Regeneron Pharmaceuticals - 10-Q quarterly report FY

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-Q

OR

REGENERON PHARMACEUTICALS, INC.

(914) 347-7000

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

Yesx       Noo

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 31, 2003:

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REGENERON PHARMACEUTICALS, INC.
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September 30, 2003

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

REGENERON PHARMACEUTICALS, INC.
CONDENSED BALANCE SHEETS AT SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 (Unaudited)
(In thousands, except share data)

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

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REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)

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

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REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
For the nine months ended September 30, 2003
(In thousands)

[Continued from above table, first column(s) repeated]

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

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REGENERON PHARMACEUTICALS, INC.
CONDENSED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands)

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

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

General

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

     Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic products for the treatment of serious medical conditions. Our clinical and preclinical pipeline includes product candidates for the treatment of obesity, rheumatoid arthritis and other inflammatory conditions, cancer and related disorders, allergies, asthma, and other diseases and disorders. Developing and commercializing new medicines entails risk and significant expense. Since inception, we have not generated any sales or profits from the commercialization of any of our product candidates.

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

     Below is a summary of our leading clinical and preclinical research programs. The IL-1 Trap is being developed in collaboration with Novartis Pharma AG, and the VEGF Trap is being developed in collaboration with Aventis Pharmaceuticals Inc. We

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retain sole ownership and marketing rights for AXOKINE and the IL-4/13 Trap and currently are developing them independently of any corporate partners.

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     In addition, we have formed collaborations to advance other research and development efforts. We are conducting research with The Procter & Gamble Company in muscle diseases and other fields. We are also collaborating with Medarex, Inc. to discover, develop, and commercialize certain human antibodies as therapeutics. In these research collaborations, we retain 50% of the commercialization rights.

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Discussion of Third Quarter 2003 Activities

     In July 2001, we initiated a Phase III clinical program of AXOKINE in overweight and obese subjects. The initial pivotal Phase III trial was a double-blind, randomized, placebo-controlled study that enrolled approximately 2,000 subjects at 65 sites across the United States. In March 2003, we reported data from the 12-month treatment period of the trial during which subjects received daily subcutaneous self-injections of placebo or AXOKINE at a dose of 1.0 microgram per kilogram of body weight (mcg/kg). The study demonstrated that subjects receiving AXOKINE experienced a greater average weight loss than those receiving placebo (6.2 pounds vs. 2.6 pounds, p<.001) and that a greater proportion of AXOKINE-treated subjects lost at least 5 percent of their initial body weight compared with placebo-treated subjects (25.1 percent vs. 17.6 percent, p<.001). AXOKINE also achieved statistically significant results in two of the three secondary endpoints, including the proportion of subjects losing at least 10% of their initial body weight. AXOKINE demonstrated a favorable safety and tolerability profile in the study. The double-blind treatment period is being followed by a twelve-month open-label extension phase, during which all study subjects receive AXOKINE. As of September 30, 2003, the average treatment period for participants in this trial was 23 months.

     Although the results of the Phase III study were statistically significant, the average weight loss for the entire treatment group was small. AXOKINE-associated weight loss was limited by the development of antibodies in approximately two-thirds of the AXOKINE-treated subjects. In the patients who did not become resistant to AXOKINE treatment through the development of antibodies, the weight loss appeared in line with currently available treatments for obesity. A more complete discussion of the results of this trial is contained in our Annual Report on Form 10-K for the year ended December 31, 2002.

     In April 2003, we announced the results of a 12-week Phase II clinical trial to assess the safety and efficacy of AXOKINE in 157 overweight and obese individuals with type 2 diabetes mellitus who were treated with placebo or AXOKINE at doses of 1.0 mcg/kg or 0.5 mcg/kg per day. Subjects who were treated with AXOKINE at the 1.0 mcg/kg dose with dietary counseling lost 6.5 pounds on average, while those treated with placebo and dietary counseling lost only 2.5 pounds (p<.01). Trends toward improvements in blood glucose and other metabolic parameters were also observed during this small, short-term study. AXOKINE was generally well tolerated with no AXOKINE-related serious adverse events. Approximately 90 percent of study participants completed the 12-week study. This trial recently completed a 12-week open-label extension phase.

