Ionis Pharmaceuticals Inc (IONS) 2005 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Isis Pharmaceuticals year-end 2005 financial results and highlights conference call. (OPERATOR INSTRUCTIONS).

As a reminder, this audio conference is being recorded on Thursday, March 9th of 2006.

It is now my pleasure to turn the conference over to Dr. Stanley Crooke, Chairman and Chief Executive Officer.

Please go ahead.

Thanks everyone for joining us today on our conference call to discuss our 2005 financial results and the highlights of -- and goals for 2006.

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

Beth Hougan, Vice President of Finance.

And because we're going to spend some time focusing on TIGER, Mike Treble, President of our Ibis division, has joined us.

And then finally, Claudine Prowse, Executive Director of Corporate Communications is with us.

We are of course pleased to take this opportunity to review our 2005 accomplishments and to discuss the plans that we have for 2006.

This year -- this past year we have continued to advance our pipeline and the TIGER biosensor system to make solid progress in every one of our collaborations, and to expand our leadership position in antisense technology.

Following Lynne's discussion of our year-end financial highlights, I will review the past year and what we're looking forward to accomplishing in 2006.

And of course, we will be able to answer your questions at the conclusion of our prepared remarks.

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

The webcast includes forward-looking statements regarding our business, the financial position of Isis Pharmaceuticals, and the therapeutic and commercial potential of 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, and developing and commercializing systems to identify infectious organisms that are effectively 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 September 30, 2005, which are on file with the SEC.

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

The information contained in this webcast reflects preliminary financial results, as Isis' 2005 audit has not yet been completed.

Under Section 404 of the Sarbanes-Oxley Act of 2002, new integrated audit requirements will not be met until Isis has completed all of the steps necessary to file a 2005 audited financial statement with the SEC.

And now here is Lynne.

I'm assuming that you have all had an 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 financial highlights of the year and translate them into some strategic context for you.

First of all, we're very pleased with the significant improvements we have made in 2005 to Isis' financial strength.

Through a combination of achievements in the key areas of our business that generated revenue, and significant planned expense reductions, we met our aggressive pro forma net operating loss projection for the year.

Our pro forma net operating loss was $50.8 million, compared with our projection of in the low $50 million range.

We also made considerable improvements to our balance sheet in 2005, primarily through the more than $48 million received in our August financing, and the conversion of our $100 million Lilly loan into stock.

These accomplishments exemplify our business strategy of balancing funding from partnerships, licensing and equity sales to support our key programs.

Our goal is to fully exploit our assets to maximize short and long-term value for our shareholders.

In 2005 our financial goals were to reduce expenses and strengthen our balance sheet, while focusing on advancing our key assets and maintaining a high level of productivity.

Our 2005 revenue was generated from our traditional and satellite company partnerships, our patent licensing efforts, and contracts and grants to our Ibis division.

In addition, by focusing our resources on our key programs through our reorganization early in 2005, we reduced our pro forma operating expenses by 29%.

Together these accomplishments resulted in a 41% decrease in our pro forma net operating loss, and a 39% decrease in cash use from 2004 to 2005.

We're extremely pleased that we substantially reduced our expenses while enhancing the focus and productivity of our programs, as reflected in the significant progress we made in our research, clinical and TIGER programs during the year, which Stan will describe later in the call.

In addition to the more than $43 million reduction in cash use from 2004 to 2005, we took several important steps to set -- strengthen our balance sheet.

We fortified our cash position through a private placement in which we received net proceeds of more than $48 million.

We were particularly pleased with the quality of the new institutions that became Isis shareholders and the continued support we received from existing investors.

In addition, much of the new or renewed interest in the Company was generated by detailed reviews of our clinical data, including data from our lipid-lowering drug, ISIS 301012, which was very gratifying.

We further strengthened our balance sheet by converting a $100 million loan from Lilly into 2.5 million shares of common stock, resulting in a substantial reduction of long-term debt and an increase in stockholders' equity.

At the same time we extended our successful research collaboration with Lilly.

Lilly now has two antisense drugs derived from our collaboration proceeding through clinical development.

We very much appreciate the commitment of Lilly to antisense technology and drugs as the collaboration continues to progress successfully.

As part of our reorganization, we consolidated our facilities and sold three of our buildings for net proceeds of $7.9 million, and a reduction of $5.8 million of debt.

In addition, we received $2.6 million from the sale of a portion of our Alnylam stock.

We continue to hold over 500,000 shares of Alnylam stock which we view as a valuable asset.

Our traditional corporate and satellite company partnerships allow us to advance in development many more drugs than we could afford to on our own.

This strategy continued to create value in 2005.

Most importantly, these partnerships increase and expand our pipeline of exciting antisense drugs moving through development, in which we get the opportunity to participate.

From a short-term financial perspective, these partnerships contribute to our revenue and effectively reduce potential expenditures, as our partners are conducting and funding some or all of the development activity.

