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[ISIS PHARMACEUTICALS LOGO]
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1999 ANNUAL REPORT
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[ISIS PHARMACEUTICALS LOGO]
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To our Stockholders:
Since Isis' inception, our goal has been to discover and develop important new
drugs to treat disease and improve the lives of patients through the creation of
new RNA-based drug discovery technologies. Our technologies are broadly enabling
and can be used to improve the drug discovery capability not only of Isis but of
the pharmaceutical industry as well. Over the last ten years we have made
tremendous advances toward our goal. Isis has pioneered two proprietary,
innovative drug discovery technologies: antisense technology - the creation of
specific inhibitors to a targeted gene's RNA, which can be used as drugs or as
genomics tools; and Ibis technology - the creation of small molecule drugs that
bind to structured areas of RNA. We intend to fully exploit all of our
innovations to maximize shareholder value.
Isis' technologies are focused on RNA, which is a rich target for drug
discovery. RNA is universal to all living things. It is the fundamental molecule
that transfers genetic instructions from DNA to the cell to produce proteins,
the working molecules of the body. By interfering with RNA, either through
antisense inhibitors or Ibis' small molecule drugs, each of our technologies is
capable of stopping the production of proteins involved in specific disease
processes.
RNA-based drug design is rational, in that we use genetic information directly
to design our drugs. The genetic alphabet is comprised of only four chemical
bases that must obey strict rules for binding, called base-pairing. The orderly
nature of base-pairing makes the creation of drugs that bind a predictable and
efficient process. Both our antisense and Ibis drug discovery technologies take
advantage of the rationality of RNA. We use the gene sequence directly to make
drugs in our antisense therapeutics program, to validate gene targets in our new
GeneTrove division and to determine ideal binding sites for small molecule drugs
in our Ibis Therapeutics division.
RNA is a very specific site for drug development. Since an antisense drug is
made according to the base-pairing rules, it is likely to bind only to its
intended target, which dramatically lowers the likelihood of unwanted side
effects when used as a drug. In addition, the process of characterizing an RNA
binding site for a small molecule drug, as in Ibis, can be much simpler than the
same task in binding to a protein, as in traditional drug discovery, because RNA
structures are composed of only four chemical bases as opposed to the 20 amino
acids that make up proteins.
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Finally, RNA is still an untapped target for drug discovery. Isis has applied
its expertise in molecular and cellular biology, medicinal chemistry,
pharmacology and bioinformatics to our RNA drug discovery efforts. This
proficiency, combined with our broad patent estate, has positioned the company
as the leader in both antisense and Ibis technologies.
We are leveraging our wealth of technology in numerous ways to create value.
First, we are developing an exciting pipeline of antisense products to meet
important medical needs with significant commercial potential. Second, we have
organized a new division of Isis called GeneTrove, which is actively marketing
our capabilities in genomics to additional industry partners. We believe that
our GeneTrove gene functionalization and target validation program represents an
important product offering in 2000 and beyond that will bring incremental
revenue to the company. Third, our Ibis technology has matured sufficiently to
be attractive to industry partners that are seeking innovative drug discovery
solutions. We are hoping to initiate research and development partnerships with
major pharmaceutical companies based on this exciting platform. Finally, we are
leveraging our antisense patent estate by exploiting the RNase H1 patent that
issued recently. This fundamental antisense patent, along with related patents,
has the potential to generate licensing revenues for Isis. In the following
paragraphs I will provide additional detail about each of these immediate value
drivers.
Antisense Research and Product Pipeline
Antisense is the most direct route from gene to drug because we use the gene
sequence information directly to make an antisense inhibitor to a gene.
Antisense drugs are more specific than traditional small molecule drugs and
therefore have the potential to offer efficacy with an improved safety profile.
The efficiency and specificity of antisense make it a rapid, highly productive
approach to drug discovery. Our ongoing research efforts encompass a broad range
of therapeutic areas, including liver diseases, metabolic diseases such as
diabetes, inflammatory diseases, cancer and dermatology. We have discovered,
through continued development of both first and second generation chemistries,
that antisense is a versatile technology that can be delivered in a variety of
ways to enhance patient convenience. Administration is feasible by topical
cream, inhalation, enema, subcutaneous injection and, perhaps most
significantly, orally. Many of these advances are reflected in the products
currently in our development pipeline.
Before addressing our robust product pipeline, I will discuss the status of ISIS
2302 in Crohn's disease. We were very surprised and disappointed at the end of
1999 when we learned that the pivotal clinical trial of ISIS 2302 in Crohn's
disease had failed. We responded to this disappointment with a substantial
restructuring of the company in order to conserve resources and to focus our
efforts on drug development programs with the greatest potential for adding
near-term value. We are continuing to evaluate the data from the Crohn's disease
trial.
