*
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 19961997
------------- --------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
__________------------- -------------
Commission File Number 0-19034
-------
REGENERON PHARMACEUTICALS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3444607
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 Old Saw Mill River Road
Tarrytown, New York 10591-6707
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip code)
(914) 347-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
___--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996:August 2, 1997:
Class of Common Stock Number of Shares
--------------------- ----------------
Class A Stock, $0.001 par value 4,616,0734,279,814
Common Stock, $0.001 par value 21,029,760
Page 1 of 3426,604,819
REGENERON PHARMACEUTICALS, INC.
Table of Contents
SeptemberJune 30, 1996
Page Numbers
PART I-1997
Page Numbers
------------
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
- ------ --------------------
Condensed balance sheets (unaudited) at June 30, 1997
and December 31, 1996 3
Condensed statements of operations (unaudited) for the three
months and six months ended June 30, 1997 and 1996 4
Condensed statements of cash flows (unaudited) for the
six months ended June 30, 1997 and 1996 5
Notes to condensed financial statements 6-7
Item 1. Financial Statements
Condensed balance sheets (unaudited) at September 30,
1996 and December 31, 1995 3
Condensed statements of operations (unaudited) for the
three months and nine months ended September 30, 1996
and 1995 4
Condensed statements of cash flows (unaudited) for the
nine months ended September 30, 1996 and 1995 5
Notes to condensed financial statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE PAGE 19
Exhibit 3(i) Certificate of Amendment of the Restated
Certificate of Incorporation of Regeneron
Pharmaceuticals, Inc., as at October 18, 1996. 20-31
Exhibit 4 Rights Agreement, dated as of September 20, 1996,
between Regeneron Pharmaceuticals, Inc. and ChaseMellon
Shareholder Services L.L.C., as Rights Agent, including
the form of Rights Certificate as Exhibit B thereto.
(Incorporated by reference.)
Exhibit 11 Statement of computation of net loss per share for
the three months and nine months ended September 30,
1996 and 1995. 32
Exhibit 17 Letter of Resignation of James W. Fordyce, Director,
dated October 1, 1996. 33
Exhibit 27 Financial data schedule. 34 2 Management's Discussion and Analysis of Financial Condition
- ------ --------------------------------------- -------------------
and Results of Operations 8-16
-------------------------
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 17
- ------ ---------------------------------------------------
Item 6 Exhibits and Reports on Form 8-K 18
- ------ --------------------------------
SIGNATURE PAGE 19
Exhibit 10.1 Securities Purchase Agreement dated as of May 13, 1997
- ------------ between the Company and The Procter & Gamble Company
Exhibit 10.2 Warrant Agreement dated as of May 13, 1997 between the Company
- ------------ and The Procter & Gamble Company
Exhibit 10.3 Registration Rights Agreement dated as of May 13, 1997
- ------------ between the Company and The Procter & Gamble Company
Exhibit 10.4 Multi-Project Collaboration Agreement dated as of May 13,
- ------------ 1997 between the Company and The Procter & Gamble Company
Exhibit 11 Statement of computation of net loss per share for the three
- ---------- months and six months ended June 30, 1997 and 1996
Exhibit 27 Financial data schedule
- ----------
2
PART 1.I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBERJUNE 30, 19961997 AND DECEMBER 31, 19951996 (Unaudited)
SeptemberJune 30, December 31,
ASSETS 1997 1996
1995
---- -------
ASSETS
Current assets
Cash and cash equivalents $37,452,802 $32,736,026$ 51,445,161 $ 34,475,060
Marketable securities 29,230,441 13,417,634
Receivable due from Amgen-Regeneron Partners 1,972,660 668,99052,808,383 45,587,404
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 2,352,499 1,749,0622,327,400 2,072,455
Receivable due from Merck & Co., Inc. 1,551,712 271,6301,914,117 1,816,056
Receivable due from The Procter & Gamble Company 937,500
Receivable due from Amgen-Regeneron Partners 805,621 446,269
Prepaid expenses and other current assets 847,259 359,111
-------------- --------------394,763 611,435
------------- -------------
Total current assets 73,407,373 49,202,453110,632,945 85,008,679
Marketable securities 21,319,621 13,468,35025,246,355 16,965,302
Investment in Amgen-Regeneron Partners 1,260,158 1,273,5381,205,299
Property, plant and equipment, at cost, net of accumulated depreciation
and amortization of $17,954,424 in 1996 and $14,402,833 in 1995 33,686,093 27,870,72033,973,564 34,297,843
Other assets 926,596 1,996,284
-------------- --------------101,009 104,731
------------- -------------
Total assets $130,599,841 $93,811,345
============== ==============$ 169,953,873 $ 137,581,854
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $4,230,306 $6,289,832
Note payable, current portion 79,062 83,444$ 5,076,750 $ 4,357,145
Capital lease obligations, current portion 3,687,186 3,408,0903,054,527 3,505,221
Note payable, current portion 75,416 77,684
Capital contribution due to Amgen-Regeneron Partners 965,045
Deferred revenue, current portion 920,831 3,166,665
-------------- --------------1,676,326 4,108,412
------------- -------------
Total current liabilities 8,917,385 12,948,03110,848,064 12,048,462
Capital lease obligations 3,351,957 4,152,1002,458,402 3,400,015
Note payable 1,767,722 1,825,7661,711,799 1,748,082
Other liabilities 163,748 103,374213,092 183,426
Deferred revenue 12,174,499 6,925,62514,778,415 13,270,870
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized;
4,777,7574,279,814 shares issued (4,760,684 outstanding)and outstanding in 1996;
5,403,9231997
4,355,994 shares issued (5,386,850 outstanding)and outstanding in 1995 4,777 5,4041996 4,280 4,356
Common Stock, $.001 par value; 60,000,000 shares authorized;
20,855,18626,604,819 shares issued and outstanding in 1996;
16,465,4291997
21,319,896 shares issued and outstanding in 1995 20,855 16,4651996 26,605 21,320
Additional paid-in capital 254,145,791 193,594,141307,904,196 264,742,236
Unearned compensation (1,170,000) (1,440,000)(900,000) (1,080,000)
Accumulated deficit (148,886,178) (124,605,334)(167,227,638) (157,029,112)
Net unrealized gain on marketable securities 109,452 285,940
-------------- --------------
104,224,697 67,856,616
Less, Class A Stock held in treasury, at cost: 17,073 shares in 1996 and
1995 (167) (167)
-------------- --------------136,658 272,199
------------- -------------
Total stockholders' equity 104,224,530 67,856,449
-------------- --------------139,944,101 106,930,999
------------- -------------
Total liabilities and stockholders' equity $130,599,841 $93,811,345
============== ==============$ 169,953,873 $ 137,581,854
============= =============
The accompanying notes are an integral part of the financial statements.
