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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
/_/ 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)
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - par value $.001 per share
(Title of Class)
Preferred Share Purchase Rights expiring October 18, 2006
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. /_/
At March 5, 1999, the aggregate market value of voting stock held by
non-affiliates of the Registrant totaled approximately $213,833,411 based on the
last sale price as reported by The Nasdaq Stock Market.
Indicate the number of shares outstanding of each of Registrant's classes of
common stock as of March 5, 1999:
Class of Common Stock Number of Shares
--------------------- ----------------
Class A Stock, $.001 par value 3,630,786
Common Stock, $.001 par value 27,669,761
DOCUMENTS INCORPORATED BY REFERENCE:
The Registrant's definitive proxy statement to be filed in connection
with solicitation of proxies for its Annual Meeting of Shareholders to be held
on June 11, 1999, is incorporated by reference into Part III of this Form 10-K.
Exhibit index is located on pages 32 to 33 of this filing.
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PART I
Item 1. Business
General
Regeneron Pharmaceuticals, Inc. ("Regeneron" or the "Company") is a
leader in the application of molecular and cell biology to discover novel
potential therapeutics for human medical conditions and is seeking to develop
and commercialize these discoveries. The Company is applying its technological
expertise in protein growth factors, their receptors, and their mechanisms of
action to the discovery and development of protein-based drugs and orally
active, small molecule drugs.
o AXOKINE(Registered) second generation ciliary neurotrophic
factor for the treatment of obesity and diseases related to
obesity such as Type II diabetes,
o Brain-derived neurotrophic factor ("BDNF") for the treatment
of amyotrophic lateral sclerosis ("ALS," commonly known as Lou
Gehrig's disease),
o Neurotrophin-3 ("NT-3") for the treatment of constipating
conditions,
o Angiogenesis, including stimulating blood vessel growth in
settings where more blood flow is desired and blocking blood
vessel growth in abnormal conditions such as cancer. The
angiogenesis program is based on Regeneron's discovery of
Angiopoietins, a new family of ligands (and their receptors,
called the TIE family of receptors) that appears to regulate
blood vessel formation,
o Protein antagonists for cytokines such as interleukin-1
("IL-1"), interleukin-4 ("IL-4") and interleukin-6 ("IL-6") as
potential treatment of inflammatory diseases, allergic
disorders, and cancer,
o AXOKINE for the treatment of retinal diseases such as
retinitis pigmentosa,
o Muscle atrophy, using a variety of approaches to identify and
validate drug targets, and
o Research programs to discover orally active, small
molecule-based drugs, some of which may mimic or antagonize
protein- or receptor-based drug candidates that the Company is
developing.
The Company conducts many of its programs in collaboration with The
Procter & Gamble Company ("Procter & Gamble"). In May 1997, the Company entered
into a ten-year collaboration agreement with Procter & Gamble to discover,
develop, and commercialize pharmaceutical products (the "P&G Agreement"). The
P&G Agreement expanded and superseded a collaboration agreement that the Company
and Procter & Gamble Pharmaceuticals, Inc. entered into in December 1996 jointly
to develop drugs for skeletal muscle injury and atrophy. Procter & Gamble agreed
over the first five years of the various agreements to purchase up to $60.0
million in Regeneron equity, of which, as of March 15, 1999, Procter & Gamble
had purchased $42.9 million (in addition to a $10.0 million purchase of
Regeneron Common Stock in March 1997 pursuant to the December 1996 agreement).
In addition, Procter & Gamble agreed over the first five years of the various
agreements to provide up to $94.7 million in support of Regeneron's research
efforts related to the collaboration, of which the Company had received $7.7
million as of March 15, 1999.
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In September 1997, the Company and Procter & Gamble expanded the P&G
Agreement to include AXOKINE and related molecules (delivered systemically), and
agreed to develop AXOKINE initially to treat obesity associated with Type II
diabetes. Procter & Gamble agreed to reimburse the Company for certain research
and development costs and pay the Company as much as $15.0 million in additional
funding, partly subject to achieving certain milestones related to AXOKINE, of
which $10.0 million has been paid. The Company and Procter & Gamble filed an
Investigational New Drug application ("IND") with the United States Food and
Drug Administration ("FDA") in the first quarter of 1999 and plan to commence a
Phase I clinical study during the first half of 1999 to determine the safety of
AXOKINE administered subcutaneously for a short duration to mildly to moderately
obese healthy volunteers.
The Company is independently developing AXOKINE for use in treating
retinitis pigmentosa.
The Company and Amgen Inc. ("Amgen") are conducting clinical trials of
BDNF and NT-3 on behalf of Amgen-Regeneron Partners, a general partnership owned
equally by Regeneron and Amgen. BDNF is currently being developed by
Amgen-Regeneron Partners for potential use in treating ALS through two routes of
administration: intrathecal (infusion into the spinal fluid through an implanted
pump) and subcutaneous (injection under the skin). In the fourth quarter of
1998, Amgen, on behalf of the partnership, began an intrathecal study in more
than 200 patients with ALS. Subcutaneous studies conducted by Regeneron on
behalf of the partnership began in the first quarter of 1998. The subcutaneous
studies are based on an analysis of the Amgen-Regeneron Partners Phase III trial
of BDNF for ALS that was completed in 1996. That trial failed to achieve its
predetermined end points, but subsequent analyses indicated that a
retrospectively-defined subset of ALS patients in the trial may have received a
survival benefit from BDNF treatment. Based on the analyses and the 1998
follow-up studies, the Company, on behalf of Amgen-Regeneron Partners, plans to
begin a double-blind, placebo-controlled, multi-center study of more than 200
patients in 1999 to determine the safety and efficacy of BDNF delivered
subcutaneously to ALS patients. In addition, Sumitomo Pharmaceuticals Co., Ltd.
("Sumitomo Pharmaceuticals"), the Company's licensee in the development of BDNF
in Japan, commenced a Phase I safety assessment of BDNF delivered subcutaneously
to normal volunteers in 1998. Sumitomo Pharmaceuticals is initially developing
BDNF to treat ALS.
Amgen-Regeneron Partners' clinical development of NT-3 is currently
focused on constipating conditions. 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 appears to be safe and well tolerated at a variety of doses in
patients and that, at certain doses, NT-3 appears to cause increased
gastrointestinal motility. In 1998, Regeneron, on behalf of Amgen-Regeneron
Partners, completed a small clinical study that included healthy volunteers and
patients suffering from severe idiopathic constipation and began additional
small studies in patients who suffer from constipation associated with
conditions such as spinal cord injury and Parkinson's disease.
Additional information about the Company's agreements with Procter &
Gamble, Amgen, and Sumitomo Pharmaceuticals (among others) is provided below in
the section titled "Research Collaboration and Licensing Agreements."
The Company has not received revenue from the sale of any commercial
product and has incurred losses in each year since inception of operations in
1988. As of December 31, 1998, the Company had an accumulated deficit of $177.2
million.
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To date, the Company has received revenues from its licensees and collaborators
for research and development efforts, from Merck & Co., Inc. ("Merck") for
contract manufacturing, and from investment income. There can be no assurance
that such revenue will continue or to what extent, if any, the Company's
expenses incurred in connection with its work on BDNF or NT-3 or other programs
will be reimbursed by its licensees or collaborators. 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. There can be no
assurance that the Company will ever have an approved product or achieve
significant revenues or profitable operations. To date, Regeneron has not
received any revenues from the commercial sale of products and does not expect
to receive any such revenues for at least several years.
The Company has incurred negative cash flow from operations in each
year since its inception. The Company expects that the funding requirements for
its activities will remain substantial and could increase significantly if,
among other things, its development or clinical trial programs are successful or
its research is expanded. In addition, the Company is required to provide
capital from time to time to fund and remain equal partners with Amgen in
Amgen-Regeneron Partners. The Company's aggregate capital contribution to
Amgen-Regeneron Partners from the partnership's inception in June 1993 through
December 31, 1998 was $50.4 million. The Company expects that its capital
contributions in 1999 will total at least $2.0 million. These contributions
could increase or decrease, depending upon (among other things) the nature and
cost of ongoing and additional BDNF and NT-3 studies that Amgen-Regeneron
Partners may conduct and the outcomes of those studies. In addition, the amount
needed to fund the Company's operations will also depend on other factors,
including the potential future need to expand the Company's professional and
support staff and facilities to support new areas of research and development,
competitive products, the success of the Company's research and development
programs, the status of patent and other intellectual property right
developments, and the extent and success of any collaborative research
arrangements. The Company believes that its existing capital resources will
enable it to meet operating needs for at least 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 significantly before such
time.
Most drug research and development programs fail. A small minority of
all research and development programs ultimately result in commercially
successful drugs; it is not possible to predict whether any program will succeed
until it actually produces a drug that is commercially marketed for a
significant period of time. The Company is attempting to develop drugs for human
therapeutic use and no assurance can be made that any of the Company's research
and development activities will be successful or that any of the Company's
current or future potential product candidates will be commercialized.
The Company's Programs
AXOKINE. AXOKINE is Regeneron's patented second generation ciliary
neurotrophic factor ("CNTF"). In an earlier clinical program, CNTF was evaluated
as a potential treatment for patients with ALS. It was discovered that reduced
appetite and
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weight loss were among the prominent adverse events in these patients. (Other
adverse events included cough, nausea, and development of neutralizing
antibodies.) Later preclinical studies with AXOKINE in animal models of obesity
confirmed the ability of AXOKINE to induce substantial weight loss. AXOKINE is
effective in all obesity models studied to date, which include diet induced
obesity and genetic obesity rodent models (ob/ob and db/db mice), and causes
marked weight loss in lean animals.
Regeneron, in collaboration with Procter & Gamble, plans to evaluate
AXOKINE in obese patients with non-insulin dependent diabetes mellitus ("NIDDM,"
also known as adult onset diabetes or Type II diabetes) and in patients with
uncomplicated obesity. These evaluations will be designed to test whether
AXOKINE treatment is safe and, at the doses given, will cause weight loss and
improve control of blood glucose in Type II diabetes patients and cause obese
patients to lose weight.
Obesity is a major health problem in all developed countries. The
prevalence of obesity in the United States has increased substantially during
the past decade; according to the 1997 National Task Force on the Prevention and
Treatment of Obesity, one in three American adults is now considered overweight.
A 1998 National Institutes of Health report confirmed that obesity significantly
increases a number of health risks, including Type II diabetes. Type II diabetes
is estimated to affect more than 15 million people in the United States, with 80
to 90 percent of these people having obesity as a contributing factor to their
diabetes. Obesity-related conditions such as stroke and myocardial infarct are
estimated to contribute to 300,000 deaths yearly, ranking second only to smoking
as a cause of preventable death. Expenses and loss of income caused by obesity
have been estimated to reach $68 billion annually. Current treatment of obesity
consists of diet, exercise and other life-style changes, and a limited number of
drugs. The fact that the population overall is rapidly becoming more obese
testifies to the fact that treatment of obesity is difficult and characterized
by very high recidivism.
AXOKINE has similarities to and important differences from leptin, a
protein that is secreted by fat cells which several companies are currently
evaluating in clinical trials in obese people. AXOKINE and leptin use identical
intracellular signaling pathways but signal through different receptors; they
interact with the CNTF and the leptin receptor, respectively. AXOKINE causes
weight loss comparable to leptin in ob/ob mice; ob/ob mice are genetically obese
mice which lack leptin but have the intact leptin receptor. Leptin in
pharmacological doses does not induce weight loss in mice made obese with high
fat/high calorie diet. In contrast, AXOKINE in this model produces a 30 percent
weight loss in three weeks without causing obvious signs of toxicity.
The majority of obese subjects have intact leptin receptors and most
have increased serum leptin levels. Hence, obesity does not appear to be a
leptin deficient state but, rather, a condition of leptin resistance. Based on
the animal studies, AXOKINE is anticipated to be pharmacologically active in
patients with obesity, despite their elevated leptin levels.
The Company is also independently developing AXOKINE for use in
treating retinitis pigmentosa. In July 1998, the Company and Medtronic, Inc.
("Medtronic") terminated their 1996 collaborative development agreement to
conduct an exploratory research program using Medtronic delivery systems to
deliver AXOKINE to the central nervous system, initially as a potential
treatment for Huntington's disease, due to obstacles in formulation and
delivery.
BDNF. Brain-derived neurotrophic factor is a naturally occurring human
protein. During 1995 and 1996, Amgen conducted, on behalf of Amgen-Regeneron
Partners, a
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Phase III BDNF clinical trial to treat ALS. This study involved 1,135 patients,
with each patient scheduled to receive subcutaneous treatment for nine months.
ALS is a disease that attacks motor neurons, those nerve cells that cause
muscles to contract. Degeneration of these neurons causes muscle weakness,
leading to death due to respiratory insufficiency. ALS afflicts adults primarily
between the ages of 40 and 70 years old; average survival is three to five years
following diagnosis. It is estimated that approximately 25,000 people in the
United States have ALS. In January 1997, the Company and Amgen announced that
the Phase III study failed to demonstrate clinical efficacy. As described
earlier, additional clinical development of BDNF for ALS was suggested based on,
among other things, retrospective analyses of the data from that study.
BDNF is being tested in humans by Amgen-Regeneron Partners for
potential use in treating ALS through two routes of administration: intrathecal
(infusion into the spinal fluid through an implanted pump) and subcutaneous
(injection under the skin).
NT-3. Neurotrophin-3 is a naturally occurring human protein.
Amgen-Regeneron Partners' clinical development of NT-3 is currently focused on
constipating conditions. This program is described earlier. Amgen and Regeneron
are developing NT-3 in the United States under a license from Takeda Chemical
Industries, Ltd. ("Takeda").
Angiogenesis. A plentiful blood supply is required to nourish every
tissue and organ of the body. Diseases such as diabetes and atherosclerosis
wreak their havoc, in part, by damaging the blood vessels (arteries, veins, and
capillaries). The decreased blood flow that results from such diseases can
result in non-healing skin ulcers and gangrene, painful limbs that cannot
tolerate exercise, loss of vision, and heart attacks. Building new blood vessels
is a process known as angiogenesis. Angiogenesis is required for normal growth
and development and may be limiting in tissue repair or ischemic states. Thus,
new blood vessels are required for tissue repair, and enhancement of blood
vessel growth may aid in improving circulation to ischemic limbs and heart
tissue suffering from atherosclerotic disease, in healing of skin ulcers or
other chronic wounds, and in establishing tissue grafts. Angiogenesis is also
aberrantly involved in many disease processes. Abnormal blood vessel growth is
required for the growth and metastasis of tumors, can lead to blindness when it
occurs in and obscures the retina, and seems to accompany an assortment of
inflammatory processes. Depending on the clinical situation, positively or
negatively regulating blood vessel growth could have important therapeutic
benefits.
Regeneron and others have identified a new family of receptors in the
tyrosine kinase class that appear critical for normal blood vessel formation and
perhaps abnormal vascularization as well. Through its ligand discovery program,
Regeneron has cloned and received patents for a new family of naturally
occurring protein ligands, collectively termed the "Angiopoietins," specific to
these blood vessel receptors. The Angiopoietins include naturally occurring
positive and negative regulators of angiogenesis, as described in significant
scientific manuscripts published by the Company's scientists. The Angiopoietin
program is progressing toward defining potential clinical applications of this
family of receptors and their ligands and their applicability to either enhance
or block blood vessel growth by developing a variety of in vitro and in vivo
models and assays. As part of its collaboration with Procter & Gamble, the
Company is developing animal models and high-throughput screens and conducting
the medicinal chemistry efforts to develop small molecule regulators of
angiogenesis.
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Cytokine Agonists and Antagonists. Regeneron's widely-cited research on
the CNTF class of neurotrophic factors led to the discovery that CNTF, although
it is a neurotrophic factor, belongs to the "superfamily" of factors referred to
as cytokines. This superfamily includes factors such as erythropoietin,
thrombopoietin, granulocyte-colony stimulating factor, and the interleukins
("ILs"). Research at Regeneron has led to proprietary insights into the
receptors and signal transduction mechanisms used by the entire cytokine
superfamily and to novel approaches to develop both agonists and antagonists for
a variety of cytokines. Regeneron's scientists have created protein-based
antagonists for IL-1, IL-4, and IL-6 that are more potent than previously
described antagonists, allowing lower levels of these antagonists to be used;
moreover, these antagonists are comprised entirely of natural human-derived
sequences, and thus would not be expected to induce an immune reaction in humans
(although no assurance can be given since none have yet been tested in humans).
These cytokine antagonists are termed ligand traps. Because pathological levels
of IL-1, IL-4, and IL-6 seem to contribute to a variety of disease states, these
ligand traps have the potential to be important therapeutic agents. Antagonists
for IL-4 may be therapeutically useful in an assortment of allergy and
asthma-related disease situations in which IL-4 is thought to play a
contributory role and in a variety of vaccination settings in which blocking
IL-4 may help elicit more of the desired type of immune response to the vaccine.
Both IL-1 and IL-6 are referred to as pro-inflammatory cytokines and have been
implicated in the pathophysiology of a wide variety of human disease conditions
ranging from inflammatory disorders, such as rheumatoid arthritis and sepsis, to
cachexia (wasting). IL-6, in particular, is also implicated in the pathology and
progression of multiple myeloma, certain solid tumors, AIDS, lymphomas (both
AIDS-related and non-AIDS-related), osteoporosis, and other conditions.
The Company's research regarding protein-based cytokine antagonists
currently includes molecular and cellular research to improve or modify the
Company's ligand trap technology, process development efforts to produce
experimental and clinical research quantities of the ligand traps, and in vivo
and in vitro studies to further understand and demonstrate the efficacy of the
ligand traps. The Company plans to commence a clinical study of one of its
cytokine traps within the next year.
The Company has also entered into a substantial collaborative effort
with Pharmacopeia, Inc. ("Pharmacopeia") to use the Company's proprietary
technology and insights concerning cytokine receptors and their signaling,
together with the proprietary combinatorial-chemistry based small molecule
libraries and high-throughput screening technology provided by Pharmacopeia, for
the discovery of small molecule agonists and antagonists of a variety of members
of the cytokine superfamily.
