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

Welcome to the Regeneron Pharmaceutical Analyst and Investor Conference Call to discuss with Regeneron's intent to acquire global rights to Libtayo. My name is Norma, and I will be the operator for today's conference. [Operator Instructions] Please note that today's conference is being recorded. I will now turn the call over to Ryan Crowe, Vice President, Investor Relations. You may begin.

Thank you, Norma. Good morning, good afternoon and good evening to everyone listening around the globe. Thank you for joining us on short notice. Welcome to our investor call to discuss our intent to acquire global rights to Libtayo from Sanofi. An archive of this webcast will be available on our Investor Relations website shortly after the call ends. Joining me today are Dr. Leonard Schleifer, Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Co-Founder, President and Chief Scientific Officer; Marion McCourt, Executive Vice President and Head of Commercial; and Bob Landry, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will open the call for Q&A. I would like to remind you that remarks made on this call today include forward-looking statements about Regeneron. Such statements may include, but are not limited to, risks related to the satisfaction or waiver of the conditions to closing the proposed Libtayo restructuring and risks related to the company's ability to realize the anticipated benefits of the proposed Libtayo restructuring as well as those related to Regeneron and its products and business, financial forecast and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, payer coverage and reimbursement issues, intellectual property, pending litigation and other proceedings and competition. 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 with the United States Securities and Exchange Commission, including its Form 10-Q for the period ended March 31, 2022. Regeneron does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. With that, let me turn the call over to our President and Chief Executive Officer; Dr. Len Schleifer. Len?

Thank you, Ryan, and thanks to everyone joining today's call. Regeneron is committed to becoming a leader in immuno-oncology. In addition to better positioning us to achieve this goal, we believe acquiring global rights to Libtayo is a necessary step to realize its full clinical and commercial potential, while enabling us to become a bigger player in the branded anti-PD-1 PD-L1 global market, which generated over $30 billion of revenues in 2021. We have long believed that the key to unlocking this opportunity is through differentiated combinations and that Libtayo would serve as a strong foundation for them. Our strategy in the near term is to optimize Libtayo in its currently approved monotherapy indications in certain non-melanoma skin cancers and in non-small cell lung cancer. And we look forward to potentially launching Libtayo in combination with chemotherapy in non-small cell lung cancer later this year, pending FDA and European Commission approvals. Over the longer term, we expect to invest significantly in Libtayo by combining it with other promising candidates in our oncology pipeline as well as with candidates from external collaborations. We and our collaborators are conducting more than 20 clinical trials involving Libtayo combinations. And in a minute, George will discuss some of the details of our strategy and review some of the early combination data we have generated with cemiplimab, our LAG3 antibody. It is important to emphasize that we are excited to pursue approaches, combined with Libtayo with our internal assets as well as additional external opportunities by working broadly with oncology-focused partners, who may not have a late stage or an approved PD-1 antibody. A brief word on the financial aspects of the deal, which Bob will discuss in a moment in more detail. Consistent with how we have always approached decision-making at Regeneron, we believe this deal, upon successful closing, positions us to deliver long-term value to shareholders. Over time, we expect the deal to become accretive to both top and bottom lines. Of course, the timing to realize this will depend on how well we execute commercially and the success of our oncology development efforts. However, one aspect of the deal is rather predictable. We will accelerate repayment of our share of the antibody development balance to Sanofi over the next few years, which is expected to result in a significant inflection in profitability in the latter part of the decade, having fully paid off this obligation years sooner. In summary, we believe that wholly owning Libtayo will better position Regeneron to become a leader in oncology and accelerates our progress towards building global infrastructure and capabilities. We are confident in our ability to develop combinations with Libtayo that can meaningfully advance the standard of care in oncology and our controller Libtayo will expedite our strategy. Before I turn the call over to George, I'd like to thank our colleagues at Sanofi for their collaborative efforts on helping to advance Libtayo to where we are today. Now I'll turn the call over to George, who will take you through our oncology pipeline and strategy. George?

