Regeneron Pharmaceuticals Inc (REGN) — Q3 2016 Transcript

Thank you very much and good morning and welcome to Regeneron Pharmaceuticals Third 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 Questions & answers. 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 September 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 rest of 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.

Thanks, Michael, and a very good morning to everyone who has joined us on the call and webcast today. I would like to begin by giving you a high-level update on our near-term and longer-term priorities at Regeneron. EYLEA, our flagship anti-VEGF product, continues to be a key financial driver for Regeneron. We are pleased with the continued growth of EYLEA and are committed to maintaining our leadership position in the branded anti-VEGF market by pursuing both additional indications for EYLEA, such as diabetic retinopathy, where we currently have a Phase III study ongoing. We are also looking at ways to improve upon the high efficacy bar set by EYLEA through combinations with our antibody to Ang2, where we currently have two Phase II studies ongoing. While EYLEA remains very important to our business, we are equally focused on the ongoing launch of Praluent, a PCSK9 antibody for lowering LDL cholesterol, as well as advancing our pipeline. For Praluent, we believe that if outcomes data are positive, it will drive greater use of this class. As mentioned in our release, we expect the second interim analysis by the end of this month. Moving on to Sarilumab, our IL-6 receptor antibody for the treatment of rheumatoid arthritis, as you heard last week, we received a complete response letter from the FDA due to manufacturing deficiencies observed during a routine inspection of a Sanofi fill and finish plant in France. Sanofi has provided comprehensive responses and is working closely with the FDA to address the deficiencies as expeditiously as possible. It has only been a week since we received the complete response letter, and we are preparing to engage in meaningful discussions with the FDA, so it is too early for us to comment on the expected timeline for a potential Sarilumab approval. We do not expect these manufacturing deficiencies to impact Dupilumab, or Dupixent as it is now known, where our Biological License Application, or BLA, is currently under FDA priority review for the treatment of moderate-to-severe atopic dermatitis. The FDA action date for the BLA is at the end of March. Dupixent is a very important pipeline product candidate for us, and we believe atopic dermatitis represents an area of high unmet need. As a reminder, we received breakthrough designation for this indication. In addition to atopic dermatitis, we are also investigating Dupixent in other indications, including asthma, where we recently completed enrollment in our second pivotal study. In the midterm, we are looking forward to important clinical progress in several of our Phase II and III programs, which span a variety of therapeutic areas such as allergic diseases, pain, viral diseases, ophthalmology, oncology, cardio-metabolic diseases, inflammatory and rare diseases. These programs have the potential to drive the next wave of growth for Regeneron. You will hear more about the key clinical developments from some of these programs from George. At Regeneron, we have always been committed to long-term science and innovation. In fact, today’s marketed products as well as the 16 product candidates in clinical development were all homegrown in our internal R&D engine. We will continue to invest in science and technology that can provide sustainable innovation and growth well into the future. This unique long-term focus on science is at the heart of why we have been able to attract top talent, which is key to our continuing success. To that end, last week we were thrilled to be named by Science Magazine as the number one company in the biotech or pharmaceutical industry to work for, a recognition we have received four out of the last six years. We know that our industry has faced many important questions regarding drug pricing. This is not the forum to discuss the complex issue of drug pricing, but I think it is important to note that Regeneron is in a unique position. As a company founded on science and committed to the research and development of important new products, we are well positioned to succeed even in a difficult and constrained pricing environment. In fact, we have never raised prices on any of our drugs, choosing instead to grow through the optimization of currently marketed products by pursuing new indications, as well as the introduction of new medicines. Our future potential growth will be driven by this strategy. With that, let me turn it over to George.

