雷傑納榮製藥 (REGN) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Regeneron Pharmaceuticals second-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded.

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

Sir, you may begin.

Thank you, Operator.

Good morning, and welcome to Regeneron Pharmaceuticals second-quarter 2014 conference call.

An archive of this webcast will be available on our website under events and presentation 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; who is traveling outside the US and is dialing into the call, Bob Terifay, Senior Vice President Commercial; and Bob Landry, Chief Financial Officer.

After our prepared remarks, we will open the call for Q&A.

I would also like to remind you that remarks made on this call 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.

For a more complete description of these and other material risks can be found in Regeneron's filing with the United States Securities 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 June 30, 2014, which was filed with the SEC this morning.

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 these measures to GAAP are available in our financial results press release which can be accessed on a 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, Doctor Len Schleifer.

Thanks, Michael, and a very good morning to everyone.

This has been a very exciting couple of weeks for Regeneron.

First, this morning, we reported strong sales and earnings driven by the global performance of EYLEA, also known as aflibercept injection.

Last week, we announced the US approval of EYLEA in a third indication, diabetic macular edema, and approval of it came three weeks ahead of the expected PDUFA date.

We also reported positive data from nine Phase 3 studies from the ODYSSEY program of alirocumab, our LDL cholesterol-lowering antibody, and we announced the purchase of a priority review voucher, which Regeneron and Sanofi intend to use to obtain priority review for our alirocumab BLA, which is expected to be submitted by year-end.

In addition, our pipeline has made steady progress this quarter highlighted by the publication in the New England Journal of Medicine of dupilumab data in atopic dermatitis and presentation of sarilumab Phase 3 data at the annual meeting of the European League against rheumatism, also known as EULAR, in Paris.

Turning to our earnings.

We delivered strong revenues and earnings per share in the second quarter.

EYLEA US net sales in the second quarter were $415 million, and US sales saw minimal impact of inventory changes.

To be clear, the inventory changes referred to in our earnings release were for the second quarter of 2013 and not for the second quarter of 2014.

We included the reminder of about the modest draw-down in the second quarter of 2013 to help better understand the growth of our underlying demand.

We had also heard some concern by investors that the release of Medicare billing information had resulted in a shift away from the branded anti-VEGF therapies toward compounded bevacizuimab.

This is not a trend that we saw during the quarter.

Outside the US, EYLEA sales continued their strong growth with sales of $247 million compared with $102 million in the second quarter of 2013.

The robust sales of EYLEA globally drove our bottom-line performance with non-GAAP net income of $289 million and diluted non-GAAP earnings per share of $2.47.

Bob Landry will discuss our financial performance in more detail later on this call.

In the US, the approval of EYLEA in the DME indication was granted ahead of the FDA's target action date.

This is particularly gratifying when you remember that we were able to submit the BLA for EYLEA in DME based on one-year data approximately a full-year ahead of initial expectations.

We expect the DME approval to help accelerate growth of EYLEA in the second half of the year, and you will hear more about DME US launch in our commercialization efforts from Bob Terifay.

We also look forward to a potential approval for EYLEA in a fourth indication in the US later this year in macular edema following branch retinal vein occlusion, or BRVO.

For the full-year, we are reaffirming our previously provided full-year US EYLEA net sales guidance of $1.7 billion to $1.8 billion.

Turning to our research and development activities, we are very pleased with the recent advances in our late-stage pipeline, and you will hear George address our pipeline progress in greater detail.

This includes the recently reported positive top line Phase 3 data from nine trials from the ODYSSEY program for alirocumab.

These data, along with the previously reported positive data from ODYSSEY Mono will form the basis of our regulatory submissions in the US and EU which we expect to submit by the end of the year.

You will hear more about the specifics from George, but I did want to highlight that with our purchase of a priority review voucher, we expect alirocumab to be reviewed under a priority review designation in the United States, which has the potential to shorten the regulatory review time by four months.

Sarilumab, our IL-6 receptor antibody in Phase 3 for the treatment of rheumatoid arthritis continues to advance.

And in June of this year, we presented details from the positive Phase 3 MOBILITY trial at the annual EULAR meeting.

We also reported positive Phase 2B data in atopic dermatitis for dupilumab, our antibody that blocks IL-4 and IL-13 signaling, along with the concurrent publication of earlier stage data in the New England Journal of Medicine.

We are pleased by this publication since it is not common for such early stage data to be published in the New England Journal of Medicine.

These data along with the previously reported positive Phase 2 data in asthma further underscore the potential for dupilumab in multiple indications.

We are poised to begin a Phase 3 trial in the atopic dermatitis indication and have completed enrollment in both the Phase 2B trial in asthma and a Phase 2A trial in nasal polyposis.

