Ionis Pharmaceuticals, Inc.
Q1 2008 Earnings Call Transcript

Published: 12 May 2008

[Operator:]

Good day everyone. Welcome to Isis Pharmaceutical's First Quarter Financial Results Conference Call. (Operator Instructions) Leading the call today from Isis is Dr. Stan Crooke, Isis Chairman and CEO. Dr. Crooke, please begin.

[Stan Crooke:]

Thanks, Melissa. Good morning and thanks everyone for joining us on today's conference call to discuss the financials for our first quarter 2008. Joining us on today's call are Lynne Parshall, COO and CFO; Jeff Jonas, Executive Vice President; Beth Hougen, Vice President of Finance; and Kristina Lemonidis, Associate Director of Investor Relations. Financially and in all other respect, 2007 was a transformational year for Isis, and the momentum that we created in 2007 is continuing as we progress into 2008. On today's call, Lynne will review for you the financial results and the business strategy that we expect will continue to build our financial strength. I will then spend a minute speaking briefly about the progress we are making with the mipomersen development plant, progress in the rest of our pipeline, progress in our Ibis and regular subsidiaries, as well with other satellite company's. Kris, will you now present the forward-looking statement.

[Kristina Lemonidis:]

Sure. Thanks, Stan. Good morning everybody. A reminder to everyone that this webcast includes forward-looking statements regarding Isis Pharmaceutical business, financial position and outlook for Isis, as well as its Ibis Biosciences subsidiary, and its Regulus joint venture, and the therapeutic and commercial potential of the company's technologies and products in development. Any statements describing Isis' goals, expectations, financial or other projections, intentions or beliefs is a forward-looking statement and should be considered at risk statements, including those statements that are described in Isis' goals or projections. 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 in human therapeutics; and developing and commercializing systems identifying infectious organisms that are effective and commercially attractive; and in the endeavor of building a business around such products. Isis' forward-looking statements also involve assumptions that if they never materialized or proved correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements. Although, Isis' forward-looking statements reflect good faith judgment of its management, these statements are based only on facts and factors 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 31st, 2007, which is on file with the SEC. Copies of this and other documents are now available from the company. I would like to turn the call over to Lynne.

[Lynne Parshall:]

