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

Welcome, everyone, to the Jefferies London Virtual Health Care Conference. My name is Biren Amin. I'm one of the biotech analysts here at Jefferies. I'd like to welcome Regeneron and their Chief Financial Officer, Robert Landry; as well as Head of Investor Relations, Justin Holko. So before -- this will be a fireside chat format. So before we get started with the Q&A, I believe you have forward-looking statements that you'd like to read, and then maybe we can get started. But welcome, Bob and Justin, and thanks for attending our conference.

Sure, Biren. Thanks very much for the invite. This is a conference we've been at the last couple of years and have always enjoyed attending that. And to everyone on the virtual environment, good morning and good afternoon to everybody. So as Biren said before we begin, let me remind you that today, there will be remarks on this webcast, that will include forward-looking statements by Regeneron and are subject to risks and uncertainties that could cause actual results and events to differ. Everybody knows a complete description of these and other materials can be found in our SEC filings, including our recently filed November 5 10-Q in our year-end 10-K we do not undertake any obligations to update forward-looking statements, whether as a result of new information, future events are otherwise. So I told Biren before we jump right into Q&A, I was going to just give a very brief kind of recap on the quarter. I mean it is still very fresh, given our collaborations, we always kind of be -- we're always one of the late presenters because we need to get, obviously, the Bayer and Sanofi information to roll up our financial statements. So having said that, we had a very, very strong third quarter earnings, which included broad-based double-digit growth on both the top and bottom line. Again, we're talking 32% on the top and 25% on the bottom. On the commercial front, I think we surprised everybody with EYLEA. The expectations were very low going into the quarter, and we had a really nice rebound. We're -- our reps are still in the virtual format with regards to the promotion. But clearly, we were able to get people back into the doctor's offices and kudos to the retinal offices and being able to kind of adapt to this environment. We are closely monitoring what we're seeing with regards to COVID-19 coming back, and it may impact future demand in Q4. So we got a close eye on that. With regards to Dupixent, again, another strong performance. I like, and I encourage people to go to the 10-Q, I mean, we're starting to get some nice leverage with regards to the profitability associated with that, that helped to drive our Sanofi collaboration revenue numbers. On the R&D pipeline, we presented Phase III Dupixent asthma information, which was very, very good. We expect the filings to be in first quarter of 2021. We are granted FDA breakthrough designation on EoE. So again, we're starting a Part B of the Phase III study in 2022. We're very hopeful on that. We filed Libtayo, both the non-small cell lung in BCC, and we received PDUFA events, and that's coming up actually at the end of February and early March. And actually, we got priority review on both non-small cell lung. And we provided -- people may have seen abstracts with regards to the upcoming ASH trial. So that's out there, and we're eager to present that in early December at the ASH meeting. COVID-19, there's a lot out there. I personally thought some of the progress and the good diversification we made in the fourth quarter was our third quarter was washed over by all the COVID information. I mean, I get how important that is. But certainly, there's a lot of other things happening at Regeneron other than COVID and Biren with that, we can jump into things. Again, we also announced -- and I want to highlight this, we made it to the Dow Jones Sustainability Index for the second year in a row, something that we've been striving for and that we're very proud, and we're starting to make really nice efforts in our kind of ESG environment. So Biren with that kind of intro, let me kick it over to you for the first question.

Yes. Thanks, Bob. So a lot's happened since we've had our investor event in London last November. I mean back then, I think the talk and the focus for investors was your revised agreement with Sanofi on Praluent, Kevzara and since then, Sanofi's divested nearly all of its stake and Regeneron's purchased $5 billion in stock back from Sanofi of its original holding. So I guess, what's -- going forward, what's the best use of the company's balance sheet? And as you think about over the next 12 to 24 months, the pipeline investment. You've clearly -- this year, the company stepped up with COVID research and have spent hundreds of millions of dollars behind developing the COVID cocktail. So just walk us through how the -- what the company's outlook is? Especially, given the COVID situation, how it continues to remain somewhat in flux?

