Good morning, and welcome to the Regeneron Pharmaceuticals Third Quarter 2019 Earnings Conference Call. My name is Sheryl, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference call is being recorded.I will now turn the call over to Justin Holko. Sir, you may begin.

Thank you, Sheryl. Good morning, good afternoon and good evening to everyone listening around the world. Thank you for your interest in Regeneron Pharmaceuticals, and welcome to the Third Quarter 2019 Conference Call. An archive of this webcast will be available on our website.Joining me today on the call are Dr. Leonard Schleifer, Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Founding Scientist, President and Chief Scientific Officer; Marion McCourt, Senior Vice President and Head of Commercial; and Bob Landry, Executive Vice President and 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 today include forward-looking statements about Regeneron. Such statements may include but are not limited to those related to Regeneron and its products and business, financial forecast and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, payer coverage and reimbursement issues, intellectual property, pending litigation 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 that statement. 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, including its Form 10-Q for the quarterly period ended September 30, 2019, which has been filed with the SEC today. Regeneron does not undertake any obligation to update publicly any forward-looking statements 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 those measures to GAAP is available in our financial results press release, which can be accessed on our website.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, Justin. Thanks to everyone who's joining the call today. We had another great quarter, marked by continued execution, to deliver double-digit top and bottom line growth while making progress with our innovative R&D engine. EYLEA global net sales grew 14% to $1.9 billion, including U.S. EYLEA net sales growth of 16% to $1.2 billion. We continued to build on our leadership position in retinal diseases with market share gains across wet age-related macular degeneration and diabetic eye diseases.DUPIXENT continued to deliver strong growth while transforming the lives of thousands of patients around the world suffering from a number of Type 2 inflammatory diseases. Global net sales of DUPIXENT are now annualizing at more than $2.5 billion. Launches in atopic dermatitis, asthma and chronic rhinosinusitis with nasal polyps are generating broad-based growth for this important brand. We're still in the early days of DUPIXENT as approvals around the world continue and our enthusiasm continues to increase.Through the strength of the performance of DUPIXENT, we generated improved profitability for our own -- for our antibody collaboration with Sanofi. We expect profits to continue to increase, further diversifying our earnings base driven by growth in DUPIXENT as well as effective cost management across the collaboration.Importantly, our efforts in oncology are bearing fruit in the form of global launches of Libtayo, our anti-PD-1 therapy in cutaneous squamous cell carcinoma; as well as new data from Libtayo in lung cancer; and our portfolio of innovative bispecific antibodies, including our BCMA antibody in multiple myeloma. We aim to be a leader in immuno-oncology by bringing important new treatments to patients with both blood and solid tumor cancers.Beyond oncology, we have novel programs that have generated significant late-stage results that we intend to file with regulators, such as evinacumab in homozygous familial hypercholesterolemia. Similarly, results from…

Thanks, Len. I will begin with DUPIXENT. There is nothing more gratifying than hearing directly from so many individuals about how DUPIXENT changed their lives after years of suffering from diseases such as asthma, atopic dermatitis and nasal polyposis. Just last week, a co-worker shared her story, how she was dreading her fourth surgery for nasal polyposis and instead convinced her doctor to try DUPIXENT. Not only did her nasal polyposis vanish without surgery, but her co-morbid asthma also dramatically improved.Such stories reflect the science behind DUPIXENT. Many patients suffer from a body-wide hyperactivation of the Type 2 immune pathway, which manifests in disease at many different sites, including the lungs, skin, upper respiratory system and even GI tract. DUPIXENT can be life-changing as it can reverse the systemic Type 2 hyperactivity, thus simultaneously treating multiply apparent, distinct disease entities.The other remarkable aspect of DUPIXENT is its safety profile. Since Type 2 hyperactivity is often counterproductive, DUPIXENT is not immunosuppressive. Across all of our studies, we have not seen increases in serious infections. In fact, in our AD studies, where people are prone to skin infections, we actually have seen a numeric decrease in infections.The DUPIXENT opportunity is growing in several ways by expanding to new territories to younger age groups into new Type 2 diseases. For example, the nasal polyposis indication was recently approved by the European Commission. We are submitting for atopic dermatitis in the pediatric population later this year and we are enrolling Phase III studies in eosinophilic esophagitis and chronic obstructive pulmonary disease. In addition, there are numerous ongoing or soon to be initiated trials in additional Type 2 diseases, including bullous pemphigoid, prurigo nodularis, chronic spontaneous urticaria, hand and foot atopic dermatitis, alopecia areata and allergic bronchopulmonary aspergillosis.We're also very excited about the potential of…

