SEC Company Response from REGENERON PHARMACEUTICALS, INC. (REGN) (CIK 0000872589) (REGN) — Aug 19, 2016
REGENERON PHARMACEUTICALS, INC. (REGN) (CIK 0000872589)
Date: Aug. 19, 2016 · CIK: 0000872589 · Accession: 0001532176-16-000071
AI Filing Summary & Sentiment
File numbers found in text: 000-19034
Referenced dates: July 29, 2016, July 7, 2016, May 23, 2016
Letter
VIA EDGAR Office of HealthCare and Insurance Division of Corporation Finance Regeneron Pharmaceuticals, Inc. Form 10-K for the Fiscal Year Ended December 31, 2015 Filed February 11, 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 July 29, 2016, with respect to the above-referenced Form 10-K. Capitalized terms not otherwise defined in this letter have the respective meanings given to such terms in the Company's letters to the Staff dated May 23, 2016 and July 7, 2016 (collectively, the "Prior Responses"). Set forth below in bold are the headings and text of the Staff's comments followed by the Company's response.
Notes to Consolidated Financial Statements
3. Collaboration Agreements
a. Sanofi
Immuno-Oncology, page F-16
1. We acknowledge your response to prior comment 1 and request some additional information to support your conclusion that the IO Collaboration and the amended Antibody Collaboration are not in substance one new arrangement.
•
Please tell us the nature and type of evidence you have supporting that, had you not entered into the IO Collaboration with Sanofi, the change in scope under the Antibody Collaboration would have resulted in the $75 million reduction in the funding obligation spread over three years.
•
In your response on page 3 in support of your conclusion that there were no discounts provided to Sanofi, you refer to discussions with other third parties prior to agreeing on economic terms for the IO Collaboration with Sanofi. Tell us the nature of and the number
of these third parties and the business purpose of each discussion. Also tell us how these discussions support a conclusion that no discount was provided in the IO Collaboration with Sanofi. In this regard, explain how you considered the fair value of the research transferred from the Antibody Collaboration to the IO Collaboration, as further discussed in the next bullet, in determining the terms of the IO Collaboration. Further, tell us whether the IO Collaboration could have been consummated with these third parties without breaching the Antibody Collaboration with Sanofi.
Response:
Under the terms of the Sanofi Antibody Discovery Agreement, Sanofi is responsible for paying 100% of all "Discovery Program Costs" (as defined by the agreement) incurred by the Company through the term of the agreement, provided that such payments by Sanofi shall not exceed certain annual thresholds. For any research and development costs incurred by the Company in excess of the annual threshold, such amounts are fully funded by Regeneron. As noted in the Company's letter to the Staff dated July 7, 2016, any IO product candidates previously being researched under the terms of the Antibody Collaboration (all of which were in pre-clinical development) were transferred to the IO Collaboration upon execution of the IO Agreement. Given this reduction in the scope of research activities under the Antibody Collaboration, the Antibody Discovery Agreement was amended to reduce the aggregate funding by a total of $75 million through the remaining term of the agreement (i.e., July 2015 through December 2017). The $75 million reduction in funding was proportionate with the number of total IO targets being pursued under the Antibody Discovery Agreement over the past several years relative to the total number of targets being researched under the Antibody Discovery Agreement over the same period (i.e., the reduction in funding was structured to be commensurate with the reduction in 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 as such activities are now to be performed as part of the IO Collaboration). Note that consistent with the Antibody Discovery Agreement, Sanofi also reimburses the Company for its research and development costs, subject to certain annual limits, under the IO Discovery Agreement. There is no obligation by the Company under either the Antibody Discovery Agreement or the IO Discovery Agreement to incur costs or perform services beyond the annual Sanofi funding limits. As it relates to research and development services performed by the Company and reimbursed by Sanofi, under both the Antibody Collaboration and the IO Collaboration (a) the nature of reimbursable costs is consistent and (b) the FTE rates utilized are consistent.
