Ionis Pharmaceuticals Inc (IONS) 2014 Q4 法說會逐字稿

Good morning, and welcome to Isis Pharmaceuticals year end financial results conference call.

All participants will be in a listen-only mode.

(Operator Instructions).

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

Please note this event is being recorded.

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

Dr. Crooke, you may begin.

Thank you.

Good morning everybody.

Thanks for joining us on today's call to discuss our year end financial results.

As we begin, I do want to acknowledge that tomorrow is International Rare Disease Day.

We do have a large and important and exciting pipeline of treatments for severe and rare diseases, and everyone at Isis is committed to bringing these important new medicines to these patients who so clearly need them.

On the call today, Lynne will share with you the 2014 successes and provide an update on the progress we are making with our new lipid focus subsidiary Akcea Therapeutics, Beth will review our 2014 financial results, and provide guidance for 2015, and then I will finish by putting the events that have already happened this year into context, and give you a preview of what to look forward to in the remainder of 2015.

Joining me on today's call are Lynne Parshall, Chief Operating Officer, Beth Hougen, Chief Financial Officer, Sarah Boyce, Chief Business Officer, and Paula Soteropoulos, Chief Executive Officer of Akcea Therapeutics, and finally, Wade Walke, Vice President, Corporate Communications & Investor Relations.

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

Thanks Stan.

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

Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs, including the commercial potential of KYNAMRO, ISIS-APOCIIIRx, ISIS-SMNRx, and ISIS-TTRRx 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 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 Lynne.

Thank you Wade.

2014 was another year of growth for Isis.

We are pleased with the value of the advancements we have made in our technology, our pipeline, and our business strategy have been recognized by the market, creating value for patients and shareholders.

We had successes in every element of the business and those successes established a strong base upon which to build in 2015.

Isis is a leader in developing RNA targeted drugs.

We have 38 drugs in development, we are the only company to have commercialized RNA targeted drugs.

Our pipeline continues to mature and today includes several near term commercial opportunities.

We have six different drugs in Phase III studies for nine different indications, including three drugs for which we are conducting the Phase III studies, ISIS-SMNRx, ISIS-TTRRx, and ISIS-APOCIIIRx.

These drugs are focused on orphan indications in which patients have limited or no therapeutic options.

Each of these has Phase III data plan for 2016 or 2017.

Two of these drugs are partnered with major pharmaceutical companies, Biogen Idec and GSK, who are adding considerable value to the programs including preparing them for approval and commercialization.

In fact Biogen and GSK each plan to initiate additional studies to support these drugs, which they will be conducting in parallel with the work we are doing.

The third drug ISIS-APOIIIRx is in our sweet spot lipids, and is an asset we have put into our new subsidiary Akcea Therapeutics, with Akcea we plan to build a world-class lipid therapeutics company with a unique pipeline of first-in-class drugs to treat lipid disorders.

In December the groundbreaking Phase II data from two of our programs that we have highlighted in two New England Journal of Medicine articles, one on ISIS-APOCIIIRx and one on ISIS-FXIRx.

The ISIS-FXIRx publication showed that inhibiting factor XI a novel therapeutic target in the clotting cascade, could for the first time safely and robustly reduce clouding events, without increasing bleeding.

The ISIS-APOCIIIRx publication showed the important and previously unknown role that APOIII plays in triglyceride clearance in patients with a rare genetic disease, familial chylomicronemia syndrome, or FCS.

These publications illustrate the significant value of the technology in creating novel therapies that effectively act through novel mechanisms, to treat diseases in novel ways.

In addition to the data on FCS our robust Phase II program for ISIS-APOCIIIRx showed significant triglyceride reduction, regardless is incoming triglycerides, and evidence of glucose control via hemoglobin AIC reductions.

The drug was also well tolerated.

This profile allowed us to initiate the Phase III program on this drug last year.

In our Phase II studies in infants and children with spinal muscular atrophy, we observed increases in muscle function scores in both infants and children treated with ISIS-SMNRx.

In addition we observed that infants in our open label study compared favorably in terms of event free survival to infants with SMA in a recently published in [PNCR] natural history study.

We also took this drug into Phase III clinical trials last year for both the infant and childhood onset forms of SMA.

Last June we report that our glucagon receptor antagonist ISIS-GCGRRx, reduced hemoglobin AIC by more than 2.2 percentage points in our Phase II clinical study in patients with Type II diabetes.

A recently reported encouraging top line data from another Phase II study in patients with Type II diabetes treated with ISIS-PTP1BRx.

We plan to present more detail in this study at a medical meeting later this year.

All together we and our partners reported clinical data from 18 studies in 2014.

That fifteen of these datasets were positive is a reflection of the efficiency and effectiveness of our technology.

We also added six new drugs to our pipeline in 2014, and another six so far this year.

These new additions to our pipeline many of which are in our lipid franchise and our severe and rare disease franchise, nicely profile our expanding technology reach.

They include Gen 2.5 and LICA-conjugated drugs.

They include drugs targeting the liver, the CNS, the eye and muscle tissues.

They include drugs targeting not only traditional Messenger RNA targets, but also a micro RNA target and two toxic RNA targets.

They show considerable successes in our partnered programs with two new drugs for each of our Biogen and GSK collaborations, and one new drug in our Roche collaboration.

As we go through 2015 we expect the list of new targets to continue to grow, and the breadth of utility of our technology to also grow.

We continue to benefit from our business strategy, which is designed to maximize the value of both our technology and our pipeline, as our partnered programs advance in development we benefit financially.

In 2014 successes from our partnered programs contributed more than $200 million in revenue, and more than $230 million in cash.

We added a new partnership with J&J which supports expanding our technology to a new area, oral administration of antisense drugs to treat autoimmune diseases in the gastrointestinal tract locally.

We ended 2014 on the strongest financial position in our history.

This financial strength has allowed us to continue to evolve our business strategy with the formation of Akcea, our new subsidiary, which will take over responsibility for developing and commercializing our suite of lipid drugs.

