Ionis Pharmaceuticals Inc (IONS) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Isis Pharmaceuticals' third-quarter financial results conference call.

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

Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded Tuesday the fourth of November, 2003.

I would now like to turn the conference over to Dr. Stanley Crooke.

Thank you, and thanks, everyone for joining us on today's conference call to discuss the financial results for the third quarter 2003.

Joining me today are Lynne Parshall, Executive Vice President and CFO, Beth Halgan (ph), Vice President of Finance, Jon Holmlund, Vice President Development, and Karen Lundstedt, Vice President of Corporate Communications.

This morning, Lynne will discuss our financial results as described in the press release issued today, and then I will review the highlights for the past quarter and describe our clinical events as well.

Lynne, Beth, John and I will of course be happy to answer your questions at the conclusion of our prepared remarks.

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

This conference call includes forward-looking statements concerning the financial position of Isis Pharmaceuticals, the development plans for the products in our pipeline, the therapeutic and commercial potential of compounds developed by the Company, and the potential value of the Company's research programs and technology platforms.

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 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're 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 for the year ended December 31, 2002, and Form 10-Q for the period ended June 30, 2003, which are on file with the U.S.

Securities and Exchange Commission, copies of which are available from the Company.

Now to you, Stan.

Actually to Lynne.

Thanks, Karen.

My comments today are going to be based on today's press release.

I'll discuss the following financial aspects of the quarter -- revenue, operating expense, then operating loss and our strong balance sheet.

Total revenue for the three and nine months ended September 30th, 2003 was 11.3 million and $40.3 million, respectively, compared to 20.3 million and 58.3 million for the same periods in 2002.

The decrease in revenue reflects the reduction in revenue from Lilly for the clinical developing of Affinitak and the conclusion of our two collaborations with Elan HepaSense and OraSense.

As you will recall, when we concluded these two collaborations last year, we reacquired rights to the two programs they involved, ISIS 14803 for hepatitis C, and the oral formulation of ISIS 104838, our TNF-alpha inhibitor.

We continue to have numerous other sources of revenue, such as our drug discovery collaborations with Amgen and Lilly, intellectual property licensing, government contracts, and functional genomics relationships.

We've announced several important achievements recently that generate revenue -- the achievement of a milestone in our Lilly collaboration for an anticancer antisense drug that targets survivin.

The SARS collaboration with ITRI of Taiwan; the expansion of our OncoGenex collaboration to include another exciting cancer program; a grant from the Centers for Disease Control to fund the application of our TIGER technology for infectious disease surveillance; and just yesterday, the grant from the Singapore Economic Development Board to advance our research in micro-RNA's and SARS.

We have been very successful in carrying out our business model of diversified revenue sources to reduce risk and to offset our cash needs, and we plan to continue to do so.

Operating expenses on a pro forma basis totaled $29.6 million and $95.1 million for the three and nine months ended September 30th, 2003, down from 37.7 million and 100.9 million for the same periods in 2002.

Please refer to the table in our financial press release for a detailed comparison of our operating expenses and operating loss results, on the basis of both generally accepted accounting principals or GAAP and our pro forma analysis.

These documents are also available on our Web site at www.ISISPHARM.com.

The expenses for the third quarter of 2003 were lower than in the same period last year because our development activities for Affinitak were substantially less compared to the same period last year, and because of expense reduction measures implemented in 2003, offset in part by increased clinical development expenses for many of our other products.

We continue to aggressively advance (ph) in the development of our large pipeline of products, and the full implementation of our research collaborations with our partners, such as Lilly and Amgen.

On a GAAP basis, net loss from operations was 19.1 million and 57.5 million for the three and nine months ended September 30th, 2003, respectively, compared to $17.5 million and $39.6 million for the same period of the previous year.

On a pro forma basis, excluding restructuring charges and non-cash compensation expense or benefit, our loss from operations was $18.3 million and $54.8 million for the three and nine months ended September 30, 2003, respectively, compared to $17.4 million and $42.6 million for the same period for the previous year.

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

We are on track to meet our NOL target.

Our balance sheet continues to be strong.

We ended the third quarter 2003 with a cash balance of $234.8 million in cash and short-term investments.

We (indiscernible) working capital of $195.6 million for the same period.

We believe these resources, with reasonable assumptions for new sources of revenue and cash, are adequate to fund our activities for more than three years.

