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

Terence C. Flynn - Goldman Sachs Group Inc., Research Division Robyn Karnauskas - Deutsche Bank AG, Research Division Yaron Werber - Citigroup Inc, Research Division Jeremiah Shepard - Crédit Suisse AG, Research Division Adnan S. Butt - RBC Capital Markets, LLC, Research Division Matthew Roden - UBS Investment Bank, Research Division Joseph P. Schwartz - Leerink Swann LLC, Research Division John L. Newman - Canaccord Genuity, Research Division Philip Nadeau - Cowen and Company, LLC, Research Division Laura K. Chico - Robert W. Baird & Co. Incorporated, Research Division Biren Amin - Jefferies LLC, Research Division Carter L. Gould - JP Morgan Chase & Co, Research Division

Good day, ladies and gentlemen, and welcome to the Regeneron Pharmaceuticals Second Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Dr. Michael Aberman. Sir, you may begin.

Thank you, operator. Good morning, and welcome to Regeneron Pharmaceuticals' Second Quarter 2014 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; George Yancopoulos, Founding Scientist, President of Regeneron Laboratories and Chief Scientific Officer, who is traveling outside the U.S. and is dialing in to the call; Bob Terifay, Senior Vice President of Commercial; and Bob Landry, Chief Financial Officer. After our prepared remarks, we will open the call for Q&A. I would also like to remind you that remarks made on this call include forward-looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and business, sales and expense forecast, financial forecast, development programs, collaborations, finances, regulatory matters, intellectual property 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-K for the year ended December 31, 2013, and its Form 10-Q for the quarter ended June 30, 2014, 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, 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. This has been a very exciting couple of weeks for Regeneron. First, this morning, we reported strong sales and earnings driven by the global performance of EYLEA, also known as aflibercept, injection. Last week, we announced the U.S. approval of EYLEA in a third indication, diabetic macular edema, an approval that came 3 weeks ahead of the expected PDUFA date. We also reported positive data from 9 Phase III studies from the ODYSSEY program of alirocumab, our LDL cholesterol-lowering antibody. And we announced the purchase of a priority review voucher, which Regeneron and Sanofi intend to use to obtain priority review for our alirocumab BLA, which is expected to be submitted by year end. In addition, our pipeline has made steady progress this quarter, highlighted by the publication in the New England Journal of Medicine of dupilumab data in atopic dermatitis and presentation of sarilumab Phase III data at the Annual Meeting of The European League Against Rheumatism, also known as EULAR, in Paris. Turning to our earnings. We delivered strong revenues and earnings per share in the second quarter. EYLEA U.S. net sales in the second quarter were $415 million, and U.S. sales saw minimal impact of inventory changes. To be clear, the inventory changes referred to in our earnings release were for the second quarter of 2013 and not for the second quarter of 2014. We included the reminder about the modest drawdown in the second quarter of 2013 to help better understand the growth of our underlying demand. We had also heard some concern by investors that the release of Medicare billing information had resulted in a shift away from the branded anti-VEGF therapies towards compounded bevacizumab. This is not a trend that we saw during the quarter.…

Thank you, Len, and a very good morning to everyone who has joined us today. The second quarter and the third quarter so far have been very exciting and data-rich period for us. Let me begin with EYLEA. As Len mentioned, the recent FDA approval for EYLEA in a third indication, DME, in the United States came 3 weeks ahead of the FDA's target action date. I'd like to acknowledge the patients and clinicians who are participating in these studies and our team's efforts. I would also like to thank the FDA for working closely with us in their typical science-driven way to bring us important medicine to patients as quickly as possible. Outside the United States, our partner Bayer HealthCare has received a positive opinion from the European Committee for Medicinal Products for Human Use, or CHMP, for the DME indication and anticipates a final decision by the European Commission in the near future. We anticipated an additional label expansion later this year in macular edema following branch retinal vein occlusion, or BRVO, where we have been granted an FDA action date of October 23. Bayer HealthCare has also made a European regulatory submission for EYLEA in this indication. We recently also reported positive 2-year data for EYLEA from the VIVID trial in DME. These data were similar to the VISTA 2-year data previously reported. We look forward to presenting these data at an upcoming medical conference. Turning to sarilumab, our IL-6 receptor antibody, which is in Phase III for rheumatoid arthritis. Which -- we recently presented details from the Phase III MOBILITY trial at EULAR. These data have been received very positively. We currently have several Phase III studies underway and look forward to reporting data from these studies in 2015. Let me now turn to one of…