     In this trial in patients with type 2 diabetes, approximately one-third of the subjects who were treated with the 1.0 mcg/kg dose of AXOKINE developed antibodies to AXOKINE at the twelve-week time point. In the recently completed Phase III study of AXOKINE in non-diabetic subjects, about half of AXOKINE-treated participants had developed antibodies at the 12-week time point. This lower incidence of antibodies

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observed in the Phase II study will need to be explored in a larger Phase III study in the diabetic population. In the Phase III one-year study, weight loss beyond 12 weeks appeared to be more limited in those people who developed antibodies.

     In September 2003, we announced that we will move forward with the Phase III development program of AXOKINE for the treatment of obesity. This decision was made following a meeting with the FDA during which we reviewed results of the completed initial pivotal trial and our plans for future development of AXOKINE.

     The remaining Phase III program is expected to consist of one-year evaluations of a broad range of overweight and obese individuals, including patients with type 2 diabetes, and several smaller and shorter studies. In total, approximately 2,300 additional people are expected to be enrolled in future trials.

     Two AXOKINE trials remain ongoing. These trials, which each include approximately 300 subjects, are evaluating the safety of intermittent treatment with AXOKINE and studying maintenance of weight loss following short-term treatment regimens. Results from these trials are expected to be available in the first half of 2004. In January 2003, we announced that AXOKINE had received fast track designation from the FDA for the treatment of severely obese people who are unresponsive to, intolerant of, or unsuitable candidates for certain FDA-approved medicines for the long-term treatment of obesity. No decision has been made yet to conduct a trial that evaluates AXOKINE in this patient group.

     In July 2002, we announced the initiation of a dose-ranging Phase II study of the IL-1 Trap in subjects with rheumatoid arthritis. This trial enrolled approximately 200 subjects who received weekly self-injections of one of three fixed doses of IL-1 Trap or placebo for 12 weeks, followed by 10 weeks of off-treatment follow-up. In October 2003, we announced that in this trial the IL-1 Trap demonstrated evidence of efficacy and safety. Patients treated with the highest dose, 100 milligrams of the IL-1 Trap, exhibited non-statistically significant improvements in the primary endpoint of the trial, change in the proportion of ACR 20 responses versus placebo. The IL-1 Trap also exhibited improvements in secondary endpoints of the trial. The IL-1 Trap was generally well tolerated and was not associated with any serious adverse events. We are working together with Novartis to evaluate the data from this trial and determine the best path forward for the next clinical study. The IL-1 Trap is also being evaluated for potential uses in treating other inflammatory diseases.

     In March 2003, we entered into a Collaboration, License and Option Agreement with Novartis to jointly develop and commercialize the IL-1 Trap in rheumatoid arthritis and other indications throughout the world with the exception of Japan, where product rights remain with Regeneron. We and Novartis will share equally in all profits from future sales of the IL-1 Trap in North America and Europe. In other markets, Novartis will be entitled to receive 75 percent of the profits and we will be entitled to 25 percent of the profits. We may co-promote the IL-1 Trap in all territories under the agreement. As part of the agreement, Novartis purchased $48.0 million of Regeneron’s common stock

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and made a non-refundable up-front payment of $27.0 million. The agreement is described in greater detail in the section of this report titled “Liquidity and Capital Resources”.

     In November 2001, we initiated a Phase I clinical trial designed to assess the safety and tolerability of VEGF Trap in patients with solid tumor malignancies and subjects with non-Hodgkin’s lymphoma. The Phase I trial is an open-label study in subjects with advanced tumors and is evaluating the VEGF Trap in increasing dose levels. The study is being conducted at three clinical sites in the United States. This trial continues to test increasing doses of VEGF Trap delivered by subcutaneous injection as per the protocol and is expected to be completed in the first half of 2004. An additional phase of the study with VEGF Trap delivered intravenously is planned. Further studies of the VEGF Trap in cancer and as a potential treatment for diseases of the eye also are being planned.

     In September 2003, we entered into a Collaboration Agreement with Aventis to jointly develop and commercialize the VEGF Trap in cancer, opthalmology, and possibly other indications throughout the world with the exception of Japan, where product rights remain with Regeneron. We and Aventis will equally share promotion rights and profits from future sales of VEGF Trap. Aventis will fund development costs. Should the collaboration become profitable, we will pay back to Aventis 50 percent of the development costs. We will continue to manufacture clinical supplies of the VEGF Trap at our facilities in Rensselaer, New York, while Aventis will be responsible for providing commercial scale manufacturing capacity. As part of the agreement, Aventis purchased $45.0 million of Regeneron common stock and made a non-refundable up-front payment of $80.0 million. The agreement is described in greater detail in the section of this report titled “Liquidity and Capital Resources”.

