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

All right. Good afternoon, everybody. Thanks for joining us. I'm Terence Flynn, Morgan Stanley's U.S. biopharma analyst. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. Very pleased to be hosting Regeneron this afternoon. Joining us from the company, we have Chris Fenimore, EVP, Finance and CFO; Marion McCourt, EVP and Head of Commercial; and Ryan Crowe, SVP, IR and Portfolio Strategy and Intelligence. I'm going to turn it over to Ryan for his disclosures, and then we'll get started. But thanks so much for being here.

Terrence, thanks for having us. Always a pleasure to be here at the Morgan Stanley Healthcare Conference. I have a quick disclaimer to read as well, and then we'll get started. I would 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. With that, Terrence, let's get started.

Great. Again, thanks so much for joining us this afternoon. I figured we'd start with Dupixent, which has become one of the company's most important growth drivers and Sanofi, our partner, recently raised their 2030 guidance to EUR 25 billion from EUR 22 billion. I think sales this year are expected to be on our model, it is about USD 22 billion. So maybe high level, you could talk about some of the key drivers to achieve that new guidance, and then we'll dig in from there.

Happy to Terence. I'll share, we share a great ambition for DUPIXENT. The $25 billion was obviously independent guidance given by Sanofi. But to the opportunity to bring DUPIXENT to so many more patients worldwide, that growth opportunity is driven by the amazing results the patients are seeing across now indications in the U.S. marketplace. . So certainly, all the indications are growing. Our very first launch with in atopic dermatitis, as all of you know, continues to grow across the range of indications that we have in market today which include various age groups, various geographies. So certainly, the trajectory of performance going forward is very strong, and we share that view.

Great. On atopic derm, I know that's the largest indication and again, you were the first company to bring a biologic to that market. How much headroom is left in that area? And then as you think about treatment duration, where does that stand now? That's another question I think we get frequently.

Sure. So on atopic dermatitis, certainly tremendous advances for patients with DUPIXENT. But still, the market is only penetrated to about in the U.S. as an example, high teens, maybe 20%. So there's so much unmet need still in the marketplace. So we see an opportunity to help many more patients with DUPIXENT, adherence to product is also very strong in patients who are being treated for atopic dermatitis or the host of DUPIXENT indications, they will feel the disease coming back off in atopic dermatitis, patients talk about it's returning, lesions returning, adherence to therapy is very, very high. I would also point to the fact that with DUPIXENT, there are situations where people have comorbidities because of type disease. So they might benefit in atopic dermatitis, but they notice, for example, their asthma is better or the asthma patient that also has nasal polyps or chronic are sinusitis, it's the combination of indications to treat the individual condition, but then the host of other problems the patient might be experiencing as well. So adherence tends to be very, very high.

And I know, again, like I said, you guys had kind of blazed the trail in atopic derm. There is some competition. So as we think about the breadth of label, how important is that as we think about the competitive landscape here?

Sure. So often, our key opinion leaders share with me, unlike other categories where you see advances come along with DUPIXENT in atopic dermatitis, they often refer to it to being first and best. I would share the competition coming into the marketplace is always something we, as Regeneron highly respect and recall when the JAK inhibitors came into atopic dermatitis as an example. There have been other companies more recently. . But I do think it's helping a lot with educating and bringing more patients into the care continuum, where DUPIXENT can be selected as the option for them or for another reason, another product. But certainly, we've seen the overall trajectory of DUPIXENT performance in atopic dermatitis is very strong. It's about half of overall DUBIXENT net sales now in atopic dermatitis and but also pleased to say we have many other blockbuster indications across the approved indications.

Great. And if you had to pick some of those where you think there's the most potential upside, can you point to some of those outside of atopic derm, like -- or maybe what are the key growth drivers within the subset of indications?

Yes. I'm very happy to. I mean, DUPIXENT has done very well in crowded markets like biologic asthma more recently, we also launched in COPD, which has been our actual our most successful respiratory launch for DUPIXENT. The various teams lens words were correct when he talked about a portfolio and a product and the teams really pride themselves in helping patients correctly and quickly with market education and customer-facing activities. CSU is a newer indication. It's probably our second best trajectory with dermatologists but certainly across all the indications, I don't want to neglect any because they're all important, but you see people who are not able to or children correctly with eosinophilic esophagitis or patients who have struggled with problems of skin lesions from bolus pemphigoid project nodularis. Each of the indications is really helpful and important in helping patients that often previously did not have an opportunity for care. It brings more patients into the fold and certainly creates a bigger opportunity for DUPIXENT on a worldwide basis as I share off and even for our patients who have indications that tend to more frequently be in older age groups, they really so appreciate hearing that DUPIXENT is a self-administered biologic that can be used in children as young as 6 months in atopic dermatitis or 1 year old in eosinophilic esophagitis. So the combination of efficacy, safety, ease of use, reimbursement is really important.

