Ionis Pharmaceuticals, Inc. Form 10-Q Summary
Business context and reporting period
Ionis Pharmaceuticals, Inc. filed its unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The consolidated results include Ionis and its approximately 75%-owned affiliate, Akcea Therapeutics. Ionis develops RNA-targeted therapeutics and had three approved commercial medicines: SPINRAZA, TEGSEDI and WAYLIVRA.
Key financial metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenue | $167.9 million | $145.4 million | $628.9 million | $407.6 million |
| Commercial revenue | $95.7 million | $82.8 million | $252.1 million | $182.0 million |
| SPINRAZA royalties | $81.7 million | $70.0 million | $211.9 million | $167.7 million |
| Product sales | $11.9 million | — | $28.6 million | — |
| R&D revenue under collaborations | $72.2 million | $62.6 million | $376.8 million | $225.6 million |
| Operating income (loss) | $2.5 million | $(18.6) million | $105.2 million | $(72.2) million |
| Net income (loss) | $18.4 million | $(20.4) million | $99.3 million | $(87.7) million |
| Net income (loss) attributable to Ionis stockholders | $26.2 million | $(4.6) million | $109.7 million | $(46.3) million |
| Basic EPS | $0.19 | $(0.03) | $0.81 | $(0.33) |
Operating margin was approximately 1.5% in Q3 and 16.7% for the first nine months. Net income attributable to Ionis stockholders represented approximately 15.6% of Q3 revenue and 17.5% of nine-month revenue. Operating expenses were $165.4 million in Q3 and $523.7 million for the first nine months, including $24.1 million and $111.6 million, respectively, of non-cash stock-based compensation.
- Cash flow from operations was $67.8 million for the first nine months of 2019, compared with $487.4 million in 2018. The prior-year amount benefited substantially from changes in deferred contract revenue.
- Net cash used in investing activities was $179.5 million, principally reflecting purchases of short-term investments and $23.1 million of capital expenditures.
- Cash and cash equivalents were $247.9 million at September 30, 2019, compared with $278.8 million at December 31, 2018.
- Cash, cash equivalents and short-term investments totaled approximately $2.2 billion at September 30, 2019, compared with approximately $2.1 billion at year-end 2018.
- Short-term investments were $2.0 billion, and total assets were $2.9 billion.
- Debt and other obligations totaled $763.4 million. The carrying amount of the 1% convertible senior notes was $596.4 million, with $685.5 million of principal outstanding, a November 2021 maturity and a $66.81 conversion price.
- Stockholders’ equity was $1.5 billion, including $1.3 billion attributable to Ionis stockholders. The accumulated deficit was $857.6 million.
Material changes versus the prior comparable period
- Nine-month revenue increased approximately 54%, driven by higher SPINRAZA royalties, TEGSEDI product sales, WAYLIVRA product sales beginning in Q3, and substantially higher collaboration revenue.
- Major 2019 collaboration and licensing contributions included a $150 million Novartis license fee, $35 million of Roche milestone payments, a $25 million GSK license fee and a $20 million Alnylam sublicense fee.
- SPINRAZA royalties increased 26% for the first nine months. Biogen reported more than 9,300 patients on therapy globally as of September 2019.
- Commercial revenue increased as TEGSEDI launches expanded and WAYLIVRA launched in Europe. Akcea reported $28.6 million of product sales for the first nine months.
- Operating expenses increased 9% for the first nine months, primarily because of investments in the global commercialization of TEGSEDI and WAYLIVRA. Akcea incurred a $29.4 million Ionis share of TEGSEDI commercialization losses during the period.
- Akcea reversed $19.1 million of previously recognized stock-based compensation in Q3 following the termination of three executive officers.
- In Q3, Ionis recorded a $16.5 million cumulative catch-up reduction to revenue after revising its estimate of remaining effort under the 2013 Biogen strategic neurology collaboration.
- Ionis launched a share repurchase program of up to $125 million in September 2019; no shares had been repurchased as of the filing date.
- The company paid off and terminated its $30 million revolving credit facility during Q3.
Guidance, outlook, commentary and risks
- Management described a pipeline of more than 40 medicines, including two medicines in Phase 3 studies: IONIS-HTTRx and tofersen.
- Management expected to recognize Pfizer-related revenue in Q4 2019 following Akcea’s license of AKCEA-ANGPTL3-LRx. The transaction included a $250 million upfront fee, potential milestone payments of up to $1.3 billion and tiered royalties; the filing states that Ionis expected to receive its $125 million sublicense fee in Akcea shares.
- Management also expected to recognize a $10 million Bayer milestone in Q4 2019. The filing separately states that the Bayer milestone was earned after September 30, 2019 and was not recognized in Q3.
- Akcea expects additional commercialization and development costs as it expands TEGSEDI and WAYLIVRA launches. The filing states that cost of products sold is expected to increase as previously expensed pre-approval inventory is depleted.
- Key risks include dependence on Biogen and other partners, uncertain clinical and regulatory outcomes, competition, reimbursement and pricing pressure, product safety and monitoring requirements, manufacturing capacity, commercialization execution, intellectual-property disputes, foreign-exchange exposure and future financing needs.
- TEGSEDI carries a U.S. boxed warning and REMS requirements, while WAYLIVRA requires periodic blood monitoring and is subject to post-authorization safety obligations.
- Akcea disclosed significant senior-management changes in September 2019. Ionis also disclosed a planned January 2020 transition of its founder and CEO, Stanley Crooke, to Executive Chairman, with Dr. Brett Monia expected to become CEO.
- Management stated that disclosure controls and procedures were effective as of September 30, 2019 and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the sustainability of earnings given the substantial contribution from one-time or milestone-related license revenue in 2019.
- Track SPINRAZA royalty trends and Biogen’s commercialization, competitive and dosing plans.
- Assess the pace, economics and safety profile of TEGSEDI and WAYLIVRA launches, including reimbursement and monitoring requirements.
- Confirm the closing, accounting treatment and cash-versus-equity settlement of the Pfizer transaction and the related Akcea sublicense fee.
- Review the $16.5 million Biogen revenue catch-up adjustment and the timing of remaining performance obligations.
- Evaluate the November 2021 convertible-note maturity, potential dilution from approximately 10.3 million conversion shares and the company’s capital-allocation plans.
- Monitor Akcea’s operating losses, management transition and Ionis’s approximately 75% ownership interest and related noncontrolling interest.