================================================================================
3
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months NineSix months
ended SeptemberJune 30, ended SeptemberJune 30,
1997 1996 19951997 1996 1995
---------------------------- ----------------------------
Revenues
Contract research and development $4,306,232 $4,783,045 $13,085,518 $18,489,394$4,377,177 $4,596,390 $8,615,615 $8,779,286
Investment income 1,380,585 1,130,763 2,659,316 1,731,185
Contract manufacturing 557,927 743,357 1,394,287 743,357
Investment income 1,357,528 659,265 3,088,713 2,409,070
---------------858,510 431,009 1,554,966 836,360
------------ --------------- ----------------
6,221,687 6,185,667 17,568,518 21,641,821
--------------- ------------ --------------- ---------------------------- ------------
6,616,272 6,158,162 12,829,897 11,346,831
------------ ------------ ------------ ------------
Expenses
Research and development 7,660,787 5,679,154 21,389,751 17,319,9136,880,316 6,802,561 13,956,787 13,728,964
Loss in Amgen-Regeneron Partners 4,109,300 3,693,578 10,288,380 9,103,278479,345 3,517,180 2,179,345 6,179,080
General and administrative 1,422,479 1,365,963 4,519,978 4,594,0791,688,276 1,586,554 3,152,203 3,097,499
Depreciation and amortization 1,497,494 1,463,267 4,513,749 4,441,3751,165,005 1,525,301 2,366,502 3,016,255
Contract manufacturing 475,673 123,770 968,535 239,106
Interest 214,181 218,896 692,239 969,667
Other 206,159 910,687 445,265 910,687
---------------197,324 227,429 405,051 478,058
------------ --------------- ----------------
15,110,400 13,331,545 41,849,362 37,338,999
--------------- ------------ --------------- ---------------------------- ------------
10,885,939 13,782,795 23,028,423 26,738,962
------------ ------------ ------------ ------------
Net loss ($8,888,713)4,269,667) ($7,145,878)7,624,633) ($24,280,844)10,198,526) ($15,697,178)
--------------- ------------ --------------- ----------------15,392,131)
============ ============ ============ ============
Net loss per share ($0.35)0.16) ($0.37)0.31) ($1.01)0.38) ($0.81)
===============0.66)
============ =============== ============================ ============ ============
Weighted average number of Common
and Class A shares outstanding 25,605,159 19,520,245 24,066,180 19,444,247
===============27,192,724 24,585,518 26,495,847 23,296,691
============ =============== ============================ ============ ============
The accompanying notes are an integral part of the financial statements.
================================================================================
4
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
NineSix months ended SeptemberJune 30,
1997 1996 1995
---- ----
Cash flows from operating activities
Net loss ($24,280,844)10,198,526) ($15,697,178)15,392,131)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 10,288,380 9,103,2782,179,345 6,179,080
Depreciation and amortization 4,513,749 4,441,3752,366,502 3,016,255
Amortization of lease incentive (50,300)
Stock issued in consideration for services rendered 270,000 270,000180,000 180,000
Changes in assets and liabilities
Increase in amounts due from Amgen-Regeneron Partners (1,303,670) (865,894)(359,352) (316,552)
Increase in amounts due from Sumitomo Pharmaceuticals Co., Ltd. (603,437) (1,749,062)(254,945) (603,421)
Increase in amounts due from Merck & Co., Inc. (1,280,082) (910,024)(98,061) (2,794,534)
Increase in amounts due from The Procter & Gamble Company (937,500) 000,000
Increase in investment in Amgen-Regeneron Partners (10,275,000) (5,471,000)
Increase(9,001) (6,521,000)
Decrease in prepaid expenses
and other assets (380,617) (201,267)
Increase (decrease)220,394 130,675
(Decrease) increase in deferred revenue 3,003,040 (8,083,337)
Decrease(924,541) 3,445,172
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities (158,504) (1,067,722)
------------- -------------371,168 (533,047)
------------ ------------
Total adjustments 4,073,859 (4,583,953)
------------- -------------2,734,009 2,182,628
------------ ------------
Net cash used in operating activities (20,206,985) (20,281,131)
------------- -------------(7,464,517) (13,209,503)
------------ ------------
Cash flows from investing activities
Purchases of marketable securities (54,530,151) (21,660,071)(46,077,877) (41,117,516)
Sales of marketable securities 30,689,585 26,604,38830,440,304 20,209,644
Capital expenditures (8,014,762) (561,501)
------------- -------------(1,085,427) (7,462,280)
------------ ------------
Net cash (used in) provided byused in investing activities (31,855,328) 4,382,816
------------- -------------(16,723,000) (28,370,152)
------------ ------------
Cash flows from financing activities
Net proceeds from the issuance of stock 59,367,260 541,92743,207,169 59,394,527
Principal payments on note payable (62,426) (68,007)(38,551) (41,431)
Capital lease payments (2,525,745) (2,312,814)
Purchase of treasury stock (5)
------------- -------------(2,011,000) (1,659,382)
------------ ------------
Net cash provided by (used in) financing activities 56,779,089 (1,838,899)
------------- -------------41,157,618 57,693,714
------------ ------------
Net increase (decrease) in cash and cash equivalents 4,716,776 (17,737,214)
------------- -------------16,970,101 16,114,059
------------ ------------
Cash and cash equivalents at beginning of period 34,475,060 32,736,026
23,645,914
------------- ------------------------- ------------
Cash and cash equivalents at end of period $37,452,802 $5,908,700
============= =============$51,445,161 $48,850,085
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest $631,865 $891,687$375,385 $437,586
============ ============
The accompanying notes are an integral part of the financial statements.
================================================================================
5
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
1. Interim Financial Statements
In the opinion of management of the Company, the accompanying unaudited
interim financial statements reflect all adjustments, consisting only
of normal recurring accruals, necessary to present fairly the Company's
financial position as of SeptemberJune 30, 19961997 and December 31, 19951996 and the
results of operations for the three months and ninesix months ended SeptemberJune
30, 19961997 and 1995.1996. The results of operations for such interim periods
are not necessarily indicative of the results to be expected for the
full year.
The
condensed interim financial statements should be read in conjunction with the
audited financial statements included in the Company's annual report on Form
10-K.
Certain reclassifications have been made to the financial statements
for 1995 in order to conform with the current period's presentation.
2. Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligations of approximately $2,005,000$619,000 and $361,000$775,000 were
incurred during the first ninesix months of 19961997 and 1995,1996, respectively,
when the Company leased new equipment.
Included in accounts payable and accrued expenses at SeptemberJune 30, 19961997 were
approximately $432,000$1,127,000 of capital expenditures.
At December 31, 1995,expenditures and approximately
$40,000 of costs incurred in connection with the Company had accrued $850,000 as its
contribution to the settlementCompany's issuance of
a securities class action lawsuit. During
January 1996, the Company issued shares of its Common Stock, valued at
$850,000, in settlement of this obligation.equity securities.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of SeptemberJune 30, 19961997 and
December 31, 19951996 consist of the following:
SeptemberJune 30, December 31,
1997 1996 1995
---- ----
Accounts payable ............................. $2,371,027 $3,240,050$2,938,907 $2,178,308
Accrued payroll and related costs ............ 779,904 1,054,6261,006,600 1,047,812
Accrued clinical trial expense ............... 319,500 350,000
Accrued litigation settlement ................ 850,000319,500
Accrued expenses, other ...................... 337,412 299,412410,280 389,062
Deferred compensation ........................401,463 422,463 495,744
---------- ----------
$4,230,306 $6,289,832$5,076,750 $4,357,145
========== ==========
6
4. Marketable Securities
The following table summarizes the amortized cost basis of marketable
securities, the aggregate fair value of marketable securities, and gross
unrealized holding gains and losses at September 30, 1996:
Amortized Fair Unrealized Holding
Cost Basis Value Gains (Losses) Net
---------- ----- ----- -------- ---
Maturities within one year
Corporate debt securities $ 7,220,473 $ 7,273,750 $ 58,192 ($4,915) $ 53,277
U.S. Government securities 21,807,885 21,956,691 156,153 (7,347) 148,806
---------- ---------- ------- ------- -------
29,028,358 29,230,441 214,345 (12,262) 202,083
---------- ---------- ------- -------- -------
Maturities between one and two years
Corporate debt securities 9,317,154 9,304,152 11,719 (24,721) (13,002)
U.S. Government securities 12,095,098 12,015,469 4,037 (83,666) (79,629)
---------- ---------- ------- -------- --------
21,412,252 21,319,621 15,756 (108,387) (92,631)
---------- ---------- ------- --------- --------
$50,440,610 $50,550,062 $230,101 ($120,649) $109,452
=========== =========== ======== ========== ========
The aggregate net unrealized gain of $109,452 has been included as an
increase to stockholders' equity at September 30, 1996.
