雷傑納榮製藥 (REGN) 2019 Q1 法說會逐字稿

Good morning and welcome to the Regeneron Pharmaceuticals First Quarter 2019 Earnings Conference Call.

My name is Brandon, and I'll be your operator for today.

(Operator Instructions) Please note this conference is being recorded.

And I will now turn it over to Mark Hudson.

You may begin, sir.

Thank you, Brandon.

Good morning, and welcome to Regeneron Pharmaceuticals First Quarter 2019 Conference Call.

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

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

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

I'd also like to remind you that remarks made on this call today include forward-looking statements about Regeneron.

Such statements may include but are not limited to those related to Regeneron and its products and business, financial forecasts and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, intellectual property, pending litigation and competition.

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

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 period ended March 31, 2019, which has been filed with the SEC today.

Regeneron does not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

In addition, please note that GAAP and non-GAAP measures will be discussed in today's call.

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

Once our call concludes, Bob Landry, Jay Markowitz and the IR team will be available to answer further questions.

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

Thanks, Mark.

Good morning to everyone.

EYLEA and DUPIXENT kicked off a successful start to 2019.

For the first quarter, total aggregate sales of all Regeneron-invented products were $2.27 billion, a 23% year-over-year increase.

We are pleased with the early launch of Libtayo, our foundation immuno-oncology, and we made significant progress across our deep and diverse pipeline.

EYLEA, which was approved in the U.S. late in 2011, continues to deliver in its eighth year in the market, with U.S. sales of $1.07 billion, a 9% year-over-year increase.

I'm proud to say that EYLEA's growth has come without price increases.

EYLEA has an established efficacy and safety profile with over 25 million injections sold worldwide.

In addition to a demographic tailwind and approved indications, we view our pending new approval in diabetic retinopathy as a new opportunity potential -- to potentially drive growth.

While the potential to prevent patients with diabetic retinopathy from suffering blinding complications is very exciting, we recognize that it will require market development because it involves treating patients that are currently asymptomatic.

To test the hypothesis that higher doses may improve upon EYLEA's already market-leading profile, later this year we plan to advance into clinical development a high-dose formulation of aflibercept, and we continue to make progress on new molecular entities that have the potential to be even better.

Let me turn now to DUPIXENT, a product with the potential to change the course of allergic type 2 diseases.

First quarter net sales globally were $374 million, and patient feedback testified to DUPIXENT's value proposition.

We have seen growth in both atopic dermatitis and asthma, and we expect further growth to be amplified by expanded age groups, new geographies and additional indications.

Moving now to Libtayo.

In its first 2 quarters on the market, Libtayo has established a foothold in advanced cutaneous squamous cell carcinoma, or CSCC.

We intend to build on that dermato-oncology foundation and expand into other indications.

In addition to testing Libtayo in cancers in which PD-1 blockade is known to be effective, we consider it an important component of potential future combinations that have the potential to broaden activity and deepen responses.

Last month, we announced a collaboration with Alnylam that combines each company's unique assets and abilities and enables us to pursue intercellular targets in the eye and central nervous system as well as a select number of targets in the liver.

This deal exemplifies our business development strategy, and we continue to explore many new and exciting opportunities.

Advancing our internal pipeline remains a key priority.

Leveraging our scientific capabilities and our world-class genetics efforts and partnering with other scientific-driven companies is yet another way we plan to capitalize on our own research, productivity and innovation.

In summary, our core franchises of EYLEA and DUPIXENT are growing, Libtayo is establishing itself as the foundation of our diversified and comprehensive immuno-oncology platform and has had early commercial success in its first indication.

We are advancing a broad and deep pipeline, rich in opportunity for sustainable long-term growth.

For more on that, I will now turn the call over to George.

Thank you, Len, and good morning to everyone.

Let me begin with EYLEA, which remains the gold standard for retinal disease.

Despite efforts by many others to develop drugs with superior visual outcomes, EYLEA remains the market leader based upon visual outcome and safety and is the measure upon which others' therapies are compared.

In terms of additional indications from which EYLEA can benefit patients, we are looking forward to next week's FDA action date for our supplemental BLA in diabetic retinopathy.

Furthermore, we are awaiting FDA action on our resubmitted filing for the EYLEA prefilled syringe, hoping to launch in the second half of 2019.

As Len mentioned, we also plan to initiate clinical development of a higher dose formulation of aflibercept and we continue preclinical development of a new VEGF blocker.

Earlier research efforts are focusing on gene therapy and other novel approaches.

I'd like to now turn to DUPIXENT, which is emerging as a new standard for type 2 diseases.

In the first quarter of 2019, we achieved 3 important regulatory milestones: the FDA approval for adolescents aged 12 through 17 with atopic dermatitis; a positive EU opinion for severe asthma in adolescents and adults; and the U.S. and EU filing of our applications for chronic rhinosinusitis with nasal polyposis, for which we received priority review in the United States with an action date of June 26.

We hope to bring the benefit of DUPIXENT to even younger atopic dermatitis patients.

Our Phase III trial in pediatric patients ages 6 to 11 is now fully enrolled, and we expect to report results on this trial later this year.

We also have an ongoing pivotal confirmatory study in eosinophilic esophagitis as well as studies with peanut and grass allergy.

DUPIXENT is delivering on its pipeline-in-a-product promise, demonstrating positive data in multiple allergic type 2 diseases, confirming our hypothesis that interleukin-4 and interleukin-13 are the key drivers of allergic type 2 disease in general.

Many of these different manifestations of an overactive type 2 inflammation occur simultaneously in the same patient.

