Nov. 5, 2009 (PR Newswire) -- CARLSBAD, Calif., Nov. 5 /PRNewswire-FirstCall/ -- Isis Pharmaceuticals, Inc. (Nasdaq: ISIS) today announced its financial results for the third quarter ended September 30, 2009. For the quarter, Isis reported a net loss of $3.4 million and a net operating loss of $6.9 million. In addition, for the first nine months of 2009, Isis reported net income of $170.3 million and a net operating loss of $6.1 million. Isis is confident that it will meet its 2009 financial guidance of more than $145 million of net income and a net operating loss in the low to mid $20 million range. All amounts exclude non-cash stock compensation. Isis ended the third quarter with $607.8 million of cash, cash equivalents and short-term investments. Consistent with its guidance and based on its existing and committed cash, Isis expects that its 2009 year-end cash balance will be greater than $550 million.

"We are projecting to end 2009 in the strongest financial position in our history, maintaining our momentum of strong financial performance with our second year of profitability. And, we believe that our business model will enable us to sustain a strong financial position beyond this year. In addition to our financial success, we are performing in all other areas of our business. To date, we have reported positive top-line clinical data from our two most advanced programs, Phase 3 data on mipomersen in patients with homozygous familial hypercholesterolemia and most recently Phase 2 data on ISIS 113715 in patients with type 2 diabetes. Further, we and our partners have advanced a number of antisense drugs into development and into the clinic. As we approach the end of 2009, our financial position ensures that we can continue to advance our technology, discover and develop a significant number of promising new drugs, and capitalize on our technology to continue to build our financial strength," said B. Lynne Parshall, COO and CFO of Isis.

Upcoming Key Milestones

--  Report full data at the upcoming American Heart Association (AHA) from a
Phase 3 study evaluating mipomersen in homozygous FH patients; positive
top-line data was reported in May 2009
--  Report data from additional mipomersen studies in other patient
populations

--  Isis will continue to expand its pipeline by moving at least three new
drugs into development in 2009

Financial Results

On a GAAP basis, Isis reported a loss from operations of $10.4 million and $15.9 million for the three and nine months ended September 30, 2009, respectively, compared to income from operations of $176,000 and a loss from operations of $5.0 million for the three and nine months ended September 30, 2008, respectively. Isis' operating results in 2009 reflect higher expenses associated with the expansion of the Company's programs as discussed in more detail in the "Operating Expenses" section below, offset in part, by an increase in revenue recognized in 2009 from Isis' corporate partnerships compared to 2008. Additionally, Isis reported a net loss of $6.9 million and net income of $162.0 million for the three and nine months ended September 30, 2009, respectively, compared to net income of $1.6 million and a net loss of $7.9 million for the same periods in 2008. Also, Ibis' revenue and expense are included in Isis' 2008 financial results as discontinued operations and are not included in Isis' 2009 financial results. In addition, Isis' 2009 financial results reflect the sale of Ibis. Please refer to the reconciliation of pro forma and GAAP measures, which is explained later in this release.

As a result of selling Isis' diagnostic subsidiary, Ibis Biosciences, to Abbott Molecular Inc. (AMI) in the first quarter of 2009, Isis is reporting Ibis' financial results as discontinued operations. Accordingly, Isis has presented all periods of Ibis' operating results in Isis' financial statements separately as discontinued operations. The discontinued operations line in the first nine months of 2009 also includes the $171.8 million gain that Isis recognized on the sale, net of taxes. A reconciliation summarizing the adjustments made to reflect the changes to Isis' 2008 historical statement of operations appears later in this release.

Revenue

Revenue for the three and nine months ended September 30, 2009 was $26.8 million and $89.3 million compared to $29.5 million and $77.5 million in the same periods of 2008. Isis' revenue fluctuates based on the nature and timing of payments under agreements with the Company's partners, including license fees, milestone-related payments and other payments. In August 2009, Isis finished amortizing the revenue associated with the $50 million upfront payment Isis received from Ortho-McNeil-Janssen in 2007 resulting in less revenue in the third quarter of 2009 compared to the same period in 2008. The increase in Isis' revenue for the first nine months of 2009 increased compared to the same period in 2008 due primarily to an increase in revenue from the Company's collaboration with Genzyme.

