雷傑納榮製藥 (REGN) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Regeneron Pharmaceuticals Q2 2013 earnings conference call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Dr. Michael Aberman, Vice President, Strategy and Investor Relations.

Sir, you may begin.

Thank you, operator.

Good morning and welcome to Regeneron Pharmaceuticals' second quarter 2013 conference call.

An archive of this webcast will be available on our website under events and presentations for 30 days.

Joining me on the call today is Dr. Leonard Schleifer, founder, President and Chief Executive Officer, Murray Goldberg, Chief Financial Officer, and Robert Terifay, Senior Vice President, Commercial.

George Yancopoulos, our Founding Scientist, President of Regeneron Laboratories, and Chief Scientific Officer unfortunately will not be able to join us on the call today.

After our prepared remarks we'll open the call for Q&A.

I would also like to remind you that remarks made on this call that are not historical in nature may be forward-looking statements about Regeneron and are subject to a number of risks and uncertainties.

Actual events and our actual results may differ materially.

Such remarks may include but are not limited those related to Regeneron and its products and business, sales and expense forecasts, financial forecasts, development programs, collaborations, finances, regulatory matters, intellectual property and competition, all of which involve a number of risks and uncertainties.

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 the SEC, including the Form 10K for the year ended December 31, 2012, and Form 10-Q for the quarter ended June 30, 2013, which was filed with the SEC earlier 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, unless required by law.

GAAP and non-GAAP measures will be discussed on today's call.

Information regarding our use of non-GAAP financial measures and a reconciliation of these measures to GAAP are available in our financial results press release which can be accessed on our website.

Once this call concludes myself and Manisha from 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.

Thanks, Michael.

Good morning to everyone and thanks to so many of who are joining our second quarter 2013 earnings call.

Before I turn the call over to Bob Terifay to discuss our commercial operations and Murray to discuss our financial results, let me provide some big picture thoughts as well as highlight the exciting clinical news and regulatory update that we reported this morning regarding EYLEA in diabetic macular edema or DME.

We are very pleased with the global performance of EYLEA including our sales in the US and our partner, Bayer HealthCare's sales outside the US.

US sales were $330 million this quarter, which represents a 70% year-over-year growth.

The ex-US launch continues to do well with net sales of $96 million.

Our profit share on these ex-US sales was $34 million, and contributed $19 million to our bottom line after accounting for our repayment obligation to Bayer HealthCare for development expenses.

Outside the US, many of our launches are under way and we look forward to the continued roll-out across the EU and other countries around the world.

Beyond the ex-US launch, new indications represent the next leg of growth for EYLEA.

To that end, we launched into the central retinal vein occlusion, also known as CRVO, market in the United States in September of last year, and we recently announced that the European Committee for Medicinal Products for Human Use or the CHMP issued a positive recommendation for EYLEA for macular edema following CRVO.

We also reported positive Phase 3 data for EYLEA in the MYRROR trial in myopic choroidal neovascularization, on mCNV, and our partner Bayer HealthCare expects to file for regulatory approval in Asia later this year.

We also expect to report top line data from the VIBRANT trial of EYLEA in branch retinal vein occlusion or BRVO later this year.

The most recent news however on the indication front for EYLEA, as I'm sure you're all aware, is that this morning we and Bayer HealthCare announced positive Phase 3 data from the VISTA and VIVID Phase 3 trials in diabetic macular edema.

We plan to file for regulatory approval in both the US and EU by the end of the year, which is approximately one year ahead of schedule in the United States.

As we detailed in our press release this morning, both the 2-milligram every four week dose and the 2-milligram every eight week arms of the VISTA and VIVID trials achieved the primary end point of improved visual acuity at one year compared to laser photo coagulation therapy.

Importantly, both EYLEA dosed monthly and dosed every other month following five monthly injections demonstrated similar improvements in visual acuity.

In the VIVID DME trial, an ex-US trial, after one year patients receiving EYLEA 2-milligrams monthly had a mean change from baseline in best corrected visual acuity of 10.5 letters with a P less than 0.0001.

And patients receiving EYLEA 2 milligrams every other month after five initial monthly injections had a mean change from baseline in best corrected visual acuity of 10.7 letters, P also less than 0.0001.

And this was compared to patients receiving photo coagulation who had a mean change from baseline in best corrected visual acuity of only 1.2 letters.

In the vista DME trial, a primarily North American trial, after one year patients receiving EYLEA 2 milligrams monthly had a mean change from baseline best corrected visual acuity of 12.5 letters, P less than 0.0001.

And patients receiving EYLEA 2 milligrams every other month after five initial monthly injections had a mean change from baseline in best corrected visual acuity of 10.7 letters, P also less than 0.0001.

Compared to patients receiving laser photo coagulation who a mean chase from baseline in best corrected visual acuity of just 0.2 letters.

In these trials, EYLEA was generally well-tolerated with a similar overall incidence of adverse events, occular serious adverse events and non-occular serious adverse events across the treatment groups and the laser control group.

