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 June 30, 2006

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

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2006:

Class of Common Stock		Number of Shares
Class A Stock, $0.001 par value Common Stock, $0.001 par value		2,296,928 54,674,613

 

 

REGENERON PHARMACEUTICALS, INC.
Table of Contents
June 30, 2006

		Page Numbers
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed balance sheets (unaudited) at June 30, 2006 and December 31, 2005			3
Condensed statements of operations (unaudited) for the three and six months ended June 30, 2006 and 2005			4
Condensed statement of stockholders’ equity (unaudited) for the six months ended June 30, 2006			5
Condensed statements of cash flows (unaudited) for the six months ended June 30, 2006 and 2005			6
Notes to condensed financial statements (unaudited)			7-18
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			19-36
Item 3 Quantitative & Qualitative Disclosure About Market Risk			37
Item 4 Controls and Procedures			37
PART II OTHER INFORMATION
Item 1 Legal Proceedings			37
Item 1A Risk Factors			37-52
Item 4 Submission of Matters to a Vote of Security Holders			52
Item 6 Exhibits			53
SIGNATURE PAGE			54
EX-12.1: STATEMENT RE: COMPUTATION OF EARNINGS TO COMBINED FIXED 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 JUNE 30, 2006 AND DECEMBER 31, 2005 (Unaudited)

(In thousands, except share data)

		June 30,				December 31,
		2006				2005
ASSETS
Current assets
Cash and cash equivalents		$	114,960			$	184,508
Marketable securities			158,616				114,037
Accounts receivable			12,141				36,521
Prepaid expenses and other current assets			3,211				3,422
Inventory			2,128				2,904
Total current assets			291,056				341,392
Marketable securities			30,507				18,109
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization			53,854				60,535
Other assets			2,915				3,465
Total assets		$	378,332			$	423,501
LIABILITIES and STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses		$	16,466			$	23,337
Deferred revenue, current portion			15,042				17,020
Total current liabilities			31,508				40,357
Deferred revenue			63,057				69,142
Notes payable			200,000				200,000
Total liabilities			294,565				309,499
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 - 2,296,928 in 2006 and 2,347,073 in 2005			2				2
Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding - 54,669,695 in 2006 and 54,092,268 in 2005			55				54
Additional paid-in capital			713,419				700,011
Unearned compensation							(315	)
Accumulated deficit			(629,236	)			(585,280	)
Accumulated other comprehensive loss			(473	)			(470	)
Total stockholders’ equity			83,767				114,002
Total liabilities and stockholders’ equity		$	378,332			$	423,501

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 June 30,								Six months ended June 30,
		2006				2005				2006				2005
Revenues
Contract research and development		$	14,991			$	13,545			$	29,578			$	27,047
Contract manufacturing			4,267				2,821				7,899				5,528
			19,258				16,366				37,477				32,575
Expenses
Research and development			34,398				40,642				66,482				76,554
Contract manufacturing			2,810				1,675				4,662				4,166
General and administrative			6,299				6,216				12,245				12,362
			43,507				48,533				83,389				93,082
Loss from operations			(24,249	)			(32,167	)			(45,912	)			(60,507	)
Other income (expense)
Other contract income							5,640								30,640
Investment income			3,684				2,539				7,165				4,769
Interest expense			(3,011	)			(3,011	)			(6,022	)			(6,024	)
			673				5,168				1,143				29,385
Net loss before cumulative effect of a change in accounting principle			(23,576	)			(26,999	)			(44,769	)			(31,122	)
Cumulative effect of adopting Statement of Financial Accounting Standards No. 123R (“SFAS 123R”)											813
Net loss		$	(23,576	)		$	(26,999	)		$	(43,956	)		$	(31,122	)
Net loss per share amounts, basic and diluted:
Net loss before cumulative effect of a change in accounting principle		$	(0.41	)		$	(0.48	)		$	(0.79	)		$	(0.56	)
Cumulative effect of adopting SFAS 123R											0.02
Net loss		$	(0.41	)		$	(0.48	)		$	(0.77	)		$	(0.56	)
Weighted average shares outstanding, basic and diluted			56,915				55,917				56,821				55,866

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

     

REGENERON PHARMACEUTICALS, INC.

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

For the six months ended June 30, 2006
(In thousands)

																														Accumulated
																		Additional												Other				Total
		Class A Stock								Common Stock								Paid-in				Unearned				Accumulated				Comprehensive				Stockholders’				Comprehensive
		Shares				Amount				Shares				Amount				Capital				Compensation				Deficit				Loss				Equity				Loss
Balance, December 31, 2005			2,347			$	2				54,092			$	54			$	700,011			$	(315	)		$	(585,280	)		$	(470	)		$	114,002
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered											409				1				3,812																3,813
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution											121								1,884																1,884
Conversion of Class A Stock to Common Stock			(50	)							50
Forfeitures of restricted Common Stock under Long-Term Incentive Plan											(2	)
Stock-based compensation expense																			8,840																8,840
Adjustment to reduce unearned compensation upon adoption of SFAS 123R																			(315	)			315
Cumulative effect of adopting SFAS 123R																			(813	)															(813	)
Net loss																											(43,956	)							(43,956	)		$	(43,956	)
Change in net unrealized loss on marketable securities																															(3	)			(3	)			(3	)
Balance, June 30, 2006			2,297			$	2				54,670			$	55			$	713,419				—			$	(629,236	)		$	(473	)		$	83,767			$	(43,959	)

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

REGENERON PHARMACEUTICALS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

		Six months ended June 30,
		2006				2005
Cash flows from operating activities
Net loss		$	(43,956	)		$	(31,122	)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation and amortization			7,488				7,689
Non-cash compensation expense			8,779				11,703
Cumulative effect of a change in accounting principle			(813	)
Changes in assets and liabilities
Decrease in accounts receivable			24,380				26,272
Decrease (increase) in prepaid expenses and other assets			627				(1,246	)
Decrease in inventory			1,279				141
Decrease in deferred revenue			(8,063	)			(6,848	)
Decrease in accounts payable, accrued expenses, and other liabilities			(5,118	)			(2,040	)
Total adjustments			28,559				35,671
Net cash (used in) provided by operating activities			(15,397	)			4,549
Cash flows from investing activities
Purchases of marketable securities			(152,660	)			(60,392	)
Sales or maturities of marketable securities			95,292				107,680
Capital expenditures			(986	)			(2,897	)
Net cash (used in) provided by investing activities			(58,354	)			44,391
Cash flows from financing activities
Net proceeds from the issuance of stock			3,813				1,032
Other			390
Net cash provided by financing activities			4,203				1,032
Net (decrease) increase in cash and cash equivalents			(69,548	)			49,972
Cash and cash equivalents at beginning of period			184,508				95,229
Cash and cash equivalents at end of period		$	114,960			$	145,201

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

REGENERON PHARMACEUTICALS, INC.

