Commitments and Contingencies

a. Leases

Descriptions of Lease Agreements

The Company leases laboratory and office facilities in Tarrytown, New York, under a December 2006 lease agreement, as amended (the “Tarrytown Lease”). The facilities leased by the Company under the Tarrytown Lease include (i) space in previously existing buildings, (ii) newly constructed space in two buildings (“Buildings A and B”) that was completed in the third quarter of 2009 and, (iii) under a December 2009 amendment to the Tarrytown Lease, additional newly constructed space in a third building (“Building C”) that was completed in the first quarter of 2011. The Tarrytown Lease will expire in June 2024 and contains three renewal options to extend the term of the lease by five years each, escalations at 2.5% per annum, and early termination options for various portions of the space exclusive of the newly constructed space in Buildings A and B. The Tarrytown Lease provides for monthly payments over its term and additional charges for utilities, taxes, and operating expenses. Certain premises under the Tarrytown Lease are accounted for as operating leases. However, for Buildings A, B, and C that the Company is leasing, the Company is deemed, in substance, to be the owner of the landlord's buildings in accordance with the application of FASB authoritative guidance, and the landlord's costs of constructing these new facilities were required to be capitalized on the Company's books as a non-cash transaction, offset by a corresponding lease obligation on the Company's balance sheet.

In connection with the Tarrytown Lease, the Company issued a letter of credit in the amount of $3.4 million and collateralized the letter of credit with cash and marketable debt securities totaling $3.7 million and $3.6 million at December 31, 2012 and 2011, respectively. Such collateral has been classified as restricted cash and marketable securities.

In October 2008, the Company entered into a sublease with Sanofi U.S. for office space in Bridgewater, New Jersey. The lease commenced in January 2009 and expired in July 2011. In July 2011, the Company entered into an operating lease for office space in Liberty Corner, New Jersey, which expires in January 2017.

The Company also leases certain equipment under operating and capital leases which expire at various times through 2015.

Commitments under Operating Leases

The estimated future minimum noncancelable lease commitments under operating leases are as follows:



December 31,	Facilities		Equipment		Total
2013	$	7,502	$	1,250	$	8,752
2014	7,554		273		7,827
2015	7,698		74		7,772
2016	7,857				7,857
2017	7,517				7,517
Thereafter	52,520				52,520
	$	90,648	$	1,597	$	92,245

Rent expense under operating leases was:



Year Ending December 31,	Facilities		Equipment		Total
2012	$	7,428	$	601	$	8,029
2011	7,191		599		7,790
2010	7,301		335		7,636

In addition to its rent expense under operating leases, and payments under facility lease obligations (see below), for various facilities, the Company paid rental charges for utilities, real estate taxes, and operating expenses of $10.9 million, $9.3 million, and $10.3 million for the years ended December 31, 2012, 2011, and 2010, respectively.

Commitments under Capital Leases

In 2011 and 2010, the Company entered into capital leases in connection with acquisitions of new equipment. The lease obligations are collateralized with marketable debt securities totaling $3.2 million and $3.3 million at December 31, 2012 and 2011, respectively; such collateral has been classified as restricted cash and marketable securities at December 31, 2012 and 2011. The Company did not enter into capital leases in 2012.

The estimated future minimum noncancelable lease commitments under capital leases are as follows:



December 31,	Equipment
2013	$	1,255
2014	130
Total minimum lease payments	1,385
Less: amount representing interest	(76		)
	$	1,309

At the end of the lease term, the Company is required to purchase the leased equipment for a nominal amount defined in the lease agreement. At December 31, 2012 and 2011, capital lease obligations totaled $1.3 million and $2.5 million, respectively, and were included in other liabilities.

Facility Lease Obligations

As described above, in connection with the application of FASB authoritative guidance to the Company's lease of office and laboratory facilities in Buildings A, B, and C, the Company capitalized the landlord's costs of constructing the new facilities and recognized a corresponding facility lease obligation. The Company also recognized, as additional facility lease obligation, reimbursements from the Company's landlord for tenant improvement costs that the Company incurred since, under FASB authoritative guidance, such payments that the Company receives from its landlord are deemed to be a financing obligation. Monthly lease payments on these facilities are allocated between the land element of the lease (which is accounted for as an operating lease) and the facility lease obligation, which was based on the initial estimated relative fair values of the land and buildings.

As of December 31, 2010, the Company had capitalized the landlord's costs of constructing Buildings A and B, which totaled $58.4 million, and of constructing Building C, which totaled $27.8 million. Reimbursements from the Company's landlord for Buildings A and B tenant improvement costs totaled $56.9 million and were received by the Company during 2010 and 2009. Reimbursements for Building C tenant improvement costs totaled $14.2 million and were received by the Company during 2010. With respect to Buildings A and B, monthly lease payments commenced in August 2009, the buildings were placed in service by the Company in September 2009, and the imputed interest rate applicable to the Company's facility lease obligation is approximately 11%. With respect to Building C, monthly lease payments commenced in January 2011, the building was placed in service by the Company in February 2011, and the imputed interest rate applicable to the Company's facility lease obligation is approximately 9%.

