Regeneron Pharmaceuticals, Inc.
REGENERON PHARMACEUTICALS INC (Form: 10-Q, Received: 11/08/2017 07:56:37)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
 
(Mark One)
 
 
(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended  September 30, 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 October 20, 2017:
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
1,911,456
Common Stock, $.001 par value
 
105,528,158




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)
 
September 30,
 
December 31,
 
2017
 
2016
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
792,065

 
$
535,203

Marketable securities
586,879

 
503,481

Accounts receivable - trade, net
1,532,693

 
1,343,368

Accounts receivable from Sanofi
217,478

 
92,989

Accounts receivable from Bayer
221,278

 
175,263

Inventories
641,588

 
399,356

Prepaid expenses and other current assets
143,761

 
130,528

Total current assets
4,135,742

 
3,180,188

 
 
 
 
Marketable securities
1,327,303

 
864,260

Property, plant, and equipment, net
2,274,529

 
2,083,421

Deferred tax assets
927,023

 
825,303

Other assets
36,618

 
20,294

Total assets
$
8,701,215

 
$
6,973,466

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable and accrued expenses
$
818,426

 
$
879,096

Capital and facility lease obligations

 
129,557

Deferred revenue from Sanofi, current portion
187,036

 
115,267

Deferred revenue - other, current portion
132,832

 
116,397

Other current liabilities
334

 
1,178

Total current liabilities
1,138,628

 
1,241,495

 
 
 
 
Capital and facility lease obligations
702,317

 
351,569

Deferred revenue from Sanofi
408,786

 
503,474

Deferred revenue - other
274,666

 
327,298

Other long-term liabilities
125,225

 
100,385

Total liabilities
2,649,622

 
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 - 109,255,150 in 2017 and 107,860,567 in 2016
109

 
108

Additional paid-in capital
3,570,673

 
3,029,993

Retained earnings
2,773,214

 
1,748,222

Accumulated other comprehensive income (loss)
23,835

 
(12,840
)
Treasury Stock, at cost; 3,763,868 shares in 2017 and 2016
(316,240
)
 
(316,240
)
Total stockholders' equity
6,051,593

 
4,449,245

Total liabilities and stockholders' equity
$
8,701,215

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Statements of Operations
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Net product sales
 
$
957,367

 
$
857,468

 
$
2,739,745

 
$
2,475,869

Sanofi collaboration revenue
 
245,175

 
144,392

 
677,670

 
527,500

Bayer collaboration revenue
 
236,625

 
191,298

 
640,919

 
562,786

Other revenue
 
61,506

 
26,964

 
231,446

 
67,445

 
 
1,500,673

 
1,220,122

 
4,289,780

 
3,633,600

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Research and development
 
529,749

 
543,047

 
1,547,159

 
1,573,089

Selling, general, and administrative
 
306,766

 
270,045

 
910,520

 
851,760

Cost of goods sold
 
46,388

 
29,901

 
149,774

 
150,090

Cost of collaboration and contract manufacturing
 
57,844

 
14,327

 
141,547

 
74,923

 
 
940,747

 
857,320

 
2,749,000

 
2,649,862

 
 
 
 
 
 
 
 
 
Income from operations
 
559,926

 
362,802

 
1,540,780

 
983,738

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
Other income, net
 
11,861

 
3,575

 
2,048

 
8,937

Interest expense, net
 
(6,182
)
 
(496
)
 
(19,084
)
 
(4,387
)
 
 
5,679

 
3,079

 
(17,036
)
 
4,550

 
 
 
 
 
 
 
 
 
Income before income taxes
 
565,605

 
365,881

 
1,523,744

 
988,288

 
 
 
 
 
 
 
 
 
Income tax expense
 
(177,288
)
 
(101,077
)
 
(498,752
)
 
(345,881
)
 
 
 
 
 
 
 
 
 
Net income
 
$
388,317

 
$
264,804

 
$
1,024,992

 
$
642,407

 
 
 
 
 
 
 
 
 
Net income per share - basic
 
$
3.64

 
$
2.53

 
$
9.66

 
$
6.14

Net income per share - diluted
 
$
3.32

 
$
2.27

 
$
8.84

 
$
5.51

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
 
106,706

 
104,833

 
106,108

 
104,586

Weighted average shares outstanding - diluted
 
117,028

 
116,466

 
115,994

 
116,567

 
 
 
 
 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
 
 
 
 
Net income
 
$
388,317

 
$
264,804

 
$
1,024,992

 
$
642,407

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Unrealized gain (loss) on marketable securities
 
21,485

 
(8,103
)
 
36,645

 
(11,471
)
Unrealized gain on cash flow hedges
 
2

 

 
30

 

Comprehensive income
 
$
409,804

 
$
256,701

 
$
1,061,667

 
$
630,936

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


3



REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
 
 
Nine Months Ended
September 30,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net income
 
$
1,024,992

 
$
642,407

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
110,960

 
75,845

Non-cash compensation expense
 
380,144

 
405,320

Other non-cash charges and expenses, net
 
44,016

 
13,586

Deferred taxes
 
(108,242
)
 
(190,327
)
Changes in assets and liabilities:
 
 
 
 
Increase in Sanofi, Bayer, and trade accounts receivable
 
(359,829
)
 
(176,079
)
Increase in inventories
 
(235,645
)
 
(99,706
)
(Increase) decrease in prepaid expenses and other assets
 
(28,209
)
 
34,857

(Decrease) increase in deferred revenue
 
(59,116
)
 
282,176

(Decrease) increase in accounts payable, accrued expenses, and other liabilities
 
(28,908
)
 
107,438

Total adjustments
 
(284,829
)
 
453,110

Net cash provided by operating activities
 
740,163

 
1,095,517

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable securities
 
(883,748
)
 
(606,153
)
Sales or maturities of marketable securities
 
379,275

 
192,091

Capital expenditures
 
(164,963
)
 
(361,486
)
Net cash used in investing activities
 
(669,436
)
 
(775,548
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds in connection with capital and facility lease obligations
 
57,000

 
5,085

Payments in connection with capital and facility lease obligations
 
(19,925
)
 
(1,853
)
Repayments of convertible senior notes
 

 
(12,650
)
Payments in connection with reduction of outstanding warrants
 

 
(242,117
)
Proceeds from issuance of Common Stock
 
226,892

 
89,777

Payments in connection with Common Stock tendered for employee tax obligations
 
(77,832
)
 
(46,954
)
Net cash provided by (used in) financing activities
 
186,135

 
(208,712
)
 
 
 
 
 
Net increase in cash and cash equivalents
 
256,862

 
111,257

 
 
 
 
 
Cash and cash equivalents at beginning of period
 
535,203

 
809,102

 
 
 
 
 
Cash and cash equivalents at end of period
 
$
792,065

 
$
920,359

 
 
 
 
 
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 period 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.
2. Product Sales
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Net Product Sales in the United States
 