The Company and Sanofi likely would not have agreed to reduce Sanofi's funding obligation under the Antibody Discovery Agreement had they not entered into the IO Collaboration, as the Company would have continued to research IO product candidates under the provisions of the Antibody Discovery Agreement. The Company and Sanofi did not discuss removing IO antibody programs from the Antibody Collaboration other than in the course of negotiating the new Sanofi IO Collaboration.
The Company could have entered into a license and collaboration agreement focused on immuno-oncology with third parties other than Sanofi without breaching the Antibody Collaboration to the extent that such an agreement related to targets and/or IO product candidates that were not subject to the Antibody Collaboration. Regeneron is free to develop and commercialize, either directly with third party collaborators or licensees, antibody product candidates that are directed to targets that have been excluded from the Antibody Collaboration or antibody product candidates that were developed pre-clinically by the Company under the Antibody Discovery Agreement but which Sanofi did not opt-in to or elected to not continue to co-develop and co-commercialize under the Antibody License and Collaboration Agreement. Prior to entering into the IO Collaboration with Sanofi, the Company held preliminary, high-level
discussions with various third parties. These preliminary discussions were the basis for subsequent, more detailed discussions with three large, multi-national pharmaceutical companies (not including Sanofi) regarding various potential immuno-oncology collaborations. The primary focus of these discussions was a collaboration in the immuno-oncology space, including a license to the Company's antibody product candidate targeting the receptor known as programmed cell death protein, or PD-1 ("REGN2810"). Sanofi had not previously opted into REGN2810 under the Antibody Discovery Agreement and thus Regeneron retained sole global rights. In addition to the PD-1 antibody, which was in Phase 1 clinical development in the first quarter of 2015, these discussions also included potentially licensing and collaborating on additional antibodies that were not subject to the Sanofi Antibody Collaboration. Therefore, if such an arrangement had been consummated with another third party, the arrangement would not have breached the Company's Antibody Collaboration with Sanofi. The Company's discussions with third parties included financial terms such as an up-front payment and the parties' proposed sharing (on an equal basis) of research and development costs for product candidates, as well as any profits or losses on commercialization of products, which was no more favorable to the Company than what was agreed to in the IO Collaboration with Sanofi. The Company received one term sheet from a third party, which proposed an up-front payment to the Company that was less than what the Company ultimately received from Sanofi under the IO Collaboration. In addition to the factors described in the Company's Prior Responses, these were some of the data points utilized by the Company to conclude that there was no discount provided to Sanofi with respect to the IO Collaboration.
•
You indicate in the bullet "Separation of targets and product candidates" on page 4 of your response that "Any IO product candidates previously being researched under the terms of the Antibody Collaboration (all of which were in pre-clinical development) were transferred to the IO Collaboration upon execution of the IO Agreement." You also indicate in your response that there are separate and distinct governance structures for the Antibody Collaboration and IO Collaboration and that one or more elements of the Antibody Collaboration are not essential to the functionality of any elements in the IO Collaboration and vice versa. Notwithstanding, it would seem that information from and results of the Antibody Collaboration could potentially be useful to and shared with the IO Collaboration and vice versa due to the nature of the collaborations. Please tell us why the transfer of product candidates to the IO Collaboration and the potential for sharing of information/results between the collaborations does not provide significant linkage among the collaborations that would indicate that the collaborations are closely related.
Response:
As noted in the Company's letter to the Staff dated July 7, 2016, the significant differences between the IO Collaboration and the Antibody Collaboration include novel and distinct scientific approaches and technologies that will be utilized by the Company to identify IO targets and to develop IO antibody product candidates. In addition, in the IO Collaboration, Regeneron will utilize a broader range of proprietary technologies that it has developed (including technologies that it has developed in recent years outside of the Antibody Collaboration) in the discovery of IO targets and the research and development of IO antibody product candidates. Therefore, from the perspective of discovery activities performed under the new IO Collaboration, the Company does not consider such activities to be dependent upon activities performed under the original Antibody Collaboration and vice versa.
