Regeneron Pharmaceuticals, Inc. (REGN) Earnings Call Transcript & Summary

Okay. Welcome, everybody, once again to the 40th Annual Cowen Healthcare Conference here in Boston. I'm Yaron Werber, a biotech analyst here at Cowen. And it's a great pleasure to moderate now the fireside chat with Regeneron. We have with us Executive Vice President and CFO, Bob Landry, who's going to make some introductory remarks. And to my left, Justin Holko, Vice President of Investor Relations. So Bob, go for it, and then we'll go into the fireside chat. And afterwards, there's going to be a breakout session at the Tufts Room just on this floor.

And Yaron, first off, thanks for having Regeneron here. Good afternoon, everybody here and for those that have joined us on the webcast. So we have a bunch of slides we're going to try to blow through, Yaron, and then I'll come over and join Q&A. And as Yaron said, we are going to have a specific breakout session for 30 minutes after this session, where Yaron will host also additional questions that we may not get through. Again, comments expressed here today will include forward-looking statements that involve risks and uncertainties relating to the future events and performance of Regeneron. A detailed list of these would be available in our 10-K, which we filed a couple of weeks ago for the December 31, 2019 year-end. Okay. So let me begin with regards to earnings that were reported a few weeks ago. We had a strong fourth quarter. We had double-digit growth on both top and bottom line. Again, key drivers being EYLEA, DUPIXENT and Libtayo. They outperformed expectations on each of them. We also announced the intent to simplify the Sanofi Antibody collaboration, and I'll get into a little bit of big detail with regards to the specifics on that shortly. And we've been making advancements in our pipeline, including the U.S. and EU filing for AD in children 6 to 11. We announced at year-end at the ASH Conference, BCMA and CD20, CD3 data. And we also announced by a separate press release in December information on our C5 program. Let me get into near-term drivers. Again, EYLEA. It's to continue execution in wet AMD and diabetic eye diseases. And I'll get into EYLEA a little bit shortly. We got DR approval in May of last year. So we need to continue to maximize diabetic retinopathy. And we launched prefilled syringes in December, we had a partial launch in mid-February. We did a full-blown launch and things have been going well so far with regards to that new product presentation. We have initiated trials, Phase II wet AMD in high dose. We're going to be doing with Bayer Phase III high dose trials initiating very shortly in both wet AMD and DME. And again, we continue to pursue gene therapy and other novel approaches with partners. For DUPIXENT, we're going to continue to transform the treatment of Type 2 inflammatory diseases, maximize the launches that are already out there. We have a big age group coming. It's the Ps, it's the 6 to 11s. We have a PDUFA date in May for atopic dermatitis, and then we're going to have asthma following up on that. And I'll get into DUPIXENT. We also announced a couple of other Phase III development programs that are off and running, initiated in the fourth quarter. With regards to oncology, early days with Libtayo as our foothold and foundation in this space. We're going to continue to work to be a major player in IO with our strategy to compete, enhance and extend benefits to a broader set of patients. And you can see off to the far hand, the right-hand side, that we also have specialized growth opportunities. I'll pick just 2 of them. On C5, we have a mono C5. We're actually going to be getting into the clinic with Alnylam's RNAi, cemdisiran product shortly and then fasinumab. So there was a lot of news today by Pfizer and Lilly, their filing got accepted by the FDA in NGF. We have our own NGF product coming. We're going to announce results sometime in the second half. We look -- continue to look favorable on this product and certainly favorable indications with the FDA accepting the Pfizer and Lilly filing earlier today. As I get into EYLEA, EYLEA had a very strong 2019. Global sales grew 11% in the fourth quarter, 12% for the full year. U.S. EYLEA grew 13% in Q4, broad-based across our indications in a growing, and let me stress, it's a really growing anti-VEGF market. So for all of 2019, in the U.S., VEGF-branded market grew 13.1%. So again, that's a real good tailwind that we're ending 2019 with. I mentioned earlier, we have approval in diabetic retinopathy indication. We got that last spring. And we expanded our sales force last spring upon getting this into 2 groups, into wet AMD and into going after diabetes, particularly DME. And again, it was a move by our -- made by our commercial team that has really been fruitful, and we've seen benefits of that this year by basically splitting what has been a single sales force since our launch in 2011 into 2 different groups to kind of go after these 2 indications. And we've been pleased with the results of that change. In December, like I said, we initiated a Phase II launch in the high-dose EYLEA program, and then we have the EYLEA prefilled syringe that I mentioned earlier. With regards to DUPIXENT. DUPIXENT's our flagship product, developed and commercialized with our collaboration with Sanofi. Drug had a strong fourth quarter at $751 million globally. That's a $3 billion run rate in terms of where we are now. Launch is in AD, asthma and chronic rhinosinusitis with