Ionis Pharmaceuticals Inc (IONS) 2017 Q2 法說會逐字稿

Welcome to the Ionis Pharmaceuticals Second Quarter 2017 Financial Results Conference Call.

As a reminder, this call is being recorded.

Leading the call today from Ionis is Dr. Stan Crooke, Ionis' Chairman and Chief Executive Officer.

Dr. Crooke, you may begin, please.

Thank you.

Good morning, everyone, and thank you for joining us on today's conference call to discuss our second quarter 2017 financial results and recent business highlights.

We reported pro forma operating income of $54 million for the first half of 2017 and cash of more than $855 million while our pipeline and technology continued to progress rapidly, moving us closer to becoming a multiproduct, sustainably profitable biopharmaceutical company.

We are significantly revising upwards our financial guidance for the year to a pro forma operating income in the mid-$50 million range and cash of more than $950 million compared to our previous guidance of being breakeven or profitable with the year-end balance of over $825 million.

We are obviously being particularly conservative with our guidance for this year, and Beth will provide more details about all this later in the call.

SPINRAZA second quarter sales of over $200 million once again far exceeded Wall Street expectations.

And the strong sales thus far obviously contribute to our current and future financial successes.

SPINRAZA was approved in the EU, Japan and Canada, which provides opportunities for expansion of SPINRAZA sales much earlier in the year than most anticipated.

Inotersen met its co-primary endpoints of mNIS+7 and the Norfolk Quality of Life in the Phase III NEURO-TTR study with a very high degree of statistical significance.

This is the fifth positive Phase III study out of the 5 Phase III studies that we've reported in the last 12 months.

We and our commercial affiliate, Akcea, filed for marketing authorization for volanesorsen in the EU for familial chylomicronemia syndrome and on -- and are on track to file registration dossiers in the U.S. and Canada in September.

Akcea completed its IPO in which they raised over $190 million, including strategic investments of $25 million from Ionis and $50 million from Novartis.

As a result of the IPO, Akcea is now a majority-owned subsidiary of Ionis.

We'll now refer to Akcea as our affiliate.

We believe Akcea is now well positioned to create substantial value for both Ionis and Akcea shareholders.

In fact, Akcea's market cap is now nearly $1 billion.

While still early, we believe that the success of Akcea since the IPO demonstrates how our strategy of creating commercial subsidiaries focused on a specific therapeutic franchise can create value for us, our shareholders and the subsidiary shareholders.

This really is an opportunity for 1 plus 1 to equal substantially more than 2.

Joining me on today's call are Lynne Parshall, Chief Operating Officer; Beth Hougen, Chief Financial Officer; Sarah Boyce, Chief Business Officer; and Paula Soteropoulos, CEO of Akcea; and Wade Walke, Vice President, Corporate Communications and Investor Relations.

And now Wade, would you please read our forward-looking language statement?

Thanks, Stan.

A reminder to everyone that this conference call includes forward-looking statements regarding the financial outlook for Ionis, Ionis' business and the business of Akcea Therapeutics and the therapeutic and commercial potential of Ionis' technologies and products in development.

Any statement describing Ionis' goals, expectations, financial or other projections, intentions or beliefs, including the commercial potential of SPINRAZA, inotersen and volanesorsen, is a forward-looking statement and should be considered an at-risk statement.

Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics and any endeavor of building a business around such drugs.

Ionis' forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause its results to differ materially from those expressed or implied by these forward-looking statements.

Although Ionis' forward-looking statements reflect the good-faith judgment of its management, these statements are based only on facts and factors currently known by Ionis.

As a result, you're cautioned not to rely on these forward-looking statements.

These and other risks concerning Ionis' programs are described in additional detail in Ionis' annual report on Form 10-K for the year ended December 31, 2016, which is on file with the SEC.

Copies of this and other documents are available from the company.

And now I'd like to turn the call over to Lynne.

Thank you, Wade.

I have to say that working as part of the SPINRAZA team continues to be one of the most gratifying things I've ever had the opportunity to do.

Every day, I am touched by stories of patients and families who are benefiting from SPINRAZA treatment.

It's also gratifying to see that the launch of SPINRAZA is going extremely well, with SPINRAZA sales far exceeding Wall Street expectations for the second quarter in a row.

Biogen reported second quarter sales of SPINRAZA of over $200 million, which were principally in the U.S. SPINRAZA was also recently approved in the EU, Canada and Japan.

In their earnings call, Biogen said various sales metrics are all improving as expected.

The number of sites now administering SPINRAZA has grown as has the number of sites submitting start forms.

And coverages of SPINRAZA has expanded, with many more patients being covered and more policies covering all types of SMA.

SPINRAZA is transforming the treatment paradigm for patients with SMA and the way these patients are cared for.

One example of this is seen with Type 2 patients who often require spinal fusion to correct spinal deformities that arise from the muscular weakness inherent with SMA.

Although this surgery complicates the intrathecal administration of SPINRAZA, there's strong demand for the treatment, and physicians are already finding successful ways to administer SPINRAZA to these patients.

SPINRAZA is also changing the practice of spinal surgeries in SMA patients.

Guidelines for these surgeries have recently changed so that these patients will more easily maintain access to intrathecal therapy post-surgery.

Of course, with early treatment allowing patients to maintain muscle function, spinal deformities and the resultant need for spinal surgery should be reduced.

In June, SPINRAZA was approved in Europe with a broad label, and Biogen began selling in Germany and the Nordics.

Additional country rollouts in the EU are planned through 2018.

During this transitional period, while countries are awaiting commercial rollout, Biogen has said its expanded access program across the EU will remain open for infantile-onset patients where possible.

As of July, Biogen had 460 patients in the expanded access program in the EU and 600 across 24 countries globally.

On a side note, we were gratified that Dr. Billy Dunn, Director of the Office of Drug Evaluation in the Division of Neurology Products at the FDA, recently published a paper in gene therapy highlighting SPINRAZA.

