3 Things to Watch at Isis Pharmaceuticals

Isis Pharmaceuticals (NASDAQ: ISIS  ) hit rough waters with its lead drug, Kynamro. But the small-cap developer of antisense drugs has a populated pipeline and a wide range of big pharma partners. If the Food and Drug Administration denies Kynamro, will the company find its sea legs or sink underwater?

Here are three things to watch when considering an Isis buy.

1. Kynamro approval
Isis' only approved drug hit the market in 1998 and isn't commercially available anymore. That ups the importance of lead drug Kynamro, a partnered project with Sanofi's (NYSE: SNY  )  Genzyme subsidiary.

Kynamro treats a severely high cholesterol condition called homozygous familial hypercholesterolemia, or HoFH. Kynamro and Aegerion's  (NASDAQ: AEGR  )  competing lomitapide are running nearly parallel down the pipelines. Both drugs are effective, making safety the deciding factor.

There's the (potential) rub.

Kynamro fared worse than lomitapide at regulatory safety concerns. An FDA advisory panel in October recommended approval for Kynamro, but questioned liver safety and neoplasm risk. The liver safety issue comes up with lomitapide, too, but Kynamro stands alone in questions concerning neoplasms, or abnormal tissue growth.

A European committee denial last week didn't help Kynamro's image. But while its approval would help further validate Isis' drug platform, Kynamro isn't the company's only hope.

2. Mid-stage pipeline
The Isis pipeline boasts around 25 projects, with the majority occupying phase 2 trials.

A leader of this mid-stage pack recently received orphan drug and fast-track designations from the FDA. Isis and GlaxoSmithKline's ISIS-TTRX treats the rare genetic disorder familial amyloid polyneuropathy, or FAP. Phase 2/3 trials should kick off this month, but the drug's still running slightly behind Vyndaqel -- its likely competition from Pfizer. Vyndaqel has European approval  but had to circle back to phase 3 upon FDA request.

Glance through Isis' full pipeline and you'll see that most drugs have a big pharma partner. That's a "make or break" detail for an emerging biotech with minimal in-house funding.

3. Partners aplenty
These partnerships exist mainly to allow Isis to pass off responsibilities for the drug's development and commercialization. When and exactly how this happens varies between agreements. Genzyme -- now part of Sanofi -- made a license payment and a $150 million equity investment to carry Kynamro to market. Milestone payments following that could add up to $1.5 billion, assuming the drug's approved and has a successful commercial launch.

The Fool's Keith Speights recently detailed Isis' latest deals with Biogen (NASDAQ: BIIB  ) and AstraZeneca (NYSE: AZN  ) . The Biogen agreement, the third between the companies this year, covers treatments for neuromuscular and neurological conditions. AstraZeneca signed up for a bundle of cancer drugs. The companies paid initial payments of $30 million and $26 million, respectively, with further payments to follow in the future.

Foolish final thoughts
Isis' most recent quarter reported $343.6 million in cash, cash equivalents, and short-term investments. Cash burn was about $25 million. Debts include $426.9 million in contractual obligations, featuring convertible notes and leases, but only about $15 million of that is due in the next year.

The diversity of Isis' partnerships awards it some padding that's not often afforded to small caps with novel treatments. But that's assuming any pipeline products make it to market. Kynamro's approval would go a long way to appease nervous investors.

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