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, 2017

	OR

( )	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to __________



Commission File Number	0-19034

REGENERON PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)



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

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

(914) 847-7000

(Registrant’s telephone number, including area code)

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



Yes	X	No

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



Yes	X	No

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



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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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



Yes	No	X

Number of shares outstanding of each of the registrant’s classes of common stock as of July 20, 2017:



Class of Common Stock		Number of Shares
Class A Stock, $.001 par value		1,911,456
Common Stock, $.001 par value		105,240,767

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, 2017 and December 31, 2016	2

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016	3

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46

Item 4.	Controls and Procedures	46

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	78

Item 5.	Other Information	78

Item 6.	Exhibits	79

SIGNATURE PAGE		80

"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,
	2017			2016
ASSETS
Current assets:
Cash and cash equivalents	$	744,313		$	535,203
Marketable securities	523,537			503,481
Accounts receivable - trade, net	1,420,403			1,343,368
Accounts receivable from Sanofi	221,078			92,989
Accounts receivable from Bayer	203,066			175,263
Inventories	554,320			399,356
Prepaid expenses and other current assets	193,334			130,528
Total current assets	3,860,051			3,180,188

Marketable securities	1,064,677			864,260
Property, plant, and equipment, net	2,261,702			2,083,421
Deferred tax assets	882,980			825,303
Other assets	36,963			20,294
Total assets	$	8,106,373		$	6,973,466

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	716,364		$	879,096
Capital and facility lease obligations	—			129,557
Deferred revenue from Sanofi, current portion	184,452			115,267
Deferred revenue - other, current portion	127,804			116,397
Other current liabilities	397			1,178
Total current liabilities	1,029,017			1,241,495

Capital and facility lease obligations	701,173			351,569
Deferred revenue from Sanofi	443,904			503,474
Deferred revenue - other	295,621			327,298
Other long-term liabilities	115,920			100,385
Total liabilities	2,585,635			2,524,221

Stockholders' equity:
Preferred Stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding - none	—			—
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 1,911,456 in 2017 and 2016	2			2
Common Stock, $.001 par value; 320,000,000 shares authorized; shares issued - 108,974,612 in 2017 and 107,860,567 in 2016	109			108
Additional paid-in capital	3,449,622			3,029,993
Retained earnings	2,384,897			1,748,222
Accumulated other comprehensive income (loss)	2,348			(12,840		)
Treasury Stock, at cost; 3,763,868 shares in 2017 and 2016	(316,240		)	(316,240		)
Total stockholders' equity	5,520,738			4,449,245
Total liabilities and stockholders' equity	$	8,106,373		$	6,973,466

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,
	2017			2016			2017			2016
Statements of Operations
Revenues:
Net product sales	$	924,133		$	834,219		$	1,782,378		$	1,618,401
Sanofi collaboration revenue	222,128			163,414			432,495			383,108
Bayer collaboration revenue	210,355			191,896			404,294			371,488
Other revenue	113,500			23,100			169,940			40,481
	1,470,116			1,212,629			2,789,107			2,413,478

Expenses:
Research and development	509,975			559,930			1,017,410			1,030,042
Selling, general, and administrative	306,908			292,038			603,754			581,715
Cost of goods sold	42,133			41,247			103,386			120,189
Cost of collaboration and contract manufacturing	60,788			27,786			83,703			60,596
	919,804			921,001			1,808,253			1,792,542

Income from operations	550,312			291,628			980,854			620,936

Other income (expense):
Other (expense) income, net	(19,061		)	1,879			(9,813		)	5,362
Interest expense, net	(5,401		)	(1,251		)	(12,902		)	(3,891		)
	(24,462		)	628			(22,715		)	1,471

Income before income taxes	525,850			292,256			958,139			622,407

Income tax expense	(138,106		)	(96,038		)	(321,464		)	(244,804		)

Net income	$	387,744		$	196,218		$	636,675		$	377,603

Net income per share - basic	$	3.66		$	1.88		$	6.02		$	3.61
Net income per share - diluted	$	3.34		$	1.69		$	5.51		$	3.24

Weighted average shares outstanding - basic	106,034			104,633			105,804			104,462
Weighted average shares outstanding - diluted	116,137			116,231			115,607			116,617

Statements of Comprehensive Income
Net income	$	387,744		$	196,218		$	636,675		$	377,603
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on marketable securities	8,204			840			15,160			(3,368		)
Unrealized gain on cash flow hedges	28			—			28			—
Comprehensive income	$	395,976		$	197,058		$	651,863		$	374,235

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,
	2017			2016
Cash flows from operating activities:
Net income	$	636,675		$	377,603
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	73,241			48,006
Non-cash compensation expense	255,047			273,941
Other non-cash charges and expenses, net	37,631			7,795
Deferred taxes	(57,737		)	(162,652		)
Changes in assets and liabilities:
Increase in Sanofi, Bayer, and trade accounts receivable	(232,927		)	(284,178		)
Increase in inventories	(151,544		)	(72,888		)
(Increase) decrease in prepaid expenses and other assets	(77,168		)	57,086
(Decrease) increase in deferred revenue	(10,655		)	65,850
(Decrease) increase in accounts payable, accrued expenses, and other liabilities	(147,232		)	133,925
Total adjustments	(311,344		)	66,885
Net cash provided by operating activities	325,331			444,488

Cash flows from investing activities:
Purchases of marketable securities	(477,408		)	(228,942		)
Sales or maturities of marketable securities	272,166			102,177
Capital expenditures	(105,310		)	(242,930		)
Net cash used in investing activities	(310,552		)	(369,695		)

Cash flows from financing activities:
Proceeds in connection with capital and facility lease obligations	57,000			—
Payments in connection with capital and facility lease obligations	(19,925		)	(1,213		)
Repayments of convertible senior notes	—			(12,650		)
Payments in connection with reduction of outstanding warrants	—			(242,117		)
Proceeds from issuance of Common Stock	188,693			63,606
Payments in connection with Common Stock tendered for employee tax obligations	(31,437		)	(45,013		)
Net cash provided by (used in) financing activities	194,331			(237,387		)

Net increase (decrease) in cash and cash equivalents	209,110			(162,594		)

Cash and cash equivalents at beginning of period	535,203			809,102

Cash and cash equivalents at end of period	$	744,313		$	646,508

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 period are not necessarily indicative of the results for the full year. The December 31, 2016 Condensed Consolidated Balance Sheet data were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

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

During the second quarter of 2017, the Company recorded an out-of-period adjustment to reflect a correction in the Company's accounting for its lease of its Tarrytown, New York facility (see Note 10). The adjustment, which was related to the March 3, 2017 lease transaction, resulted in the recognition of a $30.1 million loss on extinguishment of debt within other expenses and a corresponding decrease to property, plant, and equipment. These were non-cash adjustments, and therefore had no impact on the Company's previously reported operating, investing, financing, or total cash flows in its Statements of Cash Flows. The Company evaluated the impact of these items on prior periods, assessing materiality quantitatively and qualitatively, and concluded that the amounts were not considered to be material to any previously-issued quarterly or annual financial statements, and that the impact of correcting the error in the three and six months ended June 30, 2017 was not material to these financial statements, nor is the adjustment expected to be material to the financial statements for the year ending December 31, 2017.

2. Product Sales



	Three Months Ended June 30,				Six Months Ended June 30,
Net Product Sales in the United States	2017		2016		2017		2016
EYLEA^®	$	919,466	$	830,936	$	1,773,853	$	1,611,781
ARCALYST^®	4,667		3,283		8,525		6,620
Net Product Sales	$	924,133	$	834,219	$	1,782,378	$	1,618,401

The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for each of the three and six months ended June 30, 2017 and 2016. Sales to each of these customers as a percentage of the Company's total gross product revenue are as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Besse Medical, a subsidiary of AmerisourceBergen Corporation	50	%	56	%	51	%	58	%
McKesson Corporation	29	%	28	%	28	%	28	%
Curascript SD Specialty Distribution, a subsidiary of Express Scripts	20	%	15	%	20	%	13	%

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Revenue from product sales is recorded net of applicable provisions for rebates and chargebacks, distribution-related fees, and other sales-related deductions. The following table summarizes the provisions and credits/payments for these sales-related deductions during the six months ended June 30, 2017 and 2016.



	Rebates & Chargebacks			Distribution- Related Fees			Other Sales- Related Deductions			Total
Balance as of December 31, 2016	$	12,712		$	29,465		$	3,674		$	45,851
Provision related to current period sales	78,250			90,077			20,531			188,858
Credits/payments	(67,850		)	(90,519		)	(21,312		)	(179,681		)
Balance as of June 30, 2017	$	23,112		$	29,023		$	2,893		$	55,028

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

3. Collaboration Agreements

a. Sanofi

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



	Three Months Ended June 30,						Six Months Ended June 30,
Sanofi Collaboration Revenue	2017			2016			2017			2016
Antibody:
Reimbursement of Regeneron research and development expenses	$	137,272		$	144,232		$	292,517		$	337,834
Reimbursement of Regeneron commercialization-related expenses	87,104			80,817			160,663			149,539
Regeneron's share of losses in connection with commercialization of antibodies	(122,281		)	(122,107		)	(230,683		)	(221,529		)
Other	31,204			8,122			42,490			15,639
Total Antibody	133,299			111,064			264,987			281,483
Immuno-oncology:
Reimbursement of Regeneron research and development expenses	68,080			32,350			126,759			61,625
Other	20,749			20,000			40,749			40,000
Total Immuno-oncology	88,829			52,350			167,508			101,625
	$	222,128		$	163,414		$	432,495		$	383,108

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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 agreed to fund up to $130.0 million of the Company's research activities in 2017. The Company's Antibody Discovery Agreement with Sanofi will end on December 31, 2017 without any extension and, therefore, funding from Sanofi under the Antibody Discovery Agreement will cease after 2017.