Dr. Dunn recommends that companies in the rare disease space consider Ionis and Biogen's development and regulatory program for SPINRAZA as the model for designing a thorough and comprehensive development path to enable rapid and efficient review.

Dr. Dunn notes that the effective and comprehensive development program for SPINRAZA, in conjunction with regular and collaborative communication with the FDA, enabled Ionis and Biogen to achieve approval in record-breaking time.

We're pleased that SPINRAZA will be available going forward to patients not only in the EU, but also in Japan and Canada, where the drug was approved in June, which also expands the commercial opportunity.

Biogen is aggressively pursuing additional approvals, with SPINRAZA currently under review in Brazil, Switzerland, Israel, South Korea and Australia, with additional filings planned.

We're very pleased with the rapidity and breadth of the approvals so far, which is a recognition of the value SPINRAZA may bring to patients.

Demand for SPINRAZA has been strong.

We expect to see continued near- and long-term growth of SPINRAZA sales in the U.S. and globally.

Near-term growth should come from expanding the number of U.S. sites administering SPINRAZA and from expanding treatment to more U.S. patients.

In addition, commercial rollouts in Europe and Japan and around the globe should also contribute to SPINRAZA sales growth.

Over time, we anticipate growth will increase survival of Type 1 patients who represent more than half of all SMA [infants form].

So let's turn now to inotersen.

We're referring to FAP now as polyneuropathy due to hereditary TTR amyloidosis or simply hereditary TTR amyloidosis.

The scientific community is moving away from using the term FAP in favor of hereditary TTR amyloidosis to describe this disease, so we'll follow this convention as well going forward.

In May, we reported that we successfully completed the Phase III NEURO-TTR study in patients with polyneuropathy due to hereditary TTR amyloidosis.

In this study, we observed substantial benefit in patients suffering from this devastating disease.

Inotersen treatment demonstrated benefit across both primary endpoints, disease progression and quality of life.

Hereditary TTR amyloidosis is a progressively debilitating, fatal genetic disease in which patients suffer from constant severe pain and a wide array of physical, social and psychological symptoms.

This disease robs patients of their independence and has a profound impact on their lives and the lives of family members and caregivers.

Patients are often diagnosed in the prime of their lives and typically experience rapid disease progression, leading to death within 10 to 15 years of diagnosis.

We believe inotersen may transform the lives of patients with hereditary TTR amyloidosis by giving them a potentially effective and safe treatment option.

As a reminder, inotersen is a once-weekly subcutaneous injection that patients can administer at home.

The convenience of at-home weekly administration makes the potential for inotersen particularly attractive to patients and health care professionals.

With positive inotersen Phase III data in hand, we and GSK are preparing to file for marketing authorization in the U.S. and EU by year-end.

And GSK is progressing and preparing for commercial launch.

Now let's focus for a moment on our affiliate, Akcea.

We're pleased that Akcea has completed its IPO and is now an independent public company focused on commercializing a franchise with novel drugs to treat cardiometabolic diseases caused by lipids.

We believe Akcea is well positioned to create substantial value for both Ionis and Akcea shareholders.

Akcea represents the planned evolution of our strategy to maximize the value of our pipeline.

As you may remember, we formed Akcea to take advantage of the unparalleled opportunity: 4 separate drugs focused on the poorly treated lipid risk factors affecting patients with cardiometabolic disease.

We believe that each of these drugs represent a substantial commercial opportunity.

And together, these drugs create a natural franchise focused on treating many manifestations of disease whose underlying cause is lipid disorders.

We believe this strategy of forming commercial subsidiaries allows us to retain a much larger portion of the commercial opportunity.

Importantly, by forming subsidiaries like Akcea, we can stay focused on our core mission: advancing our antisense platform and pipeline, leveraging our expertise in the lipid space while participating in the larger commercial upside with a handpicked and focused team.

We believe creating subsidiaries to market and sell our drugs is an attractive alternative to corporate partnering, and we're excited about the progress Akcea has made so far that supports our interest in -- to create more of these types of subsidiaries in the future.

In addition to creating value, we believe Akcea gives us the opportunity to unlock value by showcasing the Akcea assets in a separate company.

Within the Ionis pipeline of 39 drugs, it is hard for investors to focus on all of them.

In fact, with SPINRAZA on the market and volanesorsen and inotersen moving towards the market, it's difficult to find time to discuss in any length very many of our other pipeline drugs.

With Akcea as a public company, we have another forum to have a more focused discussion on the 4 exciting drugs in their pipeline.

We see numerous benefits in creating commercially focused subsidiaries like Akcea.

While we typically choose our partners among other biotech or pharma companies, with Akcea, we actually created a partner aligned with our goals from the ground up, with handpicked, highly experienced leaders for the management team.

Akcea's CEO, COO and CMO each have extensive leadership experience in successfully developing and commercializing drugs in the lipid and cardiometabolic space for rare and large patient populations.

This structure also enabled us to create an independent Board of Directors made up of leaders whose skills are tailored to Akcea's needs.

Chris Gabrieli, who serves as the Chairman of Akcea's board, has substantial experience as an investor in the life sciences industry.

Elaine Hochberg, Sandy Smith and Ed Fitzgerald each have significant commercial experience, including international, which will be invaluable as Akcea continues to build its infrastructure to globally commercialize volanesorsen and its other products.

Further, we can continue to provide influence and guidance to Akcea as they execute on their goals.

Akcea's singular focus is to develop and commercialize novel cardiometabolic drugs addressing the next wave of lipid risk factors.

The team at Akcea regularly demonstrates their leadership in the cardiometabolic lipid space through the contributions they're making to understanding disease, crafting clinical development plans and framing commercial strategy.

For example, Akcea work closely with patients and health care providers to develop and conduct a global patient survey called IN-FOCUS to quantify the burden of FCS patients -- of FCS on patients in the health care system.

Interim results from this survey, which is the largest of its kind, were published in Expert Review of Cardiovascular Therapy.

Akcea also recently published key clinical study results for AKCEA-ANGPTL3-LRx in the New England Journal of Medicine.