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, 2005 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, 2005.

2. Per Share Data

     The Company’s basic and diluted net loss per share amounts have been computed by dividing net loss by the weighted average number of shares of Common Stock and Class A Stock outstanding. For the three and six months ended June 30, 2006 and 2005, the Company reported net losses and, therefore, no common stock equivalents were included in the computation of diluted net loss per share for these periods, since such inclusion would have been antidilutive. The calculations of basic and diluted net loss per share are as follows:

		Three Months Ended June 30,
		2006				2005
Net loss (Numerator)		$	(23,576	)		$	(26,999	)
Weighted-average shares, in thousands (Denominator)			56,915				55,917
Basic and diluted net loss per share		$	(0.41	)		$	(0.48	)

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

		Six Months Ended June 30,
		2006				2005
Net loss (Numerator)		$	(43,956	)		$	(31,122	)
Weighted-average shares, in thousands (Denominator)			56,821				55,866
Basic and diluted net loss per share		$	(0.77	)		$	(0.56	)

     Shares issuable upon the exercise of stock options, vesting of restricted stock awards, and conversion of convertible debt, which have been excluded from the June 30, 2006 and 2005 diluted per share amounts because their effect would have been antidilutive, include the following:

		Three months ended June 30,
		2006				2005
Stock Options:
Weighted average number, in thousands			14,181				13,295
Weighted average exercise price		$	14.32			$	14.55
Restricted Stock:
Weighted average number, in thousands			40				204
Convertible Debt:
Weighted average number, in thousands			6,611				6,611
Conversion price		$	30.25			$	30.25

		Six months ended June 30,
		2006				2005
Stock Options:
Weighted average number, in thousands			14,291				13,385
Weighted average exercise price		$	14.29			$	14.64
Restricted Stock:
Weighted average number, in thousands			47				209
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)

3. Stock-based Employee Compensation

Adoption of Statement of Financial Accounting Standards Nos. 123 and 123R

     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, in 2005, the Company recognized compensation 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 using graded vesting, which is an accelerated expense recognition method. 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 and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date.

     Effective January 1, 2006, the Company adopted the provisions of SFAS 123R, Share-Based Payment, which is a revision of SFAS 123. 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 the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123R requires companies to estimate the number of awards that are expected to be forfeited at the time of grant and to revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to the adoption of SFAS 123R, the Company recognized the effect of forfeitures in stock-based compensation cost in the period when they occurred, in accordance with SFAS 123. Upon adoption of SFAS 123R effective January 1, 2006, the Company was required to record a cumulative effect adjustment to reflect the effect of estimated forfeitures related to outstanding awards that are not expected to vest as of the SFAS 123R adoption date. This adjustment reduced the Company’s loss by $813 and is included in the Company’s operating results for the six months ended June 30, 2006 as a cumulative-effect adjustment of a change in accounting principle. Exclusive of the cumulative-effect adjustment, the effect of the change from applying the provisions of SFAS 123 to applying the provisions of SFAS 123R on the Company’s loss from operations, net loss, and net loss per share for the three and six months ended June 30, 2006 was not significant, and there was no impact to the Company’s cash flows for these respective periods.

Long-Term Incentive Plans

     The Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan (“2000 Incentive Plan”), as amended, provides for the issuance of up to 18,500,000 shares of Common Stock in respect of awards. In addition, certain shares of Common Stock previously approved by shareholders for issuance under the Regeneron Pharmaceuticals,

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

Inc. 1990 Long-Term Incentive Plan (“1990 Incentive Plan”) that are not issued under the 1990 Incentive Plan, may be issued as awards under the 2000 Incentive Plan. The 1990 Incentive Plan, as amended, provided for a maximum of 6,900,000 shares of Common Stock in respect of awards. The 1990 Incentive Plan has expired and there will be no future awards from the 1990 Incentive Plan. The Company has issued Incentive Stock Options (“ISOs”) and Nonqualified Stock Options, and shares of Restricted Stock from the 1990 and 2000 Incentive Plans. The terms of the awards are determined by the Compensation Committee of the board of directors; however, in the case of an ISO, the option exercise price will not be less than the fair market value of a share of Common Stock on the date the ISO is granted and no ISO is exercisable more than ten years after the date of grant. As of June 30, 2006, there were 6,495,452 shares available for future grants under the 2000 Incentive Plan.

a. Stock Options

     At June 30, 2006, there were 14,150,178 stock options outstanding with exercise prices ranging from $4.83 to $51.56. Options granted to employees generally vest annually on a pro rata basis over a four to five year period beginning one year from the date of grant. Certain performance-based options granted to the Company’s executive vice president and senior vice presidents in January 2005 vest if both (i) the Company’s products have achieved defined sales targets and (ii) the option recipient has remained employed by the Company for at least three years from the date of grant. Options granted to members of the Company’s board of directors vest annually on a pro rata basis over three years beginning one year from the date of grant. A summary of the Company’s stock option activity for the six months ended June 30, 2006 is presented in the following table:

						Weighted
						Average				Weighted
						Remaining				Average				Intrinsic
		Number				Contractual				Exercise				Value (in
		Outstanding				Life				Price				thousands)
Stock options outstanding at January 1, 2006			14,719,492							$	14.23
Stock options granted			206,500							$	15.32
Stock options exercised			(438,031	)						$	9.82
Stock options forfeited			(201,135	)						$	10.62
Stock options expired			(136,648	)						$	25.24
Stock options outstanding at June 30, 2006			14,150,178				6.5			$	14.32			$	28,313
Stock options vested and exercisable			7,193,872				5.1			$	17.70			$	12,185

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

The total intrinsic value of stock options exercised during the first six months of 2006 and 2005 was $2,863 and $200, respectively. The intrinsic value represents the amount by which the market price of the underlying stock exceeds the exercise price of an option.

