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 September 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
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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:November 3, 1997:
Class of Common Stock Number of Shares
------------------------------- ----------------
Class A Stock, $0.001 par value 4,616,0734,126,542
Common Stock, $0.001 par value 21,029,760
Page26,794,695
1 of 34
REGENERON PHARMACEUTICALS, INC.
Table of Contents
September 30, 19961997
Page Numbers
PART I-I FINANCIAL INFORMATION
Item 1.1 Financial Statements
Condensed balance sheets (unaudited) at September 30, 19961997
and December 31, 19951996 3
Condensed statements of operations (unaudited) for the three
months and nine months ended September 30, 19961997 and 19951996 4
Condensed statements of cash flows (unaudited) for the
nine months ended September 30, 19961997 and 19951996 5
Notes to condensed financial statements 6-86-7
Item 2.2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-178-16
PART II-II OTHER INFORMATION
Item 6.6 Exhibits and Reports on Form 8-K 1817
SIGNATURE PAGE 1918
Exhibit 3(i) Certificate of10.1 First Amendment ofto the Restated
Certificate of Incorporation of Regeneron
Pharmaceuticals, Inc., as at October 18, 1996. 20-31
Exhibit 4 RightsMulti-Project Collaboration
Agreement dated May 13, 1997 between the Company and The Procter
& Gamble Company, 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.29, 1997 (*)
Exhibit 11 Statement of computation of net loss per share for the three
months and nine months ended September 30, 19961997 and 1995. 32
Exhibit 17 Letter of Resignation of James W. Fordyce, Director,
dated October 1, 1996. 331996
Exhibit 27 Financial data schedule. 34schedule
(*) Portions of this document have been omitted and filed separately with
the Commission pursuant to requests for confidential treatment pursuant
to Rule 24b-2.
2
PART 1.I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 19961997 AND DECEMBER 31, 19951996 (Unaudited)
September 30, December 31,
ASSETS 1997 1996
1995
---- ---------------- -------------
ASSETS
Current assets
Cash and cash equivalents $37,452,802 $32,736,026$ 40,288,090 $ 34,475,060
Marketable securities 29,230,441 13,417,634
Receivable due from Amgen-Regeneron Partners 1,972,660 668,99057,086,993 45,587,404
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 2,352,499 1,749,0621,257,571 2,072,455
Receivable due from Merck & Co., Inc. 1,551,712 271,6301,503,597 1,816,056
Receivable due from The Procter & Gamble Company 958,450
Receivable due from Amgen-Regeneron Partners 330,999 446,269
Prepaid expenses and other current assets 847,259 359,111
-------------- --------------651,865 611,435
------------- -------------
Total current assets 73,407,373 49,202,453102,077,565 85,008,679
Marketable securities 21,319,621 13,468,35029,272,954 16,965,302
Investment in Amgen-Regeneron Partners 1,260,158 1,273,538408,170 1,205,299
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 27,870,72032,882,412 34,297,843
Other assets 926,596 1,996,284
-------------- --------------97,372 104,731
------------- -------------
Total assets $130,599,841 $93,811,345
============== ==============$ 164,738,473 $ 137,581,854
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $4,230,306 $6,289,832
Note payable, current portion 79,062 83,444$ 4,131,356 $ 4,357,145
Capital lease obligations, current portion 3,687,186 3,408,0902,623,308 3,505,221
Note payable, current portion 74,338 77,684
Deferred revenue, current portion 920,831 3,166,665
-------------- --------------931,564 4,108,412
------------- -------------
Total current liabilities 8,917,385 12,948,0317,760,566 12,048,462
Capital lease obligations 3,351,957 4,152,1002,333,848 3,400,015
Note payable 1,767,722 1,825,7661,693,385 1,748,082
Other liabilities 163,748 103,374227,686 183,426
Deferred revenue 12,174,499 6,925,62514,483,586 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;
4,777,7574,204,860 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 4,205 4,356
Common Stock, $.001 par value; 60,000,000 shares authorized;
20,855,18626,709,041 shares issued and outstanding in 1996;
16,465,4291997
21,319,896 shares issued and outstanding in 1995 20,855 16,4651996 26,709 21,320
Additional paid-in capital 254,145,791 193,594,141308,074,066 264,742,236
Unearned compensation (1,170,000) (1,440,000)(810,000) (1,080,000)
Accumulated deficit (148,886,178) (124,605,334)(169,134,756) (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)
-------------- --------------79,178 272,199
------------- -------------
Total stockholders' equity 104,224,530 67,856,449
-------------- --------------138,239,402 106,930,999
