Good morning, and good afternoon, everyone. Welcome to Isis Pharmaceuticals' First Quarter Financial Results Conference Call. Please note that today's event is being recorded. Leading the call today from Isis is Dr. Stan Crooke, Isis' Chairman and CEO. Dr. Crooke, please begin.

Good morning, and thank you for joining us on today's call to discuss our first quarter financial results. On the call today, Lynne will highlight some of our recent activities, then Beth will walk you through our financial results and then I'll close by focusing on some upcoming events. Joining me on today's call are Lynne Parshall, Chief Operating Officer; Beth Hougen, Chief Financial Officer; Sarah Boyce, Chief Business Officer; and Wade Walke, Vice President of Corporate Operations and Investor Relations. Wade, can you read our forward-looking language statement, please?

Yes. Thanks, Stan. A reminder to everyone that this conference call includes forward-looking statements regarding the financial outlook for Isis, Isis' business and the therapeutic and commercial potential of Isis' technology and products and development. Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs, including the commercial potential of KYNAMRO, ISIS-APOCIIIRx, ISIS-SMNRx and ISIS-TTRRx, 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 and 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 ended December 31, 2014, which is on file with the SEC. Copies of these and other documents are also available from the company. Now I'd like to turn the call over to Lynne.

Thank you, Wade. Selecting the right partner for ISIS-FXIRx was an important objective for us this year. Yesterday, we announced that we achieved this objective. Our goals were to select a partner who would maximize the commercial value of ISIS-FXIRx and to structure a transaction that would both maximize our participation in FXIRx's commercial success and also reward us in the near term for what we've already accomplished. We believe we found both the right partner and the right transaction. We've been very focused on finding the right partner and transaction for ISIS-FXIRx because we believe this drug has the potential to be a game changer in the treatment of thrombosis. As highlighted in the recent New England Journal of Medicine publication, data from the Phase II study on ISIS-FXIRx in patients undergoing total knee replacement surgery show, for the first time, that anticoagulation and bleeding risk have been separated in a treatment setting. To fully exploit the potential of this novel antithrombotic drug, we wanted a partner who is an expert in and fully committed to the anti-thrombotic space. We believe Bayer is the perfect choice. Bayer is a leader in developing and commercializing antithrombotics. The same team that developed the multibillion dollar antithrombotic drug XARELTO will be the team in charge of developing and commercializing ISIS-FXIRx. This team understands both the near term as well as the broader therapeutic potential for a novel antithrombotic like ISIS-FXIRx. We chose Bayer because they share a common vision with us for the broad commercial potential of ISIS-FXIRx. Initially, they plan to develop ISIS-FXIRx for patients for whom currently available antithrombotics may not be used. We're initiating a Phase II study evaluating ISIS-FXIRx in patients with compromised kidney function, which will support Bayer's plans for initial indications. Bayer also plans to pursue…

Thank you, Lynne. The successes in our business that Lynne just described have resulted in another quarter of strong financial results. We ended the first quarter with pro forma operating income of $4 million, and we're nearly breakeven with a pro forma net loss of $3 million. These results were driven primarily by $46 million in milestone payments from our partners. In addition, we ended the quarter with nearly $700 million in cash. And of course, this doesn't include the $110 million we've generated so far in this quarter. We earned $63 million in revenue in the first quarter comprised of $13 million from the amortization of upfront payments, including revenue from our J&J collaboration and the $46 million from milestone payments reflecting the progress of our partnered programs. In the first quarter, we earned milestone payments from Biogen of $16 million for advancing ISIS-SMNRx and $15 million for progressing the fourth drug into development and for validating an undisclosed target. We've generated more than $300 million from Biogen as our programs have advanced, including most recently a $10 million milestone payment in the second quarter for validating another target in this highly productive collaboration. We plan to continue to identify new targets and move new antisense drugs into development, and of course, we earn milestone payments for these accomplishments. To date, we've generated nearly $130 million from GSK as our programs have advanced, including most recently a $15 million milestone payment for advancing ISIS-TTRRx. As we advance ISIS-TTRRx, we can earn up to $136 million more in additional milestone payments and a licensing fee. Consistent with our guidance, our pro forma operating expenses increased by about $8 million over our first quarter last year, primarily because of the Phase III studies we're currently conducting, 3 of which we haven't…

