雷傑納榮製藥 (REGN) 2016 Q3 法說會逐字稿

Welcome to the Regeneron Pharmaceuticals Q3 2016 earnings conference call.

My name is Jason and I'll be your Operator.

(Operator Instructions)

Please note this conference is being recorded.

I will now turn the call over to Dr. Michael Aberman.

Dr. Aberman, you may begin.

Thank you very much and good morning, everyone.

Welcome to the Regeneron Pharmaceuticals third quarter 2016 conference call.

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

Joining me on the call today are Dr. Leonard Schleifer, Founder, President and Chief Executive Officer; George Yancopoulos, Founding Scientist, President of Regeneron Laboratories and Chief Scientific Officer; Bob Terifay, Executive Vice President Commercial; and Bob Landry, Chief Financial Officer.

After our prepared remarks, we will open the call for questions and answers.

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 product and businesses, sales and expense forecasts, financial forecasts, development programs, collaborations, finances, regulatory matters, coverage and reimbursement matters, intellectual property, litigation matters, and competition.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in such statements.

A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission, or SEC, including its form 10-Q for the quarter ended September 30, 2016 which was filed with the SEC this morning.

Regeneron does not undertake any obligation to update publicly any forward-looking statements, 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 our website at www.regeneron.com.

Once our call concludes Bob Landry and the rest of the IR team will be available to answer further questions.

With that, let me turn the call over to our President and Chief Executive Officer, Dr. Leonard Schleifer.

Thanks, Michael, and a very good morning to everyone who has joined us on the call and webcast today.

I'd like to begin by giving you a high level sense of our near-term and longer-term priorities at Regeneron.

EYLEA, our flagship anti-VEGF, continues to remain a key financial driver for Regeneron.

We are pleased with the continued growth of EYLEA and are committed to maintaining our leadership position in the branded anti-VEGF market by pursuing both additional indications for EYLEA, such as diabetic retinopathy, where we currently have a Phase III study ongoing, and we are also looking at ways in which we can improve upon the high efficacy bar set by EYLEA through combinations with an antibody to ANG-2 where we currently have two Phase II studies ongoing.

While EYLEA remains very important to our business, we are equally focused on the ongoing launch of PRALUENT, our PCSK9 antibody for lowering LDL cholesterol, as well as advancing our pipeline.

For PRALUENT, we believe that if outcomes data are positive, it will drive greater use of this class.

As mentioned in our press release, we expect the second interim analysis by the end of this month.

Moving on to sarilumab, our IL-6 receptor antibody for the treatment of rheumatoid arthritis, as you heard last week we received a complete response letter from the FDA.

This was due to certain manufacturing deficiencies, not specific to sarilumab, that were observed during a routine inspection of a Sanofi fill and finish plant in France.

Sanofi has provided comprehensive responses and is working closely with the FDA to address the deficiencies as expeditiously as possible.

It has only been a week since we received the complete response letter and we are preparing to engage in meaningful discussions with the FDA.

So, it is too early for us to comment on the expected timeline for potential sarilumab approval.

We do not expect these manufacturing deficiencies will impact sarilumab, or, as it is now known by its brand name, DUPIXENT, where our biological license application, or BLA, is currently under FDA priority review for the treatment of moderate to severe atopic dermatitis in adults.

The FDA action date for the BLA is at the end of March.

DUPIXENT is a very important pipeline product candidate for us and we believe that atopic dermatitis represents an area of high unmet need.

As a reminder, we received breakthrough designation this indication.

In addition to atopic dermatitis, we are also investigating DUPIXENT in other indications, including asthma, where we recently completed enrollment in our second pivotal study.

In the mid term, we are looking forward to important clinical progress from several of our Phase II and three programs, which span a variety of therapeutic areas such as allergic diseases, pain, viral diseases, ophthalmology, oncology, cardiometabolic disease, inflammatory and rare diseases.

These programs have the potential to drive the next wave of growth for Regeneron.

You will hear more about the key clinical developments from some of these programs from George.

At Regeneron we've always been committed to long-term science and innovation.

In fact, today's marketed products, as well as the 16 product candidates in clinical development, were all homegrown in our internal R&D engine.

We will continue to invest in science and technology that can provide sustainable innovation and growth well into the future.

This unique long-term focus on science is at the heart of why we have been able to attract top talent, which is key to our continuing success.

To that end, last week, we were thrilled to be named by Science Magazine as the number one company in the biotech or pharmaceutical industry to work for, a recognition we've received for four of the last six years.

We know that our industry has faced many important questions regarding pricing of drugs.

This is not the forum to discuss the complex issue of drug pricing but I think it is important to note that Regeneron is in a unique position.

As a company founded on science and committed to the research and development of important new products, we are well positioned to succeed even in a difficult and constrained pricing environment.

In fact, we have never raised prices on any of our drugs, choosing instead to grow through the optimization of currently marketed products by pursuing new indications, as well as the introduction of new medicines.

Our future potential growth will be driven by this strategy.

With that, let me turn the call over to George.

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

I'd like to begin with DUPIXENT, our IL-413 blocker, which we believe is one of the most exciting late-stage drug candidates in the industry.

