Ionis Pharmaceuticals, Inc.
Q1 2012 Earnings Call Transcript

Published: 9 May 2012

[Operator:]

Welcome to the ISIS Pharmaceutical's First Quarter Financial Results Conference Call. Leading the call today from ISIS is Dr. Stanley Crooke, Isis' Chairman and CEO. Dr. Crooke, please proceed.

[Dr. Stanley Crooke:]

Thank you. Good afternoon and thanks everyone for joining us on today’s call to discuss our first quarter financial results. Lynne will walk you through our financials for the first quarter of this year and then spend some time highlighting KYNAMRO's growth opportunities and the potential value drivers for Isis beyond KYNAMRO. After that, I’ll give you a brief update on what we have already accomplished this year. Joining me on today’s call are Lynne Parshall, COO and CFO; and Beth Hougen, Vice President of Finance; and Richard Geary, Senior Vice President of Development; and Kristina Lemonidis, Director of Corporate Communications. Kris, will you read our forward-looking language statement, please?

[Kristina Lemonidis:]

Sure. Well, thanks Stan. Good afternoon everyone. I remind you to everyone this webcast includes forward-looking statements regarding Isis' business, the financial outlook for Isis, and therapeutic and commercial potential of Isis technology and products in development. Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs including the planned commercialization of KYNAMRO is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing, and commercializing drugs that are safe and effective for use of human therapeutics, and in the endeavor of building a business around such drugs. Isis' forward-looking statements also involve assumptions that it never materialize or prove correct could cause its results to differ materially from those expressed or implied by such forward-looking statements. Although Isis' forward-looking statements reflect the good faith judgment of its management, these statements are based only on facts and factors currently known by Isis. And 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 ending December 31, 2011, which is on file with the SEC. Copies of these and other documents are available from the company. And with that, I’ll turn the call over to Lynne.

[Lynne Parshall:]

Thanks, Kris. Good afternoon everyone and thank you for joining us. As usual, I am assuming you've read the details of our quarterly financial results in our press release. So, I plan to just cover the highlights. We ended first quarter with nearly $334 million in cash and a pro forma NOL of $16.2 million, which reflects an expected increase in revenues and expenses. As you've heard me mentioned before, our revenue consists of several different components including amortization of upfront fees we received from our partners, R&D revenue we earned from our collaborations, milestone payments, and the sale of drugs to our partners. As such, the timing of these payments can vary from quarter-to-quarter. For example, our revenue in the first quarter of 2012 was higher than the first quarter of 2011 due primarily to the amortization of the $29 million upfront fee from our relationship with Biogen Idec which began in January this year. We have numerous opportunities to our milestone payments from many of the drugs in our pipeline this year. The most significant milestone payment we expect to earn is the $25 million milestone payment. Upon FDA acceptance of the KYNAMRO NDA, Genzyme submitted the NDA in March and we expect to earn this payment this quarter. We had, during the second $25 million milestone payment, associated with FDA approval of KYNAMRO this year and included this milestone payment in our 2012 guidance. However, with the January 2013 PDUFA date we now expect to earn this milestone payment next year. As you recall, our guidance is based on a conservative projection of our financial results which does not include any significant new transactions. As such, it's still early in the year to predict how the shift of this approval milestone will affect our guidance. As expected, our expenses for the first quarter of 2012 were higher than our expenses in the first quarter of 2011. In our year end call on February, we have projected that we would have a nominal increase of about 10% in our operating expenses this year. This increase is due to the maturation of the drugs in our pipeline as we begin later-stage clinical studies designed to support either rapid groups to the market or above Phase 2 data packages. Our increase in development spending is offset in part by a decrease in KYNAMRO related expenses. In 2011, we met our $125 million funding obligation, which means we now share KYNAMRO development expenses 50

[Dr. Stanley Crooke:]

