Ionis Pharmaceuticals Inc (IONS) 2009 Q1 法說會逐字稿

Good day, everyone, and welcome to the Isis Pharmaceuticals 2009 First Quarter Financial Results 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.

Good morning, and thank you for joining us on today's conference call to discuss our first quarter financial results.

Joining us on today's call are Lynne Parshall, COO and CFO, and Kristina Lemonidis, Director of Corporate Communications.

The purposes of the call today are to report our financial performance for the first quarter of 2009, and to give you a brief update on what's going on in the business.

So I'll have Lynne go over the financial results.

And then I'll give you an update on the business and some highlights to look forward to.

First, Kris, will you read our forward-looking statement?

Sure.

Thanks, Stan.

Good morning everybody.

A reminder to everyone that this webcast includes forward-looking statements regarding Isis' business, the financial outlook for Isis, as well as Regulus, its majority-owned subsidiary, and the therapeutic and commercial potential of Isis' technologies and products and development.

Any statement describing Isis' goals, expectations, financial or other projections, intentions, or beliefs is a forward-looking statement and should be considered an at-risk statement.

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 of human therapeutics and in the endeavor of building a business around such products.

Isis' forward-looking statements also involves assumptions that, if 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 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, 2008, which is on file with the SEC.

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

Thanks.

Lynne?

Thanks, Kris.

Good morning, everyone, and thanks for joining us today.

In addition to a brief discussion of the financial highlights of the quarter, I'd like to provide some guidance to you about some of the line items of our P&L, much as I did during our year-end earnings call in February.

At that time, I provided some detail about the components of our revenue.

This morning I'd like to spend a few minutes explaining how those components are reflected in our first quarter revenue.

Also, many of you have asked us to provide a similar level of granularity on our operating expenses, so I'd like to do that for you this morning, too.

Next, we have some new items affecting our P&L, which I'll briefly discuss with you so that you can understand why some of these things look different in our financial statements this quarter.

And last, I'd like to spend a few minutes discussing the recent successes of our satellite company strategy.

Clearly, one of the highlights of our first quarter was the sale of our diagnostic subsidiary Ibis to Abbot Molecular.

Not only was this transaction a substantial contributor to our first quarter net income, allowing us to achieve our fourth profitable quarter in the past two years, but the $175 million we received from the completion of the sale also considerably increased our cash position.

We ended the first quarter on a very strong financial position with over $650 million in cash.

And we are on track to meet our guidance, which is to end this year with more than $550 million in cash, and pro forma net income greater than $145 million.

We're pleased in this environment to be one of the few very well-funded biotechnology companies, and our business strategy should enable us to maintain that position.

As you are aware, our business strategy is to discover unique antisense drugs, develop these drugs to key value inflection points, and then partner them.

In this way, we can control our size, infrastructure, and expenses, while building a very large pipeline, plus a broad base of licensees, milestone payments, and product revenue.

As I reviewed in our last conference call, the revenue we earned consists of three primary components.

The first component is revenue from the amortization of upfront fees we receive from our partners.

Our first quarter 2009 revenue was almost twice that of the first quarter last year, principally because of the amortization of the upfront payments we received from licensing mipomersen into Genzyme last year.

Our revenue was higher in the first quarter of this year compared to last year because the first quarter of 2008 included revenue from amortization of the stock premium, while revenue in the first quarter of 2009 also included amortization of the license fee.

Amortization of the upfront fee from Regulus' strategic alliance with GlaxoSmithKline, which began last April, also contributed to our quarter-to-quarter increase in revenue.

The second component of our revenue on an ongoing basis is revenue we earn from performing research and development for our partners and from licensing agreements.

This amount was roughly the same in the first quarter of 2008 and 2009.

The third component is revenue we earn from other sources like milestone payments, sublicensing fees, contract manufacturing, and new collaborations.

Although less predictable than the first two components, revenue from these sources contributes meaningfully to our total revenue.

For example, in the first quarter we earned $1 million of sublicensing revenue from Alnylam, a $1 million milestone payment from Achaogen, and $1.4 million from Teva for sale of ATL/TV-1102 to use in clinical trials.

As a result of our recent transaction with Alnylam, our second quarter revenue will include the amortization of the upfront fee plus research and development funding for the quarter.

This is an exciting expansion of our productive relationship with Alnylam that I'll go over in more detail after I discuss our operating expenses.

Also, this quarter we've earned a milestone payment related to Alnylam's recently initiated Phase I trial, ALN-VSP.

Although as I said, these items are less predictable, they are a meaningful component of revenue.

And with seven pharmaceutical company partners and 11 satellite company partners, they occur fairly frequently.

If our current partnerships continue to be successful, we have the opportunity to earn up to approximately $1.8 billion in additional milestone payments from drugs that are in the pipeline.

We will also participate in the commercial success of these drugs through royalty or profit-sharing payments, not to mention the value of the stock that we own in some of our satellite company partners.

Now let's change gears and talk a little about expenses.

Our P&L includes two line items under operating expenses, research and development expenses, which contain the vast majority of our expenses; and general and administrative expenses.