Thank you, Len. Many of us felt we've been very appropriate if we were announcing this deal about a month from now, on the 4th of July, also known as Independence Day. Okay. Going into the prepared slides here. Before I go into the pipeline, I thought it would be worth discussing some background on Libtayo and how we arrived at this moment. As mentioned, the centerpiece of Regeneron's internally developed immuno-oncology pipeline is cemiplimab, our anti-PD-1 antibody, also known as Libtayo, which we began developing over 10 years ago. Since we began working in the immuno-oncology space, we have viewed PD-1 checkpoint inhibition as an essential foundation for our entire oncology strategy because of a anti-PD-1 demonstrated profound efficacy in many different cancer settings, along with their manageable safety and tolerability profile. When we set out to develop Libtayo, we screened hundreds of different antibodies to identify candidates that we felt perform in a multitude of preclinical assays at least as well as, and in some cases, better than, leading PD-1 competitor antibodies. We advanced cemiplimab into the clinic in 2015 and by 2018 because our strategic fast-to-market approach in clinical development and execution, we received our first FDA approval for Libtayo in advanced cutaneous squamous cell carcinoma, an important indication that had not previously been identified as responsive to PD-1 inhibition. So we moved from first-in-human to a first-in-class FDA approval in a little over 3 years, which is one of the fastest clinical development timelines for an anti-PD-1 or PD-L1. And since our launch, we have established Libtayo as standard of care in not only this setting, but also in advanced basal cell carcinoma in patients previously treated with a hedgehog inhibitor, which is another first-in-class approval that we were able to efficiently execute and firmly establish Libtayo leadership in the rapidly growing non-melanoma dermato-oncology space. Our third FDA approval for Libtayo is in first-line non-small cell lung cancer for tumors with high PD-L1 expression as a monotherapy, where we are building a commercial presence. We've also run positive Phase III studies of cemiplimab in combination with chemotherapy in first-line non-small cell lung cancer, which is currently under FDA review, and we look forward to their decision by September 2022 PDUFA date. Next slide. If approved, Libtayo will join KEYTRUDA as the only approved anti-PD-1 or PD-L1 agents to have consistently demonstrated an overall survival benefit as monotherapy as well as in combination with chemotherapy in first-line non-small cell lung cancer as shown on this table on Slide 7. We believe this could strongly position Libtayo, should we receive FDA approval for our chemo combination. In short, we believe Libtayo is a differentiated PD-1 antibody, but more importantly, it is the solid foundation for our novel combinations, which we are developing with the goal of enhancing the ability to fight cancer beyond the success of current PD-1 approaches. Anti-PD-1 therapy is effective and has rather become standard of care across a multitude of tumor types and settings. Despite this progress, there are many cancer patients whose tumors do not respond to PD-1 blockade and many other tumor types that have not responded to anti-PD-1 therapy in clinical trials, such as prostate cancer, most breast cancers and ovarian cancer. We are aiming to enhance and extend antitumor responses with our bispecifics and with our other combination approaches. Our broad and diverse approach to oncology gives us an unparalleled opportunity to mix and match the best approaches, whether it be combining cemiplimab with the CD3 bispecific, a CD28 co-stimulatory bispecific, a tumor-targeted biparatopic antibody or an immune modulating agent. What's important to note is that for drug candidates in some of these categories, monotherapy activity is expected to be limited or non-existent and is only in the presence of these combinations where we expect to observe antitumor responses. And even in cases where we see monotherapy activity, we believe we may also be worthwhile to a evaluate and in combination with Libtayo to potentially broaden and deepen responses. Let's start with our bispecific programs, which are all based on fully human full-length antibodies and fall into 2 different categories: CD3 engaging; and CD28 or co-stimulatory bispecifics. Our CD3 bispecifics are designed to link tumor-associated antigens and cancer cells with CD3-expressing T cells, resulting in TCR mediated T-cell activation, sometimes referred to as Signal 1 and specific killing of tumor cells. Our clinical programs in this space span both solid and hematologic malignancies, and we are evaluating candidates in this category as monotherapy in combination with Libtayo as well as in combination with our CD28 co-stimulatory bispecifics. Our CD28 bispecifics represent a novel and differentiated technology and are intended to deliver co-stimulatory signal, also known as Signal 2 to a T-cell that has been directed through Signal-1 to kill the tumor cell. Preclinical data suggests this is an especially promising approach for treating solid tumors, which may lack co-stimulatory signal and could also address certain hemologic malignancies. Our CD28 co-stimulatory have limited antitumor activity when used as a monotherapy and for their full activity to be a unleashed, they need to be combined with either cemiplimab or a CD3 bispecific. Our tumor-targeted biparatopic bispecific antibodies are designed to target different epitopes of the same receptor on the cancer cell, greatly amplifying internalization and update. These investigational medicines can disrupt signaling pathways associated with cancer cell survival and these antibodies can also be fitted with cytotoxins for use of antibody drug conjugates. We are currently investigating these candidates as monotherapy. The preclinical data indicate they also have the potential to combine the cemiplimab or other medicines. Finally, we are developing additional immune modulators that can also be combined with anti-PD-1, with LAG3 being our lead candidate in that space as well as other agents in our pipeline. These can include additional checkpoint inhibitors, immune activators as well as targeted cytokines. Next slide, please. Slide 9 depicts our current clinical stage programs, including various cemiplimab combinations in the categories I just described. Note the depth and breadth of our pipeline and the combinatorial potential of various drug candidates. We have several clinical programs with CD3 bispecifics in the dark red are being studied in combination with cemiplimab as well as CD28 costim bispecifics, and we plan to initiate several more programs in the near future. Our tumor-targeted biparatopic in dark blue, METxMET and METxMET ADC are currently being investigated as monotherapies, and we anticipate they can also be combined with cemiplimab. Finally, I'd like to mention 2 of our new modulators that are in the clinic today. We have initiated a Phase III study with fianlimab, our LAG3 antibody in first-line metastatic melanoma based on promising initial data. We're also excited about combining cemiplimab with dupilumab, which we obtained through the recently completed CheckMate Pharmaceuticals acquisition and plan to initially