10-Q 1 form10q.htm IONIS PHARMACEUTICALS INC 10-Q 3-31-2024

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-19125

     

Ionis Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its charter)

Delaware
 
33-0336973
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

2855 Gazelle Court, Carlsbad, California
 
92010
(Address of Principal Executive Offices)
 
(Zip Code)

760-931-9200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, $.001 Par Value
 
IONS
 
The Nasdaq Stock Market LLC

     

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer 
Accelerated Filer
   
Non-accelerated Filer
Smaller Reporting Company
 
Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12(b)-2 of the Securities Exchange Act of 1934). Yes No

The number of shares of voting common stock outstanding as of May 1, 2024 was 145,965,374.




IONIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX

PART I
 
     
ITEM 1:
 
     
 
Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023
3
     
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023 (unaudited)
4
     
 
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024 and 2023 (unaudited)
5
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2024 and 2023 (unaudited)
6
     
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 (unaudited)
7
     
 
8
     
ITEM 2:
 
     
 
19
     
 
21
     
 
21
     
 
27
     
ITEM 3:
29
     
ITEM 4:
29
     
PART II
29
     
ITEM 1:
29
     
ITEM 1A:
29
     
ITEM 2:
45
     
ITEM 3:
45
     
ITEM 4:
45
     
ITEM 5:
46
     
ITEM 6:
47
     
48

TRADEMARKS

Ionis,” the Ionis logo, and other trademarks or service marks of Ionis Pharmaceuticals, Inc. appearing in this report are the property of Ionis Pharmaceuticals, Inc. “Akcea,” the Akcea logo, and other trademarks or service marks of Akcea Therapeutics, Inc. appearing in this report are the property of Akcea Therapeutics, Inc., Ionis’ wholly owned subsidiary. This report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or TM symbols.

2


PART I — FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

 
March 31,
2024
   
December 31,
2023
 
   
(unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
348,889
   
$
399,266
 
Short-term investments
   
1,857,327
     
1,931,935
 
Contracts receivable
   
5,140
     
97,778
 
Inventories
   
30,259
     
28,425
 
Other current assets
   
174,060
     
184,449
 
Total current assets
   
2,415,675
     
2,641,853
 
Property, plant and equipment, net
   
72,795
     
71,043
 
Right-of-use assets
   
169,431
     
171,896
 
Deposits and other assets
   
106,027
     
105,280
 
Total assets
 
$
2,763,928
   
$
2,990,072
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
 
$
13,082
   
$
26,027
 
Accrued compensation
   
21,537
     
67,727
 
Accrued liabilities
   
106,048
     
147,894
 
Income taxes payable
   
2,210
     
2,151
 
0.125 percent convertible senior notes, net
   
44,377
     
44,332
 
Current portion of deferred contract revenue
   
130,406
     
151,128
 
Other current liabilities
   
9,988
     
8,831
 
Total current liabilities
   
327,648
     
448,090
 
Long-term deferred contract revenue
   
215,088
     
241,184
 
1.75 percent convertible senior notes, net
   
562,964
     
562,285
 
0 percent convertible senior notes, net
   
626,167
     
625,380
 
Liability related to sale of future royalties, net
   
525,072
     
513,736
 
Long-term lease liabilities
   
168,674
     
170,875
 
Long-term obligations
   
41,800
     
41,836
 
Total liabilities
   
2,467,413
     
2,603,386
 
Stockholders’ equity:
               
Common stock, $0.001 par value; 300,000,000 shares authorized, 145,844,719 and 144,340,526 shares issued and outstanding at March 31, 2024 (unaudited) and December 31, 2023, respectively
   
146
     
144
 
Additional paid-in capital
   
2,270,047
     
2,215,098
 
Accumulated other comprehensive loss
   
(34,964
)
   
(32,645
)
Accumulated deficit
   
(1,938,714
)
   
(1,795,911
)
Total stockholders’ equity
   
296,515
     
386,686
 
Total liabilities and stockholders’ equity
 
$
2,763,928
   
$
2,990,072
 


See accompanying notes.

3


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(Unaudited)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Revenue:
           
Commercial revenue:
           
SPINRAZA royalties
 
$
38,455
   
$
50,247
 
WAINUA royalties
   
1,125
     
 
Other commercial revenue
   
20,013
     
17,521
 
Total commercial revenue
   
59,593
     
67,768
 
Research and development revenue:
               
Collaborative agreement revenue
   
49,345
     
38,334
 
WAINUA joint development revenue
   
10,559
     
24,422
 
Total research and development revenue
   
59,904
     
62,756
 
Total revenue
   
119,497
     
130,524
 
                 
Expenses:
               