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

Since the initiation of the collaboration we have achieved multiple key research milestones and received over $2 million.

In addition to our traditional corporate partnerships we were successful in expanding our existing satellite company partnerships with OncoGenex, and initiating four new satellite company partnerships with iCo Therapeutics to develop iCo 007 for ocular disease;

Achaogen, to combat drug resistant pathogens, and Sarissa and Rosetta Genomics to develop drugs for cancer.

We expanded our long-term cancer collaboration with OncoGenex to include two additional antisense anti-cancer drugs.

As part of the collaboration OncoGenex also purchased a drug from us to support its recently initiated Phase II program for OGX-011, a cancer drug.

We are also really pleased that OncoGenex has begun IND-enabling toxicology and pharmacokinetics studies for OGX-427, the second anti-cancer drug being developed under the collaboration.

OGX anticipates that OGX-427 will enter clinical development in 2007.

License to ISIS 13650, a second generation antisense drug for the treatment of various eye disorders to iCo Therapeutics allows us to benefit from iCo's expertise and its focus on the eye, while iCo benefits from our expertise in antisense drug discovery and development and our strong intellectual property position.

We structure our satellite company partnerships so that we maintain an ownership interest in the drug and/or technology, and an equity ownership in our partner.

In this way we expand the reach and potential of antisense therapeutics and participate in the success of multiple companies and products.

As a leading innovator in RNA-based drug discovery, we have been successful in creating a very valuable patent estate, and partnering our inventions through strategic relationships.

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

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 both our revenue and our cash.

Also in October we received almost $4 million from Alnylam as a result of its collaboration with Novartis in which our technology was included.

The cash we received from DRC and Alnylam illustrates that our patent estate is very valuable and that we are successfully exploiting it, and that it will continue to be a key component of our financial strategy.

Of course, the most important value we derive from our patent estate is the long-term intellectual property position in RNA-based products and technologies.

Transactions like the Macugen license and the Alnylam partnership provide tangible proof of the strength of our patent estate.

Revenue in cash from licensing help support our drug discovery, clinical development and TIGER programs, and are part of the strategic mix we rely on for our financial strength.

Our Ibis division has made significant progress in executing its commercial plans for the TIGER biosystem in 2005.

In 2005 we received new contracts and grants for approximately $11.2 million from several government agencies to support the initial operations of our TIGER biosensor system and to further the development of TIGER applications.

Our Ibis division has earned approximately $48 million through December 31, 2005.

An additional $8.4 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 cost to our shareholders.

Our important accomplishments in each of the key areas of our business clearly demonstrate our financial strategy of balancing corporate partnerships, licensing, and equity to fund our drugs in development and TIGER.

Further, these accomplishments contributed to the improved financial stability of the Company, and provided us with the financial strength to successfully execute our 2006 goals.

Now I will turn the call back over to Stan.

I am going to spend most of my time looking toward the future and commenting on what we're going to be accomplishing in 2006.

But to set the stage for that, let me just spend a few minutes to briefly discuss the progress that we made in the drug development technology for antisense, and as well the accomplishments that we achieved with regard to TIGER.

Through our investment, innovation and passion we have created antisense technology.

We created antisense technology.

Antisense technology is the technology that allows us to productively, repeatedly and consistently produce new drug candidates.

Certainly, we can produce many more drug candidates than we could possibly develop with our own funding.

So it is our job, and very much in the best interest of our shareholders, that we take full advantage of the technology's productivity by creating a large number of drug assets, and then finding ways to fund those through a variety of licensing activities.

That is exactly what we have done.

So our goal is to develop our drugs to key value inflection points and then license them on as attractive terms as possible.

This continuous cycle of drug development and partnering in the introduction of new drugs that replenishes our pipeline that will not only grow the number of antisense drugs in development, but it will support continuing participation in the ever broadening commercial success of multiple drugs based on this extraordinary technology that we alone have developed and have significant control.

Last year we made a lot of progress and we're proud of it.

And it is by definition then the prologue for this year.

And it certainly sets the agenda for 2006.

And the agenda for 2006 is I think quite simple.

First, we have to advance ISIS 301012. 301012 is the flagship drug.

It is targeted to the inhibition of apoB-100, the protein that is required to make bad cholesterol and triglycerides.

And so it is for a patient -- to treat patients with high cholesterol.

Second, we have to advance ISIS 113715.

This is the first of our diabetes drugs.

It is targeted to a target called PTP-1B.

It is a novel insulin sensitizer to treat Type II diabetes.

And we expect a very important year for this drug this year.

Third, we want to continue to expand our drug development portfolio, advancing not just the drugs that are in the portfolio, but moving our generation 2.2 drugs into clinical trials.