Arterial thromboembolic events, as defined by the anti-platelet trialist collaboration, which included nonfatal stroke, nonfatal myocardial infarctions and vascular deaths, also occurred at similar rates across the treatment groups in the laser control group.

Adverse events were typical of those seen in other studies in patients with diabetes receiving intravitreal anti-VEGF therapy.

Adverse events observed in the vivid and vista trials included hemorrhage, eye pain and floaters.

The most frequent non-occular treatment emergent adverse events observed in the VIVID and VISTA trials included conjunctital hemorrhage, eye pain and vitreous floaters.

The most frequent non-occular treatment emergent adverse events included hypertension and nasal pharyngitis, which occurred with similar frequency in the treatment groups and the laser control group.

As in wet AMD, we believe that the every other month dosing could provide an important potential benefit to patients and physicians.

There were a number of secondary end points and analyses that were conducted which strongly support the primary results and we look forward to presenting a more complete data set at upcoming medical conferences.

Now turning to the regulatory aspect.

As we indicated in this morning's press release, we now plan to submit applications for regulatory approval both in the US and outside the US later this year.

In the US, this represents an approximately one year acceleration from our previously anticipated submission date.

The decision to file for regulatory approval in the US, based on a one year primary end point rather than the typical two year primary end point was made following extensive discussions with the FDA.

DME represents a significant market opportunity.

One that many believe could be as large as, if not larger than, the market opportunity in wet AMD.

Bob Terifay will provide additional details on the DME market opportunity.

Before turning over to Murray and Bob I would like to discuss our late stage pipeline which we believe will drive long-term growth.

On that front, our two Phase 3 programs, alirocumab for hypercholesterolemia and sarilumab for rheumatoid arthritis have continued to make good progress.

ODYSSEY is a broad Phase 3 program for alirocumab.

It includes over 10 clinical studies that are currently ongoing.

Today we announced another Phase 3 study for alirocumab called ODYSSEY CHOICE that we intend to initiate by the end of the year.

This clinical trial will study alirocumab dosed every four weeks.

All other ODYSSEY trials studied every two week dosing and we remain confident that every two week dosing will provide the majority of patients with a preferred, convenient, patient friendly option.

We want however to be able to provide patients and physicians a once monthly dosing regimen if desired.

Later this year we expect to report top line data from the Phase 3 ODYSSEY MONO trial.

It's important to remember while this will be the first Phase 3 data to be reported from this class of antibodies with approximately 100 patients, the MONO trial is only a small piece of the ODYSSEY clinical program with the majority of our trials leading out in 2014.

Our Phase 3 sarilumab program is ongoing and we expect to report initial data early next year from the Phase 3 mobility trial.

We also started two new Phase 3 rheumatoid arthritis trials with sarilumab this quarter, the COMPARE and ASCERTAIN trials, and will soon initiate our first trial with sarilumab outside of rheumatoid arthritis, the Phase 2 SATURN trial of sarilumab in non-infectious uveitis.

Turning to our earlier stage pipeline, this quarter saw the presentation and publication of data from our IO4R inhibitor, dupilumab, in the New England Journal of Medicine.

It is not common for a Phase 2 trial to be published in the New England Journal of Medicine and we believe this highlights the excitement generated from this potentially novel approach to treat allergic type disease.

We believe that blocking the interleuken 4 and interleuken 13 pathways with dupilumab could be an effective mechanism to treat multiple allergic conditions and that we may have the ability to impact one of the fundamental drivers that could have applicability in the growing epidemic of allergic diseases.

Of course we need to test this in larger studies and to that end we and Sanofi now have two Phase 2B trials of dupilumab that are ongoing.

One in allergic asthma, and the other in atopic dermatitis and look forward to results from these trials in the future.

Turning to our early stage programs.

This quarter we moved two new antibodies, both against undisclosed targets, into the clinic and discontinued the development of one early stage antibody.

In addition to our three marketed products, ARCALYST, EYLEA, and ZALTRAP, we now have a total of 12 antibodies in clinical development.

We take pride in our science first approach and the fact that all 12 of our pipeline antibodies have originated from in-house Regeneron research.

With that, let me turn the call now over to Bob Terifay, our Senior Vice President of Commercial, who will elaborate on our commercial activities, and finally Murray Goldberg, our Chief Financial Officer, who will discuss our financial performance during the first quarter of 2013.

Bob?

Thank you, Len, and good morning everyone.

EYLEA sales continue to show strong physician demand growth both in the United States and outside the United States.

In the United States, net sales to distributors in the second quarter were $330 million.

Inventory held by distributors remains at a one to two week range, although there was a modest reduction in inventory in Q2 relative to first quarter.

We continue to see strong physician usage of EYLEA, and we have raised our full year net sales forecast to between $1.3 billion and $1.35 billion.

Our qualitative market research which comes from physician-based questionnaires and was conducted in the second quarter indicates that in terms of eyes treated, EYLEA now represents almost half of the US wet AMD market for approved products, with approved products accounting for more than half of the overall marketplace.

