A Double Pair Trade: Morgan Stanley Buys 2 Biotechs, Sells 2 Others

Biotech plays are numerous, and Morgan Stanley has a few recommendations to pare and prop a pharma portfolio.

The Ratings

Analyst Jeffrey Hung initiated coverage of:

• Alder Biopharmaceuticals Inc ALDR with an Underweight rating and $19 price target;
• Exelixis, Inc. EXEL with an Underweight rating and $19 target;
• Myokardia Inc MYOK with an Overweight rating and $72 target; and
• Neurocrine Biosciences, Inc. NBIX with an Overweight rating and $145 target.

The Alder Thesis

Ahead of the 2020 launch of Alder’s migraine drug, Hung said he expects expect stock movement on the launches of competing treatments. (See his track record here.)

“By the time they potentially reach the market in 2020, there could be three other migraine drugs on the market of the same class,” the analyst said. “Additionally, while Alder’s drug has a fast onset of action, we view efficacy across these drugs as largely similar.”

Given these circumstances, they anticipate just $500 million in sales by 2025 against a consensus estimate of $750 million.

The Exelixis Thesis

Competition is seen to be equally inhibitive to Exelixis. While its cabozantinib could seize a $520-million share of the market for treatment of second-line kidney cancer, the candidate enters more crowded arenas in first-line kidney cancer (RCC) and second-line liver cancer (HCC).

“As a result, we think adoption of cabo in 1L RCC and 2L HCC will likely be modest,” Hung said, estimating a $500-million opportunity in the latter and $560 million in the former.

The Myokardia Thesis

By Morgan Stanley’s assessment, Myokardia’s mavacamten is better positioned for leadership, with peak U.S. sales beyond $1.3 billion for non-obstructive hypertrophic cardiomyopathy and $1.5 billion for obstructive hypertrophic cardiomyopathy.

“We are positive on MYOK shares because the company's drugs target well-defined subgroups with unmet medical need, promising mavacamten Phase 2 were observed and multiple catalysts in the next 12-15 months could provide meaningful upside to shares,” Hung said. 

The firm’s earlier-stage MYK-491 is seen to offer additional near-term upside.

The Neurocrine Thesis

Neurocrine’s Ingrezza has posted consistent growth in tardive dyskinesia treatment since its launch, and Morgan Stanley projects opportunity to capture additional market share. The sell-side firm anticipates 2018 sales between $425 million and $435 million against Street estimates of $400 million.

The drug’s prospects for Tourette syndrome, coupled with Neurocrine’s Phase 2 candidate for congenital adrenal hyperplasia, could yield additional opportunity for upside, Hung said. 

Price Action

Myokardia gained 3.84 percent Monday, while Exelixis was up 1.35 percent, Neurocrine was up 1.38 percent and Alder was down 2.48 percent. 

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