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

All right. Welcome to the afternoon session of the BofA Healthcare Conference. So my name is Geoff Meacham. I'm the senior biopharma analyst here at BofA. And we're thrilled to have Regeneron on stage with us today. And so we have Bob Landry, CFO; and we have Ryan Crowe, VP, Investor Relations. Ryan, do you want to read out the...

Yes. Just quickly on the forward-looking statements. So I'd like to remind you that remarks made today 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 that statement. A more complete description of these and other material risks can be found in Regeneron's filings and the United States Securities and Exchange Commission. Regeneron does not undertake any obligation to update any forward-looking statements. In addition, this discussion is neither an offer to purchase nor a solicitation of an offer to sell securities of CheckMate Pharmaceuticals, Inc. in connection with the tender offer for CheckMate stock, Regeneron and its merger subsidiary filed with the SEC a tender offer statement and other off -- tender offer materials, and CheckMate filed a solicitation recommendation statement with the SEC. Copies of the documents filed with the SEC by Regeneron and CheckMate are available free of charge are in Regeneron's website or on CheckMate's website as applicable or at the SEC's website. Investors should review such materials filed or to be filed with the SEC carefully before making any decision with respect to the tender offer.

Wow.

Wow. Testing on that later.

I think we're all clear.

All right. I was going to open with just, I don't know, if you could just entertain me 5 minutes, kind of give you a recap on Regeneron. We just had our quarter -- first quarter end, which certainly proud of the results that we put forth. And then the 3 of us will get into some Q&A banter on a whole host of topics. So with regards to the quarter, we performed very, very well in a very, very tough market. Our top line growth was 17%. You back out REGEN-COV, as you know, we were a big REGEN-COV COVID story in 2021. If you back that out, our top line grew 25%. And we had 16% drop to the bottom line. So again, the management team was very, very pleased with that. Individually, EYLEA continued to do very, very well. Again, we showed 13% growth in the U.S. We showed 7% ex-U.S. Our partner Bayer does a tremendous job ex-U.S. and 7% reported, and I think we were like 13% on a constant currency basis. And again, I mean, this is a product that launched in 2011, right? And all of the numbers I'm reading are without price increases. It's pure volume on that front. DUPIXENT, which we partner with Sanofi, did tremendous 2 global numbers. We grew 43% globally, we did, I think, 38% in the U.S. and 61% ex-U.S. So again, that product is firing on all cylinders, and I'm sure we'll get into some Q&A with regards to that. Pipeline. And again, I know this is big on investors' minds, right? So we have, we read out our Phase II 8 mg. We call it aflibercept 8 mg in the first quarter. It was done on wet AMD, and it was really positive results. And we've told the world that we will be reading out our Phase IIIs in the second half of 2022, both DME, which that trial we're running in the wet AMD Phase III trial, which Bayer is running. With regards to Libtayo, we have our chemo combo PDUFA date coming up in September, those that know the Regeneron story, you know that we've launched Libtayo in CSCC BCC. And we're also in mono non-small cell lung. And again, I refer to DUPIXENT. So a lot happening, a lot always happening on the DUPIXENT front. So bear with me as I kind of run through this. So in Europe, we got approval for asthma, 6 to 11. It's just another kind of peel the onion more patients on that front. We have a couple of PDUFA dates coming up. We have a big EoE PDUFA date coming up in August. Again, that's a class that hasn't had much product. And we sense there's some warehousing involved in that. So we look forward to approval from the FDA with regards to that. We have actually 6 months to 5-year-old kids in the U.S. for atopic dermatitis. That's going to be a June PDUFA date. And we just filed both in the U.S. and ex-U.S., prurigo nodularis, which will be kind of a first quarter -- first half 2023 indication on that front. So again, a lot -- I read the growth numbers, but you can see that more indications continue to come. And on the I/O front, I mentioned Libtayo-chemo combo, but we have 3 important readouts in the second half of the year. We're a big second half catalyst and that would be kind of PSMA by CD28. That would be our MUC16xCD3 and that would be also our MET X MET program that we're going to be reading out kind of Phase I dose-up type escalation numbers on that. And lastly, let me talk just a little bit about capital allocation. Ryan talked about CheckMate. As you know, CheckMate $250 million equity deal. The size of it is not important. I think what's important is the first acquisition we've done ever in our kind of 31 years of being a public company. So we've -- as you know, we've been heavily an organic company, but we are venturing into this relationship. So right now, that we're currently in the Hart-Scott and tender offer situation with that. And finally, on share repurchases, we have been buying back a lot of our stock in roughly $350 million worth of stock was bought back in Q1. And I think we have $2.5 billion of an open authorization still to go. Certainly, no one's happy with regards to the share prices that the biotech industry is in, but it's certainly opportunity with regards to what we can do on our buyback program. So long-winded, Geoff, but with that. So hand it over to you.

