Earnings Analysis: Ionis Pharmaceuticals (IONS)
Ionis Pharmaceuticals had a lot going on last week. I'll do my best to summarize it all within the earnings analysis to simplify my work. We'll start with the earnings announcement. Ionis announced the results from their second quarter operations on Tuesday and provided what has been viewed as a set of mixed results. Earnings were reported as a loss of nine cents, below analyst consensus of a four cent loss. Revenues, however, beat expectations of $92.1M, coming in at $104.1M. Headlines jumped out talking about missing marks and the stock dropped rather significantly - approximately 8% on that day alone.
During the course of the quarter, SPINRAZA, a therapy for spinal muscular atrophy, went commercial and made an impressive first move. Their partner, Biogen Idec, announced $204M in SPINRAZA sales, as the drug is clearly making inroads for intended patients. When this was announced, earnings estimates for Ionis were dramatically altered. Originally, estimates were at a twenty-three cent loss for the quarter. The company, through it's earnings call noted that $22.4M of the 104M in revenues were due to the royalties from SPINRAZA, which will get larger as more product is sold. These results, along with current cash holdings of over $855M resulted in a dramatic increase in guidance for the company as well. While the company originally guided for pro-forma operating profit of around break-even, they're now estimating results of around $55M. They also expect to be holding cash reserves of around $950M, which was raised from early estimates of $825M.
So in essence, the analysts ratcheted up expectations for the company by over 80% just thirty days before this call due to results heard from Biogen and when the company thoroughly beats earlier expectations, the company "missed." Not factored into this is the one-time payments that were made as stock bonuses to employees. Were this not in the numbers, the company would've delivered results of $0.08. The one "wall of worry" that was created was in relation to the company's agreements with Glaxo-Smith Kline (GSX). GSX is undergoing management and strategy changes and it was mentioned that drugs, including intoersen, might be returned. Since this drug was part of the whole platelet count issue around this time last year, there's a lot of speculation that this is a sign of something going wrong, despite the extremely positive phase 3 results that were recently published.
Well, that was during the call. Back on Friday, it was confirmed that GSX elected to return both Inotersen and IONS-FB-LRx to IONIS. CEO Stanley Crooke said on the earnings call that they'd be "delighted" if Inotersen was returned. It's seen that they could either spin up another commercialization organization like that of recently spun off Akcea, or the company could strike a new deal with someone else. Both options tend to be extremely profitable, however, the drug does need to make it through the FDA. This is wherein the battle for the stock price exists. People are selling on theory that the drug has problems and won't be approved, while the buyers think this is nothing but positive. The truth is, this is what makes the stock a gamble or speculative. There's no way to be certain of this outcome and it's very binary. There are a lat of extra efforts and money that needs to go into preparing for commercialization, though they've now done it before via Akcea, but they also have a competitor right on their heels to bring their own therapy to solve the same problem.
Over the course of what was a wild week, the stock is down 10.7% from a week ago. Selling pressure has certainly been felt, however, overall volume appeared to be lower than normal. Short interest is at 8.74% as of the end of July, which was down from about 10.5% in the middle of July. This week we'll get a new update on that figure to determine if a lot of this downward pressure is from short selling. No matter what way you look at it, the stock remains a gamble.
My view is that I'm on the bullish side of this gamble. I believe both Volanasorsen and Inotersen can make it through the FDA by early 2018. This will result in a massive acceleration of earnings next year. In addition, we have a number of phase 1 and 2 drugs coming up over the next several months that will result in potentially more milestone payments as well as more programs in the pipeline that could go commercial by 2022. The earnings results were a solid performance, but they look backwards. Looking forward, there's a lot of room for more earnings and revenues, as the company turns profitable. There is risk of the FDA approvals coming up, given the platelet count issues and I will fully acknowledge it. I'm also a little worried about the time and money it will take to get themselves ready for commercialization of Inotersen with such a competitive market at their heels. I believe the company will meet or exceed its $55M pro-forma income for the year. If the FDA approves Volanasorsen and Inotersen, I expect next year to be around $110M. For this, I'm willing to put a price tag of $68 for 2018. As we learn more, I think the price could get higher with positive results. However, with negative results, this price quickly plummets, too. Expect the stock to be volatile, as it has been. I wouldn't be shocked to see the stock pressed down to $40 without bad news, much less with it. Be prepared to act accordingly.
