Ionis Pharmaceuticals Inc (IONS) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Isis Pharmaceuticals Second Quarter 2004 Financial Results Conference Call.

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

Afterwards we will conduct a questions-and-answers session.

At that time, if you have question, please press the "1" followed by "4" on your telephone.

As I reminder, this conference is being recoded today, Thursday, August, 5, 2004.

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

Please go ahead sir.

Thank you Amanda.

Welcome to Isis Pharmaceuticals conference call, -- you just said that.

Thanks everyone for joining us today's conference call to discuss the financial results and the highlights for the second quarter of 2004.

Participating with me today are Lynne Parshall, Executive Vice President, and CFO, Brett Havrin (phonetic) Vice president of Finance, Alison Trollope, Executive Director of Investor Relation.

We have this quarter made steady progress across all areas of our business and I think the year is going very well.

Specifically, we’ve reported additional positive clinical data on our second generation compound.

Today our plan is to pursue oral ISIS 104838 in treatment of rheumatoid arthritis.

We’ve achieved success in current partnership as illustrated by the extension of our drug discovery collaboration with Eli Lilly and Company.

We’ve successfully executed our strategy to exploit our leadership position and strong intellectual property position in RNA based drug discovery and development.

That’s exemplified by the payment received from Alnylam related to new collaboration with the Merck, and milestone we receive from Eyetech.

We made continue progress in the development of our TIGER biosensor and we strengthened our balance sheet further.

On today's call Lynne will review our financial results as described in the financial press release issued earlier today, than I will review the second quarter and recent business highlights and of course will be happy to answer your questions at the conclusion of our prepared remark.

Before we begin Alison will review our policy and forward looking statements.

Thanks Stanley.

This conference call includes forward-looking statements regarding our business, the financial position of Isis Pharmaceuticals, and the therapeutic and commercial potential of our technologies and products in development.

These statements regarding our goals -- describing our goals, expectations, intentions or belief 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 developing technology and systems used to identify infectious agents, discovering and commercializing drugs that are safe and effective for use as human therapeutics and in the endeavor of building a business around such products and services.

Actual results could differ materially from those discussed 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' Annual Report on Form 10-K for the year ended December 31, 2003, and quarterly report on Form-10-Q for the quarter ended March 31, 2004, which are on file with the U.S.

Securities and Exchange Commission.

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

At this time I would like to turn the call over Lynne Parshall.

Thanks Alison.

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

I will discuss the following financial aspects of the quarter, our net operating loss, revenue, operating expenses, and our balance sheet.

Our operating loss or loss from operations was $21.3 million and $43.7 million for the three and six months ended June 30, 2004 respectively, compared to $19.5 million and $38.4 million for the same period in 2003 according to generally accepted accounting principle or GAAP.

On pro forma loss from operation for the three and six months ended June 30, 2004 was $24.8 million and $43.9 million respectively compared to $17.6 million and $36.5 million for the same period in 2003 as adjusted from GAAP to exclude non-cash compensation related to stock option and in 2003 a restructuring charge .

We remain on track to achieve our projective net operating loss in the mid $80 million range excluding non cash compensation.

Total revenue for the three and six months ended June 30, 2004 was $9.8 million and $22.1 million respectively compared to $15 million and $29 million for the same periods in 2003.

The decrease primarily reflects the completion of our phase III clinical trials with Affinitak and in associated production revenue.

The decrease was offset in part by two important sources of revenue.

The first was an increase in revenue from our TIGER biosensor program.

The second was an increase in revenue related to our recently established alliance with Alnylam to develop and commercialize RNAi therapeutics.

We recorded a $5 million license fee related to this alliance in the first quarter of 2004.

In the second quarter of 2004, we earned $500,000 from Alnylam related to our Alnylam's recently established alliance with Merck to develop and commercialize RNAi therapeutic for ocular diseases.

The license fee was the first payment Isis from our participation in fees from Alnylam partnering program under our company's alliance.

Under the terms of our agreement as Alnylam's drug discovery and development partnerships to use our combined technologies Alnylam will pay us a portion of fees that it receives from its partners including milestones and royalty payments.

We look forward to participating in a continued success Alnylam though these fees and through our equity investment in Alnylam's.

Our operating expenses were $31.2 million and $65.8 million for the three and six months ended June 30, 2004, respectively, compared to $34.5 million and $67.4 million for the same period in 2003 according to GAAP.