Thank you, George. We continued to execute well in the third quarter led by our core EYLEA and DUPIXENT businesses as well as promising Libtayo market introduction. Starting with EYLEA. Global net product sales grew 14% year-over-year to $1.9 billion. In the U.S., net product sales grew to $1.2 billion. This represents 16% year-over-year growth. A combination of overall market growth and share gains drove strong third quarter performance of EYLEA. Growth in the overall market continues at a mid- to high single-digit range, underpinned by the aging population and increase in diabetes prevalence. EYLEA's share of the branded market also increased to 73% of net product sales for the quarter driven by physician preference for EYLEA. We continue to invest in EYLEA to advance our market-leading position across all indications.Let me take a moment to remind you of select strategic commercial initiatives to enhance our market-leading position in wet AMD and further penetrate diabetic eye disease, where there is significant growth opportunity. In wet AMD, we are growing our position by focusing on EYLEA's rapid and sustained outcomes to improve and protect vision. Wet AMD currently represents just under 60% of EYLEA business and EYLEA continues to grow in this patient group. In diabetic eye disease, our expanded field team is making tremendous strides. Our strategy is to increase diagnosis and treatment rates by educating health care professionals, consumer awareness and applying technologies to support diagnosis. With approximately 15% of the market receiving an anti-VEGF treatment, there's an important opportunity to help patients preserve and improve their vision. Our growth in DME indicates our strategy is delivering results.Our diabetic retinopathy launch is off to an encouraging start, with EYLEA use increasing in both proliferative disease and severe non-proliferative disease. We anticipate EYLEA use to increase as retina specialists see…

Thanks, Marion. For the third quarter 2019, Regeneron delivered double-digit growth on the top and bottom lines driven by strong performance from both EYLEA and DUPIXENT and increased profitability within the Sanofi Alliance. Total revenues for Regeneron grew 23% year-over-year to $2.05 billion driven by continued growth of our core brands, EYLEA and DUPIXENT. Non-GAAP diluted net income per share grew 14% year-over-year to $6.67 on non-GAAP net income of $762 million.Since Marion discussed our EYLEA results in the U.S., I will start with our Bayer and Sanofi collaborations. Starting with the Bayer collaboration. Ex U.S. EYLEA net product sales, which are reported to us by Bayer, were $730 million, representing a 12% reported and a 14% constant currency basis increase year-over-year. Total Bayer collaboration revenue for the third quarter of 2019 grew 15% year-over-year to $303 million, of which $275 million was derived from our share of net profits from EYLEA sales outside the U.S.Total Sanofi collaboration revenue was $404 million, up 58% year-over-year, as commercial profitability improved sharply. For the third quarter of 2019, Regeneron recognized a profit of $94 million in connection with the commercialization of non IO antibodies compared to a loss of $39 million in the prior year period and a profit of $39 million in the second quarter of this year. Both the year-over-year and sequential increase was driven by higher DUPIXENT profits. As we head into the end of the year and into 2020, we expect continued improved profitability driven by strong DUPIXENT net sales growth, continued cost containment on PRALUENT and KEVZARA and improvements in our operating leverage.Turning now to expenses. Non-GAAP R&D expenses were $603 million for the third quarter of 2019 compared to $497 million for the third quarter of 2018, an increase of 22%. We are continuing to invest…

Thank you, Bob. Sheryl, that concludes our prepared remarks. We'd now like to open the call for Q&A.

