Isis Reports Financial Results and Highlights for Second Quarter 2014

CARLSBAD, Calif.,Aug. 4, 2014/PRNewswire/ -- Isis Pharmaceuticals, Inc. (NASDAQ:ISIS) today reported pro forma net operating income of$1.1 millionand a pro forma net operating loss (NOL) of$21.5 millionfor the three and six months endedJune 30, 2014, respectively, compared to an NOL of$5.3 millionand$799,000for the same periods in 2013.  Isis' pro forma operating income in the second quarter of 2014 was primarily driven by more than$40 millionof milestone payments from partners the Company earned during the second quarter.  On a GAAP basis, Isis reported a loss from operations of$6.7 millionand$36.3 millionfor the three and six months endedJune 30, 2014, respectively, compared to a loss from operations of$7.9 millionand$6.3 millionfor the three and six months endedJune 30, 2013.  Isis ended the first half of 2014 with approximately$591 millionin cash, not including approximately$41 millionthat Isis received after the quarter ended, compared to$657 millionatDecember 31, 2013.

"Our strong financial position demonstrates the value our unique business strategy creates as our pipeline continues to advance.  We have initiated the Phase 3 program for ISIS-SMNRxto treat patients with spinal muscular atrophy.  Our Phase 3 clinical study of ISIS-TTRRxin patients with the polyneuropathy form of transthyretin amyloidosis is enrolling well and patients who have completed the controlled portion of the study can continue to receive treatment in our open-label extension study.  Also this year, we plan to initiate the Phase 3 program for ISIS-APOCIIIRxto treat patients with severely elevated triglyceride levels with the first study starting very shortly," saidB. Lynne Parshall, chief operating officer of Isis.   "By the end of the year, we plan to be conducting Phase 3 programs on a number of different drugs to treat important genetically driven diseases for which antisense may offer a unique therapeutic approach."

"We ended the second quarter with pro forma net operating income of$1.1 million, including more than$40 millionin milestone payments reflecting the significant progress our partnered programs are achieving.  So far this year, because of our successful execution of our business strategy, we have achieved nearly$75 millionin payments from our partners.  With numerous successful partnerships encompassing multiple drugs, we have continuing opportunities to earn additional milestone payments from our partners as we progress through the year, including an$18 millionmilestone payment from Biogen Idec when we dose the first infant in our ISIS-SMNRxPhase 3 study.  Further, we maintained our strong cash position by ending the quarter with more than$590 millionin cash, which does not include cash from the$40 millionin milestone payments we earned late in the second quarter.  Because of the timing of these payments, the$40 millionwill be reflected in our third quarter cash balance," said Elizabeth L. Hougen, chief financial officer of Isis.  "We remain on track to meet 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-SMNRx.

• Initiate a Phase 3 clinical program on ISIS-APOCIIIRx.

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

• Report data from Phase 2 studies of ISIS-SMNRxin both children and infants with SMA at an upcoming medical meeting.

• Report Phase 2 data from ISIS-GCCRRxand ISIS-PTP1BRxin 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 six months endedJune 30, 2014was$57.1 millionand$85.2 million, respectively, compared to$38.1 millionand$81.5 millionfor the same periods in 2013. 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$31.4 millionin the first half of 2014, compared to$19.2 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$41.5 millionin milestone payments in the first half of 2014, consisting of the following:

• $24.5 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; and

• $2 millionfrom GSK related to advancing ISIS-TTRRx.

Operating ExpensesOn a pro forma basis, Isis' operating expenses for the three and six months endedJune 30, 2014were$56.0 millionand$106.8 million, respectively, compared to$43.4 millionand$82.3 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.  On a GAAP basis, Isis' operating expenses for the three and six months endedJune 30, 2014were$63.7 millionand$121.6 million, respectively, compared to$46.0 millionand$87.8 millionfor the same periods in 2013.

Net LossIsis reported a net loss of$12.1 millionand$43.4 millionfor the three and six months endedJune 30, 2014, respectively, compared to$10.1 millionand$11.8 millionfor the same periods in 2013.  Basic and diluted net loss per share for the three and six months endedJune 30, 2014was$0.10per share and$0.37per share, respectively, compared to$0.09per share and$0.11per share for the same periods in 2013.  Isis' net loss increased in the first half of 2014 primarily due to the planned increase in operating expenses associated with the Company's maturing pipeline of drugs.

Balance SheetAs ofJune 30, 2014, Isis had cash, cash equivalents and short-term investments of$590.8 millioncompared to$656.8 millionatDecember 31, 2013and had working capital of$605.0 millionatJune 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 atJune 30, 2014does not include approximately$41 millionin payments that it recognized into revenue in the second quarter and received in the third quarter.

