Ionis Pharmaceuticals Inc (IONS) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thanks for standing by.

Welcome to the Q3 Financial Results Conference Call for Isis Pharmaceutical. [Operator Instructions]

I would not like to turn the conference over to Dr. Stan Crooke, Chairman and CEO for Isis Pharmaceuticals.

Please go ahead, sir.

Thank you, Nelson, and thanks, everyone, for joining us on today’s call to discuss the financial results and highlights for the third quarter of 2005.

Participating with me are Lynne Parshalle, EVP and CFO, Beth Hougan, VP of Finance and Claudine Prowse, Head of Investor Relations.

This quarter, we continue to realize the beneficial results of our reorganization.

We think we are significantly stronger financially and with our continued focus, our drug pipeline is continuing to make outstanding progress.

In addition to seeing the full impact of expense reductions, both in the P&L and on our balance sheet, we fortified our cash position by raising $51 million in a private financing.

We strengthened our balance sheet by converting $100 million of debt and the 2.5 million shares of stock.

We derived additional benefit from our successful patent licensing strategy, receiving money from both Drug Royalty Corp. related to the Macugen royalties and Alnylam, related to their recent siRNA deal with Novartis.

Together with our partners we initiated six new clinical trials and continue to report encouraging clinical data from essentially all the other clinical trials that are in progress.

We have received a constructive response from the FDA with respect to our Phase III plans for Alicaforsen and we’ve continued to move our TIGER biosensor products close to commercialization.

In fact, placing our first instrument and with our first government partner and continuing the development of application with new government funding.

On today’s call, Lynne will briefly review our financial results, as described in the press release we issued earlier today.

Following that, she’ll review the recent business highlights and then I’ll comment on some of the recent accomplishments with regard to the pipeline and TIGER and other work that we’re doing.

Of course, as always, we’ll be happy to answer your questions at the conclusion of our prepared remarks.

Now, before we begin, Claudine, will you review our policy on forward-looking statements?

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

Any statement describing Isis’ 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’ 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, in 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’ forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements.

Although Isis’ forward-looking statements reflect the good faith 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’ programs are described in additional detail in Isis’ annual report on Form 10- K for the year ended December 31, 2004, and its quarterly report on Form 10-Q for the quarter ended June 30, 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, and thanks for joining us this morning.

I am assuming that you’ve all had the opportunity to read the press release we issued earlier this morning, so rather than repeating the details in the release I’m going to review the highlights of the quarter and then I’ll put them in strategic context for you.

This quarter provides some really good examples of a number of strategies we’ve been discussing with you, so I’ll spend a little more time than usual on the impact of these financial events and how they fit together and support our business going forward.

In the third quarter, we completed a very successful financing.

We reduced our long-term debt and increased stockholder equity by converting our $100 million interest-free loan from Lilly into 2.5 million shares of stock.

We continued to realize a significant reduction in cash burn as a result of the corporate restructuring we implemented earlier this year and as a result of our consolidation, we were able to sell three of our buildings, which increased our cash position and reduced our debt.

We received our first of three payments from Drug Royalty Corporation for the monetization of our royalty rights in Macugen, and that further increased our cash and revenue.

In addition, our satellite company strategy and intellectual property license brought us additional cash and revenue benefit through money we received from Alnylam, attributable to its recent collaboration with Novartis.

So, with that brief outline of financial achievements, I’ll now discuss them in more detail and how they reflect our financial strategy and then I’ll turn to call over to Stan.

First, the financing.

We significantly increased our cash position by raising $51 million, generating $42.8 million in net proceeds from a private placement.

The financing is consistent with our strategy to continue to rely on an effective mix of funding sources to meet our financial needs.

We chose to complete the financing now to ensure that we had the financial strength to partner our drugs at the optimal time and on the most attractive terms available.

We continue to focus our cash on the aggressive development of our pipeline in technologies; this, of course, is where the real payoff is.

Although financing at this valuation was disappointing, we were very pleased with the financing itself.

First, we had a very level of interest.

Second and more importantly, the interest was driven by very informed investors who conducted detailed analyses of our clinical data.

Third, we were very pleased with the continuing support of our existing investors.

This financing strengthens our balance sheet, providing sufficient cash to fund our operations with reasonable assumptions for new sources of revenue and cash at least through 2007.

Now on to the conversion of the Lilly loan.

We substantially strengthened our balance sheet with the conversion of our $100 million loan from Lilly into 2.5 million shares of stock, at a conversion price of $40 a share.

