`
`ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
`OPERATIONS
`
`
`The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) 1s intended to help
`the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in
`conjunction with, our audited Consolidated Financial Statements and the accompanying notes to the Consolidated Financial Statements
`and other disclosures included in this Annual Report on l’orm 10-K (including the disclosures under “Item 1A. Risk Iactors”). Our
`Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles and are presented
`in U.S. dollars.
`
`Management Overview
`
`Weare a biopharmaceutical companythat discovers, develops and commercializes innovative therapeutics in areas of unmet medical
`need. Our mission is to advancethe care of patients suffering from life threatening diseases worldwide. Headquartered in Foster City,
`
`California, we have operations in North America, Europe and Asia Pacific. We market products in the HIV/AIDS, liverdisease,
`respiratory and cardiovascular/metabolic therapeutic areas. Our product portfolio 1s comprised of Atripla® (efavirenz 600 mg/emtricitabine
`200 mg/tenofovir disoproxil fumarate 300 mg), Truvada® (emtricitabine and tenofovir disoproxil fumarate), Viread® (tenofovir disoproxil
`fumarate) and Emtriva® (emtricitabine) for the treatment of human immunodeficiency virus (HIV) infection; Hepsera® (adefovir diptvoxil)
`and Viread for the treatment of chronic hepatitis B,; AmBisome® (amphotericin B liposomefor mjection) for the treatment of severe fungal
`infections; Letairis® (ambrisentan) for the treatment of pulmonaryarterial hypertension (PAH), Ranexa® (ranolazine) for the treatment of
`chronic angina; Vistide® (cidofovir injection) for the treatment of cytomegalovirusinfection and Cayston® (aztreonam for inhalation
`solution) as a treatment to improve respiratory symptomsin cystic fibrosis (CF) patients with Pseudomonas aeruginosa (P. aeruginosa).
`
`In addition, we also sell and distribute certain products through our corporate partners under royalty-paying collaborative
`agreements. For example, F. Hoffmann-l.a Roche I td (together with Hoffmann-I.a Roche Inc., Roche) markets Tamiflu® (oseltamivir
`phosphate) for the treatment and prevention of influenza; GlaxoSmithKline Inc. (GSK) markets Hepsera and Viread for the treatment of
`chronic hepatitis 3 in certain territories outside of the United States; GSK also markets Volibris® (ambrisentan) outside of the United
`States for the treatment of PAH; Astellas Pharma US, Inc. markets AmBisomefor the treatment of severe fungal infections in the United
`States and Canada; Astellas US LIC markets Lexiscan® (regadenoson)injection in the United States for use as a pharmacologic stress
`agent in radionuclide myocardial perfusion imaging; Rapidscan Pharma Solutions, Inc. markets Rapiscan (regadenoson) in certain
`territories outside of the United States for the inducement of pharmacological stress and/or vasodilation ofthe coronary vasculaturestrictly
`for purposes of diagnosing cardiovascular disease; Menarini International Operations Luxembourg SA markets Ranexa in certain
`territories outside ofthe United States for the treatment of chronic angina; and Japan ‘lobacco Inc. (Japan ‘lobacco) markets ‘lruvada,
`Viread and Emtriva in Japan.
`
`Business Highlights
`
`During 2010, we grew our business significantly and achieved record total revenues of $7.95 billion while strengthening our product
`portfolio and pipeline programs.
`
`Ourantiviral franchise, in particular Atripla and Truvada, continued to drive product sales growth both in the United States and
`within the big five European Union markets, which are comprised of the United Kingdom,France, Germany, Italy and Spain. Our
`cardiovascularfranchise also delivered strong results for the year with the contributions of Letairis and Ranexato ourtotal revenues. Our
`
`newest product, Cayston, in the respiratory area, was well accepted in North America and certain countries of Europe, showing continued
`revenue growth throughout 2010.
