Regeneron Pharmaceuticals (REGN) Q4 2014 Results - Earnings Call Transcript

Regeneron Pharmaceuticals (NASDAQ:REGN) Q4 2014 Earnings Call February 10, 2015 8:30 AM ET

Executives

Michael Aberman - Vice President of Strategy & Investor Relations
Leonard S. Schleifer - Co-Founder, Chief Executive Officer, President, Executive Director and Ex Officio Member of Technology Committee
George D. Yancopoulos - Chief Scientific Officer, Executive Vice President, Director, Ex Officio Member of Technology Committee and President of Regeneron Research Laboratories
Robert J. Terifay - Senior Vice President of Commercial
Robert E. Landry - Chief Financial Officer and Senior Vice President of Finance

Analysts

Ying Huang - BofA Merrill Lynch, Research Division
Matthew Roden - UBS Investment Bank, Research Division
Jeremiah Shepard - Crédit Suisse AG, Research Division
Robyn S. Karnauskas - Deutsche Bank AG, Research Division
Matthew Kelsey Harrison - Morgan Stanley, Research Division
Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division
Adnan S. Butt - RBC Capital Markets, LLC, Research Division
Yaron Werber - Citigroup Inc, Research Division
Terence C. Flynn - Goldman Sachs Group Inc., Research Division
Cory William Kasimov - JP Morgan Chase & Co, Research Division
Geoffrey C. Meacham - Barclays Capital, Research Division
Philip Nadeau - Cowen and Company, LLC, Research Division
James William Birchenough - BMO Capital Markets U.S.
John L. Newman - Canaccord Genuity, Research Division

Operator

Good day, ladies and gentlemen. Welcome to the Regeneron Pharmaceuticals Q4 2014 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to introduce your host for this conference call, Dr. Michael Aberman, Senior Vice President of Strategy and Investor Relations. You may begin.

Michael Aberman

Thank you, operator. Good morning, and welcome to Regeneron Pharmaceuticals Fourth Quarter and Year End 2014 Conference Call. An archive of this webcast will be available on our website under Events and Presentations for 30 days.

Joining me on the call today are Dr. Leonard Schleifer, Founder, President and Chief Executive Officer; George Yancopoulos, Founding Scientist, President of Regeneron Laboratories and Chief Scientific Officer; Bob Terifay, Senior Vice President of Commercial; and Bob Landry, Chief Financial Officer.

After our prepared remarks, we will open the call for Q&A.

I would also like to remind you that remarks made on this call include forward-looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and business, sales and expense forecast, financial forecast, development programs, collaborations, finances, regulatory matters, intellectual property and competition.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in such statements. A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission or SEC, including its Form 10-Q for the quarter ended September 30, 2014 and Form 10-K for the year ended December 31, 2014, which is expected to be filed with the SEC later this week.

Regeneron does not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

In addition, please note that GAAP and non-GAAP measures will be discussed on today's call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP are available in our financial results press release, which can be accessed on our website at www.regeneron.com.

Once our call concludes, the IR team will be available to answer further questions. With that, let me turn the call over to our President and Chief Executive Officer, Dr. Len Schleifer.

Leonard S. Schleifer

Thanks, Michael. And although as a small part, it was a part the way you read that forward-looking statements did contribute to Michael's recent promotion to Senior Vice President. So Michael, congratulations.

Anyway, very good morning to everyone who has joined us on the call and webcast today. 2014 was another great year for Regeneron. As many of you know, we founded this company more than 25 years ago with a simple but challenging goal, to build a company that can consistently and repeatedly bring important new medicines to patients in need.

With the potential approval of PRALUENT or PCSK9 antibody later this year, maturation of our antibody pipeline and continued growth of our flagship product, EYLEA, we believe now is the time where our vision increasingly becomes reality. Regeneron is evolving into a company with the potential for multiple significant revenue streams across a variety of therapeutic areas.

To that end, last month, Regeneron and Sanofi announced that our regulatory applications for PRALUENT were accepted for review by the U.S. and EU authorities. We have been granted a Priority Review in the U.S. with a PDUFA date of July 24 of this year. Pending FDA review, we look forward to potentially being the first to bring the promise of this exciting new class of therapy to people with hypercholesterolemia. We are working very closely with Sanofi to prepare for a successful launch in the second half of this year.

In addition to a very exciting year for our PRALUENT program, we also anticipate reporting new Phase III results for sarilumab, our IL-6 receptor antibody for rheumatoid arthritis and submitting a U.S. regulatory application later this year.

We also continue to make strong progress with dupilumab, our IL-4/IL-13 blocking antibody in a number of serious allergic diseases. We have an ongoing Phase III program in adult atopic dermatitis and are beginning new studies in pediatric atopic dermatitis. We are also making important progress in our asthma pivotal development program, and George will share some exciting details in a moment.

In addition to an ongoing mid-stage program in chronic sinusitis with nasal polyps, this month we are launching a mid-stage trial from a new indication, eosinophilic esophagitis, an allergic inflammatory condition of the esophagus.

Our earlier pipeline continues to advance and we now have 15 antibodies in clinical development for serious diseases, including cancer, retinal conditions, chronic pain and a life-threatening infection. Two of these antibodies, Regeneron 2222 (sic) [ REGN2222 ] for respiratory syncytial virus or RSV and fasinumab, our anti-NGF therapy for chronic pain, have the potential to move into pivotal studies this year, which will bring us to a total of 5 late-stage antibodies, of course, several important diseases.

Turning to our sales and earnings performance, EYLEA continues to exhibit strong growth, both in the U.S. and worldwide. In the fourth quarter, U.S. EYLEA net sales were $518 million and full year sales were $1.74 billion, representing an approximate 23% growth year-over-year. Based on fourth quarter sales, EYLEA is now the market-leading brand in anti-VEGF therapy for the treatment of retinal diseases in the United States. We look forward to another year of growth for EYLEA in 2015, bolstered by the recent approvals in diabetic macular edema or DME and retinal vein occlusion. We expect increased use of EYLEA in DME, driven by both overall expansion of the DME anti-VEGF market and the anticipated publication of results from the NIH funded Protocol T study, conducted by the Diabetic Retinopathy Clinical Research Network. In this study, EYLEA showed significantly greater gains in visual acuity than both Lucentis and Avastin.

