Regeneron Pharmaceuticals, Inc.
REGENERON PHARMACEUTICALS INC (Form: 10-Q, Received: 05/08/2014 06:57:33)
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   March 31, 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 April 17, 2014 :
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
2,000,781
Common Stock, $.001 par value
 
98,879,794



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)
 
March 31,
 
December 31,
 
2014
 
2013
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
461,858

 
$
535,608

Marketable securities
186,275

 
158,376

Accounts receivable - trade, net
801,773

 
787,071

Accounts receivable from Sanofi
118,003

 
104,707

Accounts receivable from Bayer HealthCare
127,720

 
63,189

Inventories
86,545

 
70,354

Deferred tax assets
36,623

 
44,677

Prepaid expenses and other current assets
52,252

 
32,952

Total current assets
1,871,049

 
1,796,934

 
 
 
 
Marketable securities
534,689

 
389,891

Property, plant, and equipment, at cost, net of accumulated depreciation and amortization
600,864

 
526,983

Deferred tax assets
248,454

 
231,878

Other assets
5,340

 
5,327

Total assets
$
3,260,396

 
$
2,951,013

 
 
 
 
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
237,935

 
$
250,896

Deferred revenue from Sanofi, current portion
12,980

 
12,815

Deferred revenue - other, current portion
53,093

 
34,185

Facility lease obligations, current portion
1,060

 
939

Total current liabilities
305,068

 
298,835

 
 
 
 
Deferred revenue from Sanofi
73,694

 
76,522

Deferred revenue - other
128,539

 
107,677

Facility lease obligations
203,380

 
184,258

Convertible senior notes
326,673

 
320,315

Other long-term liabilities
11,794

 
11,330

Total liabilities
1,049,148

 
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 - 2,000,781 at March 31, 2014 and 2,020,481 at December 31, 2013
2

 
2

Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 98,847,729 at March 31, 2014 and 97,666,814 at December 31, 2013
99

 
97

Additional paid-in capital
2,236,931

 
2,045,857

Accumulated deficit
(27,249
)
 
(92,692
)
Accumulated other comprehensive income (loss)
1,465

 
(1,188
)
Total stockholders' equity
2,211,248

 
1,952,076

Total liabilities and stockholders' equity
$
3,260,396

 
$
2,951,013

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


3


Table of Contents


REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 
 
Three months ended
March 31,
 
 
2014
 
2013
Statements of Operations
 
 
 
 
Revenues:
 
 
 
 
Net product sales
 
$
362,378

 
$
318,740

Sanofi collaboration revenue
 
130,508

 
99,273

Bayer HealthCare collaboration revenue
 
125,312

 
14,907

Technology licensing and other revenue
 
7,542

 
6,744

 
 
625,740

 
439,664

 
 
 
 
 
Expenses:
 
 
 
 
Research and development
 
287,379

 
180,299

Selling, general, and administrative
 
108,850

 
77,260

Cost of goods sold
 
27,473

 
28,021

Cost of collaboration manufacturing
 
16,099

 
1,034

 
 
439,801

 
286,614

 
 
 
 
 
Income from operations
 
185,939

 
153,050

 
 
 
 
 
Other income (expense):
 
 
 
 
Investment income
 
937

 
456

Interest expense
 
(11,613
)
 
(11,675
)
 
 
(10,676
)
 
(11,219
)
 
 
 
 
 
Income before income taxes
 
175,263

 
141,831

 
 
 
 
 
Income tax expense
 
(109,820
)
 
(42,957
)
 
 
 
 
 
Net income
 
$
65,443

 
$
98,874

 
 
 
 
 
Net income per share - basic
 
$
0.66

 
$
1.02

Net income per share - diluted
 
$
0.58

 
$
0.90

 
 
 
 
 
Weighted average shares outstanding - basic
 
98,709

 
96,878

Weighted average shares outstanding - diluted
 
112,151

 
109,369

 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
Net income
 
$
65,443

 
$
98,874

Other comprehensive income (loss):
 
 
 
 
Unrealized gain (loss) on marketable securities
 
2,653

 
(478
)
Comprehensive income
 
$
68,096

 
$
98,396

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



4




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

 

 
1,338

 
2

 
53,918

 

 

 
53,920

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

 

 
(198
)
 

 
(63,086
)
 

 

 
(63,086
)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 

 

 
21

 

 

 

 

 

Conversion of Class A Stock to Common Stock
 
(20
)
 

 
20

 

 

 

 

 

Stock-based compensation charges
 

 

 

 

 
82,982

 

 

 
82,982

Excess tax benefit from stock-based compensation
 

 

 

 

 
117,260

 

 

 
117,260

Net income
 

 

 

 

 

 
65,443

 

 
65,443

Other comprehensive income
 

 

 

 

 

 

 
2,653

 
2,653

Balance, March 31, 2014
 
2,000

 
$
2


98,848


$
99


$
2,236,931


$
(27,249
)

$
1,465


$
2,211,248

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 

 

 
396

 

 
9,804

 

 

 
9,804

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

 

 
(17
)
 

 
(3,085
)
 

 

 
(3,085
)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution
 

 

 
38

 

 

 

 

 

Conversion of Class A Stock to Common Stock
 
(11
)
 

 
11

 

 

 

 

 

Stock-based compensation charges
 

 

 

 

 
53,555

 

 

 
53,555

Excess tax benefit from stock-based compensation
 

 

 

 

 
2,293

 

 

 
2,293

Net income
 

 

 

 

 

 
98,874

 

 
98,874

Other comprehensive loss
 

 

 

 

 

 

 
(478
)
 
(478
)
Balance, March 31, 2013
 
2,058

 
$
2


95,651


$
95


$
1,826,075


$
(418,180
)

$
(1,644
)

$
1,406,348

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


5



REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Three months ended
March 31,
 
 
2014
 
2013
Cash flows from operating activities:
 
 
 
 
Net income
 
$
65,443

 
$
98,874

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
11,530

 
9,407

Non-cash compensation expense
 
81,408

 
53,030

Non-cash interest expense
 
5,916

 
5,781

Other non-cash charges and expenses, net
 
3,761

 
7,174

Deferred taxes
 
(8,522
)
 
39,525

Changes in assets and liabilities:
 
