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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended
March 31, 2020
 
 
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 incorporation or organization)
 
(I.R.S. Employer Identification No.)
777 Old Saw Mill River Road
Tarrytown,
New York
10591-6707
(Address of principal executive offices, including zip code)

(914) 847-7000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock - par value $.001 per share
REGN
NASDAQ Global Select Market

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
No
 
 
 
 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
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

The number of shares outstanding of each of the registrant's classes of common stock as of April 14, 2020:
Class of Common Stock
 
Number of Shares
Class A Stock, $.001 par value
 
1,848,970
Common Stock, $.001 par value
 
110,673,311




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

 
 
 
 
Page Numbers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 









"ARCALYST®," "EYLEA®," "Libtayo®" (in the United States), "Praluent®" (in the United States), "Regeneron®," "Regeneron Genetics Center®," "Veloci-Bi®," "VelociGene®," "VelociMab®," "VelocImmune®," "VelociMouse®," "VelociSuite®," "VelociT™," and "ZALTRAP®" 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.




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except share data)
 
March 31,
 
December 31,
 
2020
 
2019
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,208.2

 
$
1,617.8

Marketable securities
1,795.2

 
1,596.5

Accounts receivable - trade, net
2,063.1

 
2,100.0

Accounts receivable - Sanofi
468.3

 
260.6

Accounts receivable - other
401.8

 
425.0

Inventories
1,480.9

 
1,415.5

Prepaid expenses and other current assets
226.6

 
273.7

Total current assets
8,644.1

 
7,689.1

 
 
 
 
Marketable securities
3,236.4

 
3,256.8

Property, plant, and equipment, net
2,944.6

 
2,890.4

Deferred tax assets
771.2

 
824.2

Other noncurrent assets
161.2

 
144.7

Total assets
$
15,757.5

 
$
14,805.2

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 
 
 
Accounts payable
$
347.8

 
$
418.1

Accrued expenses and other current liabilities
1,143.2

 
1,211.4

Deferred revenue - Sanofi
398.0

 
310.5

Deferred revenue - other
81.2

 
71.6

Other liabilities - Sanofi
85.0

 
85.0

Total current liabilities
2,055.2

 
2,096.6

 
 
 
 
Finance lease liabilities
715.2

 
713.9

Deferred revenue - Sanofi
16.2

 
27.7

Deferred revenue - other
65.9

 
77.6

Other liabilities - Sanofi
450.5

 
482.0

Other noncurrent liabilities
321.5

 
317.7

Total liabilities
3,624.5

 
3,715.5

 
 
 
 
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 - 1,848,970 in 2020 and 2019

 

Common Stock, $.001 par value; 320,000,000 shares authorized; shares issued - 116,025,758 in 2020 and 113,288,103 in 2019
0.1

 
0.1

Additional paid-in capital
5,211.4

 
4,428.6

Retained earnings
8,004.4

 
7,379.8

Accumulated other comprehensive (loss) income
(9.1
)
 
21.1

Treasury Stock, at cost; 5,683,562 shares in 2020 and 4,860,123 shares in 2019
(1,073.8
)
 
(739.9
)
Total stockholders' equity
12,133.0

 
11,089.7

Total liabilities and stockholders' equity
$
15,757.5

 
$
14,805.2

 
 
 
 
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 millions, except per share data)
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Statements of Operations
 
 
 
 
Revenues:
 
 
 
 
Net product sales
 
$
1,236.7

 
$
1,104.4

Sanofi collaboration revenue
 
246.9

 
(18.0
)
Bayer collaboration revenue
 
281.4

 
264.0

Other revenue
 
63.2

 
22.2

 
 
1,828.2

 
1,372.6

 
 
 
 
 
Expenses:
 
 
 
 
Research and development
 
583.9

 
486.1

Selling, general, and administrative
 
367.3

 
291.1

Cost of goods sold
 
78.8

 
70.9

Cost of collaboration and contract manufacturing
 
138.5

 
101.2

Other operating (income) expense, net
 
(40.4
)
 
(56.7
)
 