In 2015, a number of elements may impact EYLEA growth, including the Protocol T date of publication, potential changes in compound and regulations and other factors. We saw U.S. EYLEA growth last year of 23%. In 2015, we expect an increased rate of growth, which we anticipate will be in the approximate 25% to 30% range.

Outside the United States, sales of EYLEA were $297 million during the quarter and $1.04 billion for the full year 2014, representing a 120% growth over 2013. Our collaborator, Bayer HealthCare, continues to drive new approvals and geographic expansion, which we believe will continue to generate strong x U.S. growth of EYLEA.

Before I turn the call over to George to discuss R&D progress, I want to take a moment to touch on important investments in our business infrastructure and operations. We continue to expand our biologic production capabilities in both upstate New York and Ireland. In Ireland, we are making strong progress in our build out of a world-class 400,000 square-foot biologic production and supply chain facility. We have also significantly expanded our R&D and corporate offices in Tarrytown, New York, where we plan to open 2 new buildings later this year to keep pace with our growth. Just last month, we welcomed 3,000 employee at Regeneron and anticipate continuing to add important new talent in 2015.

A key focus will be the significant expansion of our commercial organization in support of the potential PRALUENT launch. This will be a year of critical growth and important pipeline advances for Regeneron. We are committed to making the right capital and operational investments to ensure we fully maximize the value of our business this year and in the long-term.

With that, let me turn the call over to Dr. George Yancopoulos, Regeneron's Chief Scientific Officer, who will discuss our pipeline and our clinical and research progress in greater detail. He will be followed by Bob Terifay and then Bob Landry. George?

George D. Yancopoulos

Thank you, Len, and a very good morning to everyone who has joined us today. I echo Len's sentiments that we are at a transformational stage in our company's history. From an R&D perspective, we had a landmark year of pipeline progress. We are poised to make significant strides in a variety of therapeutic areas.

I'd like to begin with EYLEA and our retinal franchise. In March, we look forward to U.S. FDA action on our supplementary BLA for EYLEA in diabetic retinopathy in patients with DME. As you'll recall, we're received Breakthrough status and Priority Review for this indication, given the strong prospective results seen in a subset of patients with diabetic retinopathy in our VIVID and VISTA Phase III DME trials.

Len mentioned the results from an NIH-sponsored DME study called Protocol T, that looked at the comparative safety and efficacy of EYLEA versus ranibizumab and bevacizumab. We are very encouraged by the data. In this study, EYLEA showed significant gains in efficacy when compared to both alternative therapies. We look forward to the full data publication and presentation by the DRCR, which we anticipate in the near future.

We continue to invest in R&D that can bolster and protect our retinal disease franchise. The initial Phase I data for EYLEA, combined with our PDGF receptor antibody, were presented for the first time just this past weekend and demonstrated our ability to safely combine the 2 compounds in a single, well-tolerated intravitreal injection. We expect to begin Phase II trials in the first half of this year. Our combination study of EYLEA co-formulated with our Ang2 antibody in a single intravitreal injection, entered Phase I development for ophthalmologic indications late last year.

On PRALUENT, our PCSK9 antibody for lowering LDL-cholesterol in people with hypercholesterolemia, we submitted the BLA during the fourth quarter based on data from 10 Phase III clinical trials, the largest program for a PCSK9 inhibitor in an initial BLA submission. We received a Priority Review designation with the July 24 PDUFA date.

We also presented positive pivotal Phase III data at the American Heart Association meeting in November for 6 of these registrational trials, which all met the primary efficacy endpoint of a greater reduction in LDL cholesterol at 24 weeks in either active comparator or placebo.

In January, we reported top line results from the first monthly dosing trials of PRALUENT, ODYSSEY CHOICE I and CHOICE II. Both studies met the primary endpoint, demonstrating that a monthly dose of PRALUENT at either 150 milligrams or 300 milligrams was effective at significantly reducing LDL-cholesterol from baseline at 24 weeks. Detailed results from these studies will be presented at the upcoming American College of Cardiology meeting in March. While these trials are not part of our initial registration package, we anticipate submitting data for monthly dosing to the FDA in the future.

Turning now to sarilumab, our IL-6 receptor antibody, which is in Phase III for rheumatoid arthritis or RA. We believe sarilumab is positioned to provide an important new treatment option to the RA community, where patients often cycle through multiple medicines during the course of their disease. In the fourth quarter, we presented additional analyses from the SARIL-RA-MOBILITY study at the Annual Meeting of the American College of Rheumatology. This year, we expect results from 3 additional Phase III studies in the SARIL-RA program, which are evaluating sarilumab in combination and as monotherapy.

Dupilumab, our antibody that blocks both interleukin-4 and interleukin-13 signaling, continues to make significant progress across a number of serious allergic diseases. In the fourth quarter, we shared top line results from our Phase IIb study of dupilumab in moderate-to-severe uncontrolled asthma. In the dose-ranging study of 776 adults, dupilumab, in combination with standard of care therapy, demonstrated a significant improvement from baseline in forced expiratory volume of 1 second or FEV-1, a standard measure of lung function, as well a significant reduction in severe exacerbations or asthma attacks. This positive response was seen in both the patient population with high blood eosinophils thought to be a marker of allergic disease as well as the overall study population. We think this is a very exciting finding for uncontrolled asthma patients that have a high unmet need, often struggling with daily symptoms and recurring asthma attacks, despite the use of inhaled steroids, long-acting beta-agonist and rescue medications. We look forward to presenting the full results later this year.

