Correspondence 0001804220-24-000020 from REGENERON PHARMACEUTICALS, INC. (REGN)
REGENERON PHARMACEUTICALS, INC.
Date: May 20, 2024 · CIK: 0000872589 · Accession: 0001804220-24-000020
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-19034
Referenced dates: May 8, 2024
Letter
VIA EDGAR Division of Corporation Finance Office of Life Sciences Re: Regeneron Pharmaceuticals, Inc. Form 10-K for the Fiscal Year Ended December 31, 2023 Filed February 5, 2024 File No. 000-19034
Dear Mr. Wyman and Ms. Connell:
This letter sets forth the responses of Regeneron Pharmaceuticals, Inc. (the "Company," "Regeneron," "we," "us," and "our") to the comments of the staff (the "Staff") of the U.S. Securities and Exchange Commission (the "Commission") set forth in the Staff's letter dated May 8, 2024, with respect to the above-referenced Annual Report on Form 10-K filed on February 5, 2024 (the "2023 Form 10-K").
Set forth below in bold are the headings and text of the Staff's comments followed by the Company's response.
Form 10-K for the Fiscal Year Ended December 31, 2023
Item 1. Business
Products, page 3
1. Please address the following as it relates to your presentation of net product sales of Regeneron-discovered products on page 5:
•Explain the purpose of this disclosure and its usefulness to investors.
Response:
Regeneron is a fully integrated biotechnology company whose primary business is developing intellectual property ("IP") and monetizing Company-developed IP through its own commercialization, commercialization by collaborators, and licensure to third parties. The table of net product sales of Regeneron-discovered products demonstrates the Company's ability to innovate, discover and develop new products, and bring those products to market either alone or based on contractual arrangements with other parties. The table also shows the degree to which the Company, a collaborator, and/or a licensee is currently commercializing the products discovered by Regeneron. In arrangements where the Company's collaborator or licensee is currently commercializing such products and is recording net product sales as a result, the Company records its share of profits and/or royalties on such sales in Collaboration revenue or Other revenue, as applicable.
In addition, as noted in Part I. Item 1A. "Risk Factors" and Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2023 Form 10-K, the Company is substantially dependent on the success of EYLEA® (aflibercept) Injection, EYLEA® HD (aflibercept) Injection 8 mg, and Dupixent® (dupilumab) (both in jurisdictions in which Regeneron records net product sales and jurisdictions in which a collaborator records net product sales of such products); therefore, we believe disclosing total net product sales of these products (as well as the other products listed in the table), regardless of the party recording such net product sales, provides useful context for investors.
•Disclose more prominently that not all of the net product sales presented on page 5 are recognized as revenue in your Statements of Operations.
Response:
We direct the Staff to the top of page 5 of the 2023 Form 10-K, which contains the following disclosure:
"Note: Refer to table below (net product sales of Regeneron-discovered products) for information regarding whether net product sales for a particular product are recorded by us or others . . . "
In future filings, we will also include similar disclosure in the lead-in to the table presenting net product sales of Regeneron-discovered products as follows:
"The table below includes net product sales of Regeneron-discovered products. Such net product sales are recorded by us or others, as further described in the footnotes to the table."
•For those net product sales recorded by a collaboration partner and for which you record your share of profits in connection with the collaboration, quantify the amounts recorded and specify where such amounts are recorded on your Statements of Operations (i.e., collaboration revenue).
•Provide cross-references to your revenue disclosure for each collaboration in MD&A.
Response:
To the extent that net product sales presented in the table of net product sales of Regeneron-discovered products are recorded by a collaborator or licensee, we will specify in future filings where our share of profits or royalties on such sales are recorded within our Statements of Operations (i.e., within Collaboration revenue or Other revenue). In addition, to the extent that our share of profits or royalties are separately disclosed in the MD&A because they are deemed to be material, we will include a cross-reference to the relevant disclosure. Accordingly, in future filings, we will amend relevant footnotes to the table presenting net product sales of Regeneron-discovered products to read as follows (changes are noted in italics):
(a) Regeneron records net product sales of EYLEA HD and EYLEA in the United States, and Bayer records net product sales outside the United States. The Company records its share of profits in connection with sales outside the United States within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Bayer Collaboration Revenue" for such amounts.
