Len Schleifer – President and Chief Executive Officer
Geoff Meacham – JPMorgan
Regeneron Pharmaceuticals, Inc. (REGN) JPMorgan Global Healthcare Conference January 9, 2012 7:00 PM ET
Geoff Meacham – JPMorgan
Okay. Welcome to the afternoon sessions of the 30th Annual JPMorgan Healthcare Conference. My name is Geoff Meacham. I am the Senior Biotech Analyst here at JPMorgan. It’s my pleasure to introduce Regeneron. Regeneron is one of the leaders in the biotechnology group with key focus areas of eye disease as well as oncology including several others. And presenting on behalf of Regeneron is its CEO, Len Schleifer.
Len Schleifer – President and Chief Executive Officer
Okay, sorry, it’s Schleifer, but that’s alright. I have been presenting here for 20 years, they have got it right three of those years. Anyway, it’s great to be here and Happy New Year. We have a lot we want to talk with you about today. I know a lot of you have a very specific reason of being here and would like to know how our launch is going. We will get there.
We like to start out however in bit of a traditional way in getting you to get bored a little bit with our Safe Harbor statement, but please take a few minutes to look at it. And I am going to read it all, but I will focus on the fact that because forward-looking statements involve risks and uncertainties, actual results may differ materially from current results expected by Regeneron. Regeneron is providing this information as of the original date of this presentation and expressly disclaims any duty to have any information contained in these materials including without any limitation, any sales, or COGS forecast, and then the other forward-looking statements. So, we don’t feel we have a duty to update this.
Okay. So, what we like to talk to you about today is our vision of how do you build a biopharmaceutical growth company? And we think there is a way to do this that differs than many other ways it’s been done in the past. The way it’s been done in the past frequently is that you work like how, you invest like how, and you hope like how that you get one product and you sort of focus all your efforts and if you make it, you now have a product, then you don’t have to really accompany it. So, you have to fill and backfill that. If you don’t make it, you are sort of out of business.
So, our view is that we have had plenty of products, which haven’t made it and we are still here because we believe that you invest and grow a growth company by having a broad assault on a large number of product opportunities. In fact, we think there are about many key ingredients, but four of the key ingredients we think to building a growth company are to have revenue drivers. That means you got to have products that can create sales, but it’s not good enough to have sales. We have to be focused on profitability. When I say that, I have to say it a little bit tongue and cheek, because I am the longest running CEO in the industry and we haven’t been profitable yet, but we do take that seriously and it’s been a while, but now we can look forward we think to getting to profitability. So, we will talk to you a little bit about that.
In addition, since as I have told you so many products in this business failed, we have to have a strong R&D effort that can develop a full pipeline of things. And I think we can convince you very easily that we do have that. And finally, you need the infrastructure to do, you need the people, you need the manufacturing capacity, you need a commercial organization, you need regulatory affairs, you need safety, you need discovery, you need cell line development, you need the infrastructure, we have been building that for long time and we think we have what it takes. So, these are the four key elements that we think over the long-term are necessary, the necessary building blocks to have sustainable long-term growth. That’s our vision.
And let me talk to you a little bit about each of those components. First of all, in the short and long-term revenue drivers, I want to create a little bit of an illustration for you and mind you don’t take this literally in terms of scale. This is really for illustrative purposes, but basically I want to show you how we can imagine that we have multiple revenue drivers over time that can lead us to be a sustainable and exciting growth company.
First of all, we have had our product ARCALYST. That’s not going to get us there. That’s a small product in terms of what it’s selling now about $20 million for rare orphan disease, but it has been submitted and is under view at the FDA for gout, so we think we can add some value over time there. Obviously, the big near-term driver is EYLEA sales for wet AMD in the United States, which is the launch that we’ll discuss with you today.
Beyond that, we have the ability to expand AMD geographically and with a very productive partnership that we have with Bayer. Bayer is our partner for EYLEA outside the United States. We have a 50-50 partnership with them. That partnership and I’ll tell you more about the timelines there we think can drive the growth of EYLEA for wet AMD beyond of what we get in the United States. And also there was indication expansion that we can do with EYLEA. We have submitted already based on two positive Phase 3 studies, EYLEA in the United States for central retinal vein occlusion. We are well underway in Phase 3 programs. I’ll give you an update on that for diabetic macular edema. And we can expand outside the United States once again geographically on all these additional indications.