Thank you, Len, and a very good morning to everyone who has joined us today. I would like to begin with Dupixent, our IL-4/13 blocker, which we believe is one of the most exciting late-stage drug candidates in the industry. We are investigating Dupixent in a wide variety of allergic diseases, the most advanced of which is uncontrolled moderate-to-severe atopic dermatitis. Just last month, we had the opportunity to present detailed results from SOLO-1 and SOLO-2, which were two identical Phase III studies that investigated Dupixent in the monotherapy setting at the annual EADV Conference. These data were also concurrently published in the New England Journal of Medicine. These were the first large pivotal studies where a systemic investigational therapy demonstrated a significant reduction in the signs and symptoms of atopic dermatitis, with an average reduction in skin scores of about 70%, accompanied by a marked reduction in the usually unrelenting itch associated with this disease, and almost 40% of these patients achieving clearing or near-clearing of their skin lesions. Unlike other immune-modulating therapies, there was no evidence of increased immunosuppression, and the most common adverse events were injection site reactions and conjunctivitis. We were encouraged by the excitement with which these data were received by the physician community and by patients, and we believe that this speaks to the current unmet need and frustration with currently available therapies for this severely debilitating disease. As Len mentioned, our BLA for Dupixent for the treatment of adults with moderate-to-severe atopic dermatitis is currently under FDA review and has been given priority review status, with an action date of March 29, 2017. While the SOLO studies were in the monotherapy setting, we have also reported positive one-year top-line data from the CHRONOS Phase III study, which explored Dupixent in combination with topical corticosteroids. The safety and efficacy findings from the long-term CHRONOS study were consistent with those observed in SOLO-1 and 2. I’m pleased to share that LIBERTY AD CAFÉ, a Phase III study of Dupixent with common topical corticosteroids in adult patients with severe atopic dermatitis who are controlled with or intolerant to or ineligible for oral corticosteroids, is now fully enrolled. We, along with our collaborator Sanofi, expect to complete the regulatory submission in Europe and Japan in the fourth quarter of 2016. We also plan to initiate a Phase III study in the pediatric severe atopic dermatitis population in the first quarter of 2017, in patients between the ages of 12 and 17. We are pleased that, similar to the adult indication, Dupixent has received breakthrough designation for the treatment of pediatric patients with moderate-to-severe atopic dermatitis. While atopic dermatitis is the most advanced indication for Dupixent, we are making headway with our asthma program as well. We have previously announced positive results from our first pivotal study of uncontrolled persistent asthma, despite treatment with inhaled steroids and long-acting agonists. As a reminder, these data demonstrated improvements in both lung function as measured by FEV and exacerbations in all patients, regardless of baseline eosinophil status. There was a 15% improvement above placebo in FEV1 and a 75% reduction in exacerbations in the overall population treated with the 300-milligram every two-week dose. The most common adverse event associated with treatment in this study was injection site reactions. In September, we announced the completion of enrollment in LIBERTY asthma quest, which is our confirmatory Phase III pivotal study of Dupixent in this indication. The primary endpoint of this study is at 52 weeks, and we therefore expect to make a regulatory submission in the U.S. towards the end of 2017. We also expect to initiate a Phase III study in pediatric asthma patients in early 2017. We are also exploring the use of Dupixent in several other allergic indications such as nasal polyps, where we expect to initiate a Phase III study earlier next year, and in eosinophilic esophagitis, for which we are currently in a Phase II study. Turning to Fasinumab, our nerve growth factor antibody for pain. In October, we provided an update on this program. Following the observation of a case of progressing osteoarthritis in a patient receiving a high dose of Fasinumab who had a history of advanced osteoarthritis of the knee, the FDA placed our Phase II study in chronic back pain patients on clinical hold. This event prompted an unplanned interim analysis of the study, which had already completed 70% of its targeted enrollment. The unplanned analysis showed clear evidence of efficacy with improvement in pain scores in all Fasinumab groups compared to placebo at eight and 12-week timeframes, with a p-value of less than 0.01. Preliminary safety results were also generally consistent with those observed previously with this class. The FDA has since communicated that we can continue the development of Fasinumab in chronic back pain by excluding patients who have advanced osteoarthritis. We are also continuing our pivotal program in osteoarthritis with final design elements still receiving regulatory feedback. The Fasinumab program will contain safety data from 10,000 patients overall. Moving to Praluent, the recent news on the discontinuation of the development of Bococizumab obviously has a major impact on the PCSK9 landscape. This underscores a very high bar in terms of safety and efficacy for this class. This example also highlights the value of our fully human VelocImmune-based antibody technology. In terms of our Praluent program, our 18,000 patient ODYSSEY Outcome study remains ongoing. We expect the second interim analysis for futility and overwhelming efficacy by the end of this month. We and our collaborator Sanofi have also completed regulatory submissions for the once-monthly dosing formulation of Praluent in the Europe and Japan territories, as well as in the United States, where we have been granted an FDA action date of January 24, 2017. Our immune-oncology efforts continue to advance and expand. We believe that these are still early days in the area of immune-oncology, with the net collective knowledge of this field evolving rapidly and the competitive landscape changing continuously. Evidence of this includes the recent surprising sale year of the market-leading PD-1 antibody in first-line lung cancer. Regarding our PD-1 program, our potentially pivotal study in Cutaneous Squamous Cell Carcinoma is ongoing, and we plan to announce additional studies in the near future. In addition, we are also studying PD-1 in combination with our bispecific CD-20 by CD-03 molecule. This year at the American Society of Hematology or ASH conference, we will be presenting monotherapy data from the CD-20 by CD-03 program. Lastly, we plan to advance Regeneron 3767 and the antibody LAG-03 into clinical development by the end of 2016. In October, we announced top-line results from the Phase II combination study of EYLEA with Rincumab, our PDGFR receptor antibody in wet age-related macular degeneration, or wet AMD, where the data demonstrated no improvement in best corrected visual acuity, the primary endpoint of this study versus EYLEA alone. We think these study results demonstrate the high hurdle that has been set by the well-established efficacy and safety of EYLEA. That said, we are looking for ways to strengthen our EYLEA franchise. To that end, we are conducting a Phase II study of EYLEA in a co-formulated combination with Nesvacumab, our antibody to Ang2 in AMD and DME. The DME study is fully enrolled while the study in wet AMD continues to enroll patients. We are also exploring longer-acting approaches in this class. And with that summary, let me turn the call over to Bob Terifay.

