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Isis Misses on Both Counts

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Isis Pharmaceuticals Inc. reported a adjusted net loss of 33 cents per share in the third quarter of 2012, wider than the year-ago loss of 27 cents and the Zacks Consensus Estimate of a loss of 28 cents.

Revenues decreased 44.0% to $11.6 million, below the Zacks Consensus Estimate of $22 million. Revenues include license fees, milestone-related payments and other payments.

Operating expenses decreased 7.6% during the quarter to $37.6 million. Research and development expenses decreased 8.4% to $36.6 million and general and administrative expenses inched down 0.3% to $3.1 million.

During the quarter, Regulus Therapeutics Inc. (RGLS - Free Report) , founded by Alnylam Pharmaceuticals (ALNY - Free Report) and Isis Pharma, went public. Regulus offered 11.25 million shares of its common stock at $4.00 per share and started trading on NASDAQ from October 4, 2012.

Isis Pharma has invested $3 million in Regulus’ common stock at the latter’s initial public offering. Isis Pharma currently holds approximately 17% (7 million shares) of Regulus’ common stock on a fully diluted basis. Isis Pharma expects to recognize substantial gains from the sale of its share in Regulus in the fourth quarter of 2012.

Recently, Isis Pharma was in the news when it amended its existing deal with GlaxoSmithKline (GSK - Free Report) for the development of their candidate, ISIS-TTRRx. ISIS-TTRRx is being developed for the treatment of transthyretin (TTR) amyloidosis. The companies plan to initiate a registration-directed phase II/III study evaluating the efficacy of ISIS-TTRRx on neurological dysfunction and on quality-of-life in patients with familial amyloid polyneuropathy (FAP), a type of TTR amyloidosis, by the year end.

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 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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