Edgar Filing: REGENERON PHARMACEUTICALS INC

Three Months Ended June 30,

(Shares in thousands)

Stock options

Convertible senior notes

REGN-6/30/13-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q



	(Mark One)
(X)	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the quarterly period ended June 30, 2013

	OR

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to __________



	Commission File Number	0-19034

REGENERON PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)



New York		13-3444607
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

777 Old Saw Mill River Road, Tarrytown, New York		10591-6707
(Address of principal executive offices)		(Zip Code)

(914) 847-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	X	No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).



Yes	X	No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	X		Accelerated filer
Non-accelerated filer		(Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	No	X

Number of shares outstanding of each of the registrant’s classes of common stock as of July 17, 2013:



Class of Common Stock		Number of Shares
Class A Stock, $0.001 par value		2,038,920
Common Stock, $0.001 par value		96,710,115

Table of Contents

REGENERON PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		Page Numbers
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets at June 30, 2013 and December 31, 2012	3

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2013 and 2012	4

	Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 2013 and 2012	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	49

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	51

Item 6.	Exhibits	73

SIGNATURE PAGE		74

"ARCALYST^®", "EYLEA^®", "ZALTRAP^®”, “VelocImmune^®”, “VelociGene^®”, ”VelociMouse^®”, “VelociMab^®”, and “VelociSuite^™” are trademarks of Regeneron Pharmaceuticals, Inc. All other trademarks in this Form 10-Q are 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)



	June 30,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	381,675		$	230,276
Marketable securities	155,831			77,819
Accounts receivable - trade, net	767,865			593,207
Accounts receivable from Sanofi	108,151			99,913
Deferred tax assets	38,927			148,134
Prepaid expenses and other current assets	108,913			56,663
Total current assets	1,561,362			1,206,012

Restricted cash and marketable securities				8,186
Marketable securities	173,328			271,230
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization	419,651			379,940
Deferred tax assets	208,707			192,022
Other assets	15,211			23,100
Total assets	$	2,378,259		$	2,080,490
LIABILITIES and STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	153,826		$	111,345
Deferred revenue from Sanofi, current portion	14,916			17,022
Deferred revenue - other, current portion	34,266			33,809
Facility lease obligations, current portion	794			1,374
Total current liabilities	203,802			163,550

Deferred revenue from Sanofi	78,740			76,520
Deferred revenue - other	119,672			131,822
Facility lease obligations	164,392			159,436
Convertible senior notes	308,116			296,518
Other long term liabilities	10,200			7,259
Total liabilities	884,922			835,105

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 2,038,920 at June 30, 2013 and 2,069,187 at December 31, 2012	2			2
Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 96,662,313 at June 30, 2013 and 95,223,525 at December 31, 2012	97			95
Additional paid-in capital	1,827,471			1,763,508
Accumulated deficit	(330,804		)	(517,054		)
Accumulated other comprehensive loss	(3,429		)	(1,166		)
Total stockholders' equity	1,493,337			1,245,385
Total liabilities and stockholders' equity	$	2,378,259		$	2,080,490
The accompanying notes are an integral part of the financial statements.

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REGENERON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)

(In thousands, except per share data)



	Three months ended June 30,						Six months ended June 30,
	2013			2012			2013			2012
Statements of Operations
Revenues:
Net product sales	$	333,893		$	199,519		$	652,633		$	327,450
Sanofi collaboration revenue	85,529			88,988			184,802			173,993
Bayer HealthCare collaboration revenue	31,104			9,124			46,011			21,607
Technology licensing	5,893			5,893			11,786			11,786
Other revenue	1,223			875			2,074			1,352
	457,642			304,399			897,306			536,188

Expenses:
Research and development	187,463			147,373			367,762			286,235
Selling, general, and administrative	72,463			47,705			149,723			106,133
Cost of goods sold	27,283			21,843			55,304			34,141
Cost of collaboration manufacturing	12,330						13,364
	299,539			216,921			586,153			426,509

Income from operations	158,103			87,478			311,153			109,679

Other income (expense):
Investment income	954			501			1,410			1,111
Interest expense	(11,365		)	(11,236		)	(23,040		)	(22,396		)
	(10,411		)	(10,735		)	(21,630		)	(21,285		)

Income before income taxes	147,692			76,743			289,523			88,394

Income tax expense	(60,316		)				(103,273		)

Net income	$	87,376		$	76,743		$	186,250		$	88,394

Net income per share - basic	$	0.89		$	0.81		$	1.91		$	0.94
Net income per share - diluted	$	0.79		$	0.70		$	1.69		$	0.81

Weighted average shares outstanding - basic	97,700			94,589			97,289			94,017
Weighted average shares outstanding - diluted	111,060			110,167			110,305			108,998

Statements of Comprehensive Income
Net income	$	87,376		$	76,743		$	186,250		$	88,394
Other comprehensive loss:
Unrealized loss on marketable securities	(1,785		)	(1,034		)	(2,263		)	(509		)
Comprehensive income	$	85,591		$	75,709		$	183,987		$	87,885

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

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REGENERON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)

For the Six Months Ended June 30, 2013 and 2012

(In thousands)



	Class A Stock				Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
	Shares		Amount		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance, December 31, 2012	2,069		$	2	95,223		$	95	$	1,763,508		$	(517,054	)	$	(1,166	)	$	1,245,385
Issuance of Common Stock in connection with exercise of stock options					1,661		2		30,496									30,498
Common Stock tendered upon exercise of stock options in connection with employee tax obligations					(290	)			(73,137		)							(73,137		)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution					38
Conversion of Class A Stock to Common Stock	(30	)			30
Stock-based compensation charges									98,728									98,728
Excess tax benefit from stock-based compensation									7,876									7,876
Net income												186,250						186,250
Other comprehensive loss															(2,263		)	(2,263		)
Balance, June 30, 2013	2,039		$	2	96,662		$	97	$	1,827,471		$	(330,804	)	$	(3,429	)	$	1,493,337

Balance, December 31, 2011	2,109		$	2	90,692		$	91	$	1,754,824		$	(1,267,323	)	$	(1,862	)	$	485,732
Issuance of Common Stock in connection with exercise of stock options					3,234		3		39,631									39,634
Common Stock tendered upon exercise of stock options in connection with employee tax obligations					(568	)			(61,444		)							(61,444		)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution					64
Issuance of restricted Common Stock under Long-Term Incentive Plan					500
Conversion of Class A Stock to Common Stock	(20	)			20
Stock-based compensation charges									42,850									42,850
Net income												88,394						88,394
Other comprehensive loss															(509		)	(509		)
Balance, June 30, 2012	2,089		$	2	93,942		$	94	$	1,775,861		$	(1,178,929	)	$	(2,371	)	$	594,657

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

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REGENERON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)



	Six months ended June 30,
	2013			2012
Cash flows from operating activities:
Net income	$	186,250		$	88,394
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	19,109			17,833
Non-cash compensation expense	97,473			42,850
Non-cash interest expense	11,315			11,191
Other non-cash charges and expenses, net	18,323			11,056
Deferred taxes	92,522
Changes in assets and liabilities:
Increase in Sanofi and trade accounts receivable	(182,896		)	(332,345		)
Increase in prepaid expenses and other assets	(51,697		)	(19,517		)
Decrease in deferred revenue	(11,579		)	(17,669		)
Increase in accounts payable, accrued expenses, and other liabilities	35,592			32,789
Total adjustments	28,162			(253,812		)
Net cash provided by (used in) operating activities	214,412			(165,418		)

Cash flows from investing activities:
Purchases of marketable securities	(282,643		)	(270,907		)
Sales or maturities of marketable securities	307,244			171,881
Purchase of restricted cash and marketable securities				(469		)
Capital expenditures	(55,656		)	(23,927		)
Net cash used in investing activities	(31,055		)	(123,422		)

Cash flows from financing activities:
Payments in connection with facility and capital lease obligations	(997		)	(1,014		)
Proceeds from issuance of Common Stock	34,300			39,631
Payments in connection with Common Stock tendered for employee tax obligations	(73,137		)	(61,444		)
Excess tax benefit from stock-based compensation	7,876
Net cash used in financing activities	(31,958		)	(22,827		)

Net increase (decrease) in cash and cash equivalents	151,399			(311,667		)

Cash and cash equivalents at beginning of period	230,276			483,610

Cash and cash equivalents at end of period	$	381,675		$	171,943

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

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

1. Interim Financial Statements

The interim Condensed Consolidated Financial Statements of Regeneron Pharmaceuticals, Inc. (“Regeneron” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, these financial statements reflect all normal recurring adjustments and accruals necessary for a fair statement of the Company’s financial position, results of operations, and cash flows for such periods. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The December 31, 2012 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, 2012.

Certain reclassifications have been made to prior period amounts to conform with the current period’s presentation.

2. Net Product Sales

EYLEA^® net product sales totaled $329.8 million and $194.0 million for the three months ended June 30, 2013 and 2012, respectively, and $643.7 million and $317.5 million for the six months ended June 30, 2013 and 2012, respectively. In November 2011, the Company received marketing approval from the U.S. Food and Drug Administration ("FDA") for EYLEA (aflibercept) Injection for the treatment of neovascular age-related macular degeneration ("wet AMD"). In September 2012, the Company received marketing approval from the FDA for EYLEA for the treatment of macular edema following central retinal vein occlusion ("CRVO"). In addition, ARCALYST^® net product sales totaled $4.1 million and $5.5 million for the three months ended June 30, 2013 and 2012, respectively, and $8.9 million and $9.9 million for the six months ended June 30, 2013 and 2012, respectively.

The Company recorded 76% and 79% for the three months ended June 30, 2013 and 2012, respectively, and 77% and 79% for the six months ended June 20, 2013 and 2012, respectively, of its total gross product revenue from sales to Besse Medical, a subsidiary of AmerisourceBergen Corporation.