Thanks, Kristina. As usual I am assuming you all had the opportunity to read the press release which we issued this morning. So, I will not reiterate what is detailed in there. However, I do want to spend a little time to highlight what we believe is a quarter of excellent financial performance. We had nearly a nine-fold increase in revenue from $2.5 million to $21.4 million, with only a $5.4 million in increase in expenses, when comparing the first quarter of 2008 to the same quarter in 2007. We had an increase in cash of $146 million, all since the end of the year, as we ended the first quarter with nearly $340 million. And we are on track to meet our guidance for 2008, for pro forma NOL of less than $15 million, and cash of at least $450 million, which does not include any additional cash from Abbott, should it require Ibis. This financial performance is a direct result of Isis's unique business strategy successfully implemented. And of course, underpinning that strategy is Isis technology dominance in RNA therapeutics and the scientific investments we’ve made that are now resulting in very attractive drugs. In 2007, both BMS and J&J's Ortho-McNeil division completed significant corporate partnerships with us, which set the stage for 2008. We and BMS just recently announced a development candidate less than a year into that collaboration, and we're excited to add another lipid-lowering drug to our pipeline and then move it forward towards the clinic with our partner. Our Ortho-McNeil collaboration is also going extremely well, with Phase I clinical trials on the glucagon receptor antagonist drug progressing nicely. Of course, the key event of this quarter was the completion of our mipomersen auction, with the selection of Genzyme as our partner six months earlier than planned. Stan will discuss Genzyme and mipomersen in some detail later in the call. I'll just focus here on the financial contributions of all three of these transactions. The positive effects of these transactions are readily apparent in this quarter in both our cash and our revenue, as they will be for the rest of the year and going forward. Of course we’ve received only the first $150 million from Genzyme and expect to complete that transaction shortly, which should add another $175 million. Our satellite company strategy is a key aspect of our business strategy. Two very important transactions have already occurred in 2008. These are evidenced through the value of our strategy that allows us to move forward novel technologies arising out of Isis innovation to create even more value for our shareholders. In January, we announced a strategic relationship between Abbott and Ibis. The financial benefits of this transaction are obvious, in the short term, as it provides funding for Ibis to move aggressively towards its largest market in-vitro diagnostics; and in the longer term, as Isis shareholders will receive a total of $215 million to $230 million, should Abbott purchase Ibis. And we will continue to participate in Ibis' commercial success, even after an Abbott purchase, through an earn-out of up to 5% of sales. Very importantly, our Ibis team is fully engaged with a very experienced Abbott team in mapping up the milestones to be achieved to reach medium and long-term commercial success in diagnostics. Almost as soon as we could get it up and running, Regulus, our microRNA joint venture inked its first corporate partnership with GSK. Regulus, which we formed with our partners at Alnylam, was initially funded with $10 million from Alnylam. It incorporates the strong intellectual property position of both companies, a world class Scientific Advisory Board, and a very strong and going management team. It's no surprise that Regulus quickly established itself as a leader in this new and very exacting area of drug discovery. We now have ensured that both Ibis and Regulus are fully funded; adding $40 million of cash so far this year; enabling Isis to participate in two very exciting technology areas; and benefiting Isis shareholders in a financially attractive way. Plus, each of these joint ventures has obtained a partner that will accrete value to the programs. In other words, our strategy is successfully at work. As our satellite companies mature, we continue to see value both in drugs moving forward in the pipeline and in payments associated with its progress. In addition to Regulus and Ibis, we've seen great progress so far this year from our satellite companies including OncoGenex, who recently announced more positive clinical news on OGX-011, a drug of which that we own 30%. As a result of ATL's license VLA-4 antagonist for multiple sclerosis to Teva Pharmaceuticals, we will receive one-third of all sub-license fees and milestone payments as Teva moves the drug through development as well as the share of royalties. We are pleased to have this drug in the hands of a strong multi-national company as it enters the next stage of development. Finally, Altair Therapeutics just recently began dosing patients with our inhaled antisense drug to treat asthma. We'll not only have an equity stake in Altair as with the rest of our satellite companies, but we'll also receive a portion of sub-license revenues and royalties as the drug moves forward. So in the first few months of the year, we've made significant progress in meeting our 2008 goals and we are looking forward to more exciting news to come. We have a large pipeline of drugs and clinical development. Several of these are in critical clinical trials for which we will report data later this year. We will also be initiating clinical trials and additional drugs, such as our CRP inhibitor. Our pipeline will continue to grow, fueled by our efficient and robust drug discovery platform. This year, we plan to add two to four new drugs to our pipeline, and are far along in meeting this goal having added one already. Our strategy enables us to remain small with an efficient research organization focused on what we do best; discovering and developing drugs. Now, with our recent partnering successes, we have the financial strength to fully implement this strategy. Indeed for us, this is only the beginning. Now I'll turn the call back over to Stan

[Stan Crooke:]

Thanks Lynne. I certainly do agree that we've completed a series of transactions that has truly transformed our financial outlook. Of course, mipomersen remains our most important asset. We have completed our Phase II program that demonstrates mipomersen is a very attractive drug candidate. Mipomersen is a unique first-in-class agent that lowers all atherogenic lipids. It works in all patient population studies; works equally well in the presence or absence of other lipid-lowering therapies; and is unlikely to have drug-drug interactions, muscle, heart or central nervous systems side effects. There is essentially no near-term competition for mipomersen and our development is focused on bringing mipomersen to patients with clear unmet medical needs. I am pleased to tell you that our Homozygous FH Phase III study is going well and enrollment is right on track. Since the FDA provided guidance, we and our friends at Genzyme have made excellent progress in revising the development plan in accordance with that guidance. We hope to provide more definitive information about our plans after we meet with the FDA. As you probably know, Genzyme highlighted mipomersen at their Analysts Day last week, which is available on the Genzyme website, recommended to you. From our perspective, the key take-home messages from the Genzyme presentation are

[Operator:]

Thank you. (Operator Instructions). We'll go first to Salveen Kochnover with Jefferies and Company.

[Unidentified Analyst:]

Hi, this is Brandon [ph] for Salveen. I have a couple of questions for you. First, can you talk about your discussions with the FDA and whether you guys have a scheduled meeting around the apheresis eligible indication, and the broader high-risk population? What gives you confidence that you guys will have the information needed to close the deal with Genzyme by the second quarter? And second, when we look at pricing, would it be fair to say that the cost of apheresis is an accurate benchmark?