Yes. Thanks, as you were stating that question, I'm thinking aback being on stage at the last Jefferies conference, which was kind of the second week of November. And I was just coming off of getting our Board to agree to a $1 billion share buyback, an inaugural buyback. And maybe at the time, I can't remember exactly what we were saying, but back at that time, we saw a huge dislocation, a huge dislocation. And I was really kind of proud of the company that we could pivot so quickly with regards to how people were valuing us back in the day and what we were seeing. I mean we were getting no credit for Libtayo in our I/O franchise. We were certainly going to get crushed by Beovu. And then IPI was the talk of the day in terms of what it was going to do to Medicare Part B. But even despite that, we saw a huge dislocation between our intrinsic value in the company and what the company was being valued at so we went ahead and started buying back shares aggressively. And I'm proud to say now that we've picked up a lot of shares with the 3 handle. So when you fast forward back in May in -- based upon commentary that Paul Hudson was making about approaching divesting the 23% ownership that Sanofi has in Regeneron, again, we tried to be opportunistic. We tried to use our balance sheet. We tried to use the optionality and coming off the heels of the PNC BlackRock transaction in the middle of May, we thought it was a great time to approach Sanofi and put this construct together where we would basically, overnight, get rid of a, what Len and I thought was going to be a pretty nasty overhang to our shareholders. And then in the same breath, we were able to buy back $5 billion of stock at $509, which we thought was going to be a really, really attractive price. So again, back in November, Regeneron, who was not used to doing these type of things, we immediately pivoted. We saw again some kind of dislocation in the stock, and we thought we could pick it up at $509, we'd like those levels. Given everything was happening, particularly with regards to Beovu running into issues and everything, the Libtayo data that we disclosed. So we moved forward on that and then Biren to go 1 step further, we then entered the debt market, which people would think would be crazy for Regeneron to do. But in second week of August, we just saw historically low rates and went out with kind of record-setting 10- and 30-year rates to kind of add some -- I wouldn't say necessary leverage, but good leverage to our balance sheet. We currently sit here at $5.9 billion at the end of September, having bought back a lot of stock. We like where we are. Our priorities remain the same. I mean like we said, internal research capabilities, the fact that we were able to kind of fund a lot of additional COVID, I mean that's where our direction is. We think it's the best value for our shareholders to the extent that we invest in the long term. We have no shortage of discovery ideas. We are starting to get more ideas externally which I would say is another leg of the stool as it pertains to our capital allocation. I think Len, myself and the team and George Yancopoulos in particular, we've been going outside a little bit more with regards to picking up modalities, whether it be the CRISPR modality from Intellia that we just did a deal with not that long ago or Vyriad on oncolytic viruses and the like. So we are starting to dip our toe into that more. I think shareholders will see our 2021 R&D, having more of that flavor in there as these partner collaborations start to move. And then I would conclude with regards to the third leg on just being strategic with our cash, looking for dislocations that we saw back in May, back in November, where we did buybacks in to the extent that we can do some shareholder return on that. We're certainly not afraid of it. I think people thought that we were afraid to leverage, afraid of kind of buying back. It's just not within our modus operandi, but it's totally not like that at all. And we like having optionality with our balance sheet. And I think we've proven in 2020 that we can move when there are dislocations out there. So again, that's a long-winded answer, but I very much appreciate the question because we've taken really good pride on the use of our balance sheet in 2020.

Maybe if I could just have a follow-up on that. You mentioned you look externally. And you -- I think the company has been very disciplined as, I guess, how I would characterize it, in terms of external opportunities. You have, for example, the Alnylam collaboration. Is that the type of collaborations that you would seek in the future? Or could you even potentially even pursue a bolt-on acquisition, which I think the company has never done in its history?

Right. Biren, I mean, I've learned in my time here never to say never. But I mean, I think people think our opportunity -- that we're more willing to look outside, and it just doesn't have to be with labs of Tarrytown in order for us to do. George is pretty open-minded on that. We do like gene therapy on that area. We like dipping our toe, and we've usually making an equity investment when we also dip our toe in these arrangements with regards to Alnylam and Intellia and the like. bluebird is another example from a couple of years ago. So we're going to continue to do that going forward. And again, we're hopeful with our collaborators that you're going to start to see the progress as we issue our 10-Q each quarter, and we're talking about what's in our pipeline, you're going to start to see these things blossom within the next 12 months and hopefully start to see the value that we invested in when these things were kind of discovery investments from the past.

And then, I guess, what additional pipeline opportunities what pipeline opportunity should investors look forward to in 2021 in terms of key catalysts on data that you could deliver in 2021?

Yes. I mean first and foremost, and this all is going to happen within the first 4 months of 2021 are going to be the PDUFA dates. Like I said, we got priority review on Libtayo in non-small cell lung and in BCC, and those are going to follow late February or early March. I think in the middle of February, we have evinacumab, which we're very proud of. I mean it's got really good data and that's for HOFH, maybe not the biggest class, but kind of another nice little diversification. We're also seeking the Praluent -- another Praluent indication with regards to that. Future catalysts and advancements in I/O. We are fully enrolled in the chemo combo non-small cell lung. There are interims coming up, kind of fingers are crossed that we're going to hit one of these interims and maybe have a Phase III readout in 2021, that would be very exciting. Our Libtayo second line cervical cancer is going to have a potential readout in Q3. We're going to complete enrollment in a potentially pivotal Phase II study in non-Hodgkin's lymphoma with our CD20, CD3, which I'm sure people feel like has been in the clinic for a long time. But again, we're starting to make some nice improvements or advances on that. People will see that at ASH. And we're doing a lot of dosing with regards to MUC16xCD3 and PSMAxCD28, our first costim and we could potentially have Phase I data. So we're going to unveil some I/O cards for sure in 2021. The first half of it will be on product approvals and the like, and the second half is going to be a really -- a show-me story with regards to bispecs and costims so no shortage of catalysts for Regeneron.

Okay. And then maybe can you just talk about the COVID antibody? And you've clearly filed for EUA, so what are the kind of -- what's Regeneron's plans in terms of distributing the antibody? Would it strictly be in the outpatient setting? And what logistics do you need to solve in order to, I guess, deliver an outpatient setting to patients?

