Why The Amgen/Regeneron Patent Saga Is Far From Over

Despite the District Court’s ruling in favor of Amgen, Inc. (NASDAQ: AMGN) over cholesterol drug Praluent, Leerink believes the patent dispute with Regeneron Pharmaceuticals Inc (NASDAQ: REGN) and Sanofi SA (ADR) (NYSE: SNY) is far from over given the possibility of appeal by these firms and Amgen’s firm stance against a settlement.

For Sanofi, the permanent injunction adds incremental uncertainty to its long-term top-line growth. Analyst Seamus Fernandez said completely removing Praluent U.S. sales would reduce his €91 price target by €3–€3.5.

“If the permanent injunction is enforced by the end of this month, which would surprise us, we would expect a substantial reduction of marketing costs behind the currently unprofitable franchise,” Fernandez wrote in a note.

Lackluster Sales

Meanwhile, sales of both Praluent and Amgen's Repatha have been lackluster since launch, and the analyst expects less than €200 million in U.S. Praluent sales for FY 2017. So, it would be positive for Sanofi earnings if Praluent were removed completely along with U.S. promotional spend.

“Assuming the R&D expenses remain unchanged, but removing U.S. Praluent sales and the associated SG&A cost would likely increase EPS by ~€0.03–0.05 in 2017E/18E. We currently forecast 2017 EPS of €5.53/shr,” Fernandez highlighted.

Fernandez also noted that it may not be financially viable for Sanofi/Regeneron to consider a high royalty payment of 20 percent or more to Amgen as the PCSK9 market opportunity has turned out be smaller than initial forecast.

“Similarly, such a royalty in a substantially smaller market likely would deliver much less value for AMGN than eliminating a competitor for market share with the ability to price Repatha without any competitive threat,” Fernandez added.

Fernandez has a Market Perform rating on Amgen, while being Outperform on both Sanofi and Regeneron.

At Last Check

• Shares of Amgen were up 0.46 percent at $157.50.
• Shares of Regeneron were down 1.52 percent at $353.23.
• Shares of Sanofi were up 1.18 percent at $40.82.