Morningstar Equity Analyst Report | Report as of 11 Aug 2020 01:15, UTC | Page 1 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC Morningstar Pillars Analyst Quantitative Important Disclosure: Economic Moat Narrow Narrow The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an equivalent of), Valuation QQ Overvalued and Investment Research Policy. For information regarding conflicts of interest, please visit http://global.morningstar.com/equitydisclosures Uncertainty Medium Medium Financial Health — Strong Regeneron's Eylea Franchise and Growing Antibody Portfolio Support a Source: Morningstar Equity Research Narrow Moat. Quantitative Valuation REGN Business Strategy and Outlook dUSA Karen Andersen, CFA, Analyst, 10 August 2020 Analyst Note Undervalued Fairly Valued Overvalued Regeneron has leveraged its monoclonal antibody Karen Andersen, CFA, Analyst, 05 August 2020 research and development platform to become one of the Regeneron reported solid second-quarter results (24% top Current 5-Yr Avg Sector Country Price/Quant Fair Value 1.22 0.97 0.82 0.83 few biotechs to successfully emerge as a profitable line and non-GAAP net income growth despite pandemic Price/Earnings 23.6 60.3 26.5 20.1 commercial operation and establish a narrow moat. Lead headwinds), and after incorporating two recent U.S. Forward P/E 22.6 — 11.3 13.9 drug Eylea has global sales north of $7 billion annually government deals for the firm's infectious disease Price/Cash Flow 23.5 38.7 18.4 13.1 and is approved for wet age-related macular degeneration antibody cocktails (a $450 million contract in COVID-19 Price/Free Cash Flow 29.0 59.1 27.3 19.5 Trailing Dividend Yield% — — 1.50 2.35 and other eye-related indications. The drug remains well and a $344 million six-year deal in Ebola) as well as Source: Morningstar positioned, as its 12-week dosing and potential high-dose stronger-than-expected growth for immunology drug formulation should allow it to continue to hold strong Dupixent, we're expecting to slightly raise our $473 per Bulls Say market share against Lucentis, Avastin, and Novartis' share fair value estimate. Our new fair value estimate will OEylea has become the leading franchise in wet Beovu. still imply that shares are overvalued at recent prices; AMD and other ophthalmology markets because of while we do include the COVID-19 antibody cocktail its similar efficacy and more convenient dosing Sales of Eylea grew at a double-digit pace through 2019, REGN-COV2 in our valuation model, and have increased regimen compared with Lucentis and Avastin. as sales outside the United States ramped up and usage potential sales for 2021, we still see vaccines as the ODupixent is launching as a novel treatment for in new indications like diabetic macular edema took hold. likeliest and broadest answer to stopping the pandemic. patients with severe atopic dermatitis and asthma, While positive data in the larger diabetic retinopathy We believe the market is overvaluing Regeneron's and its benefit could extend to several other allergy- population should provide another boost, we expect opportunity at this point, based on minimal antibody data related indications and COPD. pricing pressure and competition (Novartis' Beovu and significant advancement with vaccines. Regeneron OPositive early data for bispecific antibody approved in late 2019) should push Eylea to single-digit expects to report initial data from REGN-COV2, which is REGN1979 supports the potential of Regeneron's in- growth through patent expiration in 2023. Within in the being studied as a treatment and a preventive therapy, house oncology program. Sanofi antibody collaboration, LDL cholesterol reduction beginning in September, and we assume the antibody drug Praluent has seen a slow launch trajectory because could receive emergency use authorization in the fourth of payer restrictions, but we think U.S. sales growth can quarter. Regeneron's ophthalmology franchise with Eylea Bears Say rebound under Regeneron's wing beginning in 2020. and growing antibody portfolio in areas including ORegeneron's Eylea is competing with Roche and Immunology drug Dupixent is seeing a very strong launch immunology (Dupixent) and oncology (Libtayo) support a Novartis in the ophthalmology market, and Eylea in atopic dermatitis and asthma, and approvals continue narrow moat. could be vulnerable to biosimilars beginning in 2024. to expend to new indications (nasal polyposis) and broader OWhile Regeneron's Praluent has entered the multi- patient groups (younger dermatitis and asthma patients), Economic Moat billion-dollar cholesterol-lowering market, it faces leading to potential $10 billion peak sales. Karen Andersen, Analyst, 10 August 2020 stiff competition (and litigation) from Amgen's We assign a narrow moat to Regeneron based on the Repatha. Also part of the Sanofi collaboration, Kevzara (rheumatoid intangible assets that underlie the commercial potential ODupixent's potential could be cut short by the arthritis) launched in 2017 and Libtayo (oncology) in 2018, of Eylea and its pipeline drugs and the exceptional approval of novel oral dermatitis drugs (AbbVie's and both drugs are gaining share in their niches. While productivity of its monoclonal antibody, or mAb, research Rinvoq) or injectable asthma therapies (Amgen/ the partnership with Sanofi for new pipeline products has and development platform. We expect Regeneron’s Eylea Astra's tezepelumab), which could be more effective. been scaled back, this gives Regeneron several in-house to achieve $8 billion in peak sales in 2023, given its strong opportunities, like lymphoma bispecific antibody competitive positioning due to its more attractive dosing REGN1979 and a pipeline of bispecifics targeting various regimen versus Lucentis/Avastin in ophthalmology oncology indications. Regeneron is also moving forward indications. In addition, Regeneron has other promising with antibody cocktails in infectious diseases, and is products with blockbuster potential, including Praluent expecting approval for Ebola cocktail REGN-EB3 in (alirocumab) in LDL cholesterol lowering, Kevzara October and data for COVID-19 cocktail REGN-COV2 by (rheumatoid arthritis), and Dupixent (atopic dermatitis, the fourth quarter of 2020. asthma, nasal polyps, COPD, and allergic indications). This ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 2 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE deal in Ebola). Roche Holding AG ROG CHF 268,178 60,278 28.78 20.96 Regeneron's REGN-COV2 is now in testing for treating and Novartis AG NOVN CHF 172,795 49,528 18.73 26.32 preventing COVID-19. We assume $3 billion in annual peak Amgen Inc AMGN USD 139,495 24,301 37.87 19.46 sales of the antibodies in 2021. Since the pandemic began, we've lowered our near-term estimates for cholesterol-lowering demonstrates the company’s ability to both internally drug Praluent, immunology drug Dupixent, and develop and successfully commercialize drug products, a ophthalmology drug Eylea, as we expect fewer new relatively rare feat among emerging biotechs. The patient starts on Praluent and Dupixent and treatment company also has an extremely full earlier-stage pipeline delays with Eylea (high-risk