<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-19034
------------------------
REGENERON PHARMACEUTICALS, INC.
---------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3444607
---------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
777 Old Saw Mill River Road
Tarrytown, New York 10591-6707
---------------------------------------------- ------------------------
(Address of principal executive offices) (Zip code)
(914) 347-7000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 2000:
Class of Common Stock Number of Shares
--------------------- ----------------
Class A Stock, $0.001 par value 2,759,095
Common Stock, $0.001 par value 34,000,189
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Table of Contents
September 30, 2000
<TABLE>
<CAPTION>
Page Numbers
------------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed balance sheets (unaudited) at September 30, 2000 and
December 31, 1999 3
Condensed statements of operations (unaudited) for the three
months and nine months ended September 30, 2000 and 1999 4
Condensed statement of stockholders' equity (unaudited) for the
nine months ended September 30, 2000 5
Condensed statements of cash flows (unaudited) for the
nine months ended September 30, 2000 and 1999 6
Notes to condensed financial statements 7-14
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-29
Item 3 Quantitative & Qualitative Disclosure About Market Risk 29
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 30
SIGNATURE PAGE 31
Exhibit 27 Financial data schedule
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 (Unaudited)
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $49,642 $23,697
Marketable securities 67,386 42,463
Receivable due from The Procter & Gamble Company 6,907
Receivable due from Merck & Co., Inc. 360
Receivable due from Amgen-Regeneron Partners 2,126 473
Receivable due from Sumitomo Pharmaceuticals Company, Ltd. 458 151
Prepaid expenses and other current assets 1,942 1,708
Inventory 8,181 4,552
--------------- -------------
Total current assets 137,002 73,044
Marketable securities 41,471 27,439
Property, plant, and equipment, at cost, net of accumulated
depreciation and amortization 37,659 36,298
Other assets 187 218
--------------- -------------
Total assets $216,319 $136,999
=============== =============
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $8,021 $6,551
Deferred revenue, current portion 3,782 4,686
Due to Merck & Co., Inc. 334
Due to Amgen-Regeneron Partners 113 300
Capital lease obligations, current portion 759 1,380
Note payable, current portion 67 68
--------------- -------------
Total current liabilities 12,742 13,319
Deferred revenue 10,135 11,130
Capital lease obligations 694 1,204
Note payable 1,483 1,527
Other liabilities 293 287
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;
2,759,095 shares issued and outstanding in 2000
3,605,133 shares issued and outstanding in 1999 3 4
Common Stock, $.001 par value; 60,000,000 shares authorized;
33,995,109 shares issued and outstanding in 2000
27,817,636 shares issued and outstanding in 1999 34 28
Additional paid-in capital 404,916 310,296
Accumulated deficit (213,779) (200,303)
Accumulated other comprehensive loss (202) (493)
--------------- -------------
Total stockholders' equity 190,972 109,532
--------------- -------------
Total liabilities and stockholders' equity $216,319 $136,999
=============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
===============================================================================
3
<PAGE>
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
----------------- ----------------- --------------- ------------------
<S> <C> <C> <C> <C>
Revenues
Contract research and development $8,783 $8,570 $27,043 $15,311
Research progress payments 3,500 6,200
Contract manufacturing 2,623 2,730 6,617 7,299
Investment income 2,530 1,236 5,967 4,014
----------------- ----------------- --------------- ------------------
17,436 12,536 45,827 26,624
----------------- ----------------- --------------- ------------------
Expenses
Research and development 14,085 12,924 40,470 34,963
Loss in Amgen-Regeneron Partners 1,099 952 3,450 2,509
General and administrative 1,737 1,578 5,203 4,691
Depreciation and amortization 1,154 898 3,125 2,452
Contract manufacturing 2,512 1,034 6,828 3,452
Interest 60 75 227 245
----------------- ----------------- --------------- ------------------
20,647 17,461 59,303 48,312
----------------- ----------------- --------------- ------------------
Net loss ($3,211) ($4,925) ($13,476) ($21,688)
================= ================= =============== ==================
Net loss per share, basic and diluted ($0.09) ($0.16) ($0.39) ($0.69)
================= ================= =============== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
===============================================================================
4
<PAGE>
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
For the nine months ended September 30, 2000 (In thousands)
<TABLE>
<CAPTION>
Class A Stock Common Stock Additional
------------------------ ------------------------ Paid-in
Shares Amount Shares Amount Capital
------------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999 3,605 $4 27,818 $28 $310,296
Issuance of Common Stock in a public offering
at $29.75 per share 2,600 3 77,347
Cost associated with issuance of equity securities (4,496)
Issuance of Common Stock in connection with
exercise of stock options 686 1 4,283
Net issuance of Common Stock to Amgen Inc.
in connection with a cashless exercise of
warrants 478
Issuance of Common Stock to The Procter &
Gamble Company 574 17,066
Net issuance of Common Stock to The Procter
& Gamble Company in connection with a
cashless exercise of warrants 939 1 (1)
Issuance of Common Stock in connection with
Company 401(k) Savings Plan contribution 54 421
Conversion of Class A Stock to Common Stock (846) (1) 846 1
Net loss
Change in net unrealized loss on marketable
securities
-----------------------------------------------------------------------
Balance, September 30, 2000 2,759 $3 33,995 $34 $404,916
=======================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Stockholders' Comprehensive
Deficit Loss Equity Loss
---------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 ($200,303) ($493) $109,532
Issuance of Common Stock in a public offering
at $29.75 per share 77,350
Cost associated with issuance of equity securities (4,496)
Issuance of Common Stock in connection with
exercise of stock options 4,284
Net issuance of Common Stock to Amgen Inc.
