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, 2007
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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
Securities registered pursuant to Section 12(g) of the
Act:
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Title of each
class
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Name of each exchange on
which registered
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Common Stock par value $.001 per share
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Nasdaq Global Market
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Securities registered pursuant to section 12(g) of the
Act: None
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, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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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
$1,112,577,000 computed by reference to the closing sales price
of the stock on NASDAQ on June 30, 2007, 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 15, 2008:
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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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2,257,698
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Common Stock, $.001 par value
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76,727,047
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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 59 to 61 of this filing.
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 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 currently have four clinical development
programs, including three late-stage clinical programs:
ARCALYSTTM(rilonacept;
also known as
IL-1Trap) in
various inflammatory indications, aflibercept (VEGF Trap) in
oncology, and the VEGF Trap-Eye formulation in eye diseases
using intraocular delivery. Aflibercept is being developed in
oncology in collaboration with the sanofi-aventis Group. The
VEGF Trap-Eye is being developed in collaboration with Bayer
HealthCare LLC. Our fourth clinical development program is
REGN88, an antibody to the Interleukin-6 receptor (IL-6R) that
is being developed with sanofi-aventis. REGN88 entered clinical
development in patients with rheumatoid arthritis in the fourth
quarter of 2007. We expect that our next generation of product
candidates will be based on our proprietary technologies for
developing human monoclonal antibodies. Our antibody program is
being conducted in collaboration with sanofi-aventis. 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.
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 technology
(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 moved our first antibody product
candidate (REGN88) into clinical trials in the fourth quarter of
2007. We plan to advance two new antibody product candidates
into clinical development in 2008 and an additional two to three
antibody product candidates each year thereafter beginning in
2009. We continue to invest in the development of enabling
technologies to assist in our efforts to identify, develop, and
commercialize new product candidates.
Late-Stage
Clinical Programs:
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1.
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ARCALYSTTM
Inflammatory Diseases
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ARCALYSTTM(rilonacept;
also known as
IL-1Trap) 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
ARCALYSTTM
in a number of diseases and disorders where IL-1 may play an
important role, including a group of
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rare diseases called Cryopyrin-Associated Periodic Syndromes
(CAPS) and other diseases associated with inflammation.
In November 2007, we announced that we received notification
from the U.S. Food and Drug Administration (FDA) that the
action date for the FDAs priority review of the Biologics
License Application (BLA) for
ARCALYSTTM
in CAPS had been extended three months to February 29,
2008. In August 2007, the FDA granted priority review status to
the BLA for
ARCALYSTTM
for the long-term treatment of CAPS. The FDA previously granted
Orphan Drug status and Fast Track designation to
ARCALYSTTM
for the treatment of CAPS. In July 2007,
ARCALYSTTM
also received Orphan Drug designation in the European Union for
the treatment of CAPS.
CAPS represents a group of rare inherited auto-inflammatory
conditions, including Familial Cold Autoinflammatory Syndrome
(FCAS) and Muckle-Wells Syndrome (MWS). CAPS also includes
Neonatal Onset Multisystem Inflammatory Disease (NOMID).
ARCALYSTTM
has not been studied, and is not expected to be indicated, for
the treatment of NOMID. The syndromes included in CAPS are
characterized by spontaneous, systemic inflammation and are
termed auto-inflammatory 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 is caused by a range of
mutations in the gene NLRP3 (formerly known as
CIAS1) which encodes a protein named cryopyrin.
Currently, there are no medicines approved for the treatment of
CAPS.
We have initiated a Phase 2 safety and efficacy trial of
ARCALYSTTM
in the prevention of gout flares induced by the initiation of
uric acid-lowering drug therapy used to control the disease. We
previously reported positive results from an exploratory proof
of concept study of
ARCALYSTTM
in ten patients with chronic active gout. In those patients,
treatment with
ARCALYSTTM
demonstrated a statistically significant reduction in patient
pain scores in the single-blind, placebo-controlled study. Mean
patients pain scores, the key symptom measure in
persistent gout, were reduced 41% (p=0.025) during the first two
weeks of active treatment and reduced 56% (p<0.004) after
six weeks of active treatment. In this study, in which safety
was the primary endpoint measure, treatment with
ARCALYSTTM
was generally well-tolerated. We are also evaluating the
potential use of
ARCALYSTTMin
other indications in which IL-1 may play a role.
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.
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
ARCALYSTTM
product candidate currently in clinical development.
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Aflibercept
(VEGF Trap) Oncology
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Aflibercept 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 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.
Aflibercept is being developed in cancer indications in
collaboration with sanofi-aventis. We and sanofi-aventis began
the first four trials of our global Phase 3 development program
in the second half of 2007. One trial is evaluating aflibercept
in combination with docetaxel/prednisone in patients with first
line metastatic androgen
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independent prostate cancer. A second trial is evaluating
aflibercept in combination with docetaxel in patients with
second line metastatic non-small cell lung cancer. The third
Phase 3 trial is evaluating aflibercept in first-line metastatic
pancreatic cancer in combination with gemcitabine. The fourth
Phase 3 trial is evaluating aflibercept in second-line
metastatic colorectal cancer in combination with FOLFIRI
(Folinic Acid (leucovorin), 5-fluorouracil, and irinotecan). In
all of these trials, aflibercept is being combined with the
current standard of chemotherapy care for the stated development
stage of the cancer type.
The collaboration is conducting a number of other trials in the
global development program for aflibercept. Five safety and
tolerability studies of aflibercept in combination with standard
chemotherapy regimens are continuing in a variety of cancer
types to support the Phase 3 clinical program. Sanofi-aventis
has also expanded the development program to Japan, where they
are conducting a Phase 1 safety and tolerability study in
combination with another investigational agent in patients with
advanced solid malignancies.
The collaboration is also conducting Phase 2 single-agent
studies of aflibercept in advanced ovarian cancer (AOC),
non-small cell lung adenocarcinoma (NSCLA), and AOC patients
with symptomatic malignant ascites (SMA). The AOC and NSCLA
trials are fully enrolled and ongoing. The SMA trial is
approximately 50% enrolled and continues to enroll patients. In
2004, the FDA granted Fast Track designation to aflibercept for
the treatment of SMA.
In addition, more than 10 studies are currently underway or
scheduled to begin that are being conducted in conjunction with
the National Cancer Institute (NCI) Cancer Therapy Evaluation
Program (CTEP) evaluating aflibercept as a single agent or in
combination with chemotherapy regimens in a variety of cancer
indications.
The first registration submission to a regulatory agency for
aflibercept is possible as early as 2008, potentially as third
line treatment as a single agent in advanced ovarian cancer
(AOC) or in AOC patients with SMA. However, in order for our
ongoing Phase 2 study in AOC to be sufficient to support such a
submission, we believe that the final unblinded results of the
study would have to demonstrate a more robust response rate than
that reported in the interim analysis of blinded data from the
study presented in June 2007 at the annual meeting of the
American Society of Clinical Oncology (ASCO).
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). Vascular Endothelial Growth
Factor (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®
(a trademark of Genentech, Inc.) is an antibody product designed
to inhibit VEGF and interfere with the blood supply to tumors.
Aflibercept
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 aflibercept in all countries other than
Japan, where we retained the exclusive right to develop and
commercialize aflibercept. In January 2005, we and
sanofi-aventis amended the collaboration agreement to exclude,
from the scope of the collaboration, the development and
commercialization of aflibercept 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 aflibercept 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 aflibercept outside of Japan for disease
indications included in our collaboration. In Japan, we are
entitled to a royalty of approximately 35% on annual sales of
aflibercept, subject to certain potential adjustments. We may
also receive up to $400.0 million in milestone
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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
aflibercept 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
oncology indications in Japan.
Under the aflibercept 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 aflibercept
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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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 3 trial in patients with
the neovascular form of age-related macular degeneration (wet
AMD) and has completed a small pilot study in patients with
diabetic macular edema (DME).
In the clinical development program for the VEGF Trap-Eye, we
and Bayer HealthCare have initiated a Phase 3 study of the VEGF
Trap-Eye in wet AMD. This first trial, known as VIEW 1
(VEGF Trap: Investigation of Efficacy and
Safety in Wet age-related macular degeneration), is
comparing the VEGF Trap-Eye and Genentech, Inc.s
Lucentis®
(ranibizumab), an anti-angiogenic agent approved for use in wet
AMD. This Phase 3 trial is evaluating dosing intervals of four
and eight weeks for the VEGF Trap-Eye compared with ranibizumab
dosed according to its label every four weeks. We and Bayer
HealthCare plan to initiate a second Phase 3 trial in wet AMD in
2008. This second trial will be conducted primarily in the
European Union and other parts of the world outside the U.S.
In October 2007, we and Bayer HealthCare announced positive
results from the full analysis of the primary
12-week
endpoint of a Phase 2 study evaluating the VEGF Trap-Eye in wet
AMD. The VEGF Trap-Eye met the primary study endpoint of a
statistically significant reduction in retinal thickness, a
measure of disease activity, after 12 weeks of treatment
compared with baseline (all five dose groups combined, mean
decrease of 119 microns, p<0.0001). The mean change from
baseline in visual acuity, a key secondary endpoint of the
study, also demonstrated statistically significant improvement
(all groups combined, increase of 5.7 letters, p<0.0001).
Preliminary analyses at 16 weeks showed that the VEGF
Trap-Eye, dosed monthly, achieved a mean gain in visual acuity
of 9.3 to 10 letters (for the 0.5 and 2 mg dose groups,
respectively). In additional exploratory analyses, the VEGF
Trap-Eye, dosed monthly, reduced the proportion of patients with
vision of 20/200 or worse (a generally accepted definition for
legal blindness) from 14.3% at baseline to 1.6% at week 16; the
proportion of patients with vision of 20/40 or better (part of
the legal minimum requirement for an unrestricted drivers
license in the U.S.) was likewise increased from 19.0% at
baseline to 49.2% at 16 weeks. These findings were
presented at the Retina Society Conference in September 2007.
We and Bayer HealthCare are also developing the VEGF Trap-Eye in
DME. In May 2007, at the annual meeting of the Association for
Research in Vision and Ophthalmology (ARVO), the companies
reported results from a small pilot study of the VEGF Trap-Eye
in patients with DME. In the study, the VEGF Trap-Eye was well
tolerated and demonstrated activity in five patients, with
decreases in retinal thickness and improvement in visual acuity.
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 visual loss is caused by a combination of
retinal edema and neovascular proliferation. DR is a major
complication of diabetes mellitus that can lead to significant
vision impairment. DR is
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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 HealthCare 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. Bayer HealthCare will market the VEGF Trap-Eye
outside the United States, where the companies will share
equally in profits from any future sales of the VEGF Trap-Eye.
If the VEGF Trap-Eye is granted marketing authorization in a
major market country outside the United States, we will be
obligated to reimburse Bayer HealthCare 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 retain 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
HealthCare. In 2007, we received a $20.0 million milestone
payment from Bayer HealthCare following dosing of the first
patient in the Phase 3 study of the VEGF Trap-Eye in wet AMD,
and can earn up to $90.0 million in additional 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-Eye outside the United States achieve certain
specified levels starting at $200.0 million.
Antibody
Research Technologies and Development Program:
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 aflibercept, the VEGF Trap-Eye, and
ARCALYSTTM.
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.
Regeneron scientists also have discovered and developed a new
technology for designing protein therapeutics that facilitates
the discovery and production of fully human monoclonal
antibodies. We call our technology
VelocImmune®
and, as described below, we believe that it is an
improved way of generating a wide variety of high affinity,
therapeutic, fully human monoclonal antibodies.
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VelocImmune®
(Human Monoclonal Antibodies)
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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
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candidates for preclinical development and are exploring
possible additional licensing or collaborative arrangements with
third parties related to VelocImmune and related
technologies.
Antibody
Collaboration with the sanofi-aventis Group
In November 2007, we and sanofi-aventis entered into a global,
strategic collaboration to discover, develop, and commercialize
fully human monoclonal antibodies. The first therapeutic
antibody to enter clinical development under the collaboration,
REGN88, is an antibody to the Interleukin-6 receptor (IL-6R),
which has started clinical trials in rheumatoid arthritis. The
second is expected to be an antibody to Delta-like ligand-4
(Dll4) which is currently scheduled to commence clinical
development in mid-2008. The collaboration is governed by a
Discovery and Preclinical Development Agreement and a License
and Collaboration Agreement. We received a non-refundable,
up-front payment of $85.0 million from sanofi-aventis under
the discovery agreement. In addition, sanofi-aventis will fund
up to $475.0 million of our research for identifying and
validating potential drug discovery targets and developing fully
human monoclonal antibodies against these targets through
December 31, 2012. Sanofi-aventis also has an option to
extend the discovery program for up to an additional three years
for further antibody development and preclinical activities.
For each drug candidate identified under the discovery
agreement, sanofi-aventis has the option to license rights to
the candidate under the license agreement. If it elects to do
so, sanofi-aventis will co-develop the drug candidate with us
through product approval. Development costs will be shared
between the companies, with sanofi-aventis funding drug
candidate development costs up front. We are responsible for
reimbursing sanofi-aventis for half of the total development
costs it paid for all collaboration products from our share of
profits from commercialization of collaboration products to the
extent they are sufficient for this purpose. Sanofi-aventis will
lead commercialization activities for products developed under
the license agreement, subject to our right to co-promote such
products. The parties will equally share profits and losses from
sales within the United States. The parties will share profits
outside the United States on a sliding scale based on sales
starting at 65% (sanofi-aventis)/35% (us) and ending at 55%
(sanofi-aventis)/45% (us), and will share losses outside the
United States at 55% (sanofi-aventis)/45% (us). In addition to
profit sharing, we are entitled to receive up to
$250.0 million in sales milestone payments, with milestone
payments commencing after aggregate annual sales outside the
United States exceed $1.0 billion on a rolling
12-month
basis.
License
Agreement with AstraZeneca
In February 2007, we entered into a non-exclusive license
agreement with AstraZeneca UK Limited that allows 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 is required to 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.
License
Agreement with Astellas
In March 2007, we entered into a non-exclusive license agreement
with Astellas Pharma Inc. that allows Astellas to utilize our
VelocImmune technology in its internal research programs
to discover human monoclonal antibodies. Under the terms of the
agreement, Astellas made a $20.0 million non-refundable,
up-front payment to us. Astellas is required to 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 Astellas 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
6
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 embryonic
stem cells (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. 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 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 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 are generating a collection of targeting vectors and targeted
mouse 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 are 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 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 our 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. 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 Angiopoietins, and we have
received patents covering members of this family. Angiopoietins
include naturally occurring positive and negative regulators of
angiogenesis, as described in numerous scientific manuscripts
published by our scientists and their collaborators.
Angiopoietins are being evaluated in preclinical research by us
and our academic collaborators. Our preclinical studies have
revealed that VEGF and 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
7
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. We plan in mid-2008 to commence Phase 1
clinical development of a fully human monoclonal antibody to
Dll4 that was discovered using our VelocImmune technology.
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 integrating 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.
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 also have research programs focusing on ophthalmology,
inflammatory and immune diseases, bone and cartilage, pain, 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 of this facility. 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 we have used primarily for the manufacture of
Traps and for warehouse space. In June 2007, we exercised a
purchase option on this building, which totals
272,000 square feet (including the 75,000 square feet
we already leased), and completed the purchase of this property
in October 2007. At December 31, 2007, we employed
207 people at our Rensselaer facilities. There were no
impairment losses associated with long-lived assets at these
facilities as of December 31, 2007.
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 good manufacturing practice (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
8
to comply with FDA and other regulatory requirements, we will be
required to suspend manufacturing. This would likely 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
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.). Our competitors include Genentech,
Novartis, Pfizer Inc., Bayer HealthCare, Onyx Pharmaceuticals,
Inc., Abbott Laboratories, sanofi-aventis, Merck, Amgen Inc.,
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.
ARCALYSTTM. The
availability of highly effective FDA approved TNF-antagonists
such as
Enbrel®
(Immunex Corporation),
Remicade®
(Centocor, Inc.), and
Humira®
(Abbott) and the IL-1 receptor antagonist Kineret (Amgen), and
other marketed therapies, makes it difficult to successfully
develop and commercialize
ARCALYSTTM.
Even if
ARCALYSTTM
is ever approved for sale, it will be difficult for our drug to
compete against these FDA approved drugs 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, Novartis, and
Xoma Ltd. 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
ARCALYSTTM.
The successful development of these competing molecules could
delay or impair our ability to successfully develop and
commercialize
ARCALYSTTM.
Aflibercept 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 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, Pfizer,
and Imclone Systems Incorporated. Many of these molecules are
further along in development than aflibercept 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. 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
9
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 plans
to initiate a Phase 3 trial to compare Lucentis to Avastin in
the treatment of wet AMD. Avastin is also being evaluated in eye
diseases in trials that have been initiated in the United
Kingdom, Canada, Brazil, Mexico, Germany, Israel, and other
areas.
REGN88. We are developing REGN88 for the
treatment of rheumatoid arthritis as part of our global,
strategic collaboration with sanofi-aventis to discover,
develop, and commercialize fully human monoclonal antibodies.
