Manisha A. Narasimhan - Regeneron Pharmaceuticals, Inc. Leonard S. Schleifer - Regeneron Pharmaceuticals, Inc. George Damis Yancopoulos - Regeneron Pharmaceuticals, Inc. Marion McCourt - Regeneron Pharmaceuticals, Inc. Robert E. Landry - Regeneron Pharmaceuticals, Inc..

Robyn Karnauskas - Citigroup Global Markets, Inc. Christopher J. Raymond - Piper Jaffray & Co. Ying Huang - Bank of America Merrill Lynch Geoffrey C. Porges - Leerink Partners LLC Matthew K. Harrison - Morgan Stanley & Co. LLC Josh Schimmer - Evercore ISI Carter Gould - UBS Securities LLC Phil Nadeau - Cowen and Company, LLC Cory W.

Kasimov - JPMorgan Securities LLC Geoff Meacham - Barclays Capital, Inc. Matthew Luchini - BMO Capital Markets (United States) Brian P. Skorney - Robert W. Baird & Co., Inc. (Broker) Jason Jakoby - Goldman Sachs & Co. LLC Adnan Butt - Guggenheim Securities LLC.

Welcome to the Regeneron Pharmaceuticals Second Quarter 2018 Earnings Conference Call. My name is Sylvia 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 that this conference is being recorded.

I will now turn call over to Manisha Narasimhan, Head of Regeneron's Investor Relations. You may begin..

Thank you, Sylvia. Good morning and welcome to Regeneron Pharmaceuticals second quarter 2018 conference call. An archive of this webcast will be available on our website under Events for 30 days. Joining me on the call today 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, Senior 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, 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 the 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, or SEC, including its Form 10-Q for the quarter ended June 30, 2018, which will be filed with the SEC later 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 in 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 at 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 President and Chief Executive Officer, Dr. Len Schleifer..

Thanks, Manisha, and good morning to everyone who has joined us on today's call and webcast. Regeneron delivered a strong second quarter, as measured both by R&D progress, as well as our financial results, reflecting our commitment to discovering important new drugs and translating those discoveries into successful commercial products.

Our pipeline now has 19 drugs or drug candidates in development, with particularly good progress in allergic diseases and cancer. George will update you on our R&D efforts and highlight some notable progress across our pipeline.

Our commercial efforts are focused on market leading EYLEA, the ongoing launches of Dupixent, Kevzara, and Praluent, and our ongoing launch preparations for cemiplimab, our PD-1 inhibitor in cutaneous squamous cell carcinoma. Marion will update you on our progress. Operationally, we had a record performance on both the top and bottom line.

Bob will review these results. So now I'd like to turn the call over to George..

Thanks, Len, and good morning, everyone. Let me begin by updating you on the status of EYLEA. Our regulatory submission for EYLEA dose every 12 weeks in neurovascular age-related macular degeneration, or wet AMD, is currently under FDA review with PDUFA date of August 11.

Yesterday, Bayer, which commercializes EYLEA outside the United States, announced that the European Commission has approved a new treatment approach enabling early extension of the injection interval for patients with wet AMD.

The new approach is based on the results from the ALTAIR study, in which after 52 weeks 57% of patients had their next regularly scheduled EYLEA injection at an interval of 12 weeks or more, with many patients achieving interval of 16 weeks, the maximum interval allowed in the study.

Study participants gained an average of 9 letters, including 50% of patients who gained 10 or more letters of vision at week 52. These results were largely maintained during the second year of the study. These data have not been submitted for review to the FDA.

We would also like to report some recent success with higher dose formulations of aflibercept in preclinical studies, which we hope to advance into the clinic in 2019. Turning now to our immunology and inflammation programs.

Dupixent, our interleukin-4 and interleukin-13 blocker, is approved for atopic dermatitis and is under investigation for other allergic diseases, also known as atopic or Type 2 inflammatory diseases, including asthma, nasal polyps, eosinophilic esophagitis, as well as food and inhaled allergies.

Dupixent is approved for the treatment of adults with atopic dermatitis and later this year we expect a supplemental biologics license application for SBLA for adolescents with atopic dermatitis, based on the positive top line data we announced in May. These data will be presented in more detail at a medical conference next month.

Dupixent is also under regulatory review for asthma in adults and adolescents. In addition, we are conducting pediatric studies in both atopic dermatitis and asthma.

Later this year, we are expecting pivotal results from our Phase 3 studies in nasal polyps and we will be initiating our Phase 3 program in eosinophilic esophagitis, as well as earlier clinical programs in both peanut allergy and grass allergy.

The emerging Dupixent clinical data continues to support our hypothesis that interleukin-4 and interleukin-13 are the central drivers of allergic disease. Our interleukin-33 program complements Dupixent and has potential both as monotherapy and in combination with Dupixent.

Interleukin-33 may be an important target in certain inflammatory diseases and is supported by evidence from work done at our Regeneron Genetics Center. We are currently investigating this molecule in asthma and atopic dermatitis. Now I'll turn to immuno-oncology, which continues to be an area of enormous focus for us.

Our BLA for cemiplimab in cutaneous squamous cell carcinoma is currently under regulatory review and the PDUFA date is in October.

If approved, this will be the third PD-1 antibody to gain regulatory approval and the first in cutaneous squamous cell carcinoma, where we have observed response rates that have been among the highest reported with a PD-1 antibody for a solid tumor.

Regulatory application for cemiplimab in cutaneous squamous cell carcinoma are also under review outside the United States. Non-small cell lung cancer is an important development opportunity for cemiplimab.

