Edgar Filing: REGENERON PHARMACEUTICALS INC

Document

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, 2016

	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 14, 2016:



Class of Common Stock		Number of Shares
Class A Stock, $.001 par value		1,911,456
Common Stock, $.001 par value		103,383,050

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)	2

	Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	2

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52

Item 4.	Controls and Procedures	53

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	53

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82

Item 6.	Exhibits	84

SIGNATURE PAGE		85

"ARCALYST^®", "EYLEA^®", "ZALTRAP^®", "VelocImmune^®", "VelociGene^®", "VelociMouse^®", "VelociMab^®", and "VelociSuite^®" are trademarks of Regeneron Pharmaceuticals, Inc. Trademarks and trade names of other companies appearing in this report are, to the knowledge of Regeneron Pharmaceuticals, Inc., the property of their respective owners.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REGENERON PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands, except share data)



	June 30,			December 31,
	2016			2015
ASSETS
Current assets:
Cash and cash equivalents	$	646,508		$	809,102
Marketable securities	398,656			236,121
Accounts receivable - trade, net	1,431,966			1,152,489
Accounts receivable from Sanofi	138,067			153,152
Accounts receivable from Bayer	181,938			162,152
Inventories	316,073			238,578
Prepaid expenses and other current assets	96,017			163,501
Total current assets	3,209,225			2,915,095

Marketable securities	589,852			632,162
Property, plant, and equipment, net	1,772,923			1,594,120
Deferred tax assets	626,191			461,945
Other assets	6,715			5,810
Total assets	$	6,204,906		$	5,609,132

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	759,643		$	644,112
Deferred revenue from Sanofi, current portion	104,141			101,573
Deferred revenue - other, current portion	84,084			51,914
Other current liabilities	3,695			13,563
Total current liabilities	951,563			811,162

Deferred revenue from Sanofi	549,342			582,664
Deferred revenue - other	146,449			82,015
Facility lease obligations	361,523			362,919
Other long-term liabilities	119,523			115,535
Total liabilities	2,128,400			1,954,295

Stockholders' equity:
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none	—			—
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 1,911,456 in 2016 and 1,913,776 in 2015	2			2
Common Stock, $.001 par value; 320,000,000 shares authorized; shares issued - 107,132,543 in 2016 and 106,378,001 in 2015	107			106
Additional paid-in capital	3,156,942			3,099,526
Retained earnings	1,230,303			852,700
Accumulated other comprehensive income	5,204			8,572
Treasury stock, at cost; 3,761,628 shares in 2016 and 3,642,820 in 2015	(316,052		)	(306,069		)
Total stockholders' equity	4,076,506			3,654,837
Total liabilities and stockholders' equity	$	6,204,906		$	5,609,132

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,
	2016			2015			2016			2015
Statements of Operations
Revenues:
Net product sales	$	834,219		$	657,819		$	1,618,401		$	1,202,392
Sanofi collaboration revenue	163,414			195,110			383,108			368,466
Bayer collaboration revenue	191,896			134,237			371,488			258,083
Other revenue	23,100			11,451			40,481			39,288
	1,212,629			998,617			2,413,478			1,868,229

Expenses:
Research and development	559,930			390,330			1,030,042			733,443
Selling, general, and administrative	292,038			174,588			581,715			333,579
Cost of goods sold	41,247			60,855			120,189			103,425
Cost of collaboration and contract manufacturing	27,786			27,985			60,596			69,370
	921,001			653,758			1,792,542			1,239,817

Income from operations	291,628			344,859			620,936			628,412

Other income (expense):
Investment income	2,801			1,653			5,050			1,833
Interest and other expense, net	(2,173		)	(18,516		)	(3,579		)	(25,726		)
	628			(16,863		)	1,471			(23,893		)

Income before income taxes	292,256			327,996			622,407			604,519

Income tax expense	(96,038		)	(133,353		)	(244,804		)	(333,855		)

Net income	$	196,218		$	194,643		$	377,603		$	270,664

Net income per share - basic	$	1.88		$	1.89		$	3.61		$	2.64
Net income per share - diluted	$	1.69		$	1.69		$	3.24		$	2.35

Weighted average shares outstanding - basic	104,633			102,886			104,462			102,558
Weighted average shares outstanding - diluted	116,231			115,259			116,617			114,962

Statements of Comprehensive Income
Net income	$	196,218		$	194,643		$	377,603		$	270,664
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities, net of tax	840			(28,751		)	(3,368		)	(33,098		)
Comprehensive income	$	197,058		$	165,892		$	374,235		$	237,566

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,
	2016			2015
Cash flows from operating activities:
Net income	$	377,603		$	270,664
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	48,006			31,325
Non-cash compensation expense	273,941			198,016
Other non-cash charges and expenses, net	7,795			33,017
Deferred taxes	(162,652		)	(59,069		)
Changes in assets and liabilities:
Increase in Sanofi, Bayer, and trade accounts receivable	(284,178		)	(418,753		)
Increase in inventories	(72,888		)	(45,591		)
Decrease in prepaid expenses and other assets	57,086			33,842
Increase (decrease) in deferred revenue	65,850			(16,685		)
Increase in accounts payable, accrued expenses, and other liabilities	133,925			129,338
Total adjustments	66,885			(114,560		)
Net cash provided by operating activities	444,488			156,104

Cash flows from investing activities:
Purchases of marketable securities	(228,942		)	(340,844		)
Sales or maturities of marketable securities	102,177			193,769
Capital expenditures	(242,930		)	(354,055		)
Net cash used in investing activities	(369,695		)	(501,130		)

Cash flows from financing activities:
(Payments) proceeds in connection with facility lease obligations	(1,213		)	26,780
Repayments of convertible senior notes	(12,650		)	(144,001		)
Payments in connection with reduction of outstanding warrants	(242,117		)	(124,531		)
Proceeds from issuance of Common Stock	63,606			115,825
Payments in connection with Common Stock tendered for employee tax obligations	(45,013		)	(35,930		)
Excess tax benefit from stock-based compensation	—			248,718
Net cash (used in) provided by financing activities	(237,387		)	86,861

Net decrease in cash and cash equivalents	(162,594		)	(258,165		)

Cash and cash equivalents at beginning of period	809,102			648,719

Cash and cash equivalents at end of period	$	646,508		$	390,554

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. and its subsidiaries ("Regeneron" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company's financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, these financial statements reflect all normal recurring adjustments and accruals necessary for a fair statement of the Company's financial position, results of operations, and cash flows for such periods. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The December 31, 2015 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, 2015.

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

2. Product Sales

EYLEA^® net product sales in the United States totaled $830.9 million and $654.6 million for the three months ended June 30, 2016 and 2015, respectively, and $1,611.8 million and $1,195.7 million for the six months ended June 30, 2016 and 2015, respectively. In addition, ARCALYST^® net product sales totaled $3.3 million and $3.2 million for the three months ended June 30, 2016 and 2015, respectively, and $6.6 million and $6.7 million for the six months ended June 30, 2016 and 2015, respectively.

The Company recorded 56% and 69% for the three months ended June 30, 2016 and 2015, respectively, and 58% and 69% for the six months ended June 30, 2016 and 2015, 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, distribution-related fees, 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, 2016 and 2015.



	Rebates & Chargebacks			Distribution- Related Fees			Other Sales- Related Deductions			Total
Balance as of December 31, 2015	$	6,419		$	48,313		$	517		$	55,249
Provision related to current period sales	41,326			74,289			12,341			127,956
Credits/payments	(36,110		)	(94,467		)	(11,782		)	(142,359		)
Balance as of June 30, 2016	$	11,635		$	28,135		$	1,076		$	40,846

Balance as of December 31, 2014	$	3,083		$	21,166		$	532		$	24,781
Provision related to current period sales	25,481			54,747			3,454			83,682
Credits/payments	(23,090		)	(36,433		)	(3,482		)	(63,005		)
Balance as of June 30, 2015	$	5,474		$	39,480		$	504		$	45,458

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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 Agreements

a. Sanofi

The collaboration revenue the Company earned from Sanofi is detailed below:



	Three Months Ended June 30,
Sanofi Collaboration Revenue	2016			2015
Antibody:
Reimbursement of Regeneron research and development expenses	$	144,232		$	211,516
Reimbursement of Regeneron commercialization-related expenses	85,885			27,347
Regeneron's share of losses in connection with commercialization of antibodies	(122,107		)	(46,313		)
Other	3,054			2,560
Total Antibody	111,064			195,110
Immuno-oncology:
Reimbursement of Regeneron research and development expenses	32,350			—
Other	20,000			—
Total Immuno-oncology	52,350			—
	$	163,414		$	195,110



	Six Months Ended June 30,
Sanofi Collaboration Revenue	2016			2015
Antibody:
Reimbursement of Regeneron research and development expenses	$	337,834		$	380,336
Reimbursement of Regeneron commercialization-related expenses	159,159			35,805
Regeneron's share of losses in connection with commercialization of antibodies	(221,529		)	(68,718		)
Other	6,019			5,121
Total Antibody	281,483			352,544
Immuno-oncology:
Reimbursement of Regeneron research and development expenses	61,625			—
Other	40,000			—
Total Immuno-oncology	101,625			—
ZALTRAP:
Reimbursement of Regeneron research and development expenses	—			686
Other	—			15,236
Total ZALTRAP	—			15,922
	$	383,108		$	368,466

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Antibodies

In November 2007, the Company entered into a global, strategic collaboration with Sanofi to discover, develop, and commercialize fully human monoclonal antibodies (the "Antibody Collaboration"). The Antibody Collaboration is governed by the companies' Discovery and Preclinical Development Agreement ("Antibody Discovery Agreement") and a License and Collaboration Agreement (each as amended). Pursuant to the Antibody Discovery Agreement, Sanofi will fund up to $130.0 million of the Company's research activities in each of 2016 and 2017. Under the License and Collaboration Agreement, agreed-upon worldwide development expenses incurred by both companies are funded by Sanofi, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate ("Shared Phase 3 Trial Costs") are shared 80% by Sanofi and 20% by Regeneron. During the three months ended June 30, 2016 and 2015, the Company recognized as additional research and development expense $30.6 million and $22.5 million, respectively, and during the six months ended June 30, 2016 and 2015, the Company recognized as additional research and development expense $52.3 million and $47.5 million, respectively, of antibody development expenses that the Company was obligated to reimburse to Sanofi related to Praluent^®, sarilumab, and, commencing in the first quarter of 2016, dupilumab.

Reimbursement of Regeneron commercialization-related expenses represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing, as applicable, Praluent, sarilumab, and, effective in the first quarter of 2016, dupilumab.

During the six months ended June 30, 2015, the Company and Sanofi shared pre-launch commercialization expenses, including those incurred by Sanofi, related to Praluent and sarilumab in accordance with the companies’ License and Collaboration Agreement. In addition, effective in the first quarter of 2016, the Company and Sanofi also began sharing pre-launch commercialization expenses related to dupilumab. As such, the Company recorded its share of losses in connection with preparing to commercialize Praluent, sarilumab, and dupilumab within Sanofi collaboration revenue. In July 2015, the U.S. Food and Drug Administration ("FDA") approved Praluent in the United States and in September 2015, the European Commission granted marketing authorization of Praluent. Therefore, commencing in the third quarter of 2015, the Company also recorded within Sanofi collaboration revenue its share of the Antibody Collaboration's losses in connection with commercialization of Praluent.

Immuno-Oncology

In July 2015, the Company and Sanofi entered into a collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the "IO Collaboration"). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement ("IO Discovery Agreement"), and an Immuno-oncology License and Collaboration Agreement ("IO License and Collaboration Agreement"). Pursuant to the IO Discovery Agreement, Sanofi will reimburse the Company for up to $150.0 million in 2016 to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept. Under the terms of the IO License and Collaboration Agreement, the parties are co-developing the Company's antibody product candidate targeting the receptor known as programmed cell death protein 1, or PD-1 ("REGN2810"). The parties share equally, on an ongoing basis, development expenses for REGN2810.

The $640.0 million in aggregate up-front payments made by Sanofi during 2015 in connection with the execution of the IO Collaboration has been recorded by the Company as deferred revenue, and is being recognized ratably as revenue over the related performance period.

ZALTRAP

In February 2015, the Company and Sanofi entered into an amended and restated ZALTRAP agreement ("Amended ZALTRAP Agreement"). Under the terms of the Amended ZALTRAP Agreement, Sanofi is solely responsible for the development and commercialization of ZALTRAP for cancer indications worldwide. Sanofi bears the cost of all development and commercialization activities and reimburses Regeneron for its costs for any such activities. Sanofi pays the Company a percentage of aggregate net sales of ZALTRAP during each calendar year.

