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Why spend money on late stage development, marketing, and sales when you can partner with the powerhouses in the pharmaceutical industry that have the money and resources to bring a successful drug to market? And that appears to be part of Isis Pharmaceuticals' (NASDAQ:ISIS) business plan. While in the last month Isis has given back over 10% of its value, the stock is still up of over 200% YTD. And while a pullback after impressive runs are not unusual, there are solid reasons for the stock to soon move higher again. The main reason I see is the interest of larger drug manufacturers to collaborate with Isis in the novel platforms that the company develops as it reaches later phases of testing. These platforms are based on the company's RNA-based antisense technology, the driving force behind Isis's strong pipeline of drugs that are in various stages of development.

Antisense drugs, which have been shown to accumulate in specific organs and tissues, including the liver, kidney, spleen, bone marrow and fat cells, can be targeted to turn off genes that cause a number of diseases. In house or in collaboration with larger pharmaceutical companies, Isis is developing antisense drug platforms for a number of diseases including cancer, inflammatory diseases, and cardiovascular diseases. The company is also developing drugs that can be added to existing therapies to enhance treatment of metabolic disease including type 2 diabetes and obesity.

ISIS'S EXPANDING PARTNERSHIP DEALS WORTH HUNDREDS OF MILLIONS OF DOLLARS

Last month Isis struck its fourth deal with the $58 billion market cap biotechnology company Biogen Idec. (NASDAQ:BIIB) netting the company $100 million up front to develop drugs treating neurological disorders. The deal also gives Isis up to $220 million per compound in potential milestone payments. In the six-year deal, Biogen in return gets exclusive access to Isis's antisense technology platform. Though Isis has formed partnerships with larger pharmaceutical companies in the past to run late stage clinical trials, such as with the French healthcare giant Sanofi (NYSE:SAN) with the cholesterol drug Kynamro, the Biogen deal becomes the first time Isis enters into a partnership for an entire therapeutic area. Stanley Crooke, Isis's chief executive, commented on the possible future of other partnerships, "Isis may try to do more deals similar to this one."

Partnerships are essential to Isis's business strategy, as the company does not have a sales force. By allowing the larger drug makers who have the sales and marketing expertise along with the capital to bring the drugs to the later stages of development and then to market, Isis can focus on what it does best: developing the antisense platforms. A good example is the drug Kynamro, developed using the antisense platform to treat a rare cholesterol disorder. The drug, marketed by Sanofi 's Genzyme unit, gained FDA approval and is the first drug developed by Isis to be approved for market.

Earlier this month Isis received a milestone payment of $10 million from a separate June 2012 partnership with Biogen. The milestone payment related to the selection and advancement of ISIS-DMPK(Rx), an antisense drug for the treatment of myotonic dystrophy type I. Isis received an upfront payment of $12 million and could receive up to $59 million in milestone payments including the $10 million. Biogen has the option to license ISIS-DMPK(Rx) from Isis up through completion of the Phase 2 study. In the agreement Isis could also receive up to another $200 million in a license fee and regulatory milestone payments along with double-digit royalties on sales of ISIS-DMPK(Rx). And earlier this year Isis received $10 million in milestone payments from AstraZeneca (NYSE:AZN) as the company decided to add a second development candidate to its collaboration with Isis on novel antisense drugs targeting five cancers. Isis had already received $35 million in upfront fees from AstraZeneca and is eligible to earn additional milestone fees as the drug progresses, along with royalties on sales if the drug is successful. Isis is also in partnership with Roche (OTCQX:RHHBY) and has already received $30 million up front to develop antisense drugs to treat Huntington's disease, an inherited genetic brain disorder that results in the progressive loss of both mental faculties and physical control. Isis could receive through license fees and pre- and post-licensing milestone payments up to $362 million not including tiered royalties on sales if the drug is successful.

What I like about the partnerships that Isis develops with the larger drug makers is that Isis has managed to amass roughly $590 million in cash on what should continue to be a rising balance sheet; these relationships allow the company to focus on developing its drug pipeline, which should lead to more partnerships and more income for the company. Isis has strategic drug collaboration deals with a number of large drug companies including Biogen, Pfizer, AstraZeneca, Roche, and GlaxoSmithKline.

ISIS'S CHOLESTROL MANAGEMENT DRUG SHOWS POSITIVE RESULTS

Isis's cholesterol management drug, ISIS-APOCIIIRx, developed using the antisense platform, is in Phase 2 studies and has shown it inhibits apoC-III, a protein that regulates triglyceride metabolism in blood. The drug lately has received a goodly amount of attention as it has shown to sharply reduce levels of triglycerides, a fat in the blood that increases heart disease. The study showed a reduction of up to 75% in triglycerides, but the drug also showed a 79% reduction in apolipoprotein C-III, a substance that prevents triglycerides from being cleared from the blood. Patients also experienced an increase in high-density lipoprotein (HDL), up as high as 57%.

And while the drug is being tested for patients with familial chylomicronemia syndrome (NASDAQ:FCS), which represents only 3000 - 5000 people worldwide, Isis is planning to begin Phase 3 development early next year in both patients with FCS and patients with severely high triglycerides. Due to the small numbers of people with FCS, ISIS-APOCIIIRx could receive orphan drug status from the FDA, and orphan drugs are fast becoming a profitable segment for the pharmaceutical business. Rare diseases, also known as orphan diseases, collectively affect an estimated 25 million people in the U.S. By the end of 2011, the global orphan drug market was estimated at $50 billion globally. And orphan drugs have an advantage for a company economically, including tax credits, grants, reduced timelines for clinical development, higher probability of FDA approval, along with premium pricing, and lower marketing costs and longer exclusivity.

At this time Isis is developing ISIS-APOCIIIRx in house. However, given its past track record I imagine that it will soon find a partner for later phase trials. And when that happens, expect Isis to add millions of more dollars onto its balance sheet.

CONCLUSION

I like Isis's business plan of not spending itself into bankruptcy in order to take the whole pie, but to spread the risk and wealth that goes with a successful drug. Currently Isis carries Zacks strong buy rating, and I look for Isis stock to continue to move higher… maybe not as fast as it has done in the past year, but still there is little reason for the stock not to continue on an upward trend.

Source: Isis: Alliances With Large Drug Companies Should Lead To Future Profits