Ionis Pharmaceuticals Inc (IONS) 2012 Q4 法說會逐字稿

Welcome to the Isis Pharmaceuticals year end financial results conference call.

Leading the call today from Isis is Dr. Stan Crooke, Isis Chairman and CEO.

Dr. Crooke, please begin.

Good morning and thanks everyone for joining us on today's call to discuss our year end financial results.

On the call today Lynne will review our key 2012 accomplishments.

Beth will walk you through our financials and our guidance for 2013.

After that I will focus on the busy year we have ahead and our key goals for 2013.

Joining me on today's call are Lynne Parshall, COO, Beth Hougen, CFO, Wade Walke, Executive Director of Corporate Communications and Investor Relations.

Before we begin, I am pleased to have Beth joining us in her first meeting as CFO to present the financial highlights.

Beth was promoted to Chief Financial Officer at the beginning of the year.

As most of you know, Beth has been with us since 2000 and brings significant financial and accounting expertise to her new role at Isis.

Congratulations, Beth.

And now, Wade, will you read our forward-looking language statement?

Thank you, Stan.

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

Any statement describing Isis' goals, expectations, financial or other projections intentions or beliefs including the commercial potential of KYNAMRO 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 as human therapeutics and in the endeavor of building a business around such drugs.

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

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

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

These and other risks concerning Isis' programs are described in additional detail on Isis' annual report on Form 10-K for the year ended December 31, 2011 and on the most recent quarterly report on form on Form 10-Q which are on file with the SEC.

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

I will now turn the call back over to Lynne.

Thanks, Wade.

Good morning, everyone, and thanks for joining us.

2012 was another successful year.

Together with Genzyme we completed the final steps of FDA approval to bring KYNAMRO to the market in the United States for patients with homozygous familial hypercholesterolemia.

We continue to advance our pipeline.

We reported positive clinical data from multiple drugs and we initiated numerous clinical studies in a variety of therapeutic settings which this year will provide us with a steady stream of data.

We added four new partnerships with AstraZeneca and Biogen Idec that will greatly enhance our drug discovery and development efforts in cancer and severe and rare neurological diseases.

And we improved our already solid financial position ending the year with significantly more cash than we started.

In addition, we maintained a relatively flat expense level despite moving many drugs forward in the later stages of clinical development.

In short, it was a very busy and successful year.

Since we have had a number of conference calls to discuss the positive clinical data we reported last year, I will just spend a few minutes discussing KYNAMRO in more detail before I turn the call over to Beth to go through our financials.

KYNAMRO's approval in the US for patients with homozygous FH is a landmark event for these very sick patients and for Isis and for Genzyme.

KYNAMRO represents an important new therapy for homozygous FH patients who are at significant risk of early cardiovascular events and death despite all currently available therapies.

We are very enthusiastic about the potential benefit KYNAMRO can bring to these patients.

We are fortunate to have Genzyme, a leader in marketing and selling orphan drugs commercializing KYNAMRO.

Genzyme's pre launch efforts have positioned KYNAMRO for a successful launch.

Genzyme has begun training and certifying doctors under the REMS Program.

These doctors are writing prescriptions for their homozygous FH patients, and Genzyme feels confident in the reimbursement process.

Genzyme has established a robust program, KYNAMRO Cornerstone, for patient and reimbursement support.

This is a no cost program staffed by dedicated case managers that provides disease and product education, nursing and reimbursement support and financial assistance to those who qualify.

Through this program, KYNAMRO patients can get the help they need to easily incorporate KYNAMRO into their lives.

We are pleased with the success so far in the KYNAMRO launch and it is still very early days.

In addition, Genzyme is already supplying KYNAMRO in Europe on a named patient basis.

And, of course, the FOCUS FH study is going well.

FOCUS FH is being conducted under a SPA with the FDA and is designed to provide safety and efficacy data to support regulatory filings for severe heterozygous FH patients.

The approval of KYNAMRO, a systemically administered antisense drug for lifelong use in patients with a chronic disease validates our technology, our approach to drug discovery, and our ability to develop drugs that could have a profound impact on patients' lives.

This historic event means that antisense technology has arrived as a drug discovery and development platform that can take its place alongside small molecules and therapeutic proteins.

As we look to the future, we believe that KYNAMRO will be the first of many antisense drugs to be commercialized.

We have a mature pipeline with 16 drugs in Phase II or Phase III development.

Five of these drugs have the potential to reach the market in the next five years.

These are drugs to treat patients with severe and rare diseases, high triglycerides, cancer and unattractive scarring.

Each one of these drugs could represent a significant commercial opportunity.

In addition to these near term opportunities, we have a number of drugs in our pipeline that will reach critical data milestones over the next 12 to 18 months.

Two important milestones this year will be the data from the two Phase II studies on APOC-III and additional clinical trial data from our SMA drug.