In total, we have a broad pipeline of 14 antibodies in clinical development, 6 of which are partnered with Sanofi.

Before I turn the call over to George, I'd like to make a note of an important milestone in Regeneron's history that occurred last quarter.

After 25 years as CEO of Regeneron, I've had to learn a new term that showed up on our balance sheet for the very first time, retained earnings.

Bob Landry was kind enough to explain this new term to me, and I think it's worth reflecting on how challenging this business can be, given that it took us over 25 years to finally get to this point of positive retained earnings, which as I understand it, represents Regeneron earning more money than it has lost on a cumulative basis.

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

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

George?

Thank you, Len.

A very good morning to everyone who has joined us today.

The second quarter and the third quarter so far have been very exciting and data-rich periods for us.

Let me begin with EYLEA.

As Len mentioned, the recent FDA approval for EYLEA in a third indication, DME, in the United States came three weeks ahead of the FDA's target action date.

I'd like to acknowledge the patients and clinicians who are participating in these studies and our team's efforts.

I would also like to thank the FDA for working closely with us in their typical, science-driven way to bring this important medicine to patients as quickly as possible.

Outside the United States, our partner, Bayer HealthCare, has received a positive opinion from the European committee for medicinal products for human use, or CHMP, for the DME indication and anticipates a final decision by the European commission in the near future.

We anticipate an additional label expansion later this year in macular edema following branch retinal vein occlusion, or BRVO.

We have been granted an FDA action date of October 23.

Bayer HealthCare has also made a European regulatory submission for EYLEA in this indication.

We recently also reported positive two-year data for EYLEA from the Vivid trial in DME.

These data were similar to the Vista two-year data previously reported.

We look forward to presenting these data at an upcoming medical conference.

Turning to sarilumab, our Il-6 receptor antibody which is in Phase 3 for rheumatoid arthritis, which we recently presented details from at the Phase 3 MOBILITY trial at EULAR.

These data have been received very positively.

We currently have several Phase 3 studies underway and look forward to reporting data from these studies in 2015.

Let me now turn to one of the most exciting late-stage molecules in our pipeline, alirocumab.

Last week, we reported positive top line data from nine Phase 3 ODYSSEY studies, all of which met the primary efficacy endpoint of a greater percent reduction in LDL cholesterol at 24 weeks from baseline, compared to either placebo or active comparators.

Importantly, several of the studies used an up-titration approach where patients started on the lower 75-milligram dose and were only up-titrated to the higher 150-milligram dose if they did not achieve protocol-specified LDL cholesterol targets.

The majority of the patients were able to achieve their treatment goals while remaining on the lower 75-milligram dose administrated every other week.

This dosing approach was designed so that physicians and patients would have the flexibility to tailor therapy to suit the individual needs of the patient.

Included in the recent readouts were data from the ODYSSEY long-term trial, which evaluated both the safety and efficacy of alirocumab compared to placebo in each case, in combination with statins and other lipid-lowering therapies.

In a pre-specified interim safety analysis that occurred when approximately 25% of patients had reached 18 months of treatment, and all patients and completed 1 year of treatment, there was a lower rate of adjudicated major cardiovascular events in the alirocumab group compared to the placebo group.

In this analysis, cardiovascular events were defined as cardiac death, myocardial infarction, stroke, and unstable angina requiring hospitalization.

While these post-hoc data are encouraging, one should not yet draw any conclusions, which can best be made from the results of the prospective, ongoing 18,000-patient ODYSSEY outcomes trial.

The outcomes trial will use the same definition of cardiovascular events as its primary endpoints to prospectively assess the potential of alirocumab on top of statins and other lipid-lowering therapies to demonstrate cardiovascular benefit compared to statins and other lipid-lowering therapies alone.

In the ODYSSEY Phase 3 trials, the most common adverse events were nasopharyngitis and upper respiratory tract infection which were generally balanced between treatment groups.

Injection site reactions are more frequent in the alirocumab group compared to placebo.

Serious adverse events and deaths were generally balanced between treatment groups as were other key adverse events including musculoskeletal, neurocognitive, and liver-related events.

We and Sanofi are working rapidly towards regulatory submissions both in the US and globally by year-end.

We will be presenting data from some of the ODYSSEY studies at the upcoming European Society of Cardiology meeting in Barcelona and expect to present additional data at other upcoming medical conferences.

Dupilumab, our antibody that blocks both IL-4 and IL-13 signaling has continued to make progress.

In July, we reported positive results from a Phase 2B study of dupilumab in moderate to severe atopic dermatitis.

In this study, all five doses that were studied showed a statistically significant, dose-dependent improvement in the mean percent change in the eczema area severity Index, or EASI score, from baseline to week 16, which was the primary endpoint of the study.

