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 June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 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 August 2, 1996:
Class of Common Stock Number of Shares
Class A Stock, $0.001 par value 4,767,004
Common Stock, $0.001 par value 20,835,586
Page 1 of 145
REGENERON PHARMACEUTICALS, INC.
Table of Contents
June 30, 1996
Page Numbers
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets (unaudited) at June 30, 1996
and December 31, 1995 3
Condensed statements of operations (unaudited) for the
three months and six months ended June 30, 1996 and 1995 4
Condensed statements of cash flows (unaudited) for the
six months ended June 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 9-16
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 Stock and Warrant Purchase Agreement dated as of
April 15, 1996, between the Company and Amgen Inc. 20-36
Exhibit 10.2 Warrant Agreement dated as of April 15, 1996, between
the Company and Amgen Inc. 37-62
Exhibit 10.3 Registration Rights Agreement dated as of April 15,
1996, between the Company and Amgen Inc. 63-86
Exhibit 10.4 Stock and Warrant Purchase Agreement dated as of
June 27, 1996, between the Company and Medtronic, Inc. 87-103
Exhibit 10.5 Warrant Agreement dated as of June 27, 1996, between
the Company and Medtronic, Inc. 104-126
Exhibit 10.6 Registration Rights Agreement dated as of June 27,
1996, between the Company and Medtronic, Inc. 127-141
Exhibit 10.7 Assignment and Assumption Agreement dated as of
June 27, 1996, between the Company and Medtronic, Inc. 142-143
Exhibit 11 Statement of computation of loss per share for the three
months and six months ended June 30, 1996 and 1995 144
Exhibit 27 Financial data schedule 145
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT JUNE 30, 1996 AND DECEMBER 31, 1995 (Unaudited)
June 30, December 31,
ASSETS 1996 1995
---- ----
Current assets
Cash and cash equivalents $48,850,085 $32,736,026
Marketable securities 26,088,654 13,417,634
Receivable due from Amgen-Regeneron Partners 985,542 668,990
Receivable due from Sumitomo Pharmaceuticals
Company, Ltd. 2,352,483 1,749,062
Receivable due from Merck & Co., Inc. 3,066,164 271,630
Prepaid expenses and other current assets 334,700 359,111
------------ ------------
Total current assets 81,677,628 49,202,453
Marketable securities 21,393,852 13,468,350
Investment in Amgen-Regeneron Partners 1,615,458 1,273,538
Property, plant and equipment, at cost, net of
accumulated depreciation and amortization of
$16,777,650 in 1996 and $14,402,833 in 1995 33,336,670 27,870,720
Other assets 1,248,582 1,996,284
------------ ------------
Total assets $139,272,190 $93,811,345
============ ============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $4,247,055 $6,289,832
Note payable, current portion 80,481 83,444
Capital lease obligations, current portion 3,603,976 3,408,090
Deferred revenue, current portion 1,670,830 3,166,665
------------ ------------
Total current liabilities 9,602,342 12,948,031
Capital lease obligations 3,071,425 4,152,100
Note payable 1,787,298 1,825,766
Other liabilities 143,845 103,374
Deferred revenue 11,866,632 6,925,625
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;
4,817,815 shares issued (4,800,742
outstanding) in 1996; 5,403,923 shares
issued (5,386,850 outstanding) in 1995 4,818 5,404
Common Stock, $.001 par value; 60,000,000
shares authorized; 20,795,448 shares
issued and outstanding in 1996;
16,465,429 shares issued and outstanding
in 1995 20,796 16,465
Additional paid-in capital 254,058,076 193,594,141
Unearned compensation (1,260,000) (1,440,000)
Accumulated deficit (139,997,465) (124,605,334)
Net unrealized (loss) gain on marketable
securities (25,410) 285,940
------------ ------------
112,800,815 67,856,616
Less, Class A Stock held in treasury,
at cost: 17,073 shares in 1996 and 1995 (167) (167)
------------ ------------
Total stockholders' equity 112,800,648 67,856,449
------------ ------------
Total liabilities and stockholders'
equity $139,272,190 $93,811,345
============ ============
The accompanying notes are an integral part of the financial statements.