[Stan Crooke:]

It was little hard to hear you. I think I heard all the questions. First, with regards to Genzyme, as Genzyme made it clear in their meeting, we are moving along towards completing the relationship on schedule in this quarter. And that relationship would be based on the original premise of the agreement of 50

[Unidentified Analyst:]

Do you have a scheduled meeting with the FDA in terms of talking around the apheresis eligible indication or the broader high risk population?

[Stan Crooke:]

We are putting our plans together and we are moving forward with the FDA, and I prefer to leave it at that level of detail.

[Unidentified Analyst:]

Thank you.

[Operator:]

We will go next to Mark Monane of Needham and Company.

[Mark Monane:]

Good morning, everybody. I am here with my colleague Allan Carr. We have a few questions for you.

[Allan Carr:]

Stan, can you clarify where things stand with the payments from Genzyme. I understand that there is a $150 million stock purchase that's already happened. But is that upfront fee, is that a certainty or is that something that is going to be discussed with Genzyme in formalizing the deal later this quarter?

[Stan Crooke:]

Yes, of course we have the $150 million. And as I said, the transaction will be fair and attractive. And we believe that the $175 million will be forthcoming.

[Allan Carr:]

Are you saying that that one is likely or a certainty? I guess I am just trying to get some clarification on that.

[Stan Crooke:]

Lynne, do you want to respond?

[Lynne Parshall:]

We are in the process of finalizing the details of the development plan and the details of the agreement with Genzyme. Any dial could be turned, but I agree with Stan. I think it is unlikely that the $175 million will be a dial that will be tuned.

[Allan Carr:]

Okay. Another quick question on Ibis and Abbott, you had a quite a bit growth in 2007 in terms of contract for Ibis. Do we expect to see more of that this year, or whether it would be more focused on meeting milestones in your deal with Abbott?

[Stan Crooke:]

Both. We are expecting meaningful growth in contract revenue, and we are expecting some of those contracts to move from research contracts to fee for service relationships. We obviously are heavily focused with Abbott on commercial sales, and we see good progress there. And we are also focused on bringing large number of new kits for the infectious in vitro diagnostics business forward. We are focused on improving the instrumentation as well. So you should expect progress on all fronts. Obviously, the next financial event for Ibis is the $20 million additional investment from Abbott which happens in July if I remember correctly.

[Allan Carr:]

Okay. Thanks.

[Lynne Parshall:]

Stan, may I make one clarification to what you just said?

[Stan Crooke:]

Sure

[Lynne Parshall:]

In general people will remember that our Ibis government contract revenue has been in sort of $9 million to $11 million, and those government contracts in general now that they're very application-focused are between in general 18 months to 24 months. And so Ibis has already made significant progress this year that we've announced in getting new government contracts, but in general those are replacing contracts as they end. So our goal is to continue a steady stream of government contract revenue for Ibis in the same kinds of levels that we've had going through this year and going from this year to next. And we're right on track to do that.

[Allan Carr:]

On the 715 program, can you comment what kind of drop of hemoglobin A1c, which might be clinically relevant? In the first presentation earlier that we saw that it was a relatively well population, so there is only so much you can go down to in terms of hemoglobin A1c. Can you comment on and before we see the data, what would be relevant for bringing it forward into further studies.

[Stan Crooke:]

Well, I think a relevant additional drop in hemoglobin A1c after 13 weeks in a patient population on sulfonylurea would be a 0.5%. We are certainly hoping for more. And these patients, in contrast to the initial study, are all well established diabetics and who have been treated with stable sulfonylurea for some time. So the hemoglobin A1cs are higher than in the earlier trail, but the most important point is that the placebo effect that you see in diabetic, in newly diagnosed diabetics which is really not a placebo effect, but it is a response to diet and exercise and all of the things that medical care can bring to somebody who is typically overweight and diabetic. In a more stable diabetic population you expect to see less of a placebo response, and therefore you are able to discriminate a drug effect with fewer patients.

[Allan Carr:]

That was helpful.