 
 
 
Increase in Sanofi, Bayer HealthCare, and trade accounts receivable
 
(92,529
)
 
(117,782
)
Increase in inventories
 
(15,550
)
 
(17,581
)
Increase in prepaid expenses and other assets
 
(20,898
)
 
(17,815
)
Increase (decrease) in deferred revenue
 
37,107

 
(6,470
)
(Decrease) increase in accounts payable, accrued expenses, and other liabilities
 
(14,139
)
 
32,105

Total adjustments
 
(11,916
)
 
(12,626
)
Net cash provided by operating activities
 
53,527

 
86,248

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(253,878
)
 
(181,236
)
Sales or maturities of marketable securities
 
82,469

 
54,754

Capital expenditures
 
(64,822
)
 
(21,203
)
Net cash used in investing activities
 
(236,231
)
 
(147,685
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Payments in connection with facility and capital lease obligations
 
(262
)
 
(649
)
Proceeds from issuance of Common Stock
 
55,042

 
12,964

Payments in connection with Common Stock tendered for employee tax obligations
 
(63,086
)
 
(3,085
)
Excess tax benefit from stock-based compensation
 
117,260

 
2,293

Net cash provided by financing activities
 
108,954

 
11,523

 
 
 
 
 
Net decrease in cash and cash equivalents
 
(73,750
)
 
(49,914
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
535,608

 
230,276

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
461,858

 
$
180,362

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


6



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

1. Interim Financial Statements
The interim Condensed Consolidated Financial Statements of Regeneron Pharmaceuticals, Inc. ("Regeneron" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, these financial statements reflect all normal recurring adjustments and accruals necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for such periods. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The December 31, 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 $359.0 million and $313.9 million for the three months ended March 31, 2014 and 2013, respectively. In addition, ARCALYST ® net product sales totaled $3.4 million and $4.8 million for the three months ended March 31, 2014 and 2013, respectively.
For the three months ended March 31, 2014 and 2013, the Company recorded 79% and 77% , 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 three months ended March 31, 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
6,886

 
16,858

 
448

 
24,192

Credits/payments
(6,664
)
 
(16,310
)
 
(454
)
 
(23,428
)
Balance as of March 31, 2014
$
4,622

 
$
20,211

 
$
532

 
$
25,365

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, the Company's share of losses in connection with Sanofi's commercialization of ZALTRAP ® , and revenue related to non-refundable up-front payments.

7



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


 
 
Three months ended
March 31,
Sanofi Collaboration Revenue
 
2014
 
2013
ZALTRAP:
 
 
 
 
Regeneron's share of losses in connection with commercialization of ZALTRAP
 
$
(3,212
)
 
$
(7,789
)
Reimbursement of Regeneron research and development expenses
 
1,092

 
2,089

Other
 
2,177

 
1,858

Total ZALTRAP
 
57

 
(3,842
)
Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
126,822

 
99,623

Other
 
3,629

 
3,492

Total Antibody
 
130,451

 
103,115

Total Sanofi collaboration revenue
 
$
130,508

 
$
99,273

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.
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, in the first quarter of 2014, the Company recognized as additional research and development expense $23.8 million of antibody development expenses that the Company was obligated to reimburse to Sanofi related to alirocumab and sarilumab.
In May 2013, the Company acquired from Sanofi full exclusive rights to antibodies targeting the platelet derived growth factor (PDGF) family of receptors. At the time of acquisition, antibodies to the PDGF receptor were in preclinical development for use in ophthalmology. 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, and is obligated to pay up to $30.0 million in additional potential development milestones as well as royalties on any future sales.
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).

8



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


The collaboration revenue the Company earned from Bayer HealthCare is detailed below:
 
 
Three months ended
March 31,
Bayer HealthCare Collaboration Revenue
 
2014
 
2013
EYLEA:
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
61,159

 
$
6,362

Sales milestones
 
30,000

 

Cost-sharing of Regeneron EYLEA development expenses
 
20,347

 
5,888

Other
 
10,932

 
2,657

Total EYLEA
 
122,438

 
14,907

PDGFR-beta antibody:
 
 
 
 
Cost-sharing of REGN2176-3 development expenses
 
513

 

Other
 
2,361

 

Total PDGFR-beta
 
2,874

 

Total Bayer HealthCare collaboration revenue
 
$
125,312

 
$
14,907

EYLEA
In the first quarter of 2014, the Company earned, and recorded as revenue, two $15.0 million sales milestones from Bayer HealthCare upon total aggregate net sales of EYLEA outside the United States exceeding $500 million and $600 million , respectively, over a twelve -month period. The Company is eligible to receive up to $60.0 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" in the table above. In addition, all future agreed upon global EYLEA development expenses incurred in connection with BRVO will be 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.

9



REGENERON PHARMACEUTICALS, INC.
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, they 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.

10



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


4. Net Income Per Share
The Company’s basic net income per share amounts have been computed by dividing net income by the weighted average number of shares of Common Stock and Class A Stock outstanding. Net income per share is presented on a combined basis, inclusive of Common Stock and Class A Stock outstanding, as each class of stock has equivalent economic rights. Diluted net income per share includes the potential dilutive effect of other securities as if such securities were converted or exercised during the period, when the effect is dilutive. The calculations of basic and diluted net income per share are as follows:
 
 
Three months ended March 31,
 
 
2014
 
2013
Net income - basic and diluted
 
$
65,443

 
$
98,874

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
98,709

 
96,878

Effect of dilutive securities:
 
 
 
 
Stock options
 
9,879

 
10,276

Restricted stock
 
401

 
325

Warrants
 
3,162

 
1,890

Dilutive potential shares
 
13,442

 
12,491

Weighted average shares - diluted
 
112,151

 
109,369

 
 
 
 
 
Net income per share - basic
 
$
0.66

 
$
1.02

Net income per share - diluted
 
$
0.58

 
$
0.90

Shares which have been excluded from the March 31, 2014 and 2013 diluted per share amounts because their effect would have been antidilutive, include the following:
 
 
Three months ended March 31,
(Shares in thousands)
 
2014
 
2013
Stock options
 
3,646

 
3,868

Convertible senior notes
 
4,761

 
4,761



11



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


5. Marketable Securities
Marketable securities at March 31, 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 March 31, 2014 and December 31, 2013 .
 
