Sunday, November 20, 2016

Earning Analysis: Ionis Pharmaceuticals (IONS)

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 November 9, Ionis Pharmaceuticals announced the results for their third quarter, 2016 results.  For the quarter, they posted earnings of $0.06 on earnings of $110.9M.  These results are mixed with analyst expectations with earnings expected to be a loss of $0.02 on earnings of $112.67M.  While the results were mixed, the stock soared off of the earnings announcement and call.  I'll get into that shortly, however I also want to note that cash equivalents were higher than I expected, with $687.8M in reserves, which is down from the $779.2M they had a year ago.  Reserves were expected to go down due to extra expenses in getting their phase 3 drugs ready to go to market.

As I noted, the stock didn't just rise after this announcement, but it's launched itself!  The stock is now into the mid-40s when it was under $30 just 10 days ago.  So while earnings were a healthy beat over expectations, revenues were light.  This is not the a situation that can launch a stock over 50%, so what got us into this situation?  Well, in all truth it's not any one thing.  It's a few thing that culminated over the course of a few days.  We start with November 7.  On this day, Ionis did, what seems to be a classic move by them, by announcing an update on their partnership with Biogen and the SMA therapy which was getting fast-tracked due to such strong results.  Biogen has now provided the name Spinraza for the drug and they're getting closer to market release.  This positive, though not exactly surprising news popped the stock over 10%, pushing it past the $30 mark.  Next comes the double-whammy we got on November 9.  First, we learned that Donald J. Trump became America's president-elect in what was essentially a large surprise.  Markets were prepared for a Clinton administration that would continue to be hard on drug companies for the inflating costs to consumers, as has been reported and rallied against during the campaign.  Without that in the way, drug companies, overall, surged on the news.  Add on top of that strong results in their own quarter, this only helped accentuate the rise, but I don't think it was enough to make it shoot up over 23%.  There was one additional - much more important piece, and this occurred during the company's conference call.  

Early in the year, the company reported some complications with platelet counts in a couple patients for their tests for a different form of SMA and for Volanasoressen - their lipid control therapy.  The concerns for why the platelet issue occurred and what does it mean for the RNA technology left a steep overhang on the stock.  There was too much speculation that there were issues, despite what the company had stated.  On the call, the company started outlining the causes of the platelet issues, and while they continue to research and figure out how to identify/prevent these issues, they've been found to be one-off and based upon the disease's traits they're treating.  This removed doubt on the RNA technology and helps set the company up for a more prosperous 2017 when they are expecting to start going to market for 3 phase 3 studies - resulting in a company that's likely to become profitable over the next 18 months.  All of this takes the stock well back up to where it was before the technology concerns existed and sets things up for a strong future.

Disappointingly, I waited too long to buy my remaining position in the stock.  It's important to note that I'm still below my cost basis and can still get more of a position, but I can't get the sizeable position I was once looking to get.  This stock has been downgraded to a 2, mainly do to the fast price appreciation.  I expect some profits will be taken and I'll have a chance to buy lower.  I hope I can get more around or under $40, but may settle for something closer to current prices.  Looking forward, it's still hard to predict what earnings will look like when a company like this is going from negative to positive earnings over the next 18 months.  That said, this company and stock have a bright future in front of it under the changes we've seen over the last 2 weeks.  I believe we'll see the stock get into the $57 - $64 range in the course of 2017 as we start to see earnings take shape and watch as more of their 24 drugs in the pipeline advance and hopefully new potential therapies take shape.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.