`
`52
`
`REG_NDNY00000056
`Regeneron Exhibit 1227.053
`Regeneron Exhibit 1227.053
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`During the year, we also made strategic decisions to advance and focus ourresearch and development (R&D) pipelineefforts,
`including:
`
`In the HIV area, in September 2010, we announced that we had submitted a Marketing Authorization Application to the
`Turopean Medicines Agency for marketing approvalof the single-tablet regimen of Truvada and Tibotec Pharmaceuticals’
`(Tibotec) investigational non-nucleoside reverse transcriptase inhibitor, TMC278 (rilprvirine hydrochloride), for the treatment
`of HIV-1 infection in adults. In November 2010, we announced that we had submitted a New Drug Application (NDA)to the
`U.S. Food and Drug Administration (FDA) for marketing approval of the single-tablet regimen of Truvada and Tibotec’s
`TMC278, for the treatment of111 V-1 infection in adults. In January 2011, we received a “refuse to file” notification from the
`U.S. FDA. In its communication, the FDA requested additional information with respect to the Chemistry, Manufacturing and
`Controls section of the NDA submission. In February 2011, we re-filed our new drug application, which included the requested
`information, and are awaiting the FDA’s response as to whetherit is substantially complete to permit a substantive review.
`
`Also in the HIV area, during 2010, we initiated both Phase 3 clinical studies for our investigational fixed-dose, single-tablet
`“Quad” regimenofelvitegravir, cobicistat (formerly GS 9350) and Truvada. The two Phase 3 studies are evaluating the single-
`tablet fixed-dose regimenversus a standard of care among HIV-infected treatment-naive patients. In the second quarter of 2010,
`wealso initiated a Phase 3 study evaluating the efficacy, safety and tolerability of cobicistat, our pharmacoenhancerthatis in
`development as a boosting agent for certain HIV medicines and otherantivirals. In September 2010, we released positive 48-
`week results from two of our ongoing Phase 2 clinical studies in HIV-infected patients. The first were from the study of our
`fixed-dose, single-tablet “Quad” regimenof elvitegravir, cobicistat and Truvada versus Atripla. The second were fromthe study
`of cobicistat-boosted atazanavir plus Truvada compared to ritonavir-boosted atazanavir plus Truvada.
`
`In the liver disease area, our hepatitis C virus (HCV)pipeline nowincludes seven unique molecules spanning six therapeutic
`classes with different mechanismsofaction. Five of these compoundsare currently in clinical trials, and two are slated to enter
`human clinical studies in early 2011. In October 2010, we announced data [rom a Phase 2a study showingthat our
`investigational compounds GS 9190 and GS 9256, used in conjunction with current standard ofcare therapies, produced
`substantial suppression of HCV within 28 days oftreatment. Additionally, in October 2010, we announced newdata from the
`open-label phase of two pivotal Phase 3 clinical trials (Studies 102 and 103) evaluating the four-year efficacy of Viread for the
`treatment of chronic hepatitis B virus (HBV) infection, which show that Viread maintains antiviral suppression with no
`development ofresistance through four years of treatment. Data also showsignificant “s” antigen loss, a marker ofthe
`resolution of chronic HBV infection, in HBeAg-positive patients.
`
`Also in the liver disease area, in July 2010, John McHutchison, MD, joined Gilead as Senior Vice President, Liver Disease
`Therapeutics to lead the efforts to advance discovery and development programsin the liver disease area.
`
`In the respiratory area, we announced in October 2010 that our head-to-head Phase 3 clinical trial of Cayston versus tobramycin
`inhalation solution (TIS) in CF patients with 2 aeruginosa achievedits co-primary endpoint of superiority of Cayston to TIS
`for mean actual change in forced expiratory volume in one second (FEV1, a measure of lung function) percent predicted across
`three treatment cycles (stx months). Earlier in the year, in February, we received marketing approval from the FDA for Cayston
`as a treatment lo improve respiratory symptoms in CF patients with P aeruginosa.
`
`In the cardiovascular and metabolic areas, in December 2010, we announced the termination of ARTEMIS-IPF, our Phase 3
`study of ambrisentan in patients with idiopathic pulmonary fibrosis (IPF). This decision follows an interim analysis of
`unblinded efficacy and safety data by the study’s Data Monitoring Committee and our review of those data, which did not show
`evidence of a treatment benefit in the group of patients randomized to receive ambrisentan.
