Regeneron Pharmaceuticals Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 3, 2023

There are 12 speakers on the call.

Operator

Welcome to the Regeneron Pharmaceuticals 4th Quarter 2022 Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded.

Operator

I will now turn the call over to Ryan Crow, Vice President, Investor Relations. You may begin.

Speaker 1

Thank you, Shannon. Good morning, good afternoon, and good evening to everyone listening around the globe. Thank you for your interest in Regeneron, and welcome to our Q4 2022 earnings conference call. An archive of this webcast will be available on our Investor Relations website shortly after the call ends. Joining me today are Doctor.

Speaker 1

Leonard Schleifer, Co Founder, President Chief Executive Officer Doctor. George Yancopoulos, Co Founder, President and Chief Scientific Officer Marion McCourt, Executive Vice President and Head of Commercial and Bob Landry, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will then open the call up for Q and A. I would like to remind you that remarks made on today's call may include forward looking statements about Regeneron. Such statements may include, but are not limited to, those related to Regeneron and its products and businesses, financial forecast and guidance, Property, pending litigation and other proceedings and competition.

Speaker 1

Each forward looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in that statement. A more complete description for these and other material risks can be found And Regeneron's filings with the United States Securities and Exchange Commission, including its Form 10 ks for the year ended December 31, 2022, which we expect to file with the SEC on Monday, February 6. Regeneron does not undertake any obligation to update any 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 and our corporate presentation, which can be accessed on our website. Once our call concludes, Bob Landry and the IR team will be available to answer With that, let me turn the call over to our President and Chief Financial Officer, Len Schleifer. Len?

Speaker 1

Happy Chief Executive Officer,

Speaker 2

but it's okay. Good morning to everybody. And for those of you experiencing the Arctic Please, I hope you're staying warm. Our strong Q4 performance capped a remarkable year at Regeneron, Highlighted by significant achievements that better position the company to deliver sustainable growth and shareholder value. Q4 2022 revenue increased 14% compared to the prior year when excluding the impact of contributions from REGENCO and RONAPREV, underscoring the commercial strength and increasing diversity of our business.

Speaker 2

We also made several important advances across our pipeline during the quarter, notably the submission of a biologic license application For afliberstat 8 milligrams in neovascular age related macular degeneration or wet AMD as well as diabetic macular edema or DME, positioning us for potential U. S. Launch in late August of this year. Additionally, we received FDA approval for Libtayo in combination with chemotherapy as a first line treatment for advanced non small cell lung cancer, Making Libtayo only the 2nd PD-one or PD L1 antibody improved in this setting regardless of a patient's histology or PD L1 expression level. We also presented data from our rapidly advancing oncology pipeline, Including for frianlimab, our LAG-three antibody in combination with Libtayo in advanced non small cell lung cancer Odenexumab, our CD20xCD3 bispecific in B cell lymphomas and Limbo celtamab, our BCMA by CD3 bispecific in multiple myeloma.

Speaker 2

Finally, Dupixent was approved for prurigo nodularis in Europe. Briefly reflecting on 2022, we ended the year with 3 strategic imperatives That we felt we had to accomplish in order to position the company for long term growth. First, we had to fortify The medium and long term outlook for our retinal franchise. Based on the positive results that we reported in September 20 22, we believe oflibercept 8 milligrams has the potential to change the treatment paradigm For patients with wet AMD and DME, by becoming the new standard of care for these patients, positioning Regeneron for prolonged leadership in this category. 2nd, we needed to maintain and grow Dupixent leadership across a variety of Type 2 allergic diseases.

Speaker 2

2022 turned out to be a phenomenal year With Dupixent global net product sales approaching $8,700,000,000 and growing 44% at constant currency. Despite new competition, Dupixent maintained a leading market position in atopic dermatitis, asthma and nasal polyps And was also approved in new indications, geographies and younger populations, which George will detail shortly. Collectively, these 2022 approvals meaningfully expanded the Dupixent commercial opportunity, allowing the addressable population to increase by approximately 225,000 patients, bringing the total addressable population to over 7,000,000 patients globally. And 3rd, we wanted to make significant progress towards becoming a leader in immuno oncology And 2022 turned out to be a crucial year. Key to this long term goal was requiring Sanofi's share of global rights to Libtayo, an antibody discovered by Regeneron, which was a necessary step towards realizing the full clinical and commercial potential of this foundational therapy.

Speaker 2

It also enables us to unlock combination from promising candidates in our oncology pipeline, including with our LAG-three antibody, our co stimulatory bispecifics and our CD3 bispecifics. Looking ahead, we expect 2023 to be another notable year With significant incremental progress across these imperatives as well as in other areas of our business. We are preparing for a potential U. S. Launch for aflipaset 8 milligrams in late August, given prescribers' decade plus experience with EYLEA.

Speaker 2

And now with the 48 week data for aflipistat 8 milligrams, which demonstrated comparable efficacy and safety to EYLEA, but with longer treatment intervals, We believe that over time there is an opportunity for aflibercept 8 milligrams to become the new standard of care for wet AMD and DME. We expect Dupixent to continue to strengthen its leadership We position across approved Type 2 allergic diseases based on its differentiated mechanism of blocking both Interleukin-four and Interleukin-thirteen. In 2023, we have an opportunity to reach even more patients With potential regulatory approvals in new diseases, geographies and younger populations that could add another approximately 500,000 patients globally to the biological eligible population. Additionally, we look forward to the upcoming readout of our first Phase 3 study of Dupixent in COPD in the first half of this year. In oncology, we expect to continue rapidly advancing our pipeline.