Under the License and Collaboration Agreement, agreed-upon worldwide development expenses incurred by both companies are funded by Sanofi, except that following receipt of the first positive Phase 3 trial results for a co-developed drug candidate, subsequent Phase 3 trial-related costs for that drug candidate ("Shared Phase 3 Trial Costs") are shared 80% by Sanofi and 20% by Regeneron. Consequently, during the three months ended June 30, 2017 and 2016, the Company recognized as research and development expense $20.6 million and $30.6 million, respectively, and during the six months ended June 30, 2017 and 2016, the Company recognized as research and development expense $45.6 million and $52.3 million, respectively, of antibody development expenses that the Company was obligated to reimburse to Sanofi related to Praluent^®, Kevzara^® (sarilumab), and Dupixent^® (dupilumab).

"Reimbursement of Regeneron commercialization-related expenses" in the table above represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent. During the same periods that the Company recorded reimbursements from Sanofi related to the Company's commercialization expenses, the Company also recorded its share of losses in connection with the companies preparing to commercialize or commercializing, as applicable, Praluent, Kevzara, and Dupixent within Sanofi collaboration revenue.

In March 2017, the U.S. Food and Drug Administration ("FDA") approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis. In May 2017, the FDA approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis and in June 2017, the European Commission granted marketing authorization for Kevzara for the treatment of rheumatoid arthritis in adult patients. Therefore, commencing in 2017, the Company's share of losses in connection with commercialization of antibodies also included the Company's share of revenue in connection with Sanofi's sales of Kevzara and Dupixent.

Immuno-Oncology

In July 2015, the Company and Sanofi entered into a collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the "IO Collaboration"). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement ("IO Discovery Agreement"), and an Immuno-oncology License and Collaboration Agreement ("IO License and Collaboration Agreement"). Pursuant to the IO Discovery Agreement, Sanofi will reimburse the Company for up to $200.0 million in 2017 to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept. Under the terms of the IO License and Collaboration Agreement, the parties are co-developing the Company's antibody product candidate targeting the receptor known as programmed cell death protein 1, or PD-1 ("REGN2810"). The parties share equally, on an ongoing basis, development expenses for REGN2810.

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

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

b. Bayer

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



	Three Months Ended June 30,				Six Months Ended June 30,
Bayer Collaboration Revenue	2017		2016		2017		2016
EYLEA:
Regeneron's net profit in connection with commercialization of EYLEA outside the United States	$	190,883	$	167,492	$	365,759	$	313,327
Reimbursement of Regeneron EYLEA development expenses	2,329		2,224		4,780		4,967
Other	10,593		13,355		21,196		39,847
Total EYLEA	203,805		183,071		391,735		358,141
PDGFR-beta antibody:
Reimbursement of rinucumab/aflibercept (REGN2176-3) development expenses	1,321		2,762		3,178		4,658
Other	19		2,607		32		5,233
Total PDGFR-beta antibody	1,340		5,369		3,210		9,891
Ang2 antibody:
Reimbursement of nesvacumab/aflibercept (REGN910-3) development expenses	3,070		2,074		5,111		2,074
Other	2,140		1,382		4,238		1,382
Total Ang2 antibody	5,210		3,456		9,349		3,456
	$	210,355	$	191,896	$	404,294	$	371,488

EYLEA outside the United States

Under the terms of the license and collaboration agreement with Bayer for the global development and commercialization outside the United States of EYLEA, Bayer markets EYLEA outside the United States, where, for countries other than Japan, the companies share equally in profits and losses from sales of EYLEA. In Japan, the Company is entitled to receive a tiered percentage of between 33.5% and 40.0% of EYLEA net sales. In addition, all agreed-upon EYLEA development costs incurred by the Company and Bayer are shared equally.

PDGFR-beta antibody outside the United States

In 2014, the Company entered into a license and collaboration agreement with Bayer governing the joint development and commercialization outside the United States of an antibody product candidate to Platelet Derived Growth Factor Receptor Beta (PDGFR-beta), including REGN2176-3, a combination product candidate comprised of an antibody to PDGFR-beta co-formulated with aflibercept. The agreement provided that the Company would conduct the initial development of the PDGFR-beta antibody through completion of the first proof-of-concept study, upon which Bayer would have a right to opt-in to license and collaborate on further development and commercialization outside the United States. Effective in the first quarter of 2017, the Company discontinued clinical development of REGN2176-3, and on July 31, 2017, the Company and Bayer agreed to terminate the agreement.

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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 $50.0 million up-front payment was initially recorded as deferred revenue, and is being recognized ratably as revenue over the related performance period.

c. Mitsubishi Tanabe Pharma

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

In the second quarter of 2017, the Company earned, and recognized as a substantive milestone, a $30.0 million development milestone from MTPC upon initiation of a Phase 3 trial.

d. Teva

In September 2016, the Company and Teva entered into a collaboration agreement (the "Teva Collaboration Agreement") to develop and commercialize fasinumab globally, excluding certain Asian countries that are subject to the Company's collaboration agreement with MTPC (as described above). In connection with the Teva Collaboration Agreement, Teva made a $250.0 million non-refundable up-front payment in September 2016. The Company leads global development activities, and the parties share development costs equally on an ongoing basis. The $250.0 million up-front payment was initially recorded as deferred revenue, and is being recognized ratably as revenue over the related performance period.

The Company recognized $67.7 million and $100.8 million of revenue for the three and six months ended June 30, 2017, respectively, in connection with the Teva Collaboration Agreement. In the second quarter of 2017, the Company earned, and recognized as a substantive milestone, a $25.0 million development milestone from Teva upon initiation of a Phase 3 trial.

e. Intellia Therapeutics

In April 2016, the Company entered into a license and collaboration agreement with Intellia Therapeutics, Inc. to advance CRISPR/Cas gene-editing technology for in vivo therapeutic development. The Company collaborates with Intellia to conduct research for the discovery, development, and commercialization of new therapies, in addition to the research and technology development of the CRISPR/Cas platform. In connection with the execution of the agreement, the Company made a $75.0 million up-front payment, which was recorded as research and development expense in the second quarter of 2016. In May 2016, Intellia completed an initial public offering ("IPO") of its common stock; as part of the concurrent private placement, the Company purchased $50.0 million of Intellia common stock.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

4. Net Income Per Share

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Net income - basic	$	387,744	$	196,218	$	636,675	$	377,603
Effect of dilutive securities:
Convertible senior notes - interest expense and amortization of discount and note issuance costs	—		—		—		373
Net income - diluted	$	387,744	$	196,218	$	636,675	$	377,976

(Shares in thousands)
Weighted average shares - basic	106,034		104,633		105,804		104,462
Effect of dilutive securities:
Stock options	9,602		10,141		9,310		10,433
Restricted stock	501		473		493		471
Convertible senior notes	—		—		—		121
Warrants	—		984		—		1,130
Dilutive potential shares	10,103		11,598		9,803		12,155
Weighted average shares - diluted	116,137		116,231		115,607		116,617

Net income per share - basic	$	3.66	$	1.88	$	6.02	$	3.61
Net income per share - diluted	$	3.34	$	1.69	$	5.51	$	3.24

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,		Six Months Ended June 30,
(Shares in thousands)	2017	2016	2017	2016
Stock options	7,959	7,904	11,055	7,830
Restricted stock	—	20	16	19
Convertible senior notes	—	96	—	—

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

5. Marketable Securities

Marketable securities as of June 30, 2017 and December 31, 2016 consist of both debt securities of investment grade issuers as well as equity securities.

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



	Amortized		Unrealized					Fair
As of June 30, 2017	Cost Basis		Gains		Losses			Value
Corporate bonds	$	1,350,232	$	2,416	$	(2,661	)	$	1,349,987
U.S. government and government agency obligations	147,563		70		(570		)	147,063
Municipal bonds	4,624		1		(9		)	4,616
Commercial paper	13,614		—		—			13,614
Certificates of deposit	12,565		—		—			12,565
Equity securities	57,251		9,397		(6,279		)	60,369
	$	1,585,849	$	11,884	$	(9,519	)	$	1,588,214

As of December 31, 2016
Corporate bonds	$	1,076,964	$	630	$	(4,743	)	$	1,072,851
U.S. government and government agency obligations	132,923		58		(641		)	132,340
Municipal bonds	7,663		1		(20		)	7,644
Commercial paper	63,074		1		—			63,075
Certificates of deposit	42,612		—		—			42,612
Equity securities	57,251		5,551		(13,583		)	49,219
	$	1,380,487	$	6,241	$	(18,987	)	$	1,367,741

The Company classifies its debt security investments based on their contractual maturity dates. The debt securities listed as of June 30, 2017 mature at various dates through May 2022. The fair values of debt security investments by contractual maturity consist of the following:



	June 30, 2017		December 31, 2016
Maturities within one year	$	523,537	$	503,481
Maturities after one year through five years	1,004,308		815,041
	$	1,527,845	$	1,318,522

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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



	Less than 12 Months					12 Months or Greater					Total
As of June 30, 2017	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
Corporate bonds	$	644,801	$	(2,656	)	$	7,444	$	(5	)	$	652,245	$	(2,661	)
U.S. government and government agency obligations	120,102		(570		)	—		—			120,102		(570		)
Municipal bonds	4,113		(9		)	—		—			4,113		(9		)
Equity securities	48,967		(6,279		)	—		—			48,967		(6,279		)
	$	817,983	$	(9,514	)	$	7,444	$	(5	)	$	825,427	$	(9,519	)

As of December 31, 2016
Corporate bonds	$	759,222	$	(4,685	)	$	36,407	$	(58	)	$	795,629	$	(4,743	)
U.S. government and government agency obligations	81,170		(641		)	—		—			81,170		(641		)
Municipal bonds	7,141		(20		)	—		—			7,141		(20		)
Equity securities	36,417		(13,583		)	—		—			36,417		(13,583		)
	$	883,950	$	(18,929	)	$	36,407	$	(58	)	$	920,357	$	(18,987	)

There were no realized losses on sales of marketable securities, and realized gains were not material, for the three and six months ended June 30, 2017. Realized gains and losses on sales of marketable securities were not material for the three and six months ended June 30, 2016.