[Operator Instructions]. Our first question comes from Chris Raymond from Piper Jaffray.

So just maybe a question on the EYLEA franchise. And maybe just from a high-level perspective, you guys have been framing your next-generation efforts in a pretty similar way, I think, for a few quarters now. And so the high-dose formulations in the clinic now, which I think is new. But your discussion on the other mechanisms still seem to be framed in the same way that you had the last few quarters.And so I guess the question is I'm wondering if you can talk about where -- when we might see something from these novel mechanisms in the clinic. And maybe talk about these efforts in the context of the IP runway you have with EYLEA. And then maybe a second part of the question, can you describe more tactically any continued impact from the supply hiccups of compounded Avastin on the quarter?

So Marion will take any comments about the Avastin supply issues. Let me just say that -- I'm not going to comment on our patent situation here. I can say one thing for sure, is that our data exclusivity runs some ways into 2024, so we have a reasonable runway there. In terms of timing, obviously, we're working hard. We tend, Chris, not to predict when things will finally go into the clinic. But as soon as they do, we will let you know. We're hard at work at it. And the one that we mentioned, the high-dose, the new formulation, is now underway in our Phase II program. Marion, you want to comment on the Avastin situation?

Sure, Len. And just to comment, in the third quarter, there were some temporary spot shortages of Avastin in select geographies, so they may have given some modest benefit to EYLEA. We mentioned the same in the second quarter. And the one thing I can add is that we are hearing that patients that are started on Avast -- excuse me, started on EYLEA because of these shortages do continue on EYLEA therapy. So we'll continue to monitor the situation, which is episodic. And of course, in many instances, are related to ongoing issues with compounding and quality concerns.

Our next question comes from Ronny Gal from Bernstein.

A couple, if you don't mind. First, on the CD3xCD20. George, it looks like you might have actually got here with Roche. Can you comment a little bit about your -- the -- kind of how you differentiate your program from the Marcelin [ph] program, the developed program?And are you going straight into first line with this? Or are you still thinking it's going to be in a relapse setting for the next set of trial? And if you can remind us whether the partnership with Sanofi gives them the right to enter this program? Or is it still at your control. And given you're now in a kind of an excess cash situation, you have more choice about what you're going to do with this?

Well, maybe I'll start at the back because it's the easiest. It's a wholly owned program that we control and nobody has an option on it. Number one. Number two, in terms of the comparisons with Roche, I mean, obviously, these are cross-trial comparisons. But we're very encouraged with how our data looks and how we both have a -- how we have a chance to have best-in-class potential. One of the most important things, we believe, about not only this program but our immuno-oncology franchise in general, is that we have, we believe, an unparalled opportunity to generate synergistic therapeutics that can work very powerfully together. So we are certainly going to be exploring our CD20xCD3 in combination with our PD-1 antibody, Libtayo, which we're very interested in. But also, we have an assortment of additional bispecifics in the settings where one might need additional efficacy. We believe that we can add to it, and we've certainly shown that and demonstrated that in preclinical models.So we think that, that's what really differentiates us, is that we really have a lot of tools in our tool kits a lot of possibilities for combining a lot of things with synergistic capabilities together. In addition to the fact that each one of our individual agents, we believe that based on the emerging data, has a chance to be best-in-class. And we're moving very aggressively into a near-term pivotal, approvable trials. And we'll be moving into earlier stages as well.

Certainly, it's Len, just to echo what George said. We feel good about our position, but we don't take Roche lightly. They're a formidable -- Roche/Genentech are a formidable competitor with lots of experience in the CD20 space. But they may have historical approaches that may be -- might be disruptible by new agents and combinations.

Our next question comes from Geoff Meacham from Bank of America.

Just have a couple for Bob. I wanted to ask about the commercialization-related expenses. Was this just lower reimbursable expenses to Regeneron? Or is it related to, say, DUPI profitability? Or is this sort of -- should be looked at as the next phase of the JV expense base overall? And then for George. Obviously, you've got Libtayo-chemo combos going and CTLA-4 combos going, but how much of a priority is it to test more novel mechanisms with PD-1, just given recent data from AZ and Bristol?

