Welcome to the Regeneron Pharmaceuticals Second Quarter 2016 Earnings Conference Call. My name is Sylvia and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Dr. Michael Aberman. Dr. Aberman, you may begin.

Thank you and good morning and welcome to Regeneron Pharmaceuticals Second 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 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 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 June 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 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. Before I turn the call over to my colleagues who will discuss our scientific, commercial and financial performance, I'd like to take a few minutes to give you some broader perspective on Regeneron and our business. Regeneron continues to advance its mission to bring important new medicines to patients in need. EYLEA is our drug used to treat a number of potentially blinding diseases and with millions of injections administered each year, it is one of our most important approved products and continues to grow well globally. EYLEA is now at an annual global net sales run rate that exceeds $5 billion. This has been driven both by the approval of EYLEA in new indications as well as new data that have further increased the confidence of physicians in this product. Thanks to our long-standing belief and investment in science and technology, we are now in the midst of a new product cycle which has the potential to impact multiple disease settings. This investment in science has resulted in PRALUENT, our PCSK9 antibody for lowering LDL cholesterol, and additional potential near-term approvals that could address rheumatoid arthritis and atopic dermatitis. Our late stage pipeline also includes programs in asthma, pain, respiratory syncytial virus and the immunotherapy of cancer. Our earlier pipeline opportunities continue to grow with a total of 15 product candidates currently in clinical development, including seven that we are developing independently, with several more expected to enter the clinic in the near term, making for a pipeline that can address potential opportunities ranging from rare orphan diseases such as fibrodysplasia ossificans progressiva or FOP, to emerging infectious diseases, epidemics such as Zika. George will provide specific details on some…

Thank you, Len, and a very good morning to everyone who has joined us today. I'd like to begin with progress in our late-stage pipeline. In the second quarter we reported positive data from three Phase 3 studies of dupilumab, our interleukin-4 and interleukin-13 blocker in patients with uncontrolled moderate to severe atopic dermatitis, which is a chronic inflammatory skin disease. Dupilumab is the first systemic therapy to show positive Phase 3 results in this indication. On our last earnings call, we talked about the positive data from the first two Phase 3 studies, SOLO 1 and SOLO 2, which studied dupilumab as a monotherapy. In June, we just recently reported the results from the third study, LIBERTY AD CHRONOS, which was a long-term study that investigated dupilumab in combination with topical corticosteroids, which are currently the standard of care in the United States for the treatment of this difficult disease. Overall, the efficacy observed in the CHRONOS study was very consistent with the previously-reported positive Phase 3 SOLO 1 and SOLO 2 studies of dupilumab in the monotherapy study. While the primary endpoint of the CHRONOS study was assessed at 16 weeks, the study continued until 52 weeks and efficacy was sustained in both the dupilumab 300 milligram weekly as well as the 300 milligram every other week dose groups through this one-year mark. At 16 weeks, about 40% of the patients in both dupilumab dose groups achieved clear or almost clear skin status as measured by the Investigator Global Assessment score compared to about 12% of the patients in the topical steroid only arm. Nearly two-thirds of the patients receiving dupilumab achieved a 75% improvement in the average – improvement in the overall skin score as assessed by the Eczema Area and Severity Index, or the EASI score,…

Thank you, George, and hello, everyone. We're pleased with the sales growth of EYLEA or aflibercept injection, both thin the United States and ex U.S. in the first half of 2016. We've made progress in improving access in reimbursement for PRALUENT, or alirocumab, among U.S. payers. In addition, the European and Japanese launches for PRALUENT continue to progress. And we are now preparing for the potential U.S. launces of sarilumab and dupilumab over the next year. Starting with EYLEA, second quarter U.S. net sales grew 27% year over year. Net U.S. EYLEA sales in the second quarter were $831 million. Net ex U.S. EYLEA sales in the second quarter were $486 million which represents 44% growth year over year on a reported basis. We continue to have a strong position in our U.S. market share leadership for EYLEA in the FDA approved anti-VEGF market in terms of injections as reported by 203 retinal specialists in our quarterly market research survey. According to our survey results, in the overall anti-VEGF market, EYLEA has a 37% share of injections as compared to 19% for ranibizumab and 44% for off label, repackaged bevacizumab. On the other hand, with our growing market share, our expenses to support reimbursement activities, including patient support services and reimbursement assistance, have also increased impacting both our gross to net ratio as well as our profit margin. I should note that there are currently a series of proposals from the Centers for Medicare and Medicaid Services regarding physician reimbursement for physician-administered Medicare Part B, buy and bill drugs which could lead towards physicians favoring the use of bevacizumab or in large-volume retinal practices, ranibizumab due to the provision of increased direct-to-physician financial incentives from the manufacturer and group purchasing organizations. The impact of any changes is difficult to predict,…

