Ionis Pharmaceuticals Inc (IONS) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Isis Pharmaceuticals fourth quarter financial release conference call.

During the presentation all participants will be in a listen-only mode.

Afterwards, we will conduct a question and 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 Tuesday, February 11, 2003.

I would now like to the turn the conference over to Dr. Stanley Crooke, Chairman and Chief Executive Officer.

Please go ahead, Sir.

Thanks Tracey and thanks everyone for joining us on today's conference call in which we will discuss the financial results for the fourth quarter and of course our year-end 2002.

Participating with me today is Lynne Parshall, Executive Vice President and CFO, Beth Hougen, Vice President of Finance, and Karen Lundstedt, Vice President, Corporate Communications.

We are pleased to take this opportunity to review our accomplishments in 2002, and in 2002 we achieved our primary goals.

We advanced our pipeline and the technology.

We strengthened the company's financial position.

We made progress in our existing partnerships and we established new relationships.

During the call Lynne will talk about our year-end financial results, which include record revenues, I'll follow with a review of our strategic assets and a summary of the 2002 clinical highlights.

I'll finish by describing our goals for 2003. 2003 will be another year of substantial clinical momentum.

As many of you know in March, we plan to announce the results of the first Phase III trial of Affinitak in non-small cell lung cancer, but this will be just one of several key clinical milestones the company plans to accomplish this year, of course we are going to be happy to answer your questions at the conclusion of our prepared remarks and before we begin Karen will review our policy on forward-looking statements.

This conference call includes forward-looking statements concerning the financial position of Isis Pharmaceuticals, the therapeutic and commercial potential of compounds developed by the company and the potential value of the company's pharmacogenomics and drug discovery technology platforms.

Any statement describing a goal, expectation, intention, and belief of the company is a forward-looking statement and should be considered an at-risk statement, including the statements that are described as Isis 2003 goals within this conference call.

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 additional detail in the company's annual report on Form 10-K and quarterly report on Form 10-Q for the periods ended December 31, 2001 and September 30, 2002 respectively, which are on file with the U.S.

Securities and Exchange Commission.

Copies of these and other filings are available from the company.

Lynne?

Thanks, Karen.

My comments today will be based on our year-end financial press release, which we issued earlier today.

We are very pleased with the financial strength of the company.

In 2002 as Stan mentioned, we achieved record revenues and strengthened our balance sheet.

In addition to revenue during this conference call I'll also discuss our operating expenses, net operating losses, and our strength in balance sheet.

In 2002, we exceeded the previous years unprecedented revenues by 51%.

We reported $80.2m in revenue for 2002 compared to $53.3m in 2001.

This increase in revenue for the year was primarily result of the company's collaboration with Eli Lilly and our success in attracting a variety of new partners and technology licensees.

Our revenue for the fourth quarter of 2002 was $21.9m in line with revenue from the same period in 2001.

Most of the fiscally(ph) sources of revenue for the year 2002 included our Lilly Affinitak collaboration, the addition of cancer targets to our Lilly Research collaboration, the achievement of a milestone from our antisense drug discovery collaboration with Amgen, the second extension of our Hepatitis C drug discovery collaboration with Merck, the addition of several new GeneTrove collaborators and the receipt of a new government contract pertaining to our Isis drug discovery program.

While establishing new partnership is always a priority as evidence through our achievement since past year we are also very focused on advancing and building upon existing relationships with more than a dozen current partners.

Our ongoing partnership continues to provide us with a strong financial foundation.

Operating expenses for the quarter and year ending December 31, 2002 were $33.1m and $131m respectively compared with $29.4m and $99.4m for the same periods in 2001.

The increase in operating expenses was primarily result of increased research and development activity due to our investment in 13 products in development including cost for the ongoing Phase III trials for Affinitak and Alicaforsen in Crohn's Disease.

Cost associated with increased research efforts to support the Lilly collaboration also contributed to our growth and expenses.

Our loss from operations for 2002 was $52.4m adjusted to exclude $3m in non-cash compensation benefit and $1.4m in restructuring charges related to the termination of the GeneTrove database product.

This compares to a loss from operations in 2001 of $41.5m excluding $4.6m in non-cash compensation of [Inaudible] .

We have a very strong balance sheet.

We took several strategic [Inaudible] 2002 to fortify our financial strength as we worked to preserve our cash balance and effectively managed our debt.

We ended 2002 with $289m in cash and short-term investments compared to $312m for the year ended 2001.

Our success in sustaining this cash balance is primarily based on our ability to generate cash inflows from partnerships and the issuance of a $125m in convertible debt.

We used the proceeds from the debt to retire nearly $95m in high-interest debt.

This prepayment of debt resulted in net savings of approximately $40m in total future interest payments.

Based on the steps we have taken and the nature of our partner debt our debt structure is very favorable to Isis.

Our cash position is strong and our debt is structured in a manner that gives us flexibility to minimize impact on cash in both the short and the long-term.

More specifically the largest component of our debt is low interest convertible debt and is not due until 2009.

Our interest free Lilly research loan is payable with stock at $40 per share at our option.

Our Lilly manufacturing loan is payable with only upon Affinitak success milestone or other products related cash inflows.

The other components of partner debt are payable in cash or stock at our option and mature over the next few years.

The structure of these loans enables us to use our cash to advance our pipeline.

In addition to the $289m in cash on hand, we have an additional $53m in committed funding for the Lilly research collaboration and approximately $50m in committed funding from other partners.

So when you add the cash committed for 2005 to our current cash, we have $392m available to us over the next three years.

With this financial strength we are well poised to advance our product pipeline through many key clinical milestones.

Our nearest clinical milestone opportunity is the Affinitak Phase III results in March and we'll provide financial guidance for 2003 after we report those results.

