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, 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 October 31, 1996:
Class of Common Stock Number of Shares
Class A Stock, $0.001 par value 4,616,073
Common Stock, $0.001 par value 21,029,760
Page 1 of 34
REGENERON PHARMACEUTICALS, INC.
Table of Contents
September 30, 1996
Page Numbers
PART I- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed balance sheets (unaudited) at September 30,
1996 and December 31, 1995 3
Condensed statements of operations (unaudited) for the
three months and nine months ended September 30, 1996
and 1995 4
Condensed statements of cash flows (unaudited) for the
nine months ended September 30, 1996 and 1995 5
Notes to condensed financial statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-17
PART II- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE PAGE 19
Exhibit 3(i) Certificate of Amendment of the Restated
Certificate of Incorporation of Regeneron
Pharmaceuticals, Inc., as at October 18, 1996. 20-31
Exhibit 4 Rights Agreement, dated as of September 20, 1996,
between Regeneron Pharmaceuticals, Inc. and ChaseMellon
Shareholder Services L.L.C., as Rights Agent, including
the form of Rights Certificate as Exhibit B thereto.
(Incorporated by reference.)
Exhibit 11 Statement of computation of net loss per share for
the three months and nine months ended September 30,
1996 and 1995. 32
Exhibit 17 Letter of Resignation of James W. Fordyce, Director,
dated October 1, 1996. 33
Exhibit 27 Financial data schedule. 34
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (Unaudited)
September 30, December 31,
1996 1995
---- ---
ASSETS
Current assets
Cash and cash equivalents $37,452,802 $32,736,026
Marketable securities 29,230,441 13,417,634
Receivable due from Amgen-Regeneron Partners 1,972,660 668,990
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 2,352,499 1,749,062
Receivable due from Merck & Co., Inc. 1,551,712 271,630
Prepaid expenses and other current assets 847,259 359,111
-------------- --------------
Total current assets 73,407,373 49,202,453
Marketable securities 21,319,621 13,468,350
Investment in Amgen-Regeneron Partners 1,260,158 1,273,538
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 27,870,720
Other assets 926,596 1,996,284
-------------- --------------
Total assets $130,599,841 $93,811,345
============== ==============
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
Capital lease obligations, current portion 3,687,186 3,408,090
Deferred revenue, current portion 920,831 3,166,665
-------------- --------------
Total current liabilities 8,917,385 12,948,031
Capital lease obligations 3,351,957 4,152,100
Note payable 1,767,722 1,825,766
Other liabilities 163,748 103,374
Deferred revenue 12,174,499 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;
4,777,757 shares issued (4,760,684 outstanding) in 1996;
5,403,923 shares issued (5,386,850 outstanding) in 1995 4,777 5,404
Common Stock, $.001 par value; 60,000,000 shares authorized;
20,855,186 shares issued and outstanding in 1996;
16,465,429 shares issued and outstanding in 1995 20,855 16,465
Additional paid-in capital 254,145,791 193,594,141
Unearned compensation (1,170,000) (1,440,000)
Accumulated deficit (148,886,178) (124,605,334)
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)
-------------- --------------
Total stockholders' equity 104,224,530 67,856,449
-------------- --------------
Total liabilities and stockholders' equity $130,599,841 $93,811,345
============== ==============
The accompanying notes are an integral part of the financial statements.
