Regeneron Pharmaceuticals, Inc.
Q4 2017 Earnings Call Transcript

Published: 8 Feb 2018

[Operator:]

Welcome to the Regeneron Pharmaceuticals Q4 2017 Earnings Conference Call. My name is Jason, and I will be your operator. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Also, please note this conference is being recorded. I will now turn the call over to Manisha Narasimhan. You may begin.

[Manisha Narasimhan:]

Thank you, Jason. Good morning, and welcome to Regeneron Pharmaceuticals' Fourth Quarter and Full Year 2017 Conference Call. An archive of this webcast will be available on our website under Events for 30 days. Joining me on the call today are Dr. Leonard Schleifer, Founder, President and CEO; Dr. George Yancopoulos, Founding Scientist, President and Chief Scientific Officer; and Bob Landry, Chief Financial Officer. After our prepared remarks, we will open the call for Q&A. I would also like to remind you that remarks made on this call today include forward-looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and business, sales and expense forecasts, financial forecasts, development programs, and related anticipated milestones, collaborations, finances, regulatory matters, intellectual property, pending litigation and competition. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission, or SEC, including its Form 10-K for the year ended December 31, 2017, which will be filed with the SEC later today. Regeneron does not undertake any obligation to update publicly any forward-looking statement whether as a result of new information, future events or otherwise. In addition, please note that GAAP and non-GAAP measures will be discussed on today's calls. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our financial results press release, which can be accessed on our website at www.regeneron.com. Once our call concludes, Bob Landry and the IR team will be available to answer further questions. With that, let me turn the call over to our President and Chief Executive Officer, Dr. Len Schleifer.

[Leonard S. Schleifer:]

Thank you, Manisha, and good morning to everyone who has joined us on the call and webcast today. 2017 was a strong and significant year for Regeneron with important progress on clinical, commercial and regulatory fronts and solid financial results. We received regulatory approval for two important new drugs

[George Damis Yancopoulos:]

Thank you, Len, and a very good morning to everyone who has joined us today. As Len mentioned, 2018 is shaping up to be a very busy and important year for Regeneron. I'd like to begin with Dupixent in atopic dermatitis where the drug is currently approved for use in adult patients. However, there is an unmet need in pediatric atopic dermatitis patients where the current treatment options are limited. We are conducting three Phase 3 studies in atopic dermatitis in children between the ages of 6 months and 17 years. The first of these in children between the ages of 12 and 17 years is fully enrolled, and we expect to report data by midyear and submit a supplemental BLA in the United States in the second half of the year. In asthma, we have reported positive data from three separate pivotal studies of dupilumab with profound benefits on the two major endpoints of exacerbations and improvement in lung function as measured by FEV1. These improvements were observed in the overall population and were even more pronounced in the patient population with a more allergic phenotype as defined by biomarkers such as eosinophils corresponding to approximately half of the patients in these studies. One of our pivotal studies was conducted in a severe patient population that was dependent on oral steroids. In this severe population, patients treated with dupilumab saw significant reduction in their exacerbations as well as improvements in their lung function. These findings were even more striking since more than half the patients in this study were able to completely eliminate their use of oral steroids. We, along with our collaborator, Sanofi, have submitted a supplemental BMA (sic) [BLA] (18

[Robert E. Landry:]

