3 Catalysts Isis Investors Need to Watch

One year ago, shares of Isis Pharmaceuticals (NASDAQ: ISIS  ) were in the middle of a slide that would eventually wipe out more than 40% of the biotech's market cap. How times have changed since then. Isis' stock has more than tripled so far this year, repeatedly shattering record highs. Could Isis continue this incredible momentum? Here are three catalysts investors need to watch that will probably determine whether it can.

Source: Isis Pharmaceuticals.

1. Spinal muscular atrophy phase 2 results
Isis has big hopes for its spinal muscular atrophy drug ISIS-SMNRx. For that matter, so does Biogen Idec (NASDAQ: BIIB  ) . The two companies signed an agreement in early 2012 that grants Biogen an option to license the drug. 

An early-stage study of ISIS-SMNRx was quite encouraging. Most of the children participating in the trial continued to show improvement in muscular function through 14 months after a single injection of the drug. Isis advanced the drug to a phase 2 study for infants with spinal muscular atrophy, earning the company a $2 million milestone payment from Biogen. Results are expected to be announced early next year with a late-stage study to follow.

Spinal muscular atrophy is a rare disease affecting around 30,000 to 35,000 patients in the U.S., Europe, and Japan. Isis' drug increases production of the SMN protein, which is essential to fostering healthy neuromuscular growth and function.With no effective treatments available for the disease, Isis and Biogen appear to have a tremendous opportunity in front of them if ISIS-SMNRxproves to be successful.

2. Anti-clotting phase 2 results
Phase 2 results are also anticipated by early 2014 for experimental drug ISIS-FXIRx, which targets treatment of clotting disorders. The drug inhibits production of the Factor XI protein. High levels of this protein increase the risk of blood clots that can ultimately lead to heart attacks and strokes.

Why does Isis harbor great expectations for this drug when there are plenty of anti-clotting drugs already on the market? The main reason is that many of these drugs cause an increase in bleeding. Early studies of ISIS-FXIRx, on the other hand, showed that the drug doesn't increase bleeding. This safety advantage could prove to be very attractive to physicians and patients if the drug ultimately gains approval. 

3. Transthyretin amyloidosis phase 3 results
It's further in the future than our first two catalysts, but results from a late-stage study of transthyretin amyloidosis drug ISIS-TTRRx could provide an even bigger boost for Isis if all goes well. The phase 3 study is expected to wrap up in late 2014.

Isis moved the drug into a phase 2/3 study in July of this year, notching a $2 million payday from partner GlaxoSmithKline (NYSE: GSK  ) in the process. The two companies are focusing their research on the use of ISIS-TTRRx in treating familial amyloid polyneuropathy, or FAP, a rare genetic disease that affects more than 10,000 patients across the world.

FAP is just one form of transthyretin amyloidosis, which is caused by a mutation in the TTR gene. Another version, familial amyloid cardiomyopathy, or FAC, affects more than 40,000 patients worldwide. Isis and Glaxo could also pursue a regulatory pathway for FAC in addition to FAP, since the mechanism of action for ISIS-TTRRxshould work for both types of transthyretin amyloidosis.

More in the hopper
The great news for investors interested in Isis is that these aren't the only potential catalysts. There are plenty more in the hopper, with a robust pipeline of drugs in mid-stage development. 

A key question, though, is whether Isis is now overpriced after the sharp climb in 2013. The company claims a market cap of almost $4 billion despite having only one product, Kynamro, with regulatory approval. My view, though, is that the company's pipeline potential justifies the valuation. If a few of these catalysts show good results, shares should go even higher. Isis remains a stock that investors should keep on their watchlists.

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