Ying Huang - Barclays Capital, Research Division
So my name is Ying Huang, and I'm the U.S. biotech analyst here. We're very pleased to have our next presenting company, which is Regeneron Pharmaceuticals. Actually, I have maybe a couple of words to say before I introduce Len, because last time I covered this company was 2010. I left Crédit Suisse in 2010. I remember that my price target for their stock was $24. Today, the stock is trading at around $170. So what a big difference 3 years have made for your company. And then we're also very excited to have Len because we just initiated coverage 2 weeks ago for Regeneron. So Regeneron was actually the latest company that just joined my coverage. With that, let me introduce Dr. Len Schleifer, the CEO of Regeneron Pharmaceuticals.
Leonard S. Schleifer
Thank you very much, and it's great to be here. I think we'll, from now on, refer to our move from $24 to $170 as the Ying gap, given that we missed you during that period. There was another analyst at Crédit Suisse who also liked the stock at $24 with you, and that was Michael Aberman, and he decided to come work for us. So he had exquisite timing. But anyway, it is great to be here.
Before we get started, I'm sure you're all familiar, but take a moment to take a look at our Safe Harbor statement cautioning you we will be making some forward-looking statements, which should be qualified by the risk factors that you can find in our quarterly and annual reports, which are available online or at the company.
As Ying suggested -- and by the way, one commercial for you. I never do this, and I think -- I've been doing this for almost 25 years; I can't recall doing this. But without endorsing or adopting Ying's report, I will call your attention that it was a real tour de force, comprehensive, but also it's of goodies and details, so congratulations and it's a nice work there, Ying.
Regeneron has, indeed, been transformed. We have been at this for a long time. As I have been apt to say on a few of my last presentations, it's nice to be, after 25 years, an overnight success. This does not come instantly or easily. There's a lot of work that was involved by a lot of people, which I'll try and tell you a little bit about.
But how have we been transformed? I think, obviously, to begin with, we have a true blockbuster product. If you define blockbuster as a product that's going to sell $1 billion, well, we expect it to sell over $1 billion in the U.S. in just the second year of its launch, and that's just in the U.S. EYLEA's launch is probably one of the top few biopharmaceutical launches of all time, having done over $800 million in its first year on the market. We also have had, during the same period, multiple regulatory approvals, not only for EYLEA in the U.S. and EU and Japan and Australia, but ZALTRAP in the U.S., and we hope to continue to bring you more approvals for additional indications, which I'll get into, and other products over time. We have done something that we've never done in our history before. We had an entire year, 4 full quarters, of profitability, both on a GAAP and non-GAAP basis. And that has left us in a very strong financial position, which we'll also cover a little later, with cash and receivables on hand of over $1 billion.
But perhaps of all the things that we've done, and we're proud of many, and particularly what we've been able to do for patients and what we've been able to do for our shareholders, it is particularly gratifying to be recognized by our employees and in Science Magazine's annual poll as the world's #1 biopharmaceutical employer. We are very proud of that. I like to think that the fact that people made a lot of money on a lot of options we gave them didn't influence their voting, but I'm sure it had something to do with it. But I would say that we've had a lot of people who work very hard. My partner at this, George Yancopoulos, since we opened the labs in 1989, has led an incredibly productive R&D organization, which we hope will, as history rights the tale, be known as one of the most productive in the history of the industry.
So let's take a look at the actual transformation of the company in a little bit more detail. And as we do that, we also want to look forward and say how we're going to continue to grow, how we're going to continue to succeed. We don't view our mission as over. We expect to grow EYLEA, and we'll get into how we're going to do that. We want to better optimize ZALTRAP, our approval in colorectal cancer. We have an obligation after all these years to continue to grow the company and return to our bottom line sales -- from our top line to our bottom line profits to our shareholders who have -- many of whom have been very patient for many years. But the engine of it all is our R&D. And we, I think, are in a relatively unique position, having just launched a terrific product, a true blockbuster, one of the best launches in the industry, we have a really full pipeline at the same time, which is a bit unprecedented. And I'd like to tell you a little bit more about that in detail as well.
