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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, 1997
------------------
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
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REGENERON PHARMACEUTICALS, INC.
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(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
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(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 November 3, 1997:
Class of Common Stock Number of Shares
------------------------------- ----------------
Class A Stock, $0.001 par value 4,126,542
Common Stock, $0.001 par value 26,794,695
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REGENERON PHARMACEUTICALS, INC.
Table of Contents
September 30, 1997
Page Numbers
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed balance sheets (unaudited) at September 30, 1997
and December 31, 1996 3
Condensed statements of operations (unaudited) for the three
months and nine months ended September 30, 1997 and 1996 4
Condensed statements of cash flows (unaudited) for the
nine months ended September 30, 1997 and 1996 5
Notes to condensed financial statements 6-7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-16
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 17
SIGNATURE PAGE 18
Exhibit 10.1 First Amendment to the Multi-Project Collaboration
Agreement dated May 13, 1997 between the Company and The Procter
& Gamble Company, dated as of September 29, 1997 (*)
Exhibit 11 Statement of computation of net loss per share for the three
months and nine months ended September 30, 1997 and 1996
Exhibit 27 Financial data schedule
(*) Portions of this document have been omitted and filed separately with
the Commission pursuant to requests for confidential treatment pursuant
to Rule 24b-2.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 40,288,090 $ 34,475,060
Marketable securities 57,086,993 45,587,404
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 1,257,571 2,072,455
Receivable due from Merck & Co., Inc. 1,503,597 1,816,056
Receivable due from The Procter & Gamble Company 958,450
Receivable due from Amgen-Regeneron Partners 330,999 446,269
Prepaid expenses and other current assets 651,865 611,435
------------- -------------
Total current assets 102,077,565 85,008,679
Marketable securities 29,272,954 16,965,302
Investment in Amgen-Regeneron Partners 408,170 1,205,299
Property, plant and equipment, at cost, net of accumulated depreciation
and amortization 32,882,412 34,297,843
Other assets 97,372 104,731
------------- -------------
Total assets $ 164,738,473 $ 137,581,854
============= =============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 4,131,356 $ 4,357,145
Capital lease obligations, current portion 2,623,308 3,505,221
Note payable, current portion 74,338 77,684
Deferred revenue, current portion 931,564 4,108,412
------------- -------------
Total current liabilities 7,760,566 12,048,462
Capital lease obligations 2,333,848 3,400,015
Note payable 1,693,385 1,748,082
Other liabilities 227,686 183,426
Deferred revenue 14,483,586 13,270,870
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized;
4,204,860 shares issued and outstanding in 1997
4,355,994 shares issued and outstanding in 1996 4,205 4,356
Common Stock, $.001 par value; 60,000,000 shares authorized;
26,709,041 shares issued and outstanding in 1997
21,319,896 shares issued and outstanding in 1996 26,709 21,320
Additional paid-in capital 308,074,066 264,742,236
Unearned compensation (810,000) (1,080,000)
Accumulated deficit (169,134,756) (157,029,112)
Net unrealized gain on marketable securities 79,178 272,199
------------- -------------
Total stockholders' equity 138,239,402 106,930,999
------------- -------------
Total liabilities and stockholders' equity $ 164,738,473 $ 137,581,854
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
1997 1996 1997 1996
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Revenues
Contract research and development $3,276,721 $4,306,232 $11,892,336 $13,085,518
Research progress payments 2,500,000 2,500,000
Investment income 1,792,656 1,357,528 4,451,972 3,088,713
Contract manufacturing 1,304,023 557,927 2,858,989 1,394,287
------------ ------------ ------------ ------------
8,873,400 6,221,687 21,703,297 17,568,518
------------ ------------ ------------ ------------
Expenses
Research and development 6,802,711 7,660,787 20,759,498 21,389,751
Loss in Amgen-Regeneron Partners 654,784 4,109,300 2,834,129 10,288,380
General and administrative 1,428,275 1,422,479 4,580,478 4,519,978
Depreciation and amortization 969,608 1,497,494 3,336,110 4,513,749
Contract manufacturing 750,560 206,159 1,719,095 445,265
Interest 174,580 214,181 579,631 692,239
------------ ------------ ------------ ------------
10,780,518 15,110,400 33,808,941 41,849,362
------------ ------------ ------------ ------------
Net loss ($1,907,118) ($8,888,713) ($12,105,644) ($24,280,844)
============ ============ ============ ============
Net loss per share ($0.06) ($0.35) ($0.43) ($1.01)
============ ============ ============ ============
Weighted average number of Common
and Class A shares outstanding 30,894,514 25,605,159 27,962,070 24,066,180
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss ($12,105,644) ($24,280,844)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 2,834,129 10,288,380
Depreciation and amortization 3,336,110 4,513,749
Stock issued in consideration for services rendered 270,000 270,000
Changes in assets and liabilities
Decrease (increase) in amounts due from Amgen-Regeneron Partners 115,270 (1,303,670)
Decrease (increase) in amounts due from Sumitomo Pharmaceuticals Co., Ltd. 814,884 (603,437)
Decrease (increase) in amounts due from Merck & Co., Inc. 312,459 (1,280,082)
Increase in amounts due from The Procter & Gamble Company (958,450)
Increase in investment in Amgen-Regeneron Partners (2,037,000) (10,275,000)
Increase in prepaid expenses
and other assets (33,071) (380,617)
(Decrease) increase in deferred revenue (1,964,132) 3,003,040
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities 190,160 (158,504)
------------ ------------
Total adjustments 2,880,359 4,073,859
------------ ------------
Net cash used in operating activities (9,225,285) (20,206,985)
------------ ------------
Cash flows from investing activities
Purchases of marketable securities (72,941,324) (54,530,151)
Sales of marketable securities 48,941,062 30,689,585
Capital expenditures (1,480,060) (8,014,762)
------------ ------------
Net cash used in investing activities (25,480,322) (31,855,328)
------------ ------------
Cash flows from financing activities
Net proceeds from the issuance of stock 43,337,068 59,367,260
Principal payments on note payable (58,043) (62,426)
Capital lease payments (2,760,388) (2,525,745)
------------ ------------
Net cash provided by financing activities 40,518,637 56,779,089
------------ ------------
Net increase in cash and cash equivalents 5,813,030 4,716,776
------------ ------------
34,475,060 32,736,026
------------ ------------
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period $ 40,288,090 $ 37,452,802
============ ============
Supplemental disclosure of cash flow information
Cash paid for interest $ 535,371 $ 631,865
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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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, 1997 and December 31, 1996 and
the results of operations for the three months and nine months ended
September 30, 1997 and 1996. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for
the full year.
2. Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligations of approximately $812,000 and $2,005,000 were
incurred during the first nine months of 1997 and 1996, respectively,
when the Company leased new equipment.
Included in accounts payable and accrued expenses at September 30, 1997
and December 31, 1996 were approximately $417,000 and $788,000 of
capital expenditures, respectively.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of September 30, 1997 and
December 31, 1996 consist of the following:
September 30, December 31,
1997 1996
---- ----
Accounts payable $2,314,966 $2,178,308
Accrued payroll and related costs 787,733 1,047,812
Accrued clinical trial expense 319,500 319,500
Accrued expenses, other 358,869 389,062
Deferred compensation 350,288 422,463
---------- ----------
$4,131,356 $4,357,145
========== ==========
4. Collaboration Agreement
In May 1997, the Company entered into a ten-year collaboration agreement
with The Procter & Gamble Company ( "Procter & Gamble") to discover,
develop, and commercialize pharmaceutical products (the "P&G
Agreement"), as well as a securities purchase agreement and other
agreements. Procter & Gamble agreed over the first five years of the
various agreements to purchase up to $60.0 million in Regeneron equity
and provide up to $94.7 million in support of Regeneron's research
efforts related to the collaboration. In June 1997, Procter & Gamble
completed the purchase of 4.35 million shares of Regeneron Common Stock
at $9.87 per share for a total of $42.9 million and received five year
warrants to purchase an additional 1.45 million shares of Regeneron
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stock at $9.87 per share. This purchase was in addition to a $10.0
million purchase of Regeneron Common Stock at $12.50 per share that was
completed in March 1997 pursuant to a December 1996 stock purchase
agreement. The P&G Agreement expanded and superceded a collaboration
agreement that the companies entered into in December 1996 jointly to
develop drugs for skeletal muscle injury and atrophy.
During the second five years of the P&G Agreement, the companies will
share all research costs equally. Clinical testing and commercialization
expenses for jointly developed products will be shared equally
throughout the ten years of the collaboration. Procter & Gamble will
have rights to Regeneron's current technology (other than certain
neurotrophic factors and cytokines), which is expected to have
application in cardiovascular, bone, muscle, arthritis, and other
disease areas. Procter & Gamble will also have rights to new technology
developed by Regeneron as a result of the collaboration. The companies
expect jointly to develop and market worldwide any products resulting
from the collaboration and share equally in profits. Either company may
terminate the P&G Agreement at the end of five years with at least one
year prior notice or earlier in the event of default.
In September 1997, the Company and Procter & Gamble amended the P&G
Agreement to include AXOKINE and related molecules, and agreed initially
to develop AXOKINE to treat obesity associated with Type II diabetes.
Procter & Gamble agreed to pay the Company as much as $15.0 million in
additional funding, partly subject to achieving certain milestones. $2.5
million was paid in September 1997.
Contract research and development revenue related to the P&G Agreement
was $1.0 million in the third quarter of 1997 and $2.8 million for the
first nine months of 1997. Revenue from research progress payments
related to the P&G Agreement was $2.5 million for the three month and
nine month periods ended September 30, 1997. At September 30, 1997, the
Procter & Gamble contract research revenue receivable was $1.0 million.
5. Impact of the Future Adoptions of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 will require the Company to replace the current
presentation of "primary" per share data with "basic" and "diluted" per
share data. Currently, outstanding common stock equivalents are
antidilutive and therefore management estimates that the future adoption
of SFAS 128 currently will not have a material impact on the Company's
per share data. SFAS 128 will be adopted by the Company for periods
ending after December 15, 1997.
The Financial Accounting Standards Board issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June
1997. Comprehensive Income represents the change in net assets of a
business enterprise as a result of nonowner transactions. Management
does not believe that the future adoption of SFAS 130 will have a
material effect on the Company's financial position and results of
operations. The Company will adopt SFAS 130 for the year ending December
31, 1998.
Also in June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that
a business enterprise report certain information about operating
segments, products and services, geographic areas of operation, and
major customers in complete sets of financial statements and in
condensed financial statements for interim periods. The Company is
required to adopt this standard for the year ending December 31, 1998
and is currently evaluating the impact of the standard.
7
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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 in the footnotes
to the Company's financial statements (including the useful life of assets, the
anticipated length of agreements, and other matters), and the future uses of
capital and financial needs of the Company. These statements are made by the
Company based on management's current beliefs and judgment. In evaluating such
statements, stockholders and investors should specifically consider the various
factors identified under the caption "Factors That May Affect Future Operating
Results" which could cause actual results to differ materially from those
indicated by such forward-looking statements.
In May 1997, the Company entered into a ten-year collaboration agreement
with The Procter & Gamble Company ("Procter & Gamble") to discover, develop, and
commercialize pharmaceutical products (the "P&G Agreement"), as well as a
securities purchase agreement and other related agreements. Procter & Gamble
agreed over the first five years of the various agreements to purchase up to
$60.0 million in Regeneron equity and provide up to $94.7 million in support of
Regeneron's research efforts related to the collaboration. In June 1997, Procter
& Gamble purchased 4.35 million shares of Regeneron Common Stock at $9.87 per
share for a total of $42.9 million and received five year warrants to purchase
an additional 1.45 million shares of Regeneron stock at $9.87 per share. This
purchase was in addition to a $10.0 million purchase of Regeneron Common Stock
at $12.50 per share that was completed in March 1997 pursuant to a December 1996
stock purchase agreement. The P&G Agreement expanded and superseded a
collaboration agreement that the companies entered into in December 1996 jointly
to develop drugs for skeletal muscle injury and atrophy.
In September 1997, the Company and Procter & Gamble expanded the P&G
Agreement to include AXOKINE and related molecules, and agreed to develop
AXOKINE to treat obesity associated with Type II diabetes. Procter & Gamble
agreed to pay the Company as much as $15.0 million in additional funding, partly
subject to achieving certain milestones. $2.5 million was paid in September
1997.