Thank you, George, and good morning, everyone. Regeneron posted strong fourth quarter 2017 financial results. We finished the year with continued sequential growth within our global EYLEA franchise, positive momentum with our U.S. Dupixent launch, the execution of several business development transactions and expanded funding for cemiplimab and dupilumab under our Sanofi collaboration. In the fourth quarter of 2017, we earned $5.23 per diluted share from non-GAAP net income of $607 million. For the full year 2017, we earned $16.32 per diluted share from non-GAAP net income of $1.9 billion. This represents a year-over-year increase in non-GAAP diluted EPS and net income of 72% for the fourth quarter, and a year-over-year increase of 44% in non-GAAP diluted EPS and net income for the full year of 2017. Regeneron's fourth quarter 2017 non-GAAP net income excludes non-cash share-based compensation expense, the $25 million upfront payment made in connection with our agreement with Decibel Therapeutics, the income tax effect of non-GAAP reconciling items, and a onetime provisional charge related to enactment of the Tax Cuts and Job Act (sic) [Tax Cuts and Jobs Act], a full reconciliation of GAAP to non-GAAP earnings is set forth in our earnings release which can be found on our website. Total revenues in the fourth quarter of 2017 were $1.58 billion and $5.87 billion for the full year 2017, which represented year-over-year growth of 29% for the three months ended December 31, 2017, and 21% for the full year of 2017. EYLEA net product sales in the United States were $975 million in the fourth quarter of 2017 and $3.7 billion for the full year of 2017, compared to $858 million in the fourth quarter of 2016 and $3.32 billion for the full year of 2016, which represents an increase of 14% and 11% respectively. U.S. EYLEA distributor inventory experienced a slight increase as compared to the third quarter of 2017, yet remained within our normal one- to two-week targeted range. Ex-U.S. EYLEA net product sales, which are recorded by our collaborator, Bayer, were $637 million in the fourth quarter of 2017, representing a 28% increase over the fourth quarter of 2016 on a reported basis and 23% on a constant currency basis. For the full year of 2017, global EYLEA net product sales were nearly $6 billion. In the fourth quarter of 2017, Regeneron recognized $231 million from our share of net profits from EYLEA sales outside the United States and $802 million for the full year of 2017. Total Bayer collaboration revenue for the fourth quarter of 2017 was $297 million and $938 million for the full year of 2017. In the fourth quarter of 2017, the company reported that the results from two Phase 2 studies of EYLEA, in combination with nesvacumab, an antibody to ANG2 did not provide sufficient differentiation to warrant Phase 3 development. Consequently, Bayer collaboration revenue in the fourth quarter of 2017 includes $37 million of revenue related to the acceleration of the recognition of deferred revenue from the upfront payment previously received from Bayer. Total Sanofi collaboration revenue was $200 million for the fourth quarter of 2017 and $877 million for the full year of 2017. The Sanofi collaboration revenue line item primarily consists of reimbursement of Regeneron-incurred R&D expenses, reimbursement of Regeneron-incurred commercialization-related expenses, and the recognition of deferred revenue from the antibody and immuno-oncology upfront payments, partly offset by our share of losses in connection with the commercialization of antibodies. Global sales of Dupixent, Praluent and Kevzara, as recorded by our collaborator, Sanofi, for the fourth quarter of 2017 were

[Manisha Narasimhan:]

Thank you, Bob. Jason, that concludes our prepared remarks. We'd now like to open the call for Q&A.

[Operator:]

Thank you. And our first question comes from Alethia Young from Credit Suisse. Alethia Young - Credit Suisse Securities (USA) LLC Hey, guys. Thanks for taking my question. I just want to talk a little bit more about immuno-oncology. It seems like it's kind of under-appreciated when we talk to investors, but can you talk a little bit more about your PD-1 strategy and your bispecific strategy? How does it all fit together, and maybe just a little bit more color on what you're doing in BCMA? Thanks.

[Leonard S. Schleifer:]

George?

[George Damis Yancopoulos:]

Sure. We're very excited obviously about our PD-1 program and that, as we noted, I think we surprised a lot of people by finding an important indication, which was very responsive to our antibody and where we're hoping to get a rapid approval. And as we've said, we think this setting is actually a pretty important one, perhaps on par with that of melanoma and with substantial growth opportunity. But as we also said, we think that not only is it an important indication in and of itself, but it serves as a foundation to have our PD-1 antibody serve as a foundation for combination approaches going forward. We have a series of additional combination opportunities, some of which we've already initiated, whether it'd be with things like a variety of vaccines, in many cases that we're partnering with, or with additional checkpoint inhibitors that we've developed internally. But perhaps we're most excited about our bispecifics. As we've noted, our first bispecific is finally getting to dosing levels that are showing pretty substantial efficacy in our early trials. And we think if our bispecifics start approaching, which we think they're beginning to, the sort of type of responses that people are reporting with CAR Ts, they could really represent a very, very important opportunity. And the thing that's also exciting about it is, our strategy includes both combining our bispecifics with our PD-1 as well as our bispecifics with each other. We have a number of bispecifics that at least, in our preclinical model, look like they can be additive, if not synergistic in their responses. And because these are all coming from our laboratories and we have the abilities to study them preclinically as well as the ability to expedite studying them clinically, we think this offers an enormous opportunity for us to really try these combinations and look for advances that they can actually provide together. So, for us, it's a very exciting opportunity. We think we already have our foothold, as we said, and we hope in the near future to be establishing, not only our first bispecific but a series of additional bispecifics as we said where we will be putting at least two in the clinic this year and a whole series of them shortly thereafter. So we think it's an exciting time, and it's a lot of opportunity.

