UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2005

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

REGENERON PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

	New York		13-3444607
	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
	777 Old Saw Mill River Road
	Tarrytown, New York		10591-6707
	(Address of principal executive offices)		(Zip Code)

(914) 347-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                     No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o                     No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                     No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 31, 2005:

	Class of Common Stock		Number of Shares
	Class A Stock, $0.001 par value		2,351,873
	Common Stock, $0.001 par value		53,810,695

 

 

REGENERON PHARMACEUTICALS, INC.
Table of Contents
September 30, 2005

				Page Numbers
PART I		FINANCIAL INFORMATION
Item 1		Financial Statements
		Condensed balance sheets (unaudited) at September 30, 2005 and December 31, 2004			3
		Condensed statements of operations (unaudited) for the three months and nine months ended September 30, 2005 and 2004			4
		Condensed statement of stockholders’ equity (unaudited) for the nine months ended September 30, 2005			5
		Condensed statements of cash flows (unaudited) for the nine months ended September 30, 2005 and 2004			6
		Notes to condensed financial statements (unaudited)			7-20
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21-57
Item 3		Quantitative & Qualitative Disclosure About Market Risk			57
Item 4		Controls and Procedures			57-58
PART II		OTHER INFORMATION
Item 1		Legal Proceedings			58
Item 6		Exhibits			59
SIGNATURE PAGE					60
EX-12.1: STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO COMBINED CHARGES
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REGENERON PHARMACEUTICALS, INC.

CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 2005 AND DECEMBER 31, 2004 (Unaudited)
(In thousands, except share data)

		September 30,					December 31,
		2005					2004
ASSETS
Current assets
Cash and cash equivalents			$	176,093				$	95,229
Marketable securities				131,449					200,753
Accounts receivable				10,536					43,102
Prepaid expenses and other current assets				4,043					1,642
Inventory				2,837					3,229
Total current assets				324,958					343,955
Marketable securities				26,020					52,930
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization				64,044					71,239
Other assets				4,253					4,984
Total assets			$	419,275				$	473,108
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses			$	20,599				$	18,872
Deferred revenue, current portion				12,922					15,267
Total current liabilities				33,521					34,139
Deferred revenue				49,373					56,426
Notes payable				200,000					200,000
Total liabilities				282,894					290,565
Commitments and contingencies
Stockholders’ equity
Preferred stock, $.01 par value; 30,000,000 shares authorized; issued and outstanding-none
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized; shares issued and outstanding - 2,351,873 in 2005 and 2,358,373 in 2004				2					2
Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 53,780,333 in 2005 and 53,502,004 in 2004				54					54
Additional paid-in capital				693,426					675,389
Unearned compensation				(811	)				(2,299	)
Accumulated deficit				(555,608	)				(489,834	)
Accumulated other comprehensive loss				(682	)				(769	)
Total stockholders’ equity				136,381					182,543
Total liabilities and stockholders’ equity			$	419,275				$	473,108

The accompanying notes are an integral part of the financial statements.

REGENERON PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

		Three months ended September 30,										Nine months ended September 30,
		2005					2004					2005					2004
Revenues
Contract research and development			$	11,533				$	25,621				$	38,580				$	94,377
Research progress payments																			17,770
Contract manufacturing				4,661					10,898					10,189					14,780
				16,194					36,519					48,769					126,927
Expenses
Research and development				41,116					32,828					117,670					101,306
Contract manufacturing				3,246					8,986					7,412					11,740
General and administrative				6,219					4,184					18,581					12,209
				50,581					45,998					143,663					125,255
Income (loss) from operations				(34,387	)				(9,479	)				(94,894	)				1,672
Other income (expense)
Other contract income														30,640					42,750
Investment income				2,746					1,417					7,515					3,646
Interest expense				(3,011	)				(3,014	)				(9,035	)				(9,161	)
				(265	)				(1,597	)				29,120					37,235
Net income (loss)			($	34,652	)			($	11,076	)			($	65,774	)			$	38,907
Net income (loss) per share:
Basic			($	0.62	)			($	0.20	)			($	1.18	)			$	0.70
Diluted			($	0.62	)			($	0.20	)			($	1.18	)			$	0.69
Weighted average shares outstanding:
Basic				55,978					55,468					55,903					55,378
Diluted				55,978					55,468					55,903					56,295

The accompanying notes are an integral part of the financial statements.

REGENERON PHARMACEUTICALS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

For the nine months ended September 30, 2005
(In thousands)

																		Additional
		Class A Stock								Common Stock								Paid-in				Unearned
		Shares				Amount				Shares				Amount				Capital				Compensation
Balance, December 31, 2004			2,358			$	2				53,502			$	54			$	675,389				($2,299	)
Issuance of Common Stock in connection with exercise of stock options											184								1,122
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution											90								632
Conversion of Class A Stock to Common Stock			(6	)							6
Forfeitures of restricted Common Stock under Long-Term Incentive Plan											(2	)							(30	)			30
Stock-based compensation expense																			16,313				1,458
Net loss
Change in net unrealized loss on marketable securities
Balance, September 30, 2005			2,352			$	2				53,780			$	54			$	693,426				($811	)

						Accumulated
						Other				Total
		Accumulated				Comprehensive				Stockholders’				Comprehensive
		Deficit				Loss				Equity				Loss
Balance, December 31, 2004			($489,834	)			($769	)		$	182,543
Issuance of Common Stock in connection with exercise of stock options											1,122
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution											632
Conversion of Class A Stock to Common Stock
Forfeitures of restricted Common Stock under Long-Term Incentive Plan
Stock-based compensation expense											17,771
Net loss			(65,774	)							(65,774	)			($65,774	)
Change in net unrealized loss on marketable securities							87				87				87
Balance, September 30, 2005			($555,608	)			($682	)		$	136,381				($65,687	)

The accompanying notes are an integral part of the financial statements

REGENERON PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

		Nine months ended September 30,
		2005					2004
Cash flows from operating activities
Net income (loss)			($	65,774	)			$	38,907
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation and amortization				11,624					11,446
Non-cash compensation expense				17,624					1,917
Forgiveness of loan payable to Novartis Pharma AG, inclusive of accrued interest									(17,770	)
Changes in assets and liabilities
Decrease (increase) in accounts receivable				32,566					(9,337	)
Increase in prepaid expenses and other assets				(956	)				(2,338	)
Decrease in inventory				1,208					5,601
Decrease in deferred revenue				(9,398	)				(35,511	)
Increase in accounts payable, accrued expenses, and other liabilities				2,657					2,375
Total adjustments				55,325					(43,617	)
Net cash used in operating activities				(10,449	)				(4,710	)
Cash flows from investing activities
Purchases of marketable securities				(91,078	)				(243,971	)
Purchases of restricted marketable securities									(11,076	)
Sales or maturities of marketable securities				185,882					238,572
Maturities of restricted marketable securities									16,576
Capital expenditures				(4,613	)				(4,847	)
Net cash provided by (used in) investing activities				90,191					(4,746	)
Cash flows from financing activities
Net proceeds from the issuance of stock				1,122					683
Repurchase of Common Stock									(888	)
Borrowings under loan payable									3,827
Net cash provided by financing activities				1,122					3,622
Net increase (decrease) in cash and cash equivalents				80,864					(5,834	)
Cash and cash equivalents at beginning of period				95,229					97,477
Cash and cash equivalents at end of period			$	176,093				$	91,643

The accompanying notes are an integral part of the financial statements.

REGENERON PHARMACEUTICALS, INC.