Thank you, George, and good morning everyone. Third quarter U.S. EYLEA or Aflibercept net sales grew 16% year-over-year. Net U.S. EYLEA sales in the third quarter were $854 million, and year-to-date sales were $2.5 billion. Net ex-U.S. EYLEA sales in the third quarter were $471 million, which represents 27% year-over-year growth unadjusted for currency fluctuations. Net ex-U.S. year-to-date sales were $1.4 billion. EYLEA is the market-leading product among FDA-approved anti-VEGF agents for all of its approved indications in the United States. In the U.S., we are seeing increased competitor discounts and rebates. We are carefully assessing these actions. As I’m sure you are well aware, there is a pending proposal from the Centers for Medicare and Medicaid Services regarding physician reimbursement for physician-administered Medicare Part B or buy-and-bill drugs. We have worked hard on the policy and legislative front on this issue and will be prepared to respond on the commercial front as needed to ensure that patients continue to have full and complete access to EYLEA. Now bringing in Praluent or Alirocumab. As reported by Sanofi, net sales in the third quarter were $38 million, with the U.S. accounting for $32 million of the total. Sales data and IMS total prescription data indicate that Praluent and Evolocumab market share are roughly 50-50 in the United States. As reported by IMS, U.S. total prescriptions for Praluent increased sequentially to 60% versus the second quarter of 2016. The challenge for the PCSK9 inhibitor class continues to be the significant reimbursement hurdles for the physicians’ offices and patients, resulting in a low volume of prescriptions being dispensed. This has resulted in physicians’ offices reserving their initial prescriptions to eliminate their pool of patients. We continue to focus on efforts to improve access and to streamline the prescription process through payers and specialty pharmacies. We are gradually seeing more payers loosen their utilization management criteria, including removing the requirement for prior Ezetimibe therapy. In addition, we are now seeing some payers shortening the number of months that a patient needs to be on maximally tolerated statin therapy and eliminating a specialist-only prescribing or consultation requirement. Others have streamlined the prior authorization process. 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, and the product is now approved in 41 countries. Reimbursement discussions are currently underway with several governments across Europe. Positive reimbursement decisions have been issued in the UK, Spain, Norway, and the Netherlands. It still remains a challenging reimbursement situation, with some countries awaiting cardiovascular outcomes data. We continue to plan for the potential launch of Sarilumab in the United States. As an example, we have a major presence at the upcoming American College of Rheumatology meeting this month in Washington, D.C. We will be presenting data from our MONARCH study of Sarilumab as monotherapy in patients who are poor responders, as well as subset analysis from our pivotal U.S. registrational studies. We will have a display to your presence highlighting the essential role of IL-6 in rheumatoid arthritis. The European Marketing Authorization Application for Sarilumab is currently under review by the European Medicines Agency, and a potential decision on the application is expected in mid-2017. Co-promotion decisions for Europe and other ex-U.S. countries will be made over time. We are currently preparing for Dupixent or Dupilumab commercialization with an FDA PDUFA date of March 29, 2017. We will be co-promoting Dupixent with Sanofi Genzyme in the United States. Co-promotion decisions for other countries will be made at a later date. We are aware that payers and pharmacy benefit managers are proactively evaluating the cost-effectiveness of emerging therapies for atopic dermatitis in the United States. We want to take a moment to discuss how we are thinking about the Dupixent commercial opportunity, which differs in many important respects from the situation we faced with Praluent. Dupixent has already demonstrated efficacy on the most important outcomes, including consistent efficacy on rash severity, itching, and quality of life measures. In the United States, there are 1.6 million patients with uncontrolled moderate-to-severe atopic dermatitis, the majority of whom will not likely receive Dupixent therapy. We estimate that approximately 300,000 of these patients have exhausted all approved therapies and have failed or are unable to tolerate unapproved use of immunosuppressant therapies. Many of these advanced patients are suffering from a host of related issues, including sleep disturbances, anxiety, and depression. These atopic dermatitis patients should not be denied therapy. We hope payers and insurers will provide appropriate and timely access to Dupixent, should it be approved, and that patients will not have to step through unapproved immunosuppressant therapies, many of which are associated with Black Box warnings. We plan to work closely with all stakeholders, including patients, physicians, and payers, to achieve this goal. With that, let me turn the call over to our Chief Financial Officer, Bob Landry.