At the same time, we extended our successful research collaboration with Lilly and Lilly has agreed not to sell the conversion shares until the fourth quarter of 2006 or the completion of the collaboration, if that happens earlier.

The substantial reduction in debt through the conversion of the Lilly loan represents another important step we’ve taken to strengthen our balance sheet.

Third, we’ve continued to create financial value from our patents.

Isis has been the leading innovator in RNA-based drug discovery.

We’ve been very successful in partnering our inventions, creating a very valuable patent estate and then exploiting this patent estate broadly with a number of strategic relationships.

We generated over $75 million from our intellectual property estate so far.

These funds help support our drug discovery and clinical development programs and are part of the strategic mix we rely on for our financial strength.

The $7.0 million from DRC as partial payment for the monetization of our royalty rights in Macugen and the approximately $4.0 million from Alnylam, as a result of its newly announced collaboration with Novartis, illustrates this strategy is continuing to work.

As you’ll remember, in December 2004 we sold a portion of our royalty rights in Macugen to DRC in exchange for $24 million to be paid over three years.

In October we received the first of these three payments, increasing our cash and revenue.

The transaction with DRC was strategically important to us, as it allowed us to accelerate a portion of our Macugen royalty, providing near-term cash flow to move our own programs forward.

But we also retained a substantial portion of the Macugen royalty as upside in the future.

Licensing our patents to Eyetech and then accelerating a portion of the value anticipated from our Eyetech royalties demonstrates how we’re capitalizing on the value of our extensive patent estate.

Also in October, we received approximately $4.0 million from Alnylam.

The relationship with Alnylam reflects the value of Isis’ siRNA intellectual property and this collaboration strengthens the position of both companies and we expect it to continue to provide scientific intellectual property and financial value as move forward.

The Alnylam alliance is an example of our strategy to actively create opportunities for the industry to access our large patent estate, creating scientifically beneficial alliances that broadly span RNA-based drug discovery and allowing us to generate revenue for the continued development of our drugs.

These alliances also support the advancement of new drugs by partners who are highly capable and who have access to independent financial resources.

Alnylam’s recently announced alliance with Novartis is an example of this strategy at work, as it allows us to participate in RNA with an industry leader.

Fourth, we’re beginning to see the full financial impact of the corporate reorganization we implemented earlier this year.

The significant decrease in our third quarter pro forma OpEx and cash use from the third quarter of 2004 reflects the full impact of the cost containment measures we implemented through our reorganization earlier this year.

Our third quarter pro forma OpEx were 38% lower than for the third quarter of 2004.

In addition, our cash burn decreased by more than 30% from the third quarter of 2004 to approximately $15 million in the third quarter of this year.

Further, we decreased our cash usage by 35% from the second quarter of this year to the third quarter, as the full impact of these measures were achieved.

The pro forma to GAAP reconciliation is detailed in our press release, along with the rest of the quarterly financial details.

In addition, our consolidation has allowed us to sell three of our buildings and these sales increased our cash position by $7.9 million and reduced our debt by $5.8 million.

Fifth, we’ve continued to generate revenue from existing and new partnerships.

For example, we announced a new relationship in ophthalmics with Pfizer in the second quarter.

Since the collaboration began, we’ve achieved multiple research milestones and received over $2.0 million.

Also in the field of ophthalmics, we’ve recently licensed ISIS 13650 to iCo.

ISIS 13650 is a second-generation antisense drug for the treatment of various eye disorders.

We believe putting this attractive second-generation drug in the hands of a high-quality partner focused on diseases of the eye will significantly increase the value of the asset and its likelihood of success.

This transaction with iCo is another example of our satellite company strategy at work.

We will benefit from iCo’s expertise and focus on the eye and iCo will benefit from our expertise in antisense drug discovery and development and our strong intellectual property position.

We will maintain an ownership interest in Isis 13650 and an equity ownership in iCo, which not only expands the reach and potential of antisense therapeutics, but also allows us to participate in the success of multiple companies and products.

In August, we extended our four-year research collaboration with Lilly for approximately two more years.

We’re pleased with Lilly’s continued commitment to antisense, as demonstrated by their investment in the development of two oncology drugs, LY2181308 targeting survivin and LY2275796 targeting eIF-4E.

To that list of drugs, Lilly added our second-generation inhibitor targeting STAT-3.

This collaboration extension provides Lilly the opportunity to continue to identify more antisense drugs for its pipeline.

Sixth, our Ibis division has made exciting progress in executing its commercial plans for TIGER for biosensor system.

