Ionis Pharmaceuticals Inc (IONS) 2003 Q4 法說會逐字稿

Ladies and gentlemen thank you for standing by.

Welcome to the Isis Pharmaceuticals fourth-quarter year end 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, the conference is being recorded Tuesday, February 10.

The speakers for today are Dr. Dr. Stan Crooke, Karen Lundstedt and Lynne Parshall.

I would now like to turn the conference over to Dr. Dr. Stan Crooke, Chairman and CEO of Isis Pharmaceuticals.

Please go ahead, sir.

Thanks, Tracy.

Thanks everyone for joining us on today's conference call to discuss the financial results from the fourth quarter and year ended 2003.

As mentioned, participating with me today is Lynne Parshall, Executive Vice President, Jon Holmlund, Vice President of Development, Karen Lundstedt Vice President Corporate Communications.

We are pleased to have the opportunity to review our 2003 accomplishments with you.

This past year, we significantly advanced our pipeline with positive results from the first clinical trials and second generation antisense drugs, and I think made solid progress in all of our collaborations.

We have also extended and expanded our leadership position in antisense technologies in several ways.

We have extended our collaboration with Eli Lilly to discover anticancer drugs that work for multiple antisense mechanisms including an antisense mechanism called (indiscernible).

We are collaborating with Ercole to develop antisense drugs that work for alternative splicing mechanism, another antisense mechanism.

We have initiated research in micro-RNA and SARS antisense drug discovery research with sponsorship from the Singapore Economic Development Board and we also have further support for our SARS works from the Industrial Research Institute of Taiwan, ITRI.

We are taking advantage of our broad-based innovations through our (indiscernible) positions in Macugen, the Pfizer Eyetech drug for age-related macular degeneration, and a significant number of other technology licenses.

I will review these and other highlights from the past year and describe our goals for this year following Lynne's discussion of our year- end financial results. 2004 will be another year of real clinical momentum as we will report clinical data from trials with eight different antisense drugs.

At the conclusion of our prepared remarks, of course, we will be happy to answer your questions.

Before we begin, Karen, will you review our policy on forward-looking statements?

This conference call contains forward-looking statements concerning the financial position and clinical goals of Isis pharmaceuticals and the plan, development activities, and therapeutic potential for our products in our pipeline and the potential value of the company's (indiscernible) genomics, drug discovery and diagnostics technology platforms, as well as its licensing efforts.

Any statement describing a goal, expectation, intention or belief of the company is a forward-looking statement and should be considered at an-risk statement.

Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing, and commercializing drugs that are safe and effective for use as human therapeutics and financing such activity.

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

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

Thanks, Karen.

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

We're very pleased with the financial strength of the company.

In 2003 we managed our resources to support the aggressive development of our pipeline and we improved our balance sheet with two important debt restructuring transactions.

I will describe these accomplishments and review the following financials for the year, our revenue, our operating expenses, net operating loss, and our strong balance sheet.

To begin, our revenues in 2003 totaled $50 million, compared to $80.2 million in revenue for 2002.

The reduction in revenue resulted primarily from two factors.

The completion of the Isis Phase III trial for (indiscernible) attack which we were conducting and Lilly was paying for and the termination of our two collaborations with Elan.

Our revenue for the fourth quarter of 2003 was $9.7 million compared to $21.9 million for the same period in 2002.

New sources of revenue in 2003 were a direct reflection of our progress in drug discovery and development.

We achieved milestones from three partners;

Lilly for the progress of LY2181308, our antisense (indiscernible) targets surviving for cancer, Amgen for progress and antisense drug discovery, and ITRI for progress and antisense discovery for the treatment of SARS.

We also benefited from receiving new grants from the centers for disease control for the use of our TIGER technology for infectious disease surveillance.

Operating expenses on a pro forma basis for the quarter and year ended December 31, 2003, were 31.2 million and 126.3 million respectively, down from 31.7 million and 132.6 million for the same period in 2002.