In 2012 and 2011, the Company recognized $16.0 million and $15.6 million, respectively, of interest expense in connection with the Buildings A and B and the Building C facility lease obligations. In 2010, the Company recognized $9.1 million of interest expense in connection with the Buildings A and B facility lease obligation. At December 31, 2012 and 2011, the Buildings A and B facility lease obligation balance was $112.0 million and $113.0 million, respectively, and the Building C facility lease obligation balance was $48.8 million and $47.5 million, respectively.

The estimated future minimum noncancelable commitments under these facility lease obligations, as of December 31, 2012, are as follows:



December 31,	Buildings A and B		Building C		Total
2013	$	13,092	$	4,370	$	17,462
2014	13,343		4,490		17,833
2015	13,600		4,614		18,214
2016	13,864		4,740		18,604
2017	14,134		4,870		19,004
Thereafter	98,906		35,029		133,935
	$	166,939	$	58,113	$	225,052

b. Research Collaboration and Licensing Agreements

As part of the Company's research and development efforts, the Company enters into research collaboration and licensing agreements with related and unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of the agreements contain provisions which require the Company to pay royalties, as defined, at rates that range from 1% to 16.5%, in the event the Company sells or licenses any proprietary products developed under the respective agreements.

In December 2011, the Company and Genentech, Inc., a member of the Roche Group, entered into a Non-Exclusive License and Partial Settlement Agreement (the “Genentech Agreement”) relating to ophthalmic sales of EYLEA in the United States. Pursuant to the Genentech Agreement, the Company received a non-exclusive license to certain patents relating to VEGF receptor proteins, known as the Davis-Smyth patents, and other technology patents. The Davis-Smyth patents are the subject of patent litigation between the Company and Genentech now pending in the United States District Court, Southern District of New York. Patent litigation is continuing with respect to matters not covered by the Genentech Agreement (see Note 19).

Under the terms of the Genentech Agreement, the Company agreed to make payments to Genentech based on U.S. sales of EYLEA commencing upon FDA approval of EYLEA in November 2011 through May 7, 2016. The Company made a one-time, non-refundable $60.0 million payment during 2012 upon cumulative U.S. sales of EYLEA reaching $400 million. In addition, the Company agreed to pay royalties of 4.75% on cumulative U.S. sales of EYLEA between $400 million and $3 billion and 5.5% on any cumulative U.S sales of EYLEA over $3 billion. As the Company records net product sales of EYLEA, the Company is recognizing expense in connection with the Genentech Agreement using a blended mid-single digit royalty rate that reflects both the $60.0 million payment and the royalties payable on cumulative sales and that is based upon the Company's estimate of cumulative EYLEA sales through May 7, 2016.

The Company recognizes royalty expense based on net product sales of its commercial productsunder various licensing agreements, including, for EYLEA sales in the United States, the Genentech Agreement described above. For the years ended December 31, 2012, 2011, and 2010, royalties on net product sales totaled $59.5 million, $3.2 million, and $1.7 million, respectively, and are included in cost of goods sold.

In July 2008, the Company and Cellectis S.A. (“Cellectis”) entered into an Amended and Restated Non-Exclusive License Agreement (the “Cellectis Agreement”). The Cellectis Agreement resolved a dispute between the parties related to the interpretation of a license agreement entered into by the parties in December 2003 pursuant to which the Company licensed certain patents and patent applications from Cellectis. Pursuant to the Cellectis Agreement, in July 2008, the Company made a non-refundable $12.5 million payment to Cellectis (the “Cellectis Payment”) and agreed to pay Cellectis a low single-digit royalty based on revenue received by the Company from any future licenses or sales of the Company's VelociGene or VelocImmune products and services. No royalties are payable to Cellectis with respect to the Company's VelocImmune license agreements with AstraZeneca and Astellas or the Company's antibody collaboration with Sanofi. Moreover, no royalties are payable to Cellectis on any revenue from commercial sales of antibodies from the Company's VelocImmune technology.

The Company began amortizing the Cellectis Payment in the second quarter of 2008 in proportion to past and future anticipated revenues under the Company's license agreements with AstraZeneca and Astellas and the Discovery and Preclinical Development Agreement under the Company's antibody collaboration with Sanofi (as amended in November 2009). In 2012, 2011, and 2010,the Company recognized $1.0 million, $1.0 million, and $0.9 million, respectively, of expense in connection with the Cellectis Payment. At December 31, 2012 and 2011, the unamortized balance of the Cellectis Payment, which was included in other assets, was $4.7 million and $5.7 million, respectively. The Company estimates that it will recognize expense of $1.0 million in 2013, and $0.9 million in each of 2014, 2015, 2016, and 2017, in connection with the Cellectis Payment.