FORM 10-K
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2006
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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)
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New York
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13-3444607
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer Identification
No)
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777 Old Saw Mill River Road,
Tarrytown, New York
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10591-6707
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(Address of principal executive
offices)
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(Zip code)
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(914) 347-7000
(Registrants 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)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants
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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act.
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Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the common stock held by
non-affiliates of the registrant was approximately $678,078,000,
computed by reference to the closing sales price of the stock on
NASDAQ on June 30, 2006, the last trading day of the
registrants most recently completed second fiscal quarter.
The number of shares outstanding of each of the
registrants classes of common stock as of
February 28, 2007:
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Class of Common Stock
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Number of Shares
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Class A Stock, $.001 par
value
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2,270,355
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Common Stock, $.001 par value
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63,360,389
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DOCUMENTS INCORPORATED BY REFERENCE:
Specified portions of the Registrants definitive proxy
statement to be filed in connection with solicitation of proxies
for its 2007 Annual Meeting of Shareholders are incorporated by
reference into Part III of this
Form 10-K.
Exhibit index is located on pages 50 to 52 of this filing.
TABLE OF CONTENTS
PART I
This Annual Report on
Form 10-K
contains forward-looking statements that involve risks and
uncertainties relating to future events and the future financial
performance of Regeneron Pharmaceuticals, Inc., and actual
events or results may differ materially. These statements
concern, among other things, the possible success and
therapeutic applications of our product candidates and research
programs, the timing and nature of the clinical and research
programs now underway or planned, and the future sources and
uses of capital and our financial needs. These statements are
made by us based on managements current beliefs and
judgment. In evaluating such statements, stockholders and
potential investors should specifically consider the various
factors identified under the caption Risk Factors
which could cause actual events or results to differ materially
from those indicated by such forward-looking statements. We do
not undertake any obligation to update publicly any
forward-looking statement, whether as a result of new
information, future events, or otherwise, except as required by
law.
General
Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company
that discovers, develops, and intends to commercialize
pharmaceutical products for the treatment of serious medical
conditions. We are currently focused on three development
programs: IL-1 Trap (rilonacept) in various inflammatory
indications, the VEGF Trap in oncology, and the VEGF Trap eye
formulation (VEGF Trap-Eye) in eye diseases using intraocular
delivery. The VEGF Trap is being developed in oncology in
collaboration with the sanofi-aventis Group. In October 2006, we
entered into collaboration with Bayer HealthCare LLC for the
development of the VEGF-Trap-Eye. Our preclinical research
programs are in the areas of oncology and angiogenesis,
ophthalmology, metabolic and related diseases, muscle diseases
and disorders, inflammation and immune diseases, bone and
cartilage, pain, and cardiovascular diseases. We expect that our
next generation of product candidates will be based on our
proprietary technologies for discovering and producing human
monoclonal antibodies. Developing and commercializing new
medicines entails significant risk and expense. Since inception
we have not generated any sales or profits from the
commercialization of any of our product candidates.
Our core business strategy is to maintain a strong foundation in
basic scientific research and discovery-enabling technology and
combine that foundation with our manufacturing and clinical
development capabilities to build a successful, integrated
biopharmaceutical company. We believe that our ability to
develop product candidates is enhanced by the application of our
technology platforms. Our discovery platforms are designed to
identify specific genes of therapeutic interest for a particular
disease or cell type and validate targets through
high-throughput production of mammalian models. Our human
monoclonal antibody
(VelocImmune®)
and cell line expression technologies may then be utilized to
design and produce new product candidates directed against the
disease target. Based on the VelocImmune platform which we
believe, in conjunction with our other proprietary technologies,
can accelerate the development of fully human monoclonal
antibodies, we plan to move two new antibody candidates into
clinical trials each year going forward beginning around the end
of 2007. We continue to invest in the development of enabling
technologies to assist in our efforts to identify, develop, and
commercialize new product candidates.
Clinical
Programs:
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1.
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IL-1
Trap Inflammatory Diseases
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The IL-1 Trap (rilonacept) is a protein-based product candidate
designed to bind the interleukin-1 (called IL-1) cytokine and
prevent its interaction with cell surface receptors. We are
evaluating the IL-1 Trap in a number of diseases and disorders
in which IL-1 may play an important role, including a spectrum
of rare diseases called Cryopyrin-Associated Periodic Syndromes
(CAPS) and other diseases associated with inflammation.
In October 2006, we announced positive data from a Phase 3
clinical program designed to provide two separate demonstrations
of efficacy for the IL-1 Trap within a single group of adult
patients suffering from CAPS. The Phase 3 program of the
IL-1 Trap included two studies (Part A and Part B).
Both studies met their primary endpoints (Part A: p <
0.0001 and Part B: p < 0.001). The primary endpoint of
both studies was the change in disease activity,
1
which was measured using a composite symptom score composed of a
daily evaluation of fever/chills, rash, fatigue, joint pain, and
eye redness/pain.
We plan to submit a Biologics License Application (BLA) with the
U.S. Food and Drug Administration (FDA) in the second
quarter of 2007, following completion of a
24-week
open-label extension phase. The FDA has granted Orphan Drug
status and Fast Track designation to the IL-1 Trap for the
treatment of CAPS.
The first study (Part A) was a double-blind and
placebo-controlled
6-week
trial, in which patients randomized to receive the IL-1 Trap had
an approximate 85% reduction in their mean symptom score
compared to an approximate 13% reduction in patients treated
with placebo (p<0.0001). Following a
9-week
interval during which all patients received the IL-1 Trap, a
randomized withdrawal study (Part B) was
performed, in which the same patients were re-randomized to
either switch to placebo or continue treatment with the IL-1
Trap in a double-blind manner. During the
9-week
randomized withdrawal period, patients who were switched to
placebo had a five-fold increase in their mean symptom score,
compared with those remaining on the IL-1 Trap who had no
significant change (p=.0002). Both the Part A and
Part B studies achieved statistical significance in all of
their pre-specified secondary and exploratory endpoints.
Preliminary analysis of the safety data from both studies
indicated that there were no drug-related serious adverse
events. Injection site reactions and upper respiratory tract
infections, all mild to moderate in nature, occurred more
frequently in patients while on the IL-1 Trap than on placebo.
In these two studies, the IL-1 Trap appeared to be well
tolerated; 46 of 47 randomized patients completed the
Part A study, and 44 of 45 randomized patients completed
the Part B study. The
24-week
open-label extension phase is ongoing.
CAPS is a spectrum of rare inherited inflammatory conditions,
including Familial Cold Autoinflammatory Syndrome (FCAS),
Muckle-Wells Syndrome (MWS), and Neonatal Onset Multisystem
Inflammatory Disease (NOMID). These syndromes are characterized
by spontaneous systemic inflammation and are termed
autoinflammatory disorders. A novel feature of these conditions
(particularly FCAS and MWS) is that exposure to mild degrees of
cold temperature can provoke a major inflammatory episode that
occurs within hours. CAPS are caused by a range of mutations in
the gene CIAS1 (also known as NALP3) which encodes a
protein named cryopyrin (icy-fire). Currently, there
are no medicines approved for the treatment of CAPS.
We are also evaluating the potential use of the IL-1 Trap in
other indications in which IL-1 may play a role. Based on
preclinical evidence that IL-1 appears to play a critical role
in gout, we initiated a proof of concept study of the IL-1 Trap
in gout in the first quarter of 2007. We are also preparing to
initiate exploratory proof of concept studies of the IL-1 Trap
in other indications.
Under a March 2003 collaboration agreement with Novartis Pharma
AG, we retain the right to elect to collaborate in the future
development and commercialization of a Novartis IL-1 antibody,
which is in clinical development. Following completion of
Phase 2 development and submission to us of a written
report on the Novartis IL-1 antibody, we have the right, in
consideration for an opt-in payment, to elect to co-develop and
co-commercialize the Novartis IL-1 antibody in North America. If
we elect to exercise this right, we are responsible for paying
45% of post-election North American development costs for the
antibody product. In return, we are entitled to co-promote the
Novartis IL-1 antibody and to receive 45% of net profits on
sales of the antibody product in North America. Under certain
circumstances, we are also entitled to receive royalties on
sales of the Novartis IL-1 antibody in Europe.
In addition, under the collaboration agreement, Novartis has the
right to elect to collaborate in the development and
commercialization of a second generation IL-1 Trap following
completion of its Phase 2 development, should we decide to
clinically develop such a second generation product candidate.
Novartis does not have any rights or options with respect to our
IL-1 Trap currently in clinical development.
The VEGF Trap is a protein-based product candidate designed to
bind all forms of Vascular Endothelial Growth Factor-A (called
VEGF-A, also known as Vascular Permeability Factor or VPF) and
the related Placental Growth Factor (called PlGF), and prevent
their interaction with cell surface receptors. VEGF-A (and to a
less
2
validated degree, PlGF) is required for the growth of new blood
vessels that are needed for tumors to grow and is a potent
regulator of vascular permeability and leakage.
The VEGF Trap is being developed in cancer indications in
collaboration with sanofi-aventis. Currently, the collaboration
is conducting Phase 2 studies, with patient enrollment
underway in advanced ovarian cancer (AOC), non-small cell lung
adenocarcinoma (NSCLA), and AOC patients with symptomatic
malignant ascites (SMA). In 2004, the United States Food and
Drug Administration (FDA) granted Fast Track designation to the
VEGF Trap for the treatment of SMA. Sanofi-aventis reported in
February 2007 that a registration filing is possible for the
VEGF Trap in at least one of these single-agent indications in
2008.
In addition, five new Phase 2 single-agent studies have
begun in conjunction with the National Cancer Institute (NCI)
Cancer Therapy Evaluation Program (CTEP) in relapsed/refractory
multiple myeloma, metastatic colorectal cancer, recurrent or
metastatic cancer of the urothelium, locally advanced or
metastatic gynecological soft tissue sarcoma, and recurrent
malignant gliomas. An additional study is expected to begin
shortly in metastatic breast cancer. The companies are working
to finalize plans with NCI/CTEP for at least four additional
trials in different cancer types.
We and sanofi-aventis intend to initiate five Phase 3
trials evaluating the safety and efficacy of the VEGF Trap in
combination with standard chemotherapy regimens in specific
cancer types, the first three of which are planned to begin in
2007. The companies plan to initiate these Phase 3 trials
in the following indications:
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first-line metastatic hormone resistant prostate cancer in
combination with
Taxotere®,
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first-line metastatic pancreatic cancer in combination with
gemcitabine-based regimen,
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first-line gastric cancer in combination with
Taxotere®,
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second-line non-small cell lung cancer in combination with
Taxotere®, and
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second-line metastatic colorectal cancer in combination with
FOLFIRI (Folinic Acid, Fluorouracil, and irinotecan).
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Five safety and tolerability studies of the VEGF Trap in
combination with standard chemotherapy regimens are continuing
in a variety of cancer types to support the planned Phase 3
clinical program. The companies have previously summarized
information from two of these safety and tolerability trials.
One study is evaluating the VEGF Trap in combination with
oxaliplatin, 5-flourouracil, and leucovorin (FOLFOX4) in a
Phase 1 trial of patients with advanced solid tumors.
Another study is evaluating the VEGF Trap in combination with
irinotecan, 5-fluorouracil, and leucovorin (LV5FU2-CPT11) in a
Phase 1 trial of patients with advanced solid tumors.
Abstracts published in the 2006 ASCO Annual Meeting
Proceedings reported that the VEGF Trap could be safely
combined with either FOLFOX4 or LV5FU2-CPT11 at the dose levels
studied. The companies are also evaluating the VEGF Trap in
separate Phase 1b studies in combination with
Taxotere®,
cisplatin, and fluouracil; with
Taxotere®
and cisplatin; and with gemcitabine-erlotinib.
Cancer is a heterogeneous set of diseases and one of the leading
causes of death in the developed world. A mutation in any one of
dozens of normal genes can eventually result in a cell becoming
cancerous; however, a common feature of cancer cells is that
they need to obtain nutrients and remove waste products, just as
normal cells do. The vascular system normally supplies nutrients
to and removes waste from normal tissues. Cancer cells can use
the vascular system either by taking over preexisting blood
vessels or by promoting the growth of new blood vessels (a
process known as angiogenesis). VEGF is secreted by many tumors
to stimulate the growth of new blood vessels to supply nutrients
and oxygen to the tumor. VEGF blockers have been shown to
inhibit new vessel growth; and, in some cases, can cause
regression of existing tumor vasculature. Countering the effects
of VEGF, thereby blocking the blood supply to tumors, has
demonstrated therapeutic benefits in clinical trials. This
approach of inhibiting angiogenesis as a mechanism of action for
an oncology medicine was validated in February 2004, when the
FDA approved Genentech, Inc.s VEGF inhibitor,
Avastin®.
Avastin is an antibody product designed to inhibit VEGF and
interfere with the blood supply to tumors.
3
Collaboration
with the sanofi-aventis Group
In September 2003, we entered into a collaboration agreement
with Aventis Pharmaceuticals, Inc. (predecessor to
sanofi-aventis U.S.) to collaborate on the development and
commercialization of the VEGF Trap in all countries other than
Japan, where we retained the exclusive right to develop and
commercialize the VEGF Trap. In January 2005, we and
sanofi-aventis amended the collaboration agreement to exclude
from the scope of the collaboration the development and
commercialization of the VEGF Trap for intraocular delivery to
the eye. In December 2005, we and sanofi-aventis amended our
collaboration agreement to expand the territory in which the
companies are collaborating on the development of the VEGF Trap
to include Japan. Under the collaboration agreement, as amended,
we and sanofi-aventis will share co-promotion rights and profits
on sales, if any, of the VEGF Trap outside of Japan for disease
indications included in our collaboration. We are entitled to a
royalty of approximately 35% on annual sales of the VEGF Trap in
Japan, subject to certain potential adjustments. We may also
receive up to $400.0 million in milestone payments upon
receipt of specified marketing approvals. This total includes up
to $360.0 million in milestone payments related to receipt
of marketing approvals for up to eight VEGF Trap oncology and
other indications in the United States or the European Union.
Another $40.0 million of milestone payments relate to
receipt of marketing approvals for up to five VEGF Trap oncology
indications in Japan.
Under the collaboration agreement, as amended, agreed upon
worldwide development expenses incurred by both companies during
the term of the agreement will be funded by sanofi-aventis. If
the collaboration becomes profitable, we will be obligated to
reimburse sanofi-aventis for 50% of the VEGF Trap development
expenses in accordance with a formula based on the amount of
development expenses and our share of the collaboration profits
and Japan royalties, or at a faster rate at our option.
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3.
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VEGF
Trap Eye Diseases
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The VEGF Trap-Eye is a form of the VEGF Trap that has been
purified and formulated with excipients and at concentrations
suitable for direct injection into the eye. The VEGF Trap-Eye
currently is being tested in a Phase 2 trial in patients
with the neovascular form of age-related macular degeneration
(wet AMD) and in a small pilot study in patients with diabetic
macular edema (DME).
In the second quarter of 2006, we initiated a 150 patient,
12 week, Phase 2 trial of the VEGF Trap-Eye in wet
AMD. The trial is evaluating the safety and biological effect of
treatment with multiple doses of the VEGF Trap-Eye using
different doses and different dosing regimens. We expect to
report initial three-month data from the first 75 patients
enrolled in the Phase 2 trial in early 2007 and complete
three-month data on all 150 patients enrolled in the study
by the end of the year. We are also conducting a Phase 1
safety and tolerability trial of a new formulation of the VEGF
Trap-Eye in wet AMD. An initial Phase 3 trial of the VEGF
Trap-Eye in wet AMD utilizing the new formulation is planned to
begin in the second half of 2007, and a second Phase 3
trial is planned once the full data from the Phase 2 trial
has been analyzed.
Also in the second quarter of 2006, we initiated a small pilot
study of the VEGF Trap in patients with DME.
At the 2006 American Society of Retinal Specialists (ASRS)
annual meeting in France, we updated the positive preliminary
results from a Phase 1 trial of the VEGF Trap-Eye in
patients with wet AMD. A total of 21 patients received a
single dose of VEGF Trap-Eye at doses of 0.05, 0.15,
0.5, 1, 2, and 4 milligrams (mg) intravitreally (direct
injection into the eye). Patients were evaluated for six weeks
to measure the durability of effects and provide guidance for
dosing regimens to be used in future trials. All dose levels
were generally well tolerated, and a maximum tolerated dose was
not reached in the study. In wet AMD, the leakiness of the
abnormal blood vessels in the eye can lead to increased retinal
thickness. On average, patients receiving the VEGF Trap-Eye
demonstrated large, rapid, and sustained (at least six weeks)
reductions in retinal thickness. Excess retinal thickness, as
determined by ocular coherence tomography (OCT), is a clinical
measure of disease activity in wet AMD. As measured by the OCT
reading center (posterior pole OCT scans), the median excess
retinal thickness resulting from the disease process was 194
microns at baseline. Following a single intravitreal dose of the
VEGF Trap-Eye, median excess retinal thickness was reduced to 60
microns, an improvement that was sustained over a six week
period. As measured by the computerized Fast Macular Scan
protocol, the median excess retinal thickness was 119 microns at
baseline, which was reduced to 27 microns at six weeks after the
single dose of the VEGF Trap-Eye.
4
Of the 20 patients evaluable for efficacy, 95 percent
had stabilization or improvement in visual acuity, defined as 15
letter loss on the Early Treatment of Diabetic Retinopathy Study
(ETDRS) eye chart. Patients were also evaluated for
best-corrected visual acuity (BCVA), the best acuity a person
can achieve with glasses. BCVA for all patients in the study
increased by a mean of 4.8 letters at six weeks. In the two
highest dose groups (2 mg and 4 mg), the mean
improvement in BCVA was 13.5 letters, with three of six patients
showing an improvement in BCVA of 15 or more letters.
VEGF-A both stimulates angiogenesis and increases vascular
permeability. It has been shown in preclinical studies to be a
major pathogenic factor in both wet AMD and diabetic
retinopathy, and it is believed to be involved in other medical
problems affecting the eyes. In clinical trials, blocking VEGF-A
has been shown to be effective in patients with wet AMD, and
Macugen®
(OSI Pharmaceuticals, Inc.) and
Lucentis®
(Genentech, Inc.) have been approved to treat patients with this
condition.
Wet AMD and diabetic retinopathy (DR) are two of the leading
causes of adult blindness in the developed world. In both
conditions, severe vision loss is caused by a combination of
retinal edema and neovascular proliferation. It is estimated
that in the U.S. 6% of individuals aged
65-74 and
20% of those older than 75 are affected with wet AMD. DR is a
major complication of diabetes mellitus that can lead to
significant vision impairment. DR is characterized, in part, by
vascular leakage, which results in the collection of fluid in
the retina. When the macula, the central area of the retina that
is responsible for fine visual acuity, is involved, loss of
visual acuity occurs. This is referred to as diabetic macular
edema (DME). DME is the most prevalent cause of moderate visual
loss in patients with diabetes.
Collaboration
with Bayer HealthCare
In October 2006, we entered into a collaboration agreement with
Bayer HealthCare for the global development, and
commercialization outside the United States, of the VEGF
Trap-Eye. Under the agreement we and Bayer will collaborate on,
and share the costs of, the development of the VEGF Trap-Eye
through an integrated global plan that encompasses wet AMD,
diabetic eye diseases, and other diseases and disorders. The
companies will share equally in profits from any future sales of
the VEGF Trap-Eye outside the United States. If the VEGF
Trap-Eye is granted marketing authorization in a major market
country outside the United States and the collaboration becomes
profitable, we will be obligated to reimburse Bayer for 50% of
the development costs that it has incurred under the agreement
from our share of the collaboration profits. Within the United
States, we retained exclusive commercialization rights to the
VEGF Trap-Eye and are entitled to all profits from any such
sales. We received an up-front payment of $75.0 million
from Bayer and can earn up to $110.0 million in total
development and regulatory milestones related to the development
of the VEGF Trap-Eye and marketing approvals in major market
countries outside the United States. We can also earn up to
$135.0 million in sales milestones if total annual sales of
the VEGF Trap outside the United States achieve certain
specified levels starting at $200 million.
Research
Technologies:
One way that a cell communicates with other cells is by
releasing specific signaling proteins, either locally or into
the bloodstream. These proteins have distinct functions, and are
classified into different families of molecules,
such as peptide hormones, growth factors, and cytokines. All of
these secreted (or signaling) proteins travel to and are
recognized by another set of proteins, called
receptors, which reside on the surface of responding
cells. These secreted proteins impact many critical cellular and
biological processes, causing diverse effects ranging from the
regulation of growth of particular cell types, to inflammation
mediated by white blood cells. Secreted proteins can at times be
overactive and thus result in a variety of diseases. In these
disease settings, blocking the action of secreted proteins can
have clinical benefit.
Regeneron scientists have developed two different technologies
to design protein therapeutics to block the action of specific
secreted proteins. The first technology, termed the
Trap technology, was used to generate our current
clinical pipeline, including the VEGF Trap, the VEGF Trap-Eye,
and the IL-1 Trap. These novel Traps are composed of
fusions between two distinct receptor components and the
constant region of an antibody molecule called the Fc
region, resulting in high affinity product candidates.
5
Regeneron scientists also have discovered and developed a new
technology for designing protein therapeutics that focuses on
the discovery and production of fully human monoclonal
antibodies. We call our technology
VelocImmune®
and, as described below, believe that it is a unique way
of generating a wide variety of high affinity therapeutic, human
monoclonal antibodies.
VelocImmune®
(Human Monoclonal Antibodies)
We have developed a novel mouse technology platform, called
VelocImmune, for producing fully human monoclonal antibodies.
The VelocImmune mouse platform was generated by exploiting our
VelociGene technology platform (see below), in a process in
which six megabases of mouse immune gene loci were replaced or
humanized with corresponding human immune gene loci.
The VelocImmune mice can be used to generate efficiently fully
human monoclonal antibodies to targets of therapeutic interest.
VelocImmune and our related technologies offer the potential to
increase the speed and efficiency through which human monoclonal
antibody therapeutics may be discovered and validated, thereby
improving the overall efficiency of our early stage drug
development activities. We are utilizing the VelocImmune
technology to produce our next generation of drug candidates for
preclinical development and are exploring possible licensing or
collaborative arrangements with third parties related to
VelocImmune and related technologies.
License
Agreement with AstraZeneca
In February 2007, we entered into a non-exclusive license
agreement with AstraZeneca that will allow AstraZeneca to
utilize our VelocImmune technology in its internal research
programs to discover human monoclonal antibodies. Under the
terms of the agreement, AstraZeneca made a $20.0 million
non-refundable up-front payment to us. AstraZeneca also will
make up to five additional annual payments of
$20.0 million, subject to its ability to terminate the
agreement after making the first three additional payments or
earlier if the technology does not meet minimum performance
criteria. We are entitled to receive a mid-single-digit royalty
on any future sales of antibody products discovered by
AstraZeneca using our VelocImmune technology.
VelociGene®
and
VelociMousetm
(Target Validation)
Our VelociGene platform allows custom and precise manipulation
of very large sequences of DNA to produce highly customized
alterations of a specified target gene and accelerates the
production of knock-out and transgenic expression models without
using either positive/negative selection or isogenic DNA. In
producing knock-out models, a color or fluorescent marker is
substituted in place of the actual gene sequence, allowing for
high-resolution visualization of precisely where the gene is
active in the body, during normal body functioning, as well as
in disease processes. For the optimization of pre-clinical
development and toxicology programs, VelociGene offers the
opportunity to humanize targets by replacing the mouse gene with
the human homolog. Thus, VelociGene allows scientists to rapidly
identify the physical and biological effects of deleting or
over-expressing the target gene, as well as to characterize and
test potential therapeutic molecules.
The VelociMouse technology also allows for the direct and
immediate generation of genetically altered mice from
ES cells, thereby avoiding the lengthy process involved in
generating and breeding knockout mice from chimeras. Mice
generated through this method are normal and healthy and exhibit
a 100% germ-line transmission frequency. Furthermore,
Regenerons VelociMice are suitable for direct phenotyping
or other studies.
National
Institutes of Health Grant
In September 2006, we were awarded a five-year grant from the
National Institutes of Health (NIH) as part of the NIHs
Knockout Mouse Project. The goal of the Knockout Mouse Project
is to build a comprehensive and broadly available resource of
knockout mice to accelerate the understanding of gene function
and human diseases. We will use our VelociGene technology to
take aim at 3,500 of the most difficult genes to target and
which are not currently the focus of other large-scale knockout
mouse programs. We have also agreed to grant a limited license
to a consortium of research institutions, the other major
participants in the Knockout Mouse Project, to use components of
our VelociGene technology in the Knockout Mouse Project. We will
generate a collection of targeting vectors and targeted mouse
embryonic stem cells (ES cells) which can be used to
produce knockout mice.
6
These materials will be made widely available to academic
researchers without charge. We will receive a fee for each
targeted ES cell line or targeting construct made by us or the
research consortium and transferred to commercial entities.
Under the NIH grant, we will be entitled to receive a minimum of
$17.9 million over a five-year period. We will receive
another $1.0 million to optimize our existing C57BL/6 ES
cell line and its proprietary growth medium, both of which will
be supplied to the research consortium for its use in the
Knockout Mouse Project. We will have the right to use, for any
purpose, all materials generated by us and the research
consortium.
Cell
Line Expression Technologies
Many proteins that are of potential pharmaceutical value are
proteins which are secreted from the cells into the
bloodstream. Examples of secreted proteins include growth
factors (such as insulin and growth hormone) and antibodies.
Current technologies for the isolation of cells engineered to
produce high levels of secreted proteins are both laborious and
time consuming. We have developed enabling platforms for the
high-throughput, rapid generation of high-producing cell lines
for our Traps and VelocImmune human monoclonal antibodies.
Research
Programs:
Oncology
and Angiogenesis
In many clinical settings, positively or negatively regulating
blood vessel growth could have important therapeutic benefits,
as could the repair of damaged and leaky vessels. Vascular
Endothelial Growth Factor (VEGF) was the first growth factor
shown to be specific for blood vessels, by virtue of having its
receptor specifically expressed on blood vessel cells. In 1994,
we discovered a second family of angiogenic growth factors,
termed the Angiopoietins, and we have received patents covering
members of this family. The Angiopoietins include naturally
occurring positive and negative regulators of angiogenesis, as
described in numerous scientific manuscripts published by our
scientists and their collaborators. The Angiopoietins are being
evaluated in preclinical research by us and our academic
collaborators. Our preclinical studies have revealed that VEGF
and the Angiopoietins normally function in a coordinated and
collaborative manner during blood vessel growth. Manipulation of
both VEGF and Angiopoietins seems to be of value in blocking
vessel growth. We have research programs focusing on several
targets in the areas of oncology and angiogenesis.
Tumors depend on the growth of new blood vessels (a process
called angiogenesis) to support their continued
growth. Therapies that block tumor angiogenesis, specifically
those that block VEGF, the key initiator of tumor angiogenesis,
recently have been validated in human cancer patients. However,
anti-VEGF approaches do not work in all patients, and many
tumors can become resistant to such therapies.
In the December 21, 2006 issue of the journal Nature,
we reported data from a preclinical study demonstrating that
blocking an important cell signaling molecule, known as
Delta-like Ligand 4 (Dll4), inhibited the growth of experimental
tumors by interfering with their ability to produce a functional
blood supply. The inhibition of tumor growth was seen in a
variety of tumor types, including those that were resistant to
blockade of VEGF, suggesting a novel anti-angiogenesis
therapeutic approach. A fully human monoclonal antibody to Dll4,
that was discovered using our VelocImmune technology, is in
preclinical development.