Revenue from product sales is recorded net of applicable provisions for rebates and chargebacks under governmental programs (including Medicaid), distribution-related fees, prompt pay discounts, product returns, and other sales-related deductions. The following table summarizes the provisions, and credits/payments, for these sales-related deductions during the six months ended June 30, 2013.



	Rebates & Chargebacks			Distribution- Related Fees			Other Sales- Related Deductions			Total
Balance as of December 31, 2012	$	2,983		$	15,298		$	545		$	18,826
Provision related to current period sales	11,121			29,422			498			41,041
Credits/payments	(10,081		)	(26,238		)	(511		)	(36,830		)
Balance as of June 30, 2013	$	4,023		$	18,482		$	532		$	23,037

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

3. Collaboration Revenue

Sanofi Collaboration Revenue

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

In addition, Sanofi collaboration revenue for the three months and six months ended June 30, 2013 was reduced by two $10.0 million up-front payments to Sanofi in connection with the Company's acquisition from Sanofi of full exclusive rights to two families of novel antibodies, as described below.



	Three months ended June 30,
Sanofi Collaboration Revenue	2013			2012
ZALTRAP:
Regeneron's share of losses in connection with commercialization of ZALTRAP	$	(8,216	)	$	(8,430	)
Reimbursement of Regeneron research and development and other expenses	2,835			4,225
Recognition of deferred revenue related to up-front payments	1,384			2,889
Total ZALTRAP	(3,997		)	(1,316		)
Antibody:
Reimbursement of Regeneron research and development expenses	106,965			87,746
Up-front payments to Sanofi for acquisition of rights related to two antibodies	(20,000		)
Recognition of deferred revenue related to up-front and other payments	2,162			2,160
Recognition of revenue related to VelociGene^® agreement	399			398
Total Antibody	89,526			90,304
Total Sanofi collaboration revenue	$	85,529		$	88,988

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)



	Six months ended June 30,
Sanofi Collaboration Revenue	2013			2012
ZALTRAP:
Regeneron's share of losses in connection with commercialization of ZALTRAP	$	(16,005	)	$	(12,135	)
Reimbursement of Regeneron research and development and other expenses	5,398			7,045
Recognition of deferred revenue related to up-front payments	2,767			5,372
Total ZALTRAP	(7,840		)	282
Antibody:
Reimbursement of Regeneron research and development expenses	207,520			168,601
Up-front payments to Sanofi for acquisition of rights related to two antibodies	(20,000		)
Recognition of deferred revenue related to up-front and other payments	4,324			4,313
Recognition of revenue related to VelociGene agreement	798			797
Total Antibody	192,642			173,711
Total Sanofi collaboration revenue	$	184,802		$	173,993

Sanofi commenced sales of ZALTRAP (ziv-aflibercept) Injection for Intravenous Infusion, in combination with 5-fluorouracil, leucovorin, irinotecan ("FOLFIRI"), for patients with metastatic colorectal cancer (“mCRC”) that is resistant to or has progressed following an oxaliplatin-containing regimen, in the United States in the third quarter of 2012 and in certain countries in Europe in the first quarter of 2013. The Company and Sanofi globally collaborate on the development and commercialization of ZALTRAP. Under the terms of the companies' September 2003 collaboration agreement, as amended, Regeneron and Sanofi share co-promotion rights and profits and losses on sales of ZALTRAP outside of Japan. In Japan, the Company is entitled to a royalty on sales of ZALTRAP.

Acquisition from Sanofi of Rights to PDGF and Ang2 in Ophthalmology

In May 2013, the Company acquired from Sanofi full exclusive rights to two families of novel antibodies invented at Regeneron and previously included in the Company's antibody collaboration with Sanofi. The Company acquired full rights to antibodies targeting the PDGF (platelet derived growth factor) family of receptors and ligands in ophthalmology and all other indications and to antibodies targeting the Ang2 (angiopoietin-2) receptor and ligand in ophthalmology. Antibodies to the PDGF receptor and Ang2 are currently in preclinical development for use in ophthalmology.

With respect to PDGF antibodies, the Company made a $10.0 million up-front payment to Sanofi in May 2013, and will pay up to $40 million in potential development milestone payments and royalties on any future sales. With respect to Ang2 antibodies in ophthalmology, the Company also made a $10.0 million up-front payment to Sanofi in May 2013, and will pay a potential $5 million development milestone payment and royalties on any future sales.

Bayer HealthCare Collaboration Revenue

Bayer HealthCare commenced sales of EYLEA for the treatment of wet AMD in the fourth quarter of 2012 following receipt of regulatory approvals in the European Union and other regions. The Company and Bayer HealthCare globally collaborate on the development and commercialization of EYLEA outside of the United States.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

The collaboration revenue the Company earned from Bayer HealthCare is detailed below:



	Three months ended June 30,
Bayer HealthCare Collaboration Revenue	2013		2012
Regeneron's net profit in connection with commercialization of EYLEA outside the United States	$	19,055
Cost-sharing of Regeneron EYLEA development expenses	3,667		$	7,147
Reimbursement of other Regeneron EYLEA expenses	6,405
Recognition of deferred revenue related to up-front and other milestone payments	1,977		1,977
	$	31,104	$	9,124



	Six months ended June 30,
Bayer HealthCare Collaboration Revenue	2013		2012
Regeneron's net profit in connection with commercialization of EYLEA outside the United States	$	25,417
Cost-sharing of Regeneron EYLEA development expenses	9,638		$	17,653
Reimbursement of other Regeneron EYLEA expenses	7,002
Recognition of deferred revenue related to up-front and other milestone payments	3,954		3,954
	$	46,011	$	21,607

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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 June 30,
	2013		2012
Net income - basic and diluted	$	87,376	$	76,743

(Shares in thousands)
Weighted average shares - basic	97,700		94,589
Effect of dilutive securities:
Stock options	10,291		14,055
Restricted stock	424		692
Warrants	2,645		831
Dilutive potential shares	13,360		15,578
Weighted average shares - diluted	111,060		110,167

Net income per share - basic	$	0.89	$	0.81
Net income per share - diluted	$	0.79	$	0.70



	Six Months Ended June 30,
	2013		2012
Net income - basic and diluted	$	186,250	$	88,394

(Shares in thousands)
Weighted average shares - basic	97,289		94,017
Effect of dilutive securities:
Stock options	10,296		13,964
Restricted stock	383		676
Warrants	2,337		341
Dilutive potential shares	13,016		14,981
Weighted average shares - diluted	110,305		108,998

Net income per share - basic	$	1.91	$	0.94
Net income per share - diluted	$	1.69	$	0.81

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

Shares which have been excluded from the June 30, 2013 and 2012 diluted per share amounts because their effect would have been antidilutive, include the following:



	Six Months Ended June 30,
(Shares in thousands)	2013	2012
Stock options	3,599	47
Restricted stock		11
Convertible senior notes	4,761	4,761

5. Marketable Securities

Marketable securities at June 30, 2013 and December 31, 2012 consist of debt and equity securities. The Company also held restricted marketable securities at December 31, 2012, which consisted of debt securities, as detailed below, that collateralized letters of credit and lease obligations. During the second quarter of 2013, these collateral requirements were rescinded, either due to cancellation of the associated letter of credit or easing of lender requirements on the Company. As a result, during the second quarter of 2013, all formerly restricted marketable securities were reclassified as unrestricted on the Company's balance sheet which, for the purpose of the Company's Statement of Cash Flows, was treated as a non-cash investing transaction.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

The following tables summarize the Company's investments in marketable securities at June 30, 2013 and December 31, 2012.



	Amortized		Unrealized					Fair
At June 30, 2013	Cost Basis		Gains		Losses			Value
Unrestricted
U.S. government and government agency obligations	$	85,662	$	52	$	(309	)	$	85,405
Corporate bonds	157,593		6		(271		)	157,328
Commercial paper	62,159							62,159
Municipal bonds	17,172		1		(22		)	17,151
International government agency obligations	4,824				(8		)	4,816
Equity securities	4,044				(1,744		)	2,300
	$	331,454	$	59	$	(2,354	)	$	329,159



At December 31, 2012
Unrestricted
U.S. government and government agency obligations	$	327,502	$	661	$	(17	)	$	328,146
Municipal bonds	17,542				(32		)	17,510
Equity securities	4,044				(651		)	3,393
	349,088		661		(700		)	349,049
Restricted
U.S. government obligations	5,902		9		(2		)	5,909
	$	354,990	$	670	$	(702	)	$	354,958

The Company classifies its debt securities based on their contractual maturity dates. The debt securities listed at June 30, 2013 mature at various dates through January 2016. The fair values of debt security investments by contractual maturity as of June 30, 2013 and December 31, 2012 consist of the following:



	June 30,		December 31,
	2013		2012
Unrestricted
Maturities within one year	$	155,831	$	77,819
Maturities after one year through five years	171,028		267,837
	326,859		345,656
Restricted
Maturities within one year			2,781
Maturities after one year through five years			3,128
			5,909
	$	326,859	$	351,565

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

The following table shows the fair value of the Company’s marketable securities that have unrealized losses and that are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2013 and December 31, 2012.