Thanks, Beth. Bayer is the sixth major pharmaceutical partnership we've completed in the last several years, and the Biogen and AstraZeneca relationships have been expanded as well. I think all these transactions highlight the interest of the leaders in the pharmaceutical space in our technology. The high level of interest in Isis means that we can select the best partner and obtain the best value for our drugs as we've done this week with ISIS-FXIRx. With our license of ISIS-FXIRx, we've completed an important strategic objective for the year. Our goals for ISIS-FXIRx were to maximize the commercial value of this asset, both in the near term and the long term, and also maximize to our participation in its commercial success and we've done that. The royalty structure we've achieved is particularly important because we believe ISIS-FXIRx has blockbuster potential. Of course, the Bayer transaction is not all we've been doing. In fact, the first few months of 2015 have been pretty busy and we expect to continue this momentum throughout the year. Perhaps the most important data event for us this -- in the near future will relate to ISIS-SMNRx. We plan to update you on the Phase II open-label studies in children and infants with SMA. We remain tremendously excited about the performance of this drug. We plan to report data from the 6-week Phase II study on ISIS-GCCRRx in patients with type 2 diabetes. We plan to report data from our Phase II of ISIS-APO(a)Rx in patients with elevated Lp(a) levels. ISIS-APO(a)Rx is an important component of our lipid franchise, which is a part of Akcea. We believe that patients with elevated Lp(a) are underserved, and we are the first and only specific inhibitor of Lp(a). We and Genzyme plan to report data from our Phase III…

[Operator Instructions] And our first question comes from Chad Messer from Needham and Company.

So far this year, you've delivered us 2 great deals with big pharma partners but very different kinds of deals. Janssen kind of a broad earlier stage, starting almost as a research collaboration in a focused area and then Bayer was more of a mid-stage single asset. And you've done both of these kinds of deals in the past and kind of talked about them and their sort of importance. But as you look forward through the rest of the year, are you more focused on these kind of product-specific deals, so for example, for like the diabetes assets, or getting more deals kind of like your Biogen and your Janssen?

Well, we're focused on both, Chad. First of all, our primary focus in licensing is to maximize the value that we can achieve in a license and to optimize our control. So as we said, we're being much more careful about when and to whom we license our assets and at what dollar figure. Factor XIRx, of course, was a high priority this year because it's ready for very, very broad investment. Our diabetes drugs are all candidates for partnering, but we want to make sure that we optimize those partnering activities for when we have the highest value created. So we have a wide variety of drugs in the pipeline, some that we're holding on through Phase III in Akcea, some that are available for licensing now and some that we won't license until we feel we've achieved additional value inflection points. With regard to the broader relationships, as we've said, one of our goals in the sort of near to midterm is to add additional strategic partners. What we look forward to is the day when we have several strategic partners in various therapeutic areas who -- with whom we work well and who understand the technology well and people that we work well enough with that we trust. And so those are all things that we're working on. Obviously, there's -- no one can tell you exactly what deal we'll do next. I can't, and if I try, Lynne will hit me. And -- but all of those things are being worked on all the time here and the level of interest is really remarkable. Did I answer your question?

Yes, you did. I mean, Stan, is there such a thing as having too many strategic partners? Is there a point where there's just too much going on? Or is the discovery engine at Isis virtually unlimited in its capacity?

It's unlimited by the size that we want to retain. We are already dramatically expanding our ability to screen and that's coming because of new technology and new approaches and the quality of screening gets better every day. So what we can generate today is very different from what we could generate a year ago with the same number of people. So to answer your question specifically, yes, there comes a point when additional partners, strategic partners, is not a good business decision. And that point comes when it would cause us to be larger than we need to be or we want to be or we're partnering areas that we don't want to partner. And so we won't do that. However, what we look forward to is a select few strategic partnerships and we think that will dramatically reduce the work that we have to do and make us much more efficient and make the progress of transferring the drug to our partner and having them perform a much more efficient process. Certainly, we benefit from that with Biogen, and that's the model. We also benefit tremendously at GSK and AZ because of the broad experience that the organizations have with each other. So we have a fairly precise number of strategic partnerships that we're willing to do. We know exactly what spaces we want to do our strategic partnerships in. And to a large extent, we know who we want to partner with strategically and now it's just a matter of executing that over the next couple 3 years.

