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Morningstar | Regeneron Reports in Line 4Q as Dupixent Prospects Counter Maturing Eylea and Slow Praluent Growth

Regeneron's 2018 performance and expense guidance for 2019 are in line with our estimates, but we expect to increase our forecast for immunology drug Dupixent and decrease our forecast for cholesterol drug Praluent based on recent sales trends, upcoming launches, and competitive dynamics. Overall, we don't expect any significant changes to our $362 per share fair value estimate. We see shares trading at a slight premium to our fair value estimate, as we think the market is slightly less cautious on Regeneron's prospects with mid-stage pipeline programs that have yielded little data so far. In addition, we remain concerned about the competitive landscape for Dupixent, particularly in atopic dermatitis, although the asthma launch could be strong enough to allow solid growth for the drug despite new oral competition in dermatitis. Overall, we continue to see Regeneron's portfolio of biologic therapies in a diverse range of therapeutic areas as warranting a narrow moat rating.

In the pipeline, we're most encouraged about REGN1979, a bispecific antibody entering potentially pivotal studies in indolent and aggressive forms of lymphoma this year (although Roche has similar bispecific programs and an incumbent position with CD20 antibodies Rituxan and Gazyva). Regeneron's IL-33 drug REGN3500 is poised to generate asthma data in 2019, and a combination with Dupixent could improve outcomes over Dupixent (also in studies in atopic dermatitis). However, until we see efficacy data, this remains a small piece of our Regeneron sales forecast. Our estimates are also cautious for Libtayo (launching in a niche cancer indication) and pain drug fasinumab (still enrolling safety and efficacy studies) given a tough immuno-oncology competitive landscape and safety issues seen with this new class of pain drugs (where Pfizer and Lilly lead and could launch by 2020).

Diving deeper into the marketed portfolio, sales of ophthalmology drug Eylea grew to more than $6.7 billion in 2018 (14% growth), and while the drug should get an expanded indication in diabetic retinopathy in the second quarter in the U.S., we assume that overall growth will slow to the single digits in 2019, as Lucentis is holding share better than we had anticipated, and new drugs are poised to launch (Novartis' brolucizumab in the second half). Dupixent's launch extended to asthma in the fourth quarter in the U.S., and we expect 2019 will bring approvals in younger atopic dermatitis patients (adolescents) and more geographies (asthma in Europe). We've slightly increased our sales assumptions for the drug to include a faster ramp, although we continue to see flattening share in atopic dermatitis beyond 2020 (head-to-head data against two oral JAK inhibitors is due in 2020). We think the competitive advantages in asthma are stronger, as Dupixent is already seeing two thirds of its patients as naïve to biologics. While we view nasal polyps (filed in December) and eosinophilic esophagitis (in phase 3) as smaller sales opportunities for Dupixent, success in mid-stage trials in COPD (more than 2 million in the U.S. in need of new treatments) or allergy (grass and peanut allergy are being tested first) could have a significant impact on our Dupixent forecast.

For more analysis of Regeneron's portfolio and pipeline, please see our Healthcare Observer, "Annual Drug Pipeline Report: Moats Remain Secure as Innovation Counters Pricing and Generic Headwinds, but M&A Accelerating."