Welcome to the Isis Pharmaceuticals second quarter financial results conference call. Please note this event is being recorded. Leading the call today from Isis is Dr. Stan Crooke, Isis Chairman and CEO. Dr. Crooke, please begin.

Thank you and good morning, everybody. Thanks for joining us on our call to discuss the second quarter financial results. On the call today, Lynne will highlight some of our recent activities and then Beth will walk you through the financial results, and then I'll finally close by focusing on some upcoming events. Joining me on the call today is Lynne Parshall, Chief Operating Officer; Beth Hougen, Chief Financial Officer; Sarah Boyce, Chief Business Officer; and Wade Walke, Vice President of Corporate Communications and Investor Relations. And now, Wade, will 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 business of Akcea Therapeutics, and the therapeutic and commercial potential of Isis in technologies and products in development. Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs, including the commercial potential of KYNAMRO, volanesorsen, ISIS-SMN Rx, 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 a 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 the additional detail in Isis' annual report on Form 10-K for the year ended December 31, 2014, and in 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. Now I would now like to turn the call back over to Lynne.

Thank you, Wade, and good morning. So far this year we have taken four important steps in implementing our business strategy. We believe these represent significant achievements. We created Akcea to commercialize our lipid franchise. We licensed our novel anti-thrombotic drug to our top-choice partner, Bayer. We also expanded our relationship with AstraZeneca and added J&J as a new partner, both of which expand opportunities for technology and the resources and expertise being brought to Bayer on these expanded programs. These accomplishments will provide us substantial added value to Isis and these steps support our continued strong financial performance. One of the most important business development goals this year was to find the best partner for ISIS-FXI Rx. We successfully licensed the drug to Bayer, the leader in anti-thrombotic drug development and commercialization. Bayer plans to take our advanced anti-thrombotic drug, ISIS-FXI Rx, forward in a robust development partner and designed to maximize its value. We believe Bayer is the right partner for ISIS-FXI Rx with the resources to maximize the commercial potential of our drug and the deal is a great deal. It rewards us for the work we've already accomplished while also ensuring that we participate substantially in the commercial success of ISIS-FXI Rx. Because we believe ISIS-FXI Rx has lack-luster potential, our tiered royalty rate in the low to high 20% range was an important element to us in negotiating the transaction. It will be very important as the drug is commercialized. In short, the transaction provides us with the right partner at the right time with the right development program and the right value. Just yesterday we announced an expansion of our relationship with AstraZeneca to form our second broad strategic relationship. This expansion takes advantage of the broader capability of our technology. Together, with AstraZeneca,…

Thank you, Lynne. The successes in our business that Lynne described have resulted in another quarter of strong financial results. We ended our first six months of this year with a pro forma operating income of $62 million and pro forma net income of $46 million. Our operating results in the first of this year were significantly improved over the same period last year in which we reported a pro forma net operating loss of $22 million. Further, our profitable second quarter is the third straight quarter in which we reported pro forma operating income. We are also profitable on a GAAP basis. Our results for the three and six months ended June 30 benefited from the more than $90 million in revenue we recognized from our license of ISIS-FXI Rx to Bayer. We ended our second quarter with more than $750 million in cash as a result of the more than $165 million we received from our partners in the first six months of this year. And so far in this quarter we generated nearly $100 million of cash, including $65 million from the expansion of our AstraZeneca relationship and more than $30 million from milestone payments. Our ability to consistently generate substantial amounts of revenue and cash from our partnering activities and the success of our partner programs demonstrates the power of our business strategy. To recap our financial results for the first six months, we earned $183 million in revenue comprised of $91 million from the license of ISIS-FXI Rx, $26 million from the amortization of upfront payments including revenue from our J&J collaboration, and $57 million from milestone payments reflecting the progress of our partnered program. Our revenue for milestone payments included $41 million from Biogen for advancing ISIS-SMN Rx, progressing a fourth drug into development,…

