雷傑納榮製藥 (REGN) 2013 Q4 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Dr. Michael Aberman.

You may begin.

Thank you, operator.

Good morning, everyone, and welcome to Regeneron Pharmaceuticals fourth-quarter and year-end 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; George Yancopoulos, Founding Scientist, President of Regeneron Laboratories, and Chief Scientific Officer; Bob Landry, our Chief Financial Officer; and Bob Terifay, the Senior Vice President of Commercial.

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 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 forecast, financial forecast, development programs, collaborations, finances, regulatory matters, intellectual property, 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 such statements.

A more complete description of these and other material risks can be found in Regeneron's filings with the United States Security and Exchange Commission, or SEC, including its Form 10-K for the year ended December 31, 2013, which we'll be filing with the SEC later this week, and Form 10-Q for the quarter ended September 30, 2013, which was filed with the SEC in November 2013.

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 call.

Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP are available in our financial results press release, which can be accessed at our website at www.Regeneron.com.

Once our call concludes, 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.

Thank you, Michael, and good morning, everyone.

2013 was another great year at Regeneron.

The EYLEA franchise continued to grow steadily in the US and globally.

Our late-stage pipeline made significant progress.

We invested in several new R&D initiatives that we hope will position us for the next leg of growth in the future.

And we expanded our geographic footprint.

Starting with EYLEA, fourth-quarter 2013 EYLEA US net sales were $402 million, and full-year 2013 EYLEA US net sales were $1.409 billion, representing a growth of approximately 70% from the full-year 2012.

EYLEA also performed very well outside the United States, with net sales of $184 million in the fourth quarter of 2013, and full-year 2013 ex-US EYLEA sales of $472 million.

Bayer HealthCare continues to be a strong collaborator, and we look forward to their continued execution of the EYLEA launch outside the US, as additional countries in Europe, Latin America and Asia start contributing in 2014.

As we look forward to the balance of 2014, there are a number of potential growth drivers for EYLEA.

As we have previously announced, in the US, we have been granted a PDUFA date of August 18 for the diabetic macular edema, or DME, indication.

Yesterday, we reported positive two-year data from the VISTA-DME study, which George will discuss shortly.

We believe that diabetic macular edema could ultimately be as big an opportunity as wet AMD, based on disease incidence.

We expect our fourth indication, macular edema following branch retinal vein occlusion, or BRVO, to be filed with the FDA by the end of the first quarter.

Taking all these factors into consideration, we estimate full-year 2014 US EYLEA net sales of $1.7 billion to $1.8 billion, which represents approximately a 25% year-over-year growth.

We expect that a significant part of that growth will be tilted towards the end of the year, following potential US regulatory approval of EYLEA in DME.

Our 2014 EYLEA guidance does not include any significant change from the compounding environment.

Based on the continued strong uptick of EYLEA in ex-US markets, where it has been launched so far, and Bayer HealthCare's ongoing rollout of EYLEA around the world, plus the expansion to new indications, we anticipate continued growth in ex-US sales in 2014 as well.

You will hear more about the commercial performance of EYLEA from Bob Terifay.

We recognize that EYLEA is a key driver of near-term growth, and we are committed to ensuring that this franchise remains strong over the long run as well.

To that end, in the first quarter of this year, we initiated clinical development of a combination of EYLEA and an antibody to the PGF beta receptor in a single co-formulated intravitreal injection.

I'm happy to report that the first patient has been dosed in this trial.

A similar program combining EYLEA with our antibody to angiopoietin-2, also in a single intravitreal injection, is expected to start by year end.

Turning to our research efforts, we have a robust and advancing pipeline that includes three late-stage antibodies: alirocumab, our PCSK9 antibody in phase 3 trials for lowering LDL cholesterol; sarilumab, our IL-6 receptor antibody in phase 3 trials for rheumatoid arthritis, and a phase 2 study in non-infectious uveitis; and dupilumab, our IL-4 receptor alpha antibody, which blocks both the IL-4 and IL-13 pathways, and is in clinical development for asthma, atopic dermatitis, and nasal polyposis.

We anticipate starting a phase 3 trial with dupilumab for atopic dermatitis later in 2014.

With this late-stage pipeline and potential new indications for EYLEA, we could have five major regulatory submissions and/or approvals in the next five years.

We have also maintained our focus on our earlier-stage pipeline and our R&D initiatives.

These include our entry into the field of immuno-oncology with our bispecific anti platform, the commencement of our human genomics initiative with the launch of Regeneron Genetics Center, and our collaboration with Geisinger Health Systems, and our R&D efforts in developing antibody drug conjugates.

You will hear more about these programs from George Yancopoulos shortly.

In 2013, we undertook some important measures that further expand Regeneron's footprint in New York, as well as globally.

We are in the process of enlarging our campus in Tarrytown, where two new R&D buildings are under construction.

We started the expansion of our manufacturing facilities in Rensselaer, and we are in the process of expanding our manufacturing capabilities into Ireland, and optimizing our global supply chain.

With that, let me turn the call over to George Yancopoulos, Regeneron's Chief Scientific Officer, who will discuss our pipeline in greater detail.