Speaker 2

For our LAG-three combination with Libtayo, We are moving forward with expansion beyond melanoma to include lung cancer and potentially other solid tumors. For our In combination with Libtayo, we are continuing dose expansion in our Phase onetwo PSMA by CD28 Program in advanced prostate cancer. We also expect to report additional Phase 1 data from our EGFRxCD28 program in solid tumors and to present initial clinical data for our MUC16xCD28 program in recurrent ovarian cancer. And within HemOnc, we anticipate second half regulatory submissions for ogeneximab in follicular lymphoma and diffuse large B cell lymphoma As well as limvoseltimab in refractory multiple myeloma. In 2023, we also plan To rapidly move forward with current development of our next generation COVID-nineteen antibody, which we believe could help protect the millions of vulnerable patients We were unable to map a sufficient immune response from vaccination and treat those who require other alternatives.

Speaker 2

Activities enabling clinical manufacturing have commenced and we expect to enter clinical development later this year. In closing, 2022 was a pivotal year at Regeneron and we expect to continue making significant progress In 2023, our strategy remains focused on investing in our internal R and D capabilities, which has historically generated We remain confident in our near and long term growth prospects with approximately 35 pipeline Candidates currently progressing through clinical trials. We will also continue looking for opportunities to complement these internal efforts by exploring potential collaborations. With our commercial capabilities continue to drive revenue growth and our strong financial position, Regeneron is extremely well positioned to continue delivering breakthroughs for patients and value to shareholders. Now, I will turn the call over to George.

Speaker 3

Thanks, Lynn. I would like to briefly walk you through our pipeline's progress in 2022 and touch on what lies ahead in 2023. In ophthalmology, we presented pivotal positive pivotal results for aflibercept 8 milligram in wet AMD and DME. These trials show that aflibercept 8 milligram extended dosing intervals to every 12 or even 16 weeks for the vast majority of patients Through 48 weeks without compromising the visual improvement or safety seen with EYLEA, these are truly unprecedented and potentially game changing results We have not which have not been achieved using any other anti VEGF agents. Moving to Dupixent.

Speaker 3

In 2022, Dupixent became the only biologic approved in atopic For instance, infants as young as 6 months of age. The first treatment for prurigo nodularis and the first treatment in the United States for eosinophilic esophagitis. And just this week, we obtained the European Commission approval for eosinophilic esophagitis as well. In addition, we submitted a supplemental BLA for chronic spontaneous urticaria and shared positive Phase 3 data in children with eosinophilic esophagitis. Dupixent is now approved in 5 related Type 2 allergic conditions.

Speaker 3

And our data show that these diseases are mediated by IL-four and IL-thirteen driven Type II inflammation. Because many patients suffer from systemic Type They often suffer from several of these diseases concurrently and thus Dupixent has the potential to holistically address these patients Multiple Type 2 conditions for which Dupixent is approved. While many other immunomodulators are associated with worrisome Immunosuppression and carry boxed warnings, Dupixent safety profile supports its approval in infants. In 2023, we are looking forward to the initial results of VARIUS, the first Dupixent Phase 3 study in patients with chronic obstructive pulmonary disease Or COPD. Our Dupixent COPD Phase 3 studies have enrolled patients with elevated blood eosinophils aiming to select for patients with COPD driven by Type 2 inflammation.

Speaker 3

The BORIA study passed an interim futility analysis in 2020, An encouraging event which triggered the start of the Replicate Phase 3 NOTICE study. We are looking forward to the readout of Borrius With the primary endpoint of annualized rate of acute moderate and severe COPD exacerbations expected in the first half of twenty twenty three. Moving on to oncology. 2022 was an important year for our oncology programs. Libtayo was approved by the FDA in combination with chemotherapy in Only one other PD-one or PD L1 targeting agent.

Speaker 3

Libtayo is also emerging as an essential backbone of our oncology pipeline Several programs in combination with Libtayo are starting to yield encouraging data. First, I'll discuss our LAG-three antibody cialumab in combination with Libtayo, where we have recently shown positive data from a second confirmatory cohort A PD-one naive metastatic melanoma patients and reported encouraging results from a smaller data set in non small cell lung cancer patients. These initial results suggest that the Feanalab Libtayo combination has a potentially best in class profile in melanoma And we are advancing broad pivotal programs in both melanoma and lung cancer. Phase 3 studies in metastatic melanoma adjuvant melanoma are already enrolling and we have plans to soon initiate another Phase 3 study in perioperative melanoma as well as Phase twothree studies in first line advance as well as perioperative non small cell lung cancer. Other notable of tile combination news from this year With the early but very encouraging data with our PSMA by CD28 costimulatory bispecific in advanced metastatic castrate resistant prostate cancer, A tumor type considered immunologically cold with multiple recent Phase 3 failures demonstrating The prostate cancer is largely unresponsive to anti PD-one therapy in other and as well as in other types of chemo combination.

Speaker 3

In our proof of concept study of our PSMA by CD28 cost inventory bispecific, we observed first evidence That combining this new class of bispecifics with anti PD-one can confer profound responsiveness to tumors previously thought to be cold And on responsive to anti PD-one therapy, with 3 out of the 4 patients treated at the highest dose levels showing greater than 90% reductions Within 6 weeks of initiating combination therapy in the prostate cancer biomarker PSA. Following up on these early but exciting results, We're continuing to enroll patients in this study and we are planning to present additional data at medical meetings in 2023. We also presented our first clinical data for a CD3 bispecific In a solid tumor for uvamatinib, our MUC16xCD3 bispecific in development for advanced ovarian cancer. As a single agent in a Phase 1 dose escalation study in heavily pretreated recurrent ovarian cancer patients, We observed a 4% overall response rate with a 31% response rate in a small subset of patients with high MUC16 expressing tumors. We expect initial dose escalation data later this year for uvamatinib with Libtayo as well as for our MUC16 by CD28 cost inventory bispecific with Libtayo in advanced ovarian cancers.

