Ionis Pharmaceuticals Inc (IONS) 2014 Q3 法說會逐字稿

Good morning and welcome to the Isis Pharmaceuticals third quarter 2014 earnings webcast and conference call.

(Operator Instructions).

Please note, this event is being recorded.

I would now like to turn the conference over to Dr. Stan Crooke, Chairman and CEO.

Please go ahead.

Good morning, everyone.

And thanks for joining us today on our conference call which is to discuss our third quarter financial results.

On the call today Beth will walk you through our financials, and Lynne will update you on the successes that we've had this year in our pipeline and in our partnerships.

And after that I will close the call by talking about what you can expect for the rest of the year.

Actually, I think we have a very busy end of the year and early part of 2015, so you will probably want to stay tuned for that.

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

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

Thanks, Stan.

A reminder to everyone that this webcast includes forward-looking statements regarding the financial outlook for Isis, Isis' business, 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 any 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, 2013, 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.

Now I would like to turn the call over to Beth.

Thank would you, Wade.

Good morning, everyone and thank you for joining us.

We ended the third quarter in a strong financial position with a pro forma operating loss of $35 million for the nine months ended September 30, and more than $590 million in cash.

With these results we expect to improve upon our 2014 guidance of a pro forma net operating loss in the low $50 million range, and cash of more than $575 million.

We plan to provide estimates of our 2014 year end results in early January.

Our financial results exemplify the effectiveness of our business strategy which has generated more than $160 million from our partners so far this year.

As our partner programs advance we receive various types of payments from our partners.

Some of those payments we recognize immediately as revenues and others we amortize into revenue over time.

When we amortize payments from our partners we do so over the period time we perform work for them.

Through the first nine months of this year we have already earned $46 million from the amortization of partner payments, exceeding our estimate for the year of $45 million from this component of revenue.

One of the most significant components of revenue for us is milestone payments we earn as our programs successfully advance.

This year we have generated more than $120 million in milestone payments from our partners.

In addition to bolstering our financial results, these payments reflect significant pipeline successes.

And so far this year we have achieved milestone payments relating to four of our partner programs with GSK, including $21 million relating to our Phase III study for ISIS-TTRRx.

In total this year, we've achieved milestones of $35 million as our programs with GSK have progressed.

Our partnership with Biogen Idec also continues to be successful.

Already this year we have initiated the first Phase III study evaluating ISIS-SMNRx in infants with SMA and are on track to start our Phase III study in children before the end of the year.

We've generated milestone payments totaling more than $30 million so far this year related to this program.

We've also made progress in our broad neurology collaboration with Biogen Idec for which we just this week earned a $10 million milestone payment for a total of $20 million to date this year.

For all of the successes in our Biogen Idec collaborations we've generated nearly $70 million so far this year.

And we expect to earn a $27 million milestone payment from Biogen Idec before the end of the year when we begin the next Phase III study of ISIS-SMNRx.

From all of our sources of revenue, we have earned more than $129 million through September, and that doesn't include the more than $40 million of milestone payments we've already earned this quarter.

Because of the substantial amount of milestone payments we have achieved as our partnered programs have -- partnered drugs have progressed, we have already exceeded our guidance of more than $160 million in total revenue for the year.

And our expenses are tracking to budget even with three Phase III programs in progress, numerous drugs in Phase II development, and a number of promising earlier stage drugs advancing.

As such, we expect to improve upon our financial guidance of a pro forma net operating loss in the low $50 million range, and the year end cash balance of more than $575 million.

And now I would like to turn the call over to Lynne.

Thanks, Beth.

We predicted that 2014 would be an important year with multiple events that would add value relating to the drugs in our pipeline.

And so far the year has been just that.

The most recent of our data presentations has been the Phase II data on ISIS-SMNRx, our drug that is now in Phase III development to treat patients with spinal muscular atrophy.

These data, while early and from uncontrolled studies, are encouraging.

We reported that the World Muscle Society Congress said the median event-free age of the ISIS-SMNRx treated infants with SMA in our study compared favorably to that of infants with SMA in the recently published PNCR natural history study.

We observed time and dose dependent increases in muscle function scores in both children and infants with SMA.

We also observed most of these infants achieved increases in muscle function scores, and most infants achieved new motor milestones, like touching their toes.

What is particularly encouraging to me about the data from the program to date is the consistency of the increases in muscle function scores across multiple independent motor function measures, and across different SMA patient populations, plus the dose and time dependency of the increases.

These data, combined with the safety and tolerability profile, support the Phase III program we began this year.

In addition at World Muscle, we were able to present detailed data that support that ISIS-SMNRx appears to be working for the mechanism for which it was designed.

We were able to show that ISIS-SMNRx was distributed broadly throughout the spinal cord in the neurons of ISIS-SMNRx treated infants, at concentrations greater than those at which we observed biological activity in our animal studies.

We also saw greater amounts of full-length SMN-2 messenger RNA, and greater amounts of SMN protein in tissues from ISIS-SMNRx treated SMA infants, compared to the amounts observed in tissues from untreated SMA infants.

In addition to the encouraging data we reported on ISIS-SMNRx, we reported positive Phase II data from our anti-coagulant drug, ISIS-FXIRx.