Thanks, Bob, and good morning. Regeneron posted strong financial results in the third quarter of 2016, as well as entered into two new exciting collaborations. We are also lowering and tightening full-year 2016 guidance on non-GAAP unreimbursed R&D, non-GAAP SG&A, our effective tax rate, and capital expenditures. Let me start with our top-line third quarter earnings. The third quarter 2016 non-GAAP net income was $365 million, and non-GAAP net income per diluted share was $3.13. This represents an increase of 32% in both non-GAAP net income per diluted share and non-GAAP net income in the third quarter of 2016 compared to the third quarter of 2015. Regeneron’s third quarter 2016 non-GAAP net income primarily excludes non-cash share-based compensation expense and the $25 million upfront payment made in connection with our third quarter 2016 licensing collaboration agreement with Adicet, and includes the income tax effect of these non-GAAP reconciling items. A reconciliation of GAAP to non-GAAP earnings is set forth in our earnings release. Total revenues in the third quarter of 2016 were $1.2 billion, which represents year-over-year growth of 7% over the third quarter of 2015. Net product sales were $857 million in the third quarter of 2016 compared to $738 million in the third quarter of 2015. EYLEA U.S. net product sales were $854 million compared to $734 million in the third quarter of 2015, representing 16% year-over-year growth, with sequential quarter-over-quarter growth of approximately 3%. During the third quarter of 2016, EYLEA experienced a slight increase in U.S. distributor inventory levels as compared to the second quarter of 2016, but continues to be within our normal one to two week targeted range. As mentioned in our press release issued this morning, we are tightening our full-year 2016 U.S. EYLEA net sales guidance to reflect year-over-year growth of 23% to 25%. Ex-U.S. EYLEA sales were product revenue recorded by our collaborator Bayer, totaling $471 million in the third quarter of 2016 compared to $371 million in the third quarter of 2015, representing a 27% increase on a reported basis. On an operational basis, or constant currency basis, sales increased approximately 25%. In the third quarter of 2016, Regeneron recognized $171 million from our share of net profits from EYLEA sales outside the U.S. Total Bayer collaboration revenue for the third quarter of 2016 was $191 million. Turning now to our Sanofi collaboration. Total Sanofi collaboration revenue was $144 million for the third quarter of 2016. The Sanofi collaboration revenue line item primarily consists of reimbursement of Regeneron-incurred R&D expenses, reimbursement of Regeneron-incurred commercialization-related expenses, and our share of profits or losses in connection with commercialization of antibodies. In the third quarter of 2016, our share of the collaboration’s losses in connection with commercialization of antibodies, which includes Praluent and pre-commercialization activities and costs in connection with Sarilumab and Dupixent, was $112 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 $38 million for the third quarter of 2016. Before moving to expenses, I would like to highlight two third quarter business development transactions. The first is the collaboration we entered into with Teva to develop and commercialize our NGF antibody, Fasinumab. Under the terms of the agreement, Teva paid Regeneron a $250 million upfront payment, and we will equally share on an ongoing basis R&D expenses of approximately $1 billion under a global development plan. We plan to ratably recognize the upfront payment as revenue over the related performance period. The signing of this agreement did not have a material P&L impact on the third quarter of 2016. As a reminder, the intellectual property associated with our late-stage pipeline, including Fasinumab, has been migrated offshore, thus expenses and revenues associated with the program will be recognized in foreign jurisdictions with tax rates lower than in the U.S. Federal statutory rate. The other third quarter business development transaction was a collaboration with Adicet, which will allow us to discover and develop engineered next-generation immune cell therapeutics. In accordance with this agreement, we paid Adicet a $25 million upfront payment in the third quarter of 2016, which we have recorded as GAAP R&D expense in our consolidated statement of operations but have excluded from our non-GAAP net income. Turning now to expenses. Non-GAAP R&D expense, which is calculated as the total GAAP R&D expense less R&D non-cash share-based compensation expense, as well as the upfront payment we made to collaborate with Adicet, was $437 million for the third quarter of 2016. Our non-GAAP unreimbursed R&D expense, which is calculated as the total non-GAAP R&D expense plus R&D reimbursements from our collaborators, was $256 million for the three months ended September 30, 2016. Our press release includes all the information and is required to calculate unreimbursed non-GAAP R&D expense. As a result of the recently executed collaboration with Teva regarding Fasinumab, we are lowering and tightening our full-year 2016 guidance for non-GAAP unreimbursed R&D to be in the range of $945 million to $975 million, down from our previous guidance range of $970 million to just over $1 billion. Non-GAAP SG&A expense was $221 million for the third quarter of 2016. We are tightening and lowering our full-year 2016 guidance for non-GAAP SG&A to $965 million to $995 million, down from our previous guidance range of $980 million to $1.02 billion. Note that, even after lowering and tightening our full-year guidance, we do not expect to see any material pre-launch cost savings from the PDUFA delays of Sarilumab. We will be co-promoting Sarilumab with Sanofi Genzyme, and our sales force is already onboard. As you heard earlier from Bob Terifay, we continue to prepare for the launch in anticipation of the resolution of matters with the FDA. Sanofi's reimbursement of Regeneron’s commercialization-related expenses, a line item found within Sanofi collaboration revenue, was $66 million for the third quarter of 2016, and we are tightening our full-year 2016 guidance for Sanofi’s reimbursement of Regeneron’s commercialization-related expenses to be in the range of $310 million to $335 million, down from $310 million to $340 million. Turning now to taxes. Our effective tax rate for the third quarter of 2016 was 27.6%, as compared to 46.5% in the third quarter of 2015. This decrease was primarily due to the impact of changes in the geographic mix of earnings, inclusion of the tax benefit of share-based compensation, and the impact of the domestic manufacturing deductions as compared to the same quarter of last year, as well as the discrete impact to this quarter of a change in our assessment of reserves for uncertain tax positions. For 2016, we are lowering and tightening guidance for our full-year GAAP effective tax rate to be 29% to 33%, down from the previously provided range of 33% to 41%. Our capital expenditures for the nine months ended September 30, 2016, were $361 million. For the full year of 2016, we are lowering and tightening our guidance for capital expenditures to be in the range of $480 million to $510 million, down from the previously provided range of $480 million to $530 million. 2016 capital expenditures will primarily include costs in connection with renovations of our Limerick, Ireland manufacturing facility, tenant improvements and associated costs at our Tarrytown, New York facilities, renovations in addition stores at Rensselaer, New York manufacturing facility, and the purchase of an office building in New York and the Rensselaer manufacturing facility. We ended the third quarter of 2016 with cash and marketable securities of $2.2 billion, which includes the Teva upfront payment of $250 million. As we have reported in previous quarters, we have opportunistically reduced the number of warrants that we issued in 2011 in connection with our convertible debt issuance through repurchases from the warrant counterparties. Depending on market and other conditions, we may spend up to $415 million to repurchase or settle these outstanding warrants. With that, I would now like to turn the call back over to Michael.

