Isis Reports Financial Results And Highlights For 2013

CARLSBAD, Calif.,Feb. 28, 2014/PRNewswire/ -- Isis Pharmaceuticals, Inc. (Nasdaq:ISIS) today announced its 2013 financial results and reviewed the highlights of the year.  Isis ended the year in a strong financial position and outperformed both its pro forma net operating loss (NOL) guidance and its cash guidance for the year.  For the year endedDecember 31, 2013, Isis had an NOL of$40.2 millioncompared to$60.4 millionfor 2012.  Isis' strong financial performance in 2013 is the result of the Company's successful execution of its business strategy.  Isis added a substantial amount of cash to its balance sheet in 2013, ending the year with$657 million. The increase in the Company's cash position was primarily due to the significant amount of cash received from its partners as well as the net proceeds from the equity offering it completed in 2013. On a GAAP basis, Isis reported a loss from operations of$19.9 millionand$51.7 millionfor the three and twelve months endedDecember 31, 2013, respectively, compared to$26.1 millionand$68.9 millionfor the same periods in 2012.

"2013 was a year of significant growth for Isis with successes in every aspect of our business.  KYNAMRO®is the first systemic antisense drug for chronic use to be sold commercially.  This was an important event for patients with homozygous FH, for Isis and for antisense technology.  Our pipeline of novel antisense drugs also matured substantially.  We reported positive data on a number of drugs, including ISIS-APOCIIIRxand ISIS-SMNRx, both of which are scheduled to begin Phase 3 development this year," saidB. Lynne Parshall, chief operating officer of Isis.  "Our successes, however, go beyond our pipeline.  We added new partnerships and expanded existing partnerships, which we believe will provide us with extensive resources and expertise to advance our severe and rare disease and cancer programs.  All of these activities have substantially contributed to our financial performance in 2013 and to the increase in value of our technology and drugs in development.  We have continued this momentum into 2014 and look forward to another year of progress in all aspects of our business."

"Our financial performance in 2013 resulted from the successful execution of our business model. We received$225 millionin payments from our partners, including$130 millionfrom our new partnerships with Roche and Biogen Idec and$75 millionin milestone payments as our drugs advanced in development.  As such, we ended the year in a very strong financial position with more than$650 millionin cash, significantly higher than our projection of more than$625 million.  In addition, although many drugs in our pipeline advanced into late-stage development, we kept our spending in line with projections and ended the year with a pro forma NOL of$40 million," said Elizabeth L. Hougen, chief financial officer of Isis.

"As we carry this momentum into 2014, we have many opportunities to earn significant revenue from our partnerships as our drugs continue to advance.  Although we are planning to end 2014 with three drugs in Phase 3 development and ten drugs in Phase 2 development, we are projecting to end 2014 with a pro forma NOL in the low$50 millionrange.  We are also projecting to end the year with more than$575 millionin cash.  Already this year, we have earned more than$16 millionfrom our partners as our and our partners' drugs in development continue to mature.   In addition, although we are optimistic about the commercial potential of KYNAMRO and believe that KYNAMRO sales  will increase this year, we continue to be conservative in our projections and will not include KYNAMRO profit share revenue at this point in the year," concluded Ms. Hougen.

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 twelve months endedDecember 31, 2013was$42.2 millionand$147.3 million, respectively, compared to$19.9 millionand$102.0 millionfor the same periods in 2012.  Isis' revenue fluctuates based on the nature and timing of payments under agreements with its partners, including license fees, milestone-related payments and other payments.  In 2013, Isis earned$83 millionin revenue from milestone and licensing payments including:

• $26.5 millionfrom GlaxoSmithKline because Isis advanced ISIS-TTRRx, ISIS-GSK3Rxand ISIS-GSK4Rxin development;

• $25 millionfrom Genzyme when the FDA approved the KYNAMRO NDA;

• $10 millionwhen AstraZeneca added a second development candidate, ISIS-ARRx, to its collaboration;

• $17 millionfrom Biogen Idec because Isis advanced the Phase 2 study of ISIS-SMNRxin infants and for selecting and advancing ISIS-DMPKRxin development; and

• $3.5 millionwhen Xenon licensed XEN701.

Isis' revenue in 2013 also included$64 millionprimarily from the amortization of upfront fees and manufacturing services performed for its partners.