As it relates to marketable securities, for the three and six months ended June 30, 2017 and 2016, amounts reclassified from accumulated other comprehensive income (loss) into other (expense) income, net were related to realized gains and losses on sales.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

6. Fair Value Measurements

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



			Fair Value Measurements at Reporting Date Using
As of June 30, 2017	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
Available-for-sale marketable securities:
Corporate bonds	$	1,349,987	—		$	1,349,987
U.S. government and government agency obligations	147,063		—		147,063
Municipal bonds	4,616		—		4,616
Commercial paper	13,614		—		13,614
Certificates of deposit	12,565		—		12,565
Equity securities	60,369		$	60,369	—
	$	1,588,214	$	60,369	$	1,527,845

As of December 31, 2016
Available-for-sale marketable securities:
Corporate bonds	$	1,072,851	—		$	1,072,851
U.S. government and government agency obligations	132,340		—		132,340
Municipal bonds	7,644		—		7,644
Commercial paper	63,075		—		63,075
Certificates of deposit	42,612		—		42,612
Equity securities	49,219		$	49,219	—
	$	1,367,741	$	49,219	$	1,318,522

Marketable securities included in Level 2 are valued using quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuations in which significant inputs used are observable. The Company considers market liquidity in determining the fair value for these securities. The Company did not record any charges for other-than-temporary impairment of its Level 2 marketable securities during the three and six months ended June 30, 2017 and 2016.

There were no purchases, sales, or maturities of Level 3 marketable securities and no unrealized gains or losses related to Level 3 marketable securities for the three and six months ended June 30, 2017 and 2016. There were no transfers of marketable securities between Levels 1, 2, or 3 classifications during the six months ended June 30, 2017 and 2016.

The fair value of interest rate swap and interest rate cap contracts, which were recorded within other assets (non-current), was not material as of June 30, 2017 (see Note 11). The fair value of these contracts was determined based on Level 2 inputs, using significant inputs that are observable either directly or indirectly, including London Interbank Offered Rate ("LIBOR") and interest rate swap rates.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

7. Inventories

Inventories consist of the following:



	June 30,		December 31,
	2017		2016
Raw materials	$	170,273	$	92,287
Work-in-process	162,718		202,301
Finished goods	33,021		13,334
Deferred costs	188,308		91,434
	$	554,320	$	399,356

Deferred costs represent the costs of product manufactured and shipped to the Company's collaborators for which recognition of revenue has been deferred. For the three months ended June 30, 2017 and 2016, cost of goods sold included inventory write-offs and reserves totaling $2.7 million and $2.0 million, respectively. For the six months ended June 30, 2017 and 2016, cost of goods sold included inventory write-offs and reserves totaling $9.1 million and $6.3 million, respectively.

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:



	June 30,		December 31,
	2017		2016
Accounts payable	$	151,372	$	134,984
Accrued payroll and related costs	146,438		153,086
Accrued clinical trial expenses	101,570		91,753
Accrued sales-related charges, deductions, and royalties	214,374		159,985
Income taxes payable	23,240		235,776
Other accrued expenses and liabilities	79,370		103,512
	$	716,364	$	879,096

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 stockholders' 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 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.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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.

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

b. Credit Facility

In 2015, the Company entered into an agreement with a syndicate of lenders which provides for a $750.0 million senior unsecured five-year revolving credit facility. As of June 30, 2017, the Company had no borrowings outstanding under the credit facility and was in compliance with all credit facility covenants.

10. Leases

The Company leases laboratory and office facilities in Tarrytown, New York (the "Tarrytown Leases"). Prior to December 30, 2016, certain of the premises under the Tarrytown Leases had been accounted for as operating leases, while for certain other buildings the Company leased, the Company was deemed, in substance, to be the owner of the landlord's buildings (collectively, the "Build-to-Suit Buildings") in accordance with the application of FASB authoritative guidance. On December 30, 2016, the Company entered into a Purchase Agreement with BMR-Landmark at Eastview LLC and BMR-Landmark at Eastview IV LLC (collectively, "BMR"), pursuant to which the Company agreed to purchase BMR's Tarrytown, New York facilities (the "Facility") for a purchase price of $720.0 million. The Company occupies a significant portion of the Facility, with the remaining rentable area under leases to third-party tenants. In accordance with the terms of the Purchase Agreement, the Company paid $57.0 million toward the purchase price to BMR in December 2016.

Upon entering into the December 30, 2016 Purchase Agreement with BMR, the premises under the Company's Tarrytown Leases that were historically accounted for as operating leases were deemed to be modified, as the Company now had the option to purchase the Facility under terms that made it reasonably assured to be exercised. Consequently, the leases for such premises were re-classified as a capital lease upon execution of the Purchase Agreement, and a proportionate amount of the $57.0 million payment was recorded as reduction of the initial capital lease liability. The execution of the Purchase Agreement did not impact the balance sheet classification for the Build-to-Suit Buildings; however, a proportionate amount of the $57.0 million payment was recorded as a reduction to the related facility lease obligation.

On March 3, 2017, the Company entered into a Participation Agreement with Banc of America Leasing & Capital LLC ("BAL"), as lessor, and a syndicate of lenders (collectively, the "Participants"). The Participation Agreement provided for lease financing in connection with the acquisition by BAL of the Facility and the Company's lease of the Facility from BAL. On March 3, 2017, the right to take title to the Facility under the Purchase Agreement was assigned by the Company to BAL, and the Participants advanced $720.0 million, which was used by BAL to finance the purchase price for the Facility and to reimburse the Company for the $57.0 million payment made to BMR in December 2016. The $57.0 million reimbursement was recorded by the Company in March 2017 as an increase to capital and facility lease obligations in amounts equal to those initially recorded upon making such payment to BMR in December 2016.

On March 3, 2017, the Company entered into a lease agreement (the "Lease") with BAL, pursuant to which the Company has leased the Facility from BAL for a five-year term. As a result of entering into the lease agreement, certain parts of the Facility became subleased from the Company by existing third-party tenants. The Lease requires the Company to pay all maintenance, insurance, taxes, and other costs arising out of the use of the Facility. The Company is also required to make monthly payments of basic rent during the term of the Lease in an amount equal to a variable rate per annum based on the one-month LIBOR, plus an applicable margin that varies with the Company’s debt rating and total leverage ratio.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The Participation Agreement and the Lease include an option for the Company to elect to extend the maturity date of the Participation Agreement and the term of the Lease for an additional five-year period, subject to the consent of all the Participants and certain other conditions. The Company also has the option prior to the end of the term of the Lease to (a) purchase the Facility by paying an amount equal to the outstanding principal amount of the Participants' advances under the Participation Agreement, all accrued and unpaid interest and yield thereon, and all other outstanding amounts under the Participation Agreement, the Lease, and certain related documents or (b) sell the Facility to a third party on behalf of BAL. The advances under the Participation Agreement mature, and all amounts outstanding thereunder will become due and payable in full at the end of the term of the Lease.

As a result of entering into the lease agreement with BAL, the premises that were classified as a capital lease as of December 31, 2016 were reassessed. As described above, the Company has the option to purchase the Facility, and as a result, the Company is deemed to have continuing involvement in such premises. Accordingly, these premises continue to be classified as a capital lease, with the related property, plant, and equipment and capital lease liability remaining on the Company's Condensed Consolidated Balance Sheet. In addition, as described above, upon entering into the lease agreement, the Company began to lease space occupied by third-party tenants. The lease of such premises is also classified as a capital lease. The execution of the March 2017 lease agreement did not impact the balance sheet classification for the Build-to-Suit Buildings. However, during the second quarter of 2017, the Company recorded an out-of-period adjustment primarily resulting in the recognition of a $30.1 million loss on extinguishment of debt associated with the Build-to-Suit Buildings, and a corresponding decrease to property, plant and equipment (see Note 1). In the aggregate, the Company recorded $720.0 million of capital and facility lease obligations upon execution of the lease agreement for the Facility.

The Participation Agreement and the Lease contain financial and operating covenants, which are substantially similar to the covenants set forth in the Company's credit facility (see Note 9). The Company was in compliance with all covenants of the Participation Agreement and the Lease as of June 30, 2017.

11. Derivative Instruments and Hedging Activities

The Company is exposed to market fluctuations in interest rates, including those in connection with its March 2017 lease agreement (see Note 10). During the three months ended June 30, 2017, the Company entered into interest rate swap and interest rate cap agreements to manage a portion of such interest rate risk. All of the Company’s derivative instruments are utilized for risk management purposes, and are not used for trading or speculative purposes.

The Company's derivative instruments are designated as cash flow hedges for accounting purposes. Since the specific terms of the derivative instruments match those of the item being hedged, the derivative instruments are deemed to be highly effective in offsetting the changes in cash flows of the hedged item. As such, changes in the fair value of these derivatives are recorded in accumulated other comprehensive income (loss) until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. The Company would record any gain or loss related to the ineffectiveness directly to earnings.

The Company assesses, both at inception and on an ongoing basis, whether derivatives used continue to be highly effective in offsetting changes in cash flows of the hedged items. The Company does not exclude any portion of the cash flow hedge contracts from the assessment of hedge effectiveness. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued.

The following table summarizes the notional amounts of the Company's outstanding interest rate swap and cap agreements as of June 30, 2017:



	Notional Amount
Interest rate swap contracts	$	20,000
Interest rate cap contracts	$	20,000

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

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

12. Income Taxes

The Company is subject to U.S. federal, state, and foreign income taxes. The Company recorded an income tax provision in its Statement of Operations of $138.1 million and $96.0 million for the three months ended June 30, 2017 and 2016, respectively, and $321.5 million and $244.8 million for the six months ended June 30, 2017 and 2016, respectively. The Company's effective tax rate was 26.3% and 32.9% for the three months ended June 30, 2017 and 2016, respectively, and 33.6% and 39.3% for the six months ended June 30, 2017 and 2016, respectively. The Company's effective tax rate for the three and six months ended June 30, 2017 was positively impacted, compared to the U.S. federal statutory rate, by the tax benefit associated with stock-based compensation, the domestic manufacturing deduction, and the federal tax credit for research activities, partly offset by losses incurred in foreign jurisdictions with rates lower than the U.S. federal statutory rate and the non-tax deductible Branded Prescription Drug Fee.

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, the domestic manufacturing deduction, and the federal tax credit for increased research activities, partly 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 also recorded an income tax benefit of $1.6 million for the six months ended June 30, 2016 in connection with unrealized gains (losses) on available-for-sale marketable securities. Income tax provisions recorded in the Company's Statement of Comprehensive Income for the three months ended June 30, 2016, and three and six months ended June 30, 2017 were not material.

