Welcome to the Regeneron Pharmaceuticals Q1 2016 Earnings Conference Call. My name is John and I'll 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, the conference is being recorded. And I will now turn the call over to Dr. Michael Aberman..

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, 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-Q for the quarter ended March 31, 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..

Praluent for lowering the LDL cholesterol in the apheresis setting, sarilumab in rheumatoid arthritis, and dupilumab in atopic dermatitis. We also reported positive data from a Phase 2/3 study in osteoarthritis for fasinumab, our NGF antibody for pain. And we continue to make good progress with our earlier-stage assets and discovery efforts.

Turning to our marketed products, EYLEA has continued to deliver solid growth and we are able to increase our guidance for the year. Praluent's launch is still ongoing and has obviously faced a difficult reimbursement environment.

While we fully understand payers' efforts to control costs, we do have serious concerns that appropriate patients are having undue difficulty getting approval for Praluent. We continue to be optimistic over the long term that Praluent will provide an important cholesterol-lowering option to many patients.

Bob Terifay will provide more detail on EYLEA and Praluent. Following that, Bob Landry will provide more detail on financial results for the first quarter of 2016, as well as updated guidance.

Finally, we are approaching the potential approval and launch of two new products, sarilumab, our IL-6 receptor antibody for the treatment of rheumatoid arthritis, is under review with the FDA; dupilumab is being developed for a number of indications and we are targeting completion of our rolling BLA submission from moderate to severe atopic dermatitis in the third quarter of 2016.

With that, let me turn the call over to George..

Thank you, Len. And a very good morning to everyone who has joined us today. Let me begin with an update on EYLEA.

In addition to the Phase 2 co-formulated combinations of EYLEA with rinucumab, an antibody to the PDGF receptor, and nesvacumab, an antibody to Angiopoietin-2, we have also commenced PANORAMA, a Phase 3 study of EYLEA in non-proliferative diabetic retinopathy in patients without diabetic macular edema, or DME, which will evaluate whether EYLEA can improve their retinopathy.

Additionally, the Diabetic Retinopathy Clinical Research Network, or the DRCR, initiated a related clinical study called Protocol W to evaluate the potential of anti-VEGF therapy in preventing worsening of severe non-proliferative diabetic retinopathy.

This study will explore every 16-week dosing of EYLEA, which is the only anti-VEGF treatment being investigated in this study. In February, we received two new results from Protocol T, a government-sponsored study in patients with DME comparing the safety and efficacy of EYLEA versus Lucentis and Avastin.

The primary efficacy endpoint for that study was at one year, which showed significantly better vision gained with EYLEA than either with Lucentis or Avastin.

The second year of the study was not designed to rigorously compare the anti-VEGF agents, as the second year results were increasingly confounded by variable dosing frequency as well as additional or adjunctive therapy, such as laser.

Along these lines, it is important to point there was a greater number of injections and substantially more use of laser associated with Avastin treatment than the overall population.

Despite this, when compared with Avastin, EYLEA demonstrated a statistically significant five-letter gain, or an entire line of vision, in patients with poor vision at baseline. At two years, the rates of most ocular adverse events were similar across the three study groups.

There was, however, statistically significant lower rate of arterial thromboembolic events, including non-fatal stroke, non-fatal myocardial infarction and vascular death in the EYLEA group compared with the ranibizumab group. Our Praluent launch is underway and Bob Terifay will provide further details on the commercial front.

Our 18,000 patient ODYSSEY outcome study is ongoing. The Data Monitoring Committee for this study has completed the first interim analysis when 50% of the total events had accrued based on unblinded study data. In addition to reviewing the safety data, the DMC performed a futility assessment and recommended the study continue with no changes.

We remain blinded to the actual result of this analysis and the study is ongoing. A second interim analysis for futility as well as overwhelming efficacy could potentially occur in the second half of 2016, when 75% of the targeted primary events have occurred.

In March we reported positive data from the Phase 3 ODYSSEY ESCAPE study in patients with heterozygous familial hypercholesterolemia who required chronic weekly or bi-weekly apheresis. Apheresis is an invasive, expensive and time-consuming therapy given to the patients with the highest cholesterol levels and the greatest need.

Our studies show that Praluent reduced the need for apheresis by 75% compared to placebo and 63% of Praluent patients no longer required apheresis compared to 0% of the patients in the placebo arm.

Praluent is the only PCSK9 inhibitor that has been studied in this apheresis setting, which represents some of the most severe hypercholesterolemic patients. The adverse events that occurred more frequently in the Praluent-treated patients were injection site reactions and myalgia.

We expect our Supplemental BLA for the once-monthly dosing regimen of Praluent to be filed in the second quarter, which, if approved, will expand our dosing flexibility options. Turning now to our late-stage pipeline, where we've had some very positive news.

I'd like to start with sarilumab, our IL-6 receptor antibody which is under review by the FDA for the treatment of rheumatoid arthritis.

In March, we announced positive data from the Phase 3 MONARCH study of sarilumab versus HUMIRA, which demonstrated that sarilumab was superior to HUMIRA in the monotherapy setting in improving signs and symptoms of rheumatoid arthritis at 24 weeks.

This was the first head-to-head study in the monotherapy study using a subcutaneously administered IL-6 inhibitor. The use of IL-6 inhibition in the monotherapy setting has been growing and these data provide us with a competitive product profile. Data from the MONARCH study will be included in our European submission, which is expected mid-year 2016.