2017
 
2016
 
2017
 
2016
EYLEA ®
 
$
953,279

 
$
853,588

 
$
2,727,132

 
$
2,465,369

ARCALYST ®
 
4,088

 
3,880

 
12,613

 
10,500

Net Product Sales
 
$
957,367

 
$
857,468

 
$
2,739,745

 
$
2,475,869

The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for each of the three and nine months ended September 30, 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
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Besse Medical, a subsidiary of AmerisourceBergen Corporation
 
51
%
 
54
%
 
51
%
 
56
%
McKesson Corporation
 
29
%
 
28
%
 
29
%
 
28
%
Curascript SD Specialty Distribution, a subsidiary of Express Scripts
 
19
%
 
17
%
 
19
%
 
15
%

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 nine months ended September 30, 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

Provisions
121,599

 
140,860

 
33,518

 
295,977

Credits/payments
(108,811
)
 
(136,272
)
 
(21,444
)
 
(266,527
)
Balance as of September 30, 2017
$
25,500

 
$
34,053

 
$
15,748

 
$
75,301

 
 
 
 
 
 
 
 
Balance as of December 31, 2015
$
6,419

 
$
48,313

 
$
517

 
$
55,249

Provisions
63,510

 
113,755

 
22,812

 
200,077

Credits/payments
(62,503
)
 
(135,483
)
 
(19,587
)
 
(217,573
)
Balance as of September 30, 2016
$
7,426

 
$
26,585

 
$
3,742

 
$
37,753

3. Collaboration Agreements
a. Sanofi
The collaboration revenue the Company earned from Sanofi is detailed below:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Sanofi Collaboration Revenue
 
2017
 
2016
 
2017
 
2016
Antibody:
 
 
 
 
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
$
128,539

 
$
131,389

 
$
421,056

 
$
469,223

Reimbursement of Regeneron commercialization-related expenses
 
90,339

 
64,418

 
251,002

 
213,957

Regeneron's share of losses in connection with commercialization of antibodies
 
(98,315
)
 
(112,001
)
 
(328,998
)
 
(333,530
)
Other
 
41,848

 
4,360

 
84,338

 
19,999

Total Antibody
 
162,411

 
88,166

 
427,398

 
369,649

Immuno-oncology:
 
 
 
 
 
 
 
 
Reimbursement of Regeneron research and development expenses
 
61,649

 
36,226

 
188,408

 
97,851

Other
 
21,115

 
20,000

 
61,864

 
60,000

Total Immuno-oncology
 
82,764

 
56,226

 
250,272

 
157,851

 
 
$
245,175

 
$
144,392

 
$
677,670

 
$
527,500


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. The Company's Antibody Discovery Agreement with Sanofi will end on December 31, 2017 without any extension and, therefore, funding from Sanofi under the Antibody Discovery Agreement will cease after 2017.
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, during the three months ended September 30, 2017 and 2016, the Company recognized as research and development expense $22.6 million and $27.9 million , respectively, and during the nine months ended September 30, 2017 and 2016 , the Company recognized as research and development expense $68.2 million and $80.2 million , 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 commercializing 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 commercializing Praluent, Kevzara, and Dupixent within Sanofi collaboration revenue.
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, and in September 2017, the European Commission granted marketing authorization for Dupixent for use in adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy. In May 2017, the FDA approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis, and in June 2017, the European Commission granted marketing authorization for Kevzara for the treatment of rheumatoid arthritis in adult patients.
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 ("cemiplimab"). The parties share equally, on an ongoing basis, development expenses for cemiplimab.
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
September 30,
 
Nine Months Ended
September 30,
Bayer Collaboration Revenue
 
2017
 
2016
 
2017
 
2016
EYLEA:
 
 
 
 
 
 
 
 
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
$
205,367

 
$
170,854

 
$
571,126

 
$
484,181

Reimbursement of Regeneron EYLEA development expenses
 
6,053

 
2,219

 
10,833

 
7,186

Other
 
15,714

 
6,077

 
36,910

 
45,924

Total EYLEA
 
227,134

 
179,150

 
618,869

 
537,291

Ang2 antibody and PDGFR-beta antibody:
 
 
 
 
 
 
 
 
Reimbursement of development expenses
 
7,325

 
7,433

 
15,614

 
14,165

Other
 
2,166

 
4,715

 
6,436

 
11,330

Total Ang2 antibody and PDGFR-beta antibody
 
9,491

 
12,148

 
22,050

 
25,495

 
 
$
236,625

 
$
191,298

 
$
640,919

 
$
562,786

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, the Company and Bayer share the funding of agreed-upon EYLEA development costs.
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 nesvacumab, an antibody product candidate to angiopoietin-2 (Ang2), including REGN910-3 (Ang2 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.
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 provided 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 discontinued clinical development of REGN2176-3, and on July 31, 2017, the Company and Bayer agreed to terminate this collaboration agreement.
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

8




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


payment, which was initially recorded as deferred revenue, and is being recognized ratably as revenue over the related performance period. In the first quarter of 2016, MTPC made additional payments totaling $60.0 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.
In the second quarter of 2017, the Company earned, and recognized as a substantive milestone, a $30.0 million development milestone from MTPC upon initiation of a Phase 3 trial.
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 leads global development activities, and the parties 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 revenue of $40.2 million and $141.0 million for the three and nine months ended September 30, 2017 , respectively, and $5.2 million for the three months ended September 30, 2016, in connection with the Teva Collaboration Agreement. In the second quarter of 2017, the Company earned, and recognized as a substantive milestone, a $25.0 million development milestone from Teva upon initiation of a Phase 3 trial.
e. Intellia Therapeutics
In April 2016, the Company entered into a license and collaboration agreement with Intellia Therapeutics, Inc. to advance CRISPR/Cas gene-editing technology for in vivo therapeutic development. The Company collaborates with Intellia to conduct research for the discovery, development, and commercialization of new therapies, in addition to the research and technology development of the CRISPR/Cas platform. In connection with the execution of the agreement, the Company made a $75.0 million up-front payment, which was recorded as research and development expense in the second quarter of 2016. In May 2016, Intellia completed an initial public offering ("IPO") of its common stock; as part of the concurrent private placement, the Company purchased $50.0 million of Intellia common stock.
e. Adicet Bio
In July 2016, the Company entered into a license and collaboration agreement with Adicet Bio, Inc., a privately held company, to develop next-generation engineered immune-cell therapeutics with fully human chimeric antigen receptors ("CARs") and T-cell receptors ("TCRs") directed to disease-specific cell surface antigens in order to enable the precise engagement and killing of tumor cells. The Company collaborates with Adicet to identify and validate targets, and to develop a pipeline of engineered immune-cell therapeutics for selected targets. In connection with the execution of the agreement, the Company made a $25.0 million up-front payment to Adicet, which was recorded as research and development expense in the third quarter of 2016, and is obligated to provide Adicet with research funding over the course of a five -year research term.

