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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
___________________
___________________
| (Mark One) | ||
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2009 | ||
| OR | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____ to
_____
Commission File Number
0-19034
REGENERON PHARMACEUTICALS,
INC.
(Exact name of registrant as specified in its charter)
(Exact name of registrant as specified in its charter)
| New York | 13-3444607 |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No) |
| 777 Old Saw Mill River Road, Tarrytown, New York | 10591-6707 |
| (Address of principal executive offices) | (Zip code) |
| (914) 347-7000 | |
| (Registrant’s telephone number, including area code) | |
| Securities registered pursuant to Section 12(b) of the Act: | |
| Title of each class | Name of each exchange on which registered |
| Common Stock - par value $.001 per share | Nasdaq Global Select Market |
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 whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such
files). Yes o 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
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. 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.
|
Large
accelerated filer þ
|
Accelerated
filer o
|
Non-accelerated filer o
|
Smaller
reporting company o
|
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o No þ
The aggregate market value of the
common stock held by non-affiliates of the registrant was approximately
$1,355,426,000, computed by reference to the closing sales price of the stock on
NASDAQ on June 30, 2009, the last trading day of the registrant’s most recently
completed second fiscal quarter.
The number of shares outstanding of
each of the registrant's classes of common stock as of February 12,
2010:
| Class of Common Stock | Number of Shares | ||
| Class A Stock, $.001 par value | 2,211,698 | ||
| Common Stock, $.001 par value | 79,441,680 |
DOCUMENTS INCORPORATED BY
REFERENCE:
Specified portions of the
Registrant’s definitive proxy statement to be filed in connection with
solicitation of proxies for its 2010 Annual Meeting of Shareholders are
incorporated by reference into Part III of this Form 10-K. Exhibit index is
located on pages 65 to 68 of this filing.
PART I
ITEM 1. BUSINESS
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 commercial success of our marketed product, 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 management’s 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 commercializes
pharmaceutical products for the treatment of serious medical conditions. We
currently have one marketed product: ARCALYST® (rilonacept) Injection
for Subcutaneous Use, which is available for prescription in the United States
for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including
Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS)
in adults and children 12 and older.
We have eight product candidates in clinical
development, including three that are in late-stage (Phase 3) clinical
development. Our late stage programs are rilonacept, which is being developed
for the prevention and treatment of gout-related flares; VEGF Trap-Eye, which is
being developed in eye diseases using intraocular delivery in collaboration with
Bayer HealthCare LLC; and aflibercept (VEGF Trap), which is being developed in
oncology in collaboration with the sanofi-aventis Group. Our earlier stage
clinical programs are REGN475, an antibody to Nerve Growth Factor (NGF), which
is being developed for the treatment of pain; REGN88, an antibody to the
interleukin-6 receptor (IL-6R), which is being developed in rheumatoid
arthritis; REGN421, an antibody to Delta-like ligand-4 (Dll4), which is being
developed in oncology; REGN727, an antibody to PCSK9, which is being developed
for low density lipoprotein (LDL) cholesterol reduction; and REGN668, an
antibody to the interleukin-4 receptor (IL-4R), which is being developed for
certain allergic and immune conditions. All five of our earlier stage clinical
programs are fully human antibodies that are being developed in collaboration
with sanofi-aventis.
Our core business strategy is to maintain a
strong foundation in basic scientific research and discovery-enabling
technologies and combine that foundation with our clinical development and
manufacturing capabilities. Our long-term objective is to build a successful,
integrated biopharmaceutical company that provides patients and medical
professionals with new and better options for preventing and treating human
diseases. However, developing and commercializing new medicines entails
significant risk and expense.
We believe that our ability to develop product
candidates is enhanced by the application of our VelociSuite™
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 (VelociMab™) may then be
utilized to design and produce new product candidates directed against the
disease target. Our five antibody product candidates currently in clinical
trials were developed using VelocImmune. Under
the terms of our antibody collaboration with sanofi-aventis, which was expanded
during 2009, we plan to advance an average of four to five new antibody product
candidates into clinical development each year, for an anticipated total of
30-40 candidates over the next eight years. We continue to invest in the
development of enabling technologies to assist in our efforts to identify,
develop, manufacture, and commercialize new product candidates.
1
Commercial
Product:
ARCALYST® (rilonacept) – Cryopyrin-Associated Periodic Syndromes
(CAPS)
In February 2008, we received marketing
approval from the U.S. Food and Drug Administration (FDA) for ARCALYST® (rilonacept) Injection
for Subcutaneous Use for the treatment of Cryopyrin-Associated Periodic
Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and
Muckle-Wells Syndrome (MWS) in adults and children 12 and older. We shipped
$20.0 million of ARCALYST® (rilonacept) to our
distributors in 2009, compared to $10.7 million in 2008. We own worldwide rights
to ARCALYST.
In October 2009, rilonacept was
approved under exceptional circumstances by the European Medicines Agency (EMEA)
for the treatment of CAPS with severe symptoms in adults and children aged 12
years and older. Such authorizations are permissible for products for which a
company can demonstrate that comprehensive data cannot be provided, for example,
because of the rarity of the condition. Each year, we will need to provide for
review by the EMEA any new or follow-up information that may become available.
Rilonacept is not currently marketed in the European Union.
ARCALYST is a protein-based product designed
to bind the interleukin-1 (called IL-1) cytokine and prevent its interaction
with cell surface receptors. ARCALYST is approved in the United States for
patients with CAPS, a group of rare, inherited, auto-inflammatory conditions
characterized by life-long, recurrent symptoms of rash, fever/chills, joint
pain, eye redness/pain, and fatigue. Intermittent, disruptive exacerbations or
flares can be triggered at any time by exposure to cooling temperatures, stress,
exercise, or other unknown stimuli. CAPS is caused by a range of mutations in
the gene NLRP3 (formerly known as CIAS1) which
encodes a protein named cryopyrin. In addition to FCAS and MWS, CAPS includes
Neonatal Onset Multisystem Inflammatory Disease (NOMID). ARCALYST has not been
studied for the treatment of NOMID.
Clinical
Programs:
1. Rilonacept – Inflammatory Diseases
We are evaluating rilonacept in gout, a
disease in which, as in CAPS, IL-1 may play an important role in pain and
inflammation. In September 2008, we announced the results of a Phase 2 study
which evaluated the efficacy and safety of rilonacept versus placebo in the
prevention of gout flares induced by the initiation of urate-lowering drug
therapy. In this 83-patient, double-blind, placebo-controlled study, the mean
number of flares per patient over the first 12 weeks of urate-lowering therapy
was 0.79 with placebo and 0.15 with rilonacept (p=0.0011), an 81% reduction.
This was the primary endpoint of the study. All secondary endpoints also were
met with statistical significance. In the first 12 weeks of treatment, 45.2% of
patients treated with placebo experienced a gout flare and, of those, 47.4% had
more than one flare. Among patients treated with rilonacept, only 14.6%
experienced a gout flare (p=0.0037 versus placebo) and none had more than one
flare. Injection-site reaction was the most commonly reported adverse event with
rilonacept and no serious drug-related adverse events were reported.
Results from this study after the first 16
weeks of urate-lowering therapy were reported at the annual meeting of the
European League Against Rheumatism (EULAR) in June 2009. Through 16 weeks, the
mean number of flares per patient was 0.93 with placebo and 0.22 with rilonacept
(p=0.0036). In the first 16 weeks of treatment, 47.6% of patients treated with
placebo experienced a gout flare and, of those, 55.0% had more than one flare.
Among patients treated with rilonacept, 22.0% experienced a gout flare (p=0.0209
versus placebo) and none had more than one flare. Adverse events after 16 weeks
of treatment were similar to those reported after 12 weeks with the most
frequently reported categories being infection and musculoskeletal
complaints.
Gout is characterized by high blood levels of
uric acid, a bodily waste product normally excreted by the kidneys. The uric
acid can form crystals in the joints of the toes, ankles, knees, wrists,
fingers, and elbows. Chronic treatment with uric acid-lowering medicines, such
as allopurinol, is prescribed to eliminate the uric acid crystals and prevent
reformation. During the first months of allopurinol therapy, while uric acid
blood levels are being reduced, the break up of the uric acid crystals can
result in stimulation of inflammatory mediators, including IL-1, resulting in
acute flares of joint pain and inflammation. These painful flares generally
persist for at least five days.
2
During the first quarter of 2009, we initiated
a Phase 3 clinical development program with rilonacept for the treatment of
gout. The program includes four clinical trials. Two Phase 3 clinical trials
(called PRE-SURGE 1 and PRE-SURGE 2) are evaluating rilonacept versus placebo
for the prevention of gout flares in patients initiating urate-lowering drug
therapy. A third Phase 3 trial in acute gout (SURGE) is evaluating treatment
with rilonacept alone versus rilonacept in combination with a non-steroidal
anti-inflammatory drug (NSAID) versus an NSAID alone. The fourth Phase 3 trial
is a placebo-controlled safety study (RE-SURGE) of rilonacept in patients
receiving urate-lowering therapy. SURGE and PRE-SURGE 1 are fully enrolled. We
expect to report initial data from SURGE and PRE-SURGE 1 during the first half
of 2010 and from PRE-SURGE 2 and RE-SURGE during the first half of
2011.
Royalty Agreement with Novartis Pharma
AG
In June 2009, we entered into a royalty
agreement with Novartis Pharma AG that replaced a previous collaboration and
license agreement. Under this agreement, we are entitled to receive royalties on
worldwide sales of Novartis’ canakinumab, a fully human
anti-interleukin-IL1ß antibody. We
waived our right to opt-in to the development and commercialization of
canakinumab. Canakinumab is approved to treat Cryopyrin-Associated Periodic
Syndrome (CAPS) and is in development for chronic gout, type 2 diabetes, and a
number of other inflammatory diseases.
2. VEGF Trap-Eye – Ophthalmologic Diseases
VEGF Trap-Eye is a specially purified and
formulated form of VEGF Trap for use in intraocular applications. We and Bayer
HealthCare are testing VEGF Trap-Eye in a Phase 3 program in patients with the
neovascular form of age-related macular degeneration (wet AMD). We and Bayer
HealthCare are also conducting a Phase 2 study of VEGF Trap-Eye in patients with
diabetic macular edema (DME). Wet AMD and diabetic retinopathy (which includes
DME) 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. We and Bayer HealthCare also initiated a Phase 3
program in central retinal vein occlusion (CRVO) in July 2009. In connection
with the dosing of the first patient in a Phase 3 study in CRVO, we received a
$20.0 million milestone payment from Bayer HealthCare.
The Phase 3 trials in wet AMD, known
as VIEW 1 and VIEW 2 (VEGF Trap: Investigation of
Efficacy and
Safety in Wet
age-related macular degeneration), are comparing VEGF Trap-Eye and Lucentis® (ranibizumab
injection), marketed by Genentech, Inc., an anti-angiogenic agent approved for
use in wet AMD. VIEW 1 is being conducted in North America and VIEW 2 is being
conducted in Europe, Asia Pacific, Japan, and Latin America. The VIEW 1 and VIEW
2 trials are both evaluating VEGF Trap-Eye doses of 0.5 milligrams (mg) and 2.0
mg at dosing intervals of four weeks and 2.0 mg at a dosing interval of eight
weeks (after three monthly doses) compared with Lucentis (Genentech) dosed
according to its U.S. label, which specifies doses of 0.5 mg administered every
four weeks over the first year. As-needed dosing (PRN) with both agents will be
evaluated in the second year of the studies. VIEW 1 and VIEW 2 were fully
enrolled in 2009, and initial data are expected in late 2010.
We and Bayer HealthCare have conducted a Phase
2 study in wet AMD which demonstrated that patients treated with VEGF Trap-Eye
achieved durable improvements in visual acuity and retinal thickness for up to
one year. These one-year study results were reported at the 2008 annual meeting
of the Retina Society. In this double-masked Phase 2 trial, known as CLEAR-IT 2,
157 patients were initially treated for three months with VEGF Trap-Eye: two
groups received monthly doses of 0.5 or 2.0 mg (at weeks 0, 4, 8, and 12) and
three groups received quarterly doses of 0.5, 2.0, or 4.0 mg (at baseline and
week 12). Following the initial three-month fixed-dosing phase, patients
continued to receive VEGF Trap-Eye at the same dose on a PRN dosing schedule
through one year, based upon the physician assessment of the need for
re-treatment in accordance with pre-specified criteria.
In this Phase 2 study, patients receiving
monthly doses of VEGF Trap-Eye of either 2.0 or 0.5 mg for 12 weeks followed by
PRN dosing achieved mean improvements in visual acuity versus baseline of 9.0
letters (p<0.0001 versus baseline) and 5.4 letters (p<0.085 versus
baseline), respectively, at the end of one year. The proportion of patients with
vision of 20/40 or better (part of the legal minimum requirement for an
unrestricted driver’s license in the U.S.) increased from 23% at baseline to 45%
at week 52 in patients initially treated with 2.0 mg monthly and from 16% at
baseline to 47% at week 52 in patients initially treated with 0.5 mg monthly.
Patients receiving monthly doses of VEGF Trap-Eye of either 2.0 or 0.5 mg also
achieved mean decreases in retinal thickness versus baseline of 143 microns
(p<0.0001 versus baseline) and 125 microns (p<0.0001 versus baseline) at
week 52, respectively. After
3
week 12 to week 52 in
the PRN dosing period, patients initially dosed on a 2.0 mg monthly schedule
received, on average, only 1.6 additional injections and those initially dosed
on a 0.5 mg monthly schedule received, on average, 2.5 additional injections.
While PRN dosing following a fixed
quarterly dosing regimen (with dosing at baseline and week 12) also yielded
improvements in visual acuity and retinal thickness versus baseline at week 52,
the results generally were not as robust as those obtained with initial fixed
monthly dosing.
All patients who completed the one year
CLEAR-IT 2 study were eligible to participate in an extension stage of the
study. Twenty-four-month results of the extension stage were presented in
October 2009 at the 2009 American Academy of Ophthalmology meeting. After
receiving VEGF Trap-Eye for one year, the 117 patients who elected to enter the
extension stage were dosed on a 2.0 mg PRN basis, irrespective of the dose at
which they were treated earlier in the study. On a combined basis, for these 117
patients, the mean gain in visual acuity was 7.3 letters (p<0.0001 versus
baseline) at the three-month primary endpoint of the original Phase 2 study, 8.4
letters (p<0.0001 versus baseline) at one year, and
6.1 letters (p<0.0001 versus baseline) at month 12 of the
extension stage. Thus, after 24 months of dosing with VEGF Trap-Eye in the Phase
2 study, patients continued to maintain a highly significant improvement in
visual acuity versus baseline, while receiving, on average, only 4.6 injections
over the 21-month PRN dosing phase that extended from month three to month 24.
The most common adverse events were those typically associated with intravitreal
injections and included conjunctival hemorrhage at the injection site and
transient increased intraocular pressure following an injection.
The DME study, known as the DA VINCI study, is
a double-masked, randomized, controlled trial that is evaluating four different
VEGF Trap-Eye dosing regimens versus laser treatment. A total of 240 patients
with clinically significant DME with central macular involvement were randomized
to five groups. VEGF Trap-Eye achieved the primary endpoint of the study, a
statistically significant improvement in visual acuity compared to focal laser
therapy, the standard of care in DME. Visual acuity was measured by the mean
number of letters gained over the initial 24 weeks of the study. Patients in
each of the four dosing groups receiving VEGF Trap-Eye achieved statistically
significantly greater mean improvements in visual acuity (8.5 to 11.4 letters of
vision gained) compared to patients receiving focal laser therapy (2.5 letters
gained) at week 24 (p< 0.01 for each VEGF Trap-Eye group versus focal laser).
VEGF Trap-Eye was generally well-tolerated, and no ocular or non-ocular
drug-related serious adverse events were reported in the study. The adverse
events reported were those typically associated with intravitreal injections or
the underlying disease. Following the initial 24 weeks of treatment, patients
continue to be treated for another 24 weeks on the same dosing regimens. Initial
one-year results will be available later in 2010.
VEGF Trap-Eye is also in Phase 3 development
for the treatment of central retinal vein occlusion (CRVO), another cause of
blindness. The COPERNICUS (COntrolled Phase 3 Evaluation of Repeated iNtravitreal
administration of VEGF Trap-Eye In Central retinal vein
occlusion: Utility and Safety) study is
being led by Regeneron and the GALILEO (General Assessment Limiting InfiLtration of Exudates in central
retinal vein Occlusion with VEGF
Trap-Eye) study is being led by Bayer HealthCare. Patients in both studies will
receive six monthly intravitreal injections of either VEGF Trap-Eye at a dose of
2 mg or sham control injections. The primary endpoint of both studies is
improvement in visual acuity versus baseline after six months of treatment. At
the end of the initial six months, patients will be dosed on a PRN basis for
another six months. All patients will be eligible for rescue laser treatment.
Enrollment in the COPERNICUS study began during the third quarter of 2009, and
enrollment in the GALILEO study began in October 2009. Initial data are
anticipated in early 2011.
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 VEGF Trap-Eye. Under the
agreement, we and Bayer HealthCare will collaborate on, and share the costs of,
the development of VEGF Trap-Eye through an integrated global plan that
encompasses wet AMD, DME, and CRVO. Bayer HealthCare will market VEGF Trap-Eye
outside the United States, where the companies will share equally in profits
from any future sales of VEGF Trap-Eye. If 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 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
4
of the first patient
in a Phase 3 study of VEGF Trap-Eye in wet AMD. In July 2009, we received a
$20.0 million milestone payment from Bayer HealthCare following dosing of the
first patient in a Phase 3 study of VEGF Trap-Eye in CRVO. We can earn up to $70
million in additional development and regulatory milestones related to the
development of VEGF Trap-Eye and marketing approvals in major market countries
outside the United States. We can also earn up to $135 million in sales
milestones if total annual sales of VEGF Trap-Eye outside the United States
achieve certain specified levels starting at $200 million.
3. Aflibercept (VEGF Trap) – Oncology
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), VEGF-B, 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 (a process known as angiogenesis)
that are needed for tumors to grow and is a potent regulator of vascular
permeability and leakage.
Aflibercept is being developed globally in
cancer indications in collaboration with sanofi-aventis. We and sanofi-aventis
are enrolling patients in three Phase 3 trials that combine aflibercept with
standard chemotherapy regimens for the treatment of cancer. One trial (called
VELOUR) is evaluating aflibercept as a 2nd line treatment for
metastatic colorectal cancer in combination with FOLFIRI (folinic acid
(leucovorin), 5-fluorouracil, and irinotecan). A second trial (VITAL) is
evaluating aflibercept as a 2nd line treatment for
metastatic non-small cell lung cancer in combination with docetaxel. A third
trial (VENICE) is evaluating aflibercept as a 1st line treatment for
metastatic androgen independent prostate cancer in combination with
docetaxel/prednisone. All three trials are studying the current standard of
chemotherapy care for the cancer being studied with and without aflibercept.
VITAL and VENICE are fully enrolled, and the VELOUR study is approximately 95%
enrolled. In addition, a Phase 2 study (called AFFIRM) of aflibercept in 1st line metastatic
colorectal cancer in combination with FOLFOX (folinic acid (leucovorin),
5-fluorouracil, and oxaliplatin) is approximately 75% enrolled.
Each of the Phase 3 studies is monitored by an
Independent Data Monitoring Committee (IDMC), a body of independent clinical
experts. The IDMCs meet periodically to evaluate data from the studies and may
recommend changes in study design or study discontinuation. Both interim and
final analyses will be conducted when a prespecified number of events have
occurred in each trial. Based on current enrollment and event rates, (i) an
interim analysis of VELOUR is expected to be conducted by an IDMC in the second
half of 2010, (ii) final results are anticipated in the first half of 2011 from
the VITAL study and in the second half of 2011 from the VELOUR study, and (iii)
an interim analysis of VENICE is expected to be conducted by an IDMC in
mid-2011, with final results anticipated in 2012.
A fourth Phase 3 trial (VANILLA) that was
evaluating aflibercept as a 1st line treatment for
metastatic pancreatic cancer in combination with gemcitabine was discontinued in
September 2009 following a planned interim efficacy analysis by that study’s
IDMC. The IDMC determined that the addition of aflibercept to gemcitabine would
be unable to demonstrate a statistically significant improvement in the primary
endpoint of overall survival compared to placebo plus gemcitabine in this study.
The types and frequencies of adverse events reported in the combination arm with
aflibercept were generally as anticipated.
During 2009, summary results were reported for
a randomized, placebo-controlled Phase 2 single-agent study of aflibercept in
advanced ovarian cancer (AOC) patients with symptomatic malignant ascites (SMA),
an abnormal build-up of fluid in the abdominal cavity. Patients receiving
aflibercept experienced a statistically significant improvement (55 days with
aflibercept as compared to 23 days for patients receiving placebo (p=0.0019)) in
the primary study endpoint, mean time to first repeat paracentesis (removal of
fluid from the abdominal cavity), versus placebo control. There was a
statistically similar incidence of deaths in both treatment groups. Four fatal
events were assessed by the investigators as aflibercept treatment related. The
types and frequencies of adverse events reported with aflibercept in this study
were generally consistent with those reported in clinical studies with other
anti-VEGF therapies in AOC patients. Although the study demonstrated that
aflibercept is a clinically active agent in this setting, given the small number
of patients enrolled in this study and their fragile health status, we and
sanofi-aventis concluded that it was difficult to definitively assess the
overall clinical benefit that might be derived from treatment in the real-world
clinical practice setting and, therefore, the data were not sufficient to submit
for regulatory approval in the SMA indication.
5
Aflibercept Collaboration with the
sanofi-aventis Group
We and sanofi-aventis U.S. (successor to
Aventis Pharmaceuticals, Inc.) globally collaborate on the development and
commercialization of aflibercept. Under the terms of our September 2003
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 million
in milestone payments upon receipt of specified marketing approvals, including
up to $360 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 and up to $40 million related to the 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.
4. REGN475 (Anti-NGF Antibody) for pain
Nerve growth factor (NGF) is a member of the
neurotrophin family of secreted proteins. NGF antagonists have been shown to
prevent increased sensitivity to pain and abnormal pain response in animal
models of neuropathic and chronic inflammatory pain. Mutations in the genes that
code for the NGF receptors were identified in people suffering from a loss of
deep pain perception. For these and other reasons, we believe blocking NGF could
be a promising therapeutic approach to a variety of pain
indications.
REGN475 is a fully human monoclonal antibody
to NGF generated using our VelocImmune® technology.
Preclinical experiments indicate that REGN475 specifically binds to and blocks
NGF activity and does not bind to or block cell signaling for closely related
neurotrophins such as NT-3, NT-4/5, or BDNF.
In the third quarter of 2009, we began a Phase
2 double-blind, placebo-controlled, dose-ranging, proof-of-concept study of
REGN475 in persons with osteoarthritis of the knee. Preliminary data from that
study are expected in the first half of 2010. Additionally, four Phase 2
proof-of-concept studies in other pain indications (sciatica, vertebral
fracture, chronic pancreatitis, and thermal injury) were initiated in late 2009
and early 2010. REGN475 is being developed in collaboration with
sanofi-aventis.
5. REGN88 (Anti-IL-6R Antibody) for inflammatory
diseases
Interleukin-6 (IL-6) is a key cytokine
involved in the pathogenesis of rheumatoid arthritis, causing inflammation and
joint destruction. A therapeutic antibody to the IL-6 receptor (IL-6R),
tocilizumab, developed by Roche, has been approved for the treatment of
rheumatoid arthritis.
REGN88 is a fully human monoclonal antibody to
IL-6R generated using our VelocImmune
technology that is in a Phase 2/3 double-blind, placebo-controlled, dose-ranging
study in patients with active rheumatoid arthritis and a Phase 2 double-blind,
placebo-controlled, dose-ranging study in ankylosing spondylitis, a form of
arthritis that primarily affects the spine. REGN88 is being developed in
collaboration with sanofi-aventis.
6. REGN421 (Anti-Dll4 Antibody) for advanced
malignancies
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 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. Moreover, inhibition of tumor
growth is enhanced by the combination of Dll4 and VEGF blockade in many
preclinical tumor models.
REGN421 is a fully human monoclonal antibody
to Dll4 generated using our VelocImmune
technology. REGN421 is being developed in collaboration with sanofi-aventis and
is in Phase 1 clinical development.
6
7. REGN727 (Anti-PCSK9 Antibody) for LDL cholesterol
reduction
Elevated low density lipoprotein (LDL) levels
is a validated risk factor leading to cardiovascular disease. Statins are a
class of drugs that lower LDL by upregulating the expression of the LDL receptor
(LDLR), which removes LDL from circulation. PCSK9 (proprotein convertase
substilisin/kexin type 9) is a protein that binds to LDLR, which prevents LDLR
from binding to LDL and removes it from circulation. People who have a mutation
that reduces the activity of PCSK9 have lower levels of LDL, as well as a
reduced risk of adverse cardiovascular events. We used our VelocImmune® technology to derive a
fully human monoclonal antibody called REGN727 that is designed to bind to PCSK9
and prevent it from inhibiting LDLR. REGN727 is being developed in collaboration
with sanofi-aventis and is in Phase 1 clinical development.
8. REGN668 (Anti-IL4R Antibody) for allergic and immune
conditions
Interleukin-4 receptor (IL4Ra) is required for
signaling by the cytokines IL-4 and IL-13. Both of these cytokines are critical
mediators of immune response, which, in turn, drives the formation of antibodies
and the development of allergic responses, as well as the atopic state that
underlies asthma and atopic dermatitis. REGN668 is a fully human VelocImmune antibody that is
designed to bind to IL4R. REGN668 is being developed in collaboration with
sanofi-aventis and is in Phase 1 clinical development.
Research and Development
Technologies:
One way that a cell communicates with other
cells is by releasing specific signaling proteins, either locally or into the
bloodstream. These proteins have distinct functions, and are classified into
different “families” of molecules, such as peptide hormones, growth factors, and
cytokines. All of these secreted (or signaling) proteins travel to and are
recognized by another set of proteins, called “receptors,” which reside on the
surface of responding cells. These secreted proteins impact many critical
cellular and biological processes, causing diverse effects ranging from the
regulation of growth of particular cell types, to inflammation mediated by white
blood cells. Secreted proteins can at times be overactive and thus result in a
variety of diseases. In these disease settings, blocking the action of specific
secreted proteins can have clinical benefit.
Our 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 first approved product, ARCALYST® (rilonacept), as well
as aflibercept and VEGF Trap-Eye, all of which are in Phase 3 clinical trials.
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. VelociSuite is our
second technology platform and it is used for discovering, developing, and
producing fully human monoclonal antibodies.
VelociSuiteTM
VelociSuite
consists of VelocImmune,
VelociGene®,
VelociMouse®, and
VelociMabTM. The VelocImmune mouse
platform is utilized to produce fully human monoclonal antibodies. VelocImmune was
generated by exploiting our VelociGene
technology (see below), in a process in which six megabases of mouse immune gene
loci were replaced, or “humanized,” with corresponding human immune gene loci.
VelocImmune mice can be used to generate efficiently
fully human monoclonal antibodies to targets of therapeutic interest.
VelocImmune and our entire VelociSuite offer
the potential to increase the speed and efficiency through which human
monoclonal antibody therapeutics may be discovered and validated, thereby
improving the overall efficiency of our early stage drug development activities.
We are utilizing the VelocImmune
technology to produce our next generation of drug candidates for preclinical and
clinical development.
Our VelociGene platform
allows custom and precise manipulation of very large sequences of DNA to produce
highly customized alterations of a specified target gene, or genes, and
accelerates the production of knock-out and transgenic expression models without
using either positive/negative selection or isogenic DNA. In producing knock-out
models, a color or fluorescent marker may be 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
7
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.
Our VelociMouse® technology platform
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, the VelociMice are suitable for direct phenotyping or other
studies. We have also developed our VelociMab™ platform for the rapid screening of antibodies
and rapid generation of expression cell lines for our Traps and our VelocImmune® human monoclonal
antibodies.
Antibody Collaboration and License Agreements
sanofi-aventis. In November 2007, we and sanofi-aventis
entered into a global, strategic collaboration to discover, develop, and
commercialize fully human monoclonal antibodies. 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 is funding research at Regeneron to identify and validate
potential drug discovery targets and develop fully human monoclonal antibodies
against these targets. Sanofi-aventis funded approximately $175 million of
research from the collaboration’s inception through December 31, 2009. In
November 2009, we and sanofi-aventis amended these agreements to expand and
extend our antibody collaboration. Sanofi-aventis will now fund up to $160
million per year of our antibody discovery activities over the period from
2010-2017, subject to a one-time option for sanofi-aventis to adjust the maximum
reimbursement amount down to $120 million per year commencing in 2014 if over
the prior two years certain specified criteria are not satisfied. In addition,
sanofi-aventis will fund up to $30 million of agreed-upon costs we incur to
expand our manufacturing capacity at our Rensselaer, New York facilities. As
under the original 2007 agreement, 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. 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. The goal of the expanded collaboration is to
advance an average of four to five new antibody product candidates into clinical
development each year, for an anticipated total of 30-40 candidates over the
next eight years.
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. To date,
sanofi-aventis has opted into the development of five antibody candidates.
Development costs will be shared between the companies, with sanofi-aventis
generally funding drug candidate development costs up front, 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
will be shared 80% by sanofi-aventis and 20% by us. We are generally responsible
for reimbursing sanofi-aventis for half of the total development costs for all
collaboration antibody products from our share of profits from commercialization
of collaboration products to the extent they are sufficient for this purpose.
However, we are not required to apply more than 10% of our share of the profits
from collaboration products in any calendar quarter towards reimbursing
sanofi-aventis for these development costs.
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 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.
In August 2008, we entered into an
agreement with sanofi-aventis to use our VelociGene platform
to supply sanofi-aventis with genetically modified mammalian models of gene
function and disease. Sanofi-aventis will pay us a minimum of $21.5 million for
the term of the agreement, which extends through December 2012, for knock-out
and transgenic models of gene function for target genes identified by
sanofi-aventis. Sanofi-aventis will use these models for its internal research
programs that are outside of the scope of our antibody
collaboration.
8
AstraZeneca UK Limited. 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 $20.0 million annual, non-refundable
payments to us in the first quarter of 2007, 2008, and 2009. AstraZeneca is
required to make up to three additional annual payments of $20.0 million,
subject to its ability to terminate the agreement after making the next annual
payment in the first quarter of 2010. 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 Pharma Inc. 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 $20.0 million
annual, non-refundable payments to us in the second quarter of 2007, 2008, and
2009. Astellas is required to make up to three additional annual payments of
$20.0 million, subject to its ability to terminate the agreement after making
the next annual payment in the second quarter of 2010. 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
Grant
In September 2006, we were awarded a five-year
grant from the National Institutes of Health (NIH) as part of the NIH’s 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 are using 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 are 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, as amended, we are
entitled to receive a minimum of $25.3 million over the five-year period
beginning September 2006, including $1.5 million to optimize our existing
C57BL/6 ES cell line and its proprietary growth medium, both of which are being
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.
Research Programs
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, cardiovascular diseases, and infectious diseases.
Sales and Marketing
We have established a small commercial
organization to support sales of ARCALYST® (rilonacept) for the
treatment of CAPS in the United States. We have no sales or distribution
personnel and distribute the product through third party service providers. We
currently have no sales, marketing, commercial, or distribution organization
outside the United States. If we receive regulatory approval to market and sell
additional products in the United States or in other countries, we may either
expand our commercial organization or rely on third party product licensees or
service providers.
Manufacturing
Our manufacturing facilities are located in
Rensselaer, New York and consist of three buildings totaling approximately
395,500 square feet of research, manufacturing, office, and warehouse space. We
currently have approximately 27,500 liters of cell culture capacity at these
facilities and have plans to increase our manufacturing capacity to
approximately 54,000 liters in 2010. Up to $30 million of agreed-upon costs
related to this expansion will be funded by sanofi-aventis under the terms of
our amended antibody collaboration. At December 31, 2009, we employed 278 people
at our Rensselaer facilities. There were no impairment losses associated with
long-lived assets at these facilities as of December 31, 2009.