3
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues
Contract research and development $4,596,390 $6,807,634 $8,779,286 $13,706,349
Contract manufacturing 431,009 836,360
Investment income 1,130,763 815,642 1,731,185 1,749,805
----------- ----------- ------------ -----------
6,158,162 7,623,276 11,346,831 15,456,154
----------- ----------- ------------ -----------
Expenses
Research and development 6,802,561 5,750,606 13,728,964 11,640,759
Loss in Amgen-Regeneron Partners 3,517,180 2,849,895 6,179,080 5,409,700
General and administrative 1,586,554 1,552,734 3,097,499 3,228,116
Depreciation and amortization 1,525,301 1,472,069 3,016,255 2,978,108
Interest 227,429 378,871 478,058 750,771
Other 123,770 239,106
----------- ----------- ------------ -----------
13,782,795 12,004,175 26,738,962 24,007,454
----------- ----------- ------------ -----------
Net loss ($7,624,633) ($4,380,899) ($15,392,131) ($8,551,300)
=========== =========== ============ ===========
Net loss per share ($0.31) ($0.22) ($0.66) ($0.44)
=========== =========== ============ ===========
Weighted average number of Common
and Class A shares outstanding 24,585,518 19,487,627 23,296,691 19,406,248
=========== =========== ============ ===========
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
Six months ended June 30,
1996 1995
---- ----
Cash flows from operating activities
Net loss ($15,392,131) ($8,551,300)
------------ -----------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 6,179,080 5,409,700
Depreciation and amortization 3,016,255 2,978,108
Amortization of lease incentive (50,300)
Stock issued in consideration for services
rendered 180,000 180,000
Changes in assets and liabilities
(Increase) decrease in amounts due from
Amgen-Regeneron Partners (316,552) 332,685
Increase in amounts due from Sumitomo
Pharmaceuticals Co., Ltd. (603,421) (1,749,047)
Increase in amounts due from Merck & Co.,
Inc. (2,794,534)
Increase in investment in Amgen-Regeneron
Partners (6,521,000)
Decrease (increase) in prepaid expenses
and other assets 130,675 (402,599)
Increase (decrease) in deferred revenue 3,445,172 (6,416,667)
Decrease in accounts payable, accrued
expenses, and other liabilities (533,047) (778,476)
------------ -----------
Total adjustments 2,182,628 (496,596)
------------ -----------
Net cash used in operating activities (13,209,503) (9,047,896)
------------ -----------
Cash flows from investing activities
Purchases of marketable securities (41,117,516) (21,660,071)
Sales of marketable securities 20,209,644 25,223,126
Capital expenditures (7,462,280) (161,206)
------------ -----------
Net cash (used in) provided by
investing activities (28,370,152) 3,401,849
------------ -----------
Cash flows from financing activities
Net proceeds from the issuance of stock 59,394,527 363,044
Principal payments on note payable (41,431) (45,282)
Capital lease payments (1,659,382) (1,478,238)
Purchase of treasury stock (5)
------------ -----------
Net cash provided by (used in)
financing activities 57,693,714 (1,160,481)
------------ -----------
Net increase (decrease) in cash
and cash equivalents 16,114,059 (6,806,528)
------------ -----------
Cash and cash equivalents at beginning
of period 32,736,026 23,645,914
------------ -----------
Cash and cash equivalents at end of
period $48,850,085 $16,839,386
============ ===========
Supplemental disclosure of cash flow information
Cash paid for interest $437,586 $698,485
============ ===========
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 June 30, 1996 and December 31, 1995 and the results of
operations for the three and six months ended June 30, 1996 and 1995. 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 $775,000 and $132,000 were
incurred during the first six months of 1996 and 1995, respectively, when the
Company leased new equipment.
Included in accounts payable and accrued expenses at June 30, 1996 were
approximately $688,000 of capital expenditures and approximately $115,000 of
costs incurred in connection with the Company's issuance of equity securities.
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.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of June 30, 1996 and December
31, 1995 consist of the following:
June 30, December 31,
1996 1995
---- ----
Accounts payable $2,062,690 $3,240,050
Accrued payroll and related costs 1,028,887 1,054,626
Accrued clinical trial expense 319,500 350,000
Accrued litigation settlement 850,000
Accrued expenses, other 407,543 299,412
Deferred compensation 428,435 495,744
---------- ----------
$4,247,055 $6,289,832
========== ==========
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 June 30, 1996:
Unrealized Holding
Amortized Fair ---------------------------------------
Cost Basis Value Gains (Losses) Net
---------- ----- ----- -------- ---
Maturities within one year
Corporate debt securities $22,109,392 $22,155,252 $ 50,991 ($ 5,131) $45,860
U.S. Government securities 3,897,592 3,933,402 35,810 -- 35,810
----------- ----------- -------- --------- --------
26,006,984 26,088,654 86,801 (5,131) 81,670
----------- ----------- -------- --------- --------
Maturities between one and two years
Corporate debt securities 6,235,286 6,244,632 11,601 (2,255) 9,346
U.S. Government securities 15,265,646 15,149,220 3,637 (120,063) (116,426)
----------- ----------- -------- --------- --------
21,500,932 21,393,852 15,238 (122,318) (107,080)
----------- ----------- -------- --------- --------
$47,507,916 $47,482,506 $102,039 ($127,449) $(25,410)
=========== =========== ======== ========= ========
The aggregate net unrealized loss of $25,410 has been included as a
reduction of stockholders' equity at June 30, 1996.