Thanks Bob, and good morning to everyone. I have several financial updates to provide this morning. Let me start with our top line second quarter earnings. In the second quarter of 2016, non-GAAP net income per diluted share was $2.82. This represented an increase of 24% in both non-GAAP net income per diluted share as well as non-GAAP net income in the second quarter 2016 compared to the second quarter of 2015. Regeneron's second quarter 2016 non-GAAP net income excludes non-cash share-based compensation expense and the $75 million upfront payment made in connection with our April 2016 license collaboration agreement with Intellia. It also includes the income tax effect of these non-GAAP adjustments. A full reconciliation of GAAP to non-GAAP earnings as set forth our earnings release. I will describe further detail shortly, effective this quarter, our non-GAAP net income is no longer includes an adjustment from GAAP tax expense to the amount of taxes that were estimated to be paid or payable in cash. Total revenues in the second quarter of 2016 were $1.2 billion which represented a year-over-year growth of 21% over the second quarter of 2015. Net product sales were $834 million in the second quarter of 2016 compared to $658 million in the second quarter of 2015. EYLEA U.S. net product sales were $831 million compared to $655 million in the sink quarter 2015 representing a 27% year-over-year growth. Sequential quarter-over-quarter growth was 6%. EYLEA distributor inventory levels continue to be within our normal one to two week targeted range, and the June 30 levels were very similar to our March 31, 2016 levels. Please note that we are reaffirming our 2016 U.S. EYLEA net sales guidance to be year-over-year growth of between 20% and 25%. Ex U.S. EYLEA sales, where product revenue is recorded by…

Thank you, Bob. That concludes our prepared remarks. We'd now like to open the call for Q&A. As we like to give as many people a chance to ask questions as possible, as always, please limit yourself to one question. Our team will be available in our office after the call for any follow-up questions. Operator, if you can now open the call for questions.

Thank you. We will now begin the question-and-answer session. And our first question comes from Terence Flynn from Goldman Sachs.

Hi. This is Cameron Bradshaw filling in for Terence. Thank you for taking our question. I was wondering, for the Phase 2 trial of EYLEA combined with your PDGF, looks like we're going to see data in the second half of this year. Can you just remind us of the trial design and then what you're hoping to see with respect to efficacy in order to make a go/no-go decision on the Phase 3? Thanks.

This is George. The study design really has two stages. The first is a head-to-head-to-head between the three groups that we described in our call, the combination of the PDGF blocker on top of EYLEA versus EYLEA alone with two doses of the blocker. That's the first stage. As you know, even in studies with hundreds of patients in them, as we've of course seen, we have as much experience as anybody alone and with our collaborators in doing these large studies, there can be a lot of variability in letters gained. So we design the study to include a second stage as well that actually shows the effect of adding on therapy on top within the same groups. That we predict to be a more powerful way of confirming if there are added benefits of the PDGF therapy. So we will have the firs type of comparison, which we consider perhaps to be slightly less powerful in the timeframe that I just described, and then we will also be getting the second stage of data. So depending on how strong the first set of data is, we will either be able to make a decision at that point or we'll be awaiting the results from the second stage to help us and make that decision.

I would just add in terms of helping you think about it, for us, since this is a single injection of the two antibodies by the physician, that we don't have to have a gigantic benefit. We just have to have something that's clearly beneficial because the hurdle for us to move forward isn't that great because there's no additional burden on patients having to take an additional injection.