These are just a few examples demonstrating that Akcea is on its way to becoming a key player and shaping the medical dialogue around cardiometabolic diseases.

With volanesorsen under review in Europe and 3 additional drugs in the clinic, we think Akcea represents an unparalleled investment.

We're also pleased to have the strong commitment from Novartis.

We're looking forward to all we hope this team, working closely together with Ionis, will accomplish in the future.

So we've had a productive first half of 2017, full of important achievements and successes, which would further enable our transition from an R&D company to a multiproduct, profitable organization, delivering important medicines to patients with serious illnesses.

So with that, I'll turn the call over to Beth.

Thank you, Lynne.

Our successes have resulted in another quarter of strong financial performance.

Importantly, Q2 was our fourth consecutive quarter of pro forma operating income and pro forma net income.

We ended the first half of this year with pro forma operating income of $54 million and pro forma net income of $34 million.

Based on our strong financial performance in the first half of the year and our projections for the rest of the year, we are revising upwards our original financial guidance of breakeven or profitable at the operating line on a pro forma basis, to now we're projecting pro forma operating income in the mid-$50 million range.

We're also revising upwards our original year-end cash guidance of over $825 million to new year-end cash guidance of more than $950 million.

Because we have several large potential payments in the second half of 2017, we're being particularly conservative with our guidance this year.

In the first half of the year, we earned $28 million of commercial revenue from SPINRAZA royalties.

The royalties we've earned to date are in addition to the nearly $400 million in total SPINRAZA-related revenue we've already generated from Biogen, including the $50 million EU approval milestone payment.

And now that SPINRAZA is approved in Japan, we anticipate earning a $40 million milestone payment once the pricing is determined.

We're pleased with SPINRAZA's launch results in the U.S. and the potential for continued growth in the U.S., EU and in other markets globally.

SPINRAZA's strong sales to date are an important driver of our improved guidance.

Importantly, we earned tiered royalties on SPINRAZA sales.

This means that as sales of SPINRAZA grow, so will our portion of those sales.

In contrast, the nominal third-party royalties we pay as SPINRAZA sales are fixed, not tiered.

This means that as SPINRAZA sales grow globally, our profit margin on sales will increase.

And remember, because we do not incur any sales and marketing expenses for SPINRAZA, all of that profit drops directly to our bottom line.

In addition to commercial revenue from SPINRAZA, we earned more than $180 million in R&D revenue in the first half of this year, primarily due to the expansion of our Bayer agreement, our collaboration with Novartis and the SPINRAZA EU approval milestone payment.

Our significant base of R&D revenue is comprised of 3 key components: amortization from upfront fees, license fees and milestone payments and on sale of drug to our partners.

In the first half of this year, we earned revenue from the amortization of upfront fees of $54 million.

This component of our R&D revenue is generally easy to predict, and we expect that we will earn approximately $58 million from amortization in the second half of this year.

By far, the largest component of our R&D revenue is license fees and milestone payments.

Revenue from this component in the first half of this year was $123 million.

This component included the Bayer license of IONIS-FXI-LRx, the EU milestone payment from Biogen and numerous other milestone payments.

We have several large payments we can potentially earn in the second half of the year, including the SPINRAZA Japan pricing milestone payment and the GSK licensing fee for inotersen.

And we have numerous smaller but still meaningful milestone payments that we can also earn in the second half of the year.

Because we have several large potential payments in the second half of the year, we're being particularly conservative with our guidance.

If we achieve these numerous payments, which we have probabilized in our guidance, our financial results could be further improved.

Our pro forma operating expenses for the first half of the year were $160 million compared to $140 million for the same period last year.

The increase was due to increased commercialization expenses as Akcea continues to prepare to launch volanesorsen globally next year, and fees we owe under our SPINRAZA in-licensing agreements.

Importantly, we maintained our R&D expenses in line with last year while we continue to advance our pipeline.

And we expect full year R&D expenses will remain essentially in line with last year.

During the second half of this year, we are forecasting the continued increase in our SG&A expenses, related primarily to Akcea's commercialization activities and SPINRAZA sublicensing payments, which are low single-digit non-tiered royalties.

Consistent with our strategy of prudent financial management, we recently purchased the buildings that house our R&D and manufacturing activities.

Because of these purchases, we will realize significant cash savings that we will reflect in our financials beginning in this third quarter.

We received over $380 million in partner payments through the first half of 2017 and ended the second quarter with more than $855 million in cash.

Our Q2 cash balance does not include the SPINRAZA EU approval milestone payment and the net proceeds from Akcea's IPO.

Now I'd like to take a few minutes to talk about the financial implications of the Akcea IPO and the changes you can expect to see on our financial statements, beginning with our third quarter results.

Ionis plays 2 distinct roles for Akcea.

We are a shareholder and a corporate partner.

As a shareholder, we've provided substantial capital to Akcea in exchange for stock, including the $25 million we invested in the IPO.

With the IPO now complete, we own about 70% of Akcea.

And because we own more than 50%, accounting rules require us to consolidate Akcea's financial statements with ours.

This is no different now that Akcea is public than it was when Akcea was private and wholly owned.

We will continue to book Akcea's revenue and expenses on the appropriate line of our P&L.

For example, we included Akcea's revenue from its Novartis transaction on our consolidated P&L on the R&D revenue line.

There's one exception, however, to this.

We do not reflect the amounts Akcea pays us, including license fees, milestone payments and royalties, on our consolidated P&L because they're considered intercompany transactions.

A good example of our recent intercompany transaction is the $15 million sublicensing fee related to the Novartis upfront payment that Akcea paid to us.

This is an expense on Akcea's P&L but is not included on our consolidated P&L.

We will include a schedule in our third quarter earnings press release that will show the stand-alone P&Ls for Ionis and Akcea, the intercompany transactions and Ionis' consolidated P&L.

Now that we own less than 100% of Akcea's stock, we need to adjust our P&L so that our net income or loss reflects only that portion of Akcea's net income or loss that we own.

