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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Ionis Pharmaceuticals, Inc.    IONS

IONIS PHARMACEUTICALS, INC.

(IONS)
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IONIS PHARMACEUTICALS : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

11/04/2020 | 05:04pm EST

In this Report on Form 10-Q, unless the context requires otherwise, "Ionis," "Company," "we," "our," and "us," means Ionis Pharmaceuticals, Inc. and its subsidiary, Akcea Therapeutics, Inc.

Forward-Looking Statements


In addition to historical information contained in this Report on Form 10-Q, the
Report includes forward-looking statements regarding our business and the
therapeutic and commercial potential of SPINRAZA (nusinersen), TEGSEDI
(inotersen), WAYLIVRA (volanesorsen) and our technologies and products in
development, including the business of Akcea Therapeutics, Inc, Ionis' wholly
owned subsidiary. Any statement describing our goals, expectations, financial or
other projections, intentions or beliefs, is a forward-looking statement and
should be considered an at-risk statement. Such statements are subject to
certain risks and uncertainties, including those related to the impact COVID-19
could have on our business, and including but not limited to those related to
our commercial products and the medicines in our pipeline, and particularly
those inherent in the process of discovering, developing and commercializing
medicines that are safe and effective for use as human therapeutics, and in the
endeavor of building a business around such medicines. Our forward-looking
statements also involve assumptions that, if they never materialize or prove
correct, could cause our results to differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this report and described in additional detail in our annual report on Form
10-K for the year ended December 31, 2019, which is on file with the U.S.
Securities and Exchange Commission and is available from us, and those
identified within Part II Item 1A. Risk Factors of this Report. Although our
forward-looking statements reflect the good faith judgment of our management,
these statements are based only on facts and factors currently known by us. As a
result, you are cautioned not to rely on these forward-looking statements.

Overview


We are a leader in delivering RNA-targeted therapeutics. We believe our
antisense oligonucleotide drug discovery platform fundamentally changed medicine
and transformed the lives of people with devastating diseases. Our pipeline of
over 40 potential first-in-class and/or best-in-class medicines address a broad
range of rare to common diseases within our neurological, cardio-renal,
metabolic and pulmonary disease franchises. Our commercial products SPINRAZA,
TEGSEDI and WAYLIVRA, are approved in major markets around the world. Within our
late-stage pipeline, we have five Phase 3 studies underway with four medicines:
tominersen for Huntington's disease, tofersen for SOD1-ALS, pelacarsen (formerly
AKCEA-APO(a)-LRx) for cardiovascular disease, or CVD, and AKCEA-TTR-LRx for TTR
amyloidosis.

We are investing our substantial financial resources in strategies that have the
potential to drive the greatest value for patients and shareholders. We are
focused on advancing our mid-and late-stage pipeline to achieve our goal of 10
or more marketing applications through 2025, investing in potentially
complementary technologies to expand the reach of our technology and building
our commercial capabilities to maximize the value of our Ionis-owned pipeline.

We believe we took an important step forward in our evolution when we acquired
Akcea. As one company, we believe we are stronger and more efficient, with
enhanced ability to achieve even greater future success. Our goal is to maximize
the value of each of our medicines, while ensuring we remain focused on
innovation and delivering substantial value for patients and shareholders.

Commercial Medicines


SPINRAZA is a global foundation-of-care for the treatment of patients of all
ages with spinal muscular atrophy, or SMA, a progressive, debilitating and often
fatal genetic disease. Biogen, our partner responsible for commercializing
SPINRAZA worldwide, reported that as of September 30, 2020, over 11,000 patients
were on SPINRAZA therapy in markets around the world. Additionally, as of
September 30, 2020, SPINRAZA was approved in over 50 countries with formal
reimbursement in over 40 countries. From inception through September 30, 2020,
we have earned $1.3 billion in revenues from our SPINRAZA collaboration,
including more than $850 million in royalties on sales of SPINRAZA.