Metabolic
and Related Diseases
Food intake and metabolism are regulated by complex interactions
between diverse neural and hormonal signals that serve to
maintain an optimal balance between energy intake, storage, and
utilization. The hypothalamus, a small area at the base of the
brain, is critically involved in the integration of peripheral
signals which reflect nutritional status and neural outputs
which regulate appetite, food seeking behaviors, and energy
expenditure. Metabolic disorders, such as type 2 diabetes,
reflect a dysregulation in the systems which ordinarily tightly
couple energy intake to energy expenditure. Our preclinical
research program in this area encompasses the study of
peripheral (hormonal) regulators of food intake and metabolism
in health and disease. We have identified several targets in
these therapeutic areas and are evaluating potential antibodies
to evaluate in preclinical studies.
7
Muscle
Diseases and 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 treat subjects with muscle atrophy or other muscle
conditions which afflict millions of people globally. Thus, a
treatment that has beneficial effects on skeletal muscle could
have significant clinical benefit. Our muscle research program
is currently focused on conducting in vivo and in vitro
experiments with the objective of demonstrating and further
understanding the molecular pathways involved in muscle atrophy
and hypertrophy, and discovering therapeutic candidates that can
modulate these pathways. We have several molecules in late stage
research and are evaluating them for possible further
development.
Other
Therapeutic Areas
We have research programs focusing on inflammatory and immune
diseases, pain, bone and cartilage, ophthalmology, and
cardiovascular diseases.
Manufacturing
In 1993, we purchased our 104,000 square foot Rensselaer,
New York manufacturing facility, and in 2003 completed a
19,500 square foot expansion. This facility is used to
manufacture therapeutic candidates for our own preclinical and
clinical studies. We also used the facility to manufacture a
product for Merck & Co., Inc. under a contract that
expired in October 2006. In July 2002, we leased
75,000 square feet in a building near our Rensselaer
facility which is being used for the manufacture of Traps and
for warehouse space. At December 31, 2006, we employed
188 people at these owned and leased manufacturing
facilities. There were no impairment losses associated with
long-lived assets at these facilities as of December 31,
2006.
Among the conditions for regulatory marketing approval of a
medicine is the requirement that the prospective
manufacturers 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 areas 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 national, federal, state, and
local agencies. If our manufacturing facilities fail to comply
with FDA and other regulatory requirements, we will be required
to suspend manufacturing. This will have a material adverse
effect on our financial condition, results of operations, and
cash flow.
Competition
We face substantial competition from pharmaceutical,
biotechnology, and chemical companies (see Risk
Factors Even if our product candidates are ever
approved, their commercial success is highly uncertain because
our competitors may get to the marketplace before we do with
better or lower cost drugs or the market for our product
candidates may be too small to support commercialization or
sufficient profitability.). Our competitors may
include Genentech, Novartis, Pfizer Inc., OSI Pharmaceuticals,
Inc., Bayer HealthCare, Onyx Pharmaceuticals, Inc., Abbott
Laboratories, sanofi-aventis, Merck, Amgen, Roche, and others.
Many of our competitors have substantially greater research,
preclinical, and clinical product development and manufacturing
capabilities, and financial, marketing, and human resources than
we do. Our smaller competitors may also be significant if they
acquire or discover patentable inventions, form collaborative
arrangements, or merge with large pharmaceutical companies. Even
if we achieve product commercialization, one or more of our
competitors may achieve product commercialization earlier than
we do or obtain patent protection that dominates or adversely
affects our activities. Our ability to compete will depend on
how fast we can develop safe and effective product candidates,
complete clinical testing and approval processes, and supply
commercial quantities of the product to the market. Competition
among product candidates approved for sale will also be based on
efficacy, safety, reliability, availability, price, patent
position, and other factors.
VEGF Trap and VEGF Trap-Eye. Many companies
are developing therapeutic molecules designed to block the
actions of VEGF specifically and angiogenesis in general. A
variety of approaches have been employed, including antibodies
to VEGF, antibodies to the VEGF receptor, small molecule
antagonists to the VEGF receptor
8
tyrosine kinase, and other anti-angiogenesis strategies. Many of
these alternative approaches may offer competitive advantages to
our VEGF Trap in efficacy, side-effect profile, or method of
delivery. Additionally, some of these molecules are either
already approved for marketing or are at a more advanced stage
of development than our product candidate.
In particular, Genentech has an approved VEGF antagonist,
Avastin®,
on the market for treating certain cancers and a number of
pharmaceutical and biotechnology companies are working to
develop competing VEGF antagonists, including Novartis, OSI
Pharmaceuticals, Pfizer, and Imclone Systems Incorporated. Many
of these molecules are further along in development than the
VEGF Trap and may offer competitive advantages over our
molecule. Novartis has an ongoing Phase 3 clinical
development program evaluating an orally delivered VEGF tyrosine
kinase inhibitor in different cancer settings. Each of Pfizer
and Onyx Pharmaceuticals (together with its partner Bayer) has
received approval from the FDA to market and sell an oral
medication that targets tumor cell growth and new vasculature
formation that fuels the growth of tumors.
The market for eye disease products is also very competitive.
Novartis and Genentech are collaborating on the
commercialization and further development of a VEGF antibody
fragment
(Lucentis®)
for the treatment of age-related macular degeneration (wet AMD)
and other eye indications that was approved by the FDA in June
2006. OSI Pharmaceuticals and Pfizer are marketing an approved
VEGF inhibitor
(Macugen®)
for wet AMD. Many other companies are working on the development
of product candidates for the potential treatment of wet AMD
that act by blocking VEGF, VEGF receptors, and through the use
of soluble ribonucleic acids (sRNAs) that modulate gene
expression. In addition, ophthalmologists are using off-label a
third-party reformulated version of Genentechs approved
VEGF antagonist, Avastin, with success for the treatment of wet
AMD. The National Eye Institue recently has received funding for
a Phase 3 trial to compare Lucentis to Avastin in the
treatment of wet AMD.
IL-1 Trap. The availability of highly
effective FDA approved TNF-antagonists such as
Enbrel®
(Amgen),
Remicade®
(Centocor), and
Humira®
(Abbott) and the IL-1 receptor antagonist Kineret (Amgen), and
other marketed therapies makes it difficult to successfully
develop and commercialize the IL-1 Trap. Even if the IL-1Trap is
ever approved for sale, it will be difficult for our drug to
compete against these FDA approved TNF-antagonists because
doctors and patients will have significant experience using
these effective medicines. Moreover, there are both small
molecules and antibodies in development by third parties that
are designed to block the synthesis of interleukin-1 or inhibit
the signaling of interleukin-1. For example, Eli Lilly and
Company and Novartis are each developing antibodies to
interleukin-1 and Amgen is developing an antibody to the
interleukin-1 receptor. These drug candidates could offer
competitive advantages over the IL-1 Trap. The successful
development of these competing molecules could delay or impair
our ability to successfully develop and commercialize the IL-1
Trap.
Other Areas. Many pharmaceutical and
biotechnology companies are attempting to discover new
therapeutics for indications in which we invest substantial time
and resources. In these and related areas, intellectual property
rights have been sought and certain rights have been granted to
competitors and potential competitors of ours, and we may be at
a substantial competitive disadvantage in such areas as a result
of, among other things, our lack of experience, trained
personnel, and expertise. A number of corporate and academic
competitors are involved in the discovery and development of
novel therapeutics that are the focus of other research or
development programs we are now conducting. These competitors
include Amgen and Genentech, as well as many others. 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.
If a competitor announces a successful clinical study involving
a product that may be competitive with one of our product
candidates or the grant of marketing approval by a regulatory
agency for a competitive product, the announcement may have an
adverse effect on our operations or future prospects or on the
market price of our common stock.
We also compete with academic institutions, governmental
agencies, and other public or private research organizations,
which conduct research, seek patent protection, and establish
collaborative arrangements for the development and marketing of
products that would provide royalties or other consideration for
use of their technology. These institutions are becoming more
active in seeking patent protection and licensing arrangements
to
9
collect royalties or other consideration for use of the
technology that they have developed. Products developed in this
manner may compete directly with products we develop. We also
compete with others in acquiring technology from these
institutions, agencies, and organizations.
Patents,
Trademarks, and Trade Secrets
Our success depends, in part, on our ability to obtain patents,
maintain trade secret protection, and operate without infringing
on the proprietary rights of third parties (see Risk
Factors We may be restricted in our development
and/or
commercialization activities by, and could be subject to damage
awards if we are found to have infringed, third party patents or
other proprietary rights.). Our policy is to file
patent applications to protect technology, inventions, and
improvements that we consider important to our business and
operations. We are the nonexclusive licensee of a number of
additional U.S. patents and patent applications. We also
rely upon trade secrets, know-how, and continuing technological
innovation in an effort to develop and maintain our competitive
position. We or our licensors or collaborators have filed patent
applications on various products and processes relating to our
product candidates as well as other technologies and inventions
in the United States and in certain foreign countries. We intend
to file additional patent applications, when appropriate,
relating to improvements in these technologies and other
specific products and processes. We plan to aggressively
prosecute, enforce, and defend our patents and other proprietary
technology.
Patent law relating to the patentability and scope of claims in
the biotechnology field is evolving and our patent rights are
subject to this additional uncertainty. Others may independently
develop similar products or processes to those developed by us,
duplicate any of our products or processes or, if patents are
issued to us, design around any products and processes covered
by our patents. We expect to continue, when appropriate, to file
product and process patent applications with respect to our
inventions. However, we may not file any such applications or,
if filed, the patents may not be issued. Patents issued to or
licensed by us may be infringed by the products or processes of
others.
Defense and enforcement of our intellectual property rights can
be expensive and time consuming, even if the outcome is
favorable to us. It is possible that patents issued to or
licensed to us will be successfully challenged, that a court may
find that we are infringing validly issued patents of third
parties, or that we may have to alter or discontinue the
development of our products or pay licensing fees to take into
account patent rights of third parties.
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 our product
candidates (see Risk Factors If we do not
obtain regulatory approval for our product candidates, we will
not be able to market or sell them.). All of our
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 pre-market 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
reformed during recent years, and continued reform is under
consideration in a number of jurisdictions. The ultimate outcome
and impact of such reforms and potential reforms cannot be
predicted.
The activities required before a product candidate may be
marketed in the United States begin with preclinical tests.
Preclinical tests include laboratory evaluations and animal
studies to assess the potential safety and efficacy of the
product candidate and its formulations. The results of these
studies must be submitted to the FDA as part of an
Investigational New Drug Application, which must be reviewed by
the FDA before proposed clinical testing can begin. Typically,
clinical testing involves a three-phase process. In
Phase 1, trials are conducted with a small number of
subjects to determine the early safety profile of the product
candidate. In Phase 2, clinical trials are conducted with
subjects afflicted with a specific disease or disorder to
provide enough data to evaluate the preliminary safety,
tolerability, and efficacy of different potential doses of the
product candidate. In Phase 3, large-scale clinical trials
are conducted with patients afflicted with the specific disease
or disorder in order to provide enough data to understand the
efficacy and safety profile of the product candidate, as
required by the FDA. The results of the preclinical and clinical
testing of a biologic product candidate are then submitted to
the FDA in the form of a
10
Biologics License Application, or BLA, for evaluation to
determine whether the product candidate may be approved for
commercial sale. In responding to a BLA, the FDA may grant
marketing approval, request additional information, or deny the
application.
Any approval required by the FDA for any of our product
candidates may not be obtained on a timely basis, or at all. 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. The results of preclinical studies or early
stage clinical trials may not predict long-term safety or
efficacy of our compounds when they are tested or used more
broadly in humans.
Approval of a product candidate by comparable regulatory
authorities in foreign countries is generally required prior to
commencement of marketing of the product in those countries. The
approval procedure varies among countries and may involve
additional testing, and the time required to obtain such
approval may differ from that required for FDA approval.
Various federal, state, and foreign statutes and regulations
also govern or influence the research, manufacture, safety,
labeling, storage, record keeping, marketing, transport, and
other aspects of pharmaceutical product candidates. The lengthy
process of seeking these approvals and the compliance with
applicable statutes and regulations require the expenditure of
substantial resources. Any failure by us or our collaborators or
licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the manufacturing or marketing
of our products and our ability to receive product or royalty
revenue.
In addition to the foregoing, our 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, the Resource Conservation and Recovery Act,
national restrictions, and other current and potential future
local, state, federal, and foreign regulations.
Business
Segments
Through 2006, our operations were managed in two business
segments: research and development, and contract manufacturing.
The research and development segment includes all activities
related to the discovery of pharmaceutical products for the
treatment of serious medical conditions, and the development and
commercialization of these discoveries. It also includes
revenues and expenses related to (i) the development of
manufacturing processes prior to commencing commercial
production of a product under contract manufacturing
arrangements and (ii) the supply of specified, ordered
research materials using Regeneron-developed proprietary
technology. The contract manufacturing segment includes all
revenues and expenses related to the commercial production of
products under contract manufacturing arrangements. During 2006,
2005, and 2004, the Company manufactured a product for Merck
under a contract that expired in October 2006. For financial
information about these segments, see Note 20,
Segment Information, beginning on
page F-34
in our Financial Statements. Due to the expiration of our
manufacturing agreement with Merck, beginning in 2007 we only
have a research and development business segment.
Employees
As of December 31, 2006, we had 573 full-time
employees, of whom 80 held a Ph.D. or M.D. degree or both. We
believe that we have been successful in attracting skilled and
experienced personnel in a highly competitive environment;
however, competition for these personnel is intense. None of our
personnel are covered by collective bargaining agreements and
our management considers its relations with our employees to be
good.
Available
Information
We file annual, quarterly, and current reports, proxy
statements, and other documents with the Securities and Exchange
Commission, or SEC, under the Securities Exchange Act of 1934,
or the Exchange Act. The public may read and copy any materials
that we file with the SEC at the SECs Public Reference
Room at 450 Fifth Street, NW,
11
Washington, DC 20549. The public may obtain information on the
operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Also, the SEC maintains an Internet website that contains
reports, proxy and information statements, and other information
regarding issuers, including Regeneron, that file electronically
with the SEC. The public can obtain any documents that we file
with the SEC at http://www.sec.gov.
We also make available free of charge on or through our Internet
website (http://www.regn.com) our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and, if applicable, amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the
SEC.
We operate in an environment that involves a number of
significant risks and uncertainties. We caution you to read the
following risk factors, which have affected,
and/or in
the future could affect, our business, operating results,
financial condition, and cash flows. The risks described below
include forward-looking statements, and actual events and our
actual results may differ substantially from those discussed in
these forward-looking statements. Additional risks and
uncertainties not currently known to us or that we currently
deem immaterial may also impair our business operations.
Furthermore, additional risks and uncertainties are described
under other captions in this report and should be considered by
our investors.
Risks
Related to Our Financial Results and Need for Additional
Financing
We
have had a history of operating losses and we may never achieve
profitability. If we continue to incur operating losses, we may
be unable to continue our operations.
From inception on January 8, 1988 through December 31,
2006, we had a cumulative loss of $687.6 million. If we
continue to incur operating losses and fail to become a
profitable company, we may be unable to continue our operations.
We have no products that are available for sale and do not know
when we will have products available for sale, if ever. In the
absence of revenue from the sale of products or other sources,
the amount, timing, nature or source of which cannot be
predicted, our losses will continue as we conduct our research
and development activities. Until October 31, 2006, we
received contract manufacturing revenue from our agreement with
Merck and, until June 30, 2005, we received contract
research and development revenue from our agreement with The
Procter & Gamble Company. Our agreement with
Procter & Gamble expired in June 2005 and our agreement
with Merck expired in October 2006. The expiration of these
agreements has resulted in a significant loss of revenue to the
Company.
We
will need additional funding in the future, which may not be
available to us, and which may force us to delay, reduce or
eliminate our product development programs or commercialization
efforts.
We will need to expend substantial resources for research and
development, including costs associated with clinical testing of
our product candidates. We believe our existing capital
resources will enable us to meet operating needs through at
least early 2010, without taking into consideration the
$200.0 million aggregate principal amount of convertible
senior subordinated notes, which mature in October 2008;
however, our projected revenue may decrease or our expenses may
increase and that would lead to our capital being consumed
significantly before such time. We will likely require
additional financing in the future and we may not be able to
raise such additional funds. If we are able to obtain additional
financing through the sale of equity or convertible debt
securities, such sales may be dilutive to our shareholders. Debt
financing arrangements may require us to pledge certain assets
or enter into covenants that would restrict our business
activities or our ability to incur further indebtedness and may
contain other terms that are not favorable to our shareholders.
If we are unable to raise sufficient funds to complete the
development of our product candidates, we may face delay,
reduction or elimination of our research and development
programs or preclinical or clinical trials, in which case our
business, financial condition or results of operations may be
materially harmed.
12
We
have a significant amount of debt and may have insufficient cash
to satisfy our debt service and repayment obligations. In
addition, the amount of our debt could impede our operations and
flexibility.
We have a significant amount of convertible debt and semi-annual
interest payment obligations. This debt, unless converted to
shares of our common stock, will mature in October 2008. We may
be unable to generate sufficient cash flow or otherwise obtain
funds necessary to make required payments on our debt. Even if
we are able to meet our debt service obligations, the amount of
debt we already have could hurt our ability to obtain any
necessary financing in the future for working capital, capital
expenditures, debt service requirements, or other purposes. In
addition, our debt obligations could require us to use a
substantial portion of cash to pay principal and interest on our
debt, instead of applying those funds to other purposes, such as
research and development, working capital, and capital
expenditures.
Risks
Related to Development of Our Product Candidates
Successful
development of any of our product candidates is highly
uncertain.
Only a small minority of all research and development programs
ultimately result in commercially successful drugs. We have
never developed a drug that has been approved for marketing and
sale, and we may never succeed in developing an approved drug.
Even if clinical trials demonstrate safety and effectiveness of
any of our product candidates for a specific disease and the
necessary regulatory approvals are obtained, the commercial
success of any of our product candidates will depend upon their
acceptance by patients, the medical community, and third-party
payers and on our partners ability to successfully
manufacture and commercialize our product candidates. Our
product candidates are delivered either by intravenous infusion
or by intravitreal or subcutaneous injections, which are
generally less well received by patients than tablet or capsule
delivery. If our products are not successfully commercialized,
we will not be able to recover the significant investment we
have made in developing such products and our business would be
severely harmed.
We intend to study our lead product candidates, the VEGF Trap,
VEGF Trap-Eye, and IL-1 Trap, in a wide variety of indications.
We intend to study the VEGF Trap in a variety of cancer
settings, the VEGF Trap-Eye in different eye diseases and
ophthalmologic indications, and the IL-1 Trap in a variety of
systemic inflammatory disorders. Many of these current trials
are exploratory studies designed to identify what diseases and
uses, if any, are best suited for our product candidates. It is
likely that our product candidates will not demonstrate the
requisite efficacy
and/or
safety profile to support continued development for most of the
indications that are to be studied. In fact, our product
candidates may not demonstrate the requisite efficacy and safety
profile to support the continued development for any of the
indications or uses.
Clinical
trials required for our product candidates are expensive and
time-consuming, and their outcome is highly uncertain. If any of
our drug trials are delayed or achieve unfavorable results, we
will have to delay or may be unable to obtain regulatory
approval for our product candidates.
We must conduct extensive testing of our product candidates
before we can obtain regulatory approval to market and sell
them. We need to conduct both preclinical animal testing and
human clinical trials. Conducting these trials is a lengthy,
time-consuming, and expensive process. These tests and trials
may not achieve favorable results for many reasons, including,
among others, failure of the product candidate to demonstrate
safety or efficacy, the development of serious or
life-threatening adverse events (or side effects) caused by or
connected with exposure to the product candidate, difficulty in
enrolling and maintaining subjects in the clinical trial, lack
of sufficient supplies of the product candidate or comparator
drug, and the failure of clinical investigators, trial monitors
and other consultants, or trial subjects to comply with the
trial plan or protocol. A clinical trial may fail because it did
not include a sufficient number of patients to detect the
endpoint being measured or reach statistical significance. A
clinical trial may also fail because the dose(s) of the
investigational drug included in the trial were either too low
or too high to determine the optimal effect of the
investigational drug in the disease setting. For example, we are
studying higher doses of the IL-1 Trap in different diseases
after a Phase 2 trial using lower doses of the IL-1 Trap in
subjects with rheumatoid arthritis failed to achieve its primary
endpoint.
We will need to reevaluate any drug candidate that does not test
favorably and either conduct new trials, which are expensive and
time consuming, or abandon the drug development program. Even if
we obtain positive results
13
from preclinical or clinical trials, we may not achieve the same
success in future trials. Many companies in the
biopharmaceutical industry, including us, have suffered
significant setbacks in clinical trials, even after promising
results have been obtained in earlier trials. The failure of
clinical trials to demonstrate safety and effectiveness for the
desired indication(s) could harm the development of the product
candidate(s), and our business, financial condition, and results
of operations may be materially harmed.
The
data from the Phase 3 clinical program for the IL-1 Trap in
CAPS (Cryopyrin Associated Periodic Syndromes) may be inadequate
to support regulatory approval for commercialization of the IL-1
Trap.
The efficacy and safety data from the Phase 3 clinical
program for the IL-1 Trap in CAPS may be inadequate to support
approval for its commercialization in this indication. Moreover,
if the safety data from the ongoing clinical trials testing the
IL-1 Trap are not satisfactory, we may not proceed with the
filing of a biological license application, or BLA, for the IL-1
Trap or we may be forced to delay the filing. The FDA and other
regulatory agencies may have varying interpretations of our
clinical trial data, which could delay, limit, or prevent
regulatory approval or clearance.
Further, before a product candidate is approved for marketing,
our manufacturing facilities must be inspected by the FDA and
the FDA will not approve the product for marketing if we or our
third party manufacturers are not in compliance with current
good manufacturing practices. Even if the FDA and similar
foreign regulatory authorities do grant marketing approval for
the IL-1 Trap, they may pose restrictions on the use or
marketing of the product, or may require us to conduct
additional post-marketing trials. These restrictions and
requirements would likely result in increased expenditures and
lower revenues and may restrict our ability to commercialize the
IL-1 Trap profitably.
In addition to the FDA and other regulatory agency regulations
in the United States, we are subject to a variety of foreign
regulatory requirements governing human clinical trials,
marketing and approval for drugs, and commercial sales and
distribution of drugs in foreign countries. The foreign
regulatory approval process includes all of the risks associated
with FDA approval as well as country-specific regulations.
Whether or not we obtain FDA approval for a product in the
United States, we must obtain approval by the comparable
regulatory authorities of foreign countries before we can
commence clinical trials or marketing of the IL-1 Trap in those
countries.
The
development of serious or life-threatening side effects with any
of our product candidates would lead to delay or discontinuation
of development, which could severely harm our
business.
During the conduct of clinical trials, patients report changes
in their health, including illnesses, injuries, and discomforts,
to their study doctor. Often, it is not possible to determine
whether or not the drug candidate being studied caused these
conditions. Various illnesses, injuries, and discomforts have
been reported from
time-to-time
during clinical trials of our product candidates. It is possible
as we test our current drug candidates in larger, longer, and
more extensive clinical programs, illnesses, injuries, and
discomforts that were observed in earlier trials, as well as
conditions that did not occur or went undetected in smaller
previous trials, will be reported by patients. Many times, side
effects are only detectable after investigational drugs are
tested in large scale, Phase 3 clinical trials or, in some
cases, after they are made available to patients after approval.
If additional clinical experience indicates that any of our
product candidates has many side effects or causes serious or
life-threatening side effects, the development of the product
candidate may fail or be delayed, which would severely harm our
business.
Our VEGF Trap is being studied for the potential treatment of
certain types of cancer and our VEGF Trap-Eye candidate is being
studied in diseases of the eye. There are many potential safety
concerns associated with significant blockade of vascular
endothelial growth factor, or VEGF. These risks, based on the
clinical and preclinical experience of systemically delivered
VEGF inhibitors, including the systemic delivery of the VEGF
Trap, include bleeding, hypertension, and proteinuria. These
serious side effects and other serious side effects have been
reported in our systemic VEGF Trap studies in cancer and
diseases of the eye. In addition, patients given infusions of
any protein, including the VEGF Trap delivered through
intravenous administration, may develop severe hypersensitivity
reactions or infusion reactions. Other VEGF blockers have
reported side effects that became evident only after large scale
trials or after marketing approval and large numbers of patients
were treated. These include side effects that we have not yet
seen in our trials such as heart attack and stroke. These and
other
14
complications or side effects could harm the development of the
VEGF Trap for the treatment of cancer or the VEGF Trap-Eye for
the treatment of diseases of the eye.
It is possible that safety or tolerability concerns may arise as
we test higher doses of the IL-1 Trap in patients with other
inflammatory diseases and disorders. Like TNF-antagonists such
as
Enbrel®
(Amgen) and
Remicade®
(Centocor), the IL-1 Trap affects the immune defense system of
the body by blocking some of its functions. Therefore, there may
be an increased risk for infections to develop in patients
treated with the IL-1 Trap. In addition, patients given
infusions of the IL-1 Trap have developed hypersensitivity
reactions or infusion reactions. These or other complications or
side effects could impede or result in us abandoning the
development of the IL-1 Trap.
Our
product candidates in development are recombinant proteins that
could cause an immune response, resulting in the creation of
harmful or neutralizing antibodies against the therapeutic
protein.
In addition to the safety, efficacy, manufacturing, and
regulatory hurdles faced by our product candidates, the
administration of recombinant proteins frequently causes an
immune response, resulting in the production 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 patients own proteins, resulting in an
auto-immune type disease. Whether antibodies will be
created can often not be predicted from preclinical or clinical
experiments, and their detection or appearance is often delayed,
so that there can be no assurance that neutralizing antibodies
will not be detected at a later date in some cases
even after pivotal clinical trials have been completed. Subjects
who received IL-1 Trap in clinical trials have developed
antibodies. It is possible that as we test the VEGF Trap and
VEGF Trap-Eye with more sensitive assays in different patient
populations and larger clinical trials, we will find that
subjects given the VEGF Trap and VEGF Trap-Eye produce
antibodies to these product candidates, which could adversely
impact the development of such candidates.
We may
be unable to formulate or manufacture our product candidates in
a way that is suitable for clinical or commercial
use.
Changes in product formulations and manufacturing processes may
be required as product candidates progress in clinical
development and are ultimately commercialized. For example, we
are currently testing a new formulation of the VEGF Trap-Eye in
a Phase 1 Trial. If we are unable to develop suitable
product formulations or manufacturing processes to support large
scale clinical testing of our product candidates, including the
VEGF Trap, VEGF Trap-Eye, and IL-1 Trap, we may be unable to
supply necessary materials for our clinical trials, which would
delay the development of our product candidates. Similarly, if
we are unable to supply sufficient quantities of our product or
develop product formulations suitable for commercial use, we
will not be able to successfully commercialize our product
candidates.
Risks
Related to Intellectual Property
If we
cannot protect the confidentiality of our trade secrets or our
patents are insufficient to protect our proprietary rights, our
business and competitive position will be harmed.
Our business requires using sensitive and proprietary technology
and other information that we protect as trade secrets. We seek
to prevent improper disclosure of these trade secrets through
confidentiality agreements. If our trade secrets are improperly
exposed, either by our own employees or our collaborators, it
would help our competitors and adversely affect our business. We
will be able to protect our proprietary rights from unauthorized
use by third parties only to the extent that our rights are
covered by valid and enforceable patents or are effectively
maintained as trade secrets. The patent position of
biotechnology companies involves complex legal and factual
questions and, therefore, enforceability cannot be predicted
with certainty. Our patents may be challenged, invalidated, or
circumvented. Patent applications filed outside the United
States may be challenged by third parties who file an
opposition. Such opposition proceedings are increasingly common
in the European Union and are costly to defend. We have patent
applications that are being opposed and it is likely that we
will need to defend additional patent applications in the
future. Our patent rights may not provide us with a proprietary
position or
15
competitive advantages against competitors. Furthermore, even if
the outcome is favorable to us, the enforcement of our
intellectual property rights can be extremely expensive and time
consuming.
