Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) Barclays 26th Annual Global Healthcare Conference Transcript March 12, 2024 11:15 AM ET
Executives
Chris Fenimore - Chief Financial Officer
Ryan Crowe - Vice President, Investor Relations
Analysts
Carter Gould - Barclays
Carter Gould
Great. All right. Good morning. And welcome to the Barclays Global Healthcare Conference. My name is Carter Gould covering large-cap biopharma here at Barclays. Welcome, everyone. I’m pleased to welcome Regeneron Pharmaceuticals to the stage. Joining us, Chris Fenimore, newly-minted CFO and who Heads the IR. Ryan’s going to make some opening comments and then we’ll launch into Q&A.
Ryan Crowe
Yeah. Some quick forward-looking statements here. I’d like to remind you that our remarks made today may include forward-looking statements about Regeneron. 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. The description of material risks and uncertainties can be found in Regeneron’s SEC filings. Regeneron does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Carter?
Question-and-Answer Session
Q - Carter Gould
All right. Pretty sure you can do that in your sleep now, Ryan. Chris, so I think we were just talking about a month into the new role. Your predecessor was there for a decade plus in that role. As we think now about you taking on this role, do you think about any sort of shifts in priorities or shifts in how you view capital allocation?
Chris Fenimore
Sure. And thanks for the opportunity to be here and have us. So I’ve been with Regeneron for 20 years. I started out -- I ran our financial planning and analysis function and then about seven years ago our former CFO tapped me on the shoulder and said, just from a career development perspective, thought it would be good for me to get some controllership experience. So I’ve been the corporate controller up until appointment as CFO for the past seven years.
I’ve worked closely with Len and George for these past 20 years. I understand their philosophy is how they like to manage the business. So I don’t expect to see any significant changes in terms of my perspective sitting in the seat as the CFO.
From a capital allocation perspective, I think, you’ll find that the messaging will be fairly similar. Our prioritization is effectively to ensure that we’re investing in our own internal R&D engine and making sure that we’re making, obviously, wise decisions as we allocate capital to those initiatives.
We’ve been fairly active on the BD front. And by BD, historically, we’ve done a lot of partnering transactions. You’ll see that we’ll continue to do a few of those a year where we find complementary technologies and platforms with other businesses that we think mesh well with what we want to get done from a strategic perspective.
Most recently, we started to do some acquisitions. You saw that with Checkmate Pharmaceuticals. You saw that with Decibel Therapeutics. And most recently, we announced the acquisition of the R&D programs of 270 therapeutics. So those have been fairly modest in terms of size from an acquisition perspective.
We have the ability with our balance sheet, obviously, to do things that are larger. We haven’t found anything to-date that we’ve thought was interesting, but we have the flexibility with our balance sheet, and obviously, our cash flow to do things if it makes sense.
Carter Gould
Okay. Maybe sort of the question that naturally follows now is that despite increase -- robust increases in R&D sort of year-on-year, the growing cash position, even in spite of those investments, the question around potentially paying a dividend does come up. We’ve seen other large cap companies, albeit outside of biotech, sort of rerate with the introduction of a dividend, bringing new investors, obviously, with Meta. How are you guys sort of grappling with that question, if at all, at this point?
Chris Fenimore
So we -- internally we did an analysis in 2023 about whether or not it made sense for us to initiate a dividend. We actually brought in some outside firms to help us with that analysis. And the conclusion of sorting through that was it just wasn’t the right time in 2023 to think about starting a dividend. But I think the emphasis is at that point in time, it was not the right thing to do.
We’ll continue to evaluate it and see whether or not it makes sense. We’ve talked pretty openly about this development balance that we have with Sanofi. The balance as of the year was $2.3 billion. We paid down just over $500 million over the course of 2023. We will continue to pay that down over the next couple of years. And one of the key points for thinking about a dividend might be once that balance is paid off. So we’ll continue to monitor it and see what the right thing to do is.
