雷傑納榮製藥 (REGN) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Regeneron Pharmaceuticals Q1 2014 earnings conference call.

(Operator Instructions)

As a reminder, this call is being recorded.

I would now like to turn the call over to Doctor Michael Aberman, Vice President of Strategy and Investor Relations.

Sir, the floor is yours.

Thank you operator.

Good morning and welcome to Regeneron Pharmaceuticals first quarter 2014 conference call.

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

Joining me on the call today is Doctor Leonard Schleifer, Founder, President and Chief Executive Officer, George Yancopoulos, Founding Scientist, President of Regeneron Laboratories and Chief Scientific Officer.

Bob Landry, Chief Financial Officer and Bob Terifay, Senior Vice President 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 will include forward-looking statements about Regeneron.

Such statements may include but are not limited to those related to Regeneron and its product 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 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 and form 10-Q for the quarter ended March 31, 2014, which was filed with the SEC this morning.

Regeneron does not undertake any obligation to update publicly any forward-looking statement, whether it is 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 these measures to GAAP are available in our financial results press release which can be accessed on our website 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, Doctor Len Schleifer.

Thanks, Michael and good morning everyone.

The first quarter was another significant quarter for Regeneron.

The global EYLEA franchise continued to grow and I will address that in more detail shortly.

Our pipeline made progress and we now have 15 antibodies in clinical development.

We continue to make advances towards our mission of bringing important and innovative new medicines to patients.

Our financial position has continued to strengthen and we've embarked on new R&D initiatives and collaborations, including a collaboration with Avalanche Biotechnologies the field of gene therapy that we announced earlier this week.

Let's turn now to some of the specifics of the quarter.

The EYLEA franchise continues to exhibit strong growth with global net sales of [$577 million in the first quarter, representing a 54% increase compared to global EYLEA sales of $376 million in the first quarter of 2013.

First quarter 2014 EYLEA net sales in the US were $359 million, which represents a 14% increase compared to first quarter of 2013.

Net sales in the first quarter of 2014 were negatively impact by a decrease in distributor inventory while net sales in the first quarter of 2013 benefited from an increase in distributed inventory,] excluding this inventory changes, underlying demand for EYLEA in the first quarter in the United States increased by over 25% year-over-year.

This increase was despite the severe winter weather conditions that we believe impacted patients ability to get to their physicians offices for scheduled visits in many parts of the US during the first quarter.

Bob Terifay will provide further details in his remarks.

Ex-US EYLEA sales, net sales were $218 million, compared to $62 million in the first quarter of 2013.

Which was the first full quarter of EYLEA sales outside the US, by our ex-US partner Bayer HealthCare.

Looking ahead at the rest of 2014, we expect a number of potential growth drivers for EYLEA in the US.

As announced previously, we have been granted an FDA target action date of August 18th for EYLEA in the diabetic macular edema or DME indication.

We believe that over the long term in the United States, DME could be as significant an opportunity as wet AMD.

We have also been granted a PDUFA date of October 23rd for EYLEA in a fourth indication, macular edema following branch retinal vein occlusion or BRVO.

With these two potential label expansions in the second half of the year, we expect an increase in the growth of EYLEA sales in the US in 2014 to be weighted toward the second half of the year.

Taking this factors into consideration, we reaffirm our previously provided full year US EYLEA net sales guidance of $1.7 billion to $1.8 billion.

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

Further confirming our commitment to expanding our presence in the ophthalmology space earlier this week, we announced an exciting collaboration with Avalanche to research and develop novel gene therapy products for the treatment of opthalmic diseases.

Avalanche as a leader in the field of next generation gene therapy technologies and we look forward to working with them to expand or approaches to developing novel therapies for diseases of the back of the eye.

In the coming months we anticipate a large amount of news flow from our late stage pipeline.

We expect to report Phase 3 data from nine studies of Alirocumab, our PCSK9 antibody for lowering LDL cholesterol.

Alirocumab clinical trials are addressing several patient populations where despite current therapies, there continues to exist a significant number of patients at high cardiovascular risk.

It is estimated that worldwide there are approximately 22 million diabetic patients on statins with LDL cholesterol levels greater than 70 milligrams per deciliter.

There's 7.6 million secondary prevention patients, at least 250,000 diagnosed heterozygous familial hypocholesterolemia patients, and finally, about 5.8 patients -- 5.8 million in patients who are statin intolerant.

All of these patient populations are at high cardiovascular risk and could potentially benefit from the therapy that can lower their LDL cholesterol more than can be achieved with current standard of care.

We hope to present our Phase 3 data from Sarilumab, our IL-6 antibody for the treatment of rheumatoid arthritis in a medical conference this quarter.

Despite the availability of several [TNF] inhibitors for the treatment of rheumatoid arthritis, it is believed that up to 40% of patients are inadequately controlled or unable to tolerate their first TNF alpha inhibitor.

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

For Dupilumab, a potentially important new therapy for patients with moderate to severe atopic dermatitis, we look forward to reporting top line Phase 2b data and starting a Phase 3 program in this indication shortly.

We are also currently exploring Dupilumab in Phase 2 trials for asthma and nasal polyposis and are evaluating studying the drug in a variety of other Th2 mediated diseases.

You will hear further details from George.

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 the by Bob Landry our Chief Financial Officer.

George?

Thank you, Len.

And a very good morning to everyone who has joined us today.

