Ionis Pharmaceuticals Inc (IONS) 2013 Q1 法說會逐字稿

Good afternoon and welcome to the Isis Pharmaceuticals first-quarter 2013 earnings conference call.

All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note this event is being recorded.

I would not like to turn the conference over to Dr. Stanley Crooke, Chairman of the Board and CEO.

Please go ahead, sir.

Thank you.

Good afternoon and thanks everyone for joining us on today's conference call to discuss our first-quarter financial results.

Our agenda for this call is first, that Beth will walk you through our financials; Lynne will then review our current partnering accomplishments; and then I'll close the call by focusing on some of the upcoming data events.

We also announced just a few moments ago that we're initiating a public offering of our common stock.

However, we will not discussing this financing on this call today.

Joining me on today's call are Lynne Parshall, Chief Operating Officer; Beth Hougen, Chief Financial Officer; and Wade Walke; Executive Director, Corporate Communications, and Investor Relations.

Now Wade, would you read our forward-looking language statements, please?

Thanks, Stan.

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

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 of 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 the good faith judgment of its management, these statements are based only on facts and factors currently known by Isis.

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

These and other risks concerning Isis’ programs are described in additional detail in Isis’ annual report on Form 10-K for the year ended December 31, 2012, and its most recent quarterly report on Form 10-Q, which are on file with the SEC.

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

As Stan mentioned, we announced plans to commence stock offering today.

Due to legal constraints, we will not be discussing or answering questions about the proposed financing on this call.

I'd direct you to our filings with SEC for more information.

Now I'll turn the call over to Beth to discuss our financial results in the first quarter of 2013.

Thank you, Wade.

Good afternoon, everyone, and thank you for joining us.

I am pleased to report that we were profitable in the first quarter, with a pro forma operating income of $4.5 million and pro forma net income of $1.2 million.

In addition to ending the quarter with both operating and net income, we only used about $2 million net during the quarter and ended the quarter with approximately $372 million.

We were able to achieve these financial results because of the success of our partnerships with Genzyme and GSK from which we earned $32.5 million in milestone payments in the first quarter.

We have continued this momentum into the second quarter.

We've already received a $30 million upfront fee from Roche for Huntington's disease program and we have additional opportunities for milestone payments from partners during this quarter and throughout the rest of the year.

Our profitability in the first quarter exemplifies the effectiveness and success of our business strategy which provides us with a steady stream of revenue.

One component of our revenue is milestone payments we receive from our partners.

As our partner drugs progress to later stages of development, the milestone payments we are eligible to receive generally increase.

While we've not yet reached sustainable profitability, as our pipeline continues to mature, we have the opportunity to earn milestone payments that can make us profitable.

We received a $25 million milestone payment from Genzyme upon KYNAMRO approval in the United States.

With KYNAMRO in the market in the US, we are looking forward to earning commercial revenue from our profit sharing arrangement for KYNAMRO in the future.

We also received a $7.5 million milestone payment from GSK related to the initiation of a Phase 3 ISIS-TTRRx.

As this drug advances in development, we have the potential to earn more than $230 million in pre-commercialization payments from GSK, including up to an additional $50 million as the ongoing Phase 3 study progresses.

With numerous successful partnerships encompassing multiple drugs, we have continuing opportunities to earn additional milestone payments from our partners as we progress through the year.

For instance, we expect to earn a $3.5 million milestone payment from Biogen Idec this month when we dose the first infant in our Phase 2 Spinal Muscular Atrophy study.

This is the first of four payments that total $18 million we are eligible to earn as we progress the Phase 2 study and initiate the pivotal study in infants which we plan to begin early next year.

New corporate partner transactions we initiated are another component of our revenue.

The upfront fees we received from these transactions are amortized over a period of time, creating a stream of revenue.

We recognized new revenue from the amortization of the $25 million upfront payment from AstraZeneca and a $30 million upfront payment from Biogen Idec.

Both transactions we completed in December of last year.

Our financial results for the first quarter do not include new revenue from the amortization of the $30 million upfront payment from Roche for our Huntington's collaboration, which we'll begin to recognize into revenue in the second quarter.