The improvements in the EASI score ranged from a high of 74% for patients in the highest dose group who received 300 milligrams weekly to a low of 45% in patients who received the lowest dose of 100 milligrams monthly, compared to 18% for patients in the placebo group with a p-value of less than 0.0001 for all doses.

In addition to the primary endpoint, key secondary endpoints were also approved with dupilumab.

12% to 33% of dupilumab-treated patients achieved clearing or near-clearing of skin lesions as measured by an investigator's global assessment, or IGA score, of zero or one compared to 2% with placebo.

Based on these data, we will move forward into Phase 3 studies in the second half of the year.

In addition to the Phase 2B results, data from four earlier stage, placebo-controlled studies were published in the New England Journal of Medicine.

This is the second potential indication for dupilumab for which data have been published in the New England Journal of Medicine.

As reminder, Phase 2A data in asthma were published last year.

This further underscores the level of interest from the medical community in dupilumab.

Our Phase 2B study of dupilumab in asthma is fully enrolled, and we expect data from this trial in early 2015 and data from the nasal polyposis trial, which is also fully enrolled, to be available later this year.

While there have been a lot of positive developments in our late-stage development pipeline, I would like to take a few moments to address some of the exciting developments in our earlier stage pipeline.

The Regeneron Genetics Center is fully operational, and we have made additional key hires and entered into additional collaborations with academic institutions.

Our earlier stage antibody program is advancing, and we remain on track for additional INDs this year.

This includes our intravitreal interpose N2 antibody and EYLEA combination drug candidate in ophthalmology.

We are planning our first entries into the immuno-oncology arena, where we expect our CD20-CD3 bi-specific antibody to enter the clinic by the end of this year, and we expect to file an IND for our PD-1 antibody later this year.

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

Thank you, George.

Good morning, everyone.

It's a very exciting time to be responsible for commercialization at Regeneron.

I'd like to begin my discussion today with EYLEA, or intravitreal aflibercept injections.

Second-quarter US EYLEA net sales to distributors were $415 million, which represents a 26% increase over second-quarter 2013.

Sequential quarterly growth in physician sales was 7%.

The growth so far this year has come primarily from growth in the wet AMD market due to an aging US population.

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

Based on this survey, it appears that there has not been a major shift in market shares between FDA-approved anti-VEGF therapies and off-label compounded bevacizumab.

FDA-approved therapies still represent approximately half the total anti-VEGF market in this indication.

As you know, last week, we received FDA approval for EYLEA in a third important new indication, diabetic macular edema, which is the leading cause of blindness among working-aged adults in the United States.

EYLEA is the first and only anti-VEGF agent approved for DME with a dosing interval of greater than every four weeks.

According to the US prescribing information, EYLEA can be dosed every eight weeks following five initial monthly doses.

The Phase 3 studies for EYLEA in DME were the only registration studies that compared an anti-VEGF agent to prospective macular laser photocoagulation therapy, dosed at baseline and then as needed thereafter.

In addition, EYLEA is the only FDA-approved agent approved for DME that has the same, single-strength dose per injection as approved for wet AMD.

Physicians offices, therefore, only have to stock one dosage form, EYLEA 2 milligrams, without concern over inventory management of multiple dosage strengths and the risk of mis-billing payers for the wrong dose.

Moreover, in terms of mean game invest corrected visual acuity at 52 weeks, EYLEA is the only anti-VEGF agent that has demonstrated similar efficacy in DME patients naive to anti-VEGF therapy and those treated with an anti-VEGF inhibitor, or anti-VEGF therapy prior which is reported in our US prescribing information.

We've already launched EYLEA in DME.

Our sales force is already calling on the physicians treating DME who are largely the same physicians who treat wet AMD.

This provides us with great operating leverage within the EYLEA franchise.

DME has the potential to be a large market opportunity.

It is estimated that 600,000 patients are diagnosed with centrally-involved diabetic macular edema in the United States, a similar number to those diagnosed with wet AMD.

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

We expect near-term EYLEA growth in DME to come from patients who are not adequately responding to their current anti-VEGF therapy and patients new to anti-VEGF therapy presenting to a retinal specialist.

Longer term, the market opportunity for EYLEA in DME is to grow the anti-VEGF market by first educating physicians and patients about the need for early screening and diagnosis of DME through regular dilated eye exams.

And secondly, ensuring that diagnosed patients are referred to retinal specialists early, instead of cycling through laser or steroid therapy at the general ophthalmology office.

Later this year, we hope to receive FDA approval of EYLEA for the treatment of macular edema following branch retinal vein occlusion, or BRVO, which should further contribute to our longer term sales potential.