9




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


4. Net Income Per Share
The Company's basic net income per share amounts have been computed by dividing net income by the weighted average number of shares of Common Stock and Class A Stock outstanding. Net income per share is presented on a combined basis, inclusive of Common Stock and Class A Stock outstanding, as each class of stock has equivalent economic rights. Diluted net income per share includes the potential dilutive effect of other securities as if such securities were converted or exercised during the period, when the effect is dilutive. The calculations of basic and diluted net income per share are as follows:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2017
 
2016
 
2017
 
2016
Net income - basic
 
$
388,317

 
$
264,804

 
$
1,024,992

 
$
642,407

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Convertible senior notes - interest expense and amortization of discount and note issuance costs
 

 

 

 
397

Net income - diluted
 
$
388,317

 
$
264,804

 
$
1,024,992

 
$
642,804

 
 
 
 
 
 
 
 
 
(Shares in thousands)
 
 
 
 
 
 
 
 
Weighted average shares - basic
 
106,706

 
104,833

 
106,108

 
104,586

Effect of dilutive securities:
 
 
 
 
 
 
 
 
Stock options
 
9,809

 
10,156

 
9,386

 
10,340

Restricted stock
 
513

 
479

 
500

 
474

Convertible senior notes
 

 

 

 
81

Warrants
 

 
998

 

 
1,086

Dilutive potential shares
 
10,322

 
11,633

 
9,886

 
11,981

Weighted average shares - diluted
 
117,028

 
116,466

 
115,994

 
116,567

 
 
 
 
 
 
 
 
 
Net income per share - basic
 
$
3.64

 
$
2.53

 
$
9.66

 
$
6.14

Net income per share - diluted
 
$
3.32

 
$
2.27

 
$
8.84

 
$
5.51

Shares which have been excluded from diluted per share amounts because their effect would have been antidilutive include the following:
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
(Shares in thousands)
 
2017
 
2016
 
2017
 
2016
Stock options
 
4,515

 
7,687

 
8,892

 
7,842

Restricted stock
 

 
19

 

 
19

Convertible senior notes
 

 
3

 

 


10




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


5. Marketable Securities
Marketable securities as of September 30, 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 September 30, 2017
 
Cost Basis
 
Gains
 
Losses
 
Value
Corporate bonds
 
$
1,564,391

 
$
2,789

 
$
(2,691
)
 
$
1,564,489

U.S. government and government agency obligations
 
189,647

 
56

 
(645
)
 
189,058

Municipal bonds
 
4,614

 

 
(8
)
 
4,606

Commercial paper
 
61,464

 

 

 
61,464

Certificates of deposit
 
6,525

 

 

 
6,525

Equity securities
 
57,251

 
30,789

 

 
88,040

 
 
$
1,883,892

 
$
33,634

 
$
(3,344
)
 
$
1,914,182

 
 
 
 
 
 
 
 
 
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 September 30, 2017 mature at various dates through September 2022. The fair values of debt security investments by contractual maturity consist of the following:
 
 
September 30, 2017
 
December 31, 2016
Maturities within one year
 
$
586,879

 
$
503,481

Maturities after one year through five years
 
1,239,263

 
815,041

 
 
$
1,826,142

 
$
1,318,522


11




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 September 30, 2017
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
 
Fair Value
 
Unrealized Loss
Corporate bonds
$
675,374

 
$
(2,111
)
 
$
110,545

 
$
(580
)
 
$
785,919

 
$
(2,691
)
U.S. government and government agency obligations
141,393

 
(591
)
 
6,943

 
(54
)
 
148,336

 
(645
)
Municipal bonds
4,105

 
(8
)
 

 

 
4,105

 
(8
)
 
$
820,872

 
$
(2,710
)
 
$
117,488

 
$
(634
)
 
$
938,360

 
$
(3,344
)
 
 
 
 
 
 
 
 
 
 
 
 
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 and nine months ended September 30, 2017 . Realized gains and losses on sales of marketable securities were not material for the three and nine months ended September 30, 2016 .
As it relates to marketable securities, for the three and nine months ended September 30, 2017 and 2016 , amounts reclassified from accumulated other comprehensive income (loss) into other (expense) income, net were related to realized gains and losses on sales.

12




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 September 30, 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
$
1,564,489

 

 
$
1,564,489

U.S. government and government agency obligations
189,058

 

 
189,058

Municipal bonds
4,606

 

 
4,606

Commercial paper
61,464

 

 
61,464

Certificates of deposit
6,525

 

 
6,525

Equity securities
88,040

 
$
88,040

 

 
$
1,914,182

 
$
88,040

 
$
1,826,142

 
 
 
 
 
 
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 and nine months ended September 30, 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 and nine months ended September 30, 2017 and 2016 . There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the nine months ended September 30, 2017 and 2016 .
The fair value of interest rate swap and interest rate cap contracts, which were recorded within other assets (non-current) and other long-term liabilities, was not material as of September 30, 2017 (see Note 11). The fair value of these contracts was determined based on Level 2 inputs, using significant inputs that are observable either directly or indirectly, including London Interbank Offered Rate ("LIBOR") and interest rate swap rates.

13




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:
 
September 30,
 
December 31,
 
2017
 
2016
Raw materials
$
187,029

 
$
92,287

Work-in-process
217,448

 
202,301

Finished goods
23,958

 
13,334

Deferred costs
213,153

 
91,434

 
$
641,588

 
$
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.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
 
September 30,
 
December 31,
 
2017
 
2016
Accounts payable
$
153,946

 
$
134,984

Accrued payroll and related costs
166,102

 
153,086

Accrued clinical trial expenses
119,608

 
91,753

Accrued sales-related charges, deductions, and royalties
167,467

 
159,985

Income taxes payable
126,612

 
235,776

Other accrued expenses and liabilities
84,691

 
103,512

 
$
818,426

 
$
879,096

9. Debt
a. Convertible Debt
In the first nine months of 2016, the Company settled conversion obligations for $12.7 million principal amount of the Company's convertible senior notes (the "Notes") that was previously surrendered for conversion. Consequently, in the first nine months of 2016, the Company paid $12.7 million in cash and issued 118,822 shares of Common Stock. In addition, the Company allocated $47.1 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 nine months of 2016 was not material. As a result of these Note conversions, in the first nine months of 2016, the Company also exercised a proportionate amount of its convertible note hedges, for which the Company received 118,808 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 $10.0 million , as Treasury Stock during the first nine months 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 holder did not effect any purchases at a price per share exceeding $535.00 per share, during the period starting on November 16,

14




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


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 nine months 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 September 30, 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 LIBOR, plus an applicable margin that varies with the Company’s debt rating and total leverage ratio.

