Regeneron Pharmaceuticals, Inc.
REGENERON PHARMACEUTICALS INC (Form: 10-Q, Received: 11/05/2013 07:15:11)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q

 
(Mark One)
 
 
(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended   September 30, 2013
 
 
 
 
 
 
OR
 
 
 
 
 
 
( )
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the transition period from __________ to __________
 
 

 
Commission File Number  
0-19034
 
REGENERON PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
New York
 
13-3444607
(State or other jurisdiction of
 
(I.R.S. Employer Identification No.)
incorporation or organization)
 
 
 
 
 
777 Old Saw Mill River Road, Tarrytown, New York
 
10591-6707
(Address of principal executive offices)
 
(Zip Code)
 
 
 
(914) 847-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes 
X
 
No 
 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes 
X
 
No 
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
X   
 
Accelerated filer
 
Non-accelerated filer
 
(Do not check if a smaller reporting company)
Smaller reporting company
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes 
 
 
No 
X
 
Number of shares outstanding of each of the registrant’s classes of common stock as of October 28, 2013:
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
2,028,871
Common Stock, $.001 par value
 
97,389,765



Table of Contents

REGENERON PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

 
 
 
 
Page Numbers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
"ARCALYST ® ," "EYLEA ® ," "ZALTRAP ® ,   “VelocImmune ® ,”   “VelociGene ® ,”   ”VelociMouse ® ,”   “VelociMab ® ,”  and “VelociSuite ®  are trademarks of Regeneron Pharmaceuticals, Inc. Trademarks and trade names of other companies appearing in this report are, to the knowledge of Regeneron Pharmaceuticals, Inc., the property of their respective owners.



2


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except share data)
 
September 30,
 
December 31,
 
2013
 
2012
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
263,211

 
$
230,276

Marketable securities
182,112

 
77,819

Accounts receivable - trade, net
855,844

 
593,207

Accounts receivable from Sanofi
136,980

 
99,913

Deferred tax assets
39,174

 
148,134

Prepaid expenses and other current assets
156,839

 
56,663

Total current assets
1,634,160

 
1,206,012

 
 
 
 
Restricted cash and marketable securities


 
8,186

Marketable securities
329,863

 
271,230

Property, plant, and equipment, at cost, net of accumulated depreciation and amortization
453,891

 
379,940

Deferred tax assets
218,092

 
192,022

Other assets
4,409

 
23,100

Total assets
$
2,640,415

 
$
2,080,490

LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
219,138

 
$
111,345

Deferred revenue from Sanofi, current portion
13,866

 
17,022

Deferred revenue - other, current portion
34,929

 
33,809

Facility lease obligations, current portion
794

 
1,374

Total current liabilities
268,727

 
163,550

 
 
 
 
Deferred revenue from Sanofi
77,670

 
76,520

Deferred revenue - other
111,893

 
131,822

Facility lease obligations
167,219

 
159,436

Convertible senior notes
314,162

 
296,518

Other long-term liabilities
10,573

 
7,259

Total liabilities
950,244

 
835,105

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none


 


Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 2,028,871 at September 30, 2013 and 2,069,187 at December 31, 2012
2

 
2

Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 97,351,157 at September 30, 2013 and 95,223,525 at December 31, 2012
97

 
95

Additional paid-in capital
1,882,421

 
1,763,508

Accumulated deficit
(189,498
)
 
(517,054
)
Accumulated other comprehensive loss
(2,851
)
 
(1,166
)
Total stockholders' equity
1,690,171

 
1,245,385

Total liabilities and stockholders' equity
$
2,640,415

 
$
2,080,490

The accompanying notes are an integral part of the financial statements.

3


Table of Contents

REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
(In thousands, except per share data)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2013
 
2012
 
2013
 
2012
Statements of Operations
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Net product sales
 
$
367,118

 
$
249,172

 
$
1,019,751

 
$
576,622

Sanofi collaboration revenue
 
134,359

 
145,042

 
319,161

 
319,035

Bayer HealthCare collaboration revenue
 
88,583

 
26,701

 
134,594

 
48,308

Technology licensing
 
5,893

 
5,893

 
17,679

 
17,679

Other revenue
 
1,074

 
879

 
3,148

 
2,231

 
 
597,027

 
427,687

 
1,494,333

 
963,875

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Research and development
 
224,045

 
158,295

 
591,807

 
444,530

Selling, general, and administrative
 
97,607

 
46,883

 
247,330

 
153,016

Cost of goods sold
 
28,253

 
20,145

 
83,557

 
54,286

Cost of collaboration manufacturing
 
10,320

 


 
23,684

 

 
 
360,225

 
225,323

 
946,378

 
651,832

 
 
 
 
 
 
 
 
 
Income from operations
 
236,802

 
202,364

 
547,955

 
312,043

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
Investment income
 
618

 
517

 
2,028

 
1,628

Interest expense
 
(11,736
)
 
(11,413
)
 
(34,776
)
 
(33,809
)
 
 
(11,118
)
 
(10,896
)
 
(32,748
)
 
(32,181
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
225,684

 
191,468

 
515,207

 
279,862

 
 
 
 
 
 
 
 
 
Income tax expense
 
(84,378
)
 

 
(187,651
)
 

 
 
 
 
 
 
 
 
 
Net income
 
$
141,306

 
$
191,468

 
$
327,556

 
$
279,862

 
 
 
 
 
 
 
 
 
Net income per share - basic
 
$
1.44

 
$
2.02

 
$
3.36

 
$
2.97

Net income per share - diluted
 
$
1.25

 
$
1.72

 
$
2.95

 
$
2.55

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
 
98,226

 
95,012

 
97,602

 
94,349

Weighted average shares outstanding - diluted
 
116,713

 
115,830

 
115,554

 
109,780

 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
 
 
 
 
Net income
 
$
141,306

 
$
191,468

 
$
327,556

 
$
279,862

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on marketable securities
 
578

 
467

 
(1,685
)
 
(42
)
Comprehensive income
 
$
141,884

 
$
191,935

 
$
325,871

 
$
279,820

 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the financial statements.



4


REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
For the Nine Months Ended September 30, 2013 and 2012
(In thousands)
 
 
Class A Stock
 
Common Stock
 
Additional Paid-in Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2012
 
2,069

 
$
2

 
95,223

 
$
95

 
$
1,763,508

 
$
(517,054
)
 
$
(1,166
)
 
$
1,245,385

Issuance of Common Stock in connection with exercise of stock options
 
 
 
 
 
2,641

 
3

 
42,622

 
 
 
 
 
42,625

Common Stock tendered upon exercise of stock options in connection with employee tax obligations
 
 
 
 
 
(597
)
 
(1
)
 
(166,357
)
 
 
 
 
 
(166,358
)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 
 
 
 
 
38

 
 
 

 
 
 
 
 

Issuance of restricted Common Stock under Long-Term Incentive Plan
 
 
 
 
 
6

 
 
 
 
 
 
 
 
 

Conversion of Class A Stock to Common Stock
 
(40
)
 
 
 
40

 
 
 
 
 
 
 
 
 
 
Stock-based compensation charges
 
 
 
 
 
 
 
 
 
144,808

 
 
 
 
 
144,808

Excess tax benefit from stock-based compensation
 
 
 
 
 
 
 
 
 
97,840

 
 
 
 
 
97,840

Net income
 
 
 
 
 
 
 
 
 
 
 
327,556

 
 
 
327,556

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
(1,685
)
 
(1,685
)
Balance, September 30, 2013
 
2,029

 
$
2


97,351


$
97


$
1,882,421


$
(189,498
)

$
(2,851
)

$
1,690,171

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2011
 
2,109

 
$
2

 
90,692

 
$
91

 
$
1,754,824

 
$
(1,267,323
)
 
$
(1,862
)
 
$
485,732

Issuance of Common Stock in connection with exercise of stock options
 
 
 
 
 
3,773

 
4

 
48,436

 
 
 
 
 
48,440

Common Stock tendered upon exercise of stock options in connection with employee tax obligations
 
 
 
 
 
(639
)
 
(1
)
 
(71,474
)
 
 
 
 
 
(71,475
)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 
 
 
 
 
64

 
 
 

 
 
 
 
 

Issuance of restricted Common Stock under Long-Term Incentive Plan
 
 
 
 
 
500

 
 
 
 
 
 
 
 
 

Conversion of Class A Stock to Common Stock
 
(20
)
 
 
 
20

 
 
 
 
 
 
 
 
 

Stock-based compensation charges
 
 
 
 
 
 
 
 
 
63,507

 
 
 
 
 
63,507

Net income
 
 
 
 
 
 
 
 
 
 
 
279,862

 
 
 
279,862

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
(42
)
 
(42
)
Balance, September 30, 2012
 
2,089

 
$
2


94,410


$
94


$
1,795,293


$
(987,461
)

$
(1,904
)

$
806,024

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes are an integral part of the financial statements.


