ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below 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, anticipated sales 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, shareholders 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.
Overview
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 product candidates that are in late-stage (Phase 3)
clinical development. Our late stage programs are ARCALYST
®
, which is being developed for the prevention
of gout flares in patients initiating uric acid-lowering treatment; VEGF
Trap-Eye, which is being developed using intraocular delivery for the treatment
of eye diseases 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 REGN727, an
antibody to PCSK9, which is being developed for low density lipoprotein (LDL)
cholesterol reduction; REGN88, an antibody to the interleukin-6 receptor
(IL-6R), which is being developed in rheumatoid arthritis and ankylosing
spondilitis; REGN421, an antibody to Delta-like ligand-4 (Dll4), which is being
developed in oncology; REGN668, an antibody to the interleukin-4 receptor
(IL-4R), which is being developed in atopic dermatitis; and REGN475, an antibody
to Nerve Growth Factor (NGF), which is being developed for the treatment of
pain. 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
proteins of therapeutic interest for a particular disease or cell type and
validate these targets through high-throughput production of genetically
modified mice using our
VelociGene
®
technology to understand the role of these proteins in normal physiology
as well as in models of disease. 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.
We and Astellas Pharma Inc.
announced in July 2010 that Astellas has extended through 2023 the
non-exclusive license agreement that allows Astellas to utilize our
VelocImmune
®
technology in its internal research
programs to discover fully human monoclonal antibody product candidates.
Astellas will pay $165.0 million up-front and another $130.0 million in
June 2018 unless it terminates the agreement prior to that date. Upon
commercialization of any antibody products discovered utilizing
VelocImmune
®
, Astellas will pay us a mid-single-digit
royalty on product sales.
14
Commercial Product:
ARCALYST
®
– Cryopyrin-Associated Periodic Syndromes (CAPS)
Net product sales of ARCALYST
®
Injection for Subcutaneous Use in the second
quarter of 2010 were $5.2 million, compared to $4.5 million during the same
period of 2009. We recognized $15.0 million of net product sales during the
first six months of 2010, which included $10.2 million of ARCALYST
®
net product sales made during the first half
of 2010 and $4.8 million of previously deferred net product sales, as described
below under “Results of Operations.” In the first six months of 2009, we
recognized $8.4 million of ARCALYST
®
net product sales. ARCALYST
®
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.
ARCALYST
®
is a protein-based product designed to bind
the interleukin-1 (called IL-1) cytokine and prevent its interaction with cell
surface receptors. CAPS is 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.
Clinical Programs:
1. ARCALYST
®
– Inflammatory Diseases
ARCALYST
®
is being developed for the prevention of gout
flares in patients initiating uric acid-lowering therapy. Gout, a disease in
which, as in CAPS, IL-1 may play an important role in pain and inflammation, is
a very painful and common form of arthritis that results from high levels of
uric acid, a bodily waste product normally excreted by the kidneys. The elevated
uric acid can lead to formation of urate crystals in the joints of the toes,
ankles, knees, wrists, fingers, and elbows. Uric acid-lowering therapy, most
commonly with allopurinol, is prescribed to eliminate the urate crystals and
prevent reformation. Paradoxically, the initiation of uric acid-lowering therapy
often triggers an increase in the frequency of gout attacks in the first several
months of treatment, which may lead to discontinuation of therapy. The break up
of the urate 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.
During the first quarter of 2009, we initiated a Phase 3 clinical
development program with ARCALYST
®
for the treatment of gout. The program
included four clinical trials called PRE-SURGE 1 (
PRE
vention
S
tudy against
UR
ate-lowering drug-induced
G
out
E
xacerbations), PRE-SURGE 2, SURGE
(
S
tudy
U
tilizing
R
ilonacept in
G
out
E
xacerbations), and RE-SURGE (
RE
view of
S
afety
U
tilizing
R
ilonacept in
G
out
E
xacerbations), each of which are described
below.
In June 2010, we announced that our PRE-SURGE 1 study in gout patients
initiating allopurinol therapy to lower their uric acid levels showed that
ARCALYST
®
prevented gout attacks, as measured by the
primary study endpoint of the number of gout flares per patient over the 16 week
treatment period. Patients who received ARCALYST
®
at a weekly, self-administered, subcutaneous
dose of 160 milligrams (mg) had an 80% decrease in mean number of gout flares
compared to the placebo group over the 16 week treatment period (0.21 flares vs.
1.06 flares, p<0.0001). Patients who received ARCALYST
®
at a weekly dose of 80 mg had a 73% decrease
compared to the placebo group (0.29 flares vs. 1.06 flares,
p<0.0001).
All secondary endpoints of the study were
highly positive (p<0.001 vs. placebo). Among these endpoints, treatment with
ARCALYST
®
reduced the proportion of patients who
experienced two or more flares during the study period by up to 88% (3.7% with
ARCALYST
®
160 mg, 5.0% with ARCALYST
®
80 mg, and 31.6% with placebo, p<0.0001).
In addition, treatment with ARCALYST
®
reduced the proportion of patients who
experienced at least one gout flare during the study period by up to 65% (16.3%
with ARCALYST
®
160 mg, 18.8% with ARCALYST
®
80 mg, and 46.8% with placebo,
p<0.001).
15
A total of 241 patients were randomized
in PRE-SURGE 1, a North America-based double-blind, placebo-controlled study.
ARCALYST
®
was generally well tolerated with no reported
drug-related serious adverse events. Adverse events that occurred at a frequency
of at least 5% in any study group were: injection site reaction (19.8% with
ARCALYST
®
160 mg, 8.8% with ARCALYST
®
80 mg, and 1.3% with placebo), upper
respiratory tract infection (9.9% with ARCALYST
®
160 mg, 8.8% with ARCALYST
®
80 mg, and 7.6% with placebo), lower
respiratory tract infection (0% with ARCALYST
®
160 mg, 5.0% with ARCALYST
®
80 mg, and 2.5% with placebo),
musculoskeletal pain/ discomfort (6.2% with ARCALYST
®
160 mg, 7.5% with ARCALYST
®
80 mg, and 8.9% with placebo), and headache,
(3.7% with ARCALYST
®
160 mg, 6.3% with ARCALYST
®
80 mg, and 1.3% with placebo).
In addition, in June 2010, we reported results
from a placebo-controlled, Phase 3 study (called SURGE), evaluating pain in
patients presenting with an acute gout flare. The results of this study showed
that there was no significant benefit from combining ARCALYST
®
with indomethacin (a non-sterodial
anti-inflammatory drug considered the standard of care), as measured by the
primary study endpoint of the average intensity of gout pain from 24 to 72 hours
after initiation of treatment. Patients treated with indomethacin alone
experienced an average reduction in patient-reported pain scores (0 to 4 Likert
scale where 0 represents no pain and 4 represents extreme pain) of 1.40 points
from baseline compared to an average reduction of 1.55 points from baseline in
patients treated with both indomethacin and ARCALYST
®
(p=0.33). Patients who received ARCALYST
®
alone experienced an average pain reduction
of 0.69 points. Treatment with ARCALYST
®
was generally well tolerated with no reported
drug-related serious adverse events. The most commonly reported adverse event
with ARCALYST
®
was headache.