In summary, in 2002, we strengthened our financial position, we target high interest debts.

We recorded our hepatitis C compound ISIS 14803, concluded our relationship with Elan and expanded our Lilly relationship, while continuing to make great progress in the business.

So Stan, I'll turn it back over to you.

Thanks, Lynne.

I too am pleased with the achievement of record revenues in 2002 and the overall financial status of the company.

As Lynne said with $392m in cash and committed cash, we can continue to work towards our goal while establishing antisense, as a new sector of the pharmaceutical industry and beyond our strength in financial position, 2002 is a year of continuing clinical momentum.

We substantially added to the growing evidence that antisense works in human beings.

In the past two years alone, we've reported positive data from nine Phase II programs and a range of diseases.

Our progress in the clinic has also helped us establish new partnerships and to build upon our existing relationships with several industry leaders.

I want to first discuss the general progress that we've made in each of the company's strategic assets and then I'll give a more detailed explanation and discussion of the progress that we've made in clinical development 2002 and finish with the focus on 2003 and our plans there.

Of course our most immediate asset is our broad late-stage pipeline; 2002 was a remarkably productive year in the clinic force.

We completed enrollment of our 600 patient Phase III Affinitak trial in just 13 months.

We initiated five new clinical trials including the Phase III trial in Crohn's disease, pivotal-quality Phase II study in ulcerative colitis, Phase II studies in rheumatoid arthritis and HCV, and a Phase I study in prostate cancer.

We announced in 2002 positive clinical data from five Phase II programs.

Furthermore, we announced data from the first human clinical trial that demonstrated the feasibility of oral solid dosage forms for antisense drugs and this oral formulation platform increases the commercial competitiveness of antisense drug in important ways and it clearly enhances a long-term potential of our pipeline, as the basic advances can be applied to all of the companies second generation drugs.

In addition to oral delivery, we now know that antisense drugs can be delivered through many routes including aerosol, topical, subcutaneous and enema formulation.

We developed the oral platform through our Orasense joint venture with Elan.

At the end of 2002, Elan concluded its funding in scientific participation in the Orasense collaboration in accordance with the terms of the agreement.

I am pleased with this outcome and we look forward to rapidly advancing development of oral antisense drugs.

While we were advancing the pipeline and expanding the routes of deliveries, we are also expanding the range of diseases we are treating with antisense drug.

We are now developing antisense drugs to treat chronic diseases such as diabetes, obesity, and cardiovascular disease.

In May 2002, we reported compelling data on the lipid lowering target ApoB-100 and during the course of 15 months with a small group of scientists*, we explored more than 20 cardiovascular gene targets in vitro and have evaluated many of these genes in animal models.

Our cardiovascular research team is focusing on advancing many new or potent highly specific cholesterol lowering drugs and many more interesting targets for cardiovascular disease as potential candidates for clinical studies.

We plan to add a cardiovascular compound to our development pipeline in 2003. [Inaudible] on the market, two drugs in phase III, six products in phase II studies, we think the company has one of the most exciting pipelines in all of biotech and we continue to advance our products and as we do that that will give us many multiple opportunities for success.

Our second key asset is our significant corporate partnerships.

The key highlight in 2002 is the expansion of the Lilly collaboration on two levels.

First in September, Lilly selected us to be the commercial manufacturer of the Affinitak launch supplies.

Revenue from this manufacturing relationship has the potential to approach a $120m over the three-year term of the contract.

This revenue projection assumes that new drug application is filed in 2003, based on the successful results from the first Phase III trial of Affinitak and non-small cell carcinoma of the lung and that the drug's market penetration is in line with our estimates.

Manufacturing plant was financed through a loan of about $21m from Lilly.

We can repay the loan over time with cash generated by Affinitak milestones, assuming that Affinitak is successful.

Importantly, if the drug is not successful you repay the loan only through proceeds generated by the manufacturing facility.

So, our current cash position isn't at risk as a result of this transaction.

We have already completed the expansion of this plant.

This is a remarkable achievement to have built two new manufacturing suites in nine months and to have it up and running and making drug today, this is something we are very proud of.

One of the suites will produce Affinitak for Lilly over the next three years.

In the second suite, we will make drug to meet our own needs, in total the plant can make hundreds of kilos of multiple drugs per year.

We believe that this is the largest and certainly the most sophisticated antisense drug manufacturing plant in the world and furthermore, it is an important attribute of antisense technology that such a facility could be built with a capital investment that is so modest, $21m for a two suite manufacturing facility.

We will begin manufacturing drugs for Lilly in the first quarter of 2003 and these activities will be reflected in our P&L in the coming quarters and will be an important source of revenue in the coming year, strictly if the results of the Phase III trial are positive.

Second, we expanded our strategic alliance of Lilly to include the discovery of selected targets in cancer and a licensing of the pre-clinical anticancer compound ISIS 23722, which is a drug that targets a very interesting cancer target surviving.

So, this relationship then broadens the research component of the partnership beyond its original focus of inflammatory and metabolic disease.

We made also progress in our existing antisense drug discovery program with Lilly.

GeneTrove has delivered antisense inhibitors to Lilly to more than 225 gene targets and several of these have been validated as drug targets by the [Inaudible] .

These genes, which stand several therapeutic areas, are the focus of our antisense drug discovery efforts and we are very pleased with the progress that we are making in all the therapeutic areas in which we are working.

We made progress in addition with other partners in 2002.

We achieved milestones in both the HepaSense joint venture with Elan, our Amgen antisense drug discovery collaboration and we extended our hepatitis C drug discovery collaboration with Merck for the second time in 2002.