Despite many efforts in the field, there is currently only one PD-1 antibody approved in first-line non-small cell lung cancer, and less than half the patients respond. We are pursuing a broad development strategy in lung cancer that encompasses patients with both low and high levels of PD-L1.

Beyond first-line non-small cell lung cancer, we also have ongoing studies in other solid tumors, including second-line non-small cell lung cancer, second-line cervical cancer, and basal cell carcinoma.

Based on our review of recent data from competitor PD-1s in non-small cell lung cancer, we plan on increasing the size of our ongoing monotherapy Phase 3 study and expect it to readout in 2020. We're also reviewing any implications that these developments may have on our larger lung cancer program.

We recognize how quickly the field of immuno-oncology is evolving and are committed to being at the leading edge. Despite all the advances in the treatment of cancer, many patients still remain without effective treatment options.

In addition to use as monotherapy, we expect cemiplimab to be the foundation upon which we build combination therapies to address a variety of tumor types. To that end, we have two additional checkpoint inhibitors, LAG3 and CTLA-4, in clinical development.

We're also exploring our checkpoint inhibitors in collaborative combinations with vaccines and self-therapy approaches. Our proprietary bi-specific antibody platform is another key component of our immuno-oncology strategy.

We are investigating our bi-specific antibodies as single agents in combinations with each other and in combination with our checkpoint inhibitors. Having a broad set of tools within immuno-oncology enables us to choose the best ones for each particular disease.

Our lead bi-specific program is a wholly owned CD20xCD3 molecule, which has validated the concept and given us confidence in the platform as a whole.

We remain very encouraged by the strong response rates that we have observed to-date in both indolent and aggressive non-Hodgkin's lymphoma, and expect to advance this program into registrational studies in 2019. Additional studies and data from this program will be presented at a medical conference later this year.

We are also advancing additional bi-specific candidates into clinical development. Our MUC16xCD3 bi-specific for ovarian cancer has entered clinical development and our BCMAxCD3 bi-specific for multiple myeloma will enter the clinic later this year. These bi-specifics will be studied both as monotherapy and in combination with cemiplimab.

Early next year, we expect to advance into clinical development an entirely new class of bi-specific antibodies, which we will study in combination with the CD3 class of bi-specifics, as well as with cemiplimab. Turning now to fasinumab, our Nerve Growth Factor antibody for pain.

We are continuing patient enrollment in the Phase 3 osteoarthritis program. Following an evaluation by an independent Data Monitoring Committee, we are moving forward with only the lower dose-regimens in this program. We anticipate sharing top line efficacy results from our first Phase 3 osteoarthritis study later this quarter.

Now I'd like to provide a brief update on three of our wholly-owned earlier stage programs. Let me begin with our C5 antibody. Our goal is to provide patients with a convenient, self-administered, subcutaneous dosing option that doesn't require a high volume delivery device, and we have made significant progress toward this goal.

In our Phase 1 study based on both pharmacodynamics and ex vivo pharmacodynamic assays of subcutaneous dosing regimen achieved the blood levels that we believe will be sufficient to prevent hemolysis in patients with paroxysmal nocturnal hemoglobinuria, or PNH.

We expect to report the full data in an upcoming medical conference and plan to initiate Phase 2 studies for PNH in early 2019. Another exciting early-stage molecule is our antibody to Activin-A, which we are investigating in the rare and devastating disease called fibrodysplasia ossificans progressiva.

We are pleased that enrollment in our potentially pivotal study is proceeding according to plan. We're also studying our Activin-A antibody in combination with our myostatin antibody in the setting of muscle atrophy and wasting, where in early studies we demonstrated an approximately 8% increase in muscle mass.

We plan to initiate by year-end the first of multiple Phase 2 studies to ascertain whether this increase in muscle mass translates into functional and/or metabolic benefits. We currently have 19 product candidates that are in various stages of clinical development. Each of these was discovered by us in our laboratories in Tarrytown, New York.

I'm pleased to say that we remain on track for the goals that we laid out at the beginning of the year to advance four to six new product candidates into the clinic in 2018. Just in the first half of the year alone, we have advanced three new molecules into clinical development. With that, I'd like to turn the call over to Marion..

Thank you, George, and good morning everyone. I'd like to start with EYLEA, where global net sales in the second quarter were $1.66 billion, an increase of 13% year-over-year. In the U.S., EYLEA continues to be the market-leading branded anti-VEGF for retinal diseases. In the second quarter, U.S.

EYLEA net sales were $992 million, which represents 8% growth year-over-year. Based on net sales, EYLEA currently has approximately 70% of the overall branded U.S. anti-VEGF market. We're committed to maintaining our market leadership position with EYLEA and we've identified meaningful growth opportunities.

While EYLEA is well penetrated in wet AMD, there remains a large opportunity in diabetic eye disease. Less than 20% of patients diagnosed with clinically significant diabetic macular edema currently receive anti-VEGF therapy, and many others with diabetic macular edema are not even diagnosed. Approximately 25% of current EYLEA U.S.

business is attributed to use in patients with diabetic macular edema. Additionally, we expect the market to grow in wet AMD, because of the aging population, and in diabetic retinal diseases, due to the substantial increase in diabetes prevalence.

We'd like to ensure that ever eligible patient with diabetic retinal disease or wet AMD is treated with optimal therapy, which, in the vast majority of cases, is anti-VEGF therapy. To that end, in the coming weeks, we will be launching an initial branded television campaign for EYLEA in DME in multiple U.S. test markets.

Another important potential growth driver for EYLEA is through gaining approval in additional retinal diseases and expanding the label. We have submitted an sBLA for EYLEA in diabetic retinopathy population. It's estimated that there are approximately 3.5 million people in the U.S. who are diagnosed with diabetic retinopathy without DME.

