Ionis Pharmaceuticals Inc (IONS) 2002 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Isis Pharmaceuticals announces its first-quarter financial results conference call. During the presentation all participants will be in a listen-only mode. Afterwards, we will conduct a question-answer session. At that time if you have a question, please press the one followed by the four on your telephone.

As a reminder, this conference is being recorded Wednesday, April 24, 2002.

I would now like to turn the conference over to Dr. Stanley Crooke, chairman and CEO. Please go ahead, sir.

Thanks, Amy. And thanks everyone for joining us on today's conference call to discuss our financial results for the first quarter of 2002.

Participating with me today is Lynne Parshall, executive vice president and CFO; Karen Lundstedt, vice president of corporate communications and Beth Hougen, vice president of finance. We are pleased to have the opportunity to review our accomplishments this quarter with you. We believe we're off to a very good start for the year.

During the call Lynne will discuss our financial results as described in the press release today, and I'll follow them with a summary of the highlights of the first quarter and update you on our goals for 2002. Unfortunately, because of the SEC regulations regarding the financing that we announced yesterday, we're unable to discuss the finance in any more detail than the press release contained. We'll be happy to answer your questions at the conclusion of our prepared remarks, of course.

Before we begin Karen will review our policy on forward-looking statements.

This conference call includes four different statements concerning the financial position of Isis Pharmaceuticals with therapeutic and commercial potential compounds developed by the company and the potential value of the company's functional genomics drug discovery pathology platform.

Any statement describing a goal expectation, intention or belief of the company is a forward-looking statement and should be considered an at-risk statement, including those statements that are described as Isis 2002 clinical goals.

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 financing such activities. Actual results could differ materially from those projected in this conference call. As a result, you are cautioned not to rely on these forward-looking statements.

These and other risks concerning Isis' research and development programs are described in this in detail in Isis' year-end report on Form 10k for the year ending December 31, 2001, which is on file with the U.S. Securities and Exchange Commission. Copies of this and other documents are available from the company.

And here's Lynne.

Thanks, Karen.

My comments today will be based on the financial press release that we issued yesterday afternoon.

Overall, we're extremely pleased with the financial strength of the company and we're taking steps to further improve our balance sheet with the financing that's currently underway. I will discuss the following highlights of the quarter: Revenues, operating expenses, net operating loss and our balance sheet.

In terms of revenues, you may recall from our year-end financial conference call discussion that our successes in business development in 2001 had strengthened our 2002 projected financial position substantially. I compared the level of committed revenue from partners when we began 2001 which was approximately $27 million in committed revenue to the position we enjoy early 2002, which is just about double our committed revenue from partners over last year's amount.

This increased level of funding from partners is evident in that first quarter results. We generated approximately $18 million in revenue this quarter which represents a 288 percent increase over the same period last year.

More specifically, the increase in revenue this quarter was due to the licensing of our intellectual property, Lilly's funding of clinical expenses for Isis space

lung cancer compound at

, which used to be known as LY900,003 or Isis 3521, which we completed by licensing the drug to Lilly in August 2001. The addition of new GeneTrove partnerships with Solaris

,

and

, each of which we initiated in the second half of 2001. The license of our preclinical type II diabetes antisense drug candidate Isis 113715 to Merck in May of 2001.

The initiation in October of last year of a new biological warfare defense research program with

, the Defense Advanced Research

agency, which is a department of the U.S. Department of Defense and the initiation of an antigent drug discovery collaboration with

in December of 2001.

The majority of partnerships established in 2001 will continue to generate revenue throughout 2002 and we've also added new revenue generated collaborations in the first quarter of this year.

Clearly, our business model of diversified revenue sources reduces risk and helps us at our cashmain.

Our operating expenses total $27.7 million in the first quarter, which was up from the first quarter of 2001 by about 27 percent. This increase was due to additional activities on behalf of our partners, particularly Lilly, as well as our aggressive advancement of the development of our pipeline.

