tyrosine kinase, and other anti-angiogenesis strategies. Many of these alternative approaches may offer competitive advantages to our VEGF Trap in efficacy, side-effect profile, or method of delivery. Additionally, some of these molecules are either already approved for marketing or are at a more advanced stage of development than our product candidate.

In particular, Genentech has an approved VEGF antagonist, Avastin^®, on the market for treating certain cancers and a number of pharmaceutical and biotechnology companies are working to develop competing VEGF antagonists, including Novartis, OSI Pharmaceuticals, Pfizer, and Imclone Systems Incorporated. Many of these molecules are further along in ~~February 2004, Genentech was granted~~development than the VEGF Trap and may offer competitive advantages over our molecule. Novartis has an ongoing Phase 3 clinical development program evaluating an orally delivered VEGF tyrosine kinase inhibitor in different cancer settings. Each of Pfizer and Onyx Pharmaceuticals (together with its partner Bayer) has received approval byfrom the FDA to market and sell ~~Avastin~~^® ~~(Genentech), a monoclonal antibody to VEGF in patients with colorectal cancer. The marketing approvals for Avastin~~an oral medication that targets tumor cell growth and ~~Genentech’s extensive, ongoing clinical development plans for Avastin, make it more difficult for us to enroll patients in clinical trials to support~~new vasculature formation that fuels the VEGF Trap oncology program. This may delay or impair our ability to successfully develop and commercialize the VEGF Trap. Other companies are developing small molecule inhibitors to VEGF tyrosine kinases in different cancer settings.growth of tumors.

~~We face significant competition~~The market for eye disease products is also very competitive. Novartis and Genentech are collaborating on the commercialization and further development of a VEGF antibody fragment (Lucentis^®) for the treatment of age-related macular degeneration (wet AMD) and other eye indications that was approved by the FDA in ~~our VEGF Trap-Eye programs. For example, Eyetech~~June 2006. OSI Pharmaceuticals and Pfizer are marketing an approved VEGF inhibitor (Macugen^®) for wet AMD. Many other companies are working on the development of product candidates for the potential treatment of wet ~~AMD. Genentech~~AMD that act by blocking VEGF, VEGF receptors, and ~~Novartis have completed phase 3 development~~through the use of ~~a VEGF antibody fragment in wet AMD and have submitted a marketing application for their product candidate in this indication.~~soluble ribonucleic acids (sRNAs) that modulate gene expression. In addition, ~~it has been reported that~~ ophthalmologists are ~~successfully~~ using off-label a third-party reformulated version of Genentech’s approved VEGF antagonist, Avastin, with success for the treatment of wet AMD. ~~These competing VEGF blockers make it more difficult~~The National Eye Institue recently has received funding for usa Phase 3 trial to ~~enroll patients~~compare Lucentis to Avastin in ~~clinical trials for~~ the ~~VEGF Trap-Eye in these indications and may delay or impair our ability to successfully develop and commercialize the VEGF Trap-Eye in eye diseases.~~treatment of wet AMD.

IL-1 Trap. The availability of highly effective FDA approved TNF-antagonists such as Enbrel^® (Amgen), Remicade^® (Centocor), and Humira^® (Abbott) and the IL-1 receptor antagonist Kineret (Amgen), and other marketed therapies makes it difficult to successfully develop and commercialize the IL-1 Trap. Even if the ~~IL-1 Trap~~IL-1Trap is ever approved for sale, it will be difficult for our drug to compete against these FDA approved TNF-antagonists because doctors and patients will have significant experience using these effective medicines. Moreover, there are both small molecules and antibodies in development by third parties that are designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli Lilly and Company and Novartis isare each developing ~~an antibody~~antibodies to interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. These drug candidates could offer competitive advantages over the IL-1 Trap. The successful development of these competing molecules could delay or impair our ability to successfully develop and commercialize the IL-1 Trap.

Other Areas. Many pharmaceutical and biotechnology companies are attempting to discover new therapeutics for indications in which we invest substantial time and resources. In these and related areas, intellectual property rights have been sought and certain rights have been granted to competitors and potential competitors of ours, and we may be at a substantial competitive disadvantage in such areas as a result of, among other things, our lack of experience, trained personnel, and expertise. A number of corporate and academic competitors are involved in the discovery and development of novel therapeutics that are the focus of other research or development programs we are now conducting. These competitors include Amgen and Genentech, as well as many others. Many firms and entities are engaged in research and development in the areas of cytokines, interleukins, angiogenesis, and muscle conditions. Some of these competitors are currently conducting advanced preclinical and clinical research programs in these areas. These and other competitors may have established substantial intellectual property and other competitive advantages.

If a competitor announces a successful clinical study involving a product that may be competitive with one of our product candidates or the grant of marketing approval by a regulatory agency for a competitive product, the announcement may have an adverse effect on our operations or future prospects or on the market price of our common stock.

We also compete with academic institutions, governmental agencies, and other public or private research organizations, which conduct research, seek patent protection, and establish collaborative arrangements for the development and marketing of products that would provide royalties or other consideration for use of their technology. These institutions are becoming more active in seeking patent protection and licensing arrangements to

collect royalties or other consideration for use of the technology that they have developed. Products developed in this manner may compete directly with products we develop. We also compete with others in acquiring technology from these institutions, agencies, and organizations.

Patents, Trademarks, and Trade Secrets

Our success depends, in part, on our ability to obtain patents, maintain trade secret protection, and operate without infringing on the proprietary rights of third parties (see “Risk Factors —We may be restricted in our developmentand/or commercialization activities by, and could be subject to damage awards if we are found to have infringed, third party patents or other proprietary ~~rights.~~rights.”). Our policy is to file patent applications to protect technology, inventions, and improvements that we consider important to our business and operations. We are the nonexclusive licensee of a number of additional U.S. patents and patent applications. We also rely upon trade secrets, know-how, and continuing technological innovation in an effort to develop and maintain our competitive position. We or our licensors or collaborators have filed patent applications on various products and processes relating to our product candidates as well as other technologies and inventions in the United States and in certain foreign countries. We intend to file additional patent applications, when appropriate, relating to improvements in these technologies and other specific products and processes. We plan to aggressively prosecute, enforce, and defend our patents and other proprietary technology.

Patent law relating to the patentability and scope of claims in the biotechnology field is evolving and our patent rights are subject to this additional uncertainty. Others may independently develop similar products or processes to those developed by us, duplicate any of our products or processes or, if patents are issued to us, design around any products and processes covered by our patents. We expect to continue, when appropriate, to file product and process patent applications with respect to our inventions. However, we may not file any such applications or, if filed, the patents may not be issued. Patents issued to or licensed by us may be infringed by the products or processes of others.

Defense and enforcement of our intellectual property rights can be expensive and time consuming, even if the outcome is favorable to us. It is possible that patents issued to or licensed to us will be successfully challenged, that a court may find that we are infringing validly issued patents of third parties, or that we may have to alter or discontinue the development of our products or pay licensing fees to take into account patent rights of third parties.

Government Regulation

Regulation by government authorities in the United States and foreign countries is a significant factor in the research, development, manufacture, and marketing of our product candidates (see “Risk Factors —If we do not obtain regulatory approval for our product candidates, we will not be able to market or sell them.”). All of our product candidates will require regulatory approval before they can be commercialized. In particular, human therapeutic products are subject to rigorous preclinical and clinical trials and other pre-market approval requirements by the FDA and foreign authorities. Many aspects of the structure and substance of the FDA and foreign pharmaceutical regulatory practices have been reformed during recent years, and continued reform is under consideration in a number of jurisdictions. The ultimate outcome and impact of such reforms and potential reforms cannot be predicted.

The activities required before a product candidate may be marketed in the United States begin with preclinical tests. Preclinical tests include laboratory evaluations and animal studies to assess the potential safety and efficacy of the product candidate and its formulations. The results of these studies must be submitted to the FDA as part of an Investigational New Drug Application, which must be reviewed by the FDA before proposed clinical testing can begin. Typically, clinical testing involves a three-phase process. In ~~phase~~Phase 1, trials are conducted with a small number of subjects to determine the early safety profile of the product candidate. In ~~phase~~Phase 2, clinical trials are conducted with subjects afflicted with a specific disease or disorder to provide enough data to evaluate the preliminary safety,

tolerability, and efficacy of different potential doses of the product candidate. In ~~phase~~Phase 3, large-scale clinical trials are conducted with patients afflicted with the specific disease or disorder in order to provide enough data to understand the efficacy and safety profile of the product candidate, as required by the FDA. The results of the preclinical and clinical testing of a biologic product candidate are then submitted to the FDA in the form of a

Biologics License Application, or BLA, for evaluation to determine whether the product candidate may be approved for commercial sale. In responding to a BLA, the FDA may grant marketing approval, request additional information, or deny the application.

Any approval required by the FDA for any of our product candidates may not be obtained on a timely basis, or at all. The designation of a clinical trial as being of a particular phase is not necessarily indicative that such a trial will be sufficient to satisfy the parameters of a particular phase, and a clinical trial may contain elements of more than one phase notwithstanding the designation of the trial as being of a particular phase. The results of preclinical studies or early stage clinical trials may not predict long-term safety or efficacy of our compounds when they are tested or used more broadly in humans.

Approval of a product candidate by comparable regulatory authorities in foreign countries is generally required prior to commencement of marketing of the product in those countries. The approval procedure varies among countries and may involve additional testing, and the time required to obtain such approval may differ from that required for FDA approval.

Various federal, state, and foreign statutes and regulations also govern or influence the research, manufacture, safety, labeling, storage, record keeping, marketing, transport, orand other aspects of pharmaceutical product candidates. The lengthy process of seeking these approvals and the compliance with applicable statutes and regulations require the expenditure of substantial resources. Any failure by us or our collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals could adversely affect the manufacturing or marketing of our products and our ability to receive product or royalty revenue.

In addition to the foregoing, our present and future business will be subject to regulation under the United States Atomic Energy Act, the Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response, Compensation and Liability Act, the National Environmental Policy Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, national restrictions, and other current and potential future local, state, federal, and foreign regulations.

Business Segments

~~Our~~Through 2006, our operations ~~are~~were managed in two business segments: research and development, and contract manufacturing. The research and development segment 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. It 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. The contract manufacturing segment includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. During 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company ~~produced an intermediate~~manufactured a product for Merck under ~~the Merck Agreement, as described under “Manufacturing” above.~~a contract that expired in October 2006. For financial information about these segments, see Note ~~19,~~20, “Segment Information”, beginning onpage ~~F-33~~F-34 in our Financial Statements. Due to the expiration of our manufacturing agreement with Merck, beginning in 2007 we only have a research and development business segment.

Employees

As of December 31, ~~2005,~~2006, we had ~~588~~573 full-time employees, of whom 8780 held a Ph.D. or M.D. degree or both. We believe that we have been successful in attracting skilled and experienced personnel in a highly competitive environment; however, competition for these personnel is intense. None of our personnel are covered by collective bargaining agreements and our management considers its relations with our employees to be good.

Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission, or SEC, under the Securities Exchange Act of 1934, or the Exchange Act. The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW,

Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including Regeneron, that file electronically with the SEC. The public can obtain any documents that we file with the SEC athttp://www.sec.gov.

We also make available free of charge on or through our Internet website(http://~~www.regn.com~~)www.regn.com) our Annual Report onForm 10-K, Quarterly Reports onForm 10-Q, Current Reports onForm 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.


Item 1A.	*Risk Factors*

We operate in an environment that involves a number of significant risks and uncertainties. We caution you to read the following risk factors, which have affected,and/or in the future could affect, our business, operating results, financial condition, and cash flows. The risks described below include forward-looking statements, and actual events and our actual results may differ substantially from those discussed in these forward-looking statements. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Furthermore, additional risks and uncertainties are described under other captions in this report and should be considered by our investors.

Risks Related to Our Financial Results and Need for Additional Financing

We have had a history of operating losses and we may never achieve profitability. If we continue to incur operating losses, we may be unable to continue our operations.

From inception on January 8, 1988 through December 31, ~~2005,~~2006, we had a cumulative loss of ~~$585.3~~$687.6 million. If we continue to incur operating losses and fail to become a profitable company, we may be unable to continue our operations. We have no products that are available for sale and do not know when we will have products available for sale, if ever. In the absence of revenue from the sale of products 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 currently receive~~Until October 31, 2006, we received contract manufacturing revenue from our agreement with Merck and, until June 30, 2005, we received contract research and development revenue from our agreement with The Procter & Gamble Company. Our agreement with Procter & Gamble expired in June 2005 and our agreement with Merck ~~will expire before the end of~~expired in October 2006. The expiration of these agreements ~~results~~has resulted in a significant loss of revenue to the Company.

We will need additional funding in the future, which may not be available to us, and which may force us to delay, reduce or eliminate our product development programs or commercialization efforts.

We will need to expend substantial resources for research and development, including costs associated with clinical testing of our product candidates. We believe our existing capital resources will enable us to meet operating needs through at least ~~mid-2008;~~early 2010, without taking into consideration the $200.0 million aggregate principal amount of convertible senior subordinated notes, which mature in October 2008; however, our projected revenue may decrease or our expenses may increase and that would lead to our capital being consumed significantly before such time. We will likely require additional financing in the future and we may not be able to raise such additional funds. If we are able to obtain additional financing through the sale of equity or convertible debt securities, such sales may be dilutive to our shareholders. Debt financing arrangements may require us to pledge certain assets or enter into covenants that would restrict our business activities or our ability to incur further indebtedness and may contain other terms that are not favorable to our shareholders. If we are unable to raise sufficient funds to complete the development of our product candidates, we may face delay, reduction or elimination of our research and development programs or preclinical or clinical trials, in which case our business, financial condition or results of operations may be materially harmed.

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We have a significant amount of debt and may have insufficient cash to satisfy our debt service and repayment obligations. In addition, the amount of our debt could impede our operations and flexibility.

We have a significant amount of convertible debt and semi-annual interest payment obligations. This debt, unless converted to shares of our common stock, will mature in October 2008. We may be unable to generate sufficient cash flow or otherwise obtain funds necessary to make required payments on our debt. Even if we are able to meet our debt service obligations, the amount of debt we already have could hurt our ability to obtain any necessary financing in the future for working capital, capital expenditures, debt service requirements, or other purposes. In addition, our debt obligations could require us to use a substantial portion of cash to pay principal and interest on our debt, instead of applying those funds to other purposes, such as research and development, working capital, and capital expenditures.

We have adopted, effective January 1, 2005, the fair market value based method of accounting for stock-based employee compensation. This will materially increase operating expenses in our Statement of Operations, primarily due to non-cash compensation costs related to stock options.

We have adopted, effective January 1, 2005, 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, effective January 1, 2005, we have been 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. In 2005, non-cash stock-based employee compensation expense of $19.9 million related to stock options awards was recognized in operating expenses in our Statement of Operations, which increased our basic and diluted net loss per share. Also, if we had adopted SFAS 123 effective January 1, 2004, our net income for the full year 2004 would have decreased by approximately $33.6 million and our basic and diluted net income per share in 2004 would have been $0.15 per share instead of $0.75 per share (basic) and $0.74 per share (diluted).

~~In addition, in December 2004, the Financial Accounting Standards Board issued SFAS 123R,~~~~Share-Based Payment~~~~, which is a revision of SFAS 123 and supersedes Accounting Principles Board No. 25,~~~~Accounting for Stock Issued to Employees.~~ SFAS 123R requires the recognition of compensation expense in an amount equal to the fair value of share-based payments (including stock options) issued to employees. We are required to adopt SFAS 123R effective for the fiscal year beginning January 1, 2006. The impact of adopting SFAS 123R has not yet been quantified.

The negative impact on our income (loss) as a result of adopting SFAS 123 as of January 1, 2005, and subsequently adopting SFAS 123R commencing January 1, 2006, may negatively affect our stock price.

Risks Related to Development of Our Product Candidates

Successful development of any of our product candidates is highly uncertain.

Only a small minority of all research and development programs ultimately result in commercially successful drugs. We have never developed a drug that has been approved for marketing and sale, and we may never succeed in developing an approved drug. Even if clinical trials demonstrate safety and effectiveness of any of our product candidates for a specific disease and the necessary regulatory approvals are obtained, the commercial success of any of our product candidates will depend upon their acceptance by patients, the medical community, and third-party payers and on our partners’ ability to successfully manufacture and commercialize our product candidates. Our product candidates are delivered either by intravenous infusion or by intravitreal or subcutaneous injections, which are generally less well received by patients than tablet or capsule delivery. If our products are not successfully commercialized, we will not be able to recover the significant investment we have made in developing such products and our business would be severely harmed.

We intend to study our lead product candidates, the VEGF Trap, VEGF Trap-Eye, and IL-1 Trap, in a wide variety of indications. We intend to study the VEGF Trap in a variety of cancer settings, the VEGF Trap-Eye in different eye diseases and ophthalmologic indications, and the IL-1 Trap in a variety of systemic inflammatory

disorders. ~~Most~~Many of these current trials are exploratory studies designed to identify what diseases and uses, if any, are best suited for our product candidates. It is likely that our product candidates will not demonstrate the requisite efficacyand/or safety profile to support continued development for most of the indications that are to be studied. In fact, our product candidates may not demonstrate the requisite efficacy and safety profile to support the continued development for any of the indications or uses.

Clinical trials required for our product candidates are expensive and time-consuming, and their outcome is highly uncertain. If any of our drug trials are delayed or achieve unfavorable results, we will have to delay or may be unable to obtain regulatory approval for our product candidates.

We must conduct extensive testing of our product candidates before we can obtain regulatory approval to market and sell them. We need to conduct both preclinical animal testing and human clinical trials. Conducting these trials is a lengthy, time-consuming, and expensive process. These tests and trials may not achieve favorable results for many reasons, including, among others, failure of the product candidate to demonstrate safety or efficacy, the development of serious or life-threatening adverse events (or side effects) caused by or connected with exposure to the product candidate, difficulty in enrolling and maintaining subjects in the clinical trial, lack of sufficient supplies of the product candidate or comparator drug, and the failure of clinical investigators, trial monitors and other consultants, or trial subjects to comply with the trial plan or protocol. A clinical trial may fail because it did not include a sufficient number of patients to detect the endpoint being measured or reach statistical significance. A clinical trial may also fail because the dose(s) of the investigational drug included in the trial were either too low or too high to determine the optimal effect of the investigational drug in the disease setting. For example, we are studying higher doses of the IL-1 Trap in different diseases after a ~~phase~~Phase 2 trial using lower doses of the IL-1 Trap in subjects with rheumatoid arthritis failed to achieve its primary endpoint.

We will need to reevaluate any drug candidate that does not test favorably and either conduct new trials, which are expensive and time consuming, or abandon the drug development program. Even if we obtain positive results

from preclinical or clinical trials, we may not achieve the same success in future trials. Many companies in the biopharmaceutical industry, including us, have suffered significant setbacks in clinical trials, even after promising results have been obtained in earlier trials. The failure of clinical trials to demonstrate safety and effectiveness for the desired indication(s) could harm the development of the product candidate(s), and our business, financial condition, and results of operations may be materially harmed.

The data from the Phase 3 clinical program for the IL-1 Trap in CAPS (Cryopyrin Associated Periodic Syndromes) may be inadequate to support regulatory approval for commercialization of the IL-1 Trap.

The efficacy and safety data from the Phase 3 clinical program for the IL-1 Trap in CAPS may be inadequate to support approval for its commercialization in this indication. Moreover, if the safety data from the ongoing clinical trials testing the IL-1 Trap are not satisfactory, we may not proceed with the filing of a biological license application, or BLA, for the IL-1 Trap or we may be forced to delay the filing. The FDA and other regulatory agencies may have varying interpretations of our clinical trial data, which could delay, limit, or prevent regulatory approval or clearance.

Further, before a product candidate is approved for marketing, our manufacturing facilities must be inspected by the FDA and the FDA will not approve the product for marketing if we or our third party manufacturers are not in compliance with current good manufacturing practices. Even if the FDA and similar foreign regulatory authorities do grant marketing approval for the IL-1 Trap, they may pose restrictions on the use or marketing of the product, or may require us to conduct additional post-marketing trials. These restrictions and requirements would likely result in increased expenditures and lower revenues and may restrict our ability to commercialize the IL-1 Trap profitably.

In addition to the FDA and other regulatory agency regulations in the United States, we are subject to a variety of foreign regulatory requirements governing human clinical trials, marketing and approval for drugs, and commercial sales and distribution of drugs in foreign countries. The foreign regulatory approval process includes all of the risks associated with FDA approval as well as country-specific regulations. Whether or not we obtain FDA approval for a product in the United States, we must obtain approval by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the IL-1 Trap in those countries.

The development of serious or life-threatening side effects with any of our product candidates would lead to delay or discontinuation of development, which could severely harm our business.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries, and discomforts, to their study doctor. Often, it is not possible to determine whether or not the drug candidate being studied caused these conditions. Various illnesses, injuries, and discomforts have been reported fromtime-to-time during clinical trials of our product candidates. ~~Although our current drug candidates appeared to be generally well tolerated in clinical trials conducted to date, it~~It is possible as we test ~~any of them~~our current drug candidates in larger, longer, and more extensive clinical programs, illnesses, injuries, and discomforts that were observed in earlier trials, as well as conditions that did not occur or went undetected in smaller previous trials, will be reported by patients. Many times, side effects are only detectable after investigational drugs are tested in large scale, ~~phase~~Phase 3 clinical trials or, in some cases, after they are made available to patients after approval. If additional clinical experience indicates that any of our product candidates has many side effects or causes serious or life-threatening side effects, the development of the product candidate may fail or be delayed, which would severely harm our business.

Our VEGF Trap is being studied for the potential treatment of certain types of cancer and our VEGF Trap-Eye candidate is being studied in diseases of the eye. There are many potential safety concerns associated with significant blockade of vascular endothelial growth factor, or VEGF. These risks, based on the clinical and preclinical experience of systemically delivered VEGF inhibitors, including the systemic delivery of the VEGF Trap, include bleeding, hypertension, and proteinuria. These serious side effects and other serious side effects have been reported in our systemic VEGF Trap studies in cancer and diseases of the eye. In addition, patients given infusions of any protein, including the VEGF Trap delivered through intravenous administration, may develop severe hypersensitivity reactions ~~referred to as~~or infusion reactions. Other VEGF blockers have reported side effects that became evident only after large scale trials or after marketing approval and large numbers of patients were treated. These include side effects that we have not yet seen in our trials such as heart attack and stroke. These and other ~~complications or side effects~~

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complications or side effects could harm the development of the VEGF Trap for the treatment of cancer or the VEGF Trap-Eye for the treatment of diseases of the eye.

~~Although the IL-1 Trap was generally well tolerated and was not associated with any drug-related serious adverse events in the phase 2 rheumatoid arthritis study completed in 2003,~~It is possible that safety or tolerability concerns may arise as we test higher doses of the IL-1 Trap in patients with other inflammatory diseases and disorders. LikeTNF-antagonists such as Enbrel^®(Amgen) and Remicade^® (Centocor), the IL-1 Trap affects the immune defense system of the body by blocking some of its functions. Therefore, there may be an increased risk for infections to develop in patients treated with the IL-1 Trap. In addition, patients given infusions of the IL-1 Trap have developed hypersensitivity reactions ~~referred to as~~or infusion reactions. These ~~and~~or other complications or side effects could ~~harm~~impede or result in us abandoning the development of the IL-1 Trap.

Our product candidates in development are recombinant proteins that could cause an immune response, resulting in the creation of harmful or neutralizing antibodies against the therapeutic protein.

In addition to the safety, efficacy, manufacturing, and regulatory hurdles faced by our product candidates, the administration of recombinant proteins frequently causes an immune response, resulting in the ~~creation~~production of antibodies against the therapeutic protein. The antibodies can have no effect or can totally neutralize the effectiveness of the protein, or require that higher doses be used to obtain a therapeutic effect. In some cases, the antibody can cross react with the patient’s own proteins, resulting in an “auto-immune” type disease. Whether antibodies will be created can often not be predicted from preclinical or clinical experiments, and their detection or appearance is often delayed, so that there can be no assurance that neutralizing antibodies will not be ~~created~~detected at a later date — in some cases even after pivotal clinical trials have been completed. Subjects who received ~~the~~ IL-1 Trap in clinical trials have developed antibodies. It is possible that as we test the VEGF Trap and VEGF Trap-Eye with more sensitive assays in different patient populations and larger clinical trials, we will find that subjects given the VEGF Trap ~~develop~~and VEGF Trap-Eye produce antibodies to these product candidates, which could adversely impact the ~~product candidate.~~development of such candidates.

We may be unable to formulate or manufacture our product candidates in a way that is suitable for clinical or commercial use.

Changes in product formulations and manufacturing processes may be required as product candidates progress in clinical development and are ultimately commercialized. For example, we are currently testing a new formulation of the VEGF Trap-Eye in a Phase 1 Trial. If we are unable to develop suitable product formulations or manufacturing processes to support large scale clinical testing of our product candidates, including the VEGF Trap, VEGF Trap-Eye, ~~IL-1 Trap,~~ and ~~IL-4/13~~IL-1 Trap, we may be unable to supply necessary materials for our clinical trials, which would delay the development of our product candidates. Similarly, if we are unable to supply sufficient quantities of our product or develop product formulations suitable for commercial use, we will not be able to successfully commercialize our product candidates.

Risks Related to Intellectual Property

If we cannot protect the confidentiality of our trade secrets or our patents are insufficient to protect our proprietary rights, our business and competitive position will be harmed.

Our business requires using sensitive and proprietary technology and other information that we protect as trade secrets. We seek to prevent improper disclosure of these trade secrets through confidentiality agreements. If our trade secrets are improperly exposed, either by our own employees or our collaborators, it would help our competitors and adversely affect our business. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of biotechnology companies involves complex legal and factual questions and, therefore, enforceability cannot be predicted with certainty. Our patents may be challenged, invalidated, or circumvented. Patent applications filed outside the United States may be challenged by third parties who file an opposition. Such opposition proceedings are increasingly common in the European Union and are costly to defend. We have patent applications that are being opposed and it is likely that we will need to defend additional patent applications in the future. Our patent rights may not provide us with a proprietary position or

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competitive advantages against competitors. Furthermore, even if the outcome is favorable to us, the enforcement of our intellectual property rights can be extremely expensive and time consuming.

We may be restricted in our developmentand/or commercialization activities by, and could be subject to damage awards if we are found to have infringed, third party patents or other proprietary rights.

Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Other parties may allege that they have blocking patents to our products in clinical development, either because they claim to hold proprietary rights to the composition of a product or the way it is manufactured or used. Moreover, other parties may allege that they have blocking patents to antibody products made using our VelocImmune technology, either because of the way the antibodies are discovered or produced or because of a proprietary position covering an antibody or the antibody’s target.

We are aware of patents and pending applications owned by Genentech that claim certain chimeric VEGF receptor compositions. Although we do not believe that the VEGF Trap or VEGF Trap-Eye infringes any valid claim in these patents or patent applications, Genentech could initiate a lawsuit for patent infringement and assert its patents are valid and cover the VEGF Trap or VEGF Trap-Eye. Genentech may be motivated to initiate such a lawsuit at some point in an effort to impair our ability to develop and sell the VEGF Trap or VEGF Trap-Eye, which represents a potential competitive threat to Genentech’s VEGF-binding products and product candidates. An adverse determination by a court in any such potential patent litigation would likely materially harm our business by requiring us to seek a license, which may not be available, or resulting in our inability to manufacture, develop and sell the VEGF Trap or VEGF Trap-Eye or in a damage award.

We are aware of certain United States and foreign patents relating to particular IL-4 and IL-13 receptors. Our IL-4/13 Trap includes portions of the IL-4 and IL-13 receptors. In addition, we are aware of a broad patent held by Genentech relating to proteins fused to certain immunoglobulin domains. Our Trap product candidates include proteins fused to immunoglobulin domains. Although we do not believe that we are infringing valid and enforceable third party patents, the holders of these patents may sue us for infringement and a court may find that we are infringing one or more validly issued patents, which may materially harm our business.

Any patent holders could sue us for damages and seek to prevent us from manufacturing, selling, or developing our drug candidates, and a court may find that we are infringing validly issued patents of third parties. In the event that the manufacture, use, or sale of any of our clinical candidates infringes on the patents or violates other proprietary rights of third parties, we may be prevented from pursuing product development, manufacturing, and commercialization of our drugs and may be required to pay costly damages. Such a result may materially harm our business, financial condition, and results of operations. Legal disputes are likely to be costly and time consuming to defend.

We seek to obtain licenses to patents when, in our judgment, such licenses are needed. If any licenses are required, we may not be able to obtain such licenses on commercially reasonable terms, if at all. The failure to obtain any such license could prevent us from developing or commercializing any one or more of our product candidates, which could severely harm our business.

Regulatory and Litigation Risks

If we do not obtain regulatory approval for our product candidates, we will not be able to market or sell them.

We cannot sell or market products without regulatory approval. If we do not obtain and maintain regulatory approval for our product candidates, the value of our company and our results of operations will be harmed. In the United States, we must obtain and maintain approval from the ~~United States Food and Drug Administration (FDA)~~FDA for each drug we intend to sell. Obtaining FDA approval is typically a lengthy and expensive process, and approval is highly uncertain. Foreign governments also regulate drugs distributed in their country and approval in any country is likely to be a lengthy and expensive process, and approval is highly uncertain. None of our product candidates has ever received regulatory approval to be marketed and sold in the United States or any other country. We may never receive regulatory approval for any of our product candidates.

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compliance, the FDA can impose regulatory sanctions, including, among other things, refusal to approve a pending application for a new drug or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition, and results of operations may be materially harmed.

If the testing or use of our products harms people, we could be subject to costly and damaging product liability claims. We could also face costly and damaging claims arising from employment law, securities law, environmental law, or other applicable laws governing our operations.

The testing, manufacturing, marketing, and sale of drugs for use in people expose us to product liability risk. Any informed consent or waivers obtained from people who ~~sign up for~~are enrolled in our clinical trials may not protect us from liability or the cost of litigation. Our product liability insurance may not cover all potential liabilities or may not completely cover any liability arising from any such litigation. Moreover, we may not have access to liability insurance or be able to maintain our insurance on acceptable terms.

Our operations may involve hazardous materials and are subject to environmental, health, and safety laws and regulations. We may incur substantial liability arising from our activities involving the use of hazardous materials.

As a biopharmaceutical company with significant manufacturing operations, we are subject to extensive environmental, health, and safety laws and regulations, including those governing the use of hazardous materials. Our research and development and manufacturing activities involve the controlled use of chemicals, viruses, radioactive compounds, and other hazardous materials. The cost of compliance with environmental, health, and safety regulations is substantial. If an accident involving these materials or an environmental discharge were to occur, we could be held liable for any resulting damages, or face regulatory actions, which could exceed our resources or insurance coverage.

Changes in the securities laws and regulations have increased, and are likely to continue to increase, our costs.

The Sarbanes-Oxley Act of 2002, which became law in July 2002, has required changes in some of our corporate governance, securities disclosure and compliance practices. ~~In response~~Pursuant to the requirements of that Act, the SEC and the NASDAQ Stock Market have promulgated ~~new~~ rules and listing standards covering a variety of subjects. Compliance with these new rules and listing standards has increased our legal costs, and significantly increased our accounting and auditing costs, and we expect these costs to continue. These developments may make it more difficult and more expensive for us to obtain directors’ and officers’ liability insurance. Likewise, these developments may make it more difficult for us to attract and retain qualified members of our board of directors, particularly independent directors, or qualified executive officers.

In future years, if we or our independent registered public accounting firm are unable to conclude that our internal control over financial reporting is effective, the market value of our common stock could be adversely affected.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in their annual reports on~~Form 10-K~~ that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the independent registered public accounting firm auditing our financial statements must attest to and report on management’s assessment and on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm provided us with an unqualified report as to our assessment and the effectiveness of our internal control over financial reporting as of December 31, 2005, which report is included in this Annual Report on~~Form 10-K~~ for the year ended December 31, 2005. However, we cannot assure you that management or our independent registered public accounting firm will be able to provide such an assessment or unqualified report as of future year-ends. In this event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market value of our common stock.

Risks Related to Our Dependence on Third Parties

If our collaboration with sanofi-aventis for the VEGF Trap is terminated, our business operations and our ability to develop, manufacture, and commercialize the VEGF Trap in the time expected, or at all, would be harmed.

We rely heavily on sanofi-aventis to assist with the development of the VEGF Trap oncology program. Sanofi-aventis funds all of the development expenses incurred by both companies in connection with the VEGF Trap oncology program. If the VEGF Trap oncology program continues, we will rely on sanofi-aventis to assist with funding the VEGF Trap program, provide commercial manufacturing capacity, enroll and monitor clinical trials, obtain regulatory approval, particularly outside the United States, and provide sales and marketing support. While we cannot assure you that the VEGF Trap will ever be successfully developed and commercialized, if sanofi-aventis does not perform its obligations in a timely manner, or at all, our ability to develop, manufacture, and commercialize the VEGF Trap in cancer indications will be significantly adversely affected. Sanofi-aventis has the right to terminate its collaboration agreement with us at any time upon twelve months advance notice. If sanofi-aventis were to terminate its collaboration agreement with us, we would not have the resources or skills to replace those of our partner, which could cause significant delays in the developmentand/or manufacture of the VEGF Trap and result in

substantial additional costs to us. We have no sales, marketing, or distribution capabilities and would have to develop or outsource these capabilities. Termination of the sanofi-aventis collaboration agreement would create substantial new and additional risks to the successful development of the VEGF Trap oncology program.

If our collaboration with Bayer HealthCare for the VEGF Trap-Eye is terminated, our business operations and our ability to develop, manufacture, and commercialize the VEGF Trap-Eye in the time expected, or at all, would be harmed.