in connection with a cashless exercise of
warrants
Issuance of Common Stock to The Procter &
Gamble Company 17,066
Net issuance of Common Stock to The Procter
& Gamble Company in connection with a
cashless exercise of warrants
Issuance of Common Stock in connection with
Company 401(k) Savings Plan contribution 421
Conversion of Class A Stock to Common Stock
Net loss (13,476) (13,476) ($13,476)
Change in net unrealized loss on marketable
securities 291 291 291
-----------------------------------------------------------------------
Balance, September 30, 2000 ($213,779) ($202) $190,972 ($13,185)
=======================================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
================================================================================
5
<PAGE>
REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
(In thousands)
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities
Net loss ($13,476) ($21,688)
------------------ -----------------
Adjustments to reconcile net loss to net cash
used in operating activities
Loss in Amgen-Regeneron Partners 3,450 2,509
Depreciation and amortization 3,125 2,452
Stock issued in consideration for services rendered 270
Changes in assets and liabilities
Increase in amounts due from The Procter & Gamble Company (6,907) (4,637)
(Increase) decrease in amounts due from Merck & Co., Inc. (694) 915
(Increase) decrease in amounts due from Amgen-Regeneron Partners (1,653) 709
(Increase) decrease in amounts due from Sumitomo Pharmaceuticals Co., Ltd. (307) 67
Increase in investment in Amgen-Regeneron Partners (3,637) (768)
Increase in prepaid expenses and other assets (1,254) (300)
Increase in inventory (2,494)
Decrease in deferred revenue (1,899) (1)
Increase (decrease) in accounts payable, accrued expenses,
and other liabilities 1,606 (322)
------------------ -----------------
Total adjustments (10,664) 894
------------------ -----------------
Net cash used in operating activities (24,140) (20,794)
------------------ -----------------
Cash flows from investing activities
Purchases of marketable securities (75,517) (45,134)
Sales of marketable securities 37,904 74,437
Capital expenditures (5,330) (4,883)
------------------ -----------------
Net cash (used in) provided by investing activities (42,943) 24,420
------------------ -----------------
Cash flows from financing activities
Net proceeds from the issuance of stock 94,204 972
Principal payments on note payable (45) (48)
Capital lease payments (1,131) (782)
------------------ -----------------
Net cash provided by financing activities 93,028 142
------------------ -----------------
Net increase in cash and cash equivalents 25,945 3,768
------------------ -----------------
Cash and cash equivalents at beginning of period 23,697 19,757
------------------ -----------------
Cash and cash equivalents at end of period $49,642 $23,525
================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
===============================================================================
6
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
1. Interim Financial Statements
The interim Condensed Financial Statements of Regeneron Pharmaceuticals,
Inc. ("Regeneron" or the "Company") have been prepared in accordance with
the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and disclosures necessary
for a presentation of the Company's financial position, results of
operations, and cash flows in conformity with generally accepted
accounting principles. In the opinion of management, these financial
statements reflect all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows for such periods. The
results of operations for any interim periods are not necessarily
indicative of the results for the full year. The December 31, 1999
Condensed Balance Sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read
in conjunction with the financial statements and notes thereto contained
in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
2. Statement of Cash Flows
Supplemental disclosure of noncash investing and financing activities:
Included in accounts payable and accrued expenses at September 30, 2000
and December 31, 1999 are $988 and $697, respectively, of accrued capital
expenditures. Included in accounts payable and accrued expenses at
September 30, 1999 and December 31, 1998 are $95 and $469, respectively,
of accrued capital expenditures.
Included in accounts payable and accrued expenses at December 31, 1999 and
1998 are $421 and $308, respectively, of accrued Company 401(k) Savings
Plan contribution expense. During January 2000 and January 1999, the
Company contributed 54,003 and 37,653 shares, respectively, of Common
Stock to the 401(k) Savings Plan in satisfaction of these obligations.
3. Inventories
Inventories consist of raw materials and other direct and indirect costs
associated with the production of brain-derived neurotrophic factor
("BDNF") for Sumitomo Pharmaceuticals Company, Ltd. under a research and
development agreement and the production of an intermediate for a Merck &
Co., Inc. pediatric vaccine under a long-term manufacturing agreement.
7
<PAGE>
Inventories as of September 30, 2000 and December 31, 1999 consist of the
following:
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
September 30, December 31,
2000 1999
---- ----
Raw materials $1,009 $1,042
Work-in-process 497(1) 165(3)
Finished products 6,675(2) 3,345
------ ------
$8,181 $4,552
====== ======
(1) Net of reserves of $207.
(2) Net of reserves of $365.
(3) Net of reserves of $675.
4. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses as of September 30, 2000 and
December 31, 1999 consist of the following:
September 30, December 31,
2000 1999
---- ----
Accounts payable $2,164 $2,642
Accrued payroll and related costs 2,481 1,977
Accrued clinical trial expense 1,737 1,005
Accrued expenses, other 1,423 643
Deferred compensation 216 284
------ ------
$8,021 $6,551
======= ======
5. Amgen-Regeneron Partners Research Collaboration Agreement
In August 1990, the Company entered into a collaboration with Amgen Inc.
("Amgen") to develop and commercialize BDNF and neurotrophin-3 ("NT-3").
Pursuant to that agreement, the Company and Amgen formed a partnership,
Amgen-Regeneron Partners (the "Partnership"). The Company accounts for its
investment in the Partnership in accordance with the equity method of
accounting.
Selected operating statement data of the Partnership for the three and
nine months ended September 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $ 96 $ 89 $ 260 $ 295
Total expenses (2,295) (1,992) (7,160) (5,312)
------- ------- ------- -------
Net loss ($2,199) ($1,903) ($6,900) ($5,017)
======== ======== ======== ========
</TABLE>
8
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
6. Comprehensive Loss
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. For the nine months ended September 30, 2000 and 1999,
the components of comprehensive loss are:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net loss ($13,476) ($21,688)
Change in net unrealized gain/loss on marketable securities 291 (562)
-------- -------
Total comprehensive loss ($13,185) ($22,250)
========= =========
</TABLE>
7. Equity Transactions
On March 2, 2000, in accordance with the terms of their warrant agreement,
as amended, Amgen exercised 700,000 warrants with an exercise price of
$16.00 per share. As consideration for the exercise price, Amgen tendered
221,958 shares of the Company's Common Stock which had an aggregate fair
market value at the time of exercise equal to the aggregate exercise price
of the warrants. The shares of Common Stock delivered to the Company by
Amgen were retired upon receipt.
On April 4, 2000, the Company completed a public offering of 2.6 million
shares of Common Stock at a price of $29.75 per share for net proceeds,
after commissions and expenses, of $72.9 million.
