GundersonCapitalResearch_728x110Gunderson Capital Research: Isis Pharmaceuticals

Rated a "Buy for the Aggressive Portfolio"

Initiation of Coverage

February 19, 2014

isis_logoMaybe someday, someone will tell the story of how a plate of chocolate chip cookies created the San Diego biotech industry. And changed the world.

How in the 1960’s, the wife of a San Diego state senator took chocolate chip cookies to the Sacramento king pins who thought the idea of a world class scientific university in San Diego was crazy.

But after eating the cookies, that it was great.

And how today, the University of California San Diego is square in the middle of revolution in biotechnology that includes Isis Pharmaceuticals. Isis is just one of dozens of San Diego companies all located within a glider ride of the University. All racing to make medicines better, faster, less expensive.

People who listen to the Best Stocks Now radio show every day are no stranger to Isis. I have also written about it several times.

Let’s look at what they do, and how well they do it. For patients. And shareholders. And why today, this is one of our higher rated stocks on our Buy list.

 

Isis Pharmaceuticals – Making Sense of Antisense

Isis Pharmaceuticals (ISIS), based in Carlsbad, California, is a leader in something called “antisense technology.”  It is an important breakthrough in the way we treat disease.  The company has developed a drug discovery platform based on RNA-targeted technologies as opposed to traditional protein targets. RNA is an optimal drug target for the following reasons:

  • RNA is universal and vital to all living things
  • RNA is a simpler molecule than proteins, composed of only four fundamental building blocks called nucleotides
  • RNA-based drug discovery is a rational and efficient process with a high degree of specificity

With approximately 1600 patents issued globally, Isis Pharmaceutical is the owner of one of the largest antisense and RNA patent estates in the pharmaceutical industry.  The company is building an impressive pipeline of more than 30 drugs that utilize this technology to treat diseases such as cardiovascular diseases, metabolic disorders, severe and rare diseases, and cancer.  And their pipeline continues to grow with even more novel therapies in development.

Pipeline

Drug Target

Partner

Phasehalfandhalf
CARDIOVASCULAR
KYNAMRO™ ApoB-100

Genzyme

Phase III
ISIS-APOCIIIRx ApoCIII

-

Phase II
ISIS-CRPRx CRP

-

Phase II
ISIS-FXIRx Factor XI

-

Phase II
ISIS-APOARx Apo(a)