We will rely heavily on Bayer HealthCare to assist with the development of the VEGF Trap-Eye. Under our agreement with them, Bayer HealthCare is required to fund approximately half of the development expenses incurred by both companies in connection with the global VEGF Trap-Eye development program. If the VEGF Trap-Eye program continues, we will rely on Bayer HealthCare to assist with funding the VEGF Trap-Eye development program, providing assistance with the enrollment and monitoring of clinical trials conducted outside the United States, obtaining regulatory approval outside the United States, and providing sales, marketing and commercial support for the product outside the United States. In particular, Bayer HealthCare has responsibility for selling VEGF Trap-Eye outside the United States using its sales force. While we cannot assure you that the VEGF Trap-Eye will ever be successfully developed and commercialized, if Bayer HealthCare does not perform its obligations in a timely manner, or at all, our ability to develop, manufacture, and commercialize the VEGF Trap-Eye outside the United States will be significantly adversely affected. Bayer HealthCare has the right to terminate its collaboration agreement with us at any time upon six or twelve months advance notice, depending on the circumstances giving rise to termination. If Bayer HealthCare were to terminate its collaboration agreement with us, we would not have the resources or skills to replace those of our partner, which could cause significant delays in the developmentand/or commercialization of the VEGF Trap-Eye outside the United States and result in substantial additional costs to us. We have no sales, marketing, or distribution capabilities and would have to develop or outsource these capabilities outside the United States. Termination of the Bayer HealthCare collaboration agreement would create substantial new and additional risks to the successful development of the VEGF Trap-Eye development program.

Our collaborators and service providers may fail to perform adequately in their efforts to support the development, manufacture, and commercialization of our drug candidates.

We depend upon third-party collaborators, including sanofi-aventis, Bayer HealthCare, and service providers such as clinical research organizations, outside testing laboratories, clinical investigator sites, and third-party manufacturers and product packagers and labelers, to assist us in the development of our product candidates. If any of our existing collaborators or service providers breaches or terminates its agreement with us or does not perform its development or manufacturing services under an agreement in a timely manner or at all, we could experience additional costs, delays, and difficulties in the development or ~~ultimate~~ commercialization of our product candidates.

Risks Related to the Manufacture of Our Product Candidates

We have limited manufacturing capacity, which could inhibit our ability to successfully develop or commercialize our drugs.

Before approving a new drug or biologic product, the FDA requires that the facilities at which the product will be manufactured be in compliance with current good manufacturing practices, or cGMP requirements. Manufacturing product candidates in compliance with these regulatory requirements is complex, time-consuming, and expensive. To be successful, our products must be manufactured for development, following approval, in commercial quantities, in compliance with regulatory requirements, and at competitive costs. If we or any of our product collaborators or third-party manufacturers, product packagers, or labelers are unable to maintain regulatory compliance, the FDA can impose regulatory sanctions, including, among other things, refusal to approve a pending application for a new drug or biologic product, or revocation of a pre-existing approval. As a result, our business, financial condition, and results of operations may be materially harmed.

Our manufacturing facility is likely to be inadequate to produce sufficient quantities of product for commercial sale. We intend to rely on our corporate collaborators, as well as contract manufacturers, to produce the large quantities of drug material needed for commercialization of our products. We rely entirely on third-party manufacturers for filling and finishing services. We will have to depend on these manufacturers to deliver material on a timely basis and to comply with regulatory requirements. If we are unable to supply sufficient material on acceptable terms, or if we should encounter delays or difficulties in our relationships with our corporate collaborators or contract manufacturers, our business, financial condition, and results of operations may be materially harmed.

We may expand our own manufacturing capacity to support commercial production of active pharmaceutical ingredients, or API, for our product candidates. This will require substantial additional funds, and we will need to hire and train significant numbers of employees and managerial personnel to staff our facility.Start-up costs can be

large andscale-up entails significant risks related to process development and manufacturing yields. We may be unable to develop manufacturing facilities that are sufficient to produce drug material for clinical trials or commercial use. In addition, we may be unable to secure adequate filling and finishing services to support our products. As a result, our business, financial condition, and results of operations may be materially harmed.

We may be unable to obtain key raw materials and supplies for the manufacture of our product candidates. In addition, we may face difficulties in developing or acquiring production technology and managerial personnel to manufacture sufficient quantities of our product candidates at reasonable costs and in compliance with applicable quality assurance and environmental regulations and governmental permitting requirements.

If any of our clinical programs are discontinued, we may face costs related to the unused capacity at our manufacturing facilities.

We have large-scale manufacturing operations in Rensselaer, New York. ~~Under a long-term manufacturing agreement with Merck, which expires in October 2006, we produce an intermediate for a Merck pediatric vaccine at our facility in Rensselaer, New York.~~ We ~~also~~ use our facilities to produce ~~API~~bulk product for ~~our own~~ clinical and preclinical ~~candidates. When we no longer use~~candidates for ourselves and our ~~facilities to manufacture the Merck intermediate or if~~collaborations. If our clinical candidates are discontinued, we will have to absorb one hundred percent of related overhead costs and inefficiencies.

Certain of our raw materials are single-sourced from third parties; third-party supply failures could adversely affect our ability to supply our products.

Certain raw materials necessary for manufacturing and formulation of our product candidates are provided by single-source unaffiliated third-party suppliers. We would be unable to obtain these raw materials for an indeterminate period of time if these third-party single-source suppliers were to cease or interrupt production or otherwise fail to supply these materials or products to us for any reason, including due to regulatory requirements or action, due to adverse financial developments at or affecting the supplier, or due to labor shortages or disputes. This, in turn, could materially and adversely affect our ability to manufacture our product candidates for use in clinical trials, which could materially and adversely affect our business and future prospects.

Also, certain of the raw materials required in the ~~manufacturing~~manufacture and the formulation of our clinical candidates may be derived from biological sources, including mammalian tissues, bovine serum, and human serum albumin. There are certain European regulatory restrictions on using these biological source materials. If we are required to substitute for these sources to comply with European regulatory requirements, our clinical development activities may be delayed or interrupted.

Risks Related to Commercialization of Products

If we are unable to establish sales, marketing, and distribution capabilities, or enter into agreements with third parties to do so, we will be unable to successfully market and sell future products.

We have no sales or distribution personnel or capabilities and have only a small staff with marketing capabilities. If we are unable to obtain those capabilities, either by developing our own organizations or entering into agreements with service providers, we will not be able to successfully sell any products that we may obtain regulatory approval for and bring to market in the future. In that event, we will not be able to generate significant revenue, even if our product candidates are approved. We cannot guarantee that we will be able to hire the qualified sales and marketing personnel we need or that we will be able to enter into marketing or distribution agreements with third-party providers on acceptable terms, if at all. Under the terms of our collaboration agreement with sanofi-aventis, we currently rely on sanofi-aventis for sales, marketing, and distribution of the VEGF Trap in cancer indications, should it be approved in the future by regulatory authorities for marketing. We will have to rely on a third party or devote significant resources to develop our own sales, marketing, and distribution capabilities for our other product candidates, including the VEGF Trap-Eye in the United States, and we may be unsuccessful in developing our own sales, marketing, and distribution organization.

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Even if our product candidates are approved for marketing, their commercial success is highly uncertain because our competitors have received approval for products with the same mechanism of action, and competitors may get to the marketplace before we do with better or lower cost drugs or the market for our product candidates may be too small to support commercialization or sufficient profitability.

~~There is~~We face substantial competition ~~in the biotechnology and pharmaceutical industries~~ from pharmaceutical, biotechnology, and chemical companies. Many of our competitors have substantially greater research, preclinical and clinical product development and manufacturing capabilities, and financial, marketing, and human resources than we do. Our smaller competitors may also enhance their competitive position if they acquire or discover patentable inventions, form collaborative arrangements, or merge with large pharmaceutical companies. Even if we achieve product commercialization, our competitors have achieved, and may continue to achieve, product commercialization before our products are approved for marketing and sale.

Genentech has an approved VEGF antagonist, Avastin^®(Genentech), on the market for treating certain cancers and ~~many different~~a number of pharmaceutical and biotechnology companies are working to develop competing VEGF antagonists, including Novartis, ~~Eyetech~~OSI Pharmaceuticals, and Pfizer. Many of these molecules are ~~farther~~further along in development than the VEGF Trap and may offer competitive advantages over our molecule. Novartis has an ongoing ~~phase~~Phase 3 clinical development program evaluating an orally delivered VEGF tyrosine kinase inhibitor in different cancer settings. Each of Pfizer and Onyx Pharmaceuticals ~~and Bayer have~~(together with its partner Bayer) has received approval from the FDA to market and sell ~~the first~~an oral medication that targets tumor cell growth and new vasculature formation that fuels the growth of tumors. The marketing approvals for Genentech’s VEGF antagonist, Avastin, and their extensive, ongoing clinical development plan for Avastin in other cancer indications, may make it more difficult for us to enroll patients in clinical trials to support the VEGF Trap and to obtain regulatory approval of the VEGF Trap in these cancer settings. This may delay or impair our ability to successfully develop and commercialize the VEGF Trap. In addition, even if the VEGF Trap is ever approved for sale for the treatment of certain cancers, it will be difficult for our drug to compete against Avastin and the ~~Onyx/Bayer~~FDA approved kinase ~~inhibitor,~~inhibitors, because doctors and patients will have significant experience using these medicines. In addition, an oral medication may be considerably less expensive for patients than a biologic medication, providing a competitive advantage to companies that market such products.

The market for eye ~~diseases~~disease products is also very competitive. ~~Eyetech~~Novartis and Genentech are collaborating on the commercialization and further development of a VEGF antibody fragment (Lucentis^®) for the treatment of age-related macular degeneration (wet AMD) and other eye indications that was approved by the FDA in June 2006. OSI Pharmaceuticals and Pfizer are marketing an approved VEGF inhibitor (Macugen^®) for ~~age-related macular degeneration (wet AMD). Novartis and Genentech~~wet AMD. Many other companies are ~~collaborating~~working on the development of ~~a VEGF antibody fragment~~product candidates for the potential treatment of wet AMD that ~~is in phase 3 development. In December 2005, Genentech announced~~act by blocking VEGF, VEGF receptors, and through the use of soluble ribonucleic acids (sRNAs) that ~~it filed an application with the FDA to market and sell this VEGF inhibitor in patients with wet AMD.~~modulate gene expression. In addition, ~~it has been reported that~~ ophthalmologists are using off-label a third-party reformulated version of Genentech’s approved VEGF antagonist, Avastin, with success for the treatment of wet AMD. The National Eye Institute recently has received funding for a Phase 3 trial to compare Lucentis to Avastin in the treatment of wet AMD. The marketing approval of ~~the Eyetech/Pfizer VEGF inhibitor~~Macugen and Lucentis and the potential off-label use of Avastin ~~and approval of the Novartis/Genentech VEGF antibody fragment~~ make it more difficult for us to enroll patients in our clinical trials and successfully develop the VEGF Trap-Eye. Even if the VEGF Trap-Eye is ever approved for sale for the treatment of eye diseases, it ~~will~~may be difficult for our drug to compete against ~~the Eyetech/Pfizer drug and, if approved by the FDA, the Novartis/Genentech VEGF inhibitor,~~Lucentis or Macugen, because doctors and patients will have significant experience using these medicines. Moreover, the relatively low cost of therapy with Avastin in patients with wet AMD presents a further competitive challenge in this indication.

The availability of highly effective FDA approved TNF-antagonists such as Enbrel^® (Amgen), Remicade^® (Centocor), and Humira^® (Abbott Laboratories), and the IL-1 receptor antagonist Kineret^® (Amgen), and other marketed therapies, makes it more difficult to successfully develop and commercialize the IL-1 Trap. This is one of the reasons we discontinued the development of the IL-1 Trap in adult rheumatoid arthritis. In addition, even if the IL-1 Trap is ever approved for sale, it will be difficult for our drug to compete against these FDA approved TNF-antagonists in indications where both are useful because doctors and patients will have significant experience using these effective medicines. Moreover, in such indications these approved therapeutics may offer competitive advantages over the IL-1 Trap, such as requiring fewer injections.

There are both small molecules and antibodies in development by third parties that are designed to block the synthesis of interleukin-1 or inhibit the signaling of interleukin-1. For example, Eli Lilly and Company and Novartis isare each developing ~~an antibody~~antibodies to interleukin-1 and Amgen is developing an antibody to the interleukin-1 receptor. These drug candidates could

offer competitive advantages over the IL-1 Trap. The successful development of these competing molecules could delay or impair our ability to successfully develop and commercialize the IL-1 Trap. For example, we may find it difficult to enroll patients in clinical trials for the IL-1 Trap if the companies developing these competing interleukin-1 inhibitors commence clinical trials in the same indications.

We are developing the IL-1 Trap for the treatment of a spectrum of rare diseases associated with mutations in theCIAS1 gene. These rare genetic disorders affect a small group of people, estimated to be between several hundred and a few thousand. There may be too few patients with these genetic disorders to profitably commercialize the IL-1 Trap in this indication.

The successful commercialization of our product candidates will depend on obtaining coverage and reimbursement for use of these products from third-party ~~payers.~~payers and these payers may not agree to cover or reimburse for use of our products.

~~Sales of biopharmaceutical~~Our products, ~~largely depend on the reimbursement of patients’ medical expenses by government health care programs~~if commercialized, may be significantly more expensive than traditional drug treatments. Our future revenues and profitability will be adversely affected if United States and foreign governmental, private ~~health insurers. Without the financial support of the governments or~~third-party insurers and payers, and other third-party payers, including Medicare and Medicaid, do not agree to defray or reimburse the market for any biopharmaceutical product will be limited. These third-party payers increasingly challenge the price and examine the cost-effectiveness of products and services. Significant uncertainty exists as to the reimbursement status of any new therapeutic, particularly if there exist lower-cost standards of care. Third-party payers may not reimburse salescost of our products ~~which would harm~~to the patients. If these entities refuse to provide coverage and reimbursement with respect to our ~~business.~~products or provide an insufficient level of coverage and reimbursement, our products may be too costly for many patients to afford them, and physicians may not prescribe them. Many third-party payers cover only selected drugs, making drugs that are not preferred by such payer more expensive for patients, and require prior authorization or failure on another type of treatment before covering a particular drug. Payers may especially impose these obstacles to coverage on higher-priced drugs, as our product candidates are likely to be.

We intend to file an application with the FDA seeking approval to market the IL-1 Trap for the treatment of a spectrum of rare genetic disorders called CAPS. There may be too few patients with CAPS to profitably commercialize the IL-1 Trap. Physicians may not prescribe the IL-1 Trap and CAPS patients may not be able to afford the IL-1 Trap if third party payers do not agree to reimburse the cost of IL-1 Trap therapy and this would adversely affect our ability to commercialize the IL-1 Trap profitably.

In addition to potential restrictions on coverage, the amount of reimbursement for our products may also reduce our profitability. In the United States, there have been, and we expect will continue to be, actions and proposals to control and reduce healthcare costs. Government and other third-party payers are challenging the prices charged for healthcare products and increasingly limiting, and attempting to limit, both coverage and level of reimbursement for prescription drugs.

Since our products, including the IL-1 Trap, will likely be too expensive for most patients to afford without health insurance coverage, if our products are unable to obtain adequate coverage and reimbursement by third-party payers our ability to successfully commercialize our product candidates may be adversely impacted. Any limitation on the use of our products or any decrease in the price of our products will have a material adverse effect on our ability to achieve profitability.

In certain foreign countries, pricing, coverage and level of reimbursement of prescription drugs are subject to governmental control, and we may be unable to negotiate coverage, pricing, and reimbursement on terms that are favorable to us. In some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. Our results of operations may suffer if we are unable to market our products in foreign countries or if coverage and reimbursement for our products in foreign countries is limited.

Risk Related to Employees

We are dependent on our key personnel and if we cannot recruit and retain leaders in our research, development, manufacturing, and commercial organizations, our business will be harmed.

We are highly dependent on certain of our executive officers. If we are not able to retain any of these persons or our Chairman, our business may suffer. In particular, we depend on the services of P. Roy Vagelos, M.D., the Chairman of our board of directors, Leonard Schleifer, M.D., Ph.D., our President and Chief Executive Officer, George D. Yancopoulos, M.D., Ph.D., our Executive Vice President, Chief Scientific Officer and President, Regeneron Research Laboratories, ~~Murray A. Goldberg, our Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer,~~ and ~~Assistant Secretary,~~ Neil Stahl, Ph.D., our Senior Vice President, ~~Preclinical~~Research and Development ~~and Biomolecular Science, and Randall G. Rupp, Ph.D., our Senior Vice President, Manufacturing Operations.~~Sciences. There is intense competition in the biotechnology industry for qualified scientists and managerial personnel in the development, manufacture, and commercialization of drugs. We may not be able to continue to attract and retain the qualified personnel necessary for developing our business.

Risks Related to Our Common Stock

Our stock price is extremely volatile.

There has been significant volatility in our stock price and generally in the market prices of biotechnology companies’ securities. Various factors and events may have a significant impact on the market price of our common stock. These factors include, by way of example:


	•	progress, delays, or adverse results in clinical trials;

	•	announcement of technological innovations or product candidates by us or competitors;

	•	fluctuations in our operating results;

	•	public concern as to the safety or effectiveness of our product candidates;

	•	developments in our relationship with collaborative partners;

	•	developments in the biotechnology industry or in government regulation of healthcare;

	•	large sales of our common stock by our executive officers, directors, or significant shareholders;


	•	arrivals and departures of key personnel; and

	•	general market conditions.

The trading price of our common stock has been, and could continue to be, subject to wide fluctuations in response to these and other factors, including the sale or attempted sale of a large amount of our common stock in the market. Broad market fluctuations may also adversely affect the market price of our common stock.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on the Company’s internal control over financial reporting in their annual reports onForm 10-K that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the independent registered public accounting firm auditing our financial statements must attest to and report on management’s assessment and on the effectiveness of our internal control over financial reporting. Our independent registered public accounting firm provided us with an unqualified report as to our assessment and the effectiveness of our internal control over financial reporting as of December 31, 2006, which report is included in this Annual Report onForm 10-K. However, we cannot assure you that management or our independent registered public accounting firm will be able to provide such an assessment or unqualified report as of future year-ends. In this event, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the market value of our common stock.

Future sales of our common stock by our significant shareholders or us may depress our stock price and impair our ability to raise funds in new share offerings.

A small number of our shareholders beneficially own a substantial amount of our common stock. As of December 31, ~~2005,~~2006, our seven largest shareholders, including sanofi-aventis, beneficially owned ~~47.0%~~41.1% of our outstanding shares of Common Stock, assuming, in the case of Leonard S. Schleifer, M.D. Ph.D., our Chief Executive Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of their Class A Stock into Common Stock and the exercise of all options held by them which are exercisable within 60 days of December 31, ~~2005.~~2006. As of ~~that date,~~December 31, 2006, sanofi-aventis owned 2,799,552 shares of Common Stock, representing ~~approximately 5.2%~~4.4% of the shares of Common Stock then outstanding. Under our stock purchase agreement with sanofi-aventis, ~~through September 5, 2006, sanofi-aventis may sell no more than 250,000 of these shares in any calendar quarter. After September 5, 2006,~~ sanofi-aventis may sell no more than 500,000 of these shares in any calendar quarter. If sanofi-aventis, or our other significant shareholders or we, sell substantial amounts of our Common Stock in the public market, or the perception that such sales may occur exists, the market price of our Common Stock could fall. Sales of Common Stock by our significant shareholders, including sanofi-aventis, also might make it more difficult for us to raise funds by selling equity or equity-related securities in the future at a time and price that we deem appropriate.

Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval.

Holders of Class A Stock, who are generally the shareholders who purchased their stock from us before our initial public offering, are entitled to ten votes per share, while holders of Common Stock are entitled to one vote per share. As of December 31, ~~2005,~~2006, holders of Class A Stock held ~~4.2% of all shares of Common Stock and Class A Stock then outstanding, and had 30.3%~~26.5% of the combined voting power of all of Common Stock and Class A Stock then outstanding. These shareholders, if acting together, would be in a position to significantly influence the election of our directors and to effect or prevent certain corporate transactions that require majority or supermajority approval of the combined classes, including mergers and other business combinations. This may result in our company taking corporate actions that you may not consider to be in your best interest and may affect the price of our Common Stock. As of December 31, ~~2005:~~2006:


	•	our current officers and directors beneficially owned ~~14.8%~~13.3% of our outstanding shares of Common Stock, assuming conversion of their Class A Stock into Common Stock and the exercise of all options held by such persons which are exercisable within 60 days of December 31, ~~2005,~~2006, and ~~33.6%~~30.5% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by such persons which are exercisable within 60 days of December 31, ~~2005;~~2006; and

	•	our seven largest shareholders beneficially owned ~~47.0%~~41.1% of our outstanding shares of Common Stock assuming, in the case of Leonard S. Schleifer, M.D., Ph.D., our Chief Executive Officer, and P. Roy Vagelos, M.D., our Chairman, the conversion of their Class A Stock into Common Stock and the exercise of all options held by them which are exercisable within 60 days of December 31, ~~2005.~~2006. In addition, these seven shareholders held ~~53.4%~~48.7% of the combined voting power of our outstanding shares of Common Stock and Class A Stock, assuming the exercise of all options held by our Chief Executive Officer and our Chairman which are exercisable within 60 days of December 31, ~~2005.~~2006.

The anti-takeover effects of provisions of our charter, by-laws, ~~and rights agreement,~~ and of New York corporate law, could deter, delay, or prevent an acquisition or other “change in control” of us and could adversely affect the price of our common stock.

Our amended and restated certificate of incorporation, our by-laws ~~our rights agreement~~ and the New York Business Corporation Law contain various provisions that could have the effect of delaying or preventing a change in control of our company or our management that shareholders may consider favorable or beneficial. Some of these provisions could discourage proxy contests and make it more difficult for you and other shareholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:


	•	authorization to issue “blank check” preferred stock, which is preferred stock that can be created and issued by the board of directors without prior shareholder approval, with rights senior to those of our common shareholders;


	•	a staggered board of directors, so that it would take three successive annual meetings to replace all of our directors;

	•	a requirement that removal of directors may only be effected for cause and only upon the affirmative vote of at least eighty percent (80%) of the outstanding shares entitled to vote for directors, as well as a requirement that any vacancy on the board of directors may be filled only by the remaining directors;

	•	any action required or permitted to be taken at any meeting of shareholders may be taken without a meeting, only if, prior to such action, all of our shareholders consent, the effect of which is to require that shareholder action may only be taken at a duly convened meeting;

	•	any shareholder seeking to bring business before an annual meeting of shareholders must provide timely notice of this intention in writing and meet various other requirements; and

	•	under the New York Business Corporation Law, a plan of merger or consolidation of the Company must be approved by two-thirds of the votes of all outstanding shares entitled to vote thereon. See the risk factor immediately above captioned“Our existing shareholders may be able to exert significant influence over matters requiring shareholder approval.”

WeIn addition, we have a ~~shareholder rights plan which could make it more difficult for~~Change in Control Severance Plan and our chief executive officer has an employment agreement that provides severance benefits in the event our officers are terminated as a ~~third party to acquire us without~~result of a change in control of the ~~support of our board of directors and principal shareholders. In addition, many~~Company. Many of our stock options issued under our 2000 Long-Term Incentive Plan may become fully vested in connection with a “change in control” of ~~the Company,~~our company, as defined in the plan.


Item 1B.	*Unresolved Staff Comments*

None.


Item 2.	*Properties*

We conduct our research, development, manufacturing, and administrative activities at our owned and leased facilities. We currently lease approximately 236,000 square feet of laboratory and office space in Tarrytown, New York.

In December 2006, we entered into a new operating lease agreement for approximately 221,000 square feet of laboratory and office space at our current Tarrytown location. The new lease includes approximately 27,000 square feet that we currently occupy (our retained facilities) and approximately 194,000 square feet to be located in new facilities that will be constructed and which are expected to be completed in early-2009. The term of the lease is expected to commence in early-2008 and will expire approximately 16 years later. Under the new lease we also have various options and rights on additional space at the Tarrytown site, and will continue to lease our present facilities until the new facilities are ready for occupancy. In addition, the lease contains three renewal options to extend the term of the lease by five years each and early termination options for our retained facilities only. The lease provides for monthly payments over the term of the lease related to our retained facilities, the costs of construction and tenant improvements for our new facilities, and additional charges for utilities, taxes, and operating expenses.

We own a facility in Rensselaer, New York, consisting of two buildings totaling approximately 123,500 square feet of research, manufacturing, office, and warehouse space. We also lease an additional 75,000 square feet of manufacturing, office, and warehouse space in Rensselaer.

The following table summarizes the information regarding our current property leases:

Current Monthly

Square

Base Rental

Renewal Option

Square

Base Rental

Renewal Option

Location

Footage

Expiration

Charges(1)

Available

Footage

Expiration

Charges (1)

Available

Tarrytown

162,000

December 31, 2007

207,000

None

Tarrytown (2)

209,000

March, 2009 (3)

309,000

none

Tarrytown (2)

194,000

March, 2024 (3)

three5-year terms

Tarrytown

74,000

December 31, 2009

146,000

One5-year term

27,000

March, 2024 (3)

52,000

three5-year terms

Rensselaer

75,000

July 11, 2007

25,000

Two5-year terms

75,000

July 11, 2012

25,000

one5-year term


(1)		Excludes additional rental charges for utilities, taxes, and operating expenses, as defined.

(2)		Upon completion of the new facilities, as described above, we will release the 209,000 square feet of space in our current facility and take over 194,000 square feet in the newly constructed buildings.

(3)		Estimated based upon expected completion of our new facilities, as described above.

We believe that our existing owned and leased facilities are adequate for ~~our~~ ongoing, research, development, manufacturing, and administrative activities.

In the future, we may lease, operate, or purchase additional facilities in which to conduct expanded research and development activities and manufacturing and commercial operations.


Item 3.	*Legal Proceedings*

In May 2003, securities class action lawsuits were commenced against Regeneron and certain of our 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 was purported to be brought on behalf of a class consisting of investors in our publicly traded securities between March 28, 2000 and March 30, 2003, alleged that the defendants misstated or omitted material information concerning the safety and efficacy of AXOKINE, in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and~~Rule 10b-5~~ ~~promulgated thereunder.~~

On November 14, 2005, the United States District Court for the Southern District of New York approved the terms of a settlement between plaintiffs and Regeneron settling all claims against us in this lawsuit. The settlement requires no payment by us or any of the individual defendants named in the lawsuit. Our primary insurance carrier agreed to make the required payment under the settlement, the amount of which is immaterial to us. The settlement includes no admission of wrongdoing by Regeneron or any of the individual defendants. Separately, the plaintiffs and the individual defendants named in the lawsuit entered into a Stipulation of Voluntary Dismissal, which dismissed all claims against the individuals with prejudice.

From time to time, we are a party to ~~other~~ legal proceedings in the course of our business. We do not expect any such ~~other~~ current legal proceedings to have a material adverse effect on our business or financial condition.


Item 4.	*Submission of Matters to a Vote of Security Holders*

No matters were submitted to a vote of our security holders during the last quarter of the fiscal year ended December 31, ~~2005.~~2006.

PART II


Item 5.	*Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities*

Our Common Stock is quoted on The NASDAQ Stock Market under the symbol “REGN.” Our Class A Stock, par value $.001 per share, is not publicly quoted or traded.

The following table sets forth, for the periods indicated, the range of high and low sales prices for the Common Stock as reported by The NASDAQ Stock Market:


	High		Low		High		Low

2004
First Quarter	$	17.00	$	12.80
Second Quarter		15.85		8.53
Third Quarter		10.80		6.76
Fourth Quarter		9.49		6.75
2005
First Quarter	$	9.36	$	4.75	$	9.36	$	4.75
Second Quarter		8.84		4.61		8.84		4.61
Third Quarter		10.67		7.36		10.67		7.36
Fourth Quarter		17.37		8.55		17.37		8.55
2006
First Quarter					$	18.00	$	14.35
Second Quarter						16.69		10.97
Third Quarter						17.00		10.88
Fourth Quarter						24.85		15.27

As of February ~~15, 2006,~~28, 2007, there were ~~586~~538 shareholders of record of our Common Stock and 5344 shareholders of record of our Class A Stock.

We have never paid cash dividends and do not anticipate paying any in the foreseeable future.

The information under the heading “Equity Compensation Plan Information” in our definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC is incorporated by reference into Item 12 of this Report onForm 10-K.

2325

STOCK PERFORMANCE GRAPH

Set forth below is a line graph comparing the cumulative total shareholder return on Regeneron’s Common Stock with the cumulative total return of (i) The NASDAQ Pharmaceuticals Stocks Index and (ii) The NASDAQ Stock Market (U.S.) Index for the period from December 31, 2001 through December 31, 2006. The comparison assumes that $100 was invested on December 31, 2001 in our Common Stock and in each of the foregoing indices. All values assume reinvestment of the pre-tax value of dividends paid by companies included in these indices. The historical stock price performance of our Common Stock shown in the graph below is not necessarily indicative of future stock price performance.


	12/31/2001		12/31/2002		12/31/2003		12/31/2004		12/31/2005		12/31/2006
Regeneron	$	100.00	$	65.73	$	52.24	$	32.71	$	56.46	$	71.27
NASDAQ Pharm		100.00		64.62		94.72		100.88		111.09		108.75
NASDAQ US		100.00		69.13		103.36		112.49		114.88		126.22


Item 6.	*Selected Financial Data*

The selected financial data set forth below for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004 and at December 31, ~~2005~~2006 and ~~2004~~2005 are derived from and should be read in conjunction with our audited financial statements, including the notes thereto, included elsewhere in this report. The selected financial data for the years ended December 31, ~~2002~~2003 and ~~2001~~2002 and at December 31, 2004, 2003, ~~2002,~~ and ~~2001~~2002 are derived from our audited financial statements not included in this report.


	Year Ended December 31,															Year Ended December 31,
	2005			2004			2003			2002			2001			2006			2005			2004			2003			2002
	*(In thousands, except per share data)*															(In thousands, except per share data)

Statement of Operations Data
Revenues
Contract research and development	$	52,447		$	113,157		$	47,366		$	10,924		$	12,071		$	51,136		$	52,447		$	113,157		$	47,366		$	10,924
Research progress payments					42,770																		42,770
Contract manufacturing		13,746			18,090			10,131			11,064			9,902			12,311			13,746			18,090			10,131			11,064

		66,193			174,017			57,497			21,988			21,973			63,447			66,193			174,017			57,497			21,988

Expenses
Research and development		155,581			136,095			136,024			124,953			92,542			137,064			155,581			136,095			136,024			124,953
Contract manufacturing		9,557			15,214			6,676			6,483			6,509			8,146			9,557			15,214			6,676			6,483
General and administrative		25,476			17,062			14,785			12,532			9,607			25,892			25,476			17,062			14,785			12,532

		190,614			168,371			157,485			143,968			108,658			171,102			190,614			168,371			157,485			143,968

Income (loss) from operations		(124,421	)		5,646			(99,988	)		(121,980	)		(86,685	)		(107,655	)		(124,421	)		5,646			(99,988	)		(121,980	)

Other income (expense)
Other contract income		30,640			42,750															30,640			42,750
Investment income		10,381			5,478			4,462			9,462			13,162			16,548			10,381			5,478			4,462			9,462
Interest expense		(12,046	)		(12,175	)		(11,932	)		(11,859	)		(2,657	)		(12,043	)		(12,046	)		(12,175	)		(11,932	)		(11,859	)

		28,975			36,053			(7,470	)		(2,397	)		10,505			4,505			28,975			36,053			(7,470	)		(2,397	)

Net income (loss) before cumulative effect of a change in accounting principle																	(103,150	)		(95,446	)		41,699			(107,458	)		(124,377	)
Cumulative effect of adopting Statement of Accounting Standards No. 123R (“SFAS 123R”)																	813

Net income (loss)	$	(95,446	)	$	41,699		$	(107,458	)	$	(124,377	)	$	(76,180	)	$	(102,337	)	$	(95,446	)	$	41,699		$	(107,458	)	$	(124,377	)

Net income (loss) per share, basic	$	(1.71	)	$	0.75		$	(2.13	)	$	(2.83	)	$	(1.81	)
Net income (loss) per share, basic:
Net income (loss) before cumulative effect of a change in accounting principle																$	(1.78	)	$	(1.71	)	$	0.75		$	(2.13	)	$	(2.83	)
Cumulative effect of adopting SFAS 123R																	0.01

Net income (loss)																$	(1.77	)	$	(1.71	)	$	0.75		$	(2.13	)	$	(2.83	)

Net income (loss) per share, diluted	$	(1.71	)	$	0.74		$	(2.13	)	$	(2.83	)	$	(1.81	)	$	(1.77	)	$	(1.71	)	$	0.74		$	(2.13	)	$	(2.83	)

At December 31,
2005 2004 2003 2002 2001
(In thousands)

Balance Sheet Data

Cash, cash equivalents, marketable securities, and restricted marketable securities (current and non-current) $ 316,654 $ 348,912 $ 366,566 $ 295,246 $ 438,383
Total assets 423,501 473,108 479,555 391,574 495,397
Capital lease obligations and notes payable, long-term portion 200,000 200,000 200,000 200,000 200,150
Stockholders’ equity 114,002 182,543 137,643 145,981 266,355

2427


	At December 31,
	2006		2005		2004		2003		2002
	(In thousands)

Balance Sheet Data
Cash, cash equivalents, marketable securities, and restricted marketable securities (current and non-current)	$	522,859	$	316,654	$	348,912	$	366,566	$	295,246
Total assets		585,090		423,501		473,108		479,555		391,574
Notes payable — long-term portion		200,000		200,000		200,000		200,000		200,000
Stockholders’ equity		216,624		114,002		182,543		137,643		145,981


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

Overview

We are 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 ~~clinical~~ development programs: IL-1 Trap (rilonacept) in various inflammatory indications, the VEGF Trap in oncology, and the VEGF Trap-Eye formulation in eye diseases using intraocular ~~delivery, and IL-1 Trap in certain systemic inflammatory indications.~~delivery. The VEGF Trap ~~oncology development program~~ is being developed ~~jointly~~in oncology in collaboration with the sanofi-aventis ~~Group under a September 2003~~Group. In October 2006, we entered into collaboration ~~agreement.~~with Bayer HealthCare LLC for the development of the VEGF Trap-Eye. 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 ~~Traps and Human Monoclonal Antibodies.~~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 and we 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 December 31, ~~2005,~~2006, we had a cumulative loss of ~~$585.3~~$687.6 million. In the absence of revenues from the commercialization of our product candidates or other sources, the amount, timing, nature, and 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-Eye and IL-1 Trap; advance new product candidates into clinical development from our existing research ~~programs;~~programs utilizing our new technology for designing fully human monoclonal antibodies; 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.