Remember that generation 2.2 drugs are exactly the same chemistry as generation 2, but just better designed based on basic research that we have done to assure that they work well with RNase H, and they give us approximately a tenfold increase in potency.

We expect those to move toward clinical trials.

Fourth, of course, we want to continue to work with our partners to advance their pipeline.

As we have mentioned, Eli Lilly has two anti-cancer drugs now that are in development.

We hope that they add a third and possibly even a fourth to that pipeline.

OncoGenex has two anti-cancer drugs in development today.

Our partner ATL has reinitiated trials on its VLA-4 antagonist for development.

And we think that is particularly exciting given the good news on Tysabri that happened yesterday.

So we have a lot of partner drugs that are progressing toward key milestones, and those partner drugs in cancer and inflammation reflect the strategy that we had been that we achieved to license our anti-cancer and anti-inflammatory drugs to others to allow us to focus on drugs in cardiovascular disease and metabolic disease.

Fifth, we will continue to capitalize on our extensive patent estate.

This patent estate has extraordinary value.

It is demonstrated its value over and over again in deals that we have accomplished, and it will continue to do so.

It will continue to generate short-term cash as well as long-term value.

Finally, we plan to continue to aggressively pursue the commercialization plans for the TIGER biosensor system.

Now on February 10th we had a special conference call in which we described our plans for the drugs in development and antisense technology for the next 12 to 18 months in some detail.

Today our principal focus will be -- on our plans for TIGER.

What I would like to do it in the next few minutes is just provide you with an update on the progress that we have made with our TIGER biosensor system, and to give you a sense of what our plans for 2006 for TIGER are.

We are excited about the progress we have made in our Ibis division in 2005.

As you know, in the middle of the year we rolled out our business plan for commercializing our TIGER biosensor system.

This was a major milestone for Ibis, and it reflects the very significant value we think that the TIGER biosensor system has in both government and nongovernment markets.

First, let me review the financial aspects of our Ibis division.

In 2005 our Ibis revenues were $11.8 million, up 8% from 2004.

These revenues were derived from a number of government contracts to support the initial operations of our TIGER biosensor system and to further develop TIGER application specific test kits.

An additional $8.4 million is committed under existing contracts and grants with many having the potential for additional funding.

Probably more important, though, Ibis revenue increased 38% from 2004 to 2005, if we exclude pass-through for equipment purchases.

This substantial increase in revenue, which Isis earned under new and interesting government contracts reflects increased funding to pay for specific test kit applications for government contracts.

And the test kits are the things that are going to make us money long-term.

It also increased funding to pay for additional applications and for the continued advancement of the technology.

We see this shift from developing the instrument to developing the application and continuing to develop the technology as a fundamental advance for the technology and will lead to, of course, more rapid, more extensive and more valuable commercialization of TIGER.

As you know, development of TIGER has been substantially funded through government contracts and grants.

This has allowed us to develop what we think is a very exciting business opportunity with very little investment from Isis shareholders.

Now I would like to explain to you some of the very important things that are going on in the Ibis division that are not reflected in the numbers.

As I mentioned, we spent a lot of time examining both government and nongovernment commercial opportunities for the TIGER biosensor system and picked the best near and immediate term opportunities to form the basis of our commercial business plan.

This work was led by Mike Treble, who is President of the Ibis Division, who was hired last year.

His knowledge and expertise in product development and in commercializing technologies and diagnostics have contributed greatly as we continue to commercialize the TIGER system.

In fact, we believe that the combination of TIGER -- of Mike Treble and Dave Ecker in TIGER is sort of the perfect combination of vision and practicality.

In 2005 we made substantial progress on all fronts in moving forward with the commercialization plans for TIGER.

First, we continued to increase the number of government contracts -- provided substantial continued funding for Ibis.

More importantly from 2004 to 2005, we made the transition from government contracts for basic technology development to contracts focused onto specific applications.

And we have learned that the number of potential applications, that is the number of different kinds of kits, can be very, very large.

And as the number of kits expands, the number of opportunities to sell those kits expands, and the number of customers who may buy those kits expands.

This shift reflects the progression from the development of TIGER technology to the emergence of commercial viability.

As we are receiving funding to develop specific applications, tests and validate and support initial operations of the TIGER system.

Nearly all of the application development that we do for the government can be directly applied to nongovernment commercial opportunities.

So it is on track, all these things are on the track to get to the non government markets as well.

As a result, the work we're currently doing in broadening TIGER applications is short-term valuable but, even more important, extraordinarily valuable in the long-term.

Let me just give you one example.

We're currently working extensively with the Naval Health Research Group using TIGER for respiratory disease surveillance, particularly in the identification of flu and major bacteria and viruses that cause respiratory disease.

We're also actively working with the Centers for Disease Control using TIGER to genotype respiratory bacteria in viruses.

Both the CDC and the Navy, along with many potential government and nongovernment customers have an acute interest in the major viral families that cause respiratory disease, and to identify and contain the spread of those infections.