Great. Next question.

Okay, thank you.

Our next question comes from Robyn Karnauskas from Citigroup.

Hi, guys. Thank you. So you mentioned that access is opening up a little bit for the PCSK9s. Can you talk a little bit about what percentage of the payers had higher restrictions initially this year? And then how did that change? What percentage of people are not requiring prior auth or reduced the requirements for filling out forms, et cetera? And then going to that, what do you think the trigger point was for doing that? And what are the timing for these events? Is it third quarter? What triggers these things and how do we think about that going forward? Thanks.

Bob?

So there have been some payers that, based upon the FDA decision not approve ezetimibe based upon their OUTCOMES data that have said since ezetimibe does not have an FDA indication for the prevention of cardiovascular outcomes, that on their own or at the advice of some of their physician medical directors, they've removed the ezetimibe step edit. And that has happened in a few plans already.

With regards to the prior authorization paperwork, some of the payers had prior authorizations that required tens or almost up to 40 questions. It became very tedious for the physicians. So some of the plans have begun to change their prior authorization to be simpler and, again, that is in place in a few payers now. I think the real driver that's going to change things is going to be when we get the OUTCOMES data for the product.

Thanks Bob. It's Len. Just to amplify on that, it seems to me there are three ways, three important factors you can consider. Assuming that we have a relatively high satisfaction rate, that patients get on the drug, get their cholesterol lowered and tolerate the drug, this is not like the hepatitis C market. Those should be long-term patients so we begin to accumulate them as opposed to constantly having to find to replace as you would, let's say, in a hep C environment. Secondly, as Bob said, the cardiologists are not like the rheumatologists where they have people in their office who are very experienced in dealing with these prior authorizations and paperwork, and I think that they are getting more efficient at it. They are somewhat frustrated by it for sure, and some of them are giving up. Some say, well, I'll wait for outcomes before I got to the mat with fights and things like that. But I do believe that the experience of the doctors in picking the patients that they know, each PBM for each patient or each payer, if you will, they are getting better at knowing how to get this done as they get more experience. And then of course finally, as George mentioned, we hope that the OUTCOMES data later this year will change the dynamic out there in terms of the feeling, the compelling need to go on these products if we show an OUTCOMES benefit. Next question?

Our following question comes from Ronny Gal from Bernstein.

One second.

Do we have a question today?

Yep, right here. Okay, sorry. Actually, never mind.

Okay.

Okay. Next question.

Our following question comes from Ying Huang from Bank of America Merrill Lynch.

Hi. Good morning. Thanks for taking my question. Just one more on PDGF. So if you look at Fovista plus the Lucentis, it seems that there's a four letter difference. Can you help us frame the expectations for your coformulated EYLEA plus PDGF antibody? I know you're comparing to EYLEA of course, so does that four letter apply in this case? And what are you expecting from the outcome? Thanks.

Well, we consider it very hard to interpret these sort of existing studies because, as I said, we've actually seen with larger studies when you actually repeat the study, four letter differences easily go away. So, we really consider this a very early field and based on a lot of the science, it's really very, very hard to predict what, if any, benefit will be seen here. We do think that our unique two-stage design will end up giving us probably the best data and most convincing perspective on whether there is an added benefit or not. And as Len pointed out, the fact that if there is an added benefit, we'll be able to do it with a single injection and assuming appropriate safety, we'll make it easier to deliver that benefit to patients with this approach. And remember, our approach here, we're combining two very similar antibody-like drugs into a single coformulated injection as opposed to giving two very different types of drugs with separate injections.

Great. Next question.

Our following question comes from Geoffrey Porges from Leerink.

Thanks very much for taking the question. Just on dupilumab. George, could you just comment first on the conjunctivitis. Is that signal real? Are you seeing it in the other studies, for example, in asthma or esophagitis? And then related to that, could you just talk a little about the launch outlook? What are the parallels or differences to the PRALUENT experience and how might you get payers to let some patients through in this case?