Carter Gould
Okay. There are a few things that get me as excited as Sanofi collaboration accounting. We can -- and I’m serious, but maybe to circle back on this question, though, is Regeneron’s paid R&D growth has been pretty stable. I know the R&D expense is almost 2x what it was at the start of the decade. Is there just like a natural limit on how much you can kind of inflect in R&D growth going forward given [Technical Difficulty] this is only one of George and Len.
Chris Fenimore
Sure. So if you look at our guidance for 2024, it’s about a 12% increase year-over-year when you look at the midpoint. We obviously have a fairly rigorous process in terms of what we decide to invest in and what we want to take forward. That increase is reflective of just an advancement of the portfolio.
So if you look at a lot of our aspects of moving into Phase 3, we’re already in Phase 3, such as the Fianlimab, our Hemoc portfolio assets. We’re advancing our Regeneron genetic medicine portfolio with our partners at Alnylam and Intellia. And we’re just starting to obviously bring forward a lot of things into Phase 2 this year, the likes of obesity and Factor IX and things like that.
We -- one of the things in our business in the portfolio is of that size is obviously the spend is spread over years. A lot of these programs and things kind of roll off of being advanced in late-stage. Things roll off so we can manage it that way.
And as we look at some of the other things in the portfolio and as they advance, we’re not necessarily averse to looking at partnership opportunities for commercialization and/or development expenses that might be of a size or a risk profile that we might want to look at the other side and help fund some of those things. But we’ll continue to obviously actively manage the growth and make sure we’re investing and allocating the capital wisely.
Carter Gould
Great. Maybe switching to the product side a little bit. Obviously, the -- I know EYLEA launch is ongoing. We actually were just in the midst of our retinal panel that I walked in here and heard encouraging commentary in terms of in purpose your advantage point, how the launch is going and the extent you can frame for folks sort of the impact from the J code coming shortly.
Chris Fenimore
Yeah. I’m going to turn it over to Ryan. I mean, I think the initial response is that the launch has gone exceedingly well, but I don’t know if you want to talk about some of the specifics.
Ryan Crowe
Yeah. I think that’s right. I think our view is it’s going really well and it certainly compares favorably to the competitor launches that have occurred in the recent past. Probably as exciting as the revenue but it has been the enthusiasm market around the profile of the product where retinal specialists and patients are seeing efficacy and safety in line with EYLEA, but with longer dosing intervals, which has always been the goal of this program and what we saw in the clinical studies.
So when you have a profile like that, I think, that immediately is a draw to patients and prescribers. I’d add that recently we’ve passed the 100 vial threshold for orders and that is a significant milestone for some prescribers who want to see real-world safety in the marketplace. So that’s something we recently surpassed and I think further solidifies the profile that is comparable to what we saw in the trials.
I guess lastly, the J code, which will come in just a few weeks now, we think will reinforce the confidence to prescribe because reimbursement risk is seemingly eliminated once that goes into place. So that’s the next inflection for the ongoing launch here of HD and we’re very excited to see it advance.
Carter Gould
Where do you guys sit with the pre-filled syringe timeline-wise and how many -- do you have a view on how that compares to your most relevant competitor in the marketplace?
Ryan Crowe
Yeah. I -- so pre-filled syringe obviously is preferred by prescribers. I think over 90% of EYLEA administrations are done with the pre-filled syringe today. So pre-filled syringe for HD is a very high priority for us but what not -- we don’t have a launch timing prepared today, but we’re certainly focused on getting it to market as quickly as possible.
Carter Gould
And after 4Q, there was a number of questions around just how the pricing headwinds the class as a whole is facing. It’s no surprise here that rebates are relevant to the commercial landscape. Any comments there, Ryan?
Ryan Crowe
I think the competitiveness of the market really ramped up a couple of years ago with the introduction of fianlimab, ranibizumab biosimilars, and with it came pressures on price. You can see that reflected in the ASP data that CMS publishes every quarter and we’ve seen anywhere between 50 basis points to 150 basis points sequential declines in price over that period.