He will be followed by Bob Terifay, our Senior Vice President of Commercial, and then Bob Landry, our Chief Financial Officer.

George?

Thank you, Len, and a very good morning to everyone who has joined us today.

As Len mentioned, Regeneron's pipeline has been advancing rapidly, and the fourth quarter of 2013 witnessed a lot of this progress.

Let me begin with EYLEA.

As we have previously reported, the FDA has accepted for filing our supplemental BLA for EYLEA in the diabetic macular edema, or DME, indication, and we have been granted a PDUFA date of August 18, 2014.

Our ex-US partner, Bayer HealthCare, has also submitted an application for marketing authorization in Europe in this indication.

EYLEA is now approved for two indications, wet AMD and macular edema following central retinal vein occlusion, or CRVO, in the US, the EU, Japan, and other countries around the world.

In terms of DME, just yesterday we announced the two-year results from the phase 3 VISTA-DME trial.

These results showed that the improvements in vision compared to laser or photocoagulation therapy that were seen after one year of treatment with EYLEA 2 milligram dosed either monthly or every other month, after five initial injections, were sustained after two years of treatment.

It is important to emphasize that in this long-term study, EYLEA dosed every other month resulted in visual acuity benefits that were similar to that achieved with monthly dosing.

It is also worth noting that 43% of the patients in the VISTA study were not treatment-naive, and in fact, had received prior anti-VEGF therapy.

In this trial, EYLEA was generally well tolerated with a similar overall incidence of adverse events, ocular serious adverse events, and non-ocular serious systemic adverse events across the EYLEA treatment groups and the laser control groups.

The types and incidence of adverse events were consistent with what is expected with VEGF inhibition.

Additional details from the two-year VISTA-DME study can be found in our press release that was issued yesterday.

Full data will be presented in an upcoming medical conference.

In the fourth quarter, we reported positive data from the phase 3 VIBRANT trial of EYLEA in macular edema following branch retinal vein inclusion, or BRVO.

We expect our supplemental BLA for BRVO to be filed with the FDA by the end of the first quarter.

As Len just mentioned, our late-stage antibody programs are also progressing well.

In terms of alirocumab, our antibody for lowering LDL cholesterol, in the fourth quarter we reported positive phase 3 results from the ODYSSEY MONO trial, which studied alirocumab in the monotherapy setting.

Additional details from the MONO study will be presented at the upcoming annual meeting of the American College of Cardiology.

While most of the ODYSSEY program is studying alirocumab dosed every other week, we have also initiated two studies, ODYSSEY CHOICE 1 and CHOICE 2, that explore monthly dosing.

As we have said before, we and Sanofi expect to submit an application for alirocumab for regulatory approval in early 2015 outside the US, and later in 2015 in the US.

While this is a very competitive space, we believe that our robust, thoughtfully designed phase 3 program distinguishes us.

Our phase 3 program is designed to assess the primary efficacy endpoint at 24 weeks.

Many of the ODYSSEY trials will continue in a double-blinded fashion through 12, 18, and 24 months; thus creating substantive data exposure in terms of patient years.

Specifically, the double-blind exposure to active drugs in our phase 3 ODYSSEY program, excluding ODYSSEY outcomes, will total approximately 5,000 patient years.

This patient exposure will allow for a robust characterization of the safety and efficacy of alirocumab prior to the outcome study.

Our program studies treatment with every other week and monthly dosing regimens, with the ability to titrate dosing, which will allow healthcare providers to tailor therapy to suit individual patient needs.

The ODYSSEY program is studying treatment with alirocumab in several key patient populations, including the first study in patients who are confirmed to be statin intolerant, those with heterozygous familial hypercholesterolemia, where we are studying the largest cohort of such patients, as well as those hypercholesterolemia patients with poorly controlled LDL cholesterols, despite treatment with current standard of care, which are typically statins.

Our studies have been designed to offer important insights in patient populations with high unmet needs; for example, our statin intolerance study also includes a statin exposure component designed to further enhance our understanding of this population, and ensure that we have appropriately characterized these patients as truly statin intolerant.

We look forward to reporting the results of these trials, staring in mid-2014.

Turning to sarilumab, our IL-6 receptor antibody, which is in late-stage development in rheumatoid arthritis, we reported positive top line data from the phase 3 mobility study in the fourth quarter of 2013.

The study met all three co-primary endpoints: namely, one, an improvement in the signs and symptoms of RA at 24 weeks, as measured by the ACR20 score; second, an inhibition in the progression of structural damage at week 52, as measured by radiography; and three, an improvement in physical function, as measured by a change in the baseline in the HAQ-DI score.

Importantly, patients receiving the higher 200 milligram dose of sarilumab administered every other week showed a 90% reduction in the progression of joint damage, as assessed by radiography.

In the mobility trial, there was a higher incidence of treatment-emergent adverse events leading to withdrawal in the sarilumab treatment groups compared to placebo, and was 13.9% in the 2 milligram group, 12.5% in the 150 milligram group, and 4.7% in the placebo group.