 
Amortized
 
Unrealized
 
Fair
At March 31, 2014
 
Cost Basis
 
Gains
 
Losses
 
Value
U.S. government and government agency obligations
 
$
78,196

 
$
82

 
$
(13
)
 
$
78,265

Corporate bonds
 
579,600

 
517

 
(489
)
 
579,628

Municipal bonds
 
43,276

 
138

 
(13
)
 
43,401

International government agency obligations
 
8,214

 
3
 

 
8,217

Certificates of deposit
 
7,914

 
4

 

 
7,918

Equity securities
 
1,166

 
2,369

 

 
3,535

Total marketable securities
 
$
718,366

 
$
3,113

 
$
(515
)
 
$
720,964

 
 
 
 
 
 
 
 
 
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

The Company classifies its debt securities based on their contractual maturity dates. The debt securities listed at March 31, 2014 mature at various dates through August 2024. The fair values of debt security investments by contractual maturity as of March 31, 2014 and December 31, 2013 consist of the following:
 
 
March 31, 2014
 
December 31, 2013
Maturities within one year
 
$
186,275

 
$
158,376

Maturities after one year through five years
 
525,961

 
383,410

Maturities after five years through ten years
 
4,042

 
4,138

Maturities after ten years
 
1,151

 
1,177

 
 
$
717,429

 
$
547,101


12



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


The following table shows the fair value of the Company’s marketable securities that have unrealized losses and that are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at March 31, 2014 and December 31, 2013.
 
Less than 12 Months
 
12 Months or Greater
 
Total
At March 31, 2014
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
U.S. government and government agency obligations
$
5,983

 
$
(13
)
 

 

 
$
5,983

 
$
(13
)
Corporate bonds
268,174

 
(489
)
 

 

 
268,174

 
(489
)
Municipal bonds
12,187

 
(13
)
 

 

 
12,187

 
(13
)
 
$
286,344

 
$
(515
)
 

 

 
$
286,344

 
$
(515
)
 
 
 
 
 
 
 
 
 
 
 
 
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 the three months ended March 31, 2014 and 2013, total realized gains and losses on sales of marketable securities were not material. Changes in the Company's accumulated other comprehensive income (loss) for the three months ended March 31, 2014 and 2013 related to unrealized gains and losses on available-for-sale marketable securities. For the three months ended March 31, 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.

13



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


6. Fair Value Measurements
The Company’s assets that are measured at fair value on a recurring basis , at March 31, 2014 and December 31, 2013, consist of the following:
 
 
 
Fair Value Measurements at Reporting Date Using
At March 31, 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
$
78,265

 

 
$
78,265

Corporate bonds
579,628

 

 
579,628

Municipal bonds
43,401

 

 
43,401

International government agency obligations
8,217

 

 
8,217

Certificates of deposit
7,918

 

 
7,918

Equity securities
3,535

 
$
3,535

 

 
$
720,964

 
$
3,535


$
717,429

 
 
 
 
 
 
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 no t record any charges for other-than-temporary impairment of its Level 2 marketable securities during the three months ended March 31, 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 months ended March 31, 2014 and 2013 . There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the three months ended March 31, 2014 and 2013 .
As of March 31, 2014 and December 31, 2013 , the Company had $400.0 million in aggregate principal amount of 1.875% convertible senior notes that will mature on October 1, 2016 unless earlier converted or repurchased. The fair value of the outstanding convertible senior notes was estimated to be $1,437.7 million and $1,327.2 million as of March 31, 2014 and December 31, 2013 , respectively, and was determined based on Level 2 inputs, such as market and observable sources.

14



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:
 
March 31,
 
December 31,
 
2014
 
2013
Raw materials
$
6,792

 
$
9,120

Work-in-process
47,858

 
35,868

Finished goods
13,230

 
14,352

Deferred costs
18,665

 
11,014

 
$
86,545

 
$
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 March 31, 2014 and 2013 , cost of goods sold included inventory write-downs and reserves totaling $1.1 million and $3.2 million , respectively.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
 
March 31,
 
December 31,
 
2014
 
2013
Accounts payable
$
32,692

 
$
61,936

Accrued payroll and related costs
41,754

 
69,429

Accrued clinical trial expense
30,828

 
23,654

Accrued sales-related charges, deductions, and royalties
94,554

 
66,855

Other accrued expenses and liabilities
38,107

 
29,022

 
$
237,935

 
$
250,896

9. Income Taxes
The Company is subject to U.S. federal, state, and foreign income taxes. For the three months ended March 31, 2014 and 2013, the Company recorded an income tax provision of $109.8 million and $43.0 million , respectively. The Company's effective tax rate for the three months ended March 31, 2014 and 2013 was 62.7% and 30.3% , respectively. The Company's effective tax rate for the three months ended March 31, 2014 was negatively impacted by (i) expiration at the end of 2013 of the federal tax credit for increased research activities, (ii) losses incurred in foreign jurisdictions with rates lower than the federal statutory rate, and (iii) recently enacted New York State tax legislation. 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 10.4% for the first quarter of 2014.
The Company's effective tax rate for the three months ended March 31, 2013 included, as a discrete item, the favorable impact of the enactment of The American Taxpayer Relief Act in January 2013. The American Taxpayer Relief Act included a provision to extend the income tax credit for increased research activities retroactively to the tax year ended December 31, 2012, as well as for 2013. As a result, the Company's 2012 research tax credit reduced its effective tax rate for the three months ended March 31, 2013 by 12.3% .
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. In addition, the Company's 2009, 2010, and 2011 New York State returns are currently under audit by state tax authorities.

