REGENERON PHARMACEUTICALS, INC. 10-K

Item 7. Management's Discussion and Analysis of Financial Condition and Results and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report. Refer to Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (filed with the SEC on February 6, 2023) for additional discussion of our financial condition and results of operations for the year ended December 31, 2021, as well as our financial condition and results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. Overview Regeneron Pharmaceuticals, Inc. is a fully integrated biotechnology company that invents, develops, manufactures, and commercializes medicines for people with serious diseases. Our research and development efforts have led to eleven FDA-approved products that have received marketing approval and approximately 35 product candidates in clinical development, almost all of which were homegrown in our laboratories. Our ability to generate profits and to generate positive cash flow from operations over the next several years depends significantly on the continued success in commercializing EYLEA and Dupixent, as well as whether we are successful in commercializing EYLEA HD. We expect to continue to incur substantial expenses related to our research and development activities, a portion of which we expect to be reimbursed by our collaborators. In addition, our research and development activities and related costs which are not reimbursed are expected to expand and require additional resources. We also expect to incur substantial costs related to the commercialization of our marketed products. Our financial results may fluctuate from quarter to quarter and will depend on, among other factors, the net sales of our 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 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. 73 Table of Contents Critical Accounting Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our results of operations or financial condition. Management believes the current assumptions used to estimate amounts reflected in our Consolidated Financial Statements are appropriate. However, if actual experience differs from the assumptions used in estimating amounts reflected in our Consolidated Financial Statements, the resulting changes could have a material adverse effect on our results of operations, and, in certain situations, could have a material adverse effect on our liquidity and financial condition. The critical accounting estimates that impact our Consolidated Financial Statements are described below. Product Revenue We recognize revenue from product sales at a point in time when our customer is deemed to have obtained control of the product, which generally occurs upon receipt or acceptance by our customer. The amount of revenue we recognize from product sales may vary due to rebates, chargebacks, and discounts provided under governmental and other programs, distribution-related fees, and other sales-related deductions. In order to determine the transaction price, we estimate, utilizing the expected value method, the amount of variable consideration to which we will be entitled. This estimate is based upon contracts with customers, healthcare providers, payors and government agencies, statutorily-defined discounts applicable to government-funded programs, historical experience, estimated payor mix, and other relevant factors. Calculating these provisions involves estimates and judgments. We review our estimates of rebates, chargebacks, and other applicable provisions each period and record any necessary adjustments in the current period's net product sales. Refer to the "Results of Operations - Revenues - Net Product Sales" section below for further details regarding our provisions, and credits/payments, for sales-related deductions. Collaborative Arrangements We have entered into various collaborative arrangements to research, develop, manufacture, and commercialize products and/or product candidates. Our collaboration agreements may require us to deliver various rights, services, and/or goods across the entire life cycle of a product or product candidate. In agreements involving multiple goods or services promised to be transferred to our collaborator, we assess, at the inception of the contract, whether each promise represents a separate obligation (i.e., is "distinct"), or whether such promises should be combined as a single unit of account. When we have a combined unit of account which includes a license and providing research and development services to our collaborator, recognition of up-front payments and development milestones earned from our collaborator is deferred (as a liability) and recognized over the development period (i.e., over time) typically using an input method on the basis of our research and development costs incurred relative to the total expected cost which determines the extent of our progress toward completion. We review our estimates each period and make revisions to such estimates as necessary. Due to the variability in the scope of activities and length of time necessary to develop a drug product, potential delays in development programs, changes to development plans and budgets as programs progress, including if we and our collaborators decide to expand or contract our clinical plans for a drug candidate in various disease indications, and uncertainty in the ultimate requirements to obtain governmental approval for commercialization, revisions to our estimates are likely to occur periodically, potentially resulting in material changes to amounts recognized. If our collaborator performs research and development work or commercialization-related activities and the parties share the related costs, we also recognize, as expense (e.g., research and development expense or selling, general and administrative expense, as applicable) in the period when our collaborator incurs such expenses, the portion of the collaborator's expenses that we are obligated to reimburse. Our collaborators provide us with estimated expenses for the most recent fiscal quarter. The estimates are revised, if necessary, in subsequent periods if actual expenses differ from those estimates. Under certain of the Company's collaboration agreements, product sales and cost of sales may be recorded by the Company's collaborators as they are deemed to be the principal in the transaction. In arrangements where we: • supply commercial product to our collaborator, we may be reimbursed for our manufacturing costs as commercial product is shipped to the collaborator (however, recognition of such cost reimbursements may be deferred until the product is sold by our collaborator to third-party customers); • share in any profits or losses arising from the commercialization of such products, we record our share of the variable consideration, representing net product sales less cost of goods sold and shared commercialization and other expenses, in the period in which such underlying sales occur and costs are incurred by the collaborator; • receive royalties and/or sales-based milestone payments from our collaborator, we recognize such amounts in the period earned. 