Is Regeneron generating meaningful revenue from product sales?

No. The company has never received revenue from commercial product sales. Its 1998 revenue came from collaborator research funding, research progress payments tied to milestones, contract manufacturing for Merck, and investment income. Management does not expect product revenue for at least several years.

What is the single most important near-term catalyst?

The AXOKINE Phase I safety study for obesity, planned to begin in the first half of 1999, is the most immediate catalyst because it is the first human exposure to the molecule. The BDNF subcutaneous ALS study (more than 200 patients, planned for 1999) is also significant given the earlier Phase III failure and the need to show a retrospectively defined patient subset benefit.

How much cash does Regeneron need to fund its obligations, and does it need to raise capital soon?

Management believes its $113.5 million in cash and marketable securities will cover operating needs for at least several years. However, it expects capital contributions of at least $2.0 million to Amgen-Regeneron Partners in 1999 (cumulative contributions were $50.4 million through 1998), and funding requirements could rise significantly if programs advance. The company has no line of credit and says additional financing may not be available on acceptable terms.

What are the main risks to the Procter & Gamble partnership?

P&G's funding is conditional and partly milestone-based, and either party can terminate the collaboration after five years with one year's notice. Only $6.7 million of the $94.7 million research support had been received by year-end 1998. The filing also flags potential conflicts of interest and the impact of a change of control at a major partner.

REGN 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 1999. Cited figures are marked; the original filing is the authoritative source.

Regeneron Pharmaceuticals (REGN) entered 1999 as a pre-revenue biotechnology company with a pipeline built around protein-based therapeutics and a growing small-molecule effort.

In its FY1998 10-K, the company reported total revenue of $45.2 million^a (up from $33.1 million in 1997), driven by Procter & Gamble collaboration payments, Sumitomo Pharmaceuticals research progress payments, and contract manufacturing revenue tied to the Merck intermediate agreement. The net loss narrowed to $8.6 million, or $0.28 per share, from $11.6 million, or $0.40 per share, in 1997. Cash, cash equivalents, and marketable securities totaled $113.5 million at year-end, and management said existing resources should fund operations for at least several years.

The company has never sold a commercial product and reported an accumulated deficit of $177.2 million^b. The investment case rests on a few programs: AXOKINE (second-generation CNTF) for obesity and Type II diabetes, with a Phase I IND filed in Q1 1999 and AXOKINE having never been administered to humans; BDNF for ALS, which failed its original Phase III trial in 1997 but is being re-tested via subcutaneous and intrathecal routes through the 50/50 Amgen-Regeneron Partners; and NT-3 for constipating conditions. Partnership economics and P&G funding are central: P&G has committed up to $94.7 million in research support and up to $60 million in equity, of which Regeneron had received only $6.7 million in research funding by year-end.

Risks are substantial and the filing repeatedly warns that most drug programs fail, that competitors such as Amgen (leptin), Genentech, and Cephalon are well ahead in several areas, and that the Year 2000 impact is not yet fully assessed. For investors, 1998 showed improved operating discipline and a modestly smaller loss, but the company remains a development-stage story whose valuation depends on clinical readouts in obesity and ALS over the next several years. The stock traded at $7.625^c as of March 5, 1999, versus a 1997 high of $21, reflecting skepticism after the BDNF setback.

02—Key points

Key Highlights

Total 1998 revenue rose 37% to $45.2 million from $33.1 million, led by $19.7 million of contract R&D revenue, $9.5 million of research progress payments, and $9.1 million of contract manufacturing revenue.
Net loss narrowed to $8.6 million ($0.28 per share) from $11.6 million ($0.40 per share) in 1997, while R&D expense rose to $37.0 million from $27.8 million.
Cash, cash equivalents, and marketable securities were $113.5 million at December 31, 1998, down from $128.0 million a year earlier; management expects these resources to suffice for at least several years.
AXOKINE (obesity/Type II diabetes) moves into a Phase I study with Procter & Gamble in 1H 1999 after the IND filing in Q1 1999; the drug has never been administered to humans.
BDNF for ALS is being retested via subcutaneous and intrathecal routes after the 1997 Phase III failure, with a 200+ patient subcutaneous study planned for 1999 under the Amgen-Regeneron Partners 50/50 partnership.
The P&G collaboration could provide up to $94.7 million in research support and up to $60.0 million in equity over five years, but only $6.7 million of research funding had been received through December 31, 1998.
The company has no commercial products, an accumulated deficit of $177.2 million, a 371-employee workforce, and no bank credit line; the filing explicitly warns that most drug development programs fail.

03—Questions

Frequently Asked Questions

Is Regeneron generating meaningful revenue from product sales?
No. The company has never received revenue from commercial product sales. Its 1998 revenue came from collaborator research funding, research progress payments tied to milestones, contract manufacturing for Merck, and investment income. Management does not expect product revenue for at least several years.
What is the single most important near-term catalyst?
The AXOKINE Phase I safety study for obesity, planned to begin in the first half of 1999, is the most immediate catalyst because it is the first human exposure to the molecule. The BDNF subcutaneous ALS study (more than 200 patients, planned for 1999) is also significant given the earlier Phase III failure and the need to show a retrospectively defined patient subset benefit.
How much cash does Regeneron need to fund its obligations, and does it need to raise capital soon?
Management believes its $113.5 million in cash and marketable securities will cover operating needs for at least several years. However, it expects capital contributions of at least $2.0 million to Amgen-Regeneron Partners in 1999 (cumulative contributions were $50.4 million through 1998), and funding requirements could rise significantly if programs advance. The company has no line of credit and says additional financing may not be available on acceptable terms.
What are the main risks to the Procter & Gamble partnership?
P&G's funding is conditional and partly milestone-based, and either party can terminate the collaboration after five years with one year's notice. Only $6.7 million of the $94.7 million research support had been received by year-end 1998. The filing also flags potential conflicts of interest and the impact of a change of control at a major partner.

04—Continue

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