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Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)

Credit Suisse Annual Healthcare Conference Call

November 9, 2011 11:30 AM ET

Executives

Michael Aberman – VP, IR

Unidentified Analyst

Hi, good morning. We will kick off to keep it in time. It gives me great pleasure to introduce the next presenter, Michael Aberman of Regeneron. I have to thank Michael for two things, one, for turning up to the conference, two, for my current job. Mike and I worked with each other. Over a number of years, I ran European biotech and Mike ran U.S. And since he left for Regeneron, he has left the baby in my hand, so I don’t want to thank you or actually get annoyed with you.

Without further ado, let me move on to the presentation. Obviously, it kind of focused EYLEA right now, which I am sure we will hear about, but one of the things which always spends me when I look at this company is the debt of the pipeline behind the three policies we always focus on. We have around 8 molecules in development and a completely unique partnership with Sanofi.

So, without further ado, Mike?

Michael Aberman

Thank you very much, (Ravi). It’s obviously my pleasure to be here. I have a special spot for Credit Suisse since it is where I spend a lot of my time as a sell-side analyst and hopefully Ravi is doing a good job taking after me. Obviously, you may know as I am not Len Schleifer, I am Michael Aberman. Well, Len was unable to make it today.

Before I get started, as you know, some of the comments I make today maybe forward-looking statements, which obviously involves risks and uncertainties. So to the extent, please take a look at our SEC filings for a complete list of the risks surrounding forward-looking statements.

With that, let me jump right in. Regeneron is transforming into commercial enterprise while at the same time advancing a full funded antibody pipeline in collaboration with Sanofi and I will talk about that today. We look at this as a very uncommon opportunity. Yes, there are companies out there with late-stage products and turning to commercial, but they have the full package of not only late-stage pipeline and soon hopefully launching products, but also having this pipeline and having the funding for that with our collaborations.

So, if I could just go back a little bit, one thing we like to do is to see how we have done this past year. We presented at the Credit Suisse Conference last year. At that time, VEGF Trap-Eye we are awaiting for Phase III results in wet AMD as well as in central retinal vein occlusion. ARCALYST, well, it was approved already for this rare disease of CAPS. We had one positive Phase III trial in the gout flare prevention setting or prevention in gout flare setting, but we are waiting for the results of the second Phase III trial as well as the Phase III safety study.

For aflibercept or cancer product we are awaiting for results from three Phase 3 results and our antibody pipeline already have eight antibodies in clinical development. At that time, obviously, our stock price was in the mid 20s. If you fast forward where we are today, you will see a lot has happened in the past year. VEGF Trap-Eye is now called EYLEA. We had positive Phase III results in age-related macular degeneration setting.

As many of you know, we filed with the FDA and have an upcoming PDUFA date in November 18 following what was a very successful advisory committee meeting. We have also filed for approval in Europe and Japan. We have got positive results in the second setting of central retinal vein occlusion and two Phase III trials and we anticipate filing of BLA later this year.

For ARCALYST, our second trial came in was supportive over the first trial and we have submitted a BLA to the FDA just a short period ago. Aflibercept is now known as ZALTRAP partnered globally with Sanofi and we had a positive Phase III trial in the previously treated metastatic colorectal cancer setting, where we have also filed a BLA in the United States.

Lastly, our antibody pipeline continues to progress. Seven of the antibodies in clinical development are still under partnership with Sanofi one is now returned to us. And two of these antibodies we look at is relatively late-stage and other ones that we highlight, one of which is already in Phase III, it’s sarilumab for rheumatoid arthritis and we will hear a little bit about that. And the other is REGN727, our anti-PCSK9 antibody. And obviously our price given we have executed it also appreciated at the same time.

Financially, we are in extremely solid footing. We recently did a convertible debt transaction. After accounting for a call spread, that convertible debt will convert in an effective conversion price in the $103 range and we have a coupon of about just under 2% leaves us with our yearend cash guidance of more than $800 million and we still have some milestones coming to us for development for EYLEA and ZALTRAP.