Our commitment to antisense's led to successful partnerships that contribute to the advancement of the technology and support of broadened, deepened richer (ph) pipeline.

We think that our performance in corporate partnering throughout our history is one of the great strengths of the company and 2002 was another example of that.

Our third asset is our remarkable intellectual property state.

Our partner state has tremendous value long-term, cause controls what we believe will be a new sector in the Pharmaceutical industry based on antisense.

In the short-term intellectual property generate substantial value as well.

We establish multiple GeneTrove patent licensing agreements this year.

While advocating partnering we are of course, actively and successfully defending our patent state.

In 2002, we settled a patent infringement law suit against Sequitur on favorable terms to Isis and it continues to grow.

In September, we achieved a major milestone with the issuance of our 1000th patent.

As of today, we have nearly 1,200 issued patents.

We think that's a record of innovation that's unsurpassed by any company Biotech and it symbolizes* both the scale of the task that we have taken on, innovation that we have engaged in the fact that we have made every major advance in antisense technology and it affirms of course our position as the dominant leader in antisense technology.

Our fourth asset is based on innovation in RNA base of drug discovery technology.

Our strategic business division is Gene Trove and IBIS Therapeutics are exploiting the work that we have done in understanding RNA to generate value.

IBIS delivering the co.'s knowledge of RNA to revolutionize detection and treatment of infectious disease with innovative diagnostic technology in small molecule RNA based drug discovery technology.

The division was awarded $2.4m government contract to advance its antibacterial drug discovery program in the past in 2002.

And in the past few years, IBIS (ph) has received government-funded grants and contracts totaling well over $20m.

Both to develop antibacterial drug and to create a sensor to detect infectious organisms that could be used in defense against potential biological warfare tech.

GeneTrove simply monetizes the front-end of our antisense's drug discovery process through the target validation of the business that we have built.

In 2002, the division established four new target validation collaborations and intellectual property licenses with the addition of Glaxo SmithKline, Merck, Pharmacia and Amgen.

More recently the division initiated partnerships with Pfizer and with German based target validation company, Antigen.

With these partnerships Gene Trove has developed more than a dozen relationships in total, demonstrating the leadership position in antisense's phase functional genomics.

Finally, our fifth key asset is our financial strength Lynne has discussed this earlier in the call.

Each asset, our pipeline, our partnerships, the advances in our IBIS and GeneTrove divisions, intellectual property stayed in the financial strength, contributes toward achieving our goals and creates value for the company and our shareholders and in each and every case you took great steps in 2002 to add to those assets.

By the strong position the finish the task* that we set out to accomplish when we began the company, which is as it has always been to develop new sector of the pharmaceutical industry based on antisense's technology that will lead to better drugs and lead to enhanced efficiency for drug discovery and development, and 2003 will be more of the same and we will continue to advance development of all these assets.

So just a bit more detail about the progress we made in 2002 with regard to our clinical development projects and I'll also spend a minute talking about what we will be doing in 2003 to moving forward.

After I finish those two topics I'll just summarize our business development goals for 2003.

As you know, we've Phase III programs underway for two drugs Affinitak and Alicaforsen.

For the most advanced Phase III trial of Affinitak in non-small cell lung cancer, we plan to have results in March of this year.

We plan to file a new drug application in 2003 based on the single Phase III study if the data are sufficiently positive.

Two studies are required for an NDA, Lilly anticipates a submission to the FDA for this drug in late 2004 or early 2005 depending on the rate of enrollment of their on-going Phase III trial which I am pleased to say is enrolling extremely well.

As to Alicaforsen in Crohn's Disease, we initiated the European Phase III trial in June 2002, by the end of this year/early 2004 we expect to complete enrollment of both this European trial and the North American Phase III trial, which was launched in 2001.

Contingent upon enrollment, it is possible that we will have results from at least one of these studies to share with you by year-end.

If the data are positive we anticipate filing an NDA for Alicaforsen in 2004.

Now moving to the Phase II programs, let us focus on first Alicaforsen in Ulcerative Colitis.

Alicaforsen is being studied in patients with Ulcerative Colitis and based on the results from the very positive Phase II study of an enema formulation of the drug.

We initiated a pivotal quality 170-patient trial in late 2002.

This year's study is designed to compare the safety and efficacy of an enema formulation of alicaforsen to the standard of care in this disease mesalamine enemas.

This is a medication that's widely used in Ulcerative Colitis.

We also will be initiating a second pivotal quality study in Europe it the second half of 2003.

So looking ahead alicaforsen enema and you see it has the potential to be the basis of an NDA in the 2004-2005 time frame, of course depending on trial enrollment results.

We are very enthusiastic about the potential of alicaforsen in Ulcerative Colitis.

Optimism about this drug was enhanced by proof of concept study of alicaforsen enema in patients with the more difficult to treat form of Ulcerative Colitis called Pouchitis.

We will report the results from this study in the digestive disease week or DDW meeting in May.

Second drug about which we are encouraged is ISIS 14803.

We initiated a 40-patient three-month Phase II trial of ISIS 14803 in patients with drug resistant Hepatitis C in early 2002.

In November we presented data from this study and a previous one-month Phase II trial, both of them demonstrated that ISIS 14803 is active in drug resistant genotype 1 Hepatitis C patients.

The most difficult to treat segment of the hepatitis C patient population, but in fact to my knowledge 14803 is the first drug to demonstrate meaningful viral reductions in this patient population.

Later this year we plan to update the three-month trial result and initiate further Phase II trials of the compound in combination with currently used hepatitis C treatments.

Third drug in Phase II is ISIS 2503.

ISIS 2503 is in Phase II trials for the treatment of pancreatic, breast and non-small cell lung cancers.