	Less than 12 Months					12 Months or Greater					Total
At June 30, 2013	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Unrestricted
U.S. government and government agency obligations	$	69,106	$	(309	)						$	69,106	$	(309	)
Corporate bonds	142,244		(271		)						142,244		(271		)
Municipal bonds	7,678		(22		)						7,678		(22		)
International government agency obligations	4,816		(8		)						4,816		(8		)
Equity security						$	2,300	$	(1,744	)	2,300		(1,744		)
	$	223,844	$	(610	)	$	2,300	$	(1,744	)	$	226,144	$	(2,354	)

At December 31, 2012
Unrestricted
U.S. government and government agency obligations	$	44,738	$	(17	)						$	44,738	$	(17	)
Municipal bonds	17,510		(32		)						17,510		(32		)
Equity security						$	3,393	$	(651	)	3,393		(651		)
	62,248		(49		)	3,393		(651		)	65,641		(700		)
Restricted
U.S. government obligations	1,194		(2		)						1,194		(2		)
	$	63,442	$	(51	)	$	3,393	$	(651	)	$	66,835	$	(702	)

Realized gains and losses are included as a component of investment income. For both the three and six months ended June 30, 2013, total realized gains on sales of marketable securities were $0.5 million and there were no realized losses. For both the three and six months ended June 30, 2012, total realized gains and losses on sales of marketable securities were not material.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

6. Fair Value Measurements

The Company’s assets that are measured at fair value on a recurring basis, at June 30, 2013 and December 31, 2012, consist of the following:



			Fair Value Measurements at Reporting Date Using
At June 30, 2013	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Unrestricted
Available-for-sale marketable securities:
U.S. government and government agency obligations	$	85,405			$	85,405
Corporate bonds	157,328				157,328
Commercial paper	62,159				62,159
Municipal bonds	17,151				17,151
International government agency obligations	4,816				4,816
Equity security	2,300		$	2,300
	$	329,159	$	2,300	$	326,859

At December 31, 2012
Unrestricted
Available-for-sale marketable securities:
U.S. government and government agency obligations	$	328,146			$	328,146
Municipal bonds	17,510				17,510
Equity security	3,393		$	3,393
	349,049		3,393		345,656
Restricted
Available-for-sale marketable securities:
U.S. government obligations	5,909				5,909
	$	354,958	$	3,393	$	351,565

Marketable securities included in Level 2 were valued using a market approach utilizing prices and other relevant information, such as interest rates, yield curves, prepayment speeds, loss severities, credit risks and default rates, generated by market transactions involving identical or comparable assets. The Company considers market liquidity in determining the fair value for these securities. The Company did not record any charges for other-than-temporary impairment of its Level 2 marketable securities during the three and six months ended June 30, 2013 and 2012.

There were no purchases, sales, or maturities of Level 3 marketable securities and no unrealized gains or losses related to Level 3 marketable securities for the three and six months ended June 30, 2013 and 2012. There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the three and six months ended June 30, 2013 and 2012.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

As of June 30, 2013 and December 31, 2012, the Company had $400.0 million in aggregate principal amount of 1.875% convertible senior notes that will mature on October 1, 2016 unless earlier converted or repurchased. The fair value of the outstanding convertible senior notes was estimated to be $1,117.5 million and $843.2 million as of June 30, 2013 and December 31, 2012, respectively, and was determined based on Level 2 inputs.

7. Inventory

Inventory, which was included in prepaid expenses and other current assets in the Company's balance sheets, consists of the following:



	June 30,		December 31,
	2013		2012
Raw materials	$	5,380	$	4,862
Work in process	34,580		14,656
Finished goods	10,429		2,570
Deferred costs	6,770		6,550
	$	57,159	$	28,638

Deferred costs represent the costs of product manufactured and shipped to the Company's collaborators for which recognition of revenue has been deferred.

As of June 30, 2013 and December 31, 2012, inventory included reserves of $6.2 million and $3.6 million, respectively. For the three months ended June 30, 2013 and 2012, cost of goods sold included inventory write-downs and reserves totaling $1.7 million and $6.5 million, respectively. For the six months ended June 30, 2013 and 2012, cost of goods sold included inventory write-downs and reserves totaling $4.9 million and $8.4 million, respectively.

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:



	June 30,		December 31,
	2013		2012
Accounts payable	$	24,418	$	38,934
Accrued payroll and related costs	39,760		19,987
Accrued clinical trial expense	20,295		10,985
Accrued sales-related charges, deductions, and royalties	49,408		21,870
Other accrued expenses and liabilities	19,945		19,569
	$	153,826	$	111,345

With respect to non-cash investing activities in connection with the Company's Statements of Cash Flows, included in accounts payable and accrued expenses at June 30, 2013 and December 31, 2012 were $8.1 million and $8.6 million, respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at June 30, 2012 and December 31, 2011 were $5.9 million and $6.2 million, respectively, of accrued capital expenditures.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

9. Leases

In April 2013, the Company entered into a new lease agreement for additional laboratory and office space to be constructed in two new buildings (the "Buildings"), which are expected to be completed in late 2015, at the Company's current Tarrytown, New York location. The initial term of the lease, which is expected to commence in mid-2014, is approximately 15 years and contains three renewal options to extend the term of the lease by five years each. The lease provides for (i) monthly payments over its term, which will be based on the landlord's costs of construction and tenant allowances, and (ii) additional charges for utilities, taxes, and operating expenses. Based upon various factors, including the Company's involvement in the Buildings' construction and its responsibility for directly paying for a substantial portion of tenant improvements, the Company is deemed, in substance, to be the owner of the landlord's Buildings in accordance with the application of FASB authoritative guidance. Consequently, in addition to capitalizing the tenant improvements, the Company will capitalize the landlord's costs of constructing these new facilities, offset by a corresponding lease obligation on the Company's balance sheet. The Company will allocate a portion of its future lease payments to the Buildings and the land on which the Buildings are being constructed. The land element of the lease is treated for accounting purposes as an operating lease.

Commencing in the second quarter of 2013, the Company began capitalizing the landlord's costs of constructing the new Buildings, which totaled $4.7 million at June 30, 2013, and recognized a corresponding facility lease obligation of $4.7 million. Such amounts were included as a non-cash activity within the Company's Condensed Consolidated Statements of Cash Flows. Rent expense in connection with the land element of these new facilities commenced in April 2013 and is recorded as a deferred liability until lease payments commence in mid-2014.

In April 2013, the Company also executed an early renewal of certain laboratory and office space that it currently leases at its Tarrytown location. The early renewal extended the term of the lease from June 2024 to June 2029.

10. Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. The Company's effective tax rate for the three and six months ended June 30, 2013 was 40.8% and 35.7%, respectively. The six month effective tax rate included, as a discrete item in the first quarter of 2013, the impact of enacting The American Taxpayer Relief Act in January 2013. The American Taxpayer Relief Act included a provision to extend the income tax credit for increased research activities retroactively to the tax year ended December 31, 2012. As a result, the Company's 2012 research tax credit reduced its effective tax rate for the six months ended June 30, 2013 by 6.0%.

For the three and six months ended June 30, 2013, the Company recorded an income tax provision of $60.3 million and $103.3 million, respectively.

Tax years subsequent to 2009 remain open to examination by federal tax authorities. In addition, New York state has commenced an examination of the Company's 2009, 2010, and 2011 tax years.

For the three and six months ended June 30, 2012, income tax expense relating to the Company's pre-tax income was fully offset by a reversal of a portion of the Company's valuation allowance. As of June 30, 2012, the Company continued to recognize a full valuation allowance against its net operating loss carry-forward and other deferred tax assets since the Company had an extended history of losses. In the fourth quarter of 2012, the Company recorded an income tax benefit attributable to the release of substantially all of the remaining valuation allowance against the Company's deferred tax assets. The decision to release this valuation allowance was made after the Company determined that it was more likely than not that these deferred tax assets would be realized.

11. Legal Matters

From time to time, the Company is a party to legal proceedings in the course of the Company’s business. The Company does not expect any such current ordinary course legal proceedings to have a material adverse effect on the Company’s business or financial condition. Costs associated with the Company’s involvement in legal proceedings are expensed as incurred.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

Genentech Patent Litigation

In November 2010, the Company commenced a lawsuit against Genentech in the U.S. District Court for the Southern District of New York (the "Court"), seeking a declaratory judgment that no activities relating to the Company's VEGF Trap infringe any valid claim of certain Genentech patents referred to as the Davis-Smyth patents (the "First Davis-Smyth Case"). Genentech answered the complaint and asserted counterclaims that the Company's prior or planned activities relating to VEGF Trap have infringed or will infringe claims of four of the Davis-Smyth patents and requested a judgment against the Company for damages, including for willful infringement, and other relief as the Court deems appropriate.

On December 31, 2011, the Company entered into a Non-Exclusive License and Partial Settlement Agreement with Genentech (the "Original Genentech Agreement") that covered making, using, and selling EYLEA in the United States for the prevention and treatment of human eye diseases and disorders in the United States, and ended the litigation relating to those matters. Under the Original Genentech Agreement, the Company received a non-exclusive license to the Davis-Smyth patents, and certain other patents owned or co-owned by Genentech. The Original Genentech Agreement did not cover any non-U.S. patent rights or non-U.S. patent disputes, and did not cover any use of aflibercept other than for prevention and treatment of human eye diseases and disorders in the United States. The Original Genentech Agreement provided for the Company to make payments to Genentech based on U.S. sales of EYLEA through May 7, 2016, the date the Davis-Smyth patents expire. Under the Original Genentech Agreement, the Company made a $60.0 million payment when cumulative U.S. sales of EYLEA reached $400 million, and is obligated to pay royalties of 4.75% on cumulative relevant sales of EYLEA between $400 million and $3 billion and 5.5% on any cumulative relevant sales of EYLEA over $3 billion.

As a result of the Original Genentech Agreement, on January 17, 2012, Genentech filed a second amended answer and counterclaim in the First Davis-Smyth Case, in which it amended its counterclaims alleging infringement of four of the Davis-Smyth patents. On December 23, 2011, Genentech initiated a related case in the Court against Regeneron and Sanofi alleging infringement of four of the Davis-Smyth Patents by activities relating to VEGF Trap (but excluding EYLEA) (the "Second Davis-Smyth Case"). As in the First Davis-Smyth Case, in the new complaint Genentech requested a judgment against the Company for damages, including for willful infringement, and other relief as the Court deems appropriate. On September 21, 2012, Genentech asserted two additional Davis-Smyth patents, and one additional application (which was allowed and issued as a patent on September 25, 2012) in both the First Davis-Smyth Case and the Second Davis-Smyth Case.