TEGSEDI, a once weekly, self-administered subcutaneous medicine, was approved in
2018 in the U.S., EU and Canada for the treatment of patients with
polyneuropathy caused by hereditary TTR amyloidosis, or hATTR, a debilitating,
progressive, and fatal disease. Akcea, our wholly owned subsidiary focused on
developing and commercializing medicines to treat patients with serious and rare
diseases, launched TEGSEDI in the U.S. and EU in late 2018. As of the end of
October 2020, TEGSEDI was commercially available in 15 countries. We plan to
expand the global launch of TEGSEDI by launching in additional countries. In
Latin America, PTC Therapeutics, or PTC, through its exclusive license from
Akcea, is launching TEGSEDI in Brazil and is working towards access in
additional Latin American countries.

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WAYLIVRA, a once weekly, self-administered, subcutaneous medicine, received
conditional marketing authorization in May 2019 from the European Commission, or
EC, as an adjunct to diet in adult patients with genetically confirmed familial
chylomicronemia syndrome, or FCS, and at high risk for pancreatitis. We launched
WAYLIVRA in the EU in the third quarter of 2019 and are leveraging the existing
commercial infrastructure in Europe to market WAYLIVRA. PTC, through its
exclusive license agreement with Akcea, is working to expand access to WAYLIVRA
across Latin America, beginning in Brazil. In the second quarter of 2020, PTC
submitted the WAYLIVRA marketing application for approval in Brazil to ANVISA.

Medicines in Pivotal Phase 3 Studies


Our medicines in pivotal studies include tominersen for Huntington's disease,
tofersen for SOD1-ALS, pelacarsen for CVD and AKCEA-TTR-LRx for TTR amyloidosis.
In April 2020, Roche completed enrollment of the Phase 3 study for tominersen.
Tominersen has been granted orphan drug designation in the U.S. and EU and PRIME
designation in the EU. Additionally, the Phase 3 study for tofersen continues to
progress in patients with SOD1-ALS. Tofersen has been granted orphan drug
designation in the U.S. and EU. In January 2020, Novartis began enrolling
patients in the Phase 3 cardiovascular outcome study of pelacarsen in patients
with established cardiovascular disease and elevated levels of lipoprotein(a),
or Lp(a). Pelacarsen was recently granted Fast Track Designation by the FDA as a
potential treatment for people at significant risk for cardiovascular disease
due to elevated levels of Lp(a). Our broad Phase 3 program for AKCEA-TTR-LRx is
also progressing.

COVID-19

As a company focused on improving the health of people around the world, our
priority during the COVID-19 pandemic is the safety of our employees, their
families, the healthcare workers who work with us and the patients who rely on
our medicines. We are also focused on maintaining the quality of our studies and
minimizing the impact to timelines. While we have experienced some impacts on
our business as a result of the COVID-19 pandemic, we believe our mitigation
efforts and financial strength will allow us to manage through the pandemic and
continue to execute on our strategic initiatives. Because the situation is
extremely fluid we are continuing to evaluate the impact COVID-19 could have on
our business, including but not limited to the impact on our commercial products
and the medicines in our pipeline.

Financial Highlights

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

                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
                                             2020          2019           2020          2019
Total revenue                              $ 160,079$ 167,892$  438,983$ 628,918
Total operating expenses                   $ 196,616$ 165,369$  588,399$ 523,689
Income (loss) from operations              $ (36,537 )$   2,523$ (149,416 )$ 105,229
Net income (loss)                          $ (43,091 )$  18,432$ (145,340 )$  99,304
Net income (loss) attributable to Ionis
Pharmaceuticals, Inc. common
stockholders                               $ (30,944 )$  26,163$ (111,015 )$ 109,730



Commercial revenue increased seven percent for the nine months ended September
30, 2020, compared to the same period in 2019, due to an increase in product
sales from TEGSEDI and WAYLIVRA. Our R&D revenue in the nine months
ended September 30, 2019 included $185 million from two large items, including a
$150 million license fee we earned from Novartis when it licensed pelacarsen.

