Ionis Pharmaceuticals Inc (IONS) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Isis Pharmaceuticals second-quarter 2005 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 Monday, August 8, 2005.

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

Please go ahead, sir.

Thank you.

And thanks, everyone, for joining us on today's conference call to discuss the financial results and highlights from the second quarter of 2005.

Participating with me are Lynne Parshall, Executive Vice President and CFO;

Beth Hougen, Vice President of Finance; and Claudine Prowse, Director of Investor Relations.

We have made and reported steady progress across all areas of our business thus far this year.

Specifically, we have reported additional positive clinical data on our second-generation drugs.

We've achieved success in our current partnerships, illustrated by the milestones we just received in our new ophthalmology collaboration with Pfizer and, of course, the extension of our productive drug discovery collaboration with Eli Lilly.

Continued progress in the development of our TIGER biosensor -- it has been demonstrated, and we are meeting the milestones that we outlined in our commercialization plan.

And then, finally, we have further strengthened our balance sheet by reducing expenses and related cash use, and by converting the $100 million of debt to 2.5 million shares of stock -- $100 million debt in Lilly.

On today's call, Lynne will briefly review our financial results, described in the financial press release issued earlier today, and then review recent business highlights.

I'll spend some time commenting on some of our most recent accomplishments.

We do think we have made important progress in the two fundamental areas of our business -- advancing our pipeline of antisense product candidates and commercializing our TIGER biosensor system.

Of course, we'll then answer questions at the conclusion of our prepared remarks.

Before we begin, Claudine will review our policy on forward-looking statements.

This conference call includes forward-looking statements regarding Isis's business, the financial position of Isis, and the therapeutics and commercial potential of the Company's technologies and products in development.

Any statement regarding Isis's goals, expectations, intentions or beliefs is a forward-looking statement, and should be considered an at-risk statement, including those statements that are described as Isis's 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 developing and commercializing systems to identify infectious organisms that are effective and commercially attractive, and in the endeavor of building a business around such products.

Isis's forward-looking statements also involves assumptions that, if they never materialized or prove correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements.

Although Isis's forward-looking statements reflect the good safe judgment of its management, these statements are based only on facts and factors currently known by Isis.

As a result, you are cautioned not to rely on these forward-looking statements.

These and other risks concerning Isis's programs are described in additional detail in Isis's annual report on Form 10-K for the year ended December 31st, 2004 and its quarterly report on Form 10-Q for the quarter ended March 31st, 2005, which are on file with the SEC.

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

And now, here's Lynne.

Thanks, Claudine.

Now, I'll discuss the financial highlights of our second quarter.

I'm assuming that you've all had an opportunity to review the earnings release that we issued earlier this morning, so rather than repeating the details in the release, I'm going to first review the financial highlights of the quarter, and then I'll try and put our financial results in a strategic context for you.

Earlier this year, we completed a corporate restructuring that has allowed us to focus our resources on advancing our most promising second-generation drugs while reducing our expenses and cash use.

This restructuring has allowed us to significantly reduce our cash burn to $23.2 million in the second quarter of this year, compared to 33.5 million in the second quarter of last year.

Our second-quarter pro forma operating expenses were 34% lower than our operating expenses for the second quarter of 2004, adjusted for restructuring costs and non-cash compensation expense.

As the year progresses, we expect to continue to see the benefit of these reductions in operating expenses and in cash use as a result of the cost containment measures we have implemented.

We are on track to achieve our projected net operating loss from the year in the low $50 million range.

Earlier today, along with the extension of our drug discovery collaboration with Lilly, we announced that we had converted the $100 million loan from Lilly that has funded our joint research collaboration.

Under the terms of the loan, we had the option of repaying the loan in cash or converting it into 2.5 million shares of common stock, reflecting a conversion price of $40 per share.

Because the conversion terms were very favorable, we converted the loan into 2.5 million shares.

Lilly has agreed not to sell these shares until at least the fourth quarter of 2006, assuming our collaboration is not terminated earlier than that, in exchange for certain credits against milestones and royalties in the event of a stock price decline.

The substantial reduction in debt through the conversion of the Lilly loan, combined with our significant reduction in cash use, represent important steps we've taken to strengthen our balance sheet, and we're pleased with the impact that will be reflected in our third-quarter financials.