5. Stock and WarrantCollaboration Agreement
On April 15, 1996 Amgen Inc. purchased fromIn May 1997, the Company 3entered into a ten-year collaboration
agreement with The Procter & Gamble Company ("Procter & Gamble") to discover,
develop, and commercialize pharmaceutical products (the "P&G Agreement"), as
well as a securities purchase agreement and other related agreements. Procter &
Gamble agreed over the first five years of the various agreements to purchase up
to $60.0 million in Regeneron equity and provide up to $94.7 million in support
of Regeneron's research efforts related to the collaboration. In June 1997,
Procter & Gamble completed the purchase of 4.35 million shares of Regeneron
Common Stock at $9.87 per share for $48.0 million. The purchase price also includeda total of $42.9 million and received five
year warrants to purchase an additional 700,0001.45 million shares of Regeneron stock
at $9.87 per share. This purchase was in addition to a $10.0
6
million purchase of Regeneron Common Stock at an
exercise price of $16.00$12.50 per share.share that was
completed in March 1997 pursuant to a December 1996 stock purchase agreement.
The warrants are fully exercisable, expire
on April 15, 2001,P&G Agreement expanded and are subject to antidilution provisions.
6. Collaboration Agreement
On June 27, 1996,superceded a collaboration agreement that the
Company and Medtronic, Inc. ("Medtronic")companies entered into in December 1996 jointly to develop drugs for skeletal
muscle injury and atrophy.
In the second five years of the P&G Agreement, the companies will share
all research costs equally. Clinical testing and commercialization expenses for
jointly developed products will be shared equally throughout the ten years of
the collaboration. Procter & Gamble will have rights to Regeneron's current
technology (other than its work in the area of neurotrophic factors and
cytokines), which is expected to have application in cardiovascular, bone,
muscle, arthritis, and other disease areas. Procter & Gamble will also have
rights to new technology developed as a result of the collaboration. The
companies expect jointly to develop and market worldwide exclusive joint development agreement (the "Medtronic
Agreement") to collaborate onany products resulting
from the collaboration and share equally in profits. Either company may
terminate the P&G Agreement at the end of five years with at least one year's
prior notice or earlier in the event of default.
Contract research and development revenue related to the P&G Agreement
and the December 1996 collaboration agreement was $0.9 million in the second
quarter of 1997 and $1.9 million for the first half of 1997. At June 30, 1997,
the Procter & Gamble contract research revenue receivable was $0.9 million.
5. Impact of the Future Adoptions of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 will require the Company to replace the current presentation of "primary"
per share data with "basic" and "diluted" per share data. Currently, outstanding
common stock equivalents are antidilutive and therefore management estimates
that the future adoption of SFAS 128 currently will not have a material impact
on the Company's per share data. SFAS 128 will be adopted by the Company for
periods ending after December 15, 1997.
The Financial Accounting Standards Board issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive Income represents the change in net assets of a familybusiness
enterprise as a result of therapeutics for central nervous system diseasesnonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and disorders using
experimental Regeneron compounds and Medtronic delivery systems.results of operations. The Medtronic
Agreement, among other things, providesCompany will adopt
SFAS 130 for the Companyyear ending December 31, 1998.
Also in June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Medtronic to fund
development costsRelated Information" ("SFAS 131"). SFAS 131 requires that a
business enterprise report certain information about operating segments,
products and supply amountsservices, geographic areas of drugoperation, and delivery systems,
respectively. In addition, Medtronic is required to make payments to Regeneron
if certain clinical milestones are achievedmajor customers in
complete sets of financial statements and thein condensed financial statements for
interim periods. The Company is required to pay
royalties to Medtronic based upon net sales of any drug developed underadopt this standard in 1998 and is
currently evaluating the collaboration. The Medtronic Agreement may be terminated by written agreement
of both parties, by either party if certain regulatory approvals have not been
obtained within specified time periods, or by either party under certain other
conditions.
In addition, on June 27, 1996, Medtronic purchased from the Company
460,500 shares of Common Stock for $10.0 million. The purchase price also
included warrants to purchase an additional 107,400 shares of Common Stock at
an exercise price of $21.72 per share. The number of shares issuable upon
exercise of these warrants is subject to reduction in the event that Medtronic
elects a cashless exercise option. The warrants are fully exercisable, expire
on June 26, 2001, and are subject to antidilution provisions.
7
7. Shareholder Rights Plan
On September 20, 1996, the Company announced that it adopted a
Shareholder Rights Plan in which Rights will be distributed as a dividend at
the rate of one Right for each share of Common Shares and Class A Stock
(collectively, "Common Stock") held by shareholders of record asimpact of the close
of business on October 18, 1996. Each Right initially will entitle 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
will be attached to all Common Stock certificates representing shares then
outstanding, and no separate Rights certificate will be distributed. The Rights
will separate from the Common 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 Common 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 Common 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 Common 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,
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 will entitle the holder to purchase, at
the Right's then current exercise price, Common Shares (or, in certain
circumstances, cash, property or other securities of the Company), having a
value twice the Right's Exercise Price. The Exercise Price is the Purchase
Price times the number of shares of Common Shares associated with each Right
(initially, one). Upon the occurrence of any such events, the Rights held by an
Acquiring Person become null and void. In certain circumstances, a Right
entitles the holder to receive, upon exercise, shares of common stock of an
acquiring company having a value equal to two times the Exercise Price.
As a result of the Shareholder Rights Plan, the Company's Board of
Directors designated 100,000 shares of preferred stock as A Preferred Stock.
The A Preferred Stock has certain preferences, as defined.
8. Capital Leases
In June 1996, the Company executed a new leasing agreement (the "New
Lease Line") which provides up to $3.0 million to finance equipment
acquisitions and certain building improvements, as defined, (collectively, the
"Equipment"). The Company may utilize the New Lease Line in increments
("leases"). Lease terms are for four years after the takedown, after which the
Company is required to purchase the Equipment at specified amounts, or the
leases will be renewed for eight months at specified monthly payments after
which the Company will own the Equipment. At September 30, 1996, the Company
had available approximately $1.0 million of the New Lease Line.
8standard.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Overview. The discussion below contains forward-looking statements that
involve risks and uncertainties relating to the future financial performance of
Regeneron Pharmaceuticals, Inc. ("Regeneron" or the "Company") and actual events
or results may differ materially. These statements concern, among other things,
the possible therapeutic applications of the Company's product candidates and
research programs, the timing and nature of the Company's clinical and research
programs now underway or planned, a variety of items described herein and in the footnotes
to the Company's financial statements (including the useful life of assets, the
anticipated length of agreements, and other matters), and the future uses of
capital and financial needs of the Company. These statements are made by the
Company based on management's current beliefs and judgment. In evaluating such
statements, stockholders and investors should specifically consider the various
factors identified under the caption "Factors That May Affect Future Operating
Results" which could cause actual results to differ materially from those
indicated by such forward-looking statements.
