Why Its Not Too Late to Buy Isis Pharmaceuticals Stock

The biotech industry is off to the races again in 2015,generating eye-popping returns for investors in the process. The primary catalyst behind this latest surge appears to be the bevy of recent merger and acquisition activity, especially since most of these deals are garnering some fairly hefty premiums.

The central theme across these mergers and buyouts is the need for Big Pharmas to replace aging assets with next-generation products that have both a competitive moat and blockbuster potential. That's why the antisense-drug makerIsis Pharmaceuticals has frequently been the subject of buyout rumors, and perhaps why its share price has climbed faster than the broader biotech industry, as represented by the iShares Nasdaq BiotechnologyETF , as a whole year to date:

From a fundamental viewpoint, though, Isis looks grossly overvalued. At current levels, for instance, Isis' shares are trading at a worrying 43 times 12-month trailing revenue, and about 13 times its most recently reported cash position of $728 million.

Unless sales of its lead product Kynamro -- indicated for thetreatment of patients with homozygous FH, or HoFH -- start growing by leaps and bounds, or the company soon signs a major licensing agreement for one of its numerous clinical candidates, these numbers are only expected to worsen throughout the year.

Despite all that, however, Isis might still actually be undervalued. Here's why.

Isis has tremendous latent value due to its broad clinical pipelineAlthough Isis has an approved drug in Kynamro, the company is probably best viewed as a clinical-stage biotech for multiple reasons. First, Kynamro has struggled commercially against competing drugs incudingAegerion Pharmaceuticals' Juxtapid and because the HoFH market has turned out to be much smaller than previously anticipated (or these drugmakers have had a hard time correctly identifying potential patients afflicted by this rare disease).

In addition, Isis has advanced its antisense chemistry well beyond the Kynamro prototype, allowing for much higher doses, more infrequent dosing schedules, and better safety profiles in general. In short, the company's drug development platform is only now coming of age, so to speak. And that's the exciting part.

Isis has a monster pipeline sporting 38 drugs in development for an astounding diversity of indications such as cardiovascular disease, cancer, metabolic disorders, and rare diseases:

Source: Isis Pharmaceuticals.

This impressive pipeline has thus attracted major partners includingAstraZeneca, GlaxoSmithKline, and Johnson & Johnson, to name a few.

Isis' pipeline is also becoming increasingly de-risked. In 2014, the company reported top-line results from 18 clinical trials, with a whopping 15 of them being positive. Furthermore, the company's antisense platform is protected by a massive patent portfolio, making it the leader in the field of RNA-based therapies in general. These are huge pluses in the eyes of potential partners, or buyers for that matter.

Late-stage assets are progressing nicelyDigging into the pipeline further, the company's three most advanced experimental drugs -- ISIS-APOCIII, ISIS-SMN, and ISIS-TTR -- are making excellent progress in clinical testing.

ISIS-APOCIII could be the star of the show in the near term. This experimental cholesterol treatment is in a late-stage trial for the ultra-rare genetic disorderfamilial chylomicronemia syndrome and set to enter a second for partial lipodystrophy -- also an ultra-rare condition, but with no approved treatments.

This single late-stage drug could generate billions in sales, if approved for both disorders. The best part is that Isis appears intent on retaining the rights to the drug after forming the wholly owned subsidiary Akcea Therapeutics, tasked with developing and commercializing the company's late-stage lipid franchise candidates.

Is Isis still a buy after its recent run-up?Valuing biopharma stocks is tricky because it's essentially impossible to properly assess a drug's probability of successfully making it through the clinical testing process and gaining regulatory approval. Having said that, Isis' huge pipeline gives the company ample shots on goal at building a multibillion-dollar product portfolio, and its platform is continually pumping out positive news on the clinical side. As such, you might want eschew a fundamental evaluation of this stock; instead, consider its long-term prospects as a major drugmaker protected by a wealth of intellectual property. Viewed this way, Isis looks set to push even higher.

The article Why Its Not Too Late to Buy Isis Pharmaceuticals Stock originally appeared on Fool.com.

George Budwell owns shares of Isis Pharmaceuticals. The Motley Fool recommends GlaxoSmithKline, Isis Pharmaceuticals, and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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