Company Reports

We’re raising our Regeneron fair value estimate to $830 from $750 following solid 12% top-line growth and 13% non-GAAP EPS growth in the second quarter. Performance was driven by a promising transition of sales from ophthalmology drug Eylea to high-dose Eylea, as well as global sales of Sanofi and Regeneron’s immunology drug Dupixent ahead of our expectations. Regeneron’s reported US sales of Eylea and Eylea HD grew 2% to more than $1.5 billion in the quarter, as patients transitioned to the newer high-dose product and more new patients initiated therapy, drawn by the convenience of less-frequent eye injections. We’re impressed by Regeneron’s performance despite the very strong competing US launch of Roche’s Vabysmo, which grew 68% in the second quarter to more than CHF 700 million in US sales. We now think that US Eylea/Eylea HD sales could grow to $6.5 billion in 2027 ahead of biosimilar competition and potential Medicare negotiation. Dupixent sales grew 27% and Regeneron’s collaboration revenue from Sanofi grew 21%, as sales of the key immunology drug benefit from expanding market share, indications, and geographic reach. Dupixent is now approved in COPD in Europe and should receive US Food and Drug Administration approval in this new indication in September, which should further support our expectation of $21 billion in global Dupixent revenue by 2029. Overall, we think Regeneron’s Eylea and Dupixent support a narrow moat, with further expansion into oncology or rare diseases adding a potential pathway to a wide moat.

Regeneron has leveraged its monoclonal antibody research and development platform to become one of the few biotechs to emerge as a profitable commercial operation and establish a narrow moat. Lead drug Eylea has global sales approaching $10 billion annually and is approved for wet age-related macular degeneration and other eye-related indications. The drug remains well positioned, as its high-dose formulation should allow it to continue to hold strong market share against biosimilars and Roche's new branded drug, Vabysmo.

Regeneron’s first-quarter results aligned with our expectations, and we’re not changing our $750 fair value estimate. Sales fell by 1% overall, largely due to the lack of covid-19 antibody sales and a 2% decline in sales of Regeneron’s ophthalmology drug Eylea in the United States (including sales of the new, high-dose Eylea). Eylea’s decline was partly due to lower wholesaler inventories but also due to lower volume and price in a competitive market. Roche’s Vabysmo has had a strong launch. While Eylea HD has gained an important billing code for Medicare effective in the second quarter, we continue to see Vabysmo’s efficacy and convenience reflecting a solid long-term competitor. Regeneron’s collaboration revenue from partner Sanofi increased 14% to $910 million, as immunology drug Dupixent sales continue to grow strongly (24% sales growth), with potential approval in COPD later this year standing as the next catalyst for growth. Regeneron’s narrow moat, with a foundation in Eylea and Dupixent, is also supported by a growing pipeline in other therapeutic areas. However, we await further data before increasing our pipeline sales estimates.

Strong growth of oncology drug Libtayo (reported revenue up 61%) and collaboration revenue from partner Sanofi largely tied to immunology drug Dupixent (up 19%) helped Regeneron achieve 1% top-line revenue growth in the fourth quarter, despite the loss of revenue from COVID-19 antibodies and competitive pressure on the firm’s Eylea-based ophthalmology business. We’re maintaining our $750 fair value estimate, as management’s guidance for operating expenses in 2024 was higher than our estimates, but our addition of an obesity program to our valuation model countered the effect. Regeneron’s Eylea and longer-acting Eylea HD (launched in August 2023) saw combined sales of nearly $1.5 billion in the quarter, but this still represented a 2% year-over-year decline due to competition from Roche’s Vabysmo. With recent approvals of the higher-dose Eylea in Europe and Japan as well as a new simplified billing code going into effect in April in the U.S., we think Regeneron can prevent further erosion of its U.S. sales from Vabysmo, with significant U.S. declines pushed back to 2028 in our model (Eylea biosimilars and/or potential Medicare negotiation). We continue to see Regeneron’s Eylea and Dupixent cash flows supporting a narrow moat, although the firm’s pipeline is rapidly advancing and could further diversify its growth.