While we may never fully understand why the results of the second half of the
trial completely reversed the positive results that were achieved in the first
half, we believe that there are trends within subgroups of the patients that
support activity of the drug. At the present time, we have not determined
whether we will pursue further development of ISIS 2302 in this disease. While
this event was a setback for Isis, it represented a single disappointment in a
single indication of a single product. The
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totality of the data convince us that antisense technology is capable of
producing important drugs, and we have proof of principle with the successful
commercialization of the first antisense drug, Vitravene(TM), for treatment of
CMV retinitis. We are committed to our goal of bringing novel drugs to patients
through innovative RNA-based drug development technologies that we create and
are therefore very excited about the pipeline of drugs currently in development.
Isis' product pipeline consists of five drugs in Phase II development and two
drugs in preclinical development. These products focus on diseases with
substantial unmet medical need: cancer, psoriasis, hepatitis C and inflammatory
diseases.
Cancer: We have three anti-cancer drugs in the clinic, each being studied in
multiple tumor types. In 2000, we plan to advance our lead anti-cancer compound,
ISIS 3521 in non small cell lung cancer (NSCLC), into Phase III clinical trials.
ISIS 3521 is a potent, selective inhibitor of protein kinase C-alpha. We are
very pleased with the performance of ISIS 3521 in combination with standard
chemotherapy in improving the average survival rate of NSCLC patients that we
have seen to date in our ongoing Phase II trial. Additionally, results to date
in the Phase II single agent trial of ISIS 3521 in non-Hodgkin's lymphoma are
encouraging, and we are aggressively expanding this program. Our other two
anti-cancer drugs, ISIS 5132 and ISIS 2503, are progressing through Phase II
trials. These drugs target C-raf kinase and Ha-ras, respectively. We expect to
have sufficient data to evaluate these drugs later in 2000.
Psoriasis: In 1999, we initiated Phase II trials of a topical cream formulation
of ISIS 2302, an inhibitor of ICAM-1, in plaque psoriasis. We are very
enthusiastic about the potential for this indication, as the market potential
for psoriasis drugs is vast and our topical formulation would offer a
competitive dosing advantage over other intravenous drugs in development. We
expect analysis of this trial in the late 2000/early 2001 timeframe.
Hepatitis C: ISIS 14803 is currently being studied in a Phase I/II trial of
patients chronically infected with the Hepatitis C virus under HepaSense, a
joint venture formed with Elan Corporation, plc. (Elan). The drug is being
administered intravenously in this first trial, and with positive results,
additional trials using subcutaneous delivery and using Elan's MEDIPAD
microinfusion pump will be initiated. The potential of a new treatment in a
convenient MEDIPAD delivery system is very exciting, as Hepatitis C is a rapidly
growing health concern with currently limited options for treatment. Results of
the initial clinical trial are expected in the late 2000/early 2001 timeframe.
Inflammatory Diseases: In 1999 we formed a partnership with Elan, called
Orasense, to pursue oral formulation of antisense drugs, with ISIS 104838 as the
lead product. ISIS 140838 is an inhibitor of TNF-alpha, which is a validated
target involved in diseases such as rheumatoid arthritis and Crohn's disease.
Our second drug for inflammatory disease is ISIS 107248, which is an inhibitor
of CD49d for the treatment of multiple sclerosis. An important distinction of
our two drugs in preclinical development for inflammatory diseases is that they
are second-generation antisense chemistry products rather than first-generation
chemistry, and therefore have the potential to be even more potent, to have
fewer side effects and to be formulated orally. We believe that the therapies we
are creating are exciting and
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important to the medical community and patients. We also believe that as we have
success in the clinic, our pipeline will increase in value for our shareholders.
GeneTrove - Gene Function and Target Validation Program
At Isis we are using antisense technology to answer the most fundamental
question of the genomics revolution: Which genes make the best targets for drug
discovery? As the sequences of all 100,000 human genes become available, the
answer to this question is of utmost value to pharmaceutical companies focused
on drug discovery. To pursue the wrong gene would mean tremendous waste of
resources and reduced competitiveness in the marketplace. Antisense inhibitors
are ideal tools for understanding what genes do, in what cellular pathways they
reside, how they are regulated and whether they are important in disease.
With the proprietary, automated systems that we have developed for our own use
to create antisense drugs, we generate solutions to genomic questions very
rapidly and efficiently. To determine if a gene is important in a disease, for
example, we start with the sequence of a target gene, which is provided by our
partners or is available to Isis through our research. Using our proprietary
High-Throughput Screening process, our computer designs antisense inhibitors and
tests them to find inhibitors that bind to the RNA of the gene. We then select
the best inhibitor candidates and perform tests in an animal model cell culture.
