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ISIS Pharmaceuticals (NASDAQ:ISIS)

Morgan Stanley Global Healthcare Conference

September 11, 2012 02:00 PM ET

Executives

Lynne Parshall CFO & COO

Analysts

I think we will try to get started. Thanks everyone for joining us here, Dave Freedman, one of the biotech analysts. And I am joined up here up by Lynne Parshall, Chief Operating Officer and Chief Financial Officer of ISIS and just before we start for Morgan Stanley and personal holdings disclosures it's on morganstanley.com/researchdisclosures. So thank you so much for joining us and maybe if you can just give a quick overview of ISIS for people who may not be familiar with all the different things that you have going on.

Lynne Parshall

Sure happy to be here and thank you for joining us. ISIS is the leader in Antisense technology and Antisense technology we believe is really the next big platform for drug discovery along with small molecules and protein therapeutics. We think Antisense technology has a very unique opportunity to drug, undrugable targets than ISIS since its inception has been the company that really has pioneered the technology platform. We have used the technology platform to create now in an extremely robust pipeline of drugs, we have 25 drugs in development and by in development I mean really in where we have a compound that’s going into supporting tax or in clinical trials. We have our very first systemically dosed Antisense drug in front of both the U.S. and EU regulatory agencies hoping for approval this year in Europe and we have a January PDUFA date in the U.S. that’s a drug a KYNAMRO which we will talk about more in a couple of minutes which is to treat patients who are genetically predisposed to extraordinarily high cholesterol. Our patient pollution with an enormous unmet medical need an extremely high cardiovascular risk and in a desperate need of a new therapy so we are exciting to bring that drug to patients but beyond that we actually have five other drugs which by the end of next year could be in Phase III clinical trials and the next five years could be on the market.

So we have a very robust and a very robust and maturing pipeline that we are excited to talk in bits and pieces while we are here today.

Unidentified Analyst

Perfect. So just broadly you guys have a large number of drugs in the pipeline, how do you think about managing what you guys are going to develop internally to Phase I or Phase II what you are going to try to license out early on and is that driven by opportunity size, interest therapeutic area or something else. I mean how do you decide how to stratify the opportunity?

Lynne Parshall

So ISIS has a pretty unique business strategy, and our business strategy is not to become a company that markets and sells drugs. So which means we build our business strategy around partnerships and that’s been very, very valuable to us. It has enabled us to create a pipeline of 25 drugs and move them forward and maintain a very strong balance sheet. But the business strategy has evolved as we have become more financially secure and matured.

So early on in our history we used to do deals early, we do research stage deals like lots of biotechnology companies do and we did that because we didn’t have enough money to move the drugs forward ourselves and we needed to pay salaries and keep the lights on. Today the transactions that we do are in general transactions where our partners license to drugs when we have proof in the clinic that the drug works using a therapeutic end point. Now for some drugs that can be a Phase I proof of concept trial, for some drugs that’s Phase II and some of our accelerated rare disease program that actually ends up been the Phase III trial because we have got some unique development programs were the drugs go later.

Anytime you do business development you have to be little opportunistic, the nice thing is with 25 drugs we have the opportunity to be opportunistic and so you can’t try and sell bio biogenetic Type II diabetes drugs. So you also need to sell people the things that are selling and move things forward the value inflection point where the rest of the assets are going to work.

So you know we have a plan but the other thing you learn is that the roles always can be flexible.

Unidentified Analyst

And we hope this to be as interactive as possible so if anyone has any questions please feel free to raise your hand or shout out and we will make sure that we get to you.

So maybe we can just jump right into KYNAMRO which is really the focus I think for a lot of people right now and if you can just for those who aren’t familiar with it just discuss very briefly, the mechanism what you saw on Phase III and where you are now in terms of the regulatory process.

Lynne Parshall

Sure as I said KYNAMRO is a drug that’s intended for patients who are genetically predisposed to extraordinarily high LDL cholesterol. Our first two indications are for homozygous familial hypercholesterolemia patients and the very severe heterozygous FH patients. Now just to put these patients in perspective, the homozygous FH patients untreated with other lipodrene therapies could LDL cholesterols as high as a 1000. These are patients who in the preset an era had an about 18 year life expectancy, Status (ph) has done a phenomenal job in improving the cardiovascular lives of these patients, so now they live on average to 33.

