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Operator
to the Regeneron Pharmaceuticals Second Quarter 2022 Earnings Conference Call. My name is Bella, 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 today's conference is being recorded. I will now turn the call over to Ryan Crow, Vice President, Ambassador Relations. You may begin.
Bella
Thank you, Bella. Good morning, good afternoon, and good evening to everyone listening around the globe. Thank you for your interest in Regeneron, and welcome to our second quarter 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 Dr. Leonard Schleifer, founder, president, and chief executive officer, Dr. 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 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 forecasts 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-Q for the quarterly period ended June 30, 2022, which was filed with the SEC this morning. 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 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. Once our call concludes, Bob Landry 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?
Bella
Thank you, Ryan, and thank you to everyone joining today's call. Regeneron had a strong second quarter with notable execution, across R&D, commercial, and business development functions. Total revenues increased by 20% when excluding contributions from our COVID antibody cocktail, with net sales for ILEA, Dupixent, and Libtio each reaching new all-time quarterly highs and growing by double digits year over year on a constant currency basis. In addition to exceptional commercial execution, we made significant pipeline progress with three regulatory approvals, two accepted regulatory filings, and one positive Phase III readout. We also completed the acquisition of Checkmate Pharmaceuticals and the third quarter purchase of Worldwide Rights to Libtyo from Sanofi, both of which we believe will strengthen our oncology franchise in the near, medium, and long term. We also reported today preliminary but promising anti-tumor activity and safety data for Regen5678, our PSMA by CD28 co-stimulatory bispecific in combination with Libtyo in patients with advanced metastatic castrate-resistant prostate cancer. George will have more to say on this shortly, but we believe this represents an important step towards validating our co-stimulatory approach to fighting cancer and potentially advancing the science of immuno-oncology. Turning to our commercial performance, in the second quarter, ILEA global net sales grew 13% at constant exchange rates to 2.5 billion. In the U.S., ILEA net sales were 1.6 billion, up 14% year-over-year, and outperforming anti-VEGF category growth of approximately 8%. Despite new competition, Aaliyah's share was approximately half of the anti-VEGF category and 75% among branded agents, affirming its status as the gold standard anti-VEGF therapy. We believe a flipper set represents a significant potential growth opportunity going forward, given favorable demographic trends as well as the potential for Aflibicept 8 mg to augment the category and complement our retinal franchise. Regarding our investigational Aflibicept 8 mg, the goal of our clinical program is to evaluate whether visual acuity among wet AMD and DME patients can be maintained or improved compared to ILEA while extending the interval between doses. Equally important is maintaining the high bar for safety that has been set by ILEA over the past 10 years, 55 million injections worldwide, and 8 million patient years of experience. We anticipate pivotal results in late quarter three or early quarter four, and with supportive data, a BLA submission completed by early 2023. Dupixent continued to grow at a remarkable pace after five years and more than 450,000 patients treated since launch. In quarter two, global net product sales were 2.1 billion, an increase of 43% at constant exchange rates compared to last year, reflecting Dupixin's differentiated clinical profile and ability to effectively treat more and more patients with the type 2 inflammatory diseases where Dupixin is approved. In the U.S., we saw growth across all indications, including initial contributions from atopic dermatitis in patients as young as six months to five years of age, and from eosinophilic esophagitis, both of which are indications approved by the FDA during the second quarter and represent the first approved systemic treatment options for these patients. We hope to add a third first-in-class indication for Dupixent later this year, in patients with prurigo nodularis, which is currently under priority review with the FDA. In oncology, Liptyo net product sales grew 25% globally at a constant currency to $141 million in the second quarter of 2022, including 17% growth in the U.S., driven by non-melanoma skin cancer indications and monotherapy non-small cell lung cancer. We have long believed that the key to fully unlocking the opportunity in oncology is through differentiated combinations, with Liptio possibly serving as our foundation for many of them. That belief was the basis for acquisition of the global rights to Liptio. We plan to invest further in Liptio-based combinations, pairing it with promising candidates in our oncology pipeline, such as LAG3 antibody Frianulamab, and our many investigational bispecifics, as well as with candidates from external collaborations. We continue to make progress with these libtile combinations and intend to share initial data in the second half of this year from our emerging oncology pipeline, which George will discuss in more detail. Regarding the FDA's review of our libtile chemo combo supplemental BLA for the treatment of non-small cell lung cancer, We are pleased with the progress that we have made as the FDA continues its review. However, we recently were informed that an FDA travel complication relating to scheduling a routine clinical trial site inspection in Eastern Europe will likely delay their decision until after our September 19th PDUFA date. While any delay is disappointing, a new site inspection date has been scheduled. Therefore, we do not expect a lengthy extension of the review period, and we do not expect it to meaningfully impact our launch plans, assuming FDA approval. We continue to actively work with the FDA, believing the ongoing review is otherwise progressing well, and all other elements of the review remain on track. Regarding our COVID-19 response, Regeneron remains committed to combating the virus by developing additional novel antibodies. We continue to work with the FDA to establish a regulatory pathway for these antibodies, which could potentially serve an important role in protecting immunocompromised individuals who do not respond adequately to COVID-19 vaccines, as well as treating infected patients for whom all antiviral therapy is not appropriate. In closing, as I reflect on our performance during the first half of the year, I am very proud of our numerous achievements. which were only made possible by the dedicated Regeneron employees around the world. Together, we have continued to serve patients in need while strengthening the foundation of the company and leveraging our financial strength to better position Regeneron to achieve sustainable growth over time. We are excited about the increasing commercial momentum for our core products and the important progress we have made in advancing our pipeline. Our strategy continues to focus on investing in our internal R&D capabilities while exploring potential collaborations that will enable us to fully realize the power of our science. We remain confident in the strategy and in our growth prospects, as well as in our ability to deliver breakthroughs to patients and value to shareholders. Now, I'll turn the call over to George.