     For the three months ended June 30, 2006 and 2005, non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) totaled $4,610 and $5,398, respectively, of which $4,585 and $5,348 was recognized in operating expenses and $25 and $50 was capitalized into inventory, respectively. For the six months ended June 30, 2006 and 2005, Stock Option Expense totaled $8,541 and $10,939, respectively, of which $8,481 and $10,727 was recognized in operating expenses and $60 and $212 was capitalized into inventory, respectively. As of June 30, 2006, there was $23,243 of stock-based compensation cost related to outstanding nonvested stock options, net of estimated forfeitures, which had not yet been recognized in operating expenses. The Company expects to recognize this compensation cost over a weighted-average period of 1.7 years. In addition, there are 723,092 options which are unvested as of June 30, 2006 and would become vested upon the attainment of certain performance and service conditions. Potential compensation cost, measured on the grant date, related to these performance options totals $2,688 and will begin to be recognized only if, and when, these options’ performance condition becomes probable of attainment.

Fair Value Assumptions:

     The fair value of each option granted during the three and six months ended June 30, 2006 and 2005 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 June 30, 2006 and 2005 was $8.23 and $4.04 per option, respectively. The weighted-average fair value of the options granted during the six months ended June 30, 2006 and 2005 was $10.28 and $5.81 per option, respectively. The following table summarizes the weighted average values of the assumptions used in computing the fair value of option grants.

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

		Three months ended June 30,
		2006				2005
Expected volatility			65	%			70	%
Expected lives from grant date		5.2 years				5.0 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.95	%			3.78	%

		Six months ended June 30,
		2006				2005
Expected volatility			68	%			75	%
Expected lives from grant date		6.8 years				6.2 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.76	%			3.96	%

b. Restricted Stock

     A summary of the Company’s activity related to Restricted Stock awards for the six months ended June 30, 2006 is presented in the following table:

						Weighted
		Number				Average Grant
		of Shares				Date Fair Value
Restricted stock outstanding as of January 1, 2006			95,188			$	11.16
Restricted stock released			(93,485	)		$	11.18
Restricted stock forfeited			(1,703	)		$	9.74
Restricted stock outstanding as of June 30, 2006			—

     In accordance with generally accepted accounting principles, the Company recorded unearned compensation in Stockholders’ Equity related to these Restricted Stock awards. The amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and is expensed, on a pro rata basis, over the period that the restrictions lapse, which is approximately two years for grants issued in 2003 and 18 months for grants issued in 2004. No Restricted Stock awards were granted in 2005 or during the six months ended June 30, 2006. Prior to the adoption of SFAS 123R, unearned compensation was included as a separate component of Stockholders’ Equity. Effective January 1, 2006, unearned compensation was combined with additional paid-in capital in accordance with the provisions of SFAS 123R.

     For the three months ended June 30, 2006 and 2005, the Company recognized compensation expense related to Restricted Stock awards of $115 and $474, respectively. For the six months ended June 30, 2006 and 2005, the Company recognized

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

compensation expense related to Restricted Stock awards of $299 and $976, respectively. As of June 30, 2006, there were no unvested shares of restricted stock outstanding and all compensation expense related to these awards had been recognized.

4. Statement of Cash Flows

     Supplemental disclosure of noncash investing and financing activities:

     Included in accounts payable and accrued expenses at June 30, 2006 and December 31, 2005 are $216 and $234, respectively, of accrued capital expenditures. Included in accounts payable and accrued expenses at June 30, 2005 and December 31, 2004 are $1,393 and $550, respectively, of accrued capital expenditures.

     Included in accounts payable and accrued expenses at December 31, 2005 and 2004 are $1,884 and $632, respectively, of accrued Company 401(k) Savings Plan contribution expense. In the first quarter of 2006 and 2005, the Company contributed 120,960 and 90,385 shares, respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.

     Included in marketable securities at June 30, 2006 and December 31, 2005 are $840 and $1,228, respectively, of accrued interest income. Included in marketable securities at June 30, 2005 and December 31, 2004 are $2,562 and $2,601, respectively, of accrued interest income.

5. Severance Costs

     In September 2005, the Company announced plans to reduce its workforce by approximately 165 employees in connection with narrowing the focus of the Company’s research and development efforts, substantial improvements in manufacturing productivity, the June 2005 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 occurred in the fourth quarter of 2005, with the remainder planned for 2006 following the completion of the Company’s contract manufacturing activities for Merck.

     Costs associated with the workforce reduction are comprised principally of severance payments and related payroll taxes, employee benefits, and outplacement services. Termination costs related to 2005 workforce reductions were expensed in the fourth quarter of 2005. Estimated termination costs associated with the planned workforce reduction in 2006 were measured in October 2005 and are being expensed ratably over the expected service period of the affected employees in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. The Company

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

estimates that total costs associated with the 2005 and planned 2006 workforce reductions will approximate $2.6 million, including $0.2 million of non-cash expenses in 2005.

     Severance costs associated with the workforce reduction plan that were charged to expense during the three and six months ended June 30, 2006 consist of the following:

						Three months ended
						June 30, 2006
		Accrued												Accrued
		liability at				Costs				Costs paid				liability at
		March 31,				charged to				or settled in				June 30,
		2006				expense				2006				2006
Employee severance, payroll taxes, and benefits		$	425			$	197			$	159			$	463
Other severance costs			—				6				5				1
Total		$	425			$	203			$	164			$	464

						Six months ended
						June 30, 2006
		Accrued												Accrued
		liability at				Costs				Costs paid				liability at
		December 31,				charged to				or settled in				June 30,
		2005				expense				2006				2006
Employee severance, payroll taxes, and benefits		$	907			$	356			$	800			$	463
Other severance costs			176				19				194				1
Total		$	1,083			$	375			$	994			$	464

     These severance costs are included in the Company’s Statement of Operations for the three and six months ended June 30, 2006 as follows:

		Research &
Three months ended June 30, 2006		development
Employee severance, payroll taxes, and benefits		$	197
Other severance costs			6
Total		$	203

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

			Research &				General &
Six months ended June 30, 2006			development				administrative

Employee severance, payroll taxes, and benefits		$	358			$	(2	)
Other severance costs			19				—
Total		$	377			$	(2	)

For segment reporting purposes (see Note 10), all severance-related expenses are included in the Research & Development segment.

6. Accounts Receivable

     Accounts receivable as of June 30, 2006 and December 31, 2005 consist of the following:

		June 30,				December 31,
		2006				2005
Receivable from the sanofi-aventis Group		$	11,773			$	36,412
Receivable from Merck & Co., Inc.			368				27
Other			—				82
		$	12,141			$	36,521

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.