Speaker 3

We also expect updated clinical data For EGFRxC28 co stimulatory bispecific in combination with Libtayo in various solid tumors later this year. Moving on to our hematology oncology pipeline. At the American Society of Hematology or ASH Annual Meeting, we presented new data from otranexamab, Our CD20xCD3 bispecific as well as limbecelstamab, our BCMAxCD3 bispecific. For ogeneximab, we presented pivotal Phase 2, ELM-two data. Ogeneximab in 3rd or later line relapsed or recurrent Achieving a complete response with encouraging durability.

Speaker 3

Our optimized step up dosing regimen has improved dodronectinib safety profile While retaining efficacy similar to the prior dosing regimen. In 3rd or later line relapsed or recurrent diffuse large B cell lymphoma, Otrineximab demonstrate efficacy regardless of prior CAR T experience and a safety profile generally similar to that seen in follicular lymphoma. We are planning regulatory submissions in the second half of twenty twenty three for both indications, which we hope will support potential accelerated approvals. In 2023, we anticipate initiating several Phase 3 studies in follicular lymphoma and Diffuse large B cell lymphoma including an earlier lines of therapy. These trials will serve as confirmatory studies, which could potentially support conversion to full approval.

Speaker 3

We also expect to initiate a proof of concept study of our CD22xCD28 For limvoseltamab, our BSCMAxCD3 bispecific antibody, we presented efficacy and safety data from our pivotal Phase 2 study In 3rd or later line multiple myeloma at ASH, early, deep and durable responses were observed in patients with high disease burden And these responses may improve with longer follow-up. In 2023, we plan to initiate a confirmatory Phase 3 study Limboseltamab in second line multiple myeloma and are on track for a BLA submission in the second half of the year. As with otraneximab, we plan to initiate combination studies for limboseltamab with co stimulatory bispecifics in the near future. I'd also like to update some additional clinical programs. Our antibody blocking factor 11 for anticoagulation Inter antibody that activates the NPR-one receptor for heart failure are both completing proof of mechanism trials.

Speaker 3

Moving on to Regeneron Genetics Medicine. Regarding our collaboration with Alnylam and siRNA therapeutics, we're planning a broad and multipronged approach Develop treatments for NASH, non alcoholic CTO hepatitis. We are initiating a Phase 2 study of ALN HSD in NASH patients with genetic risk We also dosed 1st subjects in the 1st in human study of another siRNA medicine in development for NASH, ALNPNP, Which targets a different gene and can be potentially combined with ALN HSD in appropriate patients. We have discovered additional NASH targets, We have validated using our Regeneron Genetics Center including Side B, which will potentially be the next NASH therapeutic candidate to enter the clinic. With regard to our collaboration with Alnylam for central nervous system targets, our initial dose escalation study is ongoing.

Speaker 3

Our collaboration with Intelie on CRISPR based therapeutics is expected to progress further in 2023, building on continuing data readouts From the Phase 1 study of NTLA-two thousand and one in transstaritin amyloidosis in both cardiomyopathy and uropathy patients, which provided the first demonstration in humans that CRISPR based technologies can deliver up to 90% reduction The pathological gene product for over a year. Regarding our gene therapy efforts, our collaborators at Decibel Therapeutics recently announced that a clinical trial has been Both the U. S. FDA and the UK MHRA for DB OTO, a virally delivered gene therapy designed to restore hearing Individuals with otoferlin related hearing loss. A Phase onetwo study in patients 2 years of age and younger is expected to initiate in the first half of 2023 with initial data from the first cohort of patients anticipated in the Q1 of 2024.

Speaker 3

I'd like to conclude with our next generation COVID-nineteen efforts. As we recently announced, we have identified a potent, broadly neutralizing COVID-nineteen antibody, which Unlike other neutralizing antibodies, binds outside of the so called the Receptor Binding Domain or RBD of the SPITE protein. This antibody retains activity against all the viral variants seen throughout the pandemic because it binds to an eptop that has remained highly conserved We're even 99.9 percent across all known variants. The vast majority of antiviral antibodies generated as a result of vaccination Or due to national infection target the RBD domain, which results in overwhelming selective pressure driving the emergence We hope that by targeting this unique and conserved F DOPE outside of the RBD, this antibody We'll also retain this activity in the face of future variants. We plan to initiate clinical trials to test this antibody this year We're looking to develop it in both treatment and prophylactic settings.

Speaker 3

In conclusion, Regeneron's R and D engine continues its productivity, Including the early stage pipeline, just in the 1st weeks of this year, we have initiated clinical studies for 2 new drug candidates and we anticipate clinical trials starting For IND submission for up to 10 new therapeutic candidates this year as well as for additional indications for candidates that are already in the clinic. So with that, I will turn it over to Marion.

Speaker 4

Thanks, George. The Q4 capped off a strong year of execution and growth, Delivering results across our commercial portfolio, we expanded into new indications, which coupled with our existing business is expected to drive meaningful growth in 2023 and beyond. We look forward to several important potential approvals and subsequent launches this year, providing additional opportunities for growth. Starting with EYLEA, where we announced in January, 4th quarter U. S.

