* What’s changed? - i) associate income from Regeneron to be booked from Q2, ii)
probability of success raised for key pipeline assets alirocumab (anti-PCSK9 –
cholesterol lowerer) and dupilumab (asthma/atopic dermatitis), and iii) higher
buybacks. These positives are partially offset by stronger FX headwinds. The net
result is 2014-20e EPS upgrades of up to 8% (1-4% 2014-16e), and a new PT of €80
(from €73). Preferred plays remain Roche, Novo Nordisk, Novartis, BMS & Pfizer.
* Regeneron value now better reflected - Sanofi’s most promising pipeline assets
come from its antibody partnership with Regeneron (covered by Yaron Werber).
Sanofi pays for R&D upfront, with Regeneron contributing 20% of Ph III, and paying
back its 50% of R&D costs over time. Sanofi will payaway 50% of US profits, and 35-
45% of ex-US profits, on partnered products (our model assumes blended 45%
payaway and €800m R&D costs paid back). Sanofi recently crossed 20% ownership
and, last Friday, announced it had successfully nominated a member onto
Regeneron’s board. Our model now assumes Regeneron associate income; we
assume a 25% ownership by year end, and 30% in 2015 (stand-still agreement in
place limiting Sanofi to 30% until 2017). This drives 3-5% EPS upgrades.
* Pipeline forecasts raised – We maintain a €2.5bn peak sales forecast for
alirocumab, but increase the probability of success from 55% to 70%, given
incremental Ph III data: risk adjusted sales +30% to €1.7bn. Our views on PCSK9
can be found on "It’s more than just about LDL-C lowering" and "so far so good but
needs to be huge to move the Sanofi needle". We increase risk-adjusted peak sales
for dupilumab from €0.4bn to €0.8bn to reflect the initiation of Ph III studies
* Other considerations – Buybacks revised to reflect recent commentary (€3bn for
2014, but raised from €1.5bn to €2bn thereafter – drives 1-3% EPS upgrades). Our
FX model now points to a -3-4% sales headwind, versus -2-3% previously.
Confidence in the Lantus franchise post biosimilars required to turn more positive
on the shares: 40% of EBIT and 50% contribution to 2013-17 sales growth.