Effective May 17, 2013, the Company and Genentech entered into an Amended and Restated Non-Exclusive License and Settlement Agreement with Genentech (the "Amended Genentech Agreement"), which amended the Original Genentech Agreement to now include all sales of EYLEA worldwide and ended the litigation relating to those matters. Under the Amended Genentech Agreement, the Company received a worldwide non-exclusive license to the Davis-Smyth patents, and certain other patents, owned or co-owned by Genentech for the prevention or treatment of eye diseases and eye disorders in a human through administration of EYLEA to the eye. Under the Amended Genentech Agreement, the Company will make payments to Genentech based on sales of EYLEA in the United States, and EYLEA manufactured in the United States and sold outside the United States, through May 7, 2016 using the same milestone and royalty rates as in the Original Genentech Agreement. EYLEA is sold outside the United States by affiliates of Bayer HealthCare under the Company's license and collaboration agreement. All payments to Genentech under the Original Genentech Agreement and the Amended Genentech Agreement have been or will be made by the Company. Bayer HealthCare will share in all such payments based on the proportion of ex-U.S. EYLEA sales to worldwide EYLEA sales and determined consistent with the license and collaboration agreement.

Also on May 17, 2013, the Company entered into a Non-Exclusive License and Settlement Agreement (the "ZALTRAP Agreement") with Genentech and Sanofi under which the Company and Sanofi received a worldwide non-exclusive license to the Davis-Smyth patents, and certain other patents, in all indications for human use other than the prevention or treatment of eye diseases and eye disorders through administration to the eye. Under the terms of the ZALTRAP Agreement, payments will be made to Genentech based on sales of ZALTRAP in the United States and of ZALTRAP that is manufactured in the United States and sold outside the United States through May 7, 2016. A payment of $19 million will be made upon cumulative relevant sales of ZALTRAP reaching $200 million. In addition, royalty payments will be made to Genentech based upon 4.5% of cumulative relevant sales of ZALTRAP between $400 million and $1 billion and 6.5% of any cumulative relevant sales of ZALTRAP over $1 billion. All payments to Genentech under the ZALTRAP Agreement will be made by Sanofi, and the Company will share in all such payments. In connection with Amended Genentech Agreement and the ZALTRAP Agreement, both the First Davis-Smyth Case and the Second Davis-Smyth Case have been dismissed.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Unless otherwise noted, dollars in thousands, except per share data)

The Company initiated patent-related actions against Genentech in Germany, the United Kingdom, and Italy relating in each case to a patent that expired on October 28, 2012. In the United Kingdom, an adverse decision at first instance dated March 22, 2012 was appealed to the UK Court of Appeal. The Court of Appeal decision dated February 21, 2013 found the designation of European patent EP 1 238 986 in the United Kingdom to be valid and that potential acts relating to VEGF Trap-Eye in the United Kingdom before expiration of the patent on October 28, 2012 would infringe this patent. The Company sought permission to appeal to the Supreme Court of the United Kingdom. On May 17, 2013, the Company entered into an agreement with Genentech, Bayer Pharma AG, Bayer Australia Limited and Regeneron UK Ltd., pursuant to which the parties agreed to dismiss proceedings involving these and certain other Genentech patents, and the Company and the Bayer HealthCare affiliates were granted certain covenants not to sue as to these and other patents. These proceedings have been dismissed.

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ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains forward-looking statements that involve risks and uncertainties relating to future events and the future financial performance of Regeneron Pharmaceuticals, Inc., and actual events or results may differ materially from these forward-looking statements. These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of EYLEA^®, ZALTRAP^®, and ARCALYST^® and our product candidates, potential new indications for marketed products, and research and clinical programs now underway or planned; the likelihood and timing of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for marketed products; determinations by regulatory and administrative governmental authorities which may delay or restrict our ability to continue to develop or commercialize EYLEA, ZALTRAP, and ARCALYST and other product and drug candidates and possible new indications for marketed products; the ability for us to manufacture and manage supply chains for multiple products and product candidates; competing drugs and product candidates that may be superior to EYLEA, ZALTRAP, and ARCALYST and our product and drug candidates and possible new indications for marketed products; uncertainty of market acceptance of EYLEA, ZALTRAP, and ARCALYST and our product and drug candidates and possible new indications for marketed products; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unforeseen safety issues resulting from the administration of products and product candidates in patients; unanticipated expenses; the costs of developing, producing, and selling products; the ability for us to meet any of our financial projections or guidance and changes to the assumptions underlying those projections or guidance; the potential for any license or collaboration agreement, including our agreements with Sanofi and Bayer HealthCare LLC, to be canceled or terminated without any further product success; and risks associated with third-party intellectual property and pending or future litigation relating thereto. These statements are made by us based on management's current beliefs and judgment. In evaluating such statements, shareholders and potential investors should specifically consider the various factors identified under the caption “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, except as required by law.

Overview

Regeneron Pharmaceuticals, Inc. is a fully integrated biopharmaceutical company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions. Our total revenues were $457.6 million in the second quarter and $897.3 million in the first half of 2013, compared to $304.4 million in the second quarter and $536.2 million in the first half of 2012. Our net income was $87.4 million, or $0.79 per diluted share, in the second quarter and $186.3 million, or $1.69 per diluted share, in the first half of 2013, compared to net income of $76.7 million, or $0.70 per diluted share, in the second quarter and $88.4 million, or $0.81 per diluted share, in the first half of 2012.

We currently have three marketed products:

•

EYLEA^® (aflibercept) Injection, known in the scientific literature as VEGF Trap-Eye, which is available in the United States for the treatment of neovascular age-related macular degeneration (wet AMD) and macular edema following central retinal vein occlusion (CRVO), and in the United Kingdom, Germany, Switzerland, Australia, Japan, and certain other countries for the treatment of wet AMD. Net product sales of EYLEA in the United States were $329.8 million in the second quarter and $643.7 million in the first half of 2013, compared to $194.0 million in the second quarter and $317.5 million in the first half of 2012. EYLEA net product sales outside of the United States, which are recorded by Bayer HealthCare, commenced in the fourth quarter of 2012, and were $95.6 million in the second quarter and $160.4 million in the first half of 2013.

We commenced sales of EYLEA for the treatment of wet AMD in November 2011 and for the treatment of macular edema following CRVO in September 2012, following receipt of regulatory approval in the United States. Bayer HealthCare commenced sales of EYLEA for the treatment of wet AMD in the fourth quarter of 2012 following receipt of regulatory approvals in the European Union (EU) and other regions. Bayer HealthCare has additional regulatory applications for EYLEA for the treatment of wet AMD pending in other countries. In addition, Bayer HealthCare has submitted applications for marketing authorization for EYLEA in Europe, Japan, and other countries for the treatment of macular edema following CRVO. In July 2013, the European Committee for Medicinal Products for Human Use (CHMP) recommended approval of EYLEA to the European Medicines Agency (EMA) for the treatment of macular edema secondary to CRVO.

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In August 2013, we and Bayer HealthCare announced positive week 52 results from the Phase 3 VIVID-DME and VISTA-DME trials of EYLEA for the treatment of diabetic macular edema (DME), as described below under “Clinical Programs: EYLEA - Ophthalmologic Diseases.” Based on discussions with the U.S. Food and Drug Administration (FDA), we now expect to submit an application for U.S. marketing approval for the treatment of DME in 2013, approximately one year ahead of the previously announced timeline. Bayer HealthCare plans to submit an application for marketing approval for the treatment of DME in Europe in 2013.

We are collaborating with Bayer HealthCare on the global development and commercialization of EYLEA outside the United States. Bayer HealthCare markets 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 a royalty on sales of EYLEA, as described below. We maintain exclusive rights to EYLEA in the United States and are entitled to all profits from any such sales.

•

ZALTRAP^® (ziv-aflibercept) Injection for Intravenous Infusion, known in the scientific literature as VEGF Trap, which is available in the United States 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. In February 2013, the European Commission (EC) granted marketing authorization in the European Union for ZALTRAP 25mg/ml concentrate for solution for infusion in combination with FOLFIRI chemotherapy in adults with mCRC that is resistant to or has progressed after an oxaliplatin-containing regimen. Regulatory applications for marketing authorization of ZALTRAP for the treatment of previously treated mCRC patients in other countries have also been submitted and are currently under review by the respective regulatory agencies.

We and Sanofi globally collaborate on the development and commercialization of ZALTRAP, and share profits and losses from commercialization of ZALTRAP, except for Japan, where we are entitled to a royalty on sales of ZALTRAP, as described below. ZALTRAP net product sales, which are recorded by Sanofi, commenced in the United States in August 2012 and in Europe in the first quarter of 2013, and were $18.6 million in the second quarter and $32.7 million in the first half of 2013.

•

ARCALYST^® (rilonacept) Injection for Subcutaneous Use, which is available in the United States for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS), in adults and children 12 and older. CAPS are a group of rare, inherited, auto-inflammatory conditions characterized by life-long, recurrent symptoms of rash, fever/chills, joint pain, eye redness/pain, and fatigue. Intermittent, disruptive exacerbations or flares can be triggered at any time by exposure to cooling temperatures, stress, exercise, or other unknown stimuli.

Net product sales of ARCALYST totaled $4.1 million in the second quarter and $8.9 million in the first half of 2013, compared to $5.5 million in the second quarter and $9.9 million in the first half of 2012.

We have 14 product candidates in clinical development, all of which were discovered in our research laboratories. Our Trap-based clinical programs are:


•	EYLEA, which is in clinical trials for the treatment of DME and macular edema following branch retinal vein occlusion (BRVO), in collaboration with Bayer HealthCare; and


•	ZALTRAP, which is being studied in combination with our angiopoietin-2 inhibitor (nesvacumab) in oncology in collaboration with Sanofi.

Our antibody-based clinical programs include twelve fully human monoclonal antibodies. The following seven are being developed in collaboration with Sanofi:


•	Sarilumab (REGN88), an antibody to the interleukin-6 receptor (IL-6R), which is being developed in rheumatoid arthritis and non-infectious uveitis;


•	Alirocumab (REGN727), an antibody to Proprotein Convertase Subtilisin/Kexin type 9 (PCSK9), which is being developed for low-density lipoprotein (LDL) cholesterol reduction;


•	Dupilumab (REGN668), an antibody to the interleukin-4 receptor (IL-4R), which is being developed in atopic dermatitis and allergic asthma;


•	Enoticumab (REGN421), an antibody to Delta-like ligand-4 (Dll4), a novel angiogenesis target, which is being developed in oncology;


•	Nesvacumab (REGN910), an antibody to angiopoietin-2 (Ang2), another novel angiogenesis target, which is being developed in oncology;


•	REGN1033, an antibody to myostatin (GDF8), which is being developed in metabolic disorders; and

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•	REGN2009, an antibody in clinical development against an undisclosed target.