Included in operating expenses was non-cash compensation benefit related to stock option of $3.4 million and $183,000 for the three and the six months ended June 30, 2004 respectively, compared to non-cash compensation expense of $123,000 and $132,000 for the same period in 2003.

Variable accounting for stock option can result in significant increases and decreases in non-cash compensation as a result of the variability in our stock price.

Our operating expenses on a pro forma basis was $34.6 million and $66 million for the three and six months ended June 30, 2004 respectively, compared with $32.6 million and $65.5 million for the same period in 2003.

Operating expenses on a pro forma basis were adjusted for GAAP to exclude non-cash compensation related to stock options and in 2003, restructuring expenses.

The increase in operating expense on a pro forma basis for the three and six months ended June 30, 2004, was due primarily to increased spending to support our TIGER biosensor program, partially offset by planned expense reductions in other parts of the company that began in the second quarter of 2003.

Please refer to the table on our financial press release for a detailed comparison of our operating expenses and loss from operations on the basis of both generally accepted accounting principal and our pro forma analysis.

These documents are also available on our website at www.isippharm.com.

We entered the second quarter with a strong balance sheet including $147.3 million in cash and short term investments and working capital of $140.2 million.

At December 31, 2003 we had cash and short term investments of $215.5 million and working capital of $194 million.

Cash and short term investments and working capital decreased primarily as the result of cash used in operations, our equity investment in Alnylam and the retirement of partner debt.

In December 2003, we secured a $32 million term loan from Silicon Valley Bank which was used to retire partner debt in 2003 and early 2004.

Our $100 million Lilly research collaboration loan of which $85 million was outstanding on June 30, 2004 come due in August 2005.

Accordingly the outstanding balance on this loan would be classified as a current obligation beginning in the third quarter 2004 which will have a negative impact on our working capital.

We can repay this loan at our option in either cash or common stock of a fifth conversion price of $40 per share.

If we drive down the remaining amount available under the loan we could repay the loan for a total of 2.5 million shares of our common stock.

We further strengthened our financial position this quarter by entering into an agreement with the subsidiary area of Elan to acquire its minority interest in our Orasense and HepaSense, joint ventures that arose out of prior collaboration between Isis and Elan.

This agreement was beneficial to us because it eliminated all future royalties to Elan related to the oral delivery platform developed within the Orasense collaboration and Isis 14803 for the treatment of hepatitis C. We now have the ability to recognize to full financial potential of these assets.

And also provided an immediate conversion of Elan's Isis Series B preferred stock to common stock upon the transfer to a third party.

This eliminated dividend accretion of approximately $1.2 million between now and 2006 and reduced further dilution of our common stock by approximately 86,000 shares.

Moving forward, we'll continue to use our financial resources to advance our pipeline of antisense drug candidates towards key development milestones and to advance our technology.

We also intend on continuing to exploit our multiple RNA based business initiative to generate revenue and diversify risk while prudently managing our expenses.

Based on our current operating plan with reasonable assumptions for new sources of revenue and cash, we believe that our available cash, cash equivalents and short-term investment as of June 30, 2004, when combined with investment income and committed contractual cash payments from our partners, will be sufficient to meet our anticipated requirement through at least the end of 2006.

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

Thanks Lynne.

Let's now review recent progress we’ve made in three keys areas of the business -- the pipeline, business development activities, and TIGER.

First our pipeline, this is the company's most valuable assets.

Our broad product development pipeline has full drugs that represents significant market opportunity.

And we continue to make great progress with our second-generation drugs that offer considerable advantages over fist-generation compounds.

They should produce drugs that are more potent, that are safer, that are less expensive, and significantly more convenient to administer to patients.

The opportunity for oral delivery is a key attribute of second-generation antisense drug.

And of course that has the substantial to enhance the competitive profiles our drugs even more.

We announced today that we are accelerating the development of the oral formulation of ISIS 104838 for the treatment of rheumatoid arthritis.

Our decision to pursue more aggressively the oral form of ISIS 104838 is based first on the fact that this drug is active in rheumatoid arthritis.

We reported earlier a positive phase II study in which the subcutaneous formulation of ISIS 104838 produced a statistically significant disease response in patient with rheumatoid arthritis when compared to placebo.

It also combined with the recognition of the profile of injectable drugs to treat RA must be outstanding in light of the performance of the competitive products that are in the marketplace today and progressing towards the marketplace.

And finally that there remains a vary significant opportunity for an oral TNF-alpha inhibitor that we think this drug can achieve.

