Raising Target Price for Isis Pharmaceuticals on Platform Franchise

01/12/2015 5:47 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

This pharmaceutical company’s stock is up 84% in the three months ended January 8, but MoneyShow's Jim Jubak thinks there’s something bigger going on here, so he’s not selling, he’s actually raising his target price as of January 12.

Shares of Isis Pharmaceuticals (ISIS) have been on a tear lately. The stock is up 84% in the three months ended January 8. That brings my gain since I added the stock to my Jubak’s Picks portfolio on May 22, 2014 to 190%. At $72.43, the shares are way over my target price of $55.

Time to sell? Has this become just another one of those over-hyped biotechs ready for a tumble?

I don’t think so, and in fact, I’m raising my target price, as of today to $82 a share by April 2015.

The news flow recently has certainly been positive. On January 8, Isis told Wall Street that its actual results for 2014 would be a significant improvement on earlier expectations for a 2014 net operating loss in the mid- to high-teens and more than $725 million in cash earned by meeting milestones in its development program. (The company is due to report fourth quarter financials on February 26.) And, on January 5, Isis announced it had signed an agreement with Janssen Biotech, a unit of Johnson & Johnson (JNJ) to develop drugs to treat autoimmune disorders of the gastrointestinal tract. The deal includes $35 million in upfront payments and the potential for nearly $800 million in milestone payments (plus royalties on any successful products).

This is exactly the kind of validating agreement—big name partner commits significant milestone funds—that drives the price of a biotech stock higher as investors wait for a payoff in the form of actual sales of new drugs.

But there’s actually something bigger going on here than the signing of a big new partner to fund the development of new drugs.

Isis Pharmaceuticals in the midst of validating a whole new drug technology, called antisense, that works by silencing harmful genes. The company is clearly one of two leaders in drug technologies, called RNA therapeutics, that work at the level of cellular RNA. (The other company is Alnylam Pharmaceuticals (ALNY), which focuses on RNA interference rather than antisense. On January 9, the two companies announced that they would cross-license their intellectual property in RNA therapeutics.)

What that means is that Isis increasingly looks like it is on a path to become not just a biotech that has developed one or two or three significant new drugs, but one that has pioneered a whole new class of innovative drugs with the potential of Amgen’s (AMGN) recombinant protein technology. It’s certainly not guaranteed that Isis grows up to be an Amgen, but it is easy to understand the market’s enthusiasm. Amgen trades with a market cap of $118 billion. Even after its huge gain this year, Isis has a market cap of just $8 billion.

Isis’s first drug to market—Kynamro—for a rare genetic disease that causes very high cholesterol, has been a relative disappointment in sales, but it did increase confidence in Isis’s technology. The company has drugs in the pipeline for diabetes, high levels of triglycerides, and blood clotting. Isis has more than 20 drugs in Phase II or Phase III trials in 2014 and partnerships with Sanofi, Glaxo, Roche, AstraZeneca, and Biogen.

The next two years will go a long way to determining if Isis owns a drug technology platform that would make an Amgen-like growth path possible.

It’s that possibility that the market is trying to price right now.

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