Commitments and Contingencies

a. Leases

Descriptions of Lease Agreements

The Company leases laboratory and office facilities in Tarrytown, New York (the "Tarrytown Leases"). 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 2009, (iii) newly constructed space in a third building ("Building C") that was completed in 2011, (iv) under an April 2013 lease agreement, newly constructed laboratory and office space in two buildings ("Buildings D and E") that was completed in the third quarter of 2015, and (v) under a June 2015 lease agreement, an existing building ("Building F") that the Company intends to renovate for additional laboratory and office space. The lease agreements related to Buildings A, B, C, D, E, and F (collectively, the "Buildings") expire in 2029; the remaining facilities under the lease expire in June 2024. The Tarrytown Leases provide for monthly payments over their respective terms and additional charges for utilities, taxes, and operating expenses.

Historically, certain of the premises under the Tarrytown Leases had been accounted for as operating leases. However, as described further below under "Facility Lease Obligations," for 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.

On December 30, 2016, the Company entered into a Purchase Agreement with BMR-Landmark at Eastview LLC and BMR-Landmark at Eastview IV LLC (collectively, "BMR"), pursuant to which the Company agreed to purchase BMR's Tarrytown, New York facilities (the "Facility") for a purchase price of $720.0 million, subject to certain customary adjustments. The Company currently occupies a significant portion of the Facility, with the remaining rentable area, or approximately 300,000 square feet, under leases to third-party tenants. In accordance with the terms of the Purchase Agreement, the Company paid $57.0 million toward the purchase price to BMR in December 2016. The closing of the Purchase Agreement is anticipated in the first quarter of 2017.

The Company intends to fund the acquisition contemplated by the Purchase Agreement with a new financing. Accordingly, the Company has entered into an engagement letter with Banc of America Leasing & Capital, LLC ("BAL"), pursuant to which BAL has been engaged to use its best efforts to arrange a $720.0 million lease financing in connection with the acquisition contemplated by the Purchase Agreement. As part of the contemplated financing, the Company intends to assign some or all its rights under the Purchase Agreement (including the right to take title to the Facility) to an affiliate of BAL at the closing of the financing, as a result of which such affiliate will become the legal owner of the Facility (the "Lessor"). Upon assignment of its rights, the Company expects to be reimbursed by BAL or an affiliate of BAL for the $57.0 million payment the Company made in December 2016. Immediately thereafter, the Company intends to lease the Facility from the Lessor for a term of five years. At the end of the lease term, the Company expects to have an option to extend the term of the lease (subject to the consent of the financing providers), purchase the Facility at a predetermined amount, or sell the Facility to a third party on behalf of the Lessor.

While the Company has engaged BAL to use its best efforts to arrange a financing in connection with the contemplated Purchase Agreement, there is no guarantee that the Company will be able to obtain such financing on the agreed terms or at all.

Upon entering into the Purchase Agreement with BMR, the premises under the Company's Tarrytown Leases that were historically accounted for as operating leases were deemed to be modified, as the Company now has the option to purchase the facility, under terms that make it reasonably assured to be exercised. Consequently, the leases for such premises have been re-classified as a capital lease upon execution of the Purchase Agreement, and a proportionate amount of the $57.0 million payment was recorded as reduction of the initial capital lease liability. The execution of the Purchase Agreement did not impact the balance sheet classification for the Buildings; however, a proportionate amount of the $57.0 million payment was recorded as a reduction of the existing facility lease obligation.

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, 2016, are as follows:



	Facilities		Equipment		Total
2017	$	4,728	$	5,156	$	9,884
2018	4,860		825		5,685
2019	4,817		273		5,090
2020	4,271		12		4,283
2021	3,982		11		3,993
Thereafter	22,336		—		22,336
	$	44,994	$	6,277	$	51,271

Rent expense under operating leases was:



Year Ended December 31,	Facilities		Equipment		Total
2016	$	15,861	$	852	$	16,713
2015	14,659		543		15,202
2014	13,360		952		14,312

Capital Leases

As described above, the Company's Tarrytown Leases that had been historically accounted for as operating leases were re-classified as capital leases upon entering into the Purchase Agreement on December 30, 2016. The estimated future minimum noncancelable lease commitments under these capital leases, as of December 31, 2016, was not material as the Company anticipates closing of the Purchase Agreement in the first quarter of 2017. The Company had no additional capital leases as of December 31, 2016.

At December 31, 2016, capital lease obligations of $127.3 million were included in the Company's Consolidated Balance Sheet.

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 Consolidated 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 12%. 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 11%. With respect to Buildings D and E, in 2015, monthly lease payments commenced and the buildings were placed in service by the Company. The imputed interest rate applicable to the Company's Buildings D and E facility lease obligation is approximately 7%. With respect to Building F, the building was placed in service by the Company in 2016 and monthly lease payments do not commence until 2017. The imputed interest rate applicable to the Company's Buildings F facility lease obligation is approximately 10%. In 2016, 2015, and 2014, the Company recognized $5.4 million, $9.7 million, and $14.5 million, respectively, of interest expense in connection with the Buildings' facility lease obligations.

Facility lease obligations consist of the following:



	As of December 31,
	2016		2015
Buildings A and B	$	99,323	$	108,857
Building C	44,338		49,475
Buildings D and E	194,037		206,376
Building F	16,154		—
	$	353,852	$	364,708

The estimated future minimum noncancelable commitments under these facility lease obligations, as of December 31, 2016, exclusive of the potential impact of the closing of the Purchase Agreement (which is anticipated to occur in the first quarter of 2017), are as follows:



	Buildings A and B		Building C		Buildings D and E		Building F		Total
2017	$	13,965	$	4,740	$	12,922	$	490	$	32,117
2018	14,242		4,873		13,267		759		33,141
2019	14,526		5,009		13,621		786		33,942
2020	14,818		5,149		13,983		813		34,763
2021	15,116		5,292		14,354		841		35,603
Thereafter	101,010		48,801		121,927		7,190		278,928
	$	173,677	$	73,864	$	190,074	$	10,879	$	448,494

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 other companies and universities. These agreements contain varying terms and provisions which include fees to be paid by the Company, services to be provided, and license 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 once the applicable collaboration becomes profitable. See Note 3.

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 $400.0 million, and was obligated to pay royalties of 4.75% on cumulative U.S. sales of EYLEA between $400.0 million and $3.0 billion and 5.5% on any cumulative U.S sales of EYLEA over $3.0 billion. As the Company recorded net product sales of EYLEA, the Company recognized expense in connection with the Genentech Agreement using a blended mid-single digit royalty rate that reflected both the $60.0 million payment and the royalties payable on cumulative sales and that was 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 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 was 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 under the Company's license and collaboration agreement. All payments to Genentech under the Original Genentech Agreement and the Amended Genentech Agreement were made by the Company, and Bayer shared in all such payments based on the proportion of EYLEA sales outside the United States to worldwide EYLEA sales and determined consistent with the license and collaboration agreement. The Company's obligation to pay royalties pursuant to the Original Genentech Agreement and Amended Genentech Agreement terminated on May 7, 2016, when the licenses granted to the Company thereunder became fully paid up and royalty free for the duration of the remaining term of the underlying patents.

For the years ended December 31, 2016, 2015, and 2014, the Company recorded royalty expense of $125.3 million, $247.9 million, and $169.9 million, respectively, based on product sales of commercial products under various licensing agreements (including the Genentech agreements described above).