Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) Piper Jaffray 30th Annual Healthcare Conference November 27, 2013 11:00 AM ET
Leonard Schleifer - Founder, President and Chief Executive Officer
Robert Landry - Senior Vice President, Finance and Chief Financial Officer
Christopher Raymond - Piper Jaffray
Okay, I think we are going to go ahead and get started. My name is Chris Raymond. I am a Biotech Analyst here at Piper Jaffray. Really pleased to have with us Regeneron, a company that needs no introduction. But I’ll do it anyway. So, we have with us, Leon Schleifer, who is the Founder, CEO and President and also Bob Landry, who is the CFO of Regeneron.
So, this is a fireside chat format. We’d like to keep it as participated as possible. So if anybody has any questions in the audience, please raise your hand. I’ll make it gets answered. If you don’t want to do that, go ahead and email me and I’ll make sure it gets asked and answered that way perhaps, as well.
So Chris, before we go, so we will be making forward-looking statements up here and we refer you to our September 30th 10-Q where we talk about the risks and uncertainties that we have in this business.
Great. So, let me just jump in, I think a perennial question, Leon, that gets asked of you strategically is what are the make versus buy, right? So Regeneron is renowned for innovation. Obviously, there is a lot of data points to sort of back that up, but even the most innovative companies in the history of our space have diversified in terms of outside discovery, diversified in terms of targets, in terms of platforms. So, sort of, you had a little bit of change in leadership as well and we look to the development front, what is your sort of take at this point in late 2018 on that topic?
Yes, I mean, I think it’s a bit of a misperception. We are certainly not event adhered organization. We look outside all the time for things that can be synergistic. We don’t find us is competing for late-stage assets trying to outbid some of the desperate large pharma who has a much bigger bankroll in a much high desperation type.
I think, so it’s a sort of a pounding your head against the wall exercise. But we’ve been fairly active when we look for places where we can really identify things early technologies and come up with things that are synergistic with what we bring to the table.
So, we have a deal with Intellia on gene splicing, with Bluebird in the CAR T space. We’ve done a transaction in collaboration on a target from our RGC with Alnylam. We had a deal with a small antibody technology company. And those are more in our sweet spots. But I think you’ll continue to see us active during 2019.
Okay. So, active in terms of more of the same technology plays rather later-stage?
Things that can supplement, complement, synergize that are with what we do.
Got it. Okay. Maybe another strategic question, but in a different direction. So, Leon, you’ve not been shy at all about talking about maybe some of the areas for improvement in terms of the U.S. healthcare system and pricing and commercial. Just the whole scheme of, I guess, maybe to put words in your mouth, but Amgen made quite a splash a few weeks ago with lowering their Repatha list price, but not the net price.
So essentially eliminating much of their distributor margin, that’s been so controversial. So, I am not asking you to comment on this move specifically, but more sort of on these decisions as they get made in the future. Do you see a continued narrowing of the list and net price gap with less distributor margin? Or is that sort of a - maybe an incremental move and something that you would see as a broader trend?
Yes, it’s very difficult to predict trends in the drug pricing arena. Pretty volatile, some things happening. It’s not weekly sometimes daily and maybe sometimes even twice a day. Something is going on, somebody is doing something. The government is doing something. I think that, you have to think about a few things that are driving activities. First of all, I think we have lousy insurance systems for patients.
And so, we are charging the sick more, if they get sick and saving money for the healthy on their premiums it’s sort of a backwards – it’s sort of a backward system and it’s a hold though from the fact that the insurance insuring drugs came late to the party of insurance in the medical arena and this notion of skin in the game became a bit too aggressive.
So, I think that this push by the government to lower list prices is much an attempt to lower the co-pay which are frequently based on the list price. So there are other ways to get there without lowering the list price. I can tell you that, simply wishing away the PBMs, which is what some pharma and biopharma companies are doing is not going to be a winning strategy, because if you think about it, a single payer, Piper Jaffray might provide health insurance and some sort of … pardon me?
Sort of, nothing great, well maybe company like Regeneron, we provide pretty good health insurance. We are in the health business and what is our human resources department prepared to negotiate with each manufacturer for each drug that some or a few or one perhaps of our employees might be needing. It doesn’t make sense.
And so, there is an obvious need for somebody to be between the manufacturer and the patients. And that is these payers in some form and another aggregating market power just makes so much sense. And so it’s wishing it away is not going to happen. And frankly, they serve a useful purpose. Now, there is all sorts of distortions.
Nobody maybe really knows to choose how much are they really taking. If they are taking 50%, - $0.50 in every dollar, really I doubt it, but if they were that would be way too much. But they are not going away. So, the notion, if a company just lowers their list price, then think that that’s it, that the manufacturers are not going to ask for a some sort of a rebate for a preferred formulary positioning or exclusive.