Notes to Condensed Financial Statements (Unaudited)

(Unless otherwise noted, dollars in thousands, except per share data)

1. Interim Financial Statements

The interim Condensed Financial Statements of Regeneron Pharmaceuticals, Inc. (“Regeneron” or the “Company”) have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for such periods. The results of operations for any interim periods are not necessarily indicative of the results for the full year. The December 31, 2004 Condensed Balance Sheet data were derived from audited financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

2. Per Share Data

The Company’s basic net income (loss) per share amounts have been computed by dividing net income or loss by the weighted average number of shares of Common Stock and Class A Stock outstanding. Diluted net income per share is based upon the weighted average number of shares of Common Stock and Class A Stock and the common stock equivalents outstanding when dilutive. Common stock equivalents include: (i) outstanding stock options and restricted stock awards under the Company’s Long-Term Incentive Plans, which are included under the treasury stock method when dilutive, and (ii) Common Stock to be issued under the assumed conversion of the Company’s outstanding convertible senior subordinated notes, which are included under the if-converted method when dilutive. For the three and nine months ended September 30, 2005 and the three months ended September 30, 2004, the Company reported a net loss and, therefore, no common stock equivalents were included in the computation of diluted net loss per share for such periods, since such inclusion would have been antidilutive. The calculations of basic and diluted net income (loss) per share are as follows:

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

		Three Months Ended
		September 30,
		2005				2004
Net loss (Numerator)		($	34,652	)		($	11,076	)
Weighted-average shares, in thousands (Denominator)			55,978				55,468
Basic and diluted net loss per share		($	0.62	)		($	0.20	)

		Nine Months Ended
		September 30,
		2005				2004
Net income (loss) (Numerator)		($	65,774	)		$	38,907
Shares, in thousands (Denominator):
Weighted-average shares for basic per share calculations			55,903				55,378
Effect of stock options							876
Effect of restricted stock awards							41
Adjusted weighted-average shares for diluted per share calculations			55,903				56,295
Basic net income (loss) per share		($	1.18	)		$	0.70
Diluted net income (loss) per share		($	1.18	)		$	0.69

Shares issuable upon the exercise of stock options, vesting of restricted stock awards, and conversion of convertible debt, which have been excluded from the September 30, 2005 and 2004 diluted per share amounts because their effect would have been antidilutive, include the following:

		Three months ended September 30,
		2005				2004
Stock Options:
Weighted average number, in thousands			13,236				13,015
Weighted average exercise price		$	14.54			$	20.28
Restricted Stock:
Weighted average number, in thousands			149				196
Convertible Debt:
Weighted average number, in thousands			6,611				6,611
Conversion price		$	30.25			$	30.25

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

		Nine months ended September 30,
		2005				2004
Stock Options:
Weighted average number, in thousands			13,335				10,141
Weighted average exercise price		$	14.61			$	23.85
Restricted Stock:
Weighted average number, in thousands			188				3
Convertible Debt:
Weighted average number, in thousands			6,611				6,611
Conversion price		$	30.25			$	30.25

3. Stock-based Employee Compensation

Effective January 1, 2005, the Company adopted the fair value based method of accounting for stock-based employee compensation under the provisions of Statement of Financial Accounting Standards No. (“SFAS”) 123, Accounting for Stock-Based Compensation, using the modified prospective method as described in SFAS 148, Accounting for Stock-Based Compensation- Transition and Disclosure. As a result, the Company has begun recognizing expense, in an amount equal to the fair value of share-based payments (including stock option awards) on their date of grant, over the vesting period of the awards. Under the modified prospective method, compensation expense for the Company is recognized for (a) all share based payments granted on or after January 1, 2005, (including replacement options granted under the Company’s stock option exchange program which concluded on January 5, 2005 (see Note 11)) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date. Prior to the adoption of the fair value method, the Company accounted for stock-based compensation to employees under the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period prior to the first quarter of 2005 and prior period results have not been restated. For the three months ended September 30, 2005, non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) totaled $5,374. Stock Option Expense recognized in operating expenses, which includes $65 of Stock Option Expense previously capitalized in inventory, totaled $5,439 for the three months ended September 30, 2005. For the nine months ended September 30, 2005, Stock Option Expense totaled $16,313, of which $16,166 was recognized in operating expenses and $147 was capitalized in inventory. For the three and nine months ended September 30, 2004, had the Company adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123, Stock Option Expense would

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

have totaled $8,037 and $25,547, respectively, and the effect on the Company’s net income (loss) and net income (loss) per share would have been as follows:

		Three months ended					Nine months ended
		September 30, 2004					September 30, 2004
Net income (loss), as reported			($	11,076	)			$	38,907
Add: Stock-based employee compensation expense included in reported net income (loss)				618					1,917
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards				(8,655	)				(27,464	)
Pro forma net income (loss), basic			($	19,113	)			$	13,360
Basic net income (loss) per share amounts:
As reported			($	0.20	)			$	0.70
Pro forma			($	0.34	)			$	0.24
Diluted net income (loss) per share amounts:
As reported			($	0.20	)			$	0.69
Pro forma			($	0.34	)			$	0.24

The fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan (“2000 Incentive Plan”) during the three and nine months ended September 30, 2005 and 2004 was estimated on the date of grant using the Black-Scholes option-pricing model. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company’s Common Stock price, (ii) the periods of time over which employees and Board Directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on the Company’s 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 has been estimated based on actual movements in the Company’s stock price over the most recent historical periods equivalent to the options’ expected lives. Expected lives are principally based on the Company’s limited historical exercise experience with option grants with similar exercise prices. The expected dividend yield is zero as the Company has never paid dividends and does not currently anticipate paying any in the foreseeable future. The weighted-average fair value of the options granted during the three months ended September 30, 2005 and 2004 was $5.12 and $6.72 per option, respectively. The weighted-average fair value of the options granted during the nine months ended September 30, 2005 and 2004 was $5.79 and $9.68

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

per option, respectively. The following table summarizes the weighted average values of the assumptions used in computing the fair value of option grants.

		Three months ended September 30,
		2005				2004
Expected volatility			70	%			80	%
Expected lives from grant date		5.0 years				7.5 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.00	%			4.27	%

		Nine months ended September 30,
		2005				2004
Expected volatility			75	%			80	%
Expected lives from grant date		6.2 years				7.4 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			3.96	%			3.91	%

Under the 2000 Incentive Plan, the Company also awards shares of restricted stock. In accordance with generally accepted accounting principles, the Company records unearned compensation in Stockholders’ Equity related to these awards. The amount is based on the fair market value of shares of Common Stock on the grant date of the restricted stock award and is expensed, on a pro rata basis, over the period that the restrictions lapse. For the three months ended September 30, 2005 and 2004, the Company recognized compensation expense related to restricted stock awards of $482 and $618, respectively. For the nine months ended September 30, 2005 and 2004, the Company recognized compensation expense related to restricted stock awards of $1,458 and $1,917, respectively.

4. Statement of Cash Flows

Supplemental disclosure of noncash investing and financing activities:

Included in accounts payable and accrued expenses at September 30, 2005 and December 31, 2004 are $252 and $550, respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at September 30, 2004 and December 31, 2003 are $648 and $752, respectively, of accrued capital expenditures.

Included in accounts payable and accrued expenses at December 31, 2004 and 2003 are $632 and $917, respectively, of accrued Company 401(k) Savings Plan contribution expense. In the first quarter of both 2005 and 2004, the Company contributed 90,385 and 64,333 shares, respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

Included in marketable securities at September 30, 2005 and December 31, 2004 are $1,110 and $2,607, respectively, of accrued interest income. Included in marketable securities at September 30, 2004 and December 31, 2003 are $1,602 and $878, respectively, of accrued interest income.