Of course, as we said before, we are receiving substantial cash from Lilly to fund the drug discovery portion of our collaboration, but most of that cash funding does not result in current revenue.

The increase in expense was offset by capitalizing costs related to the production of our drug. Beginning with the first quarter of 2002, we're capitalizing all manufacturing costs for our drug. This is a reflection of the advancement of our pipeline in the later stages of development and of the increasing number of clinical supply agreements where we sell drugs that we manufacture to partners.

We will expense manufacturing costs when we ship drug inventory for use of clinical supplies to a partner and as we use drug inventory for our own trials. This change is indicative of the maturity of our pipeline and the increased acceptance of antisense technology.

The strong revenue in the first quarter of 2002 supported a net operating loss of $9.7 million, which is 44 percent lower than that for the same period last year.

The loss for this quarter is in line with our previous guidance for the year in which we stated our goal for net operating costs to be in the mid $40 million range, excluding non-cash compensation expenses.

Our object is to continue to exploit our multiple

based business initiatives to generate revenue that supports the advancement and growth of our large pipeline, while managing our losses at an appropriate level.

In terms of cash, the company is well positioned as evidenced by the continued strength of our balance sheet. We ended the first quarter of 2002 with a cash balance of $292 million in cash and short-term investment.

We reported working capital of $266.6 million for the period. Our present cash level added to the additional $75 million in committed funding from the research collaboration with Lilly and about $50 million in committed funding from other partners takes our cash and committed cash to more than $417 million over the next few years.

We're strongly focused on maintaining and augmenting our financial strength. We announced earlier this week, we are currently engaged in an offering of approximately $125 million of seven-year convertible, subordinated notes. The notes will be convertible into shares of Isis common stock. The funds raised will be used for a variety of purposes, including research, drug discovery programs and general corporate purposes.

We also may use the net proceeds of this offering to repay a portion of our existing outstanding debt.

We will continue to maintain financial flexibility in order to retain valuable product rights and to rapidly advance and grow our broad product pipeline as we go forward and as we have done historically.

Stan, I'll turn it back to you now.

Thanks, Lynne.

I'm very pleased that our financial position is strong, and we're getting stronger.

With $417 million in cash and committed cash plus fund that we will raise in the current offering, I think we can make -- continue to make great progress toward delivering on the promise of antisense technology.

And we've gotten off to a super start in 2002. Just let me summarize the highlights to date as well as the remaining milestones in 2002.

We've made significant progress in clinical development, with regard to Isis

which now has the trade name of

. We've had two key milestones.

The first, in mid-January, we completed the enrollment of 600 patients in phase three trial of the

and plus

and

. This trial enrolled those 600 patients in about 13 months, so we're very pleased with that.

And in the trial, we're studying the ability of

to safely extend the lives of patients with nonsmall-cell carcinoma of the lung when combined with

and

. If the results of this trial are sufficiently positive to support a single-study filing, our goal is to submit an NDA in 2003.

If two studies are required for filing, our goal is to file the NDA in 2004, incorporating the second control and Phase III trial that Lilly has initiated just recently.

In fact, Lilly just recently described this additional control Phase III trial. The trial will compare the survival of patients that receive a Affinitac in combination with GemzarO and cisplatin in patients. Two patients have received the combination chemotherapy alone. Lilly plans to enroll about 700 patients across 125 sites in 20 countries in this study. And we're very pleased that this study has initiated. It's a strategic study.

It reduces the risk of disappointment with 3521 -- or Affinitac, sorry. And it further reflects the very positive relationship between Lilly and ISIS. And that relationship, of course, extends well-beyond efforts on Affinitac and includes our broad discovery -- drug discovery and target validation collaborations.

Well, we also recently reported encouraging results -- the early results for a second in a cancer drug in our pipeline, ISIS 2503. In a Phase II study of ISIS 2503, which is an inhibitor of a cancer target called

, ISIS 2503 in combination with gemcitabin produced positive results at a planned interim analysis of the trial. In that planned interim analysis, the combination showed six months or longer survival in patients with pancreatic cancer surpassing the primary endpoint of the studies defined criteria for success. The response rate was also encouraging, as it was greater than would be expected for GemzarO alone.