Yes. I mean, I'll try to give some background on it without going into tons of inside baseball. But Biren, you're right, we did submit and we told everyone we submitted an EUA request in early October. And that's for the treatment of mild-to-moderate COVID-19 in adults and pediatric patients who were at high-risk for progressing the severe COVID-19 into our hospitalization. So it was the data -- the 799 patients from our ambulatory study was the first to read out. And the treatment is 2.4. It's a 2.4 gram treatment. It's a dual-antibody cocktail to avoid any kind of virus escape. We're waiting on regulatory action. Biren, we come in each day, hoping that today is the day that we're going to get it. We continue to answer back and forth questions with the FDA. The fingers are crossed, maybe it comes next week, this week. We're anxious on that. With all that happening, we're still enrolling a lot of patients in our hospitalized treatment study, our prophylaxis study, and we have a healthy volunteer study. Additionally, we're participating in the U.K.-based recovery trial, evaluating CoV-2 in hospitalization patients. So although the EUA is coming in the ambulatory setting, there's still a lot of enrollment in eventual readouts that we're going to do. We currently remain blinded to all of these studies with the exception of the ones that we read out. We hope to share data as quickly as possible in order to get it to -- out to the public in terms of what we're seeing. On the commercial front, first and foremost, and we've recorded roughly $40 million of sales since the DoD contract, of which we have a $450 million commitment, which is roughly 300,000 doses at 2.4 grams. We did -- we'd like to disclose things that are asymmetric, and we did say from an asymmetric perspective, that roughly half of that contract will be realized in the fourth quarter, we recognized $40 million in Q3, and the rest we'll recognize in the first -- early part of first quarter 2021. We also signed up with Roche, which is, I have to say, going very well. First and foremost is, we need to get the technology to Roche, right? We have the cell banks we have the secret sauce that we're able to do it. So we've been spending the time basically tech transferring this over to Roche, who's going to bring in a lot of capacity to us on that. So that all seems to be going well on that front. The distribution of this is going to be through the U.S. government. We have a distribution agreement with the government in which our requirements are to manufacture the product, the 300,000 doses and to make those available to the government. We had said that we expect, I think, 50,000 doses or 50,000 patients can get dosed now. We expect to have 80,000 by the end of November, 200,000 by the first week of January and our full commitment by the end of January, and that will take care of that. But concurrent with that, we continue to produce product as will Roche for the kind of the next leg up, which could be another agreement with the government. We're in discussions with them on that. It could not be or it could be right to commercial use. So all those options are on the table. I'd say, first and foremost, we're kind of working like heck to try to produce as much as we can and take care of our first DoD agreement. We did say publicly, Biren, that in 2021 with Roche, we think we can do, I don't know, maybe hope to exceed 2 million doses between the supply that we add and they add. So a lot of different things happening, a lot of things happening concurrently. Very pleased with our initial readout with regards to viral load and the people that we can -- the high-risk people that we can impact and the data that we've shown in terms of limiting kind of hospital stays and telemedicine visits and all the like. So all that is going well. And I'm one anxious CFO kind of waiting for the EUA to show up.

Got it. And then you mentioned the Roche deal, what are the economics of Regeneron?

Yes. So our agreement with them was the shore up capacity. As you know, I mean, they're very good with regards to their antibody production, and we thought that they would be a perfect match to which they've been. We've said publicly by bringing them in, they've increased our capacity by 3.5x under the agreement, the Roche product, once it's approved for sale, then we are required to -- each party is required to manufacture. We're going to do 40,000 liters of capacity, and they'll do 100,000. We'll allocate the total output 50-50. And as we stated, and then we'll get kind of 50% to 60% of the economics on the gross profit coming from the collaboration. So we'll get our gross profit, and then we'll get a good percentage of the gross profit that's coming on the 100,000 liters that they are manufacturing and that they will have responsibility to supply ex U.S. We continue to look for kind of increasing our capacity. We've done, Biren, -- and I think Len may have mentioned this, we've kind of really done heroic efforts to try to free up capacity. It's rare that we have that much capacity sitting around. But with our industrial supply team, we've taken Dupixent out of the U.S., and we've moved it ex U.S., and we've freed up capacity in the U.S., and as a result, we're going full bore with regards to our manufacturing suites making REGN-COV2 on that front. So all good. We're anxious to get our EUA, anxious to get our approval and anxious for Roche to start getting their international approval, and then we'll be off to the races. Like the modeling question. We're sitting here trying to put together our 2021 budget. And yes, I mean, it's a little bit of an unknown in terms of what this is going to do, right? There's a funnel of patients and the vaccines came out, hurray, for Moderna and Pfizer with regards to great efficacy and what that will mean. But as you can appreciate, Biren, and I hope shareholders can appreciate, there's still going to be a percentage of the population that's just not going to take the vaccine, particularly maybe not the type of vaccine that it is coming right out of the shoot. So we do think that there is going to be a market for us and Lilly here. It's a matter of how big the size of the market. You can get to some pretty big numbers pretty quickly on this. But we have to wait and see how the next couple of months evolve, and we'll take it from there.