Muscle Atrophy and Related Disorders. Muscle atrophy occurs in many
neuromuscular diseases and also when muscle is unused, as often occurs during
prolonged hospital stays and during convalescence. Currently, physicians have
few options to prescribe for patients with muscle atrophy or other muscle
conditions which afflict millions of patients globally. Thus, a factor that
might have beneficial effects on skeletal muscle could have significant clinical
benefit. The muscle program is currently focused on conducting in vivo and in
vitro experiments with the objective of demonstrating and further understanding
the molecular mechanisms involved in muscle atrophy. This work is being
conducted in collaboration with scientists at Procter & Gamble as part of the
P&G Agreement.
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Orphan Receptor and Growth Factor Research; Other Research Programs.
The therapeutic utility of many growth factors depends, in part, on the
exquisite specificity of their actions. This specificity is determined largely
by the limited distribution of receptors for these factors on the target cells
of interest. Using proprietary technology initially developed for the discovery
and characterization of neurotrophic factors and their receptors, the Company
has discovered new receptors and their associated factors that act on particular
cell populations of potentially important clinical interest. These cell
populations include not only additional subsets of neurons but non-neuronal
cells, such as the endothelial cells that constitute blood vessels, and skeletal
muscle cells. The Company's technology involves molecular biological as well as
"bioinformatics" approaches to identify and clone protein molecules that appear
to be receptors expressed on clinically relevant target cells for unknown
protein factors (hence their designation "orphan receptors"). The Company has
also obtained licenses and established collaborations for additional orphan
receptors, including licenses from the Salk Institute for Biological Studies.
The Company's technology includes approaches that allow for the identification
and molecular cloning of protein factors that bind to the orphan receptors.
Furthermore, the Company's technology allows for the development of derivatives
of the receptors and their factors, which can allow for modified agonistic or
antagonistic properties that may prove to be therapeutically useful. The Company
is also conducting research as part of the P&G Agreement on novel tyrosine
kinase systems for potential use in treating abnormal bone formation and related
diseases and conditions, cartilage damage or loss, or fibrosis.
Research Collaboration and Licensing Agreements
To augment its research programs, Regeneron has entered into a variety
of collaborative research agreements and sponsored research agreements with
researchers and universities. Under these agreements, the Company typically
receives certain proprietary rights to inventions or discoveries that arise as a
result of the research. In addition, the Company has entered into significant
collaborative agreements with Amgen to develop, manufacture, and market BDNF and
NT-3, with Sumitomo Pharmaceuticals to develop BDNF for commercialization in
Japan, with Procter & Gamble to discover, develop, and market protein- and small
molecule-based pharmaceuticals (including AXOKINE for, among other indications,
obesity), and with Pharmacopeia to discover, develop, and market small
molecule-based pharmaceuticals.
Agreement With Amgen Inc. In August 1990, Regeneron and Amgen entered
into a collaboration agreement (the "Amgen Agreement") and Amgen agreed to
provide $25.0 million of product development funding for BDNF and NT-3 payable
in five annual installments. The final such payment was made by Amgen in the
second quarter of 1995. In conjunction with entering into the Amgen Agreement,
Amgen made a $15.0 million equity investment in the Company. From inception of
the Amgen Agreement through December 31, 1998, the Company has recognized
contract research and development revenue totaling $43.0 million directly from
Amgen or from Amgen-Regeneron Partners. Amgen has also agreed to pay to the
Company a total of $13.0 million of research progress payments, $1.0 million of
which was paid on the signing of the Amgen Agreement, $1.0 million of which was
paid in July 1993 on the filing by Amgen of the IND application for BDNF, and
$1.0 million of which was paid in September 1994 on the filing by Amgen of the
IND application for NT-3. The remaining $10.0 million, which is divided equally
between BDNF and NT-3, will be paid upon the achievement of certain further
milestones in respect of each compound. There can be no assurance that any
additional research progress payments will be made.
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Under the Amgen Agreement, following preclinical development, Amgen and
the Company will attempt to develop and, if such effort is successful,
commercialize, market, and distribute BDNF and NT-3 drug products in the United
States through Amgen-Regeneron Partners. Amgen-Regeneron Partners is governed by
a six member Joint Management Committee composed of three members each from
Regeneron and Amgen. The Joint Management Committee determines annually, in
advance, the capital requirements for Amgen-Regeneron Partners and approves a
budget and product plan for each product under development. To maintain an equal
interest in Amgen-Regeneron Partners, Amgen and Regeneron are obligated to make
equal capital contributions to the partnership (such capital contributions
exclude Amgen's product development funding obligation described above). Such
capital contributions may be substantial. Amgen has the duty to direct and
conduct clinical trials of BDNF and NT-3 in the United States in accordance with
an annual product plan and budget that is approved by the Joint Management
Committee; the Joint Management Committee may, however, approve an annual
product plan and budget that authorizes Regeneron to direct and conduct clinical
trials of BDNF and NT-3. Amgen is also responsible for the preparation of
protocols with respect to such trials. Amgen has the primary responsibility to
develop manufacturing processes for, and to manufacture, BDNF and NT-3 on behalf
of Amgen-Regeneron Partners. Assuming equal capital contributions to
Amgen-Regeneron Partners, Regeneron and Amgen share any profits or losses of
Amgen-Regeneron Partners equally.
The development and commercialization of BDNF and NT-3 outside of the
United States, Japan, China, and certain other Pacific Rim countries will be
conducted solely by Amgen through a license from the Company and, with respect
to NT-3, from Takeda (under a license agreement between Amgen/Regeneron,
Genentech, Inc. ("Genentech"), and Takeda). In return, the Company will receive
royalty payments based on Amgen's net sales of any products in the licensed
territory. In the licensed territory, Amgen is solely responsible for funding
clinical development and related costs of the licensed products, as well as
costs of their commercial exploitation, and will have sole discretion with
respect to all such development, manufacturing, and marketing of the products
and sole responsibility for filing applications for regulatory approvals.
At the time it entered into the Amgen Agreement, Amgen agreed that
until the earlier of August 2010 or termination of the Amgen Agreement, it will
not take any steps or assist any third party to take steps to acquire control of
the Company, whether by acquisition of capital stock, proxy contest, tender
offer, merger, sale of assets, or voting agreements, except under certain
circumstances.
Agreement With Sumitomo Pharmaceuticals Company, Ltd. In June 1994, the
Company and Sumitomo Pharmaceuticals entered into an agreement for the research,
development, and commercialization of BDNF in Japan. Under the terms of the
agreement, Sumitomo Pharmaceuticals agreed to pay up to $40.0 million to
Regeneron, including $25.0 million in research payments (all of which Regeneron
has received) and up to $15.0 million in progress payments payable upon
achievement of certain development milestones, of which $5.0 million was
received (reduced by $0.5 million of Japanese withholding tax) in August 1998 in
connection with Sumitomo Pharmaceuticals signing a license agreement for
development of BDNF in Japan and initiating a Phase I safety study in Japan. In
addition, Sumitomo Pharmaceuticals agreed to reimburse Regeneron for its
activities in developing manufacturing processes for BDNF and supplying BDNF and
other research materials to Sumitomo Pharmaceuticals. Such manufacturing revenue
totaled $1.3 million in 1998, $7.6 million in 1997 and $8.5 million in 1996. The
agreement may be terminated by Sumitomo Pharmaceuticals at its
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discretion; such termination would result in the reversion to Regeneron of all
rights to BDNF in Japan.
Agreement With Sumitomo Chemical Company, Limited. In connection with a
$4.4 million equity investment made by Sumitomo Chemical Company, Limited
("Sumitomo Chemical") in March 1989, the Company granted Sumitomo Chemical a
limited right of first negotiation to license up to three of the product
candidates the Company decides to commercialize in Japan on financial and
commercial terms as may be offered by the Company. The Company's collaborative
agreement with Sumitomo Pharmaceuticals, an affiliate of Sumitomo Chemical, to
develop BDNF in Japan, described above, is the first of such license agreements.
In connection with its equity investment, Sumitomo Chemical paid the Company an
additional $5.6 million, representing a deposit for reimbursable costs and
expenses in product research and development. All available technology
development contract revenue was recognized by the end of 1992. The Company is
obligated periodically to inform and, if requested, to meet with Sumitomo
Chemical management about its progress in research and development.
Agreement With Pharmacopeia, Inc. In October 1996, Regeneron and
Pharmacopeia entered into an agreement (the "Pharmaceopeia Agreement") to
collaborate exclusively in a series of research programs the objective of which
is to discover novel small molecule, orally active therapeutics that are
agonists, antagonists, or mimics of a broad range of cytokines and growth
factors. Subject to the ability of either or both parties to opt-out of such
efforts, any potential product candidate that may emerge from this joint
research will be jointly developed by Regeneron and Pharmacopeia, with each
party sharing equally in the costs of such efforts and in any profits that may
be derived from such potential products. The Pharmacopeia Agreement provided for
no financial payments by either party, subject to the mutual obligation to use
reasonable efforts to discover lead compounds for future development. The
Pharmacopeia Agreement has an initial research term of three years and will
renew automatically for one-year terms unless either party terminates the
agreement with ninety days prior notice.
Agreement With The Procter & Gamble Company. In May 1997, the Company
entered into a ten-year collaboration agreement with Procter & Gamble to
discover, develop, and commercialize pharmaceutical products, as well as a
securities purchase agreement and other related agreements. The P&G Agreement
expanded and superseded a collaboration agreement that the Company and Procter &
Gamble Pharmaceuticals, Inc. entered into in December 1996 to develop drugs for
skeletal muscle injury and atrophy. Procter & Gamble agreed over the first five
years of the various agreements to purchase up to $60.0 million in Regeneron
equity. Pursuant to these agreements, 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 800,000 shares of Regeneron Common Stock
at $12.50 per share that was completed in March 1997 pursuant to the December
1996 agreement. Procter & Gamble agreed over the first five years of the various
agreements to provide up to $94.7 million in support of Regeneron's research
efforts related to the collaboration, of which the Company had received $6.7
million as of December 31, 1998.
In September 1997, the Company and Procter & Gamble expanded the P&G
Agreement to include AXOKINE and related molecules (delivered systemically), and
agreed to develop AXOKINE initially 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 related to
AXOKINE. Of the
10
<PAGE>
$15.0 million, $5.0 million was paid in 1997 and $5.0 million was paid in 1998.
The 1998 payment was made in connection with the companies' execution of a
development agreement for AXOKINE and other potential drug candidates.
Any drugs that may result from the collaboration will be jointly
developed and marketed, with the parties equally sharing development costs and
profits. In addition, during the second five years of the P&G Agreement, the
companies will share all collaboration costs equally. Either party may
terminate collaborative research after five years, subject to reversion of
certain rights to Regeneron. Regeneron contributed its technologies and
intellectual property relating to a broad set of its programs and activities, as
well as future research programs and activities, to the collaboration. Subject
to the September 1998 agreement to include AXOKINE and related molecules
(delivered systemically) in the P&G Agreement, excluded from the collaboration
were the Company's neurotrophic factor and cytokine research programs, which
will continue to be developed independent of the P&G collaboration, including
Regeneron's collaborative activities with Amgen, Pharmacopeia, Sumitomo
Pharmaceuticals, and Sumitomo Chemicals. In addition to the potential
development of protein-based therapeutics, the collaboration will seek to
discover and develop small molecule, orally active therapeutics useful in the
treatment of muscle diseases and conditions.
Procter & Gamble also obtained certain piggyback registration rights
(exercisable after the collaboration terminates) and agreed that until the
earlier of December 2001 or the termination of the collaboration agreement it
will not take any steps or assist any third party to take steps to acquire
control of the Company, whether by acquisition of capital stock, proxy contest,
tender offer, merger, sale of assets, or voting agreements, except under certain
circumstances.
Other Agreements. The Company has agreements with individual
researchers and universities to conduct sponsored research and development
programs. The goal of these agreements is to extend the Company's capabilities
and to acquire proprietary rights to the results of sponsored research. The
Company is a party to a number of sponsored research agreements which include
grants to the Company of exclusive licenses to certain discoveries and
technologies developed at, among other places, the Max Planck Institute
(covering the field of neurotrophic factors, including work done at the Max
Planck Institute on BDNF, NT-3, and other substances), and the University of
California at San Francisco (covering the use of neurotrophic factors and other
recombinant proteins to treat degenerative conditions of the eye). The Company
has also collaborated with Glaxo Wellcome plc to discover and develop small
molecule-based treatments for neurodegenerative diseases. The research term of
the Glaxo collaboration has expired but was extended in 1998 by mutual agreement
to allow the parties to continue to pursue early stage research in a limited
area, the duration and outcome of which are uncertain.
In addition to these sponsored research agreements, the Company
(individually or in partnership with Amgen pursuant to the Amgen Agreement or
Procter & Gamble pursuant to the P&G Agreement) provides resource material and
information that relate to its product candidates and research programs to over
400 investigators at private and public institutions throughout the world.
Regeneron supplies materials and know-how to these investigators on a
confidential basis in exchange for access to additional research and ownership
of certain proprietary rights resulting from the work of the investigators.
There can be no assurance that any of these agreements will result in
work that will have commercial potential or other useful benefit to the Company,
or that, if any such work has useful benefit to the Company, the Company will be
able to protect its proprietary position adequately to realize any possible
commercial benefit.
11
<PAGE>
Manufacturing
The Company completed construction of a manufacturing facility in 1992
in Tarrytown, New York. This facility, which was designed to comply with FDA
current good manufacturing practices ("GMP"), is intended to produce preclinical
and clinical supplies of compounds. Depending on the dosage of its drugs, the
facility could also produce either bulk compounds or the final dosage form of
certain product candidates.
In 1993, the Company purchased its Rensselaer, New York manufacturing
facility, which is being used to produce BDNF for use by Sumitomo
Pharmaceuticals and a vaccine intermediate for Merck. The Company may use the
facility to produce other product candidates and materials in the future.
In 1995, the Company entered into a long-term manufacturing agreement
with Merck (the "Merck Agreement") to produce an intermediate for a Merck
pediatric vaccine at the Company's Rensselaer facility. The Company agreed to
modify portions of the facility for manufacture of the Merck intermediate and to
assist Merck in securing regulatory approval for such manufacture in the
Rensselaer facility. When the facility is able to produce the Merck
intermediate, the Merck Agreement calls for the Company to manufacture
intermediate for Merck for six years, with certain minimum order quantities each
year. The Merck Agreement is expected to extend into 2005 and may be terminated
at any time by Merck upon the payment by Merck of a termination fee. Merck
agreed to reimburse the Company for the capital costs to modify the facility and
for the cost of Company activities performed on behalf of Merck prior to the
start of production. Merck also agreed to pay an annual facility fee of $1.0
million, subject to annual adjustment for inflation. After the start of
production, which is expected to occur in 1999, Merck will also reimburse the
Company for certain manufacturing costs and pay the Company a variable fee based
on the quantity of intermediate supplied to Merck. The Company recognized
contract manufacturing revenue related to the Merck Agreement of $9.1 million in
1998, $4.5 million in 1997, and $2.5 million in 1996. There can be no assurance
that the start of production will not be delayed, or that Merck or the Company
will be able to secure regulatory approval necessary to manufacture the
intermediate in the facility, or that the Company will be able to manufacture
the Merck intermediate successfully, or that Merck will not terminate the Merck
Agreement. Any of these events could have a severe negative impact on the
operations and financial condition of the Company.
Among the conditions for regulatory marketing approval of a drug is the
requirement that the prospective manufacturer's quality control and
manufacturing procedures conform to the GMP regulations of the health authority.
In complying with standards set forth in these regulations, manufacturers must
continue to expend time, money, and effort in the area of production and quality
control to ensure full technical compliance. Manufacturing establishments, both
foreign and domestic, are also subject to inspections by or under the authority
of the FDA and by other federal, state, and local agencies.
Competition
There is substantial competition in the biotechnology and
pharmaceutical industries. Many of the Company's competitors have substantially
greater research, preclinical and clinical product development, and
manufacturing capabilities and
12
<PAGE>
financial, marketing, and human resources than Regeneron. The Company's
agreements with larger, better established pharmaceutical companies are intended
to secure for the Company the benefits of such a collaboration with more
experienced pharmaceutical firms. Smaller companies may also prove to be
significant competitors, particularly as a result of acquiring or discovering
patentable inventions or as a result of collaborative arrangements with large
pharmaceutical companies or their acquisition by large pharmaceutical companies.
Technological development and discoveries may require companies to change their
research and development efforts. Competitors with greater resources than the
Company may have the financial and technological flexibility to respond to such
needed changes better than the Company.
There is substantial competition in the discovery and development of
treatments for obesity and obesity-related morbidities, including Type II
diabetes, as well as established and cost-effective and emerging prescription
and over-the-counter treatments for these conditions. For example, Amgen and a
number of other pharmaceutical companies are developing leptin and related
molecules; clinical trials of leptin are currently under way. Many firms and
entities are engaged in research and development in the areas of cytokines,
interleukins, angiogenesis, and muscle conditions. Some of these competitors are
currently conducting advanced preclinical and clinical research programs in
these areas; these and other competitors may have established substantial
intellectual property and other competitive advantages. The treatment of
constipating conditions is highly competitive, with a number of companies
providing over-the-counter remedies and other competitors attempting to discover
and develop improved over-the-counter or prescription treatments. Every
pharmaceutical company and many biotechnology companies are engaged in
attempting to discover and develop small-molecule based therapeutics, similar in
at least certain respects to Regeneron's programs with Glaxo, Pharmacopeia, and
Procter & Gamble. In these and related areas, intellectual property rights have
been sought and certain rights have been granted to competitors and potential
competitors of the Company, and the Company may be at a substantial competitive
disadvantage in such areas as a result of, among other things, the Company's
lack of experience, trained personnel, and expertise. A number of corporate and
academic competitors are involved in the discovery and development of novel
therapeutics using tyrosine kinase receptors, orphan receptors, and compounds
that are the focus of other research or development programs now being conducted
by the Company. These competitors include Amgen, Genentech, and many others.