For example, in our adolescent atopic dermatitis trials, more than 90% had at least 1 other allergic condition, with more than 50% suffering from comorbid asthma.

Obviously, there would be a huge patient benefit if they can take a single medicine for multiple diseases.

Interestingly, there are numerous case studies published by outside investigators indicating benefit for dupilumab in an assortment of additional type 2 related conditions, such as alopecia areata and bullous pemphigoid, that we have yet to study formally, and we are considering confirmatory studies in these settings.

Of course, it is possible to treat numerous immune diseases with drugs that are broadly immunosuppressant or to treat a single disease with drugs that are more disease specific.

DUPIXENT is the rare example of a drug that has efficacy across a range of type 2 diseases that tend to afflict the same patient, with a favorable safety profile that has permitted development in teenagers and young children.

In addition to DUPIXENT, we and Sanofi are also testing Regeneron 3500, our fully human anti-IL-33 antibody, in asthma, atopic dermatitis and COPD.

The first of these proof-of-concept trials to read out is in asthma, where we expect to report top line results by midyear.

I will shift gears now from our efforts with immunotherapies in non-oncologic settings to our immunotherapy efforts to treat cancer, starting with our PD-1 antibody, Libtayo.

Last month, the European regulatory body issued a positive opinion for advanced cutaneous squamous cell carcinoma.

This follows a September 2018 U.S. approval which made Libtayo the third FDA-approved PD-1 antibody and the first approved medicine of any kind for patients with advanced cutaneous squamous cell carcinoma.

To extend Libtayo's benefit in this disease, the second most common skin cancer, we will be starting a Phase III adjuvant trial this quarter and a neoadjuvant trial in the third quarter.

We are also evaluating Libtayo in the most common skin cancer, that is basal cell carcinoma, where we have fully enrolled the locally advanced cohort of our potentially pivotal trial.

Moving to lung cancer.

Despite the head start of other -- of multiple other programs, Libtayo has the opportunity to become 1 of only 2 PD-1 antibodies approved for the first-line treatment of metastatic non-small cell lung cancer, the most common cause of cancer death.

Our Libtayo monotherapy trial, which we doubled in size, is about 2/3 enrolled.

We will soon begin enrolling patients in our Phase III non-small cell lung cancer trial comparing Libtayo plus chemotherapy to chemotherapy alone.

This study will enroll both squamous and non-squamous non-small cell lung cancer patients regardless of PD-L1 expression.

Beyond Libtayo, bispecific antibodies are another key component of our immuno-oncology strategy.

We will present updated efficacy and safety data for our CD20xCD3 bispecific antibody at 2 European hematology conferences in June.

The data will include promising early results with higher doses, longer-term follow-up and efficacy in specific patient subpopulations such as CAR-T failures.

Encouraged by high rates of deep and durable responses, we're on track to initiate 2 potentially registrational Phase II studies: the first in advanced relapsed refractory follicular lymphoma by midyear, and another in advanced relapsed refractory diffuse large B-cell lymphoma, or DLBCL, by the end of the year.

We're enrolling patients in early studies testing our other 2 clinical-stage CD3 bispecific antibodies, MUC16xCD3 for platinum-resistant ovarian cancer and BCMAxCD3 for relapsed or refractory multiple myeloma.

Based on currently available results from BCMA-targeted CAR-T and other approaches, there is still room for improvement.

A fully human bispecific BCMAxCD3 with favorable pharmacokinetics and lacking potential immunogenic features may provide the foundation for additional combination approaches.

As far as we know, our bispecific platform is the only one that does not use artificial linkers, mutations or other unnatural sequences.

We're also advancing our entirely new class of bispecific antibodies, as we will soon begin clinical testing of our first co-stimulatory or co-stim bispecific, [REGN5678], which is designed to bind prostate-specific membrane antigen, or PSMA, and CD28.

We hope that our clinical studies will replicate our preclinical observations that this new class of co-stim bispecific has limited toxicity while synergizing with Libtayo as well as with the CD3 class of bispecifics.

Since prostate cancer has shown real but limited responsiveness to PD-1 therapy, we believe it may therefore be an ideal opportunity to detect a clear signal of additional activity if the combination of Libtayo and PSMAxCD28 results in a substantially higher response rate than previously observed with PD-1 blockade.

The ability to test multiple combinations of our own checkpoint inhibitors, CD3 bispecifics and co-stim bispecifics is a differentiated feature of our immuno-oncology pipeline.

However, heightening the immune response via combination approaches carries inherent risks, as occurs with CAR-T therapies.

For example, in our initial study combining our CD20xCD3 bispecific with our PD-1 antibody, in which approximately 30 patients with advanced lymphoma have been treated with the combination, we observed enhanced cytokine release syndrome, or CRS, that might have been associated with increased tumor response but also with increased toxicity, including unfortunately 2 fatalities potentially related to the CRS.

We plan to modify the dosing regimen, with the goal of minimizing toxicity while potentially capturing the potentially increased activity.

Over the coming months and years, we expect to advance a steady stream of bispecifics into clinical development.

Just to remind you, Regeneron 1979, CD3 bispecifics other than those targeting MUC16 and BCMA and our new class of co-stim bispecifics are all wholly owned by Regeneron.

Leaving now immuno-oncology and moving to pain.

As we have emphasized previously, fasinumab, our anti-NGF antibody, involves a high-risk program due to long-term safety issues involving increased treatment-associated arthropathies and total joint replacements with this class.

On April 30, the Data Monitoring Committee recommended continuing the program at the ongoing lower doses where we previously reported positive efficacy results.

These are just a few highlights of Regeneron's homegrown pipeline.