nasal polyps have been doing very well. And we have, like I mentioned, upcoming additional age groups and indications expected. And we're just getting going. Our partner is just getting going with regards to ex U.S. launches in asthma. There's still a lot to be had there. When you look at the graph, to the right, it highlights weekly new prescriptions. Significant weekly NBR advances demonstrates the net sales' potential that Sanofi has put out to the marketplace with regards to a EUR 10 billion potential opportunity. As you can see, with DUPIXENT, not only success to date, but we are just getting started with regards to the indications we have. Immediate near-term opportunities are listed and include a May 26 PDUFA date on AD pediatrics between the ages of 6 to 11. We have key 2020 data readouts in EoE, in asthma and peds. And then longer-term opportunities, we are going to show people data with regards to the airborne allergies. We're doing this both in mono, and we're doing this with Aimmune in terms of a combination. And then we're going to be getting into food allergies. And then additional indications, which was really put on to people's radar in the fourth quarter, and you can see it there, whether it be bullous pemphigoid or the other indications listed, all nice, niche opportunities and a couple of those have already initiated Phase III studies in the fourth quarter. Let me say that we're excited with the progress we're making in oncology, and it all begins with our PD-1, Libtayo, which was launched in cutaneous squamous cell carcinoma. It's now the #1 systemic treatment in CSCC, overtaking other anti-PD-1s as well as chemo since our fourth quarter 2018 launch. And again, Sanofi is our collaborator on this. We record the sales in the U.S. Sanofi records ex U.S. We are just getting started, that is Sanofi with regards to ex U.S. launches. And one of the beautiful things this drug is doing, it's getting it into the hands of doctors, and doctors are getting experience with Libtayo, with our PD-1. Key advancements in oncology during the year. We had an important data readout for Libtayo versus chemo in the fourth quarter in our mono first-line non-small cell lung trial. At ASH, we updated our CD20, CD3 data. And we're in a potentially pivotal study, got initiated, and we presented, for the first time, BCMA data. And really coming away from ASH, we wanted people to know that we're getting validation with regards to our platform and bispecs by not only CD20, CD3, but also BCMA, and you'll see later on how that's important with regards to our platform. We also initiated our first patient with PSMAxCD8 costim bispecific. So our first patient is in the clinic with regards to that. And then we obviously have other collaborations and advancing previous collaborations that we've made on that. Okay. So our oncology strategy. It begins with Libtayo, where we believe we have a potentially best-in-class molecule that can compete in the large IO market. This is a large market, as you know, with PD-1 market sales currently in excess of $21 billion, and a sliver of that would be a meaningful part to our business. We're competing in CSCC, and we have the 2 immediate things on the horizon, our basal cell, which we'll be reading out in the first half, and then lung. And we're expecting readouts for both of those this year. As good as the IO market is today, only a fraction of patients benefit from current treatments. We want to enhance the benefits of IO for more patients where PD-1 directed drugs are indicated. And I'll show you in a minute, we have a portfolio of bispecs and other combinations with Libtayo to accomplish that. Now as we know, there are also tumor settings with limited responses to checkpoint inhibitors, such as prostate, colon, breast and hematological cancers. We believe our novel therapeutics, our bispecific platform, can extend responsiveness to these hard-to-treat tumor settings. And again, despite all the breakthroughs in IO over the last few years, we still see a significant opportunity for Regeneron to be a player in this category. Now how are we going to do this? Well, it's all going to come down to our toolkit, where we have a unique platform where it's going to generate and combine antibodies against many cancer treatments. Again, I mentioned Libtayo as our foundation -- foundational approach, but we can combine with Libtayo, our wholly owned CD3, CD20 bispecs, our novel in-house targets as well as partnership assets with novel modalities such as CAR-Ts, oncolytic viruses and vaccine-like approaches. Moreover, we remain active in business development. And the beauty of this platform is that everything is under one roof. So there's a ton of combinations that we think we can do off of this. You can see here our pipeline reflects the combo flexibility I mentioned. We have 6 bispecs currently in the clinic, alone or in combination with Libtayo, and we have many more in preclinical development. And you can see from this oncology pipeline slide, potential treatments for lymphoma, myeloma, lung cancer, prostate cancer and many others. And we're in the clinic with potentially pivotal trials in basal cell, cervical, non-small cell lung and adjuvant CSCC. If you followed Regeneron, you know that our research and development efforts span well beyond oncology. Everything you see on the chart has been discovered in the labs in Tarrytown. We have a broad pipeline of early and late-stage treatments, in therapeutic areas ranging from pain, cardiovascular disease, on allergic