Regeneron Pharmaceuticals, Inc.
REGENERON PHARMACEUTICALS INC (Form: 10-Q, Received: 05/04/2017 07:45:51)

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, 2017
 
 
 
 
 
 
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
 
 
 
 
Emerging growth company
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
 
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 13, 2017:
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
1,911,456
Common Stock, $.001 par value
 
104,379,152




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.



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,
 
2017
 
2016
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
811,773

 
$
535,203

Marketable securities
495,311

 
503,481

Accounts receivable - trade, net
1,339,794

 
1,343,368

Accounts receivable from Sanofi
214,269

 
92,989

Accounts receivable from Bayer
195,485

 
175,263

Inventories
466,576

 
399,356

Prepaid expenses and other current assets
146,055

 
130,528

Total current assets
3,669,263

 
3,180,188

 
 
 
 
Marketable securities
967,695

 
864,260

Property, plant, and equipment, net
2,277,029

 
2,083,421

Deferred tax assets
866,291

 
825,303

Other assets
37,087

 
20,294

Total assets
$
7,817,365

 
$
6,973,466

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
1,061,777

 
$
879,096

Capital and facility lease obligations
7,200

 
129,557

Deferred revenue from Sanofi, current portion
112,161

 
115,267

Deferred revenue - other, current portion
126,257

 
116,397

Other current liabilities
876

 
1,178

Total current liabilities
1,308,271

 
1,241,495

 
 
 
 
Deferred revenue from Sanofi
520,191

 
503,474

Deferred revenue - other
316,227

 
327,298

Capital and facility lease obligations
700,407

 
351,569

Other long-term liabilities
106,248

 
100,385

Total liabilities
2,951,344

 
2,524,221

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

 

Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 1,911,456 in 2017 and 2016
2

 
2

Common Stock, $.001 par value; 320,000,000 shares authorized; shares issued - 108,117,258 in 2017 and 107,860,567 in 2016
108

 
108

Additional paid-in capital
3,190,882

 
3,029,993

Retained earnings
1,997,153

 
1,748,222

Accumulated other comprehensive loss
(5,884
)
 
(12,840
)
Treasury Stock, at cost; 3,763,868 shares in 2017 and 2016
(316,240
)
 
(316,240
)
Total stockholders' equity
4,866,021

 
4,449,245

Total liabilities and stockholders' equity
$
7,817,365

 
$
6,973,466

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

2




REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In thousands, except per share data)
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Statements of Operations
 
 
 
 
Revenues:
 
 
 
 
Net product sales
 
$
858,245

 
$
784,182

Sanofi collaboration revenue
 
210,367

 
219,694

Bayer collaboration revenue
 
193,939

 
179,592

Other revenue
 
56,440

 
17,381

 
 
1,318,991

 
1,200,849

 
 
 
 
 
Expenses:
 
 
 
 
Research and development
 
507,435

 
470,112

Selling, general, and administrative
 
296,846

 
289,677

Cost of goods sold
 
61,253

 
78,942

Cost of collaboration and contract manufacturing
 
22,915

 
32,810

 
 
888,449

 
871,541

 
 
 
 
 
Income from operations
 
430,542

 
329,308

 
 
 
 
 
Other income (expense):
 
 
 
 
Other income (expense), net
 
9,248

 
3,483

Interest expense
 
(7,501
)
 
(2,640
)
 
 
1,747

 
843

 
 
 
 
 
Income before income taxes
 
432,289

 
330,151

 
 
 
 
 
Income tax expense
 
(183,358
)
 
(148,766
)
 
 
 
 
 
Net income
 
$
248,931

 
$
181,385

 
 
 
 
 
Net income per share - basic
 
$
2.36

 
$
1.74

Net income per share - diluted
 
$
2.16

 
$
1.59

 
 
 
 
 
Weighted average shares outstanding - basic
 
105,572

 
104,290

Weighted average shares outstanding - diluted
 
115,106

 
114,228

 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
Net income
 
$
248,931

 
$
181,385

Other comprehensive income (loss):
 
 
 
 
Unrealized gain (loss) on marketable securities, net of tax
 
6,956

 
(4,208
)
Comprehensive income
 
$
255,887

 
$
177,177

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


3



REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Three Months Ended
March 31,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
248,931

 
$
181,385

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
38,115

 
22,977

Non-cash compensation expense
 
133,789

 
142,250

Other non-cash charges and expenses, net
 
3,956

 
3,957

Deferred taxes
 
(40,988
)
 
(79,785
)
Changes in assets and liabilities:
 
 
 
 
Increase in Sanofi, Bayer, and trade accounts receivable
 
(137,928
)
 
(397,428
)
Increase in inventories
 
(69,744
)
 
(62,263
)
(Increase) decrease in prepaid expenses and other assets
 
(20,325
)
 
39,260

Increase in deferred revenue
 
12,400

 
91,205

Increase in accounts payable, accrued expenses, and other liabilities
 
187,695

 
103,431

Total adjustments
 
106,970

 
(136,396
)
Net cash provided by operating activities
 
355,901

 
44,989

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(208,694
)
 

Sales or maturities of marketable securities
 
119,012

 
60,409

Capital expenditures
 
(50,461
)
 
(104,094
)
Net cash used in investing activities
 
(140,143
)
 
(43,685
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds in connection with capital and facility lease obligations
 
57,000

 

Payments in connection with capital and facility lease obligations
 
(12,861
)
 
(598
)
Repayments of convertible senior notes
 

 
(1,739
)
Payments in connection with reduction of outstanding warrants
 

 
(242,117
)
Proceeds from issuance of Common Stock
 
16,673

 
39,304

Payments in connection with Common Stock tendered for employee tax obligations
 

 
(1,042
)
Net cash provided by (used in) financing activities
 
60,812

 
(206,192
)
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
 
276,570

 
(204,888
)
 
 
 
 
 
Cash and cash equivalents at beginning of period
 
535,203

 
809,102

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
811,773

 
$
604,214

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


4



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. and its subsidiaries ("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, 2016 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, 2016 .
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation.
In addition, the previously issued Condensed Consolidated Statement of Operations and Comprehensive Income for the three months ended March 31, 2016 and Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2016 contained in the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2016, have each been revised in this Quarterly Report on Form 10-Q. These revisions resulted from the Company's adoption of Accounting Standards Update 2016-09 ("ASU 2016-09"), Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting , as issued by the Financial Accounting Standards Board ("FASB"), during the second quarter of 2016. The Company revised its net income from the amounts originally reported for the quarterly period ended March 31, 2016 to include a $15.6 million income tax benefit, which was originally recorded as additional paid-in capital. This revision resulted in an increase to diluted net income per share of $0.14 from the amount originally reported for the quarterly period ended March 31, 2016. Furthermore, the Company reclassified excess tax benefits in its Condensed Consolidated Statement of Cash Flows for the quarterly period ended March 31, 2016 as an operating activity (such amounts were originally included as a financing activity in the Condensed Consolidated Statement of Cash Flows).
2. Product Sales
EYLEA ® net product sales in the United States totaled $854.4 million and $780.9 million for the three months ended March 31, 2017 and 2016 , respectively. In addition, ARCALYST ® net product sales totaled $3.8 million and $3.3 million for the three months ended March 31, 2017 and 2016 , respectively.
The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for each of the three months ended March 31, 2017 and 2016 . Sales to each of these customers as a percentage of the Company's total gross product revenue are as follows:
 
Three Months Ended
March 31,
 
2017
 
2016
Besse Medical, a subsidiary of AmerisourceBergen Corporation
53
%
 
60
%
McKesson Corporation
27
%
 
28
%
Curascript SD Specialty Distribution, a subsidiary of Express Scripts
19
%
 
11
%

5




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


Revenue from product sales is recorded net of applicable provisions for rebates and chargebacks, distribution-related fees, 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, 2017 and 2016 .
 
Rebates &
Chargebacks
 
Distribution-
Related
Fees
 
Other Sales-
Related
Deductions
 
Total
Balance as of December 31, 2016
$
12,712

 
$
29,465

 
$
3,674

 
$
45,851

Provision related to current period sales
38,908

 
41,175

 
9,520

 
89,603

Credits/payments
(28,502
)
 
(42,287
)
 
(8,632
)
 
(79,421
)
Balance as of March 31, 2017
$
23,118

 
$
28,353

 
$
4,562

 
$
56,033

 
 
 
 
 
 
 
 
Balance as of December 31, 2015
$
6,419

 
$
48,313

 
$
517

 
$
55,249

Provision related to current period sales
18,885

 
35,788

 
2,910

 
57,583

Credits/payments
(17,457
)
 
(50,353
)
 
(2,557
)
 
(70,367
)
Balance as of March 31, 2016
$
7,847

 
$
33,748

 
$
870

 
$
42,465

3. Collaboration Agreements
a. Sanofi
The collaboration revenue the Company earned from Sanofi is detailed below:
 
 
Three Months Ended
March 31,
Sanofi Collaboration Revenue
 
2017
 
2016
Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
$
155,245

 
$
193,602

Reimbursement of Regeneron commercialization-related expenses
 
73,559

 
68,722

Regeneron's share of losses in connection with commercialization of antibodies
 
(108,402
)
 
(99,422
)
Other
 
11,286

 
7,517

Total Antibody
 
131,688

 
170,419

Immuno-oncology:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
58,679

 
29,275

Other
 
20,000

 
20,000

Total Immuno-oncology
 
78,679

 
49,275

 
 
$
210,367

 
$
219,694



6




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


Antibodies
In November 2007, the Company entered into a global, strategic collaboration with Sanofi to discover, develop, and commercialize fully human monoclonal antibodies (the "Antibody Collaboration") . The Antibody Collaboration is governed by the companies' Discovery and Preclinical Development Agreement ("Antibody Discovery Agreement") and a License and Collaboration Agreement (each as amended). Pursuant to the Antibody Discovery Agreement, Sanofi agreed to fund up to $130.0 million of the Company's research activities in 2017. Sanofi has the right to extend antibody development and preclinical activities relating to selected programs for up to an additional three years after 2017. Sanofi must identify any programs to be extended by June 30, 2017, and the Company and Sanofi must then agree on a plan and budget for the extended activities. During the extended period, the Company will use commercially reasonable efforts to develop such antibodies and conduct preclinical activities through the preparation of an Investigational New Drug application. After 2017, funding from Sanofi under the Antibody Discovery Agreement will cease to continue, except with regard to the programs for which Sanofi has exercised its extension right.
Under the License and Collaboration Agreement, agreed-upon worldwide development expenses incurred by both companies are funded by Sanofi, 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 ("Shared Phase 3 Trial Costs") are shared 80% by Sanofi and 20% by Regeneron; consequently, the Company recognized as research and development expense $25.0 million and $21.7 million during the three months ended March 31, 2017 and 2016 , respectively, of antibody development expenses that the Company was obligated to reimburse to Sanofi related to Praluent ® , Kevzara ® (sarilumab), and Dupixent ® (dupilumab).
"Reimbursement of Regeneron commercialization-related expenses" in the table above represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent. During the same periods that the Company recorded reimbursements from Sanofi related to the Company's commercialization expenses, the Company also recorded its share of losses in connection with the companies preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent within Sanofi collaboration revenue.
In January 2017, Health Canada approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response to or intolerance to one or more biologic or non-biologic disease modifying anti-rheumatic drugs ("DMARDs"). This is the first approval of Kevzara worldwide. In March 2017, the U.S. Food and Drug Administration ("FDA") approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable. Therefore, commencing in the first quarter of 2017, the Company's share of losses in connection with commercialization of antibodies also included the Company's share of revenue in connection with Sanofi's sales of Kevzara and Dupixent, which were not material in the first quarter of 2017.
Immuno-Oncology
In July 2015, the Company and Sanofi entered into a collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the "IO Collaboration"). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement ("IO Discovery Agreement"), and an Immuno-oncology License and Collaboration Agreement ("IO License and Collaboration Agreement"). Pursuant to the IO Discovery Agreement, Sanofi will reimburse the Company for up to $200.0 million in 2017 to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept. Under the terms of the IO License and Collaboration Agreement, the parties are co-developing the Company's antibody product candidate targeting the receptor known as programmed cell death protein 1, or PD-1 ("REGN2810"). The parties share equally, on an ongoing basis, development expenses for REGN2810.
The $640.0 million in aggregate up-front payments made by Sanofi during 2015 in connection with the execution of the IO Collaboration has been recorded by the Company as deferred revenue, and is being recognized ratably as revenue over the related performance period.

