Welcome to the Regeneron Pharmaceuticals Fourth Quarter 2023 Earnings Conference Call. My name is Shannon 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 the call over to Ryan Crowe, Senior Vice President, Investor Relations. You may begin.

Thank you, Shannon. Good morning, good afternoon, and good evening to everyone listening around the world. Thank you for your interest in Regeneron, and welcome to our fourth quarter 2023 earnings conference call. An archive and transcript of this call will be available on the Regeneron Investor Relations website shortly after the call ends. Joining me today are Dr. Leonard Schleifer, Co-Chair, Co-Founder, President and Chief Executive Officer; Dr. George Yancopoulos, Co-Chair, Co-Founder, President and Chief Scientific Officer; Marion McCourt, Executive Vice President and Head of Commercial; Bob Landry, Executive Vice President and Chief Financial Officer; and Chris Fenimore, Senior Vice-President and Controller. As many of you already know. Bob will retire from Regeneron, after our Form 10-K as filed next week, and Chris has been appointed to become Regeneron's next CFO upon Bob's retirement. After our prepared remarks the remaining time will be available for your questions. We anticipate today's call will last approximately 60 minutes. I'd 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 business, financial forecast and guidance, development programs and related anticipated milestones, collaborations, finances, regulatory matters, payer coverage and reimbursement issues, intellectual property, pending litigation and other proceedings and competition. Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in Regeneron's filings with the United States Securities and Exchange Commission, including its Form 10-K for the year ended December 31, 2023, which we expect to file with the SEC on Monday, February 5. Regeneron does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, please note that GAAP and non-GAAP financial measures will be discussed on today's call. Information regarding our use of non-GAAP financial measures and a reconciliation of those measures to GAAP is available in our quarterly earnings results press release and our corporate presentation, both of which can be accessed on the Regeneron Investor Relations website. Once our call ends, Bob, Chris and the IR team will be available to answer any further questions. With that, let me turn the call over to our President and Chief Executive Officer, Dr. Len Schleifer. Len?

Thank you, Ryan, and thank you to everyone joining today's call. Fourth quarter 2023 capped another strong year for Regeneron and Bob will walk you through our financial results. For my remarks today, I'd like to briefly look back at 2023 and then discuss what's to come in the year ahead. 2023 was another remarkable year for Regeneron highlighted by several significant achievements that better position the company to deliver sustainable growth and long-term shareholder value. At the start of the year, we identified five key strategic imperatives: First, obtaining FDA approval and successfully launching EYLEA HD. We did encounter a minor delay when we received a complete response letter in late June due to an issue at a third-party filler, but this was quickly remedied and EYLEA HD was granted approval in mid-August. With what we believe to be a best-in-class potential clinical profile, EYLEA HD is poised to become the new standard-of-care for patients with wet age-related macular degeneration and diabetic eye diseases. The launch is off to a great start, which Marion will discuss in a few minutes. Second, we had to defend our intellectual property related to EYLEA. We presented our best case and prevailed in the District Court, which found that one of EYLEA's formulation patents was both valid and infringed by a biosimilar aflibercept manufacturer. This favorable decision may have broad implications and could result in a delay to biosimilar aflibercept launches. Third, we and our collaborator, Sanofi, needed to continue driving Dupixent growth not only by further penetrating previously approved indications, but also reaching even more patients suffering from other diseases driven by type 2 inflammation. In 2023, we did both. Dupixent global net product sales grew by 34% on a constant currency basis to $11.6 billion. Dupixent lead in new to brand…