13. Statement of Cash Flows

Supplemental disclosure of non-cash investing and financing activities

Included in accounts payable and accrued expenses as of June 30, 2017 and December 31, 2016 were $30.9 million and $28.2 million, respectively, of accrued capital expenditures. 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.

The Company recognized an additional capital lease obligation of $201.2 million in connection with the Company's lease of additional premises at its Tarrytown, New York facility during the six months ended June 30, 2017 (see Note 10). No such amount was recognized during the six months ended June 30, 2016.

14. Legal Matters

From time to time, the Company is a party to legal proceedings in the course of the Company's business. Costs associated with the Company's involvement in legal proceedings are expensed as incurred. The outcome of any such proceedings, regardless of the merits, is inherently uncertain. If the Company were unable to prevail in any such proceedings, its consolidated financial position, results of operations, and future cash flows may be materially impacted.

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

The Company is a party to patent infringement litigation initiated by the Company involving its European Patent No. 1,360,287 (the "'287 Patent"), its European Patent No. 2,264,163 (the "'163 Patent"), and its U.S. Patent No. 8,502,018 (the "'018 Patent"). Each of these patents concerns genetically engineered mice capable of producing chimeric antibodies that are part human and part mouse. Chimeric antibody sequences can be used to produce high-affinity fully human monoclonal antibodies. In these proceedings, the Company claims infringement of several claims of the '287 Patent, the '163 Patent, and the '018 Patent (as applicable), and seeks, among other types of relief, an injunction and an account of profits in connection with the defendants' infringing acts, which may include, among other things, the making, use, keeping, sale, or offer for sale of genetically engineered mice (or certain cells from which they are derived) that infringe one or more claims of the '287 Patent, the '163 Patent, and the '018 Patent (as applicable). At this time, the Company is not able to predict the outcome of, or estimate possible gain or a range of possible loss, if any, related to, these proceedings.

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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 Praluent (alirocumab) Injection

As described in greater detail below, the Company is currently a party to patent infringement actions initiated by Amgen Inc. against the Company and Sanofi (and/or the Company's and Sanofi's respective affiliated entities) in a number of jurisdictions relating to Praluent, which the Company is jointly developing and commercializing with Sanofi.

In the United States, Amgen has asserted a number of U.S. patents, which were subsequently narrowed to U.S. Patent Nos. 8,829,165 (the "'165 Patent") and 8,859,741 (the "'741 Patent"), and seeks a permanent injunction to prevent the Company and the Sanofi defendants from commercial manufacturing, using, offering to sell, or selling within the United States (as well as importing into the United States) (collectively, "Commercializing") Praluent. Amgen also seeks a judgment of patent infringement of the asserted patents, monetary damages (together with interest), costs and expenses of the lawsuits, and attorneys' fees. A jury trial in this litigation was held in the United States District Court for the District of Delaware from March 8 to March 16, 2016. During the course of the trial, the court ruled as a matter of law in favor of Amgen that the asserted patent claims were not obvious, and in favor of the Company and the Sanofi defendants that there was no willful infringement of the asserted patent claims by the Company or the Sanofi defendants. On March 16, 2016, the jury returned a verdict in favor of Amgen, finding that the asserted claims of the '165 and '741 Patents were not invalid based on either a lack of written description or a lack of enablement. On January 3, 2017, the court issued a final opinion and judgment, denying the Company and the Sanofi defendants' motions for new trial and judgment as a matter of law. The court also denied as moot Amgen's motion to strike the Company and the Sanofi defendants' request to obtain a judgment as a matter of law, which allows the United States Court of Appeals for the Federal Circuit to address the Company and the Sanofi defendants' patent invalidity arguments on appeal. On January 12, 2017, the Company and the Sanofi defendants filed a notice of appeal with the United States Court of Appeals for the Federal Circuit. On January 18, 2017, the United States Court of Appeals for the Federal Circuit ordered an expedited briefing schedule of the appeal on the merits. On April 19, 2017, the United States District Court for the District of Delaware granted Amgen's motion to amend the judgment on an accounting of supplemental damages and enhancement of such damages if deemed appropriate, but deferred the order until after the United States Court of Appeals for the Federal Circuit issues a decision on the appeal. The briefing relating to the appeal to the United States Court of Appeals for the Federal Circuit was completed on March 31, 2017, and oral argument on the appeal was held on June 6, 2017.

On March 23 and March 24, 2016, the United States District Court for the District of Delaware held a permanent injunction hearing to determine whether Regeneron and the Sanofi defendants should be prohibited from Commercializing Praluent in the United States. On January 5, 2017, the court granted the permanent injunction but delayed its imposition for 30 days (subsequently extended to 45 days) from the date of grant (i.e., until February 21, 2017). On January 13, 2017, the Company and the Sanofi defendants filed an emergency motion for stay of the permanent injunction pending appeal with the United States Court of Appeals for the Federal Circuit; and, on February 8, 2017, the court granted the stay pending appeal.

On July 25, 2016, Amgen filed a lawsuit against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi-Synthelabo Limited, Aventis Pharma Limited, Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the English High Court of Justice, Chancery Division, Patents Court, in London, seeking a declaration of infringement of Amgen's European Patent No. 2,215,124 (the "'124 Patent"), which pertains to PCSK9 monoclonal antibodies, by Praluent. The lawsuit also seeks a permanent injunction, damages, an accounting of profits, and costs and interest. On February 8, 2017, the court temporarily stayed this litigation on terms mutually agreed by the parties.

Also on July 25, 2016, Amgen filed a lawsuit for infringement of the '124 Patent against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi Winthrop Industrie S.A., and Sanofi-Aventis Deutschland GmbH in the Regional Court of Düsseldorf, Germany, seeking a permanent injunction, an accounting of marketing activities, a recall of Praluent and its removal from distribution channels, and damages. Oral hearing on this infringement lawsuit is currently scheduled for October 19, 2017.

On September 26, 2016, Amgen filed a lawsuit for infringement of the '124 Patent in the Tribunal de grande instance in Paris, France against Regeneron, Sanofi-Aventis Groupe S.A., Sanofi Winthrop Industrie, and Sanofi Chimie (subsequently added as a defendant). Amgen is seeking the prohibition of allegedly infringing activities with a €10,000 penalty per drug unit of Praluent produced in violation of the court order sought by Amgen; an appointment of an expert for the assessment of damages; disclosure of technical (including supply-chain) and accounting information to the expert and the court; provisional damages of €10.0 million (which would be awarded on an interim basis pending final determination); reimbursement of costs; publication of the ruling in three newspapers; and provisional enforcement of the decision to be issued, which would ensure enforcement of the decision (including any provisional damages) pending appeal. Amgen is not seeking a preliminary injunction in this proceeding at this time. On April 10, 2017, the Company and the Sanofi parties filed briefs seeking invalidation of certain of the claims of the '124 Patent, and Amgen filed a response on July 28, 2017. Oral hearing on this infringement lawsuit is currently scheduled for June 29, 2018.

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

The '124 Patent is also subject to opposition proceedings in the European Patent Office seeking to invalidate certain of its claims, which were initiated by the Company on November 24, 2016.

On May 19, 2017, Amgen filed a lawsuit for infringement of Amgen's Japanese Patent Nos. 5,906,333 (the "'333 Patent") and 5,705,288 (the "'288 Patent") in the Tokyo District Court Civil Division against Sanofi K.K. Amgen's complaint alleges that manufacturing, selling or otherwise transferring, and offering to sell or otherwise transfer Praluent (alirocumab) in Japan (as well as importing Praluent (alirocumab) into Japan) infringe the '333 and '288 Patents. The complaint further seeks a permanent injunction, disposal of product, and court costs. The Company has not been named as a defendant in this litigation.

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

Proceedings Relating to Dupixent (dupilumab) Injection

On March 20, 2017, the Company, Sanofi-Aventis U.S. LLC, and Genzyme Corporation filed a complaint against Amgen and Immunex Corporation, a wholly owned subsidiary of Amgen, in the United States District Court for the District of Massachusetts seeking a declaratory judgment that the Company's and the other plaintiffs' commercializing of Dupixent does not directly or indirectly infringe U.S. Patent No. 8,679,487 (the '487 Patent) owned by Immunex Corporation relating to antibodies that bind the human interleukin-4 receptor. On May 1, 2017, the Company and the other plaintiffs filed a notice of voluntary dismissal of this action without prejudice.

On March 23, 2017, the Company, Sanofi-Aventis U.S. LLC, and Genzyme Corporation initiated an inter partes review in the United States Patent and Trademark Office ("USPTO") seeking a declaration of invalidity of the '487 Patent. On July 28 and 31, 2017, the same parties initiated two additional inter partes reviews in the USPTO seeking declarations of invalidity of the '487 Patent based on different grounds.

On April 5, 2017, Immunex Corporation filed a complaint against the Company, Sanofi, Sanofi-Aventis U.S. LLC, Genzyme Corporation, and Aventisub LLC in the United States District Court for the Central District of California seeking a judgment of patent infringement of the '487 Patent and a declaratory judgment of infringement of the '487 Patent, in each case by the Company's and the other defendants' Commercializing of Dupixent; monetary damages (together with interest); an order of willful infringement of the '487 Patent, which would allow the court in its discretion to award damages up to three times the amount assessed; costs and expenses of the lawsuit; and attorneys' fees. Immunex is not seeking an injunction in this proceeding at this time. On June 21, 2017, the court denied a motion to dismiss Immunex's complaint previously filed by the Company and the Sanofi parties. On June 28, 2017, the Company and the Sanofi parties filed an answer to Immunex's complaint and counterclaims against Immunex and Amgen, and Immunex and Amgen filed an answer on July 28, 2017.