     Inventories as of June 30, 2006 and December 31, 2005 consist of the following:

		June 30,				December 31,
		2006				2005
Raw materials			—			$	278
Work-in-process			—				1,423
Finished products		$	2,128				1,203
		$	2,128			$	2,904

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

8 Accounts Payable and Accrued Expenses

     Accounts payable and accrued expenses as of June 30, 2006 and December 31, 2005 consist of the following:

		June 30,				December 31,
		2006				2005
Accounts payable		$	2,840			$	4,203
Accrued payroll and related costs			6,223				10,713
Accrued clinical trial expense			3,434				3,081
Accrued expenses, other			1,677				3,048
Interest payable on convertible notes			2,292				2,292
		$	16,466			$	23,337

9. Comprehensive Loss

     Comprehensive 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 loss of the Company includes net loss adjusted for the change in net unrealized gain (loss) on marketable securities. The net effect of income taxes on comprehensive loss is immaterial. For the three and six months ended June 30, 2006 and 2005, the components of comprehensive loss are:

		Three months ended June 30,
		2006				2005
Net loss		$	(23,576	)		$	(26,999	)
Change in net unrealized gain (loss) on marketable securities			(102	)			401
Total comprehensive loss		$	(23,678	)		$	(26,598	)

		Six months ended June 30,
		2006				2005
Net loss		$	(43,956	)		$	(31,122	)
Change in net unrealized gain (loss) on marketable securities			(3	)			60
Total comprehensive loss		$	(43,959	)		$	(31,062	)

10. Segment Information

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

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

Research and development: Includes all activities related to the discovery of pharmaceutical products for the treatment of serious 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 research materials based on 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.

     The table below presents information about reported segments for the three and six months ended June 30, 2006 and 2005.

		Three months ended June 30, 2006
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	14,991			$	4,267				—			$	19,258
Depreciation and amortization			3,429				—	(1)		$	261				3,690
Non-cash compensation expense			4,603				97				—				4,700
Interest expense			—				—				3,011				3,011
Net (loss) income			(25,706	)			1,457				673	(2)			(23,576	)
Capital expenditures			323				—				—				323

		Three months ended June 30, 2005
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	13,545			$	2,821				—			$	16,366
Depreciation and amortization			3,570				—	(1)		$	261				3,831
Non-cash compensation expense			5,732				90				—				5,822
Other contract income			5,640				—				—				5,640
Interest expense			—				—				3,011				3,011
Net (loss) income			(27,673	)			1,146				(472	)(2)			(26,999	)
Capital expenditures			2,115				—				—				2,115

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

		Six months ended June 30, 2006
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	29,578			$	7,899				—			$	37,477
Depreciation and amortization			6,966				—	(1)		$	522				7,488
Non-cash compensation expense			8,587				192				(813	)(3)			7,966
Interest expense			—				—				6,022				6,022
Net (loss) income			(49,149	)			3,237				1,956	(2)			(43,956	)
Capital expenditures			968				—				—				968
Total assets			64,543				3,580				310,209	(4)			378,332

		Six months ended June 30, 2005
		Research &				Contract				Reconciling
		Development				Manufacturing				Items				Total
Revenues		$	27,047			$	5,528				—			$	32,575
Depreciation and amortization			7,167				—	(1)		$	522				7,689
Non-cash compensation expense			11,613				90				—				11,703
Other contract income			30,640				—				—				30,640
Interest expense			—				—				6,024				6,024
Net (loss) income			(31,229	)			1,362				(1,255	)(2)			(31,122	)
Capital expenditures			3,752				—				—				3,752
Total assets			81,936				6,006				359,006	(4)			446,948

11. Legal Matters

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

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

     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.

Overview

     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 currently focused on three development programs: VEGF Trap in oncology, VEGF Trap eye formulation (VEGF Trap-Eye) in eye diseases using intraocular delivery, and IL-1 Trap in various inflammatory indications. The VEGF Trap is being developed in oncology in collaboration with the sanofi-aventis Group. Our preclinical research programs are in the areas of oncology and angiogenesis, ophthalmology, metabolic and related diseases, muscle diseases and disorders, inflammation and immune diseases, bone and cartilage, pain, and cardiovascular diseases. We expect that our next generation of product candidates will be based on our proprietary technologies for developing human monoclonal antibodies. 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. Our discovery platforms are designed to identify specific genes of therapeutic interest for a particular disease or cell type and validate targets through high-throughput production of mammalian models. Our human monoclonal antibody (VelocImmune^®) and cell line expression technologies may then be utilized to design and produce new product candidates directed against the disease target. Based on the strength of the VelocImmune platform, which we believe, in conjunction with our other proprietary technologies, can accelerate the development of fully human monoclonal antibodies, we plan to move two new antibody candidates into clinical trials each year going forward beginning in 2007. We continue to invest in the development of enabling technologies to assist in our efforts to identify, develop, and commercialize new product candidates.

Clinical Programs:

     Below is a summary of the clinical status of our clinical candidates as of June 30, 2006:

1. VEGF Trap — Oncology

     The VEGF Trap is a protein-based product candidate designed to bind all forms of Vascular Endothelial Growth Factor-A (called VEGF-A, 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-A (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 cancer indications in collaboration with sanofi-aventis, as described below. In September 2005, we and sanofi-aventis announced plans to expand our joint development program, and we have subsequently initiated a broad set of clinical trials in oncology.

     In the first half of 2006, we and sanofi-aventis initiated our phase 2 single-agent program for the VEGF Trap in cancer. Patient enrollment is now underway in studies in advanced ovarian cancer (AOC), non-small cell lung adenocarcinoma (NSCLA), and AOC patients with symptomatic malignant ascites (SMA). In 2004, the United States Food and Drug Administration (FDA) granted Fast Track designation to the VEGF Trap for the treatment of SMA.

     The companies also plan to conduct three phase 3 efficacy/safety trials using the VEGF Trap in combination with standard chemotherapy regimens, the first of which is planned to begin in late 2006 or early 2007, once the supporting safety and tolerability studies have been completed. The companies are working to finalize plans with the National Cancer Institute (NCI) Cancer Therapy Evaluation Program (CTEP) to conduct at least ten additional cancer trials, several of which are planned to begin in 2006.

     Currently there are five safety and tolerability studies underway for the VEGF Trap in combination with standard chemotherapy regimens designed to support subsequent phase 3 clinical trials in a variety of cancer types. At the annual meeting of the American Society of Clinical Oncology (ASCO) in May 2006, the companies reported abstracts summarizing information from two of these studies. The first study is evaluating the VEGF Trap plus oxaliplatin, 5-flourouracil, and leucovorin (FOLFOX4) in a phase 1 trial of patients with advanced solid tumors. The second study is evaluating the VEGF Trap plus irinotecan, 5-fluorouracil, and leucovorin (LV5FU2-CPT11) in a phase 1 trial of patients with advanced solid tumors. In both trials, patients have been treated in combination with chemotherapy in doses ranging up to 4.0 milligrams per kilogram (mg/kg) of the VEGF Trap. The abstracts, published in the 2006 ASCO Annual Meeting Proceedings, reported that the VEGF Trap could be safely combined with either FOLFOX4 or LV5FU2-CPT11 at the dose levels studied. The maximum tolerated doses in these studies have not yet been reached, and dose escalation is continuing.