More specifically and as an illustrative example of the foregoing, the
Company's efforts to develop treatments for neurological diseases and conditions
are being conducted in a highly competitive environment. Even if BDNF or NT-3 is
shown to be safe and effective to treat ALS or other conditions, other companies
have developed or are developing drugs for the treatment of the same or similar
conditions. For example, the FDA has approved the application of Rhone-Poulenc
Rorer to market riluzole (under the trade name Rilutek), an orally administered
drug, to treat ALS in the United States, and Rhone-Poulenc Rorer has filed
applications for approval, and gained approval in other countries. Sanofi
Pharmaceuticals, Inc., is conducting advanced clinical testing of its compound,
called SR57746A, for ALS. More broadly, Regeneron is engaged in an intensely
competitive field. Amgen and the Company are direct competitors in the field of
neurotrophic factors and possibly other fields. Other potential competitors
include Genentech, which is developing nerve growth factor ("NGF") to treat
peripheral neuropathies and pain, and may be developing other neurotrophic
factors, and Cephalon, Inc. ("Cephalon"), which is developing, in collaboration
with Chiron Corporation, insulin-like growth factor ("IGF-1" trade named
Myotrophin(Trademark)) and other compounds for the treatment of ALS, peripheral
neuropathies, and other conditions. Amgen, Genentech, Cephalon, and others have
filed patent applications and obtained issued patents relating
13
<PAGE>
to neurotrophic factors, or have announced that they are actively pursuing
preclinical or clinical development programs in the area of neurotrophic
factors. Based on the results of its Phase III clinical studies with IGF-1 to
treat ALS, Cephalon filed and intends to file applications for approval to
market IGF-1 to treat ALS in the United States and other countries. Amgen and
Genentech have separately also announced research and development of glial
cell-line derived neurotrophic factor ("GDNF") for the treatment of ALS,
Parkinson's disease, and other conditions. Other companies have developed or are
developing drugs based on technology other than neurotrophic factors for the
treatment of diseases and injuries relating to the nervous system (including
ALS). The Company is also aware that several pharmaceutical companies are
conducting clinical trials in ALS with drugs which, like riluzole, are orally
administered. The competitive environment in which the Company is developing
treatments for asthma or other inflammatory conditions, obesity, diabetes, and
other conditions could be similarly described.
If a competitor announces a successful clinical study involving a
product that may be competitive with one of the Company's product candidates or
an approval by a regulatory agency of the marketing of a competitive product,
such announcement may have a material adverse effect on the operations or future
prospects of the Company or the price of its Common Stock.
The Company also competes with academic institutions, governmental
agencies, and other public or private research organizations which continue to
conduct research, seek patent protection, and establish collaborative
arrangements for the development and marketing of products that would provide
royalties for use of their technology. These institutions are becoming more
active in seeking patent protection and licensing arrangements to collect
royalties for use of the technology that they have developed. Products developed
in such a manner may compete directly with any products developed by the
Company. The Company also competes with others in acquiring technology from such
institutions, agencies, and organizations.
The relative speed with which Regeneron can develop safe and effective
product candidates, complete clinical testing and approval processes, and supply
commercial quantities of the product to the market will have an important impact
on the Company's competitive position. Competition among product candidates
approved for sale may be based on efficacy, safety, reliability, availability,
price, patent position, and other factors.
Patents, Trademarks, and Trade Secrets
The Company's success depends, in part, on its ability to obtain
patents, maintain trade secret protection, and operate without infringing on the
proprietary rights of third parties. The Company's policy is to file patent
applications to protect technology, inventions, and improvements that are
considered important to the development of its business. The Company has been
granted a number of U.S. patents and is the exclusive or nonexclusive licensee
of a number of additional U.S. patents and patent applications. The Company also
relies upon trade secrets, know-how, and continuing technological innovation to
develop and maintain its competitive position. The Company or its licensers or
collaborators have filed patent applications on products and processes relating
to neurotrophic factors and other technologies and inventions in the United
States and in certain foreign countries. The Company intends to file additional
patent applications, when appropriate, relating to improvements in its
technologies and other specific products and processes. The Company plans to
aggressively prosecute, enforce, and defend its patents and other proprietary
technology.
14
<PAGE>
The patent positions of biotechnology firms, including the Company, are
generally uncertain and involve complex legal and factual questions. No
predictions can be made regarding the breadth, validity, or enforceability of
claims allowed in these types of patents. The Company does not know whether any
of its pending applications will result in the issuance of any patents or if any
currently issued patents or any patents issued in the future will provide
significant proprietary protection or will be circumvented or invalidated or
will infringe on the rights of others.
Competitors have filed applications for, or have been issued, patents
and may obtain additional patents and proprietary rights related to products or
processes competitive with those of the Company. Accordingly, there can be no
assurance that the Company's patent applications will result in patents being
issued in addition to those described above or that, if issued, the patents will
afford protection against competitors with similar technology; nor can there be
any assurance that others will not obtain patents that the Company will need to
license or circumvent. The Company is aware that one patent has issued in the
United States and patent applications in certain foreign countries were filed by
Amgen and others for the production of neurotrophic factor proteins. The
Company is further aware that patent applications have been filed in the United
States and certain foreign countries by Takeda, Amgen, and, the Company
believes, Genentech on products and processes relating to NT-3. The Company has
received a co-exclusive license to NT-3 as a result of a worldwide licensing
agreement between Amgen/Regeneron and Takeda. Other patent filings by these
companies or others may be competitive with the Company's patent claims or may
cause, if valid and issued in the United States or a relevant foreign
jurisdiction, substantial commercial difficulties or additional expenses or
delays to the Company's operations or commercial activities or may require the
Company to cease certain development or commercial activities altogether. The
Company cannot predict whether its or its competitors' patent applications will
result in valid patents being issued.
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
interference proceedings in the Patent and Trademark Office between Regeneron's
patent applications and patents relating to CNTF issued to Synergen, Inc.
("Synergen"). Amgen acquired all outstanding shares of Synergen in 1994. In
March 1998, the Company and Amgen entered into an agreement not to sue each
other and to resolve their patent interference and related oppositions and other
patent proceedings relating to CNTF and AXOKINE. The Company also granted Amgen
a license to use CNTF and second generation CNTFs other than AXOKINE to treat
retinal degenerative conditions. Under this agreement, Amgen is free to develop
CNTF or second generation CNTFs for obesity, in competition with Regeneron's
AXOKINE. Neither party will pay royalties or make other payments to the other
party in consideration of this agreement.
Government Regulation
Regulation by government authorities in the United States and foreign
countries is a significant factor in the research, development, manufacture, and
marketing of the Company's product candidates. All of the Company's product
candidates will require regulatory approval before they can be commercialized.
In particular, human therapeutic products are subject to rigorous preclinical
and clinical trials and other premarket approval requirements by the FDA and
foreign authorities. Many aspects of the structure and substance of the FDA and
foreign pharmaceutical regulatory practices have been
15
<PAGE>
reformed during recent years, and continued reform is under consideration in a
number of forums. The ultimate outcome and impact of such reforms and potential
reforms cannot be reasonably predicted.
Clinical trials are conducted in accordance with certain standards
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety, and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA. The phases of clinical studies may overlap. The
designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
parameters of a particular phase, and a clinical trial may contain elements of
more than one phase notwithstanding the designation of the trial as being of a
particular phase. No assurance can be given that the results of preclinical
studies or early stage clinical trials will predict long-term safety or efficacy
of the Company's compounds when they are tested or used more broadly in humans.
Various federal and state statutes and regulations also govern or influence the
research, manufacture, safety, labeling, storage, recordkeeping, marketing,
transport, or other aspects of such products. The lengthy process of seeking
these approvals and the compliance with applicable statutes and regulations
require the expenditure of substantial resources. Any failure by the Company or
its collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of any products developed by the
Company and its ability to receive product or royalty revenue.
In addition to the foregoing, the Company's present and future business
will be subject to regulation under the United States Atomic Energy Act, the
Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the National Environmental Policy Act, the Toxic
Substances Control Act, and the Resource Conservation and Recovery Act, national
restrictions, and other present and potential future local, state, federal, and
foreign regulations.
16
<PAGE>
Employees
As of December 31, 1998, the Company had 371 full-time employees, 60 of
whom hold a Ph.D. and/or M.D. degree. The Company believes that it has been
highly successful in attracting skilled and experienced personnel; however,
competition for such personnel is intense. None of the Company's personnel are
covered by collective bargaining agreements and management considers its
relations with its employees to be good.
Item 2. Properties
Regeneron conducts its research, development, manufacturing, and
administrative activities at its own facilities. The Company currently leases
approximately 138,600 square feet of office, laboratory, and manufacturing space
in Tarrytown, New York. The current monthly base rental charge is $236,428 plus
additional rental charges for utilities, increases in taxes and operating
expenses, as defined. The lease for this facility expires on June 30, 2003, and
the Company has a renewal option to extend the lease for an additional five-year
period. The Company owns the Rensselaer facility, consisting of two buildings
totaling approximately 104,000 square feet of research, manufacturing, office,
and warehouse space.
As the Company's activities expand, additional space may be required.
In the future, the Company may locate, lease, operate, or purchase additional
facilities in which to conduct expanded research and development activities and
manufacturing and commercial operations.
Item 3. Legal Proceedings
In March 1998, the Company and Amgen entered into an agreement not to
sue each other which, among other things, resolved their patent interference and
related opposition and other patent proceedings relating to CNTF and AXOKINE.
The Company also granted Amgen a license to use CNTF and second generation CNTFs
other than AXOKINE to treat retinal degenerative conditions. Neither party will
pay royalties or make other payments to the other party in consideration of this
agreement. In addition to patent interference proceedings declared by the United
States Patent and Trademark Office, the Company from time to time has been
subject to legal claims arising in connection with its business. While the
ultimate results of the proceedings and claims cannot be predicted with
certainty, at December 31, 1998, there were no asserted claims against the
Company which, in the opinion of management, if adversely decided, would have a
material adverse effect on the Company's financial position and results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
Executive Officers of the Registrant
Listed below are the executive officers of the Company as of March 5,
1999. There are no family relationships between any of the executive officers
and there is no arrangement or understanding between any executive officer and
any other person pursuant to which the executive officer was selected. At the
annual meeting of the Board of Directors, which follows the Annual Meeting of
Shareholders, executive officers are elected by the Board to hold office for one
year and until their respective successors are elected and qualified, or until
their earlier resignation or removal.
Information with regard to the directors of the Company, including that
of the following executive officers who are directors, is incorporated by
reference to Regeneron Pharmaceuticals, Inc. Proxy Statement to be filed in
connection with solicitation of proxies for its Annual Meeting of Shareholders
to be held on June 11, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Leonard S. Schleifer, M.D., Ph.D. 46 Chief Executive Officer, President, and
founder of the Company
George D. Yancopoulos, M.D., Ph.D. 39 Senior Vice President, Research, and Chief
Scientific Officer
Jesse M. Cedarbaum, M.D. 47 Vice President, Clinical Affairs
Murray A. Goldberg 54 Vice President, Finance & Administration,
Chief Financial Officer, and Treasurer
Hans-Peter Guler 50 Vice President, Clinical Affairs
Stephen L. Holst 57 Vice President, Quality Assurance and
Regulatory Affairs
Richard X. Horne 48 Staff Vice President, Human Resources
Paul Lubetkin 48 Vice President, General Counsel, and
Secretary
Randall G. Rupp, Ph.D. 51 Vice President, Manufacturing and Process
Science
Neil Stahl, Ph.D. 42 Vice President, Biomolecular Science
David M. Valenzuela, Ph.D. 48 Vice President, Genomics and Bioinformatics
Douglas S. McCorkle 42 Controller and Assistant Treasurer
Beverly C. Dubs 44 Administrative Controller and Assistant
Treasurer
</TABLE>
18
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of Regeneron is quoted on The Nasdaq Stock Market
under the symbol "REGN." The Company's Class A Stock, par value $.001 per share,
is not publicly quoted or traded.
The following table sets forth, for the periods indicated, the range of
high and low bid quotations for the Common Stock as reported by The Nasdaq Stock
Market. The bid prices reflect inter-dealer quotations without retail mark-ups,
mark-downs, or commissions and do not necessarily represent actual transactions.
High Low
---- ---
1997
First Quarter.................. $21.000 $7.500
Second Quarter................. 12.875 6.125
Third Quarter.................. 11.625 8.750
Fourth Quarter................. 12.938 8.000
1998
First Quarter.................. $9.375 $7.000
Second Quarter................. 11.000 7.250
Third Quarter.................. 9.656 5.750
Fourth Quarter................. 8.625 5.750
As of March 5, 1999, there were approximately 852 holders of record of
the Company's Common Stock and 84 holders of record of the Company's Class A
Stock. The closing bid price for the Common Stock on that date was $7.625.
The Company has never paid cash dividends and does not anticipate
paying any in the foreseeable future. In addition, under the terms of certain
debt agreements, the Company is not permitted to declare or pay cash dividends
to its shareholders.
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<PAGE>
Item 6. Selected Financial Data
The selected financial data set forth below for the years ended
December 31, 1998, 1997, and 1996 and at December 31, 1998 and 1997 are derived
from and should be read in conjunction with the audited financial statements of
the Company, including the notes thereto, included elsewhere in this report. The
selected financial data for the years ended December 31, 1995 and 1994 and at
December 31, 1996, 1995, and 1994 are derived from audited financial statements
of the Company not included in this report.
The Company has never paid cash dividends and does not anticipate
paying any in the foreseeable future. In addition, under the terms of certain
debt agreements, the Company is not permitted to declare or pay cash dividends
to its shareholders.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Statement of Operations Data (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues
Contract research and development $19,714 $17,400 $17,303 $23,247 $19,606
Research progress payments 9,500 5,000 1,000
Contract manufacturing 9,113 4,458 2,451 1,140
Investment income 6,866 6,242 4,360 2,997 2,585
---------- ---------- ---------- ---------- ----------
45,193 33,100 24,114 27,384 23,191
---------- ---------- ---------- ---------- ----------
Expenses
Research and development 37,047 27,770 28,269 23,310 30,874
Loss in Amgen-Regeneron Partners 2,484 3,403 14,250 13,805 9,794
General and administrative 5,838 5,765 5,880 5,764 7,529
Depreciation and amortization 3,019 4,389 6,084 5,886 4,246
Contract manufacturing 5,002 2,617 1,115 72
Interest 428 735 940 1,205 1,403
Other 850
---------- ---------- ---------- ---------- ----------
53,818 44,679 56,538 50,892 53,846
---------- ---------- ---------- ---------- ----------
Net loss ($8,625) ($11,579) ($32,424) ($23,508) ($30,655)
========== ========== ========== ========== ==========
Net loss per share, basic and diluted ($0.28) ($0.40) ($1.33) ($1.19) ($1.62)
========== ========== ========== ========== ==========
At December 31,
<CAPTION>
------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Balance Sheet Data (in thousands)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents,
and marketable securities $113,530 $128,041 $97,028 $59,622 $60,215
Working capital 83,499 88,953 72,960 36,254 34,040
Total assets 156,915 168,380 137,582 93,811 94,236
Capital lease obligations and note payable,
long-term portion 3,066 3,752 5,148 5,978 9,249
Stockholders' equity 131,227 138,897 106,931 67,856 67,071
</TABLE>
20
<PAGE>
Item 7. 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 potential 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.
Regeneron is a New York corporation founded in 1988. Regeneron is a
leader in the application of molecular and cell biology to discover novel
potential therapeutics for human medical conditions and is seeking to develop
and commercialize these discoveries. The Company is applying its technological
expertise in protein growth factors, their receptors, and their mechanisms of
action to the discovery and development of protein-based drugs and orally
active, small molecule drugs.
The Company is pursuing research and development programs in the
following areas:
o AXOKINE(Registered) second generation ciliary neurotrophic
factor for the treatment of obesity and diseases related to
obesity such as Type II diabetes,
o Brain-derived neurotrophic factor ("BDNF") for the treatment
of amyotrophic lateral sclerosis ("ALS," commonly known as Lou
Gehrig's disease),
o Neurotrophin-3 ("NT-3") for the treatment of constipating
conditions,
o Angiogenesis, including stimulating blood vessel growth in
settings where more blood flow is desired and blocking blood
vessel growth in abnormal conditions such as cancer. The
angiogenesis program is based on Regeneron's discovery of
Angiopoietins, a new family of ligands (and their receptors,
called the TIE family of receptors) that appears to regulate
blood vessel formation,
o Protein antagonists for cytokines such as interleukin-1
("IL-1"), interleukin-4 ("IL-4") and interleukin-6 ("IL-6") as
potential treatment of inflammatory diseases, allergic
disorders, and cancer,
o AXOKINE for the treatment of retinal diseases such as
retinitis pigmentosa,
o Muscle atrophy, using a variety of approaches to identify and
validate drug targets, and
o Research programs to discover orally active, small
molecule-based drugs, some of which may mimic or antagonize
protein- or receptor-based drug candidates that the Company is
developing.
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In 1998, the Company continued to develop AXOKINE under the Company's
collaboration agreement ("the P&G Agreement") with The Procter & Gamble
Company ("Procter & Gamble"). The Company and Procter & Gamble filed an
Investigational New Drug application ("IND") with the United States Food and
Drug Administration ("FDA") in the first quarter of 1999 and plan to commence a
Phase I clinical study during the first half of 1999 to determine the safety of
AXOKINE administered subcutaneously for a short duration to mildly to moderately
obese healthy volunteers. AXOKINE is being developed for the treatment of
obesity associated with Type II diabetes and possibly for uncomplicated obesity.
No assurance can be made regarding the timing or result of this or any further
clinical trial of AXOKINE. AXOKINE has never been administered to people. Its
safety and efficacy in the treatment of any human condition have not been
established and can not be predicted. Previous clinical studies of ciliary
neurotrophic factor ("CNTF"), the parent molecule of AXOKINE, resulted in the
creation of antibodies and adverse events (side effects) in patients, including
weight loss, cough, nausea, and malaise. While certain aspects of the
development of AXOKINE by the Company and Procter & Gamble have focused on
attempting to avoid or minimize antibody production or adverse events, no
assurance may be given that these problems will be avoided or minimized or that
they will not lead to the failure, delay, or additional difficulty in conducting
AXOKINE clinical trials.