15




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. However, during the first nine months of 2017, the Company recorded a $30.1 million loss on extinguishment of debt associated with the Build-to-Suit Buildings, and a corresponding decrease to property, plant and equipment. 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 September 30, 2017 .
11. Derivative Instruments and Hedging Activities
The Company is exposed to market fluctuations in interest rates, including those in connection with its March 2017 lease agreement (see Note 10). During the three and nine months ended September 30, 2017 , the Company entered into interest rate swap and interest rate cap agreements to manage a portion of such interest rate risk. All of the Company’s derivative instruments are utilized for risk management purposes, and are not used for trading or speculative purposes.
The Company's derivative instruments are designated as cash flow hedges for accounting purposes. Since the specific terms of the derivative instruments match those of the item being hedged, the derivative instruments are deemed to be highly effective in offsetting the changes in cash flows of the hedged item. As such, changes in the fair value of these derivatives are recorded in accumulated other comprehensive income (loss) until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. The Company would record any gain or loss related to the ineffectiveness directly to earnings.
The Company assesses, both at inception and on an ongoing basis, whether derivatives used continue to be highly effective in offsetting changes in cash flows of the hedged items. The Company does not exclude any portion of the cash flow hedge contracts from the assessment of hedge effectiveness. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued.
The following table summarizes the notional amounts of the Company's outstanding interest rate swap and cap agreements as of September 30, 2017:
 
Notional Amount
Interest rate swap contracts
$
75,000

Interest rate cap contracts
$
75,000

As it relates to cash flow hedges, for the three and nine months ended September 30, 2017 , amounts of gains and losses recognized in other comprehensive income (loss), and amounts reclassified from accumulated other comprehensive income (loss) into interest expense, net, were not material. As of September 30, 2017 , the amounts expected to be reclassified out of accumulated other comprehensive income into interest expense over the next 12 months is not expected to be material. For the three and nine months ended September 30, 2017 , there were no gains or losses recorded related to the ineffective portion of the derivative instruments.

16




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


12. 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 $177.3 million and $101.1 million for the three months ended September 30, 2017 and 2016 , respectively, and $498.8 million and $345.9 million for the nine months ended September 30, 2017 and 2016 , respectively. The Company's effective tax rate was 31.3% and 27.6% for the three months ended September 30, 2017 and 2016 , respectively, and 32.7% and 35.0% for the nine months ended September 30, 2017 and 2016 , respectively. The Company's effective tax rate for the three and nine months ended September 30, 2017 and 2016 was positively impacted, compared to the U.S. federal statutory rate, by the tax benefit associated with stock-based compensation, the domestic manufacturing deduction, and the federal tax credit for research activities, offset by the negative impact of losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate and the non-tax deductible Branded Prescription Drug Fee. The Company's effective tax rate for the three months ended September 30, 2016 was also positively impacted by changes to tax reserves.
The Company also recorded an income tax provision of $6.4 million and $6.5 million in its Statement of Comprehensive Income for the three and nine months ended September 30, 2017, respectively, primarily related to unrealized gains on available-for-sale marketable securities. The Company recorded an income tax benefit of $3.3 million in its Statement of Comprehensive Income for the nine months ended September 30, 2016 primarily related to unrealized losses on available-for-sale marketable securities; such amount for the three months ended September 30, 2016 was not material.
13. Statement of Cash Flows
Supplemental disclosure of non-cash investing and financing activities
Included in accounts payable and accrued expenses as of September 30, 2017 and December 31, 2016 were $24.5 million and $28.2 million , respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses as of September 30, 2016 and December 31, 2015 were $33.9 million and $50.7 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 nine months ended September 30, 2017 (see Note 10). No such amount was recognized during the nine months ended September 30, 2016 .
14. 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.

17




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


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 (the "District Court") from March 8 to March 16, 2016. During the course of the trial, the District 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 District 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 District 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 allowed the United States Court of Appeals for the Federal Circuit (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 Federal Circuit. On April 19, 2017, the District Court granted Amgen's motion to amend the judgment on an accounting of supplemental damages and enhancement of such damages if deemed appropriate, but deferred the order until after the Federal Circuit issued a decision on the appeal. Oral argument on the appeal was held on June 6, 2017. On October 5, 2017, the Federal Circuit reversed in part the District Court's decision, remanded for a new trial on the issues of written description and enablement, and, as discussed below, vacated the District Court's permanent injunction. In addition, it affirmed the District Court's ruling that Amgen's patents were not obvious. The Federal Circuit further concluded the Company and the Sanofi defendants were not entitled to judgment as a matter of law on the issues of written description and enablement on this record.
On January 5, 2017, the District Court granted a permanent injunction prohibiting Regeneron and the Sanofi defendants from Commercializing Praluent in the United States but subsequently delayed its imposition until February 21, 2017. The Federal Circuit stayed the injunction pending appeal on February 8, 2017 and vacated it on October 5, 2017.
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 (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 was held on 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., Sanofi Winthrop Industrie, and Sanofi Chimie (subsequently added as a defendant). 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, and Amgen filed a response on July 28, 2017. 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.
On May 19, 2017, Amgen filed a lawsuit for infringement of Amgen's Japanese Patent Nos. 5,906,333 (the "'333 Patent") and 5,705,288 (the "'288 Patent") in the Tokyo District Court Civil Division against Sanofi K.K. Amgen's complaint alleges that manufacturing, selling or otherwise transferring, and offering to sell or otherwise transfer Praluent (alirocumab) in Japan (as well

18




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


as importing Praluent (alirocumab) into Japan) infringe the '333 and '288 Patents. The complaint further seeks a permanent injunction, disposal of product, and court costs. The Company has not been named as a defendant in this litigation.
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 ("IPR") in the United States Patent and Trademark Office ("USPTO") seeking a declaration of invalidity of the '487 Patent. On July 28 and 31, 2017, the same parties filed two additional IPR petitions in the USPTO seeking declarations of invalidity of the '487 Patent based on different grounds (the "Additional IPR Petitions"). On October 4, 2017, the Patent Trial and Appeal Board of the USPTO issued a decision on the first IPR petition and declined to institute an IPR proceeding to review the validity of the '487 Patent. The Additional IPR Petitions are still pending.
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. On June 21, 2017, the court denied a motion to dismiss Immunex's complaint previously filed by the Company and the Sanofi parties. On June 28, 2017, the Company and the Sanofi parties filed an answer to Immunex's complaint and counterclaims against Immunex and Amgen (which was amended on October 31, 2017 to, among other things, add an inequitable conduct allegation), and Immunex and Amgen filed an answer to the counterclaims on July 28, 2017. A jury trial has been scheduled to start on March 19, 2019.
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 Shareholder Derivative Claims
On December 30, 2015, an alleged shareholder filed a shareholder derivative complaint in the New York Supreme Court, naming the then 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 Regeneron Pharmaceuticals, Inc. 2014 Long-Term 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 June 28, 2017, the court dismissed the plaintiff's claims with respect to certain compensation awarded in 2013 but denied the defendants' motion to dismiss the other claims set forth in the complaint.
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. On or about November 3, 2017, the Company received a second shareholder litigation demand upon the Company's board of directors made by another purported Regeneron shareholder, which is substantially similar to the December 15, 2015 shareholder litigation demand. The demands assert that the then 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 demands request 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

