QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
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
Name of each exchange on which registered
Trading symbol
Common Stock, $.001 Par Value
The Nasdaq Stock Market LLC
“IONS”
Securities registered pursuant to Section 12(g) of the Act: None
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 and posted on its corporate Web site, if any, 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 and post 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. (Check one):
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 7(a)(2)(B) of the Securities 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 October 31, 2019 was 140,663,254.
IONIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX
PART I
FINANCIAL INFORMATION
ITEM 1:
Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018
3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)
4
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (unaudited)
5
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)
6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)
8
Notes to Condensed Consolidated Financial Statements (unaudited)
9
ITEM 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Overview
32
Results of Operations
35
Liquidity and Capital Resources
41
ITEM 3:
Quantitative and Qualitative Disclosures about Market Risk
43
ITEM 4:
Controls and Procedures
43
PART II
OTHER INFORMATION
44
ITEM 1:
Legal Proceedings
44
ITEM 1A:
Risk Factors
44
ITEM 2:
Unregistered Sales of Equity Securities and Use of Proceeds
54
ITEM 3:
Default upon Senior Securities
54
ITEM 4:
Mine Safety Disclosures
54
ITEM 5:
Other Information
54
ITEM 6:
Exhibits
55
SIGNATURES
56
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 appearing in this report, including TEGSEDI (inotersen) and WAYLIVRA (volanesorsen), are the property of Akcea Therapeutics, Inc. 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
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30,
2019
December 31,
2018
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents
$
247,939
$
278,820
Short-term investments
1,972,891
1,805,252
Contracts receivable
49,077
12,759
Inventories
19,375
8,582
Other current assets
118,809
102,473
Total current assets
2,408,091
2,207,886
Property, plant and equipment, net
148,717
132,160
Patents, net
26,985
24,032
Long-term deferred tax assets
284,997
290,796
Deposits and other assets
26,199
12,910
Total assets
$
2,894,989
$
2,667,784
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
13,146
$
28,660
Accrued compensation
24,404
29,268
Accrued liabilities
52,615
47,503
Income taxes payable
1,945
858
Current portion of long-term obligations
2,060
13,749
Current portion of deferred contract revenue
137,607
160,256
Total current liabilities
231,777
280,294
Long-term deferred contract revenue
492,979
567,359
1 percent convertible senior notes
596,355
568,215
Long-term obligations, less current portion
16,016
4,914
Long-term mortgage debt
59,896
59,842
Total liabilities
1,397,023
1,480,624
Stockholders’ equity:
Common stock, $0.001 par value; 300,000,000 shares authorized, 140,636,397 and 137,928,828 shares issued and outstanding at September 30, 2019 (unaudited) and December 31, 2018, respectively
141
138
Additional paid-in capital
2,219,090
2,047,250
Accumulated other comprehensive loss
(25,375
)
(32,016
)
Accumulated deficit
(857,563
)
(967,293
)
Total Ionis stockholders’ equity
1,336,293
1,048,079
Noncontrolling interest in Akcea Therapeutics, Inc.
161,673
139,081
Total stockholders’ equity
1,497,966
1,187,160
Total liabilities and stockholders’ equity
$
2,894,989
$
2,667,784
See accompanying notes.
3
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Revenue:
Commercial revenue:
SPINRAZA royalties
$
81,672
$
70,010
$
211,884
$
167,743
Product sales, net
11,945
—
28,563
—
Licensing and other royalty revenue
2,082
12,746
11,638
14,232
Total commercial revenue
95,699
82,756
252,085
181,975
Research and development revenue under collaborative agreements
72,193
62,639
376,833
225,584
Total revenue
167,892
145,395
628,918
407,559
Expenses:
Cost of products sold
967
—
3,373
—
Research, development and patent
104,366
95,255
316,948
301,153
Selling, general and administrative
60,036
68,712
203,368
178,563
Total operating expenses
165,369
163,967
523,689
479,716
Income (loss) from operations
2,523
(18,572
)
105,229
(72,157
)
Other income (expense):
Investment income
13,136
9,963
39,015
18,711
Interest expense
(12,002
)
(11,282
)
(35,404
)
(33,332
)
Other income (expenses)
(140
)
(22
)
(332
)
(145
)
Income (loss) before income tax (expense) benefit
3,517
(19,913
)
108,508
(86,923
)
Income tax (expense) benefit
14,915
(452
)
(9,204
)
(824
)
Net income (loss)
18,432
(20,365
)
99,304
(87,747
)
Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.
