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Executives

D. Wade Walke – Vice President, Corporate Communications and Investor Relations

Stanley T. Crooke – Chairman and Chief Executive Officer

B Lynne Parshall – Chief Operating Officer

Elizabeth L. Hougen – Senior Vice President-Finance and Chief Financial Officer

Analysts

Chad J. Messer – Needham & Co. LLC

Nicolas Abbott – BMO Capital Markets

Eric Schmidt – Cowen and Company, LLC

Stephen Willey – Stifel Nicolaus

Andrew Goldsmith – Canaccord Genuity, Inc.

N. Douglas Adams – Tocqueville Asset Management L.P.

Isis Pharmaceuticals, Inc. (ISIS) Q2 2013 Earnings Conference Call August 6, 2013 11:30 AM ET

Operator

Welcome to Isis Pharmaceuticals’ Second Quarter Financial Results Conference Call. Leading the call today from Isis is Dr. Stan Crooke, Isis Chairman and CEO. Dr. Crooke, please begin.

Stanley T. Crooke

Good morning and thanks everyone for joining us on today’s conference call to discuss our second quarter financial results. Our agenda for this call is, first Beth will walk you through our financials. Then Lynne will highlight recent news from our pipeline and I’ll close the call by focusing on some of our up coming events.

Joining me on today’s call are Lynne Parshall, Chief Operating Officer; Beth Hougen, Chief Financial Officer; and Wade Walke, Vice president of Corporate Communications and Investor Relations, and since I just announced Wade’s new title I should take a minute to congratulate Wade. It’s a nice step and I think a very well deserved recognition. And now Wade, let see, if any better it is, will you read your forward-looking language statements, please?

D. Wade Walke

Thank you, Stan. A reminder to everyone that this webcast includes forward-looking statements regarding the financial outlook for Isis’ business and financial plans and a therapeutic and commercial potential of Isis technology, and product, and development. Any statement describing Isis’ goals, expectations, financial or other projections, intentions or beliefs including the commercial potential of KYNAMRO is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics and in the endeavor of building a business around such drugs.

Isis’ forward-looking statements also involve assumptions that they can never materialize or prove correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements. Otherwise these forward-looking statements reflect the good faith judgment of its management; these statements are based only on facts and factors currently known by Isis. As a result, you are cautioned not to rely on these forward-looking statements. These and other risks concerning Isis’ programs are described in additional detail in Isis’Annual Report on Form 10-K for the year-ended December 31, 2012, and its most recent Quarterly Report on Form 10-Q, which are on file with the SEC. Copies of these and other documents are available from the Company.

Now I’ll turn the call over to Beth to discuss our financial results for the second quarter of 2013.

Elizabeth L. Hougen

Thanks Wade, good morning everyone and thank you for joining us. I am pleased to report that we ended the quarter in a very strong financial position with more than $590 million in cash, which is a considerable increase over 2012 year end. In addition, our pro forma net operating losses for the first half of the year was close to break-even at less than $1 million.

Before I get into the details of these financial results, I’d like to outline the key messages. First, our business model is working. Second, we are in a healthy financial position because of the successful execution of our business model. We received more than $90 million from our partners in the first half of this year. And we expect to exceed or in the case of cash significantly exceed our financial guidance for this year. The improvement in our already healthy cash position was primarily due to our recent equity offerings. And the $93 million we received from partners so far this year.

In the second quarter alone, we received $30 million from our new collaboration with Roche, $16 million from AstraZeneca, and $3.5 million from Biogen Idec. As you can tell from this list, our business model provides us the cash and revenue from numerous sources.

Improvement in our NOL over last year, was also driven by the success of our partnership strategy from which we earned more than $70 million in revenue from the amortization of upfront fees and milestone payments in the first half of this year, while keeping our expenses nearly flat.

Let me spend a few minutes discussing how this will affect the rest of the year. In our year-end call in February we projected that our 2013 revenue would include $45 million from milestone payments as our partnered programs advance in development.