In May 1997, the Company entered into a ten-year collaboration
agreement with The Procter & Gamble Company ("Procter & Gamble") to discover,
develop, and commercialize pharmaceutical products (the "P&G Agreement"), as
well as a securities purchase agreement and other related agreements. Procter &
Gamble agreed, over the first five years of the various agreements, to purchase
up to $60.0 million in Regeneron equity and provide up to $94.7 million in
support of Regeneron's research efforts related to the collaboration. In June
1997, Procter & Gamble completed the purchase of 4.35 million shares of
Regeneron Common Stock at $9.87 per share for a total of $42.9 million and
received five year warrants to purchase an additional 1.45 million shares of
Regeneron stock at $9.87 per share. This purchase was in addition to a $10.0
million purchase of Regeneron Common Stock at $12.50 per share that was
completed in March 1997 pursuant to a December 1996 stock purchase agreement.
The P&G Agreement expanded and superceded a collaboration agreement that the
companies entered into in December 1996 jointly to develop drugs for skeletal
muscle injury and atrophy.
During the thirdsecond quarter of 1996,1997, Amgen Inc. ("Amgen"), on behalf of
Amgen-Regeneron Partners, completed the treatment period of a Phase IIIcontinued to conduct clinical trial designed to determine the safety and efficacytrials of brain-derived
neurotrophic factor ("BDNF") infor the treatment of amyotrophic lateral sclerosis
("ALS",ALS," commonly known as Lou Gehrig's disease). In addition, Amgen, on behalf
of Amgen-Regeneron Partners, continued to conduct a Phase I/II clinical trial via intrathecal delivery
and of neurotrophin-3 ("NT-3") for the treatment of peripheral neuropathies
caused by diabetes. Amgen also continued to conduct a trial of BDNF in Europe
for the treatment of neuropathies caused by diabetes. The Company continued to
develop and manufacture BDNF for use by Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo Pharmaceuticals") in JapanJapan.
In January 1997, Amgen and continuedRegeneron announced that the development of a series of
preclinical research programs in the areas of inflammatory and muscle disease,
angiogenesis, hematopoiesis, and cancer.
The BDNF Phase III
clinical trial forof BDNF delivered subcutaneously did not demonstrate clinical
efficacy in patients with ALS was completed in September
1996, but the results are uncertain and will not be known until the data is
reviewed and analyzed. The Company believes that such results are likely to be
known during the first quarter of 1997. If the study demonstrates a
statistically significant and clinically effective and safe treatment regimen,
it could have a materially beneficial effect on the Company. However, if the trial is not conclusively successful, it could haveconfirmed the safety and
tolerability of BDNF seen in earlier trials. The failure of the Phase III trial
to achieve its primary end points had a materially adverse effect on the Company, the price
of the Company's Common Stock (which declined more than 50% immediately after
the announcement of the results of the trial). After the Phase III clinical
trial results were announced, the Company retained independent experts in the
fields of neurology and gastroenterology, as well as independent statisticians,
to conduct further examination of the data. This review by the Company and the
outside panels
8
indicated 1) that a subset of ALS patients in the trial may have received a
benefit from BDNF treatment and 2) that BDNF appeared to have an effect on the
gastrointestinal system and might have a therapeutic role in treating
constipating conditions, among other disorders. The panels recommended, among
other things, that additional clinical and preclinical investigations of
subcutaneous BDNF for ALS and BDNF for gastrointestinal conditions should be
undertaken. The Company is reviewing these recommendations and the Phase III
data and is discussing with Amgen whether to undertake these or other
investigations of BDNF. Further development of BDNF in the United States must be
undertaken in accordance with the terms of the Company's abilitycollaboration agreement
with Amgen. Sumitomo Pharmaceuticals is currently planning to raise additional capital.begin a Phase I
safety assessment of BDNF in 1997.
The results of the Company's and its collaborators' past activities in
connection with the research and development of BDNF and NT-3 do not necessarily
predict the results or success of future activities including, but not limited
to, any additional preclinical or clinical studies of BDNF or NT-3. The Company
cannot predict whether, when, or under what conditions BDNF or NT-3 will be
shown to be safe or effective to treat any human condition or be approved for
marketing by any regulatory agency. The delay or failure of current or future
studies to demonstrate the safety or efficacy of BDNF or NT-3 to treat human
conditions or to be approved for marketing would have a material adverse impact
on the Company.
9
The potential success of the BDNF clinicalAmgen continues to conduct a Phase I trial is also dependent
upon, among other things, certain factors that could undermine the significance
of the data collected from such patients. Patients who were taking RilutekTM,
an orally administered drug manufactured by Rhone-Poulenc Rorer approved for
the treatment of ALS, were not, on that basis, ineligible to participate in the
BDNF clinical trial, and Amgen and the Company know that some patients who were
taking RilutekTM were enrolled in the BDNF trial. The clinical effects of
taking both drugs are completely unknown and therefore unanticipated effects
could complicate the trial or render the data collected difficult to analyze or
interpret. Amgen, on behalf of Amgen-Regeneron
Partners designedof BDNF for ALS using intrathecal delivery. While intrathecal delivery
may be more successful in delivering BDNF to certain motor neurons (the nerve
cells that degenerate in ALS), it is not known whether intrathecal delivery will
prove any more successful in demonstrating safety and utility in patients with
ALS than the BDNF
clinical trial to take into account the inclusion of patients who may have been
taking RilutekTM. However, ifsubcutaneous delivery used in the Phase III clinical study is compromised
through the inclusion of patients who were taking RilutekTM or other
medications, with or without the consent or knowledge of the trial sponsor, the
results of the study may be undermined andthat
failed to achieve its primary endpoints. If additional clinical studies may be
required, causing a delay in, and increasing the costs of, the development of BDNF which wouldfor ALS
are undertaken, the time and expense required for such trials could be material
to the Company and the outcome will be uncertain. If subsequent trials are
conducted and such trials fail to demonstrate that BDNF is safe and effective in
the treatment of ALS, that failure could have a materialmaterially adverse effect on the
Company.Company, the price of the Company's Common Stock, and the Company's ability to
raise additional capital.
No assurance can be given that extended administration of NT-3 will be
safe or effective. The Phase I study of NT-3 in normal human volunteers that
concluded in 1995 was a short term (seven day) treatment study. The 1996current NT-3
clinical study involves substantially longer treatment (six months or longer).
In the Phase I
study, two out of the seventy-six patients developed significant abnormalities
of blood tests of their liver function. These laboratory abnormalities reversed
after cessation of treatment and were not associated with any other evidence of
liver dysfunction. Similar abnormalities have not been observed in preclinical
toxicology studies with NT-3. However, if such abnormalities were to occur in a
number of patients in subsequent trials, including the 1996 study, this result
could delay or preclude the further development of NT-3. The treatment of peripheral neuropathies associated with cancer chemotherapies or diabetesneuropathy may present additional clinical trial
risks in light of the complex and not wholly understood mechanisms of action
that lead to the neuropathies, the presence of many other drugs to treat the
underlying conditions, the potential difficulty of achieving significant
clinical endpoints, and other factors. No assurance can be given that these or
any other studies of NT-3 will be successful or that NT-3 will be
commercialized.
