Merrill on BIIB and PML
As expected, additional PML case announced in MS patient
We are raising our price objective to $45 from $42 following the announcement of
an additional case of a rare brain infection (PML) in a Tysabri Multiple Sclerosis
patient. We believe the market is becoming sensitized to the association of
Tysabri with PML, and the 3 prior cases diagnosed this year have been
manageable with clinical vigilance. Little detail was provided about the patient’s
course and prognosis, but management indicated that the patient had received 26
months of Tysabri monotherapy and had aggressive treatment following the
suspicion of the disease. We are raising our price objective on BIIB on our belief
that the PML overhang has diminished somewhat, which should result in less BIIB
volatility. However, we believe that the stock will continue to Underperform in our
cluster until the true rate of PML is quantified, as well as whether the rate
increases with cumulative exposure.
Clinical vigilance renders disease non-lethal
While PML is still considered a life-altering disease, we are encouraged that the 3
previous patients diagnosed (2 in the E.U. and 1 in the U.S.) are alive. The 2 E.U.
patients have survived the acute phase and are receiving physical therapy in the
chronic phase. The U.S. patient remains in the acute phase.
PML headline risk decreasing, but overhang remains
We believe the market is becoming conditioned to additional cases of PML, thus
decreasing the headline risk and subsequent BIIB volatility. Unless there is the
sense that the rate of PML will increase with cumulative exposure, we expect the
impact of additional PML cases to continue to decrease. The current rate is still
well below the 1/1,000 threshold established by the FDA as an acceptable level of
PML, suggesting a low likelihood of imminent regulatory action.
Company likely to change to periodic reporting of PML
We anticipate that Biogen will change to periodic, scheduled reporting of PML
cases if the impact on BIIB shares continues to decrease. We believe this would
represent a milestone translating to decreased BIIB volatility. In our opinion, the
diagnosis of PML with other immune modulating agents assists this goal.
Raising price objective from $42 to $45
We have raised our P.O. to $45 following this latest case of PML. Our base case
(65%) now assumes a more modest drop-off therapy rate which raises the
valuation. Even without Tysabri sales, we value BIIB at $30, our worst case
scenario (15%). |