To date this year, we’ve received new contracts and grants for approximately $12.5 million from several government agencies, to support the initial operations of our TIGER biosensor system and to further the development of TIGER applications.

Application development for our government partners also supports nine government commercial applications.

Our Ibis division has earned revenue of $44.8 million through September 30, 2005.

An additional $10.5 million is committed under existing contracts and grants, with many having the potential for additional funding.

As a result of this funding from our government partners, we continue to develop TIGER without significant costs to our shareholders.

Together, all these steps have significantly enhanced our financial position.

We’re excited about the progress we’ve made this quarter in all areas of our business and remain on track to achieve our projected net operating loss for the year in the low $50 million-range.

We believe we’re poised to continue to successfully execute our goals for the rest of the year.

Now back to you, Stan.

Thanks, Lynne.

All the steps that we’ve taken that Lynne just outlined have had, of course, important financial benefits and the purpose of those steps are to allow us to focus on creating value by exploiting the assets that we’ve achieved and creating long-term value for our shareholders.

The decision to reorganize the Company earlier this year was driven by a confluence of strategic, organizational, tactical, and financial considerations and those considerations led to the decisions and those decisions are supporting a more aggressive advancement of our drugs, our technology, and of course, continuing to develop the Company.

The steps we’ve taken have improved our financial position.

But equally importantly, they’ve led to a stronger, leaner and higher and greater, more substantially committed organization.

We’ve successfully focused our resources on the most important R&D activities and to advance our antisense product pipeline and support the TIGER commercialization plan.

Now on to the specific achievements for our antisense product line, pipeline, and TIGER since our last quarterly call.

Our antisense products and those of our partners’ continue to advance in development and our pipeline continues to expand through addition of exciting new drugs.

This quarter, we and our partners continued to report encouraging data and initiated six new clinical trials.

Let me just describe those for you in a little more depth.

First let’s focus on ISIS 301012.

In the past nine months we’ve demonstrated a compelling profile for ISIS 301012 and we are focused on advancing it rapidly toward the marketplace.

First, we demonstrated in normal volunteers that ISIS 301012 produced impressive dose-dependent, statistically significant, long-lasting reductions in apoB-100 LDL and total cholesterol after very brief dosing.

Second, we showed that ISIS 301012 has the half-life of over 30 days in man, which is consistent with what we saw in animals and that the duration of effect in normal volunteer study was approximately three months, supporting the hypothesis that the drug will be able to be dosed very infrequently, perhaps even quarterly.

We are also excited about the preliminary data that suggests that the higher the baseline levels of apoB-100 in LDL in the patients who were treated, the greater the percentage reduction achieved by ISIS 301012.

What this could mean is that the sicker the patient the better the effect and it argues that our doses may be even lower in patients as we move into our Phase II program.

We show that ISIS 301012 reduces cholesterol through a unique mechanism that is likely to be complimentary to statins and in two animal models the drug reduced atherosclerotic plaques.

So it lowers cholesterol and it causes plaques to regress.

These data add to the compelling profile of ISIS 301012 and we’re excited, of course, about exploring the ability of ISIS 301012 to reduce plaques in patients.

To date, ISIS 301012 has not produced any of the side effects that have caused other cholesterol-lowering drugs to fail in animals and in humans and every time we look at the profile of the drug, it looks better.

Every new piece of data that we generate adds to the profile in a positive way and gives us a drug that we think becomes progressively more exciting.

In fact, we’ll report additional data on ISIS 301012 on November 14th at the AHA meeting in Dallas, Texas, so do stay tuned.

Recently we’ve initiated the two Phase 2 trials, the first to optimize dosing schedule of ISIS 301012 as a single agent in patients with hyperlipidemia and the second combination trial with a statin to optimize the use of the drug in that setting.

These trials will address the large commercial market represented by patients with high cholesterol and of course that is an ever-growing market that today stands at $24 million or so.

In support of our combination studies, we’ve also recently completed a drug-drug interaction study in normal subjects.

In that study, we observed no drug-drug interactions and 301012 displayed very good activity again.

In addition, we are proceeding with trials supporting a rapid path toward registering ISIS 301012 for an initial indication in familial hypercholesteremia (FH).

Our goal is to commence our FH studies by the end of this year or early next year.

So all the news on ISIS 301012 continues to be positive.

We believe that if the drug continues to perform the way our initial studies suggest, it can be a very, very large product.

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

We initiated an oral trial in normal volunteers in March and we are in the process of auditing that trial now, so we’ll keep you posted as we proceed with auditing and then unblinding and analysis of the trial.