In addition, we recently had a very productive end of Phase II meeting with the FDA to discuss the potential asthma indications. Based on these preliminary discussions, we believe that our Phase IIb trial will be considered a pivotal trial and that we will only need a single Phase III efficacy trial to support a potential asthma BLA submission. We anticipate beginning this Phase III study in the first half of 2015.

We continue to enroll patients in the Phase III program for dupilumab in adult atopic dermatitis. And as Len mentioned, we are in the process of initiating a Phase II study in pediatric atopic dermatitis this month. In addition, we look forward to presenting details from our Phase IIa chronic sinusitis with nasal polyps study this year and discussing a potential Phase III program with the FDA.

Also this month, we have initiated a Phase IIa study of dupilumab in eosinophilic esophagitis, an allergic inflammatory condition of the esophagus that is being diagnosed at increasing rates in both adults and children. Eosinophilic esophagitis can make for difficult swallowing, pain and impaction of food in the esophagus, due to swelling and inflammation.

This year, we also anticipate advancing 2 of our earlier pipeline programs. The first is Regeneron 2222 (sic) [ REGN2222 ], an antibody to RSV, the most common cause of bronchiolitis and pneumonia in children under the age of 1 in the United States, an important cause of respiratory distress in older adults. We're completing Phase I trials and are in discussions with regulatory authorities to move directly into Phase III trials in the second half of this year.

The second program we believe may be ready for pivotal investigation later this year is our NGF antibody for chronic pain, fasinumab. We've had productive discussions with regulators over the last several months about the clinical hold status. And based on preclinical data we submitted to the FDA, have been allowed to conduct clinical studies of up to 4 months duration in osteoarthritis. We plan to submit additional preclinical data in the first half of 2015, that we hope will completely remove the clinical hold status. As such, we are anticipating initiating larger and longer studies in osteoarthritis later this year.

Turning to our pipeline in immuno-oncology. We initiated Phase I clinical studies for 2 new antibodies, our CD20-CD3 Bispecific antibody, also known as Regeneron 1979 (sic) [ REGN1979 ] and our PD-1 antibody, Regeneron 2810 (sic) [ REGN2810 ]. This continues to be a key area for future innovation. We have a very active discovery and early development program.

In summary, we've had a tremendous amount of progress with our very exciting, entirely homegrown antibody pipeline. Before turning the call over to Bob, I wanted to share that I recently joined other scientific leaders at the White House to discuss President Obama's Precision Medicine Initiative. One key priority in the initiative is a propose to sequence 1 million Americans and to link this genetic information to the electronic medical records, so as to provide greater insight into human disease and to spread the discovery of new diagnostics and therapeutics. We shared the President's vision. And, in fact, already embarked in a related effort through our Regeneron Genetic Center or RGC. Together with our partners, including Geisinger Health System, we are on track to sequence 0.25 million individuals over the next few years and to link this information to their de-identified digital health records. We're already seeing valuable insights from this effort and look forward to sharing updates with you as we go forward.

With that, let me now turn the call over to Bob Terifay.

Robert J. Terifay

Thanks, George, and good morning, everyone. It's been a very busy time for the Regeneron commercial team. As we build on our leadership position for EYLEA injection, which recently became the #1 FDA-approved anti-VEGF therapy for retinal disease in terms of dollar sales in the United States and as we prepare for potential launch of PRALUENT or alirocumab, I'd like to begin my comments with EYLEA.

Fourth quarter U.S. EYLEA net sales to distributors were $518 million, which represent a 29% increase over the fourth quarter of 2013. According to a survey of 201 retinal specialists conducted in December of 2014, the market share for EYLEA in wet AMD in the United States is higher than that for ranibizumab. FDA-approved therapies currently hold about 56% of the overall wet AMD market. EYLEA was approved by the FDA in July of 2014 for the treatment of DME. We estimate that approximately 600,000 eyes are diagnosed with essentially involved diabetic macular edema in the United States, a similar number to those with wet AMD. Of these eyes diagnosed, only a minority are currently treated with anti-VEGF therapy. Because EYLEA has been approved using the same single strength 2 milligram dose per injection for all indications, it is difficult to give you an estimate of the proportion of our sales coming specifically from DME versus wet AMD.

We've made significant progress with coverage and paid claim confirmation across the payer space for EYLEA in wet AMD -- or in DME. Currently, all Medicare jurisdictions have coverage and evidence of paid claims for EYLEA in DME, and 98% of commercialize have coverage for EYLEA for DME.

Market dynamics in DME could be favorably impacted when the data from the NIH DRCR Protocol T comparative safety and efficacy study of the VEGF inhibitors are publicly presented and with the potential FDA approval for diabetic retinopathy in patients with DME.

We are also working to generate unbranded disease awareness among diabetics to support patient screaming -- screening with annual dilated eye exam, so that DME is better diagnosed and more likely to be treated by retinal specialists.

Lastly, we continue to expect growth in macular edema following retinal vein occlusion, based on our broadened indication for all forms of RVO in October 2014. It should be noted, however, that the macular edema following RVO market for wet -- for anti-VEGF therapy is much smaller than the wet AMD and DME markets, with 74,000 eyes treated each year.

Turning to the x U.S. EYLEA business, where we split profits with our collaborator, Bayer HealthCare. Fourth quarter 2014 x U.S. EYLEA sales were $297 million. x U.S. EYLEA sales continue to be an important driver of growth and the launch outside the United States is making significant progress with continued regulatory approvals and registrations. In the fourth quarter, Bayer achieved Japanese DME approval, and last month, received a positive EU opinion in macular edema secondary to BRVO, with anticipated EMA regulatory action later this year.

There is also significant x U.S. growth potential for EYLEA. The annual market for the 2 approved anti-VEGF therapies combined is approximately $3.5 billion based on a run rate observed in the fourth quarter. EYLEA currently has approximately a 34% dollar market share of the x U.S. approved anti-VEGF market as compared to a 53% dollar share of the U.S. FDA-approved anti-VEGF market. Therefore, there's ample opportunity for growth through approval on additional indications, further geographic expansion and market share gains.

