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spk07: Welcome to the Regeneron Pharmaceuticals fourth quarter 2023 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. I will now turn the call over to Ryan Crowe, Senior Vice President, Investor Relations. You may begin.
spk11: 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, Board Co-Chair, Co-Founder, President and Chief Executive Officer. Dr. George Yancopoulos, Board 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 is 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 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 risk 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, where 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 Schlafer. Len?
spk08: 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. From 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 positioned 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 ILEA-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 ILEA-HD was granted approval in mid-August. With what we believe to be a best-in-class potential clinical profile, ILEA-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 ILEA. We presented our best case and prevailed in district court, which found that one of ILEA's formulation patents was both valid and infringed by a biosimilar flibberset manufacturer. This favorable decision may have broad implications and could in the delay to biosimilar of Fliverset launches. Third, we and our collaborator, Sanofi, needed to continue driving Dupixent growth, not only by further penetrating previously approved indications, by also reaching even more patients suffering from other diseases driven by type 2 inflammation. In 2023, we did both. Topixin global net product sales grew by 34% on a constant currency basis to $11.6 billion. Topixin led in new-to-brand prescription share in the United States across all five of its approved indications. We also had a major breakthrough in chronic obstructive pulmonary disease, or COPD. In March, we reported strong data from the Boreas study, which enrolled COPD patients with uncontrolled moderate to severe disease and evidence of type 2 inflammation. The FDA granted breakthrough therapy designation during the summer, but required additional evidence of efficacy to support a regulatory filing. Based on this feedback, we in Sanofi decided to conduct an interim analysis on the replicate notice study which read out similarly compelling results, enabling our December SPLA submission and a potential U.S. launch for this indication as early as mid-2024. Fourth, we continued making progress toward our long-term goal of becoming a global leader in oncology. 2023 was highlighted by our regulatory submissions for Linvolceltamab, our BCMA-by-BCMA, CD3 bispecific in myeloma, and oginextamab, our CD20 by CD3 bispecific in lymphoma, while continuing to advance other opportunities in solid tumors. And finally, we needed to advance our early stage pipeline. And over the course of 2023, we presented intriguing proof of mechanism or proof of concept data across hematology and genetic medicines, as well as other areas including obesity, with data from non-human primates. Many of these early programs, which George will run through in a few minutes, represent first or best-in-class opportunities that we believe can drive long-term growth for Regeneron. Accomplishments in 2023 have put us in a position of strength entering 2024. For this year, one of our strategic imperatives is to continue driving commercial execution especially the ongoing launch of ILEA-HD, with the goal of accelerating the pace of conversion from other anti-VEGF agents. Another important launch milestone was achieved last month when the Center for Medicare and Medicaid Services assigned a permanent J-code for ILEA-HD that will go into effect on April 1, 2024, at which point a potential reimbursement concern for physicians will be removed. We also need to continue to drive dupixin growth in its currently improved indications as well as from the potential FDA approval and launch in COPD with an eosinophilic phenotype. If approved, dupixin would represent the first meaningful advance in over a decade for the 300,000 patients in the United States suffering from this form of COPD and would be the first ever biologic approved for COPD. In oncology this year, aside from continuing to build on the success of Liptio in non-melanoma skin cancers and non-small cell lung cancer, we're excited about the potential launches of Oginextamab and Limboceltamab, the latter of which has the potential to be the best-in-class bispecific for myeloma. We also expect to make significant advances across our pipeline in 2024, with key readouts for pheanilamab, our LAG-3 antibody, in combination with Libtyo in metastatic melanoma and non-small-cell lung cancer. Libtyo in adjuvant cutaneous squamous cell carcinoma and our factor XI antibodies in thrombosis which may inform pivotal studies. We also plan to initiate clinical trials in obesity, geographic atrophy, hemophilia B, and severe food allergies, in addition to expanding early studies of our CD28 co-stimulatory biospecific programs in solid and hematologic malignancies. In closing, we had a strong 2023 and are poised to deliver in 2024 and beyond. Our pipeline of over 30 clinical programs is delivering important and differentiated innovations. Our commercial team is executing well, and we continue to look at ways to efficiently deploy capital to drive shareholder returns over time. Before I hand it over to George, I want to take a moment to thank Bob Landry for his many contributions to Regeneron over his 10 years as our Chief Financial Officer. In addition to helping fortify Regeneron's financial strength and discipline, Bob has been an incredible mentor to many of Regeneron's current and future leaders, helped drive our financial results over the past decade, and worked tirelessly to ensure we have the resources needed to help improve the lives of patients around the world. Bob, on behalf of the entire Regeneron family, thank you, and we wish you continued good health and happiness. As we first announced back in September upon Bob's retirement next week, Chris Fenimore will become the CFO of Regeneron. We all look forward to working closely with Chris in his new role, knowing he brings a similar rigor and depth of financial knowledge that will ensure continuity and collaboration across the organization. With that, I'll now turn the call over to George.