Ryan
Thanks, Len. I will start with ophthalmology. We are looking forward to the upcoming Phase III readouts of Aflopercept 8mg in patients with diabetic macular edema and in wet age-related macular degeneration. Photon in patients with DME and Pulsar in patients with wet AMD will test whether patients treated with 8mg dosed every 12 weeks or every 16 weeks can achieve non-inferior, best-corrected visual acuity at week 48 compared to the currently approved ILEA 2mg dosed every 8 weeks. Unlike studies from other sponsors in which patients were assigned to a dosing interval based on disease activity assessment following the loading phase, patients enrolled in the photon and pulsar studies were randomized at baseline into one of the three treatment groups, which we believe will allow us to determine whether extent dosing can truly be achieved. If the studies are positive and the high safety standard established with ILEA is maintained, we believe a flibrocept 8-milligram would represent a significant clinical advance for patients, and we would target a U.S. regulatory filing by early 2023. Moving to Dupixent, which continued to deliver notable milestones in the second quarter of the year. Dupixent was recently approved in children with atopic dermatitis as young as six months old, making Dupixent the first and only biologic medicine approved to treat atopic dermatitis from infancy through adulthood. Mary will talk more about this, as well as about our recent earlier than expected FDA approval for a brand new gastroenterology indication, hyacinophilic esophagitis, or EOE. Since receiving approval in adults and adolescents age 12 and over, we have reported positive data in pediatric patients with EOE as young as one year of age. Our phase three study in children one to 11 years of age met the primary endpoint with 68% of patients on the higher depiction dose and 58% on the lower depiction dose, achieving histological disease remission compared to 3% of children on placebo at 16 weeks. EOE symptoms can be difficult to assess in these young patients. However, we also observed a numerical improvement in EOE symptom score, and in exploratory analysis, we recorded a 3.1% increase from baseline in body weight for age percentile for the higher dose group compared to 0.3% of the placebo on. These data will be discussed with the regulatory authorities, starting with the FDA, later this year. Regarding approvals for new indications expected in the near future, for Prygonagylaris, we received a PDUFA action date from the FDA of September 30th, and the European Commission's decision expected in the first half of 2023. Also in the first half of next year, we're also looking forward to the readout of the first Dupixen study in chronic obstructive pulmonary disease or COPD. Moving on to Liptio and oncology. As Len mentioned, we are excited to have acquired Sanofi Steak and Liptio, thereby gaining exclusive worldwide rights to a PD-1 inhibitor review as foundational for our oncology franchise, which has the potential to be utilized in numerous combinations with other candidates in our pipeline, such as our co-stimulatory bispecifics, our CD3 bispecifics, and novel checkpoint inhibitors such as Fianlumab. Regarding such combinations, I'd like to provide a brief update on our first clinical data from our co-stimulatory pipeline involving Regen5678, our PSMA by CD20 co-stimulatory bispecific, in combination with Liptio. This combination is being studied in patients with advanced metastatic castrate-resistant prostate cancer who have previously progressed on multiple anti-androgen therapies. These patients, unfortunately, have a poor prognosis with approximately one to two years of life expectancy and with limited treatment options. Metastatic castrate-resistant prostate cancer is considered an immunologically cold tumor and is largely resistant to immune checkpoint inhibitor, with large trials of PD-1 antibodies showing monotherapy response rates in the single digits. As just announced today by Merck, the challenge of metastatic castrate-resistant prostate cancer in terms of the lack of efficacy for checkpoint inhibitors used in standard ways is emphasized by the failure of their large phase three trial in an earlier stage of this disease. Our COSTEN program was designed to innovatively enhance responsiveness in these types of cold tumor classes, such as prostate cancer, and essentially turn these cold tumors into hot tumors. I remind you of the extensive preclinical data we have published supporting this hypothesis. Since 2019, we have been in careful dose escalation for this prostate cancer program in close collaboration with the FDA. In our study, patients are dosed weekly with Regen 5678 and every three weeks with Liptile. However, first dose of Leptio was not co-administered until week four, permitting a period of PSMA by CD28 leading to evaluate monotherapy safety and efficacy. Earlier today, we announced the first clinical data from 33 patients across eight dose levels, which showed dose-dependent antitumor activity. The key efficacy endpoint in the study is objective response rate defined as a greater than 50% decline of prostate-specific antigen, or PSA, from baseline and or tumor shrinkage. PSA is a protein produced by the prostate gland and by prostate tumors and is thus commonly used as a biomarker to diagnose and follow prostate cancer. As many metastatic, castration resistant prostate cancer patients have disease limited to bone lesions and cannot be assessed by conventional resist criteria. Preliminary data from the ongoing dose escalation portion of the trial across eight dose-level cohorts and a total of 33 patients showed dose-dependent anti-tumor activity as assessed by PSA values. At the five lowest dose levels, which our preclinical models predicted might be sub-therapeutic, there was almost no evidence of any anti-tumor activity, with only one of 17 patients showing a decrease in PSA. There were no greater than grade three, greater or equal to grade three immune-related adverse events, or IRAEs, at these doses. The lack of antitumor activity among these patients was consistent with the approximate 6% response rate reported in other