74 Table of Contents Our collaborators provide us with estimates of product sales and our share of profits or losses, as applicable, for each quarter. The estimates are revised, if necessary, in subsequent periods if our actual share of profits or losses differ from those estimates. Stock-based Compensation We recognize stock-based compensation expense for equity grants under our long-term incentive plans to employees and non-employee members of our board of directors (as applicable) based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award's requisite service period. Stock-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In addition, we reassess our forfeiture rate assumptions at least annually, considering both historical forfeiture experience and an estimate of future forfeitures for currently outstanding unvested awards. The assumptions used in computing the fair value of equity awards reflect our best estimates but involve uncertainties related to market and other conditions, many of which are outside our control. Changes in any of these assumptions may materially affect the fair value of awards granted and the amount of stock-based compensation recognized in future periods. We use the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of our Common Stock price, (ii) the periods of time over which employees and members of our board of directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on our Common Stock, and (iv) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options' expected lives. Expected volatility is estimated based on actual movements in our stock price over the most recent historical periods equivalent to the options' expected lives. Expected lives are principally based on our historical exercise experience with previously issued employee and board of director option grants. The expected dividend yield is zero as we have never paid dividends and do not currently have plans to do so. We use a Monte Carlo simulation to compute the estimated fair value of performance-based restricted stock units that are subject to vesting based on the Company's attainment of pre-established criteria that include a market condition. For performance-based restricted stock units that contain a performance condition, we recognize stock-based compensation expense if and when we determine that it is probable the performance condition will be achieved (based on the number of shares expected to be vested and issued). We reassess the probability of achievement at each reporting period and adjust compensation cost, as necessary. If there are any changes in our probability assessment, we recognize a cumulative catch-up adjustment in the period of the change in estimate, with the remaining unrecognized expense recognized prospectively over the remaining requisite service period. If we subsequently determine that the performance criteria are not met or are not expected to be met, any amounts previously recognized as compensation expense are reversed in the period when such determination is made. See Note 13 to our Consolidated Financial Statements for stock-based compensation expense and related assumptions used in determining the fair value of our awards. Income Taxes We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns, including deferred tax assets and liabilities for expected amounts of global intangible low-taxed income ("GILTI") inclusions. Deferred tax assets and liabilities are determined as the difference between the tax basis of assets and liabilities and their respective financial reporting amounts ("temporary differences") at enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is established for deferred tax assets for which it is more likely than not that some portion or all of the deferred tax assets will not be realized. We periodically re-assess the need for a valuation allowance against our deferred tax assets based on all available evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, results of recent operations, and our historical earnings experience by taxing jurisdiction. Significant judgment is required in making this assessment. We recognize the financial statement effects of a tax position when our assessment is that there is more than a 50% probability that the position will be sustained upon examination by a taxing authority based upon its technical merits. Uncertain tax positions are recorded based upon certain recognition and measurement criteria. Significant judgment is required in making this assessment, and, therefore, we re-evaluate uncertain tax positions and consider various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, information obtained during in-process audit activities, and changes in facts or circumstances related to a tax position. We adjust the amount of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain tax positions. 75 Table of Contents Inventories We capitalize inventory costs associated with our products prior to regulatory approval when, based on management's judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. The determination to capitalize inventory costs is based on various factors, including status and expectations of the regulatory approval process, any known safety or efficacy concerns, potential labeling restrictions, and any other impediments to obtaining regulatory approval. We periodically analyze our inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and write down such inventories as appropriate. In addition, our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, we record a charge to write down such inventory to its estimated realizable value. See "Results of Operations - Expenses - Cost of Goods Sold" below for further information related to our inventory write-offs and reserves. Acquisitions We make certain judgments to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. In a business combination, the acquisition method of accounting generally requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values. There can be significant judgment involved in determining the estimated fair values of such assets and liabilities. Amounts allocated to acquired in-process research and development are capitalized as indefinite-lived