I'm happy to report that Regeneron's broad pipeline continues to advance.

Let may begin with EYLEA.

As Len mentioned, we've been granted a PDUFA date of August 18th fro EYLEA in the DME indication and October 23rd for the macular edema following BRVO indication.

Our ex-US partner, Bayer HealthCare has also submitted applications for marketing authorization in the DME indication in the European Union and in Japan.

Diabetes is a growing significant public health issue worldwide and diabetic macular edema represents one of the site threatening complications of diabetes.

It approved we hope to be able to provide a new therapeutic option for the treatment of this condition.

We're going to be getting a lot of data from our late stage antibody programs in the very near term.

Let me begin with Alirocumab, a monoclonal antibody for lowering LDL cholesterol.

Beginning in June, we expect to start reporting data from nine Phase 3 studies of Alirocumab.

We have previously reported positive data from the Phase 3 ODYSSEY MONO study, which studied Alirocumab in the monotherapy setting.

The data from these 10 studies will be the basis for our regulatory submissions globally and we expect to be ready to make these submissions by approximately the end of 2014.

In the US, the regulatory submission is gated on the progress of the ODYSSEY outcomes trial and discussions with the FDA.

Since both the trial and our discussions are ongoing, we cannot give more precise guidance on timing in the US at this time.

This past quarter we also share data for the first time for Alirocumab dosed every four weeks at the 150-milligram dose in patients who were not on statins.

We think this regimen could be an important option for patients to dosed every four weeks with an easy-to-use, single, 1 milliliter injection of Alirocumab.

We are studying this dose in the CHOICE II to trial that was started in the first quarter and is already fully enrolled.

I'm also happy to report that the CHOICE I study, which explores 300 milligrams dosed every four weeks, is also fully enrolled.

We believe that the Phase 3 ODYSSEY program is designed to yield robust efficacy and safety data and excluding the outcomes trial, we expect to have over 5,000 patient years of double-blind exposure at the time of the completion of these trials.

As we mentioned before, we've also designed our program to support the ability of physicians to personalize therapy and either start patients at a higher dose or start at a lower dose and up titrate as necessary.

Thus, offering greater flexibility to suit individual patient needs.

Our Phase 3 program in rheumatoid arthritis with Sarilumab, our antibody targeting the IL-6 pathway is progressing.

We hope to present the full positive data from the Phase 3 mobility study in an upcoming medical conference shortly.

We reported top line positive data from the study in the fourth quarter of 2013.

There are currently four more Phase 3 studies of Sarilumab in RA that are ongoing, with expected readouts beginning in 2015.

Turning to Dupilumab, we continue to be very excited by this IL-4 receptor alpha antibody that blocks both the IL-4 and IL-13 signaling pathways.

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

At the annual meeting of the American Academy of Allergy Asthma and Immunology, also known as AAAAI, we presented positive data from the Phase 2a study of Dupilumab in atopic dermatitis.

We expect to report data from a Phase 2b study of Dupilumab in atopic dermatitis in the second quarter of 2014.

And expect to initiate a Phase 3 study shortly thereafter.

Dupilumab is also currently in a Phase 2 proof of concept trial in nasal polyposis and a Phase 2b study in asthma.

We are evaluating the potential use of Dupilumab in additional clinical indications.

As you can see, we have a busy late stage pipeline.

Our early stage pipeline is also active and growing.

We now have a total of 15 antibodies in the clinic including two that entered the clinic this year.

Regeneron's 2176, our PDGF pathway antibody and Regeneron 2222 against an undisclosed target.

We expect at least two additional antibodies to enter the clinic by year-end including our first clinical candidate in immuno-oncology, a bispecific antibody.

All of these antibodies were derived using our Veloclmmune philosophy technology.

Eight of the 15 antibodies that are currently in clinical development are being developed in collaboration with Sanofi including our newest antibody in the clinic, Regeneron 2222.

I would now like to also spend a few minutes talking about a recent new R&D initiative.

As we announced on Monday, we have entered into a collaboration with Avalanche Biotechnologies to develop a next generation gene therapy product in ophthalmology.

Genetics has always been an area of interest and expertise at Regeneron.

As such the movement to gene therapy is a natural fit.

We view Avalanche as a leader in this field particularly as it applies to diseases of the eye and development of novel vectors that specifically target retinal cells.

Our scientific and commercial expertise in ophthalmology, combined with Avalanche's novel vector technologies, will allow us to invest and investigate potentially breakthrough therapies in ophthalmology.

With that, let me now turn the call over to Bob Terifay, our Senior Vice President of Commercial, who will provide further details on the EYLEA commercial landscape.

Thank you, George and good morning everyone.

I like to begin with EYLEA, or intravitreal aflibercept injection.

First quarter US EYLEA net sales were $359 million.

According to a qualitative market research survey that we conducted in the first quarter, EYLEA continues to account for approximately half of the branded anti-VEGF market in the United States for the treatment of wet AMD.

And the brand of market continues to represent approximately half of the total anti-VEGF market in this indication.

As previously mentioned, we sold distributors build EYLEA inventory toward the end of last year, which was driven partly by the tightening of our commercial payment terms beginning in January 2014.

During the first quarter, inventory levels were worked down to the normalized one to two week range, compared to the greater than two weeks of inventory at the end of 2014.

Putting inventory aside, if we look at sales to physicians from the distributors, we saw increase this quarter of over 25% on a year-over-year basis, and an increase of approximately 3% over fourth quarter of 2013.