19




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


prevent similar actions in the future. The Company's board of directors is evaluating the impact of the court's decision pertaining to the motion to dismiss discussed above on the board's response to these demands.
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. 
15. Recently Issued Accounting Standards
In May 2014, the FASB issued Accounting Standards Update 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers , which, along with subsequent amendments to ASU 2014-09 issued by the FASB, will replace existing revenue recognition guidance. The new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. To achieve that core principle, an entity must identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation. The new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is 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 (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption (modified retrospective method). The Company has substantially completed its impact assessment, and does not currently expect the new standard to have a material impact on total revenues. However, substantive development milestones, which were previously recognized in the period when the milestone was achieved, will be recognized over the remaining performance period under the new standard. In connection with adopting the new standard, the Company does not anticipate implementing changes to its systems or internal controls. The Company expects to adopt the standard using the modified retrospective method, and continues to evaluate the impact of the new guidance on its financial statement disclosures.
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 the Company's net income, as the Company holds publicly traded equity investments; however, the Company is not 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 currently evaluating the impact that this guidance will have on the Company's financial statements, including related disclosures. The Company expects the new standard will have a significant impact on its internal controls, systems, and processes.
In August 2017, the FASB issued Accounting Standard Update 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities . The amendments expand and refine hedge accounting for both financial and non-financial risk components, align the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and include certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. 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 does not expect the implementation of the amendments to have an impact on the Company's financial statements in connection with its current derivative instruments.

20



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, Dupixent ® (dupilumab) Injection, Praluent ® (alirocumab) Injection, Kevzara ® (sarilumab) Injection, cemiplimab, and fasinumab; 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, Dupixent, Praluent, Kevzara, cemiplimab, and fasinumab; the extent to which the results from the research and development programs conducted by us or our collaborators may be replicated in other studies and lead to therapeutic applications; ongoing regulatory obligations and oversight impacting our marketed products (such as EYLEA, Dupixent, Praluent, and Kevzara), 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 Dupixent and Praluent 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 biotechnology company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious diseases. Our commercialized medicines and product candidates in development are designed to help patients with eye disease, heart disease, allergic and inflammatory diseases, pain, cancer, and infectious and rare diseases.
Our total revenues were $1,500.7 million in the third quarter and $4,289.8 million in the first nine months of 2017 , compared to $1,220.1 million in the third quarter and $3,633.6 million in the first nine months of 2016 . Our net income was $388.3 million , or $3.32 per diluted share, in the third quarter and $1,025.0 million , or $8.84 per diluted share, in the first nine months of 2017 , compared to net income of $264.8 million , or $2.27 per diluted share, in the third quarter and $642.4 million , or $5.51 per diluted share, in the first nine months of 2016 . Refer to the "Results of Operations" section below for further details of our financial results.

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Table of Contents


We currently have six products that have received marketing approval:
EYLEA (aflibercept) Injection , known in the scientific literature as VEGF Trap-Eye, 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, including EYLEA for the treatment of wet AMD and DME 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.
Dupixent (dupilumab) Injection. On March 28, 2017, the 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. The launch of Dupixent commenced in March following the FDA approval. Sanofi records product sales for Dupixent, and we and Sanofi share profits and losses from sales of Dupixent. We have exercised our option to co-promote Dupixent in the United States and thus far have not exercised our option to co-promote Dupixent outside the United States.
In September 2017, the European Commission granted marketing authorization for Dupixent for use in adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy. In addition, in the first quarter of 2017, an application for marketing approval for Dupixent was submitted in Japan. Sanofi has additional regulatory applications for Dupixent for use in adult patients with atopic dermatitis pending in other countries.
Praluent (alirocumab) Injection 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 (HeFH) or clinical atherosclerotic cardiovascular disease (ASCVD), who require additional lowering of LDL cholesterol. Praluent is also available in certain European countries and in Japan. In April 2017, the FDA approved the supplemental Biologics License Application (sBLA) for a once-monthly (every four weeks), 300 mg dose of Praluent. In July 2017, the FDA approved the sBLA for Praluent's time out of refrigeration, which was increased from 24 hours to 30 days. 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 certain jurisdictions.
Sanofi records product sales for Praluent, and we and Sanofi share profits and losses from sales of Praluent. 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. Sanofi has additional regulatory applications for Praluent pending in other countries.
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 (RA) who have an inadequate response to or intolerance to one or more biologic or non-biologic disease modifying anti-rheumatic drugs (DMARDs). This was the first approval of Kevzara worldwide. On May 22, 2017, the FDA approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response or intolerance to one or more DMARDs. In June 2017, the European Commission granted marketing authorization for Kevzara in combination with methotrexate (MTX) for the treatment of moderately to severely active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to one or more DMARDs; Kevzara may be used as monotherapy in case of intolerance to MTX or when treatment with MTX is inappropriate. In September 2017, the Pharmaceuticals and Medical Devices Agency (PMDA) in Japan approved Kevzara for the treatment of adult patients with rheumatoid arthritis who have had an inadequate response to conventional treatments.
Sanofi records product sales for Kevzara, and we and Sanofi share profits and losses from sales of Kevzara. We have exercised our option to co-promote Kevzara in the United States and thus far have not exercised our option to co-promote Kevzara outside the United States. Sanofi has additional regulatory applications for Kevzara for RA pending in other countries.

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ARCALYST ® (rilonacept) Injection for Subcutaneous Use 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. 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.
ZALTRAP ® (ziv-aflibercept) Injection for Intravenous Infusion , known in the scientific literature as VEGF Trap, 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.
Marketed Products
Net Product Sales of Regeneron-Discovered Products (1)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In millions)
 
2017
 
2016
 
2017
 
2016
EYLEA in the United States
 
$
953.3

 
$
853.6

 
$
2,727.1

 
$
2,465.4

ARCALYST
 
4.1

 
3.9

 
12.6

 
10.5

Net product sales recorded by Regeneron
 
$
957.4

 
$
857.5

 
$
2,739.7

 
$
2,475.9

 
 
 
 
 
 
 
 
 
EYLEA outside of the United States (1)
 
$
563.7

 
$
470.8

 
$
1,590.0

 
$
1,375.9

EYLEA global
 
$
1,517.0

 
$
1,324.4

 
$
4,317.1

 
$
3,841.3

 
 
 
 
 
 
 
 
 
Global net product sales recorded by Sanofi (1) :
 
 
 
 
 
 
 
