Shares of Isis Pharmaceuticals ( ISIS ) dropped about 17% on Tuesday, November 17 to close at $11.12, down from a previous close of $13.40. The selloff was a reaction to Isis and partner Genzyme( GENZ )'s presentation for Mipomersen Phase 3 Trials data for treatment of HoFH during at the American Heart Association's scientific sessions the same day. The results of the study appear very promising, with a 25 percent reduction in LDL-cholesterol after 26 weeks of treatment, vs. 3 percent for placebo patients. In fact, some patients even showed a "very impressive" 70 percent or 80 percent reduction, so why the negative reaction of the market ?
The main price trigger here was not the apparently glowing results of the treatment which were known since May of this year and already priced into the stock. The selloff was mainly caused by Isis announcing it will seek FDA and EU approval for the drug by mid 2011, as opposed to second half of 2010 as previously expected. In addition, a smaller factor was, as one analyst put it "the potential risk of liver damage to patients." I will address both matters below, and explain why I feel this is an overreaction which presents a Buy opportunity for those willing to dig a little deeper.
Potential Risk of Liver Damage . 12% of the patients treated with Mipomersen exhibited elevated levels of liver enzymes above 3 times ULN (upper limits of normal). One patient whose levels were up to 8 X ULN was released from the study. Elevated liver enzymes are monitored as an early warning for potential liver damage. However I'm not sure how much of a real price factor this data should really be viewed as, considering these results were previously disclosed (and priced in) and they are simlar to previous Mipomersen tests.
I am not particularly worried about this becoming a threat for the FDA approval of the drug either. For starters, all but one of the patients (50 out of 51) were already taking (and continued to take during the trial) maximum doses of cholesterol-lowering statins and in addition 3/4 of them were also taking common cholesterol meds such as Lipitor, Zetia and others. Add a very high dose of Mipomersen - 200 mg to this cocktail, or any other drug for that matter, and elevated liver enzymes should not come as a huge surprise. When the study ended after 26 weeks of treatment, patients' enzyme levels dropped back with no evidence of any liver damage.
HoFH (homozygous familial hypercholesterolemia) is a rare genetic form of the FH condition, characterized by very high cholesterol levels since early childhood, causing severe risk of heart problems and limited life expectancy for patients. Even if the risk of potential liver problems proves to be legitimate, for the people living with the daily threat of a heart attack and death, this potential risk it is not exactly a deal breaker.
Isis is also currently conducting a Phase III study on heterozygous FH, which is the much more common and much milder form of FH, affecting 1 in 500 people worldwide. It is possible that this patient population, taking lower doses of statins, will be able to tolerate the same dose of Mipomersen with reduced number of cases of elevated liver enzymes. The results are expected in Q1 of 2010. In addition, another Phase 1 study on the rare HoFH form patients is to begin in Q1 with varying times of application per week of Mipomersen, with the goal of comparing efficacy and tolerability for 30 mg daily injection, a 70 mg injection three times a week, and a 200 mg weekly injection (same as current study), each compared with placebo. This is to be followed by a longer study with varying doses of the drug. It is not uncommon that a lower dose could be just as effective, yet much safer for patients.
The Delay of the FDA and EU application . I agree that the 6 months to a year delay is a just cause for some time discount on the stock, however a 17% one is highly exaggerated, especially in the current very low interest rate environment. I believe it is not the actual number of months of delay investors reacted to on Tuesday, but a fear of some hidden undisclosed reason for the delay. Let's not forget that in this hair-trigger industry, a delay of trial results or FDA decision by just a few days often leads to huge selloffs, later to be made up by big rallies if the news is positive when it does finally come out.
It is true that this Phase 3 trial was the last of 4 studies concerned with the rare HoFH form, and striclty from a medical point of view, Isis should be ready to go ahead with the FDA new drug application. However, there are several Mipomersen studies in 2010, which show the company's intention to explore the possible application of the drug in additional cholesterol markets and also to find the best dosage in terms of both efficacy and tolerability. Studies on the much larger HeFH population (read: larger market for the drug) are scheduled through 2010. Also the company is testing Mipomersen application for treatment of hypercholesterolemic patients at high risk for coronary heart disease and results of the Phase 3 are expected in mid 2010. In addition there is the study mentioned 2 paragraphs prior on varying times of application per week, which is only in its first phase of trials and will not see the results of Phase 3 until probably early 2011 (my estimate), as some of these are 26 weeks studies.
Botom line - Mipomersen works for HoFH patients, in fact quite spectacularly in some cases. There are potential risk of liver side effects, but many drugs do in high doses. Now that it is proven the drug is effective for this high-risk but rare condition, Isis is looking into other much larger closely related markets and continuing to tweak with the perfect dosage in terms of both tolerablity and efficacy before submitting the FDA application. For my money, the much more common and milder HeFH-form patient population is a much more lucrative market and makes it worth the delay. The treatment of HeFH is practically a given in terms of efficacy, since Mipomersen is now proven for the very hard to treat HoFH form.
ISIS continued ability to fund the upcoming studies . Obviously Isis has numerous studies planned for 2010, so given the large expenses associated with them, some may question whether the company will be able handle this spending load and what it would mean for the stock price if the company fails to do so. The industry is chock-full of single-drug startups with no revenues, which need to rush filing the FDA application in an all-or-nothing bet before they run out of money. Isis, on the other hand, can well afford to continue the studies a bit longer, for the benefit of identifying the most lucrative market and the best dosage and application method of their promising new drug.
Isis is one of the veteran companies in the business with several drugs already approved and being distributed commercially through partnerships with major pharma companies. Isis has licensing and royalties revenues of almost $90 mln for the first 9 months of 2009 with 130% operating margin. The company has $612 mln in cash reserves, with just $140 mln debt. In addition, Isis partner in developing Mipomersen - Genzyme ( GENZ ), one of the blue chips in the industry with a large treasure chest, will certainly not allow studies on this promising drug to be abandoned due to lack of funds.
How to play this opportunity . I believe that a long position at the current price level should be able to gain 20% plus in the next 2-3 months with little downside risk. We may see (although unlikely) another test of the 52-week low at $9.90 from almost a year ago. However, considering that this company has $6.22 cash per share, and about a dozen other drugs currently being developed and tested in its pipeline, a drop below $9 is extremely unlikely. I would hold the stock up to and sell right before the next study release in early 2010, as these events and the market's read & reaction can be highly unpredictable (as shown this Tuesday). Biotech stocks tend to uptrend in the expectation of events, and I believe ISIS will do just that, especially relative to the current low price level.
$11.14 (11/24/09)