In the first half of this year, we’ve already exceeded our projections by earning nearly $50 million including $32.5 million from Genzyme and GSK; $10 million from AstraZeneca, and $3.5 million from each of Biogen Idec and Xenon. With numerous successful partnerships encompassing multiple drugs, we have many opportunities to earn additional milestone payments from our partners as we progress through the rest of the year.

For example already in the third quarter, we’ve earned the latest milestone payments from GSK for advancing Phase 3 study on ISIS-TTRRx. While we are pleased to earn this milestone payments we’re even more pleased with the progress of the Phase 3 study that achieve in this milestone represents. We are looking for returning additional milestone payments as the ISIS-TTRRx Phase 3 type progresses and is our other partnered drug progress as well.

Another significant component of our revenue is the amortization of upfront fees from our collaboration. In our guidance we included $40 million from this component of our revenue. Here again we are on track to meet or exceed our guidance.

Our revenue in the second quarter included new revenue from the amortization of the $30 million upfront fees from Roche for our Huntington's disease program. In addition, we've earned approximately $22 million in revenue from our other collaborations primarily AstraZeneca and Biogen Idec. We're also on track to meet our guidance of revenue from the sale of drug to Genzyme to support KYNAMRO’s commercialization. The efficiency of our antisense technology and our successful execution of our business model drive the strong financial results for both revenue and expenses.

In the first half of this year, our expenses were nearly flat compared to the same period last year despite the fact that we continue to advance our pipeline across the broad range of therapeutic areas.

For the second half of the year, we expect our expenses to increase modestly, as we prepared for Phase 3 programs at our wholly owned drug ISIS-APOCIIIRx and our partnered drug ISIS-STAT3Rx, and of course we'll continue to advance the ongoing Phase 3 study for ISIS-TTRRx.

With more than $590 million in cash, we are in excellent position to fund late-stage clinical development of drugs like ISIS-APOCIIIRx. By retaining certain drugs longer in development, we keep control and we have the opportunity to keep a larger portion of the commercial revenue for these drugs. So as you can see, we've had an excellent first half of the year. Because of the effective execution of our business strategy, and the success of the drugs in our pipeline, we are on track to exceed our financial guidance for the year. And we expect the momentum from the first half of the year to carry forward into the second half of the year.

We will provide you with more details when we have our updated guidance in the third quarter. And now I'd like to turn the call over to Lynne.

B. Lynne Parshall

Thanks, Beth. We predicted that 2013 would be a year of substantial growth in maturation for Isis. And the year is shaping up to be just that. Of course the most important event this year was the commercial launch of KYNAMRO in the United States to treat patients with homozygous familial hypercholesterolemia. Beyond KYNAMRO, we’ve had a number of other important events that have added significant value to Isis.

ISIS-APOCIIIRx is one of the drugs in our pipeline with the potential to be in Phase 3 clinical development early next year, and a drug that is not partnered. We plan to develop ISIS-APOCIIIRx internally through Phase 3. ISIS-APOCIIIRx is intended to treat patients with severely high triglycerides either as a single agent or in combination with other triglyceride lowering drugs. Recently we've presented two sets of Phase 2 data on this drug. And the data from these two studies were remarkably consistent in both studies. ISIS-APOCIIIRx produced statistically significant reductions of apoC-III and triglycerides, as well as an increase of HDL, the good cholesterol.

In addition, the positive effect of ISIS-APOCIIIRx treatment another lipid parameters improvement in glucose control and trends toward enhanced insulin sensitivity suggest this drug could have a broad and useful therapeutic profile.

We're also pleased with the tolerability profile of ISIS-APOCIIIRx, a newer generation 2.0 drug. Not only our newer generation 2.0 drugs more prudent, but these drugs also have a lower incidence of injections side reactions and flu like symptoms.

On our call last month an investigator for both KYNAMRO and ISIS-APOCIIIRx discussed the improved tolerability profile he observed with the newer generation 2.0 drugs like ISIS-APOCIIIRx, and how these improvements should enhance the overall profiles of our drugs.