We are investigating DUPIXENT in a wide variety of allergic diseases, the most advanced of which is uncontrolled moderate to severe atopic dermatitis.

Just last month, we had the opportunity to present detailed results from SOLO 1 and SOLO 2, which were two identical Phase III studies that investigated DUPIXENT in the monotherapy setting at the annual EADV conference.

These data were also concurrently published in the New England Journal of Medicine.

These were the first large pivotal studies where systemic investigational therapy demonstrated significant reduction in the signs and symptoms of atopic dermatitis, with an average reduction in skin scores of about 70%, accompanied by a marked reduction in the usually unrelenting itch associated with this disease, and almost 40% of these patients achieving clearing or near clearing of their skin lesions.

Unlike other immune-modulating therapy, there was no evidence of increasing immunosuppression.

And the most common adverse events in the two trials were injection site reactions and conjunctivitis.

We were encouraged by the excitement with which these data were received by the physician community, as well as by patients.

And we believe that this speaks to the current unmet need and frustration with currently available therapies for this severely debilitating disease.

As Len mentioned, our BLA for DUPIXENT for the treatment of adults with moderate to severe atopic dermatitis is currently under FDA review and has been given priority review status and an action date of March 29, 2017.

While the SOLO studies were in the monotherapy setting, we've also reported positive one-year top-line data from the CHRONOS Phase III study, which exploreD DUPIXENT in combination with topical corticosteroids.

The safety and efficacy findings from the long-term CHRONOS study were consistent with those observed in SOLO 1 and 2.

I'm also pleased to share that LIBERTY AD CAFE, a Phase III Study of DUPIXENT with common topical corticosteroids in adult patients with severe atopic dermatitis who are not adequately controlled with, or are intolerant to, or ineligible for, oral cyclosporin is now fully enrolled.

We, along with our collaborator, Sanofi, expect to complete the regulatory submission in Europe and Japan in the fourth quarter of 2016.

We also plan to initiate a Phase III study in the pediatric severe atopic dermatitis population in the first quarter of 2017 in patients between the ages of 12 and 17.

We are pleased that, similar to the adult indication, DUPIXENT has received breakthrough designation for the treatment of pediatric patients with moderate to severe atopic dermatitis.

While atopic dermatitis is the most advanced indication in development for DUPIXENT, we are making headway with our asthma program, as well.

We have previously announced positive results from our first pivotal study of uncontrolled persistent asthma, despite treatment with inhaled steroids and long-acting beta agonists.

As a reminder, these data demonstrated improvements in both lung function, as measured by FEV, and exacerbations in all patients regardless of baseline eosinophil status.

There was a 15% improvement above placebo in FEV1 and a 75% reduction in exacerbations in the overall population treated with the 300-milligram every two week dose.

The most common adverse event associated with treatment in this study was injection site reaction.

In September, we announced completion of enrollment in LIBERTY ASTHMA QUEST, which is our confirmatory Phase III pivotal study of DUPIXENT in this indication.

The primary end point of this study is at 52 weeks, and we, therefore, expect to make a regulatory submission in the US towards the end of 2017.

We also expect to initiate a Phase III study in pediatric asthma patients in early 2017.

We are also exploring the use of DUPIXENT in several other allergic indications, such as nasal polyps, where we expect to initiate a Phase III study early next year, and in eosinophil where we are currently in a Phase II.

Turning to fasinumab, our nerve growth factory antibody for pain, in October we provided an update on this program.

Following the observation of a case of rapidly progressing osteoarthritis in a patient receiving high dose fasinumab, who had a history of advanced osteoarthritis of the knee, the FDA placed our Phase II study in chronic lower back pain patients on clinical hold.

This event prompted an unplanned interim analysis study, which had already completed 70% of its targeted enrollment.

The unplanned analysis showed clear evidence of efficacy with improvement in pain scores in all fasinumab groups compared to placebo at the 8- and 12-week time points, with P-value of less than 0.01.

Preliminary safety results were also generally consistent with those observed previously with its class.

The FDA has since communicated that we can continue development of fasinumab in chronic lower back pain by excluding patients who have advanced osteoarthritis.

We're also continuing our pivotal program in osteoarthritis with final design elements still receiving regulatory feedback.

The fasinumab program will contain safety data from approximately 10,000 patients overall.

Moving to PRALUENT, the recent news on the discontinuation of development of bococizumab obviously has a major impact on the PCSK9 landscape.

This further underscores the very high bar in terms of safety and efficacy for this class.

This example also highlights to us the value of our fully human VelocImmune-based antibody technology.

In terms of our PRALUENT program, our 18,000 patient ODYSSEY outcome study remains ongoing.

We expect the second interim analysis for futility and overwhelming efficacy by the end of this month.

We and our collaborator, Sanofi, have also completed regulatory submissions for the once monthly dosing formulation of PRALUENT in the Europe and Japan territories, as well as in the United States, where we have been granted an FDA action date of January 24, 2017.

Our immuno-oncology program continues to advance and expand.

We believe that these are still early days in the area of immuno-oncology with the collective knowledge of this field evolving rapidly and the competitive landscape changing continuously.