     We have developed both an IL-4 Trap and an IL-4/13 Trap, which is a single molecule that can block both interleukin-4 and interleukin-13. In October 2002, we initiated a Phase I clinical trial of a dual IL-4/13 Trap to assess the safety and tolerability of increasing dose levels in subjects with mild to moderate asthma. The Phase I trial is expected to be completed in the first quarter of 2004. We are continuing our research of IL-4 and IL-13 in other inflammatory conditions beyond asthma, which may lead to new potential indications for the IL-4/13 Trap.

     A minority of all research and development programs ultimately results in commercially successful pharmaceutical products; it is not possible to predict whether any program will succeed until it actually produces a medicine that is commercially marketed for a significant period of time. In addition, in each of the areas of our independent and collaborative activities, other companies and entities are actively pursuing competitive paths toward similar objectives. The results of Regeneron’s and its collaborators’ past activities in connection with the research and development of AXOKINE, Cytokine Traps, Angiopoietins, cancer, abnormal bone growth, muscle atrophy, small molecules, and other programs or areas of research or development do not

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necessarily predict the results or success of current or future activities including, but not limited to, any additional preclinical or clinical studies. We cannot predict whether, when, or under what conditions any of our research or product candidates, including without limitation AXOKINE, IL-1 Trap, VEGF Trap, or IL-4/13 Trap will be shown to be safe or effective to treat any human condition or be approved for marketing by any regulatory agency. The delay or failure of current or future studies to demonstrate the safety or efficacy of its product candidates to treat human conditions or to be approved for marketing could have a material adverse impact on Regeneron. We discuss the risks associated with pharmaceutical drug development in the section of this report titled “Factors That May Affect Future Operating Results.”

     We have not received revenue from the commercialization of our product candidates and may never receive such revenues. Before revenues from the commercialization of our product candidates can be realized, we (or our collaborators) must overcome a number of hurdles which include successfully completing our research and development efforts and obtaining regulatory approval from the FDA or 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 noncompetitive or obsolete.

     From inception on January 8, 1988 through September 30, 2003, we had a cumulative loss of $512.2 million. In the absence of revenues from the commercialization of our product candidates or other sources, the amount, timing, nature, or source of which cannot be predicted, our losses will continue as we conduct our research and development activities. Our activities may expand over time and may require additional resources and we expect our operating losses to be substantial over at least the next several years. Our losses may fluctuate from quarter to quarter and will depend, among other factors, on the timing of certain expenses and on the progress of our research and development efforts.

Change in Accounting Method

     We recognize revenue from contract research and development and research progress payments in accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101). During the third quarter of 2003, we elected to change the method we use 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. Under this method, we recognize revenue from non-refundable up-front license payments, not tied to achieving a specific performance milestone, ratably over the period over which we are obligated to perform services. Payments for development activities are recognized as revenue as earned, ratably over the period of effort. Substantive at-risk milestone payments, which are based on achieving a specific performance milestone, are recognized as revenue when the milestone is achieved and the related payment is due, provided there is no future service

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obligation associated with that milestone. Previously, we 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. 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. The impact of the adoption of this new revenue recognition method was to increase our revenue and reduce our net loss by $1.5 million, or $0.03 per share, in the third quarter of 2003, and to decrease our revenue and increase our net loss by $0.3 million, or $0.01 per share, for the nine months ended September 30, 2003. There is no impact on our financial results for any period prior to January 1, 2003. Our operating results for the first two quarters of 2003 have been restated in accordance with the new revenue recognition policy.

Results of Operations

     Three months ended September 30, 2003 and 2002. Our total revenue increased to $17.4 million for the third quarter of 2003 from $6.6 million for the same period of 2002. Contract research and development revenue increased to $10.9 million for the third quarter of 2003 from $2.8 million for the same period of 2002, resulting primarily from the recognition of $7.8 million of revenue related to our collaboration with Novartis on the IL-1 Trap, which began in the first quarter of 2003, and our collaboration with Aventis on the VEGF Trap, which began in the third quarter of 2003. We recognize revenue in connection with the collaborations in accordance with SAB 101. In addition, we recognized $2.7 million and $2.6 million of contract research and development revenue from Procter & Gamble in the third quarter of 2003 and 2002, respectively, in connection with our long-term collaboration agreement. Contract manufacturing revenue, related to our long-term agreement with Merck & Co., Inc. to manufacture a vaccine intermediate at our Rensselaer facility, increased to $6.5 million for the third quarter of 2003 from $3.8 million for the same period of 2002, because we shipped more product to Merck during the third quarter of 2003 than in the corresponding period of 2002. We recognize contract manufacturing revenue and the related manufacturing expense as product is accepted by and shipped to Merck.

     Our total operating expenses increased to $43.1 million for the third quarter of 2003 from $38.7 million for the same period of 2002. Research and development expenses increased to $34.7 million in the third quarter of 2003 from $34.3 million for the comparable period of 2002 as increased development expenses for the IL-1 Trap and VEGF Trap in the third quarter of 2003 were offset in part by a decline in development expenses related to the AXOKINE program. Research and development expenses were 80% of total operating expenses in the third quarter of 2003, compared with 89% for the same period of 2002. Contract manufacturing expenses related to our long-term agreement with Merck increased to $4.8 million for the third quarter of 2003 from $1.6 million for the same period of 2002, because the Company shipped more product to Merck during the quarter. General and administrative expenses increased to $3.6 million

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in the third quarter of 2003 from $2.8 million for the same period of 2002, due primarily to increased administrative costs to support the Company’s expanding development pipeline, higher insurance costs, and expenses for external service providers.

     Investment income decreased to $1.3 million for the third quarter of 2003 from $2.4 million for the same period of 2002 due to lower effective interest rates on investment securities in 2003 and lower levels of interest-bearing investments during most of the third quarter of 2003 as the Company funded its operations. Interest expense was $3.0 million for the both the third quarter of 2003 and 2002. 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.

     Our net loss for the third quarter of 2003 was $27.4 million, or $0.52 per share (basic and diluted), compared with a net loss of $32.8 million, or $0.75 per share (basic and diluted), for the same period of 2002.

     Nine months ended September 30, 2003 and 2002. Our total revenue increased to $36.2 million for the nine months ended September 30, 2003 from $17.1 million for the same period in 2002. Contract research and development revenue increased to $28.2 million for the nine months ended September 30, 2003 from $8.2 million for the same period of 2002, resulting primarily from the recognition of $19.7 million of revenue related to our collaborations with Novartis on the IL-1 Trap and Aventis on the VEGF Trap. We recognize revenue in connection with the collaborations in accordance with SAB 101. In addition, we recognized $7.9 million of contract research and development revenue from Procter & Gamble in the first nine months of both 2003 and 2002 in connection with our long-term collaboration agreement. Contract manufacturing revenue, related to our long-term agreement with Merck, decreased to $8.0 million for the first nine months of 2003 from $8.9 million for the same period of 2002, due primarily to the receipt of a non-recurring $1.0 million payment in the third quarter of 2002. This decrease was partly offset because we shipped more product to Merck in the first nine months of 2003 compared with the same period of 2002.

     Our total operating expenses increased to $119.1 million for the nine months ended September 30, 2003 from $104.4 million for the same period of 2002. Research and development expenses increased to $102.8 million for the first nine months of 2003 from $90.5 million for the comparable period of 2002, due primarily to higher expenses associated with the Company’s development programs for the IL-1 Trap for the treatment of rheumatoid arthritis and VEGF Trap for the treatment of cancer. Research and development expenses were 86% of total operating expenses in the first nine months of 2003, compared with 87% for the same period of 2002. Contract manufacturing expenses related to our long-term agreement with Merck increased to $5.8 million for the nine months ended September 30, 2003 from $4.8 million for the same period of 2002, because we shipped more product to Merck in 2003 and the costs to manufacture the vaccine intermediate increased slightly compared with the prior year period. General and administrative expenses increased to $10.5 million for the first nine months of 2003 from $9.2 million for the same period of 2002, due primarily to increased administrative costs

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to support the Company’s expanding development pipeline, higher insurance costs, and expenses for external service providers.

     Investment income decreased to $3.6 million for the nine months ended September 30, 2003 from $7.7 million for the same period of 2002 due to lower effective interest rates on investment securities in 2003 and lower levels of interest-bearing investments during most of the period through September 30, 2003 as the Company funded its operations. Interest expense declined slightly to $8.8 million for the first nine months of 2003 from $9.1 million for the same period of 2002. 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.

     Our net loss for the nine months ended September 30, 2003 was $88.1 million, or $1.80 per share (basic and diluted), compared with a net loss of $88.7 million, or $2.02 per share (basic and diluted), for the same period of 2002.