 
1,128.1

 
892.6

 
 
 
 
 
Income from operations
 
700.1

 
480.0

 
 
 
 
 
Other income (expense):
 
 
 
 
Other (expense) income, net
 
(25.4
)
 
73.8

Interest expense
 
(6.1
)
 
(7.7
)
 
 
(31.5
)
 
66.1

 
 
 
 
 
Income before income taxes
 
668.6

 
546.1

 
 
 
 
 
Income tax expense
 
44.0

 
85.0

 
 
 
 
 
Net income
 
$
624.6

 
$
461.1

 
 
 
 
 
Net income per share - basic
 
$
5.69

 
$
4.23

Net income per share - diluted
 
$
5.43

 
$
3.99

 
 
 
 
 
Weighted average shares outstanding - basic
 
109.8

 
108.9

Weighted average shares outstanding - diluted
 
115.1

 
115.5

 
 
 
 
 
Statements of Comprehensive Income
 
 
 
 
Net income
 
$
624.6

 
$
461.1

Other comprehensive income (loss), net of tax:
 
 
 
 
Unrealized (loss) gain on debt securities
 
(28.8
)
 
16.1

Unrealized loss on cash flow hedges
 
(1.4
)
 
(1.0
)
Comprehensive income
 
$
594.4

 
$
476.2

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


3




REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(In millions)
 
 
Class A Stock
 
Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Total Stockholders' Equity
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
Balance, December 31, 2019
 
1.8

 

 
113.3

 
$
0.1

 
$
4,428.6

 
$
7,379.8

 
$
21.1

 
(4.9
)
 
$
(739.9
)
 
$
11,089.7

Issuance of Common Stock for equity awards granted under long-term incentive plans
 

 

 
3.1

 

 
817.4

 

 

 

 

 
817.4

Common Stock tendered upon exercise of stock options and vesting of restricted stock for employee tax obligations
 

 

 
(0.4
)
 

 
(155.1
)
 

 

 

 

 
(155.1
)
Issuance/distribution of Common Stock for 401(k) Savings Plan
 

 

 

 

 
12.5

 

 

 

 
2.1

 
14.6

Repurchases of Common Stock
 

 

 

 

 

 

 

 
(0.8
)
 
(336.0
)
 
(336.0
)
Stock-based compensation charges
 

 

 

 

 
108.0

 

 

 

 

 
108.0

Net income
 

 

 

 

 

 
624.6

 

 

 

 
624.6

Other comprehensive loss, net of tax
 

 

 

 

 

 

 
(30.2
)
 

 

 
(30.2
)
Balance, March 31, 2020
 
1.8

 

 
116.0

 
$
0.1

 
$
5,211.4

 
$
8,004.4

 
$
(9.1
)
 
(5.7
)
 
$
(1,073.8
)
 
$
12,133.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2018
 
1.9

 

 
111.1

 
$
0.1

 
$
3,911.6

 
$
5,254.3

 
$
(12.3
)
 
(4.0
)
 
$
(396.4
)
 
$
8,757.3

Issuance of Common Stock for equity awards granted under long-term incentive plans
 

 

 
0.6

 

 
140.9

 

 

 

 

 
140.9

Common Stock tendered upon exercise of stock options and vesting of restricted stock for employee tax obligations
 

 

 

 

 
(10.7
)
 

 

 

 

 
(10.7
)
Issuance of Common Stock for 401(k) Savings Plan
 

 

 

 

 
4.3

 

 

 
0.1

 
6.2

 
10.5

Repurchases of Common Stock
 

 

 

 

 

 

 

 
(0.1
)
 
(54.0
)
 
(54.0
)
Stock-based compensation charges
 

 

 

 

 
114.8

 

 

 

 

 
114.8

Adjustment upon adoption of new accounting standard
 

 

 

 

 

 
9.7

 

 

 

 
9.7

Net income
 

 

 

 

 

 
461.1

 

 

 

 
461.1

Other comprehensive income, net of tax
 

 

 

 

 

 

 
15.1

 

 

 
15.1

Balance, March 31, 2019
 
1.9

 

