Isis Reports Financial Results and Highlights for Third Quarter 2013

CARLSBAD, Calif.,Nov. 5, 2013/PRNewswire/ -- Isis Pharmaceuticals, Inc. (Nasdaq:ISIS) today reported a pro forma net operating loss (NOL) of$22.7 millionand$23.5 millionfor the three and nine months endedSeptember 30, 2013, respectively, compared to a pro forma NOL of$26.0 millionand$36.0 millionfor the same periods in 2012.  On a GAAP basis, Isis reported a loss from operations of$25.5 millionand$31.8 millionfor the three and nine months endedSeptember 30, 2013, respectively, compared to a loss from operations of$28.0 millionand$42.8 millionfor the same periods in 2012.  Isis increased its cash position during the first nine months of 2013, ending September with$671 millionin cash compared to$374 millionatDecember 31, 2012.  The substantial increase in the Company's cash position was primarily due to the equity offering it completed in the second quarter and cash received from its partners in the first nine months of 2013, including the$100 millionupfront payment Isis received from its recently announced strategic collaboration with Biogen Idec.

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"Our increasingly strong financial performance is a result of meeting key milestones in our partnerships, adding new partners and expanding existing relationships.  Our financial success is also driven by achievements from our expanding and maturing pipeline, as well as continuous improvements in our technology platform.  We have completed key steps to move two important drugs, ISIS-APOCIIIRxand ISIS-SMNRx, into Phase 3 studies early next year.  In addition, our Phase 2/3 study for ISIS-TTRRxis enrolling on schedule, and we are pleased with the progress we and our partner, GlaxoSmithKline, are making to advance this drug towards the market," saidB. Lynne Parshall, chief operating officer of Isis.

"The effective execution of our business strategy and the success of the drugs in our pipeline have contributed significantly to our financial performance this year.  Already this year we have received$200 millionfrom our partners," said Elizabeth L. Hougen, chief financial officer at Isis.  "Because of our strong financial performance this year, we will substantially exceed our year-end cash guidance.  We are now projecting to end the year with more than$625 millionin cash.  We are also reducing our projected pro forma NOL by more than 30 percent to a pro forma NOL in the mid$40 millionrange."

• Present the complete Phase 2 clinical data for ISIS-APOCIIIRxand Phase 1 clinical data for ISIS-APO(a)Rxat the American Heart Association.

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

• Initiate Phase 3 programs on ISIS-APOCIIIRxand ISIS-SMNRx.

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, 2013was$23.6 millionand$105.0 million, respectively, compared to$11.6 millionand$82.2 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 more than$60 millionin revenue from milestone and licensing payments in the first nine months of 2013 including:

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

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

• $16.5 millionfrom GlaxoSmithKline because Isis initiated the Phase 2/3 study of ISIS-TTRRxand advanced ISIS-GSK3Rxin development;

• $5.5 millionfrom Biogen Idec because Isis advanced the Phase 2 study of ISIS-SMNRxin infants; and

• $3.5 millionwhen Xenon licensed XEN701.

Isis' revenue in the first nine months of 2013 also included more than$33 millionin revenue Isis earned from its alliances with AstraZeneca, Biogen Idec, GlaxoSmithKline and Roche.

InSeptember 2013, Isis and Biogen Idec entered into a new strategic neurology collaboration.  As part of this collaboration, Isis received a$100 millionupfront payment, which Isis will begin amortizing into revenue over six years starting inOctober 2013. In addition, in the fourth quarter of 2013, Isis has already earned$10 millionin a milestone payment for advancing ISIS-DMPKRxin development.

Operating ExpensesAs projected, Isis' pro forma operating expenses of$46.3 millionand$128.5 millionfor the three and nine months endedSeptember 30, 2013, respectively, were moderately higher compared to$37.6 millionand$118.2 millionfor the same periods in 2012 primarily due to higher development costs associated with the progression of several of the drugs in Isis' pipeline into later stage clinical trials.

On a GAAP basis, Isis' operating expenses for the three and nine months endedSeptember 30, 2013were$49.1 millionand$136.8 million, respectively, compared to$39.6 millionand$125.0 millionfor the same periods in 2012.

Income Tax BenefitIsis recognized a tax benefit of$5.2 millionand$6.4 millionfor the three and nine months endedSeptember 30, 2013, respectively, compared to$706,000and$704,000for the same periods in 2012.  Isis' tax benefit in 2013 is primarily related to an increase in the Company's unrealized gain on its investment in Regulus, which reflects the increase in Regulus' stock price this year.

