Why did Procter & Gamble return the AXOKINE rights, and what does it mean for Regeneron?

P&G returned the product rights in September 1999 after reviewing interim Phase I data as part of an internal review of its drug development budgets. The data raised the possibility that the market for AXOKINE might be limited to HSV-negative patients, since herpes cold sores had appeared in earlier CNTF studies. Regeneron now bears full development cost for AXOKINE, though P&G retains a small royalty under certain circumstances. The filing says the decision does not affect the broader P&G collaboration.

What is the status of AXOKINE and what are the main clinical risks?

AXOKINE completed its Phase I safety study in HSV-negative patients. Doses up to 2 mcg/kg/day were not associated with herpes cold sores, and treated patients lost weight relative to placebo. A Phase II dose-ranging trial of about 175 severely obese patients is expected to start in March 2000. Key risks include the development of neutralizing antibodies, which affected the parent molecule CNTF, a reported increase in pulse rate at some doses, and a single case of Bell's palsy recurrence whose relationship to the drug is unknown.

How long can Regeneron fund its operations?

Management states that existing capital resources should enable it to meet operating needs for at least several years, and it does not expect revenue from product sales for at least several years. However, the company has no bank credit line, expects R&D expense to keep rising through 2000, and must make capital contributions of at least $4.5 million to Amgen-Regeneron Partners in 2000. Future financing may come from equity issuances, other financing arrangements, or new collaborations, with no assurance of availability on acceptable terms.

What drove the increase in the net loss in 1999?

Revenue fell by $5.5 million, mainly because 1998 included $9.5 million in non-recurring research progress payments. Operating expenses rose $9.0 million to $62.8 million, led by a $7.9 million increase in R&D from higher staffing and expanded preclinical and clinical activity. Investment income fell due to lower invested balances, and the loss from Amgen-Regeneron Partners rose to $4.2 million from $2.5 million as BDNF and NT-3 clinical trials expanded.

What are the main sources of Regeneron's revenue and how dependent is it on partners?

Revenue comes from contract research and development (mostly from P&G, plus Amgen-related services), contract manufacturing for Merck's pediatric vaccine intermediate, and investment income. The company is heavily dependent on collaborators: the majority of its scientific resources go to the P&G collaboration, and BDNF and NT-3 programs depend on Amgen. Termination of these agreements could have a material adverse effect, and the Merck agreement may be terminated by Merck at any time upon payment of a termination fee.

REGN 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 6, 2000. Cited figures are marked; the original filing is the authoritative source.

Regeneron Pharmaceuticals (REGN) reported a 1999 net loss of $23.1 million^a, or $0.74 per share, up from $8.6 million ($0.28 per share) in 1998.

Total revenue fell to $39.7 million^b from $45.2 million, as non-recurring 1998 research progress payments ($9.5 million) rolled off and investment income declined, partly offset by higher Procter & Gamble contract research revenue and Merck contract manufacturing revenue. Operating expenses rose to $62.8 million, led by a 21% increase in R&D to $44.9 million. The company has never generated product revenue, carries an accumulated deficit of $200.3 million, and had $93.6 million in cash and marketable securities at year-end 1999, down from $113.5 million.

Stockholders' equity declined to $109.5 million^c. The filing's most important strategic development is the return of AXOKINE product rights by Procter & Gamble in September 1999, after interim Phase I data raised questions about the market being limited to HSV-negative patients. Regeneron has since completed the Phase I study in HSV-negative patients and expects to begin a 175-patient Phase II dose-ranging trial in severely obese patients in March 2000.

Management states that existing capital resources should fund operations for "at least several years," though it also notes that losses will continue and that the P&G collaboration, which continues on other programs, may provide up to roughly $90 million^d in additional funding through mid-2002. Investors should weigh the pipeline's clinical uncertainty, the company's dependence on collaborators, and the lack of any commercial product against the stated runway.

