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Isis Pharmaceuticals UPDATES

Isis presented data on the antisense cancer drugs in clinical development. Phase I clinical trials of ISIS 3521 (targeted to PKC-alpha) in combination with paclitaxel (Taxol) and carboplatin in patients with metastatic cancer showed that six of eight patients with non-small cell lung cancer attained a partial response and a seventh patient maintained stable disease through six months of treatment. The drug was well-tolerated, without adding to the expected toxicities of the chemotherapy. In another Phase I combination trial of ISIS 3521, patients with advanced cancer were also treated with 5-fluorouracil and leucovorin. Two of eight patients with colon cancer have partial responses. Three of these eight patients have had stable disease lasting four to more than seven months. Two Phase I clinical trials of ISIS 2503 (targeted to Ha-ras) were presented demonstrating a high level of tolerability at high doses. In one trial, the administration schedule was 14-day continuous infusion, and in another trial the administration schedule was 24-hour weekly infusion. Safety with the 14-day continuous infusion was particularly impressive and this schedule will be used in future trials. Prolonged stable disease was observed in four patients on this trial including one with pancreatic cancer. The Phase II trials of ISIS 2503 have been initiated. Tumor types to be studied are gastrointestinal, breast and lung. Those are tumors in which the ras proteins are known to contribute to tumor development and maintenance. The Phase II program for ISIS 3521 and ISIS 5132 (targeted to C-raf kinase) should be largely completed at the end of 1999. With the excellent safety profile of these drugs, and evidence of single-agent and combination activity, Isis believes they will progress to Phase III studies in 2000.

Isis initiated a Phase II clinical trial of ISIS 2503, its third antisense anticancer compound in clinical development. In Phase II, 2503 will be evaluated as a single-agent in patients with colon, breast, pancreatic and non-small cell lung cancers. Ten sites in the United States and Europe will enroll 15-30 patients per tumor type in these trials. Phase I trials examining the use of ISIS 2503 in combination with approved chemotherapies are also planned in 1999. In earlier Phase I trials, 2503 was well tolerated, with no clinically significant toxicities observed among the 22 patients with a variety of solid tumors who received the drug by 14-day continuous infusion repeated every 21 days. Prolonged stable disease was observed in 4 patients on this trial, including one patient with pancreatic cancer who had disease stabilization for 8 treatment courses administered over 6 months. ISIS 2503 is an antisense inhibitor of H-ras gene expression. H-ras is one of the family of ras genes that are involved in the process by which cells receive and send signals that affect their behavior. Evidence exists to support a direct role for the ras gene products in the development and maintenance of human cancers. Isis has two other antisense anticancer drugs already in Phase II trials. Isis 3521 is an antisense inhibitor of the alpha member of the protein kinase C gene family. PKC-alpha is a signaling protein that plays a role in many solid tumors. Phase I and II trials have shown promising disease responses in patients with a variety of refractory cancers including lymphoma, lung and ovarian. In phase II trials, Isis 3521 is being evaluated both as a single agent and in combination for the treatment of a number of cancers including ovarian, prostate, breast, brain, colon, lung and melanoma. Isis 5132 is an antisense inhibitor of the C member of the raf kinase multi-gene family. C-raf kinase plays a role in the signaling process that regulated cell growth and proliferation. Phase I studies show promise in disease stabilization of colon cancer, pancreatic cancer, ovarian cancer and renal cancer. Phase II trials are targeted at many of the same tumors as Isis 3521. With the large number of cancer treatments currently making their way through the pipeline, I suspect that Isis' cancer drugs will be best used in combination with other therapies. It seems as if our best chance to "cure" cancer will be the use of multiple therapeutic modalities concurrently.

Isis Pharmaceuticals and CIBA Vision Corporation were informed that the Committee for Proprietary Medicinal Products (CPMP) of the European Medicines Evaluation Agency (EMEA) have issued a positive opinion to approve the Marketing Authorization Application of Vitravene (fomivirsen) for the treatment of cytomegalovirus (CMV) retinitis in patients with AIDS. The Committee recommended that until further experience is gained, Vitravene be approved for use in the local treatment of CMV retinitis in newly diagnosed or advanced CMV retinitis when other therapies are considered unsuitable or have been ineffective. The approval is wonderful, but I believe the complete importance of this event will be recognized with the easier approval of antisense drugs in the future.

Isis and Elan Corporation, plc (NYSE: ELN) signed a binding letter of agreement to form a new subsidiary of Isis to develop a platform technology for the oral delivery of antisense drugs. Isis will be the majority shareholder. The company will begin work on an oral antisense antisense inhibitor of tumor necrosis factor-alpha (TNF-a). TNF-a has been implicated in a number of inflammatory diseases. Isis will get a $27 million equity investment from Elan. This will consist of a $15 million common stock purchase at a premiuim to the market price. There will also be a $12 million of convertible exchangeable preferred stock. The preferred stock may be converted into an ownership interest in either Isis or the new subsidiary. Elan will also receive warrants that will be exercisable in five years.