     Cancer is a heterogeneous set of diseases and one of the leading causes of death in the developed world. A mutation in any one of dozens of normal genes can eventually result in a cell becoming cancerous; however, a common feature of cancer cells is that they need to obtain nutrients and remove waste products, just as normal cells do. The vascular system normally supplies nutrients to and removes waste from normal tissues. Cancer cells can use the vascular system either by taking over preexisting blood vessels or by promoting the growth of new blood vessels (a process known as angiogenesis). VEGF is secreted by many tumors to stimulate the growth of new blood vessels to supply nutrients and oxygen to the tumor. VEGF blockers have been shown to inhibit new vessel growth; and, in some cases, can cause regression of existing tumor vasculature. Countering the effects of VEGF, thereby blocking the blood supply to tumors, has demonstrated therapeutic benefits in clinical trials. This approach of inhibiting angiogenesis as a mechanism of action for an oncology medicine was validated in February 2004, when the FDA approved Genentech, Inc.’s VEGF inhibitor, Avastin^®. Avastin is an antibody product designed to inhibit VEGF and interfere with the blood supply to tumors.

     In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals, Inc. (predecessor to sanofi-aventis U.S.) to collaborate on the development and commercialization of the VEGF Trap in all countries other than Japan, where we retained the exclusive right to develop and commercialize the VEGF Trap. In January 2005, we and sanofi-aventis amended the collaboration agreement to exclude from the scope of the collaboration the development and commercialization of the VEGF Trap for intraocular delivery to the eye. In December 2005, we and sanofi-aventis amended our collaboration agreement to expand the territory in which the companies are collaborating on the development of the VEGF Trap to include Japan. Under the collaboration agreement, as amended, we and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap outside of Japan for disease indications included in our collaboration. In Japan, we are entitled to a royalty of approximately 35% on annual sales of the VEGF Trap, subject to certain potential adjustments. We may also receive up to $400.0 million in milestone payments upon receipt of specified marketing approvals. This total includes up to $360.0 million in milestone payments related to receipt of marketing approvals for up to eight VEGF Trap oncology and other indications in the United States or the European Union. Another $40.0 million of milestone payments relate to receipt of marketing approvals for up to five VEGF Trap oncology indications in Japan.

     Under the collaboration agreement, as amended, agreed upon worldwide 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 be obligated to 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 profits and Japan royalties, or at a faster rate at our option. (See “The sanofi-aventis Group Agreement” below.)

2. VEGF Trap — Eye Diseases

     We are developing the VEGF Trap-Eye for the treatment of certain eye diseases. This product candidate has been purified and formulated in concentrations suitable for direct injection into the eye. We retain the exclusive right to develop and commercialize the VEGF Trap-Eye for the treatment of eye diseases utilizing local (intravitreal) delivery to the eye. In May 2006, we

announced that we had initiated a phase 2 trial of the VEGF Trap-Eye delivered intravitreally in patients with the neovascular form of age-related macular degeneration (wet AMD).

     At the May 2006 Annual Meeting of the Association for Research in Vision and Ophthalmology (ARVO), we reported positive preliminary results from a phase 1 trial of the VEGF Trap-Eye in patients with wet AMD. A total of 21 patients received a single dose of VEGF Trap-Eye at doses of 0.05, 0.15, 0.5, 1, 2, and 4 milligrams (mg) intravitreally (direct injection into the eye). Patients were evaluated for six weeks to measure the durability of effects and provide guidance for dosing regimens to be used in future trials. All dose levels were generally well tolerated, and a maximum tolerated dose was not reached in the study. In wet AMD, the leakiness of the abnormal blood vessels in the eye can lead to increased retinal thickness. On average, patients receiving the VEGF Trap-Eye demonstrated large, rapid, and sustained (at least six weeks) reductions in retinal thickness. Excess retinal thickness, as determined by ocular coherence tomography (OCT), is a clinical measure of disease activity in wet AMD. As measured by the OCT reading center (posterior pole OCT scans), the median excess retinal thickness resulting from the disease process was 194 microns at baseline. Following a single intravitreal dose of the VEGF Trap-Eye, median excess retinal thickness was reduced to 60 microns, an improvement that was sustained over a six week period. As measured by the computerized Fast Macular Scan protocol, the median excess retinal thickness was 119 microns at baseline, which was reduced to 27 microns at six weeks after the single dose of the VEGF Trap-Eye.

     Of the 20 patients evaluable for efficacy, 95 percent had stabilization or improvement in visual acuity, defined as £15 letter loss on the Early Treatment of Diabetic Retinopathy Study (ETDRS) eye chart. Patients were also evaluated for best-corrected visual acuity (BCVA), the best acuity a person can achieve with glasses. BCVA for all patients in the study increased by a mean of 4.8 letters at six weeks. In the two highest dose groups (2 mg and 4 mg), the mean improvement in BCVA was 13.5 letters, with three of six patients showing an improvement in BCVA of 15 or more letters.

     In the second quarter of 2006, we initiated a 150 patient, 12 week, phase 2 trial of the VEGF Trap-Eye in wet AMD. The trial is evaluating the safety and biological effect of treatment with multiple doses of the VEGF Trap-Eye using different doses and different dosing regimens. A phase 3 trial of the VEGF Trap-Eye in wet AMD is planned to begin in early 2007.

     Also in the second quarter of 2006, we initiated a small pilot study of the VEGF Trap in patients with diabetic macular edema.

     VEGF-A both stimulates angiogenesis and increases vascular permeability. It has been shown in preclinical studies to be a major pathogenic factor in both wet AMD and diabetic retinopathy, and it is believed to be involved in other medical problems affecting the eyes. In clinical trials, blocking VEGF-A has been shown to be effective in patients with wet AMD, and Macugen^® (OSI Pharmaceuticals, Inc.) and Lucentis™ (Genentech, Inc.) have been approved to treat patients with this condition.