`
`33
`
`REG_NDNY00000057
`Regeneron Exhibit 1227.054
`Regeneron Exhibit 1227.054
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`
`During the year, we also expanded ourpipeline throughstrategic acquisitions. We completed the acquisition of Arresto Biosciences,
`Inc. (Arresto) in January 2011 for $225 million plus potential future payments based on achievement of certain sales levels. Arresto was a
`privately-held, development-stage biotechnology company based in Palo Alto, California, focused on developing antibodies forthe
`potential treatment of fibrotic diseases and cancer. The company’s lead product is GS 6624 (formerly AB0024), a humanized monoclonal
`antibody (mAb) targeting the humanlysyl oxidase-like-2 (LOXL2) protein. In addition to an ongoing Phase 1 study of GS 6624 in patients
`with advanced solid tumors, a Phase 1 study is being conducted to evaluate GS 6624 in patients with IPF.
`
`We completed the acquisition of CGI Pharmaceuticals, Inc. (CGI) in July 2010 for up to $120 million in cash, the majority as an
`upfront payment and the remaining based on the achievementof certain clinical development milestones. CGI wasa privately-held
`development stage pharmaceutical company based in Branford, Connecticut, primarily focused on small molecule chemistry and protein
`kinase biology. The lead preclinical compound from CGI’slibrary of proprietary small molecule kinase inhibitors targets spleen tyrosine
`kinase (Syk) and could have unique applications for the treatment of serious inflammatory diseases, including rheumatoidarthritis.
`
`Financial Highlights
`
`Our operating results for 2010 were led by total productsales of $7.39 billion, an increase of 14% over total productsales of $6.47
`billion for 2009. The increase in product sales was driven primarily by our antiviral franchise (Atripla, Truvada, Viread, Hepsera and
`Emtriva), duc mainly to the strong growth in Atripla sales. Atripla contributed $2.93 billion, or 45%, to our 2010 antiviral productsales.
`Atripla product sales for 2010 increased 23% from 2009 primarily due to sales volume growth in the United States and Europe. Truvada
`product sales for 2010 comprised $2.65 billion, or 41% of 2010 antiviral product sales. Truvada product sales for 2010 increased 6% from
`2009 primarily due to sales volume growth in the United States and Europe. Foreign currency exchange had an unfavorable impact of
`$93.7 million and $79.8 million on our 2010 revenues and pre-tax carnings, respectively, compared to 2009.
`
`Product sales in the United States were driven primarily by our antiviral franchise but also reflected growth in sales of our
`cardiovascular products. Antiviral product sales in the United States increased 13% in 2010 compared to 2009, resulting from the
`continued growth of paticnt and market share in the United States. With respect to our cardiovascular franchise, Ranexa sales im the United
`States were $234.8 million in 2010, reflecting a continued growth in demand as Ranexa prescriptions have increased by 71% since our
`acquisition of CV Therapeutics, Inc. (CV Therapeutics) in April 2009. Ranexa sales were $123.1 million in 2009 for the period subsequent
`to our acquisition of CV Therapeutics. Furthermore, Letairis sales contributed $240.3 million to 2010 productsales in the United States,
`reflecting a 31% increase from 2009. Our newest product, Cayston, also contributed $47.5 million during its first year of sales in 2010, the
`majority of which was in the United States.
`
`Product sales in Europe were driven by antiviral product sales, which increased 9% in 2010 compared to 2009, due to continued
`strong growth in demand. While we saw demand growth for our products in Europe, the effect waspartially offset by recent mandatory
`price reductions in certain European countries and foreign currency exchange impact from a strengthening U.S. dollar relative to European
`currencics.
`
`Royalty revenues recognized from our collaborations with corporate partners were $546.0 million for 2010, an increase of $54.2
`million or 11% from royalty revenues of $491.8 million for 2009. Other royalty revenues, which include royalties from GSK for Hepsera,
`royalties from Astellas for Lexiscan and royalties from Japan ‘lobacco for ‘lruvada, contributed to the increase in total rovalty revenues,
`partially offset by Tamiflu royalties from Roche which decreased from $392.7 million in 2009 to $386.5 million in 2010.
