UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2012

 

Commission file number 0-19125

 

 

Isis Pharmaceuticals, Inc.

(Exact name of Registrant as specified in its charter)

 

 

2855 Gazelle Court, Carlsbad, CA 92010

(Address of principal executive offices, including zip code)

 

760-931-9200

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value

 

 

Indicate by check mark whether the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  x   No  o

 

Indicate by check mark whether the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o   No  x

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x   No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o   No  x

 

The approximate aggregate market value of the voting common stock held by non-affiliates of the Registrant, based upon the last sale price of the common stock reported on The NASDAQ Global Select Market was $1,011,059,448 as of June 30, 2012.*

 

The number of shares of voting common stock outstanding as of February 21, 2013 was 101,826,748.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

(To the extent indicated herein)

 

Portions of the Registrant’s definitive Proxy Statement to be filed on or about April 26, 2013 with the Securities and Exchange Commission in connection with the Registrant’s annual meeting of stockholders to be held on June 25, 2013 are incorporated by reference into Part III of this Report. The Exhibit Index (Item No. 15) located on pages 75 to 79 incorporates several documents by reference as indicated therein.

 

*                  Excludes 16,065,491 shares of common stock held by directors and officers and by stockholders whose beneficial ownership is known by the Registrant to exceed 10% of the common stock outstanding at June 30, 2012. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.

 

 

 

FORWARD-LOOKING STATEMENTS

 

This report on Form 10-K and the information incorporated herein by reference includes forward-looking statements r egarding our business, the therapeutic and commercial potential of our technologies and products in development, and the financial position of Isis Pharmaceuticals, Inc. Any statement describing our goals, expectations, financial or other projections, intentions or beliefs, including the commercial potential of KYNAMRO, is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercializing drugs that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such drugs. Our forward-looking statements also involve assumptions that, if they never materialize or prove correct, could cause our results to differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report on Form 10-K, including those identified in Item 1A entitled “Risk Factors”.  Although our forward-looking statements reflect the good faith judgment of our management, these statements are based only on facts and factors currently known by us. As a result, you are cautioned not to rely on these forward-looking statements.

 

In this report, unless the context requires otherwise, “Isis,” “Company,” “we,” “our,” and “us” refers to Isis Pharmaceuticals and its subsidiaries.

 

TRADEMARKS

 

Isis Pharmaceuticals ®  is a registered trademark of Isis Pharmaceuticals, Inc.

 

Regulus Therapeutics™ is a trademark of Regulus Therapeutics Inc.

 

KYNAMRO™ is a trademark of Genzyme Corporation

 

KYNAMRO Cornerstone SM  is a service mark of Genzyme Corporation

 

Macugen ®  is a registered trademark of Eyetech

 

Juxtapid™ is a trademark of Aegerion Pharmaceuticals, Inc.

 

CORPORATE INFORMATION

 

We incorporated in California in 1989, and in January 1991 we changed our state of incorporation to Delaware. Our principal offices are in Carlsbad, California. We make available, free of charge, on our website, www.isispharm.com , our reports on Forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that we include on or link to our website is not a part of this report or any registration statement that incorporates this report by reference. You may also read and copy our filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov .

 

PART I

 

Item 1.  Business

 

Overview

 

We are the leading company in antisense drug discovery and development, exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class drugs. Antisense technology provides a direct route from genomics to drugs.  Our strategy is to do what we do best—to discover unique antisense drugs.  The efficiency and broad applicability of our drug discovery platform allows us to discover and develop antisense drugs to treat a wide range of diseases, including cardiovascular, severe and rare, neurologic and metabolic diseases and cancer.  Our partnering strategy provides us the flexibility to license each of our drugs at the optimal time to maximize the near- and long-term value of each drug.  In this way, we can expand our pipeline and our partners’ pipelines with antisense drugs that address significant medical needs while remaining small and focused.   Our strong financial position is a result of the successful execution of our business strategy as well as our focused research and development capabilities.

 

Our flagship product, KYNAMRO™ (mipomersen sodium) injection, is on the market in the United States for patients with homozygous familial hypercholesterolemia, or HoFH.  Patients with HoFH are at high cardiovascular risk and cannot reduce their low-density lipoprotein cholesterol, or LDL-C, sufficiently with currently available lipid-lowering therapies.  In January 2013, the U.S. Food and Drug Administration, or FDA, approved the marketing application for KYNAMRO for patients with HoFH.  Marketing applications for KYNAMRO are under review by the European Medicines Agency, or EMA, and other regulatory authorities. Genzyme is executing a comprehensive plan to address a global commercial market that consists of patients who are in desperate need of new treatment options.  Genzyme has substantial expertise in successfully marketing drugs in the United States and internationally

 

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for severe and rare diseases and plans to leverage its infrastructure in these markets.  By concentrating marketing and sales efforts on lipid specialists and physicians who refer patients to these specialists, Genzyme plans to quickly reach patients with HoFH in the United States.

 

Our pipeline goes well beyond KYNAMRO. We have a pipeline of 28 drugs in development that represents the potential for significant commercial opportunities in many therapeutic areas.  We believe that several of the drugs in our pipeline could reach the market in the next five years.  For instance, we designed our TTR amyloidosis and spinal muscular atrophy, or SMA, drugs to treat patients with severe and rare diseases who have very limited therapeutic options.  Because of the significant unmet medical need and the severity of these diseases, new therapeutic approaches could warrant an accelerated path to market.  In addition, several of the drugs in our pipeline are advancing through Phase 2 clinical programs and could represent significant near-term licensing opportunities.  These drugs, including ISIS-APOCIII Rx , ISIS-CRP Rx  and ISIS-FXI Rx , represent substantial commercial opportunities with the potential for robust Phase 2 data within the next 12 to 18 months.

 

To maximize the value of our drugs and technologies, we have a multifaceted partnering strategy.  We form traditional partnering alliances that enable us to discover and conduct early development of new drugs, outlicense our drugs to partners, such as Genzyme, and build a broad base of license fees, milestone payments and royalty income.  We also form preferred partner transactions that provide us with a vested partner, such as AstraZeneca, Biogen Idec and GlaxoSmithKline, or GSK, early in the development of a drug.  Typically, the drugs we partner early in development are in therapeutic areas of high risk, like rare diseases, or in areas where Phase 2 results would likely not provide a significant increase in value, like cancer.  This strategy allows us to develop drugs that could have significant commercial potential with a knowledgeable and committed partner while avoiding the cost of later-stage clinical studies.  As in all of our partnerships, we benefit financially from upfront payments, development, regulatory and commercial milestones, licensing fees and royalties from these partnerships.  This allows us to expand and broaden our drug discovery efforts to new disease targets in therapeutic areas that are outside of our expertise or in areas where our partners will provide tools and resources that will complement our drug discovery efforts.  For example, through our oncology partnership with AstraZeneca, we are capitalizing on AstraZeneca’s development experience and research in oncology.

 

The broad applicability of our drug discovery technology and the clinical successes of the drugs in our pipeline continue to create new partnering opportunities.  For example, in 2012, we formed three strategic alliances with Biogen Idec to discover and develop antisense drugs for the treatment of neurologic diseases, and a strategic alliance with AstraZeneca to discover and develop antisense drugs to treat cancer.  In total during 2012, we received $96 million from Biogen Idec and AstraZeneca in upfront payments and have the potential to earn more than $2 billion in future milestone payments and licensing fees.  Since 2007, our partnerships have generated an aggregate of more than $975 million in payments from upfront and licensing fees, equity purchase payments, milestone payments and research and development funding. In addition, for our current partnered programs we have the potential to earn $5.1 billion in future milestone payments. We also have the potential to share in the future commercial success of our inventions and drugs resulting from these partnerships through earn out, profit sharing, or royalty arrangements.

 

We also work with a consortium of smaller companies that can exploit our drugs and technologies. We call these smaller companies our satellite companies.  In this way, we benefit from the disease-specific expertise of our satellite company partners, who are advancing drugs in our pipeline in areas that are outside of our core focus. In addition, we can maintain our broad RNA technology leadership through collaborations with companies such as Alnylam Pharmaceuticals, Inc., or Alnylam, and Regulus Therapeutics Inc., or Regulus, a company we co-founded with Alnylam focused on microRNA therapeutics.  In October 2012 Regulus completed an initial public offering, in which we participated, bringing our ownership in Regulus to approximately seven million shares of Regulus’ common stock, which was valued at approximately $36 million on February 26, 2013. All of these different types of relationships are part of our unique business model and create near and long-term shareholder value.

 

We protect our proprietary technologies and products through our substantial patent estate. As an innovator in RNA-targeting drug discovery and development, we design and execute our patent strategy to provide us with extensive protection for our drugs and our technology.  With our ongoing research and development, we continue to add to our substantial patent estate. Our patents not only protect our key assets—our technology and our drugs—they also form the basis for lucrative licensing and partnering arrangements.  To date, we have generated over $400 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs.

 

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Below is a list of some of our key accomplishments for 2012 and early 2013.

 

Drug Development Highlights

 

·                   We and Genzyme were successful in bringing KYNAMRO to the market for patients with HoFH.  These patients are at high cardiovascular risk and may not be able to reduce their LDL-C sufficiently with currently available lipid-lowering therapies.

·                   KYNAMRO was approved for marketing in the United States by the FDA for the treatment of patients with HoFH.

·                  We received a total of $50 million in milestone payments from Genzyme related to the new drug application, or NDA, acceptance in 2012 and marketing approval of KYNAMRO by the FDA in 2013.

·                   Genzyme continues to enroll the FOCUS FH study, which is designed to provide 60-week safety and efficacy data in familial hypercholesterolemia, or FH, patients to support an additional regulatory filing.  Genzyme reached an agreement with the FDA on the design of the FOCUS FH study via a Special Protocol Assessment, or SPA.

·                   Genzyme submitted a request for re-examination of the EMA’s negative opinion on the marketing authorization application for KYNAMRO and expects to report the outcome of the re-examination in the first half of 2013.

·                   We received European Good Manufacturing Practices, or GMP, certification of our manufacturing facility for production of drug substance to support KYNAMRO commercial launch.

·                   Clinical investigators presented KYNAMRO data at important cardiovascular medical meetings throughout the year.

·                   Dr. Raul Santos presented data from the long-term extension study of KYNAMRO at the International Symposium on Atherosclerosis.  These data highlighted the long-term safety and efficacy of KYNAMRO in patients who have been treated with KYNAMRO.

·                   Dr. Klaus Parhofer presented an analysis of data from the KYNAMRO Phase 3 study in patients with severe heterozygous FH at the European Society of Cardiology.  These data highlighted the potential of KYNAMRO to reduce the need for apheresis by lowering LDL-C values below the thresholds for apheresis eligibility in patients with severe heterozygous FH.

·                   Dr. Sotirios Tsimikas presented an analysis of lipoprotein a, or Lp(a), data from the KYNAMRO Phase 3 program at the European Atherosclerosis Society.  These data demonstrated sustained reductions of Lp(a), an independent risk factor for cardiovascular disease.

·                   We and our partners reported positive clinical data on seven drugs and we added four drugs to our pipeline.

·                   We and our partners initiated Phase 2 or Phase 3 clinical studies on eight drugs.

·                   We received Orphan Drug Designation and Fast Track Status in the United States for ISIS-SMN Rx  and ISIS-TTR Rx .  We received Orphan Drug Designation in the EU for ISIS-SMN Rx .

 

Corporate Highlights

 

·                   We formed three new strategic alliances with Biogen Idec to develop and commercialize antisense drugs for severe and rare and neurologic diseases.  In total all three alliances are valued at up to $1.2 billion.

·                   We entered into an alliance with Biogen Idec to develop and commercialize our drug, ISIS-SMN Rx , to treat SMA.  We received a $29 million upfront payment and are eligible to receive up to an additional $270 million in a license fee and milestone payments, and double-digit royalties on sales of ISIS-SMN Rx .

·                   We entered into an alliance with Biogen Idec to develop and commercialize a drug to treat myotonic dystrophy type 1, or DM1.  We received a $12 million upfront payment and are eligible to receive up to an additional $259 million in a licensing fee and milestone payments.  We are also eligible to receive double-digit royalties on product sales.

·                   We entered into an alliance with Biogen Idec to discover and develop antisense drugs against three targets to treat neurological or neuromuscular disorders.  We received a $30 million upfront payment and are eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program.  We are also eligible to receive double-digit royalties on product sales for each drug.

·                   We formed a new strategic alliance with AstraZeneca to discover and develop antisense drugs against five cancer targets, which included a license to develop and commercialize ISIS-STAT3 Rx .

·                   The agreement comprises $31 million in upfront and near-term payments, including a $25 million payment we have received followed by a $6 million payment we are eligible to receive in the second quarter of 2013 assuming the research program is continuing.  We are also eligible to receive milestone payments, license fees and royalties.

·                  We added the first drug from the research collaboration, ISIS-AZ1 Rx , to the pipeline.

·                   We and GlaxoSmithKline amended the clinical development plan and financial terms relating to ISIS-TTR Rx  to support an accelerated development plan for the drug.  As a result of the revised agreement, we received a $2.5 million upfront payment.

·                   We received a $7.5 million milestone payment upon initiation of the Phase 2/3 study for ISIS-TTR Rx .

·                   We are also eligible to earn an additional $50 million in pre-licensing milestone payments to support the ISIS-TTR Rx  Phase 2/3 study.

·                   We benefited as our partners advanced RNA-based technologies and products incorporating our technology.

·             We received $2.7 million from Alnylam as a result of Alnylam’s licenses that included our patents.

·             We received $1.3 million from Pfizer triggered by Pfizer’s decision to advance EXC 001 into a Phase 2 study.

 

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·                   Regulus Therapeutics completed an initial public offering and is now traded on The NASDAQ Global Market under the ticker RGLS.  We purchased $3 million of Regulus’ common stock at the offering price and remain a significant shareholder with approximately 17 percent ownership on a fully diluted basis, which was valued at approximately $36 million on February 26, 2013.

·                   We completed a successful $201.3 million convertible debt financing.  We used the majority of the proceeds of this financing to redeem our outstanding $162.5 million 2 5 / 8  percent subordinated convertible debt.

·                   The securities class action lawsuit was voluntarily withdrawn and there are no pending lawsuits related to any violation of securities laws.

·                   We and our collaborators published papers in leading scientific journals demonstrating the broad applicability of our technologies.

·                   A paper in Nature demonstrating that an antisense compound selectively and rapidly reduced target RNA in skeletal muscle and alleviated disease in animal models of myotonic dystrophy.

·                   A paper in Neuron demonstrating that an antisense compound reversed disease in animal models of Huntington’s disease.

·                   Two papers in the journal Cell demonstrating that single-stranded RNA-like antisense technology can activate the RNAi pathway and inhibit the expression of targeted genes.

 

Drug Discovery and Development

 

Introduction to Drug Discovery

 

Proteins are essential working molecules in a cell. Almost all human diseases result from inappropriate protein production or improper protein activity. Scientists use traditional drug discovery methods to design drugs to interact with the proteins in the body that are supporting or causing a disease. Antisense drugs are different from traditional small molecule drugs because they interrupt the production of disease-causing proteins by targeting ribonucleic acids, or RNAs. RNAs are naturally occurring molecules in the body that provide the information the cell needs to produce proteins. When our antisense drugs bind to the specific RNAs of a particular gene, they will ultimately inhibit or alter the expression of the protein encoded in the target gene.

 

Our Development Projects

 

We are the leader in the discovery and development of an exciting new class of drugs called antisense drugs. With our proprietary drug discovery platform we can rapidly identify drugs, providing a wealth of potential targets to treat a broad range of diseases. We focus our efforts in therapeutic areas where our drugs will work best, efficiently screening many targets in parallel and carefully selecting the best drugs. When we combine this efficiency with our rational approach to selecting disease targets, we can build a large and diverse portfolio of drugs designed to treat a variety of health conditions, including cardiovascular, severe and rare, neurologic and metabolic diseases and cancer.  We and our partners are developing antisense drugs for systemic, intrathecal and local delivery. We expect to continue to add new drugs to our pipeline, creating opportunities for future licensing transactions and building a broad proprietary portfolio of drugs applicable to many disease targets. We also continue to improve our scientific understanding of our drugs, including how our drugs impact the biological processes of the diseases we target.

 

With our expertise in discovering and characterizing novel antisense inhibitors, our scientists can optimize the properties of our antisense drugs for use with particular targets. Our scientists have made significant advances in chemistries, which we call our second-generation antisense drugs. Second-generation antisense drugs may have increased potency, stability, oral bioavailability and an improved side effect profile.  Our scientists have further improved upon our second-generation chemistry with our generation 2.5 chemistry, an advancement that we believe will further increase the potency of our drugs and make oral administration commercially feasible. We currently have two generation 2.5 drugs in development, ISIS-STAT3 Rx  and ISIS-FVII Rx , and we expect that some of our future drugs will also incorporate our generation 2.5 chemistry.

 

Our scientists have utilized our chemistry advancements to expand the therapeutic and commercial opportunities of our pipeline. These advancements, along with the manufacturing and analytical processes that are the same for all of our drugs, shorten our timeline from initial concept to the first human dose when compared to small molecule drugs.

 

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The following table lists our approved products and each of our and our partners’ drug development projects, their targets, disease indications and the development status of each. Prior to Phase 3 studies, we identify our drugs by the target, such as ISIS-GCGR Rx  or ISIS-APOCIII Rx .  For the majority of our partnered drugs, we refer to a drug by the partner’s own compound number, such as ATL1103 or iCo-007.  As the drugs in our pipeline advance in clinical development, we will adopt nonproprietary names given to each drug from the United States Adopted Names Council.  For example, mipomersen is a nonproprietary name that we obtained for ISIS 301012 in 2007.  Once we or our partners establish a brand name, like KYNAMRO for mipomersen, we will adopt the brand name even before regulatory agencies grant marketing approval.

 

 

KYNAMRO (mipomersen sodium) injection

 

Our flagship product, KYNAMRO, is on the market in the United States for patients with HoFH.  These are patients who are at high cardiovascular risk and who may not be able to reduce their LDL-C sufficiently with currently available lipid-lowering therapies.  KYNAMRO was approved by the FDA as an adjunct to lipid-lowering therapy and diet to reduce LDL-C, apolipoprotein-B, or apo-B, total cholesterol and non-HDL-C in patients with HoFH.  KYNAMRO is available in the United States under a Risk Evaluation and Mitigation Strategy, or REMS, with a Boxed Warning citing the risk of hepatic toxicity.

 

Genzyme is also pursuing marketing approval for KYNAMRO in other major markets.  Genzyme is executing a comprehensive plan to address a global commercial market that consists of patients who are in desperate need of new treatment options.  Genzyme has substantial expertise in successfully marketing drugs in the United States and internationally for severe and rare diseases and plans to leverage its infrastructure in these markets.  Beyond the United States, KYNAMRO is under review by the EMA and other regulatory authorities.

 

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We believe that Genzyme has the commercial infrastructure and ability to successfully commercialize KYNAMRO worldwide making the drug available for patients in need in approved markets.  By concentrating marketing and sales efforts on lipid specialists and physicians who refer patients to these specialists, Genzyme plans to reach patients with HoFH in the United States.  Genzyme has also established KYNAMRO Cornerstone SM , a support program for health care providers, patients, families and caregivers that offers services related to HoFH and KYNAMRO in the United States.  Along with preparing for an efficient marketing and sales effort for KYNAMRO, Genzyme has made significant progress raising awareness of HoFH, and the importance of family screening to identify patients earlier. These activities include conducting continued medical educational programs to inform physicians about FH and partnering with key advocacy groups, such as the National Lipid Association, American College of Cardiology, European Atherosclerosis Society Congress, International Symposium on Atherosclerosis and the American Heart Association.  In 2011, Sanofi acquired Genzyme, and we believe that Sanofi and its global presence will aid in the rapid market expansion of KYNAMRO throughout the world.