Thanks, Lynne. 2012 has been already a productive year. We've had quite a number of important accomplishments that are we can take some pleasure at. Of course, the most significant accomplishments were the NDA submission for KYNAMRO. The European review is progressing as scheduled and we look forward to KYNAMRO being approved for its first indication in Europe this year. Remember because our initial indications in Europe will likely be broader than the United States. Europe should be our largest initial market. In that context, I am very, very pleased to tell you that we recently hosted inspectors who performed a pre-approval inspection for Europe of our KYNAMRO drug manufacturing facility and the inspection went very, very well. We believe that KYNAMRO is a great drug that has been comprehensively studied and can bring real benefit to desperately needing patient. So, we are confident that the initial indications will make KYNAMRO a commercial success and we think there is a great opportunity for significant long-term commercial growth as well. Our FOCUS FH study which is designed to support this long-term growth is enrolling on schedule and is also designed to support an alternative dozing regimen. We believe that providing patients an alternative dosing option could further enhance the long-term success of KYNAMRO. We now have data on patients who have been treated with KYNAMRO for more than three years. In these patients KYNAMRO continue to demonstrate consistent reductions in all (indiscernible). This data represent in March by Dr. (Will Santos) at the International Symposium on Atherosclerosis. A consistent safety profile with continued dosing and the unique method lowering profile of KYNAMRO make this drug a potential game changer for patients with FH. Stay tuned, as we have many KYNAMRO events to look forward to this year. Moving beyond KYNAMRO, as Lynne said, we have many key advance to look forward to over the next five years with a significant commercial opportunities in Phase 2 proof of value study that should support substantial licensing opportunities. We certainly are looking forward to a successful future. With the large and maturing pipeline, of course we expect to have exciting news to report pretty much every quarter. On the business front quarter, we established a new strategic alliance with alliance with Biogen Idec to develop and commercialize our SMA drug. This alliance is structured similarly to our GSK alliance. Remember that in this alliance structure, we give our partner an option to license the drug when we have proof of value and then they license that on late stage licensing terms. We received an option fee and we control development through Phase 3 while achieving the milestone payments from our partner. We initiated the Phase 2 study on our apoC-III drug in patients with very high triglycerides. I hope you are able to join us on our May 4th call to discuss this problem. If not, there is a replay on our website. We initiated the Phase 1 study on our STAT3 drug. This is our first generation to (indiscernible) drug and this drug could be applicable to many different types of tools. We reported positive Phase 1 data on our TTR growth and we plan to move this drug as Lynne said in the – into a Phase 3 study this year. At the recent annual meeting of the American Academy of Neurology, we reported that our SOD-1 drug was well-tolerated in the Phase 1 study in patients with no safety. These results blazed the trail for all of the drugs we plan to administrate intrathecally to treat neurodegenerative diseases. It's not one drug that we study was designed to treat a very small fraction of the ALS patients with particular genetic mutation. With the positive safety data, we now plan to develop a similar drug that has activity from broader population of the ALS patients. Our partner, OncoGenex reported positive Phase 1 and Phase 2 data on OGX-427 in patients with prostate bladder cancers. Finally, our partner, Eli Lilly, has decided not to continue to develop in the survival. The anti-cancer drug that we licensed to them a number of years ago given the exciting opportunities and which we can invest we've also decided not to invest further in this regard. So, we think we are off to a fine start in 2012, we’re building upon a successful 2011 and which a number of drugs in our pipeline completed critically important clinical studies and demonstrated promising activity with safety profiles that support continuing development. Finally, I’m excited to share news with you about the newest addition to our pipeline Xenon 701, which is designed to treat anemia of inflammation. Anemia is a condition which the body has a lower than normal number of red blood cells. Anemia of inflammation is a type of inflammation it's commonly occurs with the chronic or long-term illnesses including cancer and inflammatory disorders. Patients with anemia of inflammation typically have normal source of iron, but can’t use the iron that they have properly. This then results in reduction of red blood cell production. Xenon 701 targets a hormone that inhibits intestinal iron uptake and it also inhibits release of iron from storage sites. The hormone is made in and secreted by the liver in response to inflammatory mediators, and since an addition of this target should increase the availability of iron for use in red blood cell production, thereby decreasing the anemia in the very sick patient. We also think this drug could be useful in cancer patients who are taking – are weak. Xenon 701 was selected as a development candidate by our newest satellite company partner Xenon. Xenon has invested heavily in validating promising targets to treat anemia of inflammation and in 2012, our purchase to explore antisense technologies to inhibit production of a number of these targets that might bring benefit to anemia patients. This collaboration is a great example of our satellite company strategy. Xenon approaches with a solid patent decision and significant expertise in the area of anemia of inflammation, which is clearly outside our area core focus. The collaboration allows us to expand the applicability of our antisense technology. But we discover drugs and provide technological expertise to Xenon, they do all the heavy lifting in the programs. We benefit financially from an upfront payment, milestone payments, and licensing fees from Xenon as we advance these drugs in development. All of these are upsides for us as this is the drug we would not have had either the expertise intellectual property to pursue on our own. We expect to receive $2 million in this collaboration this year’s drug in pre clinical study. We’re also making progress in the program to identify development candidate for a second progress under the collaboration with Xenon. So, as you can we’ve had at the first quarter we have quite a number of accomplishments in many different areas of our pipeline and we look forward to continue to maturation of these drugs. (Indiscernible) continues to dominate our communications we have number of pipeline advances to look forward to this year. With that, I want to thank all of you for joining us today. We’ll open up to question – the call for questions. Operator, can you set us the questions please?