So we plan to initiate a Phase II trail comparing the oral and subcutaneous formulations of ISIS 104838 in patients with rheumatoid arthritis.

In the plan study, which will be conducted outside the US, ISIS 104838 will be dosed in combination with methotrexate, a commonly used treatment for rheumatoid arthritis and we expect to initiate that trail in mid-2005.

Now, the supports oral dosing in the new trial, we first will complete oral delivery trials that are in progress right now and then we will have to conduct an additional preclinical safety study of oral ISIS 104838.

In addition to provide the US Food and Drug Administration with information on the safety profile of 104838 that they requested, we will conduct a preclinical safety study to reevaluate high dose toxicities and recovery from them.

We will also conduct an additional preclinical study to evaluate nine months of dosing of ISIS 104838 to support longer dosing.

Both these studies are required to be full to support further trials in the U.S.

And as you read in our press release, in order to move the oral formulation of ISIS 104838 forward aggressively and to be able to compare directly to the subcutaneous form and given the number of promising drugs in development in our pipeline and the number of drugs that seem to be performing very well in psoriasis, we decided not to start additional studies of ISIS 104838 for the treatment of psoriasis.

We are going to focus 104838 on rheumatoid arthritis and the oral delivery of ISIS 104838.

We believe these two decisions will expedite the development of our oral delivery technology and actually add value to the pipeline.

This development plan will broaden arrangement of the diseases that we can approach as we learn more about oral administration of these drugs, increase the market potential of ISIS 104838 and of course all other second generation antisense drugs in our pipeline, which we believe will open up additional very large markets for us to purse.

Now on to the positive data that we have announced this quarter with 2 additional second-generation drugs -- OGX-011 and ATL 1102.

We are very encouraged with the development progress that we are in progress have made with second-generation drugs this quarter.

Data from these trails demonstrate that our drugs are working in man as they did in animals and as the animals predicted and provide us with early crisp readouts as to the appropriate dose associated with optimal activity.

First, OGX-011.

With our partner OncoGenex Technologies, we announced compelling Phase I data at the American Society of Clinical Oncology on OGX-011 for the treatment of prostate cancer.

Results of the study showed that once-a-week intravenous dosing of OGX-011 was well tolerated, achieved excellent drug concentrations in the target tissue, which is prostate cancer, and produced up to a 91% dose-dependent reduction with target clusterin in prostate cancer tissue.

Further, the inhibition of clusterin was associated with the expected pharmacological outcome; that is death of the prostate cancer cells.

OncoGenex and ISIS plan to report results of additional Phase 1 studies with OGX-011 and we plan to initiate Phase II trials of the compound later this year.

Second, ATL 1102.

We along with our partner Antisense Therapeutics Limited reported results a dose escalating Phase I study of this second-generation antisense drug.

The study showed that 6 milligrams per kilogram per week of ATL 1102 appeared to be well tolerated and is a proposed dose for Phase II development in patients with multiple sclerosis.

ATL plans to initiate a Phase II clinical trial of the drug in patients with this disease by the end of the year.

In addition to the positive clinical data we reported in the second quarter, we have also made important strides on the research front.

We reported along with collaborators data that illustrated the utility of four second-generation antisense drugs in identifying new metabolic disease targets for drug discovery and as potential innovative treatments for these conditions.

In diabetes and obesity, Antisense Technologies breaking new ground by rapidly and effectively and efficiently discovering new targets and potential antisense drugs that address large commercial markets and major areas of unmet medical needs such as better regulation of glucose.

Metabolic disease is a major focus of our drug discovery program and we look forward to additional drugs emerging from this program for the development by Isis and/or partners.

We've also announced some preclinical studies, an antisense drug suppressed the production of a molecule associated with an aggressive form of amyotrophic lateral sclerosis or ALS.

This study is an excellent example of the risk utility of antisense to target disease associated proteins that can't be approached with other technologies due to lack of specificity.

We find it encouraging and we hope to move this drug forward in order to better understand the potential for treating this form of ALS and to broaden the application of the antisense into neurodegenerative disorders.

As you see from our extensive list of drugs in development and research programs, antisense technology provides an abundance of opportunity.

Given the sheer number of opportunities presented to us, we as the single company cannot fully develop in our own, therefore our strategy is to engage in strategic partnerships with companies that have complementary expertise and independent funding.

Our collaborations with Lilly, Amgen, OncoGenex, ATL, Ercole, and Alnylam and others are all example of companies participating in antisense and taking advantage of its broad potential.

