10-Q 1 form10q.htm IONIS PHARMACEUTICALS INC 10-Q 9-30-2021

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 September 30, 2021

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 October 27, 2021 was 141,210,015.




IONIS PHARMACEUTICALS, INC.
FORM 10-Q
INDEX

PART I
FINANCIAL INFORMATION
 
     
ITEM 1:
Financial Statements:
 
     
 
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 (unaudited) (as revised)
3
     
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (unaudited) (as revised)
4
     
 
Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2021 and 2020 (unaudited) (as revised)
5
     
 
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020 (unaudited) (as revised)
6
     
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (unaudited) (as revised)
8
     
 
Notes to Condensed Consolidated Financial Statements (unaudited)
9
     
ITEM 2:
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
 
     
 
Overview
31
     
 
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
43
     
ITEM 1:
Legal Proceedings
43
     
ITEM 1A:
Risk Factors
44
     
ITEM 2:
Unregistered Sales of Equity Securities and Use of Proceeds
62
     
ITEM 3:
Default upon Senior Securities
62
     
ITEM 4:
Mine Safety Disclosures
62
     
ITEM 5:
Other Information
62
     
ITEM 6:
Exhibits
62
     
SIGNATURES
64

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.




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

 
September 30,
2021
   
December 31,
2020
 
         
(as revised*)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
632,953
   
$
397,664
 
Short-term investments
   
1,354,146
     
1,494,711
 
Contracts receivable
   
9,068
     
76,204
 
Inventories
   
22,930
     
21,965
 
Other current assets
   
136,643
     
140,163
 
Total current assets
   
2,155,740
     
2,130,707
 
Property, plant and equipment, net
   
180,144
     
181,077
 
Patents, net
   
30,038
     
27,937
 
Deposits and other assets
   
48,971
     
50,034
 
Total assets
 
$
2,414,893
   
$
2,389,755
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
 
$
8,357
   
$
17,199
 
Accrued compensation
   
32,320
     
65,728
 
Accrued liabilities
   
75,681
     
90,161
 
Income taxes payable
   
450
     
1,324
 
1 percent convertible senior notes, net
   
61,936
     
308,809
 
Current portion of long-term obligations
   
3,109
     
7,301
 
Current portion of deferred contract revenue
   
97,925
     
108,376
 
Total current liabilities
   
279,778
     
598,898
 
Long-term deferred contract revenue
   
362,887
     
424,046
 
0 percent convertible senior notes, net
   
618,341
     
 
0.125 percent convertible senior notes, net
   
541,768
     
540,136
 
Long-term obligations, less current portion
   
21,628
     
23,409
 
Long-term mortgage debt
   
59,955
     
59,984
 
Total liabilities
   
1,884,357
     
1,646,473
 
Stockholders’ equity:
               
Common stock, $0.001 par value; 300,000,000 shares authorized, 141,184,026 and 140,365,594 shares issued and outstanding at September 30, 2021 (unaudited) and December 31, 2020, respectively
   
141
     
140
 
Additional paid-in capital
   
1,942,348
     
1,895,519
 
Accumulated other comprehensive loss
   
(27,437
)
   
(21,071
)
Accumulated deficit
   
(1,384,516
)
   
(1,131,306
)
Total stockholders’ equity
   
530,536
     
743,282
 
Total liabilities and stockholders’ equity
 
$
2,414,893
   
$
2,389,755
 


*
We revised our 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

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,
 
   
2021
   
2020
   
2021
   
2020
 
         
(as revised*)
         
(as revised*)
 
Revenue:
                       
Commercial revenue:
                       
SPINRAZA royalties
 
$
66,572
   
$
74,171
   
$
198,726
   
$
211,925
 
TEGSEDI and WAYLIVRA revenue, net
   
15,519
     
19,040
     
46,901
     
50,562
 
Licensing and other royalty revenue
   
2,729
     
2,129
     
9,502
     
6,548
 
Total commercial revenue
   
84,820
     
95,340
     
255,129
     
269,035
 
Research and development revenue under collaborative agreements
   
48,273
     
64,739
     
115,321
     
169,948
 
Total revenue
   
133,093
     
160,079
     
370,450
     
438,983
 
                                 
Expenses:
                               