The agreement with Elan seems to be quite promising. Elan has been able to demonstrate the oral delivery and bioavailability of large macromolecules. These molecules are quite similar to Isis' antisense drugs. If the companies are able to use this technology platform for oral antisense agents, it will be exceedingly important to Isis' future. Antisense technology has been proven to work with the approval of Vitravene. The biggest stumbling block to the use of antisense will be delivery method. In diseases without other good options (Crohns, cancer, HIV, etc.) the method of delivery is less important. In diseases where antisense will have to compete with other, equally efficacious (or nearly so) treatments, the ease of delivery will be the deciding factor.

Dr. Crooke published the following letter on the Isis web site. As you all probably know, there has been some concern about Isis' financing options. I am impressed with the forthcoming attitude of management. The company has stepped up to dispel misunderstandings about their reasoning.

April 2, 1999

To Isis Friends:

As many people know, Isis is currently exploring financing options to strengthen the company and support our research and development activities. We are in the final stages of that process. We believe we will be able to structure a financing that achieves our strategic goals and, at the same time, guards against undue dilution for our current stockholders.
There are several kinds of financing options available to us. Because our current cash position is strong, we have taken our time and carefully considered different options. We are interested in structures that will enable us to access funds over time, as needed, rather than all at once. This flexibility will enable us to balance the selling of equity with other funding options, such as corporate partnerships. We have completely rejected any so-called convertible "death spiral" options which have built-in incentives to destabilize or weaken a company's stock price and which are highly dilutive. We are considering only those structures that will enable Isis to exercise considerable control over the conditions under which we transact the financing, including the rate and the price at which we sell new stock to potential investors. We are committed to working only with responsible investors who have an interest in our long-term success.
Undertaking a financing requires extensive filing of documents with the Securities and Exchange Commission. The SEC conducts a thorough review of these documents and may require additional information. The filing of these documents does not mean that a financing has been completed. The specific number of shares to be offered, the price at which they may be offered, and other details of a proposed transaction are required in advance by the SEC to complete the filing. These details are included to provide an example of what we are considering. They are not final commitments.
The reasons that Isis is exploring financing options today are straightforward. We believe that Isis has the potential to succeed with our current programs and that additional funds will support our strategic initiatives. We have identified high quality, reputable investors who share our belief in Isis' potential, who see our company as a valuable investment opportunity, and who want to participate in our future success. And, they are interested in making that investment in Isis now.
The capital markets for biotechnology companies are uncertain, at best. It is not possible to predict whether a biotechnology "financing window" will open in the near future, or, if one does, whether that will be an opportune time for Isis to consider a follow-on equity financing. It is not possible to predict what kind of competition for financing there might be at such a time, or whether adequate capital will be available.
We believe that the options we are considering now are far less risky than the option of waiting and trying to predict when a financing window might open. We believe that acting now to take advantage of new investor interest is in the best interest of our current stockholders.
We are convinced that Isis is one of the most attractive investment opportunities in the biotechnology arena today. We succeeded in gaining marketing approval in the U.S. for VitraveneTM, the first antisense drug, at the end of 1998, and in record time. We have a pipeline of promising drugs to treat inflammatory diseases and cancer that are advancing through clinical trials and that have significant therapeutic and commercial potential. We have a dominant position in antisense, a breakthrough drug discovery and development technology. We have established broad and sustaining corporate partnerships with industry leaders. And, we have a solid track record of prudent fiscal management that has enabled us to advance a rich drug development pipeline forward. We have a clear strategy for managing this company through to profitability, and we are optimistic about our ability to succeed.
The management and Board of Directors of Isis, and I personally, are committed to acting in the best interest of this company and its stockholders. I believe that Isis will be successful, and I welcome the participation of investors who share our belief in a bright future.

Stanley T. Crooke, M.D., Ph.D.
Chairman and Chief Executive Officer

Isis Pharmaceuticals gave a presentation to investors at the Informed Investors Biotech Stocks Forum in San Diego March 13, 1999. The presentation was broadcast by Vcall over the internet. The presentation was by Steven James, M.B.A., Vice President, Business Development for Isis Pharmaceuticals. He feels that sustainable growth and prosperity are at hand. He stated the company's policy is to maintain two years of cash on hand at all times. This takes into account expected royalties and partnering streams in the two year time period. Isis currently has over 200 patents involving antisense technology. The company (in conjunction with CIBA) is hoping to have Vitravene approval in Europe later this year. Isis is currently moving toward an IND to begin trials for a hepatitis C treatment.