Let me conclude with comments about the Regeneron Genetics Center, or the RGC, and our Alnylam collaboration.

In March, the RGC provided to the global research community exome sequences from the first 50,000 UK Biobank participants.

Sequences are linked to detailed de-identified electronic health records, imaging and other health-related information provided through a collaboration among the UK Biobank, Regeneron and GlaxoSmithKline.

Regeneron is also leading a separate effort to sequence the remaining 450,000 UK Biobank participants, which we intend to complete by 2020 and is being funded by a consortium of biopharma companies including Alnylam, AbbVie, AstraZeneca, BMS, Biogen, Pfizer and Takeda.

Finally, I would like to acknowledge our new collaboration with Alnylam.

Regeneron and Alnylam's technologies are complementary, and our companies share a commitment to patients and to science.

The emphasis of our joint work will be on diseases of the eye and CNS, and we will also work jointly in certain targets expressed in the liver, including C5, where we each have clinical-stage assets.

Regeneron's antibodies are optimal for secreted and cell surface targets.

Alnylam's siRNA enables us to extend our therapeutic reach to inside the cell.

With that, I'll turn over the call to Marion.

Thank you, George, and good morning, everyone.

I'd like to start with EYLEA.

For the first quarter, U.S. EYLEA net product sales grew 9% year-over-year to $1.07 billion.

Overall market growth continues to be driven by the aging population, increasing diabetes prevalence and physician preference for EYLEA.

EYLEA is the world's leading anti-VEGF branded therapy for retinal disease based on its broad range of indications, demonstrated safety profile, dosing flexibility and established physician confidence.

EYLEA market share continues to grow in the overall U.S. anti-VEGF market.

This includes branded products and off-label repackaged Avastin.

In the branded U.S. market, EYLEA has about 70% share of net product sales.

Among payers, EYLEA continues to secure approximately 90% first-line access.

We're committed to further strengthening our leadership position for EYLEA through continued innovation in dose and delivery as well as label expansion opportunities.

Diabetes is our largest growth opportunity.

Very shortly, we expect to hear from the FDA on our filing submission for EYLEA in diabetic retinopathy.

Diabetic retinopathy is not a benign condition.

Patients with moderately severe and severe nonproliferative disease are at risk for potential blindness.

Given the compelling data from our PANORAMA trial, we think this is an important opportunity to help patients avoid these serious complications.

If approved, we have comprehensive plans to develop this market.

Our focus will be on raising awareness of the benefits of treating diabetic retinopathy, encouraging early intervention for appropriate patients and ensuring EYLEA is the first-line anti-VEGF treatment for diabetic retinopathy patients.

Turning now to DUPIXENT, where global net product sales in the first quarter were $374 million.

In the U.S., net product sales reached $303 million, representing a 159% year-over-year growth.

Total prescriptions, or TRx, in the U.S. grew 18% quarter-over-quarter.

This was driven by growth in adult atopic dermatitis and in our new asthma indication, which launched in the fourth quarter.

In March, the FDA also approved DUPIXENT in adolescent atopic dermatitis, which we anticipate will contribute to incremental growth.

Across all indications, prescriber experience and depth continued to improve.

Approximately 16,000 health care providers have prescribed DUPIXENT, and we continue to see strong prescribing trends.

Weekly new-to-brand prescriptions, or NBRx, for the quarter averaged 950 patients per week, up from approximately 700 in the prior quarter.

In atopic dermatitis, more patients are now benefiting from DUPIXENT, including those with both moderate and severe disease.

Prescriber depth has grown, as evidenced by nearly 200% year-over-year increase in a number of providers who have prescribed DUPIXENT to 5 or more patients.

Additionally, patient awareness has improved, benefiting from our promotional and educational campaigns.

As a reminder, we estimate the target patient population most in need to be 300,000 to 400,000 adults, and just a small minority of patients have received DUPIXENT since launch.

We've also see an important opportunity in adolescent patients with atopic dermatitis.

DUPIXENT is the first biologic approved in this patient group who remain uncontrolled using topical therapies.

While it's very early, market launch reaction has been extremely positive.

Our promotional efforts are focused on the same allergists and dermatologists who currently treat adults with atopic dermatitis, plus pediatric dermatologists and pediatric allergists.

We've also been encouraged by payer receptivity to extending DUPIXENT access to this younger patient population.

Additionally, we anticipate data from our pediatric study in atopic dermatitis ages 6 to 11 later this year.

Turning now to asthma, where DUPIXENT is quickly establishing a competitive market presence in the U.S. DUPIXENT has a differentiated clinical and safety profile compared to other asthma biologics.

It has a first-in-class mode of action that substantially reduces exacerbations and provides clinically meaningful improvement in lung function for [all] approved patient population, and is the only asthma biologic that can be self-administered.

Since DUPIXENT's asthma launch last October, we estimate the asthma biologic market has grown by more than 10%.

Nearly 75% of DUPIXENT asthma patients are new to biologics, and significant opportunity remains for subsequent growth.

Uptake has been driven by allergists who have experience using DUPIXENT in atopic dermatitis and also pulmonologists, who are highly receptive to DUPIXENT efficacy, use in steroid-dependent patients and self-administration.

Additionally, we are excited about launching in markets outside the U.S. DUPIXENT was recently approved in Japan, and we expect an EU regulatory decision midyear.

Finally, in June, we expect to hear from the FDA on our proposed indication in chronic rhinosinusitis with nasal polyps.

This should help further differentiate DUPIXENT from the competition by demonstrating that the same treatment can address multiple related type 2 conditions that often present in the same patient.

I'd now like to turn to Libtayo.