Turning now to dupilumab, our IL-4/13 blocking antibody, where we recently announced positive top-line data from the SOLO 1 and SOLO 2 monotherapy Phase 3 studies in adults with moderate to severe atopic dermatitis.

These were the first Phase 3 studies of a systematic therapy to demonstrate a significant improvement in moderate to severe atopic dermatitis and confirm the positive data we had seen in our Phase 2b study.

Overall, the studies demonstrated significant improvements in measures of disease severity, skin clearing, itching, quality of life and mental health. We expect to present detailed data from the SOLO studies in an upcoming medical conference.

We continue to expect top-line data from the Phase 3 CHRONOS study, which explores dupilumab in combination with topical corticosteroids, in the second quarter of 2016. We expect to complete the rolling BLA submission for dupilumab in atopic dermatitis in the third quarter of 2016.

We remind you that dupilumab has received Breakthrough Designation from the FDA for this indication in adults. In the first quarter of 2016, we initiated LIBERTY AD CAFÉ, a Phase 3 study of dupilumab to support our European submission.

This study investigates dupilumab with concomitant topical corticosteroids in adult patients with atopic dermatitis who are not adequately controlled with or intolerant to or ineligible for systemic cyclosporine A treatment.

In addition to the studies in the adult setting, we also plan to initiate a Phase 3 study in the atopic dermatitis indication in the pediatric population once we have data from the ongoing Phase 2 pediatric study that is now fully enrolled. We expect these Phase 2 data in the second half of the year.

We're also investigating dupilumab in other indications, including asthma, where we are currently enrolling our 1,700-patient pivotal study. We're also advancing clinical development in indications, such as nasal polyps and eosinophilic esophagitis.

For fasinumab, our NGF antibody, earlier this week we announced positive data from our Phase 2/3 study in osteoarthritis, which provides us with our first safety and efficacy data with our subcutaneous dosing regimen.

This was the first completed study using an antibody to NGF that performed extensive imaging of knee, hip and shoulder joints at screening and throughout the trial. Interestingly, we found that subchondral insufficiency fracturing and even osteonecrosis were present in this population at screening.

Further, our findings in patients following fasinumab treatment are consistent with prior data, suggesting that there may not be a substantial increase in rapidly progressing osteoarthritis when an NGF antibody is used in the monotherapy setting.

That said, this is a relatively small trial and we look forward to data from the much larger clinical studies that are underway. We have also seen some exciting developments in our earlier-stage programs. I'd like to spend a few minutes on two areas, our efforts in genetics and our recent collaboration in the arena of gene editing.

In March, we published a paper in The New England Journal of Medicine based on research that was conducted at the Regeneron Genetics Center, or the RGC. The publication showed that inactivating mutations in a gene called Angiopoietin-like 4 were associated with a significantly reduced risk of coronary artery disease in humans.

This is a great example that demonstrates how our efforts in the area of precision medicine can link genetic mutation information with real-world health outcomes to make actionable discoveries.

Many of the findings from the RGC are already being used to inform Regeneron's robust and integrated R&D programs and give us the ability to incorporate large-scale sequencing into our discovery and pipeline approaches. It also demonstrates the advantages of our unique combination of technologies.

Using our proprietary VelociGene technology, we developed animal models that corroborated the human genetics finding and we were able to use our VelociGene platform to create a fully human monoclonal antibody inhibitor of ANGPTL4 that reduced triglyceride levels in mice and non-human primates.

We are also advancing a Phase 2 program of Regeneron 1500, an antibody to ANGPTL3. ANGPTL3 is thought to play a central role of lipoprotein metabolism and there are genetic data that show that patients with homozygous inactivating mutations of this gene report greater than 50% lower levels of LDL, HDL and triglycerides.

Initial data from a small study in homozygous patients will be presented at the upcoming Annual Meeting of the National Lipid Association. We recently entered into collaboration with Intellia Therapeutics with the aim of advancing CRISPR/Cas gene-editing technology into in vivo therapeutic development.

This was a logical fit for us, given our long-standing expertise on genetic engineering combined with our industry-leading human genetics research with the RGC, which is already identifying important genetic targets.

We believe that combining these capabilities with Intellia's technology holds real promise for serious diseases that have been historically difficult to address and expands our ability to help patients where antibody-based therapies may not be the optimal approach. We continue to make progress in immuno-oncology.

REGENERON 2810, our PD-1 antibody program, has entered a Phase 2 potentially registrational study in cutaneous squamous cell carcinoma. We'll be presenting some preliminary Phase I data at the upcoming Annual ASCO Conference. With that, I would like to turn over the call to Bob Terifay..

Thank you, George. And good morning, everyone. During the first quarter of 2016, we continued to see strong sales growth for EYLEA, or aflibercept injection, both in the United States and the rest of the world. We've made substantial progress in securing access and reimbursement for Praluent, or alirocumab, among U.S. payers.

In addition, the European launch for Praluent continues to progress. We also are now preparing for the potential U.S. launches of sarilumab and dupilumab over the next 12 months to 15 months. Starting with EYLEA. First quarter U.S. net sales grew 44% year-over-year. Net U.S. EYLEA sales for the first quarter was $781 million. Net ex-U.S.

