Regeneron Pharmaceuticals, Inc. (REGN) Q1 2013 Earnings Report, Transcript and Summary

Michael Aberman - Vice President of Strategy & Investor Relations Leonard S. Schleifer - Co-Founder, Chief Executive Officer, President, Executive Director and Ex Officio Member of Technology Committee George D. Yancopoulos - Chief Scientific Officer, Executive Vice President, Director, Ex Officio Member of Technology Committee and President of Regeneron Research Laboratories Robert J. Terifay - Senior Vice President of Commercial Murray A. Goldberg - Chief Financial Officer, Senior Vice President of Finance & Administration and Assistant Secretary

Jim Birchenough - BMO Capital Markets U.S. Robyn Karnauskas - Deutsche Bank AG, Research Division Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division Adnan S. Butt - RBC Capital Markets, LLC, Research Division Steve Byrne - BofA Merrill Lynch, Research Division Jason Kantor - Crédit Suisse AG, Research Division Terence C. Flynn - Goldman Sachs Group Inc., Research Division Ying Huang - Barclays Capital, Research Division Joseph P. Schwartz - Leerink Swann LLC, Research Division John L. Newman - JMP Securities LLC, Research Division Kumaraguru Raja Biren Amin - Jefferies & Company, Inc., Research Division Edward A. Tenthoff - Piper Jaffray Companies, Research Division Philip Nadeau - Cowen and Company, LLC, Research Division Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division

Good morning, ladies and gentlemen, and welcome to the Regeneron Pharmaceuticals conference call to discuss the first quarter 2013 financial results. My name is Kevin, and I'll be your coordinator today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Dr. Michael Aberman, Vice President of Strategy and Investor Relations for Regeneron. Please proceed, Dr. Aberman.

Thank you, operator. Good morning, and welcome to Regeneron Pharmaceuticals' First Quarter 2013 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 is Dr. Leonard Schleifer, Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Founding Scientist, President of Regeneron Laboratories and Chief Scientific Officer; Murray Goldberg, Chief Financial Officer; and Robert Terifay, Senior Vice President, Commercial. After our prepared remarks, we will open the call for a question-and-answer period. I'd also like to remind you that remarks made on this call that are not historical in nature may be forward-looking statements about Regeneron and are subject to a number of risks and uncertainties. Actual events and our actual results may differ materially. Such remarks may include but are not limited to those related to Regeneron and its products and business, sales and expense forecast, financial forecast, development programs, collaborations, finances, regulatory matters, intellectual property and competition, all of which involve a number of risks and uncertainties. A more complete description of these and other material risks can be found in Regeneron's filing with the United States Securities and Exchange Commission, or SEC, including its Form 10-K for the year ended December 31, 2012, and Form 10-Q for the quarter ended March 31, 2013, which we expect to file with the SEC later today. Regeneron does not undertake any obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise, unless required by law. 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. Once our call concludes, 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.