While we're continuing to develop those applications with our government partners, the development of kits that identify multiple viral species from major viral families that cause respiratory disease, including flu, can also be used by our commercial partners to identify and contain an outbreak and to monitor and track infections.

Such is the case in avian flu.

TIGER can rapidly identify the pathogens and differentiate flu types to provide public health officials and physicians with the critical information necessary to help track the spread of infection and ultimately contain it.

And it can do that at the same time as it identifies what other co-infecting organisms may be present, and help understand why people -- why some people get so sick and others seem to do better.

This information then of course allows physicians to effectively treat infections.

Not only to treat the severity of the illness and possibly death -- or not only decrease the severity of the illness and possibly death, but also to contain the spread of the infection.

The sooner you know that in addition to a flu infection, you have a super infection with a bacteria, the sooner you can begin all of the appropriate drug treatment required to treat that patient, and therefore the sooner you can prevent the spread of the infection to others.

In addition with our government partners we have developed the first two TIGER instruments that are out in the field.

We delivered a system to the Department of Homeland Security's National Bioforensic Analysis Center for use in microbial forensics, and to the United State's Army Medical Research Institute for Infectious Disease for use in bio warfare defense.

These initial deployments represent a major milestone for the Ibis division, as these systems have evolved to the point where they can be run outside of our laboratory.

We're gaining valuable experience working closely with our government partners as we transition and deploy TIGER systems; obviously, a very important goal for our commercial plan.

One of our key goals for 2006 is to identify an instrument partner to develop and service TIGER instruments.

We're also making simpler TIGER instruments that can easily plug in to existing sample preparation systems that are already present in many of our customer laboratories.

This makes the instrument easier to use, it also makes the instrument cheaper to buy.

In addition, we plan to continue the significant work that we're doing with our government partners.

We're expecting two more deployments to government partners in the first half of the year, which will continue to expand the scope of TIGER applications, as well as expand our experience in deployed TIGER instruments in the field; to begin to understand how they perform in the hands of people who have to use them in laboratories not in our own facility.

As I mentioned, we're currently working extensively with the Naval Health Research Center, using the TIGER biosensor system in respiratory disease surveillance.

And have been analyzing hundreds of Navy samples on the TIGER system at Isis.

We're planning to move the system hardware to the Navy's new laboratory facilities when they are finished in the next few months.

Meanwhile, we will continue to collaborate with the NHRC to generate and validate new assays and kits for TIGER.

We're also working with the Centers for Disease Control for genotyping respiratory bacteria and viruses for disease surveillance, and are currently using the TIGER system to run tests for the CDC.

We plan to transition the TIGER system hardware to CDC in the middle of the year.

We're looking forward to a very exciting 2006 as we continue to commercialize the TIGER biosensor system in the pharmaceutical and hospital markets for pharmaceutical process control, ensuring that biological products are not contaminated, and in hospital acquired infections, providing hospitals with the means to identify and eradicate potentially life-threatening infections that grow in the hospital milieu.

So as we move forward in 2006, 2007 here are the specific objectives that we plan to meet.

First, we will continue to grow TIGER revenue.

Second, we will deliver additional TIGER biosensor systems.

Third, we will complete an instrument strategic alliance.

Fourth, we will ship infectious disease organism ID kits to customers.

And we will ship -- and we will begin to ship a variety of new kinds of organism ID kits to customers.

Fifth, we will continue the development of more specific kits.

The more specific the kits, the more opportunity for sales, the more opportunity to exemplify the value of TIGER.

And then finally, we will build the commercial and manufacturing organizations necessary to support TIGER as it progresses towards a commercially successful independent operation at Isis.

In conclusion, the progress we made definitely defines the agenda for Isis this year, as we continue to execute our strategy.

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

I think we had a phenomenal year in 2005.

And I think we're going to have a great year in 2006.

We're focused on making our partnerships successful, and in creating new partnerships.

We will continue to benefit -- certainly we plan to continue to benefit from our intellectual property position, in managing of course the control of our own business and in generating revenue from licensing.

We are going to advance the application and opportunities for TIGER as it moves toward commercialization.

And finally, we plan to complete implementation of various pieces of our financial strategy to assure that we have the funds to support all of these activities.

Of course, we look forward to keeping you updated on our progress.

We very much appreciate your continued support.

And now we're prepared to answer your questions.

George, if you can set us up for questions, we would appreciate it.

And as I say, we look forward to answering your questions.

As I mentioned earlier, we do have Mike Treble here, since we're focused on TIGER.

So if you have special TIGER questions, we have Mike, and hopefully we'll be able to answer those in more detail for you.

Thank you.

(OPERATOR INSTRUCTIONS).

Geraldine O'Keeffe with Fortis Bank.

I have a couple of questions for you, Stan, if I may.

