Ultragenyx Downgraded At Morgan Stanley, Valuation 'Stretched' And Pipeline Faces Execution Risk

In a report published Monday, Morgan Stanley analyst Matthew Harrison downgraded the rating on Ultragenyx Pharmaceutical Inc RARE to Equal-weight, while raising the price target from $77 to $126. The analyst believes that the stock valuation is "stretch" and that there is higher execution risk on the company's pipeline, although Ultragenyx continues to be a leading orphan disease company.

"Our downgrade is not related to a change in our view of Ultragenyx's pipeline, but rather of the risk/reward on upcoming pipeline events relative to valuation," Harrison explained.

Although the management has been able to successfully derisk KRN23 with robust initial data on rickets, additional data is awaited by the year-end, with meaningful value already having been attributed to the drug. However, management has not been able to similarly derisk triheptanoin.

Despite the previous robust single center results for triheptanoin, the analyst believes that there could still be some clinical risk. On the other hand there is significant academic data to dispute the risk that "the molecule does not have therapeutic activity," according to the Morgan Stanley report.

The analyst expects peak sales of over $1.5 billion, while mentioning that "it is hard to ignore that there are some clinical risks, esp. in the context of heightened valuation."

M&A could prove to be a possible driver of upside to the stock, especially seeing the support offered by the recent Synageva Biopharma Corp GEVA acquisition.

"While we have no knowledge of any transaction, we do understand that orphan assets are highly sought after and some companies have expressed a desire to increase their orphan exposure," analyst Harrison added.