Cost of sales
   
2,151
     
1,343
 
Research, development and patent
   
214,215
     
197,813
 
Selling, general and administrative
   
52,644
     
45,516
 
Total operating expenses
   
269,010
     
244,672
 
                 
Loss from operations
   
(149,513
)
   
(114,148
)
                 
Other income (expense):
               
Investment income
   
26,285
     
18,627
 
Interest expense
   
(4,151
)
   
(1,608
)
Interest expense related to sale of future royalties
   
(17,959
)
   
(15,515
)
Gain (loss) on investments
   
2,333
     
(529
)
Other income
   
277
     
230
 
                 
Loss before income tax expense
   
(142,728
)
   
(112,943
)
                 
Income tax expense
   
(75
)
   
(11,380
)
                 
Net loss
 
$
(142,803
)
 
$
(124,323
)
                 
Basic and diluted net loss per share
 
$
(0.98
)
 
$
(0.87
)
Shares used in computing basic and diluted net loss per share
   
145,538
     
142,735
 


See accompanying notes.

4


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
(Unaudited)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Net loss
 
$
(142,803
)
 
$
(124,323
)
Unrealized losses on debt securities, net of tax
   
(2,205
)
   
8,393
 
Currency translation adjustment
   
(114
)
   
104
 
                 
Comprehensive loss
 
$
(145,122
)
 
$
(115,826
)


See accompanying notes.

5


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands)
(Unaudited)

 
Common Stock
   
Additional
   
Accumulated Other
   
Accumulated
   
Total
Stockholders
 
Description
 
Shares
   
Amount
   
Paid in Capital
   
Comprehensive Loss
   
Deficit
   
Equity
 
Balance at December 31, 2022
   
142,058
   
$
142
   
$
2,059,850
   
$
(57,480
)
 
$
(1,429,625
)
 
$
572,887
 
Net loss
   
     
     
     
     
(124,323
)
   
(124,323
)
Change in unrealized losses, net of tax
   
     
     
     
8,393
     
     
8,393
 
Foreign currency translation
   
     
     
     
104
     
     
104
 
Issuance of common stock in connection with employee stock plans
   
965
     
1
     
2,560
     
     
     
2,561
 
Stock-based compensation expense
   
     
     
26,948
     
     
     
26,948
 
Balance at March 31, 2023
   
143,023
   
$
143
   
$
2,089,358
   
$
(48,983
)
 
$
(1,553,948
)
 
$
486,570
 
                                                 
Balance at December 31, 2023
   
144,341
   
$
144
   
$
2,215,098
   
$
(32,645
)
 
$
(1,795,911
)
 
$
386,686
 
Net loss
   
     
     
     
     
(142,803
)
   
(142,803
)
Change in unrealized losses, net of tax
   
     
     
     
(2,205
)
   
     
(2,205
)
Foreign currency translation
   
     
     
     
(114
)
   
     
(114
)
Issuance of common stock in connection with employee stock plans
   
1,504
     
2
     
23,609
     
     
     
23,611
 
Stock-based compensation expense
   
     
     
31,340
     
     
     
31,340
 
Balance at March 31, 2024
   
145,845
   
$
146
   
$
2,270,047
   
$
(34,964
)
 
$
(1,938,714
)
 
$
296,515
 


See accompanying notes.

6


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Operating activities:
           
Net loss
 
$
(142,803
)
 
$
(124,323
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
2,547
     
2,604
 
Amortization of right-of-use operating lease assets
   
2,465
     
2,395
 
Amortization of other assets
   
639
     
607
 
Amortization of discount on investments, net
   
(9,257
)
   
(5,042
)
Amortization of debt issuance costs
   
1,667
     
1,486
 
Non-cash royalty revenue related to sale of royalties
   
(6,623
)
   
 
Non-cash interest related to sale of future royalties
   
17,806
     
15,363
 
Stock-based compensation expense
   
31,340
     
26,948
 
Loss (gain) on investments
   
(2,332
)
   
529
 
Non-cash losses related to other assets
   
133
     
445
 
Changes in operating assets and liabilities:
               
Contracts receivable
   
92,638
     
11,624
 
Inventories
   
(1,834
)
   
(167
)
Other current and long-term assets
   
13,381
     
5,312
 
Income taxes
   
59
     
11,037
 
Accounts payable
   
(13,869
)
   
(10,295
)
Accrued compensation
   
(46,190
)
   
(31,018
)
Accrued liabilities and other current liabilities
   
(42,887
)
   
(28,460
)
Deferred contract revenue
   
(46,818
)
   
(13,037
)
Net cash used in operating activities
   
(149,938
)
   
(133,992
)
                 
Investing activities:
               
Purchases of short-term investments
   
(519,001
)
   
(688,278
)
Proceeds from sale of short-term investments
   
600,836
     
374,363
 
Purchases of property, plant and equipment
   
(4,493
)
   