Is it possible to share some of the areas you would be most interested in partnering in?

No. Okay. But I will say, if you look at our presentations, you've seen us divide things into 3 bins: partner early, partner after, proof of value and hang onto. And that model, if you're thinking through it, is the sort of model we have in our head in terms of the types of strategic relationships we've built as well as when we would license a drug and when we would hold on to it. Wade can send you that slide, just to remind you.

Yes.

Our next question comes from Jessica Fye from JPMorgan.

I guess my question is on the TTR program. We've seen some clinical data from Alnylam's TTR program. We've see what looks like similar degrees of TTR knockdown for their products and yours. I guess putting dosing and route of administration aside, can you talk about whether you expect any real differences in the clinical profiles of these products?

Well, I don't think I can put dosing and administration aside. I think it's a central difference having to pretreat patients with steroids and antihistamines and H2 antagonists and give IV infusions is very different from patients being able to administer the drugs themselves with no pretreatment and minimal issues. We think that's a fundamental and very measurable difference between the drugs. And I think the mechanisms are different. The Ago2 mechanism is, of course, that system is designed to be relatively promiscuous. And we know after a lot of experience with H1 is that it's very, very, very specific. And so I think it remains to be seen over time whether there are differences that drive from mechanism. And then finally, of course, the drugs are different. Ours are single stranded and distribute without any special delivery device or vehicle. There's -- for the drug they're developing for the peripheral neuropathy, it requires specialized delivery systems and I don't know that anyone has any real long-time experience or long-term experience with those. So I think the differences would end up being the specificity or tied to specificity of the Ago2 mechanism or the relatively lower specificity and also tied to the safety, tolerability, cost and the like of administering double-strand ASOs in the -- or double-strand oligonucleotides in nanoparticles or whatever the current term for these delivery -- these lipid delivery vehicles is. And those are all things to be determined.

Okay. And then, I guess, just following up on that, you talked about the additional cardiovascular data you're collecting in your FAP study. I guess, what's the ultimate goal there? Is this just to get a more robust label in FAP? Is it actually possible there's some path to filing for FAC based on that data?

So yes, as you know, our partners from GSK are planning to initiate a pivotal quality cardiomyopathy study. So I don't want to get ahead of those, but we do think the data that we're generating in our ongoing Phase III study in patients with FAP will be very instructive and additive, plus the data from Dr. Benson's study, to support really increasing our understanding of what happens in these patients who -- many of whom do have cardiovascular involvement. I wouldn't rule out some other filing pathway, but right now, I think what you should count on is that we are doing a pivotal quality study and our plan is to file based on that.

Our next question comes from Michael Schmidt from Leerink.

I had one on the scope of the Bayer partnership on Factor XI. Can you help us understand sort of the scope in terms of the indications that are included in this partnership? It sounds like the initial Phase IIb will be focused on the chronic kidney disease patients. Kind of what are the gating factors for Bayer here to initiate additional studies in different indications? Could you help us understand that?

Yes. I would characterize it differently. The deal is designed to develop FXIRx very broadly, and the strategy within that transaction is to first develop it as rapidly as possible for indications in which current drugs, and there are a lot of them, are difficult to use or not used because of risk -- bleeding risk. We think and Bayer thinks that that's by far the best approach to managing pricing and life cycle. There are no additional gating items to going to broader indications and those will be, again, in due course, consistent with a strategy that assures an effective life cycle management and effective pricing. Lynne, do you want to add anything to that?

We can't talk a lot about the details of the Bayer plan, obviously, because they view that as highly secret. But I will tell you that we chose Bayer as our partner because they have a very robust development plan laid out for this drug because they believe with us that this drug has opportunity to really be a game changer in the treatment of thrombosis.

