SecProbe.io

CORRESP
1
filename1.htm

		SEC Document

 Regeneron Pharmaceuticals, Inc.

777 Old Saw Mill River Road

Tarrytown, NY  10591-6707

 Phone   914 847 7000

www.regeneron.com

May 23, 2016

VIA EDGAR

Mr. Jim B. Rosenberg

Senior Assistant Chief Accountant

Office of HealthCare and Insurance

U.S. Securities and Exchange Commission

Division of Corporation Finance

100 F Street, NE

Washington, D.C. 20549

Re:

 Regeneron Pharmaceuticals, Inc.

 Form 10-K for the Fiscal Year Ended December 31, 2015

 Filed February 11, 2016

 Form 8-K dated February 9, 2016

 Filed February 9, 2016

 File No. 000-19034

Dear Mr. Rosenberg:

This letter sets forth the responses of Regeneron Pharmaceuticals, Inc. (the "Company" or "Regeneron") to the comments of the staff (the "Staff") of the Securities and Exchange Commission (the "Commission") set forth in the Staff’s letter dated May 2, 2016, with respect to the above-referenced Form 10-K and Form 8-K (collectively, the "Filings").  Set forth below are the headings and text of the Staff's comments followed by the Company's response.

Form 10-K for the Year Ended December 31, 2015

Patents, Trademarks, and Trade Secrets, page 22

1. We refer to the third paragraph under the heading which discloses that the patents for your three commercially marketed products and ZALTRAP "generally" expire between 2020 and 2029 and "may be subject" to extension.  Please confirm that you will revise future filings to discuss separately the patent coverage for each product that is material to your business, including the patent expiration dates for any material patents and the current status of efforts to extend those expiration dates.  Also, discuss coverage by jurisdiction where material.  With reference to your disclosures in the fourth paragraph under the heading, please also confirm that in future filings you will revise your discussion of material licenses to discuss the term of those licenses.  To the extent that the term of a material license is tied to patent expiration, please confirm that you will identify the applicable expiration date in the future filing.

1

Response:

In its future Form 10-K filings, the Company will include disclosure relating to patent coverage for each product that the Company considers material to its business at the time of filing, including (i) patent expiration dates for patents viewed as material by the Company, (ii) the current status of relevant efforts to extend those expiration dates, if applicable, and (iii) patent coverage by jurisdiction, to the extent considered material by the Company.

In its future Form 10-K filings, the Company also will include the term of any licenses it considers material to its business at the time of filing and, to the extent any such license is tied to patent expiration, the applicable expiration date.  By way of background, the Company did previously disclose in the "Liquidity and Capital Resources - License and Settlement Agreements with Genentech" section of its Form 10-K for the fiscal year ended December 31, 2015 that the royalty payments to Genentech based on sales of EYLEA® (aflibercept) Injection (which the Company was obligated to pay pursuant to the agreements discussed in the fourth paragraph under "Patents, Trademarks, and Trade Secrets" referenced in this comment) ended on May 7, 2016, as expressly set forth in the agreements.

Notes to Consolidated Financial Statements

1. Business Overview and Summary of Significant Accounting Policies

Accounts Receivable - Trade, page F-10

2. Please tell us why your days sales outstanding for the quarter ended March 31, 2014 of 199 days is substantially higher than for the quarter ended March 31, 2015 of 168 days.  Further tell us why the days sales outstanding for each of these quarters is substantially higher than for the quarters for the rest of the respective fiscal year.  In this regard, we computed days sales by dividing accounts receivable - trade, net as end of a quarter by net product sales for the respective quarter and multiplying the result by the number of days in the quarter.

Response:

As disclosed in the "Liquidity and Capital Resources - Sources and Uses of Cash" section of the Company's Form 10-Q for the quarter ended March 31, 2014, the Company originally offered extended payment terms to its EYLEA customers in connection with the U.S. product launch of EYLEA in the fourth quarter of 2011 and subsequently shortened, effective January 2014, the payments terms to certain of its EYLEA customers.  The Company had initially offered extended payment terms in recognition of anticipated delays in reimbursement to physicians by government and commercial payers during the launch of EYLEA.