To do this, we will have a new line on our P&L just above net income or loss called noncontrolling interest in Akcea Therapeutics.

We'll calculate the amount that goes on this line by taking Akcea's net income or loss and multiplying it by the portion of Akcea we don't own, which today is about 30%.

Similar to our P&L, we will continue to book Akcea's assets and liabilities on the appropriate line on our balance sheet.

For example, our consolidated balance sheet includes Akcea's cash and our cash.

When Akcea pays us licensing fees, milestone payments or royalties, as they do with the Novartis sublicensing fee, Akcea wires the payment out of their bank account and into our bank account.

Similar to our P&L, our consolidated balance sheet will include a new line called noncontrolling interest in Akcea Therapeutics.

The second role we play is as a corporate partner.

We license to Akcea a pipeline of 4 drugs in clinical development, including a Phase III drug.

The transaction was structured to allow Akcea to use its cash to continue to build value in its pipeline and to allow us to keep more of the commercial upside when the licensed drugs are commercially successful.

In lieu of upfront license fees and regulatory -- and development and regulatory milestone payments, we receive a higher royalty rate.

In the case of corporate partnerships, including Akcea's Novartis partnership, we generally receive half of the payments Akcea receives from the partner.

This structure allows Akcea to effectively use the expertise and funding corporate partners provide to develop and commercialize its drugs for broad patient populations.

And we benefit from the partners' expertise and funding while also sharing in the funding in excess of what Akcea needs to successfully advance a drug to the market.

These economics should allow Ionis shareholders to realize value through our ownership in Akcea plus through the cash payments we receive from Akcea.

We believe we have the key elements in place to achieve sustained long-term financial growth.

The continued success of SPINRAZA, coupled with a growing revenue stream from our partners and potential commercial revenue from volanesorsen and inotersen next year, should enable us to transition from an R&D company to a multiproduct profitable company delivering important medicines to patients with serious illnesses.

And now I'll turn the call back to Stan.

Thanks, Beth.

We are pleased with all of our accomplishments thus far in 2017, particularly the impressive SPINRAZA sales, which led in part to our improved guidance.

The SPINRAZA launch momentum has been highly encouraging, suggesting that SPINRAZA has blockbuster potential.

More importantly, SPINRAZA is giving patients and families suffering from SMA a life-changing therapy.

We're also encouraged by the potential to significantly expand the number of patients who will have access to SPINRAZA now that it's approved in the EU, Japan and Canada.

We look forward to watching SPINRAZA sales in the U.S. continue to grow and adding revenue from around the globe.

We're pleased to have completed the IPO for a commercial affiliate, Akcea.

Transforming Akcea into a public company fulfilled our goal of creating our first independent commercial affiliate with a single clear focus, which is to successfully commercialize an important segment of our pipeline.

Akcea is well funded, and the team is properly incentivized to achieve successes both in the near and the long term.

Clearly, this should create value for both Ionis and Akcea shareholders.

In the first part of the year, we've made substantial progress in moving our late-stage assets towards commercialization as well as continuing to advance our pipeline of first-in-class drugs.

We and Akcea filed for marketing authorization for volanesorsen in the EU.

We reported positive Phase III data for inotersen, putting us on track to file for marketing authorization in the U.S. and EU by year-end.

We advanced our large and growing neurodegenerative disease franchise.

IONIS-BIIB7Rx marks the seventh neurology drug under our Biogen collaboration to enter development.

A Phase I/II study of IONIS-HTTRx, which is partnered with Roche, completed enrollment.

And we plan to initiate an open-label extension study in the second half of 2017 and to report data late this year or early next year.

Now let me spend a moment talking about a segment of our pipeline that I feel is particularly exciting, our LICA drugs.

Our pipeline now includes 10 LICA drugs and one Generation 2.5 LICA drug.

Of these, 8 are in clinical development, 4 of which have completed or nearly completed Phase II studies.

We have treated more than 250 subjects with a broad range of doses, and we have observed a remarkably consistent profile.

To understand how substantially enhanced the performance of our LICA drugs is compared to the excellent profile of Generation 2 and 2.5 drugs, let me compare the profiles.

With Generation 2 drugs, we see consistent performance that supports the use of doses of 200 to 300 milligrams per week or less for most indications.

In some situations in which we want to reduce the target by more than -- by 70% or more, we use 300 milligrams a week, as we are doing with volanesorsen and inotersen.

With Generation 2 LICA drugs, we consistently see ED50 doses of less than 5 milligrams a week.

That means to reduce the target by 50%, we would use a dose less than 5 milligrams a week.

And to reduce the target by 80% or so, we would use a dose in the 10 to 15 milligram per week range.

This dramatic increase in potency gives us a very substantial increase in the safety margin and essentially eliminates injection-related side effects.

Further, we have the ability to dose monthly or less frequently with very well-tolerated doses.

The improved potency and less frequent dosing have the potential to further improve patient compliance and convenience.

Today, we've encountered no meaningful drug-related side effects with Generation 2 LICA drugs.

A good example of the performance of LICA drugs is shown in our recent New England Journal of Medicine article on angiopoietin-like 3 LRx.

Now with our Generation 2.5 LICA drugs based on animal data, the ED50 dose in man could be as low as 1 milligram a week or lower, representing another important step forward for the technology.

We do believe that LICA is truly a game-changing event for many of our programs.

Now let's focus on the important milestones we anticipate achieving in the coming months.

Our single most important component of value is SPINRAZA.

We look forward to substantial growth in sales as commercial efforts in Europe, Japan and the rest of the world come online to add to the growing revenue in the U.S.

Next in importance are our 2 registration-ready new medicines, volanesorsen and inotersen.

We already filed the registration dossier in Europe for volanesorsen.

In September, we and Akcea plan to submit filings for marketing authorization in the U.S. and Canada.

We really are quite encouraged by our interactions with regulators to date that demonstrate that regulatory agencies represent the unmet need of FCS patients and the potential of volanesorsen to meet that need.

We look forward to publishing the full results of the Phase III studies on volanesorsen once we've completed the work to prepare regulatory dossiers.

