Morgan Stanley Takes A Breather On Biogen, Downgrades Stock

Morgan Stanley’s Matthew Harrison expects Biogen Inc BIIB to trade in line with the group, after appreciating following the Bioverativ Inc BIVV spinoff and expectations related to Spinraza.

The analyst downgraded Biogen from Overweight to Equal-weight, while lowering the price target from $369 to $305.

Moving To The Sidelines

“Coming into 2016, our thesis was for solid base business performance (while consensus was concerned about guidance) as well as potential upside to the Spinraza launch,” Harrison explained.

However, the analyst noted that while concerns regarding performance have been put to rest with the robust guidance, there still was meaningful debate regarding Spinraza, with most investors acknowledging that even if the initial revenues were modest for the drug, it would ramp well in the second half of 2017.

Harrison believes for the near term at least, there were limited upside drivers for Biogen, given the recent share price appreciation.

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Spinraza’s Potential

“As many investors are already aware, Spinraza is a key potential upside driver for Biogen while launch of Roche's competing MS product Ocrevus could present downside,” the analyst stated.

Harrison believes, however, that market share losses to Ocrevus would be buffered by the 13.5-24.0 percent royalty that Biogen receives on Spinraza’s U.S. sales.

For the near term, the analyst expects Tecfidera IP to be the largest upside or downside driver for the company, although there is limited visibility into the outcome of the interference proceedings on Tecfidera patents.

Biogen is also awaiting a decision on the IPR (inter partes review) filed against its 480mg dosing patent. The outcome for both actions are expected around March 22.

“If Biogen were to lose the IPR but win the interference, BIIB could potentially be down as much as 10 percent as Tecfidera IP would expire in 2021, while if it wins the IPR, different interference scenarios could potentially push BIIB up 5-10 percent with IP lasting until 2028,” Harrison explained.