Goldman Sachs Considers Implications For Regeneron, Amgen, Sanofi Following PCSK9 Ruling

The US District Court jury has ruled in favor of Amgen, Inc. AMGN in the PCSK9 patent litigation. Both Amgen’s Repatha and Praluent by Regeneron Pharmaceuticals Inc REGN and Sanofi SA (ADR) SNY are antibodies to PCSK9 that had been approved in the US and EU in 2015 for the treatment of high cholesterol.

Regeneron mentioned that the jury is still to decide on the damages and that the judge would be involved in this decision. Regeneron and Sanofi intend to appeal the verdict. The case is to proceed with an injunction hearing scheduled for March 23, which could block Regeneron and Sanofi from selling Praluent in the US.

Impact On DCF

Goldman Sachs’ Terence Flynn said there could be 3 potential scenarios [apart from other possible outcomes]:
The court rules in favor of Amgen in the injunction hearing, and any appeals process. This would remove Praluent from the US market. Excluding US Praluent sales, Regeneron’s DCF valuation decreases by 14 percent, from $506 to $431.
The companies settle on a royalty payment from Regeneron and Sanofi to Amgen to avoid the uncertainty of the injunction hearing. Every incremental 10 percent royalty decreases Regeneron’s DCF by about 4 percent and increases Amgen’s DCF by about 2 percent.
The court rules in favor of Regeneron and Sanofi on appeal, and no damages are awarded to Amgen.

Implications For The Companies

“Net-net we see today’s decision as a partial overhang on REGN (they have other important drivers beyond Praluent) and an incremental positive for AMGN,” Flynn wrote. He added that Praluent is a key driver for Sanofi's midterm growth, and every incremental 10 percent royalty to Amgen would have a low-single-digit impact on Sanofi’s valuation. If Praluent sales are stopped altogether, there would be an impact of about 10 percent on Sanofi’s valuation.

Ratings

Amgen: Buy with a price target of $201
Regeneron: Buy with a price target of $506
Sanofi: Neutral with a price target of €80