(10,472
)
Acquisition of licenses and other assets, net
   
(1,237
)
   
(1,253
)
Net cash provided by (used in) investing activities
   
76,105
     
(325,640
)
                 
Financing activities:
               
Proceeds from equity, net
   
23,609
     
2,560
 
Proceeds from sale of future royalties
   
     
500,000
 
Payments of transaction costs related to sale of future royalties
   
     
(10,434
)
Principal payments on mortgage debt
   
(39
)
   
(39
)
Net cash provided by financing activities
   
23,570
     
492,087
 
                 
Effects of exchange rates on cash
   
(114
)
   
104
 
                 
Net increase (decrease) in cash and cash equivalents
   
(50,377
)
   
32,559
 
Cash and cash equivalents at beginning of period
   
399,266
     
276,472
 
Cash and cash equivalents at end of period
 
$
348,889
   
$
309,031
 
                 
Supplemental disclosures of cash flow information:
               
Interest paid
 
$
95
   
$
89
 
Income taxes paid
 
$
13
   
$
293
 
                 
Supplemental disclosures of non-cash investing and financing activities:
               
Amounts accrued for capital and patent expenditures
 
$
924
   
$
3,058
 


See accompanying notes.

7

IONIS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(Unaudited)

1.  Organization and Basis of Presentation


Organization and Business Activity


We incorporated in California on January 10, 1989. In conjunction with our initial public offering, we reorganized as a Delaware corporation in April 1991. We are a leader in the discovery and development of RNA-targeted therapeutics.


Basis of Presentation


We prepared the unaudited interim condensed consolidated financial statements for the three months ended March 31, 2024 and 2023 on the same basis as the audited financial statements for the year ended December 31, 2023. We included all normal recurring adjustments in the financial statements, which we considered necessary for a fair presentation of our financial position at such dates and our operating results and cash flows for those periods. Our operating results for the interim periods may not be indicative of what our operating results will be for the entire year. For more complete financial information, these financial statements, and notes thereto, should be read in conjunction with the audited financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC.


In our condensed consolidated financial statements, we included the accounts of Ionis Pharmaceuticals, Inc. and the consolidated results of our wholly owned subsidiary, Akcea Therapeutics, Inc. and its wholly owned subsidiaries (“we”, “us” or “our”).


We operate as a single segment, Ionis operations, because our chief decision maker reviews operating results on an aggregate basis and manages our operations as a single operating segment.


Use of Estimates


We prepare our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States, or U.S., that require us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. Actual results could differ from our estimates.

2.  Significant Accounting Policies


Our significant accounting policies have not changed substantially from those included in our Annual Report on Form 10-K for the year ended December 31, 2023.


Recently Adopted Accounting Standards


We do not expect any recently issued accounting standards to have a material impact to our financial results.

3. Supplemental Financial Data


Inventories


Our inventory consisted of the following (in thousands):

 
March 31, 2024
   
December 31, 2023
 
Raw materials:
           
Raw materials - clinical
 
$
23,317
   
$
20,985
 
Raw materials - commercial
   
705
     
1,809
 
Total raw materials
   
24,022
     
22,794
 
Work in process
   
6,037
     
5,477
 
Finished goods
   
200
     
154
 
Total inventories
 
$
30,259
   
$
28,425
 

8

Accrued Liabilities


Our accrued liabilities consisted of the following (in thousands):

 
March 31, 2024
   
December 31, 2023
 
Clinical development expenses
 
$
75,929
   
$
105,967
 
In-licensing expenses
   
6,436
     
7,454
 
Commercial expenses
   
4,739
     
4,875
 
Other miscellaneous expenses
   
18,944
     
29,598
 
Total accrued liabilities
 
$
106,048
   
$
147,894
 

4. Revenues


During the three months ended March 31, 2024 and 2023, our revenues were comprised of the following (in thousands):

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Revenue:
           
Commercial revenue:
           
SPINRAZA royalties
 
$
38,455
   
$
50,247
 
WAINUA royalties
   
1,125
     
 
Other commercial revenue:
               
TEGSEDI and WAYLIVRA revenue, net
   
8,628
     
6,478
 
Licensing and other royalty revenue
   
11,385
     
11,043
 
Total other commercial revenue
   
20,013
     
17,521
 
Total commercial revenue
   
59,593
     
67,768
 
Research and development revenue:
               
Collaborative agreement revenue
   
49,345
     
38,334
 
WAINUA joint development revenue
   
10,559
     
24,422
 
Total research and development revenue
   
59,904
     
62,756
 
Total revenue
 
$
119,497
   
$
130,524
 


Revenue Sources


The following are sources of revenue and when we typically recognize revenue.