During the third quarter of 1997, Amgen-Regeneron Partners, the
partnership equally owned by Regeneron and Amgen Inc. ("Amgen"), continued to
develop Regeneron's brain-derived neurotrophic factor ("BDNF") and
neurotrophin-3 ("NT-3"). BDNF is being developed for potential use in treating
amyotrophic lateral sclerosis ("ALS," commonly known as Lou Gehrig's disease)
through two routes of administration: intrathecal (infusion into the spinal
fluid through an implanted pump) and subcutaneous (injection under the skin). A
Phase I intrathecal study being conducted by Amgen in ALS patients is
continuing. Subcutaneous studies to be conducted by Regeneron are also planned.
These subcutaneous studies will be based on retrospective analysis of the
Amgen-Regeneron Partners' Phase III trial of BDNF for ALS that was completed in
1996. That trial confirmed the safety and tolerability of BDNF seen in earlier
clinical trials but showed no statistically significant difference in breathing
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capacity or survival between treatment and placebo groups as measured by the
trial's predetermined primary endpoints. However, additional analysis of the
trial, conducted by Regeneron and outside independent consultants, indicated
that a retrospectively-defined subset of ALS patients in the trial may have
received a survival benefit from BDNF treatment. The planned BDNF subcutaneous
studies are intended to test whether this survival benefit can be confirmed
through appropriate prospective trials.
Amgen-Regeneron Partners' clinical development of NT-3 is currently
focused on enteric neuropathies. The enteric nervous system is a complex
collection of nerves that control the function of the gastrointestinal system,
including gastrointestinal motility. Amgen-Regeneron Partners has conducted
clinical studies of NT-3 in normal volunteers and patients suffering peripheral
neuropathies associated with diabetes. These studies indicated, among other
things, that NT-3 is safe and well tolerated at a variety of doses in both
normal and diseased patients and that, at certain doses, NT-3 has a side effect
of increased gastrointestinal motility. Based on these results and discussions
with gastrointestinal experts, Regeneron, on behalf of Amgen-Regeneron Partners,
is planning to design and conduct pilot Phase II clinical studies of NT-3 in
enteric neuropathies including constipation associated with the use of opiate
pain-killers, Parkinson's disease, and other conditions.
Amgen-Regeneron Partners is not planning to pursue additional trials of
BDNF and NT-3 in peripheral neuropathy at the present time, because initial
results were not sufficiently promising to justify the expenditures for the
inherently long and large development program required for these studies.
During the third quarter of 1997, the Company continued to develop and
manufacture BDNF for use by Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo
Pharmaceuticals") in Japan. Sumitomo Pharmaceuticals has informed the Company
that it plans to begin a Phase I clinical study in the first half of 1998 in
Japan to assess the safety and tolerability of BDNF delivered subcutaneously to
normal volunteers. Sumitomo Pharmaceuticals is initially developing BDNF to
treat ALS.
The results of the Company's and its collaborators' past activities in
connection with the research and development of BDNF and NT-3 do not necessarily
predict the results or success of future activities including, but not limited
to, any additional preclinical or clinical studies of BDNF or NT-3. The Company
cannot predict whether, when, or under what conditions BDNF or NT-3 will be
shown to be safe or effective to treat any human condition or be approved for
marketing by any regulatory agency. The delay or failure of current or future
studies to demonstrate the safety or efficacy of BDNF or NT-3 to treat human
conditions or to be approved for marketing would have a material adverse impact
on the Company.
While intrathecal delivery may be more successful in delivering BDNF to
certain motor neurons (the nerve cells that degenerate in ALS), it is not known
whether intrathecal delivery will prove any more successful in demonstrating
safety and utility in patients with ALS than the subcutaneous delivery used in
the Phase III clinical trial that failed to achieve its primary endpoints. The
planned clinical studies of BDNF delivered subcutaneously for the treatment of
ALS are also based on retrospective analyses of the Phase III clinical trial
that failed to meet its primary endpoints. If these or subsequent trials fail to
demonstrate that BDNF is safe and effective in the treatment of ALS, that
failure 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.
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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, while the
planned NT-3 clinical studies involve longer treatment. The treatment of various
constipating conditions may present additional clinical trial risks in light of
the complex and not wholly understood mechanisms of action that lead to the
conditions, the concurrent use of other drugs to treat the underlying illnesses
as well as the gastrointestinal condition, the potential difficulty of designing
and achieving significant clinical endpoints, and other factors. No assurance
can be given that these or any other studies of NT-3 will be successful or that
NT-3 will be commercialized.
To date, Regeneron has not received any revenues from the commercial
sale of products and may never receive such revenues. Before such revenues can
be realized, the Company (or its collaborators) must overcome a number of
hurdles which include successfully completing its research and development
efforts and obtaining regulatory approval from the United States Food and Drug
Administration ("FDA") or regulatory authorities in other countries. In
addition, the biotechnology and pharmaceutical industries are rapidly evolving
and highly competitive, and new developments may render the Company's products
and technologies noncompetitive and obsolete.
From inception on January 8, 1988 through September 30, 1997, Regeneron
has a cumulative loss of $169.0 million. In the absence of revenues from
commercial product sales or other sources (the amount, timing, nature, or source
of which can not be predicted), the Company's losses will continue as the
Company conducts its research and development activities. The Company's
activities may expand over time and may require additional resources, and the
Company's operating losses may be substantial over at least the next several
years. The Company's losses may fluctuate from quarter to quarter and will
depend, among other factors, on the timing of certain expenses and on the
progress of the Company's research and development efforts.
Results of Operations
Three months ended September 30, 1997 and 1996. The Company's total
revenue increased to $8.9 million for the third quarter of 1997 from $6.2
million for the same period in 1996. Contract research and development revenue
decreased to $3.3 million for the third quarter of 1997 from $4.3 million for
the same period in 1996, as the Company provided less research and manufacturing
support to the Amgen-Regeneron Partners and Sumitomo Pharmaceuticals
collaborations, partly offset by revenue received from Procter & Gamble in
connection with the May 1997 P&G Agreement. Revenue from research progress
payments in the third quarter of 1997 represents a $2.5 million payment received
from Procter & Gamble in connection with signing the September 1997 amendment to
the P&G Agreement. Investment income in the third quarter of 1997 increased to
$1.8 million from $1.4 million for the same period in 1996, due primarily to
higher levels of interest-bearing investments resulting from the proceeds
received as a result of the private placement of equity securities with Procter
& Gamble in 1996 and 1997. Contract manufacturing revenue related to the
long-term manufacturing agreement (the "Merck Agreement") with Merck & Co., Inc.
("Merck") for the third quarters of 1997 and 1996 totaled $1.3 million and $0.6
million, respectively. This increase was the result of increased activity on the
part of the Company in preparation of the Company's manufacturing facility in
Rensselaer for the production of a product for Merck.
