Isis Pharmaceuticals (IONS -1.52%) has been on a rollercoaster in 2014, with the stock dipping by almost 50% by returning to its recent price of around $40 (essentially flat YTD). We asked two of our top analysts for their take on this controversial stock.
George Budwell: Isis Pharmaceuticals is a speculative biotech that trades more on the potential of its hyper-diverse antisense drug discovery platform than anything else. For example, Isis' shares are presently trading at an astronomically high 31 times 12-month trailing revenue!
Because of the speculative nature of this stock, its shares have also swung wildly this year, with most of this volatility pivoting around clinical catalysts. Specifically, shares have traded as high as $62.66 and as low as $22.25 within the last 52 weeks.
This stock's seemingly bipolar nature reflects its massive potential and potential dark side. I think that investors are optimistic that Isis will be able to shepherd at least a handful of promising clinical candidates, like APOCIIIRx, through to regulatory approval, following the FDA approval of Kynamro for homozygous familial hypercholesterolemia.
But the question is whether Kynamro really validates RNA-targeted therapies? The advisory committee to the FDA wasn't particularly impressed with the drug because of liver toxicity issues, voting 9 to 6 in favor of approval. And because these therapies have a knack for ending up in the liver, we could see safety problems curtail their commercial potential. That's a risk I'm not sure the company's hefty $4.47 billion market cap adequately reflects -- and I'm even a shareholder.
Brian Orelli: A couple of years ago, I'd be arguing the bear side of buying Isis Pharmaceuticals' antisense, the technology the biotech is built on, is simple enough: shut down protein production by binding antisense drugs to RNA, the intermediary between DNA and protein. But getting antisense drugs to the right cells before they degrade was a big challenge that took a long time to solve. Isis Pharmaceuticals was founded in 1989!
Fortunately Isis seems to have finally solved the issues. Kynamro, its first drug with the new formulation, was approved last year. The drug, which is being sold by Isis' partner Sanofi (SNY 0.68%), isn't going to produce much in the way of sales. The drug treats a rare genetic disease and has competition from Aegerion Pharmaceuticals' (NASDAQ: AEGR) Juxtapid. Isis will likely get more revenue from licensing its technology than it ever will from sales of Kynamro.
While Kynamro isn't likely to be a commercial success, it doesn't really have to. By getting approved and proving that the technology works, Kynamro has already done its job. Investors should have confidence that the other 20-something drugs in Isis Pharmaceuticals' pipeline will also do what they're supposed to do. Not all of them are necessarily going to work out; knocking down the target protein might not actually help the disease like Isis Pharmaceuticals thinks it will. But investors should be confident that the drugs will knock down the proteins as expected.
Investors seem to already be making that assumption with Isis Pharmaceuticals trading at -- as George noted above -- a pretty hefty valuation. While there's already sales baked into the valuation, I like the risk-reward prospects better now than I did a few years ago. Sure the reward isn't going to be as high -- Isis has tripled over the last two years -- but the risk is substantially diminished.