Okay. Well. The first part is very interesting in terms of the conjunctivitis. We have consistently seen it in our atopic dermatitis studies. We have not seen it in our asthma studies. As you know, there's differences for examples in the way topical steroids are used in the populations and so forth. And we have various ideas about why this may be the case. That said, even though it seems specific to the way the drug is being used in this particular patient population and perhaps with either the use or actually the less use of topical steroids in the treated patients. The comforting thing is that these patients do have, as we pointed out in the call, they do have already a lot of history of conjunctivitis. So this is not really something brand new to the patients. And the conjunctivitis that is seen here on dupilumab seems to be of mild to moderate severity and is limited. Most cases actually resolve during treatment and very few, if any cases, actually lead to discontinuation. So it seems as if the benefit risk is really maintained in the face of this. That said, also in terms of the second part of your question about dupilumab, we think it's a very different situation compared to PRALUENT. I mean, there is a huge unmet need here. Patients are really suffering from ongoing symptomatology and the data actually shows that this symptomatology is actually markedly improved with the dupilumab treatment. So that it seems to us that there's going to be a lot of patients who really are – and we already know – who are going to so positively impacted in their life that they're going to be demanding this drug. And it seems to us that these patients will deserve to…

I just wanted to add one thing, Jeff. In terms of about the difference between PRALUENT, just to re-emphasize what George already said, which is that most people don't like to think of themselves as sick and they don't like to have to take a cholesterol lowering drug. Oh, I'll fix it with diet or I'll take my statin or what have you. But patients with atopic dermatitis really suffer. It's really made its way into pop culture. There's a new series on HBO – I don't know if any of you have seen it – called The Night Of and the actor, John Turturro, portrays this lawyer who suffers terribly from atopic dermatitis. He has to wear sandals. He goes to a group to discuss all this and it really has a terrible impact on this life. And this, I don't think this is just a TV portrayal. I think this is what we see, that people really suffer from this disease. I think one last point to just add as well is that unlike most other biologics that are immunomodulators where you see in general whether it's the TNFs or a variety of other classes you generally see a doubling of the serious infection risk rate. This appears to be more of an immunomodulator that is correcting an immune deviation. And actually as we reported and as we summarized during this call, there is no increase in infections and in serious infections here. So once again this is an important option that's being offered to the patients in contrast to other alternatives which are essentially immunosuppressing. And to have this sort of efficacy with a non-immunosuppressing agent I think is also offering a lot of hope to patients.

Okay. Next question.

Following question comes from Chris Raymond from Raymond James.

Ah, hey, thanks. Yeah, so just as another question here, I guess, on dupilumab in atopic dermatitis. So maybe for Bob if possible. So I'd imagine your marketing prep's pretty underway now with the BLA submitted. And I know we know the vast majority of intervention here is topical corticosteroids. But I'm just curious, what has your work uncovered in terms of the use of other biologics off-label and physician satisfaction with these agents? And maybe can you talk about how you're thinking about this as you formulate your launch plans? Thanks.

Sure. So as George pointed out, there are approximately 1.6 million patients in the United States who are uncontrolled on topical therapies who have moderate to severe atopic dermatitis. A very small proportion of those patients have received other therapies, immunosuppressant agents, generally not biologics but things like cyclosporine and methotrexate. The challenge with those therapies is you can't use them long term. They've got some toxicities that really interfere with the patient's long-term use of the therapy and thus, their symptoms will come back, their itch will come back and their quality of life will decrease. So there is a huge opportunity for dupilumab in these uncontrolled moderate to severe patients. There's the pent up demand among patients and physicians to get the patients on therapy and to improve their lives.

And to add to that, in terms of biologics, we do not believe that there's any convincing evidence with any available approved biologics that show efficacy in this disease setting. And as you know, there's also no other late-stage biologics that are promising in this area. So this really has a chance to really be providing something to patients that don't really have any other alternatives at this point.

I would add also, to make sure you think about these other diseases as other significant opportunities. There's been a desire to have a drug, like a biologic, that could effect, in asthma, for example, that could treat all patients. That could have an effect both on FEV1 and on exacerbations. And no such drug has been forthcoming as yet, and we're excited that our first pivotal trial demonstrated in the broad population affect both on FEV1 and on exacerbation. So hopefully if we can confirm that in our trial that's just about to be completed in enrollment, think ahead about a year for the trial, and then the data, we could be onto something, a whole new opportunity, which people really are looking for. Something that can treat all the patients, and that can treat both the FEV1 and the exacerbations.

