Morgan Stanley Still Likes Biogen After Bleak Earnings

July 27, 2015

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In a report published Monday, Morgan Stanley analyst Matthew Harrison maintained an Overweight rating on Biogen Inc (NASDAQ: BIIB), lowering his price target from $520 to $426.

The stock was trading up more than 2 percent on Monday, hovering around $306.

Sticking To His Guns

Biogen announced its second consecutive quarterly earnings miss on Friday and issued guidance "which takes it from being a top growth stock to looking like slow growth pharma." Despite a weak earnings report, Harrison has decided to maintain his bullish outlook on the biotech company.

Even his new model, "which has sacked all prior assumptions," still values just the base business at $250 per share, only slightly less than the current trading price. Furthermore, he sees the upside as "much greater than the downside risk."

Upside and Downside

In Harrison's opinion, Biogen's upside derives primarily from optionality within its drug pipeline and from capital deployment for M&A.

The "next key pipeline catalysts," according to the analyst, are Tysabri (which treats Crohn's disease and multiple sclerosis), anti-LINGO (which repairs damaged nerves), and several Alzheimer's medications.

Anti-LINGO, Harrison said, could potentially drive $20 billion in sales and be the leader in the multiple sclerosis market.

The main downside, in Harrison's view, is the continued deterioration of the core business, which he attributes to either increased competition or poor management execution.

He believes that management urgently needs to restore their credibility. With limited short-term catalysts for investor interest, he said, they need to pull the trigger on a merger or acquisition soon "and give investors a reason to own the stock now" instead of "waiting for the perfect deal."