5. Marketable Securities

The Company has revised the classification of its investments in auction rate securities from cash and cash equivalents to short-term investments on its balance sheets at December 31, 2004 and 2003, and September 30, 2004. Auction rate securities are securities that have stated maturities beyond three months, but are priced and traded as short-term investments due to the liquidity provided through the auction mechanism that generally resets interest rates every 28 or 35 days. The change in classification resulted in decreases in cash and cash equivalents and corresponding increases in short-term marketable securities of $6,005 and $20,808 at December 31, 2004 and 2003, respectively, and $13,404 at September 30, 2004. The Company held no auction rate securities at September 30, 2005. In addition, the Company revised its statements of cash flows to reflect the purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents, resulting in increases in cash flows from investing activities of $14,803 and $14,230 for the years ended December 31, 2004 and 2003, respectively, and $7,404 for the nine months ended September 30, 2004. This change in classification had no impact on the Company’s previously reported current assets, net income (loss), or cash flows from operations.

6. Accounts Receivable

Accounts receivable as of September 30, 2005 and December 31, 2004 consist of the following:

		September 30,					December 31,
		2005					2004
Receivable from the sanofi-aventis Group			$	9,528				$	39,362
Receivable from Merck & Co., Inc.				1,008					1,315
Receivable from The Procter & Gamble Company									2,345
Other									80
			$	10,536				$	43,102

7. Inventories

Inventories consist of raw materials, work-in process, and finished products associated with the production of an intermediate for a Merck & Co., Inc. pediatric vaccine under a long-term manufacturing agreement which will expire in October 2006.

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

Inventories as of September 30, 2005 and December 31, 2004 consist of the following:

		September 30,					December 31,
		2005					2004
Raw materials			$	359				$	310
Work-in-process				328					692	(1)
Finished products				2,150					2,227
			$	2,837				$	3,229

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of September 30, 2005 and December 31, 2004 consist of the following:

		September 30,					December 31,
		2005					2004
Accounts payable			$	3,452				$	4,407
Accrued payroll and related costs				4,234					7,972
Accrued clinical trial expense				6,063					2,083
Accrued expenses, other				1,808					2,118
Interest payable on convertible notes				5,042					2,292
			$	20,599				$	18,872

9. Comprehensive Income (Loss)

Comprehensive income (loss) represents the change in net assets of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) of the Company includes net income (loss) adjusted for the change in net unrealized gain (loss) on marketable securities. The net effect of income taxes on comprehensive income (loss) is immaterial. For the three months ended September 30, 2005 and 2004, the components of comprehensive loss are:

		Three months ended September 30,
		2005				2004
Net loss			($34,652	)			($11,076	)
Change in net unrealized gain (loss) on marketable securities			27				9
Total comprehensive loss			($34,625	)			($11,067	)

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

For the nine months ended September 30, 2005 and 2004, the components of comprehensive income (loss) are:

			Nine months ended September 30,
		2005					2004
Net income (loss)				($65,774	)			$	38,907
Change in net unrealized gain (loss) on marketable securities				87					(306	)
Total comprehensive income (loss)				($65,687	)			$	38,601

10. Research and Development Agreements

a. The sanofi-aventis Group

In September 2003, the Company entered into a collaboration agreement (the “s-a Agreement”) with Aventis Pharmaceuticals Inc., now a member of the sanofi-aventis Group, to jointly develop and commercialize the Company’s Vascular Endothelial Growth Factor (“VEGF”) Trap. In connection with this agreement, Aventis Pharmaceuticals made a non-refundable up-front payment of $80.0 million and purchased $45.0 million of newly issued, unregistered shares of the Company’s Common Stock.

In January 2005, the Company and sanofi-aventis amended the s-a Agreement to exclude rights to develop and commercialize the VEGF Trap for eye diseases through local delivery systems, and these VEGF Trap product rights reverted to Regeneron. In connection with this amendment, sanofi-aventis made a one-time $25.0 million payment to Regeneron in January 2005. Under the s-a Agreement, as amended, Regeneron and sanofi-aventis will share co-promotion rights for and profits on sales, if any, from the VEGF Trap, for disease indications included in the companies’ collaboration.

Under the s-a Agreement, as amended, agreed upon development expenses incurred by both companies during the term of the agreement will be funded by sanofi-aventis. If the collaboration becomes profitable, Regeneron will reimburse sanofi-aventis for 50% of the VEGF Trap development expenses, including 50% of the $25.0 million payment received in connection with the January 2005 amendment to the collaboration agreement, in accordance with a formula based on the amount of development expenses and Regeneron’s share of the collaboration profits, or at a faster rate at Regeneron’s option. In addition, if the first commercial sale of a VEGF Trap product for diseases of the eye through local delivery systems predates the first commercial sale of a VEGF Trap product under the collaboration, Regeneron will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses commencing two years after such initial commercialization outside the collaboration in accordance with a defined formula, until the first commercial VEGF Trap sale under the collaboration occurs.

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

b. The Procter & Gamble Company

On June 30, 2005, the Company and The Procter & Gamble Company agreed to amend their collaboration agreement (the “Collaboration Agreement”) entered into as of December 31, 2000. Pursuant to the terms of the amendment and agreement (the “Amendment”) entered into by the parties on June 30, 2005, the Company and Procter & Gamble agreed that the research activities of the parties under the Collaboration Agreement were completed on June 30, 2005, six months prior to the December 31, 2005 expiration date in the Collaboration Agreement. In connection with the Amendment, Procter & Gamble agreed to make a one-time $5.6 million payment to Regeneron, which was received in July 2005, and the Company agreed to pay $950 to Procter & Gamble to acquire certain capital equipment owned by Procter & Gamble and located at the Company’s facilities. Procter & Gamble also funded Regeneron’s research for the second quarter of 2005 under the terms of the Collaboration Agreement. Procter & Gamble and the Company divided rights to research programs and pre-clinical product candidates that were developed during the research term of the Collaboration Agreement. Neither party has the right to participate in the development or commercialization of the other party’s product candidates. The Company is entitled to receive royalties based on any future product sales of a Procter & Gamble pre-clinical candidate arising from the collaboration. Neither party is entitled to receive royalties or other payments based on any other products arising from the collaboration.

c. Amgen Inc.

On November 1, 2005, the Company and Amgen Inc. agreed to terminate their collaboration agreement (the “Amgen Agreement”) entered into in August 1990 to develop and attempt to commercialize two proprietary products. The Company and Amgen also agreed to terminate Amgen-Regeneron Partners, a partnership established in connection with the Amgen Agreement to complete the development and to commercialize the two products. There were no ongoing activities to develop these products and selected financial data of Amgen-Regeneron Partners as of and for the nine months ended September 30, 2005 and the years ended December 31, 2004, 2003 and 2002 were not significant. The Company and Amgen were equal partners in Amgen-Regeneron Partners. Neither party is entitled to receive royalties based on any products arising from the collaboration.

11. Stock Option Exchange Program

In December 2004, the Company’s shareholders approved a stock option exchange program. Under the program, Company regular employees who worked an average of 20 hours per week, other than the Company’s chairman and the Company’s president and chief executive officer, were provided the opportunity to make a one-time election to surrender options granted under the Company’s Long-Term Incentive Plans that had an

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

exercise price per share of at least $18.00 and exchange them for replacement options granted under the 2000 Incentive Plan in accordance with the following exchange ratios:

		Exchange Ratio
		(Number of Eligible Options
		Surrendered and Cancelled for Each
Exercise Price of Eligible Options		Replacement Option)
$18.00 to $28.00			1.50
$28.01 to $37.00			2.00
$37.01 and up			3.00

Participation in the stock option exchange program was voluntary, and non-employee directors, consultants, former employees, and retirees were not eligible to participate. The participation deadline for the program was January 5, 2005. Eligible employees elected to exchange options with a total of 3,665,819 underlying shares of Common Stock, and on January 5, 2005, the Company issued replacement options with respect to a total of 1,977,840 underlying shares of Common Stock at an exercise price of $8.50 per share.