Operating ExpensesAs projected, Isis' pro forma operating expenses of$59.0 millionand$187.5 millionfor the three and twelve months endedDecember 31, 2013, respectively, were higher compared to$44.2 millionand$162.4 millionfor the same periods in 2012.  The increase in operating expenses was primarily due to higher costs associated with the maturation and expansion of Isis' pipeline.

On a GAAP basis, Isis' operating expenses for the three and twelve months endedDecember 31, 2013were$62.1 millionand$199.0 million, respectively, compared to$46.0 millionand$171.0 millionfor the same periods in 2012.

Income Tax BenefitIsis recognized a tax benefit of$5.9 millionfor the year endedDecember 31, 2013compared to a tax benefit of$9.1 millionin 2012.  Isis' tax benefit is the result of unrealized gains on its equity investments in its satellite companies, including Regulus, a company it co-founded with Alnylam Pharmaceuticals.  Isis' tax benefit declined in 2013 compared to 2012 primarily because the unrealized gains in 2013 were not as large as in 2012.

Net LossIsis reported a net loss of$24.3 millionand$60.6 millionfor the three and twelve months endedDecember 31, 2013, respectively, compared to$2.6 millionand$65.5 millionfor the same periods in 2012.  Basic and diluted net loss per share for the three and twelve months endedDecember 31, 2013was$0.21per share and$0.55per share, respectively, compared to$0.03per share and$0.65per share for the same periods in 2012. Isis' net loss for the year endedDecember 31, 2013decreased compared to 2012 due to a decrease in the Company's net operating loss resulting primarily from the significant increase in revenue that Isis earned from its partners in 2013.  The decrease in the Company's net operating loss was partially offset by the following items that occurred in 2012 and did not reoccur in 2013:

• $18.4 milliongain the Company realized in 2012 because of the increase in Regulus' valuation resulting from its initial public offering;

• $4.8 millionloss,$3.6 millionof which was non-cash, the Company recorded in 2012 on the early retirement of its 2 ⅝% convertible subordinated notes.

Balance SheetAs ofDecember 31, 2013, Isis had cash, cash equivalents and short-term investments of$656.8 millioncompared to$374.4 millionatDecember 31, 2012and working capital of$637.7 millionatDecember 31, 2013compared to$349.1 millionatDecember 31, 2012.  During 2013, Isis received$225 millionin cash from its partners as a result of Isis' successful execution of its business strategy. In addition, Isis received approximately$236 millionin cash from the issuance of its common stock.  Isis' working capital increased significantly in 2013 primarily due to the cash Isis received in 2013 and from an increase in the carrying value of Isis' investment in Regulus.

2014 Goals"We expect 2014 to be another year of continued maturation for our pipeline of novel, first-in-class drugs.  We plan to begin Phase 3 development for ISIS-APOCIIIRxand ISIS-SMNRx.  In addition, we plan to report clinical data from numerous drugs in development in every area of our pipeline, including our severe and rare, and metabolic disease programs.  We plan to continue to grow the pipeline by adding new drugs into development.  And finally, we expect to explore partnering opportunities that are the best fit for Isis and our programs.  Revenue from our existing partnerships allows us to continue to invest in our technology and our pipeline," said Ms. Parshall.

In 2014, Isis plans to achieve the following goals itself and with its partners:

• Together with Genzyme, Isis will continue to support KYNAMRO development, marketing and commercialization activities.Advance FOCUS FH with data planned in 2015.Pursue marketing approval for KYNAMRO in other countries.Support commercial launch activities inthe United Statesand in other countries for patients with HoFH.

• Mature its pipeline.Report clinical data from the Phase 2 studies on ISIS-SMNRxat the upcoming American Academy of Neurology meeting.Report data from up to seven drugs in late-stage development, including Phase 2 data on ISIS-FXIRxand ISIS-GCGRRx.Initiate up to five Phase 3 studies, including Phase 3 studies on ISIS-APOCIIIRxand ISIS-SMNRx.Initiate Phase 2 studies on up to three drugs.

• Broaden its pipeline by adding up to five new drugs in both partnered and unpartnered programs.

• Continue to successfully execute its business strategy to generate revenue and cash.

• Advance FOCUS FH with data planned in 2015.

• Pursue marketing approval for KYNAMRO in other countries.

• Support commercial launch activities inthe United Statesand in other countries for patients with HoFH.

• Report clinical data from the Phase 2 studies on ISIS-SMNRxat the upcoming American Academy of Neurology meeting.

• Report data from up to seven drugs in late-stage development, including Phase 2 data on ISIS-FXIRxand ISIS-GCGRRx.