A total of 48 patients have been enrolled in the study. And we hope to report results of all patients by year's end and to be in a position to make a decision about what would be the appropriate additional development path for that drug.

Earlier this year, we reported further evidence of activity of ISIS 2302 topical cream and psoriasis. We're encouraged by that and we continue to evaluate the development opportunity for this drug in psoriasis and perhaps, more likely other dermatological diseases, such as

dermatitis.

We've advanced to additional evicting clinical programs in patients with hepatitis C and patients with rheumatoid arthritis through initiation of Phase II trials in each of these therapeutic areas.

We're evaluating the ability of ISIS 14803 to reduce viral load when dosed as a single agent now for three months. So we're extending from one month of treatment to three months of treatment now that we've completed additional toxicity studies in animals. This open-label study is enrolling 40 patients, primarily Type I gene type, hepatitis C resistant to

and Interferon in five U.S. sites.

Further, we initiated a 160-patient trial to study the safety and efficacy of three-dose regiments of ISIS 104838. The first second-generation antisense drug in patients with rheumatoid arthritis.

Additionally, we've continued to build our GeneTrove business by adding two new collaborations during the first quarter. GeneTrove initiated a target validation collaboration to support Pharmacia's pharmaceutical research and drug discovery efforts. We will provide Pharmacia with antisense based tools to explore the biological roles of genes selected by Pharmacia. In addition, Pharmacia license specific intellectual property within ISIS' functional genomic suite of patents for in-house applications.

GeneTrove also initiated a target validation collaboration with Merck and Company to support Merck's pharmaceutical research and drug discovery activities. GeneTrove will provide Merck with antisense based tools, again, to define the biological roles of genes selected by Merck and to validate them as potential drug targets. This is actually the third collaboration between ISIS and Merck.

Earlier this week we announced that Merck has extended for a second time it's collaboration with ISIS to discover hepatitis C drugs. This has been a very successful collaboration. We began the research program in 1998.

We announced the first one-year extension in mid-2001 and earned a milestone in late 2001. Based on this latest extension, Merck will pay ISIS research support for an additional year, as well as a research milestone payment, clinical -- developing milestone payments for compound that arrive from collaboration and, of course, royalties on product sales.

Our Ibis Therapeutics division has successfully transitioned its government monitoring and research program to discover novel antibacterial drugs for biological warfare defense to the U.S. Army Medical Research Institute of Infectious Disease

. Through this transition from

, Isis has been awarded a new three-year contract valued at up to $2.4 million from

to advance the divisions work in developing these therapeutic countermeasures to biological warfare.

And of course our interest in this program -- just to develop novel anti-infectives based on binding RNA as a general therapeutic opportunity, so we are pleased with our performance so far this year. We continue to be very encouraged by the level of interest in

technology that we're experiencing from the pharmaceutical industry.

It's also I think particularly gratifying that our progress has been recognized by our peers as well. Earlier this year, we received the Helix award for corporate excellence which is the highest award of honor in the bio-technology industry given by the

organization. And more recently, both Isis and Lilly were recognized at the Alliance 2002 of biotech business development professionals.

The strategic alliance between our companies was voted breakthrough alliance of 2002. Now, the acknowledgment is of course appreciated: we recognize what matters most to patients and to shareholders is that we continue to perform to the best of our abilities and that we move the technology and our products along to bring benefits to both patients and shareholders.

We are focused on also making our partnerships successful and growing our GeneTrove business, on defending our intellectual property position and of course advancing both the therapeutic and diagnostic opportunities at Isis and at our Ibis division. We have a full agenda this year; our clinical goals for the remainder of 2002 include reporting

early results of phase II trials of

ISIS 3521, in combination with chemotherapeutic regiments with patients with non-small cell cancer to the lung and phase II single agent results in patients with non-Hodgkins' lymphoma.