spk14: Thanks, Len. That was really an impressive overview, I have to say. 2023 was another year of firsts 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 that this remarkable medicine is approved to treat, and the fifth for which it would be first in class. Dupixen's transformative potential in COPD is based on the unprecedented results from our first phase three trial, Boreas, which were then confirmed by our second phase three trial, Notus, demonstrating that Dupixen-treated patients had a 34% reduction in the annualized rate of moderate to severe COPD exacerbations IL-33 blocking antibody. The pivotal AROFI 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 2 results from these studies even approach the phase 2 data reported in former smokers where a 42% reduction in the analyzed exacerbation rate was observed, Itapiximab 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 BCMA by CD3 bispecific intervention in patients receiving dupixin 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 data, our innovative approach has the potential to reverse severe allergies by first eliminating the long-lived plasma cells that serve as an IgE reservoir with the BCMA by CD3, followed by blocking of de novo immunoglobulin class switching to IgE with the Dupixent. We are looking forward to starting a small proof of concept study which will inform next steps for this program. We believe this approach has the potential to benefit the millions of people suffering from severe allergies who are at constant risk as tragically highlighted just last week by the widely reported death of yet another young person unknowingly exposed to a food allergen. Moving to oncology, Liptio is the leading PD-1 antibody for non-melanoma skin cancers, including metastatic cutaneous squamous cell carcinoma, or CSCC, and basal cell carcinoma. We are looking forward to potentially expanding the currently approved CSCC indication to include adjuvant CSEC, and we expect results from potentially pivotal interim analysis in this setting in the second half of the year. Regarding Leptile combinations, our most advanced is the combination with our LAG3 antibody, Phanelamab. As our reminder, our early clinical data in three separate first-line metastatic melanoma cohorts demonstrated potential for best-in-class efficacy when compared cross-trial with the approved anti-LAG3 PD-1 combination product. Highlighted by objective response rates greater than 60%, an estimated median progression-free survival of longer than 15 months. These early clinical data suggested that the Liptiofenilamab combination may be one of the most exciting examples of a checkpoint inhibitor combination with clinically meaningful benefit and with a safety profile that is similar to that seen with anti-PD-1 monotherapies. we are expecting a potentially pivotal initial readout from our first-line metastatic melanoma trial by the end of this year. We also anticipate Phase II data in non-small cell lung cancer in late 2024. On to bispecifics, starting with solid tumors. In the dose escalation trial of our EGFR by CD28 co-stimulatory bispecific combined with Liptile, we have observed promising activity in microsatellite-stable colorectal cancer with higher doses of the COSTIV. In terms of safety, so far we have not seen an increase in immune-related adverse events with this COSTIV. Based on these encouraging early data, which will be presented at a scientific forum later this year, we will be initiating expansion cohorts across several solid tumors in the first half of the year. In 2024, we are also planning to provide updates for our MUC16 by CD3 and MUC16 by CD28 programs in advanced ovarian cancer. Next are bispecific for hematology oncology. For livoseltamab, our BCMA by CD3 bispecific for multiple myeloma, FDA acceptance of our BLA submission is expected later this month, and the EMA recently accepted our MAA submission. These submissions were supported by a potentially best-in-class profile in late-line myeloma in terms of efficacy, safety, dosing, as well as convenience. A confirmatory phase three study, as well as studies in earlier stages of myeloma and pre-malignant disease, are enrolling or will soon begin enrolling patients. For ojanextamab, our CD20 by CD3 bispecific for non-Hodgkin lymphoma, the FDA decision for our BLA is expected by its March 31st PDUFA date, and the EU decision is expected in the second half of the year. In terms of additional recent news for our oncology and immunology pipeline, This week, we announced the formation of Regeneron Cell Medicines Unit and that we are acquiring full development and commercialization rights for 270Bio's pipeline of investigational immune cell therapies. We have