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Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)

Oppenheimer & Co. Inc. 24th Annual Healthcare Conference Call

December 11, 2013 10:05 AM ET

Executives

Michael S. Aberman – Vice President-Strategy and Investor Relations

Analysts

David Ferreiro – Oppenheimer & Co., Inc.

David Ferreiro – Oppenheimer & Co., Inc.

With Annual Oppenheimer Healthcare Conference, I am Dave Ferreiro one of the biotech analysts here. Very happy to have with us Regeneron Pharmaceuticals and speaking from Regeneron is Michael Aberman, Head of Strategy and Investor Relations. Mike?

Michael S. Aberman

Thank you very much and thank you everybody for coming out. I'm glad that I was picked today to present instead of yesterday. I didn't have to brave the snow. I'm here to talk a little bit about Regeneron.

Before I get started, I just need to show our Safe Harbor slide. I maybe making forward-looking statements in today's presentation and to the extent I do that, please note that there is risks and uncertainties and you can see a full list of these on our slide but also for those listening on our SEC documents including our most recent 10-Q and 10-K for the year. It's a good time to be at this conference. It is really wrapping up the year. Here this is our final presentation to investors before we see everybody getting early January in San Francisco.

So, this will be sort of the retirement of our corporate presentation for the year and I think that's fitting because the presentation really talks about what has been a tremendous period for Regeneron, where we say we really have been transformed over the past. The company is been around for 25 years and as our CEO likes to joke, it seems like an overnight success after 25 long years of overnight. But what has led to the transformation of the company, really perhaps the biggest change have been the EYLEA launch which has exceeded expectations at launch first approved in November of 2011.

Now more than two years later it has been one of the top five bio-pharmaceutical launches of all time. We'll talk more about that, but that truly has been a real change for the company to have such a successful product launch and it shows the power of the biotech industry to be able to go from a development stage company to very quickly have one product to help transform a company.

We’ve also had more than just that, although EYLEA has been the most successful financially for the company. We had multiple regulatory approvals not only in EYLEA in multiple geographies and indications but also for other products starting with our original product that was approved was ARCALYST for a rare disease, but also ZALTRAP in the U.S. and EU which was approved in the past year.

We’ve also now had seven full quarters of profitability. Again driven primarily by the successful EYLEA launch and that's left us in a very strong financial position with cash and accounts receivable primarily related to our EYLEA trade receivables of really in excess of 1.5 billion when combined. Perhaps the most important measure of our success that we are most proud about is that for the second year of running, we've been voted the company, the number one employer in our industry, the biopharmaceutical industry globally by Science Magazine, one of the most premier journals in the science community. And that's critically important because our business is really driven by the talent of the individuals and the scientists discovering drugs and medications and that's something that our company, is the foundation of our company.

We are a company driven by science, that believes in science and that comes from the top all the way down to our Board members more than half, our members of the National Academy of Sciences, our Chief Scientific Officers, really truly once in a generational type scientist. Our CEO is a scientist by training in MD Ph.D. So to have this title, really is important to us because we need to continue to retain and hire the talent that's going to keep us going for the next decade and more. So let me talk briefly about EYLEA.

As you can see on this chart here, it really has been a tremendous launch. Going from its first year on the market where expectations at the beginning of that year 2012 were in the $100 million to $200 million range at best, ultimately exceeded 800 million. And this year our last quarter we did $363 million in the U.S. alone and in 2013, we expect to do $1.35 billion to $1.375 billion. So it's been a tremendous launch for us.

In terms of the market dynamic, as many of you know EYLEA is in a market that has really two competitors, one is an off-label use of cancer drug Avastin that's used in the eye and the other is a branded therapy Lucentis which is approved not only for wet AMD which is our major indication. We also have an indication for central retinal vein occlusion which they have retinal vein occlusion as well. They also have diabetic macular edema. And you can see in the market dynamics since our launch, not only it's not simply that we have come in and taking market share away from the other branded competitor and in fact the market is growing 80% since our launch and that's a reflection of a number of features, one is the growing population of patients with wet AMD, this is a market that is a disease, that's a leading cause of blindness in the elderly in the developed world.

So that's growing as the population ages. But also it's taking some share away from the off-label use of Avastin, but also the overall market is growing as new indications come on board and as I mentioned Lucentis was approved. And right around the time, we see that inflection where the blue bar is growing again in diabetic macular edema. That's critically important because as we think of the future of EYLEA part of that's going be and I am going to talk a little bit about expanding the novel indications.