To date, Regeneron has not received any revenues from the commercial
sale of products and depending on the success of the BDNF ALS trial, may notnever receive any such revenues for several years.revenues. Before such revenues can
be realized, the Company (or its collaborators) must overcome a number of
hurdles which include successfully completing its research and development
efforts and obtaining regulatory approval from the United States Food and Drug
Administration ("FDA") or regulatory authorities in other countries. In
addition, the biotechnology and pharmaceutical industries are rapidly evolving
and highly competitive, and new developments may render the Company's products
and technologies noncompetitive and obsolete.
9
In the absence of revenues from commercial product sales or other
sources (the amount, timing, nature, or source of which can not be predicted),
the Company's losses will continue as the Company conducts its research and
development activities. The Company's activities may expand over time and may
require additional resources, and the Company's operating losses may be
substantial over at least the next several years. The Company's losses may
fluctuate from quarter to quarter and will depend, among other factors, on the
timing of certain expenses and on the progress of the Company's research and
development efforts.
10
In September 1996, the Company announced that the Board of Directors
adopted a Shareholder Rights Plan in which Rights will be distributed as a
dividend at the rate of one Right for each share of Common Shares and Class A
Stock (collectively, "Common Stock") held by shareholders of record as of the
close of business on October 18, 1996. Each Right initially will entitle 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
will be attached to all Common Stock certificates representing shares then
outstanding, and no separate Rights certificate will be distributed. The Rights
will separate from the Common 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 (an "Acquiring Person") has acquired, or
has obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of Common 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 Common
Stock. The definition of Acquiring Person, subject to certain limitations set
forth in the Rights Agreement, excludes Amgen Inc. and Leonard S. Schleifer,
M.D., Ph.D., founder, President, and Chief Executive Officer of the Company.
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. In the event that an Acquiring Person becomes the
beneficial owner of 20% or more of the then outstanding shares of Common 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, 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 will entitle the holder to
purchase, at the Right's then current exercise price, Common Shares (or, in
certain circumstances, cash, property or other securities of the Company),
having a value twice the Right's Exercise Price. The Exercise Price is the
Purchase Price times the number of shares of Common Shares associated with each
Right (initially, one). Upon the occurrence of any such events, the Rights held
by an Acquiring Person become null and void. In certain circumstances, a Right
entitles the holder to receive, upon exercise, shares of common stock of an
acquiring company having a value equal to two times the Exercise Price.
As a result of the Shareholder Rights Plan, the Company's Board of
Directors designated 100,000 shares of preferred stock as A Preferred Stock.
The A Preferred Stock has certain preferences, as defined.
Results of Operations
Three months ended SeptemberJune 30, 19961997 and 1995.1996. The Company's total revenue
increased to $6.6 million for both the thirdsecond quarter of 1996 and 1995 was1997 from $6.2 million.million for
the same period in 1996. Contract research and development revenue decreased to
$4.3$4.4 million for the thirdsecond quarter of 19961997 from $4.8$4.6 million for the same
period in 1995.1996. Contract research and development revenue earned from Sumitomo
Pharmaceuticals increased
to $2.8was $3.1 million for the third quartersecond quarters of both 1997 and 1996,
from $2.7 million for the same
period in 1995. Of the third quarter 1996 Sumitomo Pharmaceuticals revenue,representing $0.8 million was for contract research and $2.0$2.3 million wasof
reimbursement for developing manufacturing processes for and supplying, BDNF. Of
11
the third quarter 1995 Sumitomo Pharmaceuticals revenue, $1.0 million was for
contract research and $1.7 million was reimbursement for developing
manufacturing processes for,BDNF and supplying
BDNF. Contract research and development revenue earned from Amgen and Amgen-Regeneron
Partners (the
"Partnership"("the Partnership") decreased to $1.5$0.4 million for the thirdsecond quarter of
19961997 from $2.1$1.5 million for the same period in 1995. This reflects a decision by1996, as the Partnership to focus more spending in 1996conducted
less basic research on clinical trialsBDNF and other precommercial
activities conducted by Amgen and less spending on preclinical research
conducted by Regeneron. During the third quarter of 1995, theNT-3. The Company entered into a research
collaboration agreement with Procter & Gamble in December 1996, which was
superceded by the P&G Agreement in May 1997. Contract research revenue related
to these agreements totaled $0.9 million for the second quarter 1997. Contract
manufacturing revenue related to the long-term manufacturing agreement (the
"Merck Agreement") with Merck & Co., Inc. ("Merck"), and contract manufacturing revenue for the thirdsecond quarters of
1997 and 1996 and 1995 related to this agreement totaled $0.6$0.9 million and $0.7$0.4 million, respectively. Investment
income in the thirdsecond quarter of 19961997 increased to $1.4 million from $0.7$1.1 million
for the same period in 1995,1996, due primarily due to increasedhigher levels of interest-bearing
investments resulting from the sale by the
Companyprivate placements of equity securities to Amgen in April 1996
and to1997 with Amgen, Medtronic, Inc. in
June 1996.("Medtronic"), and Procter & Gamble.
The Company's total operating expenses increaseddecreased to $15.1$10.9 million in
the thirdsecond quarter of 19961997 from $13.3$13.8 million for the same period in 1995.1996.
Research and development expense increased to $7.7expenses were $6.9 million in the thirdsecond quarter of
1996 from $5.71997 and $6.8 million for the same period in 1995 primarily due to costs
related to the Company's preclinical research programs, as well as the costs of
increased activity in the Company's Rensselaer, New York manufacturing facility
related to the Company's agreement with Sumitomo Pharmaceuticals.1996. Loss in Amgen-Regeneron
Partners increaseddecreased to $4.1$0.5 million in the thirdsecond quarter of 19961997 from $3.7$3.5
million for the same period in 1995, primarily due1996 as the Partnership completed the Phase III
clinical trial of BDNF in 1996. Research and development expenses (including
Loss in Amgen-Regeneron Partners) were approximately 68% of total operating
expenses in the second quarter of 1997 compared to increased costs
related to clinical trials and precommercial activities conducted by Amgen on
behalf of75% for the Partnership.same period in
1996.
General and administrative expense was $1.4expenses were $1.7 million in both the thirdsecond
quarter of 1997 and $1.6 million for the same period in 1996. Depreciation and
amortization expense decreased to $1.2 million in the second quarter of 1997
from $1.5 million in the second quarter of 1996 as certain laboratory equipment
became fully depreciated and 1995. Depreciationcapitalized patent costs were fully amortized in
1996. Interest expense was $1.5 million in both the
third quarter of 1996 and 1995. Other expenses of $0.2 million infor the third
quartersecond quarters of 1996both 1997 and
1996. Contract manufacturing expenses are direct expenses related to contractthe
long-term manufacturing foragreement with Merck. OtherSuch expenses, of $0.9which are
reimbursed by Merck, increased to $0.5 million in the thirdsecond quarter of 1995 related1997
from $0.1 million in the same period of 1996, primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.from increased equipment
validation costs.
10
The Company's net loss for the thirdsecond quarter of 19961997 was $8.9$4.3 million,
or $0.35$0.16 per share, compared to a net loss of $7.1$7.6 million, or $0.37$0.31 per share,
for the same period in 1995.
Nine1996.