Commercial Revenue: SPINRAZA royalties and WAINUA royalties


We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA. In 2024, we began earning royalties from WAINUA sales.


Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net


We earn commercial revenue from TEGSEDI and WAYLIVRA sales under our distribution agreements with Sobi. In addition, we receive royalties from PTC Therapeutics International Limited, or PTC, for TEGSEDI  and WAYLIVRA sales.


Commercial Revenue: Licensing and other royalty revenue


 We also recognize as commercial revenue sales milestone payments and royalties we earn under our partnerships. For example, we earn royalty revenue on net sales of QALSODY, which is included in Licensing and other royalty revenue.


Research and development revenue under collaboration agreements


We enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis. Our collaboration agreements typically contain multiple elements, or performance obligations, including technology licenses or options to obtain technology licenses, research and development, or R&D, services and manufacturing services.

9


Upfront payments: When we enter into a collaboration agreement and receive an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. If part or all of the upfront payment is a license fee, we recognize as revenue the portion related to the license when we deliver the license to our partner because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery.


Milestone payments: We include variable consideration in the transaction price when it is probable. We typically include milestone payments for R&D services in the transaction price when they are achieved. We include these milestone payments when they are achieved because typically there is considerable uncertainty in the R&D processes that trigger these payments. Similarly, we include approval milestone payments in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales-based milestone payments in the period in which we achieve the milestone under the sales-based royalty exception allowed under accounting rules.


We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, when we achieve a milestone payment from a partner for advancing a clinical study under a collaboration agreement, we add the milestone payment to the transaction price if the milestone relates to an ongoing R&D services performance obligation and recognize revenue related to the milestone payment over our estimated period of performance. If we have partially completed our performance obligation, then we record a cumulative-effect adjustment in the period we add the milestone payment to the transaction price.


Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event and we do not have a performance obligation.


License fees: We recognize as revenue the total amount we determine to be the relative stand-alone selling price of a license when we deliver the license to our partner because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery.


WAINUA (Eplontersen) Collaboration with AstraZeneca


In 2021, we entered into a joint development and commercialization agreement with AstraZeneca to develop and commercialize WAINUA for the treatment of transthyretin amyloidosis, or ATTR. We jointly developed and are preparing to commercialize WAINUA with AstraZeneca in the U.S. We initially granted AstraZeneca exclusive rights to commercialize WAINUA outside the U.S., except for certain Latin American countries. In 2023, we expanded those rights to include Latin America. Under the terms of the agreement, we received a $200 million upfront payment in 2021.


We evaluated our WAINUA collaboration under ASC 808 and identified four material components: (i) the license we granted to AstraZeneca in 2021, (ii) the co-development activities that we and AstraZeneca are performing, (iii) the co-commercialization activities that we and AstraZeneca are performing and (iv) the co-medical affairs activities that we and AstraZeneca are performing.


We determined that we had a vendor-customer relationship within the scope of Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, for the license we granted to AstraZeneca and as a result we had one performance obligation. For our sole performance obligation, we determined the transaction price was the $200 million upfront payment we received. We recognized the upfront payment in full in 2021 because we did not have any remaining performance obligations after we delivered the license to AstraZeneca.


We also concluded that the co-development activities, the co-commercialization activities and the co-medical affairs activities are within the scope of ASC Topic 808, Collaborative Arrangements, or ASC 808, because we and AstraZeneca are active participants exposed to the risks and benefits of the activities under the collaboration and therefore do not have a vendor-customer relationship. AstraZeneca is currently responsible for 55 percent of the costs associated with the ongoing global Phase 3 development program. Because we are leading the Phase 3 development program, we made an accounting policy election to recognize as non-customer revenue the cost-share funding from AstraZeneca, net of our share of AstraZeneca’s development expenses, in the same period we incur the related development expenses. As AstraZeneca is responsible for the majority of the commercial and medical affairs costs in the U.S. and all costs associated with bringing WAINUA to market outside the U.S., we made an accounting policy election to recognize cost-share funding we receive from AstraZeneca related to commercial and medical affairs activities as reductions of our selling, general and administrative, or SG&A, expense and R&D expense, respectively.

10

5.  Collaborative Arrangements and Licensing Agreements


Below, we have included our AstraZeneca and Biogen collaborations, which are the collaborations with substantive changes during 2024 from those included in Part IV, Item 15, Note 4, Collaborative Arrangements and Licensing Agreements, of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.


AstraZeneca


We have two collaborations with AstraZeneca, one focused on the joint development and commercialization of WAINUA for the treatment of transthyretin amyloidosis, or ATTR, and one focused on the treatment of cardiovascular, renal and metabolic diseases. From inception through March 31, 2024, we have received nearly $910 million from these collaborations.


