Ionis Pharmaceuticals, Inc. 2019 Form 10-K Summary
Business context and reporting period
Ionis Pharmaceuticals is an RNA-targeted therapeutics company focused on antisense medicines across neurological, cardiometabolic, rare disease, oncology and other indications. This Form 10-K covers the fiscal year ended December 31, 2019, with comparative results for 2018 and 2017. Ionis consolidates its approximately 76%-owned affiliate, Akcea Therapeutics.
The company had three approved medicines: SPINRAZA, TEGSEDI and WAYLIVRA. Four medicines were in pivotal studies at year-end: tominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx. The company reported more than 40 potential medicines in its broader pipeline.
Key financial metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $1,122.6 million | $599.7 million | +87% |
| Commercial revenue | $352.5 million | $254.9 million | +38% |
| Research and development revenue | $770.1 million | $344.8 million | +123% |
| Operating expenses | $756.7 million | $661.0 million | +14% |
| Income from operations | $365.9 million | $(61.4) million | Improved materially |
| Net income | $303.3 million | $215.0 million | +41% |
| Net income attributable to Ionis stockholders | $294.1 million | $273.7 million | +7% |
| Diluted EPS | $2.08 | $2.07 | +1% |
| Operating margin | 32.6% | (10.2%) | Improved materially |
| Net margin | 27.0% | 35.8% | Decreased |
Commercial revenue included $293.0 million of SPINRAZA royalties, $42.3 million of product sales, and $17.2 million of licensing and other royalty revenue. R&D revenue included $489.7 million of license fees, $114.9 million of milestone payments, $146.2 million of upfront-payment amortization and $19.3 million of other services.
Significant 2019 license and milestone-related revenue included approximately $246 million from Pfizer’s AKCEA-ANGPTL3-LRx license, $150 million from Novartis’s AKCEA-APO(a)-LRx license, $136 million from Biogen program advances, $45 million from Biogen’s IONIS-MAPTRx license, $35 million from Roche’s tominersen milestone, $25 million from GSK’s HBV license and $20 million from an Alnylam sublicense.
Research, development and patent expense was $465.7 million, including $146.6 million of non-cash stock-based compensation across operating expenses. SG&A expense was $286.6 million, driven primarily by the global launches of TEGSEDI and WAYLIVRA. Cost of products sold was $4.4 million.
Cash flow, liquidity and debt
- Net cash provided by operating activities was $345.7 million, compared with $602.9 million in 2018. The decline primarily reflected the timing of deferred revenue recognition and working-capital movements.
- Cash, cash equivalents and short-term investments totaled $2.50 billion at December 31, 2019, compared with $2.08 billion at year-end 2018.
- Working capital was $2.45 billion, compared with $1.93 billion in 2018. Total assets were $3.23 billion and stockholders’ equity was $1.68 billion.
- Debt and other obligations totaled $936.2 million according to management’s liquidity discussion. Principal debt included $548.8 million of 0.125% convertible notes due December 2024 and $309.9 million of 1% convertible notes due November 2021, plus mortgage debt.
- In December 2019, Ionis exchanged $375.6 million of 1% notes for $439.3 million of 0.125% notes and issued an additional $109.5 million of 0.125% notes. The transaction produced a $21.9 million non-cash loss on early retirement of debt.
- Ionis repurchased 535,000 shares for $34.4 million during 2019. It repurchased the remaining $90.6 million authorized under the program during the first quarter of 2020.
Material changes versus the prior comparable period
- Revenue nearly doubled, primarily because R&D revenue more than doubled from collaboration licenses and milestones, while commercial revenue increased more than 35%.
- Operating income improved from a $61.4 million loss to $365.9 million of income.
- Net income attributable to Ionis stockholders increased modestly because the 2018 result benefited from a $332.1 million one-time, non-cash federal deferred-tax valuation allowance reversal.
- Commercial activity expanded: SPINRAZA royalties increased to $293.0 million; TEGSEDI sales grew from a partial 2018 launch; and WAYLIVRA sales began following its 2019 European conditional authorization and launch.
- Akcea generated net income in 2019, primarily from the Novartis and Pfizer transactions, compared with a net loss in 2018. Ionis’s noncontrolling interest in Akcea was $9.1 million of income in 2019 versus a $58.8 million loss in 2018.
- R&D spending increased as Ionis expanded its pipeline and antisense technology investments. SG&A also increased because of commercialization investments.
- Ionis adopted the new lease accounting standard in 2019, recording approximately $13.5 million of right-of-use assets and $18.5 million of lease liabilities at adoption.
Guidance, outlook, commentary and risks
Management planned to have six pivotal studies underway by the end of 2020, report proof-of-concept data for six or more medicines, pursue oral and pulmonary delivery technologies, and prioritize the Ionis-owned pipeline. Management stated a goal of filing 10 or more new drug applications through the end of 2025 and starting up to five additional pivotal studies by the end of 2021. These are forward-looking targets, not guarantees.
Key commercial and development catalysts included expansion of TEGSEDI and WAYLIVRA, the planned U.S. refiling of WAYLIVRA, the ongoing SPINRAZA franchise, and late-stage development of tominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx. The company also highlighted substantial potential future milestone, license and other payments from current collaborations, but these amounts remain contingent on development, regulatory and commercial success.
- WAYLIVRA had received an FDA complete response letter and a Health Canada noncompliance withdrawal letter. Its EU authorization was conditional and required post-authorization safety monitoring, particularly for thrombocytopenia and bleeding.
- TEGSEDI carries a U.S. boxed warning for thrombocytopenia and glomerulonephritis, requires blood and urine monitoring, and is subject to a REMS program.
- SPINRAZA faces competition from Zolgensma and risdiplam. TEGSEDI and AKCEA-TTR-LRx face competition from Onpattro, tafamidis and other transthyretin-focused products.
- Revenue is highly dependent on collaboration partners and milestone activity. Biogen represented approximately 42% of 2019 revenue, including SPINRAZA royalties and R&D revenue.
- Collaboration revenue recognition involves significant judgments regarding performance obligations, transaction prices, standalone selling prices and timing. The auditors identified collaboration revenue recognition as a critical audit matter.
- Clinical development, regulatory approvals, reimbursement, manufacturing capacity, intellectual-property protection, product liability and partner performance remain material risks.
- A Delaware stockholder lawsuit alleges fiduciary-duty breaches and unjust enrichment relating to Akcea licensing transactions involving TEGSEDI and AKCEA-TTR-LRx. The company and Akcea moved to dismiss and state that the claims lack merit.
- Management reported effective disclosure controls and effective internal control over financial reporting. Ernst & Young issued unqualified audit opinions.
Most important facts for an investor to verify
- How much of 2019 revenue was recurring commercial revenue versus non-recurring license fees and milestones, and the expected timing of future collaboration revenue.
- SPINRAZA royalty trends, patient counts, competitive pressure from Zolgensma and risdiplam, and Biogen’s continuing commitment.
- TEGSEDI commercial uptake, safety-monitoring burden and Akcea’s ability to control commercialization losses.
- WAYLIVRA’s FDA refiling path, conditional EU obligations, safety profile and potential U.S. commercialization economics.
- Enrollment, efficacy, safety and regulatory timelines for the four pivotal programs.
- Akcea’s financial performance and Ionis’s approximately 76% ownership, including the effect of noncontrolling interests and intercompany eliminations.
- Debt maturities, potential conversion dilution and the effectiveness of the note hedges and warrants.
- The sustainability of profitability after excluding the unusually large 2019 collaboration revenue and the unusual 2018 tax benefit.