Infections were the most frequently reported adverse events, and were reported with a higher incidence in the sarilumab groups compared to placebo; all in combination with methotrexate.

Among patients treated with sarilumab, a dose-dependent decrease in mean neutrophil counts was observed.

Serious infections were not associated with grade 3 and grade 4 neutropenia in the mobility study.

The increases in mean LDL cholesterol and transaminases were observed.

These safety findings were consistent with those expected from blockade of the IL-6 pathway.

We believe that sarilumab has the potential to be a very competitive product profile, with the flexibility of both low-dose and a high-dose subcutaneous regimens, coupled with every other week dosing, which could offer a good option for patients.

Despite the advances that TNF-alpha inhibitors have made in the management of patients with RA, approximately 40% of patients are inadequately controlled, as assessed by ACR20 and DAS28 scores.

We believe that there is a significant need for new therapies for the treatment of RA.

We will be reporting full data from the mobility study at an upcoming medical conference.

There are also four more phase 3 studies of sarilumab in RA that are ongoing, with expected readouts beginning in 2015.

Besides RA, we are also exploring sarilumab in the phase 2 trial in non-infectious uveitis in the SATURN study.

Turning to dupilumab, we view this IL-4 receptor alpha antibody as one of the most exciting programs in our pipeline.

Based on our clinical data so far, blocking both interleukin 4 and interleukin 13 has shown impressive effects in a variety of Th2-mediated diseases.

In recent years, the incidence of Th2-mediated diseases, such as asthma and atopic dermatitis, have increased significantly.

Dupilumab is currently in clinical trials for asthma, atopic dermatitis, and nasal polyposis.

In 2013, the phase 2a study of dupilumab in asthma was named the clinical advance of the year by Scrip, and dupilumab is currently in phase 2b in asthma.

We will be presenting data from a phase 2a study in atopic dermatitis at the upcoming meeting of the American Academy of Allergy, Asthma, and Immunology, also known as the AAAAI meeting.

We expect to see phase 2b study data in this indication in the second quarter of 2014.

We plan to initiate a phase 3 trial in atopic dermatitis in 2014, as well.

Though not life-threatening, atopic dermatitis can significantly impact the patient's quality of life.

It is estimated that there are 2 million patients in the United States with moderate to severe atopic dermatitis.

Dupilumab is also currently in a phase 2 proof-of-concept trial in nasal polyposis.

I would like to now spend a few minutes talking about our earlier-stage pipeline and our recent R&D initiatives.

In the past months, there's been growing interest in the field of immunotherapies in oncology.

We are keenly interested in this area, and are exploring the use of bispecific antibodies that target tumor antigens and the CD-3 receptor on T cells to harness the oncolytic properties of T cells.

Our first such bispecific antibody targets CD-20 and CD-3, and is expected to enter the clinical later this year.

As Len mentioned, we are now investing in a tremendously exciting opportunity in human genomics with the launch of the Regeneron Genetics Center and our collaboration with the Geisinger Health Systems.

We intend to sequence and genotype a minimum of a 100,000 consented patient volunteer samples in the next few years, making this one of the largest sequencing endeavors undertaken.

We believe that with the state-of-the-art sequencing and informatic tools that are now available, our expertise in mass genomics and an access to a broad sample of de-identified patient records and samples from patient volunteers, we are extremely well positioned to validate the relationship between genes and human disease.

Our goal is to turn human DNA sequence into medically actionable information.

We hope this will transform the way that we conduct drug development from early target discovery through to our late-stage clinical trials, and we hope this will help our collaborators, such as Geisinger, transform their ability to deliver better health care to their patients in a more timely and cost-efficient manner.

With that, let me know turn the call over to Bob Terifay, who will provide further details on the EYLEA commercial landscape.

Thank you, George, and good morning, everyone.

In the United States, as Len mentioned earlier, EYLEA, or intravitreal aflibercept injection, net sales in the fourth quarter of 2013 were $403 million, and full-year 2013 EYLEA net sales for slightly over $1.4 billion.

As we described at a recent investor conference, when we first disclosed our 2013 US EYLEA net sales results, the fourth-quarter sales faced some slowdown during the Thanksgiving and Christmas holidays, but were also helped by a modest inventory build at the end of the year.

To help provide more detail on the market dynamics, we will be sharing with you some qualitative data from a market research survey that was independently conducted in the fourth quarter.

As before, these data come from physician-based questionnaires; in this case, from 200 representative physicians.

I will share with you the numbers as they were reported in the survey, but I would like to remind you that these numbers are physician-reported estimates based on our survey.

Let me begin with the wet AMD indication.

In the fourth quarter of 2013, according to our surveyed physicians, we had approximately half of the branded anti-VEGF market.

The branded anti-VEGF market continues to represent about half of the total wet AMD market.

Turning now to the second indication for which EYLEA is approved in the United States, macular edema following central retinal vein occlusion, hard data from our market research survey suggests that, during the fourth quarter, EYLEA achieved over a 40% share of the approved anti-VEGF products in this indication.