Our R&D expenses include personnel costs and outside costs for development, antisense research, manufacturing, and Regulus.

Our development expenses include the costs to conduct preclinical and clinical studies for the drugs in our pipelines.

Approximately 42% of our development expenses are from mipomersen.

Our development expenses are higher for the first quarter of this year compared to last year because of the increased costs associated with the broad mipomersen Phase III program we and Genzyme are conducting as we move towards our planned 2010 NDA filing.

We expect our development expenses to increase modestly throughout this year as mipomersen studies progress, and as our pipeline expands and matures.

Our antisense research expenses include costs associated with drug discovery programs.

These are the programs that support the addition of new drugs to our pipeline every year.

Our antisense research expenses also include costs associated with research we do for our partners, primarily Genzyme, J&J, and BMS.

We believe we can add three to five new drugs to development each year without increasing our research expenses from their current rate.

These expenses also include investments in our core antisense technology.

These are the investments that continue to improve our antisense technology platform and maintain our technology leadership.

They include the programs to expand our chemistry with our new generation 2.5 chemistry, and to extend the applications of our technology with new mechanisms of action, such as single-stranded RNAi.

In addition, these research activities extend their intellectual property control of RNA-based drug discovery well into the future.

Our manufacturing expenses include making the drug we and our partners need to conduct preclinical and clinical trials.

As our pipeline expands, we expect the costs within this function to increase slightly.

However, during the first quarter of this year we have been busy completing an upgrade to our manufacturing facility to prepare for mipomersen launch requirement.

As a result, our manufacturing this quarter are essentially flat compared to the first quarter last year.

Last, our R&D expense line include costs associated with the research activities of our majority-owned subsidiary, Regulus.

Consistent with our earlier guidance, Regulus' costs doubled in the first quarter of this year compared to last year's first quarter because Regulus is still in the process of building its core team to advance its microRNA technology.

We expect Regulus expense to continue to increase during the remainder of the year as Regulus continues to build its core team in support of its GSK alliance and its internally-funded programs.

I hope that this additional detail is helpful for you.

You can also find this level of detail in our 10-Q, which we expect to file by the end of this week.

As I mentioned, this quarter our P&L contained some changes that I want to explain in more detail.

An important change to note is that we have to pay taxes this year.

We have taxable income resulting from the upfront payments we received from Genzyme last year, and from the gain on the sale of Ibis to Abbott Molecular earlier this year.

Financial reporting standards required that we allocate our estimated tax expense between continuing operations and discontinued operations on our P&L.

Since the sale of Ibis to AMI was a discreet event that occurred in the first quarter of 2009, accounting standards requires us to record the total amount of our estimated income tax expense related to the gain on the sale of Ibis to discontinued operations in the first quarter of this year.

We are also required to gross up this amount by the projected annual tax benefit we expect to receive as part of our loss from continuing operations this year.

This means that in addition to the tax expense for the gain on the sale of Ibis, discontinued operations also includes the tax expense associated with the upfront funding we received from Genzyme in 2008.

As a result, we've recorded tax expense as $30.7 million in discontinued operations in the first quarter of 2009.

In addition, we recorded an income tax benefit of $717,000 on the line called Income Tax Benefit as part of our financial results from continuing operations because we will be using the tax benefits generated from our current year loss from continuing operations to offset a portion of our taxable income.

For each quarter in which we incur a loss from continuing operations during the rest of this year, we will record an income tax benefit.

The cumulative amount of this benefit will reduce our total tax expense until we reach our estimated annual expense of $20 million to $25 million at the end of 2009.

To minimize our federal tax liability, we will use our NOL carryforwards to offset a majority of our taxable income.

Internal Revenue Code Sections 382 and 383 limit the amount of taxable income that a company with historical losses, like Isis, can offset with NOL carryforward when the Company has experienced significant changes in ownership.

Working closely with our tax consultants, we've recently completed a Section 382 analysis.

And we're pleased to say that we expect to be able to use all of the NOL carryforwards we've accumulated through the end of 2008, approximately $772 million.

However, due to the California tax law changes that were enacted with the 2008-2009 California budget, we're unable to use our NOL carryforwards to offset taxable income for California this year.

We expect, however, to use a portion of R&D tax credits to offset California tax expense to the extent allowed.

In addition, this quarter we're required to adopt a new accounting standard called FSP 14-1 with regard to our outstanding convertible debt.

And this standard is somewhat complicated, so I'd like to explain it here.

This new standard requires us to separate the debt and equity components of our convertible notes.

The debt component is calculated to reflect our borrowing rate for debt instruments without a conversion feature, which means that now our convertible debt is recorded as a discount because the two and five-eighths percent interest rate we pay is less than the rate at which we could borrow without a conversion feature.

FSP 14-1 then requires us to amortize the discount over the expected life of the debt as additional non-cash interest expense.

FSP 14-1 also requires us to retrospectively apply this accounting change to all the historical periods we present in our financial statements.

So there are changes in our historical numbers caused by this new accounting standard.