There are two ongoing studies in the Phase 3
program with ARCALYST
®
in the prevention of gout flares in patients
initiating uric acid-lowering therapy. The global PRE-SURGE 2 study, which has a
similar trial design as PRE-SURGE 1, is evaluating the number of gout flares per
patient over the first 16 weeks of initiation of allopurinol therapy. In
addition, the global RE-SURGE study is evaluating the safety of ARCALYST
®
versus placebo over 16 weeks in patients who
are at risk for gout flares because they are taking uric acid-lowering drug
treatment. PRE-SURGE 2 is fully enrolled and RE-SURGE is over 90% enrolled. Data
from both studies are expected in early 2011. We own worldwide rights to
ARCALYST
®
.
Royalty Agreement with Novartis Pharma
AG
Under a June 2009 agreement with Novartis
Pharma AG (that replaced a previous collaboration and license agreement), we
receive tiered royalties on worldwide sales of Novartis’ canakinumab, a fully
human anti-interleukin-IL1
ß
antibody. The
multi-tiered royalty rates in the agreement start at 4% and reach 15% when
annual sales exceed $1.5 billion. Canakinumab is approved to treat
Cryopyrin-Associated Periodic Syndrome (CAPS) and is in development for gout,
type 2 diabetes, and other inflammatory diseases.
2. VEGF Trap-Eye – Ophthalmologic Diseases
VEGF Trap-Eye is a specially purified and
formulated form of VEGF Trap, which is being developed for use in intraocular
applications. We and Bayer HealthCare are testing VEGF Trap-Eye in Phase 3
programs in patients with the neovascular form of age-related macular
degeneration (wet AMD) and central retinal vein occlusion (CRVO). 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.
The Phase 3 trials in wet AMD, known as VIEW 1
and VIEW 2 (
V
EGF Trap:
I
nvestigation of
E
fficacy and Safety in
W
et age-related macular degeneration), are
comparing VEGF Trap-Eye and Lucentis
®
(ranibizumab injection), owned 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, although
patients will be dosed no less frequently than every 12 weeks. VIEW 1 and VIEW 2
were fully enrolled in 2009, and initial data are expected in the fourth quarter
of 2010.
16
VEGF Trap-Eye is also in Phase 3 development
for the treatment of central retinal vein occlusion (CRVO), another cause of
visual impairment. The COPERNICUS (
CO
ntrolled
P
hase 3
E
valuation of
R
epeated i
N
travitreal administration of VEGF Trap-Eye
I
n
C
entral retinal vein occlusion:
U
tility and
S
afety) study is being led by Regeneron and the
GALILEO (
G
eneral
A
ssessment
L
imiting
I
nfi
L
tration of
E
xudates in central retinal vein
O
cclusion 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. COPERNICUS is
fully enrolled and GALILEO is over 90% enrolled. Initial data from both studies
are anticipated in early 2011.
The Phase 2 DME study, known as DA VINCI
(
D
ME
A
nd
V
EGF Trap-Eye:
IN
vestigation of
C
linical
I
mpact), is a double-masked, randomized,
controlled trial that is evaluating four different dosing regimens of VEGF
Trap-Eye versus laser treatment. In February 2010, we and Bayer HealthCare
announced that treatment with VEGF Trap-Eye demonstrated a statistically
significant improvement in visual acuity compared to focal laser therapy, the
primary endpoint of the study. 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. 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.
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 can earn up to
$70 million in future development and regulatory milestone payments 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 milestone payments 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), VEGF-B, and the related Placental Growth Factor (called PlGF),
and prevent their interaction with cell surface receptors. VEGF-A (and to a
lesser degree, PlGF) is required for the growth of new blood vessels (a process
known as angiogenesis) that are needed for tumors to grow.
Aflibercept is being developed globally in
cancer indications in collaboration with sanofi-aventis. We and sanofi-aventis
are conducting three randomized, double-blind Phase 3 trials, all of which are
fully enrolled, that are evaluating combinations of standard chemotherapy
regimens with either aflibercept or placebo for the treatment of cancer. One
trial (called VELOUR) is evaluating aflibercept as a 2
nd
-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 2
nd
-line treatment for locally advanced or
metastatic non-small cell lung cancer in combination with docetaxel. A third
trial (VENICE) is evaluating aflibercept as a 1
st
-line treatment for metastatic
castration-resistant prostate cancer in combination with docetaxel/prednisone.
In addition, a Phase 2 study (called AFFIRM) of aflibercept in 1
st
-line metastatic colorectal cancer in
combination with FOLFOX (folinic acid [leucovorin], 5-fluorouracil, and
oxaliplatin) is also fully enrolled.
17
Each of the Phase 3 studies is monitored by an
Independent Data Monitoring Committee (IDMC), a body of independent clinical and
statistical 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 pre-specified number of
events have occurred in each trial. Based on projected event rates, (i) an
interim analysis of VELOUR at 65% of the prespecified number of events required
for the final analysis of overall survival is expected to be conducted by an
independent statistician and reviewed 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 reviewed by an IDMC in mid-2011, with final
results anticipated in 2012. Initial data from the AFFIRM study are anticipated
in the second half of 2011.
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 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. REGN727 (Anti-PCSK9 Antibody) for LDL cholesterol reduction
Elevated low density lipoprotein (LDL)
cholesterol 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 and
prevents LDLR from binding to and removing LDL 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 generate a fully human
monoclonal antibody inhibitor of PCSK9, called REGN727, that is intended to
robustly lower LDL cholesterol through a novel mechanism of action. REGN727 is
targeted at inhibiting PCSK9, which results in prevention of the degradation of
LDLRs in the liver, thereby facilitating LDL clearance from the systemic
circulation leading to lower LDL levels in the blood.
In May 2010, we announced that in an interim
efficacy analysis of a dose-escalating, randomized, double-blind,
placebo-controlled, Phase 1 trial in healthy volunteers, REGN727 achieved
substantial, dose dependent decreases of LDL (bad) cholesterol. Each dosing
cohort consisted of six treated and two placebo patients. In July 2010, we
presented additional data from the Phase 1 program. At the highest intravenous
dose tested, a single dose of REGN727 achieved a greater than 60% maximum mean
reduction of LDL cholesterol from baseline that lasted for more than one month.
At the highest subcutaneous dose tested, a single dose of REGN727 achieved a
greater than 60% maximum mean reduction of LDL cholesterol from baseline that
lasted for more than two weeks. No serious adverse events and no dose limiting
toxicities have been reported. Dose escalation is ongoing in both
studies.
In July 2010, we also presented the results of
an interim efficacy analysis of a dose escalating, randomized, double-blind,
placebo-controlled Phase 1 trial of subcutaneously delivered REGN727 in
hyperlipidemic patients (familial hypercholesterolemia and non-familial
hypercholesterolemia) on stable doses of statins whose LDL levels were greater
than 100 milligrams per deciliter (mg/dL). At the highest dose tested to-date,
in eleven patients, a single dose of REGN727 achieved an approximately 40%
maximum mean reduction of LDL cholesterol from
baseline. No serious adverse events and no
dose limiting toxicities have been reported. Dose escalation in this study is
ongoing. REGN727 is being developed in collaboration with
sanofi-aventis.