Thank you, Michael, and good morning, everyone. I appreciate the opportunity to review the results of the first quarter and also provide our outlook for the rest of the year. Before we get started, however, it feels as though we need to pause and catch our breath. This has not only been quite a year for Regeneron, but quite a week as well. Just in the last few days, we became a newly minted member of the S&P 500 Index; a potential competitor to our EYLEA franchise had a significant setback; we acquired full rights to 2 important pipeline assets to support our goal of expanding and protecting our EYLEA franchise in retinal diseases; we reported strong quarterly results; and our stock price and market capitalization both hit all-time highs. Having paused to recognize the recent milestones, it's also appropriate to remember that the fundamental mission of Regeneron is to use innovative science and technology to bring important new medicines to patients in need. Now before we get into some additional details of this quarter, which will be provided by George, Bob and Murray, it is worth taking a broader perspective of Regeneron as that may help you to better understand why we are so excited about our future prospects. We think of Regeneron in terms of 3 critical aspects of our enterprise: one, our growing global EYLEA franchise; two, our unique business model based upon highly leveraged partnerships; and three, our extraordinarily productive research and development capabilities and associated pipeline that serves as the foundation for everything we accomplish at Regeneron. I would like to briefly highlight some important aspects of each of these 3 critical pillars of Regeneron. First, our global EYLEA franchise represents a strong growth opportunity for Regeneron. We are 18 months into our commercialization of EYLEA in the United States, and we can proudly say that U.S. EYLEA launch is among the most successful in the history of the biopharmaceutical industry. This quarter, we reported U.S. net sales of $314 million, which represented more than a 150% increase from the first quarter of last year and approximately a 14% increase from the prior quarter. As a result, we are increasing our guidance for 2013 U.S. EYLEA net sales to $1.25 billion to $1.325 billion. While there continue to be some headwinds in terms of near-term growth in U.S. EYLEA sales, such as the slight reduction in reimbursement that Medicare provides because of the sequester and a growing percentage of sales coming from existing patients who move to less-frequent dosing, we see several significant growth opportunities for EYLEA in the U.S. and the rest of the world. First, it appears that the market for anti-VEGF therapy in diabetic macular edema, or DME, is large, based upon the initial success of ranibizumab or Lucentis in this indication. We are expecting our first Phase III data later this year in DME, and we are hoping to file for approval in the U.S. in 2014. If we obtain approval, we would expect that EYLEA penetration into the DME market could provide a substantial source of growth in the U.S. Second, the launch of EYLEA outside of the U.S. by our 50-50 partner Bayer HealthCare is going extremely well. First quarter net sales of EYLEA, as announced by Bayer HealthCare, were approximately $65 million, bringing total global EYLEA sales to $379 million in this quarter. Putting this into the context of the overall current market opportunity, the combined global sales of EYLEA and ranibizumab or Lucentis in the first quarter of 2013 totaled approximately $1.4 billion. EYLEA represented only about 27% of the global dollar sales of branded intravitreal anti-VEGF treatments. So we believe EYLEA, over time, has significant room to grow, particularly outside of the U.S., where EYLEA has only about 10% of the total sales reported for ranibizumab and EYLEA combined. X-U.S. sales are already contributing to our bottom line. Our share of the profits from x-U.S. sales was approximately $19 million. After our repayment of $13 million in development expenses initially funded by Bayer HealthCare, we recognized $6 million of profits from x-U.S. EYLEA sales that flowed directly to our earnings. And we expect significant growth of these sales as Bayer HealthCare launches in additional countries outside of the United States. We expect our quarterly repayment obligation to Bayer HealthCare to remain relatively flat for the rest of the year at approximately $13 million. Therefore, as sales and profits hopefully grow outside the U.S., a greater proportion of those profits will flow to our bottom line. Outside the United States, EYLEA is only marketed for the treatment of age-related macular degeneration, or AMD. So additional potential indications such as macular edema following central retinal vein occlusion, or CRVO, and DME, diabetic macular edema, represent additional opportunities for growth of our x-U.S. EYLEA franchise. Finally, as you are aware, there's substantial discussion in Congress about the regulation of compounding pharmacies. Given that compounded Avastin represents nearly 50% of the unit volume in the United States, the possibility exists for substantial expansion of the branded intravitreal market for anti-VEGF therapies should any structural change to the compounding industry result from any new potential legislation or regulations. Regeneron's position on the compounding situation is that we are in favor of patient choice and the fact that retinal specialists have multiple choices to treat their patients. Yet while we support multiple choices, we believe that all those who manufacture or compound intravitreal therapies should be held to a single safety and quality standard and follow good manufacturing practices. Nevertheless, there can be no assurance that any legislation will be passed that will change the market dynamics regarding intravitreal anti-VEGF therapies. And to be clear, our updated U.S. net sales forecast does not include any potential structural change in the marketplace that may or may not occur related to the ongoing debate about compounding pharmacies. Now let's turn to the second pillar supporting Regeneron's business, our important collaborations with both Sanofi and Bayer HealthCare. Our collaboration with Sanofi is broad-based and provide us with the capital we needed to invest in our antibody pipeline at a time when we did not have ready access to those resources. As a result, we were able to invest in and develop the strong pipeline that we have today. I would like to add and emphasize that it's not just the capital that we enjoy from Sanofi, rather we value the expertise and commercial reach that Sanofi offers for our partnered programs. Our Bayer HealthCare collaboration also provided capital and development expertise that enabled us to jointly conduct a large EYLEA development program. And now they are proving to be an excellent commercial partner outside the United States. This unique business model allows a greater proportion of our revenue to fall to the bottom line while still advancing a robust pipeline of 13 different clinical programs, including 3 Phase III assets. This quarter, for example, we reported non-GAAP net income of $201 million or $1.78 per diluted share. This translates into 21% non-GAAP earnings per share growth from the fourth quarter of 2012 and almost a fivefold increase compared to the first quarter of last year. As a reminder, non-GAAP net income excludes noncash compensation expense, noncash interest expense and noncash income taxes, which Murray will discuss in further detail. Finally, the fundamental foundation to our entire business is our industry-leading innovative technologies and discovery and development capabilities. Led by George Yancopoulos, my partner at Regeneron since we first opened our labs 25 years ago, Regeneron has built a suite of technologies that has given us a robust pipeline of antibody drug candidates. This includes 3 late-stage with large potential market opportunities, including alirocumab, our PCSK9 inhibitor in a large global Phase III program for treating elevated cholesterol and cardiovascular disease; sarilumab, our IL-6 receptor antibody in a large Phase III program for rheumatoid arthritis; and dupilumab, our IL-4 receptor antibody that will be advancing into Phase IIb testing for allergic asthma and atopic dermatitis later in the year. And innovation keeps on coming. We are equally excited about our earlier-stage pipeline and our novel technologies that we believe have the potential to become the foundation of our future growth. Now let me turn the call over to George Yancopoulos, Regeneron's Chief Scientific Officer, to discuss our pipeline progress in greater detail. George will be followed by Bob Terifay, Senior Vice President of Commercial, who will elaborate on our commercial activities. And finally, Murray Goldberg, our Chief Financial Officer, will discuss our financial performance during the first quarter of this year. George?