The availability of highly effective FDA approved
TNF-antagonists such as
Enbrel®
(Immunex),
Remicade®
(Centocor), and
Humira®
(Abbott), and other marketed therapies makes it difficult to
successfully develop and commercialize REGN88. REGN88 is a human
monoclonal antibody targeting the interleukin-6 receptor. Roche
is developing an antibody against the interleukin-6 (IL-6)
receptor. Roches antibody has completed Phase 3 clinical
trials and is the subject of a filed Biologics License
Application with the FDA for the treatment of rheumatoid
arthritis. Roches IL-6 receptor antibody, other clinical
candidates in development, and the drugs on the market to treat
rheumatoid arthritis could offer competitive advantages over
REGN88. This could delay or impair our ability to successfully
develop and commercialize REGN88.
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 collect royalties or other consideration for use of the
technology 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
10
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 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
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.
11
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) research and
development activities conducted under our collaboration
agreements with third parties and our grant from the NIH, and
(ii) the supply of specified, ordered research materials
using Regeneron-developed proprietary technology. The contract
manufacturing segment included all revenues and expenses related
to the commercial production of products under contract
manufacturing arrangements. During 2006 and 2005, 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-36
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, 2007, we had 682 full-time
employees, of whom 107 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 100 F Street, NE, 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
12
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,
2007, we had a cumulative loss of $793.2 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.
We may
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, including funding we are entitled to receive under
our collaboration agreements, will enable us to meet operating
needs through at least 2012; however, one or more of our
collaboration agreements may terminate, our projected revenue
may decrease, or our expenses may increase and that would lead
to our capital being consumed significantly before such time. We
may 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.
We
have a significant amount of debt that is scheduled to mature in
2008.
We have $200.0 million of convertible debt that, unless
converted to shares of our Common Stock, will mature in October
2008. Our debt obligations could require us to use a significant
portion of our cash to pay principal and interest on our debt.
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 are studying our lead product candidates, aflibercept, VEGF
Trap-Eye, and
ARCALYSTTM,
in a wide variety of indications. We are studying aflibercept in
a variety of cancer settings, the VEGF Trap-Eye in different eye
diseases and ophthalmologic indications, and
ARCALYSTTM
in a variety of systemic inflammatory disorders.
13
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 being, or are planned 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
ARCALYSTTM
in different diseases after a Phase 2 trial using lower doses of
ARCALYSTTM
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 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
ARCALYSTTM
in CAPS (Cryopyrin-Associated Periodic Syndromes) may be
inadequate to support regulatory approval for commercialization
of
ARCALYSTTM.
We submitted a completed BLA to the FDA for
ARCALYSTTM
in CAPS in the second quarter of 2007. However, the efficacy and
safety data from the Phase 3 clinical program included in the
BLA may be inadequate to support approval for commercialization
of
ARCALYSTTM.
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
ARCALYSTTM,
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
ARCALYSTTM
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
ARCALYSTTM
in those countries.
14
Serious
complications or side effects have occurred, and may continue to
occur, in clinical trials of some of our product candidates
which could lead to delay or discontinuation of development and
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 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 aflibercept (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
serious and potentially life-threatening risks, based on the
clinical and preclinical experience of systemically delivered
VEGF inhibitors, including the systemic delivery of the VEGF
Trap, include bleeding, intestinal perforation, 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
number 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 complications or side effects could harm
the development of aflibercept 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 continue to test
ARCALYSTTM
in patients with inflammatory diseases and disorders. Like
cytokine antagonists such as
Kineret®
(Amgen),
Enbrel®
(Immunex), and
Remicade®
(Centocor),
ARCALYSTTM
affects the immune defense system of the body by blocking some
of its functions. Therefore,
ARCALYSTTM
may interfere with the bodys ability to fight infections.
Treatment with
Kineret®
(Amgen), a medication that works through the inhibition of IL-1,
has been associated with an increased risk of serious
infections, and serious infections have been reported in
patients taking
ARCALYSTTM.
One subject with adult Stills diseases in a study of
ARCALYSTTM
developed an infection in his elbow with mycobacterium
intracellulare. The patient was on chronic glucocorticoid
treatment for Stills disease. The infection occurred after
an intraarticular glucocorticoid injection into the elbow and
subsequent local exposure to a suspected source of mycobacteria.
One patient with polymayalgia rheumatica in another study
developed bronchitis/sinusitis, which resulted in
hospitalization. One patient in an open-label study of
ARCALYSTTM
in CAPS developed sinusitis and streptococcus pneumoniae
meningitis and subsequently died. In addition, patients given
infusions of
ARCALYSTTM
have developed hypersensitivity reactions or infusion reactions.
These or other complications or side effects could impede or
result in us abandoning the development of
ARCALYSTTM.
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 creation of antibodies against
the therapeutic protein. The antibodies can have no effect or
can totally neutralize the effectiveness of the protein, or
require that higher doses be used to obtain a therapeutic
effect. In some cases, the antibody can cross react with the
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. Of the clinical
study subjects who
15
received
ARCALYSTTM
for rheumatoid arthritis and other indications, fewer than 5% of
patients developed antibodies and no side effects related to
antibodies were observed. Using a very sensitive test,
approximately 40% of the patients in the CAPS pivotal study
tested positive at least once for low levels of antibodies to
ARCALYSTTM.
Again, no side effects related to antibodies were observed and
there were no observed effects on drug efficacy or drug levels.
However, it is possible that as we continue to test aflibercept
and VEGF Trap-Eye with more sensitive assays in different
patient populations and larger clinical trials, we will find
that subjects given aflibercept and VEGF Trap-Eye develop
antibodies to these product candidates, and may also experience
side effects related to the antibodies, 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. If
we are unable to develop suitable product formulations or
manufacturing processes to support large scale clinical testing
of our product candidates, including aflibercept, VEGF Trap-Eye,
ARCALYSTTM,
and REGN88, 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 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 aflibercept or the
VEGF Trap-Eye infringes any valid claim in these patents or
patent applications, Genentech could initiate a lawsuit for
patent infringement and assert that its patents are valid and
cover aflibercept or the 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 aflibercept or the
VEGF Trap-Eye, which
16
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 aflibercept or the
VEGF Trap-Eye or in a damage award.
We are aware of patents and pending applications owned by Roche
that claim antibodies to the interleukin-6 receptor and methods
of treating rheumatoid arthritis with such antibodies. We are
developing REGN88, an antibody to the interleukin-6 receptor,
for the treatment of rheumatoid arthritis. Although we do not
believe that REGN88 infringes any valid claim in these patents
or patent applications, Roche could initiate a lawsuit for
patent infringement and assert its patents are valid and cover
REGN88.
Further, we are aware of a number of other third party patent
applications that, if granted, with claims as currently drafted,
may cover our current or planned activities. We cannot assure
you that our products
and/or
actions in manufacturing and selling our product candidates will
not infringe such patents.
In December 2003, we entered into a non-exclusive license
agreement with Cellectis Inc. that granted us certain rights in
a family of patents relating to homologous recombination.
Cellectis now claims that agreements we entered into relating to
our VelocImmune mice with AstraZeneca, Astellas, and
sanofi-aventis are outside of the scope of our license from
Cellectis. We disagree with Cellectis position and are in
discussions with Cellectis regarding this matter. If we are not
able to resolve this dispute, Cellectis may commence a lawsuit
against us and our VelocImmune licensees alleging
infringement of Cellectis patents.
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 United States Food and Drug
Administration (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, 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
compliance, the FDA can impose regulatory sanctions, including,
among other things, refusal to approve a pending
17
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.
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 sign up for 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. In response 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 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.
In
future years, if we 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 the
effectiveness of our internal control over financial reporting.
Our independent registered public accounting firm provided us
with an unqualified report as to the effectiveness of our
internal control over financial reporting as of
December 31, 2007, 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 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. In addition, if it is
determined that deficiencies in the design or operation of
internal controls exist and that they are reasonably likely to
adversely affect our ability to record, process, summarize, and
report financial information, we would likely incur additional
costs to remediate these deficiencies and the costs of such
remediation could be material.
18
Risks
Related to Our Reliance on Third Parties
If our
antibody collaboration with sanofi-aventis is terminated, our
business operations and our ability to discover, develop,
manufacture, and commercialize our pipeline of product
candidates in the time expected, or at all, would be materially
harmed.
We rely heavily on the funding from sanofi-aventis to support
our target discovery and antibody research and development
programs. Sanofi-aventis has committed to pay up to
$475.0 million between 2008 and 2012 to fund our efforts to
identify and validate drug discovery targets and pre-clinically
develop fully human monoclonal antibodies against such targets.
In addition, sanofi-aventis funds almost all of the development
expenses incurred by both companies in connection with the
clinical development of antibodies that sanofi-aventis elects to
co-develop with us. We rely on sanofi-aventis to fund these
activities. In addition, with respect to those antibodies that
sanofi-aventis elects to co-develop with us, such as REGN88, we
rely on sanofi-aventis to lead much of the clinical development
efforts and assist with obtaining regulatory approval,
particularly outside the United States. We also rely on
sanofi-aventis to lead the commercialization efforts to support
all of the antibody products that are co-developed by
sanofi-aventis and us. If sanofi-aventis does not elect to
co-develop the antibodies that we discover or opts-out of their
development, we would be required to fund and oversee on our own
the clinical trials, any regulatory responsibilities, and the
ensuing commercialization efforts to support our antibody
products. Sanofi-aventis may terminate the collaboration for our
material breach or, in the case of the discovery agreement, if
certain minimal criteria for the discovery program are not
achieved by December 31, 2010. If sanofi-aventis terminates
the antibody collaboration or fails to comply with its payment
obligations thereunder, our business, financial condition, and
results of operations would be materially harmed. We would be
required to either expend substantially more resources than we
have anticipated to support our research and development
efforts, which could require us to seek additional funding that
might not be available on favorable terms or at all, or
materially cut back on such activities. While we cannot assure
you that any of the antibodies from this collaboration will ever
be successfully developed and commercialized, if sanofi-aventis
does not perform its obligations with respect to antibodies that
it elects to co-develop, our ability to develop, manufacture,
and commercialize these antibody product candidates will be
significantly adversely affected.
If our
collaboration with sanofi-aventis for aflibercept (VEGF Trap) is
terminated, or sanofi-aventis materially breaches its
obligations thereunder, our business, operations and financial
condition, and our ability to develop, manufacture, and
commercialize aflibercept in the time expected, or at all, would
be materially harmed.
We rely heavily on sanofi-aventis to lead much of the
development of aflibercept. Sanofi-aventis funds all of the
development expenses incurred by both companies in connection
with the aflibercept program. If the aflibercept program
continues, we will rely on sanofi-aventis to assist with funding
the aflibercept program, provide commercial manufacturing
capacity, enroll and monitor clinical trials, obtain regulatory
approval, particularly outside the United States, and lead the
commercialization of aflibercept. While we cannot assure you
that aflibercept 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 aflibercept 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 require us to seek additional
funding that might not be available on favorable terms or at
all, and could cause significant delays in the development
and/or
manufacture of aflibercept and result in substantial additional
costs to us. We have limited commercial 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 and commercialization of aflibercept.
19
If our
collaboration with Bayer HealthCare for the VEGF Trap-Eye is
terminated, or Bayer HealthCare materially breaches its
obligations thereunder, our business, operations and financial
condition, and our ability to develop and commercialize the VEGF
Trap-Eye in the time expected, or at all, would be materially
harmed.
We 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, lead
the development of the VEGF Trap-Eye outside the United States,
obtain regulatory approval outside the United States, and
provide all 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 require
us to seek additional finding that might not be available on
favorable terms or at all, and 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
limited commercial 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 and commercialization of the VEGF
Trap-Eye.
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 manufacture
and 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 manufacture, development or
ultimate 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 must expand our own manufacturing capacity to support the
planned growth of our clinical pipeline. Moreover, we may expand
our manufacturing capacity to support commercial production of
active pharmaceutical ingredients, or API, for our product
candidates. This will require substantial additional
expenditures, and we will need to hire and train significant
numbers of employees and managerial personnel to staff our
facility.
Start-up
costs can be large and
scale-up
entails significant risks related to process development and
manufacturing yields. We may
20
be unable to develop manufacturing facilities that are
sufficient to produce drug material for clinical trials or
commercial use. This may delay our clinical development plans
and interfere with our efforts to commercialize our products. 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 manufacturing
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 commercial 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 aflibercept 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.
21
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.
There is substantial competition in the biotechnology and
pharmaceutical industries 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 many
different pharmaceutical and biotechnology companies are working
to develop competing VEGF antagonists, including Novartis, OSI
Pharmaceuticals, and Pfizer. Many of these molecules are farther
along in development than aflibercept 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
HealthCare) 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®
(Genentech), and their extensive, ongoing clinical development
plan for
Avastin®
(Genentech) in other cancer indications, make it more difficult
for us to enroll patients in clinical trials to support
aflibercept and to obtain regulatory approval of aflibercept in
these cancer settings. This may delay or impair our ability to
successfully develop and commercialize aflibercept. In addition,
even if aflibercept is ever approved for sale for the treatment
of certain cancers, it will be difficult for our drug to compete
against
Avastin®
(Genentech) 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. 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
reformatted 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®
(Genentech) to
Avastin®
(Genentech) in the treatment of wet AMD. The marketing approval
of
Lucentis®
(Genentech) and the potential off-label use of
Avastin®
(Genentech) 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®
(Genentech), because doctors and patients will have significant
experience using this medicine. Moreover, the relatively low
cost of therapy with
Avastin®
(Genentech) 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®
(Immunex),
Remicade®
(Centocor), and
Humira®
(Abbott), and the IL-1 receptor antagonist
Kineret®
(Amgen), and other marketed therapies makes it more difficult to
successfully develop and commercialize
ARCALYSTTM.
This is one of the reasons we discontinued the development of
ARCALYSTTM
in adult rheumatoid arthritis. In addition, even if
ARCALYSTTM
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
ARCALYSTTM,
such as requiring fewer injections.
22
There are both small molecules and antibodies in development by
other companies that are designed to block the synthesis of
interleukin-1 or inhibit the signaling of interleukin-1. For
example, Eli Lilly and Company, Xoma Ltd., and Novartis are each
developing antibodies to interleukin-1 and Amgen is developing
an antibody to the interleukin-1 receptor. Novartis has
commenced advanced clinical testing of its IL-1 antibody in
Muckle-Wells Syndrome, which is part of the group of rare
genetic diseases called CAPS. Novartis IL-1 antibody and
these other drug candidates could offer competitive advantages
over
ARCALYSTTM.
The successful development of these competing molecules could
delay or impair our ability to successfully develop and
commercialize
ARCALYSTTM.
For example, we may find it difficult to enroll patients in
clinical trials for
ARCALYSTTM
if the companies developing these competing interleukin-1
inhibitors commence clinical trials in the same indications.
We are developing
ARCALYSTTM
for the treatment of a group of rare diseases associated with
mutations in the NLRP3 gene. These rare genetic disorders affect
a small group of people, estimated to be in the hundreds. There
may be too few patients with these genetic disorders to
profitably commercialize
ARCALYSTTM
in this indication.
We are developing REGN88 for the treatment of rheumatoid
arthritis. The availability of highly effective FDA approved
TNF-antagonists such as
Enbrel®
(Immunex),
Remicade®
(Centocor), and
Humira®
(Abbott), and other marketed therapies makes it more difficult
to successfully develop and commercialize REGN88. REGN88 is a
human monoclonal antibody targeting the interleukin-6 receptor.
Roche is developing an antibody against the interleukin-6 (IL-6)
receptor. Roches antibody has completed Phase 3 clinical
trials and is the subject of a filed Biologics License
Application with the FDA. Roches IL-6 receptor antibody,
other clinical candidates in development, and drugs now or in
the future on the market to treat rheumatoid arthritis could
offer competitive advantages over REGN88. This could delay or
impair our ability to successfully develop and commercialize
REGN88.
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 are seeking approval to market
ARCALYSTTM
for the treatment of a group of rare genetic disorders called
CAPS. There may be too few patients with CAPS to profitably
commercialize
ARCALYSTTM.
Physicians may not prescribe
ARCALYSTTM
and CAPS patients may not be able to afford
ARCALYSTTM
if third party payers do not agree to reimburse the cost of
ARCALYSTTM
therapy and this would adversely affect our ability to
commercialize
ARCALYSTTM
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
ARCALYSTTM,
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.
23
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.
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:
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progress, delays, or adverse results in clinical trials;
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announcement of technological innovations or product candidates
by us or competitors;
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fluctuations in our operating results;
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public concern as to the safety or effectiveness of our product
candidates;
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developments in our relationship with collaborative partners;
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developments in the biotechnology industry or in government
regulation of healthcare;
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large sales of our common stock by our executive officers,
directors, or significant shareholders;
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arrivals and departures of key personnel; and
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general market conditions.
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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.
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,
2007, our seven largest shareholders beneficially owned 54.0% of
our outstanding shares of Common
24
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, 2007. As of December 31, 2007,
sanofi-aventis beneficially owned 14,799,552 shares of
Common Stock, representing approximately 19.3% of the shares of
Common Stock then outstanding. Under our investor agreement with
sanofi-aventis, sanofi-aventis may not sell these shares until
December 20, 2012 except under limited circumstances and
subject to earlier termination rights of these restrictions upon
the occurrence of certain events. Notwithstanding these
restrictions, 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, 2007, holders of Class A
Stock held 22.8% 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, 2007:
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our current executive officers and directors beneficially owned
12.6% 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, 2007, and
27.7% of the combined voting power of our outstanding shares of
Common Stock and Class A Stock, assuming the exercise of
all options held by such persons which are exercisable within
60 days of December 31, 2007; and
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our seven largest shareholders beneficially owned 54.0% 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, 2007. In addition,
these seven shareholders held 58.0% 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, 2007.