On August 3, 2000, the Company sold 573,630 shares of Common Stock to The
Procter & Gamble Company ("P&G") at a price of $29.75 per share for total
proceeds of $17.1 million in cash. The $29.75 price was the same price per
share as in Regeneron's public offering of 2.6 million shares of Common
Stock in April 2000. The sale of stock was made pursuant to a 1997
securities purchase agreement between Regeneron and P&G. In addition, in
accordance with the terms of a 1997 warrant agreement between Regeneron
and P&G, as amended, P&G exercised 1,450,000 warrants with an exercise
price of $9.87 per share. As consideration for the exercise price, P&G
tendered 511,125 shares of the Company's Common Stock which had an
aggregate value at the time of exercise, based upon the average market
price of the Company's Common Stock over approximately the prior 30
trading days, equal to the aggregate exercise price of the warrants. The
net result of this transaction was that P&G acquired an additional 938,875
shares of Common Stock. The 511,125 shares of Common Stock delivered to
the Company by P&G were retired upon receipt.
9
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
8. Collaboration Agreement with The Procter and Gamble Company
On August 3, 2000, the Company and P&G agreed through a binding memorandum
of understanding to enter into a new collaboration agreement, replacing
the companies' 1997 collaboration agreement. The new agreement will extend
P&G's obligation to fund Regeneron's research under the new collaboration
agreement through December 2005, with no further research obligations by
either party thereafter, and focus the companies' collaborative research
on therapeutic areas that are of particular interest to P&G, including
muscle atrophy and muscle diseases, fibrotic diseases, and certain
G-protein coupled receptors. Under the new agreement, P&G's research
funding from July 2000 through December 2005 is expected to total
approximately $64 million (before adjustments for future inflation). Any
drugs that result from the collaboration will be jointly developed and
marketed worldwide, with the companies equally sharing development costs
and profits. P&G and the Company have divided rights to programs from the
1997 collaboration agreement that are no longer part of the companies'
collaboration.
9. Per Share Data
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 three and nine months ended September 30, 2000
and 1999, the Company reported net losses; 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 net loss per share are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------------------------------------------------------------------------------------
Shares, in
Net Loss thousands Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
2000:
Basic and Diluted ($3,211) 36,134 ($0.09)
1999:
Basic and Diluted ($4,925) 31,314 ($0.16)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------------------------------------------------------------------------------------
Shares, in
Net Loss thousands Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
2000:
Basic and Diluted ($13,476) 34,344 ($0.39)
1999:
Basic and Diluted ($21,688) 31,297 ($0.69)
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(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>
----------------------------------------------------------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted Average
Number, in thousands 6,480 7,166 7,057 7,089
Weighted Average
Exercise Price $12.31 $9.46 $11.65 $9.48
----------------------------------------------------------------------------------------------------------------------
</TABLE>
10. Long-Term Incentive Plan
In April 2000, the Company adopted the Regeneron Pharmaceuticals, Inc.
2000 Long-Term Incentive Plan ("2000 Incentive Plan"). The 2000 Incentive
Plan provides for the issuance of up to 6,000,000 shares of Common Stock
in respect of awards. Employees of the Company, including officers, and
nonemployees, including consultants and nonemployee members of the Board
of Directors, (collectively, "Participants") may receive awards as
determined by a committee of independent directors ("Committee"). The
awards that may be made under the 2000 Incentive Plan include: (a)
Incentive Stock Options ("ISOs") and Nonqualified Stock Options, (b)
shares of Restricted Stock, (c) shares of Phantom Stock, (d) Stock
Bonuses, and (e) Other Awards.
Stock Options are awards in which Participants receive the right to
purchase shares of Common Stock at prices determined by the Committee;
however, in the case of an ISO, the option exercise price will not be less
than the fair market value of a share of Common Stock on the date the
Option is granted. Options vest over a period of time determined by the
Committee, generally on a pro rata basis over a three to five year period.
The Committee also determines the expiration date of each Option; however,
no ISO is exercisable more than ten years after the date of grant.
Shares of Restricted Stock may be awarded to Participants at a price
determined by the Committee. Such shares are nontransferable for a period
determined by the Committee ("vesting period"). The holder of the
Restricted Shares has the right to vote and receive dividends during the
vesting period. Should employment terminate, as defined by the 2000
Incentive Plan, the ownership of the shares will be transferred to the
Company, except under defined circumstances with Committee approval, in
consideration of amounts paid by the Participant to acquire such shares.
In addition, if the Company requires a return of the Restricted Shares, it
also has the right to require a return of all dividends paid on such
shares.
Shares of Phantom Stock provide the Participant the right to receive,
within 30 days of the date on which the share vests, an amount, in cash
and/or shares of the Company's Common Stock as determined by the
Committee, equal to the sum of the fair market value of a share of Common
Stock on the date such share of Phantom Stock vests and the aggregate
amount of cash dividends paid with respect to a share of Common Stock
during the period from the grant date of the share of Phantom Stock to the
date on which the share vests.
11
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
Stock Bonuses are bonuses payable in shares of Common Stock which are
granted at the discretion of the Committee.
Other Awards are other forms of awards which are valued based on the
Company's Common Stock. Subject to the provisions of the 2000 Incentive
Plan, the terms and provisions of such Other Awards are determined solely
on the authority of the Committee.
The 2000 Incentive Plan allows the Committee to provide 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.
11. Segment Reporting
Beginning in 2000, the Company's operations are principally managed in two
business segments: research and development, and contract manufacturing.
Research and development: Includes all activities related to the discovery
of potential therapeutics for human medical conditions, and the
development and commercialization of these discoveries. Also includes
revenues and expenses related to the development of manufacturing
processes prior to commencing commercial production of a product.
Contract manufacturing: Includes all revenues and expenses related to the
commercial production of products under contract manufacturing
arrangements. The Company produces BDNF for Sumitomo Pharmaceuticals
Company, Ltd. under a research and development agreement and an
intermediate for a Merck & Co., Inc. pediatric vaccine under a long-term
manufacturing agreement.