We are very enthusiastic about the potential of this drug, and we look forward to reporting at the ESC at the end of this month, the third set of data on ISIS-APOCIIIRx. In this study, we evaluated ISIS-APOCIIIRx as a monotherapy and patients with very high to severely high triglycerides. This is the patient population that's very much like the one we plan to study in Phase 3.

Later this fall, we planned to meet with regulators to discuss the Phase 3 program with the goal to get that program underway early next year. We hope to be able to update you on our progress with the AHA meeting in November where we will present a summary of all the Phase 2 data for ISIS-APOCIIIRx in an invited presentation.

Yesterday, we reported data from a Phase 2 study of ISIS-CRPRx in patients with rheumatoid arthritis. CRP is an interesting, but controversial target. CRP is strongly associated with the presence and severity of many diseases including numerous inflammatory and cardiovascular diseases. In this study by treating patients with chronically elevated CRP with ISIS-CRPRx, we had three goals.

First, to confirm in patients the substantial CRP lowering activity we observed in our earlier clinical studies. Second, to gain additional experience with a drug in a well characterized disease, where CRP is chronically elevated before testing it in more severe indications.

And third to evaluate whether lowering CRP correlates with an improvement in RA symptoms. The study accomplished these goals. Patients treat with ISIS-CRPRx achieved rapid dose dependent mean reductions of up to 67% in CRP. In addition, we observed improvements in the signs and symptoms in RA to correlate with reductions in CRP.

Patients treated with ISIS-CRPRx showed significant, showed improvements in their disease. However these improvements were not statistically significant when compared to those observed in patients in the placebo group, which demonstrated a higher than expected response in both symptom score and CRP reduction. Also in the study, the drug was safe and well tolerated.

So while we were disappointed that we did not see a greater impact on RA symptoms in these patients, and do not plan to further develop ISIS-CRPRx for RA. The information we've gained from this and our earlier studies will help us as we assess the opportunities for ISIS-CRPRx in more severe disease indications were elevated CRP is associated with for symptoms.

One of these diseases is atrial fibrillation, in which high levels of CRP are associated with the duration and severity of the disease. We plan to report data from our Phase 2 AS study next year in the first half. Earlier this year, we reported the data from the first study of our SMA drug. Although early stage, we observed meaningful improvements in measures of disease. This is the first time an antisense drug has been given to children directly into the spinal fluid, and so we are very pleased that the drug was well tolerated.

We're currently evaluating ISIS-SMNRx in two clinical studies. One in infants with the most severe form of SMA, and the second study in older children with SMA, both of these studies will complete and report out later this year early next year, and we plan to begin registration directed studies early next year.

ISIS-TTRRx is a drug in Phase 3 development to treat patients with transthyretin amyloidosis, a severe and rare genetic disease characterized by progressive dysfunction of peripheral nerve tissue. This was the program that we were able to move rapidly over the course of two years from research stage to late-stage clinical development. This study is progressing well and we recently earned a milestone payment of $2 million associated with advancing the Phase 3 study. As this study progresses, we have the potential to earn another $48 million in milestone payments prior to GSK exercising its option to license the program.

In addition to these drugs, we have a pipeline of maturing products with numerous opportunities to showcase the advances in our pipeline, and the productivity of our antisense drug discovery platform. Our severe and rare disease franchise is continuing to expand in advance.

We've recently added a new severe and rare drug ISIS-PKKRx to treat patients with Hereditary Angioedema. ISIS-PKKRx is of particular importance as it is one of the drugs, ISIS-APOCIIIRx that we may want to retain longer and develop on our own.

Our partners are also making substantial progress with antisense drugs and our technology. For example, Regulus, a company we co-founded to develop antisense drugs targeting microRNAs has moved this first drug into development.

Xenon recently licensed an antisense from us to treat patients with Anemia chronic disorders, a common problem associated with a variety of diseases. As our partnered drug succeed, we'll continue to benefit from participating in license and sub-license fees, milestone payments, and commercial revenue. We'll also benefit in our investments beyond our pipeline through equity positions, we have in our satellite company partners. We believe that all these present add value to Isis and to our shareholders.