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three months Nine months
ended September 30, ended September 30,
1996 1995 1996 1995
---------------------------- ----------------------------
Revenues
Contract research and development $4,306,232 $4,783,045 $13,085,518 $18,489,394
Contract manufacturing 557,927 743,357 1,394,287 743,357
Investment income 1,357,528 659,265 3,088,713 2,409,070
--------------- ------------ --------------- ----------------
6,221,687 6,185,667 17,568,518 21,641,821
--------------- ------------ --------------- ----------------
Expenses
Research and development 7,660,787 5,679,154 21,389,751 17,319,913
Loss in Amgen-Regeneron Partners 4,109,300 3,693,578 10,288,380 9,103,278
General and administrative 1,422,479 1,365,963 4,519,978 4,594,079
Depreciation and amortization 1,497,494 1,463,267 4,513,749 4,441,375
Interest 214,181 218,896 692,239 969,667
Other 206,159 910,687 445,265 910,687
--------------- ------------ --------------- ----------------
15,110,400 13,331,545 41,849,362 37,338,999
--------------- ------------ --------------- ----------------
Net loss ($8,888,713) ($7,145,878) ($24,280,844) ($15,697,178)
--------------- ------------ --------------- ----------------
Net loss per share ($0.35) ($0.37) ($1.01) ($0.81)
=============== ============ =============== ================
Weighted average number of Common
and Class A shares outstanding 25,605,159 19,520,245 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,
1996 1995
---- ----
Cash flows from operating activities
Net loss ($24,280,844) ($15,697,178)
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 10,288,380 9,103,278
Depreciation and amortization 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
Increase in amounts due from Amgen-Regeneron Partners (1,303,670) (865,894)
Increase in amounts due from Sumitomo Pharmaceuticals
Co., Ltd. (603,437) (1,749,062)
Increase in amounts due from Merck & Co., Inc. (1,280,082) (910,024)
Increase in investment in Amgen-Regeneron Partners (10,275,000) (5,471,000)
Increase in prepaid expenses and other assets (380,617) (201,267)
Increase (decrease) in deferred revenue 3,003,040 (8,083,337)
Decrease in accounts payable, accrued expenses,
and other liabilities (158,504) (1,067,722)
------------- -------------
Total adjustments 4,073,859 (4,583,953)
------------- -------------
Net cash used in operating activities (20,206,985) (20,281,131)
------------- -------------
Cash flows from investing activities
Purchases of marketable securities (54,530,151) (21,660,071)
Sales of marketable securities 30,689,585 26,604,388
Capital expenditures (8,014,762) (561,501)
------------- -------------
Net cash (used in) provided by investing activities (31,855,328) 4,382,816
------------- -------------
Cash flows from financing activities
Net proceeds from the issuance of stock 59,367,260 541,927
Principal payments on note payable (62,426) (68,007)
Capital lease payments (2,525,745) (2,312,814)
Purchase of treasury stock (5)
------------- -------------
Net cash provided by (used in) financing activities 56,779,089 (1,838,899)
------------- -------------
Net increase (decrease) in cash and cash equivalents 4,716,776 (17,737,214)
------------- -------------
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
============= =============
Supplemental disclosure of cash flow information
Cash paid for interest $631,865 $891,687
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, 1996 and December 31, 1995 and the
results of operations for the three and nine months ended September 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 $2,005,000 and $361,000
were incurred during the first nine months of 1996 and 1995, respectively, when
the Company leased new equipment.
Included in accounts payable and accrued expenses at September 30,
1996 were approximately $432,000 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.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of September 30, 1996 and
December 31, 1995 consist of the
following:
September 30, December 31,
1996 1995
---- ----
Accounts payable ............................. $2,371,027 $3,240,050
Accrued payroll and related costs ............ 779,904 1,054,626
Accrued clinical trial expense ............... 319,500 350,000
Accrued litigation settlement ................ 850,000
Accrued expenses, other ...................... 337,412 299,412
Deferred compensation ........................ 422,463 495,744
---------- ----------
$4,230,306 $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 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 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. 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 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, 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.
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 third quarter of 1996, Amgen Inc. ("Amgen"), on behalf of
Amgen-Regeneron Partners, completed the treatment period of 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
Pharmaceuticals") 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.
The BDNF Phase III clinical trial for ALS was completed in September
1996, but the results are uncertain and will not be known until the data is
reviewed and analyzed. The Company believes that such results are likely to be
known during the first quarter of 1997. If the study demonstrates a
statistically significant and clinically effective and safe treatment regimen,
it could have a materially beneficial effect on the Company. However, if the
trial is not conclusively successful, it could 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.
9
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 were taking RilutekTM,
an orally administered drug manufactured by Rhone-Poulenc Rorer approved for
the treatment of ALS, were not, on that basis, ineligible to participate in the
BDNF clinical trial, and Amgen and the Company know that some patients who were
taking RilutekTM were enrolled in the BDNF trial. The clinical effects of
taking both drugs are completely unknown and therefore unanticipated effects
could complicate the trial or render the data collected difficult to analyze or
interpret. Amgen, on behalf of Amgen-Regeneron Partners, 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 study is compromised
through the inclusion of patients who were taking RilutekTM or other
medications, with or without the consent or knowledge of the trial sponsor, the
results of the study may be undermined 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, depending on the success of the BDNF ALS trial, may not
receive any such revenues for several years. 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.
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, 1996 and 1995. The Company's total
revenue for both the third quarter of 1996 and 1995 was $6.2 million. Contract
research and development revenue decreased to $4.3 million for the third
quarter of 1996 from $4.8 million for the same period in 1995. Contract
research and development revenue earned from Sumitomo Pharmaceuticals increased
to $2.8 million for the third quarter of 1996 from $2.7 million for the same
period in 1995. Of 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
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 quarter of 1996 from $2.1
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 third quarters
of 1996 and 1995 related to this agreement totaled $0.6 million and $0.7
million, respectively. Investment income in the third quarter of 1996 increased
to $1.4 million from $0.7 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 and to Medtronic, Inc. in
June 1996.