-

Phase I
ISIS-FVIIRx Factor VII

-

Preclinical
ISIS-ANGPTL3Rx ANGPTL3 Preclinical
SEVERE & RARE
KYNAMRO™ ApoB-100

Genzyme

Approved
Alicaforsen ICAM-1

Atlantic

Pre-Approval
ISIS-TTRRx TTR

GSK

Phase III
ISIS-SMNRx SMN2

Biogen Idec

Phase II
ISIS-APOCIIIRx ApoCIII

-

Phase II
ATL1103 GHr

ATL

Phase II
ISIS-GCCRRx GCCR

-

Phase I
ISIS-PKKRx PKK

-

Preclinical
ISIS-DMPKRx DMPK

Biogen Idec

Preclinical
METABOLIC
ISIS-PTP1BRx PTP-1B

-

Phase II
ISIS-GCCRRx GCCR

-

Phase II
ISIS-GCGRRx GCGR

-

Phase I
ISIS-FGFR4Rx FGFR4

-

Phase I
ISIS-DGAT2Rx DGAT2

-

Preclinical
CANCER
Custirsen clusterin

Teva/OncoGenex

Phase III
ISIS-EIF4ERx eIF-4E

-

Phase II
OGX-427 Hsp27

OncoGenex

Phase II
ISIS-STAT3Rx STAT3

AstraZeneca

Phase II
ISIS-ARRx AR

AstraZeneca

Preclinical
INFLAMMATION AND OTHER
ATL1102 VLA-4

ATL

Phase II
EXC 001 CTGF

Pfizer

Phase II
iCo-007 C-raf kinase

iCo

Phase II
Plazomicin Aminoglycoside

Achaogen

Phase II
ISIS-GSK3Rx Undisclosed

GSK

Phase I
XEN701 Hepcidin

Xenon

Preclinical
RG-101 RG-101

Regulus

Preclinical
ISIS-GSK4 Rx Undisclosed

GSK

Preclinical

Source:  Isis Pharmaceuticals Company Website

Kynamro

Isis’s drug Kynamro was the first systemic antisense therapy to receive FDA approval last January 2013, and was an important validation of Isis' antisense drug pipeline. Homozygous familial hypercholesterolemia (HoFH), the condition that Kynamro was approved to treat, is relatively rare condition, ocurring in 1 in a million births. But despite the limited patient population and competition from Aegerion's Juxtapid (AEGR), analysts still estimate Kynamro's peak market opportunity to be in the $200-400 million range. Part of the reason for the revenue opportunity - the high price. Sanofi's Genzyme unit has set a price for Kynamro of $176,000 year. This is actually cheaper than Juxtapid, which runs $235,000-$295,000 year, depending on the patient. The side-effect profiles are also different, perhaps favoring Juxtapid. But Kynamro has the marketing power of Sanofi/Genzyme behind it to help drive sales.

Strategic Partnerships

Isis’ partnership strategy has allowed the company to build a broad pipeline of drugs, creating an income opportunity coming from license fees, milestone payments, royalties, profit sharing, and earn out payments.  This revenue stream also helps offset the company’s drug development expenses.

Since 2007, Isis’ partnerships have generated in aggregate more than $1 billion in partnership payments.  In addition, it stands to earn nearly $9 billion in future milestone payments and licensing fees.  It also has the potential to share in the future commercial success of its inventions and drugs resulting from these partnerships through earn out, profit sharing, or royalty arrangements.

Isis’ current strategic partners include:  Genzyme (a Sanofi company), Atlantic Pharmaceuticals, Antisense Therapeutics Limited (ATL), Biogen Idec, Roche, GlaxoSmithLine, AstraZeneca, Teva, OncoGenex, Pfizer, Achaogen, Anylam, and Xenon.

Just today (Feb 13) ISIS received a $2 million milestone payment from Biogen Idec (BGEN) and will receive two additional milestone payments totaling $7.3 million for advancements in its Phase 2 study for a drug that treats spinal muscular atrophy in children.

In January, it received a $7.5 million payment from Alnylam Pharmaceuticals from an announced alliance between Genzyme and Alnylam.  It also has the potential to receive royalties on future products and future milestone payments.

In December, it earned a $2 million milestone payment from GlaxoSmithKline (GSK) related to an ongoing Phase 2/3 study.  That is in addition to another $3 million milestone payment it received from GSK in November for a Phase 1 study.

Clearly, Isis’ strategic partnerships are beginning to monetize and drive revenue for the company.

Competition 

Some of Isis’ key competitors include Enzo Biochem (ENZ), Gilead Sciences (GILD), Sarepta Therapeutics (SRPT) and Aegerion Pharmaceuticals (AEGR).  But Isis’ patent portfolio and strategic partnerships, position the company as a leader in the industry.

Upcoming Catalysts

Isis Pharmaceuticals has a number of potential catalysts in the coming year:

  • The trials for ISIS-APOCIIIRx and ISIS-SMNRx are expected to advance into phase III in early 2014.
  • Strategic partners OncoGenex and Teva plan to report phase III data of OGX-011 in the first half of year.

These events in conjunction with future milestone payment announcements could be positive catalysts for Isis shares.

Risks

Obviously with all drug development companies, trial failures are a possibility, but Isis’ deep pipeline helps mitigate this risk.  Furthermore, because the company relies heavily on collaborations and licensing agreements for revenue, any delay or discontinuation with these partnerships could negatively impact future earnings.

 

Gunderson Capital Management’s Best Stocks Now! App Analysis

Currently Isis Pharmaceuticals ranks number 10 out of 3821 stocks in the Best Stocks Now! App universe.  With a market capitalization of $5.9 billion, the stock falls in the Mid Cap range.   Given the nature of the biotechnology business, its risk profile is considered Aggressive.  The company is generating annual revenue of $124.91 million.

From a valuation standpoint, the stock is not cheap compared to its peers or the overall market, but its future growth potential justifies its higher valuation.  Indeed, market participants must agree because the stock was up over 200% in 2013.  The stock receives a Gunderson stock grade of A+, which is our highest grade.

 

 

Summary

 

Isis Pharmaceuticals is a pioneer in the growing RNA antisense drug development area.  The company is competitively positioned as a preeminent player in this market segment with an enviable patent portfolio and an impressive drug development pipeline.  Its many strategic partnerships are beginning to reap financial rewards and drive revenues.  With many potential positive catalysts on the horizon in the coming year, Isis Pharmaceutical’s shares should continue to reward investors in 2014.