(Mark One) | ||
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, | ||
OR | ||
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
New York | 13-3444607 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No) | |
777 Old Saw Mill River Road, Tarrytown, New York | 10591-6707 | |
(Address of principal executive offices) | (Zip code) |
$398,715,000.10-K/A10-K or any amendment to this Form 10-K/A.10-K. o2003,2004, was $546,128,000.29, 2004:28, 2005:
Class of Common Stock | Number of Shares | |
Class A Stock, $.001 par value | ||
Common Stock, $.001 par value |
The
EXPLANATORY NOTE:
This Amendment No. 2 on Form 10-K/A (“Amendment No. 2”) to the Annual Report on Form 10-K of Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2003, as previously amended by Amendment No. 1 on Form 10-K/A (“Amendment No. 1”) filed on March 19, 2004, is being filed to (i) include the audited financial statements of Amgen-Regeneron Partners, an entity which is 50% owned by Regeneron, as of and for the year ended December 31, 2001 and the accompanying audit report of Ernst & Young LLP, independent auditors and (ii) include as Exhibit 23.2 a consent of Ernst & Young LLP. In addition, the audit report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, on page F-2 has been updated to include new descriptive language required under standards adopted by the Public Company Accounting Oversight Board since Amendment No. 1 was filed. In all other respects, the text of this Amendment No. 2, including the financial statements filed as part of this report, remains unchanged from Amendment No. 1.
Item 1. | Business |
Below
candidates as of December 31, 2004:
• | VEGF |
• | the VEGF Trap | |
• | circulating levels of the VEGF Trap at the highest dose (1.6 milligrams per kilogram of body weight (mg/kg) per week) were consistent with levels observed to be effective in preclinical models. |
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Detailed results of the trial are expected to be submitted for publication in a peer-reviewed journal once all patients complete the extended treatment phase available to patients who maintained stable disease after the initial 10-week treatment period and the full results of the extension phase have been analyzed. | ||
A second phase 1 trial, which commenced in April 2004, is studying higher VEGF Trap exposures through intravenous administration. This study is also designed to evaluate the safety, tolerability, and pharmacokinetics of intravenous VEGF Trap in advanced cancer patients. | ||
We and the sanofi-aventis Group plan to initiate multiple clinical studies in 2005 to evaluate the VEGF Trap as a single-agent and in combination with other therapies in various cancer indications. During the third quarter of 2004, the U.S. Food and Drug Administration (FDA) granted Fast Track designation to the VEGF Trap for a specific niche cancer indication. As a result of the FDA’s decision, we and sanofi–aventis plan to initiate a clinical trial in that indication in 2005. | ||
In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals, Inc. (now part of the sanofi-aventis Group) to jointly develop and commercialize the VEGF Trap |
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Under the collaboration agreement, agreed upon development expenses incurred by both companies during the term of the agreement will be funded by |
• | VEGF TRAP — Eye Diseases: VEGF both stimulates angiogenesis and increases vascular permeability. It has been shown in preclinical studies to be a major pathogenic factor in diabetic retinopathy, diabetic macular edema, and age-related macular degeneration, and is believed to be involved in other medical problems affecting the eyes. In | |
• | INTERLEUKIN-1 TRAP (IL-1 Trap):Protein-based product candidate designed to bind the interleukin-1 (called IL-1) cytokine and prevent its interaction with cell surface receptors. IL-1 |
In October 2003, we announced that the IL-1 Trap demonstrated evidence of clinical activity and safety in patients with rheumatoid arthritis |
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statistically significant reductions in c-reactive protein (CRP) levels, and the improvements in CRP levels demonstrated a clear dose response to the IL-1 Trap. The IL-1 Trap was generally well tolerated and | ||
We believe blocking IL-1 could be useful in many potential indications where inflammation plays a role. Examples include such indications as osteoarthritis, certain rare genetic diseases, Still’s disease, cardiovascular diseases, and many others. In 2005, we plan to initiate several proof-of-concept studies to identify where the IL-1 Trap demonstrates evidence of efficacy and safety. |
• | INTERLEUKIN-4/INTERLEUKIN-13 TRAP (IL-4/13 Trap):Protein-based product candidate designed to bind both the interleukin-4 and interleukin-13 (called IL-4 and IL-13) cytokines and prevent their interaction with cell surface receptors. Based on preclinical data, IL-4 and IL-13 are thought to play a major role in diseases such as asthma, allergic disorders, and other inflammatory diseases. |
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Our Areas of Focus
Anti-Angiogenesis/Angiogenesis in Cancer, Eye Disease, and Other Settings: VEGF Trap and the Angiopoietins |
Reciprocally, blocking tumor-induced angiogenesis can blunt tumor growth.
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AMD is a leading cause of severe visual loss in people over the age of 55 in developed countries. It is estimated that, in the U.S., 6% of individuals aged 65-74 and 20% of those older than 75 are affected with AMD. DR is a major complication of diabetes mellitus that can lead 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 that is responsible for fine visual acuity, is involved, loss of visual acuity occurs. This is referred to as Diabetic Macular Edema (DME). DME is the most prevalent cause of moderate visual loss in patients with diabetes.
In September 2003, we entered into a Collaboration Agreement with Aventis to jointly develop and commercialize the VEGF Trap in multiple oncology, ophthalmology, and possibly other indications throughoutfor the world withtreatment of eye diseases utilizing local delivery to the exception of Japan, where product rights remain with us. In 2004, we and Aventis plan to invest approximately $100 million to support the development of the VEGF Trap. The broad based development program will include multiple Phase I studies to evaluate the VEGF Trap in combination with other therapies in various cancer indications, Phase II single-agent studies of the VEGF Trap in separate cancer indications, and multiple Phase I studies of the VEGF Trap in certain eye, diseases.such as through intravitreal injections.
Trap Technology and Additional Traps |
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Clinical Development. |
In July 2002, we announced the initiation of a dose-ranging Phase II study of the
On February 27, 2004, we announced plans to initiate a Phase IIb study of the IL-1 Trap in patients with rheumatoid arthritis in the second half of 2004. The Phase IIb study will be conducted in a larger patient population, testing higher doses and for a longer period of time than in the previous Phase II trial. In addition, we intend to conduct studies of the IL-1 Trap in a variety of other inflammatory diseases where interleukin-1 is believedappears to play an important role.role inCIAS1-Associated Periodic Syndromes (CAPS). These rare genetic disorders, including Familial Cold Auto-Inflammatory Syndrome (FCAS), Muckle Wells Syndrome, and Neonatal Onset Multisystem Inflammatory Disorder (NOMID), affect a small group of people, estimated to be between several hundred to a few thousand. Patients with these disorders develop fever, joint aches, headaches, and rashes. In certain indications, these symptoms can be extremely serious. There are no currently approved therapies for CAPS.
Since March 2003, we have been collaborating with Novartis Pharma AG on the development of the IL-1 Trap. On February 27, 2004, we announced that Novartis had provided notice of its intention not to proceed with the joint development of the IL-1 Trap. Under the terms of the collaboration agreement, Novartis remains obligated to fund agreed upon pre-Phase III IL-1 Trap development expenses during the nine-month notice period before its voluntary termination becomes effective. Novartis and we retain rights under the collaboration agreement to elect to collaborate on the development and commercialization of other IL-1 antagonists being developed independently by the other party that are in earlier stages of development than the IL-1 Trap.
IL-4/13 Trap.Oneone in 13 Americans suffers from allergies and one in 18 suffers from asthma. The number of people afflicted with these diseases has been growing at a fast rate. It is believed that IL-4 and IL-13 play a role in these diseases. These two cytokines are essential to the normal functioning of the immune system, creating a vital communication link between white blood cells. In the case of asthma and allergies, however, it is thought that excess levels of IL-4 and IL-13 causes overactivityover activity of the immune system, which contributes to disease initiation and progression.
Antagonists for IL-4 and IL-13 may be therapeutically useful in a number of allergy and asthma-related conditions, including as an adjunct to vaccines where blocking IL-4 and IL-13 may help to elicit more of the desired type of immune response to the vaccine. We have developed both an IL-4 Trap and an IL-4/13 Trap,
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Obesity and Metabolic Diseases |
Obesity AXOKINE® is a major health problem in all developed countries. The prevalenceprotein-based product candidate we discovered that is designed to act on the area of obesity in the United States has increased substantially during the past decade. A 1999 Congressional Report funded by the National Institutes of Health confirmed that obesity significantly increases a number of health risks, including type 2 diabetes. Obesity-related conditions, such as strokebrain region regulating appetite and myocardial infarct are estimated to contribute to about 300,000 deaths yearly, ranking second only to smoking as a cause of preventable death. Several studies published in 2002 demonstrate that even modest levels of weight loss, when maintained over an extended period of time, can significantly reduce the risk of developing type 2 diabetes. Health care expenditures for obesity-related conditions now total over $200 billion a year in the United States. Current treatment of obesity consists of diet, exercise, and other lifestyle changes, and a limited number of medicines. There are several approved medicines currently indicated for the treatment of obesity, including sibutramine (Meridia®, a registered trademark of Abbott Laboratories) and orlistat (Xenical®, a registered trademark of Hoffmann-LaRoche, Inc.).
Clinical Development — AXOKINE.energy expenditure. We are developingcontinuing research and pre-clinical activities in support of AXOKINE, for the treatment of obesity. AXOKINE is our patented genetically re-engineered form of CNTF. In March 2003, we reported data from the 12-month treatment period of our initial Phase III pivotal trial of AXOKINE. The double-blind treatment period in this study is being followed by a twelve-month open-label extension phase, during which all study subjects receive AXOKINE. The extension phase is expected to be completed in the first quarter of 2004.
Two AXOKINE trials remain ongoing. These trials, which each include approximately 300 subjects, are evaluating the safety of intermittent treatment with AXOKINE and studying maintenance of weight loss following short-term treatment regimens. Results from thesebut no new clinical trials are expected to be available in mid-2004.
We are currently conducting research on improving the formulation and delivery of AXOKINE and evaluating its commercial potential. We do not expect to initiate any Phase III clinical trials of AXOKINE in 2004.planned at this time.
Muscle Atrophy and Related Disorders |
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Cartilage Growth Factor System and Osteoarthritis |
OurWe plan to begin clinical trials of the IL-1 Trap in osteoarthritis during 2005. In addition, our scientists have discovered a growth factor receptor system selectively expressed by cartilage cells, termed Regeneron Orphan Receptor 2 (ROR2). We have also demonstrated that this growth factor receptor system is required for normal cartilage development in mice. In addition, together with collaborators, we have demonstrated in preclinical studies that mutations in this growth factor receptor system cause inherited defects in cartilage development in humans. Thus, we believe this growth factor receptor system is a promising new target for cartilage diseases such as osteoarthritis, but we have not yet identified any therapeutic molecules from our research to advance to clinical development.Fibrosis
G-Protein Coupled Receptors
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Our ability to discover
early termination by Serono with not less than nine months advance notice.
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Aventis Since inception of the collaboration through December 31, 2004, we and sanofi-aventis have incurred $86.5 million in development expenses related to the VEGF Trap program. In addition, if the first commercial sale of a VEGF Trap product for disease of the eye through local delivery systems 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.
OnRegeneron’s achieving a pre-defined development milestone, which was recognized as a research progress payment.
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We maintain an 8,000 square foot manufacturing facility in Tarrytown, New York. This facility, designed to comply with FDA current good manufacturing practices (GMP), produces preclinical and clinical supplies of our product candidates.
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At December 31, 2003, we employed 274 people in our manufacturing operations at these facilities.
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2002.
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Other Areas. Many pharmaceutical and biotechnology companies are attempting to discover new therapeutics for indications in which we invest substantial time and resources. Some are trying to develop small-molecule based therapeutics, similar in at least certain respects to our program with Procter & Gamble. 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 using tyrosine kinase receptors, orphan receptors, and compounds 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, obesity, 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.
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intend to make available free of charge on or through our Internet website(http://www.regn.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 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 2. Properties
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Current Monthly | Current Monthly | |||||||||||||||||||||||
Square | Base Rental | Renewal Option | Square | Base Rental | Renewal Option | |||||||||||||||||||
Location | Footage | Expiration | Charges(1) | Available | Footage | Expiration | Charges(1) | Available | ||||||||||||||||
Tarrytown | 146,000 | December 31, 2007 | $ | 243,000 | none | 146,000 | December 31, 2007 | $ | 188,000 | none | ||||||||||||||
Tarrytown | 16,000 | December 31, 2007 | $ | 25,000 | none | 16,000 | December 31, 2007 | $ | 25,000 | none | ||||||||||||||
Tarrytown | 74,000 | December 31, 2009 | $ | 148,000 | one 5-year term | 74,000 | December 31, 2009 | $ | 145,000 | one 5-year term | ||||||||||||||
Rensselaer | 75,000 | July 11, 2007 | $ | 23,000 | two 5-year terms | 75,000 | July 11, 2007 | $ | 25,000 | two 5-year terms |
(1) | Excludes additional rental charges for utilities, taxes, and operating expenses, as defined. |
Item 3. Legal Proceedings
However, we cannot assure investors that we will be successful in defending this action, or that the amount of any settlement or judgment in this action will not exceed the coverage limits of our director and officer liability insurance policies. If we are not successful in defending this action, our business and financial condition could be adversely affected. In addition, whether or not we are successful, the defense of this action may divert the attention of our management and other resources that would otherwise be engaged in running our business.
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Item 4. | Submission of Matters to a Vote of Security Holders |
None.
Executive Officers of the Registrant
Listed below are our executive officers as of February 29, 2004. There are no family relationships between any of the executive officers and there is no arrangement or understanding between any executive officer and any other person pursuant to which the executive officer was selected. At the annual meeting of the Board of Directors, which follows the Annualexecutive officers are electedpursuant to due notice. A quorum being present either in person or by proxy, the Boardshareholders voted on the following matters:hold office for one year and until their respective successors are elected and qualified, or until their earlier resignation or removal.expressly authorize the Option Exchange Program described in the proxy statement dated November 29, 2004.
For | Against | Abstain | ||||||||||
Approval of Amendment to the 2000 Long-Term Incentive Plan to Authorize the Option Exchange Program | 46,029,856 | 16,697,527 | 53,532 |
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Item 5. | Market for Registrant’s Common Equity, |
High | Low | |||||||||||||||||
2002 | ||||||||||||||||||
First Quarter | $ | 30.20 | $ | 19.74 | ||||||||||||||
Second Quarter | 25.40 | 12.21 | ||||||||||||||||
Third Quarter | 18.34 | 11.25 | High | Low | ||||||||||||||
Fourth Quarter | 22.85 | 12.25 | ||||||||||||||||
2003 | 2003 | 2003 | ||||||||||||||||
First Quarter | $ | 21.49 | $ | 7.40 | First Quarter | $ | 21.49 | $ | 7.40 | |||||||||
Second Quarter | 18.78 | 5.77 | Second Quarter | 18.78 | 5.77 | |||||||||||||
Third Quarter | 22.35 | 12.22 | Third Quarter | 22.35 | 12.22 | |||||||||||||
Fourth Quarter | 18.72 | 11.80 | Fourth Quarter | 18.72 | 11.80 | |||||||||||||
2004 | 2004 | |||||||||||||||||
First Quarter | $ | 17.00 | $ | 12.80 | ||||||||||||||
Second Quarter | 15.85 | 8.53 | ||||||||||||||||
Third Quarter | 10.80 | 6.76 | ||||||||||||||||
Fourth Quarter | 9.49 | 6.75 |
$6.11.
In March 2003, we entered into a collaboration agreement with Novartis to jointly develop and commercialize the IL-1 Trap. In connection with this agreement, we sold to Novartis 7,527,050 newly issued unregistered shares of our Common Stock for a purchase price of $48.0 million. We expect to use the proceeds from the sale of the Common Stock to fund working capital and general corporate purposes.
In August 2003, Merck granted us a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of AXOKINE. As consideration for this license, we issued to Merck 109,450 newly issued unregistered shares of our Common Stock.
In September 2003, we entered into a collaboration agreement with Aventis to jointly develop and commercialize the VEGF Trap. In connection with this agreement, we sold to Aventis 2,799,552 newly issued unregistered shares of our Common Stock for a purchase price of $45.0 million. We expect to use the proceeds from the sale of the Common Stock to fund working capital and general corporate purposes.
We view each of the aforementioned issuances as transactions not involving any public offering and therefore as exempt from registration under Section 4(2) of the Securities Act of 1933.
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Item 6. | Selected Financial Data |
2002, and 20012002 and at December 31, 20032004 and 20022003 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, 20002001 and 19992000 and at December 31, 2002, 2001, 2000, and 19992000 are derived from our audited financial statements not included in this report.