7,732
15,806
10,426
41,412
Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders
$
26,163
$
(4,559
)
$
109,730
$
(46,335
)
Basic net income (loss) per share
$
0.19
$
(0.03
)
$
0.81
$
(0.33
)
Shares used in computing basic net income (loss) per share
140,551
137,346
139,800
130,507
Diluted net income (loss) per share
$
0.18
$
(0.03
)
$
0.79
$
(0.33
)
Shares used in computing diluted net income (loss) per share
143,408
137,346
142,821
130,507
See accompanying notes.
4
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Net income (loss)
$
18,432
$
(20,365
)
$
99,304
$
(87,747
)
Unrealized gains (losses) on debt securities, net of tax
(1,110
)
133
6,666
(834
)
Currency translation adjustment
(13
)
(31
)
(25
)
61
Comprehensive income (loss)
17,309
(20,263
)
105,945
(88,520
)
Comprehensive loss attributable to noncontrolling interests
(7,729
)
(13,943
)
(10,423
)
(38,005
)
Comprehensive income (loss) attributable to Ionis Pharmaceuticals, Inc. stockholders
$
25,038
$
(6,320
)
$
116,368
$
(50,515
)
See accompanying notes.
5
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, 2018 and 2019
(In thousands)
(Unaudited)
Common Stock
Additional
Accumulated Other
Accumulated
Total Ionis
Stockholders’
Noncontrolling
Interest in Akcea
Total
Stockholders’
Description
Shares
Amount
Paid in Capital
Comprehensive Loss
Deficit
Equity
Therapeutics, Inc.
Equity
Balance at June 30, 2018
137,157
$
137
$
2,011,561
$
(32,634
)
$
(1,282,810
)
$
696,254
$
121,181
$
817,436
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders
—
—
—
—
(4,559
)
(4,559
)
—
(4,559
)
Change in unrealized gains (losses), net of tax
—
—
—
133
—
133
—
133
Foreign currency translation
—
—
—
(31
)
—
(31
)
—
(31
)
Issuance of common stock in connection with employee stock plans
350
1
6,225
—
—
6,226
—
6,226
Stock-based compensation expense
—
—
34,883
—
—
34,883
—
34,883
Noncontrolling interest in Akcea Therapeutics, Inc
—
—
(22,356
)
—
—
(22,356
)
8,413
(13,943
)
Balance at September 30, 2018
137,507
$
138
$
2,030,313
$
(32,532
)
$
(1,287,369
)
$
710,550
$
129,594
$
840,144
Balance at June 30, 2019
140,393
$
140
$
2,177,222
$
(24,252
)
$
(883,726
)
$
1,269,384
$
187,818
$
1,457,202
Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders
—
—
—
—
26,163
26,163
—
26,163
Change in unrealized gains (losses), net of tax
—
—
—
(1,110
)
—
(1,110
)
—
(1,110
)
Foreign currency translation
—
—
—
(13
)
—
(13
)
—
(13
)
Issuance of common stock in connection with employee stock plans
255
1
10,130
—
—
10,131
—
10,131
Stock-based compensation expense
—
—
24,126
—
—
24,126
—
24,126
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
(11
)
—
(10,804
)
—
—
(10,804
)
—
(10,804
)
Noncontrolling interest in Akcea Therapeutics, Inc.
—
—
18,416
—
—
18,416
(26,145
)
(7,729
)
Balance at September 30, 2019
140,637
$
141
$
2,219,090
$
(25,375
)
$
(857,563
)
$
1,336,293
$
161,673
$
1,497,966
See accompanying notes.