Well, let's take those in reverse order. So the 5-minute SEC disclosure was interesting. And just reminding me that what you said is that you guys haven't done a deal in a while. You've done some collaborations though.

We've done a lot of partnerships, a lot of licenses, but never really kind of going out and buying something in whole. Again, we like the asset there. I'm kind of limited on what I can speak to because we're still in the tender offer position. We do hope to have this kind of wrapped up by the middle of June, fingers cross, right? The tender offer has to work out as planned and hopefully no comments with regards to Hart-Scott-Rodino, but we're excited. We're excited on the people that may be joining us in the opportunity and kind of technology that's getting delivered with this company.

And just along those lines, is it, should we think about this as sort of a shift going forward? Will Regeneron look more acutely, say, at the landscape for M&A? I mean, you mentioned valuations. They are definitely compressed for a lot of SMID-biotechs and give me -- give good opportunities. But is this sort of a sign of perhaps a new, an evolution of Regeneron sort of R&D platform.

You were going to say a new becoming or something.

Yes, yes.

Yes. We do, we're currently sitting at $11.4 billion of net cash. We generated $2 billion of free cash flow during the quarter. A lot of that was the receipt of the government payments on contracts on fulfilling the COVID product in the fourth quarter. But yes, I mean, we have a lot of ammunition, and we're looking for opportunities that make sense. Again, we're never going to be something that's going to do something transformational. We don't think we need it. We have a very, very vibrant R&R platform, where targets are continually getting kind of brought up that we can go after. And -- but our eyes are always open with regards to kind of good, smart technology place that we think have a really nice niche. We like it when kind of like when they are like management teams that kind of think the way that Regeneron does super science-based. So Geoff, I would say, yes, I mean, our antenna is probably as high as it's ever been compared to the time that you've covered us.

Okay. That's helpful. And just along those lines, too, I mean, CheckMate brings you individual assets in the I/O space, but there are a lot of other tech-centric companies out there, gene editing, gene therapies out there.

Yes.

Is there kind of an interest in advancing your programs towards the, in building up those ends of the technology? Or is that sort of, let's see what derisking happens?

We like gene therapy companies, our CSO, George Yancopoulos, has always been very, very high on gene therapies, and our antenna is probably a little bit higher in that space than other spaces. So...

Okay. That makes sense. So let's switch gears to Libtayo. And when you think about the commercial piece of the business, you're right, you have a couple of derm indications that are approved and monotherapy alone. Walk us through kind of the chemo combo. What sort of impact do you expect that to be from a pure commercial perspective? You think that will help sort of broaden the landscape and maybe make you more competitive with some of the bigger players and the likes of Bristol or Merck, et cetera.

So as I mentioned at the beginning with regards to Libtayo, we went after kind of a small niche indication in CSCC. And we've done great. I mean, we're the standard of care of that, and we're kind of holding the #1 position. And then we followed that on with BCC for those that don't do well with hedgehog inhibitors. And then as Geoff was saying, we got into mono non-small cell lung, good data. In fact, very good data, in my opinion, similar to what people see with regards to Keytruda. And there's been tough to cover it up. And it's been tough. It's been a tough go. Some of it has been a tough go with regards to trying to launch this in the midst of COVID, getting access to oncologists and getting access to their practices. But we are hopeful that with our, I believe, September 19th PDUFA date where we will do chemo combo indication, which again has very good data. And the part that I didn't totally understand is it really increases the addressable population. The mono non-small cell lung, you're basically going after 1 million patients. Now again, I know that sounds like a lot. But with regards to chemo combo, it's 7x that number. So it's 7 million patients that are within the purview of what we'll be going after. And again, it will be I'm assuming hand-to-hand combat like it's been on everything else with regards to non-small cell lung in the presence that Keytruda has been able to make in this space. But we're hopeful, and we are -- you may not always see it if you look at the net sale number, I mean, we are making kind of head rows with regards to HCPs and securing more and more patients. So be patient with us, we do think that we're going to make a nice business out of this.

And Bob, just along those lines, you have Libtayo combinations and then you have the bispecific platform which you guys have homegrown in-house. And a lot of the similar targets you could go after, right? So PD-1 plus CTLA-4 or whole alphabet soup right of I/O-I/O kind of combinations. How should we think about the strategies there, right? Is it more on the bispecifics that are kind of in-house that you would prioritize over doing the blocking and tackling like Libtayo combinations?