intangible assets. Any excess of the purchase price (consideration transferred) over the fair values of net assets acquired is recorded as goodwill. In a business combination, contingent consideration obligations are recorded at fair value as of the acquisition date and remeasured each subsequent reporting period until the contingencies have been resolved. The fair value of contingent consideration liabilities is determined using inputs that may include the probability of achieving certain milestones and estimated discount rates. If it is determined that the assets acquired do not meet the definition of a business, or if substantially all of the fair value of the assets acquired are concentrated in a single identifiable asset, then the transaction is accounted for as an asset acquisition rather than a business combination. In an asset acquisition, assets acquired are recorded at cost, goodwill is not recorded, and acquired in-process research and development with no alternative future use is charged to expense. Intangible Assets Intangible assets acquired in a business combination are recorded at fair value, while intangible assets acquired in connection with an asset acquisition are recorded at cost. Payments to acquire intangible assets in an asset acquisition may include up-front payments and contingent consideration. With regard to contingent consideration in an asset acquisition, the Company recognizes regulatory milestones upon achievement, royalties in the period in which the underlying sales occur, and sales-based milestones when the milestone is deemed probable by the Company of being achieved. If contingent consideration is recognized subsequent to the acquisition date in an asset acquisition, the amount of such consideration is recorded as an addition to the cost basis of the intangible asset with a cumulative catch-up adjustment for amortization expense as if the additional amount of consideration had been accrued from the outset of the acquisition. Indefinite-lived intangible assets are subject to impairment testing until completion or abandonment of the associated research and development efforts. Definite-lived intangible assets are amortized over the estimated useful lives of the assets based on the pattern in which the economic benefits of the intangible assets are consumed; if that pattern cannot be reliably determined, a straight-line basis is used. Intangible assets are reviewed for recoverability whenever events or changes in circumstances (e.g., changes in economic, regulatory, or legal conditions) indicate that the carrying amount of the asset may not be recoverable. If an indicator of impairment exists, we compare the projected undiscounted cash flows to be generated by the asset to the intangible asset's carrying amount. If the projected undiscounted cash flows of the intangible asset are less than the carrying amount, the intangible asset is written down to its fair value in the period in which the impairment occurs. 76 Table of Contents Contingencies We accrue, based on management's judgment, for an estimated loss when the potential loss from claims or legal proceedings is considered probable and the amount can be reasonably estimated. As additional information becomes available, or, based on specific events such as the outcome of litigation or settlement of claims, we reassess the potential liability related to pending claims and litigation, and may change our estimates. Results of Operations Net Income Year Ended December 31, (In millions, except per share data) 2023 2022 2021 Revenues $ 13,117.2 $ 12,172.9 $ 16,071.7 Operating expenses 9,070.1 7,434.0 7,124.9 Income from operations 4,047.1 4,738.9 8,946.8 Other income (expense) 152.2 119.9 379.0 Income before income taxes 4,199.3 4,858.8 9,325.8 Income tax expense 245.7 520.4 1,250.5 Net income $ 3,953.6 $ 4,338.4 $ 8,075.3 Net income per share - diluted $ 34.77 $ 38.22 $ 71.97 77 Table of Contents Revenues Year Ended December 31, $ Change (In millions) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Net product sales: EYLEA HD - U.S. $ 165.8 $ — $ — $ 165.8 $ — EYLEA - U.S. 5,719.6 6,264.6 5,792.3 (545.0) 472.3 Total EYLEA HD and EYLEA - U.S. 5,885.4 6,264.6 5,792.3 (379.2) 472.3 Libtayo - U.S. 538.8 374.5 306.3 164.3 68.2 Libtayo - ROW * 324.3 73.0 — 251.3 73.0 Total Libtayo - Global 863.1 447.5 306.3 415.6 141.2 Praluent - U.S. 182.4 130.0 170.0 52.4 (40.0) REGEN-COV - U.S. — — 5,828.0 — (5,828.0) Evkeeza - U.S. 77.3 48.6 18.4 28.7 30.2 Inmazeb - U.S. 69.8 3.0 — 66.8 3.0 ARCALYST - U.S. ** — — 2.2 — (2.2) Total net product sales $ 7,078.0 $ 6,893.7 $ 12,117.2 $ 184.3 $ (5,223.5) Collaboration revenue: Sanofi $ 3,799.5 $ 2,855.7 $ 1,902.2 $ 943.8 $ 953.5 Bayer 1,487.5 1,430.7 1,409.3 56.8 21.4 Roche 211.0 627.3 361.8 (416.3) 265.5 Other 5.1 0.4 — 4.7 0.4 Other revenue 536.1 365.1 281.2 171.0 83.9 Total revenues $ 13,117.2 $ 12,172.9 $ 16,071.7 $ 944.3 $ (3,898.8) * Effective July 1, 2022, the Company became solely responsible for the research, development, and commercialization of Libtayo worldwide and began recording net product sales of Libtayo outside the United States. ** Effective April 1, 2021, Kiniksa records net product sales of ARCALYST in the United States. Previously, the Company recorded net product sales of ARCALYST in the United States. Net Product Sales Net product sales of EYLEA in the United States decreased in 2023, compared to 2022, primarily due to changing market dynamics, resulting in a lower net selling price and lower volumes. EYLEA volumes in 2023 were impacted by the August 2023 launch of EYLEA HD and subsequent transition of EYLEA patients to EYLEA HD. During the year ended December 31, 2021, we recorded net product sales of REGEN-COV in connection with our agreements with the U.S. government. As of December 31, 2021, the Company had completed its final deliveries of drug product under its agreements with the U.S. government; as a result, there were no net product sales of REGEN-COV in the United States recorded during the years ended December 31, 2023 and 2022. 