These in vitro tests enable us to verify that the inhibitor is acting
specifically and selectively; it is stopping the expression of the targeted gene
in cells in a test tube. At this point we have a lead inhibitor of the gene, and
it has taken about one week to do the work described thus far. The final step is
to stop the production of the gene in vivo, in a living animal, to see if
inhibition of the gene can protect the animal from contracting the disease we
are studying. The results of this last step tell us clearly whether or not the
gene target is important in the disease of interest and whether or not we, in
our own research, or our partner should focus resources on developing a drug to
this gene. The beauty of the antisense process that I've just described is that
we can "multiplex", or run multiple tests of multiple inhibitors on multiple
genes simultaneously and provide information about complex biological pathways
very rapidly.
This important information is the product that Isis' GeneTrove division is
offering to industry partners. In 1999, Abbott Laboratories and Aventis
(formerly Rhone-Poulenc Rorer) initiated gene target validation collaborations
with Isis. In January 2000, AstraZeneca became the third partner for Isis'
genomics services. We are focused on growing the GeneTrove business and
generating incremental revenue for Isis. We believe GeneTrove is highly
competitive based on the proprietary technology we have developed and the
fundamental antisense mechanism of action patent on RNase H1 that we've been
issued. We are very excited about this business opportunity, as GeneTrove
uniquely provides partners the vital information to maximize value from
genomics.
Ibis Technology - Discovery of Small Molecule Drugs that Bind to RNA
Ibis technology uses genomic sequence data and expertise in RNA structure and
function to discover new small molecule drugs that bind to novel targets. Ibis
has developed proprietary methods and systems to rapidly identify critical
structures in RNA, define the best sites for small molecule drugs to bind to the
structure, and then create customized small molecule drugs that will bind
specifically to the
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intended site. Our innovative tools include comparative genomics, mass
spectrometry screening and SAR (structural activity relationship) by mass
spectrometry.
A key technological advance that Ibis has pioneered is the use of high
resolution mass spectrometry and parallel high-throughput screening to identify
small molecule drugs that bind to RNA targets. In this process, each drug and
each target RNA is labeled by its exact molecular mass. Since every small
molecule is labeled uniquely, a large mixture can be screened in the presence of
several RNA targets simultaneously. The identity of the small molecule, the RNA
target that it binds, its binding affinity and the location of the binding site
on the RNA can be determined in one rapid set of experiments. Using this
technology, we expect to be able to screen 10,000 compounds per day against 10
RNA targets.
Since 1997, Ibis has received over $10 million in funding by DARPA, the Defense
Advanced Research Projects Agency, to focus on developing antibacterial drugs to
protect against biological warfare. The technology is now sufficiently developed
to be applied to a wide variety of therapeutic areas, including antibiotics,
antivirals, anticancer and Hepatitis C drugs and has attracted the interest of
major pharmaceutical companies. Our goal is to initiate at least one major
pharmaceutical partnership for Ibis in 2000.
Patent Estate
We are very pleased that our investment in basic antisense research and our
focused patenting strategy have yielded exactly what we hoped: a dominant
position in both antisense technology and in small molecule drug discovery. Our
efforts were recognized recently in the Wall Street Journal, where we were named
among the top holders of gene-related patents in the U.S. In fact, we have filed
over 800 patents worldwide and have had nearly 600 issued or allowed to date.
Antisense Patents: Our antisense patent estate is extremely broad and very
valuable. It can be divided into three components: core antisense mechanisms and
biology, core antisense chemistry and antisense inhibitors of genes.
- - Antisense Mechanisms of Action - We have recently added a very important
patent to our patent estate covering one of the basic biological processes,
or mechanisms, through which antisense inhibitors work. It is the patent on
the RNase H1 mechanism. When a DNA-like antisense inhibitor binds to RNA,
forming a DNA-RNA duplex, the cell recognizes the duplex as something
foreign, or unusual. The enzyme RNase H1 is then activated and destroys the
RNA portion of the duplex. The RNase H1 mechanism is a robust and potent
antisense mechanism of action. It is a mechanism used by almost all
antisense gene functionalization and target validation approaches, and it is
the mechanism used by most of the antisense drugs in development. As we
believe many pharmaceutical and genomics companies are using antisense
technology to functionalize genes, this patent and the other members of this
patent family have the potential to generate substantial licensing revenues
for Isis.
Additionally, we have patented the use of RNA-like antisense inhibitors to
activate double strand RNase, another mechanism that causes RNA to be
destroyed when antisense drugs bind to it. Double strand RNase is an enzyme
that is mobilized when the cell recognizes foreign RNA-RNA
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duplexes formed when an RNA-like antisense inhibitor binds to RNA. These
patents are a part of a growing patent family that give us a dominant
position in antisense. This is a very valuable position that we have gained
by our innovation.
- - Antisense Medicinal Chemistry - At Isis we have invented many chemistries
that can be used to make improved antisense drugs. Our patents cover both
the basic building blocks of antisense inhibitors and their use in antisense
drugs. These patents contribute to our dominance of antisense.