Thanks, Len, and good morning to everyone. The first quarter of 2013 continued to be a busy time for the research and development teams at Regeneron. Let me begin with EYLEA, which is now approved for 2 indications in the United States, wet AMD and macular edema following CRVO. As you just heard from Len, our partner, Bayer HealthCare, expects to continue filing and receiving x-U.S. approvals for EYLEA in both of these indications in a growing list of countries. A Phase III trial of EYLEA in patients with macular edema following branch retinal vein occlusion, or BRVO, is fully enrolled, as are 2 Phase III trials in DME. We and Bayer HealthCare expect top line 1-year results from the x-U.S. DME trial before year-end. As a reminder, outside the United States, DME approvals have been based on 1-year data, in contrast to the United States, which has required 2-year efficacy data. Our third Phase III trial in DME was initiated early this year in Russia and Asia and is enrolling patients. We and Bayer HealthCare expect to report top line data from our Phase III study in EYLEA in myopic choroidal neovascularization, or mCNV, in the next few months, which could form the basis of regulatory filings outside of the United States. Turning to our Phase III antibody pipeline and starting with, alirocumab, our PCSK9 antibody, which is in clinical development for lowering LDL cholesterol. Our broad Phase III ODYSSEY program is ongoing. And as previously announced, we expect top line results from the first Phase III trial, ODYSSEY MONO, in the third quarter 2013. As a reminder, the ODYSSEY MONO trial is comparing alirocumab monotherapy to ezetimibe in patients with hypercholesterolemia. Data for the majority of the Phase III trials for alirocumab, excluding the ODYSSEY outcomes trial, are expected in 2014. Our Phase III program with sarilumab, our IL-6 receptor inhibitor, is moving along as expected. The mobility Phase III trial in patients who have failed disease-modifying anti-rheumatic drugs, or DMARD, therapy, is fully enrolled and we expect top line data in early 2014. We, along with Sanofi, have also initiated the Phase III target trial, which will evaluate the combination of sarilumab and DMARDs with rheumatoid arthritis patients who are not responsive to or are intolerant of TNF-alpha therapies. This study is intended to establish the utility of sarilumab in TNF-alpha inhibitor failures. Additional Phase III trials for sarilumab are planned to start this quarter. Beyond these Phase III programs, our Phase II pipeline is also advancing. We now have positive data in 2 indications for our IL-4 receptor antibody, dupilumab, formerly known as REGN668. In March, we presented positive data from 2 proof of concept studies of dupilumab in atopic dermatitis at the Annual Meeting of the American Academy of Dermatology. Later this month, we will be presenting data at a late breaking session of the Annual Meeting of the American Thoracic Society from a Phase IIa study of dupilumab in patients with moderate to severe persistent asthma with elevated eosinophils. We expect to initiate Phase IIb studies in both these indications later this year. In addition to these later-stage programs, we have 7 other antibodies in Phase I, along with several other exciting antibody programs that are in earlier stages of development. I would like to spend a few minutes on 2 of these earlier-stage antibody programs. As Len mentioned briefly, we have now acquired from Sanofi full rights to our PDGF receptor antibody and our ANG2 antibody for ophthalmology. Both of these pathways play an important role in angiogenesis, and their blockade could potentially add to the clinical benefit seen with anti-VEGF therapy. We expect to submit an IND for a combination trial of our PDGF receptor antibody in EYLEA in the second half of the year. We also expect to submit an IND to develop our ANG2 antibody in the ophthalmic setting later this year. As a reminder, the ANG2 antibody is already in clinical development in oncology in combination with ZALTRAP as part of our Sanofi collaboration. While we will not be providing additional details on these earlier-stage assets at the moment, it's a testament to the power of our research and development expertise to have these 2 programs advancing. It also highlights our commitment to maintain a leadership position in the field of retinal diseases, particularly VEGF-mediated diseases like wet AMD and DME. Finally, I'd like to note that we are excited about some of our emerging new technologies that we hope will soon yield clinical candidates, including bispecific antibodies, longer-acting antibody technologies and antibody-drug conjugates. With that, I'd now like to turn the call over to Bob to provide an update on the EYLEA launch and market dynamics.