As discussed in our first quarter call, due to the recent sequester related decrease in Medicare reimbursement for Medicare Part B or buy and bill drugs, such as anti-VEGF agents, our research suggests financial concerns among some retinal specialists, which favors the use of off-label bevacizumab.

Once again, based on qualitative market research, in the second quarter approximately 60% of the EYLEA treated eyes were continuing on EYLEA from previous months.

18% were switches from bevacizumab and ranibizumab, and 21% were new the to anti-VEGF treatment.

Highlighting that the pool of patients available for switching is reaching steady state levels, new patients represented a larger share than switched patients in EYLEA market share for the first time.

In our survey, physicians report positive clinical responses to EYLEA that meet or exceed their expectations in 72% of treated eyes.

In the majority of the remaining patients, it's too early to assess response to therapy.

From the survey, physicians now estimate that wet AMD patients on average achieve a dosing interval of 7.2 weeks for EYLEA, as compared to 5.4, and 5.9 weeks with ranibizumab and bevacizumab respectively.

In the macular edema following CRVO indication for which EYLEA has received regulatory approval in the United States, our qualitative market research indicates that during the second quarter EYLEA achieved a 40% share of the approved anti-VEGF products with approved products accounting for 45% of the overall marketplace.

In our survey, physicians reported positive clinical responses to EYLEA in CRVO that meet or exceed their expectations in 69% of treated eyes, again, in the majority of the remaining patients it's too early to assess a response to therapy.

Turning now to our ex-US EYLEA business, where we split profits 50/50 with Bayer HealthCare, second quarter EYLEA net sales were $96 million.

While at the end of the second quarter EYLEA was available in 29 countries, second quarter sales were primarily from Japan, Australia, and Germany.

Bayer reports that current market share is 56% in Japan, 48% in Australia, and 22% and growing in Germany.

Over the course of 2013, we expect Bayer HealthCare to embark on launches in additional countries as regulatory and pricing approvals for EYLEA in wet AMD are achieved.

More recently, we're pleased with the positive recommendation and reimbursement decision from the UK's NICE, along with a positive statement from the Royal College of Ophthalmologists in which they said, quote, the advantage of EYLEA over existing treatment is its longer duration of action in the eyes, which can lead to fewer intraocular injections, close quotation.

In addition, an application for marketing authorization for EYLEA for the treatment of macular edema following CRVO received a positive opinion for approval by the European CHMP.

Additional applications in macular edema following CRVO are pending in Japan and other regions.

Furthermore, Bayer HealthCare intends to file ex-US marketing applications for EYLEA in myopic CMV before year end.

Let's spend a moment to discuss the DME market opportunity if EYLEA is approved for marketing in that indication.

In the United States alone there are 570,000 patients diagnosed with clinically significant diabetic macular edema.

Currently, 40% of these patients are treated with an anti-VEGF agent which continues to grow each quarter since the launch of ranibizumab for that indication in 2012.

Moreover, we estimate that almost half of the DME patients may have bilateral disease.

Therefore, the market opportunity for EYLEA DME could be at least as large as the opportunity in wet AMD.

Finally, turning to ZALTRAP, or ziv-aflibercept, Sanofi reported sales of $19 million for the quarter.

Which is up 32% from the first quarter of 2013.

This growth is driven primarily by growing sales in the first quarter of full launch in Germany and the United Kingdom.

We look forward to continued ex-US roll-outs for launch over the course of 2013.

With that, let me turn the call over to our Chief Financial Officer, Murray Goldberg.

Thank you, Bob, and good morning.

Len and Bob have already provided the highlights of EYLEA sales in the US and the rest of the world so I'll go directly to the second quarter P&L.

Total revenues in the second quarter were $458 million, including US EYLEA net sales of $330 million, and ARCALYST net sales of $4 million.

Non-GAAP net income was $198 million or $1.73 per diluted share compared to $1.78 per diluted share in the first quarter of this year.

The decrease is primarily due to two $10 million license payments we made to Sanofi in May that I'll describe later, and royalty expense related to the Genentech license settlement that we entered into, also in May.

Bio healthcare collaboration revenue was $31 million.

This includes $19 million from our share of ex-US profits, including royalties in the case of Japan, on total ex-US EYLEA sales of $96 million.

It is also net of a $15 million payment to Bayer HealthCare in the quarter for reimbursement of development expenses that they previously funded.

Bayer HealthCare collaboration revenue also includes cost sharing of ongoing EYLEA development expenses, reimbursement of other Regeneron EYLEA expenses, and amortization of upfront and milestone payments.

Total Sanofi collaboration revenue was $86 million for the quarter.

This includes reimbursement of our R&D expenses for preclinical and clinical development within our antibody collaboration, and amortization of payments previously received from Sanofi, less our share of the losses associated with ZALTRAP.

ZALTRAP net sales in the second quarter were $19 million compared to $14 million in the first quarter of 2013.

ZALTRAP is now approved in 30 countries around the world, and commercialization activities are under way.

And commercialization and precommercialization expenses are being incurred.

Our share of ZALTRAP losses in the quarter was $8 million.