evaluate in advanced melanoma and cutaneous squamous cell carcinoma. Slide 10 summarizes the timeline of expected data readouts for these programs, some of them first in class. In the second half of this year, we are expecting to share potentially pivotal data for our CD20xCD3 bispecific or [ Genmab ] in Follicular Lymphoma and diffuse large B-cell lymphoma. Pending regulatory discussions, we plan to submit these data in late 2022 for FDA review. Also in the second half of the year, we will take a first look at -- we will share a first look at the month 16 CD3 monotherapy data in advanced ovarian cancer as well as data from our naked METxMET biparatopic bispecific and MET-altered non-small cell lung cancer. By the end of the year, we're also planning to share data for our PSMA by CD28 our lead co-stimulatory bispecific in combination with Libtayo for metastatic castration-resistant prostate cancer. Next year, we are planning to share potentially pivotal BCMA by CD3 data in late-stage multiple myeloma as well as initial data for 3 advanced ovarian cancer combinations. We're also anticipating a first look at the EGFR by CD28 costim plus Libtayo for various solid tumors. In 2024 and beyond, we expect to see pivotal cemiplimab combination data in first-line advanced melanoma and adjuvant melanoma as well as cemiplimab monotherapy data for adjuvant CSCC. In metastatic prostate cancer, we expect mature PSMA by CD28 plus Libtayo data as well as initial data for PSMA by CD3 bispecific in combination with both the SMA costim as well as the Libtayo. As I hope you can see, we have developed a broad and diverse internal [indiscernible] of combination opportunities in oncology in which Libtayo plays a central role. We believe these opportunities have the potential to advance the treatment paradigm for various tumors. And as Len indicated, we are pleased to be able to fully control Libtayo upon closing of this transaction. We have also been working very actively with collaborators to augment Libtayo's activity with various additional mortalities and platforms. On this slide, you can see the many additional opportunities Libtayo may open up for us and for our many collaborators in the oncology space. These collaborations aspire to establish Libtayo as a backbone of many innovative therapeutic approaches across the biotech industry. Cancer vaccines, oncolytic virus immunotherapies and targeting cancer cell -- are all being combined with Libtayo with the goal of further empowering the patient's immune system to fight cancer. Next year, we will get a first look at data for Libtayo combinations with Silagen's intratumoral oncolytic vaccine in renal cell carcinoma as well as from the MI and ISA collaborations. Data for BioNTech's mRNA vaccine combination in patients with prostate cancer, first-line non-small cell lung cancer and PD-1 relapsed/refractory advanced melanoma will also readout in 2023 and beyond. We expect to readout this year for the Libtayo cemiplimab combination for our participants in the multi-arm I-SPY trial collaborator's clinical study that is evaluating potential neo-adjuvant treatments for locally advanced breast cancer. And moving on to the next slide, I want to tell you a little bit more about this cemiplimab or LAG3 antibody. This targets, what is known as the lymphocyte activation Gene 3 or LAG3 it's a monoclonal antibody that we developed in our labs to serve as initial validation for what our robust pipeline of complementary oncology agents can generate. As our most advanced development program that combines with Libtayo, we believe cemiplimab is the first in the series of Libtayo combinations that we can develop to improve treatment for patients with cancer. LAG3 is an immune checkpoint receptor that delivers an inhibitory signal to activated T cells and to expression in melanoma biopsies has been shown to be associated with therapeutic resistance to anti-PD-1 suggesting an inhibition of LAG3 in addition of PD-1 may enhance the antitumor benefit. The fianlimab/cemiplimab combination has the potential to drive broader and deeper responses in melanoma compared to PD-1 monotherapy. And the hope is that it can have a better safety and tolerability profile than approved PD-1 CTLA-4 combination therapies, which have specifically been more toxicity than PD-1 monotherapy. As you may recall, at ASCO 2021, we shared our initial clinical data from our first-in-human fianlimab plus cemiplimab combination study, including a cohort of patients with advanced melanoma who were naive to anti-PD-1 or PD-L1 therapy. From this expansion study of 33 patients at our targeted dose we saw compelling response rates for fianlimab/cemiplimab combination. The objective response rate was 66.7%, and as importantly, the responses were durable with median progression-free survival and median duration of response not yet reached at the time of this analysis, including patients with stable disease, the combination generated a disease control rate of 75.8%. As you can see from the plot in the lower right corner, in most patients that responded and even in those who didn't, tumor size remains stable or continue to decrease following their initial response. While cross-trial comparisons are always difficult, we are encouraged that the 67% response rate observed for the fianlimab/cemiplimab combination in this early stage study compares favorably to other regimens for advanced melanoma, including the recently approved nivolumab/abrocitinib combination, which had an objective response rate of 43% in an anti-PD-1-naive population per FDA label. The safety profile of this combination of peers manageable and is similar to that observed with cemiplimab monotherapy in other anti-PD-1 agents with the exception of a higher rate of adrenal insufficiency, which occurred in 12% of patients. 6% had a Grade 3 adverse events that were classified as serious using a cross trial -- using cross trial comparisons, with fianlimab/cemiplimab combinations suggested lower rates of treatment-emergent adverse events compared to the currently approved anti-PD-1 and CTLA-4 combination therapy. Regarding next step, we anticipate presenting more mature data from this advanced melanoma patient cohort in the second half of this year, and we also hope to present initial data for an additional anti-PD-1-naive advanced melanoma patient cohort to potentially confirm the exciting activity that we have now seen in the first advanced melanoma cohort. We also have begun the enrollment of our Phase III first-line advanced melanoma study, which has been formed by the results of this anti-PD-1-naive patient cohort, and we are planning to initiate a Phase III adjuvant melanoma study in the second half of 2022. Data from a non-small cell lung cancer expansion cohort continues to mature. And finally, as I already mentioned, we expect the Quantum Leap Healthcare Collaborative to readout data later this year from the I-SPY trial for the fianlimab/cemiplimab combination in neo-adjuvant breast cancer. In summary, I would like to congratulate our oncology R&D team as well as our collaborators on building such an extensive, innovative and scientifically sound pipeline around Libtayo, and I'm eagerly awaiting results of therapies currently in development and for many more to enter into the clinic soon. With that, I would like to turn the call over to Bob.

