Isis Pharmaceuticals Inc. (ISIS) reported a net loss of 16 cents per share in the fourth quarter, which was wider than the Zacks Consensus Estimate of a net loss of 11 cents. The company had reported a net loss of 8 cents in the year ago period. The wider-than-expected loss was due to higher operating expenses.

For the full year, the company reported a net loss of 31 cents, well above the net loss of 10 cents reported in 2008. Once again, higher operating expenses accounted for the wider loss despite an increase in revenues.

Fourth quarter revenues increased 8.8% to $32.3 million. Revenues were boosted by a $10 million sublicensing fee earned by the company in December 2009 from OncoGenex Pharmaceuticals, Inc. (OGXI), which entered into a licensing agreement with Teva Pharmaceutical Industries Ltd. (TEVA) for OGX-011. OGX-011 has been co-discovered by Isis with OncoGenex.

Full year 2009 revenues increased 13.4% to $121.6 million mainly due to an increase in revenue from the company’s collaboration with Genzyme (GENZ).

Isis reported higher expenses during the quarter mainly due to the expansion of its clinical development programs, including additional expenses associated with the phase III clinical program for mipomersen, 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. Regulus Therapeutics has been established in collaboration with Alnylam Pharmaceuticals (ALNY).

We expect operating expenses to continue increasing as the company expands its research and development activities. The company expanded its pipeline in 2009 by moving four new drugs into development. Isis also reacquired its eIF-4E program for cancer from Eli Lilly (LLY) and intends to move the candidate into a phase II study in 2010. Isis plans to bring 3-5 new drugs into clinical development in 2010.

Meanwhile, Isis continues to make progress with its lead pipeline candidate, mipomersen. Collaboration partner Genzyme intends to file the first new drug application (NDA) for mipomersen in the U.S. and Europe for homozygous familial hypercholesterolemia (FH) in the first half of 2011. About 25,000 – 30,000 patients would be targeted under this indication.

A potential second filing in Europe will involve a broader patient population, namely, heterozygous FH patients.

Isis provided guidance for 2010. The company expects revenues to decline by about $20-$25 million mainly due to the completion of the amortization of certain upfront fees. Besides this, operating expenses are expected to go up by $15-$20 million. The company expects net operating loss in the mid $50 million range. Isis expects to exit 2010 with more than $425 million in cash.

We currently have a Neutral recommendation on Isis.

Although we believe that Isis’ antisense technology represents an exciting and potentially revolutionary platform for developing therapeutic candidates to treat a wide margin of diseases, we remain concerned about the company’s dependence on mipomersen for future growth. Any delay in the development and commercialization of the candidate would weigh heavily on the stock.

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