As we've said before, we do not expect ZALTRAP to be profitable to Regeneron in the near term, due to our obligation to repay Sanofi from our 50% share of ZALTRAP profits for 50% of ZALTRAP development expenses that they have funded.

At the end of 2012, that repayment obligation was $419 million.

Sanofi collaboration revenue in the second quarter was also reduced by two one-time $10 million upfront payments that we made to Sanofi relating to the acquisition of full rights to the PDGFR antibody and to the ANG2 antibody in ophthalmology.

Non-GAAP cost of goods sold was $27 million in the second quarter, compared to $29 million in the first quarter.

Included in COGS is our royalty obligation to Genentech related to US sales of EYLEA.

As in prior quarters, COGS continued to average less than 10% of product sales.

Let me also highlight a new line in our income statement, cost of collaboration manufacturing.

Previously, this had been combined with cost of goods sold because it was not very large.

Cost of goods sold is the manufacturing cost, including royalties, of goods that we sell and that are included in our net product sales line, namely, US EYLEA and ARCALYST.

Cost of collaboration manufacturing is the manufacturing cost, including royalties, that we directly incur related to goods that we manufacture and that are sold by our collaborators.

Specifically, ZALTRAP and EYLEA outside the United States.

This is not the total manufacturing cost of these products since we only provide the bulk material and our collaborators incur additional costs such as for finishing and packaging.

While cost of collaboration manufacturing includes our manufacturing costs for making bulk material that our collaborators sell, this line item currently consists primarily of royalties that we are obligated to pay, including the Genentech royalty that we pay until around mid-2016 on sales of EYLEA that is manufactured in the United States but sold outside the United States.

Since we just signed the Genentech royalty agreement relating to ex-US sales this past May, the second quarter cost of collaboration manufacturing also includes some catch-up royalties for EYLEA sales outside the US prior to the second quarter.

Going forward, for the next couple years, we expect cost of collaboration manufacturing to average around 7% to 8% of total ZALTRAP and ex-US EYLEA sales.

Approximately half of the cost of collaboration manufacturing is reimbursed to us by our collaborators through the collaboration revenue line.

Non-GAAP SG&A expense in the second quarter was $56 million compared to $51 million in the first quarter.

We are revising our non-GAAP SG&A expense guidance for 2013 to $225 million to $250 million, up from the previously provided range of $215 million to $235 million.

Non-GAAP R&D expense for the second quarter was $160 million, compared to $154 million in the first quarter.

This included unfunded R&D expenses of $46 million, compared to $44 million in the first quarter.

As a reminder, unfunded R&D is the difference between our total non-GAAP R&D expense and the amount that is reimbursed by our collaborators.

We expect unfunded R&D expenses to increase in the second half of the year for several reasons.

Including the potential for us to begin to share Phase 3 costs for alirocumab, and the cost of advancing our own unpartnered programs.

That said, we are updating our full year 2013 non-GAAP unfunded R&D expense guidance to $225 million to $275 million, down from the prior $275 million to $325 million.

As a reminder, non-GAAP SG&A and R&D expenses exclude non-cash share-based compensation expense.

As I mentioned, for the second quarter of 2013, we reported non-GAAP net income of $198 million or $1.73 per fully diluted share.

Non-GAAP EPS excludes non-cash share-based compensation expense, non-cash interest expense related to our senior convertible notes and non-cash income tax expense and is based on approximately 115 million fully diluted outstanding shares.

A full reconciliation of all the adjustments to GAAP earnings are set out in our earnings release.

Turning now to taxes.

For GAAP accounting purposes, in the second quarter we recorded $60 million in income taxes, representing an effective tax rate of just over 41% for the quarter.

For the rest of the year, we expect the GAAP tax rate to also be in the low 40% range.

As we've stated before, we do not expect to pay significant cash taxes through at least 2014.

At the end of the second quarter, we had $711 million in cash and marketable securities, and $768 million in trade account receivables primarily related to EYLEA sales, for a total of about $1.5 billion.

With that, I would now like to turn the call back over to Len.

Thanks, Murray.

The second quarter was another exciting quarter at Regeneron with strong EYLEA growth driven by the continued growth in the United States and the ongoing successful ex-US launch.

New indications for EYLEA continue to build momentum with the diabetic macular edema data and regulatory update highlighting the future opportunities.

And of course, our pipeline continues to march forward with the first Phase 3 data for alirocumab, or LDL lowering antibody, expected later this year.

I would now like to turn the call back over to Michael.

Thank you, Len.

That concludes our prepared remarks.

We'd now like to open the call to Q&A.

As we'd like to give as many people a chance to ask questions as possible, we request you limit yourself to one question.

Our team will be available in our office after the call for follow-up questions.

Thank you.

Operator, please open the call for questions.

Thank you.

(Operator Instructions)

Terence Flynn of Goldman Sachs.

Hi.

Thanks for taking the question and congrats on all the progress.

Just had a question on DME.

I guess can you tell us what percent of patients had vision gain in this study or can you say if it was at least as good as Lucentis, and then any commentary on current off-label use of EYLEA for DME?

Thanks a lot.

Yes.

On the second one, we really don't have any information.