- - Antisense Inhibitors of Genes - We have over one hundred patents covering
antisense inhibitors of genes. Again, this is a valuable patent position
that protects the drugs we develop and provides barriers to entry for others
to work on these genes.
Ibis Patents: We have pioneered small molecule-based drug discovery focused on
creating drugs that bind to structural RNA. We are building a strong proprietary
position for this technology.
Leveraging Our Assets to Generate Value
This is an important and exciting time in Isis' history. We are technology-rich.
We plan to reap the rewards of our scientific efforts in new ways, by marketing
our capabilities in genomics and Ibis small molecule discovery and leveraging
our patent estate. These assets represent immediate revenue opportunities for
the company and are in effect our products for 2000-2001.
We have a robust product pipeline. We will aggressively move our seven products
through clinical development as rapidly as possible to bring new drugs to the
market.
We are strong financially. We have raised a substantial amount of capital in the
recent months and we will to use less cash in 2000 than in 1999. Based on cash
on hand, committed funds and committed financing, we have well over three years
of funding, which will enable us to aggressively pursue our research and
development goals.
We believe we have in place key elements for success: innovative technologies,
broad intellectual property, scientific expertise, therapeutically important
products, financial and managerial resources and a vision to make a difference
in the lives of patients. We are more enthusiastic than ever about the potential
of Isis. We appreciate the support of our investors as we pursue our goals.
Sincerely,
/s/ STANLEY T. CROOKE
Stanley T. Crooke, M.D., Ph.D.
Chairman and CEO
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ISIS PHARMACEUTICALS, INC.
FORM 10-K
(FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999)
[INCORPORATED BY REFERENCE AND PREVIOUSLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 2000]
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CORPORATE INFORMATION
ISIS PHARMACEUTICALS, INC.
EXECUTIVE OFFICERS
STANLEY T. CROOKE, M.D., PH.D.
Chairman of the Board and Chief Executive Officer
B. LYNNE PARSHALL, J.D.
Executive Vice President, Chief Financial Officer and Secretary
DEBBY JO BLANK, M.D.
Executive Vice President
C. FRANK BENNETT, PH.D.
Vice President, Biology
DAVID J. ECKER, PH.D.
Vice President, Managing Director
Ibis Therapeutics, a division of Isis Pharmaceuticals
PATRICIA LOWENSTAM
Vice President, Human Resources and Operations
BOARD OF DIRECTORS
STANLEY T. CROOKE, M.D., PH.D.
Chairman of the Board and Chief Executive Officer
Isis Pharmaceuticals, Inc.
CHRISTOPHER F.O. GABRIELI
General Partner
Bessemer Venture Partners
ALAN C. MENDELSON, J.D.
Senior Partner
Cooley Godward LLP
WILLIAM R. MILLER
Former Vice Chairman of the Board of Directors
Bristol-Myers Squibb Company
MARK SKALETSKY
President and Chief Executive Officer
GelTex Pharmaceuticals, Inc.
LARRY SOLL, PH.D.
Former Chairman and Chief Executive Officer
Synergen, Inc.
JOSEPH H. WENDER
Limited Partner
Goldman, Sachs & Company
CORPORATE HEADQUARTERS
Isis Pharmaceuticals, Inc.
Carlsbad Research Center
2292 Faraday Avenue
Carlsbad, CA 92008
(760) 931-9200
www.isip.com
[email protected]
TRANSFER AGENT
American Stock Transfer & Trust
40 Wall Street
New York, NY 10005
LEGAL COUNSEL
Cooley Godward LLP
4365 Executive Drive Suite 1200
San Diego, CA 92121
INDEPENDENT AUDITORS
Ernst & Young, LLP
501 West Broadway Suite 1100
San Diego, CA 92101
COMMON STOCK SYMBOL
NASDAQ: ISIP
GeneTrove(TM) and Ibis(TM) are trademarks of Isis Pharmaceuticals, Inc.
Vitravene(TM) is a trademark of Novartis AG
This annual report contains forward-looking statements regarding the Company's
business and the therapeutic and commercial potential of its technologies and
products in development. Such statements are subject to certain risks and
uncertainties, particularly those risks or uncertainties inherent in the process
of discovering, developing and commercializing drugs that can be proven to be
safe and effective for use as human therapeutics, and the endeavor of building a
business around such potential products. Actual results could differ materially
from those discussed in this annual report. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in Isis' Annual Report on Form 10-K for the year ended December 31, 1999, which
is a part of this annual report and is on file with the U.S. Securities and
Exchange Commission. As a result, the reader is cautioned not to rely on these
forward-looking statements.
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2292 Faraday Avenue Carlsbad, CA 92009
Phone (760) 931-9200
www.isip.com
