The biotech sector is always popular with traders and investors who have a healthy appetite for risk, as the rewards of success in the rapidly developing industry are so huge. Said risk, on the other hand, has always been high, with only a fairly small percentage of therapies with potential actually achieving any commercial success.
As if that inherent risk weren’t enough, last year’s election campaign brought another danger to the industry to the fore: pricing regulations. Given that, it makes sense for investors in the field to look for companies with factors that mitigate risk in some way, companies such as Ionis Pharmaceuticals (IONS).
What is different about Ionis is that they have not concentrated on developing one or two individual therapies, but rather have developed a platform and technique that is applicable to many different drugs. Their Ligand Conjugated Antisesnse (LICA) platform is used to influence specific genes, mainly by adjusting their protein levels. This has enabled them to develop a robust pipeline of therapies in a fairly short space of time.
Obviously that reduces, or rather diversifies, the inherent risk of achieving good trial results and makes it likely that Ionis will have multiple commercial drugs on their books before too long.
Of course, to some extent that possibility is already priced into IONS, which is trading at around $46.50 as I write, despite analysts generally predicting continued losses on operations for at least the next twelve months. Those estimates, however, quite possibly don’t give enough credit to IONS’s management for something else that they have shown that they are good at: negotiating advantageous partnership deals with big players in the industry.
They have one such deal with Biogen (BIIB) for a drug that will go by the name of Spinraza, designed to treat children with spinal muscular atrophy, for which the marketing plan is already under review in both the U.S. and Europe. In addition they announced this week that they would receive a $75 million payment from Bayer to advance a drug for end-stage renal disease that has just completed Phase II studies.
Partnership deals such as these are common among small biotech firms and do admittedly limit the potential profit from new therapies, but they have two major advantages, one obvious and one a little more subtle. The obvious plus is that it provides for injections of cash to keep the company afloat.
The less obvious advantage is that partnering with firms such as Bayer and Biogen reduces the risk of restrictive price controls. The big firms in the industry are used to making the case that the potentially revolutionary drugs now in development justify the pricing of successful therapies and have an intricate understanding of the pricing levels that insurance companies will bear, as well as having marketing and sales teams in place.
From a technical perspective, the stock is volatile, but some weakness today allows for buying near the bottom of an encouraging looking upward channel. The stock has also recently formed a double bottom just above $40, a level which also provided resistance and marked the peak of a run up in early August of last year. That sets up a stop loss at around that level, limiting potential losses to around fifteen percent.
Ionis, then, still has the risk that is inherent in a biotech stock, but their strategy thus far has resulted in that risk being mitigated somewhat for potential investors. When that and the technical pattern are considered IONS looks like the kind of industry stock that fits the current mood, and is therefore well worth the risk.