The branded market represents 45% of the overall macular edema following CRVO indications.

As Len and George mentioned earlier, the FDA has accepted our supplemental BLA for EYLEA in diabetic macular edema, or DME, and we have been granted a PDUFA date of August 18, 2014.

DME could be as big a market opportunity as wet AMD.

It is estimated that approximately 600,000 patients are diagnosed annually with clinically significant diabetic macular edema in the United States.

Of these patients, about 40% are treated with anti-VEGF therapy.

We also expect our supplemental BLA for EYLEA for the treatment of macular edema following branch retinal vein occlusion, or BRVO, to be filed in the United States before the end of the first-quarter 2014.

In 2014, we expect US EYLEA net sales to be between $1.7 billion and $1.8 billion.

We anticipate continued net sales growth in the United States from the growing number of patients diagnosed with wet AMD, increasing market share in macular edema following CRVO, and our potential launch in diabetic macular edema in late August 2014.

Please keep in mind that, as Len mentioned, given potential inventory normalization during the first half of the year, and the potential DME approval in late August, the growth in US EYLEA net sales may occur more towards the second half of 2014.

Turning now to the ex-US EYLEA business, where we split profits with Bayer HealthCare, fourth-quarter ex-US EYLEA net sales were $184 million.

The strong fourth-quarter growth is a function of the continued ex-US rollout.

EYLEA has approximately 40% to 50% of the market in wet AMD in Germany, Australia, and Japan, and has recently launched in additional countries in Europe, including the UK and France.

As of the end of 2013, EYLEA has received regulatory approval for the treatment of wet AMD in over 50 countries.

EYLEA is also approved in the EU in the macular edema following CRVO indication.

For the remainder of the year, we expect Bayer to embark on additional launches in both of these indications, following regulatory and pricing approvals.

Let's put the EYLEA opportunity outside the United States into context.

Bayer HealthCare is still in the early stages of launch.

Today, EYLEA only accounts for about 17% of the overall branded ex-US anti-VEGF sales.

There is a significant opportunity for continued growth outside the United States.

Bayer has also submitted an application for marketing authorization in Europe for DME.

With that, let me turn the call over to our Chief Financial Officer, Bob Landry.

Thank you, Bob, and good morning to everyone.

As Len mentioned in his opening remarks, Regeneron experienced strong financial performance throughout 2013.

In the fourth quarter, we earned $2.24 per diluted share from non-GAAP net income of $259 million, and we earned $8.17 per diluted share from non-GAAP net income of $935 million for the full year.

This represents growth in non-GAAP net EPS of 52% for the three months, and 75% for the full-year 2013 compared to the same periods of 2012.

As a reminder, 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.

In 2012, it excluded the release of a valuation allowance.

A full reconciliation of GAAP and non-GAAP earnings is set out in our earnings release.

Total revenues were $610 million in the fourth quarter and $2.1 billion for the full-year 2013, which represented growth of 47% for the three months and 53% for the year ended December 31, 2013.

Net product sales of $406 million in the fourth quarter were comprised of $402 million of US EYLEA net sales and $4 million of ARCALYST, rilonacept, net sales.

For the full-year 2013, US EYLEA net sales were $1.4 billion, and ARCALYST net sales were $17 million.

As Bob mentioned, fourth-quarter US EYLEA sales benefited from an increase in distributor inventory.

Specifically, at the end of the fourth-quarter 2013, US distributors held a little over two weeks of inventory, which is higher than the typical range of one to two weeks that has been held by distributors.

This increase in inventory may have been in part due to the tightening of commercial terms that went into effect on January 1, 2014.

So far this year, the inventory levels appear to be returning to the more customary one- to two-week range, and if this continues, it would impact sales in the first quarter of 2014.

For 2014, we expect full-year US EYLEA net sales to be in the range of $1.7 billion to $1.8 billion.

This guidance includes the expected approval of EYLEA for DME in the third quarter of 2014, but does not include any change in the compounding environment.

Ex-US EYLEA sales were $184 million in the fourth quarter and $472 million for the full-year 2013.

Product revenue from ex-US EYLEA sales is recorded by Bayer HealthCare.

We recognized $44 million in the fourth quarter as our share of the net profits from ex-US EYLEA sales, which was after repayment of $15 million in development expenses to Bayer HealthCare, and $102 million for the full-year 2013, after repayment of $58 million.

Bayer HealthCare collaboration revenue was $86 million for the fourth quarter and $220 million for the full-year 2013.

During the fourth-quarter 2013, Bayer HealthCare collaboration revenue included $25 million of milestone payments, comprised of a $10-million milestone related to EYLEA approval in Japan for the treatment of macular edema following CRVO, and one sales milestone payment of $15 million.

For the full-year 2013, Bayer HealthCare collaboration revenue included a total of $70 million in substantive regulatory and sales milestone payments, as compared to $25 million in 2012.

Total Sanofi collaboration revenue was $111 million for the fourth quarter and $430 million for the full-year 2013.

