Stock Analysis: Isis Pharmaceuticals (ISIS)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

On Monday, Isis Pharma announced their third quarter results.  Losses per share came in at $0.30 and revenues were $49.1M.  This had earnings in line with estimates of  $0.31, while revenues were a little lighter than the estimated $52.9M.  Despite the inline to missed numbers, cash reserves increased $50M from the previous quarter, to $800M.  The stock, also, has launched like a rocket and you're looking at an investor trying to stop kicking himself for not following his own rules and buying the stock in the low $40s.  You can't say you had it right if you don't act, but you can certainly be greedy for not buying stock just as much as you can for not selling it.

The stock has been building up since October.  For a long time biotechs were out of favor in the market and that has since leveled off.  Oversold companies are getting picked up and others are staying relatively balanced.  In addition, in the last 2 weeks, Isis started provided updates on some of their drugs, including a $5M paycheck for initiating a phase 1 start, announcing starts of a new phase for 2 drugs, and positive clinical results on 2 drugs.  In the call, they highlighted, again, how well their anticoagulant (partnered with Bayer) and lipid control drugs were performing (wholly owned in subsidiary Akcea).  They also discussed how their LICA drugs (application method) is proving to be so effective that it could provide means to provide dosages weekly or monthly.  The company now has 8 drugs that have entered phase 3 studies and the studies are moving quickly.  All 8 will be completed within the next 18 months.  Providing things continue on this track, there are significant profits in the next few years, leading the company to actually produce earnings come potentially as early as 2017.  

In the last 4 weeks, the stock's price has risen past all 4 of the simple moving averages I follow (20, 50, 100, 200).  These results are very positive and very strong, however, they're limited to positive news.  Given that the drugs won't complete phase 3 for a number of months, the stock will still be subsequent to wild swings.  Technical indicators state that the stock has room for strength for awhile yet.  This is not to say there won't be pullbacks, but the price trend continues to be favorable over the next few weeks to months.  Long-term, I still feel this stock is very much worth the speculation and risk.  These recent announcements help show just how strong their technologies are becoming and many of these are getting orphan status and are treating high-need issues.  With interest rates looking more likely, it's hard to say how the biotech stocks will react to those changing macro conditions.  Stocks, in general, tend to find it harder to rise during rising rate markets, though not impossible.  Biotech is an area where it's meeting a need and if it's growing fast can continue to find ongoing support.  As always, there needs to be considerations for competing drugs, and any impact the government or Prescription Benefit Managers can have on the pricing of drugs.  All said, I have to lower my rank of this stock to a 2.  It's jumped $20 (no, that's not a typo) in the last 4 weeks.  While I think it's likely that prices will go higher, I'm not going to violate my cost basis and believe there will be times to buy at better prices again.  I will just have to be patient.  The stock has risen to my low 60s mark for 2015.  Given all of the new developments, I think going into 2016 that a $70 price tag isn't unreasonable at all.  I am aware that a number of analysts have lowered their numbers to average around $67 as their price, but most have kept buy ratings and, frankly, I think they've lowered expectations much too late.