So, EYLEA in and of itself we think can be a pretty good driver of long-term growth, but I don’t believe that you really want to build the company around just one product, even though it has a lot of nice attribute and can drive growth. We think you have to build it around many products. We have ZALTRAP, which is in partnership, very important partnership we have with sanofi-aventis, which has been positive data in late-stage colorectal cancer, that’s being submitted to the FDA imminently. So, we help that can drive over time. We have a very exciting molecule in our pipeline, our REGN727 for LDL cholesterol lowering which maybe one of the most exciting target in the industry if you judge by how much is being invested by so many companies. The best we can tell we think we are in the lead, but it is a real competitive raise, but a very big opportunity that can have many players in it. And that’s going to heat up quite a bit. And over time, we think it can drive us to further sustained growth.
Beyond that we have sarilumab, which is our anti-IL6 receptor, which is also in Phase 3, also in collaboration with sanofi as is a PCSK9 program. So, that’s another Phase 3 candidate that over the not too distant future we hope can contribute to revenue growth. And we have a whole host of additional antibodies in development about 10 more in development, about eight of which partnered with sanofi. And some we have for our own portfolio. So, we think we have near-term, mid-term, and long-term revenue drivers, which is one of the key ingredients of a growth company that can lead to sustainable long-term growth. I said early on it’s not just enough to have revenue we have to – the dreaded P word, we have to have profits. And we think these products can drive us to profitability.
EYLEA is a very big opportunity for us, because it’s unusual to get to this stage of the game where we own a 100% of the rights for EYLEA in the United States. It’s a product that can be very profitable, because the average gross margins are expected to be over time greater than 90%. I’ll get into a little bit more detail of that in a minute. The market can be addressed efficiently with a 125% field force. So, you don’t need the 1000s of people so, the cost there, because it’s a concentrated prescribing group of physicians.
ARCALYST, we also own a 100% of that. So, if that becomes important in gout, that can also help us drive profitability. And our collaboration arrangements are such that we get about 50% of the profits. For example, we get 50% of the ex-U.S. EYLEA profits that we have in partnership with Bayer. We get 50% of ZALTRAP that we have with sanofi, 45% of worldwide antibodies, for example, the 727 sarilumab and others with sanofi, plus we get funding from sanofi that creates great deal of leverage, which can drive to profitability.
So, if you look at these bar graphs on the left might be your typical biotechnology company. The whole graph represents your revenues and you can see that you got profits in R&D and SG&A and so forth. And Regeneron, we have a lot going on. So, the concern is, are we going to basically have all these revenue drivers and not be able to push any profits out to our shareholders who have been patient for a very long time. And the fact is that a great deal of our R&D is funded in collaboration with our partners, particularly sanofi-aventis. So, what otherwise would be consuming our profits we have funded by sanofi, but nevertheless we are able to drive a very big portfolio to get even more revenue drivers, but not sacrificed our near-term profitability.
So, if you change that, you can imagine and once again this is for the illustrative purposes, you can imagine that with the same amount of revenue. Regeneron can generate even greater investment and greater profits in its portfolio and to its shareholders respectively. So, the final ingredients we think for sustainable biopharmaceutical growth company are both having a pipeline and having an infrastructure that provides the engine for long-term growth. Every single molecule we are going to talk to you about today was discovered at Regeneron. That’s very unusual.
It’s unusual, because we have unusual people. My partner, George Yancopoulos, he and I together, when we opened the labs in 1989 had a vision that we could build a company where science, science could be translated into important products and we didn’t have to run around, going and looking for products. And after our first success, we don’t have to go out and buy this company and try and say that we are so smart that we can find this company, where Pfizer and Merck and Glaxo and sanofi and Bayer and all the others have missed it. If you looked around, it’s 100s of those guys calling around here, looking at deals how does a small biotechnology company get the leg up. It’s hard to do, but what we have been able to do is build that capability, because of George’s enormous talent and the talent of his team, so, that everything is inside – comes from inside much of it is based on our proprietary VelocImmune Technology. We have several antibodies in Phase 3 and we are going to keep adding to that with the sanofi under the sanofi agreement. And to give you an idea of the magnitude, we spent, we meaning our partners, us, in collaboration all on our molecules in one way or the other, nearly $0.75 billion last year and yet we obviously didn’t consume anything near that in terms of cash, because of the leverage.
So, now let’s turn to EYLEA, the growth story that’s within a single product. As you know, this drug is initially launched in wet AMD. Wet AMD is a large and growing market. The branded market for AMD alone is $1.5 billion approx from the U.S. The total branded market other indications is probably close to $2 billion. We are only focused now obviously on wet AMD. The conversion of off-label, bevacizumab or Avastin to branded options could expand this market. And the demographics are strongly in favor of what we are trying to do here, because this is the most common cause of blindness in the elderly. And the elderly are increasing greatly in number and that should drive continued growth in the patient numbers.