9
Among the conditions for regulatory marketing
approval of a medicine is the requirement that the prospective manufacturer’s
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 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 a similar mechanism of action, and competitors may
get to the marketplace with better or lower cost drugs.”). Our competitors include Genentech,
Novartis, Pfizer Inc., Bayer HealthCare, Onyx Pharmaceuticals, Inc., Eli Lilly
and Company, Abbott, sanofi-aventis, Merck & Co., 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. Competition from
smaller competitors may also be or become more significant if those competitors
acquire or discover patentable inventions, form collaborative arrangements, or
merge with large pharmaceutical companies. Even when 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.
ARCALYST®(rilonacept). In 2009, Novartis received regulatory
approval in the U.S. and Europe for canakinumab (Ilaris®), a fully human
anti-interleukin-IL1ß antibody, for the treatment of CAPS. Canakinumab is also
in development for chronic gout and a number of other inflammatory diseases. In
October 2009, Novartis announced positive Phase 2 results showing that
canakinumab is significantly more effective than an injectable corticosteroid at
reducing pain and preventing recurrent attacks or “flares” in patients with
hard-to-treat gout. In addition, there are both small molecules and antibodies
in development by other third parties that are designed to block the synthesis
of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli
Lilly 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 ARCALYST. The successful development
and/or commercialization of these competing molecules could delay or impair our
ability to successfully develop and commercialize ARCALYST.
VEGF Trap-Eye. 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 wet AMD, DME, and other eye
indications. Lucentis (Genentech) was approved by the FDA in June 2006 for the
treatment of wet AMD. Many other companies are working on the development of
product candidates for the potential treatment of wet AMD and DME that act by
blocking VEGF and VEGF receptors, and through the use of small interfering
ribonucleic acids (siRNAs) that modulate gene expression. In addition,
ophthalmologists are using off-label, with success for the treatment of wet AMD,
a third-party reformulated version of Genentech’s approved VEGF antagonist,
Avastin®
(bevacizumab). The relatively low cost of therapy with Avastin (Genentech) in
patients with wet AMD presents a significant competitive challenge in this
indication. The National Eye Institute (NEI) initiated a Phase 3 trial to
compare Lucentis (Genentech) to Avastin (Genentech) in the treatment of wet AMD.
Data from this NEI study are expected to be published in 2011. Avastin
(Genentech) 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.
Aflibercept (VEGF Trap). 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.
10
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, Amgen, Pfizer, Imclone/Eli Lilly, AstraZeneca,
and GlaxoSmithKline. Many of these molecules are further along in development
than aflibercept and may offer competitive advantages over our
molecule. Pfizer and Onyx (together with its partner
Bayer Healthcare) are selling and marketing oral medications that target tumor
cell growth and new vasculature formation that fuels the growth of tumors.
Monoclonal Antibodies. Our early-stage clinical candidates in development are all fully human
monoclonal antibodies, which were generated using our VelocImmune® technology. Our
antibody generation technologies and early-stage clinical candidates face
competition from many pharmaceutical and biotechnology companies using various
technologies.
Numerous other companies are developing
therapeutic antibody products. Companies such as Pfizer, Johnson & Johnson,
MedImmune, LLC (a subsidiary of AstraZeneca), Amgen, Biogen Idec, Inc.,
Novartis, Roche, Genentech, Bristol-Myers Squib, Abbott, and GlaxoSmithKline
have generated therapeutic products that are currently in development or on the
market that are derived from recombinant DNA that comprise human antibody
sequences. As noted above, AstraZeneca and Astellas have licensed our
VelocImmune technology as part of their internal antibody
development programs.
We are aware of several pharmaceutical and
biotechnology companies actively engaged in the research and development of
antibody products against targets that are also the targets of our early-stage
product candidates. For example, Pfizer, Johnson & Johnson, and Abbott are
developing antibody product candidates against NGF. The Pfizer antibody against
NGF is in Phase 3 clinical trials for the treatment of pain due to
osteoarthritis. Roche is marketing an antibody against the interleukin-6
receptor (tocilizumab) for the treatment of rheumatoid arthritis, and several
other companies, including Centocor Ortho Biotech, Inc. and Bristol Myers
Squibb, have antibodies against IL-6 in clinical development for this disease.
GlaxoSmithKline, in partnership with OncoMed Pharmaceuticals, Inc., has a Dll4
antibody in clinical development for the treatment of solid tumors. Aerovance
has two formulations of a biologic directed against interleukin-4 in clinical
development. Amgen previously had an antibody against the interleukin-4 receptor
in clinical development for the treatment of asthma. We believe that several
companies, including Amgen, have development programs for antibodies against
PCSK9.
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.
11
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. As of December 31,
2009, we held an ownership interest in a total of approximately 180 issued
patents in the United States and over 750 issued patents in foreign countries
with respect to our products and technologies. In addition, we held an ownership
interest in hundreds of patent applications in the United States and foreign
countries.
Our patent portfolio includes granted patents
and pending patent applications covering our VelociSuite™
technologies, including our VelocImmune® mouse platform
which produces fully human monoclonal antibodies. Our issued patents covering
these technologies generally expire between 2020 and 2030. However, we continue
to file patent applications directed to improvements to these technology
platforms.
Our patent portfolio also includes issued
patents and pending applications relating to our marketed product, ARCALYST® (rilonacept), and our
product candidates in clinical development. These patents cover the proteins and
DNA encoding the proteins, manufacturing patents, method of use patents,
pharmaceutical compositions, as well as various methods of using the products.
For each of ARCALYST and our late-stage clinical candidates, aflibercept (VEGF
Trap) and VEGF Trap-Eye, these patents generally expire between 2020 and 2026.
However, the projected patent terms may be subject to extension based on
potential patent term extensions in countries where such extensions are
available.
We also are the nonexclusive licensee of a
number of additional patents and patent applications. In July 2008 we entered
into an Amended and Restated Non-Exclusive License Agreement with Cellectis S.A.
pursuant to which we licensed certain patents and patent applications relating
to a process for the specific replacement of a copy of a gene in the receiver
genome by homologous recombination. Pursuant to this agreement, we agreed to pay
Cellectis a low, single-digit royalty based on any future revenue received by us
from any future licenses or sales of our VelociGene® or VelocImmune products or
services. No royalties are payable on any revenue from commercial sales of
antibodies from our VelocImmune
technology, including antibodies developed under our collaboration with
sanofi-aventis. We also have non-exclusive license agreements with Amgen and
other organizations for patent rights related to ARCALYST. In exchange for these
licenses, we pay a mid-single digit royalty on net sales of ARCALYST.
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. The degree of patent protection that
will be afforded to our products in the United States and other important
commercial markets is uncertain and is dependent upon the scope of protection
decided upon by the patent offices, courts, and governments in these countries.
There is no certainty that our existing patents or others, if obtained, will
provide us protection from competition or provide commercial benefit.
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 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 is 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 ARCALYST and 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
12
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.
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
We manage our business as one segment which
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. This segment 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, (ii)
ARCALYST®
(rilonacept) product sales for the treatment of CAPS, (iii) licensing agreements
to utilize our VelocImmune® technology, and (iv)
the supply of specified, ordered research materials using our VelociGene® technology platform.
Employees
As of December 31, 2009, we had 1,029
full-time employees, of whom 192 held a Ph.D. and/or M.D., or PharmD degree. 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.
13
Available Information
We make available free of charge on or through
our Internet website (http://www.regeneron.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.
ITEM 1A. RISK FACTORS
We operate in an environment that involves a
number of significant risks and uncertainties. We caution you to read the
following risk factors, which have affected, and/or in the future could affect,
our business, operating results, financial condition, and cash flows. The risks
described below include forward-looking statements, and actual events and our
actual results may differ substantially from those discussed in these
forward-looking statements. Additional risks and uncertainties not currently
known to us or that we currently deem immaterial may also impair our business
operations. Furthermore, additional risks and uncertainties are described under
other captions in this report and should be considered by our
investors.
Risks Related to Our Financial Results and
Need for Additional Financing
We have had a history of operating losses and we may never achieve
profitability. If we continue to incur operating losses, we may be unable to
continue our operations.
From inception on January 8, 1988 through
December 31, 2009, we had a cumulative loss of $941.1 million. If we continue to
incur operating losses and fail to become a profitable company, we may be unable
to continue our operations. In the absence of substantial 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.
The value of our investment portfolio, which includes cash, cash
equivalents, and marketable securities, is influenced by varying economic and
market conditions. A decrease in the value of an asset in our investment
portfolio or a default by the issuer may result in our inability to recover the
principal we invested and/or a recognition of a loss charged against
income.
As of December 31, 2009, cash, cash
equivalents, restricted cash, and marketable securities totaled $390.0 million
and represented 53% of our total assets. We have invested our excess cash
primarily in direct obligations of the U.S. government and its agencies, other
debt securities guaranteed by the U.S. government, and money market funds that
invest in U.S. Government securities and, to a lesser extent, investment grade
debt securities issued by corporations, bank deposits, and asset-backed
securities. We consider assets classified as marketable securities to be
“available-for-sale,” as defined by FASB authoritative guidance. Marketable
securities totaled $181.3 million at December 31, 2009, are carried at fair
value, and the unrealized gains and losses are included in other accumulated
14
comprehensive income
(loss) as a separate component of stockholders’ equity. If the decline in the
value of a security in our investment portfolio is deemed to be
other-than-temporary, we write down the security to its current fair value and
recognize a loss which may be fully charged against income. For example, we
recognized other-than-temporary impairment charges related to certain marketable
securities of $5.9 million, $2.5 million and $0.1 million in 2007, 2008, and
2009, respectively. The current economic environment, the deterioration in the
credit quality of some of the issuers of securities that we hold, and the recent
volatility of securities markets increase the risk that we may not recover the
principal we invested and/or there may be further declines in the market value
of securities in our investment portfolio. As a result, we may incur additional
charges against income in future periods for other-than-temporary impairments or
realized losses upon a security’s sale or maturity, and such amounts may be
material.
Risks Related to ARCALYST® (rilonacept) and the
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. 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 testing aflibercept, VEGF Trap-Eye, and
rilonacept in a number of late-stage clinical trials. Clinical trials may not
demonstrate statistically sufficient effectiveness and safety to obtain the
requisite regulatory approvals for these product candidates. In a number of
instances, we have terminated the development of product candidates due to a
lack of or modest effectiveness.
Aflibercept is in Phase 3 clinical trials in
combination with standard chemotherapy regimens for the treatment of 2nd line metastatic
colorectal cancer, 1st line androgen
independent prostate cancer, and 2nd line metastatic
non-small cell lung cancer. Aflibercept may not demonstrate the required safety
or efficacy to support an application for approval in any of these indications.
We do not have proof of concept data from early-stage, double-blind, controlled
clinical trials that aflibercept will be safe or effective in any of these
cancer settings.
We are testing VEGF Trap-Eye in Phase 3 trials
for the treatment of wet AMD and the treatment of Central Retinal Vein Occlusion
(CRVO). Although we reported positive Phase 2 trial results with VEGF Trap-Eye
in wet AMD, based on a limited number of patients, the results from the larger
Phase 3 trials may not demonstrate that VEGF Trap-Eye is safe and effective or
compares favorably to Lucentis (Genentech). A number of other potential new
drugs and biologics which showed promising results in initial clinical trials
subsequently failed to establish sufficient safety and efficacy data to obtain
necessary regulatory approvals. VEGF Trap-Eye has not been previously studied in
CRVO.
Rilonacept is in Phase 3 clinical trials for
two different gout indications – the prevention of gout flares in patients
initiating urate-lowering drug therapy and acute gout. We do not have proof of
concept data from Phase 2 clinical trials that rilonacept will be safe or
effective in the acute gout setting. Although we reported positive Phase 2 proof
of concept data from a small number of patients initiating urate-lowering drug
therapy, there is a risk that the results of the larger Phase 3 trials of
rilonacept in patients initiating urate-lowering drug therapy will differ from
the previously reported Phase 2 trial. A number of potential new drugs and
biologics which showed promising results in initial clinical trials subsequently
failed to establish sufficient safety and efficacy data to obtain necessary
regulatory approvals.
We are studying our antibody candidates in a
wide variety of indications in early stage clinical trials. Many of these trials
are exploratory studies designed to evaluate the safety profile of these
compounds and to identify what diseases and uses, if any, are best suited for
these product candidates. These early stage product candidates may not
demonstrate the requisite efficacy and/or safety profile to support continued
development for some or all of the indications that are being, or are planned to
be, studied.
15
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 yield 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,
contractors, 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.
Many of our clinical trials are conducted
under the oversight of Independent Data Monitoring Committees (or IDMCs). These
independent oversight bodies are made up of external experts who review the
progress of ongoing clinical trials, including available safety and efficacy
data, and make recommendations concerning a trial’s continuation, modification,
or termination based on interim, unblinded data. Any of our ongoing clinical
trials may be discontinued or amended in response to recommendations made by
responsible IDMCs based on their review of such interim trial results. For
example, in September 2009, a Phase 3 trial that was evaluating aflibercept as a
1st line treatment
for metastic pancreatic cancer in combination with gemcitabine was discontinued
at the recommendation of an IDMC after a planned analysis of interim efficacy
data determined that the trial would not meet its efficacy endpoint. The
recommended termination of any of our ongoing late-stage clinical trials by an
IDMC could harm the future development of our product candidate(s) and our
business may be materially harmed.
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 Regeneron, 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 our product candidate(s), and our
business, financial condition, and results of operations may be materially
harmed.
Serious complications or side effects have occurred, and may continue to
occur, in connection with the use of our approved product and in clinical trials
of some of our product candidates which could cause our regulatory approval to
be revoked or otherwise negatively affected or lead to delay or discontinuation
of development of our product candidates which could severely harm our
business.
During the conduct of clinical trials,
patients report changes in their health, including illnesses, injuries, and
discomforts, to their study doctor. Often, it is not possible to determine
whether or not the drug candidate being studied caused these conditions. Various
illnesses, injuries, and discomforts have been reported from time-to-time during
clinical trials of our product candidates. It is possible as we test our 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.
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, that may limit our ability to successfully develop
aflibercept and VEGF Trap-Eye. These serious and potentially life-threatening
risks, based on clinical and preclinical experience of VEGF inhibitors, include
bleeding, intestinal perforation, hypertension, proteinuria,
16
congestive heart
failure, heart attack, and stroke. In addition, patients given infusions of any
protein, including 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 and other complications or side effects could harm the development of
aflibercept for the treatment of cancer or VEGF Trap-Eye for the treatment of
diseases of the eye.
We have tested ARCALYST® (rilonacept) in only a
small number of patients. As more patients begin to use our product and as we
test it in new disease settings, new risks and side effects associated with
ARCALYST may be discovered, and risks previously viewed as inconsequential could
be determined to be significant. Like cytokine antagonists such as Kineret® (anakinra), marketed
by Biovitrum, Enbrel® (etanercept), marketed
by Amgen and Wyeth Pharmaceuticals, Inc., and Remicade® (infliximab) marketed
by Centocor, ARCALYST affects the immune defense system of the body by blocking
some of its functions. Therefore, ARCALYST may interfere with the body’s ability
to fight infections. Treatment with Kineret (Biovitrum), a medication that works
through the inhibition of IL-1, has been associated with an increased risk of
serious infections, and serious, life threatening infections have been reported
in patients taking ARCALYST. These or other complications or side effects could
cause regulatory authorities to revoke approvals of ARCALYST. Alternatively, we
may be required to conduct additional clinical trials, make changes in the
labeling of our product, or limit or abandon our efforts to develop ARCALYST in
new disease settings. These side effects may also result in a reduction, or even
the elimination, of sales of ARCALYST in approved indications.
ARCALYST®
(rilonacept) and 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 patient’s 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. Antibodies directed against
the receptor domains of rilonacept were detected in patients with CAPS after
treatment with ARCALYST. Nineteen of 55 subjects (35%) who received ARCALYST for
at least 6 weeks tested positive for treatment-emerging binding antibodies on at
least one occasion. To date, no side effects related to antibodies were observed
in these subjects and there were no observed effects on drug efficacy or drug
levels. 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. 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, and our antibody candidates, 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.
17
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 pending patent applications
in the European Patent Office and it is likely that we will need to defend
patent applications from third party challengers from time to time 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 antibody’s 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 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 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 VEGF Trap-Eye, which represent potential
competitive threats to Genentech’s 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 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.
We are aware of a U.S. patent jointly owned by
Genentech and City of Hope relating to the production of recombinant antibodies
in host cells. We currently produce our antibody product candidates using
recombinant antibodies from host cells and may choose to produce additional
antibody product candidates in this manner. Neither ARCALYST® (rilonacept),
aflibercept, nor VEGF Trap-Eye are recombinant antibodies. If any of our
antibody product candidates are produced in a manner subject to valid claims in
the Genentech patent, then we may need to obtain a license from Genentech,
should one be available. Genentech has licensed this patent to several different
companies under confidential license agreements. If we desire a license for any
of our antibody product candidates and are unable to obtain a license on
commercially reasonable terms or at all, we may be restricted in our ability to
use Genentech’s techniques to make recombinant antibodies in or to import them
into the United States.
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.
18
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, including ARCALYST® (rilonacept) for the treatment of diseases
other than CAPS, 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. Except for the
FDA approval of ARCALYST and the EMEA approval of rilonacept for the treatment
of CAPS, 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.
The FDA enforces good clinical practices and
other regulations through periodic inspections of trial sponsors, clinical
research organizations (CROs), principal investigators, and trial sites. If we
or any of the third parties conducting our clinical studies are determined to
have failed to fully comply with Good Clinical Practice regulations (GCPs), the
study protocol or applicable regulations, the clinical data generated in our
studies may be deemed unreliable. This could result in non-approval of our
product candidates by the FDA, or we or the FDA may decide to conduct additional
audits or require additional clinical studies, which would delay our development
programs and substantially harm our business.
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 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.
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, manufacturing,
marketing and approval of drugs, and commercial sale 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 ARCALYST or any
of our product candidates in those countries.
19
If we fail to meet the stringent requirements of governmental regulation
in the manufacture of our marketed product and clinical candidates, we could
incur substantial remedial costs, delays in the development of our clinical
candidates, and a reduction in sales.
We and our third party providers are required
to maintain compliance with current Good Manufacturing Practice, or cGMP, and
are subject to inspections by the FDA or comparable agencies in other
jurisdictions to confirm such compliance. Changes of suppliers or modifications
of methods of manufacturing may require amending our application to the FDA and
acceptance of the change by the FDA prior to release of product. Because we
produce multiple product candidates at our facility in Rensselaer, New York,
there are increased risks associated with cGMP compliance. Our inability, or the
inability of our third party service providers, to demonstrate ongoing cGMP
compliance could require us to engage in lengthy and expensive remediation
efforts, withdraw or recall product, halt or interrupt clinical trials, and/or
interrupt commercial supply of our marketed product. Any delay, interruption or
other issues that arise in the manufacture, fill-finish, packaging, or storage
of our product candidates as a result of a failure of our facilities or the
facilities or operations of third parties to pass any regulatory agency
inspection or maintain cGMP compliance could significantly impair our ability to
develop and commercialize our products. Any finding of non-compliance could
increase our costs, cause us to delay the development of our product candidates,
and cause us to lose revenue from our marketed product.
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. We may be
subject to claims by CAPS patients who use ARCALYST that they have been injured
by a side effect associated with the drug. 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.
If we market and sell
ARCALYST®
(rilonacept) in a way that violates
federal or state fraud and abuse laws, we may be subject to civil or criminal
penalties.
In addition to FDA and related regulatory
requirements, we are subject to health care “fraud and abuse” laws, such as the
federal False Claims Act, the anti-kickback provisions of the federal Social
Security Act, and other state and federal laws and regulations. Federal and
state anti-kickback laws prohibit, among other things, knowingly and willfully
offering, paying, soliciting or receiving remuneration to induce, or in return
for, purchasing, leasing, ordering or arranging for the purchase, lease or order
of any health care item or service reimbursable under Medicare, Medicaid, or
other federally or state financed health care programs.
Federal false claims laws prohibit any person
from knowingly presenting, or causing to be presented, a false claim for payment
to the federal government, or knowingly making, or causing to be made, a false
statement to get a false claim paid. Pharmaceutical companies have been
prosecuted under these laws for a variety of alleged promotional and marketing
activities, such as allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the product;
reporting to pricing services inflated average wholesale prices that were then
used by federal programs to set reimbursement rates; engaging in promotion for
uses that the FDA has not approved, or off-label uses, that caused claims to be
submitted to Medicaid for non-covered off-label uses; and submitting inflated
best price information to the Medicaid Rebate program.
The majority of states also have statutes or
regulations similar to the federal anti-kickback law and false claims laws,
which apply to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payer. Sanctions under
these federal and state laws may include civil monetary penalties, exclusion of
a manufacturer’s products from reimbursement under government programs, criminal
fines, and imprisonment.
Even if we are not determined to have violated
these laws, government investigations into these issues typically require the
expenditure of significant resources and generate negative publicity, which
would also harm our financial condition. Because of the breadth of these laws
and the narrowness of the safe harbors, it is possible that some of our business
activities could be subject to challenge under one or more of such
laws.
20
In recent years, several states and
localities, including California, the District of Columbia, Massachusetts,
Maine, Minnesota, Nevada, New Mexico, Vermont, and West Virginia, have enacted
legislation requiring pharmaceutical companies to establish marketing compliance
programs, and file periodic reports with the state or make periodic public
disclosures on sales, marketing, pricing, clinical trials, and other activities.
Similar legislation is being considered in other states and also at the federal
level. Many of these requirements are new and uncertain, and the penalties for
failure to comply with these requirements are unclear. Nonetheless, if we are
found not to be in full compliance with these laws, we could face enforcement
action and fines and other penalties, and could receive adverse
publicity.
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 Company’s 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, 2009, 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.
Changes in laws and regulations affecting the healthcare industry could
adversely affect our business.
All aspects of our business, including
research and development, manufacturing, marketing, pricing, sales, litigation,
and intellectual property rights, are subject to extensive legislation and
regulation. Changes in applicable federal and state laws and agency regulations
could have a material adverse effect on our business. These include:
- changes in the FDA and foreign regulatory processes for new therapeutics that may delay or prevent the approval of any of our current or future product candidates;
21
- new laws, regulations, or judicial
decisions related to healthcare availability or the payment for healthcare
products and services, including prescription drugs, that would make it more
difficult for us to market and sell products once they are approved by the FDA
or foreign regulatory agencies;
- changes in FDA and foreign
regulations that may require additional safety monitoring prior to or after
the introduction of new products to market, which could materially increase
our costs of doing business; and
- changes in FDA and foreign current Good Manufacturing Practice, or cGMPs, that make it more difficult for us to manufacture our marketed product and clinical candidates in accordance with cGMPs.
The enactment in the United States of the
Medicare Prescription Drug Improvement and Modernization Act of 2003 and current
pending legislation which would ease the entry of competing follow-on biologics
into the marketplace are examples of changes and possible changes in laws that
could adversely affect our business.
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 $1.28 billion
between 2010 and 2017 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, REGN421, REGN475, REGN727, and REGN668 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. 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
22
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 for aflibercept would create substantial new and
additional risks to the successful development and commercialization of
aflibercept.
If our collaboration with Bayer HealthCare for 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 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 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 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 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 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 funding that might not be available on favorable
terms or at all, and could cause significant delays in the development and/or
commercialization of 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 VEGF Trap-Eye.
Our collaborators and service providers may fail to perform adequately in
their efforts to support the development, manufacture, and commercialization of
ARCALYST® (rilonacept) and 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 preclinical and clinical
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 in compliance with applicable Good Manufacturing Practices (GMPs),
Good Laboratory Practices (GLPs), or Good Clinical Practice (GCP) Standards, we
could experience additional costs, delays, and difficulties in the manufacture
or development or in obtaining approval by regulatory authorities for our
product candidates.
We rely on third party service providers to
support the distribution of ARCALYST and many other related activities in
connection with the commercialization of ARCALYST for the treatment of CAPS. We
cannot be certain that these third parties will perform adequately. If these
service providers do not perform their services adequately, our efforts to
market and sell ARCALYST for the treatment of CAPS will not be
successful.
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
23
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 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 ARCALYST® (rilonacept) and 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.
Third-party supply failures, business interruptions, or natural disasters
affecting our manufacturing facilities in Rensselaer, New York could adversely
affect our ability to supply our products.
We manufacture all of our bulk drug materials
for ARCALYST and our product candidates at our manufacturing facilities in
Rensselaer, New York. We would be unable to supply our product requirements if
we were to cease production due to regulatory requirements or action, business
interruptions, labor shortages or disputes, contaminations, fire, natural
disasters, or other problems at the facilities.
Certain raw materials necessary for
manufacturing and formulation of ARCALYST and our product candidates are
provided by single-source unaffiliated third-party suppliers. In addition, we
rely on certain third parties to perform filling, finishing, distribution, and
other services related to the manufacture of our products. We would be unable to
obtain these raw materials or services for an indeterminate period of time if
any of these third-parties were to cease or interrupt production or otherwise
fail to supply these materials, products, or services to us for any reason,
including due to regulatory requirements or action, adverse financial
developments at or affecting the supplier, failure by the supplier to comply
with GMPs, business interruptions, or labor shortages or disputes. This, in
turn, could materially and adversely affect our ability to manufacture or supply
ARCALYST or 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 are marketing and selling ARCALYST for the
treatment of CAPS ourselves in the United States, primarily through third party
service providers. We have no sales or distribution personnel in the United
States and have only a small staff with commercial capabilities. We currently
have no sales, marketing, commercial, or distribution
24
capabilities outside
the United States. If we are unable to obtain those capabilities, either by
developing our own organizations or entering into agreements with service
providers, even if our current or future product candidates receive marketing
approval, we will not be able to successfully sell those products. 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 will 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 VEGF
Trap-Eye in the United States, and we may be unsuccessful in developing our own
sales, marketing, and distribution organization.
There may be too few
patients with CAPS to profitably commercialize ARCALYST® (rilonacept) in this
indication.
Our only approved product is ARCALYST for the
treatment of CAPS, a group of rare, inherited auto-inflammatory diseases. These
rare diseases affect a very small group of people. The incidence of CAPS has
been reported to be approximately 1 in 1,000,000 people in the United States.
Although the incidence rate of CAPS in Europe has not been reported, it is known
to be a rare set of diseases. In October 2009 we received European marketing
authorization for rilonacept for CAPS. In 2009, Novartis received regulatory
approval in the U.S. and Europe for its IL-1 antibody product for the treatment
of CAPS. Given the very rare nature of the disease and the competition from
Novartis’ IL-1 antibody product, we may be unable to profitably commercialize
ARCALYST in this indication.
Even if our product candidates are approved for marketing, their
commercial success is highly uncertain because our competitors have received
approval for products with a similar mechanism of action, and competitors may
get to the marketplace with better or lower cost drugs.
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, on the market for treating certain cancers and many different
pharmaceutical and biotechnology companies are working to develop competing VEGF
antagonists, including Novartis, Amgen, Imclone/Eli Lilly, Pfizer, AstraZeneca,
and GlaxoSmithKline. Many of these molecules are farther along in development
than aflibercept and may offer competitive advantages over our
molecule. Each of Pfizer and Onyx, (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 Genentech’s VEGF
antagonist, Avastin, and their extensive, ongoing clinical development plan for
Avastin 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), DME, and other
eye indications. Lucentis (Genentech) was approved by the FDA in June 2006 for
the treatment of wet AMD. Many other companies are working on the development of
product candidates for the potential treatment of wet AMD and DME that act by
blocking VEGF and VEGF receptors,
25
and through the use
of small interfering ribonucleic acids (siRNAs) that modulate gene expression.
In addition, ophthalmologists are using off-label, with success for the
treatment of wet AMD, a third-party repackaged version of Genentech’s approved
VEGF antagonist, Avastin. The National Eye Institute is conducting a Phase 3
trial comparing 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 VEGF Trap-Eye. Even if
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. While we believe that aflibercept would not be well tolerated if
administered directly to the eye, if aflibercept is ever approved for the
treatment of certain cancers, there is a risk that third parties will attempt to
repackage aflibercept for use and sale for the treatment of wet AMD and other
diseases of the eye, which would present a potential low-cost competitive threat
to the VEGF Trap-Eye if it is ever approved for sale.
The availability of highly effective FDA
approved TNF-antagonists such as Enbrel (Amgen and Wyeth), Remicade (Centocor),
Humira®
(adalimumab), marketed by
Abbott, and SimponiTM
(golimumab), marketed by
Centocor, and the IL-1 receptor antagonist Kineret (Biovitrum), and other
marketed therapies makes it more difficult to successfully develop and
commercialize rilonacept in other indications. This is one of the reasons we
discontinued the development of rilonacept in adult rheumatoid arthritis. In
addition, even if rilonacept is ever approved for sale in indications where
TNF-antagonists are approved, it will be difficult for our drug to compete
against these FDA approved TNF-antagonists because doctors and patients will
have significant experience using these effective medicines. Moreover, in such
indications these approved therapeutics may offer competitive advantages over
rilonacept, such as requiring fewer injections.
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,
Xoma, and Novartis are each developing antibodies to interleukin-1 and Amgen is
developing an antibody to the interleukin-1 receptor. Novartis received
marketing approval for its IL-1 antibody for the treatment of CAPS from the FDA
in June 2009 and from the European Medicines Agency in October 2009. Novartis is
also developing this IL-1 antibody in gout and other inflammatory diseases.
Novartis’ IL-1 antibody and these other drug candidates could offer competitive
advantages over ARCALYST. For example, Novartis’ IL-1 antibody is dosed once
every eight weeks compared to the once-weekly dosing regimen for ARCALYST. The
successful development and/or commercialization of these competing molecules
could impair our ability to successfully commercialize ARCALYST.
We have plans to develop rilonacept for the
treatment of certain gout indications. In October 2009, Novartis announced
positive Phase 2 results showing that canakinumab is more effective than an
injectable corticosteroid at reducing pain and preventing recurrent attacks or
“flares” in patients with hard-to-treat gout. Novartis’ IL-1 antibody is dosed
less frequently for the treatment of CAPS and may be perceived as offering
competitive advantages over rilonacept in gout by some physicians, which would
make it difficult for us to successfully commercialize rilonacept in that
disease.
Currently, inexpensive, oral therapies such as
analgesics and other non-steroidal anti-inflammatory drugs are used as the
standard of care to treat the symptoms of these gout diseases. These
established, inexpensive, orally delivered drugs may make it difficult for us to
successfully commercialize rilonacept in these diseases.
The successful
commercialization of ARCALYST® (rilonacept) and 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 product candidates, if commercialized, may
be significantly more expensive than traditional drug treatments. For example,
we have announced plans to initiate a Phase 3 program studying the use of
rilonacept for the treatment of certain gout indications. Patients suffering
from these gout indications are currently treated with inexpensive therapies,
including non-steroidal anti-inflammatory drugs. These existing treatment
options are likely to be considerably less expensive and may be preferable to a
biologic medication for some patients. 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
26
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 payers
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 market and sell ARCALYST in the United
States for the treatment of a group of rare genetic disorders called CAPS. We
recently received European Union marketing authorization for rilonacept for the
treatment of CAPS. There may be too few patients with CAPS to profitably
commercialize ARCALYST. Physicians may not prescribe ARCALYST, and CAPS patients
may not be able to afford ARCALYST, if third party payers do not agree to
reimburse the cost of ARCALYST therapy and this would adversely affect our
ability to commercialize ARCALYST 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 ARCALYST and our product candidates in
clinical development will likely be too expensive for most patients to afford
without health insurance coverage, if our products are unable to obtain adequate
coverage and reimbursement by third-party payers our ability to successfully
commercialize our product candidates may be adversely impacted. Any limitation
on the use of our products or any decrease in the price of our products will
have a material adverse effect on our ability to achieve
profitability.
In certain foreign countries, pricing,
coverage, and level of reimbursement of prescription drugs are subject to
governmental control, and we may be unable to negotiate coverage, pricing, and
reimbursement on terms that are favorable to us. In some foreign countries, the
proposed pricing for a drug must be approved before it may be lawfully marketed.
The requirements governing drug pricing vary widely from country to country. For
example, the European Union provides options for its member states to restrict
the range of medicinal products for which their national health insurance
systems provide reimbursement and to control the prices of medicinal products
for human use. A member state may approve a specific price for the medicinal
product or it may instead adopt a system of direct or indirect controls on the
profitability of the company placing the medicinal product on the market. Our
results of operations may suffer if we are unable to market our products in
foreign countries or if coverage and reimbursement for our products in foreign
countries is limited.
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.