So, now let me turn to what is probably the one drug that people focus on the most is EYLEA. EYLEA is obviously in development for what is a large market opportunity, age-related macular degeneration. The market leader, as I will get into a second, Lucentis has been on an annual run rate last quarter somewhere in the $3 billion to $4 billion range closer to $4 billion. We also have ongoing development outside of AMD, you will hear in retinal vein occlusion and diabetic macular edema. So, AMD is a leading cause of acquired blindness for people over the age of 65 in US and Europe.

And as I mentioned, this is a large market and a growing market and the demographic here are relatively favorable as this is a disease of the elder as many of you know, the population in developed continues to age. And despite the availability of Lucentis which is really a brand and market leader, as well as many of you know the use of cancer drug Avastin, Bevacizumab off-label.

There is still unmet need out there and I’ll talk about that and the goal standard remains monthly injection with Lucentis or Avastin to get the best visual acuity gains and when you start going to lessen that you end up sacrificing in terms of visual acuity and again I’ll talk a little bit about that.

Specifically, the gold standard Lucentis, while has these great visual acuity gains, you need to have those monthly injections and that causes a burden for the patients and the caregivers, and while there is efforts out there to find less frequent, as world less expense in dosing, Lucentis costs around $2000 an injection, so on a monthly basis you’re getting approximate drug cost of $24,000 per year. This is one of the reasons why you’re seeing the off-label use of this cancer drug.

Even we feel this market is evolving in that regard, however, some of the data that we better looking at some of these less frequent and less expensive treatment options, offer more questions than they give answers. Two big trials, were the cataract with the government sponsored trial comparing Avastin to Lucentis, the off-label cancer drug and while it shows as a monthly use of Avastin and Bevacizumab, was able to achieve non-inferior visual acuity compared to month in Lucentis was performed the best in that trial, solidifying its places as truly that the gold standard.

When they looked at the, as needed dosing it failed to meet the non-inferiority end point. A more recent trial called the HARBOR trial looked at less frequent dosing of Lucentis compared to the monthly Lucentis and again failed to meet the non-inferiority end point. Obviously, another issue remains the safety of using off-label drug when it is directly injected into the eye.

So that brings us to our drugs, how do we fit in here? So, we believe our drug has specific properties and its unique binding and not only does it bind a lot more tightly to the VEGF which is the molecule that it believes to be the problem in this disease and cause the swelling in the back of the eye, that leads to loss of vision. We believe this increased buying will not last for longer, naturally tested in our terms. You can see this dramatically where Lucentis is given every month and our drug after three loading dose was given every other month.

The reason why we thing every other month could be a big advantage, it’s not just like a pill where you’re going from maybe twice or three times a day to once a day. You’re talking about an injection directly into the eye. So, obviously if you had a choice between having 12 injections directly in the eye in a year versus six or seven injections that will be most people would affirm getting fewer injections in the eye. And it’s not just the patients who have this burden, this is an elderly patient population, so caregivers often have to take off work, it’s also the number of injection has increased dramatically since the introduction of these therapies. So, the physicians and their practice in the healthcare system has been burdened with these injections.

So our view is that having less frequent injections is a significant benefit to both patients, caregivers, and the healthcare system. So, how does the trial work out, here you can see the primary end point which is maintenance division, and on the black bars you can see every two months or every eight week dosing regimen versus on the left, the Lucentis monthly and you can see virtually indistinguishable, very similar outcomes on the primary end points maintenance division, if you then look at the important secondary end point of the actual visual acuity gains and this is measured in letters games, so the y axis is the number of letters on a specific visual acuity chart.

You can see on the bottom panel which is the integrator analysis, are every eight week dosing gained at 12, at the 52 week end point, 8.4 letters versus 8.7 letters with the monthly Lucentis. So, these curves you can see are virtually indistinguishable. Obviously to pinpoint also note the safety was also very good, it was invasion that was given we received with the monthly Lucentis, you can see that here on the slide for the safety.

