Isis Pharmaceuticals Reports Financial Results and Highlights for Third Quarter 2014

CARLSBAD, Calif.,Nov. 7, 2014/PRNewswire/ -- Isis Pharmaceuticals, Inc. (NASDAQ:ISIS) today reported a pro forma net operating loss (NOL) of$13.4 millionand$34.9 millionfor the three and nine months endedSeptember 30, 2014, respectively, compared to an NOL of$22.7 millionand$23.5 millionfor the same periods in 2013.  Isis' revenue increased by more than 20% during the first nine months of 2014 compared to 2013 primarily due to the successes of its partnered programs as they advanced through research and development.  In addition to the increase in revenue, Isis had a planned increase in operating expenses primarily associated with its late-stage clinical programs.  On a GAAP basis, Isis reported a loss from operations of$21.5 millionand$57.8 millionfor the three and nine months endedSeptember 30, 2014, respectively, compared to a loss from operations of$25.5 millionand$31.8 millionfor the three and nine months endedSeptember 30, 2013.  Isis ended the third quarter with$592 millionin cash, compared to$657 millionatDecember 31, 2013.

"We have had a very successful year and, with a number of exciting events on the horizon, the remainder of 2014 promises to be equally eventful.  Just last month, we reported encouraging results from our ISIS-SMNRxdrug in infants and children with spinal muscular atrophy.  We initiated the Phase 3 study on ISIS-SMNRxin infants with SMA this summer and plan to initiate the Phase 3 study in children with SMA by the end of this year.  We continue to treat patients with the polyneuropathy form of transthyretin amyloidosis in our Phase 3 study of ISIS-TTRRx.  Many patients have completed all 15 months of treatment in the Phase 3 ISIS-TTRRxstudy and are receiving drug in the open-label extension study.  We also initiated a Phase 3 clinical trial of ISIS-APOCIIIRxfor patients with familial chylomicronemia syndrome, a rare genetic disorder resulting in extremely high triglyceride levels.  We are pleased to now be conducting three Phase 3 programs, while we also mature the rest of our pipeline.  We have a number of additional activities related to our pipeline to look forward to before the end of the year," saidB. Lynne Parshall, chief operating officer of Isis Pharmaceuticals.

"The success of the drugs in our pipeline has contributed significantly to our financial performance this year and is strong evidence that our business strategy is working.  Our business model is designed to generate substantial amounts of cash and revenue from our partners as our programs succeed.  Already this year, including to date in the fourth quarter, we have generated more than$160 millionfrom our partners.  We expect to continue this momentum through the end of this year and beyond.  We have numerous opportunities to earn milestone payments between now and the end of the year, including a$27 millionmilestone payment from Biogen Idec when we initiate the Phase 3 CHERISH study on ISIS-SMNRxin children with SMA," said Elizabeth L. Hougen, chief financial officer of Isis Pharmaceuticals.  "As a result of our successes so far this year, we expect to improve upon our financial guidance of a pro forma NOL in the low$50 millionrange and year end cash in excess of$575 million."

• Initiate an additional Phase 3 clinical study on ISIS-APOCIIIRxin patients with high triglycerides and on ISIS-SMNRxin children with SMA.

• Report the full data analysis of the Phase 2 study of ISIS-FXIRxat an upcoming medical meeting.

• Report Phase 2 data from ISIS-PTP1BRxand ISIS-GCCRRxin patients with type 2 diabetes.

Financial ResultsAll pro forma amounts referred to in this press release exclude non-cash compensation expense related to equity awards. Please refer to the reconciliation of pro forma and GAAP measures, which is provided later in this release.

RevenueRevenue for the three and nine months endedSeptember 30, 2014of$44.1 millionand$129.3 million, respectively, was significantly higher than revenue for the same periods in 2013 of$23.6 millionand$105.0 million, respectively. Isis' revenue fluctuates based on the nature and timing of payments under agreements with its partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees. Isis' revenue from the amortization of payments from its partners was$46.0 millionin the first nine months of 2014, compared to$29.8 millionfor the same period in 2013, and increased primarily due to the amortization of upfront fees related to the strategic neurology partnership Isis entered into with Biogen Idec inSeptember 2013.