So it’s not going to work that way. So, I think that payers and middle people are here to stay and that’s what went to a single payer system where then you could have one payer administering all this. So, as long as we have an employer-based healthcare system, that employers need somebody to handle all this for them.
Right, right. Good. And so, I guess,…
I don’t want to be an apologist for my friends on the payer side. But wishing them away is my main point. That’s not going to happen. On the other hand, we actually can work with them, I think, to make sure, we need to – when they go too far. Okay. I don’t think being tough negotiated is wrong, that’s what capitalism is about. But when they go too far is when they, deny, deny, deny care that is really necessary for patients.
When somebody has terrible, terrible disease and there is a drug that can treat them and they just immediately deny, they should be held strictly accountable for that sin. And that is a really big sin.
Yes, I mean, it’s lot of you talking about the sins, I mean, lease resistance tends to be with payers, PBMs et cetera to offload costs on to the patient, right, because that’s for the constituency that’s likely in the short-term to be less likely to push back. Co-pay accumulators being one thing. So, I mean, these are all sort of, I guess, tactics that on the margin, you are right, they make the distributor industry look bad.
But to your point, I guess that, maybe the follow-up question to that is, how – what’s your vision over the next several long-term five, six, ten years to how that industry sort of stops doing some of those things that are terribly impopular and develops more of a partnership relationship with the manufacturers in every company, et cetera?
I think at the end of the day, we need a system where we don’t push the costs on to patients. It’s particularly acute with seniors who can’t get the benefit of many of the systems in place that commercial insured patients can get. But even for commercially insured patients pushing too much of that cost to them just doesn’t make sense. So, I don’t think that should be the strategy and design of plans.
Now, the payers will just say, that’s what Piper Jaffray’s HR department wants to do. They want us stick into the girths and god forbid if he gets sick. But I don’t think that’s – that will not – that will lead to a real brake down in this whole system. So, the sick patients has to be able to get drugs that in a well-insured manner.
Negotiating lower prices, fair – not, not taking advantage of patients, not driving up prices greediously, trying to price towards value, better articulating the value for the drug wings, all those things should follow. But I think the underpinning has to be a good insurance system.
So, maybe let’s talk a little bit about Regeneron specifically, at the risk of asking you to predict trends or predict a policy for example. I know you’ve been reluctant to talk about how you are going to mitigate any impact from any sort of step-through provision or other changes from Part B Reform, such as migrating Part B to Part D and some of these other things that people are talking about.
But maybe, this is - I’d say, if it’s not one, and sort of number 1A in terms of investors concerns that I hear with respect to EYLEA and the sort of intermediate term impact, talk about the range of outcomes, maybe if you can?
Yes, so, let’s – I mean, we can put to rest right now the Medicare advantage step editing and it’s a big threat to us, because we have – first of all only about 15% of the business goes to Medicare advantage plans and the vast majority of those are not putting a step edit in front of EYELEA. So, we don’t – and we can understand why they wouldn’t, we wouldn’t expect them to. We are certainly in favor of choice.
That’s I think they really got to control a vascular permeability and do it with the best agent out there. We think they choose EYELEA and we think they should be able to choose EYELEA from the get go. And we are not seeing this step to other drugs in net class to any significant. It’s really a small fraction. And that only applies to 15%. So that really is a non-issue.
In terms of the other threat to EYELEA from the payer perspective in terms of whether or not be – a Part B drugs will be somehow benchmarked over a five year period starting in 2020 indexed to foreign prices, that I think there is going to be a long distance between that proposal and reality.
Now, I think that the government and the secretary has laid down a gauntlet and said, listen, we don’t like that the administration doesn’t like Americans paying for higher priced for drugs compared to Europeans who were skating on our back. I tend to agree with them. I think that we have to come up with a solution. I don’t think that importing lower prices is the answer, I’d rather see as export higher prices. And so, we’ll have to figure out whether or not some equilibrium can be reached.
But I think what the secretary did is said, hey, come on and bring us your ideas. Here is one idea very cumbersome, very difficult, don’t know that they can actually be administered the way they think it is and so, I think that’s too many it’s there to give you a relatively sound prediction.
Yes, that’s interesting you bring up the exporting of higher prices. We’ve done a decent amount of consultant work in this area and over the intermediate to longer-term, that’s been their big point that they’ve raised to us is that, the net impact here is higher prices outside the United States, not lower prices here. Obviously, the market dynamics, the size, it doesn’t make any sense. And so, you’ll see a lot more companies choosing not to market a product if you can’t get to…
I think that’s right. I think that, the philosophy now is what you put it all in and you – and since these are high margin prices in terms of the actual cost is in the development, discovery and risk, not in the manufacturing usually although some biologics can be rather expensive. People say, well, even if I don’t get a great price, I am still making money, I’ll launch it.