Prior to 2000, the Company's operations were all conducted under the
research and development business segment. The table below presents
information about reported segments for the three and nine months ended
September 30, 2000:
<TABLE>
<CAPTION>
Three Months Ended September 30, 2000
-------------------------------------
Research & Contract Reconciling
Development Manufacturing Items Total
----------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $12,283 $2,623 $2,530 (1) $17,436
Loss in Amgen-
Regeneron Partners 1,099 - - 1,099
Depreciation and
amortization 1,154 - (2) - 1,154
Interest expense 42 18 60
Net (loss) income (5,834) 93 2,530 (3,211)
</TABLE>
12
<PAGE>
REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 2000
------------------------------------
Research & Contract Reconciling
Development Manufacturing Items Total
----------- ------------- ----- -----
<S> <C> <C> <C> <C>
Revenues $33,243 $6,617 $5,967 (1) $45,827
Loss in Amgen-
Regeneron Partners 3,450 - - 3,450
Depreciation and
amortization 3,125 - (2) - 3,125
Interest expense 153 74 - 227
Net (loss) income (19,158) (285) 5,967 (13,476)
Total assets $17,677 $38,014 $160,628 (3) $216,319
</TABLE>
(1) Represents investment income.
(2) Depreciation and amortization related to contract manufacturing is
capitalized into inventory.
(3) Includes cash and cash equivalents, marketable securities, prepaid
expenses and other current assets, and other assets.
12. Impact of the Adoption of Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition, ("SAB
101"). SAB 101 requires companies who receive license and milestone
payments, whether refundable or non-refundable, to recognize them ratably
over the period that the related services are rendered.
In the period of adoption, companies will be required to report the
cumulative effect of this change in accounting principle as a separate
component in net income (or loss). Regeneron is required to adopt SAB 101
during the quarter ended December 31, 2000, and is currently evaluating
how to apply SAB 101 and the impact that it will have on the Company's
financial statements. Although the effects of SAB 101 cannot be fully
determined at this time, the Company estimates that, if SAB 101 had been
adopted as of September 30, 2000, the cumulative charge to earnings, and
corresponding increase in deferred revenue which will be recognized in
future periods, would have been less than $6 million.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, Accounting for Certain Transactions Involving
Stock Compensation ("FIN 44"). FIN 44 interprets the provisions of APB
Opinion No. 25 that provide guidance on how companies should account for
stock compensation granted to employees and is effective for periods
beginning on and after July 1, 2000. Management does not believe that the
adoption of FIN 44 will have a material effect on the Company's financial
position and results of operations.
13
<PAGE>
13. Subsequent Event
On October 31, 2000, Amgen and Regeneron entered into an agreement whereby
Regeneron acquired Amgen's patents and patent applications relating to
ciliary neurotrophic factor ("CNTF") and related molecules for $1.0
million. Regeneron then granted back to Amgen exclusive, royalty free
rights under these patents and patent applications solely for human
ophthalmic uses. In addition, Regeneron entered into a covenant not to sue
Amgen under Regeneron's patents and patent applications relating to CNTF
and related molecules solely for human ophthalmic uses.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Overview. The discussion below contains forward-looking statements that
involve risks and uncertainties relating to the future financial performance of
Regeneron Pharmaceuticals, Inc. and actual events or results may differ
materially. These statements concern, among other things, the possible
therapeutic applications of Regeneron's product candidates and research
programs, the timing and nature of the clinical and research programs now
underway or planned, a variety of items described herein and in the footnotes to
Regeneron'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 Regeneron. These statements are made by Regeneron
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 Pharmaceuticals, Inc. (Regeneron or the Company) is a
biopharmaceutical company that discovers, develops, and intends to commercialize
therapeutic drugs for the treatment of serious medical conditions. Expanding
from our initial focus on degenerative neurologic diseases, we have more
recently broadened our product pipeline to include drug candidates for the
treatment of obesity, rheumatoid arthritis, cancer, allergies, asthma, ischemia,
and other diseases and disorders.
Our ability to discover and develop product candidates for such a wide
variety of serious medical conditions results from the leveraging of several
powerful technology platforms, many of which were developed or enhanced by us.
In contrast to basic genomics approaches, which attempt to identify every gene
in a cell or genome, we use Targeted GenomicsTM and FunctionomicsTM (functional
cloning) technology platforms that are designed to discover specific genes of
therapeutic interest for a particular disease or cell type. Using these
approaches, we have discovered many new families of growth factors and
receptors, many of which are already protected by issued patents, and which have
led to several product candidates. If the natural protein itself is not a
product candidate, we utilize our Designer Protein TherapeuticsTM platform to
genetically engineer product candidates with the desired properties. This
technology platform has already produced more than 10 patented proteins, several
of which are in preclinical development.
The sophisticated application of all of these technology platforms,
coupled with our biologic expertise in preclinical models of disease, has
allowed us to discover drug candidates that address a wide variety of important
medical needs. We have three
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products in ongoing clinical trials and several product candidates are expected
to enter clinical trials over the next one to two years, including:
o AXOKINE(R) second generation ciliary neurotrophic factor: Acts on the
brain region regulating food intake and energy expenditure. AXOKINE is
being developed for the treatment of obesity and complications of
obesity such as Type II diabetes, and is in clinical trials. We are
also developing a modified form of AXOKINE (pegylated) that in
preclinical studies is substantially longer acting than unmodified
AXOKINE. This may allow less frequent and lower dosing in patients.
o Cytokine Traps: Protein-based antagonists for cytokines such as
interleukin-1 (called IL-1), interleukin-4 (IL-4), interleukin-6
(IL-6), and a single antagonist that blocks both IL-4 and
interleukin-13 (IL-13). These cytokines are thought to play a major
role in diseases such as rheumatoid arthritis and other inflammatory
diseases, asthma, allergic disorders, and cancer. Cytokine Traps are
potential treatments for these diseases, and at least one Cytokine Trap
is expected to enter clinical trials by 2001.
o VEGF Trap: An antagonist to Vascular Endothelial Growth Factor (called
VEGF), which is required for the growth of blood vessels that are
needed for tumors to grow. In a preclinical model of cancer, the VEGF
Trap blocked the growth of tumors by an anti-angiogenesis mechanism.