12. Segment Reporting

The Company’s operations are managed in two business segments: research and development, and contract manufacturing.

Research and development: Includes all activities related to the discovery of potential therapeutics for human medical conditions, and the development and commercialization of these discoveries. Also includes revenues and expenses related to (i) the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements, and (ii) the supply of specified, ordered research materials using Regeneron-developed proprietary technology.

Contract manufacturing: Includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. The Company produces an intermediate for a Merck & Co., Inc. pediatric vaccine under a long-term manufacturing agreement which will expire in October 2006.

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

The table below presents information about reported segments for the three and nine months ended September 30, 2005 and 2004.

		Three months ended September 30, 2005
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	11,533			$	4,661				—			$	16,194
Depreciation and amortization			3,674				—	(1)		$	261				3,935
Interest expense			—				—				3,011				3,011
Net income (loss)			(35,802	)			1,415				(265	)(2)			(34,652	)
Capital expenditures			575				—				—				575

		Three months ended September 30, 2004
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	25,621			$	10,898				—			$	36,519
Depreciation and amortization			3,615				—	(1)		$	261				3,876
Interest expense			—				—				3,014				3,014
Net income (loss)			(11,391	)			1,912				(1,597	)(2)			(11,076	)
Capital expenditures			1,844				—				—				1,844

		Nine months ended September 30, 2005
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	38,580			$	10,189				—			$	48,769
Depreciation and amortization			10,841				—	(1)		$	783				11,624
Interest expense			—				—				9,035				9,035
Other contract income			30,640				—				—				30,640
Net income (loss)			(67,031	)			2,777				(1,520	)(2)			(65,774	)
Capital expenditures			4,327				—				—				4,327
Total assets			72,037				5,380				341,858	(3)			419,275

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

		Nine months ended September 30, 2004
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	112,147			$	14,780				—			$	126,927
Depreciation and amortization			10,663				—	(1)		$	783				11,446
Interest expense			126				—				9,035				9,161
Other contract income			42,750				—				—				42,750
Net income (loss)			41,256				3,040				(5,389	)(2)			38,907
Capital expenditures			4,743				—				—				4,743
Total assets			94,658				8,416				369,611	(3)			472,685

13. Legal Matters

In May 2003, securities class action lawsuits were commenced against Regeneron and certain of the Company’s officers and directors in the United States District Court for the Southern District of New York. A consolidated amended class action complaint was filed in October 2003. The complaint, which purports to be brought on behalf of a class consisting of investors in the Company’s publicly traded securities between March 28, 2000 and March 30, 2003, alleges that the defendants misstated or omitted material information concerning the safety and efficacy of AXOKINE, a product then being developed by the Company for the treatment of obesity, in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

On August 2, 2005, the plaintiffs and the Company entered into a Stipulation and Agreement of Settlement settling all claims against the Company in this lawsuit. The settlement requires no payment by the Company or any of the individual defendants named in the lawsuit. The Company’s primary insurance carrier agreed to make the required payment under the settlement, which is in an immaterial amount to the Company. The settlement includes no admission of wrongdoing by the Company or any of the individual defendants. The settlement must be finally approved by the United States District Court for the Southern District of New York following notice and hearing.

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

Separately, the plaintiffs and the individual defendants named in the lawsuit entered into a Stipulation of Voluntary Dismissal, dismissing all claims against the individuals. This voluntary dismissal shall automatically become a dismissal with prejudice, without costs, upon the court entering an order and final judgment approving the settlement.

From time to time, the Company is a party to other legal proceedings in the course of the Company’s business. The Company does not expect any such other current legal proceedings to have a material adverse effect on the Company’s business or financial condition.

14. Severance Costs

In September 2005, the Company announced plans to reduce its workforce from 730 to approximately 565 by the end of 2006. The workforce reduction results from plans to narrow the focus of the Company’s research and development efforts, substantial improvements in manufacturing productivity, the recent expiration of the Company’s collaboration with The Procter & Gamble Company, and the expected completion of contract manufacturing for Merck & Co., Inc. in late 2006. The majority of the headcount reduction will occur by the end of 2005, with the remainder planned for 2006 following the completion of the Company’s contract manufacturing activities for Merck.

Details of the workforce reduction plan and related severance benefits were communicated to employees in October 2005. The Company estimates that costs associated with the workforce reduction, which will be comprised principally of severance payments and related payroll taxes, employee benefits, and outplacement services, will total between $2.5 million and $3.0 million, the substantial majority of which will be cash expenditures. These costs will be accounted for in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company did not recognize costs associated with the workforce reduction in the quarter ended September 30, 2005. The Company expects to incur between $1.8 million and $2.0 million of these workforce reduction costs in the fourth quarter of 2005 and the remainder in 2006.

15. Future Impact of Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS 123R, Share-Based Payment. SFAS 123R is a revision of SFAS 123, Accounting for Stock-Based Compensation (which we adopted effective January 1, 2005 — see Note 3), and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions, and requires the recognition of compensation expense in an amount equal to

REGENERON PHARMACEUTICALS, INC.
Notes to Condensed Financial Statements (Unaudited)
(Unless otherwise noted, dollars in thousands, except per share data)

the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123R is effective for fiscal years beginning after June 15, 2005. In March 2005, the U.S. Securities and Exchange Commission (‘SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) which expresses views of the SEC staff regarding the application of SFAS 123R. Among other things, SAB 107 provides interpretive guidance related to the interaction between SFAS 123R and certain SEC rules and regulations as well as the SEC staff’s views regarding the valuation of share-based payment arrangements for public companies. The Company will be required to adopt SFAS 123R effective for the fiscal year beginning January 1, 2006, and intends to do so using the modified prospective method. Under the modified prospective method, compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS 123R for all share-based payments granted after the effective date and (b) the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123R that remain unvested on the effective date. In addition, the Company will consider the guidance of SAB 107 as it adopts SFAS 123R. Although the impact of adopting SFAS 123R has not yet been quantified, management believes that the future adoption of this standard may have a material impact on the Company’s financial statements.

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections. SFAS 154 replaces APB Opinion No. 20, Accounting Changes, and SFAS 3, Reporting Accounting Changes in Interim Financial Statements, and requires retrospective application to prior-period financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of a change. SFAS 154 also redefines “restatement” as the revising of previously issued financial statements to reflect the correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company is required to adopt the provisions of SFAS 154, as applicable, effective for the fiscal year beginning January 1, 2006.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations (“FIN 47”), which clarifies that the term “conditional asset retirement”, as used in SFAS 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 requires that a liability be recognized for the fair value of a conditional asset retirement obligation when incurred, if the fair value of the liability can be reasonably estimated. Uncertainty about the timing and method of settlement of a conditional asset retirement obligation would be factored into the measurement of the liability when sufficient information exists. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. Management believes that the future adoption of FIN 47 will not have a material impact on the Company’s financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

     The discussion below contains forward-looking statements that involve risks and uncertainties relating to future events and the future financial performance of Regeneron Pharmaceuticals, Inc. and actual events or results may differ materially. These statements concern, among other things, the possible success and therapeutic applications of our product candidates and research programs, the timing and nature of the clinical and research programs now underway or planned, and the future sources and uses of capital and our financial needs. These statements are made by us based on management’s current beliefs and judgment. In evaluating such statements, stockholders and potential investors should specifically consider the various factors identified under the caption “Risk Factors” which could cause actual results to differ materially from those indicated by such forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

     Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company that discovers, develops, and intends to commercialize pharmaceutical products for the treatment of serious medical conditions. We are strategically focused in 2005 on the development of the VEGF Trap in oncology, the VEGF Trap in eye diseases, and the IL-1 Trap in various inflammatory indications in which interleukin-1 is believed to play a role. Our clinical and preclinical pipeline also includes product candidates for the treatment of allergies, asthma, and other diseases and disorders. Developing and commercializing new medicines entails significant risk and expense. Since inception we have not generated any sales or profits from the commercialization of any of our product candidates.

     Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling technology and combine that foundation with our manufacturing and clinical development capabilities to build a successful, integrated biopharmaceutical company. Our efforts have yielded a diverse pipeline of product candidates that we believe has the potential to address a variety of serious medical conditions. We believe that our ability to develop product candidates is enhanced by the application of our technology platforms. These platforms are designed to discover specific genes of therapeutic interest for a particular disease or cell type and validate targets through high-throughput production of mammalian models. We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, and commercialize new product candidates.

     Here is a summary of the clinical status of our clinical candidates as of September 30, 2005:

•

VEGF TRAP — Oncology: Protein-based product candidate designed to bind Vascular Endothelial Growth Factor (called VEGF, also known as Vascular Permeability Factor or VPF) and the related Placental Growth Factor (called PlGF), and prevent their interaction with cell surface receptors. VEGF (and to a less validated degree, PlGF) is required for the growth of new blood vessels that are needed for tumors to grow and is a potent

			regulator of vascular permeability and leakage. The VEGF Trap is being developed in collaboration with the sanofi-aventis Group, as described below.
			In September 2005, we announced our plans with sanofi-aventis to expand the VEGF Trap oncology program. The companies plan to initiate up to 19 additional trials for the VEGF Trap in various cancer indications. Of these, six are new efficacy/safety trials and up to ten additional trials may be conducted through the National Cancer Institute (NCI) under a Clinical Trials Agreement between the Cancer Therapeutics Evaluation Program (CTEP), NCI, and sanofi-aventis.
			Three of the efficacy/safety studies are planned to be single-agent trials that will be conducted in a variety of indications. These studies are planned to begin in the fourth quarter of 2005 and the first quarter of 2006.
			Three other efficacy/safety studies will evaluate the VEGF Trap in combination with standard chemotherapy regimens in patients with different cancer types. Two of these studies could begin as early as the second half of 2006, following successful completion of initial combination safety and tolerability studies. Two safety and tolerability combination studies were initiated in May and July 2005 and are continuing. A third study was initiated in October 2005 and two more are scheduled to begin later this year or early next year.
			In addition, CTEP plans to sponsor up to ten exploratory efficacy/safety studies evaluating the VEGF Trap in a variety of cancer types. These trials are planned to start in 2006.
			In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals, Inc. (now a member of the sanofi-aventis Group) to jointly develop and commercialize the VEGF Trap throughout the world with the exception of Japan, where product rights remain with us. Under the collaboration agreement, as amended in January 2005, we and sanofi-aventis will share profits equally on sales, if any, of the VEGF Trap for disease indications included in our collaboration. Under the terms of the agreement, we may receive up to $360.0 million in milestone payments upon receipt of specified marketing approvals for up to eight VEGF Trap indications in Europe or the United States.
			Under the collaboration agreement, agreed upon development expenses incurred by both companies during the term of the agreement will be funded by sanofi-aventis. If the collaboration becomes profitable, we will reimburse sanofi-aventis for 50% of the VEGF Trap development expenses in accordance with a formula based on the amount of development expenses and our share of the collaboration profit, or at a faster rate at our option.
	•		VEGF TRAP — Eye Diseases: VEGF both stimulates angiogenesis and increases vascular permeability. It has been shown in preclinical studies to be a major pathogenic factor in diabetic retinopathy, diabetic macular edema, and age-related macular degeneration and is believed to be involved in other medical problems affecting the eyes.

			In January 2005, we and sanofi-aventis amended our collaboration agreement to exclude rights to develop and commercialize the VEGF Trap for eye diseases through local delivery systems. We now have the exclusive right to develop and commercialize the VEGF Trap for eye diseases through local administration to the eye.
			In September 2005, we announced that a Phase 2 trial in patients with the neovascular form of age-related macular degeneration (wet AMD) could begin as early as late 2005 or early 2006. We are completing a Phase 1 trial, initiated in June 2005, of the VEGF Trap delivered through intravitreal injection to patients with wet AMD. The Phase 1 trial is a two-part, dose-escalating study designed to assess the safety and tolerability of the VEGF Trap in patients with wet AMD. In “Part A” of this trial, patients are receiving a single dose of the VEGF Trap delivered by intravitreal injection into the eye, after which they are being evaluated for three months to measure the durability of effects and provide guidance for dosing regimens to be used in future trials. Following the initial phase of the trial, “Part B” will be conducted, in which the safety and tolerability of a single intravitreal injection of the VEGF Trap will be further evaluated compared with an approved treatment for wet AMD.
			A Phase 1 clinical trial of the VEGF Trap delivered systemically in patients with advanced wet AMD was completed in 2004, and the results of this study were discussed at the Retinal Society Meeting in September 2005. The trial successfully met its pre-specified efficacy endpoint as preliminary results from the trial indicated that the VEGF Trap demonstrated a statistically significant decrease in excess retinal thickness in treated patients, which increased in both magnitude and duration with higher doses. The trial results also showed that the VEGF Trap caused a dose-dependent increase in blood pressure (hypertension), which appears to be a “class-effect” of systemically administered anti-VEGF agents. Further clinical development using systemic delivery of the VEGF Trap for eye diseases is not currently planned.
	•		INTERLEUKIN-1 TRAP (IL-1 Trap): Protein-based product candidate designed to bind the interleukin-1 (called IL-1) cytokine and prevent its interaction with cell surface receptors. IL-1 may play an important role in a number of rheumatological and other diseases and disorders, including diseases associated with inflammation in blood vessels.
			In earlier human clinical trials, the IL-1 Trap demonstrated evidence of clinical activity and safety in patients who received weekly injections for extended periods of time. In these trials, patients experienced statistically significant reductions in their levels of C-reactive protein (CRP) levels, a marker of inflammation, and the improvements in CRP levels demonstrated a clear dose response to the IL-1 Trap. The IL-1 Trap was generally well tolerated and no serious drug-related adverse events were reported. In November 2005, at the American Heart Association Scientific Sessions, we will report positive preliminary data from a pilot study indicating that the IL-1 Trap provided prolonged suppression of CRP in otherwise healthy adults.
			In the fourth quarter of 2004, we initiated a pilot study of the IL-1 Trap in patients with CIAS1-Associated Periodic Syndrome (CAPS), a spectrum of rare diseases associated with mutations in the CIAS1 gene. IL-1 appears to play a significant role in these diseases

			and, in December 2004, the FDA granted orphan drug status to the IL-1 Trap for the treatment of CAPS. In June 2005, we reported positive preliminary results from this ongoing study in CAPS. We are currently in discussions with the FDA to finalize the design of a pivotal registration study, which is planned to begin by the end of the year.
			We believe blocking IL-1 could also be useful in a number of other potential indications where inflammation plays a role. Examples include systemic-onset juvenile idiopathic arthritis (SoJIA) and polymyalgia rheumatica (PMR). Earlier this year, we initiated a proof-of-concept study of the IL-1 Trap in PMR. Later this year, we plan to initiate a proof-of-concept study in SoJIA. The Company does not currently plan to conduct any further studies of the IL-1 Trap in adult rheumatoid arthritis or osteoarthritis.
			Under the terms of our March 2003 collaboration agreement with Novartis Pharma AG, we retain the right to elect to collaborate in the future development and commercialization of a Novartis IL-1 antibody, which is in clinical development, and Novartis has the right to elect to collaborate in the development and commercialization of our second generation IL-1 Trap, should we decide to develop this product candidate.