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Pursuant to an investor agreement, sanofi-aventis has agreed to
vote its shares, at sanofi-aventis election, either as
recommended by our board of directors or proportionally with the
votes cast by our other shareholders, except with respect to
certain change of control transactions, liquidation or
dissolution, stock issuances equal to or exceeding 10% of the
then outstanding shares or voting rights of Common Stock and
Class A Stock, and new equity compensation plans or
amendments if not materially consistent with our historical
equity compensation practices.
The
anti-takeover effects of provisions of our charter, by-laws, and
of New York corporate law and the contractual
standstill provisions in our investor agreement with
sanofi-aventis, 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
25
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:
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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;
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a staggered board of directors, so that it would take three
successive annual meetings to replace all of our directors;
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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;
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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;
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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
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under the New York Business Corporation Law, in addition to
certain restrictions which may apply to business
combinations involving the Company and an interested
shareholder, 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.
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Until the later of the fifth anniversaries of the expiration or
earlier termination of our antibody collaboration agreements
with sanofi-aventis or our aflibercept collaboration with
sanofi-aventis, sanofi-aventis will be bound by certain
standstill provisions, which contractually prohibit
sanofi-aventis from acquiring more than certain specified
percentages of the Companys Class A Stock and Common
Stock (taken together) or otherwise seeking to obtain control of
the Company.
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.
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Item 1B.
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Unresolved
Staff Comments
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None.
We conduct our research, development, manufacturing, and
administrative activities at our owned and leased facilities. We
currently lease approximately 232,000 square feet of
laboratory and office facilities in Tarrytown, New York under
operating lease agreements. In December 2006, we 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 we currently
occupy (the retained facilities) and approximately
194,000 square feet to be located in new facilities that
are under construction and expected to be completed in mid-2009.
In October 2007, we amended the December 2006 operating lease
agreement to increase the amount of new space we will lease from
approximately 194,000 square feet to approximately
230,000 square feet, for an amended total under the new
lease of approximately 257,000 square feet. The term of the
lease is expected to commence in mid-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
26
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 November 2007 we entered into a new operating sublease for
approximately 10,000 square feet of office space in
Tarrytown, New York. The lease expires in September 2009 and we
have the option to extend the term for two additional terms of
three months each.
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. In June
2007, we exercised a purchase option on a 272,000 square
foot building in Rensselaer, New York. Prior to the purchase,
which was completed in October 2007, the Company leased
approximately 75,000 square feet of manufacturing, office,
and warehouse space in that building.
The following table summarizes the information regarding our
current property leases:
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Current Monthly
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Square
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Base Rental
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Renewal Option
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Location
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Footage
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Expiration
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Charges (1)
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Available
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Tarrytown (2)
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205,000
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June, 2009 (3)
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$
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311,000
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None
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Tarrytown (2)
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230,000
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June, 2024 (3)
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Three 5-year terms
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Tarrytown
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27,000
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June, 2024 (3)
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$
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54,000
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Three 5-year terms
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Tarrytown (4)
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10,000
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September, 2009
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$
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22,000
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Two 3-month terms
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(1) |
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Excludes additional rental charges for utilities, taxes, and
operating expenses, as defined. |
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(2) |
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Upon completion of the new facilities, as described above, we
will release the 205,000 square feet of space in our
current facility and take over 230,000 square feet in the
newly constructed buildings. |
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(3) |
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Estimated based upon expected completion of our new facilities,
as described above. |
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(4) |
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Relates to sublease in Tarrytown, New York 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.
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Item 3.
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Legal
Proceedings
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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.
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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No matters were submitted to a vote of our security holders
during the last quarter of the fiscal year ended
December 31, 2007.
27
PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
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Our Common Stock is quoted on The NASDAQ Stock Market under the
symbol REGN. Our Class A Stock, par value $.001
per share, is not publicly quoted or traded.
The following table sets forth, for the periods indicated, the
range of high and low sales prices for the Common Stock as
reported by The NASDAQ Stock Market:
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High
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Low
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2006
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First Quarter
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$
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18.00
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$
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14.35
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Second Quarter
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16.69
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10.97
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Third Quarter
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17.00
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10.88
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Fourth Quarter
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24.85
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15.27
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2007
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First Quarter
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$
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22.84
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$
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17.87
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Second Quarter
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28.74
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17.55
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Third Quarter
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21.78
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13.55
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Fourth Quarter
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24.90
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16.77
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As of February 15, 2008, there were 515 shareholders
of record of our Common Stock and 42 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 2008 Annual Meeting of Shareholders to be filed with the
SEC is incorporated by reference into Item 12 of this
Report on
Form 10-K.
28
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, 2002 through
December 31, 2007. The comparison assumes that $100 was
invested on December 31, 2002 in our Common Stock and in
each of the foregoing indices. All values assume reinvestment of
the pre-tax value of dividends paid by companies included in
these indices. The historical stock price performance of our
Common Stock shown in the graph below is not necessarily
indicative of future stock price performance.
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12/31/2002
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12/31/2003
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12/31/2004
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12/31/2005
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12/31/2006
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12/31/2007
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Regeneron
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$
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100.00
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$
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79.47
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$
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49.76
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$
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85.90
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$
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108.43
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$
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130.47
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Nasdaq Pharm
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100.00
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146.59
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156.13
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171.93
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168.29
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|
|
|
176.97
|
|
Nasdaq US
|
|
|
|
100.00
|
|
|
|
|
149.52
|
|
|
|
|
162.72
|
|
|
|
|
166.18
|
|
|
|
|
182.57
|
|
|
|
|
197.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data set forth below for the years ended
December 31, 2007, 2006, and 2005 and at December 31,
2007 and 2006 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, 2004 and
2003 and at December 31, 2005, 2004, and 2003 are derived
from our audited financial statements not included in this
report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands, except per share data)
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development
|
|
$
|
96,603
|
|
|
$
|
51,136
|
|
|
$
|
52,447
|
|
|
$
|
113,157
|
|
|
$
|
47,366
|
|
Research progress payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,770
|
|
|
|
|
|
Contract manufacturing
|
|
|
|
|
|
|
12,311
|
|
|
|
13,746
|
|
|
|
18,090
|
|
|
|
10,131
|
|
Technology licensing
|
|
|
28,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,024
|
|
|
|
63,447
|
|
|
|
66,193
|
|
|
|
174,017
|
|
|
|
57,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
201,613
|
|
|
|
137,064
|
|
|
|
155,581
|
|
|
|
136,095
|
|
|
|
136,024
|
|
Contract manufacturing
|
|
|
|
|
|
|
8,146
|
|
|
|
9,557
|
|
|
|
15,214
|
|
|
|
6,676
|
|
General and administrative
|
|
|
37,865
|
|
|
|
25,892
|
|
|
|
25,476
|
|
|
|
17,062
|
|
|
|
14,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,478
|
|
|
|
171,102
|
|
|
|
190,614
|
|
|
|
168,371
|
|
|
|
157,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(114,454
|
)
|
|
|
(107,655
|
)
|
|
|
(124,421
|
)
|
|
|
5,646
|
|
|
|
(99,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contract income
|
|
|
|
|
|
|
|
|
|
|
30,640
|
|
|
|
42,750
|
|
|
|
|
|
Investment income
|
|
|
20,897
|
|
|
|
16,548
|
|
|
|
10,381
|
|
|
|
5,478
|
|
|
|
4,462
|
|
Interest expense
|
|
|
(12,043
|
)
|
|
|
(12,043
|
)
|
|
|
(12,046
|
)
|
|
|
(12,175
|
)
|
|
|
(11,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,854
|
|
|
|
4,505
|
|
|
|
28,975
|
|
|
|
36,053
|
|
|
|
(7,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of a change in
accounting principle
|
|
|
(105,600
|
)
|
|
|
(103,150
|
)
|
|
|
(95,446
|
)
|
|
|
41,699
|
|
|
|
(107,458
|
)
|
Cumulative effect of adopting Statement of Accounting Standards
No. 123R (SFAS 123R)
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(105,600
|
)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
$
|
41,699
|
|
|
$
|
(107,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of a change in
accounting principle
|
|
$
|
(1.59
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
|
$
|
(2.13
|
)
|
Cumulative effect of adopting SFAS 123R
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1.59
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.75
|
|
|
$
|
(2.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share, diluted
|
|
$
|
(1.59
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
$
|
0.74
|
|
|
$
|
(2.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents, restricted cash, marketable securities,
and restricted marketable securities (current and non-current)
|
|
$
|
846,279
|
|
|
$
|
522,859
|
|
|
$
|
316,654
|
|
|
$
|
348,912
|
|
|
$
|
366,566
|
|
Total assets
|
|
|
936,258
|
|
|
|
585,090
|
|
|
|
423,501
|
|
|
|
473,108
|
|
|
|
479,555
|
|
Notes payable current portion
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable long-term portion
|
|
|
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Stockholders equity
|
|
|
460,267
|
|
|
|
216,624
|
|
|
|
114,002
|
|
|
|
182,543
|
|
|
|
137,643
|
|
30
|
|
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 currently have four
clinical development programs, including three late-stage
clinical programs:
ARCALYSTtm
(rilonacept; also known as IL-1 Trap) in various inflammatory
indications, aflibercept (VEGF Trap) in oncology, and the VEGF
Trap-Eye formulation in eye diseases using intraocular delivery.
Aflibercept is being developed in oncology in collaboration with
sanofi-aventis. The VEGF Trap-Eye is being developed in
collaboration with Bayer HealthCare LLC. Our fourth clinical
development program is REGN88, an antibody to the Interleukin-6
receptor (IL-6R) that entered clinical development in patients
with rheumatoid arthritis in the fourth quarter of 2007. We
expect that our next generation of product candidates will be
based on our proprietary technologies for developing human
monoclonal antibodies. Our antibody program is being conducted
in collaboration with sanofi-aventis. 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.
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,
2007, we had a cumulative loss of $793.2 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
ARCALYSTtm;
advance new product candidates into clinical development from
our existing research programs utilizing our 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 on, among other factors,
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. We
are reimbursed for some of these research and development
activities by our collaborators. Our principal sources of cash
to-date have been from sales of common equity and convertible
debt and from funding from our collaborators in the form of
up-front payments, research progress payments, and payments for
our research and development activities.
In 2007, our research and development expenses totaled
$201.6 million. In 2008, we expect these expenses to
increase substantially as we (i) expand our research and
preclinical and clinical development activities in connection
with our new antibody collaboration with sanofi-aventis,
(ii) expand our Phase 3 VEGF Trap-Eye clinical program and
our
ARCALYSTtm
and aflibercept clinical programs, and (iii) increase our
research and development headcount. Due to our new antibody
collaboration with sanofi-aventis, we expect a greater
proportion of our research and development expenses to be funded
by our collaborators in 2008 than in 2007.
A primary driver of our expenses is our number of full-time
employees. Our annual average headcount in 2007 was 627 compared
with 573 in 2006 and 696 in 2005. In 2007 our average headcount
increased primarily to support our expanded development programs
for the VEGF Trap-Eye and
ARCALYSTtm
and our plans to move our first antibody candidate into clinical
trials. In 2006, our average headcount decreased primarily as a
result of reductions
31
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 2008, we expect our average headcount to increase to
approximately 825-875 primarily to support the expansion of our
research and development activities as described above,
especially in connection with our new antibody collaboration
with sanofi-aventis.
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 2007
and plans for 2008 are as follows:
|
|
|
|
|
Product Candidate
|
|
2007 Events
|
|
2008 Events/Plans
|
|
ARCALYSTtm
(rilonacept; also known as IL-1 Trap)
|
|
Completed
the 24-week open-label safety extension phase of the Phase 3
trial in CAPS
FDA accepted BLA submission for CAPS
Granted Orphan Drug designation in CAPS
in European Union
Reported positive results in exploratory
proof-of-concept study in patients with chronic active gout
Initiated Phase 2 trial evaluating
safety and efficacy of
ARCALYSTtm
in preventing gout-induced flares in patients initiating
allopurinol therapy
|
|
Receive FDA review decision on BLA
submission for CAPS (expected at the end of February 2008)
If marketing approval is obtained,
launch
ARCALYSTtm
commercially in CAPS
Evaluate
ARCALYSTtm
in certain other disease indications in which IL-1 may play an
important role
|
|
|
Aflibercept (VEGF Trap Oncology)
|
|
Sanofi-aventis initiated four Phase 3
trials of aflibercept in combination with standard chemotherapy
regimens
NCI/CTEP initiated 10 studies of
aflibercept
Reported interim results from Phase 2
single-agent trials in advanced ovarian cancer and in non-small
cell lung adenocarcinoma
Initiated Japanese Phase 1 trial of
aflibercept in combination with another investigational agent in
patients with solid malignancies
|
|
Sanofi-aventis to initiate a fifth Phase
3 study of aflibercept in combination with standard chemotherapy
regimen
Report final data from Phase 2
single-agent trials in advanced ovarian cancer and in non-small
cell lung adenocarcinoma
Complete enrollment of Phase 2
single-agent study in symptomatic malignant ascites (SMA)
Report interim data from the SMA Phase 2
trial
NCI/CTEP to begin to report data from
trials
NCI/CTEP to initiate additional
exploratory safety and efficacy studies
|
|
|
VEGF Trap-Eye (intravitreal injection)
|
|
Initiated first Phase 3 trial in wet AMD
in patients in the U.S. and Canada
Reported positive primary endpoint
results and preliminary extended treatment results of Phase 2
trial in wet AMD
Reported positive results in Phase 1
trial in DME
|
|
Initiate second Phase 3 trial in wet AMD
in the European Union and certain other countries around the
world
Explore additional eye disease
indications
|
|
|
32
|
|
|
|
|
Product Candidate
|
|
2007 Events
|
|
2008 Events/Plans
|
|
Antibodies
|
|
Entered global, strategic collaboration
agreement with sanofi-aventis to discover, develop, and
commercialize fully human monoclonal antibodies
Initiated Phase 1 trial for REGN88 in
rheumatoid arthritis
|
|
Initiate Phase 1 trial for the Dll4
antibody in oncology
Report data for Phase 1 trial of REGN88
in rheumatoid arthritis
Advance a third antibody candidate into
clinical development
|
|
|
Collaborations
Our current collaboration agreements with sanofi-aventis and
Bayer HealthCare, and our expired agreement with The
Procter & Gamble Company, are summarized below.
The
sanofi-aventis Group
Aflibercept
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
aflibercept in all countries other than Japan, where we retained
the exclusive right to develop and commercialize aflibercept.
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 the collaboration
agreement to exclude, from the scope of the collaboration, the
development and commercialization of aflibercept 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 aflibercept 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
aflibercept outside of Japan for disease indications included in
our collaboration. In Japan, we are entitled to a royalty of
approximately 35% on annual sales of aflibercept. 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 aflibercept
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
aflibercept oncology indications in Japan.
We have agreed to manufacture clinical supplies of aflibercept
at our plant in Rensselaer, New York. Sanofi-aventis has agreed
to be responsible for providing commercial scale manufacturing
capacity for aflibercept.
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 aflibercept 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. Since inception of the collaboration through
December 31, 2007, we and sanofi-aventis have incurred
$306.8 million in agreed upon development expenses related
to the aflibercept program. In addition, if the first commercial
sale of an aflibercept product for intraocular delivery to the
eye predates the first commercial sale of an aflibercept product
under the collaboration by two years, we will begin reimbursing
sanofi-aventis for up to $7.5 million of aflibercept
development expenses in accordance with a formula until the
first commercial aflibercept sale under the collaboration occurs.
33
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 aflibercept
development expenses will terminate and we will retain all
rights to aflibercept.
Antibodies
In November 2007, we and sanofi-aventis entered into a global,
strategic collaboration to discover, develop, and commercialize
fully human monoclonal antibodies. The first therapeutic
antibody to enter clinical development under the collaboration,
REGN88, is an antibody to the Interleukin-6 receptor (IL-6R),
which has started clinical trials in rheumatoid arthritis. The
second is expected to be an antibody to Delta-like ligand-4
(Dll4), which is currently slated to enter clinical development
in mid-2008.
The collaboration is governed by a Discovery and Preclinical
Development Agreement and a License and Collaboration Agreement.
We received a non-refundable, up-front payment of
$85.0 million from sanofi-aventis under the discovery
agreement. In addition, sanofi-aventis will fund up to
$475.0 million of our research for identifying and
validating potential drug discovery targets and developing fully
human monoclonal antibodies against such targets through
December 31, 2012, subject to specified funding limits of
$75.0 million for the period from the collaborations
inception through December 31, 2008, and
$100.0 million annually in each of the next four years. The
discovery agreement will expire on December 31, 2012;
however, sanofi-aventis has an option to extend the agreement
for up to an additional three years for further antibody
development and preclinical activities. We will lead the design
and conduct of research activities, including target
identification and validation, antibody development, research
and preclinical activities through filing of an Investigational
New Drug Application, toxicology studies, and manufacture of
preclinical and clinical supplies.
