Morgan Stanley issued a rare double upgrade this week for Biogen (NASDAQ: BIIB).
Analyst Matthew Harrison raised his rating on the stock from Underweight to Overweight, and boosted his price target for Biogen shares to $357 – nearly 30% higher than the price as of this writing.
“While BIIB remains a high-risk/high-reward stock, we think now is the right time to take the risk,” Harrison wrote in a note to clients.
Biogen has had a big month.
Early in July, the biotech submitted its Alzheimer’s disease drug, aducanumab, to the Food and Drug Administration for approval. Biogen canceled a pivotal trial for the drug last year after it failed a so-called futility analysis but if approved, aducanumab would be the first medicine available to slow the memory-wasting disease.
Harrison argues there’s a 50% chance the FDA will approve the drug—a final decision is expected by March 2021—while the stock reflects just a 25% chance of approval.
The submission of aducanumab “finally begins the big journey of what will be a hotly debated FDA review,” said Jefferies analyst Michael Yee, who also sees a “50/50 or better” chance of approval for the drug and argues an approval would send Biogen shares to $500 or higher.
Then last week, Biogen delivered an earnings beat, posting adjusted earnings per share of $10.26 on revenue of $3.68 billion, compared to estimates for earnings per share of $8.02 on revenue of $3.43 billion.
Biogen also upped its full-year guidance, estimating GAAP diluted earnings per share to come in between $32 and $34, above the previous estimated range of between $29.50 and $31.50.
Even with these big catalysts, Harrison warns the stock could fall in the near term, though that fall could present a good buying opportunity for the stock.
Biogen’s multiple sclerosis drug Tecfidera is expected to face generic competition after a federal court invalidated the company’s patent last month.
“In the near-term, we believe BIIB is likely to face 10%+ in downside pressure due to multiple at-risk generic launches for multiple sclerosis (MS) drug Tecfidera,” Harrison said in the note. “While we expect generic Tecfidera competitors in the near-term, we believe investors should start to average into a long position in BIIB now despite that downside risk.”
“We expect investors to quickly look past the Tecfidera downside and state to price in higher odds of success for aducanumab, Biogen’s investigational drug which is the first potential disease-modifying therapy for Alzheimer’s disease,” Harrison added.