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

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

Our expenses for the fourth quarter and full year 2003 were lower than in the same periods last year because our development expenses for Affinitak were substantially less compared to the same periods last year, and (indiscernible) because of expense reduction measures we implemented in 2003.

These expense reductions were offset in part by increased clinical development expenses for many of our other drugs.

We continue to invest actively in the development of our large pipeline of products and the full implementation of our research collaborations with partners such as Lilly and Amgen.

On a GAAP basis, our loss from operations was $79 million for the year ended December 31, 2003, compared to 50.8 million for the previous year.

On a pro forma basis, excluding restructuring charges and non-cash compensation expense to benefits, our loss from operations was 76.3 million for the year ended December 31, 2003.

This result is in line with our financial guidance for 2003.

Our net loss from operations on a pro forma basis for 2002 was 52.4 million.

We ended 2003 with a very strong balance sheet.

We had 215.5 million in cash and short-term investments compared to 289.4 million for the year ended 2002.

With reasonable assumptions for new sources of revenue and cash, we believe these resources are adequate to fund our activities for the next three years.

In addition to maintaining a solid cash position we took two key steps in 2003 to preserve our cash balances and simplify our debt structure.

We secured a valuable strategic asset with renegotiation of our manufacturing agreement with Lilly.

Lilly waived repayment of the $21 million manufacturing loan it provided us to build our second manufacturing suite eliminating this debt from our balance sheet and more importantly providing us with the complete control over the use of this state-of-the-art manufacturing facility.

We retired approximately $32 million in debt from various partners using an attractive new five-year secured 4 percent variable-rate term loan from Silicon Valley Bank.

The retired convertible debt was due from 2003 to 2005 and carried interest rates ranging from 8.5 percent to 12 percent.

We are using our financial strength to advance our pipeline to key value inflection point as we believe this strategy provides best opportunity to generate near-term value for our stockholders.

In 2004, you will see that we continue to execute this strategy as we plan to report data from eight different antisense drugs.

Based on our planned research and development activities for 2004, we expect our loss from operations to be in the mid $80 million range, excluding non-cash compensation expenses associated with the employee option exchange program.

We expect our expenses to be slightly higher than in 2003 because we're investing in the advancement of our clinical pipeline.

Projecting revenue precisely is always more challenging because it based on a combination of existing relationships, new opportunities, and the achievement of milestones.

We are enthusiastic about the commercial potential of the numerous and diverse drugs in our pipeline and we are committed to their continued development and the advancement of our other (indiscernible) technologies.

Stan will now review the progress we've made in 2003 and our plans for 2004.

Thanks Lynne.

As Lynne described, our financial position is strong and in the past year, we have made great progress in advancing our pipeline and our technology.

In 2004 we will again report results from numerous drugs in our pipeline, and a good many milestones in addition to those.

Let me just summarize the highlights in each area for you.

First, advancing the pipeline.

We reported positive data and evidence of antisense drug activity in patients in multiple trials over the past year.

Most importantly our progress with second generation drugs in the clinic is of tremendous strategic importance to the company.

We reported positive data from new trials with two second generation drugs.

ISIS 104838 for patients with rheumatoid arthritis and ISIS 113715 which is in development for Type 2 Diabetes.

Our Phase II data from ISIS 104838 trials demonstrated single agent activity and systemically administered antisense drug against a validated RA target, TNF-alpha was evidenced in humans of antisense pharmacology in a difficult to reach but relevant tissue to these patients, the synovium.

These data support the potential of second generation antisense drugs overall.

Further we saw improvement in glucose tolerance tests in all the volunteers treated with ISIS 113715.

Trials for this drug and our cardiovascular drug ISIS 301012 have crisp clinical endpoints that will give us a rapid, direct read of the dose response relationship with these drugs, and will add to our ability to determine the appropriate dosage schedule as we proceed.

Results of the ongoing Phase I and II programs will allow us to continue to develop these drugs and make better decisions as I mentioned about Phase III dosing and schedules for all antisense drugs.