Thank you, George, and good morning, everyone. It's a very exciting time to be responsible for commercialization at Regeneron. I'd like to begin my discussion today with EYLEA, or intravitreal aflibercept, injections. Second quarter U.S. EYLEA net sales to distributors were $415 million, which represents a 26% increase over second quarter 2013. Sequential quarterly growth in physician sales were 7%. The growth so far this year has come primarily from growth in the wet AMD market due to an aging U.S. population. According to a qualitative market research survey that we conducted in the second quarter, EYLEA continues to account for approximately half of the market for FDA-approved anti-VEGF therapies for wet AMD in the United States. Based on this survey, it appears that there has not been a major shift in market shares between FDA-approved anti-VEGF therapies and off-label compounded bevacizumab. FDA-approved therapies still represent approximately half the total anti-VEGF market in this indication. As you know, last week, we received FDA approval for EYLEA in a third important new indication, diabetic macular edema, which is the leading cause of blindness among working-aged adults in the United States. EYLEA is the first and only anti-VEGF agent approved for DME with a dosing interval of greater than every 4 weeks. According to the U.S. prescribing information, EYLEA can be dosed every 8 weeks following 5 initial monthly doses. The Phase III studies for EYLEA in DME were the only registration studies that compared an anti-VEGF agent to prospective macular laser photocoagulation therapy dosed at baseline and then as needed thereafter. In addition, EYLEA is the only FDA-approved agent approved for DME that has the same single-strength dose per injection as approved for wet AMD. Physicians' offices, therefore, only have to stock 1 dosage form, EYLEA 2 milligrams, without concern over…

Thanks, Bob, and good morning to everyone who has joined us today. Regeneron realized strong financial results in the second quarter. In the second quarter, we earned $2.47 per diluted share from non-GAAP net income of $289 million, which represents a 43% and 46% increase, respectively, versus the 3 months ended June 30, 2013. Regeneron's non-GAAP EPS excludes noncash share-based compensation expense, noncash interest expense related to our senior convertible notes and income tax expense. In the second quarter of 2014, our GAAP to non-GAAP reconciliation also included an additional expense of $10.8 million related to our loss on extinguishment of debt in relation to the conversion of a portion of our convertible notes. A full reconciliation of GAAP to non-GAAP earnings is set forth in our earnings release. Total revenues in the second quarter of 2014 were $666 million, representing a 45% increase compared to total revenues in the second quarter of 2013. Net product sales were $418 million in the second quarter of 2014 compared to $334 million in the second quarter of 2013. EYLEA net product sales in the United States were $415 million in the second quarter of 2014 compared to $330 million in the second quarter of 2013, an increase of 26%. Second quarter 2013 U.S. EYLEA net sales were impacted by a modest increase in distributor inventory. Excluding these changes in inventory, underlying demand for EYLEA in the second quarter of 2014 in the United States increased by approximately 22% year-over-year. U.S. EYLEA net sales distributor inventory levels at the end of the second quarter 2014 were consistent with first quarter 2014 levels and remain within the normalized 1- to 2-week range. As mentioned in our press release issued earlier this morning, we are reaffirming our U.S. EYLEA net sales guidance of $1.7 billion…

Thanks, everyone. We are pleased by the progress that we have made in the first half of the year and are focused on delivering on our goals for the remainder of the year and beyond. We look forward to the ongoing launch of EYLEA in the DME indication. On the regulatory front, we will be working diligently towards submitted regulatory applications for alirocumab by the end of the year, both in the U.S. and in Europe, in collaboration with Sanofi. With that, I will now turn the call back over to Michael.

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

[Operator Instructions] Your first question is from Terence Flynn of Goldman Sachs.

I was just wondering -- I know you're not going to give specific guidance for 2015 at this point, but if we look at your unreimbursed R&D expense this year and we net out the half of the priority review voucher expense, is that the right run rate to think about going forward? Or should we expect a step-down in expense, given you've completed most of the PCSK9 Phase III trials?

Bob?