These data are particularly important because we plan for both of these drugs to be in Phase III studies next year.

Additionally, other drugs like our Factor XI and CRP drugs, which have the potential to address very large commercial markets, will complete Phase II studies.

We believe these drugs could command substantial partnering interest.

We will be looking for a partner that will invest in robust Phase II/III programs to fully flush out the numerous potential opportunities for each drug.

With pending approval our focus remains unchanged.

We are continuing to discover and develop drugs to treat diseases where antisense can provide unique advantages over other therapeutic approaches.

The large number of gene targets accessible to antisense allows us to choose the targets that will provide the most differentiation and therapeutic value.

In this way, we are continuing to build large pipeline of promising new drugs that span a broad therapeutic spectrum.

The value we've created today is a product of an efficient drug discovery technology platform and our unique business strategy.

Our business strategy provides us with significant financial strength with numerous ways to generate cash and revenue while keeping our costs down.

By partnering our drugs at appropriate stages in development, we are mitigating risk and gaining knowledgeable partners to aid in the future development and commercialization of our drugs.

This creates a win-win situation.

We create short-term value through milestone and licensing payments, and long-term value through regulatory and commercial milestones, royalties, and profit sharing.

In this way we can sustain a pipeline of such magnitude and maturity, building on our financial strength, we are working to increase our participation in the commercial upside of each of our drugs.

Before I conclude, I'm also pleased to share with you the news that the securities class action lawsuit has been voluntarily withdrawn.

We believe that the approval of KYNAMRO and the strong performance of our stock were the determining factors in the decision to drop the suit.

Obviously, we believe the claims were without merit.

Nevertheless, we are happy to have it behind us.

With that, I will turn the call over to Beth to discuss our 2012 financial results and discuss our 2013 financial outlook.

I would like to add my congratulations as well for her well-deserved promotion.

Thank you, Lynne and Stan.

As Lynne mentioned, 2012 was another successful year for Isis and with the approval of KYNAMRO 2013 is off to a great start.

I'm pleased to tell you that we significantly improved our already strong financial position by ending 2012 with nearly $375 million in cash.

The $32.5 million in milestone payments we have already earned this year sets us up for a strong 2013.

In addition, we significantly outperformed our guidance by achieving a pro forma NOL of $60 million, which was $10 million less than our 2012 guidance.

This improvement in our NOL was primarily due to our new Biogen Idec and AstraZeneca collaborations and the efficiency with which we are able to conduct our research and development activities.

Now that KYNAMRO has been approved in the US this is a good time to spend a few minutes describing the impact of KYNAMRO on our financial statements and to help you understand how we and Genzyme will share in KYNAMRO's commercial success.

We have a profit sharing arrangement with Genzyme for KYNAMRO, not a royalty.

And what this means it that we will earn a portion of KYNAMRO's profit rather than a portion of KYNAMRO's sales as we would under a more traditional royalty arrangement.

Our profit share begins at 30% and increases linearly to 50% when annual revenues reach $2 billion.

While the structure we have with Genzyme is not technically a joint venture that is probably the best way to think of this type of profit sharing arrangement.

In contrast to a royalty structure, where revenue is based on a percentage of the drug's top line product sales and is recorded with the first sale of the drugs we will record revenue from KYNAMRO on our P&L when KYNAMRO is profitable.

In the initial launch year there are significant investments required to support launch and future revenue growth.

As a result, there will be a period of time between the first commercial sale of KYNAMRO and Isis' revenue from KYNAMRO profits.

With this type of arrangement we benefit as Genzyme benefits from the success of KYNAMRO.

As you know, Genzyme is offering KYNAMRO through a risk evaluation and mitigation or REM program.

We believe this is the right approach for this drug and for these patients.

The process to move patients through the stages to treatment include certifying physicians and getting the specialty pharmacies that will dispense KYNAMRO up and running.

Genzyme has assembled a highly experienced specialized sales force and medical field team who are fully staffed and trained.

These dedicated individuals have been working diligently over the last couple of years to educate physicians on homozygous FH and to identify homozygous FH patients in preparation for KYNAMRO's launch.

Because of these activities, Genzyme is in a very good position to implement the REMS program.

In addition, Genzyme plans to use Sanofi's global infrastructure to augment its efforts and retain physicians and ultimately the patients who will benefit the most from KYNAMRO.

Genzyme has also invested in a robust supply and distribution chain anchored by the specialty pharmacies that will provide KYNAMRO to patients.

And Genzyme's KYNAMRO Cornerstone patient program will bolster Genzyme's education efforts and provide product and reimbursement support for KYNAMRO patients.

We expect these investments in both people and programs will shorten the time to treatment.