5


REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Nine months ended
September 30,
 
 
2013
 
2012
Cash flows from operating activities:
 
 
 
 
Net income
 
$
327,556

 
$
279,862

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
29,912

 
27,162

Non-cash compensation expense
 
143,217

 
63,385

Non-cash interest expense
 
17,316

 
17,009

Other non-cash charges and expenses, net
 
15,710

 
13,636

Deferred taxes
 
82,890

 

Changes in assets and liabilities:
 
 
 
 
Increase in Sanofi and trade accounts receivable
 
(299,704
)
 
(498,236
)
Increase in prepaid expenses and other assets
 
(84,109
)
 
(71,244
)
Decrease in deferred revenue
 
(20,815
)
 
(28,605
)
Increase in accounts payable, accrued expenses, and other liabilities
 
94,894

 
29,231

Total adjustments
 
(20,689
)
 
(447,662
)
Net cash provided by (used in) operating activities
 
306,867

 
(167,800
)
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(477,312
)
 
(398,253
)
Sales or maturities of marketable securities
 
319,152

 
260,770

Purchase of restricted cash and marketable securities
 

 
(518
)
Capital expenditures
 
(87,347
)
 
(34,175
)
Net cash used in investing activities
 
(245,507
)
 
(172,176
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Payments in connection with facility and capital lease obligations
 
(1,625
)
 
(1,601
)
Proceeds from issuance of Common Stock
 
41,718

 
48,440

Payments in connection with Common Stock tendered for employee tax obligations
 
(166,358
)
 
(71,475
)
Excess tax benefit from stock-based compensation
 
97,840

 

Net cash used in financing activities
 
(28,425
)
 
(24,636
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
32,935

 
(364,612
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
230,276

 
483,610

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
263,211

 
$
118,998

 
 
 
 
 
The accompanying notes are an integral part of the financial statements.


6


REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)


1. Interim Financial Statements
The interim Condensed Consolidated Financial Statements of Regeneron Pharmaceuticals, Inc. (“Regeneron” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, these financial statements reflect all normal recurring adjustments and accruals necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for such periods. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The December 31, 2012 Condensed Consolidated Balance Sheet data were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Certain reclassifications have been made to prior period amounts to conform with the current period’s presentation.

2. Net Product Sales
EYLEA ® net product sales in the United States totaled $363.1 million and $244.4 million for the three months ended September 30, 2013 and 2012, respectively, and $1,006.8 million and $561.9 million for the nine months ended September 30, 2013 and 2012, respectively. In November 2011, the Company received marketing approval from the U.S. Food and Drug Administration ("FDA") for EYLEA (aflibercept) Injection for the treatment of neovascular age-related macular degeneration ("wet AMD"). In September 2012, the Company received marketing approval from the FDA for EYLEA for the treatment of macular edema following central retinal vein occlusion ("CRVO"). In addition, ARCALYST ® net product sales totaled $4.0 million and $4.8 million for the three months ended September 30, 2013 and 2012, respectively, and $12.9 million and $14.7 million for the nine months ended September 30, 2013 and 2012, respectively.
The Company recorded 75% and 79% for the three months ended September 30, 2013 and 2012, respectively, and 76% and 79% for the nine months ended September 30, 2013 and 2012, respectively, of its total gross product revenue from sales to Besse Medical, a subsidiary of AmerisourceBergen Corporation.
Revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental programs (including Medicaid), distribution-related fees, prompt pay discounts, product returns, and other sales-related deductions. The following table summarizes the provisions, and credits/payments, for these sales-related deductions during the nine months ended September 30, 2013.
 
Rebates &
Chargebacks
 
Distribution-
Related
Fees
 
Other Sales-
Related
Deductions
 
Total
Balance as of December 31, 2012
$
2,983

 
$
15,298

 
$
545

 
$
18,826

Provision related to current period sales
18,216

 
46,428

 
882

 
65,526

Credits/payments
(17,166
)
 
(41,532
)
 
(894
)
 
(59,592
)
Balance as of September 30, 2013
$
4,033

 
$
20,194

 
$
533

 
$
24,760



7


REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

3. Collaboration Revenue
Sanofi Collaboration Revenue
The collaboration revenue the Company earned from Sanofi, as detailed below, consisted primarily of reimbursement for research and development expenses that the Company incurred, the Company's share of losses in connection with Sanofi's commercialization of ZALTRAP ® , recognition of a substantive milestone payment in the third quarter of 2012 related to FDA approval of ZALTRAP, and revenue related to non-refundable up-front payments.
In addition, Sanofi collaboration revenue for the nine months ended September 30, 2013 was reduced by two $10.0 million up-front payments to Sanofi in connection with the Company's acquisition from Sanofi of full exclusive rights to two families of novel antibodies, as described below.
 
 
Three months ended
September 30,
Sanofi Collaboration Revenue
 
2013
 
2012
ZALTRAP:
 
 
 
 
Regeneron's share of losses in connection with commercialization of ZALTRAP
 
$
(6,575
)
 
$
(7,390
)
Substantive milestone payment
 


 
50,000

Reimbursement of Regeneron research and development and other expenses
 
2,557

 
2,079

Recognition of deferred revenue related to up-front payments
 
1,384

 
2,889

Total ZALTRAP
 
(2,634
)
 
47,578

Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
134,432

 
94,903

Recognition of deferred revenue related to up-front and other payments
 
2,162

 
2,162

Recognition of revenue related to VelociGene ®  agreement
 
399

 
399

Total Antibody
 
136,993

 
97,464

Total Sanofi collaboration revenue
 
$
134,359

 
$
145,042


8



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

 
 
Nine months ended September 30,
Sanofi Collaboration Revenue
 
2013
 
2012
ZALTRAP:
 
 
 
 
Regeneron's share of losses in connection with commercialization of ZALTRAP
 
$
(22,581
)
 
$
(19,525
)
Substantive milestone payment
 


 
50,000

Reimbursement of Regeneron research and development and other expenses
 
7,955

 
9,124

Recognition of deferred revenue related to up-front payments
 
4,152

 
8,260

Total ZALTRAP
 
(10,474
)
 
47,859

Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
341,952

 
263,504

Up-front payments to Sanofi for acquisition of rights related to two antibodies
 
(20,000
)
 


Recognition of deferred revenue related to up-front and other payments
 
6,486

 
6,475

Recognition of revenue related to VelociGene  agreement
 
1,197

 
1,197

Total Antibody
 
329,635

 
271,176

Total Sanofi collaboration revenue
 
$
319,161

 
$
319,035

Sanofi commenced sales of ZALTRAP (ziv-aflibercept) Injection for Intravenous Infusion, in combination with 5-fluorouracil, leucovorin, irinotecan ("FOLFIRI"), for patients with metastatic colorectal cancer (“mCRC”) that is resistant to or has progressed following an oxaliplatin-containing regimen, in the United States in the third quarter of 2012 and in certain European and other countries in the first quarter of 2013. The Company and Sanofi globally collaborate on the development and commercialization of ZALTRAP. Under the terms of the companies' September 2003 collaboration agreement, as amended, Regeneron and Sanofi share co-promotion rights and profits and losses on sales of ZALTRAP outside of Japan. In Japan, the Company is entitled to a royalty on sales of ZALTRAP.
Acquisition from Sanofi of Rights to PDGF and Ang2 in Ophthalmology
In May 2013, the Company acquired from Sanofi full exclusive rights to two families of novel antibodies invented at Regeneron and previously included in the Company's antibody collaboration with Sanofi. The Company acquired full rights to antibodies targeting the PDGF (platelet derived growth factor) family of receptors and ligands in ophthalmology and all other indications and to antibodies targeting the Ang2 (angiopoietin-2) receptor and ligand in ophthalmology. Antibodies to the PDGF receptor and Ang2 are currently in preclinical development for use in ophthalmology.
With respect to PDGF antibodies, the Company made a $10.0 million up-front payment to Sanofi in the second quarter of 2013, and is obligated to pay up to $40 million in potential development milestone payments and royalties on any future sales. With respect to Ang2 antibodies in ophthalmology, the Company also made a $10.0 million up-front payment to Sanofi in the second quarter of 2013, and is obligated to pay a potential $5 million development milestone payment and royalties on any future sales.
Bayer HealthCare Collaboration Revenue
Bayer HealthCare commenced sales of EYLEA for the treatment of wet AMD in the fourth quarter of 2012 following receipt of regulatory approvals in the European Union and other regions. The Company and Bayer HealthCare globally collaborate on the development and commercialization of EYLEA outside of the United States.