The Company's total operating expenses decreased to $10.8 million in the
third quarter of 1997 from $15.1 million for the same period in 1996. Research
and
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development expenses declined to $6.8 million in the third quarter of 1997
from $7.7 million for the same period in 1996 as the cost of producing BDNF for
clinical use by Sumitomo declined in 1997. Loss in Amgen-Regeneron Partners
decreased to $0.7 million in the third quarter of 1997 from $4.1 million for the
same period in 1996, as the Partnership completed the Phase III clinical trial
of BDNF in 1996. Research and development expenses (including Loss in
Amgen-Regeneron Partners) were approximately 69% of total operating expenses in
the third quarter of 1997, compared to 78% for the same period in 1996.
General and administrative expenses were $1.4 million in the third
quarters of both 1997 and 1996. Depreciation and amortization expense decreased
to $1.0 million in the third quarter of 1997 from $1.5 million in the third
quarter of 1996 as certain laboratory equipment became fully depreciated and
capitalized patent costs were fully amortized in 1996. Contract manufacturing
expenses are direct expenses related to the long-term manufacturing agreement
with Merck. Such expenses, which are reimbursed by Merck, increased to $0.8
million in the third quarter of 1997 from $0.2 million in the same period of
1996, primarily from increased equipment validation costs. Interest expense was
$0.2 million for the third quarters of both 1997 and 1996.
The Company's net loss for the third quarter of 1997 was $1.9 million,
or $0.06 per share, compared to a net loss of $8.9 million, or $0.35 per share,
for the same period in 1996.
Nine months ended September 30, 1997 and 1996. The Company's total
revenue increased to $21.7 million for the nine months ended September 30, 1997
from $17.6 million for the same period in 1996. Contract research and
development revenue decreased to $11.9 million for the nine months ended
September 30, 1997 from $13.1 million for the same period in 1996, as the
Company provided less research and manufacturing support to the Amgen-Regeneron
Partners and Sumitomo Pharmaceuticals collaborations, partly offset by revenue
received from Procter & Gamble in connection with the May 1997 P&G Agreement.
Revenue from research progress payments in the first nine months of 1997
represents a $2.5 million payment received from Procter & Gamble in connection
with signing the September 1997 amendment to the P&G Agreement. Investment
income in the first nine months of 1997 increased to $4.4 million from $3.1
million for the same period in 1996, due primarily to higher levels of
interest-bearing investments resulting from the proceeds received as a result of
the private placement of equity securities with Amgen, Medtronic Inc., and
Procter & Gamble in 1996 and 1997. Contract manufacturing revenue related to the
Merck Agreement for the nine months ended September 30, 1997 and 1996 totaled
$2.9 million and $1.4 million, respectively. This increase was the result of
increased activity on the part of the Company in preparation of the Company's
manufacturing facility in Rensselaer for the production of a product for Merck.
The Company's total operating expenses decreased to $33.8 million in the
nine months ended September 30, 1997 from $41.8 million for the same period in
1996. Research and development expenses declined to $20.8 million in the first
nine months of 1997 from $21.4 million for the same period in 1996 as the cost
of producing BDNF for clinical use by Sumitomo declined in 1997. Loss in
Amgen-Regeneron Partners for the first nine months of 1997 decreased to $2.8
million from $10.3 million for the same period in 1996, as the Partnership
completed the Phase III clinical trial of BDNF in 1996. Research and development
expenses for the nine months ended September 30, 1997 and 1996 (including Loss
in Amgen-Regeneron Partners) represented approximately 70% and 76% of total
operating expenses, respectively.
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General and administrative expenses were $4.6 million and $4.5 million
in the first nine months of 1997 and 1996, respectively. Depreciation and
amortization expense decreased to $3.3 million in the first nine months of 1997
from $4.5 million in the first nine months of 1996, as certain laboratory
equipment became fully depreciated and capitalized patent costs were fully
amortized in 1996. Contract manufacturing expenses are direct expenses related
to the long-term manufacturing agreement with Merck. Such expenses, which are
reimbursed by Merck, increased to $1.7 million in the first nine months of 1997
from $0.4 million in the same period of 1996, primarily from increased equipment
validation costs. Interest expense was $0.6 million and $0.7 million in the
first nine months of 1997 and 1996, respectively.
The Company's net loss for the nine months ended September 30, 1997 was
$12.1 million, or $0.43 per share, compared to a net loss of $24.3 million, or
$1.01 per share, for the same period in 1996.
Liquidity and Capital Resources
Since its inception in 1988, the Company has financed its operations
primarily through private placements and public offerings of its equity
securities, revenue earned under the several agreements between the Company and
each of Amgen, Sumitomo Chemical Company, Ltd., Sumitomo Pharmaceuticals, Merck,
and Procter & Gamble and investment income.
In May 1997, the Company and Procter & Gamble entered into the P&G
Agreement. Procter & Gamble agreed over the first five years of the P&G
Agreement to purchase up to $60.0 million in Regeneron equity and provide up to
$94.7 million in support of Regeneron's research efforts related to the
collaboration. During the second five years of the P&G Agreement, the companies
will share all research costs equally. Clinical testing and commercialization
expenses for jointly developed products will be shared equally throughout the
ten years of the collaboration. The companies expect jointly to develop and
market worldwide any products resulting from the collaboration and share equally
in profits. Either company may terminate the P&G Agreement at the end of five
years with at least one year prior notice or earlier in the event of a default
(as defined in the P&G Agreement). In June 1997, Procter & Gamble completed the
purchase of 4.35 million shares of Regeneron Common Stock at $9.87 per share for
a total of $42.9 million and received five year warrants to purchase an
additional 1.45 million shares of Regeneron stock at $9.87 per share. This
purchase was in addition to a $10.0 million purchase of Regeneron Common Stock
at $12.50 per share that was completed in March 1997 pursuant to a December 1996
stock purchase agreement. In September 1997 the Company and Procter & Gamble
amended the P&G Agreement to include AXOKINE and related molecules, and to
develop AXOKINE to treat obesity associated with Type II diabetes. Procter &
Gamble agreed to pay the Company as much as $15.0 million in additional funding,
partly subject to achieving certain milestones. $2.5 million was paid in
September 1997.