Six months ended SeptemberJune 30, 19961997 and 1995.1996. The Company's total revenue
increased to $12.8 million for the ninesix months ended SeptemberJune 30, 1996 was $17.6 million,
compared to $21.61997 from $11.3
million for the same period in 1995.1996. Contract research and development revenue
for the six months ended June 30 decreased to $13.1$8.6 million in 1997 from $8.8
million in 1996. Contract research and development revenue for the ninesix months ended
September 30,earned
from Sumitomo Pharmaceuticals was $5.9 million in 1997 and $5.8 million in 1996,
from $18.5consisting of contract research revenue of $1.5 million in both periods and
reimbursement for the same perioddeveloping manufacturing processes for BDNF and supplying BDNF
of $4.4 million in 1995.1997 and $4.3 million in 1996. Contract research and
development revenue earned from Sumitomo PharmaceuticalsAmgen-Regeneron Partners decreased to $8.7$0.8
million infor the ninesix months ended SeptemberJune 30, 19961997 from $12.7$3.0 million for the same
period in 1995. Of1996, as the nine months ended September 30,Partnership conducted less basic research on BDNF and
NT-3. The Company entered into a research collaboration agreement with Procter &
Gamble in December 1996, Sumitomo Pharmaceuticalssuperceded by the P&G Agreement in May 1997. Contract
research revenue $2.2 million was for contract research and
$6.5 million was reimbursement for developing manufacturing processes for, and
supplying, BDNF. Of the nine months 1995 Sumitomo Pharmaceuticals revenue, $7.4
million was for contract research (including $5.4 million related to a
non-recurring contract research payment) and $5.3 million was reimbursement for
developing manufacturing processes for, and supplying, BDNF. Contract research
and development revenue earned from Amgen and Amgen-Regeneron
12
Partners decreased to $4.4these agreements totaled $1.9 million for the ninefirst
half of 1997. Contract manufacturing revenue related to the Merck Agreement for
the six months ended SeptemberJune 30, 1997 and 1996 totaled $1.6 million and $0.8
million, respectively. The increase represents reimbursement of increased costs
of equipment validation and personnel. Investment income in the first half of
1997 increased to $2.7 million from $5.8$1.7 million forin the same period in 1995. This reflects a decision by the
Partnershipof 1996, due
primarily to focus more spending in 1996 on clinical trials and other
precommercial activities conducted by Amgen and less spending on preclinical
research conducted by Regeneron. During the third quarter of 1995, the Company
entered into the Merck Agreement. Contract manufacturing revenue for the nine
months ended September 30, 1996 and September 30, 1995 related to this agreement
aggregated $1.4 million and $0.7 million, respectively. Investment income for
the nine months ended September 30, 1996 increased to $3.1 million from $2.4
million for the same period in 1995, primarily due to increasedhigher levels of interest-bearing investments resulting from the
sale by the Companyprivate placements of equity securities in a public offering in November 19951996 and in private placements to1997 with Amgen, Medtronic,
and Medtronic, Inc. in April and June 1996, respectively.Procter & Gamble.
The Company's total operating expenses increaseddecreased to $41.8$23.0 million in
the ninesix months ended SeptemberJune 30, 19961997 from $37.3$26.7 million for the same period in
1995.1996. Research and development expenseexpenses increased to $21.4$14.0 million in the nine months ended September 30, 1996first
half of 1997 from $17.3$13.7 million for the same period in 1995 primarily due to costs related to the Company's preclinical research
programs, as well as the costs of increased activity in the Company's
Rensselaer, New York manufacturing facility related to the Company's agreement
with Sumitomo Pharmaceuticals.1996. Loss in
Amgen-Regeneron Partners increasedfor the first six months of 1997 decreased to $10.3$2.2
million in the nine months ended September 30, 1996 from $9.1$6.2 million for the same period in 1995, primarily due to increased costs related to1996, as the Partnership
completed the Phase III clinical trialstrial of BDNF in 1996. Research and other precommercial activities conducted by Amgen on behalfdevelopment
expenses for the six months ended June 30, 1997 and 1996 (including Loss in
Amgen-Regeneron Partners) represented approximately 70% and 74% of the
Partnership.total
operating expenses, respectively.
General and administrative expenses were $3.2 million and $3.1 million
in the first half of 1997 and 1996, respectively. Depreciation and amortization
expense decreased to $4.5$2.4 million forin the nine months ended September 30,first half of 1997 from $3.0 million in
the first half of 1996, from $4.6 million for the same periodas certain laboratory equipment became fully depreciated
and capitalized patent costs were fully amortized in 1995.1996. Interest expense
decreased to $0.7$0.4 million for the six month period ended June 30, 1997 from $0.5
million in the nine months ended
September 30, 1996 from $1.0 million for the samecomparable period in 1995,1996, resulting from the expiration of
capitalequipment leases during 1995 and the first nine months of
1996. OtherContract manufacturing expenses of $0.4 million in the nine months ended September 30,
1996 wereare direct
expenses related to contractthe long-term manufacturing foragreement with Merck. OtherSuch
expenses, ofwhich are reimbursed by Merck, increased to $0.9 million in the nine months ended September 30, 1995 relatedfirst
half of 1997 from $0.2 million in the same period of 1996, primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.from
increased equipment validation costs.
The Company's net loss for the ninesix months ended SeptemberJune 30, 19961997 was $24.3$10.2
million, or $1.01$0.38 per share, compared to a net loss of $15.7$15.4 million, or $0.81$0.66
per share, for the same period in 1995.1996.
11
Liquidity and Capital Resources
Since its inception in 1988, the Company has financed its operations
primarily through private placements and public offerings of its equity
securities, revenue earned under the several agreements between the Company and
each of Amgen, Sumitomo Chemical Company, Ltd., Sumitomo Pharmaceuticals, Merck,
and Merck,Procter & Gamble and investment income. Procter & Gamble agreed over the
first five years of the P&G Agreement to purchase up to $60.0 million in
Regeneron equity and provide up to $94.7 million in support of Regeneron's
research efforts related to the collaboration. In June 1997, Procter & Gamble
completed the purchase of 4.35 million shares of Regeneron Common Stock at $9.87
per share for a total of $42.9 million and received five year warrants to
purchase an additional 1.45 million shares of Regeneron stock at $9.87 per
share. This purchase was in addition to a $10.0 million purchase of Regeneron
Common Stock at $12.50 per share that was completed in March 1997 pursuant to a
December 1996 stock purchase agreement. The P&G Agreement expanded and
superceded a collaboration agreement that the companies entered into in December
1996 jointly to develop drugs for skeletal muscle injury and atrophy. In
connection with the Company's agreement to collaborate with Sumitomo
Pharmaceuticals in the research and development of BDNF in Japan, Sumitomo
Pharmaceuticals has paid the Company $19.0$22.0 million through December 1996 (which
includes a payment of $3.0 million for 1997) and has agreed to pay the Company an
additional $3.0 million annually in 1997 and 1998. Sumitomo Pharmaceuticals has the option to
cancel any remaining annual payments;the 1998 payment; however, if such a cancellation were to occur, theSumitomo
Pharmaceutical's rights to develop and commercialize BDNF in Japan would revert
to the Company. In addition,
13
the Company is being reimbursed in connection with
supplying Sumitomo Pharmaceuticals with BDNF for preclinical use.