Mr. James stated that based on interim Phase III trial results, Isis is moving rapidly toward an NDA filing for 2302 (it seems like the company is hoping to do this late this year). He also stated that they hope for 2302 commercialization in 2000-2001. The Phase II trials of 2302 produced durable remissions, steroid sparing, fistula healing with no clinically significant side effects. Retreatment with 2302 has not been a problem (as opposed to remicade, Centocor's Crohn's drug). The market is defined as 250,000-300,000 patients. 2302 is a 50/50 joint venture with Boehringer Ingelheim. They see a price of $10,000 per patient for 2302. They are also excited about the potential for 2302 to be used to treat renal transplant rejection and ulcerative colitis. They are excited about the potential for different formulations (aerosol, dermal) of 2302 currently in preclinical studies.

Mr. James mentioned that Isis currently has 3 cancer drugs in Phase II trials. It seems that ISIS 2503 is just starting Phase II trials. Isis' cancer drugs (3521, 5132 amd 2503) target molecular receptors/pathways involved in tumor proliferation and growth. They have seen efficacy and disease stabilization/tumor response with the drugs. The drugs have also been noted to add to the efficacy of chemotherapeutic agents in combination treatment.

The second/third generation antisense drugs currently in development are longer acting then the current generation. They can also be dosed orally, via aerosol or topically.

Isis has a number of partnerships in place that he discussed. With Novartis they are working on two cancer drugs and have $100 million invested. They are working with Boehringer Ingelheim on 2302 who also have $100 million invested. They have an agreement with Zeneca LifeScience Molecules who will build the manufacturing facilities to supply the oligonucleotides. This would remove Isis from the manufacturing process. They are working with Merck to screen compounds in proprietary assays for activity against hepatitis C. They have an agreement with Zeneca against multiple cancer targets. They also have an interesting agreement with Abbott in functional genomics. They are using antisense to knock out specific proteins to validate targets for drug development. Abbott then is free to develop drugs against these targets and Isis may develop antisense drugs against these targets. Isis will receive royalties from any drug developed in this collaboration.

Isis recently purchased Gilead Sciences' antisense patent portfolio. He stated there are a number of patents that complement Isis' patents.

Isis Pharmaceuticals announced that its Ibis Therapeutics program was awarded a $6.6 million three-year grant from the Defense Advanced Research Projects Agency (DARPA). Ibis Therapeutics is teaming up with HNC Software Inc. (Nasdaq: HNCS) to develop broad ranging countermeasures for biological warfare defense. The companies plan to integrate HNC's Context Vector (TM) technology and Ibis' talents in RNA structure and function to develop a new technology to identify molecular targets for drug discovery directly from genomic sequence data. Ibis will then use this information to design small molecule drugs that bind to these unique RNA targets. This adds to the work Isis conducted under its first DARPA award in 1997. The goal is to identify common binding sites to a wide range of bacteria in order to develop small molecules to combat bacterial pathogens. They have yielded a number of proprietary targets and significant advances in the design of RNA-targeted drugs through this work. The work Isis is doing is exceedingly important. Biological weapons are going to become a bigger and bigger risk in the future. Unfortunately it is a weapon that is easily obtained and hidden. Besides the military importance, this will advance Isis' understanding of this area of technology. Certainly the possible applications throughout the medical field are immense.

Isis purchased Trega Biosciences' (Nasdaq: TRGA) combinatorial libraries through its ChemFolio program. Isis will receive non-exclusive access to its small-molecule combinatorial libraries in exchange for an up-front payment on each compound delivered. Isis may also license synthetic protocols for libraries from which active compounds are identified. The ChemFolio provides customers access to novel, diverse combinatorial chemistry libraries for the identification of biologically active compounds.

Isis Pharmaceuticals initiated a research collaboration with Abbott Laboratories (NYSE: ABT) to prioritize drug development targets using Isis' Antisense Target Validation (ATV) technology. This collaboration will enable validation of numerous gene targets in both in vivo and in vitro models, identify the function of these genes, prioritize these targets and develop drugs based on novel gene targets to treat a wide range of diseases. Isis will use its Rapid Throughput Screening technology to design, screen, synthesize and characterize inhibitors of gene targets provided by Abbott. Abbott will then use these antisense inhibitors to identify the function of the target, its molecular pathway and determine its role in disease. Isis will receive from Abbott an upfront fee, quarterly research fees, milestone payments and royalties on net sales of any Abbott non-antisense product arising from the collaboration. Isis will receive rights to Abbott genes to develop antisense drugs. This is a marvelous way for Isis to use their existing technology to generate revenue. At the same time they are able to generate royalties going forward on any drugs to come out of this collaboration as well as identify future antisense targets.