Ionis Pharmaceuticals, Inc. 2021 Q1 Form 10-Q Summary
Business context and reporting period
Ionis Pharmaceuticals, Inc. reported results for the three months ended March 31, 2021. The company develops RNA-targeted medicines, with commercial products including SPINRAZA, TEGSEDI and WAYLIVRA, and operates primarily across neurology and cardiometabolic franchises. Following its October 2020 acquisition of the remaining Akcea shares, Ionis fully integrated Akcea and began reporting as a single operating segment in 2021.
Prior-period amounts were revised retrospectively for adoption of ASU 2020-06, which simplified convertible-debt accounting.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $111.6 million | $133.4 million | Down $21.8 million |
| Commercial revenue | $84.4 million | $84.0 million | Essentially flat |
| SPINRAZA royalties | $60.0 million | $66.0 million | Down $6.0 million |
| TEGSEDI and WAYLIVRA revenue | $19.8 million | $15.2 million | Up $4.6 million |
| R&D revenue | $27.2 million | $49.4 million | Down $22.2 million |
| Total operating expenses | $203.6 million | $194.5 million | Up $9.1 million |
| Loss from operations | $(92.0) million | $(61.1) million | Loss increased |
| Net loss | $(89.9) million | $(49.9) million | Loss increased |
| Net loss per share | $(0.64) | $(0.28) | Loss increased |
| Operating cash flow | $(54.7) million | $(7.6) million | Outflow increased |
Revenue declined primarily because Q1 2020 included more collaboration milestone revenue. R&D revenue comprised $20.1 million of upfront-payment amortization, $5.2 million of milestone payments and $1.9 million of other services in Q1 2021.
Approximate reported margins were 97.7% gross margin, based on cost of sales of $2.6 million, negative 82.4% operating margin and negative 80.5% net margin. These margins are not necessarily representative of future periods because collaboration milestones, product mix and development spending can vary substantially.
At March 31, 2021, cash and cash equivalents were $414.2 million and short-term investments were $1.406 billion, for approximately $1.82 billion of cash and short-term investments. Total assets were $2.249 billion, total liabilities were $1.568 billion and stockholders’ equity was $680.6 million.
Net cash used in operating activities was $54.7 million. Investing activities provided $78.9 million, primarily from net sales of short-term investments. Financing activities used $7.6 million, including $15.3 million of employee tax-withholding payments, partially offset by $7.8 million of equity proceeds.
Debt included $548.8 million principal of 0.125% convertible notes due December 2024, $309.9 million principal of 1% convertible notes due November 2021, and approximately $60.0 million of mortgage debt. The filing reports $1.8 billion of cash and short-term investments at quarter-end.
Material changes versus the prior comparable period
- SPINRAZA royalties decreased 9.1%, reflecting lower reported SPINRAZA sales; Biogen reported $521 million of worldwide SPINRAZA sales and more than 11,000 patients on therapy at quarter-end.
- Commercial revenue was stable overall as higher TEGSEDI and WAYLIVRA revenue and licensing revenue largely offset lower SPINRAZA royalties.
- R&D revenue declined 45.0%, principally because Q1 2020 contained more milestone payments.
- Operating expenses increased 4.7%, driven mainly by investment in the wholly owned late-stage pipeline, particularly IONIS-TTR-L Rx and other Phase 3 programs.
- Research, development and patent expense increased to $139.8 million from $117.0 million, while SG&A declined to $61.2 million from $75.0 million due to Akcea integration efficiencies and the European distribution model.
- Q1 2021 included approximately $7 million of Akcea acquisition and European restructuring costs, compared with none in the prior-year quarter.
- Net loss attributable to Ionis common stockholders increased to $89.9 million from $39.6 million. The 2020 figure included a $10.3 million loss attributable to Akcea’s former noncontrolling shareholders; Ionis owned 100% of Akcea throughout Q1 2021.
- ASU 2020-06 materially changed presentation of convertible debt and prior-period results, including reducing revised Q1 2020 interest expense and increasing the carrying value of convertible notes.
Guidance, outlook, commentary and unusual items
- Management expects operating expenses to continue increasing during 2021 as it advances its wholly owned pipeline.
- Management expects R&D revenue to increase in the second half of 2021 compared with the first half, subject to the timing of partnered-program milestones and activities.
- In April 2021, Ionis entered into a Sobi distribution agreement for North American TEGSEDI commercialization. Sobi is expected to assume North American commercial activities by August 2021; Ionis will continue supplying product and managing regulatory, manufacturing and global-strategy responsibilities.
- Ionis expects $11 million to $14 million of restructuring charges, principally in Q2 2021, related to the North American TEGSEDI reorganization. It also expects to recognize most remaining Akcea acquisition and European restructuring severance costs in Q2 2021.
- In April 2021, Ionis issued $632.5 million of 0% convertible notes due April 2026 and repurchased $247.9 million principal of its 1% notes for $257.0 million. Pro forma cash, cash equivalents and short-term investments were approximately $2.1 billion after these transactions.
- Ionis achieved a $10 million Biogen milestone in April 2021 when Biogen advanced ION541. The next stated milestone is $8 million if Biogen advances another medicine under the 2013 collaboration.
- COVID-19 caused some commercial, clinical-site and enrollment disruption, but management characterized the effects to date as limited and manageable. Future impacts remain uncertain.
- Key pipeline risks include clinical failure, safety findings, regulatory delays, manufacturing constraints, competition and reliance on partners such as Biogen, Roche and Novartis. Roche discontinued dosing in the Phase 3 GENERATION HD1 tominersen study in March 2021 after a pre-planned data review.
- A purported Akcea stockholder lawsuit remains pending in Delaware concerning the TEGSEDI and IONIS-TTR-L Rx licensing transaction. Ionis states that the claims are without merit; the amended complaint had not yet been filed as of the report.
Most important facts for an investor to verify
- Whether SPINRAZA royalties continue to decline because of competition, delayed dosing and market access pressures.
- The timing and magnitude of collaboration milestones and other variable R&D revenue, which materially affect quarterly results.
- Progress, enrollment, safety and regulatory outcomes for the Phase 3 pipeline, especially tofersen, IONIS-TTR-L Rx, IONIS-APOCIII-L Rx, pelacarsen and ION363.
- The commercial impact of transferring TEGSEDI distribution to Sobi and whether distribution fees replace or reduce prior product-sales economics.
- Actual restructuring and severance costs compared with the $11 million to $14 million North American estimate and remaining acquisition-related charges.
- Liquidity after the April 2021 debt refinancing, including the remaining $62.0 million principal balance of the 1% notes, the new 0% notes and potential share dilution from conversions and warrants.
- The company’s ability to fund continuing operating cash outflows while increasing wholly owned pipeline investment.
- Exposure to COVID-19, product safety and monitoring requirements for TEGSEDI and WAYLIVRA, reimbursement constraints, manufacturing dependence and partner performance.