Thank you, George, and good morning, everyone. The EYLEA franchise is not only doing very well but is also well positioned for continued growth, both in the United States and outside the United States. In the first quarter, we continued to witness strength in the uptake of EYLEA in the U.S. wet AMD market, both in terms of patients new to anti-VEGF therapy, as well as those switching from bevacizumab or ranibizumab. As a reminder, we received a permanent J code effective January 1 of this year. Our qualitative market research, which comes from position-based questionnaires and was conducted in the first quarter, indicates that in terms of eyes treated, EYLEA now represents 24% of the U.S. wet AMD market, ranibizumab represents 30%, and bevacizumab represents 46% of the market. This suggests that EYLEA hold a 44% share of the on-label wet AMD market. In the first quarter, 59% of EYLEA-treated eyes were eyes continuing on EYLEA from previous months, 25% were switches from bevacizumab and ranibizumab, and 16% were new to anti-VEGF treatment. Drilling down further, these market research data show that EYLEA, in the first quarter in 2013, garnered 24% of wet AMD eyes which were new to therapy, and 58% of eyes which were switched from previous therapies. Of these switches, 55% were from bevacizumab, and 45% were from ranibizumab. In our survey, physicians report positive clinical responses to EYLEA that meet or exceed their expectations in 70% of treated eyes. In a majority of the remaining patients, it's too early to assess response to therapy. Physicians now estimate that wet AMD, on average, patients -- wet AMD patients, on average, receive 7.5 doses of EYLEA in their first year of therapy, including 3 initial monthly doses, and 5.4 doses in the second year of therapy. In macular edema following CRVO, the second indication for which EYLEA has received approval in the United States, our qualitative market research indicates that during the first quarter, we now have a 21% share of treated eyes. As you've heard, we've updated our EYLEA U.S. net sales forecast to $1.25 billion to $1.325 billion for the year. While we had 14% growth in these sales in the first quarter compared to the fourth quarter last year, we expect to see a slower rate of growth for the remainder of the year, as a greater portion of our sales are now coming from existing patients and many of these patients are moving to less-frequent dosing. Lastly, we've recently started to see an impact from the sequester funding cuts on some retinal practices. Specifically, under the sequester, payments for Medicare Part B drugs such as EYLEA were reduced from 106% of the average selling price to 104.3%. This reduction has led some practices to reduce their use of FDA-approved anti-VEGF therapies for retinal diseases. Turning now to the x-U.S. portion of our EYLEA franchise, where we split profits 50-50 with Bayer HealthCare, first quarter net sales were $65 million. While by the end of March, EYLEA was available in over 15 countries, first quarter sales were primarily from Japan and Australia, where Bayer reported market shares of 48% and 42%, respectively. Over the course of 2013, we expect Bayer to embark on launches in additional countries as regulatory and pricing approvals for EYLEA in wet AMD are achieved. In addition, applications for marketing authorization for EYLEA for the treatment of macular edema following CRVO are pending in Europe, Japan and other regions. Bayer has estimated peak sales of EYLEA outside of the United States of EUR 1 billion if approved in the expected indications of wet AMD, CRVO, DME and Myopic CNV. Turning to ZALTRAP or ziv-aflibercept. Sanofi reported sales of $14 million for the quarter, which is down from the fourth quarter of 2012. This decline is largely related to a 50% reduction in the effective net sales price in the United States effective November of 2012. Now that ZALTRAP has been approved in the EU, we look forward to continued x-U.S. launch rollouts over the course of 2013. With that, let me turn the call over to our Chief Financial Officer, Murray Goldberg.