Great. Maybe you guys can elaborate on just the status of the Sanofi collaboration. I think given kind of commentary from both of the company's second quarter calls, it seems like there is a willingness to find some common ground here on kind of the forward state of that? And what would be the timing of a potential update there?

So Terence, again, thanks for having us. As you heard from Marion, there's been a tremendous amount of value built by both companies in terms of what both teams have been able to do in terms of building Dupixent and all the approved indications. And just think about the relationships with providers, payers as well as the reputation with patients and consumers that we want to do all that we can on a combined basis to leverage that value that's been created. We continue to make progress with our colleagues at Sanofi, and there's just certain aspects of a transaction where 2 parties need to get together and basically come to a resolution where they both feel they got something out of that transaction. There are certain aspects from both an economic perspective that we'd like to see in a new agreement in the certain aspects operationally that Marion and her team would like to see. And we're continuing to have dialogue. In terms of timing, I don't think there's much we can say as of right now. Other than that, both teams are working extremely hard. And as soon as we have more to communicate, we'll obviously communicate that out at the appropriate time.

And as we think about it, I mean, obviously, the Dupixent line extension strategy is a pretty important piece of that. And you guys have outlined the 4 different programs you have there. But how important is it to have more scale and immunology. When I think about some of your peer companies, again at J&J or an AbbVie, they have a lot of scale and immunology. And so where does that fall in kind of like priorities of the collaboration?

I think part of the -- our goal is to maintain sustained leadership in I&I. We have a pipeline in the type 2 diseases beyond DUPIXENT, including a long-acting IL-13 antibody that's currently being dosed in healthy volunteers, soon to be atopic dermatitis patients. We have a longer-acting antibody that targets the same receptor as DUPIXENT that we're excited to be hopefully bringing to the clinic by end of year or in early 2027 and a couple after that in 2027, entering the clinic targeting the IL-4 ligand as well as bispecific to the ligands for IL-4 and IL-13. So we feel that between those 4 antibodies and ability to really cover most, if not all of the ground that DUPIXENT currently does as well as potentially some other indications we have in mind for these programs. Beyond that, we have an antibody for which the target has not yet been named, but we believe could address several genetically linked diseases that have significant comorbidities across them, including diseases like primary biliary cholangitis, systemic lupus, ulcerative colitis, Sjogren's disease. There's about 7 or 8 of these that we have found a pretty strong genetic linkage, and we're excited to advance that. It's currently dosing in healthy volunteers and hopefully advance that into Phase II study sometime in 2027. So I&I leadership is certainly front of mind for us. We think DUPIXENT has helped us get to that point, and we believe we can build from there. And certainly, that's one of the company's goals.

Yes. What about -- Ryan, you mentioned UC. So is IBD another priority because I imagine you have the whole derm focus already, obviously, that you can leverage the pulmonology, but it seems like IBD is one where maybe there's there's not much of a presence right now on the DUPIXENT footprint?

Yes. We haven't had a lot of success with Dupixent in ulcerative colitis. There is an ongoing Phase II program for select patients, I believe, with certain biomarkers. But I wouldn't say there's any particular like goal to enter the IBD space. We are a company that really follows the science and should one of our mechanisms take us to an IBD condition, we pursue it aggressively. It just hasn't happened yet.

Okay. Maybe it's a good segue to a more strategic business development question. I think there's a perception, at least based on some of my conversations that the company typically will only consider kind of platform or early-stage deals when we think through that business development lens. But obviously, the company has matured in terms of a diversified portfolio. You look at your cash on the balance sheet, paying a dividend, a much different situation now. So as you think about the flavor of types of deals that you guys consider, how is that evolving?

I would say the word used only is probably not the right way to characterize it, Terence. We definitely think there's an advantage, right? To the extent that you can acquire an asset that can generate more than one product because it's a platform that's obviously helpful and justifies the value that you're willing to pay rather than just one product that you're acquiring, and if that doesn't work out, then you don't have any other shots on goal. With that being said, we will look at other opportunities that make sense. We've got a very active business development team. They are constantly out there scouring the landscape and looking at things that are out there. We have kicked the tires on and we've talked about this publicly, several opportunities that were later stage in nature that weren't necessarily platform types of transactions. Our big thing is we're very disciplined in making sure that we ascribe appropriate value where we see value and sometimes we just can't get there in terms of where others are -- have a willingness to pay for certain assets. So I would say we're extremely disciplined. We're open to those areas that make sense. We're not limited by any therapeutic area. We're not limited by any modality within reason, things that are complementary to what we do. And we continue to look, and we are not afraid to put capital to work if and when it makes sense.

