ImmunoGen, Inc. (NASDAQ:IMGN) stocks fell more than 8.5% in trading today, from a previous close of $13.12 to $12, after Morgan Stanley initiated coverage of the stock with an Underweight rating and a $10 price target, declaring that its key product, Kadcyla, has no upside.

ImmunoGen, Inc. (IMGN) Down 8.5% After MS Says It Has ‘No Upside’

“Kadcyla valuation implies a best case scenario, but adjuvant data isn’t until 2018. We also see limited potential for the proprietary pipeline given toxicity,” writes Morgan Stanley analyst Matthew Harrison.

Kadcyla worth $8/share, not $11.5/share: Morgan Stanley

The biggest factor behind ImmunoGen, Inc. (NASDAQ:IMGN)’s stock price is Kadcyla, an antibody drug conjugate (ADC) meant to improve drug therapies that Harrison believes will peak at $600 million in worldwide sales. He estimates that the drug is worth $8 per share on its own, well below the $11.5 per share consensus (or former consensus anyhow). He thinks that other analysts have been underestimating competition from other similar products and ignoring the fact that Kadcyla royalties will completely dry up in 2025, twelve years after the first sale took place.

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Immunogen’s proprietary pipeline a net $0: Morgan Stanley

Another big problem is that ImmunoGen, Inc. (NASDAQ:IMGN)’s proprietary pipeline is supposed to bring new products to market to replace Kadcyla. One of the dangers that retail investors face when investing in pharmaceutical companies is that, frankly, they are in no position to judge the plausibility of different products getting approved. While Immunogen has a number of drugs in the works, Harrison is skeptical that any of them have much promise because they toxicity and low tolerability issues in early testing.

“It is very hard to assign substantial value to the pipeline given our concerns,” he writes. “That said, we have put $500M of peak sales in our model to demonstrate that even with significant sales expectations it is difficult to generate an attractive valuation.”

Even with $500 million in peak sales, which implies that ImmunoGen, Inc. (NASDAQ:IMGN) will find a follow-up to Kadcyla that is nearly as successful, and the assumption it is able to reduce R&D spending, Harrison puts the net value of the proprietary pipeline at $0. He does tack on $2 per share for an antibody being developed in partnership with Sanofi, but isn’t willing to assign any value to other compounds in the partnered pipeline because they don’t even have clinical data yet.