Final results from the Phase II study and pancreatic cancer demonstrated that 57.5% of 48 patients who received ISIS 2503 plus Cytovene survived six months or longer.

Based on these results reported in 2002, we are considering various strategies for progressing with this drug including partnering in support of further development of the drug in pancreatic cancer.

We submitted abstracts to ASCO to report results of ISIS 2503 in all three indications in May.

The fourth drug ISIS 104838 had a great year.

ISIS 104838, which targets TNF-alpha, is currently in two Phase II trials for the treatment of rheumatoid arthritis.

The initial Phase II trial of studying ISIS 104838 drug concentrations in tissue and blood as well as the drugs ability to reduce TNF-alpha levels.

A double blinded placebo controlled study involving 160 patients will be the first to provide information about efficacy of ISIS 104838 in rheumatoid arthritis.

In this study ISIS 104838 is being administered by subcutaneous administrations.

Results from both of these trials are expected in late 2003.

Parallel with the IV S.Q. clinical program, we are continuing to advance the oral formulations of this drug.

There will be - as the year progresses further optimizing the current solid dose form that was selected in 2002 and we would plan to initiate an oral Phase II study of ISIS 104838 in solid dose form late this year early next year based on the results that we are developing.

The Phase I development, Vancouver base partner OncoGenex Technologies initiated a trial of OGX-011 for ISIS 112989 in patients with prostate cancer.

The second-generation antisense drug is being developed to sensitize tumors resistant to existing treatments such as chemotherapy, hormone ablation therapy, and radiation therapy.

Second Phase I study is scheduled to start in 2003.

ISIS 112989 is our third and a cancer drug currently in clinical trials.

In addition, we have four exiting pre-clinical drugs that should be in patients any day.

ISIS 113715 for Type II Diabetes, ISIS 107248 for Multiple Sclerosis of the LA4 [Inaudible], ISIS 13650 for Diabetic Retinopathy and our new anti-cancer drug ISIS 23722 which is licensed to Lilly.

In 2003, we will certainly initiate Phase I trials of ISIS 113715 for Type II Diabetes, which we regained from Merck late last year and we planned to bring at least one other compound in the Phase I trials by the end of the year.

So that's the pipeline and we believe that the pipeline will continue to move forward, it is broadening and it is deepening and the value of the pipeline increases as a function of the number of drugs and the importance of their therapeutic opportunities.

In 2003, we will also continue to execute our business development strategy.

We will seek to opportunistically license products at key value infliction points, initiate antisense research collaboration, initiate additional GeneTrove collaboration, license appropriate intellectual property and balance as we always have of the deals that we do with product rights to limit the dilution to our shareholders.

As usual, we have an ambitious year ahead of us and we enter it well equipped for success.

In addition to Affinitak, we have 12 compounds in development that have shown promising activity in clinical and pre-clinical studies.

These programs will create a steady flow of news in 2003.

So with the robust pipeline of drugs, powerful successful partnerships, a healthy balance sheet, and now 14 years of experience developing antisense technology, we think we are poised to advance the technology to the benefit of both patients and shareholders.

We are excited about the future and we remain as committed as ever to achieving the goal of creating a new class of drugs based on antisense technology, the new sector of the pharmaceutical industry.

We appreciate your continued support and we will now turn it over for questions.

So Tracy, if you can set us up for questions, I'd appreciate it.

Thank you.

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One moment please for our first question.

Our first question comes from Elemer Piros with Rodman.

Please go ahead.

Good morning Stan, good morning Lynne.

I would like to have a, if you could perhaps provide a bit more detail on the ongoing Phase III Crohn's disease trials.

Stan, if you could just very briefly summarize the trial design, the dosing regimen and at what point in enrollment are they just in rough terms of percent completed in both of these trials?

These are both randomized double blind placebo controlled trials in which patients with moderately active Crohn's disease are involved.

The dose is roughly twice what we used in the previous clinical trial in this disease.

So it is not precise but somewhere between 4 and 5 mg/kg.

Each is 150 patients and the end point is clinical remission that is the absence of all symptoms as measured by the Crohn's disease activity index.

You will also be looking at duration of remission.

The dose regimen is the dose that I described IV every other day for a month and then we follow the patients for six months.

The enrollment continues at a pace that we believe will allow us to finish the trials either late this year or early next year and will be able to report the results from at least one trial late this year.

Okay.

Thank you very much and the second question which is broader general in nature on, if you could perhaps describe Affinitak activities, clinical trial activities in addition to the Phase III trials that are being conducted by Lilly that would allow us to estimate the potential of the label use of the drug in the future?

What we have reported in the past is that as a single agent Affinitak has displayed activity in osseous lymphoma, CLL and some smattering of activity in solid tumors.

There are phase II studies being conducted by Lilly with Affinitak in combination of several other cancers other than non-small cell carcinoma of the lung. [Inaudible] studies that one can add Affinitak to various combinations and improve the activity of those combinations without an increase in side effects.

So we think if Affinitak is positive in nonsmall-cell carcinoma of the lung, there will be great excitement about using the drug as a general combinational agent to add to a variety of combinations to enhance their activity in a range of cancers, including breast and the unusual solid tumors of interest.

Okay.

I have one last question here and then I'll get back in the queue.

In the unlikely event that Affinitak is not successful in the current trial and if Lilly decides to discontinue the program, I'm painting a * doomsday scenario here, the construction loan, would it be forgivable or would you have to pay it back?

I will let Lynne answer that question.

The loan is structured, so that we can either repay it at milestones much than the [inaudible] tax) or at other products revenue generated using the manufacturing facility.

So, if we find other users, other partners for whom we can manufacture out of the facility, we will use portion of those proceeds to repay the loan.