EYLEA sales in the first quarter were $419 million, which represents 44% growth year-over-year on a reported basis. We continue to see quarter-over-quarter increases in our U.S.

market share leadership for EYLEA in the FDA-approved anti-VEGF market, both in terms of dollar sales as well as injections as reported by 207 retinal specialists in our quarterly Market Research Survey.

We're encouraged about future growth opportunities for EYLEA based upon the recently reported two-year results of the independently conducted Protocol T comparative study of EYLEA versus ranibizumab versus bevacizumab in patients with diabetic macular edema.

However, I should point out that we are closely monitoring pressures on EYLEA sales as the year progresses.

There are currently a series of proposals for the Centers for Medicare & Medicaid Services regarding physician reimbursement for physician-administered Medicare Part B buy and bill drugs, which could lead towards physicians favoring the use of off-label repackaged bevacizumab, or in large volume retinal practices, ranibizumab, due to the provision of direct-to-physician financial incentives from the manufacturer.

Regeneron believes that EYLEA is clearly differentiated from both bevacizumab and ranibizumab. Physicians and patients should not be denied access to any drug therapy that is deemed appropriate.

Therefore, we and scores of other manufactures, patient advocacy groups and industry associations will or have already submitted objections to CMS and Congress recommending the physician's choice be preserved and alternative schemas to reduce healthcare costs should be explored. Turning now to Praluent.

As reported by Sanofi, net sales in the first quarter were $13 million, which understates the actual physician and patient demand.

As we reminded you over the last several quarters, we anticipated that it will take some time for commercial and government payers to conduct formulary reviews, make reimbursement coverage decisions and begin to process patient claims.

I'm pleased to tell you that, as of April 1, approximately 74% of commercially insured lives and 91% of Medicare-insured lives have access to Praluent. We've recently seen an improvement in the number of prescriptions that are successfully being filled.

Highlighting our improved coverage as well as our share of voice among healthcare professionals, the most recent nationally syndicated Prescription Audit for the week ended April 22, 2016 indicates that Praluent captured approximately 50% of new prescriptions in the class.

Unfortunately, due to unprecedented strict management utilization management criteria and very tedious prior authorization paperwork and documentation that the pharmacy benefits managers and health plans have put in place, many patients who are eligible for treatment with a PCSK-9 inhibitor have not had their prescription filled.

Frustrated by this process, healthcare professionals are limiting their prescriptions to the sickest of patients and prescription volume for the PCSK-9 inhibitor class is limited. We're focusing our efforts improving the prescription process through the payers and specialty pharmacies.

We're also working with physician's offices to ensure the prescription process is better understood on a payer-by-payer basis. Over the last several weeks, we've seen two payers loosen the utilization management criteria, removing the requirement for prior ezetimibe therapy.

ODYSSEY OUTCOMES data, if positive, will be a key driver in shaping the future success of Praluent. Outside of the United States, Praluent was approved in the EU in September of 2015, with product now available in several countries. Reimbursement discussions are currently underway with several governments across Europe.

Outside the United States it remains a difficult reimbursement market, with some countries awaiting OUTCOMES data. We've submitted a BLA to the U.S. Food and Drug Administration for sarilumab, our interleukin-6 receptor inhibitor for rheumatoid arthritis, and have been granted a PDUFA date of October 30, 2016.

We will be co-promoting sarilumab with Sanofi-Genzyme in the United States and are actively recruiting our field-based team. Co-promotion decisions for other countries will be made over time. We're excited about the potential U.S. launch for sarilumab.

Given the central role of interleukin-6 in the inflammation contributing to the signs and symptoms of rheumatoid arthritis and, more importantly, disabling joint destruction, we believe that IL-6 inhibitors should be used early following tumor necrosis factor, or TNF, inhibitor failure. Recently issued U.S.

and European guidelines support the use for IL-6 inhibitor class in earlier lines of treatments, and this is particularly relevant for those patients who can not take combination therapies with methotrexate.

With multiple players competing in the anti-IL-6 marketplace, this should contribute to improved physician awareness and understanding of the inadequacy of TNF inhibitor cycling and the need for early IL-6 inhibitor treatment.

Subcutaneously administered sarilumab has strong clinical data in terms of the improved signs and symptoms of rheumatoid arthritis and prevention of bone damage in methotrexate inadequate responders. Similar improvements in the signs and symptoms of RA had been reported in TNF inhibitor inadequate responder population.

We continue to prepare for the potential U.S. launch of dupilumab, our IL-4 and IL-13 inhibitor, which we expect in 2017. There are approximately 1.6 million patients with inadequately controlled moderate to severe atopic dermatitis in the United States. We'll be co-promoting dupilumab in the United States.

Co-promotion decisions for other countries will be made at a later date. With that, let me turn the call over to our Chief Financial Officer, Bob Landry..

Thanks, Bob, and good morning to everyone who has joined us today. In the first quarter of 2016, non-GAAP net income per diluted share decreased 11% to $2.57 versus first quarter of 2015 and non-GAAP net income of $293 million decreased 13% versus first quarter of 2015.

Regeneron's 2016 non-GAAP net income primarily excludes non-cash share-based compensation expense and includes an adjustment for income taxes. A full reconciliation of GAAP to non-GAAP earnings is set forth in our earnings release.

Total revenues in the first quarter of 2016 were $1.2 billion, which represented year-over-year growth of 38% over the first quarter of 2015. Net product sales were $784 million in the first quarter of 2016 compared to $545 million in the first quarter of 2015.