For each drug candidate identified under the discovery
agreement, sanofi-aventis has the option to license rights to
the candidate under the license agreement. If it elects to do
so, sanofi-aventis will co-develop the drug candidate with us
through product approval. Under the license agreement, agreed
upon worldwide development expenses incurred by both companies
during the term of the agreement will be funded by
sanofi-aventis, except that following receipt of the first
positive Phase 3 trial results for a co-developed drug
candidate, subsequent Phase 3 trial-related costs for that drug
candidate (called Shared Phase 3 Trial Costs) will be shared 80%
by sanofi-aventis and 20% by us. If the collaboration becomes
profitable, we will be obligated to reimburse sanofi-aventis for
50% of development expenses that were fully funded by
sanofi-aventis (or half of $0.7 million as of
December 31, 2007) and 30% of Shared Phase 3 Trial
Costs, in accordance with a defined formula based on the amounts
of these expenses and our share of the collaboration profits
from commercialization of collaboration products. If
sanofi-aventis does not exercise its option to license rights to
a particular drug candidate under the license agreement, we will
retain the exclusive right to develop and commercialize such
drug candidate, and sanofi-aventis will receive a royalty on
sales, if any.
Sanofi-aventis will lead commercialization activities for
products developed under the license agreement, subject to our
right to co-promote such products. The parties will equally
share profits and losses from sales within the United States.
The parties will share profits outside the United States on a
sliding scale based on sales starting at 65%
(sanofi-aventis)/35% (us) and ending at 55% (sanofi-aventis)/45%
(us), and losses outside the United States at 55%
(sanofi-aventis)/45% (us). In addition to profit sharing, we are
entitled to receive up to $250.0 million in sales milestone
payments, with milestone payments commencing only if and after
aggregate annual sales outside the United States exceed
$1.0 billion on a rolling
12-month
basis.
We are obligated to use commercially reasonable efforts to
supply clinical requirements of each drug candidate under the
collaboration until commercial supplies of that drug candidate
are being manufactured.
With respect to each antibody product which enters development
under the license agreement, sanofi-aventis or we may, by giving
twelve months notice, opt-out of further development
and/or
commercialization of the product, in which event the other party
retains exclusive rights to continue the development
and/or
commercialization of the product. We may also opt-out of the
further development of an antibody product if we give notice to
sanofi-aventis within thirty days of the date that
sanofi-aventis enters joint development of such antibody product
under the license agreement. Each of the discovery agreement and
the license agreement contains other termination provisions,
including for material breach by the other party and, in the
case of the discovery agreement, a
34
termination right for sanofi-aventis under certain
circumstances, including if certain minimal criteria for the
discovery program are not achieved. Prior to December 31,
2012, sanofi-aventis has the right to terminate the discovery
agreement without cause with at least three months advance
written notice; however, except under defined circumstances,
sanofi-aventis would be obligated to immediately pay to us the
full amount of unpaid research funding during the remaining term
of the research agreement through December 31, 2012. Upon
termination of the collaboration in its entirety, our obligation
to reimburse sanofi-aventis for development costs out of any
future profits from collaboration products will terminate.
In December 2007, we sold sanofi-aventis 12 million newly
issued, unregistered shares of Common Stock at an aggregate cash
price of $312.0 million, or $26.00 per share of Common
Stock. As a condition to the closing of this transaction,
sanofi-aventis entered into an investor agreement with us. Under
the investor agreement, sanofi-aventis has three demand rights
to require us to use all reasonable efforts to conduct a
registered underwritten public offering with respect to shares
of the Common Stock beneficially owned by sanofi-aventis
immediately after the closing of the transaction. Until the
later of the fifth anniversaries of the expiration or earlier
termination of the license and collaboration agreement and the
existing collaboration agreement with sanofi-aventis for the
development and commercialization of aflibercept, sanofi-aventis
will be bound by certain standstill provisions.
These provisions include an agreement not to acquire more than a
specified percentage of the outstanding shares of Class A
Stock and Common Stock. The percentage is currently 25% and will
increase to 30% after December 20, 2011. Sanofi-aventis has
also agreed not to dispose of any shares of Common Stock that
were beneficially owned by sanofi-aventis immediately after the
closing of the transaction until December 20, 2012, subject
to certain limited exceptions. Following December 20, 2012,
sanofi-aventis will be permitted to sell shares of Common Stock
(i) in a registered underwritten public offering undertaken
pursuant to the demand registration rights granted to sanofi-
aventis and described above, subject to the underwriters
broad distribution of securities sold, (ii) pursuant to
Rule 144 under the Securities Act and transactions exempt
from registration under the Securities Act, subject to a volume
limitation of one million shares of Common Stock every three
months and a prohibition on selling to beneficial owners, or
persons that would become beneficial owners as a result of such
sale, of 5% or more of the outstanding shares of Common Stock
and (iii) into an issuer tender offer, or a tender offer by
a third party that is recommended or not opposed by our Board of
Directors. Sanofi-aventis has agreed to vote, and cause its
affiliates to vote, all shares of our voting securities they are
entitled to vote, at sanofi-aventis election, either as
recommended by our Board of Directors or proportionally with the
votes cast by our other shareholders, except with respect to
certain change of control transactions, liquidation or
dissolution, stock issuances equal to or exceeding 10% of the
then outstanding shares or voting rights of Common Shares, and
new equity compensation plans or amendments if not materially
consistent with our historical equity compensation practices.
The rights and restrictions under the investor agreement are
subject to termination upon the occurrence of certain events.
Bayer
HealthCare LLC
In October 2006, we entered into a license and collaboration
agreement with Bayer HealthCare to globally develop, and
commercialize outside the United States, the VEGF Trap-Eye.
Under the terms of the agreement, Bayer HealthCare made a
non-refundable, up-front payment to us of $75.0 million. In
August 2007, we received a $20.0 million milestone payment
from Bayer HealthCare following dosing of the first patient in
the Phase 3 study of the VEGF Trap-Eye in wet AMD, and are
eligible to receive up to $90.0 million in additional
development and regulatory milestones related to the VEGF
Trap-Eye program. 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 HealthCare 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 HealthCare out of our share of
the collaboration profits for 50% of the agreed upon development
expenses that Bayer HealthCare has incurred (or half of
$25.4 million at December 31, 2007) in accordance
with a formula based on the amount of development expenses that
Bayer HealthCare 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 retain exclusive rights to any future
profits from commercialization.
35
Agreed upon development expenses incurred by both companies in
2007 under a global development plan were shared as follows: The
first $50.0 million was shared equally and we were solely
responsible for up to the next $40.0 million. Neither party
was reimbursed for any development expenses that it incurred
prior to 2007.
In 2008, agreed upon VEGF Trap-Eye development expenses incurred
by both companies under a global development plan will be shared
as follows: Up to the first $70.0 million will be shared
equally, we are solely responsible for up to the next
$30.0 million, and over $100.0 million will be shared
equally. In 2009 and thereafter, all development expenses will
be shared equally. We are also obligated to use commercially
reasonable efforts to supply clinical and commercial product
requirements.
Bayer HealthCare 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.
For the period from the collaborations inception in
October 2006 through September 30, 2007, all up-front
licensing, milestone, and cost-sharing payments received or
receivable from Bayer HealthCare had been fully deferred and
included in deferred revenue for financial statement purposes.
In the fourth quarter of 2007, we and Bayer HealthCare approved
a global development plan for the VEGF Trap-Eye in wet AMD. The
plan includes estimated development steps, timelines, and costs,
as well as the projected responsibilities of each of the
companies. In addition, in the fourth quarter of 2007, we and
Bayer HealthCare reaffirmed the companies commitment to a
DME development program and had initial estimates of development
costs for the VEGF Trap-Eye in DME. As a result, effective in
the fourth quarter of 2007, we determined the appropriate
accounting policy for payments from Bayer HealthCare and
cost-sharing of our and Bayer HealthCares VEGF Trap-Eye
development expenses, and the financial statement
classifications and periods in which past and future payments
from Bayer HealthCare (including the $75.0 million up-front
payment and development and regulatory milestone payments) and
cost-sharing of VEGF Trap-Eye development expenses will be
recognized in our Statement of Operations.
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. 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.
36
Other
Agreements
AstraZeneca
In February 2007, we entered into a non-exclusive license
agreement with AstraZeneca UK Limited that allows 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 is required to 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.
Astellas
In March 2007, we entered into a non-exclusive license agreement
with Astellas Pharma Inc. that allows Astellas to utilize our
VelocImmune technology in its internal research programs
to discover human monoclonal antibodies. Under the terms of the
agreement, Astellas made a $20.0 million non-refundable,
up-front payment to us. Astellas is required to 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 Astellas using our VelocImmune
technology.
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 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 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 are generating 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 are 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 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 were not
restated.
37
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 were 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 $28.0 million,
$18.4 million, and $19.9 million for the years ended
December 31, 2007, 2006, and 2005, respectively. In
addition, for the year ended December 31, 2005,
$0.1 million of Stock Option Expense was capitalized into
inventory. As of December 31, 2007, there was
$60.6 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 1.8 years. In addition, there
are 723,092 options which are unvested as of December 31,
2007 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 2007, 2006, and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
53%
|
|
|
|
67%
|
|
|
|
71%
|
|
Expected lives from grant date
|
|
|
5.6 years
|
|
|
|
6.5 years
|
|
|
|
5.9 years
|
|
Expected dividend yield
|
|
|
0%
|
|
|
|
0%
|
|
|
|
0%
|
|
Risk-free interest rate
|
|
|
3.60%
|
|
|
|
4.51%
|
|
|
|
4.16%
|
|
Changes in any of these assumptions may materially affect the
fair value of stock options granted and the amount of
stock-based compensation recognized in any period.
38
Results
of Operations
Years
Ended December 31, 2007 and 2006
Net
Loss:
Regeneron reported a net loss of $105.6 million, or $1.59
per share (basic and diluted), for the year ended
December 31, 2007, compared to a net loss of
$102.3 million, or $1.77 per share (basic and diluted) for
2006.
Revenues:
Revenues for the years ended December 31, 2007 and 2006
consist of the following:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Contract research & development revenue
|
|
|
|
|
|
|
|
|
Sanofi-aventis
|
|
$
|
51.7
|
|
|
$
|
47.8
|
|
Bayer HealthCare
|
|
|
35.9
|
|
|
|
|
|
Other
|
|
|
9.0
|
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
Total contract research & development revenue
|
|
|
96.6
|
|
|
|
51.1
|
|
Contract manufacturing revenue
|
|
|
|
|
|
|
12.3
|
|
Technology licensing revenue
|
|
|
28.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
125.0
|
|
|
$
|
63.4
|
|
|
|
|
|
|
|
|
|
|
We recognize revenue from sanofi-aventis, in connection with our
aflibercept and antibody collaborations, 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 non-refundable, up-front payments of
$105.0 million related to the aflibercept collaboration and
$85.0 million related to the antibody collaboration.
Non-refundable, up-front payments are recorded as deferred
revenue and recognized over the period over which we are
obligated to perform services. We estimate our performance
periods based on the specific terms of the collaboration
agreements, and adjust the performance periods, if appropriate,
based on the applicable facts and circumstances.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Sanofi-aventis Contract Research & Development
Revenue
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Aflibercept:
|
|
|
|
|
|
|
|
|
Regeneron expense reimbursement
|
|
$
|
38.3
|
|
|
$
|
36.4
|
|
Recognition of deferred revenue related to up-front payments
|
|
|
8.8
|
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
Total aflibercept
|
|
|
47.1
|
|
|
|
47.8
|
|
|
|
|
|
|
|
|
|
|
Antibody:
|
|
|
|
|
|
|
|
|
Regeneron expense reimbursement
|
|
|
3.7
|
|
|
|
|
|
Recognition of deferred revenue related to up-front payments
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total antibody
|
|
|
4.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sanofi-aventis contract research & development
revenue
|
|
$
|
51.7
|
|
|
$
|
47.8
|
|
|
|
|
|
|
|
|
|
|
Sanofi-aventis reimbursement of Regenerons
aflibercept expenses increased in 2007 compared to 2006,
primarily due to higher preclinical and clinical development
costs. Recognition of deferred revenue related to
sanofi-aventis up-front aflibercept payments decreased in
2007 from 2006 due to an extension of the estimated performance
period over which this deferred revenue is being recognized. As
of December 31, 2007, $61.2 million
39
of the original $105.0 million of up-front payments related
to aflibercept was deferred and will be recognized as revenue in
future periods.
In 2007, sanofi-aventis reimbursement of Regenerons
antibody expenses consisted of $3.0 million under the
collaborations discovery agreement and $0.7 million
of REGN88 development costs under the license agreement.
Recognition of deferred revenue under the antibody collaboration
related to sanofi-aventis $85.0 million up-front
payment. As of December 31, 2007, $84.1 million of
this up-front payment was deferred and will be recognized as
revenue in future periods.
As described above, effective in the fourth quarter of 2007, the
Company determined the appropriate accounting policy for
payments from Bayer HealthCare. The $75.0 million up-front
licensing payment and the $20.0 million milestone payment
(which was received in August 2007 and not considered
substantive) from Bayer HealthCare are being recognized as
contract research and development revenue over the related
estimated performance period in accordance with SAB 104 and
EITF 00-21.
In periods when we recognize VEGF Trap-Eye development expenses
that we incur under the collaboration, we also recognize, as
contract research and development revenue, the portion of those
VEGF Trap-Eye development expenses that is reimbursable from
Bayer HealthCare. In periods when Bayer HealthCare incurs agreed
upon VEGF Trap-Eye development expenses that benefit the
collaboration and Regeneron, we also recognize, as additional
research and development expense, the portion of Bayer
HealthCares VEGF Trap-Eye development expenses that we are
obligated to reimburse. In the fourth quarter of 2007, when we
commenced recognizing previously deferred payments from Bayer
HealthCare and cost-sharing of our and Bayer HealthCares
2007 VEGF Trap-Eye development expenses, we recognized, as a
cumulative catch-up, contract research and development revenue
of $35.9 million, consisting of (i) $15.9 million
related to the $75.0 million up-front licensing payment and
the $20.0 million milestone payment, and
(ii) $20.0 million related to the portion of our 2007
VEGF Trap-Eye development expenses that is reimbursable from
Bayer HealthCare. As of December 31, 2007,
$79.1 million of the up-front licensing and milestone
payments was deferred and will be recognized as revenue in
future periods.
Other contract research and development revenue includes
$5.5 million and $0.5 million, respectively,
recognized in connection with our five-year grant from the NIH,
which we were awarded in September 2006 as part of the
NIHs Knockout Mouse Project.
Contract manufacturing revenue in 2006 related 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. Revenue and the related
manufacturing expense were recognized as product was shipped,
after acceptance by Merck. Included in contract manufacturing
revenue in 2006 was $1.2 million 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.
In connection with our license agreement with AstraZeneca, as
described above, the $20.0 million non-refundable, up-front
payment, which we received in February 2007, was deferred and is
being recognized as revenue ratably over the twelve month period
beginning in February 2007. In connection with our license
agreement with Astellas, as described above, the
$20.0 million non-refundable, up-front payment, which we
received in April 2007, was deferred and is being recognized as
revenue ratably over the twelve month period beginning in June
2007. For the year ended December 31, 2007, we recognized
$28.4 million of technology licensing revenue related to
these agreements.
40
Expenses:
Total operating expenses increased to $239.5 million in
2007 from $171.1 million in 2006. Our average employee
headcount in 2007 increased to 627 from 573 in 2006, primarily
to support our expanded development programs for the VEGF
Trap-Eye and
ARCALYSTtm
and our activities to move our first antibody candidate (REGN88)
into clinical trials. Operating expenses in 2007 and 2006
include a total of $28.0 million and $18.4 million of
Stock Option Expense, respectively, as detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
Expenses Before
|
|
|
|
|
|
|
|
|
|
Inclusion of Stock
|
|
|
Stock Option
|
|
|
Expenses as
|
|
Expenses
|
|
Option Expense
|
|
|
Expense
|
|
|
Reported
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
185.5
|
|
|
$
|
16.1
|
|
|
$
|
201.6
|
|
General and administrative
|
|
|
26.0
|
|
|
|
11.9
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
211.5
|
|
|
$
|
28.0
|
|
|
$
|
239.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in total Stock Option Expense in 2007 was primarily
due to the higher fair market value of our Common Stock on the
date of our annual employee option grants made in December 2006
in comparison to the fair market value of our Common Stock on
the dates of annual employee option grants made in recent prior
years.
