Why Isis Pharmaceuticals, Inc. Exploded Higher By 19% in May

Isis Pharmaceuticals' stock was off to the races again in May. Find out what two factors led shares notably higher last month, and whether this momentum can continue.

Sean Williams
Sean Williams
Jun 4, 2015 at 12:06PM
Health Care

ISIS Chart

What: Shares of Isis Pharmaceuticals (NASDAQ:IONS), a predominantly clinical-stage biopharmaceutical company focused on developing therapies utilizing its antisense drug development platform, exploded higher by 19% in May, based on data from S&P Capital IQ, after announcing its first-quarter earnings results and a licensing deal for one of its clinical compounds.

So what: In early May Isis reported its first-quarter results, which included $62.6 million in revenue, up 122% from the year-ago quarter, and a net loss of $16.7 million, or $0.14 per share. This was nearly a 50% reduction from the $31.3 million Isis Pharmaceuticals lost in Q1 2014, and it resulted in Isis' cash balance declining by just $33.7 million to $695.1 million.

Comparatively, Wall Street was looking for Isis to lose $0.20 per share, so this represented a sizable beat. Isis attributed its strong revenue growth to the $46 million in milestone payments it received, including $31 million from Biogen (NASDAQ:BIIB) for various muscular and neurological indications, and $15 million form GlaxoSmithKline (NYSE:GSK) for the advancement of ISIS-TTRrx into late-stage studies.

Additionally, Isis announced an exclusive licensing agreement with Bayer (OTC:BAYRY) over ISIS-FXIrx for the prevention of thrombosis (i.e. blood clots). Under the somewhat vague terms of the deal, Isis is eligible to "receive near-term payments," which includes upfront licensing payments following an advancement of the drug in a phase 2 study involving patients with compromised kidney function, as well as milestone payments and tiered royalty payments based on ISIS-FXIrx's gross margins.

Source: Isis Pharmaceuticals via Facebook.

Now what: In short, this was just business as usual for Isis, which is approaching 40 drugs in its clinical and preclinical pipeline and is sporting about a dozen high-profile licensing partners.

Isis' drug development platform, as it claims, is capable of producing around five new clinical trial-ready compounds per year. Between its therapeutic diversity and licensing deals, Isis has billions of dollars in potential milestones and royalty payments waiting for the taking. This is a situation where Isis only needs a few successes to potentially validate its drug development platform and turn those losses into substantial gains.

Of course, investors should understand there's still risk here until Isis is able to turn a recurring profit based on its royalties from drug sales. Licensing and milestone payments can be erratic at times, and we saw with Kynamro (its only approved drug for a rare form of genetically inherited high cholesterol) that just getting one drug approved doesn't guarantee success.

When weighing everything here, Isis' superior cash position and diverse portfolio give me reason to believe it can be successful. This is definitely not a stock for the investor who runs away from risk, and it'll likely be volatile, but I believe it has the tools to become a biotech blue chip over the next decade.