     In addition to our clinical programs, we have research programs focused on angiogenesis, inflammatory conditions, muscle atrophy, and other diseases and disorders. We also use our Velocigene® and Trap technology platforms to discover and develop new product candidates and are developing our Velocimmune^TM platform to create fully human, therapeutic antibodies.

     In June 2005, we and The Procter & Gamble Company amended our Focused Collaboration Agreement entered into as of December 31, 2000. Under the terms of the modified agreement, the two companies agreed that the research activities being pursued under the collaboration agreement were completed on June 30, 2005, six months prior to the December 31, 2005 expiration date in the original agreement. Procter & Gamble agreed to make a one-time $5.6 million payment to Regeneron, which was received in July 2005, and to fund Regeneron’s research for the second quarter of 2005 under the terms of the collaboration agreement. We agreed to pay Procter & Gamble $950,000 to acquire certain capital equipment located at our facilities. We and Procter & Gamble divided rights to research programs and preclinical product candidates that were developed during the research term of the collaboration. Neither party has the right to participate in the development or commercialization of the other party’s product candidates. We are entitled to receive royalties based on any future product sales of a Procter & Gamble preclinical candidate arising from the collaboration. Neither party is entitled to receive either royalties or other payments based on any other products arising from the collaboration.

     Developing and commercializing new medicines entails significant risk and expense. Since inception we have not generated any sales or profits from the commercialization of any of our product candidates and may never receive such revenues. Before revenues from the commercialization of our product candidates can be realized, we (or our collaborators) must overcome a number of hurdles which include successfully completing research and development and obtaining regulatory approval from the FDA and regulatory authorities in other countries. In addition, the biotechnology and pharmaceutical industries are rapidly evolving and highly competitive, and new developments may render our products and technologies uncompetitive or obsolete.

     From inception on January 8, 1988 through September 30, 2005, we had a cumulative loss of $555.6 million. In the absence of revenues from the commercialization of our product candidates or other sources, the amount, timing, nature, or source of which cannot be predicted, our losses will continue as we conduct our research and development activities. We expect to incur substantial losses over the next several years as we continue the clinical development of the VEGF Trap and IL-1 Trap; advance new product candidates into clinical development from our existing research programs; continue our research and development programs; and commercialize product candidates that receive regulatory approval, if any.

     Our activities may expand over time and may require additional resources, and we expect our operating losses to be substantial over at least the next several years. Our losses may fluctuate from quarter to quarter and will depend, among other factors, on the progress of our research and development efforts, the timing of certain expenses, and the amount and timing of payments that we receive from collaborators.

     The planning, execution, and results of our clinical programs are significant factors that can affect our operating and financial results. In our clinical programs, 2005 clinical events and plans for the period through 2006 are as follows:

Product Candidate				2005 Events to Date				4Q 2005 and 2006 Plans
VEGF Trap - Oncology		•		The sanofi-aventis Group reaffirmed their commitment to the collaborative development of the VEGF Trap in oncology		•		Initiate two additional safety and tolerability studies of the VEGF Trap in combination with standard chemotherapy regimens
		•		Reported positive preliminary results of Phase 1 trial utilizing intravenous injections		•		Initiate three efficacy/safety studies of the VEGF Trap as a single agent in different cancer indications
		•		Initiated three Phase 1 studies of the VEGF Trap in combination with standard chemotherapy regimens		•		Prepare to initiate two efficacy/safety studies of the VEGF Trap in combination with standard chemotherapy regimens in patients with different cancer types
						•		Finalize agreement for CTEP to sponsor up to ten exploratory efficacy/safety studies evaluating the VEGF Trap in a variety of cancer types

Product Candidate				2005 Events to Date				4Q 2005 and 2006 Plans
VEGF Trap – Eye Diseases		•		Reported positive results from Phase 1 trial in patients with wet AMD utilizing subcutaneous injections		•		Initiate Phase 2 clinical trial in eye disease utilizing intravitreal injections
		•		Initiated Phase 1 study in patients with wet AMD utilizing local delivery by intravitreal injections
IL-1 Trap		•		Completed safety and tolerability studies of IL-1 Trap at higher doses		•		Initiate exploratory proof-of-concept trial in SoJIA
		•		Initiated clinical trial in polymyalgia rheumatica (PMR)		•		Complete CAPS proof-of-concept study and commence additional trial in this indication
		•		Successfully completed initial treatment Phase of proof-of-concept study in CAPS
		•		Discontinued development of IL-1 Trap in adult rheumatoid arthritis and osteoarthritis

Accounting for Stock-based Employee Compensation

     Effective January 1, 2005, we adopted the fair value based method of accounting for stock-based employee compensation under the provisions of Statement of Financial Accounting Standards No. (SFAS) 123, Accounting for Stock-Based Compensation, using the modified prospective method as described in SFAS 148, Accounting for Stock-Based Compensation- Transition and Disclosure. As a result, we have begun recognizing expense, in an amount equal to the fair value of share-based payments (including stock option awards) on their date of grant, over the vesting period of the awards. Under the modified prospective method, we recognize compensation expense for (a) all share based payments granted on or after January 1, 2005, (including replacement options granted under our stock option exchange program which concluded on January 5, 2005) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date. Prior to the adoption of the fair value method, we accounted for stock-based compensation to employees under the intrinsic value method of accounting set forth in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. Therefore, compensation expense related to employee stock options was not reflected in operating expenses in any period prior to the first quarter of 2005 and prior period operating results have not been restated. For the three months ended September 30, 2005, non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) totaled $5.4 million. Stock Option Expense recognized in operating expenses, which includes $0.1 million of Stock Option Expense previously capitalized in inventory, totaled $5.5 million for the three months ended September 30, 2005. For the nine months ended September 30, 2005, Stock Option Expense totaled $16.3 million, of which $16.2 million was recognized in operating expenses and $0.1 million was capitalized in inventory.

Assumptions

     We use the Black-Scholes model to estimate the fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan. 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 Board 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 has been 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 limited historical exercise experience with option grants with similar exercise prices. The expected dividend yield is zero as we have never paid dividends and do not currently anticipate paying any in the foreseeable future. The following table summarizes the weighted average values of the assumptions we used in computing the fair value of option grants during the three and nine months ended September 30, 2005:

		Three months ended				Nine months ended
		September 30, 2005				September 30, 2005
Expected volatility			70	%			75	%
Expected lives		5.0 years				6.2 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.00	%			3.96	%

Changes in any of these estimates may materially affect the fair value of stock options granted and the amount of stock-based compensation recognized in any period.

Results of Operations

Non-GAAP Financial Measures:

     As described above, effective January 1, 2005, Regeneron began recognizing Stock Option Expense in accordance with SFAS 123 in each of the categories of expense in our Statement of Operations. Prior to the adoption of SFAS 123, Stock Option Expense was not reflected in operating expenses and prior period operating results have not been restated.

     The discussion of our results of operations for the three and nine months ended September 30, 2005 and 2004 includes certain financial measures that are calculated in a manner different from generally accepted accounting principles (GAAP) and are considered non-GAAP financial measures under United States Securities and Exchange Commission (SEC) rules. These non-GAAP financial measures for the three and nine months ended September 30, 2005 are: (1) pro forma net income and pro forma net income per share (basic and diluted), exclusive of Stock Option Expense and (2) research and development expenses, general and administrative expenses, and contract manufacturing expenses, all exclusive of Stock Option Expense. Our management does not intend that the presentation of non-GAAP financial measures be considered in isolation or as a substitute for results prepared in accordance with GAAP.

