Regeneron Pharmaceuticals (REGN) Leonard S. Schleifer, M.D., Ph.D. on Q2 2016 Results - Earnings Call Transcript

Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)

Q2 2016 Earnings Call

August 04, 2016 8:30 am ET

Executives

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Robert J. Terifay - Executive Vice President, Commercial

Robert E. Landry - Senior Vice President-Finance & Chief Financial Officer

Analysts

Cameron Bradshaw - Goldman Sachs & Co.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Ronny Gal - Sanford C. Bernstein & Co. LLC

Ying Huang - Bank of America Merrill Lynch

Geoffrey C. Porges - Leerink Partners LLC

Christopher Raymond - Raymond James & Associates, Inc.

John Scotti - Evercore Group LLC

Adnan Shaukat Butt - RBC Capital Markets LLC

Alethia Young - Credit Suisse Securities (NYSE:USA) LLC (Broker)

Operator

Welcome to the Regeneron Pharmaceuticals Second Quarter 2016 Earnings Conference Call. My name is Sylvia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Dr. Michael Aberman. Dr. Aberman, you may begin.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Thank you and good morning and welcome to Regeneron Pharmaceuticals Second Quarter 2016 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, Executive Vice President, 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 businesses, sales and expense forecasts, financial forecasts, development programs, collaborations, finances, regulatory matters, coverage and reimbursement matters, intellectual property, litigation matters 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 June 30, 2016, which was filed with the SEC this morning. 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 these 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, Bob Landry and 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, M.D., Ph.D. - President, Chief Executive Officer & Director

Thanks, Michael, and a very good morning to everyone who has joined us on the call and webcast today. Before I turn the call over to my colleagues who will discuss our scientific, commercial and financial performance, I'd like to take a few minutes to give you some broader perspective on Regeneron and our business.

Regeneron continues to advance its mission to bring important new medicines to patients in need. EYLEA is our drug used to treat a number of potentially blinding diseases and with millions of injections administered each year, it is one of our most important approved products and continues to grow well globally. EYLEA is now at an annual global net sales run rate that exceeds $5 billion. This has been driven both by the approval of EYLEA in new indications as well as new data that have further increased the confidence of physicians in this product.

Thanks to our long-standing belief and investment in science and technology, we are now in the midst of a new product cycle which has the potential to impact multiple disease settings. This investment in science has resulted in PRALUENT, our PCSK9 antibody for lowering LDL cholesterol, and additional potential near-term approvals that could address rheumatoid arthritis and atopic dermatitis. Our late stage pipeline also includes programs in asthma, pain, respiratory syncytial virus and the immunotherapy of cancer.

Our earlier pipeline opportunities continue to grow with a total of 15 product candidates currently in clinical development, including seven that we are developing independently, with several more expected to enter the clinic in the near term, making for a pipeline that can address potential opportunities ranging from rare orphan diseases such as fibrodysplasia ossificans progressiva or FOP, to emerging infectious diseases, epidemics such as Zika. George will provide specific details on some of these programs later in this call. All of these opportunities are the results of investments we made in science and technology over the last 20 years, yielding a pipeline that is entirely home grown.

Our commitment to the long-term is unwavering as we invest in the next generation of technologies to support our future pipeline. For example, our Regeneron Genetics Center and our investment in technologies with companies in the areas of gene editing and cell therapy such as Intellia and Adicet, which are synergistic with our existing capabilities. I should also mention that we recognize that we operate in a rapidly changing environment that poses new challenges to the commercialization of our products, and we continue to try and develop innovative solutions to address these issues.

Lastly, we believe it's absolutely essential to attract the best and brightest minds to scientific careers, and to elevate the place of science in our society; therefore we were thrilled to announce in May that Regeneron was selected as the new sponsor of the Science Talent Search. Regeneron is only the third sponsor in this renowned 75-year history of this high school science talent competition, which was previously sponsored by Intel and before that by Westinghouse. George and I are both alumni of the Science Talent Search and we believe the program plays a vital role in encouraging talented young people to pursue a path in science and engineering.

With that introduction, let me turn the call over to George.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Thank you, Len, and a very good morning to everyone who has joined us today. I'd like to begin with progress in our late-stage pipeline.

In the second quarter we reported positive data from three Phase 3 studies of dupilumab, our interleukin-4 and interleukin-13 blocker in patients with uncontrolled moderate to severe atopic dermatitis, which is a chronic inflammatory skin disease. Dupilumab is the first systemic therapy to show positive Phase 3 results in this indication.

On our last earnings call, we talked about the positive data from the first two Phase 3 studies, SOLO 1 and SOLO 2, which studied dupilumab as a monotherapy. In June, we just recently reported the results from the third study, LIBERTY AD CHRONOS, which was a long-term study that investigated dupilumab in combination with topical corticosteroids, which are currently the standard of care in the United States for the treatment of this difficult disease. Overall, the efficacy observed in the CHRONOS study was very consistent with the previously-reported positive Phase 3 SOLO 1 and SOLO 2 studies of dupilumab in the monotherapy study.