Regeneron saw stronger growth than we had expected in the third quarter as both sales and profitability from immunology drug Dupixent rose, but we’re not making any changes to our $750 fair value estimate, as operating expenses are also rising slightly faster than we had anticipated. Regeneron’s third-quarter revenue grew 15% to nearly $3.4 billion, driven by the firm’s profit share on Dupixent from partner Sanofi, with Regeneron’s portion of profits growing 57% to $863 million. We expect future Dupixent profit share growth will be largely driven by Dupixent revenue growth, as profit margins are already over 50%, although we anticipate a step up in Regeneron’s share of profits in 2026. Sales of ophthalmology drug Eylea in the U.S. declined in the third quarter as competition with Roche’s new drug Vabysmo continued, and Regeneron took additional discounts to preserve share. The new high-dose Eylea saw revenue of $43 million in the quarter, and we expect it to help Regeneron maintain ophthalmology sales despite Vabysmo and upcoming biosimilar Eylea competition in 2024. Management nudged its operating expense guidance for 2023 toward the end of its prior range and also guided to midteens R&D expenses growth in 2024, which was higher than we had modeled. Overall, we think Dupixent and high-dose Eylea help support the foundation of Regeneron’s narrow moat, although we see potential support in both oncology and potentially genetic medicines.

We’re raising our Regeneron fair value estimate to $750 from $690 following solid second-quarter performance, particularly as we think Dupixent’s long-term prospects continue to improve and Eylea sales stay steadier than we anticipated, in the face of branded competition from Roche’s Vabysmo. Regeneron’s revenue grew 11% in the second quarter as continued stellar growth for immunology drug Dupixent (33%) drove collaboration revenue from partner Sanofi to grow by an even higher 39% as Dupixent’s profitability improves. This countered some weakness in ophthalmology drug Eylea due to price concessions in the face of the launch of Vabysmo. We assume that upcoming approvals for Dupixent will only add to the drug’s blockbuster sales, driving peak sales approaching $20 billion in 2029 (ahead of potential Medicare negotiation). We expect COPD approval in 2025, with potential approval of COPD antibody itepekimab in 2026 to complement Dupixent. Overall, we think Regeneron’s core antibody Dupixent as well as a growing oncology pipeline support a narrow moat, regardless of whether Eylea can continue to grow as the high-dose version launches later this year.

Regeneron has leveraged its monoclonal antibody research and development platform to become one of the few biotechs to emerge as a profitable commercial operation and establish a narrow moat. Lead drug Eylea has global sales around $9 billion annually and is approved for wet age-related macular degeneration and other eye-related indications. The drug remains well positioned, as its high-dose formulation should allow it to continue to hold strong market share against biosimilars and Roche's new branded drug, Vabysmo.

We're not making any changes to our $690 fair value estimate for Regeneron following first-quarter results that were in line with our estimates. Regeneron's 7% revenue growth was largely driven by collaboration revenue from partner Sanofi for immunology drug Dupixent, which saw global sales rise by 37% to almost $2.5 billion in the quarter. After recently incorporating the positive data for Dupixent in chronic obstructive pulmonary disease, we think Dupixent sales could peak around $19 billion in 2029, making it a strong long-term growth driver for Regeneron and part of the basis for its narrow moat. Regeneron's U.S. sales of ophthalmology drug Eylea fell 6% to $1.43 billion because of lower wholesaler inventories, industry pricing pressure, and competitive pressure from Roche's new drug Vabysmo, which has been gaining significant share for the past two quarters. We expect Regeneron to receive U.S. approval of high-dose Eylea in late June, which we see sharing the market equally with Vabysmo in the long run. However, biosimilar Eylea entry (expected in 2024) as well as potential for Medicare negotiation in 2028 (if high-dose Eylea sales dominate and Medicare does not see biosimilars to the lower-dose Eylea as true competitors) create additional pressure on Eylea's long-term sales, beyond the Vabysmo launch. Overall, we assume Regeneron's Eylea sales will decline in 2023 and then remain relatively flat until potential Medicare negotiation in 2028. We think shares look slightly overvalued at recent prices, as we still have a cautious view on the firm's oncology pipeline, which is driving much of the value beyond Eylea and Dupixent.

The efficacy of Sanofi and Regeneron's Dupixent appears to have extended to another inflammatory disease, as the phase 3 Boreas trial—focused on former or current smokers with type 2 inflammation and chronic obstructive pulmonary disease—has shown a statistically significant benefit for the drug on top of standard care by multiple measures. We now assume an 80% probability of approval in 2025, with potential sales peaking in 2029 around $2 billion in this indication; this puts our overall Dupixent peak sales estimate north of EUR 18 billion. This contributes to our Sanofi fair value estimate increase to EUR 113/$61 per share from EUR 110/$57. We would have included a low-single-digit increase in our Regeneron fair value estimate with this news, but we've also trimmed Eylea's sales in our model in 2028 and beyond to account for potential Medicare negotiation for the firm's high-dose version of the drug (on track to launch in 2023). We think Dupixent remains an important part of Sanofi’s wide moat and Regeneron’s narrow moat.