6
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2018 and 2019
(In thousands)
(Unaudited)
Common Stock
Additional
Accumulated Other
Accumulated
Total Ionis
Stockholders’
Noncontrolling
Interest in Akcea
Total
Stockholders’
Description
Shares
Amount
Paid in Capital
Comprehensive Loss
Deficit
Equity
Therapeutics, Inc.
Equity
Balance at December 31, 2017
124,976
$
125
$
1,553,681
$
(31,759
)
$
(1,241,034
)
$
281,013
$
84,267
$
365,280
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders
—
—
—
—
(46,335
)
(46,335
)
—
(46,335
)
Change in unrealized gains (losses), net of tax
—
—
—
(834
)
—
(834
)
—
(834
)
Foreign currency translation
—
—
—
61
—
61
—
61
Biogen stock purchase
11,502
11
447,954
—
—
447,965
—
447,965
Issuance of common stock in connection with employee stock plans
1,029
2
14,800
—
—
14,802
—
14,802
Stock-based compensation expense
—
—
97,210
—
—
97,210
—
97,210
Noncontrolling interest in Akcea Therapeutics, Inc
—
—
(83,332
)
—
—
(83,332
)
45,327
(38,005
)
Balance at September 30, 2018
137,507
$
138
$
2,030,313
$
(32,532
)
$
(1,287,369
)
$
710,550
$
129,594
$
840,144
Balance at December 31, 2018
137,929
$
138
$
2,047,250
$
(32,016
)
$
(967,293
)
$
1,048,079
$
139,081
$
1,187,160
Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders
—
—
—
—
109,730
109,730
—
109,730
Change in unrealized gains (losses), net of tax
—
—
—
6,666
—
6,666
—
6,666
Foreign currency translation
—
—
—
(25
)
—
(25
)
—
(25
)
Issuance of common stock in connection with employee stock plans
2,855
3
112,132
—
—
112,135
—
112,135
Stock-based compensation expense
—
—
111,564
—
—
111,564
—
111,564
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
(147
)
—
(18,841
)
—
—
(18,841
)
—
(18,841
)
Noncontrolling interest in Akcea Therapeutics, Inc.
—
—
(33,015
)
—
—
(33,015
)
22,592
(10,423
)
Balance at September 30, 2019
140,637
$
141
$
2,219,090
$
(25,375
)
$
(857,563
)
$
1,336,293
$
161,673
$
1,497,966
See accompanying notes.
7
IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
2019
2018
Operating activities:
Net income (loss)
$
99,304
$
(87,747
)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation
9,345
7,650
Amortization of right-of-use operating lease assets
1,433
—
Amortization of patents
1,139
1,356
Amortization of premium (discount) on investments, net
(7,064
)
791
Amortization of debt issuance costs
1,448
1,343
Amortization of convertible senior notes discount
26,747
24,781
Stock-based compensation expense
111,564
97,210
Non-cash losses related to patents, licensing and property, plant and equipment
216
482
Provision for deferred income taxes
4,103
—
Changes in operating assets and liabilities:
Contracts receivable
(33,716
)
48,223
Inventories
(6,606
)
1,604
Other current and long-term assets
(23,377
)
(26,573
)
Accounts payable
(18,764
)
(13,606
)
Accrued compensation
(4,864
)
(892
)
Accrued liabilities and deferred rent
3,909
(14,392
)
Deferred contract revenue
(97,029
)
447,168
Net cash provided by operating activities
67,788
487,398
Investing activities:
Purchases of short-term investments
(1,617,726
)
(1,156,335
)
Proceeds from short-term investments
1,465,600
568,517
Purchases of property, plant and equipment
(23,143
)
(12,221
)
Acquisition of licenses and other assets, net
(4,196
)
(3,317
)
Net cash used in investing activities
(179,465
)
(603,356
)
Financing activities:
Proceeds from equity awards
112,137
18,254
Payments of tax withholdings related to vesting of employee stock awards and exercise of
employee stock options
(18,841
)
—
Proceeds from the issuance of common stock to Biogen
—
447,965
Principal payments on debt obligations
(12,500
)
—
Net cash provided by financing activities
80,796
466,219
Net increase in cash and cash equivalents
(30,881
)
350,261
Cash and cash equivalents at beginning of period
278,820
129,630
Cash and cash equivalents at end of period
$
247,939
$
479,891
Supplemental disclosures of cash flow information:
Interest paid
$
5,474
$
5,434
Income taxes paid
$
9,037
$
—
Supplemental disclosures of non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease liabilities
$
14,178
$
—
Amounts accrued for capital and patent expenditures
$
3,251
$
2,296
Purchases of property, plant and equipment included in long-term obligations
$
—
$
3,596
See accompanying notes.
