Three Core Biotech Holdings: Isis, Ligand and Vical

Isis (ISIS), Ligand (LGND) and Vical (VICL) have been my core biotech holdings since the mid 1990s and I have been steadily adding to these positions each time the market has lost faith. They share common themes and some differences. Isis and Vical have maintained consistent management throughout the years, whereas Ligand radically changed direction a few years ago when Daniel Loeb’s Third Point hedge fund took a stake. Now all three are focused on drug discovery; leaving the marketing to others.

All three have many pharmaceutical partnerships and many shots on goal, so one failure would not be devastating. In order of platform strength and a protective moat around their technology; Isis is the strongest, followed by Vical, with Ligand pulling up the rear.

Ligand has announced a strategy of picking up funded drug candidates through low cost mergers with desperate cash-strapped micro-cap biotechs. They want to partner their internal development candidates at the earliest possible inflection point, but not much past the initial phase 2 “proof of concept” clinical trials.

Historically, Ligand sold over half of its potential royal streams and settled for higher upfronts over royalties to build a commercial sales organization for a few fledging products. Third Point installed new management, sold Ligand’s commercial products, declared a special $2.50 dividend and set the company on the path of operating cash flow neutral.

Three potential blockbusters are close to launch by GlaxoSmithKline (GSK) and Pfizer (PFE) with sacrificed royalties. Now Ligand is showing more emphasis on royalties than the upfront, a better balance. The encouragement is that new deals are being negotiated with mid-teen and higher royalties. Looking back, I had too much faith in Ligand’s old management and now I’m solidly on Dan Loeb’s team with Ligand.

Isis’ years of failure have been legendary, but the Genzyme (GENZ) almost $2B deal on the Mipomersen cholesterol drug was the turning point. Together with the $200M sale of Ibis Biosciences to Abbott (ABT), Isis has almost as much cash as India has gold. Isis has over 20 drugs in development and repeatedly committed to keeping its employment below 325 while continuing to rev its discovery engine in high gear.

Both Ligand and Isis will be high earners when royalties start flowing and expenses are maintained at a low level. The difference is Isis is willing to take the clinical process to a higher inflection point to get 50% profit sharing whereas Ligand will settle for less risk and investment to get a 15% royalty. But, neither company wants a sales force.

Vical has been more ambiguous about commercialization. Their DNA vaccine platform has some pharmaceutical and government sponsorship, and they are retaining US rights to their cancer vaccine. Vical is the most risky of the three companies with only about 2 years of cash and limited research funding. But, they have some drugs in phase 3. The bet on Vical is that DNA based vaccines are the only way to respond quickly to potential pandemics.

My core biotech holdings are high risk, high reward. What they have in common is no fear of future product discovery. They can partner knowing there are always more drugs to come. I try to avoid all or nothing biotechs.

Don’t be fooled by one product cancer companies alleging that they will diversify into other indications for their one drug. Most of the time, other indications fail. Know that a single drug is not a platform. My core biotechs are all platform companies; Isis and Vical are based on solid technical platforms and Ligand is based a solid business platform.

P.S.: PDL Biopharma (PDLI) learned it was a mistake to resist Daniel Loeb’s advances.

Disclosure: Author is long Isis, Ligand, PDLI, PFE and Vical.

Comments

[Robert0713:]

25 words or less: why is VLP tech (NVAX and possibly others) not superior to DNA? Or are DNA/VLP (technically) orthogonal? I don't know the answer, so that's a real question, not rhetorical.

Nov 09 03:47 PM

[Tom B:]

LGND is a dog; a LOST dog. In a forest full of coyotes.

Nov 09 10:11 PM

[bio_seeking...:]

NVAX's VLP (virus-like particle technology licensed possibly from Wyeth) mimics the protein layer of the virus. It provokes an antibody response, but may not a T-cell immune response. In contrast VICL's vaccines provoke antibody as well as a strong T-cell response - evidently this is useful for recovery and therapeutic use.


On Nov 09 03:47 PM Robert0713 wrote:

> 25 words or less: why is VLP tech (NVAX and possibly others) not
> superior to DNA? Or are DNA/VLP (technically) orthogonal? I don't
> know the answer, so that's a real question, not rhetorical.

Nov 10 01:10 AM

[jimmy Turano:]

Michael Steinberg "nice article". Especially about 'ISIS'.
You know several years ago I liked 'ISIS for my own reasons.
Then someone on T.V. said sell ISIS and by NSTK. From $15
nstk went down to $.28 cents since then. They changed the name to 'MRNA', made two partnership deals went back to $3 dollars, and quickly went back down to around $1.35. Today, 'MRNA opens up at $1 dollar approximately. Back when I thought there was too much hype, too much pumping, including the research firms constant buy signals & high target prices. Now as the year comes to a close, MRNA heads back to under $1 dollar for a second time. Sometimes you must stick with your picks and not be influenced by T.V. personalities, or Research firms.
Anyhow Michael, what say you about 'MRNA'?

Nov 10 06:40 AM