trials with anti-PD-1 monotherapy. At the next three dose levels, we began to see clear evidence of dose-dependent antitumor activity, which was generally seen within six weeks of starting the combination treatment. At dose level six, One of four patients experienced a 100% decrease in PSA and a complete response in target lesions based on resist criteria. The patient discontinued therapy due to a grade 3 immune-related adverse event of the skin that was considered to be a recurrence of a pre-existing condition and has since resolved with treatment per investigator report. Despite termination of the treatment, he has maintained his 100% decrease in PSA and complete response in target lesions for approximately 10 months to date per investigative report. We continued to see anti-tumor activity at the next dose level, or dose level seven, and in our eighth and most recent dose level, three out of four patients had dramatic and rapid PSA reductions, two with greater than 99% reductions, and one with an 82% reduction. Of the two patients with greater than 99% PSA reductions, One experienced a grade 3 case of mucositis, which has resolved, and the other experienced a grade 3 case of acute inflammatory demyelinating polyrheiculopathy, which is ongoing. In terms of safety, very importantly, no grade 3 or higher IRAEs were observed in patients without antitumor activity, and the occurrence of IRAEs was correlated with antitumor activity. This is consistent with previous trials with anti-PD-1 immunotherapy wherein IRAEs have been reported to occur at a higher rate in responding patients. No grade four IRAEs or greater than or equal to grade two cytokine release syndrome have been observed in the trial to date. There was one death that was considered unrelated to treatment. In this trial, IRAEs are being treated according to standard management practices used for checkpoint inhibitors. We are planning on sharing more detailed data from this study at an upcoming medical meeting. Let me remind you that through extensive preclinical research, we have hypothesized that augmenting T-cell co-stimulation alongside PD inhibition could be a key to turning immunologically cold tumors hot. These preliminary data for a PCMA by CD28 co-stimulator bispecific provide the first clinical evidence supporting the promise of our broader pipeline of co-stimulatory bispecifics in diverse solid tumors as well as hemologic malignancies. By combining these co-stimulatory bispecifics with Liptile or with our CD3 bispecifics, we have the opportunity to create novel therapeutic synergies to address some of the most difficult to treat cancers. We look forward to partnering with the oncology community on this ambitious and potentially groundbreaking efforts. In addition to these exciting early data, we anticipate several important oncology milestones in the second half of the year. At the upcoming ESMO conference, we will provide updates on Fianlumab, our LAG3 antibody, in combination with Liptio, in a Phase II cohort of metastatic melanoma that will hopefully confirm the encouraging combined efficacy that we previously reported in this setting. In addition, we will present initial data for Ubimatumab, our MUC16 by CD3 bispecific in metastatic ovarian cancer, where I'd like to remind you that we have also combination studies ongoing with both costimatory bispecifics and liptio. We will also report initial data for our met-by-met bispecific in advanced med-altered non-small cell lung cancer, as well for liptio monotherapy in neoadjuvant cutaneous squamous cell carcinoma. Moving on to our hematology pipeline. Ogin-X demand has the potential to be the first C20 by C3 bispecific to be approved for both major types of advanced B-cell lymphoma. That is, both follicular lymphoma and diffuse large B-cell lymphoma. Based on interim data from a cohort of patients, goes with our recently modified step-up regimen. We believe Ogin-X demand may have the lowest rates of grade three or higher cytokine release syndrome for this class of bispecifics in follicular lymphoma and diffuse large B-cell lymphoma, while still maintaining the efficacy profile previously reported. We look forward to presenting these updated data and potentially submitting a BLA for both indications in the second half of this year, pending feedback from the FDA. We also plan to share updated data for a BCMA by C3 bispecific study in relapse for refractory multiple myeloma by the end of the year. Pending regulatory feedback, we are planning to submit for regulatory approval in 2023. An umbrella study in multiple myeloma investigating BCMA by CD3 in combination with various standard of care products and investigational candidates is now open to enrollment, while we plan to initiate an additional study in earlier lines of multiple myeloma later this year. As you can see, the pace of innovation in our oncology pipeline has been accelerating. building upon Leptio as a foundation, with data readouts for novel mechanisms for cancer indications that historically have not responded to immunotherapy. Concluding with our Regeneron genetics medicines, where we and collaborators continue to progress our pipeline and discovery engine. Our siRNA collaboration with L-nylone, a non-alcoholic steatohepatitis, or NASH, contains product candidates addressing various targets, including those discovered by the Regeneron Genetic Center. First data in NASH for ALN-HSG are anticipated this fall. We are progressing a second target, PNPLA-3, into the clinic later this year, and we have recently identified an additional novel promising target for NASH, Psy-B. As we just published in the New England Journal of Medicine, we found unprecedented associations a very rare side B loss-of-function variant with lower risk of liver disease. In the largest association study examined protection from liver disease ever described, individuals with loss-of-function side B variant had about 53% lower risk of developing non-alcoholic fatty liver disease and about 54% lower risk of developing non-alcoholic cirrhosis. Regeneron and Elnilam are developing SIRNA therapeutic candidate leads to advance to the clinic. And with that, I will turn the call over to Marian.