The Company and Procter & Gamble also continued to collaborate in
research and development in the fields of angiogenesis, bone growth and related
areas, muscle injury and atrophy, and small molecule (orally active) drugs. The
majority of the Company's scientific resources are devoted to its collaborative
activities with Procter & Gamble.
The Company continued independently to develop AXOKINE for use in
treating retinitis pigmentosa. In July 1998, the Company and Medtronic, Inc.
("Medtronic") terminated their 1996 collaborative development agreement to
conduct an exploratory research program using Medtronic delivery systems to
deliver AXOKINE to the central nervous system, initially as a potential
treatment for Huntington's disease, due to obstacles in formulation and
delivery.
During 1998, the Company continued to develop independent of any
corporate collaboration its proprietary cytokine traps for the potential
treatment of asthma, inflammatory disease, cancer, and rheumatoid arthritis. In
addition, the Company continued to conduct research with Pharmacopeia, Inc. and
Glaxo Wellcome plc in the area of small molecule (orally active) drugs.
During 1998, Amgen-Regeneron Partners, the partnership equally owned by
Regeneron and Amgen Inc. ("Amgen"), continued to develop BDNF and NT-3. BDNF is
currently being developed by Amgen-Regeneron Partners for potential use in
treating ALS through two routes of administration: intrathecal (infusion into
the spinal fluid through an implanted pump) and subcutaneous (injection under
the skin). In the fourth quarter of 1998, Amgen, on behalf of the partnership,
began an intrathecal study in more than 200 patients with ALS. Subcutaneous
studies conducted by Regeneron on behalf of the partnership began in the first
quarter of 1998. The subcutaneous studies are based on an analysis of the
Amgen-Regeneron Partners Phase III trial of BDNF for ALS that was completed in
1996. That trial failed to achieve its predetermined end points, but subsequent
analyses indicated that a retrospectively-defined subset of ALS patients in the
trial may have received a survival benefit from BDNF treatment. A multi-center
study of more than 200 ALS patients who will receive BDNF subcutaneously is
expected to begin in 1999.
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<PAGE>
The Company and Sumitomo Pharmaceuticals Co., Ltd. ("Sumitomo
Pharmaceuticals") are collaborating in the development of BDNF in Japan,
initially for the treatment of ALS. In March 1998, Sumitomo Pharmaceuticals
commenced a Phase I safety assessment of BDNF delivered subcutaneously to normal
volunteers. In August 1998, Sumitomo Pharmaceuticals signed a license agreement
for the development of BDNF in Japan. Pursuant to the license agreement,
Sumitomo Pharmaceuticals made a $5.0 million research progress payment (reduced
by $0.5 million of Japanese withholding tax) to Regeneron in August 1998 and
will make additional payments upon the achievement of specified milestones.
Sumitomo Pharmaceuticals will also pay a royalty on sales of BDNF in Japan.
Amgen-Regeneron Partners' clinical development of NT-3 is currently
focused on constipating conditions. In 1998, Regeneron, on behalf of
Amgen-Regeneron Partners, completed a small clinical study that included healthy
volunteers and patients suffering from severe idiopathic constipation and began
additional small studies in patients who suffer from constipation associated
with conditions such as spinal cord injury and Parkinson's disease.
No assurance can be given that extended administration of BDNF or NT-3
will be safe or effective. The treatment of ALS has been shown, in a number of
clinical settings using a variety of treatment modalities (including
Amgen-Regeneron Partners' earlier clinical studies), to present significant
difficulties. The design of an ALS clinical study presents special difficulties
and risks, as do the facts that ALS is a progressive disease that afflicts
individual patients differently and other ALS treatments are approved or have
been or are currently being tested, creating the possibility that patients in
any BDNF study may also receive other therapeutics during all or part of the
BDNF trial. 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 end points, and other factors. No assurance can be given that these or
any other studies of BDNF or NT-3 will be successful or that BDNF or NT-3 will
be commercialized.
Substantial risk is inherent in the research, development, and
commercialization of drugs. In addition, in each of the areas of the Company's
independent and collaborative activities, other companies and entities are
actively pursuing competitive paths toward similar objectives. The results of
the Company's and its collaborators' past activities in connection with the
research and development of AXOKINE, cytokine traps, angiopoietins, abnormal
bone growth, muscle atrophy, small molecules, BDNF, NT-3, and other programs or
areas of research or development do not necessarily predict the results or
success of current or future activities including, but not limited to, any
additional preclinical or clinical studies. The Company cannot predict whether,
when, or under what conditions any of its research or product candidates,
including without limitation AXOKINE, 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 the Company's product candidates to treat
human conditions or to be approved for marketing could have a material adverse
impact on the Company.
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
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<PAGE>
approval from the 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 December 31, 1998, Regeneron
had a cumulative loss of $177.2 million. In the absence of revenues from
commercial product sales or other sources (the amount, timing, nature, or source
of which cannot 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
Years Ended December 31, 1998 and 1997. The Company's total revenue
increased to $45.2 million in 1998 from $33.1 million in 1997. Contract research
and development revenue increased to $19.7 million in 1998 from $17.4 million in
1997, as higher revenue related to the P&G Agreement more than offset a decrease
in revenue from the Company's ongoing collaboration with Sumitomo
Pharmaceuticals. In 1998, research progress payments of $9.5 million consisted
of a payment of $5.0 million from Sumitomo Pharmaceuticals related to the
development of the Company's BDNF in Japan (reduced by $0.5 million of Japanese
withholding tax) and a payment of $5.0 million from Procter & Gamble in
connection with a collaboration to develop AXOKINE for obesity associated with
Type II diabetes. In 1997, research progress payments of $5.0 million were
received from Procter & Gamble in connection with the September 1997 amendment
to the P&G Agreement related to AXOKINE. Contract manufacturing revenue related
to the Company's 1995 manufacturing agreement (the "Merck Agreement") with Merck
& Co., Inc. ("Merck") increased to $9.1 million in 1998 compared to $4.5 million
in 1997 as a result of increased activity in preparation for manufacturing a
product for Merck at the Company's Rensselaer facility. Investment income in
1998 increased to $6.9 million from $6.2 million in 1997, due mainly to higher
levels of interest-bearing investments resulting primarily from the proceeds of
a private placement of equity securities with Procter & Gamble in June 1997.
The Company's total operating expenses increased to $53.8 million in
1998 from $44.7 million in 1997. Research and development expenses increased to
$37.0 million in 1998 from $27.8 million in 1997, primarily as a result of
additional employees and increased activity in the Company's preclinical and
clinical research programs. The Company's share of the loss in Amgen-Regeneron
Partners decreased to $2.5 million in 1998 from $3.4 million in 1997, due to
lower research and development expenses by the Partnership. Research and
development expenses (including loss in Amgen-Regeneron Partners) were
approximately 73% of total operating expenses in 1998, compared to 70% in 1997.
General and administrative expenses were $5.8 million in both 1998 and
1997. Depreciation and amortization expense decreased to $3.0 million in 1998
from $4.4 million in 1997, as certain laboratory equipment and leasehold
improvements became fully depreciated. Contract manufacturing expenses, which
are expenses directly related to the Merck Agreement and are reimbursed by
Merck, increased to $5.0 million in 1998 from $2.6 million in 1997, primarily
due to increased activity in preparation for
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<PAGE>
manufacturing a product for Merck. Interest expense decreased to $0.4 million in
1998 from $0.7 million in 1997 as the amount of outstanding obligations in
connection with capital leases declined.
The Company's net loss in 1998 was $8.6 million, or $0.28 per share
(basic and diluted), compared to a net loss of $11.6 million, or $0.40 per share
(basic and diluted), in 1997.
Years Ended December 31, 1997 and 1996. The Company's total revenue
increased to $33.1 million in 1997 from $24.1 million in 1996. Contract research
and development revenue was $17.4 million in 1997 and $17.3 million in 1996, as
revenue received from Procter & Gamble in connection with the P&G Agreement
offset lower revenue from Amgen-Regeneron Partners and Sumitomo Pharmaceuticals.
Research progress payments in 1997 of $5.0 million were received from Procter &
Gamble in connection with the September 1997 amendment to the P&G Agreement
related to AXOKINE. Contract manufacturing revenue related to the Merck
Agreement increased to $4.5 million in 1997 from $2.5 million in 1996 as a
result of increased activity in preparation for manufacturing a product for
Merck at the Company's Rensselaer facility. Investment income in 1997 increased
to $6.2 million from $4.4 million in 1996, due primarily to higher levels of
interest-bearing investments resulting from the proceeds from the private
placements of equity securities with Amgen, Medtronic, and Procter & Gamble in
1996 and 1997.
The Company's total operating expenses decreased to $44.7 million in
1997 from $56.5 million in 1996. Research and development expenses declined to
$27.8 million in 1997 from $28.3 million in 1996 as less BDNF was produced for
clinical use by Sumitomo Pharmaceuticals in 1997. The Company's share of the
loss in Amgen-Regeneron Partners in 1997 decreased to $3.4 million from $14.3
million in 1996, reflecting lower expenses after completion of the Phase III
BDNF subcutaneous clinical trial in 1996.
General and administrative expenses were $5.8 million in 1997 and $5.9
million in 1996. Depreciation and amortization expense decreased to $4.4 million
in 1997 from $6.1 million in 1996, as certain laboratory equipment became fully
depreciated and capitalized patent costs were fully amortized in 1996. Contract
manufacturing expenses, which are direct expenses related to the Merck Agreement
and are reimbursed by Merck, increased to $2.6 million in 1997 from $1.1 million
in 1996, primarily from increased services performed by the Company. Interest
expense was $0.7 million in 1997 and $0.9 million in 1996.
The Company's net loss in 1997 was $11.6 million, or $0.40 per share
(basic and diluted), compared to a net loss of $32.4 million, or $1.33 per share
(basic and diluted), 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.
25
<PAGE>
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 (of which $42.9
million was purchased in June 1997) and provide up to $94.7 million in support
of Regeneron's research efforts related to the collaboration (of which $6.7
million was received through December 31, 1998). 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
September 1997, the Company and Procter & Gamble expanded the P&G Agreement to
include AXOKINE and related molecules (delivered systemically), and agreed to
develop AXOKINE initially to treat obesity associated with Type II diabetes.
Procter & Gamble agreed to reimburse the Company for certain research and
development costs and pay as much as $15.0 million in additional funding, partly
subject to achieving certain milestones related to AXOKINE. Of the $15.0
million, $5.0 million was paid in 1997 and $5.0 million was paid in 1998.
In connection with the Company's agreement to collaborate with Sumitomo
Pharmaceuticals in the research and development of BDNF in Japan, Sumitomo
Pharmaceuticals paid the Company $25.0 million through December 1997. The
Company also received a $5.0 million research progress payment from Sumitomo
Pharmaceuticals (reduced by $0.5 million of Japanese withholding tax) in August
1998.
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 $50.4 million to Amgen-Regeneron Partners from the
partnership's inception in June 1993 through December 31, 1998. The Company
expects that its capital contributions in 1999 will total at least $2.0 million
for the full year. These contributions could increase or decrease, depending
upon (among other things) the nature and cost of ongoing and additional BDNF and
NT-3 studies that Amgen-Regeneron Partners may conduct and the outcomes of those
studies.
From its inception in January 1988 through December 31, 1998, the
Company invested $59.6 million in property, plant, and equipment. This includes
$16.8 million to acquire and renovate the Rensselaer facility and an additional
$14.1 million to complete construction at the facility pursuant to 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 $1.7 million is outstanding. Under the
terms of such financing, the Company is not permitted to declare or pay
dividends on its equity securities.
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
interference proceedings in the Patent and Trademark Office between Regeneron's
patent applications and patents relating to CNTF issued to Synergen, Inc.
("Synergen"). Amgen acquired all outstanding shares of
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Synergen in 1994. In March 1998, the Company and Amgen entered into a covenant
not to sue each other which, among other things, resolved their patent
interference and related patent proceedings relating to CNTF and AXOKINE. The
Company also granted Amgen a license to use CNTF and second generation CNTFs
other than AXOKINE to treat retinal degenerative conditions. Neither party will
pay royalties or make other payments to the other party in consideration of this
agreement.
As of December 31, 1998, the Company had no established banking
arrangements through which it could obtain short-term financing or a line of
credit. Additional funds may be raised through, among other things, the issuance
of additional securities, other financing arrangements, and future collaboration
agreements. No assurance can be given that additional financing will be
available or, if available, that it will be available on acceptable terms. In
addition, the Company estimates that through mid-2002 it could receive
additional payments from Procter & Gamble in the form of research funding,
milestones, and equity purchases of as much as $100 million or more.
At December 31, 1998, the Company had $113.5 million in cash, cash
equivalents, and marketable securities. The Company expects to incur substantial
funding requirements for, among other things, research and development
activities (including preclinical and clinical testing), validation of
manufacturing facilities, and the acquisition of equipment. 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 believes that its existing capital resources will
enable it to meet operating needs for at least 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 significantly before such
time.
Factors That May Affect Future Operating Results
Regeneron cautions stockholders and potential 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 research and
development programs to produce product candidates that are
scientifically or commercially appropriate for further
development by the Company or others.
o Cancellation or termination of material collaborative or
licensing agreements (including in particular, but not limited
to, those with Procter & Gamble and 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
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more of the Company's material collaborators or licensees
could also have a material adverse effect on the Company.
o Delay, difficulty, or failure of a clinical trial of any of
the Company's product candidates. A clinical trial can fail or
be delayed as a result of many causes, including, among
others, failure of the product candidate to demonstrate safety
or efficacy, the development of serious or life-threatening
adverse events (side effects) caused by or connected with
exposure to the product candidate, the creation of antibodies
(in the case of protein-based therapeutics) that weaken or
neutralize the effect of the product candidate (and possibly
could have other adverse effects on patients), the failure of
clinical investigators, trial monitors and other consultants,
or trial subjects to comply with the trial plan or protocol.
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, manufacture,
regulatory approval, sales, and marketing associated with the
introduction of products in the late stage of development.
o Competitive or market factors that 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 of Regeneron's general and
administrative expenses, and the impact of unusual charges
resulting from Regeneron's ongoing evaluation of its business
strategies and organizational structure.
o Failure of corporate partners to develop or 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.
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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- or
employment-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, 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 obesity,
diabetes, cancer, inflammation, muscle disease, bone growth disorders, and
angiogenesis), the Company will require additional internal expertise or
external collaborations in areas in which it currently does not have substantial
resources and personnel.
The Company is evaluating its operations to determine the impact, if
any, that Year 2000 problems may have. The Year 2000 problem results from
computer programs and devices that do not differentiate between the year 1900
and the year 2000 because they were written using two digits rather than four to
define the applicable year. Accordingly, computer systems that have
time-sensitive calculations may not properly recognize the year 2000. Like many
corporations, Regeneron does not have any previous experience with an issue like
the Year 2000 problem.
The Year 2000 problem could affect Regeneron's ability to conduct its
normal operations that are date sensitive or depend on computers or equipment
that contain embedded chips that are date sensitive. It could adversely affect
Regeneron's ability to maintain or operate its facilities in a safe and
effective manner or undertake other activities necessary and customary to
carrying out its business. In addition, the Year 2000 problem could have
material adverse effects on the operations or financial condition of the
Company's licensees, licensors, collaborators, suppliers, vendors, and others,
and, in particular, utility companies that provide energy to the Company's
facilities and equipment, which could, in turn, have a material direct or
indirect effect on Regeneron.
The Company's Year 2000 review includes its computer systems and
software, embedded systems in non-computer equipment, and vendor operations. The
Company has appointed a Year 2000 task force with representatives from each
segment of the Company and has retained independent consultants to facilitate
its review. To date, the
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Company has not learned of any material Year 2000 issue with respect to its
computer systems and software. The Company is in the process of analyzing its
laboratory and manufacturing equipment with embedded systems. This analysis is
incomplete. The Company is also in the process of surveying its vendors who
support critical business processes to determine their level of readiness with
respect to Year 2000 issues. While many vendors indicate that they believe they
are or will be Year 2000 compliant, many others state that they can not
represent that they have achieved compliance or guarantee the efficacy of their
remediation efforts. Many vendors state that the problem is too complex for such
a claim to have legitimacy; that efforts to solve Year 2000 problems are merely
in the nature of risk mitigation; and that success in such efforts will be
measured, with hindsight, by the minimization of the level of technical failures
and by the prompt identification and repair of failures.
The analysis of the Company's embedded systems and the information
collected regarding vendor readiness will be used to formulate a contingency
plan with respect to reasonably identifiable items of equipment and supply of
materials that are critical to the Company's operations. These analyses and
plans are not complete. No assurance can be made that the Company's computer
systems and software, embedded systems in non-computer equipment, and vendors
will be Year 2000 compliant in a timely or cost-effective manner. The failure of
certain third parties (such as Procter & Gamble, Amgen, Sumitomo
Pharmaceuticals, Merck, and utility and communications companies) to operate in
a normal and customary manner and to maintain Year 2000 compliance (or to assure
that their vendors and suppliers are Year 2000 compliant) could have a material
adverse effect on the operations and financial condition of Regeneron. It is
possible that Regeneron could be adversely affected by the failure of other
third parties to be year 2000 compliant even though these third parties do not
directly conduct business with Regeneron. It is not possible to guarantee that
the Company's Year 2000 contingency plan will succeed or be timely.
The costs of addressing Year 2000 issues have been minor to date, but
may increase if substantial consultant or personnel resources are required or if
operationally-critical equipment must be remediated or replaced, or if back-up
energy sources must be secured (assuming such personnel, equipment, or back-up
energy sources are reasonably available). Because the Company's analysis of Year
2000 issues is incomplete, at this time management cannot estimate the total
expected costs of the Year 2000 problem. The risks that Year 2000 problems could
present to the Company include, without limitation, disruption, delay, or
cessation of manufacturing or other operations, including operations that are
subject to regulatory compliance, and loss of research and manufacturing
material and experiments that are difficult, costly, or impossible to replace.
