Anavex Life Sciences Corp (AVXL)

[Investor2014]

Another solution to the $375 riddle???

Hot Research: Get Back Into Biogen -- Barrons.com
(The companies mentioned in Hot Research are subjects of research reports issued recently by investment firms. Their opinions do not represent those of Barrons.com or Dow Jones & Company, Inc. Some of the reports' issuers have provided, or hope to provide, investment-banking or other services to the companies being analyzed. Share prices at the time the report was issued and the date of the report are in parentheses.)

Biogen (BIIB: Nasdaq) By Morgan Stanley ($314.92, Oct. 5, 2017)

We are upgrading Biogen to Overweight from Equal-weight and raising the price target to $375 from $311, as we believe the base business is proving more durable than expected with Ocrevus share loss slower than expected.

Further, we see Spinraza as a $4 billion potential asset that remains underappreciated. Business development provides upside optionality while Alzheimer's remains the key, must-own catalyst.

Biogen (ticker: BIIB) has been a complicated story with uncertainty about its base business, which is facing potential market share and pricing pressure offset by a Phase 3 Alzheimer's catalyst that could make all its potential issues disappear. Few will argue that Biogen is unlikely to move higher into the 2019/2020 Alzheimer's catalyst, but the debate has been about how the business will perform into that catalyst and when to own Biogen. We believe base-business upside coupled with stability into 2018 make this a good time to get back into Biogen.

Spinraza doesn't get a multiple on gene-therapy fears; we think sustained upside will be hard to ignore: While everyone is concerned about the potential for the base business to face pressure, consensus also overlooks the key asset that tempers the issue. Spinal muscular atrophy (SMA) drug Spinraza has had the best launch of any orphan asset with about $300 million in sales in its initial two quarters. We see $4 billion in peak potential sales even with gene-therapy competition. Spinraza inflects Biogen's growth rate by about 3%-4% on the top line (over 40% of overall Biogen growth) and makes Biogen a mid-single-digit percent grower into Alzheimer's Phase 3 data.

Business development is an upside driver while Alzheimer's remains the key catalyst: Management has discussed using its strong balance sheet (about $12 billion of capacity) to fund more mergers and acquisitions (M&A). At our recent conference Chief Executive Vounatsos indicated that management is "evaluating many prospects [and] engaging with the board as business development] will be a key part of the [upcoming] agenda [and] we're going to share some of those targets [with the board]." We see business development as a potential way to supercharge growth, but it is not core to our thesis. Importantly, we remain positive on aducanumab's potential in Alzheimer's and await Phase 3 results in late 2019 or early 2020. The next key Alzheimer's catalyst is 24 months Phase 1b follow-up at linical Trials on Alzheimer's Disease (CTAD) in November.

We see a nice beat in the third quarter and 2018 stability providing opportunity: In the near term, we believe Biogen can beat by about 2% in the third quarter, driven by its multiple sclerosis (MS) business which continues to perform above expectations. Our above-consensus 2018 sales, driven by an underappreciated Ocrevus royalty from faster uptake in primary-progressive MS (PPMS), stable Tysabriand Tecfidera, increases our conviction in a stable MS franchise. That stable base business makes this story easier to own into late 2018 as investors turn their focus to Alzheimer's disease.

-- Matthew Harrison -- David N Lebowitz -- Cyrus Amoozegar -- Vikram Purohit -- Ishmael I Asante

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