We may
be restricted in our development
and/or
commercialization activities by, and could be subject to damage
awards if we are found to have infringed, third party patents or
other proprietary rights.
Our commercial success depends significantly on our ability to
operate without infringing the patents and other proprietary
rights of third parties. Other parties may allege that they have
blocking patents to our products in clinical development, either
because they claim to hold proprietary rights to the composition
of a product or the way it is manufactured or used. Moreover,
other parties may allege that they have blocking patents to
antibody products made using our VelocImmune technology, either
because of the way the antibodies are discovered or produced or
because of a proprietary position covering an antibody or the
antibodys target.
We are aware of patents and pending applications owned by
Genentech that claim certain chimeric VEGF receptor
compositions. Although we do not believe that the VEGF Trap or
VEGF Trap-Eye infringes any valid claim in these patents or
patent applications, Genentech could initiate a lawsuit for
patent infringement and assert its patents are valid and cover
the VEGF Trap or VEGF Trap-Eye. Genentech may be motivated to
initiate such a lawsuit at some point in an effort to impair our
ability to develop and sell the VEGF Trap or VEGF Trap-Eye,
which represents a potential competitive threat to
Genentechs VEGF-binding products and product candidates.
An adverse determination by a court in any such potential patent
litigation would likely materially harm our business by
requiring us to seek a license, which may not be available, or
resulting in our inability to manufacture, develop and sell the
VEGF Trap or VEGF Trap-Eye or in a damage award.
Any patent holders could sue us for damages and seek to prevent
us from manufacturing, selling, or developing our drug
candidates, and a court may find that we are infringing validly
issued patents of third parties. In the event that the
manufacture, use, or sale of any of our clinical candidates
infringes on the patents or violates other proprietary rights of
third parties, we may be prevented from pursuing product
development, manufacturing, and commercialization of our drugs
and may be required to pay costly damages. Such a result may
materially harm our business, financial condition, and results
of operations. Legal disputes are likely to be costly and time
consuming to defend.
We seek to obtain licenses to patents when, in our judgment,
such licenses are needed. If any licenses are required, we may
not be able to obtain such licenses on commercially reasonable
terms, if at all. The failure to obtain any such license could
prevent us from developing or commercializing any one or more of
our product candidates, which could severely harm our business.
Regulatory
and Litigation Risks
If we
do not obtain regulatory approval for our product candidates, we
will not be able to market or sell them.
We cannot sell or market products without regulatory approval.
If we do not obtain and maintain regulatory approval for our
product candidates, the value of our company and our results of
operations will be harmed. In the United States, we must obtain
and maintain approval from the FDA for each drug we intend to
sell. Obtaining FDA approval is typically a lengthy and
expensive process, and approval is highly uncertain. Foreign
governments also regulate drugs distributed in their country and
approval in any country is likely to be a lengthy and expensive
process, and approval is highly uncertain. None of our product
candidates has ever received regulatory approval to be marketed
and sold in the United States or any other country. We may never
receive regulatory approval for any of our product candidates.
Before approving a new drug or biologic product, the FDA
requires that the facilities at which the product will be
manufactured be in compliance with current good manufacturing
practices, or cGMP requirements. Manufacturing product
candidates in compliance with these regulatory requirements is
complex, time-consuming, and expensive. To be successful, our
products must be manufactured for development, and following
approval in commercial quantities, in compliance with regulatory
requirements, and at competitive costs. If we or any of our
product collaborators or third-party manufacturers, product
packagers, or labelers are unable to maintain regulatory
16
compliance, the FDA can impose regulatory sanctions, including,
among other things, refusal to approve a pending application for
a new drug or biologic product, or revocation of a pre-existing
approval. As a result, our business, financial condition, and
results of operations may be materially harmed.
If the
testing or use of our products harms people, we could be subject
to costly and damaging product liability claims. We could also
face costly and damaging claims arising from employment law,
securities law, environmental law, or other applicable laws
governing our operations.
The testing, manufacturing, marketing, and sale of drugs for use
in people expose us to product liability risk. Any informed
consent or waivers obtained from people who are enrolled in our
clinical trials may not protect us from liability or the cost of
litigation. Our product liability insurance may not cover all
potential liabilities or may not completely cover any liability
arising from any such litigation. Moreover, we may not have
access to liability insurance or be able to maintain our
insurance on acceptable terms.
Our
operations may involve hazardous materials and are subject to
environmental, health, and safety laws and regulations. We may
incur substantial liability arising from our activities
involving the use of hazardous materials.
As a biopharmaceutical company with significant manufacturing
operations, we are subject to extensive environmental, health,
and safety laws and regulations, including those governing the
use of hazardous materials. Our research and development and
manufacturing activities involve the controlled use of
chemicals, viruses, radioactive compounds, and other hazardous
materials. The cost of compliance with environmental, health,
and safety regulations is substantial. If an accident involving
these materials or an environmental discharge were to occur, we
could be held liable for any resulting damages, or face
regulatory actions, which could exceed our resources or
insurance coverage.
Changes
in the securities laws and regulations have increased, and are
likely to continue to increase, our costs.
The Sarbanes-Oxley Act of 2002, which became law in July 2002,
has required changes in some of our corporate governance,
securities disclosure and compliance practices. Pursuant to the
requirements of that Act, the SEC and the NASDAQ Stock Market
have promulgated rules and listing standards covering a variety
of subjects. Compliance with these new rules and listing
standards has increased our legal costs, and significantly
increased our accounting and auditing costs, and we expect these
costs to continue. These developments may make it more difficult
and more expensive for us to obtain directors and
officers liability insurance. Likewise, these developments
may make it more difficult for us to attract and retain
qualified members of our board of directors, particularly
independent directors, or qualified executive officers.
Risks
Related to Our Dependence on Third Parties
If our
collaboration with sanofi-aventis for the VEGF Trap is
terminated, our business operations and our ability to develop,
manufacture, and commercialize the VEGF Trap in the time
expected, or at all, would be harmed.
We rely heavily on sanofi-aventis to assist with the development
of the VEGF Trap oncology program. Sanofi-aventis funds all of
the development expenses incurred by both companies in
connection with the VEGF Trap oncology program. If the VEGF Trap
oncology program continues, we will rely on sanofi-aventis to
assist with funding the VEGF Trap program, provide commercial
manufacturing capacity, enroll and monitor clinical trials,
obtain regulatory approval, particularly outside the United
States, and provide sales and marketing support. While we cannot
assure you that the VEGF Trap will ever be successfully
developed and commercialized, if sanofi-aventis does not perform
its obligations in a timely manner, or at all, our ability to
develop, manufacture, and commercialize the VEGF Trap in cancer
indications will be significantly adversely affected.
Sanofi-aventis has the right to terminate its collaboration
agreement with us at any time upon twelve months advance notice.
If sanofi-aventis were to terminate its collaboration agreement
with us, we would not have the resources or skills to replace
those of our partner, which could cause significant delays in
the development
and/or
manufacture of the VEGF Trap and result in
17
substantial additional costs to us. We have no sales, marketing,
or distribution capabilities and would have to develop or
outsource these capabilities. Termination of the sanofi-aventis
collaboration agreement would create substantial new and
additional risks to the successful development of the VEGF Trap
oncology program.
If our
collaboration with Bayer HealthCare for the VEGF Trap-Eye is
terminated, our business operations and our ability to develop,
manufacture, and commercialize the VEGF Trap-Eye in the time
expected, or at all, would be harmed.
We will rely heavily on Bayer HealthCare to assist with the
development of the VEGF Trap-Eye. Under our agreement with them,
Bayer HealthCare is required to fund approximately half of the
development expenses incurred by both companies in connection
with the global VEGF Trap-Eye development program. If the VEGF
Trap-Eye program continues, we will rely on Bayer HealthCare to
assist with funding the VEGF Trap-Eye development program,
providing assistance with the enrollment and monitoring of
clinical trials conducted outside the United States, obtaining
regulatory approval outside the United States, and providing
sales, marketing and commercial support for the product outside
the United States. In particular, Bayer HealthCare has
responsibility for selling VEGF Trap-Eye outside the United
States using its sales force. While we cannot assure you that
the VEGF Trap-Eye will ever be successfully developed and
commercialized, if Bayer HealthCare does not perform its
obligations in a timely manner, or at all, our ability to
develop, manufacture, and commercialize the VEGF Trap-Eye
outside the United States will be significantly adversely
affected. Bayer HealthCare has the right to terminate its
collaboration agreement with us at any time upon six or twelve
months advance notice, depending on the circumstances giving
rise to termination. If Bayer HealthCare were to terminate its
collaboration agreement with us, we would not have the resources
or skills to replace those of our partner, which could cause
significant delays in the development
and/or
commercialization of the VEGF Trap-Eye outside the United States
and result in substantial additional costs to us. We have no
sales, marketing, or distribution capabilities and would have to
develop or outsource these capabilities outside the United
States. Termination of the Bayer HealthCare collaboration
agreement would create substantial new and additional risks to
the successful development of the VEGF Trap-Eye development
program.
Our
collaborators and service providers may fail to perform
adequately in their efforts to support the development,
manufacture, and commercialization of our drug
candidates.
We depend upon third-party collaborators, including
sanofi-aventis, Bayer HealthCare, and service providers such as
clinical research organizations, outside testing laboratories,
clinical investigator sites, and third-party manufacturers and
product packagers and labelers, to assist us in the development
of our product candidates. If any of our existing collaborators
or service providers breaches or terminates its agreement with
us or does not perform its development or manufacturing services
under an agreement in a timely manner or at all, we could
experience additional costs, delays, and difficulties in the
development or commercialization of our product candidates.
Risks
Related to the Manufacture of Our Product Candidates
We
have limited manufacturing capacity, which could inhibit our
ability to successfully develop or commercialize our
drugs.
Our manufacturing facility is likely to be inadequate to produce
sufficient quantities of product for commercial sale. We intend
to rely on our corporate collaborators, as well as contract
manufacturers, to produce the large quantities of drug material
needed for commercialization of our products. We rely entirely
on third-party manufacturers for filling and finishing services.
We will have to depend on these manufacturers to deliver
material on a timely basis and to comply with regulatory
requirements. If we are unable to supply sufficient material on
acceptable terms, or if we should encounter delays or
difficulties in our relationships with our corporate
collaborators or contract manufacturers, our business, financial
condition, and results of operations may be materially harmed.
We may expand our own manufacturing capacity to support
commercial production of active pharmaceutical ingredients, or
API, for our product candidates. This will require substantial
additional funds, and we will need to hire and train significant
numbers of employees and managerial personnel to staff our
facility.
Start-up
costs can be
18
large and
scale-up
entails significant risks related to process development and
manufacturing yields. We may be unable to develop manufacturing
facilities that are sufficient to produce drug material for
clinical trials or commercial use. In addition, we may be unable
to secure adequate filling and finishing services to support our
products. As a result, our business, financial condition, and
results of operations may be materially harmed.
We may be unable to obtain key raw materials and supplies for
the manufacture of our product candidates. In addition, we may
face difficulties in developing or acquiring production
technology and managerial personnel to manufacture sufficient
quantities of our product candidates at reasonable costs and in
compliance with applicable quality assurance and environmental
regulations and governmental permitting requirements.
If any
of our clinical programs are discontinued, we may face costs
related to the unused capacity at our manufacturing
facilities.
We have large-scale manufacturing operations in Rensselaer, New
York. We use our facilities to produce bulk product for clinical
and preclinical candidates for ourselves and our collaborations.
If our clinical candidates are discontinued, we will have to
absorb one hundred percent of related overhead costs and
inefficiencies.
Certain
of our raw materials are single-sourced from third parties;
third-party supply failures could adversely affect our ability
to supply our products.
Certain raw materials necessary for manufacturing and
formulation of our product candidates are provided by
single-source unaffiliated third-party suppliers. We would be
unable to obtain these raw materials for an indeterminate period
of time if these third-party single-source suppliers were to
cease or interrupt production or otherwise fail to supply these
materials or products to us for any reason, including due to
regulatory requirements or action, due to adverse financial
developments at or affecting the supplier, or due to labor
shortages or disputes. This, in turn, could materially and
adversely affect our ability to manufacture our product
candidates for use in clinical trials, which could materially
and adversely affect our business and future prospects.
Also, certain of the raw materials required in the manufacture
and the formulation of our clinical candidates may be derived
from biological sources, including mammalian tissues, bovine
serum, and human serum albumin. There are certain European
regulatory restrictions on using these biological source
materials. If we are required to substitute for these sources to
comply with European regulatory requirements, our clinical
development activities may be delayed or interrupted.
Risks
Related to Commercialization of Products
If we
are unable to establish sales, marketing, and distribution
capabilities, or enter into agreements with third parties to do
so, we will be unable to successfully market and sell future
products.
We have no sales or distribution personnel or capabilities and
have only a small staff with marketing capabilities. If we are
unable to obtain those capabilities, either by developing our
own organizations or entering into agreements with service
providers, we will not be able to successfully sell any products
that we may obtain regulatory approval for and bring to market
in the future. In that event, we will not be able to generate
significant revenue, even if our product candidates are
approved. We cannot guarantee that we will be able to hire the
qualified sales and marketing personnel we need or that we will
be able to enter into marketing or distribution agreements with
third-party providers on acceptable terms, if at all. Under the
terms of our collaboration agreement with sanofi-aventis, we
currently rely on sanofi-aventis for sales, marketing, and
distribution of the VEGF Trap in cancer indications, should it
be approved in the future by regulatory authorities for
marketing. We will have to rely on a third party or devote
significant resources to develop our own sales, marketing, and
distribution capabilities for our other product candidates,
including the VEGF Trap-Eye in the United States, and we may be
unsuccessful in developing our own sales, marketing, and
distribution organization.
19
Even
if our product candidates are approved for marketing, their
commercial success is highly uncertain because our competitors
have received approval for products with the same mechanism of
action, and competitors may get to the marketplace before we do
with better or lower cost drugs or the market for our product
candidates may be too small to support commercialization or
sufficient profitability.
We face substantial competition from pharmaceutical,
biotechnology, and chemical companies. Many of our competitors
have substantially greater research, preclinical and clinical
product development and manufacturing capabilities, and
financial, marketing, and human resources than we do. Our
smaller competitors may also enhance their competitive position
if they acquire or discover patentable inventions, form
collaborative arrangements, or merge with large pharmaceutical
companies. Even if we achieve product commercialization, our
competitors have achieved, and may continue to achieve, product
commercialization before our products are approved for marketing
and sale.
Genentech has an approved VEGF antagonist,
Avastin®
(Genentech), on the market for treating certain cancers and a
number of pharmaceutical and biotechnology companies are working
to develop competing VEGF antagonists, including Novartis, OSI
Pharmaceuticals, and Pfizer. Many of these molecules are further
along in development than the VEGF Trap and may offer
competitive advantages over our molecule. Novartis has an
ongoing Phase 3 clinical development program evaluating an
orally delivered VEGF tyrosine kinase inhibitor in different
cancer settings. Each of Pfizer and Onyx Pharmaceuticals
(together with its partner Bayer) has received approval from the
FDA to market and sell an oral medication that targets tumor
cell growth and new vasculature formation that fuels the growth
of tumors. The marketing approvals for Genentechs VEGF
antagonist, Avastin, and their extensive, ongoing clinical
development plan for Avastin in other cancer indications, may
make it more difficult for us to enroll patients in clinical
trials to support the VEGF Trap and to obtain regulatory
approval of the VEGF Trap in these cancer settings. This may
delay or impair our ability to successfully develop and
commercialize the VEGF Trap. In addition, even if the VEGF Trap
is ever approved for sale for the treatment of certain cancers,
it will be difficult for our drug to compete against Avastin and
the FDA approved kinase inhibitors, because doctors and patients
will have significant experience using these medicines. In
addition, an oral medication may be considerably less expensive
for patients than a biologic medication, providing a competitive
advantage to companies that market such products.
The market for eye disease products is also very competitive.
Novartis and Genentech are collaborating on the
commercialization and further development of a VEGF antibody
fragment
(Lucentis®)
for the treatment of age-related macular degeneration (wet AMD)
and other eye indications that was approved by the FDA in June
2006. OSI Pharmaceuticals and Pfizer are marketing an approved
VEGF inhibitor
(Macugen®)
for wet AMD. Many other companies are working on the development
of product candidates for the potential treatment of wet AMD
that act by blocking VEGF, VEGF receptors, and through the use
of soluble ribonucleic acids (sRNAs) that modulate gene
expression. In addition, ophthalmologists are using off-label a
third-party reformulated version of Genentechs approved
VEGF antagonist, Avastin, with success for the treatment of wet
AMD. The National Eye Institute recently has received funding
for a Phase 3 trial to compare Lucentis to Avastin in the
treatment of wet AMD. The marketing approval of Macugen and
Lucentis and the potential off-label use of Avastin make it more
difficult for us to enroll patients in our clinical trials and
successfully develop the VEGF Trap-Eye. Even if the VEGF
Trap-Eye is ever approved for sale for the treatment of eye
diseases, it may be difficult for our drug to compete against
Lucentis or Macugen, because doctors and patients will have
significant experience using these medicines. Moreover, the
relatively low cost of therapy with Avastin in patients with wet
AMD presents a further competitive challenge in this indication.
The availability of highly effective FDA approved
TNF-antagonists such as
Enbrel®
(Amgen),
Remicade®
(Centocor), and
Humira®
(Abbott Laboratories), and the IL-1 receptor antagonist
Kineret®
(Amgen), and other marketed therapies, makes it more difficult
to successfully develop and commercialize the IL-1 Trap. This is
one of the reasons we discontinued the development of the IL-1
Trap in adult rheumatoid arthritis. In addition, even if the
IL-1 Trap is ever approved for sale, it will be difficult for
our drug to compete against these FDA approved TNF-antagonists
in indications where both are useful because doctors and
patients will have significant experience using these effective
medicines. Moreover, in such indications these approved
therapeutics may offer competitive advantages over the IL-1
Trap, such as requiring fewer injections.
20
There are both small molecules and antibodies in development by
third parties that are designed to block the synthesis of
interleukin-1 or inhibit the signaling of interleukin-1. For
example, Eli Lilly and Company and Novartis are each developing
antibodies to interleukin-1 and Amgen is developing an antibody
to the interleukin-1 receptor. These drug candidates could offer
competitive advantages over the IL-1 Trap. The successful
development of these competing molecules could delay or impair
our ability to successfully develop and commercialize the IL-1
Trap. For example, we may find it difficult to enroll patients
in clinical trials for the IL-1 Trap if the companies developing
these competing interleukin-1 inhibitors commence clinical
trials in the same indications.
We are developing the IL-1 Trap for the treatment of a spectrum
of rare diseases associated with mutations in the CIAS1
gene. These rare genetic disorders affect a small group of
people, estimated to be between several hundred and a few
thousand. There may be too few patients with these genetic
disorders to profitably commercialize the IL-1 Trap in this
indication.
The
successful commercialization of our product candidates will
depend on obtaining coverage and reimbursement for use of these
products from third-party payers and these payers may not agree
to cover or reimburse for use of our
products.
Our products, if commercialized, may be significantly more
expensive than traditional drug treatments. Our future revenues
and profitability will be adversely affected if United States
and foreign governmental, private third-party insurers and
payers, and other third-party payers, including Medicare and
Medicaid, do not agree to defray or reimburse the cost of our
products to the patients. If these entities refuse to provide
coverage and reimbursement with respect to our products or
provide an insufficient level of coverage and reimbursement, our
products may be too costly for many patients to afford them, and
physicians may not prescribe them. Many third-party payers cover
only selected drugs, making drugs that are not preferred by such
payer more expensive for patients, and require prior
authorization or failure on another type of treatment before
covering a particular drug. Payers may especially impose these
obstacles to coverage on higher-priced drugs, as our product
candidates are likely to be.
We intend to file an application with the FDA seeking approval
to market the IL-1 Trap for the treatment of a spectrum of rare
genetic disorders called CAPS. There may be too few patients
with CAPS to profitably commercialize the IL-1 Trap. Physicians
may not prescribe the IL-1 Trap and CAPS patients may not be
able to afford the IL-1 Trap if third party payers do not agree
to reimburse the cost of IL-1 Trap therapy and this would
adversely affect our ability to commercialize the IL-1 Trap
profitably.
In addition to potential restrictions on coverage, the amount of
reimbursement for our products may also reduce our
profitability. In the United States, there have been, and we
expect will continue to be, actions and proposals to control and
reduce healthcare costs. Government and other third-party payers
are challenging the prices charged for healthcare products and
increasingly limiting, and attempting to limit, both coverage
and level of reimbursement for prescription drugs.
Since our products, including the IL-1 Trap, will likely be too
expensive for most patients to afford without health insurance
coverage, if our products are unable to obtain adequate coverage
and reimbursement by third-party payers our ability to
successfully commercialize our product candidates may be
adversely impacted. Any limitation on the use of our products or
any decrease in the price of our products will have a material
adverse effect on our ability to achieve profitability.
In certain foreign countries, pricing, coverage and level of
reimbursement of prescription drugs are subject to governmental
control, and we may be unable to negotiate coverage, pricing,
and reimbursement on terms that are favorable to us. In some
foreign countries, the proposed pricing for a drug must be
approved before it may be lawfully marketed. The requirements
governing drug pricing vary widely from country to country. For
example, the European Union provides options for its member
states to restrict the range of medicinal products for which
their national health insurance systems provide reimbursement
and to control the prices of medicinal products for human use. A
member state may approve a specific price for the medicinal
product or it may instead adopt a system of direct or indirect
controls on the profitability of the company placing the
medicinal product on the market. Our results of operations may
suffer if we are unable to market our products in foreign
countries or if coverage and reimbursement for our products in
foreign countries is limited.
21
Risk
Related to Employees
We are
dependent on our key personnel and if we cannot recruit and
retain leaders in our research, development, manufacturing, and
commercial organizations, our business will be
harmed.
We are highly dependent on certain of our executive officers. If
we are not able to retain any of these persons or our Chairman,
our business may suffer. In particular, we depend on the
services of P. Roy Vagelos, M.D., the Chairman of our board
of directors, Leonard Schleifer, M.D., Ph.D., our
President and Chief Executive Officer, George D.
Yancopoulos, M.D., Ph.D., our Executive Vice
President, Chief Scientific Officer and President, Regeneron
Research Laboratories, and Neil Stahl, Ph.D., our Senior
Vice President, Research and Development Sciences. There is
intense competition in the biotechnology industry for qualified
scientists and managerial personnel in the development,
manufacture, and commercialization of drugs. We may not be able
to continue to attract and retain the qualified personnel
necessary for developing our business.
Risks
Related to Our Common Stock
Our
stock price is extremely volatile.
There has been significant volatility in our stock price and
generally in the market prices of biotechnology companies
securities. Various factors and events may have a significant
impact on the market price of our common stock. These factors
include, by way of example:
|
|
|
|
|
progress, delays, or adverse results in clinical trials;
|
|
|
|
announcement of technological innovations or product candidates
by us or competitors;
|
|
|
|
fluctuations in our operating results;
|
|
|
|
public concern as to the safety or effectiveness of our product
candidates;
|
|
|
|
developments in our relationship with collaborative partners;
|
|
|
|
developments in the biotechnology industry or in government
regulation of healthcare;
|
|
|
|
large sales of our common stock by our executive officers,
directors, or significant shareholders;
|
|
|
|
arrivals and departures of key personnel; and
|
|
|
|
general market conditions.
|
The trading price of our common stock has been, and could
continue to be, subject to wide fluctuations in response to
these and other factors, including the sale or attempted sale of
a large amount of our common stock in the market. Broad market
fluctuations may also adversely affect the market price of our
common stock.
In
future years, if we or our independent registered public
accounting firm are unable to conclude that our internal control
over financial reporting is effective, the market value of our
common stock could be adversely affected.
As directed by Section 404 of the Sarbanes-Oxley Act of
2002, the SEC adopted rules requiring public companies to
include a report of management on the Companys internal
control over financial reporting in their annual reports on
Form 10-K
that contains an assessment by management of the effectiveness
of our internal control over financial reporting. In addition,
the independent registered public accounting firm auditing our
financial statements must attest to and report on
managements assessment and on the effectiveness of our
internal control over financial reporting. Our independent
registered public accounting firm provided us with an
unqualified report as to our assessment and the effectiveness of
our internal control over financial reporting as of
December 31, 2006, which report is included in this Annual
Report on
Form 10-K.
However, we cannot assure you that management or our independent
registered public accounting firm will be able to provide such
an assessment or unqualified report as of future year-ends. In
this event, investors could lose confidence in the reliability
of our financial statements, which could result in a decrease in
the market value of our common stock.
22
Future
sales of our common stock by our significant shareholders or us
may depress our stock price and impair our ability to raise
funds in new share offerings.
A small number of our shareholders beneficially own a
substantial amount of our common stock. As of December 31,
2006, our seven largest shareholders, including sanofi-aventis,
beneficially owned 41.1% of our outstanding shares of Common
Stock, assuming, in the case of Leonard S. Schleifer, M.D.
Ph.D., our Chief Executive Officer, and P. Roy Vagelos, M.D.,
our Chairman, the conversion of their Class A Stock into
Common Stock and the exercise of all options held by them which
are exercisable within 60 days of December 31, 2006.
As of December 31, 2006, sanofi-aventis owned
2,799,552 shares of Common Stock, representing 4.4% of the
shares of Common Stock then outstanding. Under our stock
purchase agreement with sanofi-aventis, sanofi-aventis may sell
no more than 500,000 of these shares in any calendar quarter. If
sanofi-aventis, or our other significant shareholders or we,
sell substantial amounts of our Common Stock in the public
market, or the perception that such sales may occur exists, the
market price of our Common Stock could fall. Sales of Common
Stock by our significant shareholders, including sanofi-aventis,
also might make it more difficult for us to raise funds by
selling equity or equity-related securities in the future at a
time and price that we deem appropriate.
Our
existing shareholders may be able to exert significant influence
over matters requiring shareholder approval.
Holders of Class A Stock, who are generally the
shareholders who purchased their stock from us before our
initial public offering, are entitled to ten votes per share,
while holders of Common Stock are entitled to one vote per
share. As of December 31, 2006, holders of Class A
Stock held 26.5% of the combined voting power of all of Common
Stock and Class A Stock then outstanding. These
shareholders, if acting together, would be in a position to
significantly influence the election of our directors and to
effect or prevent certain corporate transactions that require
majority or supermajority approval of the combined classes,
including mergers and other business combinations. This may
result in our company taking corporate actions that you may not
consider to be in your best interest and may affect the price of
our Common Stock. As of December 31, 2006:
|
|
|
|
|
our current officers and directors beneficially owned 13.3% of
our outstanding shares of Common Stock, assuming conversion of
their Class A Stock into Common Stock and the exercise of
all options held by such persons which are exercisable within
60 days of December 31, 2006, and 30.5% of the
combined voting power of our outstanding shares of Common Stock
and Class A Stock, assuming the exercise of all options
held by such persons which are exercisable within 60 days
of December 31, 2006; and
|
|
|
|
our seven largest shareholders beneficially owned 41.1% of our
outstanding shares of Common Stock assuming, in the case of
Leonard S. Schleifer, M.D., Ph.D., our Chief Executive
Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion
of their Class A Stock into Common Stock and the exercise
of all options held by them which are exercisable within
60 days of December 31, 2006. In addition, these seven
shareholders held 48.7% of the combined voting power of our
outstanding shares of Common Stock and Class A Stock,
assuming the exercise of all options held by our Chief Executive
Officer and our Chairman which are exercisable within
60 days of December 31, 2006.
|
The
anti-takeover effects of provisions of our charter, by-laws, and
of New York corporate law, could deter, delay, or prevent an
acquisition or other change in control of us and
could adversely affect the price of our common
stock.