Len
Thank you, George. Regeneron's commercial business achieved another strong quarter, demonstrating durable growth across our brands. We're building on the momentum of inline brands, including Aaliyah, Dipixen, and Liptayo, and also accelerating the potential across our portfolio from new and anticipated future launches. Let me start with Aaliyah. Second quarter global net sales drew 13% year-over-year at constant currency to 2.5 billion. In the U.S., ILEA net sales exceeded 1.6 billion, a 14% year-over-year increase driven by prescribing demand, with strong demand continuing into the third quarter. ILEA year-over-year growth significantly outpaced the category, gaining competitive share and further enhancing ILEA's position as the anti-VEGF agent of choice for retinal disease. We continue to see durable growth based on patient flow and new patient starts. Ongoing demographic trends such as the aging population and prevalence of diabetes support anticipated mid to high single-digit category growth for the foreseeable future. In diabetic eye disease, increasing diagnosis rates are also driving strong growth for ILEA. With more than 55 million injections worldwide since launch, and well over 1 million injections in the US alone in the second quarter of 2022, physicians continue to recognize and prefer ILEA's differentiated efficacy and safety profile. We are confident in our ability to continue to build on our leadership over the long term. Pending FDA approvals, there are potential incremental opportunities for ILEA, including extending the dosing interval up to 16 weeks for diabetic retinopathy and treating preterm infants suffering from retinopathy of prematurity. In addition, our Flibercept 8 mg investigational program has garnered significant enthusiasm from the retinal community and has the potential to significantly enhance the anti-VEGF treatment paradigm. Turning now to Liptio, global net sales in the second quarter grew 25%, a constant currency to $141 million, with U.S. net sales of $91 million. Leptio continues to grow across all approved indications, including non-melanoma skin cancers, where Leptio is the leading immunotherapy treatment. In monotherapy, non-small cell lung cancer, we are generating increased utilization across a broader number of prescribers. We are launch ready for the potential chemotherapy combination approval, which will significantly expand the patient opportunity and physician choice for Leptio in treating lung cancer. Regeneron's full ownership of Libtyo presents many exciting opportunities across our current and future oncology portfolio. Key thought leaders recognize our growing commitment to oncology and have high interest in the potential for Libtyo combinations to meaningfully advance the standard of care in many cancer indications. We are taking a measured approach to expanding our global commercial footprint in key international markets to maximize the impact of our innovations to patients and Regeneron, These capabilities and infrastructure will support Leptio in overtime future medicines. And now turning to Depixent in the second quarter, global Depixent net sales grew 43% year-over-year, a constant currency to $2.1 billion. Depixent's performance was fueled by strong uptake across all indications, with recent launches performing well across new diseases, age groups, and geographies. In the U.S., Depixent net sales grew 38% to $1.58 billion. We continue to expand Depixent's leadership position as the first line systemic treatment in atopic dermatitis. There's robust demand for Depixent across the spectrum of moderate and severe disease, as well as across age groups. With the recent approval in children as young as six months, Depixent is the first and only biologic medicine approved to treat moderate to severe atopic dermatitis from infancy through adulthood, and the launch in our youngest patients is off to a very strong start based on initiations. We are also preparing for the potential approval next month in Praga nodularis, a dermatologic condition where approximately 75,000 U.S. patients have no FDA-approved medicines and are most in need. And asthma is the number one biologic prescribed by both allergists and pulmonologists. We continue to see strong growth in new patient starts and total prescriptions, driven by Depixin's differentiated profile, unique mechanism of action, ease of prescribing, broad label, and demonstrated efficacy and safety. In nasal polyps, robust demand continues, with Depixin capturing the majority of market share and increased prescribing from ENTs. In aphelic esophagitis, our first gastroenterology indication Depixent is the only approved medicine for adults and children aged 12 and above. Early launch indicators have been favorable with encouraging adoption from both allergists and gastroenterologists. In addition, we are expanding our outreach to educate patients and caregivers about Depixent as a new therapeutic option that provides meaningful symptom relief. Turning now to Depixent in markets outside the U.S., in the second quarter, Net sales grew 61% on a constant currency basis to $510 million, driven by robust growth across all indications. Regeneron continues to expand our presence in key international markets to bring Depixent to patients. In summary, Depixent is transforming the type 2 inflammatory disease landscape and has significant growth potential ahead driven by further penetration in existing indications as well as from potential future indications. In conclusion, our commercial execution delivered solid results for the second quarter, bringing our life-changing medicines to even more patients, our inline brands continue to perform well, and new launches provide additional opportunities for sustainable long-term growth. Now I'll turn the call to Bob.