15



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


 
10. Statement of Cash Flows
Supplemental disclosure of non-cash investing and financing activities:
Included in accounts payable and accrued expenses at March 31, 2014 and December 31, 2013 were $17.6 million and $16.1 million , respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at March 31, 2013 and December 31, 2012 were $10.1 million and $8.6 million , respectively, of accrued capital expenditures.
Pursuant to the application of FASB authoritative guidance to the Company's lease of office and laboratory facilities in Tarrytown, New York, the Company recognized a facility lease obligation of $19.4 million during the three months ended March 31, 2014 in connection with capitalizing, on the Company's books, the landlord's costs of constructing new facilities that the Company has leased. The Company did no t recognize any such facility lease obligation during the three months ended March 31, 2013.
11. Legal Matters
From time to time, the Company is a party to legal proceedings in the course of the Company's business. The Company does not expect any such current legal proceedings to have a material adverse effect on the Company's business or financial condition. Costs associated with the Company's involvement in legal proceedings are expensed as incurred.
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 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.
12. Subsequent Events
In April 2014, the Company received notification that $61.1 million principal amount of the Company's 1.875% convertible senior notes were surrendered for conversion, and settlement is anticipated during the second quarter of 2014. In accordance with the terms of the notes, the Company elected to settle these conversion obligations through a combination of cash, in an amount up to the principal amount of the converted notes, and shares in respect of any excess thereof (based on the average of the volume-weighted-average prices of the Common Stock during the 40 trading-day cash settlement averaging period specified in the indenture governing the notes). In connection with these note conversions, the Company exercised a proportionate amount of its convertible note hedges, for which the Company expects to receive shares of Common Stock equivalent to the number of shares the Company will be required to issue to settle the non-cash portion of the related note conversions.
In May 2014, the Company entered into a research collaboration and license agreement with Avalanche Biotechnologies, Inc., a privately held company, to discover, develop, and commercialize novel gene therapy products for the treatment of ophthalmologic diseases. In connection with the agreement, the Company is required to make 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, potential development and regulatory milestones (for products directed to as many as eight therapeutic targets), and royalties on any future sales of such products. The Company has 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 FDA for a product candidate, 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.

16



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 third party intellectual property 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 $625.7 million in the first quarter of 2014 , compared to $439.7 million in the first quarter of 2013 . Our net income was $65.4 million , or $0.58 per diluted share, in the first quarter of 2014 , compared to net income of $98.9 million , or $0.90 per diluted share, in the first quarter 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). We are collaborating with Bayer HealthCare on the global development and commercialization of EYLEA outside the United States.
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 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.

17


Table of Contents


We have 17 product candidates in clinical development, all of which were discovered in our research laboratories. These consist of two Trap-based clinical programs and 15 fully human monoclonal antibody product candidates, as summarized below:
Trap-based Clinical Programs
EYLEA
 
 
In Phase 3 clinical development for the treatment of diabetic macular edema (DME), macular edema following branch retinal vein occlusion (BRVO), and myopic choroidal neovascularization (mCNV), in collaboration with Bayer HealthCare.
ZALTRAP
 
 
In Phase 1b clinical development with angiopoietin-2 inhibitor (nesvacumab) in oncology in collaboration with Sanofi.
 
 
 
Antibody-based Clinical Programs
In Collaboration with Sanofi
 
Developed 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 alpha (IL-4R).
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.
Enoticumab (REGN421)
 
REGN1193
Antibody to Delta-like ligand-4 (Dll4), a novel angiogenesis target.
In Phase 1 clinical development in oncology.
 
Antibody in Phase 1 clinical development against an undisclosed target.
Nesvacumab (REGN910)
 
REGN1908-1909
Antibody to angiopoietin-2 (Ang2), a novel angiogenesis target.
In Phase 1 clinical development in oncology.
 
Antibody combination in Phase 1 clinical development against an undisclosed target.
REGN1033
 
Fasinumab (REGN475)
Antibody to myostatin (GDF8).
In Phase 2 clinical development in skeletal muscle disorders.
 
Antibody to Nerve Growth Factor (NGF).
In development for the treatment of pain; currently on clinical hold by the Food and Drug Administration (FDA).
REGN2009
 
 
Antibody in Phase 1 clinical development against an undisclosed target.
 
 
REGN2222
 
 
Antibody in Phase 1 clinical development against an undisclosed target.
 
 
 
 
 
In Collaboration with Bayer HealthCare
 
 
REGN2176-3
 
 
Combination product comprised of an antibody to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta) co-formulated with EYLEA for use in ophthalmology.
In Phase 1 clinical development for the treatment of wet AMD.
 
 

18


Table of Contents


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.
We recently launched a new human genetics initiative via a wholly owned subsidiary, Regeneron Genetics Center LLC (RGC). RGC will perform 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 $359.0 million in the first quarter of 2014 , compared to $ 313.9 million in the first quarter of 2013 . Bayer HealthCare records revenue from sales of EYLEA outside the United States, which were $218.1 million in the first quarter of 2014 and $62.0 million in the first quarter 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; the target date for an FDA decision on the supplemental BLA is August 18, 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 2014, we and Bayer HealthCare announced positive week 100 results from the Phase 3 VISTA-DME trial, as described below under "Trap-based Clinical Programs: EYLEA - Ophthalmologic Diseases. " 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.
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.
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 $21.6 million in the first quarter of 2014 and $ 14.1 million in the first quarter 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.

19


Table of Contents


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 $3.4 million in the first quarter of 2014 and $ 4.8 million in the first quarter 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. In CRVO and BRVO, a blockage occurs in the main blood vessel that transports deoxygenated blood away from the retina. VEGF levels are elevated in response, contributing to macular edema. For clinically significant DME, VEGF-mediated leakage of fluid from blood vessels in the eye results in interference with vision.
EYLEA is a recombinant fusion protein, consisting of portions of human VEGF receptors 1 and 2 extracellular domains fused to the Fc portion of human IgG1 and formulated as an iso-osmotic solution for intravitreal administration. EYLEA acts as a soluble decoy receptor that binds VEGF-A and placental growth factor (PlGF) and thereby can inhibit the binding and activation of these cognate VEGF receptors. EYLEA is specially purified and contains iso-osmotic buffer concentrations, allowing for injection into the eye.
EYLEA is being evaluated in Phase 3 programs in patients with DME 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). The trial is fully enrolled.
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 . In August 2013, we and Bayer HealthCare announced that in the Phase 3 VISTA-DME and VIVID-DME trials of EYLEA for the treatment of DME, EYLEA 2 milligrams (mg) dosed monthly and EYLEA 2 mg dosed every two months (after 5 initial monthly injections) achieved the primary endpoint of a significantly greater improvement in best-corrected visual acuity (BCVA) from baseline compared to laser photocoagulation at 52 weeks. Both EYLEA treatment arms demonstrated similar improvements in BCVA. Based on the positive results of these studies, during the fourth quarter of 2013, we submitted a supplemental BLA for U.S. regulatory approval of EYLEA in DME; the target date for an FDA decision on the supplemental BLA is August 18, 2014. 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. Both the VISTA-DME and VIVID-DME trials are planned to continue up to 148 weeks.
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. Previously, we reported that both trials achieved their primary endpoint of a statistically significant mean improvement in BCVA at 12 months versus baseline for EYLEA at both dosing schedules versus laser photocoagulation.
In addition, 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

