimated performance period related to the grant, subjectup-front payment previously received from sanofi-aventis pursuant to the grant’scompanies’ antibody collaboration. The effect of this change in estimate resulted in the recognition of $0.6 million less in collaboration revenue in the fourth quarter of 2009, compared to amounts recognized in each of the prior three quarters of 2009. Also, if a collaborator terminates an agreement in accordance with the terms and annual funding approvals.of the agreement, the Company would recognize any unamortized remainder of an up-front or previously deferred payment at the time of the termination.
b. Contract ManufacturingVelocImmune®Technology Licensing
The Company manufactured product and performed services for aenters into non-exclusive license agreements with third parties that allow the third party to utilize the Company’s VelocImmune technology in its internal research programs. The terms of these agreements include annual, non-refundable payments and entitle the Company to receive royalties on any future sales of products discovered by the third party using the Company’s VelocImmune technology. Annual, non-refundable payments under a contract manufacturing agreement which expired in October 2006. Contract manufacturing revenue wasthese agreements, where continuing involvement is required of the Company, are deferred and recognized as product was shipped and as services were performed (see Note 13).ratably over their respective annual license periods.
c. Product Revenue
In February 2008, the Company received marketing approval from the FDA for ARCALYST® (rilonacept) for the treatment of CAPS. Revenue from product sales is recognized when persuasive evidence of an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collection from the customer is reasonably assured, and the Company has no further performance obligations. Revenue and deferred revenue from product sales are recorded net of applicable provisions for prompt pay discounts, product returns, estimated rebates payable under governmental programs (including Medicaid), distribution fees, and other sales-related costs. Since the Company currently has limited historical return and rebate experience for ARCALYST, product sales revenues are deferred until (i) the right of return no longer exists or the Company can reasonably
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
estimate returns and (ii) rebates have been processed or the Company can reasonably estimate rebates. The Company reviews its estimates of rebates payable each period and records any necessary adjustments in the current period’s net product sales.
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 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, amounts that the Company is obligated to reimburse to collaborators for research and development expenses related to the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements,that they incur, 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.
Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as contract research organizations, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical studies. For each clinical trial that the Company conducts, certain clinical trial costs which are included in research and development expenses, are expensed immediately, while others are expensed over time 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.
Clinical activities which relate principally to clinical sites and other administrative functions to manage the Company’s clinical trials are performed primarily by contract research organizations (“CROs”). CROs typically perform most of the start-up activities for the Company’s trials, including document preparation, site identification, screening and preparation, pre-study visits, training, and program management. On a budgeted basis, these startup costs are typically 10% to 20% of the total contract value. On an actual basis, this percentage range can be significantly wider, as many of the Company’s contracts are either expanded or reduced in scope compared to the original budget, while start-up costs for the particular trial may not change materially. These start-up costs usually occur within a few months after the contract has been executed and are event driven in nature. The remaining activities and related costs, such as patient monitoring and administration, generally occur ratably throughout the life of the individual contract or study. In the event of early termination of a clinical trial, the Company accrues and recognizes expenses in an amount based on its estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial and/or penalties.
For clinical study sites, where payments are made periodically on a per-patient basis to the institutions performing the clinical study, the Company accrues expense on an estimated cost-per-patient basis, based on subject enrollment and activity in each quarter. The amount of clinical study expense recognized in a quarter may vary from period to period based on the duration and progress of the study, the activities to be performed by the sites each quarter, the required level of patient enrollment, the rate at which patients actually enroll in and drop-out of the clinical study, and the number of sites involved in the study. Clinical trials that bear the greatest risk of change in estimates are typically those that have a significant number of sites, require a large number of patients, have complex patient screening requirements, and span multiple years. 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. The Company’s estimates and assumptions for clinical expense recognition could differ significantly from its actual results, which could cause material increases or decreases in research and development expenses in future periods when the actual results become known.
Per Share DataREGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Net income (loss) per share, basic and diluted, is computed on the basisStock-based Compensation
The Company recognizes stock-based compensation expense for grants 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 option awards until vested. 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 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,to employees and (ii) Common Stock to be issued under the assumed conversionnon-employee members of the Company’s outstanding convertible senior subordinated notes,board of directors, based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award’s requisite service period. In addition, the Company has granted performance-based stock option awards which are included undervest based upon the if-converted methodoptionee satisfying certain performance and service conditions as defined in the agreements. Potential compensation cost, measured on the grant date, related to these performance options will be recognized only if, and when, dilutive.the Company estimates that these options will vest, which is based on whether the Company consider the options’ performance conditions to be probable of attainment. The computationCompany’s estimates of diluted net loss per share for the years ended December 31, 2006 and 2005 does not include common stock equivalents, since such inclusion wouldnumber of performance-based options that will vest will 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 includedrevised, if necessary, in Note 19.subsequent periods.
The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. 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. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
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 17.
Uncertain tax positions are accounted for in accordance with FASB authoritative guidance, which the Company adopted on January 1, 2007. Such guidance prescribes a comprehensive model for the manner in which a company should recognize, measure, present, and disclose in its financial statements all material uncertain tax positions that the company has taken or expects to take on a tax return. Those positions, for which management’s assessment is that there is more than a 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to certain measurement criteria. For the years ended December 31, 2009, 2008, and 2007, the Company has not recognized any income tax positions that were deemed uncertain under the recognition thresholds and measurement attributes prescribed by FASB authoritative guidance.
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.
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. Thesecurities, net effect of income taxes on comprehensive income (loss) is immaterial.any tax effect. Comprehensive income for the year ended December 31, 2004 and comprehensive losses(loss) for the years ended December 31, 20062009, 2008, and 20052007 have been included in the Statements of Stockholders’ Equity.
ConcentrationsConcentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities (see Note 6), and receivables from the sanofi-aventis 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.sanofi-aventis.
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)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Per Share Data
Net income (loss) per share, basic and negative cash flows from operationsdiluted, 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. Basic net income (loss) per share excludes restricted stock awards until vested. Diluted net income per share is based upon the weighted average number of shares of Common Stock and Class A Stock outstanding, and of 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 formerly 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, 2009, 2008, and 2007 does not include common stock equivalents, since such inclusion would be antidilutive.
Risks and Uncertainties
Developing and commercializing new medicines entails significant risk and expense. Since its inception. Revenues to date have principally been limited to (i) paymentsinception, the Company has not generated any significant sales or profits from the Company’s collaborators and other entities forcommercialization of ARCALYST® (rilonacept) or any of the Company’s development activities with respect toother product candidates. Before revenues from the commercialization of the Company’s current or future product candidates can be realized, the Company (or its collaborators) must overcome a number of hurdles which include successfully completing research and to utilizedevelopment and obtaining regulatory approval from the FDA and regulatory authorities in other countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive, and new developments may render the Company’s technology platforms, (ii) payments from two pharmaceutical companies for contract manufacturing,products and (iii) investment income.technologies uncompetitive or obsolete. The Company operates in an environment of rapid change in technology andmay be subject to legal claims by third parties seeking to enforce patents to limit or prohibit the Company from marketing or selling its products. The Company is also 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 The Company has generally incurred net losses and negative cash flows from operations since its inception. Revenues to date have principally been limited to (i) up-front, license, milestone, and reimbursement payments from the Company’s collaborators and other entities related to the Company’s development activities and technology platforms, (ii) payments for past contract manufacturing activities, (iii) ARCALYST product sales, and (iv) investment income. Collaboration revenue in 20062009 was primarily earned from sanofi-aventis and Bayer HealthCare under a collaboration agreementagreements (see Note 12a). The Company recognizes revenue from its collaboration with sanofi-aventis in accordance with SAB 104 and EITF00-21, as described above. Under3 for the terms of thethese agreements). These collaboration agreement, agreed upon VEGF Trap development expenses incurredagreements contain early termination provisions that are exercisable 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. The Company also may 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.sanofi-aventis or Bayer HealthCare, as applicable.
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)Estimates which could have a significant impact on the periodsCompany’s financial statements include:
- Periods over which
certain revenues and expenses will be recognizedpayments, including contract research and development revenue recognized from non-refundable up-front, license, and milestone payments, are recognized as revenue in connection with collaboration and expenseother agreements to develop and commercialize product candidates and utilize the Company’s technology platforms.
- Product rebates and returns in connection with the recognition of revenue from product sales.
- Periods over which certain clinical trial costs,
whichincluding costs for clinical activities performed by contract research organizations, are included inrecognized as research and development expenses, (iii)expenses.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the extent to which deferred tax assetsyears ended December 31, 2009, 2008, and liabilities are offset by a valuation allowance, and (iv)2007
(Unless otherwise noted, dollars in thousands, except per share data)
- In connection with stock option awards, (i) 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
ourthe Company’s Common Stock price, (b) the periods of time overfor which employees and members of the Company’s board of 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,lives; (ii) the number of stock option awards that are expected to be forfeited.forfeited; and (iii) with respect to performance-based stock option awards, if and when we consider the options’ performance conditions to be probable of attainment.
- The Company’s determination of whether marketable securities are other than temporarily impaired. The Company conducts a quarterly review of its portfolio of marketable securities, using both quantitative and qualitative factors, to determine, for securities whose current fair value is less than their cost, whether the decline in fair value below cost is other-than-temporary. In making this determination, the Company considers factors such as the length of time and the extent to which fair value has been less than cost, financial condition and near-term prospects of the issuer, recommendations of investment advisors, and forecasts of economic, market, or industry trends. This review process also includes an evaluation of the Company’s ability and intent to hold individual securities until they mature or their full value can be recovered. This review is subjective and requires a high degree of judgment.
- Useful lives of property, plant, and equipment.
- The extent to which deferred tax assets and liabilities are offset by a valuation allowance.
In addition, the Company’s share of VEGF Trap-Eye development expenses incurred by Bayer HealthCare, including the Company’s share of Bayer HealthCare’s estimated VEGF Trap-Eye development expenses for the most recent fiscal quarter, are included in research and development expenses. The Bayer HealthCare estimate for the most recent fiscal quarter is adjusted in the subsequent quarter to reflect actual expenses for the quarter.
Stock-based Employee CompensationFuture Impact of Recently Issued Accounting Standards
Effective In October 2009, the FASB amended its authoritative guidance on multiple-deliverable revenue arrangements. The amended guidance provides greater ability to separate and allocate arrangement consideration in a multiple-element revenue arrangement by requiring the use of estimated selling prices to allocate arrangement consideration, thereby eliminating the use of the residual method of allocation. The amended guidance also requires expanded qualitative and quantitative disclosures surrounding multiple-deliverable revenue arrangements. This guidance may be applied retrospectively or prospectively for new or materially modified arrangements. The Company will be required to adopt this amended guidance effective for the fiscal year beginning January 1, 2005,2011, although earlier adoption is permitted. Management is currently evaluating the impact that this guidance will have on the Company’s financial statements.
3. Collaboration and Contract Research 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 adopted the fair value based methodin connection with these agreements totaled $320.9 million, $192.2 million, and $96.6 million in 2009, 2008, and 2007, respectively. Total Company-incurred expenses associated with these agreements, which include reimbursable and non-reimbursable amounts, an allocable portion of accounting for stock-based employee compensation under the provisionsgeneral and administrative costs, and cost-sharing of SFAS 123,Accounting for Stock-Based Compensationa collaborator’s development expenses, where applicable (see Bayer HealthCare below), using the modified prospective method aswere $333.7 million, $230.6 million, and $108.2 million in 2009, 2008, and 2007, respectively. Significant agreements of this kind are described in SFAS 148,Accounting for Stock-Based Compensation — Transition and Disclosure. As a result, in 2005, the Company recognized 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 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 14)) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date.below.
F-12
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
a. The sanofi-aventis Group
Effective January 1, 2006,Aflibercept
In September 2003, the Company adoptedentered into a collaboration agreement (the “Aflibercept Agreement”) with Aventis Pharmaceuticals Inc. (predecessor to sanofi-aventis U.S.), to jointly develop and commercialize aflibercept. 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 provisionsCompany’s Common Stock for $45.0 million.
In January 2005, the Company and sanofi-aventis amended the Aflibercept Agreement to exclude intraocular delivery of SFAS 123R,Share-Based Payment, which isaflibercept to the eye (“Intraocular Delivery”) from joint development under the agreement, and product rights to aflibercept in Intraocular Delivery reverted to Regeneron. In connection with this amendment, sanofi-aventis made a revision of SFAS 123. SFAS 123R focuses primarily on accounting for transactions$25.0 million non-refundable payment to Regeneron (the “Intraocular Termination Payment”).