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||
Statement of Operations Data | Statement of Operations Data | Statement of Operations Data | ||||||||||||||||||||||||||||||||||||||||
Revenues | Revenues | Revenues | ||||||||||||||||||||||||||||||||||||||||
Contract research and development | $ | 47,366 | $ | 10,924 | $ | 12,071 | $ | 36,478 | $ | 24,539 | Contract research and development | $ | 113,157 | $ | 47,366 | $ | 10,924 | $ | 12,071 | $ | 36,478 | |||||||||||||||||||||
Research progress payments | 6,200 | Research progress payments | 42,770 | 6,200 | ||||||||||||||||||||||||||||||||||||||
Contract manufacturing | 10,131 | 11,064 | 9,902 | 16,598 | 9,960 | Contract manufacturing | 18,090 | 10,131 | 11,064 | 9,902 | 16,598 | |||||||||||||||||||||||||||||||
57,497 | 21,988 | 21,973 | 59,276 | 34,499 | 174,017 | 57,497 | 21,988 | 21,973 | 59,276 | |||||||||||||||||||||||||||||||||
Expenses | Expenses | Expenses | ||||||||||||||||||||||||||||||||||||||||
Research and development(1) | 136,024 | 124,953 | 92,542 | 65,134 | 52,450 | Research and development(1) | 136,095 | 136,024 | 124,953 | 92,542 | 65,134 | |||||||||||||||||||||||||||||||
Contract manufacturing | 6,676 | 6,483 | 6,509 | 15,566 | 3,612 | Contract manufacturing | 15,214 | 6,676 | 6,483 | 6,509 | 15,566 | |||||||||||||||||||||||||||||||
General and administrative | 14,785 | 12,532 | 9,607 | 8,427 | 6,430 | General and administrative | 17,062 | 14,785 | 12,532 | 9,607 | 8,427 | |||||||||||||||||||||||||||||||
157,485 | 143,968 | 108,658 | 89,127 | 62,492 | 168,371 | 157,485 | 143,968 | 108,658 | 89,127 | |||||||||||||||||||||||||||||||||
Loss from operations | (99,988 | ) | (121,980 | ) | (86,685 | ) | (29,851 | ) | (27,993 | ) | ||||||||||||||||||||||||||||||||
Income (loss) from operations | Income (loss) from operations | 5,646 | (99,988 | ) | (121,980 | ) | (86,685 | ) | (29,851 | ) | ||||||||||||||||||||||||||||||||
Other income (expense) | Other income (expense) | Other income (expense) | ||||||||||||||||||||||||||||||||||||||||
Investment income | 4,462 | 9,462 | 13,162 | 8,480 | 5,207 | Other contract income | 42,750 | |||||||||||||||||||||||||||||||||||
Interest expense | (11,932 | ) | (11,859 | ) | (2,657 | ) | (281 | ) | (284 | ) | Investment income | 5,478 | 4,462 | 9,462 | 13,162 | 8,480 | ||||||||||||||||||||||||||
Interest expense | (12,175 | ) | (11,932 | ) | (11,859 | ) | (2,657 | ) | (281 | ) | ||||||||||||||||||||||||||||||||
(7,470 | ) | (2,397 | ) | 10,505 | 8,199 | 4,923 | ||||||||||||||||||||||||||||||||||||
36,053 | (7,470 | ) | (2,397 | ) | 10,505 | 8,199 | ||||||||||||||||||||||||||||||||||||
Net loss before cumulative effect of a change in accounting principle | (107,458 | ) | (124,377 | ) | (76,180 | ) | (21,652 | ) | (23,070 | ) | ||||||||||||||||||||||||||||||||
Net income (loss) before cumulative effect of a change in accounting principle | Net income (loss) before cumulative effect of a change in accounting principle | 41,699 | (107,458 | ) | (124,377 | ) | (76,180 | ) | (21,652 | ) | ||||||||||||||||||||||||||||||||
Cumulative effect of adopting Staff Accounting Bulletin 101 (“SAB 101”)(2) | Cumulative effect of adopting Staff Accounting Bulletin 101 (“SAB 101”)(2) | (1,563 | ) | Cumulative effect of adopting Staff Accounting Bulletin 101 (“SAB 101”)(2) | (1,563 | ) | ||||||||||||||||||||||||||||||||||||
Net loss | $ | (107,458 | ) | $ | (124,377 | ) | $ | (76,180 | ) | $ | (23,215 | ) | $ | (23,070 | ) | |||||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | 41,699 | $ | (107,458 | ) | $ | (124,377 | ) | $ | (76,180 | ) | $ | (23,215 | ) | |||||||||||||||||||||||||||
Net loss per share, basic and diluted: | ||||||||||||||||||||||||||||||||||||||||||
Net income (loss) per share, basic: | Net income (loss) per share, basic: | |||||||||||||||||||||||||||||||||||||||||
Net loss before cumulative effect of a change in accounting principle | $ | (2.13 | ) | $ | (2.83 | ) | $ | (1.81 | ) | $ | (0.62 | ) | $ | (0.74 | ) | Before cumulative effect of a change in accounting principle | $ | 0.75 | $ | (2.13 | ) | $ | (2.83 | ) | $ | (1.81 | ) | $ | (0.62 | ) | ||||||||||||
Cumulative effect of adopting SAB 101 | (0.04 | ) | Cumulative effect of adopting SAB 101 | (0.04 | ) | |||||||||||||||||||||||||||||||||||||
Net loss per share | $ | (2.13 | ) | $ | (2.83 | ) | $ | (1.81 | ) | $ | (0.66 | ) | $ | (0.74 | ) | Net income (loss) per share | $ | 0.75 | $ | (2.13 | ) | $ | (2.83 | ) | $ | (1.81 | ) | $ | (0.66 | ) | ||||||||||||
Pro forma amounts assuming SAB 101 is applied retroactively: | ||||||||||||||||||||||||||||||||||||||||||
Net income (loss) per share, diluted | Net income (loss) per share, diluted | $ | 0.74 | $ | (2.13 | ) | $ | (2.83 | ) | $ | (1.81 | ) | $ | (0.66 | ) | |||||||||||||||||||||||||||
Net loss | $ | (22,699 | ) | |||||||||||||||||||||||||||||||||||||||
Net loss per share, basic and diluted | $ | (0.73 | ) |
(1) | Includes |
(2) | See Note 2 to our audited financial statements. |
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At December 31, | ||||||||||||||||||||||||||||||||||||||||
At December 31, | ||||||||||||||||||||||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||||||||||||||
Cash, cash equivalents, marketable securities, and restricted marketable securities (current and non-current) | $ | 366,566 | $ | 295,246 | $ | 438,383 | $ | 154,370 | $ | 93,599 | $ | 348,912 | $ | 366,566 | $ | 295,246 | $ | 438,383 | $ | 154,370 | ||||||||||||||||||||
Total assets | 479,555 | 391,574 | 495,397 | 208,274 | 136,999 | 473,108 | 479,555 | 391,574 | 495,397 | 208,274 | ||||||||||||||||||||||||||||||
Capital lease obligations and notes payable, long-term portion | 200,000 | 200,000 | 200,150 | 2,069 | 2,731 | 200,000 | 200,000 | 200,000 | 200,150 | 2,069 | ||||||||||||||||||||||||||||||
Stockholders’ equity | 137,643 | 145,981 | 266,355 | 182,130 | 109,532 | 182,543 | 137,643 | 145,981 | 266,355 | 182,130 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
development. In addition to our clinical programs, we have research programs focused on angiogenesis, metabolic diseases, muscle atrophy and related disorders, inflammatory conditions, and other diseases and disorders. We also use our VelocigeneVelocigene® and Trap technology platforms to discover and develop new product candidates.
candidates and are developing our Velocimmunetm platform to create fully human, therapeutic antibodies.
we continue the clinical development of the VEGF Trap, IL-1 Trap, and IL-4/13 Trap; advance new product candidates into clinical development from our existing research programs; continue our research and development programs; and commercialize product candidates that receive regulatory approval, if any.
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Product Candidate | ||||
VEGF Trap — Oncology | • | • | ||
• | ||||
• Received Fast Track designation for VEGF Trap for specific niche cancer indication | ||||
VEGF Trap — Eye Diseases | • Completed treatment portion of phase 1 intravenous single-agent trial in neovascular age-related macular degeneration | • Commence | ||
• Completed treatment portion of phase 1 intravenous single-agent trial in diabetic macular edema | ||||
IL-1 Trap | • • Completed treatment phase of single-dose patient tolerability studies to evaluate new formulations • Commenced proof-of-concept study inCIAS1-Associated Periodic Syndrome (CAPS) • Received FDA Orphan designation for the IL-1 Trap in treatment of CAPS | • Commence • Commence • Commence exploratory proof of concept trials in other indications • Complete CAPS proof-of-concept study and commence additional trial in this indication • Evaluate IL-1 Trap in other inflammatory conditions | ||
IL-4/13 Trap | • | • | ||
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Aventis Since inception of the collaboration through December 31, 2004, we and sanofi-aventis have incurred $86.5 million in development expenses related to VEGF Trap program. In addition, if the first commercial sale of a VEGF Trap product for disease of the eye through local delivery systems 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.
milestone and Novartis forgave all its outstanding development expense loans to us, totaling $17.8 million.
Years Ended December 31, 2004 and 2003 |
Revenues: |
2004 | 2003 | |||||||||
(In millions) | ||||||||||
Contract research & development revenue | ||||||||||
Sanofi-aventis | $ | 78.3 | $ | 14.3 | ||||||
Novartis | 22.1 | 21.4 | ||||||||
Procter & Gamble | 10.5 | 10.6 | ||||||||
Other | 2.2 | 1.1 | ||||||||
Total contract research & development revenue | 113.1 | 47.4 | ||||||||
Research progress payments | ||||||||||
Sanofi-aventis | 25.0 | — | ||||||||
Novartis | 17.8 | — | ||||||||
Total research progress payments | 42.8 | — | ||||||||
Contract manufacturing revenue | 18.1 | 10.1 | ||||||||
Total revenue | $ | 174.0 | $ | 57.5 | ||||||
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Up-front Payment 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 | |||||||||||
Up-front Payment to Regeneron | |||||||||||||||||||||
2003 Regeneron | Amount | Deferred Revenue | Total Revenue | ||||||||||||||||||
Expense | Total | Recognized | at December 31, | Recognized | |||||||||||||||||
Reimbursement | Payment | in 2004 | 2004 | in 2004 | |||||||||||||||||
(In millions) | |||||||||||||||||||||
Sanofi-aventis | $ | 10.7 | $ | 80.0 | $ | 3.6 | $ | 76.4 | $ | 14.3 | |||||||||||
Novartis | 16.5 | 27.0 | 4.9 | 22.1 | 21.4 | ||||||||||||||||
Total | $ | 27.2 | $ | 107.0 | $ | 8.5 | $ | 98.5 | $ | 35.7 | |||||||||||
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Research and Development Expenses: |
2004 | 2003 | ||||||||
(In millions) | |||||||||
Research and development expenses: | |||||||||
Payroll and benefits | $ | 43.6 | $ | 38.5 | |||||
Clinical trial expenses | 10.3 | 25.0 | |||||||
Clinical manufacturing costs(1) | 36.4 | 29.8 | |||||||
Research and preclinical development costs | 23.1 | 19.6 | |||||||
Occupancy and other operating costs | 22.7 | 23.1 | |||||||
Total research and development | $ | 136.1 | $ | 136.0 | |||||
(1) | Represents the full cost of manufacturing drug for use in research, preclinical development and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. |
Contract Manufacturing Expenses: |
General and Administrative Expenses: |
Other Income and Expense: |
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Years Ended December 31, 2003 and 2002 |
Revenues: |
infor the years ended December 31, 2003 and 2002 consist of the following:
2003 | 2002 | |||||||||||||||||||
2003 | 2002 | |||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||
Contract research & development revenue | Contract research & development revenue | Contract research & development revenue | ||||||||||||||||||
Novartis | $ | 21.4 | $ | — | Novartis | $ | 21.4 | $ | — | |||||||||||
Aventis | 14.3 | — | Sanofi-aventis | 14.3 | — | |||||||||||||||
Procter & Gamble | 10.6 | 10.5 | Procter & Gamble | 10.6 | 10.5 | |||||||||||||||
Other | 1.1 | 0.4 | Other | 1.1 | 0.4 | |||||||||||||||
Total contract research & development revenue | 47.4 | 10.9 | Total contract research & development revenue | 47.4 | 10.9 | |||||||||||||||
Contract manufacturing revenue | Contract manufacturing revenue | 10.1 | 11.1 | Contract manufacturing revenue | 10.1 | 11.1 | ||||||||||||||
Total revenue | $ | 57.5 | $ | 22.0 | Total revenue | $ | 57.5 | $ | 22.0 | |||||||||||
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Up-front Payment | ||||||||||||||||||||||||||||||||||||||||||
Deferred | Total | Up-front Payment to Regeneron | ||||||||||||||||||||||||||||||||||||||||
Amount | Revenue at | Revenue | ||||||||||||||||||||||||||||||||||||||||
2003 Expense | Total | Recognized | December 31, | Recognized | 2003 Regeneron | Amount | Deferred Revenue | Total Revenue | ||||||||||||||||||||||||||||||||||
Reimbursement | Payment | in 2003 | 2003 | in 2003 | Expense | Total | Recognized | at December 31, | Recognized in | |||||||||||||||||||||||||||||||||
Reimbursement | Payment | in 2003 | 2003 | 2003 | ||||||||||||||||||||||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||||||||||||||||||||
Novartis | Novartis | $ | 16.5 | $ | 27.0 | $ | 4.9 | $ | 22.1 | $ | 21.4 | Novartis | $ | 16.5 | $ | 27.0 | $ | 4.9 | $ | 22.1 | $ | 21.4 | ||||||||||||||||||||
Aventis | 10.7 | 80.0 | 3.6 | 76.4 | 14.3 | |||||||||||||||||||||||||||||||||||||
Sanofi-aventis | Sanofi-aventis | 10.7 | 80.0 | 3.6 | 76.4 | 14.3 | ||||||||||||||||||||||||||||||||||||
Total | $ | 27.2 | $ | 107.0 | $ | 8.5 | $ | 98.5 | $ | 35.7 | Total | $ | 27.2 | $ | 107.0 | $ | 8.5 | $ | 98.5 | $ | 35.7 | |||||||||||||||||||||
primarily to our long-term agreement with Merck, which expires in October of 2005, unless extended by mutual agreement, to manufacture a vaccine intermediate at our Rensselaer, New York facility.Merck. Contract manufacturing revenue decreased to $10.1 million in 2003 from $11.1 million in 2002, due primarily to the receipt of a non-recurring $1.0 million payment in the third quarter of 2002 related to services we provided to Merck in prior years. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2003 and 2002 are $1.7 million and $1.8 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped to Merck based on the total amount of product expected to be shipped over the life of the agreement.
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Research and Development Expenses: |
2003 | 2002 | ||||||||
(In millions) | |||||||||
Research and development expenses: | |||||||||
Payroll and benefits | $ | 38.5 | $ | 35.9 | |||||
Clinical trial expenses | 25.0 | 33.9 | |||||||
Clinical manufacturing costs(1) | 29.8 | 17.3 | |||||||
Research and preclinical development costs | 19.6 | 18.4 | |||||||
Occupancy and other operating costs | 23.1 | 19.5 | |||||||
Total research and development | $ | 136.0 | $ | 125.0 | |||||
(1) | Represents the full cost of manufacturing drug for use in research, preclinical development and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. |
Contract Manufacturing Expenses: |
General and Administrative Expenses:
Other Income and Expense:
Other Income and Expense: |
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Revenues in the years ended December 31, 2002 and 2001 consist of the following:
2002 | 2001 | |||||||||
(In millions) | ||||||||||
Contract research & development revenue | ||||||||||
Procter & Gamble | $ | 10.5 | $ | 10.4 | ||||||
Amgen-Regeneron Partners | — | 1.2 | ||||||||
Other | 0.4 | 0.5 | ||||||||
Total contract research & development revenue | 10.9 | 12.1 | ||||||||
Contract manufacturing revenue | 11.1 | 9.9 | ||||||||
Total revenue | $ | 22.0 | $ | 22.0 | ||||||
Our total revenue was $22.0 million in both 2002 and 2001. Contract research and development revenue decreased to $10.9 million in 2002 from $12.1 million in 2001 as revenue from Amgen-Regeneron Partners decreased from $1.2 million in 2001 to approximately $2,000 in 2002, due to the completion of studies conducted on behalf of the partnership. Contract manufacturing revenue, related primarily to our long-term agreement with Merck, increased to $11.1 million in 2002 from $9.9 million in 2001, due primarily to the receipt of a non-recurring $1.0 million payment related to services we provided to Merck in prior years. We shipped similar quantities of product to Merck in 2002 and 2001. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in both 2002 and 2001 is $1.8 million of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped based on the total amount of product expected to be shipped over the life of the agreement.
Research and development expenses increased to $125.0 million in 2002 from $92.5 million in 2001, due primarily to (i) a $14.0 million increase in clinical expenses associated primarily with our AXOKINE Phase III clinical trial for the treatment of obesity and our IL-1 Trap Phase II clinical trial for the treatment of rheumatoid arthritis, (ii) an $8.7 million increase in payroll related expenses associated with an increase in research, clinical, regulatory, and manufacturing personnel, (iii) a $4.6 million increase in lab supply, outside testing, and research contract expenses, and (iv) a $5.2 million increase in facility expenses such as rent, utilities, insurance, and depreciation.
Contract manufacturing expenses were $6.5 million in both 2002 and 2001 primarily because we shipped similar quantities of product to Merck each year.
General and administrative expenses increased to $12.5 million in 2002 from $9.6 million in 2001, due primarily to (i) a $1.0 million increase in payroll related costs, (ii) an $0.8 million increase in patent prosecution and legal expenses related principally to the expansion of our intellectual property portfolio, (iii) a $0.6 million increase in professional fees related to investor relations services, bank fees, and audit services, and (iv) a $0.5 million increase in operating expenses including rent, utilities, supplies, and insurance.
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Investment income decreased to $9.5 million in 2002 from $13.2 million in 2001, due to lower effective interest rates on investment securities during the full year 2002. Average investment balances increased to $264.9 million in 2002 from $155.5 million in 2001. Interest expense increased to $11.9 million in 2002 from $2.7 million in 2001, due to interest incurred on the $200.0 million of convertible notes that we issued in October 2001, which mature in 2008 and bear interest at 5.5% per annum.
Liquidity and Capital Resources
Years Ended December 31, |
Cash Used in Operations: |
In addition, in December 2004 we earned a $25.0 million milestone payment from sanofi-aventis, which was also included in accounts receivable at December 31, 2004.
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Cash Used in Investing Activities: |
wasdecreased to $4.6 million in 2004 from $63.8 million in 2003, compared to $58.5 million in 2002. The increase is due primarily to a decrease in purchases of marketable securities, which exceedednet of sales and/or maturitiesmaturities. In 2004, purchases of marketable securities exceeded sales or maturities by $10.0$9.5 million, whereas in 2003, purchases of marketable securities exceeded sales or maturities by $45.2 million. Offsetting this increase was a $4.7 million decrease in cashIn addition, payments made for capital expenditures decreased $23.5 million in 2004 compared to 2003, due primarily to the completion of theour Rensselaer plant expansion in 2003.Cash Provided by Financing Activities:
increaseddecreased to $4.4 million in 2004 from $108.2 million in 2003, compared to $1.7 million in 2002, due primarily to the sale of stockCommon Stock to Aventissanofi-aventis and Novartis in 2003 in association with the collaboration agreements. AventisSanofi-aventis purchased 2,799,552 newly issued unregistered shares of our Common Stock for $45.0 million. Novartis purchased 7,527,050 newly issued unregistered shares of our Common Stock for $48.0 million. In addition, in accordance with our collaboration agreement with Novartis, we elected to fund our share of 2003 IL-1 Trap development expenses through a loan from Novartis that will bewas forgiven together with accrued interest, should certain preclinical and clinical milestones be reached. If these milestones are not reached, the loan is due and payable on July 1, 2004.in March 2004 upon Regeneron’s achieving a pre-defined IL-1 Trap development milestone. As of December 31, 2003, we havehad drawn $13.7 million, excluding interest, against this loan facility and we have drawndrew an additional $3.8 million during the first quarter of 2004 for expenses incurred during 2003.AventisSanofi-aventis Agreement:
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In 2004, we
Pursuant to the terms of our collaboration agreement with Novartis, in 2004, Novartis will be responsible for agreed upon pre-Phase III development expenses through the expiration of the nine-month termination notice period, which ends at the end of November 2004. In addition, a loan totaling $17.5 million as of March 3, 2004 that relates to our share of 2003 development expense will be forgiven, together with accrued interest, should we meet certain milestones. Otherwise, the loan is due and payable on July 1, 2004.
