Gilead, Biogen head in opposite directions as analyst swaps ratings

Research firm Jefferies swapped ratings on Gilead (GILD) and Biogen (BIIB) Tuesday morning, upgrading the former to Buy on its HIV franchise while cooling on what it said was a more fairly valued Biogen.

GILEAD SHARES OVERLY PUNISHED: In a research note titled "Recalibrating Large-Caps," Jefferies analyst Brian Abrahams and team upgraded Gilead to Buy while downgrading Biogen to Hold. Citing his confidence in long-term prospects for Gilead's HIV franchise, Abrahams sees a "compelling" opportunity in the depressed shares and says expected declines in its Hep C business are "more than baked in" at the stock's current level. The analyst argues that the effective medicine switching and low payer pushback seen with Gilead's HIV franchise should deliver "good" long-term sustainability, adding that fears of competition from ViiV Healthcare - a joint venture of Glaxo (GSK), Pfizer (PFE) and Shionogi - may be overblown at this point. Weighing in on Gilead's Hep C sales, Abrahams explains that even with a 40% cut to his estimates for the Harvoni business, his financial modeling would still be above where shares are currently trading, "indicating the stock is already pricing in a highly bearish scenario for the franchise." The analyst keeps a $91 target on the stock.

BIOGEN FAIRLY VALUED: Conversely, Abrahams says his investment thesis on Biogen has "mostly played out." The analyst cautions that his downgrade is "primarily" based on valuation, explaining that though he would remain a holder, he simply sees more upside opportunity in Gilead. Though a takeover of Biogen may still be in the cards, the timing of such a deal is "difficult to predict" and may already be partly reflected in the shares. Net-net, Biogen's recent levels now better reflect the company's business fundamentals - including a stabilizing multiple sclerosis franchise and last week's update on Alzheimer's drug aducanumab - balanced against normal long-term headwinds. That said, Abrahams takes his target to $323 on the surprise Alzheimer's data, which in his view boosts aducanumab's chance of success to 60% from 45%.

PRICE ACTION: Shares of Gilead are up 1.5% to $78.06 in afternoon trading, while Biogen is down 0.5% to $312.12 per share.