As a result of entering into the Amended ZALTRAP Agreement, in the first quarter of 2015, the Company recognized $14.9 million of collaboration revenue, which was previously recorded as deferred revenue under the ZALTRAP Collaboration Agreement, related to (i) amounts that were previously reimbursed by Sanofi for manufacturing commercial supplies of ZALTRAP since the risk of inventory loss no longer existed, and (ii) the unamortized portion of up-front payments from Sanofi as the Company had no further performance obligations. In addition, during the three months ended June 30, 2016 and 2015, the Company recorded $9.3 million and $3.2 million, respectively, and during the six months ended June 30, 2016 and 2015, the Company recorded $14.6

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

million and $23.0 million, respectively, in other revenue primarily related to a percentage of net sales of ZALTRAP and manufacturing ZALTRAP commercial supplies for Sanofi.

b. Bayer

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



	Three Months Ended June 30,
Bayer Collaboration Revenue	2016		2015
EYLEA:
Regeneron's net profit in connection with commercialization of EYLEA outside the United States	$	167,492	$	106,631
Cost-sharing of Regeneron EYLEA development expenses	2,224		2,464
Other	13,355		16,618
Total EYLEA	183,071		125,713
PDGFR-beta antibody:
Cost-sharing of rinucumab/aflibercept (REGN2176-3) development expenses	2,762		5,926
Other	2,607		2,598
Total PDGFR-beta	5,369		8,524
Ang2 antibody:
Cost-sharing of nesvacumab/aflibercept (REGN910-3) development expenses	2,074		—
Other	1,382		—
Total Ang2	3,456		—
	$	191,896	$	134,237

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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,
Bayer Collaboration Revenue	2016		2015
EYLEA:
Regeneron's net profit in connection with commercialization of EYLEA outside the United States	$	313,327	$	196,057
Sales milestones	—		15,000
Cost-sharing of Regeneron EYLEA development expenses	4,967		5,121
Other	39,847		29,530
Total EYLEA	358,141		245,708
PDGFR-beta antibody:
Cost-sharing of rinucumab/aflibercept (REGN2176-3) development expenses	4,658		7,180
Other	5,233		5,195
Total PDGFR-beta antibody	9,891		12,375
Ang2 antibody:
Cost-sharing of nesvacumab/aflibercept (REGN910-3) development expenses	2,074		—
Other	1,382		—
Total Ang2 antibody	3,456		—
	$	371,488	$	258,083

EYLEA outside the United States

Under the terms of the license and collaboration agreement with Bayer for the global development and commercialization outside the United States of EYLEA, Bayer markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally in profits and losses from sales of EYLEA. In Japan, the Company is entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales. In addition, all agreed-upon EYLEA development costs incurred by the Company and Bayer are shared equally. In the first quarter of 2015, the Company earned a $15.0 million sales milestone from Bayer upon total aggregate net sales of specific commercial supplies of EYLEA outside the United States exceeding $200 million over a twelve-month period, which was the final milestone payment under the agreement.

PDGFR-beta antibody outside the United States

In 2014, the Company entered into an agreement with Bayer governing the joint development and commercialization outside the United States of an antibody product candidate to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta), including in combination with aflibercept, for the treatment of ocular diseases or disorders. In connection with the agreement, Bayer is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States.

Bayer is also obligated to reimburse the Company for 50% of development milestone payments to Sanofi related to the Company's acquisition of rights to antibodies targeting the PDGF family of receptors in 2013. In that regard, Bayer made a $5.0 million development milestone payment to the Company in the second quarter of 2015 (which was recognized as a substantive milestone).

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Ang2 antibody outside the United States

In March 2016, the Company entered into an agreement with Bayer governing the joint development and commercialization outside the United States of an antibody product candidate to angiopoietin-2 (Ang2), including in combination with aflibercept, for the treatment of ocular diseases or disorders. In connection with the agreement, Bayer made a $50.0 million non-refundable up-front payment to the Company and is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States. The Company is also entitled to receive up to an aggregate of $80.0 million in development milestone payments from Bayer. Bayer will share profits and losses from sales outside the United States equally with the Company, and is responsible for certain royalties payable to Sanofi on sales of the product outside of the United States. Within the United States, the Company has exclusive commercialization rights and will retain all of the profits from sales.

At the inception of the agreement, the Company's significant deliverables consisted of (i) a license to certain rights and intellectual property, (ii) providing research and development services, and (iii) manufacturing clinical supplies. The Company concluded that the license did not have standalone value, as such right was not sold separately by the Company, nor could Bayer receive any benefit from the license without the fulfillment of other ongoing obligations by the Company, including the clinical supply arrangement. Therefore, the deliverables were considered a single unit of accounting. Consequently, the $50.0 million up-front payment was initially recorded as deferred revenue, and will be recognized ratably as revenue over the related performance period.

Unless terminated earlier in accordance with its provisions, the agreement will continue to be in effect until such time as neither party or its respective affiliates or sublicensees is developing or commercializing an Ang2 antibody in the specified field outside of the United States and such discontinuation is acknowledged as permanent by both the Company and Bayer.

c. Mitsubishi Tanabe Pharma

In September 2015, the Company and Mitsubishi Tanabe Pharma Corporation ("MTPC") entered into a collaboration agreement providing MTPC with development and commercial rights to fasinumab, the Company's nerve growth factor antibody in late-stage clinical development, in certain Asian countries. In connection with the agreement, MTPC made a $10.0 million non-refundable up-front payment. In the first quarter of 2016, MTPC made additional payments of $45.0 million and $15.0 million to the Company, which were recorded as deferred revenue and will be recognized ratably as revenue over the same performance period as the up-front payment.

d. Intellia Therapeutics

In April 2016, the Company entered into a license and collaboration agreement with Intellia Therapeutics, Inc. to advance CRISPR/Cas gene-editing technology for in vivo therapeutic development. The Company will collaborate with Intellia to conduct research for the discovery, development, and commercialization of new therapies ("Product Collaboration"), in addition to the research and technology development of the CRISPR/Cas platform ("Technology Collaboration"). In connection with the execution of the agreement, the Company made a $75.0 million up-front payment, which was recorded as research and development expense in the second quarter of 2016, and also agreed to purchase Intellia shares contingent upon Intellia consummating its next equity financing. The Company is responsible for costs of developing and commercializing CRISPR/Cas products under the Product Collaboration agreement and is also obligated to pay potential development and sales milestones, and royalties on any future sales of such products resulting from the development and commercialization of CRISPR/Cas products. In addition, under the Technology Collaboration agreement, the Company is responsible for funding certain research and technology development costs.

Under the terms of the Product Collaboration agreement, the parties agreed to a target selection process, whereby the Company may obtain exclusive rights in up to 10 targets to be chosen by the Company during the collaboration term, subject to various adjustments and limitations set forth in the agreement. Additionally, the Company may replace a limited number of targets with substitute targets upon the payment of a replacement fee, in which case rights to the replaced target(s) will revert to Intellia.

The Technology Collaboration term and the period for selecting targets for inclusion under the Product Collaboration both end in 2022, provided that the Company may make a payment to extend the term for an additional two-year period. The Product Collaboration agreement will continue until the date when no royalty or other payment obligations are due, unless earlier terminated in accordance with the terms of the agreement.

Certain targets that either the Company or Intellia select pursuant to the target selection process may be subject to a co-development and co-commercialization arrangement at the Company's option or Intellia's option, as applicable.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

In May 2016, Intellia completed an initial public offering ("IPO") of its common stock and thereby triggered the Company's obligation to purchase up to $50.0 million of Intellia common stock in a concurrent private placement. As part of the concurrent private placement, the Company purchased from Intellia at the closing of the IPO 2,777,777 shares of Intellia common stock for an aggregate purchase price of $50.0 million (see Note 5).

e. Adicet Bio

In July 2016, the Company entered into a license and collaboration agreement with Adicet Bio, Inc., a privately held company, to develop next-generation engineered immune-cell therapeutics with fully human chimeric antigen receptors ("CARs") and T-cell receptors ("TCRs") directed to disease-specific cell surface antigens in order to enable the precise engagement and killing of tumor cells. In connection with the execution of the agreement, the Company will make a $25.0 million up-front payment to Adicet, and is obligated to provide Adicet with research funding over the course of a five-year research term.

Under the terms of the agreement, the Company and Adicet will collaborate to identify and validate targets and work together to develop a pipeline of engineered immune-cell therapeutics for selected targets. The Company has the option to obtain development and commercial rights for a certain number of the product candidates developed by the parties, subject to an option payment for each product candidate. If the Company exercises its option on a given product candidate, Adicet then will have an option to participate in the development and commercialization for such product. If Adicet doesn’t exercise its option, Adicet will be entitled to royalties on any future sales of such products by the Company. In addition to developing CARs and TCRs for use in novel immune-cell therapies as part of the collaboration, the Company will have the right to use these CARs and TCRs in its other antibody programs outside of the collaboration.

The Company will also be entitled to royalties on any future sales of products developed and commercialized by Adicet under the agreement for all products for which the Company does not have development and commercial rights.

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,
	2016		2015
Net income - basic and diluted	$	196,218	$	194,643

(Shares in thousands)
Weighted average shares - basic	104,633		102,886
Effect of dilutive securities:
Stock options	10,141		9,438
Restricted stock	473		474
Warrants	984		2,461
Dilutive potential shares	11,598		12,373
Weighted average shares - diluted	116,231		115,259

Net income per share - basic	$	1.88	$	1.89
Net income per share - diluted	$	1.69	$	1.69

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



	Six Months Ended June 30,
	2016		2015
Net income - basic	$	377,603	$	270,664
Effect of dilutive securities:
Convertible senior notes - interest expense related to contractual coupon interest rate and amortization of discount and note issuance costs	373		—
Net income - diluted	$	377,976	$	270,664

(Shares in thousands)
Weighted average shares - basic	104,462		102,558
Effect of dilutive securities:
Stock options	10,433		9,441
Restricted stock	471		471
Convertible senior notes	121		—
Warrants	1,130		2,492
Dilutive potential shares	12,155		12,404
Weighted average shares - diluted	116,617		114,962

Net income per share - basic	$	3.61	$	2.64
Net income per share - diluted	$	3.24	$	2.35

Shares which have been excluded from diluted per share amounts because their effect would have been antidilutive include the following:



	Three Months Ended June 30,
(Shares in thousands)	2016	2015
Stock options	7,904	3,366
Restricted stock	20	—
Convertible senior notes	96	1,539



	Six Months Ended June 30,
(Shares in thousands)	2016	2015
Stock options	7,830	3,370
Restricted stock	19	—
Convertible senior notes	—	1,733

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

5. Marketable Securities

Marketable securities as of June 30, 2016 and December 31, 2015 consist of both debt securities of investment grade issuers as well as equity securities. The Company also held restricted marketable securities as of June 30, 2016, consisting of the Company's investment in shares of Intellia common stock (see Note 3), which are subject to customary transfer restrictions until November 2016 under a lock-up agreement with the underwriters of Intellia's IPO.

The following tables summarize the Company's investments in marketable securities:



	Amortized		Unrealized					Fair
As of June 30, 2016	Cost Basis		Gains		Losses			Value
Unrestricted
Corporate bonds	$	801,408	$	3,251	$	(356	)	$	804,303
U.S. government and government agency obligations	62,864		269		(1		)	63,132
Municipal bonds	12,693		41		(1		)	12,733
Commercial paper	29,635		—		—			29,635
Certificates of deposit	8,014		—		—			8,014
Equity securities	17,005		9,891		(9,283		)	17,613
	931,619		13,452		(9,641		)	935,430
Restricted
Equity Securities	50,000		3,078		—			53,078
	$	981,619	$	16,530	$	(9,641	)	$	988,508

As of December 31, 2015
Unrestricted
Corporate bonds	$	770,092	$	156	$	(2,565	)	$	767,683
U.S. government and government agency obligations	51,402		—		(193		)	51,209
Municipal bonds	17,930		5		(11		)	17,924
Equity securities	17,005		14,462		—			31,467
	$	856,429	$	14,623	$	(2,769	)	$	868,283

The Company classifies its debt security investments based on their contractual maturity dates. The debt securities listed as of June 30, 2016 mature at various dates through June 2021. The fair values of debt security investments by contractual maturity consist of the following:



	June 30, 2016		December 31, 2015
Maturities within one year	$	345,578	$	236,121
Maturities after one year through five years	572,239		600,695
	$	917,817	$	836,816

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

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



	Less than 12 Months					12 Months or Greater					Total
As of June 30, 2016	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Corporate bonds	$	84,268	$	(157	)	$	104,096	$	(199	)	$	188,364	$	(356	)
U.S. government and government agency obligations	2,000		(1		)	—		—			2,000		(1		)
Municipal bonds	2,982		(1		)	—		—			2,982		(1		)
Equity securities	5,717		(9,283		)	—		—			5,717		(9,283		)
	$	94,967	$	(9,442	)	$	104,096	$	(199	)	$	199,063	$	(9,641	)

As of December 31, 2015
Corporate bonds	$	668,199	$	(2,473	)	$	23,749	$	(92	)	$	691,948	$	(2,565	)
U.S. government and government agency obligations	51,215		(193		)	—		—			51,215		(193		)
Municipal bonds	11,917		(11		)	—		—			11,917		(11		)
	$	731,331	$	(2,677	)	$	23,749	$	(92	)	$	755,080	$	(2,769	)

Realized gains and losses on sales of marketable securities were not material for the three and six months ended June 30, 2016 and 2015.