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Under the Novartis agreement, Novartis and we retain rights under the collaboration agreement to elect to collaborate on the development and commercialization of other IL-1 antagonists being developed independently by the other party that are in earlier stages of development than the IL-1 Trap.
In August 2003, Merck granted to us a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of AXOKINE. As consideration, we issued to Merck 109,450 newly issued unregistered shares of our Common Stock (the Merck Shares), valued at $1.5 million based on the fair market value of shares of our Common Stock on the agreement’s effective date. In August 2004, we 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. We also made a cash payment of $0.6 million to Merck as required under the license agreement. The agreement requires us to make an additional payment to Merck upon receipt of marketing approval for a product covered by the licensed patents. In addition, we would be required to pay royalties, at staggered rates in the mid-single digits, based on the net sales of products covered by the licensed patents.
At any time prior to the date that Merck has the right to sell the Merck Shares under the Securities Act of 1933 (the Sales Date), we have the right to buy back the Merck Shares from Merck for a purchase price equal to the greater of (a) $1.5 million and (b) the lesser of (i) the fair market value of the shares and (ii) $1.65 million. Unless Regeneron has previously exercised its right to buy back the Merck Shares, on the Sales Date if the fair market value of the Merck Shares (the Market Price) is less than $1.5 million, we will be required to make a cash payment to Merck equal to the difference between the Market Price and $1.5 million. Conversely, if on the Sales Date the Market Price is greater than $1.65 million, Merck will be required, at its option, to either (i) make a cash payment to us equal to the difference between the Market Price and $1.65 million (the Excess Amount) or (ii) return a number of the Merck Shares to us, calculated by dividing the Excess Amount by the fair market value of a share of our Common Stock on the Sales Date. The fair market value of the shares, based on our closing Common Stock price at December 31, 2003, was $1.6 million.
Convertible Debt: |
Capital Expenditures: |
and $9.5 million in 2001, including a total over the three years of $50.2$48.0 million in 2002 and 2003 related to the expansion of our manufacturing facilities in Rensselaer, New York.York, which was completed in 2003. In 2004,2005, we expect to incur approximately $10 million to $15 million in capital expenditures which primarily consists of equipment for our expanded manufacturing, research, and development activities, a portion of which will be reimbursed by Aventis.activities.Funding Requirements:
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purposes.
Payments Due by Period | ||||||||||||||||
Less than | 1 to 3 | 4 to 5 | ||||||||||||||
Total | one year | years | years | |||||||||||||
(In millions) | ||||||||||||||||
Convertible Senior Subordinated Notes Payable | $ | 200.0 | $ | — | $ | — | $ | 200.0 | ||||||||
Loan Payable(1) | 13.8 | 13.8 | — | — | ||||||||||||
Operating Leases(2) | 9.1 | 5.5 | 3.4 | 0.2 | ||||||||||||
Other Long-term Liabilities(3) | 0.2 | — | 0.2 | — |
Payments Due by Period | ||||||||||||||||
Less than | 1 to 3 | 4 to 5 | ||||||||||||||
Total | one year | years | years | |||||||||||||
(In millions) | ||||||||||||||||
Convertible Senior Subordinated Notes Payable(1) | $ | 244.0 | $ | 11.0 | $ | 22.0 | $ | 211.0 | ||||||||
Operating Leases(2) | 17.7 | 4.9 | 9.2 | 3.6 |
(1) | Includes amounts representing interest. |
(2) | Excludes future contingent rental costs for utilities, real estate taxes, and operating expenses. In |
In January 2004, the Company amended its Tarrytown lease and exercised its option to extend the lease for certain parts of the leased space through December 2009. The amended lease contains renewal options for certain parts of the leased space through December 2014.
Also under the terms of the sanofi-aventis collaboration agreement, if the collaboration becomes profitable, we will reimburse sanofi-aventis for 50 percent of the VEGF Trap development expenses, including 50% of the $25.0 million payment received in connection with amending our collaboration agreement in January 2005, in accordance with a formula based on the amount of development expenses and our share of the collaboration profits, or at a faster rate at our option. In addition, if the first commercial sale of a VEGF Trap product for diseases of the eye through local delivery systems predates the first commercial sale of a VEGF Trap product under the collaboration, we will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses commencing two years after such initial commercialization outside the collaboration 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.
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Revenue Recognition: |
are obligatedexpect to perform services. The period over which we are obligatedexpect to perform services is estimated based on product development plans. These estimates are likely to changeupdated based on the results and progress of clinical trials and drug production. Changes inproduction and revisions to these estimates could result in a significant changechanges to the amount of revenue recognized each year in future periods.the future. In addition, if a collaborator terminates the agreement in accordance with the terms of the contract, we would recognize the remainder of the up-front payment at the time of the termination. Payments for development activities are recognized as revenue as earned, ratably over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, provided there is no future service obligation associated with that milestone. Previously, we had recognized revenue from non-refundable collaborator payments based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, the revenue recognized was limited to the amount of non-refundable payments received. The change in accounting method was made because we believe that it better reflects the substance of our collaborative agreements and is more consistent with current practices in the biotechnology industry.
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Recognition of Deferred Revenue Related to Contract Manufacturing Agreement: |
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Clinical Trial Accrual Estimates: |
Depreciation of Property, Plant and Equipment:
Building and improvements | 6-30 years | |
Leasehold improvements | Life of lease | |
Laboratory and computer equipment | 3-5 years | |
Furniture and fixtures | 5 years |
In December 2003, the FASB issued a revision to Interpretation No. 46,Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46R), which was issued in January 2003. FIN 46R clarifies the application of ARB No. 51,Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities (VIEs), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Among other changes, the revisions of FIN 46R (i) clarified some requirements of the original FIN 46, which had been issued in January 2003, (ii) eased some implementation problems, and (iii) added new scope exceptions. FIN 46R deferred the
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May 2003,November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 150151,Inventory Costs, an amendment of ARB 43, Chapter 4 (SFAS No. 150),Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity151). SFAS No. 150 specifies151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material by requiring that instruments within its scope embody obligations of the issuer and that the issuer must classify themthose items be recognized as liabilities.current-period charges in all circumstances. SFAS No. 150 requires issuers to classify as liabilities the following three types of freestanding financial instruments: (i) mandatorily redeemable financial instruments, (i) obligations to repurchase the issuer’s equity shares by transferring assets, and (iii) certain obligations to issue a variable number of shares. SFAS No. 150 defines a “freestanding financial instrument” as a financial instrument that (i) is entered into separately and apart from any of the entity’s other financial instruments or equity transactions or (ii) is entered into in conjunction with some other transaction and can be legally detached and exercised on a separate basis. For all financial instruments entered into or modified after May 31, 2003, SFAS No. 150151 is effective immediately. For all other instruments of public companies, SFAS No. 150 went into effect at the beginning of the first interim periodfor fiscal years beginning after June 15, 2003. The2005. We believe that the future adoption of SFAS No. 150 did151 will not have a material impact on our financial statements.November 2003,December 2004, the FASB issued Statement of Financial Accounting Standards Board deferredNo. 123R,Share-Based Payment (SFAS No. 123R). SFAS No. 123R is a revision of SFAS No. 123,Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. SFAS No. 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 No. 123R is effective for fiscal periods beginning after June 15, 2005. We currently intend to adopt SFAS No. 123R effective July 1, 2005 using the modified prospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date for selected provisionsbased on (a) the requirements of SFAS No. 150, limited123R for all share-based payments granted after the effective date and (b) the requirements of SFAS No. 123 for all awards granted to mandatorily redeemable noncontrolling interests associated with finite-lived subsidiaries. The deferralemployees prior to the effective date of those selected provisions isSFAS No. 123R that remain unvested on the effective date. Although the impact of adopting SFAS No. 123R has not expected toyet been quantified, we believe that the future adoption of this standard will have a material impact on our financial statements.November 2002,December 2004, the FASB issued InterpretationStatement of Financial Accounting Standards No. 45 (FIN 45),153,Guarantor’s AccountingExchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29 (SFAS No. 153). SFAS No. 153 eliminates an exception for nonmonetary exchanges of similar productive assets under APB Opinion No. 29, and Disclosure Requirementsreplaces it with a general exception for Guarantees, Including Indirect Guaranteesexchanges of Indebtedness to Others, an interpretation of FASB Statementsnonmonetary assets that do not have commercial substance. SFAS No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures153 is to be made by a guarantorapplied prospectively and is effective for nonmonetary asset exchanges occurring in its interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifiesfiscal periods beginning after June 15, 2005. We believe that a guarantor is required to recognize, at inceptionthe future adoption of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002 and didSFAS No. 153 will not have a material impact on our financial statements. Regeneron operatesincluded under other captionsdiscussed elsewhere in this reportAnnual Report on Form 10-K and should be considered by our investors.ourOur Financial Results and Need for Additional FinancingWe have had a history of operating losses and we may never achieve profitability. Moreover, ifIf we continue to incur operating losses, we may be unable to continue our operations.
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business, financial condition or results of operations.
We will need additional funding in the future, which may not be available to us, and which |
the end of 2005. However, this is a forward-looking statement based onmid-2007; however, our current operating plan and we cannot assure you that there will be no change in projected revenue may decrease or our expenses may increase and that would lead to our capital being consumed significantly before such time. We will likely require additional financing in the future and we cannot make assurances that we willmay not be able to raise such additional funds. TheIf we are able to obtain additional financing through the sale of equity or convertible debt securities, in the futuresuch sales may be dilutive to our shareholders. Debt financing arrangements may require us to pledge certain assets or enter into covenants that would restrict certainour business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our shareholders. We may beIf we are unable to raise sufficient funds to complete the development of our product candidates, or to continue operations. As a result, 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.We have a significant amount of debt and may have insufficient cash to satisfy our debt service and repayment obligations. In addition, the amount of our debt could impede our operations and flexibility.
Risks Related to Development of our Product Candidates
We intend to adopt, effective January 1, 2005, the fair market value based method of accounting for stock-based employee compensation. This is expected to materially increase our non-cash compensation expenses in our Statement of Operations commencing in 2005, primarily due to compensation costs related to stock options. |
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Successful development of any of our product candidates is highly uncertain. |
candidate.candidates. Our product candidates are delivered either by intravenous, 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.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 achieve unfavorable results, we will have to delay or may be unable to obtain regulatory approval for our product candidates.
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wouldwill need to reevaluate any drug candidate that diddoes not test favorably and either conduct new trials, which would beare expensive and time consuming, or abandon the drug development program. Even if we obtain positive results from preclinical or clinical trials, we may not achieve the same success in future trials. Many companies in the biopharmaceutical industry, including us, 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 ourthe desired indicationsindication(s) could harm the development of the product candidate,candidate(s), and our business, financial condition, and results of operations may be materially harmed.
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The development of serious or life-threatening side effects with any of our product candidates would lead to delay or discontinuation of development, which could severely harm our business. |
Genentech and Eyetech are developing VEGF inhibiting molecules for certain diseases of the eye that will be delivered by direct administration to the eye. We are studying the VEGF Trap for the potential treatment of certain diseases of the eye through intravitreal injections in the eye or general administration through intravenous infusions or subcutaneous injections. Although we believe that there are potential clinical advantages to general administration over injections directly in the eye (including patient comfort and acceptance), there are unique potential risks to patients associated with systemic blockage of VEGF by intravenous infusions or subcutaneous injections that could limit or end the VEGF Trap development program. These risks, based on the clinical and pre-clinicalpreclinical experience of systemically delivered VEGF inhibitors, including the VEGF Trap, include bleeding, hypertension, and proteinuria. These serious side effects and other serious side effects have been reported in our VEGF Trap studies in cancer and diseases of the eye. In addition, patients given infusions of any protein, including the VEGF Trap delivered through intravenous administration, may develop severe hypersensitivity reactions, referred to as infusion reactions. There may be additionalThese and other complications or side effects that could harm the development of the VEGF Trap for either the treatment of cancer or diseases of the eye.
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. |
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A previous |
If we do not obtain regulatory approval for our product candidates, we will not be able to market or sell them. |
U.S.United States Food and Drug Administration or FDA,(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. 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.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.
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securitiespurported class action securities lawsuits were commenced against Regeneronus and certain of itsour officers and directors in the United States District Court for the Southern District of New York. A consolidated amended class action complaint was filed in October 2003. The complaint, which purports to be brought on behalf of a class consisting of investors in the Company’sour publicly traded securities between March 28, 2000 and March 30, 2003, alleges that the defendants misstated or omitted material information concerning the safety and efficacy of AXOKINE, in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Damages are sought in an unspecified amount. No reserveOn February 1, 2005, the United States District Court of the Southern District for damages has been established becauseNew York denied our motion to dismiss the consolidated amended complaint. We believe the lawsuit is without merit and intend to continue to defend the action vigorously. Because we do not believe that a loss is probable.probable, no legal reserve has been established. However, ifwe cannot assure investors that we will be successful in defending this action, or that the outcomeamount of any settlement or judgment in this action will not exceed the litigation is adverse to us,coverage limits of our director and officers liability insurance policies. If we are not successful in defending this action, our business and financial condition could be subject to significant liability, which could exceedadversely affected. In addition, whether or not we are successful, the defense of this action may divert attention of our insurance coverage.management and other resources that would otherwise be engaged in running our business.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.
On February 27, 2004, Novartis Pharma AG provided notice to us that they would not participate in the continued development and commercialization of the IL-1 Trap under our collaboration agreement. This may harm our ability to develop and commercialize the IL-1 Trap. |
to helpwhich could result in significant delays in the development and potential commercialization of the IL-1 Trap. In addition, we will have to fund the development and commercialization of the IL-1 Trap without Novartis’ long-term commitment, which will require substantially greater expenditures on our part. While the agreement requires Novartis to continue to fund agreed pre-Phase III development expenses for the nine-month period following its termination decision and imposes additional post-termination obligations on the parties, Novartis may not fulfill all payment and other obligations we believe are required of it under the agreement, which may cause us to incur further costs and risk delays and disruptions to the IL-1 Trap program.If our collaboration with Aventissanofi-aventis for the VEGF Trap is terminated, our business operations and our ability to develop, manufacture, and commercialize the VEGF Trap in the time expected, or at all, and our business operations would be harmed.
35
33
Sanofi-Synthelabo has initiated a tender offer in an attempt to acquire Aventis. It is unclear what the impact of this or any other business combination involving Aventis would have on the VEGF Trap collaboration, including the possibility of a termination of the collaboration agreement and a delay in, or disruption to, the VEGF Trap development program.
Our collaborators and service providers may fail to perform adequately in their efforts to support the development, manufacture, and commercialization of our drug candidates. |
We have limited manufacturing capacity, which could inhibit our ability to successfully develop or commercialize our drugs. |
While we believe our current manufacturing facility is adequate for the current production of quantities of active pharmaceutical ingredients, or API, for our product candidates for clinical trials, our
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If any of our clinical programs are discontinued, we may face costs related to the |
Risks Related to Commercialization of Products
Certain of our raw materials are single-sourced from third parties; third-party supply failures could adversely affect our ability to supply our 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 |
our products.any products that we may obtain regulatory approval for and bring to market in the future. 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. We may notneed or that we will be able to enter into marketing or distribution agreements with third-party providers on acceptable terms, if at all. Currently,Under the terms of our collaboration agreement with sanofi-aventis, we are relyingcurrently rely on Aventissanofi-aventis for sales, marketing, and distribution of the VEGF Trap.Trap, 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. Wecandidates, and we may be unsuccessful in developing our own sales, marketing, and distribution organization.We may be unable to formulate or manufacture our product candidates in a way that is suitable for clinical or commercial use.
and AXOKINE, 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. For example, AXOKINE is currently formulated for delivery in single use vials. We are in the process of developing a formulation that may be used in multiple use vials. If we are unable to develop this multiple use vial formulation, potential future AXOKINE sales and profitability may be limited. Another example is our IL-1 Trap. We
37
Even if our product candidates are ever approved, their commercial success is highly uncertain because our competitors may get to the marketplace before we do with better or lower cost |
35
38
The successful commercialization of our product candidates will depend on obtaining coverage and reimbursement for use of these products from third-party payors. |
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. |
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. |
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39
We may be restricted in our development and/or commercialization activities by third party patents. |
holders of these patents may sue us for infringement and a court may find that we are infringing one or more validly issued patents, which may materially harm our business.
Our stock price may be extremely volatile.
Our stock price is extremely volatile. |
• | progress, delays or adverse results in clinical trials; | |
• | announcement of technological innovations or product candidates by us or competitors; | |
• | fluctuations in our operating results; | |
• | public concern as to the safety or effectiveness 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; |
37
• | arrivals and departures of key personnel; and | |
• | general market conditions. |
Future sales of our common stock by our significant shareholders or us may depress our stock price.40
Future sales of our common stock by our significant shareholders or us may depress our stock price and impair our ability to raise funds in new share offerings. |
Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval. |
• | our current officers and directors beneficially owned 13.3% of our outstanding shares of Common Stock and Class A stock and 33.4% of the combined voting power of our 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 February 22, 2005; and | |
• | our seven largest shareholders beneficially owned 54.5% of our outstanding shares of Common Stock and Class A stock and 60.1% of the combined voting power of our shares of Common Stock and Class A stock, assuming, in the case of Leonard S. Schleifer, M.D., Ph.D, our chief executive officer, the exercise of all options held by him which are exercisable within 60 days of February 22, 2005. |
41
• | 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, a plan of merger or consolidation of the Company must be approved by2/3 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.” |
Item 7A. | Quantitative and Qualitative Disclosure About Market |
and $0.7 million change in the fair market value of our investment portfolio at both December 31, 20032004 and 2002, respectively. The increase is due primarily to a higher investment portfolio balance and slightly longer duration as of December 31, 2003 in comparison to 2002.2003.Item 8. Financial Statements and Supplementary Data
OuritemItem are included herein as exhibits and listed underon pages F-1 through F-35 of this report. The supplementary financial information required by this Item 15.(A)1.is included at page F-35 of this report.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
We
Evaluation of Disclosure Controls and Procedures |
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Management’s Report on Internal Control over Financial Reporting |
Changes in 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. While we believe that our disclosure controls and procedures have been effective, in light of the foregoing, we intend to continue to examine and refine our disclosure controls and procedures and monitor ongoing developments in this area.