Speaker 4

Net sales of 1,500,000,000 Full year 2022 net sales were $6,300,000,000 representing 8% year over year growth and outpacing total growth of the anti DIGIF category for the year. At the end of the Q4, IEA category share Thank you, Shannon. During this time, there was a short term closure of a not for profit Patient Co Pay Assistance Fund, which reopened later in the quarter. We believe we have substantially recovered from the issue encountered in the 4th quarter. We continue to expect competitive pressures, but remain confident in Regeneron's overall retinal franchise as we look forward to our potential upcoming aflibercept 8 milligram launch.

Speaker 4

In summary, our retinal franchise leaves the anti VEGF category With EYLEA as the current standard of care and aflibercept 8 milligram is approved offering a differentiated clinical profile that can Turning to Libtayo, total 4th quarter global net sales were 100 and $69,000,000 growing 44 percent on a constant currency basis. In the U. S, net sales grew 36% to $110,000,000 with contributions across all indications. In advanced non melanoma skin cancers, we continue to build our leadership position in the PD-one class. In lung cancer, Libtayo continues to see steady growth in utilization and prescribers.

Speaker 4

Customer ordering has accelerated Following the chemotherapy combination approval last November, we are working to maximize launch uptake by increasing depth and breadth of prescribers. Early launch indicators are positive. Community and academic centers have welcomed Libtayo's expanded role as an important treatment option In advanced non small cell lung cancer, there are more than 200,000 new cases of lung cancer per year in the U. S. Alone, for which Libtayo is an important treatment option.

Speaker 4

Outside the U. S. Libtayo, net sales grew 60% on a constant currency basis to $59,000,000 driven by steady demand growth and additional launches as we secure access and reimbursement globally. We continue a targeted approach to extend our global commercial in priority international markets designed to maximize opportunities for Libtayo and potential future medicines. Finally, turning to Dupixent, where in the Q4, global net sales grew 42% on a constant currency basis to $2,450,000,000 In the U.

Speaker 4

S, net sales grew 44 percent to $1,940,000,000 with strong growth continuing across atopic dermatitis, asthma, nasal polyps, With additional contributions from recent launches in the synephilic esophagitis and praga nodularis, Dupixent is well positioned to expand market penetration and drive revenue growth across established new and potential future indications In 2023 and beyond, atopic dermatitis, Dupixent's largest indication, continues to rapidly grow across all age groups, Firmly establishing Dupixent as the preferred systemic therapy for patients with moderate to severe disease. There continues to be rapid uptake in younger populations, further confirming Dupixent's differentiated efficacy and safety profile. We've also seen meaningful early adoption in paragana nigularis where Dupixent is the only FDA approved medicine for this debilitating disease. We expect ongoing uptake of Dupixent as the launch progresses and physicians identify patients' need. Dupixent continues to perform well in the highly competitive biologic asthma space with steady market share gains And strong growth in total prescriptions and new patient starts.

Speaker 4

In nasal polyps, Dupixent's differentiated clinical profile continues to drive uptake as the leading first line treatment option in patients requiring systemic therapy. In eosinophilic esophagitis, the launch is going exceptionally well, Finally, offering physicians and their patients a treatment to effectively manage the underlying mechanism of their disease. Patients treated with Dupixent have experienced dramatic improvements in their symptoms and quality of life. We've seen rapid uptake across both Gastroenterologists and allergists. We also continue to advance our clinical efforts in younger patients where there is also substantial unmet need.

Speaker 4

Outside the U. S, Dupixent's net sales were $513,000,000 growing 37% on a constant currency basis, driven by rapid uptake across approved indications and launches in new geographies. In Europe, Dupixent was approved for prurigo nidularis In December and earlier this week, Dupixent was also approved for esophagitis. We expect these new indications to contribute to Dupixent's ongoing international growth. In summary, during 2022, we executed On our core focus to deliver life changing medicines to patients, our commercial initiatives and strategies are driving increases in market penetration for our in line brands and optimizing the potential of new and upcoming launches.

Speaker 4

Taken together, we are confident in Regeneron's future and are well positioned to deliver long term and sustainable growth. Now I'll turn the call to Bob.

Speaker 5

Thank you, Marion. My comments today on Regeneron's financial results and outlook will be on a non GAAP basis, unless otherwise noted. Regeneron ended 2022 with a strong Q4 with continued execution driving positive results across the business. Excluding contributions from REGEN COVE and RONAPRIBE, 4th quarter total revenues increased 14% year over year to $3,000,000,000 driven by growth across our core brands. 4th quarter diluted net income per share was $12.56 on net income of 1,400,000,000 Beginning with collaboration revenue and starting with Bayer.

Speaker 5

4th quarter 2022 ex U. S. EYLEA net product sales were 839,000,000 Up 7% on a constant currency basis versus Q4 2021. Total Bayer collaboration revenue was 350 $5,000,000 of which $324,000,000 related to our share of Eylea net profits outside the U. S.

Speaker 5

Total Sanofi collaboration revenue was $836,000,000 in the 4th quarter and grew 61% Driven by Dupixent, our share of profits from the commercialization of Dupixent and Kevlar was 619,000,000 an increase of 60% versus the prior year. We also recognized a $50,000,000 sales based milestone In the Q4 of 2022 due to achievement of $2,500,000,000 of ex U. S. Sales of antibody collaboration products on a rolling 12 month basis. Finally, we recorded Roche collaboration revenue of $396,000,000 in the 4th quarter for our share of gross profits From ex U.

