Isis Pharmaceuticals Inc. (ISIS) reported a net loss of 7 cents per share in the third quarter, which was wider than the Zacks Consensus Estimate of a net loss of 5 cents. The company had reported a net income of 2 cents in the year ago period. The wider-than-expected loss was due to lower revenues and higher operating expenses. 

Revenues declined 9.1% to $26.8 million. Revenues include license fees, milestone-related payments and other payments. Revenues declined during the reported quarter as the company finished amortizing the revenue associated with the $50 million upfront payment received from Johnson & Johnson’s (JNJ) Ortho-McNeil-Janssen in 2007. 

The company 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. Isis recently presented positive phase II data on type II diabetes candidate, ISIS 113715, which should move into the advanced stages of development. 

Isis also continued to make progress with its lead pipeline candidate, mipomersen. Collaboration partner Genzyme (GENZ) intends to file the first new drug application (NDA) for mipomersen in the U.S. for homozygous familial hypercholesterolemia (FH) in the second half of 2010, with a similar filing in Europe shortly afterwards. 

Meanwhile, Isis expects to present data from its phase III study in severe hypercholesterolemia patients ahead of the initial NDA filing in the U.S. Positive results would allow the company to file for a broader indication. A potential second filing in Europe will involve a broader patient population, namely, heterozygous FH patients. 

Isis exited the quarter with a strong cash position of $607.8 million. The company averred that it remains on track to exit the year with more than $550 million of cash. The company intends to expand its pipeline by moving at least three new drugs into development in 2009. 

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. We currently have a Neutral recommendation on the company.
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