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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 these trials, EYLEA was generally well tolerated with a similar overall incidence of adverse events (AEs), ocular serious AEs, and non-ocular serious AEs across the treatment groups and the laser control group. 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.
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. Bayer HealthCare recently 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 (SAEs) 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 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 ."
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 myopic choroidal neovascularization (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 adverse events observed in the MYRROR trial that occurred with a frequency of 2% or more were conjunctival hemorrhage, dry eye, eye pain, headache, and nasopharyngitis. Bayer HealthCare 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.
During the third quarter of 2012, we and Sanofi initiated a Phase 1b study of a combination of ZALTRAP and our angiopoietin-2 inhibitor (nesvacumab) in patients with advanced solid malignancies.
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.

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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.
The efficacy and safety data from the SARIL-RA-MOBILITY study will be presented at an upcoming medical conference.
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. 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 percent 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 23,000 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

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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, 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.
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 dermatitis and asthma. Dupilumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to bind to IL-4R.
Atopic Dermatitis
Phase 2a Trial. Data from a European Phase 2a study of dupilumab in atopic dermatitis were presented during the annual meeting of the American Academy of Allergy Asthma and Immunology in March 2014. In this 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 SAEs 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, and is currently fully enrolled.
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 (FEV 1 ). 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 currently enrolling patients.
Nasal Polyposis
Phase 2 Study . In the third quarter of 2013, a Phase 2 study in nasal polyposis was initiated and is currently enrolling patients.
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 Phase 1 clinical development.
Nesvacumab
(REGN910; Ang2 Antibody) for oncology *

 
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.
 
In Phase 1 clinical development in oncology.

In Phase 1b clinical development in combination with ZALTRAP in patients with advanced solid malignancies.


REGN1033 (GDF8 Antibody) *

 
REGN1033 is a fully human monoclonal antibody to GDF8. Myostatin has been validated as a target to increase muscle mass and strength through genetic mutations in both animals and humans that abrogate its bioactivity.
 
In Phase 2 clinical development.

REGN2009 *
 
REGN2009 is a fully human monoclonal antibody against an undisclosed target.
 
In Phase 1 clinical development.
REGN2222 *
 
REGN 2222 is a fully human monoclonal antibody against an undisclosed target.
 
In the second quarter of 2014, we initiated a Phase 1 clinical study.
REGN1400
(ErbB3 Antibody) for oncology
 
REGN1400 is a fully human monoclonal antibody against ErbB3.
 
In Phase 1 clinical development.
REGN1154 **
 
REGN1154 is a fully human monoclonal antibody against an undisclosed target.
 
Our Phase 1 clinical study in Australia has been completed. We are currently evaluating next steps for this program.
REGN1500 **
 
REGN1500 is a fully human monoclonal antibody against an undisclosed target.
 
In Phase 1 clinical development.
REGN1193 **
 
REGN1193 is a fully human monoclonal antibody against an undisclosed target.
 
In Phase 1 clinical development.
REGN1908-1909 **
 
REGN1908-1909 is a fully human monoclonal antibody combination against an undisclosed target.
 
In Phase 1 clinical development.
REGN2176-3
(PDGFR-beta Antibody in combination with EYLEA) for ophthalmology ***
 
REGN2176-3 is a combination product comprised of an antibody to PDGFR-beta, which was generated using our VelocImmune  technology, co-formulated with EYLEA for use in ophthalmology.
 
In February 2014, we initiated a Phase 1 clinical study for the treatment of wet AMD.
Fasinumab (REGN475; NGF Antibody) for pain (on clinical hold)
 
Fasinumab is a fully human monoclonal antibody to NGF which is designed to block pain sensitization in neurons. Preclinical experiments indicate that fasinumab specifically binds to and blocks NGF activity and does not bind to or block cell signaling for the closely related neurotrophins NT-3 and BDNF.

 
In December 2012, the FDA placed fasinumab and other investigational agents targeting NGF on clinical hold based on preclinical findings with other anti-NGF agents in development. Prior to the FDA clinical hold action, we were planning to initiate late-stage clinical trials with fasinumab. There are currently no ongoing trials with fasinumab that are either enrolling or treating patients.
 
 
 
 
 
* Being developed in collaboration with Sanofi.
**  Sanofi did not opt-in to, or elected not to continue co-development of, the program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of the product candidate.
***  Being developed in collaboration with Bayer HealthCare.