[Mark Monane:]

And a last question on PCSK9. As you talk with the FDA on mipomersen, does it help with framing the development plan for this normal cholesterol agent as well or there is separate discussion. How do you use, do you Bristol Myers Squibb are you working on envisioning some new guidance in this new era?

[Stan Crooke:]

I think that conversation about mipomersen is certainly relevant, but probably more relevant are all of the actions that the FDA has taken with our drug, other cardiovascular, and other metabolic drugs. I think the lessons being taught are very clear, that new agents are going to require more than surrogate outcomes. And any company that fails to respond to those trends will be making a mistake.

[Mark Monane:]

Thanks to the added information and congratulation on the progress for the team for this quarter.

[Stan Crooke:]

Thanks guys.

[Operator:]

We will take our next question from Eric Schmidt with Cowen and Company.

[Eric Schmidt:]

Good morning, Stan. On the Genzyme collaboration, why would Genzyme be entitled to better terms? It sounds like you and they had both always expected to run this outcomes study. So, I am trying to figure out kind of what their leverage point is with you, if any?

[Stan Crooke:]

Well, the most important change is that we are moving the outcome study up earlier, and that increases development expenses. Secondly, there is a delay in the commercialization for polygenics, because we had to finish the outcome study before we can seek approval. So, that does change both the cost structure and the timing of sales and profits at least for that indication. The other thing that is changing, obviously, is we had planned for heterozygous FH filing in the United States. It seems as though heterozygous FH filing will certainly be rolled into sort of a general filing rather than polygenics. So those are the things that we are grappling with as we look at the plan and we look at the cost and we look at how to apportion the 50-50 split in current and future value. Lynne, do you want to add or subtract anything to that?

[Lynne Parshall:]

No.

[Eric Smith:]

And I guess, if I’m reading your comments right, it sounds like you are optimistic the $175 million upfront payment remains. You are optimistic the 50-50 structure remains. So --

[Stan Crooke:]

Yes I am. And I’m certain that the 50-50 structure will remain.

[Eric Smith:]

So can I assume that may be what might change is your cost, I guess you are capped at a certain dollar value cost. I remember it was a little less than $100 million, and that might be potentially what could be renegotiated?

[Stan Crooke:]

I think the thing to focus on is that we have one of the richest licenses in the history of the industry for a Phase II drug. That will continue and the basis of the deal will be a 50-50 transaction, and we will not do the deal unless it's fair and attractive to both partners.

[Eric Smith:]

On 715, I may have missed this but is the data definitely going to be presented at the ADA?

[Stan Crooke:]

No, we’ve always said that the data would be later this year. So the ADA is in June.

[Eric Smith:]

So it will be not be at the ADA.

[Stan Crooke:]

But 715 will not be at the ADA

[Eric Smith:]

Okay. And two book-keeping questions for Lynne on Ibis, are you just going to continue to consolidate the financials there as you have in the past, up until I guess the Abbott acquisition?

[Lynne Parshall:]

Yes.

[Eric Smith:]

Okay and secondly, can you tell us what the final shares outstanding were for the end of the quarter? I don’t know exactly when Genzyme made that purchase.

[Lynne Parshall:]

They made it this quarter and I apologize. I am not at the office with everybody else. I don't have that number in front of me, but we can have somebody call you back and give it to you.

[Eric Smith:]

Thanks so much.

[Stan Crooke:]

Did it happen in the first quarter or second quarter?

[Lynne Parshall:]

Genzyme equity was in the first quarter.

[Stan Crooke:]

I don’t know this, really $95 million of that said is the outstanding share count. Does that answer your question? Next question please.

[Operator:]

And we will go next to Carol Werther with Summer Street Research.

[Carol Werther:]

Hi, thanks for taking my question. Stan, can you give us any kind of idea of how large the outcome study might have to be? And if you have to include both, does it have to be a mortality end point?

[Stan Crooke:]

Well, obviously we are in the midst of planning this and negotiating with the FDA. I think the thing that we and Genzyme would feel comfortable saying is that the mortality study we envision will be a few thousand patients and a few years. Not the very large outcome studies that have been performed, because we are looking at very high risk patients or at high risk patients. And we will certainly look at more morbidity and mortality, and we will have multiple opportunities to evaluate the data throughout the trail. We'll probably, and in separate places, be looking at other surrogate or other measures of outcome as well. And I think that's about as much detail as we dare go into until we get the actual study negotiated with the FDA. Jeff, is that fairly on point?