While there was quarter over quarter growth in sales to physicians, we believe the first quarter 2014 US EYLEA sales to doctors were negatively impacted by severe weather conditions in the United States.

The inclement weather made it challenging for patients in some parts of the countries to travel to their physicians offices.

Anecdotally, physicians have reported that the Northeast, Midwest, and mid-Atlantic the weather resulted in fewer patient visits to physicians offices.

EYLEA is an in-office procedure and the typical wet AMD's outpatient is elderly, making travel this winter particularly difficult.

An analysis of sales to physicians by geography shows that EYLEA sales growth in the first quarter was strongest in the parts of the country that did not experience such severe weather, such as the Pacific Northwest, the West Coast, the Southwest and the Southeast.

Turning to the macular edema following central retinal vein occlusion or CLRVO indication, the second indication for which EYLEA has been approved in the United States, data from our surveys suggest that EYLEA, in this indication, represents over 40% of the approved branded anti-VEGF market.

The branded anti-VEGF market continues to represent about 45% of the overall market.

As Len and George mentioned, we are awaiting regulatory decisions for EYLEA in two additional indications, diabetic macular edema, and macular edema following branch retinal vein occlusion or BRVO.

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

As we have said before, it is estimated that approximately 600,000 patients are diagnosed with clinically significant macular edema in the United States.

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

If approved in these indications, we expect an acceleration of growth in the United States in EYLEA sales in the second half of this year.

I'd now like to address the ex-US EYLEA business where we split profits with our collaborator, Bayer HealthCare.

First quarter 2014 ex-US EYLEA sales were $218 million.

Ex-US EYLEA sales continue to be an important growth driver and the launch outside the United States is making significant progress.

According to data provided by Bayer HealthCare, EYLEA has approximately a 30% share of the market in Germany.

And is gaining share in the United Kingdom and France, two countries where the drug was only recently launched.

Over the course of 2014, we expect Bayer to embark on additional launches in the two approved indications of wet AMD and macular edema following central retinal vein occlusion, following regulatory and pricing approval in individual countries.

Outside of the United States, EYLEA is approved in 61 countries for the wet AMD indication, and 40 countries in the macular edema following CRVO indication.

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

Thanks, Bob and good morning to everyone.

Overall, we are pleased with the first quarter performance.

We earned $2.26 per diluted share from non-GAAP net income of $263 million, which represents a 27% and 31% increase, respectively, versus the three months ended March 31, 2013.

Regeneron's non-GAAP EPS excludes non-cash share-base compensation expense, non-cash interest expense related to our senior convertible notes, and income tax expense.

A full reconciliation of GAAP to non-GAAP earnings is set forth in our earnings release.

Total revenue in the first quarter was $626 million, representing a 42% increase compared to total revenues in the first quarter of 2013.

Net product sales were $362 million in the first quarter of 2014, compared to $319 million in the first quarter of 2013.

EYLEA net product sales in the United States were $359 million in the first quarter of 2014, compared to $314 million in the first quarter of 2013, an increase of 14%.

ARCALYST (rilonacept) net product sales were $3 million in the first quarter of 2014 compared to $5 million in the first quarter of 2013.

As mentioned earlier on the call, first quarter 2014 US EYLEA net sales were adversely impacted by a draw down of distributor inventory levels to a more normalized range of one to two weeks on hand.

As stated in our press release issued earlier this morning, we are reaffirming our US EYLEA net sales guidance of $1.7 billion to $1.8 billion.

This guidance factors in the potential approval of EYLEA in the DME and macular edema following BRVO indications in the US in the second half of the year.

Ex-US EYLEA sales were $218 million in the first quarter 2014, as compared to $62 million in the first quarter of 2013, which was the first full quarter of EYLEA sales outside the United States.

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

As Bob Terifay mentioned in his comments, the EYLEA ex-US launch is on a strong trajectory and showed sequential quarter over quarter growth of 18%.

We and Bayer HealthCare are very pleased with the progress that EYLEA is making outside the US and anticipate further growth as Bayer continues the global rollout into additional markets including Spain, Italy, and Canada.

We recognized $61 million as our share of the net profits from ex-US EYLEA sales in the first quarter of 2014, after repayment of $14 million in development expenses to Bayer HealthCare.

Bayer HealthCare collaboration revenue for the first quarter was $125 million.

This included two $15 million sales milestones that we earned upon aggregate ex-US net sales of EYLEA exceeding $500 million and $600 million respectively over a 12 month period.

Depending on ex-US sales, we could receive two additional $15 million milestone payments this year.

Total Sanofi collaboration revenue was $131 million for the first quarter of 2014.

As we've said before, the Sanofi collaboration revenue line primarily consists of reimbursement of Regeneron incurred R&D expenses which was $128 million in the first quarter, our share of losses in connection with ZALTRAP (ziv-aflibercept) for intravenous infusion which was $3 million in the first quarter, and amortization of upfront and other payments received from Sanofi.

Global ZALTRAP net sales as recorded by Sanofi were $22 million in the first quarter.

Turning to expenses.

Non-GAAP R&D expenses were $244 million in the first quarter of 2014.

Our unreimbursed R&D expense, which is calculated as the total GAAP R&D expense minus R&D reimbursements we received from our collaborators and R&D non-cash share-based compensation expense, was $95 million in the first quarter of 2014.