18
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 has completed Phase 1
studies, the results of which were presented at the annual meeting of the
European League Against Rheumatism (EULAR) in June 2010. REGN88 was well
tolerated by patients with rheumatoid arthritis, and no dose-limiting toxicities
were reported. Treatment with REGN88 resulted in dose-related reductions in
biomarkers of inflammation. REGN88 is currently 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 primarily 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, which is being developed
in collaboration with sanofi-aventis, is in Phase 1 clinical
development.
7. REGN668 (Anti-IL-4R Antibody) for allergic and immune
conditions
Interleukin-4 receptor (IL-4R) 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
Immunoglobulin E (IgE) 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 IL-4R. REGN668, which is being developed in collaboration
with sanofi-aventis, has completed a Phase 1 trial in healthy volunteers, and
will be initiating a Phase 2 trial in atopic dermatitis in the second half of
2010.
8. 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, which is designed to block pain
sensitization in neurons. 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, or BDNF. REGN475
is being developed in collaboration with sanofi-aventis.
19
In May 2010, we announced an interim analysis
of a randomized, double-blind, four-arm, placebo-controlled Phase 2 trial in 217
patients with osteoarthritis of the knee. In July 2010, we presented additional
results from this trial through 16 weeks. The primary endpoint of this study is
safety, and REGN475 was generally well tolerated. Serious treatment emergent
adverse events were rare and balanced between placebo and drug arms with three
events (5.5%) in the placebo group and four events (2.5%) in the combined
REGN475 groups. The most frequent adverse events reported among patients
receiving REGN475 included sensory abnormalities, arthralgias,
hyper/hypo-reflexia, peripheral edema, and injection site reactions. The types
and frequencies of adverse events reported were similar to those previously
reported from other investigational studies involving an anti-NGF
antibody.
In the first interim efficacy analysis,
REGN475 demonstrated significant improvements at the two highest doses tested as
compared to placebo in average walking pain scores over 8 weeks following a
single intravenous infusion (p<0.01). In July 2010, we reported that REGN475
demonstrated significant improvements at the two highest doses tested as
compared to placebo in average walking pain scores over 16 weeks following a
second intravenous infusion at week 8 (p<0.01).
Pain was measured
by the Numeric Rating Scale (NRS), as well as the Western Ontario and McMaster
Osteoarthritis Index (WOMAC) pain and function subscales
Analysis of efficacy data from a Phase 2 trial
in the acute setting of nerve root compression induced pain (acute sciatica)
suggests that REGN475 therapy will not be effective in this
setting.
At the request of the U.S. Food and Drug
Administration (FDA), another pharmaceutical company has suspended its anti-NGF
antibody clinical program in osteoarthritis and certain other chronic pain
indications. We have responded to FDA requests for information about patients in
our REGN475 clinical trials. REGN475 is currently not on clinical hold, and our
Phase 2 trials in patients with vertebral fracture pain and chronic pancreatitis
pain are ongoing. Our Phase 2 trial in osteoarthritis of the knee has been
completed. We will update our plans for REGN475 following feedback from the
FDA.
Research and Development
Technologies:
Many proteins that are either on the surface
of or secreted by cells play important roles in biology and disease. 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. In other cases, proteins on the cell-surface can mediate the
interaction between cells, such as the processes that give rise to inflammation
and autoimmunity.
Our scientists have developed two different
technologies to design protein therapeutics to block the action of specific cell
surface or secreted proteins. The first technology, termed the “Trap”
technology, was used to generate our first approved product, ARCALYST
®
, 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
TM
is our second technology platform and it is
used for discovering, developing, and producing fully human monoclonal
antibodies that can address both secreted and cell-surface targets.
VelociSuite
TM
VelociSuite
TM
consists of
VelocImmune
®
, VelociGene
®
, VelociMouse
®
, and VelociMab
®
.
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
TM
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.
20
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 pharmacology
programs,
VelociGene
®
offers the opportunity to humanize targets by
replacing the mouse gene with the human homolog. Thus,
VelociGene
®
allows scientists to rapidly identify the
physical and biological effects of deleting or over-expressing the target gene,
as well as to characterize and test potential therapeutic
molecules.
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. In 2010, as we scale up our
capacity to conduct antibody discovery activities, we will incur and seek
reimbursement of only $130-$140 million of antibody discovery costs, with the
balance between that amount and $160 million added to the funding otherwise
available to us in 2011-2012. 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. 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.
21
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.
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, 2009, and 2010. AstraZeneca is required to make up
to two additional annual payments of $20.0 million, subject to its ability to
terminate the agreement. 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, 2009, and 2010. In July 2010, the license agreement with
Astellas was amended and extended through June 2023. Under the terms of the
amended agreement, Astellas will make a $165.0 million up-front payment to us.
In addition, Astellas will make a $130.0 million payment to us in June
2018 unless the license agreement has been terminated prior to that date.
Astellas has the right to terminate this license agreement at any time by
providing 90 days’ advance written notice. Under certain limited circumstances,
such as our material breach of the agreement, Astellas may terminate the
agreement and receive a refund of a portion of its payment to us under the July
2010 amendment to the agreement. We are entitled to receive a mid-single-digit
royalty on any future sales of antibody products discovered by Astellas using
our
VelocImmune
®
technology.
22
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. Under the NIH
grant, as amended, we have received $18.1 million through June 30, 2010 and are
entitled to receive an additional $7.2 million through the remaining term of the
grant.
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.
Regeneron plans to file an Investigational New Drug
Application for REGN910, an antibody to Angiopoietin-2, a novel
anti-angiogenesis target, by the end of 2010.
General
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.
From inception on January 8, 1988 through June
30, 2010, we had a cumulative loss of $997.1 million. In the absence of
significant revenues from the commercialization of ARCALYST
®
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 ARCALYST
®
; 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.
