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3 Things Investors Should Know From Isis' Earnings Report

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Isis Pharmaceuticals  (NASDAQ: IONS  ) reported its quarterly earnings Tuesday morning. Here are three things investors should know moving into year's end.

1. Cash money millionaires
Isis ended the third quarter with a whopping $671 million in cash and working capital of $660 million, a huge increase over the $374.4 million Isis had on the books at the end of 2012. $100 million of that cash came in the form of an upfront payment from Biogen  (NASDAQ: BIIB  ) , whose continued interest in collaboration spawned another partnership to tackle neurological disorders. With operating expenses of $49.1 million for the quarter, that cash could carry Isis through several additional quarters of clinical development. 

But it's not all sunshine on the balance sheet. While a good chunk of that cash flow came from licensing and milestone payments, it's not all hard-earned revenue. A large portion of the cash comes from a $210 million stock offering issued in the second quarter, so investors should keep an eye on that dilution moving forward. Investors should also watch that operating expenses figure; it's increased 24% year over year as Isis advances its most promising candidates into late-stage trials.

2. Strategic partnerships
Isis has maintained a consistent business model as its pipeline has grown. Around half of its drug candidates -- including its only approved drug, Kynamro -- are licensed to bigger companies with the capital to fully develop and commercialize them. The closest relationship has been with Biogen. Together, the companies are developing several preclinical-stage drugs, as well as ISIS-SMNRx for the rare disease spinal muscular atrophy. This allows Isis to recognize a drug's potential value in advance of its regulatory approval and commercialization and allows it to maintain one of the deepest pipelines in small-cap biotech land.

A big focus of this quarter's conference call was the development of ISIS-APOCIIIRX, a drug aimed at lowering the protein ApoCIII and triglycerides in patients with various forms of hyperlipidemia. ISIS-APOCIIIRX is not only wholly owned by Isis, it is also one of the most advanced and exciting drugs in its pipeline. So when asked bluntly if management is looking to partner the drug or go at it alone, management left the option open. 

What was made clear is management's commitment to the goal of remaining small and focusing on innovation. Interpret that as you will, but with so much cash on hand Isis can continue to develop ISIS-APOCIIIRX in-house. 

3. That pesky fish oil
Amarin's  (NASDAQ: AMRN  )  Vascepa fish oil regulatory woes are the gift that keeps on giving. An FDA panel decision not to recommend the triglyceride-lowering drug for use in patients with moderately elevated triglycerides has sent shockwaves through the cardiovascular community.

ISIS-APOCIIIRX is being studied in two classes of patients-those with the genetic disorder familial chylomicronemia syndrome, or FCS, and those with severely elevated triglycerides (above 880 mg/dL). Vascepa had already been approved for the treatment of severely elevated triglycerides without a trial demonstrating clinically relevant cardiovascular outcomes, so Isis management thinks that the decision to require an outcomes study only applies to the moderate hypertriglyceridemia indication. Regardless, Isis can't speak for the FDA and has been planning Phase 3 studies for both indications anyway. In that sense, ISIS-APOCIIIRX seems to have escaped that regulatory snag, but outcomes studies take time and will delay regulatory filings.

The hyperlipidemia space is crowded, too, and Isis will really need that additional FCS indication (and the orphan value pricing that goes with it) to see the revenue it's hoping for.

The bottom line
Isis had another good quarter. As a shareholder myself, I'm encouraged by the science and corporate development, but will keep an eye on the cash position to make sure Isis can support its lofty development goals. 2014 will be a make-or-break year for Isis, and with so many shots on goal I'm excited by the prospect.

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