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Research Programs
Our preclinical research programs are in the areas of oncology, angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain, cardiovascular diseases, and infectious diseases.
Research and Development Technologies
Many proteins that are either on the surface of or secreted by cells play important roles in biology and disease. One way that a cell communicates with other cells is by releasing specific signaling proteins, either locally or into the bloodstream. These proteins have distinct functions and are classified into different "families" of molecules, such as peptide hormones, growth factors, and cytokines. All of these secreted (or signaling) proteins travel to and are recognized by another set of proteins, called "receptors," which reside on the surface of responding cells. These secreted proteins impact many critical cellular and biological processes, causing diverse effects ranging from the regulation of growth of particular cell types to inflammation mediated by white blood cells. Secreted proteins can at times be overactive and thus result in a variety of diseases. In these disease settings, blocking the action of specific secreted proteins can have clinical benefit. In other cases, proteins on the cell-surface can mediate the interaction between cells, such as the processes that give rise to inflammation and autoimmunity.
Our scientists have developed two different technologies to design protein therapeutics to block the action of specific cell surface or secreted proteins. The first technology, termed the "Trap" technology, was used to generate our three approved products, EYLEA, ZALTRAP, and ARCALYST. These novel “Traps” are composed of fusions between two distinct receptor components and the constant region of an antibody molecule called the “Fc region,” resulting in high affinity product candidates. VelociSuite is our second technology platform; it is used for discovering, developing, and producing fully human monoclonal antibodies that can address both secreted and cell-surface targets.
VelociSuite. VelociSuite consists of VelocImmune, VelociGene, VelociMouse ® , and VelociMab . The VelocImmune mouse platform is utilized to produce fully human monoclonal antibodies. VelocImmune was generated by exploiting our VelociGene technology (see below), in a process in which six megabases of mouse immune gene loci were replaced, or "humanized," with corresponding human immune gene loci. VelocImmune mice can be used to generate efficiently fully human monoclonal antibodies to targets of therapeutic interest. VelocImmune and our entire VelociSuite offer the potential to increase the speed and efficiency through which human monoclonal antibody therapeutics may be discovered and validated, thereby improving the overall efficiency of our early stage drug development activities. We are utilizing the VelocImmune technology to produce our next generation of drug candidates for preclinical and clinical development.
Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA to produce highly customized alterations of a specified target gene, or genes, and accelerates the production of knock-out and transgenic expression models without using either positive/negative selection or isogenic DNA. In producing knock-out models, a color or fluorescent marker may be substituted in place of the actual gene sequence, allowing for high-resolution visualization of precisely where the gene is active in the body during normal body functioning as well as in disease processes. For the optimization of preclinical development and pharmacology programs, VelociGene offers the opportunity to humanize targets by replacing the mouse gene with the human homolog. Thus, VelociGene allows scientists to rapidly identify the physical and biological effects of deleting or over-expressing the target gene, as well as to characterize and test potential therapeutic molecules.
Our VelociMouse technology platform allows for the direct and immediate generation of genetically altered mice from embryonic stem cells (ES cells), thereby avoiding the lengthy process involved in generating and breeding knockout mice from chimeras. Mice generated through this method are normal and healthy and exhibit a 100% germ-line transmission. Furthermore, mice developed using our VelociMouse technology are suitable for direct phenotyping or other studies. We have also developed our VelociMab platform for the rapid screening of antibodies and rapid generation of expression cell lines for our Traps and our VelocImmune human monoclonal antibodies.
We have utilized our VelociSuite technologies to develop a class of potential drug candidates, known as bi-specific antibodies. In the area of immunotherapies in oncology, we are exploring the use of bi-specific antibodies that target tumor antigens and the CD3 receptor on T-cells to harness the oncolytic properties of T-cells. Our first such bi-specific antibody, which we expect to advance into clinical development later in 2014, targets CD20 and CD3.
Regeneron Genetics Center. We recently launched a new human genetics initiative via a wholly owned subsidiary, Regeneron Genetics Center LLC. RGC will leverage de-identified clinical and molecular data from human volunteers for medically relevant associations in a blinded fashion designed to preserve patients’ privacy. 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.

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Central to the work of RGC will be a collaboration with the Geisinger Health System of Pennsylvania. During the initial five-year collaboration term, Geisinger plans to collect samples from more than 100,000 consented patient volunteers, while RGC will perform sequencing and genotyping to generate de-identified genomic data.
Collaboration Agreements
Collaborations with Sanofi
ZALTRAP . Since September 2003, we and Sanofi have been parties to a global collaboration for the development and commercialization of ZALTRAP. Under the current terms of our collaboration agreement we and Sanofi share co-promotion rights and share profits and losses from commercialization of ZALTRAP outside of Japan. In Japan, we are entitled to receive a percentage of approximately 35% on sales of ZALTRAP, subject to certain potential adjustments.
Under the collaboration agreement, agreed upon worldwide development expenses incurred by both companies during the term of the agreement are funded by Sanofi. If the collaboration becomes profitable, we will be obligated to reimburse Sanofi out of our share of ZALTRAP profits for 50% of the development expenses that they funded. The reimbursement payment in any quarter will equal 5% of the then outstanding repayment obligation, but never more than our share of the ZALTRAP profits in the quarter unless we elect to reimburse Sanofi at a faster rate. As a result, we expect that, for the foreseeable future, our share of any ZALTRAP profits will be used to reimburse Sanofi for this repayment obligation.
Antibodies . Since November 2007, we and Sanofi have been parties to a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement and a License and Collaboration Agreement (each as amended). Pursuant to the collaboration, Sanofi is funding up to $160 million per year of our antibody discovery activities over the period from 2010-2017 to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. We lead the design and conduct of research activities under the collaboration, including target identification and validation, antibody development, research and preclinical activities through filing of an IND or its equivalent, toxicology studies, and manufacture of preclinical and clinical supplies. Sanofi has an option to extend certain antibody development and preclinical activities relating to selected program targets for up to an additional three years after 2017.
For each drug candidate identified through discovery research under the discovery agreement, Sanofi has the option to license rights to the candidate under the license agreement. If it elects to do so, Sanofi will co-develop the drug candidate with us through product approval. Development costs for the drug candidate are shared between the companies, with Sanofi generally funding these costs up front, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate are shared 80% by Sanofi and 20% by us. We are generally responsible for reimbursing Sanofi for half of the total development costs for all collaboration antibody products from our share of profits from commercialization of collaboration products to the extent they are sufficient for this purpose. However, we are not required to apply more than 10% of our share of the profits from collaboration products in any calendar quarter towards reimbursing Sanofi for these development costs.
Sanofi will lead commercialization activities for products developed under the license agreement, subject to our right to co-promote such products. We and Sanofi will equally share profits and losses from sales within the United States. We and Sanofi will share profits outside the United States on a sliding scale based on sales starting at 65% (Sanofi)/35% (us) and ending at 55% (Sanofi)/45% (us), and will share losses outside the United States at 55% (Sanofi)/45% (us). In addition to profit sharing, we are entitled to receive up to $250 million in sales milestone payments, with milestone payments commencing after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.
Collaborations with Bayer HealthCare
EYLEA outside the United States . Since October 2006, we and Bayer HealthCare have been parties to a license and collaboration agreement for the global development and commercialization outside the United States of EYLEA. Under the agreement, we and Bayer HealthCare collaborate on, and share the costs of, the development of EYLEA through an integrated global plan. Bayer HealthCare markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally in profits and losses from sales of EYLEA. In May 2012, Bayer HealthCare's Japanese subsidiary, Bayer Yakuhin, Ltd., and Santen Pharmaceutical Co., Ltd. entered into an agreement to co-promote EYLEA in Japan. In conjunction with this agreement, we and Bayer HealthCare amended our existing global license and collaboration agreement for EYLEA to convert the 50/50 profit share for Japan into an agreement under which we are entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales in Japan. In certain specified circumstances, the Japan arrangement may revert to a profit share arrangement.
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 BRVO. In connection with this decision, Bayer HealthCare