Changes in the Company's accumulated other comprehensive income (loss) for the three and six months ended June 30, 2016 and 2015 related to unrealized gains and losses on available-for-sale marketable securities. For the three and six months ended June 30, 2016 and 2015, amounts reclassified from accumulated other comprehensive income (loss) into investment income in the Company's Statements of Operations were related to realized gains and losses on sales of marketable securities.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

6. Fair Value Measurements

The Company's assets that are measured at fair value on a recurring basis consist of the following:



			Fair Value Measurements at Reporting Date Using
As of June 30, 2016	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Available-for-sale marketable securities:
Unrestricted
Corporate bonds	$	804,303	—		$	804,303
U.S. government and government agency obligations	63,132		—		63,132
Municipal bonds	12,733		—		12,733
Commercial paper	29,635		—		29,635
Certificates of deposit	8,014		—		8,014
Equity securities	17,613		$	17,613	—
	935,430		17,613		917,817
Restricted
Equity securities	53,078		—		53,078
	$	988,508	$	17,613	$	970,895

As of December 31, 2015
Available-for-sale marketable securities:
Unrestricted
Corporate bonds	$	767,683	—		$	767,683
U.S. government and government agency obligations	51,209		—		51,209
Municipal bonds	17,924		—		17,924
Equity securities	31,467		$	31,467	—
	$	868,283	$	31,467	$	836,816

Marketable securities included in Level 2 are valued using quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuations in which significant inputs used are observable. The Company considers market liquidity in determining the fair value for these securities. The Company did not record any charges for other-than-temporary impairment of its Level 2 marketable securities during the three and six months ended June 30, 2016 and 2015.

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, 2016 and 2015. During the six months ended June 30, 2015, transfers of marketable securities from Level 2 to Level 1 were $91.4 million in connection with the lapse of the transfer restrictions on the Company's investment in Adverum Biotechnologies, Inc. (previously Avalanche Biotechnologies, Inc.) common shares in January 2015. The Company's policy for recognition of transfers between levels of the fair value hierarchy is to recognize any transfer at the beginning of the fiscal quarter in which the determination to transfer was made. There were no other transfers of marketable securities between Levels 1, 2, or 3 classifications during the six months ended June 30, 2016 and 2015. The Company's investment in Intellia common stock was classified as a Level 2 marketable security as of June 30, 2016 (see Note 5).

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

As of June 30, 2016 and December 31, 2015, the Company had $0.2 million and $11.2 million, respectively, in aggregate principal amount of 1.875% convertible senior notes (the "Notes") outstanding that will mature on October 1, 2016 unless earlier converted or repurchased (see Note 9). The fair value of the outstanding Notes was estimated to be $1.1 million and $72.8 million as of June 30, 2016 and December 31, 2015, respectively, and was determined based on Level 2 inputs, such as market and observable sources.

7. Inventories

Inventories consist of the following:



	June 30,		December 31,
	2016		2015
Raw materials	$	73,971	$	59,151
Work-in-process	165,869		132,068
Finished goods	14,421		11,197
Deferred costs	61,812		36,162
	$	316,073	$	238,578

Deferred costs represent the costs of product manufactured and shipped to the Company's collaborators for which recognition of revenue has been deferred. For the three months ended June 30, 2016 and 2015, cost of goods sold included inventory write-downs and reserves totaling $2.0 million and $6.4 million, respectively. For the six months ended June 30, 2016 and 2015, cost of goods sold included inventory write-downs and reserves totaling $6.3 million and $8.1 million, respectively.

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:



	June 30,		December 31,
	2016		2015
Accounts payable	$	101,721	$	140,962
Accrued payroll and related costs	114,603		133,223
Accrued clinical trial expense	88,639		88,297
Accrued sales-related charges, deductions, and royalties	177,377		195,986
Income taxes payable	170,269		—
Other accrued expenses and liabilities	107,034		85,644
	$	759,643	$	644,112

9. Debt

a. Convertible Debt

In the first half of 2016, the Company settled conversion obligations for $12.7 million principal amount of the Company's Notes that was previously surrendered for conversion. Consequently, in the first half of 2016, the Company paid $12.7 million in cash and issued 118,822 shares of Common Stock. In addition, the Company allocated $47.1 million of the settlement consideration provided to the Note holders to the reacquisition of the equity component of the Notes, and recognized such amount as a reduction of stockholder's equity. The loss on the debt extinguishment in connection with the Notes that were surrendered for conversion during the first half of 2016 was not material. As a result of these Note conversions, in the first half of 2016, the Company also exercised a proportionate amount of its convertible note hedges, for which the Company received 118,808 shares of Common Stock, which was approximately equal to the number of shares the Company was required to issue to settle the non-cash portion

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

of the related Note conversions. The Company recorded the cost of the shares received, or $10.0 million, as Treasury Stock during the first half of 2016.

As of June 30, 2016, an aggregate principal amount of $0.2 million of Notes remained outstanding.

In the first half of 2015, the Company settled conversion obligations for $144.0 million principal amount of the Company's Notes. Upon settlement of the Notes, the Company paid $144.0 million in cash and issued 1,399,069 shares of Common Stock. In addition, in the first half of 2015, the Company allocated $694.7 million of the settlement consideration provided to the Note holders to the reacquisition of the equity component of the Notes, and recognized such amount as a reduction of stockholder's equity, and recognized a $16.9 million loss on the debt extinguishment. In connection with the Note conversions in the first half of 2015, the Company also exercised a proportionate amount of its convertible note hedges, for which the Company received 1,399,056 shares of Common Stock, which was approximately equal to the number of shares the Company was required to issue to settle the non-cash portion of the related Note conversions. The Company recorded the cost of the shares received, or $117.5 million, as Treasury Stock during the first half of 2015.

Warrant Transactions

In November 2015, the Company entered into an amendment agreement with a warrant holder whereby the parties agreed to reduce a portion of the number of warrants held by the warrant holder. The reduction in the number of warrants was determined based on the number of warrants with respect to which the warrant holder closed out its hedge position, provided that the warrant holder did not effect any purchases at a price per share exceeding $535.00 per share, during the period starting on November 16, 2015 and ending no later than February 9, 2016. The Company was able to settle, at its option, any payments due under the amendment agreement in cash or by delivering shares of Common Stock. As a result of the warrant holder closing out a portion of its hedge position in the first half of 2016, the Company paid a total of $135.2 million to reduce the number of warrants held by such warrant holder by 360,406 (which was the remaining maximum number of warrants to be reduced subject to the amendment agreement).

In February 2016, the Company entered into an amendment agreement with a warrant holder whereby the parties agreed to reduce a portion of the number of warrants held by the warrant holder by up to a maximum of 975,142. The reduction in the number of warrants was determined based on the number of warrants with respect to which the warrant holder closed out its hedge position, provided that the warrant holder did not effect any purchases at a price per share exceeding $375.00 per share, during the period starting on February 22, 2016 and ending no later than May 5, 2016. The Company was able to settle, at its option, any payments due under the amendment agreement in cash or by delivering shares of Common Stock. As a result of the warrant holder closing out a portion of its hedge position during the first half of 2016, the Company paid a total of $106.9 million to reduce the number of warrants held by such warrant holder by 403,665.

As of June 30, 2016, an aggregate of 1,345,027 warrants (subject to adjustment from time to time as provided in the applicable warrant agreements) remained outstanding.

In November 2014, the Company entered into an amendment agreement with a warrant holder whereby the parties agreed to reduce a portion of the number of warrants held by the warrant holder. The reduction in the number of warrants was determined based on the number of warrants with respect to which the warrant holder had closed out its hedge position, provided that the warrant holder did not effect any purchases at a price per share exceeding $397.75 per share, during the period starting on November 26, 2014 and ending no later than February 12, 2015. The Company was obligated to settle any payments due under the amendment agreement in February 2015. Given that the amendment agreement contained a conditional obligation that required settlement in cash, and the Company's obligation was indexed to the Company's share price, the Company reclassified the estimated fair value of the warrants subject to the agreement from additional paid-in capital to a liability in November 2014, with such liability subsequently measured at fair value with changes in fair value recognized in earnings. In February 2015, the Company paid a total of $124.0 million to reduce the number of warrants held by such warrant holder by 416,480. Upon expiration of the November 2014 amended agreement, in the first quarter of 2015 the remaining warrants were re-measured at fair value, and $23.3 million was reclassified back to additional paid-in capital, consistent with the original classification of the warrants under the 2011 issuance. Total losses related to changes in fair value of the warrants during the first quarter of 2015 were not material.

b. Credit Facility

In March 2015, the Company entered into an agreement with a syndicate of lenders which provides for a $750.0 million senior unsecured five-year revolving credit facility. As of June 30, 2016, the Company had no borrowings outstanding under the credit facility and was in compliance with all credit facility covenants.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

10. Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. The Company recorded an income tax provision in its Statement of Operations of $96.0 million and $133.4 million for the three months ended June 30, 2016 and 2015, respectively, and $244.8 million and $333.9 million for the six months ended June 30, 2016 and 2015, respectively. The Company's effective tax rate was 32.9% and 40.7% for the three months ended June 30, 2016 and 2015, respectively, and 39.3% and 55.2% for the six months ended June 30, 2016 and 2015, respectively. The Company's effective tax rate for the three and six months ended June 30, 2016 was positively impacted, compared to the U.S. federal statutory rate, by the tax benefit associated with stock-based compensation (see Note 13), the domestic manufacturing deduction, and the federal tax credit for increased research activities, offset by the negative impact of losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate and the non-tax deductible Branded Prescription Drug Fee.

The Company's effective tax rate for the three and six months ended June 30, 2015 was negatively impacted, compared to the U.S. federal statutory rate, by losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate, the non-deductible Branded Prescription Drug Fee, and expiration, at the end of 2014, of the federal tax credit for increased research activities.

The Company also recorded an income tax expense in its Statement of Comprehensive Income of $0.4 million and an income tax benefit of $1.6 million for the three and six months ended June 30, 2016, respectively, in connection with unrealized gains (losses) on available-for-sale marketable securities. The Company recorded an income tax benefit in its Statement of Comprehensive Income of $16.3 million and $18.9 million for the three and six months ended June 30, 2015, respectively, in connection with unrealized losses on available-for-sale marketable securities.

11. Statement of Cash Flows

Supplemental disclosure of non-cash investing and financing activities

Included in accounts payable and accrued expenses as of June 30, 2016 and December 31, 2015 were $39.3 million and $50.7 million, respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses as of June 30, 2015 and December 31, 2014 were $67.9 million and $56.2 million, respectively, of accrued capital expenditures.

Included in accounts payable and accrued expenses as of December 31, 2014 was $7.5 million for the Company's conversion settlement obligation related to the Company's Notes which were surrendered for conversion but not settled as of December 31, 2014. There was no such liability as of June 30, 2016 and the amount of such liability was not material as of December 31, 2015 and June 30, 2015.

Included in accounts payable and accrued expenses as of December 31, 2014 was $59.8 million related to the Company's payment obligation for a reduction in the number of warrants based on a warrant holder closing out a portion of its hedge position. Additionally, included within other current liabilities as of December 31, 2014 was $87.5 million in connection with the estimated fair value of the remaining warrant liability. There were no such liabilities recorded in connection with warrants as of June 30, 2016, December 31, 2015, and June 30, 2015.

The Company recognized an additional facility lease obligation of $20.1 million during the six months ended June 30, 2015, in connection with capitalizing, on the Company's books, the landlord's costs of constructing new facilities that the Company has leased. No such amount was recognized during the six months ended June 30, 2016.

12. Legal Matters

From time to time, the Company is a party to legal proceedings in the course of the Company's business. Costs associated with the Company's involvement in legal proceedings are expensed as incurred.

Proceedings Relating to '287 Patent, '163 Patent, and '018 Patent

The Company is a party to patent infringement litigation initiated by the Company involving its European Patent No. 1,360,287 (the "'287 Patent"), its European Patent No. 2,264,163 (the "'163 Patent"), and its U.S. Patent No. 8,502,018 (the "'018 Patent"). Each of these patents concerns genetically altered mice capable of producing chimeric antibodies that are part human and part mouse. Chimeric antibody sequences can be used to produce high-affinity fully human monoclonal antibodies. In these proceedings, the Company claims infringement of several claims of the '287 Patent, the '163 Patent, and the '018 Patent (as applicable), and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

seeks, among other types of relief, an injunction and an account of profits in connection with the defendants' infringing acts, which may include, among other things, the making, use, keeping, sale, or offer for sale of genetically engineered mice (or certain cells from which they are derived) that infringe one or more claims of the '287 Patent, the '163 Patent, and the '018 Patent (as applicable). At this time, the Company is not able to predict the outcome of, or an estimate of gain or a range of possible loss, if any, related to, these proceedings.