27
Risks Related to Our Common
Stock
Our stock price is extremely volatile.
There has been significant volatility in our
stock price and generally in the market prices of biotechnology companies’
securities. Various factors and events may have a significant impact on the
market price of our Common Stock. These factors include, by way of
example:
- progress, delays, or adverse
results in clinical trials;
- announcement of technological
innovations or product candidates by us or competitors;
- fluctuations in our operating
results;
- third party claims that our
products or technologies infringe their patents;
- public concern as to the safety or
effectiveness of ARCALYST® (rilonacept) or any
of our product candidates;
- developments in our relationship
with collaborative partners;
- developments in the biotechnology
industry or in government regulation of healthcare;
- large sales of our common stock by
our executive officers, directors, or significant
shareholders;
- arrivals and departures of key
personnel; and
- general market conditions.
The trading price of our Common Stock has
been, and could continue to be, subject to wide fluctuations in response to
these and other factors, including the sale or attempted sale of a large amount
of our Common Stock in the market. Broad market fluctuations may also adversely
affect the market price of our Common Stock.
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,
2009, our four largest shareholders plus Leonard Schleifer, M.D, Ph.D., our
Chief Executive Officer, beneficially owned 41.6% of our outstanding shares of
Common Stock, assuming, in the case of our Chief Executive Officer, the
conversion of his Class A Stock into Common Stock and the exercise of all
options held by him which are exercisable within 60 days of December 31, 2009.
As of December 31, 2009, sanofi-aventis beneficially owned 14,799,552 shares of
Common Stock, representing approximately 18.8% of the shares of Common Stock
then outstanding. Under our investor agreement, as amended, with sanofi-aventis,
sanofi-aventis may not sell these shares until December 20, 2017 except under
limited circumstances and subject to earlier termination 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, 2009, holders of Class A
Stock held 22.2% of the combined voting power of all shares of Common Stock and
Class A Stock then outstanding, including any voting power associated with any
shares of Common Stock beneficially owned by such Class A Stock holders. 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
28
transactions that
require majority or supermajority approval of the combined classes, including
mergers and other business combinations. This may result in us 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, 2009:
- our current executive officers and
directors beneficially owned 14.0% 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, 2009, and 28.5% of the combined voting power of our outstanding
shares of Common Stock and Class A Stock, assuming the exercise of all options
held by such persons which are exercisable within 60 days of December 31,
2009; and
- our four largest shareholders plus Leonard S. Schleifer, M.D., Ph.D. our Chief Executive Officer, beneficially owned 41.6% of our outstanding shares of Common Stock, assuming, in the case of our Chief Executive Officer, the conversion of his Class A Stock into Common Stock and the exercise of all options held by him which are exercisable within 60 days of December 31, 2009. In addition, these five shareholders held 48.5% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by our Chief Executive Officer which are exercisable within 60 days of December 31, 2009.
Pursuant to an investor agreement, as amended,
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 other corporate actions. These provisions could also limit
the price that investors might be willing to pay in the future for shares of our
Common Stock. These provisions include:
- authorization to issue “blank
check” preferred stock, which is preferred stock that can be created and
issued by the board of directors without prior shareholder approval, with
rights senior to those of our common shareholders;
- a staggered board of directors, so
that it would take three successive annual meetings to replace all of our
directors;
- a requirement that removal of
directors may only be effected for cause and only upon the affirmative vote of
at least eighty percent (80%) of the outstanding shares entitled to vote for
directors, as well as a requirement that any vacancy on the board of directors
may be filled only by the remaining directors;
- any action required or permitted
to be taken at any meeting of shareholders may be taken without a meeting,
only if, prior to such action, all of our shareholders consent, the effect of
which is to require that shareholder action may only be taken at a duly
convened meeting;
- any shareholder seeking to bring
business before an annual meeting of shareholders must provide timely notice
of this intention in writing and meet various other requirements;
and
- under the New York Business Corporation Law, 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.”
29
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 our 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 Amended and Restated 2000 Long-Term Incentive Plan may become fully vested
in connection with a “change in control” of our company, as defined in the
plan.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
None.
ITEM 2. PROPERTIES
We conduct our research, development,
manufacturing, and administrative activities at our owned and leased facilities.
Under our main lease in Tarrytown, New York, as amended, we lease 537,100 square
feet of laboratory and office facilities, including approximately 406,200 square
feet of space that we currently occupy and approximately 130,900 square feet of
additional new space that is under construction and expected to be completed in
mid-2011. The term of the lease will expire in June 2024. The lease contains
three renewal options to extend the term of the lease by five years each and
early termination options on approximately 290,400 square feet of space. The
lease provides for monthly payments over its term and additional charges for
utilities, taxes, and operating expenses. Monthly lease payments on the new
space that is under construction will commence in January 2011 and additional
charges for utilities, taxes and operating expenses commenced in January
2010.
In December 2009, we leased, on a short-term
basis, approximately 16,700 square feet of laboratory and office space at our
current Tarrytown location while construction is completed on our additional new
facilities, as described above. We expect to lease this space through May 2011.
We also entered into a separate agreement in December 2009 to lease
approximately 6,600 additional square feet of laboratory and office space at our
current Tarrytown location in facilities that are now under construction and
expected to be completed in mid-2010. The term of this lease will expire in
August 2011 after which time we have the option to include this space in our
main Tarrytown lease, as described above. Monthly lease payments on this
additional space that is under construction are expected to commence in June
2010.
In October 2008, we entered into an operating
sublease for approximately 14,100 square feet of office space in Bridgewater,
New Jersey. The term of the lease expires in July 2011.
We own facilities in Rensselaer, New York,
consisting of three buildings totaling approximately 395,500 square feet of
research, manufacturing, office, and warehouse space.
The following table summarizes the
information regarding our current real property leases:
| Current Monthly | |||||||||||
| Square | Base Rental | Renewal Option | |||||||||
| Location | Footage | Expiration | Charges(1) | Available | |||||||
| Tarrytown, New York(2) | 389,500 | June, 2024 | $ | 1,115,000 | Three 5-year terms | ||||||
| Tarrytown, New York(3) | 130,900 | June, 2024 | — | Three 5-year terms | |||||||
| Tarrytown, New York(2) | 16,700 | May, 2011 | $ | 7,900 | None | ||||||
| Tarrytown, New York(4) | 6,600 | August, 2011 | — | Incorporate into main | |||||||
| Tarrytown lease | |||||||||||
| Bridgewater, New Jersey(5) | 14,100 | July 2011 | $ | 21,700 | None | ||||||
| (1) |
Excludes
additional charges for utilities, real estate taxes, and operating
expenses, as defined, included in our rent.
|
|
| (2) |
Represents
space currently occupied in Tarrytown, New York as described
above.
|
30
| (3) |
Represents
space currently under construction. Rental payments will commence in
January 2011.
|
|
| (4) |
Represents
space currently under construction. Rental payments will commence in June
2010.
|
|
| (5) |
Relates to
sublease in Bridgewater, New Jersey as described
above.
|
|
We believe that our existing owned and leased
facilities are adequate for ongoing research, development, manufacturing, and
administrative activities. In the future, we may lease, operate, or purchase
additional facilities in which to conduct expanded research and development
activities and manufacturing and commercial operations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are a party to legal
proceedings in the course of our business. We do not expect any such current
legal proceedings to have a material adverse effect on our business or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to a vote of our
security holders during the last quarter of the fiscal year ended December 31,
2009.
31
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
Our Common Stock is quoted on The NASDAQ
Global Select 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 Global Select Market:
| High | Low | |||||
| 2008 | ||||||
| First Quarter | $ | 25.25 | $ | 15.61 | ||
| Second Quarter | 21.68 | 13.75 | ||||
| Third Quarter | 24.00 | 13.29 | ||||
| Fourth Quarter | 22.82 | 12.62 | ||||
| 2009 | ||||||
| First Quarter | $ | 20.08 | $ | 11.81 | ||
| Second Quarter | 18.42 | 12.11 | ||||
| Third Quarter | 23.49 | 16.05 | ||||
| Fourth Quarter | 24.97 | 15.02 | ||||
As of February 12, 2010, there were 462
shareholders of record of our Common Stock and 39 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 2010 Annual Meeting of Shareholders to be filed with the SEC is incorporated
by reference into Item 12 of this Report on Form 10-K.
32
STOCK PERFORMANCE GRAPH
Set forth below is a line graph comparing the
cumulative total shareholder return on Regeneron’s 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, 2004
through December 31, 2009. The comparison assumes that $100 was invested on
December 31, 2004 in our Common Stock and in each of the foregoing indices. All
values assume reinvestment of the pre-tax value of dividends paid by companies
included in these indices. The historical stock price performance of our Common
Stock shown in the graph below is not necessarily indicative of future stock
price performance.
| 12/31/2004 | 12/31/2005 | 12/31/2006 | 12/31/2007 | 12/31/2008 | 12/31/2009 | |||||||||||||||||||||||||
| Regeneron | $ | 100.00 | $ | 172.64 | $ | 217.92 | $ | 262.21 | $ | 199.35 | $ | 262.54 | ||||||||||||||||||
| Nasdaq Pharm | 100.00 | 110.12 | 107.79 | 113.36 | 105.48 | 118.52 | ||||||||||||||||||||||||
| Nasdaq US | 100.00 | 102.13 | 112.19 | 121.68 | 62.73 | 84.28 | ||||||||||||||||||||||||
33
ITEM 6. SELECTED FINANCIAL
DATA
The selected financial data set forth below
for the years ended December 31, 2009, 2008, and 2007 and at December 31, 2009
and 2008 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, 2006 and
2005 and at December 31, 2007, 2006, and 2005 are derived from our audited
financial statements not included in this report.
| Year Ended December 31, | ||||||||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
| Revised* | Revised* | |||||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Statement of Operations Data | ||||||||||||||||||||
| Revenues | ||||||||||||||||||||
| Collaboration revenue | $ | 314,457 | $ | 185,138 | $ | 87,648 | $ | 47,763 | $ | 49,372 | ||||||||||
| Technology licensing | 40,013 | 40,000 | 28,421 | |||||||||||||||||
| Contract manufacturing | 12,311 | 13,746 | ||||||||||||||||||
| Net product sales | 18,364 | 6,249 | ||||||||||||||||||
| Contract research and other | 6,434 | 7,070 | 8,955 | 3,373 | 3,075 | |||||||||||||||
| 379,268 | 238,457 | 125,024 | 63,447 | 66,193 | ||||||||||||||||
| Expenses | ||||||||||||||||||||
| Research and development | 398,762 | 274,903 | 202,468 | 137,064 | 155,581 | |||||||||||||||
| Contract manufacturing | 8,146 | 9,557 | ||||||||||||||||||
| Selling, general, and administrative | 52,923 | 48,880 | 37,929 | 25,892 | 25,476 | |||||||||||||||
| Cost of goods sold | 1,686 | 923 | ||||||||||||||||||
| 453,371 | 324,706 | 240,397 | 171,102 | 190,614 | ||||||||||||||||
| Income (loss) from operations | (74,103 | ) | (86,249 | ) | (115,373 | ) | (107,655 | ) | (124,421 | ) | ||||||||||
| Other income (expense) | ||||||||||||||||||||
| Other contract income | 30,640 | |||||||||||||||||||
| Investment income | 4,488 | 18,161 | 20,897 | 16,548 | 10,381 | |||||||||||||||
| Interest expense | (2,337 | ) | (7,752 | ) | (12,043 | ) | (12,043 | ) | (12,046 | ) | ||||||||||
| Loss on early extinguishment of debt | (938 | ) | ||||||||||||||||||
| 2,151 | 9,471 | 8,854 | 4,505 | 28,975 | ||||||||||||||||
| Net loss before income tax expense and cumulative effect | ||||||||||||||||||||
| of a change in accounting principle | (71,952 | ) | (76,778 | ) | (106,519 | ) | (103,150 | ) | (95,446 | ) | ||||||||||
| Income tax (benefit) expense | (4,122 | ) | 2,351 | |||||||||||||||||
| Net loss before cumulative effect of a | ||||||||||||||||||||
| change in accounting principle | (67,830 | ) | (79,129 | ) | (106,519 | ) | (103,150 | ) | (95,446 | ) | ||||||||||
| Cumulative effect of a change in accounting principle | ||||||||||||||||||||
| related to share-based payments | 813 | |||||||||||||||||||
| Net loss | $ | (67,830 | ) | $ | (79,129 | ) | $ | (106,519 | ) | $ | (102,337 | ) | $ | (95,446 | ) | |||||
| Net loss per share, basic and diluted: | ||||||||||||||||||||
| Net loss before cumulative effect of | ||||||||||||||||||||
| a change in accounting principle | $ | (0.85 | ) | $ | (1.00 | ) | $ | (1.61 | ) | $ | (1.78 | ) | $ | (1.71 | ) | |||||
| Cumulative effect of a change in accounting principle | ||||||||||||||||||||
| related to share-based payments | 0.01 | |||||||||||||||||||
| Net loss | $ | (0.85 | ) | $ | (1.00 | ) | $ | (1.61 | ) | $ | (1.77 | ) | $ | (1.71 | ) | |||||
34
| At December 31, | |||||||||||||||
| 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||
| Revised* | Revised* | ||||||||||||||
| (In thousands) | |||||||||||||||
| Balance Sheet Data | |||||||||||||||
| Cash, cash equivalents, restricted cash, and marketable | |||||||||||||||
| securities (current and non-current) | $ | 390,010 | $ | 527,461 | $ | 846,279 | $ | 522,859 | $ | 316,654 | |||||
| Total assets | 741,202 | 724,220 | 957,881 | 585,090 | 423,501 | ||||||||||
| Notes payable - current portion | 200,000 | ||||||||||||||
| Notes payable - long-term portion | 200,000 | 200,000 | |||||||||||||
| Facility lease obligations | 109,022 | 54,182 | 21,623 | ||||||||||||
| Stockholders’ equity | 396,762 | 421,514 | 459,348 | 216,624 | 114,002 | ||||||||||
| * |
We have revised
our financial statements at December 31, 2008 and 2007 and for the years
ended December 31, 2008 and 2007 in connection with the application of
authoritative guidance issued by the Financial Accounting Standards Board
(FASB) to our December 2006 lease, as amended, of laboratory and office
facilities in Tarrytown, New York. The revisions, and a description of the
basis for the revisions, are more fully described in Note 11 to our
audited financial statements included elsewhere in this
report.
|
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Overview
We are a biopharmaceutical company that
discovers, develops, and commercializes pharmaceutical products for the
treatment of serious medical conditions. We currently have one marketed product:
ARCALYST®
(rilonacept) Injection for Subcutaneous Use, which is available for prescription
in the United States for the treatment of Cryopyrin-Associated Periodic
Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and
Muckle-Wells Syndrome (MWS) in adults and children 12 and older. We also have
eight product candidates in clinical development, including three product
candidates that are in late-stage (Phase 3) clinical development. Our late stage
programs are rilonacept, which is being developed for the prevention and
treatment of gout-related flares; VEGF Trap-Eye, which is being developed in eye
diseases using intraocular delivery in collaboration with Bayer HealthCare; and
aflibercept (VEGF Trap), which is being developed in oncology in collaboration
with sanofi-aventis. Our earlier stage clinical programs are REGN475, an
antibody to Nerve Growth Factor (NGF), which is being developed for the
treatment of pain; REGN88, an antibody to the interleukin-6 receptor (IL-6R),
which is being developed in rheumatoid arthritis; REGN421, an antibody to
Delta-like ligand-4 (Dll4), which is being developed in oncology; REGN727, an
antibody to PCSK9, which is being developed for LDL cholesterol reduction; and
REGN668, an antibody to the interleukin-4 receptor (IL-4R), which is being
developed for certain allergic and immune conditions. All five of our early
stage clinical programs are fully human antibodies that are being developed 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, cardiovascular diseases, and infectious
diseases.
Developing and commercializing new medicines
entails significant risk and expense. Since inception we have not generated any
significant sales or profits from the commercialization of ARCALYST or any of
our other product candidates. Before significant revenues from the
commercialization of ARCALYST or our other 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.
35
From inception on January 8, 1988 through
December 31, 2009, we had a cumulative loss of $941.1 million. In the absence of
significant revenues from the commercialization of ARCALYST® (rilonacept) or our
other 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 VEGF Trap-Eye
and rilonacept in other indications; advance new product candidates into
clinical development from our existing research programs utilizing our
technology for discovering fully human monoclonal antibodies; continue our
research and development programs; and commercialize additional 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 (i)
sales of common equity, both in public offerings and to our collaborators,
including sanofi-aventis, (ii) funding from our collaborators and licensees in
the form of up-front and milestone payments, research progress payments, and
payments for our research and development activities, and (iii) a private
placement of convertible debt, which was repaid in full during
2008.
In 2009, our research and development expenses
totaled $398.8 million. In 2010, we expect these expenses to increase
substantially as we continue to expand our research and preclinical and clinical
development activities, primarily in connection with our antibody collaboration
with sanofi-aventis.
A primary driver of our expenses is our number
of full-time employees. Our annual average headcount in 2009 was 980 compared
with 810 in 2008 and 627 in 2007. In 2009 and 2008 our average headcount
increased primarily to support our expanded research and development activities
in connection with our antibody collaboration with sanofi-aventis. In 2007 our
average headcount increased primarily to support our expanded development
programs for VEGF Trap-Eye and rilonacept and our plans to move our first
antibody candidate into clinical trials. In 2010, we expect our average
headcount to increase to approximately 1,350-1,400, primarily to support the
further expansion of our research, development, and marketing activities as
described above, especially in connection with our antibody collaboration with
sanofi-aventis.
36
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 2009 and 2010 to date
were, and plans for the remainder of 2010 are, as follows:
| Clinical Program | 2009 and 2010 Events to Date | 2010 Plans | ||
|
Rilonacept
(also known as IL-1 Trap) |
|
|
||
|
VEGF
Trap-Eye
(intravitreal injection) |
|
|
||
|
Aflibercept
(VEGF Trap – Oncology) |
|
|
||
|
Monoclonal
Antibodies |
|
|
37
Critical Accounting Policies and Use of
Estimates
A summary of the significant accounting
policies that impact us is provided in Note 2 to our Financial Statements,
beginning on page F-7. The preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America
(GAAP) requires management to make estimates and assumptions that affect
reported amounts and related disclosures in the financial statements. Management
considers an accounting estimate to be critical if:
- It requires an assumption (or
assumptions) regarding a future outcome; and
- Changes in the estimate or the use of different assumptions to prepare the estimate could have a material effect on our results of operations or financial condition.
Management believes the current assumptions
used to estimate amounts reflected in our financial statements are appropriate.
However, if actual experience differs from the assumptions used in estimating
amounts reflected in our financial statements, the resulting changes could have
a material adverse effect on our results of operations, and in certain
situations, could have a material adverse effect on our liquidity and financial
condition. The critical accounting estimates that impact our financial
statements are described below.
Revenue Recognition
Collaboration Revenue
We earn collaboration revenue in connection
with collaboration agreements to develop and commercialize product candidates
and utilize our technology platforms. We currently have collaboration agreements
with sanofi-aventis and Bayer HealthCare. The terms of collaboration 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.
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
collaboration 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 collaborator’s development expenses that we are obligated to
reimburse.
38
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 likely to occur
periodically, and could result in material changes to the amount of revenue
recognized each year in the future. In addition, our estimated performance
periods may change if development programs encounter delays or we and our
collaborators decide to expand or contract our clinical plans for a drug
candidate in various disease indications. For example, during the fourth quarter
of 2008, we extended our estimated performance period in connection with the
up-front and non-substantive milestone payments previously received from Bayer
HealthCare pursuant to the companies’ VEGF Trap-Eye collaboration and shortened
our estimated performance period in connection with up-front payments from
sanofi-aventis pursuant to the companies’ aflibercept collaboration. The net
effect of these changes in our estimates resulted in the recognition of $0.4
million less in collaboration revenue in the fourth quarter of 2008, compared to
amounts recognized in connection with these deferred payments in each of the
prior three quarters of 2008. In addition, in connection with amendments to
expand and extend our antibody collaboration with sanofi-aventis, during the
fourth quarter of 2009, we extended our estimated performance period related to
the up-front payment previously received from sanofi-aventis pursuant to the
companies’ antibody collaboration. The effect of this change in estimate
resulted in the recognition of $0.6 million less in collaboration revenue in the
fourth quarter of 2009, compared to amounts recognized in each of the prior
three quarters of 2009. 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.
Product Revenue
In March 2008, ARCALYST® (rilonacept) became
available for prescription in the United States for the treatment of CAPS.
Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, title to product and associated risk of loss has passed to
the customer, the price is fixed or determinable, collection from the customer
is reasonably assured, and we have no further performance obligations. Revenue
and deferred revenue from product sales are recorded net of applicable
provisions for prompt pay discounts, product returns, estimated rebates payable
under governmental programs (including Medicaid), distributor fees, and other
sales-related costs. Since we have limited historical return and rebate
experience for ARCALYST, product sales revenues are deferred until (i) the right
of return no longer exists or we can reasonably estimate returns and (ii)
rebates have been processed or we can reasonably estimate rebates. We review our
estimates of rebates payable each period and record any necessary adjustments in
the current period’s net product sales.
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 20% 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.
39
For clinical study sites, where payments are
made periodically on a per-patient basis to the institutions performing the
clinical study, we accrue expense on an estimated cost-per-patient basis, 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, 2009, 2008, or 2007.
Stock-based Employee Compensation
We recognize stock-based compensation expense
for grants of stock option awards and restricted stock to employees and
non-employee members of our board of directors under our long-term incentive
plans based on the grant-date fair value of those awards. The grant-date fair
value of an award is generally recognized as compensation expense over the
award’s requisite service period.
We use the Black-Scholes model to compute the
estimated fair value of stock option awards. 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 historical exercise experience with
previously issued employee and board of directors option grants. The expected
dividend yield is zero as we have never paid dividends and do not currently
anticipate paying any in the foreseeable future. Stock-based compensation
expense also includes an estimate, which is made at the time of grant, of the
number of awards that are expected to be forfeited. This estimate is revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The assumptions used in computing the fair
value of option awards reflect our best estimates but involve uncertainties
related to market and other conditions, many of which are outside of our
control. 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 future periods.
In addition, we have granted performance-based
stock option awards which vest based upon the optionee satisfying certain
performance and service conditions as defined in the agreements. Potential
compensation cost, measured on the grant date, related to these performance
options will be recognized only if, and when, we estimate that these options
will vest, which is based on whether we consider the options’ performance
conditions to be probable of attainment. Our estimates of the number of
performance-based options that will vest will be revised, if necessary, in
subsequent periods. Changes in these estimates may materially affect the amount
of stock-based compensation that we recognize in future periods related to
performance-based options.
Marketable Securities
We have invested our excess cash primarily in
direct obligations of the U.S. government and its agencies, other debt
securities guaranteed by the U.S. government, and money market funds that invest
in U.S. Government securities and, to a lesser extent, investment grade debt
securities issued by corporations, bank deposits, and asset-backed securities.
We consider our marketable securities to be “available-for-sale,” as
defined by authoritative guidance issued by the Financial Accounting Standards
Board (FASB). These assets are carried at fair value and the unrealized gains
and losses are included in other accumulated comprehensive income (loss) as a
separate component of stockholders’ equity. If the decline in the value of a
marketable security in our investment portfolio is deemed to be
other-than-temporary, we write down the security to its current fair value and
recognize a loss that may be charged against income.
40
On a quarterly basis, we review our portfolio
of marketable securities, using both quantitative and qualitative factors, to
determine if declines in fair value below cost are other-than-temporary. Such
factors include the length of time and the extent to which market value has been
less than cost, financial condition and near-term prospects of the issuer,
recommendations of investment advisors, and forecasts of economic, market, or
industry trends. With respect to debt securities, this review process also
includes an evaluation of our intent to sell an individual debt security or our
need to sell the debt security before its anticipated recovery or maturity. With
respect to equity securities, this review process includes an evaluation of our
ability and intent to hold the securities until their full value can be
recovered. This review is subjective and requires a high degree of
judgment.
As a result of our quarterly reviews of our
marketable securities portfolio, during 2009, 2008, and 2007 we recorded charges
for other-than-temporary impairment of our marketable securities totaling $0.1
million, $2.5 million, and $5.9 million, respectively. The current economic
environment and the deterioration in the credit quality of issuers of securities
that we hold increase the risk of potential declines in the current market value
of marketable securities in our investment portfolio. Such declines could result
in charges against income in future periods for other-than-temporary impairments
and the amounts could be material.
Depreciation of Property, Plant, and Equipment
Property, plant, and equipment are stated at
cost, net of accumulated depreciation. Depreciation is provided on a
straight-line basis over the estimated useful lives of the assets. 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.
Results of Operations
Years Ended
December 31, 2009 and 2008
Net Loss
Regeneron reported a net loss of $67.8
million, or $0.85 per share (basic and diluted), for the year ended December 31,
2009, compared to a net loss of $79.1 million, or $1.00 per share (basic and
diluted) for 2008. The decrease in our net loss in 2009 was principally due to
higher collaboration revenue in connection with our antibody collaboration with
sanofi-aventis, receipt of a $20.0 million substantive performance milestone
payment in connection with our VEGF Trap-Eye collaboration with Bayer
HealthCare, and higher ARCALYST® (rilonacept) sales, partially offset by higher
research and development expenses, as detailed below.
Revenues
Revenues in 2009 and 2008 consist of
the following:
| (In millions) | 2009 | 2008 | |||
| Collaboration revenue | |||||
| Sanofi-aventis | $ | 247.2 | $ | 154.0 | |
| Bayer HealthCare | 67.3 | 31.2 | |||
| Total collaboration revenue | 314.5 | 185.2 | |||
| Technology licensing revenue | 40.0 | 40.0 | |||
| Net product sales | 18.4 | 6.3 | |||
| Contract research and other revenue | 6.4 | 7.0 | |||
| Total revenue | $ | 379.3 | $ | 238.5 | |
Sanofi-aventis Collaboration
Revenue
The collaboration revenue we earn from
sanofi-aventis, as detailed below, consists primarily of reimbursement for
research and development expenses and 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.
41
| Years ended | ||||||
| December 31, | ||||||
| Sanofi-aventis Collaboration Revenue | 2009 | 2008 | ||||
| (In millions) | ||||||
| Aflibercept: | ||||||
| Regeneron expense reimbursement | $ | 26.6 | $ | 35.6 | ||
| Recognition of deferred revenue related to up-front payments | 9.9 | 8.8 | ||||
| Total aflibercept | 36.5 | 44.4 | ||||
| Antibody: | ||||||
| Regeneron expense reimbursement | 198.1 | 97.9 | ||||
| Recognition of deferred revenue related to up-front payment | 9.9 | 10.5 | ||||
| Recognition of revenue related to VelociGene® agreement | 2.7 | 1.2 | ||||
| Total antibody | 210.7 | 109.6 | ||||
| Total sanofi-aventis collaboration revenue | $ | 247.2 | $ | 154.0 | ||
Sanofi-aventis’ reimbursement of our
aflibercept expenses decreased in 2009 compared to 2008, primarily due to lower
costs related to internal research activities and manufacturing aflibercept
clinical supplies. Recognition of deferred revenue related to sanofi-aventis’
up-front aflibercept payments increased in 2009 compared to 2008 due to
shortening the estimated performance period over which this deferred revenue is
being recognized, effective in the fourth quarter of 2008. As of December 31,
2009, $42.5 million 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 2009, sanofi-aventis’ reimbursement of our
antibody expenses consisted of $99.8 million under the discovery agreement and
$98.3 million of development costs under the license agreement, compared to
$72.2 million and $25.7 million, respectively, in 2008. The higher reimbursement
amounts in 2009 compared to 2008 were due to an increase in our research
activities conducted under the discovery agreement and increases in our
development activities for antibody candidates under the license agreement.
Recognition of deferred revenue related to sanofi-aventis’ $85.0 million
up-front payment decreased in 2009 compared to 2008 due to the November 2009
amendments to expand and extend the companies’ antibody collaboration. As of
December 31, 2009, $63.7 million of the original $85.0 million up-front payment
was deferred and will be recognized as revenue in future periods.
In August 2008, we entered into a separate
VelociGene agreement with sanofi-aventis. In 2009 and
2008, we recognized $2.7 million and $1.2 million, respectively, in revenue
related to this agreement.
Bayer HealthCare Collaboration
Revenue
The collaboration revenue we earn from Bayer
HealthCare, as detailed below, consists of cost sharing of Regeneron VEGF
Trap-Eye development expenses, substantive performance milestone payments, and
recognition of revenue related to a non-refundable $75.0 million up-front
payment and a $20.0 million milestone payment received in August 2007 (which,
for the purpose of revenue recognition, was not considered substantive).
| Years ended | ||||||
| December 31, | ||||||
| Bayer HealthCare Collaboration Revenue | 2009 | 2008 | ||||
| (In millions) | ||||||
| Cost-sharing of Regeneron VEGF Trap-Eye development expenses | $ | 37.4 | $ | 18.8 | ||
| Substantive performance milestone payment | 20.0 | |||||
| Recognition of deferred revenue related to up-front and other milestone payments | 9.9 | 12.4 | ||||
| Total Bayer HealthCare collaboration revenue | $ | 67.3 | $ | 31.2 | ||
Cost-sharing of our VEGF Trap-Eye development
expenses with Bayer HealthCare increased in 2009 compared to 2008. Under the
terms of the collaboration, in 2009, all agreed-upon VEGF Trap-Eye development
expenses incurred by Regeneron and Bayer HealthCare under a global development
plan were shared equally. In 2008, the first $70.0 million of agreed-upon VEGF
Trap-Eye development expenses were shared equally, and we were solely
responsible for up to the next $30.0 million. During the fourth quarter of 2008,
we were solely responsible for most of the collaboration’s VEGF Trap-Eye
development expenses, which reduced the amount of cost-sharing revenue we earned
from Bayer HealthCare in 2008. In addition, cost-sharing revenue increased in
2009, compared to 2008, due
42
to higher clinical
development costs in connection with our VIEW 1 trial in wet AMD, Phase 2 trial
in DME, and Phase 3 trial in CRVO. In July 2009, we received a $20.0 million
substantive performance milestone payment from Bayer HealthCare in connection
with the dosing of the first patient in a Phase 3 trial of VEGF Trap-Eye in
CRVO, which was recognized as collaboration revenue. Recognition of deferred
revenue related to the up-front and August 2007 milestone payments from Bayer
HealthCare decreased in 2009 from 2008 due to an extension of the estimated
performance period over which this deferred revenue is being recognized,
effective in the fourth quarter of 2008. As of December 31, 2009, $56.8 million
of these up-front licensing and milestone payments was deferred and will be
recognized as revenue in future periods.
Technology Licensing
Revenue
In connection with our VelocImmune® license agreements with AstraZeneca and
Astellas, each of the $20.0 million annual, non-refundable payments are deferred
upon receipt and recognized as revenue ratably over approximately the ensuing
year of each agreement. In both 2009 and 2008, we recognized $40.0 million of
technology licensing revenue related to these agreements.
Net Product Sales
In 2009 and 2008, we recognized as revenue
$18.4 million and $6.3 million, respectively, of ARCALYST® (rilonacept) net product sales for which both
the right of return no longer exists and rebates can be reasonably estimated. At
December 31, 2009, deferred revenue related to ARCALYST net product sales
totaled $4.8 million.
Contract Research and Other
Revenue
Contract research and other revenue in 2009
and 2008 included $5.5 million and $4.9 million, respectively, recognized in
connection with our five-year grant from the NIH, which we were awarded in
September 2006 as part of the NIH’s Knockout Mouse Project.
Expenses
Total operating expenses increased to $453.4
million in 2009 from $324.7 million in 2008. Our average headcount in 2009
increased to 980 from 810 in 2008 principally as a result of our expanding
research and development activities, which are primarily attributable to our
antibody collaboration with sanofi-aventis.