[Operator:]

(Operator Instructions) The first question comes from the line of Ted Tenthoff, Piper Jaffray.

[Ted Tenthoff:]

Excellent. Thank you so much for the updates on the recent communication around the pipeline. One quick question around the KYNAMRO filings in Europe and U.S, I appreciate your update on the manufacturing side what else has to be done in (indiscernible) and kind of where are we in that European review process?

[Stanley Crooke:]

Ted, our European process, they are proceeding up to date their variety of questions and answers more questions and more answers you go through in Europe and that process is going just the way you would expect just in the timeframe that you would expect.

[Ted Tenthoff:]

Okay. Should we be expecting approval on the backup this year?

[Stanley Crooke:]

Genzyme has not given approval days. What they had said is they are planning on launching in Europe this year.

[Ted Tenthoff:]

Okay, perfect. Excellent, that’s very helpful.

[Operator:]

Your next question comes from the line of Salveen Richter, Canaccord.

[Salveen Richter:]

Thanks for taking my questions. Just in terms of KYNAMRO, I know your CHMP recommendation could come shortly. Is there any way to get a sense as you go through your discussions with this regulatory division in EU whether they are looking at homozygous FH differently from how they are looking at severe homozygous FH.

[Stanley Crooke:]

(indiscernible) all we can do is just reiterate what we've been saying for some time. The guidance that we received indicated that they would consider KYNAMRO in this filing for homozygous FH and severe and nothing is happened would causes to questions what they hope what they told news those guidance meetings.

[Salveen Richter:]

Great. And then just given that you guys got standard review, did you get any clarification from the FDA is to why it's a standard review and not priority review?

[Lynne Parshall:]

We- the FDA didn't tell us. We didn't ask, but we are actually really looking forward at this point to approval and launch and we are really drilled with all of the activities going on in Genzyme and Sanofi to put this drug on the market promptly following approval.

[Salveen Richter:]

Great. and then just one last question, Lynne if I can, I think in the beginning of the year you guided to perform a net loss in the low $40 million range or is that still on track given the delay in U.S. revenue.

[Lynne Parshall:]

So given that delay, Salveen what, I said little bit earlier and I said it's little too early in the year to say. We based our guidance we did include both milestones in this year's guidance. But we also give very conservative guidance and we also don't put any new transactions into our guidance calculation. So, I think it's a little too early in the year for us to comment on that.

[Salveen Richter:]

Okay, thank you.

[Operator:]

The next question comes from the line of Chad Messer, Needham & Company.