conditions, ophthalmology, infectious diseases and rare diseases. And in fact, we have both evinacumab and FOP that are expected to be filed this year. Getting to regulatory submissions in 2020 alone, we have potential for 6 submissions depending on trial readouts, including for Libtayo in lung cancer as well as some of the other rare disease opportunities I mentioned. And again, we're very proud of what we have coming up, and there's a lot of catalysts in our near future. I talk a little bit about the balance sheet. We have a lot of optionality. We ended December 31, 2019 with cash and marketable securities of $6.5 billion. We have no debt on our balance sheet. We reported free cash flow of $2 billion for the 12 months ended December 31, 2020 (sic) [ 2019 ]. In November, and related to the optionality we have on our cash -- on our balance sheet, we began discussing a lot more with regards to our capital allocation framework and priorities. And our initial goal will be to continue to fund internal R&D. We've had very high returns on the historical funding of that. So that's going to remain our top priority. And we think it's critical to our shareholders and our business to continue with this. Second, we're going to seek to complement our internal efforts with external strategic partners. Over the last 18 months, we have been active. We've invested in excess of $950 million in both equity and upfront payments. We're looking at strategic opportunities in RNAi. We did that with Alnylam, oncolytic viruses. We did that recently with Vyriad, CAR-T therapies. We did that with bluebird. The third component of our framework is returning cash to shareholders. Again, this is something totally new to Regeneron. But with the strength of our balance sheet, improved diversification of our cash flows and confidence in our long-term outlook, we announced as part of our November earnings release that we received approval from the Board to do a $1 billion share buyback. We have instituted $250 million of that through December 31, 2019. Let we spend a little bit of time with regards to our antibody agreement restructuring. So this was announced by both Regeneron and Sanofi on Sanofi's Capital Markets Day in early December, in which we're going to rearrange the antibody licensing collaboration agreement that's currently in place. To start with, no change in DUPIXENT. Both companies will continue to commercialize that. With regards to PRALUENT, Regeneron will take on sole ownership of PRALUENT in the U.S. Sanofi will have ownership of it ex U.S., and Regeneron will receive a royalty associated with that. Sanofi will have global rights to KEVZARA, and Regeneron will be the recipient of a royalty associated with that. Now again, the benefits of the restructuring agreement will be improved profitability, increased efficiency of PRALUENT and KEVZARA, and again, to kind of take that energy that's been with PRALUENT and KEVZARA and focus that on DUPIXENT, and it's going to simplify the antibody collaboration, particularly the accounting around the antibody collaboration. The deal is expected to close in March 31, 2020. And at that time, we're going to hold a 2020 guidance call to discuss our guidance for the year because we have not yet given that. Before concluding, let me spend a moment on the emerging coronavirus outbreak. We've received several questions on our efforts to combat this public health issue. I would first like to say that Regeneron has spent the last 3 decades in investing billions of dollars of time and talent to build our proprietary VelociSuite technologies, which is what you see on the slide, a fully integrated platform from discovery through manufacturing. And again, it's this technology that has led to our 7 FDA-approved drugs, and it's been leveraged to rapidly respond to other emerging threats that we've had, like MERS and most recently, Ebola. And now we're going after COVID-19 coronavirus outbreak. Our technology platform has allowed us to dramatically reduce the time lines for discovery, preclinical testing and manufacturing of clinical material, allowing for rapid introduction for human use in just a matter of months. And again, the most recent example was with Ebola, where the program is under regulatory review right now with the FDA after being deemed superior to a standard drug. And the PALM trial was positively stopped in August of 2019. So where are we right now? With the new coronavirus outbreak, we have already immunized mice to develop fully human antibodies to the infection. We are now at the point where we are identifying lead candidates for treatment and prophylaxis treatment. It's our intent to have the lead antibodies manufactured and ready for clinical trial use later this summer. While we're not able to share more details with you at this time, know that this is a priority for Regeneron to address this important human health need. Okay. In summary, we have a very catalyst-rich year ahead of us with numerous regulatory and clinical milestones. We have key data readouts in Libtayo with basal cell and non-small cell lung with DUPIXENT. We're going to do a Phase II portion of EoE, and we're going to have data on our Phase III study in pediatric asthma, ages 6 to 11 years old. We're going to have fasinumab data in the second half of the year. We're going to report our interim results on our Phase II PNH C5. And we continue to report a -- report out data on CD20, CD3, BCMAxCD3. Okay. Yaron, that concludes my quick presentation, and now we'll go on to Q&A.