We're not just the U.S. based product. This is a global product. We're launching with our partner Bayer HealthCare who has been a tremendous partner. You can see here we're trying to illustrate on the sort of reddish maroon color is the ex-U.S. EYLEA sales and you can see we are only getting started in the, outside the U.S. We have been launched in many countries, but truly the main sales right now are coming from Japan and Australia.

To a lesser extent we now started launching in Europe and other countries and we expect that to continue, but when you look at the overall picture well in the branded market in the U.S. we're slightly more than 50% of the branded market. If you look on a global basis in terms of branded anti-VEGF sales, we’re still only a third of the market. So we think there is tremendous room to grow as we expand geographically through the next year and beyond.

The nice thing about EYLEA is that not only has it been successful in this lead product wet AMD but it really is a pipeline onto itself with multiple other indications beyond our lead indication, wet age-related macular degeneration.

As you can see here, we've got diabetic macular edema. We presented positive Phase 3 data, first top-line I think over the summer and then we had the opportunity to present at couple of medical conferences and we announced in our third quarter conference call that we submitted our application to the FDA for approval and it’s submitted in the EU for approval. So, we are moving forward with that novel indication.

We also reported positive Phase 3 data in another indication called branch retinal vein occlusion, again not as big an opportunity as both the wet AMD and the Diabetic Macular Edema indications. Diabetic Macular Edema is an indication that we believe can be as large commercially as the wet AMD population. Slightly different disease, diabetic macular edema affects patients who are obviously with diabetes. It usually has a slightly younger age of onset. It also is more frequently bilateral so when you think about that disease each patient can often get treatment in both eyes.

Lastly some other indications, central retinal vein occlusion is a disease area that we’ve already launched both U.S. and Europe, and myopic CNV is a disease that is more common in Asian countries and there has been a filing in Asia just a short while ago. So again EYLEA has really been a transforming product for us because of the sizes of opportunity as well as the profitability of the drug. This is a drug that has gross margins of 90% and nearly in the U.S. we can sell it with relatively small sales force. So it really has been a great product for us.

Given the success of EYLEA, one of the questions we often get is about competition. We are thankful that we don't see any significant competitors on the horizon. That said, we’re not sitting back and breathing a sigh of relief both because from a corporate perspective we wouldn't like to have competitors catch-up to us but also again our mission is to use of science to develop new treatments for patients, and so we know there is always room to improve and there is room to investigate new therapies.

What you can see here is two different targets that we're going after in the wet AMD diabetic macular edema or retinopathy, a blinding diseases area. One is the PDGFR antibody. This is coming from our proprietary antibody technology. As many of you know that antibody technology liked to a big collaboration with Sanofi. However, these two antibodies we acquired right back from Sanofi and we expect to file INDs for one or both program by year-end and the PDGF program in particular, we get asked a lot about because there is another company developing an Actemra to this target that has had very interesting Phase 2 data which perhaps we can.

I am going to leave some time for Q&A, so we can get to more detail, but one of the things that we're moving forward or planning to move forward with our PDGFR program is a co-formulated product that would allow us to deliver both VEGF Blockade and blockade of this target in one convenient injection.

I'll talk briefly about ZALTRAP. Again, in terms of the science and the regulatory process and manufacturing all of those steps into same pathway and it's the same level of accomplishment for those people at the company and the patients involved in the trials and their physicians to get a product approved as ZALTRAP, it hasn't been as much of a commercial success, but we are proud of the achievement of getting this approved in both the U.S. and Europe.

The launch in the U.S. could be going better however we do have plans to continue to expand our footprint in oncology. One of the ways we are doing this is with a novel antibody to Angiopoietin-2. We have an affinity towards those as they were – the pathway was discovered by our Chief Scientific Officer and colleagues at Regeneron and this is a novel way of attacking angiogenesis.

It seems like in oncology there is the target of the de jure everyone wants to talk about Immuno-oncology, but we really shouldn't forget that angiogenesis really is a cornerstone of treatment of oncology, primarily right now with Avastin and blockade VEGF, obviously ZALTRAP is also approved in the second line colorectal cancer setting or you can see that indication there.

We believe that there is room to improve the benefit seen with blocking angiogenesis by going after more than one target and pathway in the angiogenesis or building blood vessel pathway and that's the goal and we have some combination trials ongoing with Angiopoietin-2 with ZALTRAP.

That's a lot for a company, but we have a lot more. Again one of the things I think that sets us apart is getting to a finish line with our first blockbuster. We have built the company behind it and had a very robust pipeline and if I think back to where I joined the company about four years ago, we were a company without any products, well we had one small product, the ARCALYST on the market, but three late-stage programs and we were waiting to see what happens.