 

KYNAMRO is a novel, first-in-class, apo-B synthesis inhibitor for the reduction of LDL-C. It is a second-generation antisense drug we discovered and licensed to Genzyme in 2008.  KYNAMRO acts by decreasing the production of apo-B. Apo-B provides the structural core for atherogenic lipids, including LDL-C, which carry cholesterol through the bloodstream. KYNAMRO reduces LDL-C and other key atherogenic lipids linked to cardiovascular disease by preventing their formation.  Together with Genzyme, we completed the largest clinical study conducted to date in HoFH patients.  In the randomized, double-blind, placebo controlled, multi-center trial, KYNAMRO significantly further reduced LDL-C and all other measured endpoints when added to a treated baseline. Three patients (12 percent) treated with KYNAMRO withdrew due to adverse events. Consistent with other studies evaluating KYNAMRO, commonly observed adverse events included mild to moderate injection site reactions and flu-like symptoms, as well as elevations in liver transaminases.

 

Familial Hypercholesterolemia

 

Physicians diagnose patients as having FH if they have very high cholesterol, are at high cardiovascular risk and cannot reduce their LDL-C sufficiently with currently available lipid-lowering therapies. FH is a genetic disease that causes elevated LDL-C levels and family patterns of premature heart disease and heart disease-related death. FH patients have inherited abnormalities in liver cells that are responsible for clearing LDL particles from the blood. FH is autosomal dominant, which means that all first-degree relatives of FH patients have a 50 percent chance of having the disease as well, making early detection through early screening critically important. Patients with untreated FH have a 50 percent mortality rate by age 60.

 

HoFH is a severe form of FH.  People with HoFH have inherited mutations that limit the body’s ability to clear cholesterol.  HoFH is extremely rare: it is believed to occur in only one out of every one million persons.  As with other rare diseases, the true prevalence of HoFH may be underestimated because of inadequate data and under-diagnosis.  Today, it is estimated that HoFH affects about 6,000 people globally.  Medical literature includes different criteria for making an HoFH diagnosis.  HoFH may be diagnosed by clinical or genetic parameters, and may be considered in cases of unusually high LDL-C, such as greater than 500 mg/dL without treatment, or 300 mg/dL after taking cholesterol-lowering medication.  Because HoFH is genetic, it is important that all family members of people with HoFH know their cholesterol levels, regardless of their age.  In addition to lipid-lowering medications, current standard-of-care for HoFH patients can include apheresis, a two to four hour process administered two to four times a month.  Apheresis mechanically separates LDL-C from the blood and it has been the only therapy available on top of maximally tolerated lipid-lowering therapy.

 

Clinical Development

 

Together with Genzyme, we evaluated KYNAMRO in a Phase 3 study in patients with HoFH.  The randomized, double-blind, placebo-controlled, multi-center study enrolled 51 HoFH patients age 12 to 53 years, including seven patients age 12 to 16 years, who were maintaining a regimen of maximally tolerated lipid-lowering medications.  Treatment with KYNAMRO further reduced LDL-C levels by an average of 113 mg/dL, or 25 percent, from a treated baseline of 439 mg/dL, and further reduced all measured endpoints for atherogenic particles.  In March 2010, these data were published in The Lancet by Professor Raul of the University of the Witwatersrand in South Africa.

 

Together with Genzyme we also conducted three additional Phase 3 studies in patients with severe hypercholesterolemia, in patients with heterozygous familial hypercholesterolemia, or HeFH, and in patients with high cholesterol at high risk for cardiovascular disease.  In all three Phase 3 studies, treatment with KYNAMRO lowered LDL-C and reduced other atherogenic lipids, including apo-B, total cholesterol, non-HDL-C, and Lp(a). These key lipids are generally accepted risk factors for cardiovascular disease.  Data from these studies were published in Circulation and PLoS One.

 

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Safety data for KYNAMRO are based on pooled results from the four Phase 3 studies noted above with a total of 390 patients. In these four Phase 3 studies, 261 patients received weekly subcutaneous injections of 200 mg of KYNAMRO and 129 patients received placebo for a median treatment duration of 25 weeks.  Eighteen percent of patients on KYNAMRO and 2 percent of patients on placebo discontinued treatment due to adverse reactions.  The most common adverse reactions in patients treated with KYNAMRO that led to treatment discontinuation and occurred at a rate greater than placebo were: injection site reactions of five percent, alanine aminotransferase increase of 3.4 percent, flu-like symptoms of 2.7 percent, aspartate aminotransferase increase of 2.3 percent and abnormal liver function test of 1.5 percent.

 

Based on these positive data, Genzyme submitted an NDA to the FDA in March 2012 for marketing approval of KYNAMRO in patients with HoFH.  In January 2013, the FDA approved the NDA for KYNAMRO.  In 2011, Genzyme submitted a marketing authorization application, or MAA, for KYNAMRO to the EMA.  In December 2012, the Committee for Medicinal Products for Human Use, or CHMP, of the EMA adopted a negative opinion for the MAA for KYNAMRO.  Genzyme requested a reexamination of the CHMP opinion and expects to report the outcome of the re-examination in the first half of 2013.  Genzyme has also submitted marketing applications for KYNAMRO in other countries.

 

In March 2012, Genzyme and we reported data from a Phase 3 long-term extension study of KYNAMRO.  Data from this study included 141 patients who enrolled in the study after having completed one of the three Phase 3 studies: HoFH, severe hypercholesterolemia, or the HeFH study.   In this study, patients treated with KYNAMRO for two years maintained robust reductions in LDL-C and all other apoB-containing atherogenic lipoproteins measured with a safety profile consistent with the completed Phase 3 studies of KYNAMRO.

 

In 2012, Genzyme initiated a Phase 3 study titled ‘evaluating the saFety and atherOgeniC lipoprotein redUction of mipomerSen in FH, or FOCUS FH, which Genzyme is conducting under an SPA with the FDA.  An SPA is an agreement between the FDA and the drug developer that the design and planned analysis of a study is sufficient to address objectives in support of a regulatory submission.  In FOCUS FH, Genzyme is evaluating KYNAMRO in patients with severe heterozygous FH.  Severe HeFH patients are defined as FH patients who have LDL-C levels greater than 200 mg/dL with coronary artery disease or more than 300 mg/dL without coronary artery disease despite maintaining a regimen of maximally tolerated lipid-lowering therapy.  In this 60-week, placebo-controlled, randomized, double-blind study, KYNAMRO is being administered either weekly as a 200 mg injection or three times a week as a 70 mg injection.

 

Cardiovascular Franchise

 

Cardiovascular disease is the leading cause of death in the United States. A common cause of cardiovascular disease is atherosclerosis, or premature plaque buildup, which occurs when cholesterol and inflammatory cells accumulate in blood vessels. Researchers have shown a strong correlation between high cholesterol levels and subsequent cardiovascular diseases.  As such, lowering cholesterol is a key component in preventing and managing cardiovascular disease.

 

Cardiovascular disease is an area of focus for us.  We have created a cardiovascular disease franchise comprised of drugs that target all the key components of cardiovascular disease, including various atherogenic lipids, inflammation and thrombosis, an aberrant blood clot formation responsible for most heart attacks and strokes.  For example, we are developing a drug that lowers apoC-III and triglycerides, which are both independent risk factors for cardiovascular disease.  Our most recent addition to our cardiovascular franchise is our drug that lowers Lp(a), another independent risk factor for cardiovascular disease. Currently available lipid-lowering therapies do not significantly lower apoC-III, triglycerides, or Lp(a). We believe that targeting apoC-III and Lp(a) could provide a complementary approach to lipid-lowering therapies, including KYNAMRO.  We are also developing a drug that lowers C-reactive protein, or CRP, a protein that scientists associate with cardiovascular disease.  And finally, our cardiovascular franchise includes two anti-thrombotic agents, which could offer safer, more effective alternatives to anti-clotting agents currently on the market.

 

We believe antisense drugs could have a significant positive effect in patients with high cardiovascular risk.  Because there are many liver-produced targets that affect the production of cholesterol particles, clotting factors and other factors that contribute to the inflammatory components of cardiovascular disease, the liver is an ideal target organ for cardiovascular disease therapies, and antisense drugs in particular.  Our antisense drugs distribute to the liver and inhibit the production of many targets associated with cardiovascular risk, creating an opportunity for us to develop many complementary and effective antisense drugs for cardiovascular disease.

 

ISIS-APOCIII Rx — ISIS-APOCIII Rx  is an antisense drug we designed to reduce apolipoprotein C-III, or apoC-III, protein production and lower triglycerides. ApoC-III regulates triglyceride metabolism in the blood and is an independent cardiovascular risk factor. People who do not produce apoC-III have lower levels of triglycerides and lower instances of cardiovascular disease. ApoC-III is elevated in patients with dyslipidemia, or an abnormal concentration of lipids in the blood, and is frequently associated with multiple metabolic abnormalities, such as insulin resistance and/or metabolic syndrome. In human population studies, lower levels of apoC-III and triglycerides correlated with a lower rate of cardiovascular events. In certain populations, apoC-III mediates insulin resistance, which can make metabolic syndrome worse.

 

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In preclinical studies, ISIS-APOCIII Rx  diminished symptoms of metabolic syndrome and reduced atherosclerosis in mice. We have completed a Phase 1 study evaluating the safety and activity of ISIS-APOCIII Rx  in healthy volunteers. In this study, ISIS-APOCIII Rx  produced rapid, dose-dependent median reductions of up to 78 percent in apoC-III protein and up to 44 percent in blood triglycerides. All subjects tolerated ISIS-APOCIII Rx  well.

 

We are pursuing a staged development plan for ISIS-APOCIII Rx  designed to shorten the time to bring this drug to patients at high-risk of cardiovascular disease and pancreatitis. These are the patients with the highest unmet medical need who have severely high triglyceride levels despite currently available therapies and are at the greatest risk. Patients with triglycerides greater than 880 mg/dL are at a higher risk of developing pancreatitis, a painful and sometimes fatal disease that requires hospitalization and close monitoring. In these patients who cannot reduce their triglycerides to acceptable levels, the primary therapy is diet, which requires strict adherence and is often unsuccessful.

 

Our plan is to initially develop ISIS-APOCIII Rx  to treat patients with triglyceride levels greater than 880 mg/dL and as we gain additional experience in these patients, expand to include other less severe patient populations.  We are evaluating ISIS-APOCIII Rx  in a Phase 2 study in patients with very high triglyceride levels of greater than 500 mg/dL. In this study, we plan to enroll approximately 100 patients who have triglyceride levels of 500 mg/dL or higher, and evaluate ISIS-APOCIII Rx  as a monotherapy and in combination with fibrates.  We are also evaluating ISIS-APOCIII Rx  in patients with type 2 diabetes and high triglyceride levels.  We plan to report Phase 2 data from these studies in 2013 or early 2014. We plan to initiate a Phase 3 program that will include evaluating ISIS-APOCIII Rx  in patients with severely elevated triglyceride levels of greater than 880 mg/dL in late 2013 or early 2014.

 

ISIS-CRP Rx — ISIS-CRP Rx  is an antisense drug that targets CRP, a protein produced in the liver. CRP levels increase dramatically during inflammatory disorders, and scientists have linked excessive amounts of CRP to coronary artery disease. Furthermore, a growing body of evidence from clinical trials implicates CRP in cardiovascular disease progression. These results suggest that it may be therapeutically beneficial to significantly decrease CRP levels in patients who are at risk for coronary events. In addition, clinicians have associated elevated CRP levels with a worsening of overall outcomes in conditions such as end-stage renal disease and multiple myeloma, suggesting that lowering CRP could help these patients. CRP elevation is also evident in many other major inflammatory diseases such as Crohn’s disease and rheumatoid arthritis.

 

In preclinical studies, we observed that our antisense inhibitor of CRP suppressed liver and serum CRP levels. We evaluated ISIS-CRP Rx  in a Phase 1 study in which ISIS-CRP Rx  produced statistically significant reductions in CRP in the cohort of subjects that entered the study with elevated levels of CRP. All subjects tolerated ISIS-CRP Rx  well. Our Phase 2 plan for ISIS-CRP Rx  is to evaluate the drug in diseases with elevated CRP that could provide early proof-of-concept.

 

We completed a second Phase 1 study designed to evaluate if pretreatment with ISIS-CRP Rx  can blunt an acute severe increase in CRP.  In this study, healthy volunteers were treated with ISIS-CRP Rx  and then subjected to an endotoxin challenge, which causes an increase in CRP and other inflammatory markers.   We plan to report the data from this study in the first half of 2013.  In addition, we are evaluating ISIS-CRP Rx  in a Phase 2 study in patients with rheumatoid arthritis in which we will evaluate the effect of lowering CRP in patients with chronically elevated levels.  We plan to report data from the Phase 2 rheumatoid arthritis study in 2013.   We are also evaluating ISIS-CRP Rx  in a Phase 2 study in patients with atrial fibrillation, or AF.  AF involves an irregular heart rate that commonly causes poor blood flow to the body.  In this study, we will evaluate the effect of lowering CRP on the frequency and duration of AF.  We plan to report data from the AF study in early 2014.

 

ISIS-FXI Rx   — ISIS-FXI Rx  is an antisense drug we designed to treat clotting disorders. It targets Factor XI, a clotting factor produced in the liver that is an important component of the coagulation pathway. High levels of Factor XI increase the risk of thrombosis, a process involving aberrant blood clot formation responsible for most heart attacks and strokes. Elevated levels of Factor XI also increase the risk of venous thrombosis, a common problem after surgery, particularly major orthopedic procedures, such as knee or hip replacement. People who are deficient in Factor XI have a lower incidence of thromboembolic events with minimal increase in bleeding risk. Although currently available anticoagulants reduce the risk of thrombosis, physicians associate these anticoagulants with increased bleeding, which can be fatal.

 

In preclinical studies, ISIS-FXI Rx  demonstrated potent antithrombotic activity with no increase in bleeding compared with standard anti-clotting agents, including low molecular weight heparin, warfarin and Factor Xa inhibitors, all of which increase bleeding. We have completed a Phase 1 study evaluating the safety and activity of ISIS-FXI Rx  in healthy volunteers. In this study, ISIS-FXI Rx  produced dose-dependent statistically significant reductions of greater than 80 percent in Factor XI protein. In this study, subjects tolerated ISIS-FXI Rx  well with no increase in bleeding.

 

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In 2012, we initiated a Phase 2 study evaluating ISIS-FXI Rx  in patients undergoing knee replacement surgery, also referred to as total knee arthroplasty, or TKA. This study is a comparator-controlled study, in which we will compare the safety and activity of ISIS-FXI Rx  to a commonly used anti-coagulant, enoxaparin. In this study, we are evaluating the effectiveness of ISIS-FXI Rx  in reducing the number of thrombotic events in patients following TKA without increasing bleeding. Given the mechanism of Factor XI inhibition, we believe that doctors could use our drug broadly as an anti-thrombotic in many different therapeutic settings for which additional safe and well tolerated anti-thrombotic drugs are needed. We plan to report data from the Phase 2 study for ISIS-FXI Rx  in 2013.

 

ISIS-APOA Rx   — ISIS-APOA Rx  is an antisense drug we designed to reduce apolipoprotein(a) in the liver to offer a direct approach for reducing Lp(a), an independent risk factor for cardiovascular disease. Scientists associate high levels of Lp(a) with an increased risk of atherosclerosis, coronary heart disease, heart attack and stroke. Commonly prescribed lipid-lowering drugs have little or no effect on Lp(a) levels. Even patients who can control their LDL-C levels remain at high-risk of cardiovascular events if they have high levels of Lp(a). There is a significant need for a highly specific drug that can lower Lp(a). We plan to develop ISIS-APOA Rx  to treat patients with high Lp(a) levels who are at severe risk of experiencing cardiovascular events.

 

We plan to initiate a Phase 1 clinical study for ISIS-APOA Rx  in 2013.

 

ISIS-FVII Rx   — ISIS - FVII Rx  is an antisense drug we designed to reduce Factor VII, a key component of the tissue factor coagulation pathway, for the treatment or prevention of thrombotic diseases.  Clinicians have linked elevated levels of Factor VII activity with poor prognosis in several thrombotic diseases, such as heart attacks, and with cancer-associated thrombosis, which is the second leading cause of death in cancer patients.

 

In preclinical studies, antisense inhibition of Factor VII rapidly reduced Factor VII activity by more than 90 percent in three days, suggesting that physicians could use ISIS-FVII Rx  in acute clinical settings, such as following surgery, to prevent patients from developing harmful blood clots.  In addition, we observed no increase in bleeding with ISIS-FVII Rx , which is a common side effect of currently available anti-thrombotic drugs.  ISIS-FVII Rx  is the second drug to enter development as part of our strategy to create more potent and safer anti-thrombotic drugs that do not increase bleeding.

 

We plan to complete preclinical studies to support an investigational new drug, or IND, application for ISIS-FVII Rx  in 2013.

 

Severe & Rare Disease Franchise

 

Our severe and rare disease franchise is the largest franchise in our pipeline.  We believe that our antisense technology could offer effective therapies for patients with severe and rare diseases that are life-threatening or fatal and for which there are limited treatment options.  According to the National Institutes of Health, or NIH, there are approximately 5,000 to 8,000 rare diseases, many life-threatening or fatal.  Unfortunately, patients with many of these severe and rare diseases have few effective therapies available.  Since most severe and rare diseases are genetic or have a genetic component, parents often pass the disease to their children, creating a legacy of the disease and resulting in profound effects on the family.

 

We are discovering and developing antisense drugs to treat severe and rare diseases for which there is a need for new treatment options.  Our partners, Biogen Idec and GSK, allow us to expand our drug discovery and development efforts beyond what we would choose to do internally.  Due to the severe nature of these diseases and the lack of available treatments, there is an opportunity for more flexible and efficient development paths to the market.  This means that, in some cases, the studies necessary for us to demonstrate proof-of-concept with a particular drug may also be the studies that complete our marketing registration package, thereby providing us with a relatively rapid path to market for potential new treatments for devastating and often fatal diseases.

 

Alicaforsen — Under license to Atlantic Pharmaceuticals Limited, alicaforsen is an antisense drug that targets intercellular adhesion molecule 1, or ICAM-1.  ICAM-1 is over-expressed in a wide variety of inflammatory disorders, including ulcerative colitis and pouchitis.  Ulcerative colitis, or UC, is an inflammatory bowel disease, or IBD, of the colon, a part of the large intestine, and pouchitis is an inflammation of the surgically constructed internal pouch created in UC patients who have had their diseased colons removed.

 

In 2007, we licensed alicaforsen to Atlantic Pharmaceuticals for pouchitis, UC and other inflammatory diseases. The FDA and EMA have since granted alicaforsen Orphan Drug Designation for the treatment of pouchitis in the United States and Europe, respectively.  Atlantic Pharmaceuticals currently supplies alicaforsen in response to physicians’ requests under international Named Patient Supply regulations for patients with pouchitis.  We are eligible to receive royalties on product sales, including product sales under the Named Patient Supply from Atlantic Pharmaceuticals.  Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen.

 

KYNAMRO (mipomersen sodium) injection — Our flagship product, KYNAMRO, is on the market in the United States for patients with HoFH.  For more information on KYNAMRO, see the previous KYNAMRO section, which is directly after the pipeline chart.

