Ionis: Tough Run For Share Price Belies Multiple Reasons For Optimism

seekingalpha05-29

Ionis Pharmaceuticals' Q1 2024 earnings showed a loss of $143m, a larger loss than the $87m in the previous year.The company has a healthy cash balance of $2.2bn and expects revenues of +$575m in 2024...

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class=\"meta\">\n\n\n2024-05-29 04:39 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4696079-ionis-tough-run-for-share-price-belies-multiple-reasons-for-optimism><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Ionis Pharmaceuticals' Q1 2024 earnings showed a loss of $143m, a larger loss than the $87m in the previous year.The company has a healthy cash balance of $2.2bn and expects revenues of +$575m in 2024...</p>\n\n<a href=\"https://seekingalpha.com/article/4696079-ionis-tough-run-for-share-price-belies-multiple-reasons-for-optimism\">Source 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Corporation"},"translate_title":"Ionis：股价的艰难运行掩盖了乐观的多种原因","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"IONS":1,"VERV":1,"UTHR":1,"SRPT":1,"RPRX":1,"RHHBY":1,"NVS":1,"NTLA":1,"GSK":1,"ALNY":1,"AMGN":1,"ARWR":1,"AZN":1,"GSK.UK":0.6,"03165":0.6},"content_text":"Ionis Pharmaceuticals' Q1 2024 earnings showed a loss of $143m, a larger loss than the $87m in the previous year.The company has a healthy cash balance of $2.2bn and expects revenues of +$575m in 2024, albeit with further heavy losses.Ionis has several upcoming pipeline opportunities, including the potential approval of pelacarsen and label expansions for Wainua and Olezarsen.The antisense specialist with its LICA delivery technology remains a leading player in multiple liver and CNS disease categories, yet its share price has been slipping.I have formerly suggested Ionis is facing short term pain for long term gain, and I continue to believe it is due a significant valuation upgrade.wakila Investment Overview In my last note on Ionis Pharmaceuticals, Inc. (NASDAQ:IONS) in late February I covered the antisense/RNA medicine company's Q4 and full-year 2023 performance, its partnerships, pipeline, and valuation. Ultimately, I made the company a \"strong buy\" opportunity, albeit warning that investors may have to undergo some \"short-term pain, for long-term gain\". Unfortunately, the \"short-term pain\" has been more in evidence than I had hoped, with Ionis' share price slipping from ~$45 at the end of February, to $37.30 at the time of writing, a loss of ~18%. When Ionis announced its Q1 2024 earnings on May 7, the share price traded around $42, but the resultant sell-off was sharp, suggesting the market did not like the figures and updates provided by management. In terms of establishing whether my \"strong buy\" thesis still holds, and whether these losses genuinely are a case of \"short-term pain\", a review of Q1 2024 earnings seems to be the best place to start. Q1 2024 Earnings Review Let's start with the numbers - the company generated $119m of revenues for the period overall, with commercial revenue of $59m, and R&D revenues of $60m. R&D expenses came to $192m, and SG&A expenses $44m, for a total of $238m. Ionis made a GAAP loss from operations of $(150m), up from $(87m) in the prior year period, and recorded a net loss of $(143m), or $(0.98) per share, versus $(0.87) per share in Q1 2023. Ionis Achilles heel is the heavy losses it makes - $(386m) in 2023, $(270m) in 2022, $(29m) in 2021, and $(444m) in 2020, yet as I have pointed out before, the company has a healthy cash balance - $2.2bn as of Q1 2024 - with $500m raised at the beginning of 2023 by selling 25% of its royalties received from Spinraza and from its late-stage candidate pelacarsen, if approved, to Royalty Pharma plc (RPRX) - the company could earn another $625m from this particular deal. Despite revenues of over $575m being promised by management in 2024 - unchanged from guidance provided when 2023 earnings were shared in February, losses are expected to be less than $475m, and end of year cash balance ~$1.7bn. Ionis has secured commercial approval for five drugs in total - WAYLIVRA - indicated for genetically confirmed familial chylomicronemia syndrome (\"FCS\"), TEGSEDI, for polyneuropathy caused by transthyretin amyloidosis with polyneuropathy (\"ATTRv-PN\"), SPINRAZA, for spinal muscular atrophy, QALSODY, for superoxide dismutase 1 amyotrophic lateral sclerosis (\"SOD1-ALS\"), and WAINUA, for polyneuropathy caused by hereditary ATTR amyloidosis (\"hATTR-PN\"). As a reminder, Ionis' therapies are all based on its antisense technology, which the company describes as follows: Antisense therapies are designed to seek out, bind to and destroy a mRNA in a highly specific manner, so that the amount of disease-causing protein is dramatically decreased. Antisense therapies can also treat diseases caused by too little protein by increasing the production of the protein, thereby restoring the protein to normal levels. In terms of delivery of antisense technology, the company writes in its 2023 10-K submission:  Our advanced LICA technology is a chemical technology we developed that involves attaching a molecule called a ligand that binds with receptors on the surfaces of cells in a highly specific manner. Because these receptors are often found only on certain cell types, LICA allows us to increase effective delivery of our antisense medicines with higher specificity to certain cell types that express these receptors relative to non-conjugated antisense medicines. We currently have an integrated assessment of data from multiple LICA medicines and clinical programs which demonstrates that our LICA technology for liver targets can increase potency by 20-30-fold over our non-LICA antisense medicines.  