Fast-forward four years, we now know one of those threes was a big blockbusters and drove the transformation. Now here we are once again with three late stage programs where we hope one of these if not more than one of these and I think we can talk a little about those have the opportunity, be just a transformational with a second product that can be a big unmet medical need in large market opportunities.

And those three are Alirocumab for high cholesterol which hopefully many of you have heard about; Sarilumab which is for rheumatoid arthritis, it blocks IL-6 pathway; and Dupilumab which is a little earlier on but is moving very quickly in Phase 2b trials for asthma atopic dermatitis and nasal polyposis.

So I'll talk briefly about Alirocumab. Despite the availability of statins, which are cornerstone of therapy for lowering bad cholesterol or the LDL cholesterol, cardiovascular disease and atherosclerosis heard disease and strokes will have remain a leading cause of death and disability in the developed world. So it's very clear that there is room for additional therapies and we and sign shows and we believe very strongly that the primary driver of this disease remains the bad cholesterol, LDL cholesterol in spite of success of the statins, many patients millions of patients aren't at their optimal LDL levels.

Obviously there is some controversy around new guidelines that came out just recently that may change a little bit the landscape but really doesn't detract from the fundamental scientific view and it wasn't changed in these guidelines that LDL is a bad actor and lowering LDL is the way to reduce cardiovascular risk.

And our therapy has shown in Phase 2 and has now in one Phase 3 trial, you can see our large Phase 3 program on the slide. We have already read out from one of those is the autopsy mono trial that we can lower LDL cholesterol whether it's in monotherapy like the one Phase 3 trial we read out or in combination therapy on top of statins, which we’ve shown in Phase 2, pretty robust Phase 2 as of some of our competitors, like 50% to 70% on top of guidance.

So these are patients who either get a sub-optimal response or don't get to their optimal LDL levels will instead have the potential to have a new options that can really meaningfully lower the LDL cholesterol. And you can see we have embarked with our partner Sanofi on this in a very broad 22,000 patients Phase 3 program 18,000 of which are in our cardiovascular outcomes trial and we are looking forward to reading out those data. All of those trials above the OUTCOMES trial and CHOICE are now fully enrolled. So we look forward to that the data readout there.

Moving to our second Phase 3 program that’s also had some positive data at Sarilumab. This is an antibody to the IL-6 receptor. IL-6 pathway has become an increasingly important pathway in inflammatory disease particularly rheumatoid arthritis. The front runner in this is a product by Roche, Actemra, which sells on about $1 billion run rate globally and this is another piece of evidence that we have in recent Phase 3 trial.

But we saw very robust improvements in ACR scores which is symptomatic measurement of symptoms and signs of really just debilitating disease and as we know these patients are on multiple lines of therapy, starting off with the TNF inhibitors and the hope is that IL-6 pathway really can provide an other options for patients and have some unique properties and you can see here in the slide, our 200 milligram dose that was dosed subcutaneously every two weeks saw a very nice and competitive with what's out there reductions, I’d say improvements in the response ACR20, ACR50, and ACR70 which represent 20% 50% and 70% improvements in the signs and symptoms of disease.

The last late stage product that I want to talk about is one we're particularly excited about and this goes after what is a growing epidemic of allergic diseases. Many of you know when people of my generation and older were growing up, it was pretty rare to have someone who had an allergy, a food allergy as an example.

We all took peanut buttered sandwiches to school. Those of you who have children now know that, it’s just not possible given the increasing prevalence of these food allergies. It's not simply food allergies, it's other types of allergic disease that have increased; asthma, atopic dermatitis other types of allergic diseases and this is believed to be the causes are known but it's a shift of patients immune, responses to more of what's called the Th2 type immune response.

And our scientists seeing that increase, looked at what pathway which cytokines do they believe are going to be most important in this disease process and where can they really perhaps potentially have a major impact in changing how the disease progresses and these diseases progress and their hypothesis was that by blocking both IL-4 and IL-13, two key cytokines that drive this Th2 response and we block that by blocking the subunit of the receptor called the IL-4 receptor would have the potential to really improve the signs and symptom diseases allergic diseases.

And we've now shown positive data in both atopic dermatitis and asthma and in the Phase 2 and Phase 1b setting. The importance of this is not only robust data that we have now published in New England Journal and presented at medical conferences around the world, but the fact that two very different diseases atopic dermatitis, a disease of skin rashes and asthma, inflammation of the lungs that you would think have very little uncommon on the surface, but do have one thing in common which is this allergic type phenotype driven by this Th2.

