Ionis Pharmaceuticals Inc (IONS) 2015 Q1 法說會逐字稿

Hello.

Good morning and good afternoon, everyone.

Welcome to Isis Pharmaceuticals first-quarter financial results conference call.

Please note that today's event is being recorded.

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

Dr. Crooke, please begin.

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

On the call today, Lynne will highlight some of our recent activities and Beth will walk you through our financial results and then I'll close by focusing on some upcoming events.

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

Wade, can you read our forward-looking language statement, please?

Yes.

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

Any statement describing Isis's 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 statements 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 and developing and commercalizing drugs that are safe and effective for use as human therapeutics.

And in the endeavor of building a business around such drugs.

Isis's 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's forward-looking statements reflect the good faith judgment of its management, these statements are only based 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's programs are described in additional detail in Isis's annual report on form 10-K for the year ended December 31, 2014, which is on file with the SEC.

Copies of this and other documents are also available from the Company.

Now I'd like to turn the call over to Lynne.

Thank you, Wade.

Selecting the right partner for ISIS-Factor XI Rx was an important objective for us this year.

Yesterday we announced that we achieved this objective.

Our goals were to select a partner who would maximize the commercial value of ISIS-Factor XI Rx and to structure a transaction that would both maximize our participation in Factor XI Rx's commercial success and also reward us in the near term for what we've accomplished.

We believe we found both the right partner and right transaction.

We've been very focus on finding the right partner and transaction for ISIS-Factor XI Rx because we believe this drug has the potential to be a game changer in the treatment of thrombosis.

As highlighted in the recent New England Journal of Medicine publication, data from the Phase II study on ISIS-Factor XI Rx and patients undergoing total knee replacement therapy, show, for the first time, that anticoagulation and bleeding risk have been separated in a treatment setting.

To fully exploit the potential of this novel anti-thrombotic drug, we wanted a partner who is an expert in and fully committed to the anti-thrombotic space.

We believe Bayer is the perfect choice.

Bayer is a leader in developing and commercializing anti-thrombotics.

The same team that developed the multi-billion dollar anti-thrombotic drug Xarelto will be the team in charge of developing and commercializing Isis-Factor XI Rx.

This team understands the both the near-term as well as the broader therapeutic potential for a novel anti-thrombotic like ISIS-Factor XI Rx.

We chose Bayer because they share a common vision with us for the broad commercial potential of ISIS-Factor XI Rx.

Initially they plan to develop ISIS-Factor XI RX for whom currently available anti-thrombotics may not be used.

We are initiating a Phase II study evaluating ISIS-Factor XI Rx in patients with compromised kidney function, which will support Bayer's plans for initial indications.

Bayer also plans to pursue an expanded development program for additional indications for ISIS-Factor XI Rx.

The Bayer development plan is designed to take advantage of the unique profile of ISIS-Factor XI Rx and maximize its commercial value.

So we've accomplished our first goal of selecting a partner who we believe will maximize the commercial potential of ISIS-Factor XI Rx.

We've also achieved our second goal, of structuring a transaction that rewards us for the work we've already accomplished while also ensuring that we participate substantially in the commercial success of ISIS-Factor XI Rx.

We're eligible to earn $155 million in near-term payments, including an immediate $100 million upon Hart-Scott-Rodino Clearance and $55 million upon advancement of the program following completion of the Phase II study we are initiating.

In total, we have the opportunity to earn up to $375 million in payments plus royalties.

We are able to participate very significantly in the potential commercial successes of Factor XI Rx by receiving tiered royalties in the low to high 20% range on gross margins of ISIS-Factor XI Rx.

And perhaps most importantly, when thinking about the economic value of this transaction, Bayer's planned development program represents a commitment to invest hundreds of millions of dollars in ISIS-Factor XI Rx to maximize the commercial value of this drug.

So we've acquired a partner as a leader in the space and is committed to investing broadly in ISIS-Factor XI Rx.

We achieved significant participation in its commercial success.

We also achieved substantial up front and milestone payments in the near term.

With this transaction, we've met all our goals.

Another important step we've taken this year is the formation of Akcea Therapeutics.

We established Akcea to develop and commercialize our portfolio of lipid drugs including our novel triglyceride lowering drug ISIS-APOCIIIRx, which is in Phase III development for two ultra rare disease indications.

Within Akcea, we're building a group of focused experts in all area of lipid management who can efficiently and cost effectively apply their development and commercial expertise across this broad portfolio of lipid drugs.

So as each drug reaches the market, Akcea's position to ensure that each drug will be a commercial success.

We in turn can fully participate in Akcea's progress, accomplishments and financial success without losing our focus on the rest of our pipeline and on advancing our antisense technology.

Akcea has already immediate key strategic hires, established their headquarters in Cambridge and, most importantly, enhanced the development plan for all of the drugs in its portfolio.

You'll be hearing more about the progress our Akcea team is making on a webcast in early June.

Coincident with the ADA meeting, we're planning an opening celebration at the Akcea offices in Cambridge.

While we know this will be a busy time, we also know that many of you will be in Boston, so we hope you can join us.

We also added J&J as a partner this year in the development of antisense drugs to treat autoimmune disorders of the GI tract.

