Ionis Pharmaceuticals, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2020; unaudited. Ionis consolidated Akcea Therapeutics, with approximately 76% ownership at quarter-end. In October 2020, Ionis acquired the remaining Akcea shares; the transaction will be reflected beginning in the fourth quarter.
Business Context
Ionis develops RNA-targeted therapeutics using its antisense technology platform. Commercial products include SPINRAZA, marketed by Biogen, and Akcea’s TEGSEDI and WAYLIVRA. The company reported more than 40 potential medicines in its pipeline and five Phase 3 studies involving tominersen, tofersen, pelacarsen and AKCEA-TTR-LRx.
Financial Performance
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $160.1 million | $167.9 million | $439.0 million | $628.9 million |
| Commercial revenue | $95.3 million | $95.7 million | $269.0 million | $252.1 million |
| R&D collaboration revenue | $64.7 million | $72.2 million | $169.9 million | $376.8 million |
| Operating expenses | $196.6 million | $165.4 million | $588.4 million | $523.7 million |
| Loss from operations | $(36.5) million | $2.5 million | $(149.4) million | $105.2 million |
| Net income (loss) | $(43.1) million | $18.4 million | $(145.3) million | $99.3 million |
| Net income (loss) attributable to Ionis stockholders | $(30.9) million | $26.2 million | $(111.0) million | $109.7 million |
| Basic EPS | $(0.22) | $0.19 | $(0.80) | $0.81 |
Margins: Operating margin was approximately (22.8%) in Q3 2020 versus 1.5% in Q3 2019, and approximately (34.0%) for the first nine months versus 16.7% in the prior-year period. Net margin was approximately (26.9%) in Q3 and (33.1%) for the first nine months.
- SPINRAZA royalties were $74.2 million in Q3 and $211.9 million for the first nine months. Nine-month royalties were essentially flat year over year.
- Product sales increased to $19.0 million in Q3 and $50.6 million for the first nine months, up more than 75% year over year for the nine-month period, primarily from TEGSEDI and WAYLIVRA.
- R&D collaboration revenue declined substantially year over year because the first nine months of 2019 included approximately $185 million from two large items, including a $150 million Novartis pelacarsen license fee.
- Research, development and patent expense increased to $364.3 million for the first nine months from $316.9 million, reflecting investment in the AKCEA-TTR-LRx Phase 3 program and the Ionis-owned pipeline.
- Stock-based compensation was $135.1 million for the first nine months, compared with $111.6 million in 2019, including $45.8 million in Q3 2020.
Cash Flow, Liquidity and Debt
| Metric | September 30, 2020 | December 31, 2019 |
|---|---|---|
| Cash and cash equivalents | $633.1 million | $683.3 million |
| Short-term investments | $1.696 billion | $1.816 billion |
| Total cash and short-term investments | $2.329 billion | $2.500 billion |
| Total assets | $3.096 billion | $3.233 billion |
| Total liabilities | $1.489 billion | $1.549 billion |
- Operating cash flow was $(62.1) million for the first nine months of 2020, compared with $67.8 million provided in 2019.
- Investing activities provided $86.6 million, primarily reflecting net sales of short-term investments.
- Financing activities used $75.1 million, including $90.5 million for share repurchases and $13.0 million for employee tax withholdings.
- Cash and cash equivalents declined by $50.2 million during the first nine months.
- Debt included $548.8 million principal of 0.125% convertible notes due December 2024 and $309.9 million principal of 1% convertible notes due November 2021. The balance sheet also included $60.0 million of long-term mortgage debt.
- Contractual obligations totaled approximately $964.9 million, including principal and interest on convertible notes, mortgage debt, leases and other obligations.
Material Changes and Unusual Items
- Q3 2020 included $18 million of Biogen milestone revenue for initiation of a Phase 1/2 trial for ION464, $10 million for initiation of a Phase 1/2 trial for ION541, $12 million related to advancement of IONIS-MAPTRx, and $5 million from Janssen for initiation of a Phase 1 trial for ION253.
- For the first nine months, the company recorded a $10.7 million gain on investments, primarily from revaluations of private-company investments in Dynacure and Ribo.
- Ionis repurchased approximately 1.5 million shares for $90.6 million during the first quarter of 2020, following $34.4 million of repurchases in 2019.
- In October 2020, Ionis acquired the remaining Akcea shares for approximately $545 million, including transaction costs. Fourth-quarter results are expected to include acquisition-related retention, severance and stock-based compensation costs. Ionis will no longer report a noncontrolling interest in Akcea after the acquisition.
- In October 2020, Pfizer triggered a $75 million milestone payment for beginning a Phase 2b study of vupanorsen. Management also expected a favorable Alnylam arbitration award to produce meaningful fourth-quarter revenue, although the final judgment had not been determined at filing.
Guidance, Outlook and Risks
- Management expected fourth-quarter 2020 R&D revenue to exceed Q3 revenue, citing the Pfizer milestone and potential Alnylam arbitration proceeds.
- Management expected fourth-quarter operating expenses to increase because of one-time Akcea acquisition costs.
- Management stated that its financial position should support execution of corporate objectives through 2020 and beyond, but the filing does not provide formal full-year revenue or earnings guidance.
- COVID-19 had caused some restrictions on commercial access, clinical-site initiation, patient enrollment, trial compliance and regulatory interactions. Management characterized the effects as limited and manageable but noted that the ultimate impact remained uncertain.
- Key operating risks include reliance on Biogen and other partners, SPINRAZA competition from ZOLGENSMA and risdiplam, safety and monitoring requirements for TEGSEDI and WAYLIVRA, clinical-trial failure or delay, manufacturing and supply-chain constraints, reimbursement pressure, intellectual-property disputes and integration of Akcea.
- The company disclosed a Delaware stockholder action alleging fiduciary-duty breaches related to TEGSEDI and AKCEA-TTR-LRx licensing transactions and unjust enrichment. Ionis stated that it believed the claims were without merit.
- Disclosure controls and procedures were evaluated as effective as of September 30, 2020.
Investor Verification Checklist
- Verify the timing and total consideration of the October 2020 Akcea acquisition, including acquisition accounting, cash usage and one-time integration costs.
- Assess the sustainability of SPINRAZA royalties and the growth, gross economics and reimbursement environment for TEGSEDI and WAYLIVRA.
- Reconcile fourth-quarter collaboration revenue, including the $75 million Pfizer milestone and the final Alnylam arbitration judgment.
- Review the effect of increased Phase 3 and pipeline spending on operating cash flow and future profitability.
- Monitor the November 2021 maturity of the 1% convertible notes and potential dilution or cash requirements from both convertible note issues.
- Evaluate COVID-19 effects on trial enrollment, manufacturing, commercialization and regulatory timelines.
- Review clinical, regulatory and safety developments for tominersen, tofersen, pelacarsen, AKCEA-TTR-LRx, TEGSEDI and WAYLIVRA.