Operating expenses in 2009 and 2008 include a
total of $31.3 million and $32.5 million, respectively, of non-cash compensation
expense related to employee stock option and restricted stock awards (Non-cash
Compensation Expense), as detailed below:
| For the year ended December 31, 2009 | ||||||||||||
| Expenses before | ||||||||||||
| inclusion of Non-cash | Non-cash | |||||||||||
| Compensation | Compensation | Expenses as | ||||||||||
| Expenses | Expense | Expense | Reported | |||||||||
| (In millions) | ||||||||||||
| Research and development | $380.0 | $18.8 | $398.8 | |||||||||
| Selling, general, and administrative | 40.4 | 12.5 | 52.9 | |||||||||
| Cost of goods sold | 1.7 | 1.7 | ||||||||||
| Total operating expenses | $422.1 | $31.3 | $453.4 | |||||||||
| For the year ended December 31, 2008 | ||||||||||||
| Expenses before | ||||||||||||
| inclusion of Non-cash | Non-cash | |||||||||||
| Compensation | Compensation | Expenses as | ||||||||||
| Expenses | Expense | Expense | Reported | |||||||||
| (In millions) | ||||||||||||
| Research and development | $255.9 | $19.0 | $274.9 | |||||||||
| Selling, general, and administrative | 35.4 | 13.5 | 48.9 | |||||||||
| Cost of goods sold | 0.9 | 0.9 | ||||||||||
| Total operating expenses | $292.2 | $32.5 | $324.7 | |||||||||
43
The decrease in total Non-cash Compensation
Expense in 2009 was primarily attributable to the lower fair market value of our
Common Stock on the date of our annual employee option grants made in December
2008 as compared to the fair market value of annual employee option grants made
in recent years prior to 2008.
Research and Development
Expenses
Research and development expenses increased to
$398.4 million in 2009 from $274.9 million in 2008. The following table
summarizes the major categories of our research and development expenses in 2009
and 2008:
|
Year Ended
December 31,
|
|||||||||
| Research and Development Expenses | 2009 | 2008 | Increase | ||||||
| (In millions) | |||||||||
| Payroll and benefits(1) | $ | 99.9 | $ | 81.7 | $ | 18.2 | |||
| Clinical trial expenses | 111.6 | 49.3 | 62.3 | ||||||
| Clinical manufacturing costs(2) | 66.7 | 53.8 | 12.9 | ||||||
| Research and preclinical development costs | 42.3 | 29.6 | 12.7 | ||||||
| Occupancy and other operating costs | 40.6 | 30.5 | 10.1 | ||||||
| Cost-sharing of Bayer HealthCare VEGF Trap-Eye development expenses(3) | 37.7 | 30.0 | 7.7 | ||||||
| Total research and development | $ | 398.8 | $ | 274.9 | $ | 123.9 | |||
| ____________________ | |||||||||
| (1) | Includes $16.2 million and $16.7 million of Non-cash Compensation Expense in 2009 and 2008, respectively. | |
| (2) | Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, Non-cash Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. Includes $2.6 million and $2.3 million of Non-cash Compensation Expense in 2009 and 2008, 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 Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. Bayer HealthCare provides us with estimated VEGF Trap-Eye development expenses for the most recent fiscal quarter. Bayer HealthCare’s estimate is reconciled to its actual expenses for such quarter in the subsequent fiscal quarter and our portion of its VEGF Trap-Eye development expenses that we are obligated to reimburse is adjusted accordingly. | |
Payroll and benefits increased principally due
to the increase in employee headcount, as described above. Clinical trial
expenses increased due primarily to higher costs related to our clinical
development programs for (i) VEGF Trap-Eye, including our VIEW 1 trial in wet
AMD, DA VINCI trial in DME, and COPERNICUS trial in CRVO, (ii) rilonacept,
related to our Phase 3 clinical development program in gout, and (iii)
monoclonal antibody candidates, which are in earlier stage clinical development.
Clinical manufacturing costs increased due to higher costs related to
manufacturing clinical supplies of rilonacept and monoclonal antibodies,
partially offset by lower costs related to manufacturing aflibercept clinical
supplies. Research and preclinical development costs increased primarily due to
higher costs associated with our antibody programs. Occupancy and other
operating costs increased principally in connection with our higher headcount,
expanded research and development activities, and new and expanded leased
laboratory and office facilities in Tarrytown, New York. Cost-sharing of Bayer
HealthCare’s VEGF Trap-Eye development expenses increased primarily due to
higher costs in connection with the VIEW 2 trial in wet AMD and the GALILEO
trial in CRVO, both of which are being conducted by Bayer HealthCare.
44
We prepare estimates of research and
development costs for projects in clinical development, which include direct
costs and allocations of certain costs such as indirect labor, Non-cash
Compensation Expense, and manufacturing and other costs related to activities
that benefit multiple projects, and, under our collaboration with Bayer
HealthCare, the portion of Bayer HealthCare’s 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 | 2009 | 2008 | (Decrease) | ||||||||
| (In millions) | |||||||||||
| Rilonacept | $ | 67.7 | $ | 39.2 | $ | 28.5 | |||||
| VEGF Trap-Eye | 109.8 | 82.7 | 27.1 | ||||||||
| Aflibercept | 23.3 | 32.1 | (8.8 | ) | |||||||
| REGN88 | 36.9 | 21.4 | 15.5 | ||||||||
| Other antibody candidates in clinical development | 74.4 | 27.4 | 47.0 | ||||||||
| Other research programs & unallocated costs | 86.7 | 72.1 | 14.6 | ||||||||
| Total research and development expenses | $ | 398.8 | $ | 274.9 | $ | 123.9 | |||||
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: Phases 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 which we will be
developing a product. For example, we, and our collaborators where applicable,
continue to explore further development of rilonacept, aflibercept, and 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 ARCALYST®
(rilonacept) and the 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 material product
revenues and net cash inflows. In 2008, we received FDA approval for
ARCALYST®
(rilonacept) for the
treatment of CAPS, a group of rare, inherited auto-inflammatory diseases that
affect a very small group of people. We shipped $20.0 million and $10.7 million
of ARCALYST to our U.S. distributors in 2009 and 2008, respectively.
45
Selling, General, and Administrative
Expenses
Selling, general, and administrative expenses
increased to $52.9 million in 2009 from $48.9 million in 2008. In 2009, we
incurred (i) higher compensation expense, (ii) higher patent-related costs,
(iii) higher facility-related costs due primarily to increases in administrative
headcount, and (iv) higher patient assistance costs related to ARCALYST® (rilonacept). These increases were partially
offset by (i) lower marketing costs related to ARCALYST, (ii) a decrease in
administrative recruitment costs, and (iii) lower professional fees related to
various corporate matters.
Cost of Goods Sold
During 2008, we began recognizing revenue and
cost of goods sold from net product sales of ARCALYST. We began capitalizing
inventory costs associated with commercial supplies of ARCALYST subsequent to
receipt of marketing approval from the FDA in February 2008. Costs for
manufacturing supplies of ARCALYST prior to receipt of FDA approval were
recognized as research and development expenses in the period that the costs
were incurred. Therefore, these costs are not included in cost of goods sold
when revenue is recognized from the sale of those supplies of ARCALYST. Cost of
goods sold in 2009 and 2008 was $1.7 million and $0.9 million, respectively, and
consisted primarily of royalties and other period costs related to ARCALYST
commercial supplies.
Other Income and Expense
Investment income decreased to $4.5 million in
2009 from $18.2 million in 2008, due primarily to lower yields on, and lower
balances of, cash and marketable securities. In addition, in 2009 and 2008,
deterioration in the credit quality of specific marketable securities in our
investment portfolio subjected us to the risk of not being able to recover these
securities’ carrying values. As a result, in 2009 and 2008, we recognized
charges of $0.1 million and $2.5 million, respectively, related to these
securities, which we considered to be other than temporarily impaired. In 2009
and 2008, these charges were either wholly or partially offset by realized gains
of $0.2 million and $1.2 million, respectively, on sales of marketable
securities during the year.
Interest expense decreased to $2.3 million in
2009 from $7.8 million in 2008. Interest expense in 2009 was attributable to the
imputed interest portion of payments to our landlord, commencing in the third
quarter of 2009, to lease newly constructed laboratory and office facilities in
Tarrytown, New York. Interest expense in 2008 related to $200.0 million of 5.5%
Convertible Senior Subordinated Notes until they were retired. During the second
and third quarters of 2008, we repurchased a total of $82.5 million in principal
amount of these convertible notes for $83.3 million. In connection with these
repurchases, we recognized a $0.9 million loss on early extinguishment of debt,
representing the premium paid on the notes plus related unamortized debt
issuance costs. The remaining $117.5 million of convertible notes were repaid in
full upon their maturity in October 2008.
Income Tax (Benefit) Expense
In 2009, we recognized a $4.1 million income
tax benefit, consisting primarily of (i) $2.7 million resulting from a provision
in the Worker, Homeownership, and Business Assistance Act of 2009 that allows us
to claim a refund of U.S. federal alternative minimum tax that we paid in 2008,
as described below, and (ii) $0.7 million resulting from a provision in the
American Recovery and Reinvestment Act of 2009 that allows us to claim a refund
for a portion of our unused pre-2006 research tax credits.
In 2008, we implemented a tax planning
strategy which resulted in the utilization of certain net operating loss
carry-forwards that would otherwise have expired over the next several years, to
offset income for tax purposes. As a result, we incurred and paid income tax
expense of $3.1 million, which relates to U.S. federal and New York State
alternative minimum taxes and included $0.2 million of interest and penalties.
This expense was partly offset by a $0.7 million income tax benefit, resulting
from a provision in the Housing Assistance Tax Act of 2008 that allowed us to
claim a refund for a portion of our unused pre-2006 research tax
credits.
46
Years Ended
December 31, 2008 and 2007
Net Loss
Regeneron reported a net loss of $79.1
million, or $1.00 per share (basic and diluted), for the year ended December 31,
2008, compared to a net loss of $106.5 million, or $1.61 per share (basic and
diluted) for 2007. The decrease in net loss was principally due to revenues
earned in 2008 in connection with our November 2007 antibody collaboration with
sanofi-aventis, partly offset by higher research and development
expenses.
Revenues
Revenues in 2008 and 2007 consist of
the following:
| (In millions) | 2008 | 2007 | |||
| Collaboration revenue | |||||
| Sanofi-aventis | $ | 154.0 | $ | 51.7 | |
| Bayer HealthCare | 31.2 | 35.9 | |||
| Total collaboration revenue | 185.2 | 87.6 | |||
| Technology licensing revenue | 40.0 | 28.4 | |||
| Net product sales | 6.3 | ||||
| Contract research and other revenue | 7.0 | 9.0 | |||
| Total revenue | $ | 238.5 | $ | 125.0 | |
Sanofi-Aventis Collaboration
Revenue
The collaboration revenue we earn from
sanofi-aventis, as detailed below, consists primarily of reimbursement for
research and development expenses and 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.
| Years ended | ||||||
| December 31, | ||||||
| Sanofi-aventis Collaboration Revenue | 2008 | 2007 | ||||
| (In millions) | ||||||
| Aflibercept: | ||||||
| Regeneron expense reimbursement | $ | 35.6 | $ | 38.3 | ||
| Recognition of deferred revenue related to up-front payments | 8.8 | 8.8 | ||||
| Total aflibercept | 44.4 | 47.1 | ||||
| Antibody: | ||||||
| Regeneron expense reimbursement | 97.9 | 3.7 | ||||
| Recognition of deferred revenue related to up-front payment | 10.5 | 0.9 | ||||
| Recognition of revenue related to VelociGene® agreement | 1.2 | |||||
| Total antibody | 109.6 | 4.6 | ||||
| Total sanofi-aventis collaboration revenue | $ | 154.0 | $ | 51.7 | ||
Sanofi-aventis’ reimbursement of Regeneron’s
aflibercept expenses decreased in 2008 compared to 2007, primarily due to lower
costs related to manufacturing aflibercept clinical supplies. Recognition of
deferred revenue relates to sanofi-aventis’ up-front aflibercept payments. As of
December 31, 2008, $52.4 million 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 2008, sanofi-aventis’ reimbursement of
Regeneron’s antibody expenses consisted of $72.2 million under the discovery
agreement and $25.7 million of development costs, related primarily to REGN88,
under the license agreement, compared to $3.0 million and $0.7 million,
respectively, in 2007. Recognition of deferred revenue under the antibody
collaboration related to sanofi-aventis’ $85.0 million up-front payment. As of
December 31, 2008, $73.6 million of this up-front payment was deferred and will
be recognized as revenue in future periods.
47
In August 2008, we entered into a separate
VelociGene® agreement with sanofi-aventis. In 2008, we
recognized $1.2 million in revenue related to this agreement.
Bayer HealthCare Collaboration
Revenue
The collaboration revenue we earn from Bayer
HealthCare, as detailed below, consists of cost sharing of Regeneron VEGF
Trap-Eye development expenses and recognition of revenue related to a
non-refundable $75.0 million up-front payment and a $20.0 million milestone
payment received in August 2007 (which, for the purpose of revenue recognition,
was not considered substantive).
| Years ended | ||||||
| December 31, | ||||||
| Bayer HealthCare Collaboration Revenue | 2008 | 2007 | ||||
| (In millions) | ||||||
| Cost-sharing of Regeneron VEGF Trap-Eye development expenses | $ | 18.8 | $ | 20.0 | ||
| Recognition of deferred revenue related to up-front and milestone payments | 12.4 | 15.9 | ||||
| Total Bayer HealthCare collaboration revenue | $ | 31.2 | $ | 35.9 | ||
For the period from the collaboration’s
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. In the
fourth quarter of 2007, we and Bayer HealthCare approved a global development
plan for VEGF Trap-Eye in wet AMD. The plan included 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 VEGF Trap-Eye in DME. As a
result, 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 and $20.0 million milestone payments from Bayer
HealthCare are being recognized as collaboration revenue over the related
estimated performance period. In periods when we recognize VEGF Trap-Eye
development expenses that we incur under the collaboration, we also recognize,
as collaboration 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 HealthCare’s VEGF Trap-Eye development
expenses that we are obligated to reimburse. In the fourth quarter of 2007, we
commenced recognizing previously deferred payments from Bayer HealthCare and
cost-sharing of our and Bayer HealthCare’s 2007 VEGF Trap-Eye development
expenses through a cumulative catch-up.
Cost-sharing of our VEGF Trap-Eye development
expenses with Bayer HealthCare decreased in 2008 compared to 2007. Under the
terms of the collaboration, in 2008, the first $70.0 million of agreed-upon VEGF
Trap-Eye development expenses incurred by Regeneron and Bayer HealthCare under a
global development plan were shared equally, and we were solely responsible for
up to the next $30.0 million. Since both we and Bayer HealthCare incurred higher
VEGF Trap-Eye development expenses in 2008 compared to 2007, during the fourth
quarter of 2008, we were solely responsible for most of the collaboration’s VEGF
Trap-Eye development expenses, which partly contributed to the revenue decrease
in 2008 compared to 2007. In addition, the decrease was due in part to the
cumulative catchup recognized in 2007 from the inception of the collaboration in
October 2006, as described above. Recognition of deferred revenue related to
Bayer HealthCare’s $75.0 million up-front and $20.0 million milestone payments
also decreased in 2008 from 2007 as a result of the cumulative catch-up. As of
December 31, 2008, $66.7 million of the up-front licensing and milestone
payments was deferred and will be recognized as revenue in future periods.
Technology Licensing
Revenue
In connection with our VelocImmune®
license agreements
with AstraZeneca and Astellas, each of the $20.0 million annual, non-refundable
payments are deferred upon receipt and recognized as revenue ratably over
approximately the ensuing year of each agreement. In 2008 and 2007, we
recognized $40.0 million and $28.4 million, respectively, of technology
licensing revenue related to these agreements.
48
Net Product Sales
In 2008, we recognized as revenue $6.3 million
of ARCALYST®
(rilonacept) net product
sales for which both the right of return no longer exists and rebates can be
reasonably estimated. At December 31, 2008, deferred revenue related to ARCALYST
net product sales totaled $4.0 million.
Contract Research and Other
Revenue
Contract research and other revenue in 2008
and 2007 included $4.9 million and $5.5 million, respectively, recognized in
connection with our five-year grant from the NIH, which we were awarded in
September 2006 as part of the NIH’s Knockout Mouse Project.
Expenses
Total operating expenses increased to $324.7
million in 2008 from $240.4 million in 2007. Our average headcount in 2008
increased to 810 from 627 in 2007 principally as a result of our expanding
research and development activities which are primarily attributable to our
antibody collaboration with sanofi-aventis.
Operating expenses in 2008 and 2007 include a
total of $32.5 million and $28.1 million, respectively, of Non-cash Compensation
Expense, as detailed below:
| For the year ended December 31, 2008 | ||||||||||||
| Expenses before | ||||||||||||
| inclusion of Non-cash | Non-cash | |||||||||||
| Compensation | Compensation | Expenses as | ||||||||||
| Expenses | Expense | Expense | Reported | |||||||||
| (In millions) | ||||||||||||
| Research and development | $255.9 | $19.0 | $274.9 | |||||||||
| Selling, general, and administrative | 35.4 | 13.5 | 48.9 | |||||||||
| Cost of goods sold | 0.9 | 0.9 | ||||||||||
| Total operating expenses | $292.2 | $32.5 | $324.7 | |||||||||
| For the year ended December 31, 2007 | ||||||||||||
| Expenses before | ||||||||||||
| inclusion of Non-cash | Non-cash | |||||||||||
| Compensation | Compensation | Expenses as | ||||||||||
| Expenses | Expense | Expense | Reported | |||||||||
| (In millions) | ||||||||||||
| Research and development | $186.3 | $16.2 | $202.5 | |||||||||
| Selling, general, and administrative | 26.0 | 11.9 | 37.9 | |||||||||
| Total operating expenses | $212.3 | $28.1 | $240.4 | |||||||||
The increase in total Non-cash Compensation
Expense in 2008 was partly attributable to the higher fair market value of our
Common Stock on the date of our annual employee option grants made in December
2007 in comparison to the fair market value of annual employee option grants
made in recent years prior to 2006. In addition, Non-cash Compensation Expense
in 2008 and 2007 included $2.2 million and $0.1 million, respectively, in
connection with a December 2007 Restricted Stock award.
49
Research and Development
Expenses
Research and development expenses increased to
$274.9 million in 2008 from $202.5 million in 2007. The following table
summarizes the major categories of our research and development expenses in 2008
and 2007:
| Year ended December 31, |
|||||||||||
| Research and Development Expenses | 2008 | 2007 | Increase | ||||||||
| (In millions) | |||||||||||
| Payroll and benefits(1) | $ | 81.7 | $ | 60.6 | $ | 21.1 | |||||
| Clinical trial expenses | 49.3 | 37.6 | 11.7 | ||||||||
| Clinical manufacturing costs(2) | 53.8 | 47.0 | 6.8 | ||||||||
| Research and preclinical development costs | 29.6 | 23.2 | 6.4 | ||||||||
| Occupancy and other operating costs | 30.5 | 23.5 | 7.0 | ||||||||
| Cost-sharing of Bayer HealthCare VEGF Trap-Eye development expenses(3) | 30.0 | 10.6 | 19.4 | ||||||||
| Total research and development | $ | 274.9 | $ | 202.5 | $ | 72.4 | |||||
| ____________________ | |||||||||||
| (1) | Includes $16.7 million and $13.2 million of Non-cash Compensation Expense in 2008 and 2007, respectively. | |
| (2) | Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, Non-cash Compensation Expense, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. Includes $2.3 million and $3.0 million of Non-cash Compensation Expense in 2008 and 2007, 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 Bayer HealthCare’s VEGF Trap-Eye development expenses that we are obligated to reimburse. In the fourth quarter of 2007, we commenced recognizing cost-sharing of our and Bayer Healthcare’s VEGF Trap-Eye development expenses. Bayer HealthCare provides us with estimated VEGF Trap-Eye development expenses for the most recent fiscal quarter. Bayer HealthCare’s estimate is reconciled to its actual expenses for such quarter in the subsequent fiscal quarter and our portion of its VEGF Trap-Eye development expenses that we are obligated to reimburse is adjusted accordingly. | |
Payroll and benefits increased principally due
to the increase in employee headcount, as described above. Clinical trial
expenses increased due primarily to higher costs related to our clinical
development programs for (i) VEGF Trap-Eye, which includes our VIEW 1 trial in
wet AMD, (ii) rilonacept, which includes our Phase 2 gout flare prevention
clinical study, and (iii) monoclonal antibodies, which includes REGN88 as well
as clinical-related preparatory activities for REGN421. Clinical manufacturing
costs increased due primarily to higher expenses related to VEGF Trap-Eye and
monoclonal antibodies, including REGN88. These increases were partially offset
by a reduction in manufacturing costs associated with rilonacept and
aflibercept. Research and preclinical development costs increased primarily due
to higher costs associated with our antibody programs. Occupancy and other
operating costs increased principally in connection with our higher headcount
and expanded research and development activities. Cost-sharing of Bayer
HealthCare’s VEGF Trap-Eye development expenses increased primarily due to
higher costs in connection with the VIEW 2 trial in wet AMD, which Bayer
HealthCare initiated in 2008.
50
We prepare estimates of research and
development costs for projects in clinical development, which include direct
costs and allocations of certain costs such as indirect labor, Non-cash
Compensation Expense, and manufacturing and other costs related to activities
that benefit multiple projects, and, under our collaboration with Bayer
HealthCare, the portion of Bayer HealthCare’s 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 | 2008 | 2007 | (Decrease) | ||||||||
| (In millions) | |||||||||||
| Rilonacept | $ | 39.2 | $ | 38.1 | $ | 1.1 | |||||
| Aflibercept | 32.1 | 33.7 | (1.6 | ) | |||||||
| VEGF Trap-Eye | 82.7 | 53.7 | 29.0 | ||||||||
| REGN88 | 21.4 | 13.6 | 7.8 | ||||||||
| Other research programs & unallocated costs | 99.5 | 63.4 | 36.1 | ||||||||
| Total research and development expenses | $ | 274.9 | $ | 202.5 | $ | 72.4 | |||||
For the reasons described above in Results of
Operations for the years ended December 31, 2009 and 2008, under the caption
“Research and Development Expenses”, 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 material product revenues and
net cash inflows. In the first quarter of 2008, we received FDA approval for
ARCALYST®
(rilonacept) for the
treatment of CAPS, a group of rare, inherited auto-inflammatory diseases. These
rare diseases affect a very small group of people. We shipped $10.7 million of
ARCALYST to our U.S. distributors in 2008.
Selling, General, and Administrative
Expenses
Selling, general, and administrative expenses
increased to $48.9 million in 2008 from $37.9 million in 2007. In 2008, we
incurred $5.2 million of selling expenses related to ARCALYST for the treatment
of CAPS. General and administrative expenses increased in 2008 due to (i) higher
compensation expense primarily resulting from increases in administrative
headcount to support our expanded research and development activities, (ii)
higher recruitment and related costs associated with expanding our headcount,
(iii) higher fees for professional services related to various general corporate
matters, and (iv) higher administrative facility-related costs.
Cost of Goods Sold
During 2008, we began recognizing revenue and
cost of goods sold from net product sales of ARCALYST. We began capitalizing
inventory costs associated with commercial supplies of ARCALYST subsequent to
receipt of marketing approval from the FDA in February 2008. Costs for
manufacturing supplies of ARCALYST prior to receipt of FDA approval were
recognized as research and development expenses in the period that the costs
were incurred. Therefore, these costs are not being included in cost of goods
sold when revenue is recognized from the sale of those supplies of ARCALYST.
Cost of goods sold in 2008 was $0.9 million and consisted primarily of royalties
and other period costs related to ARCALYST commercial supplies.
Other Income and Expense
Investment income decreased to $18.2 million
in 2008 from $20.9 million in 2007, due primarily to lower yields on our cash
and marketable securities. In addition, in 2008 and 2007, deterioration in the
credit quality of specific marketable securities in our investment portfolio
subjected us to the risk of not being able to recover these securities’ carrying
values. As a result, in 2008 and 2007, we recognized charges of $2.5 million and
$5.9 million, respectively, related to these securities, which we considered to
be other than temporarily impaired. In 2008, these charges were partially offset
by realized gains of $1.2 million on sales of marketable securities during the
year.
51
Interest expense of $7.8 million and $12.0
million in 2008 and 2007, respectively, was attributable to our 5.5% Convertible
Senior Subordinated Notes due October 17, 2008. During the second and third
quarters of 2008, we repurchased a total of $82.5 million in principal amount of
these convertible notes for $83.3 million. In connection with these repurchases,
we recognized a $0.9 million loss on early extinguishment of debt, representing
the premium paid on the notes plus related unamortized debt issuance costs. The
remaining $117.5 million of convertible notes were repaid in full upon their
maturity in October 2008.
Income Tax Expense
In the third quarter of 2008, we implemented a
tax planning strategy which resulted in the utilization of certain net operating
loss carry-forwards, that would otherwise have expired over the next several
years, to offset income for tax purposes. As a result, we incurred and paid
income tax expense of $3.1 million, which relates to U.S. federal and New York
State alternative minimum taxes and included $0.2 million of interest and
penalties. This expense was partially offset by a $0.7 million income tax
benefit, resulting from a provision in the Housing Assistance Tax Act of 2008
that allowed us to claim a refund for a portion of our unused pre-2006 research
tax credits.
Revision of Previously Issued Financial
Statements
The application of FASB authoritative
guidance, under certain conditions, can result in the capitalization on a
lessee’s books of a lessor’s costs of constructing facilities to be leased to
the lessee. In mid-2009, we became aware that certain of these conditions were
applicable to our December 2006 lease, as amended, of new laboratory and office
facilities in Tarrytown, New York. As a result, we are deemed, in substance, to
be the owner of the landlord’s buildings, and the landlord’s costs of
constructing these new facilities were required to be capitalized on our books
as a non-cash transaction, offset by a corresponding lease obligation on our
balance sheet. In addition, the land element of the lease should have been
accounted for as an operating lease; therefore, adjustments to non-cash rent
expense previously recognized in connection with these new facilities were also
required. Lease payments on these facilities commenced in August 2009.
We revised our previously issued financial
statements to capitalize the landlord’s costs of constructing the new Tarrytown
facilities which we are leasing and to adjust our previously recognized rent
expense in connection with these facilities, as described above. These revisions
primarily resulted in an increase to property, plant, and equipment and a
corresponding increase in facility lease obligation (a long-term liability) at
each balance sheet date. We also revised our statements of operations and
statements of cash flows to reflect rent expense in connection with only the
land element of our lease, with a corresponding adjustment to other long-term
liabilities.
As previously disclosed in our Quarterly
Reports on Form 10-Q for the quarters ended June 30 and September 30, 2009, the
above described revisions consisted entirely of non-cash adjustments. They had
no impact on our business operations, existing capital resources, or our ability
to fund our operating needs, including the preclinical and clinical development
of our product candidates. The revisions also had no impact on our previously
reported net increases or decreases in cash and cash equivalents in any period
and, except for the quarter ended March 31, 2009, had no impact on our
previously reported net cash flows from operating activities, investing
activities, and financing activities. In addition, these revisions had no impact
on our previously reported current assets, current liabilities, and operating
revenues. We have not amended previously issued financial statements because,
after considering both qualitative and quantitative factors, we determined that
the judgment of a reasonable person relying on our previously issued financial
statements would not have been changed or influenced by these revisions.
52
For comparative purposes, the impact of the
above described revisions to our balance sheet as of December 31, 2008 is
as follows:
Balance Sheet Impact at December 31,
2008
(In millions)
(In millions)
| December 31, | ||||
| 2008 | ||||
| As originally reported | ||||
| Property, plant, and equipment, net | $ | 87.9 | ||
| Total assets | 670.0 | |||
| Other long-term liabilities | 5.1 | |||
| Total liabilities | 251.2 | |||
| Accumulated deficit | (875.9 | ) | ||
| Total stockholders’ equity | 418.8 | |||
| Total liabilities and stockholders’ equity | 670.0 | |||
| As revised | ||||
| Property, plant, and equipment, net | $ | 142.0 | ||
| Total assets | 724.2 | |||
| Facility lease obligation | 54.2 | |||
| Other long-term liabilities | 2.4 | |||
| Total liabilities | 302.7 | |||
| Accumulated deficit | (873.3 | ) | ||
| Total stockholders’ equity | 421.5 | |||
| Total liabilities and stockholders’ equity | 724.2 | |||
For comparative purposes, the impact of the
above described revisions to our statements of operations for the period(s) set
forth below is as follows:
Statements of Operations Impact for the years
ended December 31, 2008 and 2007
(In millions, except per share data)
(In millions, except per share data)
| December 31, | ||||||||
| 2008 | 2007 | |||||||
| As originally reported | ||||||||
| Research and development expenses | $ | 278.0 | $ | 201.6 | ||||
| Selling, general, and administrative expenses | 49.3 | 37.9 | ||||||
| Total expenses | 328.3 | 239.5 | ||||||
| Net loss | (82.7 | ) | (105.6 | ) | ||||
| Net loss per share, basic and diluted | $ | (1.05 | ) | $ | (1.59 | ) | ||
| As revised | ||||||||
| Research and development expenses | $ | 274.9 | $ | 202.5 | ||||
| Selling, general, and administrative expenses | 48.9 | 37.9 | ||||||
| Total expenses | 324.7 | 240.4 | ||||||
| Net loss | (79.1 | ) | (106.5 | ) | ||||
| Net loss per share, basic and diluted | $ | (1.00 | ) | $ | (1.61 | ) | ||
These revised amounts are reflected
in this Annual Report on Form 10-K for the year ended December 31, 2009.
53
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 (which was repaid in 2008), purchases of our
equity securities by our collaborators, including sanofi-aventis, revenue earned
under our past and present research and development agreements, including our
agreements with sanofi-aventis and Bayer HealthCare, our past contract
manufacturing agreements, and our technology licensing agreements, ARCALYST® (rilonacept) product
revenue, and investment income.
Sources and Uses of Cash for the Years Ended December 31, 2009, 2008, and
2007
At December 31, 2009, we had $390.0 million in
cash, cash equivalents, restricted cash, and marketable securities compared with
$527.5 million at December 31, 2008 and $846.3 million at December 31, 2007.
Under the terms of our non-exclusive license agreements with AstraZeneca and
Astellas, each company made $20.0 million annual, non-refundable payments to us
in each of 2009, 2008, and 2007. In July 2009 and August 2007, we received $20.0
million milestone payments from Bayer HealthCare in connection with the dosing
of the first patient in a Phase 3 trial of VEGF Trap-Eye in CRVO and wet AMD,
respectively. In December 2007, we received an $85.0 million upfront payment in
connection with our original antibody collaboration agreement with
sanofi-aventis. 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 (Used in) Provided by
Operations
Net cash used in operations was $72.2 million
in 2009 and $89.1 million in 2008, and net cash provided by operations was $27.4
million in 2007. Our net losses of $67.8 million in 2009, $79.1 million in 2008,
and $106.5 million in 2007 included $31.3 million, $32.5 million, and $28.1
million, respectively, of Non-cash Compensation Expense. Our net losses also
included depreciation and amortization of $14.2 million, $11.3 million, and
$11.5 million in 2009, 2008, and 2007, respectively.
At December 31, 2009, accounts receivable
increased by $30.4 million, compared to end-of-year 2008, primarily due to a
higher receivable balance related to our antibody collaboration with
sanofi-aventis. Our deferred revenue balances at December 31, 2009 decreased by
$27.5 million, compared to end-of-year 2008, primarily due to the amortization
of previously received deferred payments under our collaborations with
sanofi-aventis and Bayer HealthCare. Accounts payable, accrued expenses, and
other liabilities increased $13.0 million at December 31, 2009, compared to
end-of-year 2008, primarily in connection with our expanded levels of activities
and expenditures, including higher liabilities for clinical-related expenses,
which were partially offset by an $8.6 million decrease in the cost-sharing
payment due to Bayer HealthCare in connection with our VEGF Trap-Eye
collaboration.
At December 31, 2008, accounts receivable
increased by $16.9 million, compared to end-of-year 2007, primarily due to a
higher receivable balance related to our antibody collaboration with
sanofi-aventis. Our deferred revenue balances at December 31, 2008 decreased by
$26.8 million, compared to end-of-year 2007, primarily due to the amortization
of previously received deferred payments under our collaborations with
sanofi-aventis and Bayer HealthCare. This decrease was partially offset by the
deferral of $4.0 million of ARCALYST® (rilonacept) net
product sales at December 31, 2008.
