Stan Crooke - CEO Kristina Lemonidis - Director, IR Lynne Parshall - CFO & COO

Laura Ekas - Collins Stewart Ted Tenthoff - Piper Jaffray Mark Monane - Needham Shiv Kapoor - Morgan Joseph Charles Polsky - William Harris Investors

Welcome to Isis Pharmaceuticals Third Quarter Financial Results Conference Call. Leading the call today from Isis is Dr. Stan Crooke, Isis Chairman and CEO. Dr. Crooke, please begin.

Good afternoon and thanks everyone for joining us on today's call to discuss our third quarter financial results. Joining me on the call today are Lynne Parshall, COO and CFO; Beth Hougen, Vice President of Finance; and Kristina Lemonidis, Director of Corporate Communication. Kris, will you please read our forward-looking statements.

I sure will. Good morning, everyone. A reminder to everyone that this webcast includes forward-looking statements regarding Isis's business; the financial outlook for Isis as well as Regulus, its jointly-owned subsidiary; and the therapeutic and commercial potential of Isis technologies and products and development. Any statement describing Isis' goals, expectations, financial or other projections, intentions or beliefs is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics and in the endeavor of building a business around such drugs. Isis' forward-looking statements also involve assumptions that if never materialized or proved correct could cause its results to differ materially from those expressed or implied by such forward-looking statements. Although Isis's forward-looking statements reflects 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 31, 2009 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. And with that, I'll turn the call over to Lynne to review our financial results.

Thanks, Kris. As usual I'll assume that you've read the details of the third quarter financial results in our press release. And I'll of course be happy to take questions at the end of today's call. We've continued to make excellent progress this year. We have now completed four positive Phase 3 studies of mipomersen. And we're on track to file for marketing approval in the first half of the year, to bring mipomersen to our initial patient population. These are patients at severe risk for cardiovascular events, and we hope mipomersen will be the therapeutic alternative that will help them lead longer healthier lives. This year we also established an exciting new alliance with GSK that we believe will be extremely productive for both companies. Our existing partnerships also continue to be successful and advancing antisense drugs discovered by us. Already this year, we've received more than $65 million from our partners, in up front and milestone payments, including $40 million we've received from GSK. We've finished the third quarter with pro-forma net operating loss of $23.1 million for the first nine months this 2010 and we ended the quarter with nearly $500 million in cash. Now I would like to take a few moments to compare our 2010 revenue to 2009. As you probably heard me say, our revenue consists of several different components including amortization of upfront fees we received from our partners. Our NDA revenue to support our collaborations, milestone payments, sub license fees, plus revenue we earn from other miscellaneous transactions. Already this year, we've had new revenue from almost all of these sources. Recognizing revenue from the amortization of the $35 million upfront payment we received from our new alliance with GSK. We received sub licensing revenue from Regulus new alliance with Sanofi-Aventis. And we've received $13 million in milestone payments, the most recent of which was $5 million from GSK for identifying a development candidate. We keep most of these milestones in the middle of the year. Although in the first quarter -- fourth quarter of this year, we expect to achieve additional milestones. Most of these milestones will not result in significant new revenue. This means that our fourth quarter revenue will be lower than previous quarters this year. We are in a position of financial strength and we're now able invest more of our internal resources to enhance the value of our drugs and bring new drugs into our pipeline. You've seen the effects of our implementation of this drug, which we reflected in our expenses this year. In addition, we and Genzyme completed mipomersen's Phase 3 program to support our first filings for marketing approval and the expenses from this program are also reflected in our increased expenses this year compared to last. As we look to the fourth quarter, we have a number of internal programs that are advancing. We will begin Phase 2 programs for our CRP and eIF-4E, which once completed should provide us with clinical proof of concept. We will begin clinical development of our Factor 11and APOCIII program which we moved into our pipeline late last year. And finally we'll be adding to our pipeline. All of these activities will continue to increase the value of our maturing pipeline and increase our expenses in the fourth quarter of this year. You may recall that in August we announced revised and improved financial guidance of a pro forma net operating loss in the mid to high $40 million range and year-end cash of over $450 million. Even with slightly less revenue in the fourth quarter than we averaged over the previous quarters this year and an increase in our R&D spending in the fourth quarter; we expect to do better than this improved guidance. As we look towards next year, we anticipate reaching the point where we and Genzyme will share development spending on mipomersen. We will use these savings from mipomersen to increase our investment in other programs we have in development. While we haven't completed our budget for next year, we would expect our 2011 R&D expenses to similar to this year's. Of course as usual, we will give 2011 financial guidance at our year end call in 2011, in early 2011. And with that I'll turn the call back over to Stan.

