Biogen to rally on this next $1 billion blockbuster drug, Citi says

Published Tue, Feb 7 201711:02 AM EST

Citi Research on Tuesday upgraded Biogen to buy from hold, predicting a 15 percent rally over the next 12 months as the biotech company gains ground in treating spinal muscular athrophy, a genetic disease that weakens the immune system by affecting the motor nerve cells in the spinal cord. "The real driver of shares over the next 12-18 [months] is uptake of Spinraza, BIIB's new drug for SMA and our proprietary survey suggests upside to estimates" equity analyst Robyn Karnauskas wrote in a research note. The analyst believes the Street might be underestimating the potential sales from Spinraza, which has shown positive results during clinical trials. "We currently model Spinraza gaining 10% penetration in the US and modest uptake in ex-US and get to $390M sales in 2017 (consensus at $200-$300M)," Karnauskas said. A survey by Citi Research among physicians confirmed the drug's potential with respondents saying they would put 50 percent of their type 1 patients on the medication by year-end. That figure was 35 percent for type 2/3 patients. "Our survey thinks we may be conservative in our assumptions and Spinraza could be a $1.2-$1.3B drug in 2017. If that happens, BIIB could outperform peers," Karnauskas wrote. She says spinal muscular athrophy, a life-threatening illness, is well diagnosed among patients, so the market is sizable. Should sales for this drug exceed the billion dollar mark, revenue for Biogen could grow by 15 percent on year over year, while earnings per share could increase by 25 percent in 2017, she said. "While we are not modeling such an uptake, we highlight this as a possibility and if this happens BIIB could outperform its peers. We note that this type of uptake has happened before in cystic fibrosis," Karnauskas wrote. Citi Research says Spinraza could be one of Biogen's key growth catalysts over the three to four years, driving margin improvement to 60 percent by 2020 from the current 56 percent. Cash flow levels could also exceed expectations, the firm said. "The cash flow improvement is better than the margin improvement which could double by 2020 vs. 2017 as the company stops paying Tecfidera related royalties to Fumapharm shareholders. BIIB currently pays $1.5B annual in Tecfidera Royalties and does not even get tax benefit of those," Karnauskas wrote. The analyst thinks Biogen is emerging as a "cleaner story" in 2017 while the biotech sector also seems to be stabilizing. In the next 12 months, Citi Research predicts shares of Biogen could trade as high as $305, a 15 percent gain from Monday's close.

A Biogen Idec lab technician

Suzanne Kreiter | The Boston Globe | Getty Images

"The real driver of shares over the next 12-18 [months] is uptake of Spinraza, BIIB's new drug for SMA and our proprietary survey suggests upside to estimates" equity analyst Robyn Karnauskas wrote in a research note.

The analyst believes the Street might be underestimating the potential sales from Spinraza, which has shown positive results during clinical trials.

"We currently model Spinraza gaining 10% penetration in the US and modest uptake in ex-US and get to $390M sales in 2017 (consensus at $200-$300M)," Karnauskas said.