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PART III
Item | Other Information |
Item 10. | Directors and Officers of the Registrant |
reference.
Item 11. | Executive Compensation |
is incorporated by reference towill be included under the material captionedcaptions “Executive Compensation” and “Compensation of Directors” in our definitive proxy statement with respect to our 20042005 Annual Meeting of Shareholders to be filed with the SEC.SEC, and is incorporated herein by reference.
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Item 12. | Security Ownership of Certain Beneficial Owners and Management |
is incorporated by reference towill be included under the material captioned “Stockcaptions “Security Ownership of Executive Officers and Directors” andManagement,” “Stock Ownership of Certain Beneficial Owners”, and “Executive Compensation — Equity Compensation Plan Information”, in our definitive proxy statement with respect to our 20042005 Annual Meeting of Shareholders to be filed with the SEC.SEC, and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions
is incorporated by reference towill be included under the material captionedcaption “Certain Relationships and Related Transactions” in our definitive proxy statement with respect to our 20042005 Annual Meeting of Shareholders to be filed with the SEC.SEC, and is incorporated herein by reference.Item 14. Principal Accountant Fees and Services
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PART IV
Item 15. | Exhibits and Financial Statement Schedules |
Exhibit | Exhibit | Exhibit | ||||||||||||||
Number | Number | Description | Number | Description | ||||||||||||
3 | .1 | (a) | — | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. | ||||||||||||
3.1 | (a) | — | Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991. | 3 | .1.1 | (b) | — | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996. | ||||||||
3.2 | (b) | — | By-Laws of the Company, currently in effect (amended as of January 22, 1995). | 3 | .1.2 | (c) | — | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001. | ||||||||
10.1 | (c) | — | Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996. | 3 | .2 | — | By-Laws of the Company, currently in effect (amended through November 12, 2004). | |||||||||
10.2 | (d) | — | Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001. | 10 | .1 | (d) | — | 1990 Amended and Restated Long-Term Incentive Plan. | ||||||||
10.3 | (e)* | — | Technology Development Agreement dated as of March 20, 1989, between the Company and Sumitomo Chemical Company, Limited. | 10 | .2 | (e) | — | 2000 Long-Term Incentive Plan. | ||||||||
10.4 | (e)* | — | Collaboration Agreement dated August 31, 1990, between the Company and Amgen Inc. | 10 | .3.1 | (f) | — | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. | ||||||||
10.5 | (e) | — | 1990 Amended and Restated Long-Term Incentive Plan. | 10 | .3.2 | (f) | — | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. | ||||||||
10.6 | (d) | — | 2000 Long-Term Incentive Plan. | 10 | .3.3 | (g) | — | Amendment No. 3 to 2000 Long-term Incentive Plan, effective as of June 14, 2004. | ||||||||
10.6. | 1 | (n) | — | Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002. | 10 | .3.4 | (h) | — | Amendment No. 4 to 2000 Long-term Incentive Plan, effective as of November 15, 2004. | |||||||
10.6. | 2 | (n) | — | Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002. | 10 | .3.5 | (i) | — | 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. 7 | (f)* | — | Research and Development Agreement dated as of June 2, 1994, between the Company and Sumitomo Pharmaceuticals Company, Ltd. | 10 | .3.6 | (i) | — | 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. | ||||||||
10.8 | (g)* | — | Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc. | |||||||||||||
10.9 | (h) | — | Warrant Agreement dated as of April 15, 1996, between the Company and Amgen Inc. | |||||||||||||
10.10 | (h) | — | Registration Rights Agreement dated as of April 15, 1996, between the Company and Amgen Inc. | |||||||||||||
10.11 | (i) | — | Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto. | |||||||||||||
10.12 | (j) | — | Stock Purchase Agreement dated as of December 11, 1996, between the Company and Procter & Gamble Pharmaceuticals, Inc. | |||||||||||||
10.13 | (j) | — | Registration Rights Agreement dated as of December 11, 1996, between the Company and Procter & Gamble Pharmaceuticals, Inc. | |||||||||||||
10.14 | (k) | — | Securities Purchase Agreement dated as of May 13, 1997, between the Company and The Procter & Gamble Company. | |||||||||||||
10.15 | (k) | — | Warrant Agreement dated as of May 13, 1997, between the Company and The Procter & Gamble Company. | |||||||||||||
10.16 | (k) | — | Registration Rights Agreement, dated as of May 13, 1997, between the Company and The Procter & Gamble Company. |
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Exhibit | ||||||||
Number | Description | |||||||
10 | .3.7 | (i) | — | 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 | (j)* | — | Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc. | ||||
10 | .4.1* | — | Amendment No. 1 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of September 18, 1995. | |||||
10 | .4.2* | — | Amendment No. 2 to the Manufacturing Agreement between the Company and Merck & Co. Inc,, effective as of October 24, 1996. | |||||
10 | .4.3* | — | Amendment No. 3 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of December 9, 1999. | |||||
10 | .4.4* | — | Amendment No. 4 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of July 18, 2002. | |||||
10 | .4.5* | — | Amendment No. 5 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of January 1, 2005. | |||||
10 | .5 | (k) | — | Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto. | ||||
10 | .6 | (f) | — | Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D. | ||||
10 | .7* | — | Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D. | |||||
10 | .8 | (l) | — | Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee. | ||||
10 | .9 | (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 | .10 | (m)* | — | Focused Collaboration Agreement, dated as of December 31, 2000, by and between the Company and The Procter & Gamble Company. | ||||
10 | .11 | (m)* | — | IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc. | ||||
10 | .12 | (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 | .13 | (n)* | — | Stock Purchase Agreement, dates as of March 28, 2003, by and between Novartis Pharma AG and the Company. | ||||
10 | .14 | (n) | — | Registration Rights Agreement, dates as of March 28, 2003, by and between Novartis Pharma AG and the Company. | ||||
10 | .15 | (o)* | — | Collaboration Agreement, dates as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. | ||||
10 | .15.1* | — | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals, Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004. | |||||
10 | .15.2 | (p) | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals, Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005. | |||||
10 | .16 | (o) | — | Stock Purchase Agreement, dates as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc. | ||||
10 | .17 | (o)* | — | Non-Exclusive Patent License Agreement, effective as of August 18, 2003, by and between Merck & Co., Inc. and Regeneron Pharmaceuticals, Inc. | ||||
12 | .1 | — | Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc. |
45
Exhibit | ||||||||
Number | Description | |||||||
18 | .1 | (o) | — | Independent Accountant’s Preferability Letter Regarding a Change in Accounting Principle. | ||||
23 | .1 | — | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | |||||
31 | .1 | — | Certification of CEO pursuant to Rule 13a-14(a) under the Securities and Exchange Act of 1934. | |||||
31 | .2 | — | Certification of CFO pursuant to Rule 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. |
(a) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 1991, filed August 13, 1991. | |
(b) | Incorporated by reference from the Form | |
Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002. | ||
Incorporated by reference from the Company’s registration statement on Form S-1 (file number 33-39043). | ||
(e) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc. for the quarter ended December 31, 2001, filed March 22, 2002. | |
(f) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2002, filed March 31, 2003. | |
(g) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended | |
(h) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc. filed November |
41
(i) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc. filed December 13, 2004. | |
(j) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1995, filed November 14, 1995. | |
Incorporated by reference from the Form 8-A for Regeneron Pharmaceuticals, Inc. filed October 15, 1996. | ||
(l) | Incorporated by reference from the Company’s registration statement on Form S-3 (file number 333-74464). | |
(m) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002. | |
(n) | Incorporated by reference from the Form | |
Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003. |
46
(p) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc. filed January 11, 2005. |
* | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant to Rule 24b-2. |
(B) Reports on Form 8-K
Form 8-K, filed February 24, 2004: On February 23, 2004, we issued a press release announcing our fourth quarter and full year 2003 financial and operating results.
Form 8-K, filed March 1, 2004: On February 27, 2004, we issued a press release announcing our plans to initiate a Phase IIb study of the IL-1 Trap in the second half of 2004 and that Novartis Pharma AG notified the Company of its intention not to proceed with the joint development of the IL-1 Trap.
4247
By: | /s/ |
Leonard S. Schleifer, M.D., Ph.D. | |
President and Chief Executive Officer |
Dated: | New York, New York |
Signature | Title | |||
/s/ Leonard S. Schleifer, M.D., Ph.D. | President, Chief Executive Officer, and Director (Principal Executive Officer) | |||
/s/ Murray A. Goldberg | Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer, and Assistant Secretary (Principal Financial Officer) | |||
/s/ Douglas S. McCorkle | Controller and Assistant Treasurer (Principal Accounting Officer) | |||
/s/ George D. Yancopoulos, M.D., | Executive Vice President, Chief Scientific Officer, President, Regeneron Research Laboratories, and Director | |||
/s/ P. Roy Vagelos, M.D. | Chairman of the Board | |||
/s/ Charles A. Baker | Director | |||
/s/ Michael S. Brown, M.D. | Director |
48
Signature | Title | |||
/s/Alfred G. Gilman Alfred G. Gilman, M.D., Ph.D. | Director | |||
/s/ | Director | |||
/s/ | ||||
Arthur F. Ryan | Director | |||
/s/ Eric M. Shooter, Ph.D. | Director | |||
/s/ George L. Sing | Director |
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Page | |||||
Numbers | |||||
REGENERON PHARMACEUTICALS, INC. | |||||
Report of Independent Registered Public Accounting Firm | F-2 to F-3 | ||||
Balance Sheets at December 31, | F-4 | ||||
Statements of Operations for the years ended December 31, 2004, 2003, | F-5 | ||||
Statements of Stockholders’ Equity for the years ended December 31, 2004, 2003, | F-6 to F-7 | ||||
Statements of Cash Flows for the years ended December 31, 2004, 2003, | F-8 | ||||
Notes to Financial Statements | |||||
F-35 |
F-1
As discussedthe Company maintained, in Note 2all material respects, effective internal control over financial reporting as of December 31, 2004 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
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 |
The Company did not capitalize any interest costs in 2004. F-10 expenses will be recognized including contract research and development revenue recognized from non-refundable up-front licensing payments, contract manufacturing revenue recognized from reimbursed, deferred capital costs, F-12 F-13 market value of shares of the Company’s Common Stock on the grant date of the Restricted Stock award, which is expensed, on a pro rata basis, over the in these amounts was $1.1 million of depreciation and amortization expense related to contract manufacturing that was capitalized into inventory for each of the three years ended December 31, 2004, 2003, 2002. held by shareholders of record as of the close of business on October 18, 1996. Each Right initially entitles the registered holder to buy a unit (“Unit”) consisting of one-one thousandth of a share of Series A Junior Participating Preferred Stock (“A Preferred Stock”) at a purchase price of $120 per Unit (the “Purchase Price”). Initially the Rights were attached to all Stock certificates representing shares then outstanding, and no separate Rights certificates were distributed. The Rights will separate from the Stock and a “distribution date” will occur upon the earlier of (i) ten days after a public announcement that a person or group of affiliated or associated persons, excluding certain defined persons, (an “Acquiring Person”) has acquired, or has obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Stock or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Stock. The Rights are not exercisable unless a distribution date occurs and will expire at the close of business on October 18, 2006 unless earlier redeemed by the Company, subject to certain defined restrictions, for $.01 per Right. In the event that an Acquiring Person becomes the beneficial owner of 20% or more of the then outstanding shares of Stock (unless such acquisition is made pursuant to a tender or exchange offer for all outstanding shares of the Company, at a price determined by a majority of the independent directors of the Company who are not representatives, nominees, affiliates, or associates of an Acquiring Person to be fair and otherwise in the best interest of the Company and its shareholders after receiving advice from one or more investment banking firms), each Right (other than Rights held by the Acquiring Person which shall be voided) will entitle the F-19 10d. 10e. 11a F-20 In March 2003, the Company entered into a collaboration agreement with Novartis Pharma F-21 The the gross unrealized holding gain was $0.1 million. At December 31, 2004 there were no remaining Restricted Marketable Securities. F-23 million, respectively. Common Stock. Regeneron issued 2,400,000 shares of Common Stock to Novartis in March 2003 and an additional 5,127,050 shares in May 2003 for a total of 7,527,050 shares based upon the average closing price of the Common Stock for the 20 consecutive trading days ending May 12, 2003. 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. no deferred revenue. 2004, the Company continues to be an equal partner in Amgen-Regeneron Partners. Selected financial data of the Partnership as of and for the years ended December 31, 2004, 2003, and 2002 are not significant. has no ongoing development activities at this time. TDA expired in March 2004. F-25 contains provisions for minimum yearly order quantities and replenishment of the Retainer when the balance declines below a specified threshold. In 2004 and 2003, the Company recognized $2.1 million and $0.7 million, respectively, of contract research and development revenue in connection with the Serono Agreement. F-26 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. F-27 During 2004, 2003, and 2002, 105,052, 219,367, and January 30, 2004, except for the last paragraph of Note 11bas to which the date is February 27, 2004.March 7, 2005F-2F-320032004 and 20022003 2003 2002 2004 2003 (In thousands, (In thousands, except share data) except share data) Current assets Current assets Current assets Cash and cash equivalents $ 118,285 $ 80,077 Cash and cash equivalents $ 101,234 $ 118,285 Marketable securities 164,576 173,282 Marketable securities 194,748 164,576 Restricted marketable securities 10,913 10,912 Restricted marketable securities 10,913 Accounts receivable 15,529 4,017 Accounts receivable 43,102 15,529 Prepaid expenses and other current assets 1,898 1,829 Prepaid expenses and other current assets 1,642 1,898 Inventory 9,006 6,831 Inventory 3,229 9,006 Total current assets 320,207 276,948 Total current assets 343,955 320,207 Marketable securities Marketable securities 72,792 20,402 Marketable securities 52,930 72,792 Restricted marketable securities 10,573 Property, plant, and equipment, at cost, net of accumulated depreciation and amortization Property, plant, and equipment, at cost, net of accumulated depreciation and amortization 80,723 76,825 Property, plant, and equipment, at cost, net of accumulated depreciation and amortization 71,239 80,723 Other assets Other assets 5,833 6,826 Other assets 4,984 5,833 Total assets $ 479,555 $ 391,574 Total assets $ 473,108 $ 479,555 Current liabilities Current liabilities Current liabilities Accounts payable and accrued expenses $ 18,933 $ 30,309 Deferred revenue, current portion 40,173 9,659 Accounts payable and accrued expenses $ 18,872 $ 18,933 Loan payable to Novartis Pharma AG 13,817 Deferred revenue, current portion 15,267 40,173 Capital lease obligations, current portion 150 Loan payable to Novartis Pharma AG 13,817 Total current liabilities 72,923 40,118 Total current liabilities 34,139 72,923 Deferred revenue Deferred revenue 68,830 5,475 Deferred revenue 56,426 68,830 Notes payable Notes payable 200,000 200,000 Notes payable 200,000 200,000 Other long-term liabilities Other long-term liabilities 159 Other long-term liabilities 159 Total liabilities 341,912 245,593 Total liabilities 290,565 341,912 Commitments and contingencies Commitments and contingencies Commitments and contingencies Stockholders’ equity Stockholders’ equity Stockholders’ equity Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding — none 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;
2,365,873 shares issued and outstanding in 2003
2,491,181 shares issued and outstanding in 2002 2 2 Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; 2,358,373 shares issued and outstanding in 2004 2,365,873 shares issued and outstanding in 2003 2 2 Common Stock, $.001 par value; 160,000,000 shares authorized;
53,165,635 shares issued and outstanding in 2003