Included in the Sanofi collaboration line are three key components: our share of losses in connection with ZALTRAP, which was $8 million in the fourth quarter and $31 million for the full year; reimbursement of Regeneron-incurred R&D expenses, which was $112 million in the fourth quarter and $459 million for the full year; and amortization of upfront and other payments previously received from Sanofi.

Global ZALTRAP net sales, as reported by Sanofi, were $20 million for the fourth quarter and $70 million for the full-year 2013.

Turning to expenses, non-GAAP R&D expenses were $234 million in the fourth quarter and $743 million for the full-year 2013.

If we net out R&D reimbursements from our collaborators, and our R&D stock-based compensation from our GAAP R&D expense line item, our net non-GAAP unreimbursed R&D was $115 million for the fourth quarter and $263 million for the full-year 2013, which is slightly higher than the top range of our guidance for 2013 of $250 million.

Please note that in our press release issued this morning, we have included all the information required to calculate our unreimbursed non-GAAP R&D numbers.

For 2014, we'd like to reiterate our previously provided guidance of non-GAAP unreimbursed R&D to be in the range of $425 million to $475 million.

Our non-GAAP unreimbursed R&D spend is driven by three factors: our obligation to pay for 20% of the phase 3 alirocumab and sarilumab clinical development expenses following the first positive phase 3 results, as reported in the fourth-quarter 2013 for each of these antibodies; and advancing unpartnered pipeline, which now includes six antibodies, a variety of new technology such as antibody drug conjugates in bispecific antibodies, and our recent proprietary R&D initiatives such as those in the area of human genomics.

Non-GAAP SG&A expense was $61 million for the fourth quarter and $249 million for the full-year 2013.

We expect non-GAAP SG&A expense in 2014 to be in the range of $330 million to $380 million.

This increase in 2014 is due to an increase in our contribution to independent co-pay foundations that assist qualified patients in satisfying their co-pay requirements, and an increase in the branded prescription drug fee that we are assessed as part of the Patient Protection and Affordable Care Act.

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

Non-GAAP cost of goods sold was $34 million in the fourth quarter and $116 million for the full-year 2013.

This translates into a gross margin of approximately 92% of sales for the full year.

As a reminder, COGS includes royalty expenses in connection with our agreement with Genentech related to US EYLEA sales, which we are obligated to pay until the second quarter of 2016.

Cost of collaboration manufacturing was $14 million in the fourth quarter and $37 million for the full-year 2013.

Turning now to taxes -- at the current time, we do not expect to pay significant cash taxes through at least mid-2015.

As such, we expect that our 2014 non-GAAP earnings will continue to exclude any significant income tax provision.

It is too early for us to provide specific tax guidance for 2015 at this time.

Over the long term, with the expansion of our international operations, we expect to achieve a tax-efficient operating model.

The foundation of this operating model will be the establishment of a new manufacturing facility in Ireland, and the migration of certain intellectual property related to our ex-US EYLEA franchise and our late-stage antibody pipeline to Ireland.

We currently project that the benefits of our investment in our global operating model could begin to be reflected in our effective tax rate commencing in 2017.

You will notice that, on a GAAP basis, the effective tax rate in the fourth quarter for our GAAP earnings was 51.1%, and 40.5% for the full-year 2013.

We expect our GAAP effective tax rate in 2014 to be similar to that experienced in the fourth-quarter 2013.

The increase in the GAAP effective tax rate is a result of near-term expenses incurred outside the US in connection with expansion of our international operations.

Our capital expenditures for the full-year 2013 were $156 million, which is significantly greater than our capital expenditures of $49 million in 2012.

This was primarily driven by the expansions of our lease facilities in Tarrytown, New York, and our own facilities in Rensselaer, New York.

We expect capital expenditures for 2014 to be $350 million to $425 million, as we continue to invest in our Tarrytown and Rensselaer facilities, and purchase and commence renovations on a new manufacturing facility in Limerick, Ireland.

We ended 2013 with cash and marketable securities totaling approximately $1.1 billion compared to approximately $600 million at the end of 2012.

We also had trade accounts receivable of $787 million at the end of 2013.

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

Thanks, Bob, and thank you, everybody else.

2014 is a promising year for us.

We believe that we have the key elements that are required for long-term growth: deepening our existing franchise; advancing our broad and active pipeline; investing in new technologies, such as our initiatives in human genomics; and expanding our presence globally.

With that, I will now turn the call over to Michael.

Thank you, Len.

That concludes our prepared remarks.

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

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

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

Thank you, and operator, if you could please open the call for questions.

(Operator Instructions)

Adnan Butt, RBC Capital Markets.

I'll start with a tax question.

You touched a bit on this, but can you give us a bit more on what IP is actually overseas at this time and what IP you intend to take?

Is it just EYLEA or could it be more than that?

Secondly, when does it start impacting tax rates?

Maybe you can give some high-level thoughts on what statutory tax rates are and what they would be with the amounts of things that you are planning to take overseas?

Thanks.

This is Len.

As far as what intellectual property has been migrated, we're not going to get into the details of that.

But I should say that it is not limited to EYLEA and it can be any and all and we're doing that as we view is appropriate.