Thanks Lynne. Well we're, now well on the road towards the commercialization of mipomersen. That's the most important news. We've completed all the necessary studies for first regulatory submission for marketing approval in the first half of next year in the U.S. and Europe for mipomersen. The efficacy we've seen with mipomersen has been consistent across the entire mipomersen program. All four Phase 3 trials have been positive with significant reductions in all forms of bad cholesterol. Mipomersen is more than just LDL. The safety profile we have observed from mipomersen clearly supports our initial market focus and of course we're continuing to build our safety diversity database as we and Genzyme implement plans to expand the patient populations in Europe and elsewhere. So let me just spend a minute to characterize the first patient population that we're targeting. These are patients with severely high levels of bad cholesterol, despite all that medicine has offered today and there are patients who have extremely high cardio-vascular risk. These patients have two options. They can either get apheresis or they can wait for their next cardio-vascular event. In the two Phase 3 trials we conducted in these very, very sick patients, mipomersen reduced their LDL cholesterol on average more than a 100miligrams per deciliter. That reduction may translate to a greater than 50% reduction in cardio-vascular risk and of course in addition to luring LDL, mipomersen has a broad profile. It lowers all forms of atherogenic lidips as well as LDL. So these are the patients that we'll be targeting as our first submission. Now the commercial opportunity to this patient population is significant. In just U.S., Europe and Japan, Genzyme estimates that there are about 35,000 of such patients. This group alone provides a significant and clearly attainable commercial opportunity for mipomersen. And of course Genzyme is actively formulating the commercial plans to include significant marketing efforts for this patient population globally. We believe that the effort to see in the safety profile that we see in mipomersen is clearly more than acceptable for this very needy patient population, and with the benefits of mipomersen far outweigh the risks. Of course our success goes beyond mipomersen. We are getting ready to initiate Phase 2 trial and cancer patients with our eIF-4E drug, a drug that could provide significant therapeutic benefit in multiple types of cancer, because eIF-4E regulates the expression of quite a number of proteins that are essential for cell survival. Inhabitation of eIF-4E in tumor cells should effect tumor survival, angiogenesis, proliferation and mitosis, as well as resistance to chemotherapy; this could be very broadly useful. Our Phase 2 program will enable us to evaluate eIF-4E in patients with metastatic prostate cancer, non-small cell lung cancer and liver cancers, that typically over express eIF-4E. In the study our eIF-4E drug will be added to standard first line treatment, and results will be compared to standard therapy alone. That is they will be randomized comparative trial that should teach us quite a bit. As we near completion of our Phase 1 study on our CRP drug and in fact we've completed all the dosing. We're preparing to start a broad Phase 2 program to evaluate whether lowering CRP can provide benefit to patients. Now there are numerous diseases in which chronically elevated CRP is associated with worse outcomes, such as rheumatoid arthritis. We will also be determining the role of our CRP inhibitor in diseases where acute elevations in CRP are associated with distressing constitutional symptoms like flu vaccine drugs. Such patients, as patients with a multiple myeloma following autologous bone marrow transplants. The initial studies in our Phase 2 program in rheumatoid arthritis and multiple myeloma will provide us important information about the potential therapeutic benefit of reducing CRP in diseases with both acute and chronically elevated CRP. Later in the program we plan to evaluate the potential benefits of reducing CRP in patients with other diseases, such as end stage renal disease. And then all of these Phase 2 studies will come together to further inform dosing as we as we move for cardiovascular applications. Of course we'll do that as we gain experience with dosing and gain safety experience. Since last year, we've moved several new drugs into our pipelines that expand our therapeutic reach into new and exciting areas. Our selective triglyceride-lowering drug that targets APOCIII, and our first clotting drug targeting Factor XI are the next two that will begin clinical trials. And of course we'll continue to expand our pipeline by adding new drugs. On the partner front, OncoGenex and Teva initiated the second study in a broad Phase 3 program for OGX-011 in patients with prostate cancer. This study is evaluating OGX-011 as an additive treatment to first line chemotherapy in patients in approximately 800 patients with metastatic prostate cancer. Primary end point of