Through these relationships, we gain from our partners development expertise and highly focused research programs and our partners profit from access to our intellectual property and expertise in RNA-based drug discovery.

Further, these relationships gives us an opportunity to share in the success of multiple companies and multiple products, we think it's working really well.

This quarter we also announced success in our key strategic alliance with Eli Lilly.

In May we announced the extension of our anti-cancer antisense drug discovery collaboration with Lilly.

During this extension ISIS and Lilly will continue to characterize and develop RNase H, siRNA, splicing modulating inhibitors and other mechanisms for the treatment of cancer using second and [beyond] generation chemistry.

This oncology relationship initiated in June 2002 builds on a broad ongoing strategic alliance established by the companies in 2001 of course that's design to discover antisense drugs in the areas of inflammatory problems and metabolic diseases.

The alliances has been very productive.

We anticipate that Lilly will initiate Phase I clinical trail of the first drug candidate resulting from this work LY2181308 later this year.

This drug is a second-generation antisense drug directed to inhibitor target call surviving, a target that helps control cancer cell -- cancer cell division and is associated with apoptosis.

Next, let's move to the business development achievements related to our intellectual property position.

We take advantage of our intellectual position in RNA-based drug discovery and development both to derive immediate value and long-term value and to generate revenue.

This patent portfolio is comprised in more than 1400 issued patents and we’re exploiting it by entering into patent licensing agreements with companies that need our intellectual property in order to develop, manufacture, and commercialize their products.

To date we’ve generated more than $42 million from licensing of IP and trying to continue to forge alliances and engage in transactions that will allow us to benefit from our IP portfolio.

We've made progress in executing this strategy recently through the following achievement.

First we earned a $1 dollar milestone payment from Eyetech Pharmaceuticals on the filing of a new drug application on Macugen, for the treatment of wet age-related macular degeneration.

Macugen is an investigation of non-antisense oligonucleotide aptamer for the treatment of ophthalmic diseases including AMD and diabetic macular edema.

In 2002, Eyetech license form us specific patents necessary to develop, manufacture, and commercialize Macugen.

The FDA has stated that it's Dermatologic and Ophthalmologic Drugs Advisory Committee plans to discuss the Macugen NDA on August 27, 2004.

If this product moves forward ISIS may earn additional milestone and royalty payments from Eyetech.

Our alliance with Alnylam had brought together two leading RNA-based patents states combined ISIS expertise in chemistries and RNA drug discovery with Alnylam's expertise and focus and build on our experience in developing oligonucleotide based drugs.

Through this transaction we will participate broadly with Alnylam in the discovery and commercialization of double-stranded RNA drugs -- RNAi drugs.

Specifically we will benefit financially from essentially all of Alnylam transaction and in the development in commercial success of double-stranded RNAi drugs that are created with our technology, along with downstream milestone and royalty payments.

As Lynne mentioned Alnylam's recent alliance with Merck to develop and commercialize RNAi therapeutics for ocular diseases is the first example of such a program from which Isis has generated revenue and we hope will continue.

The Eyetech and Alnylam partnership demonstrate the near and long term value of our RNA-based drug discovery and development work and represents substantial revenue generating opportunities.

Finally, I just want to review the progress on our TIGER biosensor.

As many of you have heard our TIGER biosensor is unlike any currently marketed product in the bioweapons clinical diagnostic field.

In a single test, it can simultaneously and rapidly identify a broad array of infectious agents contained in a sample and do this without culturing the organism.

And these organisms include previously unknown newly emerging and/ or bioengineered organisms.

We have completed proof-of-concept studies and we are now moving our TIGER system forward to a commercialization.

Our strategy is to continue to secure government funding to further develop the technology.

Earlier this year, we received a 2 year contract from Defense Advanced Research Projects Agency or DARPA that provides up to $19.5 million more to fund in development enhance TIGER -- the TIGER system for deployment.

We believe we will continue to be the recipient of additional funding as the project matures.

To date, we have received awards and contracts for TIGER worth up to $55 million beginning in 1997 through 2005.

We believe TIGER represents a significant commercial opportunity for you us in government applications such as infectious disease tracking, as well as, in numerous commercial applications such as clinical diagnostics, biological product monitoring and blood supply monitoring.

Now that we have reviewed our recent accomplishments, so let me just summarize the milestones that remain ahead of us for the rest of the year.

We expect the next five months to be very, very busy as we and our partners plan to report data from nine clinical trials by the end of the year.