So that’s sort of been the trend. We don’t want to forecast what that could look like in the future for competitive reasons, but that’s sort of the environment that we’re operating in and we certainly want to remove any disincentives from using a aflibercept product in the market vis-à-vis others.
Carter Gould
Okay. We’re not going to get out of the EYLEA session without facing one IRA question. On a CF -- in a CFO role, when you think about just the uncertainty that comes with the IRA landscape around, while you make decisions around advancing a pipeline for those investors, how do you sort of grapple with that? How you -- where do you anchor when there’s so much uncertainty over what implementation will look like? I know the rulemaking has given you some clarity on what things could look like. At the same time, EYLEA is a big client item for CMS.
Chris Fenimore
It is, and obviously, we’re paying attention very closely to what’s going on there, even the associated union address issue. It’s obviously top of mind for a lot of folks in Washington. We have to run the business, and obviously, do what we can to make sure that that future revenue growth and opportunities for our shareholders are there and we’re obviously following things very closely. I don’t know, Ryan, if you want to sort of talk about the specifics of the IRA.
Ryan Crowe
Yeah. Certainly we have the statute and we have Part D guidance. What’s missing is Part D guidance to be applicable to EYLEA HD and many other products, and the guidance with Part D seems to be a bit of a departure from how the statute reads, so we’re interested in the interpretation that the CMS has of the statute for Part D products. We certainly look for multiple different scenarios. But to Chris’s point, we’ve got a business to run and a brand to manage, two brands to manage and we’re focused on that right now.
Carter Gould
Okay. Great. Maybe we’ll switch gears to Dupi and I was only modestly joking when I made my joke about Sanofi collaboration accounting, but the margin improvement has been pretty impressive and part of that is COGS, part of that is scale. But on the COGS side, kind of help frame, what inning we are on the improvement on that side of the equation.
Chris Fenimore
Sure. If you look at what we book in terms of our Sanofi collaboration profits, that margin increased about 300 basis points in 2023. That was largely attributable to a new manufacturing process for Dupixent, which is a higher yielding manufacturing process, had a significant improvement on COGS. The bulk of that phase-in happened, for the most part, in 2023. There’s a few markets where that phase-in will continue in 2024. So we might see some incremental improvement in 2024, but I think it will be fairly modest. And as you think prospectively about the brand and the profitability, obviously, just as the sales increase, we also hope to get just sort of leverage of the operating expenses relative to the sales.
Carter Gould
There’s only so many Dupi commercials you could buy.
Chris Fenimore
Yeah. Exactly.
Carter Gould
Okay. One of the questions we get all the time is sort of lifecycle planning around Dupi and I think if you guys rolled out a once-a-month dosing option, I think, the street would rejoice. I haven’t seen any details on that sort of effort. You guys have talked about the opportunity and severe allergies. Chris, in your role, as you think about planning for potentially life after Dupi 1.0, how are you thinking about that today? How is the team internally thinking about that?
Chris Fenimore
I mean, I think it’s on a number of fronts, and obviously, the internal R&D team is actively working on, what might potentially be sort of lifecycle management for Dupixent. And obviously, looking at the portfolio as a whole, you mentioned sort of the allergy side of things, which George Yancopoulos particularly excited about and really a focus of our internal R&D efforts. I don’t know if you want to maybe talk a little bit about it, Ryan.
Ryan Crowe
Sure. I think we have a number of opportunities pre-clinically now that will expand upon Dupixent, which blocks the IL-4 receptor alpha, as well as other, I’ll call it, adjacent targets in the cascade -- type 2 cascade, all of which are being expedited and we’re trying to bring them to the clinic as quickly as we can.
On allergy, that’s a huge opportunity. Something around 10%, 11% of people in the U.S. have allergies and around half of those people have severe allergies. So we’re talking somewhere in the neighborhood of 15 million to 20 million people. It’ll be interesting to see the early clinical data that we generate with the BCMA by CD3, followed by Dupixent regimen.