In addition to bringing in significant new revenue this quarter, prudent management of our expenses also contributed to our strong financial results.

Our expenses were essentially flat compared to the first quarter last year, despite the fact that our pipeline continued to advance.

We also realized financial benefits from our satellite company strategy, which expands our investments beyond our pipeline into other therapeutic areas and which antisense offers unique opportunities to treat disease.

Because we often take equity positions in these companies, we have multiple opportunities to benefit as these companies mature.

For example, in the first quarter, we realized a gain of more than $1 million from selling our equity in Sarepta Therapeutics.

In addition, we are a significant shareholder in Regulus Therapeutics, which is a company we co-founded with Alnylam to develop antisense drugs directed to microRNAs.

The value of our investment in Regulus has increased more than $10 million in the first quarter of 2013 as the market value of Regulus' stock has increased.

We are looking forward to Regulus advancing the first antisense drugs targeting microRNAs.

As you can see, we are indeed off to an excellent start for 2013.

We exceeded expectations and ended the quarter profitable.

Our achievements have provided the momentum to position us for continued success this year and we remain on track to meet our financial guidance for the year and now I'd like to turn the call over to Lynne.

Thanks Beth.

2013 has gotten off to a great start, with the highlight being the approval and commercial launch of KYNAMRO in the United States to treat patients with Homozygous FH.

Genzyme tells us the commercial launch is going very well and many patients qual -- physicians qualified under the REMS program, payers are granting reimbursement for KYNAMRO, and there are a number of scripts written.

It is too early to provide a lot of granularity about this progress but we're excited about the commercial potential of KYNAMRO.

KYNAMRO is the first systemically administered antisense drug for chronic disease to be approved and is the culmination of many years of hard work, perseverance and scientific achievement.

The rest of our pipeline beyond KYNAMRO is also progressing very well.

Just at the beginning of the year, we reported positive Phase 1 clinical data in children with Spinal Muscular Atrophy and positive data in an endotoxin challenge with ISIS-CRPRx.

We initiated three important clinical studies already this year.

A Phase 3 study for our drug to treat patients with Transthyetin Amyloidosis, a multiple dose study in infants with Spinal Muscular Atrophy, and a Phase 2 study of ISIS-STAT3 Rx in patients with liver cancer.

With a pipeline of 28 drugs, several drugs that could reach the market by 2017, nine drugs that will report Phase 2 or Phase 3 data in the next year or so, and a host of promising earlier-stage programs, we have numerous opportunities to showcase advances in the pipeline and the productivity of our antisense drug discovery platform.

It is a testament to the efficiency of our technology that we can generate in advance a pipeline with so many drugs and so many different therapeutic areas.

Our partnering strategy builds on the efficiency of our technology to maximize the value of our pipeline by partnering each [drug] at the most appropriate stage and development to optimize its value.

Because of the success of current partnerships, and a significant interest in partnering with Isis, we're being very selective about the types of deals we do and the partners we choose.

We generally enter into one of two types of partnerships.

The first type we call a preferred partner arrangement.

We use this type of partnering arrangement for earlier-stage programs to ensure that we get the benefit of our partners' experience while maintaining control of early development while retaining a significant portion of the commercial applied to the drug.

Partnerships we've formed in neurological disease and cancer are examples of preferred partner transactions.

Our neurological disease and cancer franchises are two areas in which we felt early partnerships could bring significant value.

Our goal last year was to find high-quality partners for these programs.

We successfully accomplished this goal.

We formed three partnerships with Biogen Idec focused on neurological diseases, including Spinal Muscular Atrophy.

We formed a partnership with AstraZeneca in cancer which includes ISIS-STAT3Rx and a research collaboration that builds on AstraZeneca's Cancer Biology Network.

Last month, we initiated a partnership with Roche for our Huntington's disease program.

We are already realizing the value of these experienced, knowledgeable, and committed partners.

Together with Biogen Idec, we've been able to rapidly advance our SMA drug.

Last month, we announced that we have begun a Phase 2 study in infants with Spinal Muscular Atrophy.

