ISIS Heats Up Ahead Of FDA Decision

Shares of ISIS Pharmaceuticals (ISIS) are beginning to heat up significantly in anticipation of the PDUFA action date of January 29, which could result in the FDA approval of the company's flagship product Kynamro (mipomersen).

Kynarmo is an inhibitor of a protein known as apo-B, which has proven to be useful for the LDL-cholesterol in hypercholesterolemia patients.

Leaving Past Behind
ISIS suffered from a bit of controversy in October 2012 due to certain concerns that were brought up by the advisory meeting that discussed the NDA (New Drug Application) submitted for Kynamro earlier that year. These included worries about the safety profile of the drug, specifically regarding lesions that were discovered in patients undergoing clinical testing in the drug as well as concerns over the toxicity of the drug. On the other hand, the drug has demonstrated statistically significant reductions in LDL-cholesterol reduction.

This resulted in a 9-6 vote in favor of FDA approval on October 18, which reflects the panel’s uncertainty about the safety of the drug despite the demonstrated efficacy in the treatment of hypercholesterolemia.

Competition
Kynamro will be directly competing with Juxtapid (lomitapide), which is Aegerion Pharmaceuticals’ (AEGR) recently approved microsomal triglyceride transfer protein inhibitor for the reduction of patients’ lipid levels. This included LDL-cholesterol, as well as Kynamro’s target apo B. Many investors believe that one of these drugs’ success could equate to the other’s failure, but the market is moving AEGR and ISIS in tandem (to some extent). The notion that there is more than enough room in the hyperlipidemia market for these two drugs seems to be helping this effect too.

Despite having the same target, Kynamro is quite unique. It’s based on antisense technology, which is a newer field that could have interesting medical applications in coming years. ISIS pharmaceuticals itself is basing its pipeline on this new technology and its implications. In addition to Kynamro, the company is exploring antisense inhibitors for target proteins CRP, ApoCIII, and Factor XI as well.

The Upside To Approval
Kynamro’s approval could mean quite a lot to ISIS investors, despite the fact that it was licensed to Genzyme Corporation. Although Genzyme has already paid $175 million for Kynamro through licensing fees, ISIS stands to generate additional milestone payment revenue from the drug after its potential approval, and might have other partnering opportunities due to Genzyme’s equity in ISIS.

ISIS originally dropped from over $13/share to $9/share following as an initial reaction to the FDA advisory committee which discussed the drug last October and gave the 9-6 vote in favor of approval. The market seemed to think that the drug’s chances of approval were slim due to the safety concerns surrounding the drug and the likely approval of competitor Aegerion’s Juxtapid/lomitapide. This notion seemed to persist until after the FDA approval of Juxtapid/lomitapide at the end of 2012.

The Short Flow
ISIS short interest continued to move up following the advisory committee meeting, with about 13.6 million shares sold short at the end of the year. This represented about 13.6% of float. We’ve recently seen huge movement in ISIS towards the upside, bringing YTD gains to approximately 27% and sending shares above $13 again. I think that this was a combination of investor skepticism over the FDA advisory committee vote, optimism over Kynamro’s likelihood of success at the end of the month, and also some short covering.

One can also note that call options on ISIS are quite bullish for February, which indicates quite a bit of interest from speculators who want to bet on an FDA approval that will induce a large rally in the stock. The bullish momentum is also building, as you can see by heavy trading volume in the last few days.

Target
Given the situation, I don’t think that $16/share or more would be unreasonable following an FDA approval. Although ISIS is already getting quite large in its valuation (currently at $1.34 billion) an approval for Kynamro could mean a lot for antisense drugs, and hence the rest of ISIS’ pipeline.