`
`Our R&D andselling, general and administrative (SG&A) expenses increased by $230.7 million, or 12% for 2010 compared to 2009.
`The increase was due primarily to impairmentchargesrelated to in-process R&D
`
`54
`
`REG_NDNY00000058
`Regeneron Exhibit 1227.055
`Regeneron Exhibit 1227.055
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`(PR&D)assets acquired from CV Therapeutics, higher headcount and expenses to support our expanding commercial activities and
`clinical studies expensesrelated to increased HIV research activities, partially offset by lower R&D expense rermbursementrelated to our
`collaboration with Tibotec.
`
`We approved and communicated a plan during the second quarter of 2010 to close our research operations in Durham, North
`Carolina and consolidate our liver disease research activities in Foster City, California. We believe this plan will allow our employees to
`collaborate more effectively and further advance our programsin the liver disease area. During the year, we incurreda tolal of $25.0
`million of restructuring expenses related to employee severance andfacilities-related expenses under this plan. In December 2010, we
`closed our operations in Durham. We do not expect to incur any additional significant costs in connection with this plan.
`
`Financing Activity
`
`Cash, cash equivalents and marketable securities increased by $1.41 billion during 2010, driven primarily by our operating cash
`flows of $2.83 billion and proceeds of $2.46 billion from the issuance of convertible senior notes, net of issuance costs, partially offset by
`repurchases of our common stock under our stock repurchase programs. Under our current three-year, $5.00billion stock repurchase
`program authorized in May 2010, we repurchased $3.02 billion of our common stock through December 31, 2010. In May 2010, we had
`completed the $1.00 billion stock repurchase program previously authorized in January 2010. For the year, we utilized a total of $4.02
`billion of cash to repurchase andretire 109.9 million shares of our commonstock at an average purchase price of $36.57 per share.
`
`Our Board authorized an additional three-year, $5.00 billion stock repurchase program in January 2011 for future repurchases of our
`outstanding shares of common stock which will commence upon the completion of our existing program authorized in May 2010. We
`intend to use the additional authorization to repurchase our shares from timeto timeto offset the dilution created by shares issued under
`employee stock plans and to repurchase shares opportunistically.
`
`We issued $2.50billion of convertible senior notes in July 2010 in a private placement and purchased convertible note hedges as well
`as sold warrants for a net cost of $207.2 million. The cost of the convertible note hedges will be tax deductible over the life of the notes.
`The convertible note hedges and warrants are intended to reduce the potential economic dilution upon future conversionsof the notes by
`effectively increasing our conversion prices for the notes. Our interest expense for 2010 increased by $39.3 million compared to 2009, due
`primarily to increased interest expense related to the notes.
`
`We have used and will continue to use the net proceeds from the issuance of the convertible notes to repurchase shares of our
`common stock and repay existing indebtedness.
`
`Healthcare Reform
`
`In March 2010, healtheare reformlegislation was adopted in the United States. As a result, we are required to further rebate or
`discount products reimbursed or paid for by various public payers, including Medicaid and other entities eligible to purchase discounted
`products through the 340B Drug Pricing Program underthe Public Health Service Act, such as AIDS Drug Assistance Programs (ADAPs).
`The discounts, rebates and fees in the legislation that impacted us include:
`
`*
`
`effective January 1, 2010, our minimum base rebate amount owed to Medicaid on products reimbursed by Medicaid was
`
`increased by 8%, and the discounts or rebates we owe to ADAPs and other Public Health Service entities which rermburse or
`purchase our products were also increased by 8%;
`
`*—effective March 23, 2010, we are required to extend rebatesto patients receiving our products through Medicaid managed care
`organizations;
`
`.
`
`effective January 1, 2011, we are required to provide a 50% discount on products sold to patients while they are in the Medicare
`Part D “donut hole;” and
`
`55
`
`REG_NDNY00000059
`Regeneron Exhibit 1227.056
`Regeneron Exhibit 1227.056
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`*
`
`effective 2011, we, along with other pharmaceutical manufacturers of branded drug preducts, are required to pay a portionof a
`new industry fee (also known as the pharmaceutical excise tax), calculated based on select governmentsales during the 2010
`calendaryear as a percentage of total industry governmentsales.