Specifically, we plan to report results of two Phase III trials of alicaforsen, our first generation antisense drugs in patients with Crohn's disease.

At about the same time two Phase II trials of alicaforsen enema in the treatment patients with ulcerative colitis.

Third, we will report preliminary Phase II data on ISIS 14803 in combination with the current therapy in patients with hepatitis C, viral infections who have failed current therapy.

Fourth, we will report Phase II results of ISIS 113715; this is our antisense inhibitor PTP-1B in patients with type-2 diabetes.

We anticipate these results will be reported either late '04 early '05.

We'll report results from the Phase I trial of ISIS 301012, which is our antisense inhibitor apoB-100, the first product to come out of our cardiovascular program in which we will measure both safety and the ability in these volunteers to reduce cholesterol and other components of plasma lipid.

Later in the year, the Phase III of Affinitak in patients with non-small cell carcinoma of the lung will be reported.

This study is being conducted by our partner Eli Lilly.

And as I already mentioned, we and OncoGenex plan a report the phase I results of OGX-011 in combination with Taxotere in patients with solid tumors.

We and our partners are trying to initiate quite a number of clinical trials in the remaining part of the year as well.

We will initiate a phase II trial of ATL-1102 in patients with multiple sclerosis.

These studies will be conducted by our partner ATL, Antisense Therapeutics Limited.

As I mentioned previously, we anticipate that Lilly will initiate clinical trial on its survivin antagonist LY2181308 in patients with cancer and we will be initiating additional phase II trials with ISIS 113715, again that PTP-1B inhibitor in patients with type 2 diabetes.

I know the list is long and complex.

Additional trials -- phase II trials of OGX-011 in combination with hormone and chemotherapy in patients with prostrate, breast and lung cancer will also be initiated and will be conducted by our partner OncoGenex.

And remember that this is the drug that targets clusterin that has recently been shown at so effective at reducing clusterin and causing death of prostrate cancer cells in men with prostrate cancer.

So this will be a year of additional major clinical milestones and we hope significant added value generation for the company and our shareholders.

We of course will keep you updated as we progress all along our way here and we appreciate your interest and support.

And we are now prepared to answer your question.

Amanda, can you set up us for that procedure?

Yes indeed.

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One moment please for the first question.

And our first question comes from the line of George Fulop from Needham & Company.

Please go ahead sir,

Thank you, George Fulop from Needham & Company.

Thank you for taking my question.

I would like to ask you to basically give us the preview of the scientists and presentations and venues that you may anticipate targeting in second half of the year early '05?

You know, I'll do the best I can off the top my head.

We had so many people talking and so many meaning meetings all the time, its not something I keep in my head.

There is significant meeting next week [inaudible] next week in Boston, a Drug Discovery And Development Meeting sponsored by IBC where we be presenting, we will be presenting at the American Heart Association I believe.

I think that we are presenting at a number of conferences -- scientific conferences and disease related conferences throughout -- rest of the year.

We have presentation in Singapore as well.

So you know that sort of what I remember off of the top of my head but I think probably better would be for us to just gather that information and send it to you so you have a better, certainly more accurate sense of what we are doing and where we are doing at.

Sorry I can't answer it better I just don't keep it on my head.

Thank you.

I also wanted to ask you to kindly elaborate up on the balance sheet and the cash and short term investments you how have available and how you see that specifically sufficient to meet your requirement through 2006 and in terms of which key programs and other development project and early 2006, end of 2006 kind of detail please?

As we said we have sufficient cash to get us through the, at least through the end of 2006 and that takes into account you know not only revenue opportunities from existing collaborations but also reasonable assumptions for other revenue and cash opportunities as we go through that period and we do intend to use that money to continuing to move both our development programs as we well as our core technology antisense research program and our TIGER program forward.

Thanks.

This is Mark Monane;

I just had two quick question as well.

Good morning Stan, good morning Lynne.

Hey Mark.

Please could you comment on the alicaforsen phase III trials, clearly those are very, very important for investors going forward, can you tell us what gives you confidence that these trials will be positive and when -- in what form we can expect these data?

And then a semi-related question, can I ask you to spend sometime please, telling us about where you think we are in antisense therapy, clearly alicaforsen is going to have phase III trial results and if other companies are working on antisense and working on related areas like RNAi and oligonucleotide medicine [optimal] technology, if you could spend some time talking with us about that?

Thanks Mark.