We don't promote.

We don't really even track any off-label use of our product.

As far as the first one, the investigators want to present the details of the study at the upcoming scientific meetings.

I can say that the end points like you're talking about strongly correlate obviously with best corrected visual acuity, so the results are strong and we look forward to presenting them to you later this year at a medical conference.

Thanks.

Can I ask one follow-up?

Yes.

On PCSK9 I noticed you guys are moving to a once a month schedule now as well which is on par with Amgen.

What drove the change in your thinking there?

Because I know you guys had focused on the every other week for a while, but just curious what data drove that decision.

Thanks.

Yes.

So if you look at the cholesterol lowering market historically, you can go to many cocktail party and somebody says I take Lipitor, I take Crestor, I take 10 milligrams, I take 20 milligrams.

Doctors tend to individualize therapy and titrate therapy in this area.

So we thought that since our drug could perform for many patients on an every monthly dosing regimen, we have that data -- it's not new data.

It's based on the data we had from our earlier pre-Phase 3 work, we thought it made sense to include some of that in our Phase 3 package so that overall doctors and patients would have a good choice of regimen and doses and titratability, et cetera.

So nothing really new there.

Our drug has always been -- had the same PK as it always had, obviously, and we expect that we should be able to have Q4 week dosing for many of the patients, it would be good, but for those who need more, we'll have a Q2 week.

Is that the same formulation?

You'll be using the same device?

Yes.

We're not going to get into all the details because this is pretty highly competitive.

We think our delivery systems will be a competitive asset.

We have a partner who has delivered lots of products.

They deliver more injected insulin probably than anybody else in the world as far as I know, so this is an important part of our program.

Next question, please.

Chris Raymond of Robert Baird.

Hey.

Thanks for letting me take the question.

Kind of intrigued.

Bob mentioned an inventory reduction at distributors.

Is it possible you could maybe give us a little bit more detail around exactly what that in dollar terms, that impact was?

And I guess sort of should we expect to see a benefit or some impact in Q2 or I'm sorry, in Q3?

Yes, it's hard to predict how the fluctuations will go from quarter to quarter, even from week to week.

I think Bob mentioned that in this particular quarter, we still had inventory that was in the one to two week range with a modest drawdown of inventory.

Can't tell how or what our distributors will do.

So we really can't predict that.

Okay.

If you're taking follow-ups, can I ask one?

Go ahead, one follow-up.

Len's a softy.

I'm easy, I'll take as many questions as you'd like.

Michael's tough.

We're going to limit the future questions to only one, but you can get a follow-up.

A quick one here.

By our calculation, it looks like DSOs actually went up slightly Q1 to Q2.

Can you maybe talk a little bit about that?

I know you've been talking about titrating down your terms.

Can you maybe give us some color on the dynamics there and when we should expect to see that start to move down?

Well, the days sales outstanding are going up because the sales have been going up through the quarter.

We did adjust the terms down earlier in the year and that will start to flow through later in the year.

The terms are still long so it will take a while for that to show up.

By the end of the year, the days sales should go down for that reason because of the lower terms.

Okay.

Thanks, guys.

Next question.

Steve Byrne of Bank of America.

Bob, if I understood the data you provided in your market research correctly, sounds like Avastin's share of wet AMD is less than 50% and in the balance Lucentis still has more share than EYLEA.

If I heard that correctly and we assume Avastin was roughly two-thirds of the market two years ago, it would suggest you've taken more share from Avastin than Lucentis and is that what you would have expected, say two years ago, and how -- what do you think is leading to the stickiness of Lucentis?

Right.

So a good question.

I'll let Bob elaborate on it.

But the quick response to that, I don't think your premise is quite accurate.

If you look even at Roche's call they show their graph of Lucentis uptake in the United States, and when we came to market that turned down quite significantly and they mentioned that only because of DME approval did it turn up.

So I would say we took market both from the Avastin market as well as from the Lucentis market.

Some of the stickiness with Lucentis, obviously it's a product that's been around for a while.

People who are using it may stick on it.

There are others, they do have a rebate program which we don't have which could be we think influencing the marketplace quite seriously.

So those are the facts.

Bob, anything to add on that?

No.

Len is right on.

We actually are basically at a 50/50 split with Lucentis right now.

We have taken significant share away from them but we've also been successful in penetrating the Avastin market and we expect wet AMD to continue to grow in the United States.

Great.

Next question.

Jim Birchenough, BMO Capital Markets.

Hi, guys.

Just a quick two-part question.

Just to follow up on the prior question, is there anything that you're considering in your own rebate program to try and get into that other 50% of the Lucentis share?

It seems like that's a big part of the stickiness and now that things are starting to stabilize, wondering if you'd consider a rebate program.

And on DME, just wondering if the dynamic that's allowed you to file a year ahead of schedule might also allow for a more rapid review, i.e.

priority review.

Thanks.

Good question, Jim.

Good way to get around Michael's ban on two questions, ask one two-part question.

I'm all for it, Jim.

As far as the first question goes, I don't think it would be appropriate on this call to discuss our commercial strategies and some of the details on what we're going to do.