Thanks, Beth. We've led the creation of a new platform for drug discovery that is fully valid yet continues to advance ever more rapidly. We've also demonstrated that the technology is more efficient than other approaches for drug discovery and development. And so armed with antisense technology we have focused and are continuing to focus on creating a pipeline of first and best-in-class drugs. This means we focus our technology on developing drugs that address novel targets, the strategy is represented throughout our pipeline. Thus, the publication of three New England Journal of Medicine papers and The Lancet paper in the last half year or so is particularly gratifying. The two New England Journal of Medicine papers on volanesorsen and The Lancet paper on ISIS-APO(a)Rx highlight the importance of Apo(c)3 and Lp(a) as contributors to cardiovascular disease and demonstrate once again the excitement in the cardiovascular community about the advancements we are making in the management of under treated lipid risk factors. Our New England Journal of Medicine paper on our novel anti-thrombotic drug ISIS-FXI Rx showed for the first time that anticoagulation and bleeding have been separated. Obviously, there was a lot of excitement about the drug with interest from many and large pharmaceutical partners, including Bayer to whom we ultimately licensed the drug. Bayer was the ideal choice to exploit this potential of this novel anti-thrombotic drug as they are expert in and fully committed to the anti-thrombotic space. Of course it's not just these drugs that demonstrate the value of focusing our technology on truly novel groundbreaking targets, but it's our entire pipeline, including ISIS-SMN Rx, ISIS-HTTRx, and ISIS-DMPK-2.5Rx. We think the true value of a pipeline is usually best defined by its level of innovation and our pipeline is highly innovative and will continue to be…

[Operator Instructions]. Your first question is from the line of Jessica Fye from JPMorgan.

Thanks for the question. My question is on TTR and specifically FAC. Did you said there were multiple measures across which patients in the Benson study showed disease stabilization? I saw the comment on left ventricular wall thickness, but were there other measures that you looked at and saw stabilization there? And then also just with respect to the left ventricular wall thickness, I think you mentioned the progression to be expected after six months but can you just quantify what change you would expect after six months in untreated patients? Thank you.

Jessica, I'm certainly no expert in this area, but there were several measures that Dr. Benson used in measuring cardiac performance including left ventricular wall thickness and valvular performance and so on. And I can send you the abstract and we can set up an opportunity for you to talk to Dr. Benson. There is a paper that Dr. Benson published last year I think it was that showed significant progression and the numbers don't mean much without putting them in some sort of context, but as I recall there were many patients who had double-digit increases in ventricular wall thickness. Lynne, do you want to add anything to that?

No, but would be happy to send copies to both [texts sent to] publication as well as the recently presented data, Jessica, and then we can set up a talk with somebody here or talk to Dr. Benson.

I think the simplest answer to the question is the experts we've talked to were very impressed to see stabilization because they would have expected meaningful progression in the six months. It's a pretty aggressive disease as I understand it.

Thanks. Maybe just two quick follow-ups if you don't mind. I guess on SMA just with respect to the competitive landscape, do you have any views on gene therapy and how that could potentially kind of factor into the treatment paradigm over time? Whether your product could be used in conjunction or in patients who have had gene therapy? And then the next one is just on the Astra collaboration since it includes cardiovascular, I guess how do you structure that to avoid sort of competing with Akcea? Thanks.

Well, with regard to SMN, I think the most important thing I have to say about that is the performance of our drug. We continue to be tremendously impressed with the data that we are observing. The proof of mechanism, the improvement in survival, the evidence of a benefit in muscle performance in a variety of measures, the benefit in both infants and children, these are remarkably consistent results that get stronger every time we look. The exceptional safety profile that we have seen to date I think is also tremendously important. There have been other drugs, such as the PTC and Novartis and others and as I understand it the PTC drug is on clinical hold and the Novartis drug, as I understand it, works through a similar mechanism. Gene therapy is early and we are glad to see that progressing. We think that SMNRx has tremendous advantages, including how positive the data we generated are and how meaningful the studies that we have done. So we don't look at the moment at gene therapy as an important competition. We can imagine that the two agents being used together, but at the moment we are very encouraged by what we are seeing and we hope we are changing the fundamental course of the disease and I think we will have to just see how that looks over time, how much additional benefit we need to look for. Any other comments from you Lynne or Sarah?

No.

Now on to AZ. The AZ collaboration is focused very differently from Akcea. Akcea is focused entirely on lipid risk factors. The AZ collaboration's major focus is expanding our reach more substantially into the kidney. Now, we know quite a little bit about the kidney already. We have some good basis for understanding what we can do in the kidney, but what we are going to be doing is really understanding the kidney at the level we understand the lung, understand the liver, fat cells and so on. So most many of the targets are kidney targets and so it's really very easy to separate AZ from Akcea. The targets that we're working on our own account and targets that we may partner with others because by and large our collaborations are focused around specific targets even though they may be strategic in character because they have strategic goals such as understanding the kidney and a significant number of targets as part of the collaboration. Next question, please.

Your next question is from the line of Stephen Willey from Stifel.

Maybe just a couple on some pipeline programs. I know the Benson poster that was referenced in the previous question also included patients that also had the wild type form of the disease, SSA. Just curious whether or not you guys know if Glaxo's phase 3 development plans will include both the SSA and also the FAC patients within a single phase 3 trial design?