Now, ISIS 113715, this is our diabetes drug and it has continued to make excellent progress through Phase II clinical trials.

We have shown and reported that the drug works in all animal models of Type 2 diabetes.

There were 11 scientific publications on this drug from us and multiple other organizations.

After only six weeks of treatment with either 100 or 200 mg per week it appears to have lowered hemoglobin A1C (HbA1C) in patients with newly diagnosed Type 2 diabetes, even though the study was not designed to accomplish this.

These are encouraging results because it typically takes much longer than six weeks to see a reduction in HbA1C.

It also improved glucose tolerance tests in normal volunteers, replicating the experience that we had in monkeys.

It has produced no side effects that we believe will limit its use.

Additionally, there will be new data available for ISIS 113715 as the two higher dose groups in the six-week STD are completed and those dose groups are 400 and 600 mg per week dose groups and the study is progressing well with those doses as well.

We’ve already achieved, then, two of our most important early development goals, which were to identify an effective dose and to demonstrate safety.

The remaining near-term development goals for ISIS 113715 are to evaluate longer-term dosing as a single agent in our 12-week study.

I’m pleased to tell you that enrollment in that study continues to be brisk and we expect it to complete on time.

And further, to explore the drug in patients who are also taking oral antidiabetic therapies.

To this end, we intend to complete and report results from our ongoing Phase II trial with the 12-week dosing next year.

We also have planned to initiate dosing in patients who are taking other antidiabetic therapies.

In a study to begin in the next few months, we will actually evaluate this in some detail.

Additionally, we plan to conduct a detailed mechanistic study in collaboration with Dr. Kit Peterson and Dr. Jerry Schulman at Yale next year.

This study will allow us to determine where the drug works - does it work in the liver, the peripheral muscle or adipose tissue or all the above - and what causes its primary activity.

So the Phase II studies on ISIS 113715 are progressing and benefit the end of next year we’ll have information from all these studies to guide the future development of the drug.

ISIS 301012 and ISIS 113715 are our most advanced second-generation drugs and are clearly working in the clinic.

We continue to move them forward with a high level optimism and these two assets will reach a number of milestones in 2006 and of course we’ll keep you posted as we achieve these various milestones.

Now let me talk about Alicaforsen enema.

Alicaforsen enema is the last of our first-generation drugs.

Based on the Phase II data, it’s very clear that this drug works as an enema in patients with ulcerative colitis (UC).

It’s also clear that it produces very long-lasting results.

If we can reproduce those results in Phase III, we believe we’ll have a drug with the potential to generate $100 to $300 million annually.

We’ve recently received a constructive feedback from the FDA on our proposed Phase III plan and in response to the agency’s feedback we are refining our plan, while continuing our discussions with potential partners for the drug.

One final comment before I move on to our partners pipeline is that we continue to be pleased with the high level of interest in antisense in oligonucleotide therapeutics in all of the key audience with which we deal.

In fact, last week, we had the opportunity to participate in a symposium at the FDA, put on by the FDA, on oligonucleotide therapeutics.

The FDA has an education division that puts on symposiums and as you know, we’ve had a long-standing strategic goal of always being first and always being best and doing things the right way so that we have a willing partner at the FDA.

This symposium is another step in that direction.

We think it is reflective of the breadth of interest at the FDA in antisense technology and oligonucleotides drug development.

It was well attended and continues to demonstrate the broad level of interest in the FDA in advancing antisense therapeutics.

In fact, I gave the keynote address, then Art Levin and Jim McArdle gave two additional presentations and then two of partners - Alnylam and Eli Lilly - also presented.

So Isis or its partners were involved in five of the eight presentations at the meeting.

The same week, I was invited to give a seminar at the U.S.

Patent Office.

Such presentations have great value in keeping the Patent Office posted on the progress of the technology and in this presentation, I focused particularly on the exciting future of the work that we doing.

So, all in all, a lot of very positive interactions with the agencies that are, of course, important to our future, the FDA and the U.S.

Patent Trade Office.

Now let me review the recent progress made by our partners with our drugs.

Progress by our partners provides substantial confirmation of the success of a fundamental part of our strategy.

Which is to expand the potential of our technology and our commercial upside by creating a range of partnerships with partners that have the competency and the resources to develop the technology and the drugs.

We’re very pleased with the progress made within our current collaboration and also in establishing new ones - first, our partnership with Lilly.

As you may recall, we recently extended our drug discovery collaboration with Lilly.

