REGN-06/30/14-10Q
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 June 30, 2014
 
 
 
 
 
 
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 July 17, 2014:
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
1,979,055
Common Stock, $.001 par value
 
99,086,588



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)
 
June 30,
 
December 31,
 
2014
 
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
600,135

 
$
535,608

Marketable securities
216,774

 
158,376

Accounts receivable - trade, net
664,075

 
787,071

Accounts receivable from Sanofi
116,865

 
104,707

Accounts receivable from Bayer HealthCare
112,984

 
63,189

Inventories
109,897

 
70,354

Deferred tax assets
37,291

 
44,677

Prepaid expenses and other current assets
60,674

 
32,952

Total current assets
1,918,695

 
1,796,934

 
 
 
 
Marketable securities
550,818

 
389,891

Property, plant, and equipment, at cost, net of accumulated depreciation and amortization
707,321

 
526,983

Deferred tax assets
270,367

 
231,878

Other assets
8,877

 
5,327

Total assets
$
3,456,078

 
$
2,951,013

 
 
 
 
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
283,385

 
$
250,896

Deferred revenue from Sanofi, current portion
12,979

 
12,815

Deferred revenue - other, current portion
54,154

 
34,185

Facility lease obligations, current portion
1,060

 
939

Total current liabilities
351,578

 
298,835

 
 
 
 
Deferred revenue from Sanofi
75,862

 
76,522

Deferred revenue - other
128,042

 
107,677

Facility lease obligations
234,525

 
184,258

Convertible senior notes
282,261

 
320,315

Other long-term liabilities
14,968

 
11,330

Total liabilities
1,087,236

 
998,937

 
 
 
 
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 - 1,998,785 in 2014 and 2,020,481 in 2013
2

 
2

Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 99,545,307 in 2014 and 97,666,814 in 2013
100

 
97

Additional paid-in capital
2,342,839

 
2,045,857

Retained earnings (accumulated deficit)
65,486

 
(92,692
)
Accumulated other comprehensive income (loss)
4,263

 
(1,188
)
Treasury stock, at cost; 521,876 shares in 2014 and none in 2013
(43,848
)
 

Total stockholders' equity
2,368,842

 
1,952,076

Total liabilities and stockholders' equity
$
3,456,078

 
$
2,951,013

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

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Table of Contents


REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2014
 
2013
 
2014
 
2013
Statements of Operations
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Net product sales
 
$
418,022

 
$
333,893

 
$
780,400

 
$
652,633

Sanofi collaboration revenue
 
142,595

 
85,529

 
273,103

 
184,802

Bayer HealthCare collaboration revenue
 
97,295

 
31,104

 
222,607

 
46,011

Technology licensing and other revenue
 
7,788

 
7,116

 
15,330

 
13,860

 
 
665,700

 
457,642

 
1,291,440

 
897,306

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Research and development
 
294,501

 
187,463

 
581,880

 
367,762

Selling, general, and administrative
 
102,414

 
72,463

 
211,264

 
149,723

Cost of goods sold
 
29,945

 
27,283

 
57,418

 
55,304

Cost of collaboration manufacturing
 
16,434

 
12,330

 
32,533

 
13,364

 
 
443,294

 
299,539

 
883,095

 
586,153

 
 
 
 
 
 
 
 
 
Income from operations
 
222,406

 
158,103

 
408,345

 
311,153

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
Investment income
 
1,677

 
954

 
2,614

 
1,410

Interest expense
 
(10,177
)
 
(11,365
)
 
(21,790
)
 
(23,040
)
Loss on extinguishment of debt
 
(10,787
)
 

 
(10,787
)
 

 
 
(19,287
)
 
(10,411
)
 
(29,963
)
 
(21,630
)
 
 
 
 
 
 
 
 
 
Income before income taxes
 
203,119

 
147,692

 
378,382

 
289,523

 
 
 
 
 
 
 
 
 
Income tax expense
 
(110,384
)
 
(60,316
)
 
(220,204
)
 
(103,273
)
 
 
 
 
 
 
 
 
 
Net income
 
$
92,735

 
$
87,376

 
$
158,178

 
$
186,250

 
 
 
 
 
 
 
 
 
Net income per share - basic
 
$
0.92

 
$
0.89

 
$
1.58

 
$
1.91

Net income per share - diluted
 
$
0.82

 
$
0.79

 
$
1.40

 
$
1.69

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
 
100,391

 
97,700

 
100,085

 
97,289

Weighted average shares outstanding - diluted
 
113,032

 
111,060

 
113,121

 
110,305

 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
 
 
 
 
Net income
 
$
92,735

 
$
87,376

 
$
158,178

 
$
186,250

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Unrealized gain (loss) on marketable securities, net of tax
 
2,798

 
(1,785
)
 
5,451

 
(2,263
)
Comprehensive income
 
$
95,533

 
$
85,591

 
$
163,629

 
$
183,987

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



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Table of Contents


REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
For the six months ended June 30, 2014 and 2013
(In thousands)
 
 
Class A Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings (Accumulated Deficit)
 
Treasury Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
Shares
 
Amount
 
 
Balance, December 31, 2013
 
2,020

 
$
2

 
97,667

 
$
97

 
$
2,045,857

 
$
(92,692
)
 

 

 
$
(1,188
)
 
$
1,952,076

Issuance of Common Stock in connection with exercise of stock options
 

 

 
1,514

 
2

 
62,115

 

 

 

 

 
62,117

Common Stock tendered upon exercise of stock options in connection with employee tax obligations
 

 

 
(205
)
 

 
(64,990
)
 

 

 

 

 
(64,990
)
Issuance of Common Stock in connection with conversion of convertible senior notes
 

 

 
522

 
1

 
156,367

 

 

 

 

 
156,368

Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 

 

 
21

 

 

 

 

 

 

 

Issuance of restricted Common Stock under Long-Term Incentive Plan
 

 

 
5

 

 

 

 

 

 

 

Conversion of Class A Stock to Common Stock
 
(21
)
 

 
21

 

 

 

 

 

 

 

Stock-based compensation charges
 

 

 

 

 
155,137

 

 

 

 

 
155,137

Excess tax benefit from stock-based compensation
 

 

 

 

 
244,197

 

 

 

 

 
244,197

Acquisition of Common Stock in connection with exercise of convertible note hedges
 

 

 

 

 
43,848

 

 
(522
)
 
$
(43,848
)
 

 

Reduction of warrants in connection with conversion of senior notes
 

 

 

 

 
(143,041
)
 

 

 

 

 
(143,041
)
Reduction of equity component of convertible senior notes
 

 

 

 

 
(156,651
)
 

 

 

 

 
(156,651
)
Net income
 

 

 

 

 

 
158,178

 

 

 

 
158,178

Other comprehensive income, net of tax
 

 

 

 

 

 

 

 

 
5,451

 
5,451

Balance, June 30, 2014
 
1,999

 
$
2


99,545


$
100


$
2,342,839


$
65,486


(522
)
 
$
(43,848
)
 
$
4,263


$
2,368,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents


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
 

 

 
1,661

 
2

 
30,496

 

 

 

 

 
30,498

Common Stock tendered upon exercise of stock options in connection with employee tax obligations
 

 

 
(290
)
 

 
(73,137
)
 

 

 

 

 
(73,137
)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 

 

 
38

 

 

 

 

 

 

 

Conversion of Class A Stock to Common Stock
 
(30
)
 

 
30

 

 

 

 

 

 

 

Stock-based compensation charges
 

 

 

 

 
98,728

 

 

 

 

 
98,728

Excess tax benefit from stock-based compensation
 

 

 

 

 
7,876

 

 

 

 

 
7,876

Net income
 

 

 

 

 

 
186,250

 

 

 

 
186,250

Other comprehensive loss
 

 

 

 

 

 

 

 

 
(2,263
)
 
(2,263
)
Balance, June 30, 2013
 
2,039

 
$
2


96,662


$
97


$
1,827,471


$
(330,804
)


 

 
$
(3,429
)

$
1,493,337

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


6



REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Six months ended
June 30,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
158,178

 
$
186,250

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
24,546

 
19,109

Non-cash compensation expense
 
151,920

 
97,473

Non-cash interest expense
 
10,871

 
11,315

Loss on extinguishment of debt
 
10,787

 

Other non-cash charges and expenses, net
 
6,598

 
18,323

Deferred taxes
 
(32,543
)
 