In summary, 2013 is shaping up to a successful year for our technology and our pipeline. We've demonstrated that our newer second generation antisense drugs have significantly better tolerability profiles than our previous generation 2.0 drugs. We've demonstrated that it's feasible and safe to dose antisense drugs into (inaudible) children. We've shown in multiple therapeutic areas that antisense drugs can provide a positive impact on disease. And we've been very successful in implementing our business strategy, which is built on the efficiency of antisense technology, and is designed to maximize the value from products. We look forward to an equally exciting second half of the year.

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

Stanley T. Crooke

Thanks Lynne. As Lynne mentioned, we’ve had a number of successes already in this year, it's been a very good first half of the year for us. We believe that the value of our technology and our pipeline is just now beginning to be realized and we have the resources to continue to advance the drugs on our pipeline, add new drugs to our pipeline, and of course continue to advance our technology. We've planned to continue this momentum through the end of the year with the number of pipeline as we’re sharing with you.

First, at the end of this month, we'll record the next set of Phase 2 data on ISIS-APOCIIIRx at the European Society of Cardiology Meeting in Amsterdam. In this study, we're evaluating ISIS-APOCIIIRx, as a monotherapy in patients with very high to severely high triglycerides. We're hopeful that these data will be consistent with our earlier data on ISIS-APOCIIIRx in which we observed significant reductions in apoC-III and triglycerides with reductions in atherogenic lipids and significant increases in HDL.

In November, at the American Hearth Association will provide additional detail on the Phase 2 programs for ISIS-APOCIII. And hopefully we'll be able to share Phase 3 (inaudible) at that time.

We're beginning Phase 2 studies on three drugs to treat type 2 diabetes. Each of these drugs is designed to act through distinct and complementary mechanisms to improve glucose control in patients with diabetes. We plan to complete and report the data from the ongoing ISIS-SMNRx trials by the end of this year or early next year. Once these studies are complete, we'll move rapidly towards initiation of registration direct to trials in infants and children with our partner Biogen Idec.

And finally we will continue to move our pre-clinical programs into first in man studies, and we will add new drugs to the pipeline.

With that, I want to thank everyone for joining us today. And we’d now like to entertain questions. Denise, if you can set us up for questions please?

Question-and-Answer Session

Operator

Certainly sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) The first question will come from Chad Messer of Needham and Co. Please go ahead.

Chad J. Messer – Needham & Co. LLC

Hi, yes thanks for taking my question. It's regarding the trial you reported yesterday in rheumatoid arthritis for ISIS-CRPRx. My understanding from conversations with you guys is that RA was always kind of more of a proof-of-concept, and maybe not even the most practical place to move forward even before the data had come out. I just wanted to sort of confirm your thinking on that and sort of why then RA was sort of a good place to try and look for an early signal?

Stanley T. Crooke

Yes, Chad, your recollection is correct. We think that ultimately the most interesting opportunities for ISIS-CRPRx are in cardiovascular and end-stage renal disease. But the cardiovascular indications that we're interested in are associated there very severe indications some forms of acute coronary syndrome for example.

So, we felt that before we went into those patient populations, we needed added experience. We needed to demonstrate that we could lower CRP that was chronically elevated associated with the disease. But we had lower CRP in normal volunteers. And we had lowered CRP in a situation which CRP was induced. We had not demonstrated that we can lower a chronically elevated CRP. That was a critical step that we needed to accomplish.

And then we needed added experience just to be confident that we had a drug that was ready to go into these patients with more severe illnesses. We needed that background information to deal with whatever potential events might happen in these patients unrelated to the drug early in trials.

RA was what we decided on as a feasible experiment. We could get the experiment done. We would be able to do it in three months with three months dosing. And there were ready measures and validated measures of disease activity. RA was never a therapeutic focus for us because treatment for RA is pretty good.

There are some opportunities in RA, so if we had seen really good activity there, we might have gone back and reconsider our decision. But with all the TNF alphas and everything else that are available for RA patient treatment is pretty unaffected today.

In contrast, diseases like atrial fibrillation some of the acute coronary syndrome situations and end-stage renal disease are really in desperate need of improvements in therapy, so there are much clearer or direct routes to a commercial opportunity.