Of course I want to [process] my comments about optimism about alicaforsen with the appropriate caveat.

It is a blind -- blinded phase III trial in a difficult to treat disease.

So we have no idea what the results are and won't until we un-blind the trials.

The reason we are conducting and the reason we think the drug has a good opportunity to a be value in these patients is first in quite a -- in several clinical experiments we have demonstrated that alicaforsen has activity in Crohn's disease.

So there is significant background information that suggests it should be active.

Second, we think that we have optimized the dose.

We now have a much better understanding of the dose of first generation drugs that's required to have efficacy in patient thanks to the work with this drug and 14803 and others and the dose that's been employed in these trial is about 2 or 2.5 half times the dose that was employed in some of our earlier work and our [inaudible] dose is that it, as you would expect a higher dose has a higher potential to be effective.

What we do know about trial is that the drug has performed well with regards to safety.

Obviously, when you raise the dose one of the risk that run is that you will run into additional side effects.

We have had no reported serious adverse events from that trial.

So we are reasonably confident that the drug will certainly not disappoint us because of patients dropping out because of side effects.

And finally there is a wealth of information that suggests what the target ICAM is intimately involved in inflammatory processes in the body, including the gut.

A great deal of work on that target demonstrate that it’s an early participant in recruitment of inflammatory cells to sites of inflammatory disease and it is particularly gratifying that the mechanism is very different from TNF-alpha because we do expect that quite a significant contraption of these patients will be TNF-alpha previously exposed.

So it's a different mechanism.

It should be -- and the target is, I think very well, appreciated to be involved on the process.

So matching the drug, the dose and the target with the disease is a part of drug development and we think we got those things right, so it gives us optimism that the trials will demonstrate value.

With regard to where antisense stands, I think we are first this year, just about to send its first generation antisense drug, we at Isis, that is.

With alicaforsen, the two phase III trial, then the additional trials of alicaforsen and UC and the Hepatitis C drugs, those are the last first generation drugs that we will be developing.

We have converted the second generation drugs and to date they met and exceed every expectation that we have had.

Every clinical trial that we have recorded with second generation drug has been positive.

We have been able to demonstrate target reduction.

We are learning about the dose that’s required to inhibit target in various tissues.

We know that the doses required for second generation drugs are perhaps 10 fold lower and we are seeing duration of effect that’s at the outer limit of what we might have hoped.

So the performance of second generation drugs continues to really excite us and as we [contemplate] the second generation drugs we are broadening it to include a lot of different diseases that we couldn’t tackle with first generation drugs.

And finally we are making great progress on all the different groups of the administration.

Right now we have oral trials in progress, animal trials in progress, subcu trial in progress, IV trials in progress, we are making great progress in aerosol administration and hope to have drugs by aerosol [inaudible] in the future.

So we are feeling really great about the technology.

Finally we take we own it and I think there is a lot of evidence that other people agree.

These transactions that occur with the Alnylam, the OncoGenex, ATL and so on don’t happen by chance.

They happen because we have -- we control access to the technology and we have the expertise in how to convert these things to drugs and that does include any chemically -- we believe most if not all chemically modified [activers] as well.

So we are feeling that this is going to be a great year for antisense technology and a great year for Isis.

And to date it’s been tremendous.

We are looking forward to lots more good news.

Thanks for the added information Stan.

Hope that wasn’t too long, I suspected it was.

You can't ask me that question and expect me to answer it briefly.

Fair enough.

Next please.

Thank you.

Our next question comes from Russell Gilbertson, Roth Capital Partners.

Please proceed with your question.

Good morning, Stan.

Hi Russ.

My compliments to you on all the work that you are doing at Isis.

Thanks.

My first question is in regard to Isis 104838, and I just want to get an idea of some of the timelines.

Are you going to actually report data on the preclinical safety studies in the high dose in other preclinical studies and in the long-term dosing study and when can we expect that?

And also, if you do start the Phase II trial in mid '05 as you stated, when do you think you would report data on that?

Okay.

First, we don’t report preclinical safety data just because we think it is not [menuworthy].

So, we'll finish these trials, we don’t expect any surprising results.

In fact, the repeats of trials that we've already done -- the first safety trial is repeat of a recovery trial, you know that when we do tox study, one of the objectives is to try to get very high doses, produce some sort of adverse event and then measure how long it takes for the adverse event to go away.

We didn’t get enough toxicity in our previous study with 104838 and so we're going go back and do that.