Okay.

I think the key point is that the loan is structured to be of minimal risk to us, either Affinitak succeeds and we repay it out of those proceeds or we wait to repay it until we have revenues from the plant.

Okay.

Understood.

Thank you very much.

Thank you.

Our next question comes from the line of Artun Van Holten(ph) with Vertice.

Please go ahead.

Good morning everyone, you can hear me?

Yes.

All right.

Few questions actually, one is regarding the R&D expenses, if you look at the last quarter, they went up year-on-year, if you look quarter-on-quarter, it was down quite a bit from 35.9, I think in the third quarter to about 30 in the fourth quarter.

Was there any specific reasons for this?

Lynne.

Yeah.

Basically it is just normal fluctuations, it also represents the fact that we were looking at meeting our goals for the year, actively looking at costs as we got through towards the end of the year.

It also had to do with the announcement related to our GeneTrove database and cost containments and cost savings associated with the termination of that product.

So, three reasons, one is just quarter-to-quarter fluctuation.

Two is, cost containment and three is actual cost savings associated with the GeneTrove database product termination.

The guidance for the next year as you mentioned in the press release is going to be announced after the Affinitak data?

That's correct.

Okay, just on the equity in the joint venture, is it correct to assume that to go down to zero.

Did that come fully out of the Elan joint ventures over the past year?

Yes, that is correct and so you should anticipate that going away.

Okay.

Then I had a question actually on the oral drugs, the deal with Elan was finished.

Now on any oral drugs that are developed as they [inaudible] royalties due to Elan or what is that situation?

There is a very modest royalty due to Elan on drugs that utilize the technology that they helped us from.

Okay, and then on the something that I didn't quite fully get on the clinical trials, maybe Stan you could answer that.

It's, and so you mentioned the Crohn trial there or the 2302(ph) trial.

Those were the two trials that you said you might report on one.

One, is that trial that was mentioned the 170 patients trial?

No, these are two 150 patient trials in Crohn's.

It is I think, all good news but a little confusing with 250 patient pivotal quality trials in Crohn's and we have 270 patients pivotal quality trials in ulcerative colitis.

The first of that 170 patient trial is enrolling now and the second should be up and running very shortly.

Okay.

And again, it's difficult to predict the, with regards to enrollment, that we are hopeful that we'll have news on both fronts this year.

Okay, right so each of these trial was 85 patients, are all [inaudible] on average?

No.

It was a total amount or is it two times 170 patients trial?

In the ulcerative colitis it's two 170 patient trials.

All right, that's okay, clear.

And in the Crohn's it is two 150 patient trials.

Right.

Just on the 104838, you mentioned about the trial [Inaudible] with results due late 2003.

What you are referring to, just to get this correct, is full Phase II data on RA or is that some sort of interim data that you might be presenting?

No, this is the full analysis of the trial.

The trial is almost nearly fully enrolled now, and it has a of course, a follow-up period, and we will report the data on the one and three months periods as well as follow-up on all those patients, which is 160 patients.

Okay, and [Inaudible] what will you be showing, will you be showing TNF-alpha levels or are these usual ACR measures?

In the, we have one small trial which is a more of a research trial, in which we're looking at the ability of the drug to reduce TNF-alpha levels in blood, and that's similar to what, the way we reported in the initial trial in normal volunteers.

We'll also be looking at drug levels in blood and whatever tissues we can acquire in a little more detail than you can in the larger trial.

The larger trial is fairly traditional rheumatoid arthritis trial with the only exception being that we are only treating three months.

And we are looking at ARC 20 as a primary end point.

Okay, both of those trials where we announced them in the second half of the year?

Yeah, we think so.

Yes, again I can't make precise predictions depending on the enrollment and what meetings we can get into on every thing, but it looks as though we have information from those trials late this year.

Okay.

Great.

Thanks.

Our next question comes from the line of Gilbert Van Gordon(ph) with Prudential Financials.

Please go ahead.

On the Affinitak, we are expecting then still in March, some data or results on the trial and two, should it unfortunately not be too good.

Do I understand you are right that you can use the manufacturing facilities in other ways and that the company can go smoothly on years ago and fortunately at that time you only had one thing really going and you got jolted, but from what I can hear from you the cash position will enable you to end the bigger pipeline to go forward, am I right in those things?

Absolutely, in March, we will announce the Phase III results from the 600 patient combination trial in non-small cell carcinoma of the lung.

Our plan is to provide sufficient information that investors can make and inform judgment about their view of the performance of the drug in their trial, but we want to try to limit the amount of information so that we can present the data in detail and in an appropriate scientific form.

The manufacturing facility is a new strategic asset for the company.

I can't emphasize how important an asset strategically it is.

It has two suites; it's the most modern, sophisticated and largest Antisense drug manufacturing facility in the world.

One suite will make Affinitak, the other suite will make all of our other drugs.

If the trial were to disappoint, then we do not pay the loan back, until we have proceeds from the sale of other drugs made in the facility.

Finally, we are in a strong position.

As I pointed out, we have many clinical programs and development programs in general that will be coming to key milestones.

We'll have strong partnerships, we know the technology works and we have sufficient cash to proceed.

So, we are in a totally different position today with regard to pipeline, knowledge of the technology and the financial resources necessary to continue than we were in say 2000 when we had our disappointment and we will proceed aggressively to continue, but we have set out to do long ago.

Given the lower price of the stock, is there any concern on your part of the companies that others may be looking at you, in a hostile take over.

I am thinking of perhaps California Biotech, which has been renamed The Johnson & Johnson proposal, that was probably friendly, but still it is obvious that [Inaudible] and other companies are looking and have extra cash to add to their pipeline?