Operating Expenses

On a pro forma basis, operating expenses for the three and nine months ended September 30, 2009 were $33.6 million and $95.4 million compared to $25.7 million and $72.1 million for the same periods in 2008. Consistent with Isis' guidance, the higher expenses in 2009 were primarily due to the expansion of the Company's clinical development programs, including additional expenses associated with the broad Phase 3 clinical program for mipomersen, the lead drug in Isis' cardiovascular franchise, expenses for Regulus as it builds its core team and expenses related to the Company's expansion of its drug discovery activities into new therapeutic areas. On a GAAP basis, Isis' operating expenses from continuing operations for the three and nine months ended September 30, 2009 were $37.2 million and $105.2 million compared to $29.3 million and $82.5 million for the same periods in 2008, including non-cash compensation expense related to stock options of $3.5 million and $9.8 million for the three and nine months ended September 30, 2009 and $3.6 million and $10.4 million for the same periods in 2008.

Interest Expense

In 2009, Isis adopted a new accounting standard for its 2 5/8% convertible notes, which required Isis to assign a value to its convertible debt without considering the conversion feature. As a result, Isis is recording its convertible debt at a discount, which Isis is amortizing over the expected life of the debt as additional non-cash interest expense. The new standard required retrospective application to all periods presented. Accordingly, the amount of interest expense Isis recorded in its statement of operations for the three and nine months ended September 30, 2009 increased by $1.7 million and $5.1 million compared to an increase of $1.6 million and $4.6 million for the same periods in 2008. This new standard did not impact Isis' cash, cash equivalents and short-term investments but decreased the carrying value of Isis' $162.5 million convertible notes to $123.3 million and $118.0 million at September 30, 2009 and December 31, 2008, respectively, with corresponding increases to shareholders' equity. A reconciliation summarizing the adjustments made to reflect the changes to Isis' 2008 historical statement of operations appears later in this release.

Net Income (Loss) from Continuing Operations, Net of Income Tax Benefit

Net loss from continuing operations for the third quarter of 2009 was $12.0 million compared to net income from continuing operations of $560,000 for the same period in 2008. For the nine months ended September 30, 2009 and 2008, net loss from continuing operations was $17.3 million and $5.1 million, respectively.

Even though Isis finished the first nine months of 2009 with a net loss from continuing operations, Isis had taxable income primarily resulting from the significant upfront payments that the Company received from its strategic alliance with Genzyme in 2008 and the gain it recognized on the sale of Ibis to AMI earlier this year. Accounting rules require Isis to record an income tax benefit of $4.6 million on a line called "Income Tax Benefit" as part of its financial results from continuing operations because it will be using the tax benefits generated from its current year loss from continuing operations to offset a portion of its taxable income.

Net Income (Loss) from Discontinued Operations

The net income (loss) from discontinued operations represents the operating results of Ibis that are presented separately in Isis' financial statements as a result of the sale of Ibis to AMI in January 2009. Net income from discontinued operations in the first nine months of 2009 primarily consists of the $202.5 million gain less income taxes. Accounting rules require Isis to allocate its 2009 tax expense between discontinued operations and continuing operations in its Consolidated Statement of Operations. Since the sale of Ibis to AMI was a discrete event that occurred in the first quarter of 2009, the accounting rules required Isis to record the total amount of its estimated income tax expense for discontinued operations in the first quarter of this year. Further, Isis was required to gross up this amount by the projected annual tax benefit it expects to record as part of its loss from continuing operations in 2009, which is described above. This means that in addition to the tax expense for the gain on the sale of Ibis, discontinued operations also includes the tax expense for other timing differences, which principally consists of the timing difference associated with the upfront funding Isis received from Genzyme. Accordingly, Isis recorded tax expense of $30.7 million in discontinued operations in the first quarter of 2009. A reconciliation summarizing the adjustments made to reflect the changes to Isis' 2008 historical statement of operations appears later in this release.

Net Income (Loss)

Isis reported net income of $162.0 million for the nine months ended September 30, 2009 compared to a net loss of $7.9 million for the same period in 2008. Basic and diluted net income per share for the nine months ended September 30, 2009 was $1.65 per share, compared to basic and diluted net loss per share of $0.08 for the same period in 2008. The improvement in Isis' net income and net income per share for the first nine months of 2009 over the same period in 2008 was primarily due to the gain Isis recognized when it sold Ibis to AMI. For the three months ended September 30, 2009, Isis reported a net loss of $6.9 million or $0.07 per share compared to net income of $1.6 million or $0.02 per share for the same period in 2008. In the third quarter of 2008, the discontinued operations line item included $4.1 million of income related to the call option that Isis granted to AMI in connection with the sale of Ibis.