92,522

Changes in assets and liabilities:
 
 
 
 
Decrease (increase) in Sanofi, Bayer HealthCare, and trade accounts receivable
 
61,043

 
(206,149
)
Increase in inventories
 
(37,295
)
 
(31,144
)
(Increase) decrease in prepaid expenses and other assets
 
(29,446
)
 
2,700

Increase (decrease) in deferred revenue
 
39,838

 
(11,579
)
Increase in accounts payable, accrued expenses, and other liabilities
 
16,820

 
35,592

Total adjustments
 
223,139

 
28,162

Net cash provided by operating activities
 
381,317

 
214,412

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(374,509
)
 
(282,643
)
Sales or maturities of marketable securities
 
155,850

 
307,244

Capital expenditures
 
(135,695
)
 
(55,656
)
Net cash used in investing activities
 
(354,354
)
 
(31,055
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Payments in connection with facility and capital lease obligations
 
(534
)
 
(997
)
Repayments of convertible senior notes
 
(61,125
)
 

Payments in connection with reduction of outstanding warrants
 
(143,041
)
 

Proceeds from issuance of Common Stock
 
63,057

 
34,300

Payments in connection with Common Stock tendered for employee tax obligations
 
(64,990
)
 
(73,137
)
Excess tax benefit from stock-based compensation
 
244,197

 
7,876

Net cash provided by (used in) financing activities
 
37,564

 
(31,958
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
64,527

 
151,399

 
 
 
 
 
Cash and cash equivalents at beginning of period
 
535,608

 
230,276

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
600,135

 
$
381,675

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


7


Table of Contents


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, 2013 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, 2013.
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 $414.8 million and $329.8 million for the three months ended June 30, 2014 and 2013, respectively, and $773.8 million and $643.7 million for the six months ended June 30, 2014 and 2013, respectively. In addition, ARCALYST® net product sales totaled $3.2 million and $4.1 million for the three months ended June 30, 2014 and 2013, respectively, and $6.6 million and $8.9 million for the six months ended June 30, 2014 and 2013, respectively.
The Company recorded 73% and 76% for the three months ended June 30, 2014 and 2013, respectively, and 76% and 77% for the six months ended June 30, 2014 and 2013, 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, and other sales-related deductions. The following table summarizes the provisions, and credits/payments, for these sales-related deductions during the six months ended June 30, 2014.
 
Rebates &
Chargebacks
 
Distribution-
Related
Fees
 
Other Sales-
Related
Deductions
 
Total
Balance as of December 31, 2013
$
4,400

 
$
19,663

 
$
538

 
$
24,601

Provision related to current period sales
14,817

 
36,206

 
818

 
51,841

Credits/payments
(15,077
)
 
(35,449
)
 
(834
)
 
(51,360
)
Balance as of June 30, 2014
$
4,140

 
$
20,420

 
$
522

 
$
25,082

3. Collaboration Agreements
Sanofi
The collaboration revenue the Company earned from Sanofi, as detailed below, consisted primarily of reimbursement for research and development expenses that the Company incurred in connection with the companies' antibody collaboration. In addition, Sanofi collaboration revenue for the three months and six months ended June 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.

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Table of Contents

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


 
 
Three months ended
June 30,
Sanofi Collaboration Revenue
 
2014
 
2013
ZALTRAP:
 
 
 
 
Regeneron's share of losses in connection with commercialization of ZALTRAP
 
$
(692
)
 
$
(8,216
)
Reimbursement of Regeneron research and development expenses
 
1,338

 
1,992

Other
 
1,484

 
2,227

Total ZALTRAP
 
2,130

 
(3,997
)
Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
137,893

 
105,274

Regeneron's share of commercialization expenses
 
(4,295
)
 

Up-front payments to Sanofi for acquisition of rights related to two antibodies
 

 
(20,000
)
Other
 
6,867

 
4,252

Total Antibody
 
140,465

 
89,526

Total Sanofi collaboration revenue
 
$
142,595

 
$
85,529

 
 
Six months ended
June 30,
Sanofi Collaboration Revenue
 
2014
 
2013
ZALTRAP:
 
 
 
 
Regeneron's share of losses in connection with commercialization of ZALTRAP
 
$
(3,904
)
 
$
(16,005
)
Reimbursement of Regeneron research and development expenses
 
2,430

 
4,081

Other
 
3,661

 
4,084

Total ZALTRAP
 
2,187

 
(7,840
)
Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
264,715

 
204,898

Regeneron's share of commercialization expenses
 
(4,295
)
 

Up-front payments to Sanofi for acquisition of rights related to two antibodies
 

 
(20,000
)
Other
 
10,496

 
7,744

Total Antibody
 
270,916

 
192,642

Total Sanofi collaboration revenue
 
$
273,103

 
$
184,802

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 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. The Company is entitled to a receive a percentage of sales of ZALTRAP in Japan.

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


Under the Company's antibody collaboration agreement with Sanofi, agreed upon worldwide development expenses incurred by both companies during the term of the agreement are funded by Sanofi, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, which first occurred in the fourth quarter of 2013, subsequent Phase 3 trial-related costs for that drug candidate ("Shared Phase 3 Trial Costs") are shared 80% by Sanofi and 20% by Regeneron. Consequently, during the three and six months ended June 30, 2014, the Company recognized as additional research and development expense $29.1 million and $52.9 million, respectively, of antibody development expenses that the Company was obligated to reimburse to Sanofi related to alirocumab and sarilumab.
Effective in the second quarter of 2014, the Company and Sanofi began sharing pre-launch commercialization expenses related to alirocumab in accordance with the companies’ antibody collaboration agreement.
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 platelet derived growth factor (PDGF) family of receptors and ligands in ophthalmology and all other indications and to antibodies targeting the angiopoietin-2 (Ang2) receptor and ligand 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. In addition, with respect to Ang2 antibodies in ophthalmology, the Company made a $10.0 million up-front payment to Sanofi in the second quarter of 2013.
With respect to PDGF antibodies, the Company made two $5.0 million development milestone payments to Sanofi in the first quarter of 2014, which were recorded in the Company's Statements of Operations as research and development expense. The Company is also obligated to pay up to $30.0 million in additional potential development milestones as well as royalties on any future sales of PDGF antibodies.
Bayer HealthCare LLC
The Company and Bayer HealthCare globally collaborate on the development and commercialization of EYLEA outside of the United States. Bayer HealthCare commenced sales of EYLEA outside the United States for the treatment of wet AMD in the fourth quarter of 2012 and for the treatment of macular edema secondary to CRVO in the fourth quarter of 2013. In addition, in January 2014, the Company entered into a license and collaboration agreement with Bayer HealthCare governing the joint development and commercialization outside the United States of an antibody product candidate to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta).
The collaboration revenue the Company earned from Bayer HealthCare is detailed below:
 
 
Three months ended
June 30,
Bayer HealthCare Collaboration Revenue
 
2014
 
2013
EYLEA:
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
66,781

 
$
19,055

Sales milestones
 
15,000

 

Cost-sharing of Regeneron EYLEA development expenses
 
1,494

 
3,629

Other
 
10,813

 
8,420

Total EYLEA
 
94,088

 
31,104

PDGFR-beta antibody:
 
 
 
 
Cost-sharing of REGN2176-3 development expenses
 
626

 

Other
 
2,581

 

Total PDGFR-beta
 
3,207

 

Total Bayer HealthCare collaboration revenue
 
$
97,295

 
$
31,104


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


 
 
Six months ended
June 30,
Bayer HealthCare Collaboration Revenue
 
2014
 
2013
EYLEA:
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
127,940

 
$
25,417

Sales milestones
 
45,000

 

Cost-sharing of Regeneron EYLEA development expenses
 
21,841

 
9,466

Other
 
21,745

 
11,128

Total EYLEA
 
216,526

 
46,011

PDGFR-beta antibody:
 
 
 
 
Cost-sharing of REGN2176-3 development expenses
 
1,139

 

Other
 
4,942

 

Total PDGFR-beta
 
6,081

 