If our hypothesis was correct, both diseases will have a meaningful impact and that's exactly what we saw and that’s one of the critical reasons why we are so enthusiastic about this program. We recently announced at similar investor conference that we hope to have Phase 2b data for our atopic dermatitis program next year.

So this is a program that we are going to move very fast and again this is another program, all three of these programs that I’ve just mentioned are in the late-stage are part of our Sanofi collaborations and I just can do a minute on that, that there really been a really a great collaboration for both companies.

On our side, we get from them a $160 million a year a preclinical funding to move antibodies into the clinic. If they exercise the option to advance those programs in the clinic with us, then they fund 100% of the clinical development. In total these one trail Phase 3 trials positive at which point we then start funding 20% of the Phase 3, that's both a reminder of how good the collaboration is for us, but also a reminder that now we’ve got two positive Phase 3 trials in the program, one in our alirocumab and one in sarilumab. So we will start funding going forward 20% of the ongoing Phase 3 cost. So it will lead to an increased spending, but again this is a great thing for us to have when everyone wants the late-stage programs with such opportunities. So this is kind of spending we’d like to embark on.

That’s not all. We don’t talk much about our early stage pipeline because there’s so much going on outside of that early – while there is a lot going on in the early stage pipeline we have lot to talk about in late-stage. So we don’t talk a lot about it, but you can see here we have seven antibodies that are part of the Sanofi collaboration, six antibodies that are wholly-owned. Again, if Sanofi does not opt into those programs at time they are entering the clinic, we get to own those wholly with a mid-single-digit of royalty owed to Sanofi.

One of the unique – another unique feature about our company is not only do we do drug development in biology, but we are technology innovators and that’s how we came up with our antibody technology and we’ve a whole suite of technologies behind that by specific antibodies, antibody drug conjugates, long-acting technologies, some of which I’m sure will speak more of as the years progress and they become more relevant in the clinic.

Again, just to show you the success of the EYLEA launch has also lead to success on the bottom line. And what you can see here is our net income has grown from the first quarter 2012 to where we are in the last quarter, third quarter 2013 and again our cash position.

So I’m going to stop there and that leaves five to 10 minutes for questions. So again, thank you all for listening and thank you on the webcast as well.

Question-and-Answer Session

David Ferreiro – Oppenheimer & Co., Inc.

So I’ll start off with a question. First, looking at EYLEA and the opportunity in DME, maybe you could talk about the market opportunity there and then also maybe the properties of EYLEA that set it apart from the competition indication.

Michael S. Aberman

Sure. I did mention, again, one of the reasons for our success, we always thought that EYLEA because of its higher binding affinity would lead to a better product profile in both the AMD setting and now in the DME setting we embarked. An AMD specifically we went head-to-head against the branded competitor with every two months dosing with EYLEA versus every one month dosing with the competitor and showed clinically equivalent efficacy.

For diabetic macular edema, again we demonstrated efficacy this time against laser with every two month dosing. So you’re really talking about less frequent dosing. In addition, part of our success was the anecdote that we heard back from physicians where we were using patients who had multiple doses of either Avastin or Lucentis and continue to have swelling and the edema and we’re able to come along and anecdotally show some improvements in that edema.

In terms of market opportunity, it’s big. 600,000 patients have clinically relevant diabetic macular edema. We think about 40% of them, roughly that are treated with anti-VEGFs right now. So we have room to grow that and so we do believe this could be just as large as the AMD market.

David Ferreiro – Oppenheimer & Co., Inc.

You wanted to elaborate on your PDGF program against the potential competitor. Could you go a little bit more in depth, what would be the differentiating factor?

Michael S. Aberman

Sure. So there’s another party that’s investing and developing in anti-PDGF aptamer. That program requires two injections. So patients come in and get an injection with VEGF and need to wait for a second injection. So in that program you’ll need to have 24 injections in the first year. Again, how physicians will ultimately use that’s unknown, but certainly the requirement for two injections, we think could be a burden for patients and physicians.

So our goal is to have a single injection that combines both the VEGF and PDGF. Again, time will tell on how these different approaches are perceived, but we think that gives us a potential nice advantage.

David Ferreiro – Oppenheimer & Co., Inc.

Moving on to another, one of your developmental compounds, looking through anti-PCSK9 inhibitor maybe you can talk about what you see as differentiator in the marketplace versus your nearest competitor. And then secondarily, maybe you can comment on the IP landscape because I think very large pharmaceutical companies were making some noise about the complexities there.