We plan to continue to explore activities to strengthen our balance sheet further.

Historically, we funded the Company through a combination of corporate partnerships and equity, and we plan to continue this funding strategy so that we can invest in our key corporate assets, namely our robust pipeline, TIGER and our intellectual property estate.

We are very encouraged by the level of interest today in potential partnerships for our drugs and technologies, so we enter the second half of the year with substantial optimism about partnering and financing options.

However, no deal is done until it's signed, so we plan to continue to pursue all attractive financing alternatives and attempt to create the optimal mix of funding sources to support the execution of our goals.

In addition to our recent financial achievements, we've made important progress in the other key areas of our business, including advancing our drugs through development, expanding our partnerships, and implementing the commercialization plan we laid out for our TIGER biosensor system.

With 11 drugs in our pipeline, we have numerous potential commercial opportunities.

The encouraging results reported at the American Diabetes Association meeting in June on two of our second-generation drugs -- ISIS 301012 for the treatment of high cholesterol and ISIS 113715 for the treatment of Type II diabetes -- as well as the progress we've made in our preclinical programs demonstrate that second-generation antisense drugs are working.

Stan will discuss these drugs in more detail later in the call.

Out long-term partner, OncoGenex, recently initiated a Phase II clinical trial for OGX-011, a cancer drug that arose out of our collaboration.

We are pleased to see our partnered drug pipeline advancing, as it allows us to participate in more therapeutic opportunities than we could afford to invest in on our own, and to work very closely with high-quality partners who add value to the portfolio.

We've also made important progress in partnering.

In June, we entered into a multiyear drug discovery collaboration with Pfizer to identify second-generation antisense drugs to treat eye disease.

Already we've met two research milestones in this collaboration, which will result in milestone payments of $600,000.

These milestones are evidence of the early success we are experiencing in this new collaboration.

And as mentioned earlier today, we announced an extension of our four-year research collaboration with Lilly.

We are very pleased with Lilly's continued commitment to antisense, as demonstrated by their investment in the development of two anti-cancer drugs -- LY2181308, targeting survivin; and LY2275796, targeting eIF-4E.

To that list of drugs, Lilly has now added ISIS 345794, our STAT-3 inhibitor.

The new collaboration provides Lilly the opportunity to identify even more antisense drugs for its pipeline.

The program will consist of six to ten Isis scientists who will be supported by collaboration funds, and a group of Lilly scientists who will be paid for by Lily.

We are looking forward to another two years of working together to discover new antisense inhibitors to add to the Lilly pipeline.

As part of the collaboration extension, we have also granted Lily rights to practice certain pieces of our technology on its own to create antisense drugs to inhibit a limited number of molecular targets.

This will enable Lily to continue to participate in antisense technology more broadly.

And this expansion reflects the productivity and value of our relationship with Lilly, as reflected both in the platform and in the drug candidates we've created together.

Recently, we have also received several new contracts from government agencies to support continued development of our TIGER biosensor system, including a grant for up to $4.9 million from the NIAID, part of the NIH.

It should allow us to significantly progress the clinical diagnostics applications for TIGER.

In addition, we received over $6 million in contracts from several government partners, including the Department of Homeland Security, the Department of Defense and other agencies, for a total of $12.3 million since April to develop and advance other applications of the TIGER biosensor system.

These contracts provide for the broad development of the TIGER system in numerous applications and support collaborations with world-class institutions such as the John Hopkins University Medical Center, ARUP Laboratories and the Lovelace Respiratory Research Institute.

We've earned total revenue since inception through June 30, 2005 of $41.4 million for our Ibis division.

An additional $12.1 million is committed under existing contracts and grants, with the potential for added funding.

An important milestone in our commercialization plan for TIGER is represented by the shipment just last week of the first TIGER system to USAMRIID for use in biowarfare defense, and we plan to ship additional systems to our government customers later this year.

These systems should begin to provide continuing revenue as we sell infectious organism identification test kits for use with the installed systems.

In addition, we plan to market systems to additional U.S. government agencies and to nongovernment customers.

In summary, we are very excited about the progress we have made this quarter in all areas of our business, and we believe we are poised to continue to successfully execute our goals for 2005.

Now, back to you, Stan.

Thanks, Lynne.

I will comment on a few of the key accomplishments we've made recently, but principally, I want to focus on the future.