We -- and so those studies just set the stage for the big deal, which is additional clinical trials.

We'll -- of course, if we run into surprises or have something that's negative we will report it, but we certainly don't expect that.

We planned to start the trial in mid-2005 and I think it's just a little early to talk about the exact timing on when we report data, but it will be a fairly large trial because we are going to be comparing a couple of doses and schedules of subcu with oral administration.

So, we will take a while to enroll and we are going to be treating with background of methotrexate and treating patients for 3 months and following them for at least 3 more months.

So you should expect us to take a while to get that done and obviously that’s a crucial study because we have to see in the background of methotrexate that the drug can compete with the Embrels of the world and that the oral is producing activity at least equivalent to what we saw in a previous trial with the subcu.

So, that -- the pivotal experience with this drug is coming up and it sets the stage then for making decision about what its commercial potential is.

So we will do that for early [inaudible] and it will take sometime.

Would you expect to have a comparison arm in that study to Enbrel or Remicade or [Signera]?-

No, we don't plan to to-date because the trial, you know, you always have balancing acts between how many subjects you have in arms and how complex the trial is and we think the data with Enbrel and the other drugs is full consistent enough that we have a reasonable idea of what the target level of activity has to be for us to have a competitive drug here.

Sure, another unrelated question, just in terms of your revenues going forward, could you give an idea of how much that might be related to the government contract so we can model a little bit more precisely?

We actually don't have that number announced when we file our 10-Q, we will -- as you noticed in our last 10-Q and our 10-K, we will have percentages of revenue in there that will give guidance about what percentages of the revenue is from all the government sources together.

Okay, can we expect that sort of to be consistent going forward?

Yes

Okay, very good.

Thank you for answering my questions.

Yeah, we expect continuing support from the government for the TIGER system, there is a great deal of excitement about it.

Great, thanks Stan.

Thanks.

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

Please proceed with your question.

Thank you, good morning.

Hi, Doug.

I have got a couple of questions.

The first is on 104838, since it is targeting a different mechanism of TNF-alpha, what would be the theoretical limitations of it being used in combination with existing therapies?

Well, let's just -- the [purpose] to that is that the current inhibitors of TNF-alpha are proteins, monoclonal antibodies or the like.

They are large and they remain primarily in the central compartment, that is the blood and tissues that really have -- that are essentially a part of the blood compartment.

An antisense drug is small and distributes rapidly from blood into liver, kidney, bone marrow, fat cells, spleen, and then as we raise the dose can get into things like inflamed synovium and the like.

So the distribution of the drugs is different and it is reasonable to expect that we will see different results as we learn more about the drug with an antisense drug from a protein drug.

To-date, what we have observed is actually more similarity than difference to the protein drugs.

But over time, we certainly would be looking to observe different effects.

Further, of course, that in broader distribution gives us an opportunity to look more broadly for diseases that TNF-alpha may be involved in and so one of the things that we do want to do overtime is ask some questions with this drug about diseases that may be amendable to hit that would not be amenable to protein therapeutics.

And that's a task that will take a lot of clinical experience.

Now, with regard to combinations, probably it would make more sense to add a TNF-alpha inhibitor like 104838 to an ICAM inhibitor or to a VLA-4 antagonist rather than adding it to another TNF-alpha inhibitor.

So, as we look forward to combinations, we can think about combinations of 104838 with alicaforsen or with the second-generation alicaforsen or we can think about combinations with say VLA-4 antibody.

And we think about those probably before we I think about adding it to a Remicade or an Enbrel.

Okay, in terms of royalties on sales, if Macugen were to reach the market and also I think you indicated previously that you might receive some royalties on some basic chemistry from Roche, have you disclosed what level those royalties would be?

Well, we have said that the Macugen royalties that you should think in a lower single digits.

I think we've said that.

We have said 1-3% range -- we have said to 1-3% range.

Okay.

And with Roche, we said, you know, it’s again in the single digit range, this is the diagnostic set of products.

Are those royalties hit -- have they started yet or how soon do you expect those to?

The royalties for Macugen will begin once the drug begins to sell.

And we have milestone as Macugen progresses towards commercialization.

The royalties from Roche we are receiving and we expect them to ramp up as they convert more and more of their products to our chemistry.

Obviously, we can’t know the pace at which they will --

Okay, thank you very much.

Ladies and gentlemen, as a reminder, to register for a question, please press the “1” followed by the “4”.

And our next question comes Alan Segar (phonetic) from KBC Financial Products.