It sounds like its a hard question, so I will ask Lynne to answer that one.

Okay.

You know, I think, in this environment with our stock price where it is, the company could look like very attractive acquisition opportunity.

We still believe that key piece of the assets that we have here are human capital.

We have developed, an extraordinary team on the research side, as well as in clinical development and in manufacturing.

So, I would hope that in the context of hospital takeover would be very unlikely because obviously human capital is very much at risk if somebody comes in and wants to work with the company in a way that is not friendly.

We don't like where our stock price is.

It's something that we think about all the time, it's not something we can very much about.

Gil, I think it's important to add that we have no information that would suggest that anyone is considering such action.

Thanks Stan.

Thank you very much.

Our next question comes from the line of Mark Monane with Needham & Company.

Please go ahead.

Thank you.

Good morning.

Good morning.

Couple of quick questions.

Actually not so quick.

The Phase III trials for Affinitak has drawn the imagination and attention of a lot of investors and analyst overall.

Could you go over for us, Stan what body of evidence exist right now that we should use in our decision making process about evaluating the chances for success in the Phase III trial.

Go over, please data that you have already as well information you gained from other trials?

Yes.

Lets begin with the target for Protein Kinase C-alpha.

It is memorable multi-gene family that's been known for many years to be associated with cancer and it's a key(ph) multi-gene family that is regulating multiple pathways.

We studied this family and demonstrated a PKC-alpha appears to be the dominant player of the member of this family involving flit for this disorders.

The second key mode I think is the safety of the drug.

We have shown that we can give this drug at doses that is dramatically higher than we currently are giving up to 31mg/kg without producing dose-limiting toxicity.

In cancer drug, that acted in Phase II place that you may loose it in Phase III the drug to toxicities that will not happen with Affinitak.

We completed a 53 patient carboplatin and paclitaxel Affinitak study, which is precisely the same design as the Phase III study expect that Phase III is larger and randomized.

In that trial, we demonstrated a significant increase in response rate and a median survival of 16 months.

Second, we did another - we did a 55 patient study in the same disease using NSAIDs as the combination.

There again we showed a significant increase in response rate and we did not analyze that study for survival.

We expect improvement, we certainly don't, it would be unrealistic to expect 16 months.

Third, we did our second line studies in which we added the drug to carboplatin -Taxel and patients with non-small cell carcinoma of the lung and there again, we showed evidence of activity.

So in non-small cell carcinoma of the lung, in Phase II trials, we have about 160 patient experience, which demonstrates that we have an active agent and out of the cancer Phase II program that's about the best you can do because you typically don't randomize these patient's who are dying, and to control and treated until you get to Phase III.

Fourth, we have the benefit of two enormous contemporaneous studies that are much better than historical controls.

The first was completed by the NCI, a 1000 patient trial during the time that we enrolled our Phase II program, in that study carboplatin-taxel gave about 8 months and we were able to analyze our 53 patient trial against the characteristics of the NCI trial and we could find no reason for positive bias in our trial that is the patients appeared to be comparable.

Second, in the last year, the ERISA trials finished, these trials where enrolled contemporaneously with our Affinitak Phase III trial and there again with taxel in the ERISA trial demonstrated in all about an eight and a half month medium survival in these patients and we think that for a variety of reasons we've probably gotten sicken patients in our trial.

Until one would expect about eight months from carboplatin-taxel based on 2000 patients done at the same time.

Finally, the study design is a straight forward simple study in which we are treating first line patients that are less heterogeneous and previously treated patients and we are evaluating with an absolute bright line and a light that is death, so we are looking for an improvement in survival, so we had a target that's good, we have a Phase II predicate which demonstrates that Affinitak has activity.

We have additional information that Affinitak has single agent combinational activity, we have contemporaneous trial to our Phase II and Phase III program that demonstrate that carboplatin-taxel should give us about eight months of immediate survival, we don't believe that the drug will be lost because of safety considerations in Phase III and we have a well designed, well powered study which will give us a definitive answer, that provide a summary remark?

That's very helpful.

What about the other trials that are being done in cancer at the same time, can we learn anything about those trials?

The various route to trials, the other trials in lung cancer that are going on?

Is there any evidence or extrapolations we can gleam that help us evaluate the current trial?

I am not sure I understand the question Mark.

I guess, has the overall survival in lung cancer changed since the time that you started your studies?

Do you still think that the control group that you are using is a good one and is there anything we have learned from the ERISA trials or other trials that tell us about the assurances of success in lung cancer?

No, I think all of the trials, the NCI and the ERISA trials demonstrate clearly that folks with this disease actually get a standard population with carboplatin-axel have an expectation of a medium survival of eight months and that hasn't changed and that's one of the values of where we are is that we do have these contemporaneous studies in fact that was one factor in picking non-small cell carcinoma of the lung as a target disease because we knew that the NCI trial was in progress, so I think we can expect eight months or thereabouts out of carboplatin-taxel after all we have 2000 plus patients in the last two years reported in this disease and our sample will be 300, so it's conceivable that we will have a sample difference but it's certainly isn't likely.

I think beyond that, I think the ERISA trial teaches not very much, it doesn't really teach anything about how difficult non-small cell carcinoma of the lung is to treat.

All diseases are difficult to treat, until you have a good drug.

Good point.

Thanks very much for the clarification.

Thank you.

Our next question comes from the line of Skip Klein with Boss Capital .

Please go ahead.

Good morning.

It looks like the enrollment has picked up for the Alicaforsen trials, is that correct and I guess why is it picking up?

We are finishing enrollment in the trials and enrollment in the US trial has been slower than we would like, largely because of loss of competition for those patients and the European trial has actually enrolled better for exactly the same reason, less competition for those patients because Medicaid is less available.