41,746,133 shares issued and outstanding in 2002 53 42 Common Stock, $.001 par value; 160,000,000 shares authorized; 53,502,004 shares issued and outstanding in 2004 53,165,635 shares issued and outstanding in 2003 54 53 Additional paid-in capital 673,118 573,184 Additional paid-in capital 675,389 673,118 Unearned compensation (4,101 ) (3,643 ) Unearned compensation (2,299 ) (4,101 ) Accumulated deficit (531,533 ) (424,075 ) Accumulated deficit (489,834 ) (531,533 ) Accumulated other comprehensive income 104 471 Accumulated other comprehensive (loss) income (769 ) 104 Total stockholders’ equity 137,643 145,981 Total stockholders’ equity 182,543 137,643 Total liabilities and stockholders’ equity $ 479,555 $ 391,574 Total liabilities and stockholders’ equity $ 473,108 $ 479,555 F-3F-4Forfor the Years Ended December 31, 2004, 2003, 2002, and 20012002 2003 2002 2001 2004 2003 2002 (In thousands, except per share data) (In thousands, except per share data) Revenues Revenues Revenues Contract research and development $ 113,157 $ 47,366 $ 10,924 Contract research and development $ 47,366 $ 10,924 $ 12,071 Research progress payments 42,770 Contract manufacturing 10,131 11,064 9,902 Contract manufacturing 18,090 10,131 11,064 57,497 21,988 21,973 174,017 57,497 21,988 Expenses Expenses Expenses Research and development 136,024 124,953 92,542 Research and development 136,095 136,024 124,953 Contract manufacturing 6,676 6,483 6,509 Contract manufacturing 15,214 6,676 6,483 General and administrative 14,785 12,532 9,607 General and administrative 17,062 14,785 12,532 157,485 143,968 108,658 168,371 157,485 143,968 Loss from operations (99,988 ) (121,980 ) (86,685 ) Income (loss) from operations Income (loss) from operations 5,646 (99,988 ) (121,980 ) Other income (expense) Other income (expense) Other income (expense) Investment income 4,462 9,462 13,162 Other contract income 42,750 Interest expense (11,932 ) (11,859 ) (2,657 ) Investment income 5,478 4,462 9,462 Interest expense (12,175 ) (11,932 ) (11,859 ) (7,470 ) (2,397 ) 10,505 36,053 (7,470 ) (2,397 ) Net loss $ (107,458 ) $ (124,377 ) $ (76,180 ) Net loss per share, basic and diluted $ (2.13 ) $ (2.83 ) $ (1.81 ) Net income (loss) Net income (loss) $ 41,699 $ (107,458 ) $ (124,377 ) Net income (loss) per share: Net income (loss) per share: Basic $ 0.75 $ (2.13 ) $ (2.83 ) Diluted $ 0.74 $ (2.13 ) $ (2.83 ) F-4F-52002, and 20012002 Accumulated Accumulated Class A Stock Common Stock Additional Other Total Class A Stock Common Stock Additional Other Total Paid-in Unearned Accumulated Comprehensive Stockholders’ Comprehensive Paid-In Unearned Accumulated Comprehensive Stockholders’ Comprehensive Shares Amount Shares Amount Capital Compensation Deficit Income(Loss) Equity Loss Shares Amount Shares Amount Capital Compensation Deficit Income (Loss) Equity Loss (In thousands) (In thousands, except per share data) 2,613 $ 3 34,197 $ 34 $ 406,391 $ (1,314 ) $ (223,518 ) $ 534 $ 182,130 Issuance of Common Stock in a public offering at $25.00 per share 6,630 7 165,743 165,750 Cost associated with issuance of equity securities (9,096 ) (9,096 ) Issuance of Common Stock in connection with exercise of stock options, net of shares tendered 254 1,868 1,868 Issuance of Common Stock to Medtronic, Inc. in connection with a cashless exercise of warrants 37 Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution 17 477 477 Conversion of Class A Stock to Common Stock (50 ) 50 Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures 79 2,207 (2,207 ) Amortization of unearned compensation 732 732 Issuance of stock options in consideration for consulting services 34 34 Net loss, 2001 (76,180 ) (76,180 ) $ (76,180 ) Change in net unrealized gain/loss on marketable securities 640 640 640 2,563 3 41,264 41 567,624 (2,789 ) (299,698 ) 1,174 266,355 $ (75,540 ) 2,563 $ 3 41,264 $ 41 $ 567,624 $ (2,789 ) $ (299,698 ) $ 1,174 $ 266,355 Issuance of Common Stock in connection with exercise of stock options, net of shares tendered 251 2,149 2,149 251 2,149 2,149 Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution 22 764 764 22 764 764 Conversion of Class A Stock to Common Stock (72 ) (1 ) 72 1 (72 ) (1 ) 72 1 Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures 137 2,644 (2,644 ) 137 2,644 (2,644 ) Amortization of unearned compensation 1,790 1,790 1,790 1,790 Issuance of stock options in consideration for consulting services 3 3 3 3 Net loss, 2002 (124,377 ) (124,377 ) $ (124,377 ) (124,377 ) (124,377 ) $ (124,377 ) Change in net unrealized gain/loss on marketable securities (703 ) (703 ) (703 ) Change in net unrealized gain (loss) on marketable securities (703 ) (703 ) (703 ) 2,491 2 41,746 42 573,184 (3,643 ) (424,075 ) 471 145,981 $ (125,080 ) 2,491 2 41,746 42 573,184 (3,643 ) (424,075 ) 471 145,981 $ (125,080 ) Issuance of Common Stock in connection with exercise of stock options, net of shares tendered 601 1,941 1,941 Issuance of Common Stock to Novartis Pharma AG 7,527 8 47,992 48,000 Issuance of Common Stock to the sanofi-aventis Group 2,800 3 44,997 45,000 Issuance of Common Stock to Merck & Co. Inc. 109 1,500 1,500 Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution 43 747 747 Conversion of Class A Stock to Common Stock (125 ) 125 Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures 215 2,757 (2,757 ) Amortization of unearned compensation 2,299 2,299 Net loss, 2003 (107,458 ) (107,458 ) $ (107,458 ) Change in net unrealized gain (loss) on marketable securities (367 ) (367 ) (367 ) 2,366 2 53,166 53 673,118 (4,101 ) (531,533 ) 104 137,643 $ (107,825 ) F-5F-62002, and 20012002 Accumulated Class A Stock Common Stock Additional Other Total Paid-in Unearned Accumulated Comprehensive Stockholders’ Comprehensive Shares Amount Shares Amount Capital Compensation Deficit Income (Loss) Equity Loss (In thousands, except per share data) Issuance of Common Stock in connection with exercise of stock options, net of shares tendered 601 1,941 1,941 Issuance of Common Stock to Novartis Pharma AG 7,527 8 47,992 48,000 Issuance of Common Stock to Aventis Pharmaceuticals Inc. 2,800 3 44,997 45,000 Issuance of Common Stock to Merck & Co. Inc. 109 1,500 1,500 Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution 43 747 747 Conversion of Class A Stock to Common Stock (125 ) 125 Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures 215 2,757 (2,757 ) Amortization of unearned compensation 2,299 2,299 Net loss, 2003 (107,458 ) (107,458 ) $ (107,458 ) Change in net unrealized gain/loss on marketable securities (367 ) (367 ) (367 ) 2,366 $ 2 53,166 $ 53 $ 673,118 $ (4,101 ) $ (531,533 ) $ 104 $ 137,643 $ (107,825 ) Accumulated Class A Stock Common Stock Additional Other Total Paid-in Unearned Accumulated Comprehensive Stockholders’ Comprehensive Shares Amount Shares Amount Capital Compensation Deficit Income (Loss) Equity Loss (In thousands, except per share data) 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 ) Amortization of unearned compensation 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 ) 2,358 $ 2 53,502 $ 54 $ 675,389 $ (2,299 ) $ (489,834 ) $ (769 ) $ 182,543 $ 40,826 F-6F-72002, and 20012002 2003 2002 2001 2004 2003 2002 (In thousands) (In thousands) Cash flows from operating activities Cash flows from operating activities Cash flows from operating activities Net income (loss) $ 41,699 $ (107,458 ) $ (124,377 ) Net loss $ (107,458 ) $ (124,377 ) $ (76,180 ) Adjustments to reconcile net income (loss) to net cash used in operating activities Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 15,362 12,937 8,454 Depreciation and amortization 12,937 8,454 6,077 Non-cash compensation expense 2,543 2,562 1,793 Non-cash compensation expense 2,562 1,793 766 Non-cash expense related to a license agreement 1,500 Non-cash expense related to a license agreement 1,500 Forgiveness of loan payable to Novartis Pharma AG, inclusive of accrued interest (17,770 ) Changes in assets and liabilities Changes in assets and liabilities (Increase) decrease in accounts receivable (11,512 ) (1,042 ) 10,860 Increase in accounts receivable (27,573 ) (11,512 ) (1,042 ) Decrease (increase) in prepaid expenses and other assets 589 184 (2,108 ) (Increase) decrease in prepaid expenses and other assets (1,799 ) 589 184 Increase in inventory (1,049 ) (1,732 ) (941 ) Decrease (increase) in inventory 6,914 (1,049 ) (1,732 ) Increase (decrease) in deferred revenue 93,869 1,498 (87 ) (Decrease) increase in deferred revenue (37,310 ) 93,869 1,498 Increase in accounts payable, accrued expenses, and other liabilities 2,429 4,699 4,293 Increase in accounts payable, accrued expenses, and other liabilities 1,025 2,429 4,699 Total adjustments 101,325 13,854 18,860 Total adjustments (58,608 ) 101,325 13,854 Net cash used in operating activities (6,133 ) (110,523 ) (57,320 ) Net cash used in operating activities (16,909 ) (6,133 ) (110,523 ) Cash flows from investing activities Cash flows from investing activities Cash flows from investing activities Purchases of marketable securities (276,447 ) (234,463 ) (159,731 ) Purchases of marketable securities (265,243 ) (276,447 ) (234,463 ) Purchases of restricted marketable securities (11,055 ) (5,514 ) (31,620 ) Purchases of restricted marketable securities (11,075 ) (11,055 ) (5,514 ) Sales or maturities of marketable securities 231,261 199,317 124,189 Sales or maturities of marketable securities 255,783 231,261 199,317 Maturities of restricted marketable securities 22,054 16,514 Maturities of restricted marketable securities 22,126 22,054 16,514 Capital expenditures (29,656 ) (34,370 ) (8,223 ) Capital expenditures (6,174 ) (29,656 ) (34,370 ) Net cash used in investing activities (63,843 ) (58,516 ) (75,385 ) Net cash used in investing activities (4,583 ) (63,843 ) (58,516 ) Cash flows from financing activities Cash flows from financing activities Cash flows from financing activities Net proceeds from the issuance of stock 94,678 2,149 158,522 Net proceeds from issuances of Common Stock 1,502 94,678 2,149 Net proceeds from the issuance of convertible notes 192,703 Repurchase of Common Stock (888 ) Principal payments on note payable (1,533 ) Borrowings under loan payable 3,827 13,656 Borrowings under loan payable 13,656 Capital lease payments (150 ) (426 ) Capital lease payments (150 ) (426 ) (572 ) Net cash provided by financing activities 4,441 108,184 1,723 Net cash provided by financing activities 108,184 1,723 349,120 Net (decrease) increase in cash and cash equivalents (17,051 ) 38,208 (167,316 ) Net increase (decrease) in cash and cash equivalents 38,208 (167,316 ) 216,415 Cash and cash equivalents at beginning of period Cash and cash equivalents at beginning of period 80,077 247,393 30,978 Cash and cash equivalents at beginning of period 118,285 80,077 247,393 Cash and cash equivalents at end of period $ 118,285 $ 80,077 $ 247,393 Cash and cash equivalents at end of period $ 101,234 $ 118,285 $ 80,077 Supplemental disclosure of cash flow information Supplemental disclosure of cash flow information Supplemental disclosure of cash flow information Cash paid for interest $ 11,003 $ 11,038 $ 161 Cash paid for interest $ 11,007 $ 11,003 $ 11,038 F-7F-8Years Endedyears ended December 31, 2004, 2003, 2002, and 20012002Property, Plant, and Equipment Building and improvements 6-30 years Leasehold improvements Life of lease Laboratory and computer equipment 3-5 years Furniture and fixtures 5 years $0.6$0.3 million and $0.2 million in 2003 and 2002, respectively.2003,2004, there were no impairments of long-lived assets.Cash and Cash Equivalents Inventories Revenue Recognition and Change in Accounting Principle a. Contract Research and Development and Research Progress Payments F-8F-9 (“(“EITF 00-21”). SAB 104 superseded Staff Accounting Bulletin No. 101,Revenue Recognition in Financial Statement(“SAB 101”), in December 2003. During the third quarter of 2003, the Company elected to change the method it uses to recognize revenue under SAB 101 related to non-refundable collaborator payments, including up-front licensing payments, payments for development activities, and research progress (milestone) payments, to the Substantive Milestone Method, adopted retroactively to January 1, 2003. There iswas no cumulative effect of this change in accounting principle on prior periods. Under this method, the Company recognizes revenue from non-refundable up-front license payments, not tied to achieving a specific performance milestone, ratably over the period over which the Company is obligatedexpects to perform services. Payments for development activities are recognized as revenue as earned, ratably over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, provided there is no future service obligation associated with that milestone. The change in accounting method was made because the Company believes that it better reflects the substance of the Company’s collaborative agreements and is more consistent with current practices in the biotechnology industry.Prior to January 1, 2000, revenue from certain non-refundable collaborator payments was recognized when there were no additional contractual services to be provided or costs to be incurred by the Company in connection with the non-refundable payment. The cumulative effect of adopting SAB 101 at January 1, 2000 amounted to $1.6 million of additional loss, with a corresponding increase to deferred revenue that is beinghas been recognized in subsequent periods, of which $0.1 million, $0.4 million, and $0.4 million, respectively, was included in contract research and development revenue in each of2004, 2003, 2002, and 2001.2002. The $1.6 million representsrepresented a portion of a 1989 payment received from Sumitomo Chemical Co. Ltd. in consideration for a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan (see Note 11d). The effect of income taxes on the cumulative effect adjustment was immaterial. b. Contract Manufacturing agreementsagreement under which it manufactures productsproduct and performs services for a third parties.party. Contract manufacturing revenue is recognized as products areproduct is shipped and as services are performed (see Notes 11d andNote 12).Investment Income Accounting for the Impairment of Long-Lived Assets F-9REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)Patents Research and Development Expenses 10f)10e), the cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, expenses related to the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.Company���sCompany’s estimates.Net Loss Per Share Datalossincome (loss) per share, basic and diluted, is computed on the basis of the net lossincome (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 lossincome (loss) per share excludes restricted stock awards until vested. The diluted net income per share for the year ended December 31, 2004 is based upon the weighted average number of shares of Common Stock and Class A Stock and the common stock equivalents outstanding when dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock awards under the Company’s Long-Term Incentive Plans, which are included under the treasury stock method when dilutive, and (ii) Common Stock to be issued under the assumed conversion of the Company’s outstanding convertible senior subordinated notes, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for all periods presented excludes unvested restrictedthe years ended December 31, 2003 and 2002 does not include common stock awards and the number of shares issuable upon conversion of outstanding convertible debt and exercise of outstanding stock options and warrants,equivalents, since such inclusion would be antidilutive. Disclosures required by Statement of Financial Accounting Standards No. 128,Earnings per Share,, have been included in Note 18.17.Income Taxes 16.15.Comprehensive LossIncome (Loss)lossincome (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 lossincome (loss) of the Company includes net lossincome (loss) adjusted for the change in net unrealized gain or loss on marketable securities. The net effect of income taxes on comprehensive lossincome (loss) is immaterial. Comprehensive income for the year ended December 31, 2004 and comprehensive losses for the years ended December 31, 2003 2002, and 20012002 have been included in the Statements of Stockholders’ Equity.F-10F-11Concentrations of Credit Risk Aventis Pharmaceuticals Inc., Novartis Pharma AG,the sanofi-aventis Group, The Procter & Gamble Company, and Merck & Co., Inc. The Company generally invests its excess cash in obligations of the U.S. government and its agencies, bank deposits, investment grade debt securities issued by corporations, governments, and financial institutions, and money market funds that invest in these instruments. The Company has established guidelines that relate to credit quality, diversification, and maturity, and that limit exposure to any one issue of securities.Risks and Uncertainties sixour collaborators and for contract manufacturing from two pharmaceutical companies and investment income (see Notes 11 and 12).income. The Company operates in an environment of rapid change in technology and is dependent upon the services of its employees, consultants, collaborators, and certain third-party suppliers, including single-source unaffiliated third-party suppliers of materials.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.20032004 was primarily earned from Aventis Pharmaceuticals Inc.,the sanofi-aventis Group, Novartis Pharma AG, and The Procter & Gamble Company under collaboration agreements (see Notes 11a, 11b and 11e). Under the collaboration agreement with Aventis,sanofi-aventis, agreed upon VEGF Trap development expenses incurred by Regeneron during the term of the agreement will be funded by Aventis.sanofi-aventis. In addition, the Company may receiveearned a $25.0 million payment in 2004 upon achievement of an early-stage clinical milestone and may receive up to $360.0 million in additional milestone payments upon receipt of specified VEGF Trap marketing approvals. AventisSanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Under the collaboration agreement with Novartis, agreed upon IL-1 Trap development expenses will either bewere shared equally by the Company and Novartis in 2003. In February 2004, Novartis provided notice of its intention not to proceed with or fully funded bythe joint development of the IL-1 Trap and the Company subsequently recognized contract research and development revenue equal to the remaining balance of a 2003 up-front payment from Novartis depending on the phase of clinical development. The agreement with Novartis contains provisions for termination, including termination by Novartis without cause with at least nine months advance notice.that had been deferred. Under the long-term collaboration with Procter & Gamble, Procter & Gamble is obligated to provide payments to fund Regeneron research of $2.5 million per quarter, before adjustments for inflation, through December 2005, with no further research obligations by either party thereafter. Contract manufacturing revenue in 20032004 was earned from Merck & Co., Inc. under a long-term manufacturing agreement that extends, until November 2005as amended, through October 2006 (see Note 12), but may be terminated at any time by Merck with at least one year’s notice without penaltyupon Merck’s payment of a termination fee and may be extended by mutual agreement.The Company has entered into a license and supply agreement with Nektar Therapeutics under which Nektar is the only supplier of a pegylated reagent used to formulate pegylated AXOKINE, one of our product candidates.Merck, upon twelve-months’ prior notice, for an additional year through October 2007.Use of Estimates and the periods over which certain revenues andF-11REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)expenses.expenses, and the extent to which deferred tax assets and liabilities are offset by a valuation allowance.Stock-based Employee Compensation 14a.13a. The following table illustrates the effect on the Company’s net lossincome (loss) and net lossincome (loss) per share had compensation costs for the incentive plans been determined in accordance with the fair value based method of accounting for stock-based compensation as prescribed by Statement of Financial Accounting Standards No. 123,Accounting for Stock-Based Compensation (“(“SFAS No. 123”). Since option grants awarded during 2004, 2003, 2002, and 20012002 vest over several years and additional awards are expected to be issued in the future, the pro forma results shown below are not likely to be representative of the effects on future years of the application of the fair value based method. 2003 2002 2001 Net loss, as reported $ (107,458 ) $ (124,377 ) $ (76,180 ) Add: Stock-based employee compensation expense included in reported net loss 2,562 1,790 732 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (45,042 ) (45,676 ) (32,890 ) Pro forma net loss $ (149,938 ) $ (168,263 ) $ (108,338 ) Net loss per share, basic and diluted: As reported $ (2.13 ) $ (2.83 ) $ (1.81 ) Pro forma $ (2.97 ) $ (3.83 ) $ (2.57 ) 2004 2003 2002 Net income (loss), as reported $ 41,699 $ (107,458 ) $ (124,377 ) Add: Stock-based employee compensation expense included in reported net income (loss) 2,543 2,562 1,790 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (36,093 ) (45,048 ) (45,676 ) Pro forma net income (loss), basic $ 8,149 $ (149,944 ) $ (168,263 ) Basic net income (loss) per share amounts: As reported $ 0.75 $ (2.13 ) $ (2.83 ) Pro forma $ 0.15 $ (2.97 ) $ (3.83 ) Diluted net income (loss) per share amounts: As reported $ 0.74 $ (2.13 ) $ (2.83 ) Pro forma $ 0.15 $ (2.97 ) $ (3.83 ) 14a.13a.Statement of Cash Flows 2002, and 2001,2002, the Company awarded 105,052, 219,367, 139,611, and 80,535139,611 shares, respectively, of Restricted Stock under the Regeneron Pharmaceuticals, Inc. Long-Term Incentive Plan (see Note 14a)13a). The Company records unearned compensation in Stockholders’ Equity related to these awards based on the fairF-12REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)approximately two year period that the restrictions on these shares lapse. In 2004, 2003, 2002 and 2001,2002, the Company recognized $2.5 million, $2.3 million, $1.8 million and $0.7$1.8 million, respectively, of compensation expense related to Restricted Stock awards.