So that was the logic and again the way I tried to encourage people, I think about what we are doing with ISIS-CRPRx. It is an exploratory Phase 2 that will help us identify where are the opportunities for this drug reside? And today I think we can be confident that the commercial opportunity in rheumatoid arthritis is not right for this drug.

Chad J. Messer – Needham & Co. LLC

All right, thanks Stan. That actually is a very, very helpful to hear. Just as a follow-up any or what are your plans for getting the RA data out, any meeting or publication. And also when should we expect to hear more about your plans for development. Are you at this point in time waiting for the atrial fibrillation trial to report out before making any further decisions or might we hear something before that?

Stanley T. Crooke

Well, we just are finishing the analysis of the study and of course, then we'll look for opportunities to present the data. We don't have the AAA spot today. With regard to next steps, what we are doing right now is, considering all the potential next steps.

And these are complex decisions and armed with the information we have. What we're now doing is sitting down now with experts and looking at various options. And we'll share that as soon as we feel we have some confidence that we know exactly what direction we're traveling. It will take a little while, Chad. This could be a complex decision.

Chad J. Messer – Needham & Co. LLC

All right. Thanks so much, Stan.

Operator

Our next question will come from Nicolaus Abbott of BMO Capital Markets. Please go ahead.

Nicolas Abbott – BMO Capital Markets

Hello. Good morning. Thanks for taking my question. The question is on apoC-III, and what do you think an injection device is going to be important understandably if there’s a lot of partnering interest here in this product presumably as its going to be used by diabetic patients at some stage who are used to with bearing devices? And how important do you think the device is and how does that feature in potential partnering discussions? Thank you.

Stanley T. Crooke

I think we benefit a great deal here from our experience with KYNAMRO. And we agreed that presentation and the device that’s used with APOC-IIIRx are important and it’s also very important early in trials certainly for Phase 3 based on our experience with KYNAMRO to have an optimal presentation and injection device available, so that the experience of Phase 3 is representative of what you can expect with the right approach. We think we’ve actually made that decision and I think we have a pretty good idea of what we’re going to do and the sort of device that we will use in Phase 3.

Of course we’ll continue to evaluate all the alternatives and there are a variety of alternatives and needleless injectors, lots of different things. But we feel pretty comfortable with the choice that we’ve made for Phase 3 today. And again, that’s one of the benefits we’re having the KYNAMRO experience to learn from.

Nicolas Abbott – BMO Capital Markets

Thank you. And just building off that, what do you envision a Phase 3 program looks like and the associated timeline?

Stanley T. Crooke

I’d like to defer answering that question until we have our End of Phase II meeting with regulators. We have a clear Phase 3 proposal, but we want to be confident that we have a general agreement with the proposal we describe for Wall Street. So you will just have to give us a little time. We’re hopeful that we’ll be able to do that sometime later this year. Do you want to add anything else?

Nicolas Abbott – BMO Capital Markets

Thank you.

Operator

The next question will come from Eric Schmidt of Cowen and Company. Please go ahead.

Eric Schmidt – Cowen and Company, LLC

Thanks for taking my questions and good morning. Is there anything you guys can say on the KYNAMRO ramp leading indicators, market share, any uptake trends you can provide or do we need to go to Sanofi for that?

Stanley T. Crooke

We can’t provide details today. What I would sort of comment on is that everything we’re hearing about the marketplace and the competition and KYNAMRO’s position is very positive. And so we are encouraged by what we’re out hearing from physicians, hearing from a variety of other sources and encouraged by the progress that Genzyme is making in the launch. Lynne is closure to that than I am. Lynne, do you want to add or subtract anything?

B Lynne Parshall

No. What I would say is that we do plan at our year-end conference call to provide more color on the launch. It’s still of course early days in a new market for the drug, but I would echo Stan’s sentiments, everything we’re hearing is encouraging.

Stanley T. Crooke

We continue to believe KYNAMRO is a great drug. And it could be [this position] in these patients will get sorted out by the physicians and patients. And I think that it may take a little while before we know exactly what that is, but we think it’s a great drug and very much underappreciated in some corners of the world.