Business Highlights"We have had a successful start to the year. We reported positive Phase 2 data from five of the drugs in our pipeline.  These data highlight the potential of our antisense technology to create drugs to treat a wide range of diseases, including type 2 diabetes, high triglycerides and orphan diseases, like SMA and FCS, where there are no therapeutic options. We advanced two partnered drugs into clinical development for which we earned$29 millionin milestone payments from our partners at Biogen Idec and AstraZeneca.  In addition, our unpartnered drugs continued to advance.  Our Lp(a) drug, ISIS-APO(a)Rx, entered  Phase 2 clinical trials and we plan to begin Phase 3 clinical trials for ISIS-APOCIIIRxshortly," continued Ms. Parshall.  "We look forward to continuing this momentum in the second half of this year."

• Isis reported positive clinical results from five drugs in later-stage development.  These data exemplify the broad applicability and potential for antisense drugs to provide therapeutic benefit to many different diseases.Isis reported positive Phase 2 data on ISIS-APOCIIIRxin patients with high to extremely high triglyceride levels as a single agent and in combination with fibrates.  In these studies, patients experienced substantial reductions of triglyceride and apoC-III levels with significant increases in HDL-cholesterol.  These Phase 2 data were presented at the Arteriosclerosis, Thrombosis and Vascular Biology and the National Lipid Association meetings.Isis presented positive results from both of the ongoing multiple-dose open label Phase 2 studies of ISIS-SMNRxin infants and children with SMA, which were consistent with earlier reported data.  In these studies, Isis reported increases in muscle function scores in infants and children treated with ISIS-SMNRx. These Phase 2 data were presented at the American Academy of Neurology meeting.Isis reported positive Phase 2 data for ISIS-GCGRRxin patients with type 2 diabetes.  In this study, patients with type 2 diabetes uncontrolled on stable metformin therapy experienced up to a 2.25 percentage point mean reduction in HbA1c levels after 13 weeks of dosing. These Phase 2 data were presented at the American Diabetes Association Scientific Sessions.Isis reported positive top-line Phase 2 clinical results for ISIS-FXIRxin patients undergoing total knee replacement.  In this study, ISIS-FXIRx-treated patients experienced a dose-dependent decrease in venous thromboembolism and numerically fewer bleeding events compared to patients treated with enoxaparin.Isis reported Phase 2 results showing that ISIS-CRPRxproduced statistically significant mean reductions of CRP protein of 65% with reductions as great as 84% in patients with atrial fibrillation (AF).  In addition, two patients who had elevated levels of CRP (>5 mg/L) experienced a reduction of CRP that was associated with a decline to zero in overall AF burden while on treatment.

• Isis continued to advance its pipeline of drugs.Isis initiated a Phase 3 study, ENDEAR, of ISIS-SMNRxin infants with SMA and will earn an$18 millionmilestone payment upon dosing of the first infant.  This is the first of several planned studies in a broad and comprehensive late-stage clinical development program for ISIS-SMNRx.Isis initiated a Phase 2 study of ISIS-APO(a)Rxin patients with high levels of lipoprotein(a), an independent risk factor for cardiovascular disease.Isis initiated a Phase 1 study of ISIS-PKKRx, an antisense drug to treat patients with hereditary angioedemia, and a Phase 1 study of ISIS-DMPKRx, an antisense drug to treat patients with myotonic dystrophy type 1.AstraZeneca initiated a Phase 1 study of ISIS-ARRx, an antisense drug discovered by Isis to treat patients with cancer.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.

• Isis and its partners were recognized by the drug development community for Isis' innovative and collaborative alliances and Isis' commitment to developing drugs to treat patients with serious, unmet medical needs.Isis and Genzyme received the 2014 Partners in Progress Corporate Award from the National Organization for Rare Disorders (NORD) for the development and approval of KYNAMRO, a drug selected for being a very important orphan therapy to reach the market inthe United States. This award honors companies that have brought important and innovative treatments to market for patients with rare disorders.Isis' and Biogen Idec's innovative collaboration was voted breakthrough alliance of 2014 by Thomson Reuters Recap.Frank Bennett, Ph.D., Isis' senior vice president, research, was a recipient of the Commitment to a Cure Award by the ALS Association for his and Isis' research and commitment to develop a treatment for amyotrophic lateral sclerosis (ALS).

• Isis reported positive Phase 2 data on ISIS-APOCIIIRxin patients with high to extremely high triglyceride levels as a single agent and in combination with fibrates.  In these studies, patients experienced substantial reductions of triglyceride and apoC-III levels with significant increases in HDL-cholesterol.  These Phase 2 data were presented at the Arteriosclerosis, Thrombosis and Vascular Biology and the National Lipid Association meetings.

• Isis presented positive results from both of the ongoing multiple-dose open label Phase 2 studies of ISIS-SMNRxin infants and children with SMA, which were consistent with earlier reported data.  In these studies, Isis reported increases in muscle function scores in infants and children treated with ISIS-SMNRx. These Phase 2 data were presented at the American Academy of Neurology meeting.

• Isis reported positive Phase 2 data for ISIS-GCGRRxin patients with type 2 diabetes.  In this study, patients with type 2 diabetes uncontrolled on stable metformin therapy experienced up to a 2.25 percentage point mean reduction in HbA1c levels after 13 weeks of dosing. These Phase 2 data were presented at the American Diabetes Association Scientific Sessions.