[Manisha Narasimhan:]

Operator, next question please.

[Operator:]

Thank you. Next, we have Geoffrey Porges from Leerink Partners.

[Geoffrey C. Porges:]

Thanks very much, and I appreciate the question. A financial one and an R&D one quickly. Bob, on the SG&A, it stepped up significantly and you highlighted that, and it looks as though it's going to be annualizing in 2018 as much the same rate as Q4. Could you talk about what the drivers are there? Have you sort of stood up your sales forces yet for both asthma and for the PD-1? And is there any sense that you might be able to redeploy some of your commercial expense away from Praluent over towards Dupixent, some of those other opportunities perhaps tighten up on that SG&A ratio? And then, quickly, just George, could you tell us what sort of dosing you expect to be likely for your bispecifics that you've learnt more about the characteristics of the first one?

[Robert E. Landry:]

Sure, Geoff. I'll answer the first one. And probably something that we haven't given a ton of color about, but with regards to kind of our fourth quarter SG&A spend, we always kind of get this annual seasonal EYLEA increase as we have to kind of reauthorize the insurance coverage and the reverification processes that have again. Obviously, the docs like this, so when the EYLEA patients come in the early January, the insurance is already in place and this is not a kind of a whole new start for them. So we do incur a decent amount of incremental spend that you don't necessarily see during the first three quarters in 2017 in the fourth quarter. And again, we did something similar in 2016. Again, as we incurred in the fourth quarter of 2017, we are picking up spend for Kevzara and Dupixent. Again, after controlling Praluent for the first three quarters, we did additionally have an increase in Praluent fourth quarter spend. And as I alluded to, we did accelerate, Geoff, some 2017, in particular, G&A expenses into the fourth quarter. That probably ideally would have been a January incurrence. So, again, that's creating a little bit of the bump that you're seeing when you compare to the first three quarters of 2017. As we get into 2018, again, we're putting a lot of money with regards to Dupixent in atopic dermatitis. We also have a lot of money laid out with regards to the launch of ASTHMA, which as you know, is going to be a very, very competitive field. And again, we continue on with Kevzara and we're assuming positive ODYSSEY OUTCOMES results on Praluent and we're putting the necessary dollars behind that.

[George Damis Yancopoulos:]

Okay. And, Geoff, this is George. Just regarding to your question about the bispecifics, I think that a couple of very important things that we learned, and I think these are some of the reasons why this is such an attractive class and in particular may offer some advantages over some of these cellular therapy approaches, where a lot of the major concern is controlling the cytokine release storm and other adverse events in which the cells might be attacking the host. Most importantly, we've learned that we can actually gradually up the dose in time in an individual patient. So we can start with a lower dose, gradually remove the target, and so we don't get an immediate blast of cytokine release storm. And then we continue to dose up. And we've now gotten up what we reported recently at ASH, our doses between 5 milligrams to 8 milligrams in terms of efficacy, where we reported these efficacy numbers of about 50% response rates and we also reported there that we had gotten to 12 milligram as a dose and we reported the safety profile there, but now we've even gone further beyond that dose. These are still relatively low doses compared to standard biologics, but we've certainly seen that it seems like it really dramatically ups the efficacy range when you get to these levels. But I think a huge advantage here is understanding that you can gradually increase the dose and this way you really ameliorate the onset of these adverse events and you can keep them under control and then get up to the higher doses. And then, of course, another major advantage is, if need be, you can back off the dose if you actually have to. But as a class now, I think that we understand the doses that we have to get to for efficacy, but also how to gradually get to those doses in an individual patient so that they can be well-tolerated.

[Geoffrey C. Porges:]

Great. Thanks very much.

[Manisha Narasimhan:]

Next question, please.

[George Damis Yancopoulos:]

(47

[Leonard S. Schleifer:]

He has no time to answer. Right now, he's already shut out of the line. Next question.

[Operator:]

Thank you. And next we have Chris Raymond from Piper Jaffray.

[Christopher J. Raymond:]

Thanks. Had a question on fasinumab and also Kevzara, if you don't mind. So just on fasinumab, just looking at the long-term safety study in way of the knee (48

[Leonard S. Schleifer:]

Right. So maybe George will comment on the NGF and, this is Len, I'll take the Kevzara question.