Eric Schmidt – Cowen and Company, LLC

That would be the Q4 earnings call, Lynne?

B Lynne Parshall

Yes.

Eric Schmidt – Cowen and Company, LLC

Okay. And then, well, Stan I saw that there is a new candidate mentioned in the press release, ANGTL3Rx. Could you provide just a quick bit of background on that?

Stanley T. Crooke

ANGTL3Rx, it’s the next entry in our entry in our lipid franchise, and I’m very, A, impressed that you notice and, B, pleased you asked. I’m really excited about our lipid franchise. We have KYNAMRO, which I think is a much better drug and is appreciated.

We have apoC-III that I think should be a major factor in fixing triglyceride problems. And then we have Lp(a), which is very a underappreciated cardiovascular risk factor, but is tremendously important. That Phase 1 study is finishing now and we’ll be talking about that drug later this year and [lipid MIG 3] is the fourth entry into the lipid franchise. And animals, as you point, is the most effective lipid lowering agent we’ve identified.

That’s from a company that was the first to identify apoB-100 as a target and KYNAMRO first to show activity for PCSK9, the first to do Lp(a) and first to do apoC-III. And as you pointed, that three appears to reduce all of the cardiovascular risk factors. And so we think of that as an agent sort of a panned dislipidemic agent. And so we see that as sort of the wrap-up of our lipid franchise and of course we’re not going to – really know how that drug performs until we get in and demand and ask the question in demand. That’s very exciting drug. Only some of them very exciting in the context of the lipid franchise we’re building.

Eric Schmidt – Cowen and Company, LLC

Okay. That’s great. And one just quick financial question, I guess for Liz. It looks like as you mentioned you’ve already exceeded your expectations on the top line for partnership milestone revenue. You didn’t really change the soft guidance you’ve provided for the year. Should we expect the second half of the year to see not as many milestone payments as we saw in the first half, what kind of lose guidance would you provide on the top line for the remainder of 2013?

Elizabeth L. Hougen

Hey, Eric, so I think first of all we’ve got lots of opportunities as the drugs moves through development with all of our partnerships to earn additional milestones. So to kind of give you a sense I think you just want a plan for lots of opportunities. We’re not going to give specific guidance until later in the third quarter, but I think the second half of the year is going to be very exciting. We’re going to see a little bit of increase on our expenses and the revenue is going to continue to be strong.

Eric Schmidt – Cowen and Company, LLC

Thank you.

Stanley T. Crooke

We’re of course, obviously we’re going to have to adjust our guidance in a positive direction and we’ll do that later.

Eric Schmidt – Cowen and Company, LLC

Okay. Thanks guys.

Stanley T. Crooke

Yeah.

Operator

Our next question will come from Steven Willey of Stifel Nicholas. Please go ahead.

Stephen Willey – Stifel Nicolaus

Yeah. Hi. Good morning. I just have a couple of pipeline questions. I guess, first, are we still anticipating to hear eIF4E data the second half of this year?

Stanley T. Crooke

Yeah, well.

Stephen Willey – Stifel Nicolaus

And have you identified which – I understand that there was a part one to each of these studies, correct? There were a couple of different doses that were being evaluated and I’m guessing the data that we’ll be seeing will from the part two and do we know which doses were moved into that part two protocol?

Stanley T. Crooke

The answer to your questions are yes. Yes. And for more granularity, we did move through the part one with no issues and so we took the maximum dose in that part one into the part two.

Stephen Willey – Stifel Nicolaus

Okay. And the part twos are in chemo-naïve patients. Is that correct?

D. Wade Walke

No. Not chemo-naïve. So in one of the trials, it is first line. So it’s after the first treatment and so they are castrate resistant prostate in one trial. And then the other trail again was second line in lung cancer, non-small cell.

Stanley T. Crooke

These are pretty advanced disease as you would expect for an early Phase 2. And the studies are, dosing is finished and we’re waiting until we have progression-free survival data and survival data from the studies and we’ll report all that out probably quite late this year when we actually have the information.

