Isis Pharmaceuticals, Inc. 10-Q Summary
Reporting period: Three and nine months ended September 30, 2011. The filing was submitted November 7, 2011. The company operated as Isis Pharmaceuticals, Inc. and focused on antisense drug discovery and development, licensing, milestone payments, royalties, and partner-funded research.
Financial Performance and Position
| Metric | Q3 2011 | Q3 2010 | 9M 2011 | 9M 2010 |
|---|---|---|---|---|
| Total revenue | $20.7 million | $28.6 million | $66.7 million | $82.1 million |
| Operating expenses | $43.0 million | $37.6 million | $119.2 million | $114.6 million |
| Loss from operations | $(22.3) million | $(8.9) million | $(52.5) million | $(32.5) million |
| Net loss | $(26.9) million | $(12.5) million | $(64.8) million | $(47.3) million |
| Net loss per share | $(0.27) | $(0.13) | $(0.65) | $(0.48) |
| Operating margin | (107.7%) | (31.3%) | (78.7%) | (39.6%) |
| Net margin | (129.8%) | (43.5%) | (97.1%) | (57.6%) |
- Research and development revenue was $20.2 million in Q3 and $64.5 million for nine months, down from $27.8 million and $77.5 million, respectively. Licensing and royalty revenue was $0.5 million in Q3 and $2.2 million year to date.
- Research and development expense increased to $39.9 million in Q3 and $110.2 million for nine months, driven by a maturing pipeline and more advanced, larger clinical studies. General and administrative expense was $3.1 million in Q3 and $9.0 million year to date.
- Cash flow used in operating activities was $90.5 million for the first nine months of 2011, compared with $38.1 million in the prior-year period. Net cash decreased by $14.8 million to $55.3 million at September 30, 2011.
- Cash, cash equivalents, and short-term investments totaled $364.8 million, compared with $472.4 million at December 31, 2010. Working capital was $293.5 million versus $377.2 million at year-end.
- Total assets were $505.8 million and stockholders’ equity was $186.8 million at September 30, 2011. Accumulated deficit was $821.5 million.
- Debt and other obligations totaled $217.0 million, compared with $144.3 million at year-end. The balance included $139.2 million carrying value of 2 5/8 percent convertible subordinated notes and $68.9 million of financing liability for the new facility.
- Contractual obligations totaled $363.2 million, including $173.2 million of convertible-note principal and interest, $150.9 million of new-facility rent payments, and $29.8 million of operating leases.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue declined 18.7%, primarily because 2011 included fewer milestone payments and no Alnylam revenue, partly offset by increased amortization of the GSK upfront payment.
- Nine-month operating expenses increased 4.0%, while the operating loss expanded by $20.0 million. The net loss increased by $17.5 million.
- Operating cash use increased by $52.4 million, largely reflecting the lower revenue base and continued investment in clinical development.
- Drug development expense, excluding stock-based compensation, increased to $46.9 million for nine months from $42.5 million. Mipomersen spending declined as its Phase 3 program neared completion, while spending on other antisense programs increased.
- The company completed its move into a new leased facility in August 2011. It recorded $58.8 million of fixed assets and a corresponding financing liability; rent payments begin January 1, 2012.
- Deferred contract revenue declined to $71.8 million from $124.9 million at December 31, 2010, primarily due to recognition of Genzyme-related and other upfront payments.
Guidance, Outlook, Commentary, Risks, and Unusual Items
- Management expected operating expenses and drug-development expenditures to be moderately higher in 2012 as additional programs enter later-stage clinical development, although Genzyme was expected to begin sharing mipomersen development costs equally after Isis met its initial $125 million funding commitment.
- Genzyme had filed for European marketing approval for mipomersen and expected to submit the U.S. application in the fourth quarter of 2011, with a potential 2012 launch under the proposed Kynamro brand. Approval and commercialization remained uncertain.
- In October 2011, after the reporting date, the company earned a $5 million GSK milestone for designation of ISIS-AAT Rx as a development candidate; revenue was expected in the fourth quarter of 2011.
- GSK, Genzyme, and other partners represented a substantial concentration of revenue. Genzyme accounted for approximately 80% of Q3 revenue and 75% of nine-month revenue; the filing identifies major partners generically in the concentration table.
- Key risks included clinical or regulatory failure, delayed or restricted approval of mipomersen, limited market acceptance, dependence on Genzyme and other collaborators, manufacturing constraints, continued operating losses, dependence on additional financing or partnerships, intellectual-property disputes, and stock-price volatility.
- In September 2011, the company filed a patent-infringement lawsuit against Santaris Pharma seeking damages and an injunction. Santaris had not yet answered the complaint.
- The company recorded a $359,000 valuation allowance related primarily to its Excaliard investment and recognized $2.3 million of equity-method losses from Regulus for the first nine months.
- Disclosure controls and procedures were assessed as effective as of September 30, 2011, with no material changes in internal control over financial reporting identified during the quarter.
Investor Verification Items
- Verify the regulatory status, labeling, launch timing, and commercial prospects of mipomersen/Kynamro, including Genzyme’s obligations and funding arrangements.
- Reconcile the company’s cash runway against the $90.5 million year-to-date operating cash burn, $217.0 million of debt and obligations, and $363.2 million of contractual commitments.
- Assess the sustainability and timing of partner revenue, particularly the concentration in Genzyme and GSK and the decline in milestone-related revenue.
- Review clinical progress, trial costs, and potential discontinuation or partnering outcomes for the broader antisense pipeline.
- Monitor the Santaris patent litigation, potential intellectual-property exposure, and the value of investments in Regulus and other biotechnology companies.