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

Hi, everyone. Thank you for joining us today. I'm in North Carolina, which is a dreary North Carolina. But wherever you're at, whether New York or elsewhere, welcome to the first presentation of our Oppenheimer Healthcare Conference for me. I have with me Justin Holko from Regeneron, who is a colleague, and I consider also a friend who is joining us to present on behalf of Regeneron. I was just thinking this morning that it seems so strange that it was a year ago that we had this health care conference. Regeneron was also presenting. But at the same time, we were just starting to deal with the first initial impact of COVID-19. Now we're exiting out of that, knock on wood, and we're here again with Justin. So it's great that some things stay consistent. So maybe, Justin, what we can do is just start off with you giving us a presentation, a short synopsis of Regeneron and we can go from there.

Great, yes. Thank you, Hartaj, and thank you for the very generous introduction. I too consider you a very good friend, and I hope everybody is doing safe and well. I'm in New York. It's actually quite cold. We had a little bit of a teaser of a spring last week, but that has long since gone. But in all seriousness, Hartaj, we really appreciate the opportunity to participate this year in the Oppenheimer Conference, and we appreciate your long-term support of the company. Before we begin, I'd like to remind you that some remarks made today on the webcast will include forward-looking statements about Regeneron. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in the statement. A more complete description of these and other material risks can be found in Regeneron's SEC filings. We do not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, please note that GAAP and non-GAAP measures will be discussed on this webcast. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our updated corporate presentation located in the Investors section of regeneron.com. You know, Hartaj, I would say it's a really exciting time to be at Regeneron. Despite the fact that we're still in COVID and such. Our core business is just really off to a phenomenal start coming off of last year. We had a really strong business of durable and differentiated products that delivered for us very strongly in 2020. The top line was strong, the bottom line was strong. In fact, we had about $8.5 billion in revenues in 2020 that grew 30%. The non-GAAP EPS we delivered was up 28% year-over-year. And that's even in the throes of the pandemic. So when you consider this growth profile, it's truly differentiated amongst our biopharma peers. And we've really become more than the EYLEA company over the last couple of years, every -- even since I've joined, with 80% of that top line growth that I mentioned coming from non-EYLEA sources, such as Dupixent and Libtayo, both of which we think The Street is not fully appreciating in models or expectations. I'll also say that our strong and diversified growth has been complemented by significant late-stage pipeline developments on oncology with Libtayo as well as our bispecifics platform. And in allergic diseases as well as some other specialized growth opportunities such as REGEN-COV, our antibody cocktail to treat COVID-19. And so Hartaj, the pipeline continues to grow, and we have a series of next-generation products that will only enhance the long-term growth and durability of the company. Yes, we could spend hours talking about all of the early pipeline, the novel technologies, the Regeneron Genetics Center, all of which are helping to inform and execute on potential interventions for a variety of diseases. And then as we move into 2021, it's been particularly exciting for us, even just in the last few weeks with 3 FDA approvals, including for Libtayo in non-small cell lung cancer, which opens up a very large portion of the anti-PD-1 market for Regeneron to compete for share, a very large market, $25 billion plus in 2020 alone. So these launches are only going to enhance our already robust growth profile. And just yesterday, we announced that Libtayo has now demonstrated an overall benefit, overall survival benefit in cervical cancer, which we expect will lead to yet another regulatory filing in the near term. And then from a financial perspective, Hartaj, we remain very healthy with a very strong balance sheet, a net cash position of $4.7 billion, aided in part by $2 billion in free cash flow just last year. And we expect that's only going to grow and improve this year, obviously. So with our strong core business and new launches, multiple upcoming clinical and regulatory events, a robust financial position for the business, we're really poised for an exciting 2021, as well as a longer time diversified growth outlook. So why don't we jump into your questions?

Great, no, Justin, that's a great synopsis. And I think that we've maintained that Regeneron among biotech companies. It's really sort of a leading company in terms of its sales and earnings profile, and probably what we call the best in peer group pipeline. I was thinking about this, this morning. We've had a tough year, and I think Regeneron has done a lot in terms of COVID-19 in assisting. If you don't mind just giving me 20 seconds of your time, Justin. What I'd like to do is just start off with 1 question, which is that I'd like to -- for you to share your most funny professional anecdote from COVID-19. Just to get the conversation lighten up a little bit as we look forward to more lightened 2021 and 2022, a happier 2021, 2022. So if you can -- whatever comes to your mind, what was your funniest professional moment during COVID-19?