But if it’s going to impact your price in the United States, I think people will think twice and I think they’ll be some pain to the Europeans and as they should be. I don’t think it’s right.
I completely agree with the administration of this one that it doesn’t make any sense that the American system, our ecosystem, the NIH, our universally-based research, our entrepreneurs, our venture capitalists, our investment bankers, our financial markets, do all this, get do this high risk stuff and the American consumer subsidizes people in the UK.
So, back on EYELEA and maybe on the topic of competition, last night we published a deep dive survey piece, just sort of a state-of-the-art up-to-date, sort of snapshot of where the VEGF intravitreal injection market in AMD and DNA exists. And one of the things that struck me was, among the KOLs and also the sort of the practicing ophthalmologists were not KOLs, with respect to RTH258.
A perception of a least equivalent efficacy and really a misunderstanding of the dose interval story and the difference in – or similarity I guess, between EYELEA’s label dose in that. And it’s interesting we also picked up a decent amount of evidence that Novartis has been relatively active in – not to say promoting, but educating physicians, if you will on the relative merits of that drug. So I’d love to know if they were promoting by the way, Chris.
Yes, I don’t – you can use that way.
You are about to say that. So, send me an email on that. It’d be helpful. But if they are listening, so if they are listening they shouldn’t be promoting, because they don’t have anything approved yet. So, I guess that the question is, from your perspective, I mean, does EYELEA have a perception issue? Is there some awareness of that? What’s the level of angst within Regeneron? Maybe give us a sense.
We have built through our – on the backs of a very strong product and obviously a strong development effort and a strong commercial team, the market-leading branded anti-VEGF drug. We had our first quarter where we did over $1 billion in the U.S. We have about as 70% market share of the branded anti-VEGF therapy. And of course, there is going to be competition assuming that Novartis gets their drug to the marketplace.
This - we still haven’t seen all their data. Somebody is going to look at all their data. Their manufacturing data, their information data, their hypertension data, everything is going to be looked at very carefully and assuming that it all passes muster with the FDA, then there will be a competitive bias. But they will be coming in with what we don’t see as anything that is a competitive advantage that we have all the right dosing in our label, Q4, Q8, Q12.
We have a ton of experience with the drug supplying it to huge numbers of physicians and patients who have been very satisfied and there is nothing that we can see where they are going to be immediately going and say, I got to do this.
Now remember, when we came to market, we wanted to take over the market if we could by showing that we truly had a Q8 drug where Lucentis was only labeled as a Q4 drug. And we did a study where we said, we are going to prove that Q8 works and we did it. Okay.
The talks that I had heard was that, what we are going to do to EYELEA, what EYELEA did to Lucentis, which is we are going to show that we are a Q12 drug and they are not. But they couldn’t do that. In fact, the way I look at the data is they failed to do that and that they had people, they had people who went on Q12 and then failed and had a come back to Q8.
We kept our people on Q8. So we had a true Q8 regimen. They don’t have a true Q12 regimen. And we’ve got to see what happens to the people who have to be brought back to Q8 we’ve never seen those data, how much they actually lose and what – on average it may be okay, but whether the individual loses too much, we have to – everybody has to sort of get some experience and the FDA is going to have to look at the data which Novartis hasn’t been willing to show. So, sure, they’ve got to be a formidable competitor.
But I don’t see, we took 70% of the market with a clearly head-to-head distinguishable drug in terms of its interval. I don’t think that they have that.
Okay. Good. Easy. So, maybe, with the initial time of pivot to DUPIXENT, obviously, the other major growth driver here for Regeneron. So, atopic dermatitis, obviously, the launch has been among the best we’ve seen in the space. We’ve done a decent amount of survey work on sort of the margins of - the challenges and issues.
And also the experience of the physicians are having with the drug and really struck by – I don’t think I’ve seen a biologic or physicians are as happy with the performance or where you’ve seen this far into the launch so few discontinuations, it’s still right around 10%.
But consistently, half of those discontinuations seem to us still be for economic reasons. That seems to be the vexing issue that that just hasn’t gone away. So, maybe, I know access to reimbursement is of course a big focus for every company. Just talk about what – in general terms…
We’ve done very well there. Okay. We’ve got somewhere in the neighborhood of two-thirds of the market, the commercial market which is the primary market for this drug, or able to get the drug with failing two topical therapies, which is a typically reasonable position. There are some people who are unreasonable in my opinion. And you know what? Their patients are really suffering.