We believe that using the dosing information for multiple second generation drugs to different targets and expressed in different tissues, will enable us to continue to improve the productivity and the technology and enhance our opportunities for late stage clinical success.

Our pipeline is our most significant asset and it is rich with opportunity for success.

Near term, we will be reporting results of several late stage clinical trials with multiple products this year.

Longer-term, our vision is to create a new sector of the pharmaceutical industry based on multiple products that we own both directly and in partnerships.

Our goal is to lead the sector through our strong intellectual property position.

We are also advancing our technologies.

Our progress in advancing our technologies speak directly to the value of our patent portfolio.

During the year, we continue to make great progress in our antisense drug discovery collaborations with Lilly and Amgen, and we are developing milestones in each.

We also completed several transactions that expanded the development of antisense technology more broadly to explore additional mechanisms.

Each of these transactions with Lilly, Ercole, ITRI Taiwan and EDB (ph) of Singapore was driven in part by ISIS' intellectual property and our leadership position in our (indiscernible) base drug discovery and development.

With Lilly for example, we expanded the cancer component of our antisense drug discovery collaboration to include multiple mechanisms, including RNAI alternative splicing as well as all of the alternative chemistries that we have created and owned such as PNA.

This ongoing collaboration has been very successful as (indiscernible) plans to initiate Phase I cancer trials of LY2181308 in mid 2004.

This anticancer drug targets survivin and works through one of the antisense mechanisms (indiscernible) which is the best understood mechanism and the one used by all of our drugs that are in development.

We are also working jointly to develop antisense drugs that work through an RNAI mechanism or used PNA (ph) chemistry as potential follow on drugs to LY2181308.

Our work will contribute to the general understanding of RNA based drugs.

Our partnership with Ercole is another example in which we're expanding the boundaries of RNA based drug discovery.

This collaboration is focused on developing antisense drugs that induce alternative splicing and other antisense mechanisms.

Ercole licensed our antisense inhibitor Bcl-x as the lead in development, Bcl-x a gene that regulates program cell death or acritosis (ph) and a very interesting target for the treatment of cancer, and particularly attractive as the target of alternative splicing mechanisms.

Further, we have initiated micro RNA and SARS drug discovery research with the Singapore Economic Development Board and a second separate transaction, our SARS antisense drug discovery efforts are further supported by ITRI of Taiwan where we have discovered both RNSH (ph) and RNAI drug candidates.

Micro-RNAs are an exciting new area of biological exploration and are ideal targets for antisense drugs.

The combination of our expertise in RNA and the additional support from these governments will enable us to further extend our leadership position and our intellectual property position in RNA based drug discovery.

We already benefited greatly from our leading patent position.

We generated more than 35 million in patent licensing fees in the last several years.

We are in a position to add substantially to these licensing revenues based on our royalty position in Macugen, the Pfizer Eyetech drug for age-related macular degeneration.

ISIS licensed specific chemistry patents from us to develop and manufacture and commercialize Macugen.

In 2002, Eyetech paid us $2 million in upfront fees and agreed to pay us the development milestones as well as low single digit royalties on sales of the drug.

Eyetech has stated and (indiscernible) that it plans to file an NDA in the third-quarter 2004 and to commercialize Macugen in 2005.

We're certainly very pleased to participate in the success of Macugen particularly as any royalty revenue generated by Macugen will go straight to our bottom line.

So, you can see we are indeed broadly exploiting our expertise in RNA based drug discovery and development.

We are leading the way in exploration of multiple mechanisms of action for antisense, and we are advancing antisense drugs based on the best understood mechanism RNA stage (ph) through a variety of clinical trials, a variety of important commercial opportunities and we are moving them toward commercialization.

We are leading the way in exploiting antisense based therapies both near and long-term.

Our knowledge of RNA provided the foundation for an entirely different RNA based innovation.

A new biosensor system based on a diagnostic technology called TIGER that we have developed through funding from the Department of Defense.

Our biosensor has the potential to revolutionize the identification of emerging and known infectious disease.