In January 2024, we and AstraZeneca launched WAINUA in the U.S. for the treatment of adults with polyneuropathy caused by hereditary transthyretin amyloidosis, or ATTRv-PN. As a result, we began earning royalties from WAINUA sales, which we recognize as commercial revenue in our condensed consolidated statements of operations. We will achieve the next payment of up to $30 million upon regulatory approval of WAINUA for ATTRv-PN in the European Union, or EU, under this collaboration.


During the three months ended March 31, 2024 and 2023, we earned the following revenue from our relationship with AstraZeneca (in thousands, except percentage amounts):

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Revenue from our relationship with AstraZeneca
 
$
11,685
   
$
24,425
 
Percentage of total revenue
   
10
%
   
19
%


Our condensed consolidated balance sheet at March 31, 2024 included deferred contract revenue of $1.9 million from our relationship with AstraZeneca. We did not have any deferred contract revenue from our relationship with AstraZeneca at December 31, 2023.


Biogen


We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. We developed and licensed to Biogen SPINRAZA, our approved medicine to treat people with spinal muscular atrophy, or SMA. QALSODY, our medicine to treat patients with superoxide dismutase 1 amyotrophic lateral sclerosis, or SOD1-ALS, received accelerated approval in the U.S. in April 2023. In addition, we and Biogen are currently developing numerous other investigational medicines to treat neurodegenerative diseases, including medicines in development to treat people with amyotrophic lateral sclerosis, or ALS, SMA, Angelman Syndrome, or AS, Alzheimer’s disease, or AD, and Parkinson’s disease, or PD. In addition to these medicines, our collaborations with Biogen include a substantial research pipeline that addresses a broad range of neurological diseases. From inception through March 31, 2024, we have received more than $3.8 billion in payments from our Biogen collaborations, including payments to purchase our stock.


During the three months ended March 31, 2024 and 2023, we earned the following revenue from our relationship with Biogen (in thousands, except percentage amounts):

 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Revenue from our relationship with Biogen
 
$
59,236
   
$
70,501
 
Percentage of total revenue
   
50
%
   
54
%


Our condensed consolidated balance sheets at March 31, 2024 and December 31, 2023 included deferred contract revenue of $287.2 million and $307.4 million, respectively, from our relationship with Biogen.

11

6. Basic and Diluted Net Loss Per Share


Basic net loss per share


We calculated our basic net loss per share for the three months ended March 31, 2024 and 2023 by dividing our net loss by our weighted-average number of common shares outstanding during the period.


Diluted net loss per share


For the three months ended March 31, 2024 and 2023, we incurred a net loss; therefore, we did not include dilutive common equivalent shares in the computation of diluted net loss per share because the effect would have been anti-dilutive. Common stock from the following would have had an anti-dilutive effect on net loss per share:

0 percent convertible senior notes, or 0% Notes;
Note hedges related to the 0% Notes;
0.125 percent convertible senior notes, or 0.125% Notes;
Note hedges related to the 0.125% Notes;
Dilutive stock options;
Unvested restricted stock units, or RSUs;
Unvested performance restricted stock units, or PRSUs; and
Employee Stock Purchase Plan, or ESPP.


For the three months ended March 31, 2024, common stock underlying the 1.75 percent convertible senior notes, or 1.75% Notes, would also have had an anti-dilutive effect on net loss per share.


Additionally as of March 31, 2024 and 2023, we had warrants related to our 0% and 0.125% Notes outstanding. We will include the shares issuable under these warrants in our calculation of diluted earnings per share when the average market price per share of our common stock for the reporting period exceeds the strike price of the warrants.

7.  Investments


The following table summarizes the contract maturity of the available-for-sale securities we held as of March 31, 2024:

One year or less
   
69
%
After one year but within two years
   
26
%
After two years but within three and a half years
   
5
%
Total
   
100
%


As illustrated above, at March 31, 2024, 95 percent of our available-for-sale securities had a maturity of less than two years.


All of our available-for-sale debt securities are available to us for use in our current operations. As a result, we categorize all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.


We invest in debt securities with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Standard & Poor’s, Moody’s or Fitch, respectively.


At March 31, 2024, we had an equity ownership interest of less than 20 percent in seven private companies and three public companies with which we conduct business.