In the U.S., first quarter net product sales were $27 million, driven by a prescription demand.

Building on our success since launch, Libtayo's brand awareness among the medical community has increased substantially.

We made further progress in establishing Libtayo as a standard of care in advanced CSCC across all lines of therapy.

Our launch update has benefited from broad payer access, with nearly all Medicare, commercial and Medicaid lives covered.

We expect the number of patients on Libtayo to grow based on demographics, enhancement in patient identification and physician referrals.

Libtayo is the only FDA-approved treatment for advanced CSCC and the only anti-PD1 or PD-L1 with a category 2A recommendation in the National Comprehensive Cancer Network, or NCCN.

Now onto PRALUENT.

Just over a week ago, the FDA approved PRALUENT to prevent cardiovascular events.

PRALUENT is the first and only PCSK9 inhibitor with data showing a meaningful reduction in all-cause mortality, and we're pleased the data describing this mortality effect was included in the updated label.

In this highly competitive market, we continue to be focused on patient affordability and payer access.

Turning to KEVZARA.

Within U.S. IL-6 subcutaneous class, KEVZARA now has an estimated 45% share of new patients-dispensed drug, or NBRx, and 26% share of total scripts, or TRx.

We're working to accelerate KEVZARA growth by securing a greater share of the IL-6 market and growing the market, which is currently estimated at $450 million in the U.S.

Now I'll turn the call over to Bob.

Thanks, Marion, and good morning to everyone.

Today, I will discuss our first quarter 2019 financial progress, highlight various items and events that impacted our results and provide updates to our full year guidance line items, which can be found in our press release that was issued earlier this morning.

For the first quarter 2019, we reported non-GAAP diluted net income per share of $4.45 on non-GAAP net income of $518 million.

Total revenues were $1.71 billion, a 13% year-over-year increase.

Revenue growth continued to be driven by global sales of EYLEA, an increase in both Sanofi and Bayer collaborations and Libtayo net sales.

For the first quarter of 2019, global net product sales of EYLEA were $1.74 billion, an increase of 8% year-over-year.

U.S. EYLEA net product sales increased due to higher sales volume partly offset by an increase in sales-related deductions primarily due to higher discounts.

U.S. distributor inventory experienced a slight quarter-over-quarter decrease, yet remained within our normal 1- to 2-week targeted range.

Ex-U.

S. EYLEA net product sales recorded by our collaborator Bayer were $669 million, representing a 7% reported and a 15% operational or constant currency basis increase year-over-year.

Total Bayer collaboration revenue for the first quarter of 2019 was $276 million, of which $249 million was derived from our share of net profits from EYLEA sales outside the U.S. The $249 million represents year-over-year reported growth of 7% compared to the first quarter of 2018.

Total Sanofi collaboration revenue was $246 million for the first quarter of 2019, a 30% year-over-year increase.

We are projecting the Sanofi collaboration revenue line to increase over the remaining quarters of 2019.

The year-over-year increase in Sanofi collaboration revenue was primarily driven by lower losses associated with the commercialization of non-IO antibodies, driven in part by higher net sales of DUPIXENT, and an increase in the antibody reimbursement of Regeneron commercialization expenses.

These increases were partly offset by a decrease in reimbursement of research and development costs under the IO discovery and development agreement with Sanofi, as the amended December 31, 2018 agreement narrowed the scope of reimbursement -- reimbursable activities to the BCMAxCD3 and MUC16xCD3 programs.

Second, Sanofi collaboration revenues associated with cost reimbursements from Sanofi for bulk drug manufactured by Regeneron were also adversely impacted by timing.

In the first quarter of 2019, we recognized a loss of $28 million in connection with the commercialization of non-IO antibodies, which compares favorably to a loss of $75 million in the first quarter of 2018.

As noted, the lower share of loss versus the first quarter of 2018 was primarily attributable to higher global net product sales of DUPIXENT partly offset by an increase in DUPIXENT commercialization expenses to support the U.S. launch in asthma and ongoing global launches in atopic dermatitis.

Turning now to expenses.

Non-GAAP R&D expenses were $583 million for the first quarter of 2019 compared to $458 million for the first quarter of 2018.

The year-over-year increase in non-GAAP R&D expense was the result of the expansion and progression of our earlier-stage pipeline, an increase in Libtayo development expenses, higher clinical manufacturing costs and higher headcount and headcount-related costs.

This increase in R&D spend is consistent with our 2019 guidance and previously communicated commitment to reinvest the tax savings we're realizing from the enactment of the 2017 Tax Cuts and Jobs Act into research and development.

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 $419 million for the quarter of 2019 compared to $278 million for the first quarter of 2018.

Included in our updated non-GAAP unreimbursed R&D guidance are projected program initiation expenses related to our recently announced Alnylam collaboration.

Despite the inclusion of these initiation expenses, we are maintaining the top end of our guidance and tightening the range.

The $400 million upfront collaboration agreement payment to Alnylam will be recorded as an R&D expense in the second quarter but will be excluded from reported non-GAAP R&D expenses.

As a reminder, Regeneron's year-over-year increase in full year non-GAAP unreimbursed R&D guidance is primarily attributable to higher clinical trial and manufacturing costs to support Regeneron's wholly-owned programs, including 4 to 6 new molecules expected to advance into the clinic in 2019 on top of the 5 molecules that were advanced into the clinic in 2018, and lower Sanofi reimbursement as a result of the amended IO discovery and development agreement.

Next, non-GAAP SG&A expense was $362 million for the first quarter of 2019, a 22% year-over-year increase.