Steve, I'd like to reserve comment on that until the study is underway. It is a question that has been carefully considered and we will be in position to answer that in just a couple of months. Lynne, do you want to add anything to that?

No. GSK believes that the design of their study is an important competitive advantage, so until they are just ready to start it they have asked us not to talk about the details. We are very pleased with the study design.

Okay. Would you imagine that it would be easier to include both if Glaxo were to select an event-driven end point versus something that measures functionality?

Yes, I would imagine that.

Okay. And then a question on the AR program, which I believe is scheduled for I think a year-end read out I am just kind of curious as to if we will be getting any of the phase 2 expansion cohort data? And I know within that expansion cohort there are subsets of patients that you are going to be looking at who are either Zytiga or Xtandi non-responders and/or relapsers. I am wondering if you will also be getting any kind of genomic data from those patients, if you'll have kind of post-relapse, post-progression biopsy data that is made available for you to be able to kind of correlate some of these signatures in the engine receptor to efficacy?

In the study we will have safety data these quite high doses that have been studied. We will have response information, basically PSA, and we will have additional information about the characteristics of these patients. They are all very advanced and all of them have failed multiple courses of therapy. And I'm not sure right now, Steve, because it's being managed by AZ, what additional information will be in there. We are encouraged by the results that we are seeing both in terms of safety and efficacy. Lynne, do you want to add anything to that?

No. The study is generating lots of hopefully useful and interesting information, but what AZ is going to present at the next data point I am not entirely sure because they are managing that, as Stan said.

Okay. And then maybe one last quick one on DMPK. I know that there is some exploratory biomarkers that will be evaluated in conjunction with the phase 2 portion of that study. Just wondering if you could maybe provide us a little bit of color as to what some of those exploratory biomarkers are and maybe some of the directional changes you will be hoping to see? Thanks.

Steve, I'd like to do that in the next call we have if you don't mind. I think we are hoping to do a little more detail on that in the coming months and I think it would be easier to do it that way.

Your next question is from the line of Eric Schmidt from Cowen and Company.

Thanks for taking my question. Congrats on the progress. Lynne, you mentioned a couple times constructive dialogue with the FDA regarding SMNRx, or maybe you mentioned regulators, I'm not sure. Can you give a sense of what there is to be discussed and what the back-and-forth is about?

All I'll say, because you know we don't do detailed information about ongoing dialogue with regulators, and I did say regulators. We are committed to getting ISIS-SMNRx available commercially for patients and their families as rapidly as we can, consistent with conducting a robust development program. And we are finding that the regulatory environment is supportive of that.

So no update on whether you'd consider filing based on the pre-phase 3 data results?

No update on that.

You also alluded to some commercial prep that Biogen is doing on behalf of the product. What sort of activities are they running?

They are doing all the things you would expect a good commercial partner to be doing for a drug that is in phase 3. So they are doing patient identification, they are looking at caregiver burden, they're prepping for pharmacoeconomic -- support pharmacoeconomic dossiers. So, all of the things that you would expect that they would be doing we're very pleased with the high level of activity and actually the quality of the activity of the Biogen commercial group is bringing to bear in the program.

They are investing in the understanding the ex-US opportunities in more detail as well which we think is quite important. Here again I want to emphasize we benefit from a very progressive and very supportive and very well run patient advocacy group in Cure SMA.

So when might we get an update on filing timelines for the product, either Stan or Lynne?

Currently, we plan to have data from the two ongoing phase 3 studies in late 2016, early 2017. Our current plan is to file based on those.

Okay. Maybe just one quick last question for Beth. Can you give us a broad range of 2015 revenue guidance so we can all sort of amalgamate around the same level?

Hey, Eric. Thanks. When we think about the full year, if you think about the second half of the year being comparable to the first half of the year and then add on top of that the Bayer factor XI revenue, that will get you in a sort of general range to think about revenue.

Very helpful. Thank you.

Beth, you did mention that there wouldn't be an event of the scale of the $90 million revenue that we recognize from Bayer in the second half of the year.

That's correct. So, Eric, I'm sorry, let me be clearer. If you take the first half without Bayer, that will give you a sense for the second half of the year revenue and then add Bayer on top of that.

Your next question is the from the line of Yale Jen from Laidlaw & Company.

Just along the lines of housekeeping side, what kind of operating expenses for the full year you are anticipating? The last guidance was $275 million. Any changes there or expansion there?