12


The following is a summary of our investments (in thousands):

 
Amortized
   
Gross Unrealized
   
Estimated
 
March 31, 2024
 
Cost
   
Gains
   
Losses
   
Fair Value
 
Available-for-sale debt securities:
                       
Corporate debt securities (1)
 
$
529,593
   
$
87
   
$
(1,990
)
 
$
527,690
 
Debt securities issued by U.S. government agencies
   
179,632
     
24
     
(409
)
   
179,247
 
Debt securities issued by the U.S. Treasury (1)
   
582,782
     
38
     
(1,372
)
   
581,448
 
Debt securities issued by states of the U.S. and political subdivisions of the states
   
15,017
     
29
     
(77
)
   
14,969
 
Total debt securities with a maturity of one year or less
   
1,307,024
     
178
     
(3,848
)
   
1,303,354
 
Corporate debt securities
   
248,548
     
405
     
(890
)
   
248,063
 
Debt securities issued by U.S. government agencies
   
115,152
     
134
     
(187
)
   
115,099
 
Debt securities issued by the U.S. Treasury
   
204,535
     
133
     
(1,086
)
   
203,582
 
Debt securities issued by states of the U.S. and political subdivisions of the states
   
1,420
     
     
(3
)
   
1,417
 
Total debt securities with a maturity of more than one year
   
569,655
     
672
     
(2,166
)
   
568,161
 
Total available-for-sale debt securities
 
$
1,876,679
   
$
850
   
$
(6,014
)
 
$
1,871,515
 
Equity securities:
                               
Publicly traded equity securities included in other current assets (2)
 
$
11,897
   
$
319
   
$
(3,756
)
 
$
8,460
 
Privately held equity securities included in deposits and other assets (3)
   
23,115
     
25,001
     
(5,125
)
   
42,991
 
Total equity securities
   
35,012
     
25,320
     
(8,881
)
   
51,451
 
Total available-for-sale debt and equity securities
 
$
1,911,691
   
$
26,170
   
$
(14,895
)
 
$
1,922,966
 

 
Amortized
   
Gross Unrealized
   
Estimated
 
December 31, 2023
 
Cost
   
Gains
   
Losses
   
Fair Value
 
Available-for-sale debt securities:
                       
Corporate debt securities (1)
 
$
559,967
   
$
157
   
$
(2,625
)
 
$
557,499
 
Debt securities issued by U.S. government agencies
   
224,711
     
64
     
(611
)
   
224,164
 
Debt securities issued by the U.S. Treasury (1)
   
513,784
     
152
     
(1,889
)
   
512,047
 
Debt securities issued by states of the U.S. and political subdivisions of the states
   
17,757
     
42
     
(113
)
   
17,686
 
Total debt securities with a maturity of one year or less
   
1,316,219
     
415
     
(5,238
)
   
1,311,396
 
Corporate debt securities
   
243,151
     
1,270
     
(692
)
   
243,729
 
Debt securities issued by U.S. government agencies
   
110,138
     
547
     
(21
)
   
110,664
 
Debt securities issued by the U.S. Treasury
   
294,873
     
1,239
     
(480
)
   
295,632
 
Debt securities issued by states of the U.S. and political subdivisions of the states
   
3,466
     
7
     
(4
)
   
3,469
 
Total debt securities with a maturity of more than one year
   
651,628
     
3,063
     
(1,197
)
   
653,494
 
Total available-for-sale debt securities
 
$
1,967,847
   
$
3,478
   
$
(6,435
)
 
$
1,964,890
 
Equity securities:
                               
Publicly traded equity securities included in other current assets (2)
 
$
11,897
   
$
236
   
$
(5,832
)
 
$
6,301
 
Privately held equity securities included in deposits and other assets (3)
   
23,115
     
25,001
     
(5,125
)
   
42,991
 
Total equity securities
   
35,012
     
25,237
     
(10,957
)
   
49,292
 
Total available-for-sale debt and equity securities
 
$
2,002,859
   
$
28,715
   
$
(17,392
)
 
$
2,014,182
 

(1)
Includes investments classified as cash equivalents in our condensed consolidated balance sheets.

(2)
Our publicly traded equity securities are included in other current assets. We recognize publicly traded equity securities at fair value. In the three months ended March 31, 2024, we recorded a $2.2 million net unrealized gain in our condensed consolidated statements of operations related to changes in the fair value of our investments in publicly traded companies.

(3)
Our privately held equity securities are included in deposits and other assets. We recognize our privately held equity securities at cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, which are Level 3 inputs. In the three months ended March 31, 2024, there were no changes in the fair value of our investments in privately held companies.

13


The following is a summary of our investments we consider to be temporarily impaired at March 31, 2024 (in thousands, except for number of investments):

       
Less than 12 Months of
Temporary Impairment
   
More than 12 Months of
Temporary Impairment
   
Total Temporary
Impairment
 
   
Number of
Investments
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
   
Estimated
Fair Value
   
Unrealized
Losses
 
Corporate debt securities
   
392
   
$
487,939
   
$
(1,361
)
 
$
96,219
   
$
(1,519
)
 
$
584,158
   
$
(2,880
)
Debt securities issued by U.S. government agencies
   
80
     
176,956
     
(360
)
   
12,375
     
(236
)
   
189,331
     
(596
)
Debt securities issued by the U.S. Treasury
   
64
     
588,958
     
(1,773
)
   