 
Praluent in the United States
 
$
31.8

 
$
31.6

 
$
89.8

 
$
61.9

Praluent outside of the United States
 
17.6

 
6.6

 
41.6

 
13.8

Praluent global
 
49.4

 
38.2

 
131.4

 
75.7

Dupixent
 
88.9

 

 
117.6

 

Kevzara
 
3.0

 

 
3.8

 

ZALTRAP
 
21.7

 
18.0

 
58.6

 
56.0

Net product sales recorded by Sanofi
 
$
163.0

 
$
56.2

 
$
311.4

 
$
131.7

 
 
 
 
 
 
 
 
 
(1) As described in the "Overview" section above, Bayer records net product sales of EYLEA outside the United States and Sanofi records global net product sales of Praluent, Dupixent, Kevzara, and ZALTRAP.
Programs in Clinical Development
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 fully human monoclonal antibody product candidates, as summarized below. In addition to the product candidates in clinical development described below, we have ongoing studies for our marketed products. Each of the antibodies in the table below was generated using our VelocImmune ® technology. There are numerous uncertainties associated with drug development, including uncertainties related to safety and efficacy data from each phase of drug development (including any post-approval studies), uncertainties related to the enrollment and performance of clinical trials, changes in regulatory requirements, and changes in the competitive landscape affecting a product candidate. Refer to Part II, Item 1A, "Risk Factors" for a description of these and other risks and uncertainties that may affect our clinical programs.
Trap-based Clinical Program
EYLEA
In Phase 3 clinical development for the treatment of non-proliferative diabetic retinopathy (NPDR) in patients without DME (we are developing independently). As described below, aflibercept is also being studied in combination with nesvacumab, an antibody to angiopoietin-2 (Ang2) (in collaboration with Bayer).

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Antibody-based Clinical Programs in Collaboration with Sanofi
Dupixent (dupilumab)
Antibody to the interleukin-4 receptor (IL-4R) alpha subunit. In clinical development in 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. In the third quarter of 2017, the FDA granted orphan drug designation for the treatment of EoE.
Praluent
Antibody to PCSK9. In Phase 3 clinical development for LDL cholesterol reduction and for the prevention of cardiovascular events. In the second quarter of 2017, the FDA granted orphan drug designation for the treatment of homozygous familial hypercholesterolemia (HoFH). Phase 3 study in HoFH initiated in the fourth quarter of 2017.
Kevzara (sarilumab)
Antibody to the interleukin-6 receptor (IL-6R). In clinical development in Polyarticular-course Juvenile Idiopathic Arthritis (pcJIA) (Phase 2).
Cemiplimab (REGN2810)
Antibody to programmed cell death protein 1 (PD-1). In clinical development in solid tumors and advanced hematologic malignancies (Phase 1) and metastatic or locally advanced and unresectable cutaneous squamous cell carcinoma (CSCC) (pivotal Phase 2). Phase 3 study in first-line treatment for non-small cell lung cancer (NSCLC) and potentially pivotal Phase 2 study in basal cell carcinoma (BCC) initiated in the second quarter of 2017. Phase 3 study in cervical cancer initiated in the third quarter of 2017. Cemiplimab is also being studied in combination with other antibodies and treatments. In the third quarter of 2017, the FDA granted Breakthrough Therapy designation for the treatment of adults with metastatic CSCC and adults with locally advanced and unresectable CSCC.
REGN3500
Antibody to interleukin-33 (IL-33) being developed for inflammatory diseases. Phase 1 studies in patients with asthma initiated in the first half of 2017.
REGN3767
Antibody to Lymphocyte Activation Gene 3 (LAG-3) protein. In Phase 1 clinical development (administered alone or in combination with cemiplimab) 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 3 efficacy studies in osteoarthritis of the knee or hip initiated in the second and third quarters of 2017. 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
Evinacumab (REGN1500) *
Antibody to Angptl-3. In Phase 2 clinical development for the treatment of 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). 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 an allergic disease.
REGN1979
Bispecific antibody against CD20 and CD3. In Phase 1 clinical development as monotherapy and in combination with cemiplimab in certain B-cell malignancies. In the second quarter of 2017, the FDA granted orphan drug designation in diffuse large B-cell lymphoma.
REGN3470-3471-3479 ***
Multi-antibody therapy 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. In the second quarter of 2017, the FDA granted Fast Track designation for the prevention and treatment of heterotopic ossification in patients with FOP.
REGN3918 *
Antibody to complement 5 (C5) being developed for paroxysmal nocturnal hemoglobinuria (PNH). Phase 1 study in healthy volunteers initiated in the second quarter of 2017.
*  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. We and the Biomedical Advanced Research Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) are parties to agreements (including an agreement executed in September 2017 - see "Other Programs" below for further information) whereby HHS provides certain funding to support research, development, and manufacturing of a monoclonal antibody therapy for the treatment of Ebola virus infection.
In the third quarter of 2017, we reported that a Phase 3 study evaluating suptavumab (REGN2222), an antibody to the Respiratory Syncytial Virus-F (RSV-F) protein, did not meet its primary endpoint of preventing medically-attended RSV infections in infants. Suptavumab did show signs of efficacy in a subgroup of patients. Adverse events were generally balanced between suptavumab and placebo. Further clinical development of suptavumab has been discontinued.
Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technologies, and to combine that foundation with our clinical development, manufacturing, and commercial capabilities. Our objective is to continue to be an integrated, multi-product biopharmaceutical company that provides patients and medical professionals with innovative options for preventing and treating human diseases.
We believe that our ability to develop product candidates is enhanced by the application of our VelociSuite ® technology platforms. Our discovery platforms are designed to identify specific proteins of therapeutic interest for a particular disease or cell type and validate these targets through high-throughput production of genetically modified mice using our VelociGene ® technology to understand the role of these proteins in normal physiology, as well as in models of disease. Our human monoclonal antibody technology ( VelocImmune ) and cell line expression technologies ( VelociMab ® ) may then be utilized to discover and produce new product candidates directed against the disease target. Our antibody product candidates currently in clinical trials were developed using VelocImmune . We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, manufacture, and commercialize new product candidates.
Clinical Programs - 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. 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.

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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 (NVG). 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.
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, 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. A Phase 3 study for the treatment of NVG (in Japan) was completed in 2016 (in collaboration with Bayer).
Combination Product with Nesvacumab (REGN910-3)
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.
Late-Stage Antibody-based Clinical Programs
Dupixent (dupilumab; 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 2016, the Phase 3 LIBERTY AD CAFÉ study of Dupixent 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 moderate-to-severe atopic dermatitis who are inadequately controlled with or are intolerant to the broad immunosuppressant drug cyclosporine A (CSA), or when this treatment is medically inadvisable. The primary endpoint of this study was the proportion of patients with a 75% or greater improvement from baseline in their Eczema Area and Severity Index (EASI-75) score at 16 weeks. 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 were submitted to the EMA and in September 2017, we and Sanofi presented the results at the annual European Academy of Dermatology and Venereology (EADV) Congress.
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.

