Biogen Idec's Avonex May Face 'Serious Pressure'
06.03.05 -- Morgan Stanley downgraded Biogen Idec to "equal-weight" from "overweight" and said the biotech firm's Avonex multiple sclerosis drug faces greater long-term risk than previously thought.
Recently released clinical data for FTY720, an experimental MS drug from Novartis (nyse: NVS - news - people ), showed a 50% reduction in relapse rates.
"We have viewed Avonex as a stable source of cash flows (without much growth), but if Novartis eventually launches FTY720, this drug will face serious pressure, negatively impacting our long-term growth assumptions and terminal growth rate," said Morgan Stanley. "After a nice bounce off the bottom, the risk/reward in the stock has changed, and the threat to Avonex appears greater than we previously modeled. While we see significant strategic value in this company from its stable cash flows, strong balance sheet, and extensive manufacturing capacity; the long-term overhang from FTY720 is likely to leave the stock range-bound for the near future." Morgan Stanley lowered its price target on Biogen to $40 from $44 and said Biogen Idec's other major value drivers, Tysabri and Rituxan, face "continued uncertainty." Rituxan is marketed by Genentech (nyse: DNA - news - people ). Morgan Stanley said Biogen shares could see short-term upside if Tysabri returns to the market but said it has little confidence it would be provide meaningful long-term returns. Shares of Biogen and Tysabri partner Elan (nyse: ELN - news - people ) have seen recent selling pressure after news reports suggested a fourth patient taking the halted MS drug may have contracted the potentially fatal brain disease PML.
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