 
111.7

 
$
0.1

 
$
4,160.9

 
$
5,725.1

 
$
2.8

 
(4.0
)
 
$
(444.2
)
 
$
9,444.7

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


4




REGENERON PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income
 
$
624.6

 
$
461.1

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
56.1

 
51.0

Non-cash compensation expense
 
105.8

 
107.9

Other non-cash items, net
 
82.6

 
(23.8
)
Deferred taxes
 
9.9

 
(10.7
)
Changes in assets and liabilities:
 
 
 
 
Increase in Sanofi, trade, and other accounts receivable
 
(169.0
)
 
(91.1
)
Increase in inventories
 
(70.8
)
 
(58.6
)
Decrease in prepaid expenses and other assets
 
70.1

 
54.3

Increase in deferred revenue
 
73.9

 
81.1

(Decrease) increase in accounts payable, accrued expenses, and other liabilities
 
(85.2
)
 
325.8

Total adjustments
 
73.4

 
435.9

Net cash provided by operating activities
 
698.0

 
897.0

 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
Purchases of marketable and other securities
 
(714.3
)
 
(1,040.2
)
Sales or maturities of marketable securities
 
441.2

 
338.4

Capital expenditures
 
(170.1
)
 
(74.3
)
Net cash used in investing activities
 
(443.2
)
 
(776.1
)
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of Common Stock
 
811.4

 
140.6

Payments in connection with Common Stock tendered for employee tax obligations
 
(155.1
)
 
(10.7
)
Repurchases of Common Stock
 
(320.7
)
 
(10.0
)
Net cash provided by financing activities
 
335.6

 
119.9

 
 
 
 
 
Net increase in cash, cash equivalents, and restricted cash
 
590.4

 
240.8

 
 
 
 
 
Cash, cash equivalents, and restricted cash at beginning of period
 
1,630.3

 
1,480.2

 
 
 
 
 
Cash, cash equivalents, and restricted cash at end of period
 
$
2,220.7

 
$
1,721.0

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


5




REGENERON PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Unless otherwise noted, dollars in millions, except per share data)
1. Interim Financial Statements
Basis of Presentation
The interim Condensed Consolidated Financial Statements of Regeneron Pharmaceuticals, Inc. and its subsidiaries ("Regeneron," "Company," "we," "us," and "our") 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 condensed consolidated financial statements 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, 2019 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, 2019.
Certain reclassifications have been made to prior period amounts to conform with the current period's presentation.
Effective January 1, 2020, we changed the presentation of cost reimbursements from collaborators who are not deemed to be our customers from collaboration revenue to a reduction of the corresponding operating expense (i.e., either Research and development or Selling, general, and administrative) incurred by us. We also changed the presentation of amounts recognized in connection with up-front and development milestone payments received from collaboration revenue to Other operating income. We made these changes in presentation because we believe the new presentation is preferable, as it better reflects the nature of the Company’s costs incurred and revenues earned pursuant to arrangements with collaborators and enhances the comparability of our financial statements with industry peers.
The change in presentation has been applied retrospectively. The tables below present the impact of the change on the Company’s previously-filed Consolidated Balance Sheet as of December 31, 2019, and the Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows as of and for the three months ended March 31, 2019. The Company’s previously-filed balance sheet has been updated to reflect the addition of the caption Other liabilities for the presentation of up-front and development milestones paid by collaborators that are deferred. There was no impact on the Company’s previously-filed Consolidated Statements of Stockholders’ Equity.
 
