Why Akcea Therapeutics, Inc. Is Soaring While Ionis Pharmaceuticals Is Dropping

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What happened

In response to the announcement of a major partnership deal, shares of Akcea Therapeutics (NASDAQ: AKCA), a biotech company focused on rare diseases that was spun-out of Ionis Pharmaceuticals (NASDAQ: IONS) in 2017, skyrocketed 29% as of 12:05 p.m. EDT on Thursday. Meanwhile, shares of Ionis Pharmaceuticals fell about 3% in response to the news.

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So what

Ionis announced today that it has signed an exclusive, worldwide licensing deal with Akcea related to two of its drugs -- inotersen and IONIS-TTR-LRx (which is being renamed AKCEA-TTR-LRx).

Here are the key details of the agreement:

  • Ionis' internal commercial team that was working on inotersen's commercialization will join Akcea.
  • Akcea will pay Ionis an upfront licensing fee of $150 million. However, the payment will be made in shares of common stock, not cash.
  • Ionis will purchase an additional $200 million of Akcea common stock.
  • After the transaction closes, Ionis' ownership position in Akcea will increase to 75%.
  • If inotersen and AKCEA-TTR-LRx receive regulatory approval in the U.S. and EU, then Akcea will make milestone payments of $50 million and $40 million, respectively, to Ionis. Additional milestone payments will be owed upon the approval in various other geographies as well.
  • Profits and losses from sales of inotersen will be split 60%/40% between Ionis and Akcea. If AKCEA-TTR-LRx finds its way to market, then profits and losses will be shared 50%/50%.
  • Total milestone payments associated with this deal are $1.3 billion.
  • All in all, this transaction could net Ionis up to $1.7 billion, plus profit-sharing payments.
  • The deal is expected to close in the second quarter of 2018.

This deal is being interpreted by traders as a big win for Akcea and a mild disappointment for Ionis. That could be because the market was hoping that Ionis was going to partner with a deep-pocketed pharma company to commercialize inotersen like it did when it chose Biogen to help it commercialize Spinraza.

Now what

While the odds of this deal going through look to be very high, it is worth pointing out that shareholders will have a chance to voice their opinion. A special shareholder vote is being held on whether to approve this deal or not, and the two companies' directors and officers will not be allowed to cast a vote. However, Novartis has already agreed to vote in favor of the proposal, which is a big deal since it holds about 9.4% of the issued shares outstanding.

As a shareholder of Ionis, I was a bit surprised to learn that the company didn't want to partner with a deep-pocketed pharma company, but I still think that this deal makes sense since it will allow the company to capture a great deal of the upside should inotersen prove to be a winner. Investors won't have to wait long to find out, either, since a go/no go decision is expected by July 6.

For Akcea, the $200 million cash injection and additional drugs certainly increase the company's value, so I understand why traders are applauding this news.

Overall, I think that investors in both companies have reason to be excited about the potential of this deal. Still, given the potential competition from Alnylam Pharmaceuticals' patisiran, blockbuster success is far from a sure thing.

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Brian Feroldi owns shares of Ionis Pharmaceuticals. The Motley Fool owns shares of and recommends Ionis Pharmaceuticals. The Motley Fool recommends Biogen. The Motley Fool has a disclosure policy.