Regeneron has leveraged its monoclonal antibody research and development platform to become one of the few biotechs to emerge as a profitable commercial operation and establish a narrow moat. Lead drug Eylea has global sales around $9 billion annually and is approved for wet age-related macular degeneration and other eye-related indications. The drug remains well positioned, as its high-dose formulation should allow it to continue to hold strong market share against biosimilars and Roche's new branded drug, Vabysmo.

We’re maintaining our $690 fair value estimate for Regeneron following fourth-quarter results that were in line with our expectations, apart from significant one-time revenue from a large order for COVID-19 antibody Ronapreve in Japan. While we’ve added a placeholder for potential future COVID-19 antibody revenue to our model (to account for a next-generation product entering development this year) and slightly boosted our long-term sales assumptions for immunology drug Dupixent with additional pipeline progress, we’ve also increased our operating expense estimate to account for Regeneron’s continuing push into larger oncology clinical trials and more investment in the launch of Libtayo. We think the shares are slightly overvalued at recent prices, although we’re carefully watching for upcoming catalysts—like data for Dupixent in the large indication of chronic obstructive pulmonary disease and progress with novel CRISPR-based drug candidates like NTLA-2001 (partnered with Intellia)—for potential upside to our valuation. We continue to see Regeneron’s established presence in ophthalmology, steady Dupixent growth, and advancing oncology pipeline as supporting a narrow moat.

Regeneron’s third-quarter revenue declined 15% year over year as sales of its COVID-19 antibody cocktail dried up. However, we’re maintaining our $690 fair value estimate for Regeneron as the fundamental business remains solid. Excluding the COVID-19 antibody cocktail, revenue grew 11%, driven by a 22% increase in Sanofi collaboration revenue (largely due to strong sales of immunology drug Dupixent) and 11% growth for U.S. sales of ophthalmology drug Eylea, despite a 9% decline in profit share from Bayer for international Eylea sales. While Regeneron gave preliminary 2023 operating expense guidance that was significantly above our prior projections, this is balanced in our model by pipeline progress and our decision to model potential revenue from the Intellia gene editing collaboration. We think Regeneron’s narrow moat is increasingly well-supported, with positive data in oncology pushing the firm closer to a wide moat.

After taking a closer look at what we consider the three key elements of the Inflation Reduction Act that will affect the biopharma industry over the next decade, we're reducing our fair value estimates for 17 of the biggest biopharma names in Morningstar's coverage by an average of 2%. We think the step-down in U.S. branded drug sales from capping Medicare price increases to inflation (fully rolled out in 2023), redesigning Medicare Part D (beginning in 2025), and Medicare negotiation (beginning in 2026 for small molecules) will result in a 3% reduction in total sales for these firms by 2031, with firm-level reductions depending on the firm's reliance on the U.S. market, proportion of the portfolio targeting seniors, history of price increases, and relative size of its small molecule and biologics portfolios (as biologics are immune from Medicare negotiation for 13 years instead of nine). Our estimates factor in some ability for the industry to either benefit from certain changes (like potential increased prescription fill rates in Part D with lower out-of-pocket costs) or compensate for headwinds (like responding to inflation caps on price increases with higher launch prices). Overall, we think the effect of the Inflation Reduction Act is manageable for the industry, and we see the competitive advantages and economic moats of these firms remaining intact.

We’ve raised our Regeneron fair value estimate to $690 from $620, largely due to the recent positive data for the 8 mg high-dose version of the firm’s ophthalmology drug Eylea (already approved at a 2 mg dose). We think Eylea sales will peak this year at nearly $10 billion, but we now assume that branded competition (Roche’s Vabysmo) and biosimilar Eylea (launching in 2024) will only lead to franchise declines in mid-single-digit territory. The new valuation also incorporates slightly higher sales for LAG3 antibody fianlimab (recent positive data in combination with Libtayo in melanoma) as well as a small placeholder for PSMA-targeted bispecific programs (which are also beginning to generate promising data). We think Regeneron’s narrow moat is increasingly well supported, with positive data in oncology pushing the firm closer to a wide moat.

Regeneron has leveraged its monoclonal antibody research and development platform to become one of the few biotechs to successfully emerge as a profitable commercial operation and establish a narrow moat. Lead drug Eylea has global sales around $9 billion annually and is approved for wet age-related macular degeneration and other eye-related indications. The drug remains well positioned, as its high-dose formulation should allow it to continue to hold strong market share against biosimilars and Roche's new branded drug, Vabysmo.