With respect to PRALUENT or alirocumab, we and our worldwide collaborator, Sanofi, are busy preparing for a potential third quarter 2015 U.S. launch. We believe that there is significant -- is a significant underserved market of U.S. patients of high risk, who are not at their LDL-cholesterol targets, despite standard of care therapy. These high-risk patients include those with familial hypercholesterolemia, those that are statin intolerant and those who are at high risk because of a previous cardiovascular event or other comorbidities. In the U.S., we estimate this high-risk market size to be approximately 11 million adults. This will be a market that requires significant development, given that PRALUENT represents one of the first biologics for chronic cardiovascular disease, and has a novel mechanism of action. We've already begun important educational work with physicians on the significant unmet medical need for further cholesterol reduction in patients not at goal and the role of PCSK9 in cholesterol metabolism.

Regeneron and Sanofi share in all internal, strategic and tactical planning and execution, including marketing, market access, health outcomes and medical affairs. We also share sales force promotion for PRALUENT in the United States. Sanofi will initially be responsible for sales promotion at launch outside of the United States. Our hiring and infrastructural scale up is well underway and is on track. We're also completing important pricing and reimbursement analyses. We continue to be committed to value-based pricing and ensuring strong patient access to therapies.

Overall, we are undertaking a substantial commercial investment to fully maximize this exciting opportunity and reach appropriate patients who can benefit most from treatment.

Bob Landry will provide more detail on the financial impact. With that, let me turn the call over to our Chief Financial Officer, Bob Landry.

Robert E. Landry

Thanks, Bob, and good morning to everyone who has joined us today. Overall, we are pleased with both our fourth quarter and full year 2014 performance. In the fourth quarter 2014, we earned $2.79 per diluted share from non-GAAP net income of $328 million. And for the full year 2014, we earned $10 per diluted share from non-GAAP net income of $1.18 billion. This represents growth in non-GAAP diluted EPS and net income of 25% and 27%, respectively, for the fourth quarter and 22% and 26%, respectively, for the full year of 2014 compared to the same periods of 2013.

Regeneron's 2014 non-GAAP net income excludes noncash share-based compensation expense, noncash interest expense related to our senior convertible notes, loss on extinguishment of debt in connection with conversions of a portion of our convertible notes during 2014, a third quarter incremental charge related to our branded prescription drug fee and income tax expense. A full reconciliation of GAAP to non-GAAP earnings is set out in our earnings release.

Total revenue in the fourth quarter were $802 million and $2.82 billion for the full year of 2014, which represented growth of 31% for the 3 months and 34% for the full year. Net product sales were $522 million in the fourth quarter and $1.75 billion for the full year of 2014 compared to $406 million in the fourth quarter and $1.43 billion for the full year of 2013.

EYLEA net product sales in the United States were $518 million in the fourth quarter and $1.74 billion for the full year of 2014 compared to $402 million in the fourth quarter and $1.41 billion for the full year 2013, which represented an increase of 29% and 23%, respectively.

There was a modest increase in U.S. EYLEA distributory inventory levels as compared to the third quarter of 2014, although inventory remains within our normal 1- to 2-week targeted range. Overall, inventory levels in terms of units at the end of 2014 were unchanged from the end of 2013.

X U.S. EYLEA sales were $297 million in the fourth quarter 2014 as compared to $184 million in the fourth quarter of 2013. X U.S. EYLEA sales for the full year 2014 were $1.04 billion compared to $472 million for 2013. Product revenue from x U.S. EYLEA sales is recorded by our collaborator, Bayer HealthCare. Please keep in mind that our reported x U.S. EYLEA sales will not be exactly the same as the x U.S. numbers that Bayer HealthCare reports. This is because for Japan, Bayer reports their sales to their distributor, Santen, while we report Santen's in-market sales.

In the fourth quarter of 2014, Regeneron recognized $88 million from our share of net profits from EYLEA sales outside the United States after repayment of $14 million in development expenses and $301 million for the full year 2014 after repayment of $57 million in development expenses.

While we did experience some foreign exchange headwinds this quarter, our exposure to currency movements currently remains limited due to the fact that the bulk of our revenue is U.S.-based. Additionally, we are partially offsetting European operating expenses from our Irish plant start up, Sanofi-incurred PRALUENT launch expenses and European clinical trial expenditures.

Bayer HealthCare collaboration revenue for the fourth quarter was $137 million. This included 2 $15 million sales milestones. We are expecting to earn another $15 million milestone during the first half of 2015, which will be our final milestone to be earned from Bayer relating to our x U.S. EYLEA sales.

Total Sanofi collaboration revenue was $135 million for the fourth quarter and $541 million for the full year of 2014. As we said previously, the Sanofi collaboration revenue line primarily consists of reimbursement of Regeneron incurred R&D expenses, our share of profits, our losses in collection with ZALTRAP, amortization of upfront and other payments received from Sanofi and our share of profits or losses in connection with commercialization of antibodies.

There is an additional fifth component in Sanofi collaboration revenue that we will be separately reporting for the first time this quarter, the reimbursement of Regeneron commercialization related expenses, which can be seen in Table 4 of the press release. This item, which was $12 million in the fourth quarter, is the reimbursement we received from Sanofi for commercialization expenses that Regeneron incurs in connection with our antibody collaboration. In essence, we get reimbursed for certain antibody-related commercialization expenses that we incur and which are predominantly embedded within our SG&A line. While we get reimbursed for these commercial expenses, these, along with the commercial expenses that Sanofi spends on the antibodies, are included in the antibody P&L statement, which we then recognize as our share of the antibody profit and loss.

Turning to that item, our share of losses in connection with commercialization of antibodies was $24 million in the fourth quarter of 2014 and $41 million for the full year of 2014. Again, shown in Table 4 of our earnings release.