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

Proceedings Relating to Shareholder Derivative Claims

On December 30, 2015, an alleged shareholder filed a shareholder derivative complaint in the New York Supreme Court, naming the then current and certain former non-employee members of the Company's board of directors, the Chairman of the board of directors, the Company's Chief Executive Officer, and the Company's Chief Scientific Officer as defendants and Regeneron as a nominal defendant. The complaint asserts that the individual defendants breached their fiduciary duties and were unjustly enriched when they approved and/or received allegedly excessive compensation in 2013 and 2014. The complaint seeks damages in favor of the Company for the alleged breaches of fiduciary duties and unjust enrichment; changes to Regeneron's corporate governance and internal procedures; invalidation of the Regeneron Pharmaceuticals, Inc. 2014 Long-Term Incentive Plan with respect to the individual defendants' compensation and a shareholder vote regarding the individual defendants' equity compensation; equitable relief, including an equitable accounting with disgorgement; and award of the costs of the action, including attorneys' fees. On June 28, 2017, the court dismissed the plaintiff's claims with respect to certain compensation awarded in 2013 but denied the defendants' motion to dismiss the other claims set forth in the complaint.

On or about December 15, 2015, the Company received a shareholder litigation demand upon the Company's board of directors made by a purported Regeneron shareholder. The demand asserts that the then current and certain former non-employee members of the board of directors and the Chairman of the board of directors excessively compensated themselves in 2013 and 2014. The 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

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REGENERON PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

actions in the future. The Company's board of directors is evaluating the impact of the court's decision pertaining to the motion to dismiss discussed above on the board's response to this demand.

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

Department of Justice Investigation

In January 2017, the Company received a subpoena from the U.S. Attorney's Office for the District of Massachusetts requesting documents relating to its support of 501(c)(3) organizations that provide financial assistance to patients; documents concerning its provision of financial assistance to patients with respect to products sold or developed by Regeneron (including EYLEA, Praluent, ARCALYST, and ZALTRAP^®); and certain other related documents and communications. The Company is cooperating with this investigation. The Company cannot predict the outcome or duration of this investigation or any other legal proceedings or any enforcement actions or other remedies that may be imposed on the Company arising out of this investigation.

15. Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update 2014-09 ("ASU 2014-09"), Revenue from Contracts with Customers, which, along with subsequent amendments to ASU 2014-09 issued by the FASB, will replace existing revenue recognition guidance. The new standard requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. To achieve that core principle, an entity must identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies the performance obligation. The new standard will be effective for annual and interim reporting periods beginning after December 15, 2017. Early adoption is permitted, but no earlier than 2017 for calendar year-end entities. The standard allows for two transition methods - retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. The Company has substantially completed its impact assessment, and does not currently expect the new standard to have a material impact on total revenues. However, substantive development milestones, which were previously recognized in the period when the milestone was achieved, will be recognized over the remaining performance period under the new standard. In connection with adopting the new standard, the Company does not anticipate implementing changes to its systems or internal controls. The Company continues to evaluate its planned method of transition and the impact of the new guidance on its financial statement disclosures.

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

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

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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, Dupixent^®(dupilumab) Injection, Praluent^® (alirocumab) Injection, Kevzara^® (sarilumab) Injection, REGN2810, fasinumab, and suptavumab; the likelihood and timing of achieving any of our anticipated clinical development milestones; unforeseen safety issues resulting from the administration of products and product candidates in patients, including serious complications or side effects in connection with the use of our product candidates in clinical trials; the likelihood and timing of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for marketed products, including without limitation EYLEA, Dupixent, Praluent, Kevzara, suptavumab, REGN2810, and fasinumab; ongoing regulatory obligations and oversight impacting our marketed products (such as EYLEA, Dupixent, Praluent, and Kevzara), research and clinical programs, and business, including those relating to patient privacy; determinations by regulatory and administrative governmental authorities which may delay or restrict our ability to continue to develop or commercialize our products and product candidates; competing drugs and product candidates that may be superior to our products and product candidates; uncertainty of market acceptance and commercial success of our products and product candidates; our ability to manufacture and manage supply chains for multiple products and product candidates; the ability of our collaborators, suppliers, or other third parties to perform filling, finishing, packaging, labeling, distribution, and other steps related to our products and product candidates; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unanticipated expenses; the costs of developing, producing, and selling products; our ability to meet any of our sales or other financial projections or guidance, including without limitation capital expenditures, and changes to the assumptions underlying those projections or guidance; the potential for any license or collaboration agreement, including our agreements with Sanofi, Bayer, and Teva Pharmaceutical Industries Ltd. (or their respective affiliated companies, as applicable), to be cancelled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto, including without limitation the patent litigation proceedings relating to Dupixent and Praluent described further in Part II, Item 1. "Legal Proceedings" of this report. These statements are made based on management's current beliefs and judgment, and the reader is cautioned not to rely on any such statements. In evaluating such statements, shareholders and potential investors should specifically consider the various factors identified under Part II, Item 1A. "Risk Factors," which could cause actual events and results to differ materially from those indicated by such forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events, or otherwise.

Overview

Regeneron Pharmaceuticals, Inc. is a fully integrated biotechnology company that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious diseases. Our commercialized medicines and product candidates in development are designed to help patients with eye disease, heart disease, allergic and inflammatory diseases, pain, cancer, and infectious and rare diseases.

Our total revenues were $1,470.1 million in the second quarter and $2,789.1 million in the first half of 2017, compared to $1,212.6 million in the second quarter and $2,413.5 million in the first half of 2016. Our net income was $387.7 million, or $3.34 per diluted share, in the second quarter and $636.7 million, or $5.51 per diluted share, in the first half of 2017, compared to net income of $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. Refer to the "Results of Operations" section below for further details of our financial results.

We currently have six products that have received marketing approval:

•

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

•

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. 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.

•

Praluent (alirocumab) Injection, which is available in the United States where it is indicated as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with heterozygous familial hypercholesterolemia or clinical atherosclerotic cardiovascular disease (ASCVD), who require additional lowering of LDL cholesterol. Praluent is also available in certain countries in Europe for the treatment of adult patients with primary hypercholesterolemia (heterozygous familial hypercholesterolemia (HeFH) and non-familial) or mixed dyslipidemia as an adjunct to diet: (a) in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated dose of a statin, or (b) alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated, and in Japan for the treatment of uncontrolled LDL cholesterol, in certain adult patients with hypercholesterolemia at high cardiovascular risk. In April 2017, the FDA approved the supplemental Biologics License Application (sBLA) for a once-monthly (every four weeks), 300 mg dose of Praluent. The effect of Praluent on cardiovascular morbidity and mortality has not been determined. We are collaborating with Sanofi on the global development and commercialization of Praluent. See Part II, Item 1. "Legal Proceedings" for information regarding the patent infringement proceedings relating to Praluent, which may impact Praluent's commercial availability in the United States and other jurisdictions.

Under our antibody collaboration agreement, Sanofi records product sales for commercialized products, and Regeneron has the right to co-promote such products. We have exercised our option to co-promote Praluent in the United States and thus far have not exercised our option to co-promote Praluent outside the United States. We and Sanofi share profits and losses from sales of Praluent.

•

Dupixent(dupilumab) Injection. On March 28, 2017, the U.S. Food and Drug Administration (FDA) approved Dupixent for the treatment of adult patients with moderate-to-severe atopic dermatitis whose disease is not adequately controlled with topical prescription therapies or when those therapies are not advisable. The launch of Dupixent commenced in March following the FDA approval. Sanofi records product sales for Dupixent, and we and Sanofi share profits and losses from sales of Dupixent. We have exercised our option to co-promote Dupixent in the United States and thus far have not exercised our option to co-promote Dupixent outside the United States.

The United Kingdom (UK) Medicines & Healthcare products Regulatory Agency (MHRA) granted Promising Innovative Medicine (PIM) Designation to Dupixent in the short-term treatment of adult patients with severe atopic dermatitis. PIM Designation is the first step in a 2-step Early Access to Medicines Scheme process that allows patients to be treated with Dupixent in advance of formal regulatory approval. In July 2017, the European Medicine Agency's Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion for the marketing authorization of Dupixent, recommending its approval for use in adults with moderate-to-severe atopic dermatitis who are candidates for systemic therapy. In addition, in the first quarter of 2017, an application for marketing approval for Dupixent was submitted in Japan. Sanofi has additional regulatory applications for Dupixent for use in adult patients with atopic dermatitis pending in other countries.

•

Kevzara(sarilumab) Solution for Subcutaneous Injection. In January 2017, Health Canada approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response to or intolerance to one or more biologic or non-biologic disease modifying anti-rheumatic drugs (DMARDs). This was the first approval of Kevzara worldwide. On May 22, 2017, the FDA approved Kevzara for the treatment of adult patients with moderately to severely active rheumatoid arthritis who have an inadequate response or intolerance to one or more DMARDs. In June 2017, the European Commission granted marketing authorization for Kevzara in combination with methotrexate (MTX) for the treatment of moderately to severely active rheumatoid arthritis in adult patients who have responded inadequately to, or who are intolerant to one or more DMARDs; Kevzara may be used as monotherapy in case of intolerance to MTX or when treatment with MTX is inappropriate.

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Sanofi records product sales for Kevzara, and we and Sanofi share profits and losses from sales of Kevzara. We have exercised our option to co-promote Kevzara in the United States and thus far have not exercised our option to co-promote Kevzara outside the United States. In October 2016, an application for marketing approval for Kevzara was submitted in Japan, and Sanofi has additional regulatory applications for Kevzara for RA pending in other countries.

•

ZALTRAP^® (ziv-aflibercept) Injection for Intravenous Infusion, known in the scientific literature as VEGF Trap, which is available in the United States, EU, and certain other countries for treatment, in combination with 5-fluorouracil, leucovorin, irinotecan (FOLFIRI), of patients with metastatic colorectal cancer (mCRC) that is resistant to or has progressed following an oxaliplatin-containing regimen. Pursuant to a 2015 amended and restated ZALTRAP agreement, Sanofi is solely responsible for the development and commercialization of ZALTRAP, and Sanofi pays us a percentage of aggregate net sales of ZALTRAP.