With this fourth potential indication, EYLEA would be available for patients with all types of retinal vein occlusions.

In the United States, there are approximately 36,000 patients treated each year with a VEGA inhibitor for macular edema following central retinal vein occlusion.

The number of patients with macular edema following BRVO is roughly three times the number of patients with macular edema following CRVO.

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

Second-quarter 2014 ex-US EYLEA sales were $247 million.

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

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 then pricing approval in individual countries.

Outside of the United States, EYLEA is approved in 71 countries for the wet AMD indication and 58 countries in the macular edema following CRVO indication.

EYLEA has been filed in Europe and Japan for the treatment of diabetic macular edema.

If approved, Bayer plans to launch EYLEA for DME later this year.

Bayer has also filed regulatory applications for EYLEA for the treatment of macular edema following BRVO in Europe, after the treatment of choroidal neovascularization secondary to pathologic myopia in Japan.

Turning now to the other exciting news over the last week.

We, and our partner, Sanofi, are very encouraged about the potential for alirocumab, our investigational PCSK9 antibody that is being evaluated for lowering low-density lipoprotein cholesterol.

It's estimated that there are over 60 million patients in the United States and the five major Western European countries who are not at their target LDL-C levels despite their current standard of care therapies.

These numbers split out fairly evenly across the regions.

About 35 million of these patients are considered at high risk of a cardiovascular event, and approximately 22 million are considered at very high risk.

Our market research indicates that the profile of alirocumab, if approved, would be appealing to healthcare professionals.

Specifically, alirocumab has been studied in two convenient, 1-milliliter dosage strengths, a 150-milligram dose and a 75-milligram dose.

In our Phase 3 program, reported to date, the majority of patients have started on a 75-milligram dose, achieved their LDL-C targets without having to up-titrate to the 150-milligram dose.

A goal of our Phase 3 development program is to provide patients and physicians with dosing flexibility to tailor therapy to suit the needs of individual patients.

We're rapidly preparing for upcoming regulatory filings and the potential regulatory approvals of alirocumab.

Market development activities are underway with a significant presence planned at the European Society of Cardiology meeting in August and the American Heart Association meeting in November.

As you can imagine, preparing for a significant launch such as what we and Sanofi expect for alirocumab, requires planning and commercial investment.

With the potential launch anticipated in the second half of 2015, that investment is already underway and will continue to accelerate in the upcoming months.

As part of the agreement with Sanofi, we currently share these pre-commercialization expenses with Sanofi, approximately 50-50 on a realtime basis.

Bob Landry will provide more detail on the financial impact.

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

Thanks, Bob, and good morning to everyone who has joined us today.

Regeneron realized strong financial results in the second quarter.

In the second quarter, we earned $2.47 per diluted share from non-GAAP net income of $289 million, which represents a 43% and 46% increase, respectively, versus the three months ended June 30, 2013.

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

In the second quarter of 2014, our GAAP to non-GAAP reconciliation also included an additional expense of $10.8 million, related to our loss on extinguishment of debt in relation to the conversion of a portion of our convertible notes.

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

Total revenues in the second quarter of 2014 were $666 million, representing a 45% increase compared to total revenues in the second quarter of 2013.

Net product sales were $418 million in the second quarter of 2014, compared to $334 million in the second quarter of 2013.

EYLEA net product sales in the United States were $415 million in the second quarter of 2014 compared to $330 million in the second quarter of 2013, an increase of 26%.

Second-quarter 2013 US EYLEA net sales were impacted by a modest decrease in distributor inventory.

Excluding these changes in inventory, underlying demand for EYLEA in the second quarter of 2014 in the United States increased by approximately 22% year over year.

US EYLEA net sales distributor inventory levels at the end of the second quarter of 2014 were consistent with first quarter 2014 levels and remain within the normalized one-week to two-week range.

As mentioned 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.

As a reminder, we expect an acceleration in growth of US EYLEA sales in the second half due to the recent approval of EYLEA in the DME indication and our anticipated approval later this year in the macular edema following BRVO indication.

Ex-US EYLEA sales were $247 million in the second-quarter 2014 as compared to $102 million in the second quarter of 2013.

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

Please keep in mind that Bayer HealthCare's reported ex-US EYLEA sales are not exactly the same as the ex-US numbers that we report.

This is because for Japan, Bayer reports their sales to their distributor, Santen, while we report Santen's in-market sales.

We recognized $67 million as our share of the net profits from ex-US EYLEA sales in the second quarter of 2014 after repayment of $15 million in development expenses to Bayer HealthCare.

Bayer HealthCare collaboration revenue for the second quarter was $97 million.

This included one $15 million sales milestone that we earned upon aggregate ex-US net sales of EYLEA exceeding $700 million over a 12-month period.