There are contractual elements that help assure a broad development plan. But I think the thing that gives me the most comfort is they're committed to this space. They know this space. They have a plan that we really like. And they know that XARELTO sales -- that XARELTO's patent is going to come to an end at some point and they want to remain in the space and replace those revenues with new revenues that are more lucrative. So it's broad, and really, that's all we can tell you, Mike.

Got it. Understood. And then I had a bit of a technical question on the Huntington's disease program. And so my understanding is that for FAP using the antisense oligo, you're knocking down both copies of a gene, the healthy and the mutated copy. And I was wondering, in Huntington's, where you really just want to knock down 1 of the 2 alleles, how you can achieve that from a technology point of view.

We've actually achieved that and that's what the drug is designed to do. We can and we've demonstrated this now for many years, that we can create relatively specific for the mutant ASOs. It takes some design work but you -- it's possible to do. On the other hand, there's quite a bit, and I'm not an expert here but this is what the experts tell me, there's quite a bit of information that shows that you can reduce of both normal and mutant Huntington without deleterious effects. And so we'll be looking at both as well as we can, and -- but our belief is that it's perfectly -- it should be well tolerated to reduce both, if you want to.

Mike, can I just add? I mean, it's really one of the significant values of the technology and the specificity and the selectivity that we can achieve that when you choose, for example, with TTR as you mentioned, that you want to reduce both forms, you can design a drug to do that. But where -- in a program like Huntington's or a program like our rhodopsin program, you choose to only selectively reduce a specific form. You can do that. And so it's different from disease to disease depending on what the goal is you're trying to achieve.

We actually have drugs that -- for every one of these programs where you have a mutation, we have drugs that reduce both the normal and the mutated, and we have drugs that have high -- relatively high-level selectivity for the mutant. It's pretty easy to do. It just takes some work.

Our next question comes from Alethia Young from Deutsche Bank.

This is Eliana for Alethia. Just on the Factor XI, how do you guys think about the use of an injection versus pills on the thrombosis market, especially even if outside of the initial smaller indication?

We think that the subcu injections are very well tolerated today and the separation of bleeding from antithrombosis changes everything. And if you really talk to patients who are taking even Factor Xas or antithrombotic therapy, they have a fairly miserable time. They bruise, they bleed, they have lots of issues. So there are some spaces where anticoagulant therapy today or antithrombotic therapy today is reasonably acceptable and that would be the space that maybe you wouldn't think about the FXIRx being primarily focused on. But there are many, many, many deficiencies in the treatment of thrombosis and all of those are opportunities that I don't think are tremendously impeded by a once-weekly subcu injection. And more importantly, I think none of the potential partners that we interviewed and Bayer feel it's a significant impediment.

Okay. And just a quick follow-up. What DDI work are you doing in Factor XI, especially as these patients may already be on many medications on their baseline?

We know that with antisense drugs, we don't have DDIs. We've shown that now with, I don't know, 40 or 50 drugs that we've studied in the clinic. Not all of them have been studied in the clinic, but we've studied many. These drugs are not substrates for cytochrome P450, so none of those cytochrome P450 or any cytochrome interactions occur. We also have looked at other types of drug-drug interactions and they don't have them. So one of the giant pluses that we haven't really emphasized with FXIRx and all of our cardiovascular drug is that you don't have to worry about the PK/PD changing because other drugs are onboard and you really don't have to worry about drug-drug interactions. And I think as that progresses, as you know well, one of the big issues with people who are being anticoagulated is what fraction of time they're within the range of desired anticoagulation. Because of the limited therapeutic index of the agents and the fact that they have all these drug-drug interactions, people lie outside that range way more than anyone wants them to be. And so armed with separating, absolutely separating bleeding from antithrombosis and the lack of drug-drug interactions, we think the simplest way to demonstrate a dramatic increase in value is to show the fraction of time that people are in the proper range for anticoagulation or antithrombotic and that's going to be duck soup for us, we think. There are no drug-drug interactions that we've identified to-date, to put it simply.

Great. And if I can ask just one more question. In the talks you had with Bayer and others, what other indications are mentioned for the initial phases to start outside of kidney disease? If you can give us any color on that, that would be helpful.