78 Table of Contents Revenue from product sales is recorded net of applicable provisions for rebates, chargebacks, and discounts; distribution-related fees; and other sales-related deductions. The following table summarizes the provisions, and credits/payments, for sales-related deductions. (In millions) Rebates, Chargebacks, and Discounts Distribution- Related Fees Other Sales- Related Deductions Total Balance as of December 31, 2020 $ 202.2 $ 77.2 $ 44.8 $ 324.2 Provisions 1,047.1 363.6 150.4 1,561.1 Credits/payments (1,034.7) (360.8) (127.6) (1,523.1) Balance as of December 31, 2021 214.6 80.0 67.6 362.2 Provisions 1,537.3 431.1 141.1 2,109.5 Credits/payments (1,398.0) (399.7) (127.2) (1,924.9) Balance as of December 31, 2022 353.9 111.4 81.5 546.8 Provisions 2,074.5 439.2 155.3 2,669.0 Credits/payments (1,972.7) (388.3) (157.5) (2,518.5) Balance as of December 31, 2023 $ 455.7 $ 162.3 $ 79.3 $ 697.3 Sanofi Collaboration Revenue Year Ended December 31, (In millions) 2023 2022 2021 Antibody: Regeneron's share of profits in connection with commercialization of antibodies $ 3,136.5 $ 2,082.0 $ 1,363.0 Sales-based milestones earned 50.0 100.0 50.0 Reimbursement for manufacturing of commercial supplies (a) 613.0 633.7 488.8 Other — 28.7 — Total Antibody 3,799.5 2,844.4 1,901.8 Total Immuno-oncology (b) — 11.3 0.4 Total Sanofi collaboration revenue $ 3,799.5 $ 2,855.7 $ 1,902.2 (a) Corresponding costs incurred by the Company in connection with such production is recorded within Cost of collaboration and contract manufacturing. (b) As the A&R IO LCA became effective July 1, 2022, the three months ended June 30, 2022 was the last quarter in which Sanofi collaboration revenue was recognized in connection with the IO Collaboration. Antibody Global net product sales of Dupixent and Kevzara are recorded by Sanofi in connection with the Antibody Collaboration, and we and Sanofi share profits on such sales. As described in Part I, Item 1. "Business - Collaboration, License, and Other Agreements - Sanofi - Antibody", on July 1, 2022, an amendment to the LCA became effective, pursuant to which the percentage of Regeneron's share of profits in any calendar quarter used to reimburse Sanofi for development costs which were funded by Sanofi increased from 10% to 20%. 79 Table of Contents Regeneron's share of profits in connection with the commercialization of Dupixent and Kevzara is summarized below: Year Ended December 31, (In millions) 2023 2022 2021 Dupixent and Kevzara net product sales $ 11,974.0 $ 9,039.2 $ 6,536.3 Regeneron's share of collaboration profits 3,596.3 2,405.5 1,511.5 Reimbursement of development expenses incurred by Sanofi in accordance with Regeneron's payment obligation (a) (459.8) (266.6) (148.5) One-time payment in connection with amendment to the Antibody License and Collaboration Agreement — (56.9) — Regeneron's share of profits in connection with commercialization of antibodies $ 3,136.5 $ 2,082.0 $ 1,363.0 Regeneron's share of profits as a percentage of Dupixent and Kevzara net product sales 26% 23% 21% (a) See "Liquidity and Capital Resources - Additional Funding Requirements" below for additional details on our contingent reimbursement obligation. The increase in our share of profits in connection with commercialization of antibodies during the year ended December 31, 2023, compared to 2022, was driven by higher profits associated with Dupixent sales, partly offset by the impact of the amendment to the LCA. During the year ended December 31, 2023, the Company earned the final $50.0 million sales-based milestone from Sanofi, upon aggregate annual sales of antibodies outside the United States (including Praluent) exceeding $3.0 billion on a rolling twelve-month basis. During the year ended December 31, 2022, the Company earned two $50.0 million sales-based milestones from Sanofi, upon aggregate annual sales of antibodies outside the United States (including Praluent) exceeding $2.0 billion and $2.5 billion, respectively, on a rolling twelve-month basis. Reimbursements for manufacturing of commercial supplies primarily relate to Dupixent and are recognized when the product is sold by Sanofi to third-party customers; such reimbursements decreased during the year ended December 31, 2023, compared to 2022, primarily due to lower manufacturing costs resulting from the transition to a higher-yielding manufacturing process. Bayer Collaboration Revenue Year Ended December 31, (In millions) 2023 2022 2021 Regeneron's share of profits in connection with commercialization of EYLEA outside the United States $ 1,376.4 $ 1,317.4 $ 1,349.2 Reimbursement for manufacturing of ex-U.S. commercial supplies (a) 111.1 91.4 60.1 One-time payment in connection with change in Japan arrangement (b) — 21.9 — Total Bayer collaboration revenue $ 1,487.5 $ 1,430.7 $ 1,409.3 (a) Corresponding costs incurred by the Company in connection with such production is recorded within Cost of collaboration and contract manufacturing. (b) Effective January 1, 2022, the Company and Bayer commenced sharing equally in profits based on sales from Bayer to its distributor in Japan. Previously, the Company received from Bayer a tiered percentage of sales based on sales by Bayer's distributor in Japan. 80 Table of Contents Bayer records net product sales of EYLEA outside the United States. Regeneron's share of profits in connection with commercialization of EYLEA outside the United States is summarized below: Year Ended December 31, (In millions) 2023 2022 2021 EYLEA net product sales outside the United States $ 3,495.2 $ 3,382.8 $ 3,450.9 Regeneron's share of collaboration profit from sales outside the United States $ 1,436.1 $ 1,375.1 $ 1,408.3 Reimbursement of development expenses incurred by Bayer in accordance with Regeneron's payment obligation (a) (59.7) (57.7) (59.1) Regeneron's share of profits in connection with commercialization of EYLEA outside the United States $ 1,376.4 $ 1,317.4 $ 1,349.2 Regeneron's share of profits as a percentage of EYLEA net product sales outside the United States 39% 39% 39% (a) See "Liquidity and Capital Resources - Additional Funding Requirements" below for additional details on our contingent reimbursement obligation. Roche Collaboration Revenue Year Ended December 31, (In millions) 2023 2022 2021 Global gross profit payment from Roche in connection with sales of REGEN-COV and Ronapreve $ 224.3 $ 627.3 $ 361.8 Other (13.3) — — Total Roche collaboration revenue $ 211.0 $ 627.3 $ 361.8 Roche distributes and records net product sales of Ronapreve outside the United States, and the parties share gross profits from worldwide sales. Other Revenue Other revenue in 2023 included the recognition of $50.4 million of revenue in connection with our August 2023 agreement with BARDA to fund certain costs for a next-generation COVID-19 monoclonal antibody therapy for the prevention of SARS-CoV-2 infection. In addition, Other revenue increased in 2023, compared to 2022, primarily due to the following: • higher reimbursements for the manufacture of commercial supplies for Sanofi related to Praluent outside the United States; • higher share of profits earned in connection with sales of ARCALYST pursuant to our license agreement with Kiniksa Pharmaceuticals, Ltd.; and • royalties earned in connection with our license agreement with Novartis, under which we receive royalties on worldwide sales of Novartis' Ilaris ® (canakinumab). 