`
`Starting in 2014, as the numberof people with access to healthcare coverage is expected to increase, we could experience a positive
`impact on the sales of our products. Further, the expansion of healthcare coverage may decrease the reliance of patients on state ADAPs
`that currently rely on the availability of federal and state funding.
`
`The full impact of healthcare reform for 2010 was a reduction of approximately $200 million in U.S. net product sales. The majority
`ofthis impact began in the third quarter and continued throughout the fourth quarter of 2010 since some of the newdiscount and rebate
`requirements took two quarters to fully take effect. For 2011, excluding the impact of the new pharmaceutical excise tax, we estimate that
`the impactof healthcare reform on product sales will be approximately 5—-6% of our U.S. net productsales.
`
`Manyofthe specific determinations necessary to implementthe healthcare reform legislation have yet to be decided and
`communicated by the federal government. For example, we do not know how many or howquicklypatients recetving our product under
`the Medicare Part D program will reach the “donut hole” or how details of the pharmaceutical excise tax will be calculated. Based on the
`information that we have to date, we estimate the 2011 impact of the pharmaceutical excise tax to be between $30-$50 million, which will
`be classified as SG&A expense. The excise tax is not tax deductible. In calculating the anticipated financial impacts of healthcare reform
`described above, we made several estimates and assumptions with respect to our expected payer mix and howthe reformswill be
`implemented.
`
`2011 Outlook
`
`Our operating objectives for 2011 include increasing the market share of our commercial products, continuing to strengthen our
`pipeline with internally developed and/or externally in-licensed or purchased opportunities and strengthening our key alliances.
`Additionally, we remain committed to returning value to our shareholders as we continue to repurchase our shares tn a disciplined manner
`throughoutthe year.
`
`From an R&D standpoint, we will continue to execute on our pipeline development with a particular focus on innovative HIV single-
`tablet regimens for patients and progression of HCV molecules into the clinic.
`
`From a commercial standpoint, we have a numberof internal and external initiatives intended to promote the continued growth of
`our franchises. In the HIV area, we expect to see continued positive impact from the revised U.S. Department of Health and Human
`Services treatment guidelines that recommendearlier treatment for patients with HIV. The extension of the Ryan White Treatment Act
`should provide stable funding for ADAPsin the United States through 2013. Assuming the timely resolution of the issues with the “refuse
`to file” notification from the FDA, we expect to launcha single-tablet regimen of Truvada and Tibotec’s TMC278 in the second half of
`2011 which we expect to contribute incremental revenue to our HIV franchise. In February 2011, we re-filed our new drug application,
`which included the requested information, and are awaiting the FDA’s response as to whetherit 1s substantially complete to permita
`
`substantive review. In the hepatitis B virus (HBV) area, we will continue to support educational and promotional activities focused on U.S.
`Asian communities, highlighting the need to screen, diagnose and link patients to care. As part of those efforts, in 2010, we expanded our
`hepatitis B field team in the United States. In the cardiovascular area, we will continue in our efforts to raise awareness of Gilead in the
`PAH and cardiology communities and believe this will help grow revenuesof Letairis and Ranexa in 2011. In cystic fibrosis, we intend to
`expand ourfield team to further growour market share for Cayston.
`
`We are mindful that conditions in our current macroeconomic environment could affect our ability to achieve our goals. Someof the
`factors that could affect our business include: any future changes to healthcare
`
`56
`
`REG_NDNY00000060
`Regeneron Exhibit 1227.057
`Regeneron Exhibit 1227.057
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`reform in the United States, a continuation or worsening of global economic conditions, patent expirations of competitive products and the
`launch of generic competitors, continued governmentpricing pressures internationally and the potential volatility in foreign currency
`exchange rates. We will continue to monitor these conditions and will adjust our business processes, as appropriate, to mitigate these risks
`to our business.