Thank you, George. Let me reiterate our excitement to enter into this agreement to acquire Sanofi stake in Libtayo. This deal exemplifies our disciplined approach to capital allocation to drive long-term value for shareholders. In addition to the strategic rationale mentioned earlier, we also see many practical benefits to owning Libtayo outright, including having full control of development and commercialization operations as well as the pace and scope of activities, while enabling us to accelerate our progress to selectively build our global infrastructure which started last year with the co-commercialization of DUPIXENT in certain international markets. Over the next few slides, I will walk through my key terms of the transaction and the overall impact across our financials. My remarks assume that we will be able to successfully consummate the transaction, which is subject to merger control clearance outside the U.S. Slide 16 summarizes the financial terms. We will pay $900 million upfront to Sanofi as well as a single $100 million regulatory milestone contingent upon FDA or European Commission approval for the Libtayo plus chemo combo in first-line non-small cell lung cancer. The PDUFA date for an FDA decision is September 19, 2022, and we expect an EC decision in the second half of this year. Regeneron will also pay sales milestones of $65 million in 2022 and $35 million in 2023 upon achieving $475 million of global net sales of Libtayo in each year. With Regeneron obtaining full rights to Libtayo, we will pay an 11% royalty rate on future global net sales of Libtayo and on the Libtayo portion of any future Libtayo containing combination regimens. We have also agreed the changes to both the IO and antibody development balances, primarily impacting the repayment schedules for both. As a reminder, Sanofi has previously incurred a significant portion of the clinical development costs for products in each respective collaboration and Regeneron has been repaying its share of these development balances with operating profits from these products. For the $35 million remaining on the immuno-oncology development balance, we will pay a 0.5% royalty on global net sales of Libtayo until the balance is fully paid off. For the antibody collaboration, which includes Kevzara, Dupixent and etokimab, Regeneron will now pay 20% of its share of antibody profits to reduce the development balance instead of the 10% of antibody profits we had previously been paying. I will discuss this change in more depth a bit later in the presentation. Finally, Regeneron will fund 100% of future development in global commercialization expenses for Libtayo. It's important to note that because this is an asset acquisition for a marketed product, the upfront payment as well as all contingent consideration, including the regulatory milestone, sales milestones and royalties will be recorded as an intangible asset and amortized through cost of goods sold over the useful life of Libtayo, we plan to exclude these amortization expenses from non-GAAP results. Additionally, certain components, including the royalty, increased development balance repayments and ongoing Libtayo R&D and SG&A expenses have effect from April 1, 2022, regardless of the timing of the transaction's formal close. For any such amounts payable to Sanofi for the period from April 1 through the closing date, we will record these amounts as a onetime true-up in the period in which the transaction closes, which we currently expect to occur in the third quarter of 2022. Assuming a third quarter 2022 close, there would be no financial or accounting impact to second quarter 2022 results. Slide 17. Considering all of the components of this pending transaction, we anticipate an essentially neutral impact to Regeneron's total revenues in the near term with significant upside potential with the success of our IO pipeline, given our greater share of the economics for Libtayo. For net product sales, we will continue to record the U.S. Libtayo net sales and upon transaction close, we will begin to record ex-U.S. sales of Libtayo, which were previously recorded by Sanofi. We also expect to record 100% of global net product sales for any future internally developed Libtayo combination products. Sanofi collaboration revenue will be impacted in 2 ways. First, we will no longer record IO collaboration revenue, which previously included Libtayo profits or losses from international markets as well as reimbursement for manufacturing of Libtayo commercial supplies. And second, our share of operating profits from the antibody collaboration will be negatively impacted as the development balance repayment steps up the 20% of Regeneron's share of profits. As I mentioned earlier, we expect the transaction to close in the third quarter of 2022. Consequently, we're not updating 2022 financial guidance at this time. To help you better understand the financial impact of this pending deal, I am now providing only limited directional commentary for certain 2022 guidance components. Upon completion of the deal, Regeneron will begin reporting all development and commercialization expenses for Libtayo. As a result, non-GAAP R&D and SG&A expense for the full year are both expected to increase modestly, net of potential SG&A cost-saving opportunities. In addition, Regeneron will begin to expense its full 50% share of R&D spend associated with the antibody collaboration in the period incurred. Previously, Regeneron's share of antibody collaboration R&D expenses was only partially expensed in the period incurred with Regeneron's remaining share of development costs added to the antibody collaboration development balance, which historically has been an off-balance sheet contingent liability. The development balance repayment in each quarter will be partially offset by these incremental R&D expenses. We also expect a reduction to other operating income. These impacts will be partially offset by an anticipated modest improvement to our non-GAAP gross margin on net product sales, primarily resulting from Regeneron no longer sharing U.S. Libtayo gross margins with Sanofi. Finally, this proposed transaction is also unlikely to meaningfully impact our effective tax rate on both a GAAP or non-GAAP basis, capital expenditures and COCM. Taken together, this transaction is expected to result in a low single-digit percentage reduction on full year 2022 non-GAAP earnings per share. We expect to provide an update of our financial guidance no later than our second quarter earnings call in early August, assuming the transaction is completed by that time. On Slide 18, I will address the mechanics of the increased antibody development balance repayment and the anticipated effect on the Sanofi collaboration revenue line. Regeneron will continue to record profits from the antibody collaboration after the development balance repayment obligation, which will increase to 20% of Regeneron's share of operating profits for collaboration products, up from 10%. Last year, at 10% of operating profits, our development balance repayment was $149 million, up 72% from our 2020 development balance repayment of $86 million. As of March 31, 2022, the antibody development balance obligation owed to Sanofi was $3.1 billion. Given we expect Dupixent net sales to continue to grow significantly and for it to become increasingly profitable over time, we anticipate our development balance repayment will increase this year and in future years until the obligation is fully paid off. And our illustrative example on the right side of the slide, development balance repayments at 20% of profits are depicted in dark blue, while repayments at the original 10% of profits are shown in light blue, with the accelerated repayment schedule, we estimate higher near-term repayments, but the completion of the development balance 3 to 5 years earlier predicated on Dupixent's continued growth and increasing profitability. While this transaction will negatively impact Sanofi collaboration revenues in the near term, we've now expect an earlier and very significant inflection in collaboration profits and consequently, Regeneron's overall profitability in the outer years. Turning finally to Slide 19 in our capital allocation priorities. The Libtayo transaction demonstrates our prudent approach to capital allocation as we seek to better position Regeneron to deliver long-term shareholder value. We believe investing in our proven discovery and development engine to support sustainable growth we'll continue to drive high returns on invested capital. By obtaining global rights to Libtayo, a product discovered by Regeneron, we believe we can unlock the significant optionality we have in our oncology business, including from combinations with candidates in our IO pipeline. We also believe that to maximize shareholder value, we will continue to explore ways to bolster and complement our own research capabilities with externally sourced innovation, our recent acquisition of CheckMate Pharmaceuticals is the latest example, and we intend to remain active in business development given our strong financial position. And finally, as we've done in recent years with over $8 billion of share repurchases since Q4 2019, we will deploy excess cash to opportunistically repurchase shares when we believe there is a dislocation in our share price in Regeneron's intrinsic value. With that, let me turn the call back over to Len for some closing comments.