Geoff, I'll start. Well certainly, with the launch of DUPIXENT in the new indications, I mean we're moving full speed ahead with regards to that. And we've been talking about PRALUENT and KEVZARA cost containment for the last couple of quarters I would say in the third quarter, you're meaning -- we meaningfully saw what we were -- have been working on with our Sanofi counterparts in terms of trying to rein in a little bit with regards to the amount of OpEx associated with PRALUENT and KEVZARA.

Okay. And so certainly, we're following closely the PD-1 field. As you said, it is evolving. Our goal, as it's been from the beginning, is to have a foundational PD-1 therapeutic that is at least competitive, if not best-in-class. And so we're very excited, for example, about some of the data that we reported on today in terms of the response rates in our first-line monotherapy lung cancer study. But once again, the story is as you said, that we think that we have an enormous opportunity of combining with our novel sets of reagents. Some of which are already in combinations in the clinic not only with the entire assortment of checkpoint inhibitors but also with our entire assortment of bispecifics.So as I already mentioned, we're exploring combinations with the bispecifics of the CD3 class that are in the clinic already, but we've already initiated our second class of bispecifics, these co-stimulatory bispecifics, which have the opportunity to activate PD-1 responsiveness in tumors that are not normally responsive to PD-1. So not only can they enhance responsiveness in tumors that are responding to some degree already, but they can actually endow responsiveness in those that don't in preclinical models. And we hope that, that pertains, obviously, in the clinic. This creates, we think, a great way of extending the benefit that immuno-oncology has already provided by taking it deeper in cancers that are already responsive, but also opening up cancers that haven't responded to date.So I do want to just emphasize again, why do we have this ability? Because we have a unique platform for making these bispecifics. As far as I'm aware, we're the only platform that couples essentially a naturally derived bispecific antibodies using a genetically humanized mouse, together with this Veloci-Bi platform that we recently announced, to rapidly and routinely make natural bispecifics that behave just like normal antibodies.You don't have to give them by constant infusion. You don't have to introduce linkers. You don't have to make mutations in there so that they have longer half-lives because they look, and they're manufactured in fact, just like regular antibodies. They behave like them. You can give them normally like you give biologics. You don't have to go to special -- extensive lengths to manufacture them. This allows us to rapidly and routinely make many of these and put them into the clinic very rapidly in these various combinations and target them in exactly the way we want to, in some cases, initiate; or in other cases, trigger or activate a co-response. And I think it's the collection of these put together that allow for very exciting combinations, as I said.

Yes, and let me just add something very quickly. Geoff, you also alluded to there were other combinations out there, whether it be CTLA-4, LAG-3 or what have you. We in this field recognize that not all antibodies are created equally. As George said, I mean, you've got some antibody like a KEYTRUDA that worked in first line; and others, let's say, in PD-L1; or others even in PD-1 that may not work as well, didn't work. And so we have to make sure we explore some of these other antibodies, LAG3 or what have you ourselves, to be satisfied that there's not opportunity for a combination therapy there as well.

[Operator Instructions]. We still have several callers that we'd like to squeeze in.

Our next question comes from George -- I'm sorry, Geoff Porges from SVB Leerink.

A quick question. You have three products that are -- look like they're annualizing at about $200 million a year in revenue: KEVZARA, Libtayo and PRALUENT. And certainly, Libtayo is still growing strongly. First, Bob, can you give us a sense of whether they're actually contributing to cash flow at that revenue level? And secondly, do you envisage any further changes in the commercial support, the structure behind those products, such that they could enhance the profitability or at least not drag on the profitability of DUPIXENT in the future?

Geoff, I'll start. And you can imagine for competitive reasons, we're not going to get into kind of specific products with regards to what they're generating from a cash flow perspective. We've given kind of high-level cover -- color with regards to what the drivers have been. Obviously, DUPIXENT on our current profitability for the quarter. Repeat the second question, the second part of it.