In December 2005, the Company and sanofi-aventis amended the Aflibercept Agreement to expand the territory in which an entity obtains employee services in share-basedthe companies are collaborating on the development of aflibercept to include Japan. In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment transactions, and requires the recognition of compensation expense in an amount equal to the fair valueCompany, which was received in January 2006. Under the Aflibercept Agreement, as amended, the Company and sanofi-aventis will share co-promotion rights and profits on sales, if any, of aflibercept outside of Japan, for disease indications included in the companies’ collaboration. The Company is entitled to a royalty of approximately 35% on annual sales of aflibercept in Japan, subject to certain potential adjustments. The Company may also receive up to $400 million in milestone payments upon receipt of specified marketing approvals, including up to $360 million in milestone payments related to the receipt of marketing approvals for up to eight aflibercept oncology and other indications in the United States or the European Union and up to $40 million related to the receipt of marketing approvals for up to five aflibercept oncology indications in Japan.
Under the Aflibercept Agreement, as amended, agreed upon worldwide development expenses incurred by both companies during the term of the share-based payment (including stock options and restricted stock) issuedagreement will be funded by sanofi-aventis. If the collaboration becomes profitable, Regeneron will be obligated to employees. SFAS 123R requires companies to estimate, at the timereimburse sanofi-aventis for 50% of grant, the numberthese development expenses, or half 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$598.4 million as of SFAS 123R, the Company recognized the effect of forfeitures in stock-based compensation cost in the period when they occurred,December 31, 2009, in accordance with SFAS 123.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 Aflibercept Agreement, the Intraocular Termination Payment of $25.0 million will be considered an aflibercept development expense and will be subject to 50% reimbursement by Regeneron to sanofi-aventis, as described above, if the collaboration becomes profitable. In addition, if the first commercial sale of an aflibercept product in Intraocular Delivery predates the first commercial sale of an aflibercept product under the collaboration by two years, Regeneron will begin reimbursing sanofi-aventis for up to $7.5 million of aflibercept development expenses in accordance with a formula until the first commercial aflibercept sale under the collaboration occurs.
Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Upon adoptiontermination of SFAS 123R effective January 1, 2006,the agreement for any reason, Regeneron’s obligation to reimburse sanofi-aventis for 50% of aflibercept development expenses will terminate, and the Company was requiredwill retain all rights 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 reducedaflibercept.
In accordance with the Company’s loss by $0.8revenue recognition policy described in Note 2, the up-front payments received in September 2003 and January 2006, of $80.0 million and is included$25.0 million, respectively, and reimbursement of Regeneron-incurred development expenses, are being recognized as collaboration revenue over the related performance period. The Company recognized $36.5 million, $44.4 million, and $47.1 million of collaboration development revenue in 2009, 2008, and 2007, respectively, in connection with the Company’s operating resultsAflibercept Agreement, as amended. At December 31, 2009 and 2008, amounts receivable from sanofi-aventis totaled $3.6 million and $6.3 million, respectively, and deferred revenue was $42.5 million and $52.4 million, respectively, in 2006 as a cumulative-effect adjustment of a change in accounting principle.connection with the Aflibercept Agreement.
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.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 20062009, 2008, 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”) was recognized in operating expenses. In addition, for the year ended December 31, 2005, $0.1 million of Stock Option Expense was capitalized in inventory. For the year ended December 31, 2004, 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 the effect on the Company’s net income and net income per share would have been as follows:2007
| | | | | |
| | | 2004 | |
| |
| 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 | ) |
| | | | | |
| Pro forma net income, basic and diluted | | $ | 8,149 | |
| | | | | |
| Basic net income per share amounts: | | | | |
| As reported | | $ | 0.75 | |
| Pro forma | | $ | 0.15 | |
| Diluted net income per share amounts: | | | | |
| As reported | | $ | 0.74 | |
| Pro forma | | $ | 0.15 | |
Other disclosures required by SFAS 123 and SFAS 123R have been included in Note 14.
Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
In 2004, the Company awarded 105,052 shares of Restricted Stock under the Regeneron Pharmaceuticals, Inc. Long-Term Incentive Plan (see 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)
Antibodies
In November 2007, the Company entered into a global, strategic collaboration (the “Antibody Collaboration”) with sanofi-aventis to discover, develop, and commercialize fully human monoclonal antibodies. In connection with the collaboration, in December 2007, sanofi-aventis purchased 12 million newly issued, unregistered shares of the Company’s Common Stock on the grant date of the Restricted Stock award, whichfor $312.0 million (see Note 12).
The Antibody Collaboration is expensed, ongoverned by a pro rata basis, over the period that the restrictions on these shares lapse. In 2006, 2005,Discovery and 2004, the Company recognized $0.3 million, $1.9 million,Preclinical Development Agreement (the “Discovery Agreement”) and $2.5 million, respectively, of compensation expense related to Restricted Stock awards.
Included in accounts payablea License and accrued expenses at December 31, 2006, 2005, and 2004 were $0.8 million, $0.2 million, and $0.6 million of capital expenditures, respectively.
Included in accounts payable and accrued expenses at December 31, 2005, 2004, and 2003 were $1.9 million, $0.6 million, and $0.9 million, respectively, of accrued 401(k) Savings Plan contribution expense. During the first quarter of 2006, 2005, and 2004, the Company contributed 120,960, 90,385, and 64,333 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 were $1.5 million, $1.2 million, and $2.6 million of accrued interest income, respectively.
Future Impact of Recently Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board (“FASB”Collaboration Agreement (the “License Agreement”) issued FASB Interpretation No. 48 (“FIN 48”), Accounting for 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 Income 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 be taken in a tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006.. The Company will be required to adopt FIN 48 effective forreceived a non-refundable up-front payment of $85.0 million from sanofi-aventis under the fiscal year beginning January 1, 2007. Management believes thatDiscovery Agreement. In addition, under the adoption of FIN 48 will not have a material impact on the Company’s financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), and expands disclosures about fair value measurements. The Company will be required to adopt SFAS 157 effective for the fiscal year beginning January 1, 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 focusDiscovery Agreement, sanofi-aventis funded $174.5 million of the Company’s research for identifying and development efforts, substantial improvements in manufacturing productivity,validating potential drug discovery targets and developing fully human monoclonal antibodies against those targets from the June 2005 expirationcollaboration’s inception through December 31, 2009. In November 2009, the Company and sanofi-aventis amended these collaboration agreements to expand and extend the Antibody Collaboration. Pursuant to the Discovery Agreement, as amended, sanofi-aventis will fund up to $160 million per year of the Company’s collaborationresearch activities in 2010 through 2017, subject to a one-time option for sanofi-aventis to adjust the maximum reimbursement amount down to $120 million per year commencing in 2014 if over the prior two years certain specified criteria are not satisfied. The amended Discovery Agreement will expire on December 31, 2017; however, sanofi-aventis has an option to extend the agreement for up to an additional three years for further antibody development and preclinical activities.
For each drug candidate identified under the Discovery Agreement, sanofi-aventis has the option to license rights to the candidate under the License Agreement. If it elects to do so, sanofi-aventis will co-develop the drug candidate with the Company through product approval. If sanofi-aventis does not exercise its option to license rights to a particular drug candidate under the License Agreement, the Company will retain the exclusive right to develop and commercialize such drug candidate, and sanofi-aventis will receive a royalty on sales, if any. The Procter & Gamble Company and sanofi-aventis are currently co-developing five therapeutic antibodies under the completion of contract manufacturing for Merck & Co., Inc. in late 2006. The majorityLicense Agreement.
Under the License Agreement, agreed upon worldwide development expenses incurred by both companies during the term of the headcount reduction occurred in the fourth quarter of 2005. The remaining headcount reductions occurred during 2006 as the Company completed activities related to contract manufacturing 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 heldagreement will be funded by affected employees. Estimated termination costs associated with the planned workforce reduction in 2006 were measured in October 2005 and were expensed ratably over the expected service periodsanofi-aventis, except that following receipt of the affected employeesfirst positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate (“Shared Phase 3 Trial Costs”) will be shared 80% by sanofi-aventis and 20% by Regeneron. If the Antibody Collaboration becomes profitable, Regeneron will be obligated to reimburse sanofi-aventis for 50% of development expenses that were fully funded by sanofi-aventis (or half of $140.2 million as of December 31, 2009) and 30% of Shared Phase 3 Trial Costs, in accordance with SFAS 146,Accountinga defined formula based on the amounts of these expenses and the Company’s share of collaboration profits from commercialization of collaboration products. However, the Company is not required to apply more than 10% of its share of the profits from the antibody collaboration in any calendar quarter to reimburse sanofi-aventis for Coststhese development costs.
F-14
Sanofi-aventis will lead commercialization activities for products developed under the License Agreement, subject to the Company’s right to co-promote such products. The parties will equally share profits and losses from sales within the United States. The parties will share profits outside the United States on a sliding scale based on sales starting at 65% (sanofi-aventis)/35% (Regeneron) and ending at 55% (sanofi-aventis)/45% (Regeneron), and losses outside the United States at 55% (sanofi-aventis)/45% (Regeneron). In addition to profit sharing, the Company is entitled to receive up to $250 million in sales milestone payments, with milestone payments commencing only if and after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.
Regeneron is obligated to use commercially reasonable efforts to supply clinical requirements of each drug candidate under the Antibody Collaboration until commercial supplies of that drug candidate are being manufactured. In connection with the November 2009 amendment of the collaboration’s Discovery Agreement, sanofi-aventis will fund up to $30 million of agreed-upon costs incurred by the Company to expand its manufacturing capacity at the Company’s Rensselaer, New York facilities.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Associated with Exit or Disposal Activities. The total costs associated with the 2005 and 2006 workforce reductions were $2.6 million, including $0.2 million of non-cash expenses.
Severance With respect to each antibody product which enters development under the License Agreement, sanofi-aventis or the Company may, by giving twelve months notice, opt-out of further development and/or commercialization of the product, in which event the other party retains exclusive rights to continue the development and/or commercialization of the product. The Company may also opt-out of the further development of an antibody product if it gives notice to sanofi-aventis within thirty days of the date that sanofi-aventis enters joint development of such antibody product under the License Agreement. Each of the Discovery Agreement and the License Agreement contains other termination provisions, including for material breach by the other party. Prior to December 31, 2017, sanofi-aventis has the right to terminate the Discovery Agreement without cause with at least three months advance written notice; however, except under defined circumstances, sanofi-aventis would be obligated to immediately pay to the Company the full amount of unpaid research funding during the remaining term of the research agreement through December 31, 2017. Upon termination of the collaboration in its entirety, the Company’s obligation to reimburse sanofi-aventis for development costs associatedout of any future profits from collaboration products will terminate. Upon expiration of the Discovery Agreement, sanofi-aventis has an option to license the Company’s VelocImmune® technology for agreed upon consideration.
In connection with the workforce reduction plan that were chargedAntibody Collaboration, in August 2008, the Company entered into a separate agreement with sanofi-aventis to expense in 2005use Regeneron’s proprietary VelociGene® technology platform to supply sanofi-aventis with genetically modified mammalian models of gene function and 2006 consistdisease (the “VelociGene Agreement”). The VelociGene Agreement provides for minimum annual order quantities for the term of the following:
| | | | | | | | | | | | | |
| | | | | | | | | Accrued liability
| |
| | | Costs charged to
| | | Costs paid or
| | | at December 31,
| |
| | | expense in 2005 | | | settled in 2005 | | | 2005 | |
| |
| Employee severance, payroll taxes, and benefits | | $ | 1,786 | | | $ | 879 | | | $ | 907 | |
| Other severance costs | | | 206 | | | | 30 | | | | 176 | |
| Non-cash expenses | | | 221 | | | | 221 | | | | | |
| | | | | | | | | | | | | |
| Total | | $ | 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 | |
| | | | | | | | | | | | | |
agreement, which extends through December 2012, for which the Company expects to receive payments totaling a minimum of $21.5 million.
These severance In accordance with the Company’s revenue recognition policy described in Note 2, the (i) $85.0 million up-front payment received in December 2007, (ii) reimbursement of Regeneron-incurred expenses under the Discovery and License Agreements, (iii) $21.5 million of aggregate minimum payments under the VelociGene Agreement, and (iv) reimbursement of agreed-upon costs to expand the Company’s manufacturing capacity are includedbeing recognized as collaboration revenue over the related performance period. In connection with the Antibody Collaboration, the Company recognized $210.7 million, $109.6 million, and $4.6 million of collaboration revenue in 2009, 2008, and 2007, respectively. In addition, at December 31, 2009 and 2008, amounts receivable from sanofi-aventis totaled $59.1 million and $27.0 million and deferred revenue was $66.0 million and $74.6 million, respectively.
b. Bayer HealthCare LLC
In October 2006, the Company entered into a license and collaboration 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 HealthCare made a non-refundable up-front payment to the Company of $75.0 million. In August 2007, the Company received a $20.0 million milestone payment from Bayer HealthCare (which, for the purpose of revenue recognition, was not considered substantive) following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in the neovascular form of age-related macular degeneration (“wet AMD”). In July 2009, the Company received a $20.0 million milestone payment from Bayer HealthCare following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in Central Retinal Vein Occlusion (“CRVO”). In addition, the Company is eligible to receive up to $70 million in additional development and regulatory milestones related to the VEGF Trap-Eye program. The Company is also eligible to receive up to $135 million in sales milestones when and if total annual sales of VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200 million.