Our press release issued this morning includes all the information that's required to calculate unreimbursed non-GAAP R&D expense.

For 2014, we are reaffirming our previously provided unreimbursed non-GAAP R&D guidance of $425 million to $475 million.

Non-GAAP SG&A expenses for the first quarter were $71 million.

For the full year of 2014 we are reaffirming our non-GAAP SG&A guidance to be between $330 million to $380 million.

We are expecting our non-GAAP SG&A expenses to be higher in the second half of 2014, as we begin to record pre-launch expenses for Alirocumab.

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 $27 million in the first quarter, included in this line are royalty expenses in connection with our agreement with Genentech related to US EYLEA sales which we were obligated to pay until May 2016.

Cost of collaboration manufacturing was $16 million in the first quarter.

Turning now to taxes.

The Company does not currently pay or expect to pay in the near term significant cash income taxes.

In the first quarter of 2014, the GAAP effective tax rate was approximately 63%, which is higher than our previously reported rate.

Recently enacted New York State tax legislation reduced our New York State income tax rate to 0%, effective in 2014.

While this will provide us with New York State tax relief, we also took a one-time tax charge in the first quarter to reduce our related deferred tax assets.

Our effective tax rate for the first quarter of 2014 was also negatively impacted by the expiration at the end of 2013 of the Federal tax credit for increased research activities and losses incurred in foreign jurisdictions with rates lower than the Federal statutory rate.

For the full-year 2014, we expect our GAAP effective tax rate to be in the low to mid 50% range.

At the end of the first quarter, we had cash and marketable securities totaling approximately $1.2 billion.

We also had trade accounts receivable of approximating $800 million.

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

Thanks, Bob.

And thank you everybody else.

The coming months will be filled with data from many of our programs including expected readouts from the Phase 3 Alirocumab program and Phase 2b Dupilumab trial in atopic dermatitis, both of which we are doing in collaboration with our partner Sanofi.

As well as the data presentation of the Phase 3 Sarilumab MOBILITY results, also in collaboration with Sanofi.

In addition, we are preparing for their potential approvals and launches of EYLEA in two additional indications.

Diabetic macular edema and macular edema following BRVO.

We are working steadily towards advancing our pipeline and investing in novel technologies.

With that, I will now 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 do request that you limit yourself to one question.

The IR team will be available in our offices after the call for follow-up questions.

Thank you.

Operator, if you could please give instructions and open the call to questions.

(Operator Instructions)

Chris Raymond with Robert Baird & Company.

Thanks for letting me ask a question.

Just curious, you guys highlighted, sort of as I heard it, two factors here for the seasonality.

One was weather.

The other was inventory.

I think we kind of knew about the inventory from your comments earlier in the year.

Not asking for exact figures, could you give some sense of the breakdown between the two?

And, with weather improving in April and May, can you talk about what sort of trends you've seen in the regions that were affected in Q1?

Thanks.

Chris, thanks.

It's Len, thanks for your questions.

In terms of the last part of your question, we just never comment about how quarters are going mid-quarter.

It's just the standard policy here.

In terms of the breakdown between weather and inventory, it's hard to do that.

Inventory, we told you about.

You can sort of quantify that based on the -- well, the information we gave you at the end of last year and this call.

Weather is just a guess how much that impacted things.

It's really hard to know.

Although as Bob indicated, we saw good and stronger growth in regions that were not impacted by the weather.

We're just beginning, also, to understand the seasonality of our business, here.

Because up until now, we've been in the really rapid part of the growth of the launch and you haven't seen if it obscures any seasonality.

When you look quarter -- first quarter of this year compared to the first quarter of last year, the underlying growth to [docs] was still very strong.

So, that's the information we have.

I know you'd like to crawl around a little bit more, but I think that's all we're going to be able to give you today, Chris.

Sorry.

Thanks.

Next question.

Jason Kantor with Credit Suisse.

Well, I was going to ask that exact same question, but I have plenty more.

Could you give us an idea of what kind of (inaudible) that you would hope could come out of the collaboration with Avalanche?

What kind of deliveries are we talking about?

Is this something that would augment or replace anti-VEGF therapy or are we looking at other diseases of the back of the eye?

Could you give us some better sense of what you're trying to get out of this collaboration?

Sure.

Maybe George can comment on that in a little more detail.

But, in terms of the business terms of -- before he gets into the science -- the business terms that -- we get to work on some very specific targets, as well as we get to have a certain right to negotiate for what they have in the clinic already for anti-VEGF.

We believe that it's the ability to go after diseases that are not easily addressed by conventional pharmaceuticals that's intriguing here.

George?

Yes.

To that end, we're are not announcing what the targets are.

But, the point being that, as Len said, they have an interesting set of technologies and vectors that allow you to target, perhaps, particular cell types.

It's a way of, perhaps, getting longer-term delivery of a gene product.

And it also allows gene products that maybe can't be delivered as proteins to be delivered to the eye.

So, I think it's a very interesting collaboration.

Of course, we note that it's a relatively long-term investment and collaboration that's not going to necessarily be yielding something in the very near future.

When would we expect to see any data from the PDGF program?

So, the PDGF program is early going.

And so, I guess we'll get -- when we have them we'll give them to you.

We're just in the Phase 1 part of this program.

Until we get a little more into it, it would be hard to give you some time frames.

Thank you.

Next question, operator.

