It's Time To Accumulate Crashed Biotechs Like ISIS Print E-mail
By Brian Wilson - Lead Contributor   
Wednesday, 21 May 2014 07:47
After a well-deserved selloff in the biotech space, we are much more comfortable with the pricing of most of the NASDAQ-traded biotech stocks that we follow.
We think that "strong buys" are still quite scarce, but nonetheless we find that many of the more well-known biotechs have dropped into more "neutral" trading territory. 

This is a stark contrast to March of this year, when the vast majority of biotech stocks were priced to perfection. It is a relief to see investors taking multibillion dollar valuations seriously again.

Although the weakness in biotech could continue well into the summer months, we believe that certain big-name stocks offer well-rounded and compelling alternatives to mainstream equity and fixed-income funds at this point. Many of these bigger companies plunged by 30% or more in the last 3 months solely due to a major rotation of investor capital out of healthcare and into other sectors like energy and financial services. Others, like Aegerion (covered yesterday), plunged further due to more specific reasons.

Today we will take a quick look at ISIS Pharmaceuticals (ISIS) - a stock that remains traumatized from a 54% drop throughout the last three months. Although we agree that the stock was terribly overpriced at its 52-week high ($62.66 per share!), we believe that ISIS is now in a position to offer decent returns to investors looking for a new play in biotech.

For those who are unfamiliar with the company: ISIS Pharmaceuticals is one of the leading RNA therapy developers. Using proprietary "antisense" technology, the company is able to interfere with the function of undesireable genes in patients. Other big RNA stocks include ALNY, SRPT, ARWR, and TKMR.

On May 6th, ISIS released earnings for the first quarter of 2014. The company's cash position remained relatively stable ($630 M including short term investments), and we were unsurprised to see that Kynamro didn't sell very well into the HoFH indication. 

However, the performance of Kynamro in HoFH isn't all that important to the future of ISIS, and to the long-term performance of the stock. What ultimately matters for ISIS are the other 32 pipeline drugs based on the company's antisense platform. Most of these are partnered with big pharma, which means that ISIS will receive royalty payments on future sales of these drugs. 

Behaving more so as a technology vendor than a traditional pharmaceutical company, ISIS positions itself to earn money with much less work in coming years. This bodes well for the company's bottom line going forward, and allows the company to fully embrace the potential of its proprietary technology.

ISIS may take years to recover from this recent fall, but we are cautiously optimistic about recent data releases. RNA interference technology has come a long way, and we see no signs of a slowdown.




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