In addition, as with any of the Company's ongoing research projects (whether conducted under a collaboration arrangement or developed independently by the Company), and generally in the life sciences space, results and information generated in conducting activities under one program may prove to be
useful and applicable to conducting research activities under any other of the Company's programs (whether collaborated or not); however, given the specific technologies and scientific approach used in the IO Collaboration, the utility of such results/information would not be deemed to provide a significant linkage between the Antibody Collaboration and the IO Collaboration.
Finally, it should be noted that the Company strategically pursued executing new IO Collaboration agreements with Sanofi (as opposed to merely amending the existing Antibody Collaboration agreements), principally due to the fact that the Company desired to have significantly different terms regarding governance structure and opt-in timing for IO products relative to the terms of the legacy Antibody Collaboration agreements.
Alternative Accounting Treatment Considered
As noted in the Prior Responses, the Company concluded that the amendments to the Antibody Collaboration were not a material modification of the existing Antibody Discovery Agreement or Antibody License and Collaboration Agreement with Sanofi and that the IO Collaboration and the Antibody Collaboration should not be accounted for together as a single arrangement. However, the Company did consider what the accounting treatment would have been had the Company reached a conclusion that the IO Collaboration and the Antibody Collaboration should be accounted for together as a single new arrangement. In doing so, the Company reassessed the deliverables related to the Antibody Collaboration as if it were accounted for under ASU 2009-13, since the Company would have accounted for the contract modification as if it were part of the original contract. The Company ultimately concluded that if it had accounted for the Antibody and IO Collaborations as a single arrangement, such alternative accounting treatment would not have resulted in any material differences from the Company's financial results reported for the quarterly periods ended September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 nor the annual period ended December 31, 2015. The Company's support for this conclusion is below.
a. Summary of deliverables under the Antibody Collaboration
Under the Antibody Collaboration, significant deliverables consist of the following:
(i) Rights and intellectual property. The Company out-licensed certain rights and intellectual property.
(ii) Research and development services. Sanofi reimburses the Company for certain costs in connection with researching and developing product candidates.
(iii) Manufacturing services. The Company has an obligation to provide clinical supply manufacturing services. The price charged to Sanofi for manufacturing clinical supplies is at the fully burdened manufacturing cost, as defined in the applicable agreement.
(iv) Other
•
Sanofi’s option to license rights to product candidates ("opt-in" right), which the Company considers to be a contingent deliverable (and therefore excluded from the allocation of consideration).
•
The Company's participation in a joint steering committee ("JSC"), which the Company did not account for as a deliverable separately as (a) it does not have standalone value from the research and development services being provided and (b) any services deemed to be provided under this
deliverable would not be considered material given that the JSC meets quarterly and only requires participation of three Company representatives.
In addition to the deliverables noted above, there were two other deliverables related to the Antibody Collaboration as follows:
•
In August 2008, the Company entered into a mouse purchase agreement with Sanofi to use the Company's VelociGene platform technology to supply Sanofi with genetically modified mammalian models of gene function and disease (genetically modified mice). Under the terms of the agreement, Sanofi agreed to pay the Company a total of approximately $22 million for knock-out and transgenic models of gene function for target genes identified by Sanofi. Sanofi also became able to use these models for its internal research programs that are outside of the scope of the Antibody Collaboration. The principal terms of this agreement had been negotiated in connection with the companies' Antibody Discovery Agreement.
•
In November 2009, in connection with the Antibody Collaboration, Sanofi agreed to reimburse the Company for up to $30 million of agreed-upon costs incurred by the Company for capital expenditures to expand the Company's manufacturing capacity at its Rensselaer, New York facility to support collaboration development activities.
b. Summary of current accounting for the Antibody Collaboration deliverables
The Company considered the deliverables to be provided under the initial Antibody Collaboration (license to rights and intellectual property, research and development services, and manufacture of clinical supplies) as a single unit of accounting. The Company initially recorded the receipt of (i) an $85 million up-front payment received in 2007 in connection with the execution of the Antibody Discovery Agreement, (ii) the $22 million of payments received from Sanofi in exchange for providing genetically modified mice, and (iii) the $30 million of re
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Regeneron Pharmaceuticals, Inc.