     Wet AMD and diabetic retinopathy (DR) are two of the leading causes of adult blindness in the developed world. In both conditions, severe visual loss is caused by a combination of retinal

edema and neovascular proliferation. It is estimated that in the U.S. 6% of individuals aged 65-74 and 20% of those older than 75 are affected with wet AMD. DR is a major complication of diabetes mellitus that can lead to significant vision impairment. DR is characterized, in part, by vascular leakage, which results in the collection of fluid in the retina. When the macula, the central area of the retina that is responsible for fine visual acuity, is involved, loss of visual acuity occurs. This is referred to as diabetic macular edema (DME). DME is the most prevalent cause of moderate visual loss in patients with diabetes.

3. IL-1 Trap — Inflammatory Diseases

     The IL-1 Trap is a protein-based product candidate designed to bind the interleukin-1 (called IL-1) cytokine and prevent its interaction with cell surface receptors.

     We are evaluating the IL-1 Trap in a number of diseases and disorders where IL-1 may play an important role, including a spectrum of rare diseases called CIAS1-Associated Periodic Syndrome (CAPS) and diseases associated with inflammation. These include Systemic Juvenile Idiopathic Arthritis (SJIA) and certain inflammatory vascular diseases.

     In April 2006, we completed enrollment of the pivotal study of the IL-1 Trap in patients with CAPS. Patients in the trial are receiving a 160 mg dose of the IL-1 Trap once a week through subcutaneous self-administration. The six-month, placebo-controlled, double-blind, efficacy phase of the study is expected to be completed and preliminary data available by the end of 2006. This phase will be followed by a six-month open-label extension phase. We plan to file a Biologics License Application (BLA) for the IL-1 Trap for the treatment of CAPS in early 2007. In addition, Regeneron has ongoing proof-of-concept studies in other indications, such as SJIA. The FDA has granted Orphan Drug and Fast Track designations to the IL-1 Trap for the treatment of CAPS. In April 2005, the FDA also granted an Orphan Drug designation to the IL-1 Trap for the treatment of SJIA.

     An IL-1 receptor antagonist, Kineret^® (Amgen Inc.), has been approved by the FDA for the treatment of rheumatoid arthritis. It has been publicly reported that in small trials Kineret appears to reduce the symptoms in CAPS patients and SJIA patients, which supports the role of IL-1 in these diseases. CAPS includes rare genetic disorders, such as Familial Cold Auto-Inflammatory Syndrome (FCAS), Muckle Wells Syndrome, and Neonatal Onset Multisystem Inflammatory Disorder (NOMID), which affect a small group of people. Patients with these disorders develop fever, joint aches, headaches, and rashes. In certain indications, these symptoms can be extremely serious. There are no currently approved therapies for CAPS. SJIA is a severe inflammatory disorder which may be debilitating or fatal. It is estimated that there are between 5,000 and 10,000 children with SJIA in the United States.

     Under a 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. Following completion of phase 2 development and submission to us of a written report on the Novartis IL-1 antibody, we have the right, in consideration for an opt-in payment, to elect to co-develop and co-commercialize the Novartis IL-1 antibody in North America. If we elect to exercise this right, we are responsible for paying 45% of post-election North American development costs for the antibody product. In return, we

are entitled to co-promote the Novartis IL-1 antibody and to receive 45% of net profits on sales of the antibody product in North America. Under certain circumstances, we are also entitled to receive royalties on sales of the Novartis IL-1 antibody in Europe.

     In addition, under the collaboration agreement, Novartis has the right to elect to collaborate in the development and commercialization of a second generation IL-1 Trap following completion of its phase 2 development, should we decide to clinically develop such a second generation product candidate. Novartis does not have any rights or options with respect to our IL-1 Trap currently in clinical development.

General

     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 June 30, 2006, we had a cumulative loss of $629.2 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 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. Also, our activities may expand over time and 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, key events for 2006 and plans over the next 12 months are as follows:

Product Candidate		2006 Events to Date				2006-7 Plans
VEGF Trap —		•		Initiated phase 2 studies of the		•		Initiate up to three efficacy/safety
Oncology				VEGF Trap as a single agent in				studies of the VEGF Trap in
				AOC and NSCLA patients, and				combination with standard
				in AOC patients with SMA.				chemotherapy regimens in
		•		Initiated two safety and				different cancer indications
				tolerability studies of the VEGF		•		Sponsor with the NCI/CTEP at
				Trap in combination with				least ten exploratory
				standard chemotherapy regimens				efficacy/safety studies evaluating
		•		Reported encouraging				the VEGF Trap in a variety of
				preliminary results of the safety				cancer types
				and tolerability of intravenous
				VEGF Trap plus FOLFOX4 and
				of intravenous VEGF Trap plus
				LV5FU2-CPT11 in separate
				phase 1 trials of patients with
				advanced solid tumors
VEGF Trap-Eye		•		Reported positive preliminary		•		Report preliminary results of
				results from phase 1 trial in wet				phase 2 trial in wet AMD utilizing
				AMD utilizing intravitreal				intravitreal injections
				injections in 21 patients up to a		•		Initiate phase 3 trial in wet AMD
				top dose of 4 mg				utilizing intravitreal injections
		•		Initiated phase 2 trial in wet AMD		•		Explore additional eye disease
				utilizing intravitreal injections				indications
		•		Initiated phase 1 trial in DME
IL-1 Trap		•		Completed enrollment of pivotal		•		Complete efficacy portion of
				trial of IL-1 Trap in CAPS				pivotal study in CAPS and, if
		•		Reported positive preliminary				results show positive efficacy and
				results from ongoing phase 1 trial				safety, file Biologics License
				in SJIA				Application (BLA) with the FDA
						•		Initiate advanced efficacy trial,
								evaluating the IL-1 Trap for SJIA

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, in 2005, we recognized compensation 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 using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, compensation expense for Regeneron is recognized for (a) all share based payments granted on or after January 1, 2005 and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date.

     Effective January 1, 2006, we adopted the provisions of SFAS 123R, Share-Based Payment, which is a revision of SFAS 123. 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 the fair value of the share-based payment (including stock options and restricted stock) issued to employees. SFAS 123R requires companies to estimate the number of awards that are expected to be forfeited at the time of grant and to revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Prior to the adoption of SFAS 123R, we recognized the effect of forfeitures in stock-based compensation cost in the period when they occurred, in accordance with SFAS 123. Upon adoption of SFAS 123R effective January 1, 2006, we were required to record a cumulative effect adjustment to reflect the effect of estimated forfeitures related to outstanding awards that are not expected to vest as of the SFAS 123R adoption date. This adjustment reduced our loss by $0.8 million and is included in our operating results for the six months ended June 30, 2006 as a cumulative-effect adjustment of a change in accounting principle. Exclusive of the cumulative-effect adjustment, the effect of the change from applying the provisions of SFAS 123 to applying the provisions of SFAS 123R on our loss from operations, net loss, and net loss per share for the three and six months ended June 30, 2006 was not significant, and there was no impact to our cash flows for these respective periods.