Thanks, Len. That was really impressive overview I have to say. 2023 was another year of first delivered by Regeneron as well as together with our collaborators, all of which have the potential to change the practice of medicine. Starting with inflammation and immunology. As you heard from Len, we are planning yet another launch for Dupixent, this time in eosinophilic COPD, which would represent the sixth disease if this remarkable medicine is approved to treat and the fifth for which it would be first-in-class. Dupixent’s transformative potential in COPD is based on the unprecedented results from our first Phase 3 trial BOREAS, which would then confirm our second Phase 3 trial notice demonstrating that Dupixent treated patients had a 34% reduction in the annualized rate of moderate to severe COPD exacerbations [Technical Issues] IL-33 blocking antibody. The pivotal AERIFY-1 and 2 studies passed an interim futility analysis last year. The studies are now on track to complete enrollment in 2024 with an anticipated readout in 2025. If the Phase 3 results from these studies even approach the Phase 2 data reported in former smokers where a 42% reduction in annualized exacerbation rate was observed, itepekimab has the potential to further transform the treatment paradigm for COPD. Later this year, we are planning on testing an innovative new treatment approach for severe food allergies using a combination of transient BCMAxCD3 bispecific intervention in patients receiving Dupixent therapy. As many of you know, allergic responses are driven by pathologically high levels of Immunoglobulin E or IgE. This is why many say the E in IgE stands for evil. About 40-years ago, it was discovered that interleukin-4 and interleukin-13 were the switch factors required for switching to IgE production. Based on exciting preclinical data including in non-human primates as well as human…

Thanks, George. Our business delivered strong results in the fourth quarter and for the year. Over the course of 2023, we successfully launched EYLEA HD, grew Dupixent across approved Type 2 inflammatory diseases, and expanded Libtayo's presence in lung and non-melanoma skin cancers. We look forward to several potential approvals this year in new therapeutic categories, including in COPD with Dupixent and in hematologic oncology using new treatment modalities. I'll start with our Retinal franchise. In January, we announced fourth quarter combined U.S. EYLEA HD and EYLEA net product sales of $1.46 billion. In its first full quarter, EYLEA HD net product sales were $123 million based on growing demand and positive early physician experience. EYLEA HD is already being used across a broad range of patient types, including those switching from EYLEA, other branded agents or Avastin as well as modest but increasing use in treatment-naive patients. In the fourth quarter, EYLEA HD and EYLEA together secured 49% of the anti-VEGF category share despite increasing competition and changing market dynamics. This share gain was driven by the differentiated efficacy and safety profile of our medicine, as well as a short-term disruption in compounded Avastin due to a quality issue in a large supplier that has since been resolved. Since launch, we've made significant progress in securing access and reimbursement for EYLEA HD. More than two-thirds of eligible lives are now covered with the vast majority having first-line or single-step edit access. Medicare fee-for-service, which represents approximately 45% of total category use claims are being paid across 100% of jurisdictions, using a miscellaneous J-code. Looking ahead in 2024, we remind you that the first quarter is typically impacted by payer re-authorizations and that EYLEA HD will remain subject to a miscellaneous J-code. However, in late January, we achieved another important…

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 2023 with strong performance in the fourth quarter. Excluding contributions from Ronapreve, total revenues increased 14% year-over-year to $3.4 billion, primarily driven by sales growth and margin expansion from Dupixent, the launch of EYLEA HD and strong sales growth from Libtayo. Fourth-quarter diluted net income per share was $11.86 on net income of $1.4 billion. Moving to collaboration revenue and starting with Bayer. Fourth quarter 2023 ex-U.S. EYLEA net product sales were $890 million, up 4% on a constant currency basis versus the prior year. Total Bayer collaboration revenue was $377 million, of which $345 million related to our share of EYLEA net profits outside the U.S. Total Sanofi collaboration revenue grew 19% in the fourth quarter of 2023 to $993 million. Excluding a $50 million sales milestone recorded in the fourth quarter of 2022, Sanofi collaboration revenue grew 26%. Our share of collaboration profits was $886 million, an increase of 43% versus the fourth quarter of 2022, driven by Dupixent's continued volume growth and improving margins. Reimbursements from manufacturing of commercial supply, a component of Sanofi collaboration revenues declined 36% versus the prior year due to the implementation of a new higher-yielding manufacturing process. At the end of 2023, the Sanofi development balance was $2.33 billion reflecting a net decrease of $534 million, compared to the balance as of December 31, 2022. Recall, this decrease is primarily recorded as a reduction to our share of collaboration profits. We continue to expect this balance to be fully reimbursed in the next few years, which would result in a significant step-up in our Sanofi collaboration profits. Other revenue was $213 million in the fourth quarter of 2023, up…