Speaker 5

S. Sales of RonaPreve related to a previously signed contract. Moving now to our operating expenses. Q4 2022 R and D expense increased 43% year over year to $911,000,000 driven by the impact of the Libtayo transaction, With Regeneron now recording all R and D expense for Libtayo and our full 50% share of antibody collaboration R and D spend for Dupixent and itopecumab as well as additional costs incurred in connection with the company's late stage pipeline and increase in clinical manufacturing activities And higher headcount related costs. SG and A expense increased 17% year over year to $579,000,000 Due to higher headcount and related costs, incremental cost to fully support the global commercialization of Libtayo and higher contributions to an independent not for profit Patient Assistance Organization.

Speaker 5

Product gross margin in the quarter increased to 93% as for their share of U. S. Libtayo gross profits. Finally, Q4 2022 effective tax rate was 11.3% Compared to 12.6 percent in the prior year. Shifting now to cash flow and the balance sheet.

Speaker 5

For full year 2022, Regeneron generated $4,400,000,000 in free cash flow favorably impacted by a Q1 2022 payment from the U. S. Government For sales of REGEN CO that were recorded in the Q4 of 2021, we ended 2022 with cash and marketable securities Less debt of $11,600,000,000 We continue to deliver on our capital allocation priorities in 2022 By deploying approximately $3,400,000,000 towards business development and share repurchases, while continuing to fund our internal R and D efforts. In 2022, we executed approximately $1,300,000,000 in business development initiatives, Including the acquisitions of CheckMate Pharmaceuticals and the exclusive worldwide rights to Libtayo, We also purchased approximately $2,100,000,000 of our shares in 2022, including $431,000,000 in the 4th quarter. This morning, we announced a new $3,000,000,000 share repurchase authorization, reflecting our continued confidence in our business in our pipeline.

Speaker 5

We remain buyers of our shares at current levels and this new authorization enables us to continue returning capital directly to shareholders. I'd like to conclude with our initial financial guidance and outlook for 2023. We expect 2023 SG and A spend to be in the range of $2,130,000,000 to $2,280,000,000 This primarily reflects the full year impact of global Libtayo commercialization expenses, The build out of our international commercial infrastructure in select markets in higher headcount to support our growing organization. We expect our 2023 R and D expense to be in the range of $3,725,000,000 To $3,925,000,000 As George mentioned, we have numerous strategically important development programs advancing in 2023, Including late stage studies for our ifionelimab Libtayo combination in melanoma and lung cancer and confirmatory Phase 3 studies for ogeneximab, Both EnfL and DLBCL and Limboceltumab in myeloma. In addition, we continue to advance programs in our early pipeline across multiple therapeutic areas, including with collaborators such as Alnylam and Intellia positioning us for long term growth.

Speaker 5

This range also includes the full year impact of the Libtayo transaction. We are now recording all development expenses for Libtayo and recognizing our full 50% share of development expenses for itapixinib and itopecumab. COCM is expected to be in the range of $720,000,000 to $800,000,000 similar to 2022, Reflecting the gradual phase in of a new Regeneron developed manufacturing process for Dupixent that is designed to improve drug substance yields. We expect our capital expenditures in 2023 To be in the range of $825,000,000 to $950,000,000 These expenditures will support the continued expansion of our manufacturing facilities, Including ongoing construction of a fill finish facility as well as the previously announced expansion of R and D facilities at our Tarrytown, New York headquarters. Finally, we anticipate 2023 gross margin to be between 90% to 92% and our Effective tax rate to be in the range of 11% to 13%.

Speaker 5

In addition to our full year financial guidance, we expect higher interest income in 2023 Given our greater cash balance plus higher interest rates as compared to last year, which will favorably impact other income and expense. We also expect 2023 other revenue to be slightly lower than 2022. Finally, as I said in November, we no longer expect Record any material other operating income or expense in 2023 or beyond absent a new transaction. In conclusion, Regeneron continued to deliver robust financial results in 2022 and we are well positioned to drive continued growth in 2023 and beyond. With that, I will now pass the call back to Ryan.

Speaker 1

Thank you, Bob. Shannon, that concludes our prepared remarks. We'd now like to open the call for Q and A. To ensure we are able to address as many questions as possible, we will answer one question from each caller before moving on to the next. Shannon, please go ahead and poll for questions.

Speaker 2

Thank

Operator

Our first question comes from the line of Tyler Van Buren with Cowen. Your line is now open.

Speaker 6

Hey, guys. Good morning and congratulations on the results Thanks for the question. Regarding EYLEA, it'd be great to hear the latest on what you're seeing in the marketplace with respect to VAVISMO. Apparently, Roche is not things which is from Bipizmo back to EYLEA despite what we are hearing from the KOLs. So any additional color there would be helpful.

Speaker 4

Hi, Tyler. Yes, and let me comment that certainly EYLEA performance in the market, as I reported, continues to be very strong. Quick reminder on the year, growing at 8% to $6,300,000,000 and certainly a very strong competitive We're conscious of competition in the marketplace, but to give a bit of an update, we continue to hear that frisunab Use has been modest and results in some cases have resulted in patients switching back to other agents including EYLEA probably most Certainly, we look forward to continued efforts on EYLEA this year as the standard of care. And as you know from many of us talking to KOLs, they're incredibly enthusiastic about the launch potential launch of aflibercept 8 milligram coming later this year.

Speaker 2

Thank you.

Speaker 1

Thank you.

Operator

Our next question comes from the line of Matthew Harrison with Morgan Stanley. Your line is now open.

Speaker 2

Mac, we don't hear you.

Speaker 7

Sorry, could you not hear me, Len?

Speaker 2

We can hear

Speaker 1

you now.

Speaker 4

We can

Speaker 6

hear you now.