Joseph Schwartz with Leerink Partners.

I was wondering if you could talk a little bit more about the market opportunity that you see for alirocumab before and after CV outcomes data is generated?

You gave some metrics on the various segments of patients.

Do you see adoption more or less in any of those areas, if you're approved just on LDL versus several years away when you get CV outcomes data?

Right.

I'll let Bob take that question.

But let me just make the general point here -- is that the drug's not approved yet.

So, we're speculating on how the drug might be used.

We don't know what the label actually will be, but we can talk to you about the kinds of patients that, based on our research, might find that they and their doctors would want to use this product before outcomes and some afterwards.

Bob?

I think the important point is, when you look at the high risk (multiple speakers) --.

Could you put your -- ?

Could you put your phone on mute, Joe?

Yes, sorry.

Okay.

Go ahead, Bob.

I think when you look at the high-risk patients with uncontrolled LDL-C, there are approximately 20 million of those patients in the United States.

And, there is a significant unmet medical need that LDL-C reduction in and of itself is an important goal for patients.

I think the enriched patient populations that are particularly interesting are those who have had a history of a cardiovascular event, as well as those who are statin intolerant.

The statin-intolerant patients don't have a very effective alternative to statins.

So, both of those markets represent significant opportunities, as does the heterozygous familial hypercholesterolemia patient population who are also very, very poorly controlled.

Do you have any market research that says what physicians -- to what degree they're willing to use it in these segments before --

I'm not going to give you the specifics right now.

But, there is significant -- physicians, when they see the product profile, are very, very interested in using the product.

And if I could add, also -- it's Michael.

We did an IR [thematic] call just a month ago and we presented some of our early market research that did show just our willingness to prescribe.

So, if you want to go, I can share those slides that talk about awareness as well as likelihood of prescribing monoclonal.

So, we can do that offline.

Okay.

Thank you.

Next question.

Terence Flynn with Goldman Sachs.

Just one quick one and then a little more in-depth one.

First, just on the gross to net.

Can you guys give us an update there in terms of where this stands, given you mentioned you're still tracking how your drug is now posting in the hyper-growth phase?

And then, the second question is just any expectations for the ongoing DRCR net DME trial comparing EYLEA, Lucentis, and Avastin?

Thanks.

Right.

So, do we have any color at all --

Yes, Len.

What we saw in the first quarter from a gross to net has been consistent to what we've seen.

We had a little bit of an outlier in the fourth quarter of 2013, but it was kind of as expected, our gross to net for quarter one pertaining to EYLEA.

In terms of the DRCR net study, we don't know exactly when that data will be available.

I think he's referring to some studies being conducted by a consortium.

My understanding is it might be late this year, but I'm not -- Bob, do you have any further information?

I don't have any.

Okay.

Next question.

Robin Karnauskas with Deutsche Bank.

This is Mohit filling in for Robin, she is hosting our Healthcare Conference at Boston.

Thanks for taking my question.

So, my question is regarding the market dynamic in DME.

Could you please help us understand how the DME market is in terms of maturity when you compare it to AMD?

And do you expect AMD-like market [being for] DME, as well?

So, in terms of maturity, I would say that the market is not very mature, yet.

Bob Terifay might have some color on that.

And as well as in terms of the uptake -- we don't want to get into predicting the launch here.

So, Bob?

As we said, we believe that the long-term market opportunity in DME is at least as big as the wet AMD market opportunity.

At the present time, about 400,000 patients are treated with an anti-VEGF therapy each year for wet AMD.

When you look at DME, it is growing year over year, but it's currently at about 240,000 patients are treated with an anti-VEGF.

The issue is that a lot of these patients are still out with the general ophthalmologist who uses laser therapy in these patients.

The issue with laser therapy is that it does affect the visual field for the patient.

So, the real challenge for us is to make sure that we emphasize to patients that they need to get a dilated retinal exam as early as possible and regularly.

And they need to get to a retinal physician for treatment.

That really is going to be the focus of our launch.

But I will tell you that, since Lucentis launched in the diabetic macular edema indication, the market has grown.

I just wanted to reemphasize that our Phase 3 data that we submitted to the agency was a head-to-head comparison against laser.

So, we think that data -- if the drug gets approved and that gets into our label -- could have an influence on the practice, in terms of the selection.

As Bob mentioned, laser still has a pretty strong legacy.

I was at the ARVO meetings and some previous retinal meetings earlier this year.

And, basically, the sense you get from those meetings is that laser for center-involved macular edema is really being relegated not to the front line.

It's moving more and more toward anti-VEGF therapy, with the approval with Lucentis in that indication.

Next question.

Thank you.

Phil Nadeau with Cowen and Company.

Thanks for taking my question.

I wanted to ask, on the dupilumab Phase 2b data that's going to be out sometime over the next few weeks, what your expectations are for that data.

I guess in particular, when I look at the Phase 2a, with the EASI-50 responders at 100%, I guess that's not going to change.

I'm curious on the placebo arm there, however, it looks like at 30 days it was still trending up.

So, is there a chance that, over three months, maybe placebo also approaches that 100%?

Similar questions on the pruritus numeric rating scale and the IGA score.

All those were trending down at 30 days.

Would we be wrong for the drug group in just extrapolating those lines out to three months?

Is there anything different in the design between the 2b and the 2a to make that a not-valid expectation?

Phil, I'll let George -- if he wants to get into some of the detail.