As far as what the impact from the tax rate, I think all that Bob said is that in 2017, it might begin to have an impact, but we're not going to get into the details, unless, Bob, you have anything further you want to add.

I'll just give you little bit more color.

As you'd expect, we do have net operating loss carry-forwards going forward of approximately $460 million and then, we obviously have federal and state tax credits going forward of roughly $120 million.

That will allow us not to pay any significant cash taxes until at least mid 2015.

I had said obviously this is subject to change based on various factors that may come about, but that's our current position to date.

Again, as Len said, we are taking the right steps that you'd expect a Company like us to take going forward.

We won't get into specificities with regards to the migration of the IP, but as Len said, you can rest assured it's not just EYLEA.

That, coupled with our new manufacturing facility that we're getting in the ground in Ireland, will allow us to get favorable tax rates beginning in the 2017 year.

Ying Huang, Barclays.

First, I would like to ask you to elaborate your thought on the two year VISTA data because we saw the arterial thromboembolic events and also the death rate creeping up.

I was wondering if you could comment on the regulatory implication for 2Q [control arm] and then what you might see as a position in the competition in the DME landscape?

Secondly, it sounds like you guys are seeing steady state market share for EYLEA in the wet AMD markets, so I was wondering if you have any long-term strategy in growing share in that market?

That is two questions.

That's a compound question, which would you prefer to have answered?

(laughter)

We will start with the DME.

We're not going to get into the details of our regulatory discussions, but other than to say that we've made our submissions, the FDA has filed the package and we are on track, we think, for our PDUFA date, based on our submissions in August of this year.

In terms of the data, we were very pleased with the data.

George, you want to add anything on that?

As you know, this is, obviously, a very highly scrutinized area because of concerns about anti-VEGF agents with regard to systemic adverse events, the so-called APTC events, as well as death.

Of course, we found it very comforting that our serious systemic adverse events were similar between all groups, as was the arterial thromboembolic events as defined by the ATCC criteria.

In terms of death, it's very important point out that the 2 milligram every other month group, which produced data virtually identical to that of the monthly group, was numerically very similar to that of the laser control group.

The monthly group did have numerically a higher number, but that was not even nominally significantly different from the laser control group.

Overall, we are continuing to wait for the second study, but I think that in the field, we're pretty comforted by this data.

Just to emphasize what George was saying about the Q8 being a similar to the Q4 in terms of the efficacy, that should not be underappreciated.

Just exactly how those curves overlapped in terms of efficacy between the alternate month group and the monthly group.

Bob, do want to the comment about market share?

First of all, I would remind you, as we pointed out, that despite the fact we launched several years after Lucentis, we are at an even market share in wet AMD with Lucentis and we made $1.4 billion last year.

We're very encouraged with the performance of EYLEA.

Future growth will come primarily from new patients and we have implemented a number of strategies to try to pick up more new patients in the marketplace.

I think the biggest challenge to growth for both us and Lucentis is the fact that, despite the change in the compounding landscape, there has been very little change in the use of Avastin in the marketplace and that's probably the major obstacle for both products at the current time.

Just to amplify on that, anticipate a question on the compounding, our projections don't assume any significant change in the compounding environment.

That is not to say there might not be some.

The law has been written and the FDA has said that there are no compounding exceptions that are applicable to biologics.

The new law of compounding does not grant these waivers to biologics, but how the FDA will enforce that and whether that will change things is yet to be determined.

We'll wait to see with the FDA will do.

Of course, you know our long-standing opinion has been we're in favor of choice.

We think it's good the patients can choose, they can choose right now between three different alternatives: be it Avastin, be it Lucentis and EYLEA.

We are interested in having choices good, but we would like to have only a single quality standard in terms of the manufacturer and preparation of the product.

Chris Raymond, Robert Baird.

I just wonder if you could comment on some of your discussions with FDA here.

You've got your PDUFA date set, any updates on your likelihood of a panel in front of that for DME?

I think the FDA reserves right to call a panel if they need one.

We've had no indication to date that there will be one, but it's not too late if they choose to.

But right now, they haven't.

I don't know that's helpful, but that's the way it works.

Jason Kantor, Credit Suisse.

On the human genomics effort, this is obviously a very big project and I'm just wondering if there will be any interim announceable events we give progress updates on anything that might be coming out of that or is this something that is going to go somewhat radio silent for years until a drug pops out of this program?

Or is this something we can expect updates on?

Maybe George can give us perspective on that.

I think we're viewing it as a situation where the program can impact every aspect of everything that we do.

I can tell you that we've already had results that have impacted how we think about how we design our programs and so forth.

There's going to be continuous data.

We will certainly be taking advantage of it in a continuous fashion.

Of course, we hope that there will be some huge breakthroughs that will also lead to important new therapeutics opportunities.

We also anticipate that there will be a lot of publishing going on continuously also, not only from ourselves, but importantly from our collaborators, such as Geisinger.

Could you expand on what you mean by you've already seen impact to some of your thinking around your programs?

What are you referring to?

It's probably a bit premature to get into those details, Jason, but stay tuned.