 

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ISIS-TTR Rx   — ISIS-TTR Rx  is an antisense drug we designed to treat transthyretin amyloidosis, or TTR amyloidosis, a severe and rare genetic disease in which the patient inherits a mutant gene that produces a misfolded form of TTR, which progressively accumulates in tissues.  In patients with TTR amyloidosis, both the mutant and normal forms of TTR can build up as fibrils in tissues, including heart, peripheral nerves, and the gastrointestinal tract.  The presence of TTR fibrils interferes with the normal functions of these tissues, and as the TTR protein fibrils enlarge more tissue damage occurs and the disease worsens.

 

There are two common types of TTR amyloidosis, familial amyloid cardiomyopathy, or FAC, which affects more than 40,000 patients worldwide, and familial amyloid polyneuropathy, or FAP, which affects more than 10,000 patients worldwide.  Patients with FAC have TTR build up in the heart muscle and succumb to heart failure approximately five to six years after symptom onset.  Patients with FAP have TTR build up in peripheral nerve tissue leading to the loss of nerve function and wasting.

 

We designed ISIS-TTR Rx  to inhibit the production of all forms of TTR, and to offer an alternative approach to treat all types of TTR-related amyloidosis.  ISIS-TTR Rx  is the first drug to enter development under our preferred partner alliance with GSK. In October 2012, we amended our agreement with GSK to reflect an accelerated development plan for ISIS-TTR Rx . Under the terms of the original collaboration agreement with GSK, which includes six programs, we are eligible to receive on average up to $20 million in milestone payments per program before Phase 2 proof-of-concept plus a licensing fee, additional post-licensing milestone payments and double digit royalties on sales from each product. Under the amended terms of the agreement, we received a $2.5 million upfront payment in December 2012, and received a $7.5 million milestone payment in February 2013 upon initiation of the ISIS-TTR Rx  Phase 2/3 study. We have already received $17.5 million in milestone payments from GSK related to the development of ISIS-TTR Rx , including the $7.5 million milestone payment we received in February 2013. We are also eligible to earn an additional $50 million in pre-licensing milestone payments to support the ISIS-TTR Rx  Phase 2/3 study. In addition, GSK has increased the regulatory and sales milestones payable to us should the product achieve registration and meet certain sales thresholds. We are also eligible to receive double-digit royalties on sales of ISIS-TTR Rx .

 

We completed a Phase 1 study evaluating the safety and activity of ISIS-TTR Rx  in healthy volunteers. In this study, ISIS-TTR Rx  produced rapid, dose-dependent reductions in plasma TTR protein with many subjects achieving greater than 80 percent reduction in TTR protein and several subjects reaching TTR protein levels that were below the limit of assay detection at the highest doses. Subjects treated with ISIS-TTR Rx  generally tolerated the drug well. In February 2013, we initiated a Phase 2/3 study to evaluate the efficacy of ISIS-TTR Rx  in patients with FAP.  In this study, we will enroll approximately 200 patients and evaluate the efficacy of ISIS-TTR Rx  by measuring neurological dysfunction and quality of life in patients with FAP.

 

ISIS-SMN Rx — ISIS-SMN Rx  is an antisense drug we designed to treat spinal muscular atrophy, or SMA, a severe motor-neuron disease that is the leading genetic cause of infant mortality. SMA affects approximately 30,000 to 35,000 patients in the United States, Europe and Japan. One in 50 people, approximately six million people in the United States, are carriers of the SMA gene. Carriers experience no symptoms and do not develop the disease. When both parents are carriers, however, there is a one in four chance that their child will have SMA. SMA is caused by a loss of, or defect in, the survival motor neuron 1, or SMN1 , gene leading to a decrease in the protein survival motor neuron, or SMN. SMN is critical to the health and survival of nerve cells in the spinal cord that are responsible for neuro-muscular growth and function. The severity of SMA correlates with the amount of SMN protein a person produces. Infants with Type I SMA, the most severe life-threatening form, produce very little SMN protein and have a shortened life expectancy. Children with Type II and Type III SMA have greater amounts of SMN protein and have less severe, but still life-altering, forms of SMA.  The FDA granted Orphan Drug Designation with Fast Track Status to ISIS-SMN Rx  for the treatment of patients with SMA.

 

We designed ISIS-SMN Rx  to potentially treat all types of childhood SMA by altering the splicing of a closely related gene, SMN2, which leads to the increased production of fully functional SMN protein.  Splicing is a normal cellular mechanism that the cell uses to produce many different, but closely related proteins from a single gene by varying the processing of the RNA.  Splicing occurs on the precursor mRNA, or pre-mRNA, which includes sequences that encode for proteins and regions that are unnecessary for making proteins.  The cell deletes the regions that are unnecessary for making proteins from the pre-mRNA strand before it produces the mRNA. Scientists call the natural process that removes these regions and re-forms the finished mRNA ‘splicing’. Most of the diversity in proteins in the cell is due to splicing. In fact, of the approximately 25,000 genes in the human genome, approximately 90% have alternative splice forms. Alternative splicing can produce proteins that are involved in disease. In some cases like SMA, we are using antisense technology to direct alternate splicing to produce a deficient protein, SMN, critical for normal cellular function to correct for a genetic defect.

 

In January 2012, we and Biogen Idec entered into a preferred partner alliance that provides Biogen Idec an option to develop and commercialize ISIS-SMN Rx . Under the agreement, we received an upfront fee and are responsible for developing ISIS-SMN Rx . Biogen Idec has the option to license ISIS-SMN Rx  until completion of the first successful Phase 2/3 study or the completion of two Phase 2/3 studies. We will receive milestone payments from Biogen Idec as ISIS-SMN Rx  advances through development.  We are also eligible to receive double-digit royalties on sales of ISIS-SMN Rx . We plan to initiate a Phase 2/3 program in 2013.

 

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In December 2011, we initiated the first Phase 1 clinical study evaluating ISIS-SMN Rx  in children with SMA. We designed the Phase 1 study of ISIS-SMN Rx , a single-dose, dose-escalation study, to assess the safety, tolerability and pharmacokinetic profile of the drug in medically stable children with SMA between the ages of two and 14. In this study all patients have completed dosing and patients tolerated ISIS-SMN Rx  well as a single dose administered directly into the cerebral spinal fluid. In this study, we also observed improvements in muscle function in a number of children.  We plan to report the full data from this study at the American Academy of Neurology meeting in March 2013.

 

We initiated the Phase 1b/2a multiple-dose, dose-escalation study in October 2012 to evaluate the safety of multiple doses of ISIS-SMN Rx  and to aid in identifying an appropriate dose to move into Phase 2/3 studies, which we are designing to support registration for marketing approval.

 

We acknowledge support from the following organizations for this program: Muscular Dystrophy Association, SMA Foundation, and Families of Spinal Muscular Atrophy. We have licensed intellectual property relating to this program from Cold Spring Harbor Laboratory and the University of Massachusetts Medical School.

 

ISIS-APOCIII Rx — ISIS-APOCIII Rx  is an antisense drug we designed to reduce apolipoprotein C-III, or apoC-III, protein production and lower triglycerides.  We are evaluating ISIS-APOCIII Rx  for use in patients with severely elevated triglycerides of greater than 880 mg/dL.  For more information on ISIS-APOCIII Rx , please refer to the ISIS-APOCIII Rx  section under the subheading “Cardiovascular Franchise.”

 

ATL1103 — ATL1103 is an antisense drug that targets the growth hormone receptor, or GHr, a receptor that, when inhibited, reduces the level of circulating insulin-like growth factor-1, or IGF-1, produced in the liver. IGF-1 is a hormone that contributes to various diseases, including acromegaly, an abnormal growth disorder of organs, face, hands and feet.  IGF-1 also contributes to diabetic retinopathy, a common disease of the eye and a leading cause of blindness, diabetic nephropathy of the kidney and certain forms of cancer. In preclinical studies, ATL1103 demonstrated significant reductions in IGF-1 levels in the blood and inhibition of neovascularization, or new blood vessels, in the eye in a mouse retinopathy model.

 

Antisense Therapeutics Limited, or ATL, is developing ATL1103.  ATL has completed a Phase 1 study in healthy volunteers demonstrating that ATL1103 was safe and well tolerated.  ATL is evaluating ATL1103 in a Phase 2 study in patients with acromegaly.

 

ISIS-GCCR Rx  — ISIS-GCCR Rx  is an antisense drug that targets the glucocorticoid receptor, or GCCR. Glucocorticoid hormones affect a variety of processes throughout the body, and excessive levels of glucocorticoid hormones can have a detrimental effect on many of the tissues and organs in the body.  Cushing’s Syndrome is an orphan disease caused by prolonged exposure to high levels of glucocorticoids.  If untreated, patients with Cushing’s Syndrome can develop hypertension, diabetes and impaired immune functions and have an increased risk of early death.  Although there are approved treatments for Cushing’s Syndrome, current medicines are associated with significant side effects, such as hypertension and diabetes, and there remains a high unmet medical need for new therapies for these patients.  We have already demonstrated that subjects tolerated ISIS-GCCR Rx  well in a Phase 1 study in healthy volunteers, and we observed reductions of GCCR specifically in the liver and fat tissues, consistent with our preclinical observations.  We plan to develop ISIS-GCCR Rx  to treat patients with Cushing’s Syndrome and, as explained later, to treat patients with type 2 diabetes who are also on metformin.

 

ISIS-AAT Rx   — ISIS-AAT Rx  is an antisense drug that reduces production of alpha-1 antitrypsin, or AAT, for the treatment of liver disease in patients with alpha-1 antitrypsin deficiency, or AATD. AATD is a genetic disease in which the patient does not produce normal AAT, a protein primarily produced in the liver that protects lung tissue from damage. AATD affects one out of every 2,500 people in the United States and can lead to severe liver disease, including liver scarring, cirrhosis and liver cancer.

 

Patients with AATD inherit a mutant gene from one or both parents. Physicians characterize patients who inherit a mutant gene from both parents as having severe AATD. Approximately 10 percent of infants and 15 percent of adults with severe AATD experience liver damage due to progressive accumulation of misfolded AAT protein in the liver. There are currently no available therapies for patients with AATD-associated liver disease, and liver transplantation is the only available option for patients who develop severe liver dysfunction due to accumulation of mutant AAT protein. Symptoms of AATD-associated liver disease can manifest as early as infancy, and AATD is the most common genetic disease requiring pediatric liver transplantation. The Alpha-1 Association estimates that approximately 10 to 15 percent of all liver transplant candidates have AATD.

 

ISIS-AAT Rx is the second drug to enter development under our preferred partner alliance with GSK. We are responsible for developing ISIS-AAT Rx  through Phase 2 proof-of-concept, at which time GSK has the option to license ISIS-AAT Rx  from us. We are eligible to receive milestone payments from GSK as ISIS-AAT Rx  advances through development. We believe that ISIS-AAT Rx  offers a unique approach to treat AATD-associated liver disease.

 

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ISIS-PKK Rx   — ISIS-PKK Rx  is an antisense drug designed to prevent hereditary angioedema, or HAE, attacks.  ISIS-PKK Rx  inhibits the production of prekallikren, or PKK, a protein produced in the liver that plays an important role in the activation of inflammatory mediators associated with acute attacks of HAE.  HAE is a rare genetic disease that is characterized by rapid and painful attacks of inflammation in the hands, feet, limbs, face, abdomen, larynx and trachea.  HAE affects approximately 20,000 patients in the United States and Europe and can be fatal if swelling occurs in the larynx.  In patients with frequent or severe attacks, doctors may use prophylactic treatment approaches to prevent and reduce the severity of HAE attacks.  However, current prophylactic treatment approaches are very limited and have major tolerability issues due to challenging administration requirements leaving patients with few therapeutic options.  By inhibiting the production of PKK, ISIS-PKK Rx  could be an effective prophylactic approach to preventing HAE attacks.  We plan to develop ISIS-PKK Rx  as a once-weekly treatment to prevent HAE attacks in patients who are susceptible to acute and serious attacks.

 

Metabolic Franchise

 

Metabolic disorders are chronic diseases that affect millions of people.  There is still a significant need for new therapies for these patients. According to the Centers for Disease Control and Prevention, diabetes affects more than 25 million people in the United States, or eight percent of the population, with type 2 diabetes constituting 90 to 95 percent of those cases.

 

Metabolic disease is a very large area of medical need and is another area in which we focus our drug discovery efforts. We now have three drugs in our pipeline to treat type 2 diabetes, each of which acts upon targets in the liver or fat tissue through a distinct mechanism to improve insulin sensitivity, reduce glucose production, or affect other metabolic aspects of this complex disease. We plan to keep building our metabolic disease franchise and we are expanding our focus beyond type 2 diabetes to obesity and nonalcoholic steatohepatitis, or NASH. NASH is a common and often asymptomatic liver disease that can cause irreversible damage to the liver, and lead to liver cirrhosis and cancer. There is a significant need to reduce liver fat in patients with metabolic disease because these patients can develop NASH if they accumulate too much fat in their liver.

 

Our approach is to develop antisense drugs that doctors can add to existing therapies to treat diabetes and obesity. One hurdle for traditional drug development is that most traditional drugs cannot selectively target a disease-causing protein without also affecting closely related proteins, which often results in unwanted side effects. We design our antisense drugs to target the gene responsible for producing the disease-causing protein while avoiding unwanted effects on closely related proteins, thereby reducing the risk of side effects. In addition, the liver and fat cells produce many of the most important therapeutic targets for metabolic disease, and our antisense drugs distribute to the liver and fat cells and inhibit the production of key therapeutic targets in these organs.

 

ISIS-PTP1B Rx   — ISIS-PTP1B Rx   is an antisense drug that targets protein tyrosine phosphatase-1B, or PTP-1B, to treat type 2 diabetes. PTP-1B is a phosphatase that negatively regulates insulin receptor signaling and is responsible for turning off the activated insulin receptor. Reducing PTP-1B enhances insulin activity. Scientists have long recognized PTP-1B as an attractive target to treat diabetes, but due to structural similarities among closely related proteins, pharmaceutical companies have had difficulty identifying small molecule drugs with sufficient specificity to be safe.  We designed ISIS-PTP1B Rx  to increase the body’s sensitivity to the natural hormone insulin, resulting in better glucose control for patients with type 2 diabetes. Because of its unique mechanism, ISIS-PTP1B Rx  may help treat type 2 diabetes without causing weight gain or hypoglycemia, also known as low blood sugar. The reductions in LDL-C produced by inhibiting PTP-1B should also provide an added benefit to patients.

 

Phase 2 studies of ISIS 113715, our previous PTP-1B inhibitor, showed that inhibiting PTP-1B could help patients with type 2 diabetes. In those studies, inhibiting PTP-1B improved glucose control and reduced LDL-C in both newly diagnosed diabetic patients and in patients who were taking sulfonylureas. The patients in these studies also did not gain weight, indicating another substantial advantage in treating diabetic patients who are frequently obese and at high cardiovascular risk.

 

We have completed a Phase 1 study evaluating the safety of ISIS-PTP1B Rx  in healthy volunteers. In this study, subjects tolerated ISIS-PTP1B Rx  well.  We also observed encouraging data in measures of insulin sensitivity and in a biomarker associated with weight loss.  These Phase 1 data are consistent with our findings from our Phase 2 ISIS 113715 studies and support our preclinical observations of increased potency with ISIS-PTP1B Rx  compared to ISIS 113715.

 

We believe that physicians may use ISIS-PTP1B Rx  in combination with most of the other commonly used drugs, including insulin, GLP-1 agonists, and more traditional drugs like metformin, to treat patients with diabetes. The clinical development plan for ISIS-PTP1B Rx  focuses on treating diabetic patients who are inadequately controlled on insulin, helping them utilize insulin more efficiently and treating patients who are beginning to fail oral therapies, extending the time they have before becoming dependent on insulin.  In 2013, we plan to initiate a Phase 2 study in patients with type 2 diabetes who despite taking metformin have uncontrolled glucose levels.

 

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ISIS-GCCR Rx  — ISIS-GCCR Rx  is an antisense drug that targets GCCR. Glucocorticoid hormones effect a variety of processes throughout the body, including promoting liver glucose production and fat storage. Scientists associate e xcessive GCCR activity in the liver and fat with obesity, insulin resistance and glucose intolerance.  Although scientists have long recognized inhibiting GCCR as an attractive strategy for improving glycemic and lipid control in patients with type 2 diabetes, the side effects associated with systemic GCCR inhibition have challenged traditional drug developers.  Antisense inhibitors of GCCR take advantage of the unique tissue distribution of oligonucleotides that allows the antisense drugs to inhibit glucocortocoid action primarily in liver and fat tissue. Notably, antisense drugs delivered systemically do not reduce GCCR expression in the central nervous system or adrenal glands, which could lead to systemic side effects. Reducing GCCR specifically in the liver and fat tissues is an attractive therapeutic approach because it lowers glucose and lipids, without causing potential side effects associated with systemic GCCR inhibition.

 

In preclinical studies, we showed that we can reduce GCCR specifically in the liver and fat tissues. In addition, we have shown that antisense inhibition of GCCR produced robust lowering of blood glucose, lipid levels and decreased body fat in obese animals.  We have completed a Phase 1 study evaluating the safety of ISIS-GCCR Rx  in healthy volunteers. In this study, subjects tolerated ISIS-GCCR Rx  well, and we observed reductions of GCCR specifically in the liver and fat tissues, consistent with our preclinical observations.

 

We believe that doctors could use ISIS-GCCR Rx  in diabetic patients with moderate to severe hyperglycemia who are also obese or have high levels of cholesterol and triglycerides .  We also believe that there are other attractive therapeutic opportunities for doctors to use ISIS-GCCR Rx  in patients with diseases in which there is glucocorticoid excess, such as Cushing’s Syndrome, and other diseases where a selective GCCR inhibitor could be beneficial.  We plan to develop ISIS-GCCR Rx  to treat patients with Cushing’s Syndrome.  However, our initial focus is in patients with type 2 diabetes, and we plan to initiate a Phase 2 study in 2013 to evaluate ISIS-GCCR Rx  in patients with type 2 diabetes who are also on metformin.

 

ISIS-GCGR Rx  — ISIS-GCGR Rx  is an antisense drug that targets the glucagon receptor, or GCGR, to reduce the effects of glucagon. Glucagon is a hormone that opposes the action of insulin and stimulates the liver to produce glucose, particularly in type 2 diabetes. In patients with advanced diabetes, uncontrolled glucagon action leads to a significant increase in blood glucose levels. Therefore, attenuating glucagon action could have a significant glucose lowering effect in patients with severe diabetes.  In addition, reducing GCGR produces more active glucagon-like peptide, or GLP-1, a hormone that preserves pancreatic function and enhances insulin secretion. Therefore, we believe we can help control type 2 diabetes by using an antisense drug to reduce GCGR, which will stop the liver from producing too much glucose while preserving pancreatic function.

 

We conducted preclinical studies in the most insulin-resistant models of type 2 diabetes.  In these studies, antisense reduction of GCGR decreased excessive liver glucagon action, produced robust glucose control, reduced levels of triglycerides and helped preserve the pancreas without producing hypoglycemia. Although researchers have developed and evaluated small molecule inhibitors of GCGR and observed glucose-lowering effects, treatment with these small molecule inhibitors also produced side effects limiting their potential use as drugs, including increases in lipids and blood pressure.  We have completed a Phase 1 study evaluating the safety of ISIS-GCGR Rx  in healthy volunteers. In this study, subjects tolerated ISIS-GCGR Rx  well with no clinically significant increases in lipids or blood pressure and with no hypoglycemia.  In addition, we observed an increase in active GLP-1, which was consistent with our preclinical observations.

 

Given the unique mechanism of action and potentially favorable safety profile observed in the Phase 1 study, we believe that doctors could use ISIS-GCGR Rx   in diabetic patients with severe hyperglycemia who are not controlled with current treatments and who could benefit from a drug that significantly decreases glucose levels and preserves pancreatic function .  We plan to initiate a Phase 2 study in 2013 to evaluate ISIS-GCGR Rx  in patients with type 2 diabetes who despite taking metformin have uncontrolled glucose levels.