You mentioned that you had looked at some later-stage assets is probably hard to characterize. But if you had to bucket is it more so getting over the hurdle of like implied POS? Or is it more about the commercial opportunity when you think about what I know you guys are being disciplined. So which of those 2 is more likely in the higher hurdle, I guess?

I think if you think about Regeneron in totality, science really drives our business. You hear that from Lennon, George over time. So fundamentally, it's what do we think about the science, how likely do we think it's going to work to your point. But then also, it's heavily weighted, I would say, by what we think the commercial opportunity is. And what is it going to cost to develop it? And how quickly can we get it to market. Marian as we look at various opportunities, is is the first 1 to say, the faster we can bring something to the market, the more excited we would potentially get about an opportunity. But it all depends. It all depends on what we're looking at and evaluating.

Okay. Great. And maybe one more for you, Chris, is just on what's the latest on rate of dividend growth and then outlook for share repos. I think you did about $2 billion in the first half of the year. So maybe just how do you balance both of those? And then also, preserve some capital for the deals? .

Yes. I mean when we talk about our capital allocation priorities, they haven't changed. It's first and foremost, investment in our internal R&D capabilities and George and his team and we've obviously just talked about external opportunities, which we don't limit them to just M&A opportunities. We obviously have done a fair number of, I would say, more traditional business development collaboration types of arrangements. We'll continue to look at those. When looking at returning capital to shareholders, I'll start with the dividend first. The dividend was always intended to be a way to access additional shareholders that had a dividend mandate. It was not about dividend yield. If you look at basically when we started the program in 2025, it was $0.88 per share. We increased that thus far in 2026 to $0.94 a share, total annual payouts in the abro of $400 million. So it's not a major component of how we view our return on capital to shareholders. And I wouldn't expect there to be much change in that philosophy. And it's not really going to be at least in the short and medium term a dividend growth story. In terms of share buybacks, we bought back roughly $2 billion of our shares in the first half of the year, $1.2 billion alone in the second quarter, reduce the shares outstanding in the first half of the year by something like 2.4 million shares. And we've got $2.5 billion of authorization remaining. So we continue to be opportunistic buyers of our shares. It's a grid that we put in place that's valuation sensitive. So when the stock is lower, we're out there buying more. And when it creeps up as a certain point where we take our foot off the accelerator. But we continue to view share buybacks as a way to return capital to shareholders.

Okay. Great. Maybe just moving on to one of the pipeline assets that I think is coming more in focus now is some disarm -- you have an upcoming PDUFA date in November. So maybe, Mary, you could just talk about confidence in the approval decision but also expectations for the label, I think that's a question we get more frequently now as we approach this decision.

Very helpful. And we do look forward to November. The team will be launch ready and certainly with an FDA approval will be set to go. Pleased to share with you that we've built out the neurology business. We've had some talent for years at Regeneron. In fact, some origins, as you know, of Regeneron and neurology. So we've had some individuals become part of this new business group and also been very successful in attracting new talent to our headquarter team and to our field team. So we look forward to the launch. In terms of some distant and this competitive market that we'll be entering, we're really excited about it. The market opportunity is a large one. There have been products that have helped patients a great deal. We believe with some discern, we'll be able to pick up on some of that incremental opportunity, not only with our clinical profile, our mode of action, our safety profile, dosing frequency, which is every three months, which is highly attractive to patients. So we'll be launch ready and ready to participate.

And then I think the label is 1 question, I get some questions on is it possible that you guys have a more favorable vaccination requirement versus some of the other C5 agents.

Mean I would keep the base case of what we have typically seen for C5, but I do think we have different design in our clinical studies and different opportunity potentially to look at. So that would be an interesting point of potential discussion. But I think it's early to define. And I also believe there are other characteristics of cendystrine that are just so effective to patients in terms of the level of efficacy, safety and convenience of dosing.

Okay. And as we think about the potential commercial opportunity, is ULTOMIRIS the best analog? Or are there any other good analogs when you think about like the peak sales opportunity that ramp, what that looks like? How are you guys framing this.

So when we go through -- and you know at Regeneron, we've had a lot of launch experience over many years now. So we look at the range and certainly inclusive of products and category today when they launched, how they launched, what the trajectory was. So weren't limited to one product, but to share with you that we look in a very comprehensive way across launch readiness and how to participate in a new marketplace to make sure that we're meeting the needs of the physicians and the offices that are treating these patients and the patients themselves. And some of the experiences they're having today and what they'd like to see in new therapies that maybe they don't have today.

And is the strategy more about the kind of newly diagnosed patients about switch patients? Like how do you kind of balance the the near-term dynamics of the launch.