In each case, the correction of the problem could result in substantial expense
and disruption or delay of the Company's operations.
Impact of the Future Adoption of Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes a comprehensive standard
on accounting for derivatives and hedging activities and is effective for
periods beginning after June 15, 1999. Management does not believe that the
future adoption of SFAS No. 133 will have a material effect on the Company's
financial position and results of operations.
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Item 8. Financial Statements and Supplementary Data
The financial statements of the Company required by this item are
included herein as exhibits and listed under Item 14.(A)1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Officers of the Registrant
Information with respect to directors and executive officers is
incorporated by reference to the material captioned "Election of Directors,"
"Executive Officers of the Registrant," and "Compliance with Section 16(b) of
the Securities Exchange Act of 1934" in the Regeneron Pharmaceuticals, Inc.
Proxy Statement to be filed in connection with solicitation of proxies for its
Annual Meeting of Shareholders to be held on June 11, 1999.
Item 11. Executive Compensation
The information called for by this item is incorporated by reference to
the material captioned "Executive Compensation" and "Election of Directors" in
the Regeneron Pharmaceuticals, Inc. Proxy Statement to be filed in connection
with solicitation of proxies for its Annual Meeting of Shareholders to be held
on June 11, 1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information called for by this item is incorporated by reference to
the material captioned "Security Ownership of Management" and "Security
Ownership of Certain Beneficial Owners" in the Regeneron Pharmaceuticals, Inc.
Proxy Statement to be filed in connection with solicitation of proxies for its
Annual Meeting of Shareholders to be held on June 11, 1999.
Item 13. Certain Relationships and Related Transactions
The information called for by this item is incorporated by reference to
the material captioned "Certain Relationships and Related Transactions" in the
Regeneron Pharmaceuticals, Inc. Proxy Statement to be filed in connection with
solicitation of proxies for its Annual Meeting of Shareholders to be held on
June 11, 1999.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(A) 1. Financial Statements
The financials statements filed as part of this report are listed on
the Index to Financial Statements on page F-1.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have
been omitted.
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 (a) - Restated Certificate of Incorporation of Regeneron
Pharmaceuticals, Inc. as of June 21, 1991.
3.2 - By-Laws of the Company, currently in effect (amended as of
January 22, 1995).
10.1 (b) - Certificate of Amendment of the Restated Certificate of
Incorporation of Regeneron Pharmaceuticals, Inc., as of
October 18, 1996.
10.2 (c)* - Technology Development Agreement dated as of March 20, 1989,
between the Company and Sumitomo Chemical Company, Limited.
10.3 (c)* - Neurotrophic Factor Agreement (License Agreement) dated as
of May 10, 1988, between the Company and Max Planck
Institute fur Psychiatrie.
10.4 (c)* - Collaboration Agreement dated August 31, 1990, between the
Company and Amgen Inc.
10.5 (c) - 1990 Amended and Restated Long-Term Incentive Plan.
10.6 (d)* - License Agreement dated as of October 7, 1992, between the
Company and The Regents of the University of California.
10.7 (e)* - Research and Development Agreement dated as of June 2,
1994, between the Company and Sumitomo Pharmaceuticals
Company, Ltd.
10.8 (f)* - Manufacturing Agreement dated as of September 18, 1995,
between the Company and Merck & Co., Inc.
10.9 (g) - Warrant Agreement dated as of April 15, 1996, between the
Company and Amgen Inc.
10.10 (g) - Registration Rights Agreement dated as of April 15, 1996,
between the Company and Amgen Inc.
10.11 (g) - Warrant Agreement dated as of June 27, 1996, between the
Company and Medtronic, Inc.
10.12 (g) - Registration Rights Agreement dated as of June 27, 1996,
between the Company and Medtronic, Inc.
10.13 (h) - 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.
10.14 (i) - Stock Purchase Agreement dated as of December 11, 1996,
between the Company and Procter & Gamble Pharmaceuticals,
Inc.
10.15 (i) - Registration Rights Agreement dated as of December 11, 1996,
between the Company and Procter & Gamble Pharmaceuticals,
Inc.
10.16 (j) - Securities Purchase Agreement dated as of May 13, 1997,
between the Company and The Procter & Gamble Company.
10.17 (j) - Warrant Agreement dated as of May 13, 1997, between the
Company and The Procter & Gamble Company.
10.18 (j) - Registration Rights Agreement dated as of May 13, 1997,
between the Company and The Procter & Gamble Company.
10.19 (j)* - Multi-Project Collaboration Agreement dated as of May 13,
1997, between the Company and The Procter & Gamble Company.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.20 (k)* - 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.
10.21 (l) - Employment Agreement, dated as of February 12, 1998 between
the Company and Leonard S. Schleifer, M.D., Ph.D.
23.1 - Consent of PricewaterhouseCoopers LLP
23.2 - Consent of Ernst & Young LLP, Independent Auditors.
24 - Power of Attorney.
27 - Financial Statement Data for year ending December 31, 1998.
</TABLE>
--------------------------------------------------------------------------
Description:
------------
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended June 30, 1991,
filed August 13, 1991.
(b) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended September 30,
1996, filed November 5, 1996.
(c) Incorporated by reference from the Company's registration
statement on Form S-1 (file number 33-39043).
(d) Incorporated by reference from the Form 10-K for Regeneron
Pharmaceuticals, Inc. for the fiscal year ended December 31,
1992, filed March 30, 1993.
(e) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended September 30,
1994, filed November 14, 1994.
(f) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended September 30,
1995, filed November 14, 1995.
(g) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended June 30, 1996,
filed August 14, 1996.
(h) Incorporated by reference from the Form 8-A for Regeneron
Pharmaceuticals, Inc. filed October 15, 1996.
(i) Incorporated by reference from the Form 10-K for Regeneron
Pharmaceuticals, Inc. for the fiscal year ended December 31,
1996, filed March 26, 1997.
(j) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended June 30, 1997,
filed August 12, 1997.
(k) Incorporated by reference from the Form 10-Q for Regeneron
Pharmaceuticals, Inc. for the quarter ended September 30,
1997, filed November 10, 1997.
(l) Incorporated by reference from the Form 10-K for Regeneron
Pharmaceuticals, Inc. for the fiscal year ended December 31,
1997, filed March 26, 1998.
* Portions of this document have been omitted and filed
separately with the Commission pursuant to requests for
confidential treatment pursuant to Rule 24b-2.
</TABLE>
(B) Reports on Form 8-K
None.
33
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dated: New York, New York
March 25, 1999
REGENERON PHARMACEUTICALS, INC.
By: /s/ LEONARD S. SCHLEIFER
-------------------------------------
Leonard S. Schleifer, M.D., Ph.D.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following person on behalf of the
registrant in the capacities indicated on March 25, 1999.
Signature Title
--------- -----
/s/ LEONARD S. SCHLEIFER, President, Chief Executive
- -------------------------------------- Officer, and Director
Leonard S. Schleifer, M.D., Ph.D.
/s/ MURRAY A. GOLDBERG Vice President, Finance &
- -------------------------------------- Administration, Chief Financial
Murray A. Goldberg Officer, and Treasurer (Principal
Financial Officer)
/s/ DOUGLAS S. MCCORKLE Controller and Assistant
- -------------------------------------- Treasurer (Chief Accounting
Douglas S. McCorkle Officer)
* Chairman of the Board
- --------------------------------------
P. Roy Vagelos, M.D.
* Director
- --------------------------------------
Charles A. Baker
* Director
- --------------------------------------
Michael S. Brown, M.D.
* Director
- --------------------------------------
Alfred G. Gilman, M.D., Ph.D.
* Director
- --------------------------------------
Joseph L. Goldstein, M.D.
* Director
- --------------------------------------
Fred A. Middleton
* Director
- --------------------------------------
Eric M. Shooter, Ph.D.
Director
- --------------------------------------
George L. Sing
*By /s/ PAUL LUBETKIN
----------------------------------
Paul Lubetkin
(Attorney-in-Fact)
34
<PAGE>
REGENERON PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Regeneron Pharmaceuticals, Inc. Numbers
-------
Report of Independent Accountants F-2
Balance Sheets at December 31, 1998 and 1997 F-3
Statements of Operations for the years ended December 31,
1998, 1997, and 1996 F-4
Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997, and 1996 F-5
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996 F-6
Notes to Financial Statements F-7 to F-20
Amgen-Regeneron Partners
Report of Ernst & Young LLP, Independent Auditors F-22
Balance Sheets at December 31, 1998 and 1997 F-23
Statements of Operations for the years ended December 31,
1998, 1997, and 1996 F-24
Statements of Changes in Partners' Capital for the years
ended December 31, 1998, 1997, and 1996 F-25
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996 F-26
Notes to Financial Statements F-27 to F-31
================================================================================
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:
In our opinion, based upon our audits and the report of other auditors,
the accompanying balance sheets and the related statements of operations,
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Regeneron Pharmaceuticals, Inc. (the "Company") at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We did not audit
the financial statements of Amgen-Regeneron Partners (the "Partnership"), an
entity which is fifty percent owned by the Company, as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998. The
Company's investment in the Partnership is accounted for in accordance with the
equity method of accounting and constitutes less than two percent of the
Company's total assets at December 31, 1998 and 1997. For the years ended
December 31, 1998, 1997 and 1996, the Company recorded its pro rata share of the
Partnership's net loss of approximately $2.4 million, $3.4 million and $14.3
million, respectively. The Partnership's financial statements were audited by
other auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for the
Partnership, is based solely on the report of the other auditors. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits and the report of other auditors provide a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 5, 1999
================================================================================
F-2
<PAGE>
REGENERON PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31, 1998 and 1997
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------------- --------------
<S> <C> <C>
Current assets
Cash and cash equivalents $19,757 $28,921
Marketable securities 66,022 63,602
Receivable due from The Procter & Gamble Company 3,169 2,403
Receivable due from Merck & Co., Inc. 1,665 1,707
Receivable due from Amgen-Regeneron Partners 709 356
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 167 2,115
Prepaid expenses and other current assets 1,412 536
-------------- --------------
Total current assets 92,901 99,640
Marketable securities 27,751 35,518
Investment in Amgen-Regeneron Partners 3,091 364
Property, plant, and equipment, at cost, net of accumulated depreciation
and amortization 33,019 32,713
Other assets 153 145
-------------- --------------
Total assets $156,915 $168,380
============== ==============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $5,551 $4,663
Deferred revenue, current portion 2,735 4,182
Capital lease obligations, current portion 1,051 1,770
Note payable, current portion 65 73
-------------- --------------
Total current liabilities 9,402 10,688
Deferred revenue 12,938 14,801
Capital lease obligations 1,457 2,077
Note payable 1,609 1,675
Other liabilities 282 242
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;
3,630,786 shares issued and outstanding in 1998
4,117,540 shares issued and outstanding in 1997 4 4
Common Stock, $.001 par value; 60,000,000 shares authorized;
27,386,858 shares issued and outstanding in 1998
26,804,941 shares issued and outstanding in 1997 27 27
Additional paid-in capital 308,561 308,109
Unearned compensation (360) (720)
Accumulated deficit (177,233) (168,608)
Accumulated other comprehensive income 228 85
-------------- --------------
Total stockholders' equity 131,227 138,897
-------------- --------------
Total liabilities and stockholders' equity $156,915 $168,380
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
F-3
<PAGE>
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997, and 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- --------------------
<S> <C> <C> <C>
Revenues
Contract research and development $19,714 $17,400 $17,303
Research progress payments 9,500 5,000
Contract manufacturing 9,113 4,458 2,451
Investment income 6,866 6,242 4,360
------------------- ------------------- --------------------
45,193 33,100 24,114
------------------- ------------------- --------------------
Expenses
Research and development 37,047 27,770 28,269
Loss in Amgen-Regeneron Partners 2,484 3,403 14,250
General and administrative 5,838 5,765 5,880
Depreciation and amortization 3,019 4,389 6,084
Contract manufacturing 5,002 2,617 1,115
Interest 428 735 940
------------------- ------------------- --------------------
53,818 44,679 56,538
------------------- ------------------- --------------------
Net loss ($8,625) ($11,579) ($32,424)
=================== =================== ====================
Net loss per share, basic and diluted ($0.28) ($0.40) ($1.33)
=================== =================== ====================
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
F-4
<PAGE>
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997, and 1996
(In thousands)
<TABLE>
<CAPTION>
Additional
Class A Stock Common Stock Paid-in Unearned
---------------------- ----------------------
Shares Amount Shares Amount Capital Compensation
----------- --------- ---------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 5,404 $5 16,465 $17 $193,594 ($1,440)
Issuance of Common Stock for
settlement of an obligation 153 2,000
Amortization of unearned compensation 360
Issuance of equity securities to
Amgen Inc. 3,000 3 47,997
Issuance of equity securities to
Medtronic, Inc. 461 10,000
Amounts received in connection with
the Stock Purchase Agreement with
Procter & Gamble Pharmaceuticals,
Inc. 10,000
Cost associated with issuance of
equity securities (205)
Issuance of Common Stock in connection
with exercise of stock options 210 1,357
Conversion of Class A Stock to
Common Stock (1,031) (1) 1,031 1
Retirement of treasury stock (17)
Net loss, 1996
Change in net unrealized gain
on marketable securities
------------------------------------------------------------------------------
Balance, December 31, 1996 4,356 4 21,320 21 264,743 (1,080)
Amortization of unearned compensation 360
Shares issued to Procter & Gamble
Pharmaceuticals, Inc. in connection
with the 1996 Stock Purchase
Agreement 800 1 (1)
Issuance of equity securities to The
Proctor & Gamble Company 4,350 5 42,930
Cost associated with issuance of
equity securities (31)
Issuance of Common Stock in connection
with exercise of stock options 97 468
Conversion of Class A Stock to
Common Stock (238) 238
Net loss, 1997
Change in net unrealized gain
on marketable securities
------------------------------------------------------------------------------
Balance, December 31, 1997 4,118 4 26,805 27 308,109 (720)
Amortization of unearned compensation 360
Issuance of Common Stock in connection
with exercise of stock options 95 452
Conversion of Class A Stock to
Common Stock (487) 487
Net loss, 1998
Change in net unrealized gain
on marketable securities
------------------------------------------------------------------------------
Balance, December 31, 1998 3,631 $4 27,387 $27 $308,561 ($360)
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Other Class A Stock Total
Accumulated Comprehensive Held in Treasury Stockholders' Comprehensive
----------------
Deficit Income Shares Amount Equity Loss
---------------- -------------------- ------ ------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ($124,605) $286 17 $67,857
Issuance of Common Stock for
settlement of an obligation 2,000
Amortization of unearned compensation 360
Issuance of equity securities to
Amgen Inc. 48,000
Issuance of equity securities to
Medtronic, Inc. 10,000
Amounts received in connection with
the Stock Purchase Agreement with
Procter & Gamble Pharmaceuticals,
Inc. 10,000
Cost associated with issuance of
equity securities (205)
Issuance of Common Stock in connection
with exercise of stock options 1,357
Conversion of Class A Stock to
Common Stock
Retirement of treasury stock (17)
Net loss, 1996 (32,424) (32,424) ($32,424)
Change in net unrealized gain
on marketable securities (14) (14) (14)
------------------------------------------------------------------------------------------
Balance, December 31, 1996 (157,029) 272 106,931 ($32,438)
================
Amortization of unearned compensation 360
Shares issued to Procter & Gamble
Pharmaceuticals, Inc. in connection
with the 1996 Stock Purchase
Agreement
Issuance of equity securities to The
Proctor & Gamble Company 42,935
Cost associated with issuance of
equity securities (31)
Issuance of Common Stock in connection
with exercise of stock options 468
Conversion of Class A Stock to
Common Stock
Net loss, 1997 (11,579) (11,579) ($11,579)
Change in net unrealized gain
on marketable securities (187) (187) (187)
------------------------------------------------------------------------------------------
Balance, December 31, 1997 (168,608) 85 138,897 ($11,766)
================
Amortization of unearned compensation 360
Issuance of Common Stock in connection
with exercise of stock options 452
Conversion of Class A Stock to
Common Stock
Net loss, 1998 (8,625) (8,625) ($8,625)
Change in net unrealized gain
on marketable securities 143 143 143
------------------------------------------------------------------------------------------
Balance, December 31, 1998 ($177,233) $228 $131,227 ($8,482)
==========================================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
F-5
<PAGE>
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997, and 1996
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ($8,625) ($11,579) ($32,424)
-------------- ------------- --------------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 2,484 3,403 14,250
Depreciation and amortization 3,019 4,389 6,084
Stock issued in consideration for services rendered 360 360 360
Changes in assets and liabilities
Increase in amounts due from The Procter & Gamble Company (766) (2,403)
Decrease (increase) in amounts due from Merck & Co., Inc. 42 109 (1,544)
(Increase) decrease in amounts due from Amgen-Regeneron Partners (353) 90 223
Decrease (increase) in amounts due from
Sumitomo Pharmaceuticals Co., Ltd 1,948 (43) (323)
Increase in investment in Amgen-Regeneron Partners (5,211) (2,562) (14,182)
(Increase) decrease in prepaid expenses and other assets (884) 35 356
(Decrease) increase in deferred revenue (3,310) 1,604 7,287
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities 1,094 518 (369)
-------------- ------------- --------------
Total adjustments (1,577) 5,500 12,142
-------------- ------------- --------------
Net cash used in operating activities (10,202) (6,079) (20,282)
-------------- ------------- --------------
Cash flows from investing activities
Purchases of marketable securities (87,973) (112,611) (74,607)
Sales of marketable securities 93,463 75,858 38,926
Capital expenditures (3,049) (2,146) (8,622)
-------------- ------------- --------------
Net cash provided by (used in) investing activities 2,441 (38,899) (44,303)
-------------- ------------- --------------
Cash flows from financing activities
Net proceeds from the issuance of stock 452 43,372 69,964
Principal payments on note payable (74) (78) (83)
Capital lease payments (1,781) (3,870) (3,557)
-------------- ------------- --------------
Net cash (used in) provided by financing activities (1,403) 39,424 66,324
-------------- ------------- --------------
Net (decrease) increase in cash and cash equivalents (9,164) (5,554) 1,739
Cash and cash equivalents at beginning of period 28,921 34,475 32,736
-------------- ------------- --------------
Cash and cash equivalents at end of period $19,757 $28,921 $34,475
============== ============= ==============
Supplemental disclosure of cash flow information
Cash paid for interest $388 $676 $860
============== ============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
F-6
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
for the years ended December 31, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
1. Organization and Business
Regeneron Pharmaceuticals, Inc. (the "Company" or "Regeneron") was
incorporated in January 1988 in the State of New York. The Company is engaged
in research and development programs to discover and commercialize
therapeutics to treat human disorders and conditions. The Company's operations
are all conducted under a single business segment. The Company's facilities
are located in New York. The Company's business is subject to certain risks
including, but not limited to uncertainties relating to conducting
pharmaceutical research, obtaining regulatory approvals, commercializing
products, and obtaining and enforcing patents.