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

Global ZALTRAP, our ziv-aflibercept injection for intravenous infusion net sales, as recorded by Sanofi, were $21 million in the second quarter of 2014.

We recognized approximately $1 million as our share of the losses related to ZALTRAP in the second quarter.

Total Sanofi collaboration revenue was $143 million for the second 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 $139 million in the second quarter of 2014, our share of losses in connection with ZALTRAP, and amortization of upfront and other payments received from Sanofi.

In addition, in the second quarter of 2014, we began formally sharing pre-launch commercialization expenses related to alirocumab in accordance with our antibody collaboration agreement.

Let me say a few words on how we will record the pre-launch commercialization expenses, as this is a new component within our Sanofi collaboration revenue line item.

The pre-launch commercialization expenses that Regeneron incurs will be primarily recorded within our SG&A line.

The Sanofi collaboration revenue line will include reimbursement from Sanofi of approximately 50% of our pre-launch commercialization expenses.

In addition, we will also record, as contra revenue within Sanofi collaboration revenue, our reimbursement to Sanofi for approximately 50% of the pre-launch commercialization expenses that Sanofi incurs.

In the second quarter of 2014, since Sanofi spent more than we did on pre-launch commercialization expenses, there was a net balance payable to Sanofi which appears as contra revenue of $4.3 million in table 4 of our earnings release.

As we approach the launch of alirocumab and other antibodies that are part of our collaboration with Sanofi, we expect this expense, contra revenue, to increase.

Obviously, once the antibodies are launched and become profitable, we expect this component to become positive revenue as it will reflect our share of the antibody commercial profits.

Turning to expenses.

Non-GAAP R&D expenses were $251 million in the second quarter of 2014.

Our unreimbursed R&D expense, which is calculated as the total GAAP R&D expense minus R&D reimbursements we receive from our collaborators and R&D non-cash, share-based compensation expense was $109 million in the second quarter of 2014.

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

As referenced earlier on this call, last week, a Regeneron subsidiary purchased a priority review voucher from a subsidiary of BioMarin Pharmaceutical Inc.

Sanofi and Regeneron will equally share the cost of $67.5 million.

Regeneron will record half of the cost as an unreimbursed R&D charge in the third quarter of 2014.

Primarily as a result of this transaction, we are increasing our unreimbursed non-GAAP R&D guidance to $470 million to $510 million from the previous guidance of $425 million to $475 million.

Non-GAAP SG&A expenses for the second quarter were $76 million.

As we mentioned during our first-quarter earnings call, we expect non-GAAP SG&A expenses to be higher in the second half of 2014 as we begin to incur greater pre-launch expenses, primarily for alirocumab, into a lesser extent sarilumab.

However, at the same time that we begin to ramp up pre-commercial expenses on our Phase 3 pipeline, I do want to reinforce the favorable expense leverage we will begin to achieve for EYLEA as sales grow in the DME indication.

The retinal specialists who treat DME are mostly the same as those treating wet AMD and CRVO and are already being called on by our specialty sales force.

Therefore, we don't anticipate a significant increase in commercial expenses related to EYLEA, even following the approval in additional indications.

Thus, we anticipate a higher rate of profitability on these incremental DME sales.

For the full-year, we expect non-GAAP SG&A expenses of between $310 million and $350 million, which is lower than our previous guidance of $330 million to $380 million.

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

Non-GAAP cost of goods sold was $29 million in the second quarter.

Included in this line item are royalty expenses in connection with our agreement with Genentech, related to US EYLEA sales, which we are obligated to pay until May, 2016.

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

With regard to taxes.

Due to the amounts of the Company's net operating loss and tax credit carryforwards available for tax purposes, the Company does not currently pay significant cash income taxes.

In the second quarter of 2014, our GAAP effective tax rate was approximately 54% as compared to 41% for the second quarter of 2013.

The tax rate for the second quarter of 2014 was negatively impacted from losses being incurred in foreign jurisdictions with rates lower than the US Federal statutory rate and the expiration at the end of 2013 of the Federal tax credit for increased research activities.

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

We ended the second quarter with a strong cash position of $1.4 billion in cash and marketable securities.

This increased cash balance reflects strong operational cash generation realized during the six months ended June 30, of $381 million versus $214 million for the same period last year.

Our operational cash flow was offset by financial transactions related to the conversion of $61 million principal amount of our convertible notes.

Total cash payments related to these financial transactions were $204 million.

These transactions are further explained in footnote 9 in our second-quarter 2014 10-Q which was filed earlier this morning.

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

Thanks, everyone.

We are pleased by the progress that we have made in the first half of the year and are focused on delivering on our goals for the remainder of the year and beyond.