Isis also earned$66.5 millionfrom milestone payments in the first nine months of 2014, consisting of the following:

• $43 millionfrom Biogen Idec related to advancing ISIS-SMNRx, initiating a Phase 1 study for ISIS-DMPKRx, and validating an undisclosed target to treat a neurological disorder;

• $15 millionfrom AstraZeneca related to initiating a Phase 1 clinical study of ISIS-ARRx;

• $4.5 millionfrom GSK related to advancing the Phase 3 study of ISIS-TTRRxand advancing ISIS-GSK4Rx; and

• $4 millionfrom Achaogen when Achaogen initiated a Phase 3 study of plazomicin.

Already in the fourth quarter, Isis has earned$23 millionin milestone payments from GSK for advancing ISIS-TTRRxand for designating ISIS-GSK5Rxas a development candidate.  Isis has also earned a$10 millionmilestone payment from Biogen Idec and a$7.5 millionmilestone payment from AstraZeneca as the partnered programs in these alliances advanced.  Isis will recognize all of these milestone payments in its fourth quarter 2014 financial results.

Operating ExpensesOn a pro forma basis, Isis' operating expenses for the three and nine months endedSeptember 30, 2014were$57.4 millionand$164.2 million, respectively, compared to$46.3 millionand$128.5 millionfor the same periods in 2013.  As projected, Isis' operating expenses in 2014 increased due to higher development costs associated with Isis' maturing pipeline of drugs, including costs associated with its Phase 3 programs for ISIS-TTRRx, ISIS-SMNRxand ISIS-APOCIIIRx.  As drugs move forward to more advanced stages of development, including into larger, longer clinical studies, the costs of development increase.  In addition to the Phase 3 programs Isis is conducting, Isis initiated Phase 2 studies for several drugs in its pipeline in the second half of 2013, which are ongoing, and advanced several drugs in clinical development in the third quarter of 2014.  On a GAAP basis, Isis' operating expenses for the three and nine months endedSeptember 30, 2014were$65.6 millionand$187.1 million, respectively, compared to$49.1 millionand$136.8 millionfor the same periods in 2013.

Net LossIsis reported a net loss of$26.7 millionand$70.0 millionfor the three and nine months endedSeptember 30, 2014, respectively, compared to$24.6 millionand$36.4 millionfor the same periods in 2013.  Basic and diluted net loss per share for the three and nine months endedSeptember 30, 2014was$0.23per share and$0.60per share, respectively, compared to$0.21per share and$0.33per share for the same periods in 2013.  Isis' net loss increased in the first nine months of 2014 primarily due to the planned increase in operating expenses associated with the Company's maturing pipeline of drugs offset in part by higher revenue.

Balance SheetAs ofSeptember 30, 2014, Isis had cash, cash equivalents and short-term investments of$592.0 millioncompared to$656.8 millionatDecember 31, 2013and had working capital of$573.8 millionatSeptember 30, 2014compared to$637.7 millionatDecember 31, 2013.  The decrease in cash and working capital primarily relates to cash used to fund Isis' operations.  Isis' cash balance atSeptember 30, 2014does not include approximately$23.5 millionin payments that it recognized into revenue in the third quarter and received in the fourth quarter and$20.4 millionof proceeds Isis received inNovember 2014from participating in Regulus' recently completed equity offering.

Business Highlights"We have made significant progress this year maturing our pipeline.  Most notably, we have reported a substantial amount of clinical data from drugs to treat patients with a diverse range of diseases, including metabolic, cardiovascular and severe and rare diseases.  We and our partners reported Phase 2 results from eight drugs, initiated Phase 3 studies on three drugs, began Phase 1 and 2 studies on six drugs and moved three drugs into development.  The maturation of our pipeline ensures that we will have a continuous stream of clinical events to highlight," continued Ms. Parshall.