Thanks for the call. No, on unreimbursed R&D, if you do the math, you know it's going to be basically be higher in the second half of 2014 than it is in 2013, even if you back out the voucher. We do expect that to continue, as you've heard from kind of George and Len with regards to numerous programs that we have that are -- that remain partnered and unpartnered. And certainly, the unpartnered piece is what's going to hit the unreimbursed R&D, in addition to everything else we have going on. So I do envision our unreimbursed R&D to be higher in 2015 than it would be in 2014, less the voucher.

Our next question is from Robyn Karnauskas of Deutsche Bank.

So just thinking about the daily market. You talked about early growth coming from switching. I was just wondering, how many people do you think are really failing therapy? There hasn't been a lot of anti-VEGF. So how does it differ from AMD? Were you calling a lot more people who are failing therapy? And how do you think about the dynamics of the launch versus AMD?

Bob?

So Robyn, the thing we know about DME from the clinical programs for both EYLEA as well as our competitors, is that if you look at the OCT measures, which are the measures of whether the retina is completely dry or not, DME is a much more VEGF-mediated disease with a lot more retinal wetness. So if physicians are using OCT to guide their treatment, which they often do, we anticipate that there will be a large number of potential switch candidates. I'm not going to quantify the specifics of that. I still think the major opportunity is the longer-term opportunity in DME, which is to expand the market. There are still a number of patients who are still being treated with laser, as well as steroids, which both have their own drawbacks. And so our real focus is to try to get patients treated early, treated when they are anti-VEGF treatment naïve. Obviously, we'll be glad to get the switches, but our opportunity is really to get the new patients and get them early.

The next question is from Yaron Werber of Citi.

So what can you tell about the SR-31 [ph] gene therapy for AMD? And how sustainable are the protein levels from the gene expression?

Yes, it doesn't exactly sound like Yaron. But the answer to the question is that we really don't have any comments about that program. You really should be talking to Avalanche directly, as they're managing and running it and have all the data.

What are the timelines for the EYLEA PDT Phase I/II data?

We haven't really commented more on that. Obviously, those trials are ongoing.

The next question is from Jason Kantor of Crédit Suisse. Jeremiah Shepard - Crédit Suisse AG, Research Division: This is Jeremiah filling in for Jason. In regards to the outcome study for alirocumab, how much different is the patient population than what you've enrolled for the long-term study? And also, is there any predetermined -- in terms of the OUTCOME study?

Yes. We're not going to get into the -- it's a very competitive area, so we don't want to get into too many of the details of our program in this setting. I think it's better left for scientific meetings. Although we can say that, obviously, the people in our study are at high risk, and they will have been treated with a statin, an ongoing treatment with a statin.

The next question is from Adnan Butt of RBC Capital Markets.

It's Adnan. I wish I had put associate on the ticket. 2 questions, but here's my question. For the PCSK9 products, what's the feasibility of showing differentiation amongst the different anti-PCSK9s that are in development? Is that possible, either on dosing, administration, label, et cetera? And if you can't answer that, then my question is on the certainty of filing for -- using the voucher.

I didn't get the second question. What was the second question?

If you can't answer the first one, then what's the precedent for using the voucher strategy to get a priority review? What's the certainty around that?

Right. So let me briefly just say, on the first one, I think that, from a basic biochemical point of view, the antibodies that most people are developing are subtly different, but not major differences. And many of the differences and differentiations, I think, will come from the program design, the label, et cetera, et cetera. We think we conducted a pretty robust program. We had a long treatment study, which looked at safety and efficacy over a long period of time in a well-controlled manner, which is where some of the cardiovascular retrospective analysis came from. So I think we'll have to see. In terms of -- there is a precedent for the priority review voucher being used, and it was slightly different voucher. This was a tropical disease one, and I believe Novartis used it in one of their programs.

I think a major comment should be made just about the differentiation in that our program is unique in terms of having the 2 dosage forms, and maybe Bob Terifay wants to comment more on that.

Yes. I agree with Len and George. I think that this comes down to how you develop your drug. And obviously, our studies -- or many of our studies are still underway. But when we designed our program, we specifically focus on tailoring therapy to the individual needs of patients. Different patients have different baseline LDL-C levels dependent upon what they're on as background therapy. And so we designed the program to really allow the therapy to be tailored to the patient.

Yes, I just want to add that the way these antibodies -- there's a lot of different antibodies out there, and they bind PCSK9 in different ways, in different sites, in different molecular attach points, et cetera, et cetera. So some of the nuances there are not immediately obvious, but there are significant differences between the antibodies and how they bind, et cetera.