In addition, we are developing the following five antibodies independently:


•	REGN1400, an antibody to ErbB3, which is being developed in oncology;


•	REGN1154, an antibody in clinical development against an undisclosed target;


•	REGN1500, an antibody in clinical development against an undisclosed target;


•	REGN1193, an antibody in clinical development against an undisclosed target; and


•	Fasinumab (REGN475), an antibody to Nerve Growth Factor (NGF), which is being developed for the treatment of pain and which is currently on clinical hold by the FDA.

Development of REGN846, which completed a Phase 1 study against an undisclosed target, was discontinued in the second quarter of 2013.

Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technologies, and to combine that foundation with our clinical development, manufacturing, and commercial capabilities. Our long-term objective is to build a successful, integrated, multi-product biopharmaceutical company that provides patients and medical professionals with innovative options for preventing and treating human diseases.

We believe that our ability to develop product candidates is enhanced by the application of our VelociSuite^TM 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. Under the terms of our antibody collaboration with Sanofi, which was expanded during 2009, we plan to advance a total of 20 to 30 candidates into clinical development over the life of the agreement. 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:

1. EYLEA - Ophthalmologic Diseases

Vascular Endothelial Growth Factor (VEGF) is a naturally occurring protein in the body. Its normal role in a healthy organism is to trigger formation of new blood vessels (angiogenesis) supporting the growth of the body's tissues and organs. However, in certain diseases, such as wet AMD, it is also associated with the growth of abnormal new blood vessels in the eye, which exhibit abnormal increased permeability that leads to edema. Scarring and loss of fine-resolution central vision often results. In CRVO and BRVO, a blockage occurs in the main blood vessel that transports deoxygenated blood away from the retina. VEGF levels are elevated in response, contributing to macular edema. For clinically significant DME, VEGF-mediated leakage of fluid from blood vessels in the eye results in interference with vision.

EYLEA is a recombinant fusion protein, consisting of portions of human VEGF receptors 1 and 2 extracellular domains fused to the Fc portion of human IgG1 and formulated as an iso-osmotic solution for intravitreal administration. EYLEA acts as a soluble decoy receptor that binds VEGF-A and placental growth factor (PlGF) and thereby can inhibit the binding and activation of these cognate VEGF receptors. EYLEA is specially purified and contains iso-osmotic buffer concentrations, allowing for injection into the eye.

We, together with our ex-U.S. collaborator Bayer HealthCare, are evaluating EYLEA in Phase 3 programs in patients with DME, macular edema following BRVO, and, in Asia, myopic choroidal neovascularization (mCNV) of the retina as a result of pathologic myopia. Wet AMD, diabetic retinopathy (which includes DME), and retinal vein occlusion are three of the leading causes of adult blindness in the developed world. In these conditions, severe visual loss is caused by neovascular proliferation and/or retinal edema.

In August 2013, we and Bayer HealthCare announced that in the Phase 3 VIVID-DME and VISTA-DME trials of EYLEA for the treatment of DME, EYLEA 2 milligrams (mg) dosed monthly and EYLEA 2 mg dosed every two months (after 5 initial monthly injections) achieved the primary endpoint of a significantly greater improvement in best-corrected visual acuity (BCVA) from baseline compared to laser photocoagulation at 52 weeks. Both EYLEA treatment arms demonstrated similar improvements in BCVA.

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Based on discussions with the FDA, we now expect to submit an application for U.S. marketing approval for the treatment of DME in 2013, approximately one year ahead of the previously announced timeline. Bayer HealthCare plans to submit an application for marketing approval for the treatment of DME in Europe in 2013.

We are conducting the VISTA-DME study in the United States. Bayer HealthCare is conducting the VIVID-DME study in Europe, Japan, and Australia. These two trials are similarly designed, randomized, double-masked, active control trials to evaluate the safety and efficacy of EYLEA in patients with DME. Patients in both trials were randomized to receive either EYLEA 2 mg monthly, EYLEA 2 mg every two months (after 5 initial monthly injections), or the comparator treatment of laser photocoagulation.

In the VISTA-DME trial, after one year patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 12.5 letters (p<0.0001 compared to laser) and patients receiving EYLEA 2 mg every other month (after 5 initial monthly injections) had a mean change from baseline in BCVA of 10.7 letters (p<0.0001 compared to laser), compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 0.2 letters. In the VIVID-DME trial, after one year patients receiving EYLEA 2 mg monthly had a mean change from baseline in BCVA of 10.5 letters (p<0.0001 compared to laser) and patients receiving EYLEA 2 mg every other month (after 5 initial monthly injections) had a mean change from baseline in BCVA of 10.7 letters (p<0.0001 compared to laser), compared to patients receiving laser photocoagulation who had a mean change from baseline in BCVA of 1.2 letters.

In these trials, EYLEA was generally well tolerated with a similar overall incidence of adverse events (AEs), ocular serious AEs, and non-ocular serious AEs across the treatment groups and the laser control group. Arterial thromboembolic events as defined by the Anti-Platelet Trialists' Collaboration (non-fatal stroke, non-fatal myocardial infarction, and vascular death) also occurred at similar rates across the treatment groups and the laser control group. AEs were typical of those seen in other studies in patients with diabetes receiving intravitreal anti-VEGF therapy. The most frequent ocular treatment emergent AEs (TEAEs) observed in the VIVID-DME and VISTA-DME trials included conjunctival hemorrhage, eye pain, and vitreous floaters. The most frequent non-ocular TEAEs included hypertension and nasopharyngitis, which occurred with similar frequency in the treatment groups and the laser control group.

Full one-year data from the VIVID-DME and VISTA-DME trials will be presented at upcoming medical conferences. Both trials are planned to continue up to 148 weeks. An additional Phase 3 safety study in Japan (VIVID-Japan) was initiated in the first quarter of 2012 and is required for approval in Japan. In February 2013, we and Bayer HealthCare also initiated another Phase 3 study to evaluate the efficacy and safety of EYLEA in DME in Russia, China, and other Asian countries (VIVID EAST-DME).

In the fourth quarter of 2011, we and Bayer HealthCare initiated a Phase 3 trial in China evaluating the efficacy and safety of EYLEA in wet AMD (SIGHT). The trial is expected to include approximately 300 patients.

In the second quarter of 2012, we initiated a multinational study of EYLEA in patients with macular edema following BRVO (VIBRANT). This study is fully enrolled, and primary endpoint data are expected by the end of 2013.

In the fourth quarter of 2012, we initiated a study to fulfill a post-marketing requirement by the FDA, RE-VIEW, which will evaluate the effect of EYLEA on corneal endothelium.

In June 2013, we and Bayer HealthCare announced positive top-line results for EYLEA from the Phase 3 MYRROR study in mCNV. In this trial, patients receiving EYLEA at an initial dose of 2 mg, followed by treatment on an as-needed (PRN) basis, had a mean improvement in BCVA from baseline at week 24 of 12.1 letters, compared to a loss of 2.0 letters in patients receiving sham injections (p < 0.0001). The most common adverse events observed in the MYRROR trial that occurred with a frequency of 2% or more were conjunctival hemorrhage, dry eye, eye pain, headache, and nasopharyngitis. Data from this study will be presented at an upcoming medical conference. Bayer HealthCare expects to submit the first application for regulatory approval for this indication in Asia by the end of 2013.

2. ZALTRAP (ziv-aflibercept) - Oncology

ZALTRAP is a fusion protein that is designed to bind all forms of VEGF-A, VEGF-B, and P1GF, and prevent their interaction with cell surface receptors. VEGF-A (and to a lesser degree, P1GF) is required for the growth of new blood vessels (a process known as angiogenesis) that are needed for tumors to grow.

During the third quarter of 2012, we and Sanofi initiated a Phase 1b study of a combination of ZALTRAP and our angiopoietin-2 inhibitor (nesvacumab) in patients with advanced solid malignancies.

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3. Sarilumab (REGN88; IL-6R Antibody) for inflammatory diseases

IL-6 is a key cytokine involved in the pathogenesis of rheumatoid arthritis, causing inflammation and joint destruction. A therapeutic antibody to IL-6R, ACTEMRA^® (tocilizumab), a registered trademark of Chugai Seiyaku Kabushiki Kaisha, has been approved for the treatment of rheumatoid arthritis.

Sarilumab is a fully human monoclonal antibody to IL-6R generated using our VelocImmune technology. In July 2011, we and Sanofi announced that in the Phase 2b stage of the SARIL-RA-MOBILITY trial in rheumatoid arthritis (RA), patients treated with sarilumab in combination with a standard RA treatment, methotrexate (MTX), achieved a significant and clinically meaningful improvement in signs and symptoms of moderate-to-severe RA compared to patients treated with MTX alone. The primary endpoint of the study was the proportion of patients achieving at least a 20% improvement in RA symptoms (ACR20) after 12 weeks.