Genzyme's education ensures that lipid specialists understand KYNAMRO and Genzyme's advocacy efforts increase awareness of homozygous FH with the hopes that more patients will be referred to lipid specialists who are the best physicians to treat these patients.

We are impressed with the significant investment Genzyme has made to support KYNAMRO's successful commercialization in the US.

We are also excited about the future of KYNAMRO in other key markets.

In addition to supporting the reexamination of the KYNAMRO marketing application in Europe, Genzyme has filed marketing applications in other countries around the world and is preparing for commercialization outside the US.

In addition, as Lynne mentioned, Genzyme is conducting the FOCUS FVIII study to support additional regulatory filings.

We anticipate that all of these activities will translate into not only top line revenue growth as this year progresses but also strong revenue growth in the coming years.

Because of the substantial investments required to successfully launch a new drug including those I just described for KYNAMRO and because it is too early in the year to predict the trajectory of KYNAMRO sales we are continuing our practice of providing conservative financial guidance.

As such, we have not included KYNAMRO profit sharing revenue in our guidance for 2013.

Of course, that means that any revenue we earn from KYNAMRO represents upside.

As we go through the year, we will keep you updated on KYNAMRO's progress in the market.

We are also aware that you will want to track the success of the KYNAMRO launch alongside us.

IMS and similar data sources will likely be poor predictors of KYNAMRO sales as they are frequently unable to track sales through specialty pharmacies.

Because of this, we are working with Genzyme to identify ways in which we can be as transparent as possible while still working with our partner and their guidelines.

Even without KYNAMRO revenue we are projecting a strong year financially with a pro forma NOL in the mid $60 million range consistent with our 2012 NOL and an ending cash balance in excess of $325 million.

Our continued financial strength is the best evidence of our unique and successful business strategy which provides us with numerous ways to generate cash and revenue while the efficiencies of our platform support prudent management of our expenses.

Because of our successful execution of our partnership strategy a large and predictable component of our revenue is the amortization of upfront fees from our partners.

In 2012 we recognized new revenue from the amortization of the up front fees we received from Biogen Idec in 2012 for our SMA and myotonic dystrophy collaborations and the upfront fee we received under our amended agreement with GSK for our TTR drug.

In 2013 we will add to this new revenue by amortizing the upfront fees we received from AstraZeneca and Biogen Idec for the collaborations we entered into late in 2012.

So this year we project revenue from the amortization of upfront fees of over $40 million.

The nature of our business strategy and partnerships also ensures that we have a steady stream of milestone opportunities each year.

Although each year they come from different sources.

For example we earned the $25 million milestone payment last May when the FDA accepted the NDA for KYNAMRO.

Most recently we earned a $25 million milestone payment when KYNAMRO was approved, and a $7.5 million milestone payment from GSK when we initiated the Phase III study for our TTR drug.

In addition we have numerous opportunities to earn milestone payments from many of the other drugs in our pipeline and are projecting that we will earn non-KYNAMRO milestone payments of over $20 million.

We also will earn revenue from the sale of drug to Genzyme to support the launch of KYNAMRO as we work together with them to complete the transfer of KYNAMRO commercial manufacturing to Sanofi later in the year.

A benefit of our efficient drug discovery and development strategy is that we can move many drugs forward while prudently managing our expenses.

For example, our operating expenses in 2012 were essentially flat compared to 2011 even though we significantly advanced our pipeline.

This year are we plan to have more than a dozen drugs in later stage clinical studies.

And we plan to advance our earlier stage drugs and add new drugs to our pipeline.

We expect to conduct all of these activities with only a slight increase in our spending compared to last year.

We are confident that we can achieve our goals and fund our share of KYNAMRO development expenses if necessary within the slight increase in expenses we expect this year.

This we are we are building on our successes from 2012 as KYNAMRO gains momentum in the market during its first year of sales we look forward to beginning to realize the financial benefits from our share of KYNAMRO profits.

We will continue to invest our resources in the areas that can provide substantial licensing and/or commercial opportunities.

We are meeting our objectives, moving our drugs forward, and managing our cash.

With that I would like to turn the call back over to Stan.

Thanks, Beth.

I guess I will say it for the third time.

Having KYNAMRO approved was a great way to start the year.

Gaining approval for a drug by the FDA for chronic use is in my view the most challenging and rewarding task in drug development.

It is a goal that we have worked on or worked toward for many years and it is the beginning of what we hope will be many, many more Isis drugs to reach the market.

The KYNAMRO approval demonstrates that a second generation antisense drug given systemically for a chronic disease in which safety is paramount can be developed and approved.

It confirms that our technology is a productive platform for drug discovery and development, taking its place alongside small molecules and protein therapeutics.

We successfully apply this technology to build a portfolio of 28 promising drugs to treat a wide range of diseases including severe and rare diseases like homozygous FH.

Then we plan to continue this growth by adding three to five new drugs every year.