this study is to determine whether these patients' survival is prolonged with the addition of OGX-011. In 2009, OncoGenex reported results of the Phase 2 study that demonstrated clear survival benefit for these exact same types of patients, treated with OGX-011 in combination with chemotherapy. OncoGenex has also initiated a Phase 2 study with another of our drugs, OGX-427; again in patients with prostate cancer. On a different but a equally exciting note, our partner Excaliard continues to make progress in completing three Phase 2 studies, evaluating the ability of EXC-001 to reduce scaring in patients with elective reconstructive surgeries. This fall, Excaliard reported the first data from these studies demonstrating that treatment with EXC-001 significantly reduced scaring in patients with elective abdominal surgery. We are very, very excited about the results with this drug. Regulus, a microRNA company that company that we jointly established with our partner Alnylam, has continued to make progress scientifically in the basic understanding of the role of microRNA disease and progress on the business side. Just this week, Regulus announced that it received two federal grants worth nearly 500,000 to support research for the development of novel approaches to treat Hepatitis C and Fibrosis. Regulus is on its way to identifying its first clinical development candidate targeting microRNA-122 which is the lead program in the collaboration with GSK. And last week, Regulus announced that its new partner Sanofi-Aventis has invested $10 million in Regulus in return for approximately 9% equity ownership. This means that we now own approximately 45% of Regulus that is ISIS owned 45% of Regulus. The stock purchase by Sanofi values Regulus at greater than $130 million and is the first external establishment of the significant value of our Regulus ownership. We believe that the value of Regulus will continue to increase as the company brings novel antisense drugs to the clinic that target microRNAs. On the other hand, our partners at Altair completed a Phase 2 program for AIR 645 in patients with mild asthma. In this study, the drug was well tolerated and appeared to be pharmacologically active, that is if lowered its target. However, the drug did not sufficiently improve signs and symptoms of asthma sufficiently for Altair to continue further development. So that drug is going to be discontinued. We're disappointed with Altair's results. Many of our satellite companies have been very successful this year advancing other drugs in our pipeline. Our satellite company strategy is designed to medicate the risks in development of drugs that are outside our key areas of focus while enabling us to benefit from successors of these drugs such as we are benefiting from Excaliard in atherogenics. Finally last quarter we announced the extension of our collaboration with BMS to develop a follow-on drug for PCSK9. This extension builds upon a very successful collaboration we've had with BMS for the past two years. You may recall we received a $6 million milestone payment from BMS earlier this year for the initiation of Phase 1 studies with that drug. BMS has now decided to focus on the identification and advancement of an even more potent PCSK9 inhibitor and we believe, based on the work that we've done, its very clear that PCSK9 is a very good target and we look forward to continuing development of drugs to treat it. So with that, I'll just spend a few minutes to recap our near term milestones. Mipomersen, we in Genzyme continue to advance mipomersen toward the first market in patient -- severe high cholesterol and significant cardio-vascular risk. We expect those filings to be submitted in the first half of 2011 and clearly as we progress there we'll keep you informed. We'll report the full data from the two mipomersen Phase 3 studies in patients with high cholesterol, at high risk for coronary heart disease and in the patients with severe hypercholesterolemia, remember that we recorded the top line data for these two studies in August of this year. We completed our Phase 1 study of our CRP drug and we will be getting our Phase 2 program underway here in the very near future. We're about to begin a broad Phase 2 program for eIF-4E inhibitor in patients with prostate and non-small cell lung cancer. We expect our partners at Excaliard to complete all three of the Phase 2 studies that have been in progress and to report those data. Then we expect to start Phase 1 program by APOCIII and Factor XI drugs in normal volunteers. Add to our pipeline before the end of the year an additional drug or more. And on the technology side we plan on selecting generation 2.5 chemistry, to further enhance the potency of future antisense drugs. We believe that generation 2.5 chemistry, will give us a greater than 5 probably 10x improvement in potency, compared to the current drugs. And now I want to thank everyone involved too, for joining us and we'll open up the call for questions and answers; Jennifer if you can take care of that please.