(b) Sanofi records global net product sales of Dupixent and Kevzara. The Company records its share of profits in connection with global sales of Dupixent and Kevzara within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Sanofi Collaboration Revenue" for such amounts.
(d) Regeneron records net product sales of Praluent in the United States. Sanofi records net product sales of Praluent outside the United States, and pays the Company a royalty on such sales, which is recorded within Other revenue.
(e) Roche records net product sales of Ronapreve outside the United States, and the parties share gross profits from sales, which are recorded within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Roche Collaboration Revenue" for such amounts.
Notes to the Consolidated Financial Statements
3. Collaboration, License and Other Agreements
a. Sanofi, page F-17
2. We note your disclosure on page 89 that under your collaboration agreements with Bayer and Sanofi, you have contingent contractual obligations to reimburse Bayer and Sanofi for a defined percentage of agreed-upon development expenses funded by Bayer and Sanofi (i.e., "development balance") if the applicable collaboration is profitable. You also disclose that these reimbursements are deducted each quarter, in accordance with a formula, from your share of the collaboration profits otherwise payable to you. Please address the following specifically as it relates to your contingent reimbursement obligation under the Sanofi Antibody License and Collaboration Agreement ("LCA"):
•Describe and quantify the contractual terms governing your contingent reimbursement obligation under the LCA and the methods and key assumptions used to determine the associated $2.33 billion contingent obligation as of December 31, 2023.
Response:
We believe the existing disclosure contained in Part I, Item 1. "Business - Collaboration, License, and Other Agreements - Sanofi - Antibody" of the 2023 Form 10-K (which is also included in Note 3 on page F-17) describes the key terms governing our contingent reimbursement obligations (see excerpt below). In future filings, the Company will clarify that the July 1, 2022 amendment to the Antibody License and Collaboration Agreement (the "Antibody LCA") was entered into in connection with the Company's acquisition of exclusive worldwide rights to Libtayo described further below in this letter (changes to future filings are noted in italics).
"Under the terms of the Antibody License and Collaboration Agreement (the "LCA"), Sanofi is generally responsible for funding 80% to 100% of agreed-upon development costs. We are obligated to reimburse Sanofi for 30% to 50% of worldwide development expenses that were funded by Sanofi based on our share of collaboration profits from commercialization of collaboration products. Under the terms of the LCA, we were required to apply 10% of our share of the profits from the Antibody Collaboration in any calendar quarter to reimburse Sanofi for these development costs. On July 1, 2022, an amendment to the LCA, which had been entered into in connection with our acquisition of exclusive worldwide rights to Libtayo, became effective. Pursuant to this amendment, the percentage of Regeneron’s share of profits used to reimburse Sanofi for such development costs has increased from 10% to 20%."
The development balance as of the end of a quarter is contractually defined in the Antibody LCA (previously filed as an exhibit and listed as Exhibit 10.10 to the 2023 Form 10-K) as "(a) fifty percent (50%) of the aggregate amount of Development Costs incurred by both Parties under the Global Development Plan for all Licensed Products from the Effective Date through the close of such Quarter, excluding any Shared Phase 3 Trial Costs, plus (b) thirty percent (30%) of the aggregate amount of Shared Phase 3 Trial Costs incurred by both Parties under the Global Development Plans for all Licensed Products from the Effective Date through the close of such Quarter, less (c) the aggregate amount of Development Compensation Payments included in the calculation of the Quarterly True-Up in all prior Quarters."
As it relates to the $2.33 billion contingent obligation as of December 31, 2023, we note that the method of calculation is also contractually specified. In addition, the inputs necessary to calculate the development costs incurred and the development balance (i.e., the funding percentages described in the preceding paragraph and the percentage used to calculate the Company's quarterly repayment of the development balance (currently defined as 20% of Regeneron's share of profits)) come directly from the accounting records of the Company and Sanofi each quarter or are similarly contractually specified. Consequently, given the nature of these inputs and the contractually specified formula, no assumptions were used to determine the associated $2.33 billion contingent obligation as of December 31, 2023. In addition, Regeneron and Sanofi reconcile the contingent obligation balance with each other on a quarterly basis.