We showed for the first time that reducing levels of Factor 11 in patients who are undergoing total knee replacement surgery significantly lowered the incidence of events of venous thromboembolic events without increasing the rate of bleeding events.

These are the first data showing inhibition of Factor 11 can have an attractive anti-clotting profile with an attractive safety profile.

We plan to report the full data from the Phase II study at a medical meeting this year.

Going forward, we plan to initiate -- initially evaluate additional therapeutic settings in which ISIS-FXIRx could be used in patients with limited therapeutic options.

These include patient populations in which relatively small studies can be conducted such as in patients with atrial fibrillation who have end-stage kidney disease.

For these patients, who are at a higher bleeding risk, there are few antithrombotics on the market that they can take.

Beyond that, we believe that ISIS-FXIRx may be able to be used broadly with the potential to change the therapeutic landscape for the treatment of thrombosis.

In June we reported positive Phase II results from our glucagon receptor targeting ISIS-GCGRRx in patients with type-2 diabetes.

In the short, 13-week study, we reported statistically significant reductions in multiple measures of glucose control including HVA1c reductions of greater than two percentage points at the highest dose.

Given the encouraging results we observed we are optimizing the dose and dosing schedule to support our longer term studies of ISIS-GCGRRx.

In addition we continue to enroll patients in our Phase III study of ISIS-TTRRx.

ISIS-TTRRx is a drug we're developing with our partner, GSK, for the treatment of a severe and rare disease TTR Amyloidosis.

We designed ISIS-TTRRx to block the production of transthyretin protein.

In our Phase I study in healthy volunteers we observed significant reductions in TTR protein of greater than 80%.

In the ongoing Phase III study, we are evaluating weekly subcutaneous doses of ISIS-TTRx in patients who have the familial polyneuropathy form of the disease.

We have a growing number of patients who completed all 15 months of treatment in this study and are receiving drugs in an open-label extension study.

We are also finalizing our plans to evaluate ISIS-TTRx in patients with the cardiomyopathy form of the disease.

Since we started the Phase III study of ISIS-TTRRx, we have earned $45 million of the $70 million in milestone payments GSK has committed to paying as this program advances.

These milestone payments along with GSK's contributions to the program represent a substantial commitment from GSK to this program and its competitive position.

Over the past several years our pipeline has matured from a pipeline of predominantly early stage drugs into a pipeline of predominantly Phase II and Phase III drugs, some of which are commercial opportunities in the next few years.

The efficiency of our antisense technology platform has enabled us to create a robust and broad pipeline of drugs with a small, focused, innovative organization.

In fact, we average one drug in development for every 12 employees at Isis.

And we continue to add three to five drugs to the pipeline each year.

We believe this efficiency is unsurpassed in the pharmaceutical industry.

Our pipeline now contains six drugs in Phase III development, over a dozen drugs in Phase II development and a number of promising earlier stage drugs.

Thanks in part to the contributions of our partners, our pipeline spans a wide range of therapeutic areas.

We have drugs to treat patients with cardiovascular disease, diabetes, cancer, and a number of severe and rare diseases.

As our pipeline has expanded and matured so has our business strategy which is designed to allow us to fully leverage our antisense technology platform and maximize the short- and long-term value we are creating for stockholders.

Last year we made the decision to retain some of our drugs into late stage development including into or even through Phase III clinical studies.

ISIS-APOCIIIRx, our drug to treat high triglycerides, is our first drug we advanced into Phase III development since making this decision.

The Phase III study and our initial indication FCS is underway and we have also initiated pre-commercial activities to create a launch-ready commercial and reimbursement package alongside our clinical data package.

Our development strategy for ISIS-APOCIIIRx is to develop this drug initially for patients with FCS, and patients with severely high triglycerides.

ISIS-APOCIIIRx is the leading drug in a franchise of drugs we are developing to treat a broad range of lipid disorders.

Together these drugs have the potential to provide physicians with targeted treatments for each of their patients' particular lipid disorders.

The next drug in this franchise ISIS-APO(a)Rx, a drug targeting LPa.

We're currently evaluating ISIS-APO(a)Rx in a Phase II study for patients with very high LPa.

Patients with LPa have very high cardiovascular risk even when their other lipids are well controlled.

These two drugs together with ISIS-ANGPTL3Rx, our drug in Phase I for patients with hyperlipidemia, including patients with homozygous or severe heterozygous familial hypercholesterolemia, comprise the foundation of our franchise targeting lipid disorders.

The invention of our more potent lipoconjugation technology provides the opportunity to create follow-on drugs for the drugs in our lipid franchise.

The enhanced potency of the lipoconjugated follow-on drugs means that these drugs could be dosed either less frequently and/or with smaller doses using a patient-friendly device.

In other words, these more potent follow-on drugs could be even easier and more convenient for patients to use.

We intend to address the rare disease indications which should have a rapid path to market with the current drugs in this franchise, while developing the follow-on drugs for use in broader patient populations.

We believe this approach could provide a comprehensive solution for physicians treating patients with a variety of lipid disorders.