So again, those are the data that are supporting BLA filing and the PDUFA date is coming up next year. I am not going to comment much other than that. And we are looking forward to getting a feedback from the FDA and we will be ready to launch shortly thereafter. We disclosed that on our previous conference call that we have already fully staffed our sales force and we are looking forward to that next step.

So moving on beyond AMD as I mentioned earlier, we also have two positive Phase III trials in the central retinal vein occlusion, it’s not as common as the AMD indication, but is another serious blinding disease, where blocking VEGF has a dramatic impact. We have shown that positive data and we plan on filing a BLA before year end. We also have two ongoing Phase III trials in diabetic macular edema. Diabetic macular edema is actually a disease, where could have as many patients and it’s not a larger market opportunity or certainly as large as the AMD market. So, it’s something that and it’s where anti-VEGF therapy has proven to be effective with some of the other therapies. Lucentis has had some positive Phase III data there and we are looking forward to our program moving forward.

So, if that was all I think there will be a lot for relatively small biotechnology company. But we don’t just have EYLEA in the late-stage. We have two additional products that had positive Phase III data and have been filed with the FDA, ARCALYST, for the prevention of gout flares and patient starting uric acid-lowering therapy and ZALTRAP in the previously treated metastatic colorectal cancer setting.

So, first turning to ARCALYST, ARCALYST is a drug that we again like all of our products and development we are all discovered and developed from our labs all the way through the clinic and was approved for a rare disease called CAPS or cryopyrin-associated periodic syndromes, very rare disease, we do about $20 million a year in annual revenue. However, we also learned through our scientists and others that the molecule that ARCALYST blocks called IL-1 is very important in the trigger for the flares that occur with gout.

And the paradox of gout is that when patients have gout at a very painful inflammatory condition that typically strikes the large toe though can affect other joints. And their cause is elevated uric acid. You go to your doctor and say my toes are (indiscernible), tell you have elevated uric acid, and they put you on uric acid-lowering therapy. The paradox is when you start this therapy it actually causes an increase in these flares. So, patients often don’t continue their medication and end up being a problem. What we tend to do in our Phase III study was to show that you can prevent this increase in flares and reduce the number of flares if you use our drug during the time you start uric acid-lowering therapy.

I am not going to go over this too quickly to the time constraints, but suffice it to say we were able to very successfully show that when you start our drug at the same time as uric acid-lowering therapy, it dramatically reduce the number of gout flares over that treatment period as well as the proportionate patients have one or two flares compared to placebo.

The safety also will occur and you can see on this slide. The most common drug related side effect is injection site reaction, which is to be expected with an injectable drug. So, in terms of the market opportunity for ARCALYST unlike AMD market, which is very clear in terms of size of the market given an existing branded therapy, there really aren’t any biologics currently going after the gout market or there is one that has started to having a little trouble out of the gate, but there is a lot of patients out there.

We estimate somewhere around 1.3 million patients on allopurinol. 750,000 are new starts. And certainly we are not going to target or not all of them will be willing o take an eligible to biologic therapy. However, there are certain niches, where we do think patients here, the high risk of the gout flares, patients who have tophaceous gout or buildups of this uric and joints etcetera that will be targeted or will be the late target for a biologic therapy. So, this is something that we currently own global rights to on our own and we are excited about the fact that we have filed that BLA.

Lastly, in terms of the late stage programs is ZALTRAP for cancer. We have reported positive results in the previously treated colorectal cancer setting and we have recently – our partner Sanofi recently a part of that, the filing in the U.S. has been made and they expect to file outside the U.S. and Europe in later this year. We also have an ongoing Phase III trial in the front-line prostate cancer setting, the data is expected in 2012 and we have a smaller Phase II program, which we expect by year-end in the front-line colorectal cancer.

Briefly on the results for gold standard for any cancer drug survival that was the end point and that has been the end point for all of our Phase III trial for ZALTRAP and what you can see here is the significant improvement in survival, where we are the standard of care in this particular trial was full theory which is an irinotecan-based chemotherapy regimen and either with placebo with our drug aflibercept or ZALTRAP and you can see not only do the curve separate at the median time point, but actually stay separate throughout the duration of the trial and onward. So, we think this is a meaningful benefit and obviously we look forward to discussing this with the FDA.