This collaboration has been successful, as demonstrated by their investment in two anticancer drugs, LY2181308 targeting survivin and [LY22572796] LY2275796 targeting eIF-4E and the recent addition of the second-generation antisense inhibitor STAT-3.

In fact, all three drugs are second-generation antisense inhibitors.

We’re optimistic that additional drugs will emerge from this collaboration and be developed by Eli Lilly.

Our partnership with OncoGenex is another example of the recent success of our -- of the success of our satellite company strategy.

Last month, OncoGenex announced that they have initiated the fourth Phase II clinical trial of OGX-011 in breast cancer.

They’ve now successfully commenced all these clinical trials on schedule and these trials include an ongoing trial in non-small cell carcinoma of the lung and two trials in prostate cancer, as well as in breast cancer.

Based on patient accrual estimates, they have to response rates from the first of the Phase II trials by the end of 2006.

Also, last month, our partner, Antisense Therapeutics Ltd., reported positive results from its proof of concept study of ATL-1101 in patients psoriasis.

This quarter, we added ISIS 13650 to our partner pipeline through a transaction with iCo Therapeutics.

ISIS 13650 is a second-generation antisense drug that inhibits c-Raf kinase.

In animal models of macular degeneration, it has been shown to be highly effective. iCo is an emerging Vancouver-based biotechnology company that is focusing on diseases of the eye.

By putting ISIS 13650 in the hands of a company with resources and experience focused on the eye, we are able to move yet another drug forward with a high-quality, focused partner who will fully resource the development of this drug.

We look forward to the commencement of clinical trial on ISIS 13650 by iCo in 2006.

In summary, things are going well.

We’re pleased with the progress that our partners are making and we’re pleased with the progress that we are making on the drugs that we’re developing.

We will, of course, continue to support our partners while we focus on aggressively advancing our own pipeline.

Now let’s talk about TIGER for a minute.

The TIGER biosensor system is another asset we’ve been talking to you about recently, due to our excitement about it and the fact that it’s moving closer to commercialization.

Thanks to the continued funding from our government partners, we continue to advance TIGER technology, development the applications for TIGER in a cost-effective manner, and move this technology toward commercialization.

The $12.5 million of new government grants and contracts that we received this year will allow us to continue the development of applications and that are valuable for government, as well as non-government partners.

A recent TIGER initiative is to provide a valuable tool to address a possible avian flu pandemic, which I’m sure you’re all as concerned about it as we are.

Whether it’s the avian flu or another serious globe infection, we believe TIGER can play an important and unique role in identifying and containing such infection.

After all, before treatment you must identify the cause of the illness and before treatment you have to try to contain it and the reason we think TIGER will play an important role is that it’s able to diagnose any infectious pathogen rapidly.

And while this sounds simple, it is obviously much more complex than you might imagine.

As you know, most viruses inevitably mutate in the pipeline.

TIGER can identify all strains of a virus, included mutated forms and previously unknown forms that might fool traditional test methods and tell us what is the closest relative of the form that we’ve identified.

In addition, TIGER is able to identify all the organisms in a sample.

So those organisms that may travel with a pathogen like flu and cause the infection to be worse can be identified at the same time and all of this can take place very rapidly.

Knowing the other infectious agents involved may dramatically increase the effectiveness of treatment.

TIGER also provides critical information to government and health agencies that’ll allow them to track the infection spread and of course, ultimately contain it.

What we anticipate doing in flu is very similar to what we previously did with another respiratory disease outbreak in a Navy marine training facility and this outbreak was caused by Strep pyogenes.

TIGER diagnosed the pathogen, allowed a rapid and appropriate response and treatment and helped contain the outbreak.

This real example of how we have already used TIGER to understand and respond to an epidemic is fully described in our recent proceeding in a National Academy of Science paper that was published in May.

We’re already actively working on the flu application for TIGER to make it available, to aid in any future health emergency such as an avian flu or a SARS outbreak or other kinds of infections and we look forward to keeping you updated on our progress.

We’re excited about the potential short- and long-term contribution that TIGER can bring to global health concerns as they emerge.

I hope you agree that these accomplishments that we’ve described in this call show that we’re continuing to execute on our strategy and continuing to make excellent progress.

We and our partners are steadily advancing the development of multiple antisense product opportunities across a very broad range of therapeutic areas.

We are focused on making our partnerships successful and in creating new ones.

We are continuing to benefit from our intellectual property position in our business and in licensing and we are advancing the applications and opportunities for TIGER as it moves toward commercialization.