81 Table of Contents Expenses Year Ended December 31, Change (In millions, except headcount data) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Research and development (a) $ 4,439.0 $ 3,592.5 $ 2,860.1 $ 846.5 $ 732.4 Acquired in-process research and development 186.1 255.1 48.0 (69.0) 207.1 Selling, general, and administrative (a) 2,631.3 2,115.9 1,824.9 515.4 291.0 Cost of goods sold 932.1 800.0 1,773.1 132.1 (973.1) Cost of collaboration and contract manufacturing (b) 883.7 760.4 664.4 123.3 96.0 Other operating (income) expense, net (2.1) (89.9) (45.6) 87.8 (44.3) Total operating expenses $ 9,070.1 $ 7,434.0 $ 7,124.9 $ 1,636.1 $ 309.1 Average headcount 12,698 11,115 9,884 1,583 1,231 (a) Includes costs incurred net of any cost reimbursements from collaborators who are not deemed to be our customers (b) Includes costs incurred in connection with producing commercial drug supplies for collaborators and others Operating expenses in 2023 and 2022 included a total of $885.0 million and $725.0 million, respectively, of stock-based compensation expense related to equity awards granted under our long-term incentive plans. As of December 31, 2023, unrecognized stock-based compensation expense related to unvested stock options and unvested restricted stock (including performance-based restricted stock units) was $589.6 million and $1.127 billion, respectively. We expect to recognize this stock-based compensation expense related to stock options and restricted stock over weighted-average periods of 1.8 years and 2.3 years, respectively. 82 Table of Contents Research and Development Expenses The following table summarizes our direct research and development expenses by clinical development program and other significant categories of research and development expenses. Direct research and development expenses are comprised primarily of costs paid to third parties for clinical and product development activities, including costs related to preclinical research activities, clinical trials, and the portion of research and development expenses incurred by our collaborators that we are obligated to reimburse. Indirect research and development expenses have not been allocated directly to each program, and primarily consist of costs to compensate personnel, overhead and infrastructure costs to maintain our facilities, and other costs related to activities that benefit multiple projects. Clinical manufacturing costs primarily consist of costs to manufacture bulk drug product for clinical development purposes as well as related drug filling, packaging, and labeling costs. Clinical manufacturing costs also includes pre-launch commercial supplies which did not meet the criteria to be capitalized as inventory (see "Critical Accounting Policies and Use of Estimates - Inventories" above). The table below also includes reimbursements of research and development expenses by collaborators, as when we are entitled to reimbursement of all or a portion of such expenses that we incur under a collaboration, we record those reimbursable amounts in the period in which such costs are incurred. Year Ended December 31, $ Change (In millions) 2023 2022 * 2021 * 2023 vs. 2022 2022 vs. 2021 Direct research and development expenses: Dupixent (dupilumab) $ 168.0 $ 156.5 $ 146.4 $ 11.5 $ 10.1 Fianlimab 112.2 43.4 8.7 68.8 34.7 Libtayo (cemiplimab) 105.3 138.0 146.2 (32.7) (8.2) Odronextamab 96.3 66.0 34.9 30.3 31.1 EYLEA HD (aflibercept) 8 mg 96.2 67.9 73.5 28.3 (5.6) Linvoseltamab 78.7 45.5 18.7 33.2 26.8 Itepekimab 70.3 26.5 — 43.8 26.5 Pozelimab 60.2 72.4 28.3 (12.2) 44.1 REGEN-COV (5.6) 32.8 309.8 (38.4) (277.0) Other product candidates in clinical development and other research programs 514.0 393.9 429.7 120.1 (35.8) Total direct research and development expenses 1,295.6 1,042.9 1,196.2 252.7 (153.3) Indirect research and development expenses: Payroll and benefits 1,537.0 1,195.5 981.4 341.5 214.1 Lab supplies and other research and development costs 210.6 181.0 142.0 29.6 39.0 Occupancy and other operating costs 518.2 508.5 414.9 9.7 93.6 Total indirect research and development expenses 2,265.8 1,885.0 1,538.3 380.8 346.7 Clinical manufacturing costs 1,053.9 938.3 621.7 115.6 316.6 Reimbursement of research and development expenses by collaborators (176.3) (273.7) (496.1) 97.4 222.4 Total research and development expenses $ 4,439.0 $ 3,592.5 $ 2,860.1 $ 846.5 $ 732.4 * Certain prior year amounts have been reclassified to conform to the current year's presentation. 83 Table of Contents Total research and development expenses increased in 2023, compared to 2022, partially due to the impact of the amendments to the Sanofi collaboration agreements (which were effective July 1, 2022) described above in Part I, Item 1. "Business - "Collaboration, License, and Other Agreements - Sanofi", as (i) Sanofi is no longer reimbursing us for 50% of Libtayo development costs (such reimbursements were previously included in Reimbursement of research and development expenses by collaborators in the table above) and (ii) we recognize our 50% share of research and development expenses in connection with the Sanofi Antibody Collaboration. Research and development expenses included stock-based compensation expense of $488.7 million and $406.8 million in 2023 and 2022, respectively. There are numerous uncertainties associated with drug development, including uncertainties related to safety and efficacy data from each phase of drug development, uncertainties related to the enrollment and performance of clinical trials, changes in regulatory requirements, changes in the competitive landscape affecting a product candidate, and other risks and uncertainties described in Part I, Item 1A. "Risk Factors." There is also variability in the duration and costs necessary to develop a pharmaceutical product, potential opportunities and/or uncertainties related to future indications to be studied, and the estimated cost and scope of the projects. The lengthy process of seeking FDA and other applicable approvals, and subsequent compliance with applicable statutes and regulations, require the expenditure of substantial resources. Any failure by us to obtain, or delay in obtaining, regulatory approvals could materially adversely affect our business. We are unable to reasonably estimate if our product candidates in clinical development will generate material product revenues and net cash inflows. Acquired In-process Research and Development ("IPR&D") Acquired IPR&D in 2023 included: • $100.0 million charge in connection with a development milestone for the Phase 1 ALN-APP