Thank you, Bob, and congratulations again. This concludes our prepared remarks. We will now open the call for Q&A. To ensure we are able to address as many questions as possible, we will answer one question from each caller before moving to the next. Shannon, can we go to the first question, please?

Thank you. [Operator Instruction] Our first question comes from the line of Tyler Van Buren with TD Cowen. Your line is now open.

Great, thanks guys, good morning. And I'd like to say congratulations to you as well, Bob, wish you well during your retirement. It's been a privilege to work with you. And Chris, I look forward to working with you as well. So in the opening, Len mentioned accelerating the rate of conversion of patients from other agents to EYLEA HD. So, can you discuss the different factors at play that will accelerate the rate over the year, which I assume, includes the permanent J-code and also the robust sampling effort that is impacting to make sales.

Sure, Tyler. I'm happy to answer. So, as I mentioned, we're very encouraged by the early performance of EYLEA HD in the market and a number of factors early are driving that success. First, it's the clinical data, which is now showing in the actual market real-world setting the efficacy, safety, and durability of EYLEA HD, all very important factors. As we look to the future, physicians will build upon their early experience, and as I mentioned that experience is coming from conversion patients from branded agents broadly, Avastin and also in some cases naive patients but going forward, I would share that in addition to ongoing experience and confidence, the reimbursement consideration is very, very important for physicians, and some are hesitant to prescribe a product that doesn't have a permanent J-code. So we do look forward to that occurring April 1 and beyond based on CMS's recent update. And then in addition to reimbursement confidence, we've made progress certainly in payer coverage. We anticipate making more. And certainly, the experience in market to date with EYLEA HD has been very favorable for physicians. And that is the, probably, the most important, those differentiating characteristics of the product.

Thanks, Marion. Shannon, next question, please.

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

Hey, guys. Thanks for taking my question and congrats to both Bob and Chris. I was wondering if you could maybe talk a little bit about the differentiation of the emerging obesity portfolio as you move into the next wave of studies. I know a patent filing revealed that the antibody tethered GLP-1 shows very competitive weight loss in animal models. So I'm wondering where you see that differentiating most. Is it tolerability in distribution or dose frequency or somewhere else? And then I know others are pursuing myostatin as well on top of GLP-1s. Just curious where you see your biggest competitive advantage there.

Okay. Well, let me start with the latter first, in terms of muscle preservation. Other people have related approaches, but we're the only ones, we're the ones who discovered that there are two key ligands or growth factors that control muscle size: myostatin, myostatin 1, we call it, and myostatin 2 or ActiveNA. And we're the only ones that have specific blocking antibodies for those two. And we are testing them together and individually. And the reason why that's important is it's going to be a combination of both efficacy and safety that matters here. So we're going to see which approach does the best in terms of the muscle preservation in the face of the profound muscle loss that you can see with GLP-1 agonist treatment. But we're also going to see the safety profiles. And I think that that's going to be so critical because safety is so important here. Other people are just testing one of these agents alone. I believe, the myostatin, and others are testing very broad approaches such as trying to block the receptors for these factors. The problem with the receptor blockade approach is that the receptors that are used by these factors are also used by over a dozen other ligands that have very diverse biologic functions. And you can easily imagine that by blocking so many diverse functions, you might end up having all sorts of safety issues, which you're not going to want to be able to be dealing with in the setting of a treatment that's intended to optimize obesity and body weight loss and give benefit to the patients. So our programs are very different in that we discovered the 2 key regulators, the 2 key growth factors. We have separate antibodies blocking them both. And we're evaluating them separately and together in the setting of GLP-1 receptor agonist, to see what gives us the best benefit vis-a-vis muscle preservation as well as safety profile. While we're doing that, as we said, we're initiating those trials this year, we are also developing unimolecular solutions. So whichever approach works best, we hope to have the possibility of having a tethered GLP-1, as you put it, associated with the right set of antibody molecules. So they will have the advantage of having a unimolecular solution that can provide all-in-one benefit in terms of providing, hopefully, the best convenience profile and potentially once-a-month dosing, together with providing not only the weight loss, the profound weight loss that one is seen with GLP-1 receptor agonist, but now complemented by providing muscle preservation, but with the safest possible approach. So we think that we have the most unique program in terms of addressing all these possibilities. And we're very, very excited about these programs.

