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Isis Pharmaceuticals, Inc. (ISIS - Analyst Report) recently announced that Xenon Pharmaceuticals Inc. announced that the latter has exercised its option to gain an exclusive worldwide license to XEN701, an antisense candidate discovered under its collaboration with Isis Pharma.

With Xenon exercising its option, Isis Pharma is entitled to receive $2 million from Xenon. Isis Pharma’s association with Xenon goes back to 2010 when the companies signed an agreement for the discovery and development of antisense drugs for the treatment of anemia of chronic disorders (ACD). At that time, Isis Pharma had received an upfront payment in the form of a convertible promissory note.

With Xenon exercising its option, it will be responsible for the future development and commercialization of XEN701. Isis Pharma will be entitled to receive payments on the achievement of development and commercial milestones as well as royalties on XEN701 sales. Isis Pharma will also be eligible to receive a part of sublicense revenues.

Xenon will initially evaluate XEN701 in patients with chronic kidney disease who cannot tolerate or are unable to respond completely to erythropoietin therapy.

Isis Pharma currently carries a Zacks Rank #2 (Buy). We are positive on Isis Pharma’s collaborations with companies like Xenon, Biogen (BIIB - Analyst Report) and AstraZeneca (AZN - Analyst Report) among others, which not only validate its antisense technology but also provide Isis Pharma with funds in the form of upfront, milestone and other payments.

We are also encouraged by the company’s progress with its pipeline - Isis Pharma has several candidates in phase II or phase III development. The next 12-18 months should be catalyst-filled with Isis Pharma expected to report results from several studies.

We view Kynamro’s Jan 2013 approval in the US as a major milestone for the company. Kynamro was launched in late Mar 2013 and we expect investor focus to remain on the product’s performance.

Other companies that currently look well-positioned include Biogen and Anika Therapeutics Inc. with both being Zacks Rank #1 (Strong Buy) stocks.

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