* Diabetes Risk discounted, Praluent under-appreciated
We believe Praluent (to lower LDL/ bad cholesterol) is Sanofi's most important launch in
2015/16 though consensus expectations remain modest, as uncertainty on many fronts
has resulted in what we view as excessive discounting of the market opportunity. In a
step-by-step approach we dissect the uncertainty: Including recent information and
insights from our survey of 50 cardiologists, which allows us to drill to the bottom of
the market's unease to come up with meaningful estimates for Praluent and the PCSK9
class: current consensus estimates imply over 90% access restrictions in the narrow onlabel
population, with the highest unmet need in 2016 that stays at >80% out to
2020. This seems too low to us. We raise our Praluent sales projections (2020E €6.8bn
vs €4.8bn, with further potential for upside), increasing our 2015E-20 Core EPS CAGR
to 7% from 6%. We expect Praluent sales beats from '16 that should result in fast
escalation of Praluent peak sales expectations. This should drive a re-rating of Sanofi
from the current sector discount to a premium. As a result, we upgrade to Buy and set
a new PT of €111 (19.5x 2016E Core EPS). The US Diabetes business remains a
potential headwind, but our forecast fully discounts a successful Tresiba launch later
this year, and further annual double-digit price erosion out to 2019, limiting further
negative earnings impact from Diabetes.
* Survey highlights huge gap of doctors' intention to consensus estimates
Our survey suggests doctors intend to treat c.7-9% of the target population as per the
current label already at this early stage in the launch. Praluent treatment rates implied
by cons (0.1%-0.2% in '16E, 0.7%-1.4% in '20E) seem too low in view of our survey
findings, and reflect huge haircuts for lack of access and poor compliance.
* Sarilumab, Dupilumab further meaningful under-appreciated late-stage assets
We project Sarilumab '23E sales of €1.4bn after a '17 launch, and dupilumab '23E sales
of €1.6bn after a '18 launch for atopic dermatitis only (asthma is not yet in our model).
Both products plus Praluent are part of Sanofi's Regeneron collaboration. In our new
model we model the REGN profit split according to the agreement
* Valuation: Upgrade to Buy from Neutral, PT raised to €111 from €100
Our PT is based on 19.5x 2016E and is underpinned by our NPV/ SOTP valuation.