The first one is just on the TIGER.

Can you give us any idea or any kind of guidance as to what you're expecting in terms of revenues for this year?

We do expect revenue growth.

We are -- I suppose -- well, we expect revenue growth.

Mike, do you want to add anything to that?

We will continue to take advantage of government contract opportunities.

And we anticipate commercial revenues.

The combination of the two should show growth over this year.

And in terms of commercial revenue, you're actually expecting to get revenues from sales of kits to customers this year?

Yes, we are.

The other question I had, probably more for you, Stan, was just on the 301012 and the 113715, both of those programs are going to be -- you are going to be presenting some Phase II results on those over the next coming months.

I was wondering maybe first on the 301012, can you give us an idea of what to expect?

Is it is going to be biomarkers or will there be some clinical endpoints in those trials?

If you can (multiple speakers).

301012 and 715 of course are going to be addressing approvable endpoints.

So among the things that we'll be reporting on 301012 in the next several months are, first, we will report results from two drug-drug interaction studies.

One with statin -- and it is simvastatin, and one with Zetia.

And they are designed to show that there are no drug-drug interactions.

And that is very important.

Remember that most people with cardiovascular disease are on eight or ten different drugs.

And second, that in the presence of statin and Zetia that 301012 is active.

Those are the studies designed to display that.

Obviously, we will report the results that the studies show.

Second, we will report very important animal data designed to demonstrate that the drug reduces plaque.

That it actually causes plaque regression.

And although those are animal studies, they are very important, because remember there's no guarantee that lowering lipid through mechanism other than statins, with all of the other effects of statins, will cause plaque regression.

Third, we will report Phase II results from the drug used as a single agent in patients with hyperlipidemia.

In that studied we are exploring the low end of the dose response curve.

We need to get safety experience and experience at the low end of the dose response curve before we can move to the higher end.

In that study we have 50, 100 and 200 milligram dose cohorts compared to placebo.

We are dosing for three months and then following.

We will have very important safety data.

And we will have the opportunity to explore whether we can demonstrate efficacy in lowering apoB-100, non HDL particles which are of course LDL, VLDL and all the apoB containing particles, as well as triglycerides and other elements.

That will be a very important set of -- a very important study, both on the safety side and on the efficacy side.

We have started the familial hypercholesterolemia studies.

Remember that these are studies that can lead to early registration of the drug -- and our studies that have been discussed at depth with the FDA.

And over time those studies results will roll out.

We have a combination study of ISIS 301012 in combination with simvastatin that is in progress.

And in the second half of the year at some point results from that study will be made available.

In addition, we are going to be enrolling as a single agent patients at 300 milligram a week dose, which is of course higher dose.

Remember in normal volunteers we have gone up to 315, 400 milligrams a week.

And results from that cohort of patients should be available as well.

So we have a big year for 301012.

The first half of the year I think is a particularly important year.

With regard to ISIS 113715 the single most important study is a 12 week studied of newly diagnosed diabetics.

So these are truly newly diagnosed diabetics.

They haven't had any other drug.

These are very hard patients to find.

They're treated for 12 weeks at 200 milligrams.

So we certainly hope to see evidence of effects on glucose.

And we hope to see evidence of effects on hemoglobin A1c, although 12 weeks is a little short.

Twenty-six weeks is when you really want to look at it.

That study will get reported, assuming that the abstracts are accepted, at the American Diabetes Association, along with the six-week study, which is primarily designed to evaluate safety in which we're looking at 100, 200, 400 and 600 milligrams. 600 milligrams a week, by the way, is a substantially higher dose then we expect to have to use.

And we hope that that study will be able to demonstrate that we have no hypoglycemia, none of the other toxicities that other drugs worry about.

And of course we hope that there will be continuing trends of evidence of activity out of that study.

Finally, we have combination studies planned with 715 that are getting underway.

We hope that we will begin to have data, probably first part of next year.

It is a little difficult to know exactly when because the study, it is just getting ready to enroll, so we will have to see what the enrollment looks like.

And in addition, we will begin a mechanistic study with Dr. Shulman at Yale here very shortly.

And over time we will be reporting data from that study as well.

The studies on ISIS 113715 are designed to come together in the early part of next year to tell us exactly what directions we ought to be moving toward developing this drug for Type II diabetes.

Suffice it to say that based on everything we know, we remain very encouraged about the opportunity that this drug represents.

If I just might sum up there then, Stan, by the first half of next year you should be able to start beginning to plan your pivotal trials perhaps for one or both of those drugs?

With ISIS 301012 we will also began six month studies with ISIS 301012, both as a single agent.

And then once we get the combination data, we will begin 6 month studies with the drug there.

We want to accomplish those things and be absolutely certainly we know what the appropriate induction dose and maintenance dose for that drug is in single agent and combination.

We believe we can get all of that done in the next 12 to 18 months.

