Ionis Pharmaceuticals Inc (IONS) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome up to the ISIS Pharmaceuticals second-quarter 2003 financial conference call.

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

Afterwards, we will conduct a question that the 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, Aug. 5th, 2003.

I would now like to turn the conference over to Dr. Stanley Crooke -- Chairman and CEO of ISIS Pharmaceuticals.

Please go ahead, sir.

Thanks Sandy and thanks, everyone, for joining us on the conference call today as we discuss our results from the second quarter of 2003.

Participating with me today Lynne Parshall, Executive Vice President and CFO, Beth Halgan Vice President of Finance, John Holmlund, Vice President of Development and Karen Lundstedt, Vice President of Corporate Communications.

Lynne is actually joining us from vacation in hinterlands and so in order to avoid technical difficulties with phone lines Beth will discuss our financial results as we described in the press release today.

I will then review highlights from the past quarter and describe the key upcoming clinical events and of course Lynne, Beth, John and I will be happy to answer your questions at the conclusion of our prepared remarks.

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 (indiscernible) partner pipeline, the therapeutic and commercial potential compounds developed by the company and potential value of the company's technology platform.

Any statements describing the goals, expectations, intention or belief of the company is a forward looking statement and should be considered an at risk statement (indiscernible) described as Isis's clinical goal.

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 human therapeutics (indiscernible) 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 Isis's annual report on form 10-K for the year ended December 31st, 2002, which is on file with the U.S.

Securities and Exchange Commission.

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

Now I'll (indiscernible)

Thank you -- my comments will be based on today's press release.

I'll discuss the following financial aspects of the quarter, revenue, operating expenses, net operating loss and strong balance sheet.

Total revenue for the three- and six-month ended June 30, 2003 was $15 and $29 million respectively compared to $20.1 million and $38 million for the same period of 2002.

The decrease in revenue is primarily due to the reduced clinical development activity (indiscernible) conclusion of Alon (ph) Corporation's participation (indiscernible) collaboration.

As a result the conclusion of these collaborations (indiscernible) we acquire rights last year of two very promising programs in clinical developments -- ISIS 14803 for Hepatitis B and the oral formulation of Isis 104838.

We will no longer earn revenue from these concluded collaborations.

We continue to benefit from numerous (indiscernible) of revenue such as drug discovery collaboration, functional (indiscernible) relationships, licensing and intellectual property and government contracts.

Most notably in the second-quarter, we generated $1.5 million in revenue from (indiscernible) through the achievement of a development milestone for the anticancer anti-sense drug, Isis 23722.

This drug's targets survivin -- a promising high-profile target cancer research.

We will continue to exploit our business model of diversified revenue sources to reduce risk and to offset our cash needs.

Operating expenses on a pro forma basis totaled $32.6 million and $65.5 million for the three- and six-months ended June 30, 2003, respectively.

Please refer to the (indiscernible) for our 8K for a detailed comparison of our operating expenses and net operating loss result on the basis of the generally accepted accounting principles and our pro forma analysis.

These documents are available on our web site at www.Isispharm.com.

Our second quarter expenses were lower compared to the same period in 2002 and compared to those in the first quarter of 2003 (indiscernible) primarily the cost-cutting activities that we described in April.

The expenses for the first half of 2003 were higher than in the same period last year, primarily due to the company's continued investments in its pipeline of products and the full implementation research collaboration with Lilly.

On a GAAP basis, net loss from operations was $19.5 million and $38.4 million for the three- and six-month ended June 30th respectively -- compared to $12.3 million and $22.1 million for the same periods in the previous year.

On a pro forma basis, excluding restructuring charges, our non-GAAP (ph) compensation expenses (indiscernible) company loss of operations were $17.6 million and $36.5 million for three and six-month ended June 30, 2003, compared to $13.9 million and $25.2 million for the same period in the previous year.

Our second-quarter operating loss is in line with our financial guidance for the year which we stated as a net operating loss in the mid $70 million range excluding restructuring charges in non-cash compensation and expenses.

We continue to maintain a strong balance sheet, with a healthy cash balance and favorable structured debt.

We ended the second-quarter of 2003 with a balance of $255.9 million in cash and (indiscernible) investments.

We reported working capital $216.7 million for the period.

With reasonable assumptions for new sources of revenue and cash we believe we have resources to fund our activities for more than three years.

We improved our balance sheet and secured valuable strategic (indiscernible) during the quarter with the renegotiation of our manufacturing agreement with Lilly.

In our resulting agreement, we will waive repayment of the $21 million manufacturing loan it provided us to build our second manufacturing suite.

Additionally we are free to use the facility to manufacture other drugs which will enable us to maximize the value of the facility.

The forgiveness of $21 million in long-term debt is a clear benefit to the company.

Overall our debt is structured in a very favorable manner.

Our long-term debt is composed primarily of publicly traded convertible debt and partner debt that we can repay on favorable terms with equity if we choose.

We have 125 million in convertible of 5.5 percent notes that convert at $16.63 cents due in 2009.

All of our partner debt is convertible debt that converts at our option.