So obviously a patient population who even maxed out on existing therapies is in very desperate need of things that will reduce their LDL cholesterol and reduce their cardiovascular risk. The severe heterozygous patients are patients who on all of the available lipodrene therapies they can avail themselves of they will have LDL cholesterol either over 200 with another cardiovascular risk factor or over 300 without and thinking about these patients in their cardiovascular risk just sort of take your heterozygous patient and add about 20 years to their life time in other words 20 more years of having extraordinarily high cholesterol building up (inaudible) and putting them at very high cardiovascular risk.

Just to give you an example, in the study that we did severe heterozygous FH patients the average incoming age in that study was 53 and I think 53 old is been pretty young these days and so you think about those patients. Every single one of the patients in that study had at least one major cardiovascular and most of them had two and many of them had three at 53 years old. So this is not your run off the mill, taking a stand with an LDL of 120 patient population, again a very severe high risk patient population.

There are about 40,000 patients in the U.S. and EU of the homozygous and heterozygous split relatively evenly between the two. We have done four double blind randomized placebo control, clinical trials to support out registration applications in the U.S. and the EU for this drug they used to call mipomersen and name now is KYNAMRO to support KYNAMRO and it's in front of the EU for an initial indication of both the homozygous FH patients and the severe heterozygous. In the U.S. we filed for homozygous and we are conducting another study that the FDA requested us to do to expand our safety database to support the much larger severe heterozygous indication that study is ongoing, we expect to finish it up in 2014 and it could allow us to expand the label to include severe heterozygous in 2015.

To go back to your question in about what we saw in the studies in these two patient populations is that we are able to reduce LDL cholesterol in both the homozygous and the severe heterozygous patients by over a 100 milligrams per deciliter probably a lots of people in the room who don’t even have LDL of a 100 per deciliter, but that’s how much we dropped these patients LDL cholesterol and that could translate into as much as a 50% reduction in cardiovascular risks for these patients. So a very significant decrease in LDL that could translate into very significant improvement in cardiovascular health.

Unidentified Analyst

And you guys have filed in the U.S. and I believe of a FDA panel approaching. Is there anything you can comment about that or anything that you are thinking about or any sense of what do you think are going to be the focus issues or is it something that you can’t really talk about I understand.

Lynne Parshall

So most of I can’t really talk about, but we do have a panel upcoming on October 18, in the U.S. with the January 29th, PDUFA, we haven’t gotten the FDAs briefing book yet. So, I don’t know what the questions are that they are going to put in front of the panel but we think that the benefits that we have shown from the drug in terms of LDL lowering is profound and robust. So of course you expect any advisory panel and the agency to do their job and to focus on the safety profile. The principal safety side effects that we see with the (inaudible) are first of all injection side reactions. It's a drug that’s delivered in a convenient once a week at a home, subcutaneous injection. It's a small volume injection that it's just a one gauge bigger than an insulin needle. But we do get mild to moderate principally cosmetic injection side reactions, principally a tolerability issue.

So I don’t expect that to be a big issue for the panel. We see occasional flu like symptoms in a couple percent of the patients. We will have fatigue or headache or achiness, again I think it's principally a tolerability issue. So if the safety issues that I think the panel and again I am guessing but most likely we will focus on and what we focus most on as a sponsor with our partners at Genzyme is the liver, because liver is an important organ that the organ in which the drug works and we see in about 8% of the patients liver enzyme elevations that are not associated with any symptoms of toxicity so we don’t see (inaudible) bilirubin changes or Hy's law cases that people talk about we don’t see any of that.

In addition, we see something that we predicted from our preclinical data that mechanistically makes sense and it's actually nice when you go in front of an agency to say this is what we see and this is why it is happening and we predicted it and here is the data that predicted. But if you think about the way the drug works our target is ApoB and ApoB is a scaffold (ph) in the liver on which lipids are organized and then packaged so that they could be shuttled out of the liver and into circulation and do all the bad things they do.

Our drug reduces ApoB, I mean you get rid of your scaffold you have got lipids and liver and they don’t have a place to organize and shuttle out of the liver. We saw an animal is that when that happen we saw temporary increases in some animals and liver fat that plateaued and then went down, and somebody compensated. So what happened in animals was they increased fat burning and they decreased fat production and went back to a new (inaudible).

We have seen the same thing in people which is in a small number of patients. We have seen increases in liver fat, but then plateau and then go back down again overtime. So again we think we have got a robust database with which to answer the agencies questions, we hope they agree.

Unidentified Analyst

And when you guys do I assume you have done some liver imaging together a sense of that fat content, are you seeing anything else in especially in the patients that have LFT elevations in terms of any other radiologic findings that would suggest risks that maybe don’t have symptoms or is it truly just the lab abnormalities and that’s what you are seeing.

