Stan Crooke - Chairman and CEO Lynne Parshall - COO and CFO Jeff Jonas - EVP Beth Hougen - VP of Finance Kristina Lemonidis - Associate Director of IR

Salveen Kochnover - Jefferies & Co.

Welcome to ISIS Pharmaceuticals fourth quarter financial results conference call. Today's call is being recorded. Leading the call today from ISIS is Dr. Stan Crooke, ISIS Chairman and CEO. Dr. Crooke, please begin.

Good morning and thanks everyone for joining us on today's conference call to discuss the financials for the fourth quarter and the full year of 2007. Joining me today on the call are Lynne Parshall, COO and CFO; Jeff Jonas, Executive Vice President; Beth Hougen, Vice President of Finance and Kristina Lemonidis, Associate Director of Investor Relations. The financials that we will discuss today demonstrate that 2007 was a transformational year for the company, and that the momentum established in 2007 continues strong in 2008. We have led the way to a new drug discovery platform. We are the leaders of antisense technology and we have successfully executed the unique business strategy it's built on, the efficiency and productivity of antisense. As a result of all of these successes we can confidently state that for the foreseeable future we will not need to return to Wall Street to raise additional cash. At Isis we have pioneered the creation of RNA-based drug discovery and Ibis based infectious organism identification technology. Antisense technology changes drug discovery and drug development. Similarly Ibis technology changes the identification of infectious organisms. Using antisense technology we can rapidly evaluate all potential targets to support a data-driven decision about which targets are likely to be the best for drug discovery. Antisense's best based drug discovery and early development of processes are more rapid, less expensive, and more likely to succeed than with other technologies. And our drugs are more specific, more effective, better tolerated and more predictable than other drugs. So when partners engage in partnership with Isis they certainly are focused on the opportunities presented by our drugs, but more than that they are accessing our technology with the goal of enhancing the productivity of their R&D programs. Similarly when Abbott entered into a strategic relationship with Ibis, it was accessing the existing product opportunities of course, but it was betting that Ibis technology would transform their molecular diagnostics business. In a very real sense, in the past year, all the innovation, perseverance, and investment in creating these revolutionary platforms began to yield tangible results for our shareholders. But the key work there has begun. We're now confident that our financial strength, coupled with the unique productivity of our platforms, means that the momentum of 2007 will be manifested for years to come, in increasing shareholder value. So the main points that we want to make in this phone call are; first that we are now financially strong and we do not expect the need to raise money in the foreseeable future. Second, our platform supports creating a large pipeline of innovative drugs with a small group of scientists. Our business model than is to create an ever-growing pipeline of drugs in early development and license them at value inflection points. This assures that we'll stay small, focused, innovative, and cost effective it also limits our need for cash. Third, interest in our technologies remains extremely high, so you should look forward to additional deals in 2008. Fourth, our pipeline is progressing nicely. We expect to add at least two to four more drugs to the pipeline this year. And we look forward to news about both the drugs that we are developing, as well as, news about the drugs that we've partnered. Additionally, we continue to make excellent progress on Mipomersen and of course Mipomersen is the most important asset of the company. Earlier this year, we announced the initiation of Phase III trials in patients with Homozygous Familial Hypercholesterolemia. Today, we're pleased to be announcing that, we are initiating the rest of the Phase III program for Mipomersen, including studies in patients with heterozygous FH. One other point is that, we do expect to report new clinical safety data on Mipomersen, and we hope that will add strong support for the view that Mipomersen is in fact well tolerated with regards to the liver. Our new drug discovery and development collaborations are off to great starts. You should be hearing good things from all of them. And the Abbott and Ibis relationship is off to a great start. We certainly look forward to more good news from Ibis and from Ibis Abbott in 2008 as well. So those are the main points that we hope that you think away from the conversation today. And with that, I'm going turn it over to Christina and Lynne. Chris will review our forward-looking statement and Lynn will review our accomplishments in the past year, and summarize our financials. After Lynne does that, I want to focus on our plans for 2008. Christina.

Thanks, Stan, good morning everybody. A reminder to everyone, this webcast includes forward-looking statements regarding our business, the financial outlook for Isis as well as its Ibis Biosciences subsidiary and its Regulus joint venture, and the therapeutic and commercial potential of Isis technology and products in development. Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs is forward-looking statement and should be considered an at-risk statement, including those statements that are described as Isis' goals. 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 in human therapeutics and in the endeavor of building a business around such products. Isis' forward-looking statements also involve assumptions that if never materialized or proved 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 ended December 31st, 2006, and its quarterly report on Form 10-Q for the quarter ending September 30th, 2007, which are on file with the SEC. Copies of these and other documents are available from the company. And now I would like to turn it over to Lynne.