As a company that does not expect to ~~generate product revenues or profits~~be profitable over the next several years, management of cash flow is extremely important. The most significant use of our cash is for research and development activities, which include drug discovery, preclinical studies, clinical trials, and the manufacture of drug supplies for preclinical studies and clinical trials. In ~~2005,~~2006, our research and development expenses totaled ~~$155.6~~$137.1 million. We expect these expenses to increase ~~5-10%~~substantially in ~~2006, depending on~~2007 as we begin Phase 3 clinical trials of the ~~progress of~~VEGF Trap-Eye, expand our IL-1 Trap clinical ~~programs.~~program, advance our antibody development program, and increase our research and development headcount. The principal sources of cash to-date have been sales of common equity and convertible debt and funding from our collaborators in the form of up-front payments, research progress payments, and payments for our research and development ~~activities, and purchases of our common stock. We also receive payments for contract manufacturing.~~activities.

A primary driver of our expenses is our number of full-time employees. Our annual average headcount in 2006 was 573 compared with 696 in 2005 ~~was 696 compared to~~and 721 in ~~2004 and 675 in 2003.~~2004. In 2006, ~~we expect~~ our average annual ~~average~~ headcount ~~to decrease to approximately 600,~~decreased primarily as a result of reductions made in the fourth quarter of 2005 and ~~planned for mid-2006. The~~mid-year in 2006. These workforce reductions ~~which we announced in September 2005, are~~were associated with narrowing the focus of our research and development efforts, substantial improvements in manufacturing productivity, the June 2005 expiration of our collaboration with Procter & Gamble, and the ~~expected~~ completion of contract manufacturing for Merck in ~~late~~October 2006. In 2007, we expect our annual average headcount to increase to approximately 650 due, in part, to our expanded development programs for the VEGF Trap-Eye and IL-1 Trap, and our plans to move two new antibody candidates into clinical trials every year beginning around the end of 2007.

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 in ~~2005~~2006 and plans for ~~2006~~2007 are as follows:


Product ~~candidate~~Candidate	~~2005~~2006 Events	~~2006~~2007 Events/Plans

VEGF Trap — Oncology	~~• Sanofi-aventis reaffirmed their commitment to the collaborative development of the VEGF Trap in oncology~~ ~~• Reported positive preliminary results of phase 1 trial utilizing intravenous injections~~ • Initiated ~~three phase 1~~Phase 2 studies of the VEGF Trap as a single agent in ~~combination~~AOC and NSCLA patients, and in AOC patients with ~~standard chemotherapy regimens~~SMA.	• ~~Initiate~~Initiated two ~~additional~~ safety and tolerability studies of the VEGF Trap in combination with standard chemotherapy regimens • ~~Initiated phase 2 study~~Reported preliminary results of the safety and tolerability of intravenous VEGF Trap ~~as a single agent in non-small cell lung adenocarcinoma~~ ~~• Initiate two efficacy/safety studies~~plus FOLFOX4 and of ~~the~~intravenous VEGF Trap ~~as a single agent~~plus LV5FU2-CPT11 in separate Phase 1 trials of patients with advanced ~~ovarian cancer and symptomatic malignant ascites~~solid tumors
		• ~~Initiate two efficacy/safety~~Sanofi-aventis to initiate at least three of five Phase 3 studies of the VEGF Trap in combination with standard chemotherapy regimens in ~~patients with different~~specific cancer ~~types~~
		indications • ~~Finalize plans with~~NCI/CTEP initiated five Phase 2 studies of the ~~NCI~~VEGF Trap as a single agent in relapsed/refractory multiple myeloma, metastatic colorectal cancer, recurrent or metastatic cancer of the urothelium, locally advanced or metastatic gynecological soft tissue sarcoma, and recurrent malignant gliomas • NCI/CTEP finalized protocol for Phase 2 trial of the VEGF Trap as a single agent in metastatic breast cancer • NCI/CTEP to ~~sponsor up to ten~~initiate at least four new exploratory efficacy/safety studies evaluating the VEGF Trap in a variety of cancer types


VEGF Trap — Eye	~~• Reported positive results from phase 1 trial in patients with the neovascular form of age-related macular degeneration (wet AMD) utilizing intravenous infusions~~ ~~• Initiated phase 1 study in patients with wet AMD utilizing local delivery by intravitreal injections~~	• Reported positive preliminary results from ~~phase~~Phase 1 ~~study in patients with wet AMD utilizing local delivery by intravitreal injections~~ ~~• Initiate a phase 1, part B study in patients with wet AMD, comparing safety, tolerability, and biological activity of the VEGF Trap-Eye to Macugen~~^®
		~~• Initiate phase 2 clinical~~ trial in wet AMD utilizing intravitreal injections

~~IL-1 Trap~~	in 21 patients up to a top dose of 4 mg • ~~Completed~~Initiated Phase 2 trial in wet AMD utilizing intravitreal injections • Initiated safety and tolerability ~~studies~~study of ~~IL-1 Trap at higher doses~~	~~• Complete efficacy portion~~a new formulation of ~~pivotal study~~the VEGF Trap-Eye in ~~CAPS~~patients with wet AMD
	• Initiated ~~exploratory proof-of-concept~~Phase 1 trial in ~~polymyalgia rheumatica (PMR)~~DME • Initiated ~~exploratory proof-of-concept trial in Systemic Juvenile Idiopathic Arthritis (SJIA)~~collaboration with Bayer HealthCare	• ~~Evaluate other~~Report interim results of Phase 2 trial in wet AMD utilizing intravitreal injections • Initiate first Phase 3 trial in wet AMD utilizing intravitreal injections of the VEGF Trap-Eye compared with Lucentis^® • Report final results of Phase 2 trial in wet AMD utilizing intravitreal injections • Report results of the Phase 1 trial in DME • Explore additional eye disease indications ~~for the IL-1 Trap~~

2629


Product ~~candidate~~Candidate	~~2005~~2006 Events	~~2006~~2007 Events/Plans

IL-1 Trap ~~(continued)~~(rilonacept)	• ~~Successfully completed initial treatment phase~~Reported positive results from efficacy portion of~~proof-of-concept~~ ~~study~~ Phase 3 trial of the IL-1 Trap in~~CIAS1-Associated Periodic Syndrome (CAPS)~~ CAPS • Reported preliminary results from ongoing Phase 1 trial in SJIA	• Submit Biologics License Application (BLA) with the FDA for CAPS • Initiateproof-of-concept studies evaluating the IL-1 Trap in gout and report initial data • Evaluate the IL-1 Trap in other disease indications in which IL-1 may play an important role


VelocImmune	• ~~Initiated pivotal study in CAPS~~Discovered multiple antibodies against more than ten different therapeutic targets	• Finalize plans to initiate clinical trials of two antibodies against different therapeutic targets • Advance two new antibodies into preclinical development
			~~• Discontinued development ofIL-1~~ ~~Trap in adult rheumatoid arthritis and osteoarthritis~~

Collaborations

Our ~~major~~current collaboration agreements with sanofi-aventis, Bayer, and Novartis Pharma AG, and our expired agreement with The Procter & Gamble Company are summarized below.

The sanofi-aventis Group

In September 2003, we entered into a collaboration agreement with Aventis Pharmaceuticals Inc. (now a member of the sanofi-aventis Group) 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. Sanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of our Common Stock for $45.0 million.

In January 2005, we and sanofi-aventis amended our collaboration agreement to exclude rights to develop and commercialize the VEGF Trap for intraocular delivery to the eye. In connection with this amendment, sanofi-aventis made a $25.0 million non-refundable payment to us.

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. ~~As a result, the collaboration now includes joint development of the VEGF Trap throughout the world in all indications, except for intraocular delivery to the eye.~~ In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to us, which was received in January 2006. We may also receive up to $40.0 million in milestone payments upon receipt of specified marketing approvals for up to five VEGF Trap indications in Japan and a royalty of approximately 35% on annual sales of the VEGF Trap in Japan, subject to certain potential adjustments.

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. We are entitled to a royalty of approximately 35% on annual sales of the VEGF Trap in Japan, subject to certain potential adjustments. We may also receive up to $400.0 million in ~~additional~~ milestone payments upon receipt of specified marketing ~~approvals, including~~approvals. This total includes up to $360.0 million in milestone payments related to the 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. In December 2004, we earned a $25.0 million payment from sanofi-aventis, which was received in January 2005, upon the achievement of an early-stage clinical milestone.

Regeneron has agreed ~~to continue~~ to manufacture clinical supplies of the VEGF Trap at our plant in Rensselaer, New York. Sanofi-aventis has agreed to be responsible for providing commercial scale manufacturing capacity for the VEGF Trap.

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 these development expenses, including 50% of the $25.0 million payment received in connection with the January 2005 amendment to our collaboration agreement, 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. Since inception of the collaboration through December 31, ~~2005,~~2006, we and sanofi-aventis have incurred ~~$130.5~~$205.0 million in agreed upon development expenses related to ~~the~~ VEGF Trap program. In addition, if the first commercial sale of a VEGF Trap product for intraocular delivery to the eye predates the first commercial sale of a VEGF Trap product under the collaboration by

two years, we will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses in accordance with a formula until the first commercial VEGF Trap sale under the collaboration occurs.

Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Upon termination of the agreement for any reason, any remaining obligation to reimburse sanofi-aventis for 50% of the VEGF Trap development expenses will terminate and we will retain all rights to the VEGF Trap.

Bayer Healthcare LLC

In October 2006, we entered into a license and collaboration agreement with Bayer to globally develop, and commercialize outside the United States, the VEGF Trap-Eye. Under the terms of the agreement, Bayer made a non-refundable up-front payment to us of $75.0 million. In addition, we are eligible to receive up to $110.0 million in development and regulatory milestones, including a total of $40.0 million upon the initiation of Phase 3 trials in defined major indications such as wet AMD and DME. We are also eligible to receive up to an additional $135.0 million in sales milestones when and if total annual sales of the VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200.0 million.

We will share equally with Bayer in any future profits arising from the commercialization of the VEGF Trap-Eye outside the United States. If the VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States and the collaboration becomes profitable, we will be obligated to reimburse Bayer out of our share of the collaboration profits for 50% of the agreed upon development expenses that Bayer has incurred in accordance with a formula based on the amount of development expenses that Bayer has incurred and our share of the collaboration profits, or at a faster rate at our option. Within the United States, we are responsible for any future commercialization of the VEGF Trap-Eye and have retained exclusive rights to any future profits arising therefrom.

Agreed upon development expenses incurred by both companies, beginning in 2007, under a global development plan will be shared as follows:


	2007:	Up to $50.0 million shared equally; we are solely responsible for up to the next $40.0 million; over $90.0 million shared equally.

	2008:	Up to $70.0 million shared equally, we are solely responsible for up to the next $30.0 million; over $100.0 million shared equally.


	2009 and thereafter:	All expenses shared equally.

Neither party will be reimbursed for any development expenses that it incurred prior to 2007.

We are obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.

Bayer has the right to terminate the agreement without cause with at least six months or twelve months advance notice depending on defined circumstances at the time of termination. In the event of termination of the agreement for any reason, we retain all rights to the VEGF Trap-Eye.

Novartis Pharma AG

In March 2003, we entered into a collaboration agreement with Novartis to jointly develop and commercialize the IL-1 Trap. Novartis made a non-refundable payment to us of $27.0 ~~million and purchased 7,527,050 newly issued unregistered shares of our Common Stock for $48.0~~ million.

IL-1 Trap development expenses incurred in 2003 were shared equally by Regeneron and Novartis. We funded our share of 2003 development expenses through loans from Novartis. In March 2004, Novartis forgave its outstanding loans to us totaling $17.8 million, including accrued interest, based on Regeneron’s achieving a pre-defined development milestone, which was recognized as a research progress payment.

In February 2004, Novartis provided notice of its intention not to proceed with the joint development of theIL-1 Trap, and subsequently paid us $42.75 million to satisfy its obligation to fund development costs for the nine month period following its notification and for the two months prior to that notice. All rights to the IL-1 Trap have reverted to Regeneron. In addition, we recognized contract research and development revenue of $22.1 million, which represents the remaining amount of the March 2003 up-front payment from Novartis that had previously been deferred.

Under the collaboration agreement, 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 ~~our~~a second generation IL-1 Trap following completion of its Phase 2 development, should we decide to clinically develop ~~this~~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.

The Procter & Gamble Company

In May 1997, we entered into a long-term collaboration ~~agreement~~ with Procter & Gamble to discover, develop, and commercialize pharmaceutical ~~products. In connection with the collaboration,~~products, and Procter & Gamble agreed to provide funding in support of our research efforts related to the collaboration. Effective December 31, 2000, ~~we and~~in accordance with the companies’ collaboration agreement, Procter & Gamble ~~entered into a new long-term collaboration agreement, replacing the companies’ 1997 agreement. The new agreement extended Procter & Gamble’s obligation~~was obligated to fund our research ~~under the new collaboration agreement~~on therapeutic areas that were of particular interest to Procter & Gamble through December 2005, with no further research obligations by either party thereafter. ~~We and Procter & Gamble divided rights to the programs from the 1997 collaboration agreement that were no longer part of the companies’ collaboration.~~ Under the ~~December 2000~~collaboration agreement, research support from Procter & Gamble was $2.5 million per quarter, plus annual adjustments for inflation, through December 2005.

In June 2005, we and Procter & Gamble amended our ~~December 2000~~ collaboration agreement. 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 collaboration agreement. Procter & Gamble agreed to make a one-time $5.6 million payment to Regeneron, which was received in July 2005, and to fund our research under the agreement through the second quarter of 2005. We agreed to pay Procter & Gamble approximately $1.0 million to acquire certain capital equipment owned by Procter & Gamble and 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.~~collaboration, and Procter & Gamble is entitled to receive a small royalty on any sales of a single Regeneron candidate that is not currently being developed. Neither party is entitled to receive either royalties or other payments based on any other products arising from the ~~December 2000 collaboration agreement.~~collaboration.

Other Agreements

AstraZeneca

In February 2007, we entered into a non-exclusive license agreement with AstraZeneca that will allow AstraZeneca to utilize our VelocImmune^®technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, AstraZeneca made a $20.0 million non-refundable up-front payment to us. AstraZeneca also will make up to five additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the first three additional payments or earlier if the technology does not meet minimum performance criteria. We are entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using our VelocImmune technology.

National Institutes of Health

In September 2006, we were awarded a five-year grant from the National Institutes of Health (NIH) as part of the NIH’s Knockout Mouse Project. The goal of the Knockout Mouse Project is to build a comprehensive and broadly available resource of knockout mice to accelerate the understanding of gene function and human diseases. We will use our VelociGene^® technology to take aim at 3,500 of the most difficult genes to target and which are not currently the focus of other large-scale knockout mouse programs. We have also agreed to grant a limited license to a consortium of research institutions, the other major participants in the Knockout Mouse Project, to use components of our VelociGene technology in the Knockout Mouse Project. We will generate a collection of targeting vectors and targeted mouse embryonic stem cells (ES cells) which can be used to produce knockout mice. These materials will be made widely available to academic researchers without charge. We will receive a fee for each targeted ES cell line or targeting construct made by us or the research consortium and transferred to commercial entities.

Under the NIH grant, we will be entitled to receive a minimum of $17.9 million over a five-year period. We will receive another $1.0 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium, both of which will be supplied to the research consortium for its use in the Knockout Mouse Project. We will have the right to use, for any purpose, all materials generated by us and the research consortium.

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, ~~effective January 1,~~in 2005, we ~~have been~~

~~recognizing~~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.~~awards using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, ~~we recognize~~ compensation expense for Regeneron is recognized 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. (APB) 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 operating results have not been restated. ~~For~~

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. Effective January 1, 2005, and prior to our 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 year ended December 31, ~~2005, non-cash~~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 year ended December 31, 2006 was not significant, and there was no impact to our cash flows for the year ended December 31, 2006.

Non-cash stock-based employee compensation expense related to stock ~~options~~option awards (Stock Option Expense) ~~totaled $20.0 million, of which $19.9 million was~~ recognized in operating expenses totaled $18.4 million and $19.9 million for the years ended December 31, 2006 and 2005, respectively. In addition, for the year ended December 31, 2005, $0.1 million of Stock Option Expense

was capitalized into inventory. As of December 31, 2006, there was $44.0 million of stock-based compensation cost related to outstanding nonvested stock options, net of estimated forfeitures, which had not yet been recognized in ~~inventory.~~operating expenses. We expect to recognize this compensation cost over a weighted-average period of 1.9 years. In addition, there are 723,092 options which are unvested as of December 31, 2006 and would become vested upon our products achieving certain sales targets and the optionee satisfying certain 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 is considered to be 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 members of our board of 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 ~~which is re-evaluated at least quarterly,~~ 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 2006, 2005 ~~2004~~ and ~~2003:~~2004:


	2005		2004		2003		2006		2005		2004

Expected volatility		71%		80%		80%		67%		71%		80%
Expected lives from grant date		5.9 years		7.5 years		7.3 years		6.5 years		5.9 years		7.5 years
Dividend yield		0%		0%		0%
Expected dividend yield								0%		0%		0%
Risk-free interest rate		4.16%		4.03%		3.75%		4.51%		4.16%		4.03%

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:~~Years Ended December 31, 2006 and 2005

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.Net Loss:

~~The discussion~~Regeneron reported a net loss of ~~our results~~$102.3 million, or $1.77 per share (basic and diluted) for the year ended December 31, 2006, compared to a net loss of ~~operations~~$95.4 million, or $1.71 per (basic and diluted) for 2005.

Revenues:

Revenues for the years ended December 31, 2006 and 2005 consist of the following:


	2006		2005
	(In millions)

Contract research & development revenue
Sanofi-aventis	$	47.8	$	43.4
Procter & Gamble				6.0
Other		3.3		3.1

Total contract research & development revenue		51.1		52.5
Contract manufacturing revenue		12.3		13.7

Total revenue	$	63.4	$	66.2

We recognize revenue from sanofi-aventis, in connection with the companies’ VEGF Trap collaboration, in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(SAB 104) and ~~2004~~FASB Emerging Issue Task Force IssueNo. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables(EITF00-21) (see “Critical Accounting Policies and Significant Judgments and Estimates”). We earn contract research and development revenue from sanofi-aventis 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 during which we are obligated to perform services.


	December 31,
Sanofi-aventis Contract Research & Development Revenue	2006		2005
	(In millions)

Regeneron expense reimbursement	$	36.4	$	33.9
Recognition of deferred revenue related to up-front payments		11.4		9.5

Total	$	47.8	$	43.4

Sanofi-aventis’ reimbursement of Regeneron VEGF Trap expenses increased in 2006 compared to 2005, primarily due to higher costs related to our manufacture of VEGF Trap clinical supplies during the first half of 2006. Recognition of deferred revenue related to sanofi-aventis’ up-front payments also increased in 2006 from the same period in 2005, due to our receipt in January 2006 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 December 31, 2006, $70.0 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 2006 compared to 2005, as the research activities being pursued under our December 2000 collaboration agreement with Procter & Gamble, as amended, were completed on June 30, 2005, as described above under “Collaborations — The Procter & Gamble Company.” 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.

As described above, in October 2006 we entered into a VEGF Trap-Eye collaboration with Bayer. We will recognize revenue from Bayer, in connection with the companies’ collaboration, in accordance with SAB 104 and EITF00-21. When we and Bayer have formalized our projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities of each of the companies under those development plans, we will begin recognizing contract research and development revenue related to payments from Bayer. As a result, there was no contract research and development revenue earned from Bayer in 2006. As of December 31, 2006, the $75.0 million up-front payment received from Bayer in October 2006 was deferred and will be recognized as revenue in future periods.

Other contract research and development revenue includes ~~certain financial measures that are calculated~~$0.5 million recognized in connection with our NIH Grant, as described above.

Contract manufacturing revenue relates to our long-term agreement with Merck & Co., Inc., which expired in October 2006, to manufacture a ~~manner different~~vaccine intermediate at our Rensselaer, New York facility. Contract manufacturing revenue decreased in 2006 compared to 2005 due to a decrease in product shipments to Merck in 2006. Revenue and the related manufacturing expense were recognized as product was shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2006 and 2005 were $1.2 million and $1.4 million, respectively, of deferred revenue associated with capital improvement reimbursements paid by Merck prior to commencement of production. We do not expect to receive any further contract manufacturing revenue from ~~generally accepted accounting principles (GAAP)~~Merck and ~~are considered non-GAAP financial measures under United States Securities~~there was no Merck deferred revenue as of the end of 2006.

Expenses:

Total operating expenses decreased to $171.1 million in 2006 from $190.6 million in 2005 due, in part, to our lower headcount, as described above. (Also see “Severance Costs” below.)

Operating expenses in 2006 and ~~Exchange Commission (SEC) rules. These non-GAAP financial measures~~2005 include a total of $18.4 million and $19.9 million of Stock Option Expense, respectively, as detailed below:


	For the Year Ended December 31, 2006
	Expenses Before
	Inclusion of Stock		Stock Option		Expenses as
Expenses	Option Expense		Expense		Reported
	(In millions)

Research and development	$	126.9	$	10.2	$	137.1
Contract manufacturing		7.8		0.3		8.1
General and administrative		18.0		7.9		25.9

Total operating expenses	$	152.7	$	18.4	$	171.1


	For the Year Ended December 31, 2005
	Expenses Before
	Inclusion of Stock		Stock Option		Expenses as
Expenses	Option Expense		Expense		Reported
	(In millions)

Research and development	$	143.7	$	11.9	$	155.6
Contract manufacturing		9.2		0.4		9.6
General and administrative		17.8		7.6		25.4

Total operating expenses	$	170.7	$	19.9	$	190.6

Research and Development Expenses:

Research and development expenses decreased to $137.1 million for the year ended December 31, ~~2005 are: (1) pro forma net loss and pro forma net loss per share (basic and diluted), exclusive~~2006 from $155.6 million for 2005. The following table summarizes the major categories of ~~Stock Option Expense, and (2)~~our 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 (loss) and a more useful basis for comparing our operating results for the years ended December 31, ~~2005~~2006 and ~~2004.~~2005:


	Year Ended December 31,
					Increase
Research and Development Expenses	2006		2005 (1)		(Decrease)
	(In millions)

Payroll and benefits (2)	$	44.8	$	53.6	$	(8.8	)
Clinical trial expenses		14.9		18.2		(3.3	)
Clinical manufacturing costs (3)		39.2		41.6		(2.4	)
Research and preclinical development costs		17.5		19.2		(1.7	)
Occupancy and other operating costs		20.7		23.0		(2.3	)

Total research and development	$	137.1	$	155.6	$	(18.5	)


(1)		For the major categories of research and development expenses, amounts for the year ended December 31, 2005 have been reclassified to conform with, and be comparable to, the current year’s presentation. Total research and development expenses for the year ended December 31, 2005 are unchanged from amounts previously reported.

(2)		Includes $8.4 million and $10.5 million of Stock Option Expense for the years ended December 31, 2006 and 2005, respectively.

(3)		Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, Stock Option Expense, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility. Includes $1.8 million and $1.4 million of Stock Option Expense for the years ended December 31, 2006 and 2005, respectively.

Payroll and benefits decreased principally due to our lower headcount in 2006. In addition, ~~Regeneron’s management uses non-GAAP financial measures which exclude Stock Option Expense internally for operating, budgeting,~~payroll and ~~financial planning purposes. In~~benefits in 2006 and 2005 included $0.4 million and $2.2 million, respectively, of severance costs associated with our ~~discussion below~~

workforce reduction plan that we ~~have included tables which provide a reconciliation~~initiated in October 2005. Clinical trial expenses decreased primarily due to lower IL-1 Trap costs in 2006 as we discontinued clinical development of the ~~differences between these non-GAAP financial measures~~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 related to Phase 1 and Phase 2 clinical trials that we are conducting in wet AMD. Clinical manufacturing costs decreased because of lower costs in 2006 related to manufacturing IL-1 Trap clinical supplies, which were partially offset by higher costs related to manufacturing VEGF Trap clinical supplies. Research and preclinical development costs decreased principally because of lower costs for general research supplies in 2006 as we narrowed the focus of our research and development efforts due, in part, to the expiration of our collaboration with Procter & Gamble in June 2005, as described above. Occupancy and other operating costs decreased primarily due to our lower 2006 headcount and lower costs for utilities associated with our leased research facilities in Tarrytown, New York.

Contract Manufacturing Expenses:

Contract manufacturing expenses decreased to $8.1 million in 2006, compared to $9.6 million in 2005, primarily because we shipped less product to Merck in 2006.

General and Administrative Expenses:

General and administrative expenses increased to $25.9 million in 2006 from $25.4 million in the same period of 2005 as higher legal expenses related to general corporate matters and higher patent-and trademark-related costs were partly offset by lower professional fees for internal audit and other administrative advisory services and lower administrative facility costs.

Other Income and Expense:

Investment income increased to $16.5 million in 2006 from $10.4 million in 2005, due primarily to higher balances of cash and marketable securities (due, in part, to the up-front payment received from Bayer in October 2006, as described above, and the ~~most directly comparable financial measures calculated~~receipt of net proceeds from the November 2006 public offering of our Common Stock), as well as higher effective interest rates on investment securities in 2006. Interest expense was $12.0 million in 2006 and ~~presented~~2005. Interest expense is attributable primarily to $200.0 million of convertible notes issued in ~~accordance with GAAP.~~October 2001, which mature in 2008 and bear interest at 5.5% per annum.

Years Ended December 31, 2005 and 2004

Net Income (Loss):

Regeneron reported a net loss of $95.4 million, or $1.71 per share (basic and diluted), for the year ended December 31, 2005, compared with net income of $41.7 million, or $0.75 per basic share and $0.74 per diluted share, for 2004. ~~Excluding~~Our net loss in 2005 included $19.9 million of Stock Option Expense ~~Regeneron had a pro forma net loss~~due to our adoption of ~~$75.5 million, or $1.35 per share (basic and diluted), in~~SFAS 123 effective January 1, 2005, as ~~follows:~~described above.

Net Loss per Share —

For the year ended December 31, 2005 Net Loss Basic and Diluted
(In millions, except per share data)

Net loss, as reported $ (95.4 ) $ (1.71 )
Add: Stock Option Expense 19.9 0.36

Pro forma net loss, exclusive of Stock Option Expense $ (75.5 ) $ (1.35 )

Revenues:

Revenues for the years ended December 31, 2005 and 2004 consist of the following:


	2005		2004
	(In millions)

Contract research & development revenue
Sanofi-aventis	$	43.4	$	78.3
Novartis				22.1
Procter & Gamble		6.0		10.5
Other		3.1		2.2

Total contract research & development revenue		52.5		113.1

Research progress payments
Sanofi-aventis				25.0
Novartis				17.8

Total research progress payments				42.8

Contract manufacturing revenue		13.7		18.1

Total revenue	$	66.2	$	174.0

Our total revenue decreased to $66.2 million in 2005 from $174.0 million in 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. We recognize revenue from the sanofi-aventis and Novartis collaborations in accordance with SAB 104 and EITF00-21 (see Critical Accounting Policies and Significant Judgments and Estimates). 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~~during which we are obligated to perform ~~services in accordance with Staff Accounting Bulletin No. 104,~~~~Revenue Recognition~~~~(SAB 104) (see Critical Accounting Policies and Significant Judgments and Estimates).~~services.

Contract research & development revenues earned from sanofi-aventis and Novartis for 2005 and 2004 were as follows:

Up-front Payments to Regeneron
2005 Regeneron
Amount
Deferred Revenue at
Total Revenue

Expense
Total
Recognized
December 31,
Recognized

Reimbursement Payments in 2005 2005 in 2005
(In millions)

Sanofi-aventis $ 33.9 $ 105.0 $ 9.5 $ 81.3 $ 43.4


			Up-front Payments to Regeneron
	2005 Regeneron				Amount		Deferred Revenue		Total Revenue
	Expense		Total		Recognized		at December 31,		Recognized
	Reimbursement		Payments		in 2005		2005		in 2005
	(In millions)

Sanofi-aventis	$	33.9	$	105.0	$	9.5	$	81.3	$	43.4


			Up-front Payments to Regeneron										Up-front Payments to Regeneron
	2004 Regeneron				Amount		Deferred Revenue at		Total Revenue		2004 Regeneron				Amount		Deferred Revenue		Total Revenue
	Expense		Total		Recognized		December 31,		Recognized		Expense		Total		Recognized		at December 31,		Recognized
	Reimbursement		Payment		in 2004		2004		in 2004		Reimbursement		Payment		in 2004		2004		in 2004
	*(In millions)*										(In millions)

Sanofi-aventis	$	67.8	$	80.0	$	10.5	$	65.8	$	78.3	$	67.8	$	80.0	$	10.5	$	65.8	$	78.3
Novartis		—		27.0		22.1		—		22.1				27.0		22.1				22.1

Total	$	67.8	$	107.0	$	32.6	$	65.8	$	100.4	$	67.8	$	107.0	$	32.6	$	65.8	$	100.4

Sanofi-aventis’ reimbursement of Regeneron VEGF Trap expenses decreased in 2005 compared to 2004, primarily due to lower clinical supply manufacturing costs in 2005. We manufactured clinical supplies of the VEGF Trap throughout 2004, but only manufactured VEGF Trap clinical supplies during the fourth quarter 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.

Contract research and development revenue earned from Procter & Gamble also decreased in 2005 compared to 2004, resulting from the June 2005 amendment to our December 2000 collaboration agreement with Procter & ~~Gamble, as described above under “Collaborations — The Procter & Gamble Company.”~~Gamble. Under the terms of the modified agreement, Procter & Gamble funded Regeneron’s research for the first two quarters of 2005, compared with a full year of collaborative research funding in 2004. WeSince 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.

In December 2004, we earned a $25.0 million research progress payment from sanofi-aventis, which was received in January 2005, upon achievement of an early-stage VEGF Trap clinical milestone. In March 2004, Novartis forgave all of its outstanding loans, including accrued interest, to Regeneron totaling $17.8 million, based upon Regeneron’s achieving a pre-defined IL-1 Trap development milestone. These amounts were recognized as research progress payments in 2004.

Contract manufacturing revenue relates to our long-term agreement with Merck, which ~~expires~~expired in October ~~2006, to manufacture a vaccine intermediate at our Rensselaer, New York facility.~~2006. Contract manufacturing revenue decreased to $13.7 million in 2005 from $18.1 million in 2004, principally due to a decrease in product shipments to Merck in 2005 compared to 2004. Revenue and the related manufacturing expense ~~are~~were recognized as product iswas shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2005 and 2004 ~~are~~were $1.4 million and $3.6 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 expected 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, in 2005 we began recognizing the remaining deferred balance of Merck’s capital improvement reimbursements as of December 31, 2004, which totaled $2.7 million, as revenue as product is shipped to Merck, based upon Merck’s order quantities through October 2006.

Expenses:

Total operating expenses increased to $190.6 million in 2005 from $168.4 million in 2004. Operating expenses in 2005 include a total of $19.9 million of Stock Option Expense, as follows:


									For the Year Ended December 31,
	For the Year Ended December 31,								2005						2004
	2005						2004		Expenses Before
	Expenses as		Stock Option		Expenses Exclusive of		Expenses as		Inclusion of Stock		Stock Option		Expenses as		Expenses as
Expenses	Reported		Expense		Stock Option Expense		Reported		Option Expense		Expense		Reported		Reported
	*(In millions)*								(In millions)

Research and development	$	155.6	$	11.9	$	143.7	$	136.1	$	143.7	$	11.9	$	155.6	$	136.1
Contract manufacturing		9.6		0.4		9.2		15.2		9.2		0.4		9.6		15.2
General and administrative		25.4		7.6		17.8		17.1		17.8		7.6		25.4		17.1

Total operating expenses	$	190.6	$	19.9	$	170.7	$	168.4	$	170.7	$	19.9	$	190.6	$	168.4

In addition, $0.1 million of Stock Option Expense was capitalized into inventory, for a total of $20.0 million of Stock Option Expense recognized during the year ended December 31, 2005. As described under “Accounting for Stock-based Employee Compensation” above, Stock Option Expense was not included in operating expenses in 2004, as reported in our Statement of Operations. In 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 $33.6 million. The decrease in total Stock Option Expense of $13.6 million in 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 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 ~~$143.7~~$155.6 million for the year ended December 31, 2005 from $136.1 million for ~~2004.~~2004 due, in part, to the inclusion of $11.9 million of Stock Option Expense in 2005 research and development expenses, resulting from the adoption of SFAS 123, effective January 1, 2005. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2005 and 2004:


	For the Year Ended December 31,								For the Year Ended December 31,
	2005						2004		2005 (1)						2004 (1)(2)
	Expenses as		Stock Option		Expenses Exclusive of		Expenses as		Expenses Before
Research and development expenses	Reported		Expense		Stock Option Expense		Reported(2)
									Inclusion of Stock		Stock Option		Expenses as		Expenses as
Research and Development Expenses									Option Expense		Expense		Reported		Reported
	*(In millions)*								(In millions)

Payroll and benefits	$	59.2	$	10.9	$	48.3	$	43.6	$	43.1	$	10.5	$	53.6	$	38.6
Clinical trial expenses		18.2		—		18.2		10.3		18.2				18.2		10.3
Clinical manufacturing costs (1)		33.6		1.0		32.6		36.4
Clinical manufacturing costs (3)										40.2		1.4		41.6		42.8
Research and preclinical development costs		20.7		—		20.7		23.1		19.2				19.2		22.2
Occupancy and other operating costs		23.9		—		23.9		22.7		23.0				23.0		22.2

Total research and development	$	155.6	$	11.9	$	143.7	$	136.1	$	143.7	$	11.9	$	155.6	$	136.1


(1)		For the major categories of research and development expenses, amounts for the years ended December 31, 2005 and 2004 have been reclassified to conform with, and be comparable to, the current year’s presentation. Total research and development expenses for the years ended December 31, 2005 and 2004 are unchanged from amounts previously reported.

(2)		In 2004, research and development expenses as reported in our Statement of Operations did not include Stock Option Expense.

(3)		Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, ~~and~~ occupancy costs of our Rensselaer manufacturing ~~facility.~~

~~(2)~~		~~In 2004, research~~facility, and, ~~development expenses as reported~~ in ~~our Statement of Operations did not include~~2005 only, Stock Option Expense.