Finally, we have and are continuing to implement various pieces of our financial and organizational strategies that will support the achievement of these goals.

We look forward to keeping you updated on our progress.

We appreciate your continued support and now, we’ll answer the questions that you have.

Nelson, if you can set us up for the Q&A I’d appreciate it.

Thank you [Operator Instructions] Mark Monane for Needham & Co.

Thank you very much and good morning.

Good morning.

We go over the Isis pipeline and we see a number of drugs being developed at the same time.

Can you comment?

Is the second-generation technology what we should be focusing on at this point and among those projects, how do you prioritize the pipeline for Isis in its ongoing development?

Well, our focus is second-generation drugs and within the second-generation drugs, the priority in our pipeline - not counting our partners’ pipeline - is ISIS 301012 and ISIS 113715.

We’re adding new drugs to the pipeline, including a drug to treat cardiovascular disease and inhibit CRP and an aerosol drug for both allergic rhinitis and asthma and that’s targeted to IL-4 receptor alpha.

But 301012 and 715 are the key.

Alicaforsen is the last of the first-generation drugs and with the enema formulation we are using it as a local treatment for a local disease.

It has demonstrated excellent activity in Phase II clinical trial and it is a short-term product opportunity that we think is real.

Can you comment some more on Alicaforsen?

You had mentioned before that you were seeking a partner for its ongoing development.

Sometimes partnerships take shorter than one expects, sometimes longer.

Does Isis plan to move ahead with Alicaforsen or is it waiting for a partner to bring it to the next stage of development?

Well, right now we’re refining the development plans for Phase III and examining the budget associated with that.

In the meantime, we’re continuing our conversations with partners and we’ll make a decision about what to do with Alicaforsen when those two sets of activities are complete.

Can you comment on the partnership with Alnylam and the extent that the two companies are working together for the development of RNAi therapeutics?

Well, Alnylam is first and foremost an excellent research organization and it’s focused on developing double-strand RNA’s therapeutic modality.

So we are broadly focused on all the mechanisms by which antisense works, including double-strand Rnases, including the siRNA mechanism risk.

The companies, of course, Alnylam shares in our patent estate and we have provided, I think, a great deal of input about the chemistry, the biology that they’re undertaking.

The relationship is close.

We work closely together on a variety of activities and projects and I would think that you’ll see even more evidence of a close and cooperative relationship between the two companies in the coming years.

Thanks very much for the added insights and congratulations on your progress.

Thank you.

Dallas Webb with Stanford Group & Co.

Good morning, everybody, just three quick questions, number one for Lynne.

Your current cash position, where you do you see that taking you, as far as with the restructuring that you guys put in place in Q1?

Are there any further cost reductions that you foresee coming up that could extend the life of that cash position?

The second question relates to the 301012, as far as the efficacy and safety of the drug.

What do you guys see as a valuable drug?

In other words, what are we looking for in Phase II that’s going to make this drug valuable?

And number three, with TIGER, are there any plans to accelerate the commercialization strategy?

In other words, are there any plans that you guys are looking at of taking this out of the current government state and bringing this into the pharmaceutical sector?

And that’s it, thanks.

Stan, can I start?

Yes, thanks.

Okay.

Dallas, we think the third quarter actually represents a reasonably good steady state in terms of having gotten the benefits from the reorganization that we did earlier in the year and having them factored into our run rate.

So we don’t anticipate our costs continuing to decline the same way they’ve declined for either our expenses our cash use, the way they’ve declined over the course of this year and certainly, in looking at 2006 compared to 2004.

We do believe that our current cash should last us at least through the end of 2007, if we make reasonable assumptions about new sources of cash, things under existing and contracts and they types of business arrangements that we’ve used to fund the business going forward.

So we think we have more than two years worth of cash, based on reasonable assumptions.

Any follow-up on that, Dallas, or does that meet your needs?

Well, I guess the one follow-up I’d have there is does that include plans on partnering 301012 pretty soon or taking that step forward yourself?

It includes plans to continue to do partnerships.

It doesn’t require that we partner 301012.

As you know, we’re fortunate enough to have a large pipeline of both drugs and late-stage research opportunities and partnering has to be a little bit opportunistic as well as proactive.

So it doesn’t require that we partner 301012 at any particular point in time, but it does have what we think are reasonably conservative assumptions about continuing to engage in partnerships, which has been an important part of our strategy, historically.

Okay, great.

301012, first, we think 301012 is tremendously valuable already.

While we’ve just completed several Phase I trials, they are providing Phase II quality efficacy data.

So we think that has Phase II quality value.