The Company will share equally with Bayer HealthCare in any future profits arising from the commercialization of VEGF Trap-Eye outside the United States. If 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 HealthCare out of its share of the collaboration profits for 50% of the agreed upon development expenses that Bayer HealthCare has incurred (or half of $138.4 million as of December 31, 2009) in accordance with a formula based on the amount of development expenses that Bayer HealthCare has incurred and the Company’s Statementshare of Operationsthe 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 VEGF Trap-Eye and retains exclusive rights to any future profits from such commercialization in the United States.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 20062009, 2008, and 2005 as follows:2007
| | | | | | | | | | | | | | | | | |
| | | 2006 | | | 2005 | |
| | | Research &
| | | General &
| | | Research &
| | | General &
| |
| | | development | | | administrative | | | development | | | administrative | |
| |
| Employee severance, payroll taxes, and benefits | | $ | 317 | | | $ | (2 | ) | | $ | 1,734 | | | $ | 52 | |
| Other severance costs | | | 33 | | | | | | | | 206 | | | | | |
| Non-cash expenses | | | | | | | | | | | 215 | | | | 6 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 350 | | | $ | (2 | ) | | $ | 2,155 | | | $ | 58 | |
| | | | | | | | | | | | | | | | | |
For segment reporting purposes (see Note 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 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 loss.
F-15
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
Agreed upon VEGF Trap-Eye development expenses incurred by both companies in 2007 and 2008 under a global development plan, were shared as follows:
| 2007: | The first $50.0 million was shared equally and the Company was solely responsible for up to the next $40.0 million. |
| 2008: | The first $70.0 million was shared equally and the Company was solely responsible for up to the next $30.0 million. |
In 2009 and thereafter, all development expenses will be shared equally. Neither party was reimbursed for any development expenses that it incurred prior to 2007. The Company is also obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.
Bayer HealthCare 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 VEGF Trap-Eye.
For the period from the collaboration’s inception in October 2006 through September 30, 2007, all up-front licensing, milestone, and cost-sharing payments received or receivable from Bayer HealthCare had been fully deferred and included in deferred revenue for financial statement purposes. In the fourth quarter of 2007, Regeneron and Bayer HealthCare approved a global development plan for VEGF Trap-Eye in wet AMD. The plan included estimated development steps, timelines, and costs, as well as the projected responsibilities of and costs to be incurred by each of the companies. In addition, in the fourth quarter of 2007, Regeneron and Bayer HealthCare reaffirmed the companies’ commitment to a diabetic macular edema (“DME”) development program and had initial estimates of development costs for VEGF Trap-Eye in DME. As a result, effective in the fourth quarter of 2007, the Company determined the appropriate accounting policy for payments from Bayer HealthCare and cost-sharing of the Company’s and Bayer HealthCare’s VEGF Trap-Eye development expenses. The $75.0 million up-front licensing payment and the $20.0 million milestone payment received in August 2007 from Bayer HealthCare are being recognized as collaboration revenue over the related estimated performance period in accordance with the Company’s revenue recognition policy as described in Note 2. In periods when the Company recognizes VEGF Trap-Eye development expenses that the Company incurs under the collaboration, the Company also recognizes, as collaboration revenue, the portion of those VEGF Trap-Eye development expenses that is reimbursable from Bayer HealthCare. In periods when Bayer HealthCare incurs agreed upon VEGF Trap-Eye development expenses that benefit the collaboration and Regeneron, the Company also recognizes, as additional research and development expense, the portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that the Company is obligated to reimburse. In the fourth quarter of 2007, the Company commenced recognizing previously deferred payments from Bayer HealthCare and cost-sharing of the Company’s and Bayer HealthCare’s 2007 VEGF Trap-Eye development expenses through a cumulative catch-up.
The Company recognized $67.3 million, $31.2 million, and $35.9 million of collaboration revenue from Bayer HealthCare in 2009, 2008, and 2007, respectively. In 2009, collaboration revenue from Bayer HealthCare included the $20.0 million milestone payment received in July 2009 which, for the purpose of revenue recognition, was considered substantive. In addition, in 2009, 2008, and 2007, the Company recognized as additional research and development expense $37.7 million, $30.0 million, and $10.6 million, respectively, of VEGF Trap-Eye development expenses that the Company was obligated to reimburse to Bayer HealthCare.
In connection with cost-sharing of VEGF Trap-Eye expenses under the collaboration, $1.2 million and $9.8 million was payable to Bayer HealthCare at December 31, 2009 and 2008, respectively. In addition, at December 31, 2009 and 2008, deferred revenue from the Company’s collaboration with Bayer HealthCare was $56.8 million and $66.7 million, respectively.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
c. National Institute 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. As amended, the NIH grant provides a minimum of $25.3 million in funding over a five-year period, including $1.5 million in funding to optimize certain existing technology, 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 which can be used to produce knockout mice. The Company records revenue in connection with the NIH grant using a proportional performance model as it incurs expenses related to the grant, subject to the grant’s terms and annual funding approvals. In 2009, 2008, and 2007, the Company recognized contract research revenue of $5.5 million, $4.9 million, and $5.5 million, respectively, from the NIH Grant.
4. Technology Licensing Agreements
In February 2007, the Company entered into a non-exclusive license agreement with AstraZeneca UK Limited that allows 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 annual, non-refundable payment to the Company in each of 2009, 2008, and 2007. Each annual payment is deferred and recognized as revenue ratably over approximately the ensuing twelve-month period. AstraZeneca is required to make up to three additional annual payments of $20.0 million, subject to their ability to terminate the agreement after making the next annual payment in 2010. 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. In connection with the AstraZeneca license agreement, for the years ended December 31, 2009, 2008, and 2007, the Company recognized $20.0 million, $20.0 million, and $17.1 million of technology licensing revenue. In addition, deferred revenue at December 31, 2009, 2008, and 2007 was $2.9 million.
In March 2007, the Company entered into a non-exclusive license agreement with Astellas Pharma Inc. that allows Astellas to utilize the Company’s VelocImmune technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, Astellas made a $20.0 million annual, non-refundable payment to the Company in each of 2009, 2008, and 2007. Each annual payment is deferred and recognized as revenue ratably over approximately the ensuing twelve-month period. Astellas is required to make up to three additional annual payments of $20.0 million, subject to their ability to terminate the agreement after making the next annual payment in 2010. The Company is entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by Astellas using the Company’s VelocImmune technology. In connection with the Astellas license agreement, for the years ended December 31, 2009, 2008, and 2007, the Company recognized $20.0 million, $20.0 million, and $11.3 million of technology licensing revenue. In addition, deferred revenue at December 31, 2009, 2008, and 2007 was $8.7 million.
5. ARCALYST® (rilonacept) Product Revenue
In February 2008, the Company received marketing approval from the FDA for ARCALYST for the treatment of CAPS. For the years-ended December 31, 2009 and 2008, the Company recognized as revenue $18.4 million and $6.3 million, respectively, of ARCALYST net product sales for which the right of return no longer existed and rebates could be reasonably estimated. At December 31, 2009 and 2008, deferred revenue related to ARCALYST net product sales totaled $4.8 million and $4.0 million, respectively.
Cost of goods sold related to ARCALYST sales totaled $1.7 million and $0.9 million for the years ended December 31, 2009 and 2008, respectively, and consisted primarily of royalties (see Note 11b). To date, ARCALYST shipments to the Company’s customers have consisted of supplies of inventory manufactured and expensed prior to FDA approval of ARCALYST; therefore, the costs of these supplies were not included in costs of goods sold. At December 31, 2009, the Company had $0.4 million of inventoried work-in-process costs related to ARCALYST, which is included in prepaid expenses and other current assets. There were no capitalized inventory costs at December 31, 2008.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
6. Marketable Securities
Marketable securities at December 31, 2009 and 2008 consisted of debt securities, as detailed below, and equity securities, the aggregate fair value of which was $5.5 million and $3.7 million at December 31, 2009 and 2008, respectively, and the aggregate cost basis of which was $4.0 million and $4.1 million at December 31, 2009 and 2008, respectively. The following tables summarize the amortized cost basis of debt securities included in marketable securities, the aggregate fair value of marketablethose securities, and gross unrealized holding gains and losses on those securities at December 31, 20062009 and 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 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 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 | ) |
| U.S. government securities | | | 52,959 | | | | 52,763 | | | | | | | | (196 | ) | | | (196 | ) |
| Asset-backed securities | | | 19,231 | | | | 19,152 | | | | | | | | (79 | ) | | | (79 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 114,393 | | | | 114,037 | | | | 5 | | | | (361 | ) | | | (356 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Maturities between one and two years | | | | | | | | | | | | | | | | | | | | |
| Corporate debt securities | | | 16,188 | | | | 16,075 | | | | 2 | | | | (115 | ) | | | (113 | ) |
| U.S. government securities | | | 2,055 | | | | 2,034 | | | | | | | | (21 | ) | | | (21 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | | 18,243 | | | | 18,109 | | | | 2 | | | | (136 | ) | | | (134 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | $ | 132,636 | | | $ | 132,146 | | | $ | 7 | | | $ | (497 | ) | | $ | (490 | ) |
| | | | | | | | | | | | | | | | | | | | | |
2008. The Company classifies its debt securities, other than mortgage-backed and other asset-backed securities, based on their contractual maturity dates. Maturities of mortgage-backed and other asset-backed securities have been estimated based primarily on repayment characteristics and experience of the senior tranches that the Company holds.
In addition, cash | Amortized | | Fair | | Unrealized Holding |
| At December 31, 2009 | | Cost Basis | | Value | | Gains | | (Losses) | | Net |
| Maturities within one year | | | | | | | | | | | | | | | | |
| U.S. government obligations | $ | 100,491 | | $ | 100,573 | | $ | 82 | | | | | | $ | 82 | |
| U.S. government guaranteed corporate bonds | | 17,176 | | | 17,340 | | | 164 | | | | | | | 164 | |
| Corporate bonds | | 10,142 | | | 10,342 | | | 200 | | | | | | | 200 | |
| Mortgage-backed securities | | 2,471 | | | 2,338 | | | | | $ | (133 | ) | | | (133 | ) |
| U.S. government guaranteed | | | | | | | | | | | | | | | | |
| collateralized mortgage obligations | | 3,612 | | | 3,662 | | | 50 | | | | | | | 50 | |
| | 133,892 | | | 134,255 | | | 496 | | | (133 | ) | | | 363 | |
| |
| Maturities between one and two years | | | | | | | | | | | | | | | | |
| U.S. government obligations | | 9,413 | | | 9,367 | | | | | | (46 | ) | | | (46 | ) |
| U.S. government guaranteed corporate bonds | | 31,064 | | | 31,344 | | | 280 | | | | | | | 280 | |
| Mortgage-backed securities | | 1,168 | | | 900 | | | | | | (268 | ) | | | (268 | ) |
| | 41,645 | | | 41,611 | | | 280 | | | (314 | ) | | | (34 | ) |
| $ | 175,537 | | $ | 175,866 | | $ | 776 | | $ | (447 | ) | | $ | 329 | |
| |
| At December 31, 2008 | | | | | | | | | | | | | | | | | |
| Maturities within one year | | | | | | | | | | | | | | | | |
| U.S. government obligations | $ | 170,993 | | $ | 172,253 | | $ | 1,260 | | | | | | $ | 1,260 | |
| Corporate bonds | | 26,894 | | | 26,662 | | | 25 | | $ | (257 | ) | | | (232 | ) |
| Mortgage-backed securities | | 9,098 | | | 8,420 | | | | | | (678 | ) | | | (678 | ) |
| Other asset-backed securities | | 7,842 | | | 7,829 | | | | | | (13 | ) | | | (13 | ) |
| U.S. government guaranteed | | | | | | | | | | | | | | | | |
| collateralized mortgage obligations | | 11,742 | | | 11,792 | | | 50 | | | | | | | 50 | |
| | 226,569 | | | 226,956 | | | 1,335 | | | (948 | ) | | | 387 | |
| |
| Maturities between one and three years | | | | | | | | | | | | | | | | |
| U.S. government guaranteed corporate bonds | | 29,853 | | | 29,811 | | | 82 | | | (124 | ) | | | (42 | ) |
| Corporate bonds | | 10,446 | | | 10,414 | | | 77 | | | (109 | ) | | | (32 | ) |
| Mortgage-backed securities | | 1,821 | | | 1,556 | | | | | | (265 | ) | | | (265 | ) |
| U.S. government guaranteed | | | | | | | | | | | | | | | | |
| collateralized mortgage obligations | | 5,297 | | | 5,570 | | | 273 | | | | | | | 273 | |
| | 47,417 | | | 47,351 | | | 432 | | | (498 | ) | | | (66 | ) |
| $ | 273,986 | | $ | 274,307 | | $ | 1,767 | | $ | (1,446 | ) | | $ | 321 | |
| | | | | | | | | | | | | | | | | |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and cash equivalents2007
(Unless otherwise noted, dollars in thousands, except per share data)
At December 31, 2009 and 2008, marketable securities included an additional unrealized gain of $1.4 million and an additional unrealized loss of $0.4 million, respectively, related to one equity security in the Company’s marketable securities portfolio.