The majority of our current partner debt -- about $61 million -- is associated with (indiscernible) collaboration with Lilly and is repayable at our option with either cash or with stock at $40 per share -- clearly, this is favorably structured debt.

We are pleased that we have the resources and financial structures to continue to invest aggressively in the development of our large pipeline of products and in our RNA based technology.

Stan, I will turn it to back to you.

(indiscernible) rest of the conversation.

Of course we're going to continue to use our financial strength to develop and commercialize (indiscernible) develop the technology.

We've made good progress toward that goal in the second-quarter and are approaching important milestones in the coming quarters.

I will just briefly highlight some of the steps in the past quarter and summarize the upcoming milestones for the company.

In clinical development we continued to report encouraging data from Phase III trials of antisense drugs and initiated several additional studies to advance our program.

At ASCO in June, we presented results from two Phase II studies of the anticancer drug ISIS 2503, a ras inhibitor, in combination with chemotherapy in patients with pancreatic and breast cancers.

We plan to define the development plans for ISIS 2503, after we learn the results of some of these other late stage compounds that are in progress in the treatment of pancreatic cancer.

And we of course will seek a partner (ph) for the drug.

Additionally at ASCO (indiscernible) investigator presented an overview of the previously reported findings of the Phase III Affinitak trial.

At the Digestive Disease Week or DDW meeting we reported compelling results from the Phase II study of (indiscernible ) 2302, and a small number patients with pouchitis, a form of ulcerative colitis which has no satisfactory treatment available.

These data reinforce previous clinical evidence of activity (indiscernible) Alocarforsen in inflammatory bowel diseases such as Crohn's and ulcerative colitis and we continue to be optimistic about the therapeutic potential of Alocarforsen in inflammatory bowel diseases.

We advanced the clinical development of Alocarforsen in ulcerative colitis with the initiation of another Phase II trial.

This 100 patient trial will compare the safety and efficacy of different dosing regiments of the (indiscernible) formulation of Alocarforsen to placebo.

We also initiated a study to evaluate the benefit of adding Isis 14803 to standard treatments for Hepatitis C virus in patients that have failed initial treatment with pegylated interferon and ribavirin.

This is a group of patients with no treatment alternatives and represents a sizable potential market for this drug.

Results of the trial will shape the development program for Isis 14803.

We're very pleased with the initiation of the Phase I study by ISIS 11375 (indiscernible) diabetes.

PTP-1B is an exciting target for this disease.

And of course the disease has reached systemic status in the U.S..

In preclinical studies ISIS 11375 normalizes glucose in multiple models with Type II diabetes.

It did so without any hypoglycemia or weight gain.

We also initiated a second Phase II trial before the end of the year for the drug and with (indiscernible) ISIS 113715 on glucose management in human beings with (indiscernible) as they develop.

We've also made great progress in our Eli Lilly drug discovery collaboration.

We achieved a milestone with the development Isis 23722.

This drug is the first drug to come from the partnership and to be selected fir clinical development by Lilly.

That decision resulted in a $1.5 million payment to Isis.

ISIS 23722 (indiscernible) survivin.

This target allows innovation of this target allows survival of cells that would normally undergo programmed cell death such as cancer cells.

-- Sorry -- when it's present it allows that and we inhibit it, of course it prevents it.

Survivin is a particularly exciting product because it is predominantly expressed in cancer cells, very rarely in normal cells.

Lily continues to move Isis 23722 towards clinic and our discovery collaboration overall continues to make very good progress on all fronts.

Focused on advancing (indiscernible) drug for cardiovascular diseases, ISIS 301012 toward the clinic.

This drug targets (indiscernible) 100 -- a target of great interest and a challenging target to develop drugs to small molecules.

It has lowered LVL in key animal models with hypoglycemia and we're looking forward to continuing to update as this drug progresses towards the clinic.

In (indiscernible) research and drug discovery, we recently initiated collaborations to further leverage the breadth of (indiscernible) technology and of course our position in it.

We are now working to identify anti-sense drug candidates, targeting corona virus associated with severe acute respiratory syndrome or SARS.

There is a logical place for our program to travel because (indiscernible) is efficient and (indiscernible) drugs can be easily formulated for aerosol as well as final delivery, allowing for rapid advancements of drugs to the clinic.

These strengths were recognized by our partner which is Eni which is the industrial and technology research of the Institute of Taiwan and we will look forward to bring our (indiscernible) expertise to bear on this recent health threat.

A very exciting new frontier for (indiscernible) technology is the area of regulating a type of -- a process upon a metabolism called alternative splicing.

Scientific community is coming to appreciate the splicing (indiscernible) and is likely to be responsible for much more of our protein diversity and explains in part how we have hundreds of thousands of proteins from 30 to 40,000 genes.

On average a single human RNA has approximately 3 to 6 alternative (indiscernible) -- each of which becomes a mature (indiscernible) used to produce often very diverse proteins.

Because slicing occurs at the RNA level and (indiscernible) influence this event.

In fact (indiscernible) drugs were working by altering the slicing mechanism (technical difficulty) activate or inhabit the production of targeted protein products, combining our alternative splicing expertise with that of our partner (indiscernible) BioTech to discover antisense drugs that regulate alternative (indiscernible) splicing.