     Our management believes that the non-GAAP financial measures described above present helpful information to investors and other users of Regeneron’s financial statements by providing greater transparency about the nature of and trends in our operating expenses and net income and a more useful basis for comparing our operating results for the three and nine months ended September 30, 2005 and 2004. In addition, Regeneron’s management uses non-GAAP financial measures which exclude Stock Option Expense internally for operating, budgeting, and financial planning purposes. In our discussion below we have included tables which provide a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable financial measures calculated and presented in accordance with GAAP.

Three Months Ended September 30, 2005 and 2004

Net Income (Loss):

     Regeneron reported a net loss of $34.7 million, or $0.62 per share (basic and diluted), for the third quarter of 2005 compared with net loss of $11.1 million, or $0.20 per share (basic and diluted), for the third quarter of 2004. Excluding Stock Option Expense, Regeneron had a pro forma net loss of $29.2 million, or $0.52 per share (basic and diluted), in the third quarter of 2005 as follows:

For the three months ended September 30, 2005
(in millions, except per share data)

						Net Loss per Share -
		Net Loss				Basic and Diluted
Net loss, as reported			($34.7	)			($0.62	)
Add: Stock Option Expense			5.5				0.10
Pro forma net loss, exclusive of Stock Option Expense			($29.2	)			($0.52	)

Revenues:

     Revenues for the three months ended September 30, 2005 and 2004 consist of the following:

		(In millions)
		2005				2004
Contract research & development revenue
The sanofi-aventis Group		$	11.2			$	22.1
The Procter & Gamble Company			—				2.8
Other			0.3				0.7
Total contract research & development revenue			11.5				25.6
Contract manufacturing revenue			4.7				10.9
Total revenue		$	16.2			$	36.5

Our total revenue decreased to $16.2 million in the third quarter of 2005 from $36.5 million in the same period of 2004 due primarily to lower revenues related to our collaboration with sanofi-aventis on the VEGF Trap. Contract research and development revenue, as

detailed below, consists partly of reimbursement for research and development expenses and partly of the recognition of revenue related to a non-refundable, up-front payment received from sanofi-aventis in September 2003. Non-refundable, up-front payments are recorded as deferred revenue and recognized ratably over the period over which we are obligated to perform services in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104).

     Contract research & development revenues earned from sanofi-aventis for the three months ended September 30, 2005 and 2004 were as follows:

For the three months ended September 30, 2005
(in millions)

						Up-front Payment to Regeneron
		2005 Regeneron								Amount								Total Revenue
		Expense				Total				Recognized				Deferred Revenue at				Recognized
		Reimbursement				Payment				in 2005				September 30, 2005				in 2005
Sanofi-aventis		$	8.9			$	80.0			$	2.3			$	58.8			$	11.2

For the three months ended September 30, 2004
(in millions)

						Up-front Payment to Regeneron
		2004 Regeneron								Amount								Total Revenue
		Expense				Total				Recognized				Deferred Revenue at				Recognized
		Reimbursement				Payment				in 2004				September 30, 2004				in 2004
Sanofi-aventis		$	19.4			$	80.0			$	2.7			$	68.2			$	22.1

Sanofi-aventis reimbursement of Regeneron VEGF Trap expenses decreased in the third quarter of 2005 from the same period in 2004, primarily due to lower costs in 2005 related to our manufacture of VEGF Trap clinical supplies. We manufactured clinical supplies of VEGF Trap during the third quarter of 2004, but not during the third quarter of 2005.

     Contract manufacturing revenue relates to our long-term agreement with Merck & Co., Inc. to manufacture a vaccine intermediate at our Rensselaer, New York facility. Contract manufacturing revenue decreased to $4.7 million in the third quarter of 2005 from $10.9 million in the same period of 2004 as we shipped less product to Merck. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in the third quarter of 2005 and 2004 was $0.5 million and $2.4 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped to Merck based on the total amount of product to be shipped over the term of the agreement. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. As a result, we are recognizing the remaining $2.7 million deferred balance as of December 31, 2004 of Merck’s capital improvement reimbursements as revenue as product is shipped to Merck, based upon Merck’s order quantities through October 2006.

Expenses:

     Total operating expenses increased to $50.6 million in the third quarter of 2005 from $46.0 million in the same period of 2004. Operating expenses in the third quarter of 2005 include a total of $5.5 million of Stock Option Expense, as follows:

For the three months ended September 30,
(in millions)

		2005												2004
		Expenses as				Stock Option				Expenses exclusive of				Expenses as
Expenses		Reported				Expense				Stock Option Expense				Reported
Research and development		$	41.1			$	3.3			$	37.8			$	32.8
Contract manufacturing			3.3				0.3				3.0				9.0
General and administrative			6.2				1.9				4.3				4.2
Total operating expenses		$	50.6			$	5.5			$	45.1			$	46.0

Included in contract manufacturing expenses is $0.1 million of Stock Option Expense that was previously capitalized into inventory. Stock Option Expense was not included in operating expenses in the third quarter of 2004, as reported in our Statement of Operations. In the third quarter of 2004, had we adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123, Stock Option Expense would have totaled $8.0 million. The decrease in total Stock Option Expense of $2.6 million (which excludes the amount previously capitalized into inventory) in the third quarter of 2005 was partly due to lower exercise prices of annual employee option grants made by us in December 2004 in comparison to the exercise prices of annual grants in recent prior years. Exercise prices of these option grants were generally equal to the fair market value of our Common Stock on the date of grant. The decrease in Stock Option Expense in the third quarter of 2005 was also due, in part, to the exchange of options by eligible employees in connection with our stock option exchange program in January 2005, as the unamortized fair value of the surrendered options on the date of the exchange is being recognized as Stock Option Expense over a longer time period (the vesting period of the replacement options) in accordance with SFAS 123.

Research and Development Expenses:

     Research and development expenses, exclusive of Stock Option Expense, increased to $37.8 million in the third quarter of 2005 from $32.8 million in the same period of 2004. The following table summarizes the major categories of our research and development expenses for the three months ended September 30, 2005 and 2004:

For the three months ended September 30,
(in millions)

		2005												2004
		Expenses as				Stock Option				Expenses exclusive of				Expenses as
Research and development expenses		Reported				Expense				Stock Option Expense				Reported (2)
Payroll and benefits		$	14.3			$	2.9			$	11.4			$	10.8
Clinical trial expenses			7.5				—				7.5				2.3
Clinical manufacturing costs (1)			8.8				0.4				8.4				7.7
Research and preclinical development costs			4.9				—				4.9				6.7
Occupancy and other operating costs			5.6				—				5.6				5.3
Total research and development		$	41.1			$	3.3			$	37.8			$	32.8

     Payroll and benefits, exclusive of Stock Option Expense, increased $0.6 million in the third quarter of 2005 compared to the same period in 2004 as we added research and development personnel to support our clinical and research programs, especially for the VEGF Trap and IL-1 Trap. Clinical trial expenses increased $5.2 million in the third quarter of 2005 compared to the same period in 2004 due primarily to higher IL-1 Trap costs associated with commencing clinical studies in new indications and discontinuing the Phase 2b study in adult rheumatoid arthritis. Clinical manufacturing costs, exclusive of Stock Option Expense, increased $0.7 million in the third quarter of 2005 compared to the same period in 2004 as higher costs in 2005 related to manufacturing clinical supplies of IL-1 Trap were partly offset by lower costs related to manufacturing clinical supplies of VEGF Trap. Research and preclinical development costs decreased by $1.8 million in the third quarter of 2005 compared to the same period in 2004, due primarily to lower preclinical VEGF Trap development costs and other discovery research expenses in 2005. Occupancy and other operating costs increased by $0.3 million in the third quarter of 2005 compared to the same period in 2004.