Net LossIsis reported a net loss of$24.6 millionand$36.4 millionfor the three and nine months endedSeptember 30, 2013, respectively, compared to$37.6 millionand$62.8 millionfor the same periods in 2012.  Basic and diluted net loss per share for the three and nine months endedSeptember 30, 2013were$0.21per share and$0.33per share, respectively, compared to$0.37per share and$0.63per share for the same periods in 2012. Isis' net loss for the nine months endedSeptember 30, 2013decreased compared to 2012 primarily due to the increase in the amount of revenue Isis earned from its partners in the first nine months of 2013, offset in part, by a moderate increase in operating expenses.  In addition, Isis' income tax benefit in 2013 increased by$5.7 millioncompared to 2012.  Also contributing to the decrease in Isis' net loss was a$4.8 millionloss on the early retirement of its 2 ⅝% convertible subordinated notes the Company recorded in 2012 when it successfully refinanced its convertible debt.

Balance SheetAs ofSeptember 30, 2013, Isis had cash, cash equivalents and short-term investments of$670.9 millioncompared to$374.4 millionatDecember 31, 2012and working capital of$660 millionatSeptember 30, 2013compared to$349.1 millionatDecember 31, 2012.  Contributing to the substantial increase in the Company's cash in the first nine months of 2013 was the approximately$210 millionfrom the issuance of its common stock and nearly$200 millionin payments from its partners, including the$100 millionupfront payment Isis received from its recently announced strategic collaboration with Biogen Idec.  Isis' working capital increased in 2013 primarily due to the increase in cash and the increase in the value of Isis' ownership in Regulus.  AtSeptember 30, 2013, the carrying value of Isis' investment in Regulus increased to$65.0 millioncompared to$33.6 millionatDecember 31, 2012.  This increase demonstrates the value that Isis is realizing from its satellite company strategy.

Business Highlights"So far in 2013, we have had a number of successes in our pipeline.  We have announced multiple sets of positive clinical data for both ISIS-APOCIIIRxand ISIS-SMNRx.  And our Phase 3 program for ISIS-TTRRxis on track to complete enrollment next year.  Beyond these late-stage assets, we have added new drugs into our pipeline, including ISIS-DMPKRxto treat patients with myotonic dystrophy and ISIS-ANGPTL3Rxto treat patients with hyperlipidemia.  We have initiated new clinical studies on six drugs, including Phase 2 studies for two of our drugs to treat type 2 diabetes in our metabolic franchise.  This maturing group of assets represents the next set of commercial opportunities beyond our current late-stage drugs," continued Ms. Parshall.

"The maturation of our pipeline and successes of our antisense technology have allowed us to expand existing partnerships as well as add new partners.  These relationships allow us to broaden our therapeutic efforts into disease areas that are outside of our internal expertise.  For example, our broad strategic alliance with Biogen Idec couples Biogen Idec's extensive resources and expertise in neurological diseases with our antisense technology.  Together we plan to create a franchise of novel treatments for neurological disorders.  The benefits Biogen Idec brings to our efforts in neurological diseases are evident in our SMA program, which we partnered with Biogen Idec early last year.  In less than two years, this program is poised to begin Phase 3 early next year," continued Ms. Parshall.

"We expect the pipeline momentum we have created in 2013 to continue as we advance our pipeline.  The progress of our partnered programs should continue to provide us with a steady stream of milestone payments as these programs mature and as we add new partnered programs to the pipeline," concluded Ms. Parshall.

• Isis reported encouraging Phase 1 and Phase 2 data on a number of antisense drugs, demonstrating good safety and tolerability profiles with encouraging results in measures of efficacy in multiple disease settings.Isis reported multiple Phase 2 data sets on ISIS-APOCIIIRxdemonstrating that ISIS-APOCIIIRxworks in patients with high to severely high triglycerides, including patients with FCS.  Treatment with ISIS-APOCIIIRxresulted in significant reductions of apoC-III and triglycerides, and significant increases in HDL-C.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 improvements in muscle function tests up to 14 months after a single injection of ISIS-SMNRx.Isis reported Phase 2 data on ISIS-CRPRxin patients with rheumatoid arthritis (RA).

• Isis continued to mature its pipeline by advancing drugs in development and initiating new clinical studies.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 advanced the Phase 2 study of ISIS-SMNRxin infants with SMA.  As a result, Isis earned a$2 millionmilestone payment from Biogen Idec.Isis initiated Phase 2 studies on ISIS-GCGRRxand ISIS-PTP1BRx, antisense drugs designed to control glucose in patients with type 2 diabetes.

• Isis and its partners continued to add new drugs to the development pipeline.Isis and Biogen Idec selected a development candidate, ISIS-DMPKRx, for the treatment of patients with myotonic dystrophy type I.  Upon initiation of IND-enabling studies, Isis earned a$10 millionmilestone payment from Biogen Idec.GlaxoSmithKline added a development candidate, ISIS-GSK3Rxto its collaboration with Isis.  Isis earned$7 millionin milestone payments from GlaxoSmithKline as a result.Regulus nominated a development candidate, RG-101, to move forward in development for the treatment of patients with hepatitis C virus.  This is the first drug targeting a microRNA that Regulus has moved into development.

