Ionis Pharmaceuticals, Inc. 2020 Q1 Form 10-Q Summary
Business context and reporting period
Ionis Pharmaceuticals, together with its approximately 76%-owned affiliate Akcea Therapeutics, develops RNA-targeted antisense medicines. The filing covers the unaudited three months ended March 31, 2020, compared with the three months ended March 31, 2019. Commercial medicines include SPINRAZA, TEGSEDI and WAYLIVRA.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $133.4 million | $297.2 million | Down 55.1% |
| Commercial revenue | $84.0 million | $68.1 million | Up 23.3% |
| Research and development revenue | $49.4 million | $229.1 million | Down 78.4% |
| Operating expenses | $194.5 million | $175.7 million | Up 10.7% |
| Loss from operations | $(61.1) million | $121.5 million income | Material deterioration |
| Net income (loss) | $(58.5) million | $90.9 million income | Material deterioration |
| Net income (loss) attributable to Ionis stockholders | $(48.2) million | $84.4 million income | Material deterioration |
| Basic and diluted EPS | $(0.35) | $0.63 basic; $0.62 diluted | Declined |
| Net cash from operating activities | $(7.6) million | $107.7 million | Declined |
Operating margin was approximately negative 45.9% in Q1 2020 versus positive 40.9% in Q1 2019. Net margin was approximately negative 43.9% versus positive 30.6%.
- SPINRAZA royalties increased to $66.0 million from $59.7 million. Biogen reported worldwide SPINRAZA sales of $565 million, up 9%, with approximately 10,800 patients on therapy at March 31, 2020.
- TEGSEDI and WAYLIVRA product sales increased to $15.2 million from $6.8 million as commercial launches expanded.
- Q1 2020 research and development revenue included $23.1 million of milestone payments, $21.1 million of upfront-payment amortization and $5.1 million of other services. Q1 2019 included a $150 million Novartis license fee.
- Operating expenses increased primarily from global commercialization of TEGSEDI and WAYLIVRA, the AKCEA-TTR-LRx Phase 3 program and Ionis-owned pipeline investments. Research, development and patent expense was $117.0 million; selling, general and administrative expense was $75.0 million.
- Non-cash stock-based compensation was $40.8 million, down from $45.5 million, and represented approximately 21% of operating expenses.
- Cash, cash equivalents and short-term investments totaled approximately $2.4 billion at March 31, 2020, consisting of $486.2 million of cash and cash equivalents and $1.90 billion of short-term investments.
- Cash used in investing activities was $95.0 million, primarily reflecting net purchases of short-term investments and $9.1 million of capital expenditures. Financing activities used $94.5 million, including $90.6 million for share repurchases.
- Current assets were $2.56 billion versus $2.72 billion at December 31, 2019; total assets were $3.09 billion versus $3.23 billion.
- Debt included $548.8 million principal of 0.125% convertible notes due December 2024, $309.9 million principal of 1% convertible notes due November 2021, and $59.9 million of long-term mortgage debt. Total contractual obligations were approximately $969.6 million.
Material changes versus the prior comparable period
- Total revenue fell substantially because Q1 2019 included a $150 million Novartis license fee and other large collaboration-related items. Commercial revenue grew more than 20%.
- The company moved from operating income of $121.5 million to an operating loss of $61.1 million and from net income of $90.9 million to a net loss of $58.5 million.
- Operating cash flow declined from $107.7 million provided to $7.6 million used, while the company repurchased 1.5 million shares for $90.6 million in Q1 2020.
- Akcea’s noncontrolling interest reflected a $10.3 million loss in Q1 2020 versus $6.4 million of income in Q1 2019.
- The company recognized a $10 million AstraZeneca milestone for advancement of ION532 and a $7.5 million Biogen milestone for advancement of IONIS-MAPTRx. It also reported a $5 million milestone from Dynacure in subsequent business highlights.
- The company adopted new credit-loss, cloud-implementation-cost and collaboration-accounting guidance in 2020 without a significant financial statement impact.
- The CARES Act generated a $1.7 million discrete tax benefit related to Akcea. Total income tax benefit was $3.3 million versus $31.0 million of expense in Q1 2019.
Guidance, outlook, commentary and risks
- Management expected research and development revenue to be higher in the second half of 2020 than in the first half, although collaboration revenue remains dependent on the timing of milestones, licenses and research activities.
- Management expected operating expenses, excluding non-cash equity compensation, to continue increasing during 2020 as development and commercialization programs advance.
- The company planned to have six pivotal studies underway by year-end 2020, report clinical proof-of-concept data for six medicines, expand delivery routes including oral and pulmonary administration, and pursue at least 10 new drug applications through 2025. These are plans rather than guaranteed guidance.
- COVID-19 had not caused a significant overall business impact through the filing date, but management identified potential disruption to clinical enrollment, site operations, supply chains, commercialization activities, manufacturing, healthcare access and capital markets. Akcea temporarily suspended enrollment in AKCEA-TTR-LRx Phase 3 studies before resuming as sites reopened.
- Key risks include clinical-trial failure or delay, regulatory setbacks, product safety and monitoring requirements, competition, reimbursement and pricing pressure, dependence on Biogen and other partners, third-party manufacturing and clinical providers, intellectual-property disputes, and continued operating losses.
- TEGSEDI carries a U.S. boxed warning and REMS requirements for thrombocytopenia and glomerulonephritis. WAYLIVRA has European monitoring requirements and a required post-authorization safety study; its U.S. application previously received a complete response letter.
- A purported Akcea stockholder lawsuit concerning the TEGSEDI and AKCEA-TTR-LRx licensing transaction was voluntarily dismissed on April 7, 2020. The dismissal was with prejudice only as to the individual plaintiff, so a similar action could potentially be filed before the applicable statute of limitations expires.
- Management reported effective disclosure controls as of March 31, 2020 and no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether commercial growth in SPINRAZA, TEGSEDI and WAYLIVRA can offset the volatility of collaboration, milestone and license revenue.
- The timing and probability of anticipated milestones, licenses and higher second-half 2020 collaboration revenue.
- The effect of COVID-19 on clinical enrollment, regulatory timelines, manufacturing, supply chains and product commercialization.
- Progress, safety results and regulatory status of tominersen, tofersen, AKCEA-APO(a)-LRx, AKCEA-TTR-LRx and other pivotal programs.
- Akcea’s ability to scale commercialization while managing leadership transitions, product monitoring obligations and operating losses.
- Debt maturities, potential conversion or dilution from convertible notes and warrants, and the remaining authorization under the $125 million share repurchase program.
- Future cash burn and whether the approximately $2.4 billion liquidity balance remains sufficient under higher development and commercialization spending.