Earnings Analysis: Ionis Pharmaceuticals (IONS)

Back on February 27, Ionis announced their fourth quarter and fiscal year 2017 results.  Instead of diving into results, the company started out with talking about its pipeline.  As I have been anticipating, we have some updated information on the PDUFA (and thus the retail approval) for Inotersen, which will be July 6.  At the same time, their EU review has also been accelerated and things continue to go smoothly.  With approval, Ionis will be ready for immediate launch of the drug.  They also appear to be getting close to deciding on a partner to take on the drug, which is a bit of a mix on emotion.  Giving it up means that Ionis will give up revenues, in exchange for all of the sales and marketing efforts, but given where they are in the process, the company should be able to maintain relatively high royalty rates.  Similarly, we also received an update on Volanesorsen, with the FCS therapy going in front of the FDA on May 10.  Again, the process is moving forward smoothly and Akcea is also ready to launch immediately (and globally), upon approval.  One of the key aspects to the Volanesorsen therapy has been the platelet monitoring protocol that had to be put into place.  The protocol has been working well, preventing any further issues with dramatically lowered counts.  

Looking at the pipeline, the company has 45 drugs in its pipeline.  SPINRAZA continues to show what antisense drugs are capable of doing as sales continue to stay strong with Biogen.  That partnership is also enabling Ionis to begin developing its own neurological disease pipeline independent from Biogen, opening a future potential for better royalty deals or self-managed drugs.  They have completed a phase 1/2 study on Huntington's disease which Roche jumped on at a tune of $45M to help keep this moving forward.  Data on the results were presented on Friday, but generally the therapy is currently exceeding expectations for its indication.  LICA drugs continue their advance as well.  Currently there are 12 in phase 2 studies and, to date, the drugs have been proving to be safe, and more effective, allowing patients to get less frequent dosages while maintaining effectiveness.  Looking ahead, the company expects to report phase 2 data for more than six studies this year while also initiating more than six new phase 2 or 3 clinical studies.  It's fairly safe to say the company isn't just sitting around right now.  

Getting into financials, the company reported earnings of $0.02 and revenues of $172.3M.  Both beat expectations of $0.01 and I think around $150M (can't find the data now).  The first thing that wowed me was that the company now has over $1B in cash.  This is surprising, given how much money they're spending on the launch of Inotersen, much less the drug advancements I just mentioned.  However, this is good from a stock perspective, as it further reduces the likelihood that stock will need to be sold to raise money, thus diluting the pool.  It also appears that it provides the company some extra fuel to invest in themselves, as they project having approximately $800M in cash come the end of 2018.  There was little else for forward guidance outside of expense ranges for R&D and SG&A.  I believe this is, in part, due to the fact that accounting procedures around how milestone awards will be reported.  Despite this, the future is seen to be bright with the two additional drugs anticipated for sale in the year and increased sales of SPINRAZA.

What I find interesting is that all of this news seemed pretty solid and then the company followed up with strong Huntington's disease data, which was good enough for Roche to license immediately (not just provide milestone payments - they're saying we want this).  And yet the stock has managed to sell off over the last few days.  I believe much of this is in relation to the overall market getting spooked about politics.  Rate hikes are also something to continue to watch as people will pay less for future earnings as rates rise (also watch out for inflation, because that makes things even less valuable).  The company has accelerating revenue growth, which is the crack, growth traders want, typically.  I also expect the company to be profitable in 2018.  Analysts are already expecting 2018 earnings of $0.13.  For now, I'm OK with setting that as my 2018 earnings target as well.  I won't talk multiple of earnings here because the company is more likely trading on sales or some other factor, given where it is at right now.  While this is, admittedly, rather arbitrary (and a space for me to improve so I can speculate better), I'm going to set my price target for 2018 at $62.  The stock still doesn't get any love, and I'm not sure how much that will change until the back half of the year when we start seeing sales from Inotersen and Volanesorsen.  Despite the lack of love, I think there is a stronger future here than many give credit for.  As a result of this as well as the stock's recent performance, I'm going to raise my ranking to a 1.  

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.