Evidence of this includes the recent surprising failure of the market leading PD-1 antibody in first-line lung cancer.

Regarding our PD-1 program, our potentially pivotal study in cutaneous squamous cell carcinoma is ongoing and we plan to announce additional studies in the near future.

In addition, we are also studying PD-1 in combination with our bi-specific CD20 by CD3 molecule.

Later this year at the American Society of Hematology, or ASH, conference, we will be presenting monotherapy data from the CD20 by CD3 program.

Lastly, we plan to advance Regeneron 3767 an antibody to LAG3 into clinical development by the end of 2016.

In October, we announced top-line results from a Phase II combination study of EYLEA with rinucumab, our PDGF receptor antibody in wet age-related macular degeneration, or wet AMD, where the data demonstrated no improvement in best corrected visual acuity, or BCVA, the primary end point of the study versus EYLEA alone.

We think these study results demonstrate the high hurdle that has been set by the well-established efficacy and safety of EYLEA.

That said, we are looking for ways in which we can strengthen our EYLEA franchise.

To that end we are conducting a Phase II Study of EYLEA in a co-formulated combination with nesvacumab, our antibody to ANG-2 in AMD and DME.

The DME study is fully enrolled while the study in wet AMD continues to enroll patients.

We are also exploring longer acting approaches in this class.

And with that summary, let me turn the call over to Bob Terifay.

Thank you, George, and good morning, everyone.

Third-quarter US EYLEA, or aflibercept, net sales grew 16% year over year.

Net US EYLEA sales in the third quarter were $854 million and year-to-date sales were $2.5 billion.

Net ex-US EYLEA sales in the third quarter were $471 million, which represents 27% year-over-year growth, unadjusted for currency fluctuations.

Net ex-US year-to-date sales were $1.4 billion.

EYLEA is the market leading product among FDA approved anti-VEGF agents for all of its approved indications in the United States.

In the US, we are seeing increased competitor discounts and rebates.

We are carefully assessing these actions.

As I'm sure you are well aware, there's a pending proposal from the Centers for Medicare and Medicare Services regarding physician reimbursement for physician administered Medicare Part B, or buy-and-build drugs.

We've worked hard on the policy and legislative front on this issue and will be prepared to respond on the commercial front, as needed, to make sure that patients continue to have full and complete access to EYLEA.

Turning now to PRALUENT, or alirocumab, as reported by Sanofi, net sales in the third quarter were $38 million worldwide, with the US accounting for $32 million of the total.

Sales data and IMS total prescription data indicate that PRALUENT and evolocumab market share are roughly 50/50 in the United States.

As reported by IMS, US total prescriptions for PRALUENT increased sequentially 60% versus second quarter 2016.

The challenge for the PCSK9 inhibitor class continues to be the significant reimbursement hurdles for the physicians' offices and patients, resulting in a low volume of prescriptions being dispensed.

This has resulted in physicians' offices reserving their initial prescriptions to a limited pool of patients.

We continue to focus our efforts in improving access and improving the prescription process through the payers and the specialty pharmacies.

We are gradually seeing more payers loosen their utilization management criteria, including removing the requirement for prior ezetimibe therapy.

In addition, we are now seeing some patients shortening the number of months that a patient needs to be on a maximally tolerated statin therapy and eliminating a specialist-only prescribing or consultation requirement.

Others have streamlined the prior authorization process.

ODYSSEY outcomes status, if positive, are anticipated to be a key driver in shaping the future success of PRALUENT.

Outside of the United States, PRALUENT was approved in the EU in September of 2015 with the product now approved in 41 countries.

Reimbursement discussions are currently under way with several governments across Europe.

Positive reimbursement decisions have been issued in the UK, Spain, Norway, and the Netherlands.

It still remains a challenging reimbursement situation with some countries awaiting cardiovascular outcomes data.

We continue to plan for the potential launch of sarilumab in the United States.

As an example, we have a major presence at the upcoming American College of Rheumatology meeting this month in Washington D.C. We'll be presenting data from our MONARCH Study of sarilumab as monotherapy in patients who are DMARD responders, as well as subset analyses from our pivotal US registrational studies.

We'll have a display floor presence, highlighting the central role of IL-6 in rheumatoid arthritis.

The European marketing authorization application for sarilumab is currently under review by the European Medicines Agency, with a potential decision on the application expected in mid 2017.

Co-promotion decisions for Europe and other ex-US countries will be made over time.

We're currently preparing for DUPIXENT or dupilumab commercialization with an FDA PDUFA date of March 29, 2017.

We will be co-promoting DUPIXENT with Sanofi Genzyme in the United States.

Co-promotion decisions for other countries will be made at a later date.

We are aware that ICER, payers and pharmacy benefits managers are proactively evaluating the cost effectiveness of emerging therapies for atopic dermatitis in the United States.

We want to take a moment to discuss how we are thinking about the DUPIXENT commercial opportunity, which differs in many important respects from the situation we faced with PRALUENT.

DUPIXENT has already demonstrated efficacy on the most important outcomes -- consistent efficacy on rash severity, itching, and quality of life measures.