Speaker 8

Okay. All

Speaker 7

right. Sorry. So I was just wondering if you could comment on COPD and what you view as clinically meaningful in terms of a result Other companies have reported sort of 15%, but I think in the past you've talked about that as not being a particularly high bar. So maybe you could just talk about

Speaker 3

Well, we powered our futility analysis as well as our Clinical trial to deliver what we believe would be clinically meaningful benefit if The study proves positive, which we hope it will. And remember, we're going to be looking at both exacerbations, but also improvement in lung function. So it will be A sort of integration of the benefit that patients can receive from both those measures, I remind you that In other settings in asthma in particular, Dupixent has distinguished itself from other immunomodulators in delivering pretty substantial Improvements in pulmonary lung function. So it's not only all about exacerbations, but we hope to have significant improvements in exacerbations as well as in Lung functions, which will hopefully provide important benefits to patients.

Speaker 1

Thank you. Next question please.

Operator

Our next question comes from the line of Carter Gould with Barclays. Your line is now open.

Speaker 8

Hi guys. Thank you very much for taking the question. You do have some APP data on the horizon here with Alnylam. We'd love to kind of hear your thoughts on how you're thinking about that and if we should be thinking about that Or just a proof of concept or as a potential product opportunity even with intrathecal delivery? And If I guess more of the former, how much of this is sort of a gating factor to really kind of expanding the effort here potentially dramatically across a number of CNS to do this?

Speaker 3

Well, as you say, the important thing about that aspect of the Inalem collaboration is together We were hoping for the first time to see if we could develop technology that would actually allow us to do what's been done now By Alnylam and others in the liver to bring it to other tissues, particularly to the central nervous system in this case. So this the first study, which is focused on APP is really a proof of concept Can we get this technology to work? We view it as a potential sort of platform enabler, meaning that if we see anything here And obviously, these are challenging things to be first and to do something that nobody's ever done before. And it's obviously very early in the program. But the goal is to establish proof of principle that this type of technology, which looks like it can be pretty effective in the liver, Shannon worked outside of the liver particularly in the CNS.

Speaker 3

So this would be a platform enabler.

Speaker 1

Thanks George. Next question please.

Operator

Our next question comes from the line of Brian Abrahams with RBC Capital Markets. Your line is now open.

Speaker 6

Hey, guys. Congrats on all the progress and thanks for taking my question. So with the potential approval coming this summer, I'm curious how we should be thinking about the launch cadence Just considering some elements like the introduction of prefilled syringe, the J code and maybe your overall strategy and how you're thinking about Converting market segments and where you're initially focused? Thanks.

Speaker 2

Give us a second. We'll disconnect all the Roche people on the call, So we can get you our strategy. In all seriousness, obviously, there's a lot of thought that's going to go in Between now and what we hope will be our late August approval on pricing, on rollout, On targeting, on strategy, etcetera, etcetera. But we're working on that. We have to get our label.

Speaker 2

We have to get it approved. And we'll have everything else ready to go. The initial launch will be with a vial and then we hope Down the road not too far with a pre filled syringe. Marion, I don't know if you want to give away any of your secrets.

Speaker 4

I would just say that we have a highly experienced team in commercialization and we certainly will be ready for the launch. And in the meantime, we're very focused Our participation in the market today with EYLEA, but certainly more to come and we absolutely look forward to the potential launch of 8 milligram.

Speaker 2

Very good. Obviously, the VIBISMA launch has not turned the market sideways on us. It's real competition, but that I think there's a window that's sort of closing For them to compete against 2 milligrams we hope and then 8 milligrams we hope could become the standard of care. So lots to look forward to later in the year.

Speaker 1

Certainly. Thank you. Next question please.

Operator

Our next question comes from the line of Evan Ziegerman with BMO Capital Markets, your line is now open.

Speaker 9

Hi, guys. Thanks for the question. Maybe a follow-up to Matt's question. Can you just speak to what you saw in the pre specified interim analysis of the VARIOUS trial and just any additional color on the level of benefit versus placebo that triggered the initiation of the NOTICE trial? Thank you.

Speaker 3

All I can say is that we powered it to deliver what we thought would be a clinically significant improvement. It was a combination Measures of exacerbations and lung function improvement and we haven't disclosed what those numbers were.

Speaker 1

And we remain blinded to that interim analysis, Evan. So next question please.

Operator

Our next question comes from the line of Salveen Richter with Goldman Sachs. Your line is now open.

Speaker 10

Good morning. Thanks for taking my question. With regard to the oncology portfolio, what do you consider the most meaningful milestones What do you consider the most meaningful milestones for the next 12 months and particularly here the PSMA CD28 asset? Thank you.

Speaker 2

Well, we obviously have some important submissions we need to get in later in the year as we mentioned for CD3 bispecifics and we need to continue to get data later in the year with more patients with PSMA by CD28 bispecifics as well as from some of the other co stim bispecifics. And we have to move aggressively enrolling the additional studies we plan for LAG-three. So and we have to Make Libtayo even more successful we hope in the marketplace and around the world. So lots to do. I don't know if George or Marion have anything else to add there.

Speaker 3

Yes. I think it was really critically important for us to validate individual agents in each class. That was our strategy. We wanted to develop the best in class checkpoint inhibitors such as our PD-one antibody Libtayo such as our LAG-three antibody fenalumab, we wanted to establish The 3 bispecifics that we're best in class and that we're working in hemonc settings, but also in solid tumor settings. And then of course we want to validate that this incredible principle of co stimulatory bispecifics that we introduced into the world Which were truly magical in animal studies with essentially working like turnkey agents to synergize With the other two classes in animal studies that we could reproduce that sort of activity in humans.