We anticipate our R&D revenue will be higher in the fourth quarter of 2020,
compared to the third quarter of 2020. We have already earned revenue from
multiple sources in the fourth quarter, including $75 million from Pfizer for
advancing vupanorsen. We recently obtained a favorable award in our arbitration
proceeding with Alnylam regarding fees arising from Alnylam's agreement with
Sanofi related to fitusiran and its TTR products. The final judgement has not
been determined, but we expect it will add meaningful revenue in the fourth
quarter.

Our operating expenses for the three and nine months ended September 30, 2020
increased over the same periods in 2019, principally due to our investments in
the Phase 3 program for AKCEA-TTR-LRx and our Ionis-owned pipeline. We expect
our operating expenses to increase during the fourth quarter of 2020 as we incur
one-time expenses associated with the Akcea Acquisition, including retention and
severance expense and stock-based compensation expense related to the vesting of
all of Akcea's 2015 Equity Incentive Plan equity awards.

We ended the third quarter of 2020, with $2.3 billion in cash and short-term
investments. In October 2020, we purchased the remaining outstanding shares of
Akcea we did not own for approximately $545 million, including transaction
related costs. We believe our strong financial position should enable us to
continue to execute on our corporate goals throughout 2020 and beyond.

                                       33

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Recent Business Highlights (Q3 2020 and subsequent activities)

Commercial Medicine Highlights

? SPINRAZA: a global foundation-of-care for the treatment of spinal muscular

atrophy (SMA) patients of all ages

o $495 million in worldwide sales in the third quarter

o More than 11,000 patients were on SPINRAZA treatment worldwide at the end of

the third quarter, including patients across commercial, expanded access and

clinical trial settings

o The open-label safety cohort of the DEVOTE study of higher-dose SPINRAZA is

fully enrolled and the pivotal randomized treatment cohort will begin enrolling

patients next

o The Phase 4 RESPOND study in patients with a suboptimal clinical response to

gene therapy is expected to begin early next year

? TEGSEDI: the only approved at-home subcutaneous therapy for the treatment of

hereditary transthyretin amyloidosis (hATTR) with polyneuropathy in adult

patients

o Commercially available in 15 countries

o Secured pricing and reimbursement in multiple new EU markets and in Canada in

the largest provinces and with multiple private payers

o Won 2020 Prix Galien USA Award for the Best Biotechnology Product

? WAYLIVRA: the only approved treatment in the EU for adults with genetically

confirmed familial chylomicronemia syndrome (FCS) at high risk for pancreatitis

o Commercially available in 4 countries

o Finalized pricing negotiations in additional EU markets, including in the UK

Third Quarter 2020 and Recent Pipeline Highlights

? Positive Phase 2 vupanorsen and AKCEA-APOCIII-LRx results presented at the

European Society of Cardiology annual meeting

? Advanced multiple programs into key mid-stage studies

o Vupanorsen advanced into Phase 2b development with the initiation of the

TRANSLATE-TIMI 70 dose-ranging study in statin-treated patients with

dyslipidemia, resulting in a $75 million payment from Pfizer

o IONIS-FXI-LRx advanced into Phase 2b development in patients with end stage

renal disease

o IONIS-HBVRx advanced into Phase 2b development in patients with hepatitis B

   virus infection


 ? Advanced inhaled delivery


o Positive IONIS-ENAC-2.5Rx healthy volunteer results provided support for

inhaled antisense medicine delivery

o Dosing completed in the IONIS-ENAC-2.5Rx Phase 2 study in patients with cystic

fibrosis

? Advanced the IONIS-PKK-LRx program

o Proof-of-concept data from the PKK development program in patients with

hereditary angioedema were reported in the New England Journal of Medicine

o Enrollment completed in the IONIS-PKK-LRx Phase 2 study in patients with

hereditary angioedema

o IONIS-PKK-LRx advanced into an investigator-initiated study in hospitalized

COVID-19 patients in Brazil

? Progressed multiple neurological disease medicines under Ionis' broad

collaboration with Biogen, earning more than $50 million

o ION541 advanced into Phase 1/2 development in patients with nearly all forms of