In the United States, there are 1.6 million patients with uncontrolled moderate to severe atopic dermatitis, the majority of which will not likely receive DUPIXENT therapy.

We estimate that approximately 300,000 of these patients have exhausted all approved therapies and have failed or are unable to tolerate unapproved use of immunosuppressant therapies.

Many of these advanced patients are suffering from a host of related issues, including sleep disturbances, anxiety, and depression.

These atopic dermatitis patients should not be denied therapy.

We hope payers and insurers will provide appropriate and timely access to DUPIXENT, should it be approved.

And that patients will not have to step through unapproved immunosuppressant therapy, many of which have black box warnings.

We plan to work closely with all stakeholders, including patients, physicians, and payers to achieve this goal.

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

Thanks, Bob, and good morning.

Regeneron posted strong financial results in the third quarter of 2016 as well as entered into two new exciting collaborations.

We are also lowering and tightening full-year 2016 guidance on non-GAAP unreimbursed R&D, non-GAAP SG&A, our effective tax rate and capital expenditures.

Let me start with our top-line third-quarter earnings.

In the third quarter of 2016, non-GAAP net income was $365 million and non-GAAP net income per diluted share was $3.13.

This represents an increase of 32% in both non-GAAP net income per diluted share as well as non-GAAP net income in the third-quarter 2016 compared to the third quarter of 2015.

Regeneron's third-quarter 2016 non-GAAP net income primarily excludes non-cash share-based compensation expense, and the $25 million up front payment made in connection with our third-quarter 2016 license and collaboration agreement with Adicet, and includes the income tax effect of these non-GAAP reconciling items.

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

Total revenues in the third quarter of 2016 were $1.2 billion, which represents year-over-year growth of 7% over the third quarter of 2015.

Net product sales were $857 million in the third quarter of 2016 compared to $738 million in the third quarter of 2015.

EYLEA US net product sales were $854 million compared to $734 million in the third quarter of 2015, representing 16% year-over-year growth.

Sequential quarter-over-quarter growth was approximately 3%.

During the third quarter 2016, EYLEA experienced a slight increase in US distributer inventory levels as compared to the second quarter of 2016, but continues to be within our normal one- to two-week targeted range.

As mentioned in our press release issued this morning, we are tightening our full-year 2016 US EYLEA net sales guidance to be year-over-year growth of 23% to 25%.

Ex-US EYLEA sales, where product revenue is recorded by our collaborate Bayer, were $471 million in the third quarter of 2016 compared to $371 million in the third quarter of 2015, representing a 27% increase on a reported basis.

On an operational basis, or constant currency basis, sales increased approximately 25%.

In the third quarter of 2016 Regeneron recognized $171 million from our share of net profits from EYLEA sales outside the US.

Total Bayer collaboration revenue for the third quarter 2016 was $191 million.

Turning now to our Sanofi collaboration, total Sanofi collaboration revenue was $144 million for the third quarter of 2016.

The Sanofi collaboration revenue line item primarily consists of reimbursement of Regeneron incurred R&D expenses, reimbursement of Regeneron incurred commercialization related expenses, and our share of profits or losses in connection with the commercialization of antibodies.

In the third quarter of 2016, our share of the collaboration's losses in connection with commercialization of antibodies, which includes PRALUENT and pre-commercialization activities and costs in connection with sarilumab and DUPIXENT, was $112 million, which can be found in table 4 of our earnings release.

Netted within these collaboration losses were the global sales of PRALUENT as recognized by our collaborator, Sanofi, of $38 million for the third quarter of 2016.

Before moving to expenses I'd like to highlight two third-quarter business development transactions.

The first is the collaboration we entered into with Teva to develop and commercialize our NGF antibody fasinumab.

Under the terms of agreement Teva paid Regeneron a $250 million up-front payment, and we will equally share on an ongoing basis R&D expenses of approximately $1 billion under a global development plan.

We plan to ratably recognize the up-front payment as revenue over the related performance period.

The signing of this agreement did not have a material P&L impact on the third quarter of 2016.

As a reminder, the intellectual property associated with our late-stage pipeline, including fasinumab, has been migrated offshore; thus, expenses and revenues associated with the program will be recognized in foreign jurisdictions with tax rates lower than the US federal statutory rate.

The other 2016 third-quarter business development transaction was a collaboration with Adicet, which will allow us to discover and develop engineered next-generation immune cell therapeutics.

In accordance with this agreement, we paid Adicet a $25 million up-front payment in the third quarter 2016, which we have recorded as GAAP R&D expense in are consolidated statement of operations but have excluded from our non-GAAP net income.

Turning now to expenses, non-GAAP R&D expense, which is calculated as the total GAAP R&D expense less R&D non-cash share-based compensation expense, as well as the up-front payment we made to collaborator Adicet, was $437 million for the third quarter of 2016.

Our non-GAAP unreimbursed R&D expense, which is calculated as the total non-GAAP R&D expense less R&D reimbursements from our collaborators, was $256 million for the three months ended September 30, 2016.

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

As a result of the recently executed collaboration with Teva regarding fasinumab, we are lowering and tightening our full-year 2016 guidance for non-GAAP unreimbursed R&D to be in the range of $945 million to $975 million from our previous guidance range of $970 million to just over $1 billion.

