Last Chance For A Bargain On Isis Pharmaceuticals?

| About: Ionis Pharmaceuticals, (IONS)

Holding Isis Pharmaceuticals (ISIS) has been a wild ride this year. As recently as April, it was down near $7 a share. Then recently, as the FDA advisory committee meeting for its familial hypercholesterolemia drug Kynamro approached, the stock went over $15/share.

Then things really got exciting. On Tuesday, the FDA published the topics for discussion at the Kynamro advisory committee meeting. The big surprise was a question on the Kynamro group having a statistically significant increase in neoplasia (tumors, both benign and cancerous) relative to the placebo group. The incidence was roughly 3% in the Kynamro treated patients versus 1% in placebo. Neither Isis, nor its partner Genzyme/Sanofi (NYSE:SNY), had ever mentioned this fact, so investors' reaction was brutal. Several analyst downgrades were released, suggesting a significant risk that the committee would advise against approving Kynamro. The stock closed at $9.62/share on Wednesday, down from $13.15 on Monday.

As an Isis investor, I was upset to see this bombshell dropped so late in the game, but I took a minor leap of faith and purchased more shares both Tuesday and Wednesday. I was able to look past the Kynamro-neoplasia concerns for two reasons. For one, Isis is seeking approval for Kynamro in a very serious disease, homozygous familial hypercholesterolemia (HoFH). These patients have extraordinarily high levels of cholesterol, even when treated with high doses of statins (e.g., Lipitor). The coronary artery disease that accompanies the elevated cholesterol levels reduces these patients' life expectancy by several decades.

Secondly, Isis has an amazing pipeline of drugs in clinical development in addition to Kynamro. Many of these drugs have the potential to address deadly diseases for which there are no current treatments. Some have already established proof of concept at the biomarker level (Isis has shown that the relevant protein levels are reduced by treatment) and expect true disease-modifying proof of concept with the coming 12-18 months. Even if Kynamro was not approved, I believe Isis is a good investment at current levels based only on its remaining pipeline.

I will address the pipeline in more detail shortly, but first let's discuss the results of the advisory committee meeting yesterday. The FDA and its advisors did express significant concerns about the elevated liver enzyme levels seen with Kynamro. This sign of potential liver damage was known to investors, but since there were no other signs of liver damage, no one expected this to be a show-stopper, and it wasn't.

When the neoplasia issue came up, things went about as well as they could have for Isis. The FDA made the case that there was a significant chance that these tumor findings were spurious. First, they pointed out that the cancers found were of many different types: lung, liver, rectal, prostate, etc. If the cancers were caused by a particular Kynamro-related mechanism, you might expect particular tumor types to predominate, but that wasn't seen. Also, they argue that more tumors may have been found in the Kynamro group simply because these patients were being more closely examined by their doctors due to other Kynamro side effects (liver enzymes, infection site reactions). In other words, the placebo patients may have had an equal number of tumors, but because they were feeling fine, their doctors didn't do any examinations that led to their tumors being found. And finally, there were specific reasons to suggest that many of the tumors were not Kynamro related. Of the nine cases, two were found within 30 days of the start of Kynamro dosing, making it very unlikely that Kynamro was the cause. The lung cancer patient had a 24 pack-year smoking history and was diagnosed within 2 months of starting Kynamro. And the breast cancer patient had been on hormone therapy for 12 years, which is known to increase breast cancer risk.

In the end, despite significant concerns, the panel voted 9-6 in favor of approving Kynamro. I will note at this point that a day earlier, Aegerion Pharmaceuticals had its HoFH drug Lomitapide recommended for approval with a 13-2 vote in favor. It's beyond the scope of this article to compare the two drugs. Lomitapide does seem to be more efficacious. It doesn't have the neoplasia issues, but it does have similar issues with elevated liver enzyme levels, as well as nutrient-absorption issues. On balance, I would say that Lomitapide is a better alternative, but the marketing muscle of Genzyme/Sanofi is likely to give Kynamro a fighting chance in this market. Also, given how high cholesterol levels are in these patients, and that the two drugs have different mechanisms of action, it seems possible that some patients might take both. For a summary of the FDA advisory committee discussion, you can check out Adam Feuerstein's live blogs on both Lomitapide and Kynamro.

Now I'd like to discuss the rest of Isis's pipeline and why I think it has bright future regardless of the fate of Kynamro. Isis's drugs use antisense RNA technology to modify levels of disease-causing proteins. There were tremendous technical hurdles to making antisense work (primarily the fact that natural RNA is incredibly unstable), but Isis has been the industry leader in this area, and its efforts finally seem to be paying off. The beauty of antisense RNA is that once the technical hurdles have been surmounted, all it requires is the identification of the relevant protein to develop a drug against it. Once the gene is known, the sequence of the antisense RNA needed to control it is known, and drug development becomes (relatively) easy.

When I started out in the pharmaceutical industry many years ago, one of my biggest fears was that someone would make antisense RNA work and it would annihilate the traditional small molecule drug industry. Fortunately for me, antisense RNA was a very tough nut to crack from a drug development perspective, so my industry and I are getting by. But there can be no mistaking the fact that antisense RNA is just about ready for prime time, and it looks set to be an incredibly powerful platform for Isis and a few other players in the field. Of those other players, Alnylam (NASDAQ:ALNY) and Regulus (NASDAQ:RGLS) are two that were spawned out of Isis's technology, and Isis will earn significant milestones and royalties from the former, and owns a major stake in the latter.

Before I finish, I will mention two specific drugs from Isis's pipeline that have transformative potential both for patients and for Isis as a company. They are ISIS-TTRRX for thyretin-related amyloidosis and ISIS-SMNRX for spinal muscular atrophy. Both are for deadly, orphan indications, genetic disorders for which there are few to no treatments available, and both are expected to report proof of concept data within the coming year. To see what proof of concept is worth in such indications, take a look at what has happened to Sarepta (NASDAQ:SRPT), another antisense RNA company, since July as it has announced more and more proof of concept data for its duchenne muscular dystrophy drug. Isis is a much larger company than Sarepta was, so it's not going to jump 10-fold on such news, but the potential gains are still substantial.

Disclosure: I am long ISIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.