It's -- that's a hard one to answer because I think there have been so many of them. I would say, having spent more time at home has led to me being able to serve a lot more funny moments at home. I have 4 kids, and they're all very young, and it's led to a whole new perspective on working from home, trying to home school children. And I would say, it's been a challenge, but thankfully having a phenomenal life and just a really great family has led to a lot of silver linings, honestly, which have been important in what has otherwise been a very difficult time for our nation, for our world. But I would say, being at a place like Regeneron where we've been able to contribute so meaningfully, not only to our efforts on COVID-19, but just in general to the health and well-being of the public has been a great opportunity for us. So I would say it's hard to pinpoint 1 funny moment or another, but it's definitely been a growth opportunity in many ways.

Great, no, no, no. Same here. You've actually pretty much encapsulated what I've experienced too, Justin. So the 2 questions I was thinking about with COVID-19 I just wanted to ask you. One was if you remember last year, when COVID-19 hit, there were some pull forwards, right, into the revenue. There were payers and hospitals were ordering product ahead of time. And we had part of first quarter being stronger than expected. And the second quarter, that kind of normalized out a little bit. Does that -- how does that impact your thinking when we do a year-on-year comparison when you report in April? Do you think that would make a difference or should we pay attention to that?

No, it's a good question. And I think if just remembering back then, it seems so long ago now, but I think we were one of the few companies actually that didn't have that sort of bolus benefit in the first quarter. I would say our business was most impacted by the initial stages of the pandemic, which, as you point out, really began about a year ago. It was the back half of March where we as a nation, we're beginning to go into lockdown, where patient volumes going into retinal specialist offices and dermatologists and some of the other specialties that we have for Dupixent, and even oncology, that began to slow down. But we really didn't have the bolus impact that I think some other companies reported in the first quarter of last year. So I think not a whole lot of that sort of noise to think about necessarily as you look at year-over-year comparisons.

Great. And then for the Regeneron cocktail antibody approach, Justin, I know that there was an update given earlier in the year at a competitor conference early in the year, how to think about it for the rest of the year. Any updates to that as to how Regeneron was thinking in terms of volume and how much you can supply?

Sure. So there's a lot going on with REGEN-COV. And I think it's pretty remarkable as to what George Yancopoulos and his team have been able to do in just such a short period. It was about this time last year where we were immunizing mice to develop a whole series of potential antibodies that could be utilized in our cocktail. We were collecting samples from survivors. And really, it allowed us to have a library of thousands of antibodies to choose from, which we ultimately chose 2 to make up REGEN-COV product that is now being administered in the U.S. under an Emergency Use Authorization. We have a fairly broad clinical program that we're looking at in terms of both, I should say, prevention settings as well as treatment settings. We're currently under an Emergency Use Authorization in an outpatient setting, meaning that patients who have a confirmed infection, but are not yet hospitalized and have high-risk for a variety of potential issues, could receive the cocktail. That rollout is going fairly well after some initial bumps in the road with regard to distribution and utilization. We expect some updates from that study in terms of lower doses, probably in the early part of the second quarter. We also expect some initial data from the hospitalized setting as well as perhaps confirmatory data in the prevention setting. So there's a fair amount of clinical readouts that we would expect over the next couple of months. And then when it comes to supply, what we're doing right now is basically, we've maxed out all of our manufacturing capacity in our New York state facility to manufacture the antibody cocktail. And we've done 2 deals with the government now where we are basically supplying the cocktail to the government, and then the government has been distributing it and giving it to patients at no cost to those patients. The first BARDA deal, BARDA is part -- the part of the government that we did the deal with, was for $450 million. We expect that those doses are going to be fulfilled this quarter in the first quarter. And then early this year, we announced a second BARDA deal that could get all the way up to $2.6 billion, and we will be supplying those doses as soon as we complete finishing the first BARDA deal. We expect that based upon our current manufacturing capacity of a 2.4-gram dose that we'll be able to deliver about 750,000 doses. And what's important for the outpatient readout that we have in the next couple of months is that we're looking at a lower dose. We're looking at a 1.2-gram dose, which basically would essentially double the capacity that we have or double the amount of doses that we could deliver, should that dose be shown to be effective and equivalent to the 2.4 gram. We expect that readout, as I mentioned, in the fairly near term. And then should we be able to get that 1.2-gram dose approved under the Emergency Use Authorization, we would then be able to fulfill what would be on the order of about 1.25 million doses. And ultimately, the full value of the $2.6 billion of that deal that we did with the United States government. So I'd say a fair amount of readouts that we expect within the next couple of months that will help inform ultimately where the drug can be used. And to the extent that we can supply it in lower doses, obviously, would be a pretty significant material, financial event for the company.