So let's take a look at EYLEA. As I said, the launch has gone extremely well. Net product sales in the fourth quarter were $276 million, $838 million for the year, and we expect U.S. sales only in 2013 to have grown 50% to between around $1.2 billion to $1.3 billion. This shows the quarterly growth of the product. But the fascinating thing about this launch, if you dig a little deeper, is that it -- we really haven't done it fully at the expense of the other branded product, Lucentis, because, in fact, if you look at Lucentis sales right before we came on the market for a little over $400 million, they managed to keep just about $400 million over the last 5 quarters that we're on the market. So really, what's happened is that the market has grown rather dramatically, increasing size in the last quarter by about 54%. This growth in the branded market probably comes from several -- comes in several flavors. Some of it is clearly the growth that we have seen by the branded products, taking some of the Avastin use. For those of you who didn't get a chance, perhaps, to watch the 60 Minutes piece on compounding pharmacies and what's going on there, it's on their website. It's a really interesting piece, and I think that's had some impact on some movement away so that the overall market has grown. When we hit the market, they used to estimate somewhere in over 60%, 65% of the market was Avastin, the low-cost alternative, unapproved compounded pharmacy, but now that's down to about 50%. And some of the growth has also come because Lucentis has got additional indications since we got to market that they recently, over the course over the last several quarters, got approval for diabetic macular edema.
So how are we going to grow EYLEA? So we hope to, as on this previous slide, we hope to grow not only our share of the market, but the overall market in the United States. We also are expanding geographically. We have a partner outside -- partnership outside the United States with Bayer Healthcare. It's been a terrific partnership. EYLEA's now received marketing approval in Europe, Japan, Australia, Brazil, Colombia, and we're pursuing indications in China. And so we expect that the product, and this shouldn't be ignored, will expand in a geographic fashion. And this is very important because, if you look at the sales in the U.S. -- here's the total sales of Lucentis and EYLEA in the United States. If you look at the sales before we got to market, ex U.S., just of Lucentis, you can see that Lucentis is as large as the entire market in the United States. And we share those profits 50-50 with Bayer Healthcare, and I can tell you we're very pleased how this launch, the initial launch, is going in Australia, in Japan, starting now in the European Union. We hope that we will have as exciting a launch ex U.S. as we did inside the U.S. So probably the uptick won't be exactly a parallel because you roll out countries, where in the U.S., you roll it out in one fell swoop. But as it's being rolled out, Bayer is doing a great job, our partnership with Santen that we have with Bayer in Japan doing a great job. So we're very pleased, and we think this is a very important engine for growth of our bottom line because, as I said, we get about 50% of the profits.
But beyond expanding geographies, and beyond expanding market share, we also want to broaden indications. We have our diabetic macular edema trials fully enrolled. We'll get some data later in the year on the first of those, the 1-year data from the European trial. Our branch retinal vein occlusion, I can now tell you, is fully enrolled. Our CRVO has been approved in the U.S. It's been undergoing filings globally. Myopic CNV, the trial is fully enrolled in Asia. So we expect to broaden not only market share, size of market, geography, but also indications.
But we're not done with EYLEA. Just being satisfied, that would not be our style. We're looking at novel ways to combine EYLEA to improve the efficacy. We think combination with PDGF blockade or ANG2 are rational things to test. These are far from certainties in terms of being able to deliver a better product in EYLEA, but we're surely not standing still. We hope to move these along. We're also looking at novel formulations and delivery approaches, and we constantly are evaluating new technologies. EYLEA is a very important, obviously, franchise to us. It is the engine of our near-term profitability and economic growth. But it is just the beginning of what I hope to be a very broad portfolio of products making a difference in lots of patients' lives.
ZALTRAP, our partnership with Sanofi, is approved and launched in the U.S. in colorectal cancer. The fourth quarter sales, the net sales, were about $23 million in United States. It's now been approved in the European Union, and we're -- Sanofi is in the process of getting pricing and getting the launch going outside of the United States, and so we're looking forward for that to grow. That won't be as important to our bottom line in the near term because of the repayment aspect of this deal will consume a lot of our profits. But on the other hand, the opportunity to grow to a big product over time is there, and that could be by not only increasing the penetration, but increasing indications and in combinations, which we are studying, with other anti-angiogenic agents. Those are our approved products.
We also have another approved product for ARCALYST, which is just for a rare orphan disease. But importantly, we have, I think, a really robust late -- an expanding late-stage pipeline: alirocumab, our PCSK9 antibody; sarilumab, our IL-6 receptor antibody; dupilumab, our IL-4 antibody. By the way, we don't come up with these generic names, somebody else does. So alirocumab, sarilumab and dupilumab take a little bit of practice, but those are what they are called by the official generic naming people. These are an important part of our pipeline.
If you look at PCSK9 -- and there's been a lot of word; even today, there's news out with IMPROVE-IT where they were studying whether or not lowering cholesterol further would matter. And they don't have as robust ability to lower LDL cholesterol as we do. I'll show you that in a minute. But nevertheless, it looks like there were no safety concerns. And I interpret those data to think that things must be going in the right direction, because the trial is barely matured, not done, and yet they told them to continue. So I like that because I think it helps validate the LDL receptor hypothesis if it all turns out.