Thank you, Bob. Before turning over to Q&A, let me remind everyone to please keep your questions to a single question to allow for the most number of people to have a turn. With that operator, can we please open up for Q&A.

Hi guys, thank you. I’ll stick to the one question. So if I heard you correctly, it sounded like the revenue was concluded - and it’s a 12-week study, so is it possible that we could have results in the first quarter and if so, or when we get results, remind us how you typically release them maybe some color and executions around that. Thank you.

First. Since you are talking about timing, we really don’t give guidance on timing and as we have with our - we typically look at this and give the top-line press releases is our typical practice.

But more in general comment Robyn, we would say that and George might want to amplify, and I think it’s a tough bar, and we are constantly looking to try and improve on that, and so when we get the data, we certainly will give you a top-line assessment.

Hi, thanks for taking the question. It’s just one of the two parts; first just maybe walk us through some of the key drivers of EYLEA growth that we should consider as we head into next year here. And then Bob maybe just last year at this time you highlighted 2016 was shaping up to be an important investment year. Any thoughts here as we head into 2017 produce the market. Thank you.

So Flynn, I’ll let Bob amplify if he likes, but the obvious potential growth drivers for EYLEA come from demographics, aging population, and more patients with diabetic eye disease, potentially would come from market share depending upon what continues to happen in the marketplace. This is potential for ups and downs there. And obviously additional indications for diabetic retinopathy are the three places where we would be focusing and looking to drive growth off a very large base.

Terence, hi, it’s Bob. Yes, I mean we go out with our SG&A guidance upcoming, we are not in a position right now to talk to that, but again we have spent time on this call, and you have heard us previous regards to the spending we have around Dupixent. So with the March 29th PDUFA date coming, we need to ensure that we are ready with regards to our marketing and our sales team is everything to be able to hit the road very quickly on that. Again, we are still investing behind Praluent as we wait for the outcomes data in Sarilumab. As I mentioned on the call, I mean we are putting promotional dollars behind that in our marketing and spending, and when the FDA lists the regulatory approval on that, then we will be in a position to ensure that the product is fully supported from a marketing and sales perspective.

Next question.

Hi, good morning. Thanks for the question. I have a question on the ODYSSEY outcome study here. So we know the hurdle for overwhelming efficacy ratio of less than 0.02, with the p-values less than 0.0001. Can you elaborate, do you need to see consistency in every composite of the primary endpoint, all four composites of the primary endpoint? And also can you tell us how much confidence you have in terms of being able to meet that endpoint by the end of this month? Thank you.

