On Wednesday, Wolfe Research raised its rating on shares of Ionis Pharmaceuticals (NASDAQ:IONS) from Peerperform to Outperform. The firm anticipates a favorable risk/reward scenario for the company's stock movement, particularly when compared to its peer, Alnylam Pharmaceuticals. The upgrade comes ahead of an important data readout expected in the summer, which Wolfe Research acknowledges as a potentially risky catalyst.
The analyst from Wolfe Research highlighted several factors that could contribute to a more positive outlook for Ionis Pharmaceuticals. The firm expects that, following the HELIOS-B study results, attention may shift to undervalued assets and indications within Ionis' portfolio. This shift could lead to a revision of top-line expectations and an increase in the company's valuation.
Looking ahead, Wolfe Research predicts an improvement in operating margin for Ionis Pharmaceuticals into 2025-26 and projects the company to achieve cash flow positivity by 2027.
The firm notes that for midcap biotech companies, an improving operating margin has historically been a key driver for sustained gains in stock valuation, citing examples such as Alnylam Pharmaceuticals and Vertex Pharmaceuticals (NASDAQ:VRTX) over the past five years.
As part of the update, Wolfe Research has adjusted its model for Ionis Pharmaceuticals, raising the expected peak revenue for the drug olezarsen from $1.5 billion to $2.1 billion. The firm also made several other minor changes, including lower projected Spinraza royalties, reduced collaboration revenue, and decreased near-term R&D expenses.
The firm's discounted cash flow (DCF) model sets a conservative price target of $58 for Ionis Pharmaceuticals. This model accounts for continuous growth in R&D spending, reaching over $950 million by 2040, and includes only $500 million in revenue for the outer-year platform value.
Key drugs such as Spinraza, Wainua, Qalsody, olezarsen, donidalorsen, and ulefnersen are explicitly modeled, while Pelacarsen, a significant potential catalyst for 2025, is not included in the model and is considered an additional upside.
InvestingPro Insights
In light of Wolfe Research's optimistic assessment of Ionis Pharmaceuticals (NASDAQ:IONS), InvestingPro data and tips offer additional perspective for investors considering the stock. With a market capitalization of approximately $6.24 billion, Ionis is trading at a high Price / Book multiple of 16.14, reflecting a premium valuation relative to its book value as of the last twelve months ending Q4 2023. The company has experienced a substantial revenue growth of 34.1% during the same period, with an even more impressive quarterly revenue growth rate of 113.65% in Q4 2023. However, it's important to note that Ionis has a negative gross profit margin of -15.17%, indicating costs that exceed revenues at the gross profit level.
InvestingPro Tips suggest caution, as analysts have revised their earnings expectations downwards for the upcoming period and anticipate a sales decline in the current year. Additionally, the company is not expected to be profitable this year and has not been profitable over the last twelve months. On the positive side, Ionis's liquid assets exceed its short-term obligations, and the company operates with a moderate level of debt. These factors may provide some financial stability, despite the lack of profitability and dividend payments to shareholders.
For investors seeking a deeper analysis and additional InvestingPro Tips, there are more than 8 additional tips available on InvestingPro's platform for Ionis Pharmaceuticals. To access these insights and enhance your investment strategy, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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