We are on track to start two registration-directed studies early next year, one in infants and one in children with SMA.

The support from the SMA community and Biogen Idec for this program has been exceptional and has enabled us to study this drug more thoroughly and to move it forward more rapidly than we would have been able to do on our own.

In addition, together with AstraZeneca, we have begun to implement a broad development plan to evaluate the activity by ISIS-STAT3Rx in a number of different types of cancer.

We are studying ISIS-STAT3Rx in a Phase 2 study in patients with advanced lymphoma and AstraZeneca just initiated a second Phase 2 study in patients with liver cancer.

Our partnership with Roche for our Huntington's disease program further highlights the level of interest in partnering with Isis.

Developing antisense drugs to treat patients with Huntington's disease to use is an exciting commercial opportunity.

Our earlier work in this area suggests that antisense treatments could have a profound effect on the disease in these patients.

Because of the increasingly visible performance of our antisense drugs in the clinic, the industry interest in our technology is high.

Numerous pharmaceutical companies have approached us about licensing the Huntington's disease program after publication of our preclinical data.

We felt that Roche was the right partner to help us navigate through the complexity of this disease and it enables us to develop the best drug or drugs to treat these patients.

We're very pleased to be working together with them to move this program forward.

In addition to these preferred partner arrangements, our strategy includes transactions that will allow us to retain certain drugs into later clinical development with full partnering.

These drugs, like ISIS-CRPRx, will typically have a relatively straightforward and compelling opportunity to show proof of value in Phase 2 that could require a large complex and expensive Phase 3 program.

By creating clinical data to support the value of the drug before partnering, we believe we can maximize the value of these drugs while minimizing the expense and risk of late-stage clinical development.

With the successful performance of our technology and pipeline, strong collaborations in place, and numerous recent and near-term clinical milestones, we feel that now is the right time to take the next step in evolving our business strategy.

We plan to do this by keeping some of our drugs into late-stage development, including into our even through Phase 3 clinical studies, thereby creating a more valuable data package and de-risking the remaining activities to move the drug onto the market, in turn, allowing us to retain an even greater portion of the commercial revenue when we eventually partner them.

We have a number of drugs in our pipeline that we're considering keeping longer, and these drugs generally fit some common criteria.

We try to focus on smaller orphan or orphan-like diseases in which we think antisense technology has the opportunity to offer a unique benefit.

We focus on (technical difficulty) indications are smaller, less expensive and faster clinical trials can be conducted.

Preferably these drugs will focus on indications in which Phase 1 or Phase 2 data may predict the results of Phase 3 results, thus allowing the program to be de-risked early in development.

In other words, these drugs would be evaluated in clinical trials we can manage well and in which we expect to obtain the most information possible early to guide later-stage development.

In addition, these drugs will focus on areas in which we have developed significant internal expertise to help ensure the success of the clinical programs.

For example, we have considered drugs in therapeutic areas in which we not only understand the disease but also know physicians who can work with us on conducting the trials.

A good example of a drug meeting these criteria is ISIS-APOCIIIRx.

This is an antisense drug designed to treat patients with severely elevated triglycerides.

With KYNAMRO, we gained valuable experience in designing and conducting clinical trials in lipid disorders and the same lipid specialist that worked with us to develop KYNAMRO will also be working with us to develop ISIS-APOCIIIRx.

In Phase 1 clinical trials, we showed that ISIS-APOCIIIRx significantly lowered both ApoC-III and triglycerides.

We hope to replicate these data in patients with severely elevated triglycerides in our two ongoing Phase 2 studies.

Because of the severity of the disease and a lack of effective triglyceride-lowering agents for this patient population, we believe we'll be able to move ISIS-APOCIIIRx rapidly through Phase 3 clinical studies on our own.

Because the patient population is at severe risk of both cardiovascular events and pancreatitis, we also believe that a rapid, less expensive registration pathway is possible.

We plan to initiate a registration-directed Phase 3 program early next year after discussing our plans with regulators.