It's a competitive marketplace out there.

As far as the acceleration and the potential for priority review, obviously priority review is something that you apply for at the time of your submission.

We did that for age related macular degeneration.

We made our case.

And we'll make our case again.

Of course, that's up to the reviewers at the FDA.

So it's a little bit -- it's way too early to speculate.

As far as the decision to move from a two year end point to a one year end point, that is something that came after substantial discussions with the agency.

I must say, we've been dealing with the agency -- I've been dealing with them for several decades now and they continue to demonstrate that they are a science-based and evidence-based agency and that our discussions with them were working through what's the data, what's the science, what's best for patients.

I think they had that same goal in mind as we did.

And so that's how we arrived at a decision to file a year early.

Next question.

Ying Huang of Barclays.

Good morning, thanks for taking my question.

Congratulations on the DME data.

Len, can I ask a three part question here?

I knew that was coming.

It's okay with me.

We've got a lot of people we want to get to.

Be respectful of your colleagues.

I want to ask about safety here.

Obviously you see a lack of imbalance in the arterial events here.

Specifically what about.

How much does that lack of safety signal between the two different dosing arms play into the decision of FDA allowing to file based on one year data?

Right.

You're asking for some detail on the APTC deaths if I heard you.

Looking at deaths was very important given the safety findings that were found with the other approved anti-VEGF agent to treat DME and we did not find any dose dependent increase in deaths with EYLEA in these results, and specifically the number of APTC defined deaths were the same in all arms with two APTC deaths in each of the study arms, including the laser, pulling the data across the studies, so two, two and two deaths APTC deaths.

We're very pleased with that.

We'll see whether or not that gets us differentiation or not.

Also, can you outline the opportunity for EYLEA in DME here in terms of obviously a growth for your franchise in the US market?

Right.

So diabetes is a big problem.

There's 25 -- no, there's about 25 million people in the United States who have diabetes and maybe 2 million people are going to be diagnosed each year with that.

If you're over age 65 you've got about a 25% chance of having diabetes.

Diabetes itself is a big problem and there's probably several million or more people who have diabetic retinopathy and somewhere between 0.5 million and 1 million people who have diabetic macular edema and many of them need treatment in both eyes.

So this could be a very significant market opportunity for us, but more importantly, it's a potential for us to bring a new therapy to patients who really have a need.

Diabetic related eye disease is the most common cause of blindness in young people and diabetic macular edema is the main cause of blindness in diabetics.

So we're thrilled that we might be able to bring something to patients as an additional choice for this disease.

Bob, did you want to add anything there?

No, I think it's a significant, growing market opportunity.

About 280,000 patients are treated each year with an anti-VEGF agent.

That keeps growing quarter-over-quarter and we're very encouraged by the results of our studies which indicate that patients can be dosed every other month with this disease where compliance is a challenge and many of the people are still in the workplace.

And so this may be a new treatment option that's convenient for patients, if it does get approved.

Great.

Next question.

Robert Karnauskas, of Deutsche Bank.

This is Alitheia in for Rob.

Thanks for taking my one question.

Congrats on the good progress with the FDA.

Thank you, Alitheia.

Always trying to help, Michael.

I just want to get a little more flavor on, we were looking at the Avastin and the sequester.

Do you think there's still an opportunity to take share in Avastin beyond the sequester?

Can you talk about that US opportunity there?

I think physicians initially did not understand the adjustment to reimbursement that occurred through the sequester.

So I think there was some confusion over the previous quarter.

People are starting to figure out the reimbursement situation and there's -- the market research indicates there's still an opportunity to take share from Avastin.

Okay.

Next question.

Jason Kantor of Credit Suisse.

Great.

Most of my EYLEA questions have been asked.

But I just wanted to see, can you give us any idea about what the indications your new drugs that you put into the clinic are going after, now that the one drug fell out of the clinic and can we learn anything about what that was and what your decision process was to take that out of the clinic?

Jason, we don't like to get into the specifics of our very early stage pipeline because it really doesn't generate much value in the investment community at this point but it's important for our long-term strategy and what targets we choose is a fairly competitive area.

I can say that the good news about Regeneron is that we have plenty of candidates to put into the clinic to choose from and plenty in the clinic to keep us fully occupied.

So we're able to make decisions if we see something that doesn't look good, doesn't do what we hoped it might, then we'll kill it and we'd of course would rather kill these things early which we can do privately, rather than have public funerals when you're in Phase 2 or Phase 3. So having a big pipeline and a robust research organization, I mean, George Yancopoulos and his team are perhaps the most prolific research organization in the biotechnology industry by many metrics.

We continue to benefit from that and we hope to continue over the long haul.

If I can't get you to talk about the undisclosed stuff, can you talk about the rational for moving sarilumab into non-infectious uveitis and what the timing is there.

I can tell you that the rational is that noninfectious, meaning it's not caused by infection, inflammation of the eye, is an important disease that we think could be driven by inflammatory cytokines such as interleuken 6 and we've got some data to support that.