Payroll and benefits, exclusive of Stock Option Expense, increased ~~$4.7~~$4.5 million in 2005 from 2004 due primarily to 2005 wage and salary increases, higher employee benefit costs, and severance costs (totaling $2.2 million in 2005) associated with our workforce reduction plan that we initiated in October 2005. Clinical trial expenses increased $7.9 million in 2005 from 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, decreased ~~$3.8~~$2.6 million in 2005 from 2004, as lower costs in 2005 related to manufacturing clinical supplies of the VEGF Trap and the IL-4/13 Trap were partly offset by higher costs related to manufacturing clinical supplies of the IL-1 Trap. Research and preclinical development costs decreased ~~$2.4~~$3.0 million in 2005 from 2004 due primarily to lower VEGF Trap preclinical development costs and lower costs for general research supplies in 2005. Occupancy and other operating costs increased ~~by $1.2~~$0.8 million in 2005 from 2004, due primarily to higher costs for utilities, taxes, and operating expenses associated with our leased research facilities in Tarrytown, New York.

Contract Manufacturing Expenses:

Contract manufacturing expenses ~~exclusive of Stock Option Expense,~~ decreased to ~~$9.2~~$9.6 million in 2005, compared to $15.2 million in 2004, primarily because we shipped less product to Merck in 2005 and we incurred unfavorable manufacturing costs in 2004, which were expensed in the period incurred.

General and Administrative Expenses:

General and administrative expenses ~~exclusive of Stock Option Expense,~~ increased to ~~$17.8~~$25.4 million in 2005 from $17.1 million in 2004, asdue primarily to the inclusion of $7.6 million of Stock Option Expense in 2005 general and administrative expenses,

resulting from the adoption of SFAS 123, effective January 1, 2005. In addition, in 2005 administrative wage and salary increases, higher employee benefits costs and higher administrative facility costs were partly offset by (i) lower legal expenses related to Company litigation and general corporate matters and (ii) lower professional fees, principally associated with accounting and other services related to our first year of compliance in 2004 with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

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 made a one-time $5.6 million payment to us, which we recognized as other contract income in 2005. In January 2005, we and sanofi-aventis amended our collaboration agreement to exclude rights to develop and commercialize the VEGF Trap for intraocular delivery to the eye. In connection with the amendment, sanofi-aventis made a one-time $25.0 million payment to us, which we recognized as other contract income in 2005. In the first quarter of 2004, Novartis notified us of its decision to forgo its right under the collaboration to jointly develop the IL-1 Trap and subsequently paid us $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine-month period following its notification and for the two months prior to that notice. The $42.75 million was included in other contract income in 2004.

Investment income increased to $10.4 million in 2005 from $5.5 million in 2004, due primarily to higher effective interest rates on investment securities in 2005. Interest expense decreased slightly to $12.0 million in 2005 from $12.2 million in 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.

~~Years Ended December 31, 2004 and 2003~~

~~Revenues:~~

~~Revenues for the years ended December 31, 2004 and 2003 consist of the following:~~

2004 2003
(In millions)

Contract research & development revenue
Sanofi-aventis $ 78.3 $ 14.3
Novartis 22.1 21.4
Procter & Gamble 10.5 10.6
Other 2.2 1.1

Total contract research & development revenue 113.1 47.4

Research progress payments
Sanofi-aventis 25.0
Novartis 17.8

Total research progress payments 42.8

Contract manufacturing revenue 18.1 10.1

Total revenue $ 174.0 $ 57.5

Our total revenue increased to $174.0 million in 2004 from $57.5 million in 2003, due primarily to higher revenues related to our collaboration with sanofi-aventis on the VEGF Trap and our prior collaboration with Novartis on the IL-1 Trap. 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 (see Critical Accounting Policies and Significant Judgments and Estimates). 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 $22.1 million remaining balance of the $27.0 million up-front payment received from Novartis in March 2003 was recognized as contract research and development revenue.

~~Sanofi-aventis and Novartis contract research & development revenues for 2004 and 2003 were as follows:~~

Up-front Payments to Regeneron
2004 Regeneron
Deferred Revenue at
Total Revenue

Expense
Total
Amount Recognized
December 31,
Recognized

Reimbursement Payment in 2004 2004 in 2004
(In millions)

Sanofi-aventis $ 67.8 $ 80.0 $ 10.5 $ 65.8 $ 78.3
Novartis — 27.0 22.1 — 22.1

Total $ 67.8 $ 107.0 $ 32.6 $ 65.8 $ 100.4

Up-front Payments to Regeneron
2003 Regeneron
Deferred Revenue at
Total Revenue

Expense
Total
Amount Recognized
December 31,
Recognized

Reimbursement Payment in 2003 2003 in 2003
(In millions)

Sanofi-aventis $ 10.7 $ 80.0 $ 3.6 $ 76.4 $ 14.3
Novartis 16.5 27.0 4.9 22.1 21.4

Total $ 27.2 $ 107.0 $ 8.5 $ 98.5 $ 35.7

In December 2004, we earned a $25.0 million research progress payment from sanofi-aventis, which was received in January 2005, upon achievement of an early-stage VEGF Trap clinical milestone. In March 2004, Novartis forgave all its outstanding loans, including accrued interest, to Regeneron totaling $17.8 million, based upon Regeneron’s achieving a pre-defined IL-1 Trap development milestone. These amounts were recognized as research progress payments in 2004.

Contract manufacturing revenue relates to our long-term agreement with Merck, which expires in October 2006. Contract manufacturing revenue increased to $18.1 million in 2004 from $10.1 million in 2003, principally due to an increase in product shipments to Merck in 2004 compared to 2003. Revenue and the related manufacturing expense are recognized as product is shipped, after acceptance by Merck. Included in contract manufacturing revenue in 2004 and 2003 are $3.6 million and $1.7 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 expected to be shipped over the life of the manufacturing agreement. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006.

~~Research and Development Expenses:~~

Research and development expenses increased slightly to $136.1 million in 2004 from $136.0 million in 2003. The following table summarizes the major categories of our research and development expenses for the years ended December 31, 2004 and 2003:

2004 2003
(In millions)

Research and development expenses:
Payroll and benefits $ 43.6 $ 38.5
Clinical trial expenses 10.3 25.0
Clinical manufacturing costs (1) 36.4 29.8
Research and preclinical development costs 23.1 19.6
Occupancy and other operating costs 22.7 23.1

Total research and development $ 136.1 $ 136.0


~~(1)~~		Represents the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, including related payroll and benefits, manufacturing materials and supplies, depreciation, and occupancy costs of our Rensselaer manufacturing facility.

Payroll and benefits increased $5.1 million in 2004 from 2003 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 decreased $14.7 million in 2004 from 2003 due primarily to the completion of the double-blind treatment portion of our AXOKINE phase 3 clinical trial for the treatment of obesity in 2003, the completion of other AXOKINE trials in 2004, and the completion of our IL-4/13 Trap phase 1 trial in 2004. These decreases were partly offset by higher clinical trial expenses related to our VEGF Trap and IL-1 Trap clinical programs. Clinical manufacturing costs increased $6.6 million in 2004 from 2003, as we manufactured supplies of our clinical product candidates in our expanded Rensselaer manufacturing facility for the full year of 2004. Research and preclinical development costs increased $3.5 million due primarily to higher preclinical development costs related to our VEGF Trap program and higher research-related costs for outside services in 2004 than in 2003. Occupancy and other operating costs decreased slightly by $0.4 million in 2004 from 2003 resulting primarily from lower depreciation costs due to extending the lease on our Tarrytown, New York facilities in early 2004.

~~Contract Manufacturing Expenses:~~

Contract manufacturing expenses increased to $15.2 million in 2004, compared to $6.7 million in 2003, primarily because more product was shipped to Merck in 2004 and the Company incurred unfavorable manufacturing costs, which were expensed in the period incurred, in 2004 compared to 2003.

~~General and Administrative Expenses:~~

General and administrative expenses increased to $17.1 million in 2004 from $14.8 million in 2003, due primarily to a $1.4 million increase in professional fees, principally associated with accounting and other services related to our efforts to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. The remainder of the 2004 increase was principally due to increases in payroll and related costs associated, in part, with higher administrative headcount in 2004 to support the Company’s operations.

~~Other Income and Expense:~~

In the first quarter of 2004, Novartis notified us of its decision to forego its right under our collaboration to jointly develop the IL-1 Trap and subsequently paid us $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine-month period following its notification and for the two months prior to that notice. The $42.75 million was included in other contract income in 2004.

Investment income increased to $5.5 million in 2004 from $4.5 million in 2003 due primarily to higher effective interest rates on investment securities. Interest expense increased slightly to $12.2 million in 2004 from $11.9 million in 2003. 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.

Liquidity and Capital Resources

Since our inception in 1988, we have financed our operations primarily through offerings of our equity securities, a private placement of convertible debt, revenue earned under our past and present research and development and contract manufacturing agreements, including our agreements with sanofi-aventis, ~~Novartis, Procter & Gamble,~~Bayer, and Merck, and investment income.

~~Change in Classification~~

~~We have revised in our previously issued financial statements included in this Report onForm 10-K~~ the classification of our investments in auction rate securities from cash and cash equivalents to short-term investments. 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 a decrease in cash and cash equivalents and corresponding increase in short-term marketable securities at each balance sheet date. In addition, we revised our statements of cash flows included in this Report on~~Form 10-K~~ to reflect the purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification had no impact on our previously reported current assets, net income (loss), or cash flows from operations. We held no auction rate securities at December 31, 2005.

The impact of the revision to the classification of our investments in auction rate securities on previously reported amounts for cash and cash equivalents and short-term marketable securities at December 31, 2004 and 2003, and cash flows provided by (used in) investing activities for the three month, six month, and nine month

~~periods ended March 31, 2004, June 30, 2004, and September 30, 2004, respectively, and the years ended December 31, 2004 and 2003, is as follows:~~

Balance Sheet Impact at December 31, 2004 and 2003 2004 2003
(In millions)

As originally reported:
Cash and cash equivalents $ 101.2 $ 118.3
Short-term marketable securities 194.8 164.6

Total $ 296.0 $ 282.9

Revised to reflect auction rate securities as short-term investments:
Cash and cash equivalents $ 95.2 $ 97.5
Short-term marketable securities 200.8 185.4

Total $ 296.0 $ 282.9

~~Statement of Cash Flows Impact for the three month, six month, and nine month periods ended March 31, June 30, and September 30, 2004, respectively, and the years ended December 31, 2004 and 2003~~

March 31,
June 30,
September 30,
December 31,
2004 2004 2004 2004 2003
(In millions)

As originally reported:
Cash flows provided by (used in) investing activities $ 70.2 $ 1.2 $ (12.1 ) $ (4.6 ) $ (63.8 )
Revised to reflect auction rate securities as short-term investments:
Cash flows provided by (used in) investing activities $ 73.2 $ 4.2 $ (4.7 ) $ 10.2 $ (49.6 )

~~These revised amounts, as applicable, are reflected in this Annual Report onForm 10-K~~ ~~for the year ended December 31, 2005.~~

Years Ended December 31, ~~2005~~2006 and ~~2004~~2005

~~Cash Used in Operations:~~

At December 31, ~~2005,~~2006, we had ~~$316.7~~$522.9 million in cash, cash equivalents, and marketable securities compared with ~~$348.9~~$316.7 million at December 31, ~~2004.~~2005. In January 2006, we received a $25.0 million up-front payment from sanofi-aventis, which was receivable at December 31, 2005, in connection with an amendment to our collaboration agreement to include Japan. In ~~January 2005,~~October 2006, we received ~~two $25.0~~a $75.0 million ~~payments from sanofi-aventis. One~~up-front payment ~~was related to a~~in connection with our new VEGF ~~Trap clinical milestone that was earned in 2004. The second payment related to changes to our~~Trap-Eye license and collaboration agreement with ~~sanofi-aventis that were made in January 2005.~~Bayer. In November 2006, we completed a public offering of 7.6 million shares of our Common Stock and received proceeds, after expenses, of $174.6 million.

Cash Provided by (Used in) Operations:

Net cash provided by operations was $23.1 million in 2006, compared to net cash used in operations ~~was~~of $30.3 million in ~~2005 compared to $16.9~~2005. Our net losses of $102.3 million in ~~2004. In 2005, our net loss of~~2006 and $95.4 million in 2005 included $18.7 million and $21.9 million, respectively, of non-cash stock-based employee compensation costs, of which $18.4 million and $19.9 million, ~~represents~~respectively, represented Stock Option Expense resulting from ~~our~~the adoption of SFAS 123R in January 2006 and SFAS 123 in January 2005. ~~Our deferred revenue~~In 2006,end-of-year accounts receivable balances ~~increased~~decreased by ~~$14.5~~$29.0 million ~~in 2005~~ compared to ~~2004,~~2005, due ~~primarily~~ to the January 2006 receipt of the $25.0 million up-front payment from sanofi-aventis, ~~(as~~as described ~~above), which was receivable at December 31,~~above, and lower amounts due from sanofi aventis for reimbursement of VEGF Trap development expenses. Also, our deferred revenue balances increased by $60.8 million in 2006 compared to 2005, due primarily to the October 2006 $75.0 million up-front payment from Bayer, as described above, partly offset by ~~2005~~2006 revenue recognition of ~~$9.5~~$11.4 million from deferred sanofi-aventis up-front payments. In ~~addition,~~2005,end-of-year accounts receivable balances decreased by $6.6 million ~~in 2005~~ compared to 2004, due to lower amounts due from sanofi-aventis for reimbursement of VEGF Trap development expenses and the June 2005 completion of funding for Regeneron research activities under our collaboration with Procter & Gamble. ~~In 2004,~~Also, our net income of $41.7 million included (i) the March 2004 forgiveness of all outstanding loans from Novartis in an amount, including accrued interest, of $17.8 million, which we recognized as a research progress payment and (ii)deferred revenue recognition of (a) $10.5 million from the deferred $80.0 million up-front payment received from sanofi-aventis in September 2003 and (b) $22.1 million which represents the remaining deferred balance of the $27.0 million up-front payment received from Novartis in March 2003. In addition,~~end-of-year~~ ~~accounts receivable~~balances increased

3741

~~balances increased~~ by ~~$27.6~~$14.5 million in 2005 compared to 2004, due primarily to the January 2006 $25.0 million ~~milestone~~up-front payment from ~~sanofi- aventis that~~sanofi-aventis, which was ~~earned in 2004 and paid in January 2005.~~receivable at December 31, 2005, partly offset by 2005 revenue recognition of $9.5 million from deferred sanofi-aventis up-front payments. The majority of cash used in our operations in both ~~2005~~2006 and ~~2004~~2005 was to fund research and development, primarily related to our clinical programs.

In ~~connection with our collaboration agreement with sanofi-aventis to jointly develop~~both 2006 and commercialize the VEGF Trap, we have received up-front payments of $80.0 million in September 2003 and $25.0 million in January 2006 (which was receivable at December 31, 2005). Both up-front payments were recorded to deferred revenue and are being recognized as contract research and development revenue ratably over the period during which we expect to perform services. In 2005, and 2004, we recognized $9.5 million and $10.5 million of revenue, respectively, related to these up-front payments and we anticipate, based on current VEGF Trap product development plans, that we will recognize approximately $12.2 million of revenue over each of the next 6 years and approximately $2.8 million for the subsequent 3 years. Under the collaboration agreement, agreed upon worldwide development expenses incurred by both companies under the agreement will be funded by sanofi-aventis. Sanofi-aventis funded $43.4 million, $67.8 million, and $10.7 million, respectively, of our VEGF Trap development costs in 2005, 2004, and 2003, of which $10.5 million, $13.9 million, and $8.9 million, respectively, were included in accounts receivable as of December 31, 2005, 2004, and 2003.

~~In both 2005 and 2004,~~ we made two semi-annual interest payments totaling $11.0 million per year on our convertible senior subordinated notes.

Cash Provided by Investing Activities:

Net cash used in investing activities was $155.1 million in 2006 compared to net cash provided by investing activities ~~increased to~~of $115.5 million in 2005, ~~from $10.2 million in 2004,~~ due primarily to an increase in ~~sales or maturities~~purchases of marketable securities net of ~~purchases.~~sales or maturities. In 2006, purchases of marketable securities exceeded sales or maturities by $150.7 million, whereas in 2005, sales or maturities of marketable securities exceeded purchases by $120.5 ~~million, whereas in 2004, sales or maturities of marketable securities exceeded purchases by $16.4~~ million.

Cash Provided by Financing Activities:

Cash provided by financing activities ~~decreased~~increased to $185.4 million in 2006 from $4.1 million in 2005 ~~from $4.4~~due primarily to our completed public offering of 7.6 million shares of Common Stock in ~~2004.~~November 2006, as described above. In ~~2005, cash provided by financing activities resulted~~addition, proceeds from issuances of Common Stock in connection with exercises of employee stock ~~options. In 2004, cash provided by financing activities related primarily~~options increased from $4.1 million in 2005 to 2004 borrowings under a loan from Novartis. In accordance with our collaboration agreement with Novartis, we elected to fund our share of 2003 IL-1 Trap development expenses through a loan that was forgiven by Novartis$10.4 million in ~~March 2004, as described above. In the first quarter of 2004, we drew $3.8 million, excluding interest, against this loan facility for expenses incurred during 2003.~~2006.

Collaboration with the sanofi-aventis Group:

Under our collaboration agreement with sanofi-aventis, as described under “Collaborations” above, agreed upon worldwide VEGF Trap development expenses incurred by both companies during the term of the agreement, including costs associated with the manufacture of clinical drug supply, will be funded by sanofi-aventis. If the collaboration becomes profitable, we will be obligated to reimburse sanofi-aventis for 50% of these development expenses, including 50% of the $25.0 million payment received in connection with the January 2005 amendment to our collaboration agreement, 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. In addition, if the first commercial sale of a VEGF Trap product for intraocular delivery to the eye predates the first commercial sale of a VEGF Trap product under the collaboration by two years, we will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses in accordance with a formula until the first commercial VEGF Trap sale under the collaboration occurs. Since inception of the collaboration agreement through December 31, ~~2005,~~2006, we and sanofi-aventis have incurred ~~$130.5~~$205.0 million in agreed upon development expenses related to the VEGF Trap program. We and sanofi-aventis plan to initiate in ~~2006~~2007 multiple additional clinical studies to evaluate the VEGF Trap as both a single agent and in combination with other therapies in various cancer indications.

Sanofi-aventis funded $47.8 million, $43.4 million, and $67.8 million, respectively, of our VEGF Trap development costs in 2006, 2005, and 2004, of which $6.8 million, $10.5 million, and $13.9 million, respectively, were included in accounts receivable as of December 31, 2006, 2005, and 2004. In addition, we have received up-front payments of $80.0 million in September 2003 and $25.0 million in January 2006 from sanofi-aventis in connection with our collaboration. Both up-front payments were recorded to deferred revenue and are being recognized as contract research and development revenue ratably over the period during which we expect to perform services. In 2006 and 2005, we recognized $11.4 million and $9.5 million of revenue, respectively, related to these up-front payments.

Collaboration with Bayer Healthcare:

Under our collaboration agreement with Bayer, as described under “Collaborations” above, agreed upon VEGF Trap-Eye development expenses incurred by both companies, beginning in 2007, under a global development plan, will be shared as follows:


	2007:	Up to $50.0 million shared equally; we are solely responsible for up to the next $40.0 million; over $90.0 million shared equally.

	2008:	Up to $70.0 million shared equally, we are solely responsible for up to the next $30.0 million; over $100.0 million shared equally.

2009 and thereafter: All expenses shared equally.

Neither party will be reimbursed for any development expenses that it incurred prior to 2007.

We are obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.

If the VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States and the collaboration becomes profitable, we will be obligated to reimburse Bayer out of our share of the collaboration profits for 50% of the agreed upon development expenses that Bayer has incurred in accordance with a formula based on the amount of development expenses that Bayer has incurred and our share of the collaboration profits, or at a faster rate at our option. In wet AMD, we and Bayer plan in 2007 to complete our Phase 2 clinical study of the VEGF Trap-Eye currently in progress and to initiate the Phase 3 clinical program.

In October 2006, we received a $75.0 million up-front payment from Bayer in connection with our collaboration, which was recorded to deferred revenue. When we and Bayer have formalized our projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities of each of the companies under those development plans, we will begin recognizing revenue related to payments from Bayer.

National Institutes of Health Grant:

Under our five-year grant from the NIH, as described under “Other Agreements” above, we will be entitled to receive a minimum of $17.9 million over a five-year period, subject to compliance with the grant’s terms and annual funding approvals, and another $1.0 million to optimize our existing C57BL/6 ES cell line and its proprietary growth medium. In 2006, we recognized $0.5 million of revenue related to the NIH Grant, which was receivable at the end of 2006. In 2007, we expect to receive funding of approximately $5 million for reimbursement of Regeneron expenses related to the NIH Grant.

License Agreement with AstraZeneca:

Under our non-exclusive license agreement with AstraZeneca, as described under “Other Agreements” above, AstraZeneca made a $20.0 million non-refundable up-front payment to us in February 2007. AstraZeneca also will make up to five additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the first three additional payments or if the technology does not meet minimum performance criteria.

Severance Costs:

In September 2005, we announced plans to reduce our workforce by approximately 165 employees in connection with narrowing the focus of our research and development efforts, substantial improvements in manufacturing productivity, the ~~June~~September 2005 expiration of our collaboration with Procter & Gamble, and the ~~expected~~ completion of contract manufacturing for Merck in late 2006. The majority of the headcount reduction occurred in the fourth quarter of ~~2005, with the remainder planned for~~2005. The remaining headcount reductions occurred in 2006 ~~following the completion of our~~as we completed activities related to contract manufacturing ~~activities~~ for Merck.

Costs associated with the workforce reduction ~~are~~were 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, and included $0.2 million of non-cash ~~expenses due to the accelerated vesting of certain stock options and restricted stock held by affected employees.~~expenses. 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. ~~We estimate that total~~Total costs associated with the 2005 and ~~planned~~ 2006 workforce reductions ~~will approximate $2.7~~were $2.6 million, of which $2.2 million was charged to expense in the fourth quarter of 2005 and ~~approximately $0.5~~$0.4 million ~~will be recognized as~~was charged to expense in 2006. ~~We anticipate cost savings of approximately $8 million in 2006 resulting from the implementation of our workforce reduction plans.~~

Convertible Debt:

In 2001, we issued $200.0 million aggregate principal amount of convertible senior subordinated notes in a private placement and received proceeds, after deducting the initial purchasers’ discount and out-of pocket expenses, of $192.7 million. The notes bear interest at 5.5% per annum, payable semi-annually, and mature in 2008. The notes are convertible into shares of our Common Stock at a conversion price of approximately $30.25 per share, subject to adjustment in certain circumstances. We may redeem some or all of the notes if the closing price of our Common Stock has exceeded 140% of the conversion price then in effect for a specified period of time.

~~As part~~New Operating Lease — Tarrytown, New York Facilities

In December 2006, we entered into a new operating lease agreement for approximately 221,000 square feet of ~~this transaction,~~laboratory and office space at our current Tarrytown location. The new lease includes approximately 27,000 square feet that we ~~pledged $31.6 million of U.S. government securities~~currently occupy (our retained facilities) and approximately 194,000 square feet to be located in new facilities that will be constructed and which ~~was sufficient upon receipt of scheduled principal and interest payments~~are expected to ~~provide for the payment~~be completed in ~~full~~early-2009. The term of the ~~first six scheduled interest~~lease is expected to commence in early 2008 and will expire approximately 16 years later. Under the new lease we also have various options and rights on additional space at the Tarrytown site, and will continue to lease our present facilities until the new facilities are ready for occupancy. In addition, the lease contains three renewal options to extend the term of the lease by five years each and early termination options for our retained facilities only. The lease provides for monthly payments onover the ~~notes when due,~~term of the ~~last~~lease related to our retained facilities, the costs of construction and tenant improvements for our new facilities, and additional charges for utilities, taxes, and operating expenses.

In connection with the new lease agreement, in December 2006, we issued a letter of credit in the amount of $1.6 million to our landlord, which ~~was paid in October 2004.~~is collateralized by a $1.6 million bank certificate of deposit.

Capital Expenditures:

Our additions to property, plant, and equipment totaled $3.3 million in 2006, $4.7 million in 2005, and $6.0 million in ~~2004, and $16.9 million in 2003.~~2004. In ~~2006,~~2007, we expect to incur approximately ~~$5 to $7~~$15 million in capital expenditures ~~which~~ primarily ~~consists of equipment for~~to support our manufacturing, development, and research activities.

Funding Requirements:

Our total expenses for research and development from inception through December 31, ~~2005~~2006 have been approximately ~~$1,013~~$1,150 million. We have entered into various agreements related to our activities to develop and commercialize product candidates and utilize our technology platforms, including collaboration agreements, such as those with sanofi-aventis ~~Novartis,~~ and ~~Procter & Gamble,~~Bayer, and agreements to use our Velocigene^tm® technology ~~platform, such as our agreement with Serono S.A.~~platform. We incurred expenses associated with these agreements, which include an allocable portion of general and administrative costs, of $43.4 million, $42.2 million, and $75.3 million in 2006, 2005, and ~~$56.0 million in 2005,~~ 2004, ~~and 2003,~~ respectively.

We expect to continue to incur substantial funding requirements primarily for research and development activities (including preclinical and clinical testing). WeBefore taking into account reimbursements from collaborators, we currently anticipate that approximately 55%-65% of our expenditures for ~~2006~~2007 will be directed toward the preclinical and clinical development of product candidates,

including the IL-1 Trap, VEGF Trap, VEGF Trap-Eye, and ~~IL-1 Trap;~~monoclonal antibodies; approximately ~~20%~~15%-25% of our expenditures for ~~2006~~2007 will be applied to our basic research activities and the continued development of our novel technology platforms; and the remainder of our expenditures for ~~2006~~2007 will be used for capital expenditures and general corporate purposes.

In connection with our funding requirements, the following table summarizes our contractual obligations as of December 31, ~~2005~~2006 for leases and long-term debt. ~~None of these obligations extend beyond 3 years.~~

Payments Due by Period
Less than
1 to 3

Total one year years
(In millions)

Convertible Senior Subordinated Notes Payable (1) $ 233.0 $ 11.0 $ 222.0
Operating Leases (2) 13.0 4.8 8.2


			Payments Due by Period
			Less than		1 to 3		3 to 5		Greater than
	Total		one year		years		years		5 years
	(In millions)

Convertible senior subordinated notes payable (1)	$	222.0	$	11.0	$	211.0
Operating leases (2)		206.0		5.0		15.6	$	24.0	$	161.4
Purchase obligations		461.9		210.4		251.5

Total contractual obligations	$	889.9	$	226.4	$	478.1	$	24.0	$	161.4


(1)		Includes amounts representing interest.

(2)		Includes projected obligations based, in part, upon budgeted construction and tenant improvement costs related to our new operating lease for facilities to be constructed in Tarrytown, New York, as described above. Excludes future contingent rental costs for utilities, real estate taxes, and operating expenses. In ~~2005,~~2006, these costs were ~~$9.5~~$8.7 million.

In connection with certain clinical trial contracts with service providers, we may incur early termination penalties if the contracts are cancelled beforeagreed-upon services are completed.

The amount we need to fund operations will depend on various factors, including the status of competitive products, the success of our research and development programs, the potential future need to expand our professional and support staff and facilities, the status of patents and other intellectual property rights, the delay or failure of a clinical trial of any of our potential drug candidates, and the continuation, extent, and success of our ~~collaboration~~collaborations with ~~sanofi-aventis.~~sanofi-aventis and Bayer. Clinical trial costs are dependent, among other things, on the size and duration of trials, fees charged for services provided by clinical trial investigators and other third parties, the costs for manufacturing the product candidate for use in the trials, supplies, laboratory tests, and other expenses. The amount of funding that will be required for our clinical programs depends upon the results of our research and preclinical programs and early-stage clinical trials, regulatory requirements, the duration and results of clinical trials underway ~~plus~~and of additional clinical trials that we decide to initiate, and the various factors that affect the cost of each trial as described above. In the future, if we are able to successfully develop, market, and sell certain of our product candidates, we may be required to pay royalties or otherwise share the profits generated on such sales in connection with our collaboration and licensing agreements.

We expect that expenses related to the filing, prosecution, defense, and enforcement of patent and other intellectual property claims will continue to be substantial as a result of patent filings and prosecutions in the United States and foreign countries.

We believe that our existing capital resources will enable us to meet operating needs through at least ~~mid-2008.~~early 2010, without taking into consideration the $200.0 million aggregate principal amount of convertible senior subordinated notes, which mature in October 2008. However, this is a forward-looking statement based on our current operating plan, and there may be a change in projected revenues or expenses that would lead to our capital being consumed significantly before such time. If there is insufficient capital to fund all of our planned operations and activities, we believe we would prioritize available capital to fund preclinical and clinical development of our product candidates. WeOther than the $1.6 million letter of credit issued to our landlord in connection with our new operating lease for facilities in Tarrytown, New York, as described above, we have no off-balance sheet ~~arrangements and~~arrangements. In addition, we do not guarantee the obligations of any other entity. As of December 31, ~~2005,~~2006, we had no established banking arrangements through which we could obtain short-term financing or a line of credit. In the event we need additional financing for the operation of our business, we will consider collaborative arrangements and additional public or private financing, including additional equity financing. ~~In January 2005, we filed a shelf registration statement onForm S-3~~ to sell, in one or more offerings, up to $200.0 million of equity or debt securities, together or separately, which registration statement was declared effective in February 2005. However, there is no assurance that we will be able to complete any such offerings of securities. Factors influencing the availability of additional financing include our progress in product development, investor perception of our prospects, and the general condition of the financial markets. We may not be able to secure the necessary funding through new collaborative arrangements or additional public or private offerings. If we cannot raise adequate funds to satisfy our

capital requirements, we may have to delay, scale-back, or eliminate certain of our research and development activities or future operations. This could materially harm our business.

Critical Accounting Policies and Significant Judgments and Estimates

Revenue Recognition:

We recognize revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(SAB 104) and Emerging Issues Task Force00-21,Accounting for Revenue Arrangements with Multiple Deliverables(EITF00-21). ~~During the third quarter~~We earn contract research and development revenue and research progress payments in connection with collaboration and other agreements to develop and commercialize product candidates and utilize our technology platforms. The terms of ~~2003, we elected to change the method we use to recognize revenue under SAB 104 related to~~these agreements typically include non-refundable ~~collaborator payments, including~~ up-front licensing payments, ~~payments for development activities, and~~ research progress (milestone) payments, ~~to the Substantive Milestone Method, adopted retroactively to January 1, 2003. Under this method,~~and payments for ~~non-refundable~~development activities. Non-refundable up-front license payments, ~~that~~where continuing involvement is required of us, are ~~not tied to achieving a specific performance milestone or for which an estimated level of required effort is not available, we recognize revenue ratably~~deferred and recognized over the ~~estimated~~related performance period. We estimate our performance period ~~of time during which we expect to perform services under the agreement~~ based on ~~research~~the specific terms of each agreement, and ~~development plans. These estimated time~~adjust the performance periods, if appropriate, based on the applicable facts and circumstances. Our performance period estimates are ~~updated~~principally based on the results and progress of our research and development activities and revisions to these estimates could result in changes to the amount of revenue recognized each year in the future. In addition, if a collaborator terminates the agreement in accordance with the terms of the contract, we would recognize the remainder of the up-front payment at the time of the termination. ~~Payments for development activities are recognized as revenue as earned, over the period of effort.~~ Payments which are based on achieving a specific substantive performance milestone, involving a degree of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. ~~Previously,~~Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period. Payments for development activities are recognized as revenue as earned, over the period of effort. In addition, we ~~had recognized~~record revenue from non-refundable collaborator payments based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, the revenue recognized was limited to the amount of non-refundable payments received. The change in accounting method was made because we believe that it better reflects the substance of our collaborative agreements and is more consistent with current practices in the biotechnology industry.

In connection with our VEGF Trap collaboration agreement with sanofi-aventis, we received non-refundable up-front payments of $80.0 million in September 2003 at the collaboration’s inception and $25.0 million in January 2006 in connection with ~~the December 2005 amendment~~a government research grant as we incur expenses related to the ~~collaboration agreement~~grant, subject to ~~include Japan. These up-front payments were recorded to deferred revenue~~the grant’s terms and are being recognized as contract research and development revenue over the period over which we are obligated to perform services. Also, in connection with our collaboration agreement with Novartis, in the first quarter of 2004, Novartis provided notice of its intention not to proceed with the joint development of the IL-1 Trap. Accordingly, the remaining balance of the $27.0 million up-front payment, or $22.1 million, was recognized as contract research and development revenue.annual funding approvals.

Recognition of Deferred Revenue Related to Contract Manufacturing Agreement:

We ~~have~~ entered into a contract manufacturing agreement with Merck, which expired in October 2006, under which we ~~manufacture~~manufactured a vaccine intermediate at our Rensselaer, New York facility and ~~perform~~performed services. We ~~recognize~~recognized contract manufacturing revenue from this agreement after the product iswas tested and approved by, and shipped (FOB Shipping Point) to, Merck, and as services ~~are~~were performed. In connection with the agreement, we agreed to modify portions of our Rensselaer facility to manufacture Merck’s vaccine intermediate and Merck agreed to reimburse us for the related capital costs. These capital cost payments were deferred and ~~are~~ recognized as revenue as product iswas shipped to Merck, based upon our estimate of Merck’s order quantities each year through the expected end of the agreement which, for 2004 and prior years, was October 2005. In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. Since we commenced production of the vaccine intermediate in November 1999, our estimates of Merck’s order quantities each year ~~have~~were not ~~been~~ materially different from Merck’s actual orders.

In February 2005, we agreed to extend the manufacturing agreement by one year through October 2006. As a result, in 2005 we began recognizing the remaining deferred balance of Merck’s capital improvement reimbursements as of December 31, 2004, which totaled $2.7 million, as revenue as product is shipped to Merck, based upon Merck’s order quantities through October 2006.

Clinical Trial Accrual Estimates:

For each clinical trial that we conduct, certain clinical trial costs, which are included in research and development expenses, are expensed based on the expected total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations are expected to provide services. We believe that this method best aligns the expenses we record with the efforts we expend on a clinical trial. During the course of a trial, we adjust our rate of clinical expense recognition if actual results differ from our estimates. No material adjustments to our past clinical trial accrual estimates were made during the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003.~~2004.