As a result of the application of FSP 14-1, the amount on non-cash interest expense related to this amortization included in our Interest Expense line for the first quarter 2009 and 2008 was $1.7 million and $1.5 million respectively.

This new standard does not affect our cash, but it does decrease the carrying value of our $162.5 million convertible notes to $119.7 million at March 31, 2009 and $118 million at December 31, 2008, with a corresponding increase to shareholders' equity in each period.

Thank you very much for bearing with me through that.

I know this was complicated.

So if you have additional questions after reading our 10-Q, please feel free to call.

Now with the accounting details out of the way, I'd like to focus on our main message.

Our business strategy is working.

Our strong financial position is a result of the execution of our business strategy, both with our large pharmaceutical partners and our satellite companies.

Our strategy enables us to build value through our successes and the successes of our partners.

Already this year, we've achieved three important goals related to our satellite company strategy, which provides us with the opportunity to advance our technology outside of key areas of focus and maximize the value of our inventions and technology.

First, we've broadened our technology partnerships to maintain our leadership in all applications of antisense technology by completing a new initiative with Alnylam to accelerate our efforts in single-stranded RNAi therapeutics.

We benefit by having a partner like Alnylam to help us advance in some discovery and development of the technology, while we retain the opportunity to discover and develop single-stranded RNAi antisense ourselves.

Second, our satellite company partners continue to advance drugs that we discovered, derived from technology we licensed to them.

These drugs broaden and mature our pipeline.

A recent example is ACHN-490, a drug designed to treat patients with bacterial infections, for which clinical trials were recently initiated by our partner Achaogen.

Finally, these partnerships continue to benefit us financially.

In the first quarter of 2009, we received $2 million of sublicense revenue.

And we completed the sale of our diagnostic subsidiary Ibis to Abbott Molecular at the beginning of the year for a total price of $215 million.

And already in this quarter, we've completed a new partnership agreement in single-stranded RNAi with Alnylam.

And we've earned an additional milestone payment from Alnylam for ALN-VSP.

We're fortunate that our cash position allows to opportunistically support our satellite companies.

For example, we and Alnylam each invested $10 million in a recent financing for Regulus.

We also participated in the financing that iCo completed in the first quarter to fund the ongoing clinical trials of iCo-007, the trait to diffuse the diabetic macular edema.

It's been a successful quarter, and our achievements have provided the financial strength and momentum for continued success as we progress through 2009.

With that, I'd like to turn the call back over to Stan to give you an update on the business, and to highlight some events to look forward to.

Thanks, Lynne.

2008 was a year of excellent accomplishments for us.

So the first quarter had a big act to follow.

Nevertheless, the first quarter 2009 was an exciting and important quarter for us.

There were several accomplishments during the first quarter that Lynne just walked you through.

But what I'd like to do is spend a few minutes on the science and innovation that are the foundation of our unique business strategy and all of the progress that we've made.

I think is the right context in which to consider these accomplishments.

We've pioneered antisense technology, and remain committed to innovation and advances in the technology.

Innovation at Isis is broad.

It's deep.

It's constant.

It's just a way of life.

And we patent everything that we can along the way.

As a result of the technological foundation we've built, many of our partners have come to us because they wanted a license aspect of our technology.

A great example of this is our relationship is our relationship with Alnylam.

In 2004, we licensed our technology to Alnylam for use in creating double-stranded RNAi drugs.

We just expanded that relationship to include single-stranded RNAi drugs.

From this successful working relationship, we've received over $55 million in upfront payments, sublicensing fees, and equity to date.

The new relationship derived from work we have done on the RNAi pathway.

We used our expertise in polynucleotide chemistry, RNA biology and enzymology to dissect the RNAi pathway and discover stabilized single-stranded RNAi-like antisense drugs that work via the RNAi mechanism.

Single-stranded RNAi represents a novel strategy to harness the RNAi pathway.

And, given the progress that we've made, it's now time to expand our efforts and broaden the applications of these inventions.

We believe Alnylam is the perfect partner for this.

Single-stranded RNAi drugs are very different from traditional double-stranded RNAi drugs.

Because they're single-stranded, we expect them to tissues without any special formulations.

They will be simpler and less costly to make.

And we also believe they will be better tolerated.

In addition to single-stranded RNAi, we're also making great progress in learning how to exploit other antisense mechanisms, such as alternative splicing.

Alternative splicing accounts for a significant fraction of the diversity in proteins in humans.

On average, a single human gene can make four or five proteins by alternative splicing with pre pre-mRNA.

Moreover, disorders in alternative splicing have been shown to result in many diseases, such as spinal muscular atrophy.

We hope to have a development candidate based on this effort in the very near future.

We also continue to make improvements to the chemical foundation of our drugs.

We're making excellent progress on introducing new proprietary generation 2.5 chemistry that should increase the potency of our drugs by tenfold or more, compared to the very potent generation 2.2 drugs that are already in the clinic.

To put that in perspective for you, the clinical Phase III dose for mipomersen is 200 milligrams a week.

