Isis Reports Financial Results and Highlights for Second Quarter 2013

CARLSBAD, Calif.,Aug. 6, 2013/PRNewswire/ -- Isis Pharmaceuticals, Inc. (Nasdaq:ISIS) today reported a pro forma net operating loss (NOL) of$5.3 millionand$799,000for the three and six months endedJune 30, 2013, respectively, compared to pro forma net operating income of$6.2 millionand a pro forma NOL of$10.0 millionfor the three and six months endedJune 30, 2012.  On a GAAP basis, Isis reported a loss from operations of$7.9 millionand$6.3 millionfor the three and six months endedJune 30, 2013, respectively, compared to income from operations of$3.7 millionfor the three months endedJune 30, 2012and a loss from operations of$14.8 millionfor the six months endedJune 30, 2012.  During the first half of 2013, Isis increased its cash position, ending June with$591 millioncompared to$374 millionatDecember 31, 2012.  The substantial increase in the Company's cash position was primarily due to its recent equity offering and cash received from its partners in the first half of 2013.

"We had a successful second quarter.  We ended the quarter with a significantly improved financial position.  We added a new partner, Roche, for one of our severe and rare disease programs.  We advanced our broad pipeline of drugs, and we reported positive Phase 2 data from our drug, ISIS-APOCIIIRx.  These data support our belief that antisense drugs can be safe and effective treatments for many different diseases.  All of these activities have significantly contributed to our financial performance this year and the increase in value of our technology and our drugs in development," saidB. Lynne Parshall, chief operating officer of Isis.  "We have a number of key data events to look forward to in the second half of the year as our pipeline and partnerships continue to mature."

"We ended the second quarter with more than$590 millionin cash, which was bolstered by the proceeds from our recent stock offering.  We have also received$93 millionfrom our partners so far this year, including, in the second quarter,$30 millionfrom our new collaboration with Roche,$16 millionfrom AstraZeneca and$3.5 millionfrom Biogen Idec for the advancement of ISIS-SMNRx. As our partnered programs advance in development, we have the potential to earn additional milestone payments this year.  With our strong cash position, we are now able to take some of our drugs into late-stage clinical studies prior to partnering," said Elizabeth L. Hougen, chief financial officer of Isis.  "We are on track to meet or exceed our 2013 guidance of a pro forma NOL in the mid$60 millionrange while accelerating development of ISIS-APOCIIIRxand other drugs in our pipeline.  Because of the successful completion of our recent stock offering, we expect to significantly exceed our cash guidance for 2013."

• Report clinical data on ISIS-APOCIIIRxas a monotherapy in patients with severely high triglycerides at the European Society of Cardiology Congress.

• Present the complete Phase 2 clinical data for ISIS-APOCIIIRxat the American Heart Association.

• Report data from two clinical studies evaluating ISIS-SMNRxin children and in infants with spinal muscular atrophy.

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 six months endedJune 30, 2013was$38.1 millionand$81.5 million, respectively, compared to$47.3 millionand$70.6 millionfor the same periods in 2012.  Isis' revenue fluctuates based on the nature and timing of payments under agreements with Isis' partners, including license fees, milestone-related payments and other payments. For example, Isis earned nearly$50 millionin milestone and licensing payments in the first half of 2013 comprised of:

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

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

• $7.5 millionfrom GlaxoSmithKline when Isis initiated the Phase 2/3 study of ISIS-TTRRx;

• $3.5 millionfrom Biogen Idec when Isis dosed the first infant in a Phase 2 study of ISIS-SMNRx; and

• $3.5 millionwhen Xenon licensed a development candidate, XEN701, from Isis.

In comparison, Isis earned a$25 millionmilestone payment in the first half of 2012 from Genzyme when the FDA accepted the NDA for KYNAMRO.  Isis' revenue in the first half of 2013 also included more than$13 millionin new revenue Isis earned from its alliances with AstraZeneca, Biogen Idec and Roche.  These increases were offset, in part, by the completion of the amortization of the upfront payments associated with Isis' Genzyme collaboration.