patients to avoid physician that its mAb research partnership with Sanofi partly offices on some level throughout 2020). supports, which provides Regeneron with some financial support and notable strategic advantages (although the The majority of Regeneron’s fair value estimate is driven collaboration has been scaled back to focus on a handful by our expectations for the Eylea and Dupixent franchises. of programs). Beyond the patent protection of its marketed We think Eylea could see worldwide peak sales of $8 products (through 2024 for Eylea and 2031 for Dupixent), billion should it continue growing in international markets, all of Regeneron marketed and pipeline products are despite slower U.S. growth and potential biosimilars in biologics, which provide added defense from generic 2024. We include $900 million potential peak sales for competition due to the complexity and cost of Eylea in our model for patients with proliferative and manufacturing biosimilars. nonproliferative diabetic retinopathy. We think Praluent can achieve sales of more than $1 billion, and sales Regeneron's scientific leadership in the development of acceleration should follow recent price negotiations and fully human monoclonal antibodies using its proprietary the addition of cardiovascular outcomes data to the label VelocImmune platform supported attractive terms for in 2019. We assume Dupixent sales peak around $10 Regeneron's collaborative deals with Sanofi, whereby billion, as we expect rapid uptake and long patent Sanofi has been responsible for up-front development protection (now through 2031) but strong long-term costs until positive phase 3 results are obtained, allowing competition in atopic dermatitis and asthma. The firm now Regeneron to minimize its cash burn, shift development has more than a dozen compounds in clinical development, risk to its partner, and undertake larger development and we have seen promising results from compounds programs and advance more pipeline candidates than outside its leading drugs. Our estimates for bispecific would have likely been feasible otherwise. The platform’s antibody program REGN1979 are on par with our estimates advantage lies primarily with the speed and efficiency for a similar Roche program (including a 60% probability with which it can produce fully human antibodies, which of approval). Overall, our probability-weighted sales are preferred due to their specificity for and tight binding estimates yield 6% compound annual growth for the firm to their therapeutic targets as well as the reduced risk of over the next five years. We assume a 7.5% cost of equity. potential immune responses more common with We assume a 14% long-term tax rate for Regeneron antibodies that contain nonhuman components (typically following U.S. tax reform. from mice). The firm’s proprietary trap and VelociSuite technology platforms (that includes VelocImmune), are Risk & Uncertainty themselves protected by patents as well as by significant Karen Andersen, Analyst, 10 August 2020 accumulated scientific and technical expertise. While Regeneron’s near-term success appears to be assured with Eylea's blockbuster sales, it is still facing Fair Value & Profit Drivers strong competition with entrenched players Lucentis and Karen Andersen, Analyst, 10 August 2020 Avastin and potential new competition from Novartis. The We're raising our fair value estimate for Regeneron to market is also maturing, and proposals for controlling $500 from $473 after further increasing our Dupixent Medicare costs could hit Eylea's sales. estimates and updating for recent U.S. government deals for the firm's infectious disease antibody cocktails (a $450 With its PCSK9 inhibitor program (Praluent), Regeneron million contract in COVID-19 and a $344 million six-year won the race with Amgen to be first to market with this ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 3 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC promising class of drugs. However, there are questions held primarily by insiders, are worth 10 votes per share about the market potential of these drugs given their high and common shares are worth 1 vote per share. Therefore, cost and subcutaneous dosing in the context of despite owning only 10% of outstanding shares, convenient, effective, and inexpensive oral cholesterol-lowering Regeneron's management controls virtually all Class A drugs like statins being the mainstays of treatment. While shares and a quarter of voting rights. As of December 2019, we have confidence that these agents will be successful partner Sanofi also owned about 22% of the firm's in lucrative but smaller markets where statins are outstanding shares, which created an overhang on ineffective, such as heterozygous familial hypercholesterolemia Regeneron shares due to a potential future sale, and in statin-intolerant patients, the massive opportunity particularly given Sanofi's recent distancing from Praluent in uncontrolled statin patients has required additional marketing and Regeneron's immuno-oncology pipeline. price concessions. In addition, the company is facing However, Regeneron managed Sanofi's exit from its ongoing patent litigation with Amgen over the intellectual Regeneron position (except for 400,000 shares) well, property for PCSK9 drugs. While these types of lawsuits repurchasing $5 billion of the shares itself. are typically resolved with negotiated settlements and single-digit royalty payments, Regeneron may face larger While we are pleased with management's significant financial penalties should it be found to be infringing on creation of shareholder value in recent years, we believe Amgen's patents. that its compensation policies are overly generous. While the total pay packages for Schleifer and chief scientific Although we take comfort in Regeneron's robust pipeline, officer George Yancopoulos fell below $30 million each in the road to drug approval is fraught with regulatory 2016 and 2017, pay had exceeded $40 million annually in obstacles, and Zaltrap's troubles in other cancer recent years. indications demonstrate that clinical success is not guaranteed. As Regeneron's drug candidates do make it to market, they will go up against many tried-and-true products, and doctors are often slow to convert to new therapies. Regeneron's ability to supply a COVID-19 treatment has driven share price appreciation in 2020, but trials with Kevzara were disappointing, and it is unclear how long there will be demand for REGN-COV2 treatment, given strong and rapid vaccine development. Stewardship Karen Andersen, Analyst, 10 August 2020 We assign Regeneron a Standard stewardship rating. Founder Leonard Schleifer has led Regeneron as chief executive since inception in 1988. The 12-member board is led by P. Roy Vagelos, who has served as chairman since 1995 and is the former CEO of Merck, and includes several seasoned biotech and pharma executives and scientific luminaries, notably two Nobel Prize winners. The company's strategy of signing on larger partners to share drug-development and marketing costs has served it well thus far, and we think management has done a solid job following through on stated goals, including bringing new