Isis Pharmaceuticals Panic Overdone

I have been “partners” with Isis Pharmaceuticals (ISIS) since I bought my first 200 shares in 1994 for $5. With each of the subsequent disappointments I continued buying. I have no scientific knowledge that RNA drugs will ever be successful, but the concept seems completely logical.

Recent enthusiasm had been building around Isis’s cholesterol drug mipomersen. Mipomersen is complementary to existing statins, giving an additional 50% reduction in LDL over statins alone. Mipomersen has a linear dose effectiveness curve; higher doses result in proportionally higher responses. Statins show very little increased response along the dosing curve. The Isis bears raised concerns over mipomersen’s safety regarding liver toxicity.

Isis dropped over $5 just after the open today. The panic was due to an FDA call early this morning to Isis clarifying the requirements for approval. Mipomersen could be approved for the small population of homozygous familial hypercholesterolemia (hoFH) patients based on LDL reduction alone. This accelerated approval group has an extreme danger of cardiac events. The FDA is now requiring a Phase III outcomes study for wider approval. Many analysts were worried that a study showing clinical benefit would require a patient population of 6,000 or more, and a substantial delay to complete.

Isis and Genzyme (GENZ) tried to allay fears in a conference call this morning. They said that the outcomes study would be started earlier and overlap existing planned trials. An outcomes study would have to show a reduction in heart attacks and strokes. The companies would not state a patient count, but said 6,000 was high. They were confident of benefit because mipomersen lowers many types of lipids associated with arterial inflammation.

Genzyne denied that the economics of their deal with Isis changed, but both parties were cagey about whether any terms of their development and commercialization agreement would be changed. Initial approval was planned for 2009 and now looks to be delayed until 2010. The original deal could have totaled almost $2B.

I cannot tell you analytically at what price Isis stock is a good value, but I suggest you view it as a platform company rather than a drug company. Isis controls a substantial patent library in RNA drug development technology and has extensive cross licensing with Alnylam Pharmaceuticals (ALNY) in RNAi and microRNA. Both Isis and Alnylam have substantial development agreements with multiple big Pharma partners; including a recent deal for their joint venture Regulus with GlaxoSmithKline (GSK). Basically, anyone developing RNA drugs will eventually have to get licenses from Isis. Larger Isis partners include Johnson & Johnson (JNJ), Lilly (LLY) and Merck (MRK).

The last kicker is the IBIS Biosciences. Abbott (ABT) has recently agreed to invest $40M with the option to take over IBIS and pay continuing royalties. From the Abbott agreement press release:

The Ibis T5000(TM) Biosensor System, which offers a unique solution for rapid identification and characterization of infectious agents that can identify virtually all bacteria, viruses and fungi, and can provide information about drug resistance, virulence and strain type of these pathogens within a few hours.

Disclosure: Author is long ISIS.

Comments

[BioInvestor:]

Isis certainly has a formidable patent position. The company has a large effort into securing intellectual property in this area. The big issue is in ensuring an effective delivery system--something which, at one point, monoclonal antibody products had to face. Now, monoclonal antibody products are moving rapidly through the development/approval process. It's frankly only a matter of time until antisense products reach the market. Isis is in a very strong position in this technology and should be a long-term winner.

2008 Apr 26 05:42 AM

[Ben Around:]

I agree with the writer. Overreaction has opened a buying opportunity.

Bought it at 11.5 sold at 16 and now will buy it again next week,

It looks like ISIS is a range stock that moves between these limits untill some blockbuster deal is announced

So I will not fight it, I will just buy again.

2008 Apr 26 08:40 AM

[Cherrpicker:]

What does IBIS (i.e. the Abbott Labs potential deal mentioned) have to do with ISIS? The author says he is unaware of a lot, but surely he knows the difference between the two companies?

2008 Apr 28 11:54 AM

[evergreen.org:]

The author is unaware of less than you. IBIS is owned by ISIS.

2008 Apr 28 02:54 PM

[J.G. Rollander:]

Re ISIS: It is amazing to watch people writhe around in analysis mode when there is severe price movement in a stock, especially a stock built around substantive goals, like ISIS...and it always tends to identify the writer as to why he is buying the stock at all. Is he a quick buck person, or an investor, or a long term investor who believes in the goals of a responsible company that is interested in all the activity, including temporary setbacks, but who would not consider selling out of fear or saving himself from some perceived disaster. Please..take the time to look at ISIS History. True it has had its false starts..temporary setbacks, disappointing frustrations, but it is out to do something worthwhile, and so you need to be an investor...or at least someone who buys this stock for the RIGHT reasons, to feel its pulse and know that you are involved in a brilliant, honest, and forward-looking, multi-faceted Company who one day soon will be looked upon as a rare exemplar in the industry.

2008 Apr 30 12:54 PM

[Urbane Gori...:]

"J.G. Rollander"... Well, I'm hazarding a guess, but I expect anyone on Alpha is actually intent on making money and not losing it.... Just like Warren Buffett says..I doubt that there's a lot of altruism or 'hope for the future of mankind' in most investor's hearts..

Thx jegan ;-)

2008 May 04 09:09 PM

[KeenInvestor:]

I like what you have to say John E. The stockmarket is all about making money and trying not to lose any, like Buffet says. But you have to believe in a company and if its beneficial to mankind then I think that's an added bonus. And I definately believe that Isis will be a winner for the medium to long term investor. They have an amazing array of patents and the antinsense technology will change the way alot of diseases are combated. I like who they have teamed up with as well. Especially the one with Antisense Therapeutics. A small emerging Biotech Company listed in Australia that in my opinion so far undervalued. It's still at a rock bottom price even after they announced their deal with Teva Pharmaceuticals. If you're looking for an emerging Biotech stock, I would get on there website and read everything about them. Together Isis and Antinsense have a lot of upside potential.

2008 May 31 11:53 PM