At December 31, 2007, accounts receivable
increased by $10.8 million, compared to end-of-year 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. Our deferred revenue balances at December 31, 2007
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 not considered to be
substantive for revenue recognition purposes and, therefore, fully deferred, and
(iii) the two $20.0 million licensing payments received from each of AstraZeneca
and Astellas, all as described above, partly offset by 2007 revenue recognition,
principally from amortization of these deferred payments and prior year deferred
payments from sanofi-aventis and Bayer HealthCare. Accounts payable, accrued
expenses, and other liabilities increased $19.1 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.
54
The majority of our cash expenditures in 2009,
2008, and 2007 were to fund research and development, primarily related to our
clinical programs and our preclinical human monoclonal antibody programs. In
2008 and 2007, we made interest payments totaling $9.3 million and $11.0
million, respectively, on our convertible senior subordinated notes. The
convertible notes were repaid in full in 2008.
Cash Provided by (Used in) Investing
Activities
Net cash provided by investing activities was
$146 thousand in 2009 and $30.8 million in 2008, and net cash used in investing
activities was $85.7 million in 2007. In 2009 and 2008, sales or maturities of
marketable securities exceeded purchases by $97.4 million and $65.7 million,
respectively, whereas in 2007, purchases of marketable securities exceeded sales
or maturities by $67.3 million. Capital expenditures in 2009 and 2008 included
costs in connection with expanding our manufacturing capacity at our Rensselaer,
New York facilities and tenant improvements and related costs in connection with
our December 2006 Tarrytown, New York lease, as described below. Capital
expenditures in 2007 included the purchase of land and a building in Rensselaer
for $9.0 million.
Cash Provided by (Used in) Financing
Activities
Net cash provided by financing activities was
$31.4 million in 2009 and $319.4 million in 2007, respectively, and net cash
used in financing activities was $192.9 million in 2008. In 2009, we received a
$23.6 million reimbursement of tenant improvements from our landlord in
connection with our new Tarrytown facilities, which we are deemed to own in
accordance with FASB authoritative guidance. In the second and third quarters of
2008, we repurchased $82.5 million in principal amount of our convertible senior
subordinated notes for $83.3 million. The remaining $117.5 million of
convertible notes were repaid in full upon their maturity in October 2008. 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 addition,
proceeds from issuances of Common Stock in connection with exercises of employee
stock options were $8.6 million in 2009, $7.9 million in 2008, and $7.6 million
in 2007.
Fair Value of Marketable Securities
At December 31, 2009 and 2008, we held
marketable securities whose aggregate fair value totaled $181.3 million and
$278.0 million, respectively. The composition of our portfolio of marketable
securities on these dates was as follows:
| 2009 | 2008 | ||||||||||||||||
| Investment type | Fair Value | Percent | Fair Value | Percent | |||||||||||||
| U.S. Treasury securities | $ | 80.4 | 44 | % | $ | 113.9 | 41 | % | |||||||||
| U.S. government agency securities | 29.6 | 16 | % | 58.3 | 21 | % | |||||||||||
| U.S. government-guaranteed corporate bonds | 48.7 | 27 | % | 29.8 | 11 | % | |||||||||||
| U.S. government guaranteed collateralized mortgage obligations | 3.7 | 2 | % | 17.4 | 6 | % | |||||||||||
| Corporate bonds | 10.3 | 6 | % | 37.1 | 13 | % | |||||||||||
| Mortgage-backed securities | 3.2 | 2 | % | 10.0 | 4 | % | |||||||||||
| Other asset-backed securities | 7.8 | 3 | % | ||||||||||||||
| Other | 5.4 | 3 | % | 3.7 | 1 | % | |||||||||||
| Total marketable securities | $ | 181.3 | 100 | % | $ | 278.0 | 100 | % | |||||||||
In addition, at December 31, 2009 and 2008, we
had $208.7 million and $249.5 million, respectively, of cash, cash equivalents,
and restricted cash, primarily held in money market funds that invest in U.S.
government securities.
During 2009, as marketable securities in our
portfolio matured or paid down, we purchased primarily U.S. Treasury securities,
U.S. government agency obligations, and U.S. government-guaranteed debt. This
shift toward higher quality securities, which we initiated in 2008, reduced the
risk profile, as well as the overall yield, of our portfolio during
2009.
In particular, we reduced the proportion of
mortgage-backed securities in, and eliminated other asset-backed securities
from, the portfolio since they had deteriorated in credit quality and declined
in value due to higher delinquency rates on the underlying collateral supporting
these securities. The mortgage-backed securities that we
55
held at December 31,
2009 are backed by prime and sub-prime residential mortgages and home equity
loans. The estimated fair value of our mortgage-backed securities generally
ranged from 77% to 99% of par value at December 31, 2009. Our mortgage-backed
securities are all senior tranches that are paid-down before other subordinated
tranches as the loans in the underlying collateral are repaid. Through December
31, 2009, we continued to receive monthly payments of principal and interest on
our mortgage-backed securities holdings. If the monthly principal and interest
payments continue at approximately the current rate, we anticipate that all of
the mortgage-backed securities in our portfolio will be repaid within the next
two years, and most would be repaid in 2010. However, higher delinquency rates
in the underlying collateral supporting mortgage-backed securities in our
investment portfolio could result in future impairment charges related to these
securities, which could be material.
We classify our investments using a three-tier
fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The three tiers are Level 1, defined as observable inputs such as quoted prices
in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined
as unobservable inputs in which little or no market data exists, therefore
requiring an entity to develop its own assumptions.
Changes in Level 3 marketable
securities during the year ended December 31, 2009 and 2008 were as
follows:
| Level 3 | ||||||||
| Marketable | ||||||||
| Securities | ||||||||
| (In millions) | 2009 | 2008 | ||||||
| Balance January 1 | $ | 0.1 | $ | 7.9 | ||||
| Settlements | (8.2 | ) | ||||||
| Realized gain | 1.1 | |||||||
| Impairments | (0.1 | ) | (0.7 | ) | ||||
| Balance December 31 | $ | 0.1 | ||||||
During the years ended December 31, 2009 and
2008, there were no transfers of marketable securities between Level 2 and Level
3 classifications.
Our methods for valuing our marketable
securities are described in Note 2 to our financial statements included in this
Annual Report on Form 10-K. With respect to valuations for pricing our Level 2
marketable securities, we consider quantitative and qualitative factors such as
financial conditions and near term prospects of the issuer, recommendations of
investment advisors, and forecasts of economic, market, or industry trends. For
valuations that we determine for our Level 3 marketable securities, we regularly
monitor these securities and adjust their valuations as deemed appropriate based
on the facts and circumstances.
Collaborations with 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 million in milestone payments upon receipt of
specified marketing approvals, including up to
56
$360 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 and up to $40 million related to the 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 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, 2009, we and
sanofi-aventis have incurred $598.4 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.
Sanofi-aventis funded $26.6 million, $35.6
million, and $38.3 million, respectively, of our aflibercept development costs
in 2009, 2008, and 2007, of which $3.6 million, $6.3 million, and $10.5 million,
respectively, were included in accounts receivable as of December 31, 2009,
2008, and 2007. In addition, the up-front payments from sanofi-aventis of $80.0
million in September 2003 and $25.0 million in January 2006 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 2009,
2008, and 2007, we recognized $9.9 million, $8.8 million, and $8.8 million of
revenue, respectively, related to these up-front payments.
Sanofi-aventis has the right to terminate the
agreement without cause with at least twelve months advance notice. Upon
termination of the agreement for any reason, any remaining obligation to
reimburse sanofi-aventis for 50% of 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 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 is funding research at Regeneron to identify and validate
potential drug discovery targets and develop fully human monoclonal antibodies
against these targets. Sanofi-aventis funded approximately $175 million of
research from the collaboration’s inception through December 31, 2009. In
November 2009, we and sanofi-aventis amended these collaboration agreements to
expand and extend our antibody collaboration. Sanofi-aventis will now fund up to
$160 million per year of our antibody discovery activities in 2010 through 2017,
subject to a one-time option for sanofi-aventis to adjust the maximum
reimbursement amount down to $120 million per year commencing in 2014 if over
the prior two years certain specified criteria are not satisfied. The discovery
agreement will expire on December 31, 2017; however, sanofi-aventis has an
option to extend the agreement 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. 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 $140.2 million as of December
31, 2009)
57
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. However, we are not required to
apply more than 10% of our share of the profits from collaboration products in
any calendar quarter towards reimbursing sanofi-aventis for these development
costs. 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 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. In connection with the November 2009 amendment of the
collaboration’s discovery agreement, sanofi-aventis will fund up to $30 million
of agreed-upon costs incurred by us to expand our manufacturing capacity at our
Rensselaer, New York facilities, of which $0.5 million were included in accounts
receivable at December 31, 2009.
In 2009, 2008, and 2007, sanofi-aventis funded
$99.8 million, $72.2 million, and $3.0 million, respectively, of our expenses
under the collaboration’s discovery agreement and $98.3 million, $25.7 million,
and $0.7 million, respectively, of our development costs under the license
agreement. Of these amounts, $57.9 million and $25.5 million were included in
accounts receivable as of December 31, 2009 and 2008, respectively. The $85.0
million up-front payment received from sanofi-aventis in December 2007 was
recorded to deferred revenue and is being recognized as collaboration revenue
over the period during which we expect to perform services. In 2009, 2008, and
2007, we recognized $9.9 million, $10.5 million, and $0.9 million of revenue,
respectively, related to this up-front payment. In addition, reimbursements by
sanofi-aventis of our costs to expand our manufacturing capacity will be
recorded to deferred revenue and recognized prospectively as collaboration
revenue over the same period applicable to recognition of the $85.0 million
up-front payment, as described above.
In connection with the antibody collaboration,
in August 2008, we entered into a separate agreement with sanofi-aventis to use
our proprietary VelociGene® technology platform to
supply sanofi-aventis with genetically modified mammalian models of gene
function and disease. The agreement provides for minimum annual order quantities
for the term of the agreement, which extends through December 2012, for which we
expect to receive payments totaling a minimum of $21.5 million, of which $5.1
million had been received as of December 31, 2009.
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 elects to jointly develop 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.
Prior to December 31, 2017, 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, 2017.
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. This agreement, which was amended in November 2009, contains
certain demand rights, “stand-still provisions”, and other restrictions, which
are more fully described in Note 12 to our Financial Statements.
58
Collaboration with Bayer HealthCare
In October 2006, we entered into a license and
collaboration agreement with Bayer HealthCare to globally develop, and
commercialize outside the United States, 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
(which, for the purpose of revenue recognition, was not considered substantive)
from Bayer HealthCare following dosing of the first patient in the Phase 3 study
of VEGF Trap-Eye in wet AMD. In July 2009, we received a $20.0 million
substantive performance milestone payment from Bayer HealthCare following dosing
of the first patient in a Phase 3 study of VEGF Trap-Eye in CRVO. We are
eligible to receive up to $70 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 million in sales milestones if total annual sales of
VEGF Trap-Eye outside the United States achieve certain specified levels
starting at $200 million.
We will share equally with Bayer HealthCare in
any future profits arising from the commercialization of VEGF Trap-Eye outside
the United States. If 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 $138.4 million at December 31,
2009) 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 VEGF Trap-Eye and retain exclusive rights to
any future profits from such commercialization in the United States. To date, we
and Bayer HealthCare have initiated Phase 3 programs of VEGF Trap-Eye in wet AMD
and CRVO and a Phase 2 clinical study in DME. We are also obligated to use
commercially reasonable efforts to supply clinical and commercial product
requirements.
The $75.0 million up-front payment and the
$20.0 million milestone payment received in August 2007 from Bayer HealthCare
were recorded to deferred revenue. In 2009, 2008, and 2007, we recognized $9.9
million, $12.4 million, and $15.9 million, respectively, of revenue related to
these deferred payments. The $20.0 million substantive performance milestone
payment received from Bayer HealthCare in July 2009 was recognized as revenue in
2009.
Under the terms of the agreement, in 2009 and
thereafter, all agreed upon VEGF Trap-Eye development expenses incurred by both
companies under a global development plan will be shared equally. In 2009, this
resulted in a net payment by us of $0.3 million to Bayer HealthCare. In 2008,
the first $70.0 million of VEGF Trap-Eye development expenses were shared
equally and we were solely responsible for up to the next $30.0 million, which
resulted in a net payment by us of $11.3 million to Bayer HealthCare. In 2007,
the first $50.0 million of VEGF Trap-Eye development expenses were shared
equally and we were solely responsible for up to the next $40.0 million, which
resulted in a net reimbursement of $9.4 million from Bayer HealthCare to us. At
December 31, 2009 and 2008, accrued expenses included $1.2 million and $9.8
million, respectively, due to Bayer HealthCare.
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 VEGF Trap-Eye.
License Agreements with AstraZeneca and
Astellas
Under these non-exclusive license agreements,
AstraZeneca and Astellas each made $20.0 million annual, non-refundable payments
to us in each of 2009, 2008, and 2007. AstraZeneca and Astellas are each
required to make up to three additional annual payments of $20.0 million,
subject to each licensee’s ability to terminate its license agreement with us
after making the next annual payment in 2010.
National Institutes of Health Grant
Under our five-year grant from the NIH, as
amended, we are entitled to receive a minimum of $25.3 million over the
five-year period beginning in September 2006, subject to compliance with the
grant’s terms and annual funding approvals, including $1.5 million to optimize
our existing C57BL/6 ES cell line and its proprietary growth medium. In 2009,
2008, and 2007, we recognized $5.5 million, $4.9 million, and $5.5 million,
respectively, of
59
revenue related to
the NIH Grant, of which $1.2 million and $1.3 million, respectively, was
receivable at the end of 2009 and 2008. In 2010, we expect to receive funding of
approximately $5.5 million for reimbursement of Regeneron expenses related to
the NIH Grant.
License Agreement with Cellectis
In July 2008, we and Cellectis S.A. entered
into an Amended and Restated Non-Exclusive License Agreement. The amended
license agreement resolved a dispute between the parties related to the
interpretation of a license agreement entered into by the parties in December
2003 pursuant to which we licensed certain patents and patent applications
relating to a process for the specific replacement of a copy of a gene in the
receiver genome by homologous recombination. Pursuant to the amended license
agreement, in July 2008, we made a non-refundable $12.5 million payment to
Cellectis and agreed to pay Cellectis a low single-digit royalty based on
revenue received by us from any future licenses or sales of our VelociGene® or VelocImmune® products and services.
No royalties are payable with respect to our VelocImmune license
agreements with AstraZeneca and Astellas or our antibody collaboration with
sanofi-aventis. In addition, no royalties are payable on any revenue from
commercial sales of antibodies from our VelocImmune
technology.
We are amortizing our $12.5 million
payment to Cellectis in proportion to past and anticipated future revenues under
our license agreements with AstraZeneca and Astellas and our antibody discovery
agreement with sanofi-aventis (as amended in November 2009). In 2009 and 2008,
we recognized $2.3 million and $2.7 million, respectively, of expense related to
the Cellectis agreement.
In July 2008, we and Cellectis also entered
into a Subscription Agreement pursuant to which we purchased 368,301 ordinary
shares of Cellectis in November 2008 at a price of EUR 8.63 per share (which was
equivalent to $10.98 at the EUR exchange rate on the date of purchase).
Lease – Tarrytown, New York Facilities:
We lease approximately 537,100 square feet of
laboratory and office space at facilities in Tarrytown, New York, under a
December 2006 lease agreement, as amended. These facilities include
approximately 230,000 square feet of newly constructed space in two new
buildings (Buildings A and B) that were completed during the third quarter of
2009 and, under a December 2009 amendment to the lease, approximately 130,900
square feet of additional new space that is under construction in a third new
building (Building C), which is expected to be completed in mid-2011. The lease
will expire in June 2024 and contains three renewal options to extend the term
of the lease by five years each, as well as early termination options on
approximately 290,400 square feet of space. The lease provides for monthly
payments over its term and additional charges for utilities, taxes, and
operating expenses. Certain premises under the lease are accounted for as
operating leases. However, for the newly constructed space that we are leasing,
we are deemed, in substance, to be the owner of the landlord’s buildings in
accordance with the application of FASB authoritative guidance (as described
above under “Revision of Previously Issued Financial Statements”), and the
landlord’s costs of constructing these new facilities are required to be
capitalized on our books as a non-cash transaction, offset by a corresponding
lease obligation on our balance sheet.
In connection with the lease, 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.
In connection with Buildings A and
B, we capitalized our landlord’s costs of constructing these new facilities,
which totaled $58.2 million as of December 31, 2009, and recognized a
corresponding facility lease obligation of $58.2 million. We also recognized, as
an additional facility lease obligation, reimbursements totaling $23.6 million
from our landlord during 2009 for tenant improvement costs that we incurred
since, under FASB authoritative guidance, these reimbursements from our landlord
are deemed to be a financing obligation. Monthly lease payments on these
facilities are allocated between the land element of the lease (which is
accounted for as an operating lease) and the facility lease obligation, based on
the estimated relative fair values of the land and buildings. The imputed
interest rate applicable to the facility lease obligation is approximately 11%.
At December 31, 2009 and 2008, the facility lease obligation balance in
connection with these new facilities was $81.0 million and $54.2 million,
respectively.
60
In addition, as described above, we amended
our lease in December 2009 to include additional new laboratory and office space
in Building C that is under construction. As of December 31, 2009, we
capitalized $27.8 million of our landlord’s costs of constructing these new
facilities, and recognized a corresponding facility lease obligation of $27.8
million. Monthly lease payments on these facilities will commence in January
2011 and additional charges for utilities, taxes, and operating expenses
commenced in January 2010. Rent expense in connection with the land element of
these additional facilities, which is accounted for as an operating lease,
commenced in December 2009 and is recorded as a deferred liability until lease
payments commence in January 2011. In addition, interest expense is imputed at a
rate of approximately 9%, and is capitalized and deferred in connection with
this facility lease obligation. At December 31, 2009, the facility lease
obligation balance in connection with these additional new facilities was $28.0
million.
Capital Expenditures
Our cash expenditures for property, plant, and
equipment totaled $97.3 million in 2009, $34.9 million in 2008, and $18.4
million in 2007. As described above, $23.6 million of tenant improvement costs
we incurred in Tarrytown were reimbursed by our landlord in 2009. We expect to
incur capital expenditures of approximately $80 to $110 million in 2010 and
approximately $40 to $60 million in 2011, primarily in connection with expanding
our Rensselaer, New York manufacturing facilities and tenant improvements at our
newly leased Tarrytown facilities in Building C. In February 2010, we received
$47.5 million from our landlord in connection with tenant improvement costs in
Tarrytown. We also expect to be reimbursed for a portion of the capital
expenditures for our Rensselaer facilities by sanofi-aventis, with the remaining
amount to be funded by our existing capital resources.
Funding Requirements
Our total expenses for research and
development from inception through December 31, 2009 have been approximately
$2.0 billion. 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
reimbursable and non-reimbursable amounts, an allocable portion of general and
administrative costs, and cost sharing of a collaborator’s development expenses,
where applicable, of $333.7 million, $230.6 million, and $108.2 million in 2009,
2008, and 2007, respectively.
We expect to continue to incur
substantial funding requirements primarily for research and development
activities (including preclinical and clinical testing). Before taking into
account reimbursements from our collaborators, and exclusive of anticipated
funding for capital expenditures as described above, we currently anticipate
that approximately 65-75% of our expenditures for 2010 will be directed toward
the preclinical and clinical development of product candidates, including
rilonacept, aflibercept, VEGF Trap-Eye, and clinical stage monoclonal
antibodies; approximately 15-25% of our expenditures for 2010 will be applied to
our basic research and early preclinical activities; and the remainder of our
expenditures for 2010 will be used for the continued development of our novel
technology platforms and general corporate purposes. While we expect that
funding requirements for our research and development activities will continue
to increase in 2010, we also expect that a greater proportion of our research
and development expenditures will be reimbursed by our collaborators, especially
in connection with our amended and expanded antibody collaboration with
sanofi-aventis.
In connection with our funding requirements,
the following table summarizes our contractual obligations as of December 31,
2009. 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 | Greater than | ||||||||||||||||||||||
| Total | one year | 1 to 3 years | 3 to 5 years | 5 years | |||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Operating leases(1) | $ | 96.2 | $ | 6.3 | $ | 11.6 | $ | 12.4 | $ | 65.9 | |||||||||||||
| Purchase obligations(2) | 150.6 | 112.5 | 38.1 | ||||||||||||||||||||
| Other long-term liabilities(3) | 205.4 | 8.2 | 22.4 | 26.6 | 148.2 | ||||||||||||||||||
| Total contractual obligations | $ | 452.2 | $ | 127.0 | $ | 72.1 | $ | 39.0 | $ | 214.1 | |||||||||||||
61
| (1) | Excludes future contingent costs for utilities, real estate taxes, and operating expenses included in our rent. In 2009, these costs were $8.4 million. See Note 11(a) to our Financial Statements. | |
| (2) | 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. | |
| (3) | Represents payments with respect to facility lease obligations in connection with our lease of facilities in Tarrytown, New York, as described above. See Note 11(a) to our Financial Statements. | |
As described above, in February 2010, we
received $47.5 million from our landlord in connection with tenant improvement
costs in Tarrytown. As a result, total contractual obligations, as detailed in
the table above, will increase (i) from 127.0 million to $130.9 million for the
year ending December 31, 2010, (ii) from $72.1 million to $80.0 million for the
two-year period beginning January 1, 2011, (iii) from $39.0 million to $47.0
million for the two-year period beginning January 1, 2013, and (iv) from $214.1
million to $251.6 million for the fiscal years beginning January 1, 2015 and
thereafter.
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 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 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.
Currently, we are required to remit royalties on product sales of
ARCALYST® (rilonacept) for the treatment of CAPS. In
the future, if we are able to successfully develop, market, and sell ARCALYST
for other indications or 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 patents and other intellectual property
will continue to be substantial.
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. For example,
if we choose to commercialize products that are not licensed to a third party,
we could incur substantial pre-marketing and commercialization expenses that
62
could lead us to
consume our cash at a faster rate. If there is insufficient capital to fund all
of our planned operations and activities, we would expect to prioritize
available capital to fund selected preclinical and clinical development programs
or license selected products.
Other than our operating leases and
a $1.6 million letter of credit issued to our landlord in connection with our
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, 2009, 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.
Future Impact of Recently Issued Accounting
Standards
In October 2009, the FASB amended its
authoritative guidance on multiple-deliverable revenue arrangements. The amended
guidance provides greater ability to separate and allocate arrangement
consideration in a multiple-element revenue arrangement by requiring the use of
estimated selling prices to allocate arrangement consideration, thereby
eliminating the use of the residual method of allocation. The amended guidance
also requires expanded qualitative and quantitative disclosures surrounding
multiple-deliverable revenue arrangements. This guidance may be applied
retrospectively or prospectively for new or materially modified arrangements. We
are required to adopt this amended guidance effective for the fiscal year
beginning January 1, 2011, although earlier adoption is permitted. We are
currently evaluating the impact that this guidance will have on our financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our earnings and cash flows are subject to
fluctuations due to changes in interest rates principally in connection with our
investment of excess cash in direct obligations of the U.S. government and its
agencies, other debt securities guaranteed by the U.S. government, and money
market funds that invest in U.S. Government securities and, to a lesser extent,
investment grade debt securities issued by corporations, bank deposits, and
asset-backed securities. We do not believe we are materially exposed to changes
in interest rates. Under our current policies, we do not use interest rate
derivative instruments to manage exposure to interest rate changes. We estimate
that a one percent unfavorable change in interest rates would have resulted in
approximately a $0.6 million and $1.9 million decrease in the fair value of our
investment portfolio at December 31, 2009 and 2008, respectively.
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. We have recognized other-than-temporary impairment charges related to
certain marketable securities of $0.1 million, $2.5 million, and $5.9 million in
2009, 2008, and 2007, respectively.
The current economic environment and
the deterioration in the credit quality of issuers of securities that we hold
increase the risk of potential declines in the current market value of
marketable securities in our investment portfolio. Such declines could result in
charges against income in future periods for other-than-temporary impairments
and the amounts could be material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements required by this Item
are included on pages F-1 through F-35 of this report. The supplementary
financial information required by this Item is included at page F-35 of this
report.
63
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 Company’s management, with the
participation of our chief executive officer and chief financial officer,
conducted an evaluation of the effectiveness of the Company’s 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 Company’s management, including the
Company’s 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, 2009. The effectiveness of our internal control
over financial reporting as of December 31, 2009 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, 2009
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
Our management, including our chief executive
officer and chief financial officer, does not expect that our disclosure
controls and procedures or internal controls over financial reporting will
prevent all errors and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the system are met and cannot detect all deviations. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud or
deviations, if any, within the company have been detected. Projections of any
evaluation of effectiveness to future periods are subject to the risks that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
ITEM 9B. OTHER INFORMATION
None.
64
PART III
ITEM 10. DIRECTORS, 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 in our definitive proxy statement with respect to our 2010 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 Company’s website
(http://www.regeneron.com) under the “Corporate Governance” heading on
the “About Us” page.
ITEM 11. EXECUTIVE
COMPENSATION
The information called for by this item will
be included in our definitive proxy statement with respect to our 2010 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 in our definitive proxy statement with respect to our 2010 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 in our definitive proxy statement with respect to our 2010 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 in our definitive proxy statement with respect to our 2010 Annual
Meeting of Shareholders to be filed with the SEC, and is incorporated herein by
reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
(a)1. Financial Statements
The financials statements filed as part of this report are listed on the
Index to Financial Statements on page F-1.
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
65
3. Exhibits
| Exhibit | ||||
| Number | Description | |||
| 3.1 | (o) | - | Restated Certificate of Incorporation. | |
| 3.2 | (a) | - | By-Laws, as amended. | |
| 10.1 + | (b) | - | 1990 Amended and Restated Long-Term Incentive Plan. | |
| 10.2 + | (p) | - | Amended and Restated 2000 Long-Term Incentive Plan. | |
| 10.2.1 + | (c) | - | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers. | |
| 10.2.2 + | (c) | - | Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers. | |
| 10.2.3 + | (d) | - | Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers. | |
| 10.2.4 + | (d) | - | Form of option agreement and related notice of grant for use in connection with the grant of stock options to certain of the Registrant’s executive officers in connection with a January 2005 Option Exchange Program. | |
| 10.2.5 + | (t) | - | Form of option agreement and related notice of grant for use in connection with the grant of time based vesting stock options to the Registrant’s non-employee directors and executive officers. | |
| 10.2.6 + | (t) | - | Form of option agreement and related notice of grant for use in connection with the grant of performance based vesting stock options to the Registrant’s executive officers. | |
| 10.3 + | (s) | - | Amended and Restated Employment Agreement, dated as of November 14, 2008, between the Registrant and Leonard S. Schleifer, M.D., Ph.D. | |
| 10.4* + | (e) | - | Employment Agreement, dated as of December 31, 1998, between the Registrant and P. Roy Vagelos, M.D. | |
| 10.5 + | (s) | - | Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, amended and restated effective as of November 14, 2008. | |
| 10.6* | (f) | - | IL-1 License Agreement, dated June 26, 2002, by and among the Registrant, Immunex Corporation, and Amgen Inc. | |
| 10.7* | (u) | - | IL-1 Antibody Termination Agreement by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation and the Registrant, dated as of June 8, 2009. | |
| 10.8* | (u) | - | Trap-2 Termination Agreement by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation and the Registrant, dated as of June 8, 2009. | |
| 10.9* | (g) | - | Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and the Registrant. | |
| 10.9.1* | (e) | - | Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of December 31, 2004. | |
| 10.9.2 | (h) | - | Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of January 7, 2005. | |
| 10.9.3* | (i) | - | Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and the Registrant, effective as of December 21, 2005. | |
| 10.9.4* | (i) | - | Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and the Registrant, effective as of January 31, 2006. | |
| 10.10* | (j) | - | License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and the Registrant. | |
| 10.11* | (k) | - | Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and the Registrant. | |
| 10.12 | (l) | - | Lease, dated as of December 21, 2006, by and between BMR-Landmark at Eastview LLC and the Registrant. | |
| 10.12.1* | (n) | - | First Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of October 24, 2007. |
66
| 10.12.2 | (r) | - | Second Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of September 30, 2008. | |
| 10.12.3 | (t) | - | Third Amendment to lease, by and between BMR-Landmark at Eastview LLC and the Registrant, entered into as of April 29, 2009. | |
| 10.12.4 | (v) | - | Fourth Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, effective as of December 3, 2009. | |
| 10.12.5 | (w) | - | Fifth Amendment to Lease, by and between BMR-Landmark at Eastview LLC and the Registrant, entered into as of February 11, 2010. | |
| 10.13* | (m) | - | Non Exclusive License and Material Transfer Agreement, dated as of March 30, 2007, by and between Astellas Pharma Inc. and the Registrant. | |
| 10.14* | - | Amended and Restated Discovery and Preclinical Development Agreement, dated as of November 10, 2009, by and between Aventis Pharmaceuticals Inc. and the Registrant. | ||
| 10.15* | - | Amended and Restated License and Collaboration Agreement, dated as of November 10, 2009, by and among Aventis Pharmaceuticals Inc., sanofi-aventis Amerique Du Nord, and the Registrant. | ||
| 10.16 | (o) | - | Stock Purchase Agreement, dated as of November 28, 2007, by and among sanofi-aventis Amerique Du Nord, sanofi-aventis US LLC, and the Registrant. | |
| 10.17 | (o) | - | 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 the Registrant. | |
| 10.17.1 | - | First Amendment to the December 20, 2007 Investor Agreement, dated as of November 10, 2009, by and among sanofi-aventis US LLC, Aventis Pharmaceuticals Inc., sanofi-aventis Amerique du Nord, and the Registrant. | ||
| 10.18* | (q) | - | Amended and Restated Non-Exclusive License Agreement, dated as of July 1, 2008 by and between Cellectis, S.A. and the Registrant. | |
| 23.1 | - | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. | ||
| 24.1 | - | Power of Attorney (included on the signature page of this Annual Report on Form 10-K) | ||
| 31.1 | - | Certification of CEO pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934. | ||
| 31.2 | - | Certification of CFO pursuant to Rule 13a-14(a) under the Securities 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 Company’s registration statement on Form S-1 (file number 33-39043). | ||
| (c) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005. | ||
| (d) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004. | ||
| (e) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2004, filed March 11, 2005. | ||
| (f) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2002, filed August 13, 2002. | ||
| (g) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2003, filed November 12, 2003. | ||
| (h) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005. | ||
| (i) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2005, filed February 28, 2006. | ||
67
| (j) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2006, filed November 6, 2006. | ||
| (k) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2006, filed March 12, 2007. | ||
| (l) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006. | ||
| (m) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended March 31, 2007, filed May 4, 2007. | ||
| (n) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2007, filed November 7, 2007. | ||
| (o) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2007, filed February 27, 2008. | ||
| (p) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed June 17, 2008. | ||
| (q) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2008, filed August 1, 2008. | ||
| (r) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended September 30, 2008, filed November 5, 2008. | ||
| (s) | Incorporated by reference from the Form 10-K for Regeneron Pharmaceuticals, Inc., for the year ended December 31, 2008, filed February 26, 2009. | ||
| (t) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended March 31, 2009, filed April 30, 2009. | ||
| (u) | Incorporated by reference from the Form 10-Q for Regeneron Pharmaceuticals, Inc., for the quarter ended June 30, 2009, filed August 4, 2009. | ||
| (v) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed December 8, 2009. | ||
| (w) | Incorporated by reference from the Form 8-K for Regeneron Pharmaceuticals, Inc., filed February 16, 2010. | ||
| * | Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant to Rule 24b-2. | |
| + | Indicates a management contract or compensatory plan or arrangement. | |
68
SIGNATURES
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: | Tarrytown, New York | |||
| February 18, 2010 | ||||
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 annual 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 and thing requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do 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, | President, Chief Executive Officer, and | |
| Leonard S. Schleifer, M.D., Ph.D. | Director (Principal Executive Officer) | ||
| /s/ | MURRAY A. GOLDBERG | Senior Vice President, Finance & Administration, | |
| Murray A. Goldberg | Chief Financial Officer, Treasurer, and Assistant Secretary | ||
| (Principal Financial Officer) | |||
| /s/ | DOUGLAS S. MCCORKLE | Vice President, Controller, and | |
| Douglas S. McCorkle | Assistant Treasurer (Principal Accounting Officer) | ||
| /s/ | GEORGE D. YANCOPOULOS | Executive Vice President, Chief Scientific Officer, | |
| George D. Yancopoulos, M.D., Ph.D. | President, Regeneron Research Laboratories, and Director | ||
| /s/ | P. ROY VAGELOS | Chairman of the Board | |
| P. Roy Vagelos, M.D. | |||
| /s/ | CHARLES A. BAKER | Director | |
| Charles A. Baker | |||
| /s/ | MICHAEL S. BROWN | Director | |
| Michael S. Brown, M.D. | |||
| /s/ | ALFRED G. GILMAN | Director | |
| Alfred G. Gilman, M.D., Ph.D. | |||
| /s/ | JOSEPH L. GOLDSTEIN | Director | |
| Joseph L. Goldstein, M.D. | |||
| /s/ | ARTHUR F. RYAN | Director | |
| Arthur F. Ryan | |||
| /s/ | ERIC M. SHOOTER | Director | |
| Eric M. Shooter, Ph.D. | |||
| /s/ | GEORGE L. SING | Director | |
| George L. Sing | |||
69
REGENERON PHARMACEUTICALS,
INC.