Contract Manufacturing Expenses:

     Contract manufacturing expenses, exclusive of Stock Option Expense, decreased to $3.0 million in the third quarter of 2005 compared to $9.0 million in the same period of 2004, primarily because we shipped less product to Merck.

General and Administrative Expenses:

     General and administrative expenses, exclusive of Stock Option Expense, increased slightly to $4.3 million in the third quarter of 2005 from $4.2 million in the same period of 2004.

Other Income and Expense:

     Investment income increased to $2.7 million in the third quarter of 2005 from $1.4 million in the same period of 2004 due primarily to higher effective interest rates on investment securities in 2005. Interest expense was $3.0 million for both the third quarter of 2005 and 2004. Interest

expense is attributable primarily to $200.0 million of convertible notes issued in October 2001, which mature in 2008 and bear interest at 5.5% per annum.

Nine Months Ended September 30, 2005 and 2004

Net Income (Loss):

     Regeneron reported a net loss of $65.8 million, or $1.18 per share (basic and diluted) for the first nine months of 2005 compared with net income of $38.9 million, or $0.70 per basic share and $0.69 per diluted share, for the same period of 2004. Excluding Stock Option Expense, Regeneron had a pro forma net loss of $49.6 million, or $0.89 per share (basic and diluted), in the first nine months of 2005 as follows:

For the nine months ended September 30, 2005
(in millions, except per share data)

						Net Loss per Share -
		Net Loss				Basic and Diluted
Net loss, as reported			($65.8	)			($1.18	)
Add: Stock Option Expense			16.2				0.29
Pro forma net loss, exclusive of Stock Option Expense			($49.6	)			($0.89	)

Revenues:

     Revenues for the nine months ended September 30, 2005 and 2004 consist of the following:

		(In millions)
		2005				2004
Contract research & development revenue
Sanofi-aventis		$	30.4			$	62.0
Novartis Pharma AG			—				22.1
Procter & Gamble			6.0				8.1
Other			2.2				2.2
Total contract research & development revenue			38.6				94.4
Research progress payment			—				17.8
Contract manufacturing revenue			10.2				14.8
Total revenue		$	48.8			$	127.0

Our total revenue decreased to $48.8 million in the first nine months of 2005 from $127.0 million in the same period of 2004 due primarily to lower revenues related to our collaboration with sanofi-aventis on the VEGF Trap and the absence in the 2005 period of revenues related to our collaboration with Novartis on the IL-1 Trap which ended in 2004. Collaboration revenue earned from sanofi-aventis and Novartis is comprised of contract research and development revenue and research progress payments. Contract research and development revenue, as detailed below, consists partly of reimbursement for research and development expenses and partly of the recognition of revenue related to non-refundable, up-front payments. Non-refundable, up-front payments are recorded as deferred revenue and recognized ratably over the period over which we are obligated to perform services in accordance with SAB 104.

     Contract research & development revenues earned from sanofi-aventis and Novartis for the nine months ended September 30, 2005 and 2004 were as follows:

For the nine months ended September 30, 2005
(in millions)

Up-front Payment to Regeneron

2005 Regeneron

Total Revenue

Expense

Total

Amount Recognized

Deferred Revenue at

Recognized

Reimbursement

Payment

in 2005

September 30, 2005

in 2005

Sanofi-aventis

$23.4

$80.0

$7.0

$58.8

$30.4

For the nine months ended September 30, 2004

(in millions)

Up-front Payment to Regeneron

2004 Regeneron

Total Revenue

Expense

Total

Amount Recognized

Deferred Revenue at

Recognized

Reimbursement

Payment

in 2004

September 30, 2004

in 2004

Sanofi-aventis

$53.8

$  80.0

$  8.2

$68.2

$62.0

Novartis

—

27.0

22.1

—

22.1

Total

$53.8

$107.0

$30.3

$68.2

$84.1

Sanofi-aventis reimbursement of Regeneron VEGF Trap expenses decreased in the first nine months of 2005 from the same period in 2004, primarily due to lower costs in 2005 related to our manufacture of VEGF Trap clinical supplies. We manufactured clinical supplies of VEGF Trap during the first nine months of 2004, but not during the first nine months of 2005. In the first quarter of 2004, Novartis provided notice of its intention not to proceed with the joint development of the IL-1 Trap and the remaining balance of the $27.0 million up-front payment received from Novartis in March 2003 was recognized as contract research and development revenue. Since the first quarter of 2004, we have not received, and do not expect to receive, any further contract research and development revenue from Novartis.

     In March 2004, Novartis forgave all of its outstanding loans, including interest, to us, totaling $17.8 million, based upon our achievement of a pre-defined IL-1 Trap development milestone, which was recognized as a research progress payment.

     Contract manufacturing revenue decreased to $10.2 million in the first nine months of 2005 from $14.8 million in the same period of 2004 as we shipped less product to Merck in 2005. Included in contract manufacturing revenue in both the first nine months of 2005 and 2004 was $1.1 million and $3.0 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. This deferred revenue is being recognized as product is shipped to Merck based on the total amount of product to be shipped over the term of the agreement.

Expenses:

     Total operating expenses increased to $143.7 million in the first nine months of 2005 from $125.2 million in the same period of 2004. Operating expenses in the first nine months of 2005 include a total of $16.2 million of Stock Option Expense, as follows:

For the nine months ended September 30,
(in millions)

		2005												2004
		Expenses as				Stock Option				Expenses exclusive of				Expenses as
Expenses		Reported				Expense				Stock Option Expense				Reported
Research and development		$	117.7			$	10.1			$	107.6			$	101.3
Contract manufacturing			7.4				0.3				7.1				11.7
General and administrative			18.6				5.8				12.8				12.2
Total operating expenses		$	143.7			$	16.2			$	127.5			$	125.2

In addition, $0.1 million of Stock Option Expense was capitalized in inventory, for a total of $16.3 million of Stock Option Expense recognized in the first nine months of 2005. Stock Option Expense was not included in operating expenses in the first nine months of 2004, as reported in our Statement of Operations. In the first nine months of 2004, had we adopted the fair value based method of accounting for stock-based employee compensation under the provisions of SFAS 123, Stock Option Expense would have totaled $25.5 million. The decrease in total Stock Option Expense of $9.2 million in the first nine months of 2005 was partly due to lower exercise prices of annual employee option grants made by us in December 2004 in comparison to the exercise prices of annual grants in recent prior years. Exercise prices of these option grants were generally equal to the fair market value of our Common Stock on the date of grant. The decrease in Stock Option Expense in the first nine months of 2005 was also due, in part, to the exchange of options by eligible employees in connection with our stock option exchange program in January 2005, as the unamortized fair value of the surrendered options on the date of the exchange is being recognized as Stock Option Expense over a longer time period (the vesting period of the replacement options) in accordance with SFAS 123.

Research and Development Expenses:

     Research and development expenses, exclusive of Stock Option Expense, increased to $107.6 million in the first nine months of 2005 from $101.3 million in the same period of 2004. The following table summarizes the major categories of our research and development expenses for the nine months ended September 30, 2005 and 2004:

For the nine months ended September 30,
(in millions)

		2005												2004
		Expenses as				Stock Option				Expenses exclusive of				Expenses as
Research and development expenses		Reported				Expense				Stock Option Expense				Reported (2)
Payroll and benefits		$	42.7			$	8.9			$	33.8			$	31.7
Clinical trial expenses			16.1				—				16.1				8.1
Clinical manufacturing costs (1)			26.0				1.2				24.8				26.6
Research and preclinical development costs			15.7				—				15.7				18.4
Occupancy and other operating costs			17.2				—				17.2				16.5
Total research and development		$	117.7			$	10.1			$	107.6			$	101.3