Justin, in one of the -- in a couple of like COVID-19 KOL calls we had done and this was last summer, so a little while away, 1 or 2 physicians had mentioned that it was still not comfortable or how to algorithm and how to use the cocktail antibody. There were some concerns that you'd have to use it in a way where if the patient still was infected, that may be -- might -- for health care workers, it's a little bit more complicated. Has that changed? Has the algorithm and the ability to give these cocktail antibodies now at hospitals and doctors? Have they gotten more comfortable? And is there more ease of use for them?

That's -- yes, it's a great question. So there's definitely more ease of use now. I think our medical affairs team has done a fantastic job of really educating stakeholders with regard to how it can be used. What we've seen around the country is that there have been a number of infusion sites and centers that have been set up that are allowing for high volumes of patients to come through. I can tell you that the feedback that we received from those centers that utilize the Regeneron product in high volume, they see dramatic results. And that really -- it's a -- it mirrors up very well to our own clinical data experience, where patients who have high viral loads, whose bodies are not doing a good job or an effective job of mounting an immune response to clear the virus, we've seen those patients do really, really well, both in terms of just clearing the virus, but also we've seen some important initial outcomes on things like hospitalizations. And the length of how long that they remain infected. So I think it's been a process, no doubt. And I think you could probably say that about multiple aspects of how vaccine rollouts and other antibodies have run into similar sorts of challenges. But I'd say that as we've moved along, there's been just a great job in educating. There's much more experience out there now, and we're optimistic that, that's only going to improve going forward.

Yes. And then Justin, what I was thinking of doing was because of the Libtayo news from yesterday, I'm sure you get tons of questions on [ EYLEA ] and Dupixent, and we'll get to them, but I thought we'd work backwards. Let's start with oncology and work backwards to EYLEA because the EYLEA and Dupixent questions are, especially on competition, I mean, I imagine you get them innumerable times. So Libtayo, the data you have in cervical, and I believe that was against chemo, right? I thought it was fascinating, and it just continues its steady stream of data where Libtayo really seems to be probably one of the best PD-1s. If you can just synopsize the takeaway from the data yesterday and how that adds to that body of work you're getting on basal cell, in frontline mono or non-small cell, and how to think about for this year, Libtayo, let's say, revenue generation. Just how do you think of Libtayo this year now?