Although we have already we have an additional an initial grant from the CDC to develop applications of our TIGER biosensor system for epidemic surveillance, as well as the Department of Defense funding to develop applications for biowarfare defense, in total we have already received more than 35 million in funding for the development of this technology.

And believe that the government is likely to be an ongoing source of revenue as we move toward commercialization with the TIGER system.

We look forward to updating you on our progress there in the future.

Now to conclude, I would like to outline our key clinical goals for 2004.

We expect to report results of Phase III trials of our first generation antisense drug to inhibit ICAM alicaforsen in patients with Crohn's disease in the second half of 2004.

We are also studying an enema formulation of alicaforsen in patients with ulcerative colitis in two randomized double-blind placebo-controlled or positive controlled Phase II trials.

We plan to report those results in the second half of the year as well.

We plan to report preliminary results of an ongoing Phase II study (technical difficulty) of ISIS 14803 in combination with current Hepatitis C viral therapies in the second half of 2004.

We have initiated a Phase II program for ISIS 113715 in patients with Type 2 Diabetes.

We plan to be then enrolling patients in the first half of 2004 and we expect to have some results late this year or early next year.

We recently initiated a Phase I study of our first cardiovascular drug ISIS 301012.

During the study we will monitor the drug's ability to lower LDL and other lipid levels in volunteers.

Again, we expect to report results of this trial in the second half of 2004.

We will be initiating Phase II clinical trials of 104838 in patients with rheumatoid arthritis in the second half of 2004.

These trials would build on the trial that we completed last year and help us refine dose and schedule and additional opportunities to use the drug in patients with rheumatoid arthritis.

In 2004, several of our partner products will also reach development milestones.

Here are the goals for these products.

In the first half of 2004, our partner OncoGenex plans to report results with Phase I II trial with ISIS 112989 also OGX-011 in prostate cancer and other tumor types.

Eli Lilly plans to initiate clinical trials with LY2181308 our antisense inhibitor survivin in patients with cancer in mid 2004.

During the second half of 2004, we expect Lilly to report results of its Phase III study of Affinitak in combination with chemotherapy in patients with non-small cell lung cancer.

Finally, our partner Antisense Therapeutics Limited plans to report final Phase I results of its drug for multiple sclerosis ISIS 107248 in the middle of 2004 and to initiate Phase II trials in patients with this disease in the second half of the year.

This drug targets a target called VLA-4.

We also plan to continue to optimize formulations for oral delivery for antisense drugs and of course, the oral delivery platform will work for any second generation drug.

We're focused on successful oral administration for obvious reasons, when a commercial opportunity becomes tremendously larger when we consider marketing an antisense drug that can be delivered in pill or tablet instead of as an injectable.

We also continue our efforts to make both our Lilly and Amgen collaborations successful as well as our efforts to engage additional industry partners in participating in RNA based technology, either through collaborations or intellectual property licenses.

So, once again, we have an ambitious year ahead of us as we enter it and we feel we are equipped for success, we have a pipeline of eleven drugs in development.

We will generate a steady flow of news in 2004 and have a good many shots on goal that gives us opportunity for clinical success both near and longer-term.

We're excited about the potential of antisense drugs.

Second generation drugs are advancing in the clinic and they are performing as we hoped.

We're working to carefully characterize the dose and schedule for this class of antisense drugs and we believe that will enhance our opportunities to be successful in Phase III.

We are committed to achieving our goal of creating the new class of drugs based on antisense technology.

We have a broad pipeline backed by a very deep (indiscernible) programs that continue to generate a stream of new drugs.

We are not just involved in multiple mechanisms, we have led and will continue to lead the way with both internal and partner research programs.

We are bringing along an exciting new diagnostic platform technology with a world of potential all its own and we're doing that without diluting our shareholders thanks from the support we received from the Department of Defense and other government agencies.

We have a strong intellectual property position that is generating value, and we are confident that it will continue to do so particularly with the heightened interest in RNA based drug discovery.

So, we think 2004 is going to be another important exciting year for the company.