     Non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) totaled $4.6 million for the three months ended June 30, 2006, which was recognized in operating expenses, and $5.4 million for the three months ended June 30, 2005, of which $5.3 million was recognized in operating expenses and $0.1 million was capitalized into inventory. For the six months ended June 30, 2006 and 2005, Stock Option Expense totaled $8.6 million and $10.9 million, respectively, of which $8.5 million and $10.7 million was recognized in operating expenses and $0.1 million and $0.2 million was capitalized into inventory, respectively. As of June 30, 2006, there was $23.2 million of stock-based compensation cost related to outstanding nonvested stock options, net of estimated forfeitures, which had not yet been recognized in operating expenses. We expect to recognize this compensation cost over a weighted-average period of 1.7 years. In addition, there are 723,092 options which are unvested as of June 30, 2006 and would become vested upon the attainment of certain performance and service conditions. Potential compensation cost, measured on the grant date, related to these performance options totals $2.7 million and will begin to be recognized only if, and when, these options’ performance condition becomes probable of attainment.

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 six months ended June 30, 2006 and 2005:

		Three months ended June 30,
		2006				2005
Expected volatility			65	%			70	%
Expected lives from grant date		5.2 years				5.0 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.95	%			3.78	%

		Six months ended June 30,
		2006				2005
Expected volatility			68	%			75	%
Expected lives from grant date		6.8 years				6.2 years
Expected dividend yield			0	%			0	%
Risk-free interest rate			4.76	%			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

Three Months Ended June 30, 2006 and 2005

Net Loss:

     Regeneron reported a net loss of $23.6 million, or $0.41 per share (basic and diluted), for the second quarter of 2006 compared to a net loss of $27.0 million, or $0.48 per share (basic and diluted), for the second quarter of 2005.

Revenues:

     Revenues for the three months ended June 30, 2006 and 2005 consist of the following:

										Increase
(In millions)		2006				2005				(Decrease)
Contract research & development revenue
The sanofi-aventis Group		$	14.8			$	9.4			$	5.4
The Procter & Gamble Company			—				2.9				(2.9	)
Other			0.2				1.3				(1.1	)
Total contract research & development revenue			15.0				13.6				1.4
Contract manufacturing revenue			4.3				2.8				1.5
Total revenue		$	19.3			$	16.4			$	2.9

     We earn contract research and development revenue from sanofi-aventis in connection with the companies’ VEGF Trap collaboration which, as detailed below, consists partly of reimbursement for research and development expenses and partly of the recognition of revenue related to a total of $105.0 million of non-refundable, up-front payments received in 2003 and 2006. 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).

Sanofi-aventis Contract Research & Development Revenue

		Three months ended June 30,
(In millions)		2006				2005
Regeneron expense reimbursement		$	11.8			$	7.1
Recognition of deferred revenue related to up-front payments			3.0				2.3
Total		$	14.8			$	9.4

     Sanofi-aventis’ reimbursement of Regeneron VEGF Trap expenses increased in the second quarter of 2006 from the same period in 2005, primarily due to higher costs in 2006 related to the Company’s manufacture of VEGF Trap clinical supplies. Recognition of deferred revenue related to sanofi-aventis’ up-front payments also increased in the second quarter of 2006 from the same period in 2005, due to our January 2006 receipt of a $25.0 million non-refundable, up-front payment from sanofi-aventis related to the expansion of the companies’ VEGF Trap collaboration to include Japan. As of June 30, 2006, $75.2 million of the original $105.0 million of up-front payments was deferred and will be recognized as revenue in future periods.

     Contract research and development revenue earned from Procter & Gamble decreased in the second quarter of 2006 compared to the same period of 2005, as the research activities being pursued under our December 2000 collaboration agreement with Procter & Gamble, as amended, were completed on June 30, 2005. Since the second quarter of 2005, we have not received, and do not expect to receive, any further contract research and development revenue from Procter & Gamble.

     Contract manufacturing revenue relates to our long-term agreement with Merck & Co., Inc., which expires in October 2006, to manufacture a vaccine intermediate at our Rensselaer, New York facility. Contract manufacturing revenue increased in the second quarter of 2006 from the same period of 2005 as we shipped more product to Merck in 2006. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in the second quarter of 2006 and 2005 were $0.4 million and $0.3 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. As of June 30, 2006, the remaining deferred balance of Merck’s capital improvement reimbursements totaled $0.4 million, which will be recognized as revenue as product is shipped based upon Merck’s order quantities through October 2006.

Expenses:

     Total operating expenses decreased to $43.5 million in the second quarter of 2006 from $48.5 million in the same period of 2005, due, in part, to our lower headcount. Our average headcount declined to 583 in the second quarter of 2006 from 731 in the same period of 2005 primarily as a

result of workforce reductions made in the fourth quarter of 2005. (See “Severance Costs” below.)

     Operating expenses in the second quarter of 2006 and 2005 include a total of $4.6 million and $5.3 million of Stock Option Expense, respectively, as detailed below:

(In millions)		For the three months ended June 30, 2006
		Expenses before
		inclusion of Stock				Stock Option				Expenses as
Expenses		Option Expense				Expense				Reported
Research and development		$	31.8			$	2.6			$	34.4
Contract manufacturing			2.7				0.1				2.8
General and administrative			4.4				1.9				6.3
Total operating expenses		$	38.9			$	4.6			$	43.5

(In millions)		For the three months ended June 30, 2005
		Expenses before
		inclusion of Stock				Stock Option				Expenses as
Expenses		Option Expense				Expense				Reported
Research and development		$	37.3			$	3.3			$	40.6
Contract manufacturing			1.6				0.1				1.7
General and administrative			4.3				1.9				6.2
Total operating expenses		$	43.2			$	5.3			$	48.5

Research and Development Expenses:

     Research and development expenses decreased to $34.4 million in the second quarter of 2006 from $40.6 million in the same period of 2005. The following table summarizes the major categories of our research and development expenses for the three months ended June 30, 2006 and 2005:

(In millions)		Three months ended June 30,
										Increase
Research and development expenses		2006				2005				(Decrease)
Payroll and benefits (1)		$	11.7			$	14.0			$	(2.3	)
Clinical trial expenses			4.4				6.4				(2.0	)
Clinical manufacturing costs (2)			9.1				8.2				0.9
Research and preclinical development costs			4.3				5.8				(1.5	)
Occupancy and other operating costs			4.9				6.2				(1.3	)
Total research and development		$	34.4			$	40.6			$	(6.2	)

     Payroll and benefits decreased principally due to our lower headcount in the second quarter of 2006, as described above. Clinical trial expenses decreased primarily due to lower IL-1 Trap costs in 2006, as we discontinued clinical development of IL-1 Trap in adult rheumatoid arthritis

and osteoarthritis in the second half of 2005. This decrease was partly offset by higher 2006 VEGF Trap-Eye costs as we initiated a phase 2 clinical trial in wet AMD. Clinical manufacturing costs increased because of higher costs in 2006 related to manufacturing VEGF Trap clinical supplies, which were partially offset by lower costs related to manufacturing IL-1 Trap clinical supplies. Research and preclinical development costs decreased primarily because of our lower 2006 headcount and lower preclinical IL-1 Trap development costs in 2006. Occupancy and other operating costs decreased primarily due to our lower 2006 headcount.