This is an exciting area.

Robyn Karnauskas, Deutsche Bank.

Maybe you could frame for us how to think about the data for the IL-4, IL-13 compound, given that you're going to have a couple data sets in the next six months?

What is the data set that we should be focused on and what are your thoughts on IL-4 and asthma?

George?

Certainly, very soon, as we announced in the first quarter, we will be getting data from our Phase 2b study in atopic dermatitis.

We certainly hope that data will confirm and extend the data to date and as we indicated, we think that is a very large opportunity on itself and is an earlier program in terms of moving towards the market and towards approval, then asthma.

In terms of asthma, obviously, we're going to be doing the Phase 2b and we're going to be anticipating that data in terms of also confirming what we've seen to date, better establishing our dose relationship and going forward into pivotal trials.

Just to be clear, the data coming up at the AAAAI at the end of this month will be the Phase 2a data and then as George indicated, we will be additionally getting a Phase 2b data perhaps later this quarter or the second quarter.

Lots going on in the atopic dermatitis area and the asthma Phase 2b program is a very large study that's well underway in terms of enrollment.

This is a pretty exciting area for us.

Terence Flynn, Goldman Sachs.

Maybe another on the pipeline front, I was just wondering, the EYLEA PDGF co-formulation trial, if you can give us any more insights on the design there.

If it will include an EYLEA control arm, when we might get some data, and then maybe your thoughts on that target and given what we've seen from some of the competition out there?

In terms of the target, we've said many times that it's potentially interesting to combine PDGF and EYLEA.

We also think it's potentially interesting and maybe even more interesting to combine angiopoietin-2 and EYLEA.

I think other people can speak to their own data, but we don't view this as a done deal just yet.

I don't know, George, if you want to get into it or not anything on trial design?

I don't think we're going to be talking about the details of our trial design at this point but, as Len said, we're very excited about the fact that we have the opportunity to combine both of these agents in terms of either the PDGF agent or the ang-2 agent in the same Intravitreal formulation as EYLEA.

I think if either of these agents can offer a substantive advantage, I think it will be very attractive and convenient for patients to be getting a single injection with both the agents in them.

Geoff Meacham, JPMorgan.

This is Carter [Gould] on for Jeff.

My question relates to your differentiation strategy for Sarilumab.

Do you think you can differentiate versus Actemra strictly on the basis of the reduction of progression and joint damage in the face of pretty comparable ACR scores?

I don't think is appropriate for us to be doing any cross-trial comparisons at this point, if at all.

Let's wait until we get our data and then I think the rheumatology community will be able to assess.

I think, as George indicated on his talk, the fact that we have both two different dosing regimens that we've been able to demonstrate, I think reasonable data with both may afford a nice choice given subcutaneously, et cetera.

By the way, give our regards to Geoff because this is the fourth time in a row that somebody stood in for him.

We hope he's okay.

I just wanted to add to that, we think the field is far from knowing the best way to use biologics.

As you already heard, there's a substantial amount of patients who do not respond best to TNFs and I think it's both an issue of the right trials being done and trial designs and so forth to best get the best biologic to the best patient.

I think that's going to be an important way of expanding the opportunity of anti-IL-6 agents in general in the space.

Yaron Werber, Citi.

The first one, the DME market, can you give us a sense how much of it is branded now versus Avastin.

I'm trying to get a sense of how much share is Lucentis really taking?

If you don't mind I have a second one,

I just want to understand the biology for you guys, maybe it's for George and for Len.

Ang-2 and EYLEA synergy versus PDGF and EYLEA synergy, I'm just trying to get a sense, help us understand the biology a little bit and why you may be testing them separately?

Is there even an opportunity to test all together as a triple?

So it's like 10 questions in there.

So you are wrong because your actually Yaron and those are good questions, we'll deal with both of them.

First Bob, can you comment on the --

In terms of DME, obviously, for a number of years, there was not an approved product so Avastin was the dominant player in the marketplace.

Since Lucentis has launched, they have rapidly penetrated the market, but they are not at the same 50/50 split as in the wet AMD market.

It's more like 60% Avastin, 40% Lucentis from the survey data that we have.

That said, with the launch of Lucentis, the anti-VEGF market in DME is growing so we're very encouraged that, over time, the DME market, as I said, only right now, only a portion is a getting anti-VEGF therapy, but we expect that to change and especially, when you look at the data, which indicates patients really should not be receiving laser.

If they get laser early on, from what we saw in our year two data, they never really catch up when they get anti-VEGF therapy.

We believe there's a major opportunity for anti-VEGF therapy to be used earlier in the treatment of clinically significant DME.

George, do want to comment on the relative preclinical or what other data, if you have anything more to say about PDGF and ang-2 and whether or not a three-way combination makes any sense at all?

Right now, we view the preclinical data is actually stronger for angiopoetin-2.

They both are acting predominantly on the blood vessels as opposed to PDGF, which is acting on the smooth muscle cells.

Theoretically, there's some rationale or possibility of a three-way combination but I think, obviously, first, we're going to have to, as a field, convincingly demonstrate that either agent on top of anti-VEGF has a substantial advantage.