What the Phase II studies will add and will add through the end of this year and into next year, are two or three things.

First, the opportunity to treat for three months in patients and to determine how effective the drug is at the doses that we’re giving.

That gives us three months of safety evaluation as well as three months of efficacy.

Second, it begins the process of defining dose and schedule, which is crucial.

We hope to optimize the drug for at least two doses and schedules - one low-dose weekly and one that’s higher dose less frequently, perhaps quarterly.

Three, it will give us our first experience in combination, in this case with simvastatin, and we’ve already demonstrated that ISIS 301012 has no drug-drug interactions with statins and is active in the presence of a statin.

And now, with the Phase II program, we’ll have three months of treatment with the single agent and we’ll have a combination with statin that will provide information about the -- confirm that the drug is additive or synergistic and safe with statins.

Those are big steps in the history of the development of a drug.

Finally, we are moving along nicely.

We had a very constructive response from the FDA with regard to our plans for registration for FH.

And we’re moving along with plans for studies in both the homozygous FH and the heterozygous FH and those data will roll out and be available over the next year or a little more.

So the asset value of ISIS 301012 is going to improve, we believe, dramatically over the next 12 months.

If I can, I’ll move on to TIGER?

Sure.

Just to review, we think the first commercial market for TIGER is government and we continue to work very hard, and it turns it out to be pretty easy, to expand the various uses of TIGER within government.

We already know that we have opportunities with Homeland Defense.

We have opportunities with the CDC.

We have forensic applications for a variety of government agencies.

We believe that infectious disease control in government hospitals will be an important new opportunity for us and we’re working on that.

So that is progressing and we haven’t even begun to think about governments other than the federal government - the state and local agencies in other countries.

Second, there is an opportunity that we think is substantial for in-process control of natural product manufacturing in the pharmaceutical industry and yes indeed, we’re working hard at it.

And we hope to be telling you more about our progress there in that marketplace sometime next year.

So that’s an opportunity that we hadn’t really fully appreciated when we began TIGER, which I think is another short-term, meaningful commercial opportunity for TIGER.

Third, of course, is infectious disease control.

And every step that we take with regard to the CDC work that we’re doing, to the NAIAD work that we’re doing and to other things that we’re doing is a step toward validating and compelling use of the technology for infectious disease control.

We also have directed programs and we’re collaborating with a number of academic institutions looking directly at infectious disease control in the hospital.

And then, of course, the fourth market opportunity is the largest one, which is diagnostics and the way to look at these steps that we’re taking is they’re all steps that are on the path to that very large market opportunity.

And each and every one of these steps has real commercial value of it’s own, measured in hundreds of millions of dollars.

Okay.

Thank you.

Stan, just going back to 301012 just very quickly, when we see this Phase II data that’s coming out now, what is meaningful, as far as an additive value, with 301012 to Zocor?

I mean, if we see an additional 20% reduction in LDL, is that meaningful?

Will that justify further continuation of the drug’s development or what are you guys looking for?

Well, that would and it would because of the overall profile of the drug.

Novel mechanism, no drug-drug interactions, no skeletal muscle toxicity, no CNS toxicities, no heart toxicity.

Potentially, for an increase in HDL, a dramatic change in particle size and potentially changes LTa and what we’ve observed in animals, which suggests an actual resetting of the thermostat for making lipids.

So this is a drug that has a profile that is unique and with a unique profile, effects of 20% on top of statins would be a very good effect.

What we expect is a dose-dependent and schedule-dependent significant improvement in lipid management in the presence of a statin.

And so, long-term, what our goal is, is two-fold - to identify doses and schedules when combined with statins that will help patients at cardiovascular risk, a higher fraction of them achieve target lipid levels.

Whether they’re 70 or 100 or 50, the higher fraction of patients achieving those target levels and the demonstration of a significant reduction in LDL in anyone who receives the drug plus a statin and we think we’ll do significantly better than 20%.

Great.

Thank you very much.

Jim McKinnons, American Healthcare Fund.

Yes, my question is in regard to the avian flu and it would appear, to me at least, that there’s a very large potential market.

It raises the question of what capacity do you have to deliver instruments if -- I mean, I can think of two or three places where it’s really useful.

You mentioned the monitoring, which may be really critical.

But in addition to that, the U.S. plan talks about quarantining people in case of an outbreak and the quarantine could be much less if you have your equipment available to diagnose the people quickly.

What kind of capacity could you put in place for producing these TIGER instruments?

Thanks, Jim.