23
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 to date in 2010 and
plans over the next 12 months are as follows:
|
|
|
|
2010-11 Plans
|
Clinical Program
|
|
2010 Events to
Date
|
|
(next 12
months)
|
ARCALYST
®
(rilonacept)
|
|
-
Reported positive results
from PRE-SURGE 1 and completed patient enrollment of PRE-SURGE 2. Both
Phase 3 studies are
evaluating ARCALYST
®
in the prevention of gout flares
associated with the initiation of uric acid-lowering drug therapy
-
Reported results showing no
significant improvement in pain relief from a Phase 3 study (SURGE)
evaluating ARCALYST
®
in the treatment of acute gout flares
|
|
-
Complete patient enrollment
of an additional Phase 3 study (RE-SURGE) and report data from PRE-SURGE
2 and RE-SURGE in early 2011
-
If PRE-SURGE 2 and RE-SURGE
are successful, file for regulatory approval of ARCALYST
®
in the prevention of gout flares
associated with the initiation of uric acid-lowering drug therapy by
mid-2011
|
|
|
|
|
|
VEGF Trap – Eye
|
|
-
Completed patient enrollment
in the first of two Phase 3 CRVO trials (COPERNICUS)
-
Reported positive 24-week
primary endpoint results from the Phase 2 DME trial
|
|
-
Report data from VIEW 1 and
VIEW 2 trials in the fourth quarter of 2010
-
Complete patient enrollment
in the second Phase 3 CRVO trial (GALILEO) and report initial data from
both trials
-
Report one-year results from
the Phase 2 DME trial
|
|
|
|
|
|
Aflibercept
(VEGF Trap –
Oncology)
|
|
-
Completed patient enrollment
in the Phase 3 studies in non-small cell lung cancer, prostate cancer,
and colorectal cancer
-
Completed patient enrollment
in a Phase 2 1
st
-line study in metastatic colorectal
cancer in combination with chemotherapy
|
|
-
During the second half of
2010, an Independent Data Monitoring Committee is expected to conduct an
interim analysis of the Phase 3 study (VELOUR) in colorectal
cancer
-
Report data from the Phase 3
study (VITAL) in non-small cell lung cancer.
-
In mid-2011, an Independent
Data Monitoring Committee is expected to conduct an interim analysis of
the Phase 3 study (VENICE) in prostate cancer
|
|
|
|
|
|
Monoclonal
Antibodies
|
|
-
REGN727: Reported interim
proof-of-concept data from a Phase 1 study for LDL cholesterol
reduction
-
REGN88: Initiated a Phase
2/3 dose-ranging study in rheumatoid arthritis and a Phase 2
dose-ranging study in ankylosing spondylitis
-
REGN88: Reported data from
the Phase 1 program in rheumatoid arthritis
-
REGN475: Reported interim
data from the Phase 2 studies in osteoarthritis of the knee and acute
sciatica
|
|
-
REGN727: Report additional
data from the Phase 1 program and initiate a Phase 2 program for LDL
cholesterol reduction
-
REGN668: Initiate a Phase 2
program in the treatment of atopic dermatitis
-
REGN475: Report additional
data from the Phase 2 study in osteoarthritis of the knee
-
REGN475: Update clinical
plans following feedback from the FDA
-
Advance additional antibody
candidates into clinical development, including REGN910
|
Results of Operations
Three Months Ended June 30, 2010 and
2009
Net Loss
Regeneron reported a net loss of $25.5
million, or $0.31 per share (basic and diluted), for the second quarter of 2010,
compared to a net loss of $14.9 million, or $0.19 per share (basic and diluted)
for the second quarter of 2009. The increase in our net loss was principally due
to higher research and development expenses, as detailed below, partly offset by
higher collaboration revenue primarily in connection with our antibody
collaboration with sanofi-aventis.
24
Revenues
Revenues for the three months ended June 30, 2010 and 2009 consist of the
following:
(In millions)
|
2010
|
|
2009
|
Collaboration revenue
|
|
|
|
|
|
Sanofi-aventis
|
$
|
84.9
|
|
$
|
60.7
|
Bayer HealthCare
|
|
13.7
|
|
|
12.8
|
Total collaboration revenue
|
|
98.6
|
|
|
73.5
|
Technology licensing revenue
|
|
10.0
|
|
|
10.0
|
Net product sales
|
|
5.2
|
|
|
4.5
|
Contract research and other
revenue
|
|
2.1
|
|
|
2.0
|
Total revenue
|
$
|
115.9
|
|
$
|
90.0
|
|
|
|
|
|
|
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.
Sanofi-aventis Collaboration
Revenue
|
|
Three months ended
|
(In millions)
|
June 30,
|
|
2010
|
|
2009
|
Aflibercept:
|
|
|
|
|
|
Regeneron expense reimbursement
|
$
|
3.8
|
|
$
|
9.2
|
Recognition of deferred
revenue related to up-front payments
|
|
2.5
|
|
|
2.5
|
Total aflibercept
|
|
6.3
|
|
|
11.7
|
Antibody:
|
|
|
|
|
|
Regeneron expense reimbursement
|
|
76.4
|
|
|
45.7
|
Recognition of deferred revenue related to up-front and other
|
|
|
|
|
|
payments
|
|
1.8
|
|
|
2.6
|
Recognition of revenue related to
VelociGene
®
agreement
|
|
0.4
|
|
|
0.7
|
Total antibody
|
|
78.6
|
|
|
49.0
|
Total sanofi-aventis collaboration
revenue
|
$
|
84.9
|
|
$
|
60.7
|
|
|
|
|
|
|
Sanofi-aventis’ reimbursement of our aflibercept expenses decreased in
the second quarter of 2010 compared to same period in 2009, primarily due to
lower costs related to manufacturing aflibercept clinical supplies as well as a
decrease in internal research activities. As of June 30, 2010, $37.5 million of
the original $105.0 million of up-front payments related to our aflibercept
collaboration with sanofi-aventis was deferred and will be recognized as revenue
in future periods.
In the second quarter of 2010, sanofi-aventis’
reimbursement of our antibody expenses consisted of $36.6 million under the
discovery agreement and $39.8 million of development costs under the license
agreement, compared to $28.3 million and $17.4 million, respectively, in the
second quarter of 2009. The higher reimbursement amounts in the second quarter
of 2010 compared to the same period in 2009 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
primarily to sanofi-aventis’ $85.0 million up-front payment, decreased during
the second quarter of 2010 compared to the same period in 2009 due to the
November 2009 amendments to expand and extend the companies’ antibody
collaboration. In connection with the November 2009 amendment of the discovery
agreement, sanofi-aventis is funding up to $30 million of agreed-upon costs
incurred by us to expand our manufacturing capacity at our Rensselaer, New York
facilities, of which $14.3 million was received or receivable from
sanofi-aventis as of June 30, 2010. Payments for such funding from
sanofi-aventis are deferred and recognized as collaboration revenue
prospectively over the related performance period in conjunction with the
original $85.0 million up-front payment. As of June 30, 2010, $74.6 million of
the original up-front payment and subsequent payments to fund expansion of our
Rensselaer facilities was deferred and will be recognized as revenue in future
periods.
25
In August 2008, we entered into a separate
VelociGene
®
agreement with sanofi-aventis. For the three
months ended June 30, 2010 and 2009, we recognized $0.4 million and $0.7
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 and recognition of revenue related to a
non-refundable $75.0 million up-front payment received in October 2006 and a
$20.0 million milestone payment received in August 2007 (which, for the purpose
of revenue recognition, was not considered substantive).
Bayer HealthCare Collaboration
Revenue
|
|
Three months ended
|
(In millions)
|
June 30,
|
|
2010
|
|
2009
|
Cost-sharing of Regeneron VEGF Trap-Eye
development expenses
|
$
|
11.2
|
|
$
|
10.4
|
Recognition of deferred revenue related
to up-front and milestone
|
|
|
|
|
|
payments
|
|
2.5
|
|
|
2.4
|
Total Bayer HealthCare collaboration revenue
|
$
|
13.7
|
|
$
|
12.8
|
|
|
|
|
|
|
In periods when we recognize VEGF Trap-Eye
development expenses that we incur under our collaboration with Bayer
HealthCare, we also recognize, as collaboration revenue, the portion of those
VEGF Trap-Eye development expenses that is reimbursable by Bayer
HealthCare.