Under the Amgen Agreement, Amgen was required to make defined payments
through June 1995 to the Company for research and development efforts in the
United States in connection with BDNF and NT-3. As provided in the Amgen
Agreement, after Amgen determined that Investigational New Drug applications
("IND") should be filed for BDNF and NT-3, Amgen and Regeneron created
Amgen-Regeneron Partners to conduct the development and commercialization of
these product candidates. The Partnership began operations in June 1993 with
respect to BDNF and in January 1994 with respect to NT-3. Amgen's required
payments for BDNF and NT-3 were made directly to Regeneron prior to the
determination by Amgen that the preparation of an IND for each compound should
commence and thereafter to the Partnership. The Company's further activities relating to BDNF and NT-3, as agreed upon by
Amgen and Regeneron, are being reimbursed by the Partnership,Amgen-Regeneron Partners, and the
Company recognizes such reimbursement as revenue. The funding of the PartnershipAmgen-Regeneron
Partners is through capital contributions from Amgen and Regeneron, who must
make equal payments in order to maintain equal ownership and equal sharing of
any profits or losses from the Partnership. The Company has made capital
contributions totaling $38.7approximately $42.6 million to Amgen-Regeneron Partners
from the Partnership's inception in June 1993 through SeptemberJune 30, 1996.1997. The Company
expects that its capital contributions in 19961997 will total approximately $15.5$3.0
million. These contributions could increase in
the future,or decrease, depending upon the resultscost
of the BDNF ALS clinical trial and the
otherAmgen-Regeneron Partners' conducting additional BDNF and NT-3 preclinical and
clinical studies amongand the outcomes of those and other things.ongoing studies. Capital
contributions beyond
1996in future years are anticipated to be significant.
In September 1995, the Company entered into the Merck Agreement.
Depending on the volume of the intermediate supplied to Merck, total capital
and product payments from Merck to Regeneron could total $40.0 million or more
over the term of the agreement, which is expected to extend to 2003. This
agreement may be terminated at any time by Merck upon the payment by Merck of a
termination fee.greater than in 1997.
From its inception in January 1988 through SeptemberJune 30, 19961997, the Company
has invested $51.6approximately $55.5 million in property, plant, and equipment, includingequipment. This
includes $16.8 million to acquire and renovate itsthe Rensselaer facility, and $11.2$6.3
million of newnewly completed construction that isat the facility, and $7.6 million of
construction in progress related to the modification of the facility in
connection with the Merck Agreement. In connection with the purchase and
renovation of the Rensselaer New York manufacturing facility, the Company obtained financing of $2.0
million from the New York State Urban Development Corporation, of which $1.8
million was outstanding at September 30,
1996.is outstanding. Under the terms of such financing, the Company is not
permitted to declare or pay dividends to its stockholders.
In June12
During 1996, the Company executedentered into a series of new leasing
agreementagreements (the "New Lease Line") which providesprovide up to $3.0$4.0 million to finance
equipment acquisitions and certain building improvements, as defined
(collectively, the "Equipment"). The Company may utilize the New Lease Line in
increments ("leases"). Lease terms are for four years after the takedown, after which the Company is
required to purchase the Equipment at specified amounts, ordefined amounts. Certain of the leases willmay
be renewed for eight months at specifieddefined monthly payments after which the Company
will own the Equipment. At SeptemberJune 30, 1996,1997, the Company had available
approximately $1.0$0.5 million of the New Lease Line.
The Company expects that expenses related to the filing, prosecution,
defense and enforcement of patent and other intellectual property claims will
continue to be 14
substantial as a result of patent filings and prosecutions in the
United States and foreign countries. While the Company has applied for or received a number of
patents to protect its intellectual properties, there can be no assurance that
the patents will be enforceable or will provide protection against competing
technology. The Company is currently involved in two
interference proceedings in the Patent and Trademark Office between Regeneron's
patent applications and patents relating to ciliary neurotrophic factor ("CNTF")CNTF issued to Synergen, Inc. Amgen
acquired all outstanding shares of Synergen in 1994.
As of SeptemberJune 30, 1996,1997, the Company had no established banking
arrangements through which it could obtain short-term financing or a line of
credit. Additional funds may be raised through, among other things, the issuance
of additional securities, other financing arrangements, and future collaboration
agreements. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable terms.
At SeptemberJune 30, 1996,1997, the Company had $88.0$129.5 million in cash, cash
equivalents, and marketable securities. The Company expects to incur substantialongoing
funding requirements for capital contributions to Amgen-Regeneron Partners to
support the continued development and clinical trials of BDNF and NT-3. If the Partnership's Phase III study of BDNF is successful, the Company
anticipates that expenses related to the launch and initial marketing of BDNF
will be substantial. The
Company also expects to incur substantial funding requirements for, among other
things, its research and development activities (including preclinical and
clinical testing), validation of its manufacturing facilities, and the
acquisition of equipment, and may incur substantial funding requirements for
expenses related to the patent interference proceedings and other patent
matters. The amount needed to fund operations will also depend on other factors,
including the status of competitive products, the success of the Company's
research and development programs, the status of patents and other intellectual
property rights developments, and the continuation, extent, and success of any
collaborative research programs.programs (including those with Amgen and Procter &
Gamble). The Company expects to incur additional capital expenditures in
connection with the renovation and validation of its Rensselaer facility
pursuant to its manufacturing agreement with Merck. However, the Company also
expects that such expenditures will be substantially reimbursed by Merck,
subject to certain conditions. The Company believes that its existing capital
resources will enable it to meet operating needs for at least the next several
years. No assurance can be given that there will be no change in projected
revenues or expenses that would lead to the Company's capital being consumed at
a faster rate than currently expected. In order to continue to attempt to assure
Regeneron's financial condition and maximize its technological developments for
the long-term benefit of shareholders, the Company from time to time seeks
additional corporate partners and explores other opportunities to obtain
research and development funding. No assurance can be given that such partners
or funding will be available or, if available, will be on terms favorable or
acceptable to the Company.
13
Factors That May Affect Future Operating Results
Regeneron cautions stockholders and investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, Regeneron's actual results and could cause Regeneron's actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, Regeneron. The statements under this
caption are intended to serve as cautionary statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The following information is
not intended to limit in any way the characterization of other statements or
information under other captions as cautionary statements for such purpose:
15
o Delay, difficulty, or failure of the Company's preclinical drug
research and development programs to produce product candidates that
are scientifically or commercially appropriate for further development
by the Company or others.
o Delay, difficulty, or failure in obtaining regulatory approval
(including approval of its facilities for production) for the Company's
products (including vaccine intermediate for Merck), including delays
or difficulties in development because of insufficient proof of safety
or efficacy.
o Delay, difficulty, or failure of the Company's preclinical drug
research and development programs to produce product candidates that
are scientifically or commercially appropriate for further development
by the Company or others.
o Increased and irregular costs of development, regulatory approval,
manufacture, sales, and marketing associated with the introduction of
products in the late stage of development.
o DifficultiesCancellation or termination of material collaborative or licensing
agreements (including in launchingparticular, but not limited to, those with
Procter & Gamble and Amgen) and the resulting loss of research or marketing the Company's products by the
Company or its licensees, especially when such products are novel
products basedother
funding, could have a material adverse effect on biotechnology, and unpredictability of customer
acceptance of such products.
o Lack of experience with the ALS or peripheral neuropathy patient
population and customer base in the United States could lead to a
variety of materially adverse developments; other factors that could
materially affect the Company's future potential commerical sales or
success of BDNF and NT-3 include the timing, approval, market launch,
and potential commercialization of competing products, including
riluzole (an approved orally active product for ALS marketed by Rhone
Poulenc Rorer) and insulin-like growth factor (a product being
developed by Chiron Corporation and Cephalon Corp., which the Company
believes will be the subject of a license application to the FDA);
pricing, promotional, and marketing decisions (and the implementation
of such decisions) by the Company and its
partner, Amgen; and
reimbursement policiesoperations. A change of health care providers and insurers.control of one or more of the Company's
material collaborators or licensees could also have a material adverse
effect on the Company.
o Competitive or market factors may cause use of the Company's products
to be limited or otherwise fail to achieve broad acceptance.
o The ability to obtain, maintain, and prosecute intellectual property
rights, and the cost of acquiring in-process technology and other
intellectual property rights, either by license, collaboration, or
purchase of another entity.
o Difficulties or high costs of obtaining adequate financing to meet the
Company's obligations under its collaboration and licensing agreements
or to fund 50 percent of the cost of developing product candidates in
order to retain 50 percent of the commercialization rights.
o Amount and rate of growth in Regeneron's selling, general, and
administrative expenses, and the impact of unusual or infrequent
charges resulting from Regeneron's ongoing evaluation of its business
strategies and organizational structure.