And we think we've got a clinical trial that is getting under way that will be able to give us a good answer, whether this is a good area.

Remember, uveitis is one of those diseases that you do see, occasionally you see it in children in syndromes associated with rheumatoid arthritis.

Without it, it could be autoimmune.

There's pretty good rational and other data that we have in this.

Next question.

Adnan Butt, RBC Capital Markets.

Good morning.

Since I like Michael I will ask one question.

But I'll make it a pointed one.

So for alirocumab, do you expect less variability in this every four week trial, and is that enough to get it added to the label or will you need more?

I think that obviously we're doing the study as we hope that this will be sufficient to get us to the label.

There are lots of ways to look at success in treating patients with cholesterol.

The end point area under the curve, how many patients hit their goal, and I think that this is -- this isn't a disease where you have to get it right immediately.

It's not like you're treating an acute myocardial infarction where if you mess up, it's enormously bad consequences to a patient.

Here you want to get it right and doctors want to make sure they get the right, the most convenient, the most compliant doses.

So, I think our strategy is a good one hear.

Len, there is one thing.

We are not abandoning the every two week dosing regimen.

The research shows that every two weeks is right now favored by patients and physicians.

It's not seen as inconvenient.

We just wanted to offer another treatment option with the monthly dosing.

Yes, okay.

Good.

Next question.

Yaron Werber of Citi.

This is Kumar in for Aaron.

Thank you for taking my question.

So what is the status of the FDA clinical hold on the antibody, and once the hold is lifted, what are the next steps?

Right.

So the only thing we can say at this point is that Pfizer's had a conversation with the FDA that they related to the public on their call that suggests that after they finish completing some preclinical data, they'll be able to come off clinical hold and they expect to be in a Phase 3 program sometime I think in the first part of next year.

We don't have any specific information.

We are still on clinical hold at this time.

But obviously we'll keep you advised on how discussions go and what progress we're making in that area.

Great.

Next question.

Josh Schimmer of Lazard Capital Markets.

Thanks for taking the question.

For EYLEA in DME, maybe you can discuss reasons to expect either the same or different level of switching from Avastin and Lucentis to EYLEA as compared to what you've experienced in the AMD setting.

Thanks.

It's obviously hard to predict.

We do hear that patients are not always satisfied with their current treatments.

We did have anti-VEGF experienced patients in our trials, so we know that you can safely switch, at least that's what the data to us shows.

Obviously we have to submit all this to the agency.

But I imagine that there will be a pent-up demand for that as well.

I think you saw that the launch of Lucentis in DME, notwithstanding the fact that Avastin was treating people, there was very brisk uptake it seemed there, based on what you can glean from the Genentech Roche information.

So I'm optimistic about that.

Bob?

There are patients including in our trial that were not doing well on other therapies that were switched and seem to have done well and so I think there will be a marketplace for us when we launch.

Great.

Is that unmet need comparable between DME and AMD.

It's too early to speculate on that.

Okay.

Thank you.

Okay.

Next question.

John Newman of JMP Securities.

Hi.

Thanks for taking the question.

Most of my questions have been answered.

But I just wanted to ask, are you still maintaining the same timing in terms of when you will put your PDGF antibody into the clinic?

Thanks.

Yes, guidance hasn't changed on that.

We hope to get I think later this year going on the eye studies with either the ANG2 and/or the PDGF this year.

Great.

Thank you.

Next question.

Matthew Harrison of UBS.

Hi, good morning.

Thanks for taking the question.

I was wondering if you could talk a little about compounding and if you're seeing any share shift related to Avastin there and then maybe your opinion on the bills that are in Congress right now and their potential impact.

Thanks.

There's no obvious seat change where people have massively left Avastin to go to either Lucentis or EYLEA.

Seems like based on surveys, the market share for Avastin has somewhat stabilized at around half the market.

As far as predicting what this Congress will do, it's extremely difficult.

There are many bills out there.

The Senate health bill, there's some House bills.

We believe, it's been our position that at the end of the day patients can have a choice, doctors can have a choice, they should have choices, but there shouldn't be a hidden choice of choosing one product which has a higher quality than another.

And we believe that so therefore all products sold should meet the same FDA mandated standards in terms of quality.

Beyond that, and we hope that that's what the legislation will advance and that's been our position on this, both publicly and in discussions we've had in Washington.

So just to state it succinctly, we believe in choice.

We have no problem with patients choosing Avastin, choosing Lucentis, choosing EYLEA but we believe in a single standard so that patients don't have to worry about quality of the product they choose.

Okay.

Next question.

Geoff Meacham of JPMorgan.

Hi.

This is Anupam Rama in for Geoff Meacham.

I think you mentioned that the dosing interval was 7.2 weeks for EYLEA.

Just wondering if you could help us put that into context of what you've been seeing over the last several quarters and how that's impacted sort of quarter-over-quarter growth that you're seeing in the US.

And what you expect the dosing interval sort of may trend in the future.

Thanks.

So we have two groups of patients that are treated with EYLEA.

One group of patients who were recalcitrant to previous anti-VEGF therapy.