Cost of sales
   
3,079
     
3,086
     
8,616
     
8,646
 
Research, development and patent
   
184,770
     
125,083
     
463,878
     
364,298
 
Selling, general and administrative
   
31,093
     
68,447
     
148,747
     
215,455
 
Total operating expenses
   
218,942
     
196,616
     
621,241
     
588,399
 
                                 
Loss from operations
   
(85,849
)
   
(36,537
)
   
(250,791
)
   
(149,416
)
                                 
Other income (expense):
                               
Investment income
   
872
     
6,454
     
8,236
     
25,913
 
Interest expense
   
(2,340
)
   
(2,428
)
   
(7,111
)
   
(7,076
)
Gain on investments
   
4,013
     
835
     
4,885
     
10,722
 
Loss on early retirement of debt
   
     
     
(8,627
)
   
 
Other income (expenses)
   
(469
)
   
126
     
(656
)
   
(122
)
                                 
Loss before income tax benefit (expense)
   
(83,773
)
   
(31,550
)
   
(254,064
)
   
(119,979
)
                                 
Income tax benefit (expense)
   
1,307
     
(5,064
)
   
854
     
(4,077
)
                                 
Net loss
   
(82,466
)
   
(36,614
)
   
(253,210
)
   
(124,056
)
                                 
Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.
   
     
12,147
     
     
34,325
 
                                 
Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders
 
$
(82,466
)
 
$
(24,467
)
 
$
(253,210
)
 
$
(89,731
)
                                 
Basic and diluted net loss per share
 
$
(0.58
)
 
$
(0.18
)
 
$
(1.80
)
 
$
(0.64
)
Shares used in computing basic and diluted net loss per share
   
141,139
     
139,708
     
140,958
     
139,497
 


*
We revised our 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

 See accompanying notes.

4


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

 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2021
   
2020
   
2021
   
2020
 
         
(as revised*)
         
(as revised*)
 
                         
Net loss
 
$
(82,466
)
 
$
(36,614
)
 
$
(253,210
)
 
$
(124,056
)
Unrealized gains (losses) on debt securities, net of tax
   
(1,618
)
   
(3,448
)
   
(6,321
)
   
5,803
 
Currency translation adjustment
   
(23
)
   
275
     
(45
)
   
357
 
                                 
Comprehensive loss
   
(84,107
)
   
(39,787
)
   
(259,576
)
   
(117,896
)
                                 
Comprehensive loss attributable to noncontrolling interest in Akcea Therapeutics, Inc.
   
     
(12,188
)
   
     
(33,883
)
                                 
Comprehensive loss attributable to Ionis Pharmaceuticals, Inc. common stockholders
 
$
(84,107
)
 
$
(27,599
)
 
$
(259,576
)
 
$
(84,013
)


*
We revised our 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

See accompanying notes.

5


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Three Months Ended September 30, 2020 and 2021
(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, 2020 (as revised*)
   
139,489
   
$
139
   
$
2,053,502
   
$
(16,440
)
 
$
(752,308
)
 
$
1,284,893
   
$
217,620
   
$
1,502,513
 
Net loss
   
     
     
     
     
(24,467
)
   
(24,467
)
   
     
(24,467
)
Change in unrealized losses, net of tax
   
     
     
     
(3,448
)
   
     
(3,448
)
   
     
(3,448
)
Foreign currency translation
   
     
     
     
275
     
     
275
     
     
275
 
Issuance of common stock in connection with employee stock plans
   
321
     
1
     
12,997
     
     
     
12,998
     
     
12,998
 
Stock-based compensation expense
   
     
     
45,845
     
     
     
45,845
     
     
45,845
 
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
   
(16
)
   
     
(990
)
   
     
     
(990
)
   
     
(990
)
Noncontrolling interest in Akcea Therapeutics, Inc.
   