George
Thank you, Marion. My comments today on Regeneron's financial results and outlook will be on a non-GAAP basis unless otherwise noted. Regeneron's outstanding performance continued in the second quarter as our core business maintained a strong growth trajectory and we have leveraged our strong financial position to complete two business development oncology transactions. Excluding global revenues related to the COVID-19 antibody cocktail, second quarter total revenues increased 20% year-over-year to $2.9 billion, demonstrating continued momentum across our business. Second quarter total diluted net income per share was $9.77 on net income of $1.1 billion. Beginning with collaboration revenue and starting with Bayer, second quarter 2022 XUS ILEA net product sales were $870 million, up 13% on a constant currency basis, versus second quarter 2021. Total Bayer collaboration revenue was $358 million, of which $340 million related to our share of ILEA net profits outside the U.S. Total Sanofi collaboration revenue was $678 million in the second quarter of 2022, improved 55% from the prior year, driven by Depixen. Finally, we recorded Roche collaboration revenue of $8 million related to Roche's sales of Ronaprev outside the U.S. We expect to record additional revenue from this collaboration in the fourth quarter of 2022. Moving now to our operating expenses. R&D increased 7% year-over-year to $690 million, driven by higher headcount in cost to support our expanding pipeline, partially offset by lower development costs for RegenCove. In the second quarter of 2022, acquired IP R&D was $197 million, which includes a previously disclosed $195 million charge related to our acquisition of Checkmate Pharmaceuticals. SG&A expense increased increased 14% year-over-year to $418 million, primarily due to costs related to growth initiatives for ILEA and higher headcount to support our growing organization. Cost of goods sold decreased 73% year-over-year to $137 million, primarily due to sales of RegenCode in the prior year that did not reoccur. Finally, the second quarter 2022 effective tax rate was 13.6%, compared to 17% in the prior year. The lower rate is partially related to the non-recurrence of Regencove sales. Shifting now to cash flow in the balance sheet. Year-to-date in 2022, Regeneron has generated $2.4 billion in free cash flow and ended the second quarter of 2022 with cash and marketable securities, less debt of $11.3 billion. We continue to deliver on our capital allocation priorities, completing our acquisition of Checkmate Pharmaceuticals, the first acquisition in Regeneron's history, and the purchase of Sanofi Steak and Liptayo. In addition, we repurchased approximately $400 million of our shares in the second quarter of 2022, bringing our year-to-date total through July to over $1.1 billion. We continue to be opportunistic buyers where we see dislocation between our stock price and our intrinsic valuations. I will now discuss updates to our full-year 2022 guidance driven by the closing of the LIPTIO transaction. We're updating full-year R&D expense guidance to be in the range of $3.1 billion to $3.24 billion, an increase of $170 million at the midpoint from our previous guidance. Approximately one-third of the increase is driven by Regeneron now recording all R&D expense for LIPTIO, which was previously shared with Sanofi. The remaining two-thirds reflects the recording of our full 50% share of antibody collaboration spend as incurred beginning in the third quarter of 2022. Previously, our share of antibody collaboration expenses was only partially expensed in the period incurred, with the remaining share added to the antibody collaboration development balance. We are updating four-year SG&A expense guidance to be in the range of $1.74 billion to $1.84 billion The updated range reflects the inclusion of 100% of LIPTIO commercial expenses, which were previously shared with Sanofi, net of anticipated synergies. We are also updating four-year gross margin guidance to be in the range of 92% to 93%. The more favorable gross margin is due to the removal of the payment of Sanofi's share of U.S. LIPTIO gross margin that was previously recorded in this slide. A complete summary of our latest four-year guidance is available in our press release issued earlier this morning. Let me conclude by highlighting four important financial modeling considerations related to the LIPTIO transaction. First, effective July 1, Regeneron will record 100% of the global LIPTIO net product sales. We previously recorded only U.S. LIPTIO net product sales. The Liptio upfront payment milestones and royalties will be recorded as an intangible asset on the balance sheet and amortized through cost of goods sold over the useful life of Liptio. This amortization expense will be excluded from non-GAAP results. Third, as you may recall, we will now pay 20% of our share of antibody profits to reduce the antibody development balance instead of the previous 10% arrangement. The quarterly development balance repayment going forward will be reflected in our P&L as incremental antibody R&D expense I mentioned earlier when discussing revised R&D guidance with the remainder coming in the form of a reduction to antibody collaboration revenue. Therefore, the reduction to antibody collaboration revenue will be less than 20% of our share of antibody profits. As a result of the development balance repayment step-up, we expect to shorten the period to fully repay the development balance resulting in an earlier and very significant inflection in collaboration profits in the outer years. Finally, in the third quarter of 2022, we will record a one-time development balance repayment per the LIPTIO transaction agreement of approximately $55 million in addition to our regular quarterly repayments, which will be recorded as a deduction within the antibody collaboration revenue line. In conclusion, Regeneron is performing well, and we continue to make investments in our businesses supported by our strong financial position to drive sustainable long-term growth. With that, I will pass the call back to Ryan.
Bella
Thank you, Bob. Bella, that concludes our prepared remarks. We'd now like to open the call for Q&A. With several callers in the queue, and to ensure we are able to address as many questions as possible, we'll answer one question from each caller before moving to the next. Bella, please go ahead and pull up your questions.
Operator
At this time, to ask a question, you will need to press star 11 on your telephone. Please stand by while we compile the Q&A roster. And our first question comes from the line of Mohit Bensal from Wells Fargo. Your line is now open.
Mohit Bensal
Great. Thanks for taking my question and congrats on the quarter and data. Maybe a question on high-dose ILA and DME trials, especially with the loading dose, sticking to that. So if you go back in the memory lane, it seems like the use of five loading doses only came along after the DRCR protocol, because I couldn't find anything in the history which suggests that you should use five loading doses. Could you talk a little bit about that? And also, what is the realistic utility of fourth and fifth loading dose trials? even for standard-dose ilea, especially in the context of one-year-long trial? Thank you.
Ryan
Yeah, those are really interesting questions, and they get into the detail of very specific points of the regimen. Many of these, as you point out, have not been directly studied in sort of head-to-head studies. So we would have to, you know, maybe offline discuss some of these issues, but as I said, details that would require a lot of
Bella
experimentation may be the answer. Thank you, George. Bella, can we go to the next question, please?