5. Stock and Warrant Agreement
On April 15, 1996 Amgen Inc. purchased from the Company 3 million shares
of Common Stock for $48.0 million. The purchase price also included warrants to
purchase an additional 700,000 shares of Common Stock at an exercise price of
$16.00 per share. The warrants are fully exercisable, expire on April 15, 2001,
and are subject to antidilution provisions.
6. Collaboration Agreement
On June 27, 1996, the Company and Medtronic, Inc. (Medtronic) entered
into a worldwide exclusive joint development agreement (the Medtronic Agreement)
to collaborate on research and development of a family of therapeutics for
central nervous system diseases and disorders using experimental Regeneron
compounds and Medtronic delivery systems. The Medtronic Agreement, among other
things, provides for the Company and Medtronic to fund development costs and
supply amounts of drug and delivery systems, respectively. In addition,
Medtronic is required to make payments to Regeneron if certain clinical
milestones are achieved and the Company is required to pay royalties to
Medtronic based upon net sales of any drug developed under 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. 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 which the Company is required
to purchase the Equipment at defined amounts, or the leases will be renewed for
eight months at defined monthly payments after which the Company will own the
Equipment. At June 30, 1996, the Company had available approximately $2.2
million of the New Lease Line.
8
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.
During the second quarter of 1996, Amgen Inc. (Amgen), on behalf of
Amgen-Regeneron Partners, continued to conduct a Phase III clinical trial
designed to determine the safety and efficacy of brain-derived neurotrophic
factor (BDNF) in the treatment of amyotrophic lateral sclerosis (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 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
Pharmacteuticals) in Japan and continued the development of a series of
preclinical research programs in the areas of inflammatory and muscle disease,
angiogenesis, hematopoiesis, and cancer.
In April 1996, Amgen purchased from the Company 3 million shares of
Common Stock for $48.0 million. The purchase price also included five-year
warrants to purchase an additional 700,000 shares of Common Stock at an exercise
price of $16.00 per share. In June 1996, the Company entered into a worldwide
exclusive joint development agreement with Medtronic, Inc. (Medtronic) to
collaborate on research and development of a family of therapeutics for central
nervous system diseases and disorders using experimental Regeneron compounds and
Medtronic delivery systems. The initial target of the Medtronic collaboration
will be the development of Regeneron's second generation neurotrophic factor
AXOKINE(TM) for the potential treatment of Huntington's disease, using
Medtronic's implantable pump to infuse AXOKINE into the brain. In addition,
Medtronic purchased from the Company 460,500 shares of Common Stock for $10.0
million. The purchase price also included five-year warrants to purchase an
additional 107,400 shares of Common Stock at an exercise price of $21.72 per
share.
The results of the BDNF Phase III clinical trial for ALS are uncertain
and are not expected to be known until the trial is completed and the data
reviewed and analyzed. The Company believes that such results are likely to be
known during the first quarter of 1997. If the study is timely completed and
demonstrates a statistically significant and
9
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. 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.
The potential success of the BDNF clinical trial is also dependent
upon, among other things, certain factors that could undermine the significance
of the data collected from such patients. Patients who are taking riluzole, an
orally administered drug approved for the treatment of ALS, are not, on that
basis, ineligible to participate in the BDNF clinical trial, and Amgen and the
Company know that some patients who are taking riluzole have 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, has designed the BDNF clinical trial to take into
account the inclusion of patients who may also be taking riluzole. However, if
the Phase III clinical study is compromised through the inclusion of patients
who are taking riluzole 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 would have a material adverse
effect on the Company.
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 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 diabetes 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 does not expect to receive any such revenues for at least
several years. Before such revenues can be realized, the Company 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. 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
10
will be enforceable or will provide protection against competing technology. 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.