 
December 31, 2019
Balance Sheet Data:
 
As Previously Reported
 
Adjustments
 
As Revised
Accrued expenses and other current liabilities
 
$
1,086.8

 
$
124.6

 
$
1,211.4

Deferred revenue - Sanofi (current)
 
$
395.5

 
$
(85.0
)
 
$
310.5

Deferred revenue - other (current)
 
$
196.2

 
$
(124.6
)
 
$
71.6

Other liabilities - Sanofi (current)
 

 
$
85.0

 
$
85.0

Deferred revenue - Sanofi (noncurrent)
 
$
509.7

 
$
(482.0
)
 
$
27.7

Deferred revenue - other (noncurrent)
 
$
109.3

 
$
(31.7
)
 
$
77.6

Other liabilities - Sanofi (noncurrent)
 

 
$
482.0

 
$
482.0

Other noncurrent liabilities
 
$
286.0

 
$
31.7

 
$
317.7


6



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


 
 
Three Months Ended
March 31, 2019
Statement of Operations Data:
 
As Previously Reported
 
Adjustments
 
As Revised
Sanofi collaboration revenue
 
$
246.4

 
$
(264.4
)
 
$
(18.0
)
Bayer collaboration revenue
 
$
276.2

 
$
(12.2
)
 
$
264.0

Other revenue
 
$
84.8

 
$
(62.6
)
 
$
22.2

Total revenues
 
$
1,711.8

 
$
(339.2
)
 
$
1,372.6

 
 
 
 
 
 
 
Research and development
 
$
641.8

 
$
(155.7
)
 
$
486.1

Selling, general, and administrative
 
$
410.8

 
$
(119.7
)
 
$
291.1

Cost of collaboration and contract manufacturing(1)
 
$
108.3

 
$
(7.1
)
 
$
101.2

Other operating (income) expense, net
 

 
$
(56.7
)
 
$
(56.7
)
Total operating expenses
 
$
1,231.8

 
$
(339.2
)
 
$
892.6

 
(1) In addition to the reclassification of certain amounts in connection with the change in accounting presentation described above, the Company also reclassified certain immaterial reimbursements that were previously classified as collaboration revenue to Cost of collaboration and contract manufacturing.
 
 
Three Months Ended
March 31, 2019
Cash Flows Data:
 
As Previously Reported
 
Adjustments
 
As Revised
Cash flows from operating activities:
 
 
 
 
 
 
Increase in deferred revenue
 
$
426.5

 
$
(345.4
)
 
$
81.1

(Decrease) increase in accounts payable, accrued expenses, and other liabilities
 
$
(19.6
)
 
$
345.4

 
$
325.8


Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact our business, financial condition, and results of operations is highly uncertain and subject to change. We considered the potential impact of the COVID-19 pandemic on our estimates and assumptions and there was not a material impact to our condensed consolidated financial statements as of and for the three months ended March 31, 2020; however, actual results could differ from those estimates and there may be changes to our estimates in future periods.
Recently Adopted Accounting Standards
We adopted Accounting Standards Update 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), as of January 1, 2020. ASU 2016-13 requires an entity to measure and recognize expected credit losses for certain financial instruments, including trade receivables, as an allowance that reflects the entity's current estimate of credit losses expected to be incurred. For available-for-sale debt securities with unrealized losses, the standard requires allowances to be recorded through net income instead of directly reducing the amortized cost of the investment under the previous other-than-temporary impairment model. The adoption of this standard did not have a material impact on our financial statements or a significant impact on our internal controls.

7



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


2. Product Sales
Net product sales consist of the following:
 
 
Three Months Ended
March 31,
Net Product Sales in the United States
 
2020
 
2019
EYLEA®
 
$
1,172.0

 
$
1,074.1

Libtayo®
 
61.7

 
26.8

ARCALYST®
 
3.0

 
3.5

 
 
$
1,236.7

 
$
1,104.4


Effective April 1, 2020, the Company is solely responsible for the development and commercialization of Praluent® in the United States and will record net product sales of Praluent in the United States. See Note 3 for further details.
The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for the three months ended March 31, 2020 and 2019. Sales to each of these customers as a percentage of the Company's total gross product revenue are as follows:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Besse Medical, a subsidiary of AmerisourceBergen Corporation
 
54
%
 
59
%
McKesson Corporation
 
36
%
 
31
%

3. Collaboration Agreements
We have entered into various collaborative arrangements to research, develop, manufacture, and commercialize product candidates and utilize our technology platforms. Although each of these arrangements is unique in nature, such arrangements involve a joint operating activity where both parties are active participants in the activities of the collaboration and exposed to significant risks and rewards dependent on the commercial success of the activities.
In arrangements where we do not deem our collaborator to be our customer, payments to and from our collaborator are presented in our statement of operations based on the nature of our business operations, the nature of the arrangement, including the contractual terms, and the nature of the payments, as summarized in the table and further described below.