Of these, approximately 1 million patients have the greatest disease burden and are at risk for vision-threatening complications. Earlier this year we reported positive top line data from the Phase 3 PANORAMA study of EYLEA in diabetic retinopathy and we expect to report top line 52-week data later this year.

Our regulatory submission for EYLEA dosed every 12 weeks is currently under FDA review. As George mentioned, earlier this week European regulators approved EYLEA for an extended dosing regimen in wet AMD. We have also recently submitted an sBLA for EYLEA in a pre-filled syringe with potential launch in 2019.

Turning now to Dupixent, global net sales in the second quarter of 2018, as reported by our collaborator Sanofi, were $209 million. In the U.S., net sales in the second quarter were $181 million. Approximately 50,000 patients have been prescribed Dupixent since launch in the U.S. Underlying U.S.

demand for Dupixent is strong, with total prescriptions up approximately 27% sequentially from the last quarter. New patient starts, another indicator of demand, and average weekly NBRx in the second quarter were approximately 550 new patients, excluding the holiday week.

Overall patient refill and persistence rates remain high, especially in comparison to other biologics. Dupixent prescribers remain highly satisfied frequently referring to Dupixent as a drug that is transformational to the lives of their patients and their treatment practices.

In the U.S., over 11,000 healthcare providers have prescribed Dupixent through the second quarter, with depth of prescribing continuing to increase. Consumer education and activation is an important component of the Dupixent launch.

We've been encouraged by the impact of our unbranded disease state awareness campaign and plan to roll out a branded Dupixent television campaign in the coming weeks. Outside the U.S., the launch of Dupixent in atopic dermatitis is underway in multiple major markets.

During the second quarter Dupixent was approved and launched in Japan, with additional launches anticipated in other countries over the remainder of 2018 and thereafter. Beyond adult atopic dermatitis, we look forward to the FDA's decision on Dupixent for moderate to severe asthma in adults and adolescents, with a PDUFA date of October 20.

Based on our clinical data, we believe that Dupixent offers a differentiated profile among biologics for asthma, with a substantial decrease in exacerbation rate, and consistent and clinically meaningful improvement in lung function.

There remains significant unmet need in uncontrolled asthma, which accounts for an estimated 20% of diagnosed asthma patients. Currently, there are approximately 900,000 patients in the U.S. who are treated for uncontrolled moderate to severe asthma, who would be considered appropriate biologic therapy candidates.

However, fewer than 10% of these patients are currently treated with a biologic. In addition, we also anticipate meaningful opportunities for Dupixent in adolescent and pediatric atopic dermatitis, pediatric asthma, nasal polyps, and eosinophilic esophagitis, which are all at late-stage development.

Global net sales in the second quarter for Praluent, as recorded by Sanofi, were $74 million, representing increase of 61% compared to the second quarter of 2017. Earlier this year, we reported positive data from the ODYSSEY cardiovascular outcome study and have made a regulatory submission in both the U.S. and Europe.

Over time, as outcomes data are potentially included in the label and, as guidelines are anticipated to change, we expect commercial uptake to be positively impacted. We continue to engage in discussions with payers to simplify utilization management criteria and to improve access for patients in return for flexible pricing.

In the second quarter, we announced that we would lower the net price of Praluent in exchange for straightforward physician prescribing and more affordable patient access. We're pleased that Praluent was chosen as the exclusive PCSK9 inhibitor on the Express Scripts national formulary.

The agreement took effect on July 1, so it is too early for us to assess the impact. This is a competitive space with many decisions yet to be made. We continue to engage with other payers and remain committed to minimizing barriers related to access and affordability for patients.

Moving to Kevzara, global net sales, as recorded by Sanofi, were $24 million in the second quarter as demand improved. Within the IL-6 subcutaneous class, Kevzara now has approximately 26% of dispensed NBRx share and 10% share of TRx launch-to-date. Recently Kevzara was launched in a pre-filled pen and is now the only biologic RA therapy in the U.S.

that is available in a button-free pen. The Kevzara pre-filled pen is uniquely activated by pressing the pen against the skin. Data have shown that pens are preferred over syringes by RA patients taking chronic subcutaneous injections. We continue to make strides in growing the IL-6 class through improved understanding of mechanism of action.

Along with its differentiated clinical profile, Kevzara is positioned to be the preferred biologic for those patients who are inadequate responders or intolerant to TNF antibodies. We continue to improve market access with an estimated 92% of commercial lives having coverage. I'd now like to turn to cemiplimab, our PD-1 antibody.

We're preparing for an anticipated approval and launch of cemiplimab in advanced cutaneous squamous cell carcinoma later this year. If approved, this will be the third PD-1 antibody to market, but the first for cutaneous squamous cell carcinoma.

Our PDUFA date is in October 2018 and we expect a decision by the European Medicines Agency in the first half of 2019. In the U.S., our specialized field based oncology team is trained and prepared for launch. Commercial supplier is ready to ship immediately following approval.

As a reminder, cemiplimab is a collaboration product with Sanofi, where in the U.S. we will take the commercial lead and record sales. Now I'll turn the call over to Bob..

Thanks, Marion, and good morning, everyone. As Len referenced at the start of this call, Regeneron had strong top and bottom line financial results. Today I'll discuss the details of our second quarter 2018 financial results, as well as highlight change to our full year 2018 guidance line items.

For the second quarter of 2018, we earned $5.45 per diluted share on non-GAAP net income of $624 million. These results represent a 31% and 28% year-over-year increase in our non-GAAP diluted EPS and net income, respectively. Total revenues grew 9% year-over-year to $1.61 billion.