Total Bayer HealthCare collaboration revenue
 
$
222,607

 
$
46,011

EYLEA
In the first and second quarters of 2014, the Company earned, and recorded as revenue, two $15.0 million sales milestones and one $15.0 million sales milestone, respectively, from Bayer HealthCare upon total aggregate net sales of EYLEA outside the United States exceeding $500 million, $600 million, and $700 million, respectively, over a twelve-month period. The Company is eligible to receive up to $45.0 million in additional sales milestone payments if twelve-month sales of EYLEA outside the United States achieve certain specified levels up to $1 billion. In addition, in connection with a November 2013 agreement under which Bayer HealthCare obtained rights to use certain of the Company’s EYLEA clinical data for a regulatory filing, the Company became eligible to receive up to $30.0 million in additional sales milestone payments if twelve-month sales of specific commercial supplies of EYLEA outside the United States achieve certain specified levels up to $200 million.
In January 2014, Bayer HealthCare decided to participate in the global development and commercialization of EYLEA outside the United States for the treatment of macular edema following branch retinal vein occlusion ("BRVO"). In connection with this decision, Bayer HealthCare reimbursed Regeneron $15.7 million for a defined share of the EYLEA global development costs that the Company had incurred prior to February 2014 for the BRVO indication, which was recognized as Bayer HealthCare collaboration revenue in the first quarter of 2014 and is included with "Cost-sharing of Regeneron EYLEA development expenses" for the six months ended June 30, 2014 in the table above. In addition, all future agreed upon global EYLEA development expenses incurred in connection with BRVO are being shared equally, and any future profits or losses on sales of EYLEA outside of the United States for the treatment of macular edema following BRVO will also be shared (for countries other than Japan). The Company is entitled to receive a tiered percentage of EYLEA net sales in Japan.
PDGFR-beta Antibody
In January 2014, the Company also entered into an agreement with Bayer HealthCare governing the joint development and commercialization outside the United States of an antibody product candidate to PDGFR-beta, including in combination with EYLEA, for the treatment of ocular diseases or disorders. REGN2176-3, a combination product candidate comprised of an antibody to PDGFR-beta co-formulated with EYLEA, is being developed under the agreement. Under the agreement, the Company will conduct the initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, upon which Bayer HealthCare will have a right to opt-in to license and collaborate on further development and commercialization outside the United States.

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


In connection with the agreement, Bayer HealthCare made a $25.5 million non-refundable upfront payment to the Company in January 2014, and is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States under the initial development plan. In addition, Bayer HealthCare is obligated to reimburse the Company for 50% of development milestone payments to Sanofi related to the Company's acquisition of rights to antibodies targeting the PDGF family of receptors in May 2013, as described above. In that regard, Bayer HealthCare made two $2.5 million development milestone payments to the Company in the first quarter of 2014 (both of which, for the purpose of revenue recognition, were not considered substantive). Further, in connection with the Company’s initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, the Company is eligible to receive up to $15.0 million in future development milestone payments from Bayer HealthCare, although certain of these development milestone payments could be reduced by half if Bayer HealthCare does not opt-in to the collaboration.
From inception of the agreement until Bayer HealthCare has the right to opt-in to the collaboration, the Company's sole significant deliverable is research and development services provided in accordance with the agreement. Therefore, the $25.5 million upfront payment was allocated to this deliverable, initially recorded as deferred revenue, and will be recognized as revenue over the related performance period. In addition, the two $2.5 million non-substantive development milestone payments from Bayer HealthCare were also initially recorded as deferred revenue and will be recognized over the same performance period as the upfront payment.
If Bayer HealthCare exercises its right to opt-in to the collaboration, it will obtain exclusive commercialization rights to the product outside the United States, continue to pay for 25% of global development costs and 50% of development costs exclusively for the territory outside the United States, pay a $20.0 million opt-in payment to the Company, pay a $20.0 million development milestone to the Company upon receipt of the first marketing approval in the European Union or Japan, share profits and losses from sales outside the United States equally with the Company, and be responsible for the payment of royalties on sales outside the United States to Sanofi.
Within the United States, the Company has exclusive commercialization rights and will retain all of the profits from sales. If Bayer HealthCare does not opt-in to the collaboration, the Company will have exclusive rights to develop and commercialize PDGFR-beta antibodies (except as a combination product with EYLEA) for use outside the United States.
The Company also has the right to opt-out of the collaboration upon completion of the first proof-of-concept study for the PDGFR-beta antibody. If the Company opts-out of the collaboration and Bayer HealthCare exercises its right to opt-in to the collaboration, Bayer HealthCare will obtain exclusive rights to the PDGFR-beta antibody (except as a combination product with EYLEA) outside of the United States, be responsible for all development costs outside of the United States, be responsible for all royalty and milestone payments to a third party, and will retain all of the profits from sales of the PDGFR-beta antibody outside of the United States.
Unless terminated earlier in accordance with its provisions, the agreement will continue to be in effect until such time as neither party or its respective affiliates or sublicensees is developing or commercializing a PDGFR-beta antibody in the specified field outside of the United States and such discontinuation is acknowledged as permanent by both the Company and Bayer HealthCare in writing.
Avalanche Biotechnologies, Inc.
In May 2014, the Company entered into a research collaboration and license agreement with Avalanche Biotechnologies, Inc. to discover, develop, and commercialize novel gene therapy products for the treatment of ophthalmologic diseases. In connection with the agreement, the Company made a $2.0 million upfront payment and a $6.0 million pre-payment of collaboration research costs, and is obligated to pay potential additional research costs, an aggregate amount of up to $80.0 million per product upon meeting certain potential development and regulatory milestones (for products directed to as many as eight therapeutic targets, or up to an aggregate of $640.0 million), and royalties on any future sales of such products. The Company also purchased an aggregate of $5.0 million of Avalanche preferred stock. Under the agreement, the Company will collaborate with Avalanche to conduct research for the discovery of novel gene therapy vectors. Subsequent to the filing of an Investigational New Drug application ("IND") with the U.S. Food and Drug Administration ("FDA") for a product candidate developed under the agreement, Regeneron may exercise its right to obtain exclusive worldwide rights to further research, develop, and commercialize such product candidates directed to the applicable therapeutic target. In addition, Avalanche has the option to share in development costs and profits for products directed toward up to two therapeutic targets of its choice.

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


In July 2014, Avalanche commenced an initial public offering ("IPO") of its common stock and thereby triggered the Company's obligation under the research collaboration and license agreement to purchase up to $10.0 million of Avalanche common stock in a concurrent private placement. As part of the concurrent private placement, the Company has agreed, subject to customary closing conditions, to purchase from Avalanche at the closing of the IPO 588,235 shares of Avalanche common stock for an aggregate purchase price of $10.0 million. In addition, at the closing of the IPO, Avalanche preferred stock, including the Avalanche preferred stock held by the Company, will automatically convert on a one-for-one basis into Avalanche common stock.
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 June 30,
 
 
2014
 
2013
Net income - basic and diluted
 
$
92,735

 
$
87,376

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
100,391

 
97,700

Effect of dilutive securities:
 
 
 
 
Stock options
 
9,359

 
10,291

Restricted stock
 
405

 
424

Warrants
 
2,877

 
2,645

Dilutive potential shares
 
12,641

 
13,360

Weighted average shares - diluted
 
113,032

 
111,060

 
 
 
 
 
Net income per share - basic
 
$
0.92

 
$
0.89

Net income per share - diluted
 
$
0.82

 
$
0.79

 
 
Six months ended June 30,
 
 
2014
 
2013
Net income - basic and diluted
 
$
158,178

 
$
186,250

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
100,085

 
97,289

Effect of dilutive securities:
 
 
 
 
Stock options
 
9,615

 
10,296

Restricted stock
 
403

 
383

Warrants
 
3,018

 
2,337

Dilutive potential shares
 
13,036

 
13,016

Weighted average shares - diluted
 
113,121

 
110,305

 
 
 
 
 
Net income per share - basic
 
$
1.58

 
$
1.91

Net income per share - diluted
 
$
1.40

 
$
1.69


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



Shares which have been excluded from the June 30, 2014 and 2013 diluted per share amounts because their effect would have been antidilutive include the following:
 
 
Three months ended June 30,
(Shares in thousands)
 
2014
 
2013
Stock options
 
3,765

 
1,247

Convertible senior notes
 
4,662

 
4,761

 
 
Six months ended June 30,
(Shares in thousands)
 
2014
 
2013
Stock options
 
3,714

 
3,599

Convertible senior notes
 
4,711

 
4,761


5. Marketable Securities
Marketable securities at June 30, 2014 and December 31, 2013 consist of both debt securities issued by investment grade institutions as well as equity securities. The following tables summarize the Company's investments in marketable securities at June 30, 2014 and December 31, 2013.
 