Thank you, Bob, and good morning. I'm very pleased to discuss our financial results for the first quarter of 2013. As you heard from Len earlier on the call, the first quarter of 2013 was another strong quarter, with total revenue of $440 million and non-GAAP net income of $201 million or $1.78 per diluted share compared to $1.47 per share in the fourth quarter last year. The increase in our earnings was primarily driven by strong EYLEA sales performance in the United States. We are also pleased that sales of EYLEA outside the U.S. contributed to our bottom line for the first time. Outside the U.S., we are entitled to 50% of profits on EYLEA sales, except for Japan, where we receive a royalty on sales. As you heard, we reported $314 million in net U.S. EYLEA sales, and Bayer HealthCare reported net x-U.S. EYLEA sales of $65 million for the quarter. For the full year, we now forecast net U.S. sales of $1.25 billion to $1.325 billion. EYLEA inventory levels in the U.S. continue to equal about 1 to 2 weeks of sales. ARCALYST, or rilonacept, net sales in the first quarter were $5 million, similar to sales in prior quarters. Turning to collaboration revenue. Bayer HealthCare collaboration revenue was $15 million for the first quarter. Included in this line are a net profit of $6 million from x-U.S. EYLEA sales after repaying $13 million of development expenses that Bayer HealthCare has previously funded, amortization of upfront and milestone payments and cost sharing of current EYLEA development expenses. All of these will be detailed in our 10-Q that we expect to file later today. Sanofi collaboration revenue was $99 million for the first quarter. This includes reimbursement of our R&D expenses for preclinical and clinical research within our antibody collaboration, amortization of upfront payments and our share of the loss associated with the ongoing launch of ZALTRAP. In the first quarter, Sanofi recorded $14 million of ZALTRAP net sales, and we recognized a net loss of $8 million from ZALTRAP, as we and Sanofi prepared for commercialization in the European Union and other countries. As we have said before, we do not expect a meaningful positive contribution from the commercialization of ZALTRAP in the near term because of our obligation to repay Sanofi from our share of ZALTRAP profits for 50% of the ZALTRAP development expenses that they have funded. Non-GAAP cost of goods sold was $29 million for the first quarter, including royalty expense to Genentech relating to U.S. EYLEA sales. COGS continue to average less than 10% of product sales. Non-GAAP selling, general and administrative expense for the first quarter was $51 million. We reiterate our guidance for non-GAAP SG&A expense in 2013 of $215 million to $235 million. Non-GAAP R&D expense for the first quarter was $154 million. This includes unfunded R&D expenses of $44 million compared to $48 million in the fourth quarter of 2012. Unfunded R&D is calculated as the difference between our total R&D expense and the amount that is reimbursed by our collaborators. As we said on our February conference call, we expect unfunded R&D expense to increase in 2013 compared to 2012 for several reasons: increased spending on EYLEA clinical programs, including the Phase III trials in DME and macular edema following BRVO; advancing unpartnered antibody programs through to the proof of concept stage; and increased spending on early-stage technologies, such as antibody-drug conjugates, bispecific antibodies and longer-acting antibody technologies. In addition, if the initial Phase III data for alirocumab are positive later this year, it would trigger the real-time sharing of 20% of subsequent Phase III development expenses for the ODYSSEY program. Given the timing of these R&D expenses, we expect the impact on unreimbursed non-GAAP R&D expense to be weighted more heavily towards the second half of the year. In addition, we anticipate that, as in 2012, full year discovery preclinical spending under the Sanofi antibody agreement is likely to exceed the amount that Sanofi is obligated to reimburse. Like last year, due to the timing of the reimbursement for discovery research, the difference will fall primarily in the fourth quarter. Our full year 2013 guidance for non-GAAP unfunded R&D remains at $275 million to $325 million. This guidance includes the $20 million in upfront payments that we will pay to Sanofi later this month in connection with our recently announced acquisition of the full rights to antibodies, the PDGFR and ANG2 in ophthalmology. This increase in unfunded R&D spending over the balance of the year will, therefore, impact our quarter results. As a reminder, non-GAAP R&D and SG&A expenses exclude noncash share-based compensation expense. Turning to the bottom line. We reported non-GAAP net income of $201 million or $1.78 per fully diluted share for the first quarter. This non-GAAP EPS excludes noncash share-based compensation expense, noncash interest expense related to our senior convertible notes and noncash income tax expense and is based on about 114 million non-GAAP fully diluted shares. A full reconciliation of all of the adjustments to GAAP earnings are set out in our earnings release. For GAAP purposes, in the first quarter of 2013, we recorded a $43 million income tax expense, representing about a 30% effective tax rate. Because of the timing of passage of the American Taxpayer Relief Act in January 2013, we recognized the full benefit of our 2012 federal research tax credits in the first quarter of 2013. This lowered our effective tax rate for the quarter to about 30%. For the remainder of 2013, we expect a GAAP effective tax rate of about 40-plus percent. However, we do not currently expect to pay any significant cash income taxes through at least 2014. Moreover, as sales of our products and our operations grow outside the United States, we anticipate that our GAAP tax rate will start to decline in a few years. With that, I'll turn the call back to Len.

Thank you, Murray, Bob, George and the rest of the team. We are proud of what we have accomplished so far this year but also recognize that we must keep innovating. With that goal in mind, we will continue to invest in our R&D and our technologies and strive to deliver on our pipeline. We look forward to upcoming commercial, regulatory and clinical milestones in the remainder of this year. Thank you all for joining us this morning. And with that, let me turn the call back to Michael.

Thank you, Len. That concludes our prepared remarks. We'd now like to open the call to Q&A. [Operator Instructions] Our team will be available in our office after the call for follow-up questions. Thank you. And operator, if you could please open the call for questions.

[Operator Instructions] Our first question comes from Jim Birchenough with BMO Capital.

Question on the opportunity around potential penetration of the Avastin base. Is there any way you can quantify the number of physicians you'd characterize as Avastin prescribers, what the pace of conversion has been? Maybe describe what you're seeing in terms of any disruption on the increased scrutiny? And if you have any insights into how this legislation or draft legislation might proceed, that would be helpful.