9



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

The collaboration revenue the Company earned from Bayer HealthCare is detailed below:
 
 
Three months ended
September 30,
Bayer HealthCare Collaboration Revenue
 
2013
 
2012
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
31,769

 


Sales and substantive development milestone payments
 
45,000

 
$
15,000

Cost-sharing of Regeneron EYLEA development expenses
 
4,844

 
9,724

Reimbursement of other Regeneron EYLEA expenses
 
4,993

 


Recognition of deferred revenue related to up-front and other milestone payments
 
1,977

 
1,977

 
 
$
88,583

 
$
26,701

 
 
Nine months ended
September 30,
Bayer HealthCare Collaboration Revenue
 
2013
 
2012
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
57,186

 
 
Sales and substantive development milestone payments
 
45,000

 
$
15,000

Cost-sharing of Regeneron EYLEA development expenses
 
14,482

 
27,377

Reimbursement of other Regeneron EYLEA expenses
 
11,995

 
 
Recognition of deferred revenue related to up-front and other milestone payments
 
5,931

 
5,931

 
 
$
134,594

 
$
48,308


In the third quarter of 2013, the Company earned a $15.0 million substantive development milestone payment from Bayer HealthCare upon receipt of marketing approval in the European Union for EYLEA for the treatment of macular edema secondary to CRVO. In addition, the Company earned, and recorded as revenue in the third quarter of 2013, two $15.0 million sales milestone payments from Bayer HealthCare upon total aggregate net sales of EYLEA outside the United States exceeding $200 million and $300 million , respectively, over a twelve -month period. In the third quarter of 2012, the Company earned a $15.0 million substantive development milestone payment from Bayer HealthCare upon receipt of marketing approval in Japan for EYLEA for the treatment of wet AMD. The Company may receive an additional $10 million milestone payment related to pricing approval of EYLEA for CRVO in the first major market country outside the United States, and can earn up to $105 million in additional sales milestone payments if twelve -month net sales of EYLEA outside the United States achieve certain specified levels up to $1 billion .


10



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

4. Net Income Per Share
The Company’s basic net income per share amounts have been computed by dividing net income by the weighted average number of shares of Common Stock and Class A Stock outstanding. Net income per share is presented on a combined basis, inclusive of Common Stock and Class A Stock outstanding, as each class of stock has equivalent economic rights. Diluted net income per share includes the potential dilutive effect of other securities as if such securities were converted or exercised during the period, when the effect is dilutive. The calculations of basic and diluted net income per share are as follows:
 
 
Three Months Ended
 
 
September 30,
 
 
2013
 
2012
Net income - basic
 
$
141,306

 
$
191,468

Effect of dilutive securities:
 
 
 
 
Convertible senior notes - interest expense related to contractual coupon interest rate and amortization of discount and note issuance costs
 
4,678

 
7,374

Net income - diluted
 
$
145,984

 
$
198,842

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
98,226

 
95,012

Effect of dilutive securities:
 
 
 
 
Stock options
 
10,379

 
14,106

Restricted stock
 
462

 
797

Convertible senior notes
 
4,761

 
4,761

Warrants
 
2,885

 
1,154

Dilutive potential shares
 
18,487

 
20,818

Weighted average shares - diluted
 
116,713

 
115,830

 
 
 
 
 
Net income per share - basic
 
$
1.44

 
$
2.02

Net income per share - diluted
 
$
1.25

 
$
1.72


11



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

 
 
Nine Months Ended
 
 
September 30,
 
 
2013
 
2012
Net income - basic
 
$
327,556

 
$
279,862

Effect of dilutive securities:
 
 
 
 
Convertible senior notes - interest expense related to contractual coupon interest rate and amortization of discount and note issuance costs
 
13,857

 


Net income - diluted
 
$
341,413

 
$
279,862

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
97,602

 
94,349

Effect of dilutive securities:
 
 
 
 
Stock options
 
10,220

 
14,080

Restricted stock
 
415

 
699

Convertible senior notes
 
4,761

 


Warrants
 
2,556

 
652

Dilutive potential shares
 
17,952

 
15,431

Weighted average shares - diluted
 
115,554

 
109,780

 
 
 
 
 
Net income per share - basic
 
$
3.36

 
$
2.97

Net income per share - diluted
 
$
2.95

 
$
2.55

Shares which have been excluded from the September 30, 2013 and 2012 diluted per share amounts because their effect would have been antidilutive, include the following:
 
 
Three Months Ended
 
 
September 30,
(Shares in thousands)
 
2013
 
2012
Stock options
 
135

 
175

 
 
Nine Months Ended
 
 
September 30,
(Shares in thousands)
 
2013
 
2012
Stock options
 
1,265

 
91

Convertible senior notes
 


 
4,761


5. Marketable Securities
Marketable securities at September 30, 2013 and December 31, 2012 consist of debt and equity securities primarily issued by investment grade institutions. The Company also held restricted marketable securities at December 31, 2012, which consisted of debt securities, as detailed below, that collateralized letters of credit and lease obligations. During the second quarter of 2013, these collateral requirements were rescinded, either due to cancellation of the associated letter of credit or easing of lender requirements on the Company. As a result, during the second quarter of 2013, all formerly restricted marketable securities were reclassified as unrestricted on the Company's balance sheet which, for the purpose of the Company's Statement of Cash Flows, was treated as a non-cash investing transaction.

12



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

The following tables summarize the Company's investments in marketable securities at September 30, 2013 and December 31, 2012.
 
 
Amortized
 
Unrealized
 
Fair
At September 30, 2013
 
Cost Basis
 
Gains
 
Losses
 
Value
Unrestricted
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
 
$
106,788

 
$
55

 
$
(54
)
 
$
106,789

Corporate bonds
 
303,206

 
128

 
(140
)
 
303,194

Commercial paper
 
57,046

 
72

 


 
57,118

Municipal bonds
 
26,798

 
34

 
(9
)
 
26,823

International government agency obligations
 
8,308

 


 
(4
)
 
8,304

Certificates of deposit
 
7,503

 
2

 


 
7,505

Equity securities
 
4,044

 


 
(1,802
)
 
2,242

 
 
$
513,693

 
$
291

 
$
(2,009
)
 
$
511,975

At December 31, 2012
 
 
 
 
 
 
 
 
Unrestricted
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
 
$
327,502

 
$
661

 
$
(17
)
 
$
328,146

Municipal bonds
 
17,542

 


 
(32
)
 
17,510

Equity securities
 
4,044

 

 
(651
)
 
3,393

 
 
349,088

 
661

 
(700
)
 
349,049

Restricted
 
 
 
 
 
 
 
 
U.S. government obligations
 
5,902

 
9

 
(2
)
 
5,909

 
 
$
354,990

 
$
670

 
$
(702
)
 
$
354,958

The Company classifies its debt securities based on their contractual maturity dates. The debt securities listed at September 30, 2013 mature at various dates through August 2024. The fair values of debt security investments by contractual maturity as of September 30, 2013 and December 31, 2012 consist of the following:
 
 
September 30,
 
December 31,
 
 
2013
 
2012
Unrestricted
 
 
 
 
Maturities within one year
 
$
182,112

 
$
77,819

Maturities after one year through five years
 
322,314

 
267,837

Maturities after five years through ten years
 
4,132

 


Maturities after ten years
 
1,175

 


 
 
509,733

 
345,656

Restricted
 
 
 
 
Maturities within one year
 


 
2,781

Maturities after one year through five years
 


 
3,128

 
 

 
5,909

 
 
$
509,733

 
$
351,565


13



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

The following table shows the fair value of the Company’s marketable securities that have unrealized losses and that are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at September 30, 2013 and December 31, 2012.
 
Less than 12 Months
 
12 Months or Greater
 
Total
At September 30, 2013
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Unrestricted
 
 
 
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
$
57,612

 
$
(54
)
 
 
 
 
 
$
57,612

 
$
(54
)
Corporate bonds
157,200

 
(140
)
 
 
 
 
 
157,200

 
(140
)
Municipal bonds
7,504

 
(9
)
 
 
 
 
 
7,504

 
(9
)
International government agency obligations
8,303

 
(4
)
 
 
 
 
 
8,303

 
(4
)
Equity securities
 
 
 
 
$
2,242

 
$
(1,802
)
 
2,242

 
(1,802
)
 
$
230,619

 
$
(207
)
 
$
2,242

 
$
(1,802
)
 
$
232,861

 
$
(2,009
)
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Unrestricted
 
 
 
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
$
44,738

 
$
(17
)
 
 
 
 
 
$
44,738

 
$
(17
)
Municipal bonds
17,510

 
(32
)
 
 
 
 
 
17,510

 
(32
)
Equity securities


 


 
$
3,393

 
$
(651
)
 
3,393

 
(651
)
 
62,248

 
(49
)
 
3,393

 
(651
)
 
65,641

 
(700
)
Restricted
 
 
 
 
 
 
 
 
 
 
 
U.S. government obligations
1,194

 
(2
)
 


 


 
1,194

 
(2
)
 
$
63,442

 
$
(51
)
 
$
3,393

 
$
(651
)
 
$
66,835

 
$
(702
)

Realized gains and losses are included as a component of investment income. For the three and nine months ended September 30, 2013 , total realized gains on sales of marketable securities were $0.5 million and $1.0 million respectively, and there were no realized losses. For both the three and nine months ended September 30, 2012, total realized gains and losses on sales of marketable securities were not material.