Proceedings Relating to Praluent (alirocumab) Injection

On October 17, 2014 and October 28, 2014, Amgen Inc. filed complaints against Regeneron, Sanofi, Aventisub LLC (subsequently removed and replaced with Sanofi-Aventis U.S. LLC), and Aventis Pharmaceuticals, Inc. in the United States District Court for the District of Delaware seeking an injunction to prohibit Regeneron and the other defendants from manufacturing, using, offering to sell, or selling within the United States (as well as importing into the United States) Praluent, which Regeneron is jointly developing with Sanofi. On November 11, 2014 and November 17, 2014 Amgen filed complaints against Regeneron, Sanofi, Sanofi-Aventis U.S. LLC, and Aventis Pharmaceuticals, Inc. in the same court seeking the same relief. Amgen asserts U.S. Patent Nos. 8,563,698, 8,829,165 (the "'165 Patent"), and 8,859,741 (the "'741 Patent") in the first complaint, U.S. Patent Nos. 8,871,913 and 8,871,914 (the "'914 Patent") in the second complaint, U.S. Patent No. 8,883,983 in the third complaint, and U.S. Patent No. 8,889,834 in the fourth complaint. Amgen also seeks a judgment of patent infringement of the asserted patents, monetary damages (together with interest), costs and expenses of the lawsuits, and attorneys' fees. On December 15, 2014, all of the four proceedings were consolidated into a single case. On September 15, 2015, Amgen filed a motion for leave to file a supplemental and second amended complaint, which was granted on January 29, 2016. As amended, the complaint alleges, among other things, willful infringement of the asserted patents, which would allow the court to increase damages up to three times the amount assessed if the court finds willful infringement. On October 20, 2015, the District Court issued its claim construction order, in which it defined the meaning of certain disputed claim terms; none of the court's rulings were dispositive of the issues in the case. On November 3, 2015, pursuant to court order, the patents asserted by Amgen were narrowed to the '165, '741, and '914 Patents. On March 4, 2016, Amgen further narrowed the asserted patents to the '165 and '741 Patents.

A jury trial in this litigation was held from March 8 to March 16, 2016. During the course of the trial, the court ruled as a matter of law in favor of Amgen that the asserted patent claims were not obvious, and in favor of Regeneron and Sanofi that there was no willful infringement of the asserted patent claims by Regeneron or Sanofi. On March 16, 2016, the jury returned a verdict in favor of Amgen, finding that the asserted claims of the '165 and '741 Patents were not invalid based on either a lack of written description or a lack of enablement. On March 23 and March 24, 2016, the court held a permanent injunction hearing to determine whether Regeneron and Sanofi should be prohibited from commercializing Praluent. The parties to this litigation submitted post-trial briefs in the second quarter of 2016 and are awaiting the court's final opinion and judgment, including a decision on the permanent injunction. The Company and Sanofi plan to appeal any judgment or order that is adverse to the Company and Sanofi.

On July 25, 2016, Amgen filed a lawsuit against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi-Synthelabo Limited, Aventis Pharma Limited, Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the English High Court of Justice, Chancery Division, Patents Court, in London, seeking a declaration of infringement of Amgen's European Patent No. 2,215,124 (the "'124 Patent"), which pertains to PCSK9 monoclonal antibodies, by Praluent. The lawsuit also seeks an injunction, damages, an accounting of profits, and costs and interest. Regeneron has not yet been served with the documents relating to the lawsuit.

Also on July 25, 2016, Amgen filed a lawsuit for infringement of the '124 Patent against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the Regional Court of Düsseldorf, Germany, seeking an injunction, an accounting of marketing activities, a recall of Praluent and its removal from the distribution channels, and damages. Regeneron has not yet been served with the documents relating to the lawsuit.

At this time, the Company is not able to estimate a range of possible loss, if any, related to these proceedings.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Proceedings Relating to Patents Owned by Genentech and City of Hope

On July 27, 2015, the Company and Sanofi-Aventis U.S. LLC filed a complaint in the United States District Court for the Central District of California (Western Division) seeking a declaratory judgment of invalidity, as well as non-infringement by the manufacture, use, sale, offer of sale, or importation of Praluent (alirocumab), of U.S. Patent No. 7,923,221 (the "'221 Patent") jointly owned by Genentech, Inc. ("Genentech") and City of Hope relating to the production of recombinant antibodies by host cells. On the same day, the Company and Sanofi-Aventis U.S. LLC initiated an inter partes review in the United States Patent and Trademark Office ("USPTO") seeking a declaration of invalidity of certain claims of U.S. Patent No. 6,331,415 (the "'415 Patent") jointly owned by Genentech and City of Hope relating to the production of recombinant antibodies by host cells. On February 5, 2016, the USPTO instituted an inter partes review of the validity of most of the patent claims of the '415 Patent for which review had been requested. On September 17, 2015, Genentech and City of Hope answered the complaint previously filed by the Company and Sanofi concerning the '221 Patent in the District Court and counterclaimed, alleging that the Company and Sanofi infringe the '221 Patent and seeking, among other types of relief, damages and a permanent injunction. On November 2, 2015, the court set a tentative trial date beginning on September 27, 2016 (subsequently vacated as noted below). On July 18, 2016, the court vacated the trial commencement date of September 27 in light of other pending motions.

At this time, the Company is not able to predict the outcome of, or an estimate of gain or range of possible loss, if any, related to these proceedings.

Proceedings Relating to Shareholder Derivative Claims

On December 30, 2015, an alleged shareholder filed a shareholder derivative complaint in the New York Supreme Court, naming the current and certain former non-employee members of the Company's board of directors, the Chairman of the board of directors, the Company's Chief Executive Officer, and the Company's Chief Scientific Officer as defendants and Regeneron as a nominal defendant. The complaint asserts that the individual defendants breached their fiduciary duties and were unjustly enriched when they approved and/or received allegedly excessive compensation in 2013 and 2014. The complaint seeks damages in favor of the Company for the alleged breaches of fiduciary duties and unjust enrichment; changes to Regeneron's corporate governance and internal procedures; invalidation of the 2014 Incentive Plan with respect to the individual defendants' compensation and a shareholder vote regarding the individual defendants' equity compensation; equitable relief, including an equitable accounting with disgorgement; and award of the costs of the action, including attorneys' fees. On March 2, 2016, the defendants filed a motion to dismiss the shareholder derivative complaint. The court has scheduled oral argument on defendants' motion to dismiss for August 16, 2016.

On or about December 15, 2015, the Company received a shareholder litigation demand upon the Company's board of directors made by a purported Regeneron shareholder. The demand asserts that the current and certain former non-employee members of the board of directors and the Chairman of the board of directors excessively compensated themselves in 2013 and 2014. The demand requests that the board of directors investigate and bring legal action against these directors for breach of fiduciary duty, unjust enrichment, and corporate waste, and implement internal controls and systems designed to prohibit and prevent similar actions in the future. The Company's board of directors, working with outside counsel, investigated the allegations in the demand and the shareholder derivative complaint, and has determined to defer its decision on the demand until the court rules on the pending motion to dismiss the shareholder derivative complaint, as discussed above.

At this time, the Company is not able to estimate a range of possible loss, if any, relating to these matters.

13. Recently Issued Accounting Standards

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-09 ("ASU 2016-09"), Compensation - Stock Compensation, Improvements to Employee Share-Based Payment Accounting, which the Company elected to early adopt during the second quarter of 2016. ASU 2016-09 requires an entity to recognize all excess tax benefits and tax deficiencies in connection with stock-based compensation as income tax expense or benefit in the income statement (previously, excess tax benefits were recognized in additional paid-in capital). This aspect of ASU 2016-09 was adopted prospectively, and accordingly, the Company recorded excess tax benefits of $39.8 million and $55.4 million, respectively, within income tax expense for the three and six months ended June 30, 2016, respectively. Included within income tax expense for the six months ended June 30, 2016 is $15.6 million of excess tax benefits, which was previously recorded to additional paid-in capital during the first quarter of 2016. The amendments also require recognition of excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Furthermore, the amendments require that excess tax benefits be classified as an

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

operating activity in the statement of cash flows (such amounts were previously included as a financing activity in the statement of cash flows); the Company also adopted this provision of ASU 2016-09 prospectively.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases. The new standard requires a lessee to recognize in its balance sheet (for both finance and operating leases) a liability to make lease payments ("lease liability") and a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is evaluating the impact that this guidance will have on the Company's financial statements.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The implementation of the amendments is expected to increase the volatility of an entity's net income; however, the Company is not currently able to estimate the impact of adopting these amendments, as the significance of the impact will depend on the Company's equity investment balance upon adoption.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers, which will replace existing revenue recognition guidance. The new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. To achieve that core principle, an entity must identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation. In July 2015, the FASB decided to delay the effective date of the new standard by one year; as a result, the new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption will be permitted, but no earlier than 2017 for calendar year-end entities. The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has not yet determined its method of transition and is evaluating the impact that this guidance will have on the Company's financial statements.

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

The discussion below contains forward-looking statements that involve risks and uncertainties relating to future events and the future performance of Regeneron Pharmaceuticals, Inc. ("Regeneron," "Company," "we," "us," and "our"), and actual events or results may differ materially from these forward-looking statements. Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," variations of such words, and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of our products, product candidates, and research and clinical programs now underway or planned, including without limitation EYLEA^® (aflibercept) Injection, Praluent^® (alirocumab) Injection, sarilumab, dupilumab, fasinumab, and REGN2222; the likelihood and timing of achieving any of our anticipated clinical development milestones; unforeseen safety issues resulting from the administration of products and product candidates in patients, including serious complications or side effects in connection with the use of our product candidates in clinical trials; the likelihood and timing of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for marketed products, including without limitation EYLEA, Praluent, sarilumab, dupilumab, fasinumab, and REGN2222; ongoing regulatory obligations and oversight impacting our marketed products (such as EYLEA and Praluent), research and clinical programs, and business, including those relating to patient privacy; determinations by regulatory and administrative governmental authorities which may delay or restrict our ability to continue to develop or commercialize our products and product candidates; competing drugs and product candidates that may be superior to our products and product candidates; uncertainty of market acceptance and commercial success of our products and product candidates; our ability to manufacture and manage supply chains for multiple products and product candidates; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unanticipated expenses; the costs of developing, producing, and selling products; our ability to meet any of our sales or other financial projections or guidance, including without limitation capital expenditures, and 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 (or their respective affiliated companies, as applicable), to be cancelled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto. These statements are made based on management's current beliefs and judgment, and the reader is cautioned not to rely on any such statements. In evaluating such statements, shareholders and potential investors should specifically consider the various factors identified under Part II, Item 1A. "Risk Factors," which could cause actual events and results to differ materially from those indicated by such forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events, or otherwise.

Overview

Regeneron Pharmaceuticals, Inc. is a fully integrated biopharmaceutical company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions. We commercialize medicines for eye diseases, high low-density lipoprotein (LDL) cholesterol, and a rare inflammatory condition and have product candidates in development in other areas of high unmet medical need, including rheumatoid arthritis (RA), asthma, atopic dermatitis, pain, cancer, and infectious diseases.

Our total revenues were $1,212.6 million in the second quarter and $2,413.5 million in the first half of 2016, compared to $998.6 million in the second quarter and $1,868.2 million in the first half of 2015. Our net income was $196.2 million, or $1.69 per diluted share, in the second quarter and $377.6 million, or $3.24 per diluted share, in the first half of 2016, compared to net income of $194.6 million, or $1.69 per diluted share, in the second quarter and $270.7 million, or $2.35 per diluted share, in the first half of 2015. Refer to the "Results of Operations" section below for further details of our financial results.

We currently have three marketed products:

•

EYLEA (aflibercept) Injection, known in the scientific literature as VEGF Trap-Eye, is available in the United States, European Union (EU), Japan, and other countries outside the United States for the treatment of neovascular age-related macular degeneration (wet AMD), diabetic macular edema (DME), macular edema following retinal vein occlusion (RVO), which includes macular edema following central retinal vein occlusion (CRVO) and macular edema following branch retinal vein occlusion (BRVO). EYLEA is also available in the EU, Japan, and certain other countries outside the United States for the treatment of myopic choroidal neovascularization (mCNV) and in the United States for the treatment of diabetic retinopathy in patients with DME. Bayer has additional regulatory applications for EYLEA for various indications pending in other countries. We are collaborating with Bayer on the global development and commercialization of EYLEA outside the United States.

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•

Praluent (alirocumab) Injection, which is available in the United States where it is indicated as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical atherosclerotic cardiovascular disease (ASCVD), who require additional lowering of LDL cholesterol. Praluent is also available in certain countries in Europe for the treatment of adult patients with primary hypercholesterolemia (heterozygous familial hypercholesterolemia (HeFH) and non-familial) or mixed dyslipidemia as an adjunct to diet: (a) in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated dose of a statin, or (b) alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated. In July 2016, the Japanese Ministry of Health, Labour and Welfare (MHLW) granted marketing and manufacturing authorization for Praluent for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk. The effect of Praluent on cardiovascular morbidity and mortality has not been determined. We are collaborating with Sanofi on the global development and commercialization of Praluent.