Okay. Great, Bob. All right. Let me talk first about, so it sounds like this is the first I've heard you say March 31 close for the Sanofi restructuring. And I -- we know about the call, but I just want to clarify, is it -- 3/31 is the date or it's going to be by 3/31?

It will be by 3/31. Teams are back in Paris and Tarrytown, working very hard to get the deal consummated. And Yaron, there's a lot to it. I mean it's not all just kind of an asset swap, but it's all the manufacturing tech transfers, BLA, who's got the what on the filings. Okay, so there's a lot there.

Okay. Yes. So it's by 3/31. I wasn't sure if it's going to be 3/31 or that was the date. Let's talk about, so we look through your financial statements, and you've been clarifying things ever since the collaboration turned profitable in Q2. So the profitability to Regeneron of global sales was about 6% in Q2. They went to about 13.8% in Q2 -- in Q3, to about 12.8% in Q4. And that's before your sort of payment, too. So I'm kind of -- looking like you reach about 25% margins, operating margins. Is that the ballpark?

I mean that's where we are right now. So what Yaron is referring to is we disclose what our antibody profit is with Sanofi. And if you take that as a percentage of net sales, those are the percentages that he read off. Now embedded in that, and we've been very clear in the last 2 quarters, is that, I mean, we've been incurring pretty sizable losses with regards to our PRALUENT and KEVZARA businesses. So we've also said that the transaction is going to be immediately accretive to Regeneron. By giving KEVZARA back to Sanofi, we'll now collect the revenue, and we're going to keep the U.S. business. So again, Yaron, you're going to see kind of different percentages going forward. And certainly, as we're able to leverage DUPIXENT a lot more. And an underestimated fact by our shareholders and investors is there's still a lot of investment left with regards to DUPIXENT. As most of you know, we're running a lot of commercials with regards to atopic dermatitis and asthma. And on top of that, there is still a lot of ex U.S. businesses, particularly with asthma, that have yet to be launched. I think Sanofi, in their January conference call, mentioned something like 90 launches coming up. So the figures you've read are burdened by prelaunch expenses, and we do expect to get, Yaron, good leverage going forward on that.

Yes. Now the DUPI stays the same for the collaboration. It's a 50-50, but then you pay them back up to 10% of your profits to repay back historical losses. I imagine...

Yes -- not historical losses, historical funding that Sanofi has done on behalf of the collaboration with regards to getting DUPIXENT to market.

I assume that won't change. If you owe them an x amount of money, you would still owe them that x amount of money historically.

That's not changing in the agreement.

Yes. And you would come out of the DUPI portion from that point onward.

Yes, exactly.

What is -- I'm just trying to understand, when you look at DUPI and KEVZARA -- and I'm sorry, PRALUENT and KEVZARA, part of the restructuring, it's -- you're going to get double-digit royalties, you're paying considerably less, you're not paying them any royalty on PRALUENT, and it's a great deal for Regeneron. What is Sanofi getting out of this?