Lynne Parshall

Yes we didn’t see anything else that would suggest any other signs of a nascent toxicity.

Unidentified Analyst

And is the LFT elevations are those in the patients that have increased liver fat or is that separate?

Lynne Parshall

Unfortunately not, you know both the liver fat increases and the ALT increases happen most often in the patients who are getting the most rapid, most profound reductions in LDL but there isn’t a statistical, there isn’t a statistical relationship between the two set of patients.

Unidentified Analyst

So maybe just a last question on this program, is if you can just discuss this deal that you struck with first Genzyme now, Genzyme and Sanofi was a number of years ago. So if you can just update us on exactly what the terms are and you know you will beginning out of the commercialization.

Lynne Parshall

Sure well first of all when the U.S. FDA approves our NDA assuming that they do we will get $25 million milestone from Genzyme. The transaction itself is structured as a profit sharing transaction which is very easy to think about, you take revenue you subtract cost of goods, cost of sales, any ongoing development expenses and you get a number of those are left over and assuming that number is positive we share that with Genzyme.

The amount in which we share starts at 30% prices and 70% for Genzyme and changes upto 50-50 in 2% increments, we go for 30 to 32 to 34 et cetera until we get to 50-50 and that relationship is based on projected annual revenue, so a $2 billion is a year in projected annual sales we would get 50-50 sharing of the profit.

Unidentified Analyst

And that resets every year?

Lynne Parshall

It resets every year and importantly none of the losses accrue and carry over. So for example this when Genzyme and Sanofi are obviously spending a lot of money preparing to launch the drugs well we are hoping for your PM (ph) approval by the end of the year, the chances that we are going to have enough revenue to cover those expenses are really fairly slim to zero and none of that expense will carry over to next year.

Unidentified Analyst

Any questions on this program, please?

Question-and-Answer Session

Unidentified Analyst

Two related questions on the liver fat, one is have you done any biopsies and what did they show and the second question is when you the liver fat returns does it go back to baseline or it stays mildly or moderately elevated overtime.

Lynne Parshall

So I am going to answer the second question first, it goes back to baseline and actually Dr. Santos (ph) presented at HCC some data and if you give us your card afterwards we will just email you his presentation so that you can see the data yourself. There were a few biopsies, liver biopsies that actually were conducted in the study. They weren’t part of our protocols because we have patients who have been on drug for a long time just because of a variety of different things or few patients who had biopsies who also have liver fat, so coincidence in those patients and we didn’t see any evidence of information which what you would be looking for if you were worried than rather than having just non-alcoholic fat liver diseases, these patients might be progressing to NASH or something like that.

So we didn’t see any significant information in the biopsies that were conducted but they were just a handful.

Unidentified Analyst

Stepping back a little bit companies in the states, smaller companies often determine somewhere down the road that the right way to maximize shareholder value is to be acquired. Did you feel that your structure where you are partnering with several different major pharma companies may mitigate the opportunity to do that at the right time.

Lynne Parshall

So we think it's very important for us to design and conduct a business strategy for us to be an independent entity and we have done that successfully and we are well funded and well financed. So we don’t believe that we need to be bought as some sort of distressed sale.

In fact, over half of our pipeline is unpartnered, so we think there are a lot of assets that future partners or acquirers would be quite interested in but in addition to that I think that the thing is very important as we are adding three to five new drugs a year to the pipeline last year we added six and so the pipeline is not as static, pipeline in fact it grows every year with new unpartnered assets. So if somebody wanted to acquire us and they looked at the pipeline I think there will be plenty of things there that could immediately translate into their own pipeline in addition they could look forward to that being a sustainable set of assets that been instead we are not currently looking to be sold.

Unidentified Analyst

Okay so maybe we can jump into another program maybe we will talk about one with Biogen for Spinal muscular atrophy and so if you can just briefly describe. Your partnership with Biogen and where you guys are in development of that drug for pretty bad to do.

Lynne Parshall

Sure we are very excited about the fact that this year we have been able to do two deals with Biogen, the Spinal muscular atrophy deal that we did in January and a deal for myotonica dystrophia-I that we just did recently that’s for an early stage for search program the SMA program is in clinical development. For people who don’t know is spinal muscular atrophy is really a devastating disease is still the largest genetically based disease of fatalities and infants and you may know about it as like as floppy baby syndrome where you know your child is born, you know at some point in time early on, aren’t lifting up their head, they aren’t rolling over they go to the doctor, their diagnostic is having this devastating disease then from that point on they have a less than two year life expectancy and there is a childhood from of the disease as well where the children you know the most distressed children are in wheelchairs, they have both upper and lower limb involvement. Some of the (inaudible) children are able to walk with walkers but its devastating and debilitating disease.