We are continuing to enroll the Phase III BROADEN study in patients with familial partial lipodystrophy.

And we're well on the way to moving volanesorsen to the market.

Inotersen is just a few months behind volanesorsen and is every bit as exciting.

In fact, the more closely we examine the data from the Phase III NEURO-TTR study, the more encouraged we are.

As we complete the full analysis of the data, we are compiling the registration dossiers that we and our partner, GSK, are on track to submit later this year.

Once again, we look forward to publishing the full results of the NEURO-TTR study for inotersen in the coming months.

So what are the next potential Phase III drugs?

Obviously, the lipid franchise with APO(a)-LRx, APOCIII-LRx and the angiopoietin-like 3 LRx is an important part of the next bunch of Phase III drugs.

APO(a)-LRx is already progressing nicely in its Phase II dose-ranging study, and we anticipate reporting data mid next year from that study.

We anticipate reporting data from the initial trial of APOC-LRx later this year, which will add to the encouraging data we have already reported for angiopoietin-like 3 LRx.

In the second half of the year, we plan to initiate Phase II dose-ranging study for APOCIII-LRx, with data anticipated in 2019.

Data from these ongoing and planned studies will set these drugs up well for important Phase III studies.

Other important Phase III candidates include our novel antithrombotic, FXIRx; and the LICA form, FXILRx.

Obviously, the parent drug is far along in development, with Phase -- with the Phase IIb study getting underway shortly.

In September, AstraZeneca and we will present initial results from 2 studies on IONIS-STAT3-2.5Rx in patients with head and neck cancer and in patients with diffused large B cell lymphoma.

In both studies, STAT5 -- STAT3-2.5LRx (sic) [STAT3-2.5Rx] is being administered in combination with AstraZeneca's PD-L1 drug.

We and AstraZeneca are pleased with the drug's performance and look forward to continuing its development.

We're also encouraged by the progress of the ongoing study with IONIS-HTTRx in patients with Huntington's disease.

IONIS-HTTRx represents a potential breakthrough in the treatment of this disease.

We plan to begin an open-label extension study later this year and look forward to advancing HTTRx rapidly toward the market.

We also have several other programs in neurological diseases that could move rapidly toward Phase III studies, including IONIS-SOD1Rx and -- in ALS.

So as we look forward, 2018 is the year in which we could add sales of volanesorsen and inotersen to our commercial revenue and progress a number of important drugs toward Phase III.

In the coming months, we look forward to reporting results on Phase I or II studies on 9 drugs, including a number of LICA drugs.

Two of these LICA drugs that address rare diseases are IONIS-GHR-LRx, a growth hormone drug for acromegaly; and IONIS-TMPRSS6-LRx for beta thalassemia.

Two other LICA drugs for larger indications are [Ionis angiotensinogen-like 1 LRx] for treatment of resistant hypertension and IONIS-FB-LRX for the treatment of dry age-related macular degeneration and other complement-related diseases.

Our latest Generation 2.5 drug is to start clinical development -- is starting clinical development is IONIS-KRAS-2.5Rx in cancer.

And we intend to begin Phase II studies on multiple drugs.

In total, we plan to initiate 10 Phase II studies in the coming months.

With a pipeline as large and innovative and diverse as ours, there will always be important news flow.

And with that, now I'd like to turn the call over for Q&A.

So Denise, if you can set us up, please.

I would be happy to, Dr. Crooke.

(Operator Instructions) And your first question will come from Jim Birchenough of Wells Fargo.

A few questions.

I guess just, one, looking at your guidance for the second half of the year, I just was hoping you could dig a bit deeper on what looks like, at least from the guidance, down from first half on net income but really an increase in what we should expect the increase in SPINRAZA sales and funded R&D.

So I'm just wondering if this is really just conservatism around the opt-in from GSK.

And then the second part of it is, how should we think about GSK's opt-in in the context of their comments around divesting their orphan disease business?

Well, thank you.

I think the -- we're as excited as you about the performance in the first half of the year.

In the first half of the year, we achieved a number of significant licenses and milestones that generated a good bit of revenue, as Beth said.

In the second half of the year, we also have quite a number of large milestones that we may receive and certainly not just the GSK milestone.

So the numbers we've given you do reflect a high level of conservatism because we probabilized all those, and particularly, things late in the year get probabilized significantly lower.

So we're optimistic that the second half of the year, we'll see performance that's very attractive.

With regard to GSK, they have a contractually defined date by which they must make a decision about inotersen.

And in the meantime, we and they are working together very well in preparing the regulatory dossiers, and they are making good progress in getting ready to launch.

Obviously, GSK is going through quite meaningful transition.

So we are prepared for whichever decision GSK makes, and in fact, we'd be delighted, absolutely delighted to have inotersen back if that were their decision.

And Stan, just following up on that, if you did have that event where they decided to divest everything and return inotersen to you, would you avoid any disruption to the filing timelines?

And do you think you could launch it yourself on the time -- same time schedule?

We do.

We -- as I said, we are working with GSK very carefully and closely to get the dossiers ready.

They're moving along right on schedule.

And as a part of our preparation for whichever decision GSK makes, we've prepared for the possibility that they would return it to us, and we think we can meet the schedule that we have laid out.

And we are preparing right now to manage the drug commercially.

And what I think is the best thing that I can say about that is simply, I think it's probably much more sensible just to wait for the GSK decision.

And let me assure you that we're prepared to do what this drug deserves because we think it's a great drug.

The next question will be from Guyn Kim of BMO Capital Markets.

Just a couple on SPINRAZA.

Biogen on their call mentioned that the prevalence of SMA might be higher than they had originally anticipated.

Could you perhaps give your perception of the SMA population and whether that's changed since the launch or when you started investigating SPINRAZA?

Well, the demand is really impressive.

And so I would defer to Biogen, but everything we see is consistent with what they said.

Okay.

And looking at the markets outside of the U.S. and Europe, perhaps you could talk about the size of the SMA population in Japan and any other countries that you think could provide a meaningful contribution to sales growth.