•	ARCALYST^® (rilonacept) Injection for Subcutaneous Use, which is available in the United States for the treatment of Cryopyrin-Associated Periodic Syndromes (CAPS), including Familial Cold Auto-inflammatory Syndrome (FCAS) and Muckle-Wells Syndrome (MWS), in adults and children 12 years and older.

We have 15 product candidates in clinical development, all of which were discovered in our research laboratories. These consist of a Trap-based clinical program and 14 fully human monoclonal antibody product candidates, as summarized below. Each of the antibodies in the table below was generated using our VelocImmune^® technology.



Trap-based Clinical Programs
EYLEA
In Phase 3 clinical development for the treatment of Neovascular Glaucoma (NVG) (in Japan) in collaboration with Bayer. Phase 3 study for the treatment of non-proliferative diabetic retinopathy (NPDR) in patients without DME initiated in the first quarter of 2016. As described below, aflibercept is also being studied in combination with (i) rinucumab, an antibody to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta), and (ii) nesvacumab, an antibody to angiopoietin-2 (Ang2).
Antibody-based Clinical Programs in Collaboration with Sanofi
Praluent
Antibody to PCSK9. In Phase 3 clinical development for LDL cholesterol reduction and for the prevention of cardiovascular events.
Sarilumab (REGN88)
Antibody to the interleukin-6 receptor (IL-6R). In clinical development in rheumatoid arthritis (Phase 3) and non-infectious uveitis (Phase 2).
Dupilumab (REGN668)
Antibody to the interleukin-4 receptor (IL-4R) alpha subunit. In clinical development in atopic dermatitis in adults (Phase 3), atopic dermatitis in pediatric patients (Phase 2), asthma (Phase 3), and eosinophilic esophagitis (EoE) (Phase 2). Plan to conduct Phase 3 studies in patients with nasal polyps.
REGN2810
Antibody to programmed cell death protein 1 (PD-1). In Phase 1 clinical development in solid tumors and advanced hematologic malignancies. Potentially pivotal Phase 2 study for the treatment of advanced cutaneous squamous cell carcinoma initiated in the second quarter of 2016. REGN 2810 is also being studied in combination with REGN1979 in B-cell malignancies.
Antibody-based Clinical Program in Collaboration with Bayer
Rinucumab/aflibercept (REGN2176-3)^**
Combination product comprised of an antibody to PDGFR-beta co-formulated with aflibercept for intravitreal injection for use in ophthalmology. In Phase 2 clinical development for the treatment of wet AMD. Fast Track designation received from the U.S. Food and Drug Administration (FDA) for the treatment of patients with wet AMD.
Nesvacumab/aflibercept (REGN910-3)^**
Combination product comprised of an antibody to Ang2 co-formulated with aflibercept for intravitreal injection for use in ophthalmology. Phase 2 studies for the treatment of wet AMD and DME initiated in the first quarter of 2016.
Antibody-based Clinical Program in Collaboration with Mitsubishi Tanabe Pharma
Fasinumab (REGN475)^*
Antibody to Nerve Growth Factor (NGF). In Phase 2/3 clinical development (16-week study) for pain due to osteoarthritis and chronic low back pain. Phase 3 long-term safety and efficacy study in patients with osteoarthritis of knee and hip initiated in the first quarter of 2016. Phase 2b/3 study for chronic low back pain initiated in the first quarter of 2016.

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Antibody-based Clinical Programs Developing Independently
REGN2222^*
Antibody to the Respiratory Syncytial Virus-F (RSV-F) protein. In Phase 3 clinical development for prevention of RSV infection.
Evinacumab (REGN1500)^*
Antibody to Angptl-3. In Phase 1/2 clinical development for the treatment of homozygous familial hypercholesterolemia (HoFH) and severe forms of hyperlipidemia.
Trevogrumab (REGN1033)^*
Antibody to myostatin (GDF8). Phase 2 monotherapy clinical development in skeletal muscle disorders completed. Combination therapy plans are in development.
REGN1908-1909^*
Antibody to Feld1. In Phase 1 clinical development against allergic disease.
REGN1979
Bispecific antibody against CD20 and CD3. In Phase 1 clinical development for Non-Hodgkin's Lymphoma, Chronic Lymphocytic Leukemia, and Acute Lymphoblastic Leukemia. REGN1979 is also being studied in combination with REGN2810 in B-cell malignancies.
REGN3470-3471-3479
Antibody to Ebola virus. Phase 1 study in healthy volunteers initiated in the second quarter of 2016. Also in the second quarter of 2016, the FDA granted orphan-drug designation for the treatment of Ebola virus infection.
REGN2477
Antibody to Activin A being developed for Fibrodysplasia Ossificans Progressiva (FOP). Phase 1 study in healthy volunteers initiated in the second quarter of 2016.



^* Sanofi did not opt-in to or elected not to continue to co-develop the product candidate. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future sales of the product candidate.
^** Antibodies targeting the PDGF family of receptors and ligands in ophthalmology and all other indications, and antibodies targeting the Ang2 receptor and ligand in ophthalmology were previously included in our antibody collaboration with Sanofi. Under the terms of our agreements, Sanofi is entitled to receive potential development milestones and royalties on any future sales of the product candidates.

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

We believe that our ability to develop product candidates is enhanced by the application of our VelociSuite^® technology platforms. Our discovery platforms are designed to identify specific proteins of therapeutic interest for a particular disease or cell type and validate these targets through high-throughput production of genetically modified mice using our VelociGene^® technology to understand the role of these proteins in normal physiology, as well as in models of disease. Our human monoclonal antibody technology (VelocImmune) and cell line expression technologies (VelociMab^®) may then be utilized to discover and produce new product candidates directed against the disease target. Our antibody product candidates currently in clinical trials were developed using VelocImmune. We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, manufacture, and commercialize new product candidates.

Marketed Products

EYLEA (aflibercept) Injection

We commenced sales of EYLEA in the United States for the treatment of wet AMD in 2011, macular edema following CRVO in 2012, and DME and macular edema following RVO in 2014. In addition, in the first quarter of 2015, the FDA approved EYLEA for the treatment of diabetic retinopathy in patients with DME. Outside the United States, Bayer commenced sales of EYLEA for the treatment of wet AMD in 2012, macular edema secondary to CRVO in 2013, visual impairment due to DME and mCNV (in Japan) in 2014. In 2015, the European Commission and the Japanese Ministry of Health, Labour and Welfare (MHLW) approved EYLEA for the treatment of macular edema following RVO, which includes macular edema following BRVO. In addition, the European Commission approved EYLEA for the treatment of visual impairment due to mCNV in 2015. Bayer has additional regulatory applications for EYLEA for various indications pending in other countries, including EYLEA for the treatment of wet AMD in China.

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We are collaborating with Bayer on the global development and commercialization of EYLEA outside the United States. Bayer markets, and records revenue from sales of EYLEA outside the United States, where, for countries other than Japan, the companies share equally the profits and losses from sales of EYLEA. In Japan, we are entitled to receive a percentage of the sales of EYLEA. We maintain exclusive rights to EYLEA in the United States and are entitled to all profits from such sales.

Net product sales of EYLEA in the United States were $830.9 million in the second quarter and $1,611.8 million in the first half of 2016, compared to $654.6 million in the second quarter and $1,195.7 million in the first half of 2015. Bayer records revenue from sales of EYLEA outside the United States, which were $486.2 million in the second quarter and $905.1 million in the first half of 2016, compared to $337.8 million in the second quarter and $629.6 million in the first half of 2015.

Praluent (alirocumab) Injection

In July 2015, the FDA approved Praluent as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical ASCVD, who require additional lowering of LDL cholesterol. In September 2015, the European Commission granted marketing authorization of Praluent for the treatment of adult patients with primary hypercholesterolemia (HeFH and non-familial) or mixed dyslipidemia as an adjunct to diet: (a) in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated dose of a statin, or (b) alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated. The effect of Praluent on cardiovascular morbidity and mortality has not been determined. We are collaborating with Sanofi on the global development and commercialization of Praluent. In July 2016, the Japanese Ministry of Health, Labour and Welfare (MHLW) granted marketing and manufacturing authorization for Praluent for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk.

ARCALYST (rilonacept) Injection for Subcutaneous Use

ARCALYST is available in the United States for the treatment of CAPS in adults and children 12 years and older. CAPS are a group of rare, inherited, auto-inflammatory conditions characterized by life-long, recurrent symptoms of rash, fever/chills, joint pain, eye redness/pain, and fatigue. Intermittent, disruptive exacerbations or flares can be triggered at any time by exposure to cooling temperatures, stress, exercise, or other unknown stimuli.

Net product sales of ARCALYST were $3.3 million in the second quarter and $6.6 million in the first half of 2016, compared to $3.2 million in the second quarter and $6.7 million in the first half of 2015.

Trap-based Clinical Programs

EYLEA - Ophthalmologic Diseases

Overview

Vascular Endothelial Growth Factor (VEGF) is a naturally occurring protein in the body. Its normal role in a healthy organism is to trigger formation of new blood vessels (angiogenesis) supporting the growth of the body's tissues and organs. However, in certain diseases, such as wet AMD, it is also associated with the growth of abnormal new blood vessels in the eye, which exhibit abnormal increased permeability that leads to edema. Scarring and loss of fine-resolution central vision often results. CRVO is caused by obstruction of the central retinal vein that leads to a back-up of blood and fluid in the retina. Release of VEGF contributes to increased vascular permeability in the eye and macular edema. In BRVO, a blockage occurs in the blood vessels branching from the main vein draining the retina, resulting in the release of VEGF and consequent retinal edema. For centrally involved DME, VEGF-mediated leakage of fluid from blood vessels in the eye results in interference with vision. Wet AMD, diabetic retinopathy (which includes DME), and RVO are three of the leading causes of adult blindness in the developed world. In these conditions, severe visual loss is caused by neovascular proliferation and/or retinal edema.

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

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Neovascular Glaucoma

NVG is a secondary glaucoma triggered by the formation of new blood vessels (neovascularization) on the iris and the anterior chamber angle. Neovascularization restricts aqueous outflow and consequently elevates intraocular pressure (IOP). NVG is a serious condition that may lead to permanent loss of vision, a persistently painful eye, and, especially in the advanced stages, is unlikely to respond to treatment. NVG is caused by eye diseases leading to retinal ischemia, mainly CRVO, proliferative diabetic retinopathy (PDR), and ocular ischemic syndrome (OIS).

NVG meets the criteria for an orphan indication in Japan where the estimated number of NVG patients is 30,000 to 40,000. In the second quarter of 2015, Bayer initiated a Phase 3 study in Japan to assess the efficacy and safety of intravitreal administration of aflibercept in comparison to sham treatment on the change in IOP in patients with NVG. The primary endpoint of this Phase 3 study (n=54), which was the change in IOP from baseline to week 1, was numerically in favor of EYLEA (p=0.06). Statistically significant improvements were observed in both neovascularization of the iris and neovascularization of the iridocorneal angle with EYLEA, compared to sham treatment. Most ocular treatment emergent adverse events were injection related, including conjunctival hemorrhage and injection site pain in the EYLEA group. Bayer expects to proceed with an Orphan Drug application with Japanese regulatory authorities.

Diabetic Retinopathy

Diabetic retinopathy is a complication of diabetes mellitus characterized by microvascular damage to the blood vessels in the retina. It can progress to proliferative diabetic retinopathy (PDR), where new, abnormal vessels that are susceptible to hemorrhage grow initially from the retina and/or optic disc and extend beyond the internal limiting membrane. PDR can subsequently lead to various vision-threatening complications such as vitreous hemorrhage, traction macular detachment, and neovascular glaucoma. There is currently no standard treatment for non-proliferative diabetic retinopathy (NPDR) in the absence of DME and patients are often observed until disease progresses sufficiently to warrant intraocular surgery (vitrectomy) or, more commonly, extensive laser treatment (panretinal photocoagulation (PRP)). PRP is utilized with the intent of preserving function of the central retina, but is inherently destructive to the peripheral retina and may result in a considerable loss of peripheral visual field.

In the first quarter of 2016, a Phase 3 trial (PANORAMA) was initiated to assess the efficacy and safety of intravitreal aflibercept in patients with moderately severe to severe NPDR without DME.

Late-Stage Antibody-based Clinical Programs

Praluent for LDL cholesterol reduction

Overview

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

Clinical Programs

Phase 3 ODYSSEY Program. The global Phase 3 ODYSSEY program consists of more than 25,000 patients, and includes clinical trials evaluating the effect of Praluent on lowering LDL cholesterol. The potential of Praluent to demonstrate cardiovascular benefit is being prospectively assessed in the ongoing 18,000-patient ODYSSEY OUTCOMES trial, which is fully enrolled and is expected to be completed in 2017. LDL cholesterol reduction is the primary efficacy endpoint for initial regulatory filings. The ODYSSEY program also includes two trials of Praluent dosed every four weeks, ODYSSEY CHOICE I and ODYSSEY CHOICE II. Patients in the ODYSSEY CHOICE I trial received Praluent 300 milligrams (mg) (most in combination with statins) every four weeks and patients in the CHOICE II trial received Praluent 150 mg monotherapy and in combination with non-statin lipid lowering therapy every four weeks.