(Operator Instructions). And our first question comes from the line of Salveen Richter with Collins Stewart. Please proceed. Laura Ekas - Collins Stewart: Hi good afternoon it's Laura Ekas on behalf of Salveen. I was just wondering if you could provide any clarity on how confident you are that you'll be able to file in the severe headers I guess population next year. Have you had your meeting with FTA?

We are very confident. Laura Ekas - Collins Stewart: Okay and then also what would happen to the filing timelines if things progress with Sanofi and Genzyme; do you have some sort of backup plan to ensure that they would be filed in the first half.

Yeah well of course no one can predict what happens in mergers, what I can tell you is that everything we know is that this gives therapy clean Genzyme and very important to Sanofi and the progress in getting the submissions ready is gratifying and we expect it to happen right on schedule. Laura Ekas - Collins Stewart: Great thank you.

Our next question comes from the line of Ted Tenthoff with Piper Jaffray. Please proceed. Ted Tenthoff - Piper Jaffray: Great thank you very much for taking my question. Looking forward to seeing the therapy data. Give us the sense of when we should get that and also what kind of Phase 2s might you be exploring.

I'm sorry Ted could you repeat the last part. Ted Tenthoff - Piper Jaffray: Yeah what kind of indications would you expect to evaluate on Phase 2.

The CRP data from Phase 1 are that we've gone up to 600 milligrams a week dose and the drug was extra ordinarily well tolerated. So it's sort of classic Phase 1, really looks good. The Phase 2 program, the first two studies, will be in patients with rheumatoid arthritis, who have elevated CRP. And people with multiple myeloma where elevated CRP's are associated with a very significant poor outcome. We'll also be looking at CRP; reducing CRP in subjects who get autologous bone marrow transplants. Once we get those, as we gain experience there, then we'll begin to move to some of the other diseases that are of interest to us that include end stage renal disease and a variety of other circumstances in which CRP is elevated acutely, like apheresis and as I said in the -- in the prepared remarks; all of that -- we expect to get the first of those studies, the rheumatoid arthritis and multiple myeloma started in the very near future and as we go along and gain more experience in those dosing and safety, then we'll migrate toward the cardio-vascular indications that are of interest and for which we feel we'd like to have some substantial clinical experience before we move into those; very sick patients. Ted Tenthoff - Piper Jaffray: That was very helpful. Thank you.

Our next question comes from the line of Mark Monane with Needham. Please proceed. Mr. Monane your line is open. You may ask your question at this time. Please check the mute feature on your phone. Mark Monane - Needham: Hello, it's Mark Monane. Can you hear me?

Yes Mark Monane - Needham: Thanks very much. Good afternoon. Thanks for taking my question. Thanks for the comprehensive review. I know that you had previously mentioned that there might be some alternative dosing schedules that might be available for mipomersen going forward. Have any of those trials started and are you able to talk about any plans going forward?

