Why Leerink Is Cutting Biogen Targets (But Still Bullish On The Stock) - Biogen (NASDAQ:BIIB)

Shares of Biogen Inc BIIB have sold off since reaching the highs of $480.18 in March.

Joseph Schwartz of Leerink maintained an Overweight rating on the stock.

Schwartz nevertheless felt it necessary to lower his price target on the stock to $425 from a previous $464.

In a report published Tuesday, Leerink analyst Joseph Schwartz maintained an Outperform rating on shares of Biogen with a price target lowered to $425 from a previous $464.

The Tecfidera Effect

According to Schwartz, the downward revised price target reflects "relatively flat" recent Tecfidera prescription trends. The analyst added that quarter-to-date, Tecfidera TRx. are "flat" in the first nine weeks of the second quarter, which, when extrapolated to the full third quarter (while also factoring in two holiday weeks), implies a 1 percent decline quarter-over-quarter with total U.S. sales of $711 million.

Schwartz continued that extrapolating the prescription trend to the full fiscal year 2015 derives total Tecfidera U.S. sales of $2.79 billion, which falls short of his previous estimate of $2.84 billion and the Street's estimate of $2.83 billion.

As such, the analyst suggested this implies that topline growth for the fiscal year will likely come in somewhere near the midpoint (or slightly lower) of the company's revised guidance of 6 to 8 percent growth (from 14 to 16 percent originally).

'Positive Surprises' Ahead?

Nevertheless, Schwartz argued that while the stock is "out of favor" with the investment community, this creates a "favorable backdrop" for potentially "positive surprises" in the next six to 12 months. In addition, the investment community is also having trouble assessing which (if any) of the company's pipeline products will become the next "blockbuster" that will contribute toward a reacceleration of topline growth.

"We expect management to leverage its fast-expanding immunology/CNS and orphan disease infrastructure via mid-to-long term accretive M&A, collaborative partnerships and internal R&D," Schwartz wrote. "With a continued EPS growth, multiple longer-term growth opportunities and numerous 'call options' in the pipeline, we believe Biogen shares are set up nicely for outperformance."

Price Target Rationale

Finally, the analyst explained the rationale for his price target: "We estimate a $425 price target for Biogen shares in 12 months using a 50/50 blend of our DCF analysis and a 25x multiple on our 2015 non-GAAP EPS estimate of $14.52/share. Our DCF assumes an 8.25 percent discount rate and a 4 percent terminal growth rate, the former of which we believe is in line with large-cap biopharma and the latter of which we believe is reasonable given Biogen's heavy focus on R&D and our relatively modest pipeline estimates. Our revenue model probability-weights our projections of the gross revenues for Biogen's pipeline products."

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