Yes, this is George. In some ways this decision is out of our hands, and it’s very subjective in terms of there is an independent monitoring board that, without us, is going to look at the data, regardless of even if we hit the numbers that you stated in terms of our overwhelming efficacy. They have to make a decision about not only consistency and so forth, but they are going to take into account whether there is rationale and it’s worthwhile, because maybe they want to look within subgroup or another to get the complete data set. And so it’s very hard to predict something like that, and as I said, it’s up to an independent data monitoring board, it’s completely out of our hand and they could simply decide for example that they want to follow and get more data in one particular subgroup even though the overall population was very clear. So the end result is I can’t really answer your question because we just don’t know.

Okay. Next question.

Oh, sorry. Can you hear me now? Yes, thanks. So on Sarilumab, so just putting aside the manufacturing delay for the drug, there has been some news in the biologic space regarding Amgen talking about running out of its pricing runway. And we have actually seen from some of our own work pretty strong evidence that other newer biologics have been gaining traction for some time. I wonder if you could maybe describe at a high level your views of the changing landscape with respect to access and PBM market power. And how you think Sarilumab, once it is ultimately approved, is positioned, not just necessarily from a clinical standpoint, but how you think the commercial landscape is changing in ways that may or may not favor the drug. Thanks.

Sure, this is Len. At the risk of unveiling a little bit of our strategy here, but not too much because obviously we have to get to market. It is a tough environment, and the people who are paying the bills have seen what I would consider, in some cases, almost outrageous increases, at least on the WAC price of the wholesale acquisition drugs, rheumatoid arthritis where people have been taking double-digit increases, sometimes twice a year. To me that suggests some sort of tone-deafness in this environment. We think that we have to compete in two ways: we have to compete with a very good drug, which we think Sarilumab will be. Of course, we have to get over this filling glitch and get to market as quickly as we can. But we think that the class is doing very well, and there is some data out there from the first engine of the class where monotherapy against the leading TNF and IL-6 receptor class performed better. There are some people who simply don’t like to take Methotrexate; we have data of our own, which probably won’t be enough for us filing similar types of results with outperforming in monotherapy. But giving a solid entry with good properties is not going to be enough here, and we have to compete with an offering that payers will find attractive. I think Regeneron is willing to break some of the mold here, and now I’m getting some hints from my colleagues that I have probably said enough, so I will leave it at that.

It's Bob. I think it’s important, though, also to keep in mind that the market has been characterized by a significant amount of TNF cycling, and the reality is after a patient receives one TNF inhibitor, if they move to a second, we see diminishing efficacy over time. We have an obligation from a sales and marketing perspective when we get approved to stop the TNF cycling, and IL-6 inhibition plays a central role in RA. It plays a role not only in symptoms, but in terms of the progression of joint damage. We have to educate physicians on that. So we are anxious to have the product get approved and get that message out there.

Okay, thanks for the question. Next question.

Thanks very much for the question. Perhaps a question on the manufacturing issue. It’s been weeks since the Sanofi conference call so I presume you both had a lot more information. Could you confirm whether the auto fill-finish facility was included in the original BOI and whether it’s straightforward to switch the fill-finish to that alternative facility. And then secondly, could you just tell us whether the inventory of Praluent, Sarilumab and Dupilumab, which presumably have already pre-launched, is embargoed or is it likely to be usable and can you be selling Praluent from that inventory already? Thanks.

Yes, Jeff. As usual, you ask some of the best and most penetrating questions. And as usual, we would love to give you an answer, but we are really not in a position to discuss the details of discussions that aren’t going on with the FDA, how they are going to be resolved, the strategy redundancy, what is in filing, what isn’t and so on and so forth. We can summarize by saying that Sanofi is working very hard, and they believe they can quickly remedy the deficiencies that were not related to Sarilumab per se, but rather some general GMP deficiencies, and they are frankly well on their way to remedy. Of course, we have to work with the agency, and they have to be satisfied. In terms of products that are already manufactured there, I think you should think the FDA sort of takes a risk-based approach here. They have sort of maybe frozen in place those things that are actually being – assuming that they don’t think a plant is way out of whack. Nothing can be shipped, and still they continued to fill and use product from that facility for approved products. It’s a new product such as Sarilumab, which gets sort of shut off obviously and unfortunately. We are working with them on Sarilumab, and we are also working with a different group on Dupixent, which is a breakthrough product with a whole different set of approaches to it. So it’s complicated; you can imagine there is a tremendous amount of work. A week seems like a long time maybe in your world, but in the world of regulatory interactions, manufacturing remedies and so on, it’s still a relatively short time.

Next question.