 

ISIS-FGFR4 Rx   — ISIS-FGFR4 Rx  is an antisense drug that specifically reduces the production of fibroblast growth factor receptor 4, or FGFR4, in the liver and fat tissues, which decreases the body’s ability to store fat while simultaneously increasing fat burning and energy expenditure. Many anti-obesity drugs act in the brain to suppress appetite, commonly resulting in CNS side effects.  However, ISIS-FGFR4 Rx  does not distribute to the brain or CNS and therefore should not produce any CNS side effects.

 

In preclinical studies, antisense inhibition of FGFR4 lowered body weight when we administered it as a single agent and in the presence or absence of a calorie-restricted diet. Additionally, inhibiting FGFR4 decreased body weight when we administered it in combination with an appetite-suppressing drug. In addition to reducing body weight, inhibiting FGFR4 demonstrated an improvement in insulin sensitivity.  ISIS-FGFR4 Rx  is the first drug in our metabolic franchise to treat obesity and utilizes technology we in-licensed from Verva Pharmaceuticals Ltd.

 

We plan to report data from a Phase 1study for ISIS-FGFR4 Rx  in healthy subjects in 2013.

 

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ISIS-DGAT2 Rx   — ISIS-DGAT2 Rx  is an antisense drug that specifically reduces the production of diacylglycerol acyltransferase-2, or DGAT-2, a key component in the synthesis of triglycerides.  By reducing DGAT2, ISIS-DGAT2 Rx  should reduce liver fat in patients with NASH.  The NIH estimates that NASH affects more than 20 million people in the United States and expects the number to increase as the rate of obesity rises.  There are no effective therapies available for patients with NASH and current treatments consist only of lifestyle changes.  In addition, because clinicians associate increases in liver fat with insulin resistance, ISIS-DGAT2 Rx  could also benefit patients with type 2 diabetes who are insulin resistant.

 

Cancer Franchise

 

We are discovering and developing antisense drugs to treat cancers both internally and through our partnerships with AstraZeneca and OncoGenex Technologies Inc.  Cancer is an area of significant unmet medical need and an area in which our antisense technology provides us with unique advantages in discovering new drugs.  Cancer is an extremely complex disease that involves a large number of targets.  With our technology we can evaluate a very broad and diverse range of targets and identify their involvement in different types of cancers.  Using the information we gain early in research on each of these targets, we can quickly identify the most promising targets for an anti-cancer drug.  We select anti-cancer targets that provide a multi-faceted approach to treating cancer.

 

Our cancer pipeline consists of anti-cancer antisense drugs that act upon biological targets associated with cancer progression and/or treatment resistance.  In 2012, we formed an anti-cancer alliance with AstraZeneca that supports our efforts to expand our anti-cancer efforts and supports an aggressive and broad clinical development plan for ISIS-STAT3 Rx .  AstraZeneca brings significant experience and broad collaborations that enable the identification of novel genetic and epigenetic targets for cancer.   Combining AstraZeneca’s expertise with our drug discovery technology, we plan to expand our cancer franchise with a number of promising new anti-cancer targets.

 

We believe the favorable tolerability and early evidence of clinical benefit of the anti-cancer drugs in our pipeline demonstrate how uniquely suited our technology is to create novel cancer therapeutics.  In addition, we believe our generation 2.5 chemistry enhances the potency and effectiveness of our antisense drugs, and extends the applicability of our technology to cancers that are difficult to treat.  For instance, we presented positive interim Phase 1 data on our generation 2.5 drug, ISIS-STAT3 Rx , in patients with advanced cancer who were refractory to prior chemotherapy treatment.  In this interim analysis, we observed clear responses in these patients with an acceptable safety profile.  Based on these data, we and AstraZeneca are currently evaluating ISIS-STAT3 Rx  in a clinical study in focused patient populations with advanced cancer.

 

Custirsen — Custirsen, formerly OGX-011, now under license to Teva Pharmaceutical Industries Ltd., or Teva, is a second-generation antisense drug that targets clusterin, a secreted protein that acts as a cell-survival protein and is over-expressed in response to anti-cancer agents. We and OncoGenex jointly discovered and conducted the initial development of custirsen. In December 2009, OncoGenex licensed custirsen to Teva as part of a global license and collaboration agreement to develop and commercialize custirsen. Teva and OncoGenex are studying custirsen for use as an adjunct therapy to enhance the effectiveness of chemotherapy. Custirsen has shown promising results in combination with currently available chemotherapies in several tumor types. The FDA granted Fast Track Designation to custirsen for the treatment of metastatic prostate cancer in combination with docetaxel. OncoGenex has stated that the FDA has also agreed on the design of the SYNERGY trial, a Phase 3 trial evaluating custirsen, via the SPA process.

 

OncoGenex and collaborating investigators evaluated custirsen in five Phase 2 studies in combination with various cancer therapies for prostate cancer, non-small cell lung cancer, or NSCLC, and breast cancer. OncoGenex reported results from a randomized Phase 2 study of custirsen in patients with advanced metastatic castrate resistant prostate cancer, or CRPC. In this study, OncoGenex reported a median overall survival of 23.8 months in patients treated with custirsen plus docetaxel compared to 16.9 months for patients treated with docetaxel alone. In addition, OncoGenex reported that the unadjusted hazard ratio, a measure used to determine the difference in survival between treatment groups, was 0.61, representing a 39 percent reduction in the rate of death for patients treated with custirsen. OncoGenex also reported that patients treated with custirsen in combination with docetaxel tolerated custirsen well.

 

OncoGenex has also evaluated custirsen in a Phase 1/2 combination study in patients with NSCLC. In January 2012, OncoGenex reported that one- and two-year survival rates were 54 percent and 30 percent, respectively, and 12 percent of patients were still alive at a median follow-up of 41 months. The median overall survival was 14.1 months and progression-free survival was 4.3 months.

 

Teva and OncoGenex are collaborating on a global Phase 3 clinical program in patients with metastatic CRPC and metastatic NSCLC. OncoGenex and Teva are evaluating custirsen in two Phase 3 clinical studies for first- and second-line chemotherapy in patients with metastatic CRPC. OncoGenex and Teva are also evaluating custirsen in a Phase 3 study as a second-line treatment in patients with NSCLC.  Teva and OncoGenex have completed enrollment for the SYNERGY study as a first-line treatment in patients with CRPC and expect results for the survival primary endpoint in the fourth quarter of 2013.

 

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ISIS-EIF4E Rx   — ISIS-EIF4E Rx  targets the gene that is responsible for producing the protein eukaryotic initiation factor-4e, or eIF-4E, which cells over-express in a variety of cancers, including prostate, lung, ovarian, liver, breast, head and neck, bladder, colon, thyroid and lymphoma. eIF-4E facilitates the synthesis of factors in the body that support the development, growth, progression and survival of cancer. In preclinical studies, we and collaborators demonstrated marked anti-cancer activity in a broad range of animal models of cancer and provided the first in vivo evidence that tumor growth may be more susceptible to eIF-4E inhibition than growth of normal tissue. Targeting eIF-4E has been of great interest to the pharmaceutical industry and the oncology community.  However the pharmaceutical industry considers eIF-4E a difficult protein to target with traditional pharmaceutical approaches.

 

Eli Lilly and Company completed a Phase 1 study of ISIS-EIF4E Rx  in patients with cancer that showed that the subjects tolerated the drug well at doses up to 1200 mg per week. Eli Lilly and Company has rights to license ISIS-EIF4E Rx  from us on predefined terms.

 

In 2010, we initiated a Phase 2 program of ISIS-EIF4E Rx  in patients with NSCLC and prostate cancer. The endpoints for both studies include progression-free survival, overall survival, response rates, time to progression and the reduction of a variety of biomarkers.  We plan to report data from the Phase 2 program in 2013.

 

OGX-427 — OGX-427 is a second-generation antisense drug targeting heat shock protein 27, or Hsp27, which is a cell survival protein that cells over-produce in response to many cancer treatments, including hormone ablation therapy, chemotherapy and radiation therapy. Studies have shown that increased Hsp27 production is prevalent in many human cancers, including prostate, NSCLC, breast, ovarian, bladder, renal, pancreatic, multiple myeloma and liver cancers. Studies have also linked increased Hsp27 production to faster rates of cancer progression, treatment resistance and shorter survival duration.

 

OncoGenex is evaluating OGX-427 in patients with cancer. In June 2010, OncoGenex reported results from a Phase 1 study of OGX-427 in patients with a variety of cancers. In this study, patients treated with OGX-427 as a monotherapy and in combination with docetaxel tolerated the drug well. In addition, OGX-427, when used as a single agent, demonstrated declines in circulating tumor cells at all doses and in all types of cancer OncoGenex evaluated.  OGX-427 also demonstrated evidence of reduction in tumor markers defined as declines of prostate-specific antigen, or PSA, levels in prostate cancer and cancer-antigen-125 levels in ovarian cancer.

 

In February 2012, OncoGenex reported preliminary results from a Phase 1 study in patients with superficial bladder cancer.  In this study, OncoGenex reported that treatment with OGX-427 resulted in a trend towards decreased levels of Hsp27 and increased tumor cell death rates.

 

OncoGenex is also evaluating OGX-427 in a Phase 2 study for the first-line treatment of metastatic bladder cancer and in two Phase 2 studies for the treatment of metastatic CRPC. In September 2012, OncoGenex reported preliminary results from a Phase 2 study in patients with CRPC. In this study, OncoGenex reported that treatment with OGX-427 in combination with prednisone resulted in a higher number of patients without disease progression at 12 weeks and greater declines in prostate-specific antigen, or PSA, and circulating tumor cells compared to patients treated with prednisone alone.

 

ISIS-STAT3 Rx   — We designed ISIS-STAT3 Rx  to treat cancer by inhibiting the production of a gene critical for tumor cell growth and survival.  Signal transducer and activator of transcription 3, or STAT3, is over-active in a variety of cancers, including brain, lung, breast, bone, liver and multiple myeloma and promotes tumor cell growth and prevents cell death.

 

In 2012, we licensed ISIS-STAT3 Rx  to AstraZeneca as part of a broad alliance to discover and develop anti-cancer drugs.  We are eligible to receive up to $75 million in milestone payments over the next two years, including up to a $50 million milestone payment subject to meeting pre-agreed efficacy and safety criteria in the ongoing ISIS-STAT3 Rx  study.  We are also eligible to receive double-digit royalties on sales of ISIS-STAT3 Rx .

 

ISIS-STAT3 Rx  is our first drug to incorporate our new generation 2.5 chemistry.  We believe the significant potency we observed in our preclinical studies with ISIS-STAT3 Rx  broadens the therapeutic opportunities for ISIS-STAT3 Rx  into many different types of cancer where STAT3 is implicated.  Our initial focus is to evaluate ISIS-STAT3 Rx  in hematologic malignancies, such as lymphoma.  Together with AstraZeneca, we have designed a development plan that could allow for a rapid path to the market in these patient populations.   In parallel, AstraZeneca is planning to initiate a broad Phase 2 program for ISIS-STAT3 Rx  with additional clinical studies in 2013 or early 2014.

 

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In preclinical studies, ISIS-STAT3 Rx demonstrated antitumor activity in animal models of human cancer with an attractive safety profile.  In 2012, we reported interim Phase 1 data in patients with cancer who were refractory to prior chemotherapy treatment.  In this study, we showed that ISIS-STAT3 Rx  treatment resulted in clear responses in patients with advanced cancer with an acceptable safety profile.  Based on this data, we initiated a Phase 2 study in focused patient populations with advanced cancer.

 

ISIS-AZ1 Rx   — ISIS-AZ1 Rx  is an antisense drug to an undisclosed target designed to treat cancer.  ISIS-AZ1 Rx  is a generation 2.5 drug and the first drug to arise from a research program and enter development under our partnership with AstraZeneca.  We granted AstraZeneca an exclusive license to develop and commercialize ISIS-AZ1 Rx .  We are responsible for developing ISIS-AZ1 Rx  through completion of IND-enabling toxicology and will receive milestone payments from AstraZeneca as ISIS-AZ1 Rx  advances in development.  We are also eligible to receive double-digit royalties on sales of ISIS-AZ1 Rx .  We plan to initiate preclinical studies to support an investigational new drug application for ISIS-AZ1 Rx  in 2013.

 

Other Drugs in Development

 

The broad applicability of our antisense technology allows us to create promising drugs in a variety of disease areas.  We have successfully developed novel drugs designed to treat many different diseases.  In therapeutic areas that are outside of our core areas of development, we license our drugs to highly focused satellite companies that have the specific expertise and resources to continue developing the drugs.  Together with our partners we continue to advance drugs in clinical development that are outside of our core therapeutic areas.  For instance, our partner, Excaliard, presented data from three Phase 2 studies demonstrating that EXC 001 reduced scarring in patients.

 

ISIS-CRP Rx — ISIS-CRP Rx  is an antisense drug that targets CRP, a protein produced in the liver. CRP levels increase dramatically during inflammatory disorders, including rheumatoid arthritis.   We are evaluating ISIS-CRP Rx  in patients with rheumatoid arthritis.  For more information on ISIS-CRP Rx , please refer to the ISIS-CRP Rx  section under the subheading “Cardiovascular Franchise”.

 

ATL1102 — ATL1102 is an antisense drug that ATL is developing for the treatment of multiple sclerosis, or MS.  ATL1102 inhibits CD49d, a subunit of Very Late Antigen-4, or VLA-4. Studies in animal models have demonstrated that inhibiting VLA-4 positively affects a number of inflammatory diseases, including MS.  We licensed ATL1102 to ATL in December 2001 and in February 2008, ATL licensed ATL1102 to Teva .  In 2008, ATL and Teva reported Phase 2a results of ATL1102 showing significantly reduced disease activity in patients with relapsing remitting MS.  In 2010, Teva terminated its agreement with ATL and returned ATL1102 back to ATL.  ATL is seeking a partner to continue developing ATL1102 in patients with MS.

 

EXC 001 — EXC 001 is an antisense drug that targets connective tissue growth factor, or CTGF, a growth factor that is over-expressed in damaged skin or tissue following a traumatic event. We co-discovered EXC 001 and licensed it to Excaliard for the local treatment of fibrotic diseases, including scarring. Fibrosis represents a significant and expanding area of unmet medical need where antisense drugs could offer a unique advantage as anti-fibrotic agents. In November 2011, Pfizer Inc. acquired Excaliard.

 

iCo-007 — iCo-007 is an antisense drug that targets c-Raf kinase.  In preclinical studies, clinicians associated antisense inhibition of c-Raf kinase with a reduction in the formation and leakage of new blood vessels in the eye, suggesting inhibiting c-Raf kinase can help patients with diabetic macular edema and diabetic retinopathy. Diabetic retinopathy is one of the leading causes of blindness in people in the United States, and a high percentage of type 1 diabetics have evidence of retinopathy by age 20. Additionally up to 21 percent of people with type 2 diabetes have retinopathy at the time of the first diagnosis of diabetes, and most will eventually develop some degree of retinopathy over time. We discovered iCo-007 and licensed it to iCo Therapeutics Inc., or iCo, for the treatment of various eye diseases that occur as complications of diabetes.

 

In May 2010, investigators evaluating iCo-007 in patients with diffuse diabetic macular edema presented positive results from the Phase 1 study showing that subjects tolerated iCo-007 well.  In this study, a number of individuals exhibited a decrease of central macular edema compared to baseline using an analytical method called optical coherence tomography. iCo is currently evaluating iCo-007 in a Phase 2 study in patients with diabetic macular edema and plans to report data in 2013.

 

Plazomicin —Plazomicin, formerly ACHN-490, is a next-generation aminoglycoside drug that Achaogen, Inc. is developing for the treatment of multi-drug resistant gram-negative bacterial infections. Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis and that clinicians use to treat serious bacterial infections. Achaogen discovered plazomicin based on technology licensed from us.

 

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Plazomicin has displayed broad-spectrum activity in animals against multi-drug resistant gram-negative bacteria that cause systemic infections, including E. coli, and against methicillin-resistant staphylococcus aureus, or MRSA. In preclinical studies, plazomicin demonstrated an acceptable safety profile and the potential for once-daily dosing. Achaogen has completed a Phase 1 study of plazomicin in healthy volunteers and a Phase 2 study.  In the Phase 2 study, Achaogen evaluated plazomicin compared to levofloxacin for the treatment of complicated urinary tract infections and acute kidney infections in adults.   In this study, patients treated with plazomicin tolerated the drug well and patients demonstrated favorable activity of plazomicin as compared to levofloxacin.  Achaogen plans to initiate the next clinical study in 2013, which they designed to evaluate plazomicin’s effectiveness in treating seriously ill patients for whom currently available therapies are ineffective.

 

XEN701 — XEN701 is an antisense drug designed to treat anemia of inflammation, or AI. Anemia is a condition in which the body has a lower than normal number of red blood cells. AI is a type of anemia that commonly occurs with chronic, or long-term illnesses, including cancer and inflammatory disorders. Patients with AI cannot use iron properly, which results in a reduction of red blood cell production. XEN701 targets a hormone secreted by the liver in response to inflammatory mediators that inhibits intestinal iron uptake and release of stored iron.

 

XEN701is the first drug to enter development in our collaboration with Xenon Pharmaceuticals to develop antisense drugs that target the hepcidin-hemojuvelin pathway to treat AI. Antisense drugs targeting hemojuvelin and hepcidin should provide therapeutic benefit to patients with AI by reversing iron disturbances and facilitating red blood cell production.

 

ISIS-GSK3 Rx   — ISIS-GSK3 Rx  is an antisense drug to an undisclosed target designed to treat a viral infection.  ISIS-GSK3 Rx  is the third drug to enter development under our collaboration with GSK.  We will receive milestone payments from GSK as ISIS-GSK3 Rx  advances in development, and we are responsible for development of the drug up to phase 2 proof-of-concept, at which time GSK has the option to license ISIS-GSK3 Rx  from us.  We are also eligible to receive double-digit royalties on sales of ISIS-GSK3 Rx .  We plan to initiate preclinical studies to support an investigational new drug application for ISIS-GSK3 Rx  in 2013.

 

Antisense Technology

 

Our core technology programs can support multiple target-based antisense research programs without significantly increasing costs. We can design our antisense drugs to target a broad range of diseases, efficiently producing a proprietary portfolio of drugs that can interrupt the production of disease-causing proteins without disrupting other proteins that are necessary for the body’s normal functions. We are currently pursuing antisense drug discovery programs focused on various cardiovascular, severe and rare, neurologic and metabolic diseases and cancer.

 

Genes contain the information necessary to produce proteins. A gene is made up of nucleoside bases: Adenine, Thymine, Guanine, and Cytosine, commonly known as A, T, G and C, which are linked together to form a two-stranded structure that resembles a twisted ladder, known as deoxyribonucleic acid, or DNA. The nucleotides on one side of the ladder bind weakly to complementary nucleotides on the other strand according to specific rules; for example, A pairs with T and G pairs with C, creating the ladder’s rungs. Scientists call this highly specific nucleotide pairing hybridization. The sequence or order of these nucleotides establishes the cell’s recipes for making proteins. Each protein’s instructions reside in a corresponding segment of DNA known as a gene.