•Clarify why the $2.33 billion contingent repayment obligation does not appear to be recorded as a liability on your balance sheet. In particular, explain your basis for deeming the obligation to be contingent given the likelihood of continued profits under the Antibody LCA.
Response:
We account for arrangements deemed to be collaborations, including the collaboration governed by the Antibody LCA, in accordance with ASC 808, Collaborative Arrangements. In accordance with ASC 808, parts of a collaborative arrangement that are within the scope of other authoritative literature shall be accounted for using the relevant provisions of that literature. Accordingly, the Company utilized the guidance in ASC 730, Research and development expense, to determine the appropriate recognition of amounts received from parties who fund our research and development costs which are subject to potential repayment. We note the following guidance pursuant to ASC 730-20 related to research and development arrangements:
25-2 An entity shall determine the nature of the obligation it incurs when it enters into an arrangement with other parties who fund its research and development . . .
25-3 If the entity is obligated to repay any of the funds provided by the other parties regardless of the outcome of the research and development, the entity shall estimate and recognize that liability. This requirement applies whether the entity may settle the liability by paying cash, by issuing securities, or by some other means.
25-4 To conclude that a liability does not exist, the transfer of the financial risk involved with research and development from the entity to the other parties must be substantive and genuine. To the extent that the entity is committed to repay any of the funds provided by the other parties regardless of the outcome of the research and development, all or part of the risk has not been transferred. The following are some examples in which the entity is committed to repay:
a.The entity guarantees, or has a contractual commitment that assures, repayment of the funds provided by the other parties regardless of the outcome of the research and development.
b.The other parties can require the entity to purchase their interest in the research and development regardless of the outcome.
c.The other parties automatically will receive debt or equity securities of the entity upon termination or completion of the research and development regardless of the outcome.
25-5 Even though the written agreements or contracts under the arrangement do not require the entity to repay any of the funds provided by the other parties, surrounding conditions might indicate that the entity is likely to bear the risk of failure of the research and development. If those conditions suggest it is probable that the entity will repay any of the funds regardless of the outcome of the research and development, there is a presumption that the entity has an obligation to repay the other parties. That presumption can be overcome only by substantial evidence to the contrary. In this context, probable means that repayment is likely.
25-6 Examples of conditions leading to the presumption that the entity will repay the other parties include any of the following:
a.The entity has indicated an intent to repay all or a portion of the funds provided regardless of the outcome of the research and development.
b.The entity would suffer a severe economic penalty if it failed to repay any of the funds provided to it regardless of the outcome of the research and development. An economic penalty is considered severe if in the normal course of business an entity would probably
choose to pay the other parties rather than incur the penalty. For example, an entity might purchase the partnership's interest in the research and development if the entity had provided the partnership with proprietary basic technology necessary for the entity's ongoing operations without retaining a way to recover that technology, or prevent it from being transferred to another party, except by purchasing the partnership's interest.
c.A significant related party relationship between the entity and the parties funding the research and development exists at the time the entity enters into the arrangement.
d.The entity has essentially completed the project before entering into the arrangement.
Upon entering into the original Antibody LCA in 2007 (which, in accordance with ASC 730-20-25-2, was the time as of which we were to determine the nature of the obligation to repay Sanofi a portion of the research and development costs funded by Sanofi), the products under the collaboration were in preclinical or early-stage clinical development. At such time, we concluded that there was a substantive and genuine transfer of risk (i.e., it was not probable that research and development costs funded by Sanofi would be repaid by the Company given the risk and uncertainty as to whether any products subject to the Antibody LCA would be approved; and, if approved, whether any such products would generate profits). Therefore, we did not record a liability related to the contingent repayment obligation (i.e.,
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Regeneron Pharmaceuticals, Inc.