 
Amortized
 
Unrealized
 
Fair
At June 30, 2014
 
Cost Basis
 
Gains
 
Losses
 
Value
U.S. government and government agency obligations
 
$
52,071

 
$
97

 

 
$
52,168

Corporate bonds
 
647,052

 
1,108

 
$
(368
)
 
647,792

Municipal bonds
 
46,336

 
190

 

 
46,526

International government agency obligations
 
6,211

 

 
(1
)
 
6,210

Certificates of deposit
 
7,920

 
2

 

 
7,922

Equity securities
 
1,166

 
5,808

 

 
6,974

Total marketable securities
 
$
760,756

 
$
7,205

 
$
(369
)
 
$
767,592

 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
 
$
107,493

 
$
55

 
$
(27
)
 
$
107,521

Corporate bonds
 
369,321

 
233

 
(361
)
 
369,193

Commercial paper
 
23,891

 
53

 

 
23,944

Municipal bonds
 
36,935

 
45

 
(59
)
 
36,921

International government agency obligations
 
2,007

 
1

 

 
2,008

Certificates of deposit
 
7,509

 
5

 

 
7,514

Equity securities
 
1,166

 

 

 
1,166

Total marketable securities
 
$
548,322

 
$
392

 
$
(447
)
 
$
548,267



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


The Company classifies its debt securities based on their contractual maturity dates. The debt securities listed at June 30, 2014 mature at various dates through August 2024. The fair values of debt security investments by contractual maturity as of June 30, 2014 and December 31, 2013 consist of the following:
 
 
June 30,
2014
 
December 31, 2013
Maturities within one year
 
$
216,774

 
$
158,376

Maturities after one year through five years
 
538,647

 
383,410

Maturities after five years through ten years
 
4,043

 
4,138

Maturities after ten years
 
1,154

 
1,177

 
 
$
760,618

 
$
547,101

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 June 30, 2014 and December 31, 2013.
 
Less than 12 Months
 
12 Months or Greater
 
Total
At June 30, 2014
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Corporate bonds
$
157,970

 
$
(368
)
 

 

 
$
157,970

 
$
(368
)
International government agency obligations
6,210

 
(1
)
 
 
 
 
 
6,210

 
(1
)
 
$
164,180

 
$
(369
)
 

 

 
$
164,180

 
$
(369
)
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
U.S. government and government agency obligations
$
49,241

 
$
(27
)
 

 

 
$
49,241

 
$
(27
)
Corporate bonds
176,140

 
(361
)
 

 

 
176,140

 
(361
)
Municipal bonds
14,431

 
(59
)
 

 

 
14,431

 
(59
)
 
$
239,812

 
$
(447
)
 

 

 
$
239,812

 
$
(447
)
Realized gains and losses are included as a component of investment income. For both the three and six months ended June 30, 2014, total realized gains and losses on sales of marketable securities were not material. For both the three and six months ended June 30, 2013, total realized gains on sales of marketable securities were $0.5 million and there were no realized losses. Changes in the Company's accumulated other comprehensive income (loss) for the three and six months ended June 30, 2014 and 2013 related to unrealized gains and losses on available-for-sale marketable securities. For the three and six months ended June 30, 2014 and 2013, amounts reclassified from accumulated other comprehensive income (loss) into investment income in the Company's Statements of Operations were related to realized gains and losses on sales of marketable securities.

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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 June 30, 2014 and December 31, 2013, consist of the following:
 
 
 
Fair Value Measurements at Reporting Date Using
At June 30, 2014
Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
Available-for-sale marketable securities:
 
 
 
 
 
U.S. government and government agency obligations
$
52,168

 

 
$
52,168

Corporate bonds
647,792

 

 
647,792

Municipal bonds
46,526

 

 
46,526

International government agency obligations
6,210

 

 
6,210

Certificates of deposit
7,922

 

 
7,922

Equity securities
6,974

 
$
6,974

 

 
$
767,592

 
$
6,974


$
760,618

 
 
 
 
 
 
At December 31, 2013
 
 
 
 
 
Available-for-sale marketable securities:
 
 
 
 
 
U.S. government and government agency obligations
$
107,521

 

 
$
107,521

Corporate bonds
369,193

 

 
369,193

Commercial paper
23,944

 

 
23,944

Municipal bonds
36,921

 

 
36,921

International government agency obligations
2,008

 

 
2,008

Certificates of deposit
7,514

 

 
7,514

Equity securities
1,166

 
$
1,166

 

 
$
548,267

 
$
1,166

 
$
547,101

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 six months ended June 30, 2014 and 2013.
There were no purchases, sales, or maturities of Level 3 marketable securities and no unrealized gains or losses related to Level 3 marketable securities for the three and six months ended June 30, 2014 and 2013. There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the three and six months ended June 30, 2014 and 2013.
As of June 30, 2014 and December 31, 2013, the Company had $338.9 million and $400.0 million, respectively, in aggregate principal amount of 1.875% convertible senior notes (the "Notes") that will mature on October 1, 2016 unless earlier converted or repurchased. As described in Note 9, a portion of the Notes was surrendered for conversion during the second quarter of 2014. The fair value of the outstanding Notes was estimated to be $1,090.8 million and $1,327.2 million as of June 30, 2014 and December 31, 2013, respectively, and was determined based on Level 2 inputs, such as market and observable sources.

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


7. Inventories
Inventories consist of the following:
 
June 30,
 
December 31,
 
2014
 
2013
Raw materials
$
10,220

 
$
9,120

Work-in-process
60,110

 
35,868

Finished goods
12,215

 
14,352

Deferred costs
27,352

 
11,014

 
$
109,897

 
$
70,354

Deferred costs represent the costs of product manufactured and shipped to the Company's collaborators for which recognition of revenue has been deferred. For the three months ended June 30, 2014 and 2013, cost of goods sold included inventory write-downs and reserves totaling $0.8 million and $1.7 million, respectively. For the six months ended June 30, 2014 and 2013, cost of goods sold included inventory write-downs and reserves totaling $1.9 million and $4.9 million, respectively.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
 
June 30,
 
December 31,
 
2014
 
2013
Accounts payable
$
47,231

 
$
61,936

Accrued payroll and related costs
51,786

 
69,429

Accrued clinical trial expense
35,498

 
23,654

Accrued sales-related charges, deductions, and royalties
100,333

 
66,855

Other accrued expenses and liabilities
48,537

 
29,022

 
$
283,385

 
$
250,896

9. Convertible Debt
In the second quarter of 2014, $61.1 million principal amount of the Company's $400.0 million aggregate principal amount of Notes were surrendered for conversion. In accordance with the terms of the Notes, the Company elected to settle these conversion obligations through a combination of cash, in an amount equal to the principal amount of the converted Notes, and shares of the Company's Common Stock in respect of any amounts due in excess thereof. Consequently, upon settlement of the Notes during the second quarter of 2014, the Company (i) paid $61.1 million in cash, (ii) issued 521,876 shares of Common Stock, (iii) recognized a $10.8 million loss on the debt extinguishment, and (iv) allocated $156.7 million of the settlement consideration provided to the Note holders to the reacquisition of the equity component of the Notes, and recognized such amount as a reduction of stockholder's equity.
In connection with the initial offering of the Notes in October 2011, the Company entered into convertible note hedge and warrant transactions with multiple counterparties, which were recorded to additional paid-in capital. As a result of the Note conversions in the second quarter of 2014, the Company exercised a proportionate amount of its convertible note hedges, for which the Company received 521,876 shares of Common Stock, which was equivalent to the number of shares the Company was required to issue to settle the non-cash portion of the related Note conversions. The shares received were recorded as Treasury Stock, at cost, in the Company's Balance Sheet and Statement of Stockholders' Equity.
Also during the second quarter of 2014, the Company entered into agreements to reduce the number of warrants held by each of the warrant holders in proportion to the amount of Notes converted. Pursuant to the agreements, the Company paid an aggregate

