Ionis Pharmaceuticals, Inc. 2020 Q2 Form 10-Q Summary
Business context and reporting period
Ionis Pharmaceuticals is an RNA-targeted therapeutics company with more than 40 medicines in its pipeline and three approved commercial medicines: SPINRAZA, TEGSEDI and WAYLIVRA. The filing covers the quarter and six months ended June 30, 2020. Results consolidate Ionis and its approximately 76%-owned affiliate, Akcea Therapeutics.
Key financial metrics
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $145.5 million | $163.8 million | $278.9 million | $461.0 million |
| Commercial revenue | $89.7 million | $88.3 million | $173.7 million | $156.4 million |
| R&D collaboration revenue | $55.8 million | $75.5 million | $105.2 million | $304.6 million |
| Operating expenses | $197.3 million | $182.6 million | $391.8 million | $358.3 million |
| Income (loss) from operations | $(51.8) million | $(18.8) million | $(112.9) million | $102.7 million |
| Net income (loss) | $(43.8) million | $(10.0) million | $(102.2) million | $80.9 million |
| Ionis attributable net income (loss) | $(31.8) million | $(0.9) million | $(80.1) million | $83.6 million |
| Basic and diluted EPS | $(0.23) | $(0.01) | $(0.58) | $0.62 basic/$0.61 diluted |
Q2 operating margin was approximately negative 35.6%, compared with negative 11.5% in the prior-year quarter. Six-month operating margin was approximately negative 40.5%, compared with positive 22.3% in 2019. The filing does not present a gross margin because cost of products sold is not separately presented as a gross-profit subtotal.
- SPINRAZA royalties were $71.7 million in Q2 and $137.8 million for the first half, up 2% and 6%, respectively.
- TEGSEDI and WAYLIVRA product sales were $16.4 million in Q2 and $31.5 million for the first half, up from $9.9 million and $16.6 million, respectively.
- R&D revenue declined primarily because the first half of 2019 included a $150 million Novartis license fee and other large items. Q2 2020 included a $13 million AstraZeneca license fee for ION736.
- Research, development and patent expense was $122.3 million in Q2 and $239.2 million for the first half. Selling, general and administrative expense was $72.0 million and $147.0 million, respectively.
- Investment income declined to $9.2 million in Q2 and $19.5 million for the first half, primarily because of lower interest rates. Q2 included $9.6 million of investment gains, including gains related to Dynacure and Ribo.
- Six-month operating cash flow was $(51.7) million, compared with $80.6 million of cash provided in the prior-year period. Investing cash flow was $(15.3) million and financing cash flow was $(86.1) million, including $90.5 million of share repurchases.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $530.2 million at June 30, 2020. Short-term investments were $1.818 billion, producing combined cash and short-term investments of approximately $2.35 billion.
- Total assets were $3.079 billion, and total stockholders’ equity was $1.595 billion, including $217.6 million of noncontrolling interest in Akcea. Accumulated deficit was $878.2 million.
- Debt included $548.8 million principal of 0.125% convertible senior notes due December 2024 and $309.9 million principal of 1% convertible senior notes due November 2021. The balance-sheet carrying amounts were $445.2 million and $284.1 million, respectively.
- Total contractual obligations were estimated at $966.3 million, including principal and interest on convertible notes, mortgage debt, leases and other obligations.
- Management stated that existing financial resources should support corporate goals throughout 2020 and beyond, while retaining the ability to pursue additional equity, debt, refinancing or credit facilities if needed.
Material changes versus the prior comparable period
- First-half revenue fell 39.5%, mainly because 2019 included substantially larger collaboration license and milestone revenue. Commercial revenue increased 11.1%.
- First-half operating expenses increased 9.3%, reflecting investment in the AKCEA-TTR-L Rx Phase 3 program and the Ionis-owned pipeline.
- The company shifted from $80.9 million of first-half 2019 net income to a $102.2 million net loss in 2020.
- Cash declined by $153.1 million during the first half, principally reflecting operating cash usage, share repurchases and other financing activity.
- Cash interest expense decreased after the December 2019 exchange of a substantial portion of the 1% notes into lower-coupon 0.125% notes.
- In June 2020, stockholders approved amendments to the non-employee directors’ stock option plan, including increasing reserved shares from 2.0 million to 2.8 million.
Guidance, outlook, commentary and risks
- Management expected R&D revenue to be higher in the second half of 2020 than in the first half. It also expected operating expenses to continue increasing as strategic programs advance.
- The company planned to have six pivotal studies underway and report clinical proof-of-concept data for six medicines by year-end 2020. It continued targeting 10 or more new drug applications through the end of 2025.
- Pipeline priorities included tominersen, tofersen, AKCEA-APO(a)-L Rx and AKCEA-TTR-L Rx. Roche had completed enrollment in the Phase 3 tominersen study, and Novartis had begun enrollment in the AKCEA-APO(a)-L Rx HORIZON study.
- COVID-19 had limited but measurable effects on commercial access, clinical-site initiation, enrollment, patient compliance, trial staffing and regulatory interactions. Enrollment in Akcea’s AKCEA-TTR-L Rx Phase 3 studies was temporarily suspended and later resumed.
- Subsequent events disclosed in the filing included $18 million of Biogen milestones for ION464, a $12 million Biogen milestone for IONIS-MAPT Rx and a $5 million Janssen milestone for ION253, all achieved in July or August 2020.
- Key risks include clinical and regulatory failure, product safety and monitoring requirements, competition, dependence on Biogen and other partners, commercial execution by Akcea, manufacturing and supply-chain disruption, reimbursement and pricing pressure, intellectual-property disputes, COVID-19 effects, reliance on key personnel and future funding needs.
- A purported Akcea stockholder filed a Delaware Chancery Court action in July 2020 alleging fiduciary-duty breaches relating to licensing transactions involving TEGSEDI and AKCEA-TTR-L Rx. The company said it believes the claims are without merit and expects to seek dismissal.
Important facts for investors to verify
- Whether SPINRAZA royalties and TEGSEDI/WAYLIVRA sales continue to offset volatile collaboration revenue.
- The timing and size of future licensing fees, milestones and other collaboration revenue, particularly from Biogen, AstraZeneca, Janssen, Roche and Novartis.
- Clinical progress, enrollment and data for tominersen, tofersen, AKCEA-APO(a)-L Rx and AKCEA-TTR-L Rx, including the continuing effects of COVID-19.
- Akcea’s ability to commercialize TEGSEDI and WAYLIVRA while managing safety monitoring, reimbursement and competition.
- Cash burn, increasing R&D spending and the November 2021 maturity of the 1% convertible notes.
- Potential dilution from convertible notes and warrants; the filing identifies approximately 11.2 million potential note-conversion shares and up to 6.6 million warrant-related shares, subject to adjustments.
- The outcome and potential financial or governance implications of the Delaware litigation.