worked with 270 since 2018 on many of these programs and are excited about the opportunity to continue advancing our collective efforts. After deal closing, certain 270 employees will join Regeneron Cell Medicines and continue to work on addressing cancer and other serious diseases in novel ways, including by combining Regeneron's antibody capabilities with CAR-T therapies. Moving from immunology and oncology to obesity and metabolic diseases. Despite all the enthusiasm surrounding GLP-1 agonists for obesity, it has been increasingly recognized that the profound weight loss is accompanied by substantial muscle loss. accounting for up to as much as 40% of the weight loss. This potentially irretrievable muscle loss can be catastrophic for patients and may even lead to major public health concerns in the future. We have previously shown that our antibodies targeting myostatin and ActiveNA have the potential to preserve and grow muscle in human trials. Based on these data, as well as additional data in obese non-human primates, We believe that inhibiting these pathways on top of GLP-1 receptor agonism has the potential to achieve comparable overall reductions in body weight, but with improved quality of weight loss, resulting in more fat loss while preserving or actually increasing muscle mass. In mid-2024, we plan to start our first clinical trial to evaluate the combination of our muscle preservation antibodies in combination with semaglutides. Also in 2024, we are anticipating proof of concept data for a factor XI antibodies in the setting of prevention of venous thromboembolism after knee replacement surgery. Based on preclinical and healthy volunteer data, our antibody approach demonstrated more complete factor XI blockade compared to competing approaches in development for coagulation disorders. And the program is on rapid path to a registrational trial starting late this year or early next year. We'll now conclude with our efforts in genetic medicines. Our siRNA collaboration with L-nylam has demonstrated successful silencing of genes in the liver, and for the first time for siRNA, in the brain. Proof of principle was achieved for ALN-APP last year, and we are anticipating additional data from that program this year, including from patients who have received multiple doses. Based on this success, we are looking forward to new siRNA programs targeting CNS diseases entering the clinic this year, such as ALN SOD for ALS patients with SOD1 mutations. Our collaboration with Intelia on CRISPR gene editing continues to advance, where we together produced the first example of CRISPR-based gene editing of a pathological gene in human beings. This initial program for a lead indication of TTR amyloidosis with cardiomyopathy is now in the first in vivo CRISPR program cleared to enter phase three studies in the United States. Together with Intelia, we also hope to be the first to use CRISPR technology to insert a corrective gene for deficiency disease. We recently achieved ING clearance for a CRISPR-based gene insertion program for factor IX and initiated the lead-in portion of a clinical trial to evaluate it as a potential cure for hemophilia B. Moving to genetic hearing loss. We were the first U.S.-based company to announce hearing restoration in a young child suffering from genetic hearing loss after treatment with our novel gene therapy approach. We're excited by these early results for this ultra-rare disease and look forward to advancing to the clinic additional programs to potentially address more common forms of monogenic hearing loss. These data represent validation of our viral-based gene therapy program in this case, locally delivered to the cells of the inner ear. Beyond these efforts, we have made significant investments in leveraging our monoclonal and bispecific antibody expertise to use these agents to systematically deliver virally-based, genetic-based payloads directly to specific tissues in the body, not amenable to local delivery, such as to muscle and the central nervous system. Based on encouraging preclinical data, we will be digressing these approaches to the clinic in the coming years. Finally, concluding with another notable first-in-class program involving a combination of an siRNA with an antibody, in this case to block the C5 complement target. Normally, one needs very high levels of infused antibody to achieve sufficient efficacy because of high target levels regarding C5. But our siRNA co-treatment dramatically lowers C5 target burden, allowing lower and more convenient antibody dosing. We recently shared encouraging initial data from a Phase III study in patients with PNH, which supported our hypothesis that this combination approach