ALS

o ION464 advanced into Phase 1/2 development in patients with multiple system

atrophy

o IONIS-MAPTRx continued to advance in a long-term extension study in patients

with Alzheimer's disease

? The U.S. FDA granted orphan drug designation to Ionis-owned medicines for

people with Alexander disease, ?-thalassemia and Lafora diseases

Critical Accounting Estimates


We prepare our condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States. As such, we make
certain estimates, judgments and assumptions that we believe are reasonable,
based upon the information available to us. These judgments involve making
estimates about the effect of matters that are inherently uncertain and may
significantly impact our quarterly or annual results of operations and financial
condition. Each quarter, our senior management reviews the development,
selection and disclosure of such estimates with the audit committee of our board
of directors. In the following paragraphs, we describe the specific risks
associated with these critical accounting estimates and we caution that future
events rarely develop exactly as one may expect, and that best estimates may
require adjustment.

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The following are our significant accounting estimates, which we believe are the most critical to aid in fully understanding and evaluating our reported financial results:

? Assessing the propriety of revenue recognition and associated deferred revenue;

? Determining the appropriate cost estimates for unbilled preclinical studies and

clinical development activities; and

? Estimating our income taxes

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Results of Operations

Revenue

Our revenue was as follows (in thousands):

                                        Three Months Ended           Nine Months Ended
                                           September 30,               September 30,
                                        2020          2019          2020          2019
Revenue:
Commercial revenue:
SPINRAZA royalties                    $  74,171$  81,672$ 211,925$ 211,884
Product sales, net                       19,040        11,945        50,562        28,563

Licensing and other royalty revenue 2,129 2,082 6,548

11,638

Total commercial revenue                 95,340        95,699       269,035 

252,085

R&D revenue:
Amortization from upfront payments       18,893        23,918        67,964        99,263
Milestone payments                       43,513        11,981        73,369        64,013
License fees                                  -        25,523        14,669       198,212
Other services                            2,333        10,771        13,946        15,345
Total R&D revenue                        64,739        72,193       169,948       376,833
Total revenue                         $ 160,079$ 167,892$ 438,983$ 628,918



In the first nine months of 2020, our commercial revenue increased seven
percent, compared to the same period in 2019. Commercial revenue from SPINRAZA
royalties was flat and product sales from TEGSEDI and WAYLIVRA increased more
than 75 percent, compared to the same period in 2019.

We earn our R&D revenue from multiple sources. Our R&D revenue can fluctuate
depending on the timing of events. Our R&D revenue in the nine months
ended September 30, 2020 included nearly $100 million from our neurology disease
franchise and more than $38 million from our cardio-renal franchise. In the
second quarter of 2020, we also earned $13 million from AstraZeneca under our
oncology collaboration. Additionally, in the third quarter of 2020, we earned $5
million from Janssen under our collaboration.

We anticipate our R&D revenue will be higher in the fourth quarter of 2020,
compared to the third quarter of 2020. We have already earned revenue from
multiple sources in the fourth quarter, including $75 million from Pfizer for
advancing vupanorsen. We recently obtained a favorable award in our arbitration
proceeding with Alnylam regarding fees arising from Alnylam's agreement with
Sanofi related to fitusiran and its TTR products. The final judgement has not
been determined, but we expect it will add meaningful revenue in the fourth
quarter.

Our R&D revenue in the nine months ended September 30, 2019 included $185
million from two large items, including a $150 million license fee we earned
from Novartis when it licensed pelacarsen. Additionally, our amortization from
upfront payments for the nine months ended September 30, 2019, was higher
compared to the same period in 2020 because it included amortization from
collaborations for which we have completed our R&D services performance
obligations.

Operating Expenses


Operating expenses for the three and nine months ended September 30, 2020 were
$196.6 million and $588.4 million, respectively, and increased compared to
$165.4 million and $523.7 million for the same periods in 2019. The increase was
principally due to our investments in the Phase 3 program for AKCEA-TTR-LRx and
our Ionis-owned pipeline. We expect our operating expenses to increase during
the fourth quarter of 2020 as we incur one-time expenses associated with the
Akcea Acquisition, including retention and severance expense and stock-based
compensation expense related to the vesting of all of Akcea's 2015 Equity
Incentive Plan equity awards.

                                       35

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Our operating expenses by segment were as follows (in thousands):

                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
                                             2020          2019          2020          2019
Ionis Core                                 $  96,072$  82,667$ 286,761$ 243,920
Akcea Therapeutics                            57,023        65,569       178,920       256,105
Elimination of intercompany activity          (2,324 )      (6,993 )     (12,359 )     (87,900 )
Subtotal                                     150,771       141,243       453,322       412,125
Non-cash compensation expense related to
equity awards                                 45,845        24,126       135,077       111,564
Total operating expenses                   $ 196,616$ 165,369$ 588,399$ 523,689



To analyze and compare our results of operations to other similar companies, we
believe it is important to exclude non-cash compensation expense related to
equity awards from our operating expenses. We believe non-cash compensation
expense is not indicative of our operating results or cash flows from our
operations. Further, we internally evaluate the performance of our operations
excluding it.

Cost of Products Sold

Our cost of products sold consisted of manufacturing costs, including certain
fixed costs, transportation and freight, indirect overhead costs associated with
the manufacturing and distribution of TEGSEDI and WAYLIVRA and certain
associated period costs. Prior to the regulatory approval of TEGSEDI and
WAYLIVRA, we expensed as R&D expense a significant portion of the cost of
producing TEGSEDI and WAYLIVRA that Akcea is using in the commercial launches.
We expect cost of products sold to increase as we deplete these inventories.

Our cost of products sold by segment were as follows (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Ionis Core                                 $        -     $       -     $        -     $       -
Akcea Therapeutics                              5,051         2,275         14,291        10,247
Elimination of intercompany activity           (2,280 )      (1,435 )       (6,547 )      (7,256 )
Subtotal                                        2,771           840          7,744         2,991
Non-cash compensation expense related to
equity awards                                     315           127            902           382

Total cost of products sold expenses $ 3,086$ 967 $

8,646 $ 3,373




We began recognizing cost of products sold for TEGSEDI in the third quarter of
2018 when TEGSEDI was approved and for WAYLIVRA in the second quarter of 2019
when WAYLIVRA was approved. Our cost of products sold increased in the nine
months ended September 30, 2020, compared to the same period in 2019, primarily
due to the increase in product sales of TEGSEDI and WAYLIVRA. In its cost of
products sold Akcea includes the amortization for milestone payments it made to
us related to the U.S. and European approvals of TEGSEDI. Akcea is recognizing
this amortization over TEGSEDI's remaining estimated patent life. We eliminate
this amortization in our consolidated results. All amounts exclude non-cash
compensation expense related to equity awards.

Research, Development and Patent Expenses


Our research, development and patent expenses consist of expenses for antisense
drug discovery, antisense drug development, manufacturing and operations and R&D
support expenses.

The following table sets forth information on research, development and patent
expenses (in thousands):

                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
                                             2020          2019          2020          2019
Research, development and patent
expenses, excluding non-cash
compensation expense related to equity
awards                                     $  99,724$  80,622$ 287,367$ 245,013
Non-cash compensation expense related to
equity awards                                 25,359        23,744        76,931        71,935
Total research, development and patent
expenses                                   $ 125,083$ 104,366$ 364,298$ 316,948



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Our research, development and patent expenses by segment were as follows (in
thousands):

                                             Three Months Ended           Nine Months Ended
                                                September 30,               September 30,
                                             2020          2019          2020          2019
Ionis Core                                 $  77,216$  64,197$ 227,971$ 190,269
Akcea Therapeutics                            22,551        21,983        64,804       135,388
Elimination of intercompany activity             (43 )      (5,558 )      (5,408 )     (80,644 )
Subtotal                                      99,724        80,622       287,367       245,013
Non-cash compensation expense related to
equity awards                                 25,359        23,744        76,931        71,935
Total research, development and patent
expenses                                   $ 125,083$ 104,366$ 364,298$ 316,948



Antisense Drug Discovery

We use our proprietary antisense technology to generate information about the
function of genes and to determine the value of genes as drug discovery targets.
We use this information to direct our own antisense drug discovery research, and
that of our partners. Antisense drug discovery is also the function that is
responsible for advancing our antisense core technology. This function is also
responsible for making investments in complementary technologies to expand the
reach of antisense technology.