Our amended and restated certificate of incorporation, our
by-laws and the New York Business Corporation Law contain
various provisions that could have the effect of delaying or
preventing a change in control of our company or our management
that shareholders may consider favorable or beneficial. Some of
these provisions could discourage proxy contests and make it
more difficult for you and other shareholders to elect directors
and take other corporate actions. These provisions could also
limit the price that investors might be willing to pay in the
future for shares of our common stock. These provisions include:
|
|
|
|
|
authorization to issue blank check preferred stock,
which is preferred stock that can be created and issued by the
board of directors without prior shareholder approval, with
rights senior to those of our common shareholders;
|
23
|
|
|
|
|
a staggered board of directors, so that it would take three
successive annual meetings to replace all of our directors;
|
|
|
|
a requirement that removal of directors may only be effected for
cause and only upon the affirmative vote of at least eighty
percent (80%) of the outstanding shares entitled to vote for
directors, as well as a requirement that any vacancy on the
board of directors may be filled only by the remaining directors;
|
|
|
|
any action required or permitted to be taken at any meeting of
shareholders may be taken without a meeting, only if, prior to
such action, all of our shareholders consent, the effect of
which is to require that shareholder action may only be taken at
a duly convened meeting;
|
|
|
|
any shareholder seeking to bring business before an annual
meeting of shareholders must provide timely notice of this
intention in writing and meet various other
requirements; and
|
|
|
|
under the New York Business Corporation Law, a plan of merger or
consolidation of the Company must be approved by two-thirds of
the votes of all outstanding shares entitled to vote thereon.
See the risk factor immediately above captioned Our
existing shareholders may be able to exert significant influence
over matters requiring shareholder approval.
|
In addition, we have a Change in Control Severance Plan and our
chief executive officer has an employment agreement that
provides severance benefits in the event our officers are
terminated as a result of a change in control of the Company.
Many of our stock options issued under our 2000 Long-Term
Incentive Plan may become fully vested in connection with a
change in control of our company, as defined in the
plan.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
We conduct our research, development, manufacturing, and
administrative activities at our owned and leased facilities. We
currently lease approximately 236,000 square feet of
laboratory and office space in Tarrytown, New York.
In December 2006, we entered into a new operating lease
agreement for approximately 221,000 square feet of
laboratory and office space at our current Tarrytown location.
The new lease includes approximately 27,000 square feet
that we currently occupy (our retained facilities) and
approximately 194,000 square feet to be located in new
facilities that will be constructed and which are expected to be
completed in early-2009. The term of the lease is expected to
commence in early-2008 and will expire approximately
16 years later. Under the new lease we also have various
options and rights on additional space at the Tarrytown site,
and will continue to lease our present facilities until the new
facilities are ready for occupancy. In addition, the lease
contains three renewal options to extend the term of the lease
by five years each and early termination options for our
retained facilities only. The lease provides for monthly
payments over the term of the lease related to our retained
facilities, the costs of construction and tenant improvements
for our new facilities, and additional charges for utilities,
taxes, and operating expenses.
We own a facility in Rensselaer, New York, consisting of two
buildings totaling approximately 123,500 square feet of
research, manufacturing, office, and warehouse space. We also
lease an additional 75,000 square feet of manufacturing,
office, and warehouse space in Rensselaer.
The following table summarizes the information regarding our
current property leases:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Monthly
|
|
|
|
|
|
Square
|
|
|
|
|
Base Rental
|
|
|
Renewal Option
|
Location
|
|
Footage
|
|
|
Expiration
|
|
Charges (1)
|
|
|
Available
|
|
Tarrytown (2)
|
|
|
209,000
|
|
|
March, 2009 (3)
|
|
$
|
309,000
|
|
|
none
|
Tarrytown (2)
|
|
|
194,000
|
|
|
March, 2024 (3)
|
|
|
|
|
|
three
5-year terms
|
Tarrytown
|
|
|
27,000
|
|
|
March, 2024 (3)
|
|
$
|
52,000
|
|
|
three
5-year terms
|
Rensselaer
|
|
|
75,000
|
|
|
July 11, 2012
|
|
$
|
25,000
|
|
|
one
5-year term
|
24
|
|
|
(1) |
|
Excludes additional rental charges for utilities, taxes, and
operating expenses, as defined. |
|
(2) |
|
Upon completion of the new facilities, as described above, we
will release the 209,000 square feet of space in our
current facility and take over 194,000 square feet in the
newly constructed buildings. |
|
(3) |
|
Estimated based upon expected completion of our new facilities,
as described above. |
We believe that our existing owned and leased facilities are
adequate for ongoing, research, development, manufacturing, and
administrative activities.
In the future, we may lease, operate, or purchase additional
facilities in which to conduct expanded research and development
activities and manufacturing and commercial operations.
|
|
Item 3.
|
Legal
Proceedings
|
From time to time, we are a party to legal proceedings in the
course of our business. We do not expect any such current legal
proceedings to have a material adverse effect on our business or
financial condition.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to a vote of our security holders
during the last quarter of the fiscal year ended
December 31, 2006.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
Our Common Stock is quoted on The NASDAQ Stock Market under the
symbol REGN. Our 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 sales prices for the Common Stock as
reported by The NASDAQ Stock Market:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.36
|
|
|
$
|
4.75
|
|
Second Quarter
|
|
|
8.84
|
|
|
|
4.61
|
|
Third Quarter
|
|
|
10.67
|
|
|
|
7.36
|
|
Fourth Quarter
|
|
|
17.37
|
|
|
|
8.55
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
18.00
|
|
|
$
|
14.35
|
|
Second Quarter
|
|
|
16.69
|
|
|
|
10.97
|
|
Third Quarter
|
|
|
17.00
|
|
|
|
10.88
|
|
Fourth Quarter
|
|
|
24.85
|
|
|
|
15.27
|
|
As of February 28, 2007, there were 538 shareholders of
record of our Common Stock and 44 shareholders of record of our
Class A Stock.
We have never paid cash dividends and do not anticipate paying
any in the foreseeable future.
The information under the heading Equity Compensation Plan
Information in our definitive proxy statement with respect
to our 2007 Annual Meeting of Shareholders to be filed with the
SEC is incorporated by reference into Item 12 of this
Report on
Form 10-K.
25
STOCK
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
shareholder return on Regenerons Common Stock with the
cumulative total return of (i) The NASDAQ Pharmaceuticals
Stocks Index and (ii) The NASDAQ Stock Market (U.S.) Index
for the period from December 31, 2001 through
December 31, 2006. The comparison assumes that $100 was
invested on December 31, 2001 in our Common Stock and in
each of the foregoing indices. All values assume reinvestment of
the pre-tax value of dividends paid by companies included in
these indices. The historical stock price performance of our
Common Stock shown in the graph below is not necessarily
indicative of future stock price performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2001
|
|
|
12/31/2002
|
|
|
12/31/2003
|
|
|
12/31/2004
|
|
|
12/31/2005
|
|
|
12/31/2006
|
Regeneron
|
|
|
$
|
100.00
|
|
|
|
$
|
65.73
|
|
|
|
$
|
52.24
|
|
|
|
$
|
32.71
|
|
|
|
$
|
56.46
|
|
|
|
$
|
71.27
|
|
NASDAQ Pharm
|
|
|
|
100.00
|
|
|
|
|
64.62
|
|
|
|
|
94.72
|
|
|
|
|
100.88
|
|
|
|
|
111.09
|
|
|
|
|
108.75
|
|
NASDAQ US
|
|
|
|
100.00
|
|
|
|
|
69.13
|
|
|
|
|
103.36
|
|
|
|
|
112.49
|
|
|
|
|
114.88
|
|
|
|
|
126.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data set forth below for the years ended
December 31, 2006, 2005, and 2004 and at December 31,
2006 and 2005 are derived from and should be read in conjunction
with our audited financial statements, including the notes
thereto, included elsewhere in this report. The selected
financial data for the years ended December 31, 2003 and
2002 and at December 31, 2004, 2003, and 2002 are derived
from our audited financial statements not included in this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development
|
|
$
|
51,136
|
|
|
$
|
52,447
|
|
|
$
|
113,157
|
|
|
$
|
47,366
|
|
|
$
|
10,924
|
|
Research progress payments
|
|
|
|
|
|
|
|
|
|
|
42,770
|
|
|
|
|
|
|
|
|
|
Contract manufacturing
|
|
|
12,311
|
|
|
|
13,746
|
|
|
|
18,090
|
|
|
|
10,131
|
|
|
|
11,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,447
|
|
|
|
66,193
|
|
|
|
174,017
|
|
|
|
57,497
|
|
|
|
21,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
137,064
|
|
|
|
155,581
|
|
|
|
136,095
|
|
|
|
136,024
|
|
|
|
124,953
|
|
Contract manufacturing
|
|
|
8,146
|
|
|
|
9,557
|
|
|
|
15,214
|
|
|
|
6,676
|
|
|
|
6,483
|
|
General and administrative
|
|
|
25,892
|
|
|
|
25,476
|
|
|
|
17,062
|
|
|
|
14,785
|
|
|
|
12,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,102
|
|
|
|
190,614
|
|
|
|
168,371
|
|
|
|
157,485
|
|
|
|
143,968
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(107,655
|
)
|
|
|
(124,421
|
)
|
|
|
5,646
|
|
|
|
(99,988
|
)
|
|
|
(121,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contract income
|
|
|
|
|
|
|
30,640
|
|
|
|
42,750
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
16,548
|
|
|
|
10,381
|
|
|
|
5,478
|
|
|
|
4,462
|
|
|
|
9,462
|
|
Interest expense
|
|
|
(12,043
|
)
|
|
|
(12,046
|
)
|
|
|
(12,175
|
)
|
|
|
(11,932
|
)
|
|
|
(11,859
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,505
|
|
|
|
28,975
|
|
|
|
36,053
|
|
|
|
(7,470
|
)
|
|
|
(2,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before
cumulative effect of a change in accounting principle
|
|
|
(103,150
|
)
|
|
|
(95,446
|
)
|
|
|
41,699
|
|
|
|
(107,458
|
)
|
|
|
(124,377
|
)
|
Cumulative effect of adopting
Statement of Accounting Standards No. 123R
(SFAS 123R)
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
$
|
41,699
|
|
|
$
|
(107,458
|
)
|
|
$
|
(124,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before
cumulative effect of a change in accounting principle
|
|
$
|
(1.78
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
|
$
|
(2.13
|
)
|
|
$
|
(2.83
|
)
|
Cumulative effect of adopting
SFAS 123R
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
|
$
|
(2.13
|
)
|
|
$
|
(2.83
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share,
diluted
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.74
|
|
|
$
|
(2.13
|
)
|
|
$
|
(2.83
|
)
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, marketable
securities, and restricted marketable securities (current and
non-current)
|
|
$
|
522,859
|
|
|
$
|
316,654
|
|
|
$
|
348,912
|
|
|
$
|
366,566
|
|
|
$
|
295,246
|
|
Total assets
|
|
|
585,090
|
|
|
|
423,501
|
|
|
|
473,108
|
|
|
|
479,555
|
|
|
|
391,574
|
|
Notes payable
long-term portion
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Stockholders equity
|
|
|
216,624
|
|
|
|
114,002
|
|
|
|
182,543
|
|
|
|
137,643
|
|
|
|
145,981
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
We are a biopharmaceutical company that discovers, develops, and
intends to commercialize pharmaceutical products for the
treatment of serious medical conditions. We are currently
focused on three development programs: IL-1 Trap (rilonacept) in
various inflammatory indications, the VEGF Trap in oncology, and
the VEGF Trap-Eye formulation in eye diseases using intraocular
delivery. The VEGF Trap is being developed in oncology in
collaboration with the sanofi-aventis Group. In October 2006, we
entered into collaboration with Bayer HealthCare LLC for the
development of the VEGF Trap-Eye. Our preclinical research
programs are in the areas of oncology and angiogenesis,
ophthalmology, metabolic and related diseases, muscle diseases
and disorders, inflammation and immune diseases, bone and
cartilage, pain, and cardiovascular diseases. We expect that our
next generation of product candidates will be based on our
proprietary technologies for developing human monoclonal
antibodies.
Developing and commercializing new medicines entails significant
risk and expense. Since inception we have not generated any
sales or profits from the commercialization of any of our
product candidates and we may never receive such revenues.
Before revenues from the commercialization of our product
candidates can be realized, we (or our collaborators) must
overcome a number of hurdles which include successfully
completing research and development and obtaining regulatory
approval from the FDA and regulatory authorities in other
countries. In addition, the biotechnology and pharmaceutical
industries are rapidly evolving and highly competitive, and new
developments may render our products and technologies
uncompetitive or obsolete.
From inception on January 8, 1988 through December 31,
2006, we had a cumulative loss of $687.6 million. In the
absence of revenues from the commercialization of our product
candidates or other sources, the amount, timing, nature, and
source of which cannot be predicted, our losses will continue as
we conduct our research and development activities. We expect to
incur substantial losses over the next several years as we
continue the clinical development of the VEGF Trap-Eye and IL-1
Trap; advance new product candidates into clinical development
from our existing research programs utilizing our new technology
for designing fully human monoclonal antibodies; continue our
research and development programs; and commercialize product
candidates that receive regulatory approval, if any. Also, our
activities may expand over time and require additional
resources, and we expect our operating losses to be substantial
over at least the next several years. Our losses may fluctuate
from quarter to quarter and will depend, among other factors, on
the progress of our research and development efforts, the timing
of certain expenses, and the amount and timing of payments that
we receive from collaborators.
As a company that does not expect to be profitable over the next
several years, management of cash flow is extremely important.
The most significant use of our cash is for research and
development activities, which include drug discovery,
preclinical studies, clinical trials, and the manufacture of
drug supplies for preclinical studies and clinical trials. In
2006, our research and development expenses totaled
$137.1 million. We expect these expenses to increase
substantially in 2007 as we begin Phase 3 clinical trials
of the VEGF Trap-Eye, expand our IL-1 Trap clinical program,
advance our antibody development program, and increase our
research and development headcount. The principal sources of
cash to-date have been sales of common equity and convertible
debt and funding from our collaborators in the form of up-front
payments, research progress payments, and payments for our
research and development activities.
28
A primary driver of our expenses is our number of full-time
employees. Our annual average headcount in 2006 was 573 compared
with 696 in 2005 and 721 in 2004. In 2006, our average annual
headcount decreased primarily as a result of reductions made in
the fourth quarter of 2005 and mid-year in 2006. These workforce
reductions were associated with narrowing the focus of our
research and development efforts, substantial improvements in
manufacturing productivity, the June 2005 expiration of our
collaboration with Procter & Gamble, and the completion
of contract manufacturing for Merck in October 2006. In 2007, we
expect our annual average headcount to increase to approximately
650 due, in part, to our expanded development programs for the
VEGF Trap-Eye and IL-1 Trap, and our plans to move two new
antibody candidates into clinical trials every year beginning
around the end of 2007.
The planning, execution, and results of our clinical programs
are significant factors that can affect our operating and
financial results. In our clinical programs, key events in 2006
and plans for 2007 are as follows:
|
|
|
|
|
Product Candidate
|
|
2006 Events
|
|
2007 Events/Plans
|
|
VEGF Trap Oncology
|
|
Initiated Phase 2 studies of the VEGF Trap as a single agent in AOC and NSCLA patients, and in AOC patients with SMA.
Initiated two safety and tolerability studies of the VEGF Trap in combination with standard chemotherapy regimens
Reported preliminary results of the safety and tolerability of intravenous VEGF Trap plus FOLFOX4 and of intravenous VEGF Trap plus LV5FU2-CPT11 in separate Phase 1 trials of patients with advanced solid tumors
|
|
Sanofi-aventis to initiate at least three of five Phase 3 studies of the VEGF Trap in combination with standard chemotherapy regimens in specific cancer indications
NCI/CTEP initiated five Phase 2 studies of the VEGF Trap as a single agent in relapsed/refractory multiple myeloma, metastatic colorectal cancer, recurrent or metastatic cancer of the urothelium, locally advanced or metastatic gynecological soft tissue sarcoma, and recurrent malignant gliomas
NCI/CTEP finalized protocol for Phase 2 trial of the VEGF Trap as a single agent in metastatic breast cancer
NCI/CTEP to initiate at least four new exploratory efficacy/safety studies evaluating the VEGF Trap in a variety of cancer types
|
|
|
VEGF Trap Eye
|
|
Reported positive preliminary results from Phase 1 trial in wet AMD utilizing intravitreal injections in 21 patients up to a top dose of 4 mg
Initiated Phase 2 trial in wet AMD utilizing intravitreal injections
Initiated safety and tolerability study of a new formulation of the VEGF Trap-Eye in patients with wet AMD
Initiated Phase 1 trial in DME
Initiated collaboration with Bayer HealthCare
|
|
Report interim results of Phase 2 trial in wet AMD utilizing intravitreal injections
Initiate first Phase 3 trial in wet AMD utilizing intravitreal injections of the VEGF Trap-Eye compared with Lucentis®
Report final results of Phase 2 trial in wet AMD utilizing intravitreal injections
Report results of the Phase 1 trial in DME
Explore additional eye disease indications
|
|
|
29
|
|
|
|
|
Product Candidate
|
|
2006 Events
|
|
2007 Events/Plans
|
|
IL-1 Trap (rilonacept)
|
|
Reported positive results from efficacy portion of Phase 3 trial of the IL-1 Trap in CAPS
Reported preliminary results from ongoing Phase 1 trial in SJIA
|
|
Submit Biologics License Application (BLA) with the FDA for CAPS
Initiate proof-of-concept studies evaluating the IL-1 Trap in gout and report initial data
Evaluate the IL-1 Trap in other disease indications in which IL-1 may play an important role
|
|
|
VelocImmune
|
|
Discovered
multiple antibodies against more than ten different therapeutic
targets
|
|
Finalize plans to initiate clinical trials of two antibodies against different therapeutic targets
Advance two new antibodies into preclinical development
|
|
|
Collaborations
Our current collaboration agreements with sanofi-aventis, Bayer,
and Novartis Pharma AG, and our expired agreement with The
Procter & Gamble Company are summarized below.
The
sanofi-aventis Group
In September 2003, we entered into a collaboration agreement
with Aventis Pharmaceuticals Inc. (now a member of the
sanofi-aventis Group) to collaborate on the development and
commercialization of the VEGF Trap in all countries other than
Japan, where we retained the exclusive right to develop and
commercialize the VEGF Trap. Sanofi-aventis made a
non-refundable up-front payment of $80.0 million and
purchased 2,799,552 newly issued unregistered shares of our
Common Stock for $45.0 million.
In January 2005, we and sanofi-aventis amended our collaboration
agreement to exclude rights to develop and commercialize the
VEGF Trap for intraocular delivery to the eye. In connection
with this amendment, sanofi-aventis made a $25.0 million
non-refundable payment to us.
In December 2005, we and sanofi-aventis amended our
collaboration agreement to expand the territory in which the
companies are collaborating on the development of the VEGF Trap
to include Japan. In connection with this amendment,
sanofi-aventis agreed to make a $25.0 million
non-refundable up-front payment to us, which was received in
January 2006. Under the collaboration agreement, as amended, we
and sanofi-aventis will share co-promotion rights and profits on
sales, if any, of the VEGF Trap outside of Japan, for disease
indications included in our collaboration. We are entitled to a
royalty of approximately 35% on annual sales of the VEGF Trap in
Japan, subject to certain potential adjustments. We may also
receive up to $400.0 million in milestone payments upon
receipt of specified marketing approvals. This total includes up
to $360.0 million in milestone payments related to the
receipt of marketing approvals for up to eight VEGF Trap
oncology and other indications in the United States or the
European Union. Another $40.0 million of milestone payments
relate to receipt of marketing approvals for up to five VEGF
Trap oncology indications in Japan. In December 2004, we earned
a $25.0 million payment from sanofi-aventis, which was
received in January 2005, upon the achievement of an early-stage
clinical milestone.
Regeneron has agreed to manufacture clinical supplies of the
VEGF Trap at our plant in Rensselaer, New York. Sanofi-aventis
has agreed to be responsible for providing commercial scale
manufacturing capacity for the VEGF Trap.
Under the collaboration agreement, as amended, agreed upon
worldwide development expenses incurred by both companies during
the term of the agreement will be funded by sanofi-aventis. If
the collaboration becomes profitable, we will be obligated to
reimburse sanofi-aventis for 50% of these development expenses,
including 50% of the $25.0 million payment received in
connection with the January 2005 amendment to our collaboration
agreement, in accordance with a formula based on the amount of
development expenses and our share of the
30
collaboration profits and Japan royalties, or at a faster rate
at our option. Since inception of the collaboration through
December 31, 2006, we and sanofi-aventis have incurred
$205.0 million in agreed upon development expenses related
to VEGF Trap program. In addition, if the first commercial sale
of a VEGF Trap product for intraocular delivery to the eye
predates the first commercial sale of a VEGF Trap product under
the collaboration by two years, we will begin reimbursing
sanofi-aventis for up to $7.5 million of VEGF Trap
development expenses in accordance with a formula until the
first commercial VEGF Trap sale under the collaboration occurs.
Sanofi-aventis has the right to terminate the agreement without
cause with at least twelve months advance notice. Upon
termination of the agreement for any reason, any remaining
obligation to reimburse sanofi-aventis for 50% of the VEGF Trap
development expenses will terminate and we will retain all
rights to the VEGF Trap.
Bayer
Healthcare LLC
In October 2006, we entered into a license and collaboration
agreement with Bayer to globally develop, and commercialize
outside the United States, the VEGF Trap-Eye. Under the terms of
the agreement, Bayer made a non-refundable up-front payment to
us of $75.0 million. In addition, we are eligible to
receive up to $110.0 million in development and regulatory
milestones, including a total of $40.0 million upon the
initiation of Phase 3 trials in defined major indications
such as wet AMD and DME. We are also eligible to receive up to
an additional $135.0 million in sales milestones when and
if total annual sales of the VEGF Trap-Eye outside the United
States achieve certain specified levels starting at
$200.0 million.
We will share equally with Bayer in any future profits arising
from the commercialization of the VEGF Trap-Eye outside the
United States. If the VEGF Trap-Eye is granted marketing
authorization in a major market country outside the United
States and the collaboration becomes profitable, we will be
obligated to reimburse Bayer out of our share of the
collaboration profits for 50% of the agreed upon development
expenses that Bayer has incurred in accordance with a formula
based on the amount of development expenses that Bayer has
incurred and our share of the collaboration profits, or at a
faster rate at our option. Within the United States, we are
responsible for any future commercialization of the VEGF
Trap-Eye and have retained exclusive rights to any future
profits arising therefrom.
Agreed upon development expenses incurred by both companies,
beginning in 2007, under a global development plan will be
shared as follows:
|
|
|
|
2007:
|
Up to $50.0 million shared equally; we are solely
responsible for up to the next $40.0 million; over
$90.0 million shared equally.
|
|
|
2008:
|
Up to $70.0 million shared equally, we are solely
responsible for up to the next $30.0 million; over
$100.0 million shared equally.
|
|
|
|
|
2009 and thereafter:
|
All expenses shared equally.
|
Neither party will be reimbursed for any development expenses
that it incurred prior to 2007.
We are obligated to use commercially reasonable efforts to
supply clinical and commercial product requirements.
Bayer has the right to terminate the agreement without cause
with at least six months or twelve months advance notice
depending on defined circumstances at the time of termination.
In the event of termination of the agreement for any reason, we
retain all rights to the VEGF Trap-Eye.
Novartis
Pharma AG
In March 2003, we entered into a collaboration agreement with
Novartis to jointly develop and commercialize the IL-1 Trap.
Novartis made a non-refundable payment to us of
$27.0 million.
IL-1 Trap development expenses incurred in 2003 were shared
equally by Regeneron and Novartis. We funded our share of 2003
development expenses through loans from Novartis. In March 2004,
Novartis forgave its outstanding loans to us totaling
$17.8 million, including accrued interest, based on
Regenerons achieving a pre-defined development milestone,
which was recognized as a research progress payment.
31
In February 2004, Novartis provided notice of its intention not
to proceed with the joint development of the
IL-1 Trap,
and subsequently paid us $42.75 million to satisfy its
obligation to fund development costs for the nine month period
following its notification and for the two months prior to that
notice. All rights to the IL-1 Trap have reverted to Regeneron.
In addition, we recognized contract research and development
revenue of $22.1 million, which represents the remaining
amount of the March 2003 up-front payment from Novartis that had
previously been deferred.
Under the collaboration agreement, we retain the right to elect
to collaborate in the future development and commercialization
of a Novartis IL-1 antibody, which is in clinical development.
Following completion of Phase 2 development and submission
to us of a written report on the Novartis IL-1 antibody, we have
the right, in consideration for an opt-in payment, to elect to
co-develop and co-commercialize the Novartis IL-1 antibody in
North America. If we elect to exercise this right, we are
responsible for paying 45% of post-election North American
development costs for the antibody product. In return, we are
entitled to co-promote the Novartis IL-1 antibody and to receive
45% of net profits on sales of the antibody product in North
America. Under certain circumstances, we are also entitled to
receive royalties on sales of the Novartis IL-1 antibody in
Europe.
In addition, under the collaboration agreement, Novartis has the
right to elect to collaborate in the development and
commercialization of a second generation IL-1 Trap following
completion of its Phase 2 development, should we decide to
clinically develop such a second generation product candidate.
Novartis does not have any rights or options with respect to our
IL-1 Trap currently in clinical development.
The
Procter & Gamble Company
In May 1997, we entered into a long-term collaboration with
Procter & Gamble to discover, develop, and
commercialize pharmaceutical products, and Procter &
Gamble agreed to provide funding in support of our research
efforts related to the collaboration. Effective
December 31, 2000, in accordance with the companies
collaboration agreement, Procter & Gamble was obligated
to fund our research on therapeutic areas that were of
particular interest to Procter & Gamble through
December 2005, with no further research obligations by either
party thereafter. Under the collaboration agreement, research
support from Procter & Gamble was $2.5 million per
quarter, plus annual adjustments for inflation, through December
2005.
In June 2005, we and Procter & Gamble amended our
collaboration agreement. Under the terms of the modified
agreement, the two companies agreed that the research activities
being pursued under the collaboration agreement were completed
on June 30, 2005, six months prior to the December 31,
2005 expiration date in the collaboration agreement.
Procter & Gamble agreed to make a one-time
$5.6 million payment to Regeneron, which was received in
July 2005, and to fund our research under the agreement through
the second quarter of 2005. We agreed to pay Procter &
Gamble approximately $1.0 million to acquire certain
capital equipment owned by Procter & Gamble and located
at our facilities. We and Procter & Gamble divided
rights to research programs and preclinical product candidates
that were developed during the research term of the
collaboration. Neither party has the right to participate in the
development or commercialization of the other partys
product candidates. We are entitled to receive royalties based
on any future product sales of a Procter & Gamble
preclinical candidate arising from the collaboration, and
Procter & Gamble is entitled to receive a small royalty
on any sales of a single Regeneron candidate that is not
currently being developed. Neither party is entitled to receive
either royalties or other payments based on any other products
arising from the collaboration.
Other
Agreements
AstraZeneca
In February 2007, we entered into a non-exclusive license
agreement with AstraZeneca that will allow AstraZeneca to
utilize our
VelocImmune®
technology in its internal research programs to discover
human monoclonal antibodies. Under the terms of the agreement,
AstraZeneca made a $20.0 million non-refundable up-front
payment to us. AstraZeneca also will make up to five additional
annual payments of $20.0 million, subject to its ability to
terminate the agreement after making the first three additional
payments or earlier if the technology does not meet minimum
performance criteria. We are entitled to receive a
mid-single-digit royalty on any future sales of antibody
products discovered by AstraZeneca using our VelocImmune
technology.