Speaker 3

And so us, Obviously, it takes years to get to that point, but we feel we're in a very exciting position right now because as I said, the individual classes are validated. We're starting to see impressive combination opportunities. We talked about combining 2 checkpoints, combining our LAG-three with PD-one, It looks like we have maybe taken first line melanoma to a different Point where patients can get a lot more benefit from this combination and now having validated those, we're expanding Much more broadly, same thing with the CD3 bispecifics, we're growing that franchise now that we've shown that our platform works and we're Working both in hemonc and outside in solid tumor settings and the fact that our first Costin bispecific delivered the sort of exciting early data that it delivered really gets us Very excited about the possibility now that we have this whole rollout. We have several of these costin biosynthesis in the clinic Clearing their dose escalation safety settings and we're now going to be rolling out data From these combinations, more data from the PSMA, costim bispecific in prostate cancer and more patients. We're also going to be reporting on a series of other costims including not only in combinations that we already talked about in solid tumors, by themselves as Len said, we're both filing for those hopefully by the end of the year, but also initiating earlier line studies.

Speaker 3

But just as importantly, we're going to be initiating combinations with these cost invoices, which we think yet again, if these continue to work like they work Not only in the animal models, but now how they're looking in the early human studies, these could really leapfrog The individual agents to a whole new place where they're really changing the practice of medicine and delivering Much more benefit to patients, which is what we're all about.

Speaker 2

Yes. I don't think George's point can be overstated. Cancer cures in serious advanced tumors are still far and few Between and there is still tremendous need, which makes this a very dynamic treatment marketplace Because people want that extra benefit because it's not like they're getting cures. We haven't cured Lung cancer, well, we haven't cured most serious cancers. So the ability to have Foundational individual treatments and then get more by combining them really does position us to leapfrog, to use George's word, In the treatment paradigm out in the world because patients and their doctors are very sensitive to improve Outcomes because there's still tremendous, tremendous need.

Speaker 1

Thank you. Next question, Shannon.

Operator

Our next question comes from the line of Mohit Bansal with Wells Fargo. Your line is open.

Speaker 2

Great. Thank you for taking my question. Maybe staying with COPD. So talking to some KOLs and reading some papers, it seems like IL-thirteen has some implications into fibrosis as well. Now so the question is, do you think This could be a beneficial effect of iosidine blockade and its impact on fibrosis.

Speaker 2

On COPD 4 and above blocking inflammation And if yes, do you think a 1 year trial would be enough to see that?

Speaker 3

I think you bring up really interesting points. We were actually involved in some of the experiments years ago that showed that IL-thirteen could actually cause fibrosis in animal models. And certainly we do believe that long term like in many of the diseases that we studied so far that the benefit Of Dupixent and blocking both IL-four and IL-thirteen can continue to accrue for the patient in terms of Preventing the chronic inflammation that results in so much of this remodeling that you talked about. We believe this may be true in asthma And we're actually involved in programs and studies to show that some of the same things that you're talking about We'll also benefit in that you will prevent long term remodeling that decreases lung function over time with structural changes And we believe that that may also be true of course in COPD. But first we need as you say the shorter term studies to be positive, But we do believe that if they produce the type of data that we're hope if Dupixent is the type of data we're hoping it could in COPD that longer term studies like you say Could end up showing even longer term benefits in terms of exactly the type of remodeling And fibrotic changes that result in permanent loss of function, lung function in these patients.

Speaker 3

So we think that you're totally right, But it will probably as you say take longer term studies to actually pick that up.

Speaker 1

Thanks George. Next question Shannon.

Operator

Our next question comes from the line of Colin Bristow with UBS. Your line is now open.

Speaker 11

Hey, good morning and thanks for taking the questions. I wanted to sort of push a little more on the DUPIC APD readout And just trying to understand what's underpinning your confidence here. It certainly feels like you're more enthusiastic than what we're hearing out of Europe. Is this primarily based on the threshold set for Boreas interim and these were sufficiently robust that you just you feel good about the ultimate result? Or Is there something else you can point us to?

Speaker 11

Thanks.

Speaker 2

Yes. I wouldn't over or under read our Situation right here. And it almost doesn't matter because Regeneron is a data driven enterprise and we're all going to see the data Coming up, we hope later this quarter. We are totally blinded to the evaluation that was done on the interim analysis. We have said we set it at a reasonable bar, but it was only a fraction of the patients.

Speaker 2

So you never know how this is going to turn out. We would not be as confident about something like this compared to another classic Type 2 inflammatory disease. So you have that on the negative side, but on the positive side, you do have the fact that we've selected patients who have high eosinophils We had this interim analysis. Bottom line is, we look forward to the data as well as you do.

Speaker 1

Thanks, Lynn. Next question, Shannon.

Operator

Our next question comes from the line of Chris Raymond with Piper Sandler. Your line is now open.

Speaker 6

Thanks. Maybe a broader question in the VEGF retinal market. Last year at AAO, there was a lot of discussion And debate around the potential impact on retinal specialist practices, if the intravitreal therapies for geographic atrophy are approved. And some folks were talking about just back of the envelope, this could drive pretty sizable like 30 some percent increase in injection volume at practices Just from treating geographic atrophy patients. As you guys think about this dynamic, we've heard some KOLs sort of Offer up potential fix to that, that they would move in more accelerated fashion to Longer duration, longer acting therapies for wet AMD.

Speaker 6

Are you guys seeing that? Is that something that we should be thinking about in terms of a driver from short acting to longer acting?

