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Isis Pharmaceuticals (NASDAQ:ISIS) is a pharmaceutical company that has had quite a wide range of revenues over the past few quarters. To give some perspective on how volatile earnings for this company have been, Q2 2012 earnings were double Q1 2012 earnings, Q3 2013 earnings were a mere quarter of Q2 2012 earnings, and Q4 2012 earnings were almost double Q3 2012 earnings. A graphical representation of ISIS' earnings over the past 5 quarters (not including its most recent Q1 2013 earnings) can be seen below:


(Click to enlarge)

(Source: Wikinvest)

ISIS' earnings fluctuations are due to the fact that much of its revenue is derived from large lump sum payments from its partners, which may include license fees or milestone-related payments. On Wednesday May 8, ISIS announced its Q1 2013 results, which (with revenue of $43.4 million) were substantially higher than its past Q1 2012 results. That was largely due to one single payment. ISIS received $25 million from Genzyme Corporation for FDA approval of the KYNAMRO NDA, which accounted for over half of its Q1 2013 revenue. Also significant was a $7.5 million payment from GlaxoSmithKline (NYSE:GSK) for the initiation of the Phase II/III study of ISIS-TTRRx. With these two major payments, ISIS had a strong quarter and continued to maintain its strong cash position ($372 million at the end of Q1 2013).

Currently ISIS trades fairly close to its 52 week highs, which is representative of the fact that the company has been making some major progress. Among the noteworthy developments that have been made recently are the following:

  • The approval and launch of KYNAMRO, which treats patients with homozygous familial hypercholesterolemia (a long medical name for a condition that can cause cardiovascular disease in childhood, which occurs in about 1 in a million births). GSK has paid $25 million to ISIS and commenced the launch of KYNAMRO. Beyond this payment, ISIS also has a profit sharing arrangement with GSK and will be earning commercial revenue from KYNAMRO in future.
  • A partnership with Roche Holding (OTCQX:RHHBY) for the Huntington's disease program, where ISIS is in the process of researching Huntington's disease and developing a drug to treat it. ISIS has already received a $30 million payment from Roche for this program. This fell slightly out of Q1 2013 (the venture between ISIS and Roche was announced on April 8 2013), and will be counted in ISIS' Q2 2013 revenues.
  • The initiation of a couple of major new clinical studies, which will generate additional revenue upon reaching major milestones. A $7.5 million payment has already been received for the initiation of the phase 2/3 study of ISIS-TTR­­Rx in patients with familial polyneuropathy (mentioned above). ISIS also initiated a phase 2 study of ISIS-SMN­­Rx in infants with spinal muscular atrophy, and will earn $3.5 million when the first patient is dosed in that study.

Beyond these major developments, ISIS has numerous more drugs in the early stages of development that will undergo clinical trials in the years ahead. As ISIS director Lynne Parshall comments:

With the pipeline of 28 drugs, certain drugs that could reach the market by 2017, 9 drugs that will report Phase 2 or Phase 3 data in the next year or so, and a host of promising earlier-stage programs we have numerous opportunities to showcase the advances in the pipeline and the productivity of our NSM drug discovery platform.

Why ISIS Dropped Slightly Upon Announcing Strong Q1 2013 Results

While ISIS' Q1 2013 earnings could not be considered disappointing, and optimism is generally high regarding its future prospects, the stock dropped about 10% on the day earnings were announced. I believe what had a significant impact on ISIS is the fact that on the day Q1 2013 earnings were announced, ISIS also announced a proposed public offering of common stock. ISIS intends to offer 9 million shares of its common stock at a price of $19 per share, which represented a discount from its price at the time this was announced. The gross proceeds from this sale will come to $171 million, which will go back into the business to further drug development and for general corporate purposes. At a price below $19 per share, I would consider ISIS to be a reasonably sensible buy.

Source: Isis Pharmaceuticals Slides A Little Despite Strong Earnings