Ionis Pharmaceuticals, Inc. — Q2 2023 Form 10-Q Summary
Business context and reporting period
Ionis is a single-segment RNA-targeted therapeutics company, including wholly owned subsidiary Akcea Therapeutics. This unaudited report covers the three and six months ended June 30, 2023, with comparisons to the same 2022 periods. Ionis had four marketed medicines: QALSODY, SPINRAZA, TEGSEDI and WAYLIVRA.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Total revenue | $188.4 million | $133.8 million | $318.9 million | $275.7 million |
| Operating expenses | $278.6 million | $219.3 million | $523.3 million | $418.7 million |
| Loss from operations | $(90.2) million | $(85.5) million | $(204.3) million | $(143.0) million |
| Net loss | $(85.3) million | $(105.1) million | $(209.6) million | $(170.3) million |
| Net loss per share | $(0.60) | $(0.74) | $(1.47) | $(1.20) |
- Q2 revenue increased approximately 41% year over year; first-half revenue increased approximately 16%.
- Commercial revenue was $77.9 million in Q2 and $145.7 million year to date, compared with $78.2 million and $150.5 million, respectively, in 2022. SPINRAZA royalties were $61.0 million in Q2 and $111.3 million year to date.
- Research and development revenue increased to $110.5 million in Q2 and $173.3 million year to date, driven by partnered-program milestones, license fees and cost sharing. Q2 included a $20 million AstraZeneca eplontersen license fee, a $20 million ION839 milestone and a $16 million Biogen QALSODY approval milestone.
- Operating margins were approximately (47.9%) in Q2 and (64.1%) year to date; net margins were approximately (45.3%) and (65.7%), respectively.
- Research, development and patent expense increased to $229.9 million in Q2 and $427.7 million year to date, reflecting advancement and enrollment of multiple Phase 3 programs. SG&A increased to $46.1 million and $91.7 million, primarily because of commercialization preparation.
- Investment income increased to $20.8 million in Q2 and $39.4 million year to date, mainly because of higher interest rates and greater invested balances.
- Net cash used in operating activities was $231.4 million for the first half of 2023, compared with $49.7 million in the prior-year period.
- Cash and cash equivalents were $424.8 million and short-term investments were $2.0 billion at June 30, 2023, providing approximately $2.4 billion of reported cash and short-term investments. Current liabilities were $288.0 million.
- Stockholders’ equity was $428.3 million, compared with $572.9 million at December 31, 2022; accumulated deficit was $1.64 billion.
Material changes versus the prior comparable period
- Ionis received a $500 million upfront payment from Royalty Pharma in January 2023 for a portion of future SPINRAZA and pelacarsen royalties. The transaction created a $510.2 million net liability at June 30, 2023 and generated $33.2 million of related interest expense in the first half.
- Royalty Pharma is entitled to 25% of SPINRAZA royalties from 2023 through 2027, increasing to 45% in 2028, subject to the agreement’s terms, and 25% of future pelacarsen royalties.
- In June 2023, Ionis issued $575 million of 1.75% convertible senior notes due 2028 and used $420.4 million of net proceeds to repurchase $434.1 million principal amount of its 0.125% notes. Ionis recognized an $11.3 million gain on the early retirement.
- Debt carrying values at June 30, 2023 included approximately $560.9 million of 1.75% notes, $623.8 million of 0% notes and $114.1 million of 0.125% notes. Contractual obligations, excluding the royalty liability, totaled $1.67 billion.
- QALSODY received accelerated FDA approval in April 2023, and Ionis began earning QALSODY royalties. SPINRAZA global product sales were reported as essentially flat year over year at $437 million in Q2 and $880 million for the first half.
- Ionis’s shares outstanding increased to 143.2 million at June 30, 2023 from 142.1 million at December 31, 2022.
Guidance, outlook, commentary and risks
- The filing does not provide clear quantitative revenue, earnings or cash-burn guidance. Management expects operating expenses, excluding non-cash equity compensation, to continue increasing through the remainder of 2023 as late-stage programs advance and commercialization preparations continue.
- The FDA accepted the eplontersen NDA for ATTRv-PN, with a PDUFA date of December 22, 2023. Ionis reported that Phase 3 eplontersen ATTRv-PN results were positive in July 2023 and that the ATTR-CM study completed enrollment in July 2023; these events occurred after the reporting date.
- Management reported eight medicines in Phase 3 studies for ten indications. Key programs include eplontersen, olezarsen, donidalorsen, ulefnersen, QALSODY, pelacarsen, bepirovirsen and IONIS-FB-L Rx.
- Ionis depends substantially on partners, including Biogen, AstraZeneca, GSK, Novartis and Roche, for development, regulatory approval, manufacturing and commercialization. Biogen represented 52% of Q2 revenue and 53% of first-half revenue.
- Major risks include clinical or regulatory failure, competition and pricing or reimbursement pressure, dependence on partners, manufacturing capacity and supply-chain constraints, continued operating losses, intellectual-property challenges, product liability, cybersecurity, geopolitical disruption and the potential loss or reduction of Royalty Pharma milestone payments.
- Ionis sent notice in August 2023 to terminate the planned Oceanside manufacturing-facility lease if the lessor did not commence grading by August 31, 2023. Management stated that current and third-party manufacturing capabilities should support commercialization while a suitable alternative is secured.
- The stockholder derivative litigation concerning director compensation was settled and dismissed with prejudice in April 2023 without a material financial statement impact. Management concluded disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Whether QALSODY commercialization and European regulatory review generate material recurring royalties.
- The December 22, 2023 eplontersen PDUFA outcome and the timing and results of other Phase 3 programs.
- SPINRAZA sales and royalty trends, including competitive pressure and the effect of the Royalty Pharma arrangement on future cash receipts.
- The pace of operating cash consumption and whether the approximately $2.4 billion liquidity balance is sufficient to fund planned development and commercialization investments.
- The timing and economics of replacing or restructuring the planned Oceanside manufacturing facility.
- Potential dilution and refinancing or settlement requirements associated with the convertible notes, call spreads and warrants.
- Whether partnered milestones, license fees and cost-sharing revenue can be sustained, given the variability of collaboration-related revenue.