We are keeping our Buy rating and $22 price target on Isis Pharmaceuticals (ISIS). We are big fans of antisense technology and believe that the number of potential therapeutic applications is enormous. Antisense drugs may have significant potential to treat a number of diseases where small molecule and biologic compounds have failed.

Although still early-stage, antisense technology as a platform for developing drugs reminds us greatly of the promise of biologic drugs over a decade ago. Potential mechanisms such as siRNA, RNAi, alternate splicing and micro RNA have the potential to change how we treat disease in the years to come.

Isis is pioneering the effort into antisense research. The company has already commercialized the first antisense drug in 1998 with Vitravene. Isis has several proprietary compounds in clinical development as well as partnered programs with large pharmaceutical companies such as Glaxo (GSK), Bristol-Myers (BMY), Eli Lilly (LLY), Pfizer (PFE), Merck (MRK) and most recently Genzyme (GENZ).

The company is also well-position with its intellectual property and striking a number of small deals with firms such as Altair, Archemix, iCo Therapeutics and OncoGenex. We think that by 2012, two to three additional antisense drugs developed by Isis could be on the market. Isis holds over 1,500 patents and to date has earned over $100 million through its sub-licensees.

The leading pipeline candidate at Isis is mipomersen, a potential blockbuster drug for the treatment of high cholesterol. We still think commercialization for homozygous familial hypercholesterolemia (HoFH) under an accelerated approval should come in early 2011. Mipomersen represents one of the largest potential blockbuster drugs to come to market in the next few years. Additionally, the path to market outside the U.S. offers Isis entry to yet another billion-dollar market. We see today’s price as a significant opportunity to pick up the premier antisense development company on the market for a discounted price.

Thanks to collaborations with the above companies, Isis has put itself in constant position to receive developmental milestone payments. The company sees no need to re-tap the financial markets in the next five years. In that regard, in two or three years we see Isis as sustainably cash-flow positive, so there may never be a need to re-tap the financial market again.

Isis is sitting on $650 million in cash here in May 2009. Couple all that cash with the potential that mipomersen is a blockbuster and several other compounds are moving nicely forward, and Isis looks like the premier small-to-mid cap biotechnology company in our universe. We see Isis as uniquely well-positioned for a very successful future.

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