program, which is in collaboration with Alnylam; • $45.0 million up-front payment in connection with our collaboration agreement with Sonoma Biotherapeutics, Inc.; and • $30.0 million charge to extend the period for selecting targets under our collaboration agreement with Intellia. Acquired IPR&D in 2022 included: • $195.0 million charge related to our acquisition of Checkmate Pharmaceuticals, Inc.; • $30.0 million up-front payment in connection with our collaboration agreement with CytomX Therapeutics, Inc.; and • $20.0 million opt-in payment in connection with a product candidate under our collaboration agreement with Adicet Bio, Inc. Selling, General, and Administrative Expenses Selling, general, and administrative expenses increased in 2023, compared to 2022, primarily due to higher headcount and headcount-related costs, an increase in commercialization-related expenses for Libtayo (including acquisition and integration-related costs for Libtayo outside the United States as effective July 1, 2022, the Company became solely responsible for the commercialization of Libtayo worldwide), and, to a lesser extent, commercialization-related expenses for various other products, and higher contributions to an independent not-for-profit patient assistance organization. Selling, general, and administrative expenses also included $307.1 million and $256.4 million of stock-based compensation expense in 2023 and 2022, respectively. Cost of Goods Sold Cost of goods sold increased in 2023, compared to 2022, primarily due to higher start-up costs for our Rensselaer, New York fill/finish facility and an increase in period costs at our manufacturing facilities resulting from lower production volumes, partly offset by lower inventory write-offs and reserves. Inventory write-offs and reserves were $102.3 million in 2023 compared to $258.7 million in 2022. The inventory write-offs and reserves in 2022 were primarily related to REGEN-COV. Cost of Collaboration and Contract Manufacturing Cost of collaboration and contract manufacturing increased in 2023, compared to 2022, primarily due to the recognition of costs in connection with manufacturing commercial supplies for Sanofi related to Praluent outside the United States and for Bayer related to EYLEA outside the United States. This increase was partly offset by lower Dupixent manufacturing costs as a result of the transition to a higher-yielding manufacturing process. Other Operating (Income) Expense Other operating (income) expense, net, in 2022 included the recognition of amounts previously deferred in connection with up-front and development milestone payments, as applicable, received in connection with our Sanofi IO, Teva, and Mitsubishi 84 Table of Contents Tanabe Pharma Corporation ("MTPC") collaborative arrangements. As we discontinued further clinical development of fasinumab (for which we had collaborative arrangements with Teva and MTPC) during 2022, and the A&R IO LCA with Sanofi became effective July 1, 2022, no such amounts were recognized in connection with these collaborative arrangements during 2023. Other Income (Expense) Other income (expense) consists of the following: Year Ended December 31, (In millions) 2023 2022 2021 Unrealized (losses) gains on equity securities, net $ (237.8) $ (39.8) $ 386.1 Interest income 495.9 160.1 45.8 Foreign currency (losses) gains (12.9) 50.2 0.4 Other (20.0) 8.8 4.0 Other income (expense), net 225.2 179.3 436.3 Interest expense (73.0) (59.4) (57.3) Total other income (expense) $ 152.2 $ 119.9 $ 379.0 The increase in interest income in 2023, compared to 2022, was primarily driven by higher interest rates. Income Taxes Year Ended December 31, (In millions, except effective tax rate) 2023 2022 2021 Income tax expense $ 245.7 $ 520.4 $ 1,250.5 Effective tax rate 5.9% 10.7% 13.4% The Company's effective tax rate for 2023, compared to 2022, included a higher benefit from stock-based compensation, federal tax credits for research activities, and the proportion of income earned in foreign jurisdictions with tax rates lower than the U.S. federal statutory rate. Certain countries in which we have operations, including Ireland, have adopted legislation influenced by the OECD Pillar Two rules, including a minimum tax rate of 15%. It is uncertain whether the United States will enact legislation to adopt the Pillar Two framework. While we do not expect the adoption of the Pillar Two framework to have a material impact on our effective tax rate, we are continuing to evaluate additional guidance released by the OECD, along with the pending legislative adoption by additional individual countries. 85 Table of Contents Liquidity and Capital Resources Our financial condition is summarized as follows: As of December 31, (In millions) 2023 2022 $ Change Financial assets: Cash and cash equivalents $ 2,730.0 $ 3,105.9 $ (375.9) Marketable securities - current 8,114.8 4,636.4 3,478.4 Marketable securities - noncurrent 5,396.5 6,591.8 (1,195.3) $ 16,241.3 $ 14,334.1 $ 1,907.2 Working capital: Current assets $ 19,479.2 $ 15,884.1 $ 3,595.1 Current liabilities 3,423.4 3,141.3 282.1 $ 16,055.8 $ 12,742.8 $ 3,313.0 Borrowings and finance lease liabilities: Long-term debt $ 1,982.9 $ 1,981.4 $ 1.5 Finance lease liabilities $ 720.0 $ 720.0 $ — As of December 31, 2023, we also had borrowing availability of $750.0 million under a revolving credit facility (see further description under " Credit Facility " below). Sources and Uses of Cash for the Years Ended December 31, 2023, 2022, and 2021 Year Ended December 31, $ Change (In millions) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Cash flows provided by operating activities $ 4,594.0 $ 5,014.9 $ 7,081.3 $ (420.9) $ (2,066.4) Cash flows used in investing activities $ (3,185.1) $ (3,784.6) $ (5,384.7) $ 599.5 $ 1,600.1 Cash flows used in financing activities $ (1,790.1) $ (1,009.0) $ (1,005.8) $ (781.1) $ (3.2) Cash Flows from Operating Activities As of December 31, 2023 and 2022, deferred tax assets increased by $837.8 million and $746.4 million, respectively, primarily related to the impact of the Tax Cuts and Jobs Act of 2017, which requires, for tax purposes, the capitalization and amortization of research and development expenses effective for years beginning after December 31, 2021. As of December 31, 2021, Accounts receivable increased by $1.927 billion, compared to December 31, 2020, primarily due to REGEN-COV sales in connection with our September 2021 agreement to supply drug product to the U.S. government. As of December 31, 2022, Accounts receivable had decreased by $707.8 million, compared to December 31, 2021, driven by the Company's collection of amounts due from the