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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 . LIBERTY ASTHMA QUEST is a Phase 3 trial that evaluated dupilumab in adult and adolescent patients with uncontrolled persistent asthma. It is a global, placebo-controlled Phase 3 study that enrolled more than 1,900 patients with uncontrolled persistent asthma. This study included four study groups with patients treated with 200 mg every other week with a loading dose of 400 mg, 300 mg every other week with a loading dose of 600 mg, and two separate placebo groups. Patients were randomized in a 2:1 fashion to active drug versus placebo. The two primary endpoints of the study were the annualized rate of severe exacerbation events at 52 weeks and the absolute change from baseline in a standard measure of lung function known as pre-bronchodilator forced expiratory volume over one second (FEV 1 ) at 12 weeks (changes of 100 to 200 mL are considered clinically relevant). The pre-specified primary analysis included hierarchical evaluation of these endpoints in the overall population, in patients with 150 eosinophilic cells/microliter or greater, and in patients with 300 eosinophilic cells/microliter or greater. In the study, approximately 50% of patients had 300 eosinophilic cells/microliter or greater and approximately 70% of patients had 150 eosinophilic cells/microliter or greater. Higher eosinophil counts are generally thought to be associated with poorer asthma control and higher rates of exacerbations, as was observed in the placebo patients in this study.
In the third quarter of 2017, we and Sanofi announced that the Phase 3 LIBERTY ASTHMA QUEST study of dupilumab in a broad population of patients with uncontrolled, persistent asthma met its two primary endpoints. Dupilumab, when added to standard therapies, reduced severe asthma attacks (exacerbations) and improved lung function. At 52 weeks, in the 300 mg dose group, dupilumab reduced severe asthma attacks by 46% in the overall population, 60% in patients with 150 eosinophilic cells/microliter or greater, and 67% in patients with 300 eosinophilic cells/microliter or greater (p<0.001 for all groups). At 12 weeks, in the 300 mg dupilumab dose group, mean improvement in lung function over placebo as assessed by FEV 1 was 130 mL (9%) in the overall population, 150 mL (11%) in patients with 150 eosinophilic cells/microliter or greater, and 240 mL (18%) in patients with 300 eosinophilic cells/microliter or greater (p<0.001 for all groups).
In the LIBERTY ASTHMA QUEST study, the results for the 200 mg and 300 mg dupilumab dose groups were generally comparable on both exacerbations and FEV 1 . The extent of patient response correlated with allergic or atopic status as reflected by blood eosinophils and other markers. Less activity was observed in patients with less than 150 eosinophilic cells/microliter. The overall rates of adverse events, deaths, infections, conjunctivitis, herpes, and discontinuations were comparable between the dupilumab and placebo groups. Injection site reactions were more common in the dupilumab groups occurring in 17% of dupilumab patients compared to 8% of placebo patients. All patients continued on a medium or high dose inhaled corticosteroid (ICS) and up to two additional controller medicines throughout the study. Eosinophil subgroups were classified based on baseline levels. Detailed results from this study will be submitted for presentation at a future medical congress.
In the fourth quarter of 2017, we and Sanofi announced that LIBERTY ASTHMA VENTURE, a randomized Phase 3 study examining the ability of dupilumab to reduce oral corticosteroid use in adults and adolescents with severe steroid-dependent asthma, met its primary endpoint and key secondary endpoints. The VENTURE study enrolled 210 patients (103 in the dupilumab group and 107 in the placebo group) with severe asthma and regular use of maintenance oral corticosteroids (OCS) in the six months prior to enrollment in the study. This Phase 3 study enrolled severe steroid-dependent asthma patients regardless of eosinophil levels or other biomarkers at baseline, and the results showed improvements compared to placebo on lung function and exacerbations across patient subgroups - those with baseline eosinophil counts above 300 cells/microliter, above 150 cells/microliter, and below 150 cells/microliter.
For the primary endpoint, at 24 weeks in the overall population, dupilumab added to standard therapies significantly reduced the use of maintenance OCS by 70% on average (median reduction of 100%) compared to 42% with placebo (median reduction of 50%) (p<0.0001). In prespecified analyses of patients with baseline eosinophil counts greater than or equal to 300 cells/microliter, adding dupilumab significantly reduced OCS use by 80% on average (median reduction of 100%) compared to 43% for placebo (median reduction of 50%) (nominal p=0.0001). At 24 weeks, despite the reduced use of OCS, patients treated with dupilumab had 59% fewer attacks (exacerbations) in the overall population (p<0.0001) and 71% fewer attacks in patients with eosinophil counts greater than or equal to 300 cells/microliter. Also at 24 weeks, compared to placebo, dupilumab improved lung function, as assessed by FEV 1 by 220 mL (15%) in the overall population (p=0.0007) and by 320 mL (25%) in patients with eosinophil counts greater than or equal to 300 cells/microliter (nominal p=0.0049).
The safety and tolerability profile of dupilumab in the LIBERTY ASTHMA VENTURE study was consistent with previous studies. There were more dupilumab-treated patients with injection site reactions (9% dupilumab vs. 4% placebo). There were more dupilumab-treated patients with an increase in eosinophil counts (14% dupilumab vs. 1% placebo), most of which were mild and the vast majority of which resolved. The overall rates of adverse events, including infections, conjunctivitis, and herpes, were comparable between the dupilumab and placebo groups. Patients with severe chronic asthma live with a profound decrease in their