Well, I'll say for clarification, Regeneron is not paying a royalty on PRALUENT, double-digit royalty on KEVZARA and single-digit royalty on PRALUENT ex U.S. So again, the question, Yaron, is what is Sanofi getting.

It's a good deal for Regeneron. Is Sanofi going to now tone down the promotion and their spending on those products as well? Or...

I'll have Sanofi talk to that with regards to KEVZARA and ex U.S. PRALUENT. I mean we look at it as a good deal for both. Yaron, there has been a lot of well-meaning effort to exert it for both KEVZARA and PRALUENT globally. And to the extent that we can take that effort and harness it better into a DUPI thrust, will benefit both sides meaningfully.

Okay. And we're calculating that you're probably spending somewhere in the neighborhood of $200 million to $500 million in KEVZARA and PRALUENT globally. Is that in the ballpark?

That's in the ballpark.

Yes. Combined. Okay. Question on just the recent cases that have risen with the oval -- occlusive retinal vasculitis, which will change the dynamic for this year. So whatever business plan you had for the year, the competitive landscape has now changed materially, whether that's permanent or not and what the future really holds. I think we're all -- it's a fluid situation. But regardless, any initial thoughts how that changes your plan, whether you have more room for OpEx now, or you don't need to compete as much on the discounting front, or any initial thoughts?

No, we've got asked that question a lot from investors. I mean our reps are continuing and kind of stay the course, stay the message. Again, we always thought it was the safest product out there with great efficacy. So nothing on that has changed. Yaron, one of the -- and I got into this a little bit on the presentation. One of the things that we did do in the middle of last year is by splitting out our sales force. There still remains a lot of effort with regards to the education of DME disease for those that are diabetic. It still remains a very unpenetrated market. And we made some efforts in 2019, thanks to the great sales reps that we have. But again, we expect to have even a further push and put some money behind that as we continue to educate. And that could look like new technology is being used by individuals to determine whether or not they do have a disease. If you're diabetic, we strongly encourage people to get their vision checked regularly. So we're kind of staying the course. There hasn't been any major pivots as a result of last week's events.

Okay. Justin, I'll put you on the spot quickly and Libtayo chemo combo studies, plus or minus Yervoy. So your trial design is sort of a hybrid between KEYNOTE-189 and KEYNOTE-407. And this is an area that you know extremely well, with your prior experience at Merck. Can you give us a little bit of an understanding of the trial design and what Regeneron had in mind the way your study was designed relative to those 2?

Sure. So KEYNOTE-189 and 407 were studies looking at the combination of PD-1 plus platinum doublet in non-squamous and squamous histologies, respectively. The study that we're running, the Phase III, combines Libtayo with platinum doublet. But it has both histologies within the same trial. So it's stratified for PD-L1 status, stratified for histology. And so this is a study that we're about 50% enrolled. More than half enrolled as of the last earnings call. We do expect to be fully enrolled this year. And I would say, both with our monotherapy study as well as our combination study that you're referring to, this is really just the beginning of our vision for Libtayo within the treatment of cancer. As Bob referred to earlier, we look to compete in this $20 billion-plus PD-1 market, but we wish to go a whole lot further than that as it becomes apparent with our portfolio of bispecifics. We already have a METxMET bispecific in the clinic for lung cancer. There will be more that come into the market for -- or I'm sorry, into the clinic for multiple types of cancers. So I would just encourage you to think nearer term. Obviously, these are important opportunities for us within the lung cancer space, but our vision for Libtayo and for Regeneron in immuno-oncology goes well beyond that.

Okay. And your trial design stratifies by histology in PD-1 status, and so it's almost like 2 studies within one and the primary endpoint will be done by histology separately.

It's done on the entire population.

On the entire population. And the secondaries are looking at survival by histology then?

Overall response rate is part of it. There are a number of prespecified secondary analyses.

Is it possible to hit survival and still get approved in one histology and not the other?

The primary endpoint is looking across the entire population.

All right. Okay. I think we are just about the top of the hour. So Bob and Justin, thanks so much joining us. We appreciate it. We'll head over to the Tufts Room.

Thank you.