Depreciation of Property, Plant, and Equipment:

Property, plant, and equipment are stated at cost. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Expenditures for maintenance and repairs which do not materially extend the useful lives of the assets are charged to expense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in operations. The estimated useful lives of property, plant, and equipment are as follows:


Building and improvements			7-30 years
Laboratory and computer equipment			3-5 years
Furniture and fixtures			5 years

In some situations, the life of the asset may be extended or shortened if circumstances arise that would lead us to believe that the estimated life of the asset has changed. The life of leasehold improvements may change based on the extension of lease contracts with our landlords. Changes in the estimated lives of assets will result in an increase or decrease in the amount of depreciation recognized in future periods.

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 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, ~~effective January 1,~~in 2005, we ~~have been recognizing~~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.~~awards using graded vesting, which is an accelerated expense recognition method. Under the modified prospective method, ~~we recognize~~ compensation expense for Regeneron is recognized 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 APB 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 operating results have not been restated.

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. Effective January 1, 2005, and prior to our 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 year ended December 31, 2006 as a cumulative-effect adjustment of a change in accounting principle.

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.

Future Impact of Recently Issued Accounting Standards

In ~~December 2004,~~July 2006, the Financial Accounting Standards Board (FASB) issued ~~SFAS 123R,~~~~Share-Based Payment.~~ ~~SFAS 123R is a revision of SFAS 123,~~FASB Interpretation No. 48 (FIN 48),Accounting for ~~Stock-Based Compensation~~Uncertainty in Income Taxes an interpretation of FASB Statement No. 109.~~(which we adopted effective January 1, 2005), and supersedes APB 25,~~This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109,Accounting for ~~Stock Issued~~Income Taxes.FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to ~~Employees~~,be taken in a tax return. It also provides guidance on derecognition, classification, interest and ~~its related implementation guidance. SFAS 123R focuses primarily on~~penalties, accounting ~~for transactions~~ in ~~which an entity obtains employee services in share-based payment transactions,~~interim periods, disclosure, 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~~transition. FIN 48 is effective for fiscal years beginning after ~~June~~December 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.2006. We ~~are~~will be required to adopt ~~SFAS 123R~~FIN 48 effective for the fiscal year beginning January 1, 2006, and intend 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, we will consider the guidance of SAB 107 as we adopt SFAS 123R. Although the impact of adopting SFAS 123R has not yet been quantified,2007. Our management believes that the adoption of this standard ~~may~~will not have a material impact on our financial statements.

In ~~May 2005,~~September 2006, the FASB issued SFAS ~~154,~~157,~~Accounting Changes and Error Corrections.~~Fair Value Measurements ~~SFAS 154 replaces APB 20,~~~~Accounting Changes~~, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), 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.expands disclosures about fair value measurements. We ~~are~~will be required to adopt SFAS 157 effective for the ~~provisions of SFAS 154, as applicable,~~fiscal year beginning January 1, ~~2006.~~2008. Our management is currently evaluating the potential impact of adopting SFAS 157 on our financial statements.


Item 7A.	*Quantitative and Qualitative Disclosure About Market Risk*

Our earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from our investment of available cash balances in investment grade corporate, asset-backed, and U.S. government securities. We do not believe we are materially exposed to changes in interest rates. Under our current policies we do not use interest rate derivative instruments to manage exposure to interest rate changes. We estimated that a one percent change in interest rates would result in changes in the fair market value of our investment portfolio of approximately ~~$0.5~~$1.7 million and ~~$1.4~~$0.5 million at December 31, ~~2005~~2006 and ~~2004,~~2005, respectively. The ~~decrease~~increase in the impact of an interest rate change at December 31, ~~2005,~~2006, compared to December 31, ~~2004,~~2005, is due primarily to ~~the shorter duration of~~increases in our investment ~~portfolio~~portfolio’s balance and duration to maturity at the end of 2006 versus the end of 2005.


Item 8.	*Financial Statements and Supplementary Data*

The financial statements required by this Item are included on pagesF-1 through~~F-35~~ F-36 of this report. The supplementary financial information required by this Item is included atpage ~~F-35~~F-36 of this report.


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*

Not applicable.


Item 9A.	*Controls and Procedures*

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined inRules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 ~~( the~~(the “Exchange Act”) as of the end of the period covered by this Annual Report onForm 10-K. Based on this evaluation, our chief executive officer and chief financial officer each concluded that, as of the end of such period, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported on a timely basis, and is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and15d-15(f) under the Exchange Act. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the framework inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation our management has concluded that our internal control over financial reporting was effective as of December 31, ~~2005.~~2006. PricewaterhouseCoopers LLP, our independent registered public accounting firm, has issued a report on management’s assessment and the effectiveness of our internal control over financial reporting as of December 31, ~~2005,~~2006, which report is included herein atpage F-2.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined inRules 13a-15(f) and15d-15(f) under the Exchange Act) during the quarter ended December 31, ~~2005~~2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls and procedures or internal controls over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met and cannot detect all deviations. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or deviations, if any, within the company have been detected. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Item 9B.	*Other Information*

None

PART III


Item 10.	*Directors and Executive Officers ~~of the Registrant~~and Corporate Governance*

The information required by this item (other than the information set forth in the next paragraph in this Item 10) will be included under the captions “Election of Directors,” “Board Committees and Meetings,” “Executive Officers of the Company,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” in our

definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.

We have adopted a code of business conduct and ethics that applies to our officers, directors and employees. The full text of our code of business conduct and ethics can be found on the Company’s website(http://www.regn.com) under the Investor Relations heading.


Item 11.	*Executive Compensation*

The information called for by this item will be included under the captions “Compensation Committee Report,” “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation” and “Compensation of Directors” in our definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.


Item 12.	*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

The information called for by this item will be included under the captions “Stock Ownership of Executive Officers and Directors” and “Stock Ownership of Certain Beneficial Owners” in our definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.


Item 13.	*Certain Relationships and Related Transactions, and Director Independence*

The information ~~called for~~required by this item will be included under the ~~caption “Certain Relationships~~captions “Election of Directors” and “Review of Transactions with Related ~~Transactions”~~Persons” in our definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.


Item 14.	*Principal Accountant Fees and Services*

The information called for by this item will be included under the caption “Information about Fees Paid to Independent Registered Public Accounting Firm” in our definitive proxy statement with respect to our ~~2006~~2007 Annual Meeting of Shareholders to be filed with the SEC, and is incorporated herein by reference.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules*

(a) 1. Financial Statements

The financials statements filed as part of this report are listed on the Index to Financial Statements onpage F-1.

2. Financial Statement Schedules

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

3. Exhibits


Exhibit	Exhibit					Exhibit
Number	Number		Description			Number		Description

	3	.1	(a)	—	Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991.	3	.1	(a)	—	Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991.
	3	.1.1	(b)	—	Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996.	3	.1.1	(b)	—	Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of October 18, 1996.
	3	.1.2	(c)	—	Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001.	3	.1.2	(c)	—	Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 17, 2001.
	3	.2	(d)	—	By-Laws of the Company, currently in effect (amended through November 12, 2004).	3	.1.3	(s)	—	Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 20, 2006.
						3	.2	(d)	—	By-Laws of the Company, currently in effect (amended through November 12, 2004)
						10	.1	(e)	—	1990 Amended and Restated Long-Term Incentive Plan.
						10	.2	(f)	—	2000 Long-Term Incentive Plan.
						10	.3.1	(g)	—	Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002.
						10	.3.2	(g)	—	Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002.
						10	.3.3	(h)	—	Amendment No. 3 to 2000 Long-term Incentive Plan, effective as of June 14, 2004.
						10	.3.4	(i)	—	Amendment No. 4 to 2000 Long-term Incentive Plan, effective as of November 15, 2004.
						10	.3.5	(j)	—	Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers.
						10	.3.6	(j)	—	Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers.

4550

Exhibit

Number

Description

10 .1 (e) — 1990 Amended and Restated Long-Term Incentive Plan.
10 .2 (f) — 2000 Long-Term Incentive Plan.
10 .3.1 (g) — Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002.
10 .3.2 (g) — Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002.
10 .3.3 (h) — Amendment No. 3 to 2000 Long-Term Incentive Plan, effective as of June 14, 2004.
10 .3.4 (i) — Amendment No. 4 to 2000 Long-Term Incentive Plan, effective as of November 15, 2004.
10 .3.5 (j) — Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers.
10 .3.6 (j) — Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers.
10 .3.7 (k) — Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers.
10 .4* (l) — Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc.
10 .4.1* (d) — Amendment No. 1 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of September 18, 1995.
10 .4.2* (d) — Amendment No. 2 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of October 24, 1996.
10 .4.3* (d) — Amendment No. 3 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of December 9, 1999.
10 .4.4* (d) — Amendment No. 4 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of July 18, 2002.
10 .4.5* (d) — Amendment No. 5 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of January 1, 2005.
10 .5 (m) — Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto.
10 .6 (g) — Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D.
10 .7* (d) — Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D.
10 .8 (s) — Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006.
10 .9 (n) — Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee.
10 .10 (n) — Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc.
10 .11* (o) — IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc.
10 .12* (p) — Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company.
10 .13* (q) — Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
10 .13.1* (d) — Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004.

46


Exhibit	Exhibit					Exhibit
Number	Number		Description			Number		Description

	10	.13.2	(r)	—	Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005.	10	.3.7	(k)	—	Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers.
	10	.13.3*		—	Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005.	10	.4	(g)	—	Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D.
	10	.13.4*		—	Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006.	10	.5*	(d)	—	Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D.
	10	.14	(q)	—	Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.	10	.6	(q)	—	Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006.
	12	.1		—	Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc.	10	.7	(l)	—	Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee.
	23	.1		—	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.	10	.8	(l)	—	Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc.
	31	.1		—	Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.	10	.9*	(m)	—	IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc.
	31	.2		—	Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.	10	.10*	(n)	—	Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company.
	32			—	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.	10	.11*	(o)	—	Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
						10	.11.1*	(d)	—	Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004
						10	.11.2	(p)	—	Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005.
						10	.11.3*	(r)	—	Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005.
						10	.11.4*	(r)	—	Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006.
						10	.12	(o)	—	Stock Purchase Agreement, dates as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
						10	.13*	(s)	—	License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and Regeneron Pharmaceuticals, Inc.
						10	.14*		—	Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and Regeneron Pharmaceuticals, Inc.
						10	.15	(t)	—	Lease, dated as of December 21, 2006, by and betweenBMR-Landmark at Eastview LLC and Regeneron Pharmaceuticals, Inc.
						12	.1		—	Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc.
						23	.1		—	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
						31	.1		—	Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.
						31	.2		—	Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.
						32			—	Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

Description:


(a)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 1991, filed August 13, 1991.

(b)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1996 filed November 5, ~~1996.~~1996


(c)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002.

(d)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2004, filed March 11, ~~2005.~~2005

(e)		Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043).

(f)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the ~~quarter~~fiscal year ended December 31, 2001, filed March 22, 2002.

(g)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2002, filed March 31, 2003.

(h)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2004, filed August 5, 2004.

(i)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed November 17, 2004.

(j)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005.

(k)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004.

(l)		Incorporated by reference from the~~Form 10-Q~~ ~~for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1995, filed November 14, 1995.~~

~~(m)~~		~~Incorporated by reference from theForm 8-A~~ ~~for Regeneron Pharmaceuticals, Inc., filed October 15, 1996.~~

~~(n)~~		~~Incorporated by reference from the~~ Company’s registration statement onForm S-3 (filenumber 333-74464).

~~(o)~~(m)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002.


~~(p)~~(n)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003.

~~(q)~~(o)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003.

~~(r)~~(p)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005.

~~(s)~~(q)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 25, 2006.

(r)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2005, filed February 28, 2006.

(s)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed October 18, 2006.

(t)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006.


*		Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2.

4852

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Regeneron Pharmaceuticals, Inc.


	By:	/s/ Leonard S. Schleifer

Leonard S. Schleifer, M.D., Ph.D.

President and Chief Executive Officer


Dated:	New York, New York

~~February 28, 2006~~March 12, 2007

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Leonard S. Schleifer, President and Chief Executive Officer, and Murray A. Goldberg, Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer, and Assistant Secretary, and each of them, his true and lawfulattorney-in-fact and agent, with the full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities therewith, to sign any and all amendments to this report onForm 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto each saidattorney-in-fact and agent full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that each saidattorney-in-fact and agent, or either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:


Signature				Title


/s/ Leonard S. Schleifer, Leonard S. Schleifer, M.D., Ph.D.				President, Chief Executive Officer, and Director (Principal Executive Officer)

/s/ Murray A. Goldberg Murray A. Goldberg				Senior Vice President, Finance & Administration, Chief Financial Officer, Treasurer, and Assistant Secretary (Principal Financial Officer)

/s/ Douglas S. McCorkle Douglas S. McCorkle				Vice President, Controller, and Assistant Treasurer (Principal Accounting Officer)

/s/ George D. Yancopoulos George D. Yancopoulos, M.D., Ph.D				Executive Vice President, Chief Scientific Officer, President, Regeneron Research Laboratories, and Director

/s/ P. Roy Vagelos P. Roy Vagelos, M.D.				Chairman of the Board

/s/ Charles A. Baker Charles A. Baker				Director

/s/ Michael S. Brown Michael S. Brown, M.D.				Director

4953


Signature				Title


/s/ Alfred G. Gilman Alfred G. Gilman, M.D., Ph.D.				Director

/s/ Joseph L. Goldstein Joseph L. Goldstein, M.D.				Director

/s/ Arthur F. Ryan Arthur F. Ryan				Director

/s/ Eric M. Shooter Eric M. Shooter, Ph.D.				Director

/s/ George L. Sing George L. Sing				Director

5054

REGENERON PHARMACEUTICALS, INC.

INDEX TO FINANCIAL STATEMENTS


		Page
		Numbers

REGENERON PHARMACEUTICALS, ~~INC~~INC.
Report of Independent Registered Public Accounting Firm		F-2 to F-3
Balance Sheets at December 31, ~~2005~~2006 and ~~2004~~2005		F-4
Statements of Operations for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004		F-5
Statements of Stockholders’ Equity for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004		F-6 to F-7
Statements of Cash Flows for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004		F-8
Notes to Financial Statements		F-9 to ~~F-35~~F-36

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Regeneron Pharmaceuticals, Inc.:

We have completed integrated audits of Regeneron Pharmaceuticals, Inc.’s ~~2005 and 2004~~ financial statements and of its internal control over financial reporting as of December 31, ~~2005 and an audit of its 2003 financial statements~~2006 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Financial statements

In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Regeneron Pharmaceuticals, Inc. at December 31, ~~2005~~2006 and ~~2004,~~2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2005~~2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in note 2 to the financial statements, effective January 1, 2006, the Company changed its method of accounting for share-based payment, to conform with FASB Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-based Payment.” On January 1, 2005, the Company changed its method of accounting for stock-based employee compensation, to conform with FASB Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation.”
Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, ~~2005~~2006 based on criteria established inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2005~~2006 based on criteria established inInternal Control — Integrated Frameworkissued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

F-2

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company

~~F-2~~

are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

PricewaterhouseCoopers LLP

New York, New York

~~February 27, 2006~~March 9, 2007

F-3

REGENERON PHARMACEUTICALS, INC.

BALANCE SHEETS
December 31, ~~2005~~2006 and ~~2004~~2005

2005 2004 2006 2005
(In thousands,
(In thousands,

except share data) except share data)

ASSETS

Current assets
Cash and cash equivalents $ 184,508 $ 95,229 $ 237,876 $ 184,508
Marketable securities 114,037 200,753 221,400 114,037
Accounts receivable 36,521 43,102 7,493 36,521
Prepaid expenses and other current assets 3,422 1,642 3,215 3,422
Inventory 2,904 3,229 2,904

Total current assets 341,392 343,955 469,984 341,392
Restricted cash 1,600
Marketable securities 18,109 52,930 61,983 18,109
Property, plant, and equipment, at cost, net of accumulated depreciation and amortization 60,535 71,239 49,353 60,535
Other assets 3,465 4,984 2,170 3,465

Total assets $ 423,501 $ 473,108 $ 585,090 $ 423,501

LIABILITIES and STOCKHOLDERS’ EQUITY

Current liabilities
Accounts payable and accrued expenses $ 23,337 $ 18,872 $ 21,471 $ 23,337
Deferred revenue, current portion 17,020 15,267 23,543 17,020

Total current liabilities 40,357 34,139 45,014 40,357
Deferred revenue 69,142 56,426 123,452 69,142
Notes payable 200,000 200,000 200,000 200,000

Total liabilities 309,499 290,565 368,466 309,499

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 — 2,347,073 in 2005 and 2,358,373 in 2004 2 2
Common Stock, $.001 par value; 160,000,000 shares authorized; shares issued and outstanding — 54,092,268 in 2005 and 53,502,004 in 2004 54 54
Class A Stock, convertible, $.001 par value; 40,000,000 shares authorized;
shares issued and outstanding — 2,270,353 in 2006 and 2,347,073 in 2005 2 2
Common Stock, $.001 par value; 160,000,000 shares authorized;
shares issued and outstanding — 63,130,962 in 2006 and 54,092,268 in 2005 63 54
Additional paid-in capital 700,011 675,389 904,407 700,011
Unearned compensation (315 ) (2,299 ) (315 )
Accumulated deficit (585,280 ) (489,834 ) (687,617 ) (585,280 )
Accumulated other comprehensive loss (470 ) (769 ) (231 ) (470 )

Total stockholders’ equity 114,002 182,543 216,624 114,002

Total liabilities and stockholders’ equity $ 423,501 $ 473,108 $ 585,090 $ 423,501

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

F-4

REGENERON PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004


	2005			2004			2003			2006			2005			2004
	*(In thousands, except per share data)*									(In thousands, except per share data)

Revenues
Contract research and development	$	52,447		$	113,157		$	47,366		$	51,136		$	52,447		$	113,157
Research progress payments					42,770												42,770
Contract manufacturing		13,746			18,090			10,131			12,311			13,746			18,090

		66,193			174,017			57,497			63,447			66,193			174,017

Expenses
Research and development		155,581			136,095			136,024			137,064			155,581			136,095
Contract manufacturing		9,557			15,214			6,676			8,146			9,557			15,214
General and administrative		25,476			17,062			14,785			25,892			25,476			17,062

		190,614			168,371			157,485			171,102			190,614			168,371

Income (loss) from operations		(124,421	)		5,646			(99,988	)		(107,655	)		(124,421	)		5,646

Other income (expense)
Other contract income		30,640			42,750									30,640			42,750
Investment income		10,381			5,478			4,462			16,548			10,381			5,478
Interest expense		(12,046	)		(12,175	)		(11,932	)		(12,043	)		(12,046	)		(12,175	)

		28,975			36,053			(7,470	)		4,505			28,975			36,053

Net income (loss) before cumulative effect of a change in accounting principle											(103,150	)		(95,446	)		41,699
Cumulative effect of adopting Statement of Financial Accounting Standards No. 123R (“SFAS 123R”)											813

Net income (loss)	$	(95,446	)	$	41,699		$	(107,458	)	$	(102,337	)	$	(95,446	)	$	41,699

Net income (loss) per share:
Basic	$	(1.71	)	$	0.75		$	(2.13	)
Diluted	$	(1.71	)	$	0.74		$	(2.13	)
Net income (loss) per share, basic:
Net income (loss) before cumulative effect of a change in accounting principle										$	(1.78	)	$	(1.71	)	$	0.75
Cumulative effect of adopting SFAS 123R											0.01

Net income (loss)										$	(1.77	)	$	(1.71	)	$	0.75

Net income (loss) per share, diluted										$	(1.77	)	$	(1.71	)	$	0.74
Weighted average shares outstanding:
Basic		55,950			55,419			50,490			57,970			55,950			55,419
Diluted		55,950			56,172			50,490			57,970			55,950			56,172

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

F-5

REGENERON PHARMACEUTICALS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004


																				Accumulated																													Accumulated
											Additional									Other			Total																	Additional									Other			Total
	Class A Stock					Common Stock					Paid-in			Unearned			Accumulated			Comprehensive			Stockholders’			Comprehensive				Class A Stock					Common Stock					Paid-in			Unearned			Accumulated			Comprehensive			Stockholders’			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Compensation			Deficit			Income (Loss)			Equity			Income (Loss)				Shares			Amount		Shares			Amount		Capital			Compensation			Deficit			Income (Loss)			Equity			Income (Loss)
	*(In thousands)*																													(In thousands)

Balance, December 31, 2002		2,491		$	2		41,746		$	42	$	573,184		$	(3,643	)	$	(424,075	)	$	471		$	145,981
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered							601					1,941												1,941
Issuance of Common Stock to Novartis Pharma AG							7,527			8		47,992												48,000
Issuance of Common Stock to the sanofi-aventis Group							2,800			3		44,997												45,000
Issuance of Common Stock to Merck & Co. Inc.							109					1,500												1,500
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution							43					747												747
Conversion of Class A Stock to Common Stock		(125	)				125
Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures							215					2,757			(2,757	)
Stock-based compensation expense															2,299									2,299
Net loss, 2003																		(107,458	)					(107,458	)	$	(107,458	)
Change in net unrealized gain (loss) on marketable securities																					(367	)		(367	)		(367	)

Balance, December 31, 2003		2,366			2		53,166			53		673,118			(4,101	)		(531,533	)		104			137,643		$	(107,825	)			2,366		$	2		53,166		$	53	$	673,118		$	(4,101	)	$	(531,533	)	$	104		$	137,643

Issuance of Common Stock in connection with exercise of stock options, net of shares tendered							286			1		1,501												1,502												286			1		1,501												1,502
Repurchase of Common Stock from Merck & Co., Inc.							(109	)				(888	)											(888	)											(109	)				(888	)											(888	)
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution							64					917												917												64					917												917
Conversion of Class A Stock to Common Stock		(8	)				8																								(8	)				8
Issuance of restricted Common Stock under Long-Term Incentive Plan, net of forfeitures							87					741			(741	)																				87					741			(741	)
Stock-based compensation expense															2,543									2,543																				2,543									2,543
Net income, 2004																		41,699						41,699		$	41,699																				41,699						41,699		$	41,699
Change in net unrealized gain (loss) on marketable securities																					(873	)		(873	)		(873	)																						(873	)		(873	)		(873	)

Balance, December 31, 2004		2,358			2		53,502			54		675,389			(2,299	)		(489,834	)		(769	)		182,543		$	40,826				2,358			2		53,502			54		675,389			(2,299	)		(489,834	)		(769	)		182,543		$	40,826

Issuance of Common Stock in connection with exercise of stock options, net of shares tendered																																				494					4,081												4,081
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution																																				90					632												632
Conversion of Class A Stock to Common Stock																															(11	)				11
Forfeitures of restricted Common Stock under Long-Term Incentive Plan																																				(5	)				(54	)		54
Stock-based compensation expense																																									19,963			1,930									21,893
Net loss, 2005																																															(95,446	)					(95,446	)	$	(95,446	)
Change in net unrealized gain (loss) on marketable securities																																																		299			299			299

Balance, December 31, 2005																															2,347			2		54,092			54		700,011			(315	)		(585,280	)		(470	)		114,002		$	(95,147	)

(Continued)																													(Continued)

~~(Continued)~~

F-6

REGENERON PHARMACEUTICALS, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY — (Continued)

For the Years Ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004


																				Accumulated																											Accumulated
											Additional									Other			Total																Additional								Other			Total
	Class A Stock					Common Stock					Paid-in			Unearned			Accumulated			Comprehensive			Stockholders’			Comprehensive			Class A Stock					Common Stock					Paid-in			Unearned		Accumulated			Comprehensive			Stockholders’			Comprehensive
	Shares			Amount		Shares			Amount		Capital			Compensation			Deficit			Income (Loss)			Equity			Income (Loss)			Shares			Amount		Shares			Amount		Capital			Compensation		Deficit			Income (Loss)			Equity			Income (Loss)
	*(In thousands)*																												(In thousands)


Issuance of Common Stock in a public offering at $23.03 per share																																			7,600			8		175,020											175,028
Cost associated with issuance of equity securities																																								(412	)										(412	)
Issuance of Common Stock in connection with exercise of stock options, net of shares tendered							494					4,081												4,081											1,243			1		10,391											10,392
Issuance of Common Stock in connection with Company 401(k) Savings Plan contribution							90					632												632											121					1,884											1,884
Conversion of Class A Stock to Common Stock		(11	)				11																							(77	)				77
Forfeitures of restricted Common Stock under Long-Term Incentive Plan							(5	)				(54	)		54																				(2	)
Stock-based compensation expense												19,963			1,930									21,893																18,641											18,641
Net loss, 2005																		(95,446	)					(95,446	)	$	(95,446	)
Adjustment to reduce unearned compensation upon adoption of SFAS 123R																																								(315	)		315
Cumulative effect of adopting SFAS 123R																																								(813	)										(813	)
Net loss, 2006																																													(102,337	)					(102,337	)	$	(102,337	)
Change in net unrealized gain (loss) on marketable securities																					299			299			299																					239			239			239

Balance, December 31, 2005		2,347		$	2		54,092		$	54	$	700,011		$	(315	)	$	(585,280	)	$	(470	)	$	114,002		$	(95,147	)
Balance, December 31, 2006																														2,270		$	2		63,131		$	63	$	904,407			—	$	(687,617	)	$	(231	)	$	216,624		$	(102,098	)

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

F-7

REGENERON PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004

2005 2004 2003 2006 2005 2004
(In thousands) (In thousands)

Cash flows from operating activities
Net income (loss) $ (95,446 ) $ 41,699 $ (107,458 ) $ (102,337 ) $ (95,446 ) $ 41,699

Adjustments to reconcile net income (loss) to net cash used in operating activities
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization 15,504 15,362 12,937 14,592 15,504 15,362
Non-cash compensation expense 21,859 2,543 2,562 18,675 21,859 2,543
Non-cash expense related to a license agreement 1,500
Cumulative effect of a change in accounting principle (813 )
Forgiveness of loan payable to Novartis Pharma AG, inclusive of accrued interest (17,770 ) (17,770 )
Changes in assets and liabilities
Decrease (increase) in accounts receivable 6,581 (27,573 ) (11,512 ) 29,028 6,581 (27,573 )
Decrease (increase) in prepaid expenses and other assets 74 (1,799 ) 589 155 74 (1,799 )
Decrease (increase) in inventory 1,250 6,914 (1,049 )
Decrease in inventory 3,594 1,250 6,914
Increase (decrease) in deferred revenue 14,469 (37,310 ) 93,869 60,833 14,469 (37,310 )
Increase in accounts payable, accrued expenses, and other liabilities 5,413 1,025 2,429
(Decrease) increase in accounts payable, accrued expenses, and other liabilities (652 ) 5,413 1,025

Total adjustments 65,150 (58,608 ) 101,325 125,412 65,150 (58,608 )

Net cash used in operating activities (30,296 ) (16,909 ) (6,133 )
Net cash provided by (used in) operating activities 23,075 (30,296 ) (16,909 )

Cash flows from investing activities
Purchases of marketable securities (102,990 ) (268,244 ) (284,647 ) (456,893 ) (102,990 ) (268,244 )
Purchases of restricted marketable securities (11,075 ) (11,055 ) (11,075 )
Sales or maturities of marketable securities 223,448 273,587 253,691 306,199 223,448 273,587
Maturities of restricted marketable securities 22,126 22,054 22,126
Capital expenditures (4,964 ) (6,174 ) (29,656 ) (2,811 ) (4,964 ) (6,174 )
Increase in restricted cash (1,600 )

Net cash provided by (used in) investing activities 115,494 10,220 (49,613 )
Net cash (used in) provided by investing activities (155,105 ) 115,494 10,220

Cash flows from financing activities
Net proceeds from issuances of Common Stock 4,081 1,502 94,678
Net proceeds from the issuance of Common Stock 185,008 4,081 1,502
Repurchase of Common Stock (888 ) (888 )
Borrowings under loan payable 3,827 13,656 3,827
Capital lease payments (150 )
Other 390

Net cash provided by financing activities 4,081 4,441 108,184 185,398 4,081 4,441

Net increase (decrease) in cash and cash equivalents 89,279 (2,248 ) 52,438 53,368 89,279 (2,248 )
Cash and cash equivalents at beginning of period 95,229 97,477 45,039 184,508 95,229 97,477

Cash and cash equivalents at end of period $ 184,508 $ 95,229 $ 97,477 $ 237,876 $ 184,508 $ 95,229

Supplemental disclosure of cash flow information
Cash paid for interest $ 11,002 $ 11,007 $ 11,003
Supplemental disclosure of cash flow information
Cash paid for interest $ 11,000 $ 11,002 $ 11,007

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

F-8

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

For the ~~Years Ended~~years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~
2004

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


1.	Organization and Business

Regeneron Pharmaceuticals, Inc. (the “Company” or “Regeneron”) was incorporated in January 1988 in the State of New York. The Company is engaged in research and development programs to discover and commercialize therapeutics to treat human disorders and conditions. The Company’s facilities are located in New York. The Company’s business is subject to certain risks including, but not limited to, uncertainties relating to conducting pharmaceutical research, obtaining regulatory approvals, commercializing products, and obtaining and enforcing patents.


2.	Summary of Significant Accounting Policies

~~Property, Plant, and Equipment~~


~~Building and improvements~~			~~7-30 years~~
~~Laboratory and computer equipment~~			~~3-5 years~~
~~Furniture and fixtures~~			~~5 years~~

Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Costs of construction of certain long-lived assets include capitalized interest which is amortized over the estimated useful life of the related asset. The Company capitalized interest costs of $0.3 million in 2003. The Company did not capitalize any interest costs in 2004 or 2005.

Cash and Cash Equivalents

For purposes of the statement of cash flows and the balance sheet, the Company considers all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined based on standards that approximate thefirst-in, first-out method. Inventories are shown net of applicable reserves.

~~Revenue Recognition~~Property, Plant, and ~~Change in Accounting Principle~~Equipment

~~a. Contract Research~~Property, plant, and ~~Development and Research Progress Payments~~

~~The Company recognizes revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,~~~~Revenue Recognition~~~~(“SAB 104”) and FASB Emerging Issue Task Force IssueNo. 00-21,~~~~Accounting for Revenue Arrangements with Multiple Deliverables~~~~(“EITF 00-21”).~~ ~~SAB 104 superseded Staff Accounting Bulletin No. 101,~~~~Revenue Recognition in Financial Statement~~(“SAB 101”), in December 2003. During the third quarter of 2003, the Company elected to change the method it uses to recognize revenue under SAB 101 related to non-refundable collaborator payments, including up-front licensing payments, payments for development activities, and research progress (milestone) payments, to the Substantive Milestone Method, adopted retroactively to January 1, 2003. There was no cumulative effect of this change in accounting

~~F-9~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

~~principle~~equipment are stated at cost. Depreciation is provided on ~~prior periods. Under this method, for non-refundable up-front license payments that are not tied to achieving~~ a ~~specific performance milestone or for which an estimated level of required effort is not available, we recognize revenue ratably~~straight-line basis over the estimated ~~period~~useful lives of ~~time during~~the assets. Expenditures for maintenance and repairs which ~~we expect~~do not materially extend the useful lives of the assets are charged to ~~perform services under~~expense as incurred. The cost and accumulated depreciation or amortization of assets retired or sold are removed from the ~~agreement based on research~~respective accounts, and ~~development plans. Payments for development activities~~any gain or loss is recognized in operations. The estimated useful lives of property, plant, and equipment are ~~recognized~~ as ~~revenue as earned,~~follows:


Building and improvements			7-30 years
Laboratory and computer equipment			3-5 years
Furniture and fixtures			5 years

Leasehold improvements are amortized over the ~~period~~shorter of ~~effort. Payments~~the lease term or the estimated useful lives of the assets. Costs of construction of certain long-lived assets include capitalized interest which ~~are based on achieving a specific substantive performance milestone, involving a degree~~is amortized over the estimated useful life of ~~risk, are recognized as revenue when the milestone is achieved and~~ the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. The change in accounting method was made because the Company believes that it better reflects the substance of the Company’s collaborative agreements and is more consistent with current practices in the biotechnology industry.

Previously, the Company had recognized revenue from non-refundable collaborator payments based on the percentage of costs incurred to date, estimated costs to complete, and total expected contract revenue. However, the revenue recognized was limited to the amount of non-refundable payments received. This accounting method was adopted on January 1, 2000 upon the release of SAB 101. The cumulative effect of adopting SAB 101 at January 1, 2000 amounted to $1.6 million of additional loss, with a corresponding increase to deferred revenue that was recognized in subsequent periods, of which $0.1 million and $0.4 million, respectively, was included in contract research and development revenue in 2004 and 2003. The $1.6 million represented a portion of a 1989 payment received from Sumitomo Chemical Co. Ltd. in consideration for a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan that expired in 2004 (see Note 12d). The effect of income taxes on the cumulative effect adjustment was immaterial.

~~b. Contract Manufacturing~~

The Company has entered into a contract manufacturing agreement under which it manufactures product and performs services for a third party. Contract manufacturing revenue is recognized as product is shipped and as services are performed (see Note 13).

~~Investment Income~~

~~Interest income, which is included in investment income, is recognized as earned.~~asset.

Accounting for the Impairment of Long-Lived Assets

The Company periodically assesses the recoverability of long-lived assets, such as property, plant, and equipment, and evaluates such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Asset impairment is determined to exist if estimated future undiscounted cash flows are less than the carrying amount in accordance with Statement of Financial Accounting Standards No. (“SFAS”) 144,Accounting for the Impairment or Disposal of Long-Lived Assets. For all periods presented, no impairment losses were recorded.

Patents

As a result of the Company’s research and development efforts, itthe Company has obtained, applied for, or is applying for, a number of patents to protect proprietary technology and inventions. All costs associated with patents are expensed as incurred.