And, we look forward to continue to keep you updated as we work toward achieving our goals.

With that, we are going to conclude our prepared remarks, and we will answer the questions that you have.

Tracy, if you could set us up for questions that would be great.

(OPERATOR INSTRUCTIONS) Mark Monane with Needham & Company.

Good morning and thanks for taking my question.

A couple of questions for Stan and the team please.

Let me start with the concrete questions.

In terms of guidance going forward for collaborations, would you be kind enough to characterize what you think the revenue will be from these collaborations, and do you think that the interest in RNAI and other technologies will affect ISIS' ability to go after these collaborations in the future?

I actually think that the interest in RNAI will greatly enhance our ability to do these collaborations as Stan said, we have a leading position in all of the mechanisms by which antisense works, including the RNAI mechanism and in fact, we are already collaborating with our partners at Lilly on RNAI as well as numerous other antisense mechanisms.

It's difficult at this point in time of the year to project revenue from new collaborations for the year.

So, as always, our guidance is a net operating loss guidance in the mid $80 million range.

Thank you for that.

In terms of the Macugen royalty, I heard low single digits going directly to the bottom line of ISIS.

Is that -- are we talking about 2, 3, 4 percent range then?

Yes.

Is that the range potentially?

Those are all low single digits.

That's fair enough.

In terms of interest in the field of dealing with oligonucleotides, Stan, we see that Dynavax is going to go out essentially initial public offering using (indiscernible) modulation strategies, Corgentech using optimer Eyetech optimer.

Can you talk about the evolving use of medicines over the nucleotide DNA medicines antisense in thinking of diagnosis and treatment in human diseases?

We are pleased to see RNA based drug discovery in oligonucleotides based drugs progress.

I think the answers are these are interesting chemicals.

They have unique properties that thoughtful scientists can use to perform a variety of functions.

We think that we have pioneered almost in every area including immune modulation, you remember that we licensed our patent (indiscernible) some time ago, so we're excited about all of these areas, and we're also excited about a number of new observations in the RNA world that provide exciting new opportunities to make interesting and better drugs.

Now, as the immune modulators, optimers, antisense by various mechanisms, and other RNA based approaches like our IBIS evolve, we learn more about RNA as a target.

We learn more about the behavior of oligonucleotides as drugs, and everything we are learning is that these chemicals can be made to behave like good drugs, and RNA based mechanisms are going to have tremendous value.

So, (indiscernible) expanding and we believe we helped in a very meaningful way to create the entire space.

Last question, there's a lot going on at ISIS with E (ph) drugs expected to have clinical results in 2004.

Could you talk about how the team prioritizes and decides which models to bring forward in which order in order to achieve all the goals that you set forward in ISIS?

Yes.

First, we are completing the last work on the last three first generation drugs.

Those are all coming to completion, Affinitak, the trial will be completed by Lilly.

Alicaforsen we have two indications that we are pursuing, and 14803 Hepatitis C we will know whether we have a drug there this year.

Then we're converting to second generation.

That is a key strategy for us.

We do believe second generation drugs offer a great opportunity relevant to first.

As a general rule, we pick targets that are expressed in organs where our drugs go.

We know where these go, they go in the liver, kidney, bone marrow, fat cells, spleen so those are the places where we work.

In addition, we try to pick targets where we think antisense specificity can be of tremendous value, targets that are difficult for small molecules to work in.

Finally, we're expanding routes of delivery.

We have shown that we can deliver these drugs by parenteral routes, by enema, by aerosol and we are progressing toward a commercializable oral formulation.

Thanks very much for the added information.

(indiscernible) .

Good morning.

I have a question to Lynne.

Maybe if you could circle back to your projections for 2004.

In 2003, your net loss and cash burn was roughly in the same sort of ballpark.

And now, you are actually projecting a net loss which is fairly similar in the mid 80's range, and you are also stating that the $215 million cash will be sufficient for three years.

There is a slight discrepancy there.

Could you please help explain?

