Regeneron Earnings: Maintaining Our $690 FVE as Dupixent Strength Counters Eylea Weakness

We’re not making any changes to our $690 fair value estimate for Regeneron REGN 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.