------------- -------------
Total liabilities and stockholders' equity $130,599,841 $93,811,345
============== ==============$ 164,738,473 $ 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 ended September 30, Nine months ended September 30,
ended September 30,1997 1996 19951997 1996
1995
---------------------------- --------------------------------------------------------- ------------------------------
Revenues
Contract research and development $3,276,721 $4,306,232 $4,783,045$11,892,336 $13,085,518
$18,489,394Research progress payments 2,500,000 2,500,000
Investment income 1,792,656 1,357,528 4,451,972 3,088,713
Contract manufacturing 1,304,023 557,927 743,3572,858,989 1,394,287
743,357
Investment income 1,357,528 659,265 3,088,713 2,409,070
--------------- ------------ --------------- ---------------------------- ------------ ------------
8,873,400 6,221,687 6,185,66721,703,297 17,568,518
21,641,821
--------------- ------------ --------------- ---------------------------- ------------ ------------
Expenses
Research and development 6,802,711 7,660,787 5,679,15420,759,498 21,389,751 17,319,913
Loss in Amgen-Regeneron Partners 654,784 4,109,300 3,693,5782,834,129 10,288,380 9,103,278
General and administrative 1,428,275 1,422,479 1,365,9634,580,478 4,519,978 4,594,079
Depreciation and amortization 969,608 1,497,494 1,463,2673,336,110 4,513,749
4,441,375Contract manufacturing 750,560 206,159 1,719,095 445,265
Interest 174,580 214,181 218,896579,631 692,239
969,667
Other 206,159 910,687 445,265 910,687
--------------- ------------ --------------- ---------------------------- ------------ ------------
10,780,518 15,110,400 13,331,54533,808,941 41,849,362
37,338,999
--------------- ------------ --------------- ---------------------------- ------------ ------------
Net loss ($1,907,118) ($8,888,713) ($7,145,878)12,105,644) ($24,280,844)
($15,697,178)
--------------- ------------ --------------- ----------------============ ============ ============ ============
Net loss per share ($0.06) ($0.35) ($0.37)0.43) ($1.01)
($0.81)
=============== ============ =============== ============================ ============ ============
Weighted average number of Common
and Class A shares outstanding 30,894,514 25,605,159 19,520,24527,962,070 24,066,180
19,444,247
=============== ============ =============== ============================ ============ ============
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
Nine months ended September 30,
1997 1996 1995
---- ----
Cash flows from operating activities
Net loss ($12,105,644) ($24,280,844)
($15,697,178)------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 2,834,129 10,288,380 9,103,278
Depreciation and amortization 3,336,110 4,513,749 4,441,375
Amortization of lease incentive (50,300)
Stock issued in consideration for services rendered 270,000 270,000
Changes in assets and liabilities
IncreaseDecrease (increase) in amounts due from Amgen-Regeneron Partners 115,270 (1,303,670)
(865,894)
IncreaseDecrease (increase) in amounts due from Sumitomo Pharmaceuticals Co., Ltd. 814,884 (603,437)
(1,749,062)
IncreaseDecrease (increase) in amounts due from Merck & Co., Inc. 312,459 (1,280,082)
(910,024)Increase in amounts due from The Procter & Gamble Company (958,450)
Increase in investment in Amgen-Regeneron Partners (2,037,000) (10,275,000) (5,471,000)
Increase in prepaid expenses
and other assets (33,071) (380,617)
(201,267)
Increase (decrease)(Decrease) increase in deferred revenue (1,964,132) 3,003,040
(8,083,337)
DecreaseIncrease (decrease) in accounts payable, accrued expenses,
and other liabilities 190,160 (158,504)
(1,067,722)
------------- ------------------------- ------------
Total adjustments 2,880,359 4,073,859
(4,583,953)
------------- ------------------------- ------------
Net cash used in operating activities (9,225,285) (20,206,985)
(20,281,131)
------------- ------------------------- ------------
Cash flows from investing activities
Purchases of marketable securities (72,941,324) (54,530,151) (21,660,071)
Sales of marketable securities 48,941,062 30,689,585 26,604,388
Capital expenditures (1,480,060) (8,014,762)
(561,501)
------------- ------------------------- ------------
Net cash (used in) provided byused in investing activities (25,480,322) (31,855,328)
4,382,816
------------- ------------------------- ------------
Cash flows from financing activities
Net proceeds from the issuance of stock 43,337,068 59,367,260 541,927
Principal payments on note payable (58,043) (62,426) (68,007)
Capital lease payments (2,760,388) (2,525,745)
(2,312,814)
Purchase of treasury stock (5)
------------- ------------------------- ------------
Net cash provided by (used in) financing activities 40,518,637 56,779,089