EYLEA net product sales in the United States were $781 million in the first quarter of 2016 compared to $541 million in the first quarter of 2015, which represents an increase of 44%. Sequential quarter-over-quarter growth was an increase of 5%. During the first quarter of 2016, EYLEA experienced a slight decrease in U.S.

distributor inventory levels as compared to the fourth quarter of 2015, but continues to be within our normal one-week to two-week targeted range. As Len mentioned, we are updating our full-year 2016 U.S. EYLEA guidance to be year-over-year growth of between 20% and 25% from the previously provided guidance of approximately 20% growth. Ex-U.S.

EYLEA sales were $419 million in the first quarter of 2016 as compared as to $292 million in the first quarter of 2015, representing 44% increase on a reported basis. On an operational basis or constant currency basis, sales increased approximately 48%. Product revenue from ex-U.S. EYLEA sales is recorded by our collaborator, Bayer.

In the first quarter of 2016, Regeneron recognized $146 million from our share of net profits from EYLEA sales outside the U.S. Total Bayer collaboration revenue for the first quarter of 2016 was $180 million.

I'd also like to take this moment to highlight our recently expanded collaboration with Bayer following our agreement to jointly develop the co-formulation of our antibody to Ang2 in EYLEA. In connection with this agreement, Bayer made a $50 million upfront payment to us, which was a receivable at March 31, 2016.

And Regeneron has the potential to earn up to $80 million in development milestones. The $50 million upfront payment has been deferred and will be recognized over the estimated performance period. Similar to our EYLEA agreement, Regeneron has exclusive commercial rights within the U.S. and will retain all of the profits from any U.S. sales.

Finally, a reminder for the EYLEA franchise. The second quarter of 2016 will be the final quarter in which we incur the royalty expense in connection with our agreement with Genentech related to global EYLEA sales. In fact, I'm pleased to announce that this royalty will officially end in two more days. Turning now to our Sanofi collaboration.

Total Sanofi collaboration revenue was $220 million for the first quarter of 2016. The Sanofi collaboration revenue line primarily consists of reimbursement of Regeneron-incurred R&D expenses, reimbursement of Regeneron commercialization-related expenses and our share of profits or losses in connection with commercialization of antibodies.

In the first quarter of 2016, our share of the collaboration's losses in connection with commercialization of antibodies, primarily Praluent, was $99 million, which can be found in Table 4 of our earnings release.

Netted within the collaboration losses were the global sales of Praluent as recognized by our collaborator, Sanofi, of $13 million for the first quarter 2016. Turning now to expenses. Non-GAAP R&D expense was $392 million for the first quarter.

Our unreimbursed R&D expense, which is calculated as total GAAP R&D expense less R&D reimbursements from our collaborators and R&D non-cash share-based compensation expense, was $164 million for the first three months of 2016. Our press release includes all the information that's required to calculate unreimbursed non-GAAP R&D expense.

For 2016, we'd like to reiterate our previously provided guidance for non-GAAP unreimbursed R&D to be in the range of $875 million to $950 million. Non-GAAP SG&A expense was $230 million for the first quarter 2016. We continue to expect non-GAAP SG&A expense in 2016 to be in the range of $925 million and $1 billion.

Before I move on from our operating expenses, I'd like to take a moment to discuss the new guidance component we announced this morning, Sanofi reimbursement of Regeneron commercialization-related expenses, which represents reimbursement of internal and external costs in connection with preparing to commercialize or commercializing, as applicable, Praluent and sarilumab and, effective in the first quarter of 2016, dupilumab.

This is a line item found within Sanofi Collaboration Revenue and is referenced in Table 4 of our press release. Going forward, we believe that providing guidance for this number will help in modeling the Sanofi Collaboration Revenue line item.

For the first quarter of 2016, the reimbursement of Regeneron commercialization-related expenses was $73 million and we expect this expense in 2016 to be in the range of $320 million and $370 million. Turning now to our non-GAAP tax adjustment.

Cash tax as a percentage of non-GAAP pre-tax net income for this quarter continues to be lower than our GAAP effective tax rate primarily due to the tax impact of non-cash share-based compensation. On a non-GAAP basis, cash tax as a percentage of non-GAAP pre-tax net income for the first quarter of 2016 was approximately 38%.

For 2016, our guidance for cash tax as a percentage of non-GAAP pre-tax income remains at 35% to 45%. As previously reported, this includes a one-time tax of approximately $222 million related to the Sanofi immuno-oncology agreement.

I'd also like to reiterate that the non-GAAP tax impact of the immuno-oncology upfront payment will be spread equally throughout 2016. Our capital expenditures for the first quarter of 2016 were $104 million.

Given our latest review of capital expenditures, we are tightening and lowering our full-year 2016 capital expenditures guidance to a range of $550 million to $625 million from $580 million to $680 million.

These expenditures continue to build on our manufacturing expansions in 2015, which include expanding our facilities in Rensselaer, New York and Limerick, Ireland, as well as the continued expansion of our Tarrytown, New York headquarters. We ended the first quarter of 2016 with cash and marketable securities of $1.4 billion.

As we've previously mentioned, we have been opportunistically entering into agreements to reduce the number of our outstanding warrants that we issued in 2011 in connection with our convertible debt. In the first quarter of 2016, we paid $242 million to reduce these outstanding warrants.

Before I conclude my remarks, I would briefly like to highlight certain financial components of the recent collaboration with Intellia Therapeutics.