Thanks, Bob. As you've just heard, there are several compelling reasons for this deal and we are truly excited about the prospect of gaining full control of Libtayo. With global rights, we would have the freedom to explore combination opportunities in our pipeline with existing collaborators and with future partners, while realizing a greater share of the potential upside from these investments. We are confident in our immuno-oncology pipeline and are excited and prepared for what lies ahead. With that, let me turn it over to Ryan to begin the question-and-answer session.

Thanks, Len. Norma, that concludes our prepared remarks. We'd now like to open the call for Q&A to ensure we can address as many questions as possible. We will only address 1 question from each caller, and please keep your questions limited to this transaction. With that, Norma, please open the call for questions.

[Operator Instructions] Our first question comes from Evan Seigerman with BMO.

Congrats on the proposed transaction. So I wanted to touch on the recent FDA approval of the fixed combination of PD-1 plus anti-LAG. How do you believe your combination could be better positioned than this asset just aside from the objective response, which you had mentioned, what differentiates what you're working on versus what's currently approved?

Well, in cancer, obviously, it's all about improving benefit to patients, getting more and deeper and longer-lasting responses. And as we all know, it's important when you have any sort of combination, it's just not putting combinations of agents targeting the same targets, but making sure you have the best-in-class for each component in such a combination. I think if you look across the field with the data, there's a lot of reason to believe that we might have something that is at least best-in-class in terms of the PD-1, and we believe that we have that same situation with the LAG3. So you put the 2 agents with best-in-class type activity together, then the hope is that you can deliver more benefit to the patients. I think that, that's one of the reasons we are excited about our initial data. It's all about and the most important differentiator in this space is activity. And if you have reason to believe that maybe you have better activity because you have -- combining 2 of the best-in-class agents that's going to make all the difference in the world to patients, and that's what it's all about.

