Is It Time To Step To The Sidelines On Regeneron?

Bernstein downgraded Regeneron, citing a more balanced risk-reward scenario. The firm attributed the run up to the successful launch of Dupixent coupled with sector re-rating as concerns about government action receded.

Analyst Aaron Gal said the stock is less likely to outperform the broader drug sector.

• The positive view on Dupixent launch is now fully discounted in the stock price. Additionally, the launch does not guarantee achievement of peak sales.
• To achieve a 15-percent upside in the stock price, Dupixent should reach peak sales of $11 billion, and the potential for this is still uncertain. The analyst believes if Dupixent launch slows, the stock would pull back.
• The analyst also does not think his views are particularly differentiated in favor of Regeneron's near-term catalysts such as ANG2 results, Dupixent in asthma, Praluent outcomes data and IP resolution.

As such, Bernstein lowered its rating on Regeneron from Outperform to Market Perform but raised its price target to $480 from $410.

"While momentum is clearly positive and will probably remain that way for some time, the argument for outperformance vs. the rest of the drug sector is weaker," Gal explained (see Gal's track record).

"While it is kind of tempting to ride the sector re-rating train, we would not be adding much value to investors by arguing for the momentum trade."

Explaining the logic of its higher valuation, the firm said, rerating of the sector, addition of Ilaris royalties, and sharp Dupixent launch have led to an increase its numbers and its pee-valuation.

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