U.S. government in connection with such sales in the fourth quarter of 2021. Other non-cash items, net, in 2022 and 2021 included inventory write-offs and reserves primarily related to REGEN-COV. Cash Flows from Investing Activities Capital expenditures in 2023 included costs incurred in connection with the expansion of our Tarrytown, New York location, as well as costs associated with the expansion of our manufacturing facilities in Rensselaer, New York (including the ongoing construction of a fill/finish facility and related equipment). Additionally, capital expenditures in 2023 is net of grant proceeds of $60.0 million primarily related to the expansion of our facilities in New York. We expect to incur capital expenditures of $825 million to $950 million in 2024 primarily in connection with the continued expansion of our research, preclinical manufacturing, and support facilities at our Tarrytown, New York campus and our manufacturing facilities. We expect continued significant capital expenditures over the next several years in connection with the planned expansion of our Tarrytown, New York campus. 86 Table of Contents Payments for the Libtayo intangible asset of $207.8 million and $1.027 billion in 2023 and 2022, respectively, were related to our acquisition (including contingent consideration paid) of the exclusive right to develop, commercialize, and manufacture Libtayo worldwide (as described in Part I, Item 1. "Collaboration, License, and Other Agreements - Sanofi - Immuno-Oncology " above). Acquisitions, net of cash acquired, of $54.9 million and $230.3 million in 2023 and 2022 was related to our acquisitions of Decibel Therapeutics, Inc. and Checkmate Pharmaceuticals, Inc., respectively. Cash Flows from Financing Activities Proceeds from issuances of Common Stock, in connection with exercises of employee stock options, were $1.146 billion during 2023, compared to $1.520 billion during 2022 and $1.672 billion during 2021. For information related to repurchases of Common Stock, see " Share Repurchase Programs " section below. Credit Facility In December 2022, we entered into an agreement with a syndicate of lenders (the "2022 Credit Agreement") which provides for a $750.0 million senior unsecured five-year revolving credit facility (the "2022 Credit Facility") and replaced the then-existing credit agreement, which was contemporaneously terminated. The 2022 Credit Agreement includes an option for the Company to elect to increase the commitments under the 2022 Credit Facility and/or to enter into one or more tranches of term loans in the aggregate principal amount of up to $500.0 million, subject to the consent of the lenders providing the additional commitments or term loans, as applicable, and certain other conditions. The 2022 Credit Agreement also provides a $50.0 million sublimit for letters of credit. As set forth in the 2022 Credit Agreement, we have the option to amend the 2022 Credit Agreement to establish environmental, social, and governance targets which will be used to adjust pricing under the 2022 Credit Facility, subject to parameters to be provided in the 2022 Credit Agreement. Proceeds of the loans under the 2022 Credit Facility may be used to finance working capital needs, and for general corporate or other lawful purposes, of Regeneron and its subsidiaries. Regeneron Pharmaceuticals, Inc. has guaranteed all obligations under the 2022 Credit Facility. The 2022 Credit Agreement includes an option for us to elect to extend the maturity date of the 2022 Credit Facility beyond December 2027, subject to the consent of the extending lenders and certain other conditions. Amounts borrowed under the 2022 Credit Facility may be prepaid, and the commitments under the 2022 Credit Facility may be terminated, at any time without premium or penalty. We had no borrowings outstanding under the 2022 Credit Facility as of December 31, 2023. The 2022 Credit Agreement contains operating covenants and a maximum total leverage ratio financial covenant. We were in compliance with all covenants of the 2022 Credit Agreement as of December 31, 2023. Share Repurchase Programs In January 2021, our board of directors authorized a share repurchase program to repurchase up to $1.5 billion of our Common Stock. As of December 31, 2021, the Company had repurchased the entire $1.5 billion of its Common Stock that it was authorized to repurchase under the program. In November 2021, our board of directors authorized a share repurchase program to repurchase up to $3.0 billion of our Common Stock. As of June 30, 2023, the Company had repurchased the entire $3.0 billion of its Common Stock that it was authorized to repurchase under the program. In January 2023, our board of directors authorized an additional share repurchase program to repurchase up to $3.0 billion of our Common Stock. The share repurchase program permits the Company to make repurchases through a variety of methods, including open-market transactions (including pursuant to a trading plan adopted in accordance with Rule 10b5-1 of the Exchange Act), privately negotiated transactions, accelerated share repurchases, block trades, and other transactions in compliance with Rule 10b-18 of the Exchange Act. Repurchases may be made from time to time at management's discretion, and the timing and amount of any such repurchases will be determined based on share price, market conditions, legal requirements, and other relevant factors. The program has no time limit and can be discontinued at any time. There can be no assurance as to the timing or number of shares of any repurchases in the future. As of December 31, 2023, $1.531 billion remained available for share repurchases under the program. 