Contract Manufacturing Expenses:

     Contract manufacturing expenses increased to $2.8 million in the second quarter of 2006 from $1.7 million in the comparable quarter of 2005 primarily because we shipped more product to Merck.

General and Administrative Expenses:

     General and administrative expenses increased to $6.3 million in the second quarter of 2006 from $6.2 million in the same period of 2005 as higher administrative personnel-related costs were offset primarily by lower facility-related expenses and consulting costs in the second quarter of 2006.

Other Income and Expense:

     In June 2005, we and Procter & Gamble amended our collaboration agreement and agreed that the research activities of both companies under the collaboration agreement were completed. In connection with the amendment, Procter & Gamble agreed to make a one-time $5.6 million payment to us, which we recognized as other contract income in the second quarter of 2005.

     Investment income increased to $3.7 million in the second quarter of 2006 from $2.5 million in the same period of 2005 due primarily to higher effective interest rates on investment securities in 2006. Interest expense was $3.0 million in the second quarter of 2006 and 2005. 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.

Six Months Ended June 30, 2006 and 2005

Net Loss:

     Regeneron reported a net loss of $44.0 million, or $0.77 per share (basic and diluted), for the first half of 2006 compared to a net loss of $31.1 million, or $0.56 per share (basic and diluted), for the same period of 2005. Results for the first half of 2005 included a $25.0 million one-time, non-recurring payment from sanofi-aventis, which was recognized as other contract income, in connection with the January 2005 amendment to our collaboration agreement to exclude from the scope of the collaboration the development and commercialization of the VEGF Trap-Eye.

Revenues:

     Revenues for the six months ended June 30, 2006 and 2005 consist of the following:

										Increase
(In millions)		2006				2005				(Decrease)
Contract research & development revenue
The sanofi-aventis Group		$	28.7			$	19.2			$	9.5
The Procter & Gamble Company			—				6.0				(6.0	)
Other			0.9				1.9				(1.0	)
Total contract research & development revenue			29.6				27.1				2.5
Contract manufacturing revenue			7.9				5.5				2.4
Total revenue		$	37.5			$	32.6			$	4.9

     We earn contract research and development revenue from sanofi-aventis in connection with the companies’ VEGF Trap collaboration which, as detailed below, consists partly of reimbursement for research and development expenses and partly of the recognition of revenue related to a total of $105.0 million of non-refundable, up-front payments received in 2003 and 2006. 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.

Sanofi-aventis Contract Research & Development Revenue

		Six months ended June 30,
(In millions)		2006				2005
Regeneron expense reimbursement		$	22.6			$	14.5
Recognition of deferred revenue related to up-front payments			6.1				4.7
Total		$	28.7			$	19.2

     Sanofi-aventis’ reimbursement of Regeneron VEGF Trap expenses increased in the first half of 2006 from the same period in 2005, primarily due to higher costs in 2006 related to the Company’s manufacture of VEGF Trap clinical supplies. Recognition of deferred revenue related to sanofi-aventis’ up-front payments also increased in the first half of 2006 from the same period in 2005, due to our January 2006 receipt of a $25.0 million non-refundable, up-front payment from sanofi-aventis related to the expansion of the companies’ VEGF Trap collaboration to include Japan.

     Contract research and development revenue earned from Procter & Gamble decreased in the first half of 2006 compared to the same period of 2005, as the research activities being pursued under our December 2000 collaboration agreement with Procter & Gamble, as amended, were completed on June 30, 2005. Since the second quarter of 2005, we have not received, and do not expect to receive, any further contract research and development revenue from Procter & Gamble.

     Contract manufacturing revenue increased in the first half of 2006 from the same period of 2005 as we shipped more product to Merck in 2006. Included in contract manufacturing revenue in the first half of 2006 and 2005 were $0.8 million and $0.6 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production.

Expenses:

     Total operating expenses decreased to $83.4 million in the first half of 2006 from $93.1 million in the same period of 2005, due, in part, to our lower headcount, as previously described above. (Also see “Severance Costs” below.)

     Operating expenses in the first half of 2006 and 2005 include a total of $8.5 million and $10.7 million of Stock Option Expense, respectively, as detailed below:

(In millions)		For the six months ended June 30, 2006
		Expenses before
		inclusion of Stock				Stock Option				Expenses as
Expenses		Option Expense				Expense				Reported
Research and development		$	61.9			$	4.6			$	66.5
Contract manufacturing			4.5				0.2				4.7
General and administrative			8.5				3.7				12.2
Total operating expenses		$	74.9			$	8.5			$	83.4

(In millions)		For the six months ended June 30, 2005
		Expenses before
		inclusion of Stock				Stock Option				Expenses as
Expenses		Option Expense				Expense				Reported
Research and development		$	69.8			$	6.7			$	76.5
Contract manufacturing			4.1				0.1				4.2
General and administrative			8.5				3.9				12.4
Total operating expenses		$	82.4			$	10.7			$	93.1

Research and Development Expenses:

     Research and development expenses decreased to $66.5 million in the second half of 2006 from $76.5 million in the same period of 2005. The following table summarizes the major categories of our research and development expenses for the six months ended June 30, 2006 and 2005:

(In millions)		Six months ended June 30,
										Increase
Research and development expenses		2006				2005				(Decrease)
Payroll and benefits (1)		$	21.7			$	28.4			$	(6.7	)
Clinical trial expenses			7.8				8.5				(0.7	)
Clinical manufacturing costs (2)			18.4				17.3				1.1
Research and preclinical development costs			7.8				10.7				(2.9	)
Occupancy and other operating costs			10.8				11.6				(0.8	)
Total research and development		$	66.5			$	76.5			$	(10.0	)