The April 2016 agreement grants Regeneron access to Intellia's CRISPR technology platform, as well as the right to discover and develop up to 10 targets on an exclusive basis over the course of the six-year agreement.

In return, we paid a $75 million upfront payment to Intellia, which we anticipate recording as R&D expense in the second quarter of 2016, but plan to exclude from non-GAAP net income. The agreement also requires Regeneron to purchase up to $50 million of Intellia's shares contingent upon Intellia consummating its initial public offering.

With that, I'd like to turn the call back to Michael..

Thanks, Bob. Operator, at this time, we will open up the call for our Q&A period..

Thank you. We will now begin the question-and-answer session. And our first question is from Geoffrey Porges from Leerink Partners..

Thank you very much and appreciate the chance to ask a question, but also the 10-Q being filed today is very helpful with all the detail. I suppose a couple of questions. George, first, on dupilumab. Now you have the first Phase 3 readout.

What incrementally have you learned from that in terms of the profile of dupilumab and how does that alter what you might focus on and potentially invest in for that molecule in the future? And then, secondly, just on Medicare Part B. You alluded to that and called it out in your risks and in the Q.

What are you learning in the comment period and will you be submitting comments or are you aware of other comments? And do you think there's any chance that this is going to be modified or altered in schedule or scope? Thank you..

All right. Well, this is George. I'll take the dupilumab question. I guess the most important thing that we learned from the two Phase 3 studies in atopic dermatitis was, number one, that we confirmed the impressive efficacy and the important benefit to patients in essentially every single efficacy readout that we explored.

So, obviously, that's very gratifying and comforting when one actually sees data that is as promising as your earlier data and suggests it can really make an important difference to moderate to severe patients who really need new therapies to attack their disease. In addition, the safety profile was also very comforting.

And we report extensively on it and it really does suggest that it's going to have a very important benefit/risk profile for patients.

I think that basically for atopic dermatitis, it really means that it's all green lights and all speed ahead and that we're really excited that we could be really bringing forward, as the FDA has designated, a Breakthrough Therapy for these patients that need it.

As you know, we also have a pivotal study in asthma that's already been read out and we're in the midst of our first Phase 3, which is now our second confirmatory study, in that indication as well. So dupilumab is a very, very exciting program.

And as I already told you about today, I told you that in terms of the atopic dermatitis population, we're also moving to the pediatric population there as well, which is also an important unmet need area.

Bob?.

In terms of the Part B, we fully understand that healthcare costs need to be appropriately controlled in this country. However, the approach that has been proposed by Medicare Part B would limit options for physicians and patients to give appropriate therapies to patients who need them.

For example, in the case of the retinal space, you could lead to physicians being required simply by the economics that are in place to force them to use an off-label repackaged bevacizumab, which, at least in the Protocol T trial, was shown in DME not to be as effective as the other therapies. They could be forced to use this for economic reasons.

We see that a number of manufacturers as well as a number of Congressmen and patient advocacy groups recognize that you have to preserve physician choice. And so there will be a number of complaints and letters going into Congress, including our own..

Yeah, just to add on it, there are literally hundreds of Congressmen who have said that this should not be done. There are others who've said that the unintended consequences that we're concerned about must be managed.

The retinal groups, the ophthalmology groups and that's not to mention all of the other interested parties, such as cancer and what have you. So I think many observers, of which we're not experts on, but many observers in Washington would suggest that this seems unlikely. But we're certainly going to do our best on this as well..

Thanks very much..

And I'm going to remind people to try to keep themselves to one question. I'll let this one slide this time, Geoff..

And our next question is from Chris Raymond from Raymond James..

Hey, thanks. Yeah, so just one question here. So just on the PD-1, I'm sort of struck by the news that this cutaneous squamous cell trial could be pivotal.

Yeah, I know Sanofi broke that news last week, but I was wondering if you could provide a little more color on where this trial fits in with the overall development plan? Just looking at clintrials.gov (sic) [clinicaltrials.gov] (34:44), there's not a ton of detail.

And obviously there's a lot of breadth of labeling potential with that type of molecule. If you could maybe talk about where you plan to take this, that'd be great..

Well, we are implementing a highly integrated and very comprehensive effort in immunotherapy.

And this is obviously a very competitive area and I think that there's a lot of room for people to make inroads here, provide new approaches and new benefits to patients and really make a difference in certain disease settings and just think that we have a very robust and highly integrated and comprehensive effort here, and we intend to hopefully deliver important new approaches to patients..

Thanks..

Okay, next question?.

Yep..

Our next question is from Terence Flynn from Goldman Sachs..

Hi. Thanks for taking the question and congrats on all the pipeline progress. So just wondering for dupi, I know it's a little bit early, but as we just think about the launch trajectory....

Taking a shot at dupilumab. I think the fact is obviously we can't answer that directly, Terence. And since we and all of us, everybody has been wrong multiple times, that these things unfold as they unfold. The factors to consider obviously is that you're already obviously seeing the PBMs taking notice of this.

I saw this in somebody's report that this is the next big class that they're worried about. There are a lot of patients out there that might fit our label, assuming we get the label.

But I'm sure there's going to be utilization management, make sure they've tried their topical steroids or whatever that they really have the right diagnosis, et cetera, et cetera, Now, whether there'll be "warehousing of patients," people lining up to get it, it's just really impossible for us to tell.