Let me address -- this is Len. Let me address the legislation part first, and then I'll turn the market dynamic question over to Bob. In terms of legislation, all we know, thus far, is that there's been a lot of interest in this area for the obvious reason that many Americans were killed and thousands were put at risk from the problems at compounding pharmacies. And this catastrophe has certainly caught the attention of the FDA and people in Congress. We know recently that the Senate Health Committee seemed to draft a bipartisan bill that will, I'm sure, be marked up and changed, et cetera. But as it stands now, it would seek to regulate compounding pharmacies, including those who would repackage sterile products such as Avastin for distribution around the country to be used in injections. And as I said during my prepared remarks, we feel strongly that choice is fine, multiple choices are good for patients and doctors, but there should only be one standard -- one quality standard for a drug that's going to be injected in a high-risk area like the back of the eye. And that standard should be regulated under GMP, we believe, by the FDA. Bob, any comment? Are you seeing anything on the market dynamics?

Yes. So in terms of the compounding legislation and its impact on physician prescribing, so far, it has had very little impact on physicians moving away from Avastin. That said, we have seen the market shifting away from Avastin towards the branded products since the launch of EYLEA. And on average, we see about 10 to 12 accounts -- new accounts that come to EYLEA each week that are generally smaller accounts that were using Avastin, were not using Lucentis and now have -- our sales representatives have been working with them, helping them figure out how to deal with the distribution and the carrying costs, et cetera. And so we are seeing an increase in our penetration of the Avastin market, but it is not related to the compounding.

Our next question comes from Robyn Karnauskas with Deutsche Bank.

I guess, first, could you comment a little bit about your announcement today about working on a deal with Sanofi on PDGF and ANG2? And I was just trying to think about, what are your thoughts on potential uses? Are you starting to combine it, create the combined formulation with EYLEA? And then for the EU market, would you have to work out an agreement with Bayer, and how would that occur? What would be the timeline for that occurring?

Thanks for the question, Robyn. Let me just deal with some of the deal-related questions. Both of these antibodies were discoveries that came out of our labs, but they were partnered with, part of our Sanofi relationship. I think Sanofi and Regeneron got together and thought that it made sense, given our EYLEA franchise and the potential of combining these drugs with EYLEA, that we would be able to regain sole rights to those programs for use in ophthalmology. Under our deal that we did with Sanofi, we have the right to partner with anybody, and that would include our partner Bayer, and we don't have anything further to say about that at this time. Now as far as the technical reasons why you want to study these molecules and how you study them, George, do you want to comment on that?

Well, there's a lot of very interesting biology behind the notion of combining either of these pathways with anti-VEGF pathways, particularly in the eye and for uses in the eye. And we're very excited about having the ability now to have not only potential best-in-class anti-VEGF therapy but also potential best-in-class anti-PDGF and anti-ANG2 therapies, which we can explore both on their own and also in combination and, if need be, in a rather favorable situation, of being able to combine them in a single formulation. So we're excited about the opportunity. It still is, obviously, early days, but there's a lot of interesting biology here.

Our next question comes from Chris Raymond with Robert Baird. Christopher J. Raymond - Robert W. Baird & Co. Incorporated, Research Division: Just kind of curious if you could expand on your comments on the sequester-related sort of headwinds. It seems this dynamic might favor Avastin over the branded therapies. But given the less frequent dosing interval for EYLEA, that should be an advantage for you guys. So maybe some crosswinds, perhaps, there? I wonder if you could maybe describe a little bit more about -- is it really all just something that favors Avastin? Or is there maybe an advantage with respect to EYLEA and Lucentis that you're seeing?

Yes. I mean, it's a little bit early to really predict this. I think it's difficult. Bob might want to comment about what some individual practices have done, but big trends, we can't speak to yet. Bob?

Many of the practices feel that they're working on a fairly thin margin in terms of their office staff that has to handle the products, the receivables, et cetera. And so that's really where the concern is, that they're just not making sufficient enough money to cover the costs of using the branded agents. So I think, largely, right now, the physicians are seeing the sequestration as something that will lead to them thinking more about using Avastin.

Our next question comes from Adnan Butt with RBC Capital Markets.

Congrats on the forward-thinking Sanofi deal. On the combination of EYLEA and PDGF, what leads the company to believe that those 2 can be combined together? Is the ANG2 a combination as well? And then for long-acting antibodies, is there anything being thought about for EYLEA to extend its interval? Or is that for future products?

So I don't think we have a comment about EYLEA specifically, but George can comment, and I didn't know whether the question was whether -- what the rationale for combination overall or combination specifically into a single syringe. But maybe he could address the rationale for both. George?