We could pursue a similar strategy with ISIS-APOCARx, a drug designed to reduce another atherogenic lipid risk factor, LP(a), which also contributes to elevated cardiovascular risk in a subset of patients who are in need of targeted therapy.

And of course, there are other drugs in our pipeline like ISIS-PKKRx and drugs that we'll add on our pipeline in the future that we expect will also fit these criteria.

ISIS-PKKRx is a drug that just entered our pipeline in January.

It's is an antisense drug designed to reduce the incidents and severity of attacks in patients who have hereditary angioedema.

Hereditary angioedema is a rare genetic disease characterized by rapid, painful and potentially fatal attacks of severe edema, which are caused by an inflammatory response.

Because current treatment approaches are very limited with major tolerability issues, patients have few therapeutic options for this potentially fatal condition.

We believe that ISIS-PKKRx could offer, for the first time, an effective way for patients to control these attacks.

In addition, we believe the development path to market could be more rapid and a relatively straightforward, making ISIS-PKKRx an ideal drug for us to continue -- consider retaining longer.

So with that, I will turn the call back over to Stan.

Thanks, Lynne.

We are continuing to deliver on the promise of antisense.

We believe that the value of antisense technology in our pipeline is just beginning to be realized.

By retaining select drugs in our pipeline longer, we will be able to participate more in the commercial successes of these drugs.

As Lynne mentioned, we have a number of successes already this year.

KYNAMRO's approval has gotten the year off to a great start.

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

It's a goal that we have worked toward for many years and it is the beginning of what we hope will be many more ISIS drugs to reach the market.

In addition, to our successes in partnering, our pipeline continues to advance, as exemplified by recent clinical activities.

We reported positive data in children with Spinal Muscular Atrophy, demonstrating that ISIS-SMNRx was well-tolerated at all dose levels.

In addition, concentrations of drugs in the cerebral spinal fluid were consistent with levels predicted by our preclinical work, suggesting that dosing could be as infrequent as every six to nine months.

Although this study was not designed to provide evidence of activity and it was just a single dose, we observed improvements in the Hammersmith Functional Motor Score, which is a scale that's used to evaluate motor performance or muscle performance in these children.

We're currently evaluating this drug in two multiple dose clinical studies, one in infants and one in children with SMA and we plan to report these data from these studies late in 2013 or 2014.

AstraZeneca broadened the evaluation of ISIS-STAT3Rx into patients with liver cancer.

The study is getting underway.

We are also evaluating ISIS-STAT3Rx in on ongoing Phase 2 study in patients with advanced lymphomas.

We plan to report data from the Phase 2 lymphoma study early next year.

We reported positive data on ISIS-CRPRx, demonstrating for the first time that our drug could selectively blunt severe increases in CRP in human beings.

We published data in Circulation Research, demonstrating that antisense inhibition of ApoC-III produced significant reductions of ApoC-III and triglycerides in multiple animal models and in human beings.

We plan to continue this momentum with a number of near-term data events that we will be sharing with you throughout summer, and we plan to report data from a Phase 2 study evaluating ISIS-CRPRx 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 also plan to report data from Phase 2 studies evaluating our novel triglyceride-lowering drug, APOCIIIRx in patients with elevated triglycerides.

In summary, we believe that the value of Isis, our technology and our pipeline is just beginning to be recognized.

And with the drugs that we have in development and the milestones that we expect to achieve, we expect the momentum to continue.

With that, I want to thank all of you for joining us on the call today and we will now open up the call for Q&A.

Denise, if you could set up, please?

Thank you, sir.

We will now begin the question-and-answer session.

(Operator Instructions)

At this time, we will pause momentarily to assemble our roster.

Nicholas Bishop, Cowen and Company.

The first one is on the SMA trials, the one that you're about to initiate in infant patients.

When you get to the point of transitioning between the Phase 2 and the Phase 3, do you expect to disclose data from that first Phase 2 portion?

And the same question for the juvenile patients, what would the data disclosure plans be from the Phase 2 being that it's in progress now?

We do plan to disclose the data and we expect to be able to discuss data from those two trials late this year or early next year.

Okay.

Great.