Cost-sharing of our VEGF Trap-Eye development
expenses with Bayer HealthCare increased in the second quarter of 2010, compared
to the same period in 2009, due to higher clinical development costs in
connection with our Phase 3 trial in CRVO and Phase 2 trial in DME and higher
costs related to VEGF Trap-Eye clinical drug supplies. In 2010 and 2009,
development expenses incurred by Regeneron and Bayer HealthCare under the VEGF
Trap-Eye global development plan were shared equally. As of June 30, 2010, $51.9
million of the $75.0 million up-front licensing and $20.0 million 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 the second quarter of both 2010 and 2009, we
recognized $10.0 million of technology licensing revenue related to these
agreements.
Net Product Sales
For the three months ended June 30, 2010,
ARCALYST
®
net product sales were $5.2 million, compared to $4.5 million during the
same period in 2009. There was no deferred ARCALYST
®
net product sales revenue at June 30, 2010. At
June 30, 2009, deferred ARCALYST
®
net product sales revenue was $4.9
million.
Contract Research and Other
Revenue
Contract research and other revenue for the
three months ended June 30, 2010 and 2009 included $1.2 million and $1.5
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 $139.6
million in the second quarter of 2010 from $106.3 million in the second quarter
of 2009. Our average headcount increased to 1,214 in the second quarter of 2010
from 966 in the
same period of 2009
principally as a result of our expanding research and development activities,
which are primarily attributable to our antibody collaboration with
sanofi-aventis.
26
Operating expenses in the second quarter of
2010 and 2009 include a total of $8.7 million and $7.4 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 three months ended June 30,
2010
|
|
Expenses
before
|
|
|
|
|
|
|
|
inclusion of Non-cash
|
|
Non-cash
|
|
|
|
Expenses
|
|
Compensation
|
|
Compensation
|
|
Expenses as
|
(In millions)
|
Expense
|
|
Expense
|
|
Reported
|
Research and development
|
$
|
119.5
|
|
$
|
5.0
|
|
$
|
124.5
|
Selling, general, and
administrative
|
|
11.0
|
|
|
3.7
|
|
|
14.7
|
Cost of goods sold
|
|
0.4
|
|
|
|
|
|
0.4
|
Total operating expenses
|
$
|
130.9
|
|
$
|
8.7
|
|
$
|
139.6
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30,
2009
|
|
Expenses
before
|
|
|
|
|
|
|
|
inclusion of Non-cash
|
|
Non-cash
|
|
|
|
Expenses
|
|
Compensation
|
|
Compensation
|
|
Expenses as
|
(In millions)
|
Expense
|
|
Expense
|
|
Reported
|
Research and development
|
$
|
89.5
|
|
$
|
4.7
|
|
$
|
94.2
|
Selling, general, and
administrative
|
|
9.0
|
|
|
2.7
|
|
|
11.7
|
Cost of goods sold
|
|
0.4
|
|
|
|
|
|
0.4
|
Total operating expenses
|
$
|
98.9
|
|
$
|
7.4
|
|
$
|
106.3
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development expenses increased to
$124.5 million in the second quarter of 2010 from $94.2 million in the same
period of 2009. The following table summarizes the major categories of our
research and development expenses for the three months ended June 30, 2010 and
2009:
Research and Development
Expenses
|
|
For the three
months ended June 30,
|
|
Increase
|
(In millions)
|
2010
|
|
2009
|
|
(Decrease)
|
Payroll and benefits (1)
|
$
|
31.9
|
|
$
|
23.6
|
|
$
|
8.3
|
|
Clinical trial expenses
|
|
28.5
|
|
|
30.2
|
|
|
(1.7
|
)
|
Clinical manufacturing costs
(2)
|
|
27.6
|
|
|
13.8
|
|
|
13.8
|
|
Research and other development
costs
|
|
13.8
|
|
|
9.9
|
|
|
3.9
|
|
Occupancy and other operating
costs
|
|
12.7
|
|
|
8.9
|
|
|
3.8
|
|
Cost-sharing of Bayer HealthCare
VEGF
|
|
|
|
|
|
|
|
|
|
Trap-Eye development expenses (3)
|
|
10.0
|
|
|
7.8
|
|
|
2.2
|
|
Total research and development
|
$
|
124.5
|
|
$
|
94.2
|
|
$
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $4.2
million and $4.0 million of Non-cash Compensation Expense for the three
months ended June 30, 2010 and 2009, 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 $0.8 million and $0.7 million of Non-cash Compensation
Expense for the three months ended June 30, 2010 and 2009,
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.
|
27
Payroll and benefits increased principally
due to the increase in employee headcount, as described above. Clinical trial
expenses decreased due primarily to lower costs related to our ARCALYST
®
clinical development
program in gout. Clinical manufacturing costs increased primarily due to higher
costs related to manufacturing clinical supplies of monoclonal antibodies.
Research and other 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.
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:
Project Costs
|
|
For the three
months ended June 30,
|
|
Increase
|
(In millions)
|
2010
|
|
2009
|
|
(Decrease)
|
ARCALYST
®
|
$
|
11.6
|
|
$
|
15.7
|
|
$
|
(4.1
|
)
|
VEGF Trap-Eye
|
|
31.2
|
|
|
27.0
|
|
|
4.2
|
|
Aflibercept
|
|
3.0
|
|
|
7.4
|
|
|
(4.4
|
)
|
REGN88
|
|
9.8
|
|
|
8.5
|
|
|
1.3
|
|
Other antibody candidates in clinical
development
|
|
26.2
|
|
|
5.1
|
|
|
21.1
|
|
Other research programs &
unallocated costs
|
|
42.7
|
|
|
30.5
|
|
|
12.2
|
|
Total research and development
expenses
|
$
|
124.5
|
|
$
|
94.2
|
|
$
|
30.3
|
|
|
|
|
|
|
|
|
|
|
|
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 ARCALYST
®
, aflibercept, and VEGF
Trap-Eye in different disease indications.
28
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 in clinical development will
generate material product revenues and net cash inflows. In 2008, we received
FDA approval for ARCALYST
®
for the treatment of
CAPS, a group of rare, inherited auto-inflammatory diseases that affect a very
small group of people. We currently do not expect to generate material product
revenues and net cash inflows from the sale of ARCALYST
®
for the treatment of
CAPS.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses
increased to $14.7 million in the second quarter of 2010 from $11.7 million in
the same period of 2009. In the second quarter of 2010, we incurred higher
compensation expense
due
primarily to increases in headcount, higher Non-cash Compensation Expense, and
higher recruitment costs.
Cost of Goods Sold
Cost of goods sold related to
ARCALYST
®
sales,
which consisted primarily of royalties and other period costs, totaled $0.4
million for both of the quarters ended June 30, 2010 and 2009. To date,
ARCALYST
®
shipments to our customers have consisted of supplies of inventory manufactured
and expensed prior to FDA approval of ARCALYST
®
in February 2008;
therefore, the costs of these supplies were not included in costs of goods
sold.