[Jeff Jonas:]

I think that's right. Almost certainly we'll use other events besides mortality just for that number one. And the other point to make is that the earlier studies we're seeking to validate LDL lowering as an end point, which we don't need to do any longer. So we don't have to power studies as the earlier studies were. So we're very confident that we can find a high risk population that will allow this to perceive with a modest number of patients over a shorter period of time. But again, echoing Stan, I think until the details are finalized and accepted. I think I would try not going to say more about it.

[Carol Werther:]

That's good, now I understand. The other question I have is regarding the cash guidance that you've given for this year. Does that include signing additional partnerships?

[Lynne Parshall:]

No, it does not.

[Carol Werther:]

And any clue as to how many you might find this year? What should we expect the run rate that you have been doing in the last 12 months?

[Stan Crooke:]

Well, we've signed Genzyme, Abbott and GSK in the first quarter. That's a fairly good start. We have a lot of interest, so it would not surprise us if we have more partnering news for you as the year progresses.

[Carol Werther:]

Okay great thank you.

[Operator:]

(Operator Instructions) At this time we'll go next to Debjit Chattopadhyay with Boenning & Scattergood

[Debjit Chattopadhyay:]

Gentlemen good morning, and thank you for taking my question. Stan, you guys already have the 100 milligram dose [code] for the 715 that has not been taken?

[Stan Crooke:]

Yes.

[Debjit Chattopadhyay:]

And in the call you mentioned that you feel confident that you would see reductions in HbA1c levels and glucose levels as well, but do you think the optimism is based on the 100 mg go-out data, which is actually sub-optimism, wasn't it?

[Stan Crooke:]

Sure, the optimism is based on everything that we know about the drug. The optimism is based on the other Phase II work that we did, the mechanism and the profile of the drug in animals and everything else that we know with regard to the drug including a safety.

[Debjit Chattopadhyay:]

And the multiple sclerosis drug, which is now with Teva, is that a Phase II data that we can expect? And is that a second or third quarter event?

[Stan Crooke:]

Yes, it’s a Phase II program. That’s a program where patients that had limiting relapsing multiple sclerosis and were treated with the VLA-4 drug for three months, and then evaluated post treatment. So it's Phase II program, and it’s due in the second quarter. Obviously we are not in control of that. ATL and Teva are in control of that. But I think the study is completed, it's being analyzed now.

[Debjit Chattopadhyay:]

And the 715 data, that's most likely a third quarter event?

[Stan Crooke:]

It’s later this year, I think that's, we said later this year and I think that’s about as precious as we want it to be. It's a little difficult to know exactly when the data will be analyzed and it's even more difficult to know how we'll manage it with regard to trying to present it at a scientific meeting. I think you just have to hang on and we will give you more guidance as the year progresses.

[Debjit Chattopadhyay:]

And as far as the regular registration for mipomersen in Europe, there seems to be an optimism that you could get away with an LDL lowering endpoint. Both you and Genzyme have basically mentioned the same thing. Is there a basis for that? I mean, why would European regulators prefer an LDL lowering, the surrogate endpoint, as opposed to a hard endpoint?

[Stan Crooke:]

There is a basis for the optimism. It is based on interactions with regulatory agencies in Europe on an ongoing basis, and I think I would leave it there.

[Debjit Chattopadhyay:]

Thank you very much, and good luck with your pronunciation with the FDA.

[Stan Crooke:]

Thank you. There is one other point that I wanted to make with regard to Carol's question. Of course our cash position and burns do not include additional investments from Abbott for Ibis, and we are very optimistic that this transaction will complete, and that's another $200 million plus. We are certainly optimistic about what will take place.

[Operator:]

And it appears we have no further questions at this time. I'd like to turn the call back to our speakers for any additional or closing remarks.

[Stan Crooke:]

If there are no other questions, Lynne, anything you want to add?

[Lynne Parshall:]

No, thanks Stan.

[Stan Crooke:]

Jeff?

[Jeff Jonas:]

No. Thank you, Stan.

[Stan Crooke:]

If not, then thank you very much for your attention. We all look forward to another exciting quarter coming up. Thanks.

[Operator:]

And once again that does conclude today's call. We do appreciate your participation and you may disconnect at this time.