The next is on the CRP program, I want to understand you could explain a little about the outcomes you're looking at with that you believe would show proof of concept in an indication like RA, like -- I assume you don't expect significant ACR20 responses, so just what are the outcomes you're looking at there?

The primary endpoint in all of the Phase 2 trials is CRP reduction, of course, but in the rheumatoid arthritis study, we are looking at signs and symptoms of rheumatoid arthritis, including all of the components that make up ACR20s and ACR50s just count -- position assessment, patient assessment.

And what we hope to see is at least a trend in favor of the drug with a correlation between the reduction in CRP and suggestions of the improvement in disease.

Obviously, as that study progresses and completes, we'll be able to analyze the data and present it.

We are looking at several doses, with the top dose being 400 milligrams a week ,so another thing that we'll be looking at is tolerability.

Remember that this CRP drug is exemplary of this new crop of Generation 2 drugs, the same chemistry as KYNAMRO and earlier Generation 2 drugs that are better screening.

Advances in screening have allowed us to generate drugs that are purely at least twice as potent as KYNAMRO and significantly better tolerated.

So another thing that I would encourage you to pay attention to is how we feel about the side effect profile of the drug.

Now the atrial fibrillation study, which is in progress, will not be reported this year but sometime next year, is similar in that we'll be looking at the ability to reduce CRP in patients who have elevated CRP.

And we'll be monitoring these patients with [retin-a], are all patients who have such severe recurrent atrial fibrillation that they have pacemakers and so we're monitoring the incidence of requirements for pacing prior to drug, during drug treatment and after drug is discontinued in that study.

There again, we hope for, as these are small Phase 2 trials, at least trends that support that the drug maybe active in the treatment of that problem.

Did I answer your questions?

Okay, that's very helpful.

Thanks a lot.

Just one last one if I could and I'll get back in the queue and that's on the STAT3 program.

just wondering if we'll see any data updates at ASCO and their program and then the second question is, if you could talk about why HCC was selected as the first indication and what the other high promise indications in the STAT3 space are?

I don't think we're presenting anything at ASCO this year.

You'll recall that we did present top line data from the earlier studies that we had in lymphoma but that study is going well and we do expect to be able to report the results of that study in the not too distant future.

The choice of liver cancer was a choice made jointly by Isis and AstraZeneca.

It's based on the biology.

STAT3 is thought to be activated in many of these patients and to be a real driver in the disease and need.

There's still a great need for improved therapy in HCC.

And of course, what you ought to expect is that we and AZ will select additional indications where the similar situation obtains, that is, clear evidence, biological evidence that STAT3 is a major player in the cancer ,and clear unmet medical need that we think STAT3Rx can meet.

Okay, great.

Thanks very much.

Stan, may I add just one little thing.

I do think we will have data on ISIS-STAT3Rx at ASCO but it will be data from the Phase 1 study not from the either of the ongoing Phase 2 studies.

I'm sorry.

I was wrong.

That is getting presented but you've already seen those data and won't be much new there.

Chad Messer of Needham & Company.

I know one thing I'm very much looking forward to is the upcoming apoC-III data.

And obviously, it will be important to see if you can get the decreases in trigs in patients that you saw in healthy volunteers.

But I'm equally interested in seeing the safety profile of C-III and how that plays out in patients that are probably at more risk for problems, particularly those patients on fibrate.

So what safety data are we going to get in the Phase 2?

Well, we will have 13 weeks of treatment with the APOCIIIRx in patients with severely elevated triglycerides and a subset of those patients who are taking fibrates.

We will, of course, be evaluating liver safety and all the other components of safety that you would expect.

The thing I'm watching, because I'm very confident that we're going to have a very well-tolerated drug is, these are a little harder things to quantitate, but what I want to do is I want to feel good about the nuisance side effects, injection site reactions, and flu-like syndromes and those kinds of things.

I'm optimistic that I will.

In addition, somewhat later this year, we'll have data from the more routinely elevated triglycerides in patients with type 2 diabetes.

There again, what I want to see is triglyceride lowering.