     
     
(17,803
)
   
41
     
     
(17,762
)
   
5,615
     
(12,147
)
Balance at September 30, 2020 (as revised*)
   
139,794
   
$
140
   
$
2,093,551
   
$
(19,572
)
 
$
(776,775
)
 
$
1,297,344
   
$
223,235
   
$
1,520,579
 
                                                                 
Balance at June 30, 2021
   
141,022
   
$
141
   
$
1,910,379
   
$
(25,796
)
 
$
(1,302,050
)
 
$
582,674
   
$
   
$
582,674
 
Net loss
   
     
     
     
     
(82,466
)
   
(82,466
)
   
     
(82,466
)
Change in unrealized losses, net of tax
   
     
     
     
(1,618
)
   
     
(1,618
)
   
     
(1,618
)
Foreign currency translation
   
     
     
     
(23
)
   
     
(23
)
   
     
(23
)
Issuance of common stock in connection with employee stock plans
   
176
     
     
1,922
     
     
     
1,922
     
     
1,922
 
Stock-based compensation expense
   
     
     
30,537
     
     
     
30,537
     
     
30,537
 
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
   
(14
)
   
     
(490
)
   
     
     
(490
)
   
     
(490
)
Balance at September 30, 2021
   
141,184
   
$
141
   
$
1,942,348
   
$
(27,437
)
 
$
(1,384,516
)
 
$
530,536
   
$
   
$
530,536
 


*
We revised our 2019 and 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

See accompanying notes.

6


IONIS PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Nine Months Ended September 30, 2020 and 2021
(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, 2019 (as revised*)
   
140,340
   
$
140
   
$
1,985,650
   
$
(25,290
)
 
$
(596,495
)
 
$
1,364,005
   
$
213,453
   
$
1,577,458
 
Net loss
   
     
     
     
     
(89,731
)
   
(89,731
)
   
     
(89,731
)
Change in unrealized gains, net of tax
   
     
     
     
5,803
     
     
5,803
     
     
5,803
 
Foreign currency translation
   
     
     
     
357
     
     
357
     
     
357
 
Issuance of common stock in connection with employee stock plans
   
1,141
     
1
     
29,449
     
     
     
29,450
     
     
29,450
 
Repurchases and retirements of common stock
   
(1,478
)
   
(1
)
   
     
     
(90,549
)
   
(90,550
)
   
     
(90,550
)
Stock-based compensation expense
   
     
     
135,077
     
     
     
135,077
     
     
135,077
 
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
   
(209
)
   
     
(12,960
)
   
     
     
(12,960
)
   
     
(12,960
)
Noncontrolling interest in Akcea Therapeutics, Inc.
   
     
     
(43,665
)
   
(442
)
   
     
(44,107
)
   
9,782
     
(34,325
)
Balance at September 30, 2020 (as revised*)
   
139,794
   
$
140
   
$
2,093,551
   
$
(19,572
)
 
$
(776,775
)
 
$
1,297,344
   
$
223,235
   
$
1,520,579
 
                                                                 
Balance at December 31, 2020 (as revised*)
   
140,366
   
$
140
   
$
1,895,519
   
$
(21,071
)
 
$
(1,131,306
)
 
$
743,282
   
$
   
$
743,282
 
Net loss
   
     
     
     
     
(253,210
)
   
(253,210
)
   
     
(253,210
)
Change in unrealized losses, net of tax
   
     
     
     
(6,321
)
   
     
(6,321
)
   
     
(6,321
)
Foreign currency translation
   
     
     
     
(45
)
   
     
(45
)
   
     
(45
)
Issuance of common stock in connection with employee stock plans
   
1,094
     
1
     
11,563
     
     
     
11,564
     
     
11,564
 
Issuance of warrants
   
     
     
89,752
     
     
     
89,752
     
     
89,752
 
Purchase of note hedges
   
     
     
(136,620
)
   
     
     
(136,620
)
   
     
(136,620
)
Stock-based compensation expense
   
     
     
98,419
     
     
     
98,419
     
     
98,419
 
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
   
(276
)
   
     
(16,285
)
   
     
     
(16,285
)
   
     
(16,285
)
Balance at September 30, 2021
   
141,184
   
$
141
   
$
1,942,348
   
$
(27,437
)
 
$
(1,384,516
)
 
$
530,536
   
$
   
$
530,536
 


*
We revised our 2019 and 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

See accompanying notes.