Thanks, George. Shannon, next question, please.

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

Great. Thank you very much for taking my question and thank you, Bob, for all your help over the years. Maybe one question for Marion. Can you just comment on the trends in the anti-VEGF market, underlying trends? I mean, is the market growing or you are growing fast, as fast as it's been in the past, or is it slowing down a little bit? And in that context, how do you see the outlook for Hydro EYLEA plus EYLEA going forward, with the underlying demand out there? Thank you.

Sure, Mohit. So there is variation between quarters and years as it relates to anti-VEGF category growth. Overall, though, the category is healthy from a growth standpoint, unfortunately, based on the number of individuals with diabetes or diagnosed with diabetes. On a brighter note, aging population is good. So overall, we see it as healthy category growth. But there is variability. And as an example, there has been some decline by a couple of points between last year and this year overall.

Okay, next question, please, Shannon.

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

Thanks. Maybe just another EYLEA question. I know you guys don't want to get sort of too granular on your pricing strategy, but we've been struck that, even with the 2-milligram format revenue contracting in the last couple of quarters, our checks show that it's really not a market share issue. In fact, share of that format remains up around an all-time high. So one would think that that's been price erosion that's been driving that. Just understand this may be a strategy to maximize the HD launch, in broad stroke, can you talk about what we should be expecting in 2024? Do you expect further price erosion for that 2-milligram format? Or have things sort of leveled off?

Yes. I'm not sure we want Marion to get into the details of our strategies, pricing, rebates, things like that. But we can say, Marion, you could add thoughts, that we view it as a very competitive marketplace. There has been some price erosion on some of the products in the marketplace. We're starting at a new point with EYLEA HD. We think we priced it well. It was received well. It was intended to match on a yearly basis. And so we think the actual price point was fine. I don't know if Marion wants to add anything at all, but we don't like to comment specifically on those competitive dynamics.

Yes. Chris, really nothing in everyone to add to that.

Okay, all right next question please Shannon.

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

Hey, good morning and thanks for taking the question. And all the best in the future, Bob. Maybe a couple more on the muscle sparing myostatin program. I'm curious, George, what are your thoughts around the potential concerns of myostatin targeting, increases or preserves muscle volume, but the muscle is less functional. And then any thoughts on the regulatory pathway that you would utilize for these muscle sparing assets? Thank you.