By successfully executing our business strategy we built a company with a robust pipeline of near- and long-term commercial opportunities, and our efficient technology enables us to continue to produce drugs with significant commercial potential.

As many of you know Isis has a long history of using innovative approaches to drive value creation.

We've established strategic partnerships in drug development areas that are higher risk or can benefit from partner expertise and resources, while retaining some of our most promising severe and rare disease opportunities longer.

The success of our business strategy, along with the productivity of our technology, supports our decision to take the next step in the evolution of our business strategy.

We are implementing this next step in order to maintain further control of these important programs and to provide the necessary pre-commercial and commercial resources these programs need to be successful.

This also gives us the opportunity to retain a greater portion of the commercial revenue from these drugs.

In the next few months we will be setting up a subsidiary which we will wholly own and control, to conduct late stage development and potentially commercialize our lipid drugs.

The subsidiary will control development for all three of our current lipid drugs and the arrangement will allow the core of Isis to focus on what we do best, to maintain our leadership position in antisense technology, and use the power of this technology to discover and develop new drugs.

Our new subsidiary will ensure that we approach the commercial planning for our lipid franchise with the same level of rigor and excellence.

As I already mentioned for our most advanced drug in the lipid franchise, ISIS-APOCIIIRx, activities to prepare for commercialization are already underway and the new company will assume responsibility for completing these activities.

As you can imagine, Stan and I are very excited to take this next step in the evolution of Isis as it is something we have been working towards for 25 years.

Before I turn the call back over to Stan I want to highlight another successful component of our business strategy, our satellite company strategy, which also allows us to further leverage our technology in areas of RNA therapeutics that are outside our core focus.

We also benefit financially from the successes of our satellite companies.

For example, we co-founded Regulus Therapeutics with our colleagues at Alnylam to apply antisense technology to a family of new and exciting RNA targets called microRNAs.

By providing Regulus access to a suite of drug technologies from us and Alnylam, we believe that Regulus could focus on the key issues surrounding a new class of molecular targets, target biology.

Together with its world class scientific advisory board, Regulus has been on the forefront of understanding microRNA biology, and choosing the targets they believe are most likely to impact important diseases.

Just last month, Regulus reported clinical data on its first drug to enter clinical development.

Regulus showed that its anti-miR drug targeting hepatitis C virus is able to significantly reduce viral load in patients with hepatitis C after a single dose.

These results more than doubled the value of Regulus on the public markets and significantly increased the value of our equity ownership in Regulus.

In response we sold a small portion of our equity in Regulus last month, generating more than $20 million in cash for Isis.

And since we continue to be a top shareholder in Regulus our remaining equity position represents an even greater asset.

For us, this type of win-win scenario is one we can create again and again.

The benefit of our satellite company strategy has allowed us to create and participate in a myriad of opportunities while staying focused on our core antisense technology and pipeline.

So as would you can see, it has been a productive and busy year.

We look forward to continuing this momentum throughout the remainder of 2014 and into next year.

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

Thanks, Lynne.

It has been another important and, I think, very positive year for Isis.

Perhaps most importantly the pipeline has continued to deliver positive results and continued to mature and to expand.

And as Lynne said, we are all very excited about taking the next step in evolving our business model as well.

This evolution of our business strategy with the formation of a -- the first of the companies designed to complete late stage clinical development and potentially commercializing some of our drugs is an important step for us to take.

And so as we bring 2014 to a conclusion I think we end the year significantly stronger than we began it, and I thought we were in a strong position when the year began.

We have a very mature, robust pipeline of first in class or best in class drugs, and many of them have delivered very positive results this year.

We have one drug for every 12 employees at Isis.

We have successful development partnerships that have let us take advantage of our partner resources, our partners' expertise and, of course, dollars.

And as Beth said, we will be revising our guidance positively because of the success in these -- in these endeavors.

We continue to advance antisense technology and the rate at which we are advancing it is expanding as we -- as we are in a very substantial rate of growth of understanding how these drugs really work.

And that comes from a prolonged investment in core antisense research.

We have also established important collaborations along the way that continue to enhance the technology and expand its applications in broader and broader ways.

We have a satellite company that has been very successful.

The most recent evidence, of course, is the success of Regulus.

In Regulus we have a satellite company that is advancing our technology to develop the drugs that affect microRNA regulation.

We benefit financially and we have significant ownership in Regulus so we will continue to benefit.

We are also eligible to receive royalties on drugs developed by Regulus such as RG-101 which, of course, was the parent drug was, of course, invented at Isis.

And today we are evolving our business strategy.

And we are evolving it to the next stage by creating a new wholly owned subsidiary to develop and potentially commercialize drugs in our lipid franchise.

By doing this we retain control, and our intent is to earn a greater portion of commercial revenues from these drugs.

Our lipid franchise drugs are particularly well suited to be a part of this new organization because all three drugs address lipid disorders.

All three drugs are designed to treat patients with rare diseases and then expand into larger patient populations.

And all three drugs create a knowledge base that we think represents a true value.

So we look forward to the end of the year and into early next year and as we do that we think we have quite a number of still exciting events to come.

We plan to initiate the Phase III study of ISIS-SMNRx in children with SMA.

The Phase III study in infants is well underway.