Thank you for taking my question. So just very quickly following on Jeff. Just looking at the generic industry here, when it comes to facilities the cycles of improving facilities and getting product approved is actually quite long. What gives you conviction that in this case it will be a relatively short one? And then if I could sneak a second one, 340B, there has been some discussion around that program. If you could give us an update about this program and how it impacts EYLEA sales?

We are going to give you only one question. And so the first question has to do with how do we know how quickly this is going to be remedied? Well, we don’t know how quickly it’s going to be remedied for sure, obviously. We know how quickly, which is in a relatively short period of time that Sanofi feels as if they can get the plant into full GMP compliance. In fact, they have already broadened all sorts of efforts and resources; they have already submitted a detailed plan, and they have already submitted the first or second progress reports against that plan. So we feel that the strategy is the right one, and the approach is the right one. Obviously, we will just have to work with the agency and see how quickly they can feel comfortable that the plan is ready to go. Next question.

Hi, guys. Thanks for taking my question. Just one on the pediatric population; I know you quantified a little bit more about the adults with the 300,000. Can you kind of frame that in a similar nature to the pediatric population, please?

Yes, I don’t think we are prepared to sort of go into the numbers in the pediatric population, especially as things were just embarked on our Phase III program now.

Okay. Next question.

Hey, thanks for the question. Maybe for Bob, on EYLEA pricing issue aside, is EYLEA growth tampering a bit? We had thought that DME would be as big as AMD. What are the individual market dynamics? Perhaps if you can give any color on that?

So, we have done very, very well with EYLEA in DME; that has been the driver of growth over the last couple of years, primarily driven by impressive protocol results, which indicated that EYLEA was superior to Lucentis, and that Fasinumab met its primary endpoint. The challenge with continuing growth in DME is that there are a number of patients that never make it to the retinal specialist office. They go to an ophthalmologist who do laser therapy, laser is a revenue driver in the ophthalmologist's office, and they don’t make it to the retinal physician’s office where they could get access to anti-VEGF therapy. This has been a focus for us; we are educating, we are trying to educate patients that if they do have DME, they ought to get themselves to a retinal specialist. But this is chipping away at a habit among the ophthalmologists, and it’s going to take some time. But we continue to see that the DME market does offer substantial growth opportunities for us in the future, and as Len mentioned earlier, if and when we get to diabetic retinopathy indication, that would be a further driver.

Thanks. Next question.

Hi, good morning, thanks for taking my question. On EYLEA, I think you previously mentioned that you are seeing a bit of an increase in gross to net, and I was just wondering if you are still seeing that steady increase in gross to net and potential smaller erosion in that price. And if so, what is the magnitude of that and whether or not you see this trend stabilizing or continuing into 2017.

Yes. I don’t think there has been much sequential change at all in the gross to net; it’s been flat sequentially in the last two quarters.

Next question.

Hey, good morning guys, thanks for taking my question. So, what is the PDUFA date for a monthly Praluent and early next year? Can you just talk a little bit about the importance of extended dosing in this study? I mean clearly this is a payer constraint market today, but what might monthly dosing mean a little bit down the road? And how do you think about even maybe longer-term dosing options potentially entering this market from competition at some point in the future? Thanks.

Yes, I’m not convinced that the driver of this market is whether or not you have something every other week or every month or what have you. I do believe that people will be driven by the LDL lowering by the outcomes data that we hope will support the LDL hypothesis, and will continue to support it. Largely driven by payers, they have already demonstrated that they will not pay for convenience. If you look at the hepatitis C class, they put a much less convenient regimen up against a much more expensive regimen. So I don’t think convenience per se is going to drive the market. On the other hand, we like to come up with offerings that are as convenient as possible for patients.

So just to add to that, so far the patients that have received Praluent on a bi-weekly basis have been happy with that dosing frequency. Whereas convenience is not a big issue, but as Len pointed out, we would like to offer another dosing form for those patients who do want monthly convenience. But this is not an issue in the marketplace at the current time.

Next question.

Yes, hi guys, just a question on the co-formulated Ang2 EYLEA product. And referencing data from the PDGF program. Is there anything in the co-formulation of the two drugs that limits the efficacy of each individual component, whether it’s viscosity and the ability to inject the full dose of the amount of protein you are giving to the back of the eye? I’m just trying to see if there is learnings from the PDGF program that might inform how we think about the co-formulation part of this for the Ang2 product? Thanks.

Yes, we have no reason to think that there are any issues whatsoever with that or that it would have contributed at all to the results, and that the results we believe simply reflect the biology or the lack of biology for the PDGF pathway.

Next question.

Hi, guys. Thank you for taking my question. Question on Praluent. Could you comment on the value-based contract? I mean we know Amgen mentioned that they are entering into value-based contracts for their PCSK9. Is that happening with you, how do you see that impacting the dynamics going forward?