But I would suspect that this will be one of those launches that will be patient-driven that as people get on the drug, if the results in the real world are anywhere as close to the results we've seen in our Phase 3 trial so far, I'm sure that that patient drive will be tremendous, because this is a terrible disease that people have been suffering with for decades, adults now who have it, without anything at all new to really help them and make a difference.

And if you look at, whether you measure this by quality-of-life metrics, the increased risk of suicide, just the terrible burden that this puts on patients, we're optimistic that this drug can make a difference for them. So we're hopeful for a good launch.

But how the actual ramp and whether it takes us a while to get it going and what the coverage looks like and all that, just too early to tell.

Next question?.

Next question, operator?.

Our next question is from Adnan Butt from RBC Capital Markets..

Hey, good morning. This is Arshad (38:06) on from Adnan. Thank you for the question.

Could you please put the fasinumab safety data into context, given that the FDA seems to have already been focused on safety in general?.

Yeah. Well, maybe I'll make a brief comment and if George has anything to add, obviously he's welcome. Our feeling, as George said in his talk, is that we did something which we think was pretty important, which is we did an extensive and detailed screening of patients with X-rays and MRIs before they were ever exposed to drug.

And that demonstrated that some of these things that people were concerned about might be somewhat induced by drug were really fairly prevalent in the population, whether they be insufficiency fractures or whether they be osteonecrosis or so on. So I think that that was important.

And I do think that the FDA has come around to thinking that this has to be looked at carefully and that's what we're doing. And the right patients have to be studied and that's also what we're doing.

They also have had concerns about whether or not any one of these drugs individually or as a class could have effect on sympathetic nerves and sympathetic nervous system function. We also looked at that pretty well and we'll have more to tell you about that in upcoming meetings. But we didn't see any evidence at all.

So that so far things look reasonable, but, I think as George said, it's a small study and we're underpowered to pick up very small increases in some of these things and that's why we're going to study thousands and thousands of patients in our Phase 3 program..

Yeah, and to add to that, I think that one of the biggest underlying fears for this class, certainly by outside people, but also by ourselves, was that the very small increase in certain arthropathy events, certain joint pathologies, that were seen particularly in combination with NSAIDs, but also a small increase even in monotherapy, might actually be reflecting a much bigger, somewhat invisible, problem that there was a bigger, destructive process that would then be seen over longer periods in time and so forth.

And this is why we did this, as Len said, this extensive imaging of both the index joints but also non-index joints to see whether overall the skeleton was really changing.

And as we've already said, the thing that was very gratifying was that, unfortunately for these patients suffering from this important problem, there is already significant skeletal pathology at baseline.

These patients have these so-called subchondral insufficiency fractures and you can even see undiagnosed osteonecrosis in these patients and so forth. And these events, both in the index and the non-index joints, were not dramatically increased by treating with NGF.

And one fear, for example, was that these asymptomatic subchondral insufficiency fractures may be happening much more frequently with drug and then eventually leading to much higher incidences of events down the line. And so it was very comforting not to see this.

That said, there remains, as with any drug and certainly with a drug this active, there will continue to be risks associated with treatment. But one has to balance that with all the benefits that could be provided. Pain is a very serious problem for a lot of people, especially people suffering from osteoarthritis.

And the options, obviously, as you know, are quite limiting with no new mechanism of action drugs added to this field for decades.

And so the possibility and the opportunity of a new mechanism of action class that might have a different profile and also different risk profile as compared to, for example, opiates and NSAIDs and other drugs with serious risks, we're think can offer important options for patients..

This is Michael. I just want to make sure I added because, when talking about pain, you really have to keep in the context of really what is an epidemic in the United States in terms of drug opioid abuse and overdose, with quadrupling in the number of opioid deaths in the past number of years.

As well as from the CDC website, nearly half a million people died from drug overdoses from 2000 to 2014. Almost 80 Americans die every day from an opioid overdose. So I just think we have to keep into context that having new pain medicines is really important..

Yes. Okay, good.

Next question?.

Next question?.

Our next question is from Ying Huang from Bank of America..

Hi. Good morning. Thanks for taking my questions. Just first on the CMS proposal again. I think you guys mentioned in DME you do have superiority against some of the other medications.

But in AMD, I was wondering if you guys can provide your thought on whether it could be classified as so-called therapeutically similar class and, therefore, to be subject to a reference pricing in the second Phase of that demo? And then also on the ODYSSEY OUTCOMES trials. I know that trial is 90% powered to show 15% CV risk reduction.

Maybe you guys can provide us on whether you think the payers would be excited about that 15% CV risk reduction. Thank you..

So, Ying, which question do you want answered? Because Michael's holding up a sign that says one question, even though he loves you.

He said, which one does he want?.

Len, you're the boss..

Not true.

Which question, Ying?.

All right. Maybe second. It's probably more important from my perspective..

Okay. Well, I think that the OUTCOMES data, as we saw with ezetimibe, it's not simply a matter of statistical significance. I think what people will be looking for is the robustness and the quality of the dataset, et cetera, et cetera.

Certainly we powered the study based on expert input of where they thought that would be, if we saw the result, that would be a meaningful result for patients. But, of course, it's not just one number, it's not just a statistical significance. You want to see how the whole dataset looks like.

And I think somebody said about ezetimibe, they have statistical significance, but, if you blinked, you could miss it. And we tried to design a study and set the parameters such that if we saw the result, we could feel confident about it that we were making a difference in these outcomes to patients..