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


amount of $143.0 million to the warrant holders to reduce the maximum number of shares of Common Stock issuable upon exercise of the warrants from 4,760,840 to 4,033,324 (subject to adjustment from time to time as provided in the applicable warrant agreements). The remaining warrants expire, and will be exercisable, at various dates during 2017.
10. Income Taxes
The Company is subject to U.S. federal, state, and foreign income taxes. The Company recorded an income tax provision in its Statement of Operations of $110.4 million and $60.3 million for the three months ended June 30, 2014 and 2013, respectively, and $220.2 million and $103.3 million for the six months ended June 30, 2014 and 2013, respectively. The Company's effective tax rate was 54.3% and 40.8% for the three months ended June 30, 2014 and 2013, respectively, and 58.2% and 35.7% for the six months ended June 30, 2014 and 2013, respectively. The Company's effective tax rate for the three and six months ended June 30, 2014 was negatively impacted by losses incurred in foreign jurisdictions with rates lower than the federal statutory rate and expiration at the end of 2013 of the federal tax credit for increased research activities. In addition, the Company's effective tax rate for the six months ended June 30, 2014 was negatively impacted by New York State tax legislation enacted in the first quarter of 2014. This tax legislation reduced the New York State income tax rate to zero percent for "qualified manufacturers", including Regeneron, effective in 2014; however, it also resulted in the Company reducing its related deferred tax assets as a discrete item in the first quarter of 2014. As a result, this tax legislation caused a net increase in the Company's effective tax rate by 3.9% for the six months ended June 30, 2014.
The Company's effective tax rate for the six months ended June 30, 2013 included, as a discrete item in the first quarter of 2013, 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 six months ended June 30, 2013 by 6.0%.
The Company also recorded an income tax provision in its Statement of Comprehensive Income of $1.4 million for both the three and six months ended June 30, 2014 in connection with the Company’s unrealized gain on “available-for-sale” marketable securities. For both the three and six months ended June 30, 2013, no such income tax provision or benefit was required in connection with the Company’s unrealized losses on “available-for-sale” marketable securities.
Tax years subsequent to 2009 remain open to examination by federal tax authorities. The Company's 2011 federal income tax return is currently under audit by the Internal Revenue Service. During the second quarter of 2014, New York State tax authorities finalized their audit of the Company's 2009, 2010, and 2011 business corporation franchise tax returns with no adjustments.
11. Statement of Cash Flows
Supplemental disclosure of non-cash investing and financing activities:
Included in accounts payable and accrued expenses at June 30, 2014 and December 31, 2013 were $35.1 million and $16.1 million, respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at June 30, 2013 and December 31, 2012 were $8.1 million and $8.6 million, respectively, of accrued capital expenditures.
Pursuant to the application of authoritative guidance issued by the Financial Accounting Standards Board ("FASB") to the Company's lease of office and laboratory facilities in Tarrytown, New York, the Company recognized a facility lease obligation of $50.6 million and $4.7 million during the six months ended June 30, 2014 and 2013, respectively, in connection with capitalizing, on the Company's books, the landlord's costs of constructing new facilities that the Company has leased.
12. 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.
Proceedings Relating to ‘287 Patent and '018 Patent
The Company is a party to patent infringement litigation involving its European Patent No. 1,360,287 (the "'287 Patent") and its U.S. Patent No. 8,502,018 (the "'018 Patent"), both of which concern genetically altered mice capable of producing chimeric

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


antibodies that are part human and part mouse. Chimeric antibody sequences can be used to produce high-affinity fully human monoclonal antibodies. In these proceedings (the "'287 Patent Infringement Litigation" and "'018 Patent Infringement Litigation," respectively), the Company claims infringement of several claims of the '287 Patent and the '018 Patent (as applicable), and seeks, among other types of relief, an injunction and an account of profits in connection with the defendants' infringing acts, which may include, among other things, the making, use, keeping, sale, or offer for sale of genetically engineered mice (or certain cells from which they are derived) that infringe one or more claims of the '287 Patent and the '018 Patent (as applicable).
As the '287 Patent Infringement Litigation and '018 Patent Infringement Litigation proceedings are at an early stage, at this time the Company is not able to predict the outcome of, or an estimate of gain, if any, related to, these proceedings.
13. Recently Issued Accounting Standards
In May 2014, the FASB issued a new standard related to revenue recognition, Revenue from Contracts with Customers, which will replace existing revenue recognition guidance. The new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. To achieve that core principle, an entity must identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation. The new standard will be effective for annual and interim reporting periods beginning after December 15, 2016, and early adoption is not permitted. The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition and is evaluating the impact that this guidance will have on the Company's financial statements.

14. Subsequent Events
In July 2014, in connection with the Company’s antibody collaboration with Sanofi (see Note 3), the Company purchased an FDA priority review voucher from a third party for $67.5 million. The Company and Sanofi will equally share the priority review voucher's purchase price.


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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 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," "seek," "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 our products, product candidates, and research and clinical programs now underway or planned, including without limitation Regeneron's human genetics initiative; 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; the likelihood and timing of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for marketed products, including without limitation EYLEA®, sarilumab, alirocumab, and dupilumab; ongoing regulatory obligations and oversight impacting our research and clinical programs and business, including those relating to patient privacy; determinations by regulatory and administrative governmental authorities which may delay or restrict our ability to continue to develop or commercialize our products and product candidates; competing drugs and product candidates that may be superior to our products and product candidates; uncertainty of market acceptance and commercial success of our products and product candidates; our ability to manufacture and manage supply chains for multiple products and product candidates; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unanticipated expenses; the costs of developing, producing, and selling products; our ability to meet any of our sales or other financial projections or guidance, including without limitation capital expenditures and income tax obligations, 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 cancelled 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 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 Part II, Item 1A. “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. We commercialize medicines for eye diseases, colorectal cancer, and a rare inflammatory condition and have product candidates in development in other areas of high unmet medical need, including hypercholesterolemia, oncology, rheumatoid arthritis (RA), asthma, and atopic dermatitis.
Our total revenues were $665.7 million in the second quarter and $1,291.4 million in the first half of 2014, compared to $457.6 million in the second quarter and $897.3 million in the first half of 2013. Our net income was $92.7 million, or $0.82 per diluted share, in the second quarter and $158.2 million, or $1.40 per diluted share, in the first half of 2014, compared to net income of $87.4 million, or $0.79 per diluted share, in the second quarter and $186.3 million, or $1.69 per diluted share, in the first half of 2013. Refer to the "Results of Operations" section below for further details of our financial results.
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, European Union (EU), Japan, and certain other countries outside the United States for the treatment of neovascular age-related macular degeneration (wet AMD) and macular edema following central retinal vein occlusion (CRVO). In July 2014, the U.S. Food and Drug Administration (FDA) approved EYLEA for the treatment of diabetic macular edema (DME). We are collaborating with Bayer HealthCare on the global development and commercialization of EYLEA outside the United States. Regulatory applications have been submitted for EYLEA in Europe for the treatment of DME and in the United States and Europe for the treatment of macular edema following branch retinal vein occlusion (BRVO). Regulatory submissions have also been made for DME and myopic choroidal neovascularization (mCNV) in Japan.
ZALTRAP® (ziv-aflibercept) Injection for Intravenous Infusion, known in the scientific literature as VEGF Trap, which is available in the United States, EU, and certain other countries 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. Regulatory applications for marketing authorization of ZALTRAP for the treatment of previously treated mCRC patients in other countries have also been submitted and are

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currently under review by the respective regulatory agencies. We and Sanofi globally collaborate on the development and commercialization of ZALTRAP.
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 years and older.
We have 16 product candidates in clinical development, all of which were discovered in our research laboratories. These consist of two Trap-based clinical programs and 14 fully human monoclonal antibody product candidates, as summarized below:
Trap-based Clinical Programs
EYLEA
 
 
In Phase 3 clinical development for the treatment of DME, macular edema following BRVO, and mCNV, in collaboration with Bayer HealthCare. As described below, EYLEA is also being studied in combination with an antibody to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta).
ZALTRAP
 
 
In Phase 3 clinical development in metastatic colorectal cancer in the Asia-Pacific region.
Antibody-based Clinical Programs
In Collaboration with Sanofi
 
Developing Independently
Sarilumab (REGN88)
 
REGN1400
Antibody to the interleukin-6 receptor (IL-6R).
In clinical development in rheumatoid arthritis (Phase 3) and non-infectious uveitis (Phase 2).
 