Operator
Your next question comes from the line of Evan Siegerman from BMO Capital. Your line is now open.
Evan Siegerman
Hey, guys. Thank you so much for taking my question. I'd love for you to expand on kind of some of the next steps for 5, 6, 7, 8. What do you want to see in additional cohort 8 patients? and even at potentially higher dose cohorts to move into a registrationally directed trial. Thank you.
Ryan
Yeah, no, thanks. We are obviously very excited about these data that have long been coming. As you all know, we had to go through a very careful dose escalation starting with very low doses. But what we've now seen at the dose level 6, 7, and 8 have really – been very exciting. I think that what we're going to be doing is we're going to be continuing to expand the number of patients at these dose levels. We're going to continue to evaluate the tumor activity as well as the safety, and we hope that we're going to see that the responses remain profound and durable, while the safety, hopefully most of them will resolve and be managed well. And if we continue down that path, we will, as you say, also continue to explore other dose levels and so forth. But the level of tumor activity and balance by the safety event that we're seeing on doses are occurring now at levels where we think that they could be providing a new standard for benefit-risk for this population. I think that it's important to point out and remind everybody, I mean, I said it, but just to say it again, the IRAEs were only seen in the patients who had profound anti-tumor activity. That is, the patients who didn't benefit did not really indicate in terms of higher-level IRAEs to have a significant safety concern. And that is, of course, what you want to see, that the patients who have the benefit, that the safety is limited to those, so you're not doing harm to the patients that you're not benefiting. Okay, I guess we're ready for the next question.
Bella
Thanks, George. Bella, next question, please.
Operator
Your next question comes from the line of Tyler Van Guren from Cohen. Your line is now open.
Bella
You must be on mute. We don't hear a question, but maybe we could take the opportunity to amplify even a little further and repeat what George said about the safety.
George
Can you hear me? Sorry, it cut out. Yes, it's Tyler. Good morning. Thanks very much for taking the question. I wanted to ask about Pulsar and Photon, just a follow-up. Can you elaborate on the decision to randomize patients to the 12-week and 15-week arms prior to assessing their response to the loading doses? Since patients can only be rescued during that first year or moved down a dosing interval and not moved up to a less frequent regimen, even though they might be doing well, doesn't this make the comparison to the Bovizemotinia and Lucerne studies difficult? And given this, how do you expect to communicate the data to the physicians when we see it?
Ryan
Well, we have to admit we were somewhat confused by the whole Vibisma data and its meaning and its intent because of the confusing study design where basically only after you see how well patients are doing, you then shift them. So if you take your best patients and you shift them, for example, to a Q12 or a Q16 regimen and you say, oh, X percent of patients concern this regimen, you're not really understanding how good your drug is, and what percent of the patient can actually achieve that dosing regimen. We know, and we've already published on this, that patients who do well can be dramatically extended. We're trying to answer a very different question, which we think is going to be very, very important to the community, which is whether you can truly achieve extended dosing, and whether you can prospectively put people into these dosing regimens and get substantial numbers of them to stay at these dosing regimens because we're giving the higher dose of ILEA, which we believe has this ability to maintain more patients at these longer intervals. So we really believe that this would represent a significant clinical advance and would also clarify how to use these drugs as opposed to the prior somewhat confusing approaches.
George
Thanks, George. Okay, that's helpful. Just a brief follow-up. In year two, people are going to be able to be... I think we have to move to the next one.
Evan Siegerman
I'm sorry, Tyler.
Ryan
Bella, can we go to the next question? We'll deal with that privately, Tyler. Sorry.
Operator
Sure. And your next question comes from the line of Selveen Richter from Goldman Sachs. Your line is open.
Selveen Richter
Good morning. Thank you for taking our question. This is Andrea on for Salvine. Can you walk us through how to think about implications from the potential Medicare negotiation provision to high-dose cilia, given that there is no distinct IP there, but there will be a biosimilar for the regular dose by mid-24? Thanks so much.
Bella
It's a complicated question that until we see the final language in the statute, how it's interpreted and how it's actually implemented, as to whether and how we file for the high dose, whether or not there'll be separate considerations for high dose versus the standard dose ILEA. If there is, if it turns out that there are, if it turns out that there are separate, we get a separate BLA, obviously you get, I can't remember what the statute says now, 11 or 12 years before this comes into play. And based on our current understanding of the bill, we believe that a new BLA would constitute a new biologic product, and therefore the 8 milligrams would not be subject to price negotiations in years. But we have to see what the final bill looks like and how it's interpreted. So we're as anxious to see some of that as you are, Sylvie, and so we will keep you informed of our thinking as the bill is finalized and starting to be interpreted.
Bella
Thanks, Lynn. Bella, next question, please.
Bella
Yes, your... I see some of that as you are, Toby, and so we will keep you informed of our thinking as the bill is finalized and starting to be interpreted.
Bella
Thanks, Lynn. Bella, next question, please.
Operator
Yes. Your next question comes from the line of Matthew Harrison from Morgan Stanley. Your line is now open.
Matthew Harrison
Great. Good morning. Thanks for taking the question. I was wondering if you could comment maybe a bit more broadly on COSTIMS and how the impact of today's data makes you think about investment in additional tumor types or a broader investment across COSTIMS and other combinations. Thanks very much.