compounds to market and rapidly filling in its pipeline behind recently approved products. Our enthusiasm for the leadership team is tempered by Regeneron's dual-class share structure. Class A shares, ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 4 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC disruptions are weighing on global markets, but the Analyst Notes Archive defensive nature of healthcare should hold up on a relative basis, and we don’t expect any significant changes to our Super Tuesday Election Results Support a Moderate healthcare moat ratings. While we may make downward Outlook for Changes to U.S. Drug Pricing Policies adjustments to our valuations in healthcare to account for Damien Conover, Sector Director, 04 March 2020 near-term challenges, we expect more modest changes Initial results from the Super Tuesday Democratic primary relative to recent stock price movements. Our base case show increased support for former Vice President Joe calls for a strong economic rebound in 2021 following a Biden, whose nomination would reduce the likelihood of recession in 2020, which should only have modest impacts significant drug pricing policy changes, which is in line to healthcare valuations, given the defensive nature of with our expectations. We don’t expect any major changes those companies. However, if the coronavirus pandemic to fair value estimates or moat ratings in the drug and exerts a sustained impact on the economy, with biotech industry based on these results, and we continue significantly higher numbers of patients unemployed and to view the industry as undervalued by more than 10% on uninsured or underinsured, this could reduce healthcare average, due partly to excess concerns around potential demand to a greater extent. We expect government efforts major U.S. drug policy changes. We note that election to reduce the near-term hit can keep most of the harder-hit results have a bigger impact on the healthcare insurers industries in business while effective treatments emerge. and service providers (see “Super Tuesday Primary Results Provide Relief Rally for Health Insurance and Service On the near-term effects of coronavirus, we expect Providers.”) critically ill coronavirus patients needing essential medical services and therapies will crowd out more On the drug side, the movement toward more moderate elective procedures, new products, and non-critical-care Democrat Biden likely means more minor drug policy products. Fewer elective procedures will weigh on the changes in the U.S. and reduces the chances of a device makers and service providers. Also, higher-than-expected “Medicare for All” scenario (championed by Biden’s key medical costs focused on the COVID-specific cases could opponent, Sen. Bernie Sanders), which would likely reduce profitability for health insurers. With branded drug significantly reduce U.S. drug prices with the negotiating firms already focused on specialty drugs, we expect less power of a one-payer system. With the election support impact to this industry, but drugs administered in the shifting toward Biden, we believe the most likely change hospital could still feel some crowding out by coronavirus in U.S. drug pricing policy reform centers around a Senate patients. Also, clinical development timelines will bill, the Prescription Drug Pricing Reduction Act, or PDPRA. probably face some delays due to coronavirus disruptions, However, we still believe this proposal holds less than a which will likely slow some new product launches. 50% chance of passing based on the mixed level of Additionally, the coronavirus impact on the credit markets support by both parties, and we haven’t included passage could weigh on more heavily indebted companies, such of the bill into our models. However, if passed, we as some hospital firms and companies that have recently estimate a 5% aggregate hit to U.S. branded drug sales completed major acquisitions. from Medicare inflation price caps and Part D redesign proposed in the bill. We believe the drug and biotech Coronavirus Should Not Affect Big Drug Firm Moats industries could adapt to this headwind with only minor and Cause Only Minor Valuation Pressure impacts to cash flows, partly through cost cuts and Damien Conover, Sector Director, 06 April 2020 increased volumes based on the lower prices mandated We have slightly lowered our Big Pharma and Big Biotech in the bill. Importantly, the bill would limit out-of-pocket fair value estimates by almost 2% in aggregate, much less payments by patients in Medicare, which would likely help than the stocks have declined as a result of disruptions appease demands for lower U.S. drug prices. caused by the coronavirus outbreak. The high need for drugs should support continued demand and supply. Also, Defensive Nature of Healthcare Firms Should Offer we expect new treatments and vaccines to reduce the More Protection From Coronavirus Concerns long-term impact of the virus. We don't expect changes Damien Conover, Sector Director, 19 March 2020 to our moat ratings, as innovation should continue with The concerns around a global recession due to coronavirus only minor disruptions. Successful coronavirus treatments ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 5 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC by the pharmaceutical industry should also remind the moat. We're maintaining our $421 per share fair value world about the social importance of the group (a key ESG estimate, and we think shares incorporate too large a factor for the industry), shielding it from the potential premium for the value of the firm's COVID-19 pipeline, pressures of any new drug-pricing policy reforms. which has uncertainty tied to efficacy, safety, and ultimate financial benefit to the firm. In looking at the bigger picture around the coronavirus challenges, we view four key points for the drug and Raising Regeneron FVE to $473 on Improved Long- biotech industries. First, we don't expect much impact on Term Dupixent Prospects; Shares Overvalued drug sales from the economic disruptions the coronavirus Karen Andersen, Analyst, 15 June 2020 is causing, because drug demand tends to be highly We're raising our fair value estimate for Regeneron to inelastic and governments are likely to prioritize drug $473 from $421 after adding new potential Dupixent supply. Second, drug utilization in the near term is likely indications to our forecast and extending patent protection to face disruptions, especially for new drugs and drugs throughout our 10-year explicit forecast period. Regeneron with new indications, but we expect entrenched drugs to and partner Sanofi last week disclosed additional details face only minor impacts. Third, beyond capital on their strategy and timelines for extending the appreciation, we view the dividends of the group to be immunology drug's approval into several new indications, secure, with an average payout ratio of close to 50%, and we've explicitly factored several new indications into giving firms room to adapt to near-term coronavirus our model. Dupixent's sales potential and long duration of pressures. Last, we expect new medicines and vaccines patent protection help support