We have reached a value inflection point in the two fundamental areas of our business -- our pipeline of antisense products and TIGER.

Why do I say that?

First, we've completed the plan to convert our pipeline to second-generation antisense drugs, and to show unequivocally that they are effective in man.

Part of our strategy from the day we were founded was to invest in basic research to create an improved generation of antisense drugs.

The performance of second-generation drugs attests to the quality of the science and the commitment to the strategy that we defined from the beginning.

We've taken advantage of the improved performance of second-generation antisense drugs and new therapeutics areas, such as cardiovascular metabolic diseases, to our portfolio of opportunities.

We've also implemented the strategy of selecting undruggable targets -- expressed in organs where we know we get high concentrations of second-generation antisense drugs -- and to pick targets that would support early and absolute evidence that the drugs are working in man.

In addition, we are succeeding in defining the dose and the schedule of second-generation drugs in man.

This will result in a substantial reduction of this going forward, because we can be confident that we are picking appropriate doses and schedules for larger efficacy trials.

Finally, we've continued to expand our roots of delivery.

Most recently, we have expanded roots of delivery to include aerosol.

Furthermore, we expect results from our first oral pharmacology study this year with the lipid-lowering drug ISIS 301012.

TIGER has also made significant progress.

We recently published several papers showing TIGER's broad range of abilities.

We've added more government partners and substantial new funding, all of which support the activities that are on the critical path towards several important commercial applications at TIGER.

And in addition, we are working together with high-quality government partners and medical institutions.

And that list of medical institutions and government partners winds and broadens and deepens, because of the breadth of the opportunity that TIGER presents to provide for the needs of these partners and potential customers.

As Lynne mentioned, we have just recently shipped the first TIGER system to one of our government customers and of course more will follow suit.

So with that outline, let me give you some examples of our strategy in action.

First, in developing our pipeline, I think ISIS 301012 is the perfect example of all of the components of our strategy in action.

ApoB-100 is a target that is expressed in the liver, the organ to which our drugs best distribute.

It's expressed actually in enpatocytes (ph).

Those are our favorite cells.

It is biologically and genetically validated with the protein that you must have to make LDL and VLDL, so if you don't have apoB-100, you simply can't make that cholesterol.

And because it is a large, complex protein that is heavily modified, it's been difficult to inhibit using traditional drug platforms.

Further, the effects of inhibiting apoB-100 are unequivocally, rapidly, and easily measured in blood in humans and all other animals.

They include the reductions of apoB-100, the protein, LDL, VLDL and total cholesterol.

And, of course, remember that LDL and VLDL and total cholesterol are the approvable endpoints that will be evaluated by the FDA for approval.

We recently reported results from our first study of ISIS 301012 in man.

Because of its importance, let me just spend a minute reviewing the design and the results.

In this study, which was in normal volunteers with slightly elevated cholesterol, we treated volunteers with four dose levels of ISIS 301012.

Those doses ranged from 50 to 400 milligrams a week.

Subjects were dosed for only 21 days, and at the American Diabetes Association, we reported the results from the 36 volunteers that were in this study.

After only 21 days of dosing, ISIS 301012 produced impressive dose-dependent, very long-lasting reduction of apoB-100, LDL, and VLDL in total cholesterol.

In fact, at 200 milligrams a week, we demonstrated a 50% reduction in apoB-100, 35% reduction in LDL, as well as reductions in VLDL and total cholesterol, of course.

The drug was well-tolerated.

There were no treatment-related severe adverse events.

In addition, we showed that the drugs had a very long period of activity.

In fact, we had to follow subjects for longer than the three months that we had planned, because a number of those subjects demonstrated benefit that lasted even longer than 100 days.

To add to that exciting news, we just reported additional data from a group of normal subjects -- again, the same type of subjects that were in the first study -- who had mildly elevated cholesterol.

These subjects were treated with 350 milligrams per week for approximately a month.

Remember that in the first study, we dosed subjects with 50 to 400 milligrams of ISIS 32, but only two subjects were dosed with 400 milligrams.

And so, what we wanted to get was a bit more experience with the higher dose levels that were represented by 350 milligrams.

So in this additional group of subjects, treated at 350 milligrams a week of ISIS 301012, we showed impressive results.

In this study, ISIS 301012 resulted in immediate reduction of apoB-100 of 60% and LDL cholesterol of 54%.

