Ionis Pharmaceuticals Inc (IONS) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to Isis Pharmaceuticals first quarter earnings conference call.

Today's call is being recorded.

Leading the call today from Isis is Dr.

Stan Crooke, Isis Chairman and CEO.

Dr.

Crooke, please go ahead, sir.

Thank you, Dana.

Welcome, everyone, and thanks for joining us on today's conference call to discuss the financial results and highlights for the first quarter of fiscal 2007.

Presenting with me today are Lynne Parshall, Executive Vice President and CFO, Jeff Jonas, Executive Vice President, and Kate Corcoran, Vice President Corporate Communications.

Also sitting in with us is Beth [Halgren], our Vice President of Finance.

In our last earnings call we laid out corporate milestones and strategy.

As the second quarter unfolds, I'm happy to report that we continue to make great progress on all fronts.

Yesterday we announced an important licensing agreement with Bristol-Myers Squibb, or BMS.

Today I'll discuss our BMS collaboration in more detail.

Jeff will then provide a high level summary of the data we presented at the American College of Cardiology conference, and present updated information about our development plans for ISIS 301012.

That's a very important set of decisions that we've made and it will be an important part of this conversation, so I'm sure you will look forward to it.

Lynne will follow with a discussion about recent operating and financing highlights and, of course, as always, at the end of our prepared remarks we will be happy to answer any questions that you might have.

First, let me turn the call over to Kate, to review our policy on forward-looking statements.

Thanks, Stan.

I'd like to add my welcome to everyone listening in.

A reminder to everyone that this webcast includes forward-looking statements regarding our business, financial outlook for Isis Pharmaceuticals and Isis Biosciences, and the therapeutic commercial potential of Isis technologies, products and development.

Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs is a forward-looking statements and should be considered an at-risk statement including those statements that are described as Isis' goals or projections.

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 the results to differ materially from those expressed or implied by such forward-looking statements.

Although Isis' forward-looking statements reflect the good taste and 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 any forward-looking statements.

These and other risks concerning Isis' programs are described in additional detail in Isis' annual report, Form 10-K for the year ended December 31, 2006, which is on file with the SEC.

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

Now, back to you, Stan.

Thanks, Kate.

Before going into detail about our BMS deal, I want to reflect on the broader meaning of the agreement.

First, and to me most gratifying, this deal is the tip of the iceberg of interest in antisense drugs for acute as well as chronic diseases.

And that interest derives from data.

It is driven by the ISIS 301012 data, so in that sense it's very gratifying to us, because all of the work that we've done over the year has come together so wonderfully in ISIS 301012.

So, at its most basic level, the BMS agreement is further validation of the emergence of second generation antisense drugs as a new class of therapeutics.

We believe that they will join traditional small molecules and monoclonal antibodies as the third platform for drug discovery.

Second, the agreement underscores the ability of ISIS antisense technology and second generation antisense drugs to very specifically inhibit essentially any target, and to inhibit targets that are difficult to develop drugs by more traditional approaches.

PCSK9 is one such target, and there are many other validated drug targets that are considered undrugable using traditional approaches.

So, we like what the future holds for antisense technology.

It also represents the extraordinary efficiency of Isis antisense drug discovery.

This program is a very new program that only began last summer, and in a very short time we were able to identify early leads to PCSK9, and move them along rapidly into very meaningful animal studies and clear publications demonstrating potential value of the drug.

Third, this agreement further emphasizes the promise of second-generation antisense drugs as treatments for chronic cardiovascular disease and for other chronic diseases.

Through our collaboration with BMS, we hope to rapidly add PCSK9 -- a PCSK9 second-generation antisense drug to our pipeline.

We already have our flagship lipid-lowering drug, ISIS 301012, preparing for registration trials for familial hypercholesterolemia, and additional Phase II trials for polygenic high cholesterol, and of course partnering.

We have a third drug, ISIS 353512, that targets CRP, that will be -- that is entering pre-clinical toxicology studies that we hope to develop for many indications including the treatment of coronary artery disease.

That IND enabling preclinical work is actually being funded through an attractive arrangement with the Korea Institute of Ttechnology that we'll tell you about.

Fourth, the financials of the BMS deal demonstrate high interest in this target, and the value of our technology that can be used to modulate drug targets that are considered undrugable.

We have published already, as I said, exciting research studies using second-generation antisense drugs of PCSK9.

While we've been moving the research program ahead quickly, we haven't finalized a decision about what -- about a development decision.

So, we haven't moved a compound into development yet.

Nevertheless, we've generated a great deal of data on this -- on drugs that inhibit this target in multiple dose studies and in a number of animal models.

And so we're generating a great deal of information that allow us to select an ideal drug candidate for this target.

So, BMS has really invested in the technologies promised, the promise of a second-generation antisense drug that inhibits PCSK9, and both BMS and Isis will be working hard to generate that development candidate in the very near future and advance it into human testing.

Let me just give you a bit more background on our BMS deal itself, including a bit of information about this target PCSK9 and how we'll work with BMS to develop drugs targeted to PCSK9.

PCSK9 stands for proprotein convertase subtilisin kexin 9.

The last time I planned on pronouncing its entire name ever.

It is a member of a very large family of proteases, and these proteases degrade other proteins.

But the particular cellular substrate for PCSK9 is not known today.

In fact, it was discovered by looking at the genetics of people with very low LDL cholesterol.

People with too much PCSK9 have severely high LDL cholesterol, and people with mutations that reduce levels of PCSK9 have very low cholesterol, reduce risk of coronary artery disease and, in addition, appear to have normal liver function.

So, they lead a very normal life without cardiovascular disease.

So, it is a representative, then, of the modern, a very modern way in which new targets are discovered, by looking at genomics of human beings.

And while that's an exciting approach, it almost inevitably leads to the situation that you find with PCSK9.

That is, you've identified a great target, you don't know what it does for a living and you have very little insight into how to make a drug to it.

And, of course, with antisense technology, that is an ideal place for us, because we can simply not worry about any of that and go make a drug that inhibits -- finds out whether it's good, bad or indifferent.

So, PCSK9 influences cholesterol levels indirectly, and our research, along with work from other groups, has demonstrated that it works through effects on the LDL receptor.

Now, you know that the LDL receptor removes LDL cholesterol from the bloodstream, and PCSK9 interferes with that beneficial activity by reducing the amount of available LDL receptor through mechanisms that are really not understood.

Therefore, as a drug target, PCSK9 makes sense, since reducing its activity should enable higher levels of LDL receptor work and clearing LDL receptor -- LDL cholesterol from the blood.

And, in fact, this theory -- and it was a theory until our work -- is entirely borne out in the animal studies that we've done using our second-generation antisense drugs to PCSK9 in several mouse models.

These studies were published earlier this year, and I'll just point out that the effects of inhibiting PCSK9 have truly helped solidify our understanding of what it does and its mechanism of action.

Indeed, reducing PCSK9 in these animal studies led to increased LDL receptor expression and consequently reduced LDL cholesterol.

Furthermore, reducing PCSK9 in genetic [inaudible] mice that did not have an LDL receptor gene led to no effect on LDL cholesterol, confirming that the effect seen on LDL cholesterol are secondary to changes in the amount of LDL receptor.

This work clearly elicited the interest of a large number of pharmaceutical companies including BMS.

I want to emphasize, despite the early nature of this target and the limited amount of data, we had significant numbers of companies interested in PCSK9, and we selected BMS because we felt BMS was going to be the best partner to work with us on this drug.

The investment in PCSK9 is a further example, then, as I mentioned, of an understanding of the potential of second-generation antisense drugs for chronic therapy.

Of course, anyone interested in PCSK9 examined all the data that we have with all of our drugs including ISIS 301012, and ask if our second-generation antisense drugs going to be safe enough for chronic therapy in cardiovascular disease.

Clearly, they made the decision that they will be.

So, back to PCSK9 for just a bit.

Because PCSK9 protein substrate is unknown, because it is a member of this very large protease family, and all of them are very similar, there simply is no direct assay that discriminates -- helps identify a PCSK9 inhibitor from more -- general protease inhibitors.

And, as I said, this makes, then, development of small molecule inhibitors to PCSK9 difficult to impossible.

As I said, none of that matters to us.

Based on the gene sequence, we can readily generate and did generate candidate antisense drugs that be used for target validation research, and then these very same molecules, or similar ones, can be used as the actual lead drugs.

So, we are well on our way to identifying our human lead drug candidate for PCSK9 based on the unique sequence of the human gene.

The completion of that work will now be funded by BMS as part of our agreement.

BMS will also leverage our industry leading oligonucleotide chemistry expertise by funding further research to identify follow-on PCSK [inaudible] drugs incorporating more advanced designs, as well as potentially more advanced antisense chemistry that are advanced even beyond second-generation antisense drugs.

Among desired incremental performance benefits would be greater potency, which would enable oral administration.

But the mechanism of action I just described, PCSK9 is clearly an exciting target.

Not surprisingly, Isis and BMS will not be the only company developing PCSK9.

However, we believe that BMS corroborates that our approach offers the most promising opportunity to bring an effective drug and a safe drug to market rapidly, especially in light of our experience with ISIS 301012.

We're very pleased with the confidence that BMS has shown in our technology and the platform.

The speed with which we were able to complete the deal is also impressive.

And, of course, you've already seen the terms of that deal, which were extremely attractive for a research stage program.

We received 15 million upfront payment.

We'll be getting at least 9 million in research funding over three years of the collaboration to identify the initial development candidate and follow-on drug targeted to PCSK9.

We also received royalties on sales in the high single digit to low double digit range, as well as up to $168 million in milestones for the first drug we developed, that we and BMS developed.

We will also earn additional milestones from royalties related to any follow-on products.

For a research program, we feel that these are excellent terms and we believe the factors that contributed most [inaudible] to our ability to command this valuation for a research stage program were the validation of the target, PCSK9, including our mouse work, and the human genetic conditions with LDL cholesterol levels that have been defined, and the strong promise of second-generation antisense drugs for cholesterol lowering.

That promise is demonstrated by the performance of ISIS 301012 in the extraordinary Phase II data that we have reported already.

I haven't yet addressed our 301012 related business development.

That's not because there's nothing going on, but instead because so much is happening.

With the model performance of ISIS 301012 as a drug, we're in the fortunate position to be entertaining many, many suitors for ISIS 301012.

We have not yet begun the process that will lead to licensing ISIS 301012 despite the many calls from many companies asking if they can participate in licensing conversations.

We will begin the process later this year and we hope to select among them, based on what they bring to the table for Isis, its shareholder, ISIS 301012, and, of course, most importantly, for patients with high cholesterol.

I'll now turn the conversation over to Jeff to discuss ISIS 301012 more fully.

Thanks, Stan, and good morning.

I hope you al had the opportunity to listen to our March 27 presentation during the ACC conference.

We reported new data from three Phase II trials for ISIS 301012.

The homozygous FH trial, a monotherapy trial for patients with routine high cholesterol, what we call polygenics.

And a combination trial where we administer ISIS 301012 to polygenic hypercholesterolemia patients who are already on stable doses of statins but unable to meet target cholesterol levels.

Collectively, the new data build on early results continue to demonstrate in all cohorts studied that ISIS 301012 achieves very predictable significant dose-dependent and prolonged reductions of apoB, LDL cholesterol, and other harmful atherogenic lipids, as well as triglycerides.

Deeply important, ISIS 301012 has been well tolerated in all Phase II trials.

We've seen no liver chemistry findings that would suggest drug-induced liver industry, and we have no evidence of clinically significant drug interaction to side effects, and no severe injection site reactions.

So, where do we go from here?

Today I can add some detail to the general development plans we've discussed earlier.

As you know, our plans call for starting the pivotal endstage program, as well as indicating the longer term polygenic Phase II study this year.

As we have been analyzing the Phase II data and the dates since the ACC in preparing our protocols, we are striving to follow proven paths and to simplify our dose and schedule as much as possible.

With this in mind, we have recently settled on a set of plans which call for advancement of a single dose of 200 mg per week with weekly administration.

We no longer feel we need to have to have induction and maintenance doses.

We originally had that plan because we felt patients and physicians would want to see meaningful LDL cholesterol lowering within the first couple of months on the drug, and we weren't sure that we'd see these effects without induction dosing considering ISIS 301012, it's gradual activity and long half life.

We also needed to be certain that the human pharmacokinetics and pharmacodynamics would allow us to achieve steady state without reducing the dose.

But our Phase II experience has convinced us that reductions in LDL cholesterol will occur sufficiently rapidly, and that steady state will indeed be achieved with a [inaudible] dose allowing us to proceed in a more straightforward path of dosing.

With 200 mg per week dosing of ISIS 301012, we expect to see about a 24% LDL cholesterol reduction by six weeks, increasing to more than 40% reduction by 12 weeks, and a 50% reduction at a steady state, which will occur at 26 weeks.

Now, remember, these predictions are for reductions beyond those achieved with baseline statin therapy.

This is more than enough lipid-lowering activity to bring most patients to an LDL cholesterol target of 100 mg/dL, and a significant number of patients to 70 mg/dL levels.

And we feel that the advantages offered by a simple single dose schedule far outweigh the desire to attain such reductions rapidly with higher induction dosing.

Most importantly, we're confident that the 200 mg per week will be well tolerated.

We will go to the end of a Phase II meeting having shown that even 400 mg per week was adequately tolerated.

So, moving into longer-term treatment with half that dose is prudent.

Obviously, over time, as we gain experience with ISIS 301012, we can always do what the statin developers have done and develop higher doses for patients with greater need.

So, our key next step is to meet with the FDA in the next few months to get clearance on our registration program for FH.

As we have said in the past, what have a pretty clear idea of what we need to do for homozygous FH registration, and we plan to work with the FDA to define what we need to do for registration of heterozygous FH as well.

We are also hard at work on our long-term treatment protocol for polygenics.

In that trial, we will dose all treated patients with 200 mg per week of ISIS 301012 added to stable statin therapy, although we've not settled on some of the other final details.

We are, however, on track to start this trial this year as well, and simplifying the dosing may actually help us accelerate our timelines.

One of our objectives is to control the development of ISIS 301012 until we have defined the optimal dosing regimen.

As I've just described, we're almost there.

We hope to get the FH pivotal program and the longer term dosing studies started shortly, and those activities dovetail nicely with our plans to begin considering the many companies that have expressed interest in ISIS 301012.

I am pleased to say that we're closing in on that point, and we think that 200 mg weekly is it, at leas through initial registration.

We think that this dose either added to statins or as monotherapy is one that should allow almost all patients to achieve LDL cholesterol levels of less than 100 mg/dL.

We look forward to sharing with you all -- more details of our plans as they solidify.

Of course, we also have ongoing Phase II studies for which we will have data later in the year.

Specifically, the homozygous FH study we gave you an interim glimpse of at ACC, as well as a heterozygous FH study, and the longer term dosing for polygenic coadministration with statin study.

For the ongoing polygenic study, we are adjusting our plans slightly based on our decision to develop 200 mg per week dose.

Initially, we had planned to enroll 200 mg per week and 300 mg per week 12-week treatment cohorts.

But now, with the focus on 200 mg per week as our therapeutic dose, we will complete the 200 mg per week group and then focus on starting on polygenic long-term dosing studies.

We still expect to present results from the study later in the year.

And now here's Lynne.

Thanks, Jeff.

I'll start with my usual introduction, assuming that you've all had an opportunity to read the press release we issued earlier this morning, I'm not going to reiterate what's detailed in the release.

Please feel free to ask questions at the end on any points from the release that you need clarification on, however.

Today I want to update everyone on some of our financing activities that I discussed during our last call, and provide color on how these and related activities will affect our financials, our balance sheet and our P&L through the end of the year.

I'll start with our convertible notes.

Effective today, we have redeemed all of our existing 5.5% convertible notes.

The funding for this redemption was the January private placement of 2-5/8% convertible notes due in 2027 with a foot feature starting in 2014.

This very successful financing provided longer maturity debt and will save us about $2.6 million in annualized interest payments.

Note that on March 31, our cash equivalence and short-term investment balance was $285.6 million.

With today's redemption payment, our cash balance will drop by $82.2 million.

This payment covers the principal balance of unredeemed notes, a small premium for early redemption, and accrued interest since the last coupon payment, which was on May 1.

There were no common stock conversions for the 5.5% note holders.

And the redemption will reduce convertible debt carried on our balance sheet by $80.8 million to $162.5 million, representing just the 2-5/8% convertible debt.

In other words, our old debt went away and now all we'll have on our balance sheet will be the new debt.

We're pleased with the progress we're making with commercialization of the IBIS T5000 biosensor system, and we're on target to meet our projected placements of 8 to 15 instruments in 2007.

You may have noticed that our IBIS revenues, which is early commercial stage, still primarily consists of government contract revenues, were lower in the first quarter of 2007 than they were in the first quarter of 2006.

As IBIS has matured from research and development to commercial stage, some of our large government contracts that support technology development have been successfully completed, and new contracts supporting application development are being initiated, resulting in a shift in the timing of contract revenue.

We expect that revenue from government contracts will continue to provide a solid revenue base going forward.

We also recently negotiated a partnership agreement with the Korean Institute of Technology, or KIT, that's both unique in its structure and supports aggressive development of a key drug in our cardiovascular portfolio.

Under the agreement, KIT will conduct toxicology and other IND-enabling studies to support pre-clinical development of ISIS 353512, our antisense drug targeting C-reactive protein that Stan talked about earlier.

And they'll do this in exchange for a nominal royalty.

This is an attractive way to advance our CRP drug towards an IND, while saving us several million dollars in preclinical costs.

In the future, this relationship may expand to other drugs.

Our BMS partnership will also significantly impact our financials.

As the news release stated, the agreement provides development milestones up to $168 million for just the first PCSK9 antisense drug developed in the collaboration, as well as additional milestones for any follow-on drugs.

We'll receive an upfront payment of $15 million, which will be amortized over three years with the research collaboration, and we'll receive at least $9 million in research funding over those three years.

Together, the upfront payment and research funding will result in about $8 million in revenue for us annually for the next three years, not including milestones, manufacturing revenue, or development collaboration revenue, each of which would serve to increase this amount.

Our BMS partnership is also noted because it assigns -- notable because it assigns significant value, as Stan discussed, to this research stage cardiovascular program.

The deal adds to the momentum that we're experiencing surrounding partnership opportunities for ISIS 301012, and we're very much looking forward to advancing our licensing discussions and perhaps even selecting a high-quality pharmaceutical partner later in this year or early next year to work with us on Phase III development and commercialization of ISIS 301012 for the ever growing market of patients with intractably high cholesterol.

So, I'll turn it back over to Stan.

Thanks, Lynne.

Many of you couldn't attend our investor presentation during the ACC, so you didn't have the opportunity to see John [Kasline], [Evan Stein], and [Dan Rader] sitting side-by-side at the front of the room.

But for those of you who were there, or who listened to the webcast, I certainly hope that you were as gratified as I when those investigators described their excitement about ISIS 301012.

I will close with an anecdote.

On Friday before the ACC, Mark Wedel, our Chief Medical Officer, sent Thomas [Michele], the new Phase II data under confidentiality.

Thomas is a highly regarded clinician and professor in Boston with affiliations both at Harvard Medical School and Brigham and Women's Hospital.

He's also a member of our Cardiovascular Advisory Board.

Thomas emailed Mark back within 30 minutes of receiving the data and his response was a single word, and it was "wow," and that is the way we feel, wow!

We think we've got truly a great drug with an incredibly good Phase II package.

And we think it represents the potential value of the entire pipeline of now 17 drugs in development.

With that, then, we're now ready to take your questions.

Dana, if you can please set up to take questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS) We'll go first to Mark Monane of Needham.

Good morning.

Thank you, and greetings from New York City.

Thanks for taking the call.

I enjoyed the review of 301012 and the new news on the dosing.

Can you talk about the potential to dose titrate during the trial?

Is it possible that people will be on 200, and if they get a less than optimal response they'll go to 300?

And clearly Lipitor is being given a lot of different doses.

What are your thoughts about tailoring it to the patient specifically?

Well, first, in all our experience to date, we have seen virtually no patient not respond to ISIS 301012.

If you remember those dose response curves, one of the most remarkable features of dose response curve was the unbelievably small [inaudible] errors.

So, one of the truly remarkable features of ISIS 301012 is the consistency and predictability of its performance.

Patient population -- the patient population presence or absence of statins.

So, we are armed with that information and predictability when we pick the development dose, and we are confident based on the experience that we have that 200 mg will work in virtually everybody.

So, we don't believe that we're going to have significant numbers of patients who are unresponsive.

Nor do we believe that there will be a significant number of patients who will respond at a low level to the drug.

Now, with regard to dose escalation, you have to remember that ISIS 301012 has a very long half life, and so dose escalation studies become much more complicated than dose escalation studies with a drug that has a 24-hour half life, like statins.

So, for example, in patients with FH, we may allow patients who respond well but need more lipid lowering to go to 300 mg as an example.

But we could only do that after, say, 13 weeks of dosing and then we could only escalate beyond that after another prolonged period of dosing.

So, dose escalation studies will be very limited and will be focused -- will take place only when patients have been treated for prolonged periods of time because of the long half life of the drug.

With polygenics, we don't expect any dose escalation in our registration studies, it's just necessary.

That was helpful.

Thanks for reviewing that with us.

And then I understand the simplification of the dosing regimen and I think that will allow for the signal to be generated much more efficiently in ongoing trials, so I get it.

You explained it well.

In terms of -- what I don't understand and would like your feedback in is the relationship in the business development world among the different molecules.

Do you believe the recent deal with Bristol-Myers Squibb validates the potential of the target and therefore validates the PCSK9, or the technology, and what does it say for potential partners for 301012, both qualitatively and quantitatively, given the size of that pre-clinical deal?

Well, thanks for that question, Mark.

Clearly, any commitment to second-generation antisense drug begins with a commitment to the technology.

You can't invest in an antisense drug until you accept that antisense technology works.

And the commitment to BMS to PCSK9 is made with the full knowledge of how 301012 and our other antisense drugs are performing in the clinic, and how the technology is performing in cells and in animals.

Second, PCSK9 is a target designed to lower LDL cholesterol.

It's a target that will lower LDL cholesterol through a mechanism that's entirely different and probably additive to ISIS 301012.

So, by definition the decision to develop a PCSK9 inhibitor is a proxy that says second-generation antisense drugs including ISIS 301012 are good candidates for chronic treatment for cardiovascular disease.

Third, we are not allowing companies in to discuss licensing of ISIS 301012 yet.

But we've had many companies interested, and many of the companies that were interested in PCSK9 have expressed very strong interest in ISIS 301012.

That makes a lot of sense if you have a significant cardiovascular franchise and you would like to be in an LDL-lowering franchise, it makes total sense that you would be interested in both 301012 and PCSK9.

And in particular, you'd be very interested in 301012 because it has Phase II data.

And then finally, we think, and more importantly, all of the people who are calling us and talking to us about licensing 301012 think that ISIS 301012 is extraordinarily valuable.

If PCSK9 with a few mouse experiments is worth $15 million upfront, I think you can do the extrapolation and calculate what we think we're going to get upfront for ISIS 301012.

Thanks for the added information and we look forward to the events in the second half of '07.

And we'll go next to Leland Gershell with Leland and Company.

Good morning.

Thanks for taking the question.

Just as sort of a partial follow-up to Mark's question.

On the foregoing studies with statis, are we still going to see an upper limit of 40 mg statin, or will there be a higher limit available for patients in the trial?

In the polygenic trials -- in the next polygenic trial, we will still limit statin dose.

There is no reason that you would want to treat a polygenic in this population with 80 and 301012.

In the FH studies is where we'll gain our experience with very high dose statin remember the homozygous FH, all those patients were on very high dose of statins as well as other drugs, and similarly in heterozygous FH patients you'll see a lot of high-dose statin experience.

Jeff, do you want to add anything to that?

I think just to reiterate what Stan just said, in the homozygous FH, those are patients who you already anticipate being treated with maximal therapy.

As you know, we've not seen anything alarming there.

I think moving forward as we look at Phase IIIb studies, we may look at other alternative strategies for a combination.

But to reiterate what Stan says, right now we don't see any acute need to do so for our development programs.

Okay, great.

And then, also, plans for an MRI study in the liver, is that study ongoing now?

Has that started?

That study has officially started.

We're making some modifications to the protocol now, and that we expect it will accelerate in the near future.

Again, I want to emphasize that that's going to be a very slow developing study.

It's slow because it's difficult to enroll patients who will submit to all of the MRIs that we need and so on.

So, I wouldn't expect results from that study for quite a while.

And from our perspective, it's a study we're doing now but we're doing with much less urgency than we had earlier, because we're confident that the drug is going to be well tolerated, is well tolerated to the liver.

The other thing that we'll be doing, which to us is perhaps even more exciting, is to our studies we'll be adding the [lipome] space assay systems that we've now validated in mouse and monkey reflect the transcriptional changes that we have seen in blood.

And those assays we hope will allow us to answer the question of whether we're seeing the same effects on lipid synthesis and oxidation in humans that we saw in mouse and monkey.

And so those things will be added, and I suspect they will be more informative more rapidly than the MR -- than the MRI studies.

A short answer to your question is the MRI study is getting underway.

It will be a while before we have data.

Okay.

And then one last question, if I may.

Any update on 113715 candidate diabetes?

Those studies are underway.

I think -- we don't have an update for today, at this time, but those studies are enrolling.

Enrolling well and we're on track to report the data as we promised.

Okay, great.

Thanks for taking my questions.

And we'll go next to Eric Schmidt with Cowen and Company.

Good morning.

Thanks for entertaining the calls from Cowen today.

Stan, I was hoping for a little bit more of a view on your strategy for partnering.

You mentioned with the Bristol deal you feel this is just kind of the tip of the iceberg in terms of pharma interest in both acute and chronic indications.

So, I take that to mean that we should expect a number of additional deals over the next several years.

But I guess I was struck by maybe your willingness to partner PCSK9 at a preclinical stage and not even entertain discussions of 301012 at the more advanced stage.

So, what is your feeling there?

What types of deals are we going to see going forward?

Are you going to generally have proof of concept clinical data or, well, maybe you can just talk.

Yes.

That is something I've been well known to do.

First strategy, our strategy hasn't changed since day one.

With antisense technology, we can generate more drug candidates that we can possibly develop, even today.

The evidence for that is the 17 drugs in development and the fact that we have many, many targets that we're not developing, like PCSK9, where partnership opportunities are available.

Armed with that, then, we have chosen, then, to invest in drugs that we think are important to the Company both because of their potential value as drugs, and how they help us advance the technology.

And our partnering strategy has been to develop those things that really matter to us, to clinical proof of concept, and to partner others earlier if there are partnership opportunities that are attractive, like PCSK9.

ISIS 301012 and the diabetes portfolio have been over the last several years the most important attributes of the Company.

Our goal was to stay in control of those drugs and to get them developed to key value inflection points in the clinic, and to be able to talk about the data.

Because those data, of course, are the data that are selling the partnerships for the other drugs and are convincing us and everyone else that second-generation antisense drugs work as advertised.

With ISIS 301012, our stated goals have been to be in control of 301012 until we get the FH registration studies started, and we have defined the dosing schedule for Phase III.

We are just getting there.

So, we will begin the licensing process of 301012 a little bit later this year.

We felt that 301012 Phase I performance was exemplary and, based on that, we were confident that the Phase II performance of 301012 would create value -- an increase in value of 10 to 20X, and that is the basis for the decision not to partner until we had gotten to those value inflection points.

We've gotten to the value inflection points, we've got another bit of data on heterozygous FH, but the Phase II value inflection points have now been achieved and we've been able to complete the work that we wanted to be in control of before we licensed.

So, we're now just about ready to start licensing.

So, the generic answer is that every drug is different and we look at each of these drugs in the context of the strategy and the specific attributes of the drug and its relationship to the technology.

We do have interest across the board, in cancer, inflammation, targets that we're not interested in, targets that we are interested in, the diabetes portfolio, and so on, and we are entertaining offers on all those.

Obviously, I can't predict what deals will come to fruition, but we are very encouraged.

We've never experienced this level of interest in antisense technology and, remember, we've done more than $1 billion worth of partnerships in our history.

So, we're certainly hopeful that you'll see lots of interesting transactions.

And what's neat for us is we have more than enough opportunity to repopulate our pipeline.

As we license these things, we'll have lots of other neat drugs to work on.

Okay, that's very helpful.

Just one follow-up.

Will all of the future deals be specific to individual targets or might you do maybe a more broader overarching deal that includes your technology applicable to a number of undisclosed or disclosed targets?

I think both, as we have in the past.

The farther the drugs get along and the farther the technology gets along, the more likely you'll see deals that are very traditional licensing deals.

In the earlier days with our deal with Lilly, for example, or the deal with Ceva or BI, those partners understood that we were still in the very early days of the technology, and they were both geared to making drugs, but also enhancing the technology and developing technology.

PCSK9 is, to my mind, an example of a much more mature technology and appreciation of the technology, and therefore was a very straightforward licensing deal.

We don't need money from BMS to help us develop the technology to its full maturity.

It's done.

Great.

And just one last question on 301012.

Can you tell us if you have a time to meet with the FDA scheduled to discuss the Phase III protocol and FH, and when that might be?

We don't have a time yet at this time, but the plans for the end of Phase II meeting are well advanced, and so those are underway.

Okay, thank you.

We'll go next to Shiv Kapoor with Montgomery & Company.

Thanks for taking my questions.

I've got a couple.

First, can you talk about the auction process for PCSK9?

Approximately how long did it take for BMS to come to a decision and how many players were involved?

So, the work on PCSK9 began last summer.

Our publication occurred in the late fall or early this year.

I guess early this year, you know.

It takes a while to get a publication in and out.

And the conversations about PCSK9 began about that time.

So, roughly, January and February, when the data became apparent.

Several companies were interested.

BMS presented the most cogent plans for developing PCSK9, demonstrated the most agility in moving it along, and we felt most comfortable with them, though I wouldn't say that we believe that the -- let me say it a different way.

We perhaps had potential deals that would have been slightly more lucrative financially, but we thought BMS was the best partner.

So, that whole process took from early this year until yesterday.

And you haven't -- you said you haven't started the auction process for ISIS 301012.

Would you expect to start that pretty soon given that you've already mentioned the inflection points that you wanted to reach have been reached?

Yes.

And we've defined for the many companies that have called, and there are many, and many that call once a week.

This is a good time to be at Isis.

There have been times when it hasn't been so good, but this is a good time to be at Isis.

So, we've defined the process.

The companies understand what's required, and given the large number of companies, we expect that process to consume quite a bit of time.

So, you shouldn't look for a deal in the next few months.

We're going to take our time.

We don't need to license this drug today.

We've got all the money we need to develop it.

And remember what we've said, we want to have it licensed by the time we're ready for Phase III trials in polygenics.

So, we expect to start the process here pretty soon, but we expect that process to consume quite a number of months as companies come in, describe for us what their development in commercialization plans for 301012 are, provide initial term sheets, and then from that group we select those that we feel are the most attractive to go to due diligence.

That process is going to consume months.

Okay.

My last question is of Regulatory 1.

Can you remind us what mean cholesterol reduction is required by the FDA for immune therapeutic for the purposes of approval?

Fifteen percent, 1-5.

And that's 15% as a single agent or in addition to statins.

Remember that 200 mg at 26 weeks will give us 50, 5-0 percent reduction on top of statins, or 50, 5-0 percent as a single agent.

So, if I understand your philosophy correctly over the past few years, you would take a lower risk regulatory strategy if that was available to you, wouldn't you?

I'm not sure I understand the question.

If you have the opportunity to test lower doses and get to way beyond 15% levels of cholesterol reduction, wouldn't that be the lower risk regulatory strategy?

Wouldn't that be the better one to take forward?

No, I don't think so.

We've looked at 200 mg and we're confident is a very low risk strategy.

That's a dose that's safe and highly effective.

We want, with the subcu drug, to be able to offer people at high risk the opportunity to get to target.

Two hundred milligram essentially guarantees that every person at high risk on moderate dose statins can get to 100, and a significant fraction can get to 70.

And that is a dose that's safe.

We certainly may look at 100 mg or thereabouts for patients who are at low risk, but you have to think about our primary focus of this drug.

It's patients who are -- initially, it's patients who are at high cardiovascular risk, who can't get to target with statins, their target has been 100 and now people would like them to get to 70.

So, we look at 200 mg and we say adding 200 mg of statins is entirely safe, and we'll get the vast majority of those patients to either target, and for that patient population it's the right dose, it's a safe dose, and it is a very, very conservative regulatory strategy.

For the lower risk patients, we probably will look at 100 mg, where lowering LDL cholesterol by 24% or 25% would still be great, and those patients could get to the target levels that they need because their LDL levels are lower and their targets are higher.

Right.

That's very helpful.

Thanks.

So, this is a very cautious -- our strategy is be prudent, minimize the risk of this drug.

Don't expose it unnecessarily to risks in new patient populations.

We're going into new patient populations very cautiously.

What are some of the new patient populations that we can think about?

Diabetic dyslipidemia.

Right.

That's a giant opportunity for this drug because it lowers cholesterol and triglycerides.

We're not going in there yet.

We're waiting until we get more experience with people who are on fewer drugs and have less liver problems than people with diabetes.

But we are being extremely cautious with this drug, one step at a time, and the step at 200 mg for high-risk patients is a very prudent, middle-of-the-dose response curve, with no ALT elevations, of course.

Right.

Okay, thanks a lot.

And we'll go next to Aaron Reames of A.G.

Edwards.

Thanks for taking my questions.

First, I was wondering if you could maybe give us a number of the different programs that are maybe at this key inflection point for potential partnership kind of like PCSK9, that you may try to monetize over the next year or two.

Are there a set number of programs that you've identified internally that you would like to go ahead and find a partner for?

Fourteen point five.

Okay.

We believe that 715 glucagon and glucocorticoid will be the next clinical programs that will hit key inflection points.

We have significant interest in our diabetes portfolio.

And then we have quite a number of research programs that we're not pursuing for one reason or another.

Either they're in areas of therapy that we don't want to pursue right now, maybe on our own nickel, like cancer or something like that, or other reasons.

And we have quite a bit of interest in those, and we're willing to partner those.

So, I can't put a number on it, but we're impressed these days with the breadth of interest in both those targets that are primary to us, and targets that are not a sufficient interest to us that we would spend our own precious money developing them.

Okay.

And I guess -- and then with the activities that are going to occur at, I guess, a more heightened pace for 301012, do yo foresee any delays in identifying a diagnostic partnership to help develop the IBIS division?

We're progressing on that.

Of course, I can't promise anything.

We have had a little bit of a delay in financing activities of IBIS.

We talked about moving fairly aggressively toward an independent financing for IBIS, but we've been busy with the debt refinancing and other things.

But the IBIS business is moving along on schedule and the IBIS partnering discussions are moving along on schedule, and we will be back here pretty shortly considering whether there's an appropriate IBIS independent financing that we want to do.

Can you provide us with a timeline?

You've given us pretty good clarity around when we -- or how to think about the timing of partnership for 301012.

Can you provide any context around the timing of a partnership or deal for the development of the diagnostic applications?

Lynne, do you want to answer that?

What we said before is that before we go into the diagnostics market, which we plan to enter in 2009, we want to have a partner.

As in the antisense area, the IBIS technology as we move into commercialization, is getting a lot more attention, and there -- and so we're looking at opportunities potentially to do it sooner.

But we really don't need a partner until we get into -- until we get closer to the diagnostics market.

So, we're able to look at other opportunities as they occur and if they're attractive.

Okay.

You know, Aaron, it's all a value time proposition.

We're looking at the real opportunities that are available to us now and we're asking how much more lucrative would they be a year from now if we spent a little more money developing it.

And so we have to balance all of that as we work our way through these partnerships.

It's a little hard to -- I mean, it is impossible at the moment to say how that equation will be written.

Okay, great.

The last question that I have is just regarding the placement of the systems, and I was wondering if you could just walk us through the timing?

You feel as though you still have -- you have plenty of visibility into the channel.

What's maybe the rate limiting step in getting those systems placed and up and running, and what are, I guess, the obstacles or the pros to getting that done within 2007?

We are on track to meet our guidance, I believe our guidance, Lynne, was 8 to 15.

The interest in the system is high, and the rate limiting step, in fact, is our ability to supply.

We're having plenty of growing pains as we move from technology development to commercialization and just learning how to shift these systems and service them and all that.

So, the rate limiting step is a high-quality problem to have.

We have more demand than we can meet given our early and limited experience in commercializing these things.

And we're working hard to be in better control of that.

The other rate limiting step is just the time required to work through capital budget requirements for various kinds of institutions.

But even with that challenge of getting capital budget approval, the demand is exceeding our ability to supply today.

Thank you.

And we'll go next to Geraldine O'Keefe with Fortis.

Good morning and congratulations on a great quarter.

Just one or two questions left over, I think.

You've mentioned just with respect to optimizing the dosing regimen for ISIS 301012, I'm just wondering what's left to do there, Stan?

Is there going to be some changes to the formulation or frequency of dosing?

No, nothing.

We've made the decision that 200 for high-risk patient is the right dose.

And now -- so, that's done.

And what's left to do is to get our FH registration study started, and our step there is to have a productive meeting with the FDA, and now get long-term experience with 200 mg in both FH and polygenic patients.

That means we've got to get the long-term study started, and we've got to roll these people over into hopefully open-label extension so that we can, when we're ready for Phase III conversations with the FDA on polygenics, we have sufficient long-term dosing experience at the dose we plan for Phase III, to support those decisions.

Jeff, you want to add something?

Yeah, I think Stan articulated that well.

I think we're very comfortable based on the data now, that 200 mg dose on a weekly basis is the right way to go.

I just want to reemphasize this point that one of, I think, the remarkable features about the drug is that even pursuing what -- I agree with Stan -- is a prudent regulatory course, we have a really excellent activity.

So, that even if -- we're confident that 200 mg will give us a -- likely a very good competitive advantage for this drug over other therapies, especially in a population where there's unmet medical need.

I think long-term, I think, you know, I guess one will anticipate that people will look at other scheduling.

But I think for now, what we have we're very comfortable with based on our data, the safety, as well as what we know about the pharmacokinetics which are remarkably predictable.

In Phase III, I would guess we will look at monthly dosing in small studies, just because we won't need large studies for efficacy.

We need large studies for safety, so we'll have plenty of opportunity to look at monthly dosing and those kind of things.

And, remember, there is no change in drug or formulation to manage monthly dosing.

It's just a higher dose given monthly as opposed to a lower dose given weekly.

But that's not on the primary path.

Weekly 200 mg primary path.

To understand it, then, you are now ready to meet with the FDA and ready to start the additional clinical trials?

That's correct.

I think it's fair to say at this time we have what we need to go to an end of Phase II meeting.

I don't want to go into any further details, but we're very comfortable that with respect to any conventional Phase III development, which this at this point is we're really looking to develop exposure data and we have what we need to move forward.

Okay.

Just one more question for you, Stan.

The KIT deal for the CRP drug candidate, I must say I don't really understand that data.

It sounds like for the sake a few million you're giving away some rights, albeit you say negligible rights and royalties to the drug.

Can you tell us the rationale for doing this collaboration?

Yes.

We've been working with KIT now for the last several years and we've been doing quite a number of toxicology studies with KIT.

So, step one is that we're confident that the quality of the study there is very high, and we have a strong relationship with KIT.

But what this -- you have to remember that the first place you take big risk in a development program is when you decide to enter IND, and the drugs that we're developing are all chronic treatment.

So, the IND studies that are required typically will run anywhere from, oh, $2.5 million to $5 million.

It's a big risk.

It's quite a bit of money.

And so having that investment made for us by people that we would do the studies with anyway just saves a lot of money at a precious time in the creation of a drug.

The royalty burden that we've committed to is truly de minimis, so we're not putting a royalty burden on the drug that matters.

So, we look at it as an opportunity to develop more drugs by having some investment by KIT in one or more drugs.

The second -- the reason KIT is doing it is that they've enjoyed working with us.

They see this as an opportunity to become a leader in toxicology, not just in antisense but in general, and we do look forward to the opportunity to repeat this adventure with other drug.

So, it's -- if you have 17 drugs in development and you in theory could have 30 or 40, finding the solution that allows you to get the most drugs through development and into key value inflection points with the least cost just makes a lot of sense.

That does make more sense, but could I just ask, do you or a potential partner have the right to buy back those royalties at a future point if you wanted to?

We could, but they won't be noticeable.

Okay.

That makes more sense.

Thank you.

We really did mean de minimis.

Okay.

I'll go next to Hamed Khorsand with BWS Financial.

My question was to see if there is any update onto what we could expect in 2007 from milestone payments from any of your partners?

Lynne, do you want to --

Yeah, we don't give specific guidance about milestones from partners in terms of dollar milestones, principally because they're largely out of our control.

We do give general financial projections and we have for the year.

Our projections have been that our net operating loss projection will be in the mid to high $60 million not including noncash comp expense from options.

But in general we don't -- we talk about what the status is of our partner programs and we'd be happy to go over that with you, but not specific dollar milestones that we might be meeting or when we might be meeting those.

Okay, so, would you be able to comment as to what we could expect from your partners and the milestones they're making from a drug standpoint?

Sure.

Basically, in terms of partner milestones, the primary things that we're expecting this year are with our Oncogenics partnership.

Oncogenics is development two drugs, OGX011, which is their cholesterol inhibitor that's in several different Phase II trials, and the heat shock protein 27 drug.

And we're expecting data coming out from several of the Phase II studies with OGX011 and that Phase I clinical trials for the HSP drug will begin this year.

Lilly also has two cancer drugs that they're developing for us, the survivin inhibitor, which is just getting ready to enter a broad Phase II program, and EIF4E inhibitor, which is in Phase I clinical trials this year.

Our partners at ATL are developing a multiple sclerosis drug that's proceeding forward through Phase II clinical trials.

Our new partners at Atlantic Healthcare are planning to start studies in pouchitis this year --

Those are Phase III trials.

Those are Phase III trials, sorry.

And our partners at [ICO] are planning to initiate Phase I clinical trials for their creC kinase drug this year as well.

So, those are the principal milestones that we're expecting to be coming up this year.

Also, don't forget each one of those deals is slightly different, but in each one of those deals we participate fairly substantially in sublicensing revenues, and we are -- our partners are experiencing quite a bit of interest in partnering as well.

Okay, great.

Thank you.

And we'll go next to Carol Werther of Summer Street Research.

Thank you.

Stan, I understand that the PCSK9 and the 301012 drugs are at very different stages of development, but I'm trying to understand what are you looking for in 301012?

Are you looking for the most lucrative partner, or are there other parameters you're thinking about?

Well, certainly, the financial elements of the transaction are going to be crucial.

We believe that 301012 is going to command a very high valuation, and any look at the potential market of 301012 and its performance [inaudible].

But we are looking at other features.

We want to know how committed the company is, what its development plan for 301012 would be, not just to the first indication, but to all indications.

And we'll be looking very carefully at what their commercialization thoughts are.

We have some ideas about what we think makes sense to commercialize this drug.

We think it's unique, and we don't think a standard approach to TV ads and GP sales force is necessarily the best course for this drug.

So, we'll be looking at all that as well.

And clearly on top of that we'll look at how much experience the company has in cardiovascular medicine selling, and all the other sorts of things that you look at when you have a luxury of being able to pick from a group of -- a large number of potential partners.

Okay, great.

Thank you.

And how close are you to going into the clinic with the PCSK9?

Well, remember that we have a partner now, and so I can't -- I have to defer to BMS in answer to that question.

But our intention and BMS's intention is to move very rapidly.

We certainly have sufficient pharmacological data to support a rapid decision to move into IND-enabling toxicology fairly soon.

Remember that the IND-enabling toxicology will have to be to support the fairly prolonged dosing.

So, those studies will be -- those studies will take a while.

We are not talking about single-dose studies and doing short-term toxicology.

That's not what this drug needs.

Okay, great.

Thank you.

And I'm wondering how many patients do you have past three months of treatment with 301012?

None.

None to date, okay.

How do you know that the steady state, then, is at 26 weeks?

That's very straightforward.

If you look at the -- if you look at the pharmacokinetic profile of the drug both in monkeys and in man, the modeling is exactly on with the actual data.

And so if you think about -- and here's the simple way to think about it.

A drug like 301012 at 200 mg per week has an elimination half life of about 50 days, give or take, for all drugs, 301012 or anything else.

If you want to get to 90% of steady state or 80% of steady state, you multiply the half life by 4, and that's the amount of time you need to get the steady state.

So, if you multiply 50 x 4, you get to 200 days.

Two hundred days is a little longer than 26 weeks.

And the half life of this drug is a little shorter than 50 days.

So, it all just fits.

But we have three-month data in humans that behave perfectly.

We have one year data in monkeys, and we have the general knowledge of how pharmacokinetics work with all drugs, and its' very straightforward.

Okay, great.

And when do you think the heterozygous trial might start, the pivotal trial?

Well, we have to get to the FDA, and we are poised, and all the investigators are poised.

Actually, they're beating us over the head to get this going.

So, as soon as we get to the FDA, the studies can begin.

The protocols are basically completed and the investigator is standing by with patients.

So, I can't be precise, but we're trying to get to the FDA as quickly as possible.

Okay, but --

Just in the next -- very soon.

So, it might be in parallel with the homozygous trial?

We hope.

Okay, okay.

We have to confirm all that with the FDA, and I want to emphasize that.

Okay.

And my last question is, could you just describe how you're going to release the 301012 data in the second half?

Are you going to hold it and go to a medical meeting?

Are we going to see a top line in a press release from the three different trials?

We do plan to submit our data to the AHA and to other meetings, and we plan to try to balance our reporting requirements with the demands of each of these learned societies and do what's required to meet those [inaudible].

Okay, well, congratulations on your Bristol deal and all your progress.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to Joseph Schwartz of Leerink Swann.

And, Joe, I think we'll need to make this the last question.

Okay, no problem.

Thanks for taking it.

I was curious if we could delve into the pivotal program a little bit deeper for FH, following on the last question.

How long and how many patients would be treated in that, and would the same clinical rather than genetic definition of FH be used as was used in Phase II?

Yes, it will be a clinical diagnosis, not a genetic diagnosis.

Genetic diagnoses are not used in the U.S.

and not used -- they are used in some sites around the world, but the clinical diagnosis is what is accepted.

The number of patients, Jeff, is going to be 40 to 60 --

Forty to sixty patients.

And the treatment --

And that's for HO or HE as well?

That would be for HO.

I just want to emphasize obviously that the design will be submitted to the FDA, and so we can -- I think the design is going to be, I think, won't be unconventional.

I think the endpoints are clear.

The regulatory path is clear, but ultimately we will seek, as any company would, end of Phase II sign-off from the agency.

So, I just want to be cautious --

Absolutely.

Yeah.

So --

What about the HE in terms of numbers and duration?

Well, I want to emphasize what Stan said earlier.

I think one of the interesting features about the drug is that there are so few, if any.

There are no nonresponders to speak of, so that these studies don't have to be powered for efficacy.

It's one of the great advantages of developing 301012.

So, the only -- one of the unknowns, really, frankly for HE, and one of the things we're going to try to establish with the agency is really what the exposure requirements are going to be for HE, as well as -- so, I think that's really the great uncertainty.

If you look at our data, and I won't give you a number, but anyone who is familiar with power, if you look at the significance levels with our cohorts of eight, you can get a sense of -- just [inaudible] for us, is a de minimis issue.

So, HE, I suspect we'll follow, we'll use the same dosing.

The endpoints are well delineated, and really all we have now is go to the agency to help understand what they'll require for clinical approval for that.

I do want to emphasize that we've already said that we plan by the time we submit the NDA for the FH indication to meet the basic ICH guidelines for exposures.

We will have quite a number of patients treated for three months, for six months, and for one year, and we will meet the ICH guidelines.

We have to defer detailed conversation about the timeline, the timing and so on until we come back from the FDA, but we are focused on 200 mg.

We may allow patients who respond well but need more to go to 300.

And our current thoughts are that our efficacy will be at 26 weeks, but we have to confirm that with the FDA.

Great.

Thanks very much.

Okay, and I just think we can't go into more detail yet.

If, then, I very much appreciate all the interest and questions.

I think, then, I'm going to draw this to a close, as we've now run to about an hour and a half.

We want to thank everyone for participating, and anyone who has questions that we weren't able to answer on the call, just give us a call and we'll address your questions individually.

Thanks so much.

And that will conclude today's conference call.

Thank you for your participation.

You may disconnect at this time.