Ying, I can't leave the EYLEA one hanging out there, I'm sorry. If you....

I appreciate that..

...remember back to the VIEW 1 and VIEW 2 studies, we actually designed studies that compared ourselves to what was the standard of care branded agent, which was ranibizumab monthly. And we studied EYLEA both monthly as well as every eight weeks.

And what we saw is very similar results with the EYLEA every eight-week dosing to the Lucentis every four-week dosing. This is a major advantage to elderly patients who can't get into the physician's office on a regular basis. And so they are not therapeutically equivalent; EYLEA has a longer durability of effect.

I would also point out there are data in a subset of patients in the VIEW studies that indicates that there are patients who are more refractory to anti-VEGF therapy, especially those who've received prior anti-VEGF therapy who may need more anti-VEGF treatment.

And what we're seeing in those patients, we're able to dry them up better with EYLEA than with Lucentis..

This is George, I also have to make a few comments here.

And I think really Bob touched on an important point, that our drug showed compared to the, at the time, optimum standard of care that doubling the interval could produce at least as good results from the terms of visual acuity, but also even better results in terms of controlling vascular leak and retinal swelling and so forth.

And I think that we all have to really consider that maybe – and I hate to say it, because some people are going to say, hey, you know, don't challenge the physicians here.

But I think the physicians here, and we understand the limitations of the real world in practice, are doing a huge disservice to patients in terms of the systematic undertreatment that is probably occurring in this field. There is an enormous drive to try to get patient less trips to the office, less injections.

And you've probably seen the release of recent data with long four-year and five-year follow-on.

And after you take the patients over the more controlled phases of the study where they're getting, in general, in most studies, monthly treatment on a very carefully monitored treatment, they essentially lose almost all their vision gain over these later years of four-year and five-year follow-ups.

And we believe that the data and the evidence suggest that this is really due to systematic under-treatment, patients getting less and less treatment. And particularly in that setting, if you want to deliver the best care to patients, you should be delivering the best agent that has the longest duration of action.

And we think that the only agent that's really demonstrated that convincingly is EYLEA. And so I think to save patient's visions, you saw the long-term trials, patients are losing visions. Physicians are not doing the right things by their patients. They're systematically under-treating.

And particularly in those settings, they should be getting the best drugs that protects patients against this vision loss..

Okay..

And it would be a disservice if, in fact, incentives and so forth are driven to the use of an inferior agent, which will cost patients. Think about it, you're a patient who can't drive. You're a patient who can't read. You're now given a drug, all of a sudden you gain two lines, three lines of vision.

That changes the world literally for you, okay? You could do things you can't do before. And now we develop a system that allows you to lose that? I think that we have to think about how we want to practice medicine in this country if we create a situation that allows that..

Yeah, I think the physicians, George, are right there with you. And it would be hard for me to imagine that once the physicians are heard on this subject, that an off-label, inferior product based on a government study could set the standard..

Okay.

Next question?.

Yeah, next question, please?.

Our next question is from Robyn Karnauskas from Citigroup..

Hi, guys. Thanks for taking my question and congratulations on all the innovation. I feel like one of the few companies where there's so much going on the call and you provide clarity. I guess I'm going to go sarilumab and ask a question about the opportunity.

Because Sanofi does highlight this a lot and I feel like those of us on the Street are more skeptical about the opportunity. Help us understand what your view is of sarilumab and how you think about this. It's a competitive space, there's stuff coming up behind it from AbbVie.

How are you thinking about the strength of that data? And do you have any understanding of the strategy and how you could take share from the current market or expand the current market? Thanks..

So, Robyn, thanks for your comments about innovation. Obviously, George and I have tried to build a company for the last three decades that is truly driven by science innovation, so we appreciate you taking note of that. And Bob can comment without giving away all of our intricate strategy on what the opportunity for IL-6 might be..

Robyn, as I pointed out earlier, I think that when Genentech launched ACTEMRA into the U.S. marketplace, it was very much a market dominated by growing TNF inhibitors. And they were a single company trying to educate on the role of IL-6 in rheumatoid arthritis and the potential benefits of using an IL-6 inhibitor earlier.

It is always more beneficial, we've seen this, for example, in the statin class, where, as more and more statins became available, they grew the market.

We believe that this is the opportunity for this class, that we educate physicians more, one, is as I said earlier, on the central role of IL-6 in both the signs and symptoms of RA, but as well as in joint destruction, which we feel is very important.

Physicians need to understand, they shouldn't stay with a TNF inhibitor, which over time, each additional TNF inhibitor does not deliver the efficacy that they received with the first TNF inhibitor. So there's a benefit of moving to a new class. And IL-6 really does have a central role, both in symptoms as well as bone destruction..

Also, just to add, there's some historical accidents have occurred here in the order the drugs came along and having to do with pricing. And with methotrexate being the mainstay, it's a very cheap drug, it's effective. But it's not the most innocuous drug in the world from its side effects and what have you.

And there are many people who, I'm told, particularly women, who don't like being on the product and that there really seems to be movement towards monotherapy.

And, remember, methotrexate, some have argued that for some drugs, methotrexate provides the immunosuppression for the biologics so that any immune-related, if you will, blockade of effect doesn't appear as quickly.

Suffice it to say, maybe George can comment on that more, but I can say that when we look head to head against the market leader, AbbVie, in the monotherapy setting, you've seen our data. We had a superior result..