This collaboration broadens and expands the ability of our antisense technology to new targets in the GI tract.

The oral administration of antisense drugs for local treatment of autoimmune diseases in the GI tract.

We're already making good progress with J&J.

We're also making significant progress on the three Phase III drugs we're developing.

We're conducting two Phase III studies on our drug to treat spinal muscular atrophy, ISIS-SMNRx.

These studies are enrolling well.

We're pleased that Biogen is also conducting two additional studies of ISIS-SMNRx.

Biogen is already enrolling patients in the Phase II nurture study, evaluating ISIS-SMNRx in newborns screened at birth and shown to have SMA but who do not yet have symptoms.

The goal of this study is to learn more about the early diagnosis and treatment and support initiatives that will allow patients to be identified and begin treatment sooner.

Biogen is also initiating a second Phase II study embrace in infants and children with SMA who are unable to meet certain requirements of the ongoing Phase III studies to broaden our experience with ISIS-SMNRx

Our novel drug to treat TTRM amyloidosis is well along in a Phase III study in patients with the polyneuropathy form of TTRM amyloidosis or FAP.

Our partner GSK is ready to start a second Phase III study in patients with FAP in Japan and a third Phase III study in patients with the cardiomyopathy form of the disease.

A Phase III study in patients with FAP began in 2013 and we have a number of patients who have now completed the 15 months of dosing and rolled over into the open label extension study or OLE study.

At the AAN meeting last month, we reported TTR reductions of up to 92% with a median reduction of 78% in patients who had completed 13 weeks of treatment with ISIS-TTRRx in the OLE study.

In addition to the robust and sustained TTR reductions we're seeing in this program, we're also encouraged by the high rate of patient retention in our Phase III study and the high rate of enrollment in the OLE study.

ISIS-TTRx can be conveniently administered as a once weekly, at home, self administered SubQ injection and requires no pre-treatment with steroids or antihistamines.

The convenience of ISIS-TTRRx coupled with the good tolerability we've observed in these studies are significant contributing factors to these high rates of retention in OLE writ enrollment.

ISIS-TTRRx is a gen two plus drug and as such should have enhanced tolerability with fewer injection site reactions.

And this is exactly what we're seeing in our studies.

In fact, a blinded safety analysis of the ongoing Phase III study showed that injection site reactions are occurring in less than 1% of all injections.

If you extrapolate, that could translate into as little as one injection site reaction per patient every two years.

We have a robust development program for ISIS-TTRRx.

In addition to the Phase III study of patients with FAP, ISIS-TTRRx is being evaluated in an investigator initiated study by Dr. Merrill Benson in patients with familial cardiomyopathy and senile systemic amyloidosis.

This open label study will provide us with valuable information on the safety, tolerability and efficacy of ISIS-TTRRx in these additional patient populations.

We're also evaluating a number of cardiovascular parameters in our Phase III study in patients with FAP.

Nearly half of the patients in that study have some evidence of cardiovascular involvement, such as vessel wall thickening.

We're evaluating all patients in the study for changes in vessel wall thickening and changes in proBNP, a biomarker of heart strain.

In addition, in a subset of patients with more significant cardiovascular disease, we're doing more frequent and more robust measurements of cardiovascular health.

These data should compliment the data from both Dr. Benson's investigational study and the Phase III study in cardiomyopathy GSK is getting ready to initiate.

And while I don't want to give short trip to ISIS-APOCIIIRx as I said earlier, we'll be having a webcast in early June that will be specifically devoted to you can dating you on the Akcea pipeline.

So I won't steal their thunder today.

Suffice it to say that this program is also proceeding very well.

In summary, all three of these drugs, ISIS-SMNRx, ISIS-TTRRx and ISIS-APOCIIIRx are well along in Phase III development with the potential for data in the 2016, 2017 timeframe.

We believe that each drug could represent a large commercial opportunity.

For ISIS-SMNRx and ISIS-TTRRx, our partners are making important contributions to the development programs and are actively planning for commercialization.

For these drugs, we're eligible to receive significant near-term payments including a licensing fee and milestone payments plus royalties and sales of the drugs.

For ISIS-APOCIIIRx, we have the opportunity to participate to an even greater extent in the commercial potential of the drug through Akcea.

With the pipeline of 38 drugs in development, we have numerous opportunities to create value.

In addition to the TTR data at AAN, we and our partners have reported data on five drugs in our pipeline already this year.

This includes positive pre-clinical and clinical data AstraZeneca reported on ISIS-STAT3-2.5Rx, our anti-cancer drug last month at the AACR meeting.

At this presentation, AstraZeneca highlighted the durable clinical responses we've observed in patients with the (inaudible) B-cell lymphoma and advanced meta static liver cancer.

These studies showed a marked reduction of STAT3 levels in patients treated with ISIS-STAT3-2.5Rx.

They also showed the inhibition of STAT3 reactivates the patient's own immune system to attack cancer cells.

This is encouraging and further validates our approach of inhibiting STAT3 to treat a wide range of cancers.

Based on the pre-clinical and clinical data with ISIS-STAT3-2.5Rx, AstraZeneca plans is to initiate studies shortly to evaluate this drug in combination with its antibody immune checkpoint inhibitor MEDI4726 in patients with head and neck squamous cell carcinoma and in patients with the (inaudible) B-cell lymphoma.