$0.8$0.9 million, $13.5$0.7 million, and $1.9 million of capital expenditures, respectively. Included in accounts payable and accrued expenses at December 31, 2002, 2001, and 2000 were $0.7 million, $0.8 million, and $0.5 million, respectively, of accrued 401(k) Savings Plan contribution expense. During the first quarter of 2004, 2003, 2002, and 2001,2002, the Company contributed 64,333, 42,543, 21,953, and 17,48421,953 shares, respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.and 2001 were $0.9$2.6 million, $2.0$0.9 million, and $2.0 million of accrued interest income, respectively.ReclassificationsCertain reclassifications have been made to the financial statements for 2002 and 2001 to conform with the current year’s presentation.Future Impact of Recently Issued Accounting Standards December 2003,April 2004, the StaffEmerging Issues Task Force issued Statement No. 03-6,Participating Securities and the Two — Class Method under FASB Statement No. 128, Earnings per Share(“EITF 03-6”). EITF 03-6 addresses a number of questions regarding the computation of earnings per share (“EPS”) by companies that have issued securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the Securitiescompany when, and Exchange Commission issued SAB 104,Revenue Recognition, which supercedes SAB 101,Revenue Recognition in Financial Statements. SAB 104’s primary purpose isif, it declares dividends on its common stock. EITF 03-6 defines participation rights based solely on whether the holder would be entitled to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a resultreceive any dividends if the entity declared them during the period and requires the use of the issuancetwo-class method for computing basic EPS when participating convertible securities exist. In addition, EITF 03-6 expands the use of the two-class method to encompass other forms of participating securities and is effective for fiscal periods beginning after March 31, 2004. Since the Company has no participating securities, the Company’s adoption of EITF 00-21,Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SEC’sRevenue Recognition in Financial Statements Frequently Asked Questions and Answers(the “FAQ”) issued with SAB 101 that had been codified in SEC Topic 13,Revenue Recognition. Selected portions of the FAQ have been incorporated into SAB 104. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. Adoption of SAB 104 was required immediately and03-6 did not have a material effectan impact on the Company’s financial statements.December 2003,November 2004, the FASBFinancial Accounting Standards Board (“FASB”) issued a revision to InterpretationStatement of Financial Accounting Standards No. 46,151,Consolidation of Variable Interest Entities,Inventory Costs, an Interpretationamendment of ARB No. 5143, Chapter 4 (“FIN 46R”SFAS No. 151”), which was issued in January 2003. FIN 46R. SFAS No. 151 clarifies the applicationaccounting for abnormal amounts of ARBidle facility expense, freight, handling costs, and wasted material by requiring that those items be recognized as current-period charges in all circumstances. SFAS No. 51,Consolidated Financial Statements to certain entities in which equity investors do not have151 is effective for fiscal years beginning after June 15, 2005. Management believes that the characteristicsfuture adoption of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities (“VIEs”), by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, thatSFAS No. 151 will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns, or both. Among other changes, the revisions of FIN 46R (a) clarified some requirements of the original FIN 46, which had been issued in January 2003, (b) eased some implementation problems, and (c) added new scope exceptions. FIN 46R deferred the effective date of the Interpretation for public companies to the end of the first reporting period ending after March 15, 2004, except that all public companies must at a minimum apply the provisions of the Interpretation to entities that were previously considered “special-purpose entities” under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. Adoption of FIN 46R did not have a material impact on the Company’s financial statements.May 2003,December 2004, the FASB issued Statement of Financial Accounting Standards Board issued Statement No. 150123R,Share-Based Payment (“SFAS No. 150”123R”),. SFAS No. 123R is a revision of SFAS No. 123,Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFASF-13F-14150 specifies that25,Accounting for Stock Issued to Employees,and its related implementation guidance. SFAS No. 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments within its scope embody obligationsfor goods or services. SFAS No. 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 issuershare-based payment (including stock options and that the issuer must classify them as liabilities.restricted stock) issued to employees. SFAS No. 150 requires issuers to classify as liabilities the following three types of freestanding financial instruments: (1) mandatorily redeemable financial instruments, (2) obligations to repurchase the issuer’s equity shares by transferring assets, and (3) certain obligations to issue a variable number of shares. SFAS No. 150 defines a “freestanding financial instrument” as a financial instrument that (1) is entered into separately and apart from any of the entity’s other financial instruments or equity transactions or (2) is entered into in conjunction with some other transaction and can be legally detached and exercised on a separate basis. For all financial instruments entered into or modified after May 31, 2003, SFAS No. 150123R is effective immediately. For all other instruments of public companies, SFAS No. 150 went into effect at the beginning of the first interim periodfor fiscal periods beginning after June 15, 2003.2005. The Company currently intends to adopt SFAS No. 123R effective July 1, 2005 using the modified prospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS No. 123R for all share-based payments granted after the effective date and (b) the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123R that remain unvested on the effective date. Although the impact of adopting SFAS No. 123R has not yet been quantified, management believes that the future adoption of this standard will have a material impact on the Company’s financial statements.150 did153 will not have a material impact on the Company’s financial statements. In November 2003, the Financial Accounting Standards Board deferred the effective date for selected provisions of SFAS No. 150, limited to mandatorily redeemable noncontrolling interests associated with finite-lived subsidiaries. The deferral of those selected provisions is not expected to have a material impact on the Company’s financial statements.In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under guarantees issued. FIN 45 also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002 and did not have a material impact on the Company’s financial statements.3. Marketable Securities3. Marketable Securities F-14F-1520032004 and 2002:2003: Unrealized Holding Amortized Cost Basis Fair Value Gains (Losses) Net Maturities within one year Maturities within one year Corporate debt securities $ 58,077 $ 57,971 $ 8 $ (114 ) $ (106 ) U.S. government securities 137,105 136,777 — (328 ) (328 ) 195,182 194,748 8 (442 ) (434 ) Maturities between one and two years Maturities between one and two years Unrealized Holding U.S. government securities 53,265 52,930 — (335 ) (335 ) Amortized Fair Cost Basis Value Gains (Losses) Net $ 248,447 $ 247,678 $ 8 $ (777 ) $ (769 ) Maturities within one year Maturities within one year Maturities within one year Corporate debt securities $ 40,586 $ 40,578 $ 6 $ (14 ) $ (8 ) Corporate debt securities $ 40,586 $ 40,578 $ 6 $ (14 ) $ (8 ) U.S. government securities 123,893 123,998 107 (2 ) 105 U.S. government securities 123,893 123,998 107 (2 ) 105 164,479 164,576 113 (16 ) 97 164,479 164,576 113 (16 ) 97 Maturities between one and two years Maturities between one and two years Maturities between one and two years Corporate debt securities 28,928 28,931 18 (15 ) 3 Corporate debt securities 28,928 28,931 18 (15 ) 3 U.S. government securities 40,749 40,803 54 54 U.S. government securities 40,749 40,803 54 54 Asset-backed securities 3,108 3,058 (50 ) (50 ) Asset-backed securities 3,108 3,058 — (50 ) (50 ) 72,785 72,792 72 (65 ) 7 72,785 72,792 72 (65 ) 7 $ 237,264 $ 237,368 $ 185 $ (81 ) $ 104 $ 237,264 $ 237,368 $ 185 $ (81 ) $ 104 Maturities within one year Corporate debt securities $ 69,531 $ 69,580 $ 99 $ (50 ) $ 49 U.S. government securities 98,057 98,410 353 353 Asset-backed securities 3,059 3,067 8 8 Foreign government securities 2,225 2,225 172,872 173,282 460 (50 ) 410 Maturities between one and two years Corporate debt securities 6,015 6,007 (8 ) (8 ) U.S. government securities 2,047 2,131 84 84 Asset-backed securities 12,279 12,264 15 (30 ) (15 ) 20,341 20,402 99 (38 ) 61 $ 193,213 $ 193,684 $ 559 $ (88 ) $ 471 2002, and 2001,2002, gross realized gains and losses were not significant. In computing realized gains and losses, the Company computes the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. The fair value of marketable securities has been estimated based on quoted market prices. Unrealized holding20032004. These securities mature at various dates through May 2006. Less than 12 Months 12 Months or Greater Total Unrealized Unrealized Unrealized Description of Security Fair Value Loss Fair Value Loss Fair Value Loss Corporate debt securities $ 29,267 $ 93 $ 7,353 $ 21 $ 36,620 $ 114 U.S. government securities 189,707 663 0 0 $ 189,707 663 $ 218,974 $ 756 $ 7,353 $ 21 $ 226,327 $ 777 been losses for less than one year.generally resulted in a decrease in theF-15F-164. Accounts Receivable4. Accounts Receivable 20032004 and 20022003 consist of the following: 2003 2002 2004 2003 Receivable from Aventis Pharmaceuticals Inc. (see Note 11a) $ 8,917 Receivable from the sanofi-aventis Group (see Note 11a) $ 39,362 $ 8,917 Receivable from Novartis Pharma AG (see Note 11b) 3,177 — 3,177 Receivable from The Procter & Gamble Company (see Note 11e) 2,670 $ 2,610 2,345 2,670 Receivable from Merck & Co. Inc. (see Note 12) 765 1,404 1,315 765 Receivable from Amgen-Regeneron Partners (see Note 11c) 3 Other 80 — $ 15,529 $ 4,017 $ 43,102 $ 15,529 5. Inventories5. Inventories 20032004 and 20022003 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 (see Note 12).20032004 and 20022003 consist of the following: 2003 2002 2004 2003 Raw materials $ 388 $ 357 $ 310 $ 388 Work-in process — (1) 261 (2) 692 (1) — (2) Finished products 8,618 6,213 (3) 2,227 8,618 $ 9,006 $ 6,831 $ 3,229 $ 9,006 (1) Net of reserves of $0.2$0.3 million. (2) Net of reserves of $30 thousand.(3) Net of reserves of $1.2$0.2 million.6. Property, Plant, and EquipmentF-176. Property, Plant, and Equipment 20032004 and 20022003 consist of the following: 2003 2002 2004 2003 Land $ 475 $ 475 $ 475 $ 475 Building and improvements 56,054 32,547 56,750 56,054 Leasehold improvements 29,108 14,224 30,451 29,108 Construction-in-progress 1,443 38,645 172 1,443 Laboratory and other equipment 51,536 36,762 55,174 51,536 Furniture, fixtures, and computer equipment 5,092 4,540 5,498 5,092 143,708 127,193 148,520 143,708 Less, accumulated depreciation and amortization (62,985 ) (50,368 ) (77,281 ) (62,985 ) $ 80,723 $ 76,825 $ 71,239 $ 80,723 $8.5 million, and $7.0$8.5 million, for the years ended December 31, 2004, 2003, 2002, and 2001,2002, respectively. IncludedF-16REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)2002, and 2001.7. Accounts Payable and Accrued Expenses7. Accounts Payable and Accrued Expenses 20032004 and 20022003 consist of the following: 2003 2002 2004 2003 Accounts payable $ 3,878 $ 13,297 $ 4,407 $ 3,878 Accrued payroll and related costs 5,125 4,162 7,972 5,125 Accrued clinical trial expense 3,876 4,515 2,083 3,876 Accrued capital expenditures 211 4,322 Accrued expenses, other 3,551 1,721 2,118 3,762 Interest payable on convertible notes 2,292 2,292 2,292 2,292 $ 18,933 $ 30,309 $ 18,872 $ 18,933 8. Deferred RevenueF-188. Deferred Revenue 20032004 and 20022003 consists of the following: 2003 2002 2004 2003 Current portion: Current portion: Current portion: Received from Aventis Pharmaceuticals Inc. $ 10,909 Received from the sanofi-aventis Group $ 9,405 $ 10,909 Received from Novartis Pharma AG 22,100 Received from Novartis Pharma AG — 22,100 Received from Merck & Co., Inc. 6,262 $ 7,788 Received from Merck & Co., Inc. 4,407 6,262 Other 902 1,871 Other 1,455 902 $ 40,173 $ 9,659 $ 15,267 $ 40,173 Long-term portion: Long-term portion: Long-term portion: Received from Aventis Pharmaceuticals Inc. $ 65,455 Received from the sanofi-aventis Group $ 56,426 $ 65,455 Received from Merck & Co., Inc. 3,375 $ 5,398 Received from Merck & Co., Inc. — 3,375 Other 77 $ 56,426 $ 68,830 $ 68,830 $ 5,475 9. Stockholders’ Equity9. Stockholders’ Equity F-17REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data) In April 2000, the Company completed a public offering of 2.6 million shares of Common Stock at a price of $29.75 per share for net proceeds, after commissions and expenses, of $72.9 million. In March and April 2001, the Company completed a public offering in which it issued 6.63 million shares of Common Stock at a price of $25.00 per share and received proceeds, after commissions and expenses, of $156.7 million. In March 2001, Medtronic, Inc. exercised 107,400 warrants with an exercise price of $21.72 per share on a “cashless” basis and received 37,306 shares of the Company’s Common Stock.10e.10f. Pharmaceuticals Inc. purchased 2,799,552 newly issued unregistered shares of the Company’s Common Stock for $45.0 million, based upon the average closing price of the Common Stock for the five consecutive trading days ending September 4, 2003. See Note 11a.F-18REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)10. Commitments and Contingencies (Unless otherwise noted, dollars in thousands, except per share data)10. Commitments and Contingenciesa. Operating Leases manufacturing, and office facilities in Tarrytown, New York under operating lease agreements which as of December 31, 2003, expired through December 2006. In January 2004, the Company extended these leases, which, as amended, expire through December 2009 and contain renewal options for lease extensions on certain facilities through December 2014. The Company also leases manufacturing, office, and warehouse facilities in Rensselaer, New York under an operating lease agreement which expires in July 2007 and contains renewal options to extend the lease for two additional five-year terms and a purchase option. The leases provide for base rent plus additional rental charges for utilities, taxes, and operating expenses, as defined.2003,2004, the future minimum noncancelable lease commitments under operating leases were as follows: December 31, Facilities Equipment Total Facilities Equipment Total 2004 $ 5,327 $ 190 $ 5,517 2005 1,810 119 1,929 $ 4,627 $ 228 $ 4,855 2006 1,495 33 1,528 4,539 130 4,669 2007 159 2 161 4,537 22 4,559 2008 1,800 1,800 2009 1,800 1,800 $ 8,791 $ 344 $ 9,135 $ 17,303 $ 380 $ 17,683 Year Ending December 31, Facilities Equipment Total Facilities Equipment Total 2004 $ 5,351 $ 303 $ 5,654 2003 $ 5,394 $ 305 $ 5,699 5,394 305 5,699 2002 4,556 257 4,813 4,556 257 4,813 2001 3,455 249 3,704 $3.6$6.0 million, and $3.0$3.6 million for the years ended December 31, 2004 2003, and 2002, and 2001, respectively.b. Capital Leases At December 31, 2002, leased equipment and building improvements included in property, plant, and equipment was $1.1 million; related accumulated depreciation was $0.9 million.c. NoteLoan Payable In 1994, the Company borrowed $2.0 million from the New York State Urban Development Corporation. The terms of the note provided for monthly payments of principal and interest through December 2014. In October 2001, the remaining principal balance on this note of $1.5 million was paid in full.F-19REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)d. Loan PayableAG (“Novartis”).AG. In accordance with that agreement, Regeneron funded its share of 2003 collaboration development expenses through a loan from Novartis, which bearsbore interest at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly (3.65% at December 31, 2003). Thequarterly. In March 2004, Novartis forgave its outstanding loan and accrued interest thereon will be forgiven should certain defined pre-clinical and clinical milestones be reached; otherwise, such amounts are payable on July 1, 2004. As of December 31, 2003, the loan due Novartis,to Regeneron totaling $17.8 million, including accrued interest, totaled $13.8 million.based on Regeneron’s achieving a pre-defined development milestone. See Note 11b.e.d. Convertible Debtredeem the Notes, in whole or in part, at any time before October 17, 2004 if the closing price of the Company’s Common Stock has exceeded 150% of the conversion price then in effect for a specified period of time (“Early Redemption”). Upon any such Early Redemption, the Company is required to pay interest that would have been due up through October 17, 2004. Regeneron may also redeem some or all of the Notes at any time on or after October 17, 2004 if the closing price of the Company’s Common Stock has exceeded 140% of the conversion price then in effect for a20032004 was approximately $190.3$190.0 million.with maturitieswhich matured at various dates through October 2004. At December 31, 2003, the balance of the Restricted Marketable Securities had an amortized cost basis of $10.9 million, due to scheduled interest payments made on the Notes in 2002 and 2003. Upon maturity, the proceeds of the remaining Restricted Marketable Securities will be sufficient to paypaid the scheduled 2004 interest payments on the Notes when due in 2004.due. The Company considersconsidered its Restricted Marketable Securities to be “held-to-maturity,” as defined by Statement of Financial Accounting Standards No. 115,Accounting for Certain Investments in Debt and Equity Securities. These securities arewere reported at their amortized cost, which includesincluded the direct costs to acquire the securities, plus the amortization of any discount or premium, and accrued interest earned on the securities.F-20REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data) following table summarizes the amortized cost basis and aggregate fair value of the Restricted Marketable Securities and gross unrealized holding gains and losses, at December 31, 2003, and 2002. Fair value has beenwhich was estimated based on quoted market prices. Unrealized Amortized Fair Holding Cost Basis Value Gains Maturities within one year U.S. government securities $ 10,913 $ 10,989 $ 76 Maturities within one year U.S. government securities $ 10,912 $ 10,963 $ 51 Maturities between one and two years U.S. government securities 10,573 10,803 230 $ 21,485 $ 21,766 $ 281 f. Research Collaborationprices, was $11.0 million and Licensing Agreementse. Research Collaboration and Licensing Agreements research collaborations with Medarex, Inc. and Emisphere Technologies, Inc., and a license and supply agreement with Nektar Therapeutics.Therapeutics for a reagent used to formulate one of the Company’s product candidates. 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 12%10%, in the event the Company sells or licenses any proprietary products developed under the respective agreements.whereunder which the Company is required to pay fees provide forpermit the Company, upon 30 to 90-day written notice, to terminate such agreements. With respect to payments associated with these agreements, the Company incurred expenses of $1.4 million, $2.7 million, $1.7 million, and $1.1$1.7 million for the years ended December 31, 2004, 2003, and 2002, and 2001, respectively. (“Merck”) granted the Company a non-exclusive license agreement to certain patents and patent applications which may be used in the development and commercialization of AXOKINE®. 