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

All right. Well, good afternoon. Day 2 of the London Healthcare Conference. My name is Akash Tewari. I'm one of the therapeutic analyst here. I hope you guys are all enjoying yourself. I'll tell you, it's wonderful to see everyone back, it really is. So today, I have the pleasure of hosting Regeneron. Joining us today, we have Robert Landry, CFO; and then Ryan Crowe, Head of IR. Before we get into some of the specific questions we had, maybe Robert and Ryan, do you want to open up with some introductory remarks, and we can take it from there.

Sure. Absolutely.

Do you mind closing the door, please?

Yes. I'll just start here with some -- and thank you for having us, Akash. Great to be in London meeting with everybody and certainly a very packed conference, great turnout. But before we get started with our presentation today, I'd like to remind you that remarks made today may include forward-looking statements about Regeneron, and each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in such statements. A description of material risks and uncertainties can be found in Regeneron's SEC filings. Regeneron does not undertake any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. I think Bob would like to say a couple of opening remarks, and then we'll go to Akash for some questions.

I will. And Akash, thanks for the invite. So let me open up 5 minutes in terms of -- I like to talk about what's happened in kind of the third quarter. We just had earnings on November 3. So we're fresh off of that. We have a lot of data. I feel like there's been a lot of tailwinds at our back, certainly through 2022, and hopefully, we can get to the some of those with Akash. So third quarter, we had 11% top line growth, and that's excluding COVID. As you know, we have a pretty big comparison issue with regards to all the REGEN-COV and the Ronapreve sales that Roche had coming off of 2021. But even with that, we're very pleased with the growth levels that we had. In September, early September, we came out, and I'm sure we'll get into some detail with regards to our 8 mg data, which we were like super, super pleased. People were talking about 30% to 40% kind of being table stakes. If you got to 40% in terms of the number of patients, you can over a 40-week -- 48-week trial that you can keep at 16 weeks, 40% would be great. We cash in at 77% for wet AMD and 89% for DME, just to tell you that is the way beyond what the company thought we were going to do, and we're very, very pleased with how that turned out. We did get -- and it probably didn't get much attention in October, we announced a 6-month pediatric extension which does expand EYLEA's regulatory exclusivity that will take it out to May of 2024. I know people already have that on the calendar, but that was something that needed to be done by getting the pediatric extension. With regards to DUPIXENT, we had -- again, this is a partner -- this is a partnered product with our friends from Sanofi. We had record-breaking Q3 sales numbers as we did for U.S. EYLEA, we had our highest numbers yet. And the indications continue to come. We just got Perrigo [ neurogelitis ]. I will tell you, EoE is doing fantastic as is AD in the smaller kids. We go all the way down to 6 months with regards to our atopic dermatitis, and it just shows you how safe this product is. And as Sanofi announced in their transcript, we have 500,000 patients that are currently on therapy across all the indications. We have 5 indications for DUPIXENT, and there's certainly more to come. We just got -- and it was a little bit delayed with regards to the PDUFA date, our chemo combo with regards to Libtayo. As you know, we are in non-small cell lung with our PD-1, Libtayo, we have been in the monotherapy space. We did get approval from the FDA with regards to chemo combo. That came about 2 weeks ago. So we are very anxious to start to make a dent in the gigantic Keytruda product that currently exists. With regards to IO, we have -- I encourage everyone to pay attention. We did put out ASH abstracts. We're going to give you another look at our kind of hem onc business, which is going to be in the middle of December. We're going to hold a separate investor event for that. We'll be showing you our CD20xCD3, we'll be showing you our BCMA drug. And you'll see how it compares to the other players that are out there. We are not first, but we do think that we do have something special, particularly with all the combinatorial approaches we can do on those drugs going forward. So that's coming. And then we had a very busy ESMO with regards to LAG3, MUC16, MET X MET. We do have an ADC MET X MET that is coming. And then we showed more information, and I hope, Akash, will get into this with regards to the PSMAxCD28. It was really the first glimpse in August with regards to patient numbers. I think, 12 or 15 patients, but to the extent that we were able to do something with a CD28 and the effects that we were able to see, that's a big play for Renegeron because we have a lot of combinatorial approaches going forward with BiSpecs and CD28 certainly plays a role. So that was a very positive event. And then finally, talk a little bit about capital allocation. So for the first 9 months, what have we done? We've spent $2.8 billion. We did the Checkmate acquisition, where we got the [indiscernible] drug in VLP with virus-like particle technology, which is helpful for our drug development. And then we did the Libtayo deal for over $1 billion. So those 2 things combined, we did $1.2 billion. And then we've bought back $1.6 billion of Regeneron shares through the first 9 months. We actually really love where the price was relative to our intrinsic value in the third quarter and ended up buying back $930 million of stock. So we are active. We do have a large balance sheet, $13 billion on a gross cash basis, $10.3 billion on a net cash basis and not afraid to put it to work for the right investment for sure. So Akash, that's a lot with that, I'll kick it back to you.