Speaker 2

Yes. I mean, I think Despite all these practice aspects, the primary driver will be that patients would prefer To get a needle in the eye less frequently, with every time you put a needle in the eye, there is a risk of inflammation or more serious complications, Hemorrhages, attachments, things like that. So the less you have to do that and get the same benefit is better for the patient from the Needle in the eye perspective and it's better for the patient from the number of times they have to come to the doctor's office, these are elderly patients frequently they have to have a caregiver. From a practice perspective, certainly many doctors' offices are overwhelmed by the number of injections That they're giving and that they could free up time with if you could get the same result from a practice point of view With less frequent injections, certainly that would free up more time and would drive them. But I believe at the end of the day, Docs do make the decision with their patient on this primarily because less injections in the eye are just safer And more convenient for the patient.

Speaker 3

Well, we also shouldn't lose sight of the fact that if treatments for geographic accuracy Become much more prep and take off and become much more prevalent that they do have a side effect. They're actually increasing levels of macular edema in these patients, which will of course necessary a treatment there as well. Thanks.

Speaker 1

We have time for 2 more questions, Shannon.

Operator

Our next question comes from the line of Chris Schott with JPMorgan. Your line is now open.

Speaker 6

Great. Thanks so much for

Speaker 9

the question. Just on the costim platform, I guess once you land on the right dose for these products, do you expect that there could be accelerating filing pathways given the few options available for Most of these patients or do we still need to think about needing to go slowly even with the registrational studies as you're kind of balancing I guess safety versus efficacy? Thank you.

Speaker 2

Well, we certainly believe that when you're in something where there's tremendous medical need and no alternative That there will be opportunities to move for accelerated approval. We're all aware of the new FDA guidelines that they want you to be underway With your pivotal studies, well underway, I think is the phrase they use. So we're taking that into account. But there's no question that if we can reproduce the efficacy That we saw in these late stage prostate cancer patients, there's not only the need, but there will be a mechanism to get that to patients as quickly as possible. Remember that the main issue as you referred to is keep is being mindful of the safety.

Speaker 2

And of course, we're doing everything we can to mitigate that. But remember, thus far, for the most part, there's been an extremely tight linkage Of safety and efficacy, that is the adverse events occurred in those patients who were having the substantial benefit. So that makes the risk reward even more attractive from a regulators and a doctors and frankly a patient's perspective. So the short answer is we think we're not going to go too fast where one would be reckless, we have to be careful. But we do think there is an opportunity for an accelerated approval if we follow the new approach the FDA has laid out.

Speaker 1

Thanks, Lynn. Last question please, Shannon.

Operator

Our last question comes from the line of Robyn Karnauskas with Truist, your line is now open.

Speaker 10

Great. Thank you for squeezing me in. So just a follow-up on the prior question. So for your MUC16, CD28 and muxtextine CD3 combination, what are you expecting regarding the safety profile? And how do you think about That type of combination efficacy and safety wise versus a CD28 CPI combo?

Speaker 10

And just to follow-up with that, I know the FDA was concerned back in the day about dosing up with GD28 as a superagonist. Like, do you think That your initial data might alleviate some of the needs for slow doses for CD28 bispecific? Thanks.

Speaker 3

Well, a lot of good questions in there. I'll start from the end first. For sure, when we started the program, There was very serious concerns about previous experience with general CD28 That activated all over the body that resulted in really horrific situations for patients which almost killed the field. We invented this new approach to tightly limit where we were limiting CD28 28 activation right at the tumor surface and so forth. And of course, there was concern from the FDA, which is why as you said, They made us employ a very, very conservative dose escalation program.

Speaker 3

We had to go through 5 or 6 dose levels just to get to where we thought were The active dose levels where we then start to see the rather dramatic anti tumor activity that we began to report. We are hoping that as we get more experience and show that what we had demonstrated Pre clinically is really holding true in humans. In fact, the side effects that Len was Talking about immune related adverse events are totally unrelated to the sort of toxicities that we're seeing with non specific CD28 superagonist in the past. They were really much more on target and on mechanism that is we were generating a presumably a polyclonal T cell response against The tumor and some of that cross reacted to tissues in the patients and that's what we were seeing. So we're hoping that increasingly we might be able to move a little bit more quickly through some of these dose escalation stages Get to the active doses with these other agents.

Speaker 3

What we're seeing so far as we've presented in our Posters on MUC16 by CD3 that right now it's having an acceptable Safety margins and we also hope to see that when combined either the CD3 combined with the MUC16xCD28 or when the MUC16xCD28 This combined with Libtayo that we will see the same sort of things that we saw with the PSMA by CD28 that we'll be getting Hopefully market synergy and increase in the antitumor activity with hopefully a Satisfactory safety window, but that remains to be seen and that's why we're carefully going through The combination studies and the dose escalation studies, but once again, I mean, just to think how I mean, It is for those of us who've been working on these programs for over 10 years to be at this point where the individual agents and the individual classes are now validated And we now get to mix and match these things. And as Len said, the history of the field When you have active agents and you start combining this, you can then leapfrog and get to the next level That would change the practice of medicine for these cancers. That's what we're aiming to do to try to save more lives, extend more lives and it's an exciting place to be in.

Speaker 1

Thanks, George. That's all the time we have for today. Thanks to everybody who dialed in and for your interest in Regeneron. We apologize to those remaining in the queue that we did not have a chance to get to. As always, the IR team is available to answer any questions you may have.

Speaker 1

Thank you once again and have a great day

Speaker 2

and a nice weekend.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Earnings Conference Call
Regeneron Pharmaceuticals Q4 2022
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