`
`The successes we experienced in 2010 have helped us maintain and build a financially sound business model that we believe will
`allow us to continue lo further expand our commercial, collaborative and R&D activities and lo maintai quality and compliance. As we
`continue to grow our business, we remain focused on profitable revenue growth and prudent expense managementthat we believe will
`enable solid execution of our operating objectives for 2011.
`
`Critical Accounting Policies, Estimates and Judgments
`
`The discussion and analysis of our financial condition and results of operations is based on our Consolidated Financial Statements,
`which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation ofthese financial statements
`requires us to make estimates and judgments that affect the reported amountsofassets, liabilities, revenues and expenses and related
`disclosures. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, intangible assets, allowance
`for doubtful accounts, prepaid royalties, clinical trial accruals, our tax provision and stock-based compensation. We base our estimates on
`historical expericnee and on various other market specific and other relevant assumptions that we belicve to be reasonable under the
`circumstances, the results of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not
`readily apparent from other sources. Actual results may differ significantly from these cstimates.
`
`We believe the followingcritical accounting policies reflect the more significant judgments and estimates used in the preparation of
`our Consolidated Financial Statements.
`
`Revenue Recognition
`Product Sales
`
`We recognize revenues from product sales when there is persuasive evidence that an arrangementexists, delivery to the customer has
`occurred, the price 1s fixed or determinable and collectability is reasonably assured. We record estimated reductions to revenues for
`governmentrebates such as Medicaid reimbursements, customer incentives such as cash discounts for prompt payment, distributor fees
`and expected returns of expired products. Thesc estimates are deducted from gross product sales at the time such revenues are recognized.
`Of these reductions from gross product sales, governmentrebates significantly impact our reported net product sales and are based upon
`certain estimates that require complex and significant judgment by management.
`
`Government Rebates
`
`Weestimate reductions to our revenues for government-managed Medicaid programs as well as to certain other qualifying federal,
`state and foreign government programsfor the reimbursementof portionsof the retail price of prescriptionsfilled that are covered by these
`programs. These reductionsare settled ether by the company being invoiced directly or through charge-backs from our wholesalers.
`Governmentrebates that are invoiced directly to us are recorded in accrued government rebates on our Consolidated Balance Sheets. For
`qualified programsthat can purchase our products through wholesalers at a lower contractual governmentprice, the wholesalers charge
`back to us the difference between their acquisition cost and the lower contractual governmentprice, which we record as allowances against
`accounts receivable. Although we may payrebates in countries outside of the United States, to date, payments made to foreign
`governments have not represented a significant portion of our total government rebates. For government programsin the United States, we
`estimate these sales allowances based on contractual terms, historical utilization rates, new information regarding changes1n these
`programs’ regulations and guidelines that would impact the amountofthe actual rebates, our
`
`57
`
`REG_NDNY00000061
`Regeneron Exhibit 1227.058
`Regeneron Exhibit 1227.058
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`expectations regarding future utilization rates for these programs and channel inventory data obtained from our major U.S. wholesalers in
`accordance with our inventory management agreements. During 2010, 2009, and 2008, U.S governmentrebates of $1.38 billion, $885.5
`million and $625.0 million, respectively, representing 15%, 12% and 10% of total gross product sales, respectively, were deducted from
`gross product sales. We believe that the methodology that we use to estimate our sales allowances for governmentprice reductionsis
`
`reasonable and appropriate giventhe current facts and circumstances. However, actual results may differ. Based on the current information
`available to us, actual governmentrebates claimed for these periods have varied by less than 2% from our estimates recorded in those
`periods. As of December 31, 2010 and 2009, we had accrued U.S. government rebates of $318.3 million and $242.9 million,respectively,
`in accrued governmentrebates and had an allowance for doubtful accounts of $53.5 million and $41.8 million, respectively, recorded
`against accounts receivable.