Results of Operations
Three months ended June 30, 1996 and 1995. The Company's total revenue
for the second quarter of 1996 was $6.2 million compared to $7.6 million for
the same period in 1995. Contract research and development revenue decreased to
$4.6 million for the second quarter of 1996 from $6.8 million for the same
period in 1995. Contract research and development revenue earned from Sumitomo
Pharmaceuticals decreased to $3.1 million in the second quarter of 1996 from
$4.9 million for the same period in 1995. Of the second quarter 1996 Sumitomo
Pharmaceuticals revenue, $0.8 million was for contract research and $2.3
million was reimbursement for developing manufacturing processes for, and
supplying, BDNF. Of the second quarter 1995 Sumitomo Pharmaceuticals revenue,
$3.2 million was for contract research (including $2.2 million related to a
non-recurring contract research payment) 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 second quarter of 1996 from
$1.9 million for the same period in 1995. This reflects a decision by the
Partnership 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 a long-term manufacturing agreement (the Merck Agreement) with
Merck & Co., Inc. (Merck), and contract manufacturing revenue for the second
quarter of 1996 related to this agreement totaled $0.4 million. Investment
income in the second quarter of 1996 increased to $1.1 million from $0.8
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 to Amgen in April 1996.
The Company's total operating expenses increased to $13.8 million in
the second quarter of 1996 from $12.0 million for the same period in 1995.
Research and development expense increased to $6.8 million in the second
quarter of 1996 from $5.8 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 Rensselaer manufacturing facility related to
the Sumitomo and Merck agreements. Loss in Amgen-Regeneron Partners increased
to $3.5 million in the second quarter of 1996 from $2.8 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.
General and administrative expense was $1.6 million for both the second
quarters of 1996 and 1995. Interest expense decreased to $0.2 million in the
second quarter of 1996 from $0.4 million for the same period in 1995, resulting
from the expiration of capital leases during 1995 and the first six months of
1996. Other expenses of $0.1 million in the second quarter of 1996 are direct
expenses related to contract manufacturing for Merck.
11
The Company's net loss for the second quarter of 1996 was $7.6 million,
or $0.31 per share, compared to a net loss of $4.4 million, or $0.22 per share,
for the same period in 1995.
Six months ended June 30, 1996 and 1995. The Company's total revenue
for the six months ended June 30, 1996 was $11.3 million, compared to $15.5
million for the same period in 1995. Contract research and development revenue
decreased to $8.8 million for the six months ended June 30, 1996 from $13.7
million for the same period in 1995. Contract research and development revenue
earned from Sumitomo Pharmaceuticals decreased to $5.8 million in the six
months ended June 30, 1996 from $9.9 million for the same period in 1995. Of
the six months ended June 30, 1996 Sumitomo Pharmaceuticals revenue, $1.5
million was for contract research and $4.3 million was reimbursement for
developing manufacturing processes for, and supplying, BDNF. Of the six months
ended June 30, 1995, Sumitomo Pharmaceuticals revenue, $6.4 million was for
contract research (including $5.4 million related to a non-recurring contract
research payment) and $3.5 million was reimbursement for developing
manufacturing processes for, and supplying, BDNF. Contract research and
development revenue earned from Amgen and Amgen-Regeneron Partners decreased to
$3.0 million for the six months ended June 30, 1996 from $3.8 million for the
same period in 1995. This reflects a decision by the Partnership 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, and contract manufacturing revenue for the six months ended June 30,
1996 related to this agreement totaled $0.8 million. Investment income for the
six month periods ended June 30, 1996 and June 30, 1995 was $1.7 million.
The Company's total operating expenses increased to $26.7 million in
the six months ended June 30, 1996 from $24.0 million for the same period in
1995. Research and development expense increased to $13.7 million in the six
months ended June 30, 1996 from $11.6 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 Rensselaer manufacturing
facility related to the Sumitomo and Merck agreements. Loss in Amgen-Regeneron
Partners increased to $6.2 million in the six months ended June 30, 1996 from
$5.4 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.
General and administrative expense for the six months ended June 30,
1996 remained at the same level compared to the corresponding period in 1995.
Interest expense decreased to $0.5 million in the six months ended June 30,
1996 from $0.8 million for the same period in 1995, resulting from the
expiration of capital leases during 1995 and the first six months of 1996.
Other expenses of $0.2 million in the six months ended June 30, 1996 are direct
expenses related to contract manufacturing for Merck.
The Company's net loss for the six months ended June 30, 1996 was $15.4
million, or $0.66 per share, compared to a net loss of $8.6 million, or $0.44
per share, for the same period in 1995.
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 agreements between the Company and Amgen,
Sumitomo Chemical Company,
12
Ltd., Sumitomo Pharmaceuticals, and Merck, and investment income. 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 million and has agreed to pay the Company $3.0 million annually in
1997 and 1998. Sumitomo Pharmaceuticals has the option to cancel any remaining
annual payments; however, if such a cancellation were to occur, the rights to
develop and commercialize BDNF in Japan would revert to the Company. In
addition, 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, and the Company recognizes such reimbursement as
revenue. The funding of the Partnership,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 $34.9 million to Amgen-Regeneron
Partners from the Partnership's inception in June 1993 through June 30, 1996.