7




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


b. Bayer
The collaboration revenue the Company earned from Bayer is detailed below:
 
 
Three Months Ended
March 31,
Bayer Collaboration Revenue
 
2017
 
2016
EYLEA:
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
174,876

 
$
145,835

Cost-sharing of Regeneron EYLEA development expenses
 
2,451

 
2,743

Other
 
10,603

 
26,492

Total EYLEA
 
187,930

 
175,070

PDGFR-beta antibody:
 
 
 
 
Cost-sharing of rinucumab/aflibercept (REGN2176-3) development expenses
 
1,857

 
1,896

Other
 
13

 
2,626

Total PDGFR-beta antibody
 
1,870

 
4,522

Ang2 antibody:
 
 
 
 
Cost-sharing of nesvacumab/aflibercept (REGN910-3) development expenses
 
2,041

 

Other
 
2,098

 

Total Ang2 antibody
 
4,139

 

 
 
$
193,939

 
$
179,592

EYLEA outside the United States
Under the terms of the license and collaboration agreement with Bayer for the global development and commercialization outside the United States of EYLEA, Bayer 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 Japan, the Company is entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales. In addition, all agreed-upon EYLEA development costs incurred by the Company and Bayer are shared equally.
PDGFR-beta antibody outside the United States
In 2014, the Company entered into a license and collaboration agreement with Bayer governing the joint development and commercialization outside the United States of an antibody product candidate to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta), including REGN2176-3, a combination product candidate comprised of an antibody to PDGFR-beta co-formulated with aflibercept. The agreement provides that the Company would conduct the initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, upon which Bayer would have a right to opt-in to license and collaborate on further development and commercialization outside the United States. Effective in the first quarter of 2017, the Company has discontinued clinical development of REGN2176-3.
Ang2 antibody outside the United States
In March 2016, the Company entered into an agreement with Bayer governing the joint development and commercialization outside the United States of an antibody product candidate to angiopoietin-2 (Ang2), including in combination with aflibercept, for the treatment of ocular diseases or disorders. In connection with the agreement, Bayer made a $50.0 million non-refundable up-front payment to the Company and is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States. The $50.0 million up-front payment was initially recorded as deferred revenue, and is being recognized ratably as revenue over the related performance period.

8




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


c. Mitsubishi Tanabe Pharma
In 2015, the Company and Mitsubishi Tanabe Pharma Corporation ("MTPC") entered into a collaboration agreement providing MTPC with development and commercial rights to fasinumab, the Company's nerve growth factor antibody in late-stage clinical development, in certain Asian countries. In connection with the agreement, MTPC made a $10.0 million non-refundable up-front payment. In the first quarter of 2016, MTPC made additional payments of $45.0 million and $15.0 million to the Company, which were recorded as deferred revenue and are being recognized ratably as revenue over the same performance period as the up-front payment.
d. Teva
In September 2016, the Company and Teva entered into a collaboration agreement (the "Teva Collaboration Agreement") to develop and commercialize fasinumab globally, excluding certain Asian countries that are subject to the Company's collaboration agreement with MTPC (as described above). In connection with the Teva Collaboration Agreement, Teva made a $250.0 million non-refundable up-front payment in September 2016. The Company will lead global development activities, and the parties will share development costs equally on an ongoing basis. The $250.0 million up-front payment was initially recorded as deferred revenue, and is being recognized ratably as revenue over the related performance period.
The Company recognized $33.1 million of revenue for the three months ended March 31, 2017 in connection with the Teva Collaboration Agreement.
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,
 
 
2017
 
2016
Net income - basic
 
$
248,931

 
$
181,385

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

 
56

Net income - diluted
 
$
248,931

 
$
181,441

 
 
 
 
 
(Shares in thousands)
 
 
 
 
Weighted average shares - basic
 
105,572

 
104,290

Effect of dilutive securities:
 
 
 
 
Stock options
 
9,050

 
8,147

Restricted stock
 
484

 
469

Convertible senior notes
 

 
44

Warrants
 

 
1,278

Dilutive potential shares
 
9,534

 
9,938

Weighted average shares - diluted
 
115,106

 
114,228

 
 
 
 
 
Net income per share - basic
 
$
2.36

 
$
1.74

Net income per share - diluted
 
$
2.16

 
$
1.59


9




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


Shares which have been excluded from diluted per share amounts because their effect would have been antidilutive, include the following:
 
 
Three Months Ended
March 31,
(Shares in thousands)
 
2017
 
2016
Stock options
 
11,535

 
7,539

Restricted stock
 
18

 
19

5. Marketable Securities
Marketable securities as of March 31, 2017 and December 31, 2016 consist of both debt securities of investment grade issuers as well as equity securities.
The following tables summarize the Company's investments in marketable securities:
 
 
Amortized
 
Unrealized
 
Fair
As of March 31, 2017
 
Cost Basis
 
Gains
 
Losses
 
Value
Corporate bonds
 
$
1,208,562

 
$
1,175

 
$
(3,763
)
 
$
1,205,974

U.S. government and government agency obligations
 
126,082

 
28

 
(618
)
 
125,492

Municipal bonds
 
4,638

 
2

 
(15
)
 
4,625

Commercial paper
 
32,620

 

 

 
32,620

Certificates of deposit
 
39,645

 

 

 
39,645

Equity securities
 
57,251

 
8,622

 
(11,223
)
 
54,650

 
 
$
1,468,798

 
$
9,827

 
$
(15,619
)
 
$
1,463,006

 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
Corporate bonds
 
$
1,076,964

 
$
630

 
$
(4,743
)
 
$
1,072,851

U.S. government and government agency obligations
 
132,923

 
58

 
(641
)
 
132,340

Municipal bonds
 
7,663

 
1

 
(20
)
 
7,644

Commercial paper
 
63,074

 
1

 

 
63,075

Certificates of deposit
 
42,612

 

 

 
42,612

Equity securities
 
57,251

 
5,551

 
(13,583
)
 
49,219

 
 
$
1,380,487

 
$
6,241

 
$
(18,987
)
 
$
1,367,741

The Company classifies its debt security investments based on their contractual maturity dates. The debt securities listed as of March 31, 2017 mature at various dates through Apri l 2022. The fair values of debt security investments by contractual maturity consist of the following:
 
 
March 31, 2017
 
December 31, 2016
Maturities within one year
 
$
495,311

 
$
503,482

Maturities after one year through five years
 
898,045

 
815,040

Maturities after five years through ten years
 
15,000

 

 
 
$
1,408,356

 
$
1,318,522


10




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.
 
Less than 12 Months
 
12 Months or Greater
 
Total
As of March 31, 2017
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Corporate bonds
$
740,821

 
$
(3,736
)
 
$
17,632

 
$
(27
)
 
$
758,453

 
$
(3,763
)
U.S. government and government agency obligations
105,566

 
(618
)
 

 

 
105,566

 
(618
)
Municipal bonds
4,123

 
(15
)
 

 

 
4,123

 
(15
)
Equity securities
44,023

 
(11,223
)
 

 

 
44,023

 
(11,223
)
 
$
894,533


$
(15,592
)
 
$
17,632

 
$
(27
)
 
$
912,165

 
$
(15,619
)
 
 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
759,222

 
$
(4,685
)
 
$
36,407

 
$
(58
)
 
$
795,629

 
$
(4,743
)
U.S. government and government agency obligations
81,170

 
(641
)
 

 

 
81,170

 
(641
)
Municipal bonds
7,141

 
(20
)
 

 

 
7,141

 
(20
)
Equity securities
36,417

 
(13,583
)
 

 

 
36,417

 
(13,583
)
 
$
883,950

 
$
(18,929
)
 
$
36,407

 
$
(58
)
 
$
920,357

 
$
(18,987
)
There were no realized losses on sales of marketable securities, and realized gains were not material, for the three months ended March 31, 2017 . There were no realized gains and losses on sales of marketable securities for the three months ended March 31, 2016 .
Changes in the Company's accumulated other comprehensive income (loss) for the three months ended March 31, 2017 and 2016 related to unrealized gains and losses on available-for-sale marketable securities. For the three months ended March 31, 2017 , amounts reclassified from accumulated other comprehensive income (loss) into other income (expense), net were related to realized gains on sales of marketable securities; there were no such amounts reclassified during the three months ended March 31, 2016.

11




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 consist of the following:
 
 
 
Fair Value Measurements at Reporting Date Using
As of March 31, 2017
Fair Value
 
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
Available-for-sale marketable securities:
 
 
 
 
 
Corporate bonds
$
1,205,974

 

 
$
1,205,974

U.S. government and government agency obligations
125,492

 

 
125,492

Municipal bonds
4,625

 

 
4,625

Commercial paper
32,620

 

 
32,620

Certificates of deposit
39,645

 

 
39,645

Equity securities
54,650

 
$
54,650

 

 
$
1,463,006

 
$
54,650

 
$
1,408,356

 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
Available-for-sale marketable securities:
 
 
 
 
 
Corporate bonds
$
1,072,851

 

 
$
1,072,851

U.S. government and government agency obligations
132,340

 

 
132,340

Municipal bonds
7,644

 

 
7,644

Commercial paper
63,075

 

 
63,075

Certificates of deposit
42,612

 

 
42,612

Equity securities
49,219

 
$
49,219

 

 
$
1,367,741

 
$
49,219

 
$
1,318,522

Marketable securities included in Level 2 are valued using quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuations in which significant inputs used are observable. 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, 2017 and 2016 .
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, 2017 and 2016 . There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the three months ended March 31, 2017 and 2016 .

12




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,
 
2017
 
2016
Raw materials
$
127,637

 
$
92,287

Work-in-process
173,469

 
202,301

Finished goods
20,259

 
13,334

Deferred costs
145,211

 
91,434

 
$
466,576

 
$
399,356

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, 2017 and 2016 , cost of goods sold included inventory write-downs and reserves totaling $6.4 million and $4.3 million , respectively.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
 
March 31,
 
December 31,
 
2017
 
2016
Accounts payable
$
141,801

 
$
134,984

Accrued payroll and related costs
94,088

 
153,086

Accrued clinical trial expense
92,474

 
91,753

Accrued sales-related charges, deductions, and royalties
183,561

 
159,985

Income taxes payable
450,805

 
235,776

Other accrued expenses and liabilities
99,048

 
103,512

 
$
1,061,777

 
$
879,096

9. Debt
a. Convertible Debt
In the first quarter of 2016, the Company settled conversion obligations for $1.7 million principal amount of the Company's Notes that was previously surrendered for conversion. Consequently, in the first quarter of 2016, the Company paid $1.7 million in cash and issued 16,774 shares of Common Stock. In addition, the Company allocated $6.7 million of the settlement consideration provided to the Note holders to the reacquisition of the equity component of the Notes, and recognized such amount as a reduction of stockholders' equity. The loss on the debt extinguishment in connection with the Notes that were surrendered for conversion during the first quarter of 2016 was not material. As a result of these Note conversions, in the first quarter of 2016, the Company also exercised a proportionate amount of its convertible note hedges, for which the Company received 16,768 shares of Common Stock, which was approximately equal to the number of shares the Company was required to issue to settle the non-cash portion of the related Note conversions. The Company recorded the cost of the shares received, or $1.4 million , as Treasury Stock during the first quarter of 2016.
Warrant Transactions
In November 2015, the Company entered into an amendment agreement with a warrant holder whereby the parties agreed to reduce a portion of the number of warrants held by the warrant holder. The reduction in the number of warrants was determined based on the number of warrants with respect to which the warrant holder closed out its hedge position, provided that the warrant