Antibody to ErbB3.
In Phase 1 clinical development in oncology.
Alirocumab (REGN727)
 
REGN1154
Antibody to Proprotein Convertase Subtilisin/Kexin type 9 (PCSK9).
In Phase 3 clinical development for low-density lipoprotein (LDL) cholesterol reduction.
 
Antibody in Phase 1 clinical development against an undisclosed target.
Dupilumab (REGN668)
 
REGN1500
Antibody to the interleukin-4 receptor (IL-4R) alpha subunit.
In clinical development in atopic dermatitis (Phase 2b), asthma (Phase 2b), and nasal polyposis (Phase 2).
 
Antibody in Phase 1 clinical development against an undisclosed target.
Nesvacumab (REGN910)
 
REGN1193
Antibody to angiopoietin-2 (Ang2), a novel angiogenesis target.
In Phase 1 clinical development in oncology. Currently on partial clinical hold by the FDA for systemic use in oncology.
 
Antibody in Phase 1 clinical development against an undisclosed target.
REGN1033
 
REGN1908-1909
Antibody to myostatin (GDF8).
In Phase 2 clinical development in skeletal muscle disorders.
 
Antibody combination in Phase 1 clinical development against an undisclosed target.
REGN2222
 
Fasinumab (REGN475)
Antibody in Phase 1 clinical development against an undisclosed target.
 
Antibody to Nerve Growth Factor (NGF).
In development for the treatment of pain; currently on partial clinical hold by the FDA.
 
 
Enoticumab (REGN421)
 
 
Antibody to Delta-like ligand-4 (Dll4), a novel angiogenesis target.
In Phase 1 clinical development in oncology.
In Collaboration with Bayer HealthCare
 
 
REGN2176-3
 
 
Combination product comprised of an antibody to PDGFR-beta co-formulated with EYLEA for use in ophthalmology.
In Phase 1 clinical development for the treatment of wet AMD.
 
 

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Development of REGN2009, which was an antibody in Phase 1 clinical development against an undisclosed target, was discontinued in the second quarter of 2014.
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.
In early 2014, we launched a new human genetics initiative via a wholly owned subsidiary, Regeneron Genetics Center LLC (RGC). RGC performs sequencing and genotyping to generate de-identified genomic data. The objective of RGC is to expand the use of human genetics for discovering and validating genetic factors that cause or influence a range of diseases where there are major unmet medical needs, with the prospect of improving the drug discovery and development process. RGC intends to pursue both large population-based efforts as well as family-based approaches.
Marketed Products
EYLEA (aflibercept) Injection
Net product sales of EYLEA in the United States were $414.8 million in the second quarter and $773.8 million in the first half of 2014, compared to $329.8 million in the second quarter and $643.7 million in the first half of 2013. Bayer HealthCare records revenue from sales of EYLEA outside the United States, which were $246.8 million in the second quarter and $464.9 million in the first half of 2014, compared to $101.5 million in the second quarter and $163.5 million in the first half of 2013.
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 outside the United States, and for the treatment of macular edema secondary to CRVO in the fourth quarter of 2013 following receipt of regulatory approvals in the EU and Japan. 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 DME, as described below under "Trap-based and Late-Stage Antibody-based Clinical Programs: EYLEA - Ophthalmologic Diseases." Based on the positive results of these studies, we submitted a supplemental Biologics License Application (BLA) for U.S. regulatory approval of EYLEA in DME in the fourth quarter of 2013, and the FDA approved EYLEA for the treatment of DME in July 2014. Applications for marketing approval for the treatment of DME in the EU and Japan have also been submitted by Bayer HealthCare. In addition, in February and July 2014, we and Bayer HealthCare announced positive week 100 results from the Phase 3 VISTA-DME and Phase 3 VIVID-DME trials, respectively, as described below under "Trap-based Clinical Programs: EYLEA - Ophthalmologic Diseases." In June 2014, EYLEA was recommended for approval by the European Committee for Medicinal Products for Human Use (CHMP) for the treatment of DME; the decision of the European Commission is expected in the second half of 2014.
In October 2013, we announced positive week 24 results from the Phase 3 VIBRANT trial of EYLEA for the treatment of macular edema following BRVO, as described below under "Trap-based Clinical Programs: EYLEA - Ophthalmologic Diseases." Based on the positive results of this study, a supplemental BLA for U.S. regulatory approval of EYLEA in macular edema following BRVO was submitted, and the target date for an FDA decision on the supplemental BLA is October 23, 2014. In addition, Bayer HealthCare has submitted an application to the European Medicines Agency (EMA) seeking marketing authorization in the EU for EYLEA for the treatment of macular edema following BRVO.
We are collaborating with Bayer HealthCare on the global development and commercialization of EYLEA outside the United States. Bayer HealthCare markets, and records revenue from sales of, 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 receive a percentage of the sales of EYLEA. We maintain exclusive rights to EYLEA in the United States and are entitled to all profits from such sales.

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ZALTRAP (ziv-aflibercept) Injection for Intravenous Infusion
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 receive a percentage of the sales of ZALTRAP. 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 $21.2 million in the second quarter and $42.8 million in the first half of 2014, compared to $18.6 million in the second quarter and $32.7 million in the first half of 2013. 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.
ARCALYST (rilonacept) Injection for Subcutaneous Use
ARCALYST (rilonacept) Injection for Subcutaneous Use is available in the United States for the treatment of CAPS in adults and children 12 years 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 $3.2 million in the second quarter and $6.6 million in the first half of 2014, compared to $4.1 million in the second quarter and $8.9 million in the first half of 2013.
Trap-based Clinical Programs
EYLEA - Ophthalmologic Diseases
Overview
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. CRVO is caused by obstruction of the central retinal vein that leads to a back-up of blood and fluid in the retina. Release of VEGF contributes to increased vascular permeability in the eye and macular edema. In BRVO, a blockage occurs in the blood vessels branching from the main vein draining the retina, resulting in the release of VEGF and consequent retinal edema. For centrally involved 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 and macular edema following BRVO. 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.
Wet AMD
Phase 3 SIGHT Trial. 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). In the trial, EYLEA 2 milligrams (mg) dosed every two months achieved the primary endpoint of a significantly greater improvement in best-corrected visual acuity (BCVA) from baseline compared to photodynamic therapy (PDT) at 28 weeks (14 letters for EYLEA vs. 3.9 letters for PDT, p<0.0001). The safety results were consistent with results from prior studies in wet AMD.
RE-VIEW Study. 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.
DME
Phase 3 VISTA-DME and VIVID-DME Trials. We are conducting the VISTA-DME study in the United States. Bayer HealthCare is conducting the VIVID-DME study in Europe, Japan, and Australia. 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.