 

When a cell transcribes information from a DNA gene into messenger RNA, or mRNA, the two complementary strands of the DNA partly uncoil. One strand acts as a template and information stored in the DNA strand is copied into a complementary mRNA. mRNA then carries the information to cellular structures called ribosomes, the cell’s factories for manufacturing proteins. The ribosome reads the encoded information, the mRNA’s nucleotide sequence, and in doing so, strings together amino acids to form a specific protein. This process is called translation. Antisense technology interrupts the cell’s protein production process by preventing the RNA instructions from reaching the ribosome, thus inhibiting the synthesis of the protein. The mRNA sequence of nucleotides that carries the information for protein production is called the ‘sense’ strand. The complementary nucleotide chain that binds specifically to the sense strand is called the “antisense” strand. We use the information contained in mRNA to design chemical structures, called antisense oligonucleotides or antisense drugs, which resemble DNA and RNA and are the complement of mRNA. These potent antisense drugs inhibit the production of disease-causing proteins. Specifically, almost all of our antisense drugs in development cause a cellular enzyme called ribonuclease H1, or RNase H1, to degrade the target mRNA. The drug itself remains intact during this process, so it can remain active against additional target mRNA molecules and repeatedly trigger their degradation. Our antisense drugs can selectively bind to an mRNA that codes for a specific protein and will not bind to closely related RNAs, providing a level of specificity that is better than traditional drugs. As a result, we can design antisense drugs that selectively inhibit the disease-causing member of the group without interfering with those members of the group necessary for normal bodily functions. This unique specificity means that antisense drugs may be less toxic than traditional drugs because we can design them to minimize the impact on unintended targets.

 

Further, the design of antisense compounds is less complex, more rapid and more efficient than traditional drug discovery approaches directed at protein targets. Traditional drug design requires companies to identify a small molecule that will interact with protein structures to affect the disease-causing process. Since predicting which small molecules will do this has proven to be difficult, traditional drug discovery involves testing hundreds of thousands of small molecules for their ability to interfere with protein function. As a result, traditional drug discovery is a labor intensive, low probability endeavor. In contrast, we design our antisense compounds to bind to mRNA through well understood processes. We can design prototype antisense drugs as soon as we identify the sequence for the target mRNA.

 

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Using proprietary antisense oligonucleotides to identify what a gene does, called gene functionalization, and then determining whether a specific gene is a good target for drug discovery, called target validation, are the first steps in our drug discovery process. We use our proprietary antisense technology to generate information about the function of genes and to determine the value of genes as drug discovery targets.  This efficiency represents a unique advantage of our antisense drug discovery process. Antisense core technology is the function within Isis that is responsible for advancing antisense technology. Through the efforts of our scientists in the antisense core technology group, we have produced second generation antisense drugs that have increased potency and stability.  In recent years, our scientists have improved the screening assays for our drugs, which led to the discovery of second generation antisense drugs that have demonstrated enhanced tolerability profiles in early clinical studies.  For example, our drugs ISIS-TTR Rx  and ISIS-FXI Rx  are drugs we discovered through our improved screening assays.  In Phase 1 studies evaluating these drugs in healthy volunteers, subjects reported approximately 65 percent fewer injection site reactions and no flu-like symptoms compared to subjects treated with KYNAMRO, an earlier second generation drug.

 

We combine our core technology programs in medicinal chemistry, RNA biochemistry, and molecular and cellular biology with molecular target-focused drug discovery efforts to design drugs. The goal of our target-based research programs is to identify antisense drugs to treat diseases for which there are large commercial markets or for which there is a need for better drugs.  In addition, our research programs focus on the planned advancement of our technology for future antisense drugs.  In 2010, we selected our generation 2.5 chemistry, an advancement that we believe will increase the potency of our drugs and make oral administration commercially feasible.  We expect that these generation 2.5 drugs will constitute some of our future drugs and serve as follow-on compounds to some of our current drugs in development.  Currently our ISIS-STAT3 Rx , ISIS-FVII Rx  , and ISIS-AZ1 Rx   drugs incorporate our generation 2.5 chemistry.

 

Other Antisense Targets and Mechanisms

 

There are more than a dozen antisense mechanisms that can be exploited with our antisense technology.  While the majority of the drugs in our pipeline bind to mRNAs and inhibit the production of disease-causing proteins through the RNase H mechanism, we believe that our antisense technology is broadly applicable to many different antisense mechanisms, including RNAi and splicing, and many different RNA targets, including non-coding RNAs and toxic RNAs.  For example, RNAi is an antisense mechanism that uses small interfering RNA, or siRNA, that exploit a cellular protein complex called the RNA-induced silencing complex, or RISC, to bind to the mRNA and to prevent the production of a disease-causing protein. Most companies approach siRNA using double-stranded oligonucleotides, which due to their properties require complex formulations to achieve delivery.   We have created single-stranded RNAi compounds that, when we administer systemically, distribute in a manner similar to our second-generation RNase H antisense drugs, without requiring the complex formulation or delivery vehicle typically necessary for double-stranded RNAi oligonucleotides.  These new single-stranded RNAi drug designs are an exciting advancement in RNAi technology.  In 2012, we published two papers in the journal Cell demonstrating that single-stranded RNAi drugs distributed broadly, activated the RNAi pathway and reduced expression of targeted genes in animal models.  These data provide compelling evidence that single-stranded oligonucleotides can be designed to exploit the RNAi pathway and silence gene expression of specific mRNAs in target tissues.

 

In addition, the diversity of our technology provides us with the potential to utilize many different antisense approaches, like alternative splicing.  Because splicing occurs at the RNA level, we can utilize our technology to direct splicing to produce a particular protein product.  For example, SMA is a splicing disorder caused by a loss of, or defect in, the survival motor neuron 1, or SMN1 , gene leading to a decrease in the protein, survival motor neuron, or SMN. SMN is critical to the health and survival of nerve cells in the spinal cord that are responsible for neuro-muscular growth and function.  We designed our ISIS-SMN Rx  drug to alter the splicing of a similar gene, SMN2, to increase production of a fully functional SMN protein.  ISIS-SMN Rx  is currently being evaluated in a Phase 2 study in children with SMA. There are a number of diseases that scientists believe are splicing disorders.  These are diseases we could potentially treat using antisense modulation of splicing and include cystic fibrosis and Duchenne’s muscular dystrophy.

 

Because there are many different types of RNA that exist within the body, our antisense technology is not limited to RNA sequences that translate into proteins, but rather we can apply the principles of our technology to develop drugs that target other non-coding RNAs, such as microRNAs. To date, scientists have identified more than 700 microRNAs in the human genome, and have shown that the absence or presence of specific microRNAs in various cells is associated with specific human diseases, including cancer, viral infection, metabolic disorders and inflammatory disease.  MicroRNAs themselves may be drug targets.  To fully exploit the therapeutic opportunities of targeting microRNAs, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-based therapeutics.

 

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Collaborative Arrangements and Licensing Agreements

 

Partnership Strategy

 

Overview

 

Our partnership strategy has allowed us to build a development pipeline of 28 drugs, to create a broad base of potential license fees, milestone payments, royalties, profit sharing and earn out payments and to control our drug development expenses. In this way, we remain a focused and efficient research and development organization that can continue to discover new drugs and expand ours and our partners’ pipelines.

 

Through the efficiency of our drug discovery platform we can develop drugs to almost any gene target. We concentrate on developing antisense drugs in our core therapeutic areas of cardiovascular, severe and rare, neurologic and metabolic diseases and cancer. To maximize the value of our drugs and technologies, we have a multifaceted partnering strategy.  We form traditional partnering alliances that enable us to discover and conduct early development of new drugs, outlicense our drugs to partners and build a broad base of license fees, milestone payments and royalty income.  We also form preferred partner transactions that provide us with a vested partner early in the development of a drug.  In this way, we benefit in the short term from upfront fees and development milestone payments while we maintain control over the early development of the drug.  We benefit in the long term by having a knowledgeable and committed partner to license the drug at clinical proof-of-value and by receiving regulatory milestone payments and royalties as our partner moves the drug to the market. We also work with a consortium of smaller companies that can exploit our drugs and technologies outside our primary areas of focus. We call these smaller companies our satellite companies.  In this way, we benefit from the disease-specific expertise of our satellite company drug development partners, who are advancing drugs in our pipeline in areas that are outside of our core focus. Through this strategy we can expand the therapeutic range of antisense drugs into diseases that need new and innovative treatment options.

 

In addition, we form partnerships focused on developing and advancing certain RNA-targeting therapeutic technologies. These partnerships take advantage of our dominant intellectual property estate, and leverage our investments in our core technologies. These collaborations typically involve a cross-license between us and our partner and allow us to participate in newly emerging approaches to RNA-targeting therapeutics and augment our active programs in these areas.

 

Our partnerships fall into several categories, including pharmaceutical alliances and licenses, satellite company collaborators, external project funding alliances, and technology and intellectual property sales and licensing.  We discuss each of these categories in more detail below, along with the relevant partnerships.

 

Pharmaceutical Alliances and Licensing

 

We have a strong history of establishing alliances with pharmaceutical industry leaders.  We form traditional partnering alliances that enable us to discover and conduct early development of new drugs, outlicense our drugs to partners, and build a broad base of license fees, milestone payments and royalty income.  In addition, we form preferred partner transactions that provide us with a vested partner early in the development of a drug.  Typically, the drugs we partner early in development are in therapeutic areas of high risk, like rare diseases, or in areas where Phase 2 results would likely not provide a significant increase in value, like cancer.  This strategy allows us to benefit in the short term from upfront fees and milestone payments while reducing our risk and avoiding the cost of later-stage clinical studies.   We also maintain control over the early development of the drug.  We benefit in the long term by having a knowledgeable and committed partner to license the drug at clinical proof-of-value and by receiving regulatory milestone payments and royalties as our partner moves the drug to the market.  We also form preferred partner transactions that allow us to expand and broaden our drug discovery efforts to new disease targets in therapeutic areas that are outside of our expertise or in areas where our partners will provide tools and resources that will complement our drug discovery efforts.  For instance, we are working with our partner, AstraZeneca, to conduct a comprehensive clinical program for ISIS-STAT3 Rx , an anti-cancer drug we licensed to AstraZeneca.  Through our collaboration, we are also applying AstraZeneca’s proprietary preclinical cancer models and screening systems to evaluate new oncology targets.

 

In all of our partnerships, we benefit from the expertise our partners bring to our drugs. By coupling our partnering activity with our efficient drug discovery technology we can develop the majority of our drugs in our core therapeutic areas through early proof-of-value ourselves prior to licensing. As a result of our unique strategy and innovative research and development capabilities, we can keep our organization small and focused.

 

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AstraZeneca

 

In December 2012, we entered into a global collaboration agreement with AstraZeneca valued at up to $1 billion to discover and develop antisense drugs against five cancer targets.  The agreement includes $31 million in upfront and near-term payments, comprising a $25 million payment we received in December 2012 and a $6 million payment we are eligible to receive in the second quarter of 2013 assuming the research program is continuing.  We are also eligible to receive milestone payments, license fees and double-digit royalties on any product sales of drugs resulting from this collaboration.  As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize ISIS-STAT3 Rx  for the treatment of cancer and a preclinical program, ISIS-AZ1 Rx , and an option to license up to three drugs we expect to develop under a separate research program.

 

We are currently conducting a focused clinical study of ISIS-STAT3 Rx  in patients with advanced cancer.  We are responsible for completing the ongoing clinical study and AstraZeneca is responsible for all other development activities for ISIS-STAT3 Rx . We have the potential to receive up to $75 million in milestone payments over the next two years, including the potential to receive up to a $50 million milestone payment subject to meeting pre-agreed efficacy and safety criteria in the ongoing ISIS-STAT3 Rx  study.  I f AstraZeneca successfully develops drugs under all three programs, we could receive substantive milestone payments of more than $980 million, including up to $325.5 million for the achievement of development milestones and up to $655 million for the achievement of regulatory milestones.  We will earn the next milestone payment of $10 million if AstraZeneca accepts ISIS-AZ1 Rx as the second development candidate in our collaboration.

 

During 2012, we earned revenue of $9.3 million from the $25 million upfront payment we received from AstraZeneca in December 2012, which represented nine percent of our total revenue for that period.

 

Biogen Idec

 

We have established three strategic collaborations with Biogen Idec that broaden and expand our severe and rare disease franchise.  In January 2012, we entered into a global collaboration agreement with Biogen Idec valued at up to $299 million to develop and commercialize ISIS-SMN Rx  for the treatment of SMA. Under the terms of the agreement, we received an upfront payment of $29 million and are eligible to receive up to $45 million in substantive milestone payments associated with the clinical development of ISIS-SMN Rx  prior to licensing.  We are responsible for developing ISIS-SMN Rx . Biogen Idec has the option to license ISIS-SMN Rx  until completion of the first successful Phase 2/3 study or the completion of two Phase 2/3 studies.  If Biogen Idec exercises its option, it will pay us a license fee and will assume global development, regulatory and commercialization responsibilities.  We are eligible to receive up to $150 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones.  In addition, we are eligible to receive up to double-digit royalties on any product sales of ISIS-SMN Rx .  We will earn the next milestone payment of $18 million if we initiate the Phase 2/3 study for ISIS-SMN Rx .

 

In June 2012, we and Biogen Idec entered into a second and separate collaboration and license agreement valued at up to $271 million to develop and commercialize a novel antisense drug targeting, or dystrophia myotonica-protein kinase, or DMPK, for the treatment of DM1.  Under the terms of the agreement, we received an upfront payment of $12 million and are eligible to receive up to $59 million in substantive milestone payments associated with the development of the DMPK-targeting drug prior to licensing. We are responsible for global development of the drug through the completion of Phase 2 clinical trials.  Biogen Idec has the option to license the drug through the completion of the Phase 2 trial.  We are also eligible to receive up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones. In addition, we are eligible to receive up to double-digit royalties on any product sales of the drug. We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for our DMPK program.

 

In December 2012, we and Biogen Idec entered into a third and separate collaboration valued at more than $630 million to develop and commercialize novel antisense drugs to three targets to treat neurological or neuromuscular diseases.  We are responsible for the development of the drugs through the completion of the initial Phase 2 clinical study.  Biogen Idec has the option to license a drug from each of the three programs through the completion of Phase 2 studies. Under the terms of the agreement, we received an upfront payment of $30 million and are eligible to receive development milestone payments to support research and development of each program including a $10 million milestone payment per program upon initiation of an IND-enabling toxicology study.  We are also eligible to receive up to another $200 million in a license fee and regulatory milestone payments per program including up to $130 million in substantive milestone payments if Biogen Idec achieves pre-specified regulatory milestones.  In addition, we are eligible to receive double-digit royalties on any product sales of drugs resulting from each of the three programs.  We will earn the next milestone payment of $10 million if we initiate an IND-enabling toxicology study for a development candidate identified under this collaboration.

 

During 2012, we earned revenue of $8.5 million from our relationships with Biogen Idec, which represented eight percent of our total revenue for that period.

 

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Bristol-Myers Squibb

 

In May 2007, we entered into a collaboration agreement with Bristol-Myers Squibb to discover, develop and commercialize novel antisense drugs targeting proprotein convertase subtilisin/kexin type 9, or PCSK9.  In addition to the $15 million upfront fee, we earned $8 million in milestone payments related to the development of BMS-PCSK9 Rx . The collaboration ended in December 2011, and we regained the rights to discover and develop antisense drugs to target PCSK9.

 

During 2012, 2011 and 2010, we earned revenue of $290,000, $2.4 million and $12.2 million, respectively, from Bristol-Myers Squibb, which represented less than one percent, two percent and 11 percent, respectively, of our total revenue for those years.

 

Eli Lilly and Company

 

In August 2001, we formed a broad strategic relationship with Eli Lilly and Company, which included a joint research collaboration.  As part of the collaboration, Eli Lilly and Company licensed LY2181308, an antisense inhibitor of survivin, and LY2275796, an antisense inhibitor of eIF-4E.  In the second quarter of 2012, Eli Lilly and Company decided not to continue the development of LY2181308.  Therefore we will not earn future milestone payments from Eli Lilly and Company associated with LY2181308.

 

In December 2009, we reacquired LY2275796, which we renamed ISIS-EIF4E Rx , and we are continuing to develop the drug.  Eli Lilly and Company has the right to reacquire ISIS-EIF4E Rx  on predefined terms prior to the initiation of Phase 3 development.  However, if we publicly disclose the results from a Phase 2 clinical study of ISIS-EIF4E Rx :

 

·                   Eli Lilly and Company may license ISIS-EIF4E Rx  on the predefined terms;

·                   Eli Lilly and Company may tell us it is not interested in licensing ISIS-EIF4E Rx , in which case we may license ISIS-EIF4E Rx  to another partner; or

·                   Eli Lilly and Company may offer to license ISIS-EIF4E Rx  on terms that are lower than the predefined terms, in which case we may license ISIS-EIF4E Rx  to another partner so long as the licensing terms we reach with the new partner are better than terms offered by Eli Lilly and Company and we have not publicly disclosed any results from a new clinical study of ISIS-EIF4E Rx  prior to reaching the agreement with the new partner.

 

During 2012, 2011 and 2010, we did not earn any revenue from our relationship with Eli Lilly and Company.

 

Genzyme Corporation, a Sanofi company

 

In January 2008, we entered into a strategic alliance with Genzyme focused on the licensing and co-development of KYNAMRO. The license and co-development agreement provides Genzyme with exclusive worldwide rights for all therapeutic purposes to our patents and know-how related to KYNAMRO, including the key product related patents described in the “Patents and Proprietary Rights” section under “ApoB 100 and KYNAMRO” on page 33 of this report, and their foreign equivalents pending or granted in various countries outside the United States, including in the European Union via the European Patent Convention, Japan, Canada, Australia, South Africa and India.  In addition, we agreed that we would not develop or commercialize another oligonucleotide-based compound designed to modulate apo-B by binding to the mRNA encoding apo-B, throughout the world.

 

The transaction included a $175 million licensing fee, a $150 million equity investment in our stock in which we issued Genzyme five million shares of our common stock, and a share of worldwide profits on KYNAMRO and follow-on drugs ranging from 30 percent to 50 percent of all commercial sales. In May 2012, we earned a $25 million milestone payment from Genzyme when the FDA accepted the NDA for KYNAMRO and in January 2013 we earned an additional $25 million milestone payment when the NDA was approved. We may also receive over $1.5 billion in substantive milestone payments if Genzyme achieves pre-specified events, including up to $700 million for the achievement of regulatory milestones and up to $825 million for the achievement of commercialization milestones.  The next milestone payment we could earn under our agreement with Genzyme is $25 million upon the earlier of an NDA Approval for the use of KYNAMRO to treat patients who have heterozygous FH or annual net revenue equals or exceeds $250 million in a calendar year.

 

Under this alliance, Genzyme is responsible for the continued development and commercialization of KYNAMRO.  We agreed to supply the drug substance for KYNAMRO for the Phase 3 clinical trials and initial commercial launch.  Genzyme is responsible for manufacturing the finished drug product for KYNAMRO, including the initial commercial launch supply, and Genzyme will be responsible for the long term supply of KYNAMRO drug substance and finished drug product.  As part of the agreement, we contributed the first $125 million in funding for the development costs of KYNAMRO. In 2011, we satisfied our development funding obligation.  As such, we and Genzyme shared development expenses equally in 2012.  Our shared funding of development expenses will end when KYNAMRO is profitable.

 

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The license and co-development agreement for KYNAMRO will continue in perpetuity unless we or Genzyme terminate it earlier under the following situations:

 

·                   Genzyme may terminate the license and co-development agreement at any time by providing written notice to Isis;

·                   We may terminate the license and co-development agreement on a country-by-country basis or in its entirety upon Genzyme’s uncured failure to use commercially reasonable efforts to develop and commercialize KYNAMRO in the United States, France, Germany, Italy, Spain, the United Kingdom, Japan and Canada; and

·                   Either we or Genzyme may terminate the license and co-development agreement upon the other party’s uncured failure to perform a material obligation under the agreement.