Yes. Are there any changes that you could envisage in terms of the structure or the spend that, let's say, allow you to capture more of the profitability of DUPIXENT?

You have sort of faded out at the end. This is Len. But I think what you're asking, can we change the structure or the profitability? I think Sanofi and Regeneron are constantly looking at this. We see the same data you do. It is very early for Libtayo. So that's one thing. It's getting a little bit late for PRALUENT and KEVZARA. And we are focused on making sure we do the right thing overall for the -- so that they're not a drain on the overall alliance. You can be assured of that.

Our next question comes from Terence Flynn from Goldman Sachs.

I was just wondering, for your BCMAxCD3 bispecific, are you encouraged because you're seeing activity in a second type of cancer here with the platform or encouraged because you have a competitive efficacy profile relative to the CAR-T and ADC data we've seen from the competitors? And then any commentary you can share at a high level regarding the safety/tolerability profile at this point?

Yes. I think that it's fair to -- I think you made two great points. I mean, I think, one, it's very important to see that the platform is consistently producing what looked like very competitive, exciting data. And so it's encouraging for that reason. And secondly, if the platform is producing competitive data in a particular area, then it's exciting for that reason as well. So I guess the answer is yes and yes on both of those.

We shouldn't go any further. We'll show you the data at ASH.

The question comes from Matthew Harrison from Morgan Stanley.

George, I just wanted to follow up on some comments you made around C5. I guess, two parts here. So first, you mentioned a couple products that you expected at ASH, but you just said a future medical meeting for C5. Should we expect this at ASH? Or is this -- are we not going to see this at ASH? And then you also said that you're encouraged. So should we think about this as something that it looks like you plan to move into pivotal studies at this point?

Well as I said, we had a very high bar before we would get excited about it, which was we want to feel like we could change the field. As you know, the current approaches are limited to intravenous delivery. We were looking for a subcutaneous, self-administered approach and we were also looking for more complete suppression of hemolysis. And so we are excited because we feel like we satisfied our high bar.In terms of where we're actually going to present it, we're hoping to present it as soon as possible in a major medical conference. And so that we don't get prevented from presenting it at such conferences, we can't tell you where we're presenting. Sorry about that.

Our next question comes from Yaron Werber from Cowen.

Great. So George, maybe just one for you relating to -- give us a sense. In the Phase II high-dose EYLEA study, you're testing 8 milligrams. Can you advance that right away into the parallel Phase III pivotals? Or do you need to show sort of safety first before you can move to a pivotal and the pivotal would have a different dose?And maybe if I can just throw in, any initial feedback on the Beovu launch that you're seeing in the last literally three weeks or so?

I'll leave the last for Marion to comment on. But in terms of the first, of course, there's always safety concerns. But depending on whether one sees something unexpected or not, we are planning to do it exactly as you said. The Phase II is intended to simultaneously be providing data while we're running the Phase III to give us confidence that the high-dose EYLEA is actually performing and doing the things that we're predicting that it would actually do. So we're not limiting the Phase III by the Phase II data. And Marion?

Sure. And just first, we're pleased with the EYLEA performance through this third quarter and certainly been in a competitive market for some years. But specifically to the most recent launch, Novartis' launch, when you take all the important competition seriously and certainly have been prepared for new market entrants. But it is really early, so we can't report on any impact. We're not seeing any impact at this time. And I think the market will be looking to product profile to determine issues of safety, efficacy and product use.

Our next question comes from Evan Seigerman from Crédit Suisse.

Congrats on the progress. So one for Bob. I was wondering if you could provide us some more color on the rationale for the newly announced share repurchase program. On this, this seems to be kind of a deviation from your prior capital allocation strategy. So why now? Do you believe that your share price is undervalued and that this is the best way to invest capital? Or are there other factors impacting the decision?

Thanks, Evan, for the question. And again, we wanted to be kind of pointed during our script with regards to calling out the framework that we have on this because we do get a lot of questions on it. I think exactly where you kind of ended off on the question with regards to -- we currently like the valuation. Obviously, all the work we do inside here and what we know is coming and...