Continued drivers of this growth are performance of EYLEA, both in the U.S., as well as ex-U.S., and a decrease in the loss in connection with the commercialization of antibodies resulting from higher Dupixent sales, which was partially offset by no longer having a contribution from Sanofi in connection with the Discovery and Preclinical Development Agreement that ended in December 2017.

EYLEA net product sales in the United States grew 8% to $992 million compared to $919 million in the second quarter of 2017. U.S. EYLEA distributor inventory experienced a modest decrease in the quarter as compared to the first quarter of 2018, yet remained within our normal one- to two-week targeted range. U.S.

EYLEA's gross to net percentage remained relatively constant compared to both the second quarter of 2017 and first quarter of 2018. In the second week of June 2018, we increased the existing EYLEA discount offered to physician practices, regardless of volume. Ex-U.S.

EYLEA net product sales, which are recorded by our collaborator Bayer, were $666 million for the three months ended June 30, 2018, representing an 18% operational and 23% reported increase on a year-over-year basis. We remain encouraged by continued ex-U.S. EYLEA growth. Through the first six months of 2018, ex-U.S.

EYLEA net sales increased 26% on a reported basis versus the comparable period in 2017. Total Bayer collaboration revenue for the three months ended June 30, 2018 grew 25% year-over-year to $263 million, of which $246 million was derived from the share of net profits from EYLEA sales outside the U.S.

The $264 million, which represents year-over-year growth of 29%, compares favorably against the $191 million realized for the three months ended June 30, 2017. Total Sanofi collaboration revenue was $238 million for the second quarter of 2018 compared with $222 million for the second quarter of 2017.

Total Sanofi collaboration revenue line item primarily consists of reimbursement of Regeneron-incurred R&D expenses, reimbursement of Regeneron-incurred commercialization-related expenses, and the recognition of deferred revenue from the immuno-oncology upfront payments, partly offset by our share of losses in connection with the commercialization of antibodies.

The year-over-year increase in Sanofi as of the second quarter 2018 included a $53 million decrease in our share of losses in connection with the commercialization of Dupixent, Praluent, and Kevzara, and higher Sanofi R&D reimbursement revenue associated with our increased investment in immuno-oncology.

Offsetting these revenue increases is the 2017 expiration of the Discovery and Preclinical Development Agreement, under which we recorded $44 million of revenue in the second quarter of 2017 compared to no revenue this quarter.

Additionally, during the second quarter of 2018 we realized $29 million less reimbursement of Regeneron research and development expenses under the Antibody License and Collaboration Agreement from decreased reimbursement levels for Dupixent versus second quarter 2017.

In the second quarter 2018, we recognized a loss of $69 million in connection with the commercialization of antibodies compared to a loss of $122 million in the second quarter of 2017.

As I briefly touched on earlier, the lower share of loss was primarily attributed to higher global net sales of Dupixent, Kevzara, and Praluent, and lower commercialization expenses for Praluent, partly offset by an increase in both Dupixent and Kevzara commercialization expenses.

I want to make a few comments regarding our share of losses associated with the commercialization of the alliance products. Sanofi and Regeneron have ongoing worldwide product launches for Dupixent, Kevzara, and Praluent.

We are pleased that the alliance is beginning to realize profits in certain markets and indications, such as with Dupixent for atopic dermatitis in the U.S. However, we are still incurring necessary launch expenses for new indications in new markets, and these expenses continue to weigh on the alliance's profitability.

In the first half of 2018, the alliance incurred significant expenses related to the expected U.S. asthma launch in addition to other ex-U.S. launch and prelaunch spend across the alliance portfolio.

For the second half of 2018, the collaboration is expecting to launch in approximately 30 new markets across the alliance portfolio, as well as incur prelaunch expenses for additional markets and indications expected to launch in 2019 and beyond.

We and Sanofi are working diligently to ensure we have the appropriate level of investment to support these opportunities. As the sales of our alliance products continue to grow, we expect to improve the collaboration's profitability.

Turning now to expenses, non-GAAP R&D expenses were $470 million for the second quarter of 2018 as compared to $440 million for the second quarter of 2017.

The increase in non-GAAP R&D expense was the result of continued late-stage clinical developments for cemiplimab and fasinumab programs, and higher R&D head count and facility-related costs, partially offset by a decrease in Dupixent development costs and the discontinuation of certain development programs.

Our non-GAAP unreimbursed R&D expense, which is calculated as the total GAAP R&D expense less R&D reimbursements from our collaborators, was $286 million for the three months ended June 30, 2018 compared to $196 million for the three months ended June 30, 2017.

Almost half of this year-over-year increase is attributable to the expiration of the Sanofi Antibody Discovery and Preclinical Agreement at the end of 2017. The remaining increases were primarily driven by higher research and development activities for partnered and wholly owned programs.

Our press release includes the information required to calculate unreimbursed non-GAAP R&D expense.

Primarily due to previously announced modifications to our ongoing NGF program, we are lowering and tightening our full year 2018 guidance for non-GAAP unreimbursed R&D expense to be in the range of $1.21 billion to $1.26 billion from our previous guidance of $1.23 billion to $1.31 billion.

Non-GAAP SG&A expense was $324 million for the second quarter of 2018, as compared to $262 million for the three months ended June 30, 2017.

The higher SG&A expenses in the second quarter of 2018 were primarily due to an increase in commercialization-related expenses for EYLEA and prelaunch expenses for cemiplimab and Dupixent in adult and adolescent asthma.

Given year-to-date activity and projected second half 2018 spend, we are tightening full year 2018 non-GAAP SG&A expense to be $1.34 billion to $1.39 billion from $1.325 billion to $1.395 billion.