The Phase 3 Part B SARIL-RA-MOBILITY study in patients with RA is fully enrolled. This trial will assess the improvement in signs and symptoms at 24 weeks and the treatment effect of sarilumab on radiographic progression at one year. In addition, we and Sanofi have initiated additional Phase 3 studies, SARIL-RA-TARGET, SARIL-RA-COMPARE, and SARIL-RA- ASCERTAIN. The broad SARIL-RA clinical development program is focused on adult populations with moderate-to-severe RA who are inadequate responders to either MTX or tumor necrosis factor alpha (TNF-alpha) inhibitor therapy. SARIL-RA-TARGET is a randomized, double-blind, placebo-controlled study evaluating sarilumab in combination with non-biologic, disease-modifying anti-rheumatic drugs (DMARDS) in moderate-to-severe active RA patients with inadequate responses to, or who are intolerant of, one or more TNF-alpha inhibitors. The SARIL-RA-COMPARE study is evaluating the safety and efficacy of sarilumab plus MTX compared to etanercept (a TNF-alpha inhibitor) plus MTX in adult patients with moderate-to-severe RA who demonstrate an inadequate response to adalimumab as their first TNF-alpha inhibitor therapy. The SARIL-RA-ASCERTAIN study is evaluating the safety and tolerability of sarilumab versus a calibrator, tocilizumab, both in combination with MTX, in patients with RA who are inadequate responders to, or intolerant of, TNF-alpha inhibitors.Patients who complete SARIL-RA-MOBILITY, SARIL-RA-TARGET, or SARIL-RA-ASCERTAIN are offered enrollment into the ongoing SARIL-RA-EXTEND, which is an open-label, long-term safety study of sarilumab.

A Phase 1 study was initiated in May 2013 in Japan assessing the safety and tolerability of sarilumab in patients with RA.

In addition, a Phase 2 study, SARIL-NIU-SATURN, will commence in the third quarter of 2013 and is a placebo-controlled proof of concept study evaluating the safety and efficacy of sarilumab in non-infectious uveitis.

4. Alirocumab (REGN727; PCSK9 Antibody) for LDL cholesterol reduction

Elevated LDL cholesterol (“bad cholesterol”) level is a validated risk factor leading to cardiovascular disease. Statins are a class of drugs that lower LDL through inhibition of HMG-CoA, an enzyme regulating the early and rate-limiting step in cholesterol biosynthesis. PCSK9 is a secreted protein that plays a key role in modulating LDL cholesterol levels in the body. PCSK9 binds to and induces the destruction of the LDL receptor, thereby interfering with cellular uptake and increasing circulating levels of LDL cholesterol. In a landmark study published in the New England Journal of Medicine in March 2006, patients with lower than normal PCSK9 levels due to a genetic abnormality not only had significantly lower levels of LDL cholesterol, but also a significant reduction in the risk of coronary heart disease. We used our VelocImmune technology to generate a fully human monoclonal antibody inhibitor of PCSK9, called alirocumab, that is intended to lower LDL cholesterol.

Alirocumab has been studied in three Phase 2 clinical studies, two in patients with primary hypercholesterolemia and one in patients with heterozygous familial hypercholesterolemia (heFH). In the Phase 2 studies, alirocumab significantly reduced LDL-cholesterol from baseline up to 72% on top of standard of care statin therapy. Consistent and robust reductions in other lipid parameters, including a reduction in lipoprotein-a (Lp(a)) were also observed. Lp(a) is another form of bad cholesterol which is believed to be a risk factor for coronary heart disease and strokes when elevated. In the Phase 2 program, injection site reactions were the most common adverse events with alirocumab, and were rare. Rare cases of hypersensitivity reaction were also reported. Serious adverse events (SAEs) were reported in 1.8% of patients (5/275) in the active treatment arms and 2.6% of patients (2/77) in the placebo groups.

We and Sanofi initiated the global Phase 3 ODYSSEY program for alirocumab in June 2012. The ODYSSEY program will enroll more than 22,000 patients. This includes eleven clinical trials evaluating the effect of alirocumab, dosed every two weeks, on lowering LDL cholesterol. The 18,000 patient ODYSSEY OUTCOMES trial, assessing reduction in serious cardiovascular events, and several other trials in the ODYSSEY program, are currently enrolling patients. LDL cholesterol reduction is expected to be the primary efficacy endpoint for initial regulatory filings. In addition, a trial of alirocumab dosed every four weeks (ODYSSEY CHOICE) will commence by the end of 2013. The ODYSSEY studies are being conducted in clinical centers around the world including the United States, Canada, Western and Eastern Europe, South America, Australia, and Asia.

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We expect to report initial results from the Phase 3 ODYSSEY MONO trial by the end of 2013. The ODYSSEY MONO trial is evaluating the efficacy and safety of alirocumab monotherapy versus ezetimibe monotherapy in patients with primary hypercholesterolemia.

5. Dupilumab (REGN668; IL-4R Antibody) for allergic and immune conditions

IL-4R is required for signaling by the cytokines IL-4 and IL-13. Both of these cytokines are critical mediators of immune response, which, in turn, drives the formation of Immunoglobulin E (IgE) antibodies and the development of allergic responses, as well as the atopic state that underlies atopic dermatitis and allergic asthma. Dupilumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to bind to IL-4R.

Dupilumab demonstrated positive proof of concept in patients with atopic dermatitis and allergic asthma. Data from two Phase 1b trials in atopic dermatitis was presented at the American Academy of Dermatology annual meeting in March 2013. The efficacy data showed that treatment with four weekly subcutaneous injections of dupilumab at either 150 mg or 300 mg per week, significantly improved the signs and symptoms of patients with moderate-to-severe atopic dermatitis whose disease was not adequately controlled with topical medications. The most common AEs were nasopharyngitis (19.6% vs 12.5% for placebo) and headache (11.8% vs 6.3% for placebo).

Data from a Phase 2a trial in allergic asthma were presented at the American Thoracic Society in May 2013, and were also published in the New England Journal of Medicine in June 2013. In this study, patients receiving dupilumab experienced an 87% reduction in the incidence of asthma exacerbations compared to patients receiving placebo (p<0.0001). Clinically meaningful and statistically significant improvements were observed for lung function and other asthma control parameters, such as forced expiratory volume over one second (FEV₁) (difference from baseline to week 12 between dupilumab and placebo of 0.27 L, p < 0.001). Treatment-emergent AEs were reported by a similar proportion of patients in both groups (76.9% placebo; 80.8% dupilumab). AEs were generally non-specific and of mild-to-moderate intensity. The most common AEs for placebo and dupilumab were injection-site reaction (9.6% and 28.8%), nasopharyngitis (3.8% and 13.5%), upper respiratory tract infection (17.3% and 13.5%), headache (5.8% and 11.5%) and nausea (1.9% and 7.7%).

In the second quarter of 2013, a Phase 2b trial in allergic asthma and a Phase 2b trial in atopic dermatitis were both initiated and are currently enrolling patients.

6. Enoticumab (REGN421; Dll4 Antibody) for advanced malignancies

In many clinical settings, positively or negatively regulating blood vessel growth could have important therapeutic benefits, as could the repair of damaged and leaky vessels. VEGF was the first growth factor shown to be specific for blood vessels, by virtue of having its receptor primarily expressed on blood vessel cells. In the December 21, 2006 issue of the journal Nature, we reported data from a preclinical study demonstrating that blocking an important cell signaling molecule, known as Dll4, inhibited the growth of experimental tumors by interfering with their ability to produce a functional blood supply. The inhibition of tumor growth was seen in a variety of tumor types, including those that were resistant to blockade of VEGF, suggesting a novel anti-angiogenesis therapeutic approach. Moreover, inhibition of tumor growth is enhanced by the combination of Dll4 and VEGF blockade in many preclinical tumor models.

Enoticumab is a fully human monoclonal antibody to Dll4 generated using our VelocImmune technology, and is in Phase 1 clinical development.

7. Nesvacumab (REGN910; Ang2 Antibody) for oncology and ophthalmology

The angiopoietins, which were discovered at Regeneron, are ligands for the endothelial cell receptor Tie2 and are essential for vascular development and angiogenesis. Unlike other family members, angiopoietin-2 (Ang2) is strongly upregulated by endothelial cells at sites of angiogenesis and vascular remodeling, including tumors. Enhanced anti-tumor effects have been observed in preclinical models with combined blockade of both VEGF and Ang2.

Nesvacumab is a fully human monoclonal antibody generated using our VelocImmune technology that is designed to block Ang2. Nesvacumab is in Phase 1 clinical development in oncology. In addition, during the third quarter of 2012, we and Sanofi initiated a Phase 1b study evaluating nesvacumab in combination with ZALTRAP in patients with advanced solid malignancies.

In May 2013, we acquired from Sanofi full rights to antibodies targeting the Ang2 receptor and ligand in ophthalmology, as described below. We expect to file an investigational new drug application (IND) for Ang2 in ophthalmology by the end of 2013.

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8. REGN1033 (GDF8 Antibody)

In January 2012, we initiated a Phase 1 clinical study for REGN1033, a fully human monoclonal GDF8 antibody generated using our VelocImmune technology. Myostatin has been validated as a target to increase muscle mass and strength through genetic mutations in both animals and humans that abrogate its bioactivity.

9. REGN2009

REGN2009 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In June 2013, we initiated a Phase 1 clinical study.

10. REGN1400 (ErbB3 Antibody) for oncology

REGN1400 is a fully human monoclonal antibody generated using our VelocImmune technology, against ErbB3. In the fourth quarter of 2012, REGN1400 entered into Phase 1 clinical development in oncology.

11. REGN1154

REGN1154 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In March 2012, we initiated a Phase 1 clinical study in Australia. Sanofi decided not to opt-in to the REGN1154 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1154.

12. REGN1500

REGN1500 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. In December 2012, we initiated a Phase 1 clinical study. Sanofi decided not to opt-in to the REGN1500 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1500.

13. REGN1193

REGN1193 is a fully human monoclonal antibody generated using our VelocImmune technology, against an undisclosed target. A Phase 1 clinical study of REGN1193 will commence in the third quarter of 2013. Sanofi decided not to opt-in to the REGN1193 program and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of REGN1193.

14. Fasinumab (REGN475; NGF Antibody) for pain (on clinical hold)

Fasinumab is a fully human monoclonal antibody to NGF, generated using our VelocImmune technology, which is designed to block pain sensitization in neurons. Preclinical experiments indicate that fasinumab specifically binds to and blocks NGF activity and does not bind to or block cell signaling for the closely related neurotrophins NT-3 and BDNF.