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 addition, the Company would be required to pay royalties, at staggered rates in the mid-single digits, based on the net sales of products covered by the licensed patents. At any time prior11. Research and Development Agreements date that Merck has the right to sell the Merck Shares under the Securities Act of 1933 (the “Sales Date”), Regeneron has the right to buy back the Merck Shares from Merck for a purchase price equal to the greater of (a) $1.5Company in connection with these agreements, which were recognized as contract research and development revenue, research progress payments, or other contract income, as applicable, totaled $198.7 million, $47.4 million, and (b) the lesser of (i) the fair market value of the shares and (ii) $1.65 million. Unless Regeneron has previously exercised its right to buy back the Merck Shares, on the Sales Date if the fair market value of the Merck Shares (the “Market Price”) is less than$10.9 million inF-21F-22$1.5Regeneron will be required to make a cash payment to Merck equal to the difference between the Market Price$56.0 million and $1.5 million. Conversely, if on the Sales Date the Market Price is greater than $1.65$11.9 million Merck will be required, at its option, to either (i) make a cash payment to Regeneron equal to the difference between the Market Pricein 2004, 2003, and $1.65 million (the “Excess Amount”) or (ii) return a number of the Merck Shares to Regeneron, calculated by dividing the Excess Amount by the fair market value of a share of the Company’s Common Stock on the Sales Date. The fair market value of the shares based on the Company’s closing Common Stock price at December 31, 2003, was $1.6 million.11. Collaboration Agreements2002, respectively. Significant agreements are described below.a. Aventis Pharmaceuticals Inc.The sanofi-aventis Group“Aventis“s-a Agreement”) with Aventis Pharmaceuticals Inc. (“Aventis”)the sanofi-aventis Group, to jointly develop and commercialize the Company’s Vascular Endothelial Growth Factor (“VEGF”) Trap throughout the world with the exception of Japan, where product rights remain with Regeneron. In connection with this agreement, Aventissanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of the Company’s Common Stock for $45.0 million, based upon the average closing price of the Common Stock for the five consecutive trading days ending September 4, 2003.Aventiss-a Agreement, as amended, Regeneron and Aventissanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap. Aventis has agreed to makeTrap, except for sales in the Excluded Field. In December 2004, Regeneron earned a $25.0 million payment to the Companyfrom sanofi-aventis, which was received in January 2005, upon achievement of an early-stage clinical milestone. The Company may also receive up to $360.0 million in additional milestone payments upon receipt of specified marketing approvals for up to eight VEGF Trap indications in Europe or the United States.Aventiss-a Agreement, agreed upon development expenses incurred by both companies during the term of the agreement will be funded by Aventis.sanofi-aventis. If the collaboration becomes profitable, Regeneron will reimburse Aventissanofi-aventis for 50 percent50% of the VEGF Trapthese development expenses, or $10.8half of $86.5 million as of December 31, 2003,2004, in accordance with a formula based on the amount of development expenses and Regeneron’s share of the collaboration profits, or at a faster rate at Regeneron’s option. Regeneron has the option to conduct additional pre-Phase III studies at its own expense. Aventis In connection with the January 2005 amendment to the s-a Agreement, the Excluded Field Termination Payment of $25.0 million will be considered a VEGF Trap 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 a VEGF Trap product in the Excluded Field (“First Excluded Sale”) predates the first commercial sale of a VEGF Trap product under the collaboration (“First Collaboration Sale”), Regeneron will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses, commencing two years after the First Excluded Sale in accordance with a defined formula, until the First Collaboration Sale occurs.with respect to reimbursing Aventis, from a portionreimburse sanofi-aventis, for 50% of the Company’s profits, for 50 percent of the VEGF Trap development expenses will also terminate, and the Company will retain all rights to the VEGF Trap.Aventissanofi-aventis is being recognized under the Substantive Milestone Method (see Note 2) in accordance with SAB 104. The up-front payment of $80.0 million and reimbursement of Regeneron-incurred development expenses are being recognized as contract research and development revenue.revenue over the development period. Milestone payments will beare recognized as research progress payments. In 2003addition to the $25.0 million research progress payment earned in 2004, the CompanyAventiss-a Agreement. At December 31, 2004 and 2003, amounts receivable from Aventissanofi-aventis totaled $39.4 million and $8.9 million, respectively, and deferred revenue was $65.8 million and $76.4 million. b. Novartis Pharma AGb. Novartis Pharma AG (“Novartis”) 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 of $27.0 million and purchased $48.0 million of newly issued unregistered shares of the Company’sF-22REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)bearsbore interest at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly (3.65% at December 31, 2003). The 2003 Loan and accrued interest thereon will be forgiven should certain defined pre-clinical and clinical milestones be reached; otherwise, such amounts are payable on July 1, 2004.quarterly. As of December 31, 2003, the 2003 Loan balance due Novartis, including accrued interest, totaled $13.8 million.is beingwas recognized as contract research and development revenue under the Substantive Milestone Method (see Note 2) in accordance with SAB 104. The up-front payment of $27.0 million and reimbursement of Novartis’ share of Regeneron-incurred development expenses are beingwere recognized as contract research and development revenue. Forgiveness of the 2003 Loan and accrued interest (if forgiven as described above) will bein 2004 was recognized as a research progress payment. In 2003 the Company recognized $21.4 million of contract research and development revenue in connection with the Novartis Agreement. At December 31, 2003, amounts receivable from Novartis totaled $3.2 million and deferred revenue was $22.1 million. On February 27, In 2004, the Company announced that Novartis had provided noticerecognized contract research and development revenue of its intention not to proceed with$22.1 million, which represented the joint developmentremaining amount of the IL-1 Trap. Under the terms of the collaboration agreement,$27.0 million up-front payment from Novartis remains obligated to fund agreed upon pre-Phase III IL-1 Trap development expenses during the nine-month notice period before its voluntary termination becomes effective.that had previously been deferred. At December 31, 2004 there were no amounts receivable from Novartis and the Company retain rights under the collaboration agreement to elect to collaborate on the development and commercialization of other IL-1 Trap antagonists being developed independently by the other party that are in earlier stages of development than the IL-1 Trap. c. Amgen Inc.c. Amgen Inc. (“Amgen”) to develop and attempt to commercialize two proprietary products (BDNF and NT-3, individually the “Product,” collectively the(the “Products”). The Amgen Agreement, among other things, provided for Amgen and the Company to form a partnership (“Amgen-Regeneron Partners” or the “Partnership”) to complete the development and to commercialize the Products. Amgen and the Company hold equal ownership interests (subject to adjustment for any future inequities in capital contributions, as defined). The Partnership is the exclusive distributor of Products in the United States, and Amgen has received a license from the Company to market the Products outside the United States and outside Japan and certain Pacific Rim countries.Partnership. The Company accounts for its investment in the Partnership in accordance with the equity method of accounting. In 2004, 2003, 2002, and 2001,2002, the Company recognized its share of the Partnership net lossincome (loss) in the amounts of $63$134 thousand, $27 thousand,($63 thousand), and $1.0 million,($27 thousand), respectively, which represents 50% of the total Partnership net loss.income (loss). In September 2002, the Company and Amgen each made capital withdrawals of $0.5 million from the Partnership. At December 31, 2003, the Company continues to be an equal partner in the Partnership. In January 2001, Amgen-Regeneron Partners discontinued all clinical development of BDNF for the potential treatment of amyotrophic lateral sclerosis (“ALS”) following notification that BDNF did not provide a therapeutic advantage to ALS patients in clinical trials. The Partnership has no ongoing development activities for NT-3 at this time. Payments the Company receives from the Partnership in connection with services provided to the Partnership, are recognized as contract research and development revenue as earned. Such revenue for theF-23F-24years ended2003, 2002, and 2001 totaled $2 thousand, $2 thousand and $1.2 million, respectively.Selected financial data of theThe Partnership for the year ended December 31, 2001 are as follows. Statement of Operations Data 2001 Interest income $ 169 Total expenses(1) (2,172 ) Net loss $ (2,003 ) (1) Includes $1.2 million related to services provided by the Company in 2001. d. Sumitomo Pharmaceuticals Company, Ltd. In June 1994, the Company entered into a research and development agreement (the “R&D Agreement”) with Sumitomo Pharmaceuticals Company, Ltd. (“Sumitomo Pharmaceuticals”) to collaborate in the research and development of BDNF in Japan. In connection with the R&D Agreement, Sumitomo Pharmaceuticals made payments to the Company for its activities in developing and validating manufacturing processes for BDNF, and manufacturing and supplying BDNF and other research materials to Sumitomo Pharmaceuticals. In 2001, Regeneron recognized contract research and development revenue from Sumitomo Pharmaceuticals of $0.1 million. In addition, the Company recognized contract manufacturing revenue of $0.1 million in 2001 as supplies of BDNF were received (FOB Destination Point) by Sumitomo Pharmaceuticals.d. Sumitomo Chemical Company, Ltd. (“Sumitomo Chemical”), an affiliate of Sumitomo Pharmaceuticals, entered into a Technology Development Agreement (“TDA”) with Regeneron and paid the Company $5.6 million. In consideration for this payment, Sumitomo Chemical received a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan. In connection with the Company’s implementation of SAB 101 (see Note 2), the Company is recognizingrecognized this payment as revenue on a straight-line basis over the term of the TDA. e. The Procter & Gamble Companye. The Procter & Gamble Company (“Procter & Gamble”) to discover, develop, and commercialize pharmaceutical productsF-24REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)(the (the “P&G Agreement”) and Procter & Gamble agreed to provide funding for Regeneron’s research efforts related to the collaboration. In connection with the collaboration, in June 1997 and August 2000, Procter & Gamble purchased 4.35 million and 573,630 shares of the Company’s Common Stock at $9.87 and $29.75 per share for a total of $42.9 million and $17.1 million, respectively. In June 1997, Procter & Gamble also received five year warrants to purchase an additional 1.45 million shares of the Company’s stock at $9.87 per share, which were exercised in August 2000. As consideration for the exercise price, Procter & Gamble tendered 511,125 shares of the Company’s Common Stock which had an aggregate value at the time of exercise, based upon the average market price of the Company’s Common Stock over approximately the prior 30 trading days, equal to the aggregate exercise price of the warrants. The net result of this warrant exercise was that Procter & Gamble acquired an additional 938,875 shares of the Company’s Common Stock. The 511,125 shares of Common Stock delivered to the Company by Procter & Gamble were retired upon receipt. These equity purchases were in addition to a purchase by Procter & Gamble Pharmaceuticals, Inc. of 800,000 shares of the Company’s Common Stock for $10.0 million that was completed in March 1997. $2.5$80.0$90.8 million through December 31, 2003.2004. In addition, in 1997 through 1999, Procter & Gamble also provided research support for the Company’s AXOKINE program and, as a result, will be entitled to receive a small royalty on any sales of AXOKINE.$10.4 million in 2003, 2002, and 2001, respectively. At December 31, 2004, 2003, 2002, and 2001,2002, the Procter & Gamble contract research revenue receivable was $2.3 million, $2.7 million, and $2.6 million, respectively.f. Serono, S.A. $2.7transgenic mammalian models of gene function (“Materials”). Serono made an advance payment of $1.5 million respectively.12. Manufacturing(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 Agreement12. Manufacturing Agreement six yearsa specified period of time (the “Production Period”), with certain minimum order quantities each year. The Production Period commenced in November of 1999 is expectedand originally extended for six years. In February 2005, the Company and Merck amended the Merck Agreement to extend until November 2005,the Production Period through October 2006 and may be extended by mutual agreement.provide Merck an opportunity, upon twelve-months’ prior notice, to extend the Production Period for an additional year through October 2007. Merck may terminate the agreement with at least one year’s notice withoutany time upon the payment by Merck of a termination fee.F-25REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)(“ (“Internal Costs”). These payments are recognized as contract manufacturing revenue as follows: (i) payments for Internal Costs are recognized as the activities are performed, (ii) the Facility Fee and Additional Payments are recognized over the period to which they relate, (iii) payments for Capital Costs were deferred and are recognized as Intermediate is shipped to Merck, and (iv) payments related to the2002, and 2001,2002, Merck contract manufacturing revenue totaled $18.1 million, $10.1 million, $11.1 million, and $9.8$11.1 million, respectively. Such amounts include $1.7$3.6 million, $1.8$1.7 million, and $1.8 million of previously deferred Capital Costs, respectively. In addition, Merck contract manufacturing revenue for 2002 includes a non-recurring $1.0 million payment received in August 2002 related to services the Company provided in prior years.13. Supply Agreement In December 2002, the Company entered into an agreement (the “Serono Agreement”) with Serono S.A. (“Serono”) 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 2003, the Company recognized $0.7 million of contract research and development revenue in connection with the Serono Agreement.14. Incentive and Stock Purchase Plans13. Incentive and Stock Purchase Plans a. Long-Term Incentive Plans 11,000,00018,500,000 shares of Common Stock in respect of awards. In addition, shares of Common Stock previously approved by shareholders for issuance under the Regeneron Pharmaceuticals, Inc. 1990 Long-Term Incentive Plan (“1990 Incentive Plan”) that are not issued under the 1990 Incentive Plan, may be issued as awards under the 2000 Incentive Plan. Employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the 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.F-26REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)2002, and 2001,2002, under the 1990 and 2000 Incentive Plans, are summarized in the table below. Option exercise prices were greater than or equal to the fair market value of the Company’s Common Stock on the date of grant. The total number of options exercisable at December 31, 2004, 2003, and 2002 was 8,628,873, 5,940,268, and 2001 was 5,940,268, 4,670,695, and 3,374,169, respectively, with weighted average exercise prices of $21.05, $19.45, and $15.80, and $11.99, respectively. Weighted-Average Number of Shares Exercise Price Stock options outstanding at December 31, 2001 9,328,039 $ 21.10 Stock options granted 2,693,010 $ 19.97 Stock options canceled (183,031 ) $ 22.63 Stock options exercised (274,068 ) $ 9.96 Stock options outstanding at December 31, 2002 11,563,950 $ 21.08 Stock options granted 2,634,570 $ 13.45 Stock options canceled (265,107 ) $ 22.62 Stock options exercised (795,114 ) $ 7.07 Stock options outstanding at December 31, 2003 13,138,299 $ 20.36 Stock options granted 2,828,484 $ 9.90 Stock options canceled (514,947 ) $ 21.10 Stock options exercised (311,268 ) $ 5.98 Stock options outstanding at December 31, 2004 15,140,568 $ 18.68 F-27F-28 Weighted-Average Number of Shares Exercise Price Stock options outstanding at December 31, 2000 7,431,059 $ 18.37 Stock options granted 2,325,947 $ 28.51 Stock options canceled (170,712 ) $ 23.74 Stock options exercised (258,255 ) $ 7.67 Stock options outstanding at December 31, 2001 9,328,039 $ 21.10 Stock options granted 2,693,010 $ 19.97 Stock options canceled (183,031 ) $ 22.63 Stock options exercised (274,068 ) $ 9.96 Stock options outstanding at December 31, 2002 11,563,950 $ 21.08 Stock options granted 2,609,570 $ 13.45 Stock options canceled (265,107 ) $ 22.62 Stock options exercised (795,114 ) $ 7.07 Stock options outstanding at December 31, 2003 13,113,299 $ 20.38 2003:2004: 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 $ 3.00 to $ 6.00 357,640 .98 $ 5.04 357,640 $ 5.04 $ 6.13 to $12.75 2,948,836 4.59 $ 9.00 2,531,747 $ 9.10 $12.80 to $13.00 2,352,705 9.92 $ 13.00 1,035 $ 12.98 $13.06 to $19.43 2,406,199 8.83 $ 19.00 669,476 $ 19.00 $19.65 to $28.01 2,776,899 7.72 $ 26.83 1,154,435 $ 27.41 $28.12 to $51.56 2,271,020 6.90 $ 38.76 1,225,935 $ 37.77 $ 3.00 to $51.56 13,113,299 7.29 $ 20.38 5,940,268 $ 19.45 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 $ 5.25 to $ 9.49 4,572,718 7.22 $ 8.78 2,070,420 $ 8.00 $ 9.50 to $13.00 3,282,599 7.07 $ 12.36 1,693,510 $ 11.88 $13.05 to $23.29 2,624,114 7.97 $ 18.86 1,338,769 $ 19.30 $23.66 to $28.81 2,551,117 6.67 $ 27.30 1,725,554 $ 27.61 $28.84 to $50.38 2,049,520 5.86 $ 38.94 1,740,220 $ 39.30 $51.56 to $51.56 60,500 5.16 $ 51.56 60,400 $ 51.56 $ 5.25 to $51.56 15,140,568 7.03 $ 18.68 8,628,873 $ 21.05 2002, and 20012002 was estimated on the date of grant using the Black-Scholes option-pricing model. The weighted-average fair value of the options granted during 2004, 2003, and 2002 was $7.53, $10.12 and 2001 was $10.11, $14.10, and $21.22, respectively. The following table summarizes the assumptions used in computing the fair value of option grants. 2003 2002 2001 2004 2003 2002 Expected volatility 80% 70% 75% 80% 80% 70% Expected lives 5 years 5 years 5 years Expected lives from vest date 5 years 5 years 5 years Dividend yield 0% 0% 0% 0% 0% 0% Risk-free interest rate 3.01%-4.26% 3.98%-4.72% 4.74%-5.23% 4.03% 3.75% 4.34% F-28REGENERON PHARMACEUTICALS, INC.NOTES TO FINANCIAL STATEMENTS — (Continued)(Unless otherwise noted, dollars in thousands, except per share data)2001, 219,367, 139,611 and 80,535 shares, respectively, of Restricted Stock were awarded under the 2000 Incentive Plan. These shares are nontransferable with such restriction lapsing (i) for 2004 awards with respect to 50% of the shares at nine months and eighteen months from date of grant and (ii) for 2003 and 2002 awards with respect to 25% of the shares every six months over athe two-year period beginning in January 2004, 2003, and 2002, respectively.from date of grant. In accordance with generally accepted accounting principles, the Company recorded unearned compensation within Stockholders’ Equity of $1.0 million, $2.9 million, and $2.7 million in 2004, 2003, and $2.3 million in 2003, 2002, and 2001, respectively, related to these awards. This amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and will be expensed, on a pro rata basis, over the two year period that the restriction on these shares lapses. During 2004, 2003, and 2002, 18,194, 4,431, and 2001, 4,431, 2,183 and 1,413 shares, respectively, of Restricted Stock were forfeited due to employee terminations. The Company reduced unearned compensation within Stockholders’ Equity by $0.3 million, $0.1 million, and $0.1 million in each of the three years ended December 31,2004, 2003, and 2002, and 2001respectively, related to these forfeited awards.$0.7 million in 2003, 2002, and 2001, respectively.2003,2004, there were 1,653,6425,553,915 shares available for future grants under the 2000 Incentive Plan.
