Merrill Lynch analysts Ying Huang and Catherine Hu commented on the future prospects of Biogen Inc (NASDAQ:BIIB) in a research report dated September 21. They maintain a Buy rating on the stock, with a price target of $400, signifying a return potential of more than 27% over Friday’s close at $314.67 apiece.
The report speaks on the third case of a rare brain disorder uncovered in a relapsing-remitting multiple sclerosis patient who was being treated with Biogen’s lead MS drug, Tecfidera. The patient began treatment with Tecfidera in March 2014, and had previously been treated with Merck KgaA’s leading MS med Rebif. Last week, the patient was confirmed to be suffering from progressive multifocal leukoencephalopathy (PML), a fatal brain infection, although currently the patient is “alive and stable”.
Merrill Lynch analysts, however, are not “overly concerned” about this third case since all three patients had severe prolonged lymphopenia prior to presenting with PML. In the latest case, the first report of prolonged lymphopenia was recorded six months after the start of treatment with Tecfidera, and yet the patient was continued on the drug. This went against Tecfidera’s label warning which describes the drug as a potential risk for developing PML in such cases. The analysts believe the PML risk associated with Tecfidera can be managed through greater vigilance from prescribing physicians.
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The associated medical risk of PML has already reduced the sales growth trajectory of Tecfidera. The drug delivered lower-than-expected sales in the second quarter of FY15, and Biogen does not expect Tecfidera volumes to rise during the rest of the year in the US. Multiple sclerosis constitutes the core franchise of Biogen; the company derived nearly 81% of its 2014 sales from Tecfidera and two other aging MS drugs Avonex and Tysabri. All three drugs demonstrated declining growth in the 2Q; consequently, Biogen stock plunged nearly 26% in two days (July 22-24). MS affects more than 2.3 million people in the world, but the market has been suffering due to a decreasing untreated patient population, pricing pressures, intense competition and side-effect ridden drugs.
Previously, Biogen’s Tysabri has been pulled off-market in 2005 over links with PML cases. The drug was allowed back in a year later, albeit with a vigorous monitoring system in place. In late 2014, when reports first began surfacing of Tecfidera’s association with PML, Biogen shares dropped 8% on the news. Hence, the Merrill Lynch report may be welcomed as a sigh of relief by many Biogen investors who worried over the future of the company. The analysts expect the incremental effect of Tecfidera’s link with PML to be limited if cases continue to be in patients with severe prolonged lymphopenia. “The risk of PML appears minimal considering more than 160,000 patients have been treated with Tecfidera to date. We maintain our Buy rating,” the report read.
The majority of sell-side firms also maintain their faith in Biogen’s comeback. In a recent research note, Deutsche Bank said that 80% of their surveyed doctors have either raised their Tecfidera prescriptions or kept them unchanged. Tecfidera is an oral drug, which is highly convenient for patients over standard injectable MS treatments. The bank expects the drug’s US market share to increase 4% in two years. Jefferies also rated Biogen a Buy in a recent report, saying that their conducted survey suggested growing market appetite for oral MS drugs. Both firms also have high expectations attached with Biogen’s pipeline.
At the same time, Merrill Lynch has noted MS market headwinds, pipeline setbacks and Tecfidera’s potential upcoming competition among the downside risks to their valuation,.
Stock Valuation
Biogen currently trades down 5.46% at $297.38 apiece as of 1.00 pm EDT, almost in line with the iShares NASDAQ Biotechnology Index (IBB). So far in the year, the company stock has traded down 7.29%, against a 17.60% gain of IBB index.
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