Yes. As I said to Michael's question, they -- their views, their detailed development plan is being pretty confidential. But they do have a robust development plan that moves outside of patients with compromised kidney function into other patients for whom, because of their health status, Factor Xa inhibitors may be of limited usefulness and then into broader indications. And as we continue to develop the profile of the drug, we'll move it into broader and broader indications. So we're happy with the development plan, but I can't give you the details of it today.

I can tell you that in the past, before we partnered with Bayer, we talked about atrial fibrillation and renal failure. We talked about patients with bowel replacements. We've discussed aortic stenosis. We discussed, of course, the extraordinary opportunity in secondary prevention and a variety of other things. So inasmuch as we had a choice about what partner to pick, you can surmise that the thought processes at Bayer are similar without us giving you any more information than that.

Our next question comes from Yale Jen from Laidlaw & Company.

First of all, just like to know if there's more detail in terms of the Factor XI clinical study to be started in terms of trial design and other relevant information.

It's just a Phase II study to add to the information we have about PK and safety and the like in patients with renal -- compromised renal function. It's a short and fairly straightforward study, and that's all the information, I think, we've given to date. Study is getting ready to start and so we'll be able to talk about it in more detail a little later. But we have some meaningful experience in patients in frank renal failure and in -- with significant renal dysfunction of various types. But obviously, we don't have it with this specific molecule and so the goal there is to just get that information, get that experience quickly before we move into Phase III.

Okay, great. And another follow-up question here is that I know Bayer will take over the development once the study is completed. Is there any potential possibility that Bayer may also start some other clinical studies sort of in parallel with the Phase II study right now before the completion of this study?

Yes, they plan to do that. So they're not waiting until we finish the study.

Okay. And the last question here is that, Stan, you mentioned about the meetings you recently presented in terms of the self-regulating elements in the messenger RNA for the -- regulating the translation and that you can potentially take advantage to making an antisense product for increased production of proteins. Would you shed a little more light on that specifics and what kind of things you're maybe planning to incorporate into your future development at this point?

Yes, we've identified several mechanisms. The 2 mechanisms that I described yesterday are mechanisms based on motifs in the 5' untranslated region of the message. One is called upstream morphs and the other is called translation inhibitorial. These are recently identified mechanisms. And we use fully modified 2' -- fully 2' modified ASOs to alter those structures. Upstream morphs are present in about 50% of the -- of all messenger RNAs, according to the latest data, and when they're present, they repress translation. So that's a robust mechanism. And we've shown that we can use that mechanism, for example, to alter the translation of proteins of a variety of types and in various cells and in humans and mice -- human cells and mouse cells and then mice. And so we think that particular mechanism is ready now to go into our drug discovery programs. The TIE and some other mechanisms that we're working on was not quite ready into drug discovery programs yet. We've got some more work to do. And the places that we're focused in terms of potential therapeutic targets are places where we have good evidence that the disease is caused by a deficiency of a protein where there's still message available. And the number of diseases are very broad. Probably the largest category of such a thing, it would be something like PCSK9. I mean, after all, what PCSK9 is doing is going a roundabout way of inhibiting a protease so that LDL receptors can go up. So as an example of a very broad disease category where you can think about is of regulating something like LDL receptors.

Our next question comes from Eric Schmidt from Cowen and Company.

This is Jeff on for Eric. Switching gears a little bit. I believe we might get an update on SMNRx Phase II data this quarter. If you can just discuss maybe what data might we see and also if we're going to see more specifically on the 12 mg in the juvenile.

Well, we haven't committed to a specific date yet, but we will be updating both the infant study and the type 2 study. And what we will do is just extend our observations in both of those. So what we would be reporting in the infant would be survival to the -- at endpoint-free survival, CHOP INTEND and developmental milestones or some portion of that. And then the childhood would be the same information that we've reported before, the Hammersmith, the 6-minute walk and those kinds of things, as well as safety and all that. And those studies have progressed very nicely and so we're looking forward to presenting those data, but we haven't defined a specific date yet.

But we will get a chance to see the 12 mg dose in the juveniles?

