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Morningstar | Slightly Raising Our Regeneron FVE on Stronger Dupixent Outlook and Lower Expense Guidance

Regeneron reported strong third-quarter results, and we expect to slightly increase our fair value estimate as we boost our Dupixent estimates and lower our operating expense and tax rate assumptions for the year. This is partly countered by reductions to our estimates for cholesterol drug Praluent and arthritis drug Kevzara. Regeneron's Eylea franchise and blockbuster potential for cardiology drug Praluent and immunology drug Dupixent continue to support a narrow moat.

Dupixent sales exceeded our expectations in the third quarter, and we're increasing our estimates given the recent approval in moderate to severe asthma, priority review status in adolescent atopic dermatitis with expected approval in March 2019, and expected filing in patients with nasal polyps in the first quarter of 2019. The asthma approval was broader than other biologic therapies, including patients at least 12 years of age who are either eosinophilic phenotype or have oral corticosteroid-dependent disease, and patients can inject the drug themselves (unlike other biologics). Dupixent is also in mid-stage trials in eosinophilic esophagitis and peanut allergy, and in studies in younger asthma patients. Overall, we expect stronger Dupixent uptake in a broader range of indications, although we continue to think that oral competition (AbbVie's upadacitinib is entering phase 3 this year) will weigh on the drug's long-term growth, particularly in atopic dermatitis.

We're not making any significant changes to our Eylea estimates, which factor in wider approval but increased discounting and competition. U.S. Eylea sales grew 7% in the quarter to more than $1 billion, and the treatment is now approved for 12-week dosing in the largest indication of wet AMD. Approval should extend into diabetic retinopathy in May 2019, and Regeneron is testing a high-dose version of Eylea beginning next year, which could allow for longer dosing intervals beyond 12 weeks. We're assuming similar sales growth numbers for the remainder of the year as increased marketing spend (to gain market share in diabetic eye indications) and increased demand with approval of 12-week dosing are countered by higher discounting (beginning in June) and the prospect of less frequent (and therefore less expensive) treatment. The degenerative eye disease competitive landscape could grow tougher with Novartis' brolucizumab (launching 2019), and later with Roche's phase 3 programs for port delivery system for Lucentis (dosing every six months) and bispecific antibody RG7716.

We're less optimistic on Praluent and Libtayo due to the competitive landscape, and fasinumab due to uncertain long-term safety. Praluent uptake remains disappointing, but expected approval to reduce the risk of cardiovascular events in April 2019 and upcoming new treatment guidelines for PCSK9 inhibitors could accelerate uptake, and Praluent continues to hold an exclusive deal with Express Scripts (over Amgen's Repatha). Libtayo (cemiplimab) was approved in the U.S. in September in the niche indication of cutaneous squamous cell carcinoma, and should receive approval in Europe in the first half of 2019. Several Libtayo studies are ongoing in lung cancer in combination with chemo and a CTLA-4 antibody, and Regeneron now has their own CTLA-4 antibody in development, as well. We're still skeptical of the firm's immune-oncology strategy, however, given its late-to-market position and uncertainty surrounding the potential of their combination regimens. For fasinumab, we're encouraged by positive phase 3 data in osteoarthritis as well as encouraging safety data from similar pain antibody tanezumab from Pfizer and Lilly. However, we continue to wait for longer-term data and more safety data before raising our 55% probability of approval.