2. Summary of Significant Accounting Policies
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
provided on a straight-line basis over the estimated useful lives of the
assets. Expenditures for maintenance and repairs which do not materially
extend the useful lives of the assets are charged to expense as incurred. The
cost and accumulated depreciation or amortization of assets retired or sold
are removed from the respective accounts, and any gain or loss is recognized
in operations. The estimated useful lives of property, plant, and equipment
are as follows:
Building and improvements 30 years
Leasehold improvements Life of lease
Laboratory and computer equipment 3-5 years
Furniture and fixtures 5 years
Cash and Cash Equivalents
For purposes of the statement of cash flows and the balance sheet,
the Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents. The carrying
amount reported in the balance sheet for cash and cash equivalents
approximates its fair value.
Revenue Recognition
Revenue from contract research and development and contract
manufacturing is recognized as the related services are performed by the
Company, provided the collection of the resulting receivable is probable. In
situations where the Company receives payments in advance of the performance
of services, such amounts are deferred and recognized as revenue as the
related services are performed. Interest income, which is included in
investment income, is recognized as earned. Research progress payments are
received from collaborators upon the Company's achievement of defined
milestones. Such payments are recognized as revenue when the milestone has
been achieved and there are no additional services to be provided or costs to
be incurred by the Company.
Net Loss Per Share
Net loss per share, basic and diluted, is computed on the basis of
the net loss for the period divided by the weighted average number of shares
of Common Stock and Class A Stock outstanding during the period. The diluted
net loss per share for all periods presented excludes the number of shares
issuable upon exercise of outstanding stock options and warrants since such
inclusion would be antidilutive. Disclosures required by SFAS No. 128 have
been included in Note 14.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the difference between
the tax basis of assets and liabilities and their respective financial
reporting amounts ("temporary differences") at enacted tax rates in effect for
the years in which the differences are expected to reverse.
F-7
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents, marketable
securities, and receivables from The Procter & Gamble Company, Amgen-Regeneron
Partners, Sumitomo Pharmaceuticals Company, Ltd., and Merck & Co., Inc. The
Company generally invests its excess cash in obligations of the U.S.
government and its agencies, bank deposits, and investment grade debt
securities issued by corporations, governments, and financial institutions.
The Company has established guidelines that relate to credit quality,
diversification, and maturity, and that limit exposure to any one issue of
securities.
Risks and Uncertainties
The Company has had no product sales and there is no assurance that
the Company's research and development efforts will be successful, that the
Company will ever have commercially approved products, or that the Company
will achieve significant sales of any such products. The Company has incurred
net losses and negative cash flows from operations since its inception, and
revenues to date have been limited to payments for research from four
collaborators and for contract manufacturing from one pharmaceutical company
and investment income (see Notes 8 and 9). In addition, the Company operates
in an environment of rapid change in technology and is dependent upon the
services of its employees, consultants, and collaborators.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-based Employee Compensation
The accompanying financial position and results of operations of the
Company have been prepared in accordance with APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB No. 25"). Under APB No. 25, generally, no
compensation expense is recognized in the accompanying financial statements in
connection with the awarding of stock option grants to employees provided
that, as of the grant date, all terms associated with the award are fixed and
the quoted market price of the Company's stock, as of the grant date, is equal
to or less than the amount an employee must pay to acquire the stock, as
defined.
Disclosures required by Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro
forma operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation, have been included in Note 10.
Adoption of Statement of Financial Accounting Standards No. 130
The Company has adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS No. 130"). Comprehensive loss
represents the change in net assets of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources.
Comprehensive loss of the Company includes net loss adjusted for the change in
net unrealized gain or loss on marketable securities. The net effect of income
taxes on comprehensive loss is immaterial. The disclosures required by SFAS No.
130 for the years ended December 31, 1998, 1997, and 1996 have been included in
the Statements of Stockholders' Equity.
Impact of the Future Adoption of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative and Hedging
Activities ("SFAS No. 133"). SFAS No. 133 establishes a comprehensive standard
on accounting for derivatives and hedging activities and is effective for
periods beginning after June 15, 1999. Management does not believe that the
future adoption of SFAS No. 133 will have a material effect on the Company's
financial position and results of operations.
Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
Capital lease obligations of approximately $0.4 million, $0.8 million,
and $2.9 million were incurred when the Company acquired new equipment in 1998,
1997, and 1996, respectively.
F-8
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
During January 1995, the Company issued 600,000 restricted shares of
Common Stock ("Restricted Shares"), in consideration for $0.3 million and
services to be rendered, in connection with an agreement with the Chairman of
the Board of Directors. The difference between the fair market value of the
Common Stock on the date the agreement was signed and the purchase price of
the Restricted Shares was $1.8 million which the Company is recognizing as
compensation expense on a pro rata basis over five years as the restriction on
the Restricted Shares lapses.
Included in accounts payable and accrued expenses at December 31, 1998,
1997, and 1996 were approximately $0.5 million, $0.6 million, and $0.8 million
of capital expenditures, respectively.
Reclassifications
Certain reclassifications have been made to the financial statements
for 1996 to conform with the current year's presentation.
3. Marketable Securities
The Company considers its marketable securities to be
"available-for-sale," as defined by Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, and, accordingly, unrealized holding gains and losses are excluded
from operations and reported as a net amount in a separate component of
stockholders' equity.
The following tables summarize the amortized cost basis of marketable
securities, the aggregate fair value of marketable securities, and gross
unrealized holding gains and losses at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Amortized Fair Unrealized Holding
------------------
At December 31, 1998 Cost Basis Value Gains (Losses) Net
- -------------------- ---------- ----- ----- -------- ---
<S> <C> <C> <C> <C> <C>
Maturities within one year
Corporate debt securities $33,155 $33,169 $16 ($2) $14
U.S. Government securities 32,703 32,853 150 - 150
------ ------ --- -- ---
65,858 66,022 166 (2) 164
------ ------ --- -- ---
Maturities between one and three years
Corporate debt securities 5,069 5,061 1 (9) (8)
U.S. Government securities 22,618 22,690 76 (4) 72
------ ------ -- --- --
27,687 27,751 77 (13) 64
------ ------ -- ---- --
$93,545 $93,773 $243 ($15) $228
======= ======= ==== ===== ====
At December 31, 1997
- --------------------
Maturities within one year $52,471 $52,504 $35 ($2) $33
Corporate debt securities 11,097 11,098 5 (4) 1
------ ------ - --- -
U.S. Government securities 63,568 63,602 40 (6) 34
------ ------ -- --- --
Maturities between one and three years
Corporate debt securities 5,029 5,026 1 (4) (3)
U.S. Government securities 30,438 30,492 67 (13) 54
------ ------ -- ---- --
35,467 35,518 68 (17) 51
------ ------ -- ---- --
$99,035 $99,120 $108 ($23) $85
======= ======= ==== ===== ===
</TABLE>
Realized gains and losses are included as a component of investment
income. For the years ended December 31, 1998, 1997, and 1996, gross realized
gains and losses were not significant. In computing realized gains and losses,
the Company computes the cost of its investments on a specific identification
basis. Such cost includes the direct costs to acquire the securities, adjusted
for the amortization of any discount or premium. The fair value of marketable
securities has been estimated based on quoted market prices.
F-9
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
4. Property, Plant, and Equipment
Property, plant, and equipment as of December 31, 1998 and 1997 consist
of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land $ 475 $ 475
Building and improvements 30,463 22,744
Leasehold improvements 7,141 6,180
Construction in progress 7,679
Laboratory and other equipment 19,366 17,779
Furniture, fixtures, and computer equipment 2,186 1,449
-------- -----
59,631 56,306
Less, accumulated depreciation and amortization (26,612) (23,593)
-------- --------
$33,019 $32,713
======= =======
</TABLE>
Depreciation and amortization expense on property, plant, and equipment
amounted to approximately $3.0 million, $4.4 million, and $4.8 million, for the
years ended December 31, 1998, 1997, and 1996, respectively.
5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of December 31, 1998 and 1997
consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Accounts payable $2,223 $ 2,947
Accrued payroll and related costs 1,346 654
Accrued clinical trial expense 1,336 320
Accrued expenses, other 359 392
Deferred compensation 287 350
----- -----
$5,551 $ 4,663
====== =======
</TABLE>
6. Stockholders' Equity
The Company's Amended Certificate of Incorporation provides for the
issuance of up to 40 million shares of Class A Stock, par value $0.001 per
share, and 60 million shares of Common Stock, par value $0.001 per share. Each
share of Class A Stock is convertible, at any time, at the option of the holder
into shares of Common Stock on a share-for-share basis and holders of Class A
Stock have rights and privileges identical to Common Stockholders except that
Class A Stockholders are entitled to ten votes per share while Common
Stockholders are entitled to one vote per share. Class A Stock may only be
transferred to specified Permitted Transferees, as defined. The Company's Board
of Directors (the "Board") is authorized to issue up to 30 million shares of
preferred stock, in series, with rights, privileges, and qualifications of each
series determined by the Board.
During January 1995, the Company entered into an agreement with the
Chairman of the Board. As partial consideration for services to be rendered, the
agreement provided for the Company to sell the Chairman 600,000 restricted
shares of Common Stock ("Restricted Shares"), in consideration for $0.3 million,
and to grant 285,000 stock options. The Restricted Shares are nontransferable
with such restriction lapsing ratably over a five year period. In accordance
with generally accepted accounting principles, the Company is recognizing
compensation expense for the difference between the fair market value of the
Common Stock on the date the agreement was signed and the purchase price of the
Restricted Shares on a pro rata basis over five years as the restriction on the
Restricted Shares lapses. The unamortized balance of unearned compensation at
December 31, 1998 (approximately $0.4 million) has been included as a reduction
to stockholders' equity. For the years ended December 31, 1998, 1997, and 1996,
the Company recognized compensation expense of approximately $0.4 million in
each year. The stock options, which have been issued under the Company's Amended
and Restated 1990 Long-Term Incentive Plan, entitle the holder to purchase an
equal number of shares of Common Stock at a per share price of $3.50, the fair
market value of the Common Stock on the date of grant. The options vest over a
five year period.
F-10
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
During September 1996, the Company announced that it adopted a
Shareholder Rights Plan in which Rights were distributed as a dividend at the
rate of one Right for each share of Common Stock and Class A Stock
(collectively, "Stock") held by shareholders of record as of the close of
business on October 18, 1996. Each Right initially entitles 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
were attached to all Stock certificates representing shares then outstanding,
and no separate Rights certificate were distributed. The Rights will separate
from the 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 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
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 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, or 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 Right's Exercise Price is the Purchase Price times the number of
shares of Common Stock 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 Right's Exercise Price.
As a result of the Shareholder Rights Plan, the Company's Board
designated 100,000 shares of preferred stock as A Preferred Stock. The A
Preferred Stock has certain preferences, as defined.
In November 1996, the Company's Board authorized the retirement of
17,073 shares of Class A Stock which had been held as treasury shares. The
retired shares have the status of authorized but unissued stock and retain the
classification of Class A Stock.
7. Commitments and Contingencies
a. Operating Leases
The Company leases laboratory and office space under an operating lease
agreement which expires on June 30, 2003. The lease, as amended, provides for
base rent plus additional rental charges for utilities, increases in taxes and
operating expenses, as defined. The Company has a renewal option to extend the
lease for an additional five years.
The Company leases certain laboratory and office equipment under
operating leases which expire at various times through 2002.
At December 31, 1998, the future minimum noncancelable lease
commitments under operating leases were as follows:
Laboratory and
December 31, Office Space Equipment Total
------------ ------------ --------- -----
1999 $2,825 $111 $2,936
2000 2,997 94 3,091
2001 3,077 23 3,100
2002 3,077 2 3,079
2003 1,538 - 1,538
----- --------- -----
$13,514 $230 $13,744
======= ========= =======
F-11
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Rent expense under operating leases was:
Laboratory and
Year Ending December 31, Office Space Equipment Total
------------------------ ------------ --------- -----
1998 $2,466 $194 $2,660
1997 2,711 459 3,170
1996 2,738 669 3,407
In addition to its rent expense for laboratory and office space, the
Company paid contingent rental charges for utilities of approximately $0.1
million for the year ended December 31, 1998.
b. Capital Leases
The Company leases equipment under noncancelable capital leases.
Lease terms range from four to five years after which the Company is required
to purchase the equipment at amounts defined by the agreements, or the leases
will automatically be extended for one additional year at defined monthly
payments. The leases, as amended, have various financial covenants which
include minimum levels of liquid assets (as defined) of $30.0 million and
tangible net worth (as defined) of $35.0 million.
As of December 31, 1998, minimum rental payments under all capital
leases, including payments to acquire leased equipment, were as follows:
Minimum
Year Ending December 31, Rental Payments
------------------------ ---------------
1999 $1,226
2000 1,188
2001 270
2002 97
-------
2,781
Less, amounts representing interest (273)
-------
Present value of net minimum capital lease payments $2,508
=======
Leased equipment and building improvements included in property, plant,
and equipment was approximately $4.4 million and $7.4 million at December 31,
1998 and 1997, respectively; related accumulated depreciation was approximately
$2.3 million and $4.2 million for the same respective periods.
c. Note Payable
The Company borrowed $2.0 million from the New York State Urban
Development Corporation ("NYS UDC"). The terms of the note provide for monthly
payments of principal and interest through December 2014. Outstanding borrowings
accrue interest at an effective interest rate of approximately 7.3%. The note is
collateralized by a first mortgage on the Company's land, building and
improvements in Rensselaer, New York (book value at December 31, 1998 was
approximately $28.0 million). The note also has various financial covenants
which include a minimum ratio of current assets over current liabilities, as
defined, and a minimum level of tangible net worth, as defined, of $35.0
million. In addition, the Company is not permitted to declare or pay dividends
to its stockholders. The provisions of the note require the Company to meet
certain defined levels of employment; otherwise, the interest rate on
outstanding borrowings will increase to 2.0% above the prime rate (as defined)
until the defined levels of employment are attained. As of January 1, 1997,
1998, and 1999, the Company had not met the defined levels of employment;
however, the NYS UDC elected to only increase the interest rate by a nominal
amount, the effects of which were not material to the financial statements. The
estimated fair value of the Company's note payable to the NYS UDC at December
31, 1998 was approximately $2.0 million. The fair value was estimated based on
the current rate offered to the Company for debt with similar terms.
F-12
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Principal payments under the note during each of the next five years, and
thereafter, are as follows:
1999 $65
2000 63
2001 63
2002 63
2003 64
Thereafter 1,356
------
$1,674
======
d. Research Collaboration and Licensing Agreements
As part of the Company's research and development efforts, the Company
enters into research collaboration and licensing agreements ("Agreements") with
related and unrelated scientific collaborators, universities, or consultants
(collectively, the "Scientists"). These Agreements contain varying terms and
provisions which include fees to be paid by the Company, services to be provided
by the Scientists, and ownership rights to certain proprietary technology
developed under the Agreements. Some of the Agreements contain provisions which
require the Company to pay royalties to the Scientists, as defined, in the event
the Company sells or licenses any proprietary products developed under the
respective Agreements.
Certain Agreements, where the Company is required to pay fees, provide
for the Company, upon 30 to 90-day written notice, to terminate such Agreements.
During the three years ended December 31, 1998, the Company incurred expenses
related to these Agreements of approximately $0.7 million, $0.3 million, and
$0.5 million, respectively.
e. Deferred Compensation
The Company has entered into compensation agreements with certain
employees and outside consultants. These agreements require the Company to make
certain payments in the future, as defined by the respective agreements. The
Company provides for such expenditures over the employment/service period. Such
accrual amounted to approximately $0.3 million and $0.4 million at December 31,
1998 and 1997, respectively.
8. Collaboration Agreements
a. Amgen Inc.
In August 1990, the Company entered into a collaboration agreement (the
"Amgen Agreement") with Amgen Inc. ("Amgen") to develop and attempt to
commercialize two proprietary products (BDNF and NT-3, individually the
"Product," collectively the "Products"). The Amgen Agreement, among other
things, provides for Amgen to fund defined amounts ("Minimum Annual Funding") of
development costs of the Products and for Amgen and the Company to form a
partnership ("Amgen-Regeneron Partners" or the "Partnership") to complete the
development and to commercialize the Products after a defined level of
development has occurred. In June 1993, the Partnership commenced operations,
with Amgen and the Company holding equal ownership interests (subject to
adjustment for any future inequities in capital contributions, as defined). The
Partnership is the exclusive distributor of Products in the United States, and
Amgen has received a license from the Company to market the Products outside the
United States and outside Japan and certain Pacific Rim countries. The Company
accounts for its investment in the Partnership in accordance with the equity
method of accounting. Since the Partnership's inception, the Company has
contributed capital to the Partnership of approximately $50.4 million. In 1998,
1997, and 1996, the Company recognized its share of the Partnership net loss in
the amounts of approximately $2.5 million, $3.4 million, and $14.3 million,
respectively, which represents 50% of the total Partnership net loss. As of
December 31, 1998, the Company continues to be an equal partner in the
Partnership.