Great. Thanks so much. And I think your comments about capital allocation is a good bridge to kind of the first question. It's funny. I -- you simply look at, let's say, 5-year return on some of the large cap biotechs. And some of them, by the way, are no longer with us because they did bad deals, and then they were kind of taken out of their misery. But you even look at Amgen, for example, everyone thinks -- I feel like no one wants to get compared versus Amgen, but their 5-year return is 68%. And then if you add kind of the dividend-adjusted returns, it exceeds that. Obviously, you're also in the top tier of the peer group, your 5-year return's 90%. You're entering a phase in terms of your free cash flow generation where, obviously, you're an innovative company, you've had a tremendous return on invested capital with your own pipeline. But you've hit a point now where you don't necessarily just have to choose whether I'm going to do deals, whether I'm going to invest my pipeline internally or as you started to do recently, doing share buybacks and then potentially, the question we will occasionally get from investors is maybe even in a dividend, right? And so while I'm not saying you're going to have an Amgen-like dividend or anything like that, if we think about capital allocation from a 5- to 10-year perspective, and really the amount of free cash flow you're going to be able to generate, what's really on the table at the C-suite level? Could we have more consistent share buybacks that we saw this quarter and this year? And is the dividend a possibility even if it's a small one from a long-term perspective?

Well, I'll begin by saying I will not break any new news here with regards to the dividend. That's still kind of a little bit of a ways away in terms of how we look at that as we still consider ourselves to be a highly growth company. On capital allocation, we have tons of optionality. I think as Akash was saying, it's not either or, it's going to be an end. But first and foremost and we hear this from our long-term investors, they want us to continue to invest in ourselves. And I think higher -- other than probably Vertex as -- R&D as a percentage of we run hot, and we're going to continue to run hot because we look at what we have. We have 35 things currently in development. And we love the assets we have, and we're going to continue to make sure that we move those forward. And we're going to continue along that approach. Regeneron has a very prolific, very prolific research engine in which we kind of have targets at the gate just waiting to kind of go into the clinic, and we're going to continue to ensure that our first dollar for sure is going to be spent in that approach. Now with regards to other avenues, I mean, certainly, we've shown with regards to share repurchases that we're not shy on that. $1.6 billion may not sound like a lot for companies that are sitting up here. But for Regeneron, that is a lot. That's more than we've done before. This is all under a $3 billion program. We have $1.2 billion left on that, and I'm assuming that we will kind of renew that going forward, and that will be a kind of a new quiver in our bow arrow approach. And then talking about BD, we did Checkmate, really tiny first time we've done a public company acquisition. We proved to ourselves that we can do that nice and smooth and integrate it in. That all went fine. Libtayo kind of made sense for us as you learn more about Regeneron with regard to all the combinatorial approaches we have, they're all with Libtayo is the foundation. And we want the foundation to be 100% owned by Regeneron and our friends at Sanofi, were willing to give it back to us. So we thought that, that move made sense. Another BD deals, we're never -- never say never, but it's highly, highly unlikely we're going to do something transformative. We just find other people are more desperate than us with regards to bidding up late Stage 3 assets. We're never going to be in that situation, knock on wood, or we don't see ourselves in that situation in the near term. So we're going to kind of stick to our knitting. We love platforms. You could look at like Alnylam and Intellia, and I know they have the CM in the TTR and Intellia has got to CRISPR, but we love the platforms that are underlying those 2 companies, things like that. We'll continue to go down that path. Our RGC or Regeneron Genetics Center, provide so many genetic targets. And all the modalities sometimes don't lead to being an antibody company. Sometimes we have to have other modalities, and we're going to continue to go along that approach. We like technologies, we really like platform technologies. And when we see good ones and ones that we need, Akash, we will go after them, and we certainly have the firepower to do that.