The next question is from Matt Roden of UBS.

It's on alirocumab. And if I may, come I'll break it up into a clinical component and a commercial component. The clinical side, you mentioned the caveats of the cardiovascular event finding. We appreciate this is a post-hoc analysis, but what do you think is reasonable to conclude from that data point? And would you expect those data to be reflected in the label? And then on the sort of operational planning side, you guys cite the 35 million patients at high risk for cardiovascular events, 22 million are very high risk. It sounds like your sort of commercial operations will position this as explicitly a primary care product. So is that correct? This is an area where we've kind of struggled to model to what extent this is going to be specialty product versus a primary care market. And it has a lot of implications on pricing strategy, expenses, margins, top line opportunity. So I know you can't give guidance on all this stuff, but it would be helpful if you could maybe touch on some of those items.

Sure. Well, just a brief comment on the label. It's just too early to talk about the label. You can be sure we'll be submitting all the data that we have. In terms of what conclusion you can draw, I think both George and I have said that you can't draw any firm conclusions from a post-hoc analysis. We will be testing this analysis in a prospective way in the OUTCOME study when we actually look for outcomes. But of course, we will submit all the data that we have. And what's in the label, we will discuss once we get the label from the FDA. In terms of how we are going to commercialize this, what our strategy is, I doubt whether -- those are all great questions. It's as though you were sitting in some of our meetings over the last year or so. But we're trying to address them all, but this wouldn't be the right place to address them.

Okay. Is there -- maybe it's just too early to comment about pricing, of course. But if you think about the doc feedback we've gotten, we've heard some folks talk about this being a CCU product and others talking about a major secondary prevention drug. Is there a way to marry those 2 opportunities?

Once again, good questions, but just too early for us to talk about our commercialization strategy at this point. Thanks for the thoughts, though.

The next question is from Joseph Schwartz of Leerink Partners.

I was wondering, when are we going to be able to learn about your EYLEA-PDGF combo product at the next data point, whenever that is? Will there be any derisking data beyond safety and tolerability to see how efficacy could stack up relative to other anti-PDGF combinations?

Maybe George wants to add to this, but the only thing I would say, from these early studies, you would expect to find primarily safety and tolerability results. George?

We think that the field is still quite open. It's not really been established what the PDGF pathway can provide. And we hope that ultimately, our program will be able to definitively answer that question. But also, obviously, potential advantages of our program is that we will be providing, potentially, the combination opportunity in the same injection, which obviously would have, I think, great advantage to the patients and to the physicians. But we don't think -- certainly, the standard hasn't been set or even defined. It's not clear exactly what the PDGF advantage can be, and we hope that our program might be the first to definitively define what the benefit could be.

Next question is from John Newman of Canaccord.

The question is on alirocumab. Can you give us a sense, any kind of information or direction you can give us in terms of the magnitude of difference that you saw in the post-hoc CV analysis? And also, given that your product will be supplied to the market in 2 dose strengths, do you think that might result in fewer injection site reactions in the real world, since the smaller dose level would be less viscous?

Yes. This is not the forum to get into the details of our data. Obviously, we would have put it out in the press release if we intended to do that. You'll find that the details will get presented at the appropriate scientific conference. In terms of the 75-milligram and 150-milligram, I don't think the goal there was to talk about injection site reactions. That's not why we mainly developed a different dosage form. Injection site reactions have not been a significant problem overall for the program at either dose. But George, maybe you might want to reiterate a little bit about the 75 and 150 strategy?

Yes. We think, obviously, physicians and patients often have different needs and desires in terms of what they want to do. We believe the 150 dosage form will allow for those patients and the physicians who feel their patients need to have their cholesterol robustly lowered and rapidly, we have that dosage forms. And for those who want a more flexible approach and try a lower dose first and see if they can get to goal with the lower dosage form first and then only up-titrate if need be, we have that as well. And I think that a lot of physicians feel that, that flexibility, regardless of the drug or the indication, often has certain advantages, so we're offering that flexibility to the physicians and their patients.

And they'll both be in a 1-cc dosage form.

The next question is from Phil Nadeau of Cowen and Company.

Just one question on EYLEA and DME. That's on the reimbursement environment. Could you give us some details about the proportion of patients that are Medicare versus Medicaid versus private pay? And then, within Medicare, could you remind us how that works in DME? Will you need to get a new code, or can you use the AMD code to get reimbursed immediately?