While the primary endpoint of the CHRONOS study was assessed at 16 weeks, the study continued until 52 weeks and efficacy was sustained in both the dupilumab 300 milligram weekly as well as the 300 milligram every other week dose groups through this one-year mark. At 16 weeks, about 40% of the patients in both dupilumab dose groups achieved clear or almost clear skin status as measured by the Investigator Global Assessment score compared to about 12% of the patients in the topical steroid only arm. Nearly two-thirds of the patients receiving dupilumab achieved a 75% improvement in the average – improvement in the overall skin score as assessed by the Eczema Area and Severity Index, or the EASI score, compared to about 23% of patients in the topical steroid only arm.

This was the first long-term Phase 3 study to show that dupilumab in combination with topical steroids was superior to topical steroids alone and provided sustained efficacy and significantly improved measures of overall disease severity, skin clearing, itching and quality of life through one year of treatment.

The overall rate of adverse events and serious adverse events was comparable between the groups treated with dupilumab in combination with topical steroid and the topical steroids alone. Serious and/or severe infections were numerically higher in the topical steroid alone group. Adverse events that were noted to have a higher rate with dupilumab treatment included injection site reactions, which were seen in 20% of the patients on the dupilumab weekly arm, 16% of the patients in the dupilumab every two week arm, and 9% of the patients in the placebo plus topical steroid alone arm; and conjunctivitis, which was observed in 19% of patients in the dupilumab weekly arm, 13% of patients in the dupilumab every other week arm, and 8% of patients in the topical steroid alone arm. About 22% of the patients in the placebo group, 23% of the patients in the dupilumab weekly group, and 28% of the patients in the dupilumab every other weekly group had a reported history of allergic conjunctivitis coming into the study.

These one-year results from the CHRONOS study further suggest that dupilumab impacts the apparent activation of the interleukin-4/interleukin-13 pathway and results in significant efficacy without the side effects associated with immune suppressing therapies. In this regard, and very importantly, we have not observed an increase in overall infections or serious infections in our atopic dermatitis program to date. The U.S. BLA submission has been completed, and we look forward to working with the FDA to bring this important breakthrough therapy to patients as soon as possible.

We're also developing dupilumab in other allergic diseases such as asthma, nasal polyps and eosinophilic esophagitis. As a reminder, our first pivotal study in asthma showed that two doses of dupilumab, 200 milligram and 300 milligram every other week, in combination with inhaled steroids and long-acting beta agonist demonstrated a statistically significant 12% to 15% improvement in lung function as measured by FEV1 over placebo at week 12, and a 64% to 75% reduction in the annualized rate of severe asthma exacerbations over placebo.

The most common adverse event was injection site reaction, which was more frequent in the dupilumab dose groups at 13% to 25% compared to 12% in the placebo group. The incident of infections was balanced across treatment groups at 42% to 45% in dupilumab arms and 46% in the placebo arm, as was the incidence of serious adverse events which were seen in 3% to 7% of the dupilumab groups and 5% in the placebo group. We expect our confirmatory one-year Phase 3 study of dupilumab in this indication to complete enrollment in the third quarter of 2016.

As a reminder, we are the only late-stage biologic that targets both IL-4 and IL-13, and recent competitor developments in the late-stage asthma space are consistent with our pre-clinical data and our hypothesis that it is important to block both of these interleukins.

Turning to PRALUENT, our 18,000 patient ODYSSEY outcome study is ongoing. As we had previously disclosed, the Data Monitoring Committee for this study completed the first interim analysis when 50% of the total events had accrued based on unblinded study data. In addition to reviewing the safety study, the DMC performed a futility assessment and recommended that the study continue with no changes. A second interim analysis for futility as well as for overall efficacy, when 75% of the targeted primary events has occurred, is expected later this year.

As Len mentioned, we also have three other late-stage programs: sarilumab, our interleukin-6 receptor antibody for rheumatoid arthritis, where we expect FDA action by October 30; fasinumab, our NGF antibody for pain associated with osteoarthritis; and REGN2222 for respiratory syncytial virus or RSV.

Turning now to our earlier-stage pipeline, in May we reported positive interim proof of concept data from a Phase 2 study of evinacumab, an antibody to angiopoietin PTL3 in patients with a homozygous form of familial hypercholesterolemia. These patients continue to have a major unmet need as they are typically not as responsive to standard lipid lowering therapies such as statins or even to PCSK9 inhibition and some of the treatment options available to them are limited by the accompanying safety and tolerability concerns. Although these data were from a small number of patients, we are encouraged by the additional 55% reduction in LDL cholesterol levels at week four on top of standard of care compared to baseline.

In this study, evinacumab was generally well tolerated and there were no adverse events leading to discontinuation. The most common drug-related adverse events were injection site reactions, which were mild in severity.