In the first quarter of 2016, we and Sanofi announced positive results from the Phase 3 ODYSSEY ESCAPE trial evaluating Praluent in patients with HeFH, whose cholesterol levels required chronic, weekly or bi-weekly apheresis therapy. The trial met its primary endpoint, demonstrating that patients who added Praluent to their existing treatment regimen significantly reduced the frequency of their apheresis therapy by 75%, compared to placebo (p<0.0001). Sixty-three percent of patients treated with Praluent

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no longer required apheresis, compared to zero percent of placebo patients. Apheresis is a procedure where bad (LDL) cholesterol is removed from the blood, in a process similar to kidney dialysis. The most common adverse events (AEs) in the trial were fatigue (15% Praluent; 10% placebo), nasopharyngitis (10% Praluent; 10% placebo), diarrhea (10% Praluent; 0% placebo), myalgia (10% Praluent; 5% placebo), upper respiratory infection (7% Praluent; 19% placebo), headache (7% Praluent; 5% placebo), arthralgia (7% Praluent; 10% placebo), and back pain (5% Praluent; 10% placebo). Detailed data will be presented at future medical conferences.

In the first quarter of 2016, the Data Monitoring Committee (DMC) of the ODYSSEY OUTCOMES study completed the first interim analysis. In accordance with the protocol, the DMC performed a futility assessment. The DMC recommended the study continue with no changes. Regeneron remains blinded to the actual results of this analysis.

In the second quarter of 2016, the FDA accepted for review a supplemental BLA for a monthly dosing regimen of Praluent, with a target action date of January 24, 2017. In addition, a regulatory application for a monthly dosing regimen of Praluent was recently submitted in the EU.

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

Overview

IL-6 is a key cytokine involved in the pathogenesis of RA, causing inflammation and joint destruction. Sarilumab is a fully human monoclonal antibody to IL-6R generated using our VelocImmune technology.

Rheumatoid Arthritis

Phase 3 Studies. We and Sanofi previously announced (and presented data) that in the 52 week SARIL-RA-MOBILITY Phase 3 clinical trial in adult patients with active RA who were inadequate responders to methotrexate (MTX) therapy, sarilumab treatment in combination with MTX improved disease signs and symptoms as well as physical function, and inhibited progression of joint damage. In addition, during 2015, we and Sanofi announced (and presented data) that in the 24 week SARIL-RA-TARGET Phase 3 clinical trial in adult patients with active RA who were inadequate responders or intolerant of TNF-alpha inhibitors, sarilumab treatment in combination with non-biologic disease modifying anti-rheumatic drugs (DMARD) therapy improved disease signs and symptoms, as well as physical function.

Two other Phase 3 studies, SARIL-RA-ASCERTAIN and SARIL-RA-EASY, also achieved their respective primary endpoints. SARIL-RA-ASCERTAIN was a patient safety calibrator study, designed to assess the safety of two subcutaneous doses of sarilumab and tocilizumab infusion in combination with DMARDs in patients with moderate-to-severe RA who were inadequate responders to or intolerant of TNF-alpha inhibitors. There were no clinically meaningful differences between the treatment groups in serious AEs and serious infections. SARIL-RA-EASY was designed to evaluate the technical performance and usability of the sarilumab autoinjector device. There were no product technical failures with the autoinjector, the primary endpoint of the study.

In March 2016, we and Sanofi announced positive top-line data from the Phase 3 SARIL-RA-MONARCH study that demonstrated superiority of sarilumab vs. adalimumab (marketed by AbbVie Inc. as HUMIRA^®) in improving signs and symptoms of RA at 24 weeks in patients with active rheumatoid arthritis. The primary endpoint was change from baseline in DAS28-ESR at 24 weeks, which demonstrated a statistically significant difference in favor of sarilumab (-3.25 for sarilumab compared to -2.22 for adalimumab, p<0.0001). The study also met clinically important secondary endpoints including improvements in signs and symptoms of RA as measured by patients achieving a 20% improvement in the American College of Rheumatology (ACR) criteria (72% for sarilumab vs. 58% for adalimumab, p<0.01). Additional positive secondary endpoints included ACR50 and ACR70 response, and improvement in physical function, as measured by the Health Assessment Questionnaire - Disability Index (HAQ-DI) as compared to adalimumab (p<0.01 for all of these measures). DAS28-ESR is a measure of disease activity in RA, which includes the evaluation of 28 joints in the body for tenderness and swelling, a general health assessment, and ESR, a laboratory measure for inflammation. The incidence of AEs (64% for both groups), serious AEs (5% for sarilumab vs. 7% for adalimumab), infections (29% for sarilumab vs. 28% for adalimumab), and serious infections (1% for both groups) were generally similar between groups. Neutropenia, which was not associated with infections, was more common with sarilumab (14% for sarilumab vs.1% for adalimumab), as has been seen in previous studies with IL-6 inhibitors. Injection site erythema (8% sarilumab vs. 3% adalimumab) was also more common with sarilumab.

A BLA for U.S. regulatory approval of sarilumab was accepted for review by the FDA in December 2015. The target date for an FDA decision on the BLA is October 30, 2016. In addition, in July 2016, the European Medicines Agency (EMA) accepted for review the Marketing Authorization Application (MAA) for sarilumab.

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Non-infectious Uveitis

Phase 2 SARIL-NIU-SATURN Study. SARIL-NIU-SATURN was a small Phase 2, randomized double-masked, placebo-controlled study (n=58) conducted to assess the effect of sarilumab on non-infectious uveitis of the posterior ocular segment. We reported results of this study at the pre-specified primary endpoint (week 16) during 2015. The full 52-week data are expected in the second half of 2016.

Dupilumab (REGN668; IL-4R Antibody) for allergic and inflammatory conditions

Overview

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

Atopic Dermatitis

Phase 3 Study. The LIBERTY AD Phase 3 clinical program consists of five trials of patients with moderate-to-severe atopic dermatitis at sites worldwide. In 2015, three Phase 3 trials in atopic dermatitis, LIBERTY AD CHRONOS, LIBERTY AD SOLO 1, and LIBERTY AD SOLO 2, completed enrollment. Patients from these studies were transitioned to either the ongoing LIBERTY CONTINUE or LIBERTY AD Open label Extension trials.

In 2014, the FDA granted Breakthrough Therapy designation to dupilumab for the treatment of adults with moderate-to-severe atopic dermatitis who are not adequately controlled with topical prescription therapy and/or for whom these treatments are not appropriate. This designation is based on positive results from Phase 1 and 2 clinical trials, the determination that atopic dermatitis is a serious disease, and preliminary clinical evidence that indicates that the drug may demonstrate substantial improvement over existing therapies. A BLA for dupilumab in the United States was recently submitted to the FDA.

In 2015, the United Kingdom (UK) Medicines & Healthcare products Regulatory Agency (MHRA) granted Promising Innovative Medicine (PIM) Designation to dupilumab in the short-term treatment of adult patients with severe atopic dermatitis who have responded inadequately to all available topical prescription treatments and/or systemic ciclosporin, or who are intolerant of or ineligible for such treatments. A PIM Designation is an early indication that a medicinal product is a promising candidate for the Early Access to Medicines Scheme (EAMS), in the treatment, diagnosis, or prevention of life-threatening or seriously debilitating conditions with unmet need. PIM Designation is the first step in a 2-step EAMS process that allows patients to be treated with dupilumab in advance of formal regulatory approval.

In April 2016, we and Sanofi announced positive top-line data from the Phase 3 LIBERTY AD SOLO 1 and SOLO 2 studies. These studies met their primary endpoints, and treatment with dupilumab as monotherapy significantly improved measures of overall disease severity, skin clearing, itching, quality of life, and mental health. A total of 1,379 adult patients with moderate-to-severe atopic dermatitis were enrolled in the identically-designed SOLO 1 and SOLO 2 trials. Patients were enrolled if they were not adequately controlled with topical medications, or if topical treatment was not medically advisable. All patients were assessed via the 5-point Investigator's Global Assessment (IGA) scale, ranging from 0 (clear) to 4 (severe); entry criteria required a baseline score of 3 or 4. Patients were also assessed using the Eczema Area and Severity Index (EASI) and other measures. Patients were randomized into one of three treatment groups: dupilumab 300 mg subcutaneously once per week, dupilumab 300 mg subcutaneously every two weeks, or placebo for 16 weeks following an initial dupilumab loading dose of 600 mg subcutaneously, or placebo. Results at 16 weeks included the following:


•	For SOLO 1 and SOLO 2, respectively, 37% and 36% of patients who received dupilumab 300 mg weekly, and 38% and 36% of patients who received dupilumab 300 mg every two weeks, achieved clearing or near-clearing of skin lesions (IGA 0 or 1), compared to 10% and 8.5% with placebo (p<0.0001). This was the primary endpoint of the study in the United States.


•	For SOLO 1 and SOLO 2, respectively, the percent improvement in EASI from baseline was 72% and 69% in patients who received the 300 mg weekly dose, and 72% and 67% for patients who received dupilumab 300 mg every two weeks, compared to 38% and 31% for placebo (p<0.0001).


•	For SOLO 1 and SOLO 2, respectively, 52.5% and 48% of patients who received dupilumab 300 mg weekly, and 51% and 44% of patients who received dupilumab 300 mg every two weeks, achieved EASI-75 compared to 15% and 12% with placebo (p<0.0001). This was the key secondary endpoint in the United States and one of the primary endpoints in the EU.

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For the 16-week treatment period, the overall rate of AEs (65%-73% dupilumab and 65%-72% placebo) was comparable between the dupilumab groups and the placebo groups. The proportion of patients who completed the treatment period was 88%-94% for dupilumab and 80.5%-82% for placebo. The rate of serious AEs was 1%-3% for dupilumab and 5%-6% for placebo. Serious and severe infections were also numerically higher in the placebo groups in both studies (0.5%-1% dupilumab and 2%-3% placebo). AEs that were noted to have a higher rate with dupilumab treatment across both studies included injection site reactions (10%-20% dupilumab; 7%-8% placebo) and conjunctivitis (7%-12% dupilumab; 2% placebo); approximately 26% of patients in both studies reported a history of allergic conjunctivitis at study entry. No patient discontinued therapy due to injection site reactions and only one patient discontinued therapy due to conjunctivitis. More detailed results from SOLO 1 and SOLO 2 will be submitted for presentation at a future medical congress.

In the first quarter of 2016, the Phase 3 LIBERTY AD CAFÉ study of dupilumab in severe atopic dermatitis was initiated. This placebo-controlled study will investigate two dose regimens of dupilumab (300 mg weekly and 300 mg every two weeks) with concomitant topical corticosteroids in adult patients with severe atopic dermatitis who are not adequately controlled with, or are intolerant to or ineligible for, oral cyclosporine A therapy. The primary endpoint of this study will be the proportion of patients with a 75% or greater improvement from baseline in their EASI score.

In June 2016, we and Sanofi announced positive data from the Phase 3 LIBERTY AD CHRONOS study. This study met its primary and secondary endpoints, and dupilumab with topical corticosteroids (TCS) significantly improved measures of overall disease severity at 16 and 52 weeks, when compared to placebo with TCS. The primary endpoint results at week 16 were the following:


•	39% of patients who received either dupilumab 300 mg weekly with TCS or dupilumab 300 mg every two weeks with TCS achieved clearing or near-clearing of skin lesions (IGA 0 or 1), compared to 12% of patients receiving placebo with TCS (p<0.0001).


•	64% of patients who received dupilumab 300 mg weekly with TCS, and 69% of patients who received dupilumab 300 mg every two weeks with TCS achieved EASI-75, a 75% reduction on an index measuring eczema severity, compared to 23% of patients receiving placebo with TCS (p<0.0001).

The secondary endpoint 52-week results were the following:


•	40% of patients who received dupilumab 300 mg weekly with TCS, and 36% of patients who received dupilumab 300 mg every two weeks with TCS achieved clearing or near-clearing of skin lesions (IGA 0 or 1), compared to 12.5% of patients receiving placebo with TCS (p<0.0001).


•	64% of patients who received 300 mg weekly with TCS, and 65% of patients who received 300 mg every two weeks with TCS achieved EASI-75, compared to 22% with placebo with TCS (p<0.0001).

Patients were less likely to discontinue therapy in the dupilumab with TCS groups compared to placebo with TCS group (15% in both dupilumab groups; 33% placebo).