And then -- I suppose it could take as long as 24, but I guess probably the best number to think about is certainly 18 months.

And when we get that done, we believe we will be ready for broader trials with Phase III quality trials.

With Isis 113175 we have got a bit more work to do.

We have to get through the studies that I have described and then decide which of several potential applications in diabetes the drug is best suited for.

Is it best suited for treatment in early diabetes?

Is it best suited in combination in late phase 2 diabetes with [plysiglutasone] and [viata] and so on?

Is it also best suited to be used in combination with insulin?

We think it has the potential to be used in all of those things.

In addition, we want to be looking at whether it increases adiponectin.

Remember that this drug has all of the earmarks of a drug that can cause an effect on obesity.

And if we can see an effect on adiponectin in human beings, then we would probably mount an anti-obesity set of trials as well.

So there's a lot to be learned about ISIS 113715 over the next 12 to 18 months.

Dallas Webb with Stanford Group.

First, Mike, in the press release it states that you guys intend on building out internal commercialization and then manufacturing organizations for TIGER.

Is this relating to the kits or the actual machines, the actual assays?

And if so, how is this going to affect the overall burn of the Company -- the cash burn?

First of all, we're not going to build anything on instrument side.

We are in discussions, as Stan indicated, to secure a partnership.

And we expect that to happen this year.

So the focus will be on building kits internally.

On that commercial side we will assist certainly in the instrument selling process, but our focus will be on applications and support of installations through our commercial organizations.

And we are in the process of starting to build that right now.

From an operating cash flow basis, we intend to be on the positive side of cash flow this year for the division.

Applying overhead, we will see a similar pattern to what we have reported historically.

Along those lines, can you just walk us through the timeline of your commercialization plan outside of the governmental agencies?

Specifically moving into the pharmaceutical industries and then into the hospital diagnostics and then potentially into the forensics analysis.

We feel we are on track to what we outlined in the plan.

The visibility on specific accounts it is premature to talk about.

But we believe that we will be able to record orders this year.

And we're building the basis for entering into the hospital infection control market and eventually diagnostics, with the applications work that is currently ongoing with collaborators that Stan mentioned, the Navy and CDC.

Don't forget, there are a lot of other governments other than just the federal government, and lots of other opportunities that are interesting.

I guess, Stan, a question for you.

I know we talked about this in the past, but at what point would you consider spinning Ibis out?

Or I guess that what evaluation or inflection point would you be looking at that?

I think it is a two part equation.

It is when we think TIGER Ibis has achieved an evaluation inflection point that we think is substantial enough that we're getting a local high in the value.

And second, when it is necessary to invest more cash than can be achieved with our current sources of revenue -- that is substantially more than what we can do.

We don't believe there's any requirement to do it in 2006.

But we certainly want to be ready should the opportunity present itself in 2006, and certainly be ready to do it in 2007.

Just real quick going back to 301012, going to the oral formulation, what is the timeline there?

I know we have to come to go back and relook at the formulation, but I guess what are the next steps there?

The strategy hasn't changed.

The purpose of that experiment was proof of concept for the technology.

And it was a wonderful success.

We demonstrated that we could achieve oral bioavailability and reduction of apoB-100 and LDL commensurate with the amount of drug in blood.

And by the way, we achieved the amount of lipid-lowering that Zetia achieves, which is a pretty good product.

We will be reporting more data on that trial, which we think is kind of exciting, at a meeting the American Association of Pharmaceutical Science meeting, assuming that the abstract is accepted.

So having achieved that goal, we know now that we can make oral antisense drugs.

So our plan with 301012 is to develop 301012 itself in through Phase III.

At Phase III we will begin the development of our -- when we have some Phase III data -- we will begin the development of what we call this generation 2.2.

Now in animals generation 2.2 gives us about a tenfold increase in potency.

Of course we don't know yet what it will do in man, but to date everything that we see in animals we see in man.

Development of that then can be used to provide a follow-on product for the sub-q product, and extend our franchise in apoB-100.

We think that is very important.

The patent life for 301012 itself is very long, but having a follow-on product that is 5 to 10 times more potent can be great -- will be very useful item.

That increase in potency then makes oral potentially commercially feasible.

The principal problem with oral is really cost.

If you multiply the cost of the sub-q product by 15, which is what you have to do for the oral, then the price of the oral drug is simply higher than we want it to be.

If we lower the amount of drug necessary to administer by tenfold, then the price is right in range.

The capsule sizes are smaller, bioavailabilities is higher, and as a consequence we think we have a very attractive oral product.

In addition, that that gives us three or four years to tinker with the formulation to really make sure that it is optimized for 301012.

Remember, this formulation is absolutely not optimized in anyway for 301012.

It was a formulation we took off the shelf, having developed it for another antisense drug.