Well, we are currently working in both the new CDC and NAIAD contracts on flu and the NAIAD recently asked us to specifically prioritize influenza applications development for the government.

So the first step in this process is to fully validate the influenza applications and that’s progressing well.

And second, if the -- and it will, we believe clearly, that TIGER will shown to do influenza very well, just as it’s done everything else.

And provide information that is quite quantitative, rapid and is able to sort out those who are infected from those who are not and those who are carrying other organisms that might cause problems.

And so we have the capability of providing the larger throughput instruments and we’re also making progress on an instrument that doesn’t have quite the automation, which is less expensive and still manage a fairly large throughput.

So the answer is we think we can meet the demands that will be generated and we look forward to having that high quality problem.

Well, for example, if you got an order for 100 that they wanted delivered during ‘06, could you do that?

You know, Jim, I think it would be fairly straightforward for us to do that, assuming the funding was provided.

Okay.

Thanks very much, Stan.

If they want to add or subtract from that, Lynne.

Do you want to clarify anything?

Nope.

Manufacturing the instruments is time-consuming and it does take work, but remember the instrument has become simpler and simpler and so we feel we’re in reasonable control of that part of the process.

Yes, Stan, could I -- I would like to add just one thing that might help Jim.

Most of the components of the instrument, while they’re put together in a unique way, are relatively standard components.

So, as Stan said they’re not things that we think would be difficult, if we had the funding, to put together.

Obviously the software and operating systems for the machine are very proprietary and a key piece of what we add to a TIGER system.

One final clarification.

The so-called “big machine” is an instrument that’s got the [mass deck] (ph) and all of the robotics and automation to do PCR and everything in a contained situation.

Most laboratories have their own PCR equipment and their really don’t need the robotics and so that instrument we’re making and we’re also moving to make a much simpler instrument that can be simply plugged in to existing laboratory processes.

And I would guess that -- it’s hard to know what the mix of large versus small for the government applications would be, but they would be a mix of those.

What kind of price are you getting for the big machines now and what kind of target price do you have for the smaller ones?

Lynne, do you want to answer that?

Sure.

The big machines that we’re delivering right now, as we’ve said before, being delivered under government contracts.

So they’re part of government funding that includes the machine development, applications development, installation, help in operations, so they aren’t prices on a per-machine basis.

And we’re working on pricing for the smaller machines, but we’d prefer not to disclose it at this point, but it’ll be priced in a range that’s going to be acceptable for high end lab equipment in facilities.

Okay.

Thank you.

Aaron Reames, Stanford Group Co.

I think we have time for just this question and then we’ll have to bring it to a close.

Aaron?

Thanks for taking the call, I greatly appreciate it.

I was wondering if you could just elaborate a little bit on the data that we might see at AHA, then, for the [inaudible - multiple speakers]?

No.

There will be continuing data on the performance of ISIS 301012 in these normal volunteer trials and the analysis of various components of lipid-based diseases and what the drug does there and we’ll also, I think, be presenting some additional animal data that I did mention.

Which are really beautiful in models of atherosclerosis, where the drug clearly has a very strong effect.

So beyond that, I think I shouldn’t go any further.

Okay.

Can you remind us how many patients are in each arm of the Phase II study for 113715 for the 400 and 600 mg?

Yes.

Each arm has 16 patients.

Each arm has, I think, 12 treated and 4 placebo, if I remember correctly.

That’s right.

And the number of subjects in the 12-week study is 32, well somewhere between 24 and 32, depending on enrollment and lots of others factors and I will say that enrollment in both studies is proceeding nicely.

So we are on schedule to have data from those trials next year, with, of course, the 6-week trial finishing earlier than the 12-week.

Can you be more specific on when we might see maybe an interim look at the 6-week timeframe or 12-week or is it just next year?

Well, we won’t be doing an interim look on the 6-week study.

The 6-week study will be completed and we’ll have a complete analysis of 100, 200, 400, and 600 mg in newly diagnosed diabetics treated for six weeks with the drug.

That will include measures of activity as well as measures of safety and that will be a final report.

And it’s very difficult for me to give you an actual date, because so much will depend on when it actually finishes, relative to abstracts and whether we’re able to get it into a scientific presentation in a timely fashion or not.

So the study is going to complete close to on schedule and the precise format and timing of when we actually provide the information on the study is not yet decided.

Okay.

Thanks.

I’ll stop there due to time.

Thanks for the questions.

Thank you.

I want to thank everyone for the interest and the excellent questions, but I do think that, given the time, we need to bring the conference call to a close.

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.

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