Regeneron's narrow moat. to emerge to treat the coronavirus and limit long-term However, shares continue to look overvalued, as the firm's impact. oncology pipeline is still in the process of proving differentiation from other, more established competitors, Maintaining Our $421 FVE Following Solid Q1; Eylea faces biosimilar competition by 2024, and COVID-19 Pipeline Promising, but High Uncertainty Regeneron's COVID-19 antibody program faces significant Karen Andersen, Analyst, 06 May 2020 uncertainties around safety, efficacy, other targeted Regeneron reported a strong 33% increase in revenue in antibody competition, and duration of need (depending on the first quarter to more than $1.8 billion, with U.S. sales waves of infection and speed of vaccine development). of ophthalmology drug Eylea up 9% to nearly $1.2 billion. While management noted that there was a 15% dip in We assume $10 billion in peak Dupixent sales, roughly in demand for Eylea in April, this improved by the end of the line with Sanofi's peak sales goal of more than EUR 10 month, perhaps indicating that some patients (particularly billion, based on the drug's solid safety and efficacy profile elderly patients with wet AMD) are not willing to in atopic dermatitis ($4 billion peak), asthma ($4 billion significantly delay injections that maintain their eyesight, peak), and smaller immunology indications (total of $1 but new patients are less likely to initiate therapy. In billion peak). Dupixent has numerous other opportunities addition, intraocular inflammation associated with in the immunology space. Dupixent was approved in June Novartis' competing therapy Beovu is lessening the 2019 in patients with nasal polyps, and we model peak headwind from new competition. Higher sales of sales around $500 million. It is also in pivotal studies in immunology drug Dupixent recorded by partner Sanofi eosinophilic esophagitis (phase 2 data was positive in May translated into higher collaboration revenue for 2020, phase 3 data expected in 2022) and in skin conditions Regeneron in the quarter, as global sales of Dupixent more like chronic spontaneous urticaria, or hives (to submit in than doubled to $855 million. The drug is poised to receive 2022), prurigo nodularis (to submit in 2021), and bullous approval in children ages 6-11 in moderate-to-severe pemphigoid (to submit in 2023). We don't model additional atopic dermatitis later this month, and the ability for indications that could lead to upside, such as the phase 3 patients to administer injections at home has limited the COPD program (a high-risk development area) and impact of the pandemic on sales (although new patients midstage studies in peanut and grass allergies (data in are likely starting therapy at a lower rate than expected 2020). in the second quarter). Overall, Regeneron's Eylea frachise and antibody platform--including Dupixent, oncology drug Annual Pipeline Review of Leading Big Pharma and Libtayo, and the bispecific pipeline--all support a narrow Biotech Supports Moats ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 6 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC Damien Conover, Sector Director, 10 July 2020 centers to patients would likely reduce patients' Most Big Pharma and Big Biotech stocks in our coverage out-of-pocket payments, but this isolated change would support wide economic moats as a result of their ability not likely affect drug firms significantly. to generate new drugs to replace mature ones losing patent protection. Innovation is the central building block Trump also targeted the potential to use international for the strong economic moats in the drug and benchmark pricing for certain drugs administered in the biotechnology industry, supporting drug pricing power and hospital setting under Medicare Part B, but this order has launch trajectories. However, following patent expirations, not yet been released, as he is open to discussion with drug sales fall significantly, making the continuous cycle drug firms until at least Aug. 24 to find alternative ways of new drugs essential to the moats in the industry. In to lower drug prices. While details of this strategy are less looking at the leading large-cap U.S. and European drug clear, we estimate a 10% reduction to Part B drug prices and biotech industries, we expect steady innovation to would hit industry earnings by close to 1%, and higher for drive 5% annual sales growth over the next five years, firms like Amgen and Regeneron. Implementing this looks similar to consensus expectations. Overlaying our growth challenging as well, partly due to complexities and analysis with valuation, we see underappreciated areas: ambiguities around international pricing. Roche's Tecentriq in several cancer niches; Bristol-Myers Squibb's steady position in immuno-oncology and Raising Our Regeneron Fair Value Estimate massive pipeline and cash flow support from Celgene; Following Q2 Strength and Government Contracts Merck's oncology portfolio and vaccine and animal health Karen Andersen, Analyst, 05 August 2020 cash flows; and Pfizer's new immunology drugs and strong Regeneron reported solid second-quarter results (24% top vaccine positioning. line and non-GAAP net income growth despite pandemic headwinds), and after incorporating two recent U.S. Trump's Executive Orders on Drug Prices Have government deals for the firm's infectious disease Limited Impact on Our Industry FVEs and Moat antibody cocktails (a $450 million contract in COVID-19 Ratings and a $344 million six-year deal in Ebola) as well as Damien Conover, Sector Director, 27 July 2020 stronger-than-expected growth for immunology drug President Donald Trump’s executive orders targeting drug Dupixent, we're expecting to slightly raise our $473 per prices create modest pricing headwinds and slightly share fair value estimate. Our new fair value estimate will higher uncertainty for drug firms. However, we don’t still imply that shares are overvalued at recent prices; expect these actions to significantly affect our fair value while we do include the COVID-19 antibody cocktail estimates or moat ratings due to limited details, REGN-COV2 in our valuation model, and have increased challenging implementation, and only minor impacts. potential sales for 2021, we still see vaccines as the likeliest and broadest answer to stopping the pandemic. Trump’s executive orders, signed July 24, targeted three We believe the market is overvaluing Regeneron's areas with varying degrees of impact; a fourth order is opportunity at this point, based on minimal antibody data pending. First, the order allowing the importation of drugs and significant advancement with vaccines. Regeneron from Canada would significantly reduce U.S. drug prices expects to report initial data from REGN-COV2, which is (which are close to double international prices), but safely being studied as a treatment and a preventive therapy, implementing this is challenging, given the different beginning in September, and we assume the antibody labels across countries, and drug firms are likely to limit could receive emergency use authorization in the fourth Canada sales. Importation of drugs has been passed by quarter. Regeneron's