Our partners at Regulus recently reported clinical data on patients with Hepatitis C virus.

In this study, patients treated with RG101 achieved sustained viral suppression with some patients reaching undetectable levels of viral load 12 weeks and 20 weeks after a single injection.

As one of the top shareholders in Regulus, we benefit from Regulus success through our equity position in the company and we are also eligible to receive royalties on the drug.

Of course, we've also reported data from a number of promising early stage programs including Phase I data from both our PKK and angiopoietin-like 3 drugs, each of which significantly reduced its target with a good safety and tolerability profile.

The next step for these programs is to evaluate their activity in patients.

And since the beginning of the year, we've added six new drugs in our pipeline, including a fourth drug from our highly productive collaboration with Biogen.

The addition of gen 2 plus, gen 2.5 and like a drugstore, pipeline demonstrates once again how we're continuing to advance antisense technology by developing more potent and better tolerated drugs.

With that, I'll now turn the call over to Beth.

Thank you, Lynne.

The successes in our business that Lynne just described have resulted in another quarter of strong financial results.

We ended the first quarter with pro forma operating income of $4 million and we're nearly break even with a pro forma net loss of $3 million.

These results were driven primarily by $46 million in milestone payments from our partners.

In addition, we ended the quarter with nearly $700 million in cash and, of course, this doesn't include the $110 million we've generated so far in this quarter.

We earned $63 million in revenue in the first quarter comprised of $13 million from the amortization of up front payments including revenue from our J&J collaboration and the $46 million from milestone payments reflecting the progress of our partnered program.

In the first quarter earned milestone payments from Biogen of $16 million from advancing ISIS-SMNRx and $15 million from progressing a fourth drug into development and for validating an undisclosed target.

We've generated more than $300 million from Biogen as our programs have advanced, including most recently a $10 million milestone payment in the second quarter for validating another target in this highly productive collaboration.

We plan to continue to identify new targets and move new antisense drugs into development and, of course, we earn milestone payments for these accomplishments.

To date, we've generated nearly $130 million from GSK as our programs have advanced, including most recently a $15 million milestone payment for advancing ISIS-TTRRx.

As we advance ISIS-TTRRx, we can earn up to $136 million more in additional milestone payments and a licensing fee.

Consistent with our guidance, our pro forma operating expenses increased by about $8 million over our first quarter last year, primarily because of the Phase III studies we're currently conducting, three of which we hadn't started at this time last year.

This is a modest increase to support the large number of Phase II and Phase III studies, plus the numerous earlier stage studies we're conducting.

As we look ahead to the rest of this year, we have many opportunities to generate cash and revenue.

As I mentioned a moment ago, we will earn milestone payments as we continue to identify new targets and move new antisense drugs into development under our Biogen collaboration.

We also have the ability to earn milestone payments as we continue to advance the Phase III studies for ISIS-SMNRx.

And we plan to begin the first clinical study in patients with Huntington's Disease soon for which we will earn a $22 million milestone payment from Roche.

These are just some of the milestone payments we have the potential to earn over the remainder of this year.

Now I'd like to take a few minutes to talk about the significant financial impact of our license to Bayer of ISIS-Factor XI Rx.

As Lynne mentioned, this transaction achieves all of our objectives.

Upon Hart-Scott-Rodino clearance, which we expect to occur this quarter, we will receive $100 million payment from Bayer.

Although we are still working with our accountants on the valuation analysis to support our revenue recognition, we estimate that we will recognize somewhere between $70 million and $90 million in the second quarter and the remainder of the upfront fee will be recognized as revenue through mid-next year.

In total, we estimate that the $100 million upfront payment will result in revenue this year of between of $85 million and $95 million.

We plan to firm up these estimates in our Q2 earnings call.

In total, we have the opportunity to earn up to $375 million in non-royalty payments for ISIS-Factor XI Rx.

These payments include the $100 million payment we expect to receive this quarter and a $55 million milestone payment we expect to receive next year upon advancement of the program following completion of the Phase II study.

In addition, we also retain significant participation in the commercial success of ISIS-Factor XI Rx.

We are eligible to earn tiered royalties from the low to high 20% range on gross margins of the drug.

The royalties we could earn are based on ISIS-Factor XI Rx's gross margins rather than net sales.

We expect Bayer's cost of goods will be nominal and, therefore, we believe our royalty will be equivalent to a royalty on net sales in the low to mid-20% range.

Turning now to our cash position, we ended the quarter with nearly $700 million in cash.

And so far in the second quarter, we've generated $110 million in payments from our partners.

The substantial amount of cash we've generated so far this year puts us on track to exceed our guidance of a year end cash balance in excess of $630 million.

And our successes so far this year have also set us up nicely to improve upon our guidance of a pro forma NOL in the mid-$50 million range and we plan to update our guidance later this year when we discuss our second quarter earnings.

And now I'll turn the call over to Stan.

Thanks, Beth.

Bayer is the sixth major pharmaceutical partnership we've completed in the last several years and the Biogen and AstraZeneca relationships have been expanded as well.