Non-GAAP SG&A expense was $221 million for the third quarter 2016.

We are tightening and lowering our full-year 2016 guidance for non-GAAP SG&A to $965 million to $995 million from our previous guidance range of $980 million to $1.02 billion.

Note that even after lowering and tightening our full-year guidance, we do not expect to see any material pre-launch cost savings from the PDUFA delay of sarilumab.

We will be co-promoting sarilumab with Sanofi Genzyme, and our salesforce is already on board.

And, as you heard earlier from Bob Terifay, we continue to prepare for the launch in anticipation of the resolution of matters with the FDA.

Sanofi reimbursement of Regeneron commercialization related expenses, a line item found within Sanofi collaboration revenue, was $66 million for the third quarter 2016.

We are tightening our full-year 2016 guidance of Sanofi reimbursement of Regeneron commercialization related expenses to be in the range of $310 million and $335 million from $310 million to $340 million.

Turning now to taxes, our effective tax rate for the third quarter 2016 was 27.6% as compared to 46.5% in the third quarter of 2015.

This decrease was primarily due to the impact of changes in the geographic mix of earnings, inclusion of the tax benefit of share-based compensation, and the impact of a domestic manufacturing deduction as compared to the same quarter of last year, as well as the discrete impact to this quarter of a change in our assessment of reserves for uncertain tax positions.

For 2016 we are lowering and tightening guidance for our full-year GAAP effective tax rate to be 29% to 33% from the previously provided range of 33% to 41%.

Our capital expenditures for the nine months ended September 30, 2016 were $361 million.

For the full-year 2016, we are lowering and tightening our guidance for capital expenditures to be in the range of $480 million to $510 million from the previously provided range of $480 million to $530 million.

2016 capital expenditures primarily include costs in connection with renovations of our Limerick, Ireland manufacturing facility, tenant improvement and associated costs at our Tarrytown, New York facilities, renovations and additions to our Rensselaer, New York manufacturing facilities, and the purchase of an office building near our Rennselaer manufacturing facility.

We ended the third quarter of 2016 with cash and marketable securities of $2.2 billion which includes the Teva up-front payment of $250 million.

As we have reported in previous quarters, we have opportunistically reduced a number of warrants that we issued in 2011 in connection with our convertible debt issuance through repurchases from the warrant counterparties.

Depending on market and other conditions, we may spend up to $450 million to repurchase or settle these outstanding warrants.

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

Thank you, Bob.

Before turning it over to Q&A let me remind everyone to please keep your questions to a single question to allow for the most number of people to have a turn.

With that, operator, can we please open it up for Q&A?

(Operator Instructions)

Our first question comes from Robyn Karnauskas from Citigroup.

Hi, guys.

Thank you and I'll stick to the one question.

If I heard you correctly, it sounded like the (inaudible) study was completed enrollment, and it's a 12-week study.

So, is it possible that we could get results in the first quarter?

And, if so, or when we get results, remind us how you typically release them -- press release or do we have to wait for a conference?

And maybe some color and expectations around that.

Thank you.

First, since it's talking about timing, we really don't give guidance on timing.

And as we have with our PDGF we typically look at this and give the top-line press releases, is our typical practice.

But one general comment, Robyn.

We would say that -- and George might want to amplify -- EYLEA is a tough bar, and we're constantly looking to try and improve on that.

So, when we get the data we certainly will give you a top-line assessment.

Our next question comes from Terence Flynn from Goldman Sachs.

Hi, thanks for taking the question.

I was just wondering -- two parts, so, first, maybe walk us through some of the key drivers of EYLEA growth that we should consider as we head into next year here.

And then, Bob, maybe just last year at this time you highlighted 2016 was shaping up to be an important investment year.

Any thoughts here as we head into 2017 for the dupilumab launch?

Thank you.

It's Len.

I'll let Bob amplify, if he likes.

But the obvious potential growth drivers for EYLEA come from demographics, aging population, more patients with diabetic eye disease.

Potentially would come from market share, depending upon what continues to happen in the marketplace.

There's both potential for ups and downs there.

And obviously, additional indications -- diabetic retinopathy.

Those are the three places where we would be focusing and looking to drive growth off of a very large base, obviously.

Terence, hi, it's Bob.

We'll go out with our SG&A guidance upcoming.

We're not in a position right now to talk to that.

But, again, we've spent time on this call, and you've heard us previously, with regards to the excitement we have around DUPIXENT.

So, with the March 29 PDUFA date coming, we need to ensure that we are ready with regards to our marketing and our sales teams and everything to be able to hit the road very quickly on that.

And, again, we're still investing behind PRALUENT as we wait for the outcomes data.

And sarilumab, as I mentioned on the call, we are putting our promotional dollars behind that and our marketing and spend.

And when the FDA lifts the -- we get regulatory approval on that, then we will be in a position to ensure that the product is fully supported from a marketing and sales perspective.

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

Hi, good morning.

Thanks for the question.

I have a question on the ODYSSEY outcome study here.