ophthalmology franchise with Eylea Congress twice, only to fail in implementation largely due and growing antibody portfolio in areas including to safety concerns. Second, the order to eliminate rebates immunology (Dupixent) and oncology (Libtayo) support a within the supply chain without increasing premiums narrow moat. seems difficult to implement, as those rebates are typically used to reduce overall premiums, and it is unclear what eliminating rebates would do to net drug prices in this complex system. Third, passing insulin and epinephrine discounts currently benefiting certain health ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Quantitative Equity Report | Release: 10 Aug 2020, 20:15 UTC | Reporting Currency: USD | Trading Currency: USD | Exchange:XNAS Page Page 7 of1 14 of 1 Regeneron Pharmaceuticals Inc REGN QQ 10 Aug 2020 02:00 UTC Last Close Fair ValueQ Market Cap Sector Industry Country of Domicile 10 Aug 2020 10 Aug 2020 02:00 UTC 10 Aug 2020 608.24 498.33 64,712.1 Mil d Healthcare Biotechnology USA United States There is no one analyst in which a Quantitative Fair Value Estimate and Quantitative Star Rating are attributed to; however, Mr. Lee Davidson, Head of Quantitative Price vs. Quantitative Fair Value Research for Morningstar, Inc., is responsible for overseeing the methodology that 2016 2017 2018 2019 2020 2021 Quantitative Fair Value Estimate supports the quantitative fair value. As an employee of Morningstar, Inc., Mr. Total Return Davidson is guided by Morningstar, Inc.’s Code of Ethics and Personal Securities Trading Policy in carrying out his responsibilities. For information regarding Conflicts Sales/Share 780 of Interests, visit http://global.morningstar.com/equitydisclosures Forecast Range Forcasted Price 624 Dividend Company Profile Split Regeneron Pharmaceuticals discovers, develops, and Momentum: Positive 468 commercializes products that fight eye disease, cardiovascular Standard Deviation: 37.53 disease, cancer, and inflammation. The company has six Liquidity: High 312 marketed products: Eylea, approved for wet age-related macular degeneration and other eye diseases; Praluent for 271.37 52-Wk 664.64 LDL cholesterol lowering; Zaltrap in colorectal cancer; 156 Dupixent in atopic dermatitis, asthma, and nasal polyposis; 271.37 5-Yr 664.64 Libtayo in cutaneous squamous cell carcinoma; Arcalyst in -32.4 2.4 -0.7 0.5 62.0 Total Return % CAPS; and Kevzara in rheumatoid arthritis. Regeneron is also -44.8 -19.1 4.4 -30.7 56.7 +/– Market (Morningstar US Index) Quantitative Scores Scores — — — — — Trailing Dividend Yield % All Rel Sector Rel Country — — — — — Forward Dividend Yield % Quantitative Moat Narrow 99 98 98 53.5 34.1 23.9 20.1 23.6 Price/Earnings Valuation Overvalued 3 6 3 9.0 7.9 6.8 5.7 8.1 Price/Revenue Quantitative Uncertainty Medium 99 99 98 Morningstar RatingQ Financial Health Strong 93 84 93 QQQQQ QQQQ QQQ REGN QQ Q d USA 2015 2016 2017 2018 2019 TTM Financials (Fiscal Year in Mil) Undervalued Fairly Valued Overvalued 4,104 4,860 5,872 6,711 7,863 8,693 Revenue Source: Morningstar Equity Research 45.5 18.4 20.8 14.3 17.2 10.6 % Change 1,252 1,331 2,080 2,534 2,210 2,771 Operating Income 49.3 6.3 56.3 21.9 -12.8 25.4 % Change Valuation Sector Country Current 5-Yr Avg Median Median 636 896 1,199 2,444 2,116 2,984 Net Income Price/Quant Fair Value 1.22 0.97 0.82 0.83 1,331 1,473 1,307 2,195 2,430 2,986 Operating Cash Flow Price/Earnings 23.6 60.3 26.5 20.1 -678 -512 -273 -383 -430 -561 Capital Spending Forward P/E 22.6 — 11.3 13.9 653 961 1,034 1,812 2,000 2,425 Free Cash Flow Price/Cash Flow 23.5 38.7 18.4 13.1 15.9 19.8 17.6 27.0 25.4 27.9 % Sales Price/Free Cash Flow 29.0 59.1 27.3 19.5 5.52 7.70 10.34 21.29 18.46 25.80 EPS Trailing Dividend Yield % — — 1.50 2.35 79.8 39.5 34.3 105.9 -13.3 39.8 % Change Price/Book 7.1 9.4 3.4 2.4 5.40 7.21 6.92 14.14 17.39 14.90 Free Cash Flow/Share Price/Sales 8.1 10.1 4.2 2.4 — — — — — — Dividends/Share 31.50 42.37 56.23 72.18 95.25 114.04 Book Value/Share Profitability Sector Country 104,649 106,008 107,625 109,006 110,277 106,392 Shares Outstanding (K) Current 5-Yr Avg Median Median Profitability Return on Equity % 31.7 23.9 12.4 12.9 20.5 22.1 22.6 32.8 21.3 31.7 Return on Equity % Return on Assets % 21.6 16.5 6.2 5.2 13.4 14.2 15.2 23.9 15.9 21.6 Return on Assets % Revenue/Employee (Mil) 1.1 0.9 0.3 0.3 15.5 18.4 20.4 36.4 26.9 34.3 Net Margin % 0.87 0.77 0.75 0.65 0.59 0.63 Asset Turnover Financial Health Sector Country Current 5-Yr Avg Median Median 1.5 1.6 1.4 1.3 1.3 1.6 Financial Leverage Distance to Default 0.7 0.7 0.6 0.5 90.4 93.8 93.2 93.5 90.1 89.0 Gross Margin % Solvency Score 179.2 — 494.6 552.4 30.5 27.4 35.4 37.8 28.1 31.9 Operating Margin % Assets/Equity 1.3 1.4 1.4 1.7 — — — — — — Long-Term Debt Long-Term Debt/Equity — — 0.1 0.4 3,655 4,449 6,144 8,757 11,090 9,057 Total Equity 3.2 2.6 2.6 2.7 2.9 3.0 Fixed Asset Turns Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year % 1-Year 3-Year 5-Year 10-Year Revenue (Mil) Mar Jun Sep Dec Total Revenue % 17.2 17.4 22.8 35.4 2020 1,828.2 1,952.0 — — — Operating Income % -12.8 18.4 21.8 — 2019 1,711.8 1,933.7 2,048.4 2,169.5 7,863.4 21.8 23.1 2018 1,511.5 1,608.0 1,663.5 1,927.8 6,710.8 20.3 Earnings % -13.3 33.8 44.0 — Dividends % — — — — 2017 1,319.0 1,470.1 1,500.7 1,582.4 5,872.2 13.3 12.5 Earnings Per Share () 10.9 Book Value % 25.2 33.8 32.2 35.3 9.4 2020 5.43 7.61 — — — 6.8 Stock Total Return % 99.5 9.8 0.9 37.9 2019 3.99 1.68 5.86 6.93 18.46 0.9 2018 4.16 4.82 5.17 7.15 21.29 2018 2019 2020 2017 2.16 3.34 3.32 1.50 10.34 © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and ® opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore is not an offer to buy or sell a security; are not warranted to be correct, complete or accurate; and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, ß analyses or opinions or their use. The information herein may not be reproduced, in any manner without the prior written consent of Morningstar. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 8 of 14 Research Methodology for Valuing Companies Qualitative Equity Research Overview intangible assets, switching costs, network effect, cost Our model is divided into three distinct stages: At the heart of our valuation system is a detailed projection advantage, and efficient scale. of a company's future cash flows, resulting from our Stage I: Explicit Forecast analysts' research. Analysts create custom industry and Companies with a narrow moat are those we believe In this stage, which can last five to 10 years, analysts company assumptions to feed income statement, balance are more likely than not to achieve normalized excess make full financial statement forecasts, including items sheet, and capital investment assumptions into our globally returns for at least the next 10 years. Wide-moat such as revenue, profit margins, tax rates, changes in standardized, proprietary discounted cash flow, or DCF, companies are those in which we have very high working-capital accounts, and capital spending. Based modeling templates. We use scenario analysis, in-depth confidence that excess returns will remain for 10 years, on these projections, we calculate earnings before