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Isis Pharmaceuticals Inc. (ISIS - Analyst Report) recently announced that Pfizer Inc. (PFE - Analyst Report) will move EXC 001 (also known as as PF-06473871) into a phase II study. Consequently, Isis Pharma will get $1.25 million from Pfizer as a contingent payment.

EXC 001 is being developed for the treatment of fibrotic diseases including scarring. EXC 001 has been developed by erstwhile Excaliard Pharmaceuticals, Inc. in collaboration with Isis Pharma.

EXC 001 works by targeting connective tissue growth factor (CTGF), a growth factor that is over-expressed in damaged skin or tissue following a traumatic event. In previous clinical trials, the candidate demonstrated impressive efficacy profile and was found to be safe and well-tolerated.

Last year, Pfizer acquired Excaliard, thereby gaining rights to EXC 001. Isis Pharma received $4.4 million from the sale of its equity ownership in Excaliard and is eligible to receive an additional $9.6 million (including the $1.25 million mentioned above) in contingent payments.

Isis Phama also has an exclusive worldwide license agreement for the development and commercialization of EXC 001, under which it is eligible to get milestone payments and royalties

Our Recommendation

We currently have an Outperform recommendation on Isis Pharma. Isis Pharma received a major boost in October 2012 when the Food and Drug Administration’s (FDA) Endocrinologic and Metabolic Drugs Advisory Committee voted (9 - 6) in favor of approving the company’s lead pipeline candidate, Kynamro (mipomersen). A final response from the FDA should be out in January 2013. Meanwhile, Kynamro could be approved and launched in the EU by year end.

We believe that antisense technology (the main area of focus at Isis) represents an exciting and potentially revolutionary platform for developing therapeutic candidates to treat a wide margin of diseases.

The stock carries a Zacks #3 Rank (Hold rating) in the short run.

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