 

Upon termination of the license and co-development agreement, the license we granted to Genzyme for KYNAMRO will terminate and Genzyme will stop selling the product.  In addition, if Genzyme voluntarily terminates the agreement or we terminate the agreement in a country or countries for Genzyme’s failure to develop and commercialize KYNAMRO, then the rights to KYNAMRO will revert back to us and we may develop and commercialize KYNAMRO in the countries that are the subject of the termination, subject to a royalty payable to Genzyme.

 

If we are the subject of an acquisition, then within 180 days following the acquisition, Genzyme may elect to purchase all of our rights to receive payments under the KYNAMRO license and co-development agreement for a purchase price to be mutually agreed to by us and Genzyme, or, if we cannot agree, a fair market value price determined by an independent investment banking firm.

 

Genzyme has agreed to monthly limits on the number of shares it can sell of the Company’s stock that it purchased in February 2008.  In addition, Genzyme has agreed that until the earlier of the 10 year anniversary of the KYNAMRO license and co-development agreement or the date Genzyme holds less than two percent of our issued and outstanding common stock, Genzyme will not acquire any additional shares of our common stock without our consent.

 

The price Genzyme paid for our common stock represented a significant premium over the then fair value of our common stock.  In May 2012, we finished amortizing this $100 million premium along with the $175 million licensing fee that we received in the second quarter of 2008.  During 2012, 2011 and 2010, we earned revenue of $67.6 million, $72.3 million and $66.9 million, respectively, from our relationship with Genzyme, which represented 66 percent, 73 percent and 62 percent, respectively, of our total revenue for those years.

 

GlaxoSmithKline

 

In March 2010, we entered into a strategic alliance with GSK, which covers up to six programs, in which we use our antisense drug discovery platform to seek out and develop new drugs against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness.  This alliance allows us to control and facilitate rapid development of drugs while still being eligible to receive milestone payments as we advance these drugs in clinical development.

 

Under the terms of the original agreement, which includes five programs in addition to the transthyretin, or TTR, program, we are eligible to receive on average up to $20 million in milestone payments per program up to Phase 2 proof-of-concept .  GSK has the option to license drugs from these programs at Phase 2 proof-of-concept, and will be responsible for all further development and commercialization.   In October 2012, we and GSK amended the original agreement to reflect an accelerated clinical development plan for ISIS-TTR Rx .  Under the amended terms of the agreement, we received a $2.5 million upfront payment in December 2012, and we received a $7.5 million milestone payment in February 2013 when we initiated the Phase 2/3 clinical study for ISIS-TTR Rx .   We have already received $17.5 million in milestone payments from GSK related to the development of ISIS-TTR Rx , including the $7.5 million milestone payment we received in February 2013. We are also eligible to earn an additional $50 million in pre-licensing milestone payments associated with the ISIS-TTR Rx   Phase 2/3 study.  In addition, GSK has increased the regulatory and commercial milestone payments we can earn should ISIS-TTR Rx  achieve registration and meet certain sales thresholds.

 

Under the terms of the amended agreement, if GSK successfully develops all six programs for one or more indications and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of more than $1.3 billion, including up to $231.5 million for the achievement of development milestones, up to $594.5 million for the achievement of regulatory milestones and up to $545 million for the achievement of commercialization milestones.  We will earn the next milestone payment of $2 million upon dosing the 10 th  patient in the Phase 2/3 clinical study for ISIS-TTR Rx .  In addition, we are eligible to receive up to double-digit royalties on sales from any product that GSK successfully commercializes under this alliance.

 

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During 2012, 2011 and 2010, we earned revenue of $8.2 million, $17.7 million and $10.3 million, respectively, from our relationship with GSK, which represented eight percent, 18 percent and nine percent, respectively, of our total revenue for those years.

 

Satellite Company Collaborations

 

Through our satellite company collaborations, we expand the reach and potential of RNA-targeting therapeutics into disease areas that are outside of our core focus and advance certain RNA-targeting therapeutic technologies.  We refer to these companies as our satellite companies, and this strategy as our satellite company strategy. These relationships provide us with partners who are focused in a particular disease area and who share the common goal of advancing our drugs.  In these partnerships, we typically own equity in the company, often as part of the licensing agreement and we also retain the potential to earn milestone payments and royalties.

 

In addition to our satellite company partners that are advancing RNA-targeting therapeutics, we have satellite company partners who take advantage of our dominant intellectual property estate and leverage our own investments in our core technologies to advance RNA-targeting technologies.  These partnerships typically involve a cross-license between us and our partner and allow us to participate in newly emerging approaches to RNA-targeting technologies and augment our active programs in these areas.  For example, we co-founded Regulus, a company focused on developing microRNA-targeted therapeutics.  Regulus is focused on developing microRNA-targeted therapeutics in cancer, fibrosis, metabolic disorders and inflammatory disorders.   Regulus has successfully developed strategic alliances with high-quality partners like Sanofi, GSK, Biogen Idec and AstraZeneca, where we have the potential to receive a portion of future milestone payments and royalty payments.

 

The value of this strategy is also evident in the broad pipeline of drugs we and our partners are developing to treat a large range of diseases.  Using their resources and their expertise, our partners are instrumental in driving the development of antisense drugs that we discovered or co-discovered but fall outside our main areas of focus.  We believe that our satellite company strategy allows us to realize opportunities outside of our therapeutic focus while our committed and knowledgeable drug development partner incurs the cost of development and assumes the risk.

 

Achaogen, Inc.

 

In 2006, we exclusively outlicensed to Achaogen, Inc. specific know-how, patents and patent applications relating to aminoglycosides. In exchange, Achaogen agreed to certain payment obligations related to aminoglycosides Achaogen developed.  Aminoglycosides are a class of small molecule antibiotics that inhibit bacterial protein synthesis and that physicians use to treat serious bacterial infections. Achaogen is developing plazomicin, an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen.  Plazomicin has displayed broad-spectrum activity in animals against multi-drug resistant gram-negative bacteria that cause systemic infections, including E. coli.  The compound has also demonstrated activity against MRSA.

 

In connection with the license, Achaogen issued to us $1.5 million of Achaogen Series A Preferred Stock.  Since early 2009, we have received $3 million from Achaogen, $500,000 which was in Achaogen securities, as Achaogen has advanced plazomicin in development. In addition, assuming Achaogen successfully develops and commercializes the first two drugs under our agreement, we may receive payments totaling up to $46.3 million for the achievement of key clinical, regulatory and sales events. We are eligible to receive royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development of plazomicin.  During 2012 and 2011, we did not earn any revenue from our relationship with Achaogen.  During 2010, we earned $2 million in revenue from our relationship with Achaogen, which does not include any revenue from the equity we received from Achaogen.  At December 31, 2012 and 2011, we owned less than 10 percent of Achaogen’s equity.

 

Alnylam Pharmaceuticals, Inc.

 

In March 2004, we entered into a strategic alliance with Alnylam to develop and commercialize RNA interference, or RNAi, therapeutics. Under the terms of the agreement, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees for Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. In August 2012, we expanded the license to include using the double-stranded RNAi technology for agricultural products. For each drug Alnylam develops under this alliance, we may receive up to $3.4 million in substantive milestone payments, including up to $1.1 million for the achievement of development milestones and $2.3 million for regulatory milestones. We will earn the next milestone payment of $750,000 if Alnylam initiates a Phase 3 study for TTR. We retained rights to a limited number of double-stranded RNAi therapeutic targets and all rights to single-stranded RNAi, or ssRNAi, therapeutics.

 

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In turn, Alnylam nonexclusively licensed to us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize ssRNAi therapeutics and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of therapeutic targets on a nonexclusive basis. If we develop or commercialize an RNAi-based drug using Alnylam’s technology, we will pay Alnylam milestone payments and royalties. For each drug, the potential milestone payments to Alnylam total $3.4 million, which we will pay if we achieve specified development and regulatory events. As of December 31, 2012, we did not have an RNAi-based drug in clinical development. Our Alnylam alliance provides us with an opportunity to realize substantial value from our pioneering work in antisense mechanisms and oligonucleotide chemistry and is an example of our strategy to participate in all areas of RNA-targeting drug discovery.

 

In April 2009, we and Alnylam amended our strategic collaboration and license agreement to form a new collaboration focused on the development of ssRNAi technology.  Under the terms of the amended collaboration and license agreement, Alnylam paid us an upfront license fee of $11 million plus $2.6 million of research and development funding in 2009 and 2010.  In November 2010, Alnylam terminated the ssRNAi research program and we recognized $4.9 million of revenue from the upfront fee that we were amortizing into revenue over the research term.  As a result, any licenses to ssRNAi products we granted to Alnylam under the agreement, and any of Alnylam’s obligations to pay milestone payments, royalties or sublicense payments to us for ssRNAi products under the agreement, terminated.  We continue to advance the development of ssRNAi technology and during the course of the collaboration, we made improvements in the activity of ssRNAi compounds, including increased efficacy and potency and enhanced distribution.

 

In 2012, we earned $2.7 million in sublicense revenue when Alnylam licensed our technology to Monsanto Company and Genzyme. In addition, we have the potential to receive a portion of future milestone payments and royalty payments from these licenses.  As of December 31, 2012, we have earned a total of $48.1 million from Alnylam resulting from licenses of our technology for the development of RNAi therapeutics and technology that we granted to Alnylam and Alnylam has granted to its partners.  During 2012, 2011 and 2010, we earned revenue from our relationship with Alnylam totaling $2.7 million, $375,000 and $10.3 million, respectively, which represented three percent, less than one percent and nine percent, respectively, of our total revenue for those years.

 

Antisense Therapeutics Limited

 

In December 2001, we licensed ATL1102 to ATL, an Australian company publicly traded on the Australian Stock Exchange and in February 2008, ATL licensed ATL1102 to Teva Pharmaceutical Industries Ltd.  From early 2008 until early 2010, when Teva terminated the licensing agreement for ATL1102, we earned $3.4 million as Teva advanced the development of ATL1102. In March 2010, Teva terminated the licensing agreement for ATL1102 and returned rights to the drug to ATL.

 

In addition to ATL1102, ATL is currently developing ATL1103 for growth and sight disorders. ATL1103 is a product of our joint antisense drug discovery and development collaboration.  Over the last three years, ATL has raised approximately $8 million that it is using to advance ATL1103.  ATL pays us for access to our antisense expertise and for research and manufacturing services we may provide to ATL.  In October 2009, we agreed to manufacture ATL1103 drug product for ATL in return for 18.5 million shares of ATL’s common stock.  We are eligible to receive royalties on sales of ATL1102 and ATL1103.  We may also receive a portion of the fees ATL receives if it licenses ATL1102 or ATL1103.

 

At December 31, 2012 and 2011, we owned less than 10 percent of ATL’s equity.  During 2012, we did not earn any revenue from our relationship with ATL.  During 2011 and 2010, we earned revenue of $210,000, and $35,000, respectively, from our relationship with ATL.

 

Atlantic Pharmaceuticals Limited, formerly Atlantic Healthcare (UK) Limited

 

In March 2007, we licensed alicaforsen to Atlantic Pharmaceuticals, a UK-based specialty pharmaceutical company founded in 2006, which is developing alicaforsen for the treatment of UC and other inflammatory diseases. Atlantic Pharmaceuticals is initially developing alicaforsen for pouchitis, a UC indication, followed by UC and other inflammatory diseases. In exchange for the exclusive, worldwide license to alicaforsen, we received a $2 million upfront payment from Atlantic Pharmaceuticals in the form of equity.  In September 2010, we participated in Atlantic Pharmaceuticals’ financing by agreeing to sell to Atlantic Pharmaceuticals alicaforsen drug substance in return for shares of Atlantic Pharmaceuticals’ common stock.  At December 31, 2012 and 2011, we owned approximately 11 percent of Atlantic Pharmaceuticals’ equity.  Because realization of the upfront equity payment is uncertain, we recorded a full valuation allowance.

 

Under the agreement, we could receive substantive milestone payments totaling up to $1.4 million for the achievement of regulatory milestones for multiple indications.  We will earn the next milestone payment of $600,000 if Atlantic Pharmaceuticals submits an NDA for alicaforsen with the FDA.  Atlantic Pharmaceuticals is solely responsible for the continued development of alicaforsen.  In 2010, Atlantic Pharmaceuticals began supplying alicaforsen under international Named Patient Supply regulations for patients with IBD for which we are receiving royalties.  Atlantic Pharmaceuticals is currently pursuing opportunities to fund further development of alicaforsen. During 2012, we earned $3,000 from our relationship with Atlantic Pharmaceuticals and during 2011 and 2010 we did not earn any revenue from our relationship with Atlantic Pharmaceuticals.

 

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Excaliard Pharmaceuticals, Inc., a wholly owned subsidiary of Pfizer Inc.

 

In November 2007, we entered into a collaboration with Excaliard to discover and develop antisense drugs for the local treatment of fibrotic diseases, including scarring. We granted Excaliard an exclusive worldwide license for the development and commercialization of certain antisense drugs. Excaliard made an upfront payment to us in the form of equity and paid us $1 million in cash for the licensing of an antisense oligonucleotide drug targeting expression of CTGF that is activated during skin scarring following the wound healing process.

 

In December 2011, Pfizer Inc. acquired Excaliard.  To date, we have received $5.7 million and we are eligible to receive up to an additional $8.4 million in contingent payments upon achievement of various milestones associated with the clinical and commercial progress of EXC 001. In addition, we continue to be eligible for milestone and royalty payments under our licensing agreement for EXC 001. Assuming Pfizer Inc. successfully develops and commercializes EXC 001, we may receive substantive milestone payments totaling up to $47.7 million for the achievement of key development and regulatory milestones, including up to $7.7 million for the achievement of development milestones and up to $40 million for the achievement of regulatory milestones. We will earn the next milestone payment of $1.5 million upon initiation of a Phase 3 study for EXC 001. We are eligible to receive royalties on any product sales of EXC 001.

 

At December 31, 2012, we owned no equity in Excaliard. During 2012 and 2011, we received $1.3 million and $4.4 million, respectively, from Pfizer Inc. in payments related to the acquisition of Excaliard, which we recorded as a gain on investments.  We did not earn any revenue during 2012 and 2011 and during 2010 we earned revenue of $3,000 from our relationship with Excaliard.

 

iCo Therapeutics Inc.

 

In August 2005, we granted a license to iCo for the development and commercialization of iCo-007.  iCo is developing iCo-007 for the treatment of various eye diseases caused by the formation and leakage of new blood vessels such as diabetic macular edema and diabetic retinopathy and is currently evaluating it in a Phase 2 study in patients with diabetic retinopathy.  We received a $500,000 upfront fee from iCo and may receive substantive milestone payments totaling up to $48.4 million for the achievement of development and regulatory milestones for multiple indications, including up to $7.9 million for the achievement of development milestones and up to $40.5 million for the achievement of regulatory milestones.  We will receive the next milestone payment of $4 million if iCo initiates a Phase 3 study for iCo-007.  In addition, we are eligible to receive royalties on any product sales of iCo-007. Under the terms of the agreement, iCo is solely responsible for the development and commercialization of the drug.  Over the course of our relationship, iCo has paid us in a combination of cash, common stock and convertible notes.  As a result, our ownership in iCo at December 31, 2012 and 2011 was approximately nine percent and 12 percent, respectively.  During 2012 we did not earn any revenue from our relationship with iCo and during 2011 and 2010 we earned $7,000 in each period from our relationship with iCo.

 

OncoGenex Technologies Inc., a subsidiary of OncoGenex Pharmaceuticals Inc.

 

In November 2001, we established a drug development collaboration with OncoGenex, a biotechnology company committed to the development of cancer therapeutics for patients with drug resistant and metastatic cancers, to co-develop and commercialize custirsen, formerly OGX-011, an anti-cancer antisense drug that targets clusterin.  In July 2008, we and OncoGenex amended the co-development agreement pursuant to which OncoGenex became solely responsible for the costs, development and commercialization of custirsen.  In exchange, OncoGenex agreed to pay us royalties on sales of custirsen and to share consideration it receives from licensing custirsen to a third party, except for consideration OncoGenex receives for the fair market value of equity and reimbursement of research and development expenses.

 

Under the amended agreement, we assigned to OncoGenex our rights in the patents claiming the composition and therapeutic methods of using custirsen and granted OncoGenex a worldwide, nonexclusive license to our know-how and patents covering our core antisense technology and manufacturing technology solely for use with custirsen.  The key product-related patent that we assigned to OncoGenex was U.S. Patent number 6,900,187 having an expiration date of at least 2020; and the key core antisense technology patents we licensed OncoGenex are U.S. Patent number 7,919,472 having an expiration date of 2026 and its foreign equivalents pending in Australia, Canada, the European Patent Convention and Japan.  In addition, we agreed that so long as OncoGenex or its commercialization partner is using commercially reasonable efforts to develop and commercialize custirsen, we will not research, develop or commercialize an antisense compound designed to modulate clusterin.  The amended agreement will continue until OncoGenex or its commercialization partner is no longer developing or commercializing custirsen or until we terminate the agreement for OncoGenex’s uncured failure to make a payment required under the agreement.

 

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In December 2009, OncoGenex granted Teva the exclusive worldwide right and license to develop and commercialize any products containing custirsen and related compounds, with OncoGenex having an option to co-promote custirsen in the United States and Canada, for which we received $10 million of the upfront payment OncoGenex received from Teva.  We are also eligible to receive 30 percent of up to $370 million in payments OncoGenex may receive from Teva in addition to royalties on any product sales of custirsen ranging between 3.88 percent and seven percent.  Under the agreement, this royalty is due on a country- by-country basis until the later of ten years following the first commercial sale of custirsen in the relevant country, and the expiration of the last patent we assigned or licensed to OncoGenex that covers the making, using or selling of custirsen in such country.

 

To facilitate the execution and performance of OncoGenex’s agreement with Teva, we and OncoGenex amended our license agreement primarily to give Teva the ability to cure any future potential breach by OncoGenex under our agreement.  As part of this amendment, OncoGenex agreed that if OncoGenex is the subject of a change of control with a third party, where the surviving entity immediately following such change of control has the right to develop and sell custirsen, then a payment of $20 million will be due and payable to us 21 days following the first commercial sale of the product in the United States. Any non-royalty payments OncoGenex previously paid to us are creditable towards the $20 million payment, so as a result of the $10 million payment we received from OncoGenex related to its license to Teva, the remaining amount owing in the event of a change of control as discussed above is a maximum of $10 million.

 

In August 2003, we and OncoGenex entered into a separate collaboration and license agreement for the development of a second-generation antisense anti-cancer drug, OGX-225. OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. OncoGenex issued to us $750,000 of OncoGenex securities as payment for an upfront fee. In addition, OncoGenex will pay us substantive milestone payments totaling up to $3.5 million for the achievement of development and regulatory milestones, including up to $1.5 million for the achievement of development milestones and up to $2 million for the achievement of regulatory milestones.  In addition, we are eligible to receive royalties on future product sales of OGX-225. As of December 31, 2012, OncoGenex had not achieved any milestone events related to OGX-225. We will earn the next milestone payment of $500,000 if OncoGenex initiates a Phase 2 study for OGX-225.

 

In January 2005, we entered into a further agreement with OncoGenex to allow for the development of an additional second-generation antisense anti-cancer drug. Under the terms of the agreement, OncoGenex is responsible for all development costs and activities, and we have no further performance obligations. In April 2005, OncoGenex selected OGX-427 to develop under the collaboration. OncoGenex will pay us substantive milestone payments totaling up to $5.8 million for the achievement of key development and regulatory milestones, including up to $1.3 million for the achievement of development milestones and up to $4.5 million for the achievement of regulatory milestones.  In addition, we are eligible to receive royalties on future product sales of the drug.  In January 2011, we earned a $750,000 milestone payment related to OncoGenex’s Phase 2 trial in men with metastatic prostate cancer. We will earn the next milestone payment of $1.3 million if OncoGenex initiates a Phase 3 study for OGX-427.