We and Biogen Idec remain committed to advancing ISIS-SMNRx towards the market and we are planning additional studies as part of our comprehensive clinical program to help bring benefit to these patients with SMA.

We will be reporting the full Phase II data from our novel, anti-coagulant ISIS-FXIRx.

As you know we reported top line data in May and we will have the final data from both the 200-milligram and the 300-milligram cohorts to report in detail shortly.

We believe that this drug has the potential to be a very broadly used anti-coagulant and to be a significant breakthrough in the anti-coagulant field.

We plan to report Phase II data in patients with type-2 diabetes from two of our drugs in our metabolic franchise, our PTP-1B inhibitor which is a novel insulin sensitizer, which we think is an important class that needs to be refreshed.

And we think our PTP-1B inhibitor may do that.

And our glucocorticoid receptor inhibitor.

These drugs along with our glucagon receptor inhibitor drug are part of a very substantial portfolio of drugs designed to treat patients with type-2 diabetes.

Our partners, AstraZeneca, plan to report data from our anti-cancer drug ISIS-STAT3 which is being evaluated in patients with advanced lymphomas and metastatic liver cancer a little later this year.

We plan to report data from our Phase I studies on ISIS-PKKRx and ISIS-ANGPTL3.

Angiopoietin-like 3 is another addition to our lipid franchise, and ISIS-PKKRx is designed to treat this rare disorder that's associated with the activation of PKK.

And, of course, we also will be reporting new data on our marketed LDL drug KYNAMRO which we think are exciting.

We will continue to advance our pipeline and add new drugs into development.

So we think we've had another great year in 2014 and we think the last couple of months are going to be very exciting as we roll out the data that we have on these additional drugs and we bring new drugs into development.

And with that, I will bring the call to a conclusion.

And Kate, if you can prepare us for questions?

(Operator Instructions).

The first question comes from Alethia Young from Deutsche Bank.

Please go ahead.

Hey, great, thanks for taking my question and congrats on all of the progress you've had with milestones this year, and also development on the platforms.

Two questions.

One, just I wondered if you could talk a little bit about in 2015 or so or longer term, how you think about the technology and its evolution in a little more detail than you highlighted.

And then also on hepatitis B, just walk us through how you're thinking about that market and potentially kind of developing it -- developing your drug there with Glaxo.

Alicia, can you just, I'm not clear -- I'm not sure I understand your first question.

Is it about where I think the technology is going or--?

Yes, exactly.

Basically like kind -- I know it is always an evolving technology, but some of the things that you learned over this year that you will be applying like with new drugs, with your new therapies and next generation technologies and delivery and things like that.

Absolutely.

We continue to advance screening and these drugs are like small molecules.

The more and better you screen the better your drugs perform.

And we are continuing to see steady improvement in potency and in tolerability.

Injection site reactions and flu-like syndromes really are far less of a problem if they are any problem at all compared to KYNAMRO.

And that continues to advance.

And we are learning better how to manage subcutaneous injections and that is bringing real benefit.

So that is very tangible and very immediate.

A second place that we are very focused is broadening the ability of antisense technology to increase the production of proteins.

In principle, one limitation of antisense technology was always that it would be mostly the equivalent of an antagonist therapy which, of course, most drugs are antagonist, but not all.

And you know we have had splicing as a means to increase protein production and we are working on new mechanisms there that we are very excited about.

We continue to advance our understanding of how these drugs distribute in various organs like the kidney and the lung, and as we to that we then task force those organs and we can take advantage of all kinds of targets in those organs that we couldn't before.

Generation 2.5 chemistry is advancing.

We now have three Generation 2.5 drugs in the clinic.

The antigen receptor drug for patients with prostate cancer is moving along nicely and to date has been very well tolerated.

And our DMPK, which is a Generation 2.5 and designed for a targeting muscle which expands the opportunities to another organ system for us, is also doing very well.

So we are expanding the repertoire of mechanisms, we're expanding the ability to deliver these drugs, we're expanding the number of tissues in which the drugs work, and we are constantly advancing the knowledge that we have about the molecular events that allow these drugs to work as specifically as they do.

And we take advantage of those things every day.

That is off the top of my head sort of what I would -- how I would answer that.

Does that -- is that -- does that -- sate your appetite?

Yes, it was very helpful.

Thank you.

And can you repeat the second question?

I forgot it.

Sure.

Hepatitis B, broad schedule, how you are thinking about the clinical development and when we might see data like proof of concept there.

The first thing to remember is this is a partner drug with GSK.

So we work cooperatively with our partners at GSK who know a lot about hepatitis B.

We are excited about what we are seeing with the hepatitis B drugs, and -- but I think it is a little early to talk about exactly when we will present information because that will be a joint decision between us and GSK.

The notion here obviously is to -- is to eradicate hepatitis B as hepatitis C is being eradicated, and we think the approach that we are taking has the potential to do that, particularly with the glycoconjugated hepatitis B drug.

Great.

Thanks for answering my questions.

The next question comes from Chad Messer from Needham & Company.

Please go ahead.

Great, thanks for taking my question.

If we could I would like to maybe just revisit this concept of creating a subsidiary to develop and potentially commercialize your lipid assets.