competitive advantage analysis, and a variety of other with excess returns more likely than not to remain for at interest, after taxes, or EBI, and the net new analytical tools to augment this process. We believe this least 20 years. The longer a firm generates economic investment, or NNI, to derive our annual free cash flow bottom-up, long-term, fundamentally based approach profits, the higher its intrinsic value. We believe low- forecast. allows our analysts to focus on long-term business drivers, quality no-moat companies will see their normalized which have the greatest valuation impact, rather than short- returns gravitate toward the firm's cost of capital more Stage II: Fade term market noise. quickly than companies with moats. The second stage of our model is the period it will take the company's return on new invested capital—the Morningstar's equity research group (“we," "our") believes To assess the direction of the underlying competitive return on capital of the next dollar invested ("RONIC")— that a company's intrinsic worth results from the future advantages, analysts perform ongoing assessments of to decline (or rise) to its cost of capital. During the Stage cash flows it can generate. The Morningstar Rating for the moat trend. A firm's moat trend is positive in cases II period, we use a formula to approximate cash flows in stocks identifies stocks trading at an uncertainty-adjusted where we think its sources of competitive advantage lieu of explicitly modeling the income statement, discount or premium to their intrinsic worth—or fair value are growing stronger; stable where we don't anticipate balance sheet, and cash flow statement as we do in estimate, in Morningstar terminology. Five-star stocks sell changes to competitive advantages over the next Stage I. The length of the second stage depends on the for the biggest risk-adjusted discount to their fair values several years; or negative when we see signs of strength of the company's economic moat. We forecast whereas 1-star stocks trade at premiums to their intrinsic deterioration. this period to last anywhere from one year (for worth. companies with no economic moat) to 10–15 years or All the moat and moat trend ratings undergo periodic more (for wide-moat companies). During this period, Four key components drive the Morningstar rating: (1) our review and any changes must be approved by the cash flows are forecast using four assumptions: an assessment of the firm's economic moat, (2) our estimate of Morningstar Economic Moat Committee, comprised of average growth rate for EBI over the period, a the stock's fair value, (3) our uncertainty around that fair senior members of Morningstar's equity research normalized investment rate, average return on new value estimate and (4) the current market price. This department. invested capital, or RONIC, and the number of years process ultimately culminates in our single-point star rating. until perpetuity, when excess returns cease. The 2. Estimated Fair Value investment rate and return on new invested capital 1. Economic Moat Combining our analysts' financial forecasts with the decline until the perpetuity stage is reached. In the case The concept of an economic moat plays a vital role not firm's economic moat helps us assess how long returns of firms that do not earn their cost of capital, we only in our qualitative assessment of a firm's long-term on invested capital are likely to exceed the firm's cost of assume marginal ROICs rise to the firm's cost of capital investment potential, but also in the actual calculation capital. Returns of firms with a wide economic moat (usually attributable to less reinvestment), and we may of our fair value estimates. An economic moat is a rating are assumed to fade to the perpetuity period over truncate the second stage. structural feature that allows a firm to sustain excess a longer period of time than the returns of narrow-moat profits over a long period of time. We define excess firms, and both will fade slower than no-moat firms, Stage III: Perpetuity economic profits as returns on invested capital (or ROIC) increasing our estimate of their intrinsic value. Once a company's marginal ROIC hits its cost of capital, over and above our estimate of a firm's cost of capital, we calculate a continuing value, using a standard or weighted average cost of capital (or WACC). Without perpetuity formula. At perpetuity, we assume that any a moat, profits are more susceptible to competition. We growth or decline or investment in the business neither have identified five sources of economic moats: creates nor destroys value and that any new investment provides a return in line with estimated WACC. Morningstar Research Methodology for Valuing Companies Because a dollar earned today is worth more than a dollar earned tomorrow, we discount our projections of cash flows in stages I, II, and III to arrive at a total present value of expected future cash flows. Because we are modeling free cash flow to the firm—representing cash available to provide a return to all capital providers—we discount future cash flows using the WACC, which is a weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future proportionate long-term market-value weights. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 9 of 14 Research Methodology for Valuing Companies 3. Uncertainty Around That Fair Value Estimate Morningstar Equity Research Star Rating Methodology Morningstar's Uncertainty Rating captures a range of likely potential intrinsic values for a company and uses it to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating represents the analysts' ability to bound the estimated value of the shares in a company around the fair value estimate, based on the characteristics of the business underlying the stock, including operating and financial leverage, sales sensitivity to the overall economy, product concentration, pricing power, and other company-specific factors. Analysts consider at least two scenarios in addition to their base case: a bull case and a bear case. Assumptions are chosen such that the analyst believes there is a 25% probability that the company will perform better than the bull case, and a 25% probability that the company will perform worse than the bear case. The distance between the bull and bear cases is an important indicator of the uncertainty underlying the fair value estimate. Our recommended margin of safety widens as our uncertainty of the estimated value of the equity increases. The more uncertain we are about the estimated value of the equity, the greater the discount we require relative to our estimate of the value of the firm before we would recommend the purchase of the Morningstar Star Rating for Stocks The Morningstar Star Ratings for stocks are defined below: shares. In addition, the uncertainty rating provides Once we determine the fair value estimate of a stock, we guidance in portfolio construction based on risk compare it with the stock's current market price on a daily QQQQQ We believe appreciation beyond a fair risk- tolerance. basis, and the star rating is automatically re-calculated at adjusted return is highly likely over a multiyear time frame. the market