Sure. Makes sense.

So a little long-winded, but hopefully helpful.

No, super helpful. So one of the things that -- whenever I talk to your team, it always stands out to me, you're a growth company, Regeneron, that's the way you describe yourself. I look at a consensus model, I see margins basically kind of flattish in like the -- the low 40s, I see about 5% COVID-adjusted growth. But certainly, the cadence of growth that your team sees internally versus what the Street is giving you credit for, there definitely is a divide between that. And I'd love for you to kind of break down because to me, it's not just whether it's the costim platform. It also seems like when you think about DUPI and EYLEA and how they're going to evolve over time, there's a difference between how your team internally sees it, and how the Street has kind of seen it so far. So maybe let's break that down into 2 levels. When you think about, let's just say, EYLEA and DUPIXENT. And the Street is modeling EYLEA to decline pretty substantially over the next few years and then not necessarily grow again. Where do you feel like your position to be, especially given that -- talk about -- you didn't expect that data. I got killed on that. I did not expect that at all. It was super impressive. How does that change your view in terms of the next 3 to 5 years in terms of -- on EYLEA growth? And then maybe on the pipeline itself, where do you feel like some of these pipeline assets are really just being underappreciated by the Street?

Ryan, do you want to start with maybe some EYLEA stats on growth levels category?

Yes. So I mean the category itself is we expect to continue to grow and benefit from a lot of different tailwinds, including an aging population these are wet age-related macular degeneration affects the elderly, and we know that populations continue to age globally and in the U.S., so that's a nice tailwind for the category as is diabetes and awareness and diagnosis of diabetic eye diseases. So both of those are kind of working in the category's favor. And with EYLEA as the current leader in the category and considered the standard of care for many years, I think it will continue to be the outsized beneficiary of that category growth. Now obviously, we've had a major development in our pipeline with 8-milligram Aflibercept. And I see no reason why that does not become the next standard of care upon its approval. When you can extend patients out to 16 weeks without and still maintain vision and you can see increased proportion of drying in wet AMD at week 48 compared to week 16. We're in a very good position. The product profile is very strong. There are biosimilars in the market, but it's a market that already has a low cost alternative. So I'm not sure about why a biosimilar ranibizumab or aflibercept would really impact the trajectory of the branded category. I think doctors prefer to use the brands for various reasons. And if anything, 8-milligram of aflibercept, I think we can have a very high conversion and continue to lead this growing category. So that's probably one area that I think is really important for investors to understand our outlook on EYLEA and 8-milligram aflibercept.

Akash, I touched upon DUPIXENT before, right, all the new indications, I mean, they keep coming and coming. So we did -- we -- Sanofi and Regeneron. We recorded $2.3 billion in the quarter. So that's a $9 billion run rate. Paul Hudson CEO of Sanofi, was asked on the call, what's his new way point, Regeneron does not give long-term guidance. Paul has given a EUR 13 billion way point, again, way point on the point of getting higher. You're going to pass $13 billion. He put a $10 billion marker out there for 2023 and just given where we are. I mean it totally seems doable. And with regards to all the other indications, and I know you know this well, I mean we have a big COPD card to turnover. We're doing 2 Phase III trials. We had an interim -- well, our investigators had an interim, we'll look where we were told to continue moving on. So we're moving on at risk. We didn't do a Phase II on this. And we're going to get the first of the 3 trials turned over in the first quarter of 2023. Again, the $13 billion way point does not include the COPD market, which everybody in this audience knows that is a gigantic market with a lot of unmet need. We're hoping DUPIXENT can continue to do that. And maybe that's our seventh or eighth indication that we're going to get. Again, we'll have to get 2 positive Phase IIIs, but we'll have a good sense come first quarter on what the possibilities are for DUPIXENT in COPD.