We are -- we've always said that you need a good PD-1 to be a foundation and then we're going to have all these other combinations like Geoff mentioned to kind of enhance and extend, and we're going to have these combos with PD-1, what they could be. And you can't look at our kind of clinical -- within our 10-Q, we outlined all the trials that we have. So we think that this is a big combination play that what's out there is fine, but we're looking to enhance and extend, and we think that we can do that with regards to bispecs and the new CD28 costims that we're putting into the clinic and the like. So we are big believers of combinations. And the beauty is, and I wouldn't say we're the only ones, but we have a lot under one roof. And I think that, that's what makes us a little bit special. We're not going out, and we're not buying pieces and having to license and share profitability with other players that are currently out there in order for us to kind of have the pieces that we want. It's all under one roof.

Perfect. Okay. And let's talk about REGEN-COV real quick. So you guys were a major contributor to the pandemic and a lot of end-user demand, I mean, for better or for worse. Good for you guys. Very helpful. But then the virus keeps evolving. So how much of a priority is sort of evolving REGEN-COV to account for new mutations, new variants. Is that something that I think you guys are proactively investing in? Or is it something you want to sort of defend your turf?

I would say both. I mean with regards to defending our turf, we do believe, Geoff, if it's not us, then who? This is in monoclonal antibodies. I mean, hurray from Merck and Pfizer, I mean, great job with regards to the orals and what they did. But with regards to monoclonal antibodies, I mean, we think we're totally suited, and we should be the ones leading the charge. And I know we're not alone in this, but we're going to stay active. So although you may not hear us in the news like you were throughout 2021 in government contracts and EUAs and being able to kind of go after new variants, we are still very, very active in this space. It is super fluid. I've been in the business for 30 years. I don't think I've ever seen a therapeutic category that's been more fluid than what we're trying to do in the COVID space with regards to what's coming out of South Africa. And does it work on the Omicron lineage? Well, what about B5, what about B6, I mean it's constantly sending things kind of back to the research team and having them kind of test and seeing what works. The beauty is we know how to make antibodies and we have a treasure troll of antibodies, and we have a ton of antibodies that are lined up that can go against Delta and Omicron and the like and anything that they may throw at us. It's a matter of kind of we got to get it through the system. We have to get it through the FDA. There needs to be kind of a clear path forward with the FDA to do that. And it's a little bit different than vaccines. As of right now, when we're in negotiations with the FDA, there's not a super clear path in order to get these things to market. I will tell you that we have initiated last month antibodies in the clinic. It's kind of healthy volunteer study. But to Geoff's kind of overriding question, you may not hear about it a lot, but it's still a large focus. We think, for sure, this is a business going forward. Pandemic turns into the endemic and then what do you do with all the immunocompromised patients. We estimate there's probably 7 million, and there's probably 2 million that need chronic treatment, and they can't take oral, they won't be taking oral virals -- oral pills on this front. It's something that can't be done on a chronic basis. So that's where monoclonal antibodies are going to step in, whether it's us or one of our other competitive companies that are out there, but we do think it is a viable business. It's just a matter of how big. And sorry to go on and on, on this, Geoff. But 2 things. We mentioned on the first quarter call, we don't expect to have any REGEN-COV sales this year. So we kind of put a flag in the ground, pending any new government contracts that may come about or what's going to happen with regards to the strains. We did say, and certainly, Roche said that with regard to ex-U.S., their product, Ronapreve, which is REGEN-COV in the U.S. continues to be kind of a really viable market in which they're expecting CHF 1.6 billion to come out of Roche this year for the Ronapreve product ex-U.S. And we will be collecting a partnership kind of collaboration revenue associated with that. So it's not a complete 0, I guess, Geoff, on the ledger, but...

And looking forward, are there any shifts as we go from pandemic to endemic on things like pricing or volume assumptions or I guess, we'll have to see...

We'll wait and see exactly how that comes out. We do have a PDUFA date for the current product that we have filed REGEN-COV, which is not effective against the current Omicron lineage. I mean we do expect that to come in the middle of July, and we'll probably just have that sit on the shelf until it's necessary -- if it does become necessary.

Got you. Okay. That's helpful. Let's quickly switch gears to DUPIXENT, which Sanofi just highlighted as having a pretty significant peak potential and the whole range of indications, there's a ton of them out there. How do you guys think about some of the initial indications like say, atopic derm or asthma? You do have a lot of new competitors coming on board. So what degree do you think that these markets still grow versus the newer entrants potentially risk -- have the risk of taking share?