Stephen Willey – Stifel Nicolaus

Okay. But the long study is actually....

Stanley T. Crooke

They’re still blinded.

Stephen Willey – Stifel Nicolaus

But the one study is actually on top of plan and - tax backbone correct?

D. Wade Walke

That’s correct. And the prostate is with prednisone and docetaxel.

Stanley T. Crooke

Yeah. Docetaxel, I think.

Stephen Willey – Stifel Nicolaus

Okay. And then, on the myotonic dystrophy program that we have with Biogen, I know that, I think there was some guidance around maybe having a development candidate announced in 2013. And I’m just trying to figure out kind of where we are preclinically and maybe when we might be getting an update on that and then if there is an opt in associated with that update?

Stanley T. Crooke

You can expect us to provide new information about myotonic dystrophy in the near future. We’re on track to achieve the goals that we set out. And Lynne, can you…?

B Lynne Parshall

There is a significant milestone associated with that.

Stanley T. Crooke

But you did opt in.

B Lynne Parshall

Yeah. It’s not the licensing time yet, but there is a significant milestone associated with that.

Stephen Willey – Stifel Nicolaus

So they don’t opt in as a function of the preclinical data then?

B Lynne Parshall

They do not. The licensing for that compound is at the end of the Phase 2, in other words the first clinical proof of concept and that’s the way most of these transactions are structured, which is the first clinical proof of concept. The actual license fee gets paid and we turn the range of its partner in terms of handling the development activities on sales.

Stephen Willey – Stifel Nicolaus

Okay. And then just going back to the eIF4E for one second, does Lilly still have open rights on that program as well?

B Lynne Parshall

Yes. They do.

Stephen Willey – Stifel Nicolaus

They do. Okay.

B Lynne Parshall

And their opting rights happen when we disclose the first data from these studies. That’s the trick.

Stephen Willey – Stifel Nicolaus

And then just one last question, any granularity around how much incremental STAT3 data we maybe seeing at ASH. I know that they were the original five patients that were presenting at ASCO and I know the dose escalation processes is ongoing, but any color around how much more data we might be seeing?

Stanley T. Crooke

I don’t think I can give you much more rather than could tell you that the lymphoma trial is proceeding well, environment is risk. And so, we’ll have quite a bit of information to update. And then the HCC trial that is being run by AZ is also off to a good start. So I can’t tell you when that study will be at a place where it would be reportable, but both of those efforts are going very well.

Stephen Willey – Stifel Nicolaus

Okay. Thank you.

Operator

(Operator Instructions) The next question will come from Salveen Richter of Canaccord. Please go ahead.

Andrew Goldsmith – Canaccord Genuity, Inc.

Hi, there. This is Andrew Goldsmith on the line for Salveen. Thanks so much for taking my question. I just had a follow-up on the CRP data from yesterday. I was just curious what’s in the placebo, it’s random molecules of nucleotides or if it’s just water kind of getting out why you think you saw stronger than expected response in that one?

Stanley T. Crooke

Well, we never – a placebo is a placebo. A random molecule of nucleotide would be inappropriate to use in patients as a control because that would be a different drug molecule that could have potential effects. And the placebo response, as you know, placebo responses in rheumatoid arthritis are actually large and common, especially in patients who had rather poor care. We wanted to do this study in patients who were not on TNF-alpha inhibitors and of course most people are.

And so, this study was conducted in Russia and Eastern Europe. And so we expected a pretty meaningful placebo response as these people came in, got good medical care, lost weight, just got intention in their RA and late in the study we did see quite a significant placebo response. So it was little greater than we expected and therefore the study wasn’t powered sufficiently detected difference between placebo and treated.

Andrew Goldsmith – Canaccord Genuity, Inc.

Okay. That’s helpful. Thank you. Kind of related to that and do you think, I think the number, only number in the press release as you saw up to 67% reduction in CRP. With that in mind what’s your expectations and do you think I guess I’m getting at the [retro] for the atrial fibrillation trial if you can help in this submission to show a clinical benefit?