I think all these transactions highlight the interest of the leaders in the pharmaceutical space in our technology.

The high level of interest in Isis means that we can select the best partner and obtain the best value for our drugs, as we've done this week with ISIS-Factor XI Rx.

With our license of ISIS-Factor XI Rx, we've completed an important strategic objective for the year.

Our goals for ISIS-Factor XI Rx were to maximize the commercial value of this asset, both in the near-term and the long=term and also maximize our participation in its commercial success and we've done that.

The royalty structure we've achieved is particularly important because we believe ISIS-Factor XI Rx has blockbuster potential.

Of course, the Bayer transaction is not all we've been doing.

In fact, the first few months of 2015 have been pretty busy and we expect to continue this momentum throughout the year.

Perhaps the most important data event for us in the near future will relate to ISIS-SMNRx and we plan to update you on the Phase II open label studies in children and infants with SMA.

We remain tremendously excited about the performance of this drug.

We plan to report data from the six week Phase II study on ISIS-GCCRRx in patients with type 2 diabetes.

We plan to report data from our Phase II study of ISIS-APOARx in patients with elevated Lp(a) levels.

ISIS-APOARx is an important component of our lipid franchise, which is a part of Akcea.

We believe that patients with elevated Lp(a) are underserved and we are the first and specific inhibitor of Lp(a).

We and Genzyme plan to report data from our Phase III study evaluating KYNAMRO in patients with severe heterozygous familial hypercholesterolemia.

And together with AZ we plan to report our data from our antigen receptor drug in patients with cancer later this year.

We also have a number of clinical trial initiations to look forward to.

We will be -- we expect to be initiating the Phase III study on ISIS-APOCIIIRx in patients with familial partial lipodystrophy.

This second ultra orphan indication potentially more than doubles the initial market for ISIS-APOCIIIRx, it streamlines the development and commercialization path.

And it enhances our ability to obtain value pricing for the parent drug while setting the stage for the lack of follow-on in broader indications.

We plan to initiate Phase II studies on up to six drugs this year.

We also have a number of earlier stage drugs that should enter clinical development such as ISIS-DGAT2 for NASH.

And finally, we're initiating the first of several clinical trials that we'll be evaluating drugs that incorporate our lack of technology.

Obviously gaining clinical experience with a number of our LICA of conjugated drugs is an important step for us this year.

We continue to grow our pipeline as well.

As Lynne mentioned, we've already added six drugs to the pipeline this year.

All six drugs are targeted at the liver and all contain our LICA technology.

Now before I end, I want to take a minute to discuss recent advancements that we've made in our technology from which we are we're realizing tangible value today.

Generation two plus drugs are not only more potent, but better tolerated.

With generation 2.5 and LICA, we have two different chemistries and can give us individually up to a ten fold increase in potency.

In our pipeline today, we have four generation 2.5 drugs and eight LICA drugs and we plan to add new drugs incorporating these technologies.

And finally, in animals we've evaluated antisense drugs that combine both our generation 2.5 and LICA chemistries and have observed up to 100-fold increase in potency.

Thus in the near term, we're looking at the opportunity to develop drugs with doses less than 5 milligrams a week.

These are fundamental changes in the technology that we already have in hand today.

Each of these advances broadens the opportunity for our technology by enhancing the performance of our antisense drugs, reducing their costs, enhancing patient convenience and expanding the tissues and target available to us.

The progress we're making in understanding molecular events that lead to antisense activity is increasing logarithmically.

The more we understand of these events, the better we can design our drugs.

In fact, the reason our generation two plus drugs are performing better than our earlier drugs is because of the lessons we've learned and then applied to our drug screening processes.

We're also making great progress in identifying new mechanisms of action for antisense that may lead to totally new applications.

In principal, a significant limitation of antisense technology is that it is primarily used to decrease expression of disease causing proteins.

In a few cases we've overcome that limitation by altering slicing, such as we've done with ISIS-SMNRx, which we used to increase the production of SMN protein that patients with SMA are lacking.

However, one of our goals is to make it possible to broadly, throughout the transcriptome, selectively increase the translation of specific proteins.

Yesterday at a scientific meeting in San Diego, I presented for the first time the progress that my colleagues and I are making in identifying new antisense mechanisms that can be used to increase the translation of specific proteins.

Recent scientific progress suggests that many, if not most messenger RNAs regulate their own translation.

They do this using specific sequence or structural motifs in the RNA.

These occur throughout messenger RNAs and we've now learned how to design antisense drugs to interact with these motifs and that leads to enhancing the production of the specific protein from its own messenger RNA.

We've shown that we can use these mechanisms to design antisense drugs to increase the production of many different proteins, not only in cells, but also in animals.

Obviously these are important new discoveries as they broaden the applications for our technology and support our ability to treat patients who have diseases caused by deficiencies of proteins.

What we find particularly compelling is that we're going to be able to use our antisense drugs, drugs that we understand extremely well, to exploit natural biological processes in the cell to increase the production of proteins.

And of course, as we make fundamental advances in our technology, these advances are protected by our broad intellectual property state.

In this way, we can make better drugs, we can make drugs to targets that are not accessible to other modalities and we can use a broad array of mechanisms to selectively increase or decrease, now, increase or decrease the production of proteins while extending our control of RNA-focused drug discovery.