Thanks Kristina. As usual I am assuming that you have all had an opportunity to read the press release we issued this morning. So I am not planning to reiterate what is detailed in the press release. But I will be happy to answer questions at the end. As Stan said, 2007 was a transformational year for Isis. We reduced our net operating loss from our projected high $60 million loss to a loss of $29 million and we dramatically strengthened our balance sheet and we are predicting another 50% reduction in our NOL in 2008 over 2007. We have already added approximately $270 million in new cash and we are making great progress towards finalizing our Genzyme contract, so we will add an additional $175 million shortly, bringing the total cash from our partnerships to nearly $450 million. Based on our existing cash and committed cash including the $175 million Mipomersen licensing fee due from Genzyme, but not including the up to $210 million we could receive from Abbott. We expect that our 2008 yearend cash balance will be greater than $450 million and will last for at least five years. Additionally, we are very encouraged about the Abbott-Isis relationship, and are optimistic that Abbott will exercise its option to acquire Ibis. That would give us the opportunity to receive up to an additional $210 million. Furthermore, we expect our net operating loss excluding non-cash compensation to be less than $15 million in 2008, so all the positive financial momentum of 2007 will continue into 2008. Mipomersen continued to perform very well and its performance is representative of the performance that all our drugs are capable of delivering. It shows very strong activity, tolerability and consistent predictable performance from patient to patient, across patient population and in the presence and absence of moderate and maximal lipid-lowering therapy. Mipomersen's performance completed the validation of antisense technology and facilitated a significant increase in the value of every one of our drugs in development and of our antisense technology. Not only did Mipomersen exceed every objective we set forth, but we have excellent progress throughout our 18 drug pipeline. This includes drugs to treat metabolic disease, cancer, multiple sclerosis and other diseases. We had an extraordinary year in corporate partnering. Transactions with major companies included our license of our PCSK9 program to BMS, the license of two diabetes drugs in preclinical development to J&J's Ortho-McNeil provision, the successful auction that led to a very attractive license of Mipomersen to Genzyme, and the strategic relationship between Ibis and Abbott. Each of these transactions is unique and at the high-end value of what we would expect for programs at their stage of development. When Mipomersen had completed its initial Phase 2 program, we licensed it to Genzyme for $150 million in equity and $175 million license fee, and more than $575 million of near-term development milestone payments, and additional milestone payments of more than $250 million. We did this while retaining a 50% share profit, allowing us to participate in future commercial upside, of this very attractive drug. We believe the deal provides a very good balance between short-term and long-term revenue with added commercial milestone payments of up to $750 million, if the drug achieves more than base case projections of $2 billion in sales. This is one of the biggest biotech deals in history for a Phase 2 drug. Nevertheless, it's a fair deal, because Mipomersen has such extraordinary potential. The Abbott relationship with Ibis similarly is at the far end of economic value for a diagnostic company that's achieved about $1 million in commercial revenue in 2007 from the sale of instruments and reagents. An acquisition by Abbott of Ibis for $215 million to $230 million will be a very attractive deal, but what makes it of special value to Isis's shareholders, is the earn-out opportunity to participate in the commercial upside of the business going forward. Added to all of these deals are host of smaller, but strategically important transactions that reflect the success of our strategy, including the formation of Altair, the formation of Excaliard, the formation of Regulus, our joint-venture with Alnylam to focus on microRNAs, and the $26.5 million we received from Alnylam as part of our ongoing relationship. Alnylam, ATL Teva and OncoGenex show the value of our maturing strategy. Moreover, we repurchased our Symphony partnership early in the relationship resulting in a savings of $75 million. Forgive me if I seem to be excited about our accomplishments, but frankly I don't believe there is a biotech company that's achieved more success across a broader front in a single year than we have done this year at Isis. But more importantly our success in 2007 ensures more successes in the years to come. So we are focused on how to be sure to do the best deals and make the biggest advances in our pipeline and technologies. We are extremely pleased that we now have the financial strength to focus solely on executing our plans to realize the full value of what we have created. What we find remarkable is that in 2008 we will continue to advance Mipomersen and the rest of our pipeline, add new drugs to our pipeline, fully commercialize Ibis, advance our technologies to make progress in our satellite companies and regulates with a net operating loss of less than $15 million projected. Of course that means we can do all of this without the need for a further delusion. I will now turn the call over to Stan who will give you more specifics on our goals for 2008.