Is -- should we think about this as more of an organizational kind of facility, a kind of set aside these activities so they are out of the way?

Or is this a little bit more strategic to potentially enable different partnering or funding type activities around those assets in the future?

And then I had a follow-up on the diabetes program as well.

I will answer it briefly and then Lynne will give you a much more detailed answer I assume, and then maybe I will come back.

It is a strategic move for us that we have been contemplating for some years and it is a part of the organizational design that we had in mind when we founded Isis 25 years ago.

So it is -- you should think of it as a strategic step for us.

Lynne, do you want to amplify on all that?

Yes, and I was going to say yes to both of your questions.

One of them is, it is important for us organizationally to not do things that would deflect from the very focused research and development that the core of Isis is doing.

So organizationally separating the commercial and pre-commercial functions and late stage development functions from our early stage research and development work is important.

But it also does give us significant additional strategic flexibility to have a captive marketing and selling partner that we look at like we would any other pharmaceutical company partner except we have tremendously more intellectual involvement, tremendously more control and we believe that this will facilitate a very positive outlook for these drugs moving forward.

So any plans to have like dedicated employees or management for the sub?

Yes.

It allows us to I think also be more effective in recruiting really top flight people to -- top flight commercial people to run such an organization.

And it gives us lots of flexibility.

We can still partner through it.

We can -- we can -- just there are all sorts of permutations that you can imagine that we thought through, and I don't want to go into detail on this call.

The thing that it is really important to us is that the core of Isis stay focused on where real value, the most value is created, which is advancing the technology, early drug discovery, and early develop.

We think by staying focused and simple and having really the only thing of value that we to is those drugs, we don't -- that group, that's all it thinks about.

We think that is tremendously important culturally and organizationally.

And so if you want to think about our long-term strategy as I've said several times, we have in mind over time, several strategic late development and commercialization partners.

Some of those can be like Biogen, and we are thrilled with the relationship with Biogen.

Some could be GSK or AZ.

But another flavor of that is a captive, semi-captive organization that we create that becomes a strategic development and marketing partner.

Think of it as more of a (inaudible), a way of saying yes to more things than a sort of fully integrated company which is very often a way to say no.

Does that help at all, I hope?

That is helpful.

I appreciate that.

I expect we'll be hearing more about this subsidiary as we go forward.

If I just may on a couple of these diabetes readouts that we are having come up.

And I apologize because my memory is a little foggy but I know that you had a PTB-1B asset that you reported some I think encouraging data on.

You left that one aside for the one you are developing now which I believe you said is much more potent.

Given that you walked down this road before and opted to go with something more potent can you give us an idea of what you are looking for and what you would consider success in the Phase II?

I mean how much better you would expect it to be?

Or what would you consider a good readout?

And can you just remind us a little bit of what the trial design was?

Yes, so, PTB-1B is an interesting target that regulates insulin signaling and by being a phosphatase like P-10 only.

It's different from P-10.

We have shown in animals and in human studies with the earlier version and this one that we can lower PTB-1B, and that appears to improve glucose management.

It also increases adiponectin and that may be associated with weight loss.

And we are hopeful, since it is not a transcription factor that we are altering, that it will have a safer profile than with long-term treatment such as been say things like the [(B) pars].

So our positioning of this drug would be as a -- as a new entry into insulin sensitizing.

And we think there is room there for a better insulin sensitizer.

This study is six months randomized, double blind placebo-controlled trial which we compare PDB-1B in patients taking metformin to metformin alone.

What we hope to see is a meaningful reduction in hemoglobin A1c, and we would hope to see [significant] increases in adiponectin and trends toward benefit in weight loss, but of course until we unblind the study we won't know exactly what we have.

The glucocorticoid receptor drug -- as you know there are a good many diabetics that have a big glucocorticoid drive to their diabetes.

And so this is a complement to glucagon as another way of adjusting the thermostat in how glucose is managed.

And there again we are hoping that is a three month study and we are hoping to see, you know, meaningful improvement in fasting glucose, meaningful improvement in the shorter term measures, fructosamine and the like, as well as good trends in hemoglobin A1c.

And for that drug we are positioning it more toward people that have a more glucocorticoid drive to their diabetes.

There are some that have iatrogenic glucocorticoid drive who have a variety of side effects.

But there are other patients that have that drive as a dominant drive as well, or as contributing drive.

Great.

Thanks.

I know you have spoken before about viewing these diabetes assets as ones that you would like to partner before you take forward to Phase III.

How are the discussions going?

Has there been any more you can say about that?

There is interest, as you would expect.

I mean diabetes is a tough field.

There have been companies that have exited it and -- but we have significant interest in all three assets.

And you know we are considering various options.

I would also say that the central challenge in diabetes has been the regulatory stance that all diabetes drugs are for all diabetes patients.

And I'm hopeful that at some point in the future that will change, and that we will be able to achieve sort of what we achieved in the lipid field with thinking about homozygous FH and severe heterozygous FH.

It's a different set of patients and a different patient population from the routine LDL-problem patients, are easily handled by statins.

That's for the long-term and we will just see how that goes over time.

All right.

Lynne, would you want to add anything to that?