The year-over-year increase was driven by higher headcount and headcount-related costs primarily to support the DUPIXENT, asthma and Libtayo launches, higher contributions to independent not-for-profit patient assistance organizations and an increase in U.S. commercialization-related promotional expenses for DUPIXENT.

We are lowering and tightening our previous 2019 guidance for non-GAAP SG&A expense.

Also, as a reminder, the year-over-year increase in our guidance is primarily driven by increased spend to support launches for DUPIXENT and Libtayo, as well as incremental spend to support the potential new growth opportunity of EYLEA in diabetic retinopathy and increased patient assistance programs.

Sanofi reimbursement of Regeneron commercialization-related expenses, a line item found within Sanofi collaboration revenue, was $119 million for the first quarter of 2019.

We are lowering and tightening our full year 2019 guidance for Sanofi reimbursement of Regeneron commercialization-related expenses.

For the 3 months ended March 31, 2019, combined non-GAAP cost of goods sold and cost of collaboration and contract manufacturing were $174 million compared to $108 million in the first quarter of 2018.

With regards to COGS, remember that it includes Sanofi's share of gross profits in connection with our commercialization of Libtayo in the United States.

The year-over-year increase in cost of collaboration and contract manufacturing was primarily due to higher expenses in connection with planned process validation of our Limerick manufacturing facility, higher inventory write-offs and reserves and the recognition of drug substance manufacturing costs associated with higher sales of DUPIXENT.

Regeneron's process validation expenses and inventory write-offs and reserves for first quarter of 2019 were $44 million higher than the first quarter of 2018.

While these sorts of charges and activities can be difficult to predict, we currently don't expect to see increases of this magnitude to impact any of our next 3 quarters.

Turning now to taxes.

Our effective tax rate was 15.6% for the first quarter of 2019 compared to 18.3% for the first quarter of 2018.

As a result of incurring the $400 million Alnylam upfront collaboration expense in the U.S., we are lowering our full year 2019 effective tax rate to be 11% to 13%.

The impact of the lower effective tax rate will likely be seen later in the year, as the tax benefit to stock-based compensation has historically been weighed towards the fourth quarter of the year.

Turning next to Regeneron's first quarter 2019 cash flow and March 31, 2019 balance sheet.

Regeneron ended the first quarter with cash and marketable securities of $5.57 billion and generated free cash flow of $823 million for the quarter.

We calculate free cash flow as net cash provided by operating activities less capital expenditures.

Included in both balances was the first quarter 2019 receipt of $462 million of consideration from Sanofi related to the amended IO discovery and development agreement.

Our capital expenditures for the first quarter, which has historically been our lowest spend quarter, was $74 million.

Based on our latest projections, we are lowering and tightening our full year 2019 capital expenditure guidance.

Under the terms of the recently signed collaboration agreement with Alnylam, we are obligated to make an upfront payment of $400 million and have also agreed to purchase $400 million of Alnylam equity, which equates to approximately 4.44 million common shares at the agreed-upon price of $90 per share.

Subject to Hart-Scott-Rodino clearance, we anticipate closing this transaction and paying the $800 million during the second quarter.

Additionally, we will provide Alnylam with a specified amount of funding at program initiation and that lead candidate designation, and Alnylam will be eligible to receive up to $200 million in clinical proof-of-principle milestones for eye or CNS programs.

The clinical proof-of-principle milestones are not expected in 2019.

With that, I would like to turn the call back to Mark.

Thanks, Bob.

That concludes our prepared remarks.

Before we get into Q&A, we'll have Len just say something.

Yes, one late breaking news.

We just received a note.

I'm pleased to inform you that the European Commission has informed us that on the 6th of May, it adopted the EC -- implementing decision for DUPIXENT extension of the indication with the treatment of adults and adolescents with severe asthma with type 2 inflammation characterized by raised blood eosinophils and/or raised FeNO, and the addition of the 200 milligram dose strength in both the prefilled syringe and the prefilled pen format.

So the final full indication for DUPIXENT is now DUPIXENT -- and this is in Europe -- is indicated in adults and adolescents 12 years and older as add-on maintenance treatment for severe asthma with type 2 inflammation characterized by raised blood eosinophils and/or raised FeNO, who are inadequately controlled with high dose inhaled corticosteroids plus another medicinal product for maintenance treatment.

Now we can go to questions.

Thanks, Len.

Operator, we'd like to open up the call for Q&A.

(Operator Instructions) Operator, you may open the line.

(Operator Instructions) And from Cowen, we have Yaron Werber.

Congrats on the launch of dupi.

I have a question about dupi trend so far in asthma.

It sounds like you really are capturing a nice share in terms of 75% are first-to-biologic, so I have a 2-part question.

Number one, in terms of prior authorizations, what are you seeing for this new class versus the IL-5 class?

And then secondly, when you're mentioning a 10% market growth, we're calculating the IL-5s are roughly doing about $1.5 billion right now, depending on how you project growth.

Are you kind of talking about 10% of that as sort of a comp?

And how do you see that market growing?

Sure.

So let me take a start.

I'll go to the last comments on the growth of the asthma biologics market.

In our calculation with some of those you described, we look at all the biologics products that are currently indicated in the U.S. for asthma.

And then since the launch of DUPIXENT for asthma, we're seeing the size of that market in total grow by about 10%, so certainly inclusive of DUPIXENT, which we believe is significantly driving the growth, but also in combination with the IL-5 category you mentioned and also we would include Xolair, of course, as a biologic product within the asthma market.

The next piece going back.

We do see some very favorable indicators still somewhat early in launch.

And most compelling of course is the profile and the unique aspects of DUPIXENT that is being showcased by allergists already experienced with DUPIXENT from atopic dermatitis, but also pulmonologists; both the clinical profile, safety profile and the fact that patients can self administer.