13




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


holder did not effect any purchases at a price per share exceeding $535.00 per share, during the period starting on November 16, 2015 and ending no later than February 9, 2016. The Company was able to settle, at its option, any payments due under the amendment agreement in cash or by delivering shares of Common Stock. As a result of the warrant holder closing out a portion of its hedge position in the first quarter of 2016, the Company paid a total of $135.2 million to reduce the number of warrants held by such warrant holder by 360,406 .
In February 2016, the Company entered into an amendment agreement with a warrant holder whereby the parties agreed to reduce a portion of the number of warrants held by the warrant holder. The reduction in the number of warrants was determined based on the number of warrants with respect to which the warrant holder closed out its hedge position, provided that the warrant holder did not effect any purchases at a price per share exceeding $375.00 per share, during the period starting on February 22, 2016 and ending no later than May 5, 2016. The Company was able to settle, at its option, any payments due under the amendment agreement in cash or by delivering shares of Common Stock. As a result of the warrant holder closing out a portion of its hedge position during the first quarter of 2016, the Company paid a total of $106.9 million to reduce the number of warrants held by such warrant holder by 403,665 .
b. Credit Facility
In 2015, the Company entered into an agreement with a syndicate of lenders which provides for a $750.0 million senior unsecured five -year revolving credit facility. As of March 31, 2017, the Company had no borrowings outstanding under the credit facility and was in compliance with all credit facility covenants.
10. Leases
The Company leases laboratory and office facilities in Tarrytown, New York (the "Tarrytown Leases"). Prior to December 30, 2016, certain of the premises under the Tarrytown Leases had been accounted for as operating leases, while for certain other buildings the Company leased, the Company was deemed, in substance, to be the owner of the landlord's buildings (collectively, the "Build-to-Suit Buildings") in accordance with the application of FASB authoritative guidance. On December 30, 2016, the Company entered into a Purchase Agreement with BMR-Landmark at Eastview LLC and BMR-Landmark at Eastview IV LLC (collectively, "BMR"), pursuant to which the Company agreed to purchase BMR's Tarrytown, New York facilities (the "Facility") for a purchase price of $720.0 million . The Company occupies a significant portion of the Facility, with the remaining rentable area under leases to third-party tenants. In accordance with the terms of the Purchase Agreement, the Company paid $57.0 million toward the purchase price to BMR in December 2016.
Upon entering into the December 30, 2016 Purchase Agreement with BMR, the premises under the Company's Tarrytown Leases that were historically accounted for as operating leases were deemed to be modified, as the Company now had the option to purchase the Facility under terms that made it reasonably assured to be exercised. Consequently, the leases for such premises were re-classified as a capital lease upon execution of the Purchase Agreement, and a proportionate amount of the $57.0 million payment was recorded as reduction of the initial capital lease liability. The execution of the Purchase Agreement did not impact the balance sheet classification for the Build-to-Suit Buildings; however, a proportionate amount of the $57.0 million payment was recorded as a reduction to the related facility lease obligation.
On March 3, 2017, the Company entered into a Participation Agreement with Banc of America Leasing & Capital LLC ("BAL"), as lessor, and a syndicate of lenders (collectively, the "Participants"). The Participation Agreement provided for lease financing in connection with the acquisition by BAL of the Facility and the Company's lease of the Facility from BAL. On March 3, 2017, the right to take title to the Facility under the Purchase Agreement was assigned by the Company to BAL, and the Participants advanced $720.0 million , which was used by BAL to finance the purchase price for the Facility and to reimburse the Company for the $57.0 million payment made to BMR in December 2016. The $57.0 million reimbursement was recorded by the Company in March 2017 as an increase to capital and facility lease obligations in amounts equal to those initially recorded upon making such payment to BMR in December 2016.
On March 3, 2017, the Company entered into a lease agreement (the "Lease") with BAL, pursuant to which the Company has leased the Facility from BAL for a five -year term. As a result of entering into the lease agreement, certain parts of the Facility became subleased from the Company by existing third-party tenants. The Lease requires the Company to pay all maintenance, insurance, taxes, and other costs arising out of the use of the Facility. The Company is also required to make monthly payments of basic rent during the term of the Lease in an amount equal to a variable rate per annum based on the one-month London Interbank Offered Rate ("LIBOR"), plus an applicable margin that varies with the Company’s debt rating and total leverage ratio.

14




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


The Participation Agreement and the Lease include an option for the Company to elect to extend the maturity date of the Participation Agreement and the term of the Lease for an additional five -year period, subject to the consent of all the Participants and certain other conditions. The Company also has the option prior to the end of the term of the Lease to (a) purchase the Facility by paying an amount equal to the outstanding principal amount of the Participants' advances under the Participation Agreement, all accrued and unpaid interest and yield thereon, and all other outstanding amounts under the Participation Agreement, the Lease, and certain related documents or (b) sell the Facility to a third party on behalf of BAL. The advances under the Participation Agreement mature, and all amounts outstanding thereunder will become due and payable in full at the end of the term of the Lease.
As a result of entering into the lease agreement with BAL, the premises that were classified as a capital lease as of December 31, 2016 were reassessed. As described above, the Company has the option to purchase the Facility, and as a result, the Company is deemed to have continuing involvement in such premises. Accordingly, these premises continue to be classified as a capital lease, with the related property, plant, and equipment and capital lease liability remaining on the Company's Condensed Consolidated Balance Sheet. In addition, as described above, upon entering into the lease agreement, the Company began to lease space occupied by third-party tenants. The lease of such premises is also classified as a capital lease. The execution of the March 2017 lease agreement did not impact the balance sheet classification for the Build-to-Suit Buildings. In the aggregate, the Company recorded $720.0 million of capital and facility lease obligations upon execution of the lease agreement for the Facility.
The Participation Agreement and the Lease contain financial and operating covenants, which are substantially similar to the covenants set forth in the Company's credit facility (see Note 9). The Company was in compliance with all covenants of the Participation Agreement and the Lease as of March 31, 2017.
11. Income Taxes
The Company is subject to U.S. federal, state, and foreign income taxes. The Company recorded an income tax provision in its Statement of Operations of $183.4 million and $148.8 million for the three months ended March 31, 2017 and 2016 , respectively. The Company's effective tax rate was 42.4% and 45.1% for the three months ended March 31, 2017 and 2016 , respectively. The Company's effective tax rate for the three months ended March 31, 2017 was negatively impacted, compared to the U.S. federal statutory rate, by losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate and the non-tax deductible Branded Prescription Drug Fee, partly offset by the tax benefit associated with stock-based compensation, the domestic manufacturing deduction, and the federal tax credit for research activities.
The Company's effective tax rate for the three months ended March 31, 2016 was negatively impacted, compared to the U.S. federal statutory rate, by losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate and the non-tax deductible Branded Prescription Drug Fee, partly offset by the tax benefit associated with stock-based compensation (see Note 1), the domestic manufacturing deduction, and the federal tax credit for increased research activities.
The Company also recorded an income tax benefit in its Statement of Comprehensive Income of $2.0 million for the three months ended March 31, 2016 in connection with unrealized gains (losses) on available-for-sale marketable securities. There was no such income tax benefit or provision recorded for the three months ended March 31, 2017.
12. Statement of Cash Flows
Supplemental disclosure of non-cash investing and financing activities
Included in accounts payable and accrued expenses as of March 31, 2017 and December 31, 2016 were $32.3 million and $28.2 million , respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses as of March 31, 2016 and December 31, 2015 were $84.1 million and $56.2 million , respectively, of accrued capital expenditures.
The Company recognized an additional capital lease obligation of $201.2 million in connection with the Company's lease of additional premises at its Tarrytown, New York facility during the three months ended March 31, 2017 (see Note 10). No such amount was recognized during the three months ended March 31, 2016.

15




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


13. Legal Matters
From time to time, the Company is a party to legal proceedings in the course of the Company's business. Costs associated with the Company's involvement in legal proceedings are expensed as incurred. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. If the Company were unable to prevail in any such proceedings, its consolidated financial position, results of operations, and future cash flows may be materially impacted.
Proceedings Relating to '287 Patent, '163 Patent, and '018 Patent
The Company is a party to patent infringement litigation initiated by the Company involving its European Patent No. 1,360,287 (the "'287 Patent"), its European Patent No. 2,264,163 (the "'163 Patent"), and its U.S. Patent No. 8,502,018 (the "'018 Patent"). Each of these patents concerns genetically engineered 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 Company claims infringement of several claims of the '287 Patent, the '163 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, the '163 Patent, and the '018 Patent (as applicable). At this time, the Company is not able to predict the outcome of, or estimate possible gain or a range of possible loss, if any, related to, these proceedings.
Proceedings Relating to Praluent (alirocumab) Injection
As described in greater detail below, the Company is currently a party to patent infringement actions initiated by Amgen Inc. against the Company and Sanofi (and/or the Company's and Sanofi's respective affiliated entities) in a number of jurisdictions relating to Praluent, which the Company is jointly developing and commercializing with Sanofi.
In the United States, Amgen has asserted a number of U.S. patents, which were subsequently narrowed to U.S. Patent Nos. 8,829,165 (the "'165 Patent") and 8,859,741 (the "'741 Patent"), and seeks a permanent injunction to prevent the Company and the Sanofi defendants from commercial manufacturing, using, offering to sell, or selling within the United States (as well as importing into the United States) (collectively, "Commercializing") Praluent. Amgen also seeks a judgment of patent infringement of the asserted patents, monetary damages (together with interest), costs and expenses of the lawsuits, and attorneys' fees. A jury trial in this litigation was held in the United States District Court for the District of Delaware from March 8 to March 16, 2016. During the course of the trial, the court ruled as a matter of law in favor of Amgen that the asserted patent claims were not obvious, and in favor of the Company and the Sanofi defendants that there was no willful infringement of the asserted patent claims by the Company or the Sanofi defendants. On March 16, 2016, the jury returned a verdict in favor of Amgen, finding that the asserted claims of the '165 and '741 Patents were not invalid based on either a lack of written description or a lack of enablement. On January 3, 2017, the court issued a final opinion and judgment, denying the Company and the Sanofi defendants' motions for new trial and judgment as a matter of law. The court also denied as moot Amgen's motion to strike the Company and the Sanofi defendants' request to obtain a judgment as a matter of law, which allows the U.S. Court of Appeals for the Federal Circuit to address the Company and the Sanofi defendants' patent invalidity arguments on appeal. On January 12, 2017, the Company and the Sanofi defendants filed a notice of appeal with the U.S. Court of Appeals for the Federal Circuit. On January 18, 2017, the U.S. Court of Appeals for the Federal Circuit ordered an expedited briefing schedule of the appeal on the merits. On January 31, 2017, Amgen filed a motion with the United States District Court for the District of Delaware to amend the court's final judgment to include an award of supplemental damages (including interest) and enhancement of such damages following the resolution of the appeal. The briefing relating to the appeal to the U.S. Court of Appeals for the Federal Circuit was completed on March 31, 2017, and oral argument on the appeal is currently scheduled for June 6, 2017.
On March 23 and March 24, 2016, the United States District Court for the District of Delaware held a permanent injunction hearing to determine whether Regeneron and the Sanofi defendants should be prohibited from Commercializing Praluent in the United States. On January 5, 2017, the court granted the permanent injunction but delayed its imposition for 30 days (subsequently extended to 45 days) from the date of grant (i.e., until February 21, 2017). On January 13, 2017, the Company and the Sanofi defendants filed an emergency motion for stay of the permanent injunction pending appeal with the U.S. Court of Appeals for the Federal Circuit; and, on February 8, 2017, the court granted the stay pending appeal.
On July 25, 2016, Amgen filed a lawsuit against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi-Synthelabo Limited, Aventis Pharma Limited, Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the English High Court of Justice, Chancery Division, Patents Court, in London, seeking a declaration of infringement of Amgen's European Patent No. 2,215,124