We're -- I mean we can get into the competitors, whether it'd be the JAKs or IL-33s or the TSLP by Amgen. We welcome more people into the category. The thing that's amazing and maybe people know or don't know this with regards to AD, so AD is the largest indication right now within DUPIXENT. But with regards to adult penetration, it's barely 8%, 8%. Sanofi has said -- they expect to get that to 25% just on that 1 indication from the 8%. So that's a pretty big growth number. And to the extent that -- Geoff, I mean, for more share of voice, you know there are companies that have competitors within the space, they bring a lot of share of voice. So to the extent they can't bring share of voice to that category, grow the AD category, which a few years back, it wasn't very large at all, we think it can get to be like what happened in the psoriasis and the RA market. The kind of the more players that came in, that market just continued to grow, and we're happy with our standing. We're happy with our profile, happy with the efficacy and safety that we think that, that's going to be a benefit to us, definitely, going forward as more competitors come into the marketplace and bring their share of voice.

And when you look at the inflammation space and the I&I space, there are many indications. People say the core 7 or 8 indications, and you guys have expanded even further. To what degree are you looking at more frontier indications for DUPIXENT, just given the robust efficacy you've seen in AD? Are there a lot of other indications that are more in the exploratory phase that you think over time could help grow the product?

Yes. I mean I don't have the flow chart in front of me, but there are a lot of additional indications to come. I would say the focus for investors certainly in very near term. I think we're talking in August PDUFA date would be EoE, which is -- that's probably patients that need treatment that's probably 50,000 patients large in the U.S. So that's interesting. And like I said, prurigo nodularis we just filed for that, that will be first half 2023 approval. And then what doesn't get much attention and Sanofi put a waypoint number out there in terms of how big DUPIXENT could get. They said EUR 13 billion. That's their number, not Regeneron's. But missing from that, and they were clear to say what missing from that is COPD. COPD is a very, very big indication, and we think it could be, I don't know, 500,000 patients in kind of Th2 within the G7. And as you know, we have 2 trials that are currently ongoing. We expect to read that out in the first half of 2023, and God willing and if the data may rise up, we'll be able to kind of have that on the market in 2024, which really never gets talked about. So Geoff, I know there's a whole host of other smaller, whether it'd be CSU and other indications that, frankly, I've never heard about, but there are still some big ones to come with probably COPD, the biggest.

Yes. The mechanism is pretty foundational.

It's fantastic. The mechanism is fantastic.

And it has efficacy across patients that have comorbid conditions, and that's where we really separate from a lot of the competitors because it does block IL-4 and 13. We see patients that have comorbid asthma and AD, as an example, get efficacy out of both. So we think that's a pretty distinct advantage in the market.

To what degree do you -- would you expect there to be combination therapies? You always hear about that in oncology or hematology but not really I&I, and I mean it's usually more of a sequential therapy market, right? But it does make sense that given the increasing number of MOAs that are available that you could have potential for...

It was interesting in our Phase II when we ran the combination with IL-33 and DUPIXENT. It actually -- they weren't additive. They were the same as the single-agent arms. So we're not really looking at DUPIXENT in combination with a lot of other agents at this point. Perhaps there's some biologic rationale. But right now, it's kind of a monotherapy...

In the clinic.

Yes.

I got you. Okay. And you talked about EYLEA at the onset, Bob. And so when you have the high dose data at the end of the year, kind of the same question that we talked about at Libtayo. To what degree do you think high dose will help grow the market by volume and maybe your share versus just trying to defend share against some of the other ones where you have Roche, you have biosimilars coming?

Yes. I mean, maybe I'll start with sort of backing up in what the high-dose programs intended to achieve. We're running 2 trials that have readouts in the second half of the year. One in wet AMD and the other in DME. They are evaluating 8-milligram of aflibercept that dosed at every 12 weeks and every 16 weeks against EYLEA, which is aflibercept 2 milligrams, and really, the goal is to cut down on the number of injections for a patient. And we've been encouraged by the data we saw in the Phase II readout that Bob mentioned the CANDELA study in wet AMD patients, where we saw anatomical and acuity improvements, as well as a safety profile that was maintained. So the high dose held up very well there. And important to note that the Phase III trials are non-inferior powered. So we're not even looking necessarily for an improvement. We're looking to maintain the efficacy and the safety but extending the dosing interval meaningfully either out to 12 or up to 16 weeks. And I think that's a very meaningful change for patients and for ophthalmologists if you can keep that safety profile which we believe we can. We do see the faricimab in the market, but right now, not a real compelling use case for it as far as we can tell. And we're excited to get the data and hopefully move forward with filing and getting that on the market as soon as we can.

So data...