Our next question comes from Cory Kasimov with JPMorgan.

I wanted to ask how the pending LOE for other PD-1s like KEYTRUDA later this decade, impact how you think about the longer-term potential of using Libtayo as a backbone for various combination strategies. I guess, I'm just curious, do you have any obviously, early views on how you think this eventually holds up in a future biosimilar market?

Yes. I mean you can look at what Merck did and others are doing, and it sort of gives you a window to where the world is going. They are well aware of the -- a loss of exclusivity that might confront them. And they are looking to combine the drug for KEYTRUDA, for example, or others with other agents, that will improve the benefit to patients, while simultaneously extending the exclusivity because of the combination data that they obtained. Obviously, you heard George talk about a myriad of combinations that we're investigating. We are not only doing this internally, we are open for business. We're really excited to work with others who have yet to really been able to get their own best-in-class PD-1 and might want to combine with ours. So sure, there's still quite a runway there's loss of exclusivity in a market that's heading towards $40 billion. But the combinatorial, the differentiation of combinations is really what we'll probably deal with that fact.

Our next question comes from Salveen Richter with Goldman Sachs.

You commented on an inflection in profitability in the latter part of the decade. Is the acceleration of repayment solely what results in this inflection? Or are there also expectations on the topline that would drive it?

Bob can handle it, but I believe he was talking about just related to the change in the repayment would create an inflection. He wasn't commenting overall on their business, but we obviously are looking forward, as I said in my remarks, if we execute well, then there will be a fundamental inflection. This was just an inflection related to the financial transaction where we could accelerate this obligation and then capture an inflection in later years. Bob?

Yes, Salveen, that's exactly right what Len just said. I mean there will be a big reflection upon the repayment of the development balance, which will be dependent on timing with regards to how well we execute our current Libtayo indications. Chemo combo that's coming and then everything that George showed earlier with regards to the opportunity that's there. In addition to improving the margins and improving the profitability of Dupixent. All those things come together, we'll have our development balance paid off earlier, which will then have a big inflection point. But as you were hinting to, on top of that, then we will have Libtayo and all the combinations that were discussed, hopefully firing on all cylinders, which will be on top of the inflection development balance repayment.

Our next question comes from David Risinger with SVB Securities.

Yes. So my question relates to the commentary that I'd love to just get more color on. So there were comments on the call just a minute or 2 ago about how it's all about activity. Previously in the call, there was commentary that certain pipeline candidates lack monotherapy activity. So could you talk about the candidates that lack monotherapy activity, which ones you're referring to? And what gives you confidence that those will be generating compelling data in coming readouts? And whether there are any historical benchmarks that you can refer to that also give you confidence?

David, before George answers that, I just wanted to say welcome back. We're glad to have you back and active, George?

Very, very kind of you. You probably don't recall, but I had first met you way back in the day at Morgan Stanley in the early '90s. So congrats on all of your extraordinary success and powering through lots of ups and downs over the years.

I actually do remember, and I remember going to a meeting and almost getting killed because that was rendered on the throughway and then that was an hour late -- and then -- not you, but the person didn't want to see me, but they almost had to take security away because I wouldn't leave to almost getting killed. Brings back some good memories. Good to have you. George, back to our regularly scheduled broadcast.

Okay. So you mix together to interesting related but not exactly the same issues and points. So I was referring to the fact that we believe that when we're combining our LAG3 with our PD-1, we're combining 2 best-in-class agents. And we believe that combining those classes can deliver more activity to patients if you have the best-in-class agents for each individual class. And as I sort of alluded to with the existing Bristol data, as you all know, for example, they actually failed to meet statistical significance for overall survival, and they had apparently, at least, cross-studied comparison, low response rates. If our molecules continue to deliver better activity, that could deliver better survival, that could deliver better efficacy for patients, which is what it's all about what I was referring to. What you're also talking about though was the fact that some agents that we are exploring a completely novel class of agents on their own, do not have activity. Now it's often in the past in the case when people have taken agents that have no activity and mix them with something else that leads to no activity on top of pre-existing activity, you don't get any additional benefit. But I think what you were referring to was our co-stimulatory pathway. And we've talked a lot about this, and we've also published extensively on this in major journals based on our exciting pre-clinical data. And the story is, is that as we've already talked about, Signal 1 for T cells to engage and kill their target is T cell receptor recognition of that target, which in this case would be the tumor. Signal 2 is what they call co-stimulatory pathways most notably the CD28 pathway. In the past, many years ago, 2 decades now, people have realized the power of activating Signal 2, but it had been done in a non-specific uncontrolled way. Leading to some tragedies in clinical trials. What we realize is that nature doesn't normally just renally activate Signal 2 in the absence of Signal 1. These are tightly coupled and Signal 2 is never naturally activator -- should never naturally be activated in the absence of Signal 1. So we created a whole new class of molecules, what we call our CD20 bispecifics that essentially mirror what nature tries to do. And thus, they have no activity on their own, but there are profound activity in the setting in which Signal 1 has been triggered. So we figured out a way using these agents to mirror what nature does, which is not being able to activate Signal 2 on its own, which prevents hopefully these horrific toxicities, but does it only locally right at the tumor site where the signal 1 is being activated. We have, as I said, published a large amount in the scientific literature on this. It's been very well received. We were leaders in this and I would have to say much of the industry is now trying to follow us and catch up because they think it's such a great idea, and we think this is going to be a very special case where we're not combining an inactive agent with an active agent. We're combining an agent that is only active in the presence of the first agent. This is a very different novel approach, and it's one of the many reasons we're so excited about everything that we're doing because we're not just doing what everybody else has been doing. We're not -- we don't have just a pipeline of boring stuff. We're really breaking new ground. I think, as I said, that's a credit to our scientific team and the ideas that have been coming out and the technology that deliver this incredible pipeline of such diverse capabilities that we really hope we can deliver more benefit to the cancer patients who are so desperately in need of it.

