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Biogen Idec (BIIB - Analyst Report) and Isis Pharmaceuticals, Inc. (ISIS - Analyst Report) are teaming up yet again – this time for the use of Isis Pharma's antisense technology for the development of treatments for neurological diseases.

This deal marks the fourth collaboration between Biogen and Isis Pharma in the last couple of years. The companies first collaborated in early 2012 for the development of antisense drugs to treat spinal muscular atrophy. This was followed by a deal for the development of antisense drugs to treat myotonic dystrophy type 1. The third deal, also signed in 2012, was for the discovery and development of antisense drugs against three novel targets for neurological disorders.

Terms of the Deal

As per the terms of the recently announced six-year research collaboration, Isis Pharma will receive an upfront payment of $100 million. Isis Pharma will also be entitled to receive milestone payments, license fees and royalties. Milestone payments could go up to $220 million plus there could be additional payments for the reimbursement of trial costs incurred by Isis Pharma. Biogen intends to recognize a major part of the upfront payment in the third quarter of 2013.

In return, Biogen will have exclusive rights to Isis Pharma's antisense technology for the development of treatments for neurological diseases. Both companies will work together to choose and validate targets and identify suitable candidates. While Isis Pharma will work mainly on drug discovery and early development of antisense therapies, Biogen will work on the creation and development of small molecule treatments and biologics. Late-stage development and commercialization will also be handled by Biogen.

Our Take

This is the fourth collaboration between Biogen and Isis Pharma. These deals not only validate Isis Pharma’s antisense technology but also provide the company with funds in the form of upfront, milestone and other payments. The four deals have provided Isis Pharma with upfront payments of more than $170 million and the potential to earn milestone payments and licensing fees of more than $4 billion in addition to double-digit royalties. Isis Pharma will update its guidance at the time of announcing third quarter results in November. Isis Pharma currently holds a Zacks Rank #3 (Hold).

Meanwhile, Biogen currently carries a Zacks Rank #1 (Strong Buy). Key products, Avonex and Tysabri, should continue contributing significantly to sales. Tecfidera should help drive long-term growth. Biogen has several development and regulatory catalysts coming up in the next few quarters. With Tecfidera launched, we expect investor focus to remain on its commercialization and sales ramp up.

Other stocks that currently look well-positioned and which carry a Zacks Rank #1 are Gilead Sciences Inc. (GILD - Analyst Report) and Actelion Ltd. (ALIOF).

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