The following table shows the fair value of the Company’s marketable securities that have unrealized losses and that are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at December 31, 20062009 and 2005 included an unrealized holding gain of $12 thousand and $20 thousand, respectively.2008. The debt securities listed at December 31, 2009 mature at various dates through December 2011.
| Less than 12 Months | | 12 Months or Greater | | Total |
| | | | | Unrealized | | | | | | Unrealized | | | | | | Unrealized |
| At December 31, 2009 | | Fair Value | | Loss | | Fair Value | | Loss | | Fair Value | | Loss |
| U.S. government obligations | | $ 9,367 | | | | $ (46 | ) | | | | | | | | | | | $ 9,367 | | | | $ (46 | ) |
| Mortgage-backed securities | | | | | | | | | | 3,238 | | | | (401 | ) | | | 3,238 | | | | (401 | ) |
| | $ 9,367 | | | | $ (46 | ) | | | $ 3,238 | | | | $(401 | ) | | | $12,605 | | | | $ (447 | ) |
| |
| |
| At December 31, 2008 | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate bonds | | $15,559 | | | | $(287 | ) | | | $ 2,933 | | | | $ (79 | ) | | | $18,492 | | | | $ (366 | ) |
| Government guaranteed | | | | | | | | | | | | | | | | | | | | | | | |
| corporate bonds | | 11,300 | | | | (124 | ) | | | | | | | | | | | 11,300 | | | | (124 | ) |
| Mortgage-backed securities | | 871 | | | | (74 | ) | | | 9,104 | | | | (869 | ) | | | 9,975 | | | | (943 | ) |
| Other asset-backed securities | | 7,829 | | | | (13 | ) | | | | | | | | | | | 7,829 | | | | (13 | ) |
| Equity securities | | 3,608 | | | | (436 | ) | | | | | | | | | | | 3,608 | | | | (436 | ) |
| | $39,167 | | | | $(934 | ) | | | $12,037 | | | | $(948 | ) | | | $51,204 | | | | $(1,882 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Realized gains and losses are included as a component of investment income. For the years ended December 31, 2006, 2005,2009 and 2004, gross2008, realized gains on sales of marketable securities totaled $0.2 million and $1.2 million, respectively, and realized losses on sales of marketable securities were not significant. For the year ended December 31, 2007, realized gains and losses on sales of marketable securities 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,security, adjusted for the amortization of any discount or premium.
The Company’s assets that are measured at fair value of marketable securities has been estimated based on quoted market prices.a recurring basis,at December 31, 2009 and 2008, were as follows:
F-16
| | | | | Fair Value Measurements at Reporting Date Using |
| | | | | Quoted Prices in | | | | | | Significant |
| Fair Value at | | Active Markets for | | Significant Other | | Unobservable |
| December 31, | | Identical Assets | | Observable Inputs | | Inputs |
| Description | | 2009 | | (Level 1) | | (Level 2) | | (Level 3) |
| Available-for-sale marketable securities | | | | | | | | | | | | | | | |
| U.S. government obligations | | $109,940 | | | | | | | | $109,940 | | | | | |
| U.S. government guaranteed | | | | | | | | | | | | | | | |
| corporate bonds | | 48,684 | | | | | | | | 48,684 | | | | | |
| Corporate bonds | | 10,342 | | | | | | | | 10,342 | | | | | |
| Mortgage-backed securities | | 3,238 | | | | | | | | 3,238 | | | | | |
| U.S. government guaranteed | | | | | | | | | | | | | | | |
| collateralized mortgage obligations | | 3,662 | | | | | | | | 3,662 | | | | | |
| Equity securities | | 5,469 | | | | 5,469 | | | | | | | | | |
| Total | | $181,335 | | | | $5,469 | | | | $175,866 | | | | | |
| | | | | | | | | | | | | | | | |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(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, 2006 and 2005. The securities listed at December 31, 2006 mature at various dates through October 2008.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 143,913 | | | $ | (240 | ) | | $ | 15,105 | | | $ | (30 | ) | | $ | 159,018 | | | $ | (270 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2005 | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt securities | | $ | 36,394 | | | $ | (201 | ) | | | | | | | | | | $ | 36,394 | | | $ | (201 | ) |
| U.S. government securities | | | 2,034 | | | | (21 | ) | | $ | 52,762 | | | $ | (196 | ) | | | 54,796 | | | | (217 | ) |
| Asset-backed securities | | | 19,152 | | | | (79 | ) | | | | | | | | | | | 19,152 | | | | (79 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 57,580 | | | $ | (301 | ) | | $ | 52,762 | | | $ | (196 | ) | | $ | 110,342 | | | $ | (497 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements at Reporting Date Using |
| | | | | Quoted Prices in | | | | | | Significant |
| Fair Value at | | Active Markets for | | Significant Other | | Unobservable |
| December 31, | | Identical Assets | | Observable Inputs | | Inputs |
| Description | | 2008 | | (Level 1) | | (Level 2) | | (Level 3) |
| Available-for-sale marketable securities | | | | | | | | | | | | | | | |
| U.S. government obligations | | $172,253 | | | | | | | | $172,253 | | | | | |
| U.S. government guaranteed | | | | | | | | | | | | | | | |
| corporate bonds | | 29,811 | | | | | | | | 29,811 | | | | | |
| Corporate bonds | | 37,076 | | | | | | | | 37,076 | | | | | |
| Mortgage-backed securities | | 9,976 | | | | | | | | 9,976 | | | | | |
| Other asset backed securities | | 7,829 | | | | | | | | 7,829 | | | | | |
| U.S. government guaranteed | | | | | | | | | | | | | | | |
| collateralized mortgage obligations | | 17,362 | | | | | | | | 17,362 | | | | | |
| Equity securities | | 3,708 | | | | $3,608 | | | | | | | | $100 | |
| Total | | $278,015 | | | | $3,608 | | | | $274,307 | | | | $100 | |
| | | | | | | | | | | | | | | |
Marketable securities included in Level 2 were valued using a market approach utilizing prices and other relevant information, such as interest rates, yield curves, prepayment speeds, loss severities, credit risks and default rates, generated by market transactions involving identical or comparable assets. The unrealized losses onCompany considers market liquidity in determining the fair value for these securities. During the years ended December 31, 2009 and 2007, the Company did not record any charges for other-than-temporary impairment of its Level 2 marketable securities. During the year ended December 31, 2008, deterioration in the credit quality of a marketable security from one issuer subjected the Company to the risk of not being able to recover the security’s $2.0 million carrying value. As a result, the Company recognized a $1.8 million charge related to this Level 2 marketable security, which the Company considered to be other than temporarily impaired.
Marketable securities included in Level 3 were valued using information provided by the Company’s investments in corporate debt securities, U.S. government securities, and asset-backed securities were primarily caused by interest rate increases,investment advisors, including quoted bid prices which generally resulted in a decreasetake into consideration the securities’ current lack of liquidity. During the year ended December 31, 2007, deterioration in the marketcredit quality of marketable securities from two issuers subjected the Company to the risk of not being able to recover the full principal value of the Company’s portfolio. Based upon the Company’s currently projected sources and uses of cash,these securities. As a result, the Company intendsrecognized a $5.9 million charge related to hold these securities until a recovery of fair value, which may be maturity. Therefore, the Company does not consider these marketable securities, atwhich the Company considered to be other than temporarily impaired. During the years ended December 31, 20062009 and 20052008, the Company recognized an additional $0.1 million and $0.7 million, respectively, in other-than-temporary impairment charges related to beother-than-temporarilyone of these marketable securities. impaired.
There were no unrealized gains or losses related to the Company’s Level 3 marketable securities for the years ended December 31, 2009 and 2008. In addition, there were no purchases, sales, or maturities of Level 3 marketable securities, and no transfers of marketable securities between the Level 2 and Level 3 classifications, during the years ended December 31, 2009 and 2008.
Accounts receivable as of Changes in marketable securities included in Level 3 during the years ended December 31, 20062009 and 2005 consist of the following:2008 were as follows:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Receivable from sanofi-aventis (see Note 12a) | | $ | 6,900 | | | $ | 36,412 | |
| Other | | | 593 | | | | 109 | |
| | | | | | | | | |
| | | $ | 7,493 | | | $ | 36,521 | |
| | | | | | | | | |
| Level 3 |
| Marketable |
| Securities |
| 2009 | | 2008 |
| Balance, January 1 | $ | 100 | | | $ | 7,950 | |
| Settlements | | | | | | (8,194 | ) |
| Realized gain | | | | | | 1,044 | |
| Impairments | | (100 | ) | | | (700 | ) |
| Balance, December 31 | $ | | | | $ | 100 | |
| | | | | | | | |
Inventory balances at December 31, 2005 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 expired 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)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
As described in Note 2 above under “Use of Estimates”, on a quarterly basis, the Company reviews its portfolio of marketable securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost are other-than-temporary. With respect to debt securities, this review process also includes an evaluation of the Company’s (a) intent to sell an individual debt security or (b) need to sell the debt security before its anticipated recovery or maturity. With respect to equity securities, this review process includes an evaluation of the Company’s ability and intent to hold the securities until their full value can be recovered.
Inventories as The current economic environment and the deterioration in the credit quality of December 31, 2005 consistissuers of securities that the following:Company holds increase the risk of potential declines in the current market value of marketable securities in the Company’s investment portfolio. Such declines could result in charges against income in future periods for other-than-temporary impairments and the amounts could be material.
| | | | | |
| | | 2005 | |
| |
| Raw materials | | $ | 278 | |
| Work-in process | | | 1,423 | |
| Finished products | | | 1,203 | |
| | | | | |
| | | $ | 2,904 | |
| | | | | |
7. Property, Plant, and Equipment
| |
7. | Property, Plant, and Equipment |
Property, plant, and equipment as of December 31, 20062009 and 20052008 consist of the following:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Land | | $ | 475 | | | $ | 475 | |
| Building and improvements | | | 57,045 | | | | 56,895 | |
| Leasehold improvements | | | 14,662 | | | | 31,192 | |
| Construction-in-progress | | | 203 | | | | | |
| Laboratory and other equipment | | | 59,164 | | | | 57,395 | |
| Furniture, fixtures, software and computer equipment | | | 5,413 | | | | 4,675 | |
| | | | | | | | | |
| | | | 136,962 | | | | 150,632 | |
| Less, accumulated depreciation and amortization | | | (87,609 | ) | | | (90,097 | ) |
| | | | | | | | | |
| | | $ | 49,353 | | | $ | 60,535 | |
| | | | | | | | | |
| 2009 | | 2008 |
| Land | $ | 2,117 | | | $ | 2,117 | |
| Building and improvements | | 177,710 | | | | 74,343 | |
| Leasehold improvements | | 4,023 | | | | 2,720 | |
| Construction-in-progress | | 58,541 | | | | 78,702 | |
| Laboratory and other equipment | | 114,099 | | | | 75,935 | |
| Furniture, computer and office equipment, and other | | 15,964 | | | | 7,501 | |
| | | 372,454 | | | | 241,318 | |
| Less, accumulated depreciation and amortization | | (112,778 | ) | | | (99,283 | ) |
| | $ | 259,676 | | | $ | 142,035 | |
| | | | | | | | |
Building and improvements at December 31, 2009 includes $58.2 million of costs incurred by the Company’s landlord to construct new laboratory and office facilities in Tarrytown, New York in connection with the Company’s December 2006 lease, as amended, of these new facilities. In addition, construction-in-progress at December 31, 2009 and 2008 includes $27.8 million and $54.2 million, respectively, of costs incurred by the Company’s landlord in connection with these new facilities. See Note 11a.
The Company capitalized interest costs of $0.5 million in 2009. The Company did not capitalize any interest costs in 2008 or 2007.