Please keep in mind that as we approach the potential approval and launch of PRALUENT under our antibody collaboration with Sanofi, we expect our share of losses in connection with commercialization of antibodies to substantially increase. However, once PRALUENT and eventually other antibody products are launched and become profitable, we expect this component to become positive revenue, as it will reflect our share of antibody commercialization profits.

Turning now to expenses. Non-GAAP R&D expenses were $301 million for the fourth quarter and $1.09 billion for the full year 2014. Our unreimbursed R&D expense, which is calculated as the total GAAP R&D expense minus R&D reimbursements we received from our collaborators and R&D noncash share-based compensation expense was $159 million in the fourth quarter and $508 million for the full year 2014. Our press release includes all the information that's required to calculate unreimbursed non-GAAP R&D expense.

For 2015, we'd like to reiterate our previously provided guidance of non-GAAP unreimbursed R&D to be in the range of $525 million to $575 million. Our non-GAAP unreimbursed R&D spend is driven by 3 factors: our obligation to pay for 20% of the Phase III clinical development expenses following the first positive Phase III results of our partnered antibodies; advancing our unpartnered pipeline in proprietary R&D initiatives, such as those in the area of human genomics.

Non-GAAP SG&A expenses were $114 million for the fourth quarter and $344 million for the full year 2014. We expect non-GAAP SG&A expense in 2015 to be in the range of $650 million to $725 million. We note that this growth in SG&A is due primarily to the prelaunch and commercialization expenses associated with PRALUENT and overall operational growth of the company. As I mentioned, the portion of the SG&A expense will be offset by the reimbursement of Regeneron commercialization-related expenses recorded within Sanofi collaboration revenue.

Non-GAAP cost of goods was $37 million in the fourth quarter and $126 million for the full year 2014.

With regard to 2014 taxes, due to our net operating loss in tax credit carryforwards and deductions related to employee stock option exercises, we did not pay significant cash income taxes. On a GAAP basis, the effective tax rate in the fourth quarter was approximately 50% and for the full year 2014, was approximately 55%. As a reminder, moving forward into 2015, we expect to begin paying material cash income taxes. However, these cash payments will be significantly below our GAAP effective tax rate. As a result, we anticipate that our non-GAAP tax rate, beginning in the first quarter of 2015 will represent a blended rate based on an estimate of the cash taxes paid or payable for the full year. We remind you that we previously provided guidance for the cash tax as a percentage of non-GAAP pretax net income to be between 10% and 20% for 2015.

Our capital expenditures for the full year ended December 31, 2014, were $333 million, which was more than double our capital expenditures in 2013. These capital outlays will play an integral role in helping to ensure that we have the necessary infrastructure in place to launch our next-generation of product candidate. We expect capital expenditures to be between $650 million and $800 million in 2015, representing a significant increase from 2014, which is primarily attributable to our expansion and construction of R&D facilities and corporate offices in Tarrytown, and our product supply facilities in Rensselaer and Limerick, Ireland. The Irish site represents the largest capital investment. The build out is well underway and we're currently on track to begin manufacturing validation batches in the second half of 2015. We ended 2014 with cash and marketable securities of $1.4 billion compared to $1.1 billion at December 31, 2013.

With that, I'd like to turn the call back to Michael?

Michael Aberman

Thank you, Bob. That concludes our prepared remarks. We now like to open the call to Q&A. As we like to give as many people a chance to ask questions as possible, we request that you limit yourself to one question. Our IR team, which is now back to full strength, as Manisha is back, and includes Colleen Mackey, will be available in our office after the call for follow-up questions. Thank you, and operator, please, open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Ying Huang with Bank of America.

Ying Huang - BofA Merrill Lynch, Research Division

So first of all, can you share little bit thought behind your 2015 guidance. It seems that, finally, the branded Lucentis and EYLEA have now more than 50% share of patients with AMD, and also you have achieved higher share than Lucentis. So shall we expect EYLEA to grow more than the market in AMD segment? And then, for DME segment this year, are you providing any patient assistance, given that there is a bigger component for commercial insurance here? And do you think Protocol T will be the drivers for 2015 DME growth?

Michael Aberman

How many questions you got, Ying?

Leonard S. Schleifer

Anymore, you -- we want to get them all before we don't answer them. Bob, maybe you can start with the assistance with DME.

Robert J. Terifay

Yes. So in terms of patient assistance, if someone is a commercial patient, we do offer assistance to patients for -- if they have no insurance, we offer free goods. And if they have insurance, but they have a co-pay that they cannot afford, we do offer co-pay assistance. In terms of government-pay patients, we do provide a funding to foundations, who can help patients with their co-pay if there are government-paid patients.

Leonard S. Schleifer

Okay, great. And as far as our forecast, Ying, our forecast is what it is. As you know, the science of forecasting is not the strongest science in the world. Just look what's been going on with the storm of the century that was supposed to hit New York but hit Boston. Forecasting is a tough business, but our growth forecast of 25% to 30% represent our best estimates as of today. Next question, Mike.

Operator

Our next question comes from Matt Roden with UBS.

Matthew Roden - UBS Investment Bank, Research Division

I think Yogi Berra has said that he hates to make predictions, especially about the future. And so, with that, I want to also ask about the guidance, just put a little bit more meat on the bone. So the top end of the range, we calculated, that represents about 9% growth over the annualized 4Q sales of $518 million, where you say that the inventory range is normal. This implies also sequential growth at the top end of the range throughout 2015 of about 3.5% per quarter, and that's obviously, a slowdown from the 7% average last year. And now you have the full year DME and you have the Protocol T data behind you, so I'm just trying to understand why, philosophically, there should be a slowdown? I think that we, in consensus, might have thought that it's going to go the other way. So any additional color you can add would be helpful.

Leonard S. Schleifer

Yes. So a couple of things. First of all, the actual growth rate is going to be higher this year over last year versus last year over the year before. We grew at 22% in 2014, and we expect to grow between 25% to 30% this year. We recognize that some of those points you mentioned are forks in the road and we're going to stick with what Yogi said when you get to those forks, you should take them. And we're going to onto the next question.