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reimbursed us for a defined share of the EYLEA global development costs that we had incurred prior to February 2014 for the BRVO indication. In addition, all future agreed upon global EYLEA development expenses incurred in connection with BRVO will be shared equally, and 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). As described above, we are entitled to receive a tiered percentage of EYLEA net sales in Japan.
Since inception of the agreement, we have received $110.0 million of development milestone payments and $75.0 million of sales milestone payments from Bayer HealthCare. In addition, we may earn up to $90.0 million in additional sales milestone payments if twelve-month sales of EYLEA outside the United States achieve certain specified levels.
Commencing with the first commercial sale of EYLEA in a major market country outside the United States, we became obligated to reimburse Bayer HealthCare for 50% of the development costs that it has incurred under the agreement from our share of the collaboration profits (including payments to us based on sales in Japan). The reimbursement payment in any quarter will equal 5% of the then outstanding repayment obligation, but never more than our share of the collaboration profits in the quarter unless we elect to reimburse Bayer HealthCare at a faster rate. As a result, we expect that, initially, a portion of our share of EYLEA profits outside the United States will be used to reimburse Bayer HealthCare for this repayment obligation.
Within the United States, we retain exclusive commercialization rights to EYLEA and are entitled to all profits from any such sales.
PDGFR-beta antibody outside the United States . In January 2014, we 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, we 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.
In connection with the agreement, Bayer HealthCare made a $25.5 million non-refundable upfront payment to us 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 us for 50% of development milestone payments to Sanofi related to our acquisition of rights to antibodies targeting the PDGF family of receptors in May 2013. In that regard, Bayer HealthCare made two $2.5 million development milestone payments to us in the first quarter of 2014. Further, in connection with our initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, we are 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.
If Bayer HealthCare exercises its right to opt-in to the collaboration, they 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 us, pay a $20.0 million development milestone to us 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 us, and be responsible for the payment of royalties on sales outside the United States to Sanofi.
Within the United States, we have exclusive commercialization rights and will retain all of the profits from sales. If Bayer HealthCare does not opt-in to the collaboration, we will have exclusive rights to develop and commercialize PDGFR-beta antibodies (except as a combination product with EYLEA) for use outside the United States.
We also have the right to opt-out of the collaboration upon completion of the first proof-of-concept study for the PDGFR-beta antibody. If we opt-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 us and Bayer HealthCare in writing.
Collaboration with Avalanche Biotechnologies, Inc.
In May 2014, we entered into a research collaboration and license agreement with Avalanche Biotechnologies, Inc., a privately held company, to discover, develop, and commercialize novel gene therapy products for the treatment of ophthalmologic diseases.

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In connection with the agreement, we are required to make a $2.0 million upfront payment and a $6.0 million pre-payment of collaboration research costs, and are obligated to pay potential additional research costs, potential development and regulatory milestones (for products directed to as many as eight therapeutic targets), and royalties on any future sales of such products. We have also purchased an aggregate of $5.0 million of Avalanche preferred stock. Under the agreement, we 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 FDA for a product candidate, we may exercise our 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.
General
Developing and commercializing new medicines entails significant risk and expense. Before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized, we (or our collaborators) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the FDA and regulatory authorities in other countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive, and new developments may render our products and technologies uncompetitive or obsolete.
Our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing EYLEA. We expect to continue to incur substantial expenses related to our research and development activities, a significant portion of which we expect to be reimbursed by our collaborators. Also, our research and development activities outside our collaborations, the costs of which are not reimbursed, will expand and require additional resources. Our operating results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of our marketed products, the scope and progress of our research and development efforts, the timing of certain expenses, and the continuation of our collaborations with Sanofi and Bayer HealthCare, including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators. We cannot predict whether or when new products or new indications for our marketed products will receive regulatory approval or, if any such approval is received, whether we will be able to successfully commercialize such product(s) and whether or when they may become profitable.

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The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, key events in 2014 to date were, and plans for the next twelve months are, as follows:   
Trap-based Clinical Programs:
 
2014 Events to Date
 
 
2014-2015 Plans (next 12 months)
EYLEA
 
     
 
Ÿ
Bayer HealthCare received regulatory approval for EYLEA in certain countries for the treatment of patients with wet AMD and continued to pursue regulatory applications for marketing approval in additional countries
 
Ÿ
Bayer HealthCare to file for China regulatory approval for the treatment of wet AMD
 
 
Ÿ
Bayer HealthCare to file for additional ex-US regulatory approvals in DME and additional Asia regulatory approvals in myopic CNV
Ÿ
Bayer HealthCare received regulatory approval for EYLEA in certain countries for the treatment of patients with macular edema secondary to CRVO and continued to pursue regulatory applications for marketing approval in additional countries
 
Ÿ
Report one-year results from the Phase 3 VIBRANT BRVO study
 
 
Ÿ
Bayer HealthCare to file for regulatory approvals outside the United States for the treatment of macular edema following BRVO
Ÿ
Bayer HealthCare opted-in to the global development and commercialization outside the United States for the treatment of macular edema following BRVO
 
Ÿ
Regulatory agency decisions on applications in the United States and outside the United States for the treatment of DME and macular edema following BRVO
Ÿ
Reported positive two-year results from the Phase 3 VISTA-DME study
 
Ÿ
Report two year results from Phase 3 VIVID-DME study
Ÿ
Bayer HealthCare reported positive results from the VIVID-Japan study and submitted an application for marketing authorization of EYLEA for the treatment of DME in Japan
 
 
 
Ÿ
Supplemental BLA accepted for regulatory approval in the United States for the treatment of macular edema following BRVO
 
 
 