Our Phase 2 study of EYLEA in a coformulated combination with rinucumab, our PDGF receptor antibody, in wet age-related macular degeneration, or wet AMD, which has been granted fast track designation, is fully enrolled and we expect top line data from this study in the fourth quarter of 2016. This is a three-arm, two-stage study with patients randomized to receive one of three dosing regimens: EYLEA alone, EYLEA in combination with low dose PDGF blocking antibody, or EYLEA in combination with high dose PDGF blocking antibody. The primary efficacy endpoint of the first stage of this study is the mean change in visual acuity at week 12 from baseline. The second stage of the study is designed to confirm and extend the findings from the first stage of the study.

Our Phase 2 combination studies of EYLEA in a coformulated combination with nesvacumab, our antibody to angiopoietin-2, in AMD and DME continue to enroll patients. We are very excited by our earlier stage pipeline in immuno-oncology where both our PD-1 antibody and our CD20/CD3 bi-specific antibodies have demonstrated promising activity in early clinical trials. Our potentially pivotal study with our PD-1 antibody in cutaneous squamous cell carcinoma continues to enroll patients and we hope to be investigating additional agents in combinations over the next six to 12 months.

We have also expanded our capability in the area of precision immunotherapy with our recently announced collaboration with Adicet, which will allow us to discover and develop engineered next generation immune cell therapies. This collaboration takes advantage of our unique VelocImmune and Veloci-Next technologies that will allow us to use cell-based therapies to target tumor cells.

We also recently initiated a Phase 1 study in healthy volunteers of REGN2477, an activin antibody being developed for the treatment of fibrodysplasia ossificans progressiva, or FOP, and other musculoskeletal disorders. We remain committed to using our technologies and approaches to help address emerging infectious diseases such as Ebola, MERS and Zika. For Zika, we have identified several fully human monoclonal antibody candidates that are able to potentially block the virus – to potently block the virus from infecting cells in vitro. And early data indicate that these antibodies are protective in an animal model. We're now in the process of scaling up for human trials.

We also recently initiated our first-in-human study in healthy volunteers in our Ebola program which has been granted orphan drug designation by the FDA. With that, let me turn the call over to Bob Terifay.

Robert J. Terifay - Executive Vice President, Commercial

Thank you, George, and hello, everyone. We're pleased with the sales growth of EYLEA or aflibercept injection, both thin the United States and ex U.S. in the first half of 2016. We've made progress in improving access in reimbursement for PRALUENT, or alirocumab, among U.S. payers. In addition, the European and Japanese launches for PRALUENT continue to progress. And we are now preparing for the potential U.S. launces of sarilumab and dupilumab over the next year.

Starting with EYLEA, second quarter U.S. net sales grew 27% year over year. Net U.S. EYLEA sales in the second quarter were $831 million. Net ex U.S. EYLEA sales in the second quarter were $486 million which represents 44% growth year over year on a reported basis. We continue to have a strong position in our U.S. market share leadership for EYLEA in the FDA approved anti-VEGF market in terms of injections as reported by 203 retinal specialists in our quarterly market research survey. According to our survey results, in the overall anti-VEGF market, EYLEA has a 37% share of injections as compared to 19% for ranibizumab and 44% for off label, repackaged bevacizumab.

On the other hand, with our growing market share, our expenses to support reimbursement activities, including patient support services and reimbursement assistance, have also increased impacting both our gross to net ratio as well as our profit margin.

I should note that there are currently a series of proposals from the Centers for Medicare and Medicaid Services regarding physician reimbursement for physician-administered Medicare Part B, buy and bill drugs which could lead towards physicians favoring the use of bevacizumab or in large-volume retinal practices, ranibizumab due to the provision of increased direct-to-physician financial incentives from the manufacturer and group purchasing organizations. The impact of any changes is difficult to predict, though we are monitoring the situation very closely.

Regeneron believes that EYLEA is clearly differentiated from both bevacizumab and ranibizumab. Physicians and patients should not be denied access to any drug therapy that is deemed appropriate. We believe that physician choice should be preserved and alternative schemas to reduce healthcare cost should be explored.

Turning now to PRALUENT, as reported by Sanofi, net sales in the second quarter were $24 million worldwide, with the U.S. accounting for $21 million of the total. I'm pleased to share that as of July 1, approximately 74% of commercially insured lives and approximately 91% of Medicare insured lives have access to PRALUENT. We continue to see improvement in the number of prescriptions that are successfully being filled, with both PRALUENT and evolocumab generally splitting market share evenly. However, only approximately 25% of our prescriptions written actually get dispensed. Unfortunately, due to unprecedented strict utilization management criteria and very tedious prior authorization paperwork that the pharmacy benefits managers and health plans have put in place, many patients who are eligible for treatment with a PCSK9 inhibitor have not had the prescriptions filled.

We continue to focus our efforts on improving access, or improving the prescription process through the payers and the specialty pharmacies. Over the last several months, we've seen some payers loosen their utilization management criteria removing a requirement for prior ezetimibe therapy. Others have streamlined the prior authorization processes. ODYSSEY outcomes data, if positive, are anticipated to be a key driver in shaping the future success of PRALUENT.

Outside of the United States, PRALUENT was approved in the EU in September 2015 with the product now available in several countries. Reimbursement discussions are currently underway with several governments across Europe. Positive reimbursement decisions have been issued in the UK and Spain among others. It still remains a difficult reimbursement market with some countries awaiting outcomes data.