Operator

Our next question comes from Jason Kantor with Crédit Suisse.

Jeremiah Shepard - Crédit Suisse AG, Research Division

This is Jeremiah in for Jason. In kind of -- in going to the trajectory for DME, how do you see that shaping up for 2015? Do you expect more slow and steady growth rate? Or is it more -- do you kind of see more a step up at some point? And also regarding the Protocol T study, besides the direct comparison with Avastin and Lucentis, will you be able to speak to new patient subsets? Any marketing efforts that warrant adequate study than previous studies?

Leonard S. Schleifer

Bob, do you want to handle it?

Robert J. Terifay

Well, starting with the Protocol T, obviously, that is not going to be in our labeling. So from a promotion perspective, my sales reps are not going to be able to speak to specifics subsets. As you know in the retinal community, however, there are a number of presentations each year at medical meetings, and so there will be medically relevant discussions of Protocol T. But right now, we can't talk about anything specific to Protocol T until it's presented publicly. In terms of the DME growth, as we pointed out last quarter, the DME market is a little different than the wet AMD market. It's not a market where there is an urgency to immediately treat patients with the most aggressive therapy, given that the threat to vision is slower. So we do expect the DME growth to be very gradual over time. And we continue to educate on the need for dilated eye exams, the need to get to a retinal specialist and results of our clinical studies are very encouraging. We do expect to see growth in DME, but it's going to be gradual.

Michael Aberman

Next question?

Operator

Our next question comes from Robyn Karnauskas with Deutsche Bank.

Robyn S. Karnauskas - Deutsche Bank AG, Research Division

With all the debate, I hate asking this question because I'm nervous about your response that -- no comment, but with all the debate around pricing -- and I know you won't comment on PCSK9 pricing, but a lot of the discussions happen well ahead of the launch of Sovaldi and Harvoni, and I was wondering if you could just give some -- any color you can give us like how aggressive payers are being in those negotiations and general thoughts? And then my second one, if you want to answer it is, so dupilumab, the new PCSK9, what will be the new dupilumab? Like what's hot in the pipeline that you'd like us to focus on underneath not being talked about right now?

Leonard S. Schleifer

Okay. So in terms of pricing, Robyn, of course, we're not going to get into what discussions we have or haven't had and what pricing thoughts are in terms of any specific terms, but what we've had -- what I have said and we've all said publicly is that our goals are really not that different than the PBMs. Our goals are to try and get our product, if it's approved, to patients who could benefit from it and get it to them in a way that they can afford and have access to it. The way we get to that point may be a little bit different, perhaps, little -- incentives are a little bit different for the PBMs, whether they are looking for revenue stream purely on a discount or something like that, I don't know. That's really their business. Our business is that we would like to come up with a fair price and we would like that price to be the price that would allow patients who could benefit from our drug to get access from it. In terms of the pipeline, George, you want to comment on the price you want to point, Robyn is paying attention [ph]?

George D. Yancopoulos

Well, we like to not focus on any one thing, but on the depth and numerous opportunities that we have -- just today, I guess, we talked about the fact that we could be into 2 additional pivotal programs by the end of the year. That's very exciting to us. Either one of those could turn out to be very, very important to patients and to us. And we would also point to our emerging effort in immuno-oncology, which has a lot of depth and is very comprehensive. And you mentioned that dupilumab could be the next PRALUENT. Yes, we are very excited by that because we see this incredible growth opportunity there, both within indications and amongst additional indications. We think that this could really be an important drug for very different assortments of allergic-related disease. And certainly the asthma data that we just announced the top line results, which was very well received at our end of Phase II meeting with the FDA, there's a lot of reason for excitement. And the fact that we'll be able to go forward with the single Phase III trial is very exciting to us.

Michael Aberman

Next question?

Operator

Our next question comes from Matthew Harrison with Morgan Stanley.

Matthew Kelsey Harrison - Morgan Stanley, Research Division

I want to ask one on the pipeline. Obviously, we saw the PDGF combo data over the weekend. You've highlighted Ang2 as an interesting compound in the past. And now that that's in the clinic and we have some sort of clinical bar in terms of the PDGF combo to look at, what sort of clinical differentiation do you think we should be looking for in terms of that Ang2 combo? And any thoughts on timing around when we might be able to see first clinical data out of that program?

Leonard S. Schleifer

George?

George D. Yancopoulos

I guess, you are asking for differentiation between the Ang and the PDGF or versus EYLEA. I think in all of these settings, what we're looking for is either increased durability and/or some sort of functional benefit supplied by the additional agent. And so these have different biologies. There's been very interesting preclinical work with both of them. So we're looking forward to both of these. In terms of the timing of the programs, I don't think we give you too many specifics on that.

Michael Aberman

Next question, operator?

Operator

Our next question comes from Chris Raymond with Robert Baird.

Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division

Guys, I do have a pipeline question and maybe more of a leading question since it -- yes, I think someone asked if you could highlight what you think is most exciting. There's Regeneron 1033 (sic) [ REGN1033 ], I think you talk about in your regulatory filings, but I don't think you've really talked about it too much on your calls. But as I see in -- on ClinicalTrials.gov, looks like there's a Phase II trial that should wrap up next month in sarcopenia. Could you talk a little bit about this opportunity? How should we be thinking about it? And maybe since it is sort of mid-stage, why it's not something that you guys highlight in this venue?

Leonard S. Schleifer

Well, as I said -- I mean, it's very hard to highlight 15 different programs. We have -- as you said, we have proof-of-concept data coming out with this GDF8 antibody that you refer to that could be important for overcoming muscle atrophy in a variety of settings. And I guess we're going to wait for the proof-of-concept data to decide next steps and how exciting it will be. But I think what we're really excited about is the depth and the breadth of all of our programs having 15 antibodies and the fact that so many of them are addressing important unmet needs and could be making such important differences in patients' lives.