In connection with the Company's agreement to collaborate with Sumitomo
Pharmaceuticals in the research and development of BDNF in Japan, Sumitomo
Pharmaceuticals has paid the Company $22.0 million through September 1997 and
has agreed to pay the Company an additional $3.0 million in 1998. Sumitomo
Pharmaceuticals has the option to cancel the 1998 payment; however, if such a
cancellation were to occur, Sumitomo Pharmaceutical's rights to develop and
commercialize BDNF in Japan would revert to the Company. In addition, the
Company
12
<PAGE>
is being reimbursed in connection with supplying Sumitomo Pharmaceuticals with
BDNF for preclinical use.
The Company's activities relating to BDNF and NT-3, as agreed upon by
Amgen and Regeneron, are being reimbursed by Amgen-Regeneron Partners, and the
Company recognizes such reimbursement as revenue. The funding of Amgen-Regeneron
Partners is through capital contributions from Amgen and Regeneron, who must
make equal payments in order to maintain equal ownership and equal sharing of
any profits or losses from the Partnership. The Company has made capital
contributions totaling approximately $44.6 million to Amgen-Regeneron Partners
from the Partnership's inception in June 1993 through September 30, 1997. The
Company expects that its capital contributions in 1997 will total $2.6 million
for the full year, of which $2.0 million has been funded to date. Capital
contributions in future years are anticipated to be greater than in 1997. These
contributions could increase or decrease, depending upon the cost of
Amgen-Regeneron Partners' conducting additional BDNF and NT-3 studies and the
outcomes of those and other ongoing studies.
From its inception in January 1988 through September 30, 1997, the
Company invested approximately $55.5 million in property, plant, and equipment.
This includes $16.8 million to acquire and renovate the Rensselaer facility,
$6.3 million of completed construction at the facility, and $7.3 million of
construction in progress related to the modification of the facility in
connection with the Merck Agreement. In connection with the purchase and
renovation of the Rensselaer facility, the Company obtained financing of $2.0
million from the New York State Urban Development Corporation, of which $1.8
million is outstanding. Under the terms of such financing, the Company is not
permitted to declare or pay dividends to its stockholders.
During 1996, the Company entered into a series of new leasing agreements
(the "New Lease Line") which provide up to $4.0 million to finance equipment
acquisitions and certain building improvements, as defined (collectively, the
"Equipment"). The Company may utilize the New Lease Line in increments
("leases"). Lease terms are for four years after which the Company is required
to purchase the Equipment at defined amounts. Certain of the leases may be
renewed for eight months at defined monthly payments after which the Company
will own the Equipment. At September 30, 1997, the Company had available
approximately $0.3 million of the New Lease Line.
The Company expects that expenses related to the filing, prosecution,
defense and enforcement of patent and other intellectual property claims will
continue to be 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 September 30, 1997, the Company had no established banking
arrangements through which it could obtain short-term financing or a line of
credit. Additional funds may be raised through, among other things, the issuance
of additional securities, other financing arrangements, and future collaboration
agreements. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable terms.
At September 30, 1997, the Company had $126.6 million in cash, cash
equivalents, and marketable securities. The Company expects to incur substantial
funding requirements for, among other things, its research and development
activities
13
<PAGE>
(including preclinical and clinical testing), validation of its
manufacturing facilities, and the acquisition of equipment, and may incur
substantial funding requirements for expenses related to the patent interference
proceedings and other patent matters. The Company expects to incur ongoing
funding requirements for capital contributions to Amgen-Regeneron Partners to
support the continued development and clinical trials of BDNF and NT-3. The
amount needed to fund operations will also depend on other factors, including
the status of competitive products, the success of the Company's research and
development programs, the status of patents and other intellectual property
rights developments, and the continuation, extent, and success of any
collaborative research programs (including those with Amgen and Procter &
Gamble). The Company expects to incur additional capital expenditures in
connection with the renovation and validation of its Rensselaer facility
pursuant to its manufacturing agreement with Merck. However, the Company also
expects that such expenditures will be substantially reimbursed by Merck,
subject to certain conditions. The Company believes that its existing capital
resources will enable it to meet operating needs for at least the next several
years. No assurance can be given that there will be no change in projected
revenues or expenses that would lead to the Company's capital being consumed at
a faster rate than currently expected. In order to continue to attempt to assure
Regeneron's financial condition and maximize its technological developments for
the long-term benefit of shareholders, the Company from time to time seeks
additional corporate partners and explores other opportunities to obtain
research and development funding. No assurance can be given that such partners
or funding will be available or, if available, will be on terms favorable or
acceptable to the Company.
Factors That May Affect Future Operating Results
Regeneron cautions stockholders and investors that the following
important factors, among others, in some cases have affected, and in the future
could affect, Regeneron's actual results and could cause Regeneron's actual
results to differ materially from those expressed in any forward-looking
statements made by, or on behalf of, Regeneron. The statements under this
caption are intended to serve as cautionary statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The following information is
not intended to limit in any way the characterization of other statements or
information under other captions as cautionary statements for such purpose:
o Delay, difficulty, or failure of the Company's preclinical drug research
and development programs to produce product candidates that are
scientifically or commercially appropriate for further development by
the Company or others.
o Delay, difficulty, or failure in obtaining regulatory approval
(including approval of its facilities for production) for the Company's
products (including vaccine intermediate for Merck), including delays or
difficulties in development because of insufficient proof of safety or
efficacy.
o 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 Cancellation or termination of material collaborative or licensing
agreements (including in particular, but not limited to, those with
Procter & Gamble and
14
<PAGE>
Amgen) and the resulting loss of research or other funding, could have a
material adverse effect on the Company and its operations. A change of
control of one or more of the Company's material collaborators or
licensees could also have a material adverse effect on the Company.
o Competitive or market factors may cause use of the Company's products to
be limited or otherwise fail to achieve broad acceptance.
o The ability to obtain, maintain, and prosecute intellectual property
rights, and the cost of acquiring in-process technology and other
intellectual property rights, either by license, collaboration, or
purchase of another entity.
o Difficulties or high costs of obtaining adequate financing to meet the
Company's obligations under its collaboration and licensing agreements
or to fund 50 percent of the cost of developing product candidates in
order to retain 50 percent of the commercialization rights.
o Amount and rate of growth in Regeneron's 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 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.
o Difficulties in obtaining key raw materials and supplies for the
manufacture of the Company's product candidates.