could provide better efficacy and control of breakthrough hemolysis with more convenient dosing. Based on building on these data, we continue to enroll our Phase III studies in PNH and myasthenia gravis. We're also planning to extend this combination approach to geographic atrophy and dry MD. While this combination is expected to have manageable systemic toxicities, including elevated risk of infections, we believe that our approach has several potential advantages over recently approved complement inhibiting agents for GA, which are delivered directly into the eye and have resulted in rare but serious cases of retinal vasculitis, sometimes resulting in permanently impaired vision. In conclusion, Regeneron's R&D engine continues to grow and deliver many firsts. including differentiated early, mid, and late stage opportunities, and we are looking forward to additional progress in 2024. Before I turn the call over to Marion, I would like to add my thanks and appreciation to Bob for his many years of devoted efforts and leaderships, and welcoming and look forward to adding Chris Fenimore to our leadership team. With that, I will turn it over to Marion.
spk06: Thanks, George. Our business delivered strong results in the fourth quarter and for the year, Over the course of 2023, we successfully launched ILEA-HD, grew Dipixent across approved type 2 inflammatory diseases, and expanded Liptia'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 Dipixent and in hematologic oncology using new treatment modalities. I'll start with our retinal franchise. In January, we announced fourth quarter combined U.S. ILEA-HD and ILEA net product sales of 1.46 billion. In its first full quarter, ILEA-HD net product sales were 123 million, based on growing demand and positive early physician experience. ILEA-HD is already being used across a broad range of patient types, including those switching from ILEA, other branded agents, or Avastin, as well as modest but increasing use in treatment-naive patients. In the fourth quarter, ILEA-HD and ILEA together secured 49% of the anti-VEG-DEF category share, despite increasing competition and changing market dynamics. This share gain was driven by the differentiated efficacy and safety profile of our medicines, as well as a short-term disruption in compounded Avastin due to a quality issue at a large supplier that has since been resolved. Since launch, we've made significant progress in securing access and reimbursement for ILEA-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 reauthorizations and that ILEA-HD will remain subject to a miscellaneous J-code. However, in late January, we achieved another important launch milestone with CMS's assignment of a permanent J-code for ILEA-HD that will go into effect on April 1st. This will provide additional reimbursement confidence for those physicians hesitant to prescribe before a permanent J-code based on their negative experiences with other new eye disease medicines. Overall, we are very excited about the future of our retinal franchise. We continue to see physicians prescribe ILEA-HD in both treatment-experienced and treatment-naive settings, as ILEA-HD is increasingly recognized as the new standard of care. Now to Depixent, where fourth quarter 2023 global net sales grew 31% on a constant currency basis to $3.2 billion, and U.S. net sales grew 28% to $2.5 billion. With more than 800,000 patients on therapy worldwide, Depixent is one of the most important biologic medicines for patients across the spectrum of diseases. Additionally, it continues to have significant growth potential based on new and upcoming indications. In the U.S., Depixent leads new-to-brand prescription share across all five approved indications, an important leading indicator for future growth. In addition, Depixin already leads total prescription share in four or five approved indications, and we are approaching shared leadership in biologic asthma. In atopic dermatitis, Depixin's largest indication, physicians continue to prescribe Depixin as a therapy of choice. Despite increased competition over the course of 2023, fourth quarter Depixin neuter brand prescription share in AD modestly increased sequentially compared to the third quarter 2023. driven by its differentiated mechanism of action, clinical results, and trusted safety profile, including approval in patients as young as six months of age. Depixin's U.S. label was recently updated with efficacy and safety data for patients with moderate to severe hand or foot atopic dermatitis. Depixin is the only biologic medicine with data in the label supporting use for this subset of patients with this hard-to-treat disease. Beyond atopic dermatitis, Growth also