777 Old Saw Mill River Road
Tarrytown, NY 10591-6707 Phone 914 847 7000
www.regeneron.com
May 20, 2024
VIA EDGAR
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Life Sciences
100 F Street, NE
Washington, D.C. 20549
Attn: Franklin Wyman and Angela Connell
Re: Regeneron Pharmaceuticals, Inc.
Form 10-K for the Fiscal Year Ended December 31, 2023
Filed February 5, 2024
File No. 000-19034
Dear Mr. Wyman and Ms. Connell:
This letter sets forth the responses of Regeneron Pharmaceuticals, Inc. (the "Company," "Regeneron," "we," "us," and "our") to the comments of the staff (the "Staff") of the U.S. Securities and Exchange Commission (the "Commission") set forth in the Staff's letter dated May 8, 2024, with respect to the above-referenced Annual Report on Form 10-K filed on February 5, 2024 (the "2023 Form 10-K").
Set forth below in bold are the headings and text of the Staff's comments followed by the Company's response.
Form 10-K for the Fiscal Year Ended December 31, 2023
Item 1. Business
Products, page 3
1. Please address the following as it relates to your presentation of net product sales of Regeneron-discovered products on page 5:
•Explain the purpose of this disclosure and its usefulness to investors.
1
Response:
Regeneron is a fully integrated biotechnology company whose primary business is developing intellectual property ("IP") and monetizing Company-developed IP through its own commercialization, commercialization by collaborators, and licensure to third parties. The table of net product sales of Regeneron-discovered products demonstrates the Company's ability to innovate, discover and develop new products, and bring those products to market either alone or based on contractual arrangements with other parties. The table also shows the degree to which the Company, a collaborator, and/or a licensee is currently commercializing the products discovered by Regeneron. In arrangements where the Company's collaborator or licensee is currently commercializing such products and is recording net product sales as a result, the Company records its share of profits and/or royalties on such sales in Collaboration revenue or Other revenue, as applicable.
In addition, as noted in Part I. Item 1A. "Risk Factors" and Part II. Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2023 Form 10-K, the Company is substantially dependent on the success of EYLEA® (aflibercept) Injection, EYLEA® HD (aflibercept) Injection 8 mg, and Dupixent® (dupilumab) (both in jurisdictions in which Regeneron records net product sales and jurisdictions in which a collaborator records net product sales of such products); therefore, we believe disclosing total net product sales of these products (as well as the other products listed in the table), regardless of the party recording such net product sales, provides useful context for investors.
•Disclose more prominently that not all of the net product sales presented on page 5 are recognized as revenue in your Statements of Operations.
Response:
We direct the Staff to the top of page 5 of the 2023 Form 10-K, which contains the following disclosure:
"Note: Refer to table below (net product sales of Regeneron-discovered products) for information regarding whether net product sales for a particular product are recorded by us or others . . . "
In future filings, we will also include similar disclosure in the lead-in to the table presenting net product sales of Regeneron-discovered products as follows:
"The table below includes net product sales of Regeneron-discovered products. Such net product sales are recorded by us or others, as further described in the footnotes to the table."
•For those net product sales recorded by a collaboration partner and for which you record your share of profits in connection with the collaboration, quantify the amounts recorded and specify where such amounts are recorded on your Statements of Operations (i.e., collaboration revenue).
•Provide cross-references to your revenue disclosure for each collaboration in MD&A.
2
Response:
To the extent that net product sales presented in the table of net product sales of Regeneron-discovered products are recorded by a collaborator or licensee, we will specify in future filings where our share of profits or royalties on such sales are recorded within our Statements of Operations (i.e., within Collaboration revenue or Other revenue). In addition, to the extent that our share of profits or royalties are separately disclosed in the MD&A because they are deemed to be material, we will include a cross-reference to the relevant disclosure. Accordingly, in future filings, we will amend relevant footnotes to the table presenting net product sales of Regeneron-discovered products to read as follows (changes are noted in italics):
(a) Regeneron records net product sales of EYLEA HD and EYLEA in the United States, and Bayer records net product sales outside the United States. The Company records its share of profits in connection with sales outside the United States within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Bayer Collaboration Revenue" for such amounts.