Understood. So I think one thing that stands at I was at the AAO. And you hear this a lot. Faricimab use post the J-code, it will go from single digits to 20%. I think that's been kind of strange to me is I feel like people are kind of talking out of both sides of their mouth. If faricimab is going to have that uptake, why wouldn't high-dose EYLEA? Because if anything, you would suggest that there is that incentive for doctors to not be on a biosimilar because the ASP will decline over time. So -- and then if we think about how the Street models EYLEA, it declines, but it doesn't necessarily return to growth. So I guess, the velocity of the switch and the velocity of the launch of high-dose EYLEA, let's say that you use the PRB, let's say that you're on the market sometime in Q3. What are you doing in terms of detailing and education on that high-dose EYLEA data? And when you think about the cadence of the switch, do you feel like that's fully appreciated in consensus when we think about -- consensus basically has flattish growth year-over-year on EYLEA right now?

Well, I was going to begin with timing. Just so everybody has said on timing. We've said publicly that we're going to file a BLA late December. We're going to use a priority review voucher that we have, and that should get us to kind of a late August, assuming the package is complete and we get FDA approval. So we're looking at kind of late August 2023 for the launch of 8 mg.

And in terms of velocity of the switch, it's hard for us to really comment yet without a label in hand. But I think that there's a lot of enthusiasm in the KOL community, as you probably heard at AAO and other retinal conferences that have occurred since the readout. People are excited about this. It looks like a really differentiated product, which I have to say, I don't think the same enthusiasm existed for faricimab. And if anything, the launch has not improved that perception. So we are moving from -- on average, about every 8-week dosing to something up to 16 weeks, meaningful difference for patients as well as for practices who have -- are capacity constrained. They're doing a lot of injections, and they're turning away patients because they just don't have room. If you can cut the number of injections in half or even by 1/3, you can address that many more patients, and that means better economics for the practices themselves. So they'll be highly incentivized. Obviously, our medical affairs team has been very active in communicating this clinical data with KOLs and other ophthalmologists. I think that will continue. But to comment on how quickly and how much of the market we can convert, I think we're a little early for that.

Sure. Understood. So one of the comments that Len made on the call, it's such a difference between how I think a lot of people view the J-code on Roche, like once we get the J-code through the growth is really going to take up. I mean, look, that product is already annualizing at $600 million. So it's certainly not been a bad launch for them. But Len made a comment, he said, I'm not entirely convinced a J-code, because you're really answering about when high-dose EYLEA will get a J-code. He made the comment, a J-code may not necessarily be the -- be all end all in this market that maybe some investors are thinking. Is there any additional color on that? Why would a J-code maybe not be the bolus driver of growth that I think a lot of investors are thinking about when they're modeling some of these companies into next year?

Yes. I'll take that one, if it's okay, Bob. Our view is that when a product is differentiated and it can help patients, doctors will use it. And they will go through a little extra work to get reimbursement because it's worth it to them and their patient. I just don't think faricimab had that. And that's why the launch -- it was what it was. And everyone talks about how great it's been. I would just point out that 9 months into the EYLEA launch, market share for VEGF category for EYLEA back 10, 11 years ago, was 14%. We see faricimab at 3.5%. So -- and I think EYLEA represented a meaningful advance in the space. I'm not sure that faricimab has realized the same level of success. So I again think 8 milligram of aflibercept could be that wow factor that has been lacking since EYLEA last was launched 11 years ago. And to the J-code point, I don't think it's going to be a barrier to broad adoption at all. And that's kind of all I have to say about it.

Understood. So you had your earnings about 2 weeks ago. The VEGF category growth, which has been almost double digits, high single digits, dropped a little to 4% this quarter. It's been a [indiscernible] of 2 weeks. But has there been additional color that you've seen with your market axis team to kind of explain whether that was more of a temporary dip versus maybe that's something more sustained as we think about 2023 and beyond?