continues in asthma and nasal polyps, both of which are already blockbuster indications. The recent launches for acinophilic esophagitis, known as EOE, and prognodularis further contributed to Depixin's performance and represent indications of significant growth potential. In EOE, which prior to Depixin's approval had no FDA-approved treatments, nearly 25,000 patients in the U.S. alone have already initiated therapy on Depixin The FDA's recent approval of Depixin in pediatric EOE extends this indication to patients as young as one year of age, where approximately 20,000 children in the U.S. being treated for EOE with unapproved therapies. Patient initiations also continue to accelerate in prognodular solidifying Depixin as the standard of care for multiple dermatologic conditions. In summary, Dupixent is delivering on its potential as one of the most important biologic medicines of our generation with significant remaining opportunity for growth. We anticipate bringing Dupixent to many more patients this year across approved indications. The pediatric EOE launch is already underway, and we are actively preparing to launch Dupixent in a synophilic COPD pending potential FDA approval later this year. And finally, to Liptio, Fourth quarter global net sales grew 43% year-over-year on a constant currency basis to $244 million, with U.S. net sales of $155 million. Leptio continues to lead the category in non-melanoma skin cancers, and we've made progress in penetrating the non-small cell lung cancer market. In 2024, we expect continued growth across all indications, advancing our goal to exceed $1 billion in annual Leptio net sales. In conclusion, 2024 provides the opportunity to further build Regeneron's market-leading positions with our medicines across even more therapeutic areas. Now I'll turn the call over to Bob.
spk02: 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 Ronaprieve, Total revenues increased 14% year-over-year to $3.4 billion, primarily driven by sales growth and margin expansion from Depixent, the launch of ILEA, HD, and strong sales growth from Liptile. Fourth quarter diluted net income per share with $11.86 on net income of $1.4 billion. Moving to collaboration revenue and starting with Bayer. Fourth quarter 2023 ex-US ILEA 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 ILEA 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 Tipixton's continued volume growth and improving margins. Reimbursements for manufacturing of commercial supply increased 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 66% versus the prior year, primarily driven by higher royalties from Novartis on sales of Alaris and an increase in our share of Arculus Profit from Knitska. The increase in other revenue also reflects higher reimbursements for increased shipment volumes of ex-US commercial supplies of Pralulin to Sanofi. Moving now to our operating expenses. Fourth quarter 2023 R&D expense grew 13% year-over-year to $1.03 billion, which reflects continued investment in our growing pipeline. R&D growth was primarily driven by higher headcount and related costs, funding of our advancing late-stage programs, and increased clinical manufacturing activity. SG&A grew 7% from the prior year to $622 million in the fourth quarter, reflecting higher headcount in related costs and higher commercialization expenses, including costs to support the launch of ILEA-HD in pre-launch activities for anticipated 2024 HEMONC product launches. Fourth quarter, COCM declined 12% from the prior year quarter to $210 million. Recall that we are reimbursed for these costs. Now to cash flow in the balance sheet. In 2023, Regeneron generated $3.9 billion in free cash flow, ending the year with cash and marketable securities less debt of approximately $13.5 billion. In 2023, we repurchased over $2.2 billion billion of our shares, with approximately $1.5 billion remaining authorized for repurchase as of December 31, 2023. Since we began repurchasing our shares in 2019, we have bought back approximately $12 billion worth and plan to continue to make opportunistic repurchases. Now moving to our financial guidance for 2024. Note that these guidance ranges do not assume the completion of any business development transactions that were not completed as of today, including our recently announced agreement to acquire preclinical and clinical programs from 270Bio. Starting with R&D expense in 2024, which is anticipated to be in the range of $4.3 to $4.5 billion, as George just discussed and as we highlighted at the JPMorgan conference, our pipeline continues to expand with a growing number of registration-enabling studies ongoing, are expected to initiate this year. These include potentially