~~F-10~~F-9

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Revenue Recognition

a. Contract Research and Development and Research Progress Payments

The Company recognizes revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 104,Revenue Recognition(“SAB 104”) and FASB Emerging Issue Task Force IssueNo. 00-21,Accounting for Revenue Arrangements with Multiple Deliverables (“EITF00-21”). Contract research and development revenue and research progress payments are earned by the Company in connection with collaboration and other agreements to develop and commercialize product candidates and utilize the Company’s technology platforms. The terms of these agreements typically include non-refundable up-front licensing payments, research progress (milestone) payments, and payments for development activities. Non-refundable up-front license payments, where continuing involvement is required of the Company, are deferred and recognized over the related performance period. The Company estimates its performance period based on the specific terms of each agreement, and adjusts the performance periods, if appropriate, based on the applicable facts and circumstances. Payments which are based on achieving a specific substantive performance milestone, involving a degree of risk, are recognized as revenue when the milestone is achieved and the related payment is due and non-refundable, provided there is no future service obligation associated with that milestone, a reasonable amount of time has passed between receipt of an up-front payment and achievement of the milestone, and the amount of the milestone payment is reasonable in relation to the effort, value, and risk associated with achieving the milestone. Payments for achieving milestones which are not considered substantive are accounted for as license payments and recognized over the related performance period. Payments for development activities are recognized as revenue as earned, over the period of effort. In addition, we record revenue in connection with a government research grant as we incur expenses related to the grant, subject to the grant’s terms and annual funding approvals.

b. Contract Manufacturing

The Company manufactured product and performed services for a third party under a contract manufacturing agreement which expired in October 2006. Contract manufacturing revenue was recognized as product was shipped and as services were performed (see Note 13).

Investment Income

Interest income, which is included in investment income, is recognized as earned.

Research and Development Expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, depreciation on and maintenance of research equipment, costs related to research collaboration and licensing agreements (see Note ~~11e)~~11d), the cost of services provided by outside contractors, including services related to the Company’s clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development, and clinical trials, expenses related to the development of manufacturing processes prior to commencing commercial production of a product under contract manufacturing arrangements, and the allocable portions of facility costs, such as rent, utilities, insurance, repairs and maintenance, depreciation, and general support services. All costs associated with research and development are expensed as incurred.

For each clinical trial that the Company conducts, certain clinical trial costs, which are included in research and development expenses, are expensed based on the expected total number of patients in the trial, the rate at which patients enter the trial, and the period over which clinical investigators or contract research organizations are

F-10

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

expected to provide services. During the course of a clinical trial, the Company adjusts its rate of clinical expense recognition if actual results differ from the Company’s estimates.

Per Share Data

Net income (loss) per share, basic and diluted, is computed on the basis of the net income (loss) for the period divided by the weighted average number of shares of Common Stock and Class A Stock outstanding during the period. The basic net income (loss) per share excludes restricted stock awards until vested. The diluted net income per share ~~for the year ended December 31, 2004~~ is based upon the weighted average number of shares of Common Stock and Class A Stock outstanding, and ~~the~~of 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. The computation of diluted net loss per share for the years ended December 31, ~~2005~~2006 and ~~2003~~2005 does not include common stock equivalents, since such inclusion would be antidilutive. The computation of diluted net income per share for the year ended December 31, 2004 includes dilutive common stock equivalents. Disclosures required by SFAS 128,Earnings per Share, have been included in Note ~~18.~~19.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined on the basis of the difference between the tax basis of assets and liabilities and their respective financial reporting amounts (“temporary differences”) at enacted tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is established for deferred tax assets for which realization is uncertain. See Note ~~16.~~17.

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 or loss on marketable securities. The net effect of income taxes on comprehensive income (loss) is immaterial. Comprehensive income for the year ended December 31, 2004 and comprehensive losses for the years ended December 31, ~~2005~~2006 and ~~2003~~2005 have been included in the Statements of Stockholders’ Equity.

~~F-11~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

Concentrations of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash, cash equivalents, marketable securities, and receivables from the sanofi-aventis ~~Group and Merck & Co., Inc.~~Group. The Company generally invests its excess cash in obligations of the U.S. government and its agencies, bank deposits, asset-backed securities, investment grade debt securities issued by corporations, governments, and financial institutions, and money market funds that invest in these instruments. The Company has established guidelines that relate to credit quality, diversification, and maturity, and that limit exposure to any one issue of securities.

Risks and Uncertainties

Regeneron has had no sales of its products and there is no assurance that the Company’s research and development efforts will be successful, that the Company will ever have commercially approved products, or that the Company will achieve significant sales of any such products. The Company has generally incurred net losses

F-11

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

and negative cash flows from operations since its inception. Revenues to date have principally been limited to (i) payments from the Company’s collaborators and other entities for the Company’s development activities with respect to product candidates and to utilize the Company’s technology platforms, (ii) payments from two pharmaceutical companies for contract manufacturing, and (iii) investment income. The Company operates in an environment of rapid change in technology and is dependent upon the services of its employees, consultants, collaborators, and certain third-party suppliers, including single-source unaffiliated third-party suppliers of certain raw materials and equipment. Regeneron, as licensee, licenses certain technologies that are important to the Company’s business which impose various obligations on the Company. If Regeneron fails to comply with these requirements, licensors may have the right to terminate the Company’s licenses.

Contract research and development revenue in ~~2005~~2006 was primarily earned from sanofi-aventis under a collaboration agreement (see Note 12a). The Company recognizes revenue from its collaboration with sanofi-aventis in accordance with SAB 104 and ~~The Procter & Gamble Company under collaboration agreements (see Notes 12a and 12e).~~EITF00-21, as described above. Under the terms of the collaboration agreement, ~~with sanofi-aventis,~~ agreed upon VEGF Trap development expenses incurred by Regeneron during the term of the agreement will be funded by sanofi-aventis. In addition, the Company earns revenue related to non-refundable, up-front payments from ~~sanofi-aventis under the Substantive Milestone Method in accordance with SAB 104, as described above.~~sanofi-aventis. The Company also may ~~also~~ receive up to $400.0 million in milestone payments upon receipt of specified VEGF Trap marketing approvals. Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Under the collaboration agreement with Procter & Gamble, as amended, Procter & Gamble made payments to fund Regeneron research of $2.5 million per quarter, plus adjustments for inflation, through June 2005. As of June 30, 2005, the Company and Procter & Gamble agreed that the research activities of the parties under the collaboration agreement were completed. Contract manufacturing revenue in 2005 was earned from Merck under a long-term manufacturing agreement that will expire in October 2006 (see Note 13).

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Significant estimates include (i) useful lives of property, plant, and equipment, (ii) the periods over which certain revenues and expenses will be recognized including contract research and development revenue recognized from non-refundable up-front payments ~~contract manufacturing revenue recognized from reimbursed deferred capital costs,~~ and expense recognition of certain clinical trial costs which are included in research and development expenses, (iii) the extent to which deferred tax assets and liabilities are offset by a valuation allowance, and (iv) the fair value of stock options on their date of grant using the Black-Scholes option-pricing model, based on assumptions with respect to (a) expected volatility of our Common Stock price, (b) the periods of time over which employees and members of the Company’s board of

~~F-12~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

directors are expected to hold their options prior to exercise (expected lives), (c) expected dividend yield on the Company’s Common Stock, and (d) risk-free interest rates, which are based on quoted U.S. Treasury rates for securities with maturities approximating the options’ expected lives. In addition, in connection with the recognition of compensation expense in accordance with the provisions of SFAS 123R,Share-Based Payment, as described below, the Company is required to estimate, at the time of grant, the number of stock option awards that are expected to be forfeited.

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 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, ~~effective January 1,~~in 2005, the Company ~~has been recognizing~~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.~~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 (including replacement options granted under the Company’s stock option exchange program which concluded on January 5, 2005 (see Note ~~14a)~~14)) and (b) all awards granted to employees prior to January 1, 2005 that were unvested on that date.

F-12

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

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, at the time of grant, the number of awards that are expected to be forfeited and to revise this estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Effective January 1, 2005, and prior to the Company’s 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 $0.8 million and is included in the Company’s operating results in 2006 as a cumulative-effect adjustment of a change in accounting principle.

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. (“APB”) 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 ~~year~~years ended December 31, 2006 and 2005, $18.4 million and $19.9 million, respectively, of non-cash stock-based employee compensation expense related to stock option awards (“Stock Option Expense”) ~~totaled $20.0 million, of which $19.9 million~~ was recognized in operating ~~expenses and~~expenses. In addition, for the year ended December 31, 2005, $0.1 million of Stock Option Expense was capitalized in inventory. For the ~~years~~year ended December 31, 2004, ~~and 2003~~ 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 have totaled $33.6 million and ~~$42.5 million, respectively, and~~ the effect on the Company’s net income ~~(loss)~~ and net income ~~(loss)~~ per share would have been as follows:


	2004			2003			2004

Net income (loss), as reported	$	41,699		$	(107,458	)
Add: Stock-based employee compensation expense included in reported net income (loss)		2,543			2,562
Net income, as reported							$	41,699
Add: Stock-based employee compensation expense included in reported net income								2,543
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards		(36,093	)		(45,048	)		(36,093	)

Pro forma net income (loss), basic and diluted	$	8,149		$	(149,944	)
Pro forma net income, basic and diluted							$	8,149

Basic net income (loss) per share amounts:
Basic net income per share amounts:
As reported	$	0.75		$	(2.13	)	$	0.75
Pro forma	$	0.15		$	(2.97	)	$	0.15
Diluted net income (loss) per share amounts:
Diluted net income per share amounts:
As reported	$	0.74		$	(2.13	)	$	0.74
Pro forma	$	0.15		$	(2.97	)	$	0.15

In 2003, the Company’s chief executive officer was granted permission by the board of directors to initiate a net cashless exercise of stock options. Upon completion of the net cashless exercise, the Company recognized $0.3 million of compensation expense, which equaled the excess of the fair market value of the shares over the option exercise price on the date that the board of directors granted its consent for the transaction.

Other disclosures required by SFAS 123 and SFAS 123R have been included in Note ~~14a.~~

~~F-13~~

~~REGENERON PHARMACEUTICALS, INC.~~
14.

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

Statement of Cash Flows

Supplemental disclosure of noncash investing and financing activities:

In 2004, ~~and 2003,~~ the Company awarded 105,052 ~~and 219,367~~ shares ~~respectively,~~ of Restricted Stock under the Regeneron Pharmaceuticals, Inc. Long-Term Incentive Plan (see ~~Note 14a)~~Notes 14). No Restricted Stock was awarded in 2006 or 2005. The Company records unearned compensation in Stockholders’ Equity related to these awards based on the fair market value of shares of

F-13

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

the Company’s Common Stock on the grant date of the Restricted Stock award, which is expensed, on a pro rata basis, over the period that the restrictions on these shares lapse. In 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company recognized $0.3 million, $1.9 million, ~~$2.5 million,~~ and ~~$2.3~~$2.5 million, respectively, of compensation expense related to Restricted Stock awards.

Included in accounts payable and accrued expenses at December 31, 2006, 2005, and 2004 ~~and 2003~~ were $0.8 million, $0.2 million, ~~$0.6 million,~~ and ~~$0.8~~$0.6 million of capital expenditures, respectively.

Included in accounts payable and accrued expenses at December 31, 2005, 2004, and 2003 ~~and 2002~~ were $1.9 million, $0.6 million, ~~$0.9 million,~~ and ~~$0.7~~$0.9 million, respectively, of accrued 401(k) Savings Plan contribution expense. During the first quarter of 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company contributed 120,960, 90,385, ~~64,333,~~ and ~~42,543~~64,333 shares, respectively, of Common Stock to the 401(k) Savings Plan in satisfaction of these obligations.

Included in marketable securities at December 31, 2006, 2005, and 2004 ~~and 2003~~ were $1.5 million, $1.2 million, ~~$2.6 million,~~ and ~~$0.9~~$2.6 million of accrued interest income, respectively.

Future Impact of Recently Issued Accounting Standards

In ~~December 2004,~~July 2006, the Financial Accounting Standards Board (“FASB”) issued ~~SFAS 123R,~~~~Share-Based Payment.~~~~SFAS 123R is a revision of SFAS 123,~~FASB Interpretation No. 48 (“FIN 48”), Accounting for ~~Stock-Based Compensation~~~~(which we adopted effective January 1, 2005, as described above), and supersedes APB 25,~~Uncertainty in Income Taxes an interpretation of FASB Statement No, 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, Accounting for ~~Stock Issued~~Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to ~~Employees~~,be taken in a tax return. It also provides guidance on derecognition, classification, interest and ~~its related implementation guidance. SFAS 123R focuses primarily on~~penalties, accounting ~~for transactions~~ in ~~which an entity obtains employee services in share-based payment transactions,~~interim periods, disclosure, 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~~transition. FIN 48 is effective for fiscal years beginning after ~~June~~December 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.2006. The Company iswill be required to adopt ~~SFAS 123R~~FIN 48 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, management2007. Management believes that the adoption of ~~this standard may~~FIN 48 will not have a material impact on the Company’s financial statements.

In ~~May 2005,~~September 2006, the FASB issued SFAS ~~154,~~~~Accounting Changes and Error Corrections.~~~~SFAS 154 replaces APB 20,~~~~Accounting Changes~~157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”), 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

~~F-14~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

~~December 15, 2005.~~expands disclosures about fair value measurements. The Company iswill be required to adopt SFAS 157 effective for the ~~provisions of SFAS 154, as applicable,~~fiscal year beginning January 1, ~~2006.~~2008. Management is currently evaluating the potential impact of adopting SFAS 157 on the Company’s financial statements.


3.	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~~2005. The remaining headcount reductions occurred during 2006 as the ~~remainder planned for 2006 following the completion of the Company’s~~Company completed activities related to 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, and included non-cash expenses due to the accelerated vesting of certain stock options and restricted stock held by affected employees. Estimated termination costs associated with the planned workforce reduction in 2006 were measured in October 2005 and ~~are being~~were expensed ratably over the expected service period of the affected employees in accordance with SFAS 146,Accounting for Costs

F-14

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Associated with Exit or Disposal Activities. The ~~Company estimates that~~ total costs associated with the 2005 and ~~planned~~ 2006 workforce reductions ~~will approximate $2.7~~were $2.6 million, including $0.2 million of non-cash expenses.

Severance costs associated with the workforce reduction plan that were charged to expense in 2005 and 2006 consist of the following:


											Accrued liability
	Costs Charged to		Costs Paid or Settled		Accrued Liability at		Costs charged to		Costs paid or		at December 31,
	Expense		in 2005		December 31, 2005		expense in 2005		settled in 2005		2005

Employee severance, payroll taxes, and benefits	$	1,786	$	879	$	907	$	1,786	$	879	$	907
Other severance costs		206		30		176		206		30		176
Non-cash expenses		221		221				221		221

Total	$	2,213	$	1,130	$	1,083	$	2,213	$	1,130	$	1,083

Accrued liability

Costs charged to
Costs paid or
at December 31,

expense 2006 settled in 2006 2006

Employee severance, payroll taxes, and benefits $ 315 $ (1,159 ) $ 63
Other severance costs 33 (209 )

Total $ 348 $ (1,368 ) $ 63

These severance costs are included in the Company’s Statement of Operations for the ~~year~~years ended December 31, 2006 and 2005 as follows:

2006 2005
Research &
General &
Research &
General &
Research &
General &

Development Administrative development administrative development administrative

Employee severance, payroll taxes, and benefits $ 1,734 $ 52 $ 317 $ (2 ) $ 1,734 $ 52
Other severance costs 206 33 206
Non-cash expenses 215 6 215 6

Total $ 2,155 $ 58 $ 350 $ (2 ) $ 2,155 $ 58

For segment reporting purposes (see Note ~~19)~~20), all severance-related expenses are included in the Research & Development segment.

4. Marketable Securities

The Company considers its unrestricted marketable securities to be“available-for-sale,” as defined by SFAS 115,Accounting for Certain Investments in Debt and Equity Securities. Gross unrealized holding gains

~~F-15~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

and losses are reported as a net amount in a separate component of stockholders’ equity entitled Accumulated Other Comprehensive Income (Loss). The net change in unrealized holding gains and losses is excluded from operations and included in stockholders’ equity as a separate component of comprehensive ~~income (loss).~~loss.

F-15

REGENERON PHARMACEUTICALS, INC.

~~The Company has revised on its balance sheet at December 31, 2004 the classification of its investments~~NOTES TO FINANCIAL STATEMENTS — (Continued)

(Unless otherwise noted, dollars in auction rate securities from cash and cash equivalents to short-term investments. 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 a decrease in cash and cash equivalents and corresponding increase in short-term marketable securities of $6.0 million at December 31, 2004. The Company held no auction rate securities at December 31, 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 $14.8 million and $14.2 million for the years ended December 31, 2004 and 2003, respectively. This change in classification had no impact on the Company’s previously reported current assets, net income (loss), or cash flows from operations.thousands, except per share data)

The following tables summarize the amortized cost basis of marketable securities, the aggregate fair value of marketable securities, and gross unrealized holding gains and losses at December 31, ~~2005~~2006 and ~~2004:~~2005:


													Amortized		Fair		Unrealized Holding
													Cost Basis		Value		Gains		(Losses)			Net

At December 31, 2006
Maturities within one year
Corporate debt securities													$	105,128	$	105,082	$	11	$	(57	)	$	(46	)
U.S. government securities														22,267		22,243		1		(25	)		(24	)
Asset-backed securities														94,159		94,075		6		(90	)		(84	)

														221,554		221,400		18		(172	)		(154	)

Maturities between one and two years
Corporate debt securities														6,047		6,032				(15	)		(15	)
U.S. government securities														23,190		23,189		6		(7	)		(1	)
Asset-backed securities														32,835		32,762		3		(76	)		(73	)

														62,072		61,983		9		(98	)		(89	)
	Amortized				Unrealized Holding
	Cost Basis		Fair Value		Gains		(Losses)			Net			$	283,626	$	283,383	$	27	$	(270	)	$	(243	)

At December 31, 2005
Maturities within one year
Corporate debt securities	$	42,203	$	42,122	$	5	$	(86	)	$	(81	)	$	42,203	$	42,122	$	5	$	(86	)	$	(81	)
U.S. government securities		52,959		52,763				(196	)		(196	)		52,959		52,763				(196	)		(196	)
Asset-backed securities		19,231		19,152				(79	)		(79	)		19,231		19,152				(79	)		(79	)

		114,393		114,037		5		(361	)		(356	)		114,393		114,037		5		(361	)		(356	)

Maturities between one and two years
Corporate debt securities		16,188		16,075		2		(115	)		(113	)		16,188		16,075		2		(115	)		(113	)
U.S. government securities		2,055		2,034				(21	)		(21	)		2,055		2,034				(21	)		(21	)

		18,243		18,109		2		(136	)		(134	)		18,243		18,109		2		(136	)		(134	)

	$	132,636	$	132,146	$	7	$	(497	)	$	(490	)	$	132,636	$	132,146	$	7	$	(497	)	$	(490	)

At December 31, 2004
Maturities within one year
Corporate debt securities	$	58,077	$	57,971	$	8	$	(114	)	$	(106	)
U.S. government securities		137,105		136,777				(328	)		(328	)
Auction rate securities		6,005		6,005

		201,187		200,753		8		(442	)		(434	)

Maturities between one and two years
U.S. government securities		53,265		52,930				(335	)		(335	)

	$	254,452	$	253,683	$	8	$	(777	)	$	(769	)

In addition, cash and cash equivalents at December 31, 2006 and 2005 included an unrealized holding gain of $12 thousand and $20 ~~thousand.~~thousand, respectively.

~~F-16~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

Realized gains and losses are included as a component of investment income. For the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, gross realized gains and losses were not significant. In computing realized gains and losses, the Company computes the cost of its investments on a specific identification basis. Such cost includes the direct costs to acquire the securities, adjusted for the amortization of any discount or premium. The fair value of marketable securities has been estimated based on quoted market prices.

F-16

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

The following table shows the unrealized losses and fair value of the Company’s marketable securities with unrealized losses that are deemed to be only temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, ~~2005~~2006 and ~~2004.~~2005. The securities listed at December 31, ~~2005~~2006 mature at various dates through ~~April 2007.~~October 2008.


	Less than 12 Months					12 Months or Greater					Total					Less than 12 Months					12 Months or Greater					Total
																		Unrealized					Unrealized					Unrealized
																Fair Value		Loss			Fair Value		Loss			Fair Value		Loss

At December 31, 2006
Corporate debt securities																$	28,096	$	(54	)	$	12,191	$	(18	)	$	40,287	$	(72	)
U.S. government securities																	23,273		(25	)		2,023		(7	)		25,296		(32	)
Asset-backed securities																	92,544		(161	)		891		(5	)		93,435		(166	)
			Unrealized					Unrealized					Unrealized
	Fair Value		Loss			Fair Value		Loss			Fair Value		Loss			$	143,913	$	(240	)	$	15,105	$	(30	)	$	159,018	$	(270	)

At December 31, 2005
Corporate debt securities	$	36,394	$	(201	)						$	36,394	$	(201	)	$	36,394	$	(201	)						$	36,394	$	(201	)
U.S. government securities		2,034		(21	)	$	52,762	$	(196	)		54,796		(217	)		2,034		(21	)	$	52,762	$	(196	)		54,796		(217	)
Asset-backed securities		19,152		(79	)							19,152		(79	)		19,152		(79	)							19,152		(79	)

	$	57,580	$	(301	)	$	52,762	$	(196	)	$	110,342	$	(497	)	$	57,580	$	(301	)	$	52,762	$	(196	)	$	110,342	$	(497	)

At December 31, 2004
Corporate debt securities	$	29,267	$	(93	)	$	7,353	$	(21	)	$	36,620	$	(114	)
U.S. government securities		189,707		(663	)							189,707		(663	)

	$	218,974	$	(756	)	$	7,353	$	(21	)	$	226,327	$	(777	)

The unrealized losses on the Company’s investments in corporate debt securities, U.S. government securities, and asset-backed securities were primarily caused by interest rate increases, which generally resulted in a decrease in the market value of the Company’s portfolio. Based upon the Company’s currently projected sources and uses of cash, the Company intends to hold these securities until a recovery of fair value, which may be maturity. Therefore, the Company does not consider these marketable securities at December 31, ~~2005~~2006 and ~~2004~~2005 to beother-than-temporarily impaired.


5.	Accounts Receivable

Accounts receivable as of December 31, ~~2005~~2006 and ~~2004~~2005 consist of the following:

2005 2004

Receivable from the sanofi-aventis Group (see Note 12a) $ 36,412 $ 39,362
Receivable from The Procter & Gamble Company (see Note 12e) 2,345
Receivable from Merck & Co. Inc. (see Note 13) 27 1,315
Other 82 80

$ 36,521 $ 43,102

2006 2005

Receivable from sanofi-aventis (see Note 12a) $ 6,900 $ 36,412
Other 593 109

$ 7,493 $ 36,521

6. Inventories

Inventory balances at December 31, 2005 ~~and 2004~~ 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~~expired in October 2006 (see Note 13). The Company held no inventories at December 31, 2006.

F-17

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

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


	2005		2004			2005

Raw materials	$	278	$	310		$	278
Work-in process		1,423		692	(1)		1,423
Finished products		1,203		2,227			1,203

	$	2,904	$	3,229		$	2,904


~~(1)~~		~~Net of reserves of $0.3 million.~~


7.	Property, Plant, and Equipment

Property, plant, and equipment as of December 31, ~~2005~~2006 and ~~2004~~2005 consist of the following:


	2005			2004			2006			2005

Land	$	475		$	475		$	475		$	475
Building and improvements		56,895			56,750			57,045			56,895
Leasehold improvements		31,192			30,451			14,662			31,192
Construction-in-progress					172			203
Laboratory and other equipment		57,395			55,174			59,164			57,395
Furniture, fixtures, and computer equipment		4,675			5,498
Furniture, fixtures, software and computer equipment								5,413			4,675

		150,632			148,520			136,962			150,632
Less, accumulated depreciation and amortization		(90,097	)		(77,281	)		(87,609	)		(90,097	)

	$	60,535		$	71,239		$	49,353		$	60,535

Depreciation and amortization expense on property, plant, and equipment amounted to $14.3 million, $15.4 million, ~~$15.5 million,~~ and ~~$13.0~~$15.5 million for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, respectively. Included in these amounts was ~~$0.9~~$0.7 million, ~~$1.1~~$0.9 million, and $1.1 million of depreciation and amortization expense related to contract manufacturing that was capitalized into inventory for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, respectively.


8.	Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses as of December 31, ~~2005~~2006 and ~~2004~~2005 consist of the following:


	2005		2004		2006		2005

Accounts payable	$	4,203	$	4,407	$	4,349	$	4,203
Accrued payroll and related costs		10,713		7,972		9,932		10,713
Accrued clinical trial expense		3,081		2,083		2,606		3,081
Accrued expenses, other		3,048		2,118		2,292		3,048
Interest payable on convertible notes		2,292		2,292		2,292		2,292

	$	23,337	$	18,872	$	21,471	$	23,337

F-18

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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


9.	Deferred Revenue

Deferred revenue as of December 31, ~~2005~~2006 and ~~2004~~2005 consists of the following:


	2005		2004		2006		2005

Current portion:
Received from the sanofi-aventis Group	$	12,483	$	9,405
Received from Merck & Co., Inc.		1,911		4,407
Received from sanofi-aventis (see Note 12a)					$	8,937	$	12,483
Received from Bayer Healthcare LLC (see Note 12b)						12,561
Received from Merck (see Note 13)								1,911
Other		2,626		1,455		2,045		2,626

	$	17,020	$	15,267	$	23,543	$	17,020

Long-term portion:
Received from sanofi-aventis	$	69,142	$	56,426	$	61,013	$	69,142
Received from Bayer						62,439

					$	123,452	$	69,142


10.	Stockholders Equity

The Company’s ~~Amended~~Restated Certificate of Incorporation, as amended, provides for the issuance of up to 40 million shares of Class A Stock, par value $0.001 per share, and 160 million shares of Common Stock, par value $0.001 per share. Shares of Class A Stock are convertible, at any time, at the option of the holder into shares of Common Stock on ashare-for-share basis. Holders of Class A Stock have rights and privileges identical to Common Stockholders except that Class A Stockholders are entitled to ten votes per share, while Common Stockholders are entitled to one vote per share. Class A Stock may only be transferred to specified Permitted Transferees, as defined. ~~The~~Under the Company’s ~~board~~Restated Certificate of ~~directors~~Incorporation, as amended, the Company’s Board of Directors (the “Board”) is authorized to issue up to 30 million shares of preferred stock, in series, with rights, privileges, and qualifications of each series determined by the Board.

During 1996, the Company adopted a Shareholder Rights Plan in which Rights were distributed as a dividend at the rate of one Right for each share of Common Stock and Class A Stock (collectively, “Stock”) held by shareholders of record as of the close of business on October 18, 1996. Each Right initially entitles the registered holder to buy a unit (“Unit”) consisting of one-one thousandth of a share of Series A Junior Participating Preferred Stock (“A Preferred Stock”) at a purchase price of $120 per Unit (the “Purchase Price”). Initially the Rights were attached to all Stock certificates representing shares then outstanding, and no separate Rights certificates were distributed. The Rights will separate from the Stock and a “distribution date” will occur upon the earlier of (i) ten days after a public announcement that a person or group of affiliated or associated persons, excluding certain defined persons, (an “Acquiring Person”) has acquired, or has obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Stock or (ii) ten business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Stock. The Rights are not exercisable unless a distribution date occurs and will expire at the close of business on October 18, 2006 unless earlier redeemed by the Company, subject to certain defined restrictions, for $.01 per Right. In the event that an Acquiring Person becomes the beneficial owner of 20% or more of the then outstanding shares of Stock (unless such acquisition is made pursuant to a tender or exchange offer for all outstanding shares of the Company, at a price determined by a majority of the independent directors of the Company who are not representatives, nominees, affiliates, or associates of an Acquiring Person to be fair and otherwise in the best interest of the Company and its shareholders after receiving advice from one or more investment banking firms), each Right (other than Rights held by the Acquiring Person) will entitle the holder to purchase, at the Right’s then current exercise price, common shares (or, in certain circumstances, cash, property, or other securities of the Company) having a value twice the Right’s Exercise Price. The Right’s Exercise Price is the Purchase Price times the number of shares of Common Stock associated with each Right (initially, one). Upon the occurrence of any such events, the Rights held by an Acquiring Person become null and void. In certain circumstances, a Right entitles the

~~F-19~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

~~holder to receive, upon exercise, shares of common stock of an acquiring company having a value equal to two times the Right’s Exercise Price.~~

~~As a result of the Shareholder Rights Plan, the Company’s Board designated 100,000 shares of preferred stock as A Preferred Stock. The A Preferred Stock has certain preferences, as defined.~~

In October 2001, the Company completed a private placement of $200.0 million aggregate principal amount of senior subordinated notes, which are convertible into shares of the Company’s Common Stock. See Note ~~11d.~~

In March 2003, Novartis Pharma AG purchased $48.0 million of newly issued unregistered shares of the Company’s Common Stock. Regeneron issued 2,400,000 shares of Common Stock to Novartis in March 2003 and an additional 5,127,050 shares in May 2003 for a total of 7,527,050 shares based upon the average closing price of the Common Stock for the 20 consecutive trading days ending May 12, 2003. See Note 12b.11c.

In August 2003, Regeneron issued to Merck & Co., Inc., 109,450 newly issued unregistered shares of the Company’s Common Stock as consideration for a non-exclusive license agreement granted by Merck to the Company. In August 2004, the Company repurchased these shares from Merck for a purchase price of $0.9 million based on the fair market value of the shares on August 19, 2004. The shares were subsequently retired. See Note ~~11e.~~11d.

In ~~September 2003, Aventis Pharmaceuticals, Inc. (now~~November 2006, the Company completed a ~~member~~public offering of ~~the sanofi-aventis Group) purchased 2,799,552 newly issued unregistered~~7.6 million shares of ~~the Company’s~~ Common Stock ~~for $45.0 million, based upon the average closing~~at a price of ~~the Common Stock for the five consecutive trading days ending September 4, 2003. See Note 12a.~~$23.03 per share and received proceeds, after expenses, of $174.6 million.


11.	Commitments and Contingencies

~~a. Operating Leases~~


a.	*Operating Leases*

The Company currently leases approximately 236,000 square feet of laboratory and office facilities in Tarrytown, New York under operating lease ~~agreements~~agreements. In December 2006, the Company entered into a new operating lease agreement for approximately 221,000 square feet of laboratory and office space at the Company’s current Tarrytown location. The new lease includes approximately 27,000 square feet that the Company currently occupies (the “retained facilities”) and approximately 194,000 square feet to be located in new facilities that will be

F-19

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

constructed and which are expected to be completed in early 2009. The term of the lease is expected to commence in early-2008 and will expire ~~through December 2009~~approximately 16 years later. Under the new lease the Company also has various options and ~~contain~~rights on additional space at the Tarrytown site, and will continue to lease its present facilities until the new facilities are ready for occupancy. In addition, the lease contains three renewal options to extend the term of the lease by five years each and early termination options for the Company’s retained facilities only. The lease ~~extensions on certain~~provides for monthly payments over the term of the lease related to the Company’s retained facilities, ~~through~~the costs of construction and tenant improvements for the Company’s new facilities, and additional charges for utilities, taxes, and operating expenses.

In connection with the new lease agreement, in December ~~2014.~~ 2006, the Company issued a letter of credit in the amount of $1.6 million to its landlord, which is collateralized by a $1.6 million bank certificate of deposit. The certificate of deposit has been classified as restricted cash at December 31, 2006 in the accompanying financial statements.

The Company also leases manufacturing, office, and warehouse facilities in Rensselaer, New York under an operating lease agreement which expires in July ~~2007~~2012 and contains a renewal ~~options~~option to extend the lease for ~~two~~an additional five-year ~~terms~~term and a purchase option. The leases provide for base rent plus additional rental charges for utilities, taxes, and operating expenses, as defined.

The Company leases certain laboratory and office equipment under operating leases which expire at various times through ~~2009.~~2010.

AtBased, in part, upon budgeted construction and tenant improvement costs related to our new operating lease for facilities to be constructed in Tarrytown, New York, as described above, at December 31, ~~2005,~~2006, the estimated future minimum noncancelable lease commitments under operating leases were as follows:


December 31,	Facilities		Equipment		Total		Facilities		Equipment		Total

2006	$	4,571	$	205	$	4,776
2007		4,535		95		4,630	$	4,678	$	291	$	4,969
2008		1,800		25		1,825		4,678		212		4,890
2009		1,800		6		1,806		10,539		124		10,663
2010								11,876		13		11,889
2011								12,077				12,077
Thereafter								161,399				161,399

	$	12,706	$	331	$	13,037	$	205,247	$	640	$	205,887

~~F-20~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

Rent expense under operating leases was:


Year Ended December 31,	Facilities		Equipment		Total
Year Ending December 31,							Facilities		Equipment		Total

2006							$	4,492	$	307	$	4,799
2005	$	4,606	$	319	$	4,925		4,606		319		4,925
2004		5,351		303		5,654		5,351		303		5,654
2003		5,394		305		5,699

In addition to its rent expense for various facilities, the Company paid additional rental charges for utilities, real estate taxes, and operating expenses of ~~$9.5~~$8.7 million, ~~$6.0~~$9.5 million, and $6.0 million for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, respectively.

b. ~~Capital Leases~~Loan Payable

~~In 2003 and prior years, the Company had leased equipment under noncancelable capital leases. As of December 31, 2003, the Company had no remaining capital leases outstanding.~~


c.	*~~Loan Payable~~*

In March 2003, the Company entered into a collaboration agreement with Novartis Pharma AG. In accordance with that agreement, Regeneron funded its share of 2003 collaboration development expenses through a loan from

F-20

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Novartis, which bore interest at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly. In March 2004, Novartis forgave its outstanding loan to Regeneron totaling $17.8 million, including accrued interest, based on Regeneron’s achieving a pre-defined development milestone. See Note ~~12b.~~12c.


d.	*~~Convertible Debt~~*

c. Convertible Debt

In October 2001, the Company issued $200.0 million aggregate principal amount of convertible senior subordinated notes (“Notes”) in a private placement for proceeds to the Company of $192.7 million, after deducting the initial purchasers’ discount andout-of-pocket expenses (collectively, “Deferred Financing Costs”). The Notes bear interest at 5.5% per annum, payable semi-annually, and mature on October 17, 2008. Deferred Financing Costs, which are included in other assets, are amortized as interest expense over the period from the Notes’ issuance to stated maturity. The Notes are convertible, at the option of the holder at any time, into shares of the Company’s Common Stock at a conversion price of approximately $30.25 per share, subject to adjustment in certain circumstances. Regeneron may also redeem some or all of the Notes at any time if the closing price of the Company’s Common Stock has exceeded 140% of the conversion price then in effect for a specified period of time. The fair market value of the Notes fluctuates over time. The estimated fair value of the Notes at December 31, ~~2005~~2006 was approximately ~~$193.1~~$209.4 million.