Operating ExpensesOn a pro forma basis, Isis' operating expenses of$43.4 millionand$82.3 millionfor the three and six months endedJune 30, 2013, respectively, were nearly flat compared to$41.2 millionand$80.6 millionfor the same periods in 2012.

On a GAAP basis, Isis' operating expenses for the three and six months endedJune 30, 2013were$46.0 millionand$87.8 million, respectively, compared to$43.6 millionand$85.3 millionfor the same periods in 2012.

Net LossIsis reported a net loss of$10.1 millionand$11.8 millionfor the three and six months endedJune 30, 2013, respectively, compared to$1.2 millionand$25.2 millionfor the same periods in 2012.  Basic and diluted net loss per share for the three and six months endedJune 30, 2013was$0.09per share and$0.11per share, respectively, compared to$0.01per share and$0.25per share for the same periods in 2012. Isis' net loss for the six months endedJune 30, 2013was significantly lower than in 2012 primarily due to the revenue Isis earned from its partners in the first half of 2013.

Balance SheetAs ofJune 30, 2013, Isis had cash, cash equivalents and short-term investments of$590.8 millioncompared to$374.4 millionatDecember 31, 2012and working capital of$582.1 millionatJune 30, 2013compared to$349.1 millionatDecember 31, 2012.  The Company received a substantial amount of cash in the first six months of 2013, including$210 millionfrom the issuance of its common stock and$93 millionin payments from its partners.  Isis' working capital increased in 2013 primarily due to the increase in cash and the increase in the value of Isis' ownership in Regulus.  AtJune 30, 2013, the carrying value of Isis' investment in Regulus increased to$62.2 millioncompared to$33.6 millionatDecember 31, 2012.  This increase demonstrates the value that Isis is realizing from its satellite company strategy.

Business Highlights"Our innovative business strategy provides us with multiple opportunities to create and maintain value.  We design our drug development activities to demonstrate the broad therapeutic profile of each drug.  In this way, we strive to maximize the value of each drug.  For example, ISIS-APOCIIIRxis an antisense drug we discovered and are developing to treat patients with severely high triglycerides.  Because of our clinical experience with KYNAMRO, our strong internal development capabilities and the manageable size of the clinical program required for our initial indication, we believe we can successfully develop ISIS-APOCIIIRxon our own without a partner.  Our recent successful stock offering provides us with the cash we need to develop ISIS-APOCIIIRxthrough Phase 3 development on our own.  Already this year, we reported positive Phase 2 data from ISIS-APOCIIIRxin two separate Phase 2 studies in patients with high triglycerides.   In these studies, we observed positive effects on apoC-III, triglycerides, overall lipid parameters and other measures of activity.  These data show that ISIS-APOCIIIRxcan be used as a monotherapy or in combination with other triglyceride-lowering drugs with the potential to positively impact the lives of patients with severely high triglycerides.  We plan to report the third set of data later this month and initiate the Phase 3 program for ISIS-APOCIIIRxearly next year after discussions with the FDA and European regulators," concluded Ms. Parshall.

• Isis and its partners advanced antisense drugs in Isis' pipeline and reported positive clinical data from three programs.Isis advanced the Phase 2/3 study of ISIS-TTRRx, a drug to treat patients with familial amyloid polyneuropathy.  As a result, Isis earned$2 millionfrom GlaxoSmithKline.Isis reported Phase 2 data on ISIS-APOCIIIRxin patients with high to severely high triglycerides on stable fibrates.  In this study, ISIS-APOCIIIRxtreatment resulted in statistically significant reductions in triglycerides and apoC-III and a statistically significant increase in HDL.Isis reported Phase 2 data on ISIS-APOCIIIRxin patients with high triglycerides and type 2 diabetes at the American Diabetes Association Scientific Sessions.  In this study, ISIS-APOCIIIRxtreatment resulted in statistically significant reductions in triglycerides and apoC-III and a statistically significant increase in high-density lipoprotein (HDL).  In this study treated patients also experienced improvements in glucose control and trends toward enhanced insulin sensitivity.Isis reported Phase 2 data on ISIS-CRPRxin patients with rheumatoid arthritis (RA).  In this study, patients treated with ISIS-CRPRxachieved rapid, dose-dependent mean reductions of up to 67 percent in CRP, but failed to demonstrate improvements in signs and symptoms of RA that were sufficiently better than those achieved by patients in the placebo group to justify further development of ISIS-CRPRxfor RA.Dr.David Hongreported Phase 1 data on ISIS-STAT3Rxat the American Society of Clinical Oncology.  In this study, treatment with ISIS-STAT3Rxresulted in partial responses that were durable and prolonged in two out of three patients with diffuse large B-cell lymphoma who were refractory to prior chemotherapy treatments.