close on every day the market on which the The current market price represents an excessively Our uncertainty ratings for our qualitative analysis are stock is listed is open. pessimistic outlook, limiting downside risk and maximizing low, medium, high, very high, and extreme. Please note, there is no predefined distribution of stars. upside potential. That is, the percentage of stocks that earn 5 stars can × Low–margin of safety for 5-star rating is a 20% discount fluctuate daily, so the star ratings, in the aggregate, can QQQQ We believe appreciation beyond a fair risk- and for 1-star rating is 25% premium. serve as a gauge of the broader market's valuation. When adjusted return is likely. × Medium–margin of safety for 5-star rating is a 30% there are many 5-star stocks, the stock market as a whole is discount and for 1-star rating is 35% premium. more undervalued, in our opinion, than when very few QQQ Indicates our belief that investors are likely to × High–margin of safety for 5-star rating is a 40% discount companies garner our highest rating. receive a fair risk-adjusted return (approximately cost of and for 1-star rating is 55% premium. equity). × Very High–margin of safety for 5-star rating is a 50% We expect that if our base-case assumptions are true the discount and for 1-star rating is 75% premium. market price will converge on our fair value estimate over QQ We believe investors are likely to receive a less than × Extreme–margin of safety for 5-star rating is a 75% time, generally within three years (although it is impossible fair risk-adjusted return. discount and for 1-star rating is 300% premium. to predict the exact time frame in which market prices may adjust). Q Indicates a high probability of undesirable risk-adjusted 4. Market Price returns from the current market price over a multiyear time The market prices used in this analysis and noted in the Our star ratings are guideposts to a broad audience and frame, based on our analysis. The market is pricing in an report come from exchange on which the stock is listed, individuals must consider their own specific investment excessively optimistic outlook, limiting upside potential and which we believe is a reliable source. goals, risk tolerance, tax situation, time horizon, income leaving the investor exposed to Capital loss. needs, and complete investment portfolio, among other For more details about our methodology, please go to factors. https://shareholders.morningstar.com. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 10 of 14 Research Methodology for Valuing Companies Other Definitions quantitative report and the quantitative ratings, there is no Value Estimate, current market price, and the Quantitative one analyst in which a given report is attributed to; Uncertainty Rating. The rating is expressed as 1-Star, 2-Star, Last Price: Price of the stock as of the close of the market however, Mr. Lee Davidson, Head of Quantitative Research 3-Star, 4-Star, and 5-Star. of the last trading day before date of the report. for Morningstar, Inc., is responsible for overseeing the methodology that supports the quantitative equity ratings Q: the stock is overvalued with a reasonable margin of Stewardship Rating: Represents our assessment of used in this report. As an employee of Morningstar, Inc., safety. management's stewardship of shareholder capital, with Mr. Davidson is guided by Morningstar, Inc.'s Code of Ethics Log (Quant FVE/Price)<–1*Quantitative Uncertainty particular emphasis on capital allocation decisions. Analysts and Personal Securities Trading Policy in carrying out his consider companies' investment strategy and valuation, responsibilities. QQ: the stock is somewhat overvalued. financial leverage, dividend and share buyback policies, Log (Quant FVE/Price) between (–1*Quantitative execution, compensation, related party transactions, and Quantitative Equity Ratings Uncertainty, –0.5*Quantitative Uncertainty) accounting practices. Corporate governance practices are Morningstar's quantitative equity ratings consist of: only considered if they've had a demonstrated impact on (i) Quantitative Fair Value Estimate QQQ: the stock is approximately fairly valued. shareholder value. Analysts assign one of three ratings: (ii) Quantitative Star Rating Log (Quant FVE/Price) between (–0.5*Quantitative "Exemplary," "Standard," and "Poor." Analysts judge (iii) Quantitative Uncertainty Uncertainty, 0.5*Quantitative Uncertainty) stewardship from an equity holder's perspective. Ratings (iv) Quantitative Economic Moat are determined on an absolute basis. Most companies will (v) Quantitative Financial Health QQQQ: the stock is somewhat undervalued. receive a Standard rating, and this is the default rating in (collectively the "Quantitative Ratings"). Log (Quant FVE/Price) between (0.5*Quantitative the absence of evidence that managers have made Uncertainty, 1*Quantitative Uncertainty) exceptionally strong or poor capital allocation decisions. The Quantitative Ratings are calculated daily and derived from the analyst-driven ratings of a company's peers as QQQQQ: the stock is undervalued with a reasonable Quantitative Valuation: Using the below terms, intended to determined by statistical algorithms. Morningstar, Inc. margin of safety. Log (Quant FVE/Price) >1*Quantitative denote the relationship between the security's Last Price ("“Morningstar," "we," "our") calculates Quantitative Uncertainty and Morningstar's quantitative fair value estimate for that Ratings for companies whether it already provides analyst security. ratings and qualitative coverage. In some cases, the Quantitative Uncertainty: Intended to represent Quantitative Ratings may differ from the analyst ratings Morningstar's level of uncertainty about the accuracy of the × Undervalued: Last Price is below Morningstar's because a company's analyst-driven ratings can quantitative fair value estimate. Generally, the lower the quantitative fair value estimate. significantly differ from other companies in its peer group. quantitative Uncertainty, the narrower the potential range × Fairly Valued: Last Price is in line with Morningstar's of outcomes for that particular company. The rating is quantitative fair value estimate. Quantitative Fair Value Estimate: Intended to represent expressed as Low, Medium, High, Very High, and Extreme. × Overvalued: Last Price is above Morningstar's Morningstar's estimate of the per share dollar amount that quantitative fair value estimate. a company's equity is worth today. Morningstar calculates × Low: the interquartile range for possible fair values is less the quantitative fair value estimate using a statistical model than 10%. Risk Warning derived from the fair value estimate Morningstar's equity × Medium: the interquartile range for possible fair values is Please note that investments in securities are subject to analysts assign to companies. Please go to less than 15% but greater than 10%. market and other risks and there is no assurance or https://shareholders.morningstar.com for information about × High: the interquartile range for possible fair values is guarantee that the intended investment objectives will be fair value estimates Morningstar's equity