Ryan
That's a great question. I think you bring up a great point. And I think those of us who have been in this field now were, of course, so excited by the early promise of immunotherapy, checkpoint inhibitors, and particularly PD-1 antibodies. But, of course, over the years it's been recognized that only a small percentage of tumors, even in responding, even in the most responsive cancers, not all the patients respond. And for many tumor classes, as we just saw with Merck's announcement of their failure today, in many classes there's almost no detectable activity. So the holy grail in the field that people have been looking for is an answer to the question of, how do you activate immunotherapy in all these cold tumors, which is, unfortunately, the vast majority of cancers, both solid tumors and hemologic malignancies. And so we went down this path. They found the science that we could add the second signal, signal two, to the first signal that could activate T cells. And these preliminary data suggest that that hypothesis is, might be right, and that we are on the way to this holy grail, that this is, we believe, very early data, we have a long way to go, but it's a spectacular indication that we have done, or we are in the midst of doing, and on the path to doing exactly what we set out to do, which is to turn immunotherapy cold tumors into hot tumors with dramatic anti-tumor activity. And the implications here, based on all the preclinical data, suggest that this is gonna be broadly applicable. And as you all know, we have been developing a very broad co-stimulatory pipeline across many, many tumor classes, and several of them are already in the clinic. I mentioned, we have the prostate data, we have ongoing studies with the co-stim for ovarian cancer. We have other co-stims that are in the clinic, and we have other co-stims that are gonna be entering into the clinic over the next short period of time. These are gonna cover all sorts of cancers from the lung cancers that don't respond to hematologic malignancies and so forth and so on. So we really think that this could be groundbreaking and taking immunotherapy now to the next level. We're all of us in the field, we're hoping it was gonna go with the early advances with checkpoint inhibitors and have been frustrated over, obviously, the last decade or so that we haven't been able to get there. This may be the way to get there for the field. We have a very broad pipeline of co-signatory bispecifics. By the way, we believe this validates the concept of the combinations not only with Liptio and the PD-1 class, but also with our CD3 class of bispecifics because it suggests that the preclinical data, which is so strongly supported now with this clinical data, might also be very predictive for that class. So a lot of exciting possibilities across very broad areas, diverse solitumas, hemological malignancies. This is, I think, could represent the next breakthrough for immunotherapy.
Bella
Yeah, and Matthew, maybe just add to what George said in terms of the investment side. We're prepared and we're able to make the investment across many different areas that George is talking about, And having under one roof all the reagents, owning all of Liptile, having the variety of Coastins, having a variety of the CD3 bispecs, and having all that knowledge, we think, and the ability to invest, puts us in a really terrific position. It is early going. We have to work through the safety. But to me, it's sort of reminiscent of what you start to see the excitement around now. the CAR T cells. And the CAR T cells actually provide a pretty good lesson in that they give very high levels of activity response rates, 75% in some tumors or higher. And when you get those very high response rates, you also got very high levels of these immune reactions. You look at the labels, you'll see 25% grade 3 neurologic adverse events and a whole bunch of other not to mention all the cytokine release syndrome. So I think that this is sort of an equivalent stage. We've got this tiger by the tail, I really believe, and George has described it well, and the amazing thing that should be echoed is that the preclinical data was extremely valuable. So Regeneron is not a company that just has all these molecules that we've acquired from others. These are all homegrown molecules, home tested, home validated, et cetera. There's a whole collection We couldn't be more excited. I could keep going on, but maybe I'm getting waved off. We should make the next call.
Ryan
I just want to add and build on what Lindsay said. I think just like he said, in some ways, the CAR-T is in terms of high efficacy, particularly in hematologic malignancies, because that's where it's seen. High efficacy is seen along with the AEs in some of the responding patients. That's a good analogy. But I do have to point out the many differences. These are off-the-shelf reagents, okay, which, God forbid, if there is a safety issue, can be stopped. And it's much easier, as we're already demonstrating, to create a whole pipeline across a whole variety of broad cancers. And unlike the CAR-T world right now anyway, these are dramatic effects in solid tumors, which weren't ever really seen before by any other modality. So this is actually pretty exciting. There are analogies there in terms of dramatic efficacy, but also very important differences here that establish this as a potential breakthrough new class.
Bella
Okay, thank you, George and Lynn. Next question, please, Bella.
Operator
Sure. Your next question comes from the line of Tim Anderson with Wolf Research. Your line is open.
Tim Anderson
Thank you. A question on the 5, 6, 7, 8 data. You report out one CR, but no other response rate data using resist criteria. So I'm wondering if there's anything else you can say about tumor shrinkage beyond that one CR in those upper three cohorts. And then to clarify, you mentioned a host of grade three AEs in the press release. And some of those, to me, don't seem like the classic immune-related AEs. So are you, I'm hoping you can clarify which of those you consider to be IRAEs. Maybe you consider all of them to be. Thank you.
Ryan
I think we've given a lot of details. And we're going to be giving a lot more details, obviously, in the upcoming meeting. Suffice it to say that As I mentioned, for most of these patients, actually, or many of these patients, they don't have lesions outside of the bone, which is why we use PSA as the indicator of total disease activity, because you don't have that many lesions. So that's one point why we're focusing on the PSA. We do believe that many of the patients IRAEs are the sort of IRAEs that you do see with both PD-1 therapy and, as Len mentioned, also with CAR-T therapy. And I think we indicated every single grade three that we had and indicated that actually, even though these are very early data in the treatment of most of these patients, many of these are actually early resolving or resolved. and we're going to continue to follow these patients and look for, hopefully, as seen, remember, cohort six, that one patient. The reason we highlighted them is they were the first responding patients, and we've now had almost a year of follow-up, and we have this very impressive durability of response there. The other cohorts are much more recently treated, and that's why we're not giving that much follow-up because, again, These are patients who are in the very early months of being treated. But, obviously, you hear it in our voices probably, those of us who have commented. We think this really has the potential to be game-changing, game-changing for the field of immunotherapy and taking immunotherapy to the next level, also game-changing for our oncology program and for our companies.