In that study, we're only looking at 300 milligrams and in that study, we'll have the opportunity to ask if the tolerability profile looks the same in patients who are diabetic.

And I think that will be of use to know and we'll have the opportunity to evaluate whether lowering triglycerides and/or apoC-III might have potential benefit in increasing insulin sensitivity.

We won't have sufficient numbers to draw a firm conclusion about that but what we hope to do is to see some trends that suggest that yet maybe another opportunity for the drug.

Great.

Thanks.

Looking forward to getting the data.

Okay, so really -- we are very excited about this drug, very excited about this drug.

Thanks Chad.

(Operator Instructions)

Salveen Richter, Canaccord.

This is Andrew Goldsmith on the line for Salveen.

I realize you don't want to talk about the rates, but maybe more generally, looking at your very healthy cash balance and the lower burn rate, you could talk generally about if you're looking for assets, or what you might look for there?

Lynne, I'll let you answer that within the limits that we have.

So Andrew, as I said -- as I was talking, we feel right now is the right time to take the next step in the evolution of our business strategy.

When we look at the wealth of assets that we have in our pipeline and the fact that we're adding three to five new drugs every year, we really look at those drugs as fitting into, as I described for three separate products.

One is, drugs like the ISIS-CRPRx, which we believe we can take to an important Phase 2 value -- proof of value point and license them so that large pharmaceutical companies can do the long, broad profiling of Phase 3 and putting the drugs on the market.

Now, the second group is drugs like ISIS-SMNRx and our HTT program where they're in therapeutic areas that antisense drugs have not been tested in.

They have other unique aspects where we believe a partner's expertise could complement our own and it makes sense to do preferred partner relationships where we get a partner in earlier on in the program.

We conduct the develop -- the research and early development but our partner is participating all along the way and really adding value to the program.

But we now believe that there assets with a different set of criteria that we have the knowledge, experience, confidence in the platform, confidence in the target to take even further along through clinical development ourselves.

And those are things like ISIS-APOCIIIRx, our LP(a) drug, our PKK drug, where we believe that we can do relatively straightforward Phase 2 studies that will be extremely predictive of Phase 3 results where we can identify subset populations that are small enough that Phase 3 programs should be rapid and manageable, both in terms of resources and in terms of dollars.

And where we believe that we have developed the expertise and the networks and the knowledge and the relationships with KOL to move those drugs forward extremely successfully and much further along in development, allowing us to retain an even larger share of the commercial upside of the drug.

So one of the nice things is because our platform is so efficient and fills the pipeline so well, we can look at a unique partnering strategy for each drug and we believe now is the time to be able to look at a set of our assets where we're going to keep these in longer.

That's about as much as we can answer at the moment.

Of course, we will be happy to chat with you as we progress in the offering.

Okay, wonderful.

And then -- I could just ask, do you have any updates on how KYNAMRO uptake is going today?

Lynne, might I ask you to take that, too?

Yes, the launch is going well.

We have a quite a number of physicians who are qualified, reimbursement for payers and number of scripts written and so we think it's going very well.

As we said at the end of the year, we think this quarter is too early to start giving handicapping and giving granularity but we're working with Genzyme on being able to do that as we go through the year.

I can add that [HoFH study] continues to go extremely well as well.

We're confident we're going to complete that on schedule and we're -- the blinded performance of the drug continues to be very impressive to me.

So we're looking forward to that getting done and being able to do all the indications and get approval in Europe.

Great.

And then maybe I can squeeze a quick modeling question in.

How are you recognizing the $30 million Roche upfront?

Is that amortized?

Yes, any license fee is amortized over the duration of the collaboration.

Ladies and gentlemen, that will conclude our question-and-answer session.

I would like to turn the call back over for Dr. Crooke for his closing remarks.

Thank you very much.

We appreciate your continued interest.

We think 2013 is off to a great start and we think the rest of the year looks to us like it should be very much the same kind of story.

We look forward to talking with you more about the progress that we're making as the year unfolds.

Thanks a lot.

Ladies and gentlemen, the conference has now concluded.

We thank you for attending today's presentation.

You may now disconnect your lines.