No.

Thanks for answering all my questions.

The next question comes from Stephen Willey with Stifel.

Please go ahead.

Thanks for taking my questions.

With respect to the wholly owned sub strategy, I don't know how much additional color you guys want to provide.

But just kind of curious as to what your thoughts might be at this point in terms of timing and whether or not initial capitalization would be mostly internally derived via Isis or externally derived.

Lynne, do you want to --

Do you want me to answer it?

We are moving forward with this right now.

And obviously all of the legal stuff takes some period of time, but we made this decision and we do -- we are moving forward to implement it.

Initially of course, the capitalization is going to be provided by Isis, but these are all drugs that we were moving forward using our own capital anyway.

So it really doesn't change anything about the money that we are spending or what you can look forward to in terms of forecasts.

Over time, of course, we will look at available actions, but this is something that we are implementing right away.

Okay.

So just -- (multiple speakers)

And we're also -- I'm sorry, go ahead.

No, go ahead, Stan.

I would just say that we have been planning this for a long time and weighing whether we do this now or wait a little while, whether we partner one or two, whether we keep the franchise.

And this doesn't -- moving in the direction we are doesn't change -- doesn't decrease any of the optionality that we have with this franchise.

It just improves our ability to execute.

And we have, you know, also been thinking about the kind of leadership that we want for it and we are moving along with that as well.

Okay.

So I guess maybe this is kind of best characterized at least for now as maybe kind of a structural and organizational change that maybe then allows you to be opportunistic at a later time point?

I would say that is fair.

It is a structure -- it is just an organizational change that we are making now.

It doesn't change, you know, what we need to do and how we are doing it.

But it then provides the substrate to take additional steps that could be in a number of different directions.

I guess the other thing that I would add to that is it does give us the framework in which to bring in really high quality resources to support pulling together very detailed commercial and pre-commercial plans, work on reimbursement packages, and bring in a set of skill sets which will be new to Isis and to do it in a way that I think is going be very positive.

From an organizational perspective there are two messages.

One to the core of Isis, stay the course, don't change anything you are doing.

There will be no -- not one more opportunity to say no.

We are looking for ways to say yes to drugs, and experiments, and to people, and to ideas.

And two, the commercial subsidiary, we are dead serious about this and want to recruit the very, very strongest business leaders that we can and we think this is a way that we can do that better than any other way we can think of.

Understood.

And then just a pipeline question.

I guess specifically with respect to STAT3.

I think there was maybe some notion that we may have or would be getting either DLBCL data by the end of this year and/or HCC data from Zeneca also by year end.

And I guess it doesn't look like those appear to be year-end events.

Maybe give us a little bit of color around where the two programs are.

And I guess specifically on the DLBCL side, I think this was a study that initiated enrollment almost a couple of years ago.

Just kind of curious as to where you are in the process.

I'm sorry for the confusion.

You will see data this year on the liver.

And on the DLBLC we actually are making very exciting progress and we are learning a lot about this drug's effects both on stromal cells and the lymphoma cells.

We announced just recently the milestone that we got from AZ that is a direct reflection of having looked at the data and looking where we are taking that drug in those patients.

And I think the place that we are -- the direction we are moving, I'm really very excited about and it fits very nicely with AZ's cancer pipeline and everything.

I can't say more than that right now, but I think we and AstraZeneca remain excited about both the liver and the lymphoma as well as some other opportunities with the drug.

It is moving.

You know, these things take time, though.

That is all I can say about this.

Lynne, do you want to add something?

I would just add two things.

First of all, that we have already presented some of the data from the ongoing lymphoma study.

You'll remember we presented data from the initial portion of the study which was an all=comers, all-tumor type study.

The PRs that we saw in diffuse large B-cell patients in that portion of the study were what caused us to initiate the expansion cohort of that study in lymphoma patients.

And so now we are in that second phase of the study and finishing it up, and I would echo what Stan said which is based on the data we have gotten so far, AstraZeneca paid us a milestone earlier in the week to continue to move the program forward.

I think that is -- I think the most important thing is the investment and the breadth of the investment is broader, and I think much more interesting.

And the HCC data, you know, these are early HCC data, but you will see them before the end of the year.

They are presenting them at EORTC so -- which they have said.

And then -- and the milestone payment that you received from AstraZeneca, was that related to DLBCL?

Because I believe that milestone payment was structured in correlation to threshold response rate.

Am I correct?

That's correct.

It is -- it is related to the DLBC.

Okay.

And then if I could just sneak in one other one.

Stan, you talked about lipoconjugated drugs, and I'm just wondering if you had actually provided any clarity on what the lipid conjugate is.

If I said lipid I didn't mean it.

It is LICA.

And then there are a variety of ligands that we're learning that we can use to target the liver, of course, and there are other interesting observations that we're making about other tissues.

And you know it is a fairly competitive area, and I think that is about as much as we want to disclose.

Understood.

Thanks.

Other than it does give us about a ten-fold increase in potency.

Whether it -- and so if you think about our average dose, our ID50 in man now with Generation 2 is 100-milligrams to 150-milligrams.

No longer is it 200; maybe 100.

