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

Okay. Let's go ahead and get started. Thanks, everybody, for joining us. My name is Chris Raymond. I'm one of Piper Sandler's biotech analysts. Pleased to have with us our next presenter, which is Regeneron Pharmaceuticals. We have joining us today, Regeneron's CFO, Bob Landry; and also Justin Holko, who is the VP of Investor Relations. So we've got a lot to talk about in this fireside chat format. We have about 25 minutes. So I think what we're going to have Bob do is to provide just some introductory comments, and then we'll dive into questions. So Bob, please take it away.

Great, Chris. Good morning. Nice to see you. And good morning, good afternoon to everyone, who's joined us today. Thank you for inviting us to your conference. So before I begin, let me start with some introductory comments. Let me remind you that today there will be remarks on the 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 materially. Everyone -- everybody knows a complete description of these and other material risks can be found in Regeneron's SEC filings, including its recently filed third quarter 10-Q and then certainly our year-end 10-K. We do not undertake any obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. So very good. So again, good morning and good afternoon, everyone. Just some opening comments with regards to what's happening at Regeneron, and then Chris and I will get into dialogue on a bunch of different questions. So as we look to close out 2020, we, as a management team, are very proud of our 2020 accomplishments. I'm going to highlight a few recent events. And I know it feels like -- it certainly feels like within the -- within Regeneron, it's all been about COVID-19 in the environment and where we are. Sometimes, Justin, and I think that what gets missed is everything else that's happening contiguous with that. And with me, starting with our double-digit growth on both top and bottom line for the past few quarters, particularly with regards to our third quarter, which showed a year-over-year revenue increase of plus 32% and 25% with regards to EPS. Our growth is being attributable to our increasing diversified revenue and cash flow streams, particularly driven by Dupixent in the alliance profitability. Our pipeline, despite COVID-19, is advancing across all stages. With regards to Dupixent, we've started or will start shortly robust clinical programs in Phase 3 trials for 8 potential new indications, we announced with Sanofi at the end of Q3, an additional 3 new indications. And they're all going to be Phase 3. These are in process now or are starting very soon. We also announced earlier this week that Dupixent has been approved at by the EU as the first and only biologic medicine for children aged 6 to 11 years with severe AD. As you know, U.S. approval came earlier in the year. In October, we announced a Phase 3 Dupixent trial met its primary and all key secondary endpoints in children aged 6 to 11 years with uncontrolled moderate-to-severe asthma. Now again, we look to file that in the first quarter of 2021, for both the U.S. and EU. And additionally, the FDA granted breakthrough designation recently for the treatment of patients 12 years and older with EoE. We expect to report results from Part B of the Phase 3 trial study in 2022, and that's progressing nicely. We filed Libtayo's BLA for non-small cell lung mono in BCC, and we received priority review and anxiously awaiting the PDUFA, which is going to come at the end of February and early March [Audio Gap] on CSCC. Very, very shortly, we're going to be presenting data at ASH. We have an event -- an investor event on Monday, December 7, at 4:30 p.m. So I encourage people to attend that if they do have a [Audio Gap]. And just as a general note, we don't talk about this a lot, but certainly, next year, you'll see it as -- this year, as we close out, I mean, we've brought more INDs into the clinic than we ever have before. And for the first time, it's not just kind of the all organic Regeneron INDs. We are bringing collaborative INDs into the clinic. And if we have time, Chris and I will talk to that. Let me conclude by just saying, our fight against infectious disease is to kind of get everybody up to speed. Our COVID cocktail was granted in EUA for the treatment of mild-to-moderate COVID-19 in adults and pediatrics, who are SARS-CoV-2 positive and are at high risk for progressing the severe COVID-19 indoor hospitalization. And we are right now, you saw a little bit of it in the third quarter, we're in the process of delivering batches to BARDA under our $450 million supply agreement, while having also executed a global supply agreement with Roche over the summer. And I'm sure Chris and I will get into that. And as we get into 2021, particularly the early part of 2021, new product launches, right? I mentioned Libtayo, non-small cell lung BCC, very exciting. We'll be doing evinacumab, a rare disease and HoFH. We're also going to get an additional indication in Praluent, hopefully for that. And then we will have the Dupixent in pediatric asthma in the later half of the year on that. So just a lot going positive momentum. I know there's been a lot of focus on COVID-19. It's fun to talk about. We're very proud on what we're doing. But certainly, Justin and I want to make sure that everything else doesn't get missed in the midst of what's currently going on. So Chris, that was my quick couple of minutes. I'll hand it back to you for your opening question.