Our geographic expansion with Bayer is forthcoming. We expect a proven launch in Japan, Europe and other countries to be rolled out over this second half of this year and next year and beyond. And the branded market outside the United States is also another $2 billion. We are looking into China with a Phase 3 program in wet AMD with Bayer. So, there is a lot of geographic expansion. There is a lot of demographics in our favor and there is a lot of potential to add additional indications. We have central retinal vein occlusions already been submitted. We have two Phase 3 trials for diabetic macular edema. One of them is already enrolled. The other is substantially enrolled. So, you can see where moving forward with this pipeline within a product very aggressively and we hope to make substantial progress.
Why are we excited about bringing EYLEA to the wet AMD market? We think it provides an important alternative for patients and physicians, because monthly dosing, which is the labeled optimal way that you get the best results. Monthly dosing and monitoring visits posed really significant challenges for patients, caregivers and physicians. And EYLEA is now the only FDA approved treatment for wet AMD with less than monthly dosing that demonstrated clinical equivalence, not just not a few already, but clinical equivalence is in the label to monthly ranibizumab. This allows us to bring to market a drug at annual cost of therapy, that’s about 45% less than if you use labeled, according to the label monthly ranibizumab. And it obviously could have an impact on the ability of patients to get their drug. They have to come to the doctor less frequently, etcetera.
But as you all know launches have hurdles. And we had our hurdles with this launch. With the drug was approved on November 18 and launched on November 21, we were facing a well-entrenched competition from Genentech/Roche, I see some of them I recognize, I think in the audience today, they are tough, they are all over the place. And there, as interested to some of you are and how they are holding us off and this is an inexpensive off-label drug out there. In addition, this is our first major launch. It’s not to say we don’t have a lot of experienced people, but it’s our first commercial launch. Moreover, it’s we are launching into a buy and bill environment, where the doctors actually have to buy from us, and then bill Medicare or insurance company to get reimbursed. So, they are a little bit skittish. They don’t want to lose. They don’t want to get stuck with an expensive product. And we don’t have a permanent J-code, which makes reimbursements a lot smoother and we’ll have that in January.
So, we tried to our best frankly to address these challenges. We hired an experienced sales force, which had 15 years of experience. We gave the docs long-dated commercial terms. We put up a comprehensive reimbursement and patient assistance program. We listened to the doctors about what that the price should be less than Lucentis. We tried our best to do everything we could to make the launch as successful as possible. The expectations out there, these were not our expectations, the expectations until that they are for the launch were some ways between $2 million to $5 million in the initial launch period. So, how did we do?
Okay. So, we did very well. We did $24 million to $25 million of unaudited net sales to distributors in 2011 since the launch on November 21, $24 million to $25 million with the expectations to be somewhere as may be not quite in order of magnitude less than that. We estimate that this is not due to inventory stocking. Our distributors only hold about one to two weeks of inventory. And we know that more than 10,000 vials have been delivered to physicians’ offices and probably substantially administered, because the docs keep a very brief inventory on hand. So, we are very pleased with the initial launch. The metrics that we – we don’t have a lot of metrics to share with you other than the headline number. We have positive physician payer and patient anecdotal feedbacks. Frankly, the marketing budget is little less than we might have been, because everybody on Wall Street does all the surveys for us and publish us them, so we kind of use what you guys do is to learn what’s going on out there.
The physicians have started to receive a Medicare and private payer reimbursement for EYLEA, which is a good thing. But I would caution you as good as this number is the launch is early. It probably includes some pent-up demand from difficult to treat patients and it’s difficult to predict whether these early trends are going to increase, stabilize, decrease, I wouldn’t just (linearize) these. So, we tried to give our best estimates of what a forecast might look like for 2012. And our 2012 full year EYLEA net sales U.S. forecast is for $140 million to $160 million. But once again that’s not based on a lot of information. And you can see how bad I mean, the censuses estimate for what we do we are going to do in the floor was $2 million to $4 million we did $24 million to $25 million. We are not in a position to say we have a high degree of confidence yet in these numbers, but it is our best view at this point. So, this is the launch that is going well.
We expect the cost of goods to average less than 10% over the life of the product including during the next four years when we have a royalty burden with our recent licensing and partial settlement of our litigation that results all of the litigation we have with Genentech around the U.S. EYLEA sales. So including that, we still expect COGS to average less than 10%. So, this has a real possibility to become a real driver, one of those revenue drivers that I talked about early on and I think is very important for us. But we have additional potential launches in 2012 if we are lucky enough to get approval for ARCALYST, one for gout, one for colorectal cancer, the gout on our own, the colorectal cancer with sanofi-aventis.