This evolution positions us to retain a significant portion of the commercial value from our lipid drugs, while keeping the core of Isis focused on advancing our antisense technology and developing our earlier stage assets.

Before I turn the call over to Beth, I would like to share with you the important considerations our Akcea team is making in just our first two months on board.

Today I will preview a few of the exciting things going on in Akcea.

Coming up in the next month or two, we plan to have a webcast in which we will talk quite a bit more about our lipid franchise and Akcea.

We are very excited about the opportunities Akcea is creating for us, as we take this next step in evolving our business strategy.

We have made rapid progress getting Akcea up and running, at the beginning of the year we hired Paula Soteropoulos as the CEO of Akcea.

Paula is a strong leader who brings a wealth of experience in developing and commercializing orphan drugs, as well as drugs in the lipid space.

Paula is already building a high caliber operational and commercial team for Akcea, which will be headquartered in Cambridge, and the Akcea team is working seamlessly with our Carlsbad-based development team.

As their first priority the team has work on plans to position ISIS-APOCIIIRx commercially as a Best-in-Class therapy to address the severe and unmet needs of patients with rare dyslipidemias.

They are focusing on all of the things that you would expect, understanding in depth the patients and treating physicians for these diseases.

Increasing awareness of these diseases, enhancing the speed and quality of diagnosis, and understanding the health economic environment for these diseases in the US and globally.

These pre-commercialization activities support our ability to maximize the value of the entire franchise.

One of the most important decisions the team has made is the addition of a new ultraorphan indication for ISIS-APOCIIIRx, this new indication is to treat patients with partial lipid dystrophy.

We believe that the addition of this new indication should double the initial patient population for ISIS-APOCIIIRx with two severe and rare disease opportunities that we plan to pursue in parallel.

Partial lipid dystrophy is not a disease that is widely known, it is a rare lipid disorder and one of several distinct lipid dystrophies, that are disorders of Adipose tissue, or fat.

It is characterized by both selective loss of fat from various areas of the body and a range of metabolic abnormalities, which include elevated APOCIII and triglycerides, as well as diabetes.

Conventional drugs to reduce triglycerides and control glucose do not work well in these patients.

We believe that the robust triglyceride lowering plus improved glucose control we observed in our ISIS-APOCIIIRx Phase II clinical studies have the potential to benefit partial lipid dystrophy patients, it is important to note that partial lipid dystrophy is a very different disease than generalized lipid dystrophy, generalized lipid dystrophy is driven primary by a leptin deficiency, and can be treated by leptin replacement therapy.

Patients who have partial lipid dystrophy have no approved treatment options.

We plan to rapidly initiate a Phase III study in patients with partial lipid dystrophy.

A development program for partial lipid dystrophy will build on our development program already underway for FCS, with data predicted in 2016 or 2017, since partial lipid dystrophy is a more prevalent patient population, and many patients are treated at known centers, which should be able to initiate and enroll this study rapidly.

For that reason we plan to complete both Phase III studies roughly at the same time.

This expanded development plan adding the partial lipid dystrophy indication, allows us to maximize the initial potential value of ISIS-APOCIIIRx by creating rapid access to our innovative therapy for two groups of patients with very rare lipid disorders.

These first two patient populations are both small, and largely treated by the same physicians which enables us to employ a very efficient development marketing and sales strategy.

Both FCS and partial lipid dystrophy are ultraorphan indications with no currently available therapeutic options, which means the Akcea team can develop a pricing and reimbursement package that reflects the significant value that ISIS-APOCIIIRx can potentially bring to these patients.

The decision to focus ISIS-APOCIIIRx on two ultraorphan indications coincides with the acceleration of our LICA follow-on ISI-APOCIILRx, we can pursue very rapidly two orphan disease opportunities with ISIS-APOCIIIRx, while pursuing broader indications with the follow-on drug.

The follow-on drug incorporates our LICA technology, which increases drug activity in the liver, and should provide up to a 10-fold increase in potency for ISIS-APOCIIILRx over the parent drug.

Because of its enhanced profile, which we believe could support very infrequent and convenience dosing, we plan to develop ISIS-APOCIIILRx for larger patient populations.

This includes patients with severely high triglycerides, and patients with high triglycerides and Type II diabetes.

Although at significant risk, these patients are generally healthier than patients with FCS or partial lipid dystrophy.

For that reason we believe the enhanced convenience of ISIS-APOCIIILRx should make patients even more likely to go on and stay on the drug.

Because the regulatory path for severely high triglycerides is clear based on positive FDA and EMA interactions on the parent compound, we believe we can rapidly advance ISIS-APOCIIILRx.

This exciting revision to our development plan for the APOCIII family streamlines the development plan and increases the value of the program in the short-term, by focusing initially on ultraorphan dyslipidemias, and doubling the initial patient population, and in the longer term by accelerating the development of a follow-on drug with even more convenient profile for the broader indications.

In this way we believe the development plan for the two drugs ISIS-APOCIIIRx and its LICA follow-on support the reimbursement and marketing strategy that should maximize the value of the overall program.

We are very excited about the work our Akcea team is doing, and we look forward to providing more detail in our upcoming webcast on the Akcea lipid franchise.

And now I would like to turn the call over to Beth to talk more about our 2014 financial performance, and our 2015 guidance.

Thank you Lynne.

In 2014 we significantly improved upon our pro forma NOL guidance, and substantially exceeded our cash guidance.

We ended year in the strongest financial position in our history ,with nearly $730 million in cash, and a pro forma NOL of $16 million.

And we reported net income of $32 million in the fourth quarter.

Significant contributors to our profitable fourth quarter were nearly $70 million in milestone payments, and more than $30 million related to our ownership in Regulus.

These results illustrate that we are effectively executing our business strategy, and that our business model is working as designed to consistently generate cash and revenue as partnered programs succeed.

Our strong financial position has allowed us to develop and expand our pipeline, and to make important advances in our technology, all while maintaining a moderate expense level.

Today in the pipeline we have one drug for every 12 Isis employees.