The overall rate of AEs in the LIBERTY AD CHRONOS study was comparable between the dupilumab with TCS groups (83% for the weekly dose (qw) and 88% for the every two weeks (q2w) dosing group) and the placebo with TCS group (84%). The rate of serious AEs was comparable between the dupilumab with TCS groups (3% (qw) and 4% (q2w)) and placebo with TCS group (5%). Serious and/or severe infections were numerically higher in the placebo with TCS group (1% in both dupilumab groups and 2% placebo). Adverse events that were noted to have a higher rate with dupilumab included injection site reactions (20% (qw) and 16% (q2w) dupilumab; 9% placebo) and conjunctivitis (19% (qw) and 13% (q2w) dupilumab; 8% placebo); 22% of patients on placebo, and 23% (qw) and 28% (q2w) of patients on dupilumab reported a history of allergic conjunctivitis at study entry.

Phase 2 Study in Pediatric Patients. In 2015, a Phase 2 pharmacokinetic and safety study in pediatric patients (6-17 years of age) with moderate-to-severe atopic dermatitis was initiated, and data are expected in the second half of 2016.

Asthma

Phase 3 Study. A Phase 3 trial, LIBERTY ASTHMA QUEST, in patients with uncontrolled persistent asthma was initiated in the second quarter of 2015. LIBERTY ASTHMA QUEST is expected to serve as the second required pivotal efficacy study, since, based on discussions with the FDA, the Phase 2b study will also be considered a pivotal efficacy study. The global, placebo-controlled Phase 3 study is expected to enroll more than 1,600 patients with uncontrolled persistent asthma and will evaluate two doses of dupilumab, 200 mg and 300 mg, subcutaneously administered every other week.

Nasal Polyps

Phase 3 Study. We and Sanofi plan to conduct Phase 3 studies in patients with nasal polyps.

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Eosinophilic Esophagitis

Phase 2 Study. A Phase 2 trial of dupilumab in eosinophilic esophagitis was initiated in the first quarter of 2015. EoE is a chronic allergic inflammatory disease that is considered a major cause of gastrointestinal illness. Eosinophils are a type of white blood cell that, due to allergens, can accumulate in the esophagus, causing inflammation and tissue injuries that create difficulty swallowing. People with eosinophilic esophagitis may also have allergies, asthma, atopic dermatitis, or chronic respiratory disease.

REGN2222 (RSV-F Antibody) for RSV

Overview

Respiratory Syncytial Virus, or RSV, is a virus that infects the lungs and breathing passages. It is the most common cause of bronchiolitis (inflammation of the small airways) and is the second most common cause of death, globally, in the first year of life. RSV results in a significant healthcare burden, as it is the leading cause of infant hospitalizations in the United States. In addition to hospitalizations, RSV frequently results in emergency department, urgent care, and physicians’ office visits. It is estimated that about half of all children will have an RSV infection by their first birthday. REGN2222 is a fully human monoclonal antibody to the RSV-F protein. REGN2222 was generated using our VelocImmune technology.

Clinical Program

Based on clinical results from a Phase 1 study, a Phase 3 pivotal clinical study of REGN2222 (NURSERY Pre-Term) was initiated in 2015 and is currently enrolling patients.

In 2015, the FDA granted Fast Track designation to REGN2222 for the prevention of serious lower respiratory tract disease caused by RSV.

Fasinumab (REGN475; NGF Antibody) for pain due to osteoarthritis and chronic low back pain

Overview

Pain is a frequent reason for physician visits, a common reason for taking prescription medications, and a major cause of work disability and impaired quality of life. Targeting NGF is a potential advance in pain management. NGF expression is elevated in many acute and chronic painful conditions and NGF blockade has demonstrated efficacy in various animal models of pain. Fasinumab is a fully human monoclonal antibody to NGF, generated using our VelocImmune technology.

Clinical Program

In the second quarter of 2015, a Phase 2/3 clinical study (16-weeks) in patients with moderate-to-severe osteoarthritis pain of the hip or knee who have a history of inadequate pain relief or intolerance to current analgesic therapies was initiated. In May 2016, we announced positive top-line data from the study. At 16 weeks, patients treated with all four doses of fasinumab demonstrated a statistically significant improvement in pain relief, the primary endpoint of the study, as well as improvements in the secondary measure evaluating physical function. The U.S. study enrolled 421 adult patients with moderate-to-severe osteoarthritis of the hip or knee who had a history of inadequate pain relief or intolerance to acetaminophen, and at least one oral nonsteroidal anti-inflammatory drug (NSAID) and an opioid. Patients in the study were experiencing significant pain at baseline with an average pain score of 6.3 on a 10-point scale. Patients were evaluated for pain, stiffness, and physical function using the Western Ontario and McMaster Universities Osteoarthritis Index (WOMAC) in addition to other measures. Patients were randomized to one of five treatment groups in a 1:1:1:1:1 fashion; fasinumab 1mg, 3mg, 6mg, 9mg, or placebo, all delivered subcutaneously every 4 weeks through week 12, with the primary efficacy measured at week 16. Following week 16, patients are being studied for an additional 20 weeks off treatment. On the primary endpoint, fasinumab-treated patients reported less pain at 16 weeks when compared to placebo on the 10-point WOMAC subscale for pain (-3.03 to -3.65 fasinumab vs. -2.25 placebo; p=0.03 through p=0.0001). The safety analysis includes all results at the time of the primary efficacy analysis; complete data will be reported when all patients complete the full 36 weeks. Overall incidence of AEs, including serious and severe events, was similar across the fasinumab groups and placebo. As expected with antibodies to NGF, there was an increase in certain neuro-musculoskeletal AEs in the fasinumab treatment groups (17% combined fasinumab; 6% placebo) including arthralgia, paraesthesia, hypoaesthesia, and peripheral edema. We plan to present detailed results of the study at an upcoming medical congress.

In the first quarter of 2016, the FDA confirmed that we may proceed with studies of longer than sixteen-week duration. A Phase 3 long-term safety and efficacy study in patients with pain due to osteoarthritis of the knee or hip was initiated in the first quarter of 2016. A Phase 2b/3 study in chronic low back pain was also initiated in the first quarter of 2016.

The fasinumab Phase 3 program is expected to consist of approximately 10,000 patients treated with fasinumab.

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Research Programs

Our preclinical research programs include the areas of oncology/immuno-oncology, angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain and neurobiology, cardiovascular diseases, and infectious diseases.

In the first quarter of 2016, the New England Journal of Medicine published a paper based on the work done at the Regeneron Genetics Center showing that inactivating mutations of the angiopoeitin-like 4 (Angptl-4) gene are associated with a significantly reduced risk of coronary artery disease in humans. Angptl-3 and Angptl-4 are related genes that both regulate lipoprotein lipase.

Collaboration Agreements

Collaborations with Sanofi

Antibodies. Since November 2007, we and Sanofi have been parties to a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement (Antibody Discovery Agreement) and a License and Collaboration Agreement (each as amended), collectively referred to as the Antibody Collaboration. Pursuant to the Antibody Discovery Agreement, as amended, Sanofi is responsible for funding up to $130.0 million of our antibody discovery activities in each of 2016 and 2017 to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. For each drug candidate identified through discovery research under the Antibody Discovery Agreement, Sanofi has the option to license rights to the candidate under the License and Collaboration Agreement. If it elects to do so, Sanofi will co-develop the drug candidate with us through product approval. Development costs for the drug candidate are shared between the companies, with Sanofi generally funding these costs as they are incurred by us, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate are shared 80% by Sanofi and 20% by us. We are generally responsible for reimbursing Sanofi for half of the total development costs for all collaboration antibody products from our share of profits from commercialization of collaboration products to the extent they are sufficient for this purpose.

Under our collaboration agreement, Sanofi records product sales and cost of sales for commercialized products, and Regeneron has the right to co-promote such products. We have exercised our option to co-promote Praluent, sarilumab, and dupilumab in the United States. We have not exercised our option to co-promote Praluent outside the United States; however, we retain the right to do so at a future date subject to the terms of the collaboration agreement. We and Sanofi will equally share profits and losses from sales within the United States. We and Sanofi 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 $250.0 million in sales milestone payments, with milestone payments commencing after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.

Immuno-Oncology. In July 2015, we and Sanofi entered into a global strategic collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the IO Collaboration). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement (IO Discovery Agreement), and an Immuno-oncology License and Collaboration Agreement (IO License and Collaboration Agreement). In connection with the IO Discovery Agreement, Sanofi made a $265.0 million non-refundable up-front payment to us. Pursuant to the IO Discovery Agreement, we will spend up to $1,090.0 million (IO Discovery Budget) to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept. Sanofi will reimburse us for up to $825.0 million (IO Discovery Funding) of these costs, subject to certain annual limits. We will reimburse Sanofi for half of the development costs they funded that are attributable to clinical development of antibody product candidates under the IO Discovery Agreement from our share of future profits, if any, from commercialized products to the extent they are sufficient for this purpose. With regard to product candidates for which proof-of-concept is established, Sanofi will have the option to license rights to the product candidate pursuant to the IO License and Collaboration Agreement.

In connection with the IO License and Collaboration Agreement, Sanofi made a $375.0 million non-refundable up-front payment to us. If Sanofi exercises its option to license rights to a product candidate thereunder, it will co-develop the drug candidate with us through product approval. Principal control of development of each product candidate that enters development under the IO License and Collaboration Agreement will alternate between us and Sanofi on a candidate-by-candidate basis. Sanofi will fund drug candidate development costs up front for the candidates for which it is the principal controlling party and we will reimburse half of the total development costs for all such candidates from our share of future profits to the extent they are sufficient for this purpose. In addition, we and Sanofi will share equally, on an ongoing basis, the development costs for the drug candidates for which we are the principal controlling party. The party having principal control over the development of a product candidate will also lead the commercialization activities for such product candidate in the United States. For all products commercialized under the IO License and Collaboration Agreement, Sanofi will lead commercialization activities outside of the United States. The parties will share equally in profits and losses in connection with the commercialization of collaboration products.

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Under the terms of the IO License and Collaboration Agreement, the parties will also co-develop our antibody product candidate targeting PD-1 (REGN2810). We have principal control over the development of REGN2810, and the parties share equally, on an ongoing basis, development expenses for REGN2810 up to a total of $650.0 million. We will be entitled to a milestone payment of $375.0 million in the event that sales of all licensed products targeting PD-1 (including REGN2810), together with sales of any other products licensed under the IO License and Collaboration Agreement and sold for use in combination with a licensed product targeting PD-1, equal or exceed $2.0 billion in any consecutive twelve-month period.

Collaborations with Bayer

EYLEA outside the United States. Since October 2006, we and Bayer have been parties to a license and collaboration agreement for the global development and commercialization outside the United States of EYLEA. Under the agreement, we and Bayer collaborate on, and share the costs of, the development of EYLEA through an integrated global plan. Bayer markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally in profits and losses from sales of EYLEA. In Japan, we are entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales.

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

PDGFR-beta antibody outside the United States. In January 2014, we entered into an agreement with Bayer governing the joint development and commercialization outside the United States of rinucumab, an antibody product candidate to PDGFR-beta, including in combination with aflibercept, for the treatment of ocular diseases or disorders. Rinucumab/aflibercept, a combination product candidate comprised of an antibody to PDGFR-beta co-formulated with aflibercept, is being developed under the agreement. Under the agreement, we will conduct the initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, upon which Bayer will have a right to opt-in to license and collaborate on further development and commercialization outside the United States. In connection with the agreement, Bayer is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States under the initial development plan. In addition, Bayer is obligated to reimburse us for 50% of development milestone payments to Sanofi related to our acquisition of rights to antibodies targeting the PDGF family of receptors in May 2013. We are eligible to receive a $10.0 million additional development milestone payment from Bayer, although this payment could be reduced by half if Bayer does not opt-in to the collaboration.

If Bayer exercises its right to opt-in to the collaboration, they will obtain exclusive commercialization rights to the product outside the United States, continue to pay for 25% of global development costs and 50% of development costs exclusively for the territory outside the United States, pay a $20.0 million opt-in payment to us, pay a $20.0 million development milestone to us upon receipt of the first marketing approval in the EU or Japan, share profits and losses from sales outside the United States equally with us, and be responsible for the payment of royalties on sales outside the United States to Sanofi.

Ang2 antibody outside the United States. In March 2016, we entered into an agreement with Bayer governing the joint development and commercialization outside the United States of nesvacumab, an antibody product candidate to Ang2, including in combination with aflibercept, for the treatment of ocular diseases or disorders. Nesvacumab/aflibercept, a combination product candidate comprised of an antibody to Ang2 co-formulated with aflibercept, is being developed under the agreement. In connection with the agreement, Bayer made a $50.0 million non-refundable up-front payment to us and is obligated to pay 25% of global development costs and 50% of development costs exclusively for the territory outside the United States. We are also entitled to receive an aggregate of $80.0 million in development milestone payments from Bayer. Bayer will share profits and losses from sales outside the United States equally with us, and is responsible for certain royalties payable to Sanofi on sales of the product outside of the United States. Within the United States, we have exclusive commercialization rights and will retain all of the profits from sales.