Right. As Len briefly touched upon, a very important feature that of course we're hoping to confirm in our second pivotal study is this point about the broad population. I mean, so far biologics have been limited to the so called, the more allergic or eosinophilic type patients, and is the only places where substantial efficacy has been noted. And it's, as Len said, mostly only with exacerbations and not on lung function. So if we can confirm the results of the first pivotal, it could confirm another major hope for patients who really need these types of therapies.

And the last point on that, which I know George likes to make when he speaks about this at meetings, is that we can't forget the fact that people who have asthma frequently have atopic dermatitis and people who have atopic dermatitis frequently have asthma. These are overlapping syndromes because they are scientifically related, I should say pathophysiologically related, we think, through the IL-4/IL13 pathway. So, next question?

Next question.

Next question comes from Mark Schoenebaum from Evercore ISI.

Hey, good morning. It's John Scotti in for Mark. Maybe I'll just ask a quick one on the Adicet collaboration. Could you just elaborate a little bit more on the technology behind off the shelf therapies there? And I guess, how does that approach differ from those that are already in development, such as Cellectis? And then I guess maybe, when could we see some of those assets entering the clinic?

Well, I think...

Wait, before you answer that George, I just wanted to make one comment that is, if I went to Broadway and had so many stand-in actors, I would be mortified.

Okay. I think and important point to make is, we really believe in people and we believe in synergies. And we've had long-standing interests to be working with Aya Jakobovits who's really leading Adicet. And obviously, she's been in areas that we've been in. We have enormous respect for her, her capabilities. And so we really feel that we can work well together with her and her team. And number two is the synergies with our existing programs. This is why we make these sorts of deals. We believe that we have a lot of potential tools and starting points for making the sorts of targeting reagents that would be introduced into these cell therapies using our existing technologies such as our VelocImmune and our Veloci-Next technologies which really, nobody else in this field has access to right now. So we're hoping that we put together our unique capabilities that nobody else in the cell therapy space has together with a pioneer and a leader in this area such as Aya Jakobovits and her team that we could really do special things. And I think at this point, that's what we want to say about this collaboration.

Great. Next question?

Following question comes from Adnan Butt from RBC Capital.

Hey, thanks folks. Let me ask a 10-Q question. It lists PD1 as embarking on potentially pivotal studies over the next year. Are there unique indications or combinations that you have selected already? Any details there please?

Yeah. So it's already been publicly disclosed that we're already in a potentially registration study in a unique indication that we think has a lot of promise for various reasons and where we've already seen early clinical activity in our earlier studies which is cutaneous squamous cell carcinoma. And so that is, for example, one setting. We've also identified additional settings. That has been publicly disclosed. We've also identified additional settings that we'll be going into, we hope both potentially with it as a monotherapy but also with new combinations.

Great. And we have time for one last question.

Our final question comes from Alethia Young from Credit Suisse. Alethia Young - Credit Suisse Securities (USA) LLC (Broker) Hey guys. Thanks for squeezing me in here. Just going back to your prepared remarks, I was just wondering with EYLEA, like is it something that you're kind of starting to experience just as – like what are the dynamics for why like the financial incentives that manufacturers were providing are increasing or groups purchasing? Why did you specifically kind of bring that to our attention this quarter? Thanks.

Well I think that, it's Bob, it's highlighting to you what's going on in the marketplace. And we're seeing more of these things than we have in years past. It's not been any drastic change but it's just sort to get in front of these things, we monitor them and we have responses prepared should they be necessary. Bob, want to add anything?

No. It's a dynamic in the marketplace that impacts the growth of EYLEA and we just wanted to discuss it.

Okay.

Great. Well, that concludes today's call. I want to thank everyone for joining. As we said, myself, Bob Landry and the IR team will be available for follow-up questions. If you have any, please e-mail us or give us a call. Operator?

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.