This level of productivity is only possible because of the efficiency of the antisense technology we have built and continue to advance, coupled with our business model by which we leverage our partners' resources.

Our pro forma NOL of $16 million in 2014 was significantly better than our guidance of a pro forma NOL in the low $50 million range.

Our revenue was $214 million, a 34% increase over our guidance.

Reflecting again the successes we had with our partnered programs during the year.

The most significant component of revenue for us is milestone payments we earn as our programs advance.

And last year nearly two-thirds of our revenue came from milestone payments, including $22 million from AstraZeneca, $22 million from GSK, and $80 million from Biogen Idec.

We continue to experience success in our existing partnerships.

So far this year we have achieved $27 million in milestone payments, including $22 million from Biogen Idec and $5 million from J&J.

Our satellite companies also contributed to our 2014 financial results.

We earned $10 million from our collaboration with Alnylam, which takes advantage of our dominant intellectual property estate.

We also realized financial benefits when our satellite companies advance their drugs to key value inflection points.

For example late last year, Regulus reported positive clinical data on its antimiR drug to treat patients with hepatitis C virus.

Regulus' stock price increased significantly which also increased the value of our ownership in Regulus, and in response we sold a small portion of our Regulus stock resulting in a gain of $20 million.

And because our remaining ownership in Regulus increased in value substantially over 2013, we also recognized a significant tax benefit.

We are pleased with the progress Regulus is making, and of course if Regulus' stock price continues to increase, so will the value of our Regulus stock.

As of yesterday our remaining Regulus stock was valued at more than $105 million.

As Lynne just described, we made substantial pipeline progress in every therapeutic area, including initiating multiple Phase III studies, and numerous earlier stage clinical studies, and we accomplished all of this while only increasing our expenses by $43 million.

In addition to significantly improving upon our pro forma NOL guidance, we significantly exceeded our cash guidance in 2014.

We ended 2014 with nearly $730 million in cash, which was an increase of more than $150 million above our guidance, and more than $70 million above our ending 2013 cash balance.

This substantial improvement in our cash position primarily reflects successes in our partnered programs, for which we generated more than $230 million in payments from partners last year.

We also received more than $25 million from the sale of stock we owned in our satellite companies, including Regulus.

Further, we took advantage of strong market conditions and the increase in the stock price to refinance the major of our 2.75% convertible notes, we achieved all of our objectives for the financing by reducing our interest rate to 1%, reducing the potential dilution from our convertible notes, extending the maturity of the notes and adding more than $45 million to our balance sheet.

Now moving to our 2015 guidance.

We are projecting to earn more than $220 million in revenue.

Which reflects continued advances in our pipeline this year.

Our revenue is comprised primarily of milestone payments and the amortization of up front payments from partners.

We have not included any KYNAMRO profit share revenue in our 2015 guidance, although Genzyme is continuing to make significant investments in KYNAMRO, and sales are continuing to grow.

In 2015 this year, we are projecting our expenses to increase by about $45 million, a similar amount to the increase in our expenses last year.

We think this is a modest increase considering that we are developing more drugs, and conducting more later stage clinical trials this year than we did last year.

So all of this rolls up into our projected financial guidance of a pro forma NOL in the mid-$50 million range.

This NOL projection is similar very to our NOL projection for last year, while we are supporting a much larger and more mature development pipeline.

We are also projecting a year end cash balance in excess of $630 million, which represents cash used of approximately $100 million to move forward a pipeline of 38 drugs.

The ability to do so much for so little is again a testament to the efficiency of our antisense technology platform, and the successful execution of our unique business model.

Now I will turn the call over to Stan.

Thanks Beth.

We certainly are pleased with where we are financially, and we are also pleased with the trajectory.

We look forward to where we are heading.

So let me begin by putting a few recent events in context for you.

And hopefully that will allow you to better appreciate how I think the progress this year is likely to generate increased value for patients and for shareholders.

Just this week we reported clinical results for ISIS-PKKRx, this new addition to our severe and rare disease portfolio is for the treatment of patients with hereditary angioedema, or HAE.

We think that this is a program that with our capabilities and our resources we can easily move forward on our own.

HAE is characterized by rapid and painful attacks of inflammation throughout the body, including the face, larynx and trachea.

The attacks are painful and debilitating and can be fatal.

HAE is caused by inappropriate activation of prekallikrein, or PKK, our drug is designed to affect the cause of the disease by reducing production of PKK, and directly blocking biological processes that lead to HAE attacks.

In our early work we evaluated several steps in the disease pathway to find the best target, that is one of the great strengths of antisense technology, it is possible to look at everything.

And not surprisingly.

PKK appeared to give us the best results.

It enabled us to target the source of the disease.

So in our preclinical studies we observed significant improvements in disease models of HAE.

40% to 50%, with only a 40% to 50% reduction of PKK.

We recently completed this initial clinical trial in healthy volunteers, and in this study we observed a significant dose dependent reductions of PKK of up to 95%.

And great safety and tolerability for the drug.

So this combination of preclinical data and the Phase I data, and the fact that PKK is central to the cause of the disease, gives us a lot of optimism that we have the potential to have a Best-in-Class prophylactic treatment for patients with HAE.

And we certainly look forward to starting the Phase II study in patients with HAE later this year.

One key takeaway from the clinical data we reported recently is that the performance of what we now call generation 2 plus drugs continues to be consistently better than earlier generation 2 drugs.

These drugs are more potent and better tolerated, despite the fact that they are exactly the same chemistry as the other generation 2 drugs.

The key point is that we continue to advance the technology, we continue to advance our ability to screen and identify better drugs, and we are realizing tangible value from the advances in the technology and the performance of today's antisense drugs.

We continue to expand our pipeline.

As you heard, in 2014 we added six new drugs, and already this year we added another six into development, including LICA follow-ons for all three drugs in our lipid franchise.

We just added a LICA drug that targets [angiotencinogen], that is ISIS-AGTLRx.

This is designed to treat a small but highly significant patients with treatment-resistant hypertension.

These patients are very difficult to manage, even with all of the anti-hypertensive treatments available today.