Well, we completed the initial study and I think we've discussed it. That was the study in which we looked at 30 milligrams daily, 70 milligrams three times a week and compared that to 200 milligrams and that study went wonderfully. We got exactly what we expected in terms of efficacy and tolerance and so that set the stage then for additional studies that we'll be doing looking at those alternative regimens. I want to reiterate, our commitment is for the 200 milligram a week dose. It is extremely effective and certainly well tolerated sufficiently for the indications that we're contemplating. Our belief is that what we want to do long term is to provide patients options. We think there may be some patients who prefer taking low doses daily and others that might prefer taking 200 milligrams on Sunday night and our objective is to -- just provide those options over time and we're moving along nicely on track toward being able to provide those options to patients. Mark Monane - Needham: That was very helpful. And then I have a big picture business model question. I know you've been thinking about antisense therapeutics for a while but, and we like your model of bringing things to late stage and then having a partner bring it to the commercialization stage and that's rather straight forward cholesterol maybe and even for CRP and the readouts are pretty quick and one can evaluate that efficacy early in the clinical development process. But with cancers down, do you agree that it might be a little more challenging for this model? The readout in the Phase 2 are often not that helpful unless you're able to do a very good randomized control trial and just I was hoping to get your thoughts about how the business model works with these; with cancer which I think is a little bit different than the other programs you have in

Well, I think every indication varies a bit and in cardiovascular medicine and metabolic, you have very precise readouts that are in fact the end point for registration. In other diseases, inflammatory diseases in cancer, to name two neurodegenerative diseases to name a third, the end points are less clear cut. I think our plans for cancer are very straight forward and they're designed to generate sufficient data to convince ourselves and partners that the drug has the opportunity, has a meaningful potential to work in Phase 3. And so the studies that we would be doing are very much like the OncoGenex studies, where they did randomized comparative trial and looked to survival in patients with prostate cancer, compared the two drugs. That's what that ought to, is that the studies may be slightly larger than you might see in a cardiovascular study, where you have a very crisp end point. But the models works pretty much the same. I think there hardware store been a lot of progress in cancer clinical trial thinking and Phase 2 evaluation that works in our favor. And I think that progress is epitomized by the information that OncoGenex generated in Phase 2. Each one of these trials is different and the analysis of each trial of course is complicated and the objective of each of those trials is to generate enough information to support an effective partnership. In cancer your key problem is determining whether you have sufficient efficacy and in cardiovascular metabolic disease, it's more on the safety side, so all of these things have lots of tradeoffs. But yes I think the model works eminently well in all of the disease areas that we're working, including cancer. Mark Monane - Needham: Thanks for the added information.

Your next question comes from the line of Shiv Kapoor with Morgan Joseph. Please proceed. Shiv Kapoor - Morgan Joseph: Thanks for taking my question. I want to know what kind of learning from the mipomersen program, you're going to use in designing your Phase 2 CRP program. What kind of things have you learnt and what—how will you be running this program differently or with any additional precautions.

I don't think we have any additional precautions, I think the mipomersen program worked wonderfully and I think mipomersen is working wonderfully and the experts I talked to tell me they can't wait to get their hands on mipomersen to use it on their patients. So I don't prescribe to the view on Wall Street, I subscribe to the view of the experts I talk to that mipomersen is going to be a great drug. I think the single most important thing for me; out of the development plan for mipomersen is the success of building a stage development program. I think that is an optimal way to develop new drugs, where you seek an earlier indication in the most needy patients and then as you gain experience, expand the use of the drug. So I think that one of things that you will see, reiterated in multiple of our programs, is the stage development process. A great example will be APOCIII, where I think our initial indication might be patients who have triglycerides in excess of 500 and therefore are at risk for pancreatitis. And then we will advance to patients who have lower but still elevated triglycerides and then we'll move to patients who have diabetes and so on. Similarly, with CRP we're looking at diseases initially where the evidence that CRP worsens outcome is extremely compelling -- rheumatoid arthritis is a perfect example-- and where we believe that we can demonstrate a solid efficacy if its there and good safety and as we gain experience with the rheumatoid arthritises and the multiple myelomas where you don't have people who are acutely, desperately ill like somebody who has just had atrial fibrillation or an in part. As we gain that information, then we'll march to those new indications. So I don't know if that answers your questions Shiv, but I think the most important lesson I got out of the mipomersen development program is the value of the staged development program that focuses the drug initially on the patients who need it most and allows you to gain experience on the market and in further development before you seek approval for patients who have a less obvious need. Shiv Kapoor - Morgan Joseph: Well that's fair enough. And can you tell us what's the dosing regimen currently of the CRP program and what it will likely be in the Phase 2 program?