Well, one thing I should mention is many plans do not have the ability at the present time to enter into these types of arrangements. So it’s going to be a rarity that a plan is able to implement value-based price contracting. However, for those that can do it, we are working with those plans to establish value-based contracts that are more appropriate.

Great. Next question.

Yes, thanks, guys for taking my questions. How do you think payers will define moderate-to-severe for atopic dermatitis patients? Because we hear like many drugs don’t typically follow easier score out at scales, but I just had a look at by surface area to determine severity of disease?

I think it varies by geography. In Europe, EZ-75 or PASI 75 is the driver of the definition of disease in psoriasis. We anticipate that EZ-75 will be something we have to educate physicians on, and they are already preparing themselves for that. In the United States, you are correct that EZ scores are not relevant to the physicians, and IG8 scores are not specific enough. So we are working right now on plans with payers on how to better define the disease.

Yes, we suggest that obviously in our studies on average, the patients that we study had more than 50% of their body surface at baseline covered by this disease, and a quarter of the patients had 85% or more of their body covered with this disease. This just shows how severely these patients are, and it’s not just that their skin is covered with this rash, but this is a weepy, itchy, horrific rash that they just can’t escape. Remarkably enough, as we said, despite the heavy burden of disease at baseline, almost 40% of these patients achieved a clear or almost clear status. Really in this business, do you have the privilege to be involved in a story like this that can make such a difference in patients’ lives. We have been lucky here at Regeneron that we have done this a couple of times already, but we think that Dupixent is really a once-in-a-lifetime story where you can really impact such an important disease, so dramatically having an average 70% improvement among all patients. The thing that’s also so stunning to us about Dupilumab is that it looks like it might have the promise to do likewise in a host of related allergic diseases, including the overall asthma population where they are again in most uncontrolled severe population, once again the results are very impressive from our first pivotal study, and we think the same may be the case in a host of other allergic settings. So the short answer to your question is, unfortunately, there are a lot of patients who have more than 50% of their body surface covered. Those patients are certainly, by any category, considered severe patients. As Bob already told you, many of them have exhausted all other options, and we just hope that all the other ancillary things don’t keep these important patients from getting access to this important life-changing drug.

Yes, I understand. Before I turn to George, which is that in contrast to Praluent. We knew with Praluent of course that we could lower cholesterol rather dramatically, but to most patients, unless they are highly involved in the detail of their care, which some are, but many to them, that isn’t the end all, be all, something that they wake up every day wondering how to get their cholesterol down. Of course, if they have had a heart attack and everybody in the family does, then they do pay attention to that. But then there was the push back, well, you don’t really know do you that it improves outcomes and we’re just going on a hypothesis. Even though there is a great deal of data to certainly support that hypothesis. So it’s not a disease that people are clamoring to get treated, and it’s not outcomes that are readily in hand. Contrast that with Praluent where these patients are desperate for treatment, truly desperate for treatment and we are not talking about the topical treatments that are available such as steroids that might become available when you are dealing with small areas relatively to modest disease. We are talking about the kind of patients George referred to, which are really quite significant. And these patients can see the outcome themselves; they can tell that they are doing better, and we see it in our studies, we see it in our questionnaires, we see it in whether or not there is sweeping because they can scratch themselves so badly. I heard a story the other day which practically brought us all to tears, where a little boy who was visiting his grandparents said to his grandparents, can you each hold one of my hands when I sleep so I don’t scratch myself so badly. I mean, think about that; this is a disease that people really are looking for treatment. And if we can get this drug approved, first for adults and hopefully down the road for children, we can really provide something that they can tangibly feel. We are passive about making sure that we remove all the barriers out there and we expect to work with patients, with doctors, with payers, and organizations to make sure that people are aware of this treatment and can get access to it.

Yes, I think we have time for one last question.

Good morning. Thanks for fitting me in. Just one question on some of your prepared remarks. You mentioned that your competition for EYLEA is beginning to increase the discounts that they are offering. I want to understand the dynamics there a bit more. Is there a cycle for when discounts are negotiated? Are there any signs that you are seeing this is something that’s demanded by payers, or is it just something that the competition is taking upon themselves to do?

Yes, remember this is a Part B drug and there really isn’t the same kind of environment we have of timing and a cycle with patients. For the most part there is some small amount of that that goes on. But for the most part, the discounts and rebates that have been offered have been sort of directly tied to the physician's office, etc. We continually reevaluate that situation. We are looking at what are impacts. We are very sensitive to the doctors having to make a choice of what to give the patients, what they might think is the best drug to be because of a rebate situation or something like that. We think most retinal physicians don’t do that, but we certainly understand that as the markets shift we are prepared to react if necessary.

Great. Thank you all for joining the call today. As we mentioned before, the IR team and Bob, the Chief Financial Officer, will be available to answer any questions that didn’t make it on the call. That ends the call for today.