There has been a significant amount of interest in finding ways to treat these patients.

But to date, nothing has really panned out.

So we think this is a great opportunity.

Further, as part of the partnered programs we added a drug that targets Rhodopsin to treat patients with a rare and severe for form of retinitis premotosa, two drugs to treat patients with undisclosed neurological disorders, and a drug to treat patients with Huntington's disease.

The Huntington's disease program is of particular interest, as it will be the first drug of any type to enter clinical development that is designed to actually treat the underlying cause of Huntington's disease not just the symptoms.

Huntington's disease belongs to a group of diseases referred to as triplet repeat diseases, in which genetic sequences are replicated inappropriately, leading to toxic effects of both the RNA and the protein.

This is the second triple repeat disease that we are pursuing, with myotonic dystrophy being the first.

One of the important advantages of our antisense technology is the ability to target RNAs of all types, in all cellular spaces, including the nucleus.

We think that there will be many more opportunities like this as we move forward.

These drugs emphasize several themes that will play out during the year.

We are broadening and maturing our pipeline, we are increasing the number of drugs that we will be advancing toward the market ourselves.

We are focused on creating drugs that with the highest value for the neediest patients.

To do that we begin with a novel target, which is often genetically validated, and for which reducing the target has a chance to radically change our understanding of the disease, and improve therapy for the disease.

Such as we are doing with ISIS-APOCIIIRx and ISIS-FXIRx.

Then we develop the drug for the genetically or phyno typically designed subsets of patients who will benefit most from the drug.

These drugs also expand the number of tissues in which we can treat disease, they expand the types of RNAs we can target, and of course, they expand our reach into new diseases.

Recent clinical results obtained with RG-101 represent another important theme for the year.

Which is the value of our business model.

RG-101 is a miR-122 antimiR, that is intended to treat patients with HCV.

It demonstrates once again the value of Isis core technology and the value of Isis satellite company strategy.

Remember the basic discovery work on miR-122 was done at Isis and transferred to Regulus, and most of the patient properties of the anti-miR drug are derived from Isis technology.

The clinical data are certainly impressive, and we own today 11% of the Regulus stock which at yesterday's price is worth about $105 million.

We also have royalties on the drug, so we are looking forward to real value creation for Isis shareholders by Regulus.

In short what I'm saying is that you should pay attention to our satellite companies.

We believe many of them like Regulus should be successful, and you should build value for those successes into your modeling of the Isis value proposition.

Now let me switch gears and talk about Factor XIRx.

This is a drug that we believe has the potential to be a break through, a major break through in the treatment of thrombosis.

In December last year we reported for the first time that a drug could prevent clotting without increased bleeding.

Previously these two biological events were thought to be inseparable.

In our Phase II study with Isis Factor XIRx, we observed a 7-fold decrease in clotting, with no increase in bleeding rates compared to standard of care.

We were even able in that study to fully anticoagulate patients before, during and after surgery, with no increase in bleeding, including no increase in bleeding during surgery.

There are numerous potential indications for Factor XIRx that we will be pursuing, but the initial patient population is patients with atrial fibrillation who have renal dysfunction.

Right now we are finalizing the protocol to evaluate ISIS-FXIRx in patients with renal failure, and hope to get that study up and running soon.

As you might imagine, we are experiencing significant interest in this drug from large pharmaceutical companies, we believe that having the right partner can greatly enhance the value of Factor XIRx, but we intend to take our time.

And to find a right partner with the right development plan and the right resources at the right price.

We believe with all of the interest we have, we will be able to make a good choice here.

Now let's focus on the Phase III programs.

ISIS-SMNRx remains one of the most important and exciting drugs with which I have had the privilege of being associated.

All of us are deeply committed to bring benefit to patients with SMA.

Of course, we have a lot more work to do.

But the Phase III program is progressing nicely toward a 2016 or 2017 completion and data.

We also look forward to updating you with the results of the Phase II program a little later this year.

Certainly as time passes, we remain very encouraged about the performance of ISIS-SMNRx.

The ISIS-TTRRx program is also moving along nicely.

Perhaps the most interesting observation that we can make now that the Phase III study is really quite mature, and we have a fairly significant number of patients who have finished 15 months, and are in the open label extension part of the protocol, is that almost all of the patients are completing treatment.

The high rate of compliance reflects how easy it is to administer ISIS-TTRx, and it is another demonstration of how much better performing our recent generation 2 or generation 2-plus drugs are than earlier versions.

We are also encouraged by the robust reduction of TTR that we are seeing in patients with ISIS-TTRx in studies that support the Phase III program.

We plan to provide an update on our polyneuropathy program for you at the upcoming American Academy of Neurology meeting where we will have two podium presentations.

I'm also pleased to tell you that GSK has now completed the plans for Phase III study in patients with the cardiac form of the disease, and that GSK plans to get the study underway in the near future.

You have already heard about the exciting progress of APOCIIIRx, so I won't belabor that other than to emphasize that we believe that the decisions we have made, hence both the short and long-term value of the APOCIII franchise.

And represent maturation of our thinking, driven by the maturation of our organization represented by Akcea.

Of course, our lead drug in lipids is KYNAMRO.

Together with Genzyme we plan to complete and report the Phase III focus FH study for KYNAMRO in patients with heterozygous FH in the middle of the year.

These data will add to the growing safety database for the drug, and if positive, should support regulatory and other activities that should broaden the market for KYNAMRO.

In addition we will have a number of other opportunities to share clinical data with you, a little later this year.

We will be reporting clinical data on [ISIS-Angiolite3Rx] next month.

We are excited about this drug.

It can be a great additional therapy for several severe and rare lipid disorders, and potentially later for a larger group of patients who have less severe, but still medically important dyslipidemias.

It is complementary to the other drugs in our Akcea subsidiary, and as Lynne mentioned, we will be having a webcast on this drug, the lipid franchise, and Akcea later this quarter, or early next quarter.

We plan to share the ISIS-GCCRRx Phase II data with you shortly, that is a drug to treat Type II diabetes.