We expect to dose first patients within the next couple of months. The initial goal is going to be very small, maybe a half dozen patients. But we should get our answer pretty quickly and if you’re testing once you’re in the maintenance phase of this and you’re not seeing IgEs expressed, then you can be pretty confident that your IgE-mediated allergies have been reversed. So that’s what we’ll be looking for and then, if we are successful in this very early small study, we’ll certainly be looking to rapidly expand it and bring it to patients.
Carter Gould
Okay. And Ryan, maybe follow up on that. To what extent is sort of Zoller’s new approval in that setting a proxy for maybe the opportunity you’re facing that’s just blocking it, it’s not depleting, and I guess, a skeptic might say the Zoller approach might be viewed as a risk from an action standpoint?
Ryan Crowe
Yeah. I mean, Zoller’s mechanism essentially obliterates all IgEs and it does it transiently. They do end up coming back. So you’re not blocking the production of them. You’re just eliminating them once they’re created.
And if you look at the data, I think, it was something around two out of three patients were able to at least have a couple peanuts or whatever their food allergen was. It was hardly a cure, which is what we’re seeking to do.
So when you swing big, you can make really important advances for patients. It does carry a risk. But I think the biologic rationale here where we’re ablating plasma and B-cells and allowing them to be essentially reconstituted under the setting of a Dupixent, which doesn’t allow IgG and IgG classification to occur, biologically it makes sense.
So we’re going to really interrogate this hypothesis that we’ve had for a number of years and I’ve seen actually replicated in some animal models, see if it manifests in people. While in advance, Zoller is hardly the solution to allergies.
Carter Gould
Maybe switching gears or sort of moving over sideways to your IL-33 program at itepekimab, and I guess first off, Chris, when we think about this and kind of how this will sit within the Sanofi collaboration, will this just sort of be another layering on of kind of Dupixent and KEVZARA? And maybe talk -- maybe Ryan or yourself can talk a little bit around how you see that coexisting with Dupi and COPD.
Chris Fenimore
Sure. So to answer your question, it is just another aspect that’s part of that Sanofi collaboration. So the accounting and the treatment of it will be identical to what we do for Dupixent and KEVZARA. So think of it as aggravating the profits and the sales and the expenses of all three of those assets together and that will then obviously lead to repayment of development balance to the extent, at a faster rate, to the extent there are incremental profits as well.
In terms of one thing that we’d have to think about is, if the data is positive from the studies as they come out, and we think about incremental R&D expenses, that’s something that we’d have to factor into what the incremental spend would look like on the R&D front. But that we now fund in real time 50% of the R&D expenses on the Sanofi collaboration. So to the extent that there are incremental expenses, that would have to be factored in.
Carter Gould
Okay.
Chris Fenimore
In terms of the products potentially coexisting, obviously, we have dupilumab in the type 2 COPD setting, which has an sBLA pending decision in August. No, it’s June. Sorry. The PDUFA is in June for Dupi for COPD. My apologies.
But that’s in a current and former smoker population with eosinophils above 300 at baseline. And we estimate that population is around a 0.5 million patients across the G7, around 300,000 in the U.S.
For IL-33, we’re looking at it in a slightly different set of patients. So we’re not looking at it in current smokers at all. We didn’t see any signal in the Phase 2 study. What we did see was a very compelling signal in former smokers, regardless of eosinophil count at baseline.
So in the Phase 2 data set, we saw a 42% reduction in annualized exacerbation rate among former smokers, regardless of eosinophils. And that’s where we think itepekimab can play if it’s successful in its Phase 3 studies, which we’ll update next year. That population is around a 1 million patients across the G7.
So there is an intersection of type 2 former smokers that both dupilumab and itepekimab could potentially treat. I think it will be interesting to see a pre-specified population on these RFI studies of itepekimab, those patients with high eosinophils.