pivotal studies for Fianlumab, Phase III studies and earlier lines of Oginiximab and Limbiceltumab in our C5 programs. In addition, we expect to bring 8 to 10 new molecules into the clinic in 2024. We expect 2024 SG&A spend to be in the range of $2.5 to $2.65 billion. This reflects increased promotional activities for the ongoing launch of ILEA HD, investments to support two anticipated HEMON product launches, and higher headcount to support our growing organization, inclusive of our ongoing international expansion. COCM is expected to be in the range of $850 to $910 million. This range reflects lower drug substance manufacturing costs for Topixin, offset by higher Topixin volumes, and higher production costs for other collaboration products, including ILEA-HD for Bayer. Recall, we are reimbursed for COCM expenses, and as a result, we expect reimbursement from Sanofi, which are recorded as a component of Sanofi collaboration revenue, to be slightly lower in 2024 as compared to 2023. We expect the 2024 gross margin on net product sales to be in the range of 89% to 91%. We also expect our effective tax rate to be in the range of 10% to 12%. Finally, we expect capital expenditures to be in the range of $825 to $950 million, which reflects expansion of our R&D facilities at our Tarrytown New York headquarters, as well as continued expansion of our manufacturing capabilities including ongoing construction of a fill-finish facility in Rensselaer, New York. In addition to our full-year guidance, we expect U.S. net product sales of Praline to be lower in 2024 as compared to 2023 due to changes in payer coverage. We also expect 2024 net product sales for Inwazeb to be in line with 2023 revenues, with nearly all 2024 revenues expected to be recorded in the fourth quarter. Finally, we anticipate other revenue in 2024 to be in line with 2023, with the second half expected to be higher than our first half. Overall, Regeneron performed well in 2023, and our continued investments position the company to drive long-term shareholder value. Before I conclude, I'd like to sincerely thank Len and George for their kind words. It has been an honor to serve as Regeneron's CFO for these past 10 years, and I have appreciated all of my interactions with each of you in the investment community. I wish Chris Fenimore much success in this role and have the utmost confidence that he and the rest of the management team will continue to deliver breakthrough medicines for patients and value to shareholders. Thank you, and I wish you all continued success. With that, I will pass the call back to Ryan.
spk11: 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?
spk07: Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Tyler Van Buren with TD Cowan. Your line is now open.
spk10: Great. Thanks, guys. Good morning. And I'd like to say congratulations to you as well, Bob. I 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 ILEA-HD. 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?
spk06: Sure, Tyler. I'm happy to answer. So as I mentioned, we're very encouraged by the early performance of ILEA 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 ILEA-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 1st 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 ILEA-HD has been very favorable for physicians, and that is probably the most important, those differentiating characteristics of the product.
spk11: Thanks, Mary. And Shannon, next question, please.
spk07: Our next question comes from the line of Brian Abrahams with RBC Capital Markets. Your line is now open.
spk03: 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 five 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. Thanks.
spk14: 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 one we call it, and myostatin two are active in A. 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 gonna be a combination of both efficacy and safety that matters here. So we're gonna 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 gonna see the safety profiles, and I think that that's gonna be so critical, because safety is so important here. Other people are just testing one of these agents alone, I believe the myostat, 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 patient. So our programs are very different in that we discovered the two key regulators, the two 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're 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 seeing with GLP-1 receptor agonists, but now complemented by providing muscle perforation, 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.
spk07: Our next question comes from the line of Mohit Vontal with Wells Fargo. Your line is now open.