• Isis reported positive top-line Phase 2 clinical results for ISIS-FXIRxin patients undergoing total knee replacement.  In this study, ISIS-FXIRx-treated patients experienced a dose-dependent decrease in venous thromboembolism and numerically fewer bleeding events compared to patients treated with enoxaparin.

• Isis reported Phase 2 results showing that ISIS-CRPRxproduced statistically significant mean reductions of CRP protein of 65% with reductions as great as 84% in patients with atrial fibrillation (AF).  In addition, two patients who had elevated levels of CRP (>5 mg/L) experienced a reduction of CRP that was associated with a decline to zero in overall AF burden while on treatment.

• Isis initiated a Phase 3 study, ENDEAR, of ISIS-SMNRxin infants with SMA and will earn an$18 millionmilestone payment upon dosing of the first infant.  This is the first of several planned studies in a broad and comprehensive late-stage clinical development program for ISIS-SMNRx.

• Isis initiated a Phase 2 study of ISIS-APO(a)Rxin patients with high levels of lipoprotein(a), an independent risk factor for cardiovascular disease.

• Isis initiated a Phase 1 study of ISIS-PKKRx, an antisense drug to treat patients with hereditary angioedemia, and a Phase 1 study of ISIS-DMPKRx, an antisense drug to treat patients with myotonic dystrophy type 1.

• AstraZeneca initiated a Phase 1 study of ISIS-ARRx, an antisense drug discovered by Isis to treat patients with cancer.

• 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.

• Isis and Genzyme received the 2014 Partners in Progress Corporate Award from the National Organization for Rare Disorders (NORD) for the development and approval of KYNAMRO, a drug selected for being a very important orphan therapy to reach the market inthe United States. This award honors companies that have brought important and innovative treatments to market for patients with rare disorders.

• Isis' and Biogen Idec's innovative collaboration was voted breakthrough alliance of 2014 by Thomson Reuters Recap.

• Frank Bennett, Ph.D., Isis' senior vice president, research, was a recipient of the Commitment to a Cure Award by the ALS Association for his and Isis' research and commitment to develop a treatment for amyotrophic lateral sclerosis (ALS).

Conference CallAt10:30 a.m. Eastern Timetoday,August 4, 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 32 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 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,

Six months ended,

June 30,

June 30,

2014

2013

2014

2013

Revenue:

(unaudited)

(unaudited)

Research and development revenue under collaborative agreements

$56,628

$37,615

$76,177

$79,285

Licensing and royalty revenue

448

477

9,060

2,166

Total revenue

57,076

38,092

85,237

81,451

Expenses:

Research, development and patent expenses

59,264

42,631

112,712

80,944

General and administrative

4,462

3,389

8,842

6,811

Total operating expenses

63,726

46,020

121,554

87,755

Loss from operations

(6,650)

(7,928)

(36,317)

(6,304)

Other income (expense):

Investment income

671

589

1,328

967

Interest expense

(4,961)

(4,808)

(9,904)

(9,603)

Gain (loss) on investments, net

(260)

840

137

1,898

Loss before income tax benefit

(11,200)

(11,307)

(44,756)

(13,042)

Income tax benefit (expense)

(881)

1,181

1,395

1,244

Net loss

$(12,081)

$(10,126)

$(43,361)

$(11,798)

Basic and diluted net loss per share

$(0.10)

$(0.09)

$(0.37)

$(0.11)

Shares used in computing basic and diluted net loss per share

117,588

108,539

117,359

105,225

Three months ended,

June 30,

Six months ended,

June 30,

2014

2013

2014

2013

(unaudited)

(unaudited)

$63,726

$46,020

$121,554

$87,755

Excluding compensation expense related to equity awards

(7,708)

(2,636)

(14,777)

(5,505)

$56,018

$43,384

$106,777

$82,250

$(6,650)

$(7,928)

$(36,317)

$(6,304)

Excluding compensation expense related to equity awards

(7,708)

(2,636)

(14,777)

(5,505)

$1,058

$(5,292)

$(21,540)

$(799)

$(12,081)

$(10,126)

$(43,361)

$(11,798)

Excluding compensation expense related to equity awards

(7,708)

(2,636)

(14,777)

(5,505)

$(4,373)

$(7,490)

$(28,584)

$(6,293)

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.

June 30,

December 31,

2014

2013

(unaudited)

Assets:

Cash, cash equivalents and short-term investments

$590,835

$656,761

Investment in Regulus Therapeutics Inc.

56,678

52,096

Other current assets

58,284

26,653

Property, plant and equipment, net

86,321

86,198

Other assets

25,659

25,448

Total assets

$817,777

$847,156

Liabilities and stockholders' equity:

Other current liabilities

$49,256

$49,677

Current portion of deferred contract revenue

51,560

48,135

2 3/4% convertible senior notes

153,700

150,334

Long-term obligations, less current portion

76,014

77,830

Long-term deferred contract revenue

120,387

142,790

Stockholders' equity

366,860

378,390

Total liabilities and stockholders' equity

$817,777

$847,156