Regulatory. Okay, so o first of all, we've done extensive work in preclinical models. And these antibodies have already been in humans. We believe that our studies are actually showing that this muscle is functional and certainly very important from both the metabolic and energy expenditure point of view. So, so far, those studies are very supportive of this whole approach. I should also say there's a variety of regulatory pathways that we're pursuing here. Obviously, the easiest, which would come from the possible results that we're seeing in the animal studies, is if there's incrementally more weight loss, that might suffice as a regulatory strategy. Alternatively, if it's just the quality of the white loss, then we would have to show functional outcomes in terms of strength and so forth and so on. So those are still early in the thinking. We have to see from these initial studies. But as I said, if we simply see increased weight loss, that would be the simplest way forward. And then you have more weight loss but better body composition data, and may also -- may be better metabolic benefits, which we also see in muscle, which could also provide additional pass-through approval. So it depends on those results that we're going to get from the initial studies. I should also mention, in terms of additional programs that we have, obesity. I mean, these are things that are here and now that we're doing these clinical trials and we hope to be getting results over the course of the next year, 1.5 years that could really inform in terms of all these questions that you have and really validate that there's real promise here. But remember, we're doing a lot of other things as well in obesity that are in earlier stages. So for example, as you probably know, we discovered a brand-new promising target in obesity using our Regeneron Genetics Center, the largest big data set on the planet in terms of human sequence linked to electronic health records, and identified, in some ways, one of the most exciting new targets in obesity that's been ever discovered. And we have a variety, it's called GPR75, it was published in a prominent paper in Science about a year or so ago. And we have a variety of promising and not-that-far-away approaches from the clinic in terms of blocking this target for weight loss. And I think that we presented at JPMorgan early preclinical data using siRNA approaches that look very exciting. I should also mention that, in terms of smaller programs and so forth, we have things like a very exciting leptin receptor-activating antibody that have had very promising human data as well. So there's a lot of things going on, but I think the muscle preservation program and how it goes forward is going to be very interesting to look at over the next year, 1.5 years.

Thanks, George. Shannon, next question.

Our next question comes from the line of Evan Seigerman with BMO Capital Markets. Your line is now open.

Hi guys, I have one final question for Bob. So Bob, you've done an outstanding job managing the financials of the business and helping drive shareholder returns over the past decade. Looking ahead, how do you believe Regeneron can best use its rapidly growing cash balance to further drive investor returns in the next decade of Regeneron? And thanks for everything, Bob.

Evan, thanks for the question, and thanks for the video that we were able to show at my retirement party. It was great. On that question, George just laid out earlier today, we have so many opportunities with regards to our kind of research and development. And again, I mean I'm going to hand the mantle over to Chris, but his number one priority within capital allocation is to make sure that that is kind of fully funded. Len and George do a great job with regards to making sure what we're bringing into the clinic as opportunities, and they're going to continue to do that, and there's just a lot coming, particularly when I said kind of 8 to 10 INDs. Proud on buybacks. Maybe I've kind of circled the victory too much on that with regards to how much we bought back and at what price. But we have a good methodology here that Chris is ingrained with, and he'll continue to do that. And with regards to business development, I mean, just because we can doesn't mean we're going to force something. It has to be right, it has to be a franchise, has to be modalities. You've heard George mention that has to be kind of incremental to what we currently have in the clinic here with regards to RGC and the targets we develop, and all of that. So we will remain prudent on that. Continue to be proud of the free cash flow that we're generating. And I trust that Chris, George, Len and the Board will optimize it and put it to great use.

Thank you, Bob. Next question, please, Shannon.

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

Thank you. Good morning. And Bob, you truly will be missed, and enjoy the next stage of life here. With regard to your GA program, can you outline what's contributing to your confidence in the systemic approach here, and what data you've seen to support it given the move from animal models to Phase III?

Okay, geographic atrophy. So basically, the excitement is that, as we show data from our combination approach, we believe that we have the most effective way of blocking the body's C5 activity. The C5, which is active in the eye, is essentially all coming from the liver. And we've shown now in our PNH studies, when we revealed the data from the first portion of our Phase III program, that it looked like we had the best-in-class activity in terms of decreasing the C5 activity. So if you block it at the source, then you don't have to block it in the eye. And if you block it at the source, then you don't suffer from all the concerns and side effects and so forth that you have from having to block it in the eye. So you block it where it's coming from, then you don't have to treat local in the eye. You can avoid the local side effects. The concern with systemic blockade is it comes with increased risks of infections and so forth. So we will have to come up with a strategy, which we're working on, to try to mitigate that in the elderly population that suffers from GA. We believe that we may need for that an approach to identify the patients who might be at risk in those settings. Because we certainly know that, for example, patients with PNH and myasthenia gravis who are immunosuppressed and so forth, not only with our agent, but certainly with this whole class of agents, can suffer from serious systemic infections when you block C5. So we are coming up with a way to mitigate that, in part by probably selecting out the patients who are at the highest risk. But in terms of efficacy, the fact that you block it at the source should make it much more effective than trying to block it indirectly in the eye, while avoiding all of the serious local side effect, you can get in the eye, including this horrific retinal vasculitis, which is associated with sudden and permanent blindness.