[Chad Messer:]

Yes, thanks for taking my question, it's actually on the spinal muscular atrophy program, I know you said you got a ongoing Phase I trial it's like a dose-escalation trial I believe in children and that data would becoming next year, but I was wondering if you can give us a little bit more information on what that dose-escalation trial looks like and whether or not there will be any chance to – given that it's a Phase 1 updates particularly on safety ahead of when final data just gives I do believe you are using a direct injection into the cerebrospinal fluid to that one.

[Stanley Crooke:]

Yeah, that's right and just to give you a little more color. This is I almost identical to the interest, the interest – the intrathecal injections that were given for SOD-1, which we just reported out our dose-escalation study there. The study itself is a single dose. Single dose administration in children between the ages of 2 and 14 and these are children who have SMA and it's a type 2 disease so they have lack of function due to the SMA. They received one dose, there – then followed for a period of time. A dose escalation occurs on schedule with the over site of a Data Safety Management Board. Then dose-escalation has gone just as we have scheduled it and we are well into – well into that study.

[Unidentified Company Speaker:]

There have been no safety issues today and in fact as the study progresses, patients will be allowed to redose, and the lower dose will be allowed to a more into our Phase 2 program. That is our plan, because these are very sick children and remember that the clearance of the drug from the central nervous system is very slow. So, we don't yet know how frequently one would have to dose with these things, one of the things it will be trying to learn over the next couple of years, are we going to doze every six months, or three months, or nine months or every year. We just don't know, but so far things are going really, really well.

[Chad Messer:]

Okay, thanks for the update.

[Operator:]

(Operator Instructions) The next question comes from the Nicholas Bishop, Cowen and Company.

[Nicholas Bishop:]

Good evening. I have a question – couple of questions on a few different things. The first one is just on the current filings are just the status with the FDA. So, clearly I hear you are not getting priority review, but it wasn't clear to me yeah the FDA is officially accepted the application yet just want to clear up.

[Lynne Parshall:]

We haven't gotten the 60-day point yet, Nick, so, we haven't done gotten that letter yet.

[Nicholas Bishop:]

Okay. Then I wondered about the SOD-1 program in ALS. Actually, I haven't seen the data from ANN, but were there any efficacy measures that were attempting together in that Phase I trial and is there plan to continue developing this particular candidate for that small fraction of the ALS market, and I wondered if you can elaborate all on your strategy for addressing the broader ALS market.

[Stanley Crooke:]

A short answer to the first question is we know efficacy measures in that trial. We did try to measure SOD-1 levels and CSF, but they are very low. The strategy that to just put a little more flush to it was that for our first drug that we took intrathecally we wanted to be sure that we had a drug that was focused on patients who had really severe illness because we wanted to be sure that we build the strong relationship with the neural division of the FDA and also the similar people in Europe. So, we deliberately selected as you know (indiscernible) drug targeted to a very rare mutation that's associated with very severe even more severe with normal ALS in a very few patients. And the main purpose for that was to build our relationships with the regulatory agency and develop a safety experience with intrathecal administration, so, that worked wonderfully. And I think the evidence that it worked well is the response that we are getting from regulatory agencies in the U.S. and Europe with regard to our SMA drug. Having shown that we can do this safely now, we are now working – we will now develop a different SOD drug when the targets normal as well as mutant SOD-1 and that of course gives us a much more of the patient population to work with and so that's been our strategy and I think that's and I think it's worked really well.

[Nicholas Bishop:]

Okay, that's great. And then just last one if I could on the CRP program. I remember you previously talking about addressing multiple myeloma, I'm wondering if you could elaborate on what happen to that plan and just more generally what kind of profile would you like to be able to present potential licensers next year for CRP.