analysts assign to less than 35% but greater than 15%. achieved. Past performance of a security may or may not be companies. × Very High: the interquartile range for possible fair values sustained in future and is no indication of future is less than 80% but greater than 35%. performance. A security investment return and an investor's Quantitative Economic Moat: Intended to describe the × Extreme: the interquartile range for possible fair values is principal value will fluctuate so that, when redeemed, an strength of a firm's competitive position. It is calculated greater than 80%. investor's shares may be worth more or less than their using an algorithm designed to predict the Economic Moat original cost. A security's current investment performance rating a Morningstar analyst would assign to the stock. The Quantitative Financial Health: Intended to reflect the may be lower or higher than the investment performance rating is expressed as Narrow, Wide, or None. probability that a firm will face financial distress in the near noted within the report. Morningstar's Uncertainty Rating future. The calculation uses a predictive model designed to serves as a useful data point with respect to sensitivity × Narrow: assigned when the probability of a stock anticipate when a company may default on its financial analysis of the assumptions used in our determining a fair receiving a "Wide Moat" rating by an analyst is greater obligations. The rating is expressed as Weak, Moderate, value price. than 70% but less than 99%. and Strong. × Wide: assigned when the probability of a stock receiving Quantitative Equity Reports Overview a "Wide Moat" rating by an analyst is greater than 99%. × Weak: assigned when Quantitative Financial Health <0.2 The quantitative report on equities consists of data, × None: assigned when the probability of an analyst × Moderate: assigned when Quantitative Financial Health statistics and quantitative equity ratings on equity receiving a "Wide Moat" rating by an analyst is less than is between 0.2 and 0.7 securities. Morningstar, Inc.'s quantitative equity ratings are 70%. × Strong: assigned when Quantitative Financial Health >0.7 forward looking and are generated by a statistical model that is based on Morningstar Inc.'s analyst-driven equity Quantitative Star Rating: Intended to be the summary ratings and quantitative statistics. Given the nature of the rating based on the combination of our Quantitative Fair ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 11 of 14 Research Methodology for Valuing Companies Other Definitions Last Close: Price of the stock as of the close of the market of the last trading day before date of the report. Quantitative Valuation: Using the below terms, intended to denote the relationship between the security's Last Price and Morningstar's quantitative fair value estimate for that security. × Undervalued: Last Price is below Morningstar's quantitative fair value estimate. × Fairly Valued: Last Price is in line with Morningstar's quantitative fair value estimate. × Overvalued: Last Price is above Morningstar's quantitative fair value estimate. This Report has not been made available to the issuer of the security prior to publication. Risk Warning Please note that investments in securities are subject to market and other risks and there is no assurance or guarantee that the intended investment objectives will be achieved. Past performance of a security may or may not be sustained in future and is no indication of future performance. A security investment return and an investor's principal value will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. A security's current investment performance may be lower or higher than the investment performance noted within the report. The quantitative equity ratings are not statements of fact. Morningstar does not guarantee the completeness or accuracy of the assumptions or models used in determining the quantitative equity ratings. In addition, there is the risk that the price target will not be met due to such things as unforeseen changes in demand for the company's products, changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, and tax rate. For investments in foreign markets there are further risks, generally based on exchange rate changes or changes in political and social conditions. A change in the fundamental factors underlying the quantitative equity ratings can mean that the valuation is subsequently no longer accurate. For more information about Morningstar's quantitative methodology, please visit http://global.morningstar.com/equitydisclosures. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 12 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC General Disclosure The analysis within this report is prepared by the person (s) noted in their capacity as an analyst for Morningstar’s equity research group. The equity research group consists of various Morningstar, Inc. subsidiaries (“Equity Research Group)”. In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The opinions expressed within the report are given in good faith, are as of the date of the report and are subject to change without notice. Neither the analyst nor Equity Research Group commits themselves in advance to whether and in which intervals updates to the report are expected to be made. The written analysis and Morningstar Star Rating for stocks are statements the Report and are subject to change. While financial situation or particular needs of any specific of opinions; they are not statements of fact. Morningstar has obtained data, statistics and recipient. This publication is intended to provide information from sources it believes to be reliable, information to assist institutional investors in making The Equity Research Group believes its analysts make Morningstar does not perform an audit or seeks their own investment decisions, not to provide a reasonable effort to carefully research information independent verification of any of the data, statistics, investment advice to any specific investor. Therefore, contained in the analysis. 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To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 13 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC investment decision and when deemed necessary, to currently covers and provides written analysis on seek the advice of a legal, tax, and/or accounting • Neither Morningstar, Inc. or the Equity Research please contact your local Morningstar office. In professional. 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Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 14 of 14 Regeneron Pharmaceuticals Inc REGN (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 608.24 USD 500.00 USD 1.22 — 0.00 64.71 Biotechnology Standard 11 Aug 2020 10 Aug 2020 11 Aug 2020 10 Aug 2020 10 Aug 2020 10 Aug 2020 01:14, UTC 01:06, UTC SEBI or any other legal/regulatory body. Morningstar Investment Adviser India Private Limited is a wholly owned subsidiary of Morningstar Investment Management LLC. 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To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
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