• Isis and its partners initiated clinical studies on three drugs in Isis' pipeline.Isis initiated a Phase 2 study of ISIS-SMN­­Rxin infants with SMA and earned a$3.5 millionmilestone payment from Biogen Idec.AstraZeneca initiated a Phase 1b/2a study of ISIS-STAT3Rxin patients with advanced metastatic hepatocellular carcinoma.Isis initiated a Phase 1 study of ISIS-APOARx, an antisense drug designed to reduce levels of Lp(a), an atherogenic lipoprotein.

• Isis and its partners continued to advance Isis' preclinical stage pipeline by adding three drugs into development.AstraZeneca selected ISIS-ARRxas the second development candidate to advance into development under its collaboration with Isis.  As a result, Isis earned a$10 millionmilestone payment from AstraZeneca.Xenon selected XEN701 as a development candidate and licensed XEN701 from Isis.  As a result, Isis earned$3.5 millionfrom Xenon.Isis added a new drug to its pipeline, ISIS-ANGTL3Rx, for the treatment of hyperlipidemia.

• Isis advanced the Phase 2/3 study of ISIS-TTRRx, a drug to treat patients with familial amyloid polyneuropathy.  As a result, Isis earned$2 millionfrom GlaxoSmithKline.

• Isis reported Phase 2 data on ISIS-APOCIIIRxin patients with high to severely high triglycerides on stable fibrates.  In this study, ISIS-APOCIIIRxtreatment resulted in statistically significant reductions in triglycerides and apoC-III and a statistically significant increase in HDL.

• Isis reported Phase 2 data on ISIS-APOCIIIRxin patients with high triglycerides and type 2 diabetes at the American Diabetes Association Scientific Sessions.  In this study, ISIS-APOCIIIRxtreatment resulted in statistically significant reductions in triglycerides and apoC-III and a statistically significant increase in high-density lipoprotein (HDL).  In this study treated patients also experienced improvements in glucose control and trends toward enhanced insulin sensitivity.

• Isis reported Phase 2 data on ISIS-CRPRxin patients with rheumatoid arthritis (RA).  In this study, patients treated with ISIS-CRPRxachieved rapid, dose-dependent mean reductions of up to 67 percent in CRP, but failed to demonstrate improvements in signs and symptoms of RA that were sufficiently better than those achieved by patients in the placebo group to justify further development of ISIS-CRPRxfor RA.

• Dr.David Hongreported Phase 1 data on ISIS-STAT3Rxat the American Society of Clinical Oncology.  In this study, treatment with ISIS-STAT3Rxresulted in partial responses that were durable and prolonged in two out of three patients with diffuse large B-cell lymphoma who were refractory to prior chemotherapy treatments.

• Isis initiated a Phase 2 study of ISIS-SMN­­Rxin infants with SMA and earned a$3.5 millionmilestone payment from Biogen Idec.

• AstraZeneca initiated a Phase 1b/2a study of ISIS-STAT3Rxin patients with advanced metastatic hepatocellular carcinoma.

• Isis initiated a Phase 1 study of ISIS-APOARx, an antisense drug designed to reduce levels of Lp(a), an atherogenic lipoprotein.

• AstraZeneca selected ISIS-ARRxas the second development candidate to advance into development under its collaboration with Isis.  As a result, Isis earned a$10 millionmilestone payment from AstraZeneca.

