Can Ionis Pharmaceuticals Stock See A Rebound After Falling 28% YTD?

IONS: Ionis Pharmaceuticals logo
IONS
Ionis Pharmaceuticals

We believe that Ionis Pharmaceuticals stock (NASDAQ: IONS), a biotech company that specializes in discovering and developing RNA-targeted therapeutics, is a good buying opportunity at the present time. IONS stock trades near $41 currently and it is, in fact, down 34% from its pre-Covid high of around $62 in February 2020 – before the coronavirus pandemic hit the world. IONS stock has had a volatile ride the past few months. It rallied from levels of under $42 in March 2020, when broader markets made the bottom, to levels north of $63 towards the end of January 2021. However, the stock saw a vertical fall from $56 on March 22, 2021, to $44 on March 23, reflecting a large 22% drop in a single trading session. The March 2021 drop can be attributed to an announcement made by its partner Roche to stop treating patients with Tominersen in a late-stage clinical trial testing.  Tominersen is being developed by the two companies to treat Huntington’s disease. This was surely negative for both the companies, as Tominersen if successful, would be the first therapy to reduce the progression of Huntington’s disease, and its peak sales were touted to be as high as $5 billion. Roche’s decision was led by lower than expected efficacy of the therapy.

However, the selling now appears to be overdone for Ionis. Firstly, at the current price of $41, IONS stock is actually trading at levels below its March 2020 lows, while the broader S&P500 Index has rallied 87% over the same period. It’s not that IONS had just one blockbuster drug it was relying on for future sales. Secondly, the company has a strong pipeline with six other drugs in phase 3 development, and around 25 in phase 2. Lastly, not all recent developments were negative for Ionis. The company recently announced positive data from phase 2 clinical trial of IONIS-PKK-LRx for treatment of patients with hereditary angioedema (HAE). Also, the company initiated phase 3 trials of ION363, the first medicine to target FUS-ALS (amyotrophic lateral sclerosis). In this note we focus on a comparative analysis of Ionis Pharmaceuticals stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

Timeline of Coronovirus Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high.
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 87% from the lows seen on Mar 23, 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
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In contrast, here is how IONS stock and the broader market fared during the 2007-08 crisis

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

IONS and S&P 500 Performance Over 2007-08 Financial Crisis

IONS stock increased from from levels of about $15 in October 2007 (pre-crisis peak for the broader markets) to levels of around $17 in September 2008 before declining to under $13 in March 2009 (as the markets bottomed out), implying IONS stock lost 27% from its peak. It failed to stage any recovery immediately post the 2008 crisis, and the stock fell to levels of around $11 by January 2010, reflecting another 14% drop. In comparison, the S&P 500 Index saw a decline of 51% from its peak in September 2007 to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.

Ionis Top Line Has Expanded While It Is Still Not Profitable

Ionis’ revenues increased from $0.5 billion in 2017 to $0.7 billion in 2020, led by higher Spinraza royalties as well as R&D revenues under collaborative agreements with other pharmaceutical companies. The company reported positive earnings over the recent years except for 2020, where increased operating costs owing to higher R&D investments and higher SG&A expenses led to a loss. The company reported a loss of $3.23 per share in 2020 (GAAP), compared to profit of $2.08 per share in 2019 and $2.07 per share in 2018.

Does IONS Have Sufficient Cash Cushion To Meet Its Obligations?

Ionis has seen its total debt increase from $607 million in 2017 to $840 million in 2020, while its total cash increased from $1.0 billion to $1.9 billion over the same period. It also generated over $36 million in cash for its operations in 2020. The company has a sufficient liquidity cushion to meet its near term obligations.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and progress with vaccine development aided stock indices growth.
  • Early 2021: Multiple countries approved the vaccines for Covid-19, further buoying market sentiment, though new variants of coronavirus resulted in uptick in active cases in several countries.

As the global economy opens up and restrictions are lifted in phases, overall volume of new patient starts will rise, boding well for IONS stock in the near term. We believe that IONS stock could rally back to levels of over $55, implying around 35% upside from the current price.

While IONS stock may see higher levels, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Catalent vs. Emergent Biosolutions.

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