7


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

 
Nine Months Ended
September 30,
 
   
2021
   
2020
 
         
(as revised*)
 
Operating activities:
           
Net loss
 
$
(253,210
)
 
$
(124,056
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
   
11,665
     
9,713
 
Amortization of right-of-use operating lease assets
   
1,171
     
1,356
 
Amortization of patents
   
1,740
     
1,526
 
Amortization of premium on investments, net
   
13,515
     
7,812
 
Amortization of debt issuance costs
   
3,586
     
2,388
 
Stock-based compensation expense
   
98,419
     
135,077
 
Gain on investments
   
(933
)
   
(10,722
)
Loss on early retirement of debt
   
8,627
     
 
Non-cash losses related to patents
   
1,150
     
616
 
Provision for deferred income taxes
   
     
1,649
 
Changes in operating assets and liabilities:
               
Contracts receivable
   
67,136
     
24,057
 
Inventories
   
(965
)
   
(1,468
)
Other current and long-term assets
   
10,358
     
(5,647
)
Income taxes (payable) receivable
   
134
     
(23,674
)
Accounts payable
   
(10,737
)
   
(10,970
)
Accrued compensation
   
(33,408
)
   
(8,967
)
Accrued liabilities and other current liabilities
   
(19,526
)
   
13,195
 
Deferred contract revenue
   
(71,610
)
   
(73,970
)
Net cash used in operating activities
   
(172,888
)
   
(62,085
)
                 
Investing activities:
               
Purchases of short-term investments
   
(930,963
)
   
(1,376,631
)
Proceeds from sale of short-term investments
   
1,051,857
     
1,497,433
 
Purchases of property, plant and equipment
   
(9,453
)
   
(29,971
)
Acquisition of patents, net
   
(4,459
)
   
(4,203
)
Purchase of Bicycle Therapeutics plc common stock
   
(7,185
)
   
 
Net cash provided by investing activities
   
99,797
     
86,628
 
                 
Financing activities:
               
Proceeds from equity, net
   
11,564
     
29,450
 
Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options
   
(16,285
)
   
(12,960
)
Proceeds from issuance of 0 percent convertible senior notes
   
632,500
     
 
0 percent convertible senior notes issuance costs
   
(15,525
)
   
 
Repurchase of $247.9 million principal amount of 1 percent convertible senior notes
   
(256,963
)
   
 
Proceeds from issuance of warrants
   
89,752
     
 
Purchase of note hedges
   
(136,620
)
   
 
Repurchases and retirements of common stock
   
     
(90,548
)
Payments of transaction costs for Akcea merger
   
     
(1,071
)
Net cash provided by (used in) financing activities
   
308,423
     
(75,129
)
                 
Effects of exchange rates on cash
   
(43
)
   
358
 
                 
Net increase (decrease) in cash and cash equivalents
   
235,289
     
(50,228
)
Cash and cash equivalents at beginning of period
   
397,664
     
683,287
 
Cash and cash equivalents at end of period
 
$
632,953
   
$
633,059
 
                 
Supplemental disclosures of cash flow information:
               
Interest paid
 
$
3,527
   
$
3,700
 
Income taxes paid
 
$
3
   
$
23,532
 
                 
Supplemental disclosures of non-cash investing and financing activities:
               
Amounts accrued for capital and patent expenditures
 
$
1,811
   
$
6,576
 
Amounts accrued for Akcea merger transaction costs
 
$
   
$
8,103
 


*
We revised our 2020 amounts to reflect the simplified convertible instruments accounting guidance, which we adopted retrospectively. Refer to Note 2, Significant Accounting Policies, for further information.

See accompanying notes.

8


IONIS PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021
(Unaudited)

1.  Basis of Presentation


We prepared the unaudited interim condensed consolidated financial statements for the three and nine months ended September 30, 2021 and 2020 on the same basis as the audited financial statements for the year ended December 31, 2020, with the exception of our retrospective adoption of Accounting Standards Update, or ASU, 2020-06, which simplifies the accounting for convertible debt instruments. See Note 2, Significant Accounting Polices, Convertible Debt, for details of our adoption of this guidance. 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, 2020 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 formed Akcea in December 2014. In July 2017, Akcea completed an initial public offering, or IPO, which reduced our ownership of Akcea’s common stock below 100 percent. In October 2020, we completed a merger transaction with Akcea such that following the completion of the merger, Akcea became our wholly owned subsidiary. We will refer to this transaction as the Akcea Merger throughout the remainder of this document. We reflected changes in our ownership percentage in our financial statements as an adjustment to noncontrolling interest in the period the changes occurred.

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 condensed 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 sales milestone payments and royalties we earn under our other partnerships.


Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net


In April 2021, we began commercializing TEGSEDI in North America through a distribution agreement with Swedish Orphan Biovitrum AB, or Sobi. In January 2021, we began commercializing TEGSEDI and WAYLIVRA in Europe through a distribution agreement with Sobi. Under our agreements, we are responsible for supplying finished goods inventory to Sobi and Sobi is responsible for selling each medicine to the end customer. As a result of these agreements, we earn a distribution fee on net sales from Sobi for each medicine.


Prior to the second quarter of 2021 in North America, we sold TEGSEDI through exclusive distribution agreements with third-party logistics companies, or 3PLs, that took title to TEGSEDI. The 3PLs then distributed TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distributed TEGSEDI to health care providers and patients. In the United States, or U.S., we had a single 3PL as our sole customer and in Canada we also had a single 3PL as our sole customer. Prior to 2021 in Europe, we sold TEGSEDI and WAYLIVRA to hospitals and pharmacies, which were our customers, using 3PLs as distributors.

9


Under our collaboration agreement with PTC Therapeutics International Limited, or PTC, PTC is responsible for commercializing TEGSEDI and WAYLIVRA in Latin America and Caribbean countries. In the third quarter of 2021, we earned a $4 million milestone payment from PTC when WAYLIVRA was approved in Brazil, which we included in TEGSEDI and WAYLIVRA revenue in our condensed consolidated statement of operations.


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.


See Note 5, Collaborative Arrangements and Licensing Agreements, for collaborations with substantive changes that occurred in 2021. Additionally, see Note 6, Collaborative Arrangements and Licensing Agreements, in our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for a summary of each of our material collaborative agreements.


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:

1.
Identify the contract


Accounting rules require us to first determine if we have a contract with our partner, including confirming that we have met each of the following criteria:

We and our partner approved the contract and we are both committed to perform our obligations;
We have identified our rights, our partner’s rights and the payment terms;
We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and
We believe collectability of the consideration is probable.

2.
Identify the performance obligations


We next identify our performance obligations, which represent the distinct goods and services we are required to provide under the contract. We typically have only one performance obligation at the inception of a contract, which is to perform R&D services.


Often we enter into a collaboration agreement in which we provide our partner with an option to license a medicine in the future. We may also provide our partner with an option to request that we provide additional goods or services in the future, such as active pharmaceutical ingredient, or API. We evaluate whether these options are material rights at the inception of the agreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to license a medicine in the future or to provide additional goods and services as requested by our partner are not material rights because these items are contingent upon future events that may not occur and are not priced at a significant discount. When a partner exercises its option to license a medicine or requests additional goods or services, then we identify a new performance obligation for that item.


In some cases, we deliver a license at the start of an agreement. If we determine that our partner has full use of the license and we do not have any additional material performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.

3.
Determine the transaction price


We then determine the transaction price by reviewing the amount of consideration we are eligible to earn under the collaboration agreement, including any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees and royalties. At the start of an agreement, our transaction price usually consists of only the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not probable and are contingent on certain future events. We reassess the total transaction price at each reporting period to determine if we should include additional payments in the transaction price.

10


Milestone payments are our most common type of variable consideration. We recognize milestone payments using the most likely amount method because we will either receive the milestone payment or we will not, which makes the potential milestone payment a binary event. The most likely amount method requires us to determine the likelihood of earning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or our partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our control and/or are usually based on scientific progress which is inherently uncertain. For example, in the third quarter of 2021, we earned a $25 million milestone payment from Novartis when Novartis achieved 50 percent enrollment in the Lp(a) HORIZON Phase 3 cardiovascular outcome study of pelacarsen. We did not consider the milestone payment probable until Novartis achieved the milestone event because it was contingent on Novartis’ enrollment of patients and was not within our control. We recognized the milestone payment in full in the period the milestone event was achieved because we did not have any remaining performance obligations related to the milestone payment.

4.
Allocate the transaction price


Next, we allocate the transaction price to each of our performance obligations. When we have to allocate the transaction price to more than one performance obligation, we make estimates of the relative stand-alone selling price of each performance obligation because we do not typically sell our goods or services on a stand-alone basis. We then allocate the transaction price to each performance obligation based on the relative stand-alone selling price. We do not reallocate the transaction price after the start of an agreement to reflect subsequent changes in stand-alone selling prices.