Thanks Lynne. 2007 was a great year and we have an equally aggressively and exciting agenda for 2008. Let me begin with Mipomersen. We're initiating other components of our Phase 3 program including studies in patients with heterozygous headaches. We also plan to report important new safety data that we hope will support our belief that Mipomersen is well tolerated by the liver. These data will include an update on the experience we're gaining in our open label extension study. In this study, we are acquiring important data in patients treated with Mipomersen for actually quite for long times now. Further, we plan to report data from our MRI study, designed to evaluate the effects of Mipomersen on fat levels in the lever. While these are safety data, they are key data because they address the sole remaining question about Mipomersen and that is, is it going to be tolerated with long-term treatment. We look forward to presenting those data from both of our studies this year. We also expect to have progressive report with the rest of the cardiovascular pipeline. Our CRP inhibitor ISIS 353512 should enter clinical trails in the middle of the year and we expect to select a development candidate for PCSK9 with our partner BMS. I believe we have the most exciting pipeline in metabolic disease of any company large or small. This is comprised of a novel insulin sensitizer, a dual acting glucagon receptor integrator that increases GLP-1 and preserves the pancreas function, a liver selected with corticoid receptor inhibitor and an SGL2T inhibitor that increases glucose excretion in the urine. Four drugs each unique and each complimentary in terms of mechanism to the other. We expect to report results from an important Phase 2 study in which our PTP-1b inhibitor and insulin sensitizer ISIS 113715 is added to certain areas in patients with established Type II diabetes this year. We are completing a Phase 1 study of our glucagon receptor inhibitor 325568, in which we are evaluating its effects in subjects given a glucagons challenge so we will have a very real, very early opportunity to determine if it works in a man like it does in animals. Of course, this drug is licensed to Ortho-McNeil, so what we will be able to present will be defined by our partner. We are making progress in our glucocorticoid receptor program as well and of course this too is a part of the Ortho-McNeil relationship. Finally our SGLT2 inhibitor ISIS 388626 is progressing in toxicology studies. We hope to have it in clinical trials very late this year or early next year. We expect all four of our anti-cancer drugs to make a significant progress in 2008. OncoGenex has already reported encouraging data with OGX-011and hopes to start Phase 3 studies with patients with prostate cancer shortly. OGX-427 is beginning Phase 2 trials in patients with variety of cancers. Eli Lilly is advancing our surviving drugs, LY2181308 and our eIF-4E inhibitor LY2275796, both in the Phase 2 trials. In other diseases, perhaps, the most important event will be the completion of the Phase 2 trial of our VLA-4 Antigen in with patients with multiple sclerosis by our partner ATL. One other area that deserves your attention is the progress we are making in creating antisense drugs to be administered locally to treat severe CNS diseases. We hope that our first CNS drug, ISIS 333611 supported by the ALS and muscular dystrophy associations and designed to treat amyotrophic lateral sclerosis or ALS, will enter clinical trials this year. We received a grant of nearly $10 million from the CHDI Society, that's the Cure Huntington Disease Society, to discover a drug to treat Huntington's disease, and we expect to announce progress on this later in the year. Additionally, we hope to add at least two drugs perhaps as many as four, new drugs to our development pipeline this year. As I mentioned the Abbott-Isis relationship is off to a great start, we look forward to placing at least eight new Ibis instruments this year. We also hope to expand our service business and continued increased revenues while meeting the milestones that will increase the price at which Abbott may acquire Ibis. We expect Regulus to continue to make excellent progress in creating antisense drugs that target microRNAs involved in a number of diseases, and many more of our satellite companies or associated companies will report important progress this year. For example, Altera intends to initiate clinical trials on our first aerosol drug, AIR645, that targets IL-4 receptor alpha for the treatment of asthma. On the business development front, although I can't promise quite as spectacular years we just completed, I can assure you that interest is high and we have high hopes to complete important new transactions in 2008. So in conclusion, we feel we completed the transformational year that establishes the momentum to share years of growth and value for you. Size and the diversity of our pipeline and the momentum we established make it likely the 2008 will be an important, another important and eventful year. So, we hope you stay tuned. And with that, I am going to open up the conversation for questions. Mahalo if you'll set us up for questions, I'd appreciate it.

(Operator Instructions) Our first question will come from Salveen Kochnover from Jefferies Salveen Kochnover - Jefferies & Co.: Hi, thank you for taking my questions. Stan, it looks like you initiated more than one Phase III heterozygous FH trial of Mipomersen. Could you describe the design of these trials as well as provide time lines for the Phase III Mipomersen data releases this year? Thanks.

We are initiating the entire Phase III program. And that does include trials in heterozygous FH and the trials are focused on patients with heterozygous FH who have coronary artery disease…. [call ends abruptly]