SNY: The (multi-faceted) Bull Case

Richard

We believe SNY is undervalued, for 3 independent reasons, any one of which is sufficient to show the shares are undervalued

With partner REGN, SNY is one of two entrants (the other being AMGN) in the emerging PCSK9 class. Our forecast for the class (as much as $15B in peak sales for the US alone) is more than 2x consensus. And, because the SNY/REGN entrant (alirocumab) has efficacy equivalent to AMGN’s entrant (evolocumab), but requires a smaller injection volume and is likely to have a COGS advantage, we expect SNY/REGN to take more than half of the category. Consensus assumes SNY/REGN take less than a third

Despite rising volumes, rising share, and rising prices, consensus expects SNY’s US insulin franchise to undergo a steady decline – essentially consensus reflects a pricing war that doesn’t exist. SNY does face the challenge of switching an undifferentiated replacement (Toujeo) in for Lantus before the latter faces generic competition (no sooner than mid-’16). This can be done by making Toujeo more profitable for PBMs and HMOs than Lantus, which is in turn done by raising Lantus’ net price to create headroom for a lower (than Lantus, but still rising) net price. In other words, the Nexium v. Prilosec playbook

By calculating the NPV of approved, filed, and phase 3 assets (using consensus forecasts), we estimate the market capitalization of phase 2 and earlier assets (by subtracting the NPV of the phase 3 and later assets from EV). Using quality-adjusted patent metrics, we then estimate the actual amount of innovation in phase 2 and earlier pipelines, and compare the market value of the pipeline to its contents. SNY’s phase 2 and earlier pipeline contains more than 7x the amount of innovation its share price implies. For its pipeline to be fairly valued, SNY’s share price would have to increase 39% relative to its peers

For our full research notes, please visit our published research site

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