We have as you know, successfully funded the company through combinations of equity financing and corporate partnerships, so as I said, we believe that the money that we have in the bank is sufficient to last for three years with reasonable assumptions about new sources of cash and partnering opportunities.

So, you would actually in addition to revenue which would come from existing relationships, you would obviously expect revenue from your partnerships and/or potentially royalties from Macugen etc. etc.?

Yes, we have been successful in achieving new sources of revenue every year since the company's inception, so we think that is a reasonable assumption to make.

If you look at the $50 million revenue for 2003, and assuming X for 2004, how would the makeup of that revenue change in your view?

If at all?

Our two largest sources of revenue in 2003 were revenue from our Lilly collaboration, and revenue from the government funding of TIGER.

I expect those to continue to be significant sources of revenue in 2004.

Okay.

I also have a question related to your intellectual property.

Genta, a peer antisense company is going to have a potential FDA decision on their Genasense drug during the next six to twelve months.

Do you believe that your intellectual property and their intellectual property might collide?

Or do you believe that you have, that you would have to discuss these issues with them?

The Genasense drug does not infringe any issued ISIS patent.

I can't comment on other things that they may do in the future.

Remember that drug was discovered many, many years ago.

Somewhat of a general question, if we look at your valuation, antisense is still treated at least in the eye of Wall Street with heavy discounts especially when we compare ISIS to other biotechnology companies with similarly sized and advanced pipelines.

You probably have a differing view from Wall Street, but what I would like to ask is, if and when you talk to partners, potential pharmaceutical partners, do they view antisense differently from conventional small molecules drugs?

Yes, it is different.

There are advantages, and for antisense, and there also unknowns for the technology that we will only answer as we gain broader experience in more chronic diseases and so on.

So what I think the most important fundamental shift that we have seen, and of course knowledge is transmitted in a spotty fashion, even in a small community like the pharmaceutical industry.

So it is not universal, but certainly broad overwhelmingly true and that is that the days when people ask does antisense work are by and large over.

What we get now are questions about will this antisense drugs meet my commercial interests.

That is a very fundamental shift.

I think it is a shift that is a product of just (technical difficulty) thousands of scientific publications anatomic progress in cells in animals and in human beings.

Can you discuss a particular program if you have ongoing discussions.

When you discussed the valuation of that particular program, it any different than if you were to discuss a small molecule drug program in the eyes of pharmaceutical companies?

Well, I think the best way to get a sense of that is look at the licenses that we did for Affinitak with Lilly a couple of years ago and the licenses that Genta did with Aventis for their Genasense.

Our license was completed at the end of Phase II and the Genasense license was completed while they were in Phase III if I recall.

I believe the numbers of those transactions were in line with what you would expect for any anticancer drug at that stage with the level of data we had.

Do you anticipate to announce additional corporate partnerships this year, Stan?

I will let Lynne answer that.

Thanks, Stan.

We have very successfully funded the company through combinations of equity in corporate partnerships as we've gone forward, that part of our strategic plan and certainly part of our plan for every year including this year.

And we have never failed.

I understand why did you pass on the answer to do that?

Thank you very much.

Russell Gilbertson with Roth Capital Management.

Good morning and congratulations on advancing your products in clinical development.

My question is regarding the TIGER biosensor and I am curious as to the specific design of the sensor and its mechanism, how it functions.

You know, let me provide a very, very brief summary of it, because we are going to provide a much more detailed elaboration about it in due course.

The TIGER biosensor is able to detect any organism known or unknown, modified or not modified, identify the strain, do it rapidly, without knowing what you're looking for, and without sequence.

It uses a set of innovations that we have made that involves understanding how to develop special primers that allow us to identify variable and conserve regions in the organisms, and a mass spec analysis that provides a base count fingerprint.

As I say, that doesn't do it justice, and the measure of how important it may be is a good measure of that is the amount of support that we've gotten from the Department of Defense and other agencies.

And we will be providing much more detail about what all of this means in due course, but we're just not in a position to do that today.

Stan, could identify multiple organism simultaneously?