Other Income and Expense
Investment income decreased to $0.6
million in the second quarter of 2010 from $1.3 million in the comparable
quarter of 2009, primarily due to lower balances of, and lower yields on, cash
and marketable securities and a $0.1 million other-than-temporary impairment
charge. Interest expense of $2.3 million in the second quarter of 2010 was
attributable to the imputed interest portion of payments to our landlord to
lease newly constructed laboratory and office facilities in Tarrytown, New York.
These payments commenced in the third quarter of 2009.
Six Months
Ended June 30, 2010 and 2009
Net Loss
Regeneron reported a net loss of $56.0
million, or $0.69 per share (basic and diluted), for the first half of 2010,
compared to a net loss of $30.3 million, or $0.38 per share (basic and diluted)
for the first half of 2009. The increase in our net loss was principally due to
higher research and development expenses, as detailed below, partly offset by
higher collaboration revenue primarily in connection with our antibody
collaboration with sanofi-aventis.
Revenues
Revenues for the six months ended
June 30, 2010 and 2009 consist of the following:
(In millions)
|
2010
|
|
2009
|
Collaboration revenue
|
|
|
|
|
|
Sanofi-aventis
|
$
|
153.6
|
|
$
|
110.4
|
Bayer HealthCare
|
|
26.7
|
|
|
22.8
|
Total collaboration
revenue
|
|
180.3
|
|
|
133.2
|
Technology licensing revenue
|
|
20.1
|
|
|
20.0
|
Net product sales
|
|
15.0
|
|
|
8.4
|
Contract research and other
revenue
|
|
4.0
|
|
|
3.4
|
Total revenue
|
$
|
219.4
|
|
$
|
165.0
|
|
|
|
|
|
|
29
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.
Sanofi-aventis Collaboration
Revenue
|
|
Six months ended
|
(In millions)
|
June 30,
|
|
2010
|
|
2009
|
Aflibercept:
|
|
|
|
|
|
Regeneron expense reimbursement
|
$
|
8.7
|
|
$
|
14.6
|
Recognition of deferred revenue related to
up-front payments
|
|
5.0
|
|
|
5.0
|
Total aflibercept
|
|
13.7
|
|
|
19.6
|
Antibody:
|
|
|
|
|
|
Regeneron expense
reimbursement
|
|
135.8
|
|
|
84.1
|
Recognition of deferred revenue related to
up-front and other
|
|
|
|
|
|
payments
|
|
3.3
|
|
|
5.3
|
Recognition of revenue related to
VelociGene
®
agreement
|
|
0.8
|
|
|
1.4
|
Total antibody
|
|
139.9
|
|
|
90.8
|
Total sanofi-aventis collaboration
revenue
|
$
|
153.6
|
|
$
|
110.4
|
|
|
|
|
|
|
Sanofi-aventis’ reimbursement of our
aflibercept expenses decreased in the first half of 2010 compared to the same
period in 2009, primarily due to lower costs related to manufacturing
aflibercept clinical supplies as well as a decrease in internal research
activities.
In the first half of 2010, sanofi-aventis’
reimbursement of our antibody expenses consisted of $63.4 million under the
discovery agreement and $72.4 million of development costs under the license
agreement, compared to $51.0 million and $33.1 million, respectively, in the
first half of 2009. The higher reimbursement amounts in the first half of 2010
compared to the same period in 2009 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
primarily to sanofi-aventis’ $85.0 million up-front payment, decreased during
the first half of 2010 compared to the same period in 2009 due to the November
2009 amendments to expand and extend the companies’ antibody
collaboration.
In August 2008, we entered into a separate
VelociGene
®
agreement with sanofi-aventis. For the six
months ended June 30, 2010 and 2009, we recognized $0.8 million and $1.4
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 and recognition of revenue related to a
non-refundable $75.0 million up-front payment received in October 2006 and a
$20.0 million milestone payment received in August 2007 (which, for the purpose
of revenue recognition, was not considered substantive).
Bayer HealthCare Collaboration
Revenue
|
|
Six months ended
|
(In millions)
|
June 30,
|
|
2010
|
|
2009
|
Cost-sharing of Regeneron VEGF Trap-Eye
development expenses
|
$
|
21.8
|
|
$
|
17.9
|
Recognition of deferred revenue related
to up-front and milestone
|
|
|
|
|
|
payments
|
|
4.9
|
|
|
4.9
|
Total Bayer HealthCare collaboration
revenue
|
$
|
26.7
|
|
$
|
22.8
|
|
|
|
|
|
|
30
Cost-sharing of our VEGF Trap-Eye development
expenses with Bayer HealthCare increased in the first half of 2010, compared to
the same period in 2009, due to higher clinical development costs in connection
with our Phase 3 trial in CRVO and Phase 2 trial in DME and higher costs related
to VEGF Trap-Eye clinical drug supplies.
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 the first half of both 2010 and 2009, we recognized
$20.0 million of technology licensing revenue related to these agreements.
Net Product Sales
In February 2008, we received marketing
approval from the FDA for ARCALYST
®
for the treatment of
CAPS. We had limited historical return experience for ARCALYST
®
beginning with initial
sales in 2008 through the end of 2009; therefore, ARCALYST
®
net product sales were
deferred until the right of return no longer existed and rebates could be
reasonably estimated. Effective in the first quarter of 2010, we determined that
we had accumulated sufficient historical data to reasonably estimate both
product returns and rebates of ARCALYST
®
. As a result, for the
six months ended June 30, 2010, we recognized as revenue $15.0 million of
ARCALYST
®
net
product sales, which included $10.2 million of ARCALYST
®
net product sales made
during the period and $4.8 million of previously deferred net product sales. For
the six months ended June 30, 2009, we recognized as revenue $8.4 million of
ARCALYST
®
net
product sales.