Lynne, perhaps you can take that question, please.

Yes.

Biogen, in their earnings call, did go through the general distribution.

Obviously the size of the population in Europe is expected -- is somewhat larger than in the U.S., and Japan is somewhat smaller.

But there, unfortunately, are significant populations of this disease distributed globally.

It's not a disease where you tend to see familial pockets as with some other rare genetic diseases.

And so it is a widely and relatively evenly, with population, distributed disease.

The next question will come from Stephen Willey of Stifel.

I guess maybe just an inotersen question.

I guess following the success of the NEURO study, can you maybe just characterize the internal urgency around developing, say, a LICA conjugated version of inotersen?

And maybe if you can just talk a little bit about how the development of such a follow-on product might be impacted by the Glaxo decision, if at all.

Well, we feel a great deal of urgency internally to develop a LICA because we're confident that it's easy for us to do and, given the consistency of the performance of LICAs, would substantially enhance the profile of the drug.

And with regard to development of the LICA, I really can't comment on what GSK might do.

But obviously, this is going to be a very successful drug commercially, I think far more than maybe thought.

And so it would be clearly in the interest of any company, GSK or us, to extend that franchise's lifeline as -- life span.

So we would expect them to feel the same urgency that we do.

And we are certainly prepared to develop it ourselves.

And we also feel that, with the encouraging data from the cardiac subpopulation that we have, that we are in a much better position today to design studies that would provide definitive proof of benefit in patients with the cardiac form of the disease as well.

So there's a very substantial opportunity to increase the number of patients for whom inotersen could be -- could bring benefit.

Okay.

And then you just mentioned the cardiac amyloidosis population, and I know you said in your opening comments that there's some intention to publish the inotersen results in the coming months.

But should we expect to see some formal presentation of the data within the cardiac subgroup prior to that publication?

Our focus right now is pretty consumed with getting the registration dossiers done.

That's our #1 job.

As soon as that's behind us, then we'll look at presentation and publication of the data.

But we have that job in front of us, and that takes precedence over everything else.

Okay.

And then maybe just one last question on SPINRAZA.

I know there's been a lot of discussion around the spinal surgeries in mostly, I guess, the Type 2 and Type 3 patients.

I guess some of our doctor conversations would suggest that this is something that can be circumvented.

It's certainly circumvented in other disease settings.

But I guess can you maybe just talk a little bit about the approach here between yourself and Biogen?

Is there going to have to be some kind of formal feasibility study done in order to kind of apply some of the other procedures that are used to circumvent the spinal fusion issue and other disease settings into SMA?

No, we don't believe so.

We believe that those procedures are standard for doing LPs.

And they're actually being employed now in some centers, as I understand from Biogen.

I think the most important way to think about this is that, in the second quarter, Biogen reported more than $200 million in revenue, in sales, up substantially from the first quarter and exceeding all expectations.

We look forward to SPINRAZA continuing to grow in the U.S. and, of course, add revenue from around the world.

That there is a need to address spinal fusion surgery so that patients can get SPINRAZA is actually great news.

It says that the value, even in patients whose limitations include substantial skeletal deformities, is recognized by the practitioners.

So when we heard -- what we heard caused us to feel great about where this drug is heading.

And the final thing I would say is that the thing we hope for long term is that as we treat patients with SMA and we keep them from deteriorating in terms of muscle performance and muscle strengths, we won't encounter scoliosis in the way we do today in patients with SMA.

After all, scoliosis is secondary to the generalized muscle weakness.

And so we think that's one of the long-term benefits of SPINRAZA that we are looking forward to seeing if it emerges because certainly today, all that we see says it should.

The next question will come from Vincent Chen of Bernstein.

I have a question first about the upcoming Huntington's readout.

What are you looking for there in terms of assessing whether you have adequate target engagement?

How much does CSF Huntington protein needs to climb for you to believe that you are likely to achieve a clinically relevant effect?

And how do you expect CSF Huntington protein levels to correlate to Huntington protein levels in clinically relevant regions of the brain, such as the basal ganglia in the cortex?

We believe it will correlate well, and there's quite a bit of information that is behind that comment.

And we have a specified percent reduction that we have.

I don't want to get into that, but it will be -- we would expect it to be dose dependent and statistically significant.

And of course, with Huntington, we have quite a bit -- quite a number of other measures of disease progression or benefit, and we'll be using all of those, and we are using them all in the initial study.

And as we contemplate additional development, of course, those will be incorporated as well.

So we are feeling quite good about our ability to detect target engagement and about our ability to quantitate benefit.

So thinking about some of these other endpoints, at the data release, how far out from the start of dosing will most patients be?

And how mature will the cognition data in particular be?

While I recognize the trial is small and cognition endpoints could be messy, cognitive benefit was certainly seen very early in the preclinical studies with approximately 8 weeks after dosing, if I recall it correctly.

Would you expect to see at least a directional benefit on the cognitive battery?

And how would any sign of improvement on the cognitive assessment battery composite score inform your view on whether you have indeed established proof of concept and which dose to take forward?

Well, for us, proof of concept is target reduction because Huntington's is the cause of the disease.

And I think since there's been no therapy that was mechanism directed, it's difficult to know the pace at which different components of the Huntington disease manifestations will benefit at what pace.

But they are measurable.

And of course, by the time this study is moved along with the open-label extension, we will have quite a number of months of observations with these patients.

And so we'll certainly be looking at all of those parameters, and we hope that we see positive trends.

But if we see meaningful HTT reduction in CSF, that will be sufficient.

I see.

And then a question, switching tracks for just a moment back to the TTR launch preparations.

We've heard from some of the physicians we've spoken to that your competitors have been doing a lot more in the field to prepare for launch and drive excitement among both the patient and physician communities for the typical rare disease prelaunch marketing development activity, whether it's educational programs and diagnostic efforts.

GSK and Ionis together are certainly much more well resourced than Alnylam.

Is this tilt just a matter of the specific folks we've spoken to?