Michael S. Aberman

Yes. I’ll just mention IP briefly. We don’t talk about IP. I think our CEO said publicly and this will play over time. There isn’t a space in the biopharmaceutical arena I think where people don’t have – all have their own IP. We all have our own IP and we’ll see how that plays out. Again, we’re investing very heavily. We don’t see – we think this is going to play out in the marketplace.

In terms of the marketplace our key competitor, our nearest competitor is Amgen where we’re both racing to the finish line. There are probably more similarities than there are differences between the two programs when you think fundamentally an antibody blocking this protein PCSK9, again a key protein that regulates the level of LDL receptor on liver cell and therefore the level of the bad cholesterol, LDL in the blood.

We believe our clinical trail program is smarter. We have a very robust program with thousands of patients, years of experience, a randomized control experience. We’re doing a 24-week endpoint, which we think gives us robust data. We think we’ve got very nice program in the statin-intolerant, which has become a very important population for us. There is 1.5 million plus depending on the market research. You look at patients in the U.S. alone who can’t tolerate statins for one reason or another.

So we also think our every two-week dosing and our titration approach where our patients have the option to start at a 75 milligram dose and go up to 150 milligram dose every two weeks with an easy-to-use self-injector is going to be very competitive. Obviously, we’re also embarking on some trials to look at every four-week dosing as well, but I think the primary goal here is to get the best activity you can in a nice and convenient patient-friendly way and we believe our products are going to deliver that obviously with the Phase 3.

But this is going to be a change in physician behavior. So having multiple parties out there is potentially a good thing. And so we look forward to both being in the marketplace and letting physicians and patients know that there is an another option or hopefully there will be another option for lowering the bad cholesterol that can make a difference.

I think also if you fast forward cardiovascular outcomes are going to be critical down the road and to have multiple parties showing – embarking in these large trials are Amgen and Pfizer. Hopefully others could have a real good effect on the class to the extent what happens, what we hope to happen, what we believe will happen that we can demonstrate that lowering LDL that these drugs not only lower LDL, but also cardiovascular risk. So we welcome the competition. We look forward to the marketplace and again more similarities than differences.

David Ferreiro – Oppenheimer & Co., Inc.

As you said outcomes, maybe you can talk a little bit about your feeling on the approvability of lowering cholesterol surrogate for approval now or the need for an outcome study? And then secondarily, there is a lot of noise around the improved trial. There is a lot of talk that’s going to fail. What impact do you think that will have on the FDA’s thoughts there?

Michael S. Aberman

That’s a great question. So thankfully the FDA actually made some comments in the public domain that – so you don’t have to just take our word for it, but LDL remains a valid surrogate. We’ve said that long back the communication we’ve had from regulatory authorities, which means we can seek approval based on LDL lowering. That said, those are caveats of that. They’re always It has to be safe. So if there is some safety signal that emerges the FDA always reserves the right. Of course the FDA reserves the right to look at the data and make a determination on a case-by-case basis.

But also improve the trial is important, “if it fails”. Failure is not necessarily, also it’s not the same. The reality is we don’t really – don’t have invested interest in whether or not it’s successful or not from hitting its primary endpoint standpoint. What’s important to us and I think for regulators is whether or not it’s supports the hypothesis that lowering LDL will lead to lowering cardiovascular event. And so there is lots of ways this trial will be successful or non successful in terms of meeting its primary endpoint and still not change the view.

So it depends on the magnitude of LDL reduction. If you have a very small reduction in LDL between the arms and you don’t have statically significant improvement in the cardiovascular outcome all that’s telling you is that the drug does not do enough. We don’t see that as a change in the regulatory outlook or the ability of the LDL surrogate. I think there is something we can read into the fact that it continues to move forward in clinical trial after having multiple interim analysis that suggest there is still hope that this will – that there’s some benefit.

Again, this is reading a tea leaf, but again our view on the sign here is we’re not just selfishly believing the LDL hypothesis because it helps our products. This is something we fundamentally believe from a scientific perspective. Two of our Board members won the Nobel Prize for the discovery of the lower LDL receptor, Mike Brown and Joe Goldstein and another Board member, the Chairman of the Board brought the first statin to the market. We’re glad that he was working on that before that.

So this is an area that we’re very, very familiar with. We believe in the LDL hypothesis and if in that trial there is a separation between the two arms in LDL we think that’s going to lead to improvements. Whether or not the difference is going to be big enough and it’s powered enough for it to be statistically significant, we have to see those data.

David Ferreiro – Oppenheimer & Co., Inc.

Thank you very much for joining us.

Michael S. Aberman

Thank you very much.

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