[George Damis Yancopoulos:]

Right. As you said, the story with NGF we think is one where there's an enormous opportunity balanced by a significant risk. I think a lot of people are aware of the risk about this issue of potentially accelerating arthritis in some patients and the question is the degree of tolerance of this acceleration. And remind you, one of the theories for this acceleration may simply be that when you cause pain relief, people over-use their joints but still the mechanism is not that well understood. In terms of the benefit/risk profile and understanding what could be tolerated, we can't answer that exactly, but we think that what we're using as a sort of barometer is that these patients are already late stage patients, who are in many cases candidates for total joint replacements. So I think that that's a good way to sort of gate the adverse events and how they're impacting. If overall, you're not causing an increase in the total number of joints that are adversely affected to the point where you need to get a total joint replacement and, if anything, if maybe you're preventing such events, while in some patients you're causing this acceleration, I think that would be considered a favorable benefit/risk profile if overall in the vast population you're relieving pain. So if you're relieving pain in the large percentage of the population and you're not contributing or, if anything, you're preventing total joint replacements, I think that would be viewed as a profound positive.

[Leonard S. Schleifer:]

As to the Kevzara question, we refuse to believe that a drug with the strong profile that Kevzara has and the favorable pricing that we have offered cannot make sense in an environment where cost of medicines is a major concern. We applaud the actions of CVS, who gave us – who recognized that and gave us a good position on the formulary. We would be very disappointed and we'll be very vocal if it can't be that a drug with such good properties and such favorable pricing can't make strong headway. So we've got our work cut out. Our new head of commercial is up to the challenge and so we will report back to you as we go.

[Manisha Narasimhan:]

Next question, please.

[Operator:]

Thank you. Next we have Ying Huang from Bank of America Merrill Lynch.

[Ying Huang:]

Hi. Good morning. Thanks for taking the questions. First one maybe on ODYSSEY OUTCOMES study since it's going to read out soon. Your competitor Repatha did not show any benefit in cardiovascular mortality. So how important do you think it will be for your drug Praluent to show that benefit? And then secondly, can you talk about life-cycle management strategy for EYLEA now that it seems Ang2 is not going to be going forward into Phase 3? Thank you.

[George Damis Yancopoulos:]

Sure. So just to cover ODYSSEY, I don't think that it's worth, Ying, speculating too much on what this result or what that result might be since we don't know the results, but we'll know the results by the March 10 ACC event. So I think we'll all look at the events together basically and we'll be able to judge then. About EYLEA.

[Leonard S. Schleifer:]

In terms of EYLEA, let me just say that I think we've tried to highlight a couple of things. People ask us a lot about competition. I think it takes a lot to compete in this space. You need a drug that can be given as safely and effectively. You need a drug that can be given as frequently as monthly because patients who turn out that every other month is not enough, doctors desperately want to be able to give them monthly and you need to have that in the label so you can get reimbursed for that higher dosing. You need a drug that has evidence of the long-term maintenance of vision, which has been a question in this field, and you need a drug that has all the indications covered. The new entrants have yet to start or are only about to start Phase 3 trials. The RTH258 is just about to start or maybe just getting under way in terms of a DME and so they'll be coming to market sometime we believe in 2019 based on their disclosures which would come to market without, as far as we can tell, a monthly label so you can't use it monthly and without a DME label since they haven't even started their Phase 3 trials. And, of course, when we developed EYLEA we struck a very careful balance which is what we tried to emphasize between safety and efficacy. When you give these anti-VEGF agents in the eye, they go into the systemic circulation. In fact, the very doctor who presented the RTH258 data was the one who was most critical that he didn't want to give our drug to his grandmother because of some subset and the risk of some systemic thromboembolic event. When you now start to give 6 to 12 times the molar dose into the eye, it's hard to ignore the fact that safety, particularly for example in diabetics, which hasn't been evaluated yet, and the careful safety evaluation that the agency will give that's going to be an important part of this whole formula. So I don't think that the – the demise of EYLEA I think has been greatly exaggerated as the saying goes. But in terms of following on, we too struggle when you've got to the heart of a disease which is excess VEGF causing leakiness of blood vessels, and you can block VEGF so exquisitely, you're not going to get too much down the road by adding other agents. We looked at Ang2. Others looked at PDGF. We looked at it. We didn't see a difference. It would not surprise us if the bispecific from Roche showed some nice activity because they're testing against 0.3 milligrams of Lucentis at a strong multiple of that dose. In terms of our own efforts, we've got as we mentioned preclinical work ongoing in formulation to give you longer-term delivery of EYLEA as well as gene therapy. But at the end of the day, we all got to this field got to the heart of this disease pretty quickly, and that's why it's been hard for anybody to surpass these very powerful anti-VEGF agents. George, you want to add to that a little?