16




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


(the "'124 Patent"), which pertains to PCSK9 monoclonal antibodies, by Praluent. The lawsuit also seeks a permanent injunction, damages, an accounting of profits, and costs and interest. On February 8, 2017, the court temporarily stayed this litigation on terms mutually agreed by the parties.
Also on July 25, 2016, Amgen filed a lawsuit for infringement of the '124 Patent against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the Regional Court of Düsseldorf, Germany, seeking a permanent injunction, an accounting of marketing activities, a recall of Praluent and its removal from distribution channels, and damages. Oral hearing on this infringement lawsuit is currently scheduled for October 19, 2017.
On September 26, 2016, Amgen filed a lawsuit for infringement of the '124 Patent in the Tribunal de grande instance in Paris, France against Regeneron, Sanofi-Aventis Groupe S.A., and Sanofi Winthrop Industrie. Amgen is seeking the prohibition of allegedly infringing activities with a €10,000 penalty per drug unit of Praluent produced in violation of the court order sought by Amgen; an appointment of an expert for the assessment of damages; disclosure of technical (including supply-chain) and accounting information to the expert and the court; provisional damages of € 10.0 million (which would be awarded on an interim basis pending final determination); reimbursement of costs; publication of the ruling in three newspapers; and provisional enforcement of the decision to be issued, which would ensure enforcement of the decision (including any provisional damages) pending appeal. Amgen is not seeking a preliminary injunction in this proceeding at this time. On April 10, 2017, the Company and the Sanofi parties filed briefs seeking invalidation of certain of the claims of the '124 Patent. Oral hearing on this infringement lawsuit is currently scheduled for June 29, 2018.
The '124 Patent is also subject to opposition proceedings in the European Patent Office seeking to invalidate certain of its claims, which were initiated by the Company on November 24, 2016.
At this time, the Company is not able to predict the outcome of, or estimate a range of possible loss, if any, related to these proceedings.
Proceedings Relating to Dupixent (dupilumab) Injection
On March 20, 2017, the Company, Sanofi-Aventis U.S. LLC, and Genzyme Corporation filed a complaint against Amgen and Immunex Corporation, a wholly owned subsidiary of Amgen, in the United States District Court for the District of Massachusetts seeking a declaratory judgment that the Company's and the other plaintiffs' commercializing of Dupixent does not directly or indirectly infringe U.S. Patent No. 8,679,487 (the '487 Patent) owned by Immunex Corporation relating to antibodies that bind the human interleukin-4 receptor. On May 1, 2017, the Company and the other plaintiffs filed a notice of voluntary dismissal of this action without prejudice.
On March 23, 2017, the Company, Sanofi-Aventis U.S. LLC, and Genzyme Corporation initiated an inter partes review in the United States Patent and Trademark Office seeking a declaration of invalidity of the '487 Patent.
On April 5, 2017, Immunex Corporation filed a complaint against the Company, Sanofi, Sanofi-Aventis U.S. LLC, Genzyme Corporation, and Aventisub LLC in the United States District Court for the Central District of California seeking a judgment of patent infringement of the '487 Patent and a declaratory judgment of infringement of the '487 Patent, in each case by the Company's and the other defendants' Commercializing of Dupixent; monetary damages (together with interest); an order of willful infringement of the '487 Patent, which would allow the court in its discretion to award damages up to three times the amount assessed; costs and expenses of the lawsuit; and attorneys' fees. Immunex is not seeking an injunction in this proceeding at this time.
At this time, the Company is not able to predict the outcome of, or estimate a range of possible loss, if any, related to these proceedings.

17




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


Proceedings Relating to Shareholder Derivative Claims
On December 30, 2015, an alleged shareholder filed a shareholder derivative complaint in the New York Supreme Court, naming the current and certain former non-employee members of the Company's board of directors, the Chairman of the board of directors, the Company's Chief Executive Officer, and the Company's Chief Scientific Officer as defendants and Regeneron as a nominal defendant. The complaint asserts that the individual defendants breached their fiduciary duties and were unjustly enriched when they approved and/or received allegedly excessive compensation in 2013 and 2014. The complaint seeks damages in favor of the Company for the alleged breaches of fiduciary duties and unjust enrichment; changes to Regeneron's corporate governance and internal procedures; invalidation of the 2014 Incentive Plan with respect to the individual defendants' compensation and a shareholder vote regarding the individual defendants' equity compensation; equitable relief, including an equitable accounting with disgorgement; and award of the costs of the action, including attorneys' fees. On March 2, 2016, the defendants filed a motion to dismiss the shareholder derivative complaint. On August 16, 2016, the court heard oral argument on defendants' motion to dismiss.
On or about December 15, 2015, the Company received a shareholder litigation demand upon the Company's board of directors made by a purported Regeneron shareholder. The demand asserts that the current and certain former non-employee members of the board of directors and the Chairman of the board of directors excessively compensated themselves in 2013 and 2014. The demand requests that the board of directors investigate and bring legal action against these directors for breach of fiduciary duty, unjust enrichment, and corporate waste, and implement internal controls and systems designed to prohibit and prevent similar actions in the future. The Company's board of directors, working with outside counsel, investigated the allegations in the demand and the shareholder derivative complaint, and has determined to defer its decision on the demand until the court rules on the pending motion to dismiss the shareholder derivative complaint, as discussed above.
At this time, the Company is not able to predict the outcome of, or estimate a range of possible loss, if any, relating to these matters.
Department of Justice Investigation
In January 2017, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts requesting documents relating to its support of 501(c)(3) organizations that provide financial assistance to patients; documents concerning its provision of financial assistance to patients with respect to products sold or developed by Regeneron (including EYLEA, Praluent, ARCALYST, and ZALTRAP); and certain other related documents and communications. The Company is cooperating with this investigation. The Company cannot predict the outcome or duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation. 
14. Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers , which will replace existing revenue recognition guidance. The new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. To achieve that core principle, an entity must identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation. In July 2015, the FASB decided to delay the effective date of the new standard by one year; as a result, the new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption will be permitted, but no earlier than 2017 for calendar year-end entities. The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition. The Company does not expect the new standard to have a material impact on the recognition of revenue from product sales. However, the Company continues to evaluate the impact that this guidance will have on its financial statements in connection with collaboration and license agreements.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities . The amendments require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The implementation of the amendments is expected to increase the volatility of an entity's net income; however, the

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


Company is not currently able to estimate the impact of adopting these amendments, as the significance of the impact will depend on the Company's equity investment balance upon adoption.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases . The new standard requires a lessee to recognize in its balance sheet (for both finance and operating leases) a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on the Company's financial statements.


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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below contains forward-looking statements that involve risks and uncertainties relating to future events and the future performance of Regeneron Pharmaceuticals, Inc. ("Regeneron," "Company," "we," "us," and "our"), and actual events or results may differ materially from these forward-looking statements. Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," variations of such words, and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of our products, product candidates, and research and clinical programs now underway or planned, including without limitation EYLEA ® (aflibercept) Injection, Praluent ® (alirocumab) Injection, Kevzara ® (sarilumab), Dupixent ® (dupilumab) Injection, REGN2810, fasinumab, and suptavumab; the likelihood and timing of achieving any of our anticipated clinical development milestones; 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, Praluent, Kevzara (sarilumab), Dupixent (dupilumab), REGN2810, fasinumab, and suptavumab; ongoing regulatory obligations and oversight impacting our marketed products (such as EYLEA, Praluent, and Dupixent), 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; the ability of our collaborators, suppliers, or other third parties to perform filling, finishing, packaging, labeling, distribution, and other steps related to our 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 changes to the assumptions underlying those projections or guidance; the potential for any license or collaboration agreement, including our agreements with Sanofi, Bayer, and Teva Pharmaceutical Industries Ltd. (or their respective affiliated companies, as applicable), to be cancelled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto, including without limitation the patent litigation proceedings relating to Praluent and Dupixent described further in Part II, Item 1. "Legal Proceedings" of this report. 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, high low-density lipoprotein (LDL) cholesterol, atopic dermatitis, and a rare inflammatory condition and have product candidates in development in other areas of high unmet medical need, including rheumatoid arthritis (RA), asthma, pain, cancer, and infectious diseases.
Our total revenues were $1,319.0 million in the first quarter of 2017 , compared to $1,200.8 million in the first quarter of 2016 . Our net income was $248.9 million , or $2.16 per diluted share, in the first quarter of 2017 , compared to net income of $181.4 million , or $1.59 per diluted share, in the first quarter of 2016 . Refer to the "Results of Operations" section below for further details of our financial results.

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We currently have six products that have received marketing approval:
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), diabetic macular edema (DME), macular edema following retinal vein occlusion (RVO), which includes macular edema following central retinal vein occlusion (CRVO) and macular edema following branch retinal vein occlusion (BRVO). EYLEA is also available in the EU, Japan, and certain other countries outside the United States for the treatment of myopic choroidal neovascularization (mCNV) and in the United States for the treatment of diabetic retinopathy in patients with DME. Bayer has additional regulatory applications for EYLEA for various indications pending in other countries. We are collaborating with Bayer on the development and commercialization of EYLEA outside the United States.
Praluent (alirocumab) Injection , which is available in the United States where it is indicated as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical atherosclerotic cardiovascular disease (ASCVD), who require additional lowering of LDL cholesterol. Praluent is also available in certain countries in Europe for the treatment of adult patients with primary hypercholesterolemia (heterozygous familial hypercholesterolemia (HeFH) and non-familial) or mixed dyslipidemia as an adjunct to diet: (a) in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated dose of a statin, or (b) alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated, and in Japan for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk. The effect of Praluent on cardiovascular morbidity and mortality has not been determined. We are collaborating with Sanofi on the global development and commercialization of Praluent. See Part II, Item 1. "Legal Proceedings" for information regarding the patent infringement proceedings relating to Praluent, which may impact Praluent's commercial availability in the United States and other jurisdictions.
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.
Kevzara (sarilumab) Solution for Subcutaneous Injection . In January 2017, Health Canada approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response to or intolerance to one or more biologic or non-biologic disease modifying anti-rheumatic drugs (DMARDs). This is the first approval of Kevzara worldwide.
Dupixent (dupilumab) Injection. In March 2017, the U.S. Food and Drug Administration (FDA) approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable.
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. Pursuant to a 2015 amended and restated ZALTRAP agreement, Sanofi is solely responsible for the development and commercialization of ZALTRAP, and Sanofi pays us a percentage of aggregate net sales of ZALTRAP.
We have 16 product candidates in clinical development, all of which were discovered in our research laboratories. These consist of a Trap-based clinical program and 15 fully human monoclonal antibody product candidates, as summarized below. Each of the antibodies in the table below was generated using our VelocImmune ® technology.
Trap-based Clinical Program
EYLEA
Phase 3 study for the treatment of Neovascular Glaucoma (NVG) (in Japan) was completed in 2016 (in collaboration with Bayer). In Phase 3 clinical development for the treatment of non-proliferative diabetic retinopathy (NPDR) in patients without DME. As described below, aflibercept is also being studied in combination with nesvacumab, an antibody to angiopoietin-2 (Ang2).
 

