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Morningstar | Eylea, Dupixent Solid in Regeneron's First Quarter; Maintaining Our Fair Value Estimate

We're maintaining our $354 fair value estimate for Regeneron following first-quarter results. Growth for the firm's key value drivers, ocular disease drug Eylea and immunology drug Dupixent, was in line with our expectations, and Dupixent's recent approval in Europe in asthma and upcoming likely approval in the U.S. for patients with nasal polyps continue to support our bullish view on the drug. However, profits from Dupixent weren't enough to make the antibody collaboration with Sanofi profitable, as Regeneron still reported a $28 million loss for its share of commercial profits. The recently lowered price for cholesterol drug Praluent weighed on sales of the drug, although we expect strong volumes to boost long-term sales, particularly now that the drug is approved in the U.S. and Europe to lower cardiovascular risk (the Odyssey trial). Regeneron is also seeing lower immuno-oncology reimbursement from Sanofi following a restructuring of their collaboration to focus on BCMA and MUC16-targeted bispecifics (both in phase 1). Expenses were generally in line with our expectations, although the firm saw higher costs for collaboration and contract manufacturing, which we expect to normalize going forward. Regeneron's narrow moat continues to rest on Eylea's dominance in ocular diseases as well as Dupixent's strong continuing ramp in atopic dermatitis, asthma, and future additional immunology indications. We're watching for upcoming data for REGN3500 in asthma and updates for REGN1979 in blood cancers by midyear as potential catalysts for Regeneron shares.

Recent disappointments in pain and immuno-oncology appear to be weighing on shares, although we think shares look roughly fairly valued at recent prices, which we think incorporate near-term Eylea competition (from Novartis' brolucizumab) and pipeline uncertainty beyond Dupixent. In pain, Pfizer and Lilly's tanezumab data in osteoarthritis revealed both weak efficacy as well as the continued observance of serious side effects, and we've lowered our estimates for Regeneron and Teva's similar drug fasinumab as a result, although this did not have a significant impact on our valuation. Regeneron also discussed the safety issues it has seen with a combination of Libtayo and its CD20/CD3 bispecific, REGN 1979, as two lymphoma patients have died on treatment, likely due to cytokine release syndrome. We think this highlights one of the risks to Regeneron's combination strategy in immuno-oncology, particularly as the firm is attempting to catch up with leaders in the field including Merck, Bristol, and Roche. While we model Libtayo sales ramping up in its first approved indication of cutaneous squamous cell carcinoma, as well as monotherapy potential for Regeneron's most advanced bispecifics, we don't yet assume that Libtayo or Libtayo-based combinations will be able to make inroads in larger indications like lung cancer.

We think Regeneron's expanded partnership with Alnylam, announced in April, is a good strategic fit, as it gives Regeneron an additional type of drug (RNA-based therapies that can hit targets inside the cell) for its ocular and CNS disease research. While most of this collaboration is preclinical at this point, the firms plan to combine two development-stage drug candidates in complement-mediated diseases (Alnylam's cemdisiran and Regeneron's pozelimab), and this deal also builds on a prior partnership in NASH, where Regeneron is providing the target and Alnylam the RNA platform. However, we don't explicitly model drugs in this partnership in our model.