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as product-related or environmental, or
criminal); settlements and investigations; developments or assertions by
or against Regeneron relating to intellectual property rights and
licenses; the issuance and use of patents and proprietary technology by
Regeneron and its competitors, including the possible negative effect on
the Company's ability to develop, manufacture, and sell its products in
circumstances where it is unable to obtain licenses to patents which may
be required for such products.
o Underutilization of the Company's existing or new manufacturing
facilities or of any facility expansions, resulting in inefficiencies
and higher costs; start-up costs, inefficiencies, delays, and increased
depreciation costs in connection with the start of production in new
plants and expansions.
15
<PAGE>
o Health care reform, including reductions or changes in reimbursement
available for prescription medications or other reforms.
o The ability to attract and retain key personnel. As Regeneron's
scientific efforts lead to potentially promising new directions, both
outside of recombinant protein therapies (into orally active, small
molecule pharmaceuticals) and outside of treatments for neurological and
neurodegenerative conditions (into, for example, potential programs in
cancer, inflammation, muscle disease, bone growth disorders,
angiogenesis, and hemopoiesis), the Company will require additional
internal expertise or external collaborations in areas in which it
currently does not have substantial resources and personnel.
Impact of the Adoption of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 will require the Company to replace the current presentation of "primary"
per share data with "basic" and "diluted" per share data. Currently, outstanding
common stock equivalents are antidilutive and therefore management estimates
that the future adoption of SFAS 128 currently will not have a material impact
on the Company's per share data. SFAS 128 will be adopted by the Company for
periods ending after December 15, 1997.
The Financial Accounting Standards Board issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June 1997.
Comprehensive Income represents the change in net assets of a business
enterprise as a result of nonowner transactions. Management does not believe
that the future adoption of SFAS 130 will have a material effect on the
Company's financial position and results of operations. The Company will adopt
SFAS 130 for the year ending December 31, 1998.
Also in June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires that a
business enterprise report certain information about operating segments,
products and services, geographic areas of operation, and major customers in
complete sets of financial statements and in condensed financial statements for
interim periods. The Company is required to adopt this standard for the year
ending December 31, 1998 and is currently evaluating the impact of the standard.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
* 10.1 First Amendment to the Multi-Project Collaboration
Agreement dated May 13, 1997 between the Company and The
Procter & Gamble Company, dated as of September 29,
1997.
11 Statement of computation of net loss per share for the
three months and nine months ended September 30, 1997
and 1996.
27 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the registrant during the
quarter ended September 30, 1997.
* Portions of this document have been omitted and filed
separately with the Commission pursuant to requests for
confidential treatment pursuant to Rule 24b-2.
17
<PAGE>
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 14, 1997 By: /s/ Murray A. Goldberg
----------------- ---------------------------------
Murray A. Goldberg
Vice President, Finance & Administration,
Chief Financial Officer, and Treasurer
18
<PAGE>
EXHIBIT 10.1
First Amendment to the Multi-Project Collaboration Agreement
dated May 13, 1997
This Amendment, dated September 29, 1997, is by and between the Procter
& Gamble Company and its Affiliates ("P&G") and Regeneron Pharmaceuticals, Inc.,
and its Affiliates ("Regeneron").
The Parties entered into the Multi-Project Collaboration Agreement on
May 13, 1997, ("Collaboration Agreement"). AXOKINE (as defined herein) and CNTF
(as defined herein) were excluded from the scope of the Collaboration Agreement
as Regeneron Excluded Technology.
The Parties now desire to include AXOKINE and CNTF in the Collaboration
Agreement, to the extent set forth in this Amendment.
Defined terms shall be the same as the Collaboration Agreement, except
as specifically defined herein.
Accordingly, the Parties agree to amend the Collaboration Agreement as
follows:
Article I - Definitions
The following Sections shall be added:
1.50 "AXOKINE" means any CNTF (as defined herein) protein molecule
having one or more amino acid substitutions, deletions or additions, including,
but not limited to AxQ (as defined herein), unless designated otherwise by the
OC.
1.51 "CNTF" means ciliary neurotrophic factor, including but not limited
to rat, rabbit, or human CNTF. The full 200 amino acid sequence of human CNTF is
set forth in Attachment 1.51.
<PAGE>
1.52 "AxQ" means any AXOKINE protein molecule claimed in U.S. Patent No.
5,349,056 and any continuations, continuations-in-parts, divisions, extensions
or foreign counterparts thereof.
1.53 "Proof of Concept Trial" means the first clinical trial in humans
that is conducted for the purpose of determining the safety and efficacy of
AXOKINE for weight reduction and glucose control in Type II diabetics (or as
otherwise modified by the OC) and that the OC specifically designates as such.
Attachment 1.13 (a) shall be modified as attached.
Article III - Research and Development
The following sections shall be added or modified (as applicable and
shown by redlined text):
3.3 (b) If the OC agrees that the Research Compound meets the Success
Criteria, then the Compound shall be designated a Development Compound.
Within *** (***) days after the designation of a Development Compound by
the OC, the OC shall approve a Product Plan for such Development
Compound. The Product Plan shall include general goals of the Parties
relating to the development and marketing of each Development Compound
and the timing, nature, and priority of resources to be applied and will
detail tasks and goals, personnel allocation, outside services and
costs, Success Criteria, Allowable Product Expenses, budgets, and such
other matters deemed necessary to implement the Product Plan. The
Product Plan will include a spending forecast through the end of
clinical trials for the Development Compound and a budget for the next
Fiscal Year that will be updated by the OC at least annually on a Fiscal
Year basis. Procter & Gamble is responsible for taking the lead in
proposing such budget with significant and timely input from Regeneron.
The timing and calculations for the typical Product Plan budget is
contained in Attachment 3.1 as an example. The OC will have complete
authority to adopt all Product Plans. Notwithstanding the foregoing, the
OC shall approve the Product Plan for AXOKINE within *** (***) days of
signing this Amendment.
2
<PAGE>
3.3 (c) The Parties hereby designate AXOKINE as a Development Compound.
3.4 (a) Allowable Product Expenses. Allowable Product Expenses for
Development Compounds in the Muscle Field shall be shared equally.