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Antibody-based Clinical Programs in Collaboration with Sanofi
Praluent
Antibody to PCSK9. In Phase 3 clinical development for LDL cholesterol reduction and for the prevention of cardiovascular events.
Kevzara (sarilumab/REGN88)
Antibody to the interleukin-6 receptor (IL-6R). In clinical development in rheumatoid arthritis (Phase 3) and Polyarticular-course Juvenile Idiopathic Arthritis (pcJIA) (Phase 2).
Dupixent (dupilumab/REGN668)
Antibody to the interleukin-4 receptor (IL-4R) alpha subunit. In clinical development in atopic dermatitis in adults (Phase 3), atopic dermatitis in pediatric patients ages 6 to 11 (Phase 2), asthma in adults and adolescents (Phase 3), nasal polyps (Phase 3), and eosinophilic esophagitis (EoE) (Phase 2). Phase 3 study in atopic dermatitis in adolescents (12-17 years of age) initiated in the first quarter of 2017. Phase 3 study in asthma in pediatrics (6-11 years of age) initiated in the second quarter of 2017.
REGN2810
Antibody to programmed cell death protein 1 (PD-1). In clinical development in solid tumors and advanced hematologic malignancies (Phase 1) and advanced cutaneous squamous cell carcinoma (potentially pivotal Phase 2). REGN2810 is also being studied in combination with other antibodies and treatments.
REGN3500
Antibody to interleukin-33 receptor (IL-33) being developed for inflammatory diseases. In Phase 1 clinical development in healthy volunteers. Phase 1 study in patients with asthma initiated in the first quarter of 2017.
REGN3767
Antibody to Lymphocyte Activation Gene 3 (LAG-3) protein. In Phase 1 clinical development (administered alone or in combination with REGN2810) in advanced malignancies.
Antibody-based Clinical Program in Collaboration with Bayer
Nesvacumab/aflibercept (REGN910-3) **
Combination product comprised of an antibody to Ang2 co-formulated with aflibercept for intravitreal injection for use in ophthalmology. In Phase 2 clinical development for the treatment of wet AMD and DME. Fast track designation received from the FDA for the treatment of patients with wet AMD, DME, and diabetic retinopathy.
Antibody-based Clinical Program in Collaboration with Teva and Mitsubishi Tanabe Pharma
Fasinumab (REGN475) *
Antibody to Nerve Growth Factor (NGF). In Phase 3 clinical development in osteoarthritis of knee and hip. Phase 2b study for chronic low back pain initiated in the first quarter of 2016, and placed on clinical hold by the FDA in October 2016.
Antibody-based Clinical Programs Developing Independently
Suptavumab (REGN2222) *
Antibody to the Respiratory Syncytial Virus-F (RSV-F) protein. In Phase 3 clinical development for prevention of RSV infection.
Evinacumab (REGN1500) *
Antibody to Angptl-3. In Phase 2 clinical development for the treatment of homozygous familial hypercholesterolemia (HoFH) and severe forms of hyperlipidemia. FDA granted orphan drug designation for the treatment of HoFH. In the first quarter of 2017, the FDA granted Breakthrough Therapy designation for the treatment of hypercholesterolemia in patients with HoFH.
Trevogrumab (REGN1033) *
Antibody to myostatin (GDF8). Phase 2 monotherapy study in patients with sarcopenia completed. In Phase 1 in combination with REGN2477 for muscle-wasting diseases.
REGN1908-1909 *
Antibody to Feld1. In Phase 1 clinical development for the treatment of allergic disease.
REGN1979
Bispecific antibody against CD20 and CD3. In Phase 1 clinical development for Non-Hodgkin's Lymphoma, Chronic Lymphocytic Leukemia, and Acute Lymphoblastic Leukemia. REGN1979 is also being studied in combination with REGN2810 in B-cell malignancies.
REGN3470-3471-3479 ***
Antibody to Ebola virus. In Phase 1 clinical development. FDA granted orphan drug designation for the treatment of Ebola virus infection.
 

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Antibody-based Clinical Programs Developing Independently (continued)
REGN2477 *
Antibody to Activin A being developed for Fibrodysplasia Ossificans Progressiva (FOP). FDA granted orphan drug designation for the treatment of FOP. In addition, in Phase 1 clinical development in combination with trevogrumab for muscle-wasting diseases.
*  Sanofi did not opt-in to or elected not to continue to co-develop the product candidate. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future global sales of the product candidate.
**  Antibodies targeting the Ang2 receptor and ligand in ophthalmology were previously included in our antibody collaboration with Sanofi. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future global sales of the product candidate and a potential development milestone.
***  Sanofi did not opt-in to the product candidate. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future sales of the product candidate. In 2015, we and the Biomedical Advanced Research Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) entered into an agreement whereby HHS provides certain funding to support research, development, and manufacturing of a monoclonal antibody therapy for the treatment of Ebola virus infection.
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. We are executing our long-term objective 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.
Marketed Products
EYLEA (aflibercept) Injection
The FDA approved EYLEA for the treatment of wet AMD in 2011, macular edema following CRVO in 2012, DME and macular edema following RVO in 2014, and diabetic retinopathy in patients with DME in 2015. Outside the United States, EYLEA was approved for the treatment of wet AMD in 2012, macular edema secondary to CRVO in 2013, and visual impairment due to DME and mCNV (in Japan) in 2014. In 2015, the European Commission and the Japanese Ministry of Health, Labour and Welfare (MHLW) approved EYLEA for the treatment of macular edema following RVO, which includes macular edema following BRVO. In addition, the European Commission approved EYLEA for the treatment of visual impairment due to mCNV in 2015. Bayer has additional regulatory applications for EYLEA for various indications pending in other countries, including EYLEA for the treatment of wet AMD in China.
We are collaborating with Bayer on the global development and commercialization of EYLEA outside the United States. Bayer 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.
Net product sales of EYLEA in the United States were $854.4 million in the first quarter of 2017 , compared to $780.9 million in the first quarter of 2016 . Bayer records net product sales of EYLEA outside the United States, which were $483.9 million in the first quarter of 2017 , compared to $418.9 million in the first quarter of 2016 .

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Praluent (alirocumab) Injection
In 2015, the FDA approved Praluent as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical ASCVD, who require additional lowering of LDL cholesterol. Also in 2015, the European Commission granted marketing authorization of Praluent for the treatment of adult patients with primary hypercholesterolemia (HeFH and non-familial) or mixed dyslipidemia as an adjunct to diet: (a) in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated dose of a statin, or (b) alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated. In 2016, the Japanese Ministry of Health, Labour and Welfare (MHLW) granted marketing and manufacturing authorization for Praluent for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk. Also in 2016, the European Commission approved a Praluent dosing regimen of 300 milligrams (mg) every 4 weeks. In April 2017, the FDA approved the supplemental Biologics License Application (sBLA) for a once-monthly (every four weeks), 300 mg dose of Praluent. The effect of Praluent on cardiovascular morbidity and mortality has not been determined. We are collaborating with Sanofi on the global development and commercialization of Praluent. See Part II, Item 1. "Legal Proceedings" for information regarding the patent infringement proceedings relating to Praluent, which may impact Praluent's commercial availability in the United States and other jurisdictions.
Under our antibody collaboration agreement, Sanofi records product sales and cost of sales for commercialized products, and Regeneron has the right to co-promote such products. We have exercised our option to co-promote Praluent in the United States and thus far have not exercised our option to co-promote Praluent outside the United States. We and Sanofi share profits and losses from sales of Praluent. In the first quarter of 2017, net product sales of Praluent in the United States were $25.4 million and net product sales of Praluent outside of the United States were $10.5 million . In the first quarter of 2016, net product sales of Praluent in the United States were $9.8 million and net product sales of Praluent outside of the United States were $3.2 million .
ARCALYST (rilonacept) Injection for Subcutaneous Use
ARCALYST 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 were $3.8 million in the first quarter of 2017 , compared to $3.3 million in the first quarter of 2016 .
Kevzara (sarilumab) Injection
In January 2017, Health Canada approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have had an inadequate response or intolerance to one or more biologic or non-biologic DMARDs. Sanofi records product sales and cost of sales for Kevzara, and we and Sanofi share profits and losses from sales of Kevzara.
In March 2017, we and Sanofi resubmitted the BLA for Kevzara, which the FDA has accepted for review with a target action date of May 22, 2017. In April 2017, the European Medicine Agency's Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion for the marketing authorization of Kevzara, recommending its approval for use in adult patients with moderately to severely active rheumatoid arthritis. Sanofi has additional regulatory applications for Kevzara for RA pending in other countries. We have exercised our option to co-promote Kevzara (sarilumab) in the United States and thus far have not exercised our option to co-promote Kevzara (sarilumab) outside the United States. 
Dupixent (dupilumab) Injection
On March 28, 2017, the FDA approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies, or when those therapies are not advisable. The launch of Dupixent commenced in March following the FDA approval. Sanofi records product sales and cost of sales for Dupixent, and we and Sanofi share profits and losses from sales of Dupixent. We have exercised our option to co-promote Dupixent (dupilumab) in the United States and thus far have not exercised our option to co-promote Dupixent (dupilumab) outside the United States.
Sanofi has additional regulatory applications for Dupixent for use in adult patients with atopic dermatitis pending in other countries.

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Clinical Programs - Ophthalmologic Diseases
EYLEA - Ophthalmologic Diseases
Overview
Vascular Endothelial Growth Factor (VEGF) is a naturally occurring protein in the body. Its normal role in a healthy organism is to trigger formation of new blood vessels (angiogenesis) supporting the growth of the body's tissues and organs. However, in certain diseases, such as wet AMD, it is also associated with the growth of abnormal new blood vessels in the eye, which exhibit abnormal increased permeability that leads to edema. Scarring and loss of fine-resolution central vision often results. CRVO is caused by obstruction of the central retinal vein that leads to a back-up of blood and fluid in the retina. Release of VEGF contributes to increased vascular permeability in the eye and macular edema. In BRVO, a blockage occurs in the blood vessels branching from the main vein draining the retina, resulting in the release of VEGF and consequent retinal edema. For centrally involved DME, VEGF-mediated leakage of fluid from blood vessels in the eye results in interference with vision. Wet AMD, diabetic retinopathy (which includes DME), and RVO 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.
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.
Neovascular Glaucoma
NVG is a secondary glaucoma triggered by the formation of new blood vessels (neovascularization) on the iris and the anterior chamber angle. Neovascularization restricts aqueous outflow and consequently elevates intraocular pressure (IOP). NVG is a serious condition that may lead to permanent loss of vision, a persistently painful eye, and, especially in the advanced stages, is unlikely to respond to treatment. NVG is caused by eye diseases leading to retinal ischemia, mainly CRVO, proliferative diabetic retinopathy (PDR), and ocular ischemic syndrome (OIS). NVG meets the criteria for an orphan indication in Japan where the estimated number of NVG patients is 30,000 to 40,000.
Diabetic Retinopathy
Diabetic retinopathy is a complication of diabetes mellitus characterized by microvascular damage to the blood vessels in the retina. It can progress to proliferative diabetic retinopathy (PDR), where new, abnormal vessels that are susceptible to hemorrhage grow initially from the retina and/or optic disc and extend beyond the internal limiting membrane. PDR can subsequently lead to various vision-threatening complications such as vitreous hemorrhage, traction macular detachment, and neovascular glaucoma. There is currently no standard treatment for non-proliferative diabetic retinopathy in the absence of DME and patients are often observed until disease progresses sufficiently to warrant intraocular surgery (vitrectomy) or, more commonly, extensive laser treatment (panretinal photocoagulation (PRP)). PRP is utilized with the intent of preserving function of the central retina, but is inherently destructive to the peripheral retina and may result in a considerable loss of peripheral visual field. 
In 2016, a Phase 3 trial (PANORAMA) was initiated to assess the efficacy and safety of intravitreal aflibercept in patients with moderately severe to severe NPDR without DME.
Combination Product with Nesvacumab
In 2016, two Phase 2 studies, RUBY (for the treatment of DME) and ONYX (for the treatment of wet AMD), were initiated. Both studies are investigating nesvacumab, an antibody to Ang2 co-formulated with aflibercept, as a single, intravitreal injection. Efficacy and safety data from both the RUBY and ONYX studies will be analyzed through week 36.

