Wednesday, July 12, 2006

Calls of Note Part 5

- Morgan Stanley is cautious on Biogen-Idec (NASDAQ:BIIB) after Genentech announced the decision to pursue development of a fully human version of Rituxan. Firm notes that Biogen Idec's profit share on all CD20 antibody sales (Rituxan included) falls by as much as ~25% with a 2nd generation product.

Firm's previous scenario analysis suggested that Biogen Idec's earnings in 2010-12 may be flat with 2007 if the drug launches and performs modestly. Neuromyelitis optica (NMO) could be particularly damaging by providing 1) another path to market and 2) a backdoor into MS taking market share from Avonex (100% economics) and Tysabri (50% economics) versus economics as low as 30% of profits with the CD20 program (including Rituxan).

Additionally, Biogen Idec appears not to agree with Genentech's desire to move forward, suggesting there could be some revision to the current agreement or the decision to move forward may end up in arbitration.

Notablecalls: Actionable call! Suggest you try to get some BIIB short already in the pre market. This one's going lower.

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