In the United States, we've submitted the supplemental BLA for the 300 milligram monthly dose of PRALUENT, and have been granted a PDUFA date of January 24, 2017. We have also submitted a regulatory application for PRALUENT monthly dosing in the EU. Also in July, PRALUENT was approved in Japan.

We've submitted a BLA to the U.S. Food and Drug Administration for sarilumab our IL-6 receptor inhibitor for rheumatoid arthritis and have been granted a PDUFA date of October 30, 2016. Earlier this week, the European Marketing Authorisation Application or MAA for sarilumab was accepted for review by the European Medicines Agency. We will be co-promoting sarilumab with Sanofi Genzyme in the United States and we've completed hiring of her field-based team. Training again this week. Copromotion decisions for other countries will be made over time. Were currently preparing for dupilumab commercialization with the potential U.S. approval in the first half of 2017. Will be copromoting dupilumab with Sanofi Genzyme and have begun interviewing our sales management team. Copromotion decisions for other countries will be made at a later date.

With that, let me turn the call over to our Chief Financial Officer, Bob Landry.

Robert E. Landry - Senior Vice President-Finance & Chief Financial Officer

Thanks Bob, and good morning to everyone. I have several financial updates to provide this morning. Let me start with our top line second quarter earnings. In the second quarter of 2016, non-GAAP net income per diluted share was $2.82. This represented an increase of 24% in both non-GAAP net income per diluted share as well as non-GAAP net income in the second quarter 2016 compared to the second quarter of 2015. Regeneron's second quarter 2016 non-GAAP net income excludes non-cash share-based compensation expense and the $75 million upfront payment made in connection with our April 2016 license collaboration agreement with Intellia. It also includes the income tax effect of these non-GAAP adjustments. A full reconciliation of GAAP to non-GAAP earnings as set forth our earnings release. I will describe further detail shortly, effective this quarter, our non-GAAP net income is no longer includes an adjustment from GAAP tax expense to the amount of taxes that were estimated to be paid or payable in cash.

Total revenues in the second quarter of 2016 were $1.2 billion which represented a year-over-year growth of 21% over the second quarter of 2015. Net product sales were $834 million in the second quarter of 2016 compared to $658 million in the second quarter of 2015. EYLEA U.S. net product sales were $831 million compared to $655 million in the sink quarter 2015 representing a 27% year-over-year growth. Sequential quarter-over-quarter growth was 6%. EYLEA distributor inventory levels continue to be within our normal one to two week targeted range, and the June 30 levels were very similar to our March 31, 2016 levels. Please note that we are reaffirming our 2016 U.S. EYLEA net sales guidance to be year-over-year growth of between 20% and 25%.

Ex U.S. EYLEA sales, where product revenue is recorded by our collaborator, Bayer, were $486 million in the second quarter of 2016 compared to $338 million in the second quarter of 2015, representing a 44% increase on a reported basis. On an operational basis, or constant currency basis, sales increased approximately 42%. In the second quarter of 2016 Regeneron recognized $167 million from our share of net profits from EYLEA sales outside the U.S. Total Bayer collaboration revenue for the second quarter of 2016 was $192 million.

As a reminder for the EYLEA franchise, during May 2016 we stopped incurring the royalty expense in connection with our agreement with Genentech related to global EYLEA sales. This benefited our cost of goods sold in cost of collaboration manufacturing line items.

Turning now to our Sanofi collaboration, total Sanofi collaboration revenue was $163 million for the second quarter of 2016. Sanofi collaboration revenue line primarily consists of reimbursement of Regeneron-incurred R&D expenses, reimbursement of Regeneron commercialization related expenses, and our share of profits or losses in connection with commercialization of antibodies.

In the second quarter of 2016, our share of the collaboration's losses in connection with commercialization of antibodies, primarily PRALUENT, was $122 million, which can be found in table four of our earnings release. Netted within the collaboration losses were the global sales of PRALUENT, as recognized by our collaborator Sanofi, of $24 million for the second quarter of 2016.

Turning now to expenses, non-GAAP R&D expense was $406 million for the second quarter of 2016. Our non-GAAP unreimbursed R&D expense, which is calculated as the total GAAP R&D expense less R&D reimbursements from our collaborators, R&D non-cash share-based compensation expense and the Intellia upfront payment, was $222 million for the three months ended June 30, 2016. Our press release includes all the information that is required to calculate unreimbursed non-GAAP R&D expense.

Given our forecasted spend and associated reimbursement levels for the second half of 2016, we are increasing and tightening our full-year guidance for non-GAAP unreimbursed R&D to be in the range of between $970 million to just over $1 billion from the previously provided range of $875 million to $950 million. This increase is a result of two factors. A forecasted increase in spending shift from partnered to unpartnered antibody development programs; we now have seven antibodies that we are developing independently, including two that are in late stage, RSV and fasinumab. And a greater allocation of unreimbursed manufacturing costs within our Rensselaer, New York facility to R&D as opposed to inventory due to less demand for PRALUENT than was anticipated.

