EX-99.2 3 a09-2620_1ex99d2.htm EX-99.2

Exhibit 99.2

 

ISIS PHARMACEUTICALS, INC.

INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

 

(Unaudited)

 

On January 30, 2008, Isis Pharmaceuticals, Inc. (“Isis”) and its former subsidiary, Ibis Biosciences (“Ibis”), entered into a Strategic Alliance Master Agreement, a Call Option Agreement and an Investor Rights Agreement with Abbott Molecular Inc. (“AMI”).

 

On January 30, 2008, AMI purchased from Ibis common stock of Ibis representing approximately 10.25% of the issued and outstanding common stock of Ibis for a total purchase price of $20 million (the “Initial Investment”).  Ibis also granted AMI the right to purchase an additional $20 million of Ibis common stock before July 31, 2008 (“Subscription Right”).  Additionally, Isis granted AMI an exclusive option (the “Call Option”) to acquire from Isis all remaining Ibis capital stock.

 

On June 27, 2008, AMI exercised the Subscription Right and purchased an additional $20 million of Ibis common stock (the “Subsequent Investment”).

 

On December 17, 2008, AMI exercised the Call Option and Isis, Ibis and AMI executed a stock purchase agreement (the “Stock Purchase Agreement”).  Under the Stock Purchase Agreement, AMI purchased the remaining equity ownership in Ibis from Isis for a closing purchase price of $175 million.  Isis, Ibis and AMI completed the acquisition on January 6, 2009.  The Initial Investment and the Subsequent Investment, along with the $175 million paid by AMI at closing, resulted in a total acquisition price of $215 million.  Prior to the sale of Ibis, Isis identified Ibis as a variable interest entity for which Isis was the primary beneficiary.  Therefore, Isis’ historical consolidated financial statements leading up to the completion of the sale on January 6, 2009 include the financial position and results of operations of Ibis.

 

 The accompanying unaudited pro forma consolidated statements of operations for the years ended December 31, 2005, 2006 and 2007 and the nine months ended September 30, 2008, give effect to the disposition of Ibis as if it had been consummated at the beginning of the periods presented. The accompanying unaudited pro forma condensed consolidated balance sheet as of September 30, 2008 gives effect to the disposition of Ibis as if it had been consummated as of September 30, 2008.

 

The historical financial information on which the pro forma statements are based is included in Isis’ Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which was filed on March 13, 2008, and Isis’ Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, which was filed on November 10, 2008. The pro forma consolidated financial statements and the notes thereto should be read in conjunction with these historical consolidated financial statements.

 

The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and are subject to a number of assumptions which may not be indicative of the results of operations that would have occurred had the disposition been completed at the dates indicated or what the results will be for any future periods. The unaudited pro forma consolidated statements of operations do not include the gain that Isis would have recognized for the sale of Ibis if the transaction was completed at the beginning of the periods presented.

 


 

ISIS PHARMACEUTICALS, INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands)

(Unaudited)

 

 

 

Historical Isis
Pharmaceuticals,
Inc.
September 30,
2008

 

Pro Forma
Adjustments

 

Notes

 

Pro Forma
September 30,
2008

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

264,682

 

$

168,933

 

1

 

$

433,615

 

Short-term investments

 

247,341

 

—

 

 

 

247,341

 

Contracts receivable

 

5,021

 

(53

)

2

 

4,968

 

Inventories

 

5,511

 

(3,034

)

2

 

2,477

 

Other current assets

 

6,988

 

(273

)

2

 

6,715

 

Total current assets

 

529,543

 

165,573

 

 

 

695,116

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

14,019

 

(1,914

)

2

 

12,105

 

Licenses, net

 

17,447

 

—

 

 

 

17,447

 

Patents, net

 

18,126

 

(1,845

)

2

 

16,281

 

Deposits and other assets

 

5,557

 

(81

)

2

 

5,476

 

Total assets

 

$

584,692

 

$

161,733

 

 

 

$

746,425

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,885

 

$

(2,080

)

2

 

$

4,805

 

Accrued compensation

 

3,956

 

(373

)

2

 

3,583

 

Accrued liabilities

 

5,979

 

(1,866

)

2

 

4,113

 

Derivative instrument related to Abbott’s call option

 

1,069

 

(1,069

)

2

 

—

 

Current portion of deferred contract revenue

 

99,794

 

(712

)

2

 

99,082

 

Total current liabilities

 

117,683

 

(6,100

)

 

 

111,583

 

 

 

 

 

 

 

 

 

 

 

25/8 % convertible subordinated notes

 

162,500

 

—

 

 

 

162,500

 

Long-term obligations

 

5,478

 

—

 

 

 

5,478

 

Long-term deferred contract revenue

 

191,279

 

(69

)

2

 

191,210

 

Total liabilities

 

476,940

 

(6,169

)

 

 

470,771

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling interest in Regulus Therapeutics LLC

 

6,315

 

—

 

 

 

6,315

 

Noncontrolling interest in Ibis Biosciences, Inc.

