Big Milestones Could Lead This Stock to Big Gains

I cannot emphasize enough how important having a deep and diverse pipeline, as well as numerous potential collaborative partners, can be in the biotechnology space.

I know it's like comparing apples and oranges, but humor me for a moment. On one hand, we have Dendreon (NASDAQ: DNDN  ) , a cancer immunotherapy developer that, at one time, was the talk of Wall Street. What Dendreon didn't have, though, was a diversified pipeline of products and exactly zero development partners, and it lacked any experience in bringing a drug to market. Since its advanced prostate cancer immunotherapy, Provenge, was approved, sales growth has stalled and losses have piled up.

In other column, we have Isis Pharmaceuticals (NASDAQ: ISIS  ) , an antisense drug developer that currently has 31 clinical and pre-clinical drugs being studied, as well as 12 collaborative drug development partners. It only has one therapy approved by the Food and Drug Administration -- like Dendreon -- with Kynamro, a homozygous familial hypercholesterolemia treatment, but it wisely partnered with Sanofi to help market the drug.

The difference between the two companies, despite both continuing to lose money, is that Dendreon's opportunities are waning with such a small pipeline to fall back on while Isis' are soaring.

Source: Garfield Anderssen, Flickr.

A mountain of milestones
If you note Isis' performance over the past year, it has climbed from as low as $7.56 to close yesterday near $32 per share. The reason for its big up day yesterday was the announcement of another expanded collaboration with Biogen Idec (NASDAQ: BIIB  ) with regard to the development of neurological therapies. This announcement -- and the potential for $4 billion in milestones (assuming every drug the two are collaborating on gets approved, which is an unlikely scenario) that Isis' management touched on yesterday afternoon -- got me wondering: Just how much milestone money could Isis be looking at based on its collaborations?

Below are a few snippets from the press releases of some of its most important collaborations:

With regard to Isis' now fourth collaboration with Biogen Idec:
"When combined with the first three collaborations, using what we think a reasonable assumptions about the success of the various programs, with the caveat that of course most of these programs are very early stage, Isis revenue potential exceeds $4 billion plus royalties." 

Isis and AstraZeneca (NYSE: AZN  ) formed an RNA-therapeutics-based strategic alliance last year to discover novel cancer treatments. Here's how Isis' milestone payments break down in this partnership:

Under the terms of the agreement, Isis will receive from AstraZeneca $31 million in upfront and near term payments, comprising a $25 million payment on signing followed by a $6 million payment in the second quarter of 2013 assuming the research program is continuing. Isis is eligible to receive further milestone payments subject to achieving certain predefined clinical success criteria for the ISIS-STAT3Rx program and pre-clinical milestones for the other programs. 

Similarly, in 2010 Isis partnered with GlaxoSmithKline (NYSE: GSK  ) to collaborate on RNA-therapeutics for rare and infectious diseases. According to their collaboration:

Under the terms of the agreement, which covers up to six programs, Isis will receive an upfront $35 million payment from GSK and is eligible to receive on average up to $20 million in milestones per program up to Phase 2 proof-of-concept (PoC). Isis will be eligible to receive license fees and milestone payments, totaling nearly $1.5 billion, in the event all six programs are successfully developed for one or more indications and commercialized through to pre-agreed sales targets. In addition, Isis will receive up to double-digit royalties on sales from any product that is successfully commercialized.

This represents just three... three... of Isis' ongoing collaborations, yet combined these three partnerships have the potential for somewhere in the neighborhood of $6 billion in milestone and royalty payments. Now, let's put this into some perspective. Obviously not every single drug that works its way through the development process is going to make it to market -- nor is Isis going to see all of this money in one lump sum. However, I can only assume as a best "guesstimate" that the cumulative value of its 12 collaborations, including royalties and milestone payments, is likely worth double the current value of its market cap, if not more!

Again, to really drive this point home, I'm not saying that every one of its collaborated drugs will be approved. Instead, I'm saying that Isis' success is inherent because it has the potential to pick up huge milestones and royalties because of its existing collaborations.

To add, Isis also has 15 compounds that it's developing in-house! This means that while the onus of costs is solely on Isis, all the profits will belong to Isis as well.

There are just so, so many opportunities opening up for Isis to ignore. With that in mind, at worst, this should be a company you have etched into your everyday watchlist if you're a biotech-savvy investor.

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  • Report this Comment On September 11, 2013, at 1:35 PM, tecno1 wrote:

    Thanks! Great article, you nailed it! Unfortunately ISIS is one of the most hated stocks on Wallstreet.

    Indeed ISIS has analyst coverage by 11 firms but only 3 are positive and 5 are strongly negative on ISIS prospects. This is the comment from Piper Jaffrays analyst Edward Tenthoff on the Biogen deal: Piper Jaffray views Isis Pharmaceuticals’ fourth collaboration with Biogen (NASDAQ:BIIB) as further evidence of the company’s “willingness to give away economics for its research and drugs to partners.” Piper thinks that shares of Isis should be up only $0.90 on today’s collaboration announcement and reiterates an Underweight rating on the stock. The firm raised its price target for the shares to $20 from $19. Last week after very impressive APOCIIIrx monotherapy results this analyst cut his PT for the shares from $20 to $19. But with a short interest of nearly 13 mio shares he obviously has an agenda.

  • Report this Comment On September 11, 2013, at 3:48 PM, jawscclaws wrote:

    Let the naysayers on Wallstreet provide negative feedback on ISIS, but it will most certainly remain ineffective to the advantage of those investors in for the long haul. Cramer was the same way earlier this year and has since changed his tune! The antisense platform is eventually going to provide most, if not all, collaborative entities with optimum returns. Biogen just happend to be thinking outside the box and one step ahead of the curve that may eventually propose a buyout. If so, the offer better be sooner rather than later; otherwise, ISIS will become independent on just one grand-slammer and we are already in the ninth inning here.

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