Together with AstraZeneca we plan to report data on both our stat 3 and our angio receptor drugs this year.

Remember that the angio receptor drug is one of the Generation 2.5 drugs.

One of the four Generation 2.5 drugs that we had to develop.

We plan to complete and report data from the Phase II study on ISIS-APOARx in patients with elevated Lp(a) levels, and on ISIS-DMPK25Rx in patients with myotonic dystrophy around year end.

With a pipeline as large as ours, we will have a number of earlier stage programs that should complete clinical trials, and we look forward to sharing those results with you as well.

We also plan to initiate a number of important studies this year, as Lynne mentioned, we look forward to getting the Phase III study on ISIS-APOCIIIRx up and running rapidly in patients with partial lipidystrophy, we plan to initiate Phase II clinical trials on up to six drugs.

And finally we will have a number earlier stage drugs that should enter clinical development.

Such as ISIS-DGAT2Rx for the treatment of NASH, some of our partnered programs or shoot-offs will also begin clinical development, and of course we will continue to add new drugs to the pipeline.

So that is the pipeline.

In 2015 you should also see value created by advances we are making in the technology.

These will be measured by the discovery and development of drugs that enable lower doses, less frequent dosing, and are even better tolerated.

As importantly, our Generation 2.5 technology significantly broadens the tissues in which we believe that we can get good antisense effects, such as in muscle and in certain tumor cells.

With four Generation 2.5 drugs in development we are gaining a good deal of clinical experience now with our Generation 2.5 drugs, and we are very encouraged by the safety we are observing.

We look forward to telling you more about the progress with Generation 2.5 chemistry this year, and look forward to adding additional generation 2.5 drugs to our pipeline.

We believe that our LICA technology will give us up to a 10-fold improvement in potency for drugs with targets in the liver.

We have eight LICA drugs in our pipeline today, so progress is rapid here as well, with the combination of LICA and generation 2.5 chemistry, we could see potency increases up to 100-fold compared to today's Generation 2-plus drugs.

That is potentially a game changer, because a dose of 1 to 5 milligrams per week, that is a total dose of 1 to 5 milligrams a week to lend itself to monthly or less frequent dosing.

This represents tangible progress across the utility of our drugs and technology, we are making more potent better tolerated drugs that are increasingly convenient for patients to use, we are also using multiple mechanisms and multiple routes of administration, and we are affecting targets in multiple tissues.

This translates into a rapidly expanding set of opportunities for Isis and our partners.

These new advances in the technology truly do represent the tip of the iceberg.

Of course, we don't have the time it would take to talk about all of the advances we are making in the technology with you today, but this year we will be telling you about new approaches that allow us to actually increase protein production using new mechanisms that we have discovered.

The work that we have done here opens up many new opportunities to treat diseases caused by deficiency in protein production, in addition to the treating of the diseases that are associated with poor regulation or an overabundance of protein.

So why should you care about this?

You should care because with every step that we take we broaden the utility of our technology.

We extend our control of the technology via broad patents that reflect the innovation at Isis.

The third critical component of our business strategy is partnering.

We have already gotten the year off to a great start.

We have as Beth mentioned, already received a number of milestone payments from existing partners, and we expect that to continue.

GSK is taking the important step that expands the value of ISIS-TTRx by beginning the cardiac study.

We have made important progress in our Biogen collaboration, and we added J&J as a partner for the pursuit of oral local delivery of drugs to treat diseases of the gut.

Our partner with J&J is an alliance in which the strengths of both companies complement each other, and together we hope to create a franchise of drugs that neither of us could create as well on our own.

This alliance allows us to use partner resources and expertise to broaden the reach of the technology.

To conclude we at Isis are at an exciting and unique moment in our history, we are making significant technology advances that expand the application of the technology and broaden the opportunity for our drugs.

We are advancing a large, broad pipeline of First-in-Class or Best-in-Class therapies for patients who often have limited or no treatment options available, and desperately need these new treatments.

With Akcea, we have a subsidiary devoted to making our lipid franchise drugs commercial successes.

Already we have identified an additional indication that doubles the initial patient populations for ISIS-APOCIIIRx, and we have streamlined the development of the follow-on.

We also have a solid plan to move to broader indications for each of these drugs with our LICA follow-on.

We are making progress with ISIS-SMNRx with the two Phase III studies up and running, and additional studies being started by Biogen.

And as I mentioned GSK is expanding our TTR program to include patients with cardiomyopathy.

Finally as I mentioned earlier we will be starting the next study with ISIS-FXIRx, to support the initial indications in patients with atrial fibrillation and renal failure, and of course partnering interest is high in this and other programs.

So we have a busy year ahead, and we are and continue to be able to do this with the small, innovative and driven group of employees.

With that, I would like to open up the call for questions.

Chad, if you can set us up for questions, please.

Certainly.

(Operator Instructions).

At this time we will because momentarily to assemble our roster.

If I could interject quickly.

We have gone fairly long.

If we could limit the questions to one or two questions per person, and then if we have some time come back into the queue, and we will try and pick up any additional questions if we have time.

Thank you.

Our first question today comes from Jim Birchenough with BMO Capital.

Congratulations on all of the progress.

With the TTR update we will get at AAN, can you give us a better sense of what we should be looking for in those two podium presentations, and then just had a couple of follow-up questions?

As you know, of course, the Phase III study is blinded, so we won't be reporting any Phase III data.

But we do have some ancillary studies that are in progress in patients, and that will give us the opportunity to talk about both the ability of the drug to reduce target in patients, and also its tolerability.

Will there be any functional data, Stan?

Anything on nerve conduction and that sort of thing?

I think I would like to leave it there, Jim.

The presentations are just being put together now, and I haven't actually seen the actual presentations, so why don't we leave it there.

So maybe a bigger picture question with the advances you have with the LICA technology, can you go back and conjugate something like KYNAMRO, and create a novel second generation drug that you retain yourselves?

In principle we could do exactly that.

But our deal with Genzyme gives them ownership of KYNAMRO, well of the target.