8
IONIS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2019
(Unaudited)
1. Basis of Presentation
We prepared the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2019 and 2018 on the same basis as the audited financial statements for the year ended December 31, 2018. 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. Results for the interim periods are not necessarily indicative of the results 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, 2018 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC.
In the condensed consolidated financial statements, we included the accounts of Ionis Pharmaceuticals, Inc. and the consolidated results of our majority owned affiliate, Akcea Therapeutics, Inc. and its wholly owned subsidiaries. We formed Akcea in December 2014. In July 2017, Akcea completed an initial public offering, or IPO, and therefore, beginning in July 2017, we no longer owned 100 percent of Akcea. In the first quarter of 2019, we received 2.8 million shares of Akcea common stock as payment for the sublicense fee Akcea owed us when Novartis licensed AKCEA-APO(a)-LRx.. At September 30, 2019, our ownership was approximately 75 percent. In the fourth quarter of 2019, we expect to receive an additional 6.9 million shares of Akcea common stock as payment for the sublicense fee Akcea owes us for Pfizer’s license of AKCEA-ANGPTL3-LRx. We reflect changes in our ownership of Akcea in our financial statements in the period the change occurs. Refer to the section titled “Noncontrolling Interest in Akcea” in Note 2, Significant Accounting Policies, for further information related to our accounting for our investment in Akcea.
Unless the context requires otherwise, “Ionis”, “Company,” “we,” “our,” and “us” refers to Ionis Pharmaceuticals, Inc. and its majority owned affiliate, Akcea Therapeutics, Inc. and its wholly owned subsidiaries.
2. Significant Accounting Policies
Revenue Recognition
Our Revenue Sources
We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our consolidated balance sheet.
Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue
We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA. We will also recognize as commercial revenue future sales milestone payments and royalties we earn under our partnerships.
Commercial Revenue: Product sales, net
We added product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018 and we added product sales from WAYLIVRA to our commercial revenue in the third quarter of 2019. In the U.S., we distribute TEGSEDI through an exclusive distribution agreement with a third-party logistics company, or 3PL, that takes title to TEGSEDI. The 3PL is our sole customer in the U.S. The 3PL then distributes TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distribute TEGSEDI to health care providers and patients. In Europe, prior to the third quarter of 2019 we distributed TEGSEDI through a non-exclusive distribution model with a 3PL that takes title to TEGSEDI. The 3PL was our sole customer in Europe. The 3PL in Europe then distributed TEGSEDI to hospitals and pharmacies. In the third quarter of 2019, we entered into a distribution arrangement with a 3PL and began to sell both TEGSEDI and WAYLIVRA directly to hospitals and pharmacies in Europe.
Research and development revenue under collaborative agreements
We often 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.
We provide details about our collaboration agreements in Note 7, Collaborative Arrangements and Licensing Agreements, in our Annual Report on Form 10-K for the year ended December 31, 2018.Under each collaboration note we discuss our specific revenue recognition conclusions, including our significant performance obligations under each collaboration.
9
Steps to Recognize Revenue
We use a five-step process to determine the amount of revenue we should recognize and when we should recognize it. The five step process is as follows: