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`UNITED STATES SECURITIES AND EXCHANGE COMMISSION
`Washington, D.C. 20549
`Form 10-K
`
`(Mark One)
`
`
`
`
`ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`For the fiscal year ended December 31, 2005
`OR
`TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
`SECURITIES EXCHANGE ACT OF 1934
`For the transition period from to
`
`Commission File Number 0-19034
`
`REGENERON PHARMACEUTICALS, INC.
`
`(Exact name of registrant as specified in its charter)
`
`New York
`(State or other jurisdiction of
`incorporation or organization)
`777 Old Saw Mill River Road, Tarrytown, New York
`(Address of principal executive offices)
`
`13-3444607
`(I.R.S. Employer Identification No)
`
`10591-6707
`(Zip code)
`
`(914) 347-7000
`(Registrant’s telephone number, including area code)
`Securities registered pursuant to Section 12(b) of the Act:
`None
`(Title of Class)
`Securities registered pursuant to Section 12(g) of the Act:
`Common Stock — par value $.001 per share
`(Title of Class)
`Preferred Share Purchase Rights expiring October 18, 2006
`(Title of Class)
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
`Act. Yes  No 
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the
`Act. Yes  No 
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
`Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
`file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
`chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
`information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
`See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
`Large accelerated filer  Accelerated filer  Non-accelerated filer 
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
`The aggregate market value of the common stock held by non-affiliates of the registrant was approximately
`$436,098,000, computed by reference to the closing sales price of the stock on NASDAQ on June 30, 2005, the last trading
`day of the registrant’s most recently completed second fiscal quarter.
`The number of shares outstanding of each of the registrant’s classes of common stock as of February 15, 2006:
`
`Class of Common Stock
`Class A Stock, $.001 par value
`
`Number of Shares
`2,325,973
`
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`54,532,748
`Common Stock, $.001 par value
`DOCUMENTS INCORPORATED BY REFERENCE:
`Specified portions of the Registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for
`its 2006 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. Exhibit index is located
`on pages 45 to 48 of this filing.
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`https://www.sec.gov/Archives/edgar/data/0000872589/000095012306002365/y17762e10vk.htm
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`Mylan v. Regeneron, IPR2021-00881
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`TABLE OF CONTENTS
`
`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 Officers of the Registrant
`Item 11. Executive Compensation
`Item 12. Security Ownership of Certain Beneficial Owners and Management
`Item 13. Certain Relationships and Related Transactions
`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 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
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`PART I
`
`Item 1. Business
`This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties relating
`to future events and the future financial performance of Regeneron Pharmaceuticals, Inc., and actual events or results
`may differ materially. These statements concern, among other things, the possible success and therapeutic applications
`of our product candidates and research programs, the timing and nature of the clinical and research programs now
`underway or planned, and the future sources and uses of capital and our financial needs. These statements are made by
`us based on management’s current beliefs and judgment. In evaluating such statements, stockholders and potential
`investors should specifically consider the various factors identified under the caption “Risk Factors” which could
`cause actual events or 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.
`
`General
`Regeneron Pharmaceuticals, Inc. is a biopharmaceutical company that discovers, develops, and intends to
`commercialize pharmaceutical products for the treatment of serious medical conditions. We are currently focused on
`three clinical development programs: VEGF Trap in oncology, VEGF Trap eye formulation (VEGF Trap-Eye) in eye
`diseases using intraocular delivery, and IL-1 Trap in various systemic inflammatory indications. The VEGF Trap
`oncology development program is being developed jointly with the sanofi-aventis Group under a September 2003
`collaboration agreement. 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. Developing and
`commercializing new medicines entails significant risk and expense. Since inception we have not generated any sales
`or profits from the commercialization of any of our product candidates.
`Our core business strategy is to maintain a strong foundation in basic scientific research and discovery-enabling
`technology and combine that foundation with our manufacturing and clinical development capabilities to build a
`successful, integrated biopharmaceutical company. Our efforts have yielded a diverse pipeline of product candidates
`that we believe has the potential to address a variety of serious medical conditions. We believe that our ability to
`develop product candidates is enhanced by the application of our technology platforms. Our discovery platforms are
`designed to identify specific genes of therapeutic interest for a particular disease or cell type and validate targets
`through high-throughput production of mammalian models. Our Traps, Human Monoclonal Antibody
`(VelocImmune(cid:3469)(cid:3462)), and cell line expression technologies may then be utilized to design and produce new product
`candidates directed against the disease target. We continue to invest in the development of enabling technologies to
`assist in our efforts to identify, develop, and commercialize new product candidates.
`
`Clinical Programs:
`1. VEGF Trap — Oncology
`The VEGF Trap is a protein-based product candidate designed to bind all forms of Vascular Endothelial Growth
`Factor-A (called VEGF-A, also known as Vascular Permeability Factor or VPF) and the related Placental Growth
`Factor (called PlGF), and prevent their interaction with cell surface receptors. VEGF-A (and to a less validated degree,
`PlGF) is required for the growth of new blood vessels that are needed for tumors to grow and is a potent regulator of
`vascular permeability and leakage. The VEGF Trap is being developed in cancer indications in collaboration with
`sanofi-aventis, as described in the section below entitled “Collaboration with the sanofi-aventis Group.”
`In September 2005, we announced that we and sanofi-aventis were expanding the VEGF Trap oncology program
`and would initiate trials in various cancer indications. The companies have initiated a single-agent phase 2 study of the
`VEGF Trap in non-small cell lung adenocarcinoma. Two additional phase 2 single-agent safety/efficacy studies, in
`advanced ovarian cancer and symptomatic malignant ascites, are planned to begin during the first quarter of 2006. In
`2004, the United States Food and Drug Administration (FDA) granted Fast Track designation to the VEGF Trap for the
`treatment of symptomatic malignant ascites.
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`The companies plan to conduct three trials using the VEGF Trap in combination with standard chemotherapy regimens; two of
`which are planned to begin as early as the second half of 2006, assuming successful completion of initial safety and tolerability
`studies. Three of these safety and tolerability combination studies were initiated in 2005 and two more began in the first quarter of
`2006. The companies are also working with the National Cancer Institute (NCI) Cancer Therapeutics Evaluation Program to
`commence up to ten additional cancer trials in 2006.
`Cancer is a heterogeneous set of diseases and one of the leading causes of death in the developed world. A mutation in any one
`of dozens of normal genes can eventually result in a cell becoming cancerous; however, a common feature of cancer cells is that
`they need to obtain nutrients and remove waste products, just as normal cells do. The vascular system normally supplies nutrients
`to and removes waste from normal tissues. Cancer cells can use the vascular system either by taking over preexisting blood vessels
`or by promoting the growth of new blood vessels (a process known as angiogenesis). VEGF is secreted by many tumors to
`stimulate the growth of new blood vessels to support the tumor. Countering the effects of VEGF, thereby blocking the blood supply
`to tumors, has been shown to provide therapeutic benefits. This approach, of inhibiting angiogenesis as a mechanism of action for
`an oncology medicine, was validated in February 2004, when the FDA approved Genentech, Inc.’s VEGF inhibitor, Avastin®.
`Avastin is an antibody product designed to inhibit VEGF and interfere with the blood supply to tumors.
`
`Collaboration with 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 the collaboration agreement to exclude from the scope of the collaboration the
`development and commercialization of the VEGF Trap for intraocular delivery to the eye. In connection with the amendment,
`sanofi-aventis made a one-time payment to us of $25.0 million in January 2005, of which 50% is repayable to sanofi-aventis
`following commercialization of the VEGF Trap in accordance with the terms of the amendment.
`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. 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 marketing approvals 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 may also receive up to
`$400.0 million in additional milestone payments upon receipt of specified marketing approvals, including up to $360.0 million in
`milestone payments for up to eight VEGF Trap indications in the United States or the European Union. 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, we and sanofi-aventis have incurred $130.5 million in agreed upon development
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`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.
`
`2. VEGF Trap — Eye Diseases
`We are developing the VEGF Trap-Eye for the treatment of certain eye diseases. This product candidate has been purified and
`formulated in concentrations suitable for direct injection into the eye. We retain the exclusive right to develop and commercialize
`the VEGF Trap-Eye for the treatment of eye diseases utilizing local (intravitreal) delivery to the eye.
`In February 2006, we announced positive preliminary results from an ongoing phase 1 dose-escalation study of the VEGF
`Trap-Eye in patients with the neovascular form of age-related macular degeneration (wet AMD). The phase 1 trial is a two-part,
`dose-escalating study designed to assess the safety and tolerability of the VEGF Trap-Eye in patients with wet AMD. In part A of
`this trial, patients received a single dose of the VEGF Trap-Eye delivered by intravitreal injection into the eye, after which they are
`evaluated for three months to measure the durability of effects and provide guidance for dosing regimens to be used in future trials.
`A total of 21 patients received a single dose of VEGF Trap-Eye at doses up to 4 milligrams (mg) intravitreally. All dose levels were
`generally well tolerated, and a maximum tolerated dose was not reached in the study. Clinical investigators at a scientific
`conference recently reported positive preliminary results of this study at doses up to 2 mg. The investigators reported that patients
`receiving the VEGF Trap-Eye demonstrated rapid, substantial, and prolonged (up to four weeks) reductions in retinal thickness, a
`clinical measure of disease activity in wet AMD. Although dosing has been completed, patients in this trial are still being evaluated
`to measure the durability of drug effect (as measured by optical coherence tomography) pursuant to the study protocol.
`In February 2006, we initiated part B of the phase 1 trial. In this part of the trial, we plan to evaluate the safety and tolerability
`of a single intravitreal injection of the VEGF Trap-Eye compared with Macugen® (Eyetech Pharmaceuticals, Inc.), an approved
`treatment for wet AMD. We plan to initiate a phase 2 trial of the VEGF Trap-Eye delivered intravitreally in patients with wet AMD
`in the first half of 2006.
`VEGF-A both stimulates angiogenesis and increases vascular permeability. It has been shown in preclinical studies to be a
`major pathogenic factor in both wet AMD and Diabetic Retinopathy, and it is believed to be involved in other medical problems
`affecting the eyes. In clinical trials, blocking VEGF-A has been shown to be effective in patients with wet AMD, and Macugen has
`been approved to treat patients with this condition.
`Wet AMD and Diabetic Retinopathy (DR) are two of the leading causes of adult blindness in the developed world. In both
`conditions, severe visual loss is caused by a combination of retinal edema and neovascular proliferation. It is estimated that, in the
`U.S., 6% of individuals aged 65-74 and 20% of those older than 75 are affected with wet AMD. DR is a major complication of
`diabetes mellitus that can lead to significant vision impairment. DR is characterized, in part, by vascular leakage, which results in
`the collection of fluid in the retina. When the macula, the central area that is responsible for fine visual acuity, is involved, loss of
`visual acuity occurs. This is referred to as Diabetic Macular Edema (DME). DME is the most prevalent cause of moderate visual
`loss in patients with diabetes.
`
`3. IL-1 Trap — Inflammatory Diseases
`The IL-1 Trap is a protein-based product candidate designed to bind the interleukin-1 (called IL-1) cytokine and prevent its
`interaction with cell surface receptors.
`We are evaluating the IL-1 Trap in a number of diseases and disorders where IL-1 may play an important role, including
`diseases associated with inflammation. These diseases include Systemic Juvenile Idiopathic Arthritis (SJIA), Polymyalgia
`Rheumatica (PMR), certain inflammatory vascular diseases, and a spectrum of rare diseases called CIAS1-Associated Periodic
`Syndrome (CAPS).
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`In the fourth quarter of 2005, we initiated a pivotal study of the IL-1 Trap in patients with CAPS. This study will include a six-
`month, placebo-controlled efficacy phase, followed by a six-month open-label extension phase. We plan to complete the efficacy
`phase of this trial by the end of 2006. In December 2004, the FDA granted orphan drug status to the IL-1 Trap for the treatment of
`CAPS.
`We currently have underway proof-of-concept trials of the IL-1 Trap in patients with SJIA and PMR. In April 2005, the FDA
`granted orphan drug status to the IL-1 Trap for the treatment of SJIA. Following successful completion of these trials, we may
`initiate additional trials for these indications.
`An IL-1 receptor antagonist, Kineret® (Amgen Inc.), has been approved by the FDA for the treatment of rheumatoid arthritis. It
`has been publicly reported that in small trials, Kineret® appears to reduce the symptoms in CAPS patients and SJIA patients, which
`supports the role of IL-1 in these diseases. CAPS includes rare genetic disorders, such as Familial Cold Auto-Inflammatory
`Syndrome (FCAS), Muckle Wells Syndrome, and Neonatal Onset Multisystem Inflammatory Disorder (NOMID), which affect a
`small group of people. Patients with these disorders develop fever, joint aches, headaches, and rashes. In certain indications, these
`symptoms can be extremely serious. There are no currently approved therapies for CAPS. SJIA is a severe inflammatory disorder,
`which may be debilitating or fatal. It is estimated that there are between 5,000 and 10,000 children with SJIA in the United States.
`
`Research Technologies:
`One way that a cell communicates with other cells is by releasing specific signaling proteins, either locally or into the
`bloodstream. These proteins have distinct functions, and are classified into different “families” of molecules, such as peptide
`hormones, growth factors, and cytokines. All of these secreted (or signaling) proteins travel to and are recognized by another set of
`proteins, called “receptors,” which reside on the surface of responding cells. These secreted proteins impact many critical cellular
`and biological processes, causing diverse effects ranging from the regulation of growth of particular cell types, to inflammation
`mediated by white blood cells. Secreted proteins can at times be overactive and thus result in a variety of diseases. In these disease
`settings, blocking the action of secreted proteins can have clinical benefit.
`Regeneron scientists have developed two different technologies to design protein therapeutics to block the action of specific
`secreted proteins. The first technology, termed the “Trap” technology, was used to generate our current clinical pipeline, including
`the VEGF Trap, the VEGF Trap-Eye, and the IL-1 Trap. These novel “Traps” are composed of fusions between two distinct
`receptor components and the constant region of an antibody molecule called the “Fc region”, resulting in high affinity product
`candidates. Our new technology for designing protein therapeutics focuses on the production of fully human monoclonal
`antibodies. With the global market for approved monoclonal antibody therapeutics exceeding $11 billion, there is a growing
`demand for monoclonal antibody technologies to help turn genomic discoveries into product candidates. We call our technology
`VelocImmune(cid:3469)(cid:3462) and, as described below, believe that it is a unique way of generating a wide variety of high affinity therapeutic,
`human monoclonal antibodies.
`VelocImmune(cid:2580)(cid:2573) (Human Monoclonal Antibodies)
`We have developed a novel mouse technology platform, called VelocImmune, for producing fully human monoclonal
`antibodies. The VelocImmune mouse platform was generated by exploiting our VelociGene technology platform (see below), in a
`process in which several megabases of mouse immune gene loci were replaced or “humanized” with corresponding human immune
`gene loci. The VelocImmune mice can be used to efficiently generate fully human monoclonal antibodies to targets of therapeutic
`interest. VelocImmune and our related technologies offer the potential to increase the speed and efficiency through which human
`monoclonal antibody therapeutics may be discovered and validated, thereby improving the overall efficiency of our early stage
`drug development activities. We are utilizing the VelocImmune technology to produce our next generation of drug candidates for
`preclinical development and are exploring the possibility of entering into licensing or collaborative arrangements with third parties
`related to VelocImmune and related technologies.
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`VelociGene(cid:2580)(cid:2573) and VelociMouse(cid:2580)(cid:2573) (Target Validation)
`Our VelociGene platform allows custom and precise manipulation of very large sequences of DNA to produce
`highly customized alterations of a specified target gene and accelerates the production of knock-out and transgenic
`expression models without using either positive/negative selection or isogenic DNA. In producing knock-out
`models, a color or fluorescent marker is substituted in place of the actual gene sequence, allowing for high-
`resolution visualization of precisely where the gene is active in the body, during normal body functioning, as well
`as in disease processes. For the optimization of preclinical development and toxicology programs, VelociGene
`offers the opportunity to humanize targets by replacing the mouse gene with the human homolog. Thus,
`VelociGene allows scientists to rapidly identify the physical and biological effects of deleting or over-expressing
`the target gene, as well as to characterize and test potential therapeutic molecules.
`The VelociMouse technology also allows for the direct and immediate generation of genetically altered mice
`from ES cells, avoiding the lengthy process involved in generating and breeding knock-out mice from chimeras.
`Mice generated through this method are normal and healthy and exhibit a 100% germ-line transmission frequency.
`Furthermore, Regeneron’s Velocimice are suitable for direct phenotyping or other studies.
`
`Cell Line Expression Technologies
`Many proteins that are of potential pharmaceutical value are proteins which are “secreted” from the cells into
`the bloodstream. Examples of secreted proteins include growth factors (such as insulin and growth hormone) and
`antibodies. Current technologies for the isolation of cells engineered to produce high levels of secreted proteins
`are both laborious and time consuming. We have developed enabling platforms for the high-throughput, rapid
`generation of high-producing cell lines for our Traps and VelocImmune Human Monoclonal Antibodies.
`
`Research Programs:
`Oncology and Angiogenesis
`In many clinical settings, positively or negatively regulating blood vessel growth could have important
`therapeutic benefits, as could the repair of damaged and leaky vessels. Vascular Endothelial Growth Factor
`(VEGF) was the first growth factor shown to be specific for blood vessels, by virtue of having its receptor
`specifically expressed on blood vessel cells. In 1994, we discovered a second family of angiogenic growth factors,
`termed the Angiopoietins, and we have received patents covering members of this family. The Angiopoietins
`include naturally occurring positive and negative regulators of angiogenesis, as described in numerous scientific
`manuscripts published by our scientists and their collaborators. The Angiopoietins are being evaluated in
`preclinical research by us and our academic collaborators. Our preclinical studies have revealed that VEGF and
`the Angiopoietins normally function in a coordinated and collaborative manner during blood vessel growth. In
`terms of blocking vessel growth, manipulation of both VEGF and Angiopoietins seems to be of value. We have
`research programs focusing on several targets in the areas of oncology and angiogenesis.
`
`Metabolic and Related Diseases
`Food intake and metabolism are regulated by complex interactions between diverse neural and hormonal
`signals that serve to maintain an optimal balance between energy intake, storage, and utilization. The
`hypothalamus, a small area at the base of the brain, is critically involved in the integration of peripheral signals
`which reflect nutritional status and neural outputs which regulate appetite, food seeking behaviors, and energy
`expenditure. Metabolic disorders, such as type 2 diabetes, reflect a dysregulation in the systems which ordinarily
`tightly couple energy intake to energy expenditure. Our preclinical research program in this area encompasses the
`study of peripheral (hormonal) regulators of food intake and metabolism in health and disease. We have identified
`several targets in these therapeutic areas and are evaluating potential antibodies to evaluate in preclinical studies.
`
`Muscle Diseases and Disorders
`Muscle atrophy occurs in many neuromuscular diseases and also when muscle is unused, as often occurs
`during prolonged hospital stays and during convalescence. Currently, physicians have few options to treat subjects
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`with muscle atrophy or other muscle conditions which afflict millions of people globally. Thus, a treatment that
`has beneficial effects on skeletal muscle could have significant clinical benefit. Our muscle research program is
`currently focused on conducting in vivo and in vitro experiments with the objective of demonstrating and further
`understanding the molecular pathways involved in muscle atrophy and hypertrophy, and discovering therapeutic
`candidates that can modulate these pathways. We have several molecules in late stage research and are evaluating
`them for possible further development.
`
`Other Therapeutic Areas
`We have research programs focusing on inflammatory and immune diseases, pain, bone and cartilage,
`ophthalmology, and cardiovascular diseases.
`
`Manufacturing
`In 1993, we purchased our 104,000 square foot Rensselaer, New York manufacturing facility, and in 2003
`completed a 19,500 square foot expansion. This facility is used to manufacture therapeutic candidates for our own
`preclinical and clinical studies. We also use the facility to manufacture a product for Merck & Co., Inc. under a
`contract that expires in October 2006. In July 2002, we leased 75,000 square feet in a building near our Rensselaer
`facility which is being used for the manufacture of Traps and for warehouse space. At December 31, 2005, we
`employed 230 people at these owned and leased manufacturing facilities. There were no impairment losses
`associated with long-lived assets at these facilities as of December 31, 2005.
`In 1995, we entered into a long-term manufacturing agreement with Merck (called, as amended, the Merck
`Agreement) to produce an intermediate for a Merck pediatric vaccine at our Rensselaer facility. In February 2005,
`we and Merck extended the Merck Agreement through October 2006. Merck pays us an annual facility fee of
`$1.0 million (plus annual adjustments for inflation), reimburses us for certain manufacturing costs, pays us a
`variable fee based on the quantity of intermediate supplied to Merck, subject to certain minimum order quantities
`each year, and makes certain additional payments. We recognized contract manufacturing revenue related to the
`Merck Agreement of $13.7 million in 2005, $18.1 million in 2004, and $10.1 million in 2003.
`Among the conditions for regulatory marketing approval of a medicine is the requirement that the prospective
`manufacturer’s quality control and manufacturing procedures conform to the GMP regulations of the health
`authority. In complying with standards set forth in these regulations, manufacturers must continue to expend time,
`money, and effort in the area of production and quality control to ensure full technical compliance. Manufacturing
`establishments, both foreign and domestic, are also subject to inspections by or under the authority of the FDA
`and by other national, federal, state, and local agencies. If our manufacturing facilities fail to comply with FDA
`and other regulatory requirements, we will be required to suspend manufacturing. This will have a material
`adverse effect on our financial condition, results of operations, and ca