And maybe just a final question for Beth.

Just so we get a better sense of the sustainability of the revenues you see this year, and how confident you are in the guidance, could you maybe discuss how you go about giving revenue guidance when there are so many moving parts around milestones and lot of it is contingent on things going right?

I'm imagining there is some probability adjusting.

How do you do that?

And then are these revenues you think as we model forward that will be sustainable when you look at in aggregate what is coming, in terms of all of these programs in development?

Sure.

You are absolutely right, Jim.

When we put together our revenue guidance, we look down the list of all of the opportunities we have to earn revenues from our partnerships.

Particularly milestones, and we go partner by partner, drug by drug, research program by research program, and we look at those milestone opportunities, and then we probabilize them for timing and the probability of success, and then we aggregate those probabalized amounts into our revenue guidance.

We feel like there is tremendous opportunity too, we are very confident we can meet our revenues guidance.

As you noticed in 2014 we provided guidance of about $160 million to $170 million worth of revenue, and we ended the year in excess of $200 million.

So I think the approach that we take is very reasonable, and it creates an opportunity for us to achieve our guidance.

Does that answer your question?

Yes.

And I guess just as we look ahead, how sustainable do you think these revenues are?

Can you grow off the space when you look at aggregate what is coming from all of these different programs?

Definitely.

We continue to have tremendous productivity in our pipeline, and in the partnered programs, in Biogen alone the research collaborations in neurology that has a tremendous opportunity to continue to generate new targets and new drugs and, all of those as they advance will create milestone opportunities, and across all of our partnerships we have the ability to earn license fees, as our partners exercise their options to move the drugs forward to the market.

We also have a very high level of interest in the technology of the drugs in the pipeline, and so we are very selective about what we are willing to partner, and to whom and for what price, but certainly that is another source of optimism for us.

Great.

Thanks for taking the questions.

Next question comes from Chad Messer with Needham & Company.

Thanks for taking my question.

I'm very interested in this strategy you are employing for APOCIII taking your generation 2.0 drug rapidly into now a couple of orphan indications, and then using the LICA compound to go after perhaps broader indications.

This seems like this would be a strategy you could potentially re-employ in a number of areas.

Could you maybe comment on whether you would agree with that observation, and perhaps remind us where you have good LICA follow-on drugs, what programs you have done some more advanced work on LICA for?

Well, absolutely agree with what you had to say, and just to recall the basic strategy at Isis, in terms of defining what drugs we develop, is to create the maximum value in the initial patient populations.

And to do that, I think there are two steps that are uniquely available to us with the technology we have.

The first is we take genetic information directly.

So most of the targets that we are really interested in are genetically validated, and then we of course, evaluate all of the relevant targets in the pathway, and pick the best target just as we did with PKK.

The second step is to identify using very similar approaches, genetics, epigenetics, and phenotype subsets of patients, who we think are most likely to benefit in the greatest way from manipulating that specific target.

And so we do that across-the-board in every part of the pipeline that we can.

There are some diseases that don't lend themselves to that easily, but the vast majority do.

Now for the liver targets that we have, of course, we have LICA follow-on opportunities for all of them.

We also have LICA 2.5 opportunities, and each one of these is a separate equation that we write, we ask how far along is the parent drug, do we have a good spot for the parent drug, should we replace the parent drug with the LICA.

Each one of these opportunities is a unique opportunity and a unique challenge, and therefore we write a unique equation, and that helps us decide when and how we are going use the follow-on.

With APOCIIIRx we are far along.

We think we have got a great looking drug for rare diseases.

And with these two rare diseases, we have got a super market opportunity, which prices comparably, should give us great opportunities there, and let in the LICA follow-on has its own place.

Each drug is different, and as the pipeline continues to evolve, you will see more and more of the drugs being 2.5 and LICA and 2.5 LICA, because those are our best quality drugs.

A lot of words.

Did I answer your question?

Yes, mostly.

I mean maybe just actually to move on to something different, so if you are, I like the flexibility that the strategy of having two actual different drugs out there gives you, both in terms of pricing and then also partnering.

Could you comment on whether you would see an APOC drug for a larger population, to the LICA follow-on as something you would consider partnering down the road?

Yes.

Okay.

Great.

Thanks.

I will get back in the queue.

I made up for my long windedness with the shortest answer of the day.

Next question comes from Alethia Young with Deutsche Bank.

Thanks for taking my questions.

One is just when talking about the partial lipid dystrophy, what have you seen in the papers and the biology that implicate APOCIII that give you so much confidence?

And in parallel to that, have you spoken to the FDA about your plans in Phase III yet?

So we have been in contact with the FDA and European regulatory agencies on our APOCIII franchise.

We have not yet spoken to the FDA on the partial lipidystrophy.

But based on the conversations we had with both sets of regulators, we feel there is a lot of enthusiasm for APOCIIIRx and what we are doing with it.

And what we have shown with APOCIIIRx is that we can lower triglycerides in any patient population that we look at.

Partial lipid dystrophy is a triglyceride disease.

And partial lipid dystrophy patients have elevated APOCIII.

It is I think pretty straightforward to think about the disease mechanistically, as it fits appropriately in the space for APOCIIIRx.

I think it is a more obvious choice in some ways than FCS was, where we got the surprise that we were able to produce effects in patients with FCS.

But yes, I think it is fairly straightforward, Alethia.

Great.

And then as far as these patients being in the same clinics, is that why you have confidence that you can enroll these trials at the same time, is that there are synergies with the doctors there in the current clinical trial?

That is a part of it.

The patient groups are larger also.

So we feel that with the expertise that we have in lipid franchise, the fact that we know the centers, know the KOLs, know the patients, we can take advantage of all of that.

That is the value of actually having a franchise.

And there is such excitement about APOCIIIRx in the community, and of course, in doing that, it also sets us up kind of thinking in a much better way to be prepared to learn from the process, as we prepare to commercialize.

That is always the thing that excites you most about this.

Yes.

Great.

And just one last logistical one.