Non-GAAP SG&A expense was $244 million for the second quarter of 2016. We are increasing and tightening non-GAAP SG&A expense in 2016 to $980 million to $1.02 billion from the range of $925 million to $1 billion. This increase is primarily driven by our expenses to support EYLEA reimbursement activities, including patient support services and reimbursement assistance along with additional investments in EYLEA's commercialization.

This increase is partially offset by lower commercialization and prelaunch spend associated with our collaboration antibodies with Sanofi. As you may recall, last quarter we introduced a new guidance component: Sanofi reimbursement of Regeneron commercialization-related expenses, which represents reimbursement of internal and external costs that Regeneron incurs in connection with preparing to commercialize or commercializing, as applicable, PRALUENT, sarilumab and dupilumab. Again, this is a line item found within Sanofi collaboration revenue and is referenced in Table 4 of our press release.

For the second quarter of 2016, the reimbursement of Regeneron commercialization-related expenses was $86 million. We are lowering and tightening this guidance in 2016 to be in the range of $310 million and $340 million from $320 million to $370 million.

Turning now to taxes. Prior to the quarter ended June 30, 2016, our non-GAAP measures included an income tax expense adjustment from GAAP tax expense to the amount of taxes that were paid or payable in cash for the respective period. Historically, there was a significant difference between the company's GAAP effective tax rate and the actual cash income taxes paid or payable primarily due to tax benefits related to employee exercises of stock options. The tax benefits related to employee exercises of stock options were historically recorded in additional paid in capital for GAAP reporting purposes.

During the second quarter of 2016, the company early adopted Accounting Standards Update 2016-09. The new standard requires companies to recognize tax benefits in connection with employee exercises of stock options in the income statement. In other words, we will account for tax deductions related to stock option exercises in the period of exercise as a discrete item to the quarter. With the early adoption of the new standard, the company chose to discontinue its former non-GAAP income tax expense adjustment since, by adopting the new standard, it eliminated one of our primary differences between the company's effective tax rate and cash income taxes paid or payable.

As a result, our second quarter 2016 and 2015 non-GAAP financial results included in our earnings release for comparison now reflect this continuance of our non-GAAP income tax expense adjustment. This new standard will result in variability in our effective tax rate from quarter to quarter, as based on GAAP rules, these items are not forecasted in our estimated annual effective tax rate. These deductions are based on the company's stock price and individual employees' decisions on when to exercise their stock options.

The current tax-related adjustment in our reconciliation of GAAP net income to non-GAAP net income in Table 3 of our earnings release solely represents the income tax effects related to our non-GAAP pre-tax adjustment. Our effective tax rate for the second quarter of 2016 was approximately 33%, which is 8% lower compared to the second quarter of 2015. This decrease was primarily due to the impact of changes in the geographic mix of earnings and share-based compensation as compared to the same quarter of last year. For 2016, our guidance for our GAAP effective tax rate for the full year will be 33% to 41%.

Our capital expenditures for the second quarter of 2016 and for the six months ended June 30, 2016, were $139 million and $243 million respectively. We are lowering our full-year 2016 capital expenditure guidance to a range of $480 million to $530 million from the previously provided range of $550 million to $625 million. These 2016 expenditures include the expansion of our manufacturing capabilities in both Rensselaer, New York and Limerick, Ireland, as well as growth in our Tarrytown, New York headquarters as we continue to grow our employee base.

Regeneron's balance sheet had $1.64 billion of cash and marketable securities as of June 30, 2016. Less than $500,000 of our originally issued $400 million of convertible senior notes due October 1, 2016 remain outstanding.

With that, I would now like to turn the call back to Michael.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Thank you, Bob. That concludes our prepared remarks. We'd now like to open the call for Q&A. As we like to give as many people a chance to ask questions as possible, as always, please limit yourself to one question. Our team will be available in our office after the call for any follow-up questions.

Operator, if you can now open the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. And our first question comes from Terence Flynn from Goldman Sachs.

Cameron Bradshaw - Goldman Sachs & Co.

Hi. This is Cameron Bradshaw filling in for Terence. Thank you for taking our question. I was wondering, for the Phase 2 trial of EYLEA combined with your PDGF, looks like we're going to see data in the second half of this year. Can you just remind us of the trial design and then what you're hoping to see with respect to efficacy in order to make a go/no-go decision on the Phase 3? Thanks.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

This is George. The study design really has two stages. The first is a head-to-head-to-head between the three groups that we described in our call, the combination of the PDGF blocker on top of EYLEA versus EYLEA alone with two doses of the blocker. That's the first stage. As you know, even in studies with hundreds of patients in them, as we've of course seen, we have as much experience as anybody alone and with our collaborators in doing these large studies, there can be a lot of variability in letters gained. So we design the study to include a second stage as well that actually shows the effect of adding on therapy on top within the same groups. That we predict to be a more powerful way of confirming if there are added benefits of the PDGF therapy.