Spinal muscular atrophy defect and I am going to just go through a little bit of science because when it starts is really very exciting. The defect is that the bodies of these patients and don’t make protein SMN1 but it's necessary for normal neuromuscular development and so they don’t develop normally.

Your body makes a very similar protein SMN1 too but looks just like SMN2 but looks just like SMN1 expect it's missing an Axon, everyone who (inaudible) body will make an SMN2 protein that includes that Axon because of RNA editing but most of the times it's missing the Axon and so it's dysfunctional. What our drug does is work at the pre-messenger RNA level to interfere with that RNA editing process so that that Axon is included into your SMN2 protein that you make looks just like that one that the patients aren’t making the SMN1 protein. So it's a drug that works through the splicing mechanism and it's the first drug we put into our pipeline out of our splicing program and one that is really interesting because most of the time we are down regulating disease associated proteins and this one we are creating a protein in a positive way.

The drug is finishing up Phase I clinical trials, we plan to start Phase II clinical trials this year and the plan is to we have a very accelerated Phase III development plans. So the plan is to start our Phase III clinical trial in the infant patient population like next year and in early 2014 in the Type II, Type III childhood onset patient population. Our partners at Biogenetic are doing a great job working very, very closely with us in this program and we think we couldn’t have better partners to help move this drug rapidly forward towards patients.

Unidentified Analyst

And in terms of the economics?

Lynne Parshall

This is an interesting transaction, it's an option transaction so Biogenetic paid us $29 million upfront to have an option to license this drug in the future when we have shown clinical proof of benefit. In order to maintain that option they have to pay us two other milestone payments when we initiate each of those Phase III trials one that’s $18 million and the other is $27 million and so the payments essentially we will more than pay for the drug and getting it through the Phase III program.

When we have a positive Phase III clinical trial Biogenetic has the opportunity to license the drug for a license fee that’s structured to be reflective of a drug that has positive Phase III clinical data with your normal regulatory milestones following that and then tier double digit royalties. So again the deal is structured so that we get matured drug economics while getting the benefit of having somebody help us fund and you know in the case of Biogenetic really importantly help participate with us into the design of a very innovative clinical development program.

Unidentified Analyst

I was wondering if you can discuss about the (inaudible) of administration and dosing strategy for this program and other neurological co-genetic (ph) procedures that you are working on.

Lynne Parshall

Sure, our in a sense (inaudible) are negatively charged and they are kind of medium sized molecules and so they do not cross, if they dose them systematically they don’t cross an impact blood-brain barrier. So our neuro programs are dosed directly into the CNS and this drug dosed using an intrathecal injection. It will be given we think about once every six months in the doctor’s office.

Unidentified Analyst

Any other questions in this program, okay, so maybe just in the last minute if we can touch another one, you guys had Excaliard Pharmaceuticals acquired by Pfizer recently and can you just talk about, A, why you find that program exciting and B, if it ultimately is commercialized what are the economics deal?

Lynne Parshall

Sure EXC OO1 is kind of a sleeper drug in our pipeline and it's a drug that is an example of part of our business strategy called our (inaudible) company strategy. It's a drug that’s delivered locally at the sight of surgery to prevent the formation of bad scarring associated with any type of surgery. It's huge commercial opportunity but because it was a local drug and it was very low on ISIS’s priorities to develop. In order to leverage our pipeline one of the things we always do is encourage other people who are interested in moving assets forward to do that so we had an exercise simply to started venture funded company and we helped them, the company called Excaliard to move this drug into Phase II clinical trials actually into clinical trials into phase to clinical trials where the drug performed shockingly well I mean just in every setting, the change in scarring associated with the use of this drug was rapid and dramatic. Pfizer bought the company which was very exciting and now we have Pfizer’s balance sheet and clinical acumen behind the drug, they are preparing for Phase III clinical trials now and plan to take the drug into Phase III clinical trials next year and scarring associated with surgery there is no competition, and it's potentially is large as a 4 billion market opportunity.

We have attractive single digit royalties on this but it's a drug, just to think about it, it's just a drug in which we haven’t invested any money at all and it's just an opportunity, it's an upside opportunity coming out of how prolific the technology platform and broadly applicable it is. So it is a drug, there isn’t much focus on but one that we are getting very excited about.

Unidentified Analyst

I think we are out of time here, so cover the next 22 programs in other time.

Lynne Parshall

Next time.

Unidentified Analyst

Thanks.

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