Sanofi reimbursement of Regeneron commercialization-related expenses, a line item found within Sanofi collaboration revenue, was $106 million for the second quarter of 2018.

We are tightening our full year 2018 guidance for reimbursement of Regeneron commercialization-related expenses to be $455 million to $485 million from $450 million to $485 million. Before turning to taxes, in the second quarter of 2018 we realized $34 million of other income within the other income and expense line item.

This was partly driven by the recognition of unrealized gains on equity securities due to the adoption of ASU 2016-01 in 2018.

This is compared to having reported $24 million of other expense in the second quarter of 2017, which was primarily attributable to the loss on extinguishment of debt that we realized related to last year's Tarrytown lease transaction. Please see our 10-Q for more details on the year-over-year change.

With regard to taxes, our effective tax rate in the second quarter 2018 was 16% compared to 26% for the second quarter 2017, driven primarily by the enactment of the Tax Cuts and Jobs Act, which lowered the U.S. corporate tax rate.

The rate was also impacted by improved results from our international operations as compared to the second quarter of 2017. As we continue to assess the full impact of the new tax law, including some onetime items, we now expect our full year 2018 effective tax rate to be in the range of 13% to 16% from our previous guidance of 15% to 18%.

While our effective tax rate guidance has been lowered for 2018, we do expect that over the next few years our effective tax rate will be in the mid to high teens. Given the recent passage of the new tax law, we are still awaiting regulatory or other guidance that could impact our future effective tax rate.

Turning next to cash flow and the balance sheet, Regeneron ended the second quarter of 2018 with cash and marketable securities of $3.7 billion and generated in excess of $800 million of free cash flow for the six months ended June 30, 2018. We calculate free cash flow as net cash provided by operating activities less capital expenditures.

Our capital expenditures for the three months ended June 30, 2018 were $112 million and totaled $191 million for the six months ended June 30, 2018. We are tightening and lowering our full year 2018 capital expenditure guidance to $410 million to $450 million from our prior range of $420 million to $480 million.

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

Thank you, Bob. Sylvia, this concludes the end of our prepared remarks. We would now like to open the call for Q&A..

Thank you. We will now begin the question-and-answer session. And our first question comes from Robyn Karnauskas from Citi..

Hi, guys. Thanks for taking my question. I just had a question, given that data's coming up soon in pain and OA, maybe you could help us understand a little bit you're just – you have the low dose.

What would be clinically meaningful data? And the OA market's very complex, so maybe help us understand some of the market stats around where this drug might be used within this population. Thanks..

Thanks, Robyn. It's Len.

I think what we've said about this program all along is that we would anticipate, based on the data we have and Compellor (00:32:32) program, that the efficacy that's been demonstrated is good efficacy and would, on efficacy considerations alone, be a useful addition to the therapeutic armamentarium in osteoarthritis, especially as a non-opiate pain, new pain class.

So we're anticipating that the Phase 3 data we have should show some efficacy, but, obviously, we have to see it. The safety, of course, the long-term safety, which won't be answered from this study, because this study is not our long-term safety, is something that we can only wait for the data.

As you know, we lowered the dose to a dose that the independent committee felt was appropriate to continue. So we're pleased with that, and our Compellor (00:33:32) program is continuing. But it's all going to have to wait till we really have long-term data to know just exactly the promise of this program.

So I think it remains a high-risk, high-reward program. George, I don't know if you want to add anything..

No, I think you've covered it all..

Sylvia, next question, please..

Our next question comes from Chris Raymond from Piper Jaffray..

Hey. Thanks. So Roche has talked about their Lucentis pre-filled syringe as sort of a key component of driving market share gains and I think as they put it, sort of across all lines of therapy. So I understand you guys filed an sBLA for a similar device last quarter, I think, for EYLEA, but you're probably talking about a 2019 launch.

So just maybe talk about the competitive dynamic, I guess, between now and then. And, first of all, is it your view that this is a big differentiator for Roche, as they're saying? And are there any countermeasures you can employ between now and then? Thanks..

Yeah, I think that we have not seen this as a big shift in market share. Maybe Marion wants to go into depth on that..

Sure, happy to. In fact, in the fairly comprehensive survey data we use of physician prescribing, it would suggest that we're continuing to see share growth with EYLEA opposite Lucentis. And certainly over the lifecycle of the brand, as EYLEA has grown, we've taken equal share, about 20 market share points, both from LUCENTIS and from Avastin.

So while we do think having a pre-filled syringe available – and, as I mentioned in my comments, that will be later in 2019 potentially – we believe having that extension, that line extension and that delivery system will be helpful to physicians.

We don't see it as in any way a negative to our current profile in marketplace as we're competing, and certainly the performance we're showing, the share growth we're showing, and the preference, clearly, in physicians prescribing for wet AMD with EYLEA is important as it is in DME..

Operator, next question, please..

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

Hey, good morning. Thanks for taking my question. Maybe I want to ask one on the PD-1 program in non-small cell lung cancer.

Can you talk about the rationale behind the increase in enrollment? Is it driven by powering increase? Is it driven by assumption of the comparator arm, or whatever you've learned from the Merck progress (36:18)? And then also the availability of KEYTRUDA in certain markets, would that affect your enrollment in this program or not? Thank you..

Yeah, I think you did a good job answering your own question. Certainly, the original smaller study, the positive study with the PD-1 antibody in first-line non-small cell, the data looked more robust than the second study. Clearly, the agent is very active, but the relative effect compared to control was not quite as robust in the second study.