VEGF Trap is a potential treatment for cancer and is expected to enter
clinical trials in 2001.
o Angiopoietins: A new family of growth factors, discovered by us, that
are specific for blood vessels and early hemopoietic stem cells. The
Angiopoietins, and engineered forms of these growth factors that can
act as activators and blockers, are in preclinical testing for
promoting blood vessel growth (to provide blood flow in diseased hearts
and other tissues that have lost their original blood supplies), for
blocking blood vessel growth (for the treatment of cancers), for fixing
leaky blood vessels (that cause swelling and edema in many different
diseases such as stroke, diabetic retinopathy, and inflammatory
diseases), and for promoting the growth and mobilization of certain
hemopoietic cells such as stem cells and platelets.
o Brain-derived neurotrophic factor, or BDNF: Promotes survival of the
spinal cord neurons that die in amyotropic lateral sclerosis (or ALS,
commonly known as Lou Gehrig's Disease) in preclinical models. BDNF is
in clinical trials for ALS using two routes of administration; one of
these trials is based on the results of a prior Phase III clinical
trial.
o Neurotrophin-3, or NT-3: Acts on the neurons of the intestinal tract,
and is in clinical trials for the treatment of constipating disorders
associated with spinal cord injury and other neurologic diseases.
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Discussion of Third Quarter 2000 Activities. In the third quarter of
2000, Regeneron continued its Phase II dose-ranging trial to study the safety
and efficacy of AXOKINE in obese patients. AXOKINE is being developed for the
treatment of obesity and complications of obesity such as Type II diabetes. The
double-blind, placebo-controlled multicenter clinical trial enrolled over 175
severely obese patients. Patients in the trial are being treated for 90 days at
doses up to 2 micrograms per kilogram per day administered subcutaneously. The
trial is expected to be completed by the end of 2000. The Phase II study follows
a two-week Phase I study, completed in late 1999, in which mildly to moderately
obese subjects treated with AXOKINE lost weight and had reduced food intake
compared to those on placebo. In the Phase I study, some patients who received
higher doses of AXOKINE and who had previously contracted herpes simplex virus
(HSV) experienced "cold sores" related to reactivation of their HSV infection.
Increased cold sores caused by HSV were also reported in previous clinical
studies of ciliary neurotrophic factor (also called CNTF), AXOKINE's parent
molecule. In addition, some patients in the study experienced a reversible and
generally asymptomatic increase in pulse rate in a dose-related fashion. The
Phase II study of AXOKINE is being conducted at doses that were associated with
weight loss, generally well tolerated, and not associated with herpes cold sores
in the Phase I study; there are no restrictions as to a subject's prior history
of herpes cold sores. The Phase II study is designed to confirm the weight loss
observed in the Phase I study in a trial of longer duration and to determine the
lowest effective well-tolerated dose. The Company also plans to collect
additional data in the study about the relationship of AXOKINE and reactivation
of HSV, about the effect of AXOKINE on pulse rate, and about the possible
development of neutralizing antibodies when AXOKINE is administered for a
prolonged period of time.
No assurance can be made regarding the timing or final result of the
Phase II study or the timing or result of any further clinical trial of AXOKINE.
Previous clinical studies of AXOKINE and CNTF, in addition to weight loss,
resulted in the creation of neutralizing antibodies and adverse events (side
effects) in patients, including cough, nausea, malaise, and increased herpes
simplex cold sores. While certain aspects of the development of AXOKINE 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. We discuss the risks
associated with antibody development and adverse side effects in the section of
this report titled "Factors That May Affect Future Operating Results."
During the third quarter of 2000, Regeneron and The Procter & Gamble
Company continued to collaborate in research and development under a long-term
collaboration agreement. On August 3, 2000, Procter & Gamble made two
non-recurring research progress payments to Regeneron totaling $3.5 million. In
addition, on August 3, 2000, Procter & Gamble and Regeneron agreed through a
binding memorandum of understanding to enter into a new collaboration agreement,
replacing the companies' 1997 collaboration agreement. The new agreement will
extend Procter & Gamble's obligation to fund Regeneron's research under the new
collaboration agreement through December 2005, with no further research
obligations by either party thereafter, and focus
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the companies' collaborative research on therapeutic areas that are of
particular interest to Procter & Gamble, including muscle atrophy and muscle
diseases, fibrotic diseases, and certain G-protein coupled receptors. Under the
new agreement, Procter & Gamble's research funding from July 2000 through
December 2005 is expected to total approximately $64 million (before adjustments
for future inflation). Any drugs that result from the collaboration will
continue to be jointly developed and marketed worldwide, with the companies
equally sharing development costs and profits.
Procter & Gamble and Regeneron have divided rights to the programs that
are no longer part of the companies' collaboration. Procter & Gamble has
obtained rights to certain specified research programs. Regeneron has rights to
all other research programs, including exclusive rights to the VEGF Trap, the
Angiopoietins, and the RORs. Regeneron expects to begin clinical trials of the
VEGF Trap as a potential treatment for cancer in 2001. Regeneron is conducting
research on the Angiopoietins, and engineered forms of these growth factors, for
promoting the growth of blood vessels (to provide blood flow in diseased hearts
and other tissues that have lost their original blood supplies), for the
blocking of blood vessel growth (for the treatment of cancers), for fixing leaky
blood vessels (that cause swelling and edema in diseases such as stroke,
diabetic retinopathy, and inflammatory diseases), and for promoting the growth
and mobilization of certain hemopoietic cells (such as stem cells and
platelets). The Company is conducting research on the RORs, a growth factor
receptor system discovered by Regeneron scientists that is selectively expressed
by cartilage cells, for potential use in cartilage diseases such as
osteoarthritis.
Regeneron continues to develop, independent of any corporate
collaboration, its proprietary Cytokine Traps for the potential treatment of
rheumatoid arthritis and other inflammatory diseases, asthma, and allergic
disorders. The Company expects to initiate a Phase I clinical study of IL-1 for
the treatment of rheumatoid arthritis by the end of 2000 or early 2001.
During the third quarter of 2000, Amgen-Regeneron Partners, the
partnership equally owned by Regeneron and Amgen Inc., 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, supplied by
Medtronic, Inc.) 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 300 ALS
patients who will receive BDNF subcutaneously began in August 1999 and is fully
enrolled.