We are particularly pleased that our TTR Phase III study is now underway.

We and GSK chose to slightly delay getting the trial started because we sought additional clarity from the FDA on the statistical analysis plan for this study.

We continue to be very, very encouraged by the support that we are receiving from both the FDA and European authorities and we are working very closely with these agencies as we develop TTR Rx.

With so many drugs many of which are in Phase II or III clinical trial, clinical development, we have a number of important events to look forward to over the next year or so.

Let me just spend some time going through some of these opportunities for you.

Next month at the American Academy of Neurology, Claudia Chiriboga from Columbia University Medical Center will present the Phase I data from a drug to treat children with spinal muscular atrophy.

In this study, children with SMA were given a single dose of our drug.

I'm pleased to report that the drug was well tolerated and that in some of these children improvements in muscle function were observed.

Remember, of course, that this is a Phase I study that primarily focused on safety and it was not placebo controlled.

So evidence of activity is encouraging but, of course, it is still early and we need to see how the drug performs in the controlled Phase II/III trials.

We are however very encouraged with the profile of the drug we have seen so far this these children.

Dr. Chiriboga will be presenting the full results of the study at that meeting and then the next morning, Thursday, March 21 we will hold an investor event in San Diego where Dr. Chiriboga will be joined by other experts to walk you through the data, the disease, how our drug is designed to work in these children, and what our plans are.

We hope that you will be able to join us here but if not, of course, it will be webcast.

Looking at the rest of the pipeline, we have nine drugs that could reach clinical -- critical clinical data milestones in the next 12 to 18 months.

For our CRP drug, we plan to report Phase II data from our study in patients with rheumatoid arthritis.

This is the first study in which the direct effect of selectively lowering CRP will be evaluated in a disease setting in which CRP is chronically elevated.

We have completed enrollment in this study and hope to present these data in the middle of the year.

In addition, we have completed an endotoxin challenge study which will allow us to assess the ability of our drug to block severe increases in CRP.

We are just starting to analyze the endotoxin data and hope to be able to share it with you soon.

We also just announced that we started a Phase II study in patients with atrial fibrillation with our CRP drug.

In this study we hope to demonstrate that lowering CRP reduces the frequency and severity of recurrences in patients with atrial fibrillation.

We plan to have data from this study early next year.

We believe that with the rheumatoid arthritis, atrial fibrillation and endotoxin challenge data in hand we will have for the first time the opportunity to address whether selectively lowering CRP can generate therapeutic benefits in a variety of diseases that have both chronic and acute severe elevations in CRP and in which those CRP elevations are consistently associated with worse outcomes.

We plan to report data from two Phase II studies evaluating our novel triglyceride lowering drug Isis APOC-III Rx in patients with elevated triglycerides.

In one study we are evaluating the ability of our drug to lower triglycerides in patients with severely elevated triglycerides.

These are people that triglycerides in excess of typically of a thousand milligrams per deciliter.

These patients are at very high risk for pancreatitis in addition to cardiovascular risk.

In another study we are evaluating the ability of our drug to lower triglycerides in patients with hypertriglyceridemia and diabetes.

We plan to report the data from the first study that I mentioned in the middle of this year and the data from the diabetes trial late this year.

We plan to report a Phase II study evaluating our Factor XI drug in patients undergoing total knee replacement.

In this study we are comparing the effects of our drug to enoxyparin, a low molecular weight heparin.

Our goal is to show that our Factor XI drug reduces thromboembolic events with less major and less minor bleeding than enoxyparin.

We also plan to report data from our cancer franchise including data from our eIF-4E drug in patients with prostate and lung cancer and data from our STAT3 drug in patients with advanced lymphoma.

OncoGenex plans to report top line data from the pivotal Phase III study of OGX-011 in patients with prostate cancer, and Phase II data from a study of OGX-427 again in patients with prostate cancer.

We also plan to continue to mature and grow the pipeline.

This year we will be advancing three drugs from a metabolic pipeline into Phase II studies.

These drugs -- these are drugs that could offer unique and distinct approaches to treating type two diabetes especially for patients who are unable to control their glucose levels despite currently approved treatments.

We plan to initiate a Phase II/III program for SMA drug in infants with SMA this year as well.

And, of course, we plan to advance a number of our preclinical programs into clinical development and add new drugs to our pipeline.

In summary, we have a broad, we have a mature, we have an exciting pipeline of drugs with 16 drugs that are in Phase II or are Phase III development, three drugs that are ready to move into Phase II development and a number of drugs completing Phase I studies.

This large pipeline is a testament to the efficiency of our technology, and it is sustainable.

We plan to continue to add three to five new drugs to our pipeline every year.

We are investing in drugs that have substantial commercial opportunities including severe and rare diseases where we may also have a much faster path to the market.

With that, I want to thank everyone for joining us.

