Commitments and Contingencies

a. Leases

Descriptions of Lease Agreements

The Company leases laboratory and office facilities in Tarrytown, New York. The facilities leased by the Company in Tarrytown 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 lease, additional newly constructed space in a third building ("Building C") that was completed in the first quarter of 2011. The lease agreement related to Buildings A, B, and C will expire in June 2029; the remaining facilities under lease will expire in June 2024. The Tarrytown lease 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. The lease provides for monthly payments over its term and additional charges for utilities, taxes, and operating expenses.

In April 2013, the Company entered into a lease agreement for additional laboratory and office space to be constructed in two new buildings ("Buildings D and E"), which are expected to be completed in the second half of 2015, at the Company's current Tarrytown, New York location. The initial term of the lease, which commenced during the second half of 2014, is approximately 15 years and contains three renewal options to extend the term of the lease by five years each. The lease provides for (i) monthly payments over its term, which will be based on the landlord's costs of construction and tenant allowances, and (ii) additional charges for utilities, taxes, and operating expenses.

Certain premises under the Tarrytown lease are accounted for as operating leases. However, as described further below under "Facility Lease Obligations," for Buildings A, B, C, D, and E (collectively, the "Buildings") 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.

The Company also leases certain other laboratory, office, and storage space and equipment under operating leases which expire at various times through 2022.

Commitments under Operating Leases

The estimated future minimum noncancelable lease commitments under operating leases, as of December 31, 2014, are as follows:



	Facilities		Equipment		Total
2015	$	9,370	$	1,449	$	10,819
2016	10,040		151		10,191
2017	9,592		13		9,605
2018	9,779		—		9,779
2019	9,957		—		9,957
Thereafter	58,271		—		58,271
	$	107,009	$	1,613	$	108,622

Rent expense under operating leases was:



Year Ended December 31,	Facilities		Equipment		Total
2014	$	13,360	$	952	$	14,312
2013	9,404		471		9,875
2012	7,428		601		8,029

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 $13.6 million, $11.5 million, and $10.9 million for the years ended December 31, 2014, 2013, and 2012, respectively.

Facility Lease Obligations

Based upon various factors, including the Company's involvement in the construction of the Buildings and its responsibility for directly paying for a substantial portion of tenant improvements, the Company is deemed, in substance, to be the owner of the landlord's Buildings in accordance with the application of FASB authoritative guidance. Consequently, in addition to capitalizing the tenant improvements, the Company capitalizes the landlord's costs of constructing these new facilities, offset by a corresponding lease obligation on the Company's Balance Sheet. The Company also recognizes, as additional facility lease obligation, reimbursements from the Company's landlord for tenant improvement costs that the Company incurred since such payments that the Company receives from its landlord are deemed to be a financing obligation. The Company allocates a portion of its lease payments on these facilities between the Buildings and the land on which the Buildings are constructed, based on the initial estimated relative fair values of the land and Buildings. The land element of the lease is treated for accounting purposes as an operating lease.

With respect to Buildings A and B, in 2009 monthly lease payments commenced and the buildings were placed in service by the Company. The imputed interest rate applicable to the Company's Buildings A and B facility lease obligation is approximately 11%. With respect to Building C, in 2011, monthly lease payments commenced and the building was placed in service by the Company. The imputed interest rate applicable to the Company's Building C facility lease obligation is approximately 9%. In 2014, 2013, and 2012, the Company recognized $14.5 million, $16.2 million, and $16.0 million, respectively, of interest expense in connection with the Buildings A and B and the Building C facility lease obligations. As of December 31, 2014 and 2013, the Buildings A and B facility lease obligation balance was $110.2 million and $111.2 million, respectively, and the Building C facility lease obligation balance was $49.3 million and $49.1 million, respectively.

The estimated future minimum noncancelable commitments under these facility lease obligations, as of December 31, 2014, are as follows:



	Buildings A and B		Building C		Total
2015	$	13,545	$	4,562	$	18,107
2016	13,809		4,688		18,497
2017	14,079		4,818		18,897
2018	14,356		4,951		19,307
2019	14,640		5,088		19,728
Thereafter	132,027		59,987		192,014
	$	202,456	$	84,094	$	286,550

Commencing in the second quarter of 2013, the Company began capitalizing the landlord's costs of constructing Buildings D and E, and recognized a corresponding facility lease obligation. As of December 31, 2014 and 2013, the Buildings D and E facility lease obligation balance was $152.8 million and $25.0 million, respectively. Rent expense in connection with the land element of these new facilities also commenced in the second quarter of 2013 and is recorded as a deferred liability until lease payments commence, which is expected to be in 2015. Rent payments will be based on the landlord's costs of construction and tenant allowances, and will include additional charges for utilities, taxes, and operating expenses.

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, and universities. These agreements contain varying terms and provisions which include fees to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of these agreements may require the Company to pay additional amounts upon the achievement of various development and commercial milestones, contingent upon the occurrence of various future events. Additionally, some of the agreements contain provisions which require the Company to pay royalties, as defined, at rates that range from 0.5% to 16.5%, in the event the Company sells or licenses any proprietary products developed under the respective agreements. The Company also has contingent reimbursement obligations to its collaborators Sanofi and Bayer HealthCare once the applicable collaboration becomes profitable. See Note 4 for additional information.

In December 2011, the Company and Genentech, a member of the Roche Group, entered into a Non-Exclusive License and Partial Settlement Agreement (the "Original Genentech Agreement") that covered making, using, and selling EYLEA for the prevention of human eye diseases and disorders in the United States, and ended the litigation relating to those matters. Pursuant to the Original 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 Original Genentech Agreement provided for the Company 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, and is obligated 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.

Effective May 17, 2013, the Company entered into an Amended and Restated Non-Exclusive License and Settlement Agreement with Genentech (the "Amended Genentech Agreement"), which amended the Original Genentech Agreement to now include all sales of EYLEA worldwide and ended the litigation relating to those matters. Under the Amended Genentech Agreement, the Company received a worldwide non-exclusive license to the Davis-Smyth patents, and certain other patents, owned or co-owned by Genentech for the prevention or treatment of eye diseases and eye disorders in a human through administration of EYLEA to the eye. Under the Amended Genentech Agreement, the Company is obligated to make payments to Genentech based on sales of EYLEA in the United States, and EYLEA manufactured in the United States and sold outside the United States, through May 7, 2016 using the same milestone and royalty rates as in the Original Genentech Agreement. EYLEA is sold outside the United States by affiliates of Bayer HealthCare under the Company's license and collaboration agreement. All payments to Genentech under the Original Genentech Agreement and the Amended Genentech Agreement have been or will be made by the Company. Bayer HealthCare will share in all such payments based on the proportion of ex-U.S. EYLEA sales to worldwide EYLEA sales and determined consistent with the license and collaboration agreement.

The Company recognizes royalty expense based on product sales of commercial productsunder various licensing agreements, including, for EYLEA sales both inside and outside of the United States, the Genentech agreements described above. For the years ended December 31, 2014, 2013, and 2012, royalty expense related to product sales totaled $169.9 million, $128.1 million, and $59.5 million, respectively.