Ionis Pharmaceuticals, Inc. 10-Q Summary
Business context and reporting period
Ionis Pharmaceuticals, including wholly owned subsidiary Akcea Therapeutics, develops RNA-targeted therapeutics and operates as a single segment. The filing covers the quarter and nine months ended September 30, 2022. Ionis marketed SPINRAZA, TEGSEDI and WAYLIVRA and had six medicines in Phase 3 development for eight indications.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $159.8 million | $133.1 million | $435.5 million | $370.5 million |
| Operating expenses | $218.9 million | $218.9 million | $637.7 million | $621.2 million |
| Loss from operations | $(59.2) million | $(85.8) million | $(202.2) million | $(250.8) million |
| Net loss | $(47.0) million | $(82.5) million | $(217.3) million | $(253.2) million |
| Net loss per share | $(0.33) | $(0.58) | $(1.53) | $(1.80) |
- Revenue increased 20% in the quarter and 18% year to date, primarily from partner payments across Biogen, Roche and AstraZeneca programs.
- Commercial revenue declined 15% in the quarter and 13% year to date. SPINRAZA royalties declined 7% and 12%, respectively, reflecting lower pricing, foreign exchange effects and competition outside the United States.
- Research and development revenue increased to $87.4 million in the quarter and $212.6 million year to date. The nine-month amount included $55.3 million of eplontersen joint development revenue from AstraZeneca.
- Approximate operating margins were negative 37% for Q3 and negative 46% for the first nine months; approximate net margins were negative 29% and negative 50%, respectively.
- Research, development and patent expense was $183.0 million in Q3 and $524.9 million year to date, driven by advancement of the late-stage pipeline. Selling, general and administrative expense was $34.4 million in Q3 and $102.4 million year to date.
- Net cash used in operating activities was $74.2 million for the first nine months, compared with $172.9 million in the prior-year period. Investing cash flow was negative $474.8 million, primarily reflecting purchases of short-term investments.
- Cash and cash equivalents were $315.0 million at September 30, 2022. Short-term investments were $1.667 billion, providing approximately $2.0 billion of cash and short-term investments.
- Carrying values included $621.5 million of 0% convertible notes due April 2026, $544.0 million of 0.125% convertible notes due December 2024 and $59.0 million of long-term mortgage debt. Total contractual obligations were $1.281 billion, excluding unrecognized tax benefits.
- Stockholders’ equity was $594.4 million and accumulated deficit was $1.377 billion at September 30, 2022.
Material changes versus the prior comparable period
- Biogen-related revenue was $89.0 million in Q3 and $259.7 million year to date, including $13 million of third-quarter milestone payments and declining SPINRAZA royalties.
- Roche-related revenue rose to $41.5 million in Q3 and $65.4 million year to date, including a $35 million license fee for IONIS-FB-LRx and milestone-related revenue.
- AstraZeneca cost-sharing generated $55 million of eplontersen joint development revenue year to date. Ionis recorded $107 million of related development expense before cost-sharing effects.
- Operating expenses were flat year over year in Q3 and increased 3% year to date. Higher development, manufacturing and go-to-market spending was partly offset by lower stock-based compensation and lower SG&A following Akcea integration and commercial restructuring.
- Investment income increased to $13.4 million year to date from $8.2 million, while the company recorded a $10.6 million year-to-date loss on investments, primarily from publicly traded biotechnology investments.
- Ionis recorded a $12.5 million legal settlement reserve in the second quarter related to the former Akcea stockholder litigation and received $4.8 million of insurance contributions in the third quarter.
Guidance, outlook, commentary and risks
- Management expected to file an FDA New Drug Application for eplontersen by the end of 2022 following positive interim Phase 3 data. Biogen’s tofersen application was under FDA priority review with an April 25, 2023 PDUFA date.
- Management expected operating expenses excluding stock-based compensation to increase in the fourth quarter as Ionis advanced its pipeline, expanded technology investments and increased go-to-market activities.
- Ionis expected medical affairs and commercialization expenses to increase as the eplontersen collaboration progressed.
- GSK planned to advance bepirovirsen into Phase 3 development, Roche planned to advance IONIS-FB-LRx into Phase 3, and Roche planned to begin enrollment in a Phase 2 tominersen study in early 2023.
- Bayer communicated in the fourth quarter of 2022 that it would discontinue fesomersen development and return the program to Ionis. AstraZeneca was not advancing ION449 after its Phase 2b study.
- Key risks include dependence on collaboration partners, declining SPINRAZA royalties, clinical and regulatory failure, product safety and reimbursement constraints, manufacturing capacity, competition, intellectual property challenges, COVID-19 and geopolitical or supply-chain disruptions.
- Revenue recognition and accruals for unbilled clinical development costs require significant judgment. Partner payments and milestones may cause substantial period-to-period volatility.
- Subsequent to quarter-end, Ionis entered into a headquarters sale-and-leaseback for $263.4 million, expected proceeds of $33.0 million from adjacent land sales, and new long-term build-to-suit leases. A portion of the proceeds was used to extinguish $51.3 million of mortgage debt. These transactions were not reflected in the September 30 balance sheet.
- The company reported effective disclosure controls as of September 30, 2022 and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Verify the sustainability of revenue growth given the significant contribution from milestones, license fees and partner cost-sharing rather than commercial product revenue.
- Track SPINRAZA royalty trends, including pricing, foreign exchange and competitive pressures.
- Confirm the timing and regulatory outcomes for eplontersen and tofersen, as well as planned Phase 3 advances for other partnered programs.
- Assess whether approximately $2.0 billion of cash and short-term investments is sufficient to fund expanding development, manufacturing and commercialization commitments.
- Review the December 2024 maturity of the 0.125% convertible notes and the April 2026 maturity of the 0% convertible notes, including potential equity dilution from conversions and warrants.
- Monitor the financial and accounting effects of the October 2022 sale-and-leaseback and build-to-suit transactions, including higher future occupancy costs.
- Follow unresolved shareholder derivative litigation concerning director compensation and any further settlement or litigation exposure.