Yes, so I would say we're quite excited and very optimistic about Libtayo. If cervical cancer were to be approved, that would be our fourth indication that we would be on the market with. And just to level set people on the call, so yesterday, we announced that Libtayo reduced the amount of the risk of death, I should say, compared to chemotherapy by more than 30% in a recurrent cervical-cancer-type setting. And so this is the first time that an anti PD-1, maybe mean the first time that any treatments, even chemotherapy has been shown to have an effective overall survival benefit, and this is a randomized study. There is other anti-PD-1 competition out there, but this is the first study to show overall survival in a randomized study. So we think this continues to show that Libtayo is a real drug. It's a fantastic drug, as you point out. And we think this shows, as another data point, that this is going to be a competitive entrant into a broad set of cancers within the anti-PD-1 space. I would say, right now, as I mentioned, we're really in an exciting time having just had 2 FDA approvals for Libtayo beyond our initial squamous cell carcinoma indication where we remain the market leader. We just got approved in basal cell carcinoma, to your point. And then we also got approved in high PD-L1 expression, non-small cell lung cancer. And again, with a very, very strong set of overall survival data in that particular setting. It's really early days, Hartaj, in the lung cancer and the BCC launches, but I'd say we're seeing everything we'd want to see right now. Everything we'd expect to see with regard to high and growing customer awareness of our indications and data. We have a very experienced team who's used to and has experience launching these anti-PD-1 drugs in these types of settings. So we have a very experienced team who's creating that awareness for our customers. We have great engagement and endorsements with our thought leaders on these new indications. They're really endorsing the strength of the data and this does represent a choice compared to some of the market leadership that I'm fairly familiar with. At this stage 2, only a week into approval with lung cancer, we had achieved a preferred NCCN guideline designation. So that's really important. Again, you would hope for that and it came very quickly. So that, again, just speaks to the strength of the data. We're seeing increasing market access. Our market access team has been doing a great job on really hitting the ground running upon getting those approvals. And I think, again, while early, we have confirmed new patient starts in both of these new indications. So quite early, but as I've talked about earlier, we have a strong growth profile in the company as it is. When you start layering in some of these opportunities, particularly in lung cancer, this is a really exciting time to be part of the Libtayo story. I think the other thing I would say is -- and we'll probably get into it is Libtayo still represents just the beginning for us with the -- with regard to what we're actually trying to do in oncology, right? And what we tried to do is articulate a little bit of a framework for investors as to what -- how are we going about the opportunity in oncology? We talk about first just competing in the anti-PD-1 market with Libtayo. And since we've started talking about that, we now have, as I mentioned, 3 indications and potentially a fourth one on the way with cervical. The anti-PD-1 market, as I mentioned, is more than $25 billion. And what's amazing about that, and actually quite unfortunate, is that there are still many patients who don't benefit from anti-PD-1 treatment. And so what we want to do is use our pipeline, particularly with our bispecifics, to enhance the responsiveness or enhance the benefits to patients who -- where we see in tumor types where there is some benefit. So think about lung cancer as an example. Maybe 30% of patients benefit from a monotherapy treatment in lung cancer. As good as some of these drugs are, you -- look at some of the other indications within some of these labels that, again, I have some familiarity with. There are some indications where you have 10% or 15% responsiveness. So there's a big opportunity for us to build upon what the anti-PD-1s are doing, what Libtayo is doing by combining with a lot of the portfolio products that we have to, again, get to higher response rates, get to longer survivals, benefit more patients. But what we also know is that there's a significant set of tumor types out there where anti-PD-1s aren't approved and don't seem to have a whole lot of activity. I would point to prostate cancer as an example, where if you could open up the opportunity in prostate cancer or microsatellite stable colorectal cancer or larger proportions of the breast cancer markets or hematology markets, those are cancer types that just don't benefit from PD-1s right now. And so what our team is really focused on is bringing the pipeline of bispecifics that we have to partner either with Libtayo or perhaps pair with other bispecifics to really unlock the potential of immuno-oncology across a whole wide spectrum of cancers. So we're really excited about Libtayo. We're really excited about 2021, but we see a very long road and opportunity with regard to what we're doing in oncology.

Yes. No, Justin. I find it fascinating. Marion, I think originally is from an oncology company. I believe one of your senior scientists is from an oncology company. You are from an original oncology company. We've got about 5 minutes left. So I'll just ask if people have questions, just to lob them in. So we'll get into the, I'll call it, the rapid-fire questions here, Justin, for you for the last few minutes. In terms of the combination approach with Libtayo and the bispecifics, when do you think we could see material data there? Is that more of a 2022 event? Or could we see something in 2021? Is 2021 still more about monotherapy approvals?

I would say 2021 is still probably around monotherapy. Now there is the opportunity that we could see some initial signals out of our co-stimulatory bispecifics class, which everybody is very excited about, and PSMAxCD28 is the most advanced program there. And that's in prostate cancer, that's combined with Libtayo, and that turns into one of those opportunities, as I mentioned, to really take the power of immuno-oncology to tumors that don't currently see a whole lot of benefit, if any, from anti-PD-1. So that would be one aspect. You could see initial data from other aspects of our solid tumor bispecific portfolio, such as the MUC16 program. And then I would expect additional updates with regard to the CD3 platform in hematology that we have in non-Hodgkin lymphoma as well as multiple myeloma.

Yes. Yes. And so...

I would also say, Hartaj, and I should also mention, we do have an interim analysis upcoming for Libtayo in lung cancer. It's the chemotherapy combination study that we do expect an interim analysis to take place in the coming months.

Yes. And then I know you get this question a lot, Justin, but we have to ask it, competition around Dupixent with the JAK1s coming and competition around EYLEA. Roche had a recent product. But I think George gave a interesting response in our last earnings calls to that, but if you could just kind of synopsize any views of change around competition to Dupixent, especially the JAK1s and then off [ that ] to EYLEA?