777 Old Saw Mill River Road
Tarrytown, NY 10591-6707
Phone 914 847 7000
www.regeneron.com
August 19, 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
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 July 29, 2016, with respect to the above-referenced Form 10-K. Capitalized terms not otherwise defined in this letter have the respective meanings given to such terms in the Company's letters to the Staff dated May 23, 2016 and July 7, 2016 (collectively, the "Prior Responses"). Set forth below in bold are the headings and text of the Staff's comments followed by the Company's response.
Notes to Consolidated Financial Statements
3. Collaboration Agreements
a. Sanofi
Immuno-Oncology, page F-16
1. We acknowledge your response to prior comment 1 and request some additional information to support your conclusion that the IO Collaboration and the amended Antibody Collaboration are not in substance one new arrangement.
•
Please tell us the nature and type of evidence you have supporting that, had you not entered into the IO Collaboration with Sanofi, the change in scope under the Antibody Collaboration would have resulted in the $75 million reduction in the funding obligation spread over three years.
•
In your response on page 3 in support of your conclusion that there were no discounts provided to Sanofi, you refer to discussions with other third parties prior to agreeing on economic terms for the IO Collaboration with Sanofi. Tell us the nature of and the number
1
of these third parties and the business purpose of each discussion. Also tell us how these discussions support a conclusion that no discount was provided in the IO Collaboration with Sanofi. In this regard, explain how you considered the fair value of the research transferred from the Antibody Collaboration to the IO Collaboration, as further discussed in the next bullet, in determining the terms of the IO Collaboration. Further, tell us whether the IO Collaboration could have been consummated with these third parties without breaching the Antibody Collaboration with Sanofi.
Response:
Under the terms of the Sanofi Antibody Discovery Agreement, Sanofi is responsible for paying 100% of all "Discovery Program Costs" (as defined by the agreement) incurred by the Company through the term of the agreement, provided that such payments by Sanofi shall not exceed certain annual thresholds. For any research and development costs incurred by the Company in excess of the annual threshold, such amounts are fully funded by Regeneron. As noted in the Company's letter to the Staff dated July 7, 2016, any IO product candidates previously being researched under the terms of the Antibody Collaboration (all of which were in pre-clinical development) were transferred to the IO Collaboration upon execution of the IO Agreement. Given this reduction in the scope of research activities under the Antibody Collaboration, the Antibody Discovery Agreement was amended to reduce the aggregate funding by a total of $75 million through the remaining term of the agreement (i.e., July 2015 through December 2017). The $75 million reduction in funding was proportionate with the number of total IO targets being pursued under the Antibody Discovery Agreement over the past several years relative to the total number of targets being researched under the Antibody Discovery Agreement over the same period (i.e., the reduction in funding was structured to be commensurate with the reduction in 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 as such activities are now to be performed as part of the IO Collaboration). Note that consistent with the Antibody Discovery Agreement, Sanofi also reimburses the Company for its research and development costs, subject to certain annual limits, under the IO Discovery Agreement. There is no obligation by the Company under either the Antibody Discovery Agreement or the IO Discovery Agreement to incur costs or perform services beyond the annual Sanofi funding limits. As it relates to research and development services performed by the Company and reimbursed by Sanofi, under both the Antibody Collaboration and the IO Collaboration (a) the nature of reimbursable costs is consistent and (b) the FTE rates utilized are consistent.
The Company and Sanofi likely would not have agreed to reduce Sanofi's funding obligation under the Antibody Discovery Agreement had they not entered into the IO Collaboration, as the Company would have continued to research IO product candidates under the provisions of the Antibody Discovery Agreement. The Company and Sanofi did not discuss removing IO antibody programs from the Antibody Collaboration other than in the course of negotiating the new Sanofi IO Collaboration.