We know the hurdle for overwhelming efficacy to stop the trial, has a ratio less than 0.802 with a P value 0.0001.

Can you elaborate?

Do you need to see consistency in every composite of the primary end point, of for composite of the primary end point?

And also, can you tell us how much confidence you have in terms of being able to meet that end point by end of this month?

Thank you.

Yes, this is George.

In some ways, this decision is out of our hands.

And it's very subjective in terms of there's an independent monitoring board that, without us, is going to look at the data regardless of even if we hit the numbers that you stated in terms of for overwhelming efficacy.

They have to make a decision about not only consistency and so forth, but they are going to take into account whether there's rationale and it's worth while, because maybe they want to look within this sub group or another to get the complete data set.

So, it's very hard to predict something like that.

And, as I said, it's up to an independent data monitoring board.

It's completely out of our hands.

And they could simply decide, for example, if they want to follow and get more depth in one particular sub group, even though the overall population was very clear.

So, the end result is I can't really answer your question because we just don't know.

Next we have Chris Raymond from Raymond James.

Thanks.

On sarilumab, just putting the manufacturing delay for the drug aside, there's been some news in the biologic space in inflammation recently with Amgen talking about running out of its pricing runway.

And we've actually seen from some of our own work pretty strong evidence that other newer biologics have been gaining traction for some time.

I wonder if you could maybe describe at a high level your views maybe of the changing landscape with respect to access and PBM market power, and how you think sarilumab, once it is ultimately approved, is positioned, not just necessarily from a clinical standpoint but how you think the commercial landscape is changing in ways that may or may not favor the drug.

Thanks.

Sure.

This is Len.

At the risk of unveiling a little bit of our strategy here, but not too much of it because obviously we have to get to market, it is a tough environment, and the people who are paying the bills have seen what I would consider, in some cases, almost outrageous increases in the price of -- at least on the WAC price -- of the wholesale position costs of drugs for rheumatoid arthritis with people taking double-digit increases sometimes twice a year.

To me, that suggests some sort of tone deafness in this environment.

We think that we have to compete in two ways.

We have to compete with a very good drug, which we think sarilumab will be.

Of course we have to get over this glitch and get to market as quickly as we can, but we think that the class is doing very well.

There's some data out there from the first entry in the class where monotherapy against the leading anti-TNF, the NIL-6 receptor class, performed better.

And there are some people who simply don't like to take methotrexate.

We have data of our own, which probably won't be in our first filing, similar types of results with outperforming in monotherapy.

But giving a solid entry with good properties is not going to be enough here.

And we have to compete with an offering that payers will find attractive.

I think Regeneron is willing to break some of the mold here.

And now I'm getting some hints from my colleagues that I've probably said enough so I'll leave it at that.

It's Bob.

I think it's important, though, also to keep in mind that the market has been characterized by a significant amount of TNF cycling.

And the reality is, after a patient receives one TNF inhibitor, if they move to a second, we see diminishing efficacy over time.

We have an obligation from a sales and marketing perspective, when we get approved, to stop the TNF cycling.

And IL-6 inhibition plays a central role in RA.

It plays a role in not only the symptoms but in terms of the progression of joint damage.

And we have to educate physicians on that.

We're anxious to have the product get approved and get that message out there.

Next we have Geoffrey Porges from Leerink Partners.

Thanks very much for the question.

Perhaps a question on the manufacturing issue.

It's been a week since the Sanofi conference call so I presume you both have a lot more information.

Could you confirm whether the alternative fill/finish facility was included in the original BLA and whether it's straightforward to switch the fill/finish [FDUPI] to that alternative facility.

And then, secondly, could you just tell us whether the inventory of PRALUENT, sarilumab and dupilumab, which presumably you have already pre-launched, is embargoed, or is it likely to be usable, and can you be selling PRALUENT from that inventory already?

Thanks.

Yes, as usual, you ask some of the best and most penetrating questions.

And, as usual, we would love to give you an answer but we really are not in a position to discuss the details of discussions that are ongoing with the FDA, how they are going to be resolved, the strategy of redundancy, what's in filings, what isn't, and so on and so forth.

We can summarize by saying that Sanofi is working very hard and they believe they can quickly remedy the deficiencies that were not related to sarilumab per se but rather some general GMP deficiencies, which they are, frankly, well on their way to remedying.

Of course, we have to work with the Agency and they have to be satisfied.

In terms of products that are already manufactured there, I think you should think that the FDA takes a risk-based approach here.

They have maybe a frozen in place those things that are actually being -- assuming they don't think a plant is way out of whack and nothing can be shipped and filled -- they continue to fill and use product from that facility for approved products.

It's a new product such as sarilumab which gets shut out, obviously and unfortunately.

We are working with them on sarilumab.

And we're also working with a different group on DUPIXENT, which is a breakthrough product, which has a whole different set of approaches to it.

So, it's complicated.

You can imagine there's a tremendous amount of work.

A week seems like a long time maybe in your world but in the world of regulatory interactions and manufacturing remedies, and so on, it's still a relatively short time.

Next we have Ronny Gal from Bernstein.

Thank you for taking my questions.