So wrap up, we've had a successful first quarter and the second quarter is off to a remarkably strong start.

We ended the first quarter in a strong position, we selected the right partner for Factor XI Rx and we were continue to advance our pipeline.

These activities have set us up for another year of progress with multiple opportunities for further achievements and, of course, we look forward to sharing more successes with you in the coming months.

Now with that, I'd like to open up the call for questions.

Jamie, if you can set us up, please.

(Operator Instructions)

And our first question comes from Chad Messer from Needham & Company.

Go ahead with your question.

Great.

Thanks for taking my question.

So far this year you've delivered us two great deals with big pharma partners, but very different, very different kinds of deals.

Janssen kind of a broad, earlier stage, you know, starting almost as a research collaboration in a focused area, and then Bayer with more of a mid-stage single asset, and you've done both of these kinds of deals in the past and kind of talked about them and their, you know, sort of importance.

But as you look forward through the rest of the year, are you more focused on these kind of product-specific deals?

So, for example, for like a diabetes assets or getting more deals kind of like your Biogen and your Janssen?

Well, we're focused on both, Chad.

First of all, our primary focus in licensing is to maximize the value that we can achieve in a license and to optimize our control.

So as we've said, we're being much more careful about when and to whom we license our assets and at what dollar figure.

Factor 11Rx, of course, was a high priority this year because it's ready for very, very broad investment.

Our diabetes drugs are all candidates for partnering, but we want to make sure that we optimize those partnering activities for when we have the highest value created.

So, we have a wide variety of drugs in the pipeline, some that we're holding on through Phase 3 in Akcea, some that are available for licensing now, and some that we won't license until we feel we've achieved, you know, additional value inflection points.

With regard to the broader relationships, as we've said, one of our goals in the sort of near- to mid-term is to add additional strategic partners.

What we look forward to is the day when we have several strategic partners in various therapeutic areas, with whom we work well and who understand the technology well, and people that we work well enough with that we trust.

And so those are all things that we're working on.

Obviously there's -- no one can tell you exactly what deal we'll do next.

I can't, and if I tried, Lynne would hit me.

But all of those things are being worked on all the time here and the level of interest is really remarkable.

Did I answer your question?

Yes, you did.

Thanks.

I mean, Stan, is there such a thing as having too many strategic partners?

Is there a point where there's just too much going on, or is the discovery engine at Isis, you know, virtually unlimited in its capacity?

It's only limited by the size that we want to retain.

We are already dramatically expanding our ability to screen and that's coming because of new technology and new approaches and the quality of screening gets better every day.

So what we can generate today is very different from what we could generate a year ago with the same number of people.

So to answer your question specifically, yes, there comes a point when additional partners, strategic partners is not a good business decision.

That point comes when it would cause us to be larger than we need to be or we want to be or we're partnering areas that we don't want to partner.

And so we won't do that.

However, what we look forward to is a select few strategic partnerships, and we think that will dramatically reduce the work that we have to do and make us much more efficient and make the progress of transferring the drug to our partner and having them perform a much more efficient process.

Certainly we benefit from that with Biogen, and that's the model.

We also benefit at GSK and AZ because of the broad experience the organizations have with each other.

So we have a fairly precise number of strategic partnerships that we're willing do.

We know exactly what spaces we want to do our strategic partnerships in, and to a large extent, we know who we want to partner with strategically, and now it's just a matter of executing that over the next couple, three years.

Is it possible to share some of the areas you would be most interested in partnering in?

No.

All right.

Well, thank you very much.

Okay.

But I will say if you look at our presentations, you've seen us divide things into three bins: partner early, partner after proof of value, and hang on to.

And that model, if you're thinking through it, is the sort of model we have in our head in terms of the types of strategic relationships we build as well as when we would license a drug and when we would hold on to it.

Thank you.

Wade can send you that slide just to remind you.

Yes.

Our next question comes from Jessica Fye from JPMorgan.

Please go ahead with your question.

Thanks for taking my question.

I guess my question is on the TTR program.

We've seen some clinical data from (inaudible) program, we've seen what looks like similar degrees of TTR knockdown for their product and yours.

I guess putting dosing and route of administration aside, can you talk about whether you expect any real differences in the clinical profiles of these products?

Well, I don't think I can put dosing and administration aside.

I think it's an essential difference.

Having to pre-treat patients with steroids and antihistamines and H2 antagonists and give IV infusions is very different from patients being able to administer the drugs themselves with no pre-treatment and minimal issues.

We think that's a fundamental and very measurable difference between the drugs, and I think the mechanisms are different.

The Ago2 mechanism is, of course, that system is designed to be relatively promiscuous, and we know after a lot of experience with H1 is that it's very, very, very specific.

And so I think it remains to be seen over time whether there are differences that drive from mechanism.

And then finally, of course, the drugs are different.

Ours are single stranded and distribute without any special delivery device or vehicle.

Theirs, for the drug that they're developing for the peripheral neuropathy it requires, you know, specialized delivery systems, and I don't know that anyone has any real long-time experience or long-term experience with those.