Payments from Amgen with respect to its Minimum Annual Funding
obligation and from the Partnership in connection with services provided to the
Partnership, are recognized as contract research and development revenue as
earned. Such revenue for the years ended December 31, 1998, 1997, and 1996
totaled approximately $1.9 million, $1.5 million, and $5.8 million,
respectively. Contract research and development payments received in advance are
deferred and recognized as revenue when the related services are performed. In
addition, the Amgen Agreement contains a provision whereby the Company will
receive defined amounts ("Research Progress Payments") from Amgen when each
Product reaches certain levels of development.
F-13
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Selected financial data of the Partnership as of December 31, 1998 and
1997 and for the years ended December 31, 1998, 1997, and 1996, are as follows:
<TABLE>
<CAPTION>
Balance Sheet Data
------------------
1998 1997
---- ----
<S> <C> <C>
Cash and cash equivalents $9,961 $2,552
Accounts payable and accrued expenses due to
partners (1) 3,779 1,824
Partners' capital accounts
Amgen 3,091 364
The Company 3,091 364
</TABLE>
- --------
(1) At December 31, 1998, includes approximately $0.7 million due the
Company, less approximately $0.3 million payable by the Company to the
Partnership. At December 31, 1997, includes approximately $0.4 million
due the Company.
<TABLE>
<CAPTION>
Statement of Operations Data
----------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Total revenue $316 $310 $750
Total expenses (2) (5,284) (7,116) (29,250)
-------- -------- ---------
Net loss ($4,968) ($6,806) ($28,500)
======== ======== =========
</TABLE>
- --------
(2) Includes approximately $1.9 million, $1.5 million, and $5.8 million
related to services provided by the Company for the years ended
December 31, 1998, 1997, and 1996, respectively.
During 1990, Amgen purchased 767,656 shares of Series D convertible
preferred stock for $15.0 million. Such shares converted into 788,766 shares of
Class A Stock in April 1991 at the time of the Company's initial public
offering. During April 1996, Amgen purchased from the Company 3 million shares
of Common Stock and 700,000 warrants for $48.0 million. The warrants have an
exercise price of $16 per share, are fully exercisable, expire on April 15,
2001, and are subject to anti-dilution provisions, and other defined
adjustments.
b. Sumitomo Pharmaceuticals Company, Ltd.
In June 1994, the Company entered into a research and development
agreement with Sumitomo Pharmaceuticals Company, Ltd. ("Sumitomo
Pharmaceuticals") to collaborate in the research and development of BDNF in
Japan. Sumitomo Pharmaceuticals paid the Company $13.0 million in June 1994 and
agreed to pay $3.0 million annually on each January 1 from 1995 to 1998
(inclusive) for research payments. The research payments from Sumitomo
Pharmaceuticals are recognized as contract research and development revenue over
a twelve month period. The Company recognized contract research and development
revenue with respect to research payments of approximately $3.0 million, for the
years ended December 31, 1998, 1997, and 1996, respectively. Research payments
from Sumitomo Pharmaceuticals that are received in advance are deferred and
recognized as revenue when the related services are performed. At December 31,
1997, research payments of $3.0 million were deferred. In addition, Sumitomo
Pharmaceuticals reimburses the Company for its activities in developing
manufacturing processes for BDNF and supplying BDNF and other research materials
to Sumitomo Pharmaceuticals ("manufacturing payments"). Such manufacturing
payments, which are included in contract research and development revenue,
totaled approximately $1.3 million, $7.6 million, and $8.5 million, in 1998,
1997, and 1996, respectively. In March 1998, Sumitomo Pharmaceuticals initiated
a Phase I clinical trial of BDNF in Japan and, in August 1998, signed a license
agreement with the Company for the development of BDNF in Japan. Pursuant to the
license agreement, Sumitomo Pharmaceuticals made a $5.0 million milestone
payment (reduced by $0.5 million of Japanese withholding tax) and will make
additional payments upon the achievement of specified milestones. The amount
received in 1998 is included in research progress payments.
During 1989, Sumitomo Chemical Co., Ltd., an affiliate of Sumitomo
Pharmaceuticals, entered into a stock purchase agreement whereby it purchased,
for $4.4 million, 885,062 shares of Class C Preferred Stock. Such shares
converted into 909,401 shares of Class A Stock in April 1991 at the time of the
Company's initial public offering.
F-14
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
c. Glaxo Wellcome plc
During 1993, the Company entered into a collaborative research
agreement with Glaxo Wellcome plc ("Glaxo"). Products that are developed by the
joint efforts of Glaxo and the Company will be commercialized by one or more
equally owned joint ventures. Glaxo also purchased 500,000 shares of the
Company's Common Stock at a price of $20 per share.
d. Medtronic, Inc.
During June 1996, the Company and Medtronic, Inc. ("Medtronic") entered
into a worldwide exclusive joint development agreement (subsequently terminated
during 1998), and Medtronic purchased from the Company 460,500 shares of Common
Stock and 107,400 warrants for $10.0 million. The warrants have an exercise
price of $21.72 per share, are fully exercisable, expire on June 26, 2001, and
are subject to anti-dilution provisions and other defined adjustments.
e. The Procter & Gamble Company
During December 1996, the Company entered into a collaboration
agreement with Procter & Gamble Pharmaceuticals, Inc. ("P&G Pharmaceuticals") to
jointly discover and develop therapeutics ("compound") for muscle diseases and
disorders (the "1996 Agreement"). As part of the 1996 Agreement, P&G
Pharmaceuticals agreed to provide, for a minimum of three years, minimum annual
research funding to the Company of $3.75 million. P&G Pharmaceuticals had the
option to fund additional amounts and had the right to terminate the agreement
after three years. In the event that a compound is discovered and developed to
certain defined levels (but not before the third anniversary of the agreement),
P&G Pharmaceuticals and the Company had agreed to negotiate, in good faith, an
agreement whereby they would jointly complete the development and
commercialization of the compound. In addition, during December 1996, the
Company and P&G Pharmaceuticals entered into a Stock Purchase Agreement whereby
P&G Pharmaceuticals paid $10.0 million in December 1996 and in March 1997
received 800,000 shares of restricted Common Stock.
In May 1997, the Company entered into a ten-year multi-project
collaboration agreement with The Procter & Gamble Company ("P&G") to discover,
develop, and commercialize pharmaceutical products (the "P&G Agreement"), as
well as a securities purchase agreement and other agreements. P&G agreed over
the first five years of the various agreements to purchase up to $60.0 million
in Regeneron equity. In June 1997, P&G completed the purchase of 4.35 million
shares of the Company's 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 the Company's stock at $9.87 per share. In addition, P&G agreed over
the first five years of the various agreements to provide up to $94.7 million in
support of Regeneron's research efforts related to the collaboration, of which
the Company had received $6.7 million as of December 31, 1998. The P&G Agreement
expanded and superceded the 1996 Agreement.
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. P&G will have rights to the Company'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. P&G will also have rights to new technology developed by
the Company 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 P&G amended the P&G Agreement to
include AXOKINE(Trademark) second generation ciliary neurotrophic factor and
related molecules, and agreed initially to develop AXOKINE to treat obesity
associated with Type II diabetes. P&G agreed to pay the Company as much as $15.0
million in additional funding, partly subject to achieving certain milestones
related to AXOKINE. Of the $15.0 million, $5.0 million was paid in each of the
years ended December 31, 1997 and 1998 upon the achievement of defined
milestones. Such amounts are included in research progress payments.
Contract research and development revenue related to the P&G Agreement,
including payments related to AXOKINE, was $13.5 million in 1998 and $5.2
million in 1997. At December 31, 1998 and 1997, the P&G contract research
revenue receivable was $3.2 million and $2.4 million, respectively.
9. Manufacturing Agreement
During 1995, the Company entered into a long-term manufacturing
agreement with Merck & Co., Inc. (the "Merck Agreement") to produce an
intermediate (the "Intermediate") for a Merck pediatric vaccine at the
Company's Rensselaer, New York facility. The Company agreed to modify portions
of its facility for manufacture of the Intermediate and to assist
F-15
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Merck in securing regulatory approval for such manufacture in the Company's
facility. Once the facility is able to produce Intermediate, the Merck Agreement
calls for the Company to manufacture Intermediate for Merck for six years (the
"Production Period"), with certain minimum order quantities each year. As of
December 31, 1998, the Production Period had not commenced. The Merck Agreement
is expected to extend into 2005 and may be terminated at any time by Merck upon
the payment by Merck of a termination fee.
Merck agreed to reimburse the Company for the capital costs to modify
the facility ("Capital Costs") and for the cost of Company activities performed
on behalf of Merck prior to the Production Period ("Internal Costs"). Merck also
agreed to pay an annual facility fee (the "Facility Fee") of $1.0 million
beginning March 1995, subject to annual adjustment for inflation. During the
Production Period, Merck agreed to reimburse the Company for certain
manufacturing costs and pay the Company a variable fee based on the quantity of
Intermediate supplied to Merck. These payments are recognized as contract
manufacturing revenue as follows: (i) payments for Internal Costs are recognized
as the activities are performed, (ii) the Facility Fee is recognized over the
period to which it relates, (iii) payments for Capital Costs are being deferred
and will be recognized over the Production Period, and (iv) payments related to
the manufacture of Intermediate during the Production Period will be recognized
as Intermediate is accepted by Merck.
For the years ended December 31, 1998, 1997, and 1996, contract
manufacturing revenue includes approximately $1.1 million, $1.1 million, and
$1.0 million of Facility Fee, respectively, and $8.0 million, $3.4 million, and
$1.4 million of Internal Costs, respectively. Deferred revenue-current portion
included $0.2 million of Facility Fee and $1.8 million of Capital Costs at
December 31, 1998, and $0.2 million of Facility Fee at December 31, 1997. At
December 31, 1998 and 1997, deferred revenue-long-term portion included $12.9
million and $14.8 million of Capital Costs, respectively.
10. Incentive and Stock Purchase Plans
a. Long-Term Incentive Plan
During 1990, the Company established the Regeneron Pharmaceuticals,
Inc. 1990 Long-Term Incentive Plan ("Incentive Plan"). The Incentive Plan, as
amended, provides for a maximum of 5,400,000 shares of Common Stock for awards.
Salaried employees who are officers or who are employed in an executive,
administrative, or professional capacity, and nonemployees, including
consultants and members of the Board of Directors, may receive awards as
determined by a committee of independent directors ("Committee"). Awards
generally vest on a pro rata basis over a three or five year period and have a
term of ten years. The awards under the Incentive Plan include: (a) Restricted
Share Rights, (b) Incentive Stock Rights, (c) Stock Options, (d) Stock
Appreciation Rights, and (e) Performance Unit Rights.
Restricted Share Rights ("RSR") are awards in which participants in the
Incentive Plan are awarded the right to purchase shares of Common Stock at a
price determined by the Committee. Such shares are nontransferable for a period
determined by the Committee ("vesting period") and, should employment terminate
as defined by the Incentive Plan, the ownership of the shares will be
transferred to the Company in consideration of amounts paid to acquire such
shares. The holder of the RSR has the right to vote and receive dividends during
the vesting period.
Incentive Stock Rights ("ISR") are awards in which participants are
awarded by the Committee the right to receive shares of Common Stock, at no cost
to the participant, in consideration of services performed subject to a vesting
period as determined by the Committee. Holders of ISRs have the right to receive
cash payments from the Company at the same time and in the same amounts as the
holders of Common Stock.
Stock Options are awards in which participants receive the right to
purchase shares of Common Stock at prices determined by the Committee. The
options vest to the employees over a period of time determined by the Committee.
Stock Appreciation Rights ("SAR") may be issued by the Committee in
connection with stock options and allow the option holder to receive Common
Stock (or cash if the Board of Directors elects to do so) equal in value to the
difference between the fair market value of the Common Stock at the exercise
date and the stock option price. Should a participant exercise a SAR, an
equivalent number of stock options will be canceled. SARs have a vesting period
similar to that of stock options.
Performance Unit Rights are awards which the Committee may issue alone
or grant in conjunction with related stock options. Such awards entitle the
holder to receive common stock, cash, or a combination of both at no cost to the
participant upon specific performance objectives being achieved and other
conditions being met, as defined by the Incentive Plan.
F-16
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The Incentive Plan contains provision for immediate vesting of awards
upon a change in control of the Company, as defined.
The Company may incur charges to operations in connection with these
awards.
Transactions involving stock option awards during 1996, 1997, and 1998
are summarized in the table below. Option exercise prices were equal to the
market price of the Company's Common Stock on the date of grant. The total
number of options exercisable at December 31, 1996, 1997, and 1998 was 943,118,
1,496,149, and 1,994,848 respectively, with weighted average exercise prices of
$7.45, $7.37, and $7.49, respectively. As of December 31, 1998, shares available
for future grants amounted to 745,497.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
Number of Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
Stock options outstanding at December 31, 1995 2,671,777 $6.15
1996: Stock options granted 658,827 $13.14
Stock options canceled (198,643) $11.17
Stock options exercised (210,094) $6.46
---------
Stock options outstanding at December 31, 1996 2,921,867 $7.36
1997: Stock options granted (1) 1,016,310 $10.65
Stock options canceled (1) (225,150) $12.80
Stock options exercised (96,591) $4.85
--------
Stock options outstanding at December 31, 1997 3,616,436 $8.00
1998: Stock options granted 1,006,240 $8.61
Stock options canceled (353,888) $9.62
Stock options exercised (95,163) $4.75
--------
Stock options outstanding at December 31, 1998 4,173,625 $8.08
=========
-------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
(1) On February 1, 1997, certain Company employees who had previously been
granted 110,550 stock options on January 1, 1997 under the Incentive
Plan at an exercise price of $15.625 per share (the fair market value
on the date of grant) received new grants which canceled their prior
grants and awarded the same number of options on the same vesting
schedule that governed their original grants at an exercise price of
$9.50 per share (the fair market value on the date of the repricing).
The repricing program was determined, in accordance with the terms of
the Incentive Plan, by the Committee.
The following table summarizes stock option information as of December
31, 1998:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Average
Range of Exercise Number Remaining Weighted Average Number Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.00 to $4.25 1,290,664 5.59 $4.00 973,827 $4.04
$4.38 to $10.25 1,717,960 8.02 $8.14 406,513 $7.11
$10.38 to $15.56 1,078,141 6.53 $12.11 558,467 $12.75
$16.00 to $22.06 86,860 5.79 $17.72 56,041 $17.79
------ ------
$3.00 to $22.06 4,173,625 6.84 $8.08 1,994,848 $7.49
========= =========
------------------------------------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The following table summarizes the pro forma operating results of the
Company had compensation costs for the Incentive Plan been determined in
accordance with the fair value based method of accounting for stock based
compensation as prescribed by SFAS No. 123. Since option grants awarded during
1998, 1997, and 1996 vest over several years and additional awards are expected
to be issued in the future, the pro forma results shown below are not likely to
be representative of the effects on future years of the application of the fair
value based method.
1998 1997 1996
---- ---- ----
Pro forma net loss ($13,114) ($15,638) ($35,368)
========= ========= =========
Pro forma net loss per share,
basic and diluted ($0.42) ($0.54) ($1.40)
======= ======= =======
For the purpose of the above pro forma calculation, the fair value of
each option granted from the Incentive Plan during 1998, 1997, and 1996 was
estimated on the date of grant using the Black-Scholes option pricing model. The
weighted-average fair value of the options granted during 1998, 1997, and 1996
was $5.84, $7.84, and $9.67, respectively. The following assumptions were used
in computing the fair value of option grants during 1998, 1997, and 1996:
expected volatility of 85%, expected lives of 3 years after vesting, and zero
dividend yield for 1998, 1997, and 1996; risk-free interest rates of 5.30%-5.44%
in 1998, 5.79%-6.47% in 1997, and 5.46%-6.92% in 1996.
b. Executive Stock Purchase Plan
In 1989, the Company adopted an Executive Stock Purchase Plan (the
"Plan") under which 1,027,500 shares of Class A Stock were reserved for
restricted stock awards. The Plan provides for the compensation committee of the
Board of Directors to award employees, directors, consultants, and other
individuals ("Plan participants") who render service to the Company the right to
purchase Class A Stock at a price set by the compensation committee. The Plan
provides for the vesting of shares as determined by the compensation committee
and, should the Company's relationship with a Plan participant terminate before
all shares are vested, unvested shares will be repurchased by the Company at a
price per share equal to the original amount paid by the Plan participant.
During 1989 and 1990, a total of 983,254 shares were issued and as of December
31, 1998, there were 44,246 shares available for future grants under the Plan.
11. Employee Savings Plan
The Company, during 1993, adopted the provisions of the Regeneron
Pharmaceuticals, Inc. 401(k) Savings Plan (the "Savings Plan"). The terms of the
Savings Plan provide for employees who have met defined service requirements to
participate in the Savings Plan by electing to contribute to the Savings Plan a
percentage of their compensation to be set aside to pay their future retirement
benefits, as defined. The Savings Plan, as amended and restated during 1998,
provides for the Company to make discretionary contributions ("Contributions"),
as defined. In 1998, the Company recorded a Contribution expense of $0.3
million; such amount was accrued at December 31, 1998. During January 1999, the
Company contributed 37,653 shares of Common Stock to the Savings Plan in
satisfaction of this obligation.
12. Income Taxes
There is no provision (benefit) for federal or state income taxes,
since the Company has incurred operating losses since inception and has
established a valuation allowance equal to the total deferred tax asset.
F-18
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
The tax effect of temporary differences, net operating loss
carry-forwards, and research and experimental tax credit carry-forwards as of
December 31, 1998 and 1997 was as follows:
1998 1997
-------- --------
Deferred tax assets
Net operating loss carry-forward $64,568 $60,209
Fixed assets 1,251 1,848
Deferred revenue 4,806 6,195
Research and experimental tax credit carry-forward 7,371 4,800
Other 1,671 1,268
Valuation allowance (79,667) (74,320)
-------- --------
-- --
======== ========
As of December 31, 1998, the Company had available for tax purposes
unused net operating loss carry-forwards of approximately $158.0 million which
will expire in various years from 2004 to 2013. The Company's research and
experimental tax credit carry-forwards expire in various years from 2004 to
2013. Future changes in the ownership of the Company could limit the future
utilization of these net operating loss and tax credit carry-forwards, as
defined by the Federal and state tax codes.