So the strategy then is to have then a follow-on product for the sub-q, this 2.2 301012, and then develop the oral product for that.

And we think 301012 sub-q is a multibillion dollar product.

We think 301012 follow-up product is an even larger product.

And then when we bring the oral forward, we have already set the market for the first antisense drug, the first drug of any kind that lowers apoB-100, all apoB-100 [aprogenic] particles, all bad lipids and triglycerides, and we can give it to you in a pill.

That is the strategy.

Do I understand it right then that you do not intend on partnering it before Phase III?

No.

What we would like to do, if we could afford it, is to fund our development through learning what the profile really is, and identifying induction and maintenance dosing schedule of the sub-q drugs.

That will take us in -- possibly 18 months or so.

And if we can afford to fund it, we believe that that is a far preferred route for the drug.

We believe we will get greater value when we partner it.

And we want to stay in control of this, our most important asset, until we answer those two questions.

That is our preferred goal.

Obviously, that is dependant on how much money we can raise in various forms of equity, and how much -- and the level of partnering interest.

And those are things we're working on right now.

And I can't predict the exact outcome.

I can only tell you my preferred course, just to stay in control of 301012.

Okay.

I think you guys ended the year with 94 million in cash.

What is your projected burn for this year and how long will that last you?

We haven't given a burn guidance, but what I can tell you is that we are continuing to believe that this money is going to last us, together with other sources of cash that we anticipate, at least through the end of 2007.

(OPERATOR INSTRUCTIONS). [Barbara Rosenfeld with Lobe Partners].

First, congratulations on all the progress you have made this year.

And I had a question on the other potential components of revenue.

What is the timing and likely magnitude of the next payment from DRC related to Macugen?

And what will trigger additional payments from Alnylam?

The Macugen transaction is we get 7 million a year.

I'm sorry -- I will tell you what, let somebody who knows something answer the question.

Lynne is shaking here head at me like I'm making a dumb, bad mistake, which must mean I am.

Answer the question, Lynne.

Stan never makes dumb, bad mistakes, but let me give you a more precise answer.

DRC gave us as an upfront payment on the Macugen royalties $24 million to be paid out over three years.

The first of three payments we received in 2005 was $7 million.

We will receive one payment a year for each of the first three years, and that will add up to $24 million.

That sounds what I was going to say.

I don't know why she made that face at me.

Okay.

With regard to Alnylam, any time Alnylam does a partnership that includes Isis' technology as the Novartis partnership did, we share in the monies that they get from those transactions.

And essentially all those partnerships will involve Isis technology.

And we haven't given the precise percentages but you could more or less calculate it from the 4 million that we got from the previous -- from the Novartis transaction.

And then I had another question.

There was no mention today of the Alicaforsen enema.

And I just wondered where things stood?

If you received all the input that would enable you to go forward with a revised Phase III?

Are you still pursuing partnership discussions or just where it stands?

We didn't mention a lot of things in the clinical pipeline today just to keep the conference call short, and because we had discussed them in great detail on the 10th.

So wasn't that we're giving Alicaforsen short shrift.

The progress that we have made is that we have productive interactions with the FDA.

We know the Phase III program.

It is ready -- it is getting ready to go in the fall.

And if we can afford it, and that is the big if, if we can afford it we would want to do a Phase III trial.

We believe Alicaforsen will be successful in Phase III and will be a product that has value.

Our strong preference is to license Alicaforsen so that we can invest in our second generation drug.

We're still working on it -- and on licensing the drug.

And I can't comment any further about whether that is going to happen or not.

Mark Monane with Needham.

I will start with Michael please.

Could you talk -- Michael, please could you address something Stan said earlier about the strategic partnership for TIGER.

What is the ideal strategic partner here?

What characteristics are you looking for?

And help us understand how TIGER and Ibis fit together along with the other strategic alliances you have recently?

The strategic partnership that we're talking about is on the side of instrumentation.

We are not pursuing other strategic partnerships at this time until we validate TIGER in some of the near-term markets.

That is where our focus lies.

How about the relationship -- could you go over for us on Ibis and TIGER and how these programs are related and fit into Isis overall?

We're set up as an operating division within the Isis.

So we have separate reporting.

The Ibis business unit is totally focused on TIGER by itself.

And we rely upon the corporate infrastructure and Human Resources, Accounting and Finance, and Legal to support the business activities of the division.

But there is little crosstalk in terms of our work versus the Isis drug development work at this time.

Remember that TIGER derived from work we did on RNA structure and small molecules interacting with RNA.

And those small molecules, those anti-infective small molecules, we just licensed to a company called Achaogen, and so the fruits of the initial Ibis work we hope are going to lead to some very interesting anti-infectives that bind to targeted RNA in unique ways.

That is helpful.

Thank you, Mike, that was helpful.

How about, Lynne, how many people at the Isis right now -- how are they divided among the different groups or divisions?