14



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

6. Fair Value Measurements
The Company’s assets that are measured at fair value on a recurring basis , at September 30, 2013 and December 31, 2012, consist of the following:
 
 
 
Fair Value Measurements at Reporting Date Using
At September 30, 2013
Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
Unrestricted
 
 
 
 
 
Available-for-sale marketable securities:
 
 
 
 
 
U.S. government and government agency obligations
$
106,789

 
 
 
$
106,789

Corporate bonds
303,194

 
 
 
303,194

Commercial paper
57,118

 
 
 
57,118

Municipal bonds
26,823

 
 
 
26,823

International government agency obligations
8,304

 
 
 
8,304

Certificates of deposit
7,505

 
 
 
7,505

Equity securities
2,242

 
$
2,242

 
 
 
$
511,975

 
$
2,242


$
509,733

 
 
 
 
 
 
At December 31, 2012
 
 
 
 
 
Unrestricted
 
 
 
 
 
Available-for-sale marketable securities:
 
 
 
 
 
U.S. government and government agency obligations
$
328,146

 
 
 
$
328,146

Municipal bonds
17,510

 
 
 
17,510

Equity securities
3,393

 
$
3,393

 
 
 
349,049

 
3,393

 
345,656

Restricted
 
 
 
 
 
Available-for-sale marketable securities:
 
 
 
 
 
U.S. government obligations
5,909

 
 
 
5,909

 
$
354,958

 
$
3,393

 
$
351,565


Marketable securities included in Level 2 were valued using a market approach utilizing prices and other relevant information, such as interest rates, yield curves, prepayment speeds, loss severities, credit risks, and default rates, generated by market transactions involving identical or comparable assets. The Company considers market liquidity in determining the fair value for these securities. The Company did not record any charges for other-than-temporary impairment of its Level 2 marketable securities during the three and nine months ended September 30, 2013 and 2012.


15



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

In 2012 and through the six months ended June 30, 2013, the Company held only one Level 3 marketable security whose cost basis was zero , as the security had been fully impaired prior to 2012. During the three months ended September 30, 2013, the Company sold this Level 3 marketable security and realized a $0.4 million gain on its sale. There were no purchases or maturities of Level 3 marketable securities and no unrealized gains or losses related to Level 3 marketable securities for the three and nine months ended September 30, 2013 and 2012. There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the three and nine months ended September 30, 2013 and 2012. At September 30, 2013, the Company held no Level 3 marketable securities.
As of September 30, 2013 and December 31, 2012, the Company had $400.0 million in aggregate principal amount of 1.875% convertible senior notes that will mature on October 1, 2016 unless earlier converted or repurchased. The fair value of the outstanding convertible senior notes was estimated to be $1,486.4 million and $843.2 million as of September 30, 2013 and December 31, 2012, respectively, and was determined based on Level 2 inputs.

7. Inventory
Inventory, which was included in prepaid expenses and other current assets in the Company's balance sheets, consists of the following:
 
September 30,
 
December 31,
 
2013
 
2012
Raw materials
$
5,225

 
$
4,862

Work-in-process
34,837

 
14,656

Finished goods
12,322

 
2,570

Deferred costs
10,908

 
6,550

 
$
63,292

 
$
28,638


Deferred costs represent the costs of product manufactured and shipped to the Company's collaborators for which recognition of revenue has been deferred.
As of September 30, 2013 and December 31, 2012, inventory included reserves of $5.1 million and $3.6 million , respectively. For the nine months ended September 30, 2013 and 2012, cost of goods sold included inventory write-downs and reserves totaling $4.8 million and $8.6 million , respectively. For the three months ended September 30, 2013 and 2012, inventory write-downs and reserves included in cost of goods sold were not material.

8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
 
September 30,
 
December 31,
 
2013
 
2012
Accounts payable
$
31,194

 
$
38,934

Accrued payroll and related costs
68,928

 
19,987

Accrued clinical trial expense
24,407

 
10,985

Accrued sales-related charges, deductions, and royalties
56,290

 
21,870

Other accrued expenses and liabilities
38,319

 
19,569

 
$
219,138

 
$
111,345


16



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

With respect to non-cash investing activities in connection with the Company's Statements of Cash Flows, included in accounts payable and accrued expenses at September 30, 2013 and December 31, 2012 were $18.4 million and $8.6 million , respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at September 30, 2012 and December 31, 2011 were $7.0 million and $6.2 million , respectively, of accrued capital expenditures.

9. Leases
In April 2013, the Company entered into a new lease agreement for additional laboratory and office space to be constructed in two new buildings (the "Buildings"), which are expected to be completed in late 2015, at the Company's current Tarrytown, New York location. The initial term of the lease, which is expected to commence in mid-2014, is approximately 15 years and contains three renewal options to extend the term of the lease by five years each. The lease provides for (i) monthly payments over its term, which will be based on the landlord's costs of construction and tenant allowances, and (ii) additional charges for utilities, taxes, and operating expenses. Based upon various factors, including the Company's involvement in the Buildings' construction and its responsibility for directly paying for a substantial portion of tenant improvements, the Company is deemed, in substance, to be the owner of the landlord's Buildings in accordance with the application of FASB authoritative guidance. Consequently, in addition to capitalizing the tenant improvements, the Company capitalizes the landlord's costs of constructing these new facilities, offset by a corresponding lease obligation on the Company's balance sheet. The Company will allocate a portion of its future lease payments to the Buildings and the land on which the Buildings are being constructed. The land element of the lease is treated for accounting purposes as an operating lease.
Commencing in the second quarter of 2013, the Company began capitalizing the landlord's costs of constructing the new Buildings, which totaled $7.7 million at September 30, 2013, and recognized a corresponding facility lease obligation of $7.7 million . Such amounts were included as a non-cash activity within the Company's Condensed Consolidated Statements of Cash Flows. Rent expense in connection with the land element of these new facilities commenced in April 2013 and is recorded as a deferred liability until lease payments commence in mid-2014.
In April 2013, the Company also executed an early renewal of certain laboratory and office space that it currently leases at its Tarrytown location. The early renewal extended the term of the lease from June 2024 to June 2029.

10. Income Taxes
The Company is subject to U.S. federal, state, and foreign income taxes. The Company's effective tax rate for the three and nine months ended September 30, 2013 was 37.4% and 36.4% , respectively. The nine month effective tax rate included, as a discrete item, the favorable impact of the enactment of The American Taxpayer Relief Act in January 2013. The American Taxpayer Relief Act included a provision to extend the income tax credit for increased research activities retroactively to the tax year ended December 31, 2012, as well as for 2013. As a result, the Company's 2012 research tax credit reduced its effective tax rate for the nine months ended September 30, 2013 by 4.3% .
For the three and nine months ended September 30, 2013, the Company recorded an income tax provision of $84.4 million and $187.7 million , respectively.
For the three and nine months ended September 30, 2012, income tax expense relating to the Company's pre-tax income was fully offset by a reversal of a portion of the Company's valuation allowance. As of September 30, 2012, the Company continued to recognize a full valuation allowance against its net operating loss carry-forward and other deferred tax assets since the Company had an extended history of losses. In the fourth quarter of 2012, the Company recorded an income tax benefit attributable to the release of substantially all of the remaining valuation allowance against the Company's deferred tax assets. The decision to release this valuation allowance was made after the Company determined that it was more likely than not that these deferred tax assets would be realized.
Tax years subsequent to 2009 remain open to examination by federal tax authorities. In addition, New York State has commenced an examination of the Company's 2009, 2010, and 2011 tax years.