Allowable Product Expenses to support an Investigational New Drug
application (IND) pursuant to 21 C.F.R. 312.1 et seq. for Development
Compounds other than those Development Compounds in the Muscle Field in
Fiscal Years 1 through 5 shall be paid by Procter & Gamble; all other
Allowable Product Expenses for such Development Compounds shall be
shared equally. Notwithstanding the foregoing, Procter & Gamble shall
pay for the Proof of Concept Trial. In addition, Procter & Gamble shall
pay all other Allowable Product Expenses for AXOKINE until Regeneron's
receipt of all funding described in Section 3.9. All other Allowable
Product Expenses for AXOKINE shall be shared equally. Allowable Product
Expenses shall be payable quarterly in arrears, based on justification
of Allowable Product Expenses incurred over the quarter. Regeneron and
Procter & Gamble shall submit reports to each other within thirty (30)
days of the end of each Fiscal Quarter detailing the number of FTEs
performing work pursuant to the Product Plan, Third Party costs and
other costs incurred in research, development and marketing activities,
as well as a detailed description of such work. Each Party shall review
and approve the other Party's reports within fifteen (15) days
thereafter, subject to the OC's approval, if necessary. Procter & Gamble
will then calculate the amount that shall be paid by either Party to the
other Party to equalize funding and so advise Regeneron within seven (7)
days. The Party to whom funds are owed will issue an invoice for the
corresponding amount, payable within thirty (30) days. Costs incurred
and paid pursuant to this Section are subject to audit pursuant to
Section 6.5.
3.7. J-V Formation. Commencing at the end of the *** (***) Fiscal Year,
the Parties shall negotiate in good faith an agreement by the end of the
*** (***) Fiscal Year that contains all of the terms and conditions of
this Agreement, along with other terms and conditions as the Parties may
agree to develop and/or market Compounds, including without limitation
reasonable non-compete provisions ("J-V Agreement"). In the event that
the Parties cannot finalize such J-V Agreement prior to the end of the
*** (*** ) Fiscal Year the Parties may commence dispute resolution
pursuant to Section 2.5 or the Parties may terminate this Agreement
pursuant to Section 10.2, elect to continue to perform research,
3
<PAGE>
development and marketing activities pursuant to this Agreement until
its termination, or negotiate such other arrangement as the Parties may
agree. Notwithstanding the foregoing, the Parties shall use Commercially
Reasonable Efforts to execute a development agreement with respect to
AXOKINE, with terms consistent with this Agreement, such negotiations
commencing no later than *** ("AXOKINE Agreement"). The Parties shall
endeavor to draft such AXOKINE Agreement in a form such that it shall be
designated the J-V Agreement as described above.
3.9 Additional Funding - P&G shall pay Regeneron U.S. $2.5 million
promptly upon the execution of this Amendment. P&G shall pay Regeneron
U.S. *** million promptly upon the OC's agreement to the ***. P&G shall
pay Regeneron U.S. *** million promptly upon the *** . P&G shall pay
Regeneron *** million promptly upon *** after its *** the Proof of
Concept Trial results.
Article V - License Grants
The following Sections shall be modified (as shown by redlined text):
5.2. License Grants during Research Term.
(b) Regeneron hereby grants Procter & Gamble a Sole License
under Regeneron Patents and Regeneron Know-how to make, have made, use,
import, and offer for sale and sell Regeneron Technology which (i) is
conceived or reduced to practice by Regeneron before the Term, (ii) is
acquired by Regeneron from a Third Party with the right to sublicense
prior to or during the Research Term, subject to Section 2.8, or (iii)
had been previously defined by the Parties as Regeneron Excluded
Technology, b had subsequently been removed from Regeneron Excluded
Technology as agreed in writing by both Parties. The license shall be
royalty free for uses which have actual or potential utility for the
identification, research or commercialization of products for the
prevention, diagnosis, or treatment of diseases or disorders in humans
or animals. For all other uses a reasonable royalty will be negotiated.
5.4 Rights on Termination if Milestones are Met. In the event a
Party terminates the Agreement pursuant to Section 10.2, and if ***
Research Compounds (excluding AXOKINE) have been determined by Procter &
Gamble
4
<PAGE>
or the OC to meet their Success Criteria pursuant to a Research Project
Plan by the end of Fiscal Year 5, then:
(a) if Procter & Gamble is the terminating party, then Procter &
Gamble shall grant Regeneron an exclusive, royalty-free license in the
Territory under P&G Patents and P&G Know-how to make, have made, use,
import, offer for sale, and sell Lead Compounds and Validated Targets,
and a non-exclusive, royalty-free license in the Territory under P&G
Patents and P&G Know-how to make, have made, use, import, offer for
sale, and sell other Procter & Gamble Technology; or
(b) if Regeneron is the terminating party, then Regeneron shall
grant Procter & Gamble an exclusive, royalty-free license in the
Territory under Regeneron Patents and Regeneron Know-how to make, have
made, use, import, offer for sale, and sell Lead Compounds and Validated
Targets, and a non-exclusive, royalty-free license in the Territory
under Regeneron Patents and Regeneron Know-how to make, have made, use,
import, offer for sale, and sell other Regeneron Technology.
5.5. Rights in Technology upon Termination Pursuant to Section
10.3(b).
In the event that Procter & Gamble terminates the Agreement pursuant to
Section 10.3(b) then the Parties shall grant the following licenses:
(a) If *** Research Compounds (excluding AXOKINE) have been
determined by Procter & Gamble or the OC to have met their Success
Criteria pursuant to a Research Project Plan at the time of termination,
then Procter & Gamble shall grant Regeneron an exclusive, royalty-free
license in the Territory under P&G Patents and P&G Know-how to make,
have made, use, import, offer for sale, and sell Lead Compounds and
Validated Targets, and a non-exclusive, royalty-free license in the
Territory unde Patents and P&G Know-how to make, have made, use, import,
offer for sale, and sell other Procter & Gamble Technology; or.
(b) If Procter & Gamble or the OC have not determined that ***
Compounds (excluding AXOKINE) have met their Success Criteria pursuant
to a Research Project Plan at the time of termination, then (i) Procter
& Gamble shall grant Regeneron a non-exclusive, royalty free license in
the Territory under P&G Patents and Know-how to Lead Compounds and
Procter & Gamble Targets conceived and reduced to practice by Procter &
Gamble, or acquired by Procter & Gamble from a Third Party with the
right sublicense, during the Term to make,
5
<PAGE>
have made, use, import and offer for sale, and sell Lead Compounds and
Procter & Gamble Targets; and (ii) Regeneron shall grant Procter &
Gamble a non-exclusive license, royalty-free in the Territory under
Regeneron Patents and Regeneron Know-how to make, have made, use,
import, and offer for sale and sell Regeneron Technology which is
conceived and reduced to practice by Regeneron, or acquired by Regeneron
from a Third Party with the right to sublicense during the Term.