The Company expects that its capital contributions in 1996 will total
approximately $15.5 million. These contributions could increase, depending upon
the results of the BDNF ALS clinical trial and the other BDNF and NT-3 studies,
among 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.
From its inception in January 1988 through June 30, 1996 the Company
has invested $50.1 million in property, plant and equipment, including $16.8
million to acquire and renovate the Rensselaer facility and $10.5 million of
construction in progress to modify the facility in connection with the Merck
Agreement. In connection with the purchase and renovation of the Rensselaer
facility, the Company obtained financing of $2.0 million from the New York
State Urban Development Corporation, of which $1.9 million was outstanding at
June 30, 1996. Under the terms of such financing, the Company is not permitted
to declare or pay dividends to its stockholders.
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 which the Company is required
to purchase the Equipment at defined amounts, or the leases will be renewed for
eight months at defined monthly payments after which the Company will own the
Equipment. At June 30, 1996, the Company had available approximately $2.2
million of the New Lease Line.
13
The Company expects that expenses related to the filing, prosecution,
defense and enforcement of patent and other intellectual property claims will
continue to be substantial as a result of patent filings and prosecutions in
the United States and foreign countries. The Company is currently involved in
two interference proceedings in the Patent and Trademark Office between
Regeneron's patent applications and patents relating to CNTF issued to
Synergen, Inc. Amgen acquired all outstanding shares of Synergen in 1994.
As of June 30, 1996, 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. In April 1996 Amgen purchased from the Company 3 million shares of
Common Stock for $48.0 million. The purchase price also included warrants to
purchase an additional 700,000 shares at an exercise price of $16.00 per share.
In June 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.
At June 30, 1996, the Company had $96.3 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. 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 extent and success of any
collaborative research programs. The Company expects to incur substantial
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 through
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.
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:
14
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 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 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 in 1996); pricing,
promotional, and marketing decisions (and the implementation of such
decisions) by the Company and its partner, Amgen; and reimbursement
policies of health care providers and insurers.
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 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 quality assurance and environmental regulations and
governmental permitting requirements.
15
o Difficulties in obtaining key raw materials and supplies for the
manufacture of the Company's products.
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.
o The ability to attract and retain key personnel.
16
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 28, 1996, 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 II directors, and until their successors are duly elected and qualified.
2. To approve certain changes to bring the Company's Amended and
Restated 1990 Long-Term Incentive Plan into compliance with Section 162(m) of
the Internal Revenue Code of 1986, as amended and any regulations thereunder.
3. To approve the selection of Coopers & Lybrand L.L.P. as independent
accountants for the Company's fiscal year ending December 31, 1996.
No other matters were voted on. The number of votes cast was:
For Withhold Authority
--- ------------------
1. Election of Class II Directors
James W. Fordyce 63,947,872 202,916
Alfred G. Gilman, M.D., Ph.D. 63,741,672 409,116
Joseph L. Goldstein, M.D. 63,946,772 204,016
The terms of office of P. Roy Vagelos, M.D., Leonard S. Schleifer, M.D.,
Ph.D., Eric M. Shooter, Ph.D., George L. Sing, Charles A. Baker, and Michael S.
Brown, M.D. continued after the meeting.
For Against Abstain
--- ------- -------
2. Amendment of Long-Term
Incentive Plan 62,651,196 399,655 79,881
3. Selection of accountants 64,107,261 22,366 21,161
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stock and Warrant Purchase Agreement dated as of April
15, 1996, between the Company and Amgen Inc.
10.2 Warrant Agreement dated as of April 15, 1996, between
the Company and Amgen Inc.
10.3 Registration Rights Agreement dated as of April 15,
1996, between the Company and Amgen Inc.
10.4 Stock and Warrant Purchase Agreement dated as of June
27, 1996, between the Company and Medtronic, Inc.
10.5 Warrant Agreement dated as of June 27, 1996, between
the Company and Medtronic, Inc.
10.6 Registration Rights Agreement dated as of June 27,
1996, between the Company and Medtronic, Inc.
10.7 Assignment and Assumption Agreement dated as of June
27, 1996, between the Company and Medtronic, Inc.
11 Statement of computation of loss per share for the
three months and six months ended June 30, 1996 and
1995.
27 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the registrant during the
quarter ended June 30, 1996.
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: August 14, 1996 By: /s/ Murray A. Goldberg
-------------------------------
Murray A. Goldberg
Vice President, Finance & Administration,
Chief Financial Officer, and Treasurer
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