Again, it was well-tolerated, consistent with the observations made in the first study.

When you consider that these are normal subjects who were dosed for only a month, and that the drug resulted in lipid lowering that is the equal of any results reported by any lipid-lowering drug for longer periods of time in patients, I think this is really spectacularly impressive and very encouraging.

Another unique observation from these two studies is that we have demonstrated a clear and definitive correlation between not only the absolute amount of reduction of apoB-100 and LDL, but also the percent reduction and entry levels of apoB-100 and LDL.

So what I mean by that is the higher the baseline levels of apoB-100 and LDL, the greater the percentage reduction achieved by ISIS 301012 treatment.

While we only made this observation in a limited number of normal subjects, it is certainly intriguing, as it suggests that the patients who need it the most -- that is, those with the highest cholesterol -- may benefit most from taking the drug.

We also believe, given the long half-life of the drug, that as we dose for longer periods of time, we should see even greater effects.

So we have a drug that is working.

It has an exciting profile of being able to reduce lipid levels significantly, and based on the data we have so far, could be administered on very effective schedules that range from very low doses weekly to somewhat higher doses as infrequently as quarterly.

ISIS 301012 is representative of another component of our strategy.

That is, we've structured our development plans to define a relatively rapid route to commercialization in areas of high unmet medical need to help fund the longer-term development path of this drug.

Our plan is to first develop the drug in familial hypercholesterolemia or FH, because we believe that will allow us an accelerated pathway to commercialization, because the unmet medical need in this desperate patient population is so high.

Assuming our clinical data are positive, we believe we can file an early NDA for ISIS 301012 for patients with FH.

We believe ISIS 301012 has the potential to lower cholesterol in this desperate patient population, and as a result, to decrease cardiovascular risk and prolong lives.

We plan to initiate studies in FH as rapidly as possible this year.

We will also begin Phase II studies to optimize dose and schedule of ISIS 301012 with a single agent, as well as to begin combination studies with atorvastatin, other statins and possibly other commercially available lipid-lowering drugs.

These trials will address the large commercial market represented by the traditional population of patients with high cholesterol that comprise the $18 million (ph) statin market.

So ISIS 301012 works.

But can the subcutaneous product be commercially attractive?

We and several experts in the cardiovascular community believe the answer is unequivocally yes.

To answer the question, we've commissioned an analysis of the market, but more importantly -- certainly, to me -- we have spent a great deal of time talking to experts in the field, all of whom are excited about the drug.

ISIS 301012 works through a novel mechanism.

It is impressively potent (ph).

It is expected to be additive to statin.

It is unlikely to have any meaningful drug interactions, and does not appear to get in skeletal muscles like statins do, and therefore is very unlikely to produce the muscle toxicities associated with statins.

We intend ISIS 301012 to be an adjunct to other lipid-lowering therapies in patients at risk of cardiovascular events who can't achieve their lipid targets.

That's a very large group of people, and it's growing as the population ages and recommended lipid targets are lower.

We also feel that ISIS 301012 can be an ideal drug to treat the population of patients who are concerned about statin toxicities.

Further, we hope to be able to offer dosing options that range from very low weekly doses, easily administered at home, to higher doses that could be taken potentially as infrequently as quarterly.

We believe ISIS 301012 can support a very large market opportunity as a sub-Q product, and the senior cardiologists that we have spoken to agree.

Longer-term, we think the oral form of 301012 may also add to the commercial opportunity for the drug.

Let me emphasize that we are committed to the commercialization of the sub-Q product as an immediate and primary goal.

We are, however, making substantial progress in the oral program.

As you know, we initiated an oral study in March.

In this study, we're giving daily oral doses for one month to normal volunteers with elevated cholesterol that we believe will approximately replicate the exposure of the weekly sub-Q doses in the previous study.

But it is basically a repeat of the study that we just completed, except the drug is given orally.

We hope that from the oral study, we will have data demonstrating that oral administration of ISIS 301012 also lowers lipid levels.

Although the study is blinded, I can tell you already that the drug is well-tolerated as an oral product.

We're looking forward to analyzing the data from this study, and are very excited about this follow-on opportunity.

Now, let's talk about ISIS 113715, our PTP-1B inhibitor.

ISIS 113715 is another example of successful implementation of our strategy.