So thanks for the question. We appreciate your following us so persistently for such a long time. We'll let Bob answer your specific questions.

So, as you surmise, DME is a little bit different than AMD. AMD is a patient population that is generally elderly, and so we have a lot of Medicare patients. DME splits out roughly 50/50 with regards to Medicare and non-Medicare or commercial pay. With regards to the Medicare segment, there is a -- it splits out about 35% is roughly traditional Medicare and the rest of it is Medicare Advantage. In terms of reimbursement, I don't want to get into too many specifics, but what I can tell you is we do not need a new J-Code. Medicare does have a law that they have to cover new therapies that are available for patients. Right now, we're just waiting for people to load the code into -- load the price and the information into their systems. But they will have to reimburse retrospectively for the indication. And so most of our focus right now is on the Medicare patient population.

So just to be clear on that Medicare, that's about 40% is Medicare. Of that, and the majority of that is traditional Medicare. So it's 30% of the overall population, not 30% of Medicare.

No, that's right. Sorry.

The next question is from Chris Raymond of Robert W. Baird. Laura K. Chico - Robert W. Baird & Co. Incorporated, Research Division: This is Laura Chico in for Chris Raymond. I guess, I was a little surprised to hear you say that there's been really no change in terms of the Avastin share -- or rather, there might have been some stabilization there in the AMD market. Just wondering, how do you think the landscape might evolve over the next 12 months? Do you expect that to continue or -- just be interested in your comments there.

Yes. So barring any sort of structural change, we would imagine things would sort of continue basically splitting out the way they are. Although we do know that the FDA is still reviewing their whole compounding enforcement strategy and they have not come out with a definitive statement yet on how they're going to handle biologics, so we're still waiting to see how that turns out. Although we know they have stepped up some of their enforcement activity in this area for sure.

Next question is from Biren Amin of Jefferies.

Would you expect that there's a significant pool of treatment-experienced DME patients that are available to switch to EYLEA in -- I guess, similar in size to what you experienced in wet AMD 2 years ago?

Yes, it's difficult to quantify that. But surely, there are some patients who are not satisfied with their results and that would be candidates for switching. And we've already sort of heard that from doctors that they've got patients who they plan to switch. And actually, some have already tried, and we've seen a few tweets about that out there in the retinal community. But in terms of quantifying that, I think we'll just have to get -- wait for the -- this quarter to play out so we can get a better idea.

The next question is from Jim Birchenough of BMO Capital Markets.

It's Mike in for Jim. He's on vacation. And I'd like to ask a question on the pipeline. You have a number of product programs, primarily in Phase I. And I'm wondering if you can direct us towards programs that might be reading out with data that could be leading to large, important trials next year. In particular, the GDF8 program, you have close to 400 patients that were being recruited into trials that perhaps might read out later on in the second half of the year.

Yes, we haven't given too much guidance. You've identified one that we have talked about, so we'll have to see those data when they do come out. That's an interesting opportunity that a number of companies are sort looking at. Of course, we are going to be looking forward to our CD20 Bispecific getting in the clinic this year, our anti-PD1 and the IND filed before the end of the year. So those would be some up-and-coming new programs. And obviously, we do have a tremendous amount with our Phase II programs in dupilumab, getting data from asthma and getting data from nasal polyposis and finishing up the sarilumab Phase III, et cetera. So there is a lot going on, but we don't have any more to update you at this point other than what's in our filings today.

And the last question is from Geoff Meacham of JPMorgan. Carter L. Gould - JP Morgan Chase & Co, Research Division: This is Carter on for Jeff. For the pediatric priority review voucher, it's my understanding that you have to notify the agency at least 90 days in advance of filing. Can you tell us if you've already notified the agency of your intent to file with the voucher?

Yes, we are not going to get into those details at all. The only thing we're going to tell you is that we have acquired the voucher. And we -- Sanofi and Regeneron plan to use it to obtain priority review, and we will follow all the rules and regs, et cetera, et cetera.

Okay. Thank you very much, everybody, for joining us on this call. As I mentioned earlier, myself and the team, Manisha, et cetera, will be available for follow-up questions. If you need them, just e-mail us and we'll schedule a time. Operator, that concludes the call.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.