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.
During the course of the quarter, SPINRAZA, a therapy for spinal muscular atrophy, went commercial and made an impressive first move. Their partner, Biogen Idec, announced $204M in SPINRAZA sales, as the drug is clearly making inroads for intended patients. When this was announced, earnings estimates for Ionis were dramatically altered. Originally, estimates were at a twenty-three cent loss for the quarter. The company, through it's earnings call noted that $22.4M of the 104M in revenues were due to the royalties from SPINRAZA, which will get larger as more product is sold. These results, along with current cash holdings of over $855M resulted in a dramatic increase in guidance for the company as well. While the company originally guided for pro-forma operating profit of around break-even, they're now estimating results of around $55M. They also expect to be holding cash reserves of around $950M, which was raised from early estimates of $825M.
So in essence, the analysts ratcheted up expectations for the company by over 80% just thirty days before this call due to results heard from Biogen and when the company thoroughly beats earlier expectations, the company "missed." Not factored into this is the one-time payments that were made as stock bonuses to employees. Were this not in the numbers, the company would've delivered results of $0.08. The one "wall of worry" that was created was in relation to the company's agreements with Glaxo-Smith Kline (GSX). GSX is undergoing management and strategy changes and it was mentioned that drugs, including intoersen, might be returned. Since this drug was part of the whole platelet count issue around this time last year, there's a lot of speculation that this is a sign of something going wrong, despite the extremely positive phase 3 results that were recently published.
Well, that was during the call. Back on Friday, it was confirmed that GSX elected to return both Inotersen and IONS-FB-LRx to IONIS. CEO Stanley Crooke said on the earnings call that they'd be "delighted" if Inotersen was returned. It's seen that they could either spin up another commercialization organization like that of recently spun off Akcea, or the company could strike a new deal with someone else. Both options tend to be extremely profitable, however, the drug does need to make it through the FDA. This is wherein the battle for the stock price exists. People are selling on theory that the drug has problems and won't be approved, while the buyers think this is nothing but positive. The truth is, this is what makes the stock a gamble or speculative. There's no way to be certain of this outcome and it's very binary. There are a lat of extra efforts and money that needs to go into preparing for commercialization, though they've now done it before via Akcea, but they also have a competitor right on their heels to bring their own therapy to solve the same problem.
Over the course of what was a wild week, the stock is down 10.7% from a week ago. Selling pressure has certainly been felt, however, overall volume appeared to be lower than normal. Short interest is at 8.74% as of the end of July, which was down from about 10.5% in the middle of July. This week we'll get a new update on that figure to determine if a lot of this downward pressure is from short selling. No matter what way you look at it, the stock remains a gamble.
My view is that I'm on the bullish side of this gamble. I believe both Volanasorsen and Inotersen can make it through the FDA by early 2018. This will result in a massive acceleration of earnings next year. In addition, we have a number of phase 1 and 2 drugs coming up over the next several months that will result in potentially more milestone payments as well as more programs in the pipeline that could go commercial by 2022. The earnings results were a solid performance, but they look backwards. Looking forward, there's a lot of room for more earnings and revenues, as the company turns profitable. There is risk of the FDA approvals coming up, given the platelet count issues and I will fully acknowledge it. I'm also a little worried about the time and money it will take to get themselves ready for commercialization of Inotersen with such a competitive market at their heels. I believe the company will meet or exceed its $55M pro-forma income for the year. If the FDA approves Volanasorsen and Inotersen, I expect next year to be around $110M. For this, I'm willing to put a price tag of $68 for 2018. As we learn more, I think the price could get higher with positive results. However, with negative results, this price quickly plummets, too. Expect the stock to be volatile, as it has been. I wouldn't be shocked to see the stock pressed down to $40 without bad news, much less with it. Be prepared to act accordingly.
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.
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.
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