As we continue to advance our antisense technology, we are investing in our drug discovery programs to expand our and our partners' drug pipelines.

Our antisense drug discovery expenses are part of our Ionis Core business segment and were as follows (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Antisense drug discovery expenses,
excluding non-cash compensation expense
related to equity awards                   $   19,979$  16,072$   57,096$  46,397
Non-cash compensation expense related to
equity awards                                   6,187         5,015         

18,583 15,805 Total antisense drug discovery expenses $ 26,166$ 21,087$ 75,679$ 62,202




Antisense drug discovery expenses increased for the three and nine months
ended September 30, 2020, compared to the same periods in 2019, due to expenses
we incurred related to advancing and expanding our research programs, including
investments we made in complementary technologies such as Genuity to expand the
reach of our antisense technology. All amounts exclude non-cash compensation
expense related to equity awards.

Antisense Drug Development

The following table sets forth drug development expenses, including the breakdown for medicines in Phase 3 development and/or commercialization for which we have incurred significant costs (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019          2020          2019
AKCEA TTR-LRx                              $    9,001$   2,729$  21,425$   5,268
WAYLIVRA                                        1,336         2,324         4,613         7,429
TEGSEDI                                         3,482         5,044        11,369        13,161
Other antisense development projects           24,312        18,504        69,831        63,853
Development overhead expenses                  18,210        17,557        53,971        53,351
Total antisense drug development,
excluding non-cash compensation expense
related to equity awards                       56,341        46,158       161,209       143,062
Non-cash compensation expense related to
equity awards                                  12,385        11,391        38,191        34,743
Total antisense drug development
expenses                                   $   68,726$  57,549$ 199,400$ 177,805



Our development expenses increased for the three and nine months ended September
30, 2020 compared to the same periods in 2019. The increase in development
expenses primarily related to our broad Phase 3 program for AKCEA-TTR-LRx, which
we initiated in late 2019 and other medicines in our Ionis-owned pipeline. These
increases were slightly offset by decreases in expenses for WAYLIVRA,
AKCEA-APOCIII-LRx and vupanorsen. Akcea completed a Phase 2 study for
AKCEA-APOCIII-LRx and vupanorsen in early 2020. All amounts exclude non-cash
compensation expense related to equity awards.

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Our antisense drug development expenses by segment were as follows (in
thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019          2020          2019
Ionis Core                                 $   43,053$  32,970$ 123,002$  96,992
Akcea Therapeutics                             13,288        13,188        38,207       121,070
Elimination of intercompany activity                -             -             -       (75,000 )
Subtotal                                       56,341        46,158       161,209       143,062
Non-cash compensation expense related to
equity awards                                  12,385        11,391        38,191        34,743
Total antisense drug development
expenses                                   $   68,726$  57,549$ 199,400$ 177,805



We may conduct multiple clinical trials on a drug candidate, including multiple
clinical trials for the various indications we may be studying. Furthermore, as
we obtain results from trials we may elect to discontinue clinical trials for
certain drug candidates in certain indications in order to focus our resources
on more promising drug candidates or indications. Our Phase 1 and Phase 2
programs are clinical research programs that fuel our Phase 3 pipeline. When our
medicines are in Phase 1 or Phase 2 clinical trials, they are in a dynamic state
in which we may adjust the development strategy for each medicine. Although we
may characterize a medicine as "in Phase 1" or "in Phase 2," it does not mean
that we are conducting a single, well-defined study with dedicated resources.
Instead, we allocate our internal resources on a shared basis across numerous
medicines based on each medicine's particular needs at that time. This means we
are constantly shifting resources among medicines. Therefore, what we spend on
each medicine during a particular period is usually a function