The important thing about PCSK9, without getting into the molecular details, is to know that this is a validated target by the best method of validation that exists, human genetics. If you have a mutation in your PCSK9 gene, your cholesterol goes down and your lifetime risk of having a heart attack goes down by 90%. And your LDL cholesterol, therefore, is a driver -- is the true bad cholesterol. It's very strong. Additional genetic evidence. I should point out that the genetic evidence really does exist for LDL -- particularly LDL when it's involved in the LDL receptor pathway, and that's true on the LDL receptor mutations, either homozygous or heterozygous. It's true how statins work. Statins work by up-regulating the LDL receptor, and PCSK9 works by down-regulating the LDL receptor, so we block that down-regulation. These pathways all make scientific sense, and the validation that comes from genetic validation is really strong here. It's unequivocal, in my opinion, but it doesn't exist for other things like HDL. The kind of genetic evidence that you have that LDL is important, frankly, from the pioneering studies, the Nobel Prize-winning studies done by 2 of our directors, Mike Brown and Joe Goldstein, with the LDL receptor, is just another example how LDL is validated. And the other cholesterol, HDL, being high or low supposedly having an impact, there is not really good genetic validation here. And anyway, we saw -- we and others saw how important PCSK9 is through these genetic studies, and we showed, in our Phase II work, that we can lower cholesterol even if you are on a maximal dose of a statin by about 75%. That is a dramatic additional lowering that can't be achieved by current therapies. It's -- very excited. The work was published both in Lancet and The New England Journal of Medicine. The most common adverse event was injection site reactions. These can be given simply and frequently, and we're very excited about the prospects of bringing a drug that really can dramatically get people to go and lower cholesterol, as I said, by up to 75% on a maximum dose of a statin that's already lowered it by 40% is really, I think, very impressive. Obviously, we need to demonstrate that it's safe and effective in a large Phase III program, and that's what Sanofi and Regeneron are in the process of doing. This is a 22,000-patient study -- program including the 18,000-patient outcome study. Based on our discussions with the FDA and based on what everybody knows today, we believe that you can get this drug approved without the results of the outcome study as long as you're well underway, which obviously we're working at that. Based just on LDL cholesterol-lowering, you can see we have somewhere in the neighborhood of about 10 different studies ongoing, and we expect the first of these to read out -- the first monotherapy to read out sometime, I believe, in the third quarter approximately.
So PCSK9 you're going to hear a lot about over the next several years. There's plenty of competition, but there's plenty of millions of patients who are not getting to their goal, who can't get their goal or can't tolerate a statin. And so we're very excited about, hopefully, making a difference for these people.
We also have a Phase III program. This is a 50-patients-per-group study, and just remember that number for a minute, because I want to talk about it in the context of one of our other programs. So we have very clear efficacy. And if you look at these middle bars, you see that at the top dose, there's about somewhere in the neighborhood of about a 40% response of people having a 50% response. So in other words, 40% of people get a ACR 50, or a 50% reduction in their symptoms. And you can see highly significant effects like this with anti-TNF and IL-6, and you can see this in patients with rheumatoid arthritis, and so we believe that this is a good target. There is a drug approved here, ACTEMRA. We think we have some potential advantages here. So we're busy working on this. We have our first Phase III study fully enrolled and our next Phase III study -- Phase III study enrolling, so lots going on here and clearly positive data in this Phase II trial. Just remember the magnitude of the effect for a minute.
I want to turn now to dupilumab, which is our IL-4 receptor antibody. The IL-4 receptor, as you can see from this cartoon, signals -- allows for signaling of both ligands IL-4 and IL-13, and these are initiators and drivers of the so-called type Th2 differentiation of immune cells, and we believe that this is a critical pathway in the allergic disease pathway. And what are the common allergic diseases that are related to these? We think -- you can think of them as diseases such as atopic dermatitis, allergic asthma, you can think of nasal polyps and a few other conditions, which are related -- or related, we believe, to IL-4/13 pathway over-activation. So we set out with a drug, our IL-4 receptor fully-human antibody, to block IL-4 and IL-13 signaling. And we're very excited because we saw a proof of concept not only in atopic dermatitis, but also in asthma. And the fact that we saw it in 2 separate trials, in 2 separate conditions, but highly related, feeds together to tell us we think we're on to the right pathway for allergic diseases. This data was presented on the American -- excuse me, at the American Academy of Dermatology meeting just a week or so ago in atopic dermatitis, and we'll show you some more data at the American Thoracic Society coming up in May for asthma. And we'll be moving aggressively into the next indications for both of those indications this year.