So we will have the firs type of comparison, which we consider perhaps to be slightly less powerful in the timeframe that I just described, and then we will also be getting the second stage of data. So depending on how strong the first set of data is, we will either be able to make a decision at that point or we'll be awaiting the results from the second stage to help us and make that decision.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

I would just add in terms of helping you think about it, for us, since this is a single injection of the two antibodies by the physician, that we don't have to have a gigantic benefit. We just have to have something that's clearly beneficial because the hurdle for us to move forward isn't that great because there's no additional burden on patients having to take an additional injection.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Great. Next question.

Cameron Bradshaw - Goldman Sachs & Co.

Okay, thank you.

Operator

Our next question comes from Robyn Karnauskas from Citigroup.

Robyn Karnauskas - Citigroup Global Markets, Inc. (Broker)

Hi, guys. Thank you. So you mentioned that access is opening up a little bit for the PCSK9s. Can you talk a little bit about what percentage of the payers had higher restrictions initially this year? And then how did that change? What percentage of people are not requiring prior auth or reduced the requirements for filling out forms, et cetera? And then going to that, what do you think the trigger point was for doing that? And what are the timing for these events? Is it third quarter? What triggers these things and how do we think about that going forward? Thanks.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Bob?

Robert E. Landry - Senior Vice President-Finance & Chief Financial Officer

So there have been some payers that, based upon the FDA decision not approve ezetimibe based upon their OUTCOMES data that have said since ezetimibe does not have an FDA indication for the prevention of cardiovascular outcomes, that on their own or at the advice of some of their physician medical directors, they've removed the ezetimibe step edit. And that has happened in a few plans already.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

With regards to the prior authorization paperwork, some of the payers had prior authorizations that required tens or almost up to 40 questions. It became very tedious for the physicians. So some of the plans have begun to change their prior authorization to be simpler and, again, that is in place in a few payers now. I think the real driver that's going to change things is going to be when we get the OUTCOMES data for the product.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Thanks Bob. It's Len. Just to amplify on that, it seems to me there are three ways, three important factors you can consider. Assuming that we have a relatively high satisfaction rate, that patients get on the drug, get their cholesterol lowered and tolerate the drug, this is not like the hepatitis C market. Those should be long-term patients so we begin to accumulate them as opposed to constantly having to find to replace as you would, let's say, in a hep C environment.

Secondly, as Bob said, the cardiologists are not like the rheumatologists where they have people in their office who are very experienced in dealing with these prior authorizations and paperwork, and I think that they are getting more efficient at it. They are somewhat frustrated by it for sure, and some of them are giving up. Some say, well, I'll wait for outcomes before I got to the mat with fights and things like that. But I do believe that the experience of the doctors in picking the patients that they know, each PBM for each patient or each payer, if you will, they are getting better at knowing how to get this done as they get more experience.

And then of course finally, as George mentioned, we hope that the OUTCOMES data later this year will change the dynamic out there in terms of the feeling, the compelling need to go on these products if we show an OUTCOMES benefit. Next question?

Operator

Our following question comes from Ronny Gal from Bernstein.

Ronny Gal - Sanford C. Bernstein & Co. LLC

One second.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Do we have a question today?

Ronny Gal - Sanford C. Bernstein & Co. LLC

Yep, right here. Okay, sorry. Actually, never mind.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Okay.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Okay. Next question.

Operator

Our following question comes from Ying Huang from Bank of America Merrill Lynch.

Ying Huang - Bank of America Merrill Lynch

Hi. Good morning. Thanks for taking my question. Just one more on PDGF. So if you look at Fovista plus the Lucentis, it seems that there's a four letter difference. Can you help us frame the expectations for your coformulated EYLEA plus PDGF antibody? I know you're comparing to EYLEA of course, so does that four letter apply in this case? And what are you expecting from the outcome? Thanks.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Well, we consider it very hard to interpret these sort of existing studies because, as I said, we've actually seen with larger studies when you actually repeat the study, four letter differences easily go away. So, we really consider this a very early field and based on a lot of the science, it's really very, very hard to predict what, if any, benefit will be seen here. We do think that our unique two-stage design will end up giving us probably the best data and most convincing perspective on whether there is an added benefit or not. And as Len pointed out, the fact that if there is an added benefit, we'll be able to do it with a single injection and assuming appropriate safety, we'll make it easier to deliver that benefit to patients with this approach. And remember, our approach here, we're combining two very similar antibody-like drugs into a single coformulated injection as opposed to giving two very different types of drugs with separate injections.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Great. Next question.

Operator

Our following question comes from Geoffrey Porges from Leerink.

Geoffrey C. Porges - Leerink Partners LLC

Thanks very much for taking the question. Just on dupilumab. George, could you just comment first on the conjunctivitis. Is that signal real? Are you seeing it in the other studies, for example, in asthma or esophagitis? And then related to that, could you just talk a little about the launch outlook? What are the parallels or differences to the PRALUENT experience and how might you get payers to let some patients through in this case?

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Okay. Well. The first part is very interesting in terms of the conjunctivitis. We have consistently seen it in our atopic dermatitis studies. We have not seen it in our asthma studies. As you know, there's differences for examples in the way topical steroids are used in the populations and so forth. And we have various ideas about why this may be the case. That said, even though it seems specific to the way the drug is being used in this particular patient population and perhaps with either the use or actually the less use of topical steroids in the treated patients.