Depreciation and amortization expense on property, plant, and equipment amounted to $14.3$14.2 million, $15.4$10.6 million, and $15.5$10.4 million for the years ended December 31, 2006, 2005,2009, 2008, and 2004,2007, respectively. Included in these amounts was $0.7 million, $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, and 2004, respectively.
| |
8. | Accounts Payable and Accrued Expenses |
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December 31, 20062009 and 20052008 consist of the following:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Accounts payable | | $ | 4,349 | | | $ | 4,203 | |
| Accrued payroll and related costs | | | 9,932 | | | | 10,713 | |
| Accrued clinical trial expense | | | 2,606 | | | | 3,081 | |
| Accrued expenses, other | | | 2,292 | | | | 3,048 | |
| Interest payable on convertible notes | | | 2,292 | | | | 2,292 | |
| | | | | | | | | |
| | | $ | 21,471 | | | $ | 23,337 | |
| | | | | | | | | |
F-18
| 2009 | | 2008 |
| Accounts payable | $ | 18,638 | | $ | 6,268 |
| Payable to Bayer HealthCare | | 1,186 | | | 9,799 |
| Accrued payroll and related costs | | 9,444 | | | 5,948 |
| Accrued clinical trial expense | | 11,673 | | | 4,273 |
| Accrued property, plant, and equipment expenses | | 1,883 | | | 5,994 |
| Accrued expenses, other | | 6,207 | | | 3,886 |
| $ | 49,031 | | $ | 36,168 |
| | | | | | |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
9. Deferred Revenue
Deferred revenue as of December 31, 20062009 and 20052008 consists of the following:
| | | | | | | | | |
| | | 2006 | | | 2005 | |
| |
| Current portion: | | | | | | | | |
| 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 | | | 2,045 | | | | 2,626 | |
| | | | | | | | | |
| | | $ | 23,543 | | | $ | 17,020 | |
| | | | | | | | | |
| Long-term portion: | | | | | | | | |
| Received from sanofi-aventis | | $ | 61,013 | | | $ | 69,142 | |
| Received from Bayer | | | 62,439 | | | | | |
| | | | | | | | | |
| | | $ | 123,452 | | | $ | 69,142 | |
| | | | | | | | | |
The Company’s Restated 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. Under the Company’s Restated Certificate of Incorporation, 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.
| 2009 | | 2008 |
| Current portion: | | | | | |
| Received from sanofi-aventis (see Note 3a) | $ | 17,523 | | $ | 21,390 |
| Received from Bayer HealthCare (see Note 3b) | | 9,884 | | | 9,884 |
| Received for technology license agreements (see Note 4) | | 11,579 | | | 11,579 |
| Other | | 5,558 | | | 4,651 |
| $ | 44,544 | | $ | 47,504 |
| |
| Long-term portion: | | | | | |
| Received from sanofi-aventis (see Note 3a) | $ | 90,933 | | $ | 105,586 |
| Received from Bayer HealthCare (see Note 3b) | | 46,951 | | | 56,835 |
| $ | 137,884 | | $ | 162,421 |
| | | | | | |
10. Convertible Debt
In October 2001, the Company completed a private placement ofissued $200.0 million aggregate principal amount of convertible senior subordinated notes which are convertible into shares of the Company’s Common Stock. See Note 11c.
In August 2003, Regeneron issued to Merck & Co., Inc., 109,450 newly issued unregistered shares of the Company’s Common Stock as consideration(“Notes”) in a private placement for a non-exclusive license agreement granted by Merckproceeds to the Company. In August 2004,Company of $192.7 million, after deducting the initial purchasers’ discount and out-of-pocket expenses (collectively, “Deferred Financing Costs”). The Notes bore interest at 5.5% per annum, payable semi-annually, and matured on October 17, 2008. Deferred Financing Costs, which were included in other assets, were amortized as interest expense over the period from the Notes’ issuance to stated maturity. During the second and third quarters of 2008, the Company repurchased these shares from Merck$82.5 million in principal amount of the Notes for $83.3 million and recognized a purchase price of $0.9 million basedloss on early extinguishment of debt, representing the premium paid on the fair market valueNotes plus related unamortized Deferred Financing Costs. The remaining $117.5 million of the shares on August 19, 2004. The sharesoutstanding Notes were subsequently retired. See Note 11d.repaid in full upon their maturity in October 2008.
In November 2006, the Company completed a public offering of 7.6 million shares of Common Stock at a price of $23.03 per share11. Commitments and received proceeds, after expenses, of $174.6 million.Contingencies
| |
11. | Commitments and Contingencies |
a. Leases
Descriptions of Lease Agreements
The Company currently leases approximately 236,000 square feet of laboratory and office facilities in Tarrytown, New York, under operating lease agreements. Ina December 2006 lease agreement, as amended (the “Tarrytown Lease”). The facilities leased by the Company entered intounder the Tarrytown Lease include (i) space in previously existing buildings, (ii) newly constructed space in two new buildings (“Buildings A and B”) that was completed during the third quarter of 2009 and, (iii) under a December 2009 amendment to the Tarrytown Lease, additional new operating lease agreement for approximately 221,000 square feet of laboratory and office space at the Company’s current Tarrytown location. Thethat is under construction in a third new lease includes approximately 27,000 square feet that the Company currently occupies (the “retained facilities”building (“Building C”) 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 areis expected to be completed in early 2009.mid-2011. The term of the lease is expected to commence in early-2008 andTarrytown Lease will expire approximately 16 years later. Under the new lease the Company also has various optionsin June 2024 and rights 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, andas well as early termination options for various portions of the Company’s retained facilities only.space exclusive of the newly constructed space in Buildings A and B. The leaseTarrytown Lease provides for monthly payments over theits term of the lease related to the Company’s retained facilities, the costs of construction and tenant improvements for the Company’s new facilities, and additional charges for utilities, taxes, and operating expenses. Certain premises under the Tarrytown Lease are accounted for as operating leases. However, for the newly constructed space that the Company is leasing, the Company is deemed, in substance, to be the owner of the landlord’s buildings in accordance with the application of FASB authoritative guidance, and the landlord’s costs of constructing these new facilities are required to be capitalized on the Company’s books as a non-cash transaction, offset by a corresponding lease obligation on the Company’s balance sheet.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
In connection with the newTarrytown Lease, at lease agreement, in December 2006,inception, 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.2009 and 2008.
In October 2008, the Company entered into a sublease with sanofi-aventis U.S. Inc. for office space in Bridgewater, New Jersey. The lease commenced in January 2009 and expires in July 2011. The Company also leasesformerly leased additional office space in Tarrytown, New York under operating subleases that ended at various times through September 2009.
The Company formerly leased manufacturing, office, and warehouse facilities in Rensselaer, New York under an operating lease agreement which expires in July 2012 and contains a renewal option to extend theagreement. The lease for an additional five-year term and a purchase option. The leases provideprovided for base rent plus additional rental charges for utilities, taxes, and operating expenses, as defined. In June 2007, the Company exercised a purchase option under the lease and, in October 2007, purchased the land and building.
The Company also leases certain laboratory and office equipment under operating leases which expire at various times through 2010.2011.
Based,Revisions of Previously Issued Financial Statements
The application of FASB authoritative guidance, under certain conditions, can result in part, upon budgeted construction and tenant improvementthe capitalization on a lessee’s books of a lessor’s costs related to our new operating lease forof constructing facilities to be constructedleased to the lessee. In mid-2009, the Company became aware that certain of these conditions were applicable to its Tarrytown Lease of new laboratory and office facilities in Buildings A and B. As a result, the Company is deemed, in substance, to be the owner of the landlord’s buildings, and the landlord’s costs of constructing these new facilities were required to be capitalized on the Company’s books as a non-cash transaction, offset by a corresponding lease obligation on the Company’s balance sheet. In addition, the land element of the lease should have been accounted for as an operating lease; therefore, adjustments to non-cash rent expense previously recognized in connection with these new facilities were also required. Lease payments on these facilities commenced in August 2009.
The Company revised its previously issued financial statements to capitalize the landlord’s costs of constructing the new Tarrytown New York,facilities which the Company is leasing and to adjust the Company’s previously recognized rent expense in connection with these facilities, as described above. These revisions primarily resulted in an increase to property, plant, and equipment and a corresponding increase in facility lease obligation (a long-term liability) at each balance sheet date. The Company also revised its statements of operations and statements of cash flows to reflect rent expense in connection with only the land element of its lease, with a corresponding adjustment to other long-term liabilities.
As previously disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended June 30 and September 30, 2009, the above described revisions consisted entirely of non-cash adjustments. They had no impact on the Company’s business operations, existing capital resources, or the Company’s ability to fund its operating needs, including the preclinical and clinical development of its product candidates. The revisions also had no impact on the Company’s previously reported net increases or decreases in cash and cash equivalents in any period and, except for the quarter ended March 31, 2009, had no impact on the Company’s previously reported net cash flows from operating activities, investing activities, and financing activities. In addition, these revisions had no impact on the Company’s previously reported current assets, current liabilities, and operating revenues. We have not amended previously issued financial statements because, after considering both qualitative and quantitative factors, the Company determined that the judgment of a reasonable person relying on the Company’s previously issued financial statements would not have been changed or influenced by these revisions.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
For comparative purposes, the impact of the above described revisions to the Company’s balance sheet as of December 31, 2008 is as follows:
Balance Sheet Impact at December 31, 2006,2008
(in millions)
| December 31, |
| 2008 |
| As originally reported | | | |
| Property, plant, and equipment, net | $ | 87.9 | |
| Total assets | | 670.0 | |
| | | | |
| Other long-term liabilities | | 5.1 | |
| Total liabilities | | 251.2 | |
| | | | |
| Accumulated deficit | | (875.9 | ) |
| Total stockholders’ equity | | 418.8 | |
| Total liabilities and stockholders’ equity | | 670.0 | |
| |
| As revised | | | |
| Property, plant, and equipment, net | $ | 142.0 | |
| Total assets | | 724.2 | |
| | | | |
| Facility lease obligation | | 54.2 | |
| Other long-term liabilities | | 2.4 | |
| Total liabilities | | 302.7 | |
| | | | |
| Accumulated deficit | | (873.3 | ) |
| Total stockholders’ equity | | 421.5 | |
| Total liabilities and stockholders’ equity | | 724.2 | |
For comparative purposes, the impact of the above described revisions to the Company’s statements of operations for the period(s) set forth below is as follows:
Statements of Operations Impact for the years ended December 31, 2008 and 2007
(in millions, except per share data)
| December 31, |
| 2008 | | 2007 |
| As originally reported | | | | | | | |
| Research and development expenses | $ | 278.0 | | | $ | 201.6 | |
| Selling, general, and administrative expenses | | 49.3 | | | | 37.9 | |
| Total expenses | | 328.3 | | | | 239.5 | |
| Net loss | | (82.7 | ) | | | (105.6 | ) |
| Net loss per share, basic and diluted | $ | (1.05 | ) | | $ | (1.59 | ) |
| |
| As revised | | | | | | | |
| Research and development expenses | $ | 274.9 | | | $ | 202.5 | |
| Selling, general, and administrative expenses | | 48.9 | | | | 37.9 | |
| Total expenses | | 324.7 | | | | 240.4 | |
| Net loss | | (79.1 | ) | | | (106.5 | ) |
| Net loss per share, basic and diluted | $ | (1.00 | ) | | $ | (1.61 | ) |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
These revised amounts are reflected in the Company’s financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2009.