(1,838,899)
------------- ------------------------- ------------
Net increase (decrease) in cash and cash equivalents 5,813,030 4,716,776
(17,737,214)
------------- ------------------------- ------------
34,475,060 32,736,026
------------ ------------
Cash and cash equivalents at beginning of period
32,736,026 23,645,914
------------- -------------
Cash and cash equivalents at end of period $37,452,802 $5,908,700
============= =============$ 40,288,090 $ 37,452,802
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest $631,865 $891,687$ 535,371 $ 631,865
============ ============
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 September 30, 19961997 and December 31, 19951996 and
the results of operations for the three months and nine months ended
September 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$812,000 and $361,000$2,005,000 were
incurred during the first nine months of 19961997 and 1995,1996, respectively,
when the Company leased new equipment.
Included in accounts payable and accrued expenses at September 30, 1997
and December 31, 1996 were approximately $432,000$417,000 and $788,000 of
capital expenditures.
At December 31, 1995, the Company had accrued $850,000 as its
contribution to the settlement 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.expenditures, respectively.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of September 30, 19961997 and
December 31, 19951996 consist of the following:
September 30, December 31,
1997 1996 1995
---- ----
Accounts payable ............................. $2,371,027 $3,240,050$2,314,966 $2,178,308
Accrued payroll and related costs ............ 779,904 1,054,626787,733 1,047,812
Accrued clinical trial expense ............... 319,500 350,000
Accrued litigation settlement ................ 850,000319,500
Accrued expenses, other ...................... 337,412 299,412358,869 389,062
Deferred compensation ........................350,288 422,463 495,744
---------- ----------
$4,230,306 $6,289,832$4,131,356 $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
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
6
stock at $9.87 per share. This purchase was in addition to a $10.0
million purchase of Regeneron Common Stock at an
exercise price$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 second five years of $16.00 per share.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 certain
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 by Regeneron as a result of the collaboration. The warrants are fully exercisable, expire
on April 15, 2001,companies
expect jointly to develop and are subject to antidilution provisions.
6. Collaborationmarket worldwide any products resulting
from the collaboration and share equally in profits. Either company may
terminate the P&G Agreement On June 27, 1996,at the end of five years with at least one
year prior notice or earlier in the event of default.
In September 1997, the Company and Medtronic, Inc. ("Medtronic")
entered into a worldwide exclusive joint development agreement (the "Medtronic
Agreement")Procter & Gamble amended the P&G
Agreement to collaborate oninclude AXOKINE and related molecules, and agreed initially
to develop AXOKINE to treat obesity associated with Type II diabetes.
Procter & Gamble agreed to pay the Company as much as $15.0 million in
additional funding, partly subject to achieving certain milestones. $2.5
million was paid in September 1997.
Contract research and development revenue related to the P&G Agreement
was $1.0 million in the third quarter of 1997 and $2.8 million for the
first nine months of 1997. Revenue from research progress payments
related to the P&G Agreement was $2.5 million for the three month and
nine month periods ended September 30, 1997. At September 30, 1997, the
Procter & Gamble contract research revenue receivable was $1.0 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 for 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 fromyear ending December 31, 1998
and is currently evaluating 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 purchased 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 superseded a
collaboration agreement that the companies entered into in December 1996 jointly
to develop drugs for skeletal muscle injury and atrophy.
In September 1997, the Company and Procter & Gamble expanded the P&G
Agreement to include AXOKINE and related molecules, and agreed to develop
AXOKINE to treat obesity associated with Type II diabetes. Procter & Gamble
agreed to pay the Company as much as $15.0 million in additional funding, partly
subject to achieving certain milestones. $2.5 million was paid in September
1997.