Yes. I don't want to get into how EYLEA is doing for the first couple of weeks in the fourth quarter. That would be jumping the gun a little bit. We're still looking at it. I mean, it's a little bit of a strange event. I mean what we said publicly that, Akash, you didn't mention that it was down sequentially. It was up 4% year-over-year. I mean, it's been a high single-digit kind of double-digit category. And then with a sequential -- a little bit of a sequential drop, it's just -- we're keeping an eye on it. We have no direct pinpoint on what that was, whether that was kind of the world opening up for COVID in the kind of July, August time frames with regards to retinal practices, taking vacations and patients maybe taking a little bit of time out or extending their injection levels, not sure yet.

And I would just -- before we move on, the reason we highlighted those growth rates was because it really underscores how durable EYLEA has been despite new entrants, such as faricimab such as biosimilar ranibizumab. We had an all-time high per share for EYLEA in the third quarter, and we hit a new all-time high for revenues. So despite these -- what investors seem to like to call headwinds, we've performed extremely well, and we're very confident in the continued success as the standard of care in the category.

Understood. So we had some legal developments on EYLEA. It does seem increasingly likely that we're going to see biosimilars enter sometime into '24. I certainly hear your point about what doctors want -- gun in my head at the AAO, I feel like doctors want to replace a Lucentis biosimilar or, let's say, an EYLEA biosimilar with Avastin rather than necessarily the branded drug. And it does seem to be kind of one of these situations where here's what the doctors want. Here's what the insurance companies might want, and we'll see what actually plays out. The question that -- I'm starting to get a bit more -- is it does seem more likely that the FDA is willing to authorize interchangeable biosimilars without necessarily needing a switching study. They're talking about the PK being different enough that it's not necessarily required. That's kind of the third variable on this that I'd love to get your color on, what an interchangeable biosimilar let's say, for patients who are already well controlled on the branded drug who already have been on it for quite some period of time, is an interchangeable going to be potentially getting switched for these chronically treated Regeneron patients? Or is this really something that might be more relevant in the incident market? Do you feel like the introduction of an interchangeable EYLEA biosimilar would have any difference at all with what you think uptake will be in the market?

I think it's a little early to tell. We've just seen the, I guess, the Coherus biosimilar for ranibizumab launched in October. So we don't know exactly how that's doing yet. We certainly saw the BioVIs Q3 revenue number, which didn't seem to meaningfully impact the market at all. but BioVIs doesn't have interchangeability status. So we'll reserve comment to see how it plays out. But again, I think -- in fact, biosimilar entries have actually driven more branded growth than biosimilars have been able to take up. So to me, it's a little early to call, but interchangeable, certainly will help a biosimilar, but I don't think it necessarily means all patients will remain on that particular product. It could drive more branded share.

And Akash, we could have moved on to the 8 mg by then, by the time the 2 mg biosimilar is just launching.

And we don't know if that's going to be an interchangeable biosimilar or not at this point. It's kind of a black box to us.

No, that makes sense. So it's funny. You kind of look at the history of IL-4 development. One of the things that kind of surprised me is if you go back into like the 2000s, Amgen actually had a pretty beautiful IL-4. I mean it was very potent, had a nice half-life. They went after things like asthma, and I don't think they had -- at that point, we had the understanding of how to stratify patients and maybe the way that your team did just a few years later. And you had one IL-4 that didn't have any success. Obviously, DUPIXENT has been a massive success in that market. I -- you guys understand translational medicine more than, I think, almost anyone. It is unusual to me when I see a company like yours go from Phase I to Phase III in a market like COPD, where really -- I think everyone will agree this is a very heterogeneous market. It doesn't seem necessarily ideal for something like a biologic-driven approach. And one of the things that I kind of learned also from the high-dose EYLEA studies is how you stratify patients and how you design your trials often aren't readily well understood by the Street. So if I was going to talk to an investor and say, you know what, COPD, it's hard to stratify those patients. We don't necessarily have good biomarkers. They're going straight to Phase III, Akash, why should I be waiting for this readout? Is there anything you can comment about your patient stratification or what are some of the kind of genetic or cytokine signals that you've seen internally that feels that you're -- makes you feel confident that this readout will be successful?