Matt Roden, UBS.

Bob, I also wanted to ask you about the market share churns here.

Can you speak to whether or not the market share in AMD and CRVO you report is representative of what you'd see if you limited that sample to just patient starting therapy or switching therapy?

Related, as you think about launching into DME, is there anything you can learn from your experience here in AMD and RVO together with the dosing advantages and things like this, that could result in a steeper market share gain in DME with EYLEA than you had in the previous indications?

I would say we were pretty pleased with how quickly we got market share in AMD, so I'm not sure we have much to add on that.

Bob, I don't know if you want to comment?

I don't want to split out our survey data for new versus switched patients.

What I would say is that the majority of our business that is not from continuing patients is now new patients, which is very encouraging.

We really got that pool of switched patients early on and now we're fighting it out to get new patient by new patient and our share in new patients is greater than our share in switches.

With regards to the DME growth, I think the opportunity is similar to what we saw with wet AMD.

There is a dissatisfied group of patients who will be switched and then our real opportunity, though, is to grow the market because quite frankly, laser therapy is not appropriate in most patients with DME with central vision and we have to get that message out.

Obviously, Bob, is referring to post approvals, hopefully, which is due in August of this year.

Joseph Schwartz, Leerink.

I was wondering if you could talk about how you've designed your antibody against PDGF and what science supports going after the receptor versus the ligand and PDGF data versus other sub units?

I think that's a competitive area and a little bit proprietary so we're going to have to duck that one.

We will give you another question if you have one.

Are you detecting any potential changes in the way physicians are reimbursed for Intravitreal injections?

Bob, do have any comment or question about that?

Over the short term, there are no anticipated changes but right now, the whole healthcare environment is uncertain, so I can't talk about what might happen in the future.

Rachel McMinn, Bank of America.

Just to make sure I understand your guidance for sales in the first quarter and your inventory comments, are you actually guiding for 1Q sales that are lower than the fourth quarter reported sales?

To follow up on the DME comment, it sounds like there will be, because Roche has already said that the market, if I'm interpreting their comments correctly, is around $250 million in sales for DME in the US.

I understand it's going to grow.

It does sound like there's overall just as much smaller pool of patients to switch and so we really ought to be thinking about DME in the context of your comments.

I just want to make sure I understand, if it's as big as AMD, that's really like several years from now as opposed to in the next two years, is that fair?

Good questions.

The second question, in terms of the size of the DME market, you are correct.

We are launching into a market that is much less mature than the AMD market, that is assuming we get approval, we will be launching into a market that is much less mature and therefore, you're correct, the number of actual switches available might be less.

On the other hand, our statement that the market could be as large, really, was a demographic statement relating to the number of patients with DME and the fact that the disease is more often bilateral and the number of eyes that would be needed to be treated and the fact that a significant fraction of the market is now still laser.

At least according to the several retinal meetings that I've been at, people feel that laser usage will be decreasing dramatically.

In terms of, we did not give specific sequential quarterly guidance, but you're correct that we were suggesting that there could be a negative effect on the first quarter this year based on inventory realignment and plus the growth that we're predicting, as I said, is tilted more toward the second half of the year, especially post the approval of DME if it comes in August.

Len, I think one thing people need to keep in mind when they're looking at that $250 million number is that Lucentis is dosed at a 0.3 milligram dose in DME, so it's three-fifths of the price in AMD.

You really can't compare AMD and DME numbers.

Phil Nadeau, Cowen and Company.

A question on Alirocumab, I was wondering if you could give us an update on the outcomes trial, the enrollment there, how's that proceeding?

What is the rate limiting factor to filing Alirocumab in the US?

Is it that the outcomes trial has to have a certain percentage enrollment or are you going to wait for the data from the choice trials?

I think what we've said is that we're not going to comment on the specifics of our outcome data and progress enrollment, et cetera, because this is a very competitive field.

We have indicated that, in terms of what's required for filing, is the FDA wanted to see some progress.

We're not going to get into specifics there, but they were looking at progress in terms of the number of events in a blinded setting -- blinded sense, not in one group or the other, overall number of events so they knew the progress of the trial was moving along.

We don't want to get into the specifics there either because each program may have its own nuances.

I hope that helps.

Biren Amin, Jefferies.

Len, a question on your competitor.

I think they're working on a more infrequent delivery of anti-VEGF, could you maybe share your thoughts on EYLEA and your efforts around this effort?

We continue to look at alternative delivery systems, whether it be through genetic approaches, whether it be through delivery devices or what have you.

As far as we know, there's one of our competitors have something in Phase 1 for quite some time now.

We haven't seen that progress, but we don't know much more than you do.

We don't have anything in the clinic as yet, but I can assure you we look at this area very carefully and we'll see whether or not any of these combinations can make a difference as well.

Thank you, Len.

Thank you, everybody.

We appreciate you participating in our fourth-quarter call.

We look forward to a great 2014 and with that, I would like to close the call.

Thank you.

Ladies and gentlemen, this concludes today's conference.

You may now disconnect.