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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 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 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, during the fourth quarter of 2013, we submitted a supplemental BLA for U.S. regulatory approval of EYLEA in DME and in July 2014, the FDA approved EYLEA for the treatment of DME. Bayer HealthCare also submitted applications for marketing approval for the treatment of DME in the EU in the fourth quarter of 2013 and Japan in the first quarter of 2014. In June 2014, EYLEA was recommended for approval by the CHMP for the treatment of DME.
In February 2014, we and Bayer HealthCare announced that in the Phase 3 VISTA-DME trial of EYLEA for the treatment of DME, EYLEA 2 mg dosed monthly and EYLEA 2 mg dosed every two months (after 5 initial monthly injections) showed a sustained improvement from baseline in BCVA at week 100, compared to laser photocoagulation. After two years, patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 11.5 letters and patients receiving EYLEA 2 mg every other month (after 5 initial monthly injections) had a mean change from baseline in BCVA of 11.1 letters, compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 0.9 letters.
In the VISTA-DME trial, 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. The most frequent ocular treatment emergent AEs (TEAEs) observed included conjunctival hemorrhage, eye pain, and vitreous floaters. The most frequent non-ocular TEAEs included hypertension, nasopharyngitis, anemia, and urinary tract infection, which occurred with similar frequency in 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) were similar across the treatment groups and the laser control group with events occurring in 13 out of 155 patients in the EYLEA 2 mg dosed monthly group, 11 out of 152 patients in the EYLEA 2 mg dosed every two months group, and 9 out of 154 patients in the laser treatment group. Eight out of 155 patients died in the EYLEA 2 mg dosed monthly group, 4 out of 152 patients in the EYLEA 2 mg dosed every two months group, and 3 out of 154 patients in the laser treatment group.
In July 2014, we announced that in the Phase 3 VIVID-DME trial, EYLEA 2 mg dosed monthly and EYLEA 2 mg dosed every two months (after 5 initial monthly injections) showed a sustained improvement from baseline in BCVA at week 100 (2 years), compared to laser photocoagulation. After two years, patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 11.4 letters and patients receiving EYLEA 2 mg every two months had a mean change from baseline in BCVA of 9.4 letters, compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 0.7 letters. Additionally, 31.1% of patients receiving EYLEA every two months achieved an increase of greater than or equal to 15 letters, or approximately 3 lines of vision, from baseline (P = 0.0001), and 38.2% receiving EYLEA every month achieved an increase of greater than or equal to 15 letters from baseline (P less than 0.0001 vs. laser), compared with 12.1% of patients in the laser control arm achieving similar vision gains.
In the VIVID-DME trial, EYLEA had a similar overall incidence of AEs, ocular serious AEs, and non-ocular serious AEs across the EYLEA treatment groups and the laser control group. The most frequent ocular AEs observed in the VIVID-DME trial included conjunctival hemorrhage, cataract, and increased intraocular pressure. The most frequent non-ocular AEs included nasopharyngitis and hypertension. Arterial thromboembolic events as defined by the Anti-Platelet Trialists' Collaboration (non-fatal stroke, non-fatal myocardial infarction, and vascular death) were similar across the treatment groups and the laser control group. Four out of 136 patients died in the EYLEA 2 mg dosed monthly group, 6 out of 135 patients in the EYLEA 2 mg dosed every two months group, and 1 out of 133 patients in the laser treatment group.
Full two-year data from the VIVID-DME trial will be presented at upcoming medical conferences. Both the VIVID-DME and VISTA-DME trials will continue as planned up to 148 weeks.
Phase 3 VIVID-Japan and VIVID EAST-DME Studies. 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 the first quarter of 2014, Bayer HealthCare reported positive results from the VIVID-Japan study, which did not change the overall safety profile for EYLEA in DME, and submitted an application for marketing authorization of EYLEA for the treatment of DME 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). This trial is fully enrolled.
Macular Edema Following BRVO
Phase 3 VIBRANT Study. In October 2013, we reported positive top-line results from the VIBRANT trial. The study achieved its primary endpoint of a statistically significant difference for EYLEA dose 2 mg monthly versus laser in proportion of patients who gained at least 15 letters of visual acuity at 24 weeks versus baseline. The incidence of serious AEs was similar in both study arms. The most common ocular AEs in the EYLEA treated patients were conjunctival hemorrhage and eye pain. There were no

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cases of intraocular inflammation. There was one ocular SAE in a patient in the EYLEA group, which was a traumatic cataract. Based on the positive results of the VIBRANT study, a supplemental BLA for U.S. regulatory approval of EYLEA in BRVO was submitted; the target date for an FDA decision on the supplemental BLA is October 23, 2014.
In January 2014, Bayer HealthCare exercised its right to opt-in to the global development and commercialization of EYLEA outside the United States for the treatment of macular edema following BRVO as described below under "Collaborations with Bayer HealthCare - EYLEA outside the United States." Bayer HealthCare has also submitted an application to the EMA seeking marketing authorization in the EU for EYLEA for the treatment of macular edema following BRVO.
Other
Phase 3 MYRROR Study. 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, achieved a statistically significant mean improvement in BCVA from baseline to week 24 versus the sham control. The most common AEs 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 submitted an application for regulatory approval for this indication in Japan in the fourth quarter of 2013.
ZALTRAP (ziv-aflibercept) - Oncology
ZALTRAP is a fusion protein that is designed to bind all forms of VEGF-A, VEGF-B, and PlGF, and prevent their interaction with cell surface receptors. VEGF-A (and to a lesser degree, PlGF) is required for angiogenesis that is needed for tumors to grow. ZALTRAP is in Phase 3 clinical development in metastatic colorectal cancer in the Asia-Pacific region.
Late-Stage Antibody-based Clinical Programs
Sarilumab (REGN88; IL-6R Antibody) for inflammatory diseases
Overview
IL-6 is a key cytokine involved in the pathogenesis of RA, causing inflammation and joint destruction. Sarilumab is a fully human monoclonal antibody to IL-6R generated using our VelocImmune technology.
Rheumatoid Arthritis
Phase 3 SARIL-RA-MOBILITY Trial. In the fourth quarter of 2013, we and Sanofi announced that in the SARIL-RA-MOBILITY Phase 3 clinical trial in adult patients with active RA who were inadequate responders to MTX therapy, sarilumab treatment in combination with MTX improved disease signs and symptoms as well as physical function, and inhibited progression of joint damage. The 52 week SARIL-RA-MOBILITY Phase 3 trial enrolled approximately 1,200 patients with active, moderate-to-severe rheumatoid arthritis, and who were inadequate responders to MTX therapy. Patients were randomized to one of three subcutaneous treatment groups, all in combination with MTX and dosed every other week: sarilumab 200 mg, sarilumab 150 mg, or placebo. Both sarilumab groups showed clinically relevant and statistically significant improvements compared to the placebo group in all three co-primary endpoints (p < 0.0001).
In the SARIL-RA-MOBILITY trial, infections were the most frequently reported adverse events and were reported with a higher incidence in the sarilumab groups compared to placebo, all in combination with MTX. Among patients treated with sarilumab, a dose dependent decrease in mean neutrophil counts was observed. Serious infections were not associated with grades 3 and 4 neutropenia in this study. Increases in mean LDL cholesterol and transaminases were observed.
In June 2014, efficacy and safety data from the SARIL-RA-MOBILITY study was presented at the annual meeting of The European League Against Rheumatism (EULAR).
Additional Phase 3 Studies. We and Sanofi have also 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.

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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.
Non-infectious Uveitis
Phase 2 SARIL-NIU-SATURN Study. A Phase 2 study, SARIL-NIU-SATURN, was initiated 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.
Alirocumab (REGN727; PCSK9 Antibody) for LDL cholesterol reduction
Overview
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 that ultimately results in an increase in LDL receptors to increase the uptake of plasma LDL lipoproteins. 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-C, 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.
Clinical Programs
Phase 2 Studies. 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. In the Phase 2 program, injection site reactions were the most common AEs with alirocumab, and were rare. Rare cases of hypersensitivity reaction were also reported. SAEs were reported in 1.8% of patients in the active treatment arms and 2.6% of patients in the placebo groups.
In the first quarter of 2014, the first Phase 2 study with alirocumab in Japanese patients met its primary endpoint. The results demonstrated that the mean LDL-C percentage reduction from baseline to week 12, the primary efficacy endpoint of the study, was significantly greater in patients randomized to receive one of three doses of alirocumab administered every other week (Q2W) - 150 mg, 75 mg, and 50 mg, in combination with statin therapy, compared to patients receiving placebo. At week 12, the mean percentage reduction in LDL-C from baseline in patients receiving alirocumab 50 mg Q2W was 55%, alirocumab 75 mg Q2W was 62% and alirocumab 150 mg Q2W was 72%, compared to 3% in the placebo group. TEAEs in this study were reported by 52% of patients in the alirocumab 50 mg group, 48% of patients in the 75 mg group, and 64% of patients in the 150 mg group, compared to 32% in the placebo group. The most frequently reported TEAEs were nasopharyngitis, injection site reaction, back pain, cystitis and ligament sprain.
Phase 3 ODYSSEY Program. 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 23,500 patients. This includes eleven clinical trials evaluating the effect of alirocumab, dosed every two weeks, on lowering LDL cholesterol. In addition, the 18,000 patient ODYSSEY OUTCOMES trial, assessing reduction in serious cardiovascular events, is currently enrolling patients, while the other trials exploring every two week dosing in the ODYSSEY program are fully enrolled. LDL cholesterol reduction is expected to be the primary efficacy endpoint for initial regulatory filings. Additionally, the ODYSSEY program includes two trials of alirocumab dosed every four weeks, ODYSSEY CHOICE I, which was initiated in the fourth quarter of 2013, and ODYSSEY CHOICE II, which was initiated in the first quarter of 2014; both of these trials are fully enrolled. Patients in the ODYSSEY CHOICE I trial receive alirocumab 300 mg in combination with statins each month and patients in the CHOICE II trial receive alirocumab 150 mg monotherapy and in combination with non-statin lipid lowering therapy each month. The ODYSSEY studies are being conducted in clinical centers around the world including North America, 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 (in the fourth quarter of 2013), 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). 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.