F-29
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 |
F-30
b. |
2003,2004, there were 44,246 shares available for future grants under the Plan.15.14.Employee Savings Plan
$0.8 million in 2002, and $0.8 million in 2001;2002; such amounts were accrued as liabilities at December 31, 2004, 2003, 2002, and 2001,2002, respectively. During the first quarter of 2005, 2004, 2003, and 2002,2003, the Company contributed 90,385, 64,333, 42,543, and 21,95342,543 shares, respectively, of Common Stock to the Savings Plan in satisfaction of these obligations.16.15.Income Taxes
F-29
NOTES TO FINANCIAL STATEMENTS — (Continued)
The tax effect of temporary differences, net operating loss carry-forwards, and research and experimental tax credit carry-forwards as of December 31, 20032004 and 20022003 was as follows:
2003 | 2002 | ||||||||
Deferred tax assets | |||||||||
Net operating loss carry-forward | $ | 135,357 | $ | 125,544 | |||||
Fixed assets | 7,177 | 4,199 | |||||||
Deferred revenue | 43,372 | 6,022 | |||||||
Research and experimental tax credit carry-forward | 18,233 | 16,092 | |||||||
Capitalized research and development costs | 33,102 | 37,646 | |||||||
Other | 3,832 | 3,395 | |||||||
Valuation allowance | (241,073 | ) | (192,898 | ) | |||||
— | — | ||||||||
2004 | 2003 | ||||||||
Deferred tax assets | |||||||||
Net operating loss carry-forward | $ | 135,099 | $ | 135,357 | |||||
Fixed assets | 9,772 | 7,177 | |||||||
Deferred revenue | 28,527 | 43,372 | |||||||
Research and experimental tax credit carry-forward | 20,772 | 18,233 | |||||||
Capitalized research and development costs | 28,559 | 33,102 | |||||||
Other | 4,168 | 3,832 | |||||||
Valuation allowance | (226,897 | ) | (241,073 | ) | |||||
— | — | ||||||||
F-31
Legal Matters |
Net |
F-30F-32
net loss per share since
Net Loss | Shares | ||||||||||||
(Numerator, | (Denominator, | Per Share | |||||||||||
in thousands) | in thousands) | Amount | |||||||||||
2003: | |||||||||||||
Basic and diluted | $ | (107,458 | ) | 50,490 | $ | (2.13 | ) | ||||||
2002: | |||||||||||||
Basic and diluted | $ | (124,377 | ) | 43,918 | $ | (2.83 | ) | ||||||
2001: | |||||||||||||
Basic and diluted | $ | (76,180 | ) | 42,075 | $ | (1.81 | ) |
December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
Net income (loss) (Numerator) | $ | 41,699 | $ | (107,458 | ) | $ | (124,377 | ) | |||||
Shares, in thousands (Denominator): | |||||||||||||
Weighted-average shares for basic per share calculations | 55,419 | 50,490 | 43,918 | ||||||||||
Effect of stock options | 711 | ||||||||||||
Effect of restricted stock awards | 42 | — | — | ||||||||||
Adjusted weighted-average shares for diluted per share calculations | 56,172 | 50,490 | 43,918 | ||||||||||
Basic net income (loss) per share | $ | 0.75 | $ | (2.13 | ) | $ | (2.83 | ) | |||||
Diluted net income (loss) per share | $ | 0.74 | $ | (2.13 | ) | $ | (2.83 | ) |
December 31, | December 31, | |||||||||||||||||||||||||
2003 | 2002 | 2001 | 2004 | 2003 | 2002 | |||||||||||||||||||||
Options and Warrants: | Options and Warrants: | Options and Warrants: | ||||||||||||||||||||||||
Weighted average number, in thousands | 11,299 | 9,533 | 7,598 | Weighted average number, in thousands | 10,110 | 11,299 | 9,533 | |||||||||||||||||||
Weighted average exercise price | $ | 22.07 | $ | 19.43 | $ | 22.40 | Weighted average exercise price | $ | 23.82 | $ | 22.07 | $ | 19.43 | |||||||||||||
Restricted Stock | ||||||||||||||||||||||||||
Restricted Stock: | Restricted Stock: | |||||||||||||||||||||||||
Weighted average number, in thousands | 159 | 88 | 39 | Weighted average number, in thousands | 6 | 159 | 88 | |||||||||||||||||||
Convertible Debt: | Convertible Debt: | Convertible Debt: | ||||||||||||||||||||||||
Weighted average number, in thousands | 6,611 | 6,611 | 1,377 | Weighted average number, in thousands | 6,611 | 6,611 | 6,611 | |||||||||||||||||||
Conversion price | $ | 30.25 | $ | 30.25 | $ | 30.25 | Conversion price | $ | 30.25 | $ | 30.25 | $ | 30.25 |
Segment Information |
F-31F-33
2002, and 2001:2002:
Research & | Contract | Reconciling | Research & | Contract | Reconciling | |||||||||||||||||||||||||||
Development | Manufacturing | Items | Total | Development | Manufacturing | Items | Total | |||||||||||||||||||||||||
2003: | ||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||
Revenues | $ | 155,927 | $ | 18,090 | — | $ | 174,017 | |||||||||||||||||||||||||
Depreciation and amortization | 14,319 | — | (1) | $ | 1,043 | 15,362 | ||||||||||||||||||||||||||
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 | (3) | 473,108 | |||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||
Revenues | $ | 47,366 | $ | 10,131 | — | $ | 57,497 | $ | 47,366 | $ | 10,131 | — | $ | 57,497 | ||||||||||||||||||
Depreciation and amortization | 11,894 | — | (1) | $ | 1,043 | 12,937 | 11,894 | — | (1) | $ | 1,043 | 12,937 | ||||||||||||||||||||
Interest expense | 161 | — | 11,771 | 11,932 | 161 | — | 11,771 | 11,932 | ||||||||||||||||||||||||
Net (loss) income | (103,604 | ) | 3,455 | (7,309 | )(2) | (107,458 | ) | (103,604 | ) | 3,455 | (7,309 | )(2) | (107,458 | ) | ||||||||||||||||||
Capital expenditures | 16,944 | — | — | 16,944 | 16,944 | — | — | 16,944 | ||||||||||||||||||||||||
Total assets | 92,369 | 12,889 | 374,297 | (3) | 479,555 | 92,369 | 12,889 | 374,297 | (3) | 479,555 | ||||||||||||||||||||||
2002: | ||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||
Revenues | $ | 10,924 | $ | 11,064 | — | $ | 21,988 | $ | 10,924 | $ | 11,064 | — | $ | 21,988 | ||||||||||||||||||
Depreciation and amortization | 7,411 | — | (1) | $ | 1,043 | 8,454 | 7,411 | — | (1) | $ | 1,043 | 8,454 | ||||||||||||||||||||
Interest expense | 36 | 2 | 11,821 | 11,859 | 36 | 2 | 11,821 | 11,859 | ||||||||||||||||||||||||
Net (loss) income | (126,597 | ) | 4,579 | (2,359 | )(2) | (124,377 | ) | (126,597 | ) | 4,579 | (2,359 | )(2) | (124,377 | ) | ||||||||||||||||||
Capital expenditures | 45,878 | 36 | — | 45,914 | 45,878 | 36 | — | 45,914 | ||||||||||||||||||||||||
Total assets | 75,589 | 12,479 | 303,506 | (3) | 391,574 | 75,589 | 12,479 | 303,506 | (3) | 391,574 | ||||||||||||||||||||||
2001: | ||||||||||||||||||||||||||||||||
Revenues | $ | 12,071 | $ | 9,902 | — | $ | 21,973 | |||||||||||||||||||||||||
Depreciation and amortization | 5,866 | — | (1) | $ | 211 | 6,077 | ||||||||||||||||||||||||||
Interest expense | 114 | 40 | 2,503 | 2,657 | ||||||||||||||||||||||||||||
Net (loss) income | (90,192 | ) | 3,353 | 10,659 | (2) | (76,180 | ) | |||||||||||||||||||||||||
Capital expenditures | 9,469 | 29 | — | 9,498 | ||||||||||||||||||||||||||||
Total assets | 37,948 | 9,369 | 448,080 | (3) | 495,397 |
(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 |
(3) | Includes cash and cash equivalents, marketable securities, restricted marketable securities (where applicable), prepaid expenses and other current assets, and other assets. |
During the third quarter of 2003, the Company elected to change the method it uses to recognize revenue under SAB 101 related to non-refundable collaborator payments, including up-front licensing payments, payments for development activities, and research progress (milestone) payments, to the Substantive Milestone Method, adopted retroactively to January 1, 2003 (see Note 2). The Company’s unaudited financial results for the quarters ended March 31 and June 30, 2003 have been restated in accordance with the new revenue recognition method. There is no impact on the Company’s financial results for any period prior to January 1, 2003.
F-32F-34
19. Unaudited Quarterly Results 20032004 and 20022003 are displayed in the following tables.
First Quarter Ended | Second Quarter Ended | |||||||||||||||
March 31, 2003 | September 30, 2003 | |||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
As Previously | As Previously | |||||||||||||||
Reported | As Restated | Reported | As Restated | |||||||||||||
Revenues | $ | 10,136 | $ | 9,925 | $ | 10,532 | $ | 8,908 | ||||||||
Net loss | (30,110 | ) | (30,321 | ) | (28,736 | ) | (30,360 | ) | ||||||||
Net loss per share, basic and diluted | $ | (0.68 | ) | $ | (0.68 | ) | $ | (0.58 | ) | $ | (0.61 | ) |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
March 31, | June 30, | September 30, | December 31, | |||||||||||||
2004 | 2004 | 2004 | 2004 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues | $ | 61,990 | $ | 28,418 | $ | 36,519 | $ | 47,090 | ||||||||
Net income (loss) | 64,532 | (14,549 | ) | (11,076 | ) | 2,792 | ||||||||||
Basic net income (loss) per share | $ | 1.17 | $ | (0.26 | ) | $ | (0.20 | ) | $ | 0.05 | ||||||
Diluted net income (loss) per share | $ | 1.06 | $ | (0.26 | ) | $ | (0.20 | ) | $ | 0.05 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||||||||||
Third Quarter Ended | Fourth Quarter Ended | March 31, | June 30, | September 30, | December 31, | |||||||||||||||||||
September 30, 2003 | December 31, 2003 | 2003 | 2003 | 2003 | 2003 | |||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||
Revenues | $ | 17,392 | $ | 21,272 | $ | 9,925 | $ | 8,908 | $ | 17,392 | $ | 21,272 | ||||||||||||
Net loss | (27,400 | ) | (19,377 | ) | (30,321 | ) | (30,360 | ) | (27,400 | ) | (19,377 | ) | ||||||||||||
Net loss per share, basic and diluted | $ | (0.52 | ) | $ | (0.35 | ) | $ | (0.68 | ) | $ | (0.61 | ) | $ | (0.52 | ) | $ | (0.35 | ) |
First Quarter | Third Quarter | Fourth Quarter | ||||||||||||||
Ended | Second Quarter | Ended | Ended | |||||||||||||
March 31, | Ended June 30, | September 30, | December 31, | |||||||||||||
2002 | 2002 | 2002 | 2002 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Revenues | $ | 4,941 | $ | 5,569 | $ | 6,566 | $ | 4,912 | ||||||||
Net loss | (25,445 | ) | (30,423 | ) | (32,816 | ) | (35,693 | ) | ||||||||
Net loss per share, basic and diluted | $ | (0.58 | ) | $ | (0.69 | ) | $ | (0.75 | ) | $ | (0.81 | ) |
F-33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
We have audited the accompanying balance sheet of Amgen-Regeneron Partners, a Delaware general partnership as of December 31, 2001 and the related statements of operations, changes in partners’ capital (deficit), and cash flows for year ended December 31, 2001. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amgen-Regeneron Partners at December 31, 2001, and the results of its operations and its cash flows for the year ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
Los Angeles, California
F-34
AMGEN-REGENERON PARTNERS
BALANCE SHEET
ASSETS | |||||||
Total current assets — cash and cash equivalents | $ | 2,610 | |||||
LIABILITIES AND PARTNERS’ CAPITAL | |||||||
Total current liabilities — accounts payable and accrued expenses due to partners | $ | 768 | |||||
Partners’ capital: | |||||||
Amgen | 921 | ||||||
Regeneron | 921 | ||||||
Total partners’ capital | 1,842 | ||||||
Total liabilities and partners’ capital | $ | 2,610 | |||||
See accompanying notes.
F-35
AMGEN-REGENERON PARTNERS
STATEMENT OF OPERATIONS
Interest income | $ | 169 | ||||
Total income | 169 | |||||
Expenses: | ||||||
Research and development performed by partners | 2,094 | |||||
General and administrative | 78 | |||||
Total expenses | 2,172 | |||||
Net loss | $ | (2,003 | ) | |||
See accompanying notes. |
F-36
AMGEN-REGENERON PARTNERS
STATEMENT OF CHANGES IN PARTNERS’ CAPITAL (DEFICIT)
Amgen | Regeneron | |||||||
(In thousands) | ||||||||
Balance at December 31, 2000 | $ | 267 | $ | 267 | ||||
Capital contributions | 1,655 | 1,656 | ||||||
Net loss | (1,001 | ) | (1,002 | ) | ||||
Balance at December 31, 2001 | $ | 921 | $ | 921 | ||||
See accompanying notes. |
F-37
AMGEN-REGENERON PARTNERS
STATEMENT OF CASH FLOWS
Cash flows from operating activities: | |||||
Net loss | $ | (2,003 | ) | ||
Decrease in accounts payable and accrued expenses | (3,867 | ) | |||
Net cash used in operating activities | (5,870 | ) | |||
Cash flows from financing activities — capital contributions | 3,311 | ||||
Decrease in cash and cash equivalents | (2,559 | ) | |||
Cash and cash equivalents at beginning of year | 5,169 | ||||
Cash and cash equivalents at end of year | $ | 2,610 | |||
See accompanying notes. |
F-38
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS
Amgen-Regeneron Partners (the Partnership), a general partnership, was formed on June 21, 1991, under the laws of the state of Delaware between Amgen Inc. (Amgen) and Regeneron Pharmaceuticals, Inc. (Regeneron). The Partnership was formed to develop and commercialize in the United States brain-derived neurotrophic factor (BDNF) and Neurotrophin-3 (NT-3, together with BDNF, the Products) for human pharmaceutical use, in conformity with a collaboration agreement (the Collaboration Agreement) (Note 3).
The Partnership has conducted clinical trials of the Products in the past. Following a review of available clinical trial data, the Partnership discontinued the development of BDNF for the treatment of amyotrophic lateral sclerosis (ALS) in January 2001. There are no ongoing development activities for NT-3 at this time.
The Partnership considers only those investments which are highly liquid, readily convertible to cash and which mature within three months of the date of purchase as cash equivalents. At December 31, 2001, cash and cash equivalents consisted of a single interest bearing money market account.
Research and development costs are expensed as incurred. Clinical trial costs, which are a component of research and development costs, are recognized based upon the estimated levels of effort expended on those trials.
The Partnership’s financial statements do not include a provision (credit) for income taxes. Income taxes, if any, are the liability of the individual partners.
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.
Capital contributions are recorded in the capital account of each partner. Capital account contributions are generally made quarterly in advance based upon capital calls made by the Committee pursuant to projected cash requirements of the Partnership. Cash distributions, if any, and profits or losses are allocated to each partner’s capital account in proportion to their respective capital account contributions.
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NOTES TO FINANCIAL STATEMENTS — (Continued)
In August 1990, Amgen and Regeneron entered into the Collaboration Agreement to develop and commercialize BDNF and NT-3, compounds for which Regeneron possesses substantial scientific, technical and proprietary information. Each party agreed to perform research and development on the Products under product development programs approved by the Committee. Upon Amgen’s notification in writing to Regeneron that the preparation of an Investigational New Drug Application for each Product was to commence, the licenses granted by the partners to the Partnership for the underlying technologies, discussed below, became effective on a Product-by-Product basis. Also, upon such notification, further research and development of the Products under the licenses became the obligation of the Partnership. These licenses grant the Partnership an exclusive royalty-free right to develop, make, have made, use, sell and distribute each Product for human pharmaceutical use in the United States. The Partnership has, in turn, granted to Amgen and Regeneron exclusive royalty-free sublicenses for the underlying technologies to the extent necessary to fulfill their obligations under the Collaboration Agreement. These sublicenses became effective at the same time the related licenses granted the Partnership became effective.
Under the Collaboration Agreement, Amgen would be primarily responsible for the manufacture and commercialization of the Products in the United States if successfully developed by the Partnership. Amgen’s costs in connection with such activities would be reimbursed at agreed-to rates. Unless terminated earlier, the Partnership will continue in effect, with respect to each Product, until the later of the expiration of the last United States patent of each Product, or 15 years from the date on which each Product was approved for sale in the United States.
A Joint Management Committee (the Committee) is responsible for the overall management of the business and affairs of the Partnership as well as activities performed under the Collaboration Agreement. Each partner has appointed three representatives to the Committee. One additional representative may be appointed by a partner if the balance of their capital account becomes more than twice the amount of the balance of the other partner’s capital account (Note 2).
Pursuant to the terms of the Collaboration Agreement, and subject to the approval by both parties, Amgen and Regeneron can conduct certain research and development activities on behalf of the Partnership, including contracting with third parties to conduct clinical trials. Amgen also provides on behalf of the Partnership certain quantities of materials, primarily for clinical testing. Amgen and Regeneron are paid for such services and materials at amounts approved by the Committee. During the year ended December 31, 2001, the Partnership incurred expenses (including accrued expenses) of $866,000 from Amgen and $1,228,000 from Regeneron for such services and materials. These amounts are included in research and development expense in the accompanying statements of operations. In addition, certain other costs associated with the development of the Products have been incurred by the partners but not charged to the Partnership or reflected in the accompanying financial statements as the related development activities are not billable to the Partnership under the terms of the Collaboration Agreement. At December 31, 2001, accounts payable and accrued expenses due to partners was composed of $143,000 of accounts payable and $378,000 of accrued clinical costs due to Amgen and $170,000 of accounts payable and $77,000 of accrued clinical costs due to Regeneron.
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