Article X - Term Termination, Change of Control
The following Section shall be modified accordingly (as shown by
redlined text):
10.2. Termination. Either Party may terminate the Research Term, and may
terminate the Agreement, provided there are no remaining royalty
obligations, at the end of Fiscal Year 5. Such termination may be made
following notice to the other Party delivered prior to the end of Fiscal
Year 4. Rights in technology shall be as set forth in Section 5.3.
However, if *** Research Compounds (excluding AXOKINE) have been
determined by Procter & Gamble or the OC to meet their Success Criteria
pursuant to a Research Project Plan by the end of Fiscal Year 5, then
the terminating Party shall be granted rights pursuant to Section 5.4,
and any license that had been granted to the terminating Party pursuant
to Sections 5.6 or 5.7 shall be terminated.
10.3. Default.
(a) General Default. Failure by either Party (the "Defaulting
Party") to comply with any of the material obligations contained in this
Agreement, the Securities Purchase Agreement, the Registration Rights
Agreement, the Warrants Purchase Agreement or any J-V Agreement shall
entitle the other Party (the "Nondefaulting Party") to give to the
Defaulting Party notice specifying the nature of the default and
requiring it to cure such default. If the Defaulting Party disagrees
with the existence, extent or nature of the default, the Parties shall
use good faith efforts to resolve the dispute within thirty (30) days.
If (i) such default is not cured with such thirty (30) day period after
the receipt of such notice or (ii) the Parties have not otherwise
resolved the dispute during such thirty (30) day period, the
Nondefaulting Party shall be entitled to initiate arbitration under
Section 11.4 and at its sole discretion terminate this Agreement. In the
event of
6
<PAGE>
such termination, and in addition to any other remedies available to the
Nondefaulting Party, the Defaulting Party shall be deemed an Opting Out
Party with respect to any compounds pursuant to Section 5.7.
(b) Special Default. Regeneron shall promptly notify Procter &
Gamble if any of its Key Executives leaves, or makes a decision to leave
the employment of Regeneron prior to the beginning of Fiscal Year 5. The
"Regeneron Key Executives" are listed in Attachment 10.3(b). Procter &
Gamble may, after the end of a *** waiting period following such
notification, provide Regeneron with notice of termination, with the
termination to be effective *** after such notice of termination of the
Agreement. Rights in technology shall be as set forth in Section 5.5.
Notwithstanding the foregoing, this Section 10.3(b) shall not be
operative with respect to the Parties' rights and obligations under this
Agreement for AXOKINE.
The remaining Collaboration Agreement shall remain unchanged.
Accepted and agreed:
REGENERON PHARMACEUTICALS, INC.
_____________________________________
By Leonard S. Schleifer, M.D., Ph.D.
President and Chief Executive Officer
Date ________
THE PROCTER & GAMBLE COMPANY Form ____________
Finance ____________
_____________________________________ Execution ____________
By Gordon S. Hassing, Ph.D.
Vice President R&D, Pharmaceuticals, Health Care Products Worldwide
Date ________
7
<PAGE>
Attachment 1.13(a) Regeneron Excluded Technology
BDNF, NT-3, small molecule agonists or antagonists of neurotrophic factors as
defined in the Field in the Glaxo/Regeneron collaboration, small molecule
agonists and antagonists of cytokines and growth factors as defined in the Field
in the Pharmacopeia/Regeneron collaboration Agreement, and protein-based
cytokine agonists and antagonist of the compounds in the definition of the Field
in the Pharmacopeia/Regeneron collaboration, CNTF and AXOKINE to the extent set
forth in the Medtronic / Regeneron Collaborative Agreement (regardless of
whether such agreement is terminated), and CNTF and AXOKINE for direct
intraocular administration for the treatment of diseases of the eye.
8
<PAGE>
Attachment 9.1(b)
Third Party Agreements Relating to Excluded Technology
Technology Development Agreement dated as of March 20, 1989, between Sumitomo
Chemical Company, Limited and Regeneron Pharmaceuticals, Inc.
Collaboration Agreement dated as of August 31, 1990, between Amgen Inc., and
Regeneron Pharmaceuticals, Inc.
Collaboration Agreement dated as of July 22, 1993, between Glaxo Group Limited
and Regeneron Pharmaceuticals, Inc.
Research Development Agreement dated as of June 2, 1994, between Sumitomo
Pharmaceuticals Company, Ltd., and Regeneron Pharmaceuticals, Inc.
Collaboration Agreement dated as of October 9, 1996, between Pharmacopeia, Inc.,
and Regeneron Pharmaceuticals, Inc.
Collaborative Development Agreement dated as of June 27, 1996, between
Medtronic, Inc., and Regeneron Pharmaceuticals, Inc.
9
<PAGE>
Exhibit 11
REGENERON PHARMACEUTICALS, INC.
STATEMENT OF COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary:
Net loss ($1,907,118) ($8,888,713) ($12,105,644) ($24,280,844)
============ ============ ============ ============
Per share data
Weighted average number of Class A and
Common shares outstanding during the period 30,894,514 25,605,159 27,962,070 24,066,180
============ ============ ============ ============
Net loss per share ($0.06) ($0.35) ($0.43) ($1.01)
============ ============ ============ ============
Fully diluted:
Net loss ($1,907,118) ($8,888,713) ($12,105,644) ($24,280,844)
============ ============ ============ ============
Per share data
Weighted average number of Class A and
Common shares outstanding during the period 30,894,514 25,605,159 27,962,070 24,066,180
Shares issuable upon exercise of options
and warrants 4,186,401 3,007,223 3,106,160 3,058,586
Shares assumed to be repurchased under
the treasury stock method (2,776,389) (1,100,029) (1,807,363) (1,100,677)
------------ ------------ ------------ ------------
32,304,526 27,512,353 29,260,867 26,024,089
============ ============ ============ ============
Net loss per share ($0.06) ($0.32) ($0.41) ($0.93)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 40,288,090
<SECURITIES> 86,359,947
<RECEIVABLES> 4,050,617
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,077,565
<PP&E> 55,422,250
<DEPRECIATION> 22,539,838
<TOTAL-ASSETS> 164,738,473
<CURRENT-LIABILITIES> 7,760,566
<BONDS> 0
0
0
<COMMON> 30,914
<OTHER-SE> 138,208,488
<TOTAL-LIABILITY-AND-EQUITY> 164,738,473
<SALES> 0
<TOTAL-REVENUES> 21,703,297
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 33,229,310
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579,631
<INCOME-PRETAX> (12,105,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,105,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,105,644)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.41)
</TABLE>