In terms of the safety of ZALTRAP, similar side effects that you would see with other agents that block VEGF. I am not going to go list them all here, but you can see them on the slide in terms of the side effects associated with adding our drug versus adding placebo.

I know I am going fast and it’s a lot – we have a short period of time and there is a lot going on at the company, but when you think about all that happened in the past here in 2011, we were filed and we have now got three out of the four BLAs and other outside the U.S. filings for approval, which is a lot for a company. And now looking forward in 2012, the plan is to launch for products, you can also see here that for EYLEA, our VEGF Trap-Eye in the U.S., we own 100% rights, outside the U.S. we are partnered with Bayer where we split the profits 50:50. For ZALTRAP, it’s a global collaboration with Sanofi and there we split the profits 50:50 globally.

So, again, if that was all we have, okay, that was a live, we do have a lot more than that, beyond our late-stage programs which are all based on our earlier technology which we call our Trap technology. We also now have the next generation technology which we view as the best antibody technology out there and part of that is validated by the deals we have struck, unfortunately one of the slides I put in here didn’t format well, so I don’t have it near, so I am going to try to do without the slide to just briefly describe the collaboration.

We have collaboration with Sanofi where they provide $160 million a year of pre-clinical research funding. The goal of that research funding is approximately 30 antibodies or so for the life of the agreement which goes through 2017. We never have to payback that $160 million. As we advance these pre-clinical antibodies into the clinical Sanofi then has an option of whether or not they want to take on those antibodies into the clinic in collaboration with us.

Right now, we have advanced eight antibodies in the clinic, seven of which are under this antibody collaboration also you have had in second. Once they are in clinic, Sanofi funds 100% of the clinical development through Phase I, Phase II and Phase III, until one Phase III is positive, at which point we will pay 20% of the ongoing Phase III development. The development costs do go into a development half of that we have to pay back from our share of the profit, but it’s never more than 10% of our share of the profit.

In the U.S., we will enjoy 50% of the profit, outside the U.S., it’s a sliding scale from 35% to 45%, but essentially once you get to global sales of antibodies of $750 million, it is in the 45% range. So, this is a very attractive collaboration, which allows us to have this pipeline behind us and well many companies will often scramble when they have one successful product, if we are looking to have one to fill the pipeline behind it. We sort of did it backwards. We have that pipeline already.

So, let me just talk briefly about some of that pipeline. You can see all of the eight candidates in the clinic. I am not going to go over them all, but I do want to highlight a couple of them. The first one I am going to highlight is now called sarilumab known also as REGN88. It’s an IL-6 receptor antibody. And this is a proven mechanism of action. There is an approved drug called Actemra. That’s on the market. It does on a run-rate about $800 million of annualized globally and that’s despite being administered through an intravenous administration.

We showed recently in the new data we presented at the American College of Rheumatology Meeting at a late-breaking poster just yesterday that we had similar results to what’s seen with previous IL-6 blockers and to that extent also the other biologics TNF blockers and you can see here both our ACR20, which is – ACR50 and ACR70s, which are measures of how good you respond, on the left hand panel, you can see placebo; on the right, you can see the two doses we have move forward into the Phase III setting of this trial called the MOBILITY trial. And you can see pretty clinical meaningful for robust result in all three of those measures, ACR20, ACR50, and ACR70.

I’m not again going to go over the safety in great detail, but I want to make sure you see this on the slide and what you can see is similar safety profile as seen with other IL-6 inhibitors. The class is known to have effects on the red blood counts on neutropenia as well as on liver function tests or ALT. But you can see these are in the range that you see with the other IL-6 inhibitors. So, obviously it’s just starting the Phase III program and we will have to wait to see what the full product profile is, but we are studying two doses in the current Phase III that we have ongoing, both of which are does every two weeks in the subcutaneous one versus the current approved therapy, which is an intravenous infusion.