It could and already has.

In the '05 budget appropriations, are there any line items that specifically address this system?

I really don't know.

President Bush has not sent me his new budget.

Russell Gilbertson All right.

Truly, I don't know.

Hui Shao with Mehta Partners:

Actually my question has been answered.

That is the easiest question I have yet to answer today.

(indiscernible) Partners.

Good morning.

I just wanted to find out if we can get some more details on your Type II diabetes product in terms of the Phase II trial that is underway right now?

This is the 715 targets a unique target that is certainly one of the most exciting targets in diabetes called PD (indiscernible) a phosphatase (ph) a break on insulin signaling.

We shown in every animal model with Type 2 Diabetes and in normal animals that this drug will normalize glucose without producing hypoglycemia and without producing weight gain or lipid problems.

In the Phase I trial in human beings, we normally human beings we demonstrated just as we had in normal monkeys that the drug could even improve glucose tolerance tests in normal people.

We will begin enrolling patients in the first half of 2004, in a single agent trial, in patients with Type 2 Diabetes.

And these will be patients who are not insulin dependent, and we will examine the ability of the drug at various doses to produce a reduction in glucose.

reduction in glucose your primary endpoint?

Yes.

How many patients are in the trial?

We haven't disclosed that.

But we will be looking at multiple doses, and as you can imagine the ability to look at such a defined endpoint and to do it repeatedly essentially everyday multiple times a day, gives you great precision so you don't need a lot of patients to be confident that you have a good drug effect.

So, thinking in terms of in this trial of 50, 60 patients in those ranges.

Okay.

How long of a study will it be?

We hope to present data from the study by the end of the year, early next year.

Several months study dosing?

The dosing is over a period of weeks.

Okay.

Are there any partnership comments on this drug?

Anything you are looking to partner these to?

We are not interested in partnering the drug at the moment.

We think it's value is going to inflect significantly when we have Phase II data.

There is tremendous interest in this target, and antisense technology is really the only, has been the only successful approach to reducing this target.

So, we do believe that there will be great interest in this drug, and is great interest, but we're close to that next value inflection point so we are going to finish it.

Great. (indiscernible) trial with the agents correct?

No it's a single agent trial, it is placebo-controlled.

Great.

Thank you very much.

(OPERATOR INSTRUCTIONS) David Bouchey of C.E.

Unterberg, Towbin.

Good morning, Stan.

Good morning, Lynne.

I am afraid I got disconnected at an inconvenient time.

Can you review for me your guidance for 2004.

Yes, our guidance for 2004 is a net operating loss, not including non-cash compensation expenses associated with our option exchange program in the mid $80 million range.

All right.

Stan you said that includes royalties from, potential royalties from Macugen in terms of your cash burn and the earliest you might see those royalties would be 2005?

Is that correct?

I can only refer you to the comments that they've made in their S1.

They say they will be filing their ANDA in 2004 and plan to begin commercializing in 2005.

We have milestones related to ANDA the progress of the ANDA.

And the royalties would begin when we begin selling.

Okay.

A quick follow-up on the last question.

In terms of ISIS 113715 in diabetes, you will not partner until after you see Phase II, does that mean or will you partner after Phase III?

What are your intentions for that drug?

No, our objective would be to partner before Phase III because the Phase III trial for diabetes drugs even one as exciting as this are large and the safety database is large.

So, we think the best time to partner will be sometime when we have Phase II data.

The Phase II data will roll out over a period of time.

Single agent works through then we have combination studies and a lot of studies to do.

So, and we expect to have the first bid of Phase II data in patients with diabetes later this year, early next.

One final question.

Will you be giving a presentation at the Bio (ph) CEO Conference in New York next week?

Yes, I will be presenting the company presentation and I will also be part participating on the rheumatoid arthritis panel and the IV panel?

Thank you.

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

I will now turn the call back to you.

Please continue with your presentation or closing remarks.

Thank you very much for participating in the call.

We look forward to another exciting year, and we will keep you informed of how things are going.

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.