Stock 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.

It's been a couple weeks since Ionis reported fourth quarter and fiscal year earnings results.  And the two weeks since has been a whirlwind of news to process.  As such, I'll take some time to talk about earnings, but also the events since that earnings call to see if I can place where everything really is at.  

Starting with the earnings report, as Ionis pre-announced, they were well ahead of guidance and expectations, primarily due to the FDA approval of SPINRAZA and the resulting milestone payment from Biogen.  Revenues came in at $160.3 million - over 50% above expectations of $99.3M.  The resulting earnings of $0.26 which is leaps and bounds above the $-0.13 that was expected.  Cash on hand also exceeded the $650M expectations, coming in at $665M.  This is important because with strong cash on hand, the company is less likely to need to have a secondary offering and dilute the share pool.

So everything was great, right?  Based on the report, as well as forward guidance that included targeting break-even operating earnings and the introduction of 3 to 5 new therapies, you'd think things are all headed in a positive direction.  As always with these types of stocks, there are risks that drugs will fail test or not be approved by the FDA and any of those events can have a hugely negative impact on the stock, as we saw last year with the platelet count issues.  But at this point, we aren't seeing any of that negativity.  As a result, the stock rose 22.7% on the week.  Dr. Jekyll was in control, or so it seemed...

A few short days later, Ionis, with their subsidiary Akcea, announced positive results from their phase 3 APPROACH study, noting that primary end points have been reached with a mean reduction of triglycerides of 77%, compared to an 18% increase in those taking a placebo.  As to be expected, the company did everything possible to make this sound as great as possible - and indeed, it does sound very positive.  More digging and research show there are things that people have started to become fearful of, though.  The primary risk/concern here is around those pesky platelet counts again.  The test resulted in 15% of the population having to be forced out of the study due to low platelet counts.  More damning yet is the fact that the symptoms went away after they discontinued dosing - indicating there is a link that the therapy can increase the likelihood of the condition.  When the situation was discovered, physicians began monitoring for the condition.  Treatment exists for such situations and since monitoring began, no patients left the program.  This is a tough situation.  The product works, but has a side effect that has some significant risk.  That side effect can be caught and managed/treated, but is such a side effect worth the potential benefits of the drug?  Are there competitors out there doing a better job?  This is what is spooking the markets and as a result, the stock started to drop down to previous levels in the $46 - $8 area. 

The news resulted in a continued downfall of the stock when then the stock and company was hit hard again on Friday.  Goldman Sachs downgraded the stock, naming a $25 price target.  They raised numerous concerns regarding "toxicity in the platform," meaning they continue to see side effects as the Antisense technologies continue to advance.  There was a lot of butt-hurt comments about Kynamro and the side effects of the therapies there, then as the therapy technologies advanced a number of issues have subsided or been removed, but some, like the low platelet counts in particular, continue to exist.  In what I was able to find, the analyst essentially placed his own bet on the cause for the low platelet cause, pinned it to the technology itself, and derived that this would prevent Volanesorsen or TTRx to move forward with much effectiveness.  Additionally, they called out competition from a couple other gene therapy drugs that haven't completed testing as a "one shot cure" to quickly supplant the potential gains from the Biogen/Ionis therapy.  The arguments were pointed and quite negative.  The market responded in kind, forcing the stock to shed 23.5% on the week.

Looking at the details as objectively as I can, I can understand some of Goldman's negativity.  There's no doubt that there is a pattern of "toxicity," as it's been described with the Antisense platform.  I'm mixed on my feelings towards the low platelet counts in the therapy.  The fact that biweekly monitoring is needed seems somewhat defeating if there's anything out there that can remotely compete with Volanesorsen and I think this needs to be addressed given the income potential this therapy has, given it doesn't have a sponsor.  At the same time, the drug appears to have proven that monitoring and management can bring positive results.  I fear a larger dropout rate from this therapy should it be approved.  Speaking of approval, I don't agree with the analysts worries over FDA approval.  With the new administration and reduced regulation, I wouldn't be surprised that the FDA becomes more lenient at best and perhaps about as strict as it has been at worst.  I feel the risk of approval denial here is lower than it was 6 months ago.  I'm also not terribly worried about the competition for gene therapy cures at this point.  There's one drug in phase 2 and the gene therapy is in phase 1.  That's quite awhile and needed positive proof for now.  If success continues, I see this more a risk closer to 2020.  

Wrapping this up and trying to put a nice bow on it, there are some problems that are likely to slow the growth capability of the stock.  That said, I'm not convinced that the stock deserves the hit it has taken either.  The company has continued to outperform its guidance and has a vast pipeline that isn't even in consideration.  Additionally, the analysts claims that the company and its solutions are unproven when calling them pioneering seems an awful lot like talking out both sides of the mouth.  I will keep this stock at a 1, noting that I do believe it can go below $40, so react accordingly.  I don't see much more down side to the stock though.  Subsequently, if they can deliver at or above expectations through this year, I still see plenty of upside now and into the out years.  That potential just isn't as strong right now, given the risks I've previously discussed.  As such, I'm lowering my price target for 2017 down to $54 (from $58).

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.