(b) Sanofi records global net product sales of Dupixent and Kevzara. The Company records its share of profits in connection with global sales of Dupixent and Kevzara within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Sanofi Collaboration Revenue" for such amounts.
(d) Regeneron records net product sales of Praluent in the United States. Sanofi records net product sales of Praluent outside the United States, and pays the Company a royalty on such sales, which is recorded within Other revenue.
(e) Roche records net product sales of Ronapreve outside the United States, and the parties share gross profits from sales, which are recorded within Collaboration revenue. Refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Revenues - Roche Collaboration Revenue" for such amounts.
Notes to the Consolidated Financial Statements
3. Collaboration, License and Other Agreements
a. Sanofi, page F-17
2. We note your disclosure on page 89 that under your collaboration agreements with Bayer and Sanofi, you have contingent contractual obligations to reimburse Bayer and Sanofi for a defined percentage of agreed-upon development expenses funded by Bayer and Sanofi (i.e., "development balance") if the applicable collaboration is profitable. You also disclose that these reimbursements are deducted each quarter, in accordance with a formula, from your share of the collaboration profits otherwise payable to you. Please address the following specifically as it relates to your contingent reimbursement obligation under the Sanofi Antibody License and Collaboration Agreement ("LCA"):
•Describe and quantify the contractual terms governing your contingent reimbursement obligation under the LCA and the methods and key assumptions used to determine the associated $2.33 billion contingent obligation as of December 31, 2023.
3
Response:
We believe the existing disclosure contained in Part I, Item 1. "Business - Collaboration, License, and Other Agreements - Sanofi - Antibody" of the 2023 Form 10-K (which is also included in Note 3 on page F-17) describes the key terms governing our contingent reimbursement obligations (see excerpt below). In future filings, the Company will clarify that the July 1, 2022 amendment to the Antibody License and Collaboration Agreement (the "Antibody LCA") was entered into in connection with the Company's acquisition of exclusive worldwide rights to Libtayo described further below in this letter (changes to future filings are noted in italics).
"Under the terms of the Antibody License and Collaboration Agreement (the "LCA"), Sanofi is generally responsible for funding 80% to 100% of agreed-upon development costs. We are obligated to reimburse Sanofi for 30% to 50% of worldwide development expenses that were funded by Sanofi based on our share of collaboration profits from commercialization of collaboration products. Under the terms of the LCA, we were required to apply 10% of our share of the profits from the Antibody Collaboration in any calendar quarter to reimburse Sanofi for these development costs. On July 1, 2022, an amendment to the LCA, which had been entered into in connection with our acquisition of exclusive worldwide rights to Libtayo, became effective. Pursuant to this amendment, the percentage of Regeneron’s share of profits used to reimburse Sanofi for such development costs has increased from 10% to 20%."
The development balance as of the end of a quarter is contractually defined in the Antibody LCA (previously filed as an exhibit and listed as Exhibit 10.10 to the 2023 Form 10-K) as "(a) fifty percent (50%) of the aggregate amount of Development Costs incurred by both Parties under the Global Development Plan for all Licensed Products from the Effective Date through the close of such Quarter, excluding any Shared Phase 3 Trial Costs, plus (b) thirty percent (30%) of the aggregate amount of Shared Phase 3 Trial Costs incurred by both Parties under the Global Development Plans for all Licensed Products from the Effective Date through the close of such Quarter, less (c) the aggregate amount of Development Compensation Payments included in the calculation of the Quarterly True-Up in all prior Quarters."
As it relates to the $2.33 billion contingent obligation as of December 31, 2023, we note that the method of calculation is also contractually specified. In addition, the inputs necessary to calculate the development costs incurred and the development balance (i.e., the funding percentages described in the preceding paragraph and the percentage used to calculate the Company's quarterly repayment of the development balance (currently defined as 20% of Regeneron's share of profits)) come directly from the accounting records of the Company and Sanofi each quarter or are similarly contractually specified. Consequently, given the nature of these inputs and the contractually specified formula, no assumptions were used to determine the associated $2.33 billion contingent obligation as of December 31, 2023. In addition, Regeneron and Sanofi reconcile the contingent obligation balance with each other on a quarterly basis.