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Late-Stage Antibody-based Clinical Programs
Praluent 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 cholesterol (LDL-C) 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. Similar to statins, PCSK9 impacts the number of available LDL receptors and therefore plays a key role in modulating LDL-C levels in the body. PCSK9 is a secreted protein that 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 (CHD). We used our VelocImmune technology to generate a fully human monoclonal antibody inhibitor of PCSK9, called Praluent, which is intended to lower LDL cholesterol.
Clinical Program
Phase 3 ODYSSEY Program . The potential of Praluent to demonstrate cardiovascular benefit is being prospectively assessed in the ongoing 18,000-patient ODYSSEY OUTCOMES trial, which is fully enrolled and is expected to be completed in 2017. All patients who entered the ODYSSEY OUTCOMES trial had experienced a heart attack or unstable angina requiring hospitalization within the previous year before entering the trial, and experienced inadequately controlled LDL cholesterol despite receiving maximally-tolerated statins and potentially other lipid-lowering therapies. In 2016, an independent Data Monitoring Committee (DMC) of the ODYSSEY OUTCOMES study completed the first and second interim analyses. Based on the recommendation of the independent DMC, the ODYSSEY OUTCOMES trial continues as planned. Regeneron remains blinded to the actual results of the first and second interim analyses, and the DMC will continue to monitor the ongoing safety and efficacy of Praluent as planned.
In 2016, as a post-marketing commitment to the FDA, a Phase 4 randomized, placebo-controlled, long-term trial that prospectively evaluates the effect of Praluent on neurocognitive function was initiated.
Kevzara (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 Program . Based on positive results from the Phase 3 studies of Kevzara in adult patients with active RA, we and Sanofi submitted a BLA for U.S. regulatory approval of Kevzara, which was accepted for review by the FDA in December 2015. The target date for an FDA decision on the BLA was October 30, 2016. However, on October 28, 2016, we and Sanofi announced that the FDA issued a Complete Response Letter (CRL) regarding the BLA for Kevzara due to certain deficiencies relating to the Sanofi facility in Le Trait, France. The FDA subsequently reclassified the Sanofi Le Trait fill-and-finish facility as "acceptable" based on review of responses to an FDA Form 483, as well as proposed corrective actions. In March 2017, we and Sanofi resubmitted the BLA for Kevzara, which the FDA has accepted for review with a target action date of May 22, 2017.
In July 2016, the European Medicines Agency (EMA) accepted for review the Marketing Authorization Application (MAA) for Kevzara, and in April 2017, the CHMP adopted a positive opinion for the marketing authorization of Kevzara, recommending its approval for use in adult patients with moderately to severely active rheumatoid arthritis. In addition, in October 2016, an application for marketing approval for Kevzara was submitted in Japan.

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Non-infectious Uveitis
Phase 2 SARIL-NIU-SATURN Study . SARIL-NIU-SATURN was a small Phase 2, randomized double-masked, placebo-controlled study (n=58) conducted to assess the effect of sarilumab on non-infectious uveitis of the posterior ocular segment. Based on the results of this study, no further development is currently planned in this indication.
Polyarticular-course Juvenile Idiopathic Arthritis (pcJIA)
Phase 2 pcJIA Study . A Phase 2 study of sarilumab in pcJIA was initiated in 2016.
Dupixent (dupilumab/REGN668; IL-4R Antibody) for allergic and inflammatory conditions
Overview
IL-4R is required for signaling by the cytokines IL-4 and IL-13. Both of these cytokines are critical mediators of immune response, which, in turn, drives the formation of Immunoglobulin E (IgE) antibodies and the development of allergic responses, as well as the atopic state that underlies atopic (allergic) dermatitis, asthma, nasal polyps, and eosinophilic esophagitis. Dupilumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to bind to IL-4R alpha subunit and block signaling from both IL-4 and IL-13.
Atopic Dermatitis
Phase 3 Program . The LIBERTY AD Phase 3 clinical program consisted of five trials of patients with moderate-to-severe atopic dermatitis at sites worldwide. Patients from the LIBERTY AD CHRONOS, LIBERTY AD SOLO 1, and LIBERTY AD SOLO 2 studies were transitioned to either the LIBERTY CONTINUE or LIBERTY AD Open label Extension trials.
In December 2016, the EMA accepted for review the MAA for Dupixent for the treatment of adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy. In 2015, the United Kingdom (UK) Medicines & Healthcare products Regulatory Agency (MHRA) granted Promising Innovative Medicine (PIM) Designation to Dupixent in the short-term treatment of adult patients with severe atopic dermatitis who have responded inadequately to all available topical prescription treatments and/or systemic ciclosporin, or who are intolerant of or ineligible for such treatments. A PIM Designation is an early indication that a medicinal product is a promising candidate for the Early Access to Medicines Scheme (EAMS), in the treatment, diagnosis, or prevention of life-threatening or seriously debilitating conditions with unmet need. PIM Designation is the first step in a 2-step EAMS process that allows patients to be treated with Dupixent in advance of formal regulatory approval. In addition, in the first quarter of 2017, an application for marketing approval for Dupixent was submitted in Japan.
In 2016, the Phase 3 LIBERTY AD CAFÉ study of Dupixent in severe atopic dermatitis was initiated, investigating two dose regimens of Dupixent (300 mg weekly and 300 mg every two weeks) with concomitant topical corticosteroids in adult patients with severe atopic dermatitis who are not adequately controlled with, or are intolerant to or ineligible for, oral cyclosporine A therapy. The primary endpoint of this study is the proportion of patients with a 75% or greater improvement from baseline in their EASI score. In April 2017, we and Sanofi announced that the results of the LIBERTY AD CAFÉ study were positive and demonstrated an acceptable safety profile. These results will be submitted to the EMA and presented at an upcoming medical conference.
In March 2017, at the Annual Meeting of the American Academy of Dermatology, we and Sanofi presented additional detailed results from the Phase 3 LIBERTY AD CHRONOS study. This study met its primary and secondary endpoints, with patients receiving Dupixent with topical corticosteroids (TCS) achieving significantly improved measures of overall disease severity at 16 and 52 weeks, compared to TCS alone in adults with uncontrolled moderate-to-severe atopic dermatitis.
Phase 3 Study in Adolescent Patients. In the first quarter of 2017, a Phase 3 study in adolescent patients (12-17 years of age) with moderate-to-severe atopic dermatitis was initiated.
In 2016, the FDA granted Breakthrough Therapy designation for dupilumab for the treatment of moderate to severe (12 to less than 18 years of age) and severe (6 months to less than 12 years of age) atopic dermatitis in patients who are not adequately controlled with, or who are intolerant to, topical medication.
Asthma
Phase 3 Study . A Phase 3 trial, LIBERTY ASTHMA QUEST, in adult and adolescent patients with uncontrolled persistent asthma is fully enrolled. LIBERTY ASTHMA QUEST is expected to serve as the second required pivotal efficacy study, since, based on discussions with the FDA, the Phase 2b study will also be considered a pivotal efficacy study. LIBERTY ASTHMA QUEST is a global, placebo-controlled Phase 3 study that enrolled more than 1,900 patients with uncontrolled persistent asthma and is evaluating two doses of dupilumab, 200 mg and 300 mg, subcutaneously administered every other week.

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Phase 3 Study in Pediatric Patients. In the second quarter of 2017, a Phase 3 study in pediatric patients (6-11 years of age) with uncontrolled persistent asthma was initiated.
Nasal Polyps
Phase 3 Study . A Phase 3 study, LIBERTY NP SINUS, in adult patients with bilateral nasal polyps on a background therapy with intranasal corticosteroids was initiated in 2016.
Eosinophilic Esophagitis
Phase 2 Study. EoE is a chronic allergic inflammatory disease that is considered a major cause of gastrointestinal illness. Eosinophils are a type of white blood cell that, due to allergens, can accumulate in the esophagus, causing inflammation and tissue injuries that create difficulty swallowing. People with eosinophilic esophagitis may also have allergies, asthma, atopic dermatitis, or chronic respiratory disease. 
We recently completed a positive primary analysis from a Phase 2 proof-of-concept study of dupilumab in patients with active, moderate-to-severe EoE. Detailed data from this study will be presented at an upcoming medical conference. We and Sanofi plan to meet with the FDA and other regulators to determine next steps for development of dupilumab in this indication.
Suptavumab (REGN2222; RSV-F Antibody) for RSV
Overview
Respiratory Syncytial Virus, or RSV, is a virus that infects the lungs and breathing passages. It is the most common cause of bronchiolitis (inflammation of the small airways) and is the second most common cause of death, globally, in the first year of life. RSV results in a significant healthcare burden, as it is the leading cause of infant hospitalizations in the United States. In addition to hospitalizations, RSV frequently results in emergency department, urgent care, and physicians’ office visits. It is estimated that about half of all children will have an RSV infection by their first birthday. Suptavumab is a fully human monoclonal antibody to the RSV-F protein. Suptavumab was generated using our VelocImmune technology.
Clinical Program
A Phase 3 study of suptavumab (NURSERY Pre-Term) was initiated in 2015. The study finished enrolling patients in the first quarter of 2017 subsequent to the completion of the Northern Hemisphere RSV season; final enrollment was approximately 1,200 patients.
In 2015, the FDA granted Fast Track designation to suptavumab for the prevention of serious lower respiratory tract disease caused by RSV.
Fasinumab (REGN475; NGF Antibody) for pain due to osteoarthritis and chronic low back pain
Overview
Pain is a frequent reason for physician visits, a common reason for taking prescription medications (including opioids), and a major cause of work disability and impaired quality of life. Targeting NGF is a potential advance in pain management. NGF expression is elevated in many acute and chronic painful conditions and NGF blockade has demonstrated efficacy in clinical trials. Fasinumab is a fully human monoclonal antibody to NGF, generated using our VelocImmune technology.
The fasinumab clinical development program is expected to consist of approximately 10,000 patients treated with fasinumab.
Osteoarthritis
Phase 2/3 Study . In the second quarter of 2016, we announced positive, 16-week top-line data from a Phase 2/3 study in patients with moderate-to-severe osteoarthritis pain of the hip or knee who have a history of inadequate pain relief or intolerance to current analgesic therapies. In the fourth quarter of 2016, we and Teva announced that at the 36-week analysis of the Phase 2/3 clinical study in patients with moderate-to-severe osteoarthritis pain of the hip or knee, the incidence of adjudicated arthropathies was found to be potentially dose-dependent, with a higher rate of patients experiencing arthropathies in the higher dose groups (12% (9mg), 7% (6mg), 5% (3mg), 2% (1mg), and 1% (placebo)). In the ongoing fasinumab osteoarthritis pivotal Phase 3 program (further described below), we and our collaborators are planning to advance only the lower doses from the Phase 2/3 study.
Phase 3 Study . A Phase 3 long-term safety study in patients with pain due to osteoarthritis of the knee or hip was initiated in the first quarter of 2016.