And Stephanie, if you could set us up for questions, we would appreciate it.

(Operator Instructions).

Your first question comes from the line of Salveen Richter with Canaccord.

Hi, this is Andrew Goldsmith on the line for Salveen.

Thank you so much for taking my call.

The data coming for the SMA how should we think about the expectation for single dose versus multi dose?

We certainly never expected any suggestion of activity with the single dose.

We believe that to alter the course of the disease multiple doses will perform much better than single doses so we are encouraged by what we are seeing and hope that those results are predicting that as we dose, over time the performance of the drug will continue to improve.

Okay, great.

And then maybe I could ask one on KYNAMRO, the sales to Genzyme that you are booking that is separate from the profit sharing, correct?

Yes, that is just drug supply.

Okay.

And that will just flow into the revenue separate from the profit sharing?

Lynne can probably give you a little more detail on that?

Is exactly as you said, Andrew.

Our sales of drug to Genzyme just flow direct into our revenue and are not part of the profit the sharing.

That should be pretty minimal compared to the profit sharing?

Yes.

Although it certainly matters to us in 2013.

Okay.

Great.

Thank you very much.

Your next question comes from the line of Jim Birchenough with BMO Capital Markets.

This is Nick standing in for Jim.

Thank you for taking my questions.

Just a quick follow up on AAN What should we be looking for in terms of muscle function readout, and then I have a follow on question after that.

I think what we are -- what I would like to do is to say that the -- there are several measures of muscle function . The most important is the Hammersmith scoring.

There are also measurements of neuromuscular function that relate to electrophysiology and the things that you should pay attention to are the answers to the questions that we asked first.

Is the drug well tolerated?

That is a critical question to which we didn't know the answer until we did this study.

Second, do the data support the notion that the drug can be given very infrequently?

And then third, is there cause for encouragement that there may be benefit?

And I will leave it at that.

Remember, this is a Phase I uncontrolled study of single doses.

Okay.

Thank you.

And then maybe another quick question and I will jump back in the queue.

For the STAT3 drug are we expecting to see any data at ASCO and also last week I game across a publication from Moffit identifying over-expression of something referred to as IKBKE in non-small cell lung cancer and that was not regulated by STAT3 suggesting that a STAT3 might be a target for a subset of non-small cell lung cancer patients.

Can you briefly let us know how interested AstraZeneca is in trying to identify a sub sets of patients where STAT3 might be relevant?

Yes, I haven't seen that publication.

But I think the general answer is probably the best answer.

STAT3 is considered a critical regulator of cell behavior.

And it is -- its up regulation is associated with a good many other cellular manifestations that are generally considered to be stimulating cell growth and metastasis and emergence of a malignant phenotype.

And we worked on STAT3 initially because we believe that it has a real potential to be very broadly useful in cancer.

And we and AstraZeneca certainly do believe that.

One of the reasons we wanted to partner that drug early is that what really needs to happen with STAT3 is that we need a very broad look in Phase II at potential cancers where it may bring benefit.

So what you are seeing right now is that we have observed interesting potentially important activities in non-small cell I mean in non-Hodgkins lymphoma and as a consequence we are expanding our work in that area.

AZ is beginning a study in -- oh, never mind.

Lynne just gave me a face.

I can't tell you that.

So the -- I guess the answer I'm going to give you is that we and AZ are anxious to move the drug into broad Phase II endeavors that will look at a wide range of tumor types, and lymphoma is simply the first.

Can I just add one thing.

I'm not going to subtract from anything Stan said, but one of the key factors that led us to choose AstraZeneca as our first partner in our cancer program was the fact that they are extremely interested and have access to lots of data about sub set patient populations in a variety of different -- with a variety of different targets including STAT3 and so there is a lot of work going on exactly as you suggested, Nick, in identifying sub set patient populations in which STAT3 would be a particularly valuable tool and AstraZeneca is planning a robust Phase II program to explore those.

In lymphomas, for example, there is a wealth of new evidence showing that STAT3 activation -- mutations that activate STAT3 are associated with much worse outcome and so it is not surprising, it is gratifying but not surprising, that we have seen the early activity and I don't know if there is an ASCO presentation, Lynne, do you?

I don't.

We can get back to you.

I just don't remember.

Okay.

Thank you.

Your next question comes from the line of Chad Messer with Needham & Company.

Yes, thanks for taking my question.

So, you if look at a lot of the great partnerships you have Biogen, Genzyme, a lot of these are for rare diseases, genetic diseases more orphan type things but in the list of some of the upcoming potential new partnerships that you could start pursuing in the next year or two there is a lot of very large and broad indications.

Inflammation, cancer, thrombosis.

How you does that affect what you are looking for both in a partner and in partnership terms?

And then if I may, out of the nearer term partnership opportunities which one do you think represents the greatest to value to Isis shareholders?