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Regeneron and Sumitomo Pharmaceuticals Co., Ltd. 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 and signed a license agreement for
the development of BDNF in Japan. Pursuant to the license agreement, Sumitomo
Pharmaceuticals made research progress payments to Regeneron of $5.0 million
(reduced by $0.5 million of Japanese withholding tax) in August 1998 and $3.0
million (reduced by $0.3 million of Japanese withholding tax) in April 2000, and
will be required to 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 that are continuing in 2000 in patients who suffer from
constipation associated with conditions such as spinal cord injury and the use
of narcotic analgesics. In 2000, Regeneron initiated double-blind,
placebo-controlled Phase II studies of NT-3 in patients with functional
constipation and spinal cord injury patients with bowel dysfunction.
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 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.
A 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. In addition, in each of the areas of
Regeneron'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,
cancer, 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,
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any additional preclinical or clinical studies. Regeneron 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 its product candidates to treat
human conditions or to be approved for marketing could have a material adverse
impact on Regeneron.
Regeneron has not received any revenues from the commercial sale of
products and may never receive such revenues. Before such revenues can be
realized, Regeneron (or its collaborators) must overcome a number of hurdles
which include successfully completing its research and development efforts and
obtaining regulatory approval from the FDA or regulatory authorities in other
countries. 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. In addition, the
biotechnology and pharmaceutical industries are rapidly evolving and highly
competitive, and new developments may render Regeneron's products and
technologies noncompetitive or obsolete.
From inception on January 8, 1988 through September 30, 2000, Regeneron
had a cumulative loss of $213.8 million. In the absence of revenues from
commercial product sales or other sources (the amount, timing, nature, or source
of which cannot be predicted), Regeneron's losses will continue as it 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. Regeneron'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 its research
and development efforts.
Results of Operations
Three months ended September 30, 2000 and 1999. The Company's total
revenue increased to $17.4 million for the third quarter of 2000 from $12.5
million for the same period in 1999. The increase in the third quarter was due
primarily to the receipt of two non-recurring research progress payments
totaling $3.5 million from Procter & Gamble related to its long-term
collaboration agreement with the Company. Contract research and development
revenue increased to $8.8 million for the third quarter of 2000 from $8.6
million for the same period in 1999, as revenue from Amgen-Regeneron Partners
increased to $1.7 million in the third quarter of 2000 from $0.8 million for the
same period in 1999 due to increased clinical trial activity on BDNF and NT-3.
This increase was partly offset by lower revenue from Procter & Gamble primarily
because payments related to AXOKINE research stopped in the third quarter of
1999 when Procter & Gamble returned the product rights to AXOKINE to the
Company. Contract manufacturing revenue, related primarily to a long-term
agreement with Merck & Co.,
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Inc. (Merck) to manufacture a vaccine intermediate, was $2.6 million in the
third quarter of 2000 and $2.7 million for the same period in 1999. In the third
quarter of 1999, Merck revenue was primarily compensation for services rendered
related to preparing for commercial production, which began in the fourth
quarter of 1999. In the third quarter of 2000, Merck revenue primarily consisted
of payments related to commercial production. Investment income increased to
$2.5 million in the third quarter of 2000 from $1.2 million for the same period
in 1999 due to interest earned on the proceeds of the Company's public offering,
which was completed on April 4, 2000, and the Company's sale of Common Stock to
Procter & Gamble, which was completed on August 3, 2000.
The Company's total operating expenses increased to $20.6 million in
the third quarter of 2000 from $17.5 million for the same period in 1999.
Research and development expenses increased to $14.1 million in the third
quarter of 2000 from $12.9 million for the same period in 1999, primarily as a
result of higher staffing and increased activity in the Company's preclinical
and clinical research programs. The loss in Amgen-Regeneron Partners increased
to $1.1 million in the third quarter of 2000 from $1.0 million for the same
period in 1999 due to the partnership's increased clinical trial activity on
BDNF and NT-3. Research and development expenses (including loss in
Amgen-Regeneron Partners) were approximately 74% of total operating expenses in
the third quarter of 2000, compared to 79% for the same period in 1999.
General and administrative expenses increased to $1.7 million in the
third quarter of 2000 from $1.6 million for the same period of 1999, due
primarily to higher administrative staffing and related occupancy costs.
Depreciation and amortization expense increased to $1.2 million in the third
quarter of 2000 from $0.9 million in the third quarter of 1999, as a result of
improvements to, and purchases of equipment for, the Company's facilities in
Tarrytown, New York, and Rensselaer, New York. Contract manufacturing expenses,
related primarily to the long-term Merck agreement to manufacture a vaccine
intermediate at the Company's Rensselaer facility, increased to $2.5 million in
the third quarter of 2000 from $1.0 million for the same period in 1999. In the
third quarter of 1999, Merck expenses related to preparing for commercial
production of the vaccine intermediate, which began in the fourth quarter of
1999. In the third quarter of 2000, Merck expenses related primarily to the
costs associated with the manufacture of vaccine intermediate produced and
shipped. Interest expense was $0.1 million for the third quarter of both 2000
and 1999.
The Company's net loss for the third quarter of 2000 was $3.2 million,
or $0.09 per share (basic and diluted), compared to a net loss of $4.9 million,
or $0.16 per share (basic and diluted), for the same period in 1999.
Nine months ended September 30, 2000 and 1999. The Company's total
revenue increased to $45.8 million for the nine months ended September 30, 2000
from $26.6 million for the same period in 1999. Contract research and
development revenue increased to $27.0 million for the nine months ended
September 30, 2000 from $15.3 million for the same period in 1999. Contract
research and development revenue from Procter & Gamble increased to $21.5
million for the first nine months of 2000 from $13.5
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million for the same period in 1999 as increased revenue under the companies'
collaboration agreement more than offset the termination of Procter & Gamble
payments related to AXOKINE research in the third quarter of 1999 after Procter
& Gamble returned the product rights to AXOKINE to the Company. Revenue from
Amgen-Regeneron Partners increased to $5.0 million for the nine months ended
September 30, 2000 from $1.6 million for the same period in 1999 due to
increased clinical trial activity on BDNF and NT-3. In the first nine months of
2000, research progress payments consisted of two non-recurring payments
totaling $3.5 million from Procter & Gamble related to its long-term
collaboration agreement with the Company and a payment of $3.0 million (reduced
by $0.3 million of Japanese withholding tax) from Sumitomo Pharmaceuticals
related to the development of BDNF in Japan. Contract manufacturing revenue,
related primarily to the Merck agreement, decreased to $6.6 million for the nine
months ended September 30, 2000, compared to $7.3 million for the same period in
1999. In the first nine months of 1999, Merck revenue primarily was compensation
for services rendered related to preparing for commercial production of the
vaccine intermediate, which began in the fourth quarter of 1999. In the first
nine months of 2000, Merck revenue primarily consisted of payments related to
commercial production of the vaccine intermediate. Investment income for the
nine months ended September 30, 2000 increased to $6.0 million from $4.0 million
for the same period in 1999 due to interest earned on the proceeds of the
Company's public offering, which was completed on April 4, 2000, and the
Company's sale of Common Stock to Procter & Gamble, which was completed on
August 3, 2000.