We look forward to the opportunity to present those data. With your reporting ISIS 2503 phase II finer results in pancreatic cancer later in the year. We'll be reporting on progress with ISIS

in the phase II studies with extended treatment periods in patients with hepatitis C. We'll be reporting the results of phase II program in

arthritis with ISIS 104838. We'll be initiating a phase II trial of ISIS 2302 in ulcer colitis given by retention enema.

We expect over the -- either late this year or early next year to be initiating phase II trials of ISIS 104838 systemically in patients with psoriasis. And we have

with five drugs that are progressing toward clinical trials; we certainly expect to initiate phase I trials on at least one product -- additional product before the end of the year.

And we continue to make advances in the development of oral formulations for second-generation amethyst drugs. Given the breadth and maturity of our development pipeline, we will continue to have a steady flow of news that demonstrates achievement of important clinical milestones. And our news will be spread across a number of products in a variety of therapeutic areas with a number of formulations and

of delivery.

And we think that's great because it helps us diversify risk just by giving us more shots

. We're optimistic that our investment in this pipeline will be rewarded as these products continue to mature: we, as I mentioned, have been very pleased with the level of interest in the pharmaceutical industry in what we've accomplished with

and with IBIS.

We certainly continue to hope to exploit the industry's continued interest in our technologies through partnering of various sorts which will in turn support the expansion of our pipeline and further the acceptance of

and Ibis technologies as platforms of very broad fundamental importance.

We appreciate the support that you've given us at Isis as we have worked to accomplish these goals, and we look forward to

to update you on our progress as the year unfolds.

So now we'll open the conference call up to questions. Amy, if you can set us up for the Q&A period, I'd appreciate it.

Thank you. Ladies and gentlemen, if you wish to register a question for today's question and answer session, please press the 1 followed by the 4 on your telephone. You'll hear a three-tone prompt to acknowledge your request. If you wish to withdraw your

, please press the 1 followed by the 3. If you are using a speakerphone, please lift your handset before entering your request.

One moment please for your first question.

with Robert Stevens, please go ahead.

Thanks so much. Pretty basic question. Not really even sure if you can answer them at this time, but how much total debt do you have outstanding today, and can you at all break out a little further your R&D and G/A expenses?

Thanks, Ellen. That's a hard question, so I'll ask Lynne to answer it.

Yes, Ellen. We have about $133.9 million worth of debt on the balance sheet right now. Did you want me to go into a little more detail about what makes up that debt?

No -- well, sure, if you like.

The primary component of that debt is $71 million worth of debt to Reliance Insurance Company. That debt was originally $40 million in principal amount, and the interest has accrued over time. That debt is a ballooned debt -- in other words, none of the principal is repayable for 10 years, and it matures in November of 2007. But beginning in November of this year, the interest is payable currently.

The remainder of debt is a variety of pieces of debt associated with corporate partnership as well as general corporate debt: financing our buildings and our capital equipment.

OK. And then as for your operating expenses this quarter?

In terms of operating expenses, we usually don't break them down anymore than we were in the financial press release, in terms of R&D, GN&A and the separate item of compensation related to stock options.

OK. Thank you.

Your next question will come from

) with

. Please go ahead

Hi. It's actually

in

group. Just two quick questions. Can you give us a little bit more color, perhaps, an update on the GeneTrove program, particularly in terms of subscription deals and how that's coming along? And secondly, in terms of the oral formulation, can you give us an update on that, as well?

Let's deal with GeneTrove first. I think we're making progress on all three fronts. Remember that the most mature part of the GeneTrove business is the customer target validation services business. And we've added two partners this quarter and we certainly are hopeful that we'll add several additional partners over the rest of the year. So we're approaching 1,500 genes under contract by partners, and our goal is to add quite a number of genes beyond that this year. So that's, I think, going very well.

The second piece of it is the patent licensing portion. And again, toward the end of the year we announced the licenses to Chiron and Amgen and others. And then, earlier as a part of the Pharmacia relationship, we licensed for in-house use our suite of patents to them.