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Chronic Low Back Pain
A Phase 2b study in chronic low back pain was initiated in 2016. In October 2016, the FDA placed the Phase 2b study in chronic low back pain on clinical hold and requested an amendment of the study protocol; this was based on the FDA's recommendation that patients with advanced osteoarthritis at baseline not receive higher doses of fasinumab. Following this development, we completed an unplanned interim review of results and stopped dosing in the study. The unplanned analysis showed clear evidence of efficacy with improvement in pain scores in all fasinumab groups compared to placebo at the 8- and 12-week time points (nominal p<0.01). Preliminary safety results are generally consistent with what has been previously reported with the class. The Phase 2b chronic low back pain study enrolled approximately 70% of the targeted 800 patients in four dose groups: placebo, 6mg subcutaneously monthly, 9mg subcutaneously monthly, and 9mg intravenously every two months. Patients will continue to be followed for up to 36 weeks.
We and Teva plan to design pivotal Phase 3 studies in chronic low back pain. The companies plan to submit a pivotal program plan for review with the FDA and other health authorities.
REGN2810 (PD-1 Antibody) for cancer
Overview
The PD-1/PD-L1 pathway has emerged as a critical regulator of effective immune responses to a variety of cancers, and a number of agents blocking either PD-1 or PD-L1 have been approved. REGN2810 is a high-affinity anti-PD-1 human antibody that was generated using the Velocimmune platform. REGN2810 is being developed to provide a foundational component for a planned, diverse immune-oncology portfolio. Initial efforts for approval are expected to be as monotherapy in selected indications, and subsequent development is expected to be focused on combinations with other anti-cancer agents.
Clinical Program
REGN2810 is in Phase 1 clinical development in a variety of malignancies as monotherapy or in combination with other anti-cancer modalities. Data from a cohort of patients with cutaneous squamous cell carcinoma from our Phase 1 trial will be presented at the upcoming American Society of Clinical Oncology (ASCO) conference in June 2017. A potentially pivotal Phase 2 study for the treatment of advanced cutaneous squamous cell carcinoma was initiated in the second quarter of 2016. A Phase 3 study in first-line non-small cell lung cancer is expected to be initiated in the first half of 2017.
Other Programs
Our preclinical research programs include the areas of oncology/immuno-oncology, angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain and neurobiology, cardiovascular diseases, and infectious diseases.
In 2015, we and BARDA entered into an agreement to develop, test, and manufacture a monoclonal antibody therapy for the treatment of Ebola virus infection. Under the terms of the agreement, HHS provides funding to support our preclinical development, antibody manufacturing, and for a Phase 1 study in healthy volunteers, and has the option to provide additional funding for further manufacturing and development studies. In addition, in 2016, we and BARDA of the HHS entered into an agreement whereby HHS will provide certain funding to manufacture and study two antibody therapies for the potential treatment of Middle East Respiratory Syndrome (MERS).
In the first quarter of 2017, the Regeneron Genetics Center (RGC) entered into an agreement with U.K. Biobank and GlaxoSmithKline (GSK) to generate genetic sequence data from the volunteer participants in the U.K. Biobank resource. RGC ultimately plans to generate genetic sequence data from the 500,000 volunteer participants in the U.K. Biobank resource, and RGC and GSK have committed an initial investment to enable the sequencing of 50,000 samples. The sequencing of U.K. Biobank's samples will be performed at the RGC facility. These sequence data will be incorporated back into U.K. Biobank's resource following a standard exclusivity period for GSK and Regeneron and made openly available to the broader scientific community.
Collaboration Agreements
Collaborations with Sanofi
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 (Antibody Discovery Agreement) and a License and Collaboration Agreement (each as amended), collectively referred to as the Antibody Collaboration. Pursuant to the Antibody Discovery Agreement, as amended, Sanofi is responsible for funding up to $130.0 million of our antibody discovery activities in 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

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Antibody Discovery Agreement, including target identification and validation, antibody development, research and preclinical activities through filing of an Investigational New Drug application (IND) or its equivalent, toxicology studies, and manufacture of preclinical and clinical supplies. Sanofi has the right to extend antibody development and preclinical activities relating to selected programs for up to an additional three years after 2017. Sanofi must identify any programs to be extended by June 30, 2017, and we and Sanofi must then agree on a plan and budget for the extended activities. During the extended period, we will use commercially reasonable efforts to develop such antibodies and conduct preclinical activities through IND preparation. After 2017, funding from Sanofi under the Antibody Discovery Agreement will cease to continue, except with regard to the programs for which Sanofi has exercised its extension right.
For each drug candidate identified through discovery research under the Antibody Discovery Agreement (including drug candidates developed during the extended period of up to an additional three years described above), Sanofi has the option to license rights to the candidate under the License and Collaboration 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 as they are incurred by us, 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. We are obligated to use commercially reasonable efforts to supply clinical requirements of each drug candidate under the collaboration until commercial supplies of that drug candidate are being manufactured.
Under our collaboration agreement, Sanofi records product sales and cost of sales for commercialized products, and Regeneron has the right to co-promote such products. We have exercised our option to co-promote Praluent, Kevzara (sarilumab), and Dupixent (dupilumab) in the United States. We have not exercised our option to co-promote any of these antibodies outside the United States; however, we retain the right to do so at a future date subject to the terms of the collaboration agreement. We and Sanofi will equally share profits and losses from sales within the United States. We and Sanofi 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 share losses outside the United States at 55% (Sanofi)/45% (us). In addition to profit sharing, we are entitled to receive up to $250.0 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.
Immuno-Oncology. In July 2015, we and Sanofi entered into a global strategic collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the IO Collaboration). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement (IO Discovery Agreement), and an Immuno-oncology License and Collaboration Agreement (IO License and Collaboration Agreement). In connection with the IO Discovery Agreement, Sanofi made a $265.0 million non-refundable up-front payment to us. Pursuant to the IO Discovery Agreement, we will spend up to $1,090.0 million (IO Discovery Budget) to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept. Sanofi will reimburse us for up to $825.0 million (IO Discovery Funding) of these costs, subject to certain annual limits (up to $200.0 million for 2017). The term of the IO Discovery Agreement will continue through the later of five years from the effective date of the IO Collaboration or the date the IO Discovery Budget is exhausted, subject to Sanofi's option to extend it for up to an additional three years for the continued development (and funding) of selected ongoing programs. Pursuant to the IO Discovery Agreement, we will be primarily responsible for the design and conduct of all research activities, including target identification and validation, antibody development, preclinical activities, toxicology studies, manufacture of preclinical and clinical supplies, filing of IND Applications, and clinical development through proof-of-concept. We will reimburse Sanofi for half of the development costs they funded that are attributable to clinical development of antibody product candidates under the IO Discovery Agreement from our share of future profits, if any, from commercialized IO Collaboration products to the extent they are sufficient for this purpose. With regard to product candidates for which proof-of-concept is established, Sanofi will have the option to license rights to the product candidate pursuant to the IO License and Collaboration Agreement (as further described below).
In connection with the IO License and Collaboration Agreement, Sanofi made a $375.0 million non-refundable up-front payment to us. If Sanofi exercises its option to license rights to a product candidate thereunder, it will co-develop the drug candidate with us through product approval. Principal control of development of each product candidate that enters development under the IO License and Collaboration Agreement will alternate between us and Sanofi on a candidate-by-candidate basis. Sanofi will fund drug candidate development costs up front for the candidates for which it is the principal controlling party and we will reimburse half of the total development costs for all such candidates from our share of future IO Collaboration profits to the extent they are sufficient for this purpose. In addition, we and Sanofi will share equally, on an ongoing basis, the development costs for the drug candidates for which we are the principal controlling party. The party having principal control over the development of a product candidate will also lead the commercialization activities for such product candidate in the United States. We are obligated to use commercially reasonable efforts to supply clinical requirements of each drug candidate under the IO License and Collaboration Agreement until commercial supplies of that IO drug candidate are being manufactured. For all products commercialized under

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the IO License and Collaboration Agreement, Sanofi will lead commercialization activities outside of the United States. Each party will have the right to co-promote licensed products in countries where it is not the lead commercialization party. The parties will share equally in profits and losses in connection with the commercialization of collaboration products.
Under the terms of the IO License and Collaboration Agreement, the parties will also co-develop our antibody product candidate targeting PD-1 (REGN2810). We have principal control over the development of REGN2810, and the parties share equally, on an ongoing basis, development expenses for REGN2810 up to a total of $650.0 million. We will lead commercialization activities in the United States, while Sanofi will lead commercialization activities outside of the United States and the parties will equally share profits from worldwide sales. Sanofi has exercised its option to co-promote REGN2810 in the United States. We will be entitled to a milestone payment of $375.0 million in the event that sales of all licensed products targeting PD-1 (including REGN2810), together with sales of any other products licensed under the IO License and Collaboration Agreement and sold for use in combination with a licensed product targeting PD-1, equal or exceed $2.0 billion in any consecutive twelve-month period.
Collaborations with Bayer
EYLEA outside the United States . Since October 2006, we and Bayer 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 collaborate on, and share the costs of, the development of EYLEA. Bayer 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 Japan, we are entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales.
Commencing with the first commercial sale of EYLEA in a major market country outside the United States, we became obligated to reimburse Bayer 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 at a faster rate. As a result, we expect that a portion of our share of EYLEA profits outside the United States will be used to reimburse Bayer 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.
Ang2 antibody outside the United States. In March 2016, we entered into an agreement with Bayer governing the joint development and commercialization outside the United States of nesvacumab, an antibody product candidate to Ang2, including in combination with aflibercept, for the treatment of ocular diseases or disorders. Nesvacumab/aflibercept, a combination product candidate comprised of an antibody to Ang2 co-formulated with aflibercept, is being developed under the agreement. In connection with the agreement, Bayer made a $50.0 million non-refundable up-front payment to us and is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States. We are also entitled to receive up to an aggregate of $80.0 million in development milestone payments from Bayer. Bayer will share profits and losses from sales outside the United States equally with us, and is responsible for certain royalties payable to Sanofi on sales of the product outside of the United States. Within the United States, we have exclusive commercialization rights and will retain all of the profits from sales.
Collaboration with Mitsubishi Tanabe Pharma
Fasinumab Asia. In September 2015, we entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) providing MTPC with development and commercial rights to fasinumab in Japan, South Korea, Taiwan, Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Myanmar, and Sri Lanka (the MTPC Territories). In connection with the agreement, MTPC made a $10.0 million non-refundable up-front payment in 2015, and in 2016, MTPC made additional payments of $45.0 million and $15.0 million to us. We are also entitled to receive up to an aggregate of $155.0 million in development milestone and other contingent payments.
Under the agreement, we are obligated to manufacture and supply MTPC with clinical and commercial supplies of fasinumab. If fasinumab is commercialized in the MTPC Territories, we will supply the product to MTPC at a tiered purchase price, which ranges from 30% to 50% of net sales of the product (subject to adjustment in certain circumstances), and are eligible for additional payments up to an aggregate of $100.0 million upon the achievement of specified annual net sales amounts starting at $200.0 million.

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Collaboration with Teva
Fasinumab . In September 2016, we entered into a collaboration agreement with Teva to develop and commercialize fasinumab globally, excluding certain Asian countries that are subject to our collaboration agreement with MTPC (as described above). In connection with the agreement, Teva made a $250.0 million non-refundable up-front payment in 2016. We will lead global development activities, and the parties will share equally, on an ongoing basis, development costs under a global development plan. In addition, we are entitled to receive up to an aggregate of $460.0 million in development milestones and up to an aggregate of $1,890.0 million in contingent payments upon achievement of specified annual net sales amounts. We are responsible for the manufacture and supply of fasinumab globally.
Within the United States, we will lead commercialization activities, and the parties will share equally in any profits or losses in connection with commercialization of fasinumab. In the territory outside of the United States, Teva will lead commercialization activities and we will supply product to Teva at a tiered purchase price, which is calculated as a percentage of net sales of the product (subject to adjustment in certain circumstances).
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, are expected to expand and require additional resources. We also expect to incur substantial costs related to the commercialization of Praluent and Dupixent, and preparation for potential commercialization of Kevzara and other indications of dupilumab, approximately half of which we expect to be reimbursed by Sanofi under the companies' collaboration agreement. Our financial 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, the continuation of our collaborations, in particular with Sanofi and Bayer, 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, and the amount of income tax expense we incur, which is partly dependent on the profits or losses we earn in each of the countries in which we operate. We cannot predict whether or when new products or new indications for 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.
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 2017 to date were, and plans for the next twelve months are, as follows:   
Trap-based Clinical Program:
 
 
 
 
 
 
2017 Events to Date
 
2017-2018 Plans (next 12 months)
EYLEA
Ÿ
Bayer received regulatory approval for EYLEA for various indications and continued to pursue regulatory applications for marketing approval in additional countries
Ÿ
Bayer to submit for additional regulatory approvals outside the United States for various indications
 
 
Ÿ
Regulatory agency decisions on applications outside the United States for various indications
 
 
 
Ÿ
Continue patient enrollment in Phase 3 study for the treatment of NPDR in patients without DME


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Antibody-based Clinical Programs:
 
 
 
 
     
2017 Events to Date
     
2017-2018 Plans (next 12 months)
Praluent (PCSK9 Antibody)
Ÿ
Court issued a permanent injunction barring commercialization of Praluent in the United States beginning February 21, 2017. On February 8, 2017, an emergency motion to stay (suspend) the injunction pending appeal was granted.
Ÿ
Complete and report results from ODYSSEY OUTCOMES study
 