Seven- to 10-fold would take that down to 10 milligrams a week or 40 milligrams a month, and our 2.5 chemistry is about 10 times more potent than 2 plus or minus.

So, another 10-fold on that takes you down to some mighty, mighty, mighty low doses.

The next question comes from Navdeep Singh from Goldman Sachs.

Please go ahead.

Hi, this is Lisa in for Navdeep.

Thanks for taking the question.

Just one on TTR.

How is enrollment for your Phase II (inaudible) trial in FAP progressing?

And can you share with us what are some findings from the TTX -- TTRRx trial in FAP that would then enable you to then advance into FAC?

And can you just remind us again how TTR is well differentiated from competing agents notably Alnylam's.

And then I have one follow-up.

Well, we just reported that GSK paid an $18 million milestone, and that milestone represents a much more substantial commitment than just $18 million.

So I think obviously this is a blinded Phase III study, so I can't share any information with you about it other than it is going well, and we are seeing good tolerability.

And we -- and GSK is working toward a final decision on exactly how we handle the heart.

With regard to the competition, the drug that Alnylam has that is farthest along obviously is a drug that is -- requires administration with their lipid nano particles.

And we think the fact that before every dose one has to administer steroids, H1 and H2 antagonists, and aspirin, and so on, makes that not -- it is not -- we don't think it will be a desirable choice.

The GalNAc-conjugated drug that they are developing behind it is certainly a competitive agent and we are -- and we are watching it very carefully.

Lynne, do would you want to add anything to that?

No, that is what I would say.

I'm sorry.

I mean just to follow up what you just said, are there any like findings from the recent data that Alnylam put out that better informs you on how you are thinking about developing TTR in both FAP and FAC?

No.

Frankly, we didn't find a lot of findings.

Okay.

I know maybe others thought they did, but there was nothing that we learned from that.

I think there are studies that have been instructive, some of the experience, some of the net quasi natural history experience with some of the other drugs I think has helped us refine our thinking about the rate of progression and how many patients might be needed and things like that.

But I don't think I learned anything from the Alnylam port.

Did you, Lynne?

No, Stan.

I would echo what you said.

I think the new interesting pieces of data which are all additive to data that we and Alnylam both had when we initiated our Phase III studies are what natural history data you can glean from diflunisal, what natural history data you can glean from the Alnylam study.

And those are all instructive and you know I think one of the things they teach us is that the rate of progression in this disease may be even faster than any of us had thought, which is good news for the clinical trials.

Okay.

I mean not that we wish that on patients, but (multiple speakers) --

I'm sorry.

I didn't mean that.

But it does make the clinical trials a little more manageable and enrollment is moving along nicely.

Okay, great.

Thanks.

(multiple speakers)

And we had quite a number of patients who have finished the primary study and are already in the open label extension study.

Okay, great.

Thanks for that tidbit.

And then lastly on SMNRx, when do you anticipate to provide the next update on the Phase II data set if you do choose to?

And then to the extent that you can provide, have there been any additional event in the SMA infants since WMS (multiple speakers)?

We are not going to be doing that.

Okay.

I'm not going to answer the question of have there been new events this week.

We will update the infant study and the childhood study at an appropriate time.

What I can say is we remain tremendously excited about what we are seeing.

Okay.

And then are there -- what are the remaining gating factors to initiating the Phase III trial in (multiple speakers) children?

It's just the paper work.

Okay, great.

Thank you.

Lynne, do you want to subtract anything from what I just said?

No.

As we've said, the Phase III clinical trial in infants, of course, has already started.

The Phase III clinical trial in children will start before the end of the year which means essentially everything is done.

Okay.

Great.

Thanks again.

The next question comes from Eric Schmidt from Cowen and Company.

Please go ahead.

Thanks for taking my question.

Another clinical update just on APOCIII in the Phase III in patients with high triglycerides.

Where are you in the FDA discussions there, and what is the timing for starting that trial?

Well, we have completed all of our end of Phase II meetings with both the US and Europe and things are just getting underway.

So is there a timeline to start that trial?

You know, I --

We have initiated the FCS study already and we've said we are starting the severe study late this year or early next year.

Okay.

Thank you.

And I just want to be clear about the three drugs that are going into the new subsidiary.

That is not KYNAMRO, I assume, but it must include APOCIII, APO(a), and [Nch BPO].

Yes.

We'll be -- so we've finished, as you know we've --we're [innate in] Phase III with APOCIII.

We had very exciting results that we hope -- which we presented top line and we hope we publish shortly or soon with APO(a) in the normal volunteer.

What was important there is we showed that we reduced all forms, large or small, of APO(a) and were very, very potent.

And we have completed now the antipoeitin-like 3 Phase I, and we will be completing those data.

Needless to say, since we're talking about them, we're encouraged by what we've seen.

So all three of those drugs are the drugs that we are talking about; not KYNAMRO, of course, that is licensed to Genzyme Sanofi.

Great.

Thanks a lot.

The next question is from Michael Schmidt of Leerink.

Please go ahead.

Good morning.

Thanks for taking my question.

I had a follow-up on the TTR program.

If I'm correct, I think the SAP study was structured as a Phase II-III study with an interim analysis and a powering assumption in there that would allow it to repower the study.