8



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


Nature/Type of Payment
 
Statement of Operations Presentation
Regeneron's share of profits or losses in connection with commercialization of products
 
Collaboration revenue
Reimbursement for manufacturing of commercial supplies
 
Collaboration revenue
Royalties and/or sales-based milestones earned
 
Collaboration revenue
Reimbursement of Regeneron's research and development expenses
 
Reduction to Research and development expenses
Regeneron's obligation for its share of collaborator's research and development expenses
 
Research and development expense
Up-front and development milestone payments to collaborator
 
Research and development expense
Reimbursement of Regeneron's commercialization-related expenses
 
Reduction to Selling, general, and administrative expense
Regeneron's obligation to pay collaborator for its share of gross profits when Regeneron is deemed to be the principal
 
Cost of goods sold
Up-front and development milestones earned (when we have a combined unit of account which includes a license and providing research and development services)
 
Other operating income

In agreements involving multiple goods or services promised to be transferred to our collaborator, we must assess, at the inception of the contract, whether each promise represents a separate obligation (i.e., is "distinct"), or whether such promises should be combined as a single unit of account. When we have a combined unit of account which includes a license and providing research and development services to our collaborator, recognition of up-front payments and development milestones earned from our collaborator is deferred (as a liability) and recognized over the development period (i.e., over time). In arrangements where we satisfy our obligation(s) during the development phase over time, we recognize amounts initially deferred over time typically using an input method on the basis of our research and development costs incurred relative to the total expected cost which determines the extent of our progress toward completion. We review our estimates each period and make revisions to such estimates as necessary.
When we are entitled to reimbursement of all or a portion of the research and development expenses that we incur under a collaboration, we record those reimbursable amounts in the period in which such costs are incurred. In connection with the commercialization phase of our collaborative arrangements, we may be obligated to perform commercialization-related activities on behalf of the collaboration. If we are reimbursed for all or a portion of costs incurred for the commercialization-related activities, we record those reimbursable amounts in the period in which such costs are incurred.
Under certain of the Company's collaboration agreements, product sales and cost of sales may be recorded by the Company's collaborators as they are deemed to be the principal in the transaction. In arrangements where we:
are obligated to use commercially reasonable efforts to supply commercial product to our collaborator, we may be reimbursed for our manufacturing costs as commercial product is shipped to the collaborator; however, recognition of such cost reimbursements is deferred until the product is sold by our collaborator to third-party customers;
share in any profits or losses arising from the commercialization of such products, we record our share of the variable consideration, representing net product sales less cost of goods sold and shared commercialization and other expenses, in the period in which such underlying sales occur and costs are incurred by the collaborator; and
receive royalties and/or sales-based milestone payments from our collaborator, we recognize such amounts in the period earned.
Our collaborators provide us with estimates of product sales and our share of profits or losses, as applicable, for such quarter. These estimates are reconciled to actual results in the subsequent fiscal quarter, and collaboration revenue is adjusted accordingly, as necessary.

9



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


a. Sanofi
Amounts recognized in our Statements of Operations in connection with our collaborations with Sanofi are detailed below:
 
 
Statement of Operations Classification
 
Three Months Ended
March 31,
 
 
 
2020

2019
Antibody:
 
 
 
 

 
Regeneron's share of profits (losses) in connection with commercialization of antibodies
 
Sanofi collaboration revenue
 
$
170.9

 
$
(27.8
)
Reimbursement for manufacturing of commercial supplies
 
Sanofi collaboration revenue
 
$
80.1

 
$
14.5

Reimbursement of research and development expenses
 
Reduction of Research and development expense
 
$
77.6


$
74.5

Regeneron's obligation for its share of Sanofi research and development expenses
 
Research and development expense
 
$
(16.7
)
 