 
Ÿ
Submit for additional regulatory approvals outside the United States
 
 
Ÿ
Regulatory agency decisions on applications outside the United States
 
Ÿ
FDA approved sBLA for monthly dosing regimen
 
Kevzara (sarilumab; IL-6R Antibody)
Ÿ
Regulatory applications submitted in various jurisdictions outside the United States
Ÿ
FDA target action date of May 22, 2017
 
Ÿ
Health Canada approved Kevzara for the treatment of adult patients with RA
Ÿ
Submit for additional regulatory approvals outside of the United States
 
Ÿ
CHMP recommended approval of Kevzara for use in adult patients with RA
Ÿ
Regulatory agency decisions on applications outside of the United States
 
Ÿ
Resubmitted BLA and FDA accepted for review
 
 
Dupixent (dupilumab; IL-4R Antibody)
Ÿ
Presented detailed results from one-year Phase 3 CHRONOS study at the Annual Meeting of the American Academy of Dermatology
Ÿ
Submit for additional regulatory approvals in atopic dermatitis outside the United States
 
Ÿ
FDA approved Dupixent for the treatment of adults with moderate-to-severe atopic dermatitis
Ÿ
Regulatory agency decisions on atopic dermatitis applications outside of the United States
 
Ÿ
Initiated Phase 3 study in adolescent patients (12-17 years of age) with atopic dermatitis
Ÿ
Report results from Phase 3 asthma study
 
Ÿ
Regulatory applications submitted for atopic dermatitis in Japan and various other jurisdictions outside the United States
Ÿ
Submit sBLA for asthma in adults
 
 
Ÿ
Continue patient enrollment in Phase 3 study in nasal polyps
 
Ÿ
Reported that the results from the LIBERTY AD CAFÉ study in atopic dermatitis were positive
Ÿ
Initiate Phase 3 study in pediatric patients in atopic dermatitis
 
Ÿ
Initiated Phase 3 study in pediatric patients (6-11 years of age) with asthma
Ÿ
Initiate Phase 2 study in food allergies
 
Ÿ
Reported positive results from Phase 2 study in EoE
 
 
Suptavumab (RSV-F Antibody)
Ÿ
Patient enrollment in Phase 3 study ended following completion of the Northern Hemisphere RSV season
Ÿ
Report results from Phase 3 study
Fasinumab (NGF Antibody)
Ÿ
Continued patient enrollment in Phase 3 long-term safety study in osteoarthritis
Ÿ
Continue patient enrollment in Phase 3 long-term safety study in osteoarthritis
 
 
 
Ÿ
Report additional data from Phase 2/3 study in patients with osteoarthritis pain
 
 
 
Ÿ
Initiate additional Phase 3 study in patients with osteoarthritis pain
 
 
 
Ÿ
Initiate Phase 3 study in chronic low back pain
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Antibody-based Clinical Programs (continued):
 
 
 
 
2017 Events to Date
     
2017-2018 Plans (next 12 months)
REGN2810 (PD-1 Antibody)
Ÿ
Continued patient enrollment in Phase 1 and Phase 2 studies
Ÿ
Continue patient enrollment in Phase 1 and Phase 2 studies
 
 
 
Ÿ
Initiate Phase 3 study in first-line non-small cell lung cancer
 
 
 
Ÿ
Initiate Phase 2 study in basal cell carcinoma
Evinacumab (Angptl-3 Antibody)
Ÿ
FDA granted Breakthrough Therapy designation for the treatment of hypercholesterolemia in patients with HoFH
Ÿ
Report additional results from Phase 2 HoFH study
 
 
Ÿ
Initiate Phase 3 study in HoFH
Nesvacumab/aflibercept (Ang2 Antibody co-formulated with aflibercept)
Ÿ
Completed patient enrollment in Phase 2 ONYX study in wet AMD
Ÿ
Report results from Phase 2 studies
Trevogrumab (GDF8 Antibody)
Ÿ
Initiated Phase 1 combination therapy study with REGN2477
 
 
 
Ÿ
Completed patient enrollment in Phase 1 combination therapy study
 
 
REGN1908-1909 (Feld1 Antibody)
 
 
Ÿ
Continue early stage development
REGN1979 (CD20 and CD3 Antibody)
Ÿ
Continued patient enrollment in Phase 1 study
Ÿ
Complete patient enrollment in Phase 1 study
REGN3470-3471-3479 (Antibody to Ebola virus)
 
 
Ÿ
Initiate additional healthy volunteer study
REGN2477 (Activin A Antibody)
Ÿ
FDA granted orphan drug designation for the treatment of FOP
Ÿ
Initiate Phase 2 study in FOP patients
REGN3500 (IL-33 Antibody)
Ÿ
Initiated Phase 1 study in patients with asthma
Ÿ
Initiate Phase 2 study
REGN3767 (LAG-3 Antibody)
Ÿ
Continued patient enrollment in Phase 1 study
Ÿ
Continue patient enrollment in Phase 1 study
Corporate Information
We were incorporated in the State of New York in 1988 and publicly listed in 1991. Our principal executive offices are located at 777 Old Saw Mill River Road, Tarrytown, New York 10591, and our telephone number at that address is (914) 847-7000.
We make available free of charge on or through our Internet website ( http://www.regeneron.com ) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
Investors and other interested parties should note that we use our media and investor relations website ( http://newsroom.regeneron.com ) and our social media channels to publish important information about Regeneron, including information that may be deemed material to investors. We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls, and webcasts.

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Results of Operations
Three Months Ended March 31, 2017 and 2016
Net Income
Net Income
Three Months Ended March 31,
(In millions)
2017
 
2016
Revenues
$
1,319.0

 
$
1,200.8

Operating expenses
(888.4
)
 
(871.5
)
Other income (expense), net
1.7

 
0.9

Income before income taxes
432.3

 
330.2

Income tax expense
(183.4
)
 
(148.8
)
Net income
$
248.9

 
$
181.4

 
 
 
 
Net income per share - diluted
$
2.16

 
$
1.59

Revenues
Revenues
Three Months Ended March 31,
(In millions)
2017
 
2016
Net product sales
$
858.2

 
$
784.2

Collaboration revenue:
 
 
 
Sanofi
210.4

 
219.7

Bayer
193.9

 
179.6

Total collaboration revenue
404.3

 
399.3

Other revenue
56.5

 
17.3

Total revenues
$
1,319.0

 
$
1,200.8

Net Product Sales
Net product sales consist of U.S. sales of EYLEA and ARCALYST. For the three months ended March 31, 2017 , EYLEA net product sales increased to $854.4 million from $780.9 million for the three months ended March 31, 2016 due to higher sales volume, partly offset by an increase in sales-related deductions primarily due to payer sales mix and new rebate programs. For the three months ended March 31, 2017 and 2016 , we also recognized ARCALYST net product sales of $3.8 million and $3.3 million , respectively.
Revenue from product sales is recorded net of applicable provisions for rebates and chargebacks, distribution-related fees, and other sales-related deductions. The following table summarizes the provisions and credits/payments for sales-related deductions.

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(In millions)
Rebates &
Chargebacks
 
Distribution-
Related
Fees
 
Other Sales-
Related
Deductions
 
Total
Balance as of December 31, 2016
$
12.7

 
$
29.5

 
$
3.6

 
$
45.8

Provision related to current period sales
38.9

 
41.2

 
9.5

 
89.6

Credits/payments
(28.5
)
 
(42.3
)
 
(8.6
)
 
(79.4
)
Balance as of March 31, 2017
$
23.1

 
$
28.4

 
$
4.5

 
$
56.0

 
 
 
 
 
 
 
 
Balance as of December 31, 2015
$
6.4

 
$
48.3

 
$
0.5

 
$
55.2

Provision related to current period sales
18.9

 
35.8

 
2.9

 
57.6

Credits/payments
(17.5
)
 
(50.4
)
 
(2.5
)
 
(70.4
)
Balance as of March 31, 2016
$
7.8

 
$
33.7

 
$
0.9

 
$
42.4

Sanofi Collaboration Revenue
Sanofi Collaboration Revenue
 
Three Months Ended March 31,
(In millions)
 
2017
 
2016
Antibody:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
$
155.2

 
$
193.6

Reimbursement of Regeneron commercialization-related expenses
 
73.6

 
68.7

Regeneron's share of losses in connection with commercialization of antibodies
 
(108.4
)
 
(99.4
)
Other
 
11.3

 
7.5

Total Antibody
 
131.7

 
170.4

Immuno-oncology:
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
58.7

 
29.3

Other
 
20.0

 
20.0

Total Immuno-oncology
 
78.7

 
49.3

Total Sanofi collaboration revenue
 
$
210.4

 
$
219.7

In the first quarter of 2017 , Sanofi's reimbursement of our antibody research and development expenses consisted of $48.1 million under our Antibody Discovery Agreement and $107.1 million under our License and Collaboration Agreement, compared to $57.4 million and $136.2 million , respectively, in the first quarter of 2016 . The lower reimbursement of research and development costs in the first quarter of 2017 , compared to the same period in 2016 , was primarily due to decreased collaboration development activities for Dupixent (dupilumab) as some later-stage studies had been completed.
Reimbursement of Regeneron commercialization-related expenses represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent.

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During the three months ended March 31, 2017 and 2016, we and Sanofi shared commercial expenses related to Praluent, Kevzara, and Dupixent in accordance with the companies' License and Collaboration Agreement. As such, during the same periods in which we recorded reimbursements from Sanofi related to our commercialization expenses, we also recorded our share of losses in connection with the companies preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent within Sanofi collaboration revenue. Sanofi provides us with an estimate of our share of the losses from preparing to commercialize, or commercialization (as applicable), of antibodies for the most recent fiscal quarter; these estimates are reconciled to actual results in the subsequent fiscal quarter, and our portion of the profit or loss is adjusted accordingly, as necessary. For the three months ended March 31, 2017 , net product sales of Praluent in the United States were $25.4 million and net product sales of Praluent outside of the United States were $10.5 million . For the three months ended March 31, 2016 , net product sales of Praluent in the United States were $9.8 million and net product sales of Praluent outside of the United States were $3.2 million . In January 2017, Health Canada approved Kevzara for the treatment of rheumatoid arthritis and on March 28, 2017, the FDA approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis.
In the first quarter of 2017, Sanofi's reimbursement of our immuno-oncology research and development expenses consisted of $38.2 million under our IO Discovery Agreement, and $20.5 million under our IO License and Collaboration Agreement related to REGN2810, compared to $20.1 million and $9.2 million, respectively, in the first quarter of 2016. The higher reimbursement of immuno-oncology research and development costs in the first quarter of 2017 , compared to the same period in 2016 , was primarily due to increased pre-clinical research and development activities, as well as additional clinical studies and continued enrollment in the REGN2810 clinical program.
Other Sanofi immuno-oncology revenue includes recognition of deferred revenue from $640.0 million of up-front payments received in 2015 in connection with the execution of the IO Collaboration agreements.
Bayer Collaboration Revenue
Bayer Collaboration Revenue
 
Three Months Ended March 31,
(In millions)
 
2017
 
2016
EYLEA:
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
174.9

 
$
145.8

Cost-sharing of Regeneron EYLEA development expenses
 
2.4

 
2.7

Other
 
10.6

 
26.6

Total EYLEA
 
187.9

 
175.1

PDGFR-beta antibody:
 
 
 
 
Cost-sharing of rinucumab/aflibercept development expenses
 
1.9

 
1.9

Other
 

 
2.6

Total PDGFR-beta antibody
 
1.9

 
4.5

Ang2 antibody:
 
 
 
 
Cost-sharing of nesvacumab/aflibercept development expenses
 
2.0

 

Other
 
2.1

 

Total Ang2 antibody
 
4.1

 

Total Bayer collaboration revenue
 
$
193.9