• Initiate up to five Phase 3 studies, including Phase 3 studies on ISIS-APOCIIIRxand ISIS-SMNRx.

• Initiate Phase 2 studies on up to three drugs.

Business Highlights"The approval of KYNAMRO validated antisense technology and demonstrated that the drug discovery technology platform we developed can produce drugs that are safe and can treat devastating diseases.  The rest of the pipeline continues to mature and this progress ensures that we will have many readouts of important clinical data to look forward to this year," concluded Ms. Parshall.  "We also continued to successfully execute our partnering strategy, bringing in$225 millionin cash from our partners.  We established a broad strategic relationship with Biogen Idec in neurological disorders that we expect will bolster ours and Biogen Idec's pipelines, we added Roche as a preferred partner for our Huntington's disease program and we continued to progress our partnered programs with AstraZeneca and GlaxoSmithKline.  All of these activities enabled us to end the year with a substantially improved financial position, which sets us up for a productive 2014."

• Isis and Genzyme were successful in bringing KYNAMRO to the market inthe United States,Mexico,South KoreaandArgentinafor patients with homozygous FH. These patients are at high cardiovascular risk and may not be able to reduce their LDL-C sufficiently with currently available lipid-lowering therapies.Isis received a$25 millionmilestone payment from Genzyme related to the marketing approval of KYNAMRO by the FDA.Genzyme notes trends toward increases in qualified physicians, prescriptions and patients on drug, with optimism that these trends will continue in 2014. Genzyme is supporting the commercial success of KYNAMRO by:Qualifying hundreds of treating physicians under the KYNAMRO REMS program to prescribe KYNAMRO,Completing a Phase 1 KYNAMRO study inJapanto support ongoing discussions withJapanregulatory authorities regarding the next steps in development,Expanding KYNAMRO commercial markets by obtaining marketing approval for KYNAMRO inthe United States,Mexico,ArgentinaandSouth Koreaand pursuing regulatory approvals in other countries. Genzyme has stated that it has the infrastructure in place to successfully bring KYNAMRO to patients in these new markets.

• Isis reported five sets of positive Phase 2 data demonstrating that ISIS-APOCIIIRxcan effectively lower triglyceride levels in patients with high to extremely high triglyceride levels and can work as effectively as a single agent or in combination with fibrates. In addition, Isis reported that treated patients with type 2 diabetes experienced improvements in glucose control with trends toward enhanced insulin sensitivity.Isis published data in the journal Circulation Research demonstrating that antisense inhibition of ApoC-III produced significant reductions of ApoC-III and triglycerides in humans and other animal species.Isis received European Orphan Drug Designation for ISIS-APOCIIIRxfor the treatment of patients with familial chylomicronemia syndrome.

• Isis reported positive clinical data in children and infants with SMA demonstrating that ISIS-SMNRxis well tolerated with increases in muscle function scores observed in the type 2/3 children.Isis presented interim results from both multiple-dose Phase 2 studies in infants and children with SMA demonstrating that ISIS-SMNRxcontinues to be well tolerated at all doses. In the infant study, all four infants from the 6 mg cohort have been in the study for over six months and all have received three doses of ISIS-SMNRx, and one infant has received a fourth dose of ISIS-SMNRx. In the childhood onset study, Isis reported dose- and time-dependent increases in muscle function scores in children treated with multiple-doses of ISIS-SMNRx. In children treated with 9 mg of ISIS-SMNRx, Isis reported an average increase in muscle function score of 3.7 points.Isis reported results from an assay that measures SMN protein levels in the cerebral spinal fluid. The Company observed dose-dependent increases in SMN protein levels in children treated with ISIS-SMNRxfrom both the single- and multiple-dose studies.Dr.Kathy Swobodapresented follow up data from a single-dose open-label Phase 1 study of ISIS-SMNRxin children with SMA at the International Congress of the World Muscle Society. In this study, data suggest that children from the two highest doses continued to show increases in muscle function scores up to 14 months after a single injection of ISIS-SMNRx.Dr.Claudia Chiribogareported Phase 1 data on ISIS-SMNRxat the American Academy of Neurology. In this open-label study conducted in a small population, ISIS-SMNRxwas well tolerated in children with SMA and increases in muscle function scores were observed in a number of these children.

• Isis received a positive opinion on European Orphan Drug Designation in the EU for ISIS-TTRRxfor the treatment of patients with TTR amyloidosis.