So I think the differences would end up being the specificity or type of specificity of the AGO2 mechanism, or the probably lower specificity, and also tied to the safety, tolerability, cost and the like of administering double strand ASOs in -- or double strand oligonucleotides in nano particles or whatever the current term for these delivery -- these lipid delivery vehicles is.

Those are all things to be determined.

I guess following up on that, you talked about the additional cardiovascular data you're collecting in your FAP study.

I guess what's the ultimate goal there?

Is this just to get a more robust label in FAP?

Is it actually possible there's some path for filing for FAC based on that data?

As you know, our partners from GSK are planning to initiate a pivotal quality cardiomyopathy study, so I don't want to get ahead of those.

But we do think the data that we're generating in our ongoing Phase 3 study in patients with FAP will be very instructive and additive, plus the data from Dr. Benson's study, to support really increasing our understanding of what happens in these patients, many of whom do have cardiovascular involvement.

You know, I wouldn't rule out some other, you know, filing pathway, but right now, I think what you should count on is that we are doing a pivotal quality study and our plan is to file based on that.

Got it.

Thanks.

Our next question comes from Michael Schmidt from Leerink.

Please go ahead with your question.

Good morning.

Thanks for taking my questions.

I had one on the scope of the bio partnership on Factor 11.

Can you help us understand sort of the scope in terms of the indications that are included in this partnership?

It sounds like the initial Phase 2b will be focused on the chronic kidney disease patients.

Kind of what are the gating factors for bio here to initiate additional studies in different indications?

Could you help me understand that?

Thanks.

Yes.

I would characterize it differently.

The deal is designed to develop Factor 11Rx very broadly, and the strategy within that transaction is to first develop it as rapidly as possible for indications in which current drugs, and there are a lot of them, are difficult to use or not use because of bleeding risk.

We think, and Bayer, thinks that's by far the best approach to managing pricing and life cycle.

There are no additional gating items to going to broader indications, and those will be, again, as -- you know, in due course consistent with the strategy that assures an effective life cycle management and effective pricing.

Lynne, do you want to add anything to that?

We can't talk a lot about the details of the Bayer plan, obviously, because they view that as, you know, highly secret.

But I will tell you that we chose Bayer as our partner because they have a very robust development plan laid out for this drug because they believe with us that this drug has, you know, an opportunity to really be a game changer in the treatment of thrombosis.

There are contractual elements that help assure a broad development plan, but I think the thing that gives me the most comfort is they're committed to this space, they know the space, they have a plan that we really like.

And they know that Xarelto sales -- you know, that Xarelto's patent is going to come to an end at some point, and they want to remain in the space and replace those revenues with new revenues that are more lucrative.

Okay.

So it's broad and really that's all we can tell you, Mike.

Got it.

Understood.

And then I had a bit of a technical question on the Huntington's Disease program.

So my understanding is that for FAP using the antisense argo you're knocking down both copies of the gene, the healthy and mutated copy.

I was wondering in Huntington's where you really want to knock down one of the two layers, how you can achieve that from a technology point of view?

Thanks.

We've actually achieved that and that's what the drug is designed to do.

We can -- and we've demonstrated this now for many years, that we can create relatively specific for the mutant ASOs, it takes some design work, but it's possible to do.

On the other hand, there's quite a bit, and I'm not an expert here, but this is what the experts tell me, there's quite a bit of information that shows that you can reduce both normal and mutant Huntington without deleterious effects.

So we'll be looking at both, as well as we can, but our belief is that it's perfectly -- it should be well tolerated to reduce both if you want to.

Got it.

Great.

Thanks so much for that.

Mike, can I just add, it's really one of the significant values of the technology and the specificity and selectivity that we can achieve that when you choose, for example, with TTR as you mentioned, that you want to reduce both forms, you can design a drug to do that, but where, you know, in a program like Huntington's or a program like our rhodopsin program, you choose to only selectively reduce a specific form, you can do that.

And so it's, you know, different from disease to disease, depending on what the goal is you're trying to achieve.

We actually have drugs for every one of these programs where you have a mutation, we have drugs that reduce both the normal and the mutated, and we have drugs that have a high, relatively high level of selectivity for the mutant.

It's pretty easy to do, it just takes some work.

Okay.

Great.

Thank you.

Our next question comes from Alethia Young from Deutsche Bank.

Hi, this is Eliana for Alethia.

Thanks for taking our questions.

Just on Factor 11, how do you guys think about the use of an injection versus pills in the thrombosis market, especially even outside of the initial smaller indications?

We think that the SubQ injections are very well tolerated today and the separation of bleeding from anti-thrombosis changes everything.

And if you really talk to patients who are taking even Factor 10As or anti-thrombotic therapy, they have a fairly miserable time.

They bruise, they bleed, they have lots of issues.

So, there are some spaces where anticoagulant therapy today, or anti-thrombotic therapy today, is reasonably acceptable, and that would be a space that maybe you wouldn't think about the Factor 11Rx being primarily focused on.

But there are many, many, many deficiencies in the treatment of thrombosis, and all those are opportunities that I don't think are tremendously impeded by a once weekly SubQ injection.

And more importantly, I think none of the potential partners that we interviewed and Bayer feel is a significant impediment.