`
`The following table summarizes the aggregate activity m our U.S. government rebates allowance and accrued liabilities accounts:
`
`Year ended December 31, 2010:
`Goverment rebates allowances and accrued liabilitics
`Activity related to 2010 sales
`Activity related to sales prior to 2010
`Total
`Year ended December31, 2009:
`Government rebates allowances and accruedliabilities
`Activity related to 2009 sales
`Activity related to sales prior to 2009
`‘Total
`
`Intangible Assets
`
`Balance at
`Beginning
`of Year
`
`Charged
`to Expense
`
`Deducted
`from
`Accruals
`
`Balance
`at End of
`‘Year
`
`$ —
`284.642
`$284,642
`
`
`
`$1,383,855
`(8,573)
`$1,375,282
`
`$1,012,874
`275,267
`$1,288,141
`
`$370,981
`802
`$371,783
`
`$ —
`206,273
`$206,273
`
`$ 878,593
`6,902
`$ 885,495
`
`§ 594,579
`212,547
`$ 807,126
`
`$284,014
`628
`$284,642
`
`In conjunction with business combinations that we have completed, we have recorded intangible assets primarily related to marketed
`products, IPR&D projects and goodwill as part of our recognition and measurement of assets acquired and liabilities assumed in a business
`combination. Identifiable intangible assets, such as those related to marketed products or IPR&D projects, are measured at their respective
`fair values as of the acquisition date. We believe the fair values assigned to our acquired intangible assets are based on reasonable
`estimates and assumptions given the available facts and circumstancesas of the acquisition dates. Discounted cash flow models are used in
`valuing these intangible assets, and these models require the use of significant estimates and assumptionsincluding but not limitedto:
`
`*
`
`*
`
`*
`
`*
`
`«
`
`estimates of revenues and operating profits related to the products or product candidates,
`
`the probability of success for unapproved product candidates considermg their stages of development;
`
`the time and resources needed to complete the developmentand approval of product candidates;
`
`the life of the potential commercialized products and associated risks, including the inherent difficuluies and uncertamties in
`developing a product candidate such as obtaining FDA and other regulatory approvals; and
`
` nisks related to the viability of and potential alternative treatments in any future target markets.
`
`Goodwill represents the excess of the consideration transferred over the estimated fair values of assets acquired andliabilities
`assumed in a business combination. Goodwill and intangible assets determined to have indefinite useful lives are not amortized, but are
`required to be tested for impairmentat least annually. We test
`
`58
`
`REG_NDNY00000062
`Regeneron Exhibit 1227.059
`Regeneron Exhibit 1227.059
`Regeneron v. Novartis
`Regeneronv. Novartis
`IPR2021-00816
`IPR2021-00816
`
`
`
`Table of Contents
`
`goodwill and other indefinite-lived intangible assets for impairment on an annual basis and in between annual tests if we become aware of
`any events occurring or changes in circumstances that would indicate a reduction in the fair values of the assets below their carrying
`amounts. As of December 31, 2010, we had $562.2 millionof indefinite-lived intangible assets consisting of $532.7 million of goodwill
`resulting from various business combinations and $29.5 million of intangible assets related to the IPR&D projects that we acquired from
`CGI and CV Therapeutics.
`
`Intangible assets with finite useful lives are amortized over their esumated useful lives and are reviewed for impairment when facts
`or circumstances suggest that the carrying value of these assets may not be recoverable. We are amortizing the intangible asset related to
`the Ranexa product, which we acquired from CV Therapeutics, over ils estimated useful life using an amortization rate derived from our
`forecasted future product sales for Ranexa. Our product sales forecasts are prepared annually and determined using our best estimates of
`future activity upon considering such factors as historical and expected future patient usage or uptake of our products, the introduction of
`complimentary or combination therapies or products and future product launch plans. If a previously unanticipated and significant change
`occurs to our sales forecasts, we will prospectively update the rate used to amortize our itangible asset related to Ranexa which may
`increase future cost of goods sold, as that is where we record the amortization expense. We are amortizing the intangible asset related to
`the Lexiscan product, which we also acquired from CV Therapeutics, overits estimated useful life to cost of goods sold ona straight-line
`basis. Given that current Lexiscan revenues consist of royalties received from a collaboration partner and our lack of ongoing access and
`visibility into that partner’s future sales forecasts, we canno