The LICA technology, as stated above, is most effective when targeting the liver - as are rival RNA targeting therapies developed by the likes of Alnylam Pharmaceuticals, Inc. (ALNY) and Arrowhead Pharmaceuticals, Inc. (ARWR), although using intrathecal injections, Ionis has been able to target CNS indications also, such as with Spinraza. The revenue contributions of TEGSEDI and WAYLIVRA - just $9m in Q1 2024, up from $7m in the prior year - are scarcely relevant. Spinraza royalties are the main source of commercial revenues, although they are falling - from $50m in Q1 2023, to $38m last quarter. Ionis earns no revenues from QALSODY, which is marketed and sold by Biogen, while recently launched Wainua earned $5m of revenues last quarter for AstraZeneca PLC (AZN), Ionis' commercial partner, resulting in $1m of revenues for the company. R&D revenue streams can be uncertain, given their one-off nature, in response to certain milestones being achieved, although Ionis points out in its annual report that: Our partners include the following companies, among others: AstraZeneca, Biogen, GSK plc (GSK), Novartis AG (NVS) and Roche Holding AG (OTCQX:RHHBY). In 2022, we recognized $587 million in revenue, the majority of which was from our partnered medicines and programs. We have the potential to earn more than $23 billion in future milestone payments, licensing fees and other payments from our current partnerships. In addition, we are eligible to receive up to mid-20 percent royalties under our partnerships In short, there is plenty of earning potential in play, which to an extent vindicates the heavy R&D spending - although milestone payments are far from guaranteed. In the meantime, let's review what revenues may be obtainable based on upcoming pipeline opportunities. Ionis Pipeline Progress So Far In 2024 & Looking Ahead Key to understanding Ionis future and why I view the company as substantially undervalued are the product launches and label expansion opportunities the company has planned, as shown in the slide below (from the Q1 2024 earnings presentation. Ionis revenue growth potential (earnings presentation) As we can see, the four approved drugs which Ionis earns revenues from, discussed above, will be joined by three more before the end of 2026, management forecasts - Pelacarsen, Zilganersen, and Donidalorsen. Novartis is Ionis' partner on pelacarsen, and Ionis management told analysts on its Q1 2024 earnings call that \"data and a regulatory submission for pelacarsen are planned for next year.\" The therapy treats elevated lipoprotein, and could secure approval to treat multiple cardiovascular diseases, taking on the likes of Amgen Inc. (AMGN) / Alnylam's Olpasiran. While there is likely \"blockbuster\" (over $1bn revenues per annum) potential in this product, having sold a chunk of royalties from this product to Royalty Pharma, Ionis can likely expect no more than a revenue stream in the low triple-digit millions from this source. Meanwhile, however, Wainua could secure a follow-on approval in ATTR cardiomyopathy, a ~500,000 patient indication, which would open up another blockbuster opportunity, and long-term, another low triple-digit million revenue stream for Ionis, as well as one-off milestone payments. Olezarsen may secure a label expansion into severe hypertriglyceridemia (\"SHTG\") - approval in FCS seems assured for this year, with a New Drug Application already submitted, however, the indication is a small one - in SHTG, the drug could achieve blockbuster status. In phase 2 study data released last quarter, \"statistically significant reductions in apoC-III\", which affects lipoprotein levels, and \"meaningful reductions in markers of CV risk\", were observed. Donidalorsen approval may well arrive next year - more Phase 3 study is due to be discussed on May 31, and management is confident it will provide grounds for an approval submission. The drug met its primary endpoint with a statistically significant reduction in the rate of HAE, according to data shared in January - analysts on the last earnings call were told: Donidalorsen has the potential to extend dosing intervals to every four to eight weeks using an auto-injector. The current standard of care is dosed every two to four weeks using a vial and syringe. Ionis has already sold European rights to the drug to Japanese Pharma Otsuka, for ~$60m, but the therapy could earn ~$500m in the US, analysts have speculated. Zilganersen, if approved (phase 3 studies are underway), will address a small