ZALTRAP
 
 
 
Ÿ
Sanofi received regulatory approval in additional countries for ZALTRAP for patients with mCRC that is resistant to or has progressed following an oxaliplatin-containing regimen
 
Ÿ
Regulatory agency decisions outside the United States on additional applications for ZALTRAP in the treatment of previously treated mCRC patients


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  Antibody-based Clinical Programs:
 
     
2014 Events to Date
     
2014-2015 Plans (next 12 months)
Sarilumab (IL-6R Antibody)
Ÿ
Obtained positive results from Phase 1b RA trial in Japan
Ÿ
Continue enrollment in Phase 3 SARIL-RA program
 
 
 
Ÿ
Continue patient enrollment in SARIL-NIU-SATURN Phase 2 study in non-infectious uveitis
 
 
 
Ÿ
Initiate additional clinical studies
Alirocumab (PCSK9 Antibody)
Ÿ
Initiated Phase 3 ODYSSEY CHOICE II trial
Ÿ
Continue enrollment of Phase 3 ODYSSEY OUTCOMES trial
 
Ÿ
Completed patient enrollment in the ODYSSEY CHOICE I and CHOICE II trials
Ÿ
Report results from additional Phase 3 ODYSSEY trials
 
Ÿ
Initiated Phase 3 program in Japan
 
 
Dupilumab (IL-4R Antibody)
Ÿ
Reported positive Phase 2a data in atopic dermatitis
Ÿ
Complete patient enrollment in Phase 2 asthma trials
 
 
 
Ÿ
Report results from Phase 2b study in atopic dermatitis
 
 
 
Ÿ
Initiate Phase 3 trial in atopic dermatitis
Enoticumab (Dll4 Antibody)
Ÿ
Completed patient enrollment in the Phase 1 expansion study
 
 
Nesvacumab (Ang2 Antibody)
Ÿ
Continued patient enrollment in Phase 1 program
Ÿ
Complete patient enrollment in the Phase 1b program in advanced malignancies
 
 
 
Ÿ
Initiate clinical development in ophthalmology
REGN1033 (GDF8 Antibody)
Ÿ
Continued patient enrollment in Phase 1 and Phase 2a studies
Ÿ
Complete patient enrollment in Phase 1 and Phase 2a programs
REGN2009 (target not disclosed)
Ÿ
Continued patient enrollment in Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
REGN2222 (target not disclosed)
Ÿ
Initiated Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
REGN1400 (ErbB3 Antibody)
Ÿ
Continued patient enrollment in Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
REGN1154 (target not disclosed)
 
 
Ÿ
Determine future development plan
REGN1500 (target not disclosed)
Ÿ
Continued patient enrollment in Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
REGN1193 (target not disclosed)
Ÿ
Continued patient enrollment in Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
REGN1908-1909 (target not disclosed)
Ÿ
Completed patient enrollment of First in Human study
 
 
REGN2176-3 (PDGFR-beta Antibody in combination with EYLEA)
Ÿ
Initiated Phase 1 program
Ÿ
Continue patient enrollment in Phase 1 program
Fasinumab (NGF Antibody)
  Ÿ
On clinical hold
Ÿ
Determine future development plan


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Results of Operations
Three Months Ended March 31, 2014 and 2013
Net Income
Net income for the three months ended March 31, 2014 and 2013 consists of the following:
(In millions)
2014
 
2013
Revenues
$
625.7

 
$
439.7

Operating expenses
(439.8
)
 
(286.6
)
Other expenses
(10.7
)
 
(11.2
)
Income before income taxes
175.2

 
141.9

Income tax expense
(109.8
)
 
(43.0
)
Net income
$
65.4

 
$
98.9

Revenues
Revenues for the three months ended March 31, 2014 and 2013 consist of the following:
(In millions)
2014
 
2013
Net product sales
$
362.4

 
$
318.7

Collaboration revenue:
 
 
 
Sanofi
130.5

 
99.3

Bayer HealthCare
125.3

 
14.9

Total collaboration revenue
255.8

 
114.2

Technology licensing and other revenue
7.5

 
6.8

Total revenues
$
625.7

 
$
439.7

Net Product Sales
Net product sales consist of U.S. sales of EYLEA and ARCALYST. In November 2011, we received marketing approval from the FDA for EYLEA for the treatment of wet AMD, at which time product sales commenced. In addition, in September 2012, we received marketing approval from the FDA for EYLEA for the treatment of macular edema following CRVO. For the three months ended March 31, 2014 , EYLEA net product sales increased to $359.0 million from $313.9 million for the three months ended March 31, 2013 due to higher sales volume. For the three months ended March 31, 2014 and 2013, we also recognized ARCALYST net product sales of $3.4 million and $4.8 million , respectively.
For the three months ended March 31, 2014 and 2013, we recorded 79% and 77% , respectively, of our total gross product revenue from sales to Besse Medical, a subsidiary of AmerisourceBergen Corporation.

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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 sales-related deductions for the three months ended March 31, 2014 and 2013.
(In millions)
Rebates &
Chargebacks
 
Distribution-
Related
Fees
 
Other Sales-
Related
Deductions
 
Total
Balance as of December 31, 2013
$
4.4

 
$
19.7

 
$
0.5

 
$
24.6

Provision related to current period sales
6.9

 
16.9

 
0.4

 
24.2

Credits/payments
(6.7
)
 
(16.3
)
 
(0.4
)
 
(23.4
)
Balance as of March 31, 2014
$
4.6

 
$
20.3

 
$
0.5

 
$
25.4

 
 
 
 
 
 
 
 
Balance as of December 31, 2012
$
3.0

 
$
15.3

 
$
0.5

 
$
18.8

Provision related to current period sales
5.5

 
13.9

 
0.2

 
19.6

Credits/payments
(4.8
)
 
(11.5
)
 
(0.2
)
 
(16.5
)
Balance as of March 31, 2013
$
3.7

 
$
17.7

 
$
0.5

 
$
21.9

Sanofi Collaboration Revenue
The collaboration revenue we earned from Sanofi, as detailed below, consisted primarily of reimbursement for research and development expenses that we incurred, our share of losses in connection with Sanofi's commercialization of ZALTRAP, and recognition of previously deferred revenue related to non-refundable up-front payments.