And so we adjusted, based on our power calculations and based on those results, the size of our study. So it was basically entirely as you described. And certainly, of course, we take into account what's available, where, and what the standard of care is in different territories in terms of where we carry out our studies and how we enroll them.

So, yeah, that's about it..

Operator, next question, please..

Next question comes from Geoffrey Porges from Leerink..

Are you on mute?.

Geoff, we can't hear you..

Hi, there. Sorry about that. Congratulations on the results. A couple of financial questions for Bob. Bob, could you just confirm what free cash flow was in Q2? I think you gave us number the first half of the year.

And then, what's driving the change compared to Q1? But more importantly, as we look to the commercialization of cemiplimab, are you going to have a second collaboration losses line that you report? And related to that, as your financial reporting gets more and more complicated, is there anything you think that you can do to simplify it so that investors really understand the value and what the outlook is? Because we're getting more and more of these collaborations and more and more costs and sort of puts and takes in each of those lines and the variance in terms of consensus expectations is all over the place.

So have you thought about any way in which you can simplify things? Appreciate it..

Yeah, Geoff, I'll take the last question first. As you know, just kind of giving the dialogue we've had, I mean, Len is constantly challenging me and my team to, obviously, make these things interpretable in which the true value of the company comes out by looking at financial statements. There's no doubt it's complicated.

We do our best, inclusive of documents we post at the JPMorgan meeting in January, with regards to getting into detail with regards to the modeling and we will continue to do that and continue to take your concerns under consideration with regards to that.

On your first question, with regards to cash flow, there is a pretty big difference between Q1 and Q2. I think you meant Q1 2018 versus Q2 2018. We had no tax payments in the first quarter of 2018 and we did in the quarter two of 2018, which is why we had $800 million in total, roughly $500 million, $300 million split, something along that line.

With regards to cemiplimab, we are still under discussions with regards to exactly how we're going to show that, Geoff, and we'll put more out at that time at a later date. Thanks..

Next question, operator..

Our next question comes from Matthew Harrison from Morgan Stanley..

Great. Good morning. Thanks for taking the questions. If I could ask maybe a question on the C5 inhibitor that you talked about.

Can you just talk about when you talk about blood level sufficient, are you comparing this to Soliris or ALXN 1210? And what's your view on sort of how the market's going to develop and what you think is the appropriate bar to look at as you develop this molecule? Thanks..

Yeah, well, we're talking about our evaluation based on our assays of our molecules compared to what's known in the public domain, as well as using our own pharmacodynamic assays and measures of how well we're doing at inhibiting complement. So it's integrating all of that data.

What we see that's important out there is to provide patients with a convenient home self-administered subcutaneous regimen that makes their life a lot easier and that keeps their disease in better control with less breakthrough. So we're trying to make their lives easier and better, while delivering better disease control. That's our goal..

So just to be very clear, in case if people aren't familiar with what George was saying. We not only measure our blood levels to determine whether we achieve what we wanted.

We take the blood out of patients and do an ex vivo assay to see whether that blood can suppress in a standard assay for complement activation, and we achieve the blood level that fully suppresses that. Of course, that's not quite the same thing as doing a disease, but we expect and hope it will be a good predictor..

Operator, next question, please..

Our next question comes from Josh Schimmer from Evercore ISI..

Thanks for taking the questions. Two quick ones.

First, it looks like the commercial JV with Sanofi may have been trending towards declining loss, but based on the commentary and the guidance, is it correct that you expect that trend to reverse temporarily towards greater losses in the second half of 2018? If so, when do you expect it to return to kind of improving the losses and that will eventually become profitable? And then quickly on the C5 antibody, what do you anticipate the dosing frequency will be for the SubQ injection? Thanks..

Josh, I'll take the first question. And we're not going to give guidance with regards to when we think the collaboration is going to turn profitable. And, yes, directionally in the second quarter to your point, it is trending in the right direction.

Again, my comments that were made with regards to second half spend, we are going to be entering a very crowded and very competitive asthma class, and we need to ensure, given the strength of our antibody, that we have enough support, that Marion has enough support with the Sanofi alliance behind us to ensure that it is a very, very successful launch and we come out of the gates very strong right away.

And again, we're not going to give, in terms of quarterly, our profitability guidance on that note..

So as far as the dosing (00:43:12), typically one likes to think that the minimum acceptable interval, although, obviously, there are insulin and others and way more than that, would be a weekly dosing. And that's what we're able to achieve in the first study. Whether we can go longer than that, we'll just have to see as we get more into this.

But right now, our comments reflect a weekly subcutaneous dosing regimen that we intend to move forward..

Operator, next question, please..

Our next question comes from Carter Gould from UBS..

Good morning. Thanks for taking the question. I guess, for Len and George, you mentioned your higher dose aflibercept and moving forward that, how fast do you think that could potentially get on the market? And any indication from your initial work, what do you think you can get the treatment interval out to? Thank you..

Yeah, I think it's a little bit too early to go into that, Carter. Obviously, we have a tremendous amount of experience doing these types of studies, both in the preclinical and the clinical. We've worked diligently to come up with a higher dose formulation and we think that that is something that would extend the half-life.

It's a competitive field, so we probably don't want to comment much more about that..

Operator, next question, please..

Our following question comes from Phil Nadeau from Cowen and Company..

Good morning. Thanks for taking my question and congrats on the progress.

A question on Dupixent reimbursement, can you talk about any trends, notable trends that you saw in Dupixent reimbursement in atopic dermatitis in Q2? Was there anything that eased, that allowed the new prescriptions to grow so significantly? And then as you prepare for the launch of Dupixent in asthma, what are you doing to ensure access to patients as that launches? Thanks..