We've in fact been involved in this for sometime and have reported positive results with a number of molecules. (indiscernible) has licensed our VCLX molecules as a lead compound.

Together we will leverage Isis's antisense technology our chemistry in particular to make drugs work through this mechanism which is really unapproachable to all other (indiscernible).

Over the next 12 to 18 months, we have an extensive lineup of clinical events.

Our near term events include the following: we plan to report results of two Phase II trials in Isis 104838 in rheumatoid arthritis in the second half of 2003.

We will report the results of the first study which is a biomarket trial at the American College of Rheumatology meeting and in this trial we will measure a reduction of (indiscernible) levels in tissue and in blood.

That includes (indiscernible) in patients who are treated with Isis 104838.

We're also completing the 160 patient Phase II efficacy and safety trial and we plan to report the results of that trial by the end of the year.

In the second half, also, we will continue to make progress on the development of Isis 113715, the first of our drugs to treat Type II diabetes.

We plan to report the results of Phase I trial on this drug and to initiate the first Phase II trial in (indiscernible) with Type II diabetes.

We also plan to advance at least one additional preclinical drug into Phase I trial.

We believe that our partner (indiscernible) will soon initiate Phase I trial on ISIS 107248 (indiscernible) (indiscernible) that will be studied in inflammatory diseases such as multiple myeoloma and -- I am sorry, multiple sclerosis.

We are continuing to execute our strategy in exploiting the RNA based technology as well.

We are steadily advancing the development of multiple products across a broad range of therapeutic areas and we believe this provides us with multiple short time goals as we pursued the commercialization of antisense drugs.

We are focused on making our partnership successful, particularly our most significant -- Lilly and Amigen.

And these partnerships I am pleased to tell you are progressing quite well.

We are also advancing the diagnostic and therapeutic opportunities of IBIS to a very large extent with the support of government funding and we are continuing to leverage our intellectual properties position throughout the RNA world.

We appreciate the support and interest in Isis as we work to accomplish these goals and we of course look forward to updating you on our progress and now Lynne, Beth, John, and I will be pleased to answer any questions that you have.

Sandy can you review the procedure, please?

Yes, thank you.

Ladies and gentlemen, if you would like to register a question please press the 1 followed by the 4 on your telephone.

You'll hear a three-tone prompt to acknowledge your request.

If your question has been answered and you would like to withdraw your registration, 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 the first question.

Once again, ladies and gentlemen, if you would like to ask a question (CALLER INSTRUCTIONS).

Russell Gilbertson (ph) with Ross Capital Partners.

Good morning.

My question is in regard to the diagnostics you are doing with the federal government and I am just curious about the details of what you're actually exploring there and what amount of funding is being provided?

Let me answer the second question first.

I think in total we've reported more than -- around $20 million or so from the federal government for this program.

And that funding continues.

And the funding for the diagnostic program relates to a new method that we developed that's based on very high resolution aspect (indiscernible) and has been reported to be effective at identifying a variety of infectious disease organisms.

That includes both viruses and bacteria.

And what's exciting about it is it allows one to identify infectious disease organisms without knowing what you're looking for and without culturing and to do that very rapidly and highly precisely.

And is there a time frame in terms of the length of this arrangement or -- ?

The program is progressing very rapidly.

We've demonstrated proof of concept with regard to both viruses and bacteria and are progressing with the work that we're doing with the government which relates to (indiscernible) and I'm afraid that is about all I can say about the program for a variety of, I suppose, very obvious reasons.

We're very excited about it, it is really nifty stuff.

Qwe (ph) Shah from (indiscernible) Partners.

Good morning Stan. (indiscernible).

I have two questions the first question -- when are you expecting to complete the start date for the (indiscernible).

The second question is, can you elaborate a little bit more about the milestone called Isis 104838?

Yes.

The first question is the second trial that is in progress on Affinitak is, of course, managed by Eli Lilly.

And so, we're not in control of that trial.

What we're told by our partners is that they expect to analyze that trial somewhere in the middle part of 2004.

Now, the second is that as you know, we have a very large insurance collaboration with Eli Lilly and that research collaboration focuses on a number of areas including metabolic disease, inflammatory disease, bone disease and cancer.

The first product opportunity to come from that collaboration is the drug that inhibits survivin, which is the cancer target.

Drugs that achieve a decision to progress to clinical trials achieve their first milestone in this collaboration and those milestones are $1.5 million milestone for (indiscernible) million.

What it reflects is a decision that this drug merits rapid development to clinical trials and so it's an important step in the collaboration.

And we believe it's just the first of a good many drugs that will come from the collaboration.

Lynne, do you want to add or subtract anything from that?

No.

Ladies and gentlemen, as a reminder to register for a question (CALLER INSTRUCTIONS).

There are no further questions at this time.

I will turn the call back to you.

Please continue with your presentation or closing remarks.

Since there are no additional questions, we appreciate your attention and we will be talking with you again in the near future, I'm sure.

Thank you 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 lines.

(CONFERENCE CALL CONCLUDED)