86,772
     
(685
)
   
675,730
     
(2,458
)
Debt securities issued by states of the U.S. and political subdivisions of the states
   
53
     
7,978
     
(22
)
   
5,703
     
(58
)
   
13,681
     
(80
)
Total temporarily impaired securities
   
589
   
$
1,261,831
   
$
(3,516
)
 
$
201,069
   
$
(2,498
)
 
$
1,462,900
   
$
(6,014
)


We believe that the decline in value of these securities is temporary and is primarily related to the change in market interest rates since purchase rather than underlying credit deterioration for any of the issuers. We believe it is more likely than not that we will be able to hold our debt securities with declines in value to maturity. Therefore, we intend to hold these securities to maturity and anticipate full recovery of our debt securities’ amortized cost basis at maturity.

8.  Fair Value Measurements


The following tables present the major security types we held at March 31, 2024 and December 31, 2023 that we regularly measure and carry at fair value. The following tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective security’s fair value (in thousands):

 
At
March 31, 2024
   
Quoted Prices in
Active Markets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
 
Cash equivalents (1)
 
$
263,639
   
$
263,639
   
$
 
Corporate debt securities (2)
   
775,753
     
     
775,753
 
Debt securities issued by U.S. government agencies (3)
   
294,346
     
     
294,346
 
Debt securities issued by the U.S. Treasury (3)
   
785,030
     
785,030
     
 
Debt securities issued by states of the U.S. and political subdivisions of the states (3)
   
16,386
     
     
16,386
 
Publicly traded equity securities included in other current assets (4)
   
8,460
     
8,460
     
 
Total
 
$
2,143,614
   
$
1,057,129
   
$
1,086,485
 

 
At
December 31, 2023
   
Quoted Prices in
Active Markets
(Level 1)
   
Significant Other
Observable Inputs
(Level 2)
 
Cash equivalents (1)
 
$
185,424
   
$
185,424
   
$
 
Corporate debt securities (5)
   
801,228
     
     
801,228
 
Debt securities issued by U.S. government agencies (3)
   
334,828
     
     
334,828
 
Debt securities issued by the U.S. Treasury (3)
   
807,679
     
807,679
     
 
Debt securities issued by states of the U.S. and political subdivisions of the states (3)
   
21,155
     
     
21,155
 
Publicly traded equity securities included in other current assets (4)
   
6,301
     
6,301
     
 
Total
 
$
2,156,615
   
$
999,404
   
$
1,157,211
 

The following footnotes reference lines in our condensed consolidated balance sheets:

(1)
Included in cash and cash equivalents.

(2)
$14.2 million was included in cash and cash equivalents, with the difference included in short-term investments.

(3)
Included in short-term investments.

(4)
Included in other current assets.

(5)
$33.0 million was included in cash and cash equivalents, with the difference included in short-term investments.

14


Convertible Notes


Our 1.75% Notes, 0% Notes and 0.125% Notes had a fair value of $601.1 million, $627.8 million and $42.4 million at March 31, 2024, respectively. Our 1.75% Notes, 0% Notes and 0.125% Notes had a fair value of $661.1 million, $667.8 million and $42.4 million at December 31, 2023, respectively. We determine the fair value of our notes based on quoted market prices for these notes, which are Level 2 measurements because the notes do not trade regularly.

9. Stock-based Compensation Expense


The following table summarizes stock-based compensation expense for the three months ended March 31, 2024 and 2023 (in thousands):


 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Cost of sales
 
$
204
   
$
119
 
Research, development and patent expense
   
22,225
     
19,567
 
Selling, general and administrative expense
   
8,911
     
7,262
 
Total
 
$
31,340
   
$
26,948
 


As of March 31, 2024, total unrecognized estimated stock-based compensation expense related to non-vested stock options, RSUs and PRSUs was $71.1 million, $112.8 million and $16.8 million, respectively. Our actual expenses may differ from these estimates because we will adjust our unrecognized stock-based compensation expense for future forfeitures, including any PRSUs that do not vest. We expect to recognize the cost of stock-based compensation expense related to our non-vested stock options, RSUs and PRSUs over a weighted average amortization period of 1.4 years, 1.8 years and 2.2 years, respectively.


Refer to Part IV, Item 15, Note 1, Organization and Significant Accounting Policies, of our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023 for further details on how we determine the fair value of stock options granted, RSUs, PRSUs and stock purchase rights under the ESPP.