So before Marion addresses the access issue, I just want to say what we continue to hear and we maybe didn't mention enough is that the feedback from patients continues to be really, really satisfying, and makes us – sort of reminds us why all of us are doing what we're doing.

People who are miserable with this disease have felt and told us that it was life changing for them.

And so, as I've said on previous calls, it is nice that the data that you saw and we saw in our clinical trials seems to be translating very well in the real world where patients are experiencing on an individual basis the kind of benefit that the data that we achieved in the controlled setting would have predicted. So that is very nice.

And both the doctors and the patients are extremely satisfied and, as I said before, thank goodness, we've also seen no new side effects to concern people. So the tolerability out in the real world is also very good.

So, from my perspective, I would guess that is probably the biggest thing that's driving the continued use and growth and, of course, there is blocking and tackling that Marion can address if she likes..

Sure, happy to. And to give a little bit more specificity on the access for Dupixent in atopic dermatitis, among commercial payers today, we have coverage with over 90% for – over 90% of covered lives.

But then if we get a little bit more specific, and to give you the numbers, the percentage is about 65% of commercial lives have access to Dupixent following only one or two topical medication.

So we've made significant progress and we did make some meaningful progress as well in the second quarter picking up another one of the major insurance companies. So I think we feel really good about that progress.

But I would also say that what – to Len's point, what is really driving the demand we're seeing, such as this 27% increase in TRxs that I referenced in the quarter-on-quarter comparison, and of course the number was 25% in the quarter-on-quarter comparison in the first quarter, this type of demand is coming because of the tremendous results that physicians are seeing in prescribing.

Their toughest cases now moving into additionally not only their severe, but starting to move into their more moderate cases, and the tremendous value that patients are seeing. As for asthma, we very much look forward to the launch.

We certainly at the appropriate time will engage in payer discussions and, of course, I think some of the differentiating characteristics are really important to keep in mind.

The clinical profile that George referenced, and also in my comments, differentiated by our profile as it relates to the impact we're seeing with Dupixent in moderate to severe asthma, a reduction in exacerbations, and also the consistency that we see in lung function is really, really important.

A second differentiating characteristic I've mentioned is that patients will be able to administer product self or at home, and that also is a distinguishing feature that is important. So we look forward to launch. We're ready and we certainly will engage with payers at the right time..

Operator, next question, please..

Our next question comes from Cory Kasimov from JPMorgan..

Hey, good morning, guys. Thanks for taking my question. A follow-up on Dupixent.

So out of the 50,000 or so patients that have been treated with the product in the commercial setting thus far, do you have a good sense of the proportion of those that have overlapping allergic disease co-morbidities? And maybe even more specifically in terms of asthma? I'm curious how common this is. Thanks..

Yeah. I don't think we have the real world data, but we know from our controlled studies – now, I'll say our controlled studies are a collection of the moderate to severe atopic dermatitis patient and, as Marion just told you, the doctors tend to provide their more serious patients or put their more serious patients on first.

So what's been happening in the real world, you might think might be patients who actually have more disease and more co-morbidities. But in our controlled studies of the moderate to severe population on the order of 30% to 40% had co-morbid asthma, and 60% to 70% had at least one other co-morbid allergic condition.

So, obviously, among the atopic dermatitis population, the moderate to severe, there is a very substantial amount of co-morbidity with other allergic conditions..

Operator, next question, please..

Our next question comes from Geoff Meacham from Barclays..

Okay. Thanks, guys. Want to ask you on Praluent. Post ODYSSEY and post a price cut in some populations, how would you characterize access today versus 12 months ago? And then, what do you think is the tipping point for the class overall, just to expand into a broader population? Thanks..

Thanks for the question, Geoff. I think the answer is that access is definitely improving, in the sense that the artificial barriers that are out there, these complicated questions, requirements for documentation, et cetera, et cetera, are slowly being removed. I think we saw that with Express Script, where they went to a short physician at a station.

I think others will be moving to it.

But the tipping point, I actually think, may come with sort of practice guidelines coming from a variety of sources where it will be, I expect that people will – practice guidelines will demand that patients who can't get their LDL down to an appropriate level when they have cardiovascular disease with the existing therapies, it will be standard practice, not optional, to go to a PCSK9 inhibitor.

That probably will be the tipping point, but we'll see. Thanks..

Operator, next question, please..

Following question is from Matthew Luchini from BMO Capital..

Hi. Good morning and thanks for taking the question.

You touched on this a little bit in the answer to one of the last questions, but I was curious if you could provide a bit more color on the types of patients that are receiving Dupixent in terms of disease severity and how you think expansion into more moderate patients is going to evolve over the next 3, 6, 12 months. Thank you..

So I think that it's not unusual that physicians in their first experience will try some of their very, very toughest patients. So that would have been in the earlier launch phase.

As we now see the improvement in performance, as evidenced by numbers of physicians who are prescribing, depth of prescribing TRxs and the NRX numbers that I shared, we now know that physicians and also nurse practitioners, PAs who use Dupixent, are already starting to move from severe into their more moderate patients as they evolve into a broader experience.

It's hard to give you exact numbers on that. That I don't have. But we are seeing evidence through discussions and through prescribing depth.

Having said that, if we were in times back thinking that we probably have roughly 300,000 to 400,000 potential patients who would have moderate to severe disease in the U.S., we really are only at a relatively small percentage of touching patients. So we have an awful lot more work to do and a lot more potential for Dupixent in atopic dermatitis..

Yeah. I think that our DTC that you referenced earlier, Marion, in your remarks should help. At least we're anticipating that that should help achieve that..

Yes. Thank you, Len, for the mention there. And then just to be clear, because we covered a lot, we are going to be launching a Dupixent on-air TV campaign nationally shortly.