With respect to the Notes, the Company pledged as collateral $31.6 million of U.S. government securities (“Restricted Marketable Securities”) which matured at various dates through October 2004. Upon maturity, the proceeds of the Restricted Marketable Securities paid the scheduled interest payments made on the Notes in 2002, 2003,d. Research Collaboration and ~~2004 when due. At December 31, 2004 there were no remaining Restricted Marketable Securities.~~Licensing Agreements


e.	*~~Research Collaboration and Licensing Agreements~~*

As part of the Company’s research and development efforts, the Company enters into research collaboration and licensing agreements with related and unrelated companies, scientific collaborators, universities, and consultants. These agreements contain varying terms and provisions which include fees and milestones to be paid by the Company, services to be provided, and ownership rights to certain proprietary technology developed under the agreements. Some of the agreements contain provisions which require the Company to pay royalties, as defined, at

~~F-21~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

rates that range from 0.25% to 16.5%, in the event the Company sells or licenses any proprietary products developed under the respective agreements.

Certain agreements under which the Company is required to pay fees permit the Company, upon 30 to90-day written notice, to terminate such agreements. With respect to payments associated with these agreements, the Company incurred expenses of $1.1 million, $1.0 million, ~~$1.4 million,~~ and ~~$2.7~~$1.4 million for the years ended December 31, 2006, 2005, and 2004, respectively.

In July 2002, Amgen Inc. and ~~2003, respectively.~~Immunex Corporation (now part of Amgen) granted the Company a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of the IL-1 Trap. The license followed two other licensing arrangements under which Regeneron obtained a non-exclusive license to patents owned by ZymoGenetics, Inc. and Tularik Inc. for use in connection with the IL-1 Trap program. These license agreements would require the Company to pay royalties based on the net sales of the IL-1 Trap if and when it is approved for sale. In total, the royalty rate under these three agreements would be in the mid-single digits.

In August 2003, Merck & Co., Inc. granted the Company a non-exclusive license agreement to certain patents and patent applications which may be used in the development and commercialization of products that act on the ciliary neurotrophic factor, or CNTF, receptor for the treatment of obesity. As consideration, the Company issued to Merck 109,450 newly issued unregistered shares of its Common Stock (the “Merck Shares”), valued at $1.5 million based on the fair market value of shares of the Company’s Common Stock on the agreement’s effective date. In August 2004, the Company repurchased from Merck, and subsequently retired, the Merck Shares for $0.9 million based on the fair market value of the shares on August 19, 2004. The Company also made a cash payment of $0.6 million to Merck as required under the license agreement. The agreement also requires the Company to make an additional payment to Merck upon receipt of marketing approval for a product covered by the licensed patents. In

F-21

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

addition, the Company would be required to pay royalties, at staggered rates in the mid-single digits, based on the net sales of products covered by the licensed patents.


12.	Research and Development Agreements

The Company has entered into various agreements related to its activities to develop and commercialize product candidates and utilize its technology platforms. Amounts earned by the Company in connection with these agreements, which were recognized as contract research and development revenue, research progress payments, or other contract income, as applicable, totaled $51.1 million, $83.1 million, and $198.7 million in 2006, 2005, and ~~$47.4 million in 2005,~~ 2004, ~~and 2003,~~ respectively. Total Company incurred expenses associated with these agreements, which include reimbursable and non-reimbursable amounts and an allocable portion of general and administrative costs, were $43.4 million, $42.2 million and $75.3 million in 2006, 2005, and ~~$56.0 million in 2005,~~ 2004, ~~and 2003,~~ respectively. Significant agreements of this kind are described below.


a.	~~The sanofi-aventis Group~~

a. The sanofi-aventis Group

In September 2003, the Company entered into a collaboration agreement (the “Aventis Agreement”) with the 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, sanofi-aventis made a non-refundable up-front payment of $80.0 million and purchased 2,799,552 newly issued unregistered shares of the Company’s Common Stock for $45.0 ~~million, based upon the average closing price of the Common Stock for the five consecutive trading days ending September 4, 2003.~~million.

In January 2005, the Company and sanofi-aventis amended the Aventis Agreement to exclude intraocular delivery of the VEGF Trap to the eye (“Intraocular Delivery”) from joint development under the agreement, and product rights to the VEGF Trap in Intraocular Delivery reverted to Regeneron. In connection with this amendment, sanofi-aventis made a $25.0 million non-refundable payment to Regeneron (the “Intraocular Termination Payment”) in January 2005.

In December 2005, the Company and sanofi-aventis amended the Aventis Agreement to expand the territory in which the companies are collaborating on the development of the VEGF Trap to include Japan. ~~As a result, the collaboration now includes joint development of the VEGF Trap throughout the world in all indications, except for Intraocular Delivery.~~ In connection with this amendment, sanofi-aventis agreed to make a $25.0 million non-refundable up-front payment to the Company, which was received in January 2006. Under the Aventis Agreement, as amended, the Company 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 the companies’ collaboration. The Company ~~may also receive up~~is entitled to ~~$40.0 million in milestone payments upon receipt of specified marketing approvals for up to five VEGF Trap~~

~~F-22~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

~~indications in Japan and~~ a royalty of approximately 35% on annual sales of the VEGF Trap in Japan, subject to certain potential adjustments.

Under the Aventis Agreement, as amended, Regeneron and sanofi-aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap outside of Japan, except for sales in Intraocular Delivery. The Company may also receive up to $400.0 million in additional milestone payments upon receipt of specified marketing ~~approvals, including~~approvals. This total includes up to $360.0 million in milestone payments related to the 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. In December 2004, ~~Regeneron~~the Company earned a $25.0 million payment from sanofi-aventis, which was received in January 2005, upon the achievement of an early-stage clinical milestone.

Under the Aventis 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, Regeneron will be obligated to reimburse sanofi-aventis for 50% of these development expenses, or half of ~~$130.5~~$205.0 million as of December 31, ~~2005,~~2006, in accordance with a formula based on the amount of development expenses and Regeneron’s share of the collaboration profits and Japan royalties, or at a faster rate at Regeneron’s option. Regeneron has the option to conduct additional pre-Phase III studies at its own expense. In connection with the January 2005 amendment to the Aventis Agreement, the Intraocular Termination Payment of $25.0 million will be considered a VEGF Trap development expense and will be subject to 50% reimbursement by Regeneron to

F-22

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

sanofi-aventis, as described above, if the collaboration becomes profitable. In addition, if the first commercial sale of a VEGF Trap product in Intraocular Delivery predates the first commercial sale of a VEGF Trap product under the collaboration by two years, Regeneron will begin reimbursing sanofi-aventis for up to $7.5 million of VEGF Trap development expenses in accordance with a formula until the first commercial VEGF Trap sale under the collaboration occurs.

Sanofi-aventis has the right to terminate the agreement without cause with at least twelve months advance notice. Upon termination of the agreement for any reason, Regeneron’s obligation to reimburse sanofi-aventis, for 50% of VEGF Trap development expenses will terminate, and the Company will retain all rights to the VEGF Trap.

Revenue related to payments from sanofi-aventis is being recognized ~~under the Substantive Milestone Method (see Note 2)~~ in accordance with SAB ~~104.~~104 and EITF00-21 (see Note 2). The up-front payments received in September 2003 and January 2006, of $80.0 million and $25.0 million, respectively, and reimbursement of Regeneron-incurred development expenses, are being recognized as contract research and development revenue over the ~~development~~related performance period. Milestone payments are classified as research progress payments. In addition to the $25.0 million research progress payment earned in 2004, the Company recognized $47.8 million, $43.4 million, ~~$78.3 million,~~ and ~~$14.3~~$78.3 million of contract research and development revenue in 2006, 2005, ~~2004,~~ and ~~2003,~~2004, respectively, in connection with the Aventis Agreement. The Company also recognized the $25.0 million Intraocular Termination Payment as other contract income in 2005. At December 31, ~~2005~~2006 and ~~2004,~~2005, amounts receivable from sanofi-aventis totaled ~~$36.4~~$6.9 million and ~~$39.4~~$36.4 million, respectively, and deferred revenue was $70.0 million and $81.6 million, respectively.

b. Bayer Healthcare LLC

In October 2006, the Company entered into a license and ~~$65.8~~collaboration agreement (the “Bayer Agreement”) with Bayer HealthCare LLC to globally develop, and commercialize outside the United States, the Company’s VEGF Trap for the treatment of eye disease by local administration (“VEGF Trap-Eye”). Under the terms of the agreement, Bayer made a non-refundable up-front payment to the Company of $75.0 million. In addition, the Company is eligible to receive up to $110.0 million ~~respectively.~~in development and regulatory milestones, including a total of $40.0 million upon the initiation of Phase 3 trials in defined major indications. The Company is also eligible to receive up to an additional $135.0 million in sales milestones when and if total annual sales of the VEGF Trap-Eye outside the United States achieve certain specified levels starting at $200.0 million.

The Company will share equally with Bayer in any future profits arising from the commercialization of the VEGF Trap-Eye outside the United States. If the VEGF Trap-Eye is granted marketing authorization in a major market country outside the United States and the collaboration becomes profitable, the Company will be obligated to reimburse Bayer out of the Company’s share of the collaboration profits for 50% of the agreed upon development expenses that Bayer has incurred in accordance with a formula based on the amount of development expenses that Bayer has incurred and the Company’s share of the collaboration profits, or at a faster rate at the Company’s option. Within the United States, the Company is responsible for any future commercialization of the VEGF Trap-Eye and has retained exclusive rights to any future profits arising therefrom.

Agreed upon development expenses incurred by both companies, beginning in 2007, under a global development plan will be shared as follows:


b.	~~Novartis Pharma AG~~2007:	Up to $50.0 million shared equally; the Company is solely responsible for up to the next $40.0 million; over $90.0 million shared equally.

	2008:	Up to $70.0 million shared equally, the Company is solely responsible for up to the next $30.0 million; over $100.0 million shared equally.


	2009 and thereafter:	All expenses shared equally.

F-23

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Neither party will be reimbursed for any development expenses that it incurred prior to 2007.

Regeneron is obligated to use commercially reasonable efforts to supply clinical and commercial product requirements.

Bayer has the right to terminate the Bayer Agreement without cause with at least six months or twelve months advance notice depending on defined circumstances at the time of termination. In the event of termination of the agreement for any reason, the Company retains all rights to the VEGF Trap-Eye.

Revenue related to the Bayer Agreement will be recognized in accordance with SAB 104 and EITF00-21 (see Note 2). The $75.0 million up-front payment received in October 2006 was deferred upon receipt. When the Company and Bayer have formalized their projected global development plans for the VEGF Trap-Eye, as well as the projected responsibilities of each of the companies under such development plans, the Company will begin recognizing contract research and development revenue related to payments from Bayer. At December 31, 2006, there were no amounts receivable from Bayer, and deferred revenue was $75.0 million.

c. Novartis Pharma AG

In March 2003, the Company entered into a collaboration agreement (the “Novartis Agreement”) with Novartis Pharma AG to jointly develop and commercialize the Company’s Interleukin-1 Cytokine Trap (“IL-1 Trap”). In connection with this agreement, Novartis made a non-refundable up-front payment to the Company of $27.0 million and purchased $48.0 million of newly issued unregistered shares of the Company’s Common Stock. Regeneron issued 2,400,000 shares of Common Stock to Novartis in March 2003 and an additional 5,127,050 shares in May 2003 for a total of 7,527,050 shares based upon the average closing price of the Common Stock for the 20 consecutive trading days ending May 12, 2003.million.

Development expenses incurred during 2003 were shared equally by the Company and Novartis. Regeneron funded its share of 2003 development expenses through a loan (the “2003 Loan”) from Novartis, which bore interest

~~F-23~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

at a rate per annum equal to the LIBOR rate plus 2.5%, compounded quarterly. As of December 31, 2003, the 2003 Loan balance due Novartis, including accrued interest, totaled $13.8 million. In March 2004, Novartis forgave the 2003 Loan and accrued interest thereon, totaling $17.8 million, based on Regeneron’s achieving a pre-defined development milestone.

In February 2004, Novartis provided notice of its intention not to proceed with the joint development of theIL-1 Trap. In March 2004, Novartis agreed to pay the Company $42.75 million to satisfy its obligation to fund development costs for the IL-1 Trap for the nine month period following its notification and for the two months prior to that notice. The Company recorded the $42.75 million as other contract income in 2004. Regeneron and Novartis each retain rights under the collaboration agreement to elect to collaborate in the future on the development and commercialization of certain other IL-1 antagonists.

Revenue related to payments from Novartis was recognized under the Substantive Milestone Method (see Note 2) in accordance with SAB 104. The up-front payment of $27.0 million and reimbursement of Novartis’ share of Regeneron-incurred development expenses were recognized as contract research and development revenue. Forgiveness in 2004 of the 2003 Loan and accrued interest was recognized as a research progress payment. In 2003, the Company recognized $21.4 million of contract research and development revenue in connection with the Novartis Agreement. In 2004, the Company recognized contract research and development revenue of $22.1 million in connection with the Novartis Agreement, which represented the remaining amount of the $27.0 million up-front payment from Novartis that had previously been deferred. ~~At December 31, 2005 and 2004, there were no amounts receivable from Novartis and no deferred revenue.~~


c.	~~Amgen Inc.~~

In August 1990, the Company entered into a collaboration agreement (the “Amgen Agreement”) with Amgen Inc. to develop and attempt to commercialize two proprietary products (the “Products”). The Amgen Agreement, among other things, provided for Amgen and the Company to form a partnership (“Amgen-Regeneron Partners” or the “Partnership”) to complete the development and to commercialize the Products. Amgen and the Company held equal ownership interests in the Partnership. In November 2005, the Company and Amgen agreed to terminate the Amgen Agreement and Amgen-Regeneron Partners, as there were no ongoing activities to develop the Products, and in December 2005, the Company and Amgen each made capital withdrawals of $0.5 million from the Partnership. Neither party is entitled to receive royalties based on any products arising from the collaboration. The Company accounted for its investment in the Partnership in accordance with the equity method of accounting. In 2005, 2004, and 2003, the Company recognized its shareaddition, forgiveness of the ~~Partnership net income (loss)~~2003 Loan and accrued interest in ~~the amounts of $10 thousand, $134 thousand, and ($63 thousand), respectively, which represents 50% of the total Partnership net income (loss). Selected financial data of the Partnership~~2004 was recognized as ~~of and for the years ended December 31, 2005, 2004, and 2003 are not significant.~~

~~In July 2002, Amgen and Immunex Corporation (now part of Amgen) granted the Company~~ a non-exclusive license to certain patents and patent applications which may be used in the development and commercialization of the IL-1 Trap. The license followed two other licensing arrangements under which Regeneron obtained a non-exclusive license to patents owned by ZymoGenetics, Inc. and Tularik Inc. for use in connection with the IL-1 Trap program. These license agreements would require the Company to pay royalties based on the net sales of the IL-1 Trap if and when it is approved for sale. In total, the royalty rate under these three agreements would be in the mid-single digits.


d.	~~Sumitomo Chemical Company, Ltd.~~

During 1989, Sumitomo Chemical Co., Ltd. entered into a Technology Development Agreement (“TDA”) with Regeneron and paid the Company $5.6 million. In consideration for this payment, Sumitomo Chemical

~~F-24~~

~~REGENERON PHARMACEUTICALS, INC.~~
research progress payment.

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

~~(Unless otherwise noted, dollars in thousands, except per share data)~~d. The Procter & Gamble Company

received a fifteen year limited right of first negotiation to license up to three of the Company’s product candidates in Japan. In connection with the Company’s implementation of SAB 101 (see Note 2), the Company recognized this payment as revenue on a straight-line basis over the term of the TDA. The TDA expired in March 2004.


e.	~~The Procter & Gamble Company~~

In May 1997, the Company entered into a long-term collaboration ~~agreement~~ with The Procter & Gamble Company to discover, develop, and commercialize pharmaceutical products, and Procter & Gamble agreed to provide funding for Regeneron’s research efforts related to the collaboration.

Effective December 31, 2000, in accordance with the ~~Company and Procter & Gamble entered into a new~~companies’ collaboration agreement (the “P&G Agreement”), ~~replacing the companies’ May 1997 agreement. The P&G Agreement extended~~ Procter & ~~Gamble’s obligation~~Gamble was obligated to fund Regeneron ~~research through December 2005, with no further research obligations by either party thereafter, and focused the companies’ collaborative~~ research on therapeutic areas that were of particular interest to Procter & ~~Gamble.~~Gamble through December 2005, with no further research obligations by either party thereafter. Under the P&G Agreement, research support from Procter & Gamble was $2.5 million per quarter, plus adjustments for inflation, through December 2005. ~~Procter & Gamble and the Company divided rights to programs from their former collaboration agreement that were no longer part of the P&G Agreement.~~

F-24

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

In June 2005, the Company and Procter & Gamble amended the P&G Agreement. Pursuant to the terms of the modified agreement, the Company and Procter & Gamble agreed that the research activities of the parties under the P&G Agreement were completed on June 30, 2005, six months prior to the December 31, 2005 expiration date in the P&G Agreement. In connection with the amendment, Procter & Gamble made a one-time $5.6 million payment to Regeneron and the Company paid approximately $1.0 million to Procter & Gamble to acquire certain capital equipment owned by Procter & Gamble and located at the Company’s facilities. Procter & Gamble and the Company divided rights to research programs and pre-clinical product candidates that were developed during the research term of the P&G 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. In addition, in 1997 through 1999,~~collaboration, and Procter & Gamble ~~provided research support for the Company’s AXOKINE program and, as a result, will be~~is entitled to receive a small royalty on any sales of ~~AXOKINE.~~a single Regeneron candidate that is currently not being developed. Neither party is entitled to receive royalties or other payments based on any other products arising from the collaboration.

Contract research and development revenue related to the Company’s collaboration with Procter & Gamble was $6.0 million ~~$10.5 million,~~ and ~~$10.6~~$10.5 million in 2005 ~~2004,~~ and ~~2003,~~2004, respectively. In addition, the one-time $5.6 million payment made by Procter & Gamble to the Company in connection with the amendment to the P&G Agreement was recognized as other contract income in 2005. At December 31, 2004 and 2003, amounts receivable from Procter & Gamble totaled $2.3 million and $2.7 million, respectively. At December 31, 2005, there were no amounts receivable from Procter & Gamble.


f.	~~Serono, S.A.~~

e. Serono, S.A.

In December 2002, the Company entered into an agreement (the “Serono Agreement”) with Serono S.A. to use Regeneron’s proprietary VelociGene^® technology platform to provide Serono with knock-out and transgenic mammalian models of gene function (“Materials”). Serono made an advance payment of $1.5 million (the “Retainer”) to Regeneron in December 2002, which was accounted for as deferred revenue. Regeneron recognizes revenue and reduces the Retainer as Materials are shipped to and accepted by Serono. The Serono Agreement contains provisions for minimum yearly order quantities and replenishment of the Retainer when the balance declines below a specified threshold. In 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company recognized $1.8 million, $2.2 million, ~~$2.1 million,~~

~~F-25~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

and ~~$0.7~~$2.1 million, respectively, of contract research and development revenue in connection with the Serono Agreement.

f. National Institutes of Health

In September 2006, the Company was awarded a grant from the National Institutes of Health (“NIH”) as part of the NIH’s Knockout Mouse Project. The NIH grant provides a minimum of $17.9 million in funding over a five-year period, subject to compliance with its terms and annual funding approvals, for the Company’s use of its VelociGene technology to generate a collection of targeting vectors and targeted mouse embryonic stem cells (“ES Cells”) which can be used to produce knockout mice. The Company will also receive another $1.0 million in funding to optimize certain existing technology for use in the Knockout Mouse Project. In 2006, the Company recognized contract research and development revenue of $0.5 million from the NIH Grant.


13.	Manufacturing Agreement

During 1995, the Company entered into a long-term manufacturing agreement with Merck & Co., Inc., as amended, (the “Merck Agreement”) to produce an intermediate (the “Intermediate”) for a Merck pediatric vaccine at the Company’s Rensselaer, New York facility. The Company ~~agreed to modify~~modified portions of its facility for manufacture of the Intermediate and ~~to assist~~assisted Merck in securing regulatory approval for such manufacture in the Company’s facility. The Merck Agreement ~~calls~~called for the Company to manufacture Intermediate for Merck for a specified period of time (the “Production Period”), with certain minimum order quantities each year. The Production Period commenced in

F-25

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

November of 1999 and originally extended for six years. In February 2005, the Company and Merck amended the Merck Agreement to extend the Production Period through October 2006, ~~after~~at which time the Merck Agreement ~~will terminate.~~terminated.

Merck agreed to reimburse the Company for the capital costs to modify the facility (“Capital Costs”). Merck also agreed to pay an annual facility fee (the “Facility Fee”) of $1.0 million beginning March 1995, subject to annual adjustment for inflation. During the Production Period, Merck agreed to reimburse the Company for certain manufacturing costs, pay the Company a variable fee based on the quantity of Intermediate supplied to Merck, and make additional bi-annual payments (“Additional Payments”), as defined. In addition, Merck agreed to reimburse the Company for the cost of Company activities performed on behalf of Merck prior to the Production Period and for miscellaneous costs during the Production Period (“Internal Costs”). These payments ~~are~~were recognized as contract manufacturing revenue as follows: (i) payments for Internal Costs ~~are~~were recognized as the activities ~~are~~were performed, (ii) the Facility Fee and Additional Payments ~~are~~were recognized over the period to which they ~~relate,~~related, (iii) payments for Capital Costs were deferred and ~~are~~ recognized as Intermediate iswas shipped to Merck, and (iv) payments related to the manufacture of Intermediate during the Production Period (“Manufacturing Payments”) ~~are~~were recognized after the Intermediate iswas tested and approved by, and shipped (FOB Shipping Point) to, Merck.

In 2006, 2005, ~~2004,~~ and ~~2003,~~2004, Merck contract manufacturing revenue totaled $12.3 million, $13.7 million, ~~$18.1 million,~~ and ~~$10.1~~$18.1 million, respectively. Such amounts include $1.2 million, $1.4 million, ~~$3.6 million,~~ and ~~$1.7~~$3.6 million of previously deferred Capital Costs, respectively.


14.	~~Incentive and Stock Purchase Plans~~


a.	*Long-Term Incentive Plans*

During 2000, the Company established the Regeneron Pharmaceuticals, Inc. 2000 Long-Term Incentive Plan (“2000 Incentive Plan”) which, as amended, provides for the issuance of up to 18,500,000 shares of Common Stock in respect of awards. In addition, shares of Common Stock previously approved by shareholders for issuance under the Regeneron Pharmaceuticals, 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. Employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the Company’s board of directors, (collectively, “Participants”) may receive awards as determined by a committee of independent directors (“Committee”). The awards that may be made under the 2000 Incentive Plan include: (a) Incentive Stock Options (“ISOs”) and Nonqualified Stock Options, (b) shares of Restricted Stock, (c) shares of Phantom Stock, (d) Stock Bonuses, and (e) Other Awards.

Stock Option awards grant Participants the right to purchase shares of Common Stock at prices determined by the Committee; 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 Option is granted. Options vest over a period of time determined by the

~~F-26~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

Committee, generally on a pro rata basis over a three to five year period. The Committee also determines the expiration date of each Option; however, no ISO is exercisable more than ten years after the date of grant.

Restricted Stock awards grant Participants shares of restricted Common Stock or allow Participants to purchase such shares at a price determined by the Committee. Such shares are nontransferable for a period determined by the Committee (“vesting period”). Should employment terminate, as defined by the 2000 Incentive Plan, the ownership of the Restricted Stock, which has not vested, will be transferred to the Company, except under defined circumstances with Committee approval, in consideration of amounts, if any, paid by the Participant to acquire such shares. In addition, if the Company requires a return of the Restricted Shares, it also has the right to require a return of all dividends paid on such shares.

Phantom Stock awards provide the Participant the right to receive, within 30 days of the date on which the share vests, an amount, in cashand/or shares of the Company’s Common Stock as determined by the Committee,

F-26

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

equal to the sum of the fair market value of a share of Common Stock on the date such share of Phantom Stock vests and the aggregate amount of cash dividends paid with respect to a share of Common Stock during the period from the grant date of the share of Phantom Stock to the date on which the share vests. Stock Bonus awards are bonuses payable in shares of Common Stock which are granted at the discretion of the Committee.

Other Awards are other forms of awards which are valued based on the Company’s Common Stock. Subject to the provisions of the 2000 Incentive Plan, the terms and provisions of such Other Awards are determined solely on the authority of the Committee.

During 1990, the Company established the 1990 Incentive Plan which, as amended, provided for a maximum of 6,900,000 shares of Common Stock in respect of awards. Employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the Company’s board of directors, received awards as determined by a committee of independent directors. Under the provisions of the 1990 Incentive Plan, there will be no future awards from the plan. Awards under the 1990 Incentive Plan consisted of Incentive Stock Options and Nonqualified Stock Options which generally vest on a pro rata basis over a three or five year period and have a term of ten years.

The 1990 and 2000 Incentive Plans contain provisions that allow for the Committee to provide for the immediate vesting of awards upon a change in control of the Company, as defined.

As ~~described in Note 2, effective January 1, 2005, the Company adopted the fair value based method~~ of ~~accounting~~December 31, 2006, there were 4,132,249 shares available for ~~stock-based employee compensation~~future grants under the provisions of SFAS 123 using the modified prospective method as described in SFAS 148. As a result, effective January 1, 2005, the Company has been 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) 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 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 results have not been restated. The effect on the Company’s net income (loss) and net income (loss) per share for the years ended December 31, 2004 and 2003, had compensation costs for the2000 Incentive ~~Plans been determined in accordance with the fair value based method of accounting for stock-based employee compensation as prescribed by SFAS 123, is shown in Note 2.~~

Prior to the Company’s adoption of SFAS 123, in accordance with APB 25 and related interpretations, the Company recorded compensation expense from issuances of employee Restricted Stock awards. When the terms of

~~F-27~~

~~REGENERON PHARMACEUTICALS, INC.~~
Plan.

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

~~(Unless otherwise noted, dollars in thousands, except per share data)~~a. Stock Options

~~the award were fixed, compensation expense for Restricted Stock awards totaled the grant date intrinsic value, amortized over the vesting period.~~

Transactions involving stock option awards during 2004, 2005, ~~2004,~~ and ~~2003~~2006 under the 1990 and 2000 Incentive Plans are summarized in the table below.

Weighted-Average

Number of Shares Exercise Price

Stock options outstanding at December 31, 2002 11,563,950 $ 21.08
2003:

Stock options granted 2,634,570 $ 13.45
Stock options canceled (265,107 ) $ 22.62
Stock options exercised (795,114 ) $ 7.07

Stock options outstanding at December 31, 2003 13,138,299 $ 20.36
2004:

Stock options granted 2,828,484 $ 9.90
Stock options canceled (514,947 ) $ 21.10
Stock options exercised (311,268 ) $ 5.98

Stock options outstanding at December 31, 2004 15,140,568 $ 18.68
2005:

Stock options granted 4,551,360 $ 10.08
Stock options canceled (4,374,518 ) $ 25.96
Stock options exercised (597,918 ) $ 9.50

Stock options outstanding at December 31, 2005 14,719,492 $ 14.23

Weighted-
Weighted-Average

Average
Remaining

Stock Options:
Number of Shares Exercise Price Contractual Term Intrinsic Value
(in years) (in thousands)

Outstanding at December 31, 2003 13,138,299 $ 20.36
2004:

Granted 2,828,484 $ 9.90
Forfeited (343,994 ) $ 19.53
Expired (170,953 ) $ 24.26
Exercised (311,268 ) $ 5.98

Outstanding at December 31, 2004 15,140,568 $ 18.68
2005:

Granted 4,551,360 $ 10.08
Forfeited (1,975,108 ) $ 20.83
Expired (2,399,410 ) $ 30.18
Exercised (597,918 ) $ 9.50

Outstanding at December 31, 2005 14,719,492 $ 14.23
(continued)

F-27

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

Weighted-
Weighted-Average

Average
Remaining

Stock Options (continued):
Number of Shares Exercise Price Contractual Term Intrinsic Value
(in years) (in thousands)

2006:

Granted 2,742,260 $ 19.59
Forfeited (338,122 ) $ 10.51
Expired (172,218 ) $ 24.23
Exercised (1,408,907 ) $ 9.84

Outstanding at December 31, 2006 15,542,505 $ 15.54 6.8 $ 96,827

Vested and expected to vest at December 31, 2006 14,899,611 $ 15.65 6.7 $ 92,270
Exercisable at December 31, 2004 8,628,873 $ 21.05
Exercisable at December 31, 2005 7,321,256 $ 17.79
Exercisable at December 31, 2006 7,890,856 $ 17.41 5.4 $ 47,028

~~In addition, in October 2005, the Company accelerated vesting~~The total intrinsic value of ~~certain~~ stock options ~~held~~exercised during 2006, 2005, and 2004 was $13.2 million, $1.6 million, and $1.3 million, respectively. The intrinsic value represents the amount by ~~employees affected by~~which the ~~Company’s 2005 workforce reductions (see Note 3).~~market price of the underlying stock exceeds the exercise price of an option.

The Company grants stock options with exercise prices that are equal to or greater than the ~~fair~~ market ~~value~~price of the Company’s Common Stock on the date of grant. The table below summarizes the weighted-average exercise prices and weighted-average grant-date fair values of options issued during the years ended December 31, ~~2003,~~ 2004, 2005, and 2005. The total number of options exercisable at December 31, 2005, 2004, and 2003 was 7,321,256, 8,628,873, and 5,940,268, respectively, with weighted average exercise prices of $17.79, $21.05, and $19.45, respectively.2006.


	Number of Options		Weighted-Average		Weighted-Average				Weighted-		Weighted-
	Granted		Exercise Price		Fair Value		Number of		Average Exercise		Average Fair
	Options Granted		Price		Value
2003:
Exercise price equal to market price		2,634,570	$	13.45	$	10.12

2004:
Exercise price equal to market price		2,796,873	$	9.89	$	7.53		2,796,873	$	9.89	$	7.53
Exercise price greater than market price		31,611	$	10.44	$	6.10		31,611	$	10.44	$	6.10

Total 2004 grants		2,828,484	$	9.90	$	7.51		2,828,484	$	9.90	$	7.51

2005:
Exercise price equal to market price		4,551,360	$	10.08	$	6.68		4,551,360	$	10.08	$	6.68
2006:
Exercise price equal to market price								2,742,260	$	19.59	$	12.82

F-28

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

The following table summarizes stock option information as of December 31, ~~2005:~~2006:

Options Outstanding Options Exercisable
Weighted Average
Weighted
Weighted

Range of
Number
Remaining
Average
Number
Average

Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price

$ 4.83 to $ 8.50 2,689,022 5.32 $ 8.13 760,533 $ 7.40
$ 8.52 to $ 9.49 3,420,139 7.30 $ 9.24 1,593,794 $ 9.00
$ 9.50 to $11.64 2,970,544 8.20 $ 11.32 594,488 $ 10.14
$ 11.75 to $16.56 2,493,682 7.69 $ 13.17 1,422,294 $ 13.11
$ 16.59 to $37.78 2,996,105 6.00 $ 27.70 2,800,147 $ 28.26
$ 37.94 to $51.56 150,000 4.67 $ 43.39 150,000 $ 43.39

$ 4.83 to $51.56 14,719,492 6.90 $ 14.23 7,321,256 $ 17.79

Options Outstanding Options Exercisable
Weighted-Average
Weighted-
Weighted-

Range of
Number
Remaining
Average
Number
Average

Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price

$ 4.83 to $ 8.50 2,281,208 4.36 $ 8.18 740,638 $ 7.66
$ 8.52 to $10.56 3,164,750 6.10 $ 9.37 1,983,333 $ 9.31
$10.84 to $11.64 2,226,650 8.94 $ 11.64 552,353 $ 11.63
$11.70 to $17.89 2,535,210 7.22 $ 13.47 1,638,630 $ 13.15
$18.17 to $24.02 3,358,328 8.76 $ 20.07 999,543 $ 19.47
$24.60 to $37.94 1,916,359 4.43 $ 32.71 1,916,359 $ 32.71
$51.56 to $51.56 60,000 3.16 $ 51.56 60,000 $ 51.56

$ 4.83 to $51.56 15,542,505 6.79 $ 15.54 7,890,856 $ 17.41

Non-cash stock-based employee compensation expense recognized in operating expenses is provided in Note 2. As of December 31, 2006, there was $44.0 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. The Company expects to recognize this compensation cost over a weighted-average period of 1.9 years. In addition, there are 723,092 options which are unvested as of December 31, 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 is considered to be probable of attainment.
Fair value Assumptions:

The fair value of each option granted under the Regeneron Pharmaceuticals, Inc. 2000 Incentive Plan during 2006, 2005, ~~2004,~~ and ~~2003~~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 members of the Company’s board of 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 ~~which is re-evaluated at least quarterly,~~ 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 following table summarizes the weighted average values of the assumptions used in computing the fair value of option grants during 2006, 2005, ~~2004,~~ and ~~2003.~~2004.

2005 2004 2003 2006 2005 2004

Expected volatility 71% 80% 80% 67% 71% 80%
Expected lives from grant date 5.9 years 7.5 years 7.3 years 6.5 years 5.9 years 7.5 years
Dividend yield 0% 0% 0%
Expected dividend yield 0% 0% 0%
Risk-free interest rate 4.16% 4.03% 3.75% 4.51% 4.16% 4.03%
During 2004 and 2003, 105,052 and 219,367 shares, respectively, of Restricted Stock were awarded under the 2000 Incentive Plan. No shares of Restricted Stock were awarded in 2005. These shares are nontransferable with such restriction lapsing (i) for 2004 awards, with respect to 50% of the shares at nine months and eighteen months from date of grant and (ii) for 2003 awards, with respect to 25% of the shares every six months over the approximately two-year period from date of grant. In accordance with generally accepted accounting principles, the Company recorded unearned compensation within Stockholders’ Equity of $1.0 million and $2.9 million in 2004 and 2003, respectively, related to these awards. This amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and will be expensed, on a pro rata basis, over the period that the restriction on these shares lapses. During 2005, 2004, and 2003, 4,601, 18,194, and 4,431 shares, respectively, of Restricted Stock were forfeited due to employee terminations. The Company reduced unearned compensation within Stockholders’ Equity by $0.1 million, $0.3 million, and $0.1 million in 2005, 2004, and 2003, respectively, related to these forfeited awards.
The Company recognized non-cash compensation expense from Restricted Stock awards of $1.9 million, $2.5 million, and $2.3 million in 2005, 2004, and 2003, respectively. In addition, due to the adoption of SFAS 123

F-29

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

~~effective January 1,~~ 2005 non-cash compensation expense related to stock option awards totaled $20.0 million in 2005, of which $19.9 million was recognized in operating expenses and $0.1 million was capitalized into inventory.