In December 2012, the FDA placed fasinumab and other investigational agents targeting NGF on clinical hold based on preclinical findings with other anti-NGF agents in development. Prior to the FDA clinical hold action, we were planning to initiate late-stage clinical trials with fasinumab. There are currently no ongoing trials with fasinumab that are either enrolling or treating patients.

Sanofi elected not to continue co-development of fasinumab, and we have sole global rights. Under the terms of our agreement, Sanofi is entitled to receive a mid-single digit royalty on any future sales of fasinumab.

Acquisition of Ophthalmology Development Programs from Sanofi

In May 2013, we acquired from Sanofi full exclusive rights to two families of novel antibodies invented at Regeneron and previously included in our antibody collaboration with Sanofi. We acquired full rights to antibodies targeting the PDGF (platelet derived growth factor) family of receptors and ligands in ophthalmology and all other indications and to antibodies targeting the Ang2 receptor and ligand in ophthalmology. Antibodies to the PDGF receptor and Ang2 are currently in preclinical development for use in ophthalmology.

With respect to PDGF antibodies, we made a $10.0 million up-front payment to Sanofi in May 2013, and will pay up to $40 million in potential development milestone payments and royalties on any future sales. With respect to Ang2 antibodies in ophthalmology, we also made a $10.0 million up-front payment to Sanofi in May 2013, and will pay a potential $5 million development milestone payment and royalties on any future sales.

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We and Sanofi will continue to develop antibodies to Ang2 outside of ophthalmology under our antibody collaboration agreement, including nesvacumab, as described above.

Research Programs

Our preclinical research programs are in the areas of oncology and angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain, cardiovascular diseases, and infectious diseases.

Research and Development Technologies

Many proteins that are either on the surface of or secreted by cells play important roles in biology and disease. One way that a cell communicates with other cells is by releasing specific signaling proteins, either locally or into the bloodstream. These proteins have distinct functions and are classified into different “families” of molecules, such as peptide hormones, growth factors, and cytokines. All of these secreted (or signaling) proteins travel to and are recognized by another set of proteins, called “receptors,” which reside on the surface of responding cells. These secreted proteins impact many critical cellular and biological processes, causing diverse effects ranging from the regulation of growth of particular cell types to inflammation mediated by white blood cells. Secreted proteins can at times be overactive and thus result in a variety of diseases. In these disease settings, blocking the action of specific secreted proteins can have clinical benefit. In other cases, proteins on the cell-surface can mediate the interaction between cells, such as the processes that give rise to inflammation and autoimmunity.

Our scientists have developed two different technologies to design protein therapeutics to block the action of specific cell surface or secreted proteins. The first technology, termed the “Trap” technology, was used to generate our three approved products, EYLEA, ZALTRAP, and ARCALYST. These novel “Traps” are composed of fusions between two distinct receptor components and the constant region of an antibody molecule called the “Fc region,” resulting in high affinity product candidates. VelociSuite is our second technology platform; it is used for discovering, developing, and producing fully human monoclonal antibodies that can address both secreted and cell-surface targets.

VelociSuite. VelociSuite consists of VelocImmune, VelociGene, VelociMouse^®, and VelociMab. The VelocImmune mouse platform is utilized to produce fully human monoclonal antibodies. VelocImmune was generated by exploiting our VelociGene technology (see below), in a process in which six megabases of mouse immune gene loci were replaced, or “humanized,” with corresponding human immune gene loci. VelocImmune mice can be used to generate efficiently fully human monoclonal antibodies to targets of therapeutic interest. VelocImmune and our entire VelociSuite offer the potential to increase the speed and efficiency through which human monoclonal antibody therapeutics may be discovered and validated, thereby improving the overall efficiency of our early stage drug development activities. We are utilizing the VelocImmune technology to produce our next generation of drug candidates for preclinical and clinical development.

Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA to produce highly customized alterations of a specified target gene, or genes, and accelerates the production of knock-out and transgenic expression models without using either positive/negative selection or isogenic DNA. In producing knock-out models, a color or fluorescent marker may be substituted in place of the actual gene sequence, allowing for high-resolution visualization of precisely where the gene is active in the body during normal body functioning as well as in disease processes. For the optimization of preclinical development and pharmacology programs, VelociGene offers the opportunity to humanize targets by replacing the mouse gene with the human homolog. Thus, VelociGene allows scientists to rapidly identify the physical and biological effects of deleting or over-expressing the target gene, as well as to characterize and test potential therapeutic molecules.

Our VelociMouse technology platform allows for the direct and immediate generation of genetically altered mice from embryonic stem cells (ES cells), thereby avoiding the lengthy process involved in generating and breeding knockout mice from chimeras. Mice generated through this method are normal and healthy and exhibit a 100% germ-line transmission. Furthermore, mice developed using our VelociMouse technology are suitable for direct phenotyping or other studies. We have also developed our VelociMab platform for the rapid screening of antibodies and rapid generation of expression cell lines for our Traps and our VelocImmune human monoclonal antibodies.

Collaboration Agreements

Collaborations with Sanofi

ZALTRAP. We and Sanofi globally collaborate on the development and commercialization of ZALTRAP. Under the terms of our September 2003 collaboration agreement, as amended, we and Sanofi share co-promotion rights and share profits and losses from commercialization of ZALTRAP outside of Japan. In Japan, we are entitled to a royalty of approximately 35% on sales of ZALTRAP, subject to certain potential adjustments.

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Under the ZALTRAP collaboration agreement, as amended, agreed upon worldwide development expenses incurred by both companies during the term of the agreement are funded by Sanofi. If the collaboration becomes profitable, we will be obligated to reimburse Sanofi out of our share of ZALTRAP profits (including royalties on sales of ZALTRAP in Japan) for 50% of the development expenses that they funded. The reimbursement payment in any quarter will equal 5% of the then outstanding repayment obligation, but never more than our share of the ZALTRAP profits in the quarter unless we elect to reimburse Sanofi at a faster rate. As a result, we expect that, initially, our share of any ZALTRAP profits will be used to reimburse Sanofi for this repayment obligation.

Antibodies. In November 2007, we and Sanofi entered into a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement and a License and Collaboration Agreement. In connection with the execution of the discovery agreement in 2007, we received a non-refundable, up-front payment of $85.0 million from Sanofi. Pursuant to the collaboration, Sanofi is funding our research to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. We lead the design and conduct of research activities under the collaboration, including target identification and validation, antibody development, research and preclinical activities through filing of an IND or its equivalent, toxicology studies, and manufacture of preclinical and clinical supplies.

For each drug candidate identified through discovery research under the discovery agreement, Sanofi has the option to license rights to the candidate under the license agreement. If it elects to do so, Sanofi will co-develop the drug candidate with us through product approval. Development costs for the drug candidate are shared between the companies, with Sanofi generally funding these costs up front, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate are shared 80% by Sanofi and 20% by us. We are generally responsible for reimbursing Sanofi for half of the total development costs for all collaboration antibody products from our share of profits from commercialization of collaboration products to the extent they are sufficient for this purpose. However, we are not required to apply more than 10% of our share of the profits from collaboration products in any calendar quarter towards reimbursing Sanofi for these development costs.

Sanofi will lead commercialization activities for products developed under the license agreement, subject to our right to co-promote such products. The parties will equally share profits and losses from sales within the United States. The parties will share profits outside the United States on a sliding scale based on sales starting at 65% (Sanofi)/35% (us) and ending at 55% (Sanofi)/45% (us), and will share losses outside the United States at 55% (Sanofi)/45% (us). In addition to profit sharing, we are entitled to receive up to $250 million in sales milestone payments, with milestone payments commencing after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.

In November 2009, we and Sanofi amended these agreements to expand and extend our antibody collaboration. The goal of the expanded collaboration is to advance a total of 20 to 30 new antibody product candidates into clinical development from 2010 through 2017.

Under the amended discovery agreement, Sanofi agreed to fund up to $160 million per year of our antibody discovery activities over the period from 2010-2017. Sanofi has an option to extend the discovery program for up to an additional three years after 2017 for further antibody development and preclinical activities. Pursuant to the collaboration, Sanofi funded $30 million of agreed-upon costs we incurred to expand our manufacturing capacity at our Rensselaer, New York facilities.

In August 2008, we entered into an agreement with Sanofi, which extended through December 2012, to use our VelociGene platform to supply Sanofi with genetically modified mammalian models of gene function and disease. Under this agreement, Sanofi is paying us a total of $21.5 million for knock-out and transgenic models of gene function for target genes identified by Sanofi. These models are used by Sanofi for its internal research programs that are outside of the scope of our antibody collaboration.

Collaboration with Bayer HealthCare

In October 2006, we entered into a license and collaboration agreement with Bayer HealthCare for the global development and commercialization outside the United States of EYLEA. Under the agreement, we and Bayer HealthCare collaborate on, and share the costs of, the development of EYLEA through an integrated global plan. Bayer HealthCare markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally in profits and losses from sales of EYLEA. In May 2012, Bayer HealthCare's Japanese subsidiary, Bayer Yakuhin, Ltd., and Santen Pharmaceutical Co., Ltd. entered into an agreement to co-promote EYLEA in Japan. In conjunction with this agreement, we and Bayer HealthCare amended our existing global license and collaboration agreement for EYLEA to convert the 50/50 profit share for Japan into a royalty agreement under which we are entitled to receive a tiered royalty of between 33.5% and 40.0% of EYLEA annual net sales in Japan. In certain specified circumstances, the Japan royalty may revert to a profit share arrangement.

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We may also receive up to $25 million in additional milestone payments related to marketing approvals of EYLEA in other indications in major market countries outside the United States, and can earn up to $135 million in sales milestone payments if twelve-month sales of EYLEA outside the United States achieve certain specified levels starting at $200 million.

