Ionis Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. The interim financial statements are unaudited. Ionis completed its Akcea merger in October 2020 and operated as a single segment beginning January 1, 2021. Prior-period amounts were revised retrospectively for ASU 2020-06 convertible-debt accounting.
Business context
Ionis is an RNA-targeted therapeutics company focused primarily on neurology and cardiometabolic diseases. Commercial products include SPINRAZA, TEGSEDI and WAYLIVRA. The company reported seven Phase 3 programs involving tofersen, eplontersen, olezarsen, pelacarsen and ION363, while relying substantially on partners including Biogen, Novartis, Bayer and Sobi.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $133.1 million | $160.1 million | $370.5 million | $439.0 million |
| Commercial revenue | $84.8 million | $95.3 million | $255.1 million | $269.0 million |
| R&D collaboration revenue | $48.3 million | $64.8 million | $115.4 million | $170.0 million |
| Operating expenses | $218.9 million | $196.6 million | $621.2 million | $588.4 million |
| Loss from operations | $(85.8) million | $(36.5) million | $(250.8) million | $(149.4) million |
| Net loss | $(82.5) million | $(36.6) million | $(253.2) million | $(124.1) million |
| Net loss per share | $(0.58) | $(0.18) | $(1.80) | $(0.64) |
Revenue declined approximately 17% in the quarter and 16% year to date. Operating expenses increased approximately 11% year to date, producing operating margins of approximately negative 64.5% for Q3 and negative 67.7% for the first nine months. The filing does not present a separate gross margin measure; reported cost of sales was $3.1 million in Q3 and $8.6 million year to date.
- Revenue drivers: SPINRAZA royalties were $66.6 million in Q3 and $198.7 million year to date, down from $74.2 million and $211.9 million, respectively. TEGSEDI and WAYLIVRA revenue was $15.5 million in Q3 and $46.9 million year to date. Q3 included a $25 million Novartis milestone for 50% enrollment in the pelacarsen Phase 3 study and a $4 million PTC milestone following WAYLIVRA approval in Brazil.
- Cost structure: R&D and patent expense increased to $184.8 million in Q3 and $463.9 million year to date, primarily from investment in the wholly owned pipeline and a $34.8 million expense related to licensing Bicycle’s technology. SG&A declined to $31.1 million in Q3 and $148.7 million year to date following Akcea integration and commercial restructuring.
- Cash flow: Operating cash used was $172.9 million for the first nine months, compared with $62.1 million in the prior period. Investing activities provided $99.8 million, while financing activities provided $308.4 million. Cash and cash equivalents increased to $633.0 million from $397.7 million at year-end 2020.
- Liquidity: Cash, cash equivalents and short-term investments totaled approximately $2.0 billion at September 30, 2021. Total assets were $2.415 billion, current assets were $2.156 billion and current liabilities were $279.8 million.
Debt and capital structure
- Ionis issued $632.5 million of 0% convertible senior notes due April 2026 and used proceeds to repurchase $247.9 million principal amount of 1% notes for $257.0 million.
- At September 30, 2021, outstanding convertible-note principal consisted of $632.5 million of 0% notes, $548.8 million of 0.125% notes due December 2024 and $62.0 million of 1% notes due November 2021. The company intended to repay the remaining 1% notes with cash at maturity.
- The 0% and 0.125% notes have call-spread arrangements intended to reduce potential dilution. Their effective conversion prices were $76.39 and $123.38 per share, respectively.
- Total contractual obligations were $1.349 billion, including $69.3 million due within one year. The filing reports no off-balance-sheet arrangements.
Material changes versus the prior comparable period
- Revenue fell primarily because of lower SPINRAZA royalties and lower collaboration revenue, including fewer milestone payments than in 2020. Commercial operations for TEGSEDI and WAYLIVRA shifted to Sobi distribution arrangements in Europe and North America.
- R&D spending increased substantially as Ionis advanced eplontersen, olezarsen, ION363 and other wholly owned programs. Management expects operating expenses to increase further in Q4 2021, including costs for the olezarsen CORE Phase 3 study.
- SG&A declined due to Akcea integration and restructuring efficiencies. Nine-month operating expenses included approximately $24 million of merger and commercial-restructuring costs.
- The company adopted ASU 2020-06 retrospectively, reducing previously reported equity and changing reported interest expense and prior-period losses.
- Ionis entered into a Bicycle technology license, paid $42 million in July 2021, recorded $7.2 million as an equity investment and $34.8 million as R&D expense.
Guidance, outlook, commentary and unusual items
- Management expects R&D collaboration revenue to increase in Q4 2021 compared with the first three quarters as partnered programs advance.
- Management expects operating expenses to increase in Q4 2021, including additional olezarsen CORE study costs.
- Management’s long-term objective is to reach 12 or more marketed products in 2026 and to continue investing in the wholly owned pipeline, commercial capabilities and technology reach.
- In October 2021, after the reporting date, Biogen reported that tofersen did not meet the primary endpoint in the Phase 3 VALOR study, although favorable trends were observed in secondary and exploratory measures. Biogen planned to expand early access and evaluate next steps with regulators.
- COVID-19 continued to create risks to commercial activity, clinical enrollment, site initiation, supply chains and third-party operations. Management characterized current impacts as limited and manageable but stated that future effects remain uncertain.
- A Delaware action was filed by purported former Akcea stockholders alleging fiduciary-duty breaches related to the Akcea take-private transaction. Ionis stated that the claims were without merit and planned to seek dismissal.
- Ionis maintained a valuation allowance against its consolidated U.S. federal and state deferred tax assets, reflecting uncertainty regarding future realization.
Key investor verification items
- Verify the sustainability of SPINRAZA royalty revenue given reported competitive pressure and COVID-19-related dosing delays.
- Assess the timing, probability and accounting treatment of future collaboration milestones, including the potential pelacarsen regulatory milestone of up to $75 million.
- Monitor whether escalating wholly owned pipeline investment converts into clinical and regulatory progress, particularly for eplontersen, olezarsen and ION363.
- Review the post-quarter tofersen clinical outcome and its potential effect on partnered revenue, pipeline value and development strategy.
- Confirm repayment or refinancing of the $62 million 1% notes due November 2021 and the longer-term maturity profile of the convertible debt.
- Evaluate reliance on Biogen, Novartis, Sobi and PTC for development, commercialization, distribution and revenue generation.
- Review risks related to TEGSEDI and WAYLIVRA safety monitoring, reimbursement, competition, regulatory restrictions and post-approval obligations.
- Track the Delaware litigation, COVID-19 impacts, manufacturing capacity, clinical-trial execution and potential future financing needs.