Research
and Development Expenses:
Research and development expenses increased to
$201.6 million for the year ended December 31, 2007
from $137.1 million for 2006. The following table
summarizes the major categories of our research and development
expenses for the years ended December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Research and Development Expenses
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Payroll and benefits (1)
|
|
$
|
60.6
|
|
|
$
|
44.8
|
|
|
$
|
15.8
|
|
Clinical trial expenses
|
|
|
37.6
|
|
|
|
14.9
|
|
|
|
22.7
|
|
Clinical manufacturing costs (2)
|
|
|
47.0
|
|
|
|
39.2
|
|
|
|
7.8
|
|
Research and preclinical development costs
|
|
|
23.2
|
|
|
|
17.5
|
|
|
|
5.7
|
|
Occupancy and other operating costs
|
|
|
22.6
|
|
|
|
20.7
|
|
|
|
1.9
|
|
Cost-sharing of Bayer HealthCare VEGF Trap-Eye development
expenses (3)
|
|
|
10.6
|
|
|
|
|
|
|
|
10.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
201.6
|
|
|
$
|
137.1
|
|
|
$
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $13.1 million and $8.4 million of Stock
Option Expense for the years ended December 31, 2007 and
2006, respectively. |
|
(2) |
|
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, |
41
|
|
|
|
|
depreciation, and occupancy costs of our Rensselaer
manufacturing facility. Includes $3.0 million and
$1.8 million of Stock Option Expense for the years ended
December 31, 2007 and 2006, respectively. |
|
(3) |
|
Under our collaboration with Bayer HealthCare, in periods when
Bayer HealthCare incurs VEGF Trap-Eye development expenses, we
also recognize, as additional research and development expense,
the portion of their VEGF Trap-Eye development expenses that we
are obligated to reimburse. In the fourth quarter of 2007, when
we commenced recognizing cost-sharing of our and Bayer
HealthCares 2007 VEGF Trap-Eye development expenses, we
recognized as additional research and development expense a
cumulative catch-up of $10.6 million of VEGF Trap-Eye
development expenses that we were obligated to reimburse to
Bayer HealthCare. |
Payroll and benefits increased primarily due to the increase in
employee headcount, as described above, annual compensation
increases effective in 2007, and higher Stock Option Expense, as
described above. Clinical trial expenses increased due primarily
to higher costs related to our Phase 3 study of the VEGF
Trap-Eye in wet AMD, which we initiated in the third quarter of
2007, and our ongoing Phase 1 and 2 studies of the VEGF Trap-Eye
in wet AMD. Clinical manufacturing costs increased due primarily
to higher costs related to manufacturing
ARCALYSTtm
and preclinical and clinical supplies of REGN88, which were
partly offset by lower costs related to manufacturing
aflibercept and the VEGF Trap-Eye. Research and preclinical
development costs increased primarily due to higher costs
related to our human monoclonal antibody programs, including
REGN88, and utilization of our proprietary technology platforms.
Occupancy and other operating costs primarily increased in
connection with higher Company headcount and to support our
expanded research and development activities.
We budget our research and development costs by expense
category, rather than by project. We also prepare estimates of
research and development cost for projects in clinical
development, which include direct costs and allocations of
certain costs such as indirect labor, Stock Option Expense, and
manufacturing and other costs related to activities that benefit
multiple projects, and, under our collaboration with Bayer
HealthCare, the portion of Bayer HealthCares VEGF Trap-Eye
development expenses that we are obligated to reimburse. Our
estimates of research and development costs for clinical
development programs are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Project Costs
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
ARCALYSTtm
|
|
$
|
38.1
|
|
|
$
|
29.6
|
|
|
$
|
8.5
|
|
Aflibercept
|
|
|
33.7
|
|
|
|
30.7
|
|
|
|
3.0
|
|
VEGF Trap-Eye
|
|
|
53.7
|
|
|
|
21.9
|
|
|
|
31.8
|
|
REGN88
|
|
|
13.6
|
|
|
|
|
|
|
|
13.6
|
|
Other research programs & unallocated costs
|
|
|
62.5
|
|
|
|
54.9
|
|
|
|
7.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
201.6
|
|
|
$
|
137.1
|
|
|
$
|
64.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Drug development and approval in the United States is a
multi-step process regulated by the FDA. The process begins with
discovery and preclinical evaluation, leading up to the
submission of an IND to the FDA which, if successful, allows the
opportunity for study in humans, or clinical study, of the
potential new drug. Clinical development typically involves
three phases of study: Phase 1, 2, and 3. The most significant
costs in clinical development are in Phase 3 clinical trials, as
they tend to be the longest and largest studies in the drug
development process. Following successful completion of Phase 3
clinical trials for a biological product, a biologics license
application (or BLA) must be submitted to, and accepted by, the
FDA, and the FDA must approve the BLA prior to commercialization
of the drug. It is not uncommon for the FDA to request
additional data following its review of a BLA, which can
significantly increase the drug development timeline and
expenses. We may elect either on our own, or at the request of
the FDA, to conduct further studies that are referred to as
Phase 3B and 4 studies. Phase 3B studies are initiated and
either completed or substantially completed while the BLA is
under FDA review. These studies are conducted under an IND.
Phase 4 studies, also referred to as post-marketing studies, are
studies that are initiated and conducted after the FDA has
approved a product for marketing. In addition, as discovery
research, preclinical development, and clinical programs
progress, opportunities to expand development of drug candidates
into new disease indications can emerge. We may elect to add
such new disease indications to our development efforts (with
the approval of our collaborator for joint development
programs), thereby extending the period in
42
which we will be developing a product. For example, we, and our
collaborators, where applicable, continue to explore further
development of
ARCALYSTtm,
aflibercept, and the VEGF Trap-Eye in different disease
indications.
There are numerous uncertainties associated with drug
development, including uncertainties related to safety and
efficacy data from each phase of drug development, uncertainties
related to the enrollment and performance of clinical trials,
changes in regulatory requirements, changes in the competitive
landscape affecting a product candidate, and other risks and
uncertainties described in Item 1A, Risk
Factors under Risks Related to Development of Our
Product Candidates, Regulatory and Litigation
Risks, and Risks Related to Commercialization of
Products. The lengthy process of seeking FDA approvals,
and subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources.
Any failure by us to obtain, or delay in obtaining, regulatory
approvals could materially adversely affect our business.
For these reasons and due to the variability in the costs
necessary to develop a product and the uncertainties related to
future indications to be studied, the estimated cost and scope
of the projects, and our ultimate ability to obtain governmental
approval for commercialization, accurate and meaningful
estimates of the total cost to bring our product candidates to
market are not available. Similarly, we are currently unable to
reasonably estimate if our product candidates will generate
product revenues and material net cash inflows. In the second
quarter of 2007, we submitted a BLA for
ARCALYSTtm
for the treatment of CAPS, a group of rare genetic disorders. We
cannot predict whether or when the commercialization of
ARCALYSTtm
in CAPS will result in a material net cash inflow to us.
Contract
Manufacturing Expenses:
We had no contract manufacturing expenses in 2007 compared to
$8.1 million in 2006, due to the expiration of our
manufacturing agreement with Merck in October 2006.
General
and Administrative Expenses:
General and administrative expenses increased to
$37.9 million in 2007 from $25.9 million in the same
period of 2006 primarily due to (i) higher Stock Option
Expense, as described above, (ii) higher compensation
expense principally due to annual increases effective in 2007
and higher administrative headcount to support our expanded
research and development activities, (iii) recruitment and
related costs associated with expanding our headcount in 2007,
(iv) higher fees for consultants and other professional
services on various corporate matters, and (v) market
research and related expenses incurred in 2007 in connection
with our
ARCALYSTtm
and VEGF Trap-Eye programs.
Other
Income and Expense:
Investment income increased to $20.9 million in 2007 from
$16.5 million in 2006, resulting primarily from higher
balances of cash and marketable securities (due, in part, to the
up-front payment received from Bayer HealthCare in October 2006,
as described above, and the receipt of net proceeds from the
November 2006 public offering of our Common Stock). This
increase was partly offset by a $5.9 million charge in 2007
related to marketable securities which we considered to be other
than temporarily impaired in value. In the second half of 2007,
deterioration in the credit quality of marketable securities
from two issuers has subjected us to the risk of being unable to
recover their full principal value, which totals
$14.0 million. Interest expense was $12.0 million in
2007 and 2006. Interest expense is attributable primarily to
$200.0 million of convertible notes issued in October 2001,
which mature in October 2008 and bear interest at 5.5% per annum.
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.
43
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
|
|
|
|
|
|
|
|
|
|
|
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 over the period over
which we are obligated to perform services. 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.
|
|
|
|
|
|
|
|
|
|
|
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 aflibercept
expenses increased in 2006 compared to 2005, primarily due to
higher costs related to our manufacture of aflibercept 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 aflibercept 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.
In October 2006 we entered into our VEGF Trap-Eye collaboration
with Bayer HealthCare. In the fourth quarter of 2007, we
determined the appropriate accounting policy for payments from
Bayer HealthCare and, in 2007, commenced recognizing previously
deferred payments in our Statement of Operations through a
cumulative
catch-up, as
described above. Accordingly, there was no contract research and
development revenue earned from Bayer HealthCare in 2006. As of
December 31, 2006, the $75.0 million up-front payment
received from Bayer HealthCare 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, which expired in October 2006, to
manufacture a vaccine intermediate at our Rensselaer 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
44
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.)
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
|
|
|
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
|
|
|
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
|
|
|
(Decrease)
|
|
|
Payroll and benefits (1)
|
|
$
|
44.8
|
|
|
$
|
53.6
|
|
|
$
|
(8.8
|
)
|
Clinical trial expenses
|
|
|
14.9
|
|
|
|
18.2
|
|
|
|
(3.3
|
)
|
Clinical manufacturing costs (2)
|
|
|
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) |
|
Includes $8.4 million and $10.5 million of Stock
Option Expense for the years ended December 31, 2006 and
2005, respectively. |
|
(2) |
|
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. |
45
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 workforce
reduction plan that we initiated in October 2005. Clinical trial
expenses decreased primarily due to lower
ARCALYSTtm
costs in 2006 as we discontinued clinical development of
ARCALYSTtm
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
ARCALYSTtm
clinical supplies, which were partially offset by higher costs
related to manufacturing aflibercept 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.
We budget our research and development costs by expense
category, rather than by project. We also prepare estimates of
research and development cost for projects in clinical
development, which include direct costs and allocations of
certain costs such as indirect labor, non-cash stock-based
employee compensation expense related to stock option awards,
and manufacturing and other costs related to activities that
benefit multiple projects. Our estimates of research and
development costs for clinical development programs are shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Project Costs
|
|
2006
|
|
|
2005
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
ARCALYSTTM
|
|
$
|
29.6
|
|
|
$
|
57.2
|
|
|
$
|
(27.6
|
)
|
Aflibercept
|
|
|
30.7
|
|
|
|
27.8
|
|
|
|
2.9
|
|
VEGF Trap-Eye
|
|
|
21.9
|
|
|
|
9.3
|
|
|
|
12.6
|
|
Other research programs & unallocated costs
|
|
|
54.9
|
|
|
|
61.3
|
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
137.1
|
|
|
$
|
155.6
|
|
|
$
|
(18.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the reasons described above under Research and
Development Expenses for the years ended December 31,
2007 and 2006, and due to the variability in the costs necessary
to develop a product and the uncertainties related to future
indications to be studied, the estimated cost and scope of the
projects, and our ultimate ability to obtain governmental
approval for commercialization, accurate and meaningful
estimates of the total cost to bring our product candidates to
market are not available. Similarly, we are currently unable to
reasonably estimate if our product candidates will generate
product revenues and material net cash inflows.
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
46
develop and commercialize aflibercept 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 HealthCare 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.
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, payments earned under our past
and present research and development and contract manufacturing
agreements, including our agreements with sanofi-aventis, Bayer
HealthCare, and Merck, and investment income.
Years
Ended December 31, 2007 and 2006
At December 31, 2007, we had $846.3 million in cash,
cash equivalents, restricted cash and marketable securities
compared with $522.9 million at December 31, 2006. In
connection with our non-exclusive license agreements with
AstraZeneca and Astellas, as described above, AstraZeneca and
Astellas each made an up-front payment to us of
$20.0 million in February and April 2007, respectively. In
August 2007, we received a $20.0 million milestone payment
from Bayer HealthCare following dosing of the first patient in
our Phase 3 study of the VEGF Trap-Eye in wet AMD. In December
2007, we received an $85.0 million upfront payment in
connection with our new collaboration with sanofi-aventis to
discover, develop, and commercialize fully human monoclonal
antibodies. Sanofi-aventis also purchased 12 million newly
issued, unregistered shares of our Common Stock in December 2007
for gross proceeds to us of $312.0 million.
Cash
Provided by Operations:
Net cash provided by operations was $27.4 million in 2007
and $23.1 million in 2006, and net cash used in operations
was $30.3 million in 2005. Our net losses of
$105.6 million in 2007, $102.3 million in 2006, and
$95.4 million in 2005 included $28.1 million,
$18.7 million, and $21.9 million, respectively, of
non-cash stock-based employee compensation costs, consisting
primarily of Stock Option Expense. Our net losses also included
depreciation and amortization of $11.5 million,
$14.6 million, and $15.5 million in 2007, 2006, and
2005, respectively, and a $5.9 million non-cash charge in
2007 related to marketable securities which we considered to be
other than temporarily impaired in value.
In 2007, end-of-year accounts receivable increased by
$10.8 million compared to 2006 due to higher receivable
balances related to our collaborations with sanofi-aventis and
Bayer HealthCare. Also, prepaid expenses and other assets
increased $9.6 million at December 31, 2007 compared
to end-of-year 2006 due primarily to higher prepaid clinical
trial costs. At December 31, 2007, our deferred revenue
balances increased by $89.8 million, compared to
end-of-year 2006, due primarily to (i) the
$85.0 million up-front payment received from
sanofi-aventis, (ii) the $20.0 million milestone
payment from Bayer HealthCare which was deemed to be
non-substantive and fully deferred, and (iii) the two
$20.0 million up-front payments received from each of
AstraZeneca and Astellas, all as described above, partly offset
by 2007 revenue recognition, principally from these deferred
payments and prior year deferred payments from sanofi-aventis
and Bayer HealthCare, in our Statement of Operations. Accounts
payable, accrued expenses, and other liabilities increased
$18.2 million at December 31, 2007 compared to
end-of-year 2006 primarily due to a $4.9 million
cost-sharing payment due to Bayer Healthcare in connection with
the companies VEGF Trap-Eye collaboration and higher
accruals in 2007 for payroll costs and clinical-related expenses.
In 2006, end-of-year accounts receivable balances decreased by
$29.0 million compared to 2005, due to the January 2006
receipt of a $25.0 million up-front payment from
sanofi-aventis, which was receivable at December 31, 2005,
in connection with an amendment to our aflibercept collaboration
to include Japan, and lower amounts due from sanofi aventis for
reimbursement of aflibercept development expenses. Also, our
deferred revenue balances at December 31, 2006 increased by
$60.8 million compared to end-of-year 2005, due primarily
to the October 2006 $75.0 million up-front payment from
Bayer, as described above, partly offset by 2006 revenue
47
recognition from deferred sanofi-aventis up-front payments. In
2005, our deferred revenue balances increased by
$14.5 million 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 from deferred
sanofi-aventis up-front payments.
The majority of our cash expenditures in 2007, 2006, and 2005
were to fund research and development, primarily related to our
clinical programs and, in 2007, our preclinical human monoclonal
antibody programs. In 2007, 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 $85.7 million in
2007 and $155.1 million in 2006, and net cash provided by
investing activities was $115.5 million in 2005. In 2007
and 2006, purchases of marketable securities exceeded sales or
maturities by $67.3 million and $150.7 million,
respectively, whereas in 2005, sales or maturities of marketable
securities exceeded purchases by $120.5 million. In
addition, capital expenditures in 2007 included the purchase of
land and a building in Rensselaer, NY for $9.0 million.
Cash
Provided by Financing Activities:
Cash provided by financing activities was $319.4 million in
2007, $185.4 million in 2006, and $4.1 million in
2005. In 2007, sanofi-aventis purchased 12 million newly
issued, unregistered shares of our Common Stock for gross
proceeds to us of $312.0 million. In 2006, we completed a
public offering of 7.6 million shares of our Common Stock
and received proceeds, after expenses, of $174.6 million.
In addition, proceeds from issuances of Common Stock in
connection with exercises of employee stock options were
$7.6 million in 2007, $10.4 million in 2006, and
$4.1 million in 2005.
Collaborations
with the sanofi-aventis Group:
Aflibercept
Under our aflibercept collaboration agreement with
sanofi-aventis, as described under Collaborations
above, agreed upon worldwide aflibercept 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 an aflibercept product for
intraocular delivery to the eye predates the first commercial
sale of an aflibercept product under the collaboration by two
years, we will begin reimbursing sanofi-aventis for up to
$7.5 million of aflibercept development expenses in
accordance with a formula until the first commercial aflibercept
sale under the collaboration occurs. Since inception of the
collaboration agreement through December 31, 2007, we and
sanofi-aventis have incurred $306.8 million in agreed upon
development expenses related to aflibercept. Currently, multiple
clinical studies to evaluate aflibercept as both a single agent
and in combination with other therapies in various cancer
indications are ongoing, and we and sanofi-aventis plan to
initiate additional aflibercept clinical studies in 2008.
Sanofi-aventis funded $38.3 million, $36.4 million,
and $33.9 million, respectively, of our aflibercept
development costs in 2007, 2006, and 2005, of which
$10.5 million, $6.8 million, and $10.5 million,
respectively, were included in accounts receivable as of
December 31, 2007, 2006, and 2005. In addition, we 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 over the period during
which we expect to perform services. In 2007, 2006, and 2005, we
recognized $8.8 million, $11.4 million, and
$9.5 million of revenue, respectively, related to these
up-front payments.
48
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 aflibercept
development expenses will terminate and we will retain all
rights to aflibercept.
Antibodies
As part of the discovery agreement under our collaboration with
sanofi-aventis to discover, develop, and commercialize fully
human monoclonal antibodies, as described under
Collaborations above, sanofi-aventis will fund up to
$475.0 million of our research through December 31,
2012, subject to specified funding limits of $75.0 million
for the period from the collaborations inception through
December 31, 2008, and $100.0 million annually in each
of the next four years. The discovery agreement will expire on
December 31, 2012; however, sanofi-aventis has an option to
extend the agreement for up to an additional three years for
further antibody development and preclinical activities.