Commitments under Operating Leases
The estimated future minimum noncancelable lease commitments under operating leases were as follows:
| | | | | | | | | | | | | |
December 31, | | Facilities | | | Equipment | | | Total | |
| |
| 2007 | | $ | 4,678 | | | $ | 291 | | | $ | 4,969 | |
| 2008 | | | 4,678 | | | | 212 | | | | 4,890 | |
| 2009 | | | 10,539 | | | | 124 | | | | 10,663 | |
| 2010 | | | 11,876 | | | | 13 | | | | 11,889 | |
| 2011 | | | 12,077 | | | | | | | | 12,077 | |
| Thereafter | | | 161,399 | | | | | | | | 161,399 | |
| | | | | | | | | | | | | |
| | | $ | 205,247 | | | $ | 640 | | | $ | 205,887 | |
| | | | | | | | | | | | | |
| December 31, | | | Facilities | | Equipment | | Total |
| 2010 | | $ | 5,919 | | | $ | 387 | | | $ | 6,306 |
| 2011 | | | 6,336 | | | | 160 | | | | 6,496 |
| 2012 | | | 5,020 | | | | 48 | | | | 5,068 |
| 2013 | | | 6,159 | | | | 2 | | | | 6,161 |
| 2014 | | | 6,262 | | | | | | | | 6,262 |
| Thereafter | | | 65,883 | | | | | | | | 65,883 |
| | $ | 95,579 | | | $ | 597 | | | $ | 96,176 |
Rent expense under operating leases was:
| | | | | | | | | | | | | |
Year Ending December 31, | | Facilities | | | Equipment | | | Total | |
| |
| 2006 | | $ | 4,492 | | | $ | 307 | | | $ | 4,799 | |
| 2005 | | | 4,606 | | | | 319 | | | | 4,925 | |
| 2004 | | | 5,351 | | | | 303 | | | | 5,654 | |
| Year Ending December 31, | | | Facilities | | Equipment | | Total |
| 2009 | | | $ | 7,722 | | | | $ | 395 | | | $ | 8,117 |
| 2008 | | | | 6,530 | | | | | 416 | | | | 6,946 |
| 2007 | | | | 5,551 | | | | | 363 | | | | 5,914 |
In addition to its rent expense for various facilities, the Company paid additional rental charges for utilities, real estate taxes, and operating expenses of $8.7$8.4 million, $9.5$8.4 million, and $6.0$8.8 million for the years ended December 31, 2006, 2005,2009, 2008, and 2004,2007, respectively.
b. Loan PayableFacility Lease Obligations
In March 2003, As described above, in connection with the application of FASB authoritative guidance to the Company’s lease of office and laboratory facilities in Buildings A and B, the Company entered intocapitalized the landlord’s costs of constructing the new facilities, which totaled $58.2 million as of December 31, 2009, and recognized a collaboration agreementcorresponding facility lease obligation of $58.2 million. The Company also recognized, as additional facility lease obligation, reimbursements totaling $23.6 million from the Company’s landlord during 2009 for tenant improvement costs that the Company incurred since, under FASB authoritative guidance, such payments that the Company receives from its landlord are deemed to be a financing obligation. Monthly lease payments on these facilities are allocated between the land element of the lease (which is accounted for as an operating lease) and the facility lease obligation, based on the estimated relative fair values of the land and buildings. The imputed interest rate applicable to the facility lease obligation is approximately 11%. The new facilities were placed in service by the Company in September 2009. For the year ended December 31, 2009, the Company recognized in its statement of operations $2.3 million of interest expense in connection with Novartis Pharma AG. In accordancethe facility lease obligation. At December 31, 2009 and 2008, the facility lease obligation balance in connection with that agreement, Regeneron funded its share of 2003 collaboration development expenses through a loan fromthese new facilities was $81.0 million and $54.2 million, respectively.
F-20
In addition, as described above, in December 2009, the Company amended its December 2006 agreement to lease additional new laboratory and office facilities in Building C that is under construction. In connection with the application of FASB authoritative guidance to the Company’s lease of these additional new facilities, the Company is deemed, in substance, to be the owner of the landlord’s building, and the landlord’s costs of constructing these new facilities is required to be capitalized on the Company’s books as a non-cash transaction, offset by a corresponding lease obligation on the Company’s balance sheet. As of December 31, 2009, the Company capitalized $27.8 million of the landlord’s costs of constructing the new facilities, and recognized a corresponding facility lease obligation of $27.8 million. Monthly lease payments on these facilities will commence in January 2011. Rent expense in connection with the land element of these additional facilities, which is accounted for as an operating lease, commenced in December 2009 and is recorded as a deferred liability until lease payments commence in January 2011. In addition,
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Novartis, which bore interest expense is imputed 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 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 adjustment9%, and is capitalized and deferred 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 atconnection with this facility lease obligation. At December 31, 20062009, the facility lease obligation balance in connection with these additional new facilities was approximately $209.4$28.0 million.
The estimated future minimum noncancelable commitments under these facility lease obligations, as of December 31, 2009, were as follows:
| December 31, | | | Buildings A and B | | Building C | | Total |
| 2010 | | | $ 8,152 | | | | | | | | $ | 8,152 |
| 2011 | | | 8,381 | | | | $ | 2,675 | | | | 11,056 |
| 2012 | | | 8,616 | | | | | 2,753 | | | | 11,369 |
| 2013 | | | 8,856 | | | | | 4,270 | | | | 13,126 |
| 2014 | | | 9,103 | | | | | 4,389 | | | | 13,492 |
| Thereafter | | | 99,981 | | | | | 48,172 | | | | 148,153 |
| | | $143,089 | | | | $ | 62,259 | | | $ | 205,348 |
In February 2010, the Company received $47.5 million from the Company’s landlord in connection with tenant improvement costs for Buildings A, B, and C. As a result, future minimum noncancellable commitments under facility lease obligations, as detailed in the table above, will increase by $3.9 million in each of the five years from 2010 to 2014 and $37.5 million for the years thereafter.
d.b. 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 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$2.8 million, $1.0$3.5 million, and $1.4$1.0 million for the years ended December 31, 2006, 2005,2009, 2008, and 2004,2007, respectively.
In connection with the Company’s receipt of marketing approval from the FDA for ARCALYST® (rilonacept) for the treatment of CAPS, in 2008, the Company commenced paying royalties under various licensing agreements based on ARCALYST net product sales. For the years ended December 31, 2009 and 2008, ARCALYST royalties totaled $1.5 million and $0.6 million, respectively, and are included in cost of goods sold.
In July 2002, Amgen Inc. and Immunex Corporation (now part of Amgen) granted2008, the Company and Cellectis S.A. (“Cellectis”) entered into an Amended and Restated Non-Exclusive License Agreement (the “Cellectis Agreement”). The Cellectis Agreement resolved a non-exclusivedispute between the parties related to the interpretation of a license agreement entered into by the parties in December 2003 pursuant to which the Company licensed certain patents and patent applications which may be usedfrom Cellectis. Pursuant to the Cellectis Agreement, 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 requireJuly 2008, the Company made a non-refundable $12.5 million payment to Cellectis (the “Cellectis Payment”) and agreed to pay royaltiesCellectis a low single-digit royalty based on revenue received by the netCompany from any future licenses or sales of the IL-1 Trap ifCompany’s VelociGene® or VelocImmune® products and when it is approved for sale. In total,services. No royalties are payable with respect to the royalty rate under these threeCompany’s VelocImmune license agreements would be inwith AstraZeneca and Astellas or the mid-single digits.Company’s antibody collaboration with sanofi-aventis. Moreover, no royalties are payable on any revenue from commercial sales of antibodies from the Company’s VelocImmune technology.
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)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
addition, The Company began amortizing the Cellectis Payment in the second quarter of 2008 in proportion to past and future anticipated revenues under the Company’s license agreements with AstraZeneca and Astellas and the Discovery and Preclinical Development Agreement under the Company’s antibody collaboration with sanofi-aventis (as amended in November 2009). In 2009 and 2008, the Company would be required to pay royalties, at staggered rates in the mid-single digits, based on the net salesrecognized $2.3 million and $2.7 million, respectively, 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 Companyexpense in connection with these agreements,the Cellectis Payment. At December 31, 2009 and 2008, the unamortized balance of the Cellectis Payment, which were recognized as contract research and development revenue, research progress payments, orwas included in other contract income, as applicable, totaled $51.1 million, $83.1assets, was $7.6 million and $198.7$9.8 million, respectively. The Company estimates that it will recognize expense of $1.1 million in 2006, 2005, and 2004, 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 $75.32010, $1.0 million in 2006, 2005,2011, and 2004, respectively. Significant agreements$0.9 million in each of this kind are described below.2012, 2013, and 2014, in connection with the Cellectis Payment.
a. The sanofi-aventis Group12. Stockholders Equity
The Company’s Restated Certificate of Incorporation 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 a share-for-share basis. Holders of Class A Stock have rights and privileges identical to Common Stockholders except that each share of Class A is entitled to ten votes per share, while each share of Common Stock is entitled to one vote per share. Class A Stock may only be transferred to specified Permitted Transferees, as defined. Under the Company’s Restated Certificate of Incorporation, 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.
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. See Note 3.
In January 2005, the Company andDecember 2007, sanofi-aventis amended the Aventis Agreement to exclude intraocular deliverypurchased 12 million newly issued, unregistered shares of the VEGF TrapCompany’s Common Stock for an aggregate cash price of $312.0 million. As a condition to the eye (“Intraocular Delivery”) from joint development under theclosing of this transaction, sanofi-aventis entered into an investor 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. In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to the Company, which was receivedamended in January 2006.November 2009. Under the Aventis Agreement, as amended investor agreement, sanofi-aventis has three demand rights to require the Company to use all reasonable efforts to conduct a registered underwritten public offering with respect to shares of the Company’s Common Stock beneficially owned by sanofi-aventis immediately after the closing of the transaction. Until the later of the fifth anniversaries of the expiration or earlier termination of the License and Collaboration Agreement under the Company’s antibody collaboration with sanofi-aventis (see Note 3) and the Company’s collaboration agreement with sanofi-aventis for the development and commercialization of aflibercept (see Note 3), sanofi-aventis will share co-promotion rights and profits on sales, if any,be bound by certain “standstill” provisions. These provisions include an agreement not to acquire more than a specified percentage of the VEGF Trap outside of Japan, for disease indications included in the companies’ collaboration. The Company is entitled to a royalty of approximately 35% on annual salesoutstanding shares of the VEGF Trap in Japan,Company’s Class A Stock and Common Stock. The percentage is currently 25% and will increase to 30% after December 20, 2011. Under the amended investor agreement, sanofi-aventis has also agreed not to dispose of any shares of the Company’s Common Stock that were beneficially owned by sanofi-aventis immediately after the closing of the transaction until December 20, 2017, subject to certain potential adjustments. The Company may also receive uplimited exceptions. Following December 20, 2017, sanofi-aventis will be permitted to $400.0 millionsell shares of the Company’s Common Stock (i) in additional milestone payments upon receipt of specified marketing approvals. This total includes up to $360.0 million in milestone payments relateda registered underwritten public offering undertaken pursuant to the receiptdemand registration rights granted to sanofi-aventis and described above, subject to the underwriter’s broad distribution of marketing approvals for upsecurities sold, (ii) pursuant to eight VEGF Trap oncologyRule 144 under the Securities Act and transactions exempt from registration under the Securities Act, subject to a volume limitation of one million shares of the Company’s Common Stock every three months and a prohibition on selling to beneficial owners, or persons that would become beneficial owners as a result of such sale, of 5% or more of the outstanding shares of the Company’s Common Stock, and (iii) into an issuer tender offer, or a tender offer by a third party that is recommended or not opposed by the Company’s Board of Directors. Sanofi-aventis has agreed to vote, and cause its affiliates to vote, all shares of the Company’s voting securities they are entitled to vote, at sanofi-aventis’ election, either as recommended by the Company’s Board of Directors or proportionally with the votes cast by the Company’s other indications inshareholders, except with respect to certain change of control transactions, liquidation or dissolution, stock issuances equal to or exceeding 10% of the United Statesthen outstanding shares or voting rights of the European Union. Another $40.0 million of milestone payments relateCompany’s Class A Stock and Common Stock, and new equity compensation plans or amendments if not materially consistent with the Company’s historical equity compensation practices. The rights and restrictions under the investor agreement are subject to receipt of marketing approvals for up to five VEGF Trap oncology indications in Japan. In December 2004, the Company earned a $25.0 million payment from sanofi-aventis, which was received in January 2005,termination upon the achievementoccurrence of an early-stage clinical milestone.certain events.
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 $205.0 million as of December 31, 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)
For the years ended December 31, 2009, 2008, and 2007
(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.13. Long-Term Incentive Plans
Revenue related to payments from sanofi-aventis is being recognized in accordance with SAB 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 related 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, and $78.3 million of contract research and development revenue in 2006, 2005, and 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, 2006 and 2005, amounts receivable from sanofi-aventis totaled $6.9 million and $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 collaboration 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 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:
| | |
| 2007: | 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.
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 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 the IL-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.
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. In addition, forgiveness of the 2003 Loan and accrued interest in 2004 was recognized as a research progress payment.
d. The Procter & Gamble Company
In May 1997, the Company entered into a long-term collaboration 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 companies’ collaboration agreement (the “P&G Agreement”), Procter & Gamble was obligated to fund Regeneron research on therapeutic areas that were of particular interest to Procter & 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.
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, and Procter & Gamble is entitled to receive a small royalty on any sales of 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 and $10.5 million in 2005 and 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.
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, and 2004, the Company recognized $1.8 million, $2.2 million, and $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 modified portions of its facility for manufacture of the Intermediate and assisted Merck in securing regulatory approval for such manufacture in the Company’s facility. The Merck Agreement called 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, at which time the Merck Agreement 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 were recognized as contract manufacturing revenue as follows: (i) payments for Internal Costs were recognized as the activities were performed, (ii) the Facility Fee and Additional Payments were recognized over the period to which they related, (iii) payments for Capital Costs were deferred and recognized as Intermediate was shipped to Merck, and (iv) payments related to the manufacture of Intermediate during the Production Period (“Manufacturing Payments”) were recognized after the Intermediate was tested and approved by, and shipped (FOB Shipping Point) to, Merck.