We look forward to the ongoing launch of EYLEA in the DME indication.

On the regulatory front, we will be working diligently toward submitting regulatory applications for alirocumab by the end of the year, both in the US and in Europe, in collaboration with Sanofi.

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 for our Q&A.

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

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

Thank you.

Operator, if you could please now give instructions and open the call for questions

(Operator Instructions)

Terence Flynn, Goldman Sachs.

Congrats on the progress.

Was just wondering -- -- I now know you are not giving specific guidance for 2015 at this point.

If we look at your unreimbursed R&D expense this year, and we net out the half of the priority review voucher expense, is that the run rate to think about going forward?

Or, should we expect a step-down in expense given you've completed most of the PCSK9 Phase 3 trials?

Thanks.

Thanks for the call.

No.

Our unreimbursed R&D, if you do the math, it's going to basically be higher in the second half of 2014 than it is in 2013 even if you back out the voucher.

We do expect that to continue, as you've heard from George and Len with regards to numerous programs that we have that remain partnered and unpartnered, and certainly the unpartnered piece is what is going to hit the unreimbursed R&D in addition to everything else we have going on.

So, I do envision our unreimbursed R&D to be higher in 2015 that it would be in 2014 less the voucher.

Okay.

Thank you.

Robyn Karnauskas, Deutsche Bank.

The DME market, you talked about early growth coming from switching.

I was just wondering how many people do you think are really failing therapy?

That hasn't been a lot of indigenous use.

How does it differ from AMD where you probably had a lot more people who are failing therapy?

And, how do you think about the dynamic of the launch versus AMD?

Robin, the thing we know about DME from the clinical programs, for both EYLEA, as well as our competitors, is that if you look at the OCT measures, which are the measures of whether the retina is completely dry or not.

DME is a much more VEGF-mediated disease with a lot more retinal wetness.

So, if physicians are using OCT to guide their treatment, which they often do, we anticipate that there will be a large number of potential switch candidates.

I'm not going to quantify the specifics of that.

I still think the major opportunity is the longer-term opportunity in DME, which is to expand the market.

There are still a number of patients who are still being treated with laser, as well as steroids, which both have their own drawbacks.

So, our real focus is to try to get patients treated early, treated when they are anti-VEGF treatment naive.

Obviously, we will be glad to get the switches, but our opportunity is really to get the new patients and get them early.

Okay.

Next question.

Yaron Werber, Citi.

What can you tell about the [SFLT1] therapy for AMD?

And, how sustainable are the protein levels from the gene expression?

Thank you.

That doesn't exactly sound like Yaron, but the answer to the question is that we really don't have any comments about that program.

You really should be talking to Avalanche directly, as they are managing and running it and have all the data.

What are the timelines for the EYLEA PDGF Phase i/ii data?

We haven't really commented more on that.

Obviously, those trials are ongoing.

Okay.

Thank you so much.

Next question.

Jason Kantor, Credit Suisse.

This is Jeremiah filling in for Jason.

In regards to the outcome study for alirocumab, how much different is the patient population than what you've enrolled for the long-term study?

Also, is there any predetermined, [internal growth] of the outcome study?

We're not going to get -- it's a very competitive area -- so we don't want to get into too many of the details of our program in this setting.

That's better left for scientific meetings.

Although we can say that, obviously, the people in our study are at high risk, and they will have been treated with a statin.

An ongoing treatment with a statin.

Next question.

Adnan Butt, RBC Capital Markets.

It's Adnan.

I put my associate on to get two questions.

Here's my question.

For the PCSK9 products, what's the feasibility of showing differentiation among the different anti-PCSK9 (inaudible) development?

Is that possible on either dosing, administration, label, etcetera?

If you can't answer that, then my question is on certainty of filing for -- using the voucher.

Thanks.

I didn't get the second question.

What was the second question?

If you can't answer the first one, what's the precedence for using the voucher strategy to get a priority review?

What the certainty around that?

Let me briefly just say, on the first one, I think that from a basic biochemical point of view, the antibodies that most people are developing are subtly different.

But, not major differences.

Many of the differences and differentiations, I think, will come from the program design, the label, et cetera, et cetera.

We think we conducted a pretty robust program.

We had long treatment study, which looked at safety and efficacy over a long period of time in a well-controlled manner, which is where some of the cardiovascular retrospective analysis came from.

So, I think we'll have to see.

In terms of there is a precedent, for the priority review voucher being used, and it was a slightly different voucher.

This was a tropical disease one, I believe.

Novartis used it in one of their programs.

I think a major comment should be made just about the differentiation in that our program is unique in terms of having the two dosage forms.

Maybe Bob Terifay wants to comment more on that.