32
National
Institutes of Health
In September 2006, we were awarded a five-year grant from the
National Institutes of Health (NIH) as part of the NIHs
Knockout Mouse Project. The goal of the Knockout Mouse Project
is to build a comprehensive and broadly available resource of
knockout mice to accelerate the understanding of gene function
and human diseases. We will use our
VelociGene®
technology to take aim at 3,500 of the most difficult genes to
target and which are not currently the focus of other
large-scale knockout mouse programs. We have also agreed to
grant a limited license to a consortium of research
institutions, the other major participants in the Knockout Mouse
Project, to use components of our VelociGene technology in the
Knockout Mouse Project. We will generate a collection of
targeting vectors and targeted mouse embryonic stem cells
(ES cells) which can be used to produce knockout mice.
These materials will be made widely available to academic
researchers without charge. We will receive a fee for each
targeted ES cell line or targeting construct made by us or the
research consortium and transferred to commercial entities.
Under the NIH grant, we will be entitled to receive a minimum of
$17.9 million over a five-year period. We will receive
another $1.0 million to optimize our existing C57BL/6 ES
cell line and its proprietary growth medium, both of which will
be supplied to the research consortium for its use in the
Knockout Mouse Project. We will have the right to use, for any
purpose, all materials generated by us and the research
consortium.
Accounting
for Stock-based Employee Compensation
Effective January 1, 2005, we adopted the fair value based
method of accounting for stock-based employee compensation under
the provisions of Statement of Financial Accounting Standards
No. (SFAS) 123, Accounting for Stock-Based Compensation,
using the modified prospective method as described in
SFAS 148, Accounting for Stock-Based
Compensation Transition and Disclosure. As a
result, in 2005, we recognized compensation expense, in an
amount equal to the fair value of share-based payments
(including stock option awards) on their date of grant, over the
vesting period of the awards using graded vesting, which is an
accelerated expense recognition method. Under the modified
prospective method, compensation expense for Regeneron is
recognized for (a) all share based payments granted on or
after January 1, 2005 and (b) all awards granted to
employees prior to January 1, 2005 that were unvested on
that date. Prior to the adoption of the fair value method, we
accounted for stock-based compensation to employees under the
intrinsic value method of accounting set forth in Accounting
Principles Board Opinion No. (APB) 25, Accounting for
Stock Issued to Employees, and related interpretations.
Therefore, compensation expense related to employee stock
options was not reflected in operating expenses in any period
prior to the first quarter of 2005 and prior period operating
results have not been restated.
Effective January 1, 2006, we adopted the provisions of
SFAS 123R, Share-Based Payment, which is a revision
of SFAS 123. SFAS 123R focuses primarily on accounting
for transactions in which an entity obtains employee services in
share-based payment transactions, and requires the recognition
of compensation expense in an amount equal to the fair value of
the share-based payment (including stock options and restricted
stock) issued to employees. SFAS 123R requires companies to
estimate the number of awards that are expected to be forfeited
at the time of grant and to revise this estimate, if necessary,
in subsequent periods if actual forfeitures differ from those
estimates. Effective January 1, 2005, and prior to our
adoption of SFAS 123R, we recognized the effect of
forfeitures in stock-based compensation cost in the period when
they occurred, in accordance with SFAS 123. Upon adoption
of SFAS 123R effective January 1, 2006, we were
required to record a cumulative effect adjustment to reflect the
effect of estimated forfeitures related to outstanding awards
that are not expected to vest as of the SFAS 123R adoption
date. This adjustment reduced our loss by $0.8 million and
is included in our operating results for the year ended
December 31, 2006 as a cumulative-effect adjustment of a
change in accounting principle. Exclusive of the
cumulative-effect adjustment, the effect of the change from
applying the provisions of SFAS 123 to applying the
provisions of SFAS 123R on our loss from operations, net
loss, and net loss per share for the year ended
December 31, 2006 was not significant, and there was no
impact to our cash flows for the year ended December 31,
2006.
Non-cash stock-based employee compensation expense related to
stock option awards (Stock Option Expense) recognized in
operating expenses totaled $18.4 million and
$19.9 million for the years ended December 31, 2006
and 2005, respectively. In addition, for the year ended
December 31, 2005, $0.1 million of Stock Option
Expense
33
was capitalized into inventory. As of December 31, 2006,
there was $44.0 million of stock-based compensation cost
related to outstanding nonvested stock options, net of estimated
forfeitures, which had not yet been recognized in operating
expenses. We expect to recognize this compensation cost over a
weighted-average period of 1.9 years. In addition, there
are 723,092 options which are unvested as of December 31,
2006 and would become vested upon our products achieving certain
sales targets and the optionee satisfying certain service
conditions. Potential compensation cost, measured on the grant
date, related to these performance options totals
$2.7 million and will begin to be recognized only if, and
when, these options performance condition is considered to
be probable of attainment.
Assumptions
We use the Black-Scholes model to estimate the fair value of
each option granted under the Regeneron Pharmaceuticals, Inc.
2000 Long-Term Incentive Plan. Using this model, fair value is
calculated based on assumptions with respect to
(i) expected volatility of our Common Stock price,
(ii) the periods of time over which employees and members
of our board of directors are expected to hold their options
prior to exercise (expected lives), (iii) expected dividend
yield on our Common Stock, and (iv) risk-free interest
rates, which are based on quoted U.S. Treasury rates for
securities with maturities approximating the options
expected lives. Expected volatility has been estimated based on
actual movements in our stock price over the most recent
historical periods equivalent to the options expected
lives. Expected lives are principally based on our limited
historical exercise experience with option grants with similar
exercise prices. The expected dividend yield is zero as we have
never paid dividends and do not currently anticipate paying any
in the foreseeable future. The following table summarizes the
weighted average values of the assumptions we used in computing
the fair value of option grants during 2006, 2005 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected volatility
|
|
|
67%
|
|
|
|
71%
|
|
|
|
80%
|
|
Expected lives from grant date
|
|
|
6.5 years
|
|
|
|
5.9 years
|
|
|
|
7.5 years
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Risk-free interest rate
|
|
|
4.51%
|
|
|
|
4.16%
|
|
|
|
4.03%
|
|
Changes in any of these estimates may materially affect the fair
value of stock options granted and the amount of stock-based
compensation recognized in any period.
Results
of Operations
Years
Ended December 31, 2006 and 2005
Net
Loss:
Regeneron reported a net loss of $102.3 million, or
$1.77 per share (basic and diluted) for the year ended
December 31, 2006, compared to a net loss of
$95.4 million, or $1.71 per (basic and diluted) for
2005.
Revenues:
Revenues for the years ended December 31, 2006 and 2005
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Contract research &
development revenue
|
|
|
|
|
|
|
|
|
Sanofi-aventis
|
|
$
|
47.8
|
|
|
$
|
43.4
|
|
Procter & Gamble
|
|
|
|
|
|
|
6.0
|
|
Other
|
|
|
3.3
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
Total contract research &
development revenue
|
|
|
51.1
|
|
|
|
52.5
|
|
Contract manufacturing revenue
|
|
|
12.3
|
|
|
|
13.7
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
63.4
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|
34
We recognize revenue from sanofi-aventis, in connection with the
companies VEGF Trap collaboration, in accordance with
Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104) and FASB Emerging Issue Task
Force Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables (EITF
00-21) (see
Critical Accounting Policies and Significant Judgments and
Estimates). We earn contract research and development
revenue from sanofi-aventis which, as detailed below, consists
partly of reimbursement for research and development expenses
and partly of the recognition of revenue related to a total of
$105.0 million of non-refundable, up-front payments
received in 2003 and 2006. Non-refundable up-front payments are
recorded as deferred revenue and recognized ratably over the
period during which we are obligated to perform services.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Sanofi-aventis Contract Research & Development
Revenue
|
|
2006
|
|
|
2005
|
|
|
|
(In millions)
|
|
|
Regeneron expense reimbursement
|
|
$
|
36.4
|
|
|
$
|
33.9
|
|
Recognition of deferred revenue
related to up-front payments
|
|
|
11.4
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
47.8
|
|
|
$
|
43.4
|
|
|
|
|
|
|
|
|
|
|
Sanofi-aventis reimbursement of Regeneron VEGF Trap
expenses increased in 2006 compared to 2005, primarily due to
higher costs related to our manufacture of VEGF Trap clinical
supplies during the first half of 2006. Recognition of deferred
revenue related to sanofi-aventis up-front payments also
increased in 2006 from the same period in 2005, due to our
receipt in January 2006 of a $25.0 million non-refundable,
up-front payment from sanofi-aventis related to the expansion of
the companies VEGF Trap collaboration to include Japan. As
of December 31, 2006, $70.0 million of the original
$105.0 million of up-front payments was deferred and will
be recognized as revenue in future periods.
Contract research and development revenue earned from
Procter & Gamble decreased in 2006 compared to 2005, as
the research activities being pursued under our December 2000
collaboration agreement with Procter & Gamble, as
amended, were completed on June 30, 2005, as described
above under Collaborations The
Procter & Gamble Company. Since the second
quarter of 2005, we have not received, and do not expect to
receive, any further contract research and development revenue
from Procter & Gamble.
As described above, in October 2006 we entered into a VEGF
Trap-Eye collaboration with Bayer. We will recognize revenue
from Bayer, in connection with the companies
collaboration, in accordance with SAB 104 and EITF
00-21. When
we and Bayer have formalized our projected global development
plans for the VEGF Trap-Eye, as well as the projected
responsibilities of each of the companies under those
development plans, we will begin recognizing contract research
and development revenue related to payments from Bayer. As a
result, there was no contract research and development revenue
earned from Bayer in 2006. As of December 31, 2006, the
$75.0 million up-front payment received from Bayer in
October 2006 was deferred and will be recognized as revenue in
future periods.
Other contract research and development revenue includes
$0.5 million recognized in connection with our NIH Grant,
as described above.
Contract manufacturing revenue relates to our long-term
agreement with Merck & Co., Inc., which expired in
October 2006, to manufacture a vaccine intermediate at our
Rensselaer, New York facility. Contract manufacturing revenue
decreased in 2006 compared to 2005 due to a decrease in product
shipments to Merck in 2006. Revenue and the related
manufacturing expense were recognized as product was shipped,
after acceptance by Merck. Included in contract manufacturing
revenue in 2006 and 2005 were $1.2 million and
$1.4 million, respectively, of deferred revenue associated
with capital improvement reimbursements paid by Merck prior to
commencement of production. We do not expect to receive any
further contract manufacturing revenue from Merck and there was
no Merck deferred revenue as of the end of 2006.
Expenses:
Total operating expenses decreased to $171.1 million in
2006 from $190.6 million in 2005 due, in part, to our lower
headcount, as described above. (Also see Severance
Costs below.)
35
Operating expenses in 2006 and 2005 include a total of
$18.4 million and $19.9 million of Stock Option
Expense, respectively, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
Expenses Before
|
|
|
|
|
|
|
|
|
|
Inclusion of Stock
|
|
|
Stock Option
|
|
|
Expenses as
|
|
Expenses
|
|
Option Expense
|
|
|
Expense
|
|
|
Reported
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
126.9
|
|
|
$
|
10.2
|
|
|
$
|
137.1
|
|
Contract manufacturing
|
|
|
7.8
|
|
|
|
0.3
|
|
|
|
8.1
|
|
General and administrative
|
|
|
18.0
|
|
|
|
7.9
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
152.7
|
|
|
$
|
18.4
|
|
|
$
|
171.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2005
|
|
|
|
Expenses Before
|
|
|
|
|
|
|
|
|
|
Inclusion of Stock
|
|
|
Stock Option
|
|
|
Expenses as
|
|
Expenses
|
|
Option Expense
|
|
|
Expense
|
|
|
Reported
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
143.7
|
|
|
$
|
11.9
|
|
|
$
|
155.6
|
|
Contract manufacturing
|
|
|
9.2
|
|
|
|
0.4
|
|
|
|
9.6
|
|
General and administrative
|
|
|
17.8
|
|
|
|
7.6
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
170.7
|
|
|
$
|
19.9
|
|
|
$
|
190.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and Development Expenses:
Research and development expenses decreased to
$137.1 million for the year ended December 31, 2006
from $155.6 million for 2005. The following table
summarizes the major categories of our research and development
expenses for the years ended December 31, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Research and Development Expenses
|
|
2006
|
|
|
2005 (1)
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Payroll and benefits (2)
|
|
$
|
44.8
|
|
|
$
|
53.6
|
|
|
$
|
(8.8
|
)
|
Clinical trial expenses
|
|
|
14.9
|
|
|
|
18.2
|
|
|
|
(3.3
|
)
|
Clinical manufacturing
costs (3)
|
|
|
39.2
|
|
|
|
41.6
|
|
|
|
(2.4
|
)
|
Research and preclinical
development costs
|
|
|
17.5
|
|
|
|
19.2
|
|
|
|
(1.7
|
)
|
Occupancy and other operating costs
|
|
|
20.7
|
|
|
|
23.0
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
137.1
|
|
|
$
|
155.6
|
|
|
$
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the major categories of research and development expenses,
amounts for the year ended December 31, 2005 have been
reclassified to conform with, and be comparable to, the current
years presentation. Total research and development
expenses for the year ended December 31, 2005 are unchanged
from amounts previously reported. |
|
(2) |
|
Includes $8.4 million and $10.5 million of Stock
Option Expense for the years ended December 31, 2006 and
2005, respectively. |
|
(3) |
|
Represents the full cost of manufacturing drug for use in
research, preclinical development, and clinical trials,
including related payroll and benefits, Stock Option Expense,
manufacturing materials and supplies, depreciation, and
occupancy costs of our Rensselaer manufacturing facility.
Includes $1.8 million and $1.4 million of Stock Option
Expense for the years ended December 31, 2006 and 2005,
respectively. |
Payroll and benefits decreased principally due to our lower
headcount in 2006. In addition, payroll and benefits in 2006 and
2005 included $0.4 million and $2.2 million,
respectively, of severance costs associated with our
36
workforce reduction plan that we initiated in October 2005.
Clinical trial expenses decreased primarily due to lower IL-1
Trap costs in 2006 as we discontinued clinical development of
the IL-1 Trap in adult rheumatoid arthritis and osteoarthritis
in the second half of 2005. This decrease was partly offset by
higher 2006 VEGF Trap-Eye costs related to Phase 1 and
Phase 2 clinical trials that we are conducting in wet AMD.
Clinical manufacturing costs decreased because of lower costs in
2006 related to manufacturing IL-1 Trap clinical supplies, which
were partially offset by higher costs related to manufacturing
VEGF Trap clinical supplies. Research and preclinical
development costs decreased principally because of lower costs
for general research supplies in 2006 as we narrowed the focus
of our research and development efforts due, in part, to the
expiration of our collaboration with Procter & Gamble
in June 2005, as described above. Occupancy and other operating
costs decreased primarily due to our lower 2006 headcount and
lower costs for utilities associated with our leased research
facilities in Tarrytown, New York.
Contract
Manufacturing Expenses:
Contract manufacturing expenses decreased to $8.1 million
in 2006, compared to $9.6 million in 2005, primarily
because we shipped less product to Merck in 2006.
General
and Administrative Expenses:
General and administrative expenses increased to
$25.9 million in 2006 from $25.4 million in the same
period of 2005 as higher legal expenses related to general
corporate matters and higher patent-and trademark-related costs
were partly offset by lower professional fees for internal audit
and other administrative advisory services and lower
administrative facility costs.
Other
Income and Expense:
In June 2005, we and Procter & Gamble amended our
collaboration agreement and agreed that the research activities
of both companies under the collaboration agreement were
completed. In connection with the amendment, Procter &
Gamble made a one-time $5.6 million payment to us, which we
recognized as other contract income in 2005. In January 2005, we
and sanofi-aventis amended our collaboration agreement to
exclude rights to develop and commercialize the VEGF Trap for
intraocular delivery to the eye. In connection with the
amendment, sanofi-aventis made a one-time $25.0 million
payment to us, which we recognized as other contract income in
2005.
Investment income increased to $16.5 million in 2006 from
$10.4 million in 2005, due primarily to higher balances of
cash and marketable securities (due, in part, to the up-front
payment received from Bayer in October 2006, as described above,
and the receipt of net proceeds from the November 2006 public
offering of our Common Stock), as well as higher effective
interest rates on investment securities in 2006. Interest
expense was $12.0 million in 2006 and 2005. Interest
expense is attributable primarily to $200.0 million of
convertible notes issued in October 2001, which mature in 2008
and bear interest at 5.5% per annum.
Years
Ended December 31, 2005 and 2004
Net
Income (Loss):
Regeneron reported a net loss of $95.4 million, or
$1.71 per share (basic and diluted) for the year ended
December 31, 2005, compared with net income of
$41.7 million, or $0.75 per basic share and
$0.74 per diluted share, for 2004. Our net loss in 2005
included $19.9 million of Stock Option Expense due to our
adoption of SFAS 123 effective January 1, 2005, as
described above.
37
Revenues:
Revenues for the years ended December 31, 2005 and 2004
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Contract research &
development revenue
|
|
|
|
|
|
|
|
|
Sanofi-aventis
|
|
$
|
43.4
|
|
|
$
|
78.3
|
|
Novartis
|
|
|
|
|
|
|
22.1
|
|
Procter & Gamble
|
|
|
6.0
|
|
|
|
10.5
|
|
Other
|
|
|
3.1
|
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
Total contract research &
development revenue
|
|
|
52.5
|
|
|
|
113.1
|
|
|
|
|
|
|
|
|
|
|
Research progress payments
|
|
|
|
|
|
|
|
|
Sanofi-aventis
|
|
|
|
|
|
|
25.0
|
|
Novartis
|
|
|
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
Total research progress payments
|
|
|
|
|
|
|
42.8
|
|
|
|
|
|
|
|
|
|
|
Contract manufacturing revenue
|
|
|
13.7
|
|
|
|
18.1
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
66.2
|
|
|
$
|
174.0
|
|
|
|
|
|
|
|
|
|
|
Our total revenue decreased to $66.2 million in 2005 from
$174.0 million in 2004, due primarily to lower revenues
related to our collaboration with sanofi-aventis on the VEGF
Trap and the absence in the 2005 period of revenues related to
our collaboration with Novartis on the IL-1 Trap which ended in
2004. We recognize revenue from the sanofi-aventis and Novartis
collaborations in accordance with SAB 104 and EITF
00-21 (see
Critical Accounting Policies and Significant Judgments and
Estimates). Collaboration revenue earned from sanofi-aventis and
Novartis is comprised of contract research and development
revenue and research progress payments. Contract research and
development revenue, as detailed below, consists partly of
reimbursement for research and development expenses and partly
of the recognition of revenue related to non-refundable,
up-front payments. Non-refundable up-front payments are recorded
as deferred revenue and recognized ratably over the period
during which we are obligated to perform services.
Contract research & development revenues earned from
sanofi-aventis and Novartis for 2005 and 2004 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front Payments to Regeneron
|
|
|
|
|
|
|
2005 Regeneron
|
|
|
|
|
|
Amount
|
|
|
Deferred Revenue
|
|
|
Total Revenue
|
|
|
|
Expense
|
|
|
Total
|
|
|
Recognized
|
|
|
at December 31,
|
|
|
Recognized
|
|
|
|
Reimbursement
|
|
|
Payments
|
|
|
in 2005
|
|
|
2005
|
|
|
in 2005
|
|
|
|
(In millions)
|
|
|
Sanofi-aventis
|
|
$
|
33.9
|
|
|
$
|
105.0
|
|
|
$
|
9.5
|
|
|
$
|
81.3
|
|
|
$
|
43.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Up-front Payments to Regeneron
|
|
|
|
|
|
|
2004 Regeneron
|
|
|
|
|
|
Amount
|
|
|
Deferred Revenue
|
|
|
Total Revenue
|
|
|
|
Expense
|
|
|
Total
|
|
|
Recognized
|
|
|
at December 31,
|
|
|
Recognized
|
|
|
|
Reimbursement
|
|
|
Payment
|
|
|
in 2004
|
|
|
2004
|
|
|
in 2004
|
|
|
|
(In millions)
|
|
|
Sanofi-aventis
|
|
$
|
67.8
|
|
|
$
|
80.0
|
|
|
$
|
10.5
|
|
|
$
|
65.8
|
|
|
$
|
78.3
|
|
Novartis
|
|
|
|
|
|
|
27.0
|
|
|
|
22.1
|
|
|
|
|
|
|
|
22.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67.8
|
|
|
$
|
107.0
|
|
|
$
|
32.6
|
|
|
$
|
65.8
|
|
|
$
|
100.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sanofi-aventis reimbursement of Regeneron VEGF Trap
expenses decreased in 2005 compared to 2004, primarily due to
lower clinical supply manufacturing costs in 2005. We
manufactured clinical supplies of the VEGF Trap throughout 2004,
but only manufactured VEGF Trap clinical supplies during the
fourth quarter of 2005. In the first quarter of 2004, Novartis
provided notice of its intention not to proceed with the joint
development of the IL-1 Trap and the remaining balance of the
$27.0 million up-front payment received from Novartis in
March 2003 was
38
recognized as contract research and development revenue. Since
the first quarter of 2004, we have not received, and do not
expect to receive, any further contract research and development
revenue from Novartis.
Contract research and development revenue earned from
Procter & Gamble also decreased in 2005 compared to
2004, resulting from the June 2005 amendment to our December
2000 collaboration agreement with Procter & Gamble.
Under the terms of the modified agreement, Procter &
Gamble funded Regenerons research for the first two
quarters of 2005, compared with a full year of collaborative
research funding in 2004. Since the second quarter of 2005, we
have not received, and do not expect to receive, any further
contract research and development revenue from
Procter & Gamble.
In December 2004, we earned a $25.0 million research
progress payment from sanofi-aventis, which was received in
January 2005, upon achievement of an early-stage VEGF Trap
clinical milestone. In March 2004, Novartis forgave all of its
outstanding loans, including accrued interest, to Regeneron
totaling $17.8 million, based upon Regenerons
achieving a pre-defined IL-1 Trap development milestone. These
amounts were recognized as research progress payments in 2004.
Contract manufacturing revenue relates to our long-term
agreement with Merck, which expired in October 2006. Contract
manufacturing revenue decreased to $13.7 million in 2005
from $18.1 million in 2004, principally due to a decrease
in product shipments to Merck in 2005 compared to 2004. Revenue
and the related manufacturing expense were recognized as product
was shipped, after acceptance by Merck. Included in contract
manufacturing revenue in 2005 and 2004 were $1.4 million
and $3.6 million, respectively, of deferred revenue
associated with capital improvement reimbursements paid by Merck
prior to commencement of production.
Expenses:
Total operating expenses increased to $190.6 million in
2005 from $168.4 million in 2004. Operating expenses in
2005 include a total of $19.9 million of Stock Option
Expense, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2005
|
|
|
2004
|
|
|
|
Expenses Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Inclusion of Stock
|
|
|
Stock Option
|
|
|
Expenses as
|
|
|
Expenses as
|
|
Expenses
|
|
Option Expense
|
|
|
Expense
|
|
|
Reported
|
|
|
Reported
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
143.7
|
|
|
$
|
11.9
|
|
|
$
|
155.6
|
|
|
$
|
136.1
|
|
Contract manufacturing
|
|
|
9.2
|
|
|
|
0.4
|
|
|
|
9.6
|
|
|
|
15.2
|
|
General and administrative
|
|
|
17.8
|
|
|
|
7.6
|
|
|
|
25.4
|
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
170.7
|
|
|
$
|
19.9
|
|
|
$
|
190.6
|
|
|
$
|
168.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, $0.1 million of Stock Option Expense was
capitalized into inventory, for a total of $20.0 million of
Stock Option Expense recognized during the year ended
December 31, 2005. As described under Accounting for
Stock-based Employee Compensation above, Stock Option
Expense was not included in operating expenses in 2004, as
reported in our Statement of Operations. In 2004, had we adopted
the fair value based method of accounting for stock-based
employee compensation under the provisions of SFAS 123,
Stock Option Expense would have totaled $33.6 million. The
decrease in total Stock Option Expense of $13.6 million in
2005 was partly due to lower exercise prices of annual employee
option grants made by us in December 2004 in comparison to the
exercise prices of annual grants in recent prior years. Exercise
prices of these option grants were generally equal to the fair
market value of our Common Stock on the date of grant. The
decrease in Stock Option Expense in 2005 was also due, in part,
to the exchange of options by eligible employees in connection
with our stock option exchange program in January 2005, as the
unamortized fair value of the surrendered options on the date of
the exchange is being recognized as Stock Option Expense over a
longer time period (the vesting period of the replacement
options) in accordance with SFAS 123.
39
Research
and Development Expenses:
Research and development expenses increased to
$155.6 million for the year ended December 31, 2005
from $136.1 million for 2004 due, in part, to the inclusion
of $11.9 million of Stock Option Expense in 2005 research
and development expenses, resulting from the adoption of
SFAS 123, effective January 1, 2005. The following
table summarizes the major categories of our research and
development expenses for the years ended December 31, 2005
and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
|
2005 (1)
|
|
|
2004 (1)(2)
|
|
|
|
Expenses Before
|
|
|
|
|
|
|
|
|
|
|
|
|
Inclusion of Stock
|
|
|
Stock Option
|
|
|
Expenses as
|
|
|
Expenses as
|
|
Research and Development Expenses
|
|
Option Expense
|
|
|
Expense
|
|
|
Reported
|
|
|
Reported
|
|
|
|
(In millions)
|
|
|
Payroll and benefits
|
|
$
|
43.1
|
|
|
$
|
10.5
|
|
|
$
|
53.6
|
|
|
$
|
38.6
|
|
Clinical trial expenses
|
|
|
18.2
|
|
|
|
|
|
|
|
18.2
|
|
|
|
10.3
|
|
Clinical manufacturing costs (3)
|
|
|
40.2
|
|
|
|
1.4
|
|
|
|
41.6
|
|
|
|
42.8
|
|
Research and preclinical
development costs
|
|
|
19.2
|
|
|
|
|
|
|
|
19.2
|
|
|
|
22.2
|
|
Occupancy and other operating costs
|
|
|
23.0
|
|
|
|
|
|
|
|
23.0
|
|
|
|
22.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
143.7
|
|
|
$
|
11.9
|
|
|
$
|
155.6
|
|
|
$
|
136.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For the major categories of research and development expenses,
amounts for the years ended December 31, 2005 and 2004 have
been reclassified to conform with, and be comparable to, the
current years presentation. Total research and development
expenses for the years ended December 31, 2005 and 2004 are
unchanged from amounts previously reported. |
|
(2) |
|
In 2004, research and development expenses as reported in our
Statement of Operations did not include Stock Option Expense. |
|
(3) |
|
Represents the full cost of manufacturing drug for use in
research, preclinical development, and clinical trials,
including related payroll and benefits, manufacturing materials
and supplies, depreciation, occupancy costs of our Rensselaer
manufacturing facility, and, in 2005 only, Stock Option Expense. |
Payroll and benefits, exclusive of Stock Option Expense,
increased $4.5 million in 2005 from 2004 due primarily to
2005 wage and salary increases, higher employee benefit costs,
and severance costs (totaling $2.2 million in
2005) associated with our workforce reduction plan that we
initiated in October 2005. Clinical trial expenses increased
$7.9 million in 2005 from 2004 due primarily to higher IL-1
Trap costs associated with commencing clinical studies in new
indications and discontinuing the Phase 2b study in adult
rheumatoid arthritis. Clinical manufacturing costs, exclusive of
Stock Option Expense, decreased $2.6 million in 2005 from
2004, as lower costs in 2005 related to manufacturing clinical
supplies of the VEGF Trap and the IL-4/13 Trap were partly
offset by higher costs related to manufacturing clinical
supplies of the IL-1 Trap. Research and preclinical development
costs decreased $3.0 million in 2005 from 2004 due
primarily to lower VEGF Trap preclinical development costs and
lower costs for general research supplies in 2005. Occupancy and
other operating costs increased $0.8 million in 2005 from
2004, due primarily to higher costs for utilities, taxes, and
operating expenses associated with our leased research
facilities in Tarrytown, New York.