Maybe if I just back up and talk about sort of how we got to where we are today. The DUPIXENT COPD Phase III program was really launched because of the signal we saw in comorbid nasal polyps patients in the pivotal studies for nasal polyps. So we saw something there. We decided to move quickly because the space can change. And we designed a Phase III study with patients to be eligible to enter the study had to have baseline eosinophil count exceeding 300. There's a pretty high level and higher certainly than the IL-5s attempted when they try to go to -- when they tried to run their -- when they ran their unsuccessful COPD studies. So we have a pretty high bar for eosinophil count. And the Phase III enrolled. And at a certain point, we had an interim look by the data monitoring committee, and both Sanofi and Regeneron were blinded to it. We set a bar to basically say whether or not we had any kind of efficacy. And if so, that -- had we met a threshold where we'd be comfortable launching a second Phase III study. So that interim look occurred, we did meet that bar. We did not disclose what the bar was, and we don't know how much above the bar we got. But we are now enrolling a second Phase III called the [ NOTICE ] study, which should finish enrollment in early '23. But back to the first study, that one finished enrollment in February. So we should get results, as Bob mentioned, in the first quarter towards the end of first quarter, maybe early second quarter. And that will give us our answer. I mean I don't think -- I think you're right, there are multiple drivers of COPD. And is it purely a type 2-driven disease? I would think not. But if the primary driver is type 2 disease, I think DUPIXENT has a very good shot of working.

Got it. So I know, Bob, you wanted to talk about the costim platform, and I will give the last question on that. I think one of the questions, we've been trying to figure out on the team, I certainly think investors are too is, does this -- it does -- it's impressive efficacy at that high dose, right? You had 3 out of 4 responses. But there's also some wacky side effects that you're seeing there. And number two, right, like if you look at, let's say, Amgen's PSMAxCD3, like on a blended basis, you actually have similar response rates. So the question is really, is that dose response you're seeing with the CD28 real? And will that carry out as you expand at that dose level. So is there any comments you can give kind of from what you've seen with your scientific diligence, what is the threshold and the dose response relationship you've seen with CD28? And how should we frame how that data will play out as we get more patients enrolled in 2023 and beyond?

Akash, maybe we will end by kind of tag teaming this. So I'm a pretty simple guy when it comes to stuff like this. And one of the things that Regeneron is known for are all the mouse models are VelocImmune technology. And the thing that was kind of, I shouldn't say surprising, but what worked to a key was the animal model in terms of -- I think we've done like 8 doses. And the first 6 doses, the models basically said, you'll do 3 doses of PSMA, PSMA, PSMA and Libtayo and by themselves, nothing is working. But on that seventh dose, you're going to see a big impact. And sure enough, exactly as -- we've been at it for years with regards to the CD28 because of the history of the -- a little bit of a checkered history of this drug back in the late 2000s. We needed to go very, very slow on this, and we've got a lot of animal models. And it just played out to a tea with regards to the doses we thought were going to take effect. They did, and the effects were dramatic. Again, there are side effects and adverse events that we need to work around, we do think that we can work around. As you know, I mean these people have kind of a year to 18 months to live. So there is some risk reward that these patients are going to be able to withstand with a drug like this, and we'll do our best to eliminate the adverse events that we can. Ryan, with...

Yes. I think what's most important to note about this very early data, and it's -- small patient numbers totally acknowledge that. It's that prostate cancer has been completely inert again -- PD-1s have been completely inert against prostate cancer. And to see these kinds of efficacy, this kind of efficacy met at these higher dose levels, as Bob mentioned, in these highly refractory patients, patients that have been antigen receptor inhibitor, refractory chemotherapy experience. Just to see the level of responses at these higher doses was extremely encouraging, not only in prostate cancer, we have other CD28 that are also in the clinic and can look at other solid and liquid tumors. So to us, this is a very important platform. We certainly will have follow-up data in the first half of next year on this PSMAxCD28. And -- but look also for updates on the MUC16xCD28 in ovarian cancer as well as the EGFRxCD28 in other solid tumors. So it's really an exciting platform, and we think it can really unlock some of the cold tumors that haven't been in response to PD-1 alone.

Great. Got it. Well, thank you so much. A wonderful discussion. I really appreciate everyone for joining us as well. Thank you, guys.

Thank you.