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In July 2014, we and Sanofi reported positive, top-line results from nine Phase 3 ODYSSEY studies. All nine studies (ODYSSEY LONG TERM, FH I, FH II, HIGH FH, COMBO I, COMBO II, OPTIONS I, OPTIONS II and ALTERNATIVE), met their primary efficacy endpoint of a greater percent reduction from baseline in LDL-C at 24 weeks compared to placebo or active comparator. In all nine studies, the mean percent reduction in LDL-C from baseline at 24 weeks in alirocumab-treated patients was consistent with results seen in previous alirocumab trials. All patients received alirocumab in addition to standard-of care lipid-lowering therapy, with the exception of some patients in ODYSSEY ALTERNATIVE. All trials included patients with LDL-C not at goal with or without a documented history of cardiovascular disease (CVD). The trials evaluated two distinct dosing regimens: 150 mg every two weeks or 75 mg every two weeks increasing to 150 mg if needed to reach protocol-specified LDL-C targets. A majority of patients in these trials were able to reach their LDL-C goals while remaining on the 75 mg dose. The 75 mg and the 150 mg dose was delivered with a single, self-administered one-milliliter (mL) injection.
The 2,341-patient ongoing ODYSSEY LONG TERM trial evaluated the long-term safety and efficacy of alirocumab compared to placebo. Both treatment groups received statins and some patients also received additional lipid-lowering therapies. The trial met its primary efficacy endpoint at 24 weeks. A pre-specified interim safety analysis was performed when all patients reached one year and approximately 25% of patients reached 18 months of treatment. A lower rate of adjudicated major cardiovascular events (cardiac death, myocardial infarction, stroke, and unstable angina requiring hospitalization) was observed in the alirocumab arm compared to placebo in a post-hoc analysis (p-value of less than 0.05). The potential of alirocumab to demonstrate cardiovascular benefit is being prospectively assessed in the ongoing 18,000-patient ODYSSEY OUTCOMES trial.
The ODYSSEY ALTERNATIVE trial evaluated patients with a history of intolerance to two or more statins, who were randomized to receive alirocumab, ezetimibe or atorvastatin 20 mg (a calibrator arm). This trial met its primary efficacy endpoint of a greater percent reduction from baseline in LDL-C at 24 weeks with alirocumab compared to ezetimibe. In the ALTERNATIVE trial, rates of discontinuation due to AEs were 25.4% for atorvastatin, 24.8% for ezetimibe and 18.3% for alirocumab; these differences between treatment groups were not statistically significant.
Alirocumab was generally well tolerated in the nine ODYSSEY trials. The most common AEs were nasopharyngitis and upper respiratory tract infection, which were generally balanced between treatment groups. Injection site reactions were more frequent in the alirocumab group compared to placebo. Serious AEs and deaths were generally balanced between treatment groups as were other key AEs including musculoskeletal, neurocognitive and liver-related events. 
In July 2014, we and Sanofi also announced that the companies intend to use an FDA rare pediatric disease priority review voucher in connection with the planned BLA submission for alirocumab. The priority review voucher entitles the holder to designate a human drug application for priority review. The FDA's goal for reviewing a human drug application with priority review is to take action within 6 months instead of 10 months under standard review. We purchased the voucher from a third party, which had received it through the FDA’s Rare Pediatric Disease Priority Review Voucher Program. We and Sanofi will equally share the voucher’s purchase price of $67.5 million.
Dupilumab (REGN668; IL-4R Antibody) for allergic and immune conditions
Overview
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 (allergic) dermatitis, asthma, and nasal polyposis. Dupilumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to bind to IL-4R alpha subunit and block signaling from both IL-4 and IL-13.
Atopic Dermatitis
Phase 2a Trial. Data from four Phase 1 and Phase 2 studies of dupilumab in adults with moderate-to-severe atopic dermatitis, a severe chronic form of eczema, were published in the New England Journal of Medicine in July 2014. In the Phase 2a study of 109 patients with moderate-to-severe atopic dermatitis, dupilumab 300 mg administered weekly was associated with rapid and marked sustained improvements in several endpoints such as Eczema Severe Score Index (EASI), Scoring of Atopic Dermatitis (SCORAD), Investigator’s Global Assessment Score (IGA), baseline Body Surface Area (BSA), and pruritus. After 12 weeks of treatment, patients receiving dupilumab achieved statistically superior clinical outcomes compared to patients in the placebo group in all measures of disease activity and pruritus. There were notably fewer patients with skin infections associated with dupilumab treatment (5.5%), compared with placebo (24.1%). There were no infection related serious AEs or eczema herpeticum in the dupilumab group. In the placebo group, three patients with skin infections and four patients with atopic dermatitis exacerbations required hospitalization. The most common TEAEs were nasopharyngitis, headache, and conjunctivitis.
Phase 2b Trial. In the second quarter of 2013, a Phase 2b trial in atopic dermatitis was initiated. In July 2014, we and Sanofi announced positive results from a Phase 2b dose-ranging study of dupilumab in adult patients with moderate-to-severe atopic

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dermatitis. All doses of dupilumab met the primary endpoint of a greater improvement in EASI scores from baseline compared to placebo. In the Phase 2b trial, all five subcutaneous doses of dupilumab showed a dose-dependent improvement in the primary endpoint, the mean percent change in EASI score from baseline to week 16. The improvements in EASI score ranged from a high of 74% for patients in the highest dose group, who received 300 mg weekly, to a low of 45% in patients who received the lowest dose of 100 mg monthly, compared to 18% for patients in the placebo group (p<0.0001 for all doses). The most common AE in the Phase 2b study was nasopharyngitis, which was balanced across dupilumab treatment groups (18.5% to 23%) compared to placebo (21%). Injection site reactions were more frequent in the dupilumab group (5% to 9.5%) compared to placebo (3%), as was headache (12% to 15%) compared to placebo (8%).
Dupilumab-treated patients showed highly statistically significant and dose-dependent improvements in additional key efficacy measures compared to placebo after 16 weeks of treatment:
12% to 33% of dupilumab-treated patients achieved clearing or near-clearing of skin lesions, as measured by an IGA score of 0 or 1, compared to 2% with placebo (p=0.02 to p<0.0001).
Dupilumab-treated patients experienced a 16.5% to 47% mean reduction in itching, as measured by the pruritus numerical-rating scale (NRS) score, compared to an increase of 5% in the placebo group (p=0.0005 to p<0.0001).
This Phase 2b double-blind, placebo-controlled, 16-week, dose-ranging study randomized 380 patients with moderate-to-severe atopic dermatitis, who could not be adequately controlled with topical medication or for whom topical treatment was not advisable. Patients were randomized to receive one of five doses of dupilumab (300 mg weekly, 300 mg every other week, 300 mg monthly, 200 mg every other week, 100 mg monthly) or placebo. Patients in the study had approximately 50% of their skin affected by atopic dermatitis at baseline. In the year preceding enrollment in the study, approximately 35% of patients received an oral corticosteroid and approximately 20% received a systemic non-steroid immunosuppressant for AD. Approximately 60% of patients had another allergic condition, including approximately 40% of patients who had a history of asthma. The follow-up period of the study is ongoing and patients will be followed for 16 weeks after treatment.
Asthma
Phase 2a Trial. 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 at 300 mg weekly for 12 weeks 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 (FEV1). TEAEs were reported by a similar proportion of patients in both treatment 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, nasopharyngitis, upper respiratory tract infection, headache, and nausea.
Phase 2b Trial. In the second quarter of 2013, a Phase 2b trial in asthma was initiated and is fully enrolled.
Nasal Polyposis
Phase 2a Study. In the third quarter of 2013, a Phase 2a trial in nasal polyposis was initiated and is fully enrolled.
Other Antibody-based Clinical Programs
Each of the antibodies in the table below was generated using our VelocImmune technology.

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Program
 
Overview
 
Clinical Status
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. Enoticumab is a fully human monoclonal antibody to Dll4.

In July 2014, Sanofi elected not to continue co-development of enoticumab, and we have sole global rights.
 
In Phase 1 clinical development.
Nesvacumab
(REGN910; Ang2 Antibody) for oncology*(on partial clinical hold)

 
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, 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 that is designed to block Ang2.