Well it is true that CRP drug looks a little more potent than mipomersen. But I don't think -- I think you would perfectly within range to assume that the dosing will be in the range of couple of hundred milligrams a week. All these drugs have basically the same properties. Shiv Kapoor - Morgan Joseph: But its weekly; not necessarily monthly, is what I was thinking?

No, no. Weekly is our dose schedule. We can and in particular with some of the diseases where CRP is an issue we may and people who are already having elective cardiac surgery for example, we pre dose, we pre treat. And as we progress with any one of these drugs, we will begin to explore alternative dose regimens just like we are with mipomersen and those regimens could be daily, they could be weekly or the drug support monthly dosing at higher doses. So, all of those are options. But our basic program for all of our drugs rolls down to weekly dosing as our base effort. Shiv Kapoor - Morgan Joseph: Okay, great. Thanks a lot.

You bet.

(Operator Instructions). And our next question comes from the line of Charles Polsky with William Harris Investors. Please proceed. Charles Polsky - William Harris Investors: Hi Stan, thanks for the update and congratulations. Good progress. You mentioned in your prepared comments, just a word on the advent of Generation 2.5 and speaking more generally, how far off are we in terms of ISIS bringing in oral candidates. It seems as potency goes up, it's just a matter of time. I just wonder where it is on your internal.

We expect 2.5 to be orally active at a commercially reasonable dose in a commercially reasonable price and commercially reasonable presentation. The major reasons that we are moving to 2, 5 is to enable a commercially attractive oral administration of anti sense drugs. Charles Polsky - William Harris Investors: And jus to walk us through the timing, so without putting too fine a point on it, let's say that you are now coming up with some chemistry that you are calling 2,5 and its somewhere between 12 and 18 months on the aggressive side to get that an IND file.

That's pretty good. What we're doing right now, is we're finalizing the data package that we have and we've been working on this for quite a number of years, but in the last 18 months we've invested tremendously in understanding the new chemistry. And we're starting to put the 2, 5's into programs now. Our initial focus, since this is new chemistry, will be in diseases where safety is—where the need is great. So the first programs that you should expect to see 2, 5 will be things like cancer and some of the rare diseases; we'll gain experience there and then as we gain experience, you'll begin to see 2,5 make its way into our metabolic and cardiovascular programs. And I certainly think that the time frame that you laid out is a reasonable time frame, probably leaning more toward the 18 month than the 12 month. Charles Polsky - William Harris Investors: And just for the sake of argument, were ISIS to come up with a mipomersen 2.5, does Genzyme have some call on that or if it's a new chemical entity, is that all open for negotiation.

No it belongs to Genzyme. We partner around targets and programs and we don't think it's ever a good idea to separate follow on and back up products, form that partnership. So Genzyme would have access to 2, 5 just as they had access to the backup molecules that we have today, that are about three times more potent than mipomersen. We have molecules that aren't generation 2, 5 but just better screened and identified. Those are from 3 -5 times more potent than mipomersen right now. Charles Polsky - William Harris Investors: Ok thank you very much.

You bet.

And that concludes our Q&A session. I will now turn the call back to Dr. Stan Crooke for closing remarks.

Thanks very much and thanks so much for being on the call. I know this is a busy earnings afternoon. In summary, I think the most important things we said today is that we are on track for our initial filing for marketing approval of mipomersen in our initial patient populations and we are very confident that its risk, benefit profile and that patient group is compelling. These are patients with severe, high cholesterol and extremely high cardiovascular risk; we look forward to bringing mipomersen to these patients, who are clearly in need of additional therapies to reduce their cardiovascular risk. And added to that I think our pipeline continues to progress extremely well and I think this call demonstrates the value of the satellite company's strategy in ways that we haven't shown before. Or we have very positive outcomes that are going to generate real value for shareholders in ISIS over time, I believe and a disappointment that cost ISIS shareholders very, very little.

Dr. Crooke, do you have any additional remarks or?

I'm finished. Thank you.

Okay. Ladies and gentlemen that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.