Great.

That's helpful.

Thanks.

Just a quick follow-up.

What DDI work are you doing in Factor 11, especially as these patients may already be on many medications on their baseline?

Well, we know that with antisense drugs, we don't have DDIs.

Okay.

We've shown that now with, I don't know, 40 or 50 drugs that we've studied in the clinic.

Not all of them have been studied in the clinic, but we've studied many.

These drugs are not substrates for cytochrome P450, so none of those cytochrome P450 or any cytochrome interactions occur.

We also have looked at other types of drug-drug interactions and they don't have them.

So one of the giant pluses that we haven't really emphasized with Factor 11Rx and all of our cardiovascular drugs is that you don't have to worry about the PKPD changing because other drugs were on board, and you really don't have to worry about drug-drug interactions.

And I think as that progresses, as you know well, one of the big issues with people who are being anticoagulated is what fraction of time they're within the range of desired anticoagulation.

Because of the limited therapeutic index of the agents and the fact that they have all these drug-drug interactions, people lie outside that range way more than anyone wants them to be.

And so armed with separating, absolutely separating bleeding from anti-thrombosis and the lack of drug-drug interactions, we think the simplest way to demonstrate a dramatic increase in value is to show the fraction of time that people are in the proper range for anticoagulation or anti-thrombotic, and that's going to be duck soup for us, we think.

There are no drug-drug interactions that we've identified to date, to put it simply.

Great.

Thanks.

And if I could ask just one more question.

In the talks you had with Bayer and others, what other indications were mentioned for this initial place to start outside of kidney disease?

If you could give us any color on that, that would be helpful.

Yes.

You know, as I said, you know, to Michael's question, Bayer views their detailed development plan as being, you know, pretty confidential.

But they do have a robust development plan that moves outside of patients with compromised kidney function into other patients for whom, because of their health status, factor 10A inhibitors may be of limited usefulness and then into broader indications.

And as we continue to develop the profile of the drug, you know, we'll move it into, you know, broader and broader indications.

So we're happy with the development plan, but I can't give you the details of it today.

I can tell you that in the past, before we partnered with Bayer, we talked about atrial fibrillation and renal failure, we talked about patients with valve replacements, we discussed aortic stenosis, we discussed, of course, the extraordinary opportunity in secondary prevention, and a variety of other things.

So in as much as we had a choice about what partner to pick, you can surmise that the thought processes at Bayer are similar, without us giving you any more information than that.

Great.

Thanks, guys.

Our next question comes from Yale Jen from Laidlaw & Company.

Please go ahead with your question.

Thanks for taking the questions.

First of all, just like to know if there's more detail in terms of the Factor 11 clinical study to be started in terms of study -- trial design and other relevant information?

It's just a Phase 2 study to add to the information we have about the PK and safety and the like in patients with compromised renal function.

It's a short and fairly straightforward study.

And that's all the information I think we've given to date.

The study is getting ready to start, and so we'll be able to talk about it in more detail a little later.

But we have, you know, some meaningful experience in patients in frank renal failure and with significant renal dysfunction of various types.

But, obviously, we don't have it with this specific molecule, and so the goal there is to just get that information, get that experience quickly before we move into Phase 3.

Okay, great.

And another follow-up question here is that I know Bayer will take over the development once the study is completed.

Is there any potential possibility that Bayer may also start some other clinical studies in parallel with the Phase 2 study right now before the completion of this study?

Yes, they plan to do that.

So they're not waiting until we finish the study.

Okay.

And last question here is that, Stan, you mentioned about the meetings you recently presented in terms of the self-regulating elements in the messenger for regulating the translation and that you can potentially take advantage to making an antisense product for increasing the production of proteins.

Would you shed a little bit more light on that specifics, and, you know, what kind of things you may be planning to incorporate into your future development at this point?

Yes.

We've identified several mechanisms.

The two mechanisms that I described yesterday are mechanisms based on motifs in the five-prime untranslated region of the message.

One is called upstream ORFs and the other is called translation inhibitory element, these are recently identified mechanisms, and we use fully two-prime modified ASOs to alter those structures.

Upstream ORFs are present in about 50% of all messenger RNAs according to the latest data, and when they're present, they repress translation.

So that's a robust mechanism, and we've shown that we can use that mechanism, for example, to alter translation of proteins of a variety of types and in various cells and in humans and mice, human cells and mouse cells, and then mice.

And so we think that particular mechanism is ready to now go into our drug discovery programs.

The TIE and some other mechanisms that we're working on, it was not quite ready to go into drug discovery programs yet.

We've got some more work to do.

And the places that we're focused, in terms of potential therapeutic targets, are places where we have good evidence that the disease is caused by a deficiency of the protein where there's still message available.

And, the number of diseases are very broad, probably the largest category of such a thing would be something like PCSK9.

After all, what PCSK9 is doing is going in a round about way of inhibiting a protease so that LDL receptors can go up.

As an example of a very broad disease category where you can think about is up-regulating something like LDL receptors.

Thank you.

That's very helpful.

I appreciate it.

Thanks.

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

Hi.

This is Jeff on for Eric.

Thanks for taking my questions, and congratulations on all the progress and the deals.