How did their -- how did the exacerbation rate look? How did the lung improvement look? And kind of doing a cross-trial comparison, perhaps, with Dupi in that same cohort of patients from the notice of earliest studies.
So, in the end, I think it rounds out a very nice respiratory portfolio. Fingers crossed for success in Phase 3. We should complete enrollment later this year and then hopefully have the data about a year after that.
Carter Gould
Okay. I want to get to obesity, but one last question on IL-33 study in blockade. To what extent should investors read through from that to your confidence on the COPD studies? Generally, these studies were always viewed as somewhat higher risk relative to a lot of the former immunology work you’ve done, any color there?
Chris Fenimore
Yes. So, kudos to you. I did notice your report came out, basically in real time, for when that trial got posted, the clinical trial test out. And yeah, bronchial stasis, we launched a Phase 2 study, largely in the belief that the symptomatology is very similar to COPD and we have some in-house, preclinical house data that block IL-33 ameliorates or eliminates that symptomatology, which is why we’ve decided to move forward with this rather large 300 patient Phase 3 study and we’re going to look at two doses for itepekimab against placebo.
We’re unclear exactly when that data will read out, but, again, this would be another million patients that would be addressed to seven in this other indication, bronchiectasis bronchial stasis, non-cystic fibrosis, bronchial stasis.
Carter Gould
Maybe making that transition to obesity here. It seemed like a little bit more of an execution year for Regeneron in the obesity side. We did see that you moved the program into Phase 2, which I would assume means the high-dose program data and healthy volunteers looks okay. Maybe just help frame for folks over what kind of time frame we should expect to get updates in obesity with anything that we should expect this year.
Chris Fenimore
Yeah. So, Carter mentions the high-dose trevogrumab cohort. We’re actually enrolling that study right now. It’s a very small cohort. I think it’s only 2,000 patients that are only followed for seven weeks, so that’s data we can generate pretty rapidly, allowing us to initiate Part B of the study, which will be a four-arm study including semaglutide with trevogrumab plus or minus garetosmab around the middle part of this year.
The primary endpoint is 26 weeks’ weight loss, as well as fat loss. Those are co-primary endpoints at week 26. Assuming enrollment is relatively quick, we could expect data sometime in the first half or towards the middle part of 2025.
There is a Part C to this study, which will look at the maintenance phase, where all patients are discontinued on semaglutide and roughly half will continue on high-dose trevogrumab to see if it can stay off. That’s achieved in the first 26 weeks of the study with the glycophagasm on top of the muscle preservation agents.
Carter Gould
Okay. And last question for Chris. Regeneron looks at obesity. Is it determined to be in obesity or is it just going to take its shots with its assets in development? How critical is it to Regeneron as we think going forward?
Chris Fenimore
Another study that Ryan talked about is important to see the data. Once we see the data from that study, it will really drive kind of how we take the strategy forward from there. It’s obviously a large market opportunity and it will inform for us whether or not we’ve got something there and if, hopefully, it’s positive, we’ll figure out how to best roll it forward from there, what our commitment looks like to obesity.
Carter Gould
Okay. So, you answered so efficiently. I’m going to squeeze one more in. How critical to that effort is having your own GLP-1 as part of the equation?
Chris Fenimore
I think there’s arguments for both sides. Of course, you’d love to control the cocktail, but is it better to be kind of a free agent so that you can be able to augment or improve the body composition of existing therapies out there across all of them. And that’s -- so we’re considering both options. We have our own internal preclinical GLP-1 program, and in parallel to this important proof-of-concept study, we’ll be advancing efforts to come up with a unimolecular solution from Regeneron while allowing the optionality to potentially partner with others -- multiple others work for us to partner, if that’s the most appropriate strategy.
Carter Gould
Okay. Perfect. I’ll have to leave it there. Chris and Ryan, thank you very much.
Chris Fenimore
Thank you, Carter.
Ryan Crowe
Thank you.