01—Abstract
Summary
Summary of the 10-K filed March 2, 2001. Cited figures are marked; the original filing is the authoritative source.
Regeneron Pharmaceuticals (REGN) enters 2001 as a pre-revenue-from-products biopharma that is still deeply loss-making but with a much stronger balance sheet than a year earlier.
The company reported a 2000 net loss of $23.2 milliona ($0.66 per share) on total revenue of $59.3 million, up from $34.5 million in 1999. Revenue growth came mainly from contract research funding (Procter & Gamble, Amgen-Regeneron Partners, Sumitomo) and contract manufacturing for Merck's pediatric vaccine intermediate. Operating expenses rose to $84.6 million, with R&D at $56.3 million, and the cumulative deficit since 1988 reached $223.5 million.
The company has never sold a commercial product. The pipeline is the central investment thesis. The lead program, AXOKINE for obesity, reported Phase II results in November 2000 showing statistically significant weight loss of about 10 pounds versus placebo at the 1.0 mcg/kg dose, and Regeneron plans Phase III testing in mid-2001 subject to FDA discussions.
Other key programs are the IL-1 Trap (in Phase I for rheumatoid arthritis), an IL-4/IL-13 Trap for asthma and allergy, and the VEGF Trap for cancer, which is expected to enter Phase I in mid-2001. Management notes that the AXOKINE injectable form faces competitive disadvantages against oral obesity drugs. Two setbacks weigh on the story: the January 2001 discontinuation of BDNF for ALS, which led to the expected loss of Sumitomo Pharmaceuticals payments, and an Immunex opposition to a European Cytokine Trap patent.
Financially, cash, cash equivalents and marketable securities rose to $154.4 millionb at year-end 2000, from $93.6 million, following a 2.6 million share public offering in April 2000 at $29.75 per share (about $72.9 million net) and a Procter & Gamble equity purchase. The company is also registering a further 4.0 million share offering filed in January 2001.
Management believes existing resources fund operations through the third quarter of 2002, which implies that additional financing is likely within about 18 months. Investors should weigh the promising clinical data and a large, well-partnered pipeline against the risks of clinical failure, dependence on collaborators, reliance on a single manufacturing contract, and the sharp rise in the stock price during 2000.
02—Key points
Key Highlights
- 2000 net loss of $23.2 million ($0.66 per share), narrowed from $23.1 million in 1999 despite higher expenses; cumulative losses since 1988 total $223.5 million.
- Total revenue rose 72% to $59.3 million, driven by Procter & Gamble collaboration funding and Merck contract manufacturing revenue of $12.5 million.
- AXOKINE (obesity) Phase II trial: 1.0 mcg/kg dose produced about 10 pounds more weight loss than placebo, with 46% of patients losing at least 10 pounds; Phase III planned for mid-2001.
- Cash, equivalents and marketable securities of $154.4 million at December 31, 2000, up from $93.6 million, after the April 2000 public offering (about $72.9 million net) and a P&G equity purchase.
- Management says current resources fund operations only through Q3 2002, and a 4.0 million share offering was filed in January 2001, signaling likely future dilution.
- Setbacks: BDNF discontinued for ALS in January 2001, likely ending Sumitomo Pharmaceuticals payments, and Immunex filed a European opposition against the Cytokine Trap patent.
- Pipeline is largely independent (IL-1 Trap in Phase I for rheumatoid arthritis, IL-4/IL-13 Trap, VEGF Trap entering Phase I mid-2001), while the Merck manufacturing agreement is a material revenue dependency.
03—Questions
Frequently Asked Questions
Has Regeneron generated product sales or profits?
No. The company states that since inception it has not generated sales or profits from commercializing any product candidate. Its revenue comes from research collaborations, contract manufacturing for Merck and Sumitomo, and investment income. It does not expect product revenue for several years.
What is the most important near-term catalyst?
The planned mid-2001 start of Phase III testing for AXOKINE in severely obese patients, subject to FDA discussions. The Phase III program would likely enroll several thousand patients over about two years. Phase I starts for the VEGF Trap (mid-2001) and the dual IL-4/IL-13 Trap (late 2001) and the IL-1 Trap study readout (second half of 2001) are also key milestones.
Why did revenue rise, and how durable is it?
Growth came from higher Procter & Gamble research funding, increased NT-3 clinical activity funded through Amgen-Regeneron Partners, and Merck contract manufacturing revenue of $12.5 million. P&G funding is scheduled to drop to $2.5 million per quarter from 2001 under the new agreement, and Sumitomo payments are likely to end, so revenue durability is uncertain without new deals.
Does Regeneron need more capital?
Probably. Management says existing capital supports operations through the third quarter of 2002, and it has no bank line of credit. It filed for a 4.0 million share offering in January 2001, which could dilute existing shareholders. Pursuing a Phase III program for AXOKINE would require substantial additional funding.
What are the main risks to the investment case?
Key risks include clinical failure or delays, including antibody (immunogenicity) risk for protein drugs; dependence on collaborators such as P&G, Amgen and Medarex, who can opt out or terminate; reliance on the Merck manufacturing contract, which Merck can terminate; competition from oral obesity drugs and TNF blockers; patent challenges, including Immunex's European opposition; and the high volatility of the stock, which traded between $6 and $57 over 1999 and 2000.
04—Continue