Isis Loss Down on Higher Revenues

Isis Pharmaceuticals Inc. (ISIS - Analyst Report) reported a net loss of 1 cent per share in the second quarter of 2012, well below the year-ago loss of 18 cents and the Zacks Consensus loss Estimate of 7 cents. Revenues increased 90.7% to $47.3 million, above the Zacks Consensus Estimate of $44 million. Results were driven by a $25 million milestone payment received from Sanofi’s (SNY - Analyst Report) subsidiary, Genzyme, related to the acceptance of the new drug application (NDA) for Kynamro (mipomersen).

Quarter in Detail

Revenues include license fees, milestone-related payments and other payments. In addition to the $25 million milestone payment from Genzyme, second quarter 2012 revenues included the amortization of the $29 million upfront fee received from Biogen Idec (BIIB - Analyst Report) earlier this year. From the third quarter onwards, revenues will include the amortization of a $12 million upfront payment under a new collaboration agreement with Biogen, signed in June 2012.

Operating expenses increased 12.2% during the quarter to $43.6 million mainly due to the advancement of Isis Pharma’s pipeline. While research and development expenses increased 12.3% to $40.4 million, general and administrative expenses increased 11.7% to $3.2 million.

With Isis Pharma completing its $125 million funding obligation for Kynamro, Kynamro development expenses will be shared equally with Genzyme from 2012 until the product becomes profitable. As a result, Isis Pharma’s share of Kynamro-related expenses are declining.

Update on Kynamro

Isis Pharma and partner Genzyme filed for European approval of Isis Pharma's lead pipeline candidate, Kynamro, in July 2011. The companies are seeking approval for patients with homozygous familial hypercholesterolemia (FH) and severe heterozygous FH. Isis Pharma said that European review is progressing – the company expects approval this year. The company’s manufacturing facility for Kynamro has been approved by the European Medicines Agency

The US application was submitted in March 2012. The companies are seeking FDA approval for the use of Kynamro for the treatment of patients with homozygous familial hypercholesterolemia (HoFH). Kynamro will be reviewed by an FDA advisory panel on October 18. A response from the FDA should be out by January 2013. Approval would trigger another $25 million milestone payment from Genzyme.

Meanwhile, Isis Pharma and Genzyme are conducting a 12-month study (FOCUS FH - saFety and atherOgeniC lipoprotein redUction of mipomerSen in FH) with Kynamro. The study is being conducted to support the expansion of the initial label and support an alternative dosing regimen (three times a week). The study is being conducted under the FDA’s Special Protocol Assessment (SPA) program.

Neutral on Isis Pharma

We currently have a Neutral recommendation on Isis Pharma, which carries a Zacks #3 Rank (short-term ‘Hold’ rating). We believe that antisense technology (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. We are also positive on Isis Pharma’s agreements with GlaxoSmithKline (GSK - Analyst Report) and Biogen which not only validate its antisense technology but also provide Isis Pharma with funds in the form of upfront, milestone and other payments.

With Kynamro currently under regulatory review, we expect investor focus to remain on the outcome of the FDA advisory panel meeting. Although Isis Pharma has consistently presented encouraging results on Kynamro, concerns regarding the candidate’s safety profile remain with the company reporting elevations in liver transaminases, which is a sign of possible liver damage. We believe this will be one of the issues that will be discussed by the panel.