13. Litigation
In 1995, the Company settled a securities class action lawsuit against
the Company and two individuals. As part of the settlement, the Company issued
153,017 shares of the Company's Common Stock in January 1996. The total cost to
the Company of the settlement, before legal expenses and after reimbursement
from the Company's insurance providers, was approximately $0.9 million.
The Company, from time to time, has been subject to legal claims
arising in connection with its business. While the ultimate results of the
claims cannot be predicted with certainty, at December 31, 1998, there were no
asserted claims against the Company which, in the opinion of management, if
adversely decided, would have a material adverse effect on the Company's
financial position and results of operations.
14. Net Loss Per Share
The Company's basic net loss per share amounts have been computed by dividing
net loss by the weighted average number of Common and Class A shares
outstanding. For the years ended December 31, 1998, 1997, and 1996, the
Company reported net losses and, therefore, no common stock equivalents were
included in the computation of diluted net loss per share since such inclusion
would have been antidilutive. The calculations of basic and diluted loss per
share are as follows:
- -------------------------- ------------------- ------------------- ------------
Net Loss Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
1998:
Basic and Diluted ($8,625) 30,992 ($0.28)
1997:
Basic and Diluted ($11,579) 28,702 ($0.40)
1996:
Basic and Diluted ($32,424) 24,464 ($1.33)
- -------------------------- ------------------- ------------------- ------------
F-19
<PAGE>
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share data)
Options and warrants which have been excluded from the diluted per share
amounts because their effect would have been antidilutive include the
following:
<TABLE>
<CAPTION>
- ---------------------------- ------------------------------ ------------------------------ ------------------------------
1998 1997 1996
------------------------------ ------------------------------ ------------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Price Number Exercise Price Number Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants
with exercise prices
below the average fair
market value of the
Company's common
stock for the respective 1,995,674 $4.91 3,737,724 $7.17 3,531,585 $8.78
year
Options and warrants
with exercise prices
above the average fair
market value of the
Company's common
stock for the respective 4,433,351 $11.67 2,136,112 $14.04 203,682 $19.85
year --------- --------- -------
6,429,025 5,873,836 3,735,267
========= ========= =========
- ---------------------------- ------------ ----------------- ------------ ----------------- ------------ -----------------
</TABLE>
F-20
<PAGE>
AMGEN-REGENERON PARTNERS
FINANCIAL STATEMENTS
Year ended December 31, 1998
with
Report of Independent Auditors
F-21
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Partners
Amgen-Regeneron Partners
We have audited the accompanying balance sheets of Amgen-Regeneron Partners, a
Delaware general partnership, as of December 31, 1998 and 1997, and the related
statements of operations, changes in partners' capital, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amgen-Regeneron Partners at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
February 5, 1999
F-22
<PAGE>
AMGEN-REGENERON PARTNERS
BALANCE SHEETS
December 31, 1998 and 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- ------
ASSETS
<S> <C> <C>
Total current assets - cash and cash equivalents ............... $ 9,961 $ 2,552
======== =======
LIABILITIES AND PARTNERS' CAPITAL
Total current liabilities - accounts payable and accrued
expenses due to partners .................................. $ 3,779 $ 1,824
-------- -------
Partners' capital:
Amgen .................................................... 3,091 364
Regeneron ................................................ 3,091 364
-------- -------
Total partners' capital .............................. 6,182 728
-------- -------
Total liabilities and partners' capital ..... $ 9,961 $ 2,552
======== =======
</TABLE>
See accompanying notes.
F-23
<PAGE>
AMGEN-REGENERON PARTNERS
STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Interest income...................................... $ 316 $ 310 $ 750
---------- ----------- ------------
Total revenues................................... 316 310 750
---------- ----------- ------------
Expenses:
Research and development performed
by partners...................................... 5,235 7,078 29,069
General and administrative........................... 49 38 181
---------- ----------- ------------
Total expenses................................... 5,284 7,116 29,250
---------- ----------- ------------
Net loss.................................................. $ (4,968) $ (6,806) $ (28,500)
========== =========== ============
</TABLE>
See accompanying notes.
F-24
<PAGE>
AMGEN-REGENERON PARTNERS
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
Years ended December 31, 1998, 1997 and 1996
(In thousands)
Amgen Regeneron
----- ---------
Balance at December 31, 1995 ......... $ 1,273 $ 1,273
Capital contributions ................ 14,182 14,182
Net loss ............................ (14,250) (14,250)
--------- ---------
Balance at December 31, 1996 ......... 1,205 1,205
Capital contributions ................ 2,562 2,562
Net loss ............................ (3,403) (3,403)
--------- ---------
Balance at December 31, 1997 ........ 364 364
Capital contributions ............... 5,211 5,211
Net loss ............................ (2,484) (2,484)
--------- ---------
Balance at December 31, 1998 ........ $ 3,091 $ 3,091
========= =========
See accompanying notes.
F-25
<PAGE>
AMGEN-REGENERON PARTNERS
STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $ (4,968) $ (6,806) $(28,500)
Increase (decrease) in accounts payable and
accrued expenses................................... 1,955 (10,406) (2,722)
--------- ---------- ---------
Net cash used in operating activities......... (3,013) (17,212) (31,222)
Cash flows from financing activities - capital
contributions............................................ 10,422 5,124 28,364
--------- --------- --------
Increase (decrease) in cash and cash equivalents............ 7,409 (12,088) (2,858)
Cash and cash equivalents at beginning of period............ 2,552 14,640 17,498
--------- --------- --------
Cash and cash equivalents at end of period.................. $ 9,961 $ 2,552 $ 14,640
========= ========= ========
</TABLE>
See accompanying notes.
F-26
<PAGE>
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Business and organization
Amgen-Regeneron Partners (the "Partnership"), a general partnership,
was formed on June 21, 1991, under the laws of the State of Delaware between
Amgen Inc. ("Amgen") and Regeneron Pharmaceuticals, Inc. ("Regeneron"). The
Partnership was formed to develop and commercialize in the United States BDNF
and NT-3 ("Products") for human pharmaceutical use, in conformity with a
Collaboration Agreement (Note 3).
In January 1997, Amgen and Regeneron announced that the Phase 3
clinical trial of BDNF did not demonstrate clinical efficacy in patients with
amyotrophic lateral sclerosis ("ALS"), commonly known as Lou Gehrig's Disease.
The trial was designed to evaluate the effects of subcutaneous delivery of BDNF
for ALS. On behalf of the Partnership, Amgen and Regeneron continue to
investigate intrathecal and subcutaneous delivery of BDNF for ALS.
Under the Collaboration Agreement, Amgen will be primarily responsible
for the manufacture and commercialization of the Products in the United States
if successfully developed by the Partnership. Amgen's costs in connection with
such activities will be reimbursed at agreed-to rates. Unless terminated
earlier, the Partnership will continue in effect, with respect to each Product,
until the later of the expiration of the last United States patent of each
Product, or fifteen years from the date on which each Product was approved for
sale in the United States.
A Joint Management Committee (the "Committee") is responsible for the
overall management of the business and affairs of the Partnership as well as
activities performed under the Collaboration Agreement. Each partner has
appointed three representatives to the Committee. One additional representative
may be appointed by a partner if the balance of their capital account becomes
more than twice the amount of the balance of the other partner's capital account
(Note 2).
Cash equivalents
The Partnership considers only those investments which are highly
liquid, readily convertible to cash and which mature within three months of the
date of purchase as cash equivalents. At December 31, 1998 and 1997, cash and
cash equivalents consisted of a single interest bearing money market account.
F-27
<PAGE>
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS (continued)
Research and development
Research and development costs are expensed as incurred.
Income taxes
The Partnership's financial statements do not include a provision
(credit) for income taxes. Income taxes, if any, are the liability of the
individual partners.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. Capital contributions, allocation of profits and losses and cash
distributions
Capital contributions are recorded in the capital account of each
partner. Capital account contributions are generally made quarterly in advance
based upon capital calls made by the Committee pursuant to projected cash
requirements of the Partnership. Cash distributions, if any, and profits or
losses are allocated to each partner in proportion to their respective capital
account contributions.
3. Collaboration Agreement
In August 1990, Amgen and Regeneron entered into a Collaboration
Agreement to develop and commercialize BDNF and NT-3, compounds for which
Regeneron possesses substantial scientific, technical and proprietary
information. Each party has agreed to perform research and development on the
Products under product development programs approved by the Committee. Upon
Amgen's notification in writing to Regeneron that the preparation of an
Investigational New Drug Application for each Product should commence, the
licenses granted by the partners to the Partnership for the underlying
technologies, discussed below, became effective on a Product-by-Product basis.
Also, upon such notification, further research and development of the Products
under the licenses became the obligation of the Partnership. These licenses
grant the Partnership an
F-28
<PAGE>
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS (continued)
exclusive royalty-free right to develop, make, have made, use, sell and
distribute each Product for human pharmaceutical use in the United States. The
Partnership has, in turn, granted to Amgen and Regeneron exclusive royalty-free
sublicenses for the underlying technologies to the extent necessary to fulfill
their obligations under the Collaboration Agreement. These sublicenses became
effective at the same time the related licenses granted the Partnership became
effective.
Pursuant to the terms of the Collaboration Agreement, Amgen and
Regeneron conduct certain research and development activities on behalf of the
Partnership, including contracting with third parties to conduct clinical
trials. Amgen also provides on behalf of the Partnership certain quantities of
materials, primarily for clinical testing. Amgen and Regeneron are paid for such
services and materials at amounts approved by the Committee. During the years
ended December 31, 1998, 1997 and 1996, the Partnership incurred expenses
(including accrued expenses) of $2,448,000, $5,561,000 and $23,191,000,
respectively, from Amgen and $2,787,000, $1,517,000 and $5,878,000,
respectively, from Regeneron for such services and materials. These amounts are
included in research and development expense in the accompanying statements of
operations. Included in the Regeneron amount for the year ended December 31,
1998 is $931,000 of clinical materials provided to the Partnership by Amgen. In
addition, certain other costs associated with the development of the Products
have been incurred by the partners but not charged to the Partnership or
reflected in the accompanying financial statements. At December 31, 1998,
accounts payable and accrued expenses due to partners was composed of $1,244,000
of accounts payable and $2,096,000 of accrued clinical costs due to Amgen and
$130,000 of accounts payable and $309,000 of accrued clinical costs due to
Regeneron. At December 31, 1997, accounts payable and accrued expenses due to
partners was composed of $616,000 of accounts payable and $851,000 of accrued
clinical costs due to Amgen and $357,000 of accounts payable due to Regeneron.
4. Year 2000 (Unaudited)
The Year 2000 problem (the "Year 2000 Problem") results from computer
programs and devices that do not differentiate between the year 1900 and the
year 2000 because they were written using two digits rather than four to define
the applicable year; accordingly, computer systems that have time-sensitive
calculations may not properly recognize the year 2000. Because Amgen maintains
the books and records, manufactures and stores clinical supplies (and other
reagents), and conducts certain clinical trials for the Partnership, the
Partnership's ability to become year 2000 compliant is primarily dependent upon
Amgen's ability to become compliant. The Partnership's ability to
F-29
<PAGE>
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS (continued)
become year 2000 compliant is also dependent upon Regeneron's ability to become
compliant, to the extent that Regeneron conducts certain clinical trials for the
Partnership or otherwise owes certain duties to the Partnership. Amgen and
Regeneron are not currently year 2000 compliant and their year 2000 assessments
are not complete. Like many corporations, Amgen and Regeneron do not have any
previous experience with an issue like the Year 2000 Problem.
The Year 2000 Problem potentially affects Amgen's ability to produce
clinical materials and both Amgen's and Regeneron's ability to conduct clinical
trials, bill for the clinical trials and make capital contributions to the
Partnership. Although Amgen believes it is developing an appropriate program to
address the Year 2000 Problem, it cannot guarantee that its program will succeed
or will be timely. Amgen has conducted an initial review of its computer
systems, devices, applications and manufacturing equipment (collectively, the
"Computer Systems") to identify those areas that could be affected by the Year
2000 Problem. Additionally, Amgen plans to perform remediation, testing and
implementation in those areas of the Computer Systems identified as affected by
the Year 2000 Problem. Amgen is using both internal and external resources to
identify, correct/reprogram, and test its Computer Systems for year 2000
compliance. However, Amgen cannot guarantee that these resources will be
available at a reasonable cost, or at all, due, in part, to competing demands
for these resources which Amgen anticipates will increase as January 1, 2000
nears. Amgen has begun to identify critical providers of information, goods and
services ("Suppliers") in order to assess their year 2000 compliance/readiness.
Suppliers will be prioritized based on business criticality and year 2000
surveys will be sent to them. The failure of Suppliers to become year 2000
compliant on a timely basis, or at all, could have a material adverse effect on
Amgen. Amgen may also be affected by the failure of other third parties to be
year 2000 compliant even though these third parties do not directly conduct
business with Amgen. Amgen does not currently have a year 2000 contingency plan
established. While Amgen has developed a program to address the Year 2000
Problem with respect to its Computer Systems and Suppliers and is in the process
of developing a contingency plan for the Year 2000 Problem, Amgen cannot
guarantee that this program will succeed or will be timely. If Amgen's program
to address the Year 2000 Problem does not succeed or is not timely, the Year
2000 Problem could have a material adverse effect on the operation and financial
position of the Partnership. Additional disclosure about Amgen's year 2000
program may be found in Amgen's Annual Report on Form 10-K for the year ended
December 31, 1998.
Regeneron is evaluating its operations to determine the impact, if any,
that the Year 2000 Problem may have. To date, Regeneron has not learned of any
material year 2000 issue with respect to its computer systems and software.
Regeneron is in the process of analyzing its laboratory and manufacturing
equipment with embedded
F-30
<PAGE>
AMGEN-REGENERON PARTNERS
NOTES TO FINANCIAL STATEMENTS (continued)
systems. This analysis is incomplete. Regeneron is also in the process of
surveying its vendors who support critical business processes to determine their
level of readiness with respect to year 2000 issues. While many vendors indicate
that they believe they are or will be year 2000 compliant, many others state
that they cannot represent that they have achieved compliance or guarantee the
efficacy of their remediation efforts. Many vendors state that the problem is
too complex for such a claim to have legitimacy; that efforts to solve the Year
2000 Problem are merely in the nature of risk mitigation; and that success in
such efforts will be measured, with hindsight, by the minimization of the level
of technical failures and by the prompt identification and repair of failures.
The analysis of Regeneron's embedded systems and the information collected
regarding vendor readiness will be used to formulate a contingency plan with
respect to reasonably identifiable items of equipment and supply of materials
that are critical to Regeneron's operations. These analyses and plans are not
complete. No assurance can be made that Regeneron's computer systems and
software, embedded systems in non-computer equipment, and vendors will be year
2000 compliant in a timely or cost-effective manner. The failure of certain
third parties (including Amgen and utility and communications companies) to
operate in a normal and customary manner and to maintain year 2000 compliance
(or to assure that their vendors and suppliers are year 2000 compliant) could
have a material adverse effect on the operations and financial condition of
Regeneron. It is possible that Regeneron could be adversely affected by the
failure of other third parties to be year 2000 compliant even though these third
parties do not directly conduct business with Regeneron. It is not possible to
guarantee that Regeneron's year 2000 contingency plan will succeed or be timely.
Additional disclosure about Regeneron's year 2000 activities may be found in
Regeneron's Annual Report on Form 10-K for the year ended December 31, 1998. If
Regeneron's program to address the Year 2000 Problem does not succeed or is not
timely, the Year 2000 Problem could have a material adverse effect on the
operation and financial position of the Partnership.
F-31
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Regeneron Pharmaceuticals, Inc. on Form S-8 (File Nos. 33-50480, 33-85330,
33-97176, and 333-33891) of our report, which is based in part on the report of
other auditors, dated February 5, 1999, on our audits of the financial
statements of Regeneron Pharmaceuticals, Inc. as of December 31, 1998 and 1997,
and for the years ended December 31, 1998, 1997 and 1996, which report is
included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 25, 1999
<PAGE>
Exhibit 23.2
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-50480) pertaining to the Regeneron Pharmaceuticals, Inc. 1990 Long
Term Incentive Plan and in the Registration Statements (Form S-8 No. 33-85330,
Form S-8 No. 33-97176, and Form S-8 No. 333-33891) pertaining to the Regeneron
Pharmaceuticals, Inc. Amended and Restated 1990 Long Term Incentive Plan of our
report dated February 5, 1999, with respect to the financial statements of
Amgen-Regeneron Partners included in Regeneron Pharmaceuticals, Inc.'s Annual
Report (Form 10-K) for the year ended December 31, 1998.
ERNST & YOUNG LLP
Los Angeles, California
February 5, 1999
<PAGE>
Exhibit 24
----------
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ P. Roy Vagelos
----------------------------------
P. Roy Vagelos, M.D.
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Charles A. Baker
----------------------------------
Charles A. Baker
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Michael S. Brown
----------------------------------
Michael S. Brown, M.D.
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Alfred G. Gilman
----------------------------------
Alfred G. Gilman, M.D., Ph.D.
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Joseph L. Goldstein
----------------------------------
Joseph L. Goldstein, M.D.
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Fred A. Middleton
----------------------------------
Fred A. Middleton
<PAGE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that I the undersigned, a director
of Regeneron Pharmaceuticals, Inc., a New York corporation, do hereby constitute
and appoint Leonard S. Schleifer and Paul Lubetkin, and each of them severally
to be my true and lawful attorneys-in-fact and agents each acting alone with
full power of substitution and revocation, to sign my name to the Regeneron
Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31,
1998 and any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, and I hereby grant unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as full as to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have subscribed these presents as of March 24,
1999.
/s/ Eric M. Shooter
----------------------------------
Eric M. Shooter, Ph.D.
<TABLE> <S> <C>
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Regeneron Pharmaceuticals, Inc. Exhibit 27 December 31, 1998 Form 10-K (in
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</LEGEND>
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