But I think that you might be approaching it in the wrong way.

I don't think there's much of a gain to get into trying to predict exactly what these numbers are.

I think that, what we can say is we feel still extremely confident in this program that we're going to have strong data based on what I feel is a very strong Phase 1 and Phase 2a program.

That's the main message here.

George, you want to add?

Yes.

You should go back and just review the Phase 2a data, which was a 12-week study which was presented.

We do think that, that data -- we're hoping -- because that data was very impressive, we're hoping to replicate that sort of data in the Phase 2b.

The 100% numbers you're talking about was in a Phase 1 study, in combination with topical corticosteroids.

So, the average percent change in EASI over the 12-week study was about 75%.

So, that means the average percent change in the total patients was about 75% and the placebo group about 25% -- that was in the 12-week study, as I said, the Phase 2a.

And the proportion of patients who achieved an EASI-50 at 12 weeks was about 85%, in the placebo group, about 35%.

So what we're hoping -- these obviously are very impressive data, which we hope would be replicated in the Phase 2b.

And that's what we're looking for.

We're looking to get quite similar data to what we saw in the Phase 2a, which was a 12-week study.

George, could you just comment -- because he made -- he questions whether the placebo continues to change over the course of the trial.

Is that what we saw?

Or is it --

The placebo does go up slowly, but it was a 12-week study.

I think Phil was thinking about our Phase 1's, which were four-week study.

So the increase from one month to three months, is only about from 25% to 35% in placebo.

So, obviously, we saw a very big differential with the 85% EASI-50 -- 85% of patients achieving EASI-50 with dupilumab over 12 weeks.

So there was obviously a very substantial drug-associated benefit compared to placebo.

As I said, I think -- the hope is that we can replicate it.

Just to give you some other astounding numbers -- outstanding numbers, EASI-75, the percent of people who had a 75% improvement, it was about 60% in the treated group and only about 14% in placebo.

So, there's really a relatively impressive drug effect.

The same with pruritus scores in every other assessment.

And, as I said, we only hope that this really represents what this drug can really do and continue to do on patients.

So, what we're hoping for is to largely to just replicate these impressive Phase 2a data.

Are there any differences in enrollment criteria that we should keep in mind that could result in a slightly different patient population?

Or are the patients almost exactly the same?

There are slight differences that could affect different aspects of the study -- different jurisdictions, more patients, US versus Europe, things like that.

Our biggest hope is just to reproduce this sort of data that we've already seen.

Next question, operator.

Matt Roden with UBS Securities.

I want to take a stab at quantifying the inventory again in better understanding the underlying demand trend.

Based on what you've said, it seems to me that the channel swing might have been something like $25 million to $30 million between 4Q and 1Q.

So, first of all, are we on the right track here?

And then, if we back that out of 2014 numbers, then we're looking at about two straight quarters of about 3% sequential demand growth.

So, is that about what should be expected until you get label expansion later this year?

And we realize you have a big opportunity here with DME coming up.

But, is there anything you think can be done to revitalize this core AMD opportunity?

Thanks.

I don't think we want to get into predicting quarter-by-quarter sequential growth rates.

I don't think your calculations are wildly off.

I don't want to get into the fine details of them.

But, I think that we did tell you that the sequential growth from fourth quarter to first quarter was about 3%.

And we did tell you that we expect the growth -- the bigger part of the growth would come subject to the approvals that we have in the latter part of the year.

So, I think your thinking is good.

So maybe that's all I want to say on that.

I do -- as long as we're back on EYLEA, in case we don't come back to it -- I do want to say that it's a very interesting marketplace, of course, with lots of things going on.

There's still questions about what's going on with compounding.

There's still, of course, all the issues related to rebates.

And then there's, of course, our poor friends and customers, the retinal docs, who I think took a lot of unnecessary abuse with articles in the Washington Post and New York Times, where they were -- it made it look like that if you needed a loan you should call your local retinal doctor.

That probably was a little bit unfair, because most of that money was being -- going through their shop to pay for either Lucentis or EYLEA.

So, I just wanted to make a little comment about that.

But, the bottom line is that the business continues to grow.

But we expect the big growth to come in the latter part of the year, hopefully with the approvals.

Next question.

Matthew Harrison with Morgan Stanley.

Good morning.

Thanks for taking the question.

I want to go back to dupilumab and just ask sort of a question around -- there are a lot of other antibodies in development for asthma, some are IL-4 -- I mean some are IL-5.

So, a bunch of different mechanisms.

But I'm just wondering if you could, maybe, help us understand mechanistically where you think the differences are and how they might play out clinically between dupilumab and some of these other antibodies?

Thanks.

So, I'll let George handle that.

Before he gets into the technical aspects, just from a broad perspective.

You're right there is a lot going on in asthma and George can comment on where we fit in.

But there's been a lot less going on in atopic dermatitis and that's a disease with a lot of people -- Bob, how many people have moderate to severe atopic --?

Over a million.

Over a million in the United States with moderate to severe atopic dermatitis.

So, that's a -- from a competitive point of view, not a mechanistic point of view.

Obviously, the asthma space is more competitive.

But, of course, it's a very serious disease.

Atopic dermatitis is a troubling disease, albeit not life threatening, but a really serious, troubling disease for many patients, with less competition.

George, you want to get into the mechanistic stuff?

Yes.