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Collaboration with Mitsubishi Tanabe Pharma

Fasinumab Asia. In September 2015, we entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) providing MTPC with development and commercial rights to fasinumab in Japan, South Korea, Taiwan, Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Myanmar, and Sri Lanka (the MTPC Territories). In connection with the agreement, MTPC made a $10.0 million non-refundable up-front payment in 2015, and in the first quarter of 2016, MTPC made additional payments of $45.0 million and $15.0 million to us. We are also entitled to receive up to an aggregate of $155.0 million in development milestone and other contingent payments.

Under the agreement, we are obligated to manufacture and supply MTPC with clinical and commercial supplies of fasinumab. If fasinumab is commercialized in the MTPC Territories, we will supply the product to MTPC at a tiered purchase price, which ranges from 30% to 50% of net sales of the product (subject to adjustment in certain circumstances), and are eligible for additional payments up to an aggregate of $100.0 million upon the achievement of specified annual net sales amounts starting at $200 million.

Collaboration with Intellia Therapeutics

In April 2016, we entered into a license and collaboration agreement with Intellia Therapeutics, Inc., to advance CRISPR/Cas gene-editing technology for in vivo therapeutic development. We will collaborate with Intellia to conduct research for the discovery, development, and commercialization of new therapies (Product Collaboration), in addition to the research and technology development of the CRISPR/Cas platform (Technology Collaboration). In connection with the execution of the agreement, we made a $75.0 million up-front payment in April 2016. We are responsible for costs of developing and commercializing CRISPR/Cas products under the Product Collaboration agreement and are also obligated to pay potential development and sales milestones, and royalties on any future sales of such products resulting from the development and commercialization of CRISPR/Cas products. In addition, under the Technology Collaboration agreement, we are responsible for funding certain research and technology development costs.

Under the terms of the Product Collaboration agreement, the parties agreed to a target selection process, whereby we may obtain exclusive rights in up to 10 targets to be chosen by us during the collaboration term, subject to various adjustments and limitations set forth in the agreement. Of these 10 total targets, we may select up to five non-liver targets, while the remaining targets will be focused in the liver. Additionally, we may replace a limited number of targets with substitute targets upon the payment of a replacement fee, in which case rights to the replaced target(s) will revert to Intellia.

The Technology Collaboration term and the period for selecting targets for inclusion under the Product Collaboration both end in 2022, provided that we may make a payment to extend the term for an additional two-year period. The Product Collaboration agreement will continue until the date when no royalty or other payment obligations are due, unless earlier terminated in accordance with the terms of the agreement.

Certain targets that either we or Intellia select pursuant to the target selection process may be subject to a co-development and co-commercialization arrangement at our option or Intellia’s option, as applicable. The terms of the co-development and co-commercialization agreement are expected to be finalized by the end of 2016. Transthyretin amyloidosis (ATTR), the first target selected by us, will be subject to the co-development and co-commercialization arrangement between the parties.

In May 2016, Intellia completed an initial public offering ("IPO") of its common stock and thereby triggered our obligation to purchase up to $50.0 million of Intellia common stock in a concurrent private placement. As part of the concurrent private placement, we purchased from Intellia at the closing of the IPO shares of Intellia common stock for an aggregate purchase price of $50.0 million.

Collaboration with Adicet Bio

In July 2016, we entered into a license and collaboration agreement with Adicet Bio, Inc., a privately held company, to develop next-generation engineered immune-cell therapeutics with fully human chimeric antigen receptors (CARs) and T-cell receptors (TCRs) directed to disease-specific cell surface antigens in order to enable the precise engagement and killing of tumor cells. In connection with the execution of the agreement, we will make a $25.0 million up-front payment to Adicet, and are obligated to provide Adicet with research funding over the course of a five-year research term.

Under the terms of the agreement, the parties will collaborate to identify and validate targets and work together to develop a pipeline of engineered immune-cell therapeutics for selected targets. We have the option to obtain development and commercial rights for a certain number of the product candidates developed by the parties, subject to an option payment for each product candidate. If we exercise our option on a given product candidate, Adicet then will have an option to participate in the development and commercialization for such product. If Adicet doesn’t exercise its option, Adicet will be entitled to royalties on any future sales of such products by us. In addition to developing CARs and TCRs for use in novel immune-cell therapies as part of the collaboration, we will have the right to use these CARs and TCRs in our other antibody programs outside of the collaboration.

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We will also be entitled to royalties on any future sales of products developed and commercialized by Adicet under the agreement for all products for which we do not have development and commercial rights.

General

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

Our ability to continue to generate profits and to generate positive cash flow from operations over the next several years depends significantly on our continued success in commercializing EYLEA. We expect to continue to incur substantial expenses related to our research and development activities, a significant portion of which we expect to be reimbursed by our collaborators. Also, our research and development activities outside our collaborations, the costs of which are not reimbursed, are expected to expand and require additional resources. We also expect to incur substantial costs related to the commercialization of Praluent and preparation for potential commercialization of our late-stage antibody product candidates, approximately half of which we expect to be reimbursed by Sanofi under the companies' collaboration agreement. Our financial results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of our marketed products, the scope and progress of our research and development efforts, the timing of certain expenses, the continuation of our collaborations, in particular with Sanofi and Bayer, including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators, and the amount of income tax expense we incur, which is partly dependent on the profits or losses we earn in each of the countries in which we operate. We cannot predict whether or when new products or new indications for marketed products will receive regulatory approval or, if any such approval is received, whether we will be able to successfully commercialize such product(s) and whether or when they may become profitable.

The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, key events in 2016 to date were, and plans for the next twelve months are, as follows:



Trap-based Clinical Program:
		2016 Events to Date		2016-2017 Plans (next 12 months)
EYLEA	Ÿ	Bayer received regulatory approval for EYLEA for various indications and continued to pursue regulatory applications for marketing approval in additional countries	Ÿ	Bayer to submit for additional regulatory approvals outside the United States for various indications
			Ÿ	Regulatory agency decisions on applications outside the United States for various indications
	Ÿ	Initiated Phase 3 study for the treatment of NPDR in patients without DME
	Ÿ	Reported positive top-line results from Phase 3 study in Japan for the treatment of NVG



Antibody-based Clinical Programs:
		2016 Events to Date		2016-2017 Plans (next 12 months)
Praluent (PCSK9 Antibody)	Ÿ	Reported positive results from Phase 3 ODYSSEY ESCAPE trial	Ÿ	Report additional data from Phase 3 ODYSSEY program
	Ÿ	The DMC of the ODYSSEY OUTCOMES study completed the first interim analysis for futility and recommended the study continue with no changes	Ÿ	Submit for additional regulatory approvals outside the United States
			Ÿ	Regulatory agency and reimbursement authority decisions on applications outside the United States
	Ÿ	Supplemental BLA for monthly dosing regimen accepted for review by the FDA	Ÿ	Prespecified early-stopping interim analysis by DMC of ODYSSEY OUTCOMES trial
	Ÿ	Regulatory application submitted for monthly dosing regimen in the EU

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Antibody-based Clinical Programs (continued):
		2016 Events to Date		2016-2017 Plans (next 12 months)
	Ÿ	Japanese MHLW approved Praluent for the treatment of uncontrolled LDL cholesterol in certain adult patients
	Ÿ
Sarilumab (IL-6R Antibody)	Ÿ	Reported positive top-line results from Phase 3 SARIL-RA-MONARCH trial	Ÿ	Continue patient enrollment in Phase 3 SARIL-RA program
	Ÿ	Regulatory applications submitted in the EU and other jurisdictions outside the United States	Ÿ	FDA target action date of October 30, 2016
			Ÿ	Submit for additional regulatory approvals outside the United States, including Japan
Dupilumab (IL-4R Antibody)	Ÿ	Reported positive top-line results from Phase 3 LIBERTY AD SOLO 1 and SOLO 2 trials	Ÿ	Continue patient enrollment in various Phase 2 and Phase 3 studies
	Ÿ	Initiated Phase 3 LIBERTY AD CAFÉ study in atopic dermatitis	Ÿ	Complete patient enrollment in Phase 2 EoE and Phase 3 asthma studies
	Ÿ	Reported positive results from Phase 3 LIBERTY AD CHRONOS study in atopic dermatitis	Ÿ	Initiate Phase 3 studies in pediatric patients in atopic dermatitis and asthma
	Ÿ	BLA submitted in the United States	Ÿ	Initiate Phase 3 study in patients with nasal polyps
REGN2222 (RSV-F Antibody)			Ÿ	Continue patient enrollment in Phase 3 NURSERY Pre-Term study
Fasinumab (NGF Antibody)	Ÿ	Initiated Phase 3 long-term safety and efficacy study in patients with osteoarthritis of knee and hip	Ÿ	Continue patient enrollment in Phase 3 long-term safety and efficacy study in osteoarthritis and Phase 2b/3 study in chronic low back pain
	Ÿ	Initiated Phase 2b/3 study in chronic low back pain	Ÿ	Report additional data from the Phase 2/3 study in patients with osteoarthritis pain
	Ÿ	Reported positive top-line results from Phase 2/3 study in patients with osteoarthritis pain
Evinacumab (Angptl-3 Antibody)	Ÿ	FDA granted orphan-drug designation for treatment of HoFH	Ÿ	Continue patient enrollment in Phase 2 HoFH study
	Ÿ	Completed Phase 1 study in patients with dyslipidemia
	Ÿ	Reported positive interim results from ongoing proof-of-concept study in patients with HoFH
Rinucumab/aflibercept (PDGFR-beta Antibody co-formulated with aflibercept)	Ÿ	Completed patient enrollment in Phase 2 study	Ÿ	Report results from Phase 2 study
Nesvacumab/aflibercept (Ang2 Antibody co-formulated with aflibercept)	Ÿ	Initiated Phase 2 study in wet AMD and DME	Ÿ	Continue patient enrollment in Phase 2 study
Trevogrumab (GDF8 Antibody)			Ÿ	Initiate Phase 1 combination therapy studies with REGN2477

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Antibody-based Clinical Programs (continued):
		2016 Events to Date		2016-2017 Plans (next 12 months)
REGN2810 (PD-1 Antibody)	Ÿ	Continued patient enrollment in Phase 1 study	Ÿ	Continue patient enrollment in Phase 1 and Phase 2 studies
	Ÿ	Initiated Phase 2 potentially pivotal study for the treatment of advanced cutaneous squamous cell carcinoma	Ÿ	Initiate later-stage pivotal studies
	Ÿ	Initiated Phase 1 study in combination with REGN1979 for treatment of B-cell malignancies
	Ÿ	Presented positive Phase 1 results from a dose-ranging study in heavily-pretreated patients with solid tumor cancers
REGN1908-1909 (Feld1 Antibody)	Ÿ	Completed initial proof-of-concept study	Ÿ	Continue early stage development
REGN1979 (CD20 and CD3 Antibody)	Ÿ	Continued patient enrollment in Phase 1 study	Ÿ	Complete patient enrollment in Phase 1 study
	Ÿ	Initiated Phase 1 study in combination with REGN2810 for treatment of B-cell malignancies
REGN3470-3471-3479 (Antibody to Ebola virus)	Ÿ	Initiated Phase 1 study in healthy volunteers	Ÿ	Continue enrollment in Phase 1 study
	Ÿ	FDA granted orphan-drug designation for the treatment of Ebola virus infection
REGN2477 (Activin A Antibody)	Ÿ	Initiated Phase 1 study in healthy volunteers	Ÿ	Continue patient enrollment in Phase 1 study

Corporate Information

We were incorporated in the State of New York in 1988 and publicly listed in 1991. Our principal executive offices are located at 777 Old Saw Mill River Road, Tarrytown, New York 10591, and our telephone number at that address is (914) 847-7000.

We make available free of charge on or through our Internet website (http://www.regeneron.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

Investors and other interested parties should note that we use our media and investor relations website (http://newsroom.regeneron.com) and our social media channels to publish important information about Regeneron, including information that may be deemed material to investors. We encourage investors and other interested parties to review the information we may publish through our media and investor relations website and the social media channels listed on our media and investor relations website, in addition to our SEC filings, press releases, conference calls, and webcasts.

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Results of Operations

Three Months Ended June 30, 2016 and 2015

Net Income

Net income for the three months ended June 30, 2016 and 2015 consists of the following:



(In millions)	2016			2015
Revenues	$	1,212.6		$	998.6
Operating expenses	(921.0		)	(653.8		)
Other income (expense)	0.6			(16.8		)
Income before income taxes	292.2			328.0
Income tax expense	(96.0		)	(133.4		)
Net income	$	196.2		$	194.6

Revenues

Revenues for the three months ended June 30, 2016 and 2015 consist of the following:



(In millions)	2016		2015
Net product sales	$	834.2	$	657.8
Collaboration revenue:
Sanofi	163.4		195.1
Bayer	191.9		134.2
Total collaboration revenue	355.3		329.3
Other revenue	23.1		11.5
Total revenues	$	1,212.6