Contract
Manufacturing Expenses:
Contract manufacturing expenses decreased to $9.6 million
in 2005, compared to $15.2 million in 2004, primarily
because we shipped less product to Merck in 2005 and we incurred
unfavorable manufacturing costs in 2004, which were expensed in
the period incurred.
General
and Administrative Expenses:
General and administrative expenses increased to
$25.4 million in 2005 from $17.1 million in 2004, due
primarily to the inclusion of $7.6 million of Stock Option
Expense in 2005 general and administrative expenses,
40
resulting from the adoption of SFAS 123, effective
January 1, 2005. In addition, in 2005 administrative wage
and salary increases, higher employee benefits costs and higher
administrative facility costs were partly offset by
(i) lower legal expenses related to Company litigation and
general corporate matters and (ii) lower professional fees,
principally associated with accounting and other services
related to our first year of compliance in 2004 with the
requirements of Section 404 of the Sarbanes-Oxley Act of
2002.
Other
Income and Expense:
In June 2005, we and Procter & Gamble amended our
collaboration agreement and agreed that the research activities
of both companies under the collaboration agreement were
completed. In connection with the amendment, Procter &
Gamble made a one-time $5.6 million payment to us, which we
recognized as other contract income in 2005. In January 2005, we
and sanofi-aventis amended our collaboration agreement to
exclude rights to develop and commercialize the VEGF Trap for
intraocular delivery to the eye. In connection with the
amendment, sanofi-aventis made a one-time $25.0 million
payment to us, which we recognized as other contract income in
2005. In the first quarter of 2004, Novartis notified us of its
decision to forgo its right under the collaboration to jointly
develop the IL-1 Trap and subsequently paid us
$42.75 million to satisfy its obligation to fund
development costs for the IL-1 Trap for the nine-month period
following its notification and for the two months prior to that
notice. The $42.75 million was included in other contract
income in 2004.
Investment income increased to $10.4 million in 2005 from
$5.5 million in 2004, due primarily to higher effective
interest rates on investment securities in 2005. Interest
expense decreased slightly to $12.0 million in 2005 from
$12.2 million in 2004. Interest expense is attributable
primarily to $200.0 million of convertible notes issued in
October 2001, which mature in 2008 and bear interest at
5.5% per annum.
Liquidity
and Capital Resources
Since our inception in 1988, we have financed our operations
primarily through offerings of our equity securities, a private
placement of convertible debt, revenue earned under our past and
present research and development and contract manufacturing
agreements, including our agreements with sanofi-aventis, Bayer,
and Merck, and investment income.
Years
Ended December 31, 2006 and 2005
At December 31, 2006, we had $522.9 million in cash,
cash equivalents, and marketable securities compared with
$316.7 million at December 31, 2005. In January 2006,
we received a $25.0 million up-front payment from
sanofi-aventis, which was receivable at December 31, 2005,
in connection with an amendment to our collaboration agreement
to include Japan. In October 2006, we received a
$75.0 million up-front payment in connection with our new
VEGF Trap-Eye license and collaboration agreement with Bayer. In
November 2006, we completed a public offering of
7.6 million shares of our Common Stock and received
proceeds, after expenses, of $174.6 million.
Cash
Provided by (Used in) Operations:
Net cash provided by operations was $23.1 million in 2006,
compared to net cash used in operations of $30.3 million in
2005. Our net losses of $102.3 million in 2006 and
$95.4 million in 2005 included $18.7 million and
$21.9 million, respectively, of non-cash stock-based
employee compensation costs, of which $18.4 million and
$19.9 million, respectively, represented Stock Option
Expense resulting from the adoption of SFAS 123R in January
2006 and SFAS 123 in January 2005. In 2006,
end-of-year
accounts receivable balances decreased by $29.0 million
compared to 2005, due to the January 2006 receipt of the
$25.0 million up-front payment from sanofi-aventis, as
described above, and lower amounts due from sanofi aventis for
reimbursement of VEGF Trap development expenses. Also, our
deferred revenue balances increased by $60.8 million in
2006 compared to 2005, due primarily to the October 2006
$75.0 million up-front payment from Bayer, as described
above, partly offset by 2006 revenue recognition of
$11.4 million from deferred sanofi-aventis up-front
payments. In 2005,
end-of-year
accounts receivable balances decreased by $6.6 million
compared to 2004, due to lower amounts due from sanofi-aventis
for reimbursement of VEGF Trap development expenses and the June
2005 completion of funding for Regeneron research activities
under our collaboration with Procter & Gamble. Also,
our deferred revenue balances increased
41
by $14.5 million in 2005 compared to 2004, due primarily to
the January 2006 $25.0 million up-front payment from
sanofi-aventis, which was receivable at December 31, 2005,
partly offset by 2005 revenue recognition of $9.5 million
from deferred sanofi-aventis up-front payments. The majority of
cash used in our operations in both 2006 and 2005 was to fund
research and development, primarily related to our clinical
programs.
In both 2006 and 2005, we made two semi-annual interest payments
totaling $11.0 million per year on our convertible senior
subordinated notes.
Cash
Provided by Investing Activities:
Net cash used in investing activities was $155.1 million in
2006 compared to net cash provided by investing activities of
$115.5 million in 2005, due primarily to an increase in
purchases of marketable securities net of sales or maturities.
In 2006, purchases of marketable securities exceeded sales or
maturities by $150.7 million, whereas in 2005, sales or
maturities of marketable securities exceeded purchases by
$120.5 million.
Cash
Provided by Financing Activities:
Cash provided by financing activities increased to
$185.4 million in 2006 from $4.1 million in 2005 due
primarily to our completed public offering of 7.6 million
shares of Common Stock in November 2006, as described above. In
addition, proceeds from issuances of Common Stock in connection
with exercises of employee stock options increased from
$4.1 million in 2005 to $10.4 million in 2006.
Collaboration
with the sanofi-aventis Group:
Under our collaboration agreement with sanofi-aventis, as
described under Collaborations above, agreed upon
worldwide VEGF Trap development expenses incurred by both
companies during the term of the agreement, including costs
associated with the manufacture of clinical drug supply, will be
funded by sanofi-aventis. If the collaboration becomes
profitable, we will be obligated to reimburse sanofi-aventis for
50% of these development expenses, including 50% of the
$25.0 million payment received in connection with the
January 2005 amendment to our collaboration agreement, in
accordance with a formula based on the amount of development
expenses and our share of the collaboration profits and Japan
royalties, or at a faster rate at our option. In addition, if
the first commercial sale of a VEGF Trap product for intraocular
delivery to the eye predates the first commercial sale of a VEGF
Trap product under the collaboration by two years, we will begin
reimbursing sanofi-aventis for up to $7.5 million of VEGF
Trap development expenses in accordance with a formula until the
first commercial VEGF Trap sale under the collaboration occurs.
Since inception of the collaboration agreement through
December 31, 2006, we and sanofi-aventis have incurred
$205.0 million in agreed upon development expenses related
to the VEGF Trap program. We and sanofi-aventis plan to initiate
in 2007 multiple additional clinical studies to evaluate the
VEGF Trap as both a single agent and in combination with other
therapies in various cancer indications.
Sanofi-aventis funded $47.8 million, $43.4 million,
and $67.8 million, respectively, of our VEGF Trap
development costs in 2006, 2005, and 2004, of which
$6.8 million, $10.5 million, and $13.9 million,
respectively, were included in accounts receivable as of
December 31, 2006, 2005, and 2004. In addition, we have
received up-front payments of $80.0 million in September
2003 and $25.0 million in January 2006 from sanofi-aventis
in connection with our collaboration. Both up-front payments
were recorded to deferred revenue and are being recognized as
contract research and development revenue ratably over the
period during which we expect to perform services. In 2006 and
2005, we recognized $11.4 million and $9.5 million of
revenue, respectively, related to these up-front payments.
Sanofi-aventis has the right to terminate the agreement without
cause with at least twelve months advance notice. Upon
termination of the agreement for any reason, any remaining
obligation to reimburse sanofi-aventis for 50% of the VEGF Trap
development expenses will terminate and we will retain all
rights to the VEGF Trap.
42
Collaboration
with Bayer Healthcare:
Under our collaboration agreement with Bayer, as described under
Collaborations above, agreed upon VEGF Trap-Eye
development expenses incurred by both companies, beginning in
2007, under a global development plan, will be shared as follows:
|
|
|
|
2007:
|
Up to $50.0 million shared equally; we are solely
responsible for up to the next $40.0 million; over
$90.0 million shared equally.
|
|
|
2008:
|
Up to $70.0 million shared equally, we are solely
responsible for up to the next $30.0 million; over
$100.0 million shared equally.
|
2009 and thereafter: All expenses shared equally.
Neither party will be reimbursed for any development expenses
that it incurred prior to 2007.
We are obligated to use commercially reasonable efforts to
supply clinical and commercial product requirements.
If the VEGF Trap-Eye is granted marketing authorization in a
major market country outside the United States and the
collaboration becomes profitable, we will be obligated to
reimburse Bayer out of our share of the collaboration profits
for 50% of the agreed upon development expenses that Bayer has
incurred in accordance with a formula based on the amount of
development expenses that Bayer has incurred and our share of
the collaboration profits, or at a faster rate at our option. In
wet AMD, we and Bayer plan in 2007 to complete our Phase 2
clinical study of the VEGF Trap-Eye currently in progress and to
initiate the Phase 3 clinical program.
In October 2006, we received a $75.0 million up-front
payment from Bayer in connection with our collaboration, which
was recorded to deferred revenue. When we and Bayer have
formalized our projected global development plans for the VEGF
Trap-Eye, as well as the projected responsibilities of each of
the companies under those development plans, we will begin
recognizing revenue related to payments from Bayer.
Bayer has the right to terminate the agreement without cause
with at least six months or twelve months advance notice
depending on defined circumstances at the time of termination.
In the event of termination of the agreement for any reason, we
retain all rights to the VEGF Trap-Eye.
National
Institutes of Health Grant:
Under our five-year grant from the NIH, as described under
Other Agreements above, we will be entitled to
receive a minimum of $17.9 million over a five-year period,
subject to compliance with the grants terms and annual
funding approvals, and another $1.0 million to optimize our
existing C57BL/6 ES cell line and its proprietary growth medium.
In 2006, we recognized $0.5 million of revenue related to
the NIH Grant, which was receivable at the end of 2006. In 2007,
we expect to receive funding of approximately $5 million
for reimbursement of Regeneron expenses related to the NIH Grant.
License
Agreement with AstraZeneca:
Under our non-exclusive license agreement with AstraZeneca, as
described under Other Agreements above, AstraZeneca
made a $20.0 million non-refundable up-front payment to us
in February 2007. AstraZeneca also will make up to five
additional annual payments of $20.0 million, subject to its
ability to terminate the agreement after making the first three
additional payments or if the technology does not meet minimum
performance criteria.
Severance
Costs:
In September 2005, we announced plans to reduce our workforce by
approximately 165 employees in connection with narrowing the
focus of our research and development efforts, substantial
improvements in manufacturing productivity, the September 2005
expiration of our collaboration with Procter & Gamble,
and the completion of contract manufacturing for Merck in late
2006. The majority of the headcount reduction occurred in the
fourth quarter of 2005. The remaining headcount reductions
occurred in 2006 as we completed activities related to contract
manufacturing for Merck.
43
Costs associated with the workforce reduction were comprised
principally of severance payments and related payroll taxes,
employee benefits, and outplacement services. Termination costs
related to 2005 workforce reductions were expensed in the fourth
quarter of 2005, and included $0.2 million of non-cash
expenses. Estimated termination costs associated with the
workforce reduction in 2006 were measured in October 2005 and
expensed ratably over the expected service period of the
affected employees in accordance with SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities. Total costs associated with the 2005 and 2006
workforce reductions were $2.6 million, of which
$2.2 million was charged to expense in the fourth quarter
of 2005 and $0.4 million was charged to expense in 2006.
Convertible
Debt:
In 2001, we issued $200.0 million aggregate principal
amount of convertible senior subordinated notes in a private
placement and received proceeds, after deducting the initial
purchasers discount and out-of pocket expenses, of
$192.7 million. The notes bear interest at 5.5% per
annum, payable semi-annually, and mature in 2008. The notes are
convertible into shares of our Common Stock at a conversion
price of approximately $30.25 per share, subject to
adjustment in certain circumstances. We may redeem some or all
of the notes if the closing price of our Common Stock has
exceeded 140% of the conversion price then in effect for a
specified period of time.
New
Operating Lease Tarrytown, New York
Facilities
In December 2006, we entered into a new operating lease
agreement for approximately 221,000 square feet of
laboratory and office space at our current Tarrytown location.
The new lease includes approximately 27,000 square feet
that we currently occupy (our retained facilities) and
approximately 194,000 square feet to be located in new
facilities that will be constructed and which are expected to be
completed in early-2009. The term of the lease is expected to
commence in early 2008 and will expire approximately
16 years later. Under the new lease we also have various
options and rights on additional space at the Tarrytown site,
and will continue to lease our present facilities until the new
facilities are ready for occupancy. In addition, the lease
contains three renewal options to extend the term of the lease
by five years each and early termination options for our
retained facilities only. The lease provides for monthly
payments over the term of the lease related to our retained
facilities, the costs of construction and tenant improvements
for our new facilities, and additional charges for utilities,
taxes, and operating expenses.
In connection with the new lease agreement, in December 2006, we
issued a letter of credit in the amount of $1.6 million to
our landlord, which is collateralized by a $1.6 million
bank certificate of deposit.
Capital
Expenditures:
Our additions to property, plant, and equipment totaled
$3.3 million in 2006, $4.7 million in 2005, and
$6.0 million in 2004. In 2007, we expect to incur
approximately $15 million in capital expenditures
primarily to support our manufacturing, development, and
research activities.
Funding
Requirements:
Our total expenses for research and development from inception
through December 31, 2006 have been approximately
$1,150 million. We have entered into various agreements
related to our activities to develop and commercialize product
candidates and utilize our technology platforms, including
collaboration agreements, such as those with sanofi-aventis and
Bayer, and agreements to use our
Velocigene®
technology platform. We incurred expenses associated with these
agreements, which include an allocable portion of general and
administrative costs, of $43.4 million, $42.2 million,
and $75.3 million in 2006, 2005, and 2004, respectively.
We expect to continue to incur substantial funding requirements
primarily for research and development activities (including
preclinical and clinical testing). Before taking into account
reimbursements from collaborators, we currently anticipate that
approximately 55%-65% of our expenditures for 2007 will be
directed toward the preclinical and clinical development of
product candidates, including the IL-1 Trap, VEGF Trap, VEGF
Trap-Eye, and monoclonal antibodies; approximately 15%-25% of
our expenditures for 2007 will be applied to our basic research
activities and the continued development of our novel technology
platforms; and the remainder of our expenditures for 2007 will
be used for capital expenditures and general corporate purposes.
44
In connection with our funding requirements, the following table
summarizes our contractual obligations as of December 31,
2006 for leases and long-term debt.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
1 to 3
|
|
|
3 to 5
|
|
|
Greater than
|
|
|
|
Total
|
|
|
one year
|
|
|
years
|
|
|
years
|
|
|
5 years
|
|
|
|
(In millions)
|
|
|
Convertible senior subordinated
notes
payable (1)
|
|
$
|
222.0
|
|
|
$
|
11.0
|
|
|
$
|
211.0
|
|
|
|
|
|
|
|
|
|
Operating leases (2)
|
|
|
206.0
|
|
|
|
5.0
|
|
|
|
15.6
|
|
|
$
|
24.0
|
|
|
$
|
161.4
|
|
Purchase obligations
|
|
|
461.9
|
|
|
|
210.4
|
|
|
|
251.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
889.9
|
|
|
$
|
226.4
|
|
|
$
|
478.1
|
|
|
$
|
24.0
|
|
|
$
|
161.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts representing interest. |
|
(2) |
|
Includes projected obligations based, in part, upon budgeted
construction and tenant improvement costs related to our new
operating lease for facilities to be constructed in Tarrytown,
New York, as described above. Excludes future contingent rental
costs for utilities, real estate taxes, and operating expenses.
In 2006, these costs were $8.7 million. |
In connection with certain clinical trial contracts with service
providers, we may incur early termination penalties if the
contracts are cancelled before
agreed-upon
services are completed.
The amount we need to fund operations will depend on various
factors, including the status of competitive products, the
success of our research and development programs, the potential
future need to expand our professional and support staff and
facilities, the status of patents and other intellectual
property rights, the delay or failure of a clinical trial of any
of our potential drug candidates, and the continuation, extent,
and success of our collaborations with sanofi-aventis and Bayer.
Clinical trial costs are dependent, among other things, on the
size and duration of trials, fees charged for services provided
by clinical trial investigators and other third parties, the
costs for manufacturing the product candidate for use in the
trials, supplies, laboratory tests, and other expenses. The
amount of funding that will be required for our clinical
programs depends upon the results of our research and
preclinical programs and early-stage clinical trials, regulatory
requirements, the duration and results of clinical trials
underway and of additional clinical trials that we decide to
initiate, and the various factors that affect the cost of each
trial as described above. In the future, if we are able to
successfully develop, market, and sell certain of our product
candidates, we may be required to pay royalties or otherwise
share the profits generated on such sales in connection with our
collaboration and licensing agreements.
We expect 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.
We believe that our existing capital resources will enable us to
meet operating needs through at least early 2010, without taking
into consideration the $200.0 million aggregate principal
amount of convertible senior subordinated notes, which mature in
October 2008. However, this is a forward-looking statement based
on our current operating plan, and there may be a change in
projected revenues or expenses that would lead to our capital
being consumed significantly before such time. If there is
insufficient capital to fund all of our planned operations and
activities, we believe we would prioritize available capital to
fund preclinical and clinical development of our product
candidates. Other than the $1.6 million letter of credit
issued to our landlord in connection with our new operating
lease for facilities in Tarrytown, New York, as described above,
we have no off-balance sheet arrangements. In addition, we do
not guarantee the obligations of any other entity. As of
December 31, 2006, we had no established banking
arrangements through which we could obtain short-term financing
or a line of credit. In the event we need additional financing
for the operation of our business, we will consider
collaborative arrangements and additional public or private
financing, including additional equity financing. Factors
influencing the availability of additional financing include our
progress in product development, investor perception of our
prospects, and the general condition of the financial markets.
We may not be able to secure the necessary funding through new
collaborative arrangements or additional public or private
offerings. If we cannot raise adequate funds to satisfy our
45
capital requirements, we may have to delay, scale-back, or
eliminate certain of our research and development activities or
future operations. This could materially harm our business.
Critical
Accounting Policies and Significant Judgments and
Estimates
Revenue
Recognition:
We recognize revenue from contract research and development and
research progress payments in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition
(SAB 104) and Emerging Issues Task Force
00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables (EITF
00-21). We
earn contract research and development revenue and research
progress payments in connection with collaboration and other
agreements to develop and commercialize product candidates and
utilize our technology platforms. The terms of these agreements
typically include non-refundable up-front licensing payments,
research progress (milestone) payments, and payments for
development activities. Non-refundable up-front license
payments, where continuing involvement is required of us, are
deferred and recognized over the related performance period. We
estimate our performance period based on the specific terms of
each agreement, and adjust the performance periods, if
appropriate, based on the applicable facts and circumstances.
Our performance period estimates are principally based on the
results and progress of our research and development activities
and revisions to these estimates could result in changes to the
amount of revenue recognized each year in the future. In
addition, if a collaborator terminates the agreement in
accordance with the terms of the contract, we would recognize
the remainder of the up-front payment at the time of the
termination. Payments which are based on achieving a specific
substantive performance milestone, involving a degree of risk,
are recognized as revenue when the milestone is achieved and the
related payment is due and non-refundable, provided there is no
future service obligation associated with that milestone, a
reasonable amount of time has passed between receipt of an
up-front payment and achievement of the milestone, and the
amount of the milestone payment is reasonable in relation to the
effort, value, and risk associated with achieving the milestone.
Payments for achieving milestones which are not considered
substantive are accounted for as license payments and recognized
over the related performance period. Payments for development
activities are recognized as revenue as earned, over the period
of effort. In addition, we record revenue in connection with a
government research grant as we incur expenses related to the
grant, subject to the grants terms and annual funding
approvals.
Recognition
of Deferred Revenue Related to Contract Manufacturing
Agreement:
We entered into a contract manufacturing agreement with Merck,
which expired in October 2006, under which we manufactured a
vaccine intermediate at our Rensselaer, New York facility and
performed services. We recognized contract manufacturing revenue
from this agreement after the product was tested and approved
by, and shipped (FOB Shipping Point) to, Merck, and as services
were performed. In connection with the agreement, we agreed to
modify portions of our Rensselaer facility to manufacture
Mercks vaccine intermediate and Merck agreed to reimburse
us for the related capital costs. These capital cost payments
were deferred and recognized as revenue as product was shipped
to Merck, based upon our estimate of Mercks order
quantities each year through the expected end of the agreement
which, for 2004 and prior years, was October 2005. In February
2005, we agreed to extend the manufacturing agreement by one
year through October 2006. Since we commenced production of the
vaccine intermediate in November 1999, our estimates of
Mercks order quantities each year were not materially
different from Mercks actual orders.
Clinical
Trial Accrual Estimates:
For each clinical trial that we conduct, certain clinical trial
costs, which are included in research and development expenses,
are expensed based on the expected total number of patients in
the trial, the rate at which patients enter the trial, and the
period over which clinical investigators or contract research
organizations are expected to provide services. We believe that
this method best aligns the expenses we record with the efforts
we expend on a clinical trial. During the course of a trial, we
adjust our rate of clinical expense recognition if actual
results differ from our estimates. No material adjustments to
our past clinical trial accrual estimates were made during the
years ended December 31, 2006, 2005, and 2004.
46
Depreciation
of 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
|
|
7-30 years
|
Laboratory and computer equipment
|
|
3-5 years
|
Furniture and fixtures
|
|
5 years
|
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the assets. Costs of
construction of certain long-lived assets include capitalized
interest which is amortized over the estimated useful life of
the related asset.
In some situations, the life of the asset may be extended or
shortened if circumstances arise that would lead us to believe
that the estimated life of the asset has changed. The life of
leasehold improvements may change based on the extension of
lease contracts with our landlords. Changes in the estimated
lives of assets will result in an increase or decrease in the
amount of depreciation recognized in future periods.
Stock-based
Employee Compensation:
Effective January 1, 2005, we adopted the fair value based
method of accounting for stock-based employee compensation under
the provisions of SFAS 123, Accounting for Stock-Based
Compensation, using the modified prospective method as
described in SFAS 148, Accounting for Stock-Based
Compensation Transition and Disclosure. As a
result, in 2005, we recognized compensation expense, in an
amount equal to the fair value of share-based payments
(including stock option awards) on their date of grant, over the
vesting period of the awards using graded vesting, which is an
accelerated expense recognition method. Under the modified
prospective method, compensation expense for Regeneron is
recognized for (a) all share based payments granted on or
after January 1, 2005 and (b) all awards granted to
employees prior to January 1, 2005 that were unvested on
that date. Prior to the adoption of the fair value method, we
accounted for stock-based compensation to employees under the
intrinsic value method of accounting set forth in APB 25,
Accounting for Stock Issued to Employees, and related
interpretations. Therefore, compensation expense related to
employee stock options was not reflected in operating expenses
in any period prior to the first quarter of 2005 and prior
period operating results have not been restated.
Effective January 1, 2006, we adopted the provisions of
SFAS 123R, Share-Based Payment, which is a revision
of SFAS 123. SFAS 123R focuses primarily on accounting
for transactions in which an entity obtains employee services in
share-based payment transactions, and requires the recognition
of compensation expense in an amount equal to the fair value of
the share-based payment (including stock options and restricted
stock) issued to employees. SFAS 123R requires companies to
estimate the number of awards that are expected to be forfeited
at the time of grant and to revise this estimate, if necessary,
in subsequent periods if actual forfeitures differ from those
estimates. Effective January 1, 2005, and prior to our
adoption of SFAS 123R, we recognized the effect of
forfeitures in stock-based compensation cost in the period when
they occurred, in accordance with SFAS 123. Upon adoption
of SFAS 123R effective January 1, 2006, we were
required to record a cumulative effect adjustment to reflect the
effect of estimated forfeitures related to outstanding awards
that are not expected to vest as of the SFAS 123R adoption
date. This adjustment reduced our loss by $0.8 million and
is included in our operating results for the year ended
December 31, 2006 as a cumulative-effect adjustment of a
change in accounting principle.
We use the Black-Scholes model to estimate the fair value of
each option granted under the Regeneron Pharmaceuticals, Inc.
2000 Long-Term Incentive Plan. Using this model, fair value is
calculated based on assumptions with respect to
(i) expected volatility of our Common Stock price,
(ii) the periods of time over which employees and members
of our board of directors are expected to hold their options
prior to exercise (expected lives), (iii) expected dividend
yield on our Common Stock, and (iv) risk-free interest
rates, which are based on quoted U.S. Treasury rates for
securities with maturities approximating the options
expected lives. Expected volatility has been estimated based on
actual movements in our stock price over the most recent
historical
47
periods equivalent to the options expected lives. Expected
lives are principally based on our limited historical exercise
experience with option grants with similar exercise prices. The
expected dividend yield is zero as we have never paid dividends
and do not currently anticipate paying any in the foreseeable
future.
Future
Impact of Recently Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes an interpretation
of FASB Statement No. 109. This interpretation clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. It also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods, disclosure, and
transition. FIN 48 is effective for fiscal years beginning
after December 15, 2006. We will be required to adopt
FIN 48 effective for the fiscal year beginning
January 1, 2007. Our management believes that the adoption
of this standard will not have a material impact on our
financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair
value measurements. We will be required to adopt SFAS 157
effective for the fiscal year beginning January 1, 2008.
Our management is currently evaluating the potential impact of
adopting SFAS 157 on our financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Our earnings and cash flows are subject to fluctuations due to
changes in interest rates primarily from our investment of
available cash balances in investment grade corporate,
asset-backed, and U.S. government securities. We do not
believe we are materially exposed to changes in interest rates.
Under our current policies we do not use interest rate
derivative instruments to manage exposure to interest rate
changes. We estimated that a one percent change in interest
rates would result in changes in the fair market value of our
investment portfolio of approximately $1.7 million and
$0.5 million at December 31, 2006 and 2005,
respectively. The increase in the impact of an interest rate
change at December 31, 2006, compared to December 31,
2005, is due primarily to increases in our investment
portfolios balance and duration to maturity at the end of
2006 versus the end of 2005.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The financial statements required by this Item are included on
pages F-1 through F-36 of this report. The supplementary
financial information required by this Item is included at
page F-36
of this report.
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The Companys management, with the participation of our
chief executive officer and chief financial officer, conducted
an evaluation of the effectiveness of the Companys
disclosure controls and procedures (as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange
Act) as of the end of the period covered by this Annual
Report on
Form 10-K.
Based on this evaluation, our chief executive officer and chief
financial officer each concluded that, as of the end of such
period, our disclosure controls and procedures were effective in
ensuring that information required to be disclosed by the
Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized, and reported on
a timely basis, and is accumulated and communicated to the
Companys management, including the Companys chief
executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure.
48
Management
Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Rules 13a-15(f) and
15d-15(f)
under the Exchange Act. Our management conducted an evaluation
of the effectiveness of our internal control over financial
reporting using the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that
evaluation our management has concluded that our internal
control over financial reporting was effective as of
December 31, 2006. PricewaterhouseCoopers LLP, our
independent registered public accounting firm, has issued a
report on managements assessment and the effectiveness of
our internal control over financial reporting as of
December 31, 2006, which report is included herein at
page F-2.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Changes
in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting (as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended
December 31, 2006 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
Our management, including our chief executive officer and chief
financial officer, does not expect that our disclosure controls
and procedures or internal controls over financial reporting
will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
system are met and cannot detect all deviations. Because of the
inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues
and instances of fraud or deviations, if any, within the company
have been detected. Projections of any evaluation of
effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures
may deteriorate.