Liquidity and Capital Resources

     Since our inception in 1988, we have financed our operations primarily through offerings of equity securities, a private placement of convertible debt, revenue earned under our agreements with Amgen Inc., Sumitomo Chemical Co., Ltd., Sumitomo Pharmaceuticals Company, Ltd., Merck, Procter & Gamble, Novartis, and Aventis, and investment income.

     In September 2003, the Company entered into a collaboration agreement with Aventis to jointly develop and commercialize the VEGF Trap. 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.

     Under the collaboration agreement, we and Aventis will share co-promotion rights and profits on sales, if any, of the VEGF Trap. Aventis has agreed to make a $25.0 million payment to us upon achievement of a clinical milestone. We may also receive up to $360.0 million in additional milestone payments upon receipt of specified marketing approvals for up to eight VEGF Trap indications in Europe or the United States. Regeneron has agreed to continue to manufacture clinical supplies of the VEGF Trap at our plant in Rensselaer, New York. Aventis has agreed to be responsible for providing commercial scale manufacturing capacity for the VEGF Trap.

     Under the collaboration agreement, development expenses incurred by both companies during the term of the agreement will be funded by Aventis. Should the collaboration become profitable, our share of the profits will be used to pay back to Aventis 50 percent of those VEGF Trap development expenses. At September 30, 2003, $1.7 million was receivable from Aventis for development expenses incurred by Regeneron during the period from the effective date of the collaboration through September 30, 2003.

     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, our

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obligation with respect to reimbursing Aventis, from a portion of our profits, for 50 percent of the VEGF Trap development expenses will also terminate.

     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 up-front payment of $27.0 million and purchased 7,527,050 newly issued unregistered shares of our common stock for $48.0 million.

     Development expenses incurred during 2003 will be shared equally by Regeneron and Novartis. We may fund our share of 2003 expenses through a loan from Novartis that will be forgiven, together with accrued interest, should certain preclinical and clinical milestones be reached and is otherwise payable on July 1, 2004. As of September 30, 2003, we have drawn $9.2 million against this loan facility. In addition, at September 30, 2003, $3.9 million was receivable from Novartis for their share of IL-1 Trap development expenses incurred by Regeneron during the third quarter of 2003.

     After 2003, Novartis will be responsible for any additional pre-Phase III development expenses, and the companies will share Phase III development expenses and pre-launch expenses. Our share of these expenses may be funded through two additional loans from Novartis. The loan and accrued interest for our share of Phase III development expenses is repayable in full five years after the initial product launch of the IL-1 Trap or five years after termination of Novartis’ rights to the IL-1 Trap under the agreement, whichever occurs first. The loan and accrued interest for our share of pre-launch expenses is repayable in full three years after the initial product launch of the IL-1 Trap or three years after termination of Novartis’ rights to the IL-1 Trap under the agreement, whichever occurs first. Novartis has the right to terminate the collaboration agreement without cause with at least nine months advance notice.

     We and Novartis will share co-promotion rights and profit on sales, if any, of the IL-1 Trap. In addition, we may receive up to $275.0 million in milestone payments upon receipt of specified regulatory approvals in the United States and the European Union and the achievement of certain product revenues targets. Under the agreement, each company also has the right to elect to collaborate on the development and commercialization of certain other preclinical/early development IL-1 antagonists that we and Novartis currently are developing independently. Regeneron will continue to manufacture clinical supplies of the IL-1 Trap at our Rensselaer plant. Novartis will be responsible for providing commercial scale manufacturing capacity for the IL-1 Trap.

     Under a long-term collaboration agreement, Procter & Gamble provides funding through December 2005 of $2.5 million per quarter, plus adjustments for inflation, in support of our research efforts.

     At September 30, 2003, we had $391.1 million in cash, cash equivalents, marketable securities, and restricted marketable securities. We have no off-balance sheet financing arrangements and do not guarantee the obligations of any other entity. As of September 30, 2003, we had no established banking arrangements through which we

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could obtain short-term financing or a line of credit. We may seek additional funding through, among other things, future collaboration agreements and public or private financing. We cannot assure you that additional financing will be available to us or, if available, that it will be available on acceptable terms.

     Our additions to property, plant, and equipment totaled $15.6 million and $23.2 million for the first nine months of 2003 and 2002, respectively.