We've added, in fact, additional patents this quarter to that suite of patents that we have issued. And we're continuing to make progress in litigation. So overall I'm very pleased with the progress on the patent front.

We are just now rolling the database out. And we actually lost a couple of months on our schedule for rolling that database out, primarily because of some challenges in

type synthesis, as we scaled up to doing thousands of genes. I just reviewed the database last week, and I think it's really exciting. And so, we expect good acceptance for the database and we still believe that we'll be able to achieve the partnership goal that we laid out for you earlier in the year.

And, by the way, we've now put behind us the problems that created the delay in -- to undergo synthesis for us at the end of the year. It was just a series of raw material supply problems that created problems.

Does that answer your question,

?

Yes, I think so. Can you just review with us the guidance, in terms of the number of GeneTrove -- the database partnerships this year?

We've been saying that we hope to have two to three partnerships. And our guidance has been that we would hope to have those sell for anywhere from $2 to $4 million a year. And we think that's going to be achievable.

And just a quick update in terms of the oral formulations.

Oh, I'm sorry. We continue to make progress. What we're doing now is tinkering with the tablet design. And we're looking at various tablet designs and formulations within those tablet designs. The goal is to take the oral

that we achieve with solid dose forms last year, which is in the 4 percent, 4.5 percent range, and move that beyond 5 percent before the end of the year. So we're very close to our goal.

And, obviously, we'd like to achieve as high an oral viability with solid dose forms as possible. So we're going to continue to tinker with all of that, with a line until the end of the year and hopefully we'll be in a position to make an affirmative decision to move a solid dose form into Phase II trials early next year. We're on target and we're making good progress.

Great. Thank you.

Your next question will come from

with

. Please go ahead.

Good morning. Just wanted to ask with regard to Affinitac. What's the

criteria for you to decide to file NDA based on this one study rather than waiting for the second study results? Also, my recollection is that you're not planning to have interim results announced. Is there any -- is that correct or any plans for interim?

Let me answer the second question first. There is no interim analysis, because the study enrolled far too rapidly to make an interim analysis of merit. The analysis will be initiated when a predefined number of patients have succumbed to their disease; that number being sufficient to generate a reasonable capital

plot to generate survival.

I think the key thing with regard to a single study NDA is that, we have done a solid Phase II program and the 600-patient study is, of course, a very large randomized controlled trial. If we achieve the results that we saw in the Phase II program, I believe that that study will support an NDA filing and approval by acclimation. Beyond that, if we achieve a less robust increase in survival, it will be a matter of judgment at that time that we and Lilly will make in consultation of discussions with the FDA.

OK. And again, with regard to the timing of the data, would it be

that the later the data becomes available the more robust the data may be or?

Well, I think what I can tell you is that, this is a survival study. And we were anxious to enroll it as rapidly as possible. And, of course, we want to see these patients living as long as possible. So I think I'll leave it at that.

OK. Just roughly, what is your estimate of when you may have the data or not?

We've been telling people that it's difficult to judge, because it's driven by the death rate, but the guidance that we've been giving is that we would be able to file an NDA in 2003.

OK. Thank you.

Your next question will come from

with

. Please go ahead.

Hi. Good morning. Thank you. Stan, would you step back a moment and talk about second-generation chemistry here? Talk about the advantages and what it represents for the company. Thanks.

Second-generation chemistry is the product of more than a decade of work. We've made and tested, perhaps, as many as 4,000 different modifications. And of the 4,000 modifications or thereabouts that are known to exist in the world, we own all but three or four, and we own every chemical that we want to own. The second-generation chemistry that we selected after that exhaustive search is called two-prime

. It's pluses are that it gives you about a 10- to 15-fold increase in potency in all species studied and now in man. Last year we reported, in fact, that we got more potent effect on

alpha than we might have expected based on animal data.

Secondly, it's much more stable to nucleuses, which is how these products are cleared from the body.