• Xenon selected XEN701 as a development candidate and licensed XEN701 from Isis.  As a result, Isis earned$3.5 millionfrom Xenon.

• Isis added a new drug to its pipeline, ISIS-ANGTL3Rx, for the treatment of hyperlipidemia.

• Isis successfully completed a public offering of common stock raising$173.2 millionin net proceeds.  Isis plans to use the proceeds from this offering to pursue Phase 3 development of ISIS-APOCIIIRx, retain additional drugs longer in development and advance the rest of its pipeline.

• Isis addedBreaux Castleman, a senior executive with extensive business experience, to its Board of Directors.

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

• 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, pre-licensing and post-licensing milestone payments, including up to$80 millionin commercial milestones.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 a$30 millionupfront payment and is eligible to receive up to$362 millionin a license fee, pre-licensing and post-licensing milestone payments, including up to$80 millionin commercial milestones.

• 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,August 6, 2013, 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 28 drugs to treat a wide variety of diseases with an emphasis on cardiovascular, metabolic, severe and rare diseases, and cancer.  Isis' partner, Genzyme, is commercializing Isis' lead product, KYNAMRO™, inthe United Statesfor the treatment of patients with HoFH.  Genzyme is also pursuing marketing approval of KYNAMRO in other markets.  Isis' patents provide strong and extensive protection for its drugs and technology.

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, 2012and 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 trademark of Genzyme Corporation.

Three months ended,

Six months ended,

June 30,

June 30,

2013

2012

2013

2012

Revenue:

(unaudited)

(unaudited)

Research and development revenue under collaborative agreements

$37,615

$47,140

$79,535

$68,957

Licensing and royalty revenue

477

200

1,916

1,618

Total revenue

38,092

47,340

81,451

70,575

Expenses:

Research and development

42,631

40,435

80,944

79,149

General and administrative

3,389

3,209

6,811

6,185

Total operating expenses

46,020

43,644

87,755

85,334

Income (loss) from operations

(7,928)

3,696

(6,304)

(14,759)

Other income (expense):

Equity in net loss of Regulus Therapeutics Inc.

-

(163)

-

(1,139)

Investment income

589

477

967

1,077

Interest expense

(4,808)

(5,219)

(9,603)

(10,398)

Gain on investments, net

840

2

1,898

19

Loss before income tax benefit (expense)

(11,307)

(1,207)

(13,042)

(25,200)

Income tax benefit (expense)

1,181

-

1,244

(2)

Net loss

$(10,126)

$(1,207)

$(11,798)

$(25,202)

Basic and diluted net loss per share

$(0.09)

$(0.01)

$(0.11)

$(0.25)

Shares used in computing basic and diluted net loss per share

108,539

100,213

105,225

100,185

Three months ended,

June 30,

Six months ended,

June 30,

2013

2012

2013

2012

(unaudited)

(unaudited)

$46,020

$43,644

$87,755

$85,334

Excluding compensation expense related to equity awards

(2,636)

(2,460)

(5,505)

(4,727)

$43,384

$41,184

$82,250

$80,607

$(7,928)

$3,696

$(6,304)

$(14,759)

Excluding compensation expense related to equity awards

(2,636)

(2,460)

(5,505)

(4,727)

$(5,292)

$6,156

$(799)

$(10,032)

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

June 30,

December 31,

2013

2012

(unaudited)

Assets:

Cash, cash equivalents and short-term investments

$590,752

$374,446

Investment in Regulus Therapeutics Inc.

62,190

33,622

Other current assets

16,119

15,370

Property, plant and equipment, net

88,312

91,084

Other assets

31,278

31,164

Total assets

$788,651

$545,686

Liabilities and stockholders' equity:

Other current liabilities

$46,586

$38,397

Current portion of deferred contract revenue

40,409

35,925

2 3/4% convertible senior notes

147,099

143,990

Long-term obligations, less current portion

78,292

77,952

Long-term deferred contract revenue

75,184

66,656

Stockholders' equity

401,081

182,766

Total liabilities and stockholders' equity

$788,651

$545,686