During the third quarter of 1996,1997, Amgen-Regeneron Partners, the
partnership equally owned by Regeneron and Amgen Inc. ("Amgen"), on behalf of
Amgen-Regeneron Partners, completed the treatment period of a Phase III
clinical trial designedcontinued to
determine the safety and efficacy ofdevelop Regeneron's brain-derived neurotrophic factor ("BDNF") and
neurotrophin-3 ("NT-3"). BDNF is being developed for potential use in the treatment oftreating
amyotrophic lateral sclerosis ("ALS",ALS," commonly known as Lou Gehrig's disease)
through two routes of administration: intrathecal (infusion into the spinal
fluid through an implanted pump) and subcutaneous (injection under the skin). In addition,A
Phase I intrathecal study being conducted by Amgen in ALS patients is
continuing. Subcutaneous studies to be conducted by Regeneron are also planned.
These subcutaneous studies will be based on retrospective analysis of the
Amgen-Regeneron Partners' Phase III trial of BDNF for ALS that was completed in
1996. That trial confirmed the safety and tolerability of BDNF seen in earlier
clinical trials but showed no statistically significant difference in breathing
8
capacity or survival between treatment and placebo groups as measured by the
trial's predetermined primary endpoints. However, additional analysis of the
trial, conducted by Regeneron and outside independent consultants, indicated
that a retrospectively-defined subset of ALS patients in the trial may have
received a survival benefit from BDNF treatment. The planned BDNF subcutaneous
studies are intended to test whether this survival benefit can be confirmed
through appropriate prospective trials.
Amgen-Regeneron Partners' clinical development of NT-3 is currently
focused on enteric neuropathies. The enteric nervous system is a complex
collection of nerves that control the function of the gastrointestinal system,
including gastrointestinal motility. Amgen-Regeneron Partners has conducted
clinical studies of NT-3 in normal volunteers and patients suffering peripheral
neuropathies associated with diabetes. These studies indicated, among other
things, that NT-3 is safe and well tolerated at a variety of doses in both
normal and diseased patients and that, at certain doses, NT-3 has a side effect
of increased gastrointestinal motility. Based on these results and discussions
with gastrointestinal experts, Regeneron, on behalf of Amgen-Regeneron Partners,
continuedis planning to design and conduct apilot Phase I/II clinical trialstudies of neurotrophin-3 ("NT-3")NT-3 in
enteric neuropathies including constipation associated with the use of opiate
pain-killers, Parkinson's disease, and other conditions.
Amgen-Regeneron Partners is not planning to pursue additional trials of
BDNF and NT-3 in peripheral neuropathy at the present time, because initial
results were not sufficiently promising to justify the expenditures for the
treatmentinherently long and large development program required for these studies.
During the third quarter of peripheral neuropathies caused
by diabetes. Amgen also continued to conduct a trial of BDNF in Europe for1997, 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 Japan and continuedJapan. Sumitomo Pharmaceuticals has informed the development ofCompany
that it plans to begin a series of
preclinical research programsPhase I clinical study in the areasfirst half of inflammatory1998 in
Japan to assess the safety and muscle disease,
angiogenesis, hematopoiesis, and cancer.
Thetolerability of BDNF Phase III clinical trial for ALS was completed in September
1996, but the results are uncertain and will not be known until the datadelivered subcutaneously to
normal volunteers. Sumitomo Pharmaceuticals is reviewed and analyzed. The Company believes that such results are likelyinitially developing BDNF 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 have a materially adverse effect
on the Company, the price of the Company's Common Stock, and the Company's
ability to raise additional capital.treat ALS.
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 ofWhile 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 BDNFsubcutaneous delivery used in
the Phase III clinical trial is also dependent
upon, among other things, certain factors that could undermine the significancefailed to achieve its primary endpoints. The
planned clinical studies of the data collected from such patients. Patients who were taking RilutekTM,
an orally administered drug manufactured by Rhone-Poulenc Rorer approvedBDNF delivered subcutaneously for the treatment of
ALS were not,are also based 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 effectsretrospective analyses 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, designed the BDNF
clinical trial to take into account the inclusion of patients who may have been
taking RilutekTM. However, if the Phase III clinical studytrial
that failed to meet its primary endpoints. If these or subsequent trials fail to
demonstrate that BDNF is compromised
throughsafe and effective in the inclusiontreatment 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 and additional clinical studies may be
required, causing a delay in, and increasing the costs of, the development of
BDNF, which wouldALS, 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.