Robert J. Terifay

Yes, just a add to that -- I mean, even though there is individual programs, 15 different ones, some of them go across multiple disease areas, obviously. And some of those potentially, as George has talked about in other forms, represent franchise opportunities. So, for example, the Bispecifics that George and team have now realized in terms of making them and putting them into clinical trials, if we can get that franchise going, there's some real opportunity for us to become real leaders in the field of immuno-oncology because, obviously, you can use a plug-and-play strategy there, where the first one maybe targeting CD20, but the others could target whatever target you might be interested in. And some of that will be part of work we do with Sanofi. So we're actually pretty excited about -- just one of these represent another whole order of magnitude or franchise behind it.

Michael Aberman

Next question?

Operator

Our next question comes from Adnan Butt with RBC Capital Markets.

Adnan S. Butt - RBC Capital Markets, LLC, Research Division

So the one question I'd like to ask is that in terms of Regeneron's participation in the commercial infrastructure, would you be breaking out details? And in terms of deciding which projects to participate in, is that a project by project decision? Or will you be in sarilumab and dupilumab as well?

Leonard S. Schleifer

So we actually make a project by project decision, and we have not announced our decision for sarilumab and dupilumab at the current time. Michael?

Michael Aberman

Next question?

Operator

Our next question comes from Yaron Werber with Citi.

Yaron Werber - Citigroup Inc, Research Division

Quick question on your 222 (sic) [ 2222 ] antibody, the anti-RSV, give us a little bit of a sense. Is this going -- is this ready to move into kids? And is this looking at prevention? And how is it differentiated from synergies?

Leonard S. Schleifer

Well, as we said, we're talking about moving into a pivotal trial this year here for this program. And that, of course, will be in children. And we think that it could be quite differentiated from the existing treatments out there. In terms of the -- which populations are actually targeted, the number of treatments that might have to be given to cover the individuals and also potentially the extent of the efficacy. So we're quite excited about this program.

Yaron Werber - Citigroup Inc, Research Division

I mean, usually, when you move into kids, you got to do sort of a challenge first, but this is an antibody. So it sounds to me like you don't feel like you need to do a challenge, whereas you can go right and do a pivotal for kids.

George D. Yancopoulos

Well, we of course have been discussing and dealing with the FDA on all of this. And when we move forward, it's all with the -- with all these communications and discussions with the FDA.

Michael Aberman

Thank you, Yaron. Next question?

Operator

Our next question comes from Terence Flynn with Goldman Sachs.

Terence C. Flynn - Goldman Sachs Group Inc., Research Division

Maybe just one clarification and one question. So with respect to Matt's question on the EYLEA guidance. Can you just clarify if favorable Protocol T data is actually factored into your guidance? Or if that's something that you would consider once we see the full data? And then on dupilumab, I was just wondering if you can share any more details on the pediatric programs for atopic dermatitis, if that would actually be a registration-enabling trial or if you're talking more of kind of a PK/PD program first before you go into a registration trial.

Leonard S. Schleifer

So in terms of Protocol T and our guidance, everything we know that kind of went into the mix and what came out was our best guess. But obviously, until we see how -- we're very excited about Protocol T, but till we see how it gets received and how quickly might or might not influence behavior, we hope it will, things could change. So it's our best information, I guess, on the future that we have as of the moment. The second question, I don't think that the first trial in pediatric atopic dermatitis will be a pivotal trial. But of course, we are in a full blown pivotal program right now with multiple Phase III trials going on in parallel and rolling well in atopic dermatitis. We're very, very pleased with how that program is getting kicked off. It's just a recent start. And obviously, we are going into pediatrics with the hope of eventually getting a label in that age group as well because there are a lot of kids there that are -- could potentially benefit.

Michael Aberman

Don't forget we have Breakthrough status. So obviously, we're going to work closely with the FDA and take full advantage of what that affords us. Next question?

Operator

Our next question comes from Cory Kasimov with JPMorgan.

Cory William Kasimov - JP Morgan Chase & Co, Research Division

I wanted to follow-up on dupilumab. For that program in asthma, so now that the FDA considers the Phase IIb sufficient to be a pivotal study, is it safe to assume that the single Phase III trial will be designed in a very similar fashion, just more centers and more patients?

Leonard S. Schleifer

George?

George D. Yancopoulos

Yes. I guess -- as you said, everything you said, makes sense.

Leonard S. Schleifer

We won't go into specifics, but I'll...

Michael Aberman

We try not to take additional risk, obviously, in these programs. Next question?

Operator

Our next question comes from Geoff Meacham with Barclays.

Geoffrey C. Meacham - Barclays Capital, Research Division

I know you're, obviously, not getting specifics for DME for guidance, but I just want to get some color from you all on market dynamics since the launch in DME and things like treatment experience of new starts? And then on the R&D side, there are a lot of disruptive therapies on the horizon and retinal that are frequent intravitreal injection like gene therapies, subcu, things like that. How are you guys thinking about these approaches when you prioritize your pipeline in retinal?

Leonard S. Schleifer

Right. So to answer the question, Geoff -- I am glad to hear you at your new forum, good luck. In terms of -- Bob, you want to take the first question?

Robert J. Terifay

Yes. As I said, Geoff, it's hard to tease out the DME portion of our business relative to the AMD business. We are seeing a pickup in reported usage in DME, but I can't give a precise market share right now.

Leonard S. Schleifer

And so -- and in terms of, Geoff, your question about R&D, there is a lot going on in the R&D world. We are obviously in it. You've heard about -- George talk about our PDGF program. You've heard him talk about our Ang2 program. There are other things internally that we haven't talked about? We also have a collaboration with Avalanche in gene therapy. We've looked at some of the systemic programs that you talk about. Obviously, systemic inhibition of VEGF, we've known from the very earliest of early days that it's likely to be something that could work, but the question is, can it work with the right therapeutic index? We, in fact -- George, do you want to add anything to that?