In 2006, 2005, and 2004, Merck contract manufacturing revenue totaled $12.3 million, $13.7 million, and $18.1 million, respectively. Such amounts include $1.2 million, $1.4 million, and $3.6 million of previously deferred Capital Costs, respectively.
| |
14. | Long-Term Incentive Plans |
During 2000, the Company established the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan (“2000which, as amended and restated (the “2000 Incentive Plan”) which, as amended,, provides for the issuance of up to 18,500,00028,816,184 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 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. The maximum term of options that have been awarded under the 2000 Incentive Plan is ten years.
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 vestvested 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 of December 31, 2006,2009, there were 4,132,2493,949,767 shares available for future grants under the 2000 Incentive Plan.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
a. Stock Options
Transactions involving stock option awards during 2004, 2005, and 20062009 under the 1990 and 2000 Incentive Plans are summarized in the table below.
| | | | | | | | | | | | | | | | | |
| | | | | | 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) | | | | | |
| | | | | Weighted- | | |
| | | | | Average | | |
| | | | | Remaining | | |
| | | | | Contractual | | Intrinsic |
| Number of | | Weighted-Average | | Term | | Value |
| Stock Options: | | Shares | | Exercise Price | | (in years) | | (in thousands) |
| Outstanding at December 31, 2008 | 20,133,910 | | | | $ | 17.53 | | | | | | | | | | |
| 2009: Granted | 3,490,560 | | | | $ | 20.69 | | | | | | | | | | |
| Forfeited | (390,328 | ) | | | $ | 19.17 | | | | | | | | | | |
| Expired | (74,589 | ) | | | $ | 21.46 | | | | | | | | | | |
| Exercised | (1,370,798 | ) | | | $ | 10.19 | | | | | | | | | | |
| Outstanding at December 31, 2009 | 21,788,755 | | | | $ | 18.45 | | | | 6.45 | | | | $ | 150,472 | |
| Vested and expected to vest at December 31, 2009 | 21,263,460 | | | | $ | 18.44 | | | | 6.39 | | | | $ | 147,516 | |
| Exercisable at December 31, 2009 | 12,504,511 | | | | $ | 18.18 | | | | 4.98 | | | | $ | 96,967 | |
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 | |
The Company satisfies stock option exercises with newly issued shares of the Company’s Common Stock. The total intrinsic value of stock options exercised during 2006, 2005,2009, 2008, and 20042007 was $13.2 million, $1.6$11.9 million, and $1.3$12.6 million, respectively. The intrinsic value represents the amount by which the 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 average market price of the Company’s Common Stock on the date of grant.grant (“Market Price”). 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, 2004, 2005,2007, 2008, and 2006.
| | | | | | | | | | | | | |
| | | | | | Weighted-
| | | Weighted-
| |
| | | Number of
| | | Average Exercise
| | | Average Fair
| |
| | | Options Granted | | | Price | | | Value | |
| |
2004: | | | | | | | | | | | | |
| Exercise price equal to market price | | | 2,796,873 | | | $ | 9.89 | | | $ | 7.53 | |
| Exercise price greater than market price | | | 31,611 | | | $ | 10.44 | | | $ | 6.10 | |
| | | | | | | | | | | | | |
| Total 2004 grants | | | 2,828,484 | | | $ | 9.90 | | | $ | 7.51 | |
| | | | | | | | | | | | | |
2005: | | | | | | | | | | | | |
| Exercise price equal to market price | | | 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.2009. The fair value of each option granted under the 2000 Incentive Plan during 2009, 2008, and 2007 was estimated on the date of grant using the Black-Scholes option-pricing model.
NOTES TO FINANCIAL STATEMENTS — (Continued) | | | Weighted- | | Weighted- |
| Number of | | Average Exercise | | Average Fair |
| Options Granted | | Price | | Value |
| 2007: | | | | | | | | | | | | | |
| Exercise price equal to Market Price | | 3,415,743 | | | | $ | 21.78 | | | | $ | 11.13 | |
| 2008: | | | | | | | | | | | | | |
| Exercise price equal to Market Price | | 4,126,600 | | | | $ | 17.38 | | | | $ | 8.45 | |
| 2009: | | | | | | | | | | | | | |
| Exercise price equal to Market Price | | 3,490,560 | | | | $ | 20.69 | | | | $ | 10.89 | |
(Unless otherwise noted, dollars in thousands, except per share data)
The following table summarizesFor the years ended December 31, 2009, 2008, and 2007, $27.4 million, $30.3 million, and $28.0 million, respectively, of non-cash stock-based compensation expense related to non-performance based stock option information as of December 31, 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 | | | 2,281,208 | | | | 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 expenseawards was recognized in operating expenses is provided in Note 2.expenses. As of December 31, 2006,2009, there was $44.0$44.8 million of stock-based compensation cost related to outstanding nonvestednon-performance based 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 723,092were 1,939,760 performance-based options which arewere unvested as of December 31, 20062009 of which, subject to the optionee satisfying certain service conditions, 664,760 options that were issued in 2007 would vest upon achieving certain defined sales targets for the Company’s products and 1,275,000 options that were issued in 2008 and 2009 would become vestedvest upon achieving certain development milestones for the attainmentCompany’s product candidates. In light of certainthe status of the Company’s development programs at December 31, 2009, the Company estimates that approximately 850,000 of the performance-based options tied to achieving development milestones will vest since
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
the Company considers these options’ performance and service conditions. Potentialconditions to be probable of attainment. As a result, in 2009, the Company recognized $1.7 million of non-cash stock-based compensation cost, measured on the grant date,expense related to these performance options. As of December 31, 2009, there was $8.7 million of stock-based compensation cost which had not yet been recognized in operating expenses related to the performance-based options totals $2.7that the Company currently estimates will vest. The Company expects to recognize this compensation cost over a weighted-average period of 2.5 years. In addition, potential compensation cost of $7.7 million related to those performance options whose performance conditions (based on current facts and circumstances) are not currently considered by the Company to be probable of attainment will begin to be recognized only if, and when, the Company estimates that it is probable that these options’ performance condition is consideredoptions will vest. The Company’s estimates of the number of performance-based options that will vest will be revised, if necessary, in subsequent periods. Changes in these estimates may materially affect the amount of stock-based compensation recognized in future periods related to be probable of attainment.performance-based options.
Fair value Assumptions:
The following table summarizes the weighted average values of the assumptions used in computing the fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Incentive Plangrants during 2006, 2005,2009, 2008, and 2004 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.2007.
| | 2009 | | 2008 | | 2007 |
| Expected volatility | | 54 | % | | 53 | % | | 53 | % |
| Expected lives from grant date | | 5.9 years | | 5.5 years | | 5.6 years |
| Expected dividend yield | | 0 | % | | 0 | % | | 0 | % |
| Risk-free interest rate | | 2.87 | % | | 1.73 | % | | 3.60 | % |
Expected volatility 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 previously issued employee and board of directors option grants with similar exercise prices.grants. 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 summarizesrisk-free interest rates are based on quoted U.S. Treasury rates for securities with maturities approximating the weighted average values of the assumptions used in computing the fair value of option grants during 2006, 2005, and 2004.
| | | | | | | | | | | | | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Expected volatility | | | 67% | | | | 71% | | | | 80% | |
| Expected lives from grant date | | | 6.5 years | | | | 5.9 years | | | | 7.5 years | |
| Expected dividend yield | | | 0% | | | | 0% | | | | 0% | |
| Risk-free interest rate | | | 4.51% | | | | 4.16% | | | | 4.03% | |
F-29
REGENERON PHARMACEUTICALS, INC.options’ expected lives.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
2005 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 executive or senior 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 recipients 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 in 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. Restricted Stock
A summary of the Company’s activity related to Restricted Stock awards for the yearsyear ended December 31, 2004, 2005, and 20062009 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 | | | — | | | | | |
| | | | | | | | | | | |
| | | | Weighted- |
| | | | Average |
| | Number of | | Grant Date |
| Restricted Stock: | | | Shares | | Fair Value |
| Outstanding at December 31, 2008 | | 500,000 | | $ | 21.92 |
| Outstanding at December 31, 2009 | | 500,000 | | $ | 21.92 |
In December 2007, the Company awarded a grant of Restricted Stock to the Company’s executive vice president. In accordance with generally accepted accounting principles, the Company recordedrecords unearned compensation in Stockholders’ Equity related to grants of Restricted Stock awards. This amount wasis based on the fair market value of shares of the Company’s Common Stock on the date of grant and wasis expensed, on a pro rata basis, over the period that the restriction on these shares lapsed,lapses, which was approximately twois five years for grants issuedthe grant made in 2003 and 18 months for grants issued in 2004.2007. In addition, unearned compensation in Stockholders’ Equity wasis 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 grantsthe 2007 grant of Restricted Stock, awards, the Company recorded unearned compensation in Stockholders’ Equity of $1.0$11.0 million, in 2004 and in connectionwhich was combined 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.additional paid-in capital. The Company recognized non-cash stock-based employee compensation expense from Restricted Stock awards of $0.3$2.2 million, $1.9$2.2 million, and $2.5$0.1 million in 2006, 2005,2009, 2008, and 2004,2007, respectively. As of December 31, 2006,2009, there were no500,000 unvested shares
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
of restricted stockRestricted Stock outstanding and all$6.5 million of stock-based compensation expensecost related to these awardsunvested shares which had not yet been recognized.recognized in operating expenses. The Company expects to recognize this compensation cost over a weighted-average period of 3 years.
| |
15. | Executive Stock Purchase Plan |
14. 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, 2006,2009, there were 44,246 shares available for future grants under the Plan.
| |
16. | Employee Savings Plan |
15. 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$2.6 million in 2006, $2.02009, $1.5 million in 2005,2008, and $0.8$1.4 million in 2004;2007, and such amounts were accrued as liabilities at December 31, 2006, 2005,2009, 2008, and 2004,2007, respectively. During the first quarter of 2007, 2006,2010, 2009, and 2005,2008, the Company contributed 64,532, 120,960,111,419, 81,086, and 90,38558,575 shares, respectively, of Common Stock to the Savings Plan in satisfaction of these obligations.
16. Income Taxes
In 2006, 2005, and 2004, For the year ended December 31, 2009, the Company recognizedincurred a net operating loss for tax purposes and accordingly, norecognized a full tax valuation against deferred taxes. In 2009, the Company recognized a $4.1 million income tax benefit, consisting of (i) $2.7 million resulting from a provision for income taxes has been recorded in the accompanying financial statements. ThereWorker, Homeownership, and Business Assistance Act of 2009 that allows the Company to claim a refund of U.S. federal alternative minimum tax (“AMT”) that the Company paid in connection with its 2007 U.S. federal income tax return, as described below, (ii) $0.7 million income tax benefit resulting from a provision in the American Recovery and Reinvestment Act of 2009 that allows the Company to claim a refund for a portion of its unused pre-2006 research tax credits on its 2009 U.S. federal income tax return, and (iii) $0.7 million income tax benefit in connection with the net tax effect of the Company’s unrealized gain on “available-for-sale” marketable securities, which is noincluded in other comprehensive income in 2009.
For the year ended December 31, 2008, the Company incurred a net loss for tax purposes and recognized a full tax valuation against deferred taxes. During 2008, the Company implemented a tax planning strategy to utilize net operating loss carry-forwards (which were otherwise due to expire in 2008 through 2012) on its 2007 U.S. federal and New York State income tax returns that were filed in September 2008. The tax planning strategy included electing, for tax purposes only, to capitalize $142.1 million of 2007 research and development (“R&D”) costs and amortize these costs over ten years for tax purposes. By capitalizing these R&D costs, the Company was able to generate taxable income for tax year 2007 and utilize the net operating loss carry-forwards to offset this taxable income. As a result, the Company incurred and paid income tax expense of $3.1 million in 2008, which related to U.S. federal and New York State AMT and included $0.2 million of interest and penalties. This expense was partly offset by the Company’s recognition of a $0.7 million income tax benefit in 2008, resulting from a provision in the Housing Assistance Tax Act of 2008 that allowed the Company to claim a refund for a portion of its unused pre-2006 research tax credits on its 2008 U.S federal or state income taxes fortax return.
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2006, 2005,2009, 2008, and 2004 since2007
(Unless otherwise noted, dollars in thousands, except per share data)
For the year ended December 31, 2007, the Company has incurredhad projected to incur a net operating lossesloss for tax purposes since inception and establishedrecognized a full tax valuation allowance equal toagainst deferred taxes. Accordingly, no provision or benefit for income taxes was recorded in 2007. Subsequently, the total deferredCompany implemented the tax asset.planning strategy described above, which resulted in taxable income in 2007 on which the Company recognized and paid U.S. federal and New York State AMT in 2008.
