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In January of 2007, shortly after Isis (ISIS) announced its multibillion dollar, collaboration with Genzyme (GENZ), I chided an executive of Pfizer (PFE), asking how they could let rival Genzyme outbid them for the rights to Mipomersen. He (correctly) pointed out that the mode of delivery was the key factor in their decision. Mipomersen is initially slated to be given by injection (albeit weekly) for Homozygous Familial Hypercholesterolemia, although an oral formulation will probably be available for the larger 1.5 to 2 million heterogeneous and poorly controlled hyperlipidemic patient population.

This reluctance on Pfizer’s part was understandable in light of the disastrous multibillion dollar loss with “the sure thing,” Nektar’s (NKTR) inhaled insulin product, that nobody wanted to buy. This fiasco was unfolding while Pfizer and 10 other pharmaceutical companies were engaged in a bidding war to acquire the rights to Mipomersen.

Now that Genzyme has locked in a royalty-sharing plan with Isis, while rewarding Isis with generous up-front equity purchases and license fees totaling 325 million dollars, there are additional milestone and royalty payments that total a potential 1.575 billion dollars. And the kicker is that after a supplementary Isis investment of 50 million dollars, in addition to what Isis has already spent in development, Genzyme will bear the brunt of the development costs. This deal assures any acquirer that the development costs of this potential behemoth blockbuster is already contractually covered by Genzyme.

But more importantly, Isis possesses a patent estate that owns over 1500 key patents that is unrivaled by any other pharmaceutical company. It covers the entire drug development platform, which involves antisense RNA; micro RNA; aptamer drugs; oligonucleotide interference drugs; and the Ibis T5000. The technology for this last item will most likely be bought out by partner Abbott Labs (ABT) for a total of 213 million dollars, bringing Isis’s cash position to $10 a share.

The importance of Isis’ patent portfolio cannot be overemphasized. I was at an international agricultural biotechnology conference at the Danforth Plant Science Center, and spoke to a German firm who had some interesting antisense products. They told me they couldn’t make a move without an American company’s involvement due the lock that company had on developmental patents. “What company are you talking about? I inquired. “Isis,” I was told.This platform has produced an Isis pipeline of 19 drugs- many in phase two and three.

By my count, there are an additional 30+ drugs in early development using Isis’ technology. And (a little voice tells me*) it is this technology platform that has Pfizer interested in acquiring Isis. Why? Because there is an entire industry that this company has managed to possess. Imagine what a company would be worth that controlled all the antibiotics invented in the next twenty years. Isis is bigger than that. Isis owns all the antisense medicines produced for at least the next twenty years. It is an intellectual property company that can target diseases in a wide variety of manifestations; whether it is metabolic (diabetes); cardiovascular (anti C reactive protein, cholesterol-lowering mipopersen), inflammation (Alicaforsen) and so on.

So what is Isis worth? On January 7, during after-hours trading when the Genzyme collaboration was announced, Isis traded above 30 dollars a share. When Pfizer makes a formal bid for Isis, it will probably start north of that. If Genzyme or another company joins the bidding contest, it will be most likely be significantly higher than 30 dollars. The stock now trades at $13.02. Just remember one point: Pfizer needs Isis more than Isis needs Pfizer. Trade accordingly.

*As of the date of this publication, I do not posses any nonpublic information of Isis or Pfizer.

Disclosure: Author holds a long position in ISIS

Source: Pfizer Needs Isis More Than Isis Needs Pfizer