Isis Pharma Loss Widens

Isis Pharmaceuticals Inc. (ISIS - Analyst Report) reported a net loss of 20 cents per share in the first quarter of 2011, wider than the year-ago loss of 10 cents and the Zacks Consensus loss Estimate of 19 cents.

Revenues came in at $21.1 million, well below the Zacks Consensus Estimate of $26 million. Lower revenues and higher operating expenses led to the wider first quarter 2011 loss.

Quarter in Detail

Revenues, which include license fees, milestone-related payments and other payments, declined 29.3% from the year-ago period during the first quarter of 2011. Isis Pharma earned a $750,000 milestone payment from OncoGenex (OGXI - Snapshot Report) on the initiation of a phase II study with OGX-427.

First quarter revenues also included revenues recognized under the company’s collaboration agreement with GlaxoSmithKline (GSK - Analyst Report). Isis Pharma could receive another milestone payment from Glaxo soon on the initiation of a phase I study with ISIS-TTRRx.

We note that Isis Pharma finished amortizing the upfront fees received under its collaboration agreements with Bristol-Myers Squibb (BMY - Analyst Report) and Alnylam Pharmaceuticals (ALNY - Analyst Report).

Operating expenses increased 7% during the quarter to $37.3 million mainly due to the advancement of the company’s pipeline. While research and development expenses increased 7.1% to $34.2 million, general and administrative expenses increased 6.8% to $3 million.

2011 Outlook Maintained

Isis Pharma maintained its outlook for 2011. The company expects net operating loss in the low $40 million range. Isis Pharma expects to exit the year with more than $350 million of cash.

Pipeline Update

Isis Pharma and partner Genzyme -- now a part of Sanofi-Aventis (SNY - Analyst Report) -- intend to file for European approval of lead pipeline candidate, mipomersen, early in the third quarter of 2011. The companies intend to seek approval for patients with homozygous familial hypercholesterolemia (FH) and severe heterozygous FH.

The US application, which will be submitted in the second half of 2011, will be for the homozygous FH indication. Isis Pharma, along with Genzyme, intends to conduct a 12-month study to support a filing for the severe heterozygous FH patient population in the US.

The acceptance of the new drug application (NDA) filing in the US will trigger a $25 million milestone payment from Genzyme. We believe the NDA will come up for review before the US Food and Drug Administration’s (FDA) Endocrinologic and Metabolic Drugs Advisory Committee.

Isis Pharma is also looking to identify a candidate which will incorporate generation 2.5 chemistry, the next step in antisense technology. According to the company, generation 2.5 drugs will be five to ten times more potent than drugs currently in development. The company intends to add three or more novel drugs to its pipeline during the year.

Neutral on Isis Pharma

We currently have a Neutral recommendation on Isis Pharma, which is supported by a Zacks #3 Rank (short-term Hold” recommendation). We believe that antisense technology, which is the main area of focus at Isis Pharma, represents an exciting and potentially revolutionary platform for developing therapeutic candidates to treat a wide margin of diseases. While we remain positive on Isis Pharma’s antisense technology, we are concerned about the company’s dependence on mipomersen for future growth. Any delay in the development and commercialization of the candidate would weigh heavily on the stock.