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors
and Executive Officers and Corporate Governance
|
The information required by this item (other than the
information set forth in the next paragraph in this
Item 10) will be included under the captions
Election of Directors, Board Committees and
Meetings, Executive Officers of the Company,
and Section 16(a) Beneficial Ownership Reporting
Compliance, in our definitive proxy statement with respect
to our 2007 Annual Meeting of Shareholders to be filed with the
SEC, and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that
applies to our officers, directors and employees. The full text
of our code of business conduct and ethics can be found on the
Companys website (http://www.regn.com) under the
Investor Relations heading.
|
|
Item 11.
|
Executive
Compensation
|
The information called for by this item will be included under
the captions Compensation Committee Report,
Compensation Committee Interlocks and Insider
Participation, Executive Compensation and
Compensation of Directors in our definitive proxy
statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated
herein by reference.
49
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information called for by this item will be included under
the captions Stock Ownership of Executive Officers and
Directors and Stock Ownership of Certain Beneficial
Owners in our definitive proxy statement with respect to
our 2007 Annual Meeting of Shareholders to be filed with the
SEC, and is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item will be included under the
captions Election of Directors and Review of
Transactions with Related Persons in our definitive proxy
statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated
herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information called for by this item will be included under
the caption Information about Fees Paid to Independent
Registered Public Accounting Firm in our definitive proxy
statement with respect to our 2007 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated
herein by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(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
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
(a)
|
|
|
|
Restated Certificate of
Incorporation of Regeneron Pharmaceuticals, Inc. as of
June 21, 1991.
|
|
3
|
.1.1
|
|
(b)
|
|
|
|
Certificate of Amendment of the
Restated Certificate of Incorporation of Regeneron
Pharmaceuticals, Inc., dated as of October 18, 1996.
|
|
3
|
.1.2
|
|
(c)
|
|
|
|
Certificate of Amendment of the
Certificate of Incorporation of Regeneron Pharmaceuticals, Inc.,
dated as of December 17, 2001.
|
|
3
|
.1.3
|
|
(s)
|
|
|
|
Certificate of Amendment of the
Certificate of Incorporation of Regeneron Pharmaceuticals, Inc.,
dated as of December 20, 2006.
|
|
3
|
.2
|
|
(d)
|
|
|
|
By-Laws of the Company, currently
in effect (amended through November 12, 2004)
|
|
10
|
.1
|
|
(e)
|
|
|
|
1990 Amended and Restated
Long-Term Incentive Plan.
|
|
10
|
.2
|
|
(f)
|
|
|
|
2000 Long-Term Incentive Plan.
|
|
10
|
.3.1
|
|
(g)
|
|
|
|
Amendment No. 1 to 2000
Long-Term Incentive Plan, effective as of June 14, 2002.
|
|
10
|
.3.2
|
|
(g)
|
|
|
|
Amendment No. 2 to 2000
Long-Term Incentive Plan, effective as of December 20, 2002.
|
|
10
|
.3.3
|
|
(h)
|
|
|
|
Amendment No. 3 to 2000
Long-term Incentive Plan, effective as of June 14, 2004.
|
|
10
|
.3.4
|
|
(i)
|
|
|
|
Amendment No. 4 to 2000
Long-term Incentive Plan, effective as of November 15, 2004.
|
|
10
|
.3.5
|
|
(j)
|
|
|
|
Form of option agreement and
related notice of grant for use in connection with the grant of
options to the Registrants non-employee directors and
named executive officers.
|
|
10
|
.3.6
|
|
(j)
|
|
|
|
Form of option agreement and
related notice of grant for use in connection with the grant of
options to the Registrants executive officers other than
the named executive officers.
|
50
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.3.7
|
|
(k)
|
|
|
|
Form of restricted stock award
agreement and related notice of grant for use in connection with
the grant of restricted stock awards to the Registrants
executive officers.
|
|
10
|
.4
|
|
(g)
|
|
|
|
Employment Agreement, dated as of
December 20, 2002, between the Company and Leonard S.
Schleifer, M.D., Ph.D.
|
|
10
|
.5*
|
|
(d)
|
|
|
|
Employment Agreement, dated as of
December 31, 1998, between the Company and P. Roy
Vagelos, M.D.
|
|
10
|
.6
|
|
(q)
|
|
|
|
Regeneron Pharmaceuticals, Inc.
Change in Control Severance Plan, effective as of
February 1, 2006.
|
|
10
|
.7
|
|
(l)
|
|
|
|
Indenture, dated as of
October 17, 2001, between Regeneron Pharmaceuticals, Inc.
and American Stock Transfer & Trust Company, as trustee.
|
|
10
|
.8
|
|
(l)
|
|
|
|
Registration Rights Agreement,
dated as of October 17, 2001, among Regeneron
Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, and
Robertson Stephens, Inc.
|
|
10
|
.9*
|
|
(m)
|
|
|
|
IL-1 License Agreement, dated
June 26, 2002, by and among the Company, Immunex
Corporation, and Amgen Inc.
|
|
10
|
.10*
|
|
(n)
|
|
|
|
Collaboration, License and Option
Agreement, dated as of March 28, 2003, by and between
Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and
the Company.
|
|
10
|
.11*
|
|
(o)
|
|
|
|
Collaboration Agreement, dated as
of September 5, 2003, by and between Aventis
Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.11.1*
|
|
(d)
|
|
|
|
Amendment No. 1 to
Collaboration Agreement, by and between Aventis Pharmaceuticals
Inc. and Regeneron Pharmaceuticals, Inc., effective as of
December 31, 2004
|
|
10
|
.11.2
|
|
(p)
|
|
|
|
Amendment No. 2 to
Collaboration Agreement, by and between Aventis Pharmaceuticals
Inc. and Regeneron Pharmaceuticals, Inc., effective as of
January 7, 2005.
|
|
10
|
.11.3*
|
|
(r)
|
|
|
|
Amendment No. 3 to
Collaboration Agreement, by and between Aventis Pharmaceuticals
Inc. and Regeneron Pharmaceuticals, Inc., effective as of
December 21, 2005.
|
|
10
|
.11.4*
|
|
(r)
|
|
|
|
Amendment No. 4 to
Collaboration Agreement, by and between sanofi-aventis U.S., LLC
(successor in interest to Aventis Pharmaceuticals Inc.) and
Regeneron Pharmaceuticals, Inc., effective as of
January 31, 2006.
|
|
10
|
.12
|
|
(o)
|
|
|
|
Stock Purchase Agreement, dates as
of September 5, 2003, by and between Aventis
Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.13*
|
|
(s)
|
|
|
|
License and Collaboration
Agreement, dated as of October 18, 2006, by and between
Bayer HealthCare LLC and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.14*
|
|
|
|
|
|
Non Exclusive License and Material
Transfer Agreement, dated as of February 5, 2007, by and
between AstraZeneca UK Limited and Regeneron Pharmaceuticals,
Inc.
|
|
10
|
.15
|
|
(t)
|
|
|
|
Lease, dated as of
December 21, 2006, by and between
BMR-Landmark
at Eastview LLC and Regeneron Pharmaceuticals, Inc.
|
|
12
|
.1
|
|
|
|
|
|
Statement re: computation of ratio
of earnings to combined fixed charges of Regeneron
Pharmaceuticals, Inc.
|
|
23
|
.1
|
|
|
|
|
|
Consent of PricewaterhouseCoopers
LLP, Independent Registered Public Accounting Firm.
|
|
31
|
.1
|
|
|
|
|
|
Certification of CEO pursuant to
Rule 13a-14(a)
under the Securities and Exchange Act of 1934.
|
|
31
|
.2
|
|
|
|
|
|
Certification of CFO pursuant to
Rule 13a-14(a) under
the Securities and Exchange Act of 1934.
|
|
32
|
|
|
|
|
|
|
Certification of CEO and CFO
pursuant to 18 U.S.C. Section 1350.
|
Description:
|
|
|
(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 |
51
|
|
|
(c) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc. for the fiscal year ended
December 31, 2001, filed March 22, 2002. |
|
(d) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc. for the fiscal year ended
December 31, 2004, filed March 11, 2005 |
|
(e) |
|
Incorporated by reference from the Companys registration
statement on
Form S-1
(file
number 33-39043). |
|
(f) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc., for the fiscal year ended
December 31, 2001, filed March 22, 2002. |
|
(g) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc., for the fiscal year ended
December 31, 2002, filed March 31, 2003. |
|
(h) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
June 30, 2004, filed August 5, 2004. |
|
(i) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed November 17,
2004. |
|
(j) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 16,
2005. |
|
(k) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 13,
2004. |
|
(l) |
|
Incorporated by reference from the Companys registration
statement on
Form S-3
(file
number 333-74464). |
|
(m) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
June 30, 2002, filed August 13, 2002. |
|
(n) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
March 31, 2003, filed May 15, 2003. |
|
(o) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
September 30, 2003, filed November 11, 2003. |
|
(p) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
|
(q) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed January 25, 2006. |
|
(r) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc., for the fiscal year ended
December 31, 2005, filed February 28, 2006. |
|
(s) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed October 18, 2006. |
|
(t) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 22,
2006. |
|
|
|
* |
|
Portions of this document have been omitted and filed separately
with the Commission pursuant to requests for confidential
treatment pursuant to
Rule 24b-2. |
52
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
By:
|
/s/ Leonard
S. Schleifer
|
Leonard S. Schleifer, M.D., Ph.D.
President and Chief Executive Officer
|
|
Dated: |
New York, New York
|
March 12, 2007
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Leonard S.
Schleifer, President and Chief Executive Officer, and Murray A.
Goldberg, Senior Vice President, Finance &
Administration, Chief Financial Officer, Treasurer, and
Assistant Secretary, and each of them, his true and lawful
attorney-in-fact
and agent, with the full power of substitution and
resubstitution, for him and in his name, place, and stead, in
any and all capacities therewith, to sign any and all amendments
to this report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
each said
attorney-in-fact
and agent, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
|
|
|
|
|
Signature
|
|
Title
|
/s/ Leonard
S.
Schleifer,
Leonard
S. Schleifer, M.D., Ph.D.
|
|
President, Chief Executive
Officer, and Director
(Principal Executive Officer)
|
|
|
|
/s/ Murray
A. Goldberg
Murray
A. Goldberg
|
|
Senior Vice President,
Finance & Administration, Chief
Financial Officer, Treasurer, and Assistant Secretary
(Principal Financial Officer)
|
|
|
|
/s/ Douglas
S. McCorkle
Douglas
S. McCorkle
|
|
Vice President, Controller, and
Assistant Treasurer
(Principal Accounting Officer)
|
|
|
|
/s/ George
D.
Yancopoulos
George
D. Yancopoulos, M.D., Ph.D
|
|
Executive Vice President, Chief
Scientific Officer,
President, Regeneron Research Laboratories,
and Director
|
|
|
|
/s/ P.
Roy Vagelos
P.
Roy Vagelos, M.D.
|
|
Chairman of the Board
|
|
|
|
/s/ Charles
A. Baker
Charles
A. Baker
|
|
Director
|
|
|
|
/s/ Michael
S. Brown
Michael
S. Brown, M.D.
|
|
Director
|
53
|
|
|
|
|
Signature
|
|
Title
|
/s/ Alfred
G. Gilman
Alfred
G. Gilman, M.D., Ph.D.
|
|
Director
|
|
|
|
/s/ Joseph
L.
Goldstein
Joseph
L. Goldstein, M.D.
|
|
Director
|
|
|
|
/s/ Arthur
F. Ryan
Arthur
F. Ryan
|
|
Director
|
|
|
|
/s/ Eric
M. Shooter
Eric
M. Shooter, Ph.D.
|
|
Director
|
|
|
|
/s/ George
L. Sing
George
L. Sing
|
|
Director
|
54
REGENERON
PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
Numbers
|
|
REGENERON PHARMACEUTICALS,
INC.
|
|
|
|
|
F-2 to F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6 to F-7
|
|
|
F-8
|
|
|
F-9 to F-36
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board
of Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:
We have completed integrated audits of Regeneron
Pharmaceuticals, Inc.s financial statements and of its
internal control over financial reporting as of
December 31, 2006 in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Our
opinions, based on our audits, are presented below.
Financial
statements
In our opinion, the financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Regeneron Pharmaceuticals, Inc. at
December 31, 2006 and 2005, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2006 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). 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 of financial statements 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 provide a reasonable basis for our opinion.
As discussed in note 2 to the financial statements,
effective January 1, 2006, the Company changed its method
of accounting for share-based payment, to conform with FASB
Statement of Financial Accounting Standards No. 123
(revised 2004), Share-based Payment. On
January 1, 2005, the Company changed its method of
accounting for stock-based employee compensation, to conform
with FASB Statement of Financial Accounting Standards
No. 123 Accounting for Stock Based Compensation.
Internal
control over financial reporting
Also, in our opinion, managements assessment, included in
Managements Report on Internal Control over Financial
Reporting appearing under Item 9A, that the Company
maintained effective internal control over financial reporting
as of December 31, 2006 based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects,
based on those criteria. Furthermore, in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2006
based on criteria established in Internal Control
Integrated Framework issued by the COSO. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on managements
assessment and on the effectiveness of the Companys
internal control over financial reporting based on our audit. We
conducted our audit of internal control over financial reporting
in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over
financial reporting was maintained in all material respects. An
audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial
reporting, evaluating managements assessment, testing and
evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider
necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinions.
F-2
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
New York, New York
March 9, 2007
F-3
REGENERON
PHARMACEUTICALS, INC.
BALANCE
SHEETS
December 31, 2006 and 2005
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
237,876
|
|
|
$
|
184,508
|
|
Marketable securities
|
|
|
221,400
|
|
|
|
114,037
|
|
Accounts receivable
|
|
|
7,493
|
|
|
|
36,521
|
|
Prepaid expenses and other current
assets
|
|
|
3,215
|
|
|
|
3,422
|
|
Inventory
|
|
|
|
|
|
|
2,904
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
469,984
|
|
|
|
341,392
|
|
Restricted cash
|
|
|
1,600
|
|
|
|
|
|
Marketable securities
|
|
|
61,983
|
|
|
|
18,109
|
|
Property, plant, and equipment, at
cost, net of accumulated depreciation and amortization
|
|
|
49,353
|
|
|
|
60,535
|
|
Other assets
|
|
|
2,170
|
|
|
|
3,465
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
585,090
|
|
|
$
|
423,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES and
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
expenses
|
|
$
|
21,471
|
|
|
$
|
23,337
|
|
Deferred revenue, current portion
|
|
|
23,543
|
|
|
|
17,020
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
45,014
|
|
|
|
40,357
|
|
Deferred revenue
|
|
|
123,452
|
|
|
|
69,142
|
|
Notes payable
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
368,466
|
|
|
|
309,499
|
|
|
|
|
|
|
|
|
|
|
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;
|
|
|
|
|
|
|
|
|
shares issued and
outstanding 2,270,353 in 2006 and 2,347,073 in 2005
|
|
|
2
|
|
|
|
2
|
|
Common Stock, $.001 par
value; 160,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
shares issued and
outstanding 63,130,962 in 2006 and 54,092,268 in 2005
|
|
|
63
|
|
|
|
54
|
|
Additional paid-in capital
|
|
|
904,407
|
|
|
|
700,011
|
|
Unearned compensation
|
|
|
|
|
|
|
(315
|
)
|
Accumulated deficit
|
|
|
(687,617
|
)
|
|
|
(585,280
|
)
|
Accumulated other comprehensive
loss
|
|
|
(231
|
)
|
|
|
(470
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
216,624
|
|
|
|
114,002
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
585,090
|
|
|
$
|
423,501
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-4
REGENERON
PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development
|
|
$
|
51,136
|
|
|
$
|
52,447
|
|
|
$
|
113,157
|
|
Research progress payments
|
|
|
|
|
|
|
|
|
|
|
42,770
|
|
Contract manufacturing
|
|
|
12,311
|
|
|
|
13,746
|
|
|
|
18,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,447
|
|
|
|
66,193
|
|
|
|
174,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
137,064
|
|
|
|
155,581
|
|
|
|
136,095
|
|
Contract manufacturing
|
|
|
8,146
|
|
|
|
9,557
|
|
|
|
15,214
|
|
General and administrative
|
|
|
25,892
|
|
|
|
25,476
|
|
|
|
17,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,102
|
|
|
|
190,614
|
|
|
|
168,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(107,655
|
)
|
|
|
(124,421
|
)
|
|
|
5,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contract income
|
|
|
|
|
|
|
30,640
|
|
|
|
42,750
|
|
Investment income
|
|
|
16,548
|
|
|
|
10,381
|
|
|
|
5,478
|
|
Interest expense
|
|
|
(12,043
|
)
|
|
|
(12,046
|
)
|
|
|
(12,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,505
|
|
|
|
28,975
|
|
|
|
36,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before
cumulative effect of a change in accounting principle
|
|
|
(103,150
|
)
|
|
|
(95,446
|
)
|
|
|
41,699
|
|
Cumulative effect of adopting
Statement of Financial Accounting Standards No. 123R
(SFAS 123R)
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
$
|
41,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before
cumulative effect of a change in accounting principle
|
|
$
|
(1.78
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
Cumulative effect of adopting
SFAS 123R
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share,
diluted
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.74
|
|
Weighted average shares
outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
57,970
|
|
|
|
55,950
|
|
|
|
55,419
|
|
Diluted
|
|
|
57,970
|
|
|
|
55,950
|
|
|
|
56,172
|
|
The accompanying notes are an integral part of the financial
statements.
F-5
REGENERON
PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Class A Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
Balance, December 31,
2003
|
|
|
2,366
|
|
|
$
|
2
|
|
|
|
53,166
|
|
|
$
|
53
|
|
|
$
|
673,118
|
|
|
$
|
(4,101
|
)
|
|
$
|
(531,533
|
)
|
|
$
|
104
|
|
|
$
|
137,643
|
|
|
|
|
|
Issuance of Common Stock in
connection with exercise of stock options, net of shares tendered
|
|
|
|
|
|
|
|
|
|
|
286
|
|
|
|
1
|
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,502
|
|
|
|
|
|
Repurchase of Common Stock from
Merck & Co., Inc.
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
|
|
|
|
|
|
(888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(888
|
)
|
|
|
|
|
Issuance of Common Stock in
connection with Company 401(k) Savings Plan contribution
|
|
|
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
917
|
|
|
|
|
|
Conversion of Class A Stock to
Common Stock
|
|
|
(8
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of restricted Common Stock
under Long-Term Incentive Plan, net of forfeitures
|
|
|
|
|
|
|
|
|
|
|
87
|
|
|
|
|
|
|
|
741
|
|
|
|
(741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,543
|
|
|
|
|
|
|
|
|
|
|
|
2,543
|
|
|
|
|
|
Net income, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,699
|
|
|
|
|
|
|
|
41,699
|
|
|
$
|
41,699
|
|
Change in net unrealized gain
(loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(873
|
)
|
|
|
(873
|
)
|
|
|
(873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2004
|
|
|
2,358
|
|
|
|
2
|
|
|
|
53,502
|
|
|
|
54
|
|
|
|
675,389
|
|
|
|
(2,299
|
)
|
|
|
(489,834
|
)
|
|
|
(769
|
)
|
|
|
182,543
|
|
|
$
|
40,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock in
connection with exercise of stock options, net of shares tendered
|
|
|
|
|
|
|
|
|
|
|
494
|
|
|
|
|
|
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,081
|
|
|
|
|
|
Issuance of Common Stock in
connection with Company 401(k) Savings Plan contribution
|
|
|
|
|
|
|
|
|
|
|
90
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
632
|
|
|
|
|
|
Conversion of Class A Stock to
Common Stock
|
|
|
(11
|
)
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted Common
Stock under Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,963
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
21,893
|
|
|
|
|
|
Net loss, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(95,446
|
)
|
|
|
|
|
|
|
(95,446
|
)
|
|
$
|
(95,446
|
)
|
Change in net unrealized gain
(loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299
|
|
|
|
299
|
|
|
|
299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2005
|
|
|
2,347
|
|
|
|
2
|
|
|
|
54,092
|
|
|
|
54
|
|
|
|
700,011
|
|
|
|
(315
|
)
|
|
|
(585,280
|
)
|
|
|
(470
|
)
|
|
|
114,002
|
|
|
$
|
(95,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
F-6
REGENERON
PHARMACEUTICALS, INC.
For the Years Ended December 31, 2006, 2005, and
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Class A Stock
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Unearned
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Deficit
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock in a
public offering at $23.03 per share
|
|
|
|
|
|
|
|
|
|
|
7,600
|
|
|
|
8
|
|
|
|
175,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,028
|
|
|
|
|
|
Cost associated with issuance of
equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(412
|
)
|
|
|
|
|
Issuance of Common Stock in
connection with exercise of stock options, net of shares tendered
|
|
|
|
|
|
|
|
|
|
|
1,243
|
|
|
|
1
|
|
|
|
10,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,392
|
|
|
|
|
|
Issuance of Common Stock in
connection with Company 401(k) Savings Plan contribution
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,884
|
|
|
|
|
|
Conversion of Class A Stock to
Common Stock
|
|
|
(77
|
)
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted Common
Stock under Long-Term Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,641
|
|
|
|
|
|
Adjustment to reduce unearned
compensation upon adoption of SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(315
|
)
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adopting
SFAS 123R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813
|
)
|
|
|
|
|
Net loss, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(102,337
|
)
|
|
|
|
|
|
|
(102,337
|
)
|
|
$
|
(102,337
|
)
|
Change in net unrealized gain
(loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239
|
|
|
|
239
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2006
|
|
|
2,270
|
|
|
$
|
2
|
|
|
|
63,131
|
|
|
$
|
63
|
|
|
$
|
904,407
|
|
|
|
|
|
|
$
|
(687,617
|
)
|
|
$
|
(231
|
)
|
|
$
|
216,624
|
|
|
$
|
(102,098
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-7
REGENERON
PHARMACEUTICALS, INC.
STATEMENTS
OF CASH FLOWS
For the
Years Ended December 31, 2006, 2005, and 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
$
|
41,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net
income (loss) to net cash provided by (used in) operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,592
|
|
|
|
15,504
|
|
|
|
15,362
|
|
Non-cash compensation expense
|
|
|
18,675
|
|
|
|
21,859
|
|
|
|
2,543
|
|
Cumulative effect of a change in
accounting principle
|
|
|
(813
|
)
|
|
|
|
|
|
|
|
|
Forgiveness of loan payable to
Novartis Pharma AG, inclusive of accrued interest
|
|
|
|
|
|
|
|
|
|
|
(17,770
|
)
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in accounts
receivable
|
|
|
29,028
|
|
|
|
6,581
|
|
|
|
(27,573
|
)
|
Decrease (increase) in prepaid
expenses and other assets
|
|
|
155
|
|
|
|
74
|
|
|
|
(1,799
|
)
|
Decrease in inventory
|
|
|
3,594
|
|
|
|
1,250
|
|
|
|
6,914
|
|
Increase (decrease) in deferred
revenue
|
|
|
60,833
|
|
|
|
14,469
|
|
|
|
(37,310
|
)
|
(Decrease) increase in accounts
payable, accrued expenses, and other liabilities
|
|
|
(652
|
)
|
|
|
5,413
|
|
|
|
1,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
125,412
|
|
|
|
65,150
|
|
|
|
(58,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
23,075
|
|
|
|
(30,296
|
)
|
|
|
(16,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(456,893
|
)
|
|
|
(102,990
|
)
|
|
|
(268,244
|
)
|
Purchases of restricted marketable
securities
|
|
|
|
|
|
|
|
|
|
|
(11,075
|
)
|
Sales or maturities of marketable
securities
|
|
|
306,199
|
|
|
|
223,448
|
|
|
|
273,587
|
|
Maturities of restricted
marketable securities
|
|
|
|
|
|
|
|
|
|
|
22,126
|
|
Capital expenditures
|
|
|
(2,811
|
)
|
|
|
(4,964
|
)
|
|
|
(6,174
|
)
|
Increase in restricted cash
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
investing activities
|
|
|
(155,105
|
)
|
|
|
115,494
|
|
|
|
10,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of
Common Stock
|
|
|
185,008
|
|
|
|
4,081
|
|
|
|
1,502
|
|
Repurchase of Common Stock
|
|
|
|
|
|
|
|
|
|
|
(888
|
)
|
Borrowings under loan payable
|
|
|
|
|
|
|
|
|
|
|
3,827
|
|
Other
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing
activities
|
|
|
185,398
|
|
|
|
4,081
|
|
|
|
4,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents
|
|
|
53,368
|
|
|
|
89,279
|
|
|
|
(2,248
|
)
|
Cash and cash equivalents at
beginning of period
|
|
|
184,508
|
|
|
|
95,229
|
|
|
|
97,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of period
|
|
$
|
237,876
|
|
|
$
|
184,508
|
|
|
$
|
95,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow information
Cash paid for interest
|
|
$
|
11,000
|
|
|
$
|
11,002
|
|
|
$
|
11,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-8
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2006, 2005, and 2004
(Unless otherwise noted, 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 Companys
facilities are located in New York. The Companys 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
|
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.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined based on standards that approximate the
first-in,
first-out method. Inventories are shown net of applicable
reserves.
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
|
|
|
7-30 years
|
|
Laboratory and computer equipment
|
|
|
3-5 years
|
|
Furniture and fixtures
|
|
|
5 years
|
|
Leasehold improvements are amortized over the shorter of the
lease term or the estimated useful lives of the assets. Costs of
construction of certain long-lived assets include capitalized
interest which is amortized over the estimated useful life of
the related asset.
Accounting
for the Impairment of Long-Lived Assets
The Company periodically assesses the recoverability of
long-lived assets, such as property, plant, and equipment, and
evaluates such assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. Asset impairment is determined to exist
if estimated future undiscounted cash flows are less than the
carrying amount in accordance with Statement of Financial
Accounting Standards No. (SFAS) 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. For all
periods presented, no impairment losses were recorded.
Patents
As a result of the Companys research and development
efforts, the Company has obtained, applied for, or is applying
for, a number of patents to protect proprietary technology and
inventions. All costs associated with patents are expensed as
incurred.
F-9
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
Revenue
Recognition
a.
Contract Research and Development and Research Progress
Payments
The Company recognizes revenue from contract research and
development and research progress payments in accordance with
Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104) and FASB Emerging
Issue Task Force Issue
No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables (EITF
00-21).
Contract research and development revenue and research progress
payments are earned by the Company in connection with
collaboration and other agreements to develop and commercialize
product candidates and utilize the Companys technology
platforms. The terms of these agreements typically include
non-refundable up-front licensing payments, research progress
(milestone) payments, and payments for development activities.
Non-refundable up-front license payments, where continuing
involvement is required of the Company, are deferred and
recognized over the related performance period. The Company
estimates its performance period based on the specific terms of
each agreement, and adjusts the performance periods, if
appropriate, based on the applicable facts and circumstances.
Payments which are based on achieving a specific substantive
performance milestone, involving a degree of risk, are
recognized as revenue when the milestone is achieved and the
related payment is due and non-refundable, provided there is no
future service obligation associated with that milestone, a
reasonable amount of time has passed between receipt of an
up-front payment and achievement of the milestone, and the
amount of the milestone payment is reasonable in relation to the
effort, value, and risk associated with achieving the milestone.
Payments for achieving milestones which are not considered
substantive are accounted for as license payments and recognized
over the related performance period. Payments for development
activities are recognized as revenue as earned, over the period
of effort. In addition, we record revenue in connection with a
government research grant as we incur expenses related to the
grant, subject to the grants terms and annual funding
approvals.
b.