For the three months ended March 31, 2024 and 2023, we used the following weighted-average assumptions in our Black-Scholes calculations:


Employee Stock Options:
 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Risk-free interest rate
   
4.0
%
   
3.6
%
Dividend yield
   
0.0
%
   
0.0
%
Volatility
   
44.0
%
   
47.5
%
Expected life
 
6.3 years
   
6.3 years
 


ESPP:
 
Three Months Ended
March 31,
 
   
2024
   
2023
 
Risk-free interest rate
   
5.3
%
   
5.2
%
Dividend yield
   
0.0
%
   
0.0
%
Volatility
   
38.4
%
   
36.7
%
Expected life
 
6 months
   
6 months
 


RSUs:


The weighted-average grant date fair value of RSUs granted to employees for the three months ended March 31, 2024 and 2023 was $53.54 and $39.85 per share, respectively.

15


PRSUs:


Under the terms of the PRSUs we granted in 2024 and 2023, 100 percent of the PRSUs may vest at the end of the three-year performance period based on our relative TSR as compared to a peer group of companies and as measured at the end of the performance period. Under the terms of the grants, no number of PRSUs is guaranteed to vest and the actual number of PRSUs that will vest at the end of each performance period may be anywhere from zero to 200 percent of the target number depending on our relative TSR.


The weighted-average grant date fair value of PRSUs granted to our executive officers for the three months ended March 31, 2024 and 2023 was $78.41 and $58.99 per share, respectively.


10.  Income Taxes


We recorded income tax expense of $0.1 million for the three months ended March 31, 2024 compared to $11.4 million for the same period in 2023. The decrease in income tax expense relates primarily to the impact of the royalty purchase agreement with Royalty Pharma on income tax expense for the three months ended March 31, 2023. We reflected the Royalty Pharma transaction as a taxable sale, which required us to include the proceeds from the sale, net of currently deductible issuance costs, as taxable income in 2023.


We continue to maintain a full valuation allowance on all of our net deferred tax assets.

11. Liability Related to Sale of Future Royalties


In January 2023, we entered into a royalty purchase agreement with Royalty Pharma to monetize a portion of our future SPINRAZA and pelacarsen royalties we are entitled to under our arrangements with Biogen and Novartis, respectively. As a result, we received an upfront payment of $500 million and we are eligible to receive up to $625 million in additional milestone payments. Under the terms of the agreement, Royalty Pharma will receive 25 percent of our SPINRAZA royalty payments from 2023 through 2027, increasing to 45 percent of royalty payments in 2028, on up to $1.5 billion in annual sales. In addition, Royalty Pharma will receive 25 percent of any future royalty payments on pelacarsen, our medicine in development to treat patients with elevated lipoprotein(a)-driven cardiovascular disease. Royalty Pharma’s royalty interest in SPINRAZA will revert to us after total SPINRAZA royalty payments to Royalty Pharma reach either $475 million or $550 million, depending on the timing and occurrence of FDA approval of pelacarsen.


We recorded the upfront payment of $500 million as a liability related to the sale of future royalties, net of transaction costs of $10.4 million, which we are amortizing over the estimated life of the arrangement using the effective interest rate method. We recognize royalty revenue in the period in which the counterparty sells the related product and recognizes the related revenue. We record royalty payments made to Royalty Pharma as a reduction of the liability.


We determine the effective interest rate used to record interest expense under this agreement based on an estimate of future royalty payments to Royalty Pharma. As of March 31, 2024, the estimated effective interest rate under the agreement was 13.5 percent.


The following table sets forth information on our liability related to sale of future royalties (in thousands):

Proceeds from sale of future royalties in January 2023
 
$
500,000
 
Issuance costs related to sale of future royalties
   
(10,434
)
Royalty payments to Royalty Pharma
   
(44,628
)
Interest expense related to sale of future royalties
   
68,238
 
Amortization of issuance costs related to sale of future royalties
   
560
 
Net liability related to sale of future royalties as of December 31, 2023
   
513,736
 
Royalty payments to Royalty Pharma
   
(6,623
)
Interest expense related to sale of future royalties
   
17,806
 
Amortization of issuance costs related to sale of future royalties
   
153
 
Net liability related to sale of future royalties as of March 31, 2024
 
$
525,072
 


There are numerous factors, most of which are not within our control, that could materially impact the amount and timing of royalty payments from Biogen and Novartis, and result in changes to our estimate of future royalty payments to Royalty Pharma. Such factors include, but are not limited to, the commercial sales of SPINRAZA, the regulatory approval and commercial sales of pelacarsen, competing products or other significant events.

16

12. Convertible Debt


1.75 Percent Convertible Senior Notes


In 2023, we completed a $575.0 million offering of convertible senior notes and used $488.2 million of the net proceeds from the issuance of the 1.75% Notes to repurchase $504.4 million in principal of our 0.125% Notes. We expect to use the remaining net proceeds to settle the 0.125% Notes that remain outstanding.


At March 31, 2024, we had the following 1.75% Notes outstanding (in millions except interest rate and price per share data):