Bob, I got to interrupt you. I kind of hate the valuation.

The valuation from a purchasing point of view is what we certainly like. Thanks for that help, Len, on that. We like the levels. And as I tried to point out, I mean, we sufficiently invest in R&D in the right areas. Things continue to move through the clinic. We are also going into external transactions. We mentioned in May the Alnylam transaction, and I talked about a little bit that -- there on the script. So now is the right time with regards to being able to kind of put additional capital to work. And again, to reiterate what you said, we do like -- we think the valuations are attractive from our point of view at this level.

Our next question comes from Yatin Suneja from Guggenheim Partners.

Congrats on the quarter. The question is on the lung cancer update that you provided today. I mean, if you end up with an identical result to KEYTRUDA in the front-line lung setting, do you compete on anything other than the price? Is that going to be the strategy? Could you maybe comment on the strategy there?

Yes, it's a little early to comment on a strategy till we see the data. I just remind you, this is going to be a very large space. KEYTRUDA is annualizing right now at about, I think, $12 billion. And the whole space is predicted to go much larger than that with most of the sales, at least initially, coming in lung cancer.We have two strategies I think that George has been articulating for years. One is we need a foundational strategy so that if it just turns out the only checkpoint inhibitor that continues to make a difference, as it has for the last 5 years in lung cancer, is a PD-1 inhibitor, we want to be there with ours and we want to compete. And we'll see how the data goes. But it could be one experiment away with either some combination, a co-stim, a bispecific or something else. And then everybody's back, loaded up in the starting gate. So this has been, I think, articulated innumerable times by George: PD-1 is a foundational technology for us in the immuno-oncology space, lung cancer is the biggest opportunity, we want to be there.

Our next question comes from Cory Kasimov from JPMorgan.

This is Matthew on for Cory. So my question is on your BCMA bispecific programs. Can you talk about the differences between REGN5459 and 5458? What informed your decision to advance the former into the clinic? And whether this was in any way dependent on the initial 5458 clinical data.

Yes. I mean, these are all great questions. I think the important point to make is, and it was brought up by a previous caller, that we are really validating our platform and we're excited that it looks like the platform works. And what we're beginning to understand is that one way to control, not only efficacy but also safety, is by the components that are used, particularly the constant components in our platform. I'll remind you, they're all created from entirely natural sequences of antibodies and so forth, so there's no immunogenicity problems.And so what we're doing, we committed not based on any data that we saw, but to test a couple of variants of the constant aspects of the platform to try to optimize the efficacy and safety profile. Though obviously we're seeing what look like very competitive profiles right now, we're always aspiring to even do better. So it's just a matter of building and optimizing our platform to maximize the efficacy, the safety equation as best as we can and learn that -- how we can take the platform and generalize it and optimize it to the best. And that's why we're testing, in some cases, at least two versions of related bispecifics.

So let me just repeat what George said, maybe in my words, is that the platform is powerful, and therefore the activation energy to try more than one thing is low. And so we have that as a competitive advantage.

Thank you. I think we have one more -- time for one more question, Sheryl.

Our final question comes from Josh Schimmer from Evercore.

It looks like the sequential quarter-over-quarter growth of DUPIXENT in the third quarter was much lower than it was in the second quarter despite very strong underlying prescription trends. Can you discuss some of the factors underlying that, including potential inventory or gross to net fluctuations or any other factors that might have contributed?

Josh, Marion will take that.

Sure, happy to. So Josh, we're very pleased with the quarter-on-quarter performance. And as I mentioned in my script, when we just look at, obviously the percentage growth of TRxs quarter-over-quarter, and I believe it was 21%, it was quite substantial. As it relates to gross to net and inventory, I know that inventory is within the normal range and therefore don't have more to report on that area.

Great. Thank you, everybody, for joining the call. We'll be around to take questions.

Thanks a lot.

Thank you. Ladies and gentlemen, this concludes our conference for this morning. Thank you for your participation. You may now disconnect.