Canaccord Genuity’s John Newman explains why he cut Regeneron Pharmaceuticals( REGN) to Hold from Buy:
 Jeff Chiu/Associated Press
We are downgrading Regeneron to HOLD from Buy, and decreasing our price target to $525 based on lower Praluent revenues and flattening EYLEA growth long term. We believe that Regeneron’s pipeline is likely to produce attractive wholly-owned assets to drive future growth, but await definitive clinical data. We acknowledge the partnered assets, but note that the profit-split dampens long-term growth. We also believe that the stock is priced in assuming strong success for all three partnered assets at current levels.
We anticipate a slowing growth trajectory for EYLEA, as we believe the boost from Protocol-T has largely been realized. Specifically, we model ~22.5% annual US growth in 2016, ~15% in 2017, 12.5% in 2018, and 10% in 2019. Importantly, we believe the greater adoption of pharmacotherapy in DME vs laser will benefit EYLEA, but gradually. We remind investors that price increases are not likely for EYLEA due to the steep discount offered by off-label Avastin usage. We look for progress on wholly-owned follow-on combinations with EYLEA, such as Ang-2 antibody, in order to re-accelerate long-term growth for Regeneron’s ophthalmology franchise…
Praluent’s launch trajectory will likely be slower than expected, given (1) residual price concerns, (2) injectable formulation, and (3) typical flatter trajectory for lipid therapies. We are lowering our US peak sales estimates to $1.4B by 2025 from $2.6B, but note that we conservatively assume only 40% adherence and the total US Praluent-eligible market at only ~1.6M patients. Importantly, even if Praluent does exceed estimates, the revenue and EPS impact will be dampened by the revenue split with Sanofi ( SNY). Also, we expect that Amgen’s ( AMGN) outcomes data will surface ahead of Regeneron’s, with initial readout potentially by YE16, which could give Amgen a temporary, but slight advantage.
Of course, with shares of Regeneron Pharmaceuticals down 1.8% at $455.47,that still leaves 15% upside in the stock. Sanofi, meanwhile, has ticked up 0.2% to $41.85, and Amgen has declined 0.8% to $152.55.
This was Regeneron’s second downgrade of the week: Chardan cut Regeneron to Sell on Monday.
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