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

Hi, everybody, and thank you for joining us today to the first presentation of the SDC. We're very pleased to have with us Len Schleifer, Co-Founder, President and CEO of Regeneron; Bob Landry, Regeneron's CFO; and Justin Holko, who runs the IR Group. So thank you all for joining us today. And Justin, why won't you -- we discussed that you will start with a few words, and then Len and I do -- will do a bit of a Q&A. Go ahead.

Thank you, Ronny. Before we begin, I'd like to remind you that remarks made on today's webcast will include forward-looking statements by 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 that 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.

Thanks, Justin. So Len, thank you for being here this morning. And let me start by asking you, as you guys have set up your plan for 2021, now if you could just talk to us a little bit about your main objectives and where you're standing in terms of achieving them?

Sure. Well, Ronny, first of all, thanks for having us. We very much appreciate it. I think that we're off to a pretty darn good start. If you look at how the first quarter came in, if you -- excluding REGEN-COV, because we don't know how that's going to be, we still had 20% top line growth and very strong bottom line growth. EBIT grew 35%, excluding REGEN-COV. So this was all driven, obviously, by EYLEA sales, which at a run rate -- I think it's about a $9 billion global run rate with continued growth expected. And Dupixent, obviously, with a lot more growth expected and is now clicking along at about a $5 billion global run rate. And Sanofi is busy launching, and we'll be working with them in some of these ex U.S. countries. There's lots more to grow there as well. So we're off to a good start with our in line products, also Libtayo. We've got a couple more approvals. It takes a while to get the real revenue streams going there. Especially, I think in lung cancer, we'll need to get the data that's coming up, I hope, in the second half on our chemo combination with our anti-PD-1 Libtayo. And then we have a lot of things we have to do yet. We're working hard to get our REGEN-COV authorized at a lower dose and for use by -- as an alternative, it's subcutaneous administration. We're hoping for an action on that very soon, perhaps within a week. And we're excited about also following that, working closely with the regulatory authorities, the FDA and elsewhere, looking at our prevention opportunity. That's a very important opportunity for us because that may be the real chronic part of the disease. We've got a lot of important catalysts, if you will, you guys like to call them, that we call them data points in our pipeline. We've got some high-dose EYLEA Phase II data. We hopefully will get the Dupixent approved for pediatric asthma. We've got some Phase III Dupixent data in prurigo nodularis and chronic spontaneous urticaria. We're enrolling our COPD, which I think everybody is sort of forgetting about. It's a big deal for us, the potential in COPD. And we're going to continue to push forward and try and deploy our capital as prudently as we can for consistently trying to get the long-term growth and shareholder value.

Okay. So why don't we just go a little bit to the franchises and then come back up to the corporate strategy? So starting with EYLEA. I guess the news of the weekend -- the long weekend was an announcement by one of your peers who've done a head-to-head trial against EYLEA and showed that EYLEA actually is safer head-to-head. What are the implications of this commercially? I mean I understand the scientific win, but from -- how does that translate in how physicians will behave in your analysis?