~~As of December 31, 2005, there were 6,684,884 shares available for future grants under the 2000 Incentive Plan.~~Stock Option Exchange:

In December 2004, the Company’s shareholders approved a stock option exchange program. Under the program, Company regular employees who work 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 1990 and 2000 Incentive Plans that had an exercise price 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 to be
	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 the Company issued 1,977,840 replacement options with an exercise price of $8.50 per share on January 5, 2005.

Each replacement option was completely unvested upon grant. Each replacement option granted to an employee other than our executive vice president and senior vice presidents will ordinarily become vested and exercisable with respect to one-fourth of the shares initially underlying such option on each of the first, second, third and fourth anniversaries of the grant date so that such replacement option will be fully vested and exercisable four years after it was granted. Each replacement option granted to our executive vice president and senior vice presidents will ordinarily vest with respect to all shares underlying such option if both (i) the Company’s products have achieved gross sales of at least $100 million during any consecutive twelve month period (either directly by the Company or through its licenses) and (ii) the specific ~~senior~~executive or ~~executive~~senior vice president has remained employed by the Company for at least three years from the date of grant. For all replacement options, the recipient’s vesting and exercise rights are contingent upon the ~~recipient’s~~recipients continued employment through the applicable vesting date and subject to the other terms of the 2000 Incentive Plan and the applicable option award agreement. As is generally the case with respect to the option award agreements for options that were eligible for exchange pursuant to the stock option exchange program, the option award agreements for replacement options include provisions whereby the replacement options may be fully vested in connection with a ~~“change~~“Change in ~~control”~~Control” of the Company, as defined in the 2000 Incentive Plan.

Under the stock option exchange program, each replacement option has a term equal to the greater of (i) the remaining term of the surrendered option it replaces and (ii) six years from the date of grant of the replacement option. This was intended to ensure that the employees who participated in the stock option exchange program would not derive any additional benefit from an extended option term unless the surrendered option had a remaining term of less than six years.

F-30

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

b. ~~Executive~~Restricted Stock ~~Purchase Plan~~

A summary of the Company’s activity related to Restricted Stock awards for the years ended December 31, 2004, 2005, and 2006 is summarized below:

Weighted-

Average

Grant Date

Restricted Stock:
Number of Shares Fair Value

Outstanding at December 31, 2003 338,116 $ 15.74
2004:
Granted 105,052 $ 9.55
Forfeited (18,194 ) $ 14.39
Released (138,557 ) $ 18.12

Outstanding at December 31, 2004 286,417 $ 12.40
2005:
Forfeited (4,601 ) $ 11.70
Released (186,628 ) $ 13.05

Outstanding at December 31, 2005 95,188 $ 11.16
2006:
Forfeited (1,703 ) $ 9.74
Released (93,485 ) $ 11.18

Outstanding at December 31, 2006 —

In accordance with generally accepted accounting principles, the Company recorded unearned compensation in Stockholders’ Equity related to grants of Restricted Stock awards. This amount was based on the fair market value of shares of the Company’s Common Stock on the date of grant and was expensed, on a pro rata basis, over the period that the restriction on these shares lapsed, which was approximately two years for grants issued in 2003 and 18 months for grants issued in 2004. In addition, unearned compensation in Stockholders’ Equity was reduced due to forfeitures of Restricted Stock resulting from employee terminations. 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.
In connection with grants of Restricted Stock awards, the Company recorded unearned compensation in Stockholders’ Equity of $1.0 million in 2004 and in connection with forfeitures of these awards, the Company reduced unearned compensation by $17 thousand, $0.1 million, and $0.3 million in 2006, 2005, and 2004, respectively. The Company recognized non-cash compensation expense from Restricted Stock awards of $0.3 million, $1.9 million, and $2.5 million in 2006, 2005, and 2004, respectively. As of December 31, 2006, there were no unvested shares of restricted stock outstanding and all compensation expense related to these awards had been recognized.
15. Executive Stock Purchase Plan

In 1989, the Company adopted an Executive Stock Purchase Plan (the “Plan”) under which 1,027,500 shares of Class A Stock were reserved for restricted stock awards. The Plan provides for the compensation committee of the board of directors to award employees, directors, consultants, and other individuals (“Plan participants”) who render service to the Company the right to purchase Class A Stock at a price set by the compensation committee. The Plan provides for the vesting of shares as determined by the compensation committee and, should the Company’s relationship with a Plan participant terminate before all shares are vested, unvested shares will be repurchased by the Company at a price per share equal to the original amount paid by the Plan participant. During

F-31

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

1989 and 1990, a total of 983,254 shares were issued, all of which vested as of December 31, 1999. As of December 31, ~~2005,~~2006, there were 44,246 shares available for future grants under the Plan.


~~15.~~16.	Employee Savings Plan

In 1993, the Company adopted the provisions of the Regeneron Pharmaceuticals, Inc. 401(k) Savings Plan (the “Savings Plan”). The terms of the Savings Plan provide for employees who have met defined service requirements to participate in the Savings Plan by electing to contribute to the Savings Plan a percentage of their compensation to be set aside to pay their future retirement benefits, as defined. The Savings Plan, as amended and restated, provides for the Company to make discretionary contributions (“Contribution”), as defined. The Company recorded Contribution expense of $1.3 million in 2006, $2.0 million in 2005, and $0.8 million in ~~2004, and $0.9 million in 2003;~~2004; such amounts were accrued as liabilities at December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, respectively. During the first quarter of 2007, 2006, ~~2005,~~ and ~~2004,~~2005, the Company contributed, 64,532, 120,960, ~~90,385,~~ and ~~64,333~~90,385 shares, respectively, of Common Stock to the Savings Plan in satisfaction of these obligations.


~~16.~~17.	Income Taxes

In 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company recognized a net operating loss for tax purposes and, accordingly, no provision for income taxes has been recorded in the accompanying financial statements. There is no benefit for federal or state income taxes for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003~~2004 since the Company has incurred net operating losses for tax purposes since inception and established a valuation allowance equal to the total deferred tax asset.

The tax effect of temporary differences, net operating loss carry-forwards, and research and experimental tax credit carry-forwards as of December 31, 2006, 2005, and 2004 was as follows:


	2005			2004			2006			2005			2004

Deferred tax assets
Deferred tax assets:
Net operating loss carry-forward	$	161,060		$	135,099		$	177,034		$	161,060		$	135,099
Fixed assets		12,873			9,772			15,640			12,873			9,772
Deferred revenue		34,284			28,527			58,739			34,284			28,527
Research and experimental tax credit carry-forward		23,074			20,772			23,248			23,074			20,772
Capitalized research and development costs		24,015			28,559			19,555			24,015			28,559
Other		12,095			4,168			18,110			12,095			4,168
Valuation allowance		(267,401	)		(226,897	)		(312,326	)		(267,401	)		(226,897	)

		—			—			—			—			—

The Company’s valuation allowance increased by $44.9 million in 2006, due primarily to increases in the Company’s net operating loss carry-forward and the temporary difference related to deferred revenue, principally resulting from the non-refundable up-front payment received from Bayer HealthCare in 2006 (see Note 12b). The Company’s valuation allowance increased by $40.5 million in 2005, due primarily to an increase in the Company’s net operating loss carry-forward, and decreased by $14.2 million in 2004, due primarily to a reduction in the temporary difference related to deferred revenue.

~~F-31~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

For all years presented, the Company’s effective income tax rate is zero. The difference between the Company’s effective income tax rate and the Federal statutory rate of 34% is attributable to state tax benefits and tax credit carry-forwards offset by an increase in the deferred tax valuation allowance.

F-32

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

As of December 31, ~~2005,~~2006, the Company had available for tax purposes unused net operating loss carry-forwards of ~~$404.8~~$446.1 million, which will expire in various years from ~~2006~~2007 to ~~2025.~~2026 and included $3.0 million of net operating loss carry-forwards related to exercises of Nonqualified Stock Options and disqualifying dispositions of Incentive Stock Options, the tax benefit from which, if realized, will be credited to additional paid-in capital. The Company’s research and experimental tax credit carry-forwards expire in various years from ~~2006~~2007 to ~~2025.~~2026. Under the Internal Revenue Code and similar state provisions, substantial changes in the Company’s ownership have resulted in an annual limitation on the amount of net operating loss and tax credit carry-forwards that can be utilized in future years to offset future taxable income. This annual limitation may result in the expiration of net operating losses and tax credit carry-forwards before utilization.


~~17.~~18.	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 was purported 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, alleged that the defendants misstated or omitted material information concerning the safety and efficacy of AXOKINE, in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and~~Rule 10b-5~~ ~~promulgated thereunder.~~

On November 14, 2005, the United States District Court for the Southern District of New York approved the terms of a settlement between plaintiffs and the Company 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, the amount of which is immaterial to the Company. The settlement includes no admission of wrongdoing by the Company or any of the individual defendants. Separately, the plaintiffs and the individual defendants named in the lawsuit entered into a Stipulation of Voluntary Dismissal, which dismissed all claims against the individuals with prejudice.

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.


~~18.~~19.	Net Income (Loss) Per Share

The Company’s basic net income (loss) per share amounts have been computed by dividing net income (loss) by the weighted average number of Common and Class A shares outstanding. The diluted net income per share is based upon the weighted average number of shares of Common Stock and Class A Stock outstanding, and of the common stock equivalents outstanding when dilutive. In ~~2005~~2006 and ~~2003,~~2005, the Company reported net ~~losses and,~~losses; therefore, no

~~F-32~~

~~REGENERON PHARMACEUTICALS, INC.~~

~~NOTES TO FINANCIAL STATEMENTS — (Continued)~~

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

common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive. The calculations of basic and diluted net loss per share are as follows:


	December 31,								December 31,
	2005			2004		2003			2006			2005			2004

Net income (loss) (Numerator)	$	(95,446	)	$	41,699	$	(107,458	)	$	(102,337	)	$	(95,446	)	$	41,699
Shares, in thousands (Denominator):
Weighted-average shares for basic per share calculations		55,950			55,419		50,490			57,970			55,950			55,419
Effect of stock options					711											711
Effect of restricted stock awards					42											42

Adjusted weighted-average shares for diluted per share calculations		55,950			56,172		50,490			57,970			55,950			56,172

Basic net income (loss) per share	$	(1.71	)	$	0.75	$	(2.13	)	$	(1.77	)	$	(1.71	)	$	0.75
Diluted net income (loss) per share	$	(1.71	)	$	0.74	$	(2.13	)	$	(1.77	)	$	(1.71	)	$	0.74

F-33

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

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


	December 31,						December 31,
	2005		2004		2003		2006		2005		2004

Options and Warrants:
Options:
Weighted average number, in thousands		13,299		10,110		11,299		14,139		13,299		10,110
Weighted average exercise price	$	14.59	$	23.82	$	22.07	$	14.41	$	14.59	$	23.82
Restricted Stock:
Weighted average number, in thousands		165		6		159		23		165		6
Convertible Debt:
Weighted average number, in thousands		6,611		6,611		6,611		6,611		6,611		6,611
Conversion price	$	30.25	$	30.25	$	30.25	$	30.25	$	30.25	$	30.25

In connection with the Company’s stock option exchange program (see Note ~~14a)~~14), on January 5, 2005, eligible employees elected to exchange options with a total of 3,665,819 underlying shares of Common Stock, and the Company issued 1,997,840 replacement options with an exercise price of $8.50 per share.


~~19.~~20.	Segment Information

~~The~~Through 2006, the Company’s operations ~~are~~were managed in two business segments: research and development, and contract manufacturing. Due to the expiration of the Company’s manufacturing agreement with Merck in October 2006, beginning in 2007, the Company only has a research and development business segment.

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 specified, ordered research materials using Regeneron-developed proprietary technology (see Note 12).

Contract manufacturing: Includes all revenues and expenses related to the commercial production of products under contract manufacturing arrangements. During 2006, 2005, ~~2004,~~ and ~~2003,~~2004, the Company produced Intermediate under the Merck Agreement, which expired in October 2006 (see Note 13).

~~F-33~~F-34

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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

The tables below present information about reported segments for the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003:~~2004:


	Research &			Contract			Reconciling						Research &			Contract			Reconciling
	Development			Manufacturing			Items			Total			Development			Manufacturing			Items			Total

2005:
2006
Revenues													$	51,136		$	12,311			—		$	63,447
Depreciation and amortization														13,549			—	(1)	$	1,043			14,592
Non-cash compensation expense														18,357			318			(813	) (3)		17,862
Interest expense																	—			12,043			12,043
Net income (loss)														(111,820	)		4,165			5,318	(2)		(102,337	)
Capital expenditures														3,339			—			—			3,339
Total assets														56,843			3			528,244	(4)		585,090
2005
Revenues	$	52,447		$	13,746			—		$	66,193		$	52,447		$	13,746			—		$	66,193
Depreciation and amortization		14,461			—	(1)	$	1,043			15,504			14,461			—	(1)	$	1,043			15,504
Non-cash compensation expense		21,492			367			—			21,859			21,492			367			—			21,859
Interest expense		—			—			12,046			12,046			—			—			12,046			12,046
Other contract income		30,640			—			—			30,640			30,640			—			—			30,640
Net income (loss)		(97,970	)		4,189			(1,665	)(2)		(95,446	)		(97,970	)		4,189			(1,665	) (2)		(95,446	)
Capital expenditures		4,667			—			—			4,667			4,667			—			—			4,667
Total assets		95,645			4,315			323,541	(3)		423,501			95,645			4,315			323,541	(4)		423,501
2004:
2004
Revenues	$	155,927		$	18,090			—		$	174,017		$	155,927		$	18,090			—		$	174,017
Depreciation and amortization		14,319			—	(1)	$	1,043			15,362			14,319			—	(1)	$	1,043			15,362
Non-cash compensation expense		2,543			—			—			2,543			2,543			—			—			2,543
Interest expense		126			—			12,049			12,175			126			—			12,049			12,175
Other contract income		42,750			—			—			42,750			42,750			—			—			42,750
Net income (loss)		45,395			2,876			(6,572	)(2)		41,699			45,395			2,876			(6,572	) (2)		41,699
Capital expenditures		5,972			—			—			5,972			5,972			—			—			5,972
Total assets		111,038			6,532			355,538	(3)		473,108			111,038			6,532			355,538	(4)		473,108
2003:
Revenues	$	47,366		$	10,131			—		$	57,497
Depreciation and amortization		11,894			—	(1)	$	1,043			12,937
Non-cash compensation expense		2,562			—			—			2,562
Interest expense		161			—			11,771			11,932
Net income (loss)		(103,604	)		3,455			(7,309	)(2)		(107,458	)
Capital expenditures		16,944			—			—			16,944
Total assets		92,369			12,889			374,297	(3)		479,555


(1)		Depreciation and amortization related to contract manufacturing is capitalized into inventory and included in contract manufacturing expense when the product is shipped.

(2)		Represents investment income net of interest expense related to convertible notes issued in October 2001 (see Note ~~11d)~~11c). For the year ended December 31, 2006, also includes the cumulative effect of adopting SFAS 123R (see Note 2).

(3)		Represents the cumulative effect of adopting SFAS 123R (see Note 2).

(4)		Includes cash and cash equivalents, marketable securities, restricted cash and restricted marketable securities (where applicable), prepaid expenses and other current assets, and other assets.

~~F-34~~F-35

REGENERON PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS — (Continued)

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


~~20.~~21.	Unaudited Quarterly Results

Summarized quarterly financial data for the years ended December 31, ~~2005~~2006 and ~~2004~~2005 are set forth in the following tables.


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			First Quarter			Second Quarter			Third Quarter			Fourth Quarter
	Ended			Ended			Ended			Ended			Ended			Ended			Ended			Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,			December 31,
	2005			2005			2005			2005			2006			2006			2006			2006
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	16,209		$	16,366		$	16,194		$	17,424		$	18,219		$	19,258		$	15,624		$	10,346
Net loss		(4,123	)		(26,999	)		(34,652	)		(29,672	)		(20,380	)		(23,576	)		(27,410	)		(30,971	)
Net loss per share, basic and diluted	$	(0.07	)	$	(0.48	)	$	(0.62	)	$	(0.53	)
Net loss per share, basic and diluted:													$	(0.36	)	$	(0.41	)	$	(0.48	)	$	(0.51	)

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Ended
Ended
Ended
Ended

March 31,
June 30,
September 30,
December 31,

2004 2004 2004 2004
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Revenues $ 61,990 $ 28,418 $ 36,519 $ 47,090
Net income (loss) 64,532 (14,549 ) (11,076 ) 2,792
Basic net income (loss) per share $ 1.17 $ (0.26 ) $ (0.20 ) $ 0.05
Diluted net income (loss) per share $ 1.06 $ (0.26 ) $ (0.20 ) $ 0.05

First Quarter
Second Quarter
Third Quarter
Fourth Quarter

Ended
Ended
Ended
Ended

March 31,
June 30,
September 30,
December 31,

2005 2005 2005 2005
(Unaudited)

Revenues $ 16,209 $ 16,366 $ 16,194 $ 17,424
Net loss (4,123 ) (26,999 ) (34,652 ) (29,672 )
Net loss per share, basic and diluted $ (0.07 ) $ (0.48 ) $ (0.62 ) $ (0.53 )
22. Subsequent Event — License Agreement
On February 5, 2007, the Company entered into a non-exclusive license agreement with AstraZeneca that will allow AstraZeneca to utilize the Company’s VelocImmune^®technology in its internal research programs to discover human monoclonal antibodies. Under the terms of the agreement, AstraZeneca made a $20.0 million non-refundable up-front payment to the Company. AstraZeneca also will make up to five additional annual payments of $20.0 million, subject to its ability to terminate the agreement after making the first three additional payments or earlier if the technology does not meet minimum performance criteria. The Company is entitled to receive a mid-single-digit royalty on any future sales of antibody products discovered by AstraZeneca using the Company’s VelocImmune technology.

~~F-35~~F-36

EXHIBIT INDEX


~~Exhibit~~
~~Number~~	~~Description~~

~~3.1~~	~~(a)~~	—	~~Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991.~~
~~3.1.1~~	~~(b)~~	—	~~Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of October 18, 1996.~~
~~3.1.2~~	~~(c)~~	—	~~Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., as of December 17, 2001.~~
~~3.2~~	~~(d)~~	—	~~By-Laws of the Company, currently in effect (amended through November 12, 2004).~~
~~10.1~~	~~(e)~~	—	~~1990 Amended and Restated Long-Term Incentive Plan.~~
~~10.2~~	~~(f)~~	—	~~2000 Long-Term Incentive Plan.~~
~~10.3.1~~	~~(g)~~	—	~~Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002.~~
~~10.3.2~~	~~(g)~~	—	~~Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002.~~
~~10.3.3~~	~~(h)~~	—	~~Amendment No. 3 to 2000 Long-Term Incentive Plan, effective as of June 14, 2004.~~
~~10.3.4~~	~~(i)~~	—	~~Amendment No. 4 to 2000 Long-Term Incentive Plan, effective as of November 15, 2004.~~
~~10.3.5~~	~~(j)~~	—	~~Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers.~~
~~10.3.6~~	~~(j)~~	—	~~Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers.~~
~~10.3.7~~	~~(k)~~	—	~~Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers.~~
10.4*	~~(l)~~	—	~~Manufacturing Agreement dated as of September 18, 1995, between the Company and Merck & Co., Inc.~~
10.4.1*	~~(d)~~	—	~~Amendment No. 1 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of September 18, 1995.~~
10.4.2*	~~(d)~~	—	~~Amendment No. 2 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of October 24, 1996.~~
10.4.3*	~~(d)~~	—	~~Amendment No. 3 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of December 9, 1999.~~
10.4.4*	~~(d)~~	—	~~Amendment No. 4 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of July 18, 2002.~~
10.4.5*	~~(d)~~	—	~~Amendment No. 5 to the Manufacturing Agreement between the Company and Merck & Co., Inc., effective as of January 1, 2005.~~
~~10.5~~	~~(m)~~	—	Rights Agreement, dated as of September 20, 1996, between Regeneron Pharmaceuticals, Inc. and Chase Mellon Shareholder Services LLC, as Rights Agent, including the form of Rights Certificate as Exhibit B thereto.
~~10.6~~	~~(g)~~	—	~~Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D.~~
10.7*	~~(d)~~	—	~~Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D.~~
~~10.8~~	~~(s)~~	—	~~Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006.~~
~~10.9~~	~~(n)~~	—	~~Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee.~~
~~10.10~~	~~(n)~~	—	Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc.
10.11*	~~(o)~~	—	~~IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc.~~
10.12*	~~(p)~~	—	~~Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company.~~

Exhibit

Number

Description

3 .1 (a) — Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc. as of June 21, 1991.
3 .1.1 (b) — Certificate of Amendment of the Restated Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of October 18, 1996.
3 .1.2 (c) — Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 17, 2001.
3 .1.3 (s) — Certificate of Amendment of the Certificate of Incorporation of Regeneron Pharmaceuticals, Inc., dated as of December 20, 2006.
3 .2 (d) — By-Laws of the Company, currently in effect (amended through November 12, 2004).
10 .1 (e) — 1990 Amended and Restated Long-Term Incentive Plan.
10 .2 (f) — 2000 Long-Term Incentive Plan.
10 .3.1 (g) — Amendment No. 1 to 2000 Long-Term Incentive Plan, effective as of June 14, 2002.
10 .3.2 (g) — Amendment No. 2 to 2000 Long-Term Incentive Plan, effective as of December 20, 2002.
10 .3.3 (h) — Amendment No. 3 to 2000 Long-term Incentive Plan, effective as of June 14, 2004.
10 .3.4 (i) — Amendment No. 4 to 2000 Long-term Incentive Plan, effective as of November 15, 2004.
10 .3.5 (j) — Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s non-employee directors and named executive officers.
10 .3.6 (j) — Form of option agreement and related notice of grant for use in connection with the grant of options to the Registrant’s executive officers other than the named executive officers.
10 .3.7 (k) — Form of restricted stock award agreement and related notice of grant for use in connection with the grant of restricted stock awards to the Registrant’s executive officers.
10 .4 (g) — Employment Agreement, dated as of December 20, 2002, between the Company and Leonard S. Schleifer, M.D., Ph.D.
10 .5* (d) — Employment Agreement, dated as of December 31, 1998, between the Company and P. Roy Vagelos, M.D.
10 .6 (q) — Regeneron Pharmaceuticals, Inc. Change in Control Severance Plan, effective as of February 1, 2006.
10 .7 (l) — Indenture, dated as of October 17, 2001, between Regeneron Pharmaceuticals, Inc. and American Stock Transfer & Trust Company, as trustee.
10 .8 (l) — Registration Rights Agreement, dated as of October 17, 2001, among Regeneron Pharmaceuticals, Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Robertson Stephens, Inc.
10 .9* (m) — IL-1 License Agreement, dated June 26, 2002, by and among the Company, Immunex Corporation, and Amgen Inc.
10 .10* (n) — Collaboration, License and Option Agreement, dated as of March 28, 2003, by and between Novartis Pharma AG, Novartis Pharmaceuticals Corporation, and the Company.
10 .11* (o) — Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.
10 .11.1* (d) — Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004.
10 .11.2 (p) — Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005.
10 .11.3* (r) — Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005.
10 .11.4* (r) — Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006.
10 .12 (o) — Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.


~~Exhibit~~
~~Number~~	~~Description~~

10.13*	~~(q)~~	—	~~Collaboration Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.~~
10.13.1*	~~(d)~~	—	~~Amendment No. 1 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 31, 2004.~~
~~10.13.2~~	~~(r)~~	—	~~Amendment No. 2 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of January 7, 2005.~~
10.13.3*		—	~~Amendment No. 3 to Collaboration Agreement, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc., effective as of December 21, 2005.~~
10.13.4*		—	Amendment No. 4 to Collaboration Agreement, by and between sanofi-aventis U.S., LLC (successor in interest to Aventis Pharmaceuticals, Inc.) and Regeneron Pharmaceuticals, Inc., effective as of January 31, 2006.
~~10.14~~	~~(q)~~	—	~~Stock Purchase Agreement, dated as of September 5, 2003, by and between Aventis Pharmaceuticals Inc. and Regeneron Pharmaceuticals, Inc.~~
~~12.1~~		—	~~Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc.~~
~~23.1~~		—	~~Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.~~
~~31.1~~		—	~~Certification of CEO pursuant toRule 13a-14(a)~~ ~~under the Securities and Exchange Act of 1934.~~
~~31.2~~		—	~~Certification of CFO pursuant toRule 13a-14(a)~~ ~~under the Securities and Exchange Act of 1934.~~
32		—	~~Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.~~

Exhibit

Number

Description

10 .13* (s) — License and Collaboration Agreement, dated as of October 18, 2006, by and between Bayer HealthCare LLC and Regeneron Pharmaceuticals, Inc.
10 .14* — Non Exclusive License and Material Transfer Agreement, dated as of February 5, 2007, by and between AstraZeneca UK Limited and Regeneron Pharmaceuticals, Inc.
10 .15 (t) — Lease, dated as of December 21, 2006, by and betweenBMR-Landmark at Eastview LLC and Regeneron Pharmaceuticals, Inc.
12 .1 — Statement re: computation of ratio of earnings to combined fixed charges of Regeneron Pharmaceuticals, Inc.
23 .1 — Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.
31 .1 — Certification of CEO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.
31 .2 — Certification of CFO pursuant toRule 13a-14(a) under the Securities and Exchange Act of 1934.
32 — Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350.

Description:

(a) Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 1991, filed August 13, 1991.

(b) Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1996 filed November 5, 1996.

(c) Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2001, filed March 22, 2002.

(d) Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc. for the fiscal year ended December 31, 2004, filed March 11, 2005.

(e) Incorporated by reference from the Company’s registration statement onForm S-1 (filenumber 33-39043).

(f) Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the ~~quarter~~fiscal year ended December 31, 2001, filed March 22, 2002.

(g) Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2002, filed March 31, 2003.

(h) Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2004, filed August 5, 2004.

(i) Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed November 17, 2004.

(j) Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 16, 2005.

(k) Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 13, 2004.

(l) Incorporated by reference from the~~Form 10-Q~~ ~~for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 1995, filed November 14, 1995.~~
~~(m)~~ ~~Incorporated by reference from theForm 8-A~~ ~~for Regeneron Pharmaceuticals, Inc., filed October 15, 1996.~~
~~(n)~~ ~~Incorporated by reference from the~~ Company’s registration statement onForm S-3 (filenumber 333-74464).


~~(o)~~(m)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended June 30, 2002, filed August 13, 2002.

~~(p)~~(n)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended March 31, 2003, filed May 15, 2003.

~~(q)~~(o)		Incorporated by reference from theForm 10-Q for Regeneron Pharmaceuticals, Inc. for the quarter ended September 30, 2003, filed November 11, 2003.

~~(r)~~(p)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 11, 2005.

~~(s)~~(q)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed January 25, 2006.


(r)		Incorporated by reference from theForm 10-K for Regeneron Pharmaceuticals, Inc., for the fiscal year ended December 31, 2005, filed February 28, 2006.

(s)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed October 18, 2006.

(t)		Incorporated by reference from theForm 8-K for Regeneron Pharmaceuticals, Inc., filed December 22, 2006.

*		Portions of this document have been omitted and filed separately with the Commission pursuant to requests for confidential treatment pursuant toRule 24b-2.


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year endedDecember 31, ~~2005~~2006
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to


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)		~~10591-6707~~ (Zip code)


Class of Common Stock		Number of Shares

Class A Stock, $.001 par value		~~2,325,973~~2,270,355
Common Stock, $.001 par value		~~54,532,748~~63,360,389


PART I
	Item 1. Business
	Item 1A. Risk Factors
	Item 1B. Unresolved Staff Comments
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosure About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	Item 9A. Controls and Procedures
	Item 9B. Other Information
PART III
	Item 10. Directors and Executive Officers ~~of the Registrant~~and Corporate Governance
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	Item 13. Certain Relationships and Related Transactions, and Director Independence
	Item 14. Principal Accountant Fees and Services
PART IV
	Item 15. Exhibits and Financial Statement Schedules
~~SIGNATURE~~
~~EX-10.13.3: AMENDMENT NO. 3 TO COLLABORATION AGREEMENT~~
~~EX-10.13.4: AMENDMENT NO. 4 TO COLLABORATION~~EX-10.14: NON EXCLUSIVE LICENSE AND MATERIAL TRANSFER AGREEMENT
EX-12.1: STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
EX-23.1: CONSENT OF PRICEWATERHOUSECOOPERS LLP
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32: CERTIFICATION


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


	•	first-line metastatic hormone resistant prostate cancer in combination with Taxotere^®,

	•	first-line metastatic pancreatic cancer in combination with gemcitabine-based regimen,

	•	first-line gastric cancer in combination with Taxotere^®,

	•	second-line non-small cell lung cancer in combination with Taxotere^®, and

	•	second-line metastatic colorectal cancer in combination with FOLFIRI (Folinic Acid, Fluorouracil, and irinotecan).


				Net Loss per Share —
For the year ended December 31, 2005	Net Loss			Basic and Diluted
	*(In millions, except per share data)*

Net loss, as reported	$	(95.4	)	$	(1.71	)
Add: Stock Option Expense		19.9			0.36

Pro forma net loss, exclusive of Stock Option Expense	$	(75.5	)	$	(1.35	)


	Up-front Payments to Regeneron
	2003 Regeneron						Deferred Revenue at		Total Revenue
	Expense		Total		Amount Recognized		December 31,		Recognized
	Reimbursement		Payment		in 2003		2003		in 2003
	*(In millions)*

Sanofi-aventis	$	10.7	$	80.0	$	3.6	$	76.4	$	14.3
Novartis		16.5		27.0		4.9		22.1		21.4

Total	$	27.2	$	107.0	$	8.5	$	98.5	$	35.7


			Payments Due by Period
			Less than		1 to 3
	Total		one year		years
			*(In millions)*

Convertible Senior Subordinated Notes Payable (1)	$	233.0	$	11.0	$	222.0
Operating Leases (2)		13.0		4.8		8.2


	2005		2004

Receivable from the sanofi-aventis Group (see Note 12a)	$	36,412	$	39,362
Receivable from The Procter & Gamble Company (see Note 12e)				2,345
Receivable from Merck & Co. Inc. (see Note 13)		27		1,315
Other		82		80

	$	36,521	$	43,102


	2006		2005

Receivable from sanofi-aventis (see Note 12a)	$	6,900	$	36,412
Other		593		109

	$	7,493	$	36,521


				Weighted-		Weighted-Average
				Average		Remaining
Stock Options:	Number of Shares			Exercise Price		Contractual Term		Intrinsic Value
						(in years)		(in thousands)

Outstanding at December 31, 2003		13,138,299		$	20.36
2004:
Granted		2,828,484		$	9.90
Forfeited		(343,994	)	$	19.53
Expired		(170,953	)	$	24.26
Exercised		(311,268	)	$	5.98

Outstanding at December 31, 2004		15,140,568		$	18.68
2005:
Granted		4,551,360		$	10.08
Forfeited		(1,975,108	)	$	20.83
Expired		(2,399,410	)	$	30.18
Exercised		(597,918	)	$	9.50

Outstanding at December 31, 2005		14,719,492		$	14.23
							(continued)


		Options Outstanding						Options Exercisable
				Weighted Average		Weighted				Weighted
Range of		Number		Remaining		Average		Number		Average
Exercise Prices		Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price

$	4.83 to $ 8.50		2,689,022		5.32	$	8.13		760,533	$	7.40
$	8.52 to $ 9.49		3,420,139		7.30	$	9.24		1,593,794	$	9.00
$	9.50 to $11.64		2,970,544		8.20	$	11.32		594,488	$	10.14
$	11.75 to $16.56		2,493,682		7.69	$	13.17		1,422,294	$	13.11
$	16.59 to $37.78		2,996,105		6.00	$	27.70		2,800,147	$	28.26
$	37.94 to $51.56		150,000		4.67	$	43.39		150,000	$	43.39

$	4.83 to $51.56		14,719,492		6.90	$	14.23		7,321,256	$	17.79


	Options Outstanding						Options Exercisable
			Weighted-Average		Weighted-				Weighted-
Range of	Number		Remaining		Average		Number		Average
Exercise Prices	Outstanding		Contractual Life		Exercise Price		Exercisable		Exercise Price

$ 4.83 to $ 8.50		2,281,208		4.36	$	8.18		740,638	$	7.66
$ 8.52 to $10.56		3,164,750		6.10	$	9.37		1,983,333	$	9.31
$10.84 to $11.64		2,226,650		8.94	$	11.64		552,353	$	11.63
$11.70 to $17.89		2,535,210		7.22	$	13.47		1,638,630	$	13.15
$18.17 to $24.02		3,358,328		8.76	$	20.07		999,543	$	19.47
$24.60 to $37.94		1,916,359		4.43	$	32.71		1,916,359	$	32.71
$51.56 to $51.56		60,000		3.16	$	51.56		60,000	$	51.56

$ 4.83 to $51.56		15,542,505		6.79	$	15.54		7,890,856	$	17.41


Item 1.	*Business*


1.	*IL-1 Trap — Inflammatory Diseases*


2.	*VEGF Trap — Oncology*


					Weighted-
					Average
					Grant Date
Restricted Stock:		Number of Shares			Fair Value

Outstanding at December 31, 2003			338,116		$	15.74
2004:	Granted		105,052		$	9.55
	Forfeited		(18,194	)	$	14.39
	Released		(138,557	)	$	18.12

	Outstanding at December 31, 2004		286,417		$	12.40
2005:	Forfeited		(4,601	)	$	11.70
	Released		(186,628	)	$	13.05

	Outstanding at December 31, 2005		95,188		$	11.16
2006:	Forfeited		(1,703	)	$	9.74
	Released		(93,485	)	$	11.18

	Outstanding at December 31, 2006		—