Thanks for the question, Chad.

One thing to -- that I -- I just feel I need to remind people is when you look at deals that we have today you are looking at a cross section and you have to look back to when we did the deals and what our circumstances were when we did those deals.

Our goal in 2012 was to partner our neuro program and to partner our cancer programs.

The reason that that was our -- those were our major goals are, first, our neuro program while exciting was very new and associated with meaningful risks that we couldn't judge, that begin and end with the fact that we are giving these drugs directly into spinal fluid.

There are also other risks that are associated with just the challenges of doing work in this central nervous system.

And what we wanted for that constellation of activities is a partner who was really excited about the technology and knew the space and would work cooperatively with us.

We think what we achieved there is really remarkable and we think the three transactions with Biogen and the progress made is just wonderful performance.

The second space was cancer.

And again, the thinking there was that we needed to invest very broadly in Phase II trials for STAT3 which to do it well would be maybe $40 million or more dollars.

And we needed a partner that was committed to doing that with us to support that and to share some of the risk.

And we got that done.

Now, that we have all that behind us and we are financially secure and we are expecting to see revenues from KYNAMRO, our approach is to retain many of our drugs longer and the goal, of course, is to be he able to do transactions that give us a bigger piece of the commercial revenue while still getting large upfront fees and milestones.

I think we have been very successful at that for the last 23 years and it is easier today than it has ever been because the interest is so high and the prices are going up.

So, if you look at our portfolio of drugs and ask which ones would we likely keep longer and which ones might we even do some Phase III work ourselves they would be the drugs where we have a very clear and unequivocal demonstration of efficacy in Phase II and a straightforward process and cost-effective process in Phase III.

So if you look at the drugs in the portfolio that don't meet that, clearly CRP, the cancer drugs, the metabolic drugs, all are candidates for licensure.

Factor XI is a critical opportunity for partnering.

APOC-III is a mix because we do think we have a straightforward path to a commercial opportunity with APOC-III but its potential, of course, is very broad so we may partner that as well, but you our circumstances there would dictate that we do it very differently.

I don't know if I answered your question.

I guess the last question you asked are what are the things I'm most excited about as potential partnering.

APOC-III, even though we may not partner until we get -- we won't partner it until we get the prices we want.

CRP, Factor XI, and a couple of the diabetes drugs are the things I'm most excited about.

Great thank you (multiple speakers)

Do you have anything you want to add?

I guess the only thing I would add, Chad, just in terms of thinking about which of those are things that are coming up soon, obviously we expect to have data in the next 12 to 18 months not only from multiple studies with the -- Phase II studies with the CRP drug but also for Factor XI.

And those are drugs with extraordinarily large commercial opportunity potential when multiple different indications.

And so one of the things in addition to obviously getting economics that reflect the size of the commercial opportunity, one of the things that I'm really going to require from a partner is a very robust investment in Phase II B and Phase III programs so that we can make sure that the partner is investing in the breadth of potential that we think the drugs have the opportunity to achieve.

One final comment.

I think we are now in the financial position that we don't need to partner, and we are in the financial position that we can retain our drugs until we are confident that they are a significant value inflexion point and the level of interest that we have in the technology and the drugs is extremely high and so we are going to be very selective about when we do deals, what deals we do, and who we do them with.

All right.

Thanks a lot for the added information, guys.

Your next question comes from the line of Nicholas Bishop with Cowen and Company.

Good afternoon.

Thanks for taking my questions.

I just have two questions on the SMN program.

Wondered about the timing of the initiation of the two pivotal studies in infants and children?

If I'm remembering your past expectations correctly it seemed as though you were expecting to start both of those around the same time at the end of the year.

And now it seems as if I'm understanding things correctly the childhood trial may be starting a little later.

And I'm wondering if you could comment on what has changed with respect to that trial?

And then a second related question is just the extent to which you have agreed with the FDA on what exactly the endpoints of the infant onset and child onset studies will be and if you can share progress there with us?

So in terms of timing of the programs, the childhood onset program was always scheduled for early 2014.

The initiation of the infant and you are absolutely right the initiation of both programs used to be contemporaneous with the infant program in late 2013, so they looked on the Gantt chart like they were roughly in the same time frame.

In fact, we had some acceleration of our infant program and so we expect it to start earlier in the year.

That is the study that is going to start with the dose escalation front end and then roll into which would technically be a Phase II piece and roll into a Phase III study, and that is the study that has death or 16 hours or more of ventilation as the endpoint.

The childhood onset study has not changed at all in timing but we have accelerated to some extent the infant program.

We have had tremendous interactions with the FDA as well as with the European regulatory authorities and think that we do have agreement on what the endpoints for both of these studies are going to be.

Okay.

I guess on the childhood one in particular, can you provide any more granularity on exactly what you need to show in order to be successful in that trial?