Again, early in the reimbursement cycle, I will comment only on DUPIXENT.

It's probably best that I not comment on access for competitive therapies.

But I can share that in early days, while we continue to work closely with payers, we have been pleased with the ability for patients to receive reimbursement and for physicians to participate and have ease of prescribing.

So while we'll continue to work closely in that area early days, all aspects of the launch uptake on both patient experience, prescriber experience and patient access have been quite favorable.

From Goldman Sachs, we have Terence Flynn.

Maybe just a 2-part on Regeneron 1979.

Just wondering when you guys will have visibility on if the Phase II trials will be or will not be registration-enabling in lymphoma?

And then, the 2 deaths that you mentioned, can you give us any more context there with respect to either the dose or if they were an FL or a DLBCL?

And anything on prior treatment history?

Well, we will be certainly informing you when we know that these are registrational studies.

In terms of the toxicities, I just want to remind you, as I noted in my comments, that these were seen in combination with PD-1, and as I noted, that in some ways it indicates that the theoretical concept of combining these 2 classes actually increases immune activation, is actually pertaining in the situation here.

And what we believe is that we have ways of adjusting the dosing regimen so that we can avoid the increased cytokine release syndrome, while capturing the potentially increased activity of combining these 2 classes.

So Terence, just to amplify on the registrational aspect.

It's not that we're being coy.

I think it -- there will be registration if the data are adequate.

So obviously, we'll let what -- I think what George is trying to say is we'll let you know when we have the data.

We intend these to be registrational if the data continues to be as good as it was in the early studies.

From JPMorgan, we have Cory Kasimov.

Wanted to follow-up on the bispecific programs -- and recognizing that it's still, obviously, relatively early days -- how do you see the durability of response from 1979 stacking up against CAR-T therapies and the importance of this parameter for future broad commercial uptake?

And as you're gathering experience in CAR-T-experienced patients as well, how do you see 1979 initially slotting into the marketplace?

Well, we have reported on durability and we'll continue to report on it in the upcoming conference.

Most patients who remain on treatment maintained their responses.

In terms of versus CAR-T, as I noted, we will be reporting on promising early results in post CAR-T failures at the upcoming meeting.

So we think that there's a lot of opportunity here for the CD20 bispecific both in the relapsed refractory setting where we're setting it in.

It's obviously going to be much more convenient and amenable therapy to more patients who don't have to go through the whole process that's required for CAR-T therapies.

The possibility that it can actually also work in individuals who have failed CAR-T therapies is very exciting, let alone the possibility that with its profile and the way we give it that we can also be moving relatively rapidly into the frontline settings as well.

So we think this is a very exciting opportunity that can really address a lot of the need in lymphoma, from the later-stage patients who have failed every other kind of therapy eventually to a frontline therapy that could really impact the disease in the earliest of patients.

And just to amplify slightly for those who are not dupixionados.

We've reported previously the rather striking response data, including a high percentage of complete responses at what we think would be the effective doses.

And so when you start to see that in these very treatment-experienced patients, it gets pretty exciting pretty quickly.

From UBS, we have Carter Gould.

I wanted to, I guess, drill down a little bit more onto the decision to move dupi into a Phase III in COPD.

I think before you had talked about that being a little bit more of like a Phase II/Phase III study, it seems like it's a fully fleshed-out kind of Phase III.

And maybe just speak to your level of confidence there given sort of the mixed history with or negative history with the IL-5?

And kind of what gives you confidence there?

Maybe I'll let George answer on as well, but I would say that one is -- comes more under the category of we'll need to see the data rather than a high degree of confidence, based upon some earlier studies.

When we had done atopic dermatitis, when we had done our first asthma studies where we saw these clear-cut effects on FEV1 and even on loss of asthma control and dramatic responses in the AV, of course, you had a much higher degree of confidence.

COPD is, I think, much tougher.

It's worth looking at, but we wouldn't rank this as something we have high degree of confidence in.

Yes.

I think what Len is alluding to is that COPD is a very complex disease.

And the problem is that in the real world, the data suggests it is indeed quite complicated in terms of it's impacted by asthma and type 2 diseases.

And so there are a lot of patients who have COPD whose diseases worsened with these related type 2 toxicities.

The problem is finding the right patients to treat and also negotiating with the FDA, who likes to study cleaner diseases.

So I think as Len said, it's going to be -- it's a complicated story, and we'll see what the data says.

From Barclays, we have Geoff Meacham.

This is Greg Harrison on for Geoff.

Could you tell us maybe a little more about your overall strategy in the complement space?

And what type of differentiation do you think you'd need to see with pozelimab to make it competitive in PNH, whether that's efficacy or dosing convenience?

And what other types of additional indications could you potentially pursue there?

So I think it's a little bit early to get into that sort of competitive assessment.

Obviously, as George mentioned, we've got the ability to combine that with some siRNA from Alnylam that we're going to be working with them.

The potential there might have some unique features.

It's just a little early to say where we will slot it.

We'll have to see how the data develops, but obviously, we're going to look at efficacy, we're going to look at interval, et cetera.

From SVB Leerink, we have Geoffrey Porges.

A couple of quick ones on R&D.

First, George, could you just give us a sense of when you might be in a position to make a decision on your NGF program, specifically whether it's go or no go and whether that might be some savings to the otherwise upward trend in R&D?

And then secondly, just to go back on the combination, it definitely sounds like you've had a setback on the PD-1 bispecific combination, but what are your thoughts on the PD-1 combination with the co-stim molecule?

How quickly might that advance?