[Stanley Crooke:]

Yes, we still plan to look at, but what has happened is that we've been able to get the atrial fibrillation study move forward. And in our original planning we were confident that we can get on atrial fibrillation study done and as we got more experience and talked to more investigators, we realized that we can get atrial fibrillation study underway now and so, we push that forward because that's a much more important opportunity and a much more logical opportunity than was multiple myeloma and much easier for us to evaluate and so we've been balancing, which opportunities to push and which opportunities to wait until we had the additional data. We did begin looking at multiple myeloma and we will probably go back and look at multiple myeloma, but when we have more data and when we can look at the multi-sites rather than a single site. It's exciting to us about CRP right now is that the product study is going well? We are rolling patients with very high CRP level and so, we will data from that. The endotoxin study is underway and we will have data from that and the atrial fibrillation study is about to get underway and so we will have data from all of those studies. What we believe – what we are very confident is we will show that we can reduce high levels of CRP effectively. This drug is already demonstrated that mainly and we expect to reduce that. And the profile that we think will get people excited is if we show a reduction in signs and symptoms of rheumatoid arthritis and/or we show a reduction in the incidents and severity of atrial fibrillation. We think we have a very solid opportunity on both of those trials exactly that. I don’t think anyone doubts that CRP has a potential to be an enormous product opportunity. The question is, are you going to be able to provide encouraging data that suggest the lowering CRP can improve disease behavior. And do you have a development path that can get to the drug to the market in a reasonable timeframe with both rheumatoid arthritis and atrial fibrillation will have both those things we hope. Certainly the development path for both is notably straight forward and not nearly is challenging as something like acute coronary syndrome or post myocardial infarction or those sorts of things.

[Nicholas Bishop:]

Okay, great. Thanks very much.

[Operator:]

Next question comes from the line of Stephen Willey from Stifel Nicolaus.

[Stephen Willey:]

Yeah, thanks for taking my question. Just a quick question I guess on the TTR program with GSK with respect to, I guess maybe some of the secondary efficacy end points you may or may not be looking at with respect to trying to see I guess there is any kind of disease modifying effect and I guess kind of secondarily to that if you believe kind of not down of TTR expression will indeed have some kind of disease modifying effect at a plaque level?

[Stanley Crooke:]

Hope so, we think there is good reason to believe that it should because we will be reducing both the normal and mutant TTR and we've shown already that we can reduce TTR to undetectable levels. So, our hope and data that we have supported is that by reducing both mutant and normal, we will reduce the potential for additional plaque formation and maybe will cost some practice solution. And so we will certainly be looking for that, I don’t think we have to see that to get the drug approved, but we are hopeful. Richard, do you want to add or subtract anything to that?

[Richard Geary:]

No, just to say that a lot of the secondary measures are under discussion and we are in development of the protocol. So, I think we will be premature that to be very specific on that, but certainly looking at measures that there are consistent with the progression of this disease, this peripheral neuropathy that is developed by this disease.

[Stephen Willey:]

Can you just remind us what schedule dosing duration or treatment period is going be the Phase II?

[Richard Geary:]

So, it's a once a week dosing similar to KYNAMRO and the duration of dosing is up to 18 months. But one year…

[Stanley Crooke:]

But I should hedge all in that what we will do, once we have finalized the protocol because we’re talking about Phase II and III program is that we will give you a more detail about the protocol once it's finalized. I just – we are in the midst of all of that now we've had very positive interactions with regulators with a strong support from drug just give us a little bit more time and we'll be able to share all of that with you.

[Stephen Willey:]

I understood, thanks for the call.

[Stanley Crooke:]

You bet. If there are no more questions, then were there more questions in.

[Operator:]

There are no more questions. I would like to turn the call back to Dr. Stanley Crooke, Chairman and CEO for closing remarks.

[Dr. Stanley Crooke:]

Well again thank you very much. I think in summary, KYNAMRO continues to progress. We are looking forward to the approval of KYNAMRO this year and Europe. And we have a pipeline that we think it's very exciting with five drugs that could reach the market while KYNAMRO is still growing and lots of opportunities in our cardiovascular metabolic cancer and other pipelines for very significant licensing transactions over the timeframe as well. Thank you very much.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may now disconnect and have a great day.