Preserving Its Strategic Partnerships Will Be A Key Catalyst For Isis Pharmaceuticals In 2013

| About: Ionis Pharmaceuticals, (IONS)
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According to the American Heart Association, Atherosclerosis is "a type of arteriosclerosis and is better known as the term for the process of fatty substances, cholesterol, cellular waste products, calcium and fibrin (a clotting material in the blood) building up within the inner lining of an artery. This buildup is most often referred to as the plaque that builds up around one's arteries".

On Wednesday, April 3rd Isis Pharmaceuticals, Inc. (ISIS) announced that "it had initiated a Phase 1 study of its atherosclerosis drug ISIS-APOARx. The drug curtails the production of apolipoprotein "A" which, when present at high levels, increases the risk of heart attack and stroke". In the wake of the company's positive news regarding is drug-candidate ISIS-APOARx, I wanted to examine several catalysts behind my decision to establish a long-term position in the company.

Based in Carlsbad, California, Isis Pharmaceuticals is a biopharmaceutical company, "engaged in the discovery and development of antisense drugs using novel drug discovery platform and currently has a pipeline of 28 drugs in development for the treatment of cardiovascular, severe and rare, neurological, and metabolic diseases, as well as cancer". (Yahoo! Finance)

Shares of Isis Pharmaceuticals, which possess a market cap of $1.66 billion, settled at $16.29/share on volume of 1.37 million shares by the end of Wednesday's trading session. One of the things to point out for growth investors is the fact that shares of ISIS are 50.60% higher since January 1st of this year.

ISIS Chart

ISIS data by YCharts

There are three catalysts to consider when it comes to Isis and they are the company's recent EPS performance, the establishment of its three strategic alliances with Biogen Idec (NASDAQ:BIIB), and the strategic alliance it forged with AstraZeneca (NYSE:AZN) to battle against a total of five cancer-based targets.

Recent EPS Performance: On Thursday February 28th, the company reported a significant decrease in its full year net loss per share. Comparatively speaking, Isis Pharmaceuticals announced a net loss of $0.65/share versus a net loss of $0.85/share in the year ago period, an EPS improvement of $0.20/share.

According to the company's earnings press release, "In 2012, Isis' net loss was significantly lower than 2011 primarily due to the $18.4 million gain from its investment in Regulus Therapeutics (NASDAQ:RGLS) and the related $9.1 million tax benefit offset, in part, by an increase in Isis' net operating loss, the $4.8 million loss on Isis' early retirement of its 2 ⅝% Notes, and an increase in interest expense. Isis' interest expense was higher than in 2011 due to additional non-cash interest expense Isis recorded for the long-term liability associated with its primary research and development facility and slightly higher interest expense related to Isis' 2 ¾% Notes". If the company's 17% stake in Regulus (which is valued at roughly $36 million) can continue to pay dividends over at least the next 12-24 months, EPS results could continue to benefit as had been the case over the last 12 months.

Biogen Partnership: When it comes to the biotech sector, strategic alliances and joint ventures are considered by many to be the life-blood for many companies with market caps under $2.0 billion. Without these key partnerships, and the market exposure they bring to the table, many of the smaller firms that depend on such alliances may not be in business today. Over the last 12 months Isis has teamed up with Biogen Idec in an effort to develop three key solutions for patients across various sectors. In the next portion of the article I plan on breaking down each individual alliance and the potential it brings to the table.

Development Type


First Development (ISIS-SMNRx)

Isis entered into an alliance with Biogen Idec to develop and commercialize its drug, ISIS-SMNRx, to treat SMA. Isis received a $29 million upfront payment and is eligible to receive up to an additional $270 million in a license fee and milestone payments, and double-digit royalties on sales of ISIS-SMNRx.

Total Payment Potential: $299 Million (Plus Royalties)

Second Development (A Drug for the Treatment of Myotonic Dystrophy)

Isis entered into an alliance with Biogen Idec to develop and commercialize a drug to treat myotonic dystrophy. Isis received a $12 million upfront payment and is eligible to receive up to an additional $259 million in a licensing fee and milestone payments. Isis is also eligible to receive double-digit royalties on product sales.

Total Payment Potential: $271 Million (Plus Royalties)

Third Development (Anti-Sense Drugs Targeting Neurological and Neuromuscular Diseases)

Isis entered into an alliance with Biogen Idec to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders. Isis received a $30 million upfront payment and is eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program. Isis is also eligible to receive double-digit royalties on product sales for each drug.

Total Payment Potential: $230 million (Plus Royalties)

Based on the total payment potential of all three projects, Isis has the ability to generate $800 million in payments plus additional monies that will include such things as royalties. If Isis can continue to strengthen its strategic partnership with Biogen over the next 12-24 months and in the process meet the criteria for a number of these milestones, these transactions could play a vital role in the revenue the company is able to generate over the next few years.

AstraZeneca Partnership: Similar to its strategic alliance with Biogen, Isis Pharmaceuticals has also teamed up with AstraZeneca to develop a series of anti-sense drugs designed to defend against a total of five cancer-based targets. According to the company's earnings release, "The agreement comprises of $31 million in upfront and near-term payments, including a $25 million payment Isis has received followed by a $6 million payment which Isis is eligible to receive in the second quarter of 2013 assuming the research program is continuing". Although the $6 million dollar payment is contingent upon Isis maintaining its partnership with AstraZeneca (through at least the second quarter of 2013), I strongly believe this relationship will continue to be upheld as there are a number of drugs which still need to be developed as the result of the parameters of the particular partnership.

Conclusion: When it comes to those who may be looking to establish a position in Isis, I'd keep a watchful eye on not only the company's pre-existing partnerships with such companies as Biogen and AstraZeneca, but any new partnerships that may be forged as a result of the company's recent developments regarding its drug-candidate, ISIS-APOARx.

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.