George D. Yancopoulos

Right. Our -- some of our first studies actually in the AMD field were done systemically using systemic approaches. And of course, the concern is the benefit risk with more widespread blockade. And certainly, most of us have decided that that's not going to lead to a satisfactory benefit risk. But as Len said, we are very active in this area. We consider ourselves leaders in this area. We certainly see a lot of excitement here that we don't see that any of these approaches are really going to be widespread approaches that are going to be replacing the current standard of cares. They're going to -- for at least the initial periods of time, it's going to be, we think it's including some of the areas that we're going to -- into -- addressing perhaps more niche areas that maybe perhaps over time could grow.

Michael Aberman

Great. And next question, operator?

Operator

Our next question comes from Phil Nadeau with Cowen and Company.

Philip Nadeau - Cowen and Company, LLC, Research Division

My question is on the Amgen lawsuit with probably -- what's the update there? What has happened over the last few months? And then looking forward, I believe Amgen has asked for you guys to be barred from the market? How is that going to be decided over the next 5 months? Is there a public hearing? Or what can we look for to see the preliminary injunction be determined?

Leonard S. Schleifer

Yes. We're not going to comment on the ongoing lawsuit, but I'm unaware that Amgen has asked for us to be barred from the market with a preliminary injunction.

Michael Aberman

Okay. Next question?

Operator

Our next question comes from Jim Birchenough, BMO Capital Markets.

James William Birchenough - BMO Capital Markets U.S.

Notwithstanding your comments about Yogi Berra. Can you give us some sense of how to think about the PRALUENT launch and benchmark it against other biologics launches? We've got the example of Prolia into the osteoporosis base. We've got cancer drug launches you're familiar with. How do we think about it just qualitatively, your expectations for the launch?

Leonard S. Schleifer

Qualitatively, we're hoping for a good launch. Is -- I don't know if that's going to be helpful to you, Jim, but it's really...

James William Birchenough - BMO Capital Markets U.S.

Well, I guess, benchmarking it, Len, against some -- probably a launch versus something that goes a little steeper like an oncology drug launch. How should we think about that?

Robert J. Terifay

So, Jim, I think, obviously, you've hit the nail on the head. This is a unique marketplace. We are entering a primary care type market for biologics. So I think what you can expect is that the reimbursements will go slowly and it will be a gradual build. But as Len has always said, I was wrong on EYLEA. I don't know where we're going to go with PRALUENT. And I hope I'm wrong on PRALUENT. I mean, for us, we've got our eye on the long-term, and the potential that this product has to make a difference for people who really can't get their cholesterol down and need to get their cholesterol down. If these -- if this class of product gets approved, I think it could provide a real additional -- an important addition to the therapeutic armamentarium, and that's sort of what we're focused on. And overall the long-term, if you can bring a product to market that can really makes a difference to patients, I think you have an advantage. I do believe there will be 2 parts to this launch. The first part of the launch will be what we anticipate will be the rapid adapters, people who -- whose doctors want to get in early on a new type of approach for patients who really need it, perhaps, the familial hypercholesterolemia, who -- who've had cholesterol all their lives. I think there was an interesting article that just came out in circulation that suggests that having high cholesterol is not the only thing, it's how long you've had a high cholesterol seems to really matter. It's sort of like area under the curve or pack years of smoking that seems to be driving this. And there are people out there who've had a lifetime, decades of high cholesterol for genetic reasons and no matter what they do, can't get it down. I expect there'll be early adopters in that area. There'll be others who want to wait until we outcome studies come out. And then I think you'll see a relaunch of the product. So I think this has a possibility to be a nice study, initially driven by the early adopters and the really high need. And then the outcome studies will perhaps drive another leg up. Michael, we have time for anymore?

Michael Aberman

We have one more -- we've time for one last question.

Operator

Our next question comes from John Newman with Canaccord.

John L. Newman - Canaccord Genuity, Research Division

I promise to only ask one. Given the -- seems like almost daily attempts to read through on the pricing situation with HPV [ph] drugs to many others products that are launching -- excuse me, is it reasonable to think that payers are going to think differently about a product with a price tag at the Harvoni level and the Sovaldi level versus a product that could have a much lower price tag?

Leonard S. Schleifer

Yes. You had more to that question or am I missing something?

John L. Newman - Canaccord Genuity, Research Division

And also, do you think that payers are more concerned about the individual drug cost? Or do you think that they're more concerned about just the total potential long-term cost? And that's how they're going to be thinking?

Leonard S. Schleifer

It's interesting. Not all payers are the same and not -- even within a payer, they're -- the financial incentives are not always the same in terms of which book of business that you look at. There's some big books of business where they are at risk, a payer for example or PBM. And when they're at risk, they really care about total cost because they're taking the risk and they have to bear the risk of the total expenditures. On other books of business or other PBMs, they are simply there to be a good negotiator. And actually, they are somewhat from their own bottom line, they may have a societal interest, but from their own bottom line, they have less of a concern about the absolute price than -- other than getting a discount from whatever the price may be. All that, as I said, is their business. Our business is to try and get the drug out at a fair price. And clearly, we have to take into consideration what the payers think is a fair price, but as importantly, what the doctors and the patients can believe is a fair price, what they can afford with co-pays and we want it -- we don't want to get in a situation where these products are commoditized because we think there are differences between the products. And we want to get in a situation where doctors and patients can make choices. Remember what President Obama and Dr. Yancopoulos discussed last week at the White House was precision in individualized medicine. And if you -- you can't have individualized medicine if you don't have doctors making choices for individual patients. So fundamentally, we think that's a good thing and that's where we would like to wind up. Okay, Mike?

Michael Aberman

Great. Well, thank you, everybody. This is going to conclude our call for today, and we appreciate everybody. And as I mentioned, the IR team is available for follow-up. Just send us an email or drop us a line, and we'll get [Audio Gap]

Operator

Ladies and gentlemen, that concludes today's presentation. You may now disconnect, and have a wonderful day.