Bella
Thank you. Bella, next question, please. I think we have time for two more.
Operator
All right. Your next question comes from the line of Chris Raymond from Piper Sandler. Your line is now open.
Chris Raymond
Hey, thanks. Maybe back to ILEA and the high-dose format for a second. So our checks have indicated a pretty good chunk of the bison patients are actually ILEA patients, specifically ILEA patients who are on a higher frequency dose regimen. I guess maybe two-part question here. First, maybe talk about the plan to sort of mitigate this, you know, either before the high-dose format or even after. And I guess is the plan with the high-dose, one would expect that switching paradigm for the high-dose ILEA would be easier than Vibizimo. Is that sort of part of the plan? And then the second part is, our checks also indicate surprisingly low awareness of this high dose format among docs. Are these signals at odds with what you're seeing, or is that correct? And, you know, outside of, you know, actually just having the data presented.
Bella
We have to, we have to, we have a hard question. We get your question, Mary's going to answer, but by the way, we don't market products before they were approved. So it's not surprising that there is not awareness of of a product that's an investigational product. Marilyn can comment on the other stuff.
Len
Let me take a start on some of the situation in market, and perhaps George will add to that. But first, let me comment that obviously we presented today very strong results on the growth of ILEAS standard of care in the marketplace, both in the US and the worldwide information. You know, today, in the branded category, U.S. anti-VEGF category, we have 75% of the branded market. We are approaching 50% of the overall market. So, truly, ILEA is the standard of care. You know, it's probably best that FirstMap organization comment on where their product is being used. I'll comment anecdotally that early days, the response has been fairly muted, fairly low-grade use in concentrated products accounts rather than market-wide. As for the future, you know, we're very excited and optimistic that the Aflibrisate 8 milligram will represent a new standard of care with true durability of dosing and the same type of efficacy and safety that we see with Aaliyah. So we're really excited. And, you know, certainly our clinical organization has put together trial designs that truly test the durability of the product. and then we'll allow the commercial organization to determine what the best strategy is for launch if and when we get FDA approval.
Ryan
Let me just add to that that it's important to point out that the reason why ILEA has become the leading anti-VEGF agent, branded VEGF agent, is because it allows most of the ILEA patients to go on longer interval dosing and have and be very satisfied with the response. Now, of course, as with any disease and situation, not every patient is going to do perfectly well. And we know that there's a small percentage of patients who do need more frequent ilea. And, of course, if one has a new untested agent that doctors haven't seen, their hope and the place that they would first try in the small percentage of patients who don't who are not doing well. And, of course, that's why it's being used in that setting. Now, our goal, of course, with the high dose of ILEA is to take now the best-in-class agent and hopefully produce even better results in terms of allowing the small percentage of patients who are being dosed more frequently or even the patients who are now on 8-week regimens or 12-week regimens to go to more extended regimens. And that's the whole point of the design in the study. So I don't think there's any surprises that it's the small percentage of very hard-to-treat patients where somebody would try an untested agent that they're hoping might work better, but we have a real logical, rational way that we are now taking ILEA, bringing forth this high-dose formulation, and hope to extend the benefits that we're already seeing with this tried and true in terms of both safety and efficacy reagent, and even expand it and get even for these small percentage of patients, longer dosing, and even extend maybe everybody else. Okay, thanks, George.
Bella
Last question, please.
Operator
Sure, and your last question comes from the line of Carter Gold. Your line is now open. This bar, please.
Carter Gold
Hi. Sorry. Thanks. Good morning. Thanks for taking the question. Thanks for squeezing us in. I guess now that you fully own sort of Liptio, can you update us on kind of where you stand on a subcutaneous formulation, given what we've seen data from some of your competitors there and the importance of that to kind of keep pace? And I guess, you know, looking down the road, can you talk about the feasibility of potentially co-formulating with one of these bispecifics, excuse me, co-stimulatories, and if that's even feasibly possible, recognizing it's a ways away.
Bella
Thank you. You can imagine we're working on SubQ. We'll give you some details, I think, down the road later this year. In terms of co-formulation, we have a strong view that if you're doing it for gamesmanship or patent work and all that kind of stuff, you know, That's one thing, but what we're more focused on is getting the optimal dose and the optimal regimen, and they're not likely to be the same in many of these settings. It's only useful if you're going to try to have a single regimen that covers both. So we're a long way from worrying about that. We're far more focused on the fact that we've turned cold to hot, which is a big damn deal, at least in our eyes.
Ryan
And obviously it hasn't escaped yours or I'm sure anybody's attention that now with this just appreciated new data where it looks like we're on the way of turning cold tumors to hot in combination with Liptio, we are, in retrospect, very happy that we now have taken on sole ownership of Liptio.
Bella
Thanks, Len and George. I think that's all we have time for today. Bella, could you please conclude the call?
Operator
Thank you. This concludes today's conference call. Thank you for your participation.
spk00
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