$
(7.4
)
Reimbursement of commercialization-related expenses
 
Reduction of Selling, general, and administrative expense
 
$
91.2


$
116.6


 
 
 
 

 
Immuno-oncology:
 
 
 
 

 
Regeneron's share of losses in connection with commercialization of Libtayo outside the United States
 
Sanofi collaboration revenue
 
$
(6.2
)
 
$
(4.7
)
Reimbursement for manufacturing of commercial supplies
 
Sanofi collaboration revenue
 
$
2.1

 

Reimbursement of research and development expenses
 
Reduction of Research and development expense
 
$
39.9


$
46.4

Reimbursement of commercialization-related expenses
 
Reduction of Selling, general, and administrative expense
 
$
10.4


$
2.2

Regeneron's obligation for Sanofi's share of Libtayo U.S. gross profits
 
Cost of goods sold
 
$
(26.8
)
 
$
(12.4
)
Amounts recognized in connection with up-front payments received
 
Other operating income
 
$
16.5


$
26.3


Antibody
The Company is party to a global, strategic collaboration with Sanofi to discover, develop, and commercialize fully human monoclonal antibodies (the "Antibody Collaboration"). Under the companies' Antibody License and Collaboration Agreement (the "LCA"), 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 generally shared 80% by Sanofi and 20% by Regeneron. All other agreed-upon worldwide development expenses incurred by both companies are funded by Sanofi.
Effective January 2018, the Company and Sanofi entered into a letter agreement (the "Letter Agreement") in connection with, among other matters, the allocation of additional funds to certain activities relating to dupilumab and REGN3500 (collectively, the "Dupilumab/REGN3500 Eligible Investments"). Refer to the "Immuno-Oncology" section below for further details regarding the Letter Agreement and Note 9 for additional information regarding shares purchased by us from Sanofi during the three months ended March 31, 2020 and 2019.
Sanofi leads commercialization activities for products developed under the Antibody Collaboration, subject to the Company's right to co-commercialize such products. See discussion below related to the development and commercialization of Praluent effective April 1, 2020. In addition to profit and loss sharing, the Company is entitled to receive up to $250.0 million in sales milestone

10



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


payments, with milestone payments commencing after aggregate annual sales of antibodies outside the United States (including Praluent) exceed $1.0 billion on a rolling twelve-month basis.
The following table summarizes contract balances in connection with the Company's Antibody Collaboration with Sanofi:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Accounts receivable
 