Yes, you'll see 6 and 12 milligram data in the infant and you'll see the various doses in the juvenile.

And our next question comes from Stephen Willey from Stifel.

Just wondering if you could maybe provide a little bit more color around the investigator-sponsored study right now that's ongoing for TTR and, I guess, specifically with respect to just patient size and when we might see a little bit of data from that and, again, understanding that it's an investigator-sponsored study.

It's a small investigator-sponsored study. I can check for you, Stephen. I believe that we're expecting to have data near the end of the year. But can I give you a call back after this call and I'll check in with the experts and give you something more precise?

Yes, of course. And then I think in talking about the cardiac subset in the FAP study, you talked about BNP as being one of these biomarkers that you'll be looking out to assess disease progression. And I think some of the data that we've seen, I guess, on BNP has been somewhat conflicting. And I'm just kind of wondering what is the company's stance with respect to BNP being a viable biomarker in the setting?

I think it's one of the things to look at. We'll be looking at all measures of cardiac function. So all the things that you would think that we might doing, we're doing. And I think it will be the composite of all those endpoints that will be informative about what we're seeing, is it exciting. And we think -- so we think that work will be very, very important in informing what we do in the phase as we move the Phase III forward and of course, could provide tremendous insight into the performance of the drug independent of the Phase III trial. So just a long-winded way of saying BNP is one of the measures, probably not the most important measure, that we'll be looking at.

And just to say it, that is not the endpoint of the Phase III clinical study that GSK is getting ready to initiate in the cardiomyopathy form of the disease.

Okay. And then just with respect to the webcast that you're planning on hosting in early June, I think you said, will we be getting specifics around the partial lipodystrophy trial design in conjunction with...

Yes, you'll get specifics. I mean, we're going to do our best to bring you up to date on the impact of the changes in the plan for APOCIII, why we're so excited about it. And you'll get some -- you'll get appropriate levels of information about the specific studies there.

And just to think about it, because the indications are extremely similar, just think about the partial lipodystrophy study is looking very, very much like the FCS study.

Okay. And then just lastly, you talked about the combination of using both LICA and 2.5 chemistry yielding these hundredfold improvements in potency. And I'm just wondering if you've already internally identified candidates for moving forward that possess both of these features. And I'm just kind of wondering how much additional preclinical optimization needs to be done here in order for one of these things to go into the clinic.

We've identified a number of opportunities. And as I look at it today, I don't think there's much additional optimization that's necessary. What's essential is to decide what target we want to pick first, what are the justifications for that and how we want to go at it. Remember that a tenfold increase in potency, given that our ID50 for a liver target today with generation 2-plus is probably close to 100 milligrams per week. If you want to be conservative, you say 150. So a tenfold reduction takes us to 15 milligrams a week, which means we can think about probably monthly dosing. At that dose, anything below 15 milligrams, we have -- we just don't see ISRs. Your price is improved, just everything about the drug is better. So we already have tenfold in the clinic with both generation 2.5 and LICA. And with generation 2.5, its value is much broader than the liver and that's why you'll see more 2.5s being developed for non-liver targets because -- as you're seeing with the mpk and the cancer drugs and so on. So it would, obviously, be a liver target and it would be a target where we felt that having that extra value would be an immediate advantage. And obviously, that would then be the vanguard to move toward that as our standard over the years as we gain more experience with it. But it's ready for prime time. I want to thank everyone for your interest in Isis and participation in this call. To sum up, we think we've had -- we started the year with a super first quarter. I think our financial results demonstrate that we really do have to give new guidance. We're very happy about that. And the second quarter is off to a rousing start with the Bayer deal and $110 million in cash. And we look forward to sharing with you SMN information and information from other programs as they proceed. And a central point that I want to keep emphasizing is while our technology is fully validated, there aren't any Is to dot, there aren't any Ts left to cross, it's still very dynamic. And it's changing in a very positive way at an increasing pace. And so the antisense you knew 3 years ago was not the antisense of today and the addition of these new opportunities to increase the translation of proteins, of course, is a major step forward for the technology. Thank you.

Ladies and gentlemen, that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.