Can you sort of read out the gating factor in determining the level of investments?

And how should we think about your go-to-market strategy here, GSK's level of investment in commercialization and how you are driving familiarity with the disease and of your drug?

I will make one comment, and then Lynne will handle the question, if that's okay.

In the end, there's certainly room for more than one drug in the treatment of TTR amyloidosis, and we're confident that the profile of inotersen is significantly more attractive than our competitor.

We think that the ease of use and the easy monitoring for the well-identified potential adverse events and the extraordinary efficacy we saw and the fact that we achieved both improvement in the NIS+7 and multiple components and substantial improvement in quality of life, again, in multiple components will make this drug an extremely attractive drug to practitioners.

And in our conversations with the physicians who have used both drugs, we're extremely encouraged by what they have had to say.

So we think this is going to be a major commercial success.

Lynne, do you want to address the question about market preparation in GSK?

Yes.

The thing that I would say is having multiple companies conducting clinical trials, working with patients, working with health care providers, working with the advocacy community has, in fact, substantially increased awareness of the disease across the board.

And so all of the activities that go to creating those relationships and the successful market dynamics don't start when you have Phase III data.

They started well before that with, obviously, our -- Ionis' efforts, GSK's efforts as well as the efforts of Alnylam and Pfizer and others who are working in the hereditary amyloidosis area.

GSK is -- obviously, as you said, has substantial resources.

We have been involved with their market preparations.

They're doing a good job.

But we're also confident, given the level of preparation that's been done already, including, as I said, preparations in the community, that were GSK to return the drug to us, we'd be able to step into their shoes very rapidly.

And just to add, from our perspective, the conversations we've had with physicians, the conversations we've had with the patient advocacy groups and regulatory conversations have shown very clearly to us that there is really a substantial enthusiasm for inotersen.

So we like the profile.

We like the enthusiasm that we're hearing.

And we're looking forward to seeing this drug be a tremendous commercial success and bring real value to these patients.

And the next question will be from Eric Schmidt of Cowen and Company.

Stan, I hate to sort of beat a dead horse, but rather than sort of parse out your words, is it fair to say, on the inotersen opt-in decision, that you just don't know what GSK is going to do and that they really haven't communicated anything to you since their change in strategy announced a couple of weeks ago?

That would be fair to say.

Okay.

And then maybe for Beth on the SG&A.

You talked of continued growth off of Q2 levels.

It just was a little unclear whether you meant continued year-on-year growth or whether Q2 sets a new range for future growth in both the third and fourth quarters, obviously, paid royalties increase and maybe even Akcea's costs -- pre-commercial costs accelerate.

Okay.

So Eric, yes, it'll be both actually.

It'll be year-over-year growth.

But Q2 reflects not only Akcea's continuing growth in preparation for commercialization of volanesorsen but also the very significant increase quarter-over-quarter in the SPINRAZA -- Q1 over Q2 in the SPINRAZA sales.

And so the sublicensing fees are an important portion of that SG&A increase in Q2.

So you could see that continue as long as sales continue to grow, which is what we expect.

One added comment.

With regard to financials, it is to me just a remarkable statement about the efficiency of antisense technology that we can be finishing up this Phase III work, all the Phase II and Phase I studies adding 5 or more drugs to the pipeline, and R&D costs are not rising.

And that's the part of the -- of financial management that I look to most closely.

Clearly, as you get ready to launch a drug like volanesorsen, there are going to be pre-commercialization expenses that we think are well justified and are being well managed by Paula and the team.

The next question will be from Jessica Fye of JPMorgan.

This is Ryan on for Jess.

Stan, I guess, given the number of agents in your growing pipeline, is there any update to your thinking about partnership versus -- I think in your prepared remarks, you talked about perhaps additional sort of spinouts later in the future.

So just would like to get your thoughts on that.

The strategy really hasn't changed, and that strategy has always been, as we matured and became more financially secure, we focused on deals that were strategically the right fit.

It was no longer simply about getting a partner and some money.

And so our approach is to look at each drug at each stage of the pipeline and optimize the [part being] or commercialization choice that we might make for that drug.

So what you'll see is a continuation of that strategy, with us retaining drugs longer and retaining more and more drugs for our own account to commercialize through a commercial subsidiary, yet having such a large pipeline that, for larger indications, indications that require outcome studies or indications that might be higher risk, we'll partner them and, of course, continue to generate partner revenues and, to a large extent, cover our R&D expenses today.

So I can't -- it's difficult to be more specific than that, but that's basically the strategy.

Lynne, do you want to add anything to that?

No, I don't have anything to add, Stan.

The next question will come from Yale Jen of Laidlaw & Company.

Just 2 quick ones.

The first one is that given you guys started having a continuous quarter with pro forma operating income and net incomes, do you anticipate, maybe starting next year, 2018, you could start to have more sustainable, maybe, profitability?

Or you don't want to make that predicting yet?

We're certainly working toward and optimistic that we will be a multiproduct, sustainably profitable company with the variation in partner revenue in terms of milestones and so on.

Quarter-by-quarter, things vary, but we think we're well on the road to being sustainably profitable.

Okay, great.

That's helpful.

And just again get back to the SPINRAZA in terms of spinal fusion surgery.

You mentioned in the prepared statement that there's the industry finding some solutions on that.

In the bigger scale, do you anticipate it ultimately will be a resolvable issue that for patients who currently are already in Type 2 or Type 3, that can be treated even they had been or underwent surgery before and have some other issues associated with that?

The -- I think the short answer is we expect these patients to be treatable.

And these procedures are available, and they tie, of course, historically not to SPINRAZA but the need to do lumbar punctures in patients with spinal deformities and the need to do other sorts of interventions.

And so from our mind, it's a problem that has to be solved.

There's tremendous energy behind solving the problem, and the solutions already exist.

And in the long run, the best answer for these patients would be if SPINRAZA prevents the need for spinal surgery because they don't have scoliosis.

And so that's what we're looking forward to long term.

