Morgan Stanley double upgrades Biogen, predicts 30% rally

Published Mon, Jul 27 20209:09 AM EDTUpdated Mon, Jul 27 20209:16 AM EDT

(This story is only for CNBC Pro subscribers ) Biogen received a rare double upgrade on Monday from Morgan Stanley, which advised clients that the stock is set for a 30% rally and that long-term rewards for owning the equity more than offset any near-term risks from rivals. In hiking his rating to overweight from underweight, analyst Matthew Harrison wrote investors aren't giving the company enough credit for its compelling Alzheimer's candidate. Such a breakthrough could have unprecedented health outcomes as well as spell significant upside for the stock, he wrote. Biogen shares rallied 2.9% in premarket trading following the Morgan Stanley double upgrade. We expect the Street "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 told clients. "We believe the stock currently reflects less than 25% probability of success, but expect the market to price in at least 50% as we get closer to the potential FDA approval date which we expect in March 2021," he added. Morgan Stanley explained that investors may be shying away from Biogen right now because of expected generic launches that could impact sales of its multiple sclerosis drug, Tecfidera. The impact of those launches, Harrison conceded, could result in 10% or more downside pressure for the stock in the near term. But despite that short-term threat, Morgan Stanley believes Biogen is set for a 31% rally over the next year and set a price target for the stock at $357 per share versus Friday's close at $272.33. "We believe investors could miss as much as a 20% potential near-term move in BIIB (10% off the bottom post Tecfidera generics and another 10%+ as investors reposition ahead of what is viewed as a highly likely FDA acceptance of the filing) by taking the wait-and-see approach until after the [Alzheimer's] filing is accepted," Harrison wrote. The analyst said the majority of his price hike is thanks to an increase in the brokerage's expected probability of success for aducanumab to 50% from 30%. Late last year, Biogen appeared to please Wall Street analysts when it presented the results of a study conducted in October 2019. Though the data was mixed, aducanumab did appear to meet its goal of reducing decline in patients and did not yield any new negative side effects.

The exterior of the headquarters of biotechnology company Biogen in Cambridge, MA is pictured on March 21, 2019.

John Tlumacki | Boston Globe | Getty Images

(This story is only for CNBC Pro subscribers)

Biogen received a rare double upgrade on Monday from Morgan Stanley, which advised clients that the stock is set for a 30% rally and that long-term rewards for owning the equity more than offset any near-term risks from rivals.

In hiking his rating to overweight from underweight, analyst Matthew Harrison wrote investors aren't giving the company enough credit for its compelling Alzheimer's candidate. Such a breakthrough could have unprecedented health outcomes as well as spell significant upside for the stock, he wrote.

Biogen shares rallied 2.9% in premarket trading following the Morgan Stanley double upgrade.