And as a consequence, instead of having to give the drugs every other day, we can administer them as infrequently as once a month. That's of course a tremendous increase in patient convenience, and without it certainly the

, Lilly, and Merck relationships would not have happened because both relationships were focused on therapeutic targets that would not tolerate the inconvenience of every other day IV dosing.

Thirdly, these drugs are less prone to some of the

side effects of first generation drugs, so they're much better tolerated with chronic subcutaneous administration. Fourth, the chemistry -- is the chemistry combined with special formulations that has allowed us to make the progress that we've made in oral delivery. And finally, when these molecules are produced on-scale, the cost per gram will be roughly the same as the cost per gram of first generation drugs.

But of course you'll be giving perhaps one hundredth the amount of drug to treat patients, and so it will bring cost of therapy to the place where we can easily compete with small molecules. So this is a tremendous advance in the technology, and it should be because we've had the largest medicinal chemistry program and the largest biochemistry program and the largest molecular pharmacology program in

magnitude. And that program has delivered tremendous value to the technology and eventually to our patients and our shareholders.

Thanks for reviewing that with us, and congratulations on your progress.

Thanks, Mark. We have time for one last question.

Thank you. Your last question will come from

,

. Please go ahead.

Thank you. Stan, the comment you just made about the second generation chemistry is to me quite impressive. I've heard -- you might call it an objection raised by some

you express that in the case of 35.1, it was relatively unstable. Had a relative short half life, and for that reason needed to be just continually infused. You must have discussed this in the

as well as others, and I wondered if you could comment on that point.

Yes, thanks. ISIS 3521 is a first generation

drug, and as drugs go, ISIS 3521 is remarkably stable. It's stable as a chemical; it's stable in formulations, and it's cleared from the body over a two-day period to the three-day period. So if you think that and compare it to something like aspirin which is cleared from the body in about an hour or two hours, you can see that it is actually compared to other drugs quite stable.

However, its

kinetics demand that it be administered every two to three days at the minimum. And so we have the second-generation drugs wanted to dramatically improve that, because that would be wonderful if we could achieve that with an oral formulation. First-generation drugs are not orally active. And giving a drug like 3521 every other day or 2302 every other day is obviously a significant inconvenience to patients.

In the cancer trial that we're doing, ISIS 3521 is given by continuous IV infusion to match up with traditions and approaches and dose regiments that are used in cancer chemotherapy. It's strictly for patient convenience; it could be given at a less frequent schedule. And in that case, in that aspect, it is absolutely no different from any other first generation amethyst drug.

We do continuous IV infusion because that is the way that cancer drugs are very frequently administered; it was more convenient to do it as we matched up with the cancer chemotherapeutic agents. There's nothing about the drug that requires that.

Well, just one follow on: is it logical or reasonable to let's say, expect the possibility that a second-generation of 3521 would give you an increased survival benefit?

What I can tell you is that we have second-generation drugs for all of the first-generation drugs waiting in the wings. We've chosen to develop second generation drugs for new indications and new targets, because we wanted to broaden the pipeline and broaden the diseases that we were approaching. And we wanted to see what the first generation drugs would do for their targets in phase III trials.

Assuming ISIS 3521, or Affinitac I should call it, produces positive results, then we have the luxurious opportunity to bring a second-generation drug along. And these things we can be reasonably confident of: First, that the drug will be much more convenient for patients and be even less prone to side effects and be more potent, so that at the minimum we'll make all of those things better.

I think the question of whether it will produce more efficacy is just something that we would need to do in phase three trials before we'd draw any conclusions about that. Obviously, the second-generation drugs produce significantly better responses in animals -- in various animal models of disease - and so, we would be hopeful that that's a question to answer with phase three trials.

Fair enough. Thank you much.

You bet you.

If I may then, we would like to bring this call to conclusion. We want to thank everyone for your interest in the company and we think we've had a very good quarter and it lays the foundation to have another super year for the company and we look forward to talking with you about it as we make our progress.

Thanks so much.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and please ask you to disconnect your lines.