Contract Research and Other Revenue
Contract research and other revenue for the
first half of 2010 and 2009 included $2.3 million and $3.0 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 $272.0
million in the first half of 2010 from $198.4 million in the same period of
2009. Our average headcount increased to 1,151 in the first half of 2010 from
952 in the same period of 2009 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 the first half of 2010
and 2009 include a total of $17.5 million and $15.1 million, respectively, of
Non-cash Compensation Expense, as detailed below:
|
For the six months ended June 30,
2010
|
|
Expenses
before
|
|
|
|
|
|
|
|
inclusion of Non-cash
|
|
Non-cash
|
|
|
|
Expenses
|
|
Compensation
|
|
Compensation
|
|
Expenses as
|
(In millions)
|
Expense
|
|
Expense
|
|
Reported
|
Research and development
|
$
|
232.0
|
|
$
|
10.0
|
|
$
|
242.0
|
Selling, general, and
administrative
|
|
21.4
|
|
|
7.5
|
|
|
28.9
|
Cost of goods sold
|
|
1.1
|
|
|
|
|
|
1.1
|
Total operating expenses
|
$
|
254.5
|
|
$
|
17.5
|
|
$
|
272.0
|
|
|
|
|
|
|
|
|
|
31
|
For the six months ended June 30,
2009
|
|
Expenses
before
|
|
|
|
|
|
|
|
inclusion of Non-cash
|
|
Non-cash
|
|
|
|
Expenses
|
|
Compensation
|
|
Compensation
|
|
Expenses as
|
(In millions)
|
Expense
|
|
Expense
|
|
Reported
|
Research and development
|
$
|
165.1
|
|
$
|
9.4
|
|
$
|
174.5
|
Selling, general, and
administrative
|
|
17.4
|
|
|
5.7
|
|
|
23.1
|
Cost of goods sold
|
|
0.8
|
|
|
|
|
|
0.8
|
Total operating expenses
|
$
|
183.3
|
|
$
|
15.1
|
|
$
|
198.4
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development expenses increased to
$242.0 million in the first half of 2010 from $174.5 million in the same period
of 2009. The following table summarizes the major categories of our research and
development expenses for the six months ended June 30, 2010 and 2009:
Research and Development
Expenses
|
|
For the six months
ended June 30,
|
|
|
|
(In millions)
|
2010
|
|
2009
|
|
Increase
|
Payroll and benefits (1)
|
$
|
59.6
|
|
$
|
46.5
|
|
$
|
13.1
|
Clinical trial expenses
|
|
60.8
|
|
|
49.5
|
|
|
11.3
|
Clinical manufacturing costs
(2)
|
|
47.5
|
|
|
27.9
|
|
|
19.6
|
Research and other development
costs
|
|
26.6
|
|
|
18.4
|
|
|
8.2
|
Occupancy and other operating
costs
|
|
24.7
|
|
|
17.4
|
|
|
7.3
|
Cost-sharing of Bayer HealthCare VEGF
Trap-
|
|
|
|
|
|
|
|
|
Eye
development expenses (3)
|
|
22.8
|
|
|
14.8
|
|
|
8.0
|
Total research and development
|
$
|
242.0
|
|
$
|
174.5
|
|
$
|
67.5
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $8.5
million and $8.0 million of Non-cash Compensation Expense for the six
months ended June 30, 2010 and 2009, 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 $1.5 million and $1.4 million of Non-cash Compensation
Expense for the six months ended June 30, 2010 and 2009,
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, principally in connection
with our COPERNICUS trial in CRVO, (ii) ARCALYST
®
, 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 primarily due to higher costs related to
manufacturing clinical supplies of monoclonal antibodies. Research and other
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.
32
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:
Project Costs
|
|
For the six months
ended June 30,
|
|
Increase
|
(In millions)
|
2010
|
|
2009
|
|
(Decrease)
|
ARCALYST
®
|
$
|
31.7
|
|
$
|
33.6
|
|
$
|
(1.9
|
)
|
VEGF Trap-Eye
|
|
64.8
|
|
|
47.8
|
|
|
17.0
|
|
Aflibercept
|
|
6.9
|
|
|
11.7
|
|
|
(4.8
|
)
|
REGN88
|
|
14.7
|
|
|
17.5
|
|
|
(2.8
|
)
|
Other antibody candidates in
clinical
|
|
|
|
|
|
|
|
|
|
development
|
|
50.3
|
|
|
10.0
|
|
|
40.3
|
|
Other research programs &
unallocated costs
|
|
73.6
|
|
|
53.9
|
|
|
19.7
|
|
Total research and development
expenses
|
$
|
242.0
|
|
$
|
174.5
|
|
$
|
67.5
|
|
|
|
|
|
|
|
|
|
|
|
For the reasons described above under
“Research and Development Expenses” for the three months ended June 30, 2010 and
2009, 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 in
clinical development will generate material product revenues and net cash
inflows. In 2008, we received FDA approval for ARCALYST
®
for the treatment of
CAPS, a group of rare, inherited auto-inflammatory diseases that affect a very
small group of people. We currently do not expect to generate material product
revenues and net cash inflows from the sale of ARCALYST
®
for the treatment of
CAPS.
Selling, General, and Administrative Expenses
Selling, general, and administrative expenses
increased to $28.9 million in the first half of 2010 from $23.1 million in the
same period of 2009. In the first half of 2010, we incurred higher compensation
expense
due primarily to increases in headcount,
higher Non-cash Compensation Expense, and higher recruitment costs.
Cost of Goods Sold
Cost of goods sold related to ARCALYST
®
sales, which consisted
primarily of royalties and other period costs, totaled $1.1 million and $0.8
million for the six months ended June 30, 2010 and 2009, respectively. To date,
ARCALYST
®
shipments to our customers have consisted of supplies of inventory manufactured
and expensed prior to FDA approval of ARCALYST
®
in February 2008;
therefore, the costs of these supplies were not included in costs of goods
sold.
Other Income and Expense
Investment income decreased to $1.0
million in the first half of 2010 from $3.1 million in the comparable quarter of
2009, primarily due to lower balances of, and lower yields on, cash and
marketable securities and a $0.1 million other-than-temporary impairment charge.
Interest expense of $4.4 million in the first half of 2010 was attributable to
the imputed interest portion of payments to our landlord to lease newly
constructed laboratory and office facilities in Tarrytown, New York. These
payments commenced in the third quarter of 2009.
33
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 repurchased or 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, our technology licensing
agreements, ARCALYST
®
product revenue, and
investment income.
Six months ended June 30, 2010 and 2009
At June 30, 2010, we had $380.2
million in cash, cash equivalents, restricted cash, and marketable securities
compared with $390.0 million at December 31, 2009. In February 2010, we received
$47.5 million from our landlord in connection with tenant improvement costs for
the new laboratory and office facilities that we lease in Tarrytown, New York.
In addition, in February and June 2010, we received $20.0 million annual
technology licensing payments from AstraZeneca and Astellas, respectively.
Cash Used in Operations:
Net cash used in operations was $22.6 million
in the first six months of 2010 and $16.0 million in the first six months of
2009. Our net losses of $56.0 million in the first half of 2010 and $30.3
million in the first half of 2009 included $17.5 million and $15.1 million,
respectively, of Non-cash Compensation Expense, and $8.7 million and $5.7
million, respectively, of depreciation and amortization.
At June 30, 2010, accounts receivable
increased by $29.6 million, compared to end-of-year 2009, primarily due to a
higher receivable balance related to our antibody collaboration with
sanofi-aventis. Also, our deferred revenue balances at June 30, 2010 increased
by $16.6 million, compared to end-of-year 2009, primarily due to (i) the receipt
of the $20.0 million payments from AstraZeneca and Astellas, as described above,
which were deferred and are being recognized ratably over the ensuing year and
(ii) sanofi-aventis’ funding of $13.8 million of agreed-upon costs incurred by
us during the first half of 2010 to expand our manufacturing capacity at our
Rensselaer facilities, which was deferred and is being recognized as
collaboration revenue prospectively over the related performance period in
conjunction with the original $85.0 million up-front payment received from
sanofi-aventis. These increases were partially offset by amortization of
previously received deferred payments under our sanofi-aventis and Bayer
HealthCare collaborations. At June 30, 2010, accounts payable, accrued expenses,
and other liabilities increased by $18.1 million, compared to end-of-year 2009,
primarily in connection with our expanded levels of activities and expenditures,
including higher liabilities for payroll and related costs and clinical trial
expenses.