• Isis and its partners reported positive data from six drugs, including multiple results from Phase 2 studies of ISIS-SMNRxand ISIS-APOCIIIRx, and Isis added five drugs to its pipeline.

• Isis and its partners initiated clinical studies on ten drugs.

• Isis received a$25 millionmilestone payment from Genzyme related to the marketing approval of KYNAMRO by the FDA.

• Genzyme notes trends toward increases in qualified physicians, prescriptions and patients on drug, with optimism that these trends will continue in 2014. Genzyme is supporting the commercial success of KYNAMRO by:Qualifying hundreds of treating physicians under the KYNAMRO REMS program to prescribe KYNAMRO,Completing a Phase 1 KYNAMRO study inJapanto support ongoing discussions withJapanregulatory authorities regarding the next steps in development,Expanding KYNAMRO commercial markets by obtaining marketing approval for KYNAMRO inthe United States,Mexico,ArgentinaandSouth Koreaand pursuing regulatory approvals in other countries. Genzyme has stated that it has the infrastructure in place to successfully bring KYNAMRO to patients in these new markets.

• Qualifying hundreds of treating physicians under the KYNAMRO REMS program to prescribe KYNAMRO,

• Completing a Phase 1 KYNAMRO study inJapanto support ongoing discussions withJapanregulatory authorities regarding the next steps in development,

• Expanding KYNAMRO commercial markets by obtaining marketing approval for KYNAMRO inthe United States,Mexico,ArgentinaandSouth Koreaand pursuing regulatory approvals in other countries. Genzyme has stated that it has the infrastructure in place to successfully bring KYNAMRO to patients in these new markets.

• Isis published data in the journal Circulation Research demonstrating that antisense inhibition of ApoC-III produced significant reductions of ApoC-III and triglycerides in humans and other animal species.

• Isis received European Orphan Drug Designation for ISIS-APOCIIIRxfor the treatment of patients with familial chylomicronemia syndrome.

• Isis presented interim results from both multiple-dose Phase 2 studies in infants and children with SMA demonstrating that ISIS-SMNRxcontinues to be well tolerated at all doses. In the infant study, all four infants from the 6 mg cohort have been in the study for over six months and all have received three doses of ISIS-SMNRx, and one infant has received a fourth dose of ISIS-SMNRx. In the childhood onset study, Isis reported dose- and time-dependent increases in muscle function scores in children treated with multiple-doses of ISIS-SMNRx. In children treated with 9 mg of ISIS-SMNRx, Isis reported an average increase in muscle function score of 3.7 points.

• Isis reported results from an assay that measures SMN protein levels in the cerebral spinal fluid. The Company observed dose-dependent increases in SMN protein levels in children treated with ISIS-SMNRxfrom both the single- and multiple-dose studies.

• Dr.Kathy Swobodapresented follow up data from a single-dose open-label Phase 1 study of ISIS-SMNRxin children with SMA at the International Congress of the World Muscle Society. In this study, data suggest that children from the two highest doses continued to show increases in muscle function scores up to 14 months after a single injection of ISIS-SMNRx.

• Dr.Claudia Chiribogareported Phase 1 data on ISIS-SMNRxat the American Academy of Neurology. In this open-label study conducted in a small population, ISIS-SMNRxwas well tolerated in children with SMA and increases in muscle function scores were observed in a number of these children.

• Isis formed a broad strategic alliance with Biogen Idec to discover and develop antisense drugs to treat neurological disorders, which combines Biogen Idec's expertise in neurology with Isis' leadership in antisense technology.Isis received a$100 millionupfront payment from Biogen Idec.Isis is eligible to receive substantial milestone payments, license fees and royalty payments for all treatments developed through this collaboration.

• Isis formed a new alliance with Roche to discover and develop antisense drugs to treat Huntington's disease.Isis received a$30 millionupfront payment and is eligible to receive up to$362 millionin a license fee and milestone payments.In addition, Isis is eligible to receive up to$136.5 millionin milestone payments for each additional drug successfully developed plus up to$50 millionin commercial milestones if a drug using Roche's proprietary brain shuttle technology is successfully commercialized.Isis is also eligible to receive tiered royalties on sales of drugs arising from the alliance.

• Isis received$6 millionfrom AstraZeneca related to the continuation of the research collaboration between it and AstraZeneca to discover and develop novel antisense drugs to treat cancer.