We maybe have additional revenue drivers, as you know ARCALYST is on the market, another Regeneron discovered developed product, still on the market for rare orphan disease, but we are looking to launch in the prevention of gout flares and people will have a add who get flares when they initiate uric acid-lowering therapy. The problem with uric acid-lowering therapy is that people go on it and then they get flares and we have two Phase 2 pivotal studies that show that ARCALYST markedly reduced the occurrence of painful gout attacks in patients initiating uric acid-lowering therapy. And the most frequent adverse event was injection site reactions. We have initiated a long-term safety study there as well. So, that’s underway.
We have positive Phase 3 data in our colorectal cancer as I mentioned and we are waiting sometime in the first half of this year our prostate cancer study as well. Beyond that, we have two late-stage pipeline antibodies, our 727, which we believe is leading the race to develop a new class of PCSK9 inhibitors, but like anyways it’s not over till it’s over. And in this particular race, there is room for multiple winners. We know the competition, the conference today. We know Amgen was talking about it. We know Pfizer has talked about it. There are other companies involved. So, this is going to be an important opportunity and look forward to a lot more excitement here.
The reason we are excited about this is because all those statins are a great class of drugs obviously. And we say that with a fair amount of expertise. We have two of the guys who figured out the whole pathway for LDL metabolism and the receptor and won the Nobel Prize (for our) Board of Directors and our Chairman of Board is Roy Vagelos and he discovered the first statin in market and sold it when he was Chairman and CEO of Merck. And so these are important, statins are important drugs, but they don’t do the whole job. And there are millions of people who can’t get to current goals and even more millions of people, if the goals are going to be lowered which there is some indication that they should. In some of the analysis or some of the recent studies, there is no question that the lower you got in LDL cholesterol the better you did.
Our anti-PCSK9 data were the only company thus far which has released any Phase 2 data has shown really impressive results in terms of lowering LDL cholesterol, somewhere it’s between 50% and 60% and that’s in either patients who have familial hypercholesterolemia, non-familial, those people aren’t statins already, those people who are not on statins. It doesn’t really matter, you add this drug and I don’t have time to get into the mechanism. You add this drug and you get another 50% to 60% lowering, which as you can imagine if you come in with a LDL that’s 100 and something, let’s say, it’s a 105 in our maximum statin, but you are supposed to be at 70. Well, 50% to 60% lowering might be the only way you can get there and so we’re pretty excited about the prospects for that.
Our Phase 3 study for rheumatoid arthritis of our IL-6 drug is underway, that’s a subcutaneous approach. The current drug that’s approved is Actemra, which is an intravenous approach, although they are also going after subcutaneous. You can see the data here are a very clear cut Phase 2b data that it’s unequivocal in this study that the drug was better than substantially better and as expected for an effective drug in RA than placebo with ACR scores in the, somewhere it’s in the north of 60%.
So, we have talked about EYLEA, we have talked about ZALTRAP, we’ve talked about ARCALYST, we’ve talked about anti-PCSK9, we’ve talked about sarilumab or anti-IL6, but as I said, we are not resting on laurels, we got a whole pipeline of antibodies that are in the clinic, some are going to fallout, some are may not make it. We’ll see what happens for example what anti-NGF could be a big opportunity. It’s on clinical hold for everybody in the industry until the FDA advisory panel, how it sorts that out, but you can take a look at this at your leisure. We have lots of different antibodies. Some, we want to combine, for example, our anti-(Ns), two antibody might be combinable with our VEGF Trap or ZALTRAP. We are looking forward to get data from our IL-4 receptor program in eosinophilic asthma and so on and so forth. And we expect to be adding many more of these molecules over the life of the six more years we have left in our sanofi collaboration to put in multiple antibodies every year in the clinic.
So, what you should look for this year is how we do on our launch? I think we could probably all agree that so far so good, but we’ve got a long ways to go. We can’t rest yet. There are regulatory milestones that are important in getting approvals for wet AMD outside the U.S., CRVO in the U.S., ARCALYST in the U.S., ZALTRAP in the U.S., clinical milestone 727, our anti-cholesterol lowering drug, sarilumab, ZALTRAP, our IL-4 receptor, more molecules going in, keep turning that crank, we are a growing company, we are up to about 1,700 people.
We are very proud of our people and may well end on that note, because our people who are dedicated to serving patients are those that voted us based on science survey, the number two most admired company in the world in the healthcare field. So, we are very proud of that and we would like to become the company that not only investors, but patients come to expect from Regeneron, they come to expect that we’ll deliver important molecules that make the difference in patients’ lives. So, thanks very much.
[No Q&A session for this event].