Our next question comes from Brian Abrahams with RBC Capital Markets.

Congrats on the pending deal. I'm curious what this increased commitment to the program says about some of the signals you may be observing from the ongoing clinical combos like the PSMA costim and GITR any new observations there prompting this timing? And also any evolution to your expectations for the use expansion with the potential chemo combo label for the drug?

Could you repeat the second part of your question again? Sorry you broke up.

Yes, sorry. Any change in your views on what the inflection might be when labels potentially expanded to chemo combo?

Well, that's one that we will all have to watch and see. KEYTRUDA is a formidable competitor. But we think our data in chemo combination is really strong. We hope it will be approved by the FDA on its -- by its PDUFA date. And then Marion and the team will be out there in full force trying to really generate the benefit for patients by increased use of this. In terms of any other data. We don't have any other data that drove this to talk about it at all other than, as George said, the LAG3, which I think he covered quite extensively. But I think it's fair to say that, as we've said many times throughout this call, our confidence and our rationale for doing this is when we integrate our view of all the data that we've seen both preclinically and clinically, we are very excited to have the opportunity to now be pursuing all of these combinations with Libtayo in a setting where we can invest as much as we want there, and we can reap appropriately more of the benefit. So we integrate all of the data and we come to the conclusion that this is why we wanted to do this deal.

Our next question comes from Yatin Suneja with Guggenheim.

Could you just talk about the commercial build that might be required to successfully commercialize the asset globally? How are you thinking and the investment around that?

Happy to. So first, let me take the U.S. marketplace. And as I get started, I do want to mention how much we appreciate the collaboration with Sanofi. But I do want to remind everybody that we have been leading commercialization in the U.S. marketplace for Libtayo. So as we look with great enthusiasm with the news of today, we're very well positioned, not only to continue advancement with our current indications in the marketplace cutaneous squamous cell carcinoma, basal cell carcinoma and the mono-lung indication and in preparedness, as Len mentioned, for the chemo combo launch potentially later this year with approval. And as a quick reminder, keep in mind that the chemo combo market in lung is about 7x the size of the monotherapy indication. So in the U.S., we're very, very strongly positioned. As we look to the international markets, as was mentioned previously today, as Regeneron, we have exercised our co-commercialization rights for Dupixent. So over the past year plus, we have prepared and started activity in certain target markets ex-U.S. With Libtayo, we will now build on that, and certainly, as you heard today, our future portfolio, not only Libtayo as monotherapy, but Libtayo in combination with so many exciting programs, as George described in our future portfolio, sets us up very nicely for future international commercialization where we feel appropriate. We'll be doing so in a very deliberate, selective and targeted way, recognizing the markets of variable opportunity and patient need. I'll also share with everybody, we've deliberately built our oncology hematology team with individuals that have extensive and also U.S. and ex-U.S. experience. So thank you for the question. We are most excited and enthusiastic in the commercial team.

Our next question comes from Dane Leone with RJF.

So as it relates to the deal, I think there's some investor concern around maybe the timing happening ahead of the September PDUFA and implications of why there would not be a waiting period until that approval happens to price discovery over what the transaction value might be to each party, Sanofi and Regeneron? And then secondly, within the deal terms, there was some concern around the $475 million Libtayo sales target for this year and next year. Is that implying -- obviously, that's below consensus, but is that implying more limited growth expectations versus what I think the Street has been assuming? Or can you clarify why that target was set, which seems to imply limited growth for the Libtayo franchise?

Okay. So as far as the first question goes, I think that we have a high degree of confidence, obviously. We have to wait for the regulatory agencies to do their jobs, but they know our molecule. They've approved it for at least 3 different indications so far. So they know its profile, including in monotherapy in lung. The data has been looked at and picked at and it really I think we think it stands out as good as any data out there. So we feel pretty good. And we were anxious to get moving on so many of the things that George talked about there. In terms of setting milestones and what have you, I think that there are 1,000 puts and takes in the negotiation, and I would not read anything whatsoever into one particular term that might have been picked and negotiated between the parties.