9
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 1996 study, involves substantiallywhile the
planned NT-3 clinical studies involve 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.treatment. The treatment of peripheral neuropathies associated with cancer chemotherapies or diabetesvarious
constipating conditions may present additional clinical trial risks in light of
the complex and not wholly understood mechanisms of action that lead to the
neuropathies,conditions, the presenceconcurrent use of
many other drugs to treat the underlying conditions,illnesses
as well as the gastrointestinal condition, the potential difficulty of designing
and 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.
From inception on January 8, 1988 through September 30, 1997, Regeneron
has a cumulative loss of $169.0 million. 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 September 30, 19961997 and 1995.1996. The Company's total
revenue increased to $8.9 million for both the third 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$3.3 million for the third quarter of 19961997 from $4.8$4.3 million for
the same period in 1995. Contract1996, as the Company provided less research and development revenue earned frommanufacturing
support to the Amgen-Regeneron Partners and Sumitomo Pharmaceuticals
increased
to $2.8 million forcollaborations, partly offset by revenue received from Procter & Gamble in
connection with the May 1997 P&G Agreement. Revenue from research progress
payments in the third quarter of 19961997 represents a $2.5 million payment received
from $2.7Procter & Gamble in connection with signing the September 1997 amendment to
the P&G Agreement. Investment income in the third quarter of 1997 increased to
$1.8 million from $1.4 million for the same period in 1995. Of1996, due primarily to
higher levels of interest-bearing investments resulting from the third quarter 1996 Sumitomo Pharmaceuticals revenue,
$0.8 million was for contract research and $2.0 million was reimbursement for
developing manufacturing processes for, and supplying, BDNF. Of
11
proceeds
received as a result of 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, and supplying, BDNF. Contract research and
development revenue earned from Amgen and Amgen-Regeneron Partners (the
"Partnership") decreased to $1.5 million for the third quarterprivate placement of 1996 from $2.1
million for the same period in 1995. This reflects a decision by the Partnership
to focus more spendingequity securities with Procter
& Gamble in 1996 on clinical trials and other precommercial
activities conducted by Amgen and less spending on preclinical research
conducted by Regeneron. During1997. Contract manufacturing revenue related to the third quarter of 1995, the Company entered
into a
long-term manufacturing agreement (the "Merck Agreement") with Merck & Co., Inc.
("Merck"), and contract manufacturing revenue for the third quarters of 1997 and 1996 totaled $1.3 million and 1995 related to this agreement totaled $0.6
million, and $0.7respectively. This increase was the result of increased activity on the
part of the Company in preparation of the Company's manufacturing facility in
Rensselaer for the production of a product for Merck.
The Company's total operating expenses decreased to $10.8 million respectively. Investment income in the
third quarter of 1996 increased
to $1.4 million1997 from $0.7$15.1 million for the same period in 1995, primarily due1996. Research
and
10
development expenses declined to increased levels$6.8 million in the third quarter of interest-bearing investments resulting1997
from $7.7 million for the salesame period in 1996 as the cost of producing BDNF for
clinical use by Sumitomo declined in 1997. Loss in Amgen-Regeneron Partners
decreased to $0.7 million in the Companythird quarter of equity securities to Amgen1997 from $4.1 million for the
same period in April 1996, as the Partnership completed the Phase III clinical trial
of BDNF in 1996. Research and to Medtronic, Inc.development expenses (including Loss in
June 1996.
The Company'sAmgen-Regeneron Partners) were approximately 69% of total operating expenses increasedin
the third quarter of 1997, compared to $15.178% for the same period in 1996.
General and administrative expenses were $1.4 million in the third
quarters of both 1997 and 1996. Depreciation and amortization expense decreased
to $1.0 million in the third quarter of 1997 from $1.5 million in the third
quarter of 1996 from $13.3 million foras certain laboratory equipment became fully depreciated and
capitalized patent costs were fully amortized in 1996. Contract manufacturing
expenses are direct expenses related to the same period in 1995.
