Isis Pharmaceuticals: Still Upside After 50% Rally? — Bret Jensen

I’ve been asked several times this week about a mid-cap biotech concern called Isis Pharmaceuticals (NASDAQ: ISIS) from subscribers in The Biotech Forum. The company is on the move due to its evolving pipeline, key partnerships and potential as an acquisition target. Although I think M&A activity in the biotech sector will remain robust for myriad reasons over the next year which I recently put in a free 30-page report, we will concentrate our analysis on the company’s evolving pipeline and numerous partnership with larger players in the industry. Despite its unfortunate name, the investment case on ISIS is intriguing.

Company Overview:
Isis Pharmaceuticals develops antisense therapies aimed at severe or rare cardiovascular, metabolic and cancerous conditions. It has commercialized only one drug, Kynamro, which it has licensed to Genzyme. Sales have been limited due in part to side effects related to liver function. The company has 38 drugs in various stages of development, however, as well as strong partnerships with many large pharmaceutical companies. The company has a market capitalization of approximately $7.5 billion and trades at just over $62.00 a share after a ~50% run-up over the past month.

ISIS

Antisense Technology
RNA molecules are the targets of antisense drugs. RNA affects gene expression. It is a simpler molecule than protein because it has four fundamental building blocks (nucleotides A, C, U & G) whereas proteins have twenty (amino acids).

Antisense drugs bind to RNAs that encode protein and inhibit the production of proteins that cause disease.

Deep Pipeline, Multiple Shots on Goal
With 38 drugs in development and more to come, it is reasonable to expect ISIS will get some hits. In a sense, owning ISIS stock is a microcosmic version of my shotgun approach to biotech investing… albeit with concentrated management risk. The charts below show the various candidates Isis is developing:

Partnerships with Major Players
As we can see from the charts above, Isis has partnerships with many large pharmaceutical players. Here is a taste of its collaborative programs:

· Janssen Biotech, a subsidiary of Johnson & Johnson (JNJ)

  • Intended products: Therapies for autoimmune disorders of the gastrointestinal tractReceived $35 million up front ($26 million amortized last quarter)Up to $800 million in milestone paymentsLicense fees and royalties on any commercialized product

· Bayer Healthcare (BAYRY)

  • Product: ISIS-FXIRx, a therapy for clotting (thrombotic) disordersReceived $100 million up frontUp to $55 million upon completion of Phase 2 kidney function studyUp to $220 million in additional milestone payments, license fees and royalties

· Biogen Idec (BIIB)

  • Product: ISIS-SMNRx, a treatment for spinal muscular atrophy (NYSE: SMA), a motor-neuron disease affecting 30,000–35,000 patients in the U.S.Received $29 million up frontUp to $45 million in milestone paymentsUp to $225 million in license fees, regulatory milestones, and royalties

· GlaxoSmithKline (GSK)

  • Product: ISIS-TTRRx, a therapy for TTR amyloidosis, a severe and rare disease that can lead to loss of nerve function or heart failureData expected in first half of 2017Phase 3 study planned for patients with familial amyloid cardiomyopathy.

· GlaxoSmithKline

  • Product: ISIS-DMPK-2.5Rx, a therapy for myotonic distrophy$27 million in milestone payments earned to date

· AstraZeneca (AZN)

  • Intended products: Antisense therapies for cardiovascular, renal and metabolic diseasesReceived $65 million up front payment in AugustPotential milestone payments, license fees and royalties

Financials
When a company is pre-revenue, cash and cash burn are key metrics. This summer, Isis eliminated about 80% of outstanding convertible notes due in 2021. It ended the second quarter with more than $750 million in cash, having received over $165 million from its partners during the first six months of the year.

Catalysts
Isis just reported positive data from a phase 1/2a study of ISIS-APO(a)Rx in patients with elevated Lp(a) levels. It reported positive Phase 1 data in the Lancet a couple of weeks before the August earnings call.

During the second half of 2015, Isis plans to report data from the generation 2.5 androgen reception drug it is developing with AstraZeneca for patients with prostate cancer. It also expects to report clinical data from a drug that incorporates its LICA technology. If the data is positive, it will be the first clinical demonstration that LICA can enhance the potency of Isis’s antisense drugs.

New Studies
Isis expects to initiate a number of clinical trials later this year. Together with Akcea, it will start a Phase 3 study of Volanesorsen (ISIS-APOCIIIRx) in patients with familial partial lipodystrophy, an ultra orphan indication that could more than double the drug’s commercial opportunity.

The company plans to start Phase 2 studies on up to five drugs, including ISIS-FXIRx in patients with compromised kidney function. It should also begin clinical development on several earlier stage drugs, including ISIS-DGAT2Rx, a therapy for various metabolic disorders.

Summary:
I wish I would have spotted this one sooner as I am loathe to recommend a stock that has run up 50% in a month especially since it is right below the $67.50 a share median price target the eight analysts that cover the company currently have on ISIS. However, it would not be surprising given the current state of the M&A market and its evolving pipeline; that ISIS is gobbled up in a takeover in the foreseeable future. I have flagged the shares and if we get a pullback in the overall market that brings ISIS closer to the ~$50.00 a share range, I will definitely start to nibble on the stock of this intriguing company.

Bret Jensen

Thank You & Happy Hunting

Bret Jensen

Editor/Manager, Biotech Forum

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

For more information on Bret’s core investing strategy that is hugely successful in the lucrative biotech sector, consider Bret Jensen’s exclusive investment service, The Biotech Forum on Seeking Alpha.


Originally published at seekingalpha.com.