2

The Company commenced sales of EYLEA in the United States for the treatment of diabetic macular edema ("DME") in the third quarter of 2014 and macular edema following branch retinal vein occlusion ("BRVO") in the fourth quarter of 2014.  In recognition of anticipated delays in reimbursement to physicians by government and commercial payers during the initial launch of EYLEA for these new indications, the Company lengthened its payment terms to its distributors for approximately 5 months effective August 2014 (with the understanding that such payment terms would revert back to the January 2014 payment terms in February 2015).  As disclosed in the "Liquidity and Capital Resources - Sources and Uses of Cash" section of the Company's Form 10-Q for the quarter ended March 31, 2015, "As of March 31, 2015, Sanofi, Bayer HealthCare, and trade accounts receivable increased by $321.1 million, compared to December 31, 2014, primarily due to higher trade accounts receivable resulting from lengthened payment terms to certain of our U.S. EYLEA customers effective mid-2014."  Note that EYLEA sales in the United States to these U.S. EYLEA customers (i.e., the Company's distributors) account for a significant portion of the Company's net product sales.

A change in payment terms offered to distributors does not have an impact on the Company’s days sales outstanding ("DSO") in the period in which the change in payment terms was made effective, but rather in subsequent periods when accounts receivable amounts in respect of sales made under the revised payment terms are due to be collected.  As an example, the shortening of payment terms effective in January 2014 resulted in a lower DSO beginning in the second quarter of 2014, in contrast to the first quarter of 2014 and periods prior.  Additionally, the lengthening of payment terms effective in August 2014 resulted in an increase in the Company's DSO commencing in the first quarter of 2015, in contrast to the second, third, and fourth quarters of 2014.

The Company monitors product supply levels in the distribution channel, as well as sales by its customers of EYLEA to healthcare providers.  As noted in the Company's quarterly earnings releases for the periods ended March 31, 2014 through March 31, 2015 furnished as exhibits to the Company's Current Reports on Form 8-K, overall EYLEA distributor inventory levels were consistently within the Company's one- to two- week targeted range from the first quarter of 2014 through the first quarter of 2015.  In addition, during 2015, 2014, and 2013, the Company did not recognize any charges for write-offs of accounts receivable related to its marketed products, as disclosed in Item 7A. "Quantitative and Qualitative Disclosures About Market Risk - Credit Quality Risk" of the Company's Form 10-K for the fiscal year ended December 31, 2015.

3. Collaboration Agreements

a. Sanofi

Immuno-Oncology, page F-16

3. Please provide us a full accounting analysis of the July 2015 IO Collaboration with Sanofi and, as amended in connection with the IO Collaboration, the Antibody Discovery Agreement and its License and Collaboration Agreement with Sanofi.  Include in your analysis:

•

 How you viewed the IO Collaboration and the amended agreements (i.e. separately or together) and the basis for your conclusion;

•

 Evaluation of the deliverables;

•

 Arrangement consideration, its determination and allocation;

•

 Revenue and expense recognition; and

•

 Authoritative literature supporting your analysis.

3

Response:

Background

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 (the "Antibody Discovery Agreement") and a License and Collaboration Agreement (each as amended).  In July 2015, the Company 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 Company's discovery activities to identify and validate potential drug discovery targets in the field of immuno-oncology and develop fully human monoclonal antibodies against these targets will be funded by Sanofi under the terms of the IO collaboration, as further described below.