Switching gears a little bit, I believe we might get an update on SMNRx, Phase 2 data this quarter.

If you could just discuss maybe what data might we see, and also if we're going to see, more specifically, on the 12 milligram in the juvenile?

Well, we haven't committed to a specific date yet, but we will be updating both the infant study and the type 2 study.

And what we'll do is just extend our observations in both of those, so what we would be reporting in the infant would be survival to end-point free survival, CHOP INTEND and developmental milestones or some portion of that.

And then the childhood would be the same information that we've reported before, the Hammersmith, the six-minute walk and those kind of things as well as, you know, safety and all that.

And those studies have progressed very nicely, and so we're looking forward to presenting those data, but we haven't defined a specific date yet.

But we will get a chance to see the 12-milligram dose in the juvenile?

Yes.

You'll see the 6- and 12-milligram data in the infant and you'll see the various doses in the juvenile.

Thank you very much.

You bet.

And our next question comes from Stephen Willey from Stifel.

Thanks for taking the questions.

I wondered if you could maybe provide a little bit more color around the investigator-sponsored study right now that's ongoing for TTR?

I guess specifically with respect to patient size and when we might see a little bit of data from that?

And again, understanding that it's an investigator-sponsored study.

It's a small investigator-sponsored study.

I can check for you, Stephen.

I believe that we're expecting to have data near the end of the year, but can I give you a call back after this call, and I'll check in with the experts and give you something more precise?

Of course.

And then, I think in talking about the cardiac subset in the FAP study, you know, you talked about BnP as being one of these biomarkers that you'll be looking at to assess disease progression.

And I think, you know, some of the data that we've seen, I guess, on BnP has been somewhat conflicting, and I'm just kind of wondering what is the Company's stance with respect to BnP being a viable biomarker in this setting?

I think it's one of the things to look at.

We'll be looking at all measures of cardiac function.

So all the things that you would think that we might be doing, we're doing.

And I think it will be the composite of all those endpoints that will be informative about what we're seeing, is it exciting, and we think that work will be very, very important in informing what we do in the phase as we move the Phase 3 forward.

And, of course, could provide tremendous insight into the performance of the drug independent of the Phase 3 trial.

So that's a long-winded way of saying BnP is one of the measures, probably not the most important measure that we'll be looking at.

And --

Okay.

Just to say it, that is not the endpoint of the Phase 3 clinical study that GSK is getting ready to initiate in the cardiomyopathy form of the disease.

Okay.

And then, just with respect to the webcast that you're planning on hosting in early June, I think you said.

Will we be getting specifics around the partial lipodystrophy trial design?

Yes.

In conjunction with --

You'll get specifics.

We're going to do our best to bring you up to date on the impact of the changes in the plan for APOC3, why we're so excited about it, and you'll get appropriate levels of information about the specific studies.

And just to think about it, because the indications are extremely similar, just think about the partial lipodystrophy study as looking very, very much like the FCS study.

Okay.

And then, just lastly, you talked about the combination of using both LICA and 2.5 chemistry yielding these 100-fold improvements of potency.

And I'm just wondering if you've already internally identified candidates for moving forward that possess both of these features, and I'm wondering how much additional pre-clinical optimization needs to be done here in order for one of these things to go into the clinic?

Thanks.

We've identified a number of opportunities, and as I look at it today, I don't think there's much additional optimization that's necessary.

What's essential is to decide what target we want to pick first, what are the justifications for that, and how we want to go at it.

Remember that a 10-fold increase in potency, given that our ID50 for a liver target today with generation two plus is close to probably 100 milligrams per week, if you want to be conservative say 150 milligrams.

So a 10-fold reduction takes us to15 milligrams a week, which means we can think about probably monthly dosing.

At that dose, anything below 50 milligrams, we just don't see ISRs.

Your price is improved.

Just everything about the drug is better.

So we already have 10-fold in the clinic with both generation 2.5 and LICA.

And with generation 2.5, its value is so much broader than the liver, and that's why you'll see more 2.5s being developed for non-liver targets because, you know, as you're seeing with DMPK and the cancer drugs and so on.

So, you know, it would, obviously, be a liver target, and it would be a target where we felt that having that extra value would be an immediate advantage, and obviously that would then be the vanguard to move toward that as our standard over the years as we gain more experience with it.

But it's ready for primetime.

Thank you, and congrats on the Bayer deal.

Thank you.

I want to thank everyone for your interest in Isis and participation in this call.

To sum up, we think we've started the year with a super first quarter.

I think our financial results demonstrate that we really do have to give new guidance.

We're very happy about that.

And the second quarter is off to a rousing start with the Bayer deal and $110 million in cash, and we look forward to sharing with you SMN information and information from other programs as they proceed.

And a central point that I want to keep emphasizing is while our technology is fully validated, there aren't any I's to dot, there aren't any T's left to cross.

It's still very dynamic, and it's changing in a very positive way at an increasing pace.

And so the antisense you knew three years ago is not the antisense of today.

And the addition of these new opportunities to increase the translation of proteins, of course, is a major step forward for the technology.

Thank you.

Ladies and gentlemen, that concludes today's conference call.

We do thank you for attending.

You may now disconnect your telephone lines.