Great. Yes. And so clearly, a lot going on, and we could probably talk for a couple of hours, but I think we've got about 20 minutes left here. So I'm going to try to pack as much as I can into the time we've got. So thanks for that intro, Bob. And I guess, I do think it's important that we get into a lot of the P&L drivers, but there has been just -- as you can imagine, just a ton of attention on Regeneron CoV-2. So maybe we'll start there and just try to understand a little bit about the P&L impact, I guess, to the extent that we can. I know you haven't guided to it. But just trying to set the table. So you have EUA, and you're targeting 300,000 doses. I know that's all sort of part of the BARDA contract, the 300,000 doses by the end of January. And then what you guided to is, with Roche, you'll have 2 million doses, at least, I think, by the -- in 2021. So just on the economics, walk us through the mechanics. I get this question from folks. We tried to spitball what the impact would be next year, and we got a lot of questions from investors on this. Just walk through the mechanics of the profit split with Roche? I know some of that depends on when their production capacity ramps and ex-U.S. approvals come online? But in general terms, walk us through the mechanics there.

Sure. Let me give you some background. So our agreement that we executed this summer, I mean was necessary to help us shore up the capacity concerns by bringing this product into the fold. Roche, as you know, I mean, they have great capability. And they'll be responsible for manufacturing and supplying the cocktail in ex-U.S. markets, Regeneron will provide the cocktail in the U.S. The deal and it's still -- I would say the amount of doses that may come out of this is still in flux. As of right now, I mean, we've reported that we expect to do a minimum of 2 million doses annually, while providing Regeneron with the favorable economics. And under the agreement, once Roche is approved for sale, either in the U.S. or EU, then we were each required to manufacture product at a minimum committed capacity. We're at 40,000 liters. They're at 100,000 liters. We're then going to allocate the total output, 50 to 50. So if we're short in the U.S. with regards to output because we have the U.S. market, we will use some of their capacity in order to meet the demands in the U.S. And as we've stated, and I know this is a generality, and Justin and I will work either sometime in January or maybe during our February earnings call to provide more information because I do think it's a little asymmetric in terms of how the profit is going to work. But we've said publicly that we're going to recognize 50% to 60% of the global profits from the collaboration. And again, those levels can fluctuate. So the more we do, the higher our share will be. But based upon the 40,000 liters and the 100,000 liters, how that splits up, I mean, we do expect to get 50% to 60% of the global profits. And Chris, this is still being worked in terms of how it's going to be accounted for. Certainly, the part in the U.S. will probably report that as net sales. And then the piece that comes in on the ex-U.S. gross profit will be a consideration of another collaboration. So in addition to the Bayer's collaboration, the Sanofi collaboration, you'll look to find a Roche collaboration. And we'll make sure that everybody is clear in terms of the modeling on that. We continue, Chris, to work like heck to try to find additional capacity. We've talked about this a lot. I mean, the U.S. production right now is going to be done in the U.S. We are trying to move things around to get this up and running in our Raheen facility. We think that that's possible, and we're hoping to kind of do better than the 2 million doses that we've already put on the table. So kind of more to come on that.

Yes. And I guess, that was the next question I was going to ask is, you said before that you're not stopping at the 2 million doses and you're trying. So is there some time frame that we should look for more clarity on that -- on those efforts to increase capacity?

Yes. I think each time, we formally read out, we'll refresh in terms of where we are. If we're confident on putting more capacity and then we'll do it, some of it is making sure that the catalents of the world are set to with regards so we can make the drug substance, but we also need to ensure that it gets properly filled. And we'll also rely possibly on Roche a little bit for the filling of that. So there's a lot of things in flux. And as we know more, I mean, we'll read out more, what's for sure right now is that 300,000 doses have been or will be delivered to the government by the end of January. Some of it was already occurred in October -- sorry, some of it already occurred in the third quarter, $40 million. We'll get more of it by the end of the year, and then some of it will drip into the first quarter of 2021.

And so one of the other key questions I get that I know is not totally answerable right now is the long-term opportunity of this asset. And just -- so I know George has talked about a need for something like this even post vaccine. But the question that's often posed is, how do we think about past the acute phase of the pandemic, say, in 2 to 3 years after a vaccine has been rolled out, you'll have, for example, potentially some durability issues with the folks who've been vaccinated. There will be those who haven't been vaccinated, been infected. Have you guys -- I know this question is posed to you. But we've looked at Tamiflu as like an interesting, maybe comp to this. Is that a fair way of looking at it, Bob?