As part of the license agreement under the collaboration, agreed
upon worldwide development expenses incurred by both companies
during the term of the agreement will be funded by
sanofi-aventis, except that following receipt of the first
positive Phase 3 trial results for a co-developed drug
candidate, subsequent Phase 3 trial-related costs (called Shared
Phase 3 Trial Costs) for that drug candidate will be shared 80%
by sanofi-aventis and 20% by us. If the collaboration becomes
profitable, we will be obligated to reimburse sanofi-aventis for
50% of development expenses that were fully funded by
sanofi-aventis (or half of $0.7 million as of
December 31, 2007) and 30% of Shared Phase 3 Trial Costs,
in accordance with a defined formula based on the amounts of
these expenses and our share of the collaboration profits from
commercialization of collaboration products. The first
therapeutic antibody to enter clinical development under the
collaboration is REGN88, which has started clinical trials in
rheumatoid arthritis. The second is expected to be a Dll4
antibody, which is currently slated to enter clinical
development in mid-2008.
In 2007, sanofi-aventis funded $3.0 million of our expenses
under the collaborations discovery agreement and
$0.7 million of our REGN88 development costs under the
license agreement. These amounts were included in accounts
receivable as of December 31, 2007. In addition, the
$85.0 million up-front payment received from sanofi-aventis
in December 2007 was recorded to deferred revenue and is being
recognized as contract research and development revenue over the
period during which we expect to perform services. In 2007, we
recognized $0.9 million related to this up-front payment.
With respect to each antibody product which enters development
under the license agreement, sanofi-aventis or we may, by giving
twelve months notice, opt-out of further development
and/or
commercialization of the product, in which event the other party
retains exclusive rights to continue the development
and/or
commercialization of the product. We may also opt-out of the
further development of an antibody product if we give notice to
sanofi-aventis within thirty days of the date that
sanofi-aventis enters joint development of such antibody product
under the license agreement. Each of the discovery agreement and
the license agreement contains other termination provisions,
including for material breach by the other party and, in the
case of the discovery agreement, a termination right for
sanofi-aventis under certain circumstances, including if certain
minimal criteria for the discovery program are not achieved.
Prior to December 31, 2012, sanofi-aventis has the right to
terminate the discovery agreement without cause with at least
three months advance written notice; however, except under
defined circumstances, sanofi-aventis would be obligated to
immediately pay to us the full amount of unpaid research funding
during the remaining term of the research agreement through
December 31, 2012. Upon termination of the collaboration in
its entirety, our obligation to reimburse sanofi-aventis for
development costs out of any future profits from collaboration
products will terminate.
Collaboration
with Bayer HealthCare:
Under our collaboration agreement with Bayer HealthCare, as
described under Collaborations above, agreed upon
VEGF Trap-Eye development expenses incurred by both companies in
2007 under a global development plan, were shared as follows:
The first $50.0 million was shared equally and we were
solely responsible for up to the next $40.0 million. In
2007, cost-sharing between Bayer HealthCare and us of VEGF
Trap-Eye development expenses resulted in (i) reimbursement
of $14.3 million of our VEGF Trap-Eye development expenses
by Bayer HealthCare,
49
of which $2.8 million was included in accounts receivable
at December 31, 2007, and (ii) payment of
$4.9 million of Bayer HealthCare VEGF Trap-Eye development
expenses by us, which was included in accrued expenses at
December 31, 2007. Neither party was reimbursed for any
development expenses that it incurred prior to 2007.
In 2008, agreed upon VEGF Trap-Eye development expenses incurred
by both companies under a global development plan will be shared
as follows: Up to the first $70.0 million will be shared
equally, we are solely responsible for up to the next
$30.0 million, and over $100.0 million will be shared
equally. In 2009 and thereafter, all development expenses will
be shared equally.
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 HealthCare out of our share of the collaboration
profits for 50% of the agreed upon development expenses that
Bayer HealthCare has incurred (or half of $25.4 million as
of December 31, 2007) in accordance with a formula based on
the amount of development expenses that Bayer HealthCare has
incurred and our share of the collaboration profits, or at a
faster rate at our option. In 2007, we and Bayer HealthCare
initiated a Phase 3 study of the VEGF Trap-Eye in wet AMD. A
second Phase 3 study of the VEGF Trap-Eye in wet AMD is planned
for 2008.
We received a $75.0 million up-front payment in October
2006 and a $20.0 non-substantive milestone payment in August
2007 from Bayer HealthCare in connection with our collaboration.
Both payments were recorded to deferred revenue and are being
recognized as contract research and development revenue over the
period during which we expect to perform services. In 2007, we
recognized $15.9 million of revenue related to these
deferred payments. We did not recognize revenue in connection
with our collaboration with Bayer HealthCare in 2006.
Bayer HealthCare 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 are 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 2007 and 2006, we recognized $5.5 million and
$0.5 million, respectively, of revenue related to the NIH
Grant, of which $1.0 million and $0.5 million,
respectively, was receivable at the end of 2007 and 2006. In
2008, we expect to receive funding of approximately
$5 million for reimbursement of Regeneron expenses related
to the NIH Grant.
License
Agreement with AstraZeneca and Astellas:
Under these non-exclusive license agreements, AstraZeneca and
Astellas each made a $20.0 million non-refundable, up-front
payment to us in February and April 2007, respectively.
AstraZeneca and Astellas are each required to make up to five
additional annual payments of $20.0 million, subject to
each licensees ability to terminate its license agreement
with us after making the first three additional payments or
earlier 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.
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
50
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. If the price per share of our Common
Stock is above $30.25 at maturity, we would expect the notes
would be converted into shares of Common Stock. Otherwise, we
will be required to repay the $200.0 million aggregate
principal amount of the notes or refinance the notes prior to
maturity; however, we can provide no assurance that we will be
able to successfully arrange such refinancing.
New
Operating Lease Tarrytown, New York
Facilities:
We currently lease approximately 232,000 square feet of
laboratory and office facilities in Tarrytown, New York under
operating lease agreements. 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 are under construction and
expected to be completed in
mid-2009. In
2007, we amended the December 2006 operating lease agreement to
increase the amount of new space we will lease from
approximately 194,000 square feet to approximately
230,000 square feet, for an amended total under the new
lease of approximately 257,000 square feet. The term of the
lease is now expected to commence in mid-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
$19.6 million in 2007, $3.3 million in 2006, and
$4.7 million in 2005. In 2008, we expect to incur
approximately $55 to $65 million in capital expenditures
primarily in connection with expanding our manufacturing
capacity at our Rensselaer, New York facilities and tenant
improvements and related costs in connection with our new
Tarrytown operating lease, as described above. We expect that
approximately $30 million of projected 2008 Tarrytown
tenant improvement costs will be reimbursed by our landlord in
connection with our new operating lease.
Funding
Requirements:
Our total expenses for research and development from inception
through December 31, 2007 have been approximately
$1,352 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 HealthCare, 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 $108.2 million,
$43.4 million, and $42.2 million in 2007, 2006, and
2005, respectively.
51
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 2008 will be directed toward the
preclinical and clinical development of product candidates,
including
ARCALYSTtm,
aflibercept, VEGF Trap-Eye, and monoclonal antibodies (including
REGN88 and the Dll4 antibody); approximately
15-20% of
our expenditures for 2008 will be applied to our basic research
and early preclinical activities and the remainder of our
expenditures for 2008 will be used for the continued development
of our novel technology platforms, capital expenditures, and
general corporate purposes.
In connection with our funding requirements, the following table
summarizes our contractual obligations as of December 31,
2007. These obligations and commitments assume non-termination
of agreements and represent expected payments based on current
operating forecasts, which are subject to change:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
$
|
211.0
|
|
|
$
|
211.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases (2)
|
|
|
253.0
|
|
|
|
5.1
|
|
|
$
|
24.6
|
|
|
$
|
29.7
|
|
|
$
|
193.6
|
|
Purchase obligations (3)
|
|
|
125.9
|
|
|
|
60.4
|
|
|
|
65.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
589.9
|
|
|
$
|
276.5
|
|
|
$
|
90.1
|
|
|
$
|
29.7
|
|
|
$
|
193.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 under construction in Tarrytown,
New York, as described above. Excludes future contingent rental
costs for utilities, real estate taxes, and operating expenses.
In 2007, these costs were $8.8 million. |
|
(3) |
|
Purchase obligations primarily relate to (i) research and
development commitments, including those related to clinical
trials, (ii) capital expenditures for equipment
acquisitions, and (iii) license payments. Our obligation to
pay certain of these amounts may increase or be reduced based on
certain future events. Open purchase orders for the acquisition
of goods and services in the ordinary course of business are
excluded from the table above. |
Under our collaboration with Bayer HealthCare, over the next
several years we and Bayer HealthCare will share agreed upon
VEGF Trap-Eye development expenses incurred by both companies,
under a global development plan, as described above. In
addition, under our collaboration agreements with sanofi-aventis
and Bayer HealthCare, if the applicable collaboration becomes
profitable, we have contingent contractual obligations to
reimburse sanofi- aventis and Bayer HealthCare for a defined
percentage (generally 50%) of
agreed-upon
development expenses incurred by sanofi-aventis and Bayer
HealthCare, respectively. Profitability under each collaboration
will be measured by calculating net sales less
agreed-upon
expenses. These reimbursements would be deducted from our share
of the collaboration profits (and, for our aflibercept
collaboration with sanofi-aventis, royalties on product sales in
Japan) otherwise payable to us unless we agree to reimburse
these expenses at a faster rate at our option. Given the
uncertainties related to drug development (including the
development of aflibercept and co-developed antibody candidates
in collaboration with sanofi-aventis and the VEGF Trap-Eye in
collaboration with Bayer HealthCare) such as the variability in
the length of time necessary to develop a product candidate and
the ultimate ability to obtain governmental approval for
commercialization, we are currently unable to reliably estimate
if our collaborations with sanofi-aventis and Bayer HealthCare
will become profitable.
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
HealthCare. 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
52
parties, the costs for manufacturing the product candidate for
use in the trials, and for 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, including
funding we are entitled to receive under our collaboration
agreements, will enable us to meet operating needs through at
least 2012. 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, 2007, 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
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 contract research and development revenue 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.
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.
Substantive performance milestones typically consist of
significant achievements in the development life-cycle of the
related product candidate, such as completion of clinical
trials, filing for approval with regulatory agencies, and
approvals by regulatory agencies. In determining whether a
payment is deemed to be a substantive performance milestone, we
take into consideration (i) the nature, timing, and value
of significant achievements in the development life-cycle of the
related development product candidate, (ii) the relative
level of effort required to achieve the milestone, and
(iii) the relative level of risk in achieving the
milestone, taking into account the high degree of uncertainty in
successfully advancing product candidates in a drug development
program and in ultimately attaining an approved drug product.
Payments for achieving milestones which are not considered
substantive are accounted for as license payments and recognized
over the related performance period.
53
We enter into collaboration agreements that include varying
arrangements regarding which parties perform and bear the costs
of research and development activities. We may share the costs
of research and development activities with our collaborator,
such as in our VEGF Trap-Eye collaboration with Bayer
HealthCare, or we may be reimbursed for all or a significant
portion of the costs of our research and development activities,
such as in our aflibercept and antibody collaborations with
sanofi-aventis. We record our internal and third-party
development costs associated with these collaborations as
research and development expenses. When we are entitled to
reimbursement of all or a portion of the research and
development expenses that we incur under a collaboration, we
record those reimbursable amounts as contract research and
development revenue proportionately as we recognize our
expenses. If the collaboration is a cost-sharing arrangement in
which both we and our collaborator perform development work and
share costs, in periods when our collaborator incurs development
expenses that benefit the collaboration and Regeneron, we also
recognize, as additional research and development expense, the
portion of the collaborators development expenses that we
are obligated to reimburse. In addition, we record revenue in
connection with a government research grant using a proportional
performance model as we incur expenses related to the grant,
subject to the grants terms and annual funding approvals.
In connection with non-refundable licensing payments, our
performance period estimates are principally based on
projections of the scope, progress, and results of our research
and development activities. Due to the variability in the scope
of activities and length of time necessary to develop a drug
product, changes to development plans as programs progress, and
uncertainty in the ultimate requirements to obtain governmental
approval for commercialization, revisions to performance period
estimates are possible, and could result in material changes to
the amount of revenue recognized each year in the future. In
addition, performance periods may be extended if development
programs encounter delays or we and our collaborators decide to
expand our clinical plans for a drug candidate into additional
disease indications. Also, if a collaborator terminates an
agreement in accordance with the terms of the agreement, we
would recognize any unamortized remainder of an up-front or
previously deferred payment at the time of the termination. For
the year ended December 31, 2006, changes in estimates of
our performance periods, including an extension of our estimated
performance period for our aflibercept collaboration with
sanofi-aventis, did not have a material impact on contract
research and development revenue that we recognized. For the
year ended December 31, 2007, we recognized
$2.6 million less in contract research and development
revenue, compared to amounts recognized in 2006, in connection
with $105.0 million of non-refundable up-front payments
previously received from sanofi-aventis pursuant to the
companies aflibercept collaboration, due to an extension
of our estimated performance period.
Clinical
Trial Expenses:
Clinical trial costs are a significant component of research and
development expenses and include costs associated with
third-party contractors. We outsource a substantial portion of
our clinical trial activities, utilizing external entities such
as contract research organizations, independent clinical
investigators, and other third-party service providers to assist
us with the execution of our clinical studies. For each clinical
trial that we conduct, certain clinical trial costs are expensed
immediately, while others are expensed over time 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.
Clinical activities which relate principally to clinical sites
and other administrative functions to manage our clinical trials
are performed primarily by contract research organizations
(CROs). CROs typically perform most of the
start-up
activities for our trials, including document preparation, site
identification, screening and preparation, pre-study visits,
training, and program management. On a budgeted basis, these
start-up
costs are typically 10% to 15% of the total contract value. On
an actual basis, this percentage range can be significantly
wider, as many of our contracts with CROs are either expanded or
reduced in scope compared to the original budget, while
start-up
costs for the particular trial may not change materially. These
start-up
costs usually occur within a few months after the contract has
been executed and are event driven in nature. The remaining
activities and related costs, such as patient monitoring and
administration, generally occur ratably throughout the life of
the individual contract or study. In the event of early
termination of a clinical trial, we accrue and recognize
expenses in an amount based on our estimate of the remaining
non-cancelable obligations associated with the winding down of
the clinical trial
and/or
penalties.
54
For clinical study sites, where payments are made periodically
on a per-patient basis to the institutions performing the
clinical study, we accrue on an estimated
cost-per-patient
basis an expense based on subject enrollment and activity in
each quarter. The amount of clinical study expense recognized in
a quarter may vary from period to period based on the duration
and progress of the study, the activities to be performed by the
sites each quarter, the required level of patient enrollment,
the rate at which patients actually enroll in and drop-out of
the clinical study, and the number of sites involved in the
study. Clinical trials that bear the greatest risk of change in
estimates are typically those that have a significant number of
sites, require a large number of patients, have complex patient
screening requirements, and span multiple years. During the
course of a trial, we adjust our rate of clinical expense
recognition if actual results differ from our estimates. Our
estimates and assumptions for clinical expense recognition could
differ significantly from our actual results, which could cause
material increases or decreases in research and development
expenses in future periods when the actual results become known.
No material adjustments to our past clinical trial accrual
estimates were made during the years ended December 31,
2007 or 2006.
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
55
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 were 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 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 September 2006, the Financial Accounting Standards Board
(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.
SFAS 157 is effective for financial statements issued for
fiscal years beginning after November 15, 2007, however on
December 14, 2007, the FASB issued a proposed staff
position (FSP
FAS 157-b)
which would delay the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008. We are required to adopt
SFAS 157 as it relates to our financial assets and
financial liabilities effective for the fiscal year beginning
January 1, 2008, and as it relates to our nonfinancial
assets and nonfinancial liabilities for the fiscal year
beginning January 1, 2009. Our management does not
anticipate that the adoption of SFAS 157 will have a
material impact on our financial statements.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities.
SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
We are required to adopt SFAS 159 effective for the fiscal
year beginning January 1, 2008. Our management does not
anticipate that the adoption of SFAS 159 will have a
material impact on our financial statements.
In June 2007, the Emerging Issues Task Force issued Statement
No. 07-3,
Accounting for Non-refundable Advance Payments for Goods or
Services to Be Used in Future Research and Development
Activities
(EITF 07-3).
EITF 07-3
addresses how entities involved in research and development
activities should account for the non-refundable portion of an
advance payment made for future research and development
activities and requires that such payments be deferred and
capitalized, and recognized as an expense when the goods are
delivered or the related services are performed.
EITF 07-3
is effective for fiscal years beginning after December 15,
2007, including interim periods within those fiscal years. We
are required to adopt
EITF 07-3
effective for the fiscal year beginning January 1, 2008.
Our management does not anticipate that the adoption of
EITF 07-3
will have a material impact on our financial statements.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
Interest
Rate 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.
56
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 approximately a $1.9 million
and $1.7 million decrease in the fair value of our
investment portfolio at December 31, 2007 and 2006,
respectively. The increase in the potential impact of an
interest rate change at December 31, 2007, compared to
December 31, 2006, is due primarily to slight increases in
our investment portfolios duration to maturity at the end
of 2007 versus the end of 2006.
