Is Isis Pharmaceuticals, Inc. Now a Bargain?

Isis Pharmaceuticals (NASDAQ: ISIS  ) has one heck of a bad year in terms of the performance of its share price, falling close to 40% year-to-date. And starting in late February, the stock has essentially made a beeline lower. Given the dramatic and rapid nature of this decline, Isis shares could be starting to find a bottom, making them a potential rebound candidate. Supporting this idea, Isis shares are now trading at only four times their cash value. So, let's dig deeper into this antisense drugmaker to see if it is now a bargain at current levels. 

ISIS Chart

ISIS data by YCharts

How did we get here?
Before exploring Isis's present value proposition, we need to consider why the stock fell like a rock earlier this year. The problem started soon after the company announced positive top-line data for ISIS-SMN Rx, its treatment for children with spinal muscular atrophy, or SMA, being co-developed with Biogen (NASDAQ: BIIB  ) . After shooting up more than 15% on the back of this news, the stock began its rapid decline that has continued into May. What's interesting is there hasn't been a particular negative event to pin the blame on for Isis's woes. As such, I suspect the stock has been a victim of the wider biotech downturn that hit companies valued more for their clinical, rather than commercial pipeline, particularly hard. 

My view is that Isis has been a victim of its own success in many ways. Because the company was able to achieve a number of clinical trial successes during the run-up across all biotechs, its valuation swayed heavily toward the potential of its robust clinical pipeline. And despite having multiple late-stage and mid-stage clinical candidates, the market probably didn't like the fact that Isis's shares were trading as high as forty-six times annual revenues at one point! Furthermore, Isis's decreasing milestone revenues combined with increasing R&D costs are likely, at least partly, to blame for this decline as well. In short, Isis's shares got a tad ahead of themselves from a fundamental perspective.

But that pipeline shouldn't be ignored
Isis's novel antisense technology has allowed it to build one of the deepest pipelines and diverse licensing agreement populations in the sector. Specifically, Isis has over twenty ongoing clinical trials and over ten pharma partners. Moreover, the company has a total of thirty-two drugs under development, with plans to add another five next year.

Looking ahead, we should see Isis launch late-stage studies for its SMA drug ISIS-SMN Rx, as well ISIS-GCCR Rx as a potential treatment for severely high triglycerides and familial chylomicronemia syndrome. In short, Isis's clinical pipeline is progressing nicely, giving investors ample reason to keep a close watch on this mid-cap biotech. 

Foolish wrap-up
Because Isis isn't expected to file for another regulatory approval until at least 2016, all eyes will remain on its sole FDA approved product Kynamro for the time being. Kynamro is approved as a treatment for a rare disorder known as homozygous familial hypercholesterolemia, or HoFH, and is marketed by Sanofi (NYSE: SNY  ) . Per their agreement, Isis presently receives approximately 30% of Kynamro sales.

However, Kynamro's launch has gotten off to a slower than expected start, with Sanofi's Genzyme recently increasing its sales staff to try to ramp up sales. And adding some intrigue to the mix, Aegerion Pharmaceuticals'  (NASDAQ: AEGR  ) competing drug Juxtapid reported disappointing sales numbers in the first-quarter, dragging Aegerion shares down in the process. In short, these HoFH drugs are having a tougher time than expected in gaining market share, which is somewhat surprising given that orphan drugs tend to exhibit relatively high penetration rates. 

Viewed in this light, we need to carefully consider if Isis really represents a bargain following its recent pullback? On the one hand, we have perhaps one of the strongest clinical pipelines among mid-stage biotechs, with multiple blockbuster candidates. At the same time, we aren't seeing stellar sales for Kynamro. As a result, Isis is only projecting total revenue for 2014 to come in at $160 million, meaning that its shares are presently trading at about eighteen times annual revenue for the year. So, I personally don't think Isis represents a bargain, even after falling in such dramatic fashion. You therefore might want to remain on the sidelines until Kynamro sales begin to live up to their earlier billing or the company gets closer to another regulatory filing. 

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Read/Post Comments (5) | Recommend This Article (2)

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  • Report this Comment On May 13, 2014, at 3:08 PM, arthurs1 wrote:

    Well you did get the stellar pipeline right, but you missed the many near term mid stage clinical stage trial updates which certainly can act as a catalyst for the stock. I believe it is just a mater of time before ISIS announces new partnerships for some of the pipeline drugs. It could be for a single drug or it could be for the multiple cardio or metabolic drugs.