"As our pipeline of partnered drugs has matured, the potential milestone payments we can earn from our partners become more substantial.  This year we have had numerous pipeline advances in many different partnered programs, which have resulted in significant payments from our partners this year.  In addition to payments we receive as partnered drugs advance in development, we benefit from the successes of our satellite companies, which expand the application of our technology platform into areas of RNA therapeutics that are outside our core focus.  The benefit of this strategy was most recently illustrated by the significant increase in the value of Regulus Therapeutics.  We participated in Regulus' equity offering, which generated more than$20 millionin cash for Isis.  And since we continue to be a top shareholder in the company, our remaining equity position represents an even greater asset," concluded Ms. Parshall.

• Isis reported positive clinical results for ISIS-SMNRxfrom two open-label Phase 2 studies in infants and children with spinal muscular atrophy. These data were presented at the World Muscle Society Congress.Isis reported that the median event-free age of infants with SMA onSeptember 2, 2014compared favorably to that of infants with SMA in the PNCR natural history study.Isis reported that time- and dose-dependent increases in muscle function scores were observed in both infants and children with SMA.Isis presented clinical data showing that ISIS-SMNRxis distributed throughout the spinal cord and neurons with greater amounts of full-length SMN2 mRNA and SMN protein in tissues from ISIS-SMNRx-treated infants compared to the amounts of full-length SMN2 mRNA and SMN protein in the tissues analyzed from untreated SMA infants.

• Isis' collaborators reported positive clinical results from three drugs in Isis' lipid franchise. These data were presented at the 2014 European Society of Cardiology Congress.Dr.John Kastelein, M.D., Ph.D. presented data from a retrospective analysis of 104 patients with familial hypercholesterolemia treated for one year with KYNAMRO®(mipomersen sodium) injection in the long-term extension study showing that patients treated with KYNAMRO experienced a reduction in Major Adverse Cardiovascular Events (MACE) from 25.72/1000 months (in the two years prior to KYNAMRO treatment) to 4.85/1000 months.Dr.John Kasteleinprovided an overview of the Phase 2 program for ISIS-APOCIIIRxin which treatment with ISIS-APOCIIIRxproduced consistent, robust and statistically significant reductions in triglycerides, apoC-III and non-HDL-Cholesterol and increases in HDL-Cholesterol in all patient populations evaluated.Dr.Sotirios Tsimikas, M.D. presented data from the Phase 1 study in which treatment with ISIS-APO(a)Rxproduced dose-dependent and significant reductions in Lp(a) levels in healthy volunteers.

• Isis' partner, Regulus Therapeutics, reported positive interim results on RG-101, an anti-miR drug in development to treat patients with hepatitis C virus.Regulus reported a single dose of RG-101 demonstrated a substantial mean reduction in viral load in patients with varied hepatitis C virus (HCV) genotypes and treatment history.

• Together with its partners, Isis continued to advance its pipeline of drugs.Isis initiated ENDEAR, the Phase 3 study evaluating ISIS-SMNRxin infants with SMA.Isis initiated APPROACH, the Phase 3 study evaluating ISIS-APOCIIIRxin patients with familial chylomicronemia syndrome.Achaogen initiated a Phase 3 study of plazomicin in patients with serious multi-drug resistant, gram-negative bacterial infections.Isis added a new drug, ISIS-BIIB3Rx, to its pipeline. ISIS-BIIB3Rxis part of Isis' strategic neurology alliance with Biogen Idec and is in development to treat an undisclosed neurodegenerative disease.Isis added a new drug, ISIS-GSK5Rx, to its pipeline. ISIS-GSK5Rxis part of Isis' alliance with GSK and is in development to treat an undisclosed ocular diseaseIsis added a new drug, ISIS-HTTRx, to its pipeline. ISIS-HTTRxis part of Isis' alliance with Roche and is in development to treat patients with Huntington's Disease.

• Isis reported that the median event-free age of infants with SMA onSeptember 2, 2014compared favorably to that of infants with SMA in the PNCR natural history study.

• Isis reported that time- and dose-dependent increases in muscle function scores were observed in both infants and children with SMA.