So, we are pleased that enrollment has proceeded in a better way and that is I think largely thanks to just a fairly strong effort to get enrollment, just all the things that you do to improve enrollment.

The second question would be around intellectual property, has there been any intellectual property issued to Isis or other around RNAi?

Yes.

RNAi is just antisense.

There is a lot of confusion about that but actually all it boils down to drug delivery vehicle of a double strand RNA which is unwound in the cells and then binds, there is an antisense strand to as a target RNA and then recruits enzymes that are double strand RNases.

I there was an author on the paper in 1998 in which we looked at stabilized single-strand RNA model tools as recruiters of double-strand RNases in fact a patent has issued this with regard to that.

We have also taken a license to a patent application that we think is very early patent application and we believe that anyone working in RNAi as a potential therapeutic opportunity will undoubtedly need to talk to us about various chemical modifications required.

This will be in a very active area of investigation in the coming years.

I think, it is exciting and we do think we have a very strong position in it.

What is the program cost of antisense drugs made in your two suites?

I am sorry, I didn't understand the question.

Just the cost of manufacturing in your two drug suites in the new facility, roughly on a per gram or per kilogram basis?

I think, probably the best answer is to think about it at scale and we still are on the track to be well under a $100 a gram at scale.

Still under a $100 a gram and Lynne, of course, is responsible directly for that.

So, Lynne do you want to correct that.

Nope.

I wouldn't add anything to that.

So, to follow that progress, we should look at the proxy and the bonuses paid to Lynne. [Laughter]

Well, as you know, Lynne does a lot of things, so her bonus reflects her omnibus behavior.

What is the status of the Elan preferred in common share ownership, do they still own the BA and the B preferred in the common shares or they have been moved to some other pockets?

The Elan A was converted [Inaudible] I think you probably know that, the B is still outstanding and they continued to hold that.

How much would is the B Lynne?

The [Inaudible] B preferred stock is 885,856 shares on an as converted basis.

And they are still are some common?

Yeah, they still hold a little over 400,000 shares of common.

Okay.

And a couple of just real quick questions.

Will there be any Ibis Jeeps with [Inaudible] deployed in Kuwait or Turkey to detect chemical weapons, I realize these may be prototypes?

We can't comment on any questions at this point about the Ibis detector.

I am sorry.

Okay.

You can understand the limits about what we can say about that.

And then you talked about the importance of a meaningful difference in terms of filing the NDA based the Affinitak Phase III.

What is a meaningful difference in your mind in terms of months?

The study is powered to detect a 30 percent improvement in survival.

And if you look at this disease it hasn't had a significant improvement in more than a decade.

The failure of ERISA is good news for Affinitak in my view because it heightens the need for improved therapy.

So I think anything in that range, well that would depend on what the control is, but anything in that range would constitute a new, it would constitute a change in care and would be supported with the drug being approved with the single study MDA.

Okay and then finally, I guess sort of based on your genotype and then you have seen the typical behavior you have displayed throughout your life, you appear to be a betting man that takes calculated bets.

And I am just curious what in your mind is the chance of success of Affinitak in the Phase III trial, you know, on a percentage basis?

[Laughter] Let us see.

First of all I wasn't that you had.

One in five?

Acquired some DNA from me and genotyped me.

Oh, God!

Kevin [Inaudible] me a CD-ROM that he swore was [Inaudible] and I have looked at it and compared it to Jimmy the Greek and there is fair amount of pharmology to Jimmy the Greek.

You are a betting man and you must have some sense of what kind of bet you are taking here.

And so is it one in five, one in two, you know, the PMA data would tell you it's a certain percentage, do you change the PMA data in your favor or you say no its not small cell lung cancer so its less likely than the PMA data with study for cancer drugs?

I think first, any Phase III trial has risk and the cancer Phase III trial has a bit more risk.

But overall based on everything I know I am cautiously optimistic about this Phase III trial and I think that the odds are on our side very strongly.

Well, good luck.

God bless.

Thanks.

Ladies and gentlemen, as a reminder, to register for a question, please press the one followed by the four.

Our next question comes from the line of James Wolburt with Globe Partners.

Please go ahead.

Stan, given the solid evidence that you once again explained to us about the medium survival time being about eight months with carboplatin taxel.

Is there any other way, and given the length of time your Phase III has gone on beyond that eight months, is there any other way of explaining the length of your Phase III trial except to draw the tentative conclusion that Affinitak positively improves the survival of the patient?

I think all of us want to handicap this trial Jim.

And the sad fact is we have to wait for the data.

But I enumerated lots of factors that make me optimistic and you just discussed a perspective which could be construed as another encouragement to be optimistic, I think that's all I can say about it.

Fair enough.

Thank you.

Our next question comes from the line of Darren Mac with Fulcrum Global Partners.

Please go ahead.

Hi, guys.

Following up on the attempt to handicap the Affinitak trial.

Can you quantify for us, the enrollment in the Lilly trial?

Are all the sites up in running there, currently?

I can't give you precise information about the Lilly trial, because I don't know it.

What I can say is that the enrollment has been extremely brisk.

Lilly seems to be doing a wonderful job of enrolling the study and there are sites all around the world that are up in running.

I know that the trial is well over half enrolled already.

That's about to most detail I can provide right now, this is all I know.

Is there any way of looking at the normalized phase of enrollment, over the number of trial sites in the past couple of months as Doctors get experience with the Paclitaxel and carboplatin; experiencing their patients if we have seen an increase in the phase of enrollment in that other trial would that possibly point to the fact of them satisfied with the therapy?

I think that's a route that I don't want to travel because there are so many factors that can influence enrollment.

For example, the rest is no longer competing.