• Isis reported multiple Phase 2 data sets on ISIS-APOCIIIRxdemonstrating that ISIS-APOCIIIRxworks in patients with high to severely high triglycerides, including patients with FCS.  Treatment with ISIS-APOCIIIRxresulted in significant reductions of apoC-III and triglycerides, and significant increases in HDL-C.

• 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 improvements in muscle function tests up to 14 months after a single injection of ISIS-SMNRx.

• Isis reported Phase 2 data on ISIS-CRPRxin patients with rheumatoid arthritis (RA).

• 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 advanced the Phase 2 study of ISIS-SMNRxin infants with SMA.  As a result, Isis earned a$2 millionmilestone payment from Biogen Idec.

• Isis initiated Phase 2 studies on ISIS-GCGRRxand ISIS-PTP1BRx, antisense drugs designed to control glucose in patients with type 2 diabetes.

• Isis and Biogen Idec selected a development candidate, ISIS-DMPKRx, for the treatment of patients with myotonic dystrophy type I.  Upon initiation of IND-enabling studies, Isis earned a$10 millionmilestone payment from Biogen Idec.

• GlaxoSmithKline added a development candidate, ISIS-GSK3Rxto its collaboration with Isis.  Isis earned$7 millionin milestone payments from GlaxoSmithKline as a result.

• Regulus nominated a development candidate, RG-101, to move forward in development for the treatment of patients with hepatitis C virus.  This is the first drug targeting a microRNA that Regulus has moved into development.

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

• Isis received a$100 millionupfront payment from Biogen Idec as part of the collaboration that combines Biogen Idec's expertise in neurology with Isis' leadership in antisense technology to develop novel therapies to treat neurological diseases.  Isis is eligible to receive substantial milestone payments, license fees and royalty payments for all treatments developed through this collaboration.

Conference CallAt11:30 a.m. Eastern Timetoday,November 5, 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 30 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 Statesfor the treatment of patients with HoFH.  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 trademark of Genzyme Corporation.

Three months ended,

Nine months ended,

September 30,

September 30,

2013

2012

2013

2012

Revenue:

(unaudited)

(unaudited)

Research and development revenue under collaborative agreements

$23,383

$11,127

$102,918

$80,085

Licensing and royalty revenue

202

474

2,118

2,091

Total revenue

$23,585

11,601

105,036

82,176

Expenses:

Research, development and patent expenses

45,660

36,551

126,603

115,700

General and administrative

3,430

3,096

10,241

9,281

Total operating expenses

49,090

39,647

136,844

124,981

Loss from operations

(25,505)

(28,046)

(31,808)

(42,805)

Other income (expense):

Equity in net loss of Regulus Therapeutics Inc.

-

-

-

(1,139)

Investment income

434

408

1,400

1,485

Interest expense

(4,867)

(5,937)

(14,470)

(16,335)

Gain on investments, net

175

-

2,073

19

Loss on early retirement of debt

-

(4,770)

-

(4,770)

Loss before income tax benefit

(29,763)

(38,345)

(42,805)

(63,545)

Income tax benefit

5,193

706

6,437

704

Net loss

$(24,570)

$(37,639)

$(36,368)

$(62,841)

Basic and diluted net loss per share

$(0.21)

$(0.37)

$(0.33)

$(0.63)

Shares used in computing basic and diluted net loss per share

115,263

100,680

108,608

100,351

Three months ended,

September 30,

Nine months ended,

September 30,

2013

2012

2013

2012

(unaudited)

(unaudited)

$49,090

$39,647

$136,844

$124,981

Excluding compensation expense related to equity awards

(2,812)

(2,034)

(8,318)

(6,761)

$46,278

$37,613

$128,526

$118,220

$(25,505)

$(28,046)

$(31,808)

$(42,805)

Excluding compensation expense related to equity awards

(2,812)

(2,034)

(8,318)

(6,761)

$(22,693)

$(26,012)

$(23,490)

$(36,044)

As 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.

(unaudited)

Assets:

Cash, cash equivalents and short-term investments

$670,898

$374,446

Investment in Regulus Therapeutics Inc.

65,004

33,622

Other current assets

27,402

15,370

Property, plant and equipment, net

87,273

91,084

Other assets

31,339

31,164

Total assets

$881,916

$545,686

Liabilities and stockholders' equity:

Other current liabilities

$47,301

$38,397

Current portion of deferred contract revenue

55,977

35,925

2 3/4% convertible senior notes

148,705

143,990

Long-term obligations, less current portion

77,481

77,952

Long-term deferred contract revenue

151,006

66,656

Stockholders' equity

401,446

182,766

Total liabilities and stockholders' equity

$881,916

$545,686