The comforting thing is that these patients do have, as we pointed out in the call, they do have already a lot of history of conjunctivitis. So this is not really something brand new to the patients. And the conjunctivitis that is seen here on dupilumab seems to be of mild to moderate severity and is limited. Most cases actually resolve during treatment and very few, if any cases, actually lead to discontinuation. So it seems as if the benefit risk is really maintained in the face of this.

That said, also in terms of the second part of your question about dupilumab, we think it's a very different situation compared to PRALUENT. I mean, there is a huge unmet need here. Patients are really suffering from ongoing symptomatology and the data actually shows that this symptomatology is actually markedly improved with the dupilumab treatment.

So that it seems to us that there's going to be a lot of patients who really are – and we already know – who are going to so positively impacted in their life that they're going to be demanding this drug. And it seems to us that these patients will deserve to have this first systemic therapy that can really make a difference in their lives. Let me remind you that this is – we're talking about the most moderate to severe class of the patients here which are more than 1 million patients in the United States alone, and these patients really have very few other alternatives.

And as you see with our data in CHRONOS where we treat on top of topical steroids, the standard of care, very few, only about 10% of the patients or so, become clear or almost clear with topical steroids as opposed to about 40% on the drug. And there's not only, of course, the cosmetic effects of having these skin lesions and so forth and the associated infections and so forth that you get, but there's an enormous amount of itch which drives a lot of behavioral problem and so forth. There's associated depressive and psychological symptomatology here and so forth. And we've actually shown that much of this is actually impacted in our studies. So we think this can be a very important drug for this population of patients and we think that there's going to be a very important opportunity to make a lot of difference in a lot of people's lives, which is what should count in this business.

But beyond that, I think that we also have to remember that dupilumab is really a franchise onto itself. The data really suggests that we have hit upon here with blocking both interleukin-4 and interleukin-13, the critical drivers of allergic disease in general. We're hoping ODDYSEY to extend the findings from our first pivotal study in asthma by confirming them with the second pivotal study, and we will also be continuing to study in other allergic diseases, whereas you've already seen we already have some positive data in other allergic diseases in early stage studies as well. So this can benefit not only the allergic and atopic diseases of atopic dermatitis, but we hope to be able to have studies that confirm it to additional allergic diseases as well.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

I just wanted to add one thing, Jeff. In terms of about the difference between PRALUENT, just to re-emphasize what George already said, which is that most people don't like to think of themselves as sick and they don't like to have to take a cholesterol lowering drug. Oh, I'll fix it with diet or I'll take my statin or what have you. But patients with atopic dermatitis really suffer. It's really made its way into pop culture. There's a new series on HBO – I don't know if any of you have seen it – called The Night Of and the actor, John Turturro, portrays this lawyer who suffers terribly from atopic dermatitis. He has to wear sandals. He goes to a group to discuss all this and it really has a terrible impact on this life. And this, I don't think this is just a TV portrayal. I think this is what we see, that people really suffer from this disease.

I think one last point to just add as well is that unlike most other biologics that are immunomodulators where you see in general whether it's the TNFs or a variety of other classes you generally see a doubling of the serious infection risk rate. This appears to be more of an immunomodulator that is correcting an immune deviation. And actually as we reported and as we summarized during this call, there is no increase in infections and in serious infections here. So once again this is an important option that's being offered to the patients in contrast to other alternatives which are essentially immunosuppressing. And to have this sort of efficacy with a non-immunosuppressing agent I think is also offering a lot of hope to patients.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Okay. Next question.

Operator

Following question comes from Chris Raymond from Raymond James.

Christopher Raymond - Raymond James & Associates, Inc.

Ah, hey, thanks. Yeah, so just as another question here, I guess, on dupilumab in atopic dermatitis. So maybe for Bob if possible. So I'd imagine your marketing prep's pretty underway now with the BLA submitted. And I know we know the vast majority of intervention here is topical corticosteroids. But I'm just curious, what has your work uncovered in terms of the use of other biologics off-label and physician satisfaction with these agents? And maybe can you talk about how you're thinking about this as you formulate your launch plans? Thanks.

Robert J. Terifay - Executive Vice President, Commercial

Sure. So as George pointed out, there are approximately 1.6 million patients in the United States who are uncontrolled on topical therapies who have moderate to severe atopic dermatitis. A very small proportion of those patients have received other therapies, immunosuppressant agents, generally not biologics but things like cyclosporine and methotrexate. The challenge with those therapies is you can't use them long term. They've got some toxicities that really interfere with the patient's long-term use of the therapy and thus, their symptoms will come back, their itch will come back and their quality of life will decrease. So there is a huge opportunity for dupilumab in these uncontrolled moderate to severe patients. There's the pent up demand among patients and physicians to get the patients on therapy and to improve their lives.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

And to add to that, in terms of biologics, we do not believe that there's any convincing evidence with any available approved biologics that show efficacy in this disease setting. And as you know, there's also no other late-stage biologics that are promising in this area. So this really has a chance to really be providing something to patients that don't really have any other alternatives at this point.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

I would add also, to make sure you think about these other diseases as other significant opportunities. There's been a desire to have a drug, like a biologic, that could effect, in asthma, for example, that could treat all patients. That could have an effect both on FEV1 and on exacerbations. And no such drug has been forthcoming as yet, and we're excited that our first pivotal trial demonstrated in the broad population affect both on FEV1 and on exacerbation.