 

33,359

 

(33,359

)

3

 

—

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock

 

96

 

—

 

 

 

96

 

Additional paid-in capital

 

900,303

 

—

 

 

 

900,303

 

Accumulated other comprehensive income

 

(1,271

)

—

 

 

 

(1,271

)

Accumulated deficit

 

(831,050

)

201,261

 

4

 

(629,789

)

Total stockholders’ equity

 

68,078

 

201,261

 

 

 

269,339

 

Total liabilities, noncontrolling interest and stockholders’ equity

 

$

584,692

 

$

161,733

 

 

 

$

746,425

 

 

Note 1:  This adjustment is recorded to reflect net cash that Isis estimates it would have received as consideration for the sale of Ibis if the transaction was completed on September 30, 2008.

 

Note 2:  These adjustments are recorded to reflect the disposition of Ibis’ assets and liabilities as of September 30, 2008.

 

Note 3:  This adjustment is recorded to remove the noncontrolling interest in Ibis that was recognized on the historical balance sheet as a result of the consolidation of Ibis as a variable interest entity.

 

Note 4:  This amount represents the estimated gain on the sale of Ibis and consists of the following adjustments:

·                  Upon the closing of the transaction, Isis received $175 million, but was required, concurrent with the closing, to pay off approximately $4.7 million in liabilities.

·                  The removal of Ibis’ net assets of $2.4 million and the non-controlling interest of $33.4 million on the balance sheet as of September 30, 2008

 


 

ISIS PHARMACEUTICALS, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

 

 

 

Historical Isis
Pharmaceuticals,
Inc.
Year Ended
December 31,
2005

 

Pro Forma
Adjustments

 

Notes

 

Pro Forma
Year Ended
December 31,
2005

 

Revenue:

 

 

 

 

 

 

 

 

 

Research and development revenue under collaborative agreements

 

$

28,610

 

$

(11,793

)

1

 

$

16,817

 

Licensing and royalty revenue

 

11,523

 

—

 

 

 

11,523

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

40,133

 

(11,793

)

 

 

28,340

 

Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

82,467

 

(12,931

)

1

 

69,536

 

Selling, general and administrative

 

8,432

 

(1,090

)

1

 

7,342

 

Compensation benefit related to variable accounting of stock options

 

(544

)

—

 

 

 

(544

)

Restructuring activities

 

6,960

 

—

 

 

 

6,960

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

97,315

 

(14,021

)

 

 

83,294

 

Loss from operations

 

(57,182

)

2,228

 

 

 

(54,954

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Investment income

 

5,094

 

—

 

 

 

5,094

 

Interest expense

 

(20,313

)

—

 

 

 

(20,313

)

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(72,401

)

$

2,228

 

 

 

$

(70,173

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(1.15

)

 

 

 

 

$

(1.12

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

62,877

 

 

 

 

 

62,877

 

 

Note 1:  These adjustments are recorded to remove Ibis’ revenue and operating expenses from Isis’ results from continuing operations.

 


 

ISIS PHARMACEUTICALS, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

 

 

 

Historical Isis
Pharmaceuticals,
Inc.
Year Ended
December 31,
2006

 

Pro Forma
Adjustments

 

Notes

 

Pro Forma
Year Ended
December 31,
2006

 

Revenue:

 

 

 

 

 

 

 

 

 

Research and development revenue under collaborative agreements

 

$

15,091

 

$

(9,673

)

1

 

$

5,418

 

Licensing and royalty revenue

 

9,441

 

—

 

 

 

9,441

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

24,532

 

(9,673

)

 

 

14,859

 

Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

80,567

 

(13,674

)

1

 

66,893

 

Selling, general and administrative

 

12,619

 

(2,939

)

1

 

9,680

 

Restructuring activities

 

(536

)

—

 

 

 

(536

)

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

92,650

 

(16,613

)

 

 

76,037

 

Loss from operations

 

(68,118

)

6,940

 

 

 

(61,178

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Investment income

 

5,960

 

—

 

 

 

5,960

 

Interest expense

 

(9,029

)

—

 

 

 

(9,029

)

Gain on investments, net

 

2,263

 

—

 

 

 

2,263

 

Loss attributed to noncontrolling interest in Symphony GenIsis, Inc.