We understand that it's a logistic issue that physicians are dealing with.

Biogen is being very helpful and supportive of that.

Procedures exist, and we're confident that patients who need SPINRAZA will be able to get SPINRAZA.

The next question will come from Paul Matteis of Leerink Partners.

This is Ben Burnett on for Paul Matteis.

I wanted to ask if maybe you could provide a little more color on the neurological collaboration you guys have with Biogen.

Is there anything that you can disclose about the BIIB7Rx that you guys talked about in terms of target or a timeline of development?

And is there potential for more assets to emerge under this collaboration?

The answer to the second is I would say there's a guarantee that additional drugs will -- I mean, science, I shouldn't guarantee.

But there's a very high probability that there will be more drugs added as a result of the collaboration.

Remember the collaboration is very broad and has been really remarkably successful, with 7 drugs currently in development and substantial advances in understanding where these drugs go and how they work in the brain, which has broadened the opportunity consistently to more and more targets, more and more diseases and more and more regions of the brain as we've learned that they're -- all these things are achievable for us.

So it's a very broad pipeline already.

It will get broader.

And it doesn't simply focus now on rare diseases.

It focuses on [8].

And so there are large diseases that we're approaching with the Biogen collaboration like Alzheimer's and Parkinson's disease and then a wide range of less common diseases that are in -- like spinal muscular atrophy.

And Richard, do you want to comment on the development path for 7Rx?

Well, we're rapidly moving these compounds into preclinical date.

It generally moves at the same rate for all these compounds, and then they're into the clinic fairly quickly.

So while we can't -- we don't yet have a disclosure on the -- a specific target, I can assure you that we move these forward quickly.

And Biogen, of course, is involved in most of these compounds even in the development -- even in the early development stages.

Other than that, I don't have any more.

Stan, may I add just 2 things that might make this useful?

BIIB7 is in our pipeline.

We don't put anything in our pipeline until we have a drug that's moving forward to the clinic.

And so that's the time at which we initiate all of the IND-supporting tox and PK work.

So these are all -- once something's in the pipeline, it's typically within 12 to 18 months of actually initiating first in-human clinical trial.

So these are not research programs.

One way you can get an idea of the breadth of the research and the progress of the research that we're doing, which is what then leads to drug discovery and leads to the pipeline, is the very large number of target sanction milestones that we announce.

And again, often we don't say what the target is because that's important competitive information at an early stage.

But if you follow the releases that we put out and the financial consequences that we put out when we hit target sanction milestones, that's what triggers a drug discovery program.

And so again, those target sanction programs will typically be 18 months or so from going into the pipeline.

So that'll give you an idea of the flow, and you will have seen many of those target sanction announcements to give you an idea of really the strong amount of activity that's going on in these Biogen programs.

We are running a bit long, so I'm going to take 2 more questions, and then we'll wrap up.

Your next question will come from Jim Birchenough of Wells Fargo.

Just on SPINRAZA and the royalty rate.

Seems like this quarter was at the lower end, not unexpectedly, of the 11% to 15% range we were expecting.

Could you maybe comment on how quickly that could ramp up to the higher end of the range?

And when you hit a certain sales threshold, does it reset each year?

Or is that going to be the going-forward royalty?

Lynne, you want to answer that?

The royalties are tiered on an annual basis, and it ramps up pretty quickly.

Got it.

And then just one other follow-up.

We noticed a new program listing for PKK in chronic migraine.

Seems like that's an investigator-sponsored trial.

But is that an area that Ionis is going to be developing?

And then how do we think about PKK as a target relative to what's a lot of excitement around things like CGRP?

Yes.

We're interested in PKK as a target, and there are a number of indications.

And with the current drug that we have, what we decided to do was have a look at head migraine syndrome because there is substantial evidence that the target is involved.

And obviously, as we move forward, we'll be developing it for additional indications, as you would expect.

So we are interested, and we're interested both in the target and in the issue of migraines as a disease that's very poorly treated today that's in need of better and better treatment.

And the next question will come from Chad Messer of Needham & Company.

Great, guys.

At one point in time, Glaxo was on the verge of starting a cardiomyopathy study in TTR amyloidosis.

Just wondering -- and I know things are kind of up in the air, awaiting their decision, but if you were making the decisions, and you very well may be, is that still necessary?

Or does a LICA kind of take precedence there?

Well, I think the most important point to make is that based on the experience that we have in the current Phase III trial that just finished, I think we have a very nice -- a very good sense of the design of the trial that would be -- would measure outcome in that cardiac population.

And we do think that having that as a formal indication would add tremendous value.

And so we would certainly engage in Phase III evaluation for that indication.

We think proving value is always the right way to go and the best way to generate value.

Okay.

I just -- would it make sense to go straight to a LICA?

Or is that too far behind?

I -- what I'd like to do on that is, first of all, I would say that inotersen itself is an attractive drug that we would develop for the cardiac indications, independent of a LICA.

And we would be moving the LICA through development as rapidly as possible, and there are many ways we can be more efficient in developing a follow-on.

So we would move that and step forward as rapidly as possible.

And then we would make a final decision about what we do depending on timing and performance as the months move out.

With that, I want to bring the call to a close.

Thanks so much for your attention and the many good questions.

All of us, of course, remain proud and feel privileged to be a part of the SPINRAZA story.

And SPINRAZA is continuing to change the lives of more and more SMA patients and families every day.

So this is an exciting and gratifying moment in our history.

And I think more broadly, with inotersen, with volanesorsen and the entire pipeline that we have, it's the value that we've created is beginning to be much more tangible and much more visible to many, many more people.

And when you add to that the fact that the technology continues to advance at a rapid rate so that every step forward, we will make even better drugs, I think it puts us in a great place to build an exciting future for ourselves, our shareholders and the patients that we want to serve.

So thanks, everyone, for the opportunity to talk, and we look forward to keeping you apprised of our progress.

Thank you, sir.

Ladies and gentlemen, the conference has now concluded.

Thank you for attending today's presentation.

At this time, you may disconnect your lines.