Isis Pharma No Longer Paints a Profoundly Bullish Picture 9 comments
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I highlighted Isis Pharmaceuticals (ISIS) a few weeks ago believing that a sell-off causing a price decline from $19 to $16/share was a prime opportunity to buy a potential high-growth business. It seems, however, that my proclamation may not have been entirely correct. And, post last week’s trading, I’ve liquidated my position in ISIS. Do I still think ISIS could present a tremendous opportunity to invest in next-generation biotechnology? I do. But, with markets seemingly reaching a top and real cash flow in ISIS years away, it’s probably better to be safe than sorry. Moreover, lacking the ability to perform accurate fundamental analysis due to ISIS’s place on its growth curve, an investor is left only with technical analysis to guide the investment process and, as I will show, ISIS’s charts no longer paint the profoundly bullish picture they once did. Before I begin, I recommend those unfamiliar to read my post on long term technical analysis.
Near-term Daily Chart
Around August 10, ISIS began a sell off which brought the stock back towards its 50-day moving average (the MA which I believe signals interim trend support). I opportunistically purchased here knowing that I was investing prior to a confirmatory bullish bounce from this pullback. As such, I’ve adopted the tact that I may be wrong in my intuition and have watched the stock’s performance very carefully since this pullback.
The stock made a textbook advance after its sell off, however, this was on week volume and ultimately re-encountered resistance at its 50-day moving average. For some, this may have been enough to force a sale, but I am a long term investor and am not averse to dollar cost averaging should I prove to have entered a stock too early. So, how does one determine whether to purchase more in hopes of dollar cost averaging or to sell and preserve capital for another day?
Long Term Weekly Chart
Above, we take a look at ISIS’ 3-year weekly price chart. Here, you’ll see that ISIS has been on an up-trend since bottoming in mid-October of 2008. Moreover, through these three years, the stock has held a rather strong uptrend which has never breached its 200-week moving average. In recent weeks, however, ISIS has both breached its recent up trend and, as of last week, has once again breached its 50-week moving average. It would seem that the stock is more likely in a high-level consolidation phase as opposed to ready to resume its bullish trend. As such, a retest of the 200-week moving average is not out of the question especially given the stock’s complete lack of any identifiable interim support in its near-term daily chart displayed above this section. With a potential 15-20% additional value at risk, I’m not willing to buy additional shares and continue averaging down.
Full Disclosure: Author was previously long shares of ISIS, but no longer holds any shares of the stock.
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While I wouldn't consider myself completely versed in biotech, I do appreciate the fundamental thesis behind investing in various biotech businesses. In fact, in this article, I link to a more fundamentally focused post that I wrote on ISIS.
I'm not sure why you seem so upset that I'm recommending shying away from ISIS right now. My argument is purely technical and has nothing to do with the underlying business or technology (antisense therapies) which I continue to be bullish on. There's no debating, however, that ISIS is at least a year away from any material catalyst for value with regards to its most promising trials and that the Company will burn cash until it is able to get another drug to market. Is it wrong, then, to opportunistically trade the stock knowing that fundamental value is not likely to be driving the stock's price in the short/intermediate term?
I know this may feel contrary to the "spirit" of "investing" in something you believe in and holding it through thick and thin. But, let's be honest, most of us invest to make money, not just vote our dollars for a great idea. ISIS is a publicly traded company and the capital it raised through its IPO is permanent. If you're worried about my short term bearish call, let me assure you that buying and selling the stock on the open market does not fundamentally hurt the business.
Ultimately, I feel like your anger and belief that we should NOT invest in biotech is misplaced. In fact, if you believe in the business so much, my bearish opinion and selling of the stock is merely providing you an opportunity with which to enhance your ownership at depressed prices. Why not be constructive and start buying aggressively? While the risk I see in the charts is too great for me and MY time frame, it may suit yours just fine.
On the flip side, if you care to share and think that I'm missing something significant in my analysis, I welcome your thoughts. Please, enlighten us so that we can be more adroit in our investing.
On Oct 06 11:57 AM nova wrote:
> Gentlemen, please do NOT invest in biotech. You don't know shit about
> it.
On Oct 05 06:56 PM agedvet wrote:
> I have 5% of one of the portfolios I manage in ISIS. What is most
> distressing is the drop in price today despite the 1.49% increase
> in the S & P. I do, however think it is a tad premature to give
> up on this stock. I, for one, throw in the towel if it breaks $12.
Isis' "Mipomersen ablates arterial plaque in animals". Everything seen in Mipo animal studies has subsequently been seen in human studies. The cholesterol transport of Apo A1 and Apo B100 is consistent across species. So, in theory this SHOULD also work in humans. So I ask you, what is the true value of a drug that removes arterial plaque? In animal studies, Mipo removed up to 92% of arterial plaque. What is the cost of coronary bypass surgery versus taking a course of treatment with Mipo? The market for this drug will prove to encompass nearly all of us, the Big Mac and fries devouring, non-exercising world. Anyone with managable blockages would be a candidate for treatment to remove plaque via drug rather than scalpel. I would be open to dollar estimates for the value of a drug that does that.