So, Lilly is doing a very good job in enrolling their trial.

What I am willing to say is that the trial is enrolling really very briskly that the enrollment is well over half and that overall the response to the drug in the clinic remains very positive from all of the experience that we have.

Of course, we have many testimonials and what not about the drug, but I think it dangers to put stock in such bank - I think you just have to wait for the analysis of the data.

Okay, thank you.

Our next question comes from the line of Douglas Adams from Davenport & Company.

Good morning, Stan.

Good morning, Doug.

Question about the oral development, if you could give me some more expansion on your development plans for what the oral sense, antisense drug, and how fast are you going to move those in the clinical trials, additional indication?

Yes, I'll do that, what we are doing right now is we are repeating the results that we got in our last trial and we are beginning to look at divided dose.

One of the questions that comes from that trial, is could we improve even more the by the viability and patients acceptance, by giving the divided dose twice a day or something like that.

In addition, to that we will be look at some minor variations in the formulation and more automated manufacturing of the formulation, because there was a research study in which drug were sort of still were put together by hand.

So, that's what we are doing right now.

That is all designed to be finished about the time that we have the phase II sub-q data from 104838.

Once we have those data and the oral information we will make decisions about how aggressively we want to pursue the oral versus sub-q One of the test that we have this year is we are going to be looking at the oral opportunity with regard to all indications, because not just TNF-alpha in rheumatoid arthritis; you can imagine TNF-alpha in Crohn's and ulcerative colitis and other diseases, psoriasis.

You can imagine a diabetes drug PDB-1B and perhaps most exciting would be our cholesterol lowering drug ApoB-100 which is progressing nicely.

So this year is a year of refinement, we are going to get a more precise notion of how we want to manufacture these drugs, the formulations.

How we want to administer them, on a day-to-day basis and then refine our development strategy for oral based on that information plus the information from sub-q performance of TNF-alpha and sub-q performance of our PDB-1B inhibitor.

Thank you.

Thanks.

Our next question comes from the line of Jonathan Ashcoff with First New York.

Please go ahead.

[Audio break] they are receiving only Chemo in your Affinitak Phase III lung cancer trials?

I am sorry, John I could not hear the first part of your question.

Can you remind us of the median expected survival time for those treatment naive, the control patients that are receiving only chemo in your Affinitak Phase III lung cancer trials?

Eight months.

Now wasn't that the same time as a stage 3B4 patients that were in the Phase II segment of that trial?

They are exactly the same patients.

These are chemo naive, you don't get treated with chemotherapy in this disease.

At diagnosis, most patient's have disseminated disease and the patient's who are enrolled in the Phase II program were stage 3B4.

The patients were enrolled in the Phase III program are recently diagnosed stage 3B4 patients.

And the patients that were enrolled in the MCI trial, which gave eight months of survival were stage 3B4 newly diagnosed chemo naive patients as where the patients in the rest of trial.

So all of these patients were exactly the same.

Thanks a lot.

Okay.

Our next question comes from the line Joan Marshall with CCL Partners.

Please go ahead.

Hi.

Good morning.

I just had a quick question for Lynne.

In the press release, there is a list of the primary components of the companies liability and I guess if you add this up you come to about 229m and then if you look at the balance sheet portion of the press release, liabilities are bit higher and I am just wondering what accounts besides the long-term deferred revenue.

What accounts for the difference there?

It's primarily long-term deferred revenue.

You got it exactly right.

Okay.

So that's primarily - there is a deferred another 10m or so?

Yes.

That's the primary difference and the other10m is just the ordinary corporate debt some of its short-term, some of its long-term.

Facilities and equipment financing.

Okay.

Thank you very much.

Thank you.

Next question please.

Our next question comes from the line of Elemer Piros with Rodman.

Please go ahead.

Yes.

Going back to the colitis trial.

What would be the difference between the first and the second 160 or 170 patient trials?

These trials are basically just larger and we are treating [Inaudible] is used either four weeks or six weeks.

In the first trial we did four weeks.

In this trial we are doing six weeks of dosing them, to allowing the best chance that we can work and we are comparing our drug to that active agent, and so we're treating for six weeks at the top dose that we used in previous trial and we are comparing to an active reference agent that's of course, accepted therapy for the disease.

But the two 170-patient trials would be identical?

Yeah.

Mark [Inaudible] isn't here, he's the architect of those trials.

So I'm going to be careful, but as I recall they're identical.

Lynne may remember better.

I think, they're identical as well, certainly they are.

One in the US and one in Europe.

So, the key difference, six weeks and compared to an active agent of course, both are randomized, double-blind, placebo-controlled trials, both are using disease activity index as a scoring system, and in both studies we're following the patients for six months and longer to look at duration of effect as well.

Okay, couple of questions to Lynne.

Lynne, the G&A expenses reported and in they're reflecting obviously the restructuring activities at around $1.6m for the quarter.

Could we expand that into 2003?

Yes, we aren't anticipating significant increases in G&A.

We're not anticipating significant increases in G&A.

Okay, thanks very much.

And I understand that you will provide more detailed guidance for 2003, but if you could just perhaps provide a range for anticipated cash burn for the year in both scenarios perhaps, comparing it to the $96m or there abouts that you burned in 2002?

I'm sorry, we can't do that.

Okay, so we'll just have to wait until March.

March is coming pretty soon.

Yes, thank you very much.

I'm showing no further questions; please continue with the presentation or any closing remarks.

If there are no other questions, we very much appreciate all the interest and we look forward to keeping updated on our progress.

It's going to be another exciting year for us.

Thanks very much.

Ladies and gentlemen, that does conclude the conference call for today, we thank you for your participation, and ask that you please disconnect your line.