Using our strong financial position, we plan to continue to aggressively advance the development of our products, and our RNA-based technologies, to bring new therapies and diagnostics to patients.

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

Thanks, Lynne.

I think our financial results demonstrate that we are in a good position to reach the milestones that we are striving to achieve, and that can create value for the Company.

We are applying our resources, of course, to advance the pipeline and the technology, as demonstrated by the recent accomplishments in clinical development and in the technologies, as well as relationships that demonstrate the value of the technologies in progress.

Let me just review some of these highlights for you, and to review some of the upcoming milestones.

First, the clinical highlights.

Over the past several weeks, we have provided progress reports on the clinical development of several of our drugs.

We've presented updated and finalative (ph) four antisense drugs for four diseases, at several scientific meetings.

And last week, in a conference call, we summarized these data in some detail as well as provided some overall strategic commentary about what all those results mean.

So what I will do this morning is just walk through the very, very topline conclusions from each of those presentations.

We have added clinical data that confirm the activities of two first generation antisense drugs, alicaforsen is a drug that targets an inflammatory molecule called ICAM-1; and a Phase II trial of alicaforsen imminent (ph) in patients with chronic, unremitting palchitis (ph); and inflammatory bowel disease related to ulcerative colitis.

We reported statistically significant and clinically significant improvement in disease symptoms, as measured by the palchitis disease activity index.

Based on endoscopy, the enema produced a significant improvement in the physical signs of inflammation, and produced disease remissions that lasted up to nine months, which is a rare event in this severe disease.

These data are consistent with our earlier observations in ulcerative colitis, and are supportive of the activity of alicaforsen in inflammatory bowel disease.

And the other first generation antisense inhibitor, ISIS 14803, is an inhibitor of the hepatitis C virus.

In a single agent Phase II trial, ISIS 14803 decreased viral levels in a dose-dependent fashion in patients who had failed previous therapy with ribavirin and interferon.

With the 6 margins per kg dose of ISIS 14803 administered twice a week, five of 17 patients experienced reductions in viral levels ranging from 1 to 3.8 logs (ph).

Three of these patients experienced greater than the 3 log reduction in viral titer.

We are now studying ISIS 14803 in combination with pegylated interferon and ribavirin in patients who are initially unresponsive to these treatments.

We're hopeful that ISIS 14803 could be approved to be a new therapy for Type I genotype; these are refractory patients, and patients who are resistance to current treatment.

We've also reported initial data supporting the value of our most advanced second generation antisense drug, ISIS 104838, in rheumatoid arthritis and ISIS 113715 in Type II diabetes.

With ISIS 104838, we target TNF-alpha messenger RNA.

In a Phase II study, ISIS 104838 accumulated in the joints of patients with rheumatoid arthritis in the sinovium (ph); and the amount of drug in that tissue correlated with dose.

We also saw a reduction of TNF-alpha messenger RNA levels in the sinovium, and they were correlated with drug concentration in the sinovium and dose.

Additionally, we observed a suggestion of activity in terms of both swollen and tender joint counts, and persistence of joint count improvement.

We believe that ISIS 104838 will have an attractive, competitive profile in rheumatoid arthritis.

And over the next few months, we will be learning a lot more about dose and schedule for this drug, when we report the results of the three-month Phase II study of ISIS 104838 in 160 patients with rheumatoid arthritis.

Now, another very exciting, second generation antisense drug is ISIS 113715 for Type II diabetes.

We just completed a Phase I study with this drug in normal volunteers, and reported that ISIS 113715 increased insulin sensitivity in these normal volunteers.

We did this using a glucose tolerance test that measures the amount of insulin required to normalize glucose levels, extra (ph) glucose challenge.

And we observed in all the subjects who received the doses of ISIS 113715 that we studied, secreted less insulin to normalize their glucose.

Insulin sensitivity was unchanged in placebo-treated volunteers.

And subjects treated with ISIS 113715 did not experience hypoglycemia or excessively low blood sugar, which is an adverse affect observed with many currently available treatments for this disease.

This first evidence of activity in normal volunteers is consistent with results of animal studies, and heightens our enthusiasm about the potential for this drug in what is an epidemic.

We are just now initiating Phase II trial in patients with diabetes, and we do anticipate reporting data from this program in 2004.