17



REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in thousands, except per share data)

11. Legal Matters
From time to time, the Company is a party to legal proceedings in the course of the Company’s business. The Company does not expect any such current legal proceedings to have a material adverse effect on the Company’s business or financial condition. Costs associated with the Company’s involvement in legal proceedings are expensed as incurred.
License and Settlement Agreements with Genentech
On December 31, 2011, the Company entered into a Non-Exclusive License and Partial Settlement Agreement with Genentech (the "Original Genentech Agreement") that covered making, using, and selling EYLEA in the United States for the prevention and treatment of human eye diseases and disorders in the United States, and ended the litigation relating to those matters. Under the Original Genentech Agreement, the Company received a non-exclusive license to the Davis-Smyth patents, and certain other patents owned or co-owned by Genentech. The Original Genentech Agreement did not cover any non-U.S. patent rights or non-U.S. patent disputes, and did not cover any use of aflibercept other than for prevention and treatment of human eye diseases and disorders in the United States. The Original Genentech Agreement provided for the Company to make payments to Genentech based on U.S. sales of EYLEA through May 7, 2016, the date the Davis-Smyth patents expire. Under the Original Genentech Agreement, the Company made a $60.0 million payment when cumulative U.S. sales of EYLEA reached $400 million , and is obligated to pay royalties of 4.75% on cumulative relevant sales of EYLEA between $400 million and $3 billion and 5.5% on any cumulative relevant sales of EYLEA over $3 billion .
Effective May 17, 2013, the Company entered into an Amended and Restated Non-Exclusive License and Settlement Agreement with Genentech (the "Amended Genentech Agreement"), which amended the Original Genentech Agreement to now include all sales of EYLEA worldwide and ended the litigation relating to those matters. Under the Amended Genentech Agreement, the Company received a worldwide non-exclusive license to the Davis-Smyth patents, and certain other patents, owned or co-owned by Genentech for the prevention or treatment of eye diseases and eye disorders in a human through administration of EYLEA to the eye. Under the Amended Genentech Agreement, the Company is obligated to make payments to Genentech based on sales of EYLEA in the United States, and EYLEA manufactured in the United States and sold outside the United States, through May 7, 2016 using the same milestone and royalty rates as in the Original Genentech Agreement. EYLEA is sold outside the United States by affiliates of Bayer HealthCare under the Company's license and collaboration agreement. All payments to Genentech under the Original Genentech Agreement and the Amended Genentech Agreement have been or will be made by the Company. Bayer HealthCare will share in all such payments based on the proportion of ex-U.S. EYLEA sales to worldwide EYLEA sales and determined consistent with the license and collaboration agreement.
Also on May 17, 2013, the Company entered into a Non-Exclusive License and Settlement Agreement (the "ZALTRAP Agreement") with Genentech and Sanofi under which the Company and Sanofi received a worldwide non-exclusive license to the Davis-Smyth patents, and certain other patents, in all indications for human use other than the prevention or treatment of eye diseases and eye disorders through administration to the eye. Under the terms of the ZALTRAP Agreement, payments are required to be made to Genentech based on sales of ZALTRAP in the United States and of ZALTRAP that is manufactured in the United States and sold outside the United States through May 7, 2016. A payment of $19 million is required to be made upon cumulative relevant sales of ZALTRAP reaching $200 million . In addition, royalty payments are required to be made to Genentech based upon 4.5% of cumulative relevant sales of ZALTRAP between $400 million and $1 billion and 6.5% of any cumulative relevant sales of ZALTRAP over $1 billion . All payments to Genentech under the ZALTRAP Agreement will be made by Sanofi, and the Company will share in all such payments.


18



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. ("Regeneron," "Company", "we," "us," and "our"), and actual events or results may differ materially from these forward-looking statements. Words such as "anticipate," "expect," "intend," "plan," "believe," "seeks," "estimate," variations of such words, and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of EYLEA ® , ZALTRAP ® , and ARCALYST ® and our product candidates, potential new indications for marketed products, and research and clinical programs now underway or planned; the likelihood and timing of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for marketed products; ongoing regulatory obligations and oversight impacting our research and clinical programs and business; determinations by regulatory and administrative governmental authorities which may delay or restrict our ability to continue to develop or commercialize EYLEA, ZALTRAP, and ARCALYST and other product candidates and possible new indications for marketed products; our ability to manufacture and manage supply chains for multiple products and product candidates; competing drugs and product candidates that may be superior to EYLEA, ZALTRAP, and ARCALYST and our product candidates and possible new indications for marketed products; uncertainty of market acceptance and commercial success of EYLEA, ZALTRAP, and ARCALYST and our product candidates and possible new indications for marketed products; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unforeseen safety issues resulting from the administration of products and product candidates in patients, including serious complications or side effects in connection with the use of our product candidates in clinical trials; unanticipated expenses; the costs of developing, producing, and selling products; our ability to meet any of our financial projections or guidance and changes to the assumptions underlying those projections or guidance; the potential for any license or collaboration agreement, including our agreements with Sanofi and Bayer HealthCare LLC, to be canceled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto. These statements are made by us based on management's current beliefs and judgment, and the reader is cautioned not to rely on any such statements. In evaluating such statements, shareholders and potential investors should specifically consider the various factors identified under the caption “Risk Factors” which could cause actual events and 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.
Overview
Regeneron Pharmaceuticals, Inc. is a fully integrated biopharmaceutical company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions. Our total revenues were $597.0 million in the third quarter and $1,494.3 million in the first nine months of 2013, compared to $427.7 million in the third quarter and $963.9 million in the first nine months of 2012. Total revenues in the third quarter and first nine months of 2013 included a $15.0 million substantive milestone payment from Bayer HealthCare related to the first marketing approval for EYLEA ® for macular edema secondary to central retinal vein occlusion (CRVO) outside the United States, as well as two $15.0 million sales milestone payments from Bayer HealthCare upon total aggregate net sales of EYLEA outside the United States exceeding $200 million and $300 million, respectively, over a twelve month period. Total revenues in both the third quarter and first nine months of 2012 included a $50 million milestone payment from Sanofi and a $15 million milestone payment from Bayer HealthCare in connection with regulatory approvals of ZALTRAP ® and EYLEA, respectively. Our net income was $141.3 million , or $1.25 per diluted share, in the third quarter and $327.6 million , or $2.95 per diluted share, in the first nine months of 2013, compared to net income of $191.5 million , or $1.72 per diluted share, in the third quarter and $279.9 million , or $2.55 per diluted share, in the first nine months of 2012.
We currently have three marketed products:
EYLEA (aflibercept) Injection, known in the scientific literature as VEGF Trap-Eye, which is available in the United States for the treatment of neovascular age-related macular degeneration (wet AMD) and macular edema following CRVO, and in the United Kingdom, Germany, Switzerland, Australia, Japan, and certain other countries for the treatment of wet AMD. Net product sales of EYLEA in the United States were $363.1 million in the third quarter and $1,006.8 million in the first nine months of 2013, compared to $244.4 million in the third quarter and $561.9 million in the first nine months of 2012. Bayer HealthCare records revenue from sales of EYLEA outside the United States. EYLEA net product sales outside of the United States commenced in the fourth quarter of 2012, and were $124.8 million in the third quarter and $288.3 million in the first nine months of 2013.