Sure. First thing, I'd say, it's a great question. And beyond growing markets, competition grows markets, we believe that competition only makes you sharper. One of the sports analogies I like to use, one of my friends taught me is that when you're #1, and I'm thinking both Dupixent, it could be EYLEA, you need to train like you're #2. You need to remain hungry. You need to remain competitive, and that's the mentality that we have. So when you talk about Dupixent and when you talk about atopic dermatitis, we expect Dupixent will remain the treatment of choice in terms of first-line given efficacy and safety and convenience. We're only, across age groups, we're probably maybe 10% penetrated in atopic dermatitis alone. And so as we've seen in other markets like psoriasis and other analogs, new competition grows the market, it creates greater awareness for patients. It provides opportunities for patients who didn't really even know what to do about their disease or that -- their option. This is only going to be a tailwind for us. And as you think about the strength of Dupixent, we're annualizing at close to a $5 billion rate, most of that's in atopic dermatitis. It doesn't take much to get to some really big numbers when you think about market penetration of 15% or 20% or something along those lines. So I would say we remain very confident. I think the new competition coming is in the form of JAK inhibitors. We've seen that this class, in general, does not have the pristine safety profile that Dupixent does to couple with an efficacy profile. In fact, some recent long-term safety updates, which I'm sure you're familiar with, have confirmed that there are some longer-term safety issues associated with these products. And when you think about taking these drugs for chronic issues like asthma -- I'm sorry, for atopic dermatitis, and these other conditions, you have to think about what is the long term safety. And so Dupixent remains exquisite in that regard. So again, we think it's going to help grow the market, but we don't anticipate that Dupixent loses its position as the first-line treatment.

I think we did a KOL call who was pretty specific in saying, really a heavy treater that he thought JAK1s would probably second line to Dupixent because of the risk-benefit profile that they've demonstrated. Just on EYLEA, if you can end with 2 thoughts there, Justin. One is around, again, impending competition and then any concerns around Washington or not concerns, but those always seem to crop up from time to time. It never really amount to anything, but just any kind of color there.

I think starting with EYLEA, we're very comfortable and confident in both the near-term as well as the longer-term prospects. Recent data from a potential new competitor from the anti-VEGF/Ang2 class at Angiogenesis a few weeks ago. It doesn't really seem to offer any advantages to EYLEA despite a study design that was truly intended to favor the new product. It was not inferior in basically every measure that you could look at. And so I haven't been here for many years, but the company has said for many years that EYLEA does set a very high bar in terms of efficacy, safety and convenience. And it's why, I think -- well, first of all, it's why we're the leading anti-VEGF and why the data to date and a lot of these other potential products just don't seem to confer any advantages. It truly does set a very high bar. We know investors are thinking about biosimilar competition and the like. When it comes to biosimilars, just remember, there's already a very low-priced biosimilar in the market today. And despite that, EYLEA continues to grow. We're actually taking share from that low-price biosimilar, Avastin. And last year, we grew despite the pandemic, we grew 7%. We grew 10% in the fourth quarter. So this is a very healthy, robust product that is in markets where there is good demographic tailwinds, as well as further market opportunity and particularly in diabetic eye disease. So I think we're very confident in EYLEA going forward for a very significant period of time. And then when you think about Washington, I think what we'd say is Regeneron has always and will continue to work with our elected officials in Washington. We work with elected officials from both parties and we think that when it comes to health care reform, and there's always going to be interest in trying to do things better, trying to cap costs for seniors, trying to make medicines more affordable for patients, those are all things that we are completely aligned to. And we think the best solutions will require compromise. Compromise is a great thing. It's healthy for our nation. It's healthy for democracy. And so regardless of what kind of form it takes. We want to be at the table. We want to be there working to help find solutions to some of these problems that have been brought up over time. Look, at the end of the day, we believe that we all have the common goal of promoting public policies that support innovation. Innovation has been very important as you think about the vaccines that have been developed in record time here in the U.S., our antibody cocktail. That only comes by having a very healthy and profitable R&D and innovative pharmaceutical business that can reinvest and find the new breakthrough technologies that will lead to the cutting-edge treatments for even more diseases in the future. So we'll work diligently. We'll be very collaborative with our elected officials to do what's best for patients and for various diseases that still have a lot of interventional needs.

Yes. And Regeneron, I think, has been a really great steward in that regard for a very long period of time, Justin. Last question, and we'll end there, the EYLEA high-dose trial still plan on reading out late this year, early next year? Is that still the thought? Or could COVID-19 maybe slow that a little bit?

So COVID-19 did slow down the high-dose program. We have 3 studies that are ongoing, a Phase II study in AMD that will primarily be looking at safety data as well as 12-week measures. And then we have 2 Phase III studies, one in DME and a second in AMD. And those are probably likely to read out some point toward the middle or the back half of next year. The Phase II data, we could see something toward the end of next year or either early, I'd say, late this year or early next year.

Yes. Justin, we've gone over time. Thank you so very much. Please stay safe, and I hope to see you in person sooner rather than later.

Thank you, Hartaj. Thank you. So do I. All right, thank you.

Give our best to the team. Take care.