[George Damis Yancopoulos:]

Yes. I just want to build on that just a little bit. We have been working very hard for a very, very long time, more than 20 years now, to build on the benefit that EYLEA provides. And obviously, it's been hard because the bar has been set so high with EYLEA, and I think Len referred to the data. Just imagine that. I mean, with brolucizumab, they gave 12 times the molar dose of EYLEA, and they could not demonstrate any advantages vis-à-vis their primary endpoint visual acuity. In fact, as Len mentioned, they were numerically inferior in both studies. And they couldn't also extend substantially on the interval meaning that almost half their patients failed their quarterly interval. So that allows them to maybe allow to have about 50% of the people or so on quarterly dosing, which is just like EYLEA. So EYLEA has such a high bar, and the only way that so far people are trying to address it is by giving much, much higher molar doses and these molar doses are not really achieving demonstrable, at least in terms of visual acuity or in terms of interval, any advantages. And I think it just shows the bar has been set very high, and I think the flip side is the safety concern. And when you have something that you have such a long track record with safety, and with also long-term demonstration of ability to maintain the visual gains. That's something else that Len referred to. There's no other agents which have been shown in long-term studies to actually maintain the initial vision gains. That's a very, very high bar, and when Len refers to treating relatives or parents, I think that right now EYLEA would certainly for me be the drug of choice based on the safety and efficacy profile to be treating anybody that I care about.

[Ying Huang:]

Thank you.

[Manisha Narasimhan:]

Operator, we have time for one last question. I know there are many people in the queue, who we're not going to be able to get to on the call, but please send me an e-mail and we'll follow up with you after the call.

[Operator:]

We have Cory Kasimov from JPMorgan.

[Cory W. Kasimov:]

Hey. Good morning, guys, and thanks for the question. I actually had two of them regarding Dupixent. First, I'm wondering if you could talk more about the payer process for Dupixent that's led to some of the frustration you mentioned in your prepared remarks. Curious what's maybe new or different there. Is it unforeseen step that it's prior auth or something else and kind of how you see this dynamic evolving over the course of the year? And then the second part of the Dupi question is asking just about the relative breakdown of atopic dermatitis patients between adults, adolescents and pediatrics. I know you just started the ped Phase 3, but how much of an interim boost might that adolescent patient population represent given that you'll have Phase 3 data there in 28 (59

[Leonard S. Schleifer:]

Thanks, Cory, for the questions. On the second one, we don't have a quantitative answer for you at this time in terms of what we might see the uptake in pediatrics or adolescents, but we do know there are a lot, a lot of patients there. But until we get the label and et cetera, et cetera, and able to promote it, we really can't give you too much of a feel. In terms of the frustrations we mentioned, the process that Sanofi and Regeneron have undertaken has actually gone very well. Remember we had very rapid coverage from CVS and Express Scripts, almost first day coverage there, literally. And we have continued to grow. In summary 80%, 85% of the plans have made some sort of a decision already on coverage. So we're doing well on that. The frustration I was referring to was that we still hear that, unfortunately and regrettably, and we hope to shine a light on that – perhaps we should start a hashtag, #deniedRx. But people, despite being on the right side of the need, the appropriate patients, failed all the right agents and then some, the paperwork has gotten frustrating because I think payers are concerned about the size of this class. And in some cases, they're using their standard tricks. We're going to have to figure out ways to fight back. If somebody wants to tweet about Rx, #deniedRx, it would be okay with me. We'd love to collect some of these stories and hear about how the paperwork has been – or the denials have been unfair. We're not suggesting there's a new problem out there that's unique to Dupixent. This is an industry-wide problem that the payers are making it tougher. Praluent is a very good example. Payers are making it very tough for doctors to fill out the forms. We've made some progress now and some of the payers certainly are acting responsibly. It's not a monolith out there. And we want to get as many people on the drug who should be on the drug, and make that process as easy as we can. Thanks, Cory.

[George Damis Yancopoulos:]

Well, we should just add that just to remind you, you said we were early in our program with the pediatric atopic dermatitis. One of our Phase 3 studies is fully enrolled and for the 12 to 17 age group, we hope to submit a supplemental BLA by the end of this year. So we're hoping that that opportunity is, in terms of benefiting the younger patients, is going to be pretty forthcoming.

[Manisha Narasimhan:]

Operator, that concludes our call for today. And as I mentioned, we'll be available in our office for follow-up questions.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.