 

During 2011, we earned $750,000 in revenue from our relationship with OncoGenex. During 2012 and 2010, we did not earn any revenue from our relationship with OncoGenex.

 

Regulus Therapeutics Inc.

 

In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-targeting therapeutics.  Regulus combines our and Alnylam’s technologies, know-how, and intellectual property relating to microRNA-targeting therapeutics.  In addition, Regulus has assembled a strong leadership team with corporate management, business and scientific expertise, a board of directors that includes industry leaders in drug discovery and development, and a scientific advisory board that consists of world-class scientists including some of the foremost authorities in the field of microRNA research. Regulus operates as an independent company with a separate board of directors, scientific advisory board and management team. We and Alnylam retain rights to develop and commercialize, on pre-negotiated terms, microRNA therapeutic products that Regulus decides not to develop either by itself or with a partner.

 

Regulus is addressing therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs may act as master regulators of the genome, affecting the expression of multiple genes in a disease pathway, microRNA therapeutics define a new platform for drug discovery and development and microRNAs may also prove to be an attractive new biomarker tool for characterizing diseases.  Regulus focuses its drug discovery and development efforts in numerous therapeutic areas, including cancer, fibrosis, metabolic disorders and inflammatory disorders.

 

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We and Alnylam co-founded Regulus and we each granted Regulus exclusive licenses to our respective intellectual property for microRNA therapeutic applications, and certain early fundamental patents in the microRNA field.  Under this agreement, we are eligible to receive fees and/or royalty payments on microRNA therapeutic products that Regulus or its partners develop.  In October 2012 Regulus completed an IPO, in which we participated by purchasing $3 million of Regulus’ common stock at the offering price. We remain a significant shareholder with approximately seven million shares, or 17 percent, of Regulus common stock on a fully diluted basis.   In the fourth quarter of 2012, we stopped using the equity method of accounting for our investment in Regulus and instead we began accounting for our investment at fair value.  In the fourth quarter of 2012, we recorded an $18.4 million gain to reflect the change in our ownership percentage as a result of Regulus’ IPO.

 

Regulus exclusively controls many of the early fundamental patent portfolios in the microRNA-targeting therapeutics field, including the “Tuschl III”, “Sarnow” and “Esau” patent series.  Our “Crooke” patent estate provides Regulus exclusive rights to product compositions and methods of treatment in the field of microRNA-targeting therapeutics.  The Regulus patent estate also includes claims to specific microRNA compositions that are optimized for therapeutic use, as well as therapeutic uses of these microRNA compositions, and exclusive rights to Isis’ and Alnylam’s chemical modification intellectual property estates for microRNA applications.  In total, Regulus’ intellectual property portfolio includes over 1,000 patents and patent applications pertaining to microRNA drug products, therapeutic modulation of microRNA, and chemical modifications of oligonucleotides for microRNA therapeutics.

 

Regulus has successfully developed strategic partnerships with high-quality partners like Sanofi, GSK, Biogen Idec and AstraZeneca. We benefit from Regulus’ strategic partnerships because we have the potential to receive a portion of future milestone payments and royalty payments. For example, under Regulus’ strategic partnership with Sanofi, we and Alnylam each received 7.5 percent, or $1.9 million, of the $25 million upfront payment and are eligible to receive 7.5 percent of all future milestone payments, in addition to royalties on any product sales.  During 2012 and 2011, we did not earn any revenue from our relationship with Regulus.  In 2010, we earned $1.9 million from our relationship with Regulus.

 

Xenon Pharmaceuticals Inc.

 

In November 2010, we established a collaboration with Xenon to discover and develop antisense drugs as novel treatments for the common disease anemia of inflammation, or AI. AI is the second most common form of anemia worldwide and physicians associate a wide variety of conditions including infection, cancer and chronic inflammation with AI.  We received an upfront payment in the form of a convertible promissory note from Xenon to discover and develop antisense drugs to the targets hemojuvelin and hepcidin.  In May 2012, Xenon selected XEN701, a drug targeting the hepcidin-hemojuvelin pathway, as a development candidate. Xenon may take an exclusive license for the development and worldwide commercialization of XEN701. Under our collaboration agreement with Xenon we may receive up to $296 million in substantive milestone payments upon the achievement of pre-specified milestone events that are met by two independent products, including up to $26 million for the achievement of development milestones, up to $150 million for the achievement of regulatory milestones and up to $120 million for the achievement of commercialization milestones.  In addition, we are eligible to receive royalties on future product sales of XEN701 and a portion of sublicense revenue. We will earn the next milestone payment of $3 million if Xenon initiates a Phase 2 clinical trial for XEN701.

 

In August 2012, we and Xenon entered into a separate collaboration to discover and develop an antisense drug targeting sodium channel, voltage-gated, type IX, alpha subunit, or SCN9A. Under our collaboration, we obtained exclusive and non-exclusive licenses to certain Xenon patent rights related to SCN9A.  Xenon has the option to license a drug targeting SCN9A through identification of a development candidate.  If Xenon exercises its option, Xenon will pay us a license fee and will assume global development, regulatory and commercialization responsibilities.  In addition to a license fee, we may receive up to $177 million in substantive milestone payments upon the achievement of pre-specified events, including up to $22 million for the achievement of development milestones, up to $85 million for the achievement of regulatory milestones and up to $70 million for the achievement of commercialization milestones.  In addition, we are eligible to receive royalties on future product sales of SCN9A and a portion of sublicense revenue. We will earn the next milestone payment of $5 million when Xenon completes studies that are sufficient to support filing an IND for an antisense drug targeting the SCN9A gene.

 

During 2012 and 2011, we earned revenue of $84,000 and $80,000, respectively, from our relationship with Xenon. During 2010 we did not earn any revenue from our relationship with Xenon.

 

External Project Funding

 

We are pursuing discovery and development projects that provide us with new therapeutic applications for antisense drugs through, for example, direct delivery to the CNS. These programs represent opportunities for us and our technology.  In some cases, we fund these studies through support from our partners or disease advocacy groups and foundations. For example, we receive external funding support for our ALS and Huntington’s disease programs.

 

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CHDI Foundation, Inc.

 

In August 2011, we renewed our collaboration with CHDI, which we initially entered into in November 2007, to provide us with funding for the discovery and development of an antisense drug for the treatment of Huntington’s disease.  CHDI’s funding builds upon an earlier successful collaboration between us and CHDI, in which CHDI funded proof-of-concept studies that demonstrated the feasibility of using antisense drugs to treat Huntington’s disease.  Under the terms of the new collaboration, we will receive funding from CHDI to identify and conduct IND-enabling studies on an antisense drug targeting the huntingtin gene.  If we grant a license to a third party to commercialize our Huntington’s disease program, we and CHDI will evenly split the proceeds from the license until CHDI has recouped its funding together with a return determined at a predefined interest rate.  Thereafter, we will keep the full amount of any additional proceeds.  In addition, CHDI reimbursed us for approximately $1.6 million of research-related expenses we incurred after the earlier collaboration ended in 2010, which we are amortizing over the period of our performance obligation. During 2012, and 2011, we earned revenue of $2.0 million and $2.4 million, respectively, from our relationship with CHDI. In 2010, we did not earn any revenue from our relationship with CHDI.

 

The Ludwig Institute; Center for Neurological Studies

 

In October 2005, we entered into a collaboration agreement with the Ludwig Institute, the Center for Neurological Studies and researchers from these institutions to discover and develop antisense drugs in the areas of ALS and other neurodegenerative diseases. Under this agreement, we agreed to pay the Ludwig Institute and Center for Neurological Studies modest milestone payments and royalties on any antisense drugs resulting from the collaboration.

 

Technology and Intellectual Property Sale and Licensing Agreements

 

We have a broad patent portfolio covering our products and technologies. We believe our patent estate represents the largest and most valuable nucleic acid therapeutics-oriented patent estate in the pharmaceutical industry. While the principal purpose of our intellectual property portfolio is to protect our products and those of our pharmaceutical and satellite company partners described above, our intellectual property is a strategic asset that we are exploiting to generate near-term revenues and that we expect will also provide us with revenue in the future. We have an active intellectual property sales and licensing program in which we sell or license aspects of our intellectual property to companies. Through this program, we also license our non-antisense patents as we did with Eyetech Pharmaceuticals, Inc. To date, we have generated more than $400 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs.

 

Out-Licensing Arrangements; Royalty Sharing Agreements; Sales of IP

 

Abbott Molecular Inc.

 

In January 2009, we sold our former subsidiary, Ibis Biosciences, to Abbott Molecular Inc., or AMI, pursuant to a stock purchase agreement for a total acquisition price of $215 million plus the earn out payments described below.

 

Under the stock purchase agreement, AMI will pay us earn out payments equal to a percentage of Ibis’ revenue related to sales of Ibis systems, including instruments, assay kits and successor products, from the date of the acquisition closing through December 31, 2025.  The earn out payments will equal five percent of Ibis’ cumulative net sales over $140 million and up to $2.1 billion, and three percent of Ibis’ cumulative net sales over $2.1 billion.  AMI may reduce these earn out payments from five percent to as low as 2.5 percent and from three percent to as low as 1.5 percent, respectively, upon the occurrence of certain events.  During 2012, 2011 and 2010 we did not earn any revenue from our relationship with AMI.

 

Eyetech Pharmaceuticals, Inc. (acquired by Valeant Pharmaceuticals International, Inc.)

 

In December 2001, we licensed to Eyetech certain of our patents necessary for Eyetech to develop, make and commercialize Macugen, a non-antisense drug for use in the treatment of ophthalmic diseases.  Eyetech markets Macugen in the United States and Pfizer Inc. markets the drug outside of the United States.  In February 2012, Eyetech was acquired by Valeant Pharmaceuticals International, Inc.  Eyetech paid us a $2 million upfront fee and agreed to pay us for the achievement of pre-specified events and royalty payments in exchange for non-exclusive, worldwide rights to the intellectual property licensed from us.  During 2004, we earned $4 million in payments, and our license with Eyetech may also generate additional payments aggregating up to $2.8 million for the achievement of specified regulatory events with respect to the use of Macugen for each additional therapeutic indication.  In 2012, 2011 and 2010, we earned $499,000, $790,000 and $567,000, respectively, of revenue related to royalties for Macugen under our license to Eyetech.

 

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Roche Molecular Systems

 

In October 2000, we licensed some of our novel chemistry patents to Roche Molecular Systems, a business unit of Roche Diagnostics, for use in the production of Roche Molecular Systems’ diagnostic products. The royalty-bearing license grants Roche Molecular Systems non-exclusive worldwide access to some of our proprietary chemistries in exchange for initial and ongoing payments from Roche Molecular Systems to us. In April 2011, we expanded our relationship with Roche Molecular Systems by granting Roche Molecular Systems a non-exclusive license to additional technology for research and diagnostic uses.  During 2012, 2011 and 2010, we earned revenue of $1.0 million, $828,000 and $1.8 million, respectively, from our relationship with Roche Molecular Systems.

 

In-Licensing Arrangements

 

Idera Pharmaceuticals, Inc., formerly Hybridon, Inc.

 

We have an agreement with Idera under which we acquired an exclusive license to all of Idera’s antisense chemistry and delivery technology related to our second generation antisense drugs and to double-stranded siRNA therapeutics. Idera retained the right to practice its licensed antisense patent technologies and to sublicense its technologies to collaborators under certain circumstances. In addition, Idera received a non-exclusive license to our suite of RNase H patents.  During 2012, 2011 and 2010 we earned revenue of $10,000, $10,000 and $20,000, respectively, from our relationship with Idera.

 

University of Massachusetts

 

We have a license agreement with the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to ISIS-SMN Rx . If we successfully develop and commercialize a drug incorporating the technology we licensed from the University of Massachusetts, we will pay milestone payments to the University of Massachusetts totaling up to $500,000 for the achievement of key clinical and regulatory milestones.  In addition, we will pay the University of Massachusetts a portion of any sublicense revenue we receive from sublicensing its technology, and a royalty on sales of ISIS-SMN Rx  in the United States if our product incorporates the technology we licensed from the University of Massachusetts.

 

Verva Pharmaceuticals Ltd.

 

We have a license agreement with Verva under which we acquired an exclusive license to Verva’s antisense patent rights related to ISIS-FGFR4 Rx .  If we successfully develop and commercialize a drug incorporating the technology Verva licensed to us, we will pay milestone payments to Verva totaling up to $6.1 million for the achievement of key patent, clinical, and regulatory milestones.  If we convert our license from an exclusive license to a nonexclusive license we could significantly reduce the milestone payments due to Verva.  In addition, we will also pay royalties to Verva on sales of ISIS-FGFR4 Rx  if our product incorporates the technology we licensed from Verva.

 

Cold Spring Harbor Laboratory

 

We have a collaboration and license agreement with the Cold Spring Harbor Laboratory under which we acquired an exclusive license to the Cold Spring Harbor Laboratory’s patent rights related to ISIS-SMN Rx . If we successfully develop and commercialize a drug incorporating the technology we licensed from the Cold Spring Harbor Laboratory, we will pay milestone payments to the Cold Spring Harbor Laboratory totaling up to $800,000 for the achievement of key clinical and regulatory milestones.  In addition, we will pay the Cold Spring Harbor Laboratory a portion of any sublicense revenue we receive from sublicensing the Cold Spring Harbor Laboratory’s technology, and a royalty on sales of ISIS-SMN Rx  if our product incorporates the technology we licensed from the Cold Spring Harbor Laboratory.

 

Manufacturing

 

In the past, except for small quantities, it was generally expensive and difficult to produce chemically modified oligonucleotides like the antisense drugs we use in our research and development programs. As a result, we have dedicated significant resources to develop ways to improve manufacturing efficiency and capacity. Since we can use variants of the same nucleotide building blocks and the same type of equipment to produce our oligonucleotide drugs, we found that the same techniques we used to efficiently manufacture one oligonucleotide drug could help improve the manufacturing processes for many other oligonucleotide drugs. By developing several proprietary chemical processes to scale up our manufacturing capabilities, we have greatly reduced the cost of producing oligonucleotide drugs. For example, we have significantly reduced the cost of raw materials through improved yield efficiency, while at the same time increasing our capacity to make the drugs. Through both our internal research and development programs and collaborations with outside vendors we may achieve even greater efficiency and further cost reductions.

 

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In January 2013, the FDA approved the marketing application for KYNAMRO for patients with HoFH.  We are providing the drug substance that is necessary for the initial launch of KYNAMRO and Genzyme will be responsible for the long-term supply of KYNAMRO drug substance. We rely on Genzyme to manufacture the finished drug product for KYNAMRO.  Genzyme is offering KYNAMRO in the United States in pre-filled syringes. Genzyme has prepared the initial launch quantities of these pre-filled syringes, and plans to produce future supplies of pre-filled syringes, using one of its own manufacturing facilities. 

 

Due to the growing numbers of our antisense drug development partners and the clinical successes of our antisense drugs, including KYNAMRO, in 2009 we increased our manufacturing capacity by upgrading and optimizing the efficiency of our manufacturing facility.  We received European GMP certification of our manufacturing facility in 2012 for production of drug substance to support KYNAMRO commercial launch and our facility is subject to periodic inspection by the FDA to ensure that it is operating in compliance with current GMP, or cGMP, requirements.

 

Our drug substance manufacturing facility is located in an approximately 28,704 square foot building in Carlsbad, California. We lease this building under a lease that has an initial term ending on December 31, 2031 with an option to extend the lease for up to four additional five-year periods.  In addition, we have an approximately 25,792 square foot building that houses support functions for our manufacturing activities.  We lease this facility under a lease that has an initial term ending in June 2021 with an option to extend the lease for up to two additional five-year periods.

 

As part of our collaborations we may agree to manufacture clinical trial materials and/or commercial supply for our partners. For example, in the past we have manufactured clinical supply materials for ATL, Atlantic Pharmaceuticals, Bristol-Myers Squibb, Eli Lilly and Company, Genzyme, iCo, OncoGenex, Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Teva. We believe we have sufficient manufacturing capacity to meet our current and future obligations under existing agreements with our partners for commercial, research and clinical needs, as well as meet our current internal research and clinical needs. We believe that we have, or will be able to develop or acquire, sufficient supply capacity to meet our anticipated needs. We also believe that with reasonably anticipated benefits from increases in scale and improvements in chemistry, we can manufacture antisense drugs at commercially competitive prices.

 

Patents and Proprietary Rights

 

Our success depends, in part, on our ability to obtain patent protection for our products in the United States and other countries.  As of February 11, 2013, we owned or exclusively licensed approximately 1,500 issued patents worldwide.

 

We own or control patents that provide exclusivity for products in our pipeline and patents that provide exclusivity for our core technology in the field of antisense more generally.  Our core technology patents include claims to chemically-modified nucleosides and oligonucleotides as well as antisense drug designs utilizing these chemically-modified nucleosides.  These core claims are each independent of specific therapeutic target, nucleic acid sequence, or clinical indication.  We also own a large number of patents claiming specific antisense compounds having nucleic acid sequences complementary to therapeutic target nucleic acids, independent of the particular chemical modifications incorporated into the antisense compound.  Most importantly, we seek and obtain issued patent claims for each of our drugs.  For example, for each of our drugs, we file and seek to obtain claims covering each drug’s nucleic acid sequence and precise drug design.  In sum, we maintain our competitive advantage in the field of antisense technology by protecting our core platform technology, which applies to most of our drugs, and by creating multiple layers of patent protection for each of our specific drugs in development.

 

Type of Patent Claim		Breadth		Description
Chemically Modified Nucleosides and Oligonucleotides Antisense Drug Design Motifs   Therapeutic Methods Antisense Sequence Drug Composition		Broadly Applicable Specific		Target and sequence independent   Target and sequence independent   Sequence independent Chemistry independent Specific claim to drug candidates

 

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Chemically Modified Nucleosides and Oligonucleotides

 

The most broadly-applicable of our patents are those that claim modified nucleosides and oligonucleotides comprising the modified nucleosides that we incorporate into our antisense drugs to increase their therapeutic efficacy.  Nucleosides and chemically-modified nucleosides are the basic building blocks of our antisense drugs, therefore claims that cover any oligonucleotide incorporating one of our proprietary modified nucleosides can apply to a wide array of antisense mechanisms of action as well as several therapeutic targets.  Of particular note are our patents covering our proprietary 2’-O-(2-methoxy) ethyl modified nucleosides, incorporated into nearly all of our development compounds, as well as our lead candidate modification for our generation 2.5 compounds, the constrained-ethyl nucleosides, or cEt, nucleosides.  In June 2011, Santaris opposed our granted patent in Europe drawn to cEt containing nucleotides and oligonucleotides and we intend to vigorously defend our patent in these proceedings. The following are some of our patents in this category:

 

Jurisdiction		Patent No.		Title		Expiration		Description of Claims
US		5,914,396		2’-O-MODIFIED NUCLEOSIDES AND PHOSPHORAMIDITES		2016		Covers MOE nucleosides and oligonucleotides containing said nucleotides.
US		7,101,993		OLIGONUCLEOTIDES CONTAINING 2’O-MODIFIED PURINES		2023		Covers certain MOE nucleosides and oligonucleotides containing said nucleotides.
US		7,399,845		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.
US		7,741,457		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.
US		8,022,193		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.
US		7,569,686		COMPOUNDS AND METHODS FOR SYNTHESIS OF BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers methods of synthesizing our cEt nucleosides.
EP		EP1984381		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.
US		7,547,684		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.
US		7,666,854		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs.