Yes. So I think that the data you're referring to with Novartis was doing a monthly administration of Beovu versus monthly administration of EYLEA in a true head-to-head, not cross-study, really blinded, independently monitored and the data were that they had a 3x -- some ways around a threefold. I think it was about 1.8% to about just under 5% for Beovu -- 5% for Beovu, less -- about less than 2% for EYLEA in terms of 3 lines of vision loss and that integrates a lot of things, including the inflammation, the retinal vein occlusion and the vasculitis. And we didn't have -- they didn't see any vasculitis or retinal vein occlusion with EYLEA. But the implications here are not so much of a Beovu because Beovu has not really been a commercial threat to us, because people have known about these problems. And so that's sort of I think tempered any enthusiasm that might have existed there. But it's much broader implications, Ronny. We're talking about -- we're having -- we've given, I don't know -- somewhere around 25 million or 30 million injections of EYLEA since the launch have been administered. Think about that scale. 25 million, think about the scale. And the eye is one of the most sensitive places to administer anything. It's extremely sensitive. If you have an injection site reaction when you give Dupi or Enbrel or pick your favorite subcutaneous, who cares? You have the equivalent of an injection site reaction in the eyeball, you care a lot, okay? And so I think the implications here that until you've studied your product in lots of patients at high frequency, high frequency is just a proxy for long-term administration. You see something in a 1-month administration or a few months, you're going to see it in every other month over longer period of time, most likely. And it says that this is going to be a hard thing to do. It even has implications for biosimilars. If you think about it, the impurities are super hard to get right, okay? The misfolding, super hard to get right. The things you can't even assay in a test tube, but the body can assay. And so convincing people to switch over to another product when you've got 25 million injections behind you, I think there's a pretty high bar there. And you get great efficacy, and we're getting more efficacy. And that's why I think we're seeing growth -- significant growth of the product, continued growth, and we expect to see more now because this product has earned the respect of the physicians.

So we're talking about for the next couple of years. You're still taking a little bit of share from Lucentis. The market is still growing. You're going into additional niches. So you're right now growing at about 15% in the first half of this year, if you look at volumes using ASP as a proxy for price. If you think about the next couple of years, is this ballpark what we're likely to see -- continue to see? Or is this essentially some sort of a rebound coming out of the epidemic and this should slow down over time?

Yes. It's a good question, Ronny. You know we don't like to predict forward because...

Directionally.

Pardon me?

Directionally.

Yes. We give you directional for sure, but we don't like to give you specifics because we don't necessarily have a better crystal ball, maybe not even as good a crystal ball as you have. But if you look back, what you saw is that the 15% growth, some of that was driven -- did show in the first quarter -- some of that was driven obviously by the pandemic moving injections around, even potentially skipping injections because people were afraid to go to doctor in that critical March time frame last year, especially in the large metropolitan areas like New York. But I think that there was a significant amount, maybe it was about half looking back of the growth was still there regardless, just from organic growth. And it's not just taking share from Lucentis, by the way. I think it's also taking share from Avastin. Remember, Avastin still has about half the market in terms of volume. So that's a pretty big group of, if you will, injections that we still are looking to convince people that EYLEA makes more sense. And so I would say, without giving you specifically, yes, I do see significant growth for the next several years.

I'm surprised that you're saying Avastin is that high, about 50% was the number 3 years ago, and now it's going to be materially lower. If it's still...

I don't [indiscernible] but it's significant.

It's significant. So I'm guessing the inflammation data, especially since Lucentis or Avastin is injected much more frequently than EYLEA, that should be able to be a reasonable quick impetus for those physicians to use less of that given the inflammatory signal you're seeing with Beovu. I was wondering, have you guys looked at this directly in surveys or some other work and convinced yourself that indeed physicians are going to use less Avastin?

Well, we're seeing less and less Avastin being used. We see shortages periodically. Very recently, I think there was some question about a syringe problem at one of the major suppliers. We got word about. You hear these things. There are people who are still committed to Avastin. They just think that it's the right choice, at least to start out with. It's not the way we see it, obviously. It's not the way many, many people see it. But I think more and more that there are these concerns about inflammation that -- you're dealing with a compounded product there, which doesn't have the same level of post monitoring. We monitor literally every week. We monitor how many reports of intraocular inflammation are out there. And we can pick up a couple per 10,000 on a reporting basis. If it spikes up to 5 per 10,000, alarm bells would go off like crazy. And we've had that once or twice over the course of the last decade. And we tracked it down last time to a syringe batch. So we're very careful about all this. And there's less of that, that goes on, if you will, for Avastin. There's somebody, ASOs, and others. But I don't know. I think that people are more and more understanding the value of a product that can deliver the efficacy that EYLEA can do as well, frankly, as the safety after 25 million injections, that's a -- it is a high bar.

