Citi Downgrades Regeneron, Citing 'Underappreciated' Risk

Regeneron Pharmaceuticals Inc REGN announced Monday the failure and discontinuation of two trials for angiopoietin2. Between this and rising rivals, Regeneron bears are emerging.

The Rating

Citigroup analyst Robyn Karnauskas downgraded Regeneron from Buy to Neutral and lowered the price target from $480 to $380.

The Thesis

Citigroup considers the threat of Novartis AG (ADR) NVS’s RTH258 to Eylea sales underappreciated, particularly amid the Ang2 failure.

“We find it hard to believe that in current day and age RTH258 would not have a price impact, at minimum,” Karnauskas said in a Friday note, projecting a 25-percent price impact and 10-percent share impact. (See Karnauskas' track record here.) 

With RTH258 in the picture, Citigroup forecasts Regeneron striking just $380 per share. Unrivaled, it could break $490, the analyst said. 

The competitive setback to Eylea could be partially offset by Dupi sales, which Karnauskas anticipates generating $1.03 billion in 2018 against consensus estimates of $924 million. Physician surveys indicate an impending increase in prescriptions for both adults and adolescents.

“Given the bullish Dupi survey and unchallenged Eylea for next two years, investors may not worry just yet,” Karnauskas said. “However, we see RTH258 threat as real and do not see transformative catalysts near term. We like REGN long term as this is the only large cap company with self-sustainable innovation.”

Price Action

At the time of publication, Regeneron was trading up slightly at $364.60.

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