Ionis Pharmaceuticals, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. The unaudited consolidated statements include Ionis and its wholly owned subsidiary, Akcea Therapeutics. Ionis operates as a single segment focused on RNA-targeted therapeutics and had 141.9 million common shares outstanding as of August 3, 2022.
Business Context and Reporting Period
Ionis had three marketed medicines: SPINRAZA, TEGSEDI and WAYLIVRA. Its pipeline included six medicines in Phase 3 studies for eight indications, including eplontersen, tofersen, olezarsen, pelacarsen, donidalorsen and ION363. Revenue was generated from commercial royalties and product-related revenue, collaboration and licensing arrangements, and AstraZeneca cost-sharing for eplontersen development.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Total revenue | $133.8 million | $125.8 million | $275.7 million | $237.4 million |
| Operating expenses | $219.3 million | $198.7 million | $418.7 million | $402.3 million |
| Loss from operations | $(85.5) million | $(73.0) million | $(143.0) million | $(164.9) million |
| Net loss | $(105.1) million | $(80.9) million | $(170.3) million | $(170.7) million |
| Basic and diluted loss per share | $(0.74) | $(0.57) | $(1.20) | $(1.21) |
Margins: Approximate operating margins were negative 63.9% for the second quarter and negative 51.9% for the first half. Approximate net margins were negative 78.6% and negative 61.8%, respectively.
- Second-quarter commercial revenue was $78.2 million, including $59.6 million of SPINRAZA royalties, $10.4 million of TEGSEDI and WAYLIVRA revenue, and $8.2 million of licensing and other royalty revenue.
- First-half commercial revenue was $150.5 million, down from $170.3 million in the prior-year period. SPINRAZA royalties declined to $113.4 million from $132.2 million, primarily because of competition outside the United States.
- First-half research and development revenue increased to $125.2 million from $67.0 million, including $37.2 million of eplontersen joint development revenue and $44.9 million of milestone payments.
- Research, development and patent expense increased to $341.9 million for the first half from $279.1 million, reflecting expanded late-stage development activity. SG&A expense declined to $67.9 million from $117.7 million due to Akcea integration and commercial restructuring savings.
- First-half operating expenses excluding non-cash equity compensation were $367.9 million, compared with $334.4 million in the prior-year period. Non-cash equity compensation declined to $50.8 million from $67.9 million.
Cash Flow, Liquidity and Capital Structure
- Cash and cash equivalents were $521.9 million at June 30, 2022, compared with $869.2 million at December 31, 2021.
- Short-term investments were $1.500 billion, resulting in approximately $2.0 billion of cash, cash equivalents and short-term investments.
- Net cash used in operating activities was $49.7 million for the first half, an improvement from $117.3 million used in the prior-year period.
- Net cash used in investing activities was $290.9 million, primarily reflecting purchases of short-term investments exceeding sales.
- Net cash used in financing activities was $6.1 million, compared with $307.0 million provided in the prior-year period, which included the 2021 convertible-notes financing.
- Outstanding convertible debt consisted primarily of $632.5 million of 0% notes due April 2026 and $548.8 million of 0.125% notes due December 2024. The balance sheet carrying values were $620.7 million and $543.4 million, respectively.
- Long-term mortgage debt was $59.2 million at June 30, 2022. Total contractual obligations were $1.283 billion, including convertible debt, mortgages, leases and other obligations.
- Stockholders’ equity was $624.7 million, down from $771.7 million at December 31, 2021, primarily reflecting the net loss and accumulated unrealized investment losses.
Material Changes Versus the Prior Comparable Period
- Total revenue increased 6% in the second quarter and 16% in the first half, driven by collaboration-related payments and eplontersen cost-sharing revenue.
- Commercial revenue declined 9% in the second quarter and 12% in the first half, primarily from lower SPINRAZA royalties and the transition of TEGSEDI and WAYLIVRA from direct product sales to Sobi distribution-fee arrangements.
- Operating losses improved for the first half but worsened in the second quarter as R&D investment increased.
- The company recognized a $13.0 million investment loss in the first half of 2022, compared with a $0.9 million investment gain in the prior-year period, including a $13.5 million unrealized loss on publicly traded biotechnology investments.
- The company recorded a $12.5 million legal settlement expense related to litigation concerning the Akcea take-private transaction. The proposed settlement remained subject to court approval; a $4.5 million insurance contribution was expected to be recorded in the third quarter.
- Income tax expense increased to $3.4 million for the first half from $0.5 million, primarily because tax rules required capitalization and amortization of U.S. research and development expenditures beginning in 2022.
Guidance, Outlook, Commentary and Risks
- Management expected operating expenses excluding non-cash equity compensation to continue increasing during the remainder of 2022 as Ionis advances its pipeline, expands technology and prepares for potential commercial launches.
- Ionis planned to file an NDA for eplontersen with the FDA in the second half of 2022. Biogen’s tofersen NDA received FDA acceptance and priority review, with a January 25, 2023 PDUFA date.
- Roche licensed IONIS-FB-L Rx in July 2022 and planned to advance it into Phase 3 development for IgA nephropathy. Ionis became eligible for up to $145 million of development milestones, $279 million of regulatory milestones and $280 million of sales-related milestones, plus tiered royalties.
- Management stated that its cash and investment resources were sufficient to continue investing in strategic priorities, but future funding needs depend on commercialization, clinical progress, collaboration activity, manufacturing requirements and market conditions.
- Principal risks include clinical or regulatory failure, dependence on Biogen, AstraZeneca, Roche and other partners, SPINRAZA competition, reimbursement and pricing pressure, manufacturing and supply-chain constraints, COVID-19 impacts, the Russia-Ukraine conflict, intellectual-property challenges, product liability, cybersecurity and continued operating losses.
- Revenue recognition and accruals for unbilled clinical development costs require significant estimates and judgment. Actual results may differ from those estimates.
Most Important Facts for Investors to Verify
- Whether eplontersen and tofersen obtained the anticipated regulatory milestones and commercial approvals after the reporting date.
- The sustainability of collaboration and milestone revenue compared with recurring commercial revenue, particularly given declining SPINRAZA royalties.
- The pace and cost of Phase 3 development and the extent to which AstraZeneca and other partners continue funding programs.
- Cash consumption, investment portfolio valuation changes and the company’s ability to fund operations through the 2024 and 2026 convertible-note maturities.
- The status and final cost of the Akcea-related litigation settlement and the expected insurance recovery.
- Clinical trial outcomes, regulatory requirements and competitive developments affecting eplontersen, tofersen, olezarsen, pelacarsen, donidalorsen and ION363.