And what is the optimal number in your opinion going forward?

Right now we have a little bit under 300 people.

And I think we all think that that is a very good size for the Company to be.

One of the things that we reflect on when we look back on the reorganization that we did at the beginning of last year is that it really was very strategic for us.

We have really enhanced the productivity of the organization, the focus of reorganization, and have multiple groups -- really open communication and working closely together and doing multitasking.

And we think that is the best way to work.

I think we have become a much more active and entrepreneurial organization.

Which groups are you interested in in terms of rough break down?

The Ibis division is about 40 people.

And so the rest of the organization is R&D, and antisense oriented R&D, and corporate infrastructure, all the other things that we do to support that.

That's helpful.

That general information is very helpful.

My last question is a state-of-the-art question for Stan.

Maybe you can help us think about how to position the different technologies available with oligonucleotides, RNA medicine, all of which Isis seems to be working on.

You have chosen to grow both internally and externally through collaborations.

And we know about the collaboration with Alnylam.

Is Isis free to develop RNAi strategies as well?

Then maybe talk about the microRNA deal with Rosetta recently.

And then leave us with what generation 2.3 might look like going forward.

We are free to work on siRNA.

More importantly, we are working very hard on the mechanism.

So we did the transaction with Alnylam because we feel Alnylam is an outstanding company and they have proven that.

They're doing the great science.

And their job is to see if double-stranded RNA can be a drug.

We are, and of course if we want to make double-stranded RNA we can certainly do it.

But our principal in understanding the cellular mechanisms that underlie siRNA, and designing single-strand RNA like drugs that work through that mechanism.

I can tell you we're making credible progress.

And we think single-strand RNA drugs long-term, that is five, eight years from now, may be another advance in antisense therapy.

You will be seeing in scientific venues for over the next year or so the evidence of the quality of the work that we're doing.

And of course, we are very pleased with the quality of work that Alnylam is doing.

For us, of course, any drug that gets developed has to be better than generation 2.2.

That is a tall order.

We think based on the animal data that we have with generation 2.2, the potency of generation 2.2 drugs could be as low as 10 milligrams a week, or as high as 10 milligrams a week.

And they are performing wonderfully.

The side effects are just basically diminimus.

So whatever we accomplished beyond 2.2 has to do something better then 2.2.

And in terms of potency, I can imagine a dose that we give 1 milligram a week.

But gee, that is kind of amazing.

We're looking at chemistries and what not that can do other things rather than just increase potency, work through different mechanisms, provide the equivalent of agonists, not just antagonists and things like that.

So all that progress is continuing, and we're learning about how to make slicing inhibitors and all kinds of other mechanisms.

With regard to microRNA -- we are interested in everything RNA -- and microRNA are subserving an enormous amount of biology.

Here's the most important thing about -- you need to think about when you want to make drugs.

Find a piece of biology that is new.

Find a piece of biology that is large.

Find a piece of biology that seems to subserve many, many functions.

That is microRNAs.

MicroRNAs today, it is known that there are thousands and thousands of microRNAs.

These microRNAs appear to serve a wide range of control of gene expression and managing different phenotific characteristics.

They are 20 nucleotides long.

Interestingly the same length that we discovered as the right length for antisense is the length that nature discovered is right for siRNAs and microRNAs.

And so we are involved in looking at the microRNAs to expand the world of RNA that we can use therapeutically.

And to use interruptions of microRNAs to create the equivalent of agonists as well as a broad range drug.

And there again, great progress.

Really great progress.

We have moved from basic test tube concepts to unequivocal demonstration of exciting activity in animals in the space of a year or a year and a half.

So the Rosetta collaboration combines our ability to make antisense drugs that bind to these microRNAs, and that is to drugs, with Rosetta's informatics to identify all kinds of new microRNAs and their potential targets.

And so we think that combination of the informatics, which is very unique to Rosetta and its ability to identify microRNAs and their targets, and our ability to target any microRNA that somebody can find, has a powerful, powerful combination to exploit microRNAs.

We believe the combination of our patents, Rosetta's patents, and Alnylam patents puts us in control of the microRNA world.

So our goal from the beginning -- from chemistry to biology to mechanism to all of the world of RNA to own all the courses.

My feeling about winning the race is it gets a lot simpler if you own all the horses in the race.

And we think we own all the horses, and we're going to win no matter who wins.

And we think there are going to be a ton of winners.

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

I will turn the conference call back to you for concluding remarks, or you may continue your presentation.

If there are no additional questions, we appreciate your interest.

We're looking forward to a fabulous, fabulous 2006, and keeping you posted on the progress of our key assets.

And I look forward to lots of good times to have good conference calls and tell you all about it.

Thanks very much everyone.

Ladies and gentlemen, that does conclude today's conference call.

We thank you for your participation and ask that you please disconnect your lines.

And have a great day.