Hi, Yale. It's Beth. As we've said, we are expecting our expenses both in research and development and in the gene A lines to go up, and I just gave a sort of general sense of where you could expect revenue and where you are projecting NOL in the low $30 million range. That should be able to give you a sense of where those expenses are going to run.

Okay. Great. That's very helpful. Just a general question. Given the new collaborations you have, are most of those going to use the generation 2.5 antisense as a basis for their study or is there any situation you would think the earlier version will be more suitable? If that is the case, what would be the situation -- general situation to use the earlier version antisense?

All collaborations have access to the breadth of technology and so the way I think about it, Yale, is not so much about what the partnership is but rather what the target is, what the organ is, what the patient needs are, and then we use the solution that appears to be the best for the task. In the kidney, for example, I think most of the focus will be on generation 2.5 just as in the tumor and in skeletal muscle for example, focus will be on generation 2.5 because those are tissues where we think we need the added potency. In other tissues you may use generation 2+ perhaps in fat, for example. In the liver by and large we are switching essentially entirely to LICA. And, as I mentioned, we are now moving a set of opportunities along in research that would include the 2.5 LICA. There again what we try to do is we ask what is it that we are trying to accomplish for the patient and what is it that we -- what tool in our chest is going to allow us to do that the best way we can. Does that help you understand it?

Sure. That definitely is helpful. Last one is a little update on the pipelines. Two sort of products here. First, is the GCCR currently under review in terms of whether the future might be? And the second one is in terms of FGFR4 in obesity phase 2 data when that may be available? Thanks.

So, GCCR, glucocorticoid, the data we just got, we think we have activity there and what we need to figure out is what is the real value of what we have both in diabetes and in Cushing's? And so right now we're in the process of meeting with a variety of experts to decide whether we're going to continue to develop the drug, whether were going to develop the LICA formulation of the drug, or whether we think we have other targets that we like better. And so all of those things are in consideration right now.

What about the data for the obesity phase 2? Would that be next year?

It's a little early to tell. That is a very specialized study and a very specialized center, and so I think you need to give us a couple of three months here to see how that study appears to progress before we put too tight a timeline on it. It's a very sophisticated study in which we're actually looking at the effects on basal metabolic rate, energy utilization and so on. Very considerable detail. So, I think it's a little hard to predict exactly when that is going to finish right now.

Your next question is the from the line of Robyn Karnauskas from Deutsche Bank.

This is [Ali] on for Robin. Thanks for taking our questions and congrats on all the progress. So, in terms of your future plans with the metabolic franchise and the new technology, can you just speak a little bit towards that?

Yes. I think again it will depend on where the target is expressed, what the nature of the target is, and what we think the patient need will be. And so there are metabolic diseases that appear to be to some significant extent fat cell-driven. There are others that are driven, such as NASH, by liver cell function. Still others are driven more by muscle function and possibly there are others that are driven by targets in the kidney. And so how we use our technology in metabolic diseases will be dictated by the nature of the target and where the target is expressed, in some cases the target is expressed in multiple organs of course. In general, our drive is to reduce doses. Reducing doses increases tolerability, improves safety, gives us a bigger range of options and so if we need to get greater reduction for a particular target than another we have that flexibility. Reduces cost of therapy and just provides the opportunity to move to monthly to even quarterly dosing at some point. So all of those things are wrapped up in this consideration as we continue to incorporate the advances we have made in the technology into specific targets of specific diseases and specific therapeutic areas. Did I come close to answering your question there?

Yes, that's helpful and just a quick followup. Just if you could talk about how you think about specific liver targets, such as NASH, do you have any updated thoughts there that relates to the new technology?

We are moving our first specific NASH drug, well it's focused on NASH but it also has the potential to have benefit in diabetes and metabolic syndrome and other areas, triglyceride management. And as a general rule most of those targets have been primarily of interest in the kidney and so you will see 2+ LICA drugs as our primary focus and may at some point may see 2.5 LICA. With regard to specific types of targets that we might select, DGAT2 as a good example. It is a very specific enzyme in glucose metabolism that we think is much more interesting target than let's say DGAT1, and so we will take advantage of the specificity of antisense to very selectively target targets that are in various pathways that we think we will be able to inhibit without some of the side effects and some of the other problems that occur with some of the agents that are currently in development that target transcription factors and the like which I think have the potential to have a good number of side effects because of the pleiotropic effects that they have.

Ladies and gentlemen, this will conclude our answer and question session. I would like to turn the conference back over to Dr. Crooke for any closing remarks.

Thank you very much, everyone, for your continued interest and we look forward to updating you as we progress. I think the second half of the year for us looks to be like another very exciting time. Thanks very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.