The tax effect of temporary differences, net operating loss carry-forwards, and research and experimental tax credit carry-forwards as of December 31, 2006, 2005,2009 and 2004 was2008 is as follows:
| | | | | | | | | | | | | | |
| | | 2006 | | 2005 | | 2004 | | |
| | | 2009 | | 2008 |
| Deferred tax assets: | | | | | | | | | | | | | | | | | | | | |
| Net operating loss carry-forward | | $ | 177,034 | | | $ | 161,060 | | | $ | 135,099 | | | $ | 200,266 | | | $ | 161,790 | |
| Fixed assets | | | 15,640 | | | | 12,873 | | | | 9,772 | | | | 13,833 | | | | 18,612 | |
| Deferred revenue | | | 58,739 | | | | 34,284 | | | | 28,527 | | | | 73,865 | | | | 85,251 | |
| Deferred compensation | | | | 29,736 | | | | 22,942 | |
| Research and experimental tax credit carry-forward | | | 23,248 | | | | 23,074 | | | | 20,772 | | | | 22,377 | | | | 22,295 | |
| Capitalized research and development costs | | | 19,555 | | | | 24,015 | | | | 28,559 | | | | 49,107 | | | | 59,661 | |
| Other | | | 18,110 | | | | 12,095 | | | | 4,168 | | | | 10,142 | | | | 9,825 | |
| Valuation allowance | | | (312,326 | ) | | | (267,401 | ) | | | (226,897 | ) | | | (399,326 | ) | | | (380,376 | ) |
| �� | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
| | | | — | | | | — | | | | — | | |
| | | | | | | | | |
The Company’s valuation allowance increased by $44.9$19.0 million in 2006,2009, due primarily to increasesthe increase in the Company’s net operating loss carry-forward andcarry-forward. In 2008, 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$37.4 million, in 2005, due primarily to anthe 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.capitalized research and development costs, resulting from the implementation of the tax planning strategy described above.
For all years presented, the Company’s effective The Company is primarily subject to U.S. federal and New York State income tax rate is zero.tax. The difference between the Company’s effective income tax rate and the FederalU.S federal statutory rate of 34%35% is primarily 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. Due to the Company’s history of losses, all tax years remain open to examination by U.S. federal and state tax authorities. As described in Note 2 under “Income Taxes”, the implementation of FASB authoritative guidance on January 1, 2007, and for the years ended December 31, 2009, 2008, and 2007, had no impact on the Company’s financial statements as the Company has not recognized any income tax positions that were deemed uncertain under the prescribed recognition thresholds and measurement attributes.
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
As of December 31, 2006,2009 and 2008, the Company had no accruals for interest or penalties related to income tax matters.
As of December 31, 2009, the Company had available for tax purposes unused net operating loss carry-forwards of $446.1$516.3 million which will expire in various years from 20072018 to 20262029 and included $3.0$21.7 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 20072010 to 2026.2029. 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.
17. Legal Matters
From time to time, the Company is a party to legal proceedings in the course of the Company’s business. The Company does not expect any such current legal proceedings to have a material adverse effect on the Company’s business or financial condition. Legal costs associated with the Company’s resolution of legal proceedings are expensed as incurred.
| |
19. | Net Income (Loss) Per Share |
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
18. Net Loss Per Share Data
The Company’s basic net income (loss)loss per share amounts have been computed by dividing net income (loss)loss by the weighted average number of Common and Class A shares outstanding. The diluted net incomeNet loss per share is based upon the weighted average number of sharespresented on a combined basis, inclusive of Common Stock and Class A Stock outstanding, as each class of stock has equivalent economic rights. In 2009, 2008, and of the common stock equivalents outstanding when dilutive. In 2006 and 2005,2007, the Company reported net losses; therefore, no 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, | |
| | | 2006 | | | 2005 | | | 2004 | |
| |
| Net income (loss) (Numerator) | | $ | (102,337 | ) | | $ | (95,446 | ) | | $ | 41,699 | |
| Shares, in thousands (Denominator): | | | | | | | | | | | | |
| Weighted-average shares for basic per share calculations | | | 57,970 | | | | 55,950 | | | | 55,419 | |
| Effect of stock options | | | | | | | | | | | 711 | |
| Effect of restricted stock awards | | | | | | | | | | | 42 | |
| | | | | | | | | | | | | |
| Adjusted weighted-average shares for diluted per share calculations | | | 57,970 | | | | 55,950 | | | | 56,172 | |
| | | | | | | | | | | | | |
| Basic net income (loss) per share | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.75 | |
| Diluted net income (loss) per share | | $ | (1.77 | ) | | $ | (1.71 | ) | | $ | 0.74 | |
| | December 31, |
| | 2009 | | 2008 | | 2007 |
| Net loss (Numerator) | | $ | (67,830 | ) | | $ | (79,129 | ) | | $ | (106,519 | ) |
| Weighted-average shares, in thousands (Denominator) | | | 79,782 | | | | 78,827 | | | | 66,334 | |
| Basic and diluted net loss per share | | $ | (0.85 | ) | | $ | (1.00 | ) | | $ | (1.61 | ) |
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, 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, | | |
| | | 2006 | | 2005 | | 2004 | | | December 31, |
| | | 2009 | | 2008 | | 2007 |
| Options: | | | | | | | | | | | | | | | | | | |
| Weighted average number, in thousands | | | 14,139 | | | | 13,299 | | | | 10,110 | | | 20,040 | | | 17,598 | | 15,385 |
| Weighted average exercise price | | $ | 14.41 | | | $ | 14.59 | | | $ | 23.82 | | | $ | 17.66 | | $ | 17.31 | | $ | 15.97 |
| Restricted Stock: | | | | | | | | | | | | | | | | | | | | |
| Weighted average number, in thousands | | | 23 | | | | 165 | | | | 6 | | | 500 | | 500 | | 21 |
| Convertible Debt: | | | | | | | | | | | | | | | | | | |
| Weighted average number, in thousands | | | 6,611 | | | | 6,611 | | | | 6,611 | | | | | | | 6,611 |
| Conversion price | | $ | 30.25 | | | $ | 30.25 | | | $ | 30.25 | | | | | | | $ | 30.25 |
19. Statement of Cash Flows
In Supplemental disclosure of noncash investing and financing activities:
Included in accounts payable and accrued expenses at December 31, 2009, 2008, and 2007 were $9.8 million, $7.0 million, and $1.7 million of accrued capital expenditures, respectively.
Pursuant to the application of FASB authoritative guidance to the Company’s lease of office and laboratory facilities in Tarrytown, New York (see Note 11a), the Company recognized a facility lease obligation of $31.7 million and $32.6 million during 2009 and 2008, respectively, in connection with capitalizing, on the Company’s stock option exchange program (see Note 14), on January 5, 2005, eligible employees elected to exchange options with a totalbooks, the landlord’s costs of 3,665,819 underlying sharesconstructing new facilities that the Company has leased.
Included in accounts payable and accrued expenses at December 31, 2008, 2007, and 2006 were $1.5 million, $1.1 million, and $1.4 million, respectively, of accrued 401(k) Savings Plan contribution expense. During the first quarter of 2009, 2008, and 2007, the Company contributed 81,086, 58,575, and 64,532, respectively, of Common Stock andto the 401(k) Savings Plan in satisfaction of these obligations.
Included in other assets at December 31, 2009 was $0.7 million due to the Company issued 1,997,840 replacementin connection with employee exercises of stock options with an exercise price of $8.50 per share.
Through 2006, the Company’s operations were 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.December 2009.
Research Included in marketable securities at December 31, 2009, 2008, and development: Includes all activities related to the discovery2007 were $0.6 million, $1.7 million, and $2.2 million 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).accrued interest income, respectively.
Contract manufacturing: Includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. During 2006, 2005, and 2004, the Company produced Intermediate under the Merck Agreement, which expired in October 2006 (see Note 13).
F-34
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
20. Subsequent Events
The tables below present information about reported segmentsCompany has evaluated subsequent events through February 18, 2010, the date on which the financial statements were issued, and has determined that there are no subsequent events that require adjustments to the financial statements for the yearsyear ended December 31, 2006, 2005, and 2004:
| | | | | | | | | | | | | | | | | |
| | | Research &
| | | Contract
| | | Reconciling
| | | | |
| | | Development | | | Manufacturing | | | Items | | | Total | |
| |
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 | |
| Depreciation and amortization | | | 14,461 | | | | — | (1) | | $ | 1,043 | | | | 15,504 | |
| Non-cash compensation expense | | | 21,492 | | | | 367 | | | | — | | | | 21,859 | |
| Interest expense | | | — | | | | — | | | | 12,046 | | | | 12,046 | |
| Other contract income | | | 30,640 | | | | — | | | | — | | | | 30,640 | |
| Net income (loss) | | | (97,970 | ) | | | 4,189 | | | | (1,665 | ) (2) | | | (95,446 | ) |
| Capital expenditures | | | 4,667 | | | | — | | | | — | | | | 4,667 | |
| Total assets | | | 95,645 | | | | 4,315 | | | | 323,541 | (4) | | | 423,501 | |
2004 | | | | | | | | | | | | | | | | |
| Revenues | | $ | 155,927 | | | $ | 18,090 | | | | — | | | $ | 174,017 | |
| Depreciation and amortization | | | 14,319 | | | | — | (1) | | $ | 1,043 | | | | 15,362 | |
| Non-cash compensation expense | | | 2,543 | | | | — | | | | — | | | | 2,543 | |
| Interest expense | | | 126 | | | | — | | | | 12,049 | | | | 12,175 | |
| Other contract income | | | 42,750 | | | | — | | | | — | | | | 42,750 | |
| Net income (loss) | | | 45,395 | | | | 2,876 | | | | (6,572 | ) (2) | | | 41,699 | |
| Capital expenditures | | | 5,972 | | | | — | | | | — | | | | 5,972 | |
| Total assets | | | 111,038 | | | | 6,532 | | | | 355,538 | (4) | | | 473,108 | |
2009. As described in Note 11a under “Facility Lease Obligations,” in February 2010, the Company received $47.5 million from the Company’s landlord in Tarrytown, New York, in connection with tenant improvement costs.
| | |
(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 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-35
REGENERON PHARMACEUTICALS, INC.21. Unaudited Quarterly Results
NOTES TO FINANCIAL STATEMENTS — (Continued)
(Unless otherwise noted, dollars in thousands, except per share data)
| |
21. | Unaudited Quarterly Results |
Summarized quarterly financial data for the years ended December 31, 20062009 and 20052008 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 |
| | | March 31, 2009 | | June 30, 2009 | | September 30, 2009 | | December 31, 2009 |
| | | (Unaudited) |
| Revenues | | | $ | 74,981 | | | $ | 90,032 | | | $ | 117,455 | | | $ | 96,800 | |
| Net loss | | | | (15,388 | ) | | | (14,938 | ) | | (1,015 | ) | | | (36,489 | ) |
| Net loss per share, basic and diluted: | | | $ | (0.19 | ) | | $ | (0.19 | ) | | $ | (0.01 | ) | | $ | (0.46 | ) |
| | | Ended
| | Ended
| | Ended
| | Ended
| | | | | | | | | |
| | | March 31,
| | June 30,
| | September 30,
| | December 31,
| | | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | 2006 | | 2006 | | 2006 | | 2006 | | | Ended | | Ended | | Ended | | Ended |
| | | (Unaudited) | | | March 31, 2008 | | June 30, 2008 | | September 30, 2008 | | December 31, 2008 |
| | | (Unaudited) |
| Revenues | | $ | 18,219 | | | $ | 19,258 | | | $ | 15,624 | | | $ | 10,346 | | | $ | 56,383 | | | $ | 60,653 | | | $ | 65,584 | | | $ | 55,837 | |
| Net loss | | | (20,380 | ) | | | (23,576 | ) | | | (27,410 | ) | | | (30,971 | ) | | | (11,847 | ) | | (18,689 | ) | | (19,084 | ) | | (29,509 | ) |
| Net loss per share, basic and diluted: | | $ | (0.36 | ) | | $ | (0.41 | ) | | $ | (0.48 | ) | | $ | (0.51 | ) | | $ | (0.15 | ) | | $ | (0.24 | ) | | $ | (0.24 | ) | | $ | (0.37 | ) |
F-35
| | | | | | | | | | | | | | | | | |
| | | 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-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., 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. |
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Exhibit
| | |
Number | | Description |
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| | 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. |
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(b) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1996 filed November 5, 1996. |
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(c) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002. |
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(d) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2004, filed March 11, 2005. |
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(e) | | Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043). |
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(f) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2001, filed March 22, 2002. |
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(g) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2002, filed March 31, 2003. |
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(h) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2004, filed August 5, 2004. |
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(i) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed November 17, 2004. |
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(j) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005. |
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(k) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004. |
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(l) | | Incorporated by reference from the Company’s registration statement onForm S-3 (filenumber 333-74464). |
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(m) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002. |
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(n) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003. |
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(o) | | Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003. |
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(p) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
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(q) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 25, 2006. |
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(r) | | Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2005, filed February 28, 2006. |
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(s) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed October 18, 2006. |
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(t) | | Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006. |
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* | | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2. |