INDEX TO FINANCIAL
STATEMENTS
| Page | ||
| REGENERON PHARMACEUTICALS, INC. | Numbers | |
| Report of Independent Registered Public Accounting Firm | F-2 | |
| Balance Sheets at December 31, 2009 and 2008 | F-3 | |
| Statements of Operations for the years ended December 31, 2009, 2008, and 2007 | F-4 | |
| Statements of Stockholders’ Equity for the years ended December 31, 2009, 2008, and 2007 | F-5 | |
| Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007 | F-6 | |
| Notes to Financial Statements | F-7 to F-35 | |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of
Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:
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, 2009 and December 31, 2008, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 2009 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, 2009, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s 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 Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on
these financial statements and on the Company’s 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.
A company’s 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 company’s 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 company’s 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 18, 2010
February 18, 2010
F-2
REGENERON PHARMACEUTICALS, INC.
BALANCE SHEETS
BALANCE SHEETS
December 31, 2009 and
2008
(In thousands, except share data)
(In thousands, except share data)
| 2009 | 2008 | ||||||
| (Revised - | |||||||
| see Note 11) | |||||||
| ASSETS | |||||||
| Current assets | |||||||
| Cash and cash equivalents | $ | 207,075 | $ | 247,796 | |||
| Marketable securities | 134,255 | 226,954 | |||||
| Accounts receivable from the sanofi-aventis Group | 62,703 | 33,302 | |||||
| Accounts receivable - other | 2,865 | 1,910 | |||||
| Prepaid expenses and other current assets | 18,610 | 11,480 | |||||
| Total current assets | 425,508 | 521,442 | |||||
| Restricted cash | 1,600 | 1,650 | |||||
| Marketable securities | 47,080 | 51,061 | |||||
| Property, plant, and equipment, at cost, net of accumulated | |||||||
| depreciation and amortization | 259,676 | 142,035 | |||||
| Other assets | 7,338 | 8,032 | |||||
| Total assets | $ | 741,202 | $ | 724,220 | |||
| LIABILITIES and STOCKHOLDERS’ EQUITY | |||||||
| Current liabilities | |||||||
| Accounts payable and accrued expenses | $ | 49,031 | $ | 36,168 | |||
| Deferred revenue from sanofi-aventis, current portion | 17,523 | 21,390 | |||||
| Deferred revenue - other, current portion | 27,021 | 26,114 | |||||
| Total current liabilities | 93,575 | 83,672 | |||||
| Deferred revenue from sanofi-aventis | 90,933 | 105,586 | |||||
| Deferred revenue - other | 46,951 | 56,835 | |||||
| Facility lease obligations | 109,022 | 54,182 | |||||
| Other long term liabilities | 3,959 | 2,431 | |||||
| Total liabilities | 344,440 | 302,706 | |||||
| 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 - 2,244,698 in 2009 and 2,248,698 in 2008 | 2 | 2 | |||||
| Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued | |||||||
| and outstanding - 78,860,862 in 2009 and 77,642,203 in 2008 | 79 | 78 | |||||
| Additional paid-in capital | 1,336,732 | 1,294,813 | |||||
| Accumulated deficit | (941,095 | ) | (873,265 | ) | |||
| Accumulated other comprehensive income (loss) | 1,044 | (114 | ) | ||||
| Total stockholders’ equity | 396,762 | 421,514 | |||||
| Total liabilities and stockholders’ equity | $ | 741,202 | $ | 724,220 | |||
The accompanying notes are an integral part of
the financial statements.
F-3
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2009, 2008,
and 2007
(In thousands except share data)
(In thousands except share data)
| 2009 | 2008 | 2007 | |||||||||
| (Revised - | (Revised - | ||||||||||
| see Note 11) | see Note 11) | ||||||||||
| Revenues | |||||||||||
| Sanofi-aventis collaboration revenue | $ | 247,140 | $ | 153,972 | $ | 51,687 | |||||
| Other collaboration revenue | 67,317 | 31,166 | 35,961 | ||||||||
| Technology licensing | 40,013 | 40,000 | 28,421 | ||||||||
| Net product sales | 18,364 | 6,249 | |||||||||
| Contract research and other | 6,434 | 7,070 | 8,955 | ||||||||
| 379,268 | 238,457 | 125,024 | |||||||||
| Expenses | |||||||||||
| Research and development | 398,762 | 274,903 | 202,468 | ||||||||
| Selling, general, and admistrative | 52,923 | 48,880 | 37,929 | ||||||||
| Cost of goods sold | 1,686 | 923 | |||||||||
| 453,371 | 324,706 | 240,397 | |||||||||
| Loss from operations | (74,103 | ) | (86,249 | ) | (115,373 | ) | |||||
| Other income (expense) | |||||||||||
| Investment income | 4,488 | 18,161 | 20,897 | ||||||||
| Interest expense | (2,337 | ) | (7,752 | ) | (12,043 | ) | |||||
| Loss on early extinguishment of debt | (938 | ) | |||||||||
| 2,151 | 9,471 | 8,854 | |||||||||
| Net loss before income tax expense | (71,952 | ) | (76,778 | ) | (106,519 | ) | |||||
| Income tax (benefit) expense | (4,122 | ) | 2,351 | ||||||||
| Net loss | $ | (67,830 | ) | $ | (79,129 | ) | $ | (106,519 | ) | ||
| Net loss per share, basic and diluted | $ | (0.85 | ) | $ | (1.00 | ) | $ | (1.61 | ) | ||
| Weighted average shares outstanding, basic and diluted | 79,782 | 78,827 | 66,334 | ||||||||
The accompanying notes are an integral part of
the financial statements.
F-4
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008, and 2007
(In thousands)
(In thousands)
| Accumulated | ||||||||||||||||||||||||||||||||
| Additional | Other | Total | ||||||||||||||||||||||||||||||
| Class A Stock | Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders’ | Comprehensive | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Income (Loss) | Equity | Loss | ||||||||||||||||||||||||
| Balance, December 31, 2006 | 2,270 | $2 | 63,131 | $ | 63 | $ | 904,407 | $ | (687,617 | ) | $ | (231 | ) | $ | 216,624 | |||||||||||||||||
| 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 | (106,519 | ) | (106,519 | ) | $ | (106,519 | ) | |||||||||||||||||||||||||
| Change in net unrealized gain (loss) on marketable securities | 401 | 401 | 401 | |||||||||||||||||||||||||||||
| Balance, December 31, 2007 (Revised- see Note 11) | 2,260 | 2 | 76,592 | 77 | 1,253,235 | (794,136 | ) | 170 | 459,348 | $ | (106,118 | ) | ||||||||||||||||||||
| Issuance of Common Stock in connection with | ||||||||||||||||||||||||||||||||
| exercise of stock options, net of shares tendered | 980 | 1 | 7,948 | 7,949 | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with | ||||||||||||||||||||||||||||||||
| Company 401(k) Savings Plan contribution | 59 | 1,107 | 1,107 | |||||||||||||||||||||||||||||
| Conversion of Class A Stock to Common Stock | (11 | ) | 11 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 32,523 | 32,523 | ||||||||||||||||||||||||||||||
| Net loss, 2008 | (79,129 | ) | (79,129 | ) | $ | (79,129 | ) | |||||||||||||||||||||||||
| Change in net unrealized gain (loss) on marketable securities | (284 | ) | (284 | ) | (284 | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2008 (Revised - see Note 11) | 2,249 | 2 | 77,642 | 78 | 1,294,813 | (873,265 | ) | (114 | ) | 421,514 | $ | (79,413 | ) | |||||||||||||||||||
| Issuance of Common Stock in connection with | ||||||||||||||||||||||||||||||||
| exercise of stock options, net of shares tendered | 1,134 | 1 | 9,269 | 9,270 | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with | ||||||||||||||||||||||||||||||||
| Company 401(k) Savings Plan contribution | 81 | 1,391 | 1,391 | |||||||||||||||||||||||||||||
| Conversion of Class A Stock to Common Stock | (4 | ) | 4 | |||||||||||||||||||||||||||||
| Stock-based compensation expense | 31,259 | 31,259 | ||||||||||||||||||||||||||||||
| Net loss, 2009 | (67,830 | ) | (67,830 | ) | $ | (67,830 | ) | |||||||||||||||||||||||||
| Change in net unrealized gain (loss) on marketable securities, | ||||||||||||||||||||||||||||||||
| net of tax effect of $0.7 million | 1,158 | 1,158 | 1,158 | |||||||||||||||||||||||||||||
| Balance, December 31, 2009 | 2,245 | $2 | 78,861 | $ | 79 | $ | 1,336,732 | $ | (941,095 | ) | $ | 1,044 | $ | 396,762 | $ | (66,672 | ) | |||||||||||||||
The accompanying notes are an integral part of the financial statements.
F-5
REGENERON PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2009, 2008,
and 2007
| 2009 | 2008 | 2007 | |||||||||
| (In thousands) | |||||||||||
| Cash flows from operating activities | |||||||||||
| Net loss | $ | (67,830 | ) | $ | (79,129 | ) | $ | (106,519 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) | |||||||||||
| provided by operating activities | |||||||||||
| Depreciation and amortization | 14,247 | 11,287 | 11,487 | ||||||||
| Non-cash compensation expense | 31,259 | 32,523 | 28,075 | ||||||||
| Other non-cash expenses | (382 | ) | |||||||||
| Loss on early extinguishment of debt | 938 | ||||||||||
| Net realized (gain) loss on marketable securities | (56 | ) | 1,310 | 5,943 | |||||||
| Changes in assets and liabilities | |||||||||||
| Increase in accounts receivable | (30,356 | ) | (16,892 | ) | (10,827 | ) | |||||
| Increase in prepaid expenses and other assets | (4,574 | ) | (6,560 | ) | (9,649 | ) | |||||
| (Decrease) increase in deferred revenue | (27,497 | ) | (26,834 | ) | 89,764 | ||||||
| Increase (decrease) in accounts payable, accrued expenses, | |||||||||||
| and other liabilities | 12,959 | (5,729 | ) | 19,098 | |||||||
| Total adjustments | (4,400 | ) | (9,957 | ) | 133,891 | ||||||
| Net cash (used in) provided by operating activities | (72,230 | ) | (89,086 | ) | 27,372 | ||||||
| Cash flows from investing activities | |||||||||||
| Purchases of marketable securities | (199,997 | ) | (581,139 | ) | (594,446 | ) | |||||
| Sales or maturities of marketable securities | 297,411 | 646,861 | 527,169 | ||||||||
| Capital expenditures | (97,318 | ) | (34,857 | ) | (18,446 | ) | |||||
| Decrease (increase) in restricted cash | 50 | (50 | ) | ||||||||
| Net cash provided by (used in) investing activities | 146 | 30,815 | (85,723 | ) | |||||||
| Cash flows from financing activities | |||||||||||
| Repurchases or repayment of notes payable | (200,807 | ) | |||||||||
| Proceeds in connection with facility lease obligation | 23,640 | ||||||||||
| Payments in connection with facility lease obligation | (875 | ) | |||||||||
| Net proceeds from the issuance of Common Stock | 8,598 | 7,949 | 319,400 | ||||||||
| Net cash provided by (used in) financing activities | 31,363 | (192,858 | ) | 319,400 | |||||||
| Net (decrease) increase in cash and cash equivalents | (40,721 | ) | (251,129 | ) | 261,049 | ||||||
| Cash and cash equivalents at beginning of period | 247,796 | 498,925 | 237,876 | ||||||||
| Cash and cash equivalents at end of period | $ | 207,075 | $ | 247,796 | $ | 498,925 | |||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for interest | $ | 2,525 | $ | 9,348 | $ | 11,000 | |||||
| Cash paid for income taxes | $ | 3,079 | |||||||||
The accompanying notes are an integral part of
the financial statements.
F-6
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS
For the years ended December 31, 2009, 2008, and 2007
(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 the research, development, and commercialization of
therapeutics to treat human disorders and conditions. In 2008, the Company
received marketing approval from the U.S. Food and Drug Administration (“FDA”)
for the Company’s first commercial drug product, ARCALYST® (rilonacept) Injection for Subcutaneous Use
for the treatment of Cryopyrin-Associated Periodic Syndromes (“CAPS”). The
Company’s facilities are primarily located in New York. The Company’s business
is subject to certain risks including, but not limited to, uncertainties
relating to conducting pharmaceutical research, obtaining regulatory approvals,
commercializing products, and obtaining and enforcing patents.
2. Summary of Significant Accounting
Policies
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.
Marketable Securities
The Company has an investment policy that
includes guidelines on acceptable investment securities, minimum credit quality,
maturity parameters, and concentration and diversification. The Company has
invested its excess cash primarily in direct obligations of the U.S. government
and its agencies, other debt securities guaranteed by the U.S. government, and
money market funds that invest in U.S. Government securities, and, to a lesser
extent, investment grade debt securities issued by corporations, bank deposits,
and asset-backed securities. The Company considers its marketable securities to
be “available-for-sale,” as defined by authoritative guidance issued by the
Financial Accounting Standards Board (“FASB”). These assets are carried at fair
value and the unrealized gains and losses are included in other accumulated
comprehensive income (loss) as a separate component of stockholders’ equity. If
the decline in the value of a marketable security in the Company’s investment
portfolio is deemed to be other-than-temporary, the Company writes down the
security to its current fair value and recognizes a loss that may be charged
against income. As described under “Use of Estimates” below, on a quarterly
basis, the Company reviews its portfolio of marketable securities, using both
quantitative and qualitative factors, to determine if declines in fair value
below cost are other-than-temporary.
Capitalization of Inventory Costs
The Company does not capitalize inventory
costs associated with commercial supplies of drug product until it has received
marketing approval from the FDA. Prior to receipt of FDA approval, costs for
manufacturing supplies of drug product are recognized as research and
development expenses in the period that the costs were incurred. Therefore,
these pre-approval manufacturing costs are not included in cost of goods sold
when revenue is recognized from the sale of those supplies of drug product.
Property, Plant, and Equipment
Property, plant, and equipment are stated at
cost, net of accumulated depreciation. 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 | 7-35 years |
| Laboratory and other equipment | 3-10 years |
| Furniture and fixtures | 5 years |
F-7
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Leasehold improvements are amortized over the
shorter of the estimated useful lives of the assets or the lease term, without
assuming renewal features, if any, are exercised. 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. For all periods presented, no impairment
losses were recorded.
Patents
As a result of the Company’s 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 for product candidates under development are expensed as
incurred. Patent costs related to commercial products are capitalized and
amortized over the remaining patent term. To date, the Company has no
capitalized patent costs.
Operating Leases
On certain of its operating lease agreements,
the Company may receive rent holidays and other incentives. The Company
recognizes operating lease costs on a straight-line basis without regard to
deferred payment terms, such as rent holidays that defer the commencement date
of required payments. In addition, lease incentives that the Company receives
are treated as a reduction of rent expense over the term of the related
agreements.
Revenue Recognition
Certain reclassifications have been made to
our prior year revenue amounts to conform to the 2009 presentation.
a. Collaboration
Revenue
The Company earns collaboration
revenue in connection with collaboration agreements to develop and commercialize
product candidates and utilize the Company’s 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, filing for approval
with regulatory agencies, and receipt of 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
Company’s VEGF Trap-Eye collaboration with Bayer
F-8
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
HealthCare LLC, or
the Company may be reimbursed for all or a significant portion of the costs of
the Company’s research and development activities, such as in the Company’s
aflibercept and antibody collaborations with the sanofi-aventis Group. 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 collaboration 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 Company’s collaborator incurs development expenses
that benefit the collaboration and Regeneron, the Company also recognizes, as
additional research and development expense, the portion of the collaborator’s
development expenses that the Company is obligated to reimburse.
In connection with non-refundable licensing
payments, the Company’s 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
likely to occur periodically, and could result in material changes to the amount
of revenue recognized each year in the future. In addition, estimated
performance periods may change if development programs encounter delays, or the
Company and its collaborators decide to expand or contract the clinical plans
for a drug candidate in various disease indications. For example, during the
fourth quarter of 2008, the Company extended its estimated performance period in
connection with the up-front and non-substantive milestone payments previously
received from Bayer HealthCare pursuant to the companies’ VEGF Trap-Eye
collaboration and shortened its estimated performance period in connection with
up-front payments from sanofi-aventis pursuant to the companies’ aflibercept
collaboration. The net effect of these changes in the Company’s estimates
resulted in the recognition of $0.4 million less in collaboration revenue in the
fourth quarter of 2008, compared to amounts recognized in connection with these
deferred payments in each of the prior three quarters of 2008. In addition, in
connection with amendments to expand and extend the Company’s antibody
collaboration with sanofi-aventis, during the fourth quarter of 2009, the
Company extended its estimated performance period related to the up-front
payment previously received from sanofi-aventis pursuant to the companies’
antibody collaboration. The effect of this change in estimate resulted in the
recognition of $0.6 million less in collaboration revenue in the fourth quarter
of 2009, compared to amounts recognized in each of the prior three quarters of
2009. 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. VelocImmune® Technology Licensing
The Company enters into
non-exclusive license agreements with third parties that allow the third party
to utilize the Company’s VelocImmune
technology in its internal research programs. The terms of these agreements
include annual, non-refundable payments and entitle the Company to receive
royalties on any future sales of products discovered by the third party using
the Company’s VelocImmune technology. Annual, non-refundable payments
under these agreements, where continuing involvement is required of the Company,
are deferred and recognized ratably over their respective annual license
periods.
c. Product Revenue
In February 2008, the Company
received marketing approval from the FDA for ARCALYST® (rilonacept) for the treatment of CAPS.
Revenue from product sales is recognized when persuasive evidence of an
arrangement exists, title to product and associated risk of loss has passed to
the customer, the price is fixed or determinable, collection from the customer
is reasonably assured, and the Company has no further performance obligations.
Revenue and deferred revenue from product sales are recorded net of applicable
provisions for prompt pay discounts, product returns, estimated rebates payable
under governmental programs (including Medicaid), distribution fees, and other
sales-related costs. Since the Company currently has limited historical return
and rebate experience for ARCALYST, product sales revenues are deferred until
(i) the right of return no longer exists or the Company can reasonably
F-9
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
estimate returns and
(ii) rebates have been processed or the Company can reasonably estimate rebates.
The Company reviews its estimates of rebates payable each period and records any
necessary adjustments in the current period’s net product sales.
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, the cost of services
provided by outside contractors, including services related to the Company’s
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, 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 Company’s
clinical trials are performed primarily by contract research organizations
(“CROs”). CROs typically perform most of the start-up activities for the
Company’s trials, including document preparation, site identification, screening
and preparation, pre-study visits, training, and program management. On a
budgeted basis, these startup costs are typically 10% to 20% of the total
contract value. On an actual basis, this percentage range can be significantly
wider, as many of the Company’s 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 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 expense on an estimated cost-per-patient
basis, 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 Company’s estimates. The Company’s 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.
F-10
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
Stock-based Compensation
The Company recognizes stock-based
compensation expense for grants of stock option awards and restricted stock
under the Company’s Long-Term Incentive Plans, to employees and non-employee
members of the Company’s board of directors, based on the grant-date fair value
of those awards. The grant-date fair value of an award is generally recognized
as compensation expense over the award’s requisite service period. In addition,
the Company has granted performance-based stock option awards which vest based
upon the optionee satisfying certain performance and service conditions as
defined in the agreements. Potential compensation cost, measured on the grant
date, related to these performance options will be recognized only if, and when,
the Company estimates that these options will vest, which is based on whether
the Company consider the options’ performance conditions to be probable of
attainment. The Company’s estimates of the number of performance-based options
that will vest will be revised, if necessary, in subsequent periods.
The Company uses the Black-Scholes model to
compute the estimated fair value of stock option awards. 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. Stock-based compensation expense also
includes an estimate, which is made at the time of grant, of the number of
awards that are expected to be forfeited. This estimate is revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
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.
Uncertain tax positions are accounted for in
accordance with FASB authoritative guidance, which the Company adopted on
January 1, 2007. Such guidance prescribes a comprehensive model for
the manner in which a company should recognize, measure, present, and disclose
in its financial statements all material uncertain tax positions that the
company has taken or expects to take on a tax return. Those positions, for which
management’s assessment is that there is more than a 50% probability of
sustaining the position upon challenge by a taxing authority based upon its
technical merits, are subjected to certain measurement criteria. For the
years ended December 31, 2009, 2008, and 2007, the Company has not recognized
any income tax positions that were deemed uncertain under the recognition
thresholds and measurement attributes prescribed by FASB authoritative
guidance.
The Company’s policy is to recognize
interest and penalties related to income tax matters in income tax
expense.
Comprehensive Income (Loss)
Comprehensive income (loss) of the Company
includes net income (loss) adjusted for the change in net unrealized gain or
loss on marketable securities, net of any tax effect. Comprehensive income
(loss) for the years ended December 31, 2009, 2008, and 2007 have been included
in the Statements of Stockholders’ Equity.
Concentration of Credit Risk
Financial instruments which potentially
subject the Company to concentrations of credit risk consist of cash, cash
equivalents, marketable securities (see Note 6), and receivables from
sanofi-aventis.
F-11
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
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 Company’s 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 Company’s formerly 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, 2009, 2008, and 2007 does not include common stock equivalents,
since such inclusion would be antidilutive.
Risks and Uncertainties
Developing and commercializing new medicines
entails significant risk and expense. Since its inception, the Company has not
generated any significant sales or profits from the commercialization of
ARCALYST® (rilonacept) or any of the Company’s other
product candidates. Before revenues from the commercialization of the Company’s
current or future product candidates can be realized, the Company (or its
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 the Company’s products and
technologies uncompetitive or obsolete. The Company may be subject to legal
claims by third parties seeking to enforce patents to limit or prohibit the
Company from marketing or selling its products. The Company is also 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 Company’s business which
impose various obligations on the Company. If Regeneron fails to comply with
these requirements, licensors may have the right to terminate the Company’s
licenses.
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) up-front, license, milestone, and
reimbursement payments from the Company’s collaborators and other entities
related to the Company’s development activities and technology platforms, (ii)
payments for past contract manufacturing activities, (iii) ARCALYST product
sales, and (iv) investment income. Collaboration revenue in 2009 was earned from
sanofi-aventis and Bayer HealthCare under collaboration agreements (see Note 3
for the terms of these agreements). These collaboration agreements contain early
termination provisions that are exercisable 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. Estimates which could have a significant impact on the Company’s
financial statements include:
- Periods over which payments,
including non-refundable up-front, license, and milestone payments, are
recognized as revenue in connection with collaboration and other agreements to
develop and commercialize product candidates and utilize the Company’s
technology platforms.
- Product rebates and returns in
connection with the recognition of revenue from product
sales.
- Periods over which certain clinical trial costs, including costs for clinical activities performed by contract research organizations, are recognized as research and development expenses.
F-12
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
- In connection with stock option
awards, (i) 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 the Company’s Common Stock price, (b) the periods of
time for which employees and members of the Company’s board of directors are
expected to hold their options prior to exercise (expected lives), (c)
expected dividend yield on the Company’s 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; (ii) the number of
stock option awards that are expected to be forfeited; and (iii) with respect
to performance-based stock option awards, if and when we consider the options’
performance conditions to be probable of attainment.
- The Company’s determination of
whether marketable securities are other than temporarily impaired. The Company
conducts a quarterly review of its portfolio of marketable securities, using
both quantitative and qualitative factors, to determine, for securities whose
current fair value is less than their cost, whether the decline in fair value
below cost is other-than-temporary. In making this determination, the Company
considers factors such as the length of time and the extent to which fair
value has been less than cost, financial condition and near-term prospects of
the issuer, recommendations of investment advisors, and forecasts of economic,
market, or industry trends. This review process also includes an evaluation of
the Company’s ability and intent to hold individual securities until they
mature or their full value can be recovered. This review is subjective and
requires a high degree of judgment.
- Useful lives of property, plant,
and equipment.
- The extent to which deferred tax assets and liabilities are offset by a valuation allowance.
In addition, the Company’s share of VEGF
Trap-Eye development expenses incurred by Bayer HealthCare, including the
Company’s share of Bayer HealthCare’s estimated VEGF Trap-Eye development
expenses for the most recent fiscal quarter, are included in research and
development expenses. The Bayer HealthCare estimate for the most recent fiscal
quarter is adjusted in the subsequent quarter to reflect actual expenses for the
quarter.
Future Impact of Recently Issued Accounting Standards
In October 2009, the FASB amended its
authoritative guidance on multiple-deliverable revenue arrangements. The amended
guidance provides greater ability to separate and allocate arrangement
consideration in a multiple-element revenue arrangement by requiring the use of
estimated selling prices to allocate arrangement consideration, thereby
eliminating the use of the residual method of allocation. The amended guidance
also requires expanded qualitative and quantitative disclosures surrounding
multiple-deliverable revenue arrangements. This guidance may be applied
retrospectively or prospectively for new or materially modified arrangements.
The Company will be required to adopt this amended guidance effective for the
fiscal year beginning January 1, 2011, although earlier adoption is permitted.
Management is currently evaluating the impact that this guidance will have on
the Company’s financial statements.
3. Collaboration and Contract Research
Agreements
The Company has entered into various
agreements related to its activities to develop and commercialize product
candidates and utilize its technology platforms. Amounts earned by the Company
in connection with these agreements totaled $320.9 million, $192.2 million, and
$96.6 million in 2009, 2008, and 2007, respectively. Total Company-incurred
expenses associated with these agreements, which include reimbursable and
non-reimbursable amounts, an allocable portion of general and administrative
costs, and cost-sharing of a collaborator’s development expenses, where
applicable (see Bayer HealthCare below), were $333.7 million, $230.6 million,
and $108.2 million in 2009, 2008, and 2007, respectively. Significant agreements
of this kind are described below.
F-13
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
a. The sanofi-aventis Group
Aflibercept
In September 2003, the Company entered into a
collaboration agreement (the “Aflibercept Agreement”) with Aventis
Pharmaceuticals Inc. (predecessor to sanofi-aventis U.S.), to jointly develop
and commercialize aflibercept. In connection with this agreement, sanofi-aventis
made a non-refundable up-front payment of $80.0 million and purchased 2,799,552
newly issued unregistered shares of the Company’s Common Stock for $45.0
million.
In January 2005, the Company and
sanofi-aventis amended the Aflibercept Agreement to exclude intraocular delivery
of aflibercept to the eye (“Intraocular Delivery”) from joint development under
the agreement, and product rights to aflibercept in Intraocular Delivery
reverted to Regeneron. In connection with this amendment, sanofi-aventis made a
$25.0 million non-refundable payment to Regeneron (the “Intraocular Termination
Payment”).
In December 2005, the Company and
sanofi-aventis amended the Aflibercept 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 the Company, which was
received in January 2006. Under the Aflibercept Agreement, as amended, the
Company and sanofi-aventis will share co-promotion rights and profits on sales,
if any, of aflibercept outside of Japan, for disease indications included in the
companies’ collaboration. The Company is entitled to a royalty of approximately
35% on annual sales of aflibercept in Japan, subject to certain potential
adjustments. The Company may also receive up to $400 million in milestone
payments upon receipt of specified marketing approvals, including up to $360
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 and up to $40 million related to the receipt of marketing
approvals for up to five aflibercept oncology indications in Japan.
Under the Aflibercept 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, Regeneron will be obligated to reimburse sanofi-aventis for
50% of these development expenses, or half of $598.4 million as of December 31,
2009, in accordance with a formula based on the amount of development expenses
and Regeneron’s share of the collaboration profits and Japan royalties, or at a
faster rate at Regeneron’s option. Regeneron has the option to conduct
additional pre-Phase III studies at its own expense. In connection with the
January 2005 amendment to the Aflibercept Agreement, the Intraocular Termination
Payment of $25.0 million will be considered an aflibercept development expense
and will be subject to 50% reimbursement by Regeneron to sanofi-aventis, as
described above, if the collaboration becomes profitable. In addition, if the
first commercial sale of an aflibercept product in Intraocular Delivery predates
the first commercial sale of an aflibercept product under the collaboration by
two years, Regeneron 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.
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, Regeneron’s obligation to reimburse
sanofi-aventis for 50% of aflibercept development expenses will terminate, and
the Company will retain all rights to aflibercept.
In accordance with the Company’s revenue
recognition policy described in Note 2, the up-front payments received in
September 2003 and January 2006, of $80.0 million and $25.0 million,
respectively, and reimbursement of Regeneron-incurred development expenses, are
being recognized as collaboration revenue over the related performance period.
The Company recognized $36.5 million, $44.4 million, and $47.1 million of
collaboration development revenue in 2009, 2008, and 2007, respectively, in
connection with the Aflibercept Agreement, as amended. At December 31, 2009 and
2008, amounts receivable from sanofi-aventis totaled $3.6 million and $6.3
million, respectively, and deferred revenue was $42.5 million and $52.4 million,
respectively, in connection with the Aflibercept Agreement.
F-14
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
Antibodies
In November 2007, the
Company entered into a global, strategic collaboration (the “Antibody
Collaboration”) with sanofi-aventis to discover, develop, and commercialize
fully human monoclonal antibodies. In connection
with the collaboration, in December 2007, sanofi-aventis purchased 12 million
newly issued, unregistered shares of the Company’s Common Stock for $312.0
million (see Note 12).
The Antibody
Collaboration is governed by a Discovery and Preclinical Development Agreement
(the “Discovery Agreement”) and a License and Collaboration Agreement (the
“License Agreement”). The Company received a non-refundable up-front payment of
$85.0 million from sanofi-aventis under the Discovery Agreement. In addition,
under the Discovery Agreement, sanofi-aventis funded $174.5 million of the
Company’s research for identifying and validating potential drug discovery
targets and developing fully human monoclonal antibodies against those targets
from the collaboration’s inception through December 31, 2009. In November 2009,
the Company and sanofi-aventis amended these collaboration agreements to expand
and extend the Antibody Collaboration. Pursuant to the Discovery Agreement, as
amended, sanofi-aventis will fund up to $160 million per year of the Company’s
research activities in 2010 through 2017, subject to a one-time option for
sanofi-aventis to adjust the maximum reimbursement amount down to $120 million
per year commencing in 2014 if over the prior two years certain specified
criteria are not satisfied. The amended Discovery Agreement will expire on
December 31, 2017; however, sanofi-aventis has an option to extend the agreement
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 the
Company through product approval. If sanofi-aventis does not exercise its option
to license rights to a particular drug candidate under the License Agreement,
the Company will retain the exclusive right to develop and commercialize such
drug candidate, and sanofi-aventis will receive a royalty on sales, if any. The
Company and sanofi-aventis are currently co-developing five therapeutic
antibodies under the License Agreement.
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
(“Shared Phase 3 Trial Costs”) will be shared 80% by sanofi-aventis and 20% by
Regeneron. If the Antibody Collaboration becomes profitable, Regeneron will be
obligated to reimburse sanofi-aventis for 50% of development expenses that were
fully funded by sanofi-aventis (or half of $140.2 million as of December 31,
2009) and 30% of Shared Phase 3 Trial Costs, in accordance with a defined
formula based on the amounts of these expenses and the Company’s share of
collaboration profits from commercialization of collaboration products. However,
the Company is not required to apply more than 10% of its share of the profits
from the antibody collaboration in any calendar quarter to reimburse
sanofi-aventis for these development costs.
Sanofi-aventis will
lead commercialization activities for products developed under the License
Agreement, subject to the Company’s 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% (Regeneron) and ending
at 55% (sanofi-aventis)/45% (Regeneron), and losses outside the United States at
55% (sanofi-aventis)/45% (Regeneron). In addition to profit sharing, the Company
is entitled to receive up to $250 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.