They are really miserable and I think it’s heartless if they block it. They say they don’t budget, the paperwork the people have to go through the co-pays et cetera, whatever that blocks them it’s really shameful. But the drug is doing spectacularly well for a year-and-a-half in, when we look the top-line initiations, we were in the – I don’t know, somewhere, 600, 700, 750 kind of thing and then we started DTC.
By the way we started DTC over the summer at the recommendation of the dermatologists, because they felt this drug was doing such great things to their patients and there were many patients who were checked out of the system who could be brought back into a DTC campaign and it really took off again. So, we are not quite two years in and the number of initiations per week is now going up.
It’s quite remarkable. About a month ago, we launched Asthma. It’s resonating very well. We are getting a lot of scripts from people who used to write XOLAIR scripts as the allergists and the majority of the allergists who are writing prescriptions have experienced with Dupixent for their atopic dermatitis patients. So, they know how much this drug really works.
So, the launch from Asthma now is starting off very strong. So, all in all, we think that, yes, would we like to see people – the more people be able to get the drug to answer any questions, of course we would. I’d like to see some people do these denials have a bad case of atopic dermatitis and see what is like not to get a drug that can change their lives, it’s that unfortunate.
But from a commercial point of view, the drug is doing extremely well in atopic dermatitis. I think now it’s going to do very well in Asthma. We are just getting ready to launch it in atopic dermatitis for adolescent, which is a big opportunity. So, Dupixent really is doing super well for asthma sensing.
Yes. And just maybe a follow-up on the adolescent opportunity. As you said on your last earnings call, you sounded commercially relatively optimistic as you wouldn’t see any markedly different payer pushback in that patient base.
We’ve already seen – again, I know, this is not something that you are doing, we’ve already seen a decent amount of off-label use and their survey work in that patient population. Is it a fair statement to say that, maybe those kids would be greased a little bit more in adolescents than perhaps the full-on initial launch?
Three things that is going for us. First of all, the data in our adolescent study was really terrific and the FDA has granted us breakthrough status. Breakthrough status always makes it harder for people to deny access.
Number two, there really isn’t anything for these patients other than the steroids and sometimes the systemic immuno suppressants and doing adolescents, it’s a very tough time in young people’s lives to have to suffer with that.
So, I think that there is a tremendous need. And finally of course, when you are starting to deal with younger people adolescents developing, our safety thus far has looked extremely well. So, it has to be reviewed carefully by the FDA and we are expecting sometime, I think it’s in March. Something like
Middle of March.
Middle of March for an action from the FDA. And so, we are hoping that if it gets approved then as a breakthrough therapy that will go well.
So, we are – just in the interest of time, I’ll skip through the, pick some more pages I had on Dupixent, but maybe actions right around the corners, it’s this weekend coming up and obviously sort of a big meeting, especially with bispecifics. I know that’s a big push for you guys.
I’d be remised I guess, I am not bringing it up. You guys have been really upbeat on this platform. Maybe sort of talk about, I know, we know what’s coming from you at ASH. But it seems like, you’ve been more over the next 12 months.
So, just in the interest of time, not to cut you off, but to jump right in, first of all, we barely scratched the surface of our whole pipeline with – I don’t know, it’s somewhere 15 t o 20 drugs in development. There is a lot we can talk about and maybe we should get together and do that. But, I think that the bispecific platform to address your question specifically is very important to Regeneron.
Basically, think about all the excitement with CAR T cells. And what is a CAR T cell? It’s a T cell that has been redirected to a tumor cell. Well, what does the bispecific do? It redirects a T cell to a tumor cell and it’s really with some extra bells and whistles that you can put in either setting, it’s basically accomplishing the same thing.
So, I believe if you can get the kind of responses that we are starting to see with our CD20xCD3 bispecific and as you can see it in our BCMA bispecific which we should start dosing sometime in the next month or two with our other bispecifics with a combination of our bispecifics with a new platform of bispecifics, I mean, this is off the shelf drugs. We are getting a lot of complete responses.
I think it was like - I don’t want to preempt to ASH, but we had a complete responses in our follicular lymphoma studies and good response as well in our diffuse large B-cell lymphoma. So, I think that as the – our bispecific platform is going to be an important part of our future, but if we have interesting unique types, we can combine it with our proved CSCC anti-PD1 drug, by the way which I think is going to off to a nice good launch.
So, we have all the tools in toolbox that we think we can come out fairly high in the competition on some of these new approaches treating tumors.
Excellent. Well, plenty more questions, but no more time. So, I’ll take you up on to do a follow-up conversation for sure.
Okay, good. Thank you very much.
Thanks everybody. Thanks for your time.