Investors Dumped Ionis Pharmaceuticals Stock -- But Wall Street Hasn't Budged From Its Bullish Outlook

Shares of Ionis Pharmaceuticals (NASDAQ: IONS) are down more than 40% so far this year and are almost half of their 52-week high of $86.74. While there are plenty of valid reasons for that tumble, analysts still average a lofty price target of $83.82 for the stock, with most putting it as a buy or a strong buy.

The company focuses on neurology treatments and cardiometabolic diseases and has six approved therapies, mostly for rare diseases: Zanvastro treats Alexander disease, a brain disorder; Dawnzera is a therapy for hereditary angioedema, a generic disorder that causes severe swelling; Qalsody treats a genetic cause of amyotrophic lateral sclerosis (ALS); Spinraza is used to treat spinal muscular atrophy; Wainua lowers the production of TTR protein, which can cause amyloid plaques; and Triglycerol is used to treat adults with high triglycerides.

There's an obvious disconnect between what retail investors and analysts see in the biotech stock. Let's look at why the stock is down and why it may still be a good investment.

Image source: Getty Images.

Pipeline failures and financial woes hurt the stock

Late-stage clinical setbacks represent a major ongoing risk for Ionis. This year, two of its high-profile programs failed to meet their primary endpoints in a phase 3 trial. That includes pelacarsen, which missed its primary endpoint in reducing cardiovascular events and eplontersen in treating transthyretin-mediated amyloid cardiomyopathy (ATTR-CM).

In biotech, pipeline missteps quickly compress valuation multiples, particularly in late-stage crash-and-burns where substantial research and development (R&D) money has already been invested in the therapies.

Despite generating significant collaboration revenue, Ionis is operating at a net loss. High R&D expenditure and ongoing commercialization costs mean the path to sustained, GAAP-profitable cash flow remains several years away. In the second quarter, it reported $268 million in revenue, down 40.7%, year over year, and a net income loss of $102 million, compared to net income of $140 million in the same period a year ago.

However, the analysts see potential in its platform

Ionis is a leader in antisense oligonucleotide (ASO) technology. Its proprietary platform allows the company to rapidly generate new RNA-targeted candidates across diverse therapeutic areas, providing a renewable engine for long-term drug discovery.

Besides its approved therapies, the company has eight therapies in phase 2 or 3 trials, so even with its high-profile setbacks, there's plenty of potential. The company's revenue has relied heavily on milestone payments from partnerships with AstraZeneca, Roche, and Biogen, but it is actively transitioning to commercializing its own late-stage candidates independently. Zanvastro is its first independently launched neurology therapy. The company is charging $285,000 per dose and said it expects the therapy to generate more than $100 million in peak annual sales.

Alexander's disease is extremely rare. While the actual incidence rate is unknown, about 500 cases have been reported since the disorder was first named in 1949. Zanvastro is the only approved targeted therapy to treat it.

Zanvastro's launch -- it was just approved by the Food and Drug Administration on Sept. 3 -- could be a turning point for Ionis. Owning a higher share of commercial economics retains maximum value and should improve top-line margin expansion.

The company had $2.1 billion in cash and equivalents as of the second quarter. That balance, plus its ongoing strategic partnerships with top global pharma companies, gives Ionis a solid balance sheet to fund its clinical trials and commercial rollouts without immediate risk of dilutive equity financing.

Understand the risk

Ionis may be years away from profitability, so buying the stock right now is obviously a gamble. However, for patient investors, the company has a strong pipeline, and at its current share price, there's plenty of upside for the stock.

Some investors may want to see more drugs survive late-stage scrutiny, but it's important to note that the company's platform has already been proven, despite some late-stage clinical setbacks.

James Halley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ionis Pharmaceuticals. The Motley Fool has a disclosure policy.