Regeneron is
obligated to use commercially reasonable efforts to supply clinical requirements
of each drug candidate under the Antibody Collaboration until commercial
supplies of that drug candidate are being manufactured. In connection with the
November 2009 amendment of the collaboration’s Discovery Agreement,
sanofi-aventis will fund up to $30 million of agreed-upon costs incurred by the
Company to expand its manufacturing capacity at the Company’s Rensselaer, New
York facilities.
F-15
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
With respect to each
antibody product which enters development under the License Agreement,
sanofi-aventis or the Company 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. The Company may also opt-out of the further
development of an antibody product if it gives 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. Prior to December 31, 2017, 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 the
Company the full amount of unpaid research funding during the remaining term of
the research agreement through December 31, 2017. Upon termination of the
collaboration in its entirety, the Company’s obligation to reimburse
sanofi-aventis for development costs out of any future profits from
collaboration products will terminate. Upon expiration of the Discovery
Agreement, sanofi-aventis has an option to license the Company’s VelocImmune® technology for agreed
upon consideration.
In connection with
the Antibody Collaboration, in August 2008, the Company entered into a separate
agreement with sanofi-aventis to use Regeneron’s proprietary VelociGene® technology platform to
supply sanofi-aventis with genetically modified mammalian models of gene
function and disease (the “VelociGene
Agreement”). The VelociGene Agreement provides for minimum
annual order quantities for the term of the agreement, which extends through
December 2012, for which the Company expects to receive payments totaling a
minimum of $21.5 million.
In accordance with
the Company’s revenue recognition policy described in Note 2, the (i) $85.0
million up-front payment received in December 2007, (ii) reimbursement of
Regeneron-incurred expenses under the Discovery and License Agreements, (iii)
$21.5 million of aggregate minimum payments under the VelociGene
Agreement, and (iv) reimbursement of agreed-upon costs to expand the Company’s
manufacturing capacity are being recognized as collaboration revenue over the
related performance period. In connection with the Antibody Collaboration, the
Company recognized $210.7 million, $109.6 million, and $4.6 million of
collaboration revenue in 2009, 2008, and 2007, respectively. In addition, at
December 31, 2009 and 2008, amounts receivable from sanofi-aventis totaled $59.1
million and $27.0 million and deferred revenue was $66.0 million and $74.6
million, respectively.
b. Bayer HealthCare LLC
In October 2006, the
Company entered into a license and collaboration agreement with Bayer HealthCare
LLC to globally develop, and commercialize outside the United States, the
Company’s VEGF Trap for the treatment of eye disease by local administration
(“VEGF Trap-Eye”). Under the terms of the agreement, Bayer HealthCare made a
non-refundable up-front payment to the Company of $75.0 million. In August 2007,
the Company received a $20.0 million milestone payment from Bayer HealthCare
(which, for the purpose of revenue recognition, was not considered substantive)
following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in the
neovascular form of age-related macular degeneration (“wet AMD”). In July 2009,
the Company received a $20.0 million milestone payment from Bayer HealthCare
following dosing of the first patient in a Phase 3 study of VEGF Trap-Eye in
Central Retinal Vein Occlusion (“CRVO”). In addition, the Company is eligible to
receive up to $70 million in additional development and regulatory milestones
related to the VEGF Trap-Eye program. The Company is also eligible to receive up
to $135 million in sales milestones when and if total annual sales of VEGF
Trap-Eye outside the United States achieve certain specified levels starting at
$200 million.
The Company will
share equally with Bayer HealthCare in any future profits arising from the
commercialization of VEGF Trap-Eye outside the United States. If VEGF Trap-Eye
is granted marketing authorization in a major market country outside the United
States and the collaboration becomes profitable, the Company will be obligated
to reimburse Bayer HealthCare out of its share of the collaboration profits for
50% of the agreed upon development expenses that Bayer HealthCare has incurred
(or half of $138.4 million as of December 31, 2009) in accordance with a formula
based on the amount of development expenses that Bayer HealthCare has incurred
and the Company’s share of the collaboration profits, or at a faster rate at the
Company’s option. Within the United States, the Company is responsible for any
future commercialization of VEGF Trap-Eye and retains exclusive rights to any
future profits from such commercialization in the United States.
F-16
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
Agreed upon VEGF
Trap-Eye development expenses incurred by both companies in 2007 and 2008 under
a global development plan, were shared as follows:
|
2007:
|
The first $50.0
million was shared equally and the Company was solely responsible for up
to the next $40.0 million.
|
|
2008:
|
The first $70.0
million was shared equally and the Company was solely responsible for up
to the next $30.0 million.
|
In 2009 and
thereafter, all development expenses will be shared equally. Neither party was
reimbursed for any development expenses that it incurred prior to 2007. The
Company is also obligated to use commercially reasonable efforts to supply
clinical and commercial product requirements.
Bayer HealthCare has
the right to terminate the Bayer 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, the Company retains all rights to VEGF Trap-Eye.
For the period from
the collaboration’s 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, Regeneron and
Bayer HealthCare approved a global development plan for VEGF Trap-Eye in wet
AMD. The plan included estimated development steps, timelines, and costs, as
well as the projected responsibilities of and costs to be incurred by each of
the companies. In addition, in the fourth quarter of 2007, Regeneron and Bayer
HealthCare reaffirmed the companies’ commitment to a diabetic macular edema
(“DME”) development program and had initial estimates of development costs for
VEGF Trap-Eye in DME. As a result, effective in the fourth quarter of 2007, the
Company determined the appropriate accounting policy for payments from Bayer
HealthCare and cost-sharing of the Company’s and Bayer HealthCare’s VEGF
Trap-Eye development expenses. The $75.0 million up-front licensing payment and
the $20.0 million milestone payment received in August 2007 from Bayer
HealthCare are being recognized as collaboration revenue over the related
estimated performance period in accordance with the Company’s revenue
recognition policy as described in Note 2. In periods when the Company
recognizes VEGF Trap-Eye development expenses that the Company incurs under the
collaboration, the Company also recognizes, as collaboration 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, the
Company also recognizes, as additional research and development expense, the
portion of Bayer HealthCare’s VEGF Trap-Eye development expenses that the
Company is obligated to reimburse. In the fourth quarter of 2007, the Company
commenced recognizing previously deferred payments from Bayer HealthCare and
cost-sharing of the Company’s and Bayer HealthCare’s 2007 VEGF Trap-Eye
development expenses through a cumulative catch-up.
The Company
recognized $67.3 million, $31.2 million, and $35.9 million of collaboration
revenue from Bayer HealthCare in 2009, 2008, and 2007, respectively. In 2009,
collaboration revenue from Bayer HealthCare included the $20.0 million milestone
payment received in July 2009 which, for the purpose of revenue recognition, was
considered substantive. In addition, in 2009, 2008, and 2007, the Company
recognized as additional research and development expense $37.7 million, $30.0
million, and $10.6 million, respectively, of VEGF Trap-Eye development expenses
that the Company was obligated to reimburse to Bayer HealthCare.
In connection with
cost-sharing of VEGF Trap-Eye expenses under the collaboration, $1.2 million and
$9.8 million was payable to Bayer HealthCare at December 31, 2009 and 2008,
respectively. In addition, at December 31, 2009 and 2008, deferred revenue from
the Company’s collaboration with Bayer HealthCare was $56.8 million and $66.7
million, respectively.
F-17
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
c. National Institute of Health
In September 2006,
the Company was awarded a grant from the National Institutes of Health (“NIH”)
as part of the NIH’s Knockout Mouse Project. As amended, the NIH grant provides
a minimum of $25.3 million in funding over a five-year period, including $1.5
million in funding to optimize certain existing technology, subject to
compliance with its terms and annual funding approvals, for the Company’s use of
its VelociGene® technology to generate
a collection of targeting vectors and targeted mouse embryonic stem cells which
can be used to produce knockout mice. The Company records revenue in connection
with the NIH grant using a proportional performance model as it incurs expenses
related to the grant, subject to the grant’s terms and annual funding approvals.
In 2009, 2008, and 2007, the Company recognized contract research revenue of
$5.5 million, $4.9 million, and $5.5 million, respectively, from the NIH
Grant.
4. Technology Licensing
Agreements
In February 2007, the
Company entered into a non-exclusive license agreement with AstraZeneca UK
Limited that allows AstraZeneca to utilize the Company’s VelocImmune® technology in its
internal research programs to discover human monoclonal antibodies. Under the
terms of the agreement, AstraZeneca made a $20.0 million annual, non-refundable
payment to the Company in each of 2009, 2008, and 2007. Each annual payment is
deferred and recognized as revenue ratably over approximately the ensuing
twelve-month period. AstraZeneca is required to make up to three additional
annual payments of $20.0 million, subject to their ability to terminate the
agreement after making the next annual payment in 2010. The Company is entitled
to receive a mid-single-digit royalty on any future sales of antibody products
discovered by AstraZeneca using the Company’s VelocImmune technology. In
connection with the AstraZeneca license agreement, for the years ended December
31, 2009, 2008, and 2007, the Company recognized $20.0 million, $20.0 million,
and $17.1 million of technology licensing revenue. In addition, deferred revenue
at December 31, 2009, 2008, and 2007 was $2.9 million.
In March 2007, the
Company entered into a non-exclusive license agreement with Astellas Pharma Inc.
that allows Astellas to utilize the Company’s VelocImmune technology in its internal research programs to discover human monoclonal
antibodies. Under the terms of the agreement, Astellas made a $20.0 million
annual, non-refundable payment to the Company in each of 2009, 2008, and 2007.
Each annual payment is deferred and recognized as revenue ratably over
approximately the ensuing twelve-month period. Astellas is required to make up
to three additional annual payments of $20.0 million, subject to their ability
to terminate the agreement after making the next annual payment in 2010. The
Company is entitled to receive a mid-single-digit royalty on any future sales of
antibody products discovered by Astellas using the Company’s VelocImmune
technology. In connection with the Astellas license agreement, for the years
ended December 31, 2009, 2008, and 2007, the Company recognized $20.0 million,
$20.0 million, and $11.3 million of technology licensing revenue. In addition,
deferred revenue at December 31, 2009, 2008, and 2007 was $8.7
million.
5.
ARCALYST®
(rilonacept) Product Revenue
In February 2008, the
Company received marketing approval from the FDA for ARCALYST for the treatment
of CAPS. For the years-ended December 31, 2009 and 2008, the Company recognized
as revenue $18.4 million and $6.3 million, respectively, of ARCALYST net product
sales for which the right of return no longer existed and rebates could be
reasonably estimated. At December 31, 2009 and 2008, deferred revenue related to
ARCALYST net product sales totaled $4.8 million and $4.0 million, respectively.
Cost of goods sold
related to ARCALYST sales totaled $1.7 million and $0.9 million for the years
ended December 31, 2009 and 2008, respectively, and consisted primarily of
royalties (see Note 11b). To date, ARCALYST shipments to the Company’s customers
have consisted of supplies of inventory manufactured and expensed prior to FDA
approval of ARCALYST; therefore, the costs of these supplies were not included
in costs of goods sold. At December 31, 2009, the Company had $0.4 million of
inventoried work-in-process costs related to ARCALYST, which is included in
prepaid expenses and other current assets. There were no capitalized inventory
costs at December 31, 2008.
F-18
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
6. Marketable Securities
Marketable securities
at December 31, 2009 and 2008 consisted of debt securities, as detailed below,
and equity securities, the aggregate fair value of which was $5.5 million and
$3.7 million at December 31, 2009 and 2008, respectively, and the aggregate cost
basis of which was $4.0 million and $4.1 million at December 31, 2009 and 2008,
respectively. The following tables summarize the amortized cost basis of debt
securities included in marketable securities, the aggregate fair value of those
securities, and gross unrealized gains and losses on those securities at
December 31, 2009 and 2008. The Company classifies its debt securities, other
than mortgage-backed and other asset-backed securities, based on their
contractual maturity dates. Maturities of mortgage-backed and other asset-backed
securities have been estimated based primarily on repayment characteristics and
experience of the senior tranches that the Company holds.
| Amortized | Fair | Unrealized Holding | |||||||||||||||
| At December 31, 2009 | Cost Basis | Value | Gains | (Losses) | Net | ||||||||||||
| Maturities within one year | |||||||||||||||||
| U.S. government obligations | $ | 100,491 | $ | 100,573 | $ | 82 | $ | 82 | |||||||||
| U.S. government guaranteed corporate bonds | 17,176 | 17,340 | 164 | 164 | |||||||||||||
| Corporate bonds | 10,142 | 10,342 | 200 | 200 | |||||||||||||
| Mortgage-backed securities | 2,471 | 2,338 | $ | (133 | ) | (133 | ) | ||||||||||
| U.S. government guaranteed | |||||||||||||||||
| collateralized mortgage obligations | 3,612 | 3,662 | 50 | 50 | |||||||||||||
| 133,892 | 134,255 | 496 | (133 | ) | 363 | ||||||||||||
| Maturities between one and two years | |||||||||||||||||
| U.S. government obligations | 9,413 | 9,367 | (46 | ) | (46 | ) | |||||||||||
| U.S. government guaranteed corporate bonds | 31,064 | 31,344 | 280 | 280 | |||||||||||||
| Mortgage-backed securities | 1,168 | 900 | (268 | ) | (268 | ) | |||||||||||
| 41,645 | 41,611 | 280 | (314 | ) | (34 | ) | |||||||||||
| $ | 175,537 | $ | 175,866 | $ | 776 | $ | (447 | ) | $ | 329 | |||||||
| At December 31, 2008 | |||||||||||||||||
| Maturities within one year | |||||||||||||||||
| U.S. government obligations | $ | 170,993 | $ | 172,253 | $ | 1,260 | $ | 1,260 | |||||||||
| Corporate bonds | 26,894 | 26,662 | 25 | $ | (257 | ) | (232 | ) | |||||||||
| Mortgage-backed securities | 9,098 | 8,420 | (678 | ) | (678 | ) | |||||||||||
| Other asset-backed securities | 7,842 | 7,829 | (13 | ) | (13 | ) | |||||||||||
| U.S. government guaranteed | |||||||||||||||||
| collateralized mortgage obligations | 11,742 | 11,792 | 50 | 50 | |||||||||||||
| 226,569 | 226,956 | 1,335 | (948 | ) | 387 | ||||||||||||
| Maturities between one and three years | |||||||||||||||||
| U.S. government guaranteed corporate bonds | 29,853 | 29,811 | 82 | (124 | ) | (42 | ) | ||||||||||
| Corporate bonds | 10,446 | 10,414 | 77 | (109 | ) | (32 | ) | ||||||||||
| Mortgage-backed securities | 1,821 | 1,556 | (265 | ) | (265 | ) | |||||||||||
| U.S. government guaranteed | |||||||||||||||||
| collateralized mortgage obligations | 5,297 | 5,570 | 273 | 273 | |||||||||||||
| 47,417 | 47,351 | 432 | (498 | ) | (66 | ) | |||||||||||
| $ | 273,986 | $ | 274,307 | $ | 1,767 | $ | (1,446 | ) | $ | 321 | |||||||
F-19
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
At December 31, 2009
and 2008, marketable securities included an additional unrealized gain of $1.4
million and an additional unrealized loss of $0.4 million, respectively, related
to one equity security in the Company’s marketable securities
portfolio.
The following table
shows the fair value of the Company’s marketable securities that have unrealized
losses and that are deemed to be only temporarily impaired, aggregated by
investment category and length of time that the individual securities have been
in a continuous unrealized loss position, at December 31, 2009 and 2008. The
debt securities listed at December 31, 2009 mature at various dates through
December 2011.
| Less than 12 Months | 12 Months or Greater | Total | ||||||||||||||||||||||
| Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
| At December 31, 2009 | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | ||||||||||||||||||
| U.S. government obligations | $ 9,367 | $ (46 | ) | $ 9,367 | $ (46 | ) | ||||||||||||||||||
| Mortgage-backed securities | 3,238 | (401 | ) | 3,238 | (401 | ) | ||||||||||||||||||
| $ 9,367 | $ (46 | ) | $ 3,238 | $(401 | ) | $12,605 | $ (447 | ) | ||||||||||||||||
| At December 31, 2008 | ||||||||||||||||||||||||
| Corporate bonds | $15,559 | $(287 | ) | $ 2,933 | $ (79 | ) | $18,492 | $ (366 | ) | |||||||||||||||
| Government guaranteed | ||||||||||||||||||||||||
| corporate bonds | 11,300 | (124 | ) | 11,300 | (124 | ) | ||||||||||||||||||
| Mortgage-backed securities | 871 | (74 | ) | 9,104 | (869 | ) | 9,975 | (943 | ) | |||||||||||||||
| Other asset-backed securities | 7,829 | (13 | ) | 7,829 | (13 | ) | ||||||||||||||||||
| Equity securities | 3,608 | (436 | ) | 3,608 | (436 | ) | ||||||||||||||||||
| $39,167 | $(934 | ) | $12,037 | $(948 | ) | $51,204 | $(1,882 | ) | ||||||||||||||||
Realized gains and
losses are included as a component of investment income. For the years ended
December 31, 2009 and 2008, realized gains on sales of marketable securities
totaled $0.2 million and $1.2 million, respectively, and realized losses on
sales of marketable securities were not significant. For the year ended December
31, 2007, realized gains and losses on sales of marketable securities were not
significant. In computing realized gains and losses, the Company computes the
cost of its investments on a specific identification basis. Such cost includes
the direct costs to acquire the security, adjusted for the amortization of any
discount or premium.
The Company’s assets
that are measured at fair value on a recurring basis, at December 31,
2009 and 2008, were as follows:
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Quoted Prices in | Significant | |||||||||||||||
| Fair Value at | Active Markets for | Significant Other | Unobservable | |||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Available-for-sale marketable securities | ||||||||||||||||
| U.S. government obligations | $109,940 | $109,940 | ||||||||||||||
| U.S. government guaranteed | ||||||||||||||||
| corporate bonds | 48,684 | 48,684 | ||||||||||||||
| Corporate bonds | 10,342 | 10,342 | ||||||||||||||
| Mortgage-backed securities | 3,238 | 3,238 | ||||||||||||||
| U.S. government guaranteed | ||||||||||||||||
| collateralized mortgage obligations | 3,662 | 3,662 | ||||||||||||||
| Equity securities | 5,469 | 5,469 | ||||||||||||||
| Total | $181,335 | $5,469 | $175,866 | |||||||||||||
F-20
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
| Fair Value Measurements at Reporting Date Using | ||||||||||||||||
| Quoted Prices in | Significant | |||||||||||||||
| Fair Value at | Active Markets for | Significant Other | Unobservable | |||||||||||||
| December 31, | Identical Assets | Observable Inputs | Inputs | |||||||||||||
| Description | 2008 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
| Available-for-sale marketable securities | ||||||||||||||||
| U.S. government obligations | $172,253 | $172,253 | ||||||||||||||
| U.S. government guaranteed | ||||||||||||||||
| corporate bonds | 29,811 | 29,811 | ||||||||||||||
| Corporate bonds | 37,076 | 37,076 | ||||||||||||||
| Mortgage-backed securities | 9,976 | 9,976 | ||||||||||||||
| Other asset backed securities | 7,829 | 7,829 | ||||||||||||||
| U.S. government guaranteed | ||||||||||||||||
| collateralized mortgage obligations | 17,362 | 17,362 | ||||||||||||||
| Equity securities | 3,708 | $3,608 | $100 | |||||||||||||
| Total | $278,015 | $3,608 | $274,307 | $100 | ||||||||||||
Marketable securities
included in Level 2 were valued using a market approach utilizing prices and
other relevant information, such as interest rates, yield curves, prepayment
speeds, loss severities, credit risks and default rates, generated by market
transactions involving identical or comparable assets. The Company considers
market liquidity in determining the fair value for these securities. During the
years ended December 31, 2009 and 2007, the Company did not record any charges
for other-than-temporary impairment of its Level 2 marketable securities. During
the year ended December 31, 2008, deterioration in the credit quality of a
marketable security from one issuer subjected the Company to the risk of not
being able to recover the security’s $2.0 million carrying value. As a result,
the Company recognized a $1.8 million charge related to this Level 2 marketable
security, which the Company considered to be other than temporarily
impaired.
Marketable securities
included in Level 3 were valued using information provided by the Company’s
investment advisors, including quoted bid prices which take into consideration
the securities’ current lack of liquidity. During the year ended December 31,
2007, deterioration in the credit quality of marketable securities from two
issuers subjected the Company to the risk of not being able to recover the full
principal value of these securities. 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. During the years ended
December 31, 2009 and 2008, the Company recognized an additional $0.1 million
and $0.7 million, respectively, in other-than-temporary impairment charges
related to one of these marketable securities.
There were no
unrealized gains or losses related to the Company’s Level 3 marketable
securities for the years ended December 31, 2009 and 2008. In addition, there
were no purchases, sales, or maturities of Level 3 marketable securities, and no
transfers of marketable securities between the Level 2 and Level 3
classifications, during the years ended December 31, 2009 and 2008.
Changes in marketable
securities included in Level 3 during the years ended December 31, 2009 and 2008
were as follows:
| Level 3 | |||||||
| Marketable | |||||||
| Securities | |||||||
| 2009 | 2008 | ||||||
| Balance, January 1 | $ | 100 | $ | 7,950 | |||
| Settlements | (8,194 | ) | |||||
| Realized gain | 1,044 | ||||||
| Impairments | (100 | ) | (700 | ) | |||
| Balance, December 31 | $ | $ | 100 | ||||
F-21
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
As described in Note
2 above under “Use of Estimates”, on a quarterly basis, the Company reviews its
portfolio of marketable securities, using both quantitative and qualitative
factors, to determine if declines in fair value below cost are
other-than-temporary. With respect to debt securities, this review process also
includes an evaluation of the Company’s (a) intent to sell an individual debt
security or (b) need to sell the debt security before its anticipated recovery
or maturity. With respect to equity securities, this review process includes an
evaluation of the Company’s ability and intent to hold the securities until
their full value can be recovered.
The current economic
environment and the deterioration in the credit quality of issuers of securities
that the Company holds increase the risk of potential declines in the current
market value of marketable securities in the Company’s investment portfolio.
Such declines could result in charges against income in future periods for
other-than-temporary impairments and the amounts could be material.
7. Property, Plant, and
Equipment
Property, plant, and
equipment as of December 31, 2009 and 2008 consist of the
following:
| 2009 | 2008 | ||||||
| Land | $ | 2,117 | $ | 2,117 | |||
| Building and improvements | 177,710 | 74,343 | |||||
| Leasehold improvements | 4,023 | 2,720 | |||||
| Construction-in-progress | 58,541 | 78,702 | |||||
| Laboratory and other equipment | 114,099 | 75,935 | |||||
| Furniture, computer and office equipment, and other | 15,964 | 7,501 | |||||
| 372,454 | 241,318 | ||||||
| Less, accumulated depreciation and amortization | (112,778 | ) | (99,283 | ) | |||
| $ | 259,676 | $ | 142,035 | ||||
Building and
improvements at December 31, 2009 includes $58.2 million of costs incurred by
the Company’s landlord to construct new laboratory and office facilities in
Tarrytown, New York in connection with the Company’s December 2006 lease, as
amended, of these new facilities. In addition, construction-in-progress at
December 31, 2009 and 2008 includes $27.8 million and $54.2 million,
respectively, of costs incurred by the Company’s landlord in connection with
these new facilities. See Note 11a.
The Company
capitalized interest costs of $0.5 million in 2009. The Company did not
capitalize any interest costs in 2008 or 2007.
Depreciation and
amortization expense on property, plant, and equipment amounted to $14.2
million, $10.6 million, and $10.4 million for the years ended December 31, 2009,
2008, and 2007, respectively.
8. Accounts Payable and Accrued
Expenses
Accounts payable and
accrued expenses as of December 31, 2009 and 2008 consist of the
following:
| 2009 | 2008 | ||||
| Accounts payable | $ | 18,638 | $ | 6,268 | |
| Payable to Bayer HealthCare | 1,186 | 9,799 | |||
| Accrued payroll and related costs | 9,444 | 5,948 | |||
| Accrued clinical trial expense | 11,673 | 4,273 | |||
| Accrued property, plant, and equipment expenses | 1,883 | 5,994 | |||
| Accrued expenses, other | 6,207 | 3,886 | |||
| $ | 49,031 | $ | 36,168 | ||
F-22
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
9. Deferred Revenue
Deferred revenue as
of December 31, 2009 and 2008 consists of the following:
| 2009 | 2008 | ||||
| Current portion: | |||||
| Received from sanofi-aventis (see Note 3a) | $ | 17,523 | $ | 21,390 | |
| Received from Bayer HealthCare (see Note 3b) | 9,884 | 9,884 | |||
| Received for technology license agreements (see Note 4) | 11,579 | 11,579 | |||
| Other | 5,558 | 4,651 | |||
| $ | 44,544 | $ | 47,504 | ||
| Long-term portion: | |||||
| Received from sanofi-aventis (see Note 3a) | $ | 90,933 | $ | 105,586 | |
| Received from Bayer HealthCare (see Note 3b) | 46,951 | 56,835 | |||
| $ | 137,884 | $ | 162,421 | ||
10. Convertible Debt
In October 2001, the
Company issued $200.0 million aggregate principal amount of convertible senior
subordinated notes (“Notes”) in a private placement for proceeds to the Company
of $192.7 million, after deducting the initial purchasers’ discount and
out-of-pocket expenses (collectively, “Deferred Financing Costs”). The Notes
bore interest at 5.5% per annum, payable semi-annually, and matured on October
17, 2008. Deferred Financing Costs, which were included in other assets, were
amortized as interest expense over the period from the Notes’ issuance to stated
maturity. During the second and third quarters of 2008, the Company repurchased
$82.5 million in principal amount of the Notes for $83.3 million and recognized
a $0.9 million loss on early extinguishment of debt, representing the premium
paid on the Notes plus related unamortized Deferred Financing Costs. The
remaining $117.5 million of outstanding Notes were repaid in full upon their
maturity in October 2008.
11. Commitments and
Contingencies
a. Leases
Descriptions of Lease
Agreements
The Company leases
laboratory and office facilities in Tarrytown, New York, under a December 2006
lease agreement, as amended (the “Tarrytown Lease”). The facilities leased by
the Company under the Tarrytown Lease include (i) space in previously existing
buildings, (ii) newly constructed space in two new buildings (“Buildings A and
B”) that was completed during the third quarter of 2009 and, (iii) under a
December 2009 amendment to the Tarrytown Lease, additional new space that is
under construction in a third new building (“Building C”), which is expected to
be completed in mid-2011. The Tarrytown Lease will expire in June 2024 and
contains three renewal options to extend the term of the lease by five years
each, as well as early termination options for various portions of the space
exclusive of the newly constructed space in Buildings A and B. The Tarrytown
Lease provides for monthly payments over its term and additional charges for
utilities, taxes, and operating expenses. Certain premises under the Tarrytown
Lease are accounted for as operating leases. However, for the newly constructed
space that the Company is leasing, the Company is deemed, in substance, to be
the owner of the landlord’s buildings in accordance with the application of FASB
authoritative guidance, and the landlord’s costs of constructing these new
facilities are required to be capitalized on the Company’s books as a non-cash
transaction, offset by a corresponding lease obligation on the Company’s balance
sheet.
F-23
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
In connection with
the Tarrytown Lease, at lease inception, the Company issued a letter of credit
in the amount of $1.6 million to its landlord, which is collateralized by a $1.6
million bank certificate of deposit. The certificate of deposit has been
classified as restricted cash at December 31, 2009 and 2008.
In October 2008, the
Company entered into a sublease with sanofi-aventis U.S. Inc. for office space
in Bridgewater, New Jersey. The lease commenced in January 2009 and expires in
July 2011. The Company also formerly leased additional office space in
Tarrytown, New York under operating subleases that ended at various times
through September 2009.
The Company formerly
leased manufacturing, office, and warehouse facilities in Rensselaer, New York
under an operating lease agreement. The lease provided for base rent plus
additional rental charges for utilities, taxes, and operating expenses, as
defined. In June 2007, the Company exercised a purchase option under the lease
and, in October 2007, purchased the land and building.
The Company also
leases certain laboratory and office equipment under operating leases which
expire at various times through 2011.
Revisions of Previously Issued Financial
Statements
The application of
FASB authoritative guidance, under certain conditions, can result in the
capitalization on a lessee’s books of a lessor’s costs of constructing
facilities to be leased to the lessee. In mid-2009, the Company became aware
that certain of these conditions were applicable to its Tarrytown Lease of new
laboratory and office facilities in Buildings A and B. As a result, the Company
is deemed, in substance, to be the owner of the landlord’s buildings, and the
landlord’s costs of constructing these new facilities were required to be
capitalized on the Company’s books as a non-cash transaction, offset by a
corresponding lease obligation on the Company’s balance sheet. In addition, the
land element of the lease should have been accounted for as an operating lease;
therefore, adjustments to non-cash rent expense previously recognized in
connection with these new facilities were also required. Lease payments on these
facilities commenced in August 2009.
The Company revised
its previously issued financial statements to capitalize the landlord’s costs of
constructing the new Tarrytown facilities which the Company is leasing and to
adjust the Company’s previously recognized rent expense in connection with these
facilities, as described above. These revisions primarily resulted in an
increase to property, plant, and equipment and a corresponding increase in
facility lease obligation (a long-term liability) at each balance sheet date.
The Company also revised its statements of operations and statements of cash
flows to reflect rent expense in connection with only the land element of its
lease, with a corresponding adjustment to other long-term liabilities.
As previously
disclosed in the Company’s Quarterly Reports on Form 10-Q for the quarters ended
June 30 and September 30, 2009, the above described revisions consisted entirely
of non-cash adjustments. They had no impact on the Company’s business
operations, existing capital resources, or the Company’s ability to fund its
operating needs, including the preclinical and clinical development of its
product candidates. The revisions also had no impact on the Company’s previously
reported net increases or decreases in cash and cash equivalents in any period
and, except for the quarter ended March 31, 2009, had no impact on the Company’s
previously reported net cash flows from operating activities, investing
activities, and financing activities. In addition, these revisions had no impact
on the Company’s previously reported current assets, current liabilities, and
operating revenues. We have not amended previously issued financial statements
because, after considering both qualitative and quantitative factors, the
Company determined that the judgment of a reasonable person relying on the
Company’s previously issued financial statements would not have been changed or
influenced by these revisions.
F-24
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share
data)
For comparative
purposes, the impact of the above described revisions to the Company’s balance
sheet as of December 31, 2008 is as follows:
Balance Sheet Impact at December 31,
2008
(in millions)
| December 31, | |||
| 2008 | |||
| As originally reported | |||
| Property, plant, and equipment, net | $ | 87.9 | |
| Total assets | 670.0 | ||
| Other long-term liabilities | 5.1 | ||
| Total liabilities | 251.2 | ||
| Accumulated deficit | (875.9 | ) | |
| Total stockholders’ equity | 418.8 | ||
| Total liabilities and stockholders’ equity | 670.0 | ||
| As revised | |||
| Property, plant, and equipment, net | $ | 142.0 | |
| Total assets | 724.2 | ||
| Facility lease obligation | 54.2 | ||
| Other long-term liabilities | 2.4 | ||
| Total liabilities | 302.7 | ||
| Accumulated deficit | (873.3 | ) | |
| Total stockholders’ equity | 421.5 | ||
| Total liabilities and stockholders’ equity | 724.2 | ||
For comparative
purposes, the impact of the above described revisions to the Company’s
statements of operations for the period(s) set forth below is as
follows:
Statements of Operations Impact for the years
ended December 31, 2008 and 2007
(in millions, except per share data)
| December 31, | |||||||
| 2008 | 2007 | ||||||
| As originally reported | |||||||
| Research and development expenses | $ | 278.0 | $ | 201.6 | |||
| Selling, general, and administrative expenses | 49.3 | 37.9 | |||||
| Total expenses | 328.3 | 239.5 | |||||
| Net loss | (82.7 | ) | (105.6 | ) | |||
| Net loss per share, basic and diluted | $ | (1.05 | ) | $ | (1.59 | ) | |
| As revised | |||||||
| Research and development expenses | $ | 274.9 | $ | 202.5 | |||
| Selling, general, and administrative expenses | 48.9 | 37.9 | |||||
| Total expenses | 324.7 | 240.4 | |||||
| Net loss | (79.1 | ) | (106.5 | ) | |||
| Net loss per share, basic and diluted | $ | (1.00 | ) | $ | (1.61 | ) | |
F-25
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
These revised amounts are reflected in the
Company’s financial statements included in this Annual Report on Form 10-K for
the year ended December 31, 2009.
