- Ionis recorded $52 million in Spinraza royalties from Biogen in Q4.
- Two additional Ionis drugs could launch in 2018.
- Ionis has 45 potential drugs in its pipeline and a platform to generate more.
We are living in the greatest age of pharmaceutical innovation in history. Investors have already made fortunes from platforms like monoclonal antibodies. Hard-to-treat cancers and many genetic diseases are falling to a variety of new therapy types, including CAR-T and gene therapy. Another approach that should net investors extraordinary returns is RNA-based antisense and RNAi (interference) therapies. Ionis Pharmaceuticals (NASDAQ:IONS) is one of the leaders in this field. It is a strong candidate to add to the portfolios of long-term investors.
Ionis is a commercial-stage company, but most of its long-term value is in its platform and resulting preclinical and clinical-stage pipeline. It has a relatively large market capitalization compared to the small-cap biotechs I frequently write about. I believe that despite that, it is undervalued by the market to about the same degree, while being considerably less risky than the small-cap choices. It is a good place to start investing in pharmaceuticals while learning about the field.
Science and Nomenclature
RNA (ribonucleic acid) is the close cousin of DNA. To build the proteins and other molecules that make a cell alive, the genetic code in the DNA is transcribed using messenger RNA, or mRNA.
Interfering with mRNA (Source: Ionis)
Ionis consistently uses the term antisense technology when discussing its therapies. These therapies bind to RNA and manipulate it.
Another term you will hear from scientists, doctors, and pharma companies is RNAi, short for RNA interference. While, in some cases, RNAi is opposed to antisense, more generally, it could be seen as a subset of the antisense technologies. I think because "RNAi" is easier to remember and write, it is often used to refer to both these related technologies.
Both technologies block the transcription of messenger RNA, which can have therapeutic effects. Both can be highly specific to particular DNA/RNA sequences. Both have their partisans. Investors should care only about clinical outcomes, and perhaps patents, so I will use the terms interference and antisense interchangeably. And since I am doing that, I often refer to both technologies as RNAi, since it is short, even though it is not preferred by Ionis.
"There are more than a dozen different antisense mechanisms that we can exploit with our antisense technology. The majority of the drugs in our pipeline bind to mRNAs and inhibit the production of disease-causing proteins. Our antisense technology is broadly applicable to many different antisense mechanisms, including RNA splicing, exon skipping, RNA interference, or RNAi, and enhancing protein translation to increase protein production."
First Success: Spinraza
Ionis's commercial revenue comes from Spinraza, the trade name for nusinersen. It has been approved by regulators to treat spinal muscular atrophy in the U.S., EU, Brazil, Japan, Canada, and Australia. The U.S. approval was in December 2016.
Spinal muscular atrophy or SMA is caused by specific mutations in the genes that lead to a specific protein deficiency. Spinraza is an antisense or RNAi agent that binds to a messenger RNA from a related gene, altering the splicing of a single RNA molecule. This causes cells to increase production of the deficient protein. It is not without side effects, but it does greatly improve the lives of SMA patients.
Spinraza is marketed by Biogen (BIIB). Ionis receives a royalty.
SMA is rare, so the model involves charging a high price to the relatively few patients. It has orphan drug status. Children born with the most severe type of SMA typically do not reach the age of 4. With an effective therapy, the number of SMA patients should increase over time.
In Q4 2017, Biogen reported revenues of $363 from Spinraza, up from just $5 million year-earlier when it was being introduced.
In Q4 2017, Ionis reported royalty revenue of $52.1 for Spinraza from Biogen.
I see Spinraza as a proof of concept and competency drug. While it does not guarantee that all the potential drugs in the Ionis pipeline will eventually be approved by regulators, it proves they could gain approvals. While Spinraza revenue will continue to ramp, and requires little operating expense, it is unlikely to justify the current market cap of $6.3 billion by itself.
Next Big Events: Inotersen and Volanesorsen
Both inotersen and volanesorsen have turned in data that indicates each might see regulatory approvals in 2018.
Volanesorsen is a cholesterol-reducing antisense drug. It is being developed and would be marketed by Akcea (AKCA), which is 68% owned by Ionis, which developed the drug before Akcea spun off. An advisory committee meeting to review the data is scheduled for May 10, 2018. The application and the data are for treatment of familial chylomicronemia syndrome. The syndrome itself is rare. The drug could be extended to other cholesterol-related diseases. Volanesorsen's PDUFA (FDA decision deadline) date is August 30, 2018.
Inotersen is now under review in the U.S. and EU for hATTR (hereditary TRR amyloidosis). Data shows a strong benefit. Ionis management believes it will gain a significant market share if approved. The PDUFA date is July 6, 2018. Ionis believes inotersen has significant commercial potential due to its once-per-week dosing. It will likely partner with a larger pharmaceutical company for marketing and has narrowed the list of potential partners.