And I was wondering in the, I guess if the [Glaxo] milestone was triggered by an interim analysis by any chance in this trial.

I -- there may have been a thought about having it in the interim analysis for repowering.

But I think we chose not to do that.

Isn't that right, Lynne?

We are -- it is built into the protocol but we are choosing not to take advantage of it.

I see.

Okay.

And to your question about Phase II-III of course you'll remember that we went directly from a Phase I study to a Phase III study with the agreement of the US and the regulatory authorities because of the potent TTR reduction we saw.

And so we, you know, technically are calling this a Phase II-III because it is our first in-patient study.

But because of the extensive safety experience we have with our class of drugs, we were able to do that with regulatory approval.

And so it is very much a Phase III that is being run like a Phase III.

Exactly.

For example, obviously the DSMB meets regularly and met before GSK issued the most recent milestone payment.

Got it.

Okay.

Understood.

And then I guess just to follow up what do you think the timing is on the FAC trial initiation.

We are finalizing plans for that now and until we get the plans finalized telling you when it is going to start is difficult.

But we understand it is an important indication as does GSK.

They want to make sure they design the very best study.

Okay.

Understood thank you so much.

The next question comes from Yale Jen of Laidlaw and Company.

Please go ahead.

Thanks for taking the questions.

The first one is a little bit housekeeping question that, given your guidance for the annual net loss of approximately $50 million, am I assuming that for the fourth quarter you might get maybe a high $70 million to $80 million revenue made up mostly by milestone payments?

And if that is the case that seems to be one of the largest ones of the many quarters that you have.

Well, it is your assumption.

I can't argue with that.

It is not a wildly incorrect assumption I think is a fair thing to say.

Right, Lynne?

I don't know what -- as Beth said we've already exceeded our revenue guidance for the year.

We have some big milestones coming up including the large milestone we're expecting to achieve when we initiate the Phase III -- the second Phase III clinical trial for SMNRx.

And we've already achieved $40 million worth of milestones this quarter.

If you add 40 and 27 that is why I would say it can't be that you are wildly off.

Okay great.

That's very helpful.

Another follow-up on the lipid subsidiary that you are going to establish.

Give that (inaudible) you have this instruc -- organization sort of enhancement, would you anticipate starting more clinical development, starting up a new product in this area going forward?

It's -- So --

Besides the three drugs that you are currently in the subsidiary?

Right now the drugs that we have in the lipid franchise fit beautifully together.

They all address an individual lipid cardiovascular risk factor which is underserved.

They all can be used in combination with other drugs and with each other.

They all take advantage of the same knowledge base and skill set and they take advantage of the relationships that we built with the KOL's.

And they are wonderful tools to really dissect the contributions of various lipid components to various types of cardiovascular disorders, and so they are exciting to people in the field.

That is sort of my definition of the modern franchise.

And so it just makes sense to think of them as a group of drugs.

The subsidiary is being set up so that it can pursue those drugs and evolve.

And it may evolve in many different kinds of directions as companies do.

On the other hand, we have lots of other interesting franchises of drugs.

Diabetes drugs represents a franchise.

A knowledge base franchise.

And a variety of other drugs are representative of that, too.

So if we going to -- we are going to take it one step at a time.

We will see how this evolves, and if it does what we hope it does for us, and for our shareholders, and for patients, then you could see it replicated or changed.

We will see how it goes.

I don't know, Lynne, do you want to amplify on that?

Nope.

Okay, last question.

And thanks for that answer.

The last question just for GCCR.

I know it is probably started a study, clinical study in Cushing's syndrome.

Do you have any timeline on that?

We are just finishing the current trial and what we want to do is get this trial finished and then see what -- it is only three months, so it is not going to be a definitive trial, but it's going to teach us a lot.

And then we will decide how we want to focus, whether we -- whether we want to focus heavily on Cushing's or some sub set of diabetes or exactly.

And I think as we see the data we will make some of those decisions.

When do you think that might be reported or be known?

It is -- late this year, early next year.

Probably more next year, I think.

Early part of next year given the -- (multiple speakers)

Thanks a lot.

I appreciate it.

And we have a follow-up from Steven Wiley from Stifel.

Please go ahead.

Thanks taking the follow-up.

Just in respect to earlier milestone-related question I asked.

So the AstraZeneca milestone payment that you received in conjunction with STAT3 that could have been as high as $50?

Am I correct in assuming that?

Lynne, do you want to deal with that?

That is correct.

Okay.

Thanks.

And it is -- did you want to say anything more about how that fits with other -- the next milestone or anything like that?

Oh, yes.

So -- well, we have a whole series of milestone payments.

The next one of which would be on the initiation of the Phase II clinical trials which is $17.5 million.

Okay.

Thanks.

(multiple speakers)

Okay, I think we have run pretty long and so I think it is time to bring the call to a conclusion.

I thank everyone for your interest and your questions.

Lot of good questions and look forward to sharing more information with you as the year progresses about all of the drugs that we talked about.

And keep would you posted on the progress that we make with regard to our subsidiary lipid -- our lipid subsidiary that we hope to form.

Thank you very much.

The conference is now concluded.

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