The target of ISIS 113715 PTP-1B is expressed where our drugs go best, in the liver and in the fat.

PTP-1B is a highly attractive but undruggable target.

It is a key regulator of insulin signaling, and the hope for this target has been that by inhibiting it, we could enhance insulin signaling in a manner that would not produce hypoglycemia.

We and our collaborators have now reported, both at the ADA and in several publications, that ISIS 113715 is demonstrating exactly that profile -- exactly the profile that we and others interested in PTP-1B hope for.

The study that we reported at ADA achieved two its most important goals, which were to identify an effective dose and to demonstrate safety.

ISIS 113715 demonstrated a dose-dependent reduction of hemoglobin A1C level after just six weeks of treatment.

Remember that because we did not expect a reduction of hemoglobin A1C in such a short time, the study was not powered to result in statistical significance.

Nevertheless, the data are very positive and very, very encouraging.

Reduction in hemoglobin A1C is very rare in such short treatment.

It typically takes 26 to 52 weeks for many marketed antidiabetic drugs to lower hemoglobin A1C by 0.5%.

So we are very encouraged to have achieved numbers in that range in just the six-week treatment that we performed.

We observed no hypoglycemia, no nausea, no weight gain, no metabolic acidosis, no kidney toxicities, and no significant liver toxicities, as well.

The six-week study continues to progress nicely.

As planned, we are examining doses of 400 milligrams and 600 milligrams per week.

Results from these cohorts of patients will be available later this year.

We have also initiated the 12-week dosing study, and hope to have results available from this important trial early next year.

In this trial, we will have the first opportunity to begin assessing the real potential of the drug to reduce hemoglobin A1C when it's dosed over a longer period of time in patients with Type II diabetes.

Additionally, our first combination study is in progress and that, too, is going well.

Subsequent to the ADA, we have a successful pre-IND meeting with the FDA, where we presented a protocol that will characterize the metabolic effects of ISIS 113715 in diabetic patients, which we plan to conduct in Dr. Gerry Shulman's clinical laboratory at Yale.

The IND will be submitted very shortly.

Moving forward, we believe ISIS 113715 can be a novel insulin signaling enhancer that can be given as infrequently as once a week or less frequently, and can reduce glucose with no threat of the worrisome side effects of other antidiabetic drugs.

For these reasons, we believe that ISIS 113715 will have substantial advantages over currently available therapies, and will work well in combination with existing antidiabetic drugs.

When you consider the data on ISIS 113715, together with the data on ISIS 301012, you can see that we now have two notches on our dose determination belt, and that our strategy of selecting undruggable targets in organs where our drugs go is working, and that picking targets with well-defined therapeutic endpoints is also working.

Now, let's look at another notch.

And this comes from the results of the study with OGX-011 in patients with prostate cancer reported by our partner OncoGenex earlier this year.

In this study, prior to having their prostate surgically removed, patients with disseminated prostate cancer were treated with OGX-011 for, again, one month.

OncoGenex demonstrated that the drug accumulated in prostate cancer tissue, and that it was quite potent in reducing its target, clusterin, and that they got the pharmacology they hoped for, which was the death of cancer cells.

When you add this information that I've just described to the pharmacological data that we've also seen with other second-generation drugs in man, it means that second-generation drugs are performing as well, and in fact, I believe, even better than we hoped.

They are much more potent, better tolerated, and they can be given much less frequently than first-generation drugs.

Moreover, we now have a clear understanding of the doses and schedules that we need to use for targets expressed in (indiscernible) organs, organs that are much more difficult to reach, as well as those in between.

Inasmuch as one of the most common reasons for failure in Phase III trials is the failure to select the optimal dose of schedule, we believe this information will now reduce our risk quite meaningfully.

And it reduces the risk across the entire pipeline for drugs that have clear endpoints, and even for drugs where clear endpoints are not achievable, because we can use the common properties of these drugs, and all of this information will be put together in a way to help us select doses, even for those more difficult to manage drugs.

Alicaforsen is the last of our first-generation drugs.

We're focused on completing the development of the enema formulation for the treatment of ulcerative colitis.

We believe continued investment in this drug has merit, because we are confident that the drug works.

We have identified objective Phase III endpoints and it is close to the market.

We think the first indication can conservatively generate $100 to $300 million in revenue.