spk12: 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 going fast, as fast as it was going in the past, or is it slowing down a little bit? And in that context, how do you see the outlook for high-dose ILEA plus ILEA going forward with the underlying demand out there? Thank you.
spk06: 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
spk13: Thanks. Maybe just another ILEA question. So I know you guys don't want to get, you know, sort of too granular on your pricing strategy, but we've been struck that even with a two milligram format, you know, revenue contracting 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, you know, one would think that's been price erosion that's been driving that. know just understand this may be a strategy to maximize the hd launch in broad stroke can you talk about you know what we should be expecting in 2024 um do you expect further price erosion for that two milligram format or if things sort of leveled off yeah i'm not sure we want mary to get into the details of our strategies pricings rebates things like that but we can say i mean could add
spk08: the 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 ILEA 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 Mary wants to add anything at all, but we don't like to comment specifically on those competitive dynamics.
spk06: Yes. Chris, really nothing and everyone to add to that.
spk11: Okay. All right. Next question, please, Shannon.
spk07: Our next question comes from the line of Colin Bristow with UBS. Your line is now open.
spk00: Good morning, and thanks for taking the questions. 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? It 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.
spk14: Regulatory? Oh, okay. So, first of all, you know, we've done extensive work in preclinical models. And, you know, 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 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 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 also maybe better metabolic benefits, which we also see in muscle, which could also provide additional paths to 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 in 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, year and a half 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 Genetic Center, you know, 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 J.P. Morgan 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 has 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, year and a half.
spk11: Thanks, George. Shannon, next question.
spk07: Our next question comes from the line of Evan Siegerman with BMO Capital Markets. Your line is now open.
spk05: 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 decades. 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.
spk02: Evan, thanks for the question and thanks for the video that we were able to show at my retirement party. It was great. You know, on that question, you know, George just laid out earlier today, you know, we have so many, so many opportunities with regards to our kind of research and development. And again, you know, 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. You know, Lennon and George do a great job with regards to making sure what we're bringing into the clinic has opportunities, and they're going to continue to do that. And there's just a lot coming, particularly when I said, you know, 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, you know, 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. It has to be modalities. You've heard George mention that. It 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.
spk11: Thank you, Bob. Next question, please, Shannon.
spk07: Our next question comes from the line of Salveen Richter with Goldman Sachs. Your line is now open.
spk01: 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?
spk14: Okay, geographic activity. So basically, the excitement is that as we've shown 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 reveal the data from the first portion of our phase three 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 locally 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 Miami senior 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 effects you can get in the eye, including this horrific retinal vasculitis, which is associated with sudden and permanent blindness.
spk11: Thanks, George. I think we have time for two more questions.
spk07: Our next question comes from the line of David Reisinger with LeaveRink Partners. Your line is now open.
spk09: 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 linvaceltumab, 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 linvaceltumab? Thank you.
spk06: Thank you, David. I'm anxious to answer, but Len will, of course, go first.
spk08: No, I just wanted to give a little history, David. You actually were around. You may even ask the exact question. I'm not sure. When we were launching ILEA and we had to displace Lucentis by the behemoth, Roche. There's some lessons in there that it can be done, starting with, a really good molecule, as you described, one that has the potential to 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 wanted to put that historical perspective out there.
spk06: 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, you know, 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. you know, 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 team team, and certainly we will be very ready for that launch and look forward to helping patients with Linville.
spk11: Okay. Thanks, Lynn and Marion. Shannon, last question, please.
spk07: Our last question comes from the line of Carter Gould with Barclays. Your line is now open.
spk04: Good morning. Thanks for taking the question. I'll echo all the prior comments about Bob and best of luck. Maybe just on the 270 deal, Len and George, how should we think about this? Was this more about sort of protecting the rights to the assets that you were 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? Thank you.
spk08: 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 longstanding partner with 270 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 he sees this fitting in.
spk14: Yeah, 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 biologic 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 270 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.
spk11: All right. Thanks, Glenn 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.
spk07: This concludes today's conference call. Thank you for your participation. You may now disconnect.
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