The other one I want to mention briefly is REGN727 which is our PCSK9 antibody, which is novel target for LDL cholesterol reduction. This is an antibody that ourselves and our partners as well as others in the pharmaceutical and biotechnology industry are extremely excited about. The reason for the excitement is that LDL cholesterol remains a major problem in the developed world in the leading cause of – leading risk factor for coronary artery disease and that’s despite the availability of that. And what we have been able to show and dispose us on our Phase I trial is that you can get greater than 60% reduction in this LDL cholesterol following single subcutaneous doses. The duration of effects will support infrequent injections and the preliminary data suggests that there is a similar magnitude of LDL reduction when added to statins as well as in both familial hypercholesterolemia and non-FH subjects and as was disclosed on the AHA website we have a presentation that’s going to happen later or at the end of this week or early next week, I believe, it’s on Monday of additional Phase I data.

In addition, we have a pretty robust Phase II program underway. We said that it will be having data – initial data from that as early as fourth quarter of this year, so later this year, and both us and our partners have disclosed that we target starting Phase III in first half 2012. So, obviously just again I mentioned this opportunity people often ask will the statins available, is there really a need for another lipid lowering agent.

And the reality is in the U.S. alone more than 10 million patients while despite being on statins are unable to meet their LDL goals and also if anyone filed the space, they know the LDL goals are not a static goalpost, they continue to move. And they keep moving lower as the data become clear of that lower cholesterol, LDL cholesterol is better. And so we do think there is a big market opportunity for patients who aren’t able to achieve their goal on existing therapies.

So, that’s the summary, it’s a lot three late-stage programs with our Trap technology, two late-stage programs already under the Sanofi collaboration with sarilumab and PCSK9 and we are going to continue to fill this pipeline through the Sanofi collaboration. And I just want to make a quick slug that we really how is it that we are able to do this and we are not able to do this without our people. And we now, I think by the end of the year, will have somewhere in the 1,800 employee range, the majority of which are Tarrytown facility, which is our corporate headquarters and research facility. But we also have a state of the art world-class manufacturing facility, where we manufacture all of our late-stage products and antibodies in the rent, so we are outside of Albany and that’s been FDA inspected, EMA inspected as well.

And also our people are obviously critical to our success and one of the things we are pretty about is something that happened just recently is we were ranked by Science Magazine as the number two employer in the biopharmaceutical industry and it is really important as you know the biopharmaceutical industry has been undergoing a lot of change and it’s really been a great opportunity for us as we have been able to grow in part because of the advancing pipeline. Some of the success we have had in the clinic as well as the Sanofi collaboration, we have really been able to hire just incredible talent, keep them motivated, and we really truly believe this is just the beginning and we are hopeful that our pipeline will continue to deliver.

So, with that, I want to thank you all for joining. And I think we are out of time. Unfortunately, we won’t be doing a breakout today, but hopefully we will see you in future conferences.

Question-and-Answer Session

Unidentified Analyst

Thank you, Michael. We have time for one question. Perhaps I can ask sort of related questions, can you give us your color on what’s happening EYLEA related with Avastin (indiscernible) use given the recent events how that allows you to position EYLEA and especially with regards to pricing just any color on that?

Michael Aberman

Not going to mention pricing. It’s a question we have got a lot over the past six months as we head towards 10 months, 9 months towards the PDUFA date, but we recognize this is a unique market at a branded therapy is around $2000 for injection and there is availability of an off-label drug that’s $50 an injection. Despite that and that is the status quo has been there for years. Lucentis still tell us quite a bit of in the U.S. and there is reasons for that, because it only one feature when you are making a treatment decision. There is cost, there is safety, there is efficacy, there is convenience, reimbursement. We are ready and excited and believe our product profile offers the advantages to both of those therapies with its less frequent dosing regimen and really clinically equivalent efficacy.

Unidentified Analyst

Okay. Michael, thank you.

Michael Aberman

Thank you.

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