Morgan Stanley's $50 PT on RARE: A Tactical Reassessment Post-Setrusumab Failure

The specific catalyst is clear: the failure of setrusumab (UX143) in two Phase 3 trials for brittle bone disease. Last week, Ultragenyx and its partner Mereo BioPharma announced that the drug missed its primary endpoint in both the Orbit trial for older children and young adults and the Cosmic trial for younger children. In both cases, setrusumab failed to achieve a statistically significant reduction in annualized clinical fracture rates compared to placebo or standard bisphosphonate treatment. This was a major clinical setback for a candidate that had shown promise in earlier stages.

The market's immediate reaction was severe volatility. Shares of Ultragenyx (RARE) plunged more than 40% on the news, reflecting deep disappointment. Yet the next day, the stock staged a sharp reversal, surging nearly 12% and closing at its strongest level in about 17 months. This dramatic swing-from a 40% drop to a 12% bounce-points to a classic "correction after overreaction." The initial sell-off likely overestimated the long-term damage, while the rebound suggests some investors saw an opportunity to buy the dip, focusing on the drug's achievement of secondary endpoints like improved bone mineral density.

In this turbulent environment, Morgan Stanley's move is a tactical reassessment. The firm cut its price target to $50, a significant reduction from its previous level. This new target doesn't reflect a fundamental change in the company's long-term prospects, but rather a recalibration of near-term risk following this major clinical catalyst. The cut acknowledges the setback and the uncertainty it introduces, even as other analysts maintain positive ratings and highlight the strength of the secondary endpoints. The $50 target now serves as a new tactical benchmark, pricing in the reset of expectations after the Phase 3 failure.

The Counter-Catalyst: A Pipeline and Financial Foundation

While the setrusumab failure is a major clinical event, it does not erase the company's underlying assets. Ultragenyx is not a one-drug story. The firm has a robust financial foundation and a pipeline with several high-impact catalysts on the horizon, which provide a buffer against the volatility of a single trial's outcome.

Financially, the runway is long. As of year-end 2025, the company held approximately $735 million in cash and investments. This provides a multi-year operational cushion, allowing the company to fund its pipeline and strategic initiatives without immediate pressure. This strength is underscored by a solid revenue base. The company's FDA-approved portfolio, led by Crysvita and Dojolvi, generated significant cash flow, with preliminary 2025 total revenue of $672 million to $674 million, exceeding the top end of its guidance. This consistent cash generation is critical for funding future growth.

The pipeline offers clear near-term catalysts that could drive the stock independently of the setrusumab story. The most immediate is the potential for two gene therapy approvals. The Biologics License Application (BLA) for DTX401, a gene therapy for Glycogen Storage Disease Type Ia (GSDIa), has been submitted and is under rolling review by the FDA. This could be a first-in-class treatment, addressing a serious unmet need. More broadly, the company expects two potential gene therapy approvals in 2026, setting the stage for a transformational year.

Another key catalyst is the pivotal Phase 3 data for GTX-102, an investigational therapy for Angelman syndrome. The Phase 3 Aspire study is fully enrolled, and the company expects to complete the study in the second half of 2026. This program is viewed as a major potential asset, with analysts noting the urgent need for effective treatments in this patient population. The combination of these two potential approvals and the Phase 3 readout creates a concentrated set of events that could re-rate the stock.

In essence, the financial and pipeline counter-catalysts provide a strong argument that the stock's decline may be overdone. The company is not facing an existential threat; it has the capital to navigate the setback and the pipeline to drive future value. The tactical setup now hinges on whether the market will begin to price in these upcoming milestones rather than dwell on the recent clinical disappointment.

Valuation and the 2026 Biotech Recovery Narrative

The stock's current valuation reflects a market pricing in significant future growth from upcoming catalysts, despite the recent setback. Ultragenyx trades at a PEG ratio of -0.63. This negative figure, derived from a negative earnings multiple, signals that the market is assigning a high growth premium to the stock based on expectations for future earnings, which are currently in the pipeline. The PEG ratio essentially discounts the near-term pain of the Phase 3 failure and prices in the potential payoff from gene therapy approvals and the Angelman syndrome readout.

This setup aligns with a broader sector narrative. As noted in the start-of-year outlook, 2025 saw a brilliant recovery in public biotech stocks driven by positive data and improved macro conditions. The market is now looking ahead to 2026, where the recovery is expected to be selective. Morgan Stanley's price target cut can be seen as a tactical bet that this selective recovery will favor companies with near-term regulatory catalysts over those facing pipeline setbacks. The firm is likely pricing in a longer sentiment overhang for Ultragenyx, even as other analysts see a favorable risk-reward ahead of the 2026 milestones.

The stock's performance underscores this valuation tension. For the full year 2025, shares are down 48% and trade near their 52-week low of $18.41. The recent bounce from that low is a classic sign of a correction after an overreaction. The current price of around $23.15 sits well below the year's high of $46.50, creating a potential entry point if the 2026 biotech recovery narrative holds and the company's pipeline catalysts materialize as expected. The valuation now hinges on whether the market begins to price in those future events rather than dwell on the recent clinical disappointment.

Catalysts and Risks: What to Watch in 2026

The tactical setup for Ultragenyx now hinges on a concentrated set of near-term events. The stock's path will be validated or invalidated by the execution on these catalysts, which must overcome the shadow of the setrusumab failure.

The primary catalyst is the Phase 3 Aspire study readout for GTX-102 in Angelman syndrome. The study is fully enrolled, and the company expects to complete the study in the second half of 2026. This program is viewed as a major potential asset, with analysts noting the urgent need for effective treatments. A positive readout here would be transformative, providing a clear, high-impact data point to drive the stock higher and re-rate the company's pipeline value.

Key near-term milestones will provide incremental validation. The regulatory decision on the DTX401 BLA is a critical event. The company has completed the rolling submission of its application for this gene therapy targeting Glycogen Storage Disease Type Ia. The FDA's review process is underway, and a decision in 2026 would deliver a first-in-class therapy and a significant commercial milestone. Another potential catalyst is the progress on alvelestat, an investigational therapy for cystic fibrosis. The company is expected to discuss partnership opportunities for this asset, which could provide an immediate cash infusion and de-risk the program.

The main risk is that further pipeline setbacks or a failure to capitalize on the broader biotech recovery could pressure the stock below Morgan Stanley's $50 target. The market has already priced in a reset following the Phase 3 failure, but the stock remains vulnerable if upcoming catalysts do not meet or exceed expectations. The broader biotech sector's selective recovery in 2026 will be a tailwind, but it is not guaranteed. If sentiment turns or other companies in the sector see stronger momentum, Ultragenyx could be left behind, especially if the Angelman syndrome readout is delayed or ambiguous. The financial runway is long, but the stock's momentum depends on these specific events materializing as planned.