And I also do, just to finish the story, sarilumab is not a me-too drug.

I don't want to do cross-comparison trial data right now, but I think if you look at the prescribing information for subcutaneous ACTEMRA and you look at the results we reported with our product, we are very encouraged about the product profile that our product, which has higher binding affinity to IL-6, is going to offer in the marketplace.

Maybe George wants to comment on that..

I think it's important to just highlight a few things, because, once again, it all comes down to the patients and doing the best by the patients. And I think, as Bob and Len already mentioned, if you look at the science, it doesn't necessarily make sense to start all patients, particularly patients in monotherapy settings, with a TNF.

And that may be a historical accident. It also doesn't make sense to just continue patients cycling on TNF if there is an alternative that can deliver them better symptomatic relief. And so we think that there's enormous opportunity for this class.

And importantly in this class, and as Bob said, one of the most important things that I think that patients and physicians are concerned about is irreversible bone loss. That's one thing that you can't get back and that's one thing that's looked at in this field. And as you know, ACTEMRA is now growing through a subcutaneous formulation.

And if you look in the label, according to the subcutaneous formulation that's used there in terms of inhibition of the irreversible bone loss, there's less than 50% inhibition by the subcutaneous formulation in terms of ACTEMRA in terms of the irreversible bone loss.

If you look at our study, we offer two doses, and if they both get approved, our higher subcutaneous dose gives greater than 90% inhibition of irreversible bone loss. So, as Bob said, these are not identical agents. This is not a me-too. There's important differences.

And there's an important opportunity to do better by patients in terms of the monotherapy setting and in terms of not just cycling through drugs that maybe aren't working for the patients and putting them on a different mechanism of action drug..

I'll also say that there have been, let me call it, commercial gains that have been played out there in that in negotiations that have gone on with the PBMs where people have used certain multiple indications as a way to drive use in other indications from what we can tell.

And I think the PBMs are sort of wising up to that and moving to indication-specific pricing and negotiations. And so we actually feel that we might be entering the market at a reasonably good time where, with a lot of dynamics going on and a good product, you can make inroads. Now, I don't think this is going to be an easy road.

And I don't think you can just assume that we're going to jump in and grab huge market share right off the bat, but I think we can build this into a significant opportunity over time. It's more of going to be like a slow and steady..

All right.

Next question?.

Next question is from Alethia Young from Credit Suisse. Alethia Young - Credit Suisse Securities (USA) LLC (Broker) Hey, guys. Thanks for taking my question and congrats on everything you have going on there. Just going back to the Praluent trends that you said in your script. I guess you said that Praluent got 50% of the new scripts.

Can you talk about what behavior might be driving that 50%? Is it something that you're adjusting or changing that's resounding in the profile?.

Yeah, I think it's hard to know for sure. And we only have another minute here, so I don't want to get into great detail. But one thing that is important is that there's new coverage that's come into play, particularly in the Medicare space, which was really only recently coming on.

And those plans that chose, which was most of them, a single agent as the priority drug, we were I think selected about 90% of the time. So, I think that there's some new coverage, new utilization management. And obviously, we're working hard at this. But I don't think you can consider one week a trend, whether it's going one direction.

It's just a data point. But right now the market seems to be split roughly more or less equally based on that data point. How that goes over time, obviously that's what the competitive marketplace is all about..

But I think our most important effort right now has to be on making sure that the right patients get access to drug. And that's really where both companies are focused. It's an important thing for the class. The patients who need drug have to get an opportunity to have access to it..

Operator, we have time for just one last question..

And our last question is from Matthew Harrison from Morgan Stanley..

Great. Thanks for fitting me in. I just had two related Praluent questions. You said that two payers had loosened their criteria. I'm wondering if you can just be more specific about that, who they were and exactly what they loosened. And then you were talking about an improvement in the number of Rxs that were filled.

Is that just more people getting through the utilization management criteria, or could you just be more specific about that comment as well? Thanks..

Sure. Our contracts with the payers don't allow us to disclose the specific ones who've changed their utilization management criteria. But what I can say, as I did earlier, what they did is removed a trial period of 12-plus weeks of ZETIA after maximally tolerated statin therapy from their utilization management criteria.

That was setting up a delay in access to PCSK9 inhibition. The physicians were having to put them on ZETIA and then wait. And it was causing a real backlog for the doctors. So, that has been removed by two of the payers. In terms of the improvement of the number of people going through the hub.

I think what I could say is, one, as Len said, payers have come on board now. And, especially Medicare patients, now are getting access to therapy. I think the other thing is that the physicians as well as the specialty pharmacies are better understanding how to make the prescription process better. Now, it's not easy right now.

We continue to work on improving it. But at least it has gotten better for some patients..

So, just one last comment. This is Len. In our effort to answer all your questions, what we're trying to do is give you some insight into our thinking, like why we went forward with something. We're not trying to make cross-trial comparisons, per se.

We're trying to give you an idea of why we went forward and what we saw or how we felt we were differentiated. What we can say out in the marketplace obviously will be limited based on what we actually get in our various labels that are pending.

And, with that, I would just say that we're pleased that the innovation machine continues to turn and produce lots of exciting things that we'll hope to update you in the scientific literature and in presentations that are upcoming. Lots of things George did not get a chance to talk about that are exciting.

So we appreciate your interest and we hope to continue to be able to update you over time. Thank you very much..

Thanks..

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