The second half of this year.

2023 commercial impact?

No, we should, if data supports it, we can file it quickly. I think you can see an FDA decision in '23.

Okay. Perfect Yes. And Bob, we mentioned at the very onset, a lot of the questions on BD. And one of the areas for Alnylam is in the rare disease arena in the case of PNH and NMG. But this is not really, Regeneron is not really in the kind of the orphan-ish kind of space. You guys have drugs for bigger markets. Is this an area of interest for you guys? Is this something -- more rare genetic diseases, not rare kind of like inflammation or oncology indications. Is this an area of interest for you guys?

I think so. We have Evkeeza, which is in a rare disease setting, and we're looking at the CHAPLE is a small indication, the C55 complement activation. So with C5, and we're looking at the combination of cemdisiran, a siRNA agent in combination with pozelimab, one of our monoclonal. That's the first time this has been done. And we're looking to really hit the target hard and have longer durability to improve dosing intervals as well as convenience for patients. So certainly, a rare disease, but one that we think has an opportunity to move the standard of care.

Yes. I got you. Yes, it's interesting when you look at other indications like Hep B, for example, right? I mean, there's also the example of using a SiRNA approach in an antibody. So there are lots of 2 modality indications that, I mean, you guys if you wanted to, you have the technology prowess to go after.

Yes.

Yes. Perfect. And then when you think about just to wrap up the, Bob, you mentioned the kind of the cash generation with the capacity, what other things has Regeneron considered, I mean, doing a large transformational deal is not really in the cards, but $11 billion is a lot of cash to kind of put the work. So.

Seems like an unequal puzzle.

Right.

Yes. I mean we like to stick to our knitting. I mean, we have certainly a lot of firepower. I mentioned numbers at the beginning with regards to where we are. We continue to think, and we've proven out that the best return we can make is investing in our R&D. Now sometimes, obviously, from a quarterly P&L and from an annual P&L, people get a little bit shuttered with regards to our R&D as a percentage of revenue, percentage of net sales, whatever metric you want to use. And it is. I mean it's on the high end. We'll agree to that. But I would also say we like to think it's one of the most prolific. So therefore, it should be on the high end, and we're going to continue to invest in ourselves. Like I said, we think we have a research platform that's kind of best-in-class and the targets that come out of it are going to be fruitful. So we're going to continue along that path. And then it's happy to say we do a lot of licenses and collaborations. And people can say, yes, they're never of much size, probably the biggest ones we've done was with Alnylam a couple of years ago. That's one that we like. We've done one with Intellia. That's one that we certainly like. CheckMate was a little bit of a change for us in buying the entire company. That's interesting for us. That's something we haven't done before. But we're going to kind of continue to play in that space, not transformational, but wherever we see technologies. Geoff mentioned kind of gene therapy type stuff. We like that stuff. We have something called the Regeneron Genetic Center. We sequence more exomes than anyone else. So we can see what the targets are with regards to the -- this kind of -- the blood is identified with, de-identified with people, but we know kind of what the...

The underlying illness.

Yes, illnesses are and stuff like that. So we have a gigantic treasury 12, and we need to find sometimes modalities that kind of fit the purpose because all modalities are not going to be antibody modalities. We did something not that long ago in obesity with regards to Astra because we found a great target within RGC, but it just -- it's not always suitable for antibody technologies. So we'll continue to use RGC and determine what modalities siRNA, CRISPR. Look at what modalities we need, oncolytic viruses, things like that, and continue along that same path. And then finally, kind of the third leg of the capital allocations tool would be just kind of continuing to buy back shares when we think intrinsic value is certainly greater than what the market is currently dictating. And we've been active in that. And I think sometimes people lose sight of how active. I mean, I think going back, since like the end of 2019, we've bought back $8 billion of our own stock. So we're not afraid to do that. We're not afraid to put the balance sheet to work. Like everything we'd like to be really thoughtful when we do it and we'll continue along that path, Geoff.

And so what degree are there -- just to wrap up, are there opportunities to invest in things like manufacturing or kind of commercial organizations around the world, just outside of the R&D?

That's a great question. I mean, we're not shy in terms of putting our capital to work in terms of bricks and mortar. We continue to kind of blow out our IOPS manufacturing facilities, putting in a brand-new fill/finish facility. We've always gone to third-party players for that, the Catalents of the world. Now we have all that in-house capability. So all that's going to continue. And as you know, I mean, we started to put a foothold in ex-U.S. with regards to co-commercializing DUPIXENT. You'll probably see that continue to increase.

Got you. Okay. Bob, Ryan, thank you very much.

Thanks, everybody.

Thank you.