Okay. So with the adoption of biosimilar Lucentis being a bit of a test -- I mean physicians who used Lucentis for a year, switching to biosimilar. Will that be a test for the willingness of the market to consider safety, to consider longevity of experience before they use biosimilars?

Yes. I think it will be interesting to look at that. But each molecule, of course, is a little different. Our market is a little bit harder to make, a little bit more complicated, because it's not an antibody fragment. It's a receptor-based molecule. And so that's a little bit trickier. But I think it will be some proxy to see how much -- I think biosimilar Lucentis will compete against Lucentis primarily. So you're right, it will be some proxy to see how a biosimilar does. But I think that each one and literally each biosimilar manufacturer may have to be evaluated. And I think people aren't going to go head first into something until they see some evidence that you can give large scale. And people have to make -- think about it, you have to make these things at the multimillion injection scale. That's a big deal.

All right. Let's switch over and talk about Dupi a little bit. So I think everybody kind of have accepted that given the safety questions around the JAKs, no matter where the FDA comes out on those, Dupixent has a safety advantage. But how do you do the efficacy question? We would argue that they have a larger impact and more [indiscernible] versus Dupi? And what is essentially the Regeneron counterargue?

Yes. I mean, look, I think when you're treating people with atopic dermatitis, which is a serious disease, but not a life-threatening disease, and you're treating many, many children with this disease, okay? Safety, safety, safety is going to be a very big part of the decision-making here. This notion that because you take it by mouth makes something safer, I like to say, well, you can take cyanide by mouth, okay? It doesn't make it particularly safe. And so the route -- it's not the route of administration that matters. But there is some education that still has to go on. For example, when we first launched Dupi, a lot of doctors thought of it as an biologic. A lot of dermatologists thought of it as an immunosuppressive because they thought of atopic dermatitis as an immunologic disorder, like they thought of psoriasis is an immunologic disorder. So they thought you had an immunosuppress. Well, that's not the case with Dupi. It's not the kind of immunosuppression that you see with psoriasis and what you see with rheumatoid arthritis. So if you want to talk about a proxy here, the uptake of the JAKs in psoriasis or, let's say, rheumatoid arthritis, where there's approvals, is sort of a measure with where you're trading oral for injectable, both having immunosuppressive. So that's sort of like the best case for oral, if you know what I'm saying. But when you're trading -- when you're dealing with the type 2 immune -- immunological reactions, and you're trading oral -- injectable for oral and getting with that trade, you're getting a couple of outfielders thrown in, meaning you're getting true immunosuppression. You can't be all things to all people. You can't treat rheumatoid arthritis with a JAK and atopic dermatitis. And then when you treat atopic dermatitis, not have the bad effects that you get when you do the immunologic suppression of the Type 1 part of the immune system. So I think that it is a hard sell. The other thing is that the JAKs have nothing on the comorbidities like asthma, nothing on the comorbidities like nasal polyps or chronic sinusitis. So this allergic constellation that people have is going to be treated more with an agent like Dupi than those with a JAK. So safety and the breadth of the comorbidity effect, I think, is going to continue to grow. Having said all that, the penetration is very low here, Ronny. If you look at it, you're talking about single-digit type penetration other than maybe double-digit in the rhinosinusitis of the world for other reasons. But low penetration, okay? People are still a little bit hesitant, means there's a lot of room to grow. So even if there are other agents that come to market, I think there is an opportunity for the market to grow. And so -- and we've seen that. If you look back, that's what happened with psoriasis, that's what happened with rheumatoid arthritis. But Dupi has a huge lead, and as it has the comorbidities, it has an incredible safety. You've got hundreds of thousands of people that take Dupi. So the exposure is just going to be incomparable.

