Sunday, January 8, 2017

Stock Analysis: Ionis Pharmaceuticals

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.

There has been a blast of conference calls and announcements from Ionis Pharma over the last few days, so I think it's time to recap and assess what we've learned.  First up is the conference call that was held on January 5 to discuss the company's pipeline.  I'm not going to spend a lot of time here because I don't think it deserves much.  This was essentially a recap of everything we've seen and heard over the course of 2016 in regards to where their major therapies are.  Much of the focus was placed on Volanaosorsen, which will likely go commercial in the first quarter this year to treat people with FCL  In short, everything is on schedule, everything is providing solid results so far.  Their BROADEN study won't release phase 3 data results until sometime in 2019.  They then went into two of their phase-2 therapies - one for diabetes and the other for Factor X1 blood clotting complications for those on dialysis.  Again, all results were strongly positive while everything continues to move forward on time.

Then on the next day, Ionis had two separate announcements.  The first happened before the opening bell and announced that Akcea, their wholly-owned subsidiary, has entered into a strategic collaboration with Novartis on two therapies - AKCEA-APO(a)-L Rx and AKCEA-APOCIII-L Rx.  This collaboration is targeting at the development and commercialization of both of those therapies.  As part of this agreement, Ionis will receive an immediate $75M payment and a $100M investment in Ionis at $61.30 per share (current price is $47.83).  This equates to just over 1.6M shares that Novartis will own of Ionis.  They will still qualify for development, regulatory, and commercialization milestone payments totaling a potential $1.13B.  Finally, there is another $50M investment required by June of 2018.  That investment will be an option to select Ionis, or Akcea (assuming they become a publicly traded company).  In total, there's a potential for over $1.6B in income for the drugs not including the mid-teens to low twenties percentile in royalty fees they'll be able to collect.  Generally speaking, it's nice to see that they have found a partner to help fund the continued growth of these drugs.  Since these are child therapies from Volanesorsen, there's quite a bit of potential here.  While I don't want to latch onto it much, they do give the idea of a spin-off happening in the future, too.  Which Novartis could become a buyer of at some point if they were interested enough.

And last, but not least is the announcement they made after the market close on Friday.  At this time, they took the liberty to pre-announce that the company will have 2016 results that were better than they forecasted.  Net operating income is expected to be in the low to mid twenty million dollar range, compared to an anticipated loss of $60M.  Additionally, they have a cash reserve of around $650M, whereas they expected to have about $600M by the end of the year.  Some of this can be attributed to money for the partnership with Biogen for Spinraza coming right at the end of the year instead of early in 2017, as expected.  That said, it's not the only reason why they've done so well, as they probably would've been at an approximately $5M loss were it not for Spinraza.  That is still a significant improvement.  In addition, they've already put together some significant income for the first quarter of 2017.  We might be entering a stage where the company will be able to begin producing positive earnings consistently, though I won't go that far just yet.

In all, I'd say the news was positive, but not overwhelmingly so.  One analyst provided an updated sell rating basically indicating that all of the other therapies in the short-term pipeline have little value use due to the fact that "results have not been meaningful" or that the drugs are in highly competitive areas with narrow areas of focus.  Given that analysts current $17 price target, it's difficult to give this view a lot of merit, however, the view is useful for providing a base of skepticism.  There's also a biotech reporter that is very negative on the company overall - noting them to be a hype factory (albeit a good hype factory).  In my opinion, things are going well and there are plenty of shots on goal with some good finances backing the milestones.  It doesn't mean we should get complacent.  The stock has moved a lot over a short period of time, though with some good reason.  At this point I think the stock will be up tomorrow on its positive earnings news.  If the market does correct, though, be prepared for people take profits and for the stock to pull back somewhat hard before it collects itself and moves forward again.  I'll adjust my targets as necessary when I get fourth quarter results.

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.