19


Table of Contents

We commenced sales of EYLEA for the treatment of wet AMD in November 2011 and for the treatment of macular edema following CRVO in September 2012, following receipt of regulatory approval in the United States. Bayer HealthCare commenced sales of EYLEA for the treatment of wet AMD in the fourth quarter of 2012 following receipt of regulatory approvals in the European Union (EU) and other regions. The European Commission approved EYLEA for the treatment of visual impairment due to macular edema secondary to CRVO in the third quarter of 2013. Bayer HealthCare has additional regulatory applications for EYLEA for the treatment of wet AMD and macular edema secondary to CRVO pending in other countries.
In August 2013, we and Bayer HealthCare announced positive week 52 results from the Phase 3 VISTA-DME and VIVID-DME trials of EYLEA for the treatment of diabetic macular edema (DME), as described below under “Clinical Programs: EYLEA - Ophthalmologic Diseases. ” Based on the positive results of these studies, we have recently submitted a supplemental Biologics License Application (BLA) for U.S. regulatory approval of EYLEA in DME. Bayer HealthCare plans to submit an application for marketing approval for the treatment of DME in the EU by the end of 2013.
In October 2013, we announced positive week 24 results from the Phase 3 VIBRANT trial of EYLEA for the treatment of macular edema following branch retinal vein occlusion (BRVO), as described below under “Clinical Programs: EYLEA - Ophthalmologic Diseases. ” We expect to submit an application for U.S. marketing approval for the treatment of macular edema following BRVO within the next several months.
We are collaborating with Bayer HealthCare on the global development and commercialization of EYLEA outside the United States. Bayer HealthCare markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally the profits and losses from sales of EYLEA. In Japan, we are entitled to a royalty on sales of EYLEA, as described below. We maintain exclusive rights to EYLEA in the United States and are entitled to all profits from any such sales.
ZALTRAP (ziv-aflibercept) Injection for Intravenous Infusion, known in the scientific literature as VEGF Trap, which is available in the United States for treatment, in combination with 5-fluorouracil, leucovorin, irinotecan (FOLFIRI), of patients with metastatic colorectal cancer (mCRC) that is resistant to or has progressed following an oxaliplatin-containing regimen. In February 2013, the European Commission granted marketing authorization in the EU for ZALTRAP 25mg/ml concentrate for solution for infusion in combination with FOLFIRI chemotherapy in adults with mCRC that is resistant to or has progressed after an oxaliplatin-containing regimen. Regulatory applications for marketing authorization of ZALTRAP for the treatment of previously treated mCRC patients in other countries have also been submitted and are currently under review by the respective regulatory agencies.
We and Sanofi globally collaborate on the development and commercialization of ZALTRAP, and share profits and losses from commercialization of ZALTRAP, except for Japan, where we are entitled to a royalty on sales of ZALTRAP, as described below. ZALTRAP net product sales, which are recorded by Sanofi, commenced in the United States in August 2012 and in Europe in the first quarter of 2013, and were $17.8 million in the third quarter and $50.5 million in the first nine months of 2013.
ARCALYST ® (rilonacept) Injection for Subcutaneous Use, which is available 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. CAPS are 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.
Net product sales of ARCALYST totaled $4.0 million in the third quarter and $12.9 million in the first nine months of 2013, compared to $4.8 million in the third quarter and $14.7 million in the first nine months of 2012.
We have 15 product candidates in clinical development, all of which were discovered in our research laboratories. Our Trap-based clinical programs are:
EYLEA, which is in clinical trials for the treatment of DME in collaboration with Bayer HealthCare and macular edema following BRVO; and
ZALTRAP, which is being studied in combination with our angiopoietin-2 inhibitor (nesvacumab) in oncology in collaboration with Sanofi.

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Our antibody-based clinical programs include 13 fully human monoclonal antibody product candidates. The following seven are being developed in collaboration with Sanofi:
Sarilumab (REGN88), an antibody to the interleukin-6 receptor (IL-6R), which is being developed in rheumatoid arthritis and non-infectious uveitis;
Alirocumab (REGN727), an antibody to Proprotein Convertase Subtilisin/Kexin type 9 (PCSK9), which is being developed for low-density lipoprotein (LDL) cholesterol reduction;
Dupilumab (REGN668), an antibody to the interleukin-4 receptor (IL-4R), which is being developed in atopic dermatitis, asthma, and nasal polyposis;
Enoticumab (REGN421), an antibody to Delta-like ligand-4 (Dll4), a novel angiogenesis target, which is being developed in oncology;
Nesvacumab (REGN910), an antibody to angiopoietin-2 (Ang2), another novel angiogenesis target, which is being developed in oncology;
REGN1033, an antibody to myostatin (GDF8), which is being developed in metabolic disorders; and
REGN2009, an antibody in clinical development against an undisclosed target.
In addition, we are developing the following six antibody product candidates independently:
REGN1400, an antibody to ErbB3, which is being developed in oncology;
REGN1154, an antibody in clinical development against an undisclosed target;
REGN1500, an antibody in clinical development against an undisclosed target;
REGN1193, an antibody in clinical development against an undisclosed target;
REGN1908-1909, an antibody combination in clinical development against an undisclosed target; and
Fasinumab (REGN475), an antibody to Nerve Growth Factor (NGF), which is being developed for the treatment of pain and is currently on clinical hold by the FDA.
Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technologies, and to combine that foundation with our clinical development, manufacturing, and commercial capabilities. Our long-term objective is to build a successful, integrated, multi-product biopharmaceutical company that provides patients and medical professionals with innovative options for preventing and treating human diseases.
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 discover and produce new product candidates directed against the disease target. Our antibody product candidates currently in clinical trials were developed using VelocImmune . We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, manufacture, and commercialize new product candidates.
Clinical Programs:
1. EYLEA - Ophthalmologic Diseases
Vascular Endothelial Growth Factor (VEGF) is a naturally occurring protein in the body. Its normal role in a healthy organism is to trigger formation of new blood vessels (angiogenesis) supporting the growth of the body's tissues and organs. However, in certain diseases, such as wet AMD, it is also associated with the growth of abnormal new blood vessels in the eye, which exhibit abnormal increased permeability that leads to edema. Scarring and loss of fine-resolution central vision often results. In CRVO and BRVO, a blockage occurs in the main blood vessel that transports deoxygenated blood away from the retina. VEGF levels are elevated in response, contributing to macular edema. For clinically significant DME, VEGF-mediated leakage of fluid from blood vessels in the eye results in interference with vision.
EYLEA is a recombinant fusion protein, consisting of portions of human VEGF receptors 1 and 2 extracellular domains fused to the Fc portion of human IgG1 and formulated as an iso-osmotic solution for intravitreal administration. EYLEA acts as a soluble decoy receptor that binds VEGF-A and placental growth factor (PlGF) and thereby can inhibit the binding and activation of these cognate VEGF receptors. EYLEA is specially purified and contains iso-osmotic buffer concentrations, allowing for injection into the eye.
EYLEA is being evaluated in Phase 3 programs in patients with DME, macular edema following BRVO, and, in Asia, myopic choroidal neovascularization (mCNV) of the retina as a result of pathologic myopia. Wet AMD, diabetic retinopathy (which includes DME), and retinal vein occlusion are three of the leading causes of adult blindness in the developed world. In these conditions, severe visual loss is caused by neovascular proliferation and/or retinal edema.

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In August 2013, we and Bayer HealthCare announced that in the Phase 3 VISTA-DME and VIVID-DME trials of EYLEA for the treatment of DME, EYLEA 2 milligrams (mg) dosed monthly and EYLEA 2 mg dosed every two months (after 5 initial monthly injections) achieved the primary endpoint of a significantly greater improvement in best-corrected visual acuity (BCVA) from baseline compared to laser photocoagulation at 52 weeks. Both EYLEA treatment arms demonstrated similar improvements in BCVA. Based on the positive results of these studies, we have recently submitted a supplemental BLA for U.S. regulatory approval of EYLEA in DME. Bayer HealthCare plans to submit an application for marketing approval for the treatment of DME in the EU in the fourth quarter of 2013.
We are conducting the VISTA-DME study in the United States. Bayer HealthCare is conducting the VIVID-DME study in Europe, Japan, and Australia. Both of these Phase 3 trials were initiated in the second quarter of 2011, and are similarly designed, randomized, double-masked, active control trials to evaluate the safety and efficacy of EYLEA in patients with DME. Patients in both trials were randomized to receive either EYLEA 2 mg monthly, EYLEA 2 mg every two months (after 5 initial monthly injections), or the comparator treatment of laser photocoagulation.
In the VISTA-DME trial, after one year patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 12.5 letters (p<0.0001 compared to laser) and patients receiving EYLEA 2 mg every other month (after 5 initial monthly injections) had a mean change from baseline in BCVA of 10.7 letters (p<0.0001 compared to laser), compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 0.2 letters. In the VIVID-DME trial, after one year patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 10.5 letters (p<0.0001 compared to laser) and patients receiving EYLEA 2 mg every other month (after 5 initial monthly injections) had a mean change from baseline in BCVA of 10.7 letters (p<0.0001 compared to laser), compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 1.2 letters.
In these trials, EYLEA was generally well tolerated with a similar overall incidence of adverse events (AEs), ocular serious AEs, and non-ocular serious AEs across the treatment groups and the laser control group. Arterial thromboembolic events as defined by the Anti-Platelet Trialists' Collaboration (non-fatal stroke, non-fatal myocardial infarction, and vascular death) also occurred at similar rates across the treatment groups and the laser control group. AEs were typical of those seen in other studies in patients with diabetes receiving intravitreal anti-VEGF therapy. The most frequent ocular treatment emergent AEs (TEAEs) observed in the VIVID-DME and VISTA-DME trials included conjunctival hemorrhage, eye pain, and vitreous floaters. The most frequent non-ocular TEAEs included hypertension and nasopharyngitis, which occurred with similar frequency in the treatment groups and the laser control group.
Full one-year data from the VIVID-DME and VISTA-DME trials were presented at the Retina Society and EURETINA medical conferences in September 2013. Both trials are planned to continue up to 148 weeks. An additional Phase 3 safety study in Japan (VIVID-Japan) was initiated in the first quarter of 2012 and is required for approval in Japan. In February 2013, we and Bayer HealthCare also initiated another Phase 3 study to evaluate the efficacy and safety of EYLEA in DME in Russia, China, and other Asian countries (VIVID EAST-DME).
In the fourth quarter of 2011, we and Bayer HealthCare initiated a Phase 3 trial in China evaluating the efficacy and safety of EYLEA in wet AMD (SIGHT). The trial is fully enrolled.
In the second quarter of 2012, we initiated a multinational study (VIBRANT) of EYLEA in patients with macular edema following BRVO. In October, 2013, we reported positive, top line results from the VIBRANT trial. In this trial, 53% of patients who received EYLEA 2 mg every four weeks gained at least 15 letters in vision from baseline at week 24, the primary endpoint of the study, compared to 27% of patients who received laser, a standard-of-care treatment (p<0.001). Patients who received EYLEA 2 mg every four weeks achieved a 17.0 letter mean improvement over baseline in BCVA compared to a 6.9 letter mean improvement in patients who received laser (p<0.0001), a key secondary endpoint. VIBRANT is the first Phase 3 trial in this indication in which an anti-VEGF agent was directly compared to an active comparator. The incidence of serious AEs (SAEs) was 9.9% in the EYLEA group and 9.8% in the laser group. One death and one Anti-Platelet Trialists’ Collaboration (APTC) defined event (non-fatal stroke) occurred during the trial, both in patients in the laser group. The most common ocular adverse events in the EYLEA treated patients were conjunctival hemorrhage and eye pain. There were no cases of intraocular inflammation. There was one ocular SAE in a patient in the EYLEA group, which was a traumatic cataract. We expect to submit an application for U.S. marketing approval for the treatment of macular edema following BRVO within the next several months.
In the fourth quarter of 2012, we initiated a study (RE-VIEW) to fulfill a post-marketing requirement by the FDA, which is evaluating the effect of EYLEA on corneal endothelium. The trial is fully enrolled.