So let's go to the other side of this, which is, look, in psoriasis, we've seen that as more drugs come in, we have seen price compression. We -- should we expect, as we get 3, 4, 5 drugs approved on atopic dermatitis over the next 5 years, to see similar price compression in this category?

Well, look, we strive to have 90% of commercial lives that can get access to our drug. And we're doing a great job with Dupi in that regard. Could we see some gross to net erosion as new engines come in and the category matures? Sure. But we have great market access. And we're continually improving the quality of that. Regeneron and Sanofi have been good actors on price. We'll respond to the market forces as we need to. But I think being very large, being have such a long head start, being able to address comorbidities, I think we'll get the access we need and the price that's fair.

Humira suffers from competition, but it somehow still continues to grow at a rate. So let's move over and talk about the great antibody. So first, I got to tip my hat off to you guys. You've been right all along, not only on developing this very quickly, but what it required to stay in the market longer term, as we've seen from the FDA decision to leave you as the preferred product in the markets where some of the more aggressive variants are present. So George and his team definitely deserve the full kudos here. The question I have here is, why is it not used more? I mean there's been a lot of discussions around the use of antibodies, and it seems that all the efforts have gone into vaccines. So what is your game plan to get it used?

This is a spectacular question. It's one that history will have to judge how we did in this world. Had we priced this drug, no matter what we priced the drug, okay, whether it would be $1 or $1 million, people would have said we mispriced it, and that -- that's what -- why there was no uptick. Of course, now, there is no pricing because the government gives it away for free. So we can take that off the ledger. It has nothing to do with pricing. So why is a drug -- let's just review. Why is a drug that has 70% reduction in inarguable Phase III data, 70% reduction in the risk of hospitalization or death, okay, without any significant safety concerns, okay, rare anaphylactic type, very rare, controllable, some injection -- infusion reactions, how can this be that it's not being used? And why? And I think it's multifactorial. I think that part of it started from the fact that we probably did save former President Trump's life and the fact that he went around...

And people are mad at that?

There are certainly people who reacted negatively to him running around touting that Regeneron saved him because he was also touting hydroxychloroquine and things like that. And I think there was a reaction, well, he doesn't get to determine what's good, we the academic community get to determine what's good. But now we have all this data and it isn't like open arms. Could it -- part of it was people were nervous because you had to give it by intravenous injection, which meant you had to bring infected people to the hospital, and they thought that they wouldn't have an ability to deal with them. Part of it, I'm sad to say, is that people rationalize a lot of things, but there was no economic incentive because normally, there's an economic incentive for institutions because they make some money based the way drugs reimbursed if a drug actually caused something, okay? When a drug is free, they don't make any money. And the reimbursement rate, which has now been raised, was such that many institutions thought they were losing money. So when you lose money and you don't make money and the academic community sort of is, well, we're not so sure. After all, what does Trump know, that kind of thing. When you put all of that together, and it has to be given via IV, it is one of the great disappointments that tens and tens and tens of thousands of lives have been lost unnecessarily in my view, because of lack of full deployment of the monoclonal antibodies.

Okay. So that's the past.

Yes. Now what about the future?

Let's go.