You said that the discontinuation seemed lower I think in the TTR.

Are you willing to disclose what your assumptions were heading into designing a Phase III study?

No, but I will give you some color unless Lynne interrupts me and tells me I can't.

If you look at the [Terphametus] study, I think the dropouts were 40% or 50%, somewhere in that range.

Around 40%, yes.

With KYNAMRO we had dropouts in one year studies that were in the 20%-plus range.

And so we modeled dropouts that would be appropriate to those two considerations.

And we are seeing far less.

Great.

Far less.

Thanks for taking my questions.

Lynne, do you want to add or subtract anything from that?

No, I think that is great.

Thank you, our next question from Steven Willey, Stifel.

Thanks for staking the questions.

Anything you can say about the proposed design that GSK is contemplating in FAC with TTR, just in terms of I guess the endpoint specifically, and whether or not they will be pursuing something ventured or more functional based?

Well, we certainly can't share any of that today, Steve.

The protocol, the study is getting underway here, and we will be able to share that a little later but not today.

Lynne, do you want to add anything to that?

Yes, GSK has asked us because they view it as a competitive advantage not to talk about it until the study starts, but we will be enthusiastic about talking about it when they are ready to start the study.

We are very pleased with, I mean we have had of course quite a bit of time to really understand the space thoroughly, as has GSK, so at least from the Isis side we are quite excited about the decisions that GSK has made.

Okay.

And then I know that there has been obviously a discussion about the improved 2.5 chemistry, but just kind of wondering when we might see kind of more comprehensive safety data from one of those studies?

I know we have gotten a handful of the stat 3 data, and I think there is some more AR and I guess DFPK readouts scheduled for the end of the year.

I am wondering what kind of dose durations are we going to see, I guess specifically from DMPK that may allow us to better assess the safety of 2.5?

Stat 3 is not terribly helpful, because you have stat 3 the target adverse events that were predicted and have been encountered.

With antigen receptor, that has been very helpful, because the target toxicities reducing antigen receptor are minimal.

And AstraZeneca has taken the drug to super-high doses in patients with cancer.

And so we have had a chance to look at that dose of that drug up to 2,700-milligrams a week, which is probably 150 times what we would dose it for any target.

And we haven't encountered any safety issues there yet.

The DMPK work is what we have normal volunteer experience, and now we are gaining patient experience, and that is at normal doses and so several, so we will have very high dose experience, although for quite a number of months in patients with antigen receptor, and then real world dose experience for a somewhat shorter period, but months in both normal volunteers and myotonic dystrophy patients.

And then I guess as we think about DMPK data towards the end of this year, I think it is primarily set to be a safety and PK study, but just wondering if there is any kind of clinical efficacy that is going to be gleaned out of that, and just what some of those endpoints are?

Thanks.

Lynne, do you want to answer that?

Maybe not.

So there are endpoints that evaluate both target reduction and muscle performance.

But you are right, the primary goal is to demonstrate safety and pharmacokinetics.

Okay.

Thanks.

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

Thanks for taking my questions.

Two quick ones.

Stan should I assume that since you mentioned AAN as a possible site for the SMA Phase I/II update, we won't be seeing at that forum?

And if that is the case when do you think we might see the data?

We mentioned AAN with regard to TTR, I think that is what you meant.

No, specifically asking about when we will see the SNA data.

Guessing it is not going to be at AAN since you didn't mention it?

Yes, we have an analysis that we will be done, and it will be done on schedule.

And so it doesn't quite fit with AAN.

But there are numerous opportunities so it won't be in the too distant future, Eric.

Thank you.

And Beth on the revenue guidance one follow-up to Jim's question.

Should we therefore assume that the 2015 guidance doesn't include any new collaborations, or do you also try and probability adjust those?

We probability adjust all of the opportunities for revenue Eric.

So if we do have a collaboration and assume any revenue from a new collaboration, the probability would have been probably fairly low, because those are obviously very significant transactions, and involve a lot of complexity.

The short answer is that new deals are probabalized low enough that they really don't constitute much in our projections.

Thanks very much.

It is just prudent to do it that way.

Definitely appreciate that.

Our next question comes from Jessica Fye of JPMorgan.

On the Prekallikrein product, can you elaborate on your expectations around the clinical profile for that asset, in terms of what you believe the 90% reduction in Prekallikrein might mean for impact on attack rates in HEA patient?

Also is there anything that you can share about what dose or doses you plan to study in Phase II, whether you expect to stick with once weekly dosing, and maybe any color around injection site reactions in the Phase I?

Thanks.

Let's do it in reverse order.

Injection site reactions with the new groups of generation 2 drugs are really de minimis.

We are having almost no problems with injection site reaction.

I don't mean to imply these are subQ drugs.

They do produce a spot on the skin, but nothing like what we experienced with KYNAMRO.

They are just different, and they are different because we made some advances that allow us to make better drugs.

And they are more potent.

In the PKK study, we had excellent safety and tolerability with really no issues reported.

The Phase II program we haven't decided formally, but we will use a dose, I imagine we will look at a couple of doses, but we haven't decided that yet, and it will be weekly.

Our experience with these drugs, is that what we see in normal volunteers in terms of target reduction, translates almost 1 to 1 in every patient group that we have looked at.

We don't think we need to reduce PKK by 90% at all.

In animal models, we see very good activity at 40% to 50% reduction of PKK.

We will target greater than that.

And the hope is that by getting rid of the substrate for the inappropriate activation which these patients, that is their problem, they don't have the inhibitor, we should see really very substantial benefit, in terms of the both the frequency and severity of attacks.

Great.

And maybe one more on Factor XI.

Now you talked about potentially partnering that asset, and I think in the prepared remarks you said that you are getting interest, but also said you will take your time.

What does that mean in terms of when we should expect a partnership?

Thursday March 26.

(laughter)

I'm sorry.

It means we will tell you as soon as we decide on one.

We a lot of interest, and it is certainly an active conversation that is in progress today with a number of companies, and we don't need to partner.

We think we can handle all of the next steps that should be taken.

