Big Milestones Could Lead This Stock to Big Gains

I cannot emphasize enough how important having a deep and diverse pipeline, as well as numerous potential collaborative partners, can be in the biotechnology space.

I know it's like comparing apples and oranges, but humor me for a moment. On one hand, we have Dendreon , a cancer immunotherapy developer that, at one time, was the talk of Wall Street. What Dendreon didn't have, though, was a diversified pipeline of products and exactly zero development partners, and it lacked any experience in bringing a drug to market. Since its advanced prostate cancer immunotherapy, Provenge, was approved, sales growth has stalled and losses have piled up.

In other column, we have Isis Pharmaceuticals , an antisense drug developer that currently has 31 clinical and pre-clinical drugs being studied, as well as 12 collaborative drug development partners. It only has one therapy approved by the Food and Drug Administration -- like Dendreon -- with Kynamro, a homozygous familial hypercholesterolemia treatment, but it wisely partnered with Sanofi to help market the drug.

The difference between the two companies, despite both continuing to lose money, is that Dendreon's opportunities are waning with such a small pipeline to fall back on while Isis' are soaring.

Source: Garfield Anderssen, Flickr.

A mountain of milestones
If you note Isis' performance over the past year, it has climbed from as low as $7.56 to close yesterday near $32 per share. The reason for its big up day yesterday was the announcement of another expanded collaboration with Biogen Idec with regard to the development of neurological therapies. This announcement -- and the potential for $4 billion in milestones (assuming every drug the two are collaborating on gets approved, which is an unlikely scenario) that Isis' management touched on yesterday afternoon -- got me wondering: Just how much milestone money could Isis be looking at based on its collaborations?

Below are a few snippets from the press releases of some of its most important collaborations:

With regard to Isis' now fourth collaboration with Biogen Idec:
"When combined with the first three collaborations, using what we think a reasonable assumptions about the success of the various programs, with the caveat that of course most of these programs are very early stage, Isis revenue potential exceeds $4 billion plus royalties."

Isis and AstraZeneca formed an RNA-therapeutics-based strategic alliance last year to discover novel cancer treatments. Here's how Isis' milestone payments break down in this partnership:

Similarly, in 2010 Isis partnered with GlaxoSmithKline to collaborate on RNA-therapeutics for rare and infectious diseases. According to their collaboration:

This represents just three... three... of Isis' ongoing collaborations, yet combined these three partnerships have the potential for somewhere in the neighborhood of $6 billion in milestone and royalty payments. Now, let's put this into some perspective. Obviously not every single drug that works its way through the development process is going to make it to market -- nor is Isis going to see all of this money in one lump sum. However, I can only assume as a best "guesstimate" that the cumulative value of its 12 collaborations, including royalties and milestone payments, is likely worth double the current value of its market cap, if not more!

Again, to really drive this point home, I'm not saying that every one of its collaborated drugs will be approved. Instead, I'm saying that Isis' success is inherent because it has the potential to pick up huge milestones and royalties because of its existing collaborations.

To add, Isis also has 15 compounds that it's developing in-house! This means that while the onus of costs is solely on Isis, all the profits will belong to Isis as well.

There are just so, so many opportunities opening up for Isis to ignore. With that in mind, at worst, this should be a company you have etched into your everyday watchlist if you're a biotech-savvy investor.

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The article Big Milestones Could Lead This Stock to Big Gains originally appeared on Fool.com.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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