What we need to show is statistical significance in our primary endpoint and our primary endpoint will be Hammersmith's for that study.

And that has been fully negotiated with the regulatory authorities and highly cooperatively negotiated.

So in --

Okay.

So just in brief, the infant trial is actually moving ahead a little faster.

The childhood trial is right on schedule.

The endpoints in the infant are basically survival or ability to avoid being on a ventilator, sad to say but that is success in these children.

And the Hammersmith, which is a well validated process of measuring [vagal] function is the primary endpoint in the older children.

Okay.

That's great.

Thanks.

We will have some detail for you in March.

Thanks.

Your next question comes from the line of Steven Wylie with Stifel Nicolaus.

Hi, thanks for taking the question.

Just a quick question on the STAT3 deal structure with Zeneca and if I remember correctly the milestone that they pay in DLBCL in the ongoing Phase II is core related to drug performance i.e., patient response.

So I guess I'm wondering if, as you look into these other tumor types, are milestones and opt-ins and no goes also predicated on certain response threshold criteria?

And as you think about moving into solid tumors where responses are not a very good surrogate of outcome does that mean that you want to stay focused on some of these [hemolic] indications relative to solid tumor?

You are correct on the lymphoma milestone, the first lymphoma milestone it is tied to performance of the drug and that is a product of negotiation of course, and our belief that the drug is going to perform well and that is a bet we are making.

With regard to the other indications and other milestones they are not tied to performance of the drug but rather decisions to proceed into various phases of clinical trial.

And our focus is broad.

Certainly the Hemoc opportunity is for real but we think there are significant opportunities in the solid tumors and, of course, they will require outcome measures and that is another reason why we wanted AZ as a partner.

Okay.

And then I guess on the APO.

Steve, can I add just one little piece to that.

Yes, please.

Obviously based on the early, but really encouraging Phase I data that we saw with the STAT3 drug where we saw two of the diffuse B cell patients with PRs that have been very durable we with envision if the data are borne out in this Phase II study a very rapid path to the market.

And that's why we have the opportunity to earn up to a $50 million milestone if the drug performs in a way that could put it on a very rapid path.

We are obviously in the middle of that study and neither we nor AZ can predict how it's going to turn out but we get rewarded substantially if the early data are borne out in the ongoing study.

Okay.

And would you envision there being any work on the bio marker front, from the diagnostic front with respect to trying to develop something looking at STAT3 activating mutations that you can contain this thing within the clinic?

We are.

We are, of course, attempting to look at STAT3 levels.

We also know that if you reduce STAT3 you affect a variety of other things that are potential to be measured in plasma.

And AZ is working on other biomarkers as well.

It is all a part of the critical work that needs to get done early on with an anti-cancer drug like STAT3.

It's another thing I think that AZ brings that is a real benefit to the program.

The ability to create companion diagnostics was very important to them and they are actively working on that.

And then just a quick question on APOC-III.

You will have the data it sounds like mid year in patients with hypertriglyceridemia and you're also going to have data coming up toward the end of the year in patients that are a little more moderate and also have diabetes which I presume would be a larger market opportunity.

So I guess I'm just wondering how you balance that decision as to whether or not you try to move forward independently in what might be a market that you could run a Phase III yourselves as opposed to getting year end data that looks like this drug might have a bigger role and a much larger patient population.

We are tremendously excited about APOC-III, and we're tremendously excited about what we are seeing.

And we're really looking forward to presenting the data in both studies.

And we will go in much more detail about this later this the year.

I don't want to get in front of that.

What I will tell you is that is a is veer hypertriglyceridemia greater than a thousand that is retained after a four week diet control is an indication that we could pursue ourselves.

There are other relatively rare diseases where we think this drug has a chance to be very effective.

All associated with super high triglyceride's.

And those are opportunities we could pursue ourselves.

The broader opportunity which would be just reducing triglycerides in people who have somewhat elevated triglycerides particularly the people with diabetes would almost certainly require an outcome study and would be something that we would pursue with a partner.

And we will describe the development path for you a little later in the year.

And we will make a decision about partnering when and with whom as a function of the dollars and the other benefit that our partner brings to us, and we will try to make the best decision for that drug and us and our shareholders that we he can when that time comes.

I don't know if I answered your question but that I is the best I can do today.

Fair enough.

Thanks.

Your next question comes from the line of Ted Tenthoff with Piper Jaffray.

Great.

Thank you very much.

Two quick housekeeping questions if I may.

I guess just on the amortizations I'm wondering how long are you recognizing these upfront?

Is there a specific amount or is it each deal like the AstraZeneca you got $25 million for example, how long is that amortized over and is that the same for Biogen or is each deal different?

Each deal is different.

It is amortized over the duration of the partnership.