Marketed Products



Net Product Sales of Regeneron- Discovered Products⁽¹⁾	Three Months Ended June 30,				Six Months Ended June 30,
(In millions)	2017		2016		2017		2016
EYLEA in the United States	$	919.5	$	830.9	$	1,773.9	$	1,611.8
ARCALYST	4.6		3.3		8.5		6.6
Net product sales recorded by Regeneron	$	924.1	$	834.2	$	1,782.4	$	1,618.4

EYLEA outside of the United States⁽¹⁾	$	542.4	$	486.2	$	1,026.3	$	905.1
EYLEA global	$	1,461.9	$	1,317.1	$	2,800.2	$	2,516.9

Net product sales recorded by Sanofi⁽¹⁾:
Praluent in the United States	$	32.6	$	20.5	$	58.0	$	30.3
Praluent outside of the United States	13.5		4.0		24.0		7.1
Praluent global	46.1		24.5		82.0		37.4
Dupixent	28.6		—		28.7		—
Kevzara	0.8		—		0.8		—
ZALTRAP	19.5		18.9		36.9		38.0
Net product sales recorded by Sanofi	$	95.0	$	43.4	$	148.4	$	75.4

⁽¹⁾As described in the "Overview" section above, Bayer records net product sales of EYLEA outside the United States and Sanofi records global net product sales of Praluent, Dupixent, Kevzara, and ZALTRAP.

Programs in Clinical Development

We have 17 product candidates in clinical development, all of which were discovered in our research laboratories. These consist of a Trap-based clinical program and fully human monoclonal antibody product candidates, as summarized below. In addition to the product candidates in clinical development described below, we have ongoing studies for our marketed products. Each of the antibodies in the table below was generated using our VelocImmune^® technology. There are numerous uncertainties associated with drug development, including uncertainties related to safety and efficacy data from each phase of drug development (including any post-approval studies), uncertainties related to the enrollment and performance of clinical trials, changes in regulatory requirements, and changes in the competitive landscape affecting a product candidate. Refer to Part II, Item 1A, "Risk Factors" for a description of these and other risks and uncertainties that may affect our clinical programs.



Trap-based Clinical Program
EYLEA
Phase 3 study for the treatment of Neovascular Glaucoma (NVG) (in Japan) was completed in 2016 (in collaboration with Bayer). In Phase 3 clinical development for the treatment of non-proliferative diabetic retinopathy (NPDR) in patients without DME. As described below, aflibercept is also being studied in combination with nesvacumab, an antibody to angiopoietin-2 (Ang2).

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

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Antibody-based Clinical Programs Developing Independently (continued)
REGN2477^*
Antibody to Activin A being developed for Fibrodysplasia Ossificans Progressiva (FOP). FDA granted orphan drug designation for the treatment of FOP. In addition, in Phase 1 clinical development in combination with trevogrumab for muscle-wasting diseases. In the second quarter of 2017, the FDA granted Fast Track designation for the prevention and treatment of heterotopic ossification in patients with FOP.
REGN3918^*
Antibody to complement 5 (C5) being developed for paroxysmal nocturnal hemoglobinuria (PNH). Phase 1 study in healthy volunteers initiated in the second quarter of 2017.



^* Sanofi did not opt-in to or elected not to continue to co-develop the product candidate. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future global sales of the product candidate.
^** Antibodies targeting the Ang2 receptor and ligand in ophthalmology were previously included in our antibody collaboration with Sanofi. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future global sales of the product candidate and a potential development milestone.
^*** Sanofi did not opt-in to the product candidate. Under the terms of our agreement, Sanofi is entitled to receive royalties on any future sales of the product candidate. In 2015, we and the Biomedical Advanced Research Development Authority (BARDA) of the U.S. Department of Health and Human Services (HHS) entered into an agreement whereby HHS provides certain funding to support research, development, and manufacturing of a monoclonal antibody therapy for the treatment of Ebola virus infection.

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

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

Clinical Programs - Ophthalmologic Diseases

EYLEA - Ophthalmologic Diseases

Overview

Vascular Endothelial Growth Factor (VEGF) is a naturally occurring protein in the body. Its normal role in a healthy organism is to trigger formation of new blood vessels (angiogenesis) supporting the growth of the body's tissues and organs. However, in certain diseases, such as wet AMD, it is also associated with the growth of abnormal new blood vessels in the eye, which exhibit abnormal increased permeability that leads to edema. Scarring and loss of fine-resolution central vision often results. Wet AMD, diabetic retinopathy (which includes DME), and RVO are three of the leading causes of adult blindness in the developed world. In these conditions, severe visual loss is caused by neovascular proliferation and/or retinal edema.

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

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Neovascular Glaucoma

NVG is a secondary glaucoma triggered by the formation of new blood vessels (neovascularization) on the iris and the anterior chamber angle. Neovascularization restricts aqueous outflow and consequently elevates intraocular pressure (IOP). NVG is a serious condition that may lead to permanent loss of vision, a persistently painful eye, and, especially in the advanced stages, is unlikely to respond to treatment. NVG is caused by eye diseases leading to retinal ischemia, mainly CRVO, proliferative diabetic retinopathy (PDR), and ocular ischemic syndrome (OIS). NVG meets the criteria for an orphan indication in Japan where the estimated number of NVG patients is 30,000 to 40,000.

Diabetic Retinopathy

Diabetic retinopathy is a complication of diabetes mellitus characterized by microvascular damage to the blood vessels in the retina. It can progress to 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 NVG. There is currently no standard treatment for non-proliferative diabetic retinopathy in the absence of DME and patients are often observed until disease progresses sufficiently to warrant intraocular surgery (vitrectomy) or, more commonly, extensive laser treatment (panretinal photocoagulation (PRP)). PRP is utilized with the intent of preserving function of the central retina, but is inherently destructive to the peripheral retina and may result in a considerable loss of peripheral visual field.

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

Combination Product with Nesvacumab

In 2016, two Phase 2 studies, RUBY (for the treatment of DME) and ONYX (for the treatment of wet AMD), were initiated. Both studies are investigating nesvacumab, an antibody to Ang2 co-formulated with aflibercept, as a single, intravitreal injection. Efficacy and safety data from both the RUBY and ONYX studies will be analyzed through week 36.

Late-Stage Antibody-based Clinical Programs

Dupixent (dupilumab; IL-4R Antibody) for allergic and inflammatory conditions

Overview

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

Atopic Dermatitis

Phase 3 Program. The LIBERTY AD Phase 3 clinical program consisted of five trials of patients with moderate-to-severe atopic dermatitis at sites worldwide. Patients from the LIBERTY AD CHRONOS, LIBERTY AD SOLO 1, and LIBERTY AD SOLO 2 studies were transitioned to either the LIBERTY CONTINUE or LIBERTY AD open label extension trials.

In 2016, the Phase 3 LIBERTY AD CAFÉ study of Dupixent in severe atopic dermatitis was initiated, investigating two dose regimens of Dupixent (300 mg weekly and 300 mg every two weeks) with concomitant topical corticosteroids in adult patients with severe atopic dermatitis who are not adequately controlled with, or are intolerant to or ineligible for, oral cyclosporine A therapy. The primary endpoint of this study is the proportion of patients with a 75% or greater improvement from baseline in their EASI score. In April 2017, we and Sanofi announced that the results of the LIBERTY AD CAFÉ study were positive and demonstrated an acceptable safety profile. These results were submitted to the EMA and will be presented at an upcoming medical conference.

In March 2017, at the Annual Meeting of the American Academy of Dermatology, we and Sanofi presented additional detailed results from the Phase 3 LIBERTY AD CHRONOS study. This study met its primary and secondary endpoints, with patients receiving Dupixent with topical corticosteroids (TCS) achieving significantly improved measures of overall disease severity at 16 and 52 weeks, compared to TCS alone in adults with uncontrolled moderate-to-severe atopic dermatitis.

Phase 3 Study in Adolescent Patients. In the first quarter of 2017, a Phase 3 study in adolescent patients (12-17 years of age) with moderate-to-severe atopic dermatitis was initiated.

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In 2016, the FDA granted Breakthrough Therapy designation for dupilumab for the treatment of moderate to severe (12 to less than 18 years of age) and severe (6 months to less than 12 years of age) atopic dermatitis in patients who are not adequately controlled with, or who are intolerant to, topical medication.

Asthma

Phase 3 Study. A Phase 3 trial, LIBERTY ASTHMA QUEST, in adult and adolescent patients with uncontrolled persistent asthma is fully enrolled. LIBERTY ASTHMA QUEST is expected to serve as the second required pivotal efficacy study for the sBLA for asthma, since, based on discussions with the FDA, the Phase 2b study will also be considered a pivotal efficacy study. LIBERTY ASTHMA QUEST is a global, placebo-controlled Phase 3 study that enrolled more than 1,900 patients with uncontrolled persistent asthma and is evaluating two doses of dupilumab, 200 mg and 300 mg, subcutaneously administered every other week.

In addition, LIBERTY ASTHMA VENTURE, a randomized Phase 3 study examining the ability of dupilumab to reduce oral corticosteroid use in patients with severe steroid-dependent asthma, is fully enrolled and is also planned to be included in the sBLA for asthma.

Phase 3 Study in Pediatric Patients. In the second quarter of 2017, a Phase 3 study in pediatric patients (6-11 years of age) with uncontrolled persistent asthma was initiated.

Nasal Polyps

Phase 3 Study. A Phase 3 study, LIBERTY NP SINUS, in adult patients with bilateral nasal polyps on a background therapy with intranasal corticosteroids was initiated in 2016.

Eosinophilic Esophagitis

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

We recently completed a positive primary analysis from a Phase 2 proof-of-concept study of dupilumab in patients with active, moderate-to-severe EoE. Detailed data from this study will be presented at an upcoming medical conference.

Praluent for LDL cholesterol reduction

Overview

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

Clinical Program

Phase 3 ODYSSEY Program. The potential of Praluent to demonstrate cardiovascular benefit is being prospectively assessed in the ongoing 18,000-patient ODYSSEY OUTCOMES trial, which is fully enrolled and is expected to be completed in 2017. All patients who entered the ODYSSEY OUTCOMES trial had experienced a heart attack or unstable angina requiring hospitalization within the previous year before entering the trial, and experienced inadequately controlled LDL cholesterol despite receiving maximally-tolerated statins and potentially other lipid-lowering therapies. In 2016, an independent Data Monitoring Committee (DMC) of the ODYSSEY OUTCOMES study completed the first and second interim analyses. Based on the recommendation of the independent DMC, the ODYSSEY OUTCOMES trial continues as planned. Regeneron remains blinded to the actual results of the first and second interim analyses, and the DMC will continue to monitor the ongoing safety and efficacy of Praluent as planned.