Contract Manufacturing
The Company manufactured product and performed services for a
third party under a contract manufacturing agreement which
expired in October 2006. Contract manufacturing revenue was
recognized as product was shipped and as services were performed
(see Note 13).
Investment
Income
Interest income, which is included in investment income, is
recognized as earned.
Research
and Development Expenses
Research and development expenses include costs directly
attributable to the conduct of research and development
programs, including the cost of salaries, payroll taxes,
employee benefits, materials, supplies, depreciation on and
maintenance of research equipment, costs related to research
collaboration and licensing agreements (see Note 11d), the
cost of services provided by outside contractors, including
services related to the Companys clinical trials, clinical
trial expenses, the full cost of manufacturing drug for use in
research, preclinical development, and clinical trials, expenses
related to the development of manufacturing processes prior to
commencing commercial production of a product under contract
manufacturing arrangements, and the allocable portions of
facility costs, such as rent, utilities, insurance, repairs and
maintenance, depreciation, and general support services. All
costs associated with research and development are expensed as
incurred.
For each clinical trial that the Company conducts, certain
clinical trial costs, which are included in research and
development expenses, are expensed based on the expected total
number of patients in the trial, the rate at which patients
enter the trial, and the period over which clinical
investigators or contract research organizations are
F-10
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
expected to provide services. During the course of a clinical
trial, the Company adjusts its rate of clinical expense
recognition if actual results differ from the Companys
estimates.
Per
Share Data
Net income (loss) per share, basic and diluted, is computed on
the basis of the net income (loss) for the period divided by the
weighted average number of shares of Common Stock and
Class A Stock outstanding during the period. The basic net
income (loss) per share excludes restricted stock awards until
vested. The diluted net income per share is based upon the
weighted average number of shares of Common Stock and
Class A Stock outstanding, and of common stock equivalents
outstanding when dilutive. Common stock equivalents include:
(i) outstanding stock options and restricted stock awards
under the Companys Long-Term Incentive Plans, which are
included under the treasury stock method when dilutive, and
(ii) Common Stock to be issued under the assumed conversion
of the Companys outstanding convertible senior
subordinated notes, which are included under the if-converted
method when dilutive. The computation of diluted net loss per
share for the years ended December 31, 2006 and 2005 does
not include common stock equivalents, since such inclusion would
be antidilutive. The computation of diluted net income per share
for the year ended December 31, 2004 includes dilutive
common stock equivalents. Disclosures required by SFAS 128,
Earnings per Share, have been included in Note 19.
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. A valuation allowance is established for deferred tax
assets for which realization is uncertain. See Note 17.
Comprehensive
Income (Loss)
Comprehensive income (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 income (loss) of the Company includes net income
(loss) adjusted for the change in net unrealized gain or loss on
marketable securities. The net effect of income taxes on
comprehensive income (loss) is immaterial. Comprehensive income
for the year ended December 31, 2004 and comprehensive
losses for the years ended December 31, 2006 and 2005 have
been included in the Statements of Stockholders Equity.
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 sanofi-aventis
Group. The Company generally invests its excess cash in
obligations of the U.S. government and its agencies, bank
deposits, asset-backed securities, investment grade debt
securities issued by corporations, governments, and financial
institutions, and money market funds that invest in these
instruments. 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
Regeneron has had no sales of its products and there is no
assurance that the Companys 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
generally incurred net losses
F-11
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
and negative cash flows from operations since its inception.
Revenues to date have principally been limited to
(i) payments from the Companys collaborators and
other entities for the Companys development activities
with respect to product candidates and to utilize the
Companys technology platforms, (ii) payments from two
pharmaceutical companies for contract manufacturing, and
(iii) investment income. The Company operates in an
environment of rapid change in technology and is dependent upon
the services of its employees, consultants, collaborators, and
certain third-party suppliers, including single-source
unaffiliated third-party suppliers of certain raw materials and
equipment. Regeneron, as licensee, licenses certain technologies
that are important to the Companys business which impose
various obligations on the Company. If Regeneron fails to comply
with these requirements, licensors may have the right to
terminate the Companys licenses.
Contract research and development revenue in 2006 was primarily
earned from sanofi-aventis under a collaboration agreement (see
Note 12a). The Company recognizes revenue from its
collaboration with sanofi-aventis in accordance with
SAB 104 and EITF
00-21, as
described above. Under the terms of the collaboration agreement,
agreed upon VEGF Trap development expenses incurred by Regeneron
during the term of the agreement will be funded by
sanofi-aventis. In addition, the Company earns revenue related
to non-refundable, up-front payments from sanofi-aventis. The
Company also may receive up to $400.0 million in milestone
payments upon receipt of specified VEGF Trap marketing
approvals. Sanofi-aventis has the right to terminate the
agreement without cause with at least twelve months advance
notice.
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. Significant estimates
include (i) useful lives of property, plant, and equipment,
(ii) the periods over which certain revenues and expenses
will be recognized including contract research and development
revenue recognized from non-refundable up-front payments and
expense recognition of certain clinical trial costs which are
included in research and development expenses, (iii) the
extent to which deferred tax assets and liabilities are offset
by a valuation allowance, and (iv) the fair value of stock
options on their date of grant using the Black-Scholes
option-pricing model, based on assumptions with respect to
(a) expected volatility of our Common Stock price,
(b) the periods of time over which employees and members of
the Companys board of directors are expected to hold their
options prior to exercise (expected lives), (c) expected
dividend yield on the Companys Common Stock, and
(d) risk-free interest rates, which are based on quoted
U.S. Treasury rates for securities with maturities
approximating the options expected lives. In addition, in
connection with the recognition of compensation expense in
accordance with the provisions of SFAS 123R, Share-Based
Payment, as described below, the Company is required to
estimate, at the time of grant, the number of stock option
awards that are expected to be forfeited.
Stock-based
Employee Compensation
Effective January 1, 2005, the Company adopted the fair
value based method of accounting for stock-based employee
compensation under the provisions of SFAS 123,
Accounting for Stock-Based Compensation, using the
modified prospective method as described in SFAS 148,
Accounting for Stock-Based Compensation
Transition and Disclosure. As a result, in 2005, the Company
recognized compensation expense, in an amount equal to the fair
value of share-based payments (including stock option awards) on
their date of grant, over the vesting period of the awards using
graded vesting, which is an accelerated expense recognition
method. Under the modified prospective method, compensation
expense for the Company is recognized for (a) all share
based payments granted on or after January 1, 2005
(including replacement options granted under the Companys
stock option exchange program which concluded on January 5,
2005 (see Note 14)) and (b) all awards granted to
employees prior to January 1, 2005 that were unvested on
that date.
F-12
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
Effective January 1, 2006, the Company adopted the
provisions of SFAS 123R, Share-Based Payment, which
is a revision of SFAS 123. SFAS 123R focuses primarily
on accounting for transactions in which an entity obtains
employee services in share-based payment transactions, and
requires the recognition of compensation expense in an amount
equal to the fair value of the share-based payment (including
stock options and restricted stock) issued to employees.
SFAS 123R requires companies to estimate, at the time of
grant, the number of awards that are expected to be forfeited
and to revise this estimate, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Effective
January 1, 2005, and prior to the Companys adoption
of SFAS 123R, the Company recognized the effect of
forfeitures in stock-based compensation cost in the period when
they occurred, in accordance with SFAS 123. Upon adoption
of SFAS 123R effective January 1, 2006, the Company
was required to record a cumulative effect adjustment to reflect
the effect of estimated forfeitures related to outstanding
awards that are not expected to vest as of the SFAS 123R
adoption date. This adjustment reduced the Companys loss
by $0.8 million and is included in the Companys
operating results in 2006 as a cumulative-effect adjustment of a
change in accounting principle.
Prior to the adoption of the fair value method, the Company
accounted for stock-based compensation to employees under the
intrinsic value method of accounting set forth in Accounting
Principles Board Opinion No. (APB) 25,
Accounting for Stock Issued to Employees, and related
interpretations. Therefore, compensation expense related to
employee stock options was not reflected in operating expenses
in any period prior to the first quarter of 2005 and prior
period results have not been restated. For the years ended
December 31, 2006 and 2005, $18.4 million and
$19.9 million, respectively, of non-cash stock-based
employee compensation expense related to stock option awards
(Stock Option Expense) was recognized in operating
expenses. In addition, for the year ended December 31,
2005, $0.1 million of Stock Option Expense was capitalized
in inventory. For the year ended December 31, 2004, had the
Company adopted the fair value based method of accounting for
stock-based employee compensation under the provisions of
SFAS 123, Stock Option Expense would have totaled
$33.6 million and the effect on the Companys net
income and net income per share would have been as follows:
|
|
|
|
|
|
|
2004
|
|
|
Net income, as reported
|
|
$
|
41,699
|
|
Add: Stock-based employee
compensation expense included in reported net income
|
|
|
2,543
|
|
Deduct: Total stock-based employee
compensation expense determined under fair value based method
for all awards
|
|
|
(36,093
|
)
|
|
|
|
|
|
Pro forma net income, basic and
diluted
|
|
$
|
8,149
|
|
|
|
|
|
|
Basic net income per share amounts:
|
|
|
|
|
As reported
|
|
$
|
0.75
|
|
Pro forma
|
|
$
|
0.15
|
|
Diluted net income per share
amounts:
|
|
|
|
|
As reported
|
|
$
|
0.74
|
|
Pro forma
|
|
$
|
0.15
|
|
Other disclosures required by SFAS 123 and SFAS 123R
have been included in Note 14.
Statement
of Cash Flows
Supplemental disclosure of noncash investing and financing
activities:
In 2004, the Company awarded 105,052 shares of Restricted
Stock under the Regeneron Pharmaceuticals, Inc. Long-Term
Incentive Plan (see Notes 14). No Restricted Stock was
awarded in 2006 or 2005. The Company records unearned
compensation in Stockholders Equity related to these
awards based on the fair market value of shares of
F-13
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
the Companys Common Stock on the grant date of the
Restricted Stock award, which is expensed, on a pro rata basis,
over the period that the restrictions on these shares lapse. In
2006, 2005, and 2004, the Company recognized $0.3 million,
$1.9 million, and $2.5 million, respectively, of
compensation expense related to Restricted Stock awards.
Included in accounts payable and accrued expenses at
December 31, 2006, 2005, and 2004 were $0.8 million,
$0.2 million, and $0.6 million of capital
expenditures, respectively.
Included in accounts payable and accrued expenses at
December 31, 2005, 2004, and 2003 were $1.9 million,
$0.6 million, and $0.9 million, respectively, of
accrued 401(k) Savings Plan contribution expense. During the
first quarter of 2006, 2005, and 2004, the Company contributed
120,960, 90,385, and 64,333 shares, respectively, of Common
Stock to the 401(k) Savings Plan in satisfaction of these
obligations.
Included in marketable securities at December 31, 2006,
2005, and 2004 were $1.5 million, $1.2 million, and
$2.6 million of accrued interest income, respectively.
Future
Impact of Recently Issued Accounting Standards
In July 2006, the Financial Accounting Standards Board
(FASB) issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No, 109. This
interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprises financial
statements in accordance with SFAS 109, Accounting for
Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The
Company will be required to adopt FIN 48 effective for the
fiscal year beginning January 1, 2007. Management believes
that the adoption of FIN 48 will not have a material impact
on the Companys financial statements.
In September 2006, the FASB issued SFAS 157, Fair Value
Measurements, which defines fair value, establishes a framework
for measuring fair value in generally accepted accounting
principles (GAAP), and expands disclosures about
fair value measurements. The Company will be required to adopt
SFAS 157 effective for the fiscal year beginning
January 1, 2008. Management is currently evaluating the
potential impact of adopting SFAS 157 on the Companys
financial statements.
In September 2005, the Company announced plans to reduce its
workforce by approximately 165 employees in connection with
narrowing the focus of the Companys research and
development efforts, substantial improvements in manufacturing
productivity, the June 2005 expiration of the Companys
collaboration with The Procter & Gamble Company, and
the completion of contract manufacturing for Merck &
Co., Inc. in late 2006. The majority of the headcount reduction
occurred in the fourth quarter of 2005. The remaining headcount
reductions occurred during 2006 as the Company completed
activities related to contract manufacturing for Merck.
Costs associated with the workforce reduction are comprised
principally of severance payments and related payroll taxes,
employee benefits, and outplacement services. Termination costs
related to 2005 workforce reductions were expensed in the fourth
quarter of 2005, and included non-cash expenses due to the
accelerated vesting of certain stock options and restricted
stock held by affected employees. Estimated termination costs
associated with the planned workforce reduction in 2006 were
measured in October 2005 and were expensed ratably over the
expected service period of the affected employees in accordance
with SFAS 146, Accounting for Costs
F-14
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
Associated with Exit or Disposal Activities. The total
costs associated with the 2005 and 2006 workforce reductions
were $2.6 million, including $0.2 million of non-cash
expenses.
Severance costs associated with the workforce reduction plan
that were charged to expense in 2005 and 2006 consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability
|
|
|
|
Costs charged to
|
|
|
Costs paid or
|
|
|
at December 31,
|
|
|
|
expense in 2005
|
|
|
settled in 2005
|
|
|
2005
|
|
|
Employee severance, payroll taxes,
and benefits
|
|
$
|
1,786
|
|
|
$
|
879
|
|
|
$
|
907
|
|
Other severance costs
|
|
|
206
|
|
|
|
30
|
|
|
|
176
|
|
Non-cash expenses
|
|
|
221
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,213
|
|
|
$
|
1,130
|
|
|
$
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability
|
|
|
|
Costs charged to
|
|
|
Costs paid or
|
|
|
at December 31,
|
|
|
|
expense 2006
|
|
|
settled in 2006
|
|
|
2006
|
|
|
Employee severance, payroll taxes,
and benefits
|
|
$
|
315
|
|
|
$
|
(1,159
|
)
|
|
$
|
63
|
|
Other severance costs
|
|
|
33
|
|
|
|
(209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
348
|
|
|
$
|
(1,368
|
)
|
|
$
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These severance costs are included in the Companys
Statement of Operations for the years ended December 31,
2006 and 2005 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Research &
|
|
|
General &
|
|
|
Research &
|
|
|
General &
|
|
|
|
development
|
|
|
administrative
|
|
|
development
|
|
|
administrative
|
|
|
Employee severance, payroll taxes,
and benefits
|
|
$
|
317
|
|
|
$
|
(2
|
)
|
|
$
|
1,734
|
|
|
$
|
52
|
|
Other severance costs
|
|
|
33
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
Non-cash expenses
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
350
|
|
|
$
|
(2
|
)
|
|
$
|
2,155
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For segment reporting purposes (see Note 20), all
severance-related expenses are included in the
Research & Development segment.
The Company considers its unrestricted marketable securities to
be
available-for-sale,
as defined by SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. Gross unrealized
holding gains and losses are reported as a net amount in a
separate component of stockholders equity entitled
Accumulated Other Comprehensive Income (Loss). The net change in
unrealized holding gains and losses is excluded from operations
and included in stockholders equity as a separate
component of comprehensive loss.
F-15
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
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, 2006 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized Holding
|
|
|
|
Cost Basis
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Net
|
|
|
At December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
105,128
|
|
|
$
|
105,082
|
|
|
$
|
11
|
|
|
$
|
(57
|
)
|
|
$
|
(46
|
)
|
U.S. government securities
|
|
|
22,267
|
|
|
|
22,243
|
|
|
|
1
|
|
|
|
(25
|
)
|
|
|
(24
|
)
|
Asset-backed securities
|
|
|
94,159
|
|
|
|
94,075
|
|
|
|
6
|
|
|
|
(90
|
)
|
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,554
|
|
|
|
221,400
|
|
|
|
18
|
|
|
|
(172
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities between one and two
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
6,047
|
|
|
|
6,032
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
U.S. government securities
|
|
|
23,190
|
|
|
|
23,189
|
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
(1
|
)
|
Asset-backed securities
|
|
|
32,835
|
|
|
|
32,762
|
|
|
|
3
|
|
|
|
(76
|
)
|
|
|
(73
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,072
|
|
|
|
61,983
|
|
|
|
9
|
|
|
|
(98
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,626
|
|
|
$
|
283,383
|
|
|
$
|
27
|
|
|
$
|
(270
|
)
|
|
$
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
42,203
|
|
|
$
|
42,122
|
|
|
$
|
5
|
|
|
$
|
(86
|
)
|
|
$
|
(81
|
)
|
U.S. government securities
|
|
|
52,959
|
|
|
|
52,763
|
|
|
|
|
|
|
|
(196
|
)
|
|
|
(196
|
)
|
Asset-backed securities
|
|
|
19,231
|
|
|
|
19,152
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,393
|
|
|
|
114,037
|
|
|
|
5
|
|
|
|
(361
|
)
|
|
|
(356
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities between one and two
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
16,188
|
|
|
|
16,075
|
|
|
|
2
|
|
|
|
(115
|
)
|
|
|
(113
|
)
|
U.S. government securities
|
|
|
2,055
|
|
|
|
2,034
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,243
|
|
|
|
18,109
|
|
|
|
2
|
|
|
|
(136
|
)
|
|
|
(134
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
132,636
|
|
|
$
|
132,146
|
|
|
$
|
7
|
|
|
$
|
(497
|
)
|
|
$
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, cash and cash equivalents at December 31, 2006
and 2005 included an unrealized holding gain of $12 thousand and
$20 thousand, respectively.
Realized gains and losses are included as a component of
investment income. For the years ended December 31, 2006,
2005, and 2004, 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-16
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
The following table shows the unrealized losses and fair value
of the Companys marketable securities with unrealized
losses that are deemed to be only temporarily impaired,
aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss
position, at December 31, 2006 and 2005. The securities
listed at December 31, 2006 mature at various dates through
October 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
At December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
28,096
|
|
|
$
|
(54
|
)
|
|
$
|
12,191
|
|
|
$
|
(18
|
)
|
|
$
|
40,287
|
|
|
$
|
(72
|
)
|
U.S. government securities
|
|
|
23,273
|
|
|
|
(25
|
)
|
|
|
2,023
|
|
|
|
(7
|
)
|
|
|
25,296
|
|
|
|
(32
|
)
|
Asset-backed securities
|
|
|
92,544
|
|
|
|
(161
|
)
|
|
|
891
|
|
|
|
(5
|
)
|
|
|
93,435
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,913
|
|
|
$
|
(240
|
)
|
|
$
|
15,105
|
|
|
$
|
(30
|
)
|
|
$
|
159,018
|
|
|
$
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
36,394
|
|
|
$
|
(201
|
)
|
|
|
|
|
|
|
|
|
|
$
|
36,394
|
|
|
$
|
(201
|
)
|
U.S. government securities
|
|
|
2,034
|
|
|
|
(21
|
)
|
|
$
|
52,762
|
|
|
$
|
(196
|
)
|
|
|
54,796
|
|
|
|
(217
|
)
|
Asset-backed securities
|
|
|
19,152
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
19,152
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
57,580
|
|
|
$
|
(301
|
)
|
|
$
|
52,762
|
|
|
$
|
(196
|
)
|
|
$
|
110,342
|
|
|
$
|
(497
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized losses on the Companys investments in
corporate debt securities, U.S. government securities, and
asset-backed securities were primarily caused by interest rate
increases, which generally resulted in a decrease in the market
value of the Companys portfolio. Based upon the
Companys currently projected sources and uses of cash, the
Company intends to hold these securities until a recovery of
fair value, which may be maturity. Therefore, the Company does
not consider these marketable securities at December 31,
2006 and 2005 to be
other-than-temporarily
impaired.
Accounts receivable as of December 31, 2006 and 2005
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Receivable from sanofi-aventis
(see Note 12a)
|
|
$
|
6,900
|
|
|
$
|
36,412
|
|
Other
|
|
|
593
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,493
|
|
|
$
|
36,521
|
|
|
|
|
|
|
|
|
|
|
Inventory balances at December 31, 2005 consist of raw
materials, work-in process, and finished products associated
with the production of an intermediate for a Merck &
Co., Inc. pediatric vaccine under a long-term manufacturing
agreement which expired in October 2006 (see Note 13). The
Company held no inventories at December 31, 2006.
F-17
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
Inventories as of December 31, 2005 consist of the
following:
|
|
|
|
|
|
|
2005
|
|
|
Raw materials
|
|
$
|
278
|
|
Work-in process
|
|
|
1,423
|
|
Finished products
|
|
|
1,203
|
|
|
|
|
|
|
|
|
$
|
2,904
|
|
|
|
|
|
|
|
|
7.
|
Property,
Plant, and Equipment
|
Property, plant, and equipment as of December 31, 2006 and
2005 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Land
|
|
$
|
475
|
|
|
$
|
475
|
|
Building and improvements
|
|
|
57,045
|
|
|
|
56,895
|
|
Leasehold improvements
|
|
|
14,662
|
|
|
|
31,192
|
|
Construction-in-progress
|
|
|
203
|
|
|
|
|
|
Laboratory and other equipment
|
|
|
59,164
|
|
|
|
57,395
|
|
Furniture, fixtures, software and
computer equipment
|
|
|
5,413
|
|
|
|
4,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,962
|
|
|
|
150,632
|
|
Less, accumulated depreciation and
amortization
|
|
|
(87,609
|
)
|
|
|
(90,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,353
|
|
|
$
|
60,535
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property, plant, and
equipment amounted to $14.3 million, $15.4 million,
and $15.5 million for the years ended December 31,
2006, 2005, and 2004, respectively. Included in these amounts
was $0.7 million, $0.9 million, and $1.1 million
of depreciation and amortization expense related to contract
manufacturing that was capitalized into inventory for the years
ended December 31, 2006, 2005, and 2004, respectively.
|
|
8.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses as of December 31,
2006 and 2005 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Accounts payable
|
|
$
|
4,349
|
|
|
$
|
4,203
|
|
Accrued payroll and related costs
|
|
|
9,932
|
|
|
|
10,713
|
|
Accrued clinical trial expense
|
|
|
2,606
|
|
|
|
3,081
|
|
Accrued expenses, other
|
|
|
2,292
|
|
|
|
3,048
|
|
Interest payable on convertible
notes
|
|
|
2,292
|
|
|
|
2,292
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,471
|
|
|
$
|
23,337
|
|
|
|
|
|
|
|
|
|
|
F-18
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
Deferred revenue as of December 31, 2006 and 2005 consists
of the following:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current portion:
|
|
|
|
|
|
|
|
|
Received from sanofi-aventis (see
Note 12a)
|
|
$
|
8,937
|
|
|
$
|
12,483
|
|
Received from Bayer Healthcare LLC
(see Note 12b)
|
|
|
12,561
|
|
|
|
|
|
Received from Merck (see
Note 13)
|
|
|
|
|
|
|
1,911
|
|
Other
|
|
|
2,045
|
|
|
|
2,626
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,543
|
|
|
$
|
17,020
|
|
|
|
|
|
|
|
|
|
|
Long-term portion:
|
|
|
|
|
|
|
|
|
Received from sanofi-aventis
|
|
$
|
61,013
|
|
|
$
|
69,142
|
|
Received from Bayer
|
|
|
62,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
123,452
|
|
|
$
|
69,142
|
|
|
|
|
|
|
|
|
|
|
The Companys Restated Certificate of Incorporation, as
amended, provides for the issuance of up to 40 million
shares of Class A Stock, par value $0.001 per share, and
160 million shares of Common Stock, par value
$0.001 per share. Shares of Class A Stock are
convertible, at any time, at the option of the holder into
shares of Common Stock on a
share-for-share
basis. 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. Under the Companys Restated
Certificate of Incorporation, as amended, the Companys
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.
In October 2001, the Company completed a private placement of
$200.0 million aggregate principal amount of senior
subordinated notes, which are convertible into shares of the
Companys Common Stock. See Note 11c.
In August 2003, Regeneron issued to Merck & Co., Inc.,
109,450 newly issued unregistered shares of the Companys
Common Stock as consideration for a non-exclusive license
agreement granted by Merck to the Company. In August 2004, the
Company repurchased these shares from Merck for a purchase price
of $0.9 million based on the fair market value of the
shares on August 19, 2004. The shares were subsequently
retired. See Note 11d.
In November 2006, the Company completed a public offering of
7.6 million shares of Common Stock at a price of
$23.03 per share and received proceeds, after expenses, of
$174.6 million.
|
|
11.
|
Commitments
and Contingencies
|
The Company currently leases approximately 236,000 square
feet of laboratory and office facilities in Tarrytown, New York
under operating lease agreements. In December 2006, the Company
entered into a new operating lease agreement for approximately
221,000 square feet of laboratory and office space at the
Companys current Tarrytown location. The new lease
includes approximately 27,000 square feet that the Company
currently occupies (the retained facilities) and
approximately 194,000 square feet to be located in new
facilities that will be
F-19
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unless otherwise noted, dollars in thousands, except per
share data)
constructed and which are expected to be completed in early
2009. The term of the lease is expected to commence in
early-2008 and will expire approximately 16 years later.
Under the new lease the Company also has various options and
rights on additional space at the Tarrytown site, and will
continue to lease its present facilities until the new
facilities are ready for occupancy. In addition, the lease
contains three renewal options to extend the term of the lease
by five years each and early termination options for the
Companys retained facilities only. The lease provides for
monthly payments over the term of the lease related to the
Companys retained facilities, the costs of construction
and tenant improvements for the Companys new facilities,
and additional charges for utilities, taxes, and operating
expenses.
In connection with the new lease agreement, in December 2006,
the Company issued a letter of credit in the amount of
$1.6 million to its landlord, which is collateralized by a
$1.6 million bank certificate of deposit. The certificate
of deposit has been classified as restricted cash at
December 31, 2006 in the accompanying financial statements.
The Company also leases manufacturing, office, and warehouse
facilities in Rensselaer, New York under an operating lease
agreement which expires in July 2012 and contains a renewal
option to extend the lease for an additional five-year term and
a purchase option. The leases provide for base rent plus
additional rental charges for utilities, taxes, and operating
expenses, as defined.
The Company leases certain laboratory and office equipment under
operating leases which expire at various times through 2010.
Based, in part, upon budgeted construction and tenant
improvement costs related to our new operating lease for
facilities to be constructed in Tarrytown, New York, as
described above, at December 31, 2006, the estimated future
minimum noncancelable lease commitments under operating leases
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Facilities
|
|
|
Equipment
|
|
|
Total
|
|
|
2007
|
|
$
|
4,678
|
|
|
$
|
291
|
|
|
$
|
4,969
|
|
2008
|
|
|
4,678
|
|
|
|
212
|
|
|
|
4,890
|
|
2009
|
|
|
10,539
|
|
|
|
124
|
|
|
|
10,663
|
|
2010
|
|
|
11,876
|
|
|
|
13
|
|
|
|
11,889
|
|
2011
|
|
|
12,077
|
|
|
|
|
|
|
|
12,077
|
|
Thereafter
|
|
|
161,399
|
|
|
|
|
|
|
|
161,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
205,247
|
|
|
$
|
640
|
|
|
$
|
205,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rent expense under operating leases was:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Facilities
|
|
|
Equipment
|
|
|
Total
|
|
|
2006
|
|
$
|
4,492
|
|
|
$
|
307
|
|
|
$
|
4,799
|
|
2005
|
|
|
4,606
|
|
|
|
319
|
|
|
|
4,925
|
|
2004
|
|
|
5,351
|
|
|
|
303
|
|
|
|
5,654
|
|
In addition to its rent expense for various facilities, the
Company paid additional rental charges for utilities, real
estate taxes, and operating expenses of $8.7 million,
$9.5 million, and $6.0 million for the years ended
December 31, 2006, 2005, and 2004, respectively.
b. Loan
Payable
In March 2003, the Company entered into a collaboration
agreement with Novartis Pharma AG. In accordance with that
agreement, Regeneron funded its share of 2003 collaboration
development expenses through a loan from
F-20
REGENERON
PHARMACEUTICALS, INC.