At Digestive Disease Week, we presented data from our entire Phase II program which involved more than 300 patients in several studies, all of which showed similar positive data.

We were delighted with the level of excitement that the GI community at DDW gave to this data package.

The duration of action of alicaforsen enema which is the key commercial opportunity, I think, is what caused the most interest.

In the meantime, we are preparing to meet with the FDA to discuss our Phase III plans.

We think we have an excellent plan that can be implemented relatively rapidly and relatively inexpensively.

It involves two small randomized placebo-controlled trials.

We will propose two specific endpoints that we have identified in the Phase II trials, and we believe this is important because the specific endpoints will result in better discrimination between active drug and placebo.

We look forward to the opportunity to discuss our development plan with the FDA while continuing to work toward partnering Alicaforsen.

Now, let's spend a minute on TIGER.

The TIGER biosensor system is an added asset.

Again, we have a clear commercial strategy that we are exploiting, and we presented it.

As Lynne has already described Ibis's recent accomplishments, let me just spend a minute to remind you about what TIGER is and why its potential is so exciting.

TIGER is a product that will work on RNA genomics.

It is unlike any currently marketed products in the bioweapons or clinical diagnostics field.

A single test that can identify virtually any infectious organism -- ultra sequence (ph) -- it can even identify previously unknown newly emergent or bioengineered organisms.

And thanks to government funding, we know it works.

We know it's rapid.

We know it's sensitive.

We know it's specific.

And we know it can be used for a large and ever-growing range of commercial opportunities.

What is also attractive about TIGER is that thanks to the funding from our government partners, we've been able to develop this technology without significant cost to our shareholders.

This is and will continue to be an essential part of the strategy for continued development of applications for TIGER.

We will commercialize the system to government customers first, then move to additional opportunities.

We continue to partner with potential customers to create applications for them.

It's proven to be very, very successful with our government partners and we are confident we can replicate it in other areas.

We are also confident that TIGER will bring value to our shareholders in the near and the long term.

We just rolled out of the TIGER commercialization plan last year, and we've already made significant progress in executing the strategy we described.

We are experiencing increased interest in TIGER from the investment community, but we think our investors are beginning to recognize the near-term value of this exciting opportunity while we, of course, continue to pursue its longer-term value.

Moving forward, we have quite a number of irons in the fire.

Our attractive drug pipeline, coupled with the movement of TIGER towards commercialization, should produce numerous potentially positive catalysts in the near term.

And we expect the next five months to be very busy.

Here is a summary of our goals for the rest of the year.

For alicaforsen for ulcerative colitis, we need to prepare the Phase III development plan and have a successful meeting with the FDA.

We also hope to create a good partnership for the drug.

For ISIS 301012, we want to demonstrate that oral 301012 is safe, is absorbed, and reduces cholesterol in normal volunteers.

We will be initiating single-agent Phase II studies to define dose and schedule of ISIS 301012.

We will initiate combination studies with statins and other cholesterol-lowering drugs.

And we'll initiate studies in patients with familial hypercholesterolemia.

With ISIS 113715, we want to finish the first Phase II trial and report the final results from the next two dose groups and show activity of ISIS 113715 as a single agent in patients with Type II diabetes.

We want to define the optimal dosing schedule for future clinical trials.

We want to advance the 12-week study as a single agent, and we hope to report that early next year.

And finally, we want to initiate combination trials with other antidiabetic agents.

In TIGER, we have just deployed the first instrument to our first government customer.

We want to deploy additional instruments to other government customers.

Of course, we want to continue broadening the applications for the TIGER biosensor system, and we want to create non-government partnerships with advanced applications in the TIGER biosensor system in a variety of ways.

So with these goals and milestones, we hope to generate significant additional value to the Company and our shareholders, and obviously, we look forward to keeping you updated on our progress.

We certainly appreciate your support.

Now I'll open up and answer whatever questions you have.

(OPERATOR INSTRUCTIONS).

Aaron Reames, Stanford Group Company.

Thanks for the thorough overview, and congratulations on the quarter's accomplishments.

The first question I had is on alicaforsen.

Are you saying that you'll go ahead and move into the Phase III program without a partner, depending upon the FDA meeting?

Yes, we certainly hope to have a partner by then, and we're working hard at it.

But we, having spent a lot of time looking at the drug and talking to lots of experts, are certainly convinced that this drug has a real commercial future.