• Isis presented clinical data showing that ISIS-SMNRxis distributed throughout the spinal cord and neurons with greater amounts of full-length SMN2 mRNA and SMN protein in tissues from ISIS-SMNRx-treated infants compared to the amounts of full-length SMN2 mRNA and SMN protein in the tissues analyzed from untreated SMA infants.

• Dr.John Kastelein, M.D., Ph.D. presented data from a retrospective analysis of 104 patients with familial hypercholesterolemia treated for one year with KYNAMRO®(mipomersen sodium) injection in the long-term extension study showing that patients treated with KYNAMRO experienced a reduction in Major Adverse Cardiovascular Events (MACE) from 25.72/1000 months (in the two years prior to KYNAMRO treatment) to 4.85/1000 months.

• Dr.John Kasteleinprovided an overview of the Phase 2 program for ISIS-APOCIIIRxin which treatment with ISIS-APOCIIIRxproduced consistent, robust and statistically significant reductions in triglycerides, apoC-III and non-HDL-Cholesterol and increases in HDL-Cholesterol in all patient populations evaluated.

• Dr.Sotirios Tsimikas, M.D. presented data from the Phase 1 study in which treatment with ISIS-APO(a)Rxproduced dose-dependent and significant reductions in Lp(a) levels in healthy volunteers.

• Regulus reported a single dose of RG-101 demonstrated a substantial mean reduction in viral load in patients with varied hepatitis C virus (HCV) genotypes and treatment history.

• Isis initiated ENDEAR, the Phase 3 study evaluating ISIS-SMNRxin infants with SMA.

• Isis initiated APPROACH, the Phase 3 study evaluating ISIS-APOCIIIRxin patients with familial chylomicronemia syndrome.

• Achaogen initiated a Phase 3 study of plazomicin in patients with serious multi-drug resistant, gram-negative bacterial infections.

• Isis added a new drug, ISIS-BIIB3Rx, to its pipeline. ISIS-BIIB3Rxis part of Isis' strategic neurology alliance with Biogen Idec and is in development to treat an undisclosed neurodegenerative disease.

• Isis added a new drug, ISIS-GSK5Rx, to its pipeline. ISIS-GSK5Rxis part of Isis' alliance with GSK and is in development to treat an undisclosed ocular disease

• Isis added a new drug, ISIS-HTTRx, to its pipeline. ISIS-HTTRxis part of Isis' alliance with Roche and is in development to treat patients with Huntington's Disease.

Conference CallAt11:30 a.m. Eastern Timetoday,November 7, 2014, Isis will conduct a live webcast conference call to discuss this earnings release and related activities.  Interested parties may listen to the call by dialing 877-443-5662 or access the webcast atwww.isispharm.com.  A webcast replay will be available for a limited time at the same address.

ABOUT ISIS PHARMACEUTICALS, INC.Isis is exploiting its leadership position in antisense technology to discover and develop novel drugs for its product pipeline and for its partners.  Isis' broad pipeline consists of 34 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, including neurological disorders, and cancer.  Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO®, inthe United Statesand other countries for the treatment of patients with homozygous FH.  Isis has numerous drugs in Phase 3 development in severe and rare and cardiovascular diseases.  These include a novel triglyceride lowering drug, ISIS-APOCIIIRx, for patients with familial chylomicronemia syndrome; ISIS-TTRRx, which Isis is developing with GSK to treat patients with the polyneuropathy form of TTR amyloidosis; and, ISIS-SMNRx, which Isis is developing with Biogen Idec to treat infants and children with spinal muscular atrophy, a severe and rare neuromuscular disease.  Isis' patents provide strong and extensive protection for its drugs and technology.  Additional information about Isis is available atwww.isispharm.com.

FORWARD-LOOKING STATEMENTThis press release includes forward-looking statements regarding Isis Pharmaceuticals' financial position and outlook, Isis' business, and the therapeutic and commercial potential of Isis' technologies and products in development.  Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs 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, if they never materialize or prove correct, could cause its results to differ materially from those expressed or implied by such forward-looking statements.  Although Isis' 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 endedDecember 31, 2013, 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.