We've got great response to the disease state awareness campaign, as evidenced by many, many touches to our website, and patients coming for additional information and even physicians mentioning that they were seeing patients, because they had been engaged by the disease state awareness.

We do think it's the right time to evolve into the branded campaign and very much look forward to having that on-air so that patients are educated, and we support efforts to get them the care they need..

Operator, next question, please..

Our following question comes from Brian Skorney from Baird..

Hey. Good morning, guys. Thanks for fitting me in with a couple quick questions on the pipeline.

On the BCMA bi-specific antibody, just given the subpar results we've seen so far with the ADC BCMA antibody compared to the CAR-BCMA, I mean, just what do you think about the bi-specific pathway could make it more competitive with CAR? And I just wanted to get your thoughts on the role of IL-33 in COPD versus IL-4, IL-13.

Would a signal for REGN3500 make COPD a potential target for Dupixent, or is there just a much better bio plausibility around IL-33 for COPD? Thanks..

George?.

Yeah, well, certainly I think there's quite a bit of data, not only from us, but from others, but certainly pre-clinically. There is no question that the activity in animal models of the bi-specific compared to an ADC is two entirely different classes. And we certainly also compare them pre-clinically versus CAR-T approaches.

And certainly, the bi-specific much more closely approaches CAR-T type of activities. So we are very excited about our BCMA bi-specific in terms of it now, very soon we're going to start hopefully seeing how it's going to be performing in patients.

And, as I mentioned, we also have coming up combination approaches with additional classes of bi-specifics that will also be very relevant to the BCMA program, as well as a way to potentially finer tune or amplify its activity in terms of what we see there. So we're very excited about that program.

In terms of IL-33 and dupilumab for COPD, I think that there is a lot of questions in the field right now about how to pursue some of the biologics in the COPD setting and exactly what the implications are in terms of the biology, some of the genetics, what they call the so-called overlap syndrome.

There's a substantial number of patients with COPD that have asthma overlap, and so there's a lot of questions there. And right now, we're really thinking about all this in terms of figuring out exactly what we're going to be doing also with COPD.

Operator, next question, please..

Our following question comes from Terence Flynn from Goldman Sachs..

Hey, guys. This is Jason Jakoby on for Terrence. Just another one on dupi. So with the adolescent expansion for atopic derm next year, can you just help us think about the potential patient numbers in the U.S. for this population versus the adult numbers, where I think you've said it's like 300,000? Thanks..

Yeah, this is Marion. We actually have not yet given specificity on the size of the adolescent patient population. We very much look forward to (00:57:20) potential launch in this area and certainly would be very happy in the future to provide more insight there..

Operator, next question, please..

Our following question comes from Adnan Butt from Guggenheim Securities..

Hey. Thanks for taking the question. Maybe one on EYLEA, Len and George, some channel checks indicate that memories of the inflammation episode with EYLEA still linger a bit. So is that resolved? Has that EYLEA inflammation rate now normalized back to clinical data? And then, Len, you have talked about the potential differences on safety.

Do you think inflammation is something that could be different for EYLEA versus new agents?.

Yeah, so as far as the increase in intraocular inflammation, there's no doubt that there was a spike. To the best that we could do looking at every variable, it seemed to trace to several batches of syringes. But, of course, in the absence of doing a controlled trial, one can't be certain.

But what we can say is that the background rate typically is about one to two cases of inflammations per 10,000 injections. The marketplace notices when you get to 5 per 10,000 or 10 per 10,000, they notice it quite a lot. And I can tell you that we spiked up above the one to two, and we don't think we quite got to 10.

But we certainly are now back to the baseline of one to two, and we monitor this very carefully. Not to break our arms patting ourselves on the back. I think that we handled that very transparently with all the various retinal associations and ophthalmologic groups.

We shared the data directly with the key opinion leaders and anybody who wanted to see it. Marion's team was out there. We got lots of positive feedback. I'm sure we lost some customers during that, but I think that we're winning them back, because of our transparency and the fact that we've got the rate down.

Now, in terms of new agents, yes, inflammation could be a differentiating factor. I think I've seen rates in some of the newer types of agents that are up to 15 per 100, 150 per 1,000, 1,500 per 10,000. Remember, we're talking about in the outside – in the world as we monitor, we're looking at rates of one to two per 10,000.

So, yes, if those rates don't come down dramatically, I don't think that we would be overly concerned about the competitive nature. I just want to say that, to emphasize that, we look very carefully at the competition. We don't see anything coming along that is going to be highly differentiated from the data we've seen from our molecule.

And remember, we have recently gotten, as George highlighted, an approval in Europe based on a study that the FDA hasn't seen yet, but the ALTAIR study, where we got a label that allowed for extension of dosing, through a treat and extend dosing regimen in the first year, where 57% of the people were able to get at the end of a year to an intended regimen of 12 weeks or more, and still gaining an average of about 9 letters and many patients achieving an interval of four months.

So I think EYLEA has incredible profile and we don't see anything coming along that disrupts that profile. And we certainly don't see anything that can have the broad number of indications for a very long time that we have in our emphasis on diabetes..

I do think it is worth emphasizing, your question, the point that you raised, about how the eye is such a sensitive readout for inflammation. And, obviously, having the experience, the wealth of experience that we have and understanding of this, and also our ability to track these things and so forth, yeah, I think it's really important.

I think that if a physician is treating a patient, they have to take into account the risks and the experience and the confidence that they would have in any particular agent..

All right. Operator, that concludes our call for today. I know there were a couple in the queue. Please send us an e-mail. We're available for follow-up calls..

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