$
458.4

 
$
272.7

Deferred revenue
 
$
401.4

 
$
328.8


In April 2020, the Company and Sanofi entered into an amendment to the LCA in connection with, among other things, the removal of Praluent from the LCA such that (i) effective April 1, 2020, the LCA no longer governs the development, manufacture, or commercialization of Praluent and (ii) the quarterly period ended March 31, 2020 is the last quarter for which Sanofi and the Company will share profits and losses for Praluent under the LCA. The parties also entered into a Praluent Cross License & Commercialization Agreement (the "Praluent Agreement") pursuant to which, effective April 1, 2020, the Company, at its sole cost, is solely responsible for the development and commercialization of Praluent in the United States, and Sanofi, at its sole cost, is solely responsible for the development and commercialization of Praluent outside of the United States. Under the Praluent Agreement, Sanofi will pay the Company a 5% royalty on Sanofi’s net product sales of Praluent outside the United States until March 31, 2032. The Company will not owe Sanofi royalties on the Company’s net product sales of Praluent in the United States. Although each party will be responsible for manufacturing Praluent for its respective territory, the parties have entered into definitive supply agreements under which, for a certain transitional period, the Company will continue to supply drug substance to Sanofi and Sanofi will continue to supply finished product to Regeneron.
With respect to any intellectual property or product liability litigation relating to Praluent, the parties have agreed that, effective April 1, 2020, Regeneron and Sanofi each will be solely responsible for any such litigation (including damages and other costs and expenses thereof) in the United States and outside the United States, respectively, arising out of Praluent sales or other activities on or after April 1, 2020 (subject to Sanofi's right to set off a portion of any third-party royalty payments resulting from certain patent litigation proceedings against up to 50% of any Praluent royalty payment owed to Regeneron). The parties will each bear 50% of any damages arising out of Praluent sales or other activities prior to April 1, 2020. See Note 11 for discussion of legal proceedings related to Praluent.
Immuno-Oncology
In 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 Amended and Restated Immuno-oncology Discovery and Development Agreement ("Amended IO Discovery Agreement"), and an Immuno-oncology License and Collaboration Agreement ("IO License and Collaboration Agreement").
Effective December 31, 2018, the Company and Sanofi entered into the Amended IO Discovery Agreement, which narrowed the scope of the existing discovery and development activities conducted by the Company ("IO Development Activities") under the 2015 IO Discovery Agreement to developing therapeutic bispecific antibodies targeting (i) BCMA and CD3 (the "BCMAxCD3 Program") and (ii) MUC16 and CD3 (the "MUC16xCD3 Program") through clinical proof-of-concept. If Sanofi exercises its option to license rights to a BCMAxCD3 Program antibody or MUC16xCD3 Program antibody thereunder, it will co-develop these drug candidates with the Company through product approval. Sanofi will fund development costs up front for a BCMAxCD3 Program antibody and we will reimburse half of the total development costs for such antibody from our share of future IO Collaboration profits to the extent they are sufficient for this purpose. In addition, we and Sanofi will share equally, on an ongoing basis, the development costs for a MUC16xCD3 Program antibody.
Under the terms of the IO License and Collaboration Agreement, the parties are co-developing and co-commercializing Libtayo (cemiplimab), an antibody targeting the receptor known as programmed cell death protein 1 (PD-1). The parties share equally, on an ongoing basis, agreed-upon development and commercialization expenses for Libtayo. Pursuant to the Letter Agreement, the Libtayo development budget was increased and the Company has agreed to allow Sanofi to satisfy in whole or in part its funding obligations with respect to the Libtayo development and Dupilumab/REGN3500 Eligible Investments by selling up to an aggregate of 1,400,000 shares (of which 740,914 currently remains available) of our Common Stock directly or indirectly owned by Sanofi through September 30, 2020. If Sanofi desires to sell shares of our Common Stock during the term of the Letter Agreement to satisfy a portion or all of its funding obligations for the Libtayo development and/or Dupilumab/REGN3500 Eligible Investments,

11



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


we may elect to purchase, in whole or in part, such shares from Sanofi. See Note 9 for additional information regarding shares purchased by us from Sanofi during the three months ended March 31, 2020 and 2019.
The Company has principal control over the development of Libtayo and leads commercialization activities in the United States (see Note 2 for related product sales information), while Sanofi leads commercialization activities outside of the United States and the parties equally share profits and losses from worldwide sales.
The following table summarizes contract balances in connection with the Company's IO Collaboration with Sanofi:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Accounts receivable, net
 
$
(2.4
)
 
$
(16.7
)
Deferred revenue
 
$
12.8

 
$
9.4

Other liabilities
 
$
527.6

 
$
558.6


Other liabilities include up-front payments received from Sanofi for which recognition has been deferred.
The aggregate amount of the estimated consideration under the IO Collaboration related to the Company's obligation that was unsatisfied (or partially unsatisfied) as of March 31, 2020 was $1.087 billion. This amount is expected to be recognized over the remaining period in which the Company is obligated to satisfy its obligation in connection with performing development activities.
b. Bayer
Amounts recognized in our Statements of Operations in connection with our Bayer EYLEA collaboration are as follows::
 
 
Statement of Operations Classification
 
Three Months Ended
March 31,
 
 
 
2020
 
2019
Regeneron's net profit in connection with commercialization of EYLEA outside the United States
 
Bayer collaboration revenue
 
$
253.8


$
249.3

Reimbursement for manufacturing of commercial supplies
 
Bayer collaboration revenue
 
$
27.6

 
$
14.7

Reimbursement of development expenses
 
Reduction of Research and development expense
 
$
12.0


$
2.6

Regeneron's obligation for its share of Bayer research and development expenses
 
Research and development expense
 
$
(8.1
)
 