Credit
Quality Risk:
We have an investment policy that includes guidelines on
acceptable investment securities, minimum credit quality,
maturity parameters, and concentration and diversification.
Nonetheless, deterioration of the credit quality of an
investment security subsequent to purchase may subject us to the
risk of not being able to recover the full principal value of
the security. In 2007, we recognized a $5.9 million charge
related to marketable securities which we considered to be other
than temporarily impaired in value.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The financial statements required by this Item are included on
pages F-1 through F-38 of this report. The supplementary
financial information required by this Item is included at pages
F-37 and F-38 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.
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, 2007. The effectiveness of our internal
control over financial reporting as of December 31, 2007
has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
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, 2007 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
57
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 2008 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 2008 Annual Meeting of
Shareholders to be filed with the SEC, and is incorporated
herein by reference.
|
|
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 Equity Compensation Plan Information,
Security Ownership of Management and Stock
Ownership of Certain Beneficial Owners in our definitive
proxy statement with respect to our 2008 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 Elections of Directors and Review of
Transactions with Related Persons in our definitive proxy
statement with respect to our 2008 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 2008 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
58
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
|
|
|
|
|
|
Restated Certificate of Incorporation, filed February 11,
2008 with the New York Secretary of State.
|
|
3
|
.2
|
|
(a)
|
|
|
|
By-Laws of the Company, currently in effect (amended through
November 9, 2007).
|
|
10
|
.1
|
|
(b)
|
|
|
|
1990 Amended and Restated Long-Term Incentive Plan.
|
|
10
|
.2
|
|
(c)
|
|
|
|
2000 Long-Term Incentive Plan.
|
|
10
|
.3.1
|
|
(d)
|
|
|
|
Amendment No. 1 to 2000 Long-Term Incentive Plan, effective
as of June 14, 2002.
|
|
10
|
.3.2
|
|
(d)
|
|
|
|
Amendment No. 2 to 2000 Long-Term Incentive Plan, effective
as of December 20, 2002.
|
|
10
|
.3.3
|
|
(e)
|
|
|
|
Amendment No. 3 to 2000 Long-term Incentive Plan, effective
as of June 14, 2004.
|
|
10
|
.3.4
|
|
(f)
|
|
|
|
Amendment No. 4 to 2000 Long-term Incentive Plan, effective
as of November 15, 2004.
|
|
10
|
.3.5
|
|
(g)
|
|
|
|
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
|
|
(g)
|
|
|
|
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.
|
|
10
|
.3.7
|
|
(h)
|
|
|
|
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
|
|
(d)
|
|
|
|
Employment Agreement, dated as of December 20, 2002,
between the Company and Leonard S.
Schleifer, M.D., Ph.D.
|
|
10
|
.5*
|
|
(i)
|
|
|
|
Employment Agreement, dated as of December 31, 1998,
between the Company and P. Roy Vagelos, M.D.
|
|
10
|
.6
|
|
(j)
|
|
|
|
Regeneron Pharmaceuticals, Inc. Change in Control Severance
Plan, effective as of February 1, 2006.
|
|
10
|
.7
|
|
(k)
|
|
|
|
Indenture, dated as of October 17, 2001, between Regeneron
Pharmaceuticals, Inc. and American Stock Transfer &
Trust Company, as trustee.
|
|
10
|
.8
|
|
(k)
|
|
|
|
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*
|
|
(l)
|
|
|
|
IL-1 License Agreement, dated June 26, 2002, by and among
the Company, Immunex Corporation, and Amgen Inc.
|
|
10
|
.10*
|
|
(m)
|
|
|
|
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*
|
|
(n)
|
|
|
|
Collaboration Agreement, dated as of September 5, 2003, by
and between Aventis Pharmaceuticals Inc. and Regeneron
Pharmaceuticals, Inc.
|
|
10
|
.11.1*
|
|
(i)
|
|
|
|
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
|
|
(o)
|
|
|
|
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*
|
|
(p)
|
|
|
|
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*
|
|
(p)
|
|
|
|
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.
|
59
|
|
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.12
|
|
(n)
|
|
|
|
Stock Purchase Agreement, dates as of September 5, 2003, by
and between Aventis Pharmaceuticals Inc. and Regeneron
Pharmaceuticals, Inc.
|
|
10
|
.13*
|
|
(q)
|
|
|
|
License and Collaboration Agreement, dated as of
October 18, 2006, by and between Bayer HealthCare LLC and
Regeneron Pharmaceuticals, Inc.
|
|
10
|
.14*
|
|
(r)
|
|
|
|
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
|
|
(s)
|
|
|
|
Lease, dated as of December 21, 2006, by and between
BMR-Landmark
at Eastview LLC and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.16*
|
|
(t)
|
|
|
|
Non Exclusive License and Material Transfer Agreement, dated as
of March 30, 2007, by and between Astellas Pharma Inc. and
Regeneron Pharmaceuticals, Inc.
|
|
10
|
.17*
|
|
(u)
|
|
|
|
First Amendment to Lease, by and between
BMR-Landmark
at Eastview LLC and Regeneron Pharmaceuticals, Inc., effective
as of October 24, 2007.
|
|
10
|
.18*
|
|
|
|
|
|
Discovery and Preclinical Development Agreement, dated as of
November 28, 2007, by and between Aventis Pharmaceuticals
Inc. and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.19*
|
|
|
|
|
|
License and Collaboration Agreement, dated as of
November 28, 2007, by and among Aventis Pharmaceuticals
Inc., sanofi-aventis Amerique Du Nord and Regeneron
Pharmaceuticals, Inc.
|
|
10
|
.20
|
|
|
|
|
|
Stock Purchase Agreement, dated as of November 28, 2007, by
and among sanofi-aventis Amerique Du Nord, sanofi-aventis US LLC
and Regeneron Pharmaceuticals, Inc.
|
|
10
|
.21
|
|
|
|
|
|
Investor Agreement, dated as of December 20, 2007, by and
among sanofi-aventis, sanofi-aventis US LLC, Aventis
Pharmaceuticals Inc., sanofi-aventis Amerique du Nord, 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 8-K
for Regeneron Pharmaceuticals, Inc., filed November 13,
2007. |
|
(b) |
|
Incorporated by reference from the Companys registration
statement on
Form S-1
(file number
33-39043). |
|
(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, 2002, filed March 31, 2003. |
|
(e) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
June 30, 2004, filed August 5, 2004. |
|
(f) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed November 17,
2004. |
|
(g) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 16,
2005. |
|
(h) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 13,
2004. |
|
(i) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc. for the fiscal year ended
December 31, 2004, filed March 11, 2005. |
|
(j) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed January 25, 2006. |
|
(k) |
|
Incorporated by reference from the Companys registration
statement on
Form S-3
(file number
333-74464). |
60
|
|
|
(l) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
June 30, 2002, filed August 13, 2002. |
|
(m) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
March 31, 2003, filed May 15, 2003. |
|
(n) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc. for the quarter ended
September 30, 2003, filed November 11, 2003. |
|
(o) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. |
|
(p) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc., for the fiscal year ended
December 31, 2005, filed February 28, 2006. |
|
(q) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed October 18, 2006. |
|
(r) |
|
Incorporated by reference from the
Form 10-K
for Regeneron Pharmaceuticals, Inc for the year ended
December 31, 2006, filed March 12, 2007. |
|
(s) |
|
Incorporated by reference from the
Form 8-K
for Regeneron Pharmaceuticals, Inc., filed December 22,
2006. |
|
(t) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc for the quarter ended
March 31, 2007, filed May 4, 2007. |
|
(u) |
|
Incorporated by reference from the
Form 10-Q
for Regeneron Pharmaceuticals, Inc for the quarter ended
September 31, 2007, filed November 7, 2007. |
|
|
|
* |
|
Portions of this document have been omitted and filed separately
with the Commission pursuant to requests for confidential
treatment pursuant to Rule 24b-2. |
61
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
|
February 27, 2008
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
|
62
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ Michael
S. Brown
Michael
S. Brown, M.D.
|
|
Director
|
|
|
|
/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/ George
L. Sing
George
L. Sing
|
|
Director
|
63
REGENERON
PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
Page
|
|
|
Numbers
|
|
|
|
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5 to F-6
|
|
|
F-7
|
|
|
F-8 to F-38
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:
In our opinion, the accompanying balance sheets and the related
statements of operations, stockholders equity and cash
flows present fairly, in all material respects, the financial
position of Regeneron Pharmaceuticals, Inc. at December 31,
2007 and 2006, and the results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in Managements Report on Internal
Control over Financial Reporting appearing under Item 9A.
Our responsibility is to express opinions on these financial
statements and on the Companys internal control over
financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
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. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
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.
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
February 27, 2008
F-2
REGENERON
PHARMACEUTICALS, INC.
BALANCE SHEETS
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
498,925
|
|
|
$
|
237,876
|
|
Marketable securities
|
|
|
267,532
|
|
|
|
221,400
|
|
Accounts receivable from the sanofi-aventis Group
|
|
|
14,244
|
|
|
|
6,900
|
|
Accounts receivable other
|
|
|
4,076
|
|
|
|
593
|
|
Prepaid expenses and other current assets
|
|
|
13,052
|
|
|
|
3,215
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
797,829
|
|
|
|
469,984
|
|
Restricted cash
|
|
|
1,600
|
|
|
|
1,600
|
|
Marketable securities
|
|
|
78,222
|
|
|
|
61,983
|
|
Property, plant, and equipment, at cost, net of accumulated
depreciation and amortization
|
|
|
58,304
|
|
|
|
49,353
|
|
Other assets
|
|
|
303
|
|
|
|
2,170
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
936,258
|
|
|
$
|
585,090
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES and STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
39,232
|
|
|
$
|
21,471
|
|
Deferred revenue from sanofi-aventis, current portion
|
|
|
18,855
|
|
|
|
8,937
|
|
Deferred revenue other, current portion
|
|
|
25,577
|
|
|
|
14,606
|
|
Notes payable
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
283,664
|
|
|
|
45,014
|
|
Deferred revenue from sanofi-aventis
|
|
|
126,431
|
|
|
|
61,013
|
|
Deferred revenue other
|
|
|
65,896
|
|
|
|
62,439
|
|
Notes payable
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
475,991
|
|
|
|
368,466
|
|
|
|
|
|
|
|
|
|
|
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 2,260,266 in 2007 and
2,270,353 in 2006
|
|
|
2
|
|
|
|
2
|
|
Common Stock, $.001 par value; 160,000,000 shares
authorized;
|
|
|
|
|
|
|
|
|
shares issued and outstanding 76,592,218 in 2007 and
63,130,962 in 2006
|
|
|
77
|
|
|
|
63
|
|
Additional paid-in capital
|
|
|
1,253,235
|
|
|
|
904,407
|
|
Accumulated deficit
|
|
|
(793,217
|
)
|
|
|
(687,617
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
170
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
460,267
|
|
|
|
216,624
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
936,258
|
|
|
$
|
585,090
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-3
REGENERON
PHARMACEUTICALS, INC.
STATEMENTS
OF OPERATIONS
For the
Years Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands, except per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract research and development from sanofi-aventis
|
|
$
|
51,687
|
|
|
$
|
47,763
|
|
|
$
|
43,445
|
|
Other contract research and development
|
|
|
44,916
|
|
|
|
3,373
|
|
|
|
9,002
|
|
Contract manufacturing
|
|
|
|
|
|
|
12,311
|
|
|
|
13,746
|
|
Technology licensing
|
|
|
28,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,024
|
|
|
|
63,447
|
|
|
|
66,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
201,613
|
|
|
|
137,064
|
|
|
|
155,581
|
|
Contract manufacturing
|
|
|
|
|
|
|
8,146
|
|
|
|
9,557
|
|
General and administrative
|
|
|
37,865
|
|
|
|
25,892
|
|
|
|
25,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,478
|
|
|
|
171,102
|
|
|
|
190,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(114,454
|
)
|
|
|
(107,655
|
)
|
|
|
(124,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contract income (includes $25.0 million from
sanofi-aventis)
|
|
|
|
|
|
|
|
|
|
|
30,640
|
|
Investment income
|
|
|
20,897
|
|
|
|
16,548
|
|
|
|
10,381
|
|
Interest expense
|
|
|
(12,043
|
)
|
|
|
(12,043
|
)
|
|
|
(12,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,854
|
|
|
|
4,505
|
|
|
|
28,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effect of a change in accounting
principle
|
|
|
(105,600
|
)
|
|
|
(103,150
|
)
|
|
|
(95,446
|
)
|
Cumulative effect of adopting Statement of Financial Accounting
Standards No. 123R (SFAS 123R)
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(105,600
|
)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before cumulative effect of a change in accounting
principle
|
|
$
|
(1.59
|
)
|
|
$
|
(1.78
|
)
|
|
$
|
(1.71
|
)
|
Cumulative effect of adopting SFAS 123R
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1.59
|
)
|
|
$
|
(1.77
|
)
|
|
$
|
(1.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
66,334
|
|
|
|
57,970
|
|
|
|
55,950
|
|
F-4
REGENERON
PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2004
|
|
|
2,358
|
|
|
$
|
2
|
|
|
|
53,502
|
|
|
$
|
54
|
|
|
$
|
675,389
|
|
|
$
|
(2,299
|
)
|
|
$
|
(489,834
|
)
|
|
$
|
(769
|
)
|
|
$
|
182,543
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Continued)
|
F-5
REGENERON
PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS EQUITY
(Continued)
For the Years Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 connection with exercise of stock
options, net of shares tendered
|
|
|
|
|
|
|
|
|
|
|
886
|
|
|
|
1
|
|
|
|
7,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,619
|
|
|
|
|
|
Issuance of Common Stock to sanofi-aventis
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
12
|
|
|
|
311,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312,000
|
|
|
|
|
|
Cost associated with issuance of equity securities to
sanofi-aventis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(219
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(219
|
)
|
|
|
|
|
Issuance of Common Stock in connection with Company 401(k)
Savings Plan contribution
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
1,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,367
|
|
|
|
|
|
Issuance of restricted Common Stock under Long- Term Incentive
Plan
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class A Stock to Common Stock
|
|
|
(10
|
)
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,075
|
|
|
|
|
|
Net loss, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(105,600
|
)
|
|
|
|
|
|
|
(105,600
|
)
|
|
$
|
(105,600
|
)
|
Change in net unrealized gain (loss) on marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401
|
|
|
|
401
|
|
|
|
401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
2,260
|
|
|
$
|
2
|
|
|
|
76,592
|
|
|
$
|
77
|
|
|
$
|
1,253,235
|
|
|
|
|
|
|
$
|
(793,217
|
)
|
|
$
|
170
|
|
|
$
|
460,267
|
|
|
$
|
(105,199
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial
statements.
F-6
REGENERON
PHARMACEUTICALS, INC.
STATEMENTS
OF CASH FLOWS
For the
Years Ended December 31, 2007, 2006, and 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(105,600
|
)
|
|
$
|
(102,337
|
)
|
|
$
|
(95,446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided
|
|
|
|
|
|
|
|
|
|
|
|
|
by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,487
|
|
|
|
14,592
|
|
|
|
15,504
|
|
Non-cash compensation expense
|
|
|
28,075
|
|
|
|
18,675
|
|
|
|
21,859
|
|
Impairment charge on marketable securities
|
|
|
5,943
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle
|
|
|
|
|
|
|
(813
|
)
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
|
(10,827
|
)
|
|
|
29,028
|
|
|
|
6,581
|
|
(Increase) decrease in prepaid expenses and other assets
|
|
|
(9,649
|
)
|
|
|
155
|
|
|
|
74
|
|
Decrease in inventory
|
|
|
|
|
|
|
3,594
|
|
|
|
1,250
|
|
Increase in deferred revenue
|
|
|
89,764
|
|
|
|
60,833
|
|
|
|
14,469
|
|
Increase (decrease) in accounts payable, accrued expenses,
|
|
|
|
|
|
|
|
|
|
|
|
|
and other liabilities
|
|
|
18,179
|
|
|
|
(652
|
)
|
|
|
5,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
132,972
|
|
|
|
125,412
|
|
|
|
65,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
27,372
|
|
|
|
23,075
|
|
|
|
(30,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of marketable securities
|
|
|
(594,446
|
)
|
|
|
(456,893
|
)
|
|
|
(102,990
|
)
|
Sales or maturities of marketable securities
|
|
|
527,169
|
|
|
|
306,199
|
|
|
|
223,448
|
|
Capital expenditures
|
|
|
(18,446
|
)
|
|
|
(2,811
|
)
|
|
|
(4,964
|
)
|
Increase in restricted cash
|
|
|
|
|
|
|
(1,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(85,723
|
)
|
|
|
(155,105
|
)
|
|
|
115,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of Common Stock
|
|
|
319,400
|
|
|
|
185,008
|
|
|
|
4,081
|
|
Other
|
|
|
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
319,400
|
|
|
|
185,398
|
|
|
|
4,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
261,049
|
|
|
|
53,368
|
|
|
|
89,279
|
|
Cash and cash equivalents at beginning of period
|
|
|
237,876
|
|
|
|
184,508
|
|
|
|
95,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
498,925
|
|
|
$
|
237,876
|
|
|
$
|
184,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
|
$
|
11,002
|
|
The accompanying notes are an integral part of the financial
statements.