Please proceed with your question.

Hi, Good morning.

Good morning.

Two part of question, the first one is just wanted to check and see if your anticipation of cash [hold] announced for the end of 2006 includes the call on your convertible notes?

No, it does not.

And if that’s not the case then do you have plans of bringing either stock or that deal from market between now and end of 2006?

Obviously, as we get near the end of 2006 if we haven't identified other opportunities for revenue and cash which we -- would certainly be our plan that do, we need to think about the source of the cash and one of those could be doing the financing of some sort.

We always as do all biotech companies finance opportunistically.

And, so you know I can't say that we wouldn’t -- that we wouldn't consider doing that.

It's certainly not something with the cash that we have today and our expected sources of cash that we'd think of that doing today.

Okay.

Would you anticipate at this point that you could do a portion of that through bank loans or would it be through the capital markets?

We've -- because of something that we wouldn't consider until the future and it's dependent on the equity markets, our stock price, availability of other sources of funding, partnerships, revenue from partnerships.

You know I think, we would consider all available financial sources you know including a bank loan.

Okay.

Thank you.

You bet.

Other question.

Our next question is from Barney Sagman (phonetic).

Please proceed with your question.

Hi, congratulations.

Most of them have been answered just a few clarifications.

On you cash burn for the quarter, your guidance for the cash burn going forward, and also Stan if you could just comment about your excitement relative to the second stage antisense and the first stage antisense just a general overview picture?

Thanks.

Guidance on the --

Our guidance on our cash burn [Barney] is the -- that we -- believe with, you know, our current cash as well was, you know, reasonable anticipation of future source of the cash that we got cash to assess through the end of 2006, at least through the end of 2006.

But the yearly number in terms of your expected burn till the end of 2004 for example?

Yes, the guidance that we provide in terms of financial guidance is net operating loss guidance and the net operating loss guidance that we have provided is that without taking into account concentration, expense or benefit we expect our net operating loss for this year to be in the mid $80 million range.

Okay.

So, I think the question you asked was just to compare and contrast second-generation versus first-generation, did I understand that correctly?

Sure, no, that’s fine.

Okay, so my enthusiasm and excitement about second generation chemistry is like any other excitement that I have with our database and the data are very clear and so then in the animals and now in the man, second generation drugs are in the range of 5-10 times more potent.

That’s really changes a lot of things for us, it increases therapeutic index, it means we [inaudible] drug and it helps us get the tissues in work in ways the first-generation drugs just can't do.

Second, these drugs are much more stable and so they are cleared much more slowly and so our data are telling us now that in man that we may be able to dose for at least some indications like those in the liver or fat as infrequently as once a month.

That means that we can think about all kind of diseases and we have convenience of dosing that first-generation just cannot achieve and it gives us the flexibility of dividing the dose into very small doses and giving it more frequently or if patients prefer extending the dosing period, perhaps even longer than a month.

Third, it's very clear to us from all of the animal work that we have done and now the human work that second generation drugs are safer.

So we increased potency, increased convenience, reduced cost tremendously as much as 100 fold, and increased safety.

We are continuing to make progress on all of our [availability] and so that’s another boom that second-generation drugs provide us.

Again, that's something that can’t be done with first-generation drugs.

So it's very hard for me to contain my excitement about the performance of these drugs.

And if you look at what we have announced this year, every single trial we have done has worked.

That's another plus. 104838 has been positive in 2 Phase II trials.

The first experience with 715, the PTP-1B inhibitor, we made normal, people have improved glucose tolerance tests.

OncoGenex, the data there are exiting the cancer community.

I mean they are absolutely compelling.

The target reduction was dose-dependent, it occurred in a difficult-to-get tissue, prostate cancer.

The dose that was required to get a 50% reduction, this is what you measure because its most accurate part, was only a 150 milligrams a week, they got up to 90% reduction in prostate, they also got reduction in draining lymph nodes, and the prostate cancer cells died.

In the mean time, 012 is progressing and we hope to have information about that drug's ability to reduce apoB-100, cholesterol, LDL, VLDL in man soon.

So on top of all the conceptual , theoretical and data-based experience, just a fact that every experiment we are doing in man is working at the outer edge of what we hope, really is thrilling to us.

We think it's going to really change everything.

Thank you.

You bet.

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 and very much appreciate the interest and support of everyone on the phone.

Great questions, I appreciated them.

And we wish you a good day and we will keep you posted as we continue to progress.

Thanks very much.