The Company's total operating expenses increased to $59.3 million for
the nine months ended September 30, 2000 from $48.3 million for the same period
in 1999. Research and development expenses increased to $40.5 million in the
first nine months of 2000 from $35.0 million for the same period in 1999,
primarily as a result of higher staffing and increased activity in the Company's
preclinical and clinical research programs. The loss in Amgen-Regeneron Partners
increased to $3.5 million in the first nine months of 2000 from $2.5 million for
the same period in 1999 due to the partnership's increased clinical trial
activity on BDNF and NT-3. Research and development expenses (including loss in
Amgen-Regeneron Partners) were approximately 74% of total operating expenses in
the first nine months of 2000, compared to 78% for the same period in 1999.
General and administrative expenses increased to $5.2 million for the
nine months ended September 30, 2000 from $4.7 million for the same period in
1999 due primarily to higher administrative staffing and related occupancy
costs. Depreciation and amortization expense increased to $3.1 million for the
nine months ended September 30, 2000 from $2.5 million for the same period in
1999 primarily as a result of improvements made to the Company's leased
facilities in Tarrytown as well as purchases of new research equipment. Contract
manufacturing expenses increased to $6.8 million for the first nine months of
2000 from $3.5 million in the same period of 1999, due primarily to costs
associated with initiating commercial production at the Company's Rensselaer
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facility of both a vaccine intermediate for Merck and clinical supplies of BDNF
for Sumitomo Pharmaceuticals. Interest expense was $0.2 million for both the
first nine months of 2000 and 1999.
The Company's net loss for the nine months ended September 30,
2000 was $13.5 million, or $0.39 per share (basic and diluted), compared to a
net loss of $21.7 million, or $0.69 per share (basic and diluted), for the same
period in 1999.
Liquidity and Capital Resources
Since its inception in 1988, the Company has financed its operations
primarily through private placements and public offerings of its equity
securities, revenue earned under the agreements between the Company and Amgen,
Sumitomo Chemical Company, Ltd., Sumitomo Pharmaceuticals, Merck, and Procter &
Gamble, and investment income.
In May 1997, Regeneron and Procter & Gamble entered into a long-term
collaboration agreement. Procter & Gamble agreed over the first five years of
the collaboration to purchase up to $60.0 million in Regeneron equity (of which
$42.9 million was purchased in June 1997 and $17.1 million was purchased in
August 2000) and provide funding in support of Regeneron's research efforts
related to the collaboration (of which $38.0 million had been received through
September 30, 2000). In August 2000, Procter & Gamble made two non-recurring
research progress payments to Regeneron totaling $3.5 million. In addition, in
August 2000, Procter & Gamble and Regeneron agreed through a binding memorandum
of understanding to enter into a new collaboration agreement, replacing the
companies' 1997 agreement. The new agreement will extend Procter & Gamble's
obligation to fund Regeneron's research under the new collaboration agreement
through December 2005, with no further research obligations by either party
thereafter, and focus the companies' collaborative research on therapeutic areas
that are of particular interest to Procter & Gamble, including muscle atrophy
and muscle diseases, fibrotic diseases, and certain G-protein coupled receptors.
Any drugs that result from the collaboration will continue to be jointly
developed and marketed worldwide, with the companies equally sharing development
costs and profits. Under the original P&G Agreement, research support from
Procter & Gamble would have been $6.8 million per quarter (before adjustments
for future inflation) for the period July 2000 through June 2002. Under the new
agreement, beginning in the first quarter of 2001, research support from Procter
& Gamble will be $2.5 million per quarter (before adjustments for future
inflation) through December 2005, and total funding from July 2000 through
December 2005 will be approximately $64 million.
In connection with Regeneron'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 research progress payments from Sumitomo Pharmaceuticals
of $5.0 million (reduced by $0.5 million of Japanese withholding tax) in August
1998 and $3.0 million (reduced by $0.3 million of Japanese withholding tax) in
April 2000. In
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addition, Sumitomo Pharmaceuticals has paid the Company $27.7 million through
September 30, 2000 in connection with supplying BDNF for preclinical and
clinical use. Regeneron did not supply any BDNF to Sumitomo Pharmaceuticals in
1999. During the fourth quarter of 1999, Regeneron commenced production of BDNF
and began capitalizing manufacturing costs into inventory. The Company expects
to resume supplying BDNF to Sumitomo Pharmaceuticals for clinical use in late
2000 or 2001.
The Company's activities relating to BDNF and NT-3, as agreed upon by
Amgen and Regeneron, are being compensated by Amgen-Regeneron Partners for
services rendered, and the Company recognizes such amounts 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 $54.7 million to Amgen-Regeneron Partners
from the partnership's inception in June 1993 through September 30, 2000. These
contributions could increase or decrease, depending upon (among other things)
the nature and cost of BDNF and NT-3 studies that Amgen-Regeneron Partners may
conduct and the outcomes of those studies.
From its inception in January 1988 through September 30, 2000, the
Company invested approximately $72.3 million in property, plant, and equipment.