But we want to partner, so that we make the development program as broad as rapidly as possible.

And on the other hand, we want to be sure that the partner we pick is the partner we are going be happy to live with for a long time, and is going to make this drug better.

I don't know how to make it any more precise than that.

Lynne, do you want to give a specific date?

I would say March 27 myself.

But no.

But I just did want to say there is nothing about this program that is slowing down.

As Stan said, we are pursuing the next steps.

We are moving the compound forward, and we have the ability to take our time, and make sure that we find the right partner with the right development program for the right price, and we plan to do that.

There is nothing to be gained from rushing.

Got it.

Thanks.

That is the longest non-answer we have given today.

Next question comes from Mike Schmidt with Leerink.

Good morning.

I just had follow-up on APOCIII.

I was wondering I'm trying to better understand timelines around the LICA formation, for instance for the severe hydro glyceride population.

Do you essentially have to go back to preclinical and Phase I studies before launching a large efficacy study, or is there an accelerated clinical path if you reformulate generation 2.0 drugs into LICA conjugated versions?

I wouldn't refer to it as reformulation.

Reformulation for me means something very specific that you are putting a new formulation in.

It is a new chemical entity.

We think of it as a pro-drug.

We have already with the LICA follow-ons for the lipid franchise, we have already done all of the preclinical work necessary.

And we do believe that we can abbreviate the initial clinical trial work, and move very rapidly into efficacy studies.

But at the moment we still feel that we need to work our way through an initial clinical trial of known volunteers for most of the indications before we go to patients, but it could be quite a bit faster.

Got it.

Okay.

And then I think you mentioned Biogen Idec and Glaxo both initiated some additional studies for ISIS-TTRRx and SMNRx respectively.

Can you comment on what those studies are, and whether or what data we might see for those before Phase III trials read out?

Lynne, do you want to deal with that?

Sure.

Biogen Idec is initiating two clinical studies.

One of them is a study that includes both newborn screening, as well as pre symptomatic treatment of infants who are at newborn screening diagnosed to have SMA, and they are also initiating a study in patients who are too old for our infant study and too young for the childhood onset study.

They are getting both of those studies up and running.

And as Stan mentioned, GSK is initiating this FH3 clinical trial in the cardiomyopathy form of TTR amyloidosis.

Those are the studies that we were referring to.

We may have some data coming out of the Biogen studies.

Those studies are just starting, and they haven't come up with a presentation publication plan for them yet, but obviously the Phase III cardiomyopathy study is a study that we will not have data on before the Phase III study that we are finishing up, the Phase III study we are finishing up, which is the polyneuropathy study.

That being said, as Stan said, we do have two podium presentations at AAN, we will be talking about the TTR program with data from some ancillary studies that we think is very interesting in terms of the program.

Okay.

Got it.

Thanks.

And then last question, for FCS and the partial lipid dystrophy indications, can you comment on how many patients are actually identified versus prevalence, that can be a discrepancy sometimes for the disease, and what are you doing, do you have activities in place to drive diagnosis rates of those rare patients ahead of a potential launch later on?

Thank you.

Paula, maybe you can handle that?

Sure.

Mike, this is typically like you would see with other rare diseases where all of the patients are not known and identified.

We see with FCS a patient population of 1 in a million, and with partial lipodystrophy it is about 2 to 3 in a million, so we will be working to help drive diagnosis earlier.

Eventually those patients do get found because of the manifestation of the disease, and they eventually get to a lipid specialist.

What we want to do is drive that diagnosis earlier, so that we can actually intervene earlier, and actually help these patients really affect their disease.

All of those types of things that we would do from a pre commercial activity would be to really understand today how these patients are diagnosed, what is that journey to get them to the right specialist, how do we improve the diagnosis, how do we increase the awareness to not the lipid specialist, because they understand the disease, but beyond that, the physicians that should be referring earlier, and really increase that awareness, and leveraging the patient community, because already there is a ground swell of these patients in both diseases, that are gaining momentum with their voice around their disease, and we will help enhance that.

We learned a lot from KYNAMRO and the work that Paula did when she was at Genzyme, and in bringing awareness of the disease forward, and we think that helped a lot getting the recruitment done and the trials, and helped both Lomidipide and KYNAMRO get launched.

Great.

Thank you very much.

The next question from Yale Jen with Laidlaw and Company.

Good morning and congratulations on good quarters.

My questions, most of my questions have been answered, so here just a very brief one.

Could you give us a little bit more color in terms of the partial lipid dystrophy trial design if you have it, and when you anticipate that to start?

And then I have a short follow-up after that.

I would like to defer that answer for just a little while.

We are finalizing all of that now.

And we are working feverishly to get the study up and running as fast as we possibly can.

Paula, do you want to add anything to that?

I think that is right, and we will get the study up and running as quickly as possible, and we in the middle of defining how that study looks like and endpoints.

We know where the sites are, it is really defining the clinical protocol and endpoints.

Give us just a little bit of time.

We will share it with you.

Sure, appreciate that.

And also my understanding is that the partial lipid dystrophy has to both the familial portion as well as the acquired portion, I know the size of those two is very different.

In this study, would you include patients from both cohorts, or you would be more focusing on one of the two?

Initially we will be focusing on the familial partial lipodystrophy.

We like that it is a well defined patient population, and a well defined severe rare population, and we think it is in a size that is similar to the FCS population though a bit larger.

And so it fits in terms of the launch, in terms of payors, in terms of pricing, and so on.

So one of the things that we really like about the decision, is that we have a really well matched set of opportunities that we should be able to take advantage of more effectively.

Okay.

Great.

Thanks a lot.

I think we have covered all of the questions.

If that is the case, I do want to thank everyone for joining us today.

We are pleased with where we are as we enter 2015, and we are pleased with the value that has been created, but we think the value that has been created is just the tip of the iceberg.

We think a lot more is to come.

And we think a number of the decisions that we made about the lipid franchise substantially enhanced its value as well, in addition to the other things that we are doing, that we think will bring added value this year.

Thanks very much.

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