 

23,021

 

—

 

 

 

23,021

 

 

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

$

(45,903

)

$

6,940

 

 

 

$

(38,963

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.62

)

 

 

 

 

$

(0.52

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

74,308

 

 

 

 

 

74,308

 

 

Note 1:  These adjustments are recorded to remove Ibis’ revenue and operating expenses from Isis’ results from continuing operations.

 


 

ISIS PHARMACEUTICALS, INC.

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

 

 

 

Historical Isis
Pharmaceuticals,
Inc.
Year Ended
December 31,
2007

 

Pro Forma
Adjustments

 

Notes

 

Pro Forma
Year Ended
December 31,
2007

 

Revenue:

 

 

 

 

 

 

 

 

 

Research and development revenue under collaborative agreements

 

$

33,596

 

$

(11,277

)

1

 

$

22,319

 

Licensing and royalty revenue

 

36,025

 

—

 

 

 

36,025

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

69,621

 

(11,277

)

 

 

58,344

 

Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

92,641

 

(17,164

)

1

 

75,477

 

Selling, general and administrative

 

15,928

 

(4,918

)

1

 

11,010

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

108,569

 

(22,082

)

 

 

86,487

 

Loss from operations

 

(38,948

)

10,805

 

 

 

(28,143

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Investment income

 

11,443

 

—

 

 

 

11,443

 

Interest expense

 

(7,573

)

—

 

 

 

(7,573

)

Gain on investments

 

3,510

 

—

 

 

 

3,510

 

Loss on early retirement of debt

 

(3,212

)

—

 

 

 

(3,212

)

Loss attributed to noncontrolling interest in Symphony GenIsis, Inc.

 

23,157

 

—

 

 

 

23,157

 

Loss attributed to noncontrolling interest in Regulus Therapeutics LLC

 

629

 

—

 

 

 

629

 

Net loss from continuing operations

 

(10,994

)

10,805

 

 

 

(189

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per share

 

$

(0.13

)

 

 

 

 

$

(0.00

)

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic and diluted net loss per share

 

83,739

 

 

 

 

 

83,739

 

 

Note 1:  These adjustments are recorded to remove Ibis’ revenue and operating expenses from Isis’ results from continuing operations.

 


 

ISIS PHARMACEUTICALS, INC.

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except for per share amounts)

(Unaudited)

 

 

 

Historical Isis 
Pharmaceuticals,
Inc.
Nine Months Ended
September 30,
2008

 

Pro Forma
Adjustments

 

Notes

 

Pro Forma
Nine Months Ended
September 30,
2008

 

Revenue:

 

 

 

 

 

 

 

 

 

Research and development revenue under collaborative agreements

 

$

78,739

 

$

(8,989

)

1

 

$

69,750

 

Licensing and royalty revenue

 

7,790

 

—

 

 

 

7,790

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

86,529

 

(8,989

)

 

 

77,540

 

Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

89,611

 

(18,539

)

1

 

71,072

 

Selling, general and administrative

 

13,206

 

(5,193

)

1

 

8,013

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

102,817

 

(23,732

)

 

 

79,085

 

Loss from operations

 

(16,288

)

14,743

 

 

 

(1,545

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Investment income

 

13,061

 

(4,257

)

2

 

8,804

 

Interest expense

 

(4,297

)

—

 

 

 

(4,297

)

Loss attributed to noncontrolling interest in Regulus Therapeutics LLC

 

3,056

 

—

 

 

 

3,056

 

Loss attributed to noncontrolling interest in Ibis Biosciences, Inc.

 

1,163

 

(1,163

)

3

 

—

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) from continuing operations

 

$

(3,305

)

$

9,323

 

 

 

$

6,018

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net income (loss) per share

 

$

(0.04

)

 

 

 

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing basic net income (loss) per share

 

93,786

 

 

 

 

 

93,786

 

 

 

 

 

 

 

 

 

 

 

Shares used in computing diluted net income (loss) per share

 

93,786

 

 

 

 

 

98,508

 

 

Note 1:  These adjustments are recorded to remove Ibis’ revenue and operating expenses from Isis’ results from continuing operations.

 

Note 2:  This adjustment is recorded to remove the non-cash adjustments related to the value of the call option and subscription right that Isis granted to Abbott.

 

Note 3:  This adjustment is recorded to remove the loss attributed to noncontrolling interest in Ibis that was recognized on Isis’ historical statement of operations as a result of the consolidation of Ibis as a variable interest entity.