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In June 2013, we and Bayer HealthCare announced positive top-line results for EYLEA from the Phase 3 MYRROR study in mCNV. In this trial, patients receiving EYLEA at an initial dose of 2 mg, followed by treatment on an as-needed (PRN) basis, had a mean improvement in BCVA from baseline at week 24 of 12.1 letters, compared to a loss of 2.0 letters in patients receiving sham injections (p < 0.0001). The most common adverse events observed in the MYRROR trial that occurred with a frequency of 2% or more were conjunctival hemorrhage, dry eye, eye pain, headache, and nasopharyngitis. Bayer HealthCare expects to submit the first application for regulatory approval for this indication in Asia by the end of 2013.
2. ZALTRAP (ziv-aflibercept) - Oncology
ZALTRAP is a fusion protein that is designed to bind all forms of VEGF-A, VEGF-B, and P1GF, and prevent their interaction with cell surface receptors. VEGF-A (and to a lesser degree, P1GF) is required for the growth of new blood vessels (a process known as angiogenesis) that are needed for tumors to grow.
During the third quarter of 2012, we and Sanofi initiated a Phase 1b study of a combination of ZALTRAP and our angiopoietin-2 inhibitor (nesvacumab) in patients with advanced solid malignancies.
3. Sarilumab (REGN88; IL-6R Antibody) for inflammatory diseases
IL-6 is a key cytokine involved in the pathogenesis of rheumatoid arthritis (RA), causing inflammation and joint destruction. A therapeutic antibody to IL-6R, ACTEMRA ® (tocilizumab), a registered trademark of Chugai Seiyaku Kabushiki Kaisha, has been approved for the treatment of rheumatoid arthritis.
Sarilumab is a fully human monoclonal antibody to IL-6R generated using our VelocImmune technology. In the third quarter of 2011, we and Sanofi announced that in the Phase 2b stage of the SARIL-RA-MOBILITY trial in RA, patients treated with sarilumab in combination with a standard RA treatment, methotrexate (MTX), achieved a significant and clinically meaningful improvement in signs and symptoms of moderate-to-severe RA compared to patients treated with MTX alone. The primary endpoint of the study was the proportion of patients achieving at least a 20% improvement in RA symptoms (ACR20) after 12 weeks.
The Phase 3 Part B SARIL-RA-MOBILITY study in patients with RA is fully enrolled. This trial will assess the improvement in signs and symptoms at 24 weeks and the treatment effect of sarilumab on radiographic progression at one year. In addition, we and Sanofi have initiated additional Phase 3 studies, SARIL-RA-TARGET, SARIL-RA-COMPARE, and SARIL-RA- ASCERTAIN. The broad SARIL-RA clinical development program is focused on adult populations with moderate-to-severe RA who are inadequate responders to either MTX or tumor necrosis factor alpha (TNF-alpha) inhibitor therapy. SARIL-RA-TARGET is a randomized, double-blind, placebo-controlled study evaluating sarilumab in combination with non-biologic, disease-modifying anti-rheumatic drugs (DMARDS) in moderate-to-severe active RA patients with inadequate responses to, or who are intolerant of, one or more TNF-alpha inhibitors. The SARIL-RA-COMPARE study is evaluating the safety and efficacy of sarilumab plus MTX compared to etanercept (a TNF-alpha inhibitor) plus MTX in adult patients with moderate-to-severe RA who demonstrate an inadequate response to adalimumab as their first TNF-alpha inhibitor therapy. The SARIL-RA-ASCERTAIN study is a safety study evaluating the safety and tolerability of sarilumab versus a calibrator, tocilizumab, both in combination with MTX, in patients with RA who are inadequate responders to, or intolerant of, TNF-alpha inhibitors. Patients who complete SARIL-RA-MOBILITY, SARIL-RA-TARGET, or SARIL-RA-ASCERTAIN are offered enrollment into the ongoing SARIL-RA-EXTEND, which is an open-label, long-term safety study of sarilumab. Data from the SARIL-RA-MOBILITY trial are expected by the end of 2013.
A Phase 1 study was initiated in May 2013 in Japan assessing the safety and tolerability of sarilumab in patients with RA.
In addition, a Phase 2 study, SARIL-NIU-SATURN, is expected to commence in the fourth quarter of 2013 and is a placebo-controlled proof of concept study evaluating the safety and efficacy of sarilumab in non-infectious uveitis.
4. Alirocumab (REGN727; PCSK9 Antibody) for LDL cholesterol reduction
Elevated LDL cholesterol (“bad cholesterol”) level is a validated risk factor leading to cardiovascular disease. Statins are a class of drugs that lower LDL through inhibition of HMG-CoA, an enzyme regulating the early and rate-limiting step in cholesterol biosynthesis. PCSK9 is a secreted protein that plays a key role in modulating LDL cholesterol (LDL-C) levels in the body. PCSK9 binds to and induces the destruction of the LDL receptor, thereby interfering with cellular uptake and increasing circulating levels of LDL cholesterol. In a landmark study published in the New England Journal of Medicine in March 2006, patients with lower than normal PCSK9 levels due to a genetic abnormality not only had significantly lower levels of LDL cholesterol, but also a significant reduction in the risk of coronary heart disease. We used our VelocImmune technology to generate a fully human monoclonal antibody inhibitor of PCSK9, called alirocumab, that is intended to lower LDL cholesterol.