We may engage a third party, independent valuation specialist to assist us with determining a stand-alone selling price for collaborations in which we deliver a license at the start of an agreement. We estimate the stand-alone selling price of these licenses using valuation methodologies, such as the relief from royalty method. Under this method, we estimate the amount of income, net of taxes, for the license. We then discount the projected income to present value. The significant inputs we use to determine the projected income of a license could include:

Estimated future product sales;
Estimated royalties we may receive from future product sales;
Estimated contractual milestone payments we may receive;
Estimated expenses we may incur;
Estimated income taxes; and
A discount rate.


We typically estimate the selling price of R&D services by using our internal estimates of the cost to perform the specific services. The significant inputs we use to determine the selling price of our R&D services include:

The estimated number of internal hours we will spend performing these services;
The estimated cost of work we will perform;
The estimated cost of work that we will contract with third parties to perform; and
The estimated cost of API we will use.


For purposes of determining the stand-alone selling price of the R&D services we perform and the API we will deliver, accounting guidance requires us to include a markup for a reasonable profit margin.

5.
Recognize revenue


We recognize revenue in one of two ways, over time or at a point in time. We recognize revenue over time when we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide R&D services. We recognize revenue at a point in time when our partner receives full use of an item at a specific point in time. For example, we recognize revenue at a point in time when we deliver a license or API to a partner.


For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or costs we incur in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires us to make numerous estimates and use significant judgement. If our estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that we recognize in the current and future periods.

11


The following are examples of when we typically recognize revenue based on the types of payments we receive.


Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue


We recognize royalty revenue, including royalties from SPINRAZA sales, in the period in which the counterparty sells the related product and recognizes the related revenue, which in certain cases may require us to estimate our royalty revenue.


Commercial Revenue: TEGSEDI and WAYLIVRA revenue, net


Under our distribution agreements with Sobi we concluded that our performance obligation is to provide services to Sobi over the term of the agreement, which includes supplying finished goods inventory to Sobi and because we retained the marketing authorization for TEGSEDI and WAYLIVRA we are responsible for leading the global commercial strategy for each medicine. We view this performance obligation as a series of distinct activities that are substantially the same. Therefore, we recognize as revenue the price Sobi pays us for the inventory when we deliver the finished goods inventory to Sobi. We also recognize distribution fee revenue based on Sobi’s net sales of TEGSEDI and WAYLIVRA. Under our agreements with Sobi, Sobi does not generally have a right of return.


Prior to our distribution agreements with Sobi, we recognized TEGSEDI and WAYLIVRA commercial revenue in the period when our customer obtained control of our products, which occurred at a point in time upon transfer of title to the customer. We classified payments to customers or other parties in the distribution channel for services that were distinct and priced at fair value as selling, general and administrative, or SG&A, expenses in our condensed consolidated statements of operations. We classified payments to customers or other parties in the distribution channel that did not meet those criteria as a reduction of revenue, as discussed further below. We excluded from revenues taxes collected from customers relating to TEGSEDI and WAYLIVRA commercial revenue and remitted these amounts to governmental authorities.


Reserves for TEGSEDI and WAYLIVRA commercial revenue


Under our distribution agreements with Sobi, Sobi is responsible for any applicable reserves.


Prior to our distribution agreements with Sobi, we recorded TEGSEDI and WAYLIVRA commercial revenue at our net sales price, or transaction price. We included in our transaction price estimated reserves for discounts, returns, chargebacks, rebates and other allowances that we offered within contracts between us and our customers, wholesalers, distributors, health care providers and other indirect customers. We estimated our reserves using the amounts we have earned or we could claim on the associated sales. We classified our reserves as a reduction of accounts receivable when we were not required to make a payment or as a current liability when we were required to make a payment. In certain cases, our estimates included a range of possible outcomes that were probability weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, our reserves reflected our best estimates under the terms of our respective contracts. When calculating our reserves and related TEGSEDI and WAYLIVRA commercial revenue, we only recognized amounts to the extent that we considered it probable that we would not have to reverse a significant amount of the cumulative sales we previously recognized in a future period. Under our agreements with Sobi, we transferred all reserves to Sobi. See our revenue recognition policy in 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, 2020 for additional details regarding how we accounted for the reserves related to TEDSEDI and WAYLIVIRA product sales prior to our agreements with Sobi.


Research and development revenue under collaboration agreements:


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. For example, under our collaboration agreement with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases, we received a $75 million upfront payment in the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are amortizing the $75 million upfront payment using an input method over the estimated period of time we are providing R&D services.