Well, the basic question that you get at in terms of mechanism, is which of the cytokines are the most important drivers of the disease processes in these various settings.

And, I think that, mechanistically, what we think is emerging -- in fact, we think that our data is really contributing to this -- is to shed some light on what's going on, in terms of what many view as a worldwide, growing epidemic in terms of all sorts of allergic diseases.

And, we're not just talking about allergic asthma, but we're also talking about atopic dermatitis.

But we're talking about everything else, as well -- food allergies, all sorts of other allergies, seasonal allergies, and so forth.

It's well documented by the New York Times and the CDC.

There's been this huge uptick in all of these diseases.

One possibility is that these diseases have unrelated mechanisms and unrelated causes.

And the upticks are just all occurring at the same time, but are unrelated.

But we believe, instead, that there's reason to think all of these as essentially variations of the same disease.

And that it's in the same fundamental mechanistic drivers that are skewing the immune system, perhaps due to shared environmental impacts in drivers.

And that the same mechanistic drivers are contributing to variations of the same disease that in some people are manifested as allergic asthma and others as atopic dermatitis, and somebody else as sinusitis, and somebody else as seasonal allergies.

And we believe that the data suggest that [IL-]4 and [IL-]13 are the critical mechanistic pathway drivers, perhaps for all these diseases.

And the thing that we think is quite stunning and, perhaps unprecedented, is to have produced data that shows very interesting effects in two important variations of this class of disease -- that is, allergic asthma and atopic dermatitis -- by hitting this pathway.

I think that this really does suggest for the first time that, indeed, all of these related diseases perhaps have the same drivers, and that IL-4 and IL-13 are, at the core, pathway drivers.

So, it may be true that, for one or another one of these diseases, a downstream factor could be important, and it may be true for that variance of disease, but not another variation of the disease.

But it's also quite possible, and we're very excited about this possibility, that [IL-]4 and [IL-]13 could be the core drivers of a large proportion of the allergic diseases that are now being driven.

Next question.

John Neumann with Canaccord.

Thanks for taking my question.

I just wondered if you could talk about how much detail you might provide going forward on your Phase 3 studies for alirocumab, in terms of the injection site reactions?

And the reason I ask is because, when you presented your first Phase 3 study and you titrated up from 75 to 150, it seems that your adverse event profile was more favorable than Amgen.

I'm just wondering, going forward, how much detail you'd be able to tell us about things like injection site, redness, and reactions?

Thanks.

Yes.

I think once we have the data, and it's presented at a medical conference, we'll be happy to share all of the details that we have available.

It's not been an issue of any significant concern as far as I'm aware, to date.

Next question.

Thank you.

Adnan Butt with RBC.

I still have three questions, but I'll start with one question.

For the alirocumab, for the anti-PCSK9 program, what's the difference that some other competitors think that they may be able to file, but there's some uncertainty on the Regeneron-Sanofi side.

And what's the potential filing time range in the US?

Is that anywhere from 2014 to the end of 2015?

Can you say a bit on that?

Thanks.

Sure.

Stating when you're going to file and predicting and all that sort of stuff, there may be some stylistic differences between the companies and how we approach things.

But, there are no regulatory differences between the companies.

The bottom line is that we and our partner, Sanofi, plan to be ready for filing, certainly, by the end of the year in both the United States and the EU.

In the US, it's gated on the progress of outcomes trials and ongoing discussions with the FDA.

So, since these discussions are ongoing, we don't want to give you any precise predictions, because they might change as a result of these discussions.

But, we have no reason to believe -- in fact, we believe just the opposite, that the US regulatory requirements are going to be consistent for different products across the same class.

And, if anything, we think we have a much stronger package, at this point, in terms of 5,000 patient years of blinded data in the non-outcomes study, which, best to my calculation, might be as many as two or three times more than the Amgen program has, based on what was presented at the recent meeting.

So, we have a very robust package, which we will be submitting with.

So, we're confident that we'll get the same treatment from the regulators as everybody else.

Next question.

Sorry, Adnan, you only get one.

Ying Huang with Barclays.

Thanks for taking my question.

I hate to beat a dead horse, but, Bob, can you just quickly comment whether the inventory will go back to normal level of one to two weeks?

Or, it will -- last quarter, 4Q, was actually outlier with greater than two weeks.

Also, on the status of your [ang-2] VEGF program in wet AMD, because we knew that Roche just started their Phase 1 program of their ang-2 and VEGF program.

Thank you.

The answer to the inventory, as I said earlier, we were above the one- to two-week inventory level at the end of Q4.

At the end of Q1, we had returned back to the inventory levels below two.

That is really where we anticipate inventory to be.

Although at the end of the year, you do still people buying in, especially we had a change in commercial dating terms, which led to some people buying a little bit of excess inventory.

Okay.

George, you want to make a comment on the ang-2 that study for development for us later?

Right.

I think the comment to the question was about Roche and Roche's bispecific.

As you guys probably know, we're very heavily involved in the bispecific space and we have strong views about it.

We think that, honestly, it only makes sense to make a bispecific when you want to actually, for some reason, bring some targets together, or join molecularly two targets.

It doesn't really make sense -- in fact, it's the opposite of making sense, to make a single reagent that can block, independently, two things that are better blocked separately.

Why do I say that?

The odds that you want to have a single agent that's delivered at the same exact levels to attack two different natural molecules that they themselves are probably going to be expressed by the body at two wildly different levels, with two different affinities and so forth, it just doesn't make any sense.