Are you concerned about some of the same either immunotoxicity liabilities or else TLS liabilities?

Okay.

Well, first, on the NGF.

As I mentioned, the independent data and safety monitoring board gave the go-ahead just last week for us to continue with the program.

So we -- they will continue to monitor the study, and when we unblind the study and so forth we'll be able to better assess what the efficacy/safety ratio is and where the program is going.

So that's the story on NGF.

I wouldn't necessarily classify the CD20xCD3 combination with PD-1 as a setback.

As I said, I mean, what it really indicates is a pretty dramatic increase in immune activation.

As you know, of course, these sorts of things were the things that demonstrated excitement in approaches like CAR-T therapies.

In fact, it was noted in many cases that the people who had -- the patients who had the highest immune activation had the highest antitumor responses, and we think this is likely to be the case in this setting as well.

The benefit that we have with the ability to individually titrate and give them in a different sequence allows us to much better fine-tune the timing of the immune activations and allow us to better take advantage of the immune activation while controlling the potential cytokine release syndrome.

So we actually think it's actually an exciting indicator of combined immunoactivation.

And so we're very excited, both of the combinations of our CD3 bispecifics with PD-1 but also CD28 bispecifics with PD-1 and CD3 bispecifics with the CD28 bispecifics.

All 3 of those sets of combos afford an incredible exciting set of opportunities that in animal studies have really been game-changing.

And so we can only hope that we can achieve the same sort of benefit/risk in patients that we're seeing in those settings.

From Morgan Stanley, we have Matthew Harrison.

I was hoping you could talk a little bit about the adjuvant studies that you're running in Libtayo?

And maybe just comment how we should think about the data that you have in sarcoma informing those other skin cancer studies?

And just your confidence around what we know so far on the molecule about those adjuvant studies?

Well, I think in cutaneous squamous cell carcinoma, obviously, the very impactful efficacy that we saw in the later-stage patients gives us a lot of confidence that in the earlier-stage patients, as is usually the case with cancer treatments, that one will be seeing even better benefit.

And obviously this increases very substantially the number of patients in those indications who might be able to benefit if our adjuvant and neoadjuvant trials in the cutaneous squamous cell carcinoma produce that sort of data that would be possible based on the data that we've seen in the late-stage patients.

So that will be, I think, a very exciting way to increase the benefit to a large number more of patients who don't have satisfactory treatments right now, and avoid them progressing to these later and much more debilitating stages.

Similarly, in lung cancer, we're excited with our opportunity there in terms of our first-line setting.

And of course, we're also hoping to move into earlier settings there as well.

From Bank of America, we have Ying Huang.

So you mentioned that the total prescriptions for DUPIXENT increased 18% quarter-over-quarter and then new patients coming at about -- right now -- at 950 per week.

Can you provide a little bit more clarity about the breakdown between the patients coming from adolescent atopic dermatitis versus adult atopic dermatitis versus asthma?

Where exactly are you seeing the most growth?

So it's early days, so we're not at this time giving specific breakouts by indication.

But I certainly can give you a feel for performance.

First, as you summarized some of the points that I'd made during the call, on NBRxs as one measures -- or new branded scripts on a weekly basis, we are seeing a significant increase.

When we look at this quarter's rate on a weekly basis of 950 versus prior quarter at about 700 scripts per week.

So we're very pleased.

What is occurring is that we're actually seeing growth in all of our indications, which is a very exciting profile for DUPIXENT.

We continue to help more adult atopic dermatitis patients, so we're seeing growth in that realm.

Additionally, as I mentioned during the discussion of the call, we are seeing a very nice start to the launch of asthma, both from a standpoint of DUPIXENT's profile but also from the standpoint of being very competitive to other agents that are currently being used as biologics for the treatment of asthma.

And then finally, the most recent indication for adolescents is one that has been transformational certainly for patients and their families, but also as we hear stories all the time from physicians who are treating these patients.

These poor young adolescents are very often challenged to participate at school, in their activities on a daily basis, and we're hearing just wonderful stories on the difference that DUPIXENT is making for them.

So while very early in this launch, we're excited to be helping so many, and we see continued growth across atopic dermatitis, asthma and all the various age groups we're now covering.

From Piper Jaffray, we have Chris Raymond.

This is Ally Bratzel on for Chris this morning.

Another question on DUPIXENT.

We've gotten pretty consistent physician feedback from multiple points that the DUPIXENT sampling plan was suboptimal, at least, for dermatologists.

So I guess more recent feedback says that's improved lately.

Could you just give us some background or color on your DUPIXENT sampling plan, especially as additional indications are launching?

Sure.

So first, I will share that it is very important to us that patients receive DUPIXENT and physicians have the experience that they need.

There are availability of samples in the marketplace today.

So as you indicate, we do have a sampling program, but we also think it's very important that as patients are initiated on therapy, they're able to stay on therapy.

And we also have a number of support services that help patients and their prescribing physicians make sure that patients can navigate payer reimbursement and once on DUPIXENT can actually stay on therapy.

We believe at this point, we have the number of samples correct in the market to support our various indications.

So let me just amplify on that -- what Marion just said, because I think it is a tension between wanting to make it as easy as possible for the doctors and patients on the one hand, and on the other hand, the greater good we think of getting -- forcing, if you will, payers to make decisions so that everybody can get access.

And payers are very sophisticated.

As one payer said to me, "Keep it up, Len.

We love those samples.

It's like free drug.

And we'd like you to keep going forever." So there is this tension of forcing payers to make a decision on the one hand and striking the right balance for making it easy for patients to initiate.

The launch, the number of patients getting on the drug is really quite remarkable, so we think we've got that balance working.

