Is Isis Pharmaceuticals a Good Investment?

Isis Pharmaceuticals (NASDAQ: ISIS  ) has one of the best business models in the sector. The company focuses on the RNA-based therapies and develops cure for rare diseases. However, the important part of the business model is that instead of marketing the drug; the company licenses the marketing rights to more established players in the health care sector. The revenue for Isis comes from licensing agreements and royalties. The business model allows Isis to focus solely on its core strength (research and development) and leaves the marketing and sales efforts to the companies that have vast experience in marketing and selling the drugs.

A strong pipeline
For a company like Isis Pharmaceuticals, it is extremely important to have a strong pipeline with a substantial number of drug candidates to continue the revenue growth from the licensing agreements. Since the company sells the rights of the products to other health care players, it allows the company to focus more on the pipeline – as a result, Isis has one of the most impressive pipelines in the sector. The company is developing drugs in five segments: cardiovascular, cancer, severe & rare, metabolic, and inflammation and others -- each of these segments have five or more drug candidates in different levels of trial phases.

However, there are only two approved drugs at the moment: Kynamro and Alicaforsen (developed and marketed by Atlantic Pharmaceuticals and provided only under international named patient supply regulations on physicians' request). Isis has secured partners for most of the drugs in the pipeline -- however, there are still some drugs that are available for partnerships and most of the drugs in the pipeline are in phase 2 trials.

Kynamro is the only drug by Isis that is available in the market (Genzyme is the partner for Kynamro), and I will mainly focus on the potential of this specific drug. Kynamro is an orphan drug, which was approved by the FDA at the start of the year. The drug is prescribed for the patients with a genetic disease that causes the problem of high cholesterol. Kynamro has been approved in the severe and rare segment but the drug is in phase 3 trials in the cardiovascular segment. Kynamro currently has a very small target market, and it is prescribed for an ultra-rare disease -- the horizon of the drug will increase if the company is successful in winning approval for cardiovascular condition as well.

Kynamro has only one competitor in the market, Juxtapid by Aegerion Pharmaceuticals (NASDAQ: AEGR  ) . There is a substantial difference in the price of these drugs – Kynamro costs $176,000 while Juxtapid can cost between $235,000 and $295,000 per year, depending on the patient. Genzyme has prior experience of marketing drugs for rare diseases, and knows how to get the best out of its marketing efforts. When it comes to rare diseases, insurers have a hard time saying no. As a result, price becomes an important factor and most of the insurers go for the cheaper option available. The marketing process of orphan drugs is considerably different than the mass marketed drugs -- the patients get a lot of guidance and help from patient groups or the company itself. In this market, the company needs to have a continued relationship with the patients. Genzyme's prior experience in the orphan drug marketing field will allow the company to market Kynamro with efficiency.

Other orphan drug consideration
While looking at the rare disease segment, one cannot overlook Questcor Pharmaceuticals (NASDAQ: QCOR  ) . The company develops and markets Acthar gel, which can be prescribed for 19 rare conditions. However, the majority of the revenues for the company come from three segments: nephrotic syndrome (a kidney-related disease), infantile spasms (a diseases affecting infants and causing death at a young age), and multiple sclerosis (a disease affecting brain and spinal cord). There is still a lot of room for the company to grow revenue. At the moment, there is no alternative to Acthar available in the market. Recently, the company announced a 20% increase in its quarterly dividend, which has resulted in an increase in the stock price. I expect further increase in price when the company reports third-quarter results on Oct. 29. The company has been beating market expectations for the last 11 consecutive quarters, and I expect the trend to continue due to the efforts to increase revenue from the rheumatology segment.

Summary
Isis has an extremely impressive pipeline, and the company is working on a number of treatments that will meet an unmet medical need. Its business model allows it to focus on its core strength, which will result in continued growth for Isis. As a result, I believe Isis will prove to be a solid long-term investment.

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