    You also err on valuing ISIS on a revenue basis. ISIS trades at a lower revenue multiple than the vast majority of biotechs in RNA, ALNY is an example. There is no reason for ALNY to be valued higher yet it is, significantly.

    But your biggest mistake is valuing ISIS on possible Kynamro revenues. Weak Kynamro sales has all but been discounted for years to come. Though an upside surprise is possible.and ISIS has stated sales are trending higher, it is not priced into the stock

    The APOC-3 drug will very possibly be the mother of all arthrogenic drugs as there is no other drug like it, no drug reduces Trigs so much, nor does any drug increase HDL as much, no drug in development even comes close. On top of that it has great potential for type 2 diabetics and those with metabolic syndrome because it produced statistically significant reductions in blood glucose in multiple trials. This drug alone is worth $20 or more a share.

  • Report this Comment On May 13, 2014, at 3:27 PM, arthurs1 wrote:

    One thing I left out is that ISIS and Sanofi/Genzyme will have results in 2015 of a large ongoing trial for Kynamro that would if successful, result in expanding the use of the drug tremendously,as you know it is only approved for a tiny population, those with HOFH. Aegerion will not be able to expand use of their drug as they are not running any trials that would allow use beyond HOHF.

  • Report this Comment On May 14, 2014, at 8:18 AM, TruffelPig wrote:

    Today up >10% PM on phase II data.

  • Report this Comment On May 14, 2014, at 2:58 PM, arthurs1 wrote:

    Isis heralds positive PhII diabetes results for a leading antisense drug

    By John Carroll Comment | Forward | Twitter | Facebook | LinkedIn

    Isis ($ISIS) says its lead diabetes drug scored a success in a Phase II study, with both doses of ISIS-GCGR spurring a significant drop in blood glucose levels after 13 weeks of therapy in a group of treatment-resistant patients. And the antisense therapy hit its marks on HbA1c without spurring some of the troubling side effects that may hinder rival therapies in the pipeline.

    GCGR works by targeting the glucagon receptor, looking to dial down the effect of a hormone that triggers glucose production in Type 2 diabetics. This was a small study, with only 75 patients, but it does set the stage for much larger studies that will be needed to test this antisense tech for a disease that afflicts a huge patient population.

    Investigators said that the drug reduced blood glucose levels by 2 percentage points in the 200 mg arm and 1 percentage point for the 100 mg group. There was no comparative placebo data. Details will follow at an upcoming scientific session.

    "Unlike results with previous small molecule inhibitors of glucagon receptor, patients treated with ISIS-GCGRRx did not experience significant changes in LDL-C, blood pressure or body weight gain," says Sanjay Bhanot, vice president of clinical development and translational medicine at Isis. "Additionally, we do not expect ISIS-GCGRRx to produce drug-drug interactions, which means ISIS-GCGRRx has the potential to be used in combination with currently available therapies. ISIS-GCGRRx is a dual acting drug designed to effectively balance reduction of hepatic glucose production and GLP-1 increases. The increases in GLP-1 observed in this study are consistent with our preclinical and Phase 1 experience with ISIS-GCGRRx and support the dual action of ISIS-GCGRRx. Given the remarkable results we have observed in this 13 week study, we plan to optimize dose and dosing schedules for our longer-term studies of ISIS-GCGRRx in patients with type 2 diabetes."

    The side effect profile can be just as important as efficacy in diabetes drug development. Earlier this week Eli Lilly ($LLY) reported that its basal insulin peglispro, a potential rival to the bestselling Lantus, spurred a statistically significant increase in triglycerides--a type of blood fat. Also, more patients taking BIL had an increase in the liver enzyme ALT, though there were no reports of severe liver damage. The drug worked in reducing HbA1c, but some analysts fretted about the potential safety issues.

    - here's the release

    Related Articles:

    Isis gears up for Phase III with Biogen-partnered antisense drug

    Biogen fronts $100M to add Isis R&D pact on neurological diseases

    Isis dumps rheumatoid arthritis effort after antisense drug flunks PhII

    Biogen Idec strikes $299M deal for Isis antisense drug

    Read more about: Isis Pharmaceuticals, Type 2 Diabetes

  • Report this Comment On May 14, 2014, at 3:08 PM, arthurs1 wrote:

    Note, the news today is for the GCGR drug, not the GCCR drug mentioned in the article.

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