I agree with Len and George.

I think that this comes down to how you develop your drug.

Obviously, our studies -- many of our studies are still underway.

But, when we designed our program, we specifically focused on tailoring therapy to the individual needs of patients.

Different patients have different baseline LDLc levels, dependent upon what they are on as background therapy.

So, we designed the program to really allow the therapy to be tailored to the patients.

I just want to add that the way these antibodies -- there are a lot of different antibodies out there and they bind PCSK9 in different ways, in different sites, in different molecular attach points, et cetera, et cetera.

Some of the nuances there are not immediately obvious.

But, there are significant differences between the antibodies and how they bind, et cetera.

Next question.

Matt Roden, UBS.

It's on alirocumab.

If I may, I'll break it up into a clinical component and a commercial component.

The clinical side -- you mentioned the caveats of the cardiovascular event finding.

We appreciate this is a post-hoc analysis, but what do think is reasonable to conclude from that data point?

And, would you expect those data to be reflected in the label?

Then, on the operational planning side, you cite the 35 million patients at high risk for cardiovascular events, 22 million very high risk.

It sounds like your commercial operations will position this as explicitly a primary care product.

Is that correct?

This is an area where we've kind of struggled to model to what extent this is going to be a specialty product versus a primary care market, and it has a lot of implications on pricing strategy, expenses, margins, top line opportunity.

I know you can't give guidance on all this stuff.

It would be helpful if you could maybe touch on some of those items.

Thanks very much.

A brief comment on the label.

It's just too early to talk about the label.

You can be sure we'll be submitting all the data that we have.

In terms of what conclusions you can draw, I think both George and I have said that you can't draw any firm conclusions from a post-hoc analysis.

We will be testing this analysis in a prospective way in the outcome study when we actually look for outcomes.

But, of course, we will submit all the data that we have and what's in the label we will discuss once we get the label from the FDA.

In terms of how we are going to commercialize this, what our strategy is.

I doubt whether we -- those are all great questions.

It was as though you were sitting in some of our meetings over the last year or so.

We are trying to address them all.

But, this wouldn't be the right place to address them.

Okay.

Is there -- maybe it's just too early to comment about pricing, of course.

If you think about the doc feedback we've gotten, we've heard some folks talk about this being a CCU product, and others talking about a major secondary prevention drug.

Is there a way to marry those two opportunities?

Once again, good questions.

But, just too early for us to talk about our commercialization strategy at this point.

Thank you very much.

Thanks for the thoughts though.

Next question.

Joseph Schwartz, Leerink Partners.

I was wondering, what are we going to be able to learn about your EYLEA PDGF combo product at the next data point whenever that is?

Will there be any de-risking data beyond safety and tolerability to see how efficacy could stack up relative to other anti-PDGF combinations?

Maybe George wants to add to this.

The only thing I would say, from these early studies, you would expect to find primarily safety and tolerability results.

George?

We think that the field is still quite open.

It has not really been established what the PDGF pathway can provide, and we hope that, ultimately, our program will be able to definitively answer that question.

Also, obviously, potential advantages of our program is that we will be providing, potentially, the combination opportunity in the same injection.

Which obviously would have, I think, great advantages to the patients and to the physicians.

But, we don't think, certainly, the standard hasn't been set or even defined.

It's not clear exactly what the PDGF advantage can be, and we hope that our program might be the first to definitively define what the benefit could be.

Okay.

Next question.

John Newman, Canaccord.

The question is on alirocumab.

Can you give us a sense -- any kind of information, or direction you can give us, in terms of the magnitude of difference you saw in the post-hoc CV analysis?

Also, given that your product will be supplied to the market at two dose strengths, do think that might result in fewer injection site reactions in the real world since the smaller dose level would be less viscous?

Thanks.

This is not the forum to get into the details of our data.

Obviously, or we would've put it out in the press release if we intended to do that.

You'll find the details will get presented at the appropriate scientific conference.

In terms of the 75-milligram and the 150 milligrams, I don't think the goal there was to talk about injection site reactions.

That's not why we mainly developed a different dosage form.

The injection site reactions have not been a significant problem, overall, for the program at either dose.

George, maybe you might want to reiterate a little about the 75 and 150 strategy?

We think, obviously, physicians and patients often have different needs and desires in terms of what they want to do.

We believe the 150 dosage form will allow for those patients and the physicians who feel their patients need to have their cholesterol robustly lowered and rapidly.

We have that dosage for them.

For those who want a more flexible approach and try a lower dose first and see if they can get to goal with a lower dosage first, and then only up-titrate if need be, we have that, as well.

I think that a lot of physicians feel that that flexibility, regardless of the drug, or the indication, often has certain advantages, so we are offering that flexibility to the physicians and their patients.