So we expect a generation 2.5 drug to be dosed at around 20 milligrams a week or lower.

Of course, every innovation we make in the chemical foundation of our drugs is broadly applicable across our entire drug discovery platform.

Now let's focus on how the drugs in our pipeline are advancing.

We're on track to reach our goal to add three to five new drugs into development in a diverse range of diseases this year and every year.

Already this year we've added one drug to our pipeline.

We expect to add two to four more, including drugs to expand our existing therapeutic focus into new areas, such as thrombosis and obesity.

Of course, we can't talk about our cardiovascular program without talking about mipomersen.

Everybody is waiting for us to report data from the Phase III homozygous FH study.

As you know, we've previously indicated that we would provide top-line results from this study in the middle of the year.

Recently Genzyme refined the timing to be this quarter.

So you can expect results from this trial to be reported in the very near future.

Yesterday in their analyst meeting, Genzyme also provided more precise information on the regulatory strategy and commercial opportunities of mipomersen.

I want to just hit the high points of the important information that they provided yesterday.

First, in 2010 we plan to complete our first filings for homozygous FH in both the US and Europe.

Data from the severe hypocholestremia trials should be available at the time of this submission and may be the basis for a broader indication.

In the US and Europe, Genzyme estimates that there are 25,000 to 30,000 patients in these categories.

The second filing is planned in 2012 in the EU only, and we'll focus on patients with heterozygous FH.

From a commercial point of view, Genzyme plans to focus on the highest-risk heterozygous FH patients in this expanded indication.

These are patients with very high LDL cholesterol levels in the range of 160 or higher on maximum lipid-lowering therapy.

In the EU, Genzyme estimate this population to be about 20,000 to 25,000 patients.

Genzyme plants to file to treat patients at high cardiovascular risk who are unable to achieve their LDL targets.

Genzyme estimates that there are 1.2 million to 1.4 million patients who are at high cardiovascular risk and have an LDL above 150, despite the use of currently available therapies.

Genzyme will await data from our outcome study prior to making additional submissions to potentially expand the commercial indications.

We've designed our Phase III program to support these filing plans; the study of homozygous FH patients, in which we enroll 51 patients as complete and ready to be analyzed.

We have three other Phase III studies ongoing in severe high cholesterol, heterozygous FH, and high-risk high cholesterol patients, in which we will evaluate effects of mipomersen on up to 375 additional patients.

In each of these studies, 200 milligrams per week of mipomersen are administered for 26 weeks.

And then the percent reduction in LDL cholesterol at week 28 is evaluated.

In addition, we have an ongoing study of mipomersen in statin-intolerant patients.

We plan to have all these studies completed before the first NDA filing for mipomersen.

We are pleased to confirm for you that as we continue to dose more patients and expand the mipomersen safety experience, that the safety of mipomersen remains consistent with our Phase II experience.

This is particularly gratifying, as we now have treated more than 400 subjects.

All of the new studies require 26 weeks of dosing.

And we have growing numbers of patients who've been treated for longer than six months, with a few treated for as long as two years.

Now let's look at the rest of the drugs in our cardiovascular program.

It seems almost every day that new opportunities for a selective CRP inhibitor are identified.

Very recently in a paper in Cell, it was demonstrated that CRP appears to increase tumor growth and reduce apoptosis.

It is also known that CRP levels are increased in a variety of cancers.

Our focus on CRP, thus, is not only in cardiovascular disease, but we are looking at many other diseases including inflammation, cancer, renal disease, and others.

Our Phase I trial for our CRP drug is in progress, and we're getting ready to initiate our broad Phase II program.

Later this year, our partners at BMS plan to begin Phase I studies on our PCSK9 inhibitor, another drug designed to lower bad cholesterol.

We also expect to expand our cardiovascular franchise by moving new drugs into development for new therapeutic areas such as factor XI to treat thrombosis, and apoC-III to selectively reduce triglycerides.

Now let's focus on the metabolics program.

In the middle of the year, we expect to have data from our Phase II study evaluating Isis 113715, our novel instansensitizer targeting PTP-1B.

This is a study in combination with sulfonylureas in patients with type 2 Diabetes.

We recently initiated a Phase I study on our [SEOP2] inhibitor, the first of our drugs designed to inhibit a target expressed in the kidney.

As I mentioned in the last call, we are moving beyond treatment of type 2 Diabetes to the identification of peripherally acting anti-obesity agents.

In the past, anti-obesity agents have mostly been centrally active, resulting in a variety of CNS side effects.

Our drugs don't cross the blood/brain barrier, giving them an advantage.

We hope to have our first anti-obesity development candidate this year, as well.

We continue to explore therapeutic opportunities for antisense drugs to treat severe neurodegenerative diseases.

We expect our SOD1 inhibitor to enter clinical trials this year in patients who have severe and aggressive ALS.

This is a very important drug that addresses the mutation in SOD1, at least for the most common and severe form of familial ALS.

We look forward to adding new drugs to development to treat important diseases like Huntington's, Parkinson's, and others.

We also expect to add drugs to development from our new anti-cancer program.

We've reinvigorated our internal program, as our partners continue to present promising results on the anti-cancer drugs that we licensed to them.

Within the past years, our partners at OncoGenex and Lilly have presented promising clinical data on anti-cancer antisense drugs, demonstrating the significant potential for use of antisense drugs to treat a variety of cancers.

Let's take a quick look at some of our other partner drugs.

This year, Altair plans to present Phase I data on an inhaled antisense drug to treat asthma.

iCo intends to complete their Phase I on iCo-007 in patients with diabetic macular edema this year, as well.

OncoGenex will present Phase II survival data on OGX-011 at ASCO next month, as well as Phase I data on another anti-cancer antisense drugs, OGX-427.

It's a full roster, when you consider the drugs I've highlighted plus the other drugs that I haven't had time to mention, but have in development.

You can see that we have drugs to treat many diseases, and that they will be encountering important milestones along the way.

We're developing drugs to treat patients with disease that range from severe acute disease to chronic diseases, such as type 2 Diabetes and high cholesterol.

We have a very diverse, robust product portfolio.

And we'll be expanding that on an ongoing basis.

I hope all these things give you an idea of the breadth of our technology, our commitment to maintaining leadership in antisense technology, and the breadth of the pipeline.

All of that, when combined, create enormous value for the Company and for our shareholders, we believe.

And we look forward to keeping you updated about that as we continue.

So in summary, we've started 2009 in a strong fashion.

We expect 2009 to be another successful year for the Company.

And with that, we'll open it up for questions now.

Rufus, if you can, set us up for questions.

Thank you, Dr.

Crooke.

(Operator Instructions)

And for our first question we go to Salveen Kochnover with Collins Stewart.

Good morning.

Thanks for taking my questions.

Stan, are there any plans to conduct MRI studies for mipomersen in patients with high baseline steatosis levels?

Yes, Salveen, there are plans to do that.

One arm of the CS-10 study was designed to do that.

So these are people with high triglycerides.

Probably more importantly in our large study where we're looking at, again, patients with high cholesterol at high risk, we are allowing patients with Diabetes and elevated triglycerides to enter that trial.

And we'll be evaluating the effects of the drug in those patients.

Remember that in animals we've shown that long-term treatment of fat-fed animals actually reduces liver steatosis.

And so over time, we want to take the opportunity to look at whether we can reproduce what we saw in mouse and monkey in man.

If we are able to do that, clearly that might be an even -- certainly it will enhance the profile of mipomersen, and possibly be another indication for it.

Right.

And when might we see this data?

It's hard to say.

Enrolling patients in studies where you're requiring that they have multiple MRIs and be treated for 26 weeks and longer, it's tough to enroll.

And I think it's a little early for us to know exactly how many of those patients we will have in each of these studies.

And then just another question on 3715.

Could this Phase II data, could this be the value inflection point here for you to partner the drug?

Or do you think additional studies might be required before you license it?

It could be a value inflection point.

Remember the profile for this drug is really unique.

We believe, based on the initial Phase II data and the animal data, that it will lower glucose, lower LDL, be weight-neutral or potentially cause weight loss, and we hope that it increases adiponectin.

It has no drug/drug interactions, and is a unique mechanism for insulin sensitization that doesn't involve a transcription factor.

So it has a great profile.

Our strategy would be to look at the data we have, see if we feel they are good enough with just three months of treatment to license out an attractive set of terms.

If not, we'll go forward and do the study that we really want to do, which is six months' treatment, probably both in combination with Metformin and sulfonylureas.

So it's going to be data-driven.

We'll see how it looks.

Great.

Thank you.

We'll go next to Mark Monane with Needham.

Good morning, and thanks for the comprehensive review of both clinical update and financial description.

Thank you.

A good review, of course, leads to further question.

So first question is on mipomersen.

It seems like the Company's strategy is really focused on 2010.

A number of different studies will be available then.

Let me see if I got it right.

They will have the first Phase I -- the Phase III of the homozygous FH, as well as the severe cholesterol patients in 2010.

Is that right?

Is that apheresis population?

It's what we used to call apheresis.

Yes.

So just to summarize, Mark, we'll of course have all the Phase I and Phase II experience.

We'll have the homozygous FH study, the heterozygous FH study, the high-risk high cholesterol study, and we'll have the statin-intolerant study, which is not a Phase III study.

But we'll have all that available to us, as well as the experience that we have in our MRI study that we've talked about when we file in the second half of 2010.

One other point, as Genzyme mentioned yesterday, and I think it's quite important, that our regulatory strategy has now, I think, matured.

I think we have a very -- a clearer idea of how we're handling the EU and the US.

We expect to get homozygous FH plus severe cardiovascular risk, severe high cholesterol, in our first approval.

Genzyme believes that those patients constitute 25,000 to 30,000 in number in the US and Europe.

And then a second filing in the EU only, which will expand the use of mipomersen into heterozygous FH patients, particularly those at high cardiovascular risk.

And then you -- is Genzyme and Isis preparing some pharmacoeconomic studies to go along with this, especially when think about approval X US.

Will we see some of that data, as well?

Lynne, do you want to answer that?

Yes.

The measures that we need for the first filings, Mark, are built into the ongoing studies.

There is, for the first filing, not any special additional study that's being conducted.

Okay.

That was helpful.

I didn't hear you talk about the -- very much about the CNS franchise.

I guess that includes ALS, Huntington's, and the Teva program.

Can you give us an update there?

Yes.

There were quite a number of drugs I didn't talk about.

It's not that I'm not interested and excited about them.

It's just that we wanted to -- the financial stuff required so much time to go through, and we wanted to end this thing in 30 minutes.

ATL/TV-1102 continues to progress.

Remember, what they had to do after the very positive Phase II data that they got was to conduct longer-term animal safety studies to get ready for longer-term Phase II trials.

So there's not much to talk about there other than the animal studies are in progress, and they're getting ready to move forward.

With the regard to the rest of the CNS program, SOD is the first.

But we are making great progress in the other areas.

I think Genzyme highlighted some of that yesterday in their analyst meeting, as well.

The disease that I'm -- and the drug that I'm most excited about in that portfolio is our drug for spinal muscular atrophy.

This is a drug that induces alternative splicing.

So it's a disease caused by the failure to process your pre-messenger RNA for that protein properly.

And the results that we have in animals are really remarkable.

So that's moving along, as well as the Huntington's and Parkinson's.

So that's moving nicely.

I didn't mention the J&J drugs, glucagon and glucocorticoid.

They're moving along, and you should be hearing about those compounds in the coming months, as well.

Fair enough.

And then -- that was helpful.

And then, Lynne, the $11 million assigning payments from Alnylam considering the single-stranded siRNA, will that be dealt with in the revenue line in second quarter in third bucket under licensing fee.

Did I get that right?

Yes.

You're right.

And how will that be spread out?

Oh, no.

Mark, I'm sorry.

It will in the first bucket amortization of upfront licensing fees, when I talked about them.

And it will be amortized over the three-year period of the research collaboration.

Okay.

And remember that also includes Alnylam funding at a minimum of $3 million a year to support research in the area.

Thanks for the added information.

Congratulations on your progress.

Thanks.

We go next to Ed Tenthoff with Piper Jaffray.

Great.

Thank you.

Just picking up where Mark left on the single-stranded RNAi deal.

Stan, at a high level, can you really differentiate how single-stranded RNAi differs from antisense?

And excuse me if that's a very basic question.

But my premise was that antisense, beyond simply hybridized mRNAs, might also engage the risk mechanism.

So, in a sense, have you just made Alnylam an antisense company?

And does this mean that double-stranded RNAi is not working?

Well, in my view Alnylam was always an antisense company.

Antisense, and I was around at the definition of the term, so it's amusing to me to hear people who weren't involved in defining the term redefine it.

Antisense refers to the creation of polynucleotide-based drugs that hybridize to RNA.

Once hybridized to RNA, then a variety of things can happen to that RNA.

One thing that can happen is you can recruit [RNAsh] and cause degradation.

And if you want to do that, you have to design your drug specifically so that's what -- that's the enzyme it recruits.

Another thing that can happen is you can recruit risk, RNAi pathway.

And if you want that to happen, and of course then RNAi degrades the RNA.

If you want that to happen, you have to design your drug specifically chemically to do that.

So the processes for making antisense drugs involve both the design so that they bind well to the target RNA, and designs that support the kind of mechanism after binding that you want.

So in that sense, RNAsh and siRNA are quite similar in that in both cases you are administering the drug, an antisense agent, that binds to the target RNA.

One recruits an enzyme that causes the RNA to be degraded if the duplex looks like a DNA/RNA duplex.

And the other recruits a different enzyme that looks like RNA/RNA.

So the way to think of double-strand RNAi is that the sense strand is just a drug delivery device.

It meets all the definitions of a drug delivery device.

You use it stabilize the drug and get it into the risk complex.

We felt that another way to take advantage of this, since the active material in a double-strand RNA is antisense strand, would be to get rid of the sense strand and stabilize the antisense, the single strand, and use it that way.

The benefits of that, of course, is it's a single strand.

And single-stranded drugs are very different from double-stranded.

And we know how they behave.

I mean, we know that they distribute without special formulations and so on.

So that's what we've been working on.

We've made a lot of progress.

There's still a lot of work to do before we know how broadly effective it will be, whether it will be robust enough to really be of great value.

And I think John has said it best; Alnylam will continue to focus primarily on double-strand RNA drugs.

But this simply adds another approach to the way they're working, and amplifies their opportunity to be successful here, as it does for us.

Okay.

Thank you very much for that update.

That's very clear.

And for our next question, we go to Jim Birchenough with Barclays Capital.

Hi, guys.

A few follow-up questions.

Just number one, in terms of the efficacy for the homozygous FH trial, obviously a 20% hurdle for statistical significance.

Could you maybe talk, Stan, about what would be a clinically relevant result?

Do you think that's enough to get broad adoption in the market?

You know, I think John Butler did a really good job yesterday in dealing with that issue.

And the short answer is absolutely.

A 20% reduction in LDL in homozygous FH patients is hard to come by.

And if you think about these people -- I have no idea what the average LDL coming in in this study is, but it wouldn't surprise me if it were 400 or 500, certainly high.

So a 20% reduction; that's a big number.

We absolutely are confident that a 20% reduction would be both approvable and highly clinically significant in this patient population.

And that's, in fact, why we designed this study with that as the minimum that we wanted to measure.

I guess I asked the question because in Phase II, I think you showed a 30% to 50% range in terms of LDL reduction.

Any reason why we would see something less than that in this Phase III?

Well, in Phase II we showed a dose-dependent reduction, and that we could take LDL down as low as we wanted to.

We picked 200 milligrams because it was in the middle of the dose response range.

And remember, this drug is a very long half-life drug.

So at 13 weeks, we are about halfway, maybe two-thirds of the way, to steady stay.

So we expect that the longer you dose the drug, the better it's going to perform.

In the Phase II studies, single-agent combination at 200 milligrams, if I remember correctly, we got about a 42% reduction in LDL, somewhere in that range.

So we -- and we saw that the drug behaved equally well as a single agent versus -- or in combination, and equally well independent of whether the subjects were normal volunteers, routine high cholesterol, or patients who had familial hypercholesterolemia.

So we're very optimistic that we'll have very similar results in our Phase III trials in homozygous FH.

But we will feel highly victorious if we get results 20% and above.

And then, Stan, just maybe just on the safety side of the drug or the side effect profile, there was some mentioned yesterday during Genzyme's presentation of side effects like fever, flu-like symptoms, injection site reactions, and they were characterized as generally mild to moderate.

But that suggests there may have been some patients with more severe symptoms.

And they suggested that there were measures being taken to try and mitigate those symptoms going forward.

Could you maybe talk about that, how serious infusion reactions are with mipomersen and how easy are they to deal with?

Well, they're not infusion -- I mean, the drug is given SubQ.

So if you go back and look at early on in Phase II, we showed a side effect table.

And there we had headaches, nausea, all those sorts of things, and fevers and so on, all the things that you see with drugs.

And so this -- there are some subjects who have had these constitutional symptoms.

It's very difficult to sort out what are drug-related and what are not.

Obviously it's the same with every drug.

They are mild to moderate when they occur.

They occur in some subjects, not others.

And there's been no change that we can identify in the performance of the drug in the Phase II studies versus the CS5, for example, the Phase III study with homozygous FH.

And the reason -- and of course, what we're trying to do now is focus on how to make this drug as commercially attractive as possible.

So we're working hard to mitigate all of the minor nuisance side effects that this drug has as we get ready for commercial.

And we're looking at ways to minimize injection site reactions, ways to minimize anyone who has a flu-like syndrome or anything like that.

And that's why we're talking about it.

It's time to get ready for the commercial opportunity and minimize those things for people as we contemplate putting it on the market.

And then just finally, Stan, is there an open-label extension to this Phase III?

And if there is, what percent of patients are continuing on beyond the 26 to 28-week period?

There is an open label.

And I don't have the specific numbers.

But the rollover into the open label study is quite high, and about what you'd expect.

Remember that one-third of the patients are on placebo.

And they have the option to cross over to mipomersen?

Yes.

That's what happens.

You -- they know that they can go on to mipomersen at the end of that.

Lynne may have more specific information for you.

I don't know the exact percentage, but it is a high number of the patients we're rolling over.

We're very pleased with what's going on, Jim.

Okay.

Thanks for taking the questions.

You bet.

(Operator Instructions)

And we go next to Craig Gordon with Cowen & Company.

Hi.

Good morning.

A couple of questions.

In the EU, it was mentioned yesterday by Genzyme that an expanded safety database would be needed prior to the heterozygous FH filing.

Can you give more clarity exactly what the EU is looking for there?

I'm a little uncomfortable getting too specific because I think that's an appropriate question for Genzyme.

But we are confident that by the time we file for heterozygous we will have a safety database that meets their needs.

Remember in the EU, the international guidelines are 1,500 or more subjects, and there are specific requirements for long-term six-month and one-year treatment.

We will exceed guidelines for longer term treatment.

And we just need to flush out the number of subjects that are treated, and that's a very straightforward process that we're confident we'll do.

And I believe it was also mentioned in the ongoing homozygous studies that MRIs were being performed to deliver a baseline.

Is that correct?

Lynne, do you want to answer that?

Yes.

That is correct.

John did say that yesterday in his presentation, and we are in the Phase III studies performing baseline MRIs.

And I'm not certain if we're doing it in every one of the Phase III studies, but in a number of them we are.

Remember that in the early studies, we didn't do baseline MRIs because it's extensive and it's time-consuming and hard, and you expect a pretty high fraction of these people to have some steatosis.

So in CS5, the pivotal homozygous FH, we do have baseline MRI values on all the subjects.

And are you going to be following these MRIs up in terms of, let's say, at the end of -- at six months post study?

Or are you just looking at baseline?

I mean, what do you plan on doing with this data?

Well, the baseline data just provides the baseline information, and if then we can look in more detail if there's something in the patient's behavior that causes us to want to look.

So there's no future plan to do follow-up MRIs on the patients that baselines have been done?

Well, remember we're doing a specific MRI liver fat study.

And we're doing -- and we're adding patients to our high-risk high cholesterol study.

Again, we're allowing people with higher triglycerides in and with Diabetes.

Then we're following those people with serial MRIs.

Yes.

We're doing baselines and six-month MRIs.

Okay.

And then one other question.

Do we have any other details or timelines on the updates for the cardiovascular outcomes trial to address the larger patient population?

Nothing more than what Genzyme provided yesterday.

We are hard at work on planning the study.

And a lot of the planning will be driven by results that we get from the current trials that are in progress.

And so we're making good progress.

I feel like the design is coming together pretty nicely.

Lynne, do you want to add anything to that?

No.

Okay.

Great.

Thank you very much.

You bet.

And we go next to Lucy Lu with Citigroup.

Thank you.

In second half next year when you submit NDA for the homozygous population, you also have data from the apheresis eligible.

I'm just wondering, based on our conversations with FDA, what would determine whether or not you can include that patient population in the label?

And if not, what additional data or information do you need to provide to include that patient population?

You know, I think as Genzyme said yesterday we're confident that we will be able to include those patients in the label.

After all, the guidance from the FDA was that they were willing to approve -- consider approving the drug in patients at very high risk.

And all of these patients that we're talking about are at severe cardiovascular risk.

And then, Stan, in that study what percentage of patients were actually apheresis prior to entering this study versus those that are just eligible for apheresis, but they were not apheresis before?

So the study that we once called Apheresis Eligible we changed to just look at people with severe cardiovascular risk and very high cholesterol, despite maximum tolerated lipid-lowering therapy.

And the homozygous FH study is still blinded.

But if I remember correctly, I don't think we allowed people who were on apheresis in that study.

Isn't that right, Lynne?

That is correct.

There are no patients in either of the two studies, in the homozygous FH study or in the severe high cholesterol study, who can be on apheresis during the study.

I don't happen to know what patients may have been on apheresis at some point in the past.

We wouldn't know --

We wouldn't know yet.

I would expect a relatively small number because it's tough to get apheresis.

And the reason that you don't want to include people who are on apheresis, obviously it makes it very difficult to evaluate performance because you have this intermittent reduction in lipids and all of the associated problems that come with apheresis.

Great.

Thank you.

And with a follow-up question, we return to Jim Birchenough with Barclays Capital.

Hi guys.

Just two follow-ups.

Just on this issue of what may or may not be on the label, if it turns out that you just get the homozygous FH claim on the label, have you done some work with payers and physicians to get a sense of what they would with the drug because I'm just wondering if you have a drug that's very effective in homozygous FH, and there's data supporting substantial reductions in higher risk patients, do you think you're still going to get adoption outside of the label?

Not saying you're going to promote to it, but do you think you'll get adoption beyond homozygous FH commercially based on feedback you're getting?

Well, first of all, I don't think there's a significant risk that we won't get a label that is broader.

And we -- and certainly we haven't done any specific work looking at the question you asked.

But as a physician, I think you know, and I certainly believe a drug that's been shown to be effective in patients who know they're going to have another heart attack or two or three we think would be used.

And then just a follow-up on the 113715 data that we're expecting.

What's the threshold stand for moving that program forward?

What kind of reduction in HbA1c or fasting blood sugar do you need to see to support the -- pardon me?

I think we're -- what we really want to see is on top of sulfonylureas after just 13 weeks of treatment, that 20% or thereabout reduction in glucose with a profile that's consistent with what we saw in Phase IIA, which is reductions in LDL and weight-neutral, or if we saw weight reduction, that would really excite us.

Okay.

Great.

Thanks, Stan.

You bet.

We also want to look at how smooth the glucose effects are.

Is it -- do we get good glucose control throughout the day, and postprandial versus not postprandial glucose?

It's a profile question.

And what you should expect after 13 weeks for a drug that takes six months before it gets to steady state, those are all issues.

And I think we have to look at the profile and just see what its safety looks like.

The other big question that we had going into this study is would the drug be well-tolerated in people who had much more mature Diabetes, and who are on another Diabetes drug?

So safety, glucose reduction of 20% of thereabouts, good day through the day control of glucose, if we get LDL reduction, and then if we get any signs of adiponectin increase or weight management, despite the fact that it's not a study designed to look at weight loss, I think we'd be very happy with that profile.

And with that, ladies and gentlemen, we have no further questions on our roster.

Therefore, Dr.

Crooke, I'll turn the conference back over to you for any closing remarks.

Well, thanks, everyone, for being on the call.

And we appreciate you bearing with us on all of the financial explanations that we needed to provide.

Look forward to sharing the next round of information with you in the near future.

And ladies and gentlemen, this does conclude the conference call.

We appreciate your participation.