Yes. I mean, lots to be written here. And then let me start by kind of kudos. Being an ex-Pfizer guy, kudos to Pfizer and Moderna on the progress they've made. I mean, it's fantastic. And we -- company here couldn't be prouder of those 2 organizations. As we go forward on the durability, right now we've spoken that not only can our antibody serve as a bridge to a vaccine, and that's what we're hyping kind of in the summer. But I mean -- we think the vaccine is going to take time to reach the masses and that the cocktail is going to be able to coexist longer-term with a vaccine. You're going to have patients who are just not going to want to get vaccinated. I mean we see that now with regards to flu, the amount of anti-vaxers, which -- I mean, that's fine. You'll find patients who just do not mount an effective immune response and require it and will require a treatment if infected in patients whose immunity wears off and requires treatment once they get infected. So more is to be kind of written here. I mean, we have data that's been published from our ambulatory study. We need to see what's going to come out of the additional studies in terms of what this could be. But management here is confident that this will not be kind of a one and done, Chris, that this will have somewhat of a tail. I mean how big of a tail, just not exactly sure. But even if you take the number of people in the U.S. and the efficacy on the vaccines, that still leaves a lot of people, whether a 90% or 95% on the 330 million population, I mean, that leaves a lot of people that just this product won't be effective for. And then you add into that, kind of all the anti-vaxers and all the people that are just kind on wait given the new modality on what Pfizer and Moderna is launching. So we think it's going to have some lengths, just how big a length it's going to have, that's kind of anyone's guess as of right now.

Fair enough. All right. Let's jump into some of the other stuff going on. To your point, Bob, there's more than just the COVID program. So EYLEA, obviously, the biggest driver of the P&L. I want to talk a little bit about that business. So we had an interesting call with representatives of USRetina, which was one of your larger customers, I think, last month. And their perspective on the U.S. market, at least, the retina market, with respect to biosimilars, was a little tepid and surprisingly so to me. Their willingness to adopt -- I think our impression is that retinal specialists are easy, fast adopters of new technology or of entrance to the market. And so a lot of investors I've talked to have sort of projected that kind of mindset on to adoption of biosimilars, but the feedback we've gotten been very different. And it's not just U.S. retina. We've gotten this from other sources. Just generally speaking, how are you guys viewing next year's Lucentis' loss of exclusivity potentially? How are you guys viewing the -- this impact on the market, biosimilars, specifically?

Yes. Chris, I -- within that note, I remember something that you said, the sage advice you gave that biosimilars are not bioidenticals, which I think is really true, and it's getting to the point. So leading into the Bayview launch, I mean we kept kind of pounding the table that safety is going to matter. We've been injected in 30 million eyes in. There was still a lot of emotion and a lot of hype leading into that, and unfortunately for patients that hasn't played out particularly well. But there were interesting facts that were learned from that experience. And I would say they were probably relearned, with the top learning, be that it was reinforced that safety was, is and always will remain incredibly important. So the marketing should never be taken as a given, even with Goliath, who is very astute in ophthalmology, with regards to Novartis coming to the market and the issues that they had. And then not only with brolucizumab, but we also saw that shortly thereafter with regards to the rejection of Abicipar. Safety really, really matters. And unlike other markets where kind of biosimilars are coming, I mean, the wet AMD and DME markets are quite unique. They have the use of kind of off-label Avastin. And we've always said that, that's a low-priced option that has gone head-to-head with us since our launch back in November 2012. They've been a really formidable flow. I'm proud to say that we continue to take market share from them. But that price has always been out there from them. So again, we think that all this is going to limit the impact of biosimilars that could enter the market, given the price differentials that are out there. And then biosimilars provide no opportunity for improved efficacy, while there may be a risk of issues due to differences in the final product. And we try to tell people don't lose sight of PFS in vials, right? So a biosimilar comes with a vial. The PFS has been hugely advantageous in the middle of COVID-19. All the doc practices have adopted back now to the PFS, now that both in the branded products are on that. And it took us like 6 years to get to a PFS. So we're going to see whether people are going to go back in time with regards to biosimilars and vials and having to do the injections and the double touch and the triple touch and all that stuff. So I and -- I think the company kind of agrees with the piece that you put out in terms of whether KOLs are thinking.