Just very quickly, following on Geoff, just looking at generic industry history here when it comes to fill/finish facilities, the cycles for improving facilities and getting product approvals is actually quite long.

What gives you conviction that in this case it will be a relatively short one?

And then if I could sneak a second one, 340B, there's been some discussion, reform for that program.

If you can just let us know how you think, if you can just give us an update about this program and how it impacts EYLEA sales.

We're going to give you only the one question.

The first question has to do with how do we know how quickly this is going to be remedied.

We don't know how quickly it's going to be remedied for sure, obviously.

We know how quickly, which is in a relatively short period of time, that Sanofi feels that they can get the plant in full GMP compliance.

In fact, they've already brought in all sorts of efforts and resources.

They've already submitted a detailed plan.

They've already submitted their first or second progress reports against that plan.

So, we feel that the strategy is the right one and the approaches are the right one.

Obviously we'll just have to work with the Agency and see how quickly they can feel comfortable that the plan is ready to go.

Next we have Alethia Young from Credit Suisse.

Hi, guys.

Thanks for taking my question.

Just one on the pediatric population.

I know you quantified a little bit more about the adult, the 300,000 a day.

Can you frame that in a similar nature as to the pediatric population please?

Bob, do you want to comment at all?

I don't think we're prepared to go into the numbers in the pediatric population, especially since we just embarked on our Phase III program now.

Next we have Adnan Butt from RBC Capital Markets.

Thanks for the question.

Maybe for Bob.

On EYLEA, pricing issue aside, is EYLEA growth tempering a bit?

We had thought DME would be as big as AMD.

What are the individual market dynamics, if you can give any color on that?

We have done very well with EYLEA in DME.

That has been the driver of growth over the last couple of years, primarily driven by the impressive protocol T results which indicated that EYLEA was superior to Lucentis and bevacizumab on its primary end point.

The challenge with continuing growth in DME is that there are a number of patients that never make it to the retinal specialist's office.

They go to an ophthalmologist who do laser therapy -- laser is a revenue driver in the ophthalmologist office -- and they don't make it to the retina physician's office where they could get access to anti-VEGF therapy.

This has been a focus for us.

We are educating.

We're trying to educate patients that if they do have DME, they ought to get themselves to a retinal specialist.

But this is chipping away at a habit among the ophthalmologists and it's going to take some time.

But we continue to see that the DME market does offer substantial growth opportunities for us in the future.

And as Len mentioned earlier, if and when we get the diabetic retinopathy indication that would be a further driver.

Our next question comes from John Scotti from Evercore ISI.

Hi, good morning.

On EYLEA, I think you previously mentioned that you were seeing a bit of an increase in your gross to net.

I was just wondering if you're still seeing that steady increase in the gross to net and potentially smaller erosion in net price.

And, if so, what's the magnitude of that, and whether or not you see this trend as stabilizing or continuing into 2017.

I don't think there's been much sequential change at all in the gross to net.

Its been flat sequentially in the last two quarters.

Next we have Cory Kasimov from JPMorgan.

Good morning, guys.

Thanks for taking my question.

With the PDUFA date for monthly PRALUENT early next year, can you talk a little bit about the importance of extended dosing in this set?

Clearly this is a payer-constrained market today.

But what might monthly dosing mean a little bit down the road?

And how do you think about even maybe longer-term dosing options potentially entering this market from competition at some point in the future?

Thanks.

Yes, I'm not convinced that the driver of this market is whether or not you have something every other week or every month, or what have you.

I do believe that people will be driven by the LDL lowering, by the outcomes data that we hope will support the LDL hypothesis, continue to support it, and largely driven by payers.

They've already demonstrated that they will not pay for convenience.

If you look at the hepatitis C class, they put a much less convenient regimen up against a much more expensive regimen.

So, I don't think convenience per se is going to drive the market.

On the other hand, we like to come up with offerings that are as convenient as possible for patients.

And just to add to that, so far the patients who have received PRALUENT on a every two week basis have been happy with the dosing sequence.

Convenience is not a big issue.

But, as Len pointed out, we'd like to offer another dosing form for those patients who do want monthly convenience.

But this is not an issue in the marketplace at the current time.

Next we have Jim Birchenough from Wells Fargo.

Hi, guys.

Just a question on the co-formulated ANG-2 EYLEA product, and referencing the data for the PDGF program.

Is there anything in the co-formulation of the two drugs that limits the efficacy of each individual components, whether it's viscosity, an ability to inject the full dose, the amount of protein you're giving to the back of the eye?

I'm just trying to see if there's any learnings from the PDGF program that might inform how we should think about the co-formulation part of this for the ANG-2 product.

Thanks.

We have no reason to think there's any issues whatsoever with that, or that would have contributed at all to the results.

And the results, we believe, simply reflect the biology, or the lack of biology here, for the PDGF pathway.

Next we have Yatin Suneja from SunTrust.

Hi, guys.

Thank you for taking my question.

A question on PRALUENT.

Could you comment on the value-based contract?

We know Amgen mentioned that they are entering into value-based contract for their PCSK9.

Is that happening with you?

How do you see that impacting the dynamics going forward?

Thank you.