Research and development expenselong-term manufacturing agreement
with Merck. Such expenses, which are reimbursed by Merck, increased to $7.7$0.8
million in the third quarter of 19961997 from $5.7 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. Loss in
Amgen-Regeneron Partners increased to $4.1 million in the third quarter of 1996
from $3.7 million for the same period in 1995, primarily due to increased costs
related to clinical trials and precommercial activities conducted by Amgen on
behalf of the Partnership.
General and administrative expense was $1.4 million in both the third
quarter of 1996 and 1995. Depreciation expense was $1.5 million in both the
third quarter of 1996 and 1995. Other expenses of $0.2 million in the third
quartersame period of
1996, are direct expenses related to contract manufacturingprimarily from increased equipment validation costs. Interest expense was
$0.2 million for
Merck. Other expenses of $0.9 million in the third quarterquarters of 1995 related
primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.both 1997 and 1996.
The Company's net loss for the third quarter of 19961997 was $8.9$1.9 million,
or $0.35$0.06 per share, compared to a net loss of $7.1$8.9 million, or $0.37$0.35 per share,
for the same period in 1995.1996.
Nine months ended September 30, 19961997 and 1995.1996. The Company's total
revenue for the nine months ended September 30, 1996 was $17.6 million,
comparedincreased to $21.6 million for the same period in 1995. Contract research and
development revenue decreased to $13.1$21.7 million for the nine months ended September 30, 19961997
from $18.5$17.6 million for the same period in 1995.1996. Contract research and
development revenue earneddecreased to $11.9 million for the nine months ended
September 30, 1997 from $13.1 million for the same period in 1996, as the
Company provided less research and manufacturing support to the Amgen-Regeneron
Partners and Sumitomo Pharmaceuticals collaborations, partly offset by revenue
received from Procter & Gamble in connection with the May 1997 P&G Agreement.
Revenue from research progress payments in the first nine months of 1997
represents a $2.5 million payment received from Procter & Gamble in connection
with signing the September 1997 amendment to the P&G Agreement. Investment
income in the first nine months of 1997 increased to $4.4 million from $3.1
million for the same period in 1996, due primarily to higher levels of
interest-bearing investments resulting from the proceeds received as a result of
the private placement of equity securities with Amgen, Medtronic Inc., and
Procter & Gamble in 1996 and 1997. Contract manufacturing revenue related to the
Merck Agreement for the nine months ended September 30, 1997 and 1996 totaled
$2.9 million and $1.4 million, respectively. This increase was the result of
increased activity on the part of the Company in preparation of the Company's
manufacturing facility in Rensselaer for the production of a product for Merck.
The Company's total operating expenses decreased to $8.7$33.8 million in the
nine months ended September 30, 19961997 from $12.7$41.8 million for the same period in
1995. Of1996. Research and development expenses declined to $20.8 million in the first
nine months ended September 30,of 1997 from $21.4 million for the same period in 1996 as the cost
of producing BDNF for clinical use by Sumitomo Pharmaceuticals revenue, $2.2 million wasdeclined in 1997. Loss in
Amgen-Regeneron Partners for contract research and
$6.5 million was reimbursement for developing manufacturing processes for, and
supplying, BDNF. Of the first nine months 1995 Sumitomo Pharmaceuticals revenue, $7.4of 1997 decreased to $2.8
million wasfrom $10.3 million 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 researchthe same period in 1996, as the Partnership
completed the Phase III clinical trial of BDNF in 1996. Research and development
revenue earned from Amgen and Amgen-Regeneron
12
Partners decreased to $4.4 millionexpenses for the nine months ended September 30, 1997 and 1996 from $5.8 million for the same period(including Loss
in 1995. This reflects a decision by the
Partnership to focus more spending in 1996 on clinical trialsAmgen-Regeneron Partners) represented approximately 70% and other
precommercial activities conducted by Amgen and less spending on preclinical
research conducted by Regeneron. During the third quarter76% 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 increased levels of
interest-bearing investments resulting from the sale by the Company of equity
securities in a public offering in November 1995 and in private placements to
Amgen and Medtronic, Inc. in April and June 1996, respectively.
The Company's total
operating expenses, increased to $41.8 million in
the nine months ended September 30, 1996 from $37.3 million for the same period
in 1995. Research and development expense increased to $21.4 million in the
nine months ended September 30, 1996 from $17.3 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. Loss in Amgen-Regeneron Partners increased to
$10.3 million in the nine months ended September 30, 1996 from $9.1 million for
the same period in 1995, primarily due to increased costs related to clinical
trials and other precommercial activities conducted by Amgen on behalf of the
Partnership.respectively.