The Company could have entered into a license and collaboration agreement focused on immuno-oncology with third parties other than Sanofi without breaching the Antibody Collaboration to the extent that such an agreement related to targets and/or IO product candidates that were not subject to the Antibody Collaboration. Regeneron is free to develop and commercialize, either directly with third party collaborators or licensees, antibody product candidates that are directed to targets that have been excluded from the Antibody Collaboration or antibody product candidates that were developed pre-clinically by the Company under the Antibody Discovery Agreement but which Sanofi did not opt-in to or elected to not continue to co-develop and co-commercialize under the Antibody License and Collaboration Agreement. Prior to entering into the IO Collaboration with Sanofi, the Company held preliminary, high-level
2
discussions with various third parties. These preliminary discussions were the basis for subsequent, more detailed discussions with three large, multi-national pharmaceutical companies (not including Sanofi) regarding various potential immuno-oncology collaborations. The primary focus of these discussions was a collaboration in the immuno-oncology space, including a license to the Company's antibody product candidate targeting the receptor known as programmed cell death protein, or PD-1 ("REGN2810"). Sanofi had not previously opted into REGN2810 under the Antibody Discovery Agreement and thus Regeneron retained sole global rights. In addition to the PD-1 antibody, which was in Phase 1 clinical development in the first quarter of 2015, these discussions also included potentially licensing and collaborating on additional antibodies that were not subject to the Sanofi Antibody Collaboration. Therefore, if such an arrangement had been consummated with another third party, the arrangement would not have breached the Company's Antibody Collaboration with Sanofi. The Company's discussions with third parties included financial terms such as an up-front payment and the parties' proposed sharing (on an equal basis) of research and development costs for product candidates, as well as any profits or losses on commercialization of products, which was no more favorable to the Company than what was agreed to in the IO Collaboration with Sanofi. The Company received one term sheet from a third party, which proposed an up-front payment to the Company that was less than what the Company ultimately received from Sanofi under the IO Collaboration. In addition to the factors described in the Company's Prior Responses, these were some of the data points utilized by the Company to conclude that there was no discount provided to Sanofi with respect to the IO Collaboration.
•
You indicate in the bullet "Separation of targets and product candidates" on page 4 of your response that "Any IO product candidates previously being researched under the terms of the Antibody Collaboration (all of which were in pre-clinical development) were transferred to the IO Collaboration upon execution of the IO Agreement." You also indicate in your response that there are separate and distinct governance structures for the Antibody Collaboration and IO Collaboration and that one or more elements of the Antibody Collaboration are not essential to the functionality of any elements in the IO Collaboration and vice versa. Notwithstanding, it would seem that information from and results of the Antibody Collaboration could potentially be useful to and shared with the IO Collaboration and vice versa due to the nature of the collaborations. Please tell us why the transfer of product candidates to the IO Collaboration and the potential for sharing of information/results between the collaborations does not provide significant linkage among the collaborations that would indicate that the collaborations are closely related.
Response:
As noted in the Company's letter to the Staff dated July 7, 2016, the significant differences between the IO Collaboration and the Antibody Collaboration include novel and distinct scientific approaches and technologies that will be utilized by the Company to identify IO targets and to develop IO antibody product candidates. In addition, in the IO Collaboration, Regeneron will utilize a broader range of proprietary technologies that it has developed (including technologies that it has developed in recent years outside of the Antibody Collaboration) in the discovery of IO targets and the research and development of IO antibody product candidates. Therefore, from the perspective of discovery activities performed under the new IO Collaboration, the Company does not consider such activities to be dependent upon activities performed under the original Antibody Collaboration and vice versa.