Our next question comes from Mohit Bansal with Wells Fargo.

Maybe a question for Marion. So it has been more than a year for Libtayo lung cancers. And it seems like, especially in lung cancer, I mean, as you said, I mean, KEYTRUDA is a formidable competitor. So -- what I'm trying to understand is that how do you think going forward, are there any factors that could change that? And why would the story may not be same in the chemo combo segment of the market where KEYTRUDA is the leader. So I mean how do you think the market is going to change, which could help Libtayo grow here?

Sure. So first, I would confirm the fact that there is a sizable market opportunity for first-line lung cancer, both in monotherapy and chemo combo. So together, that's about an $8 billion market. The monotherapy indication is far smaller. It's about 1/7 or so, maybe even smaller in terms of the size of the overall market opportunity. We've had the very nice opportunity of launching Libtayo for monotherapy, and we certainly are making progress. Physicians are gaining experience in the actual use of Libtayo for their appropriate monotherapy indication patients, but it's with a clear understanding that oncologists like optionality when they prescribe for their patients. Many of their patients are looking obviously for the best possible clinical outcome. So physicians like to reserve the optionality even when they start with monotherapy of going to chemo combo. So as we potentially look at a launch in the broader indication later this year, it is a much larger patient opportunity, much larger area of unmet need. And we certainly are very pleased to potentially have that opportunity for a much broader launch of Libtayo for the appropriate lung cancer patients.

Thanks, Marion. Norma, I think we have time for 2 more.

Our next question comes from Matthew Harrison with Morgan Stanley.

Great. I was wondering if you could just comment on the DLBCL bispecific. And in particular, right, we've heard from a few companies now that while they plan to file, there seems to be some uncertainty about the regulatory picture and what the regulators may require, whether it's in terms of durability or CR rates. So maybe you could just spend a little bit more time to talk about what the regulatory puts and takes could be on that product?

Before George answers, Matthew, we appreciate all your information that you provide on COVID during the pandemic. So thanks for that.

Which bispecific?

DLBCL.

Yes. So of course, we can't predict the future. But there is obviously a huge unmet need. I'm sure many of you have seen the failures and the withdrawals in this space based on agents that had much lower activity, lower responses, lower duration of action. We believe that if our data continue to hold up and we have this much more profound activity with much higher response rates, much deeper responses and very, very long duration of action. Those would be in the estimation of an independent regulator be providing significant benefit in this unmet need population and should warrant approval. Of course, the data has to stand up and the regulators have to agree. But we believe that they can make an enormous contribution, our CD20 bispecific make an enormous contribution in these settings where there is so much patient need.

Our last question comes from Hartaj Singh with Oppenheimer Company.

Great. Thank you for the question. And it's great to see all the excitement. We have Dr. Lowe at our health care conference. And now I can understand why Regeneron is so excited with the oncology and welcome back, Dave. Always great to see him back in the mix. Just a quick question on the LAG3 and the PD-1 combo. If you can just talk a little bit about there's a host of bispecifics also coming through with PD-1 LAG3. Can you just talk a little bit about the differences between using a combination antibody approach versus a bispecific?

Yes, that's a great question. That's really important. We believe that you have to use the right tool for the right job. And when you make a bispecific, the real reason to make a bispecific is that you're using it to do something better than what you could do with the individual agents. So for example, if you want to link a T cell to a tumor cell, that's a perfect application of a bispecific. If you want to activate Signal 2, where you've got to touch simultaneously the tumor cell, so that you activate Signal 2 only in T cells nearby that tumor cell, that's a perfect application for a bispecific. If you want to make a biparatopic that is something to increase uptake, the team at target agent, including a cytotoxin indication, more so than you can with non-bispecific that's a perfect application. To just combine 2 modalities is actually not -- and in fact, it's a suboptimal. Why? Because it is very rare if ever that when you're trying to hit and block two independent pathways that you're going to use exactly the same dose of the 2 agents targeting the 2 independent pathways. And in fact, that's not what we're doing, which is one of the reasons why we think we may be able to achieve higher activity with our combination PD-1/LAG3 portion because we've been exploring and we'll continue to explore the right ratio of PD-1 blockade and LAG3 bucket. You might have to have, for example, 4x as much of one of the antibodies compared to the other. Adding too much to make up for that, you may add, for example, too much PD-1 and that will cause toxicity. So it is literally senseless, it's anti-scientific. It's the wrong thing for patients, and it can actually create problems to make useless bispecifics that destroy your ability to separately titrate blockade against 2 different targets. So when you're just blocking 2 different targets, it is literally senseless, anti-scientific and is a mistake to be using a bispecific. When you're doing something that requires linking 2 things that normally aren't linked that you're trying to link, that's when you use bispecific. So let me repeat. It is really the wrong thing to be doing, and it's simple to be making bispecific in 2 different pathways.

Okay. Got it. Thanks, George. Norma, you can conclude the call, please.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect, and thank you for your participation. Everyone, have a wonderful day.