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lung function, approximately 52% of predicted normal for those in this study at baseline, which impacts their ability to breathe normally, and may lead to frequent exacerbations that require acute treatment and hospitalization. These problems occur even in patients who are treated with chronic OCS to manage their symptoms.
LIBERTY ASTHMA QUEST will serve as the second required pivotal efficacy study for the sBLA for asthma, since, based on discussions with the FDA, the Phase 2b study will also be considered a pivotal efficacy study. The results from the LIBERTY ASTHMA VENTURE study will also be included in the sBLA for asthma.
The TRAVERSE trial, a long-term safety extension study, is also included in the LIBERTY ASTHMA clinical development program.
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. 
In the second quarter of 2017, we and Sanofi announced that a positive primary analysis from a Phase 2 proof-of-concept study of dupilumab in patients with active, moderate-to-severe EoE was completed. In the fourth quarter of 2017, we and Sanofi presented the results from this study at the World Congress of Gastroenterology. The study showed that patients who received dupilumab weekly reported a significant improvement in the ability to swallow versus placebo. The primary endpoint of the study was the change from baseline to week 10 in the Straumann Dysphagia Instrument (SDI) score, a patient-reported measure of swallowing difficulty on a 0-9 point scale, with 9 indicating more severe symptoms. A total of 47 patients were randomized into two treatment groups in this 12-week treatment study, and both groups had a mean baseline SDI score of 6.4. Patients received either dupilumab 300 mg weekly following a 600 mg loading dose or placebo. At week 10, patients who received dupilumab 300 mg weekly reported a significant improvement in the ability to swallow with a three point reduction in their SDI score (45% improvement) compared to 1.3 points (19% improvement) for those patients who received placebo (p=0.0304).
Secondary endpoints of the study included measures of the impact of dupilumab on endoscopic and histopathologic measures of disease severity, as well as symptoms. The results include:
The mean change in the Eosinophilic Esophagitis Endoscopic Reference Score (EoE-EREFS) was significantly reduced by 1.9 points from baseline (48% improvement) in patients who received dupilumab weekly compared to 0.3 points (7% improvement) for those who received placebo at 12 weeks (p=0.0006). EoE-EREFS is a visual measure of disease severity (inflammation and fibrosis in the esophagus) on a 0-8 point scale, with 8 indicating more severe disease. The mean baseline score for the dupilumab group was 3.9 and for the placebo group was 4.3.
The mean percent change in overall peak intraepithelial eosinophil count from baseline to 12 weeks was significantly reduced by 93% from baseline in patients who received dupilumab weekly compared to an increase of 14% in those who received placebo (p<0.0001).
The mean percent change in a composite measure of symptoms and quality of life, as measured by Eosinophilic Esophagitis Symptom Activity Index (EEsAI), was numerically improved (although not statistically significant) by 35% in patients who received dupilumab weekly compared to an 11% improvement for those who received placebo at 10 weeks (p=0.085).
There were no new significant safety concerns in this trial. Higher rates of injection site reactions were observed on dupilumab versus placebo.
In the third quarter of 2017, the FDA granted orphan drug designation for the treatment of EoE.

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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 (with data expected in early 2018). 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.
In the second quarter of 2017, we and Sanofi presented positive results from two Phase 3b/4 studies (ODYSSEY-INSULIN and ODYSSEY-DYSLIPIDEMIA) which evaluated Praluent in patients with diabetes. Both studies found that a majority of patients reached their lipid goals with Praluent 75 mg administered every two weeks, with an overall safety profile comparable to the ODYSSEY Phase 3 program.
In the fourth quarter of 2017, a Phase 3 study in HoFH was initiated.
Kevzara (sarilumab; 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.
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.
Cemiplimab (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. Cemiplimab is a high-affinity anti-PD-1 human antibody that was generated using the Velocimmune platform. Cemiplimab is being developed to provide a foundational component for a planned, diverse immuno-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.

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Clinical Program
Cemiplimab is in Phase 1 clinical development in a variety of malignancies as monotherapy or in combination with other antibodies or treatments. A pivotal Phase 2 study for the treatment of metastatic or locally advanced and unresectable CSCC was initiated in 2016. A Phase 3 study in first-line treatment for non-small cell lung cancer and a potentially pivotal Phase 2 study in BCC were initiated in the second quarter of 2017. A Phase 3 study in cervical cancer was initiated in the third quarter of 2017.
In June 2017, we and Sanofi announced positive preliminary results in patients with advanced CSCC. The data, pooled from two expansion cohorts of the cemiplimab Phase 1 trial, were presented at the 2017 American Society of Clinical Oncology (ASCO) Annual Meeting. Treatment with cemiplimab led to an investigator-assessed overall response rate (ORR) of 46.2% and a disease control rate (DCR) of 69.2%. The median progression-free survival and overall survival were not reached at the data cutoff date with a median follow up of 6.9 months (range: 1.1 to 13.8 months; ongoing). One patient experienced progressive disease during treatment with cemiplimab after the initial response, and two patients were not evaluable due to death, which was considered unrelated to cemiplimab. The most common treatment-related adverse event of any grade was fatigue (23.1%). All grade 3 or higher adverse events occurred once and included arthralgia (3.8%), maculopapular rash (3.8%), asthenia (3.8%), aspartate aminotransferase (AST) elevation (3.8%), and alanine aminotransferase (ALT) elevation (3.8%). No apparent association between the objective response and level of PD-L1 (programmed death ligand 1) expression was found. These results are from 10 patients with distantly metastatic CSCC who were enrolled in one expansion cohort and 16 patients with inoperable (unresectable) locally or regionally advanced CSCC who were enrolled in a second expansion cohort.
In the third quarter of 2017, the FDA granted Breakthrough Therapy designation for the treatment of adults with metastatic CSCC and adults with locally advanced and unresectable CSCC.
In the second quarter of 2017, we and Inovio Pharmaceuticals, Inc. entered into a clinical and supply agreement for a Phase 1b/2a immuno-oncology trial. The study will be conducted by Inovio in patients with newly-diagnosed glioblastoma multiforme (GBM) and will evaluate cemiplimab in combination with Inovio's INO-5401 T cell activating immunotherapy encoding multiple antigens and INO-9012, an immune activator encoding IL-12. Also in the second quarter of 2017, we and SillaJen, Inc. entered into a clinical and supply agreement for a Phase 1b dose-escalation study in renal cell carcinoma (RCC), or kidney cancer. The study will evaluate cemiplimab in combination with SillaJen's oncolytic vaccinia virus, Pexa-Vec, in patients with previously treated metastatic or unresectable renal cell carcinoma.
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 non-opioid 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 2016. A Phase 3 efficacy study in patients with pain due to osteoarthritis of the knee or hip was initiated in the second quarter of 2017. A Phase 3 efficacy study of fasinumab compared to placebo or naproxen in patients with pain due to osteoarthritis of the knee or hip was initiated in the third quarter of 2017.

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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.
We and Teva plan to initiate a pivotal Phase 3 program in chronic low back pain.
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 of the HHS entered into an agreement to develop, test, and manufacture a monoclonal antibody therapy (REGN3470-3471-3479) 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 September 2017, we and BARDA entered into an additional agreement whereby HHS provides additional funding for the continued development of REGN3470-3471-3479, a potential BLA filing, and initial procurement of the therapy for national security preparedness. In addition, in 2016, we and BARDA 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 September 2017, we and BARDA also entered into an agreement to discover, research, develop, and manufacture a portfolio of antibodies targeting up to 10 pathogens that pose significant risk to public health, starting with Influenza virus. The emerging pathogens treatment portfolio will be pursued using an Other Transaction Agreement (OTA), which provides a funding and collaboration vehicle for HHS to promote innovation in technology for advanced research and development. Under the OTA, which has a term of 10 years, HHS will fund 80% of our costs for research, development, and manufacturing activities for antibodies that are selected to move forward.
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.
License Agreements
In September 2017, we entered into a license agreement with a third party, which grants the third party the right to develop and commercialize new indications for ARCALYST in certain jurisdictions, including the United States. We currently maintain exclusive rights to ARCALYST in the United States for existing indications, and are entitled to all profits from such sales. Commencing with the receipt of marketing approval by the third party for the first new indication in the United States, we will grant commercial rights to ARCALYST for our existing indications to the third party.
Collaboratio