So we will develop it ourselves if we don't have a partner, unless the FDA throws us a curveball and asks for things that we think are unreasonable.

Okay.

And then, can you define what -- you said two small randomized trials.

So could you define what small might be, even in a range, potentially?

Yes. 200, 300 patients.

Okay.

And then, you said that you have two endpoints that you would be trying to get included in the trial, and can you expand upon that?

Well, remember that in patients with ulcerative colitis, you do have the opportunity to look at mucosa.

And so we have the opportunity to look at things like mucosa healing, rectal bleeding, as well as symptom scores and the like.

I think rather than get more precise about that today, I'd rather wait until after we have our FDA meeting, and then describe the endpoints in the studies in more detail then.

Okay.

And then, last question -- I know there's a relationship in place with Hybridon, and in the quarter, they signed about a $140 million deal with Novartis on their oligo program in asthma.

I was wondering if you could remind us what the relationship between Isis and Hybridon is, and if they are using any of Isis's chemistry in that program, and then kind of what you're partnering thoughts are for your asthma program going forward.

I don't remember, so I'd better ask Lynne.

Aaron, my recollection of that Hybridon press release is that they're looking at their non-antisense immunostimulatory oligos in that collaboration.

Is that what you recall about that, as well?

Yes, it was their immune modulatory oligos.

Exactly.

And Hybridon does not have rights to use any of the Isis chemistry in immune modulatory oligos.

So we haven't spoken to them directly about that collaboration, but I expect that they are not using our chemistry, because they wouldn't have rights to.

But Stan, do you want to talk about partnering our asthma program?

We're working on it.

I really can't comment beyond that.

The first product from the asthma program IL4-receptor-alpha is progressing nicely toward clinical development, and we hope to get that done here in the next little bit.

In the meantime, we are talking with partners.

There are relatively limited numbers of potential partners in asthma.

Much of the pharmaceutical industry has really exited asthma, so the numbers of potential partners is pretty small.

(OPERATOR INSTRUCTIONS).

Dallas Webb, Stanford Group Company.

At the beginning of the call, Lynne outlined basically a focus on partnering and financing.

Of 3715 and then 301012, which of these is most likely the near-term partnering candidate?

And can you comment on the timing of that?

And then also, financing, what's the likely timing of a financing?

Are we talking about the next month or two?

Next year?

Could you just comment on those for me?

Well, I think what Lynne was saying is that the challenges of building a Biotech company are all about science, partnering and financing, and we've got a long history of being able to do all three, and that we'll continue to work to balance between partnering and financing.

What she also said, which I want to second, is that we never experienced the level of interest that we have in partnering that we do today.

And remember, we have a very successful history of corporate partnering.

And finally, she said but no deal is done until it's done.

So we are working to finish negotiations, conversations, about a variety of transactions.

In the end, cash is fungible, and the nature of those transactions will be defined by our partners' interest and our desires to retain drugs.

We think ISIS 113715, when it finishes the Phase II programs that we have in place, will have achieved a significant value inflection point.

And so, in a perfect world, its partnering opportunities enhance in the near term, after we complete some of these trials.

ISIS 301012 has already generated a great deal of interest.

On the other hand, we in a perfect world would try to hang onto that drug for a bit longer.

So we have to balance all of those things with financial reality.

And it's very difficult for me to predict, and I obviously wouldn't, what the precise outcome of that set of equations will be.

Okay.

Fair enough.

And as far as alicaforsen, do you have enough cash right now to fund the Phase III programs?

Lynne, do you want to answer that?

We're very excited about the commercial opportunity for alicaforsen and we, I think, designed a Phase III program, which subject to what the FDA thinks about it when we put it in front of them, is large enough to get the job done, but cost-conscious.

We would have to make some prioritization decisions to move that drug forward in the context of our large pipeline.

So what I need to say is it's dependent on what we do, as Stan outlined, in terms of partnerships and financing.

We are feeling very comfortable about the position we are in, with regard to partner interest, and we have historically been very successful in balancing partnering and equity-based financing to fund the Company.

So we are confident that if we have a successful FDA meeting and don't yet have a partner on board, that we'll be able to move the drug forward.

Gabe Hoffman, Accipiter Capital Management.