From BMO, we have Matthew Luchini.

Just wanted to come back to the CRS scene with 1979 and, recognizing what you've said so far, I'm just wondering if you might be able to put any more color around similarities or differences between the 2 patients that experienced CRS and those that didn't perhaps in terms of prior -- number of prior lines of therapy, types of therapy, if they were both seen in FL or DLBCL, for example?

Any other color you can provide would be helpful.

Well, maybe I can just start by reminding you that in some ways this is very analogous to our early experience with the CD20xCD3 monotherapy.

In those early studies, actually, with our lowest doses, we actually saw pretty profound CRS.

And what the team didn't realize that we had the ability -- like I said, this is one huge advantage with these biologics, for example, compared to things such as CAR-T therapies -- that we can literally dial up and dial down the doses and adjust sequences and divide the doses, and we were able to control it.

So now as we got to the much higher doses with much higher activities, as Len pointed out, where we're seeing in late-stage patients high proportions of not only overall responses but complete responses, this now comes with much less CRS than we saw in the early days because we learned how to adjust, divide and sequence the dose of the individual therapy.

We think that we're exactly in an analogous situation with the CD20 combination with the PD-1.

We're now at much lower doses of the CD20 in combination with the PD-1, but giving it in the way that we had avoided the CRS.

We are now seeing it again, which tells us that we have higher immune activation, and we're going to just do the same sorts of things that we did by taking advantage of our ability to divide the doses and sequence, the regimens and so forth.

And we're hoping, in the same way that we did with the bispecific on its own, we'll be able to take advantage of this increased immunoactivation but avoid the CRS.

So we think these are really exciting times.

We've seen it before.

We got to what we believe now are, as Len said, the actual effective doses in these late-stage patients with the monotherapy and we hope we'll now be able to do the same thing with the combination delivery, even more efficacy without having to pay too much of a price in terms of increased toxicity.

Plus I think one has to think ahead.

We have a lot of other bispecifics, I think as George mentioned earlier, where you're going into some cancers where you don't see very many responses at all.

And the notion that you can actually come -- get these enhanced combined immune activations, I think, is as important for these other programs as it is for 1979, where actually you do quite fine as you get up to much higher doses.

So I think this has really a potentially profound implications for our other programs.

Very good point.

From Baird, we have Brian Skorney.

Bob, maybe just kind of characterize, when we look at the earnings going ahead, there's a little bit of retrenchment on the year-over-year basis in the first quarter compared to last year.

So I know you guys don't provide bottom line guidance, but just maybe kind of from a target perspective, do you see 2019 as a year of EPS growth and do you think it's just kind of the one-time items giving the little drag?

Or should we kind of expect 2019 to be more flattish and look towards 2020 and beyond to see a return to growth?

Yes.

Brian, so thanks.

So we're not going to give guidance on this call with regards to EPS.

It's just not what we've done previously.

And we tried to highlight with regards to gives and takes during the first quarter.

I mean, certainly with regards to our cost of collaboration manufacturing, calling out the delta which was a big increase year-over-year, we don't talk much about our supply chain other than saying we think it's best-in-class.

These are very difficult antibodies that we continue to make and sometimes things like that happen.

With regards to R&D, our guidance holds.

We raised the lower end of our guidance, but that's because of the Alnylam transaction that we're going to execute in the middle of second quarter.

We're taking on initiations.

And upon doing that, there will be payments to Alnylam.

So we still are comfortable with regards to where we are from our guidance point of view.

I will say expenses in Q1 from RD -- R&D came in a little hotter than usual, but for the rest of the year we still feel comfortable with the guidance levels we've provided previously.

I mean I do think to remind us a bit, the way we see the business, the top line are -- the products that have come out of Regeneron -- are continuing to grow.

And the expenses are growing primarily because the research organization is just so doggone productive.

I think it was mentioned that we put maybe 4, 5 molecules in the clinic last year, we expect to put a similar number this year and we have a steady flow projected for the year for 2020 and beyond.

So with that, obviously, we feel we should be investing in our research, because we think it has the potential to deliver great returns.

And from Cantor Fitzgerald, we have Alethia Young.

Just one on Alnylam.

I wanted you guys just talk a little bit more about how you're thinking about using this platform technology versus the antibodies, and also think you'd -- might go after larger or more rare opportunities.

And just your general perspective on the platform safety as well.

Yes.

Well, we have enormous hope that Alnylam is going to be a transformational opportunity.

Why?

Because both sides bring, I think, a lot of unique and very exciting capabilities to the table.

We've been obviously doing a lot of biology and genetics, particularly in the eye and also in the CNS that we haven't really talked about and most, if not the vast majority of the targets there are intercellular targets.

And obviously, Alnylam has the capability with their technology to start addressing some of these intercellular targets in these 2 spaces that are challenging with other approaches.

And so this allows us to take advantage of our genetics, all the information coming out of our Regeneron Genetics Center, all the biology we've been doing, all the animal modeling that we've been doing, and now take advantage of them with a whole new platform, not antibodies that, as you know, are limited to extracellular targets, secretive proteins and cell surface receptors, but an assortment of intercellular targets that we now think we can address both in the eye and CNS and address a whole new series of diseases where we have enormous knowledge and capability based on our genetics and our biology efforts.

So it's really coming together, I think, of 2 great like-minded companies with very complementary approaches that we think, together, we can really make a difference particularly in these spaces.

Operator, this concludes today's call.

Thank you, everyone, for joining.

Again, Bob Landry, Jay Markowitz and the IR team will be around to answer any further questions.

Thank you.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for joining.

You may now disconnect.