In this press release, unless the context requires otherwise, "Isis," "Company," "we," "our," and "us" refers to Isis Pharmaceuticals and its subsidiaries.

Isis Pharmaceuticals®is a registered trademark of Isis Pharmaceuticals, Inc.  Regulus Therapeutics™ is a trademark of Regulus Therapeutics Inc.  KYNAMRO®is a registered trademark of Genzyme Corporation.

Three months ended,

Nine months ended,

September 30,

September 30,

2014

2013

2014

2013

Revenue:

(unaudited)

(unaudited)

Research and development revenue under collaborative agreements

$43,798

$23,258

$119,975

$102,543

Licensing and royalty revenue

265

327

9,325

2,493

Total revenue

44,063

23,585

129,300

105,036

Expenses:

Research, development and patent expenses

61,086

45,660

173,798

126,603

General and administrative

4,470

3,430

13,313

10,241

Total operating expenses

65,556

49,090

187,111

136,844

Loss from operations

(21,493)

(25,505)

(57,811)

(31,808)

Other income (expense):

Investment income

675

434

2,003

1,400

Interest expense

(4,998)

(4,867)

(14,902)

(14,470)

Gain on investments, net

538

175

675

2,073

Loss before income tax (expense) benefit

(25,278)

(29,763)

(70,035)

(42,805)

Income tax (expense) benefit

(1,398)

5,193

(2)

6,437

Net loss

$(26,676)

$(24,570)

$(70,037)

$(36,368)

Basic and diluted net loss per share

$(0.23)

$(0.21)

$(0.60)

$(0.33)

Shares used in computing basic and diluted net loss per share

117,811

115,263

117,511

108,608

Three months ended,

September 30,

Nine months ended,

September 30,

2014

2013

2014

2013

(unaudited)

(unaudited)

$65,556

$49,090

$187,111

$136,844

Excluding compensation expense related to equity awards

(8,118)

(2,812)

(22,894)

(8,318)

$57,438

$46,278

$164,217

$128,526

$(21,493)

$(25,505)

$(57,811)

$(31,808)

Excluding compensation expense related to equity awards

(8,118)

(2,812)

(22,894)

(8,318)

$(13,375)

$(22,693)

$(34,917)

$(23,490)

$(26,676)

$(24,570)

$(70,037)

$(36,368)

Excluding compensation expense related to equity awards

(8,118)

(2,812)

(22,894)

(8,318)

$(18,558)

$(21,758)

$(47,143)

$(28,050)

Reconciliation of GAAP to Pro Forma BasisAs illustrated in the Selected Financial Information in this press release, pro forma operating expenses, pro forma loss from operations, and proforma net loss were adjusted from GAAP to exclude compensation expense related to equity awards, which are non-cash.  Isis has regularly reported non-GAAP measures for operating results as pro forma results.  These measures are provided as supplementary information and are not a substitute for financial measures calculated in accordance with GAAP.  Isis reports these pro forma results to better enable financial statement users to assess and compare its historical performance and project its future operating results and cash flows.  Further, the presentation of Isis' pro forma results is consistent with how Isis' management internally evaluates the performance of its operations.

September 30,

December 31,

2014

2013

(unaudited)

Assets:

Cash, cash equivalents and short-term investments

$591,986

$656,761

Investment in Regulus Therapeutics Inc.

47,426

52,096

Other current assets

41,751

26,653

Property, plant and equipment, net

88,068

86,198

Other assets

24,572

25,448

Total assets

$793,803

$847,156

Liabilities and stockholders' equity:

Other current liabilities

$55,598

$49,677

Current portion of deferred contract revenue

51,727

48,135

2 3/4% convertible senior notes

155,437

150,334

Long-term obligations, less current portion

75,655

77,830

Long-term deferred contract revenue

110,614

142,790

Stockholders' equity

344,772

378,390

Total liabilities and stockholders' equity

793,803

$847,156