At June 30, 2009, accounts receivable
increased by $24.8 million, compared to end-of-year 2008, primarily due to a
higher receivable balance related to our antibody collaboration with
sanofi-aventis. Also, our deferred revenue balances at June 30, 2009 increased
by $5.9 million, compared to end-of-year 2008, primarily due to the receipt of
$20.0 million annual payments from AstraZeneca and Astellas in February and June
2009, respectively, which were deferred and recognized ratably over the ensuing
year. This increase was partially offset by amortization of previously received
deferred payments under our sanofi-aventis and Bayer HealthCare collaborations.
At June 30, 2009, accounts payable, accrued expenses, and other liabilities
increased by $13.0 million compared to end-of-year 2008. The increase was due
primarily to higher liabilities for clinical trial and payroll-related costs,
partially offset by a $9.8 million cost-sharing payment which was due to Bayer
HealthCare at December 31, 2008 in connection with the companies’ VEGF Trap-Eye
collaboration; no cost-sharing payment was due to Bayer HealthCare at June 30,
2009.
Cash (Used in) Provided by Investing
Activities:
Net cash used in investing activities was
$131.4 million in the first six months of 2010 and net cash provided by
investing activities was $32.8 million in the first six months of 2009. In the
first half of 2010, purchases of marketable securities exceeded sales or
maturities by $84.3 million, whereas in the first half of 2009, sales or
maturities of marketable securities exceeded purchases by $85.4 million. Capital
expenditures in the first half of 2010 and 2009 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 leased office
and laboratory facilities in Tarrytown, New York.
34
Cash Provided by Financing Activities:
Net cash provided by financing activities was
$58.9 million in the first six months of 2010 and $6.9 million in the first six
months of 2009. In the first half of 2010 and 2009, we received $47.5 million
and $5.2 million, respectively, from our landlord in connection with tenant
improvement costs for our new Tarrytown facilities, which we recognized as
additional facility lease obligations since we are deemed to own these
facilities in accordance with FASB authoritative guidance. In addition, proceeds
from issuances of Common Stock in connection with exercises of employee stock
options were $12.1 million in the first six months of 2010 and $1.7 million in
the first six months of 2009.
Fair Value of Marketable Securities:
At June 30, 2010 and December 31, 2009, we
held marketable securities whose aggregate fair value totaled $264.8 million and
$181.3 million, respectively. The composition of our portfolio of marketable
securities on these dates was as follows:
|
June 30, 2010
|
|
December 31, 2009
|
Investment type
|
|
Fair Value
|
|
Percent
|
|
Fair Value
|
|
Percent
|
U.S. Treasury securities
|
$
|
25.0
|
|
10%
|
|
$
|
80.4
|
|
44%
|
U.S. government agency
securities
|
|
161.7
|
|
61%
|
|
|
29.6
|
|
16%
|
U.S. government-guaranteed corporate
bonds
|
|
64.0
|
|
24%
|
|
|
48.7
|
|
27%
|
U.S. government guaranteed
collateralized mortgage
|
|
|
|
|
|
|
|
|
|
obligations
|
|
3.0
|
|
1%
|
|
|
3.7
|
|
2%
|
Corporate bonds
|
|
3.1
|
|
1%
|
|
|
10.3
|
|
6%
|
Mortgage-backed securities
|
|
2.0
|
|
1%
|
|
|
3.2
|
|
2%
|
Equity security
|
|
3.8
|
|
1%
|
|
|
5.4
|
|
3%
|
Other
|
|
2.2
|
|
1%
|
|
|
|
|
|
Total
marketable securities
|
$
|
264.8
|
|
100%
|
|
$
|
181.3
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
In addition, at June 30, 2010 and December 31,
2009, we had $115.4 million and $208.7 million, respectively, of cash, cash
equivalents, and restricted cash, primarily held in money market funds that
invest in U.S. government securities.
During 2009 and 2010 to date, as marketable
securities in our portfolio matured or paid down, we purchased higher quality
securities such as U.S. Treasury securities, U.S. government agency obligations,
and U.S. government-guaranteed debt. This shift in our investment portfolio,
which we initiated in 2008, has reduced the risk profile, as well as the overall
yield, of our portfolio.
Funding of Antibody Discovery Activities under Collaboration with
sanofi-aventis
As described above under “Antibody
Collaboration and License Agreements,” in November 2009, we and sanofi-aventis
amended our 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 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 2010, as we scale up our
capacity to conduct antibody discovery activities, we will incur and seek
reimbursement of only $130-$140 million of antibody discovery costs, with the
balance between that amount and $160 million added to the funding otherwise
available to us in 2011-2012. The discovery agreement under the antibody
collaboration will expire at the end of 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.
Extension of License Agreement with Astellas
As described above under “Antibody
Collaboration and License Agreements,” in July 2010, the non-exclusive license
agreement with Astellas was amended and extended through June 2023. Under the
terms of the amended
agreement, Astellas
will make a $165.0 million up-front payment to us, and will make a $130.0
million payment to us in June 2018 unless the license agreement has been
terminated prior to that date.
35
Capital Expenditures:
Our cash expenditures for property, plant, and
equipment totaled $45.3 million and $52.7 million for the first six months of
2010 and 2009, respectively. We expect to incur capital expenditures of
approximately $50 to $70 million during the remainder of 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
leased Tarrytown facilities. As described above, in February 2010, we received
$47.5 million from our landlord in connection with tenant improvement costs in
Tarrytown. In addition, as described above, sanofi-aventis has funded $13.8
million of agreed-upon capital expenditures incurred by us during the first half
of 2010 to expand our manufacturing capacity at our Rensselaer facilities, which
was either received or receivable at June 30, 2010. We expect to be reimbursed
for a portion of additional capital expenditures in 2010 and 2011 for our
Rensselaer facilities by sanofi-aventis, with the remaining amount to be funded
by our existing capital resources.
Funding Requirements:
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
clinical development of product candidates, including ARCALYST
®
, 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 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.
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
®
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 and our non-exclusive license agreement with Astellas, which was
amended in July 2010 as described above, will enable us to meet operating needs
through at least 2013. 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 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.
36
Other than a $3.4 million letter of credit
issued to our landlord in connection with our lease for facilities in Tarrytown,
New York, we have no off-balance sheet arrangements. In addition, we do not
guarantee the obligations of any other entity. As of June 30, 2010, 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 March 2010, the FASB amended its
authoritative guidance on the milestone method of revenue recognition. The
milestone method of revenue recognition has now been codified as an acceptable
revenue recognition model when a milestone is deemed to be substantive. This
guidance may be applied retrospectively to all arrangements or prospectively for
milestones achieved after the adoption of the guidance. We are required to adopt
this amended guidance for the fiscal year beginning January 1, 2011, although
earlier adoption is permitted. Management does not anticipate that the adoption
of this guidance will have a material impact on our financial statements.