Biogen Inc (NASDAQ:BIIB) is caught in more than one legal wrangle with generic companies over patents related to its key multiple sclerosis drug Tecfidera, which was approved by the FDA in March 2013.

The Biogen Analyst: Morgan Stanley analyst Matthew Harrison has an Underweight rating on Biogen with a $263 price target.  

The Biogen Thesis: Two legal catalysts in the coming weeks will help determine when a generic version of Tecfidera may be launched and by which companies, Harrison said in a Wednesday note. (See his track record here.)

These catalysts are significant for Biogen, as Tecfidera is estimated to rake in about 30% of the company's total sales in 2020, the analyst said. 

If a generic is launched, Biogen stands to lose significant Tecfidera market share, and the price of the drug is likely to erode steeply within the first year of generic market entry, he said.

Vumerity, Biogen's prodrug version of Tecfidera, may also see market share loss and price erosion, Harrison said. 

The Biogen Lawsuits: The District Court of Delaware is due to decide in mid-July on whether to apply collateral estoppel, a legal doctrine to apply the verdict given in a similar lawsuit in another court, the analyst said.

In June, the Northern District Court of West Virginia ruled that the only patent protecting Tecfidera is invalid, he said. 

Following the West Virigina court's ruling, Biogen has filed a motion seeking an injunction to stop Mylan NV (NASDAQ:MYL) from launching a generic at risk, Harrison said. The analyst said he expects federal circuit Court of Appeals — which is due to decide on Biogen's motion in the last two weeks of July — to deny the motion. 

"Moreover, we believe that this decision will have read-through to whether the generics in the Delaware case will be enjoined during the appeal." 

Harrison looked at four likely scenarios that could play out and how Biogen stock could react under each. 

Scenario 1: If the Delaware court applies collateral estoppel or finds independently that the patent is invalid, several generics would launch at risk around August-September, the analyst said. Under such a situation, he said he expects Biogen shares would trade down by about 10%-15%.

Scenario 2: If Mylan is free to launch a generic once FDA approval comes through, but Delaware generics are enjoined from launching at least until the appeal is complete, Harrison said he expects Biogen to trade down 1%-5%, as the launch of one generic could lead to less market share loss and reduced price erosion.

Scenario 3: If all Delaware generics and Mylan are enjoined from launching until appeals are completed, the analyst said he expects Biogen shares will trade up 5%-10%. Investors are likely to remain concerned about Biogen's ability to overturn the West Virginia decision that found the patent invalid, he said. 

Scenario 4: If no generics are enjoined but decide against launching at risk until the appeal is done, Harrison said he expects Biogen shares to remain flat or decline 1-2%.

This is because investors will be concerned about the uncertainty and the uphill battle Biogen has to wage in getting the district court's decision overturned, the analyst said. 

BIIB Price Action: Biogen shares ended Wednesday's session higher by 0.6% at $282.96 

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