In addition, as with any of the Company's ongoing research projects (whether conducted under a collaboration arrangement or developed independently by the Company), and generally in the life sciences space, results and information generated in conducting activities under one program may prove to be
3
useful and applicable to conducting research activities under any other of the Company's programs (whether collaborated or not); however, given the specific technologies and scientific approach used in the IO Collaboration, the utility of such results/information would not be deemed to provide a significant linkage between the Antibody Collaboration and the IO Collaboration.
Finally, it should be noted that the Company strategically pursued executing new IO Collaboration agreements with Sanofi (as opposed to merely amending the existing Antibody Collaboration agreements), principally due to the fact that the Company desired to have significantly different terms regarding governance structure and opt-in timing for IO products relative to the terms of the legacy Antibody Collaboration agreements.
Alternative Accounting Treatment Considered
As noted in the Prior Responses, the Company concluded that the amendments to the Antibody Collaboration were not a material modification of the existing Antibody Discovery Agreement or Antibody License and Collaboration Agreement with Sanofi and that the IO Collaboration and the Antibody Collaboration should not be accounted for together as a single arrangement. However, the Company did consider what the accounting treatment would have been had the Company reached a conclusion that the IO Collaboration and the Antibody Collaboration should be accounted for together as a single new arrangement. In doing so, the Company reassessed the deliverables related to the Antibody Collaboration as if it were accounted for under ASU 2009-13, since the Company would have accounted for the contract modification as if it were part of the original contract. The Company ultimately concluded that if it had accounted for the Antibody and IO Collaborations as a single arrangement, such alternative accounting treatment would not have resulted in any material differences from the Company's financial results reported for the quarterly periods ended September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 nor the annual period ended December 31, 2015. The Company's support for this conclusion is below.
a. Summary of deliverables under the Antibody Collaboration
Under the Antibody Collaboration, significant deliverables consist of the following:
(i) Rights and intellectual property. The Company out-licensed certain rights and intellectual property.
(ii) Research and development services. Sanofi reimburses the Company for certain costs in connection with researching and developing product candidates.
(iii) Manufacturing services. The Company has an obligation to provide clinical supply manufacturing services. The price charged to Sanofi for manufacturing clinical supplies is at the fully burdened manufacturing cost, as defined in the applicable agreement.
(iv) Other
•
Sanofi’s option to license rights to product candidates ("opt-in" right), which the Company considers to be a contingent deliverable (and therefore excluded from the allocation of consideration).
•
The Company's participation in a joint steering committee ("JSC"), which the Company did not account for as a deliverable separately as (a) it does not have standalone value from the research and development services being provided and (b) any services deemed to be provided under this
4
deliverable would not be considered material given that the JSC meets quarterly and only requires participation of three Company representatives.
In addition to the deliverables noted above, there were two other deliverables related to the Antibody Collaboration as follows:
•
In August 2008, the Company entered into a mouse purchase agreement with Sanofi to use the Company's VelociGene platform technology to supply Sanofi with genetically modified mammalian models of gene function and disease (genetically modified mice). Under the terms of the agreement, Sanofi agreed to pay the Company a total of approximately $22 million for knock-out and transgenic models of gene function for target genes identified by Sanofi. Sanofi also became able to use these models for its internal research programs that are outside of the scope of the Antibody Collaboration. The principal terms of this agreement had been negotiated in connection with the companies' Antibody Discovery Agreement.
•
In November 2009, in connection with the Antibody Collaboration, Sanofi agreed to reimburse the Company for up to $30 million of agreed-upon costs incurred by the Company for capital expenditures to expand the Company's manufacturing capacity at its Rensselaer, New York facility to support collaboration development activities.
5
b. Summary of current accounting for the Antibody Collaboration deliverables
The Company considered the deliverables to be provided under the initial Antibody Collaboration (license to rights and intellectual property, research and development services, and manufacture of clinical supplies) as a single unit of accounting. The Company initially recorded the receipt of (i) an $85 million up-front payment received in 2007 in connection with the execution of the Antibody Discovery Agreement, (ii) the $22 million of payments received from Sanofi in exchange for providing genetically modified mice, and (iii) the $30 million of re