Well, as we all know, there's multiple ways that blood vessels can be triggered, can be activated, can be made to leak, can be made to grow. And certainly, there's a lot of preclinical science that implicates the PDGF pathway and the ANG2 pathways in these processes. So I think it's a very attractive position to have these combination capabilities. And certainly, because the proteins that we were talking about combining can be combined, and we have actually done it in preliminary formulation studies, the opportunity is there to combine them into a single formulation to be delivered simultaneously if the science supports that possibility.

Our next question comes from Steve Byrne with Bank of America.

Does Bayer need your DME data in the U.S. for them to file in Europe? It would seem that we're coming close to the 1 year anniversary for their trial being fully enrolled, whereas your second year anniversary might be early 2014. Do they need to wait for your data to file?

Historically, the EMA has approved Lucentis based on the results of one 1-year study. So it is possible that, based upon the first year of the Bayer study, they may be able to file. But they have not announced anything about their filing plans.

And we'll have that data later this year. And you're correct in terms of the timing, Steve.

Our next question comes from Jason Kantor with Crédit Suisse. Jason Kantor - Crédit Suisse AG, Research Division: I wanted to skip over to dupilumab and just ask how you plan to start Phase IIb trials this year. Can you give us some idea of what those trials might look like, and as well, how you'd think about the overall IL-4 [ph] program? What would the kind of market be in asthma or atopic dermatitis? And are there other indications that are related that you might also go after now that you have proof of concept with the patients?

Right. So Jason, I wouldn't have a comment on trials that haven't been announced yet. It's just -- you just have to wait. I'm sorry. As to other indications, I would say that it is exciting to us that when you take 2 diseases that superficially are not related, atopic dermatitis and, let's say, allergic asthma, and you get a proof of concept with a single drug candidate in both of those, you recognize, of course, that these are related diseases because they're both allergic-type diseases affecting different tissues, one affecting the skin and one affecting the lungs. And obviously, if one drug can have -- seem to have an important effect in both of those, then we will be looking at a lot of other tissues with the same sorts of processes maybe ongoing. So I think your insight there is good. I would just say that this is an area that we are particularly excited about. We think the prospect of fundamentally influencing these pathways is important. George, do you want to add anything about the trends of these diseases or...?

Yes. I think -- just to amplify on what Len said, I think we have made a really fundamental potential finding here, which is, as you know -- and it's all over the news, there was just a release from the Center for Disease Control yesterday. Every day, you pick up a newspaper, you hear about the increasing rates of various forms of allergic disease in the world, ranging from asthma to eczema and other type of skin allergies, to food allergies, to an assortment of other diseases that, on some level, suggest that there's some sort of allergic reaction going on. And we've long thought that the interleukin-4, interleukin-13 pathways might be critical drivers of this essentially worldwide shift towards what is known as a TH2-type phenotype. And of course, until you actually produce human data, and as Len said importantly, in not just 1 but 2 of these diseases, do you actually think that maybe it is true that this is a fundamental set of pathways that are driving this epidemic towards too much TH2 disease. And since it works in these 2 settings, we're excited about the fact that this could much broadly address other types of allergic diseases as well. So we think there's a very important potential opportunity.

Okay. And we have to do our presentation at the American Thoracic Society. When is that, Michael?

That's May 21.

Okay, great. Thanks for the question, Jason.

The next question comes from Terence Flynn with Goldman Sachs.

Just wondering, now that you have the J code in hand, if you guys are going to plan to tighten your payment terms at all to the physicians given your account receivables balance. And then the second question I had was just any update on the EYLEA litigation with Genentech, both U.S. and x-U.S.?

Yes, good questions. We probably don't want to anticipate either of those questions with answers. So we'll give you a free pass to ask a different question, Terence, if you like.

Okay, understand. I guess in terms of just the gating steps to getting the PDGF antibody into the clinic, can you guys just walk us through what else is left here and when, kind of a timeframe, to expect that might be?

Yes, we're at the end of the preclinical phase in preparing for filing of the IND sometime later this year.

Our next question comes from Ying Huang with Barclays.

I have a couple here. First of all, can you tell us how many patients do you have to accumulate in the safety database before you can file for the PCSK9 antibody with the FDA? And then secondly, can you help us understand the market opportunity for both atopic dermatitis and also asthma indications here for the IL-4 program?

Right. So it's -- in terms of the number of patients, if you look at our filings, we believe that -- you can find them on ClinicalTrials.gov -- that the aggregate of our trials will provide an adequate database for us to file. I'm not going to give you a specific number that we've discussed just for competitive reasons, but our trial is designed to meet the number and meet the requirements for demonstrating safety and efficacy. In terms of the market size for asthma, resistant asthma, allergic asthma, atopic dermatitis, at this point, we would just say they are very large market opportunities. Sorry about not being able to quantify that at this point.

The next question comes from Joseph Schwartz with Leerink.