In 2016, as a post-marketing commitment to the FDA, a Phase 4 randomized, placebo-controlled, long-term trial that prospectively evaluates the effect of Praluent on neurocognitive function was initiated.

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In the second quarter of 2017, we and Sanofi presented positive results from two Phase 3b/4 studies (ODYSSEY-INSULIN and ODYSSEY-DYSLIPIDEMIA) which evaluated Praluent in patients with diabetes. Both studies found that a majority of patients reached their lipid goals with Praluent 75 mg administered every two weeks, with an overall safety profile comparable to the ODYSSEY Phase 3 program.

Kevzara (sarilumab; IL-6R Antibody) for inflammatory diseases

Overview

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

Non-infectious Uveitis

Phase 2 SARIL-NIU-SATURN Study. SARIL-NIU-SATURN was a small Phase 2, randomized double-masked, placebo-controlled study (n=58) conducted to assess the effect of sarilumab on non-infectious uveitis of the posterior ocular segment. Based on the results of this study, no further development is currently planned in this indication.

Polyarticular-course Juvenile Idiopathic Arthritis (pcJIA)

Phase 2 pcJIA Study. A Phase 2 study of sarilumab in pcJIA was initiated in 2016.

Suptavumab (REGN2222; RSV-F Antibody) for RSV

Overview

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

Clinical Program

A Phase 3 study of suptavumab (NURSERY Pre-Term) was initiated in 2015. The study finished enrolling patients in the first quarter of 2017 subsequent to the completion of the Northern Hemisphere RSV season; final enrollment was approximately 1,200 patients.

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

REGN2810 (PD-1 Antibody) for cancer

Overview

The PD-1/PD-L1 pathway has emerged as a critical regulator of effective immune responses to a variety of cancers, and a number of agents blocking either PD-1 or PD-L1 have been approved. REGN2810 is a high-affinity anti-PD-1 human antibody that was generated using the Velocimmune platform. REGN2810 is being developed to provide a foundational component for a planned, diverse immuno-oncology portfolio. Initial efforts for approval are expected to be as monotherapy in selected indications, and subsequent development is expected to be focused on combinations with other anti-cancer agents.

Clinical Program

REGN2810 is in Phase 1 clinical development in a variety of malignancies as monotherapy or in combination with other antibodies or treatments. A pivotal Phase 2 study for the treatment of advanced CSCC was initiated in 2016. A Phase 3 study in first-line treatment for non-small cell lung cancer and a potentially pivotal Phase 2 study in BCC were initiated in the second quarter of 2017.

In June 2017, we and Sanofi announced positive preliminary results in patients with advanced CSCC. The data, pooled from two expansion cohorts of the REGN2810 Phase 1 trial, were presented at the 2017 American Society of Clinical Oncology (ASCO) Annual Meeting. Treatment with REGN2810 led to an investigator-assessed overall response rate (ORR) of 46.2% and a disease control rate (DCR) of 69.2%. The median progression-free survival and overall survival were not reached at the data cutoff date with a median follow up of 6.9 months (range: 1.1 to 13.8 months; ongoing). One patient experienced progressive disease during treatment with REGN2810 after the initial response, and two patients were not evaluable due to death, which was considered

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unrelated to REGN2810. Ten patients remain in response as of the data cutoff date (range: 8 to 40 weeks duration of response). The most common treatment-related adverse event of any grade was fatigue (23.1%). All grade 3 or higher adverse events occurred once and included arthralgia (3.8%), maculopapular rash (3.8%), asthenia (3.8%), aspartate aminotransferase (AST) elevation (3.8%), and alanine aminotransferase (ALT) elevation (3.8%). No apparent association between the objective response and level of PD-L1 (programmed death ligand 1) expression was found. These results are from 10 patients with distantly metastatic CSCC who were enrolled in one expansion cohort and 16 patients with inoperable (unresectable) locally or regionally advanced CSCC who were enrolled in a second expansion cohort.

In the second quarter of 2017, we and Inovio Pharmaceuticals, Inc. entered into a clinical and supply agreement for a Phase 1b/2a immuno-oncology trial. The study will be conducted by Inovio in patients with newly-diagnosed glioblastoma multiforme (GBM) and will evaluate REGN2810 in combination with Inovio's INO-5401 T cell activating immunotherapy encoding multiple antigens and INO-9012, an immune activator encoding IL-12. The trial is expected to begin later this year. Also in the second quarter of 2017, we and SillaJen, Inc. entered into a clinical and supply agreement for a Phase 1b dose-escalation study in renal cell carcinoma (RCC), or kidney cancer. The study will evaluate REGN2810 in combination with SillaJen's oncolytic vaccinia virus, Pexa-Vec, in patients with previously treated metastatic or unresectable renal cell carcinoma. The trial is expected to begin later this year in Korea, with expansion to sites in the United States.

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

Overview

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

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

Osteoarthritis

Phase 2/3 Study. In the second quarter of 2016, we announced positive, 16-week top-line data from a Phase 2/3 study in patients with moderate-to-severe osteoarthritis pain of the hip or knee who have a history of inadequate pain relief or intolerance to current analgesic therapies. In the fourth quarter of 2016, we and Teva announced that at the 36-week analysis of the Phase 2/3 clinical study in patients with moderate-to-severe osteoarthritis pain of the hip or knee, the incidence of adjudicated arthropathies was found to be potentially dose-dependent, with a higher rate of patients experiencing arthropathies in the higher dose groups (12% (9mg), 7% (6mg), 5% (3mg), 2% (1mg), and 1% (placebo)). In the ongoing fasinumab osteoarthritis pivotal Phase 3 program (further described below), we and our collaborators are planning to advance only the lower doses from the Phase 2/3 study.

Phase 3 Study. A Phase 3 long-term safety study in patients with pain due to osteoarthritis of the knee or hip was initiated in 2016. In addition, a Phase 3 efficacy study in patients with pain due to osteoarthritis of the knee or hip was initiated in the second quarter of 2017.

Chronic Low Back Pain

A Phase 2b study in chronic low back pain was initiated in 2016. In October 2016, the FDA placed the Phase 2b study in chronic low back pain on clinical hold and requested an amendment of the study protocol; this was based on the FDA's recommendation that patients with advanced osteoarthritis at baseline not receive higher doses of fasinumab. Following this development, we completed an unplanned interim review of results and stopped dosing in the study. The unplanned analysis showed clear evidence of efficacy with improvement in pain scores in all fasinumab groups compared to placebo at the 8- and 12-week time points (nominal p<0.01). Preliminary safety results are generally consistent with what has been previously reported with the class. The Phase 2b chronic low back pain study enrolled approximately 70% of the targeted 800 patients in four dose groups: placebo, 6mg subcutaneously monthly, 9mg subcutaneously monthly, and 9mg intravenously every two months. Patients will continue to be followed for up to 36 weeks.

We and Teva plan to design pivotal Phase 3 studies in chronic low back pain. The companies plan to submit a pivotal program plan for review with the FDA and other health authorities.

Other Programs

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

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In 2015, we and BARDA entered into an agreement to develop, test, and manufacture a monoclonal antibody therapy for the treatment of Ebola virus infection. Under the terms of the agreement, HHS provides funding to support our preclinical development, antibody manufacturing, and for a Phase 1 study in healthy volunteers, and has the option to provide additional funding for further manufacturing and development studies. In addition, in 2016, we and BARDA of the HHS entered into an agreement whereby HHS will provide certain funding to manufacture and study two antibody therapies for the potential treatment of Middle East Respiratory Syndrome (MERS).

In the first quarter of 2017, the Regeneron Genetics Center (RGC) entered into an agreement with U.K. Biobank and GlaxoSmithKline (GSK) to generate genetic sequence data from the volunteer participants in the U.K. Biobank resource. RGC ultimately plans to generate genetic sequence data from the 500,000 volunteer participants in the U.K. Biobank resource, and RGC and GSK have committed an initial investment to enable the sequencing of 50,000 samples. The sequencing of U.K. Biobank's samples will be performed at the RGC facility. These sequence data will be incorporated back into U.K. Biobank's resource following a standard exclusivity period for GSK and Regeneron and made openly available to the broader scientific community.

Collaboration Agreements

Collaborations with Sanofi

Antibodies. Since November 2007, we and Sanofi have been parties to a global, strategic collaboration to discover, develop, and commercialize fully human monoclonal antibodies. The collaboration is governed by a Discovery and Preclinical Development Agreement (Antibody Discovery Agreement) and a License and Collaboration Agreement (each as amended), collectively referred to as the Antibody Collaboration. Pursuant to the Antibody Discovery Agreement, as amended, Sanofi is responsible for funding up to $130.0 million of our antibody discovery activities in 2017 to identify and validate potential drug discovery targets and develop fully human monoclonal antibodies against these targets. We lead the design and conduct of research activities under the Antibody Discovery Agreement, including target identification and validation, antibody development, research and preclinical activities through filing of an Investigational New Drug application (IND) or its equivalent, toxicology studies, and manufacture of preclinical and clinical supplies. Our Antibody Discovery Agreement with Sanofi will end on December 31, 2017 without any extension. Praluent (anti-PCSK9), Dupixent (anti-IL-4R), Kevzara (anti-IL-6R), REGN2810 (anti-PD-1), REGN3500 (anti-IL-33), and REGN3767 (anti-LAG-3) were discovered and initially developed under the Antibody Discovery Agreement. Praluent, Dupixent, Kevzara, and REGN3500 will continue to be developed, and commercialized as applicable, with Sanofi under the Antibody License and Collaboration Agreement. REGN2810 and REGN3767 will continue to be developed with Sanofi under the immuno-oncology collaboration. Upon expiration of the Antibody Discovery Agreement, we have the right to develop or continue to develop other product candidates discovered under this agreement independently or with other collaborators. The $130.0 million in annual funding from Sanofi under the Antibody Discovery Agreement is expected to be fully utilized by the end of the third quarter of 2017.

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. We are obligated to use commercially reasonable efforts to supply clinical requirements of each drug candidate under the collaboration until commercial supplies of that drug candidate are being manufactured.