•Clarify why the $2.33 billion contingent repayment obligation does not appear to be recorded as a liability on your balance sheet. In particular, explain your basis for deeming the obligation to be contingent given the likelihood of continued profits under the Antibody LCA.
4
Response:
We account for arrangements deemed to be collaborations, including the collaboration governed by the Antibody LCA, in accordance with ASC 808, Collaborative Arrangements. In accordance with ASC 808, parts of a collaborative arrangement that are within the scope of other authoritative literature shall be accounted for using the relevant provisions of that literature. Accordingly, the Company utilized the guidance in ASC 730, Research and development expense, to determine the appropriate recognition of amounts received from parties who fund our research and development costs which are subject to potential repayment. We note the following guidance pursuant to ASC 730-20 related to research and development arrangements:
25-2 An entity shall determine the nature of the obligation it incurs when it enters into an arrangement with other parties who fund its research and development . . .
25-3 If the entity is obligated to repay any of the funds provided by the other parties regardless of the outcome of the research and development, the entity shall estimate and recognize that liability. This requirement applies whether the entity may settle the liability by paying cash, by issuing securities, or by some other means.
25-4 To conclude that a liability does not exist, the transfer of the financial risk involved with research and development from the entity to the other parties must be substantive and genuine. To the extent that the entity is committed to repay any of the funds provided by the other parties regardless of the outcome of the research and development, all or part of the risk has not been transferred. The following are some examples in which the entity is committed to repay:
a.The entity guarantees, or has a contractual commitment that assures, repayment of the funds provided by the other parties regardless of the outcome of the research and development.
b.The other parties can require the entity to purchase their interest in the research and development regardless of the outcome.
c.The other parties automatically will receive debt or equity securities of the entity upon termination or completion of the research and development regardless of the outcome.
25-5 Even though the written agreements or contracts under the arrangement do not require the entity to repay any of the funds provided by the other parties, surrounding conditions might indicate that the entity is likely to bear the risk of failure of the research and development. If those conditions suggest it is probable that the entity will repay any of the funds regardless of the outcome of the research and development, there is a presumption that the entity has an obligation to repay the other parties. That presumption can be overcome only by substantial evidence to the contrary. In this context, probable means that repayment is likely.
25-6 Examples of conditions leading to the presumption that the entity will repay the other parties include any of the following:
a.The entity has indicated an intent to repay all or a portion of the funds provided regardless of the outcome of the research and development.
b.The entity would suffer a severe economic penalty if it failed to repay any of the funds provided to it regardless of the outcome of the research and development. An economic penalty is considered severe if in the normal course of business an entity would probably
5
choose to pay the other parties rather than incur the penalty. For example, an entity might purchase the partnership's interest in the research and development if the entity had provided the partnership with proprietary basic technology necessary for the entity's ongoing operations without retaining a way to recover that technology, or prevent it from being transferred to another party, except by purchasing the partnership's interest.
c.A significant related party relationship between the entity and the parties funding the research and development exists at the time the entity enters into the arrangement.
d.The entity has essentially completed the project before entering into the arrangement.
Upon entering into the original Antibody LCA in 2007 (which, in accordance with ASC 730-20-25-2, was the time as of which we were to determine the nature of the obligation to repay Sanofi a portion of the research and development costs funded by Sanofi), the products under the collaboration were in preclinical or early-stage clinical development. At such time, we concluded that there was a substantive and genuine transfer of risk (i.e., it was not probable that research and development costs funded by Sanofi would be repaid by the Company given the risk and uncertainty as to whether any products subject to the Antibody LCA would be approved; and, if approved, whether any such products would generate profits). Therefore, we did not record a liability related to the contingent repayment obligation (i.e.,