Investors should note that Alnylam (ALNY) has also submitted patisiran to the FDA for hATTR. Alnylam management (surprise) believes that patisiran will have the competitive edge. Patisiran is an RNAi. Suzanne Elvidge thinks "Alnylam outshines Ionis with RNAi drug," though, interestingly, she does not actually compare the trial data from the two drugs in her article.
It probably seems like two companies with RNA therapies might have tried to target different diseases, but apparently hATTR was thought to be particularly amenable to this class of drugs.
Patisiran's PDUFA date is August 11, about a month after inotersen's.
Rest of Pipeline
When it comes to the big money, the money to be made in 5 or 10 or 15 years, the important thing to look at is the RNA antisense/interference platform, which will be transformative for many diseases.
My regular readers know I put little value (expressed in market capitalization) in preclinical and Phase 1 pipeline candidates. That is the case when I research small-cap biotechs with one or just a few drugs in this category. In this case, some credit should be given for the remarkable size of the Ionis pipeline.
The next wave of therapies is in Phase 2 trials. There are so many I am going to clump them together. Biogen is partnered for therapies for Amyotrophic Lateral Sclerosis, Alzheimer's and frontotemporal dementia. Roche (OTCQX:RHHBF) is partnered for Huntington's disease. Akcea is partnered for rare hyperlipidemias, NAFLD/metabolic complications and, with additional partner Novartis (NVS), cardiovascular diseases. Bayer (OTCPK:BAYZF) is partnered for clotting disorders. Drugs for diabetes and NASH (liver disease) are currently unpartnered. There are three cancer drugs in Phase 2, two partnered with AstraZeneca (AZN). GlaxoSmithKline (GSK) is partnered for Hepatitis B therapies.
At the Phase 1 level, there are as-yet unpartnered drugs for hereditary angioedema, acromegaly, thalassemia, hypertension, and complement-mediated diseases.
There are another 15 drugs in preclinical development, including four already partnered with Biogen.
Put a number on that? I could argue for any number between $10 billion and $50 billion in market capitalization, at some time, reasonably far in the future. We are talking about a platform that can generate therapies for such a large number of diseases, the potential is limited only by competition and Ionis's ability to manage R&D spend.
Q4 Results and Cash
Back to the present: how did Ionis do in Q4 2017, with just one drug approved while a large number of drugs are costing money to develop?
Revenue was $172 million. In addition to the Spinraza revenue, there was $4.5 million from licensing and other royalties and $115.7 million R&D reimbursement revenue from collaboration agreements.
GAAP operating expense was $174 million, consisting of $128 million for R&D and $46 million for selling, general, and administrative expense.
GAAP net income was $2.7 million or $0.02 per share.
Cash and equivalents ended at just over $1 billion. Debt was $533 million in 1% convertible notes.
I interpret these results to indicate Ionis is in great shape to continue developing its pipeline. However, while revenue may increase in the back half of 2018 if inotersen and volanesorsen are approved, I would also expect expenses to increase to expand both marketing and R&D efforts. Reinvesting revenue in R&D makes a lot of sense when you have a pipeline like Ionis has.
As described above, if approved inotersen is likely to compete with patisiran. Alnylam is not the only company competing with Ionis in the RNA therapy space.
In many disease areas, RNA therapies will compete against other types of therapies, including traditional small molecules, antibodies, and potential gene therapy. It will be great for patients if this happens. Human biology is complicated, so people with the same disease often respond differently to different medicines. RNA might also be used in combination therapies in some cases.
There would appear to be room for a big expansion of RNA therapies. This is particularly true of those usually rare diseases where there is no meaningful therapy at all at present.
Since the Ionis story is about the future, and that is uncertain, the stock price is volatile and will likely continue to be for some time.
Conclusion: Buy, But Be Aware of Risk
I think Ionis Pharmaceuticals is a great investment for anyone thinking long term.
Short term, approvals of inotersen and volanesorsen by the FDA and EU are largely priced into the stock. That means there is short-term risk, should the FDA fail to approve one or the other of the drugs. On the other hand, each approval is likely to give some bump to the stock.
Given all that, I think the current price of about $51 per share is fair for buyers. It is well below the 52-week high of $65.51.
It is the long run that excites me. If experimental RNA therapies continue to be effective and safe for a variety of diseases, Ionis should become a truly major pharmaceutical company in the next decade. Competitors like Alnylam are also worth watching.
This article was written by
Analyst’s Disclosure: I am/we are long IONS, BIIB. 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.
At the time this article was written IONS represented 1.1% of my portfolio.
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