Regeneron announced that patients taking an 8 mg high-dose version of its ophthalmology drug Eylea (already approved at a 2 mg dose) were largely able to maintain longer dosing intervals than the approved standard dose, with results from two Phase 3 trials supporting this finding in two approved Eylea indications: diabetic macular edema and wet age-related macular degeneration. Given the generally solid safety profile of Eylea and this higher-dose version, we expect Regeneron and partner Bayer to gain approval in late 2023/early 2024 for this new formulation. We're extending Eylea's growth trajectory in our Regeneron model, as we expect 8 mg Eylea will help counter pressure from biosimilar versions of Lucentis (currently launching) and standard-dose Eylea (expected in 2024), as well as Roche's novel bispecific antibody Vabysmo, which has been launching strongly this year. However, we see several uncertainties, including payer coverage of the higher dose relative to cheaper biosimilar options, the duration of patent protection, and when high-dose Eylea will be eligible for Medicare Part B negotiation (as part of the recently passed Inflation Reduction Act). Therefore, we expect a moderate increase in our fair value estimate, and we continue to see Eylea and the firm's growing portfolio of immunology and oncology products as supporting a narrow moat.

Regeneron had a strong second quarter, with U.S. sales of ophthalmology drug Eylea and immunology drug Dupixent ahead of our expectations. Excluding sales of COVID antibody cocktail Regen-Cov, which is no longer sold in the U.S., Regeneron's revenue grew 20%, led by U.S. Eylea (sales up 14%) and profit share from Sanofi's global Dupixent sales (sales up 40%). We're maintaining our $620 fair value estimate, and we see shares as fairly valued, balancing the promise of the firm's oncology and nucleic acid technology pipeline with the upcoming erosion of Eylea from branded and biosimilar competition (and potentially Medicare negotiation). Despite our Eylea forecast, we think the stellar outlook for Dupixent and a growing oncology pipeline support Regeneron's narrow moat.

The likelihood of drug-pricing policy changes in the United States changed dramatically over the course of July, and we are now assessing the impact of the various measures included in the Inflation Reduction Act of 2022 in our Big Biopharma valuation models. Assuming the bill is eligible to pass via reconciliation (the Senate parliamentarian is reviewing the bill), we think Democrats will be able to pass the Senate bill, paving the way for it to be signed into law. Overall, we don’t expect major changes to our fair value estimates or moat ratings, as the changes net out to a moderate negative that we believe is manageable, likely through a combination of cost-cutting, agreements with generic firms for limited authorized generic launches (to avoid the list for negotiated drugs), and higher launch prices (to counter pressure on price increases and earlier declines due to negotiation).

Morningstar now directly incorporates cost-effectiveness analysis into our biopharmaceutical ratings through what we're calling our capsule system. Given the lack of regulatory oversight on whether U.S. drug launch prices or price increases are justified, an independent, private organization—the Institute for Clinical and Economic Review, or ICER—has gained prominence and authority assessing cost-effectiveness. Drugs that are priced above ICER's cost-effectiveness thresholds or that record high unsupported price increases contribute to Morningstar's ESG Risk Rating Assessment and equity research methodology for incorporating environmental, social, and governance risk into our fair value estimates and moat and uncertainty ratings.

We're maintaining our $620 per share fair value estimate for Regeneron following a solid first quarter, with strong double-digit growth driven by the firm's core franchises, and we think shares look relatively fairly valued. Regeneron's top line grew 17% in the first quarter, or 25% excluding sales of the firm's COVID-19 antibody cocktail, which is likely to weigh on year-over-year comparisons for all of 2022 due to strong sales in 2021 and lack of demand this year (the product is not effective against newer, omicron-related variants). Focusing on the firm's core products, U.S. Eylea sales were up 13%, although we expect sales growth to moderate throughout the year, as Roche is in the process of launching two new competing therapies. Regeneron's high-dose Eylea data in the second half of 2022 would help the firm refresh its franchise and defend against competition, but ahead of this data, we're still assuming double-digit Eylea declines beginning in 2024 due to biosimilar competition. Revenue from the firm's collaboration with Sanofi grew 73%, largely due to increased profitability of the Dupixent franchise (which saw global sales rise 43% in the quarter). Dupixent has several years of strong growth ahead (patent expiration 2031), given the drug's solid safety and efficacy profile, the single-digit market penetration so far for the drug in key indications like atopic dermatitis and asthma, and multiple additional indications lined up for potential approval over the next two to three years (including data in the large COPD indication in 2023). In addition, oncology drug Libtayo is beginning to see uptake in lung cancer as a monotherapy, and the drug is poised to gain approval in this setting in combination with chemotherapy later this year. Even with potential upcoming biosimilar competition to Eylea, we think Regeneron's portfolio is growing nicely and supports a narrow moat.