Let's take a look at the data. These are pooled data from just a Phase I study with relatively small numbers of patients. Remember in the rheumatoid arthritis study, you could see with about 50 patients highly significant effects. And you saw an effect size of about 40% of people got a 50% response on the standard scoring. Well, here, you can see that almost 3/4 of people, 71.5%, at the top dose, were able to get a so-called EASI-50, that is the standard -- this is the standard Eczema Activity and Severity Index. A 50% response was seen in almost 3/4 of people. These are people who had historically not responded well to the available topical steroids. If you look at how much of the body surface was affected, you can see 40% reductions in just a few weeks on the drug. So we're very pleased that the hypothesis that we might be able to interrupt the allergic pathway causing these diseases at least has achieved proof of concept, and that's also true -- and I think you'll be equally pleased with our asthma data coming up. So this may be an ability for us to create a new paradigm in allergic diseases. Sanofi and Regeneron are extremely excited about this, and we're working very hard to move this along just quickly as we can.
For those of you who don't think that atopic dermatitis is a serious disease, one of the things we do at Regeneron is we bring in patients for all of the diseases we're working on once a year, so that our employees can understand what these diseases are all about. And when you listen to people with atopic dermatitis on how this can be very significantly altering their lives, the ability to go out, the embarrassment, the itching, the creams, they can't wear what they want to wear, the discomfort. One woman described how she wouldn't have children because she didn't want her children to suffer. This is a bad disease. And mild to severe atopic dermatitis affects probably 1 million to 3 million in the United States alone. So big problems.
We have a very broad antibody pipeline beyond this. We've talked about alirocumab and dupilumab and sarilumab. We also have antibodies, too: DLL4, angiopoietin-2, GDF8, ERBB3, some others -- unnamed targets in Phase I. So I think that we have a very strong antibody pipeline that George and the team have built, but they're not satisfied here either. We've got lots of what we think are best-in-class technologies that amongst them would include bispecific antibodies, our long-acting technologies and our antibody drug conjugates.
So Regeneron is committed to this space. It's investing in the long term. It's investing in the technology, but it's got a pipeline. And we're able to do this because we have a great collaboration with our friend at Sanofi. They provide us $160 million of annual funding for preclinical work. They provide approximately 100% of the clinical development costs. They are -- get to select the antibodies once they're ready for the clinic that they want to put in the partnership. There's 4 of them in there now: alirocumab, sarilumab, dupilumab. There's several others in Phase I. We get about 50% of the profits in the U.S. and somewhere between 35% and 45% of the profits outside the U.S. And we have co-promotion rights in the U.S. in other major companies.
We have a terrific relationship with Sanofi. Sanofi owns about 16% of the company. They recently filed a Hart-Scott-Rodino filing so that they would have freedom to operate, as they call it, if they wanted to increase their holdings. I think that the waiting period expires tomorrow, I believe. And it doesn't mean that they're going to buy, and what they do, you'll have to ask them, but they have the right under our partnership to go up to 30% of our equity. And now they, I believe, will have cleared tomorrow to Hart-Scott-Rodino, so they have the freedom to do that.
The financial position of the company is a strong and it's solid. It is -- it's funny, everybody's telling me -- comes up to me, and the bankers including some of the bankers at Barclays, say, "Len, would you like to raise money?" And I said, "Where were you in 1991, '94, '97, '99, 2000, 2004, '06 and all these years we were desperate to raise money and nobody would take our calls?" But now we can have the money, but the good news is we don't want the money because we're doing very well. We ended the year with somewhere in the neighborhood of about $1.2 billion of cash and securities and trade receivables, which are primarily the EYLEA receivables. So we're in a very strong position.
There's a lot coming. There's -- as I said, I would, if I were you, from an investment point of view, I'd be keeping an eye on our EYLEA sales, both in the U.S. and, I think, very importantly outside the United States, to show how our growth is, look at our -- some of the additional approvals we might get and look at the clinical milestones. And pay attention to the IL-4 program, because I think that's one -- we talked several years, it was hard to get people to focus on PCSK9 because it wasn't in Phase III. But same thing, I think, might happen in IL-4. These are exciting data, proof of concept, in both atopic dermatitis and asthma. So we're looking forward to moving those along and telling you more about that additional trials in the sarilumab studies and keep going and finishing off as quickly as possible the Phase III program for alirocumab in hypercholesterolemia. Thanks very much for your attention. The breakout is...
Ying Huang - Barclays Capital, Research Division
Leonard S. Schleifer
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