F-7
REGENERON
PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2007, 2006, and 2005
(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.
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-8
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 contract research and development revenue
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).
The Company earns contract research and development revenue and
research progress payments 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 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.
Substantive performance milestones typically consist of
significant achievements in the development life-cycle of the
related product candidate, such as completion of clinical trials
and approvals by regulatory agencies. In determining whether a
payment is deemed to be a substantive performance milestone, the
Company takes into consideration (i) the nature, timing,
and value of significant achievements in the development
life-cycle of the related development product candidate,
(ii) the relative level of effort required to achieve the
milestone, and (iii) the relative level of risk in
achieving the milestone, taking into account the high degree of
uncertainty in successfully advancing product candidates in a
drug development program and in ultimately attaining an approved
drug product. Payments for achieving milestones which are not
considered substantive are accounted for as license payments and
recognized over the related performance period.
The Company enters into collaboration agreements that include
varying arrangements regarding which parties perform and bear
the costs of research and development activities. The Company
may share the costs of research and development activities with
a collaborator, such as in the Companys VEGF Trap-Eye
collaboration with Bayer HealthCare LLC, or the Company may be
reimbursed for all or a significant portion of the costs of the
Companys research and development activities, such as in
the Companys aflibercept and antibody collaborations with
sanofi-aventis. The Company records its internal and third-party
development costs associated with these collaborations as
research and development expenses. When the Company is entitled
to reimbursement of all or a portion of the research and
development expenses that it incurs under a collaboration, the
Company records those reimbursable amounts as contract research
and development revenue proportionately as the Company
recognizes its expenses. If the collaboration is a cost-sharing
arrangement in which both the Company and its collaborator
perform development work and share costs, in periods when the
Companys collaborator incurs development expenses that
benefit the collaboration and Regeneron, the Company also
recognizes, as additional research and development expense, the
portion of the collaborators development expenses that the
Company is obligated to reimburse. In addition, the Company
records revenue in connection with a government research grant
using a proportional performance model as it incurs expenses
related to the grant, subject to the grants terms and
annual funding approvals.
In connection with non-refundable licensing payments, the
Companys performance period estimates are principally
based on projections of the scope, progress, and results of its
research and development activities. Due to the variability in
the scope of activities and length of time necessary to develop
a drug product, changes to development plans as programs
progress, and uncertainty in the ultimate requirements to obtain
governmental approval for commercialization, revisions to
performance period estimates are possible, and could result in
material changes to the amount of revenue recognized each year
in the future. In addition, performance periods may be extended
if the Company and its collaborators decide to expand the
clinical plans for a drug candidate into
F-9
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
additional disease indications. Also, if a collaborator
terminates an agreement in accordance with the terms of the
agreement, the Company would recognize any unamortized remainder
of an up-front or previously deferred payment at the time of the
termination.
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).
c. Technology Licensing
The Company enters into non-exclusive license agreements with
third parties that allow the third party to utilize the
Companys
VelocImmune®
technology in its internal research programs. The terms of these
agreements include annual, non-refundable, up-front payments and
entitle the Company to receive royalties on any future sales of
products discovered by the third party using the Companys
VelocImmune technology (see Note 12). Annual,
non-refundable, up-front payments under these agreements, where
continuing involvement is required of the Company, are deferred
and recognized ratably over their respective annual license
periods.
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 10), 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, amounts
that the Company is obligated to reimburse to collaborators for
research and development expenses that they incur (see
Note 11), 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.
Clinical trial costs are a significant component of research and
development expenses and include costs associated with
third-party contractors. The Company outsources a substantial
portion of its clinical trial activities, utilizing external
entities such as contract research organizations, independent
clinical investigators, and other third-party service providers
to assist the Company with the execution of its clinical
studies. For each clinical trial that the Company conducts,
certain clinical trial costs are expensed immediately, while
others are expensed over time 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.
Clinical activities which relate principally to clinical sites
and other administrative functions to manage the Companys
clinical trials are performed primarily by contract research
organizations (CROs). CROs typically perform most of
the start-up
activities for the Companys trials, including document
preparation, site identification, screening and preparation,
pre-study visits, training, and program management. On a
budgeted basis, these
start-up
costs are typically 10% to 15% of the total contract value. On
an actual basis, this percentage range can be significantly
wider, as many of the Companys contracts are either
expanded or reduced in scope compared to the original budget,
while
start-up
costs for the particular trial may not change materially. These
start-up
costs usually occur within a few months after the contract has
been executed and are event driven in nature. The remaining
F-10
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
activities and related costs, such as patient monitoring and
administration, generally occur ratably throughout the life of
the individual contract or study. In the event of early
termination of a clinical trial, the Company accrues and
recognizes expenses in an amount based on its estimate of the
remaining non-cancelable obligations associated with the winding
down of the clinical trial
and/or
penalties.
For clinical study sites, where payments are made periodically
on a per-patient basis to the institutions performing the
clinical study, the Company accrues on an estimated
cost-per-patient
basis an expense based on subject enrollment and activity in
each quarter. The amount of clinical study expense recognized in
a quarter may vary from period to period based on the duration
and progress of the study, the activities to be performed by the
sites each quarter, the required level of patient enrollment,
the rate at which patients actually enroll in and drop-out of
the clinical study, and the number of sites involved in the
study. Clinical trials that bear the greatest risk of change in
estimates are typically those that have a significant number of
sites, require a large number of patients, have complex patient
screening requirements, and span multiple years. During the
course of a trial, the Company adjusts its rate of clinical
expense recognition if actual results differ from the
Companys estimates. The Companys estimates and
assumptions for clinical expense recognition could differ
significantly from its actual results, which could cause
material increases or decreases in research and development
expenses in future periods when the actual results become known.
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. Basic net
income (loss) per share excludes restricted stock awards until
vested. 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, 2007, 2006, and 2005
does not include common stock equivalents, since such inclusion
would be antidilutive. 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)
The Company presents comprehensive income (loss) in accordance
with SFAS 130, Reporting Comprehensive Income.
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 losses
for the years ended December 31, 2007, 2006, and 2005 have
been included in the Statements of Stockholders Equity.
F-11
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
Concentrations
of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash, cash equivalents,
marketable securities, and receivables from sanofi-aventis and
Bayer HealthCare. The Company generally invests its excess cash
in obligations of the U.S. government and its agencies,
investment grade debt securities issued by corporations,
governments, and financial institutions, bank deposits,
asset-backed securities, commercial paper, and money market
funds that invest in these instruments. The Company has an
investment policy that includes guidelines on acceptable
investment securities, minimum credit quality, maturity
parameters, and concentration and diversification. Nonetheless,
deterioration of the credit quality of an investment security
subsequent to purchase may subject the Company to the risk of
not being able to recover the full principal value of the
security. The Company recognizes a charge to earnings in a
period when the Company considers a marketable security to be
other than temporarily impaired in value.
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 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 for past contract manufacturing
activities, 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 2007 was primarily
earned from sanofi-aventis and Bayer HealthCare under
collaboration agreements (see Note 11 for the terms of
these agreements). The Company recognizes revenue from its
collaborations with sanofi-aventis and Bayer HealthCare in
accordance with SAB 104 and
EITF 00-21,
as described above. These collaboration agreements contain early
termination provisions, as defined, by sanofi-aventis or Bayer
HealthCare, as applicable.
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 licensing 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-
F-12
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
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.
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 were 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.
For the years ended December 31, 2007, 2006, and 2005,
$28.0 million, $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.
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 2007, 2006, and 2005, the Company recognized
$0.1 million, $0.3 million, and $1.9 million,
respectively, of compensation expense related to Restricted
Stock awards, the fair value of which is expensed, on a pro rata
basis, over the period that the restrictions on the shares lapse
(see Note 14).
Included in accounts payable and accrued expenses at
December 31, 2007, 2006, and 2005 were $1.7 million,
$0.8 million, and $0.2 million of capital
expenditures, respectively.
Included in accounts payable and accrued expenses at
December 31, 2006, 2005, and 2004 were $1.4 million,
$1.9 million, and $0.6 million, respectively, of
accrued 401(k) Savings Plan contribution expense. During the
first quarter of 2007, 2006, and 2005, the Company contributed
64,532, 120,960, and 90,385 shares, respectively, of Common
Stock to the 401(k) Savings Plan in satisfaction of these
obligations.
F-13
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
Included in marketable securities at December 31, 2007,
2006, and 2005 were $2.2 million, $1.5 million, and
$1.2 million of accrued interest income, respectively.
Future
Impact of Recently Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board
(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. SFAS 157 is
effective for financial statements issued for fiscal years
beginning after November 15, 2007, however on
December 14, 2007, the FASB issued a proposed staff
position (FSP
FAS 157-b)
which would delay the effective date of SFAS 157 for
nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008. The Company is required
to adopt SFAS 157 as it relates to the Companys
financial assets and financial liabilities effective for the
fiscal year beginning January 1, 2008, and as it relates to
the Companys nonfinancial assets and nonfinancial
liabilities for the fiscal year beginning January 1, 2009.
Management does not anticipate that the adoption of
SFAS 157 will have a material impact on the Companys
financial statements.
In February 2007, the FASB issued SFAS 159, The Fair
Value Option for Financial Assets and Financial Liabilities.
SFAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. SFAS 159 is effective for financial statements
issued for fiscal years beginning after November 15, 2007.
The Company is required to adopt SFAS 159 effective for the
fiscal year beginning January 1, 2008. Management does not
anticipate that the adoption of SFAS 159 will have a
material impact on the Companys financial statements.
In June 2007, the Emerging Issues Task Force issued Statement
No. 07-3,
Accounting for Non-refundable Advance Payments for Goods or
Services to Be Used in Future Research and Development
Activities
(EITF 07-3).
EITF 07-3
addresses how entities involved in research and development
activities should account for the non-refundable portion of an
advance payment made for future research and development
activities and requires that such payments be deferred and
capitalized, and recognized as an expense when the goods are
delivered or the related services are performed.
EITF 07-3
is effective for fiscal years beginning after December 15,
2007, including interim periods within those fiscal years. The
Company is required to adopt
EITF 07-3
effective for the fiscal year beginning January 1, 2008.
Management does not anticipate that the adoption of
EITF 07-3
will have a material impact 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 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 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
F-14
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
Costs 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, 2006, and 2007 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liability
|
|
|
|
Costs charged to
|
|
|
Costs paid or
|
|
|
at December 31,
|
|
|
|
expense in 2007
|
|
|
settled in 2007
|
|
|
2007
|
|
|
Employee severance, payroll taxes, and benefits
|
|
$
|
43
|
|
|
$
|
(106
|
)
|
|
$
|
|
|
These severance costs are included in the Companys
Statement of Operations for the years ended December 31,
2007, 2006, and 2005 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
R&D
|
|
|
R&D
|
|
|
G&A
|
|
|
R&D
|
|
|
G&A
|
|
|
Employee severance, payroll taxes, and benefits
|
|
$
|
43
|
|
|
$
|
317
|
|
|
$
|
(2
|
)
|
|
$
|
1,734
|
|
|
$
|
52
|
|
Other severance costs
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
206
|
|
|
|
|
|
Non-cash expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43
|
|
|
$
|
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, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Unrealized Holding
|
|
|
|
Cost Basis
|
|
|
Value
|
|
|
Gains
|
|
|
(Losses)
|
|
|
Net
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal bonds
|
|
$
|
69,213
|
|
|
$
|
69,263
|
|
|
$
|
74
|
|
|
$
|
(24
|
)
|
|
$
|
50
|
|
Asset-backed securities
|
|
|
73,939
|
|
|
|
73,706
|
|
|
|
99
|
|
|
|
(332
|
)
|
|
|
(233
|
)
|
Commercial paper
|
|
|
64,846
|
|
|
|
64,870
|
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
24
|
|
U.S. government obligations
|
|
|
50,386
|
|
|
|
50,475
|
|
|
|
89
|
|
|
|
|
|
|
|
89
|
|
Certificates of deposit
|
|
|
9,220
|
|
|
|
9,218
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,604
|
|
|
|
267,532
|
|
|
|
287
|
|
|
|
(359
|
)
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities between one and two years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal bonds
|
|
|
49,724
|
|
|
|
49,947
|
|
|
|
289
|
|
|
|
(66
|
)
|
|
|
223
|
|
Asset-backed securities
|
|
|
20,295
|
|
|
|
20,323
|
|
|
|
173
|
|
|
|
(145
|
)
|
|
|
28
|
|
Commercial paper
|
|
|
7,952
|
|
|
|
7,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,971
|
|
|
|
78,222
|
|
|
|
462
|
|
|
|
(211
|
)
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
345,575
|
|
|
$
|
345,754
|
|
|
$
|
749
|
|
|
$
|
(570
|
)
|
|
$
|
179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal bonds
|
|
$
|
25,254
|
|
|
$
|
25,221
|
|
|
|
|
|
|
$
|
(33
|
)
|
|
$
|
(33
|
)
|
Asset-backed securities
|
|
|
94,159
|
|
|
|
94,075
|
|
|
$
|
6
|
|
|
|
(90
|
)
|
|
|
(84
|
)
|
Commercial paper
|
|
|
69,547
|
|
|
|
69,535
|
|
|
|
9
|
|
|
|
(21
|
)
|
|
|
(12
|
)
|
U.S. government obligations
|
|
|
22,267
|
|
|
|
22,243
|
|
|
|
1
|
|
|
|
(25
|
)
|
|
|
(24
|
)
|
Certificates of deposit
|
|
|
10,327
|
|
|
|
10,326
|
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221,554
|
|
|
|
221,400
|
|
|
|
18
|
|
|
|
(172
|
)
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities between one and two years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal bonds
|
|
|
6,047
|
|
|
|
6,032
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
(15
|
)
|
Asset-backed securities
|
|
|
32,835
|
|
|
|
32,762
|
|
|
|
3
|
|
|
|
(76
|
)
|
|
|
(73
|
)
|
U.S. government obligations
|
|
|
23,190
|
|
|
|
23,189
|
|
|
|
6
|
|
|
|
(7
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,072
|
|
|
|
61,983
|
|
|
|
9
|
|
|
|
(98
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
283,626
|
|
|
$
|
283,383
|
|
|
$
|
27
|
|
|
$
|
(270
|
)
|
|
$
|
(243
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, cash equivalents at December 31, 2007 and 2006
included an unrealized holding loss of $9 thousand and an
unrealized holding gain of $12 thousand, respectively.
Realized gains and losses are included as a component of
investment income. For the years ended December 31, 2007,
2006, and 2005, gross realized gains and losses on sales of
marketable securities was 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. In 2007,
deterioration in the credit quality of marketable securities
from two issuers
F-16
REGENERON
PHARMACEUTICALS, INC.
NOTES TO
FINANCIAL STATEMENTS (Continued)
(Unless
otherwise noted, dollars in thousands, except per share
data)
has subjected the Company to the risk of not being able to
recover the full principal value of these securities, which
totals $14.0 million. Since market activity for these
securities is very limited, their fair values at
December 31, 2007 were developed based on information
provided by the Companys investment advisors, including
but not limited to estimated value of the assets underlying each
security and quoted bid prices, as applicable. As a result, the
Company recognized a $5.9 million charge related to these
marketable securities, which the Company considered to be other
than temporarily impaired. Excluding these other than
temporarily impaired securities, fair value of marketable
securities has been estimated based on inputs that are
observable for each security, either directly or indirectly,
through corroboration with observable market 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, 2007 and 2006. The securities
listed at December 31, 2007 mature at various dates through
December 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
|
|
|
Unrealized
|
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Unrealized Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
At December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds
|
|
$
|
36,979
|
|
|
$
|
(89
|
)
|
|
$
|
3,056
|
|
|
$
|
(1
|
)
|
|
$
|
40,035
|
|
|
$
|
(90
|
)
|
Asset-backed securities
|
|
|
18,674
|
|
|
|
(360
|
)
|
|
|
12,390
|
|
|
|
(116
|
)
|
|
|
31,064
|
|
|
|
(476
|
)
|
Commercial paper
|
|
|
14,950
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
14,950
|
|
|
|
(2
|
)
|
Certificates of deposit
|
|
|
9,218
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
9,218
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
79,821
|
|
|
$
|
(453
|
)
|
|
$
|
15,446
|
|
|
$
|
(117
|
)
|
|
$
|
95,267
|
|
|
$
|
(570
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
bonds
|
|
$
|
12,113
|
|
|
$
|
(31
|
)
|
|
$
|
12,191
|
|
|
$
|
(18
|
)
|
|
$
|
24,304
|
|
|
$
|
(49
|
)
|
Asset-backed securities
|
|
|
92,544
|
|
|
|
(161
|
)
|
|
|
891
|
|
|
|
(5
|
)
|
|
|
93,435
|
|
|
|
(166
|
)
|
Commercial paper
|
|
|
12,949
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
12,949
|
|
|
|
(20
|
)
|
U.S. government obligations
|
|
|
23,273
|
|
|
|
(25
|
)
|
|
|
2,023
|
|
|
|
(7
|
)
|
|
|
25,296
|
|
|
|
(32
|
)
|
Certificates of deposit
|
|
|
3,034
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
3,034
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
143,913
|
|
|
$
|
(240
|
)
|
|
$
|
15,105
|
|
|
$
|
(30
|
) |