Right.

They will both be in a one cc dosage form.

Next question.

Phil Nadeau of Cowen & Co.

Let me add my congratulations on your progress.

Just one question on EYLEA in DME.

That's on the reimbursement environment.

Could you give us some details about the proportion of patients that are Medicare versus Medicaid versus private pay?

Then, within Medicare, could you remind us how that works in DME?

We you need to get a new code?

Or, can you use the AMD code to get reimbursed immediately?

Phil, thanks for the question.

We appreciate your following us so persistently for such a long time.

We will let Bob answer your specific questions.

As you surmise, DME is a little bit different than AMD.

AMD is a patient population that is generally elderly, and we have a lot of Medicare patients.

DME splits out roughly 50-50 with regards to Medicare and non-medicare or commercial pay.

With regards to the Medicare segment, there is -- it splits out about 35% is roughly traditional Medicare and the rest of it is Medicare advantage.

In terms of reimbursement, I don't want to get into too many specifics.

What I can tell you, we do not need a new J-code.

Medicare does have a law that they have to cover new therapies that are available for patients.

Right now, we're just waiting for people to load the code into -- load the price and the information into their systems.

But, they will have to reimburse retrospectively, for the indication.

So, most of our focus, right now, is on the Medicare patient population.

Just to be clear on that Medicare, that's -- about 40% is Medicare.

Of that, the majority of that is traditional Medicare, so it's 30% of the overall population, not 30% of the Medicare.

That's right, sorry.

Okay.

Next question.

Chris Raymond, Robert W. Baird.

This is Laura Chico in for Chris Raymond.

I guess I was a little surprised to hear you say that there's been really no change in terms of the Avastin share?

Or rather, there might have been some stabilization there in the AMD market.

Just wondering, how do you think the landscape might evolve over the next 12 months?

Do you expect that to continue?

Or, just be interested in your comments there.

Barring any structural change, we would imagine things would continue basically splitting out the way they are.

Although we do know that the FDA is still reviewing the whole compounding enforcement strategy, and they have not come out with a definitive statement, yet, on how they're going to handle biologics.

So, we are still waiting to see how that turns out.

Although, we know that they have stepped up some of their enforcement activity in this area for sure.

Next question.

Biren Amin, Jefferies.

Would you expect that there is a significant pool of treatment experience, DME patients that are available to switch to EYLEA and similar in size to what you experienced in wet AMD two years ago?

It's difficult to quantify that.

Surely, there are some patients who are not satisfied with their results and that would be candidates for switching, and we have already heard that from doctors that they've got patients who they plan to switch or actually some who have already tried and we have seen a few tweets about that out there in the retinal community.

In terms of quantifying that, I think we will just have to wait for this quarter to play out so we can get a better idea.

Jim Birchenough, BMO Capital Markets.

Mike in for Jim.

He's on vacation.

I'd like to ask a question on the pipeline.

You have a number of product programs, primarily in Phase 1. I'm wondering if you can direct us towards programs that might be reading out with data that could be leading to large important trials next year.

In particular, the GDF8 program.

You have close to 400 patients going to be being recruited into trials that perhaps might read out later on in the second half of the year.

Thanks.

We haven't given too much guidance.

You've identified one that we have talked about, so we'll have to see those data when they do come out.

That's an interesting opportunity that a number of companies are looking at.

Of course, we are going to be looking forward to our CD20 bi-specific getting into clinic this year.

Our [NIPD1] one in the IND file before the end of the year.

Those will be some up-and-coming new programs, and obviously, we do have a tremendous amount with our Phase 2 programs in dupilumab, getting data from asthma and getting data from nasal polyposis and finishing up the sarilumab Phase 3 et cetera.

There is a lot going on.

We don't have any more to update you at this point other than what's in our filings to date.

We have time for one more question, Operator.

Geoff Meacham, JPMorgan.

This is Carter on for Geoff.

Congrats on the results and all the pipeline progress over the quarter.

For the pediatric priority review voucher, it's my understanding that you have to notify the agency at least 90 days in advance of filing.

Can you tell us if you've already notified the agency your intent to file with the voucher?

Thank you.

We are not going to get into those details at all.

The only thing we're going to tell you is that we have acquired the voucher, and Sanofi and Regeneron plan to use it to obtain priority review and we will follow all the rules and regs, et cetera, et cetera.

Okay.

Thank you very much everybody for joining us on this call.

As I mentioned earlier, myself and the team -- Manisha, et cetera -- will be available for follow-up questions.

If you need them, just email us, and we will schedule a time.

Operator, that concludes the call.

Thank you.

Ladies and gentlemen, this concludes today's call.

You may now disconnect.

Good day.