$
(4.6
)
Reimbursement of other expenses
 
Cost of collaboration and contract manufacturing
 
$
1.7


$
8.8


The Company is party to a license and collaboration agreement with Bayer for the global development and commercialization of EYLEA outside the United States. 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 currently entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net product sales through 2021, and thereafter, the companies will share equally in profits and losses from sales of EYLEA. In addition, the Company and Bayer share the funding of agreed-upon EYLEA development costs.
The following table summarizes contract balances in connection with our Bayer EYLEA collaboration:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Accounts receivable - other
 
$
279.9

 
$
311.6

Deferred revenue
 
$
124.2

 
$
123.0



12



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


c. Teva
In 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 our collaboration agreement with Mitsubishi Tanabe Pharma Corporation. The Company leads global development activities, and the parties share development costs equally, on an ongoing basis, under a global development plan. The Company is also responsible for the manufacture and supply of fasinumab globally.
Amounts recognized in our Statements of Operations in connection with the Teva Collaboration Agreement is as follows:
 
 
Statement of Operations Classification
 
Three Months Ended
March 31,
 
 
 
2020
 
2019
Reimbursement of research and development expenses
 
Reduction of Research and development expense
 
$
25.2

 
$
32.2

Amounts recognized in connection with up-front and development milestone payments received
 
Other operating income
 
$
16.6

 
$
21.5


The following table summarizes contract balances in connection with the Teva Collaboration Agreement:
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Accounts receivable - other
 
$
22.5

 
$
21.2

Other liabilities
 
$
97.9

 
$
114.4


Other liabilities include up-front and development milestone payments received from Teva for which recognition has been deferred.
The aggregate amount of estimated consideration under the Teva Collaboration Agreement related to the Company's obligation that was unsatisfied (or partially unsatisfied) as of March 31, 2020 was $225.1 million. This amount is expected to be recognized over the remaining period in which the Company is obligated to satisfy its obligation in connection with performing development activities.

13



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


4. Net Income Per Share
The Company's basic net income per share amounts have been computed by dividing net income by the weighted average number of shares of Common Stock and Class A Stock outstanding. Net income per share is presented on a combined basis, inclusive of Common Stock and Class A Stock outstanding, as each class of stock has equivalent economic rights. Diluted net income per share includes the potential dilutive effect of other securities as if such securities were converted or exercised during the period, when the effect is dilutive. The calculations of basic and diluted net income per share are as follows:
 
 
Three Months Ended
March 31,
 
 
2020
 
2019
Net income - basic and diluted

$
624.6


$
461.1






(Shares in millions)




Weighted average shares - basic

109.8


108.9

Effect of dilutive securities:






Stock options

5.0


6.5

Restricted stock
 
0.3

 
0.1

Weighted average shares - diluted

115.1


115.5








Net income per share - basic

$
5.69


$
4.23

Net income per share - diluted

$
5.43


$
3.99


Shares which have been excluded from diluted per share amounts because their effect would have been antidilutive, include the following:
 
 
Three Months Ended
March 31,
(Shares in millions)
 
2020
 
2019
Stock options
 
10.2

 
12.3



14



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


5. Marketable Securities
Marketable securities as of March 31, 2020 and December 31, 2019 consist of both available-for-sale debt securities of investment grade issuers (see below and Note 6) as well as equity securities of publicly traded companies (see Note 6).
The following tables summarize the Company's investments in available-for-sale debt securities:
 
 
Amortized
 
Unrealized
 
Fair
As of March 31, 2020
 
Cost Basis
 
Gains
 
Losses
 
Value
Corporate bonds
 
$
4,128.3

 
$
20.7

 
$
(31.6
)
 
$
4,117.4

U.S. government and government agency obligations
 
73.7

 
1.4

 

 
75.1

Sovereign bonds
 
36.0

 
1.2

 

 
37.2

Commercial paper
 
162.6

 
0.1

 

 
162.7

Certificates of deposit
 
77.4

 
0.1

 
(0.3
)
 
77.2

 
 
$
4,478.0

 
$