The Company's total operating expenses increased to $15.1 million in
the third quarter of 1996 from $13.3 million for the same period in 1995.
Research and development expense increased to $7.7 million in the third quarter
of 1996 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
quarter of 1996 are direct expenses related to contract manufacturing for
Merck. Other expenses of $0.9 million in the third quarter of 1995 related
primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.
The Company's net loss for the third quarter of 1996 was $8.9 million,
or $0.35 per share, compared to a net loss of $7.1 million, or $0.37 per share,
for the same period in 1995.
Nine months ended September 30, 1996 and 1995. The Company's total
revenue for the nine months ended September 30, 1996 was $17.6 million,
compared to $21.6 million for the same period in 1995. Contract research and
development revenue decreased to $13.1 million for the nine months ended
September 30, 1996 from $18.5 million for the same period in 1995. Contract
research and development revenue earned from Sumitomo Pharmaceuticals decreased
to $8.7 million in the nine months ended September 30, 1996 from $12.7 million
for the same period in 1995. Of the nine months ended September 30, 1996
Sumitomo Pharmaceuticals revenue, $2.2 million was for contract research and
$6.5 million was reimbursement for developing manufacturing processes for, and
supplying, BDNF. Of the nine months 1995 Sumitomo Pharmaceuticals revenue, $7.4
million was for contract research (including $5.4 million related to a
non-recurring contract research payment) and $5.3 million was reimbursement for
developing manufacturing processes for, and supplying, BDNF. Contract research
and development revenue earned from Amgen and Amgen-Regeneron
12
Partners decreased to $4.4 million for the nine months ended September 30, 1996
from $5.8 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. 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.
General and administrative expense decreased to $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
1996. Other expenses of $0.4 million in the nine months ended September 30,
1996 were direct expenses related to contract manufacturing for Merck. Other
expenses of $0.9 million in the nine months ended September 30, 1995 related
primarily to the recognition of the Company's contribution to the settlement of
shareholder class action litigation.
The Company's net loss for the nine months ended September 30, 1996
was $24.3 million, or $1.01 per share, compared to a net loss of $15.7 million,
or $0.81 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, 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 an additional $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,
13
the Company is being reimbursed in connection with supplying Sumitomo
Pharmaceuticals with BDNF for preclinical use.
Under the Amgen Agreement, Amgen was required to make defined payments
through June 1995 to the Company for research and development efforts in the
United States in connection with BDNF and NT-3. As provided in the Amgen
Agreement, after Amgen determined that Investigational New Drug applications
("IND") should be filed for BDNF and NT-3, Amgen and Regeneron created
Amgen-Regeneron Partners to conduct the development and commercialization of
these product candidates. The Partnership began operations in June 1993 with
respect to BDNF and in January 1994 with respect to NT-3. Amgen's required
payments for BDNF and NT-3 were made directly to Regeneron prior to the
determination by Amgen that the preparation of an IND for each compound should
commence and thereafter to the Partnership. The Company's further activities
relating to BDNF and NT-3, as agreed upon by Amgen and Regeneron, are being
reimbursed by the Partnership, 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 $38.7 million to
Amgen-Regeneron Partners from the Partnership's inception in June 1993 through
September 30, 1996. The Company expects that its capital contributions in 1996
will total approximately $15.5 million. These contributions could increase in
the future, 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 September 30, 1996 the
Company has invested $51.6 million in property, plant and equipment, including
$16.8 million to acquire and renovate its Rensselaer facility and $11.2 million
of new construction that is 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. 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 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.
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") issued to Synergen,
Inc. Amgen acquired all outstanding shares of Synergen in 1994.
As of September 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.
At September 30, 1996, the Company had $88.0 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
(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 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 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:
15
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);
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
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.
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.
17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
3(i) Certificate of Amendment of the Restated Certificate of
Incorporation of Regeneron Pharmaceuticals, Inc., as at
October 18, 1996.
(*) 4 Rights Agreement, dated as of September 20, 1996,
between Regeneron Pharmaceuticals, Inc. and ChaseMellon
Shareholder Services L.L.C., as Rights Agent, including
the form of Rights Certificate as Exhibit B thereto.
11 Statement of computation of loss per share for the three
months and nine months ended September 30, 1996 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 from the Form 8-A for Regeneron
Pharmaceuticals, Inc. filed October 15, 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: November 5, 1996 By: /s/ Murray A. Goldberg
---------------------------
Murray A. Goldberg
Vice President, Finance &
Administration, Chief Financial
Officer, and Treasurer
19