 

Antisense Drug Design Motifs

 

MOE Gapmers

 

Other Isis patents claim oligonucleotides comprising specific antisense drug design motifs, or patterns of nucleoside modifications at specified positions in the oligonucleotide. Patent claims covering our antisense drug design motifs are independent of nucleic acid sequence, so they cover oligonucleotides having the recited motif, regardless of cellular target or clinical indication. The claimed motifs generally confer properties that optimize oligonucleotides for a particular antisense mechanism of action, such as RNase H, RNAi, or splicing. We have designed oligonucleotides incorporating motifs, which we refer to as chimeric compounds or gapmers to exploit the RNase H mechanism to achieve target RNA reduction. Almost all of our drugs, including KYNAMRO, contain this gapmer antisense drug design motif. In fact, we own a U.S. patent that covers each of our second generation antisense drugs until March of 2023. We also have issued patents covering other gapmer drug designs, including our generation 2.2 drug designs which optimize gap size and overall length of the oligonucleotide and methods of lowering a target RNA in an animal with these gapmer compositions. The following patents are some examples of our patents in this category:

 

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Jurisdiction		Patent/ Application No.		Title		Expiration		Description of Claims
US		7,015,315		GAPPED OLIGONUCLEOTIDES		2023		Covers 2’-O-alkyl-O-alkyl gapmer oligonucleotides.
US		7,919,472		ENHANCED ANTISENSE OLIGONUCLEOTIDES		2026		Covers methods of lowering a target RNA in an animal with a MOE gapmer with a DNA gap of 12 to 18 nucleotides.
EP		EP2021472		COMPOUNDS AND METHODS FOR MODULATING GENE EXPRESSION		2027		Short gapmer oligonucleotides, 10 to 14 nucleotides in length, with bicyclic nucleosides, which includes locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders

 

Bicyclic Nucleoside Gapmer Oligonucleotides

 

In addition, we have pursued claims to antisense drug design motifs incorporating bicyclic nucleoside analogs, which include locked nucleic acids, or LNAs.  In June 2011, the European Patent Office, or EPO, granted our claims drawn to short gapmer oligonucleotides, 10 to 14 nucleotides in length, with bicyclic nucleosides, which includes locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders.  Santaris has opposed this granted patent and we intend to vigorously defend our patent in these proceedings.  We have also successfully obtained issued patent claims covering gapmer antisense drug design motifs that incorporate our cEt modified nucleosides.  The following patents are some examples of our issued patents and allowed patent applications in this category:

 

Jurisdiction		Patent/ Application No.		Title		Expiration		Description of Claims
EP		EP2021472		COMPOUNDS AND METHODS FOR MODULATING GENE EXPRESSION		2027		Short gapmer oligonucleotides, 10 to 14 nucleotides in length, with bicyclic nucleosides, which includes locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders
US		7,750,131		6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS		2027		Covers cEt containing gapmer compounds

 

Therapeutic Methods of Treatment and Antisense Drug Sequences

 

In addition to our broad core patents, we also own more than 600 patents, worldwide, with claims to antisense sequences and compounds directed to particular therapeutically important targets or methods of achieving clinical endpoints using these antisense compounds.  Target patents may also include claims reciting the specific nucleic acid sequences utilized by our products, independent of chemical modifications and motifs. In addition, our product specific patents typically include claims combining specific nucleic acid sequences with nucleoside modifications and motifs. In this way, we seek patent claims narrowly tailored to protect our products specifically, in addition to the broader core antisense patents described above.

 

ApoB 100 and KYNAMRO

 

In 2008, we obtained patent claims in the United States drawn to the use of both single-stranded and double-stranded antisense drugs complementary to any site of the mRNA of human apoB, regardless of chemistry or antisense mechanism of action. The patent provides broad protection of the Isis-Genzyme apoB franchise, including KYNAMRO and potential future follow-on compounds.  Similar claims granted in Australia and Japan in 2009 and 2010, respectively.  We and Genzyme obtained issued claims to the specific antisense sequence and chemical composition of KYNAMRO in the United States, Australia, South Africa and India and an intent to grant in the European Union. The issued U.S. claims should protect KYNAMRO from generic competition in the United States until at least 2025.  We are also pursuing additional patent applications designed to protect KYNAMRO in these and other jurisdictions including Canada and Japan.  The table below lists the key issued patent claims designed to protect KYNAMRO in the applicable jurisdiction:

 

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Jurisdiction		Patent No.		Title		Expiration		Description of Claims
US		7,407,943		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2021		Methods of inhibiting expression of apoB, decreasing serum cholesterol, decreasing lipoprotein levels, decreasing serum triglycerides in a human with an antisense compound 12 to 30 nucleotide in length and 100% complementary to human apoB wherein the compound is not a ribozyme.
Australia		2002-326481		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2021		An isolated oligonucleotide compound 12 to 30 nucleobases in length 100% complementary to at least a 12-nucleobase portion of a nucleic acid molecule having nucleotides 151-12820 of SEQ ID 3 (apoB) which is not a ribozyme and use of such compound in therapy
Japan		4471650		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2021		Use of an antisense oligonucleotide 12 to 30 nucleobases in length and 100% complementary to human apoB having one or more modifications and inhibiting expression of apoB by at least 90% in primary hepatocytes when present at a concentration of 300 nM for preparation of a medicament for decreasing serum cholesterol, and decreasing lipoprotein levels in a human
US		7,511,131		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2025		Antisense sequence and composition of matter of KYNAMRO
EP		EP1569695		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2023		Antisense sequence and composition of matter of KYNAMRO (Intent to grant)
EP		EP2336318		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2023		Antisense sequence and composition of matter of KYNAMRO (Intent to grant)
India		219847		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2023		Antisense sequence and composition of matter of KYNAMRO
Australia		2003294281		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2023		Antisense sequence and composition of matter of KYNAMRO
South Africa		2005/03690		ANTISENSE MODULATION OF APOLIPOPROTEIN B EXPRESSION		2023		Antisense sequence and composition of matter of KYNAMRO

 

Custirsen

 

Issued claims have been obtained from an application jointly filed by Isis and OncoGenex to protect the specific chemical composition of custirsen in the United States.  The issued U.S. claims should protect custirsen from generic competition in the United States until at least 2021.  The table below lists the U.S. issued patent:

 

Jurisdiction		Patent No.		Title		Expiration		Description of Claims
US		6,900,187		TRPM-2 ANTISENSE THERAPY USING AN OLIOGNUCLEOTIDE HAVING 2’-O-(2-METHOXY)ETHYL MODIFICATIONS		2021		Antisense sequence and composition of custirsen

 

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Transthyretin and ISIS-TTR Rx

 

We obtained issued claims covering ISIS-TTR Rx  in the United States.  The issued U.S. claims should protect ISIS-TTR Rx  from generic competition in the United States until at least 2025.  We are also pursuing additional patent applications designed to protect ISIS-TTR Rx  in the United States and other foreign jurisdictions.  The table below lists the current issued U.S. patent protecting ISIS-TTR Rx :

 

Jurisdiction		Patent No.		Title		Expiration		Description of Claims
US		8,101,743		MODULATION OF TRANSTHYRETIN EXPRESSION		2025		Antisense sequence and chemistry of ISIS-TTR Rx

 

In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review.

 

RNAi Motifs and Mechanisms - The Crooke Patents

 

The Crooke Patents, which are the result of the early work by Dr. Crooke and co-workers exploring oligonucleotides that activate double-stranded ribonucleases, or dsRNases, cover chemically-modified, RNA-containing oligonucleotides and methods for exploiting the RNAi pathway with these oligonucleotides until June 2016. We licensed the Crooke Patents to Alnylam for the development of double-stranded therapeutics and to Regulus for the development of microRNA-targeting therapeutics. These patents also provide us with exclusivity in the field of ssRNAi compounds, in which we have made great strides to progress this approach toward a viable therapeutic platform. The following patents have issued out of the Crooke Patent family:

 

Jurisdiction		Patent No.		Title		Expiration		Description of Claims
US		5,898,031		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Oligonucleotides comprising regions of RNA nucleosides and regions of nucleosides having stabilizing chemical modifications. Such oligonucleotides are suitable for use in single- and double-stranded applications.
US		6,107,094		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Compounds and methods that use oligonucleotides having both RNA nucleosides and chemically modified nucleosides, including methods that rely on a dsRNAse to reduce target RNA and compounds having nucleosides with improved affinity and/or stability.
US		7,432,249		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Pharmaceutical compositions comprising a diluent or carrier and a single-stranded antisense oligonucleotide having a plurality of RNA nucleosides and at least one sugar modification.
US		7,432,250		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Methods for treating a patient by administering an antisense compound having a plurality of RNA nucleosides and at least one sugar modification.
US		7,629,321		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Methods for cleaving a target RNA in a cell by contacting the cell with a single-stranded antisense compound having a plurality of RNA nucleosides and at least one sugar modification.
US		7,695,902		OLIGORIBONUCLEOTIDES FOR CLEAVING RNA		2016		Methods of activating a dsRNase by contacting the dsRNase with a double-stranded antisense oligonucleotide where at least one strand has a plurality of RNA nucleosides and at least one sugar modification. The methods may be performed inside a cell.

 

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Manufacturing Patents

 

We also own patents claiming methods of manufacturing and purifying oligonucleotides. These patents claim methods for improving oligonucleotide drug manufacturing, including processes for large-scale oligonucleotide synthesis and purification. These methods allow us to manufacture oligonucleotides at lower cost by, for example, eliminating expensive manufacturing steps.

 

We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in antisense therapeutics.

 

Government Regulation

 

Regulation by government authorities in the United States and other countries is a significant component in the development, manufacture and commercialization of pharmaceutical products and services. In addition to regulations enforced by the FDA and relevant foreign regulatory authorities, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state and local regulations.

 

Extensive regulation by United States and foreign governmental authorities governs our manufacture, development and potential sale of therapeutics. In particular, pharmaceutical products are subject to nonclinical and clinical testing, as well as other approval requirements, by the FDA in the United States under the Federal Food, Drug and Cosmetic Act and other laws and by comparable agencies in those foreign countries in which we conduct business. Various federal, state and foreign statutes also govern or influence the manufacture, safety, labeling, storage, record keeping, marketing and quality of our products. State, local, and other authorities also regulate pharmaceutical manufacturing facilities and procedures.

 

In January 2013, the FDA approved the marketing application for KYNAMRO for patients with HoFH. We received European GMP certification of our manufacturing facility and our facility is subject to periodic inspection by the FDA to ensure that it is operating in compliance with cGMP requirements. Approval of each new drug will require a rigorous manufacturing pre-approval inspection by regulatory authorities.

 

Competition

 

Our Business in General

 

For many of their applications, our drugs will compete with existing therapies for market share. In addition, there are a number of companies pursuing the development of oligonucleotide-based technology and the development of pharmaceuticals utilizing this technology. These companies include specialized pharmaceutical firms and large pharmaceutical companies acting either independently or together with biopharmaceutical companies.

 

Our products under development address numerous markets. The diseases our drugs target for which we have or may receive regulatory approval will determine our competition. For certain of our products, an important factor in competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which we can develop products, complete the clinical trials and approval processes and supply commercial quantities of the products to the market are important competitive factors. We expect to compete among products approved for sale based on a variety of factors, including, among other things, product efficacy, safety, reliability, availability, price, reimbursement and patent position.

 

KYNAMRO

 

In January 2013, the FDA approved the marketing application for KYNAMRO in the United States for patients with HoFH.  Genzyme is also pursuing marketing approval for KYNAMRO in other countries, including Europe.  Apheresis and maximally tolerated lipid-lowering therapies, including statins, are the standard of care for homozygous FH patients.  Apheresis is a two to four hour process administered two to four times a month that mechanically separates LDL-C from the blood.  Because apheresis is an invasive, time-consuming procedure conducted only in specialty centers, it can be difficult for patients to receive this treatment.

 

We believe that of the drugs that are in development or on the market, KYNAMRO’s closest competitor is Juxtapid™.  In December 2012, the FDA approved Juxtapid as an oral, once-a-day treatment for patients with HoFH.  Juxtapid is a small molecule drug that Aegerion Pharmaceuticals developed and commercialized to limit secretion of cholesterol and triglycerides from the intestines and the liver.  The FDA approval for Juxtapid is supported by a Phase 3 study in 29 patients with homozygous FH. Aegerion states that the most common adverse reactions in the Phase 3 study were gastrointestinal, reported by 27 of 29 patients, or 93%.  In earlier studies evaluating Juxtapid, patients discontinued use of Juxtapid at a high rate due to gastrointestinal adverse events, such as diarrhea, nausea and vomiting.  In addition, some patients experienced elevations in liver enzymes and increased mean levels of fat in the liver, or hepatic fat, both of which Aegerion states it observed in its Phase 3 clinical trial of Juxtapid.  Like KYNAMRO, Juxtapid is available only through a REMS program that restricts the access of Juxtapid to only patients with a clinical or laboratory diagnosis consistent with HoFH and both the KYNAMRO and Juxtapid labels contain a Boxed Warning citing the risk of liver toxicity.

 

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In our clinical experience with KYNAMRO, we have seen substantial reductions in LDL-C and reductions in other atherogenic lipids linked to cardiovascular disease.  In our Phase 3 studies that evaluated KYNAMRO in more than 250 patients, the most common adverse events patients observed were injection site reactions and flu-like symptoms.  We also observed elevations in liver transaminases and moderate median increases in liver fat that appeared to be associated with greater reductions in apoB.  We believe that this safety profile supports our initial market opportunity in patients who cannot currently reach their recommended LDL-C goal.  KYNAMRO is administered by injection once weekly at home with a prefilled syringe while patients take Juxtapid orally once daily.  In addition, to avoid gastrointestinal events, patients on Juxtapid are required to maintain a low fat diet of less than 20% fat and patients are gradually titrated to a maximally tolerated dose.  In the Juxtapid label, concurrent use of Juxtapid and common medications for HoFH patients who have cardiovascular disease, including simvastatin and warfarin, need to be closely monitored due to drug-drug interactions with potentially harmful outcomes.  KYNAMRO has no restrictions with these medications, which may be advantageous for HoFH patients who are on a broad range of therapies due to the severity of their disease.  KYNAMRO sales could be affected if KYNAMRO’s product profile is not advantageous when compared to an oral drug, some patients may prefer the oral drug over KYNAMRO.  Factors affecting a product’s profile may include, efficacy, side effects, pricing and reimbursement.

 

Aegerion has stated that it is charging up to $293,000 for Juxtapid per patient per year, which is significantly higher than KYNAMRO, which Genzyme is pricing at $3,389 a week or $176,000 a year.  Our partner, Genzyme, has extensive experience in bringing medicines to patients with severe and rare diseases.  In the United States, Genzyme intends to capitalize on its existing sales and marketing infrastructure within specialized medical communities.  In addition, with an existing global commercial infrastructure in the cardiovascular community in Europe we believe that Sanofi and its global presence will aid in the rapid expansion of KYNAMRO into markets throughout the world.

 

Employees

 

As of February 11, 2013, we employed 288 people in all of our functions, excluding manufacturing and related departments, which employed 54 people.  A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. Collective bargaining agreements do not cover any of our employees, and management considers relations with our employees to be good.

 

Executive Officers of Isis

 

The following sets forth certain information regarding our executive officers as of February 11, 2013:

 

Name		Age		Position
Stanley T. Crooke, M.D., Ph.D.		67		Chairman, Chief Executive Officer and President
B. Lynne Parshall, J.D.		57		Director, Chief Operating Officer and Secretary
C. Frank Bennett, Ph.D.		56		Senior Vice President, Antisense Research
Richard S. Geary, Ph.D.		55		Senior Vice President, Development
Elizabeth L. Hougen		51		Senior Vice President, Finance and Chief Financial Officer
Brett P. Monia, Ph.D.		51		Senior Vice President, Drug Discovery and Corporate Development
Patrick R. O’Neil, Esq.		39		Senior Vice President, Legal and General Counsel

 

STANLEY T. CROOKE, M.D., Ph.D.

 

Chairman, Chief Executive Officer and President

 

Dr. Crooke is a founder of Isis and has been Chief Executive Officer and a Director since January 1989. He was elected Chairman of the Board in February 1991. Prior to founding Isis, from 1980 until January 1989, Dr. Crooke was employed by SmithKline Beckman Corporation, a pharmaceutical company, where his titles included President of Research and Development of SmithKline and French Laboratories.

 

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B. LYNNE PARSHALL, J.D.

 

Director, Chief Operating Officer and Secretary

 

Ms. Parshall has served as a Director of Isis since September 2000. She has been our Chief Operating Officer since December 2007 and previously served as our Chief Financial Officer from June 1994 to December 2012.  She also serves as our Corporate Secretary and has served in various executive roles since November 1991. Prior to joining Isis, Ms. Parshall practiced law at Cooley LLP, outside counsel to Isis, where she was a partner from 1986 to 1991. Ms. Parshall is a member of the American, California and San Diego bar associations.

 

C. FRANK BENNETT, Ph.D.

 

Senior Vice President, Antisense Research

 

Dr. Bennett was promoted to Senior Vice President, Antisense Research in January 2006. From June 1995 to January 2006, Dr. Bennett served as our Vice President, Research. From March 1993 to June 1995, he was Director, Molecular Pharmacology, and from May 1992 to March 1993, he was an Associate Director in our Molecular and Cellular Biology department. Prior to joining Isis in 1989, Dr. Bennett was employed by SmithKline and French Laboratories in various research positions. He is an external member of the Scientific Advisory Board of Experimental Therapeutics Center in Singapore.

 

RICHARD S. GEARY, Ph.D.

 

Senior Vice President, Development

 

Dr. Geary was promoted to Senior Vice President, Development in August 2008.  From August 2003 to August 2008, Dr. Geary served as our Vice President, Preclinical Development.  From November 1995 to August 2003, he held various positions within the Preclinical Development department.  Prior to joining Isis in 1995, Dr. Geary was Senior Research Scientist and Group Leader for the bioanalytical and preclinical pharmacokinetics group in the Applied Chemistry Department at Southwest Research Institute.

 

ELIZABETH L. HOUGEN

 

Senior Vice President, Finance and Chief Financial Officer

 

Ms. Hougen was promoted to Senior Vice President, Finance and Chief Financial Officer in January 2013. From January 2007 to December 2012, Ms. Hougen served as our Vice President, Finance and Chief Accounting Officer and from May 2000 to January 2007, she served as our Vice President, Finance.  Prior to joining Isis in 2000, Ms. Hougen was Executive Director, Finance and Chief Financial Officer for Molecular Biosystems, Inc., a public biotechnology company.

 

BRETT P. MONIA, Ph.D.

 

Senior Vice President, Drug Discovery and Corporate Development

 

Dr. Monia was promoted to Senior Vice President, Drug Discovery and Corporate Development in January 2012. From February 2009 to January 2012, Dr. Monia served as our Vice President, Drug Discovery and Corporate Development and from October 2000 to February 2009, he served as our Vice President, Preclinical Drug Discovery.  From October 1989 to October 2000 he held various positions within our Molecular Pharmacology department.

 

PATRICK R. O’NEIL, Esq.

 

Senior Vice President, Legal and General Counsel

 

Mr. O’Neil was promoted to Senior Vice President, Legal and General Counsel in January 2013. From September 2010 to January 2013, Mr. O’Neil served as our Vice President, Legal and General Counsel and from January 2009 to September 2010, he served as our Vice President, Legal and Senior Transactions Counsel.  From October 2001 to January 2009 he held various positions within our Legal department.  Prior to joining Isis, Mr. O’Neil was an associate at Cooley LLP.

 

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