Thanks, George. I think we have time for two more questions.

Our next question comes from the line of David Risinger with Leerink Partners. Your line is now open.

Yes, thanks very much. And first, I wanted to offer my congrats as well and best wishes to you, both Bob and Chris. So I have a commercial question on linvoseltamab, please. It's clearly generated best-in-class results and a more attractive profile for patients. But Regeneron has to displace the incumbents. So could you discuss your plans to convert prescribers to linvoseltamab?

I'm anxious to answer, but Len will, of course, go first.

No, I just wanted to give a little history, David. You actually were around. You may even have asked the exact question, I'm not sure. when we were launching EYLEA and we had to displace Lucentis by the behemoth Roche. There are some lessons in there that it can be done with starting with a really good molecule, as you described, one that is potentially be best-in-class and then strong execution at the commercial front. We've done it. We're not afraid of the 800-pound gorilla. We hope to put that gorilla on perhaps a weight loss program and get in there and show them what we can do, Marion, any comments. I just want to put that historical perspective out there.

Thank you, David, for the question. And I'm going to be a bit redundant, so I'll be short. But my comment was to say it always starts with the best-in-class molecule. It's about the science. And certainly, you've seen us across therapeutic areas launch into competitive categories, both in the anti-VEGF category and then, more recently, bringing great products into the marketplace. So we do look forward to this opportunity. And it fits quite beautifully with our oncology team, our onc -- will be onc/hem team. And certainly, we will be very ready for that launch and look forward to helping patients with linvo.

Okay. Thanks, Len and Marion. Shannon, last question, please.

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

Good morning. Thanks for taking the question. I'll echo all the prior comments about Bob, and best of luck. Maybe just on the 2seventy deal, Len and George. How should we think about this? Was this more about sort of protecting the rights of the assets that you already kind of partnered on, or really around sort of getting access to that manufacturing facility? And does that have implications then as we think about your business development going forward and maybe change kind of your willingness to move further down that path of cellular therapies?

I'll let George comment on the scientific rationale, which drives pretty much everything we do. Just to mention from a business development point of view, we have been a long-standing partner with 2seventy when they were still part of bluebird. We've invested in them, both in equity and, frankly, in development. So this was something that was well known. George can comment how we see this fitting in.

Yes. We're excited about the existing programs. But what we're even more excited about is as we know that the history of many diseases, but cancer in particular, is about combination approaches. And thus far, even in the setting of this collaboration, the CAR T space has been separate from the biologics space. And even though we were working together as separate companies, it was a little harder to really move forward in an expedited fashion the incredible opportunities that I believe that we have to combine what we think is the largest and most exciting portfolio of biologics in immunotherapy, together with cell therapy approaches. Nobody else has really tried that. Nobody else has really led that. Now that we're really together all in with our new selected colleagues from 2seventy and their capabilities, we believe that we will now have the first opportunity to really try this new set of combination approaches against cancer. That is, combining our large portfolio of biologics in the immunotherapy space with their cell therapy capabilities and expertise, that brings a whole new level of combinations to the immunotherapy field. We believe we will be alone in that capability until somebody else tries to copy us and do what we're doing here. And that's what we're really excited about, in addition to just moving forward the existing cell therapy programs that we've been working on them for five years or more.

All right. Thanks, Len and George, and thanks to everyone who dialed in today for your interest in Regeneron. We apologize to those remaining in the queue that we did not have a chance to hear from. As always, the Investor Relations team here at Regeneron is available to answer any remaining questions you may have. Thank you once again, and have a great day.

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