I was wondering, how do you see EYLEA adoption patterns outside the United States comparing to what you've been able to achieve in the U.S.? Bayer obviously achieved pretty hefty market share in Japan and Australia very rapidly. Do you expect that pattern to play out in Europe and elsewhere?

We certainly hope. It's hard to predict how this is going to go. The launch is off to a great start. The IMS market share data in the countries, primarily Australia and Japan that have gotten going first, look great. There's lots of market awareness for the product. I think people are excited for the product, and we're looking forward to a successful launch. Avastin is less of a factor outside of the United States, so we're really in a head-to-head -- rather than a three-way fight, we're in a head-to-head battle with Lucentis, and so far, very good.

Our next question comes from John Newman with JMP Securities.

All of my questions have been answered.

Okay, great.

Our next question comes from Yaron Werber with Citi.

This is Kumar Raja in for Yaron Werber. Can please give us a sense of how long it will take for pricing negotiations in Europe? And do you have a sense of what -- how long it took for Lucentis?

Yes. So these are the questions that are better posed to Bayer. They should be the spokesman for that level of detail, and I'm sure they'll be happy to address them for you.

Our next question comes from Biren Amin with Jefferies. Biren Amin - Jefferies & Company, Inc., Research Division: I guess, I think you provided some pretty good color on dosing for year 1, year 2 for EYLEA. And I just want to -- thinking forward, how should we think about year 3 EYLEA dosing?

It's hard to predict. There's lots of data out there that people have tried -- try all sorts of different dosing paradigms. We kind of hope that people stick to the label. There are some people who are concerned about overtreatment. We're obviously concerned about systematic undertreatment. But I don't know we have any information yet. It's too early in our launch to know how people are going to use EYLEA. Even in the second year, we barely have people, small numbers, so it's a little bit early for that. Sorry.

The next question comes from Ted Tenthoff with Piper Jaffray.

Actually, my questions are largely answered, but if I could ask Bob to just repeat what the 1-year injection rate was. And then a kind of housekeeping one for Murray. With respect to the weighted number of shares outstanding, it looked like it decreased a little bit from year-end. Is that just an accounting thing, or how should we be thinking about that?

Yes, so Ted, we said 7.5 doses in the first year, including the 3 loads, and then 5.4 doses in the second.

That's based on physician estimates, obviously, not actual chart reviews. The technical question about shares outstanding, I think it's you.

Ted, really, it is just the accounting calculations on what gets included in dilutive, anti-dilutive in the calculation. Nothing fundamentally changed.

What is the fully diluted share count right now?

The non-GAAP was 114 million shares. That's what our calculation's done on, 114 million shares.

Our next question comes from Phil Nadeau with Cowen and Company.

It's one for George on dupilumab. George, we've seen other IL-4s that have produced kind of unimpressive data in asthma. What differentiates dupilumab? What are you seeing either preclinically in binding affinity or half-life? Or what have you seen from these initial clinical studies that will -- that gives you confidence that this will work on top of standard of care when some of the other drugs didn't?

Thanks for that question, and we'll let George handle that.

All right, Phil. Well, we do think not all inhibitors are made the same, nor do they act the same. And as you know, all these features that you talked about, which are affinity, particularly hitting one receptor and a component of the receptor system that will block essentially with very high affinity, both cytokines, it hits both type 1 and type 2 receptors. There's a lot of differentiation on the biochemistry, which we can't get into the details here. But it's just -- I think it's a testament to the fact that if you create a good antibody with all the right properties, not all antibodies are the same, not all the technologies are the same, you may end up achieving better results in the clinic.

Our next question comes from Geoff Meacham with JPMorgan. Geoffrey C. Meacham - JP Morgan Chase & Co, Research Division: A couple on U.S. EYLEA. For the J code, any impact in the first quarter in terms of what you're seeing from the field, the speed to get reimbursement, how that compares with last year? And then on Avastin use, you guys have talked a lot about the general trend since the launch. But curious if your market research indicated an acceleration of lower Avastin share since the last call, since some of the adverse events were first disclosed.

We'll let Bob take that.

So Geoff, as you know, we received a temporary Q code in the middle of last year, which really brought us to very fast turnaround times from the Medicare providers. So we haven't seen a dramatic change in turnaround since the J code, since we were already being pretty -- processed as a specified agent in the Medicare system since July. With regards to the Avastin, we have seen a gradual decline since launch. In the launch timeframe, we had -- Avastin had about a 60% to 65% share of eyes. And that has now come down to 46%, so it continues to go down gradually.

Okay, great. Well, let us stop by saying we appreciate your time and interest. We do appreciate this week the work of the selection committee of the S&P 500 people. We're proud to be in that group. And we look forward to continuing to update you through the rest of the year. Thank you, operator.

You're welcome. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.