market and revenue opportunity. Beyond 2027, the opportunities become more speculative, although management is confident it can produce a thriving neurology franchise in time, as we can see below: Ionis neurology franchise plans (Q1 earnings presentation) Explanation For A Slipping Share Price? Tricky Indications, Competition, Lack Of Understanding Ionis is in many ways a tough company to value given there are multiple paradoxical elements to the business model. The company is cash-rich, a positive, but heavily loss-making, a negative. There are $23bn of milestones in play, but it is unclear how achievable they are. The company's technology is ingenious, but also flawed in some ways - chiefly when it comes to delivery outside of the liver - and in direct competition with the RNA-interference medicines developed by Alnylam and Arrowhead. The company may secure multiple approvals in the coming years, but some will be in very small indications, adding little to the top line, and inevitably, other therapies will not make it to market, undermined by safety/efficacy concerns. Ionis is no stranger to failures, in fact, part of the recent share price downtrend can be traced to the abandonment of the development of amyotrophic lateral sclerosis (\"ALS\") in partnership with Biogen, after data disappointed, and Biogen's decision to pull out of a collaboration over an Angelman Syndrome candidate. Nevertheless, when we add up the near-term - next 2-3 years - opportunities in play for Ionis, and what they mean for revenues in 2030, let's say, we can consider a $250m contribution from pelacarsen, the same from Wainua, $500m from olezarsen, $500m from donidalorsen, and $150m from spinraza - $1.65bn in total, and let's add up to $350m in milestones, collaborations, and \"other services\" - for a speculative total of ~$2bn. That would be a higher figure than rival Alnylam generated in 2023 - $1.83bn - yet Alnylam enjoys a market cap of +$19bn. Royalty Pharma itself earned $2.35bn of revenues in 2023, and enjoys a market cap valuation of +$15bn. More modestly, Exelixis, which only markets a single product of note, Cabometyx, earned $1.8bn last year, and is valued at $6bn market cap. United Therapeutics Corporation (UTHR), generating $2.3bn of revenues in 2023, is valued at $12bn market cap. The market's reasons for selling Ionis stock may be that it harbours doubts around whether Ionis' antisense technology can achieve best-in-class status, versus not only RNA-interference companies, but the likes of CRISPR gene editing companies like Intellia Therapeutics, Inc. (NTLA), or base editing pioneers such as Verve Therapeutics, Inc. (VERV). My response to that would be that Ionis has successfully won approval for five drugs that use its technology, that are safe and effective and widely in use, if not driving significant revenues, spinraza being the exception to that rule, being a \"blockbuster\" product. The market may also harbour doubts about whether Ionis can succeed as a commercial-stage company responsible for distributing and selling its own non-partnered drugs, but the company completes most of its own manufacturing presently and has a significant sales team in place already, so the transition can be a smooth one. Some therapies will fail unexpectedly - this is an inevitability of the pharmaceutical industry, and some drugs won't achieve their forecast peak sales, but even in these scenarios, the company looks well hedged. Sarepta Therapeutics, Inc. (SRPT), which earned $1.2bn from its Duchenne Muscular Dystrophy (\"DMD\") franchise last year, enjoys a market cap of nearly $11bn. Final Thoughts - Am I Sticking With My Strong Buy Thesis for Ionis? I'll maintain a \"buy\" rating on the stock, and remain confident of long-term, upside. Within its class or bracket of fellow commercial stage pharmas with multiple pipeline opportunities, I rate Ionis as one of the best opportunities, thanks to its proven ability to win approvals, produce quality data for its candidates, attract partners, and maintain very good financial stewardship. There will be setbacks, and the past quarter has highlighted a few, which I have discussed above, but seemingly, most of the major opportunities remain in play. The upcoming (May 31) review of the latest donidalorsen data and new Wainua data could be significant catalysts, and less optimistic investors may want to wait and see what that looks like before contemplating an investment. Even if there is bad news, however, it would only soften, not derail, the long-term investment thesis, with multiple other opportunities in play.  The company is well into its third decade, and while multiple new therapeutics approaches have emerged, from mRNA technology, to gene editing, to lipid nanoparticle delivery, Ionis' own technology still appears capable of holding its own, and with several potential blockbuster assets edging closer and closer to approval, I don't see any reasons to panic, rather, several compelling reasons to buy.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.28.1","shortVersion":"4.28.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2439533806"}