One thing I should mention is many plans do not have the ability at the present time to enter into these types of arrangements.

So, it's going to be a rarity that a plan is able to implement value-based contracting.

However, for those that can do it, we are working with those plans to establish a value-based contract, where appropriate.

Next we have Biren Amin from Jefferies.

Yes, thanks, guys for taking my questions.

How do you think payers will define moderate to severe for atopic dermatitis patients, because we hear that community derms don't typically follow easier score add scales but instead look at body surface area to determine severity of the disease.

I think it varies by geography.

In Europe, EZ 75 or PASI 75 is the driver of definition of disease in psoriasis.

And we anticipate that EZ 75 will be something we have to educate physicians on, and they are already preparing themselves for that.

In the United States you're correct.

EZ scores are not relevant to the physicians.

And IGA scores are not specific enough.

So we're working right now on plans with payers on how to better define the disease.

George?

We should just let you know that obviously in our studies, on average, the patients that we study had more than 50% of their body surface at baseline covered by this disease.

And a quarter of the patients had 85% or more of their body covered with this disease.

This just shows how severely these patients are.

And it's not just that their skin is covered with this rash, but this is a weepy, itchy horrific rash that they just can't escape.

And remarkably enough, as we said, despite the heavy burden of disease at baseline, almost 40% of these patients achieved a clear or almost clear status.

Rarely in this business do you have a privilege to be involved in a story like this that can make such a difference in patients' lives.

We've been lucky here at Regeneron that we've done this a couple times already.

We think that DUPIXENT is really a once-in-a-lifetime story where you can really impact such an important disease so dramatically, have an average 70% improvement among all patients.

And the thing that's also so stunning to us about dupilumab is that it looks like it might have the promise to do likewise in a host of related allergic diseases, including the overall asthma population where, there again, in the most uncontrolled severe population, once again, the results are very impressive from our first pivotal study.

And we think the same may be the case in a host of other allergic settings.

So, the short answer to your question is, unfortunately, there's a lot of patients who have more than 50% of their body surface covered.

Those patients are certainly, by any category, considered severe patients.

As Bob already told you, many of them have exhausted all other options.

And we just hope that all the other ancillary things don't keep these important patients from getting access to this important game/life changing drug.

I would just amplify a tiny bit on what George has said, which is that in contrasted to PRALUENT, where we knew with PRALUENT, of course, that we could lower cholesterol rather dramatically.

But to most patients, unless they are highly involved in the details in the details of their care -- which some are but many to them, that isn't the end all, be all, something that they wake up every day wondering how to get their cholesterol down.

Of course, if they've had a heart attack and everybody in their family does, then they do pay attention to that.

But then there was the pushback -- Well, you don't really know, do you, that it improves outcomes?

We're just going on a hypothesis even though there's a great deal of data to certainly support that hypothesis.

So, it's not a disease that people are clamoring to get treated, and it's not outcomes that are readily in hand.

Contrast that with PRALUENT, where these patients are desperate for treatment -- truly desperate for treatment.

And we're not talking about the topical treatments that are available such as steroids, or that might become available when you're dealing with small areas of relatively to mild to moderate disease.

We're talking about the kind of patients George referred to, which are really quite significant.

And these patients can see the outcome themselves.

They can tell that they are doing better.

And we see it in our studies, we see it in our questionnaires, we see it in whether or not they are sleeping because they can scratch themselves so badly.

I heard a story the other day, it was a group of us, which practically brought us all to tears, where a little boy was visiting his grandparents and cuddling and sleeping on the same bed with very bad atopic dermatitis, said to his grandparents -- can you each hold one of my hands when I sleep so I don't scratch myself so badly.

Think about that.

This is a disease that people really are looking for treatments.

And if we can get this drug approved, first for adults and hopefully down the road for children, we can really provide something that they can tangibly feel.

We're passionate about making is sure that we remove all the barriers out there.

And we expect to work with patients, with doctors, with payers, with organizations to make sure that people are aware of this treatment and can get access to it.

Our final question comes from Phil Nadeau from Cowen and Company.

Good morning.

Thanks for fitting me in.

Just one question on some of your prepared remarks.

You mentioned that your competition for EYLEA is beginning to increase the discounts that they are offering.

I want to understand the dynamics there a bit more.

Is there a set cycle for when discounts are negotiated?

And are there any signs that you're seeing that this is something that's demanded by payers?

Or is this something that the competition has taken it upon themselves to do?

Remember, this is a Part B drug.

And it's really not the same kind of environment where you have a timing and a cycle with patients.

There's some small amount of that that goes on, but for the most part the discounts and rebates that have been offered have been directly back to the physicians' offices, et cetera.

We continually reevaluate that situation.

We look at what the impact.

We're very sensitive to doctors not have to make a choice of what to give their patients what they might think the best drug would be because of a rebate situation or something like that.

We think most retinal physicians don't do that, but we certainly understand the real world and as the market shifts we're prepared to react, if necessary.

Great.

Thank you all for joining the call today.

As we mentioned before, the IR team and Bob, the Chief Financial Officer, will be available to answer any questions that didn't make it on the call.

That ends the call for today.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.