So I guess, just in terms of EYLEA's sort of life cycle, if you will. Obviously, there's a ton of players that are trying to extend the dose, right? You've got Kodiak out there. There are other players with approaches that aim to not just improve on the efficacy arm, but to extend dose. And I know you've got the EYLEA high-dose program to take dosing up to 12 weeks or 16 weeks. But just some of these programs extend further than that. And I guess what gives you guys confidence that in the midst of all these other players that are trying to -- as I mentioned, extend the dose interval, a little bit more meaningfully than your program. Where is the confidence that, that moat, if you will, around EYLEA is formidable enough to sort of maintain the dominance that you guys have?

Yes, Chris, I mean, given the size of this category, I mean we feel forever plagued by competition, some good, some not so good, some really early in its life stages, some with really untested new modalities or coming out with modalities that, like, Ang2 that we've kind of tested before. I mean, we'll see what the science shows them on that end that wasn't successful. So I mean, there's a lot out there, and I certainly don't want to get into individual products that are coming. I mean our statute is -- I mean, we still consider -- if you look at my 5-year strat plan that EYLEA is going to continue to be a growth pillar, Chris, moving forward. I mean, we could argue with regards to the amount of share we're going to take and how big the market is going to get. But everything still points to really significant opportunity in 2021 and beyond. I mean, favorable demographics. I mean, we've had that tailwind for a while, aging population, increase in diabetes, our efficacy, safety and convenience profile. I mean, that stays consistent and it is second to none. We continue and we can talk about this, continue to make market penetration opportunities in diabetic eye disease. It's something that since Marion has been on board the last 2 years, we have changed around our sales force to specifically go after this indication. We were making good headway into this indication by taking more share. It remains a big time untapped market for us. It's just hard to get at. We were making good progress on it, along comes COVID-19. And certainly, what we found is some of the first patients that stopped coming to visits to the docs' offices were diabetic eye disease patients. And we've done a good job in Q3 on getting them back into the office, but that still remains a real growth opportunity for us in addition to, like I said, the tailwind on the demographics.

So I got about ton more questions and we have -- just in the interest of time, I think we'll move on. So one question on Dupixent. So our checks have suggested that dermatologists are pretty wary of the safety profile of JAKs. And we've done a number of surveys, and the feedback is relatively consistent that there's some -- this is not something that's going to be embraced wholeheartedly. And these are obviously being evaluated in atopic dermatitis. But I guess later this year, there should be a Phase 3 readout of head-to-head trial of Dupixent versus RINVOQ. How do you see that competitive landscape evolving? I know there's a bias right now, but just in terms of sort of war gaming, the potential outcomes and the impact from that -- from, I would argue RINVOQ or other players in the AD space?

Yes. I mean, we've kind of opened up a gigantic market, which there's still a lot to be had on the AD marketplace. Chris, Pfizer and AbbVie, who are very strong foes, will be entering the marketplace. They'll have their challenges, certainly with regards to the JAK issues that has kind of plagued that class. Data has come out recently. It was kind of confirmatory on Phase 2. Nothing was -- nothing had changed with regards to safety signals. The same safety issues that were there in Phase 2 seem to be there in Phase 3 in recent reports. We sense and what we hear from KOLs and scientific advisers is that JAKs will be relegated to use in later lines of treatment after Dupixent. As you know, derm docs, I mean you have done KOLs, who are hypersensitive to safety, particularly when there's an effective safe agent out there. I mean we've dosed 200,000 patients already. Our safety profile is really, really clean. We've done, I think, more than 10,000 patients across 50 clinical trials where we've studied this. So we're going to have a leg up. We're going to have a leg up with regards to the safety data set that we have. They're going to require maybe Black Box warning associated. They're going to require lab monitoring. You'd have to question with regards to adolescents and peds in terms of kids. You're going to be able to kind of give JAKs to younger people, particularly for chronic therapies. A lot was made early on with regards to the injectable. We've launched the 300 mg auto-injector. We're launching a 200 mg auto-injector, things you need to do necessary as a leader in the category. So I think the whole injection oral storyline, that's long gone, particularly with these friendly injectors. And Chris, probably most important is, and we've mentioned this a lot is the comorbidity issue, right, where it's just proven to be tremendously effective. I started off in my opening comments about we're going into 8 additional Phase 3 indications associated with it, let alone the asthma and kind of the polinization that, unfortunately, these people with regards to type 2, it's not just Dupixent that they have and that is a big one up on our competitors.

Well, awesome. I've got a ton more questions, but I think we're just about out of time here. So Bob and Justin, I wanted to get to so much more stuff. But unfortunately, we ran out of time. So thanks very much for being with us, and good luck for the rest of the year.

Good, Chris. Thanks for hosting, and stay safe, everybody.

Thank you.