Under our collaboration agreement, Sanofi records product sales for commercialized products, and Regeneron has the right to co-promote such products. We have exercised our option to co-promote Dupixent, Praluent, and Kevzara in the United States. We have not exercised our option to co-promote any of these antibodies outside the United States; however, we retain the right to do so at a future date subject to the terms of the collaboration agreement. We and Sanofi will equally share profits and losses from sales within the United States. We and Sanofi share profits outside the United States on a sliding scale based on sales starting at 65% (Sanofi)/35% (us) and ending at 55% (Sanofi)/45% (us), and share losses outside the United States at 55% (Sanofi)/45% (us). In addition to profit sharing, we are entitled to receive up to $250.0 million in sales milestone payments, with milestone payments commencing after aggregate annual sales outside the United States exceed $1.0 billion on a rolling 12-month basis.

Immuno-Oncology. In July 2015, we and Sanofi entered into a global strategic collaboration to discover, develop, and commercialize antibody-based cancer treatments in the field of immuno-oncology (the IO Collaboration). The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement (IO Discovery Agreement), and an Immuno-oncology License and Collaboration Agreement (IO License and Collaboration Agreement). In connection with the IO Discovery Agreement, Sanofi made a $265.0 million non-refundable up-front payment to us. Pursuant to the IO Discovery Agreement, we will spend up to $1,090.0 million (IO Discovery Budget) to identify and validate potential immuno-oncology targets and develop

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therapeutic antibodies against such targets through clinical proof-of-concept. Sanofi will reimburse us for up to $825.0 million (IO Discovery Funding) of these costs, subject to certain annual limits (up to $200.0 million for 2017). The term of the IO Discovery Agreement will continue through the later of five years from the effective date of the IO Collaboration or the date the IO Discovery Budget is exhausted, subject to Sanofi's option to extend it for up to an additional three years for the continued development (and funding) of selected ongoing programs. Pursuant to the IO Discovery Agreement, we will be primarily responsible for the design and conduct of all research activities, including target identification and validation, antibody development, preclinical activities, toxicology studies, manufacture of preclinical and clinical supplies, filing of IND Applications, and clinical development through proof-of-concept. We will reimburse Sanofi for half of the development costs they funded that are attributable to clinical development of antibody product candidates under the IO Discovery Agreement from our share of future profits, if any, from commercialized IO Collaboration products to the extent they are sufficient for this purpose. With regard to product candidates for which proof-of-concept is established, Sanofi will have the option to license rights to the product candidate pursuant to the IO License and Collaboration Agreement (as further described below).

In connection with the IO License and Collaboration Agreement, Sanofi made a $375.0 million non-refundable up-front payment to us. If Sanofi exercises its option to license rights to a product candidate thereunder, it will co-develop the drug candidate with us through product approval. Principal control of development of each product candidate that enters development under the IO License and Collaboration Agreement will alternate between us and Sanofi on a candidate-by-candidate basis. Sanofi will fund drug candidate development costs up front for the candidates for which it is the principal controlling party and we will reimburse half of the total development costs for all such candidates from our share of future IO Collaboration profits to the extent they are sufficient for this purpose. In addition, we and Sanofi will share equally, on an ongoing basis, the development costs for the drug candidates for which we are the principal controlling party. The party having principal control over the development of a product candidate will also lead the commercialization activities for such product candidate in the United States. We are obligated to use commercially reasonable efforts to supply clinical requirements of each drug candidate under the IO License and Collaboration Agreement until commercial supplies of that IO drug candidate are being manufactured. For all products commercialized under the IO License and Collaboration Agreement, Sanofi will lead commercialization activities outside of the United States. Each party will have the right to co-promote licensed products in countries where it is not the lead commercialization party. The parties will share equally in profits and losses in connection with the commercialization of collaboration products.

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

Collaborations with Bayer

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

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

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

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

Collaboration with Mitsubishi Tanabe Pharma

Fasinumab. In September 2015, we entered into a collaboration agreement with Mitsubishi Tanabe Pharma Corporation (MTPC) providing MTPC with development and commercial rights to fasinumab in Japan, South Korea, Taiwan, Indonesia, Thailand, the Philippines, Malaysia, Singapore, Vietnam, Myanmar, and Sri Lanka (the MTPC Territories). In connection with the agreement, MTPC made a $10.0 million non-refundable up-front payment in 2015, and in 2016, MTPC made additional payments of $45.0 million and $15.0 million to us. In the second quarter of 2017, we earned a $30.0 million development milestone from MTPC, and we are entitled to receive up to an aggregate of $125.0 million in additional development milestone and other contingent payments.

Under the agreement, we are obligated to manufacture and supply MTPC with clinical and commercial supplies of fasinumab. If fasinumab is commercialized in the MTPC Territories, we will supply the product to MTPC at a tiered purchase price, which ranges from 30% to 50% of net sales of the product (subject to adjustment in certain circumstances), and are eligible for additional payments up to an aggregate of $100.0 million upon the achievement of specified annual net sales amounts starting at $200.0 million.

Collaboration with Teva

Fasinumab. In September 2016, we entered into a collaboration agreement with Teva to develop and commercialize fasinumab globally, excluding certain Asian countries that are subject to our collaboration agreement with MTPC (as described above). In connection with the agreement, Teva made a $250.0 million non-refundable up-front payment in 2016. We will lead global development activities, and the parties will share equally, on an ongoing basis, development costs under a global development plan. In the second quarter of 2017, we earned a $25.0 million development milestone from Teva, and we are entitled to receive up to an aggregate of $435.0 million in additional development milestones and up to an aggregate of $1,890.0 million in contingent payments upon achievement of specified annual net sales amounts. We are responsible for the manufacture and supply of fasinumab globally.

Within the United States, we will lead commercialization activities, and the parties will share equally in any profits or losses in connection with commercialization of fasinumab. In the territory outside of the United States, Teva will lead commercialization activities and we will supply product to Teva at a tiered purchase price, which is calculated as a percentage of net sales of the product (subject to adjustment in certain circumstances).

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General

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

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 Dupixent, Praluent, and Kevzara, as well as preparation for potential commercialization of other indications of dupilumab. Our financial results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of our marketed products, the scope and progress of our research and development efforts, the timing of certain expenses, the continuation of our collaborations, in particular with Sanofi and Bayer, including our share of collaboration profits or losses from sales of commercialized products and the amount of reimbursement of our research and development expenses that we receive from collaborators, and the amount of income tax expense we incur, which is partly dependent on the profits or losses we earn in each of the countries in which we operate. We cannot predict whether or when new products or new indications for marketed products will receive regulatory approval or, if any such approval is received, whether we will be able to successfully commercialize such product(s) and whether or when they may become profitable.

The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, key events in 2017 to date were, and plans for the next twelve months are, as follows:



Trap-based Clinical Program:
		2017 Events to Date		2017-2018 Plans (next 12 months)
EYLEA	Ÿ	Bayer received regulatory approval for EYLEA for various indications and continued to pursue regulatory applications for marketing approval in additional countries	Ÿ	Bayer to submit for additional regulatory approvals outside the United States for various indications
			Ÿ	Regulatory agency decisions on applications outside the United States for various indications
			Ÿ	Complete patient enrollment in Phase 3 study for the treatment of NPDR in patients without DME
			Ÿ	Submit sBLA to FDA for every 12-week dosing interval in wet AMD

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Antibody-based Clinical Programs:
		2017 Events to Date		2017-2018 Plans (next 12 months)
Dupixent (dupilumab; IL-4R Antibody)	Ÿ	Presented detailed results from one-year Phase 3 CHRONOS study at the Annual Meeting of the American Academy of Dermatology	Ÿ	Submit for additional regulatory approvals in atopic dermatitis outside the United States
	Ÿ	FDA approved Dupixent for the treatment of adults with moderate-to-severe atopic dermatitis	Ÿ	Regulatory agency decisions on atopic dermatitis applications outside of the United States, including in the EU
	Ÿ	Initiated Phase 3 study in adolescent patients (12-17 years of age) with atopic dermatitis	Ÿ	Initiate Phase 3 studies in pediatric patients in atopic dermatitis
	Ÿ	CHMP recommended approval of Dupixent for use in adult patients with atopic dermatitis	Ÿ	Report results from Phase 3 asthma program in adults and adolescents
	Ÿ	Regulatory applications submitted for atopic dermatitis in Japan and various other jurisdictions outside the United States	Ÿ	Submit sBLA for asthma in adult/adolescent patients
	Ÿ	Reported that the results from the LIBERTY AD CAFÉ study in atopic dermatitis were positive	Ÿ	Submit for EU regulatory approval in asthma in adult/adolescent patients
	Ÿ	Initiated Phase 3 study in pediatric patients (6-11 years of age) with asthma	Ÿ	Complete patient enrollment in Phase 3 study in nasal polyps
	Ÿ	Reported positive results from Phase 2 study in EoE	Ÿ	Initiate Phase 3 study in EoE
			Ÿ	Initiate Phase 2 study in food allergies
Praluent (PCSK9 Antibody)	Ÿ	Court issued a permanent injunction barring commercialization of Praluent in the United States beginning February 21, 2017. On February 8, 2017, an emergency motion to stay (suspend) the injunction pending appeal was granted.	Ÿ	Complete and report results from ODYSSEY OUTCOMES study
			Ÿ	Submit for additional regulatory approvals outside the United States
			Ÿ	Regulatory agency decisions on applications outside the United States
	Ÿ	FDA approved sBLA for monthly dosing regimen	Ÿ	Initiate Phase 3 study in HoFH
	Ÿ	FDA granted orphan drug designation for treatment of HoFH	Ÿ	Decision from U.S. Court of Appeals for the Federal Circuit in the patent infringement litigation against Amgen
	Ÿ	Reported positive results from two Phase 3b/4 trials in patients with diabetes
Kevzara (sarilumab; IL-6R Antibody)	Ÿ	Regulatory applications submitted in various jurisdictions outside the United States	Ÿ	Submit for additional regulatory approvals outside of the United States
	Ÿ	Health Canada approved Kevzara for the treatment of adult patients with RA	Ÿ	Regulatory agency decisions on applications outside of the United States