11
General and administrative expense decreased toexpenses were $4.6 million and $4.5 million
for the
nine months ended September 30, 1996 from $4.6 million for the same period in
1995. Interest expense decreased to $0.7 million in the nine months ended
September 30, 1996 from $1.0 million for the same period in 1995, resulting
from the expiration of capital leases during 1995 and the first nine months of 1997 and 1996, respectively. Depreciation and
amortization expense decreased to $3.3 million in the first nine months of 1997
from $4.5 million in the first nine months of 1996, as certain laboratory
equipment became fully depreciated and capitalized patent costs were fully
amortized in 1996. OtherContract manufacturing expenses are direct expenses related
to the long-term manufacturing agreement with Merck. Such expenses, which are
reimbursed by Merck, increased to $1.7 million in the first nine months of 1997
from $0.4 million in the nine months ended September 30,same period of 1996, were direct expenses related to contract manufacturing for Merck. Other
expenses of $0.9primarily from increased equipment
validation costs. Interest expense was $0.6 million and $0.7 million in the
first nine months ended September 30, 1995 related
primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.1997 and 1996, respectively.
The Company's net loss for the nine months ended September 30, 19961997 was
$24.3$12.1 million, or $1.01$0.43 per share, compared to a net loss of $15.7$24.3 million, or
$0.81$1.01 per share, for the same period in 1995.1996.
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.
In May 1997, the Company and Procter & Gamble entered into the P&G
Agreement. 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. During 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. The companies expect jointly to develop and
market worldwide any 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 prior notice or earlier in the event of a default
(as defined in the P&G Agreement). 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. In September 1997 the Company and Procter & Gamble
amended the P&G Agreement to include AXOKINE and related molecules, and to
develop AXOKINE to treat obesity associated with Type II diabetes. Procter &
Gamble agreed to pay the Company as much as $15.0 million in additional funding,
partly subject to achieving certain milestones. $2.5 million was paid in
September 1997.
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 September 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
12
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 $44.6 million to Amgen-Regeneron Partners
from the Partnership's inception in June 1993 through September 30, 1996.1997. The
Company expects that its capital contributions in 19961997 will total approximately $15.5 million.$2.6 million
for the full year, of which $2.0 million has been funded to date. Capital
contributions in future years are anticipated to be greater than in 1997. 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 studies amongand the
outcomes of those and other things. Capital contributions beyond
1996 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.ongoing studies.
From its inception in January 1988 through September 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 newcompleted construction that isat the facility, and $7.3 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 JuneDuring 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 September 30, 1996,1997, the Company had available
approximately $1.0$0.3 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 September 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 September 30, 1996,1997, the Company had $88.0$126.6 million in cash, cash
equivalents, and marketable securities. The Company expects to incur substantial
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
13
(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 Company expects to incur ongoing
funding requirements for capital contributions to Amgen-Regeneron Partners to
support the continued development and clinical trials of BDNF and NT-3. 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.
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
14
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.
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 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.
15
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.
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 for the year
ending December 31, 1998 and is currently evaluating the impact of the standard.
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3(i) Certificate of(a) Exhibits
* 10.1 First Amendment ofto the Restated Certificate of
Incorporation of Regeneron Pharmaceuticals, Inc., as at
October 18, 1996.
(*) 4 RightsMulti-Project Collaboration
Agreement dated May 13, 1997 between the Company and The
Procter & Gamble Company, 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.29,
1997.
11 Statement of computation of net loss per share for the
three months and nine months ended September 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 reports on Form 8-K were filed by the registrant during the
quarter ended September 30, 1996.
(*) Incorporated by reference from1997.
* Portions of this document have been omitted and filed
separately with the Form 8-ACommission pursuant to requests for
Regeneron
Pharmaceuticals, Inc. filed October 15, 1996.
18confidential treatment pursuant to Rule 24b-2.
17
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, 199614, 1997 By: /s/ Murray A. Goldberg
-------------------------------------------- ---------------------------------
Murray A. Goldberg
Vice President, Finance & Administration,
Chief Financial Officer, and Treasurer
1918