IONIS PHARMACEUTICALS INC quarterly report, Q2 FY2021

Ionis Pharmaceuticals, Inc. Form 10-Q Summary

Reporting period: Three and six months ended June 30, 2021. The interim financial statements are unaudited and include Ionis and wholly owned Akcea Therapeutics. Ionis began reporting as a single operating segment in 2021 following its October 2020 acquisition of the remaining Akcea shares.

Business Context

Ionis develops RNA-targeted medicines, with core franchises in neurology and cardiometabolic disease. Commercial products include SPINRAZA, TEGSEDI and WAYLIVRA. The company reported six Phase 3 studies involving tofersen, eplontersen, IONIS-APOCIII-L_Rx, pelacarsen and ION363.

Financial Performance and Metrics

Metric	Three Months Ended June 30, 2021	Three Months Ended June 30, 2020	Six Months Ended June 30, 2021	Six Months Ended June 30, 2020
Total revenue	$125.8 million	$145.5 million	$237.4 million	$278.9 million
Commercial revenue	$85.9 million	$89.7 million	$170.3 million	$173.7 million
R&D revenue	$39.9 million	$55.8 million	$67.1 million	$105.2 million
Total operating expenses	$198.7 million	$197.3 million	$402.3 million	$391.8 million
Loss from operations	$(73.0) million	$(51.8) million	$(164.9) million	$(112.9) million
Net loss	$(80.9) million	$(37.6) million	$(170.7) million	$(87.4) million
Net loss per share	$(0.57)	$(0.18)	$(1.21)	$(0.47)

Revenue declined approximately 14% year over year in both the quarter and first half, primarily because of lower collaboration R&D revenue and fewer milestone and licensing payments.
Commercial revenue was broadly stable for the first half. SPINRAZA royalties were $72.2 million in the quarter and $132.2 million year to date.
Operating margins were approximately negative 58% for the quarter and negative 69% for the first half; net margins were approximately negative 64% and negative 72%, respectively.
Research, development and patent expense increased to $279.1 million in the first half from $239.2 million, reflecting investment in late-stage and wholly owned pipeline programs.
SG&A expense declined to $117.7 million in the first half from $147.0 million, mainly due to Akcea integration and commercial restructuring efficiencies.
Non-cash stock-based compensation was $67.9 million in the first half, compared with $89.2 million in the prior-year period.

Cash Flow, Liquidity and Capital Structure

Cash and cash equivalents were $565.1 million at June 30, 2021, compared with $397.7 million at December 31, 2020.
Short-term investments were $1.494 billion, producing cash and short-term investments of approximately $2.1 billion.
Net cash used in operating activities was $117.3 million for the first half, compared with $51.8 million in the prior-year period.
Net cash used in investing activities was $22.2 million, while financing activities provided $307.0 million.
In April 2021, Ionis issued $632.5 million of 0% convertible senior notes due in 2026, repurchased $247.9 million principal amount of 1% notes, purchased note hedges and issued warrants. The transactions generated an $8.6 million non-cash loss on early debt retirement.
At June 30, 2021, reported debt included $632.5 million principal of 0% notes, $548.8 million principal of 0.125% notes due in 2024, and $62.0 million principal of 1% notes due in November 2021, in addition to mortgage debt.
Total contractual obligations were $1.344 billion, including $68.9 million due within one year. The filing states that Ionis had no off-balance-sheet arrangements.
Stockholders’ equity declined to $582.7 million from $743.3 million at year-end, primarily reflecting the first-half net loss and the accounting treatment of the note hedge transaction.

Material Changes Versus the Prior Comparable Period

Revenue fell by $19.8 million in the second quarter and $41.5 million in the first half.
Net loss attributable to Ionis common stockholders increased from $25.6 million to $80.9 million for the quarter and from $65.3 million to $170.7 million for the first half. The comparison is affected by the October 2020 acquisition of Akcea: 2020 included losses attributable to Akcea’s noncontrolling interest, whereas 2021 did not.
Ionis transitioned European TEGSEDI and WAYLIVRA commercialization and North American TEGSEDI commercialization to Sobi. Revenue shifted from direct product sales toward distribution fees based on Sobi’s net sales.
First-half restructuring and acquisition-related costs were approximately $21.8 million, including severance and retention costs. Additional North American TEGSEDI restructuring costs of $9.4 million were recognized in the second quarter.
Ionis retrospectively adopted ASU 2020-06 for convertible debt accounting. Prior-period amounts were revised, including lower reported interest expense and changes to additional paid-in capital, accumulated deficit and convertible-note carrying values.
Biogen represented approximately 80% of second-quarter revenue and 75% of first-half revenue. Biogen paid a $10 million milestone in the second quarter when it advanced ION541.

Guidance, Outlook, Commentary and Unusual Items

Management expects operating expenses to increase in the second half of 2021 as Ionis advances its wholly owned pipeline, including additional R&D expense related to the Bicycle license. SG&A is expected to decline further as integration and restructuring savings continue.
Management expects R&D revenue to increase in the second half of 2021 as partnered programs advance. Subsequent to quarter-end, Ionis reported a $25 million Novartis milestone tied to 50% enrollment in the pelacarsen Phase 3 HORIZON study.
Management believes its cash and investment balances provide financial capacity to pursue pipeline development, commercial capabilities and technology investments, including its goal of 12 or more marketed products in 2026.
COVID-19 caused some commercial, clinical-trial, site-initiation and enrollment disruptions. Management characterized the effects as limited and manageable but stated that the ultimate impact remains uncertain.
Key development milestones included completion of dosing in the tofersen VALOR study, full enrollment in the eplontersen NEURO-TTRansform study, initiation of the ION363 Phase 3 study and continued enrollment in other Phase 3 programs.
The filing identifies significant risks from clinical and regulatory failure, competition, reimbursement and pricing pressure, manufacturing and supply constraints, reliance on Biogen, Sobi and other partners, intellectual-property challenges, COVID-19, and continued operating losses.
A purported Akcea stockholder lawsuit in Delaware alleges fiduciary-duty breaches related to licensing transactions involving TEGSEDI and eplontersen and asserts unjust-enrichment claims against Ionis. The company states that it believes the claims are without merit; an amended complaint had not yet been filed.
Management reported that disclosure controls and procedures were effective as of June 30, 2021, with no identified material changes to internal control over financial reporting during the quarter.

Investor Verification Checklist

Verify the sustainability of SPINRAZA royalties and the effect of competitive products, including gene therapy and oral alternatives.
Assess Sobi’s execution and net-sales performance for TEGSEDI and WAYLIVRA after the commercialization transition.
Reconcile expected collaboration milestones and deferred revenue with the timing of future R&D revenue.
Monitor cash burn, the November 2021 maturity of the remaining 1% notes, and the company’s convertible-debt dilution and refinancing exposure.
Track Phase 3 enrollment, readouts, regulatory decisions and safety outcomes for tofersen, eplontersen, pelacarsen, IONIS-APOCIII-L_Rx and ION363.
Evaluate the impact of continued R&D investment, the Bicycle license expense and remaining restructuring costs on future operating losses.
Review the Delaware litigation, product-label safety requirements, reimbursement conditions, manufacturing capacity and continuing COVID-19 effects.
Use the revised 2020 comparative figures when evaluating trends because of the retrospective adoption of ASU 2020-06.