Sorry. Yes, the future is 2 things. The future is subcutaneous administration and we're hoping that the FDA will act on that as a potential alternative. I think everybody will always prefer IV because you get that instant benefit. But if it's going to be a delay or what have you, we're hoping we can get to subcutaneous administration at a lower dose where you can give it by just 4 shots under the skin and you're done. So that's 1 thing. But the big thing, what we're seeing a tremendous amount of use now from a compassionate use point of view is the people who don't respond to vaccination. People who are immunosuppressants, people who have immunosuppressant disease, people with organ transplants, cancer patients, myeloma patients, lymphoma patients, people on a variety of immunosuppressive drugs for a variety of diseases like immunological diseases, rheumatoid arthritis, things like that. Many of them, and we estimate there's at least several million in the United States who do not respond despite repeated vaccination. And so we have data now -- already have data in our prophylactic Phase III study, where you can prevent spread. The way we did the study run, it was a very -- George and his team did a fabulous job on this. They looked at household contacts of some -- somebody was infected. And so they administered in a placebo-controlled manner to all the members of the household. And they showed that you block infection by 80% and, in fact, after the first week, that protection was 90%. So it was 80% overall, 70% in the first week, 90% thereafter. So giving an antibody -- just giving an antibody before you are infected is really quite an amazing thing. And what this tells us is that, first of all, the earlier you give our drug the better. And the chances that it's going to make a big difference when you're already hospitalized and on a ventilator, we don't have that data, but the chances of that happening, I think, are small. Maybe we'll see something, but I would be betting somewhat conservatively on that. But the early you give it, such as in the treatment setting or where you can literally save people from going into a hospital or dying or in a prevention study, where you can block people from getting the disease. And by the way, you can block the number of weeks that they shed the virus dramatically. So you not only block them from getting symptomatic infections, you block them from spreading it. I think this is -- could be a God sent for people who don't respond. And that's where we think the chronic long-term opportunity is here. Assuming that this virus behaves like the, let's say, a flu, where it's around -- it's not a pandemic but it's still there, that's the big opportunity. So that's the one we're turning to next with the FDA.

Okay. So give me a little bit of feel for the commercial plan. What are you going to do? You're going to look for the professional societies to incorporate that into the guidelines for treating multiple myeloma? You get -- are you going to -- what is -- are you going to look for some sort of recommendation from CDC? What is the -- how are you going to get this thing commercialized?

Yes. Interestingly enough, if we have a prophylactic and a chronic prophylactic indication, where you can give it, let's say, monthly by subcu, maybe even self-administered. But subcutaneous periodic injections to people who don't -- people are panicked. I had just yesterday somebody who begged me to -- how can they get on the drug because they've had a heart transplant, and they locked up in their house. They take no visitors. They got vaccinated. They got no response because of the immunosuppression with the organ transplant, and they're desperate to get something like this. So assuming we can get this approved, which I think there's a very good likelihood there. We have very strong data. Then I think we have to focus on those doctors that treat these patients. The people who treat the lymphomas, the myelomas, the cancers. The people who are involved in organ transplants. So it is standard of care that if you have a lymphoma patient, you know you're going to vaccinate them against everything you can and you're going to give them. If you've got chronic -- common variant immunodeficiency who get IvIG on a regular basis, they would like to take this drug on a regular basis. And I think there will be a lot of patients making sure that it happens. I think the marketing here is like a whole different campaign because you're now treating people, it's sort of like -- it's a -- you can think of it as a passive vaccine for those people who won't respond to the active vaccine.

So you know us analysts, we always like to see some traction. What is the kind of the first professional society where you're going to go after with this indication to the extent that was decided already?

It's an interesting question. I actually don't know the answer, but I would suspect it will be something related to the cancer people with maybe the lymphoma society, something like that. They have expressed a lot of interest. And because most of their patients are not responding adequately. So maybe the leukemia or lymphoma society, and maybe that's a good place to start.

Robert, I noticed that you were -- were you planning to say something? You are on mute, so I don't know if you had a thought that you wanted to add.

Listening intently, Ronny. [ And how you get ahead ] in all instances.

He is quickly updating his internal models, just like you are based on what I'm saying. I do want to be clear, Ronny, that we don't have the preventive indication. But we are expecting the subcu treatment lower dose, hopefully, very soon. I mean we're not expecting -- we can't say what they're going to do, but we're certainly expecting action by the agency soon. So we are crossing our fingers on that.

Got it. And you do have the prophylaxis indication. So just targeting it with a subcu indication does not mean you're marketing the excess of your label. You can go to market and talk to physicians on the idea of using prophylactically if the people don't not respond with the label you got.

No, not until we have an authorization there.

Okay.

We can't promote this off-label. No, we cannot.