Commencing with the first commercial sale of EYLEA in a major market country outside the United States, we became obligated to reimburse Bayer HealthCare for 50% of the development costs that it has incurred under the agreement from our share of the collaboration profits (including royalties on sales of EYLEA in Japan). The reimbursement payment in any quarter will equal 5% of the then outstanding repayment obligation, but never more than our share of the collaboration profits in the quarter unless we elect to reimburse Bayer HealthCare at a faster rate. As a result, we expect that, initially, a portion of our share of EYLEA profits outside the United States will be used to reimburse Bayer HealthCare for this repayment obligation.

Within the United States, we retain exclusive commercialization rights to EYLEA and are entitled to all profits from any such sales.

License Agreement with Astellas

In March 2007, we entered into a six-year, non-exclusive license agreement with Astellas Pharma Inc. to allow Astellas to utilize our VelocImmune technology in its internal research programs to discover human monoclonal antibodies. In July 2010, the license agreement with Astellas was amended and extended through June 2023. Under the terms of the amended agreement, Astellas made a $165.0 million up-front payment to us in August 2010. In addition, Astellas will make a $130.0 million second payment to us in June 2018 unless the license agreement has been terminated prior to that date. Astellas has the right to terminate the agreement at any time by providing 90 days' advance written notice. Under certain limited circumstances, such as our material breach of the agreement, Astellas may terminate the agreement and receive a refund of a portion of its up-front payment or, if such termination occurs after June 2018, a portion of its second payment, to us under the July 2010 amendment to the agreement. We are entitled to receive a mid-single digit royalty on any future sales of antibody products discovered by Astellas using our VelocImmune technology.

Royalty Agreement with Novartis Pharma AG

Under a June 2009 agreement with Novartis (that replaced a previous collaboration and license agreement), we receive royalties on worldwide sales of Novartis' canakinumab, a fully human anti-interleukin-IL1ß antibody. The royalty rates in the agreement start at 4% and reach 15% when annual sales exceed $1.5 billion. Canakinumab is marketed for the treatment of CAPS and gouty arthritis, and is in earlier stage development for atherosclerosis and other inflammatory diseases. We are unable to predict whether these royalties will ever contribute materially to our results of operations or financial condition.

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General

Developing and commercializing new medicines entails significant risk and expense. Before significant revenues from the commercialization of our antibody candidates or new indications for our marketed products can be realized, we (or our collaborators) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the FDA and regulatory authorities in other countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive, and new developments may render our products and technologies uncompetitive or obsolete.

Beginning in the first quarter of 2012, we reported profitability; prior to that, we generally incurred net losses. Our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our success in commercializing EYLEA. We expect to continue to incur substantial expenses related to our research and development activities, a significant portion of which we expect to be reimbursed by our collaborators. Also, our research and development activities outside our collaborations, the costs of which are not reimbursed, will expand and require additional resources. Our operating results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of our marketed products, the scope and progress of our research and development efforts, the timing of certain expenses, and the continuation of our collaborations with Sanofi and Bayer HealthCare, including our share of collaboration profits or losses, or royalties, from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators. We cannot predict whether or when new products or new indications for our marketed products will receive regulatory approval or, if any such approval is received, whether we will be able to successfully commercialize such product(s) and whether or when they may become profitable.

The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, key events in 2013 to date were, and plans for the next 12 months are, as follows:

Trap-based Clinical Programs:



	2013 Events to Date		2013-14 Plans (next 12 months)
	EYLEA
Ÿ	Bayer HealthCare received regulatory approval for EYLEA in New Zealand, South Korea, and other countries for the treatment of patients with wet AMD and continued to pursue regulatory applications for marketing approval in other countries	Ÿ	Regulatory agency decisions on additional applications outside the United States for the treatment of wet AMD and macular edema following CRVO
Ÿ	Bayer HealthCare received regulatory approval for EYLEA in first country outside the United States for the treatment of patients with macular edema following CRVO and continued to pursue regulatory applications for marketing approval in other countries	Ÿ	Report six month primary endpoint results for VIBRANT study in macular edema following BRVO
Ÿ	Completed enrollment of VIBRANT study in macular edema following BRVO	Ÿ	File for regulatory approval in the United States for the treatment of DME
Ÿ	Initiated Phase 3 VIVID EAST-DME study in Russia, China, and other Asian countries	Ÿ	Bayer HealthCare to file for ex-US regulatory approval in DME and myopic CNV
Ÿ	Reported positive one year results from the Phase 3 VIVID-DME and VISTA-DME studies
Ÿ	Reported positive results from the Phase 3 MYRROR study in myopic CNV
	ZALTRAP
Ÿ	European Commission granted marketing authorization in the European Union for ZALTRAP for patients with mCRC that is resistant to or has progressed following an oxaliplatin-containing regimen	Ÿ	Regulatory agency decisions outside the United States on additional applications for ZALTRAP in the treatment of previously treated mCRC patients

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Antibody-based Clinical Programs:



		2013 Events to Date		2013-14 Plans (next 12 months)
Sarilumab (IL-6R Antibody)	Ÿ	Continued enrollment in Phase 3 SARIL-RA program	Ÿ	Report results from SARIL-RA- MOBILITY study
	Ÿ	Initiated SARIL-RA-ASCERTAIN and SARIL-RA-COMPARE Phase 3 studies in rheumatoid arthritis	Ÿ	Commence SARIL-NIU-SATURN Phase 2 study in non-infectious uveitis
Alirocumab (PCSK9 Antibody)	Ÿ	Continued patient enrollment in Phase 3 ODYSSEY trials	Ÿ	Continue enrollment of the Phase 3 ODYSSEY trials
			Ÿ	Report results from several Phase 3 ODYSSEY trials, including results from ODYSSEY MONO trial
			Ÿ	Initiate Phase 3 ODYSSEY CHOICE trial
Dupilumab (IL-4R Antibody)	Ÿ	Reported results for Phase 1b studies in atopic dermatitis	Ÿ	Report results from Phase 2a study in atopic dermatitis
	Ÿ	Reported results from Phase 2a study in allergic asthma. Results were also published online in the New England Journal of Medicine
	Ÿ	Initiated patient enrollment in Phase 2b trials in allergic asthma and atopic dermatitis
Enoticumab (Dll4 Antibody)	Ÿ	Continued patient enrollment in Phase 1 program	Ÿ	Complete patient enrollment in the expansion of the Phase 1 program
Nesvacumab (Ang2 Antibody)	Ÿ	Continued patient enrollment in Phase 1 program	Ÿ	Complete patient enrollment in the Phase 1b program in advanced malignancies
			Ÿ	Initiate clinical development in ophthalmology
REGN1033 (GDF8 Antibody)	Ÿ	Continued patient enrollment in Phase 1 program	Ÿ	Initiate Phase 2a study
REGN1400 (ErbB3 Antibody)	Ÿ	Continued patient enrollment in Phase 1 program	Ÿ	Continue patient enrollment in Phase 1 program
REGN1154 (target not disclosed)	Ÿ	Completion of Phase 1 program
REGN1500 (target not disclosed)	Ÿ	Continued patient enrollment in Phase 1 program	Ÿ	Continue patient enrollment in Phase 1 program
REGN1193 (target not disclosed)	Ÿ	Initiated Phase 1 program	Ÿ	Initiate and continue patient enrollment in Phase 1 program
REGN2009 (target not disclosed)	Ÿ	Initiated patient enrollment in Phase 1 program	Ÿ	Continue patient enrollment in Phase 1 program
Fasinumab (NGF Antibody)	Ÿ	On clinical hold	Ÿ	Determine future development plan

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Results of Operations

Three Months Ended June 30, 2013 and 2012

Net Income

We reported net income of $87.4 million, or $0.79 per diluted share, for the second quarter of 2013, compared to $76.7 million, or $0.70 per diluted share, for the second quarter of 2012. The increase in net income resulted primarily from an increase in net product sales of EYLEA, which we launched in November 2011, partly offset by higher operating and income tax expenses, as described below.

Revenues

Revenues for the three months ended June 30, 2013 and 2012 consist of the following:



(In millions)	2013		2012
Net product sales	$	333.9	$	199.5
Collaboration revenue:
Sanofi	85.5		89.0
Bayer HealthCare	31.1		9.1
Total collaboration revenue	116.6		98.1
Technology licensing revenue	5.9		5.9
Other revenue	1.2		0.9
Total revenue	$	457.6	$	304.4

Net Product Sales

Net product sales consist of U.S. sales of EYLEA and ARCALYST. In November 2011, we received marketing approval from the FDA for EYLEA for the treatment of wet AMD, at which time product sales commenced. In addition, in September 2012, we received marketing approval from the FDA for EYLEA for the treatment of macular edema following CRVO. For the three months ended June 30, 2013 and 2012, we recognized EYLEA net product sales of $329.8 million and $194.0 million, respectively. For the three months ended June 30, 2013 and 2012, we also recognized ARCALYST net product sales of $4.1 million and $5.5 million, respectively.

For the three months ended June 30, 2013 and 2012, we recorded 76% and 79%, respectively, of our total gross product revenue from sales to Besse Medical, a subsidiary of AmerisourceBergen Corporation.

We record product sales net of allowances and accruals for rebates and chargebacks under governmental programs (including Medicaid), distribution-related fees, prompt pay discounts, product returns, and other sales-related deductions. The following table summarizes the provisions, and credits/payments, for sales-related deductions for the three months ended June 30, 2013 and 2012.



(In millions)	Rebates & Chargebacks			Distribution-Related Fees			Other Sales-Related Deductions			Total
Balance as of March 31, 2013	$	3.7		$	17.7		$	0.5		$	21.9
Provision related to current period sales	5.6			15.5			0.3			21.4
Credits/payments	(5.2		)	(14.7		)	(0.3		)	(20.2		)
Balance as of June 30, 2013	$	4.1		$	18.5		$	0.5		$	23.1

Balance as of March 31, 2012	$	2.8		$	5.5		$	0.5		$	8.8
Provision related to current period sales	3.8			11.0			1.6			16.4
Credits/payments	(1.8		)	(5.4		)	(0.6		)	(7.8		)
Balance as of June 30, 2012	$	4.8		$	11.1		$	1.5		$	17.4