Just to understand how the Lilly extension will affect the balance sheet, will the 100 million loan that is being forgiven -- will that be a reduction in the line item long-term obligations net of current portion?

Yes, that's correct.

And regarding the 5.5% convertible subordinated notes of 125 million face value, are there any covenants associated with those regarding Company's minimum cash balance or Company's number of -- amount of time cash the Company must have to fund operations or anything of that nature?

No, there's not.

And they convert in 2009, if I remember correctly.

It comes due in 2009.

And the conversion price is --?

The equity would be --?

16 (ph) --

16.625 (ph).

A couple of comments about Lilly I think are really important -- the conversion of the loan, of course, we've told people we would do, but it's not done.

And it does take a $100 million loan off our balance sheet, which did cause a number of people to worry.

And the fact that Lilly will not be selling those shares during the remaining collaboration expansion, I think, is very positive.

What's probably more positive to us is the continuing investment of Eli Lilly in antisense technology.

Again, they're voting with their feet.

They're spending money on drugs in development.

They have added STAT-3 and we expect quite a number more to go into development over the next little bit.

So we've benefited tremendously from the Eli Lilly collaboration, both in funding and in the quality of science that they have contributed to RNA-based drug discovery.

The fact that they are continuing to participate in RNA-based drug discovery in collaboration with us is a very important statement -- a very important statement that we want to make literally.

We have granted been limited access to our patents, so that they can practice antisense on their own, for a limited number of targets, for a period of time.

We think their contributions to the technology and to Isis warrant that.

And we're pleased that indeed, that's an important asset to them.

Again, I think it displays the progress that's been made in the collaboration relative to bringing antisense to commercial reality, and the commitment that Eli Lilly has to participating in that.

Lynne, do you want to add or subtract anything from the Lilly conversation?

No.

Michael McNulty (ph), Context Capital (ph).

I just wanted to know if you could expand a little bit more on Lilly's continued funding, if you don't mind.

I had hoped that when the loan was converted, that there might be some formal announcement that they were going to loan you another exit amount of millions of dollars.

And it sounds like there is more money coming in from them, but I just wasn't sure how much or what range or so forth.

Just wondering what their level of commitment is, please, financially?

Lynne, do you want to answer that?

Sure.

In addition to -- Lilly is going to be moving forward the STAT-3 drug, and obviously funding the development of that.

They also are providing quite a number of resources to the continued collaboration.

As you might expect, Lilly doesn't let us comment specifically on specific dollars.

The collaboration extension is smaller.

As we've said, it's six to 10 people on the Isis side moving forward, but we do expect additional funding from Lilly to come out of that.

The $100 million was spent over a period of time, obviously, but I'm just trying to get a sense -- is it the same -- do you expect it to be the $100 million range over the next three years or something?

No, we don't.

The 100 million was spent over four years.

And the extension is not in that same range.

And the extension is for 18 to 24 months,

And then, last question, on Pfizer -- can you just talk a little bit about how important what you are doing with them is right now, and how that's being affected by what's happening with Macugen and Genentech's new drug, please?

Well, you probably remember that the first drug we developed was a drug for the eye (multiple speakers).

And we subsequently invented second-generation antisense drugs, and actually had some interest in second-generation antisense drugs for inflammation in the eye.

What the Pfizer relationship does for us is it provides a high-quality partner to pursue the eye once again.

We had to prioritize the eye off of our development and research program, simply couldn't afford to do it.

So first, it provides an opportunity to explore second-generation antisense drugs for the treatment of retinal diseases.

And in that sense, it's very important for us, because it opens up another organ, another delivery system, and funding to support that.

From the Pfizer perspective, I really can't comment, other than to say they are intensely interested, obviously, and they are pleased that we've achieved the first couple of milestones in the collaboration.

I think their experience with an oligonucleotide, Macugen -- of course, Macugen is in aptamer, but it's an oligonucleotide which uses some of our chemistry, and that's how we (multiple speakers) on that.

Their experience with that drug probably facilitated their broader interest in using oligonucleotides in general in the eye.

And from the sound of it, I would guess that Pfizer is committed to being in the eye for a long period of time, with Macugen being perhaps the first example.

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

I will turn the call back over to you.

Please continue with your presentation or your closing remarks.

If there are no additional questions, I want to thank everyone for their interest, and look forward to continuing to progress and keep you informed with what we're doing.

Thank you.

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.