87 Table of Contents The table below summarizes the shares of our Common Stock we repurchased and the cost of the shares, which were recorded as Treasury Stock. Year Ended December 31, (In millions) 2023 2022 2021 Number of shares 2.9 3.3 3.0 Total cost of shares $ 2,214.6 $ 2,099.8 $ 1,655.0 Tarrytown, New York Lease We are party to a Third Amended and Restated Lease and Remedies Agreement, dated March 27, 2023 (the "Third Amended and Restated Lease") with BA Leasing BSC, LLC, an affiliate of Banc of America Leasing & Capital, LLC ("BAL"), as lessor, which relates to our lease of laboratory and office facilities in Tarrytown, New York (the "Facility"); and a Third Amended and Restated Participation Agreement, dated March 27, 2023 (the "Third Amended and Restated Participation Agreement") with Bank of America, N.A., as administrative agent (the "Administrative Agent"), and a syndicate of lenders (collectively with BAL, the "Participants"), as rent assignees. The Third Amended and Restated Lease and Third Amended and Restated Participation Agreement provide for a March 2027 maturity date of the $720.0 million lease financing (previously advanced by the Participants in March 2017 in connection with the acquisition by BAL of the Facility and our lease of the Facility from BAL) and the end of the term of our lease of the Facility from BAL, at which time all amounts outstanding thereunder will become due and payable in full. In accordance with the terms of the Third Amended and Restated Lease, we pay all maintenance, insurance, taxes, and other costs arising out of the use of the Facility. We are also required to make monthly payments of basic rent during the remaining term of the Third Amended and Restated Lease to satisfy the yield payable to the Participants on their outstanding advances under the Third Amended and Restated Participation Agreement. Such advances accrue yield at a variable rate per annum based on the one-month forward-looking Secured Overnight Financing Rate ("SOFR") term rate, plus a spread adjustment, plus an applicable margin that varies with our debt rating and total leverage ratio. The Third Amended and Restated Participation Agreement and Third Amended and Restated Lease include an option for us to elect to further extend the maturity date of the Third Amended and Restated Participation Agreement and the term of the Third Amended and Restated Lease for an additional five-year period, subject to the consent of all the Participants and certain other conditions. We also have the option prior to the end of the term of the Third Amended and Restated Lease to (a) purchase the Facility by paying an amount equal to the outstanding principal amount of the Participants' advances under the Third Amended and Restated Participation Agreement, all accrued and unpaid yield thereon, and all other outstanding amounts under the Third Amended and Restated Participation Agreement, Third Amended and Restated Lease, and certain related documents or (b) sell the Facility to a third party on behalf of BAL. The Third Amended and Restated Lease is classified as a finance lease as we have the option to purchase the Facility under terms that make it reasonably certain to be exercised. The agreements governing the Third Amended and Restated Lease financing contain financial and operating covenants. Such financial covenants and certain of the operating covenants are substantially similar to the covenants set forth in our 2022 Credit Agreement. The Company was in compliance with all such covenants as of December 31, 2023. Additional Funding Requirements The amount required to fund operations will depend on various factors, including the potential regulatory approval and commercialization of our product candidates and the timing thereof and the extent and cost of our research and development programs. We believe that our existing capital resources, borrowing availability under the 2022 Credit Facility, funds generated by anticipated product sales, and funding for reimbursement of research and development costs that we are entitled to receive under our collaboration agreements, will enable us to meet our anticipated operating needs for the foreseeable future. We expect to continue to incur significant costs in connection with our research and development activities (including preclinical and clinical programs). The amount of funding that will be required for our clinical programs depends upon the results of our research and preclinical programs and early-stage clinical trials, regulatory requirements, the duration and results of clinical trials underway and of additional clinical trials that we decide to initiate, and the various factors that affect the cost of each trial, including the size of trials, fees charged for services provided by clinical trial investigators and other third parties, the costs for manufacturing the product candidate for use in the trials, and other expenses. 88 Table of Contents We also anticipate continuing to incur substantial commercialization costs for our marketed products. Commercialization costs over the next few years will depend on, among other things, the market potential for product candidates, whether commercialization costs are shared with a collaborator, and regulatory approval of additional product candidates. We expect that expenses related to the filing, prosecution, defense, and enforcement of patents and other intellectual property will be substantial. Liabilities for unrecognized tax benefits totaled $696.4 million as of December 31, 2023. Due to their nature, there is a high degree of uncertainty regarding the period and amounts of potential future cash settlement with tax authorities. See Note 15 to our Consolidated Financial Statements. We enter into collaboration and licensing agreements that may require us to pay (i) amounts contingent upon the occurrence of various future events (e.g., upon the achievement of various development and commercial milestones), which, in the aggregate, could be significant, and/or (ii) royalties calculated based on a percentage of net product sales. The payment of these amounts, however, is contingent upon the occurrence of various future events, which have a high degree of uncertainty of occurring and for which the specific timing cannot be predicted. See Note 3 to our Consolidated Financial Statements. As described in Part I, Item 1. "Collaboration, License, and Other Agreements," under our collaborations with Bayer and Sanofi, we and our collaborator share profits in connection with commercialization of drug products. If the applicable collaboration is profitable, we have contingent contractual obligations to reimburse Bayer and Sanofi for a defined percentage (generally 50%) of agreed-upon development expenses funded by Bayer and Sanofi (i.e., "development balance"). These reimbursements are deducted each quarter, in accordance with a formula, from our share of the collaboration profits otherwise payable to us, unless, in the case of Bayer, we elect to reimburse these expenses at a faster rate. As of December 31, 2023, our contingent reimbursement obligation to Bayer was approximately $293 million and our contingent reimbursement obligation to Sanofi in connection with the companies' Antibody Collaboration was approximately $2.330 billion. Therefore, we continue to expect that a portion of our share of profits from sales under our collaborations with Bayer and Sanofi will be used to reimburse our collaborators for these obligations. Future Impact of Recently Issued Accounting Standards See Note 1 to our Consolidated Financial Statements for a description of recently issued accounting standards.