The IO Collaboration is governed by an Immuno-oncology Discovery and Development Agreement (the "IO Discovery Agreement"), and an Immuno-oncology License and Collaboration Agreement (the "IO License and Collaboration Agreement").  In connection with entering into the IO Discovery Agreement, Sanofi made a $265.0 million non-refundable up-front payment to the Company.  Pursuant to the IO Discovery Agreement, the Company will incur costs to identify and validate potential immuno-oncology targets and develop therapeutic antibodies against such targets through clinical proof-of-concept.  Sanofi will reimburse the Company for up to $825.0 million (the "IO Discovery Funding") of these costs, subject to certain annual limits, which consists of (i) $750 million in new funding and (ii) $75 million of funding that would have otherwise been available to Regeneron under the existing Antibody Discovery Agreement with Sanofi.  The Company 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 Regeneron's share of future profits, if any, to the extent they are sufficient for this purpose.  However, the Company is not required to apply more than 10% of its share of the profits from IO Collaboration products in any calendar quarter towards reimbursing Sanofi for these development costs.  With regard to product candidates for which proof-of-concept is established, Sanofi will have the option to license rights to the candidate pursuant to the IO License and Collaboration Agreement (as further described below).  If Sanofi does not exercise its option to license rights to a product candidate, the Company will retain the exclusive right to develop and commercialize such product candidate and Sanofi will be entitled to receive a royalty on sales.

     In connection with entering into the IO License and Collaboration Agreement, Sanofi made a $375.0 million non-refundable up-front payment to the Company.  If Sanofi exercises its option to license rights to a product candidate thereunder, it will co-develop the drug candidate with the Company through product approval.  Principal control of development of each product candidate that enters development under the IO License and Collaboration Agreement will alternate between the Company and Sanofi on a candidate-by-candidate basis.  Sanofi will fund drug candidate development costs up front (i.e., Sanofi will "pay as they go") for the candidates for which it is the principal controlling party and the Company will reimburse half of the total development costs for all such candidates from its share of future profits, if any, to the extent they are sufficient for this purpose, subject to the same 10% reimbursement limitation described above.  In addition, Sanofi and the Company will share equally, on an ongoing basis, the development costs for the drug candidates for which the Company is the principal controlling party.  The party having principal control over the development of a product candidate will also lead the commercialization activities for such product candidate in the United States.  For all products commercialized under the IO License and Collaboration Agreement, Sanofi will lead commercialization

4

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 any profits from worldwide sales of collaboration products.  Regeneron is 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.  Prior to commencement of manufacturing commercial supplies, both parties will determine who will be responsible for manufacturing and finishing commercial supplies for each IO licensed product.

     Under the terms of the IO License and Collaboration Agreement, the parties will also co-develop the Company's antibody product candidate targeting the receptor known as programmed cell death protein 1, or PD-1 ("REGN2810").  The parties will share equally, on an ongoing basis, development expenses for REGN2810 up to a total of $650.0 million (for clarity, Regeneron would have to solely fund any development expenses in excess of such amount).  The Company will have principal control over the development of REGN2810 and will lead commercialization activities in the United States, subject to Sanofi’s right to co-promote, while Sanofi will lead commercialization activities outside of the United States and the parties will equally share profits from worldwide sales.  The Company 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.  At the time of execution of the IO License and Collaboration Agreement, REGN2810 was in Phase 1 clinical development by Regeneron.  There were no other product candidates subject to the IO License and Collaboration Agreement at the time of execution of such contract.

Analysis of the IO Collaboration and amendments to the Antibody Collaboration

The Company first determined whether (a) the Antibody Discovery Agreement and Antibody License and Collaboration Agreement had been "materially modified" and (b) the IO Collaboration and the Antibody Collaboration should be accounted for together.   The Company does not deem the amendments to the Antibody Collaboration to be a material modification of the existing Antibody Discovery Agreement or Antibody License and Collaboration Agreement with Sanofi, and concluded that the IO Collaboration and the Antibody Collaboration should not be accounted for together, primarily in light of the following factors:

•

 Sanofi previously agreed to fund up to $75 million for 2008, $100 million for 2009, and $160 million per year from 2010 - 2017 (or a total of approximately $1.4 billion) in connection with the Antibody Discovery Agreement.  The reductions in funding pursuant to the amended Antibody Discovery Agreement from $160 million in each of 2015, 2016, and 2017 to $145 million, $130 million, and $130 million, respectively, were not considered to be a significant modification relative to Sanofi's overall funding obligations under the Antibody Discovery Agreement.

•

 The $75 million of aggregate funding from the Antibody Collaboration, as described above