14
o Failure of corporate partners to commercialize successfully the
Company's products or to retain and expand the markets served by the
commercial collaborations; conflicts of interest, priorities, and
commercial strategies which may arise between the Company and such
corporate partners.
o Difficulties in launching or marketing the Company's products by the
Company or its licensees, especially when such products are novel
products based on biotechnology, and unpredictability of customer
acceptance of such products.
o Inability to maintain or initiate third party arrangements which
generate revenues, in the form of license fees, research and
development support, royalties, and other payments, in return for
rights to technology or products under development by the Company.
o Delays or difficulties in developing and acquiring production
technology and technical and managerial personnel to manufacture novel
biotechnology products in commercial quantities at reasonable costs and
in compliance with applicable 16
quality assurance and environmental
regulations and governmental permitting requirements.
o Difficulties in obtaining key raw materials and supplies for the
manufacture of the Company's products.product candidates.
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as product-related or environmental,
or criminal); settlements and investigations; developments or
assertions by or against Regeneron relating to intellectual property
rights and licenses; the issuance and use of patents and proprietary
technology by Regeneron and its competitors, including the possible
negative effect on the Company's ability to develop, manufacture, and
sell its products in circumstances where it is unable to obtain
licenses to patents which may be required for such products.
o Underutilization of the Company's existing or new manufacturing
facilities or of any facility expansions, resulting in inefficiencies
and higher costs; start-up costs, inefficiencies, delays, and increased
depreciation costs in connection with the start of production in new
plants and expansions.
o Health care reform.reform, including reductions or changes in reimbursement
available for prescription medications or other reforms.
o The ability to attract and retain key personnel. 17As Regeneron's
scientific efforts lead to potentially promising new directions, both
outside of recombinant protein therapies (into orally active, small
molecule pharmaceuticals) and outside of treatments for neurological
and neurodegenerative conditions (into, for example, potential programs
in cancer, inflammation, muscle disease, bone growth disorders,
angiogenesis, and hemopoiesis), the Company will require additional
internal expertise or external collaborations in areas in which it
currently does not have substantial resources and personnel.
15
Impact of the Adoption of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 will require the Company to replace the current presentation of "primary"
per share data with "basic" and "diluted" per share data. Currently, outstanding
common stock equivalents are antidilutive and therefore management estimates
that the future adoption of SFAS 128 currently will not have a material impact
on the Company's per share data. SFAS 128 will be adopted by the Company for
periods ending after December 15, 1997.
The Financial Accounting Standards Board issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive Income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. The Company will adopt
SFAS 130 for the year ending December 31, 1998.
Also in June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a
business enterprise report certain information about operating segments,
products and services, geographic areas of operation, and major customers in
complete sets of financial statements and in condensed financial statements for
interim periods. The Company is required to adopt this standard in 1998 and is
currently evaluating the impact of the standard.
16
PART II. OTHER INFORMATION
-----------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
On June 27, 1997, the Company conducted its Annual Meeting of
Shareholders pursuant to due notice. A quorum being present either in
person or by proxy, the shareholders voted on the following matters:
1. To elect three Directors to hold office for a three-year term as
Class III directors, and until their successors are duly elected and
qualified.
2. To amend the Company's Amended and Restated 1990 Long-Term Incentive
Plan ("the Long-Term Incentive Plan") to increase by 1,500,000 the
number of shares of Regeneron Common Stock available for the grant of
options and rights and the award of restricted stock and to clarify and
update the Long-Term Incentive Plan.
3. To approve the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company's fiscal year ending December 31, 1997.
No other matters were voted on. The number of votes cast was:
For Withhold Authority
---------- ------------------
1. Election of Class III Directors
Charles A. Baker 56,961,600 2,496,950
George L. Sing 56,965,340 2,493,210
Michael S. Brown, M.D. 56,962,400 2,496,150
The terms of office of P. Roy Vagelos, M.D., Leonard S.
Schleifer, M.D., Ph.D., Eric M. Shooter, Ph.D., Alfred G. Gilman, M.D.,
Ph.D., Joseph L. Goldstein, M.D., and Michael S. Brown, M.D. continued
after the meeting.
For Against Abstain
--- ------- -------
2. Amendment of Long-Term
Incentive Plan 47,622,010 6,091,980 59,290
3. Selection of accountants 59,211,089 222,836 24,625
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3(i) Certificate- ------- --------------------------------
(a) Exhibits
10.1 Securities Purchase Agreement dated as of AmendmentMay 13,
1997 between the Company and The Procter & Gamble
Company
10.2 Warrant Agreement dated as of May 13, 1997 between
the Restated Certificate of
Incorporation of Regeneron Pharmaceuticals, Inc., as at
October 18, 1996.
(*) 4Company and The Procter & Gamble Company.
10.3 Registration Rights Agreement dated as of September 20, 1996,May 13,
1997 between Regeneron Pharmaceuticals, Inc.the Company and ChaseMellon
Shareholder Services L.L.C.,The Procter & Gamble
Company.
*10.4 Multi-Project Collaboration Agreement dated as Rights Agent, includingof May
13, 1997 between the form of Rights Certificate as Exhibit B thereto.Company and The Procter & Gamble
Company.
11 Statement of computation of loss per share for the
three months and ninesix months ended SeptemberJune 30, 19961997 and
1995.
17 Letter of Resignation of James W. Fordyce, Director,
dated as of October 1,
1996.
27 Financial Data Schedule
(b) Reports
No reportsOn May 13, 1997 the Company filed a report on Form 8-K
wereregarding the fact that the Company issued a press release
entitled "Procter & Gamble and Regeneron Form 10-Year Research
Collaboration to Discover, Develop Pharmaceutical Products", a
copy of which was included as an exhibit to that filing. See
footnote 4 in Notes to Condensed Financial Statements, page 7
of this Form 10-Q.
* Portions of this document have been omitted and filed
byseparately with the registrant during
the quarter ended September 30, 1996.
(*) Incorporated by reference from the Form 8-ACommission pursuant to requests for
Regeneron
Pharmaceuticals, Inc. filed October 15, 1996.confidential treatment pursuant to Rule 24b-2.
18
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Regeneron Pharmaceuticals, Inc.
Date: November 5, 1996August 12, 1997 By: /s/ Murray A. Goldberg
---------------------------------------------- -----------------------------------------
Murray A. Goldberg
Vice President, Finance & Administration,
Chief Financial Officer, and Treasurer
19