Commitments under Operating
Leases
The estimated future minimum
noncancelable lease commitments under operating leases were as
follows:
| December 31, | Facilities | Equipment | Total | |||||||||
| 2010 | $ | 5,919 | $ | 387 | $ | 6,306 | ||||||
| 2011 | 6,336 | 160 | 6,496 | |||||||||
| 2012 | 5,020 | 48 | 5,068 | |||||||||
| 2013 | 6,159 | 2 | 6,161 | |||||||||
| 2014 | 6,262 | 6,262 | ||||||||||
| Thereafter | 65,883 | 65,883 | ||||||||||
| $ | 95,579 | $ | 597 | $ | 96,176 | |||||||
Rent expense under operating leases
was:
| Year Ending December 31, | Facilities | Equipment | Total | |||||||||||
| 2009 | $ | 7,722 | $ | 395 | $ | 8,117 | ||||||||
| 2008 | 6,530 | 416 | 6,946 | |||||||||||
| 2007 | 5,551 | 363 | 5,914 | |||||||||||
In addition to its rent expense for various
facilities, the Company paid additional rental charges for utilities, real
estate taxes, and operating expenses of $8.4 million, $8.4 million, and $8.8
million for the years ended December 31, 2009, 2008, and 2007,
respectively.
Facility Lease Obligations
As described above, in connection with the
application of FASB authoritative guidance to the Company’s lease of office and
laboratory facilities in Buildings A and B, the Company capitalized the
landlord’s costs of constructing the new facilities, which totaled $58.2 million
as of December 31, 2009, and recognized a corresponding facility lease
obligation of $58.2 million. The Company also recognized, as additional facility
lease obligation, reimbursements totaling $23.6 million from the Company’s
landlord during 2009 for tenant improvement costs that the Company incurred
since, under FASB authoritative guidance, such payments that the Company
receives from its landlord are deemed to be a financing obligation. Monthly
lease payments on these facilities are allocated between the land element of the
lease (which is accounted for as an operating lease) and the facility lease
obligation, based on the estimated relative fair values of the land and
buildings. The imputed interest rate applicable to the facility lease obligation
is approximately 11%. The new facilities were placed in service by the Company
in September 2009. For the year ended December 31, 2009, the Company recognized
in its statement of operations $2.3 million of interest expense in connection
with the facility lease obligation. At December 31, 2009 and 2008, the facility
lease obligation balance in connection with these new facilities was $81.0
million and $54.2 million, respectively.
In addition, as described above, in December
2009, the Company amended its December 2006 agreement to lease additional new
laboratory and office facilities in Building C that is under construction. In
connection with the application of FASB authoritative guidance to the Company’s
lease of these additional new facilities, the Company is deemed, in substance,
to be the owner of the landlord’s building, and the landlord’s costs of
constructing these new facilities is required to be capitalized on the Company’s
books as a non-cash transaction, offset by a corresponding lease obligation on
the Company’s balance sheet. As of December 31, 2009, the Company capitalized
$27.8 million of the landlord’s costs of constructing the new facilities, and
recognized a corresponding facility lease obligation of $27.8 million. Monthly
lease payments on these facilities will commence in January 2011. Rent expense
in connection with the land element of these additional facilities, which is
accounted for as an operating lease, commenced in December 2009 and is recorded
as a deferred liability until lease payments commence in January 2011. In
addition,
F-26
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
interest expense is
imputed at a rate of approximately 9%, and is capitalized and deferred in
connection with this facility lease obligation. At December 31, 2009, the
facility lease obligation balance in connection with these additional new
facilities was $28.0 million.
The estimated future minimum noncancelable
commitments under these facility lease obligations, as of December 31, 2009,
were as follows:
| December 31, | Buildings A and B | Building C | Total | ||||||||||
| 2010 | $ 8,152 | $ | 8,152 | ||||||||||
| 2011 | 8,381 | $ | 2,675 | 11,056 | |||||||||
| 2012 | 8,616 | 2,753 | 11,369 | ||||||||||
| 2013 | 8,856 | 4,270 | 13,126 | ||||||||||
| 2014 | 9,103 | 4,389 | 13,492 | ||||||||||
| Thereafter | 99,981 | 48,172 | 148,153 | ||||||||||
| $143,089 | $ | 62,259 | $ | 205,348 | |||||||||
In February 2010, the Company received $47.5
million from the Company’s landlord in connection with tenant improvement costs
for Buildings A, B, and C. As a result, future minimum noncancellable
commitments under facility lease obligations, as detailed in the table above,
will increase by $3.9 million in each of the five years from 2010 to 2014 and
$37.5 million for the years thereafter.
b. Research Collaboration and Licensing
Agreements
As part of the Company’s research and
development efforts, the Company enters into research collaboration and
licensing agreements with related and unrelated companies, scientific
collaborators, universities, and consultants. These agreements contain varying
terms and provisions which include fees and milestones to be paid by the
Company, services to be provided, and ownership rights to certain proprietary
technology developed under the agreements. Some of the agreements contain
provisions which require the Company to pay royalties, as defined, at rates that
range from 0.25% to 16.5%, in the event the Company sells or licenses any
proprietary products developed under the respective agreements.
Certain agreements under which the Company is
required to pay fees permit the Company, upon 30 to 90-day written notice, to
terminate such agreements. With respect to payments associated with these
agreements, the Company incurred expenses of $2.8 million, $3.5 million, and
$1.0 million for the years ended December 31, 2009, 2008, and 2007,
respectively.
In connection with the Company’s receipt of
marketing approval from the FDA for ARCALYST® (rilonacept) for the treatment of CAPS, in
2008, the Company commenced paying royalties under various licensing agreements
based on ARCALYST net product sales. For the years ended December 31, 2009 and
2008, ARCALYST royalties totaled $1.5 million and $0.6 million, respectively,
and are included in cost of goods sold.
In July 2008, the Company and
Cellectis S.A. (“Cellectis”) entered into an Amended and Restated Non-Exclusive
License Agreement (the “Cellectis Agreement”). The Cellectis Agreement resolved
a dispute between the parties related to the interpretation of a license
agreement entered into by the parties in December 2003 pursuant to which the
Company licensed certain patents and patent applications from Cellectis.
Pursuant to the Cellectis Agreement, in July 2008, the Company made a
non-refundable $12.5 million payment to Cellectis (the “Cellectis Payment”) and
agreed to pay Cellectis a low single-digit royalty based on revenue received by
the Company from any future licenses or sales of the Company’s VelociGene® or VelocImmune® products and services. No royalties are
payable with respect to the Company’s VelocImmune license
agreements with AstraZeneca and Astellas or the Company’s antibody collaboration
with sanofi-aventis. Moreover, no royalties are payable on any revenue from
commercial sales of antibodies from the Company’s VelocImmune
technology.
F-27
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
The Company began amortizing the Cellectis
Payment in the second quarter of 2008 in proportion to past and future
anticipated revenues under the Company’s license agreements with AstraZeneca and
Astellas and the Discovery and Preclinical Development Agreement under the
Company’s antibody collaboration with sanofi-aventis (as amended in November
2009). In 2009 and 2008, the Company recognized $2.3 million and $2.7 million,
respectively, of expense in connection with the Cellectis Payment. At December
31, 2009 and 2008, the unamortized balance of the Cellectis Payment, which was
included in other assets, was $7.6 million and $9.8 million, respectively. The
Company estimates that it will recognize expense of $1.1 million in 2010, $1.0
million in 2011, and $0.9 million in each of 2012, 2013, and 2014, in connection
with the Cellectis Payment.
12. Stockholders Equity
The Company’s Restated Certificate of
Incorporation provides for the issuance of up to 40 million shares of Class A
Stock, par value $0.001 per share, and 160 million shares of Common Stock, par
value $0.001 per share. Shares of Class A Stock are convertible, at any time, at
the option of the holder into shares of Common Stock on a share-for-share basis.
Holders of Class A Stock have rights and privileges identical to Common
Stockholders except that each share of Class A is entitled to ten votes per
share, while each share of Common Stock is entitled to one vote per share. Class
A Stock may only be transferred to specified Permitted Transferees, as defined.
Under the Company’s Restated Certificate of Incorporation, the Company’s board
of directors (the “Board”) is authorized to issue up to 30 million shares of
preferred stock, in series, with rights, privileges, and qualifications of each
series determined by the Board.
In September 2003, sanofi-aventis purchased
2,799,552 newly issued, unregistered shares of the Company’s Common Stock for
$45.0 million. See Note 3.
In December 2007, sanofi-aventis purchased 12
million newly issued, unregistered shares of the Company’s Common Stock for an
aggregate cash price of $312.0 million. As a condition to the closing of this
transaction, sanofi-aventis entered into an investor agreement with the Company,
which was amended in November 2009. Under the amended investor agreement,
sanofi-aventis has three demand rights to require the Company to use all
reasonable efforts to conduct a registered underwritten public offering with
respect to shares of the Company’s 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 under the Company’s antibody collaboration
with sanofi-aventis (see Note 3) and the Company’s collaboration agreement with
sanofi-aventis for the development and commercialization of aflibercept (see
Note 3), 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 the Company’s Class A Stock and Common Stock. The
percentage is currently 25% and will increase to 30% after December 20, 2011.
Under the amended investor agreement, sanofi-aventis has also agreed not to
dispose of any shares of the Company’s Common Stock that were beneficially owned
by sanofi-aventis immediately after the closing of the transaction until
December 20, 2017, subject to certain limited exceptions. Following December 20,
2017, sanofi-aventis will be permitted to sell shares of the Company’s 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 underwriter’s 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 the Company’s 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 the Company’s Common Stock, and (iii) into an issuer tender offer, or
a tender offer by a third party that is recommended or not opposed by the
Company’s Board of Directors. Sanofi-aventis has agreed to vote, and cause its
affiliates to vote, all shares of the Company’s voting securities they are
entitled to vote, at sanofi-aventis’ election, either as recommended by the
Company’s Board of Directors or proportionally with the votes cast by the
Company’s 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 the Company’s Class A
Stock and Common Stock, and new equity compensation plans or amendments if not
materially consistent with the Company’s historical equity compensation
practices. The rights and restrictions under the investor agreement are subject
to termination upon the occurrence of certain events.
F-28
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
13. Long-Term Incentive
Plans
During 2000, the Company established the
Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan which, as amended
and restated (the “2000 Incentive Plan”), provides for the issuance of up to
28,816,184 shares of Common Stock in respect of awards. In addition, shares of
Common Stock previously approved by shareholders for issuance under the
Regeneron Pharmaceuticals, Inc. 1990 Long-Term Incentive Plan (“1990 Incentive
Plan”) that are not issued under the 1990 Incentive Plan, may be issued as
awards under the 2000 Incentive Plan. Employees of the Company, including
officers, and nonemployees, including consultants and nonemployee members of the
Company’s board of directors, (collectively, “Participants”) may receive awards
as determined by a committee of independent directors (“Committee”). The awards
that may be made under the 2000 Incentive Plan include: (a) Incentive Stock
Options (“ISOs”) and Nonqualified Stock Options, (b) shares of Restricted Stock,
(c) shares of Phantom Stock, (d) Stock Bonuses, and (e) Other
Awards.
Stock Option awards grant Participants the
right to purchase shares of Common Stock at prices determined by the Committee;
however, in the case of an ISO, the option exercise price will not be less than
the fair market value of a share of Common Stock on the date the Option is
granted. Options vest over a period of time determined by the Committee,
generally on a pro rata basis over a three to five year period. The Committee
also determines the expiration date of each Option; however, no ISO is
exercisable more than ten years after the date of grant. The maximum term of
options that have been awarded under the 2000 Incentive Plan is ten
years.
Restricted Stock awards grant Participants
shares of restricted Common Stock or allow Participants to purchase such shares
at a price determined by the Committee. Such shares are nontransferable for a
period determined by the Committee (“vesting period”). Should employment
terminate, as defined by the 2000 Incentive Plan, the ownership of the
Restricted Stock, which has not vested, will be transferred to the Company,
except under defined circumstances with Committee approval, in consideration of
amounts, if any, paid by the Participant to acquire such shares. In addition, if
the Company requires a return of the Restricted Shares, it also has the right to
require a return of all dividends paid on such shares.
Phantom Stock awards provide the Participant
the right to receive, within 30 days of the date on which the share vests, an
amount, in cash and/or shares of the Company’s Common Stock as determined by the
Committee, equal to the sum of the fair market value of a share of Common Stock
on the date such share of Phantom Stock vests and the aggregate amount of cash
dividends paid with respect to a share of Common Stock during the period from
the grant date of the share of Phantom Stock to the date on which the share
vests. Stock Bonus awards are bonuses payable in shares of Common Stock which
are granted at the discretion of the Committee.
Other Awards are other forms of awards which
are valued based on the Company’s Common Stock. Subject to the provisions of the
2000 Incentive Plan, the terms and provisions of such Other Awards are
determined solely on the authority of the Committee.
During 1990, the Company established the 1990
Incentive Plan which, as amended, provided for a maximum of 6,900,000 shares of
Common Stock in respect of awards. Employees of the Company, including officers,
and nonemployees, including consultants and nonemployee members of the Company’s
board of directors, received awards as determined by a committee of independent
directors. Under the provisions of the 1990 Incentive Plan, there will be no
future awards from the plan. Awards under the 1990 Incentive Plan consisted of
Incentive Stock Options and Nonqualified Stock Options which generally vested on
a pro rata basis over a three or five year period and have a term of ten
years.
The 1990 and 2000 Incentive Plans contain
provisions that allow for the Committee to provide for the immediate vesting of
awards upon a change in control of the Company, as defined.
As of December 31, 2009, there were 3,949,767
shares available for future grants under the 2000 Incentive Plan.
F-29
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
a. Stock Options
Transactions involving stock option awards
during 2009 under the 1990 and 2000 Incentive Plans are summarized in the table
below.
| Weighted- | |||||||||||||||||
| Average | |||||||||||||||||
| Remaining | |||||||||||||||||
| Contractual | Intrinsic | ||||||||||||||||
| Number of | Weighted-Average | Term | Value | ||||||||||||||
| Stock Options: | Shares | Exercise Price | (in years) | (in thousands) | |||||||||||||
| Outstanding at December 31, 2008 | 20,133,910 | $ | 17.53 | ||||||||||||||
| 2009: Granted | 3,490,560 | $ | 20.69 | ||||||||||||||
| Forfeited | (390,328 | ) | $ | 19.17 | |||||||||||||
| Expired | (74,589 | ) | $ | 21.46 | |||||||||||||
| Exercised | (1,370,798 | ) | $ | 10.19 | |||||||||||||
| Outstanding at December 31, 2009 | 21,788,755 | $ | 18.45 | 6.45 | $ | 150,472 | |||||||||||
| Vested and expected to vest at December 31, 2009 | 21,263,460 | $ | 18.44 | 6.39 | $ | 147,516 | |||||||||||
| Exercisable at December 31, 2009 | 12,504,511 | $ | 18.18 | 4.98 | $ | 96,967 | |||||||||||
The Company satisfies stock option exercises
with newly issued shares of the Company’s Common Stock. The total intrinsic
value of stock options exercised during 2009, 2008, and 2007 was $13.2 million,
$11.9 million, and $12.6 million, respectively. The intrinsic value represents
the amount by which the market price of the underlying stock exceeds the
exercise price of an option.
The Company grants stock options with exercise
prices that are equal to or greater than the average market price of the
Company’s Common Stock on the date of grant (“Market Price”). The table below
summarizes the weighted-average exercise prices and weighted-average grant-date
fair values of options issued during the years ended December 31, 2007, 2008,
and 2009. The fair value of each option granted under the 2000 Incentive Plan
during 2009, 2008, and 2007 was estimated on the date of grant using the
Black-Scholes option-pricing model.
| Weighted- | Weighted- | ||||||||||||
| Number of | Average Exercise | Average Fair | |||||||||||
| Options Granted | Price | Value | |||||||||||
| 2007: | |||||||||||||
| Exercise price equal to Market Price | 3,415,743 | $ | 21.78 | $ | 11.13 | ||||||||
| 2008: | |||||||||||||
| Exercise price equal to Market Price | 4,126,600 | $ | 17.38 | $ | 8.45 | ||||||||
| 2009: | |||||||||||||
| Exercise price equal to Market Price | 3,490,560 | $ | 20.69 | $ | 10.89 | ||||||||
For the years ended December 31, 2009, 2008,
and 2007, $27.4 million, $30.3 million, and $28.0 million, respectively, of
non-cash stock-based compensation expense related to non-performance based stock
option awards was recognized in operating expenses. As of December 31, 2009,
there was $44.8 million of stock-based compensation cost related to outstanding
non-performance based stock options, net of estimated forfeitures, which had not
yet been recognized in operating expenses. The Company expects to recognize this
compensation cost over a weighted-average period of 1.9 years.
In addition, there were 1,939,760
performance-based options which were unvested as of December 31, 2009 of which,
subject to the optionee satisfying certain service conditions, 664,760 options
that were issued in 2007 would vest upon achieving certain defined sales targets
for the Company’s products and 1,275,000 options that were issued in 2008 and
2009 would vest upon achieving certain development milestones for the Company’s
product candidates. In light of the status of the Company’s development programs
at December 31, 2009, the Company estimates that approximately 850,000 of the
performance-based options tied to achieving development milestones will vest
since
F-30
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
the Company considers
these options’ performance conditions to be probable of attainment. As a result,
in 2009, the Company recognized $1.7 million of non-cash stock-based
compensation expense related to these performance options. As of December 31,
2009, there was $8.7 million of stock-based compensation cost which had not yet
been recognized in operating expenses related to the performance-based options
that the Company currently estimates will vest. The Company expects to recognize
this compensation cost over a weighted-average period of 2.5 years. In addition,
potential compensation cost of $7.7 million related to those performance options
whose performance conditions (based on current facts and circumstances) are not
currently considered by the Company to be probable of attainment will begin to
be recognized only if, and when, the Company estimates that it is probable that
these options will vest. The Company’s estimates of the number of
performance-based options that will vest will be revised, if necessary, in
subsequent periods. Changes in these estimates may materially affect the amount
of stock-based compensation recognized in future periods related to
performance-based options.
Fair value
Assumptions:
The following table summarizes the weighted
average values of the assumptions used in computing the fair value of option
grants during 2009, 2008, and 2007.
| 2009 | 2008 | 2007 | |||||||
| Expected volatility | 54 | % | 53 | % | 53 | % | |||
| Expected lives from grant date | 5.9 years | 5.5 years | 5.6 years | ||||||
| Expected dividend yield | 0 | % | 0 | % | 0 | % | |||
| Risk-free interest rate | 2.87 | % | 1.73 | % | 3.60 | % | |||
Expected volatility has been estimated based
on actual movements in the Company’s stock price over the most recent historical
periods equivalent to the options’ expected lives. Expected lives are
principally based on the Company’s historical exercise experience with
previously issued employee and board of directors option grants. The expected
dividend yield is zero as the Company has never paid dividends and does not
currently anticipate paying any in the foreseeable future. The risk-free
interest rates are based on quoted U.S. Treasury rates for securities with
maturities approximating the options’ expected lives.
b. Restricted Stock
A summary of the Company’s activity related to
Restricted Stock awards for the year ended December 31, 2009 is summarized
below:
| Weighted- | ||||||
| Average | ||||||
| Number of | Grant Date | |||||
| Restricted Stock: | Shares | Fair Value | ||||
| Outstanding at December 31, 2008 | 500,000 | $ | 21.92 | |||
| Outstanding at December 31, 2009 | 500,000 | $ | 21.92 | |||
In December 2007, the Company awarded a grant
of Restricted Stock to the Company’s executive vice president. In accordance
with generally accepted accounting principles, the Company records unearned
compensation in Stockholders’ Equity related to grants of Restricted Stock
awards. This amount is based on the fair market value of shares of the Company’s
Common Stock on the date of grant and is expensed, on a pro rata basis, over the
period that the restriction on these shares lapses, which is five years for the
grant made in 2007. In addition, unearned compensation in Stockholders’ Equity
is reduced due to forfeitures of Restricted Stock resulting from employee
terminations.
In connection with the 2007 grant of
Restricted Stock, the Company recorded unearned compensation in Stockholders’
Equity of $11.0 million, which was combined with additional paid-in capital. The
Company recognized non-cash stock-based employee compensation expense from
Restricted Stock awards of $2.2 million, $2.2 million, and $0.1 million in 2009,
2008, and 2007, respectively. As of December 31, 2009, there were 500,000
unvested shares
F-31
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
of Restricted Stock
outstanding and $6.5 million of stock-based compensation cost related to these
unvested shares which had not yet been recognized in operating expenses. The
Company expects to recognize this compensation cost over a weighted-average
period of 3 years.
14. Executive Stock Purchase
Plan
In 1989, the Company adopted an Executive
Stock Purchase Plan (the “Plan”) under which 1,027,500 shares of Class A Stock
were reserved for restricted stock awards. The Plan provides for the
compensation committee of the board of directors to award employees, directors,
consultants, and other individuals (“Plan participants”) who render service to
the Company the right to purchase Class A Stock at a price set by the
compensation committee. The Plan provides for the vesting of shares as
determined by the compensation committee and, should the Company’s relationship
with a Plan participant terminate before all shares are vested, unvested shares
will be repurchased by the Company at a price per share equal to the original
amount paid by the Plan participant. During 1989 and 1990, a total of 983,254
shares were issued, all of which vested as of December 31, 1999. As of December
31, 2009, there were 44,246 shares available for future grants under the
Plan.
15. Employee Savings Plan
In 1993, the Company adopted the provisions of
the Regeneron Pharmaceuticals, Inc. 401(k) Savings Plan (the “Savings Plan”).
The terms of the Savings Plan provide for employees who have met defined service
requirements to participate in the Savings Plan by electing to contribute to the
Savings Plan a percentage of their compensation to be set aside to pay their
future retirement benefits, as defined. The Savings Plan, as amended and
restated, provides for the Company to make discretionary contributions
(“Contribution”), as defined. The Company recorded Contribution expense of $2.6
million in 2009, $1.5 million in 2008, and $1.4 million in 2007, and such
amounts were accrued as liabilities at December 31, 2009, 2008, and 2007,
respectively. During the first quarter of 2010, 2009, and 2008, the Company
contributed 111,419, 81,086, and 58,575 shares, respectively, of Common Stock to
the Savings Plan in satisfaction of these obligations.
16. Income Taxes
For the year ended December 31, 2009, the
Company incurred a net loss for tax purposes and recognized a full tax valuation
against deferred taxes. In 2009, the Company recognized a $4.1 million income
tax benefit, consisting of (i) $2.7 million resulting from a provision in the
Worker, Homeownership, and Business Assistance Act of 2009 that allows the
Company to claim a refund of U.S. federal alternative minimum tax (“AMT”) that
the Company paid in connection with its 2007 U.S. federal income tax return, as
described below, (ii) $0.7 million income tax benefit resulting from a provision
in the American Recovery and Reinvestment Act of 2009 that allows the Company to
claim a refund for a portion of its unused pre-2006 research tax credits on its
2009 U.S. federal income tax return, and (iii) $0.7 million income tax benefit
in connection with the net tax effect of the Company’s unrealized gain on
“available-for-sale” marketable securities, which is included in other
comprehensive income in 2009.
For the year ended December 31, 2008, the
Company incurred a net loss for tax purposes and recognized a full tax valuation
against deferred taxes. During 2008, the Company implemented a tax planning
strategy to utilize net operating loss carry-forwards (which were otherwise due
to expire in 2008 through 2012) on its 2007 U.S. federal and New York State
income tax returns that were filed in September 2008. The tax planning strategy
included electing, for tax purposes only, to capitalize $142.1 million of 2007
research and development (“R&D”) costs and amortize these costs over ten
years for tax purposes. By capitalizing these R&D costs, the Company was
able to generate taxable income for tax year 2007 and utilize the net operating
loss carry-forwards to offset this taxable income. As a result, the Company
incurred and paid income tax expense of $3.1 million in 2008, which related to
U.S. federal and New York State AMT and included $0.2 million of interest and
penalties. This expense was partly offset by the Company’s recognition of a $0.7
million income tax benefit in 2008, resulting from a provision in the Housing
Assistance Tax Act of 2008 that allowed the Company to claim a refund for a
portion of its unused pre-2006 research tax credits on its 2008 U.S federal
income tax return.
F-32
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
For the year ended December 31, 2007, the
Company had projected to incur a net loss for tax purposes and recognized a full
tax valuation against deferred taxes. Accordingly, no provision or benefit for
income taxes was recorded in 2007. Subsequently, the Company implemented the tax
planning strategy described above, which resulted in taxable income in 2007 on
which the Company recognized and paid U.S. federal and New York State AMT in
2008.
The tax effect of temporary differences, net
operating loss carry-forwards, and research and experimental tax credit
carry-forwards as of December 31, 2009 and 2008 is as follows:
| 2009 | 2008 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry-forward | $ | 200,266 | $ | 161,790 | ||||
| Fixed assets | 13,833 | 18,612 | ||||||
| Deferred revenue | 73,865 | 85,251 | ||||||
| Deferred compensation | 29,736 | 22,942 | ||||||
| Research and experimental tax credit carry-forward | 22,377 | 22,295 | ||||||
| Capitalized research and development costs | 49,107 | 59,661 | ||||||
| Other | 10,142 | 9,825 | ||||||
| Valuation allowance | (399,326 | ) | (380,376 | ) | ||||
| — | — | |||||||
The Company’s valuation allowance increased by
$19.0 million in 2009, due primarily to the increase in the net operating loss
carry-forward. In 2008, the Company’s valuation allowance increased by $37.4
million, due primarily to the increase in the temporary difference related to
capitalized research and development costs, resulting from the implementation of
the tax planning strategy described above.
The Company is primarily subject to U.S.
federal and New York State income tax. The difference between the Company’s
effective income tax rate and the U.S federal statutory rate of 35% is primarily
attributable to an increase in the deferred tax valuation allowance. Due to the
Company’s history of losses, all tax years remain open to examination by U.S.
federal and state tax authorities. As described in Note 2 under “Income Taxes”,
the implementation of FASB authoritative guidance on January 1, 2007,
and for the years ended December 31, 2009, 2008, and 2007, had no impact on the
Company’s financial statements as the Company has not recognized any income tax
positions that were deemed uncertain under the prescribed recognition
thresholds and measurement attributes.
As of December 31, 2009 and 2008, the Company
had no accruals for interest or penalties related to income tax
matters.
As of December 31, 2009, the Company had
available for tax purposes unused net operating loss carry-forwards of $516.3
million which will expire in various years from 2018 to 2029 and included $21.7
million of net operating loss carry-forwards related to exercises of
Nonqualified Stock Options and disqualifying dispositions of Incentive Stock
Options, the tax benefit from which, if realized, will be credited to additional
paid-in capital. The Company’s research and experimental tax credit
carry-forwards expire in various years from 2010 to 2029. Under the Internal
Revenue Code and similar state provisions, substantial changes in the Company’s
ownership have resulted in an annual limitation on the amount of net operating
loss and tax credit carry-forwards that can be utilized in future years to
offset future taxable income. This annual limitation may result in the
expiration of net operating losses and tax credit carry-forwards before
utilization.
17. Legal Matters
From time to time, the Company is a party to
legal proceedings in the course of the Company’s business. The Company does not
expect any such current legal proceedings to have a material adverse effect on
the Company’s business or financial condition. Legal costs associated with the
Company’s resolution of legal proceedings are expensed as incurred.
F-33
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
18. Net Loss Per Share
Data
The Company’s basic net loss per share amounts
have been computed by dividing net loss by the weighted average number of Common
and Class A shares outstanding. Net loss per share is presented on a combined
basis, inclusive of Common Stock and Class A Stock outstanding, as each class of
stock has equivalent economic rights. In 2009, 2008, and 2007, the Company
reported net losses; therefore, no common stock equivalents were included in the
computation of diluted net loss per share since such inclusion would have been
antidilutive. The calculations of basic and diluted net loss per share are as
follows:
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| Net loss (Numerator) | $ | (67,830 | ) | $ | (79,129 | ) | $ | (106,519 | ) | |||
| Weighted-average shares, in thousands (Denominator) | 79,782 | 78,827 | 66,334 | |||||||||
| Basic and diluted net loss per share | $ | (0.85 | ) | $ | (1.00 | ) | $ | (1.61 | ) | |||
Shares issuable upon the exercise of options,
vesting of restricted stock awards, and conversion of convertible debt, which
have been excluded from the diluted per share amounts because their effect would
have been antidilutive, include the following:
| December 31, | |||||||||
| 2009 | 2008 | 2007 | |||||||
| Options: | |||||||||
| Weighted average number, in thousands | 20,040 | 17,598 | 15,385 | ||||||
| Weighted average exercise price | $ | 17.66 | $ | 17.31 | $ | 15.97 | |||
| Restricted Stock: | |||||||||
| Weighted average number, in thousands | 500 | 500 | 21 | ||||||
| Convertible Debt: | |||||||||
| Weighted average number, in thousands | 6,611 | ||||||||
| Conversion price | $ | 30.25 | |||||||
19. Statement of Cash
Flows
Supplemental disclosure of noncash
investing and financing activities:
Included in accounts payable and accrued
expenses at December 31, 2009, 2008, and 2007 were $9.8 million, $7.0 million,
and $1.7 million of accrued capital expenditures, respectively.
Pursuant to the application of FASB
authoritative guidance to the Company’s lease of office and laboratory
facilities in Tarrytown, New York (see Note 11a), the Company recognized a
facility lease obligation of $31.7 million and $32.6 million during 2009 and
2008, respectively, in connection with capitalizing, on the Company’s books, the
landlord’s costs of constructing new facilities that the Company has
leased.
Included in accounts payable and accrued
expenses at December 31, 2008, 2007, and 2006 were $1.5 million, $1.1 million,
and $1.4 million, respectively, of accrued 401(k) Savings Plan contribution
expense. During the first quarter of 2009, 2008, and 2007, the Company
contributed 81,086, 58,575, and 64,532, respectively, of Common Stock to the
401(k) Savings Plan in satisfaction of these obligations.
Included in other assets at December 31, 2009
was $0.7 million due to the Company in connection with employee exercises of
stock options in December 2009.
Included in marketable securities at December
31, 2009, 2008, and 2007 were $0.6 million, $1.7 million, and $2.2 million of
accrued interest income, respectively.
F-34
REGENERON PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
NOTES TO FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2009, 2008, and 2007
(Unless otherwise noted, dollars in thousands, except per share data)
20. Subsequent Events
The Company has evaluated subsequent events
through February 18, 2010, the date on which the financial statements were
issued, and has determined that there are no subsequent events that require
adjustments to the financial statements for the year ended December 31, 2009. As
described in Note 11a under “Facility Lease Obligations,” in February 2010, the
Company received $47.5 million from the Company’s landlord in Tarrytown, New
York, in connection with tenant improvement costs.
21. Unaudited Quarterly
Results
Summarized quarterly financial data for the
years ended December 31, 2009 and 2008 are set forth in the following tables.
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| March 31, 2009 | June 30, 2009 | September 30, 2009 | December 31, 2009 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Revenues | $ | 74,981 | $ | 90,032 | $ | 117,455 | $ | 96,800 | ||||||||
| Net loss | (15,388 | ) | (14,938 | ) | (1,015 | ) | (36,489 | ) | ||||||||
| Net loss per share, basic and diluted: | $ | (0.19 | ) | $ | (0.19 | ) | $ | (0.01 | ) | $ | (0.46 | ) | ||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| March 31, 2008 | June 30, 2008 | September 30, 2008 | December 31, 2008 | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Revenues | $ | 56,383 | $ | 60,653 | $ | 65,584 | $ | 55,837 | ||||||||
| Net loss | (11,847 | ) | (18,689 | ) | (19,084 | ) | (29,509 | ) | ||||||||
| Net loss per share, basic and diluted: | $ | (0.15 | ) | $ | (0.24 | ) | $ | (0.24 | ) | $ | (0.37 | ) | ||||
F-35