It's much better, in fact, to be able to have the two separate blockers, which you can give at the right proportions at the right ratios, instead of having to be forced to be giving them in the fixed ratio that the bispecific does.

So, we are actually always designing bispecifics for the right and the rational reasons.

Obviously, we have a lot of bispecifics at various stages in development, including one we hope to be putting into the clinic this year.

But those, we think, will be rationally designed and guided, based on the fact that it makes sense to make a bispecific for those targets.

For this purpose, for blocking VEGF and ang-2, it makes no sense to have a bispecific -- in fact, it's the opposite of making sense.

We are very much more excited to have the two independent agents that we'll be able to be titrating exactly in the perfect ratios that would benefit most of the patients, yet still give them in the same injection, if that need be.

Thank you.

Jim Birchenough with BMO.

Good morning, It's Nick in for Jim this morning.

Just to go a little bit back to DME.

Can you let us know, of the 240,000 patients currently receiving treatment, what proportion of those are receiving an anti-VEGF and, within that, the brand -- or I guess Lucentis market share?

And then, in terms of the biology of the disease here, clearly differs from AMD.

So, is this a disease where you think you will need chronic dosing for most patients?

And then, I know protocol T was mentioned before.

But when you do your market research, obviously, there's a lot of interest versus laser.

But are physicians really interested in getting this head-to-head data of Avastin versus the two branded products?

Thanks.

Let me cover on the numbers.

To clarify, there are 600,000 patients with centrally involved DME.

240,000 are treated with an anti-VEGF therapy at the present time.

Similar to before EYLEA launched, Avastin has the majority of the DME market at the current time.

If you remember, when we launched in AMD, Avastin had about 65% of the market.

We were able to not just penetrate the Lucentis market, but also penetrate the Avastin market.

So, that is the opportunity in DME.

It's to grow the market behind the 240,000 patients.

And take share from both agents, both in the new patient starts as well as the switch patients.

I would remind you, in our US-based study, the Vista study, 42% of the patients were prior anti-VEGF therapy.

As we presented at ARVO this week, those patients did equally well as the newly diagnosed patients.

In terms of the biology, I'll let George address it.

But what we see is that DME is a chronic condition.

And that there is a long-term opportunity for the product, although dosing may change over time.

Let me just make a couple of comments.

First of all, I agree with Bob.

Look, our program is under review.

So, we don't know what our label is going to be.

We don't know if it's going to get approved.

Assuming that it does, we think we have some nice advantages, at least in the design of that program.

Highlighting what Bob said, obviously, is we've demonstrated that there was a lot of people in that program who had previous exposure to other anti-VEGF agents.

And, also, it's really the only approved agent -- if it gets approved -- that would have a direct comparison to laser.

Having said that, I do think people will be interested in the protocol T, which is -- for those of you not familiar, is a Consortium DRCR-led study which compares Avastin and it compares Lucentis at the 0.3-milligram dose.

I should remind everybody that one of the other advantages -- our drug, that we've submitted for, is at the same dose, whereas Lucentis has to have two different doses, one for AMD and one for DME, a lower dose, in the United States.

So, all of this should play into the marketplace.

But, I think maybe we should really wait and respect the process and have a lot more to say about this if we get the drug approved.

So, let's wait for that before we say anymore.

Operator, we have time for one last question.

Geoff Meacham with JPMorgan.

Just on US EYLEA, after the first quarter, the guidance assumes a pretty big step up in the second half.

And so I'm just curious, are there some market dynamics in DME that could accelerate adoption when you look at things like compounding levels or payment terms or what you guys see as the unmet need by laser or VEGF?

Thanks.

It's complicated, obviously.

And we're making some guesses.

So it's obviously a forward-looking guess.

But we do feel that, based on what happened with the launch in AMD, there will be a reservoir of patients who might be unsatisfied with current therapies and who might consider using EYLEA, if it's approved.

So, that reservoir should make for a pretty nice initial uptake, if it goes the same way as AMD went.

But, of course, there are other things -- as I said, there are other aspects of this, is the lower dose that we're going up against this time, as opposed to the -- we have a 2-milligram dose, versus their 0.3-milligram dose.

We did have data in our study for Q2 month.

So, we'll have to see how the label goes with that.

That could be an advantage.

Remember diabetics tend to be younger, many of them still tend to be working.

So, convenience of less of an injection burden could be important.

But, once again, I don't want to get ahead of ourselves.

We can have a really robust conversation about this after the PDUFA date.

But, Len, I do think there's another important factor, there's another influencer of the forecast in the second half, which is, on October 23, we're expecting approval in macular edema following BRVO if everything goes well with regulatory authorities.

And the BRVO market is three times the size of the CRVO market.

So, there is some upside there, as well.

Right.

Of course, I would emphasize, Geoff, that this is a global launch and marketplace.

So, you might see growth here and more growth overseas and then you'll see something more growth here and less growth -- we just -- we think that the overall product is growing very nicely.

Bayer is doing a spectacular job, as you can tell from their numbers.

So, we think of this as a pretty big, important global franchise.

Mike, you want to wrap it up?

Great.

Thank you, everybody, for participating.

Thank you, operator, for helping us with this call.

We'll be in our office if you need anything.

Please don't hesitate to reach out either via email or by phone.

Thanks.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program and you may all disconnect.

Have a nice day, everyone.