12


Milestone payments


We are required to include additional 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 research and development 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, in the fourth quarter of 2020, we achieved a $7.5 million milestone payment from Biogen when we advanced a target under our 2018 strategic collaboration. We added this payment to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue related to this milestone payment over our estimated period of performance.


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. For example, in the third quarter of 2021, we recognized a $25 million milestone payment from Novartis when Novartis achieved 50 percent enrollment in the Lp(a) HORIZON Phase 3 cardiovascular outcome study of pelacarsen. We recognized the milestone payment in full in the third quarter of 2021 because we did not have any remaining performance obligations related to the milestone payment.


License fees


We generally 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. This is because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery. For example, in the fourth quarter of 2020, we earned a $30 million license fee from AstraZeneca when AstraZeneca licensed ION455, an investigational medicine in development to treat nonalcoholic steatohepatitis, or NASH.


Sublicense fees


We recognize sublicense fee revenue in the period in which a party, who has already licensed our technology, further licenses the technology to another party because we do not have any performance obligations related to the sublicense.


Amendments to Agreements


From time to time we amend our collaboration agreements. When this occurs, we are required to assess the following items to determine the accounting for the amendment:

1)
If the additional goods and/or services are distinct from the other performance obligations in the original agreement; and
2)
If the goods and/or services are sold at a stand-alone selling price.


If we conclude the goods and/or services in the amendment are distinct from the performance obligations in the original agreement and at a stand-alone selling price, we account for the amendment as a separate agreement. If we conclude the goods and/or services are not distinct and are sold at a stand-alone selling price, we then assess whether the remaining goods or services are distinct from those already provided. If the goods and/or services are distinct from what we have already provided, then we allocate the remaining transaction price from the original agreement and the additional transaction price from the amendment to the remaining goods and/or services. If the goods and/or services are not distinct from what we have already provided, we update the transaction price for our single performance obligation and recognize any change in our estimated revenue as a cumulative adjustment.


For example, in May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. As part of the agreement, Bayer paid us a $100 million upfront payment. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis and for providing an initial supply of API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of fesomersen (IONIS-FXI-LRx), which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx and fesomersen. Under the 2017 amendment, we concluded we had a new agreement with three performance obligations. These performance obligations were to deliver the license of fesomersen, to provide R&D services and to deliver API. We allocated the $75 million transaction price to these performance obligations. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, in our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for further discussion of the Bayer collaboration.

13


Multiple agreements


From time to time, we may enter into separate agreements at or near the same time with the same partner. We evaluate such agreements to determine whether we should account for them individually as distinct arrangements or whether the separate agreements should be combined and accounted for together. We evaluate the following to determine the accounting for the agreements:

Whether the agreements were negotiated together with a single objective;
Whether the amount of consideration in one contract depends on the price or performance of the other agreement; or
Whether the goods and/or services promised under the agreements are a single performance obligation.


Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that accounting guidance requires us to account for them as a combined arrangement.


For example, in the second quarter of 2018, we entered into two separate agreements with Biogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement, or SPA. We evaluated the Biogen agreements to determine whether we should treat the agreements separately or combine them. We considered that the agreements were negotiated concurrently and in contemplation of one another. Based on these facts and circumstances, we concluded that we should evaluate the provisions of the agreements on a combined basis.


Contracts Receivable


Our contracts receivable balance represents the amounts we have billed our partners or customers and that are due to us unconditionally for goods we have delivered or services we have performed. When we bill our partners or customers with payment terms based on the passage of time, we consider the contracts receivable to be unconditional. We typically receive payment within one quarter of billing our partner or customer.


As of September 30, 2021, approximately 58.3 percent of our contracts receivables were from three significant customers. As of December 31, 2020, approximately 99.5 percent of our contracts receivables were from two significant customers.


Unbilled SPINRAZA Royalties


Our unbilled SPINRAZA royalties represent our right to receive consideration from Biogen in advance of when we are eligible to bill Biogen for SPINRAZA royalties. We include these unbilled amounts in other current assets on our condensed consolidated balance sheet.


Deferred Revenue


We are often entitled to bill our customers and receive payment from our customers in advance of our obligation to provide services or transfer goods to our partners. In these instances, we include the amounts in deferred revenue on our condensed consolidated balance sheet. During the three months ended September 30, 2021 and 2020, we recogniz