So hopefully if we can confirm that in our trial that's just about to be completed in enrollment, think ahead about a year for the trial, and then the data, we could be onto something, a whole new opportunity, which people really are looking for. Something that can treat all the patients, and that can treat both the FEV1 and the exacerbations.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Right. As Len briefly touched upon, a very important feature that of course we're hoping to confirm in our second pivotal study is this point about the broad population. I mean, so far biologics have been limited to the so called, the more allergic or eosinophilic type patients, and is the only places where substantial efficacy has been noted. And it's, as Len said, mostly only with exacerbations and not on lung function.

So if we can confirm the results of the first pivotal, it could confirm another major hope for patients who really need these types of therapies.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

And the last point on that, which I know George likes to make when he speaks about this at meetings, is that we can't forget the fact that people who have asthma frequently have atopic dermatitis and people who have atopic dermatitis frequently have asthma. These are overlapping syndromes because they are scientifically related, I should say pathophysiologically related, we think, through the IL-4/IL13 pathway. So, next question?

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Next question.

Operator

Next question comes from Mark Schoenebaum from Evercore ISI.

John Scotti - Evercore Group LLC

Hey, good morning. It's John Scotti in for Mark. Maybe I'll just ask a quick one on the Adicet collaboration. Could you just elaborate a little bit more on the technology behind off the shelf therapies there? And I guess, how does that approach differ from those that are already in development, such as Cellectis? And then I guess maybe, when could we see some of those assets entering the clinic?

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Well, I think...

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Wait, before you answer that George, I just wanted to make one comment that is, if I went to Broadway and had so many stand-in actors, I would be mortified.

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Okay. I think and important point to make is, we really believe in people and we believe in synergies. And we've had long-standing interests to be working with Aya Jakobovits who's really leading Adicet. And obviously, she's been in areas that we've been in. We have enormous respect for her, her capabilities. And so we really feel that we can work well together with her and her team. And number two is the synergies with our existing programs. This is why we make these sorts of deals. We believe that we have a lot of potential tools and starting points for making the sorts of targeting reagents that would be introduced into these cell therapies using our existing technologies such as our VelocImmune and our Veloci-Next technologies which really, nobody else in this field has access to right now. So we're hoping that we put together our unique capabilities that nobody else in the cell therapy space has together with a pioneer and a leader in this area such as Aya Jakobovits and her team that we could really do special things. And I think at this point, that's what we want to say about this collaboration.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Great. Next question?

Operator

Following question comes from Adnan Butt from RBC Capital.

Adnan Shaukat Butt - RBC Capital Markets LLC

Hey, thanks folks. Let me ask a 10-Q question. It lists PD1 as embarking on potentially pivotal studies over the next year. Are there unique indications or combinations that you have selected already? Any details there please?

George D. Yancopoulos - Founding Scientist, President, Regeneron Laboratories & Chief Scientific Officer

Yeah. So it's already been publicly disclosed that we're already in a potentially registration study in a unique indication that we think has a lot of promise for various reasons and where we've already seen early clinical activity in our earlier studies which is cutaneous squamous cell carcinoma. And so that is, for example, one setting. We've also identified additional settings. That has been publicly disclosed. We've also identified additional settings that we'll be going into, we hope both potentially with it as a monotherapy but also with new combinations.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Great. And we have time for one last question.

Operator

Our final question comes from Alethia Young from Credit Suisse.

Alethia Young - Credit Suisse Securities (USA) LLC (Broker)

Hey guys. Thanks for squeezing me in here. Just going back to your prepared remarks, I was just wondering with EYLEA, like is it something that you're kind of starting to experience just as – like what are the dynamics for why like the financial incentives that manufacturers were providing are increasing or groups purchasing? Why did you specifically kind of bring that to our attention this quarter? Thanks.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Well I think that, it's Bob, it's highlighting to you what's going on in the marketplace. And we're seeing more of these things than we have in years past. It's not been any drastic change but it's just sort to get in front of these things, we monitor them and we have responses prepared should they be necessary. Bob, want to add anything?

Robert J. Terifay - Executive Vice President, Commercial

No. It's a dynamic in the marketplace that impacts the growth of EYLEA and we just wanted to discuss it.

Leonard S. Schleifer, M.D., Ph.D. - President, Chief Executive Officer & Director

Okay.

Michael S. Aberman, M.D. - Senior Vice President, Strategy & Investor Relations

Great. Well, that concludes today's call. I want to thank everyone for joining. As we said, myself, Bob Landry and the IR team will be available for follow-up questions. If you have any, please e-mail us or give us a call. Operator?

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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