This includes $18.5 million to acquire and renovate the Rensselaer facility and
an additional $14.1 million to complete construction at the facility pursuant to
the Merck manufacturing agreement. In connection with the purchase and initial
renovation of the Rensselaer facility, the Company obtained financing of $2.0
million from the New York State Urban Development Corporation, of which $1.6
million is outstanding. Under the terms of this UDC 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. On September 22, 2000, Immunex Corporation
filed a request with the European Patent Office seeking the declaration of an
Opposition regarding the scope of Regeneron's European patent relating to
Cytokine Traps. Although the Company plans to defend the patent diligently,
Regeneron cannot predict whether the scope of the patent will be affected in the
future should an Opposition be declared. The Company also is currently involved
in interference proceedings in the U.S. Patent and Trademark Office between
Regeneron's patent applications and patent relating to CNTF issued to Synergen,
Inc. Amgen acquired all outstanding shares of Synergen in 1994. To help expedite
these interference proceedings, on
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October 31, 2000, Amgen and Regeneron entered into an agreement whereby
Regeneron acquired Amgen's patents and patent applications relating to CNTF and
related molecules for $1.0 million. Regeneron then granted back to Amgen
exclusive rights under these patents and patent applications solely for human
ophthalmic uses. In addition, Regeneron entered into a covenant not to sue Amgen
under Regeneron's patents and patent applications relating to CNTF and related
molecules solely for human ophthalmic uses.
As of September 30, 2000, 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. On
April 4, 2000, Regeneron completed a public offering of 2.6 million shares of
Common Stock at a price of $29.75 per share for proceeds to the Company, after
commissions and expenses, of $72.9 million. On August 3, 2000, Regeneron sold
573,630 shares of Common Stock to Procter & Gamble at a price of $29.75 per
share for total proceeds to the Company of $17.1 million. The sale of stock was
made pursuant to a 1997 securities purchase agreement between Regeneron and
Procter & Gamble.
At September 30, 2000, the Company had $158.5 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 Company expects further increases in the level of
quarterly research and development expenses as the Company continues to add
staff and increases its clinical activity. Regeneron believes that its existing
capital resources will enable it to meet operating needs for the next two years.
However, this is a forward-looking statement based on the Company's current
operating plan and 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. Regeneron's cash requirements may vary
materially from those now planned depending on a number of factors, including
the status of competitive products, the success of Regeneron's research and
development activities, the status of patents and other intellectual property
rights developments, the delay or failure of a clinical trial of any of
Regeneron's potential drug candidates, and the continuation, extent, and success
of any collaborative research programs (including those with Amgen and Procter &
Gamble). As stated previously, Regeneron has no committed external sources of
capital to obtain short-term financing or a line of credit. Regeneron may seek
additional financing, such as through future offerings of equity or debt
securities or agreements with corporate partners and collaborators with respect
to the development of potential drug candidates, to fund operations, but no
assurance can be given that the Company will be able to obtain additional funds.
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Impact of the Adoption of Recently Issued Accounting Standards
In December 1999, the staff of the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition, ("SAB 101").
SAB 101 requires companies who receive license and milestone payments, whether
refundable or non-refundable, to recognize them ratably over the period that the
related services are rendered.
In the period of adoption, companies will be required to report the
cumulative effect of this change in accounting principle as a separate component
in net income (or loss). Regeneron is required to adopt SAB 101 during the
quarter ended December 31, 2000, and is currently evaluating how to apply SAB
101 and the impact that it will have on the Company's financial statements.
Although the effects of SAB 101 cannot be fully determined at this time, the
Company estimates that, if SAB 101 had been adopted as of September 30, 2000,
the cumulative charge to earnings, and corresponding increase in deferred
revenue which will be recognized in future periods, would have been less than $6
million.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation ("FIN 44"). FIN 44 interprets the provisions of APB Opinion No. 25
that provide guidance on how companies should account for stock compensation
granted to employees and is effective for periods beginning on and after July 1,
2000. Management does not believe that the adoption of FIN 44 will have a
material effect on the Company's financial position and results of operations.
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, and the failure of
clinical investigators, trial monitors and other consultants, or trial
subjects to comply with the trial plan or protocol.
o In addition to the safety, efficacy, manufacturing, and regulatory
hurdles faced by Regeneron's drug candidates, the administration of
recombinant proteins frequently causes an immune response, resulting in
the creation of antibodies against the therapeutic protein. The
antibodies can have no effect or can totally neutralize the
effectiveness of the protein, or require that higher doses be used to
obtain a therapeutic effect. In some cases, the antibody can
cross-react with the patient's own proteins, resulting in an
"auto-immune type" disease. Whether antibodies will be created can
often not be predicted from preclinical experiments and their
appearance is often delayed, so that there can be no assurance that
neutralizing antibodies will not be created at a later date -- in some
cases even after pivotal clinical trials have been successfully
completed. Patients who have been treated with AXOKINE, BDNF, and NT-3
have developed antibodies, though we have no information that indicates
that these antibodies are neutralizing antibodies.
o Delay, difficulty, or failure in obtaining regulatory approval
(including approval of its facilities for production) for the Company's
products, 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 The inability to raise sufficient funds to complete the development of
any of our product candidates or to continue operations. As a result,
Regeneron may face delay, reduction or cancellation of research and
development programs or preclinical or clinical trials.
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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 Regeneron and its
corporate partners.
o Delays or difficulties in developing and acquiring production
technology and technical and managerial personnel to manufacture novel
biotechnology product in commercial quantities at reasonable costs and
in compliance with applicable quality assurance and environmental
regulations and governmental permitting requirements.
o Difficulties in obtaining key raw materials and supplies for the
manufacture of the Company's product candidates.
o The costs and other effects of legal and administrative cases and
proceedings (whether civil, such as product- 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 Difficulties in attracting and retaining key personnel.
As Regeneron's scientific efforts lead to potentially promising new
directions, both outside of recombinant protein therapies and into conditions or
diseases outside of Regeneron's current areas of experience and expertise, the
Company will require
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additional internal expertise or external collaborations in areas in which it
currently does not have substantial resources and personnel.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company's earnings and cash flows are subject to fluctuations due
to changes in interest rates primarily from its investment of available cash
balances in investment grade corporate and U.S. government securities. The
Company does not believe it is materially exposed to changes in interest rates.
Under its current policies the Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports
No reports on Form 8-K were filed by the Registrant during the
quarter ended September 30, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Regeneron Pharmaceuticals, Inc.
Date: November 14, 2000 By: /s/ Murray A. Goldberg
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Murray A. Goldberg
Vice President, Finance & Administration,
Chief Financial Officer, Treasurer and
Assistant Secretary
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