Stanley T. Crooke

We are very pleased with the 67% reduction that’s consistent with what we would have expected for this drug and we saw very nice reductions at both doses with the drug. So that part of the trial and that was the primary endpoint, was very successfully accomplished, which now means that we’ve seen reductions in normal volunteers with a low CRP. We’re seeing substantial reductions in subjects with very, very high acute levels of CRP.

And now in patients who have a chronic ongoing disease process, we were able to reduce CRP levels significantly. And that’s important, because their background disease is causing them to continue to generate CRP at a higher level than they should. So the question we ask was, could we reduce it against that disease drive for CRP? And the answer is yes. Does that answer your question?

Andrew Goldsmith – Canaccord Genuity, Inc.

Yeah, that’s very helpful. Thank you. That’s it. Thank you so much.

Operator

Our next question will come from Doug Adams of Tocqueville Asset Management. Please go ahead.

N. Douglas Adams – Tocqueville Asset Management L.P.

Thank you. I have a few questions. Good morning everyone. The first is, could you remind me given KYNAMRO the Phase 3 timeline on the heterozygous population?

Stanley T. Crooke

The focus update study is enrolling and we have said we expect to complete enrollment this year. Remember that that’s a one year study. So the time to actually being able to analyze data would be one year from when the last patient was enrolled.

N. Douglas Adams – Tocqueville Asset Management L.P.

Okay. The new lifted target, will that be developed with the 2.5 chemistry or is that still a 2.0 chemistry?

Stanley T. Crooke

This 2.0 is one of the new 2.0s, which is more important and we expect that to tolerate it. But we don’t think, it’s not appropriate to think of 2.5 chemistry for chronic disease. We want to get more human safety experience before we develop our first product, our first 2.5 drug for chronic administration.

N. Douglas Adams – Tocqueville Asset Management L.P.

And then, the FDA obviously on their breakthrough designations hasn’t totally come up with what that means in terms of accelerated element timelines and what not, but of the candidates in your pipeline other than the SMN are any others been filed for breakthrough status?

B Lynne Parshall

We are looking at all of our rare disease programs for an opportunity for breakthrough. As with you, I don’t think anybody in the industry quite know what’s going to mean. But we think it can hurt. One of the requirements for breakthrough that you have to have human clinical data and so obviously some programs are in that stage yet, but the thing that we are finding with all of these drugs is that we’re able to have very good dialogue with the agency and in with Europe as well.

And so we’re getting a lot of regulatory support even after having some specific mark like breakthrough to put on it. Particularly with the SMA program we are getting a lot of guidance and attention from regulators on that program which is very useful.

Stanley T. Crooke

And we also say for TTR we had very good input from both Europe and the U.S. And we’re very pleased that in both venues the movement straight to Phase 3 seemed to be fully accepted.

N. Douglas Adams – Tocqueville Asset Management L.P.

And then, lastly in terms of having to increase your milestone guidance given the results for the first half of the year. On partnering activity in the past you’ve had some partnerships that have sort of come out of the blue and certainly your partner revenues have been higher as well. Should we expect, or there is an opportunity that you would expect before the end of this year to have other partnerships announced?

Stanley T. Crooke

We had the highest level interest in partnering we’ve never had in our history and I think we have a long, long track record of achieving what we set out to achieve in terms of partnerships. So I think the interest is there.

And we are highly selective with whom we partner and what we partner and when we partner and how we partner today. But certainly we think there is an extraordinarily higher level of interest in our drugs, our technology and in general what we’re doing at Isis, so, yeah, opportunities are present.

N. Douglas Adams – Tocqueville Asset Management L.P.

That’s all the questions I had. Thank you very much.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Dr. Crooke for his closing remarks.

Stanley T. Crooke

Well, if there are no more questions, I want to thank everyone for participating. I think the main messages today are that we’re in a very strong financial position. Thanks to the power of antisense technology, the improved understanding what antisense can do, and the successful execution of our business strategy and I think you should look for all of that and as the second half of the year unfurls. Thank you.

Operator

Ladies and gentlemen, the conference has now concluded. We thank you for attending today’s presentation. You may now disconnect.

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