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Alirocumab has been studied in three Phase 2 clinical studies, two in patients with primary hypercholesterolemia and one in patients with heterozygous familial hypercholesterolemia (heFH). In the Phase 2 studies, alirocumab significantly reduced LDL-C from baseline up to 72% on top of standard of care statin therapy. Consistent and robust reductions in other lipid parameters, including a reduction in lipoprotein-a (Lp(a)) were also observed. Lp(a) is another form of bad cholesterol which is believed to be a risk factor for coronary heart disease and strokes when elevated. In the Phase 2 program, injection site reactions were the most common adverse events with alirocumab, and were rare. Rare cases of hypersensitivity reaction were also reported. Serious adverse events were reported in 1.8% of patients in the active treatment arms and 2.6% of patients in the placebo groups.
We and Sanofi initiated the global Phase 3 ODYSSEY program for alirocumab in the second quarter of 2012. The ODYSSEY program is expected to enroll more than 23,000 patients. This includes eleven clinical trials evaluating the effect of alirocumab, dosed every two weeks, on lowering LDL cholesterol. The 18,000 patient ODYSSEY OUTCOMES trial, assessing reduction in serious cardiovascular events, is currently enrolling patients, while the other trials in the ODYSSEY program are fully enrolled. LDL cholesterol reduction is expected to be the primary efficacy endpoint for initial regulatory filings. In addition, a trial of alirocumab dosed every four weeks (ODYSSEY CHOICE) is expected to begin enrollment by the end of 2013. The ODYSSEY studies are being conducted in clinical centers around the world including the United States, Canada, Western and Eastern Europe, South America, Australia, and Asia.
The first trial to report data from the Phase 3 ODYSSEY program was the ODYSSEY MONO trial, which evaluated the efficacy and safety of alirocumab monotherapy versus ezetimibe monotherapy in patients with primary hypercholesterolemia. The study achieved its primary efficacy endpoint and demonstrated that patients randomized to receive alirocumab monotherapy experienced a mean reduction in LDL-C levels of 47.2% from baseline to week 24, compared to 15.6% in patients receiving ezetimibe monotherapy (p<0.0001). In the trial, which employed a dose increase (up-titration) for patients who did not achieve an LDL-C level of 70 milligrams/deciliter (mg/dL), the majority of patients remained on the initial low dose of alirocumab of 75 mg. The percentage of patients who reported TEAEs was 78.4% in the ezetimibe group and 69.2% in the alirocumab group. The most common class of AEs was infections (39.2% with ezetimibe vs. 42.3% with alirocumab), which included nasopharyngitis, influenza, and upper respiratory tract infection. Injection-site reactions occurred in less than 2% of patients in both groups. Muscle-related AEs occurred in 3.9% of patients treated with ezetimibe and 3.8% of patients treated with alirocumab.
5. Dupilumab (REGN668; IL-4R Antibody) for allergic and immune conditions
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 atopic dermatitis and asthma. Dupilumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to bind to IL-4R.
Dupilumab demonstrated positive proof of concept in patients with atopic dermatitis and asthma. Data from two Phase 1b trials in atopic dermatitis was presented at the American Academy of Dermatology annual meeting in March 2013. The efficacy data showed that treatment with four weekly subcutaneous injections of dupilumab at either 150 mg or 300 mg per week, significantly improved the signs and symptoms of patients with moderate-to-severe atopic dermatitis whose disease was not adequately controlled with topical medications. The most common AEs were nasopharyngitis (19.6% vs 12.5% for placebo) and headache (11.8% vs 6.3% for placebo).
Data from a Phase 2a trial in asthma patients with elevated eosinophils were presented at the American Thoracic Society in May 2013, and were also published in the New England Journal of Medicine in June 2013. In this study, patients receiving dupilumab experienced an 87% reduction in the incidence of asthma exacerbations compared to patients receiving placebo (p<0.0001). Clinically meaningful and statistically significant improvements were observed for lung function and other asthma control parameters, such as forced expiratory volume over one second (FEV 1 ) (difference from baseline to week 12 between dupilumab and placebo of 0.27 L, p < 0.001). TEAEs were reported by a similar proportion of patients in both groups (76.9% placebo; 80.8% dupilumab). AEs were generally non-specific and of mild-to-moderate intensity. The most common AEs for placebo and dupilumab were injection-site reaction (9.6% and 28.8%), nasopharyngitis (3.8% and 13.5%), upper respiratory tract infection (17.3% and 13.5%), headache (5.8% and 11.5%) and nausea (1.9% and 7.7%).
Data from a Phase 2 trial in atopic dermatitis were presented at the 22nd Congress of the European Academy of Dermatology and Venereology in October 2013.
In the second quarter of 2013, Phase 2b trials in atopic dermatitis and asthma were initiated and are currently enrolling patients. In addition, in the third quarter of 2013, a Phase 2 study in nasal polyposis was initiated and is currently enrolling patients.

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6. Enoticumab (REGN421; 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 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.
Enoticumab is a fully human monoclonal antibody to Dll4 generated using our VelocImmune technology, and is in Phase 1 clinical development.
7. Nesvacumab (REGN910; Ang2 Antibody) for oncology and ophthalmology
The angiopoietins, which were discovered at Regeneron, are ligands for the endothelial cell receptor Tie2 and are essential for vascular development and angiogenesis. Unlike other family members, angiopoietin-2 (Ang2) is strongly upregulated by endothelial cells at sites of angiogenesis and vascular remodeling, including tumors. Enhanced anti-tumor effects have been observed in preclinical models with combined blockade of both VEGF and Ang2.
Nesvacumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to block Ang2. Nesvacumab is in Phase 1 clinical development in oncology. In addition, during the third quarter of 2012, we and Sanofi initiated a Phase 1b study evaluating nesvacumab in combination with ZALTRAP in patients with advanced solid malignancies.
In May 2013, we acquired from Sanofi full rights to antibodies targeting the Ang2 receptor and ligand in ophthalmology, as described below. We expect to initiate a clinical study for Ang2 in ophthalmology in the next several months.
8. REGN1033 (GDF8 Antibody)
In the first quarter of 2012, we initiated a Phase 1 clinical study for REGN1033, a fully human monoclonal GDF8 antibody generated using our VelocImmune technology. Myostatin has been validated as a target to increase muscle mass and strength through genetic mutations in both animals and humans that abrogate its bioactivity. A Phase 2a study for REGN1033 is expected to commence in the fourth quarter of 2013.
9. REGN2009
REGN2009 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In June 2013, we initiated a Phase 1 clinical study.
10. REGN1400 (ErbB3 Antibody) for oncology
REGN1400 is a fully human monoclonal antibody generated using our VelocImmune technology, against ErbB3. In the fourth quarter of 2012, REGN1400 entered into Phase 1 clinical development in oncology.
11. REGN1154
REGN1154 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In the first quarter of 2012, we initiated a Phase 1 clinical study in Australia. Sanofi decided not to opt-in to the REGN1154 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1154.
12. REGN1500
REGN1500 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In the fourth quarter of 2012, we initiated a Phase 1 clinical study. Sanofi decided not to opt-in to the REGN1500 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1500.
13. REGN1193
REGN1193 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. A Phase 1 clinical study of REGN1193 was initiated in August 2013. Sanofi decided not to opt-in to the REGN1193 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1193.

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14. REGN1908-1909
REGN1908-1909 is a fully human monocolonal antibody combination generated using our VelocImmune technology against an undisclosed target. A Phase 1 clinical study of REGN1908-1909 was initiated in August 2013. Sanofi decided not to opt-in to the REGN1908-1909 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1908-1909.
15. Fasinumab (REGN475; NGF Antibody) for pain (on clinical hold)
Fasinumab 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 fasinumab specifically binds to and blocks NGF activity and does not bind to or block cell signaling for the closely related neurotrophins NT-3 and BDNF.
In December 2012, the FDA placed fasinumab and other investigational agents targeting NGF on clinical hold based on preclinical findings with other anti-NGF agents in development. Prior to the FDA clinical hold action, we were planning to initiate late-stage clinical trials with fasinumab. There are currently no ongoing trials with fasinumab that are either enrolling or treating patients.
Sanofi elected not to continue co-development of fasinumab, and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of fasinumab.
Acquisition of Ophthalmology Development Programs from Sanofi
In May 2013, we acquired from Sanofi full exclusive rights to two families of novel antibodies invented at Regeneron and previously included in our antibody collaboration with Sanofi. We acquired full rights to antibodies targeting the PDGF (platelet derived growth factor) family of receptors and ligands in ophthalmology and all other indications and to antibodies targeting the Ang2 receptor and ligand in ophthalmology. Antibodies to the PDGF receptor and Ang2 are currently in preclinical development for use in ophthalmology.
With respect to PDGF antibodies, we made a $10.0 million up-front payment to Sanofi in May 2013, and are obligated to pay up to $40 million in potential development milestone payments and royalties on any future sales. With respect to Ang2 antibodies in ophthalmology, we also made a $10.0 million up-front payment to Sanofi in May 2013, and are obligated to pay a potential $5 million development milestone payment and royalties on any future sales.
We and Sanofi have agreed to continue to develop antibodies to Ang2 outside of ophthalmology under our antibody collaboration agreement, including nesvacumab, as described above.
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.
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 three approved products, EYLEA, ZALTRAP, and ARCALYST. These novel “Traps” are composed of fusions between two distinct receptor components and the constant region of an antibody molecule called the “Fc region,” resulting in high affinity product candidates. VelociSuite is our second technology platform; it is used for discovering, developing, and producing fully human monoclonal antibodies that can address both secreted and cell-surface targets.

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VelociSuite. VelociSuite 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 offer the potential to increase the speed and efficiency through which human monoclonal antibody therapeutics may be discovered and validated, thereby improving the overall efficiency of our early stage drug development activities. We are utilizing the VelocImmune technology to produce our next generation of drug candidates for preclinical and clinical development.
Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA to produce highly customized alterations of a specified target gene, or genes, and accelerates the production of knock-out and transgenic expression models without using either positive/negative selection or isogenic DNA. In producing knock-out models, a color or fluorescent marker may be substituted in place of the actual gene sequence, allowing for high-resolution visualization of precisely where the gene is active in the body during normal body functioning as well as in disease processes. For the optimization of preclinical 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