The pipeline spans AXOKINE (obesity), Cytokine Traps (rheumatoid arthritis, asthma, allergy), VEGF Trap and Angiopoietins (oncology and vascular disease), and the BDNF and NT-3 programs held through the Amgen-Regeneron Partnership. Key risks disclosed include the history of neutralizing antibodies and side effects with the parent molecule CNTF, a 2000 Phase III trial failure for BDNF in ALS, and reliance on a single Merck manufacturing contract.

02—Key points

Key Highlights

Net loss widened to $23.1 million ($0.74/share) in 1999 from $8.6 million ($0.28/share) in 1998, driven by R&D spending that rose 21% to $44.9 million.
Total revenue declined 12% to $39.7 million, mainly because 1998 included $9.5 million of non-recurring research progress payments.
Procter & Gamble returned AXOKINE product rights in September 1999; Regeneron is now developing AXOKINE alone and plans a 175-patient Phase II obesity trial starting March 2000.
Cash, cash equivalents and marketable securities totaled $93.6 million at year-end 1999, down from $113.5 million, with an accumulated deficit of $200.3 million.
Partnership with P&G continues on other programs, with P&G research support rising to $7.0 million per quarter from Q3 1999 and up to roughly $90 million or more in potential funding through mid-2002.
Merck contract manufacturing revenue rose to $10.0 million after FDA approval of the Rensselaer facility in December 1999, and the company began capitalizing inventory costs.
The company has never commercialized a product and expects losses to continue for at least several years, with no assurance of approved products or profitability.

03—Questions

Frequently Asked Questions

Why did Procter & Gamble return the AXOKINE rights, and what does it mean for Regeneron?
P&G returned the product rights in September 1999 after reviewing interim Phase I data as part of an internal review of its drug development budgets. The data raised the possibility that the market for AXOKINE might be limited to HSV-negative patients, since herpes cold sores had appeared in earlier CNTF studies. Regeneron now bears full development cost for AXOKINE, though P&G retains a small royalty under certain circumstances. The filing says the decision does not affect the broader P&G collaboration.
What is the status of AXOKINE and what are the main clinical risks?
AXOKINE completed its Phase I safety study in HSV-negative patients. Doses up to 2 mcg/kg/day were not associated with herpes cold sores, and treated patients lost weight relative to placebo. A Phase II dose-ranging trial of about 175 severely obese patients is expected to start in March 2000. Key risks include the development of neutralizing antibodies, which affected the parent molecule CNTF, a reported increase in pulse rate at some doses, and a single case of Bell's palsy recurrence whose relationship to the drug is unknown.
How long can Regeneron fund its operations?
Management states that existing capital resources should enable it to meet operating needs for at least several years, and it does not expect revenue from product sales for at least several years. However, the company has no bank credit line, expects R&D expense to keep rising through 2000, and must make capital contributions of at least $4.5 million to Amgen-Regeneron Partners in 2000. Future financing may come from equity issuances, other financing arrangements, or new collaborations, with no assurance of availability on acceptable terms.
What drove the increase in the net loss in 1999?
Revenue fell by $5.5 million, mainly because 1998 included $9.5 million in non-recurring research progress payments. Operating expenses rose $9.0 million to $62.8 million, led by a $7.9 million increase in R&D from higher staffing and expanded preclinical and clinical activity. Investment income fell due to lower invested balances, and the loss from Amgen-Regeneron Partners rose to $4.2 million from $2.5 million as BDNF and NT-3 clinical trials expanded.
What are the main sources of Regeneron's revenue and how dependent is it on partners?
Revenue comes from contract research and development (mostly from P&G, plus Amgen-related services), contract manufacturing for Merck's pediatric vaccine intermediate, and investment income. The company is heavily dependent on collaborators: the majority of its scientific resources go to the P&G collaboration, and BDNF and NT-3 programs depend on Amgen. Termination of these agreements could have a material adverse effect, and the Merck agreement may be terminated by Merck at any time upon payment of a termination fee.

04—Continue

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