Milestones, of course, are recognized as 100%revenue at the time they are paid.

So what is the amortization period for the AZ and for the Biogen deals then?

I don't know.

Beth may.

She may know.

I mean again it will be whatever the duration of the partnership is projected to be.

For each.

Typically three or four years.

For each of the partnerships it is different.

And Ted, it is complicated because under the new accounting rules for a partnership like AZ that has multiple components -- STAT3 is one component and the research is a separate component.

The amortization is different for each of those and it is -- it is not that complicated but it is a detailed conversation.

So if you want us to follow-up with you on the phone we can walk you through it in detail.

Fair enough.

That is easy enough.

And I think I had another one but it either got asked or I forgot it.

Keep up the great progress.

A lot of things going on and I'm finding these calls very informative so I appreciate it.

Thank you.

(Operator Instructions).

Your next question comes from the line of Carol Werther with Summer street.

Thank you for taking my question.

I also have a housekeeping question with regards to how you are going to account for KYNAMRO.

With sales to Genzyme Sanofi are those at cost plus?

Our sales are KYNAMRO to Sanofi are based on a negotiated price but it is basically a fully burdened cost that includes all of our overhead and everything else associated with making the drug.

Okay.

And we have been selling drugs to Genzyme for -- we did -- for several years now and so those have been recognized as revenue during that period.

Oh, good that's helpful.

And then with the P&L, the KYNAMRO P&L -- so I'm assuming since it is not a royalty there is no lag that whatever sales Sanofi reports is what occurs in that quarter?

That is right.

We get paid on a quarterly basis based on actual revenue and expenses in that quarter.

Okay.

And then you're supporting I know you are is supporting a launch with them but that doesn't mean you are hiring employees, does it?

Oh, heavens no.

They are doing all that.

Okay.

And our -- and our share of costs is just in the development sharing.

So principally --

Oh.

So principally those costs that we share are on Focus FH which is the development program that's still going.

Actually there's an important point that Stan made that we probably didn't make during the script which is as we go through these extensive investments and launch that Genzyme is making we don't share any of those expenses so until the drug is profitable those are all Genzyme and Sanofi expenses not ours and they don't accrue so that we have to pay them back later.

We have no responsibility for those expenses.

Okay.

And my last question is so the Focus FH study, do we have any idea when it might complete enrollment?

Well, we are hoping to finish enrollment this year.

I can tell you that the enrollment is going well.

And in that study we are also trying to run it more like a real world, real medical practice situation rather than our rigid Phase III program in that I mean we do allow a slower onset of dosing and dose adjustments to help manage minor side effects.

And so we are certainly very optimistic that the profile of the drug that will emerge from that is -- it will be a much more accurate predictor of the profile of drug in commercial use.

Okay.

Thank you very much.

Your next question comes from the line of Doug Adams with Tocqueville Asset Management.

This was a reasonable [assimily] of our name.

But -- [ LAUGHTER ]

Adams is right.

The Adams part was pretty easy.

I have a number of questions.

I guess, first of all, I was very impressed with your cash management last year.

To end up with bigger balance than you guided to was great work for 2012 and so for your guidance on 2013 I was curious as to how much if any of the STAT3 milestone might be pegged into your ending balance being above $325 million or, and I assume that you have not included any potential partnerships from any of the drugs that you are waiting Phase II for.

That's right.

Can you give us an -- some guidance in terms of what you have in terms of your revenue expectations and what would be incremental to that as we progress through the year?

What we do is probabilize milestones and other things and so, and we take a very, very conservative approach when we build our financials.

So is as I recall, I think there is zero in here for the STAT3 milestones.

So that would be all upside.

And again, taking a conservative approach to the financials we don't -- we don't include any revenue from new partnerships so the new partnerships would be upsides.

Okay.

And then I -- given the progress you have made in your pipeline and having so many in the pipeline, I hate to ask a question about new drug discovery.

But I am a little curious with the recent announcement on the bio marker for Huntington's and also some of the data that you had previously had been published.

I was curious as to how close are you in terms of selecting a drug for that indication?

Close.

Okay.

And then lastly, in terms of the three to five drugs that will come into the pipeline this year, are you anticipating those to be those that are already within the partnered relationships or will any of these be new fully owned Isis candidates?

There will be new fully owned Isis candidates and there will be partnered.

Okay.

Thank you.

That's all the questions I have.

Thank you.

At this time I would like to turn it back over to management for closing remarks.

Well, if there are no more questions I want to thank everyone for your attention and for the thoughtfulness of the questions that you asked.

We think 2013 is going be a great year for us and for our investors and we think we are just at the tip of the iceberg of value that antisense technology is going to create.

We are looking forward to this year with keen anticipation.

We look forward to sharing it with you.

Thank you.

Thank you.

This concludes today's conference.

You may now disconnect.