• In 2014 to date, Isis has earned more than$16 millionin payments from its partners as the Company's and its partners' drugs in development continue to mature.

• Isis successfully completed a public offering of common stock raising$173.3 millionin net proceeds. Isis is using the proceeds from this offering to support the Phase 3 development of ISIS-APOCIIIRx, retain other drugs longer in development and advance the rest of its pipeline.

• Isis added Mr.Breaux CastlemanandJoseph Loscalzo, M.D., Ph.D. to its Board of Directors.

• Isis' founder, CEO and chairman of the board of directors,Stanley T. Crooke, Ph.D., M.D., was awarded the 2013 Director of the Year Award for Companies in Transition by the Corporate Directors Forum and the 2013 Distinguished Scientist Award by theSan Diegosection of the American Chemical Society.

• Isis received a$100 millionupfront payment from Biogen Idec.

• Isis is eligible to receive substantial milestone payments, license fees and royalty payments for all treatments developed through this collaboration.

• Isis received a$30 millionupfront payment and is eligible to receive up to$362 millionin a license fee and milestone payments.

• In addition, Isis is eligible to receive up to$136.5 millionin milestone payments for each additional drug successfully developed plus up to$50 millionin commercial milestones if a drug using Roche's proprietary brain shuttle technology is successfully commercialized.

• Isis is also eligible to receive tiered royalties on sales of drugs arising from the alliance.

Conference CallAt11:30 a.m. Eastern Timetoday,February 28, 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 866-652-5200, 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 31 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' 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, 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, 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, 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.

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,

Years ended,

December 31,

December 31,

2013

2012

2013

2012

Revenue:

(unaudited)

Research and development revenue under collaborative agreements

$41,275

$17,890

$144,194

$96,415

Licensing and royalty revenue

973

1,983

3,091

5,634

Total revenue

$42,248

19,873

147,285

102,049

Expenses:

Research, development and patent expenses

57,430

42,758

184,033

158,458

General and administrative

4,676

3,234

14,918

12,515

Total operating expenses

62,106

45,992

198,951

170,973

Loss from operations

(19,858)

(26,119)

(51,666)

(68,924)

Other income (expense):

Equity in net loss of Regulus Therapeutics Inc.

-

(267)

-

(1,406)

Investment income

686

359

2,085

1,844

Interest expense

(4,885)

(4,817)

(19,355)

(21,152)

Gain on investments, net

305

1,446

2,378

1,465

Gain on investment in Regulus Therapeutics, Inc.

-

18,356

-

18,356

Loss on early retirement of debt

-

-

-

(4,770)

Loss before income tax benefit (expense)

(23,752)

(11,042)

(66,558)

(74,587)

Income tax benefit (expense)

(524)

8,405

5,914

9,109

Net loss

$(24,276)

$(2,637)

$(60,644)

$(65,478)

Basic and diluted net loss per share

$(0.21)

$(0.03)

$(0.55)

$(0.65)

Shares used in computing basic and diluted net loss per share

116,122

101,246

110,502

100,576

Three months ended,

December 31,

Years ended,

December 31,

2013

2012

2013

2012

(unaudited)

(unaudited)

$62,106

$45,992

$198,951

$170,973

Excluding compensation expense related to equity awards

(3,101)

(1,811)

(11,418)

(8,571)

$59,005

$44,181

$187,533

$162,402

$(19,858)

$(26,119)

$(51,666)

$(68,924)

Excluding compensation expense related to equity awards

(3,101)

(1,811)

(11,418)

(8,571)

$(16,757)

$(24,308)

$(40,248)

$(60,353)

Reconciliation of GAAP to Pro Forma BasisAs illustrated in the Selected Financial Information in this press release, pro forma operating expenses and pro forma loss from operations 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.

Assets:

Cash, cash equivalents and short-term investments

$656,761

$374,446

Investment in Regulus Therapeutics Inc.

52,096

33,622

Other current assets

26,653

15,370

Property, plant and equipment, net

86,198

91,084

Other assets

25,448

31,164

Total assets

$847,156

$545,686

Liabilities and stockholders' equity:

Other current liabilities

$49,677

$38,397

Current portion of deferred contract revenue

48,135

35,925

2 3/4% convertible senior notes

150,334

143,990

Long-term obligations, less current portion

77,830

77,952

Long-term deferred contract revenue

142,790

66,656

Stockholders' equity

378,390

182,766

Total liabilities and stockholders' equity

$847,156

$545,686