Why Biogen Is Now a Buy on Weakness

Merrill Lynch raised Biogen to a Buy rating from Neutral with a price target of $466. The rationale behind this rating was that the firm saw positive momentum in the pipeline and a stabilization in Tecfidera sales. In the coming months, Biogen will report the 6mg/kg dose data for aducanumab for Alzheimer’s disease, Phase 2 data for Tysabri in acute ischemic stroke, Phase 2 for neublastin in neuropathic pain (mid-2015), and Phase 3 for Tysabri in SPMS. The firm views these trial results as high-risk/high-reward catalysts that are skewed to the upside, given low expectations from investors.

Aducanumab is the most closely watched asset in the pipeline. The company will report 54-week efficacy data for the 6 mg/kg dose of aducanumab on July 22, at the upcoming Alzheimer’s Association International Conference (AAIC). Ultimately the firm believes the 6mg/kg clinical dementia rating (CDR) data will show a strong trend or reach statistical significance.

ALSO READ: 3 Top Big Pharmaceutical Stocks With Upcoming Catalysts

Investor confidence will strengthen if the 6 mg/kg dose of aducanumab can slow the decline in CDR, demonstrating a clear dose-dependent response. Considering the small number of patients, Merrill Lynch would not be surprised if the difference in CDR does not reach statistical significance.

In the report the firm said:

Tecfidera stabilizing; risk of lower guidance may be baked in US Tecfidera sales fell short of consensus estimates in the first quarter of 2015 and investors have been concerned that Biogen may lower its 2015 guidance. Based on IMS scripts in the second quarter, we believe US Tecfidera sales will likely beat consensus of $727 million. We have adjusted our second quarter US estimate to $753 million vs. prior $735 million and full year estimate to $2.99 billion (from $2.97 billion). We believe Biogen may either guide to the lower end of the 14%-16% total revenue sales growth range or lower guidance slightly to 13%-14%. While not ideal, this appears to be largely anticipated given current consensus estimate implies year over year growth of 13.4%.

Shares of Biogen were up 2.1% at $399.65 Tuesday morning. The stock has a consensus analyst price target of $476.38 and a 52-week trading range of $290.85 to $480.18. So far year to date, Biogen shares have increased more than 15%.

ALSO READ: 4 Specialty Pharmaceutical Stocks Could Be the Next Takeover Candidates