Those patients are generally started off with a monthly dosing regimen and then the physicians extend the treatment interval over time, hoping to get good efficacy with a reasonable interval.

The other group are those patients who are new to therapy.

The patients new to therapy generally are getting dosed closer to the every eight week language that is in our prescribing information.

The 7.2 is very encouraging, in that the switched patients seem to be getting out further in their dosing interval.

We started with an interval that was about six weeks.

We're up 7.2 now.

I think you'll see in AMD that that interval probably will stay at the 7.2 to 8 week range.

So obviously as we've stated all along, as the dosing interval increases, the number of doses per quarter do decline so we're dependent upon getting new patients into the marketplace and that's where our success has been in this quarter.

Thanks for taking our question.

Joseph Schwartz of Leerink Swann.

Thanks very much.

I was wondering, do you expect your PDGF antibody to have any advantages over first generation agents in terms of things like binding affinity or hitting more receptor subunits, anything that can compete on any of these bases, similar to what's driven your and Lucentis' strength versus the first generation anti-VEGFs?

I think we have a more important task first, is to establish whether or not anti-PDGF at all works in this setting before we decide which is the best agent.

So far, there's been one large Phase 2 trial, but even in our trials, our large Phase 3 trials, you see several other differences that you can see early on.

In trials, you see this all the time.

That is, you see random fluctuations.

In our trial, it's interesting.

We were asked about deaths.

We saw two deaths, APTC and everything and then in one study, one low dose group had two cancers.

Another adverse event, they had more of something else.

So you see these differences and in our study, you'll see when the data comes out, the slight difference between the monthly in one study and the every other month was probably just a difference in the groups because they were different almost from the beginning before they switched to every other month.

What I'm trying to say is that job number one is to do another robust study and see if PDGF really works.

If PDGF really works then I think the advantage that we'll have is that we hope to be able to combine it in a single syringe so it's one shot, so that's a big difference than having to give two shots in our view.

But still, a long way to go between whether or not this is actually going to make a difference in patients.

All right.

Thank you.

Next question.

Biren Amin of Jefferies.

Yes, thanks for taking my questions and congratulations on the DME data.

I guess just from the regulatory filing in the US, will FDA be requiring a two year update on efficacy and safety from VIVID VISTA?

Well, we don't know what they'll require at the end of the day.

What we do know is that based on discussions, we think that the one year data that we have from these two trials will be adequate for them to review our application and hopefully we'll be able to get it approved.

I think we're intending to keep the studies going but right now we're expecting to submit based on the one year data and that we hope that that would be sufficient based on our discussions for an approval.

I'm sorry.

Go ahead.

I was going to say, if I could have a follow-up, what do you think are the implications of the BRCR protocol EYE trial in DME?

I forget which one EYE is but if EYE is the one which had early laser versus late laser -- is that the one you're referring to?

I don't know them by number.

That's the one comparing all three anti-VEGFs.

Okay, right.

Well, look, the DRCR has been an extremely good network that's done very high quality work.

We work with them.

That study's an interesting design to it.

It is a head to head study that compares Avastin, Lucentis and EYLEA but given by a regimen that probably will stress the molecules a little bit, all of them, because it's a PRN based regimen rather than a fixed dosing interval.

So it should be interesting to see whether there are differences in the number of doses or the actual letters gained and there's nothing like a head to head trial to sort that out.

We hear that that trial's moving nicely and we look forward to results down the road.

We have time -- operator, we have time for one more last question.

Phil Nadeau from Cowen & Company.

Thanks for fitting me in.

Bob, a question for you on the DME market.

In the past we've asked physicians the number of injections for DME they gave compared to the number of VEGF injections they give for AMD.

We get a really wide range of answers, but the median answer is like one DME injection for every five wet AMD injections.

I'm curious whether in your market research you've asked the question that way and what data you get for that question?

Phil, we read your notes.

I think one of your notes said surveys aren't worth looking at.

And that's something that can't, even though you do them and Bob does them, I'm not a big survey guy in terms of how accurate they reflect what doctors say they do versus what they're actually doing.

So I think what we're going to just have to wait and try to count up these injections and see what we get.

I think the notion that you can treat and you're finished with diabetic macular edema is just not correct.

We just see that in all of our trials and I think that that may be wishful thinking out there.

But we'll have to see when all the data comes up.

I would follow your own advice.

I wouldn't pay that much attention, frankly, to the surveys.

I pay attention to Bob's surveys.

All right.

Let's go to the science instead of the surveys.

I would say that DME is much more VEGF driven than AMD and so theoretically you would need more drug to adequately manage DME.

I think that's the educational thing that has to be done is defining the adequate management of DME.

All right.

Thanks for working me in.

Thank you everybody for joining us on the call today.

Again, Manisha and I are going to be available to make calls.

It's probably easiest if you want to follow up, just shoot myself an email at michael.aberman@regeneron.com or Manisha, which you can find on the bottom of the press release, and we'll get back to you as soon as we can.

Thank you very much.

Ladies and gentlemen, this concludes today's program.

You may now disconnect.

Good day.