     We expect to incur substantial funding requirements for, among other things, research and development activities (including preclinical and clinical testing), expansion and validation of manufacturing facilities, and the acquisition of equipment. We currently anticipate that for the remainder of 2003, approximately 40-60% of our expenditures will be directed toward the preclinical and clinical development of product candidates, including AXOKINE, IL-1 Trap, VEGF Trap, and IL-4/13 Trap; approximately 5-15% of our expenditures will be invested in expansion of our manufacturing facilities; approximately 10-20% of our expenditures will cover our basic research activities; approximately 5-15% of our expenditures will be directed toward the continued development of our novel technology platforms, including potential efforts to commercialize these technologies; and the remainder of our expenditures will be for general corporate purposes, including working capital. For the remainder of 2003, we expect to incur approximately $5 million in capital expenditures for our expanded manufacturing and research and development activities.

     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.

     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 drug candidates, and the continuation, extent, and success of any collaborative research arrangements (including those with Procter & Gamble, Novartis, Aventis, Medarex, and Emisphere Technologies, Inc.). 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 clinical trials underway plus additional clinical trials that we decide to initiate, and the various factors that affect the cost of each trial as described above.

     We believe that our existing capital resources will enable us to meet operating needs through at least the end of 2005. However, this is a forward-looking statement

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based on our current operating plan, and we cannot assure you that there will be no 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. 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. 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 harm our business.

Future Impact of Recently Issued Accounting Standards

     In May 2003, the Financial Accounting Standards Board issued Statement No. 150 (“SFAS No. 150”), Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150 specifies that instruments within its scope embody obligations of the issuer and that, therefore, the issuer must classify them as liabilities. SFAS No. 150 requires issuers to classify as liabilities the following three types of freestanding financial instruments: (1) mandatorily redeemable financial instruments; (2) obligations to repurchase the issuer’s equity shares by transferring assets and (3) certain obligations to issue a variable number of shares. SFAS No. 150 defines a “freestanding financial instrument” as a financial instrument that (1) is entered into separately and apart from any of the entity’s other financial instruments or equity transactions or (2) is entered into in conjunction with some other transaction and can be legally detached and exercised on a separate basis. For all financial instruments entered into or modified after May 31, 2003, SFAS No. 150 is effective immediately. For all other instruments of public companies, SFAS No. 150 went into effect at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material impact on our financial statements for the third quarter of 2003. The Financial Accounting Standards Board is expected to defer the effective date for selected provisions of SFAS No. 150, limited to mandatorily redeemable noncontrolling interests associated with finite-lived subsidiaries. The deferral of those selected provisions is not expected to have a material impact on our financial statements.

Factors That May Affect Future Operating Results

     We caution shareholders and potential investors that the following important factors, among others, in some cases have affected, and in the future could affect, our actual results and could cause our actual results to differ materially from those expressed

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in any forward-looking statements made by, or on behalf of, us. The statements under this caption are intended to serve as cautionary statements within the meaning of the Private Securities Litigation Reform Act of 1995. The following information is not intended to limit in any way the characterization of other statements or information under other captions as cautionary statements for such purpose:

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     As our scientific efforts lead to potentially promising new directions, both outside of recombinant protein therapies and into conditions or diseases outside of our current areas of experience and expertise, we will require additional internal expertise or external collaborations in areas in which we currently do not have substantial resources and personnel.

     Other parties could allege to have blocking patents covering any of our product candidates in clinical and/or preclinical development. For example, we are aware of certain United States and foreign patents held by third parties relating to particular IL-4 and IL-13 receptors.

     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 one or more of our product candidates, which could severely harm our business.

     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 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 license fees or royalties to take into account patent rights of third parties.

Item 3. 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 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 estimate that a one percent change in interest rates would result in an approximately $0.1 million change in the fair market value of our investment portfolio at September 30, 2003.

Item 4. Controls and Procedures

     (a) Disclosure Controls and Procedures. Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Based upon the evaluation, our President and Chief Executive Officer along with our Chief Financial Officer concluded that, as of the end of such period, our disclosure

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controls and procedures are effective in timely alerting them to material information relating to Regeneron required to be included in our reports filed or submitted under the Exchange Act.

     (b) Internal Control over Financial Reporting. There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     In May 2003, securities class action lawsuits were commenced against Regeneron and certain of its officers and directors in the United States District Court for the Southern District of New York. The complaints, which purport 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, allege 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. Damages are sought in an unspecified amount. We believe that the lawsuits are without merit.

     From time to time Regeneron is a party to other legal proceedings in the course of its business. We do not expect such other legal proceedings to have a material adverse effect on our business or financial condition.

Item 6. Exhibits and Reports on Form 8-K

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SIGNATURE

Pursuant to the requirements 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.

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