Both of these early studies with second generation antisense drugs demonstrate pharmacological effects in man (ph), using markers with clear, measurable endpoints, and they add to the already large body of evidence that says that antisense drugs work in man as they work in animals.

We are pleased with our progress in the clinical programs.

Of course, we're going to continue to aggressively advance the development of many drugs in our pipeline over the next year.

Now, let me just summarize some of the recent business activity.

Each of these recent highlights that I'll describe represents the implementation of our strategy, which includes span the potential of our technology and the commercial upside by leveraging partner resources.

In this way, we build assets in a less expensive, less risky manner.

Earlier in the third quarter, we expanded our drug discovery partnership with OncoGenex, to include the development and discovery of a second generation antisense anticancer drug, OncoGenex 225.

This drug is particularly unique in that it is designed to inhibit the production of two related proteins simultaneously. 225 targets two molecules involved in the development of metastatic disease in hormone-regulated tumors, such as prostrate and breast cancers, and is in late-stage research.

Under the umbrella of our Ibis program, we received a three-year grant for up to $6 million from the CDC.

With this grant, we will apply our TIGER diagnostic technology to the surveillance of human and animal infectious disease.

That is, we are preparing for the deployment of the technology that we have been developing for the last several years with DARPA funding.

TIGER was a new platform for the detection and diagnosis of infectious disease.

And that as I said, we invented with funding from DARPA.

This collaboration with CDC leverages the core TIGER technology for new public health applications, and is representative of another important step in advancing the technology toward commercialization.

Yesterday, we announced that we're broadening our micro-RNA drug discovery program, and advancing our SARS drug discovery program, to a grant from the Singapore Economic Development Board or EDB.

This grant will provide us up to $8 million over three years to support a new lab in Singapore.

Researchers there will work closely on micro-RNAs with scientists here in San Diego at Isis.

Micro-RNA research is a strategic program for Isis, and one that we are committed to advancing.

One benefit of working in Singapore is that the EDB is providing funding that enables a much larger program then we could afford on our own.

This transaction expands and accelerates our micro-RNA research program then.

There's also another exciting opportunity for us in the Pacific rim, where I think there are financial and scientific resources to support advancement of our technology and our RNA-based drug discovery and development programs.

We are already working with ITRT, the Industrial Technology Research Institute of Taiwan in the area of SARS research.

We will of course continue to advance our SARS research with support from ITRIT as well as from Singapore.

Micro-RNA drug discovery, of course, is new.

And it is a very, very exciting area of biology.

It is in our sweet spot.

Micro-RNAs are small RNA molecules that are found in all complex organisms.

They are, in fact, natural antisense molecules, made by cells to perform specific functions, and they are essentially the same size as the drugs we use, about 22 nucleotides.

We now know that there are hundreds of micro-RNAs in humans, and as a consequence, they represent a major new class of therapeutic targets.

There are two ways that micro-RNAs are involved in disease.

First. some micro-RNAs play a role in disease process and so inhibiting the micro-RNA with the drug could produce a therapeutic benefit.

Second, there are diseases associated with the deficiency of a particular micro-RNA, such as chronic lymphosytic (ph) leukemia.

That the drug could increase the amount of micro-RNA present in the cell, a therapeutic benefit could be gained.

And of course, that is what we could do because that would be simply applying one of our antisense drugs, as we always have.

Micro-RNAs are ideal targets for us and for antisense drugs because micro-RNAs are molecules that are naturally occurring antisense oligonucleotides; that is, short strands of RNA.

Therefore, antisense drugs uniquely can work, both as inhibitors by binding specifically to micro-RNAs, and as stimulants to augment the deficient levels of micro-RNAs.

Scientists worldwide, including at Isis, are working to define the role of these molecules in disease processes, and to identify which will be important as drug targets to treat disease.

We have the inside track, because we have knowledge of micro-RNAs and we have the technology to directly interact with those targets.

We have been working on micro-RNAs for more than a year, because we're interested in all mechanisms of antisense.

Based on our experience today, micro-RNAs also appear to be attractive targets for our Ibis technology; that is, small molecules that bind to structured RNA.

We expect our research in this area will extend our intellectual property position in the RNA world, in addition to generating new drugs for our pipelines in the coming years.

So with OncoGenex, the CDC, Singapore EDB, we have completed three transactions that advance our technology, create assets for the Company, and combine our partner resources with our own to minimize the expanse (ph) and risk of both technology and drug development.

Our model of partnering individual drugs and focused research programs is feasible because antisense is such an efficient drug discovery platform. and because we have such a dominant, strong leadership position in the technologies that we've invented. (indiscernible) was (indiscernible), of course, our more than 1300 issued patents.

Our goal is to partner many drugs with varying levels of ownerships in each, and retain other drugs for our own pipeline.

In that way, we'll increase a number of shots (ph) on goal, leverage the resources of other companies, share the inherent risk in drug development, and have a greater number of opportunities to help a broader range of patients.

We are pleased with our execution of this strategy to date, and we are also pleased with the progress for continued success in the future.

Now let's just return to the pipeline for just a minute, to just describe some of the near-term milestones.

We are approaching quite a number of clinical events that will take place over the next 12 to 18 months.

I'll -- just a minute of summary of a partial list.

First ISIS 104838 -- we are completing 160-patient, three-month dosing Phase II efficacy and safety trial in patients with rheumatoid arthritis.

We plan to report the results of that trial by the end of the year, this year.

For ISIS 113715, our first drug for Type II diabetes, we are starting Phase II clinical trials, and expect results next year.

Again, remember that those trials are relatively definitive.

That is, we're measuring something pretty simple -- glucose, either glucose will go down or it won't.

ISIS 30102 is a very exciting, new antisense drug.

It is an inhibitor of a target called ApoB-100, which is the protein that is in LDL.

And again, we will be able to measure ApoB-100, LDL, cholesterol, all in blood.

And (indiscernible), we plan to initiate a Phase I trial in normal volunteers who have somewhat elevated lipid levels.

Again, we expect results of this trial next year as well.

For ISIS 14803 and hepatitis C, we are engaged in a key Phase II trial in combination with pegylated interferon and ribavirin in drug-resistant patients.

And we will have results from that trial next year as well.

For alicaforsen, We have ongoing Phase III trials in Crohn's disease and pivotal-quality Phase II trials in ulcerative colitis.

We will report results from these four trials, in both indications, in the second half of next year.

The drugs that we have partnered are also making progress.

ISIS 112989 that targets Clusterin, and is partnered with OncoGenex.

We expect Phase I/II results next year in various cancers, including prostate.

ISIS 23722 that targets survivin and is partnered with Lilly -- we expect Lilly to initiate Phase I trials next year as well.

Good (ph) ISIS 107248 CD 49d (ph) VLA-4 antagonist -- it's partnered with ATL.

We expect ATL to initiate Phase II trials in patients with multiple sclerosis in the next year.

And finally, Affinitak -- Affinitak is completing a second trial in non-small cell carcinoma of the lung that Lilly is managing.

We expect results from their Phase III trial, most likely in the second half of next year.

So we have quite a lineup of clinical new flow through the end of the year into next.

And in the meantime, we expect to make continued progress in the areas of partnering with our TIGER diagnostic program.

As you know, we received a grant for up to $6 million over three years from the CDC to apply TIGER Diagnostic Systems to the problem of infectious disease surveillance for the CDC.

And we're very, very excited about this opportunity and the overall progress of the program.

Our financial position provides us with the resources to continue the aggressive development of our pipeline, the aggressive development of our technology, and the enforcement of our patent position.

We're focused on bringing multiple drugs to the market and establishing antisense as a broadly applicable new platform for drug discovery, drug development and treatment of a wide range of diseases.

Now, we appreciate your support over the years as we work to accomplish these goals, and of course we will keep you posted on how we are doing.

Now, Lynn, Beth, John, and I will be pleased to answer your questions.

Don, if you can set us up for Q&A, that would be great.

(OPERATOR INSTRUCTIONS).

And our first question comes from the line of Mr. Mark Monane of Needham & Co.

Hi.

It's Mark Monane from Needham.

Good morning.

Good morning, Mark.

It's good to see you've become an Italian!

Thank you!

Whatever works for the day, that is what I am.

I appreciate the extensive overview.

I'm hoping you can step back and give us a few more words on what you thank the state of the art is in thinking about RNA therapies.

There's been a lot of attention to antisense, to RNAI (ph); now we heard about your micro-RNA.

Can you help us compare and contrast the different approaches, and how you think about prioritizing them in the Isis pipeline?

Yes.

I think we are ever more confident that RNA will be a place for drug discovery and drug development, like proteins were in the 20th century.

RNA is a very rich world.

We're very confident that antisense works.

The evidence is overwhelming at the titer (ph) level, at the animal level, and increasingly in human beings.

So, RNA, based on a variety of mechanisms, works, whether it's through RNAH (ph), alternative splicing, or SIRNA (ph).

Those are all antisense mechanisms.

So we think antisense technology is coming-of-age.

We think the drugs that are progressing have a reasonable probability of working.

And we think that there are multiple mechanisms to choose from.

We think our patent positions provide a dominant position in all mechanisms of antisense technology.

Now micro-RNAs is a new area.

But it is the same old song.

That is, what we are doing is targeting a new kind of RNA with antisense technology, and we are using the knowledge of micro-RNAs to exploit just another part of the RNA world.

And it turns out that the RNA world invented antisense oligonucleotides.

We thought we did; but no, cells have been using antisense over the nucleotides -- our drugs, basically the same thing is our drugs -- naturally.

And this is very comforting and encouraging, because after all, all we are doing is using a natural mechanism to produce biological consequences.

So micro-RNAs, is an earlier research program, but fits beautifully with the kind of focus that we have in RNA.

Our goal is to be the RNA drug discovery company.

Micro-RNAs is just another element of that.

Thanks very much for the added information.

Our next question comes from the line of David Bouchey of Unterberg Towbin.

Thanks, Don.

Congratulations.

You guys had a pretty good quarter.

Let me ask you this -- can you give us a little bit more guidance on exactly when and where we might see some of that Phase II data for 104838?

I can't do much more then say end of the year.

And there isn't a scientific meeting that we can put those data in at that time, so we will probably do it by press release and conference call.

We will try to limit the amount of information to the top line so that we can display the data in more detail in an appropriate scientific event.

Okay.

Thanks.

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

Please go ahead.

Yes, good morning, Stan.

I have a very unsophisticated question here.

How much cash do you need for 2004?

All unsophisticated questions, I ask Lynne to answer.

He usually asks me to answer the hard ones.

Elemer, we have not yet given our guidance for next year.

And we plan on doing that as we get through the budgeting process and what not.

So I can't answer that question for you right now.

But we do expect to end the year with at least three years worth of cash.

Okay.

Do you think that the year would look very much different from 2003, in terms of operating expenses?

We don't have any plans to change anything in a major way.

Okay.

Thank you, very much.

(OPERATOR INSTRUCTIONS).

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

Please go ahead, sir.

I have a couple of questions.

Could you just review for me the status of your oral formulation strategy, and where you are on the rheumatoid arthritis?

Yes.

Thanks, Doug.

Actually, thanks a lot, because we forgot to mention it.

We are making good progress.

There are oral Phase II -- oral additional formulations being developed.

We are, as you know, looking at does schedules of nightly dosing versus daytime dosing, and slight changes in formulations.

And we're on track to meet our goal, which is to have a final formulation -- a final oral formulation -- ready to begin oral Phase II when we've selected the doses for the Phase III sub-Q studies.

So we're continuing to make excellent progress.

Okay.

I was at the palchitis data that you released last week or the week before -- looked very, very encouraging to me and certainly increases my enthusiasm about the opportunity in the Phase II ulcerative colitis.

But can you sort of extrapolate for me how that relates to the Crohn's trial, and why or if I should have higher degree of confidence in the results of that trial, based on the palchitis data?

Well, ulcerative colitis and Crohn's are obviously related; they are both inflammatory diseases of the bowel.

And the data in ulcerative colitis and palchitis add to the information that suggests that ICAM-1 is an important participant in inflammatory diseases of the bowel.

You take that information, plus the biological information that is available, plus the data that we have suggesting activity of ISIS 2302 or alicaforsen in Crohn's -- I think we have added comfort that ICAM-1 is a good target.

We believe, based on all the data we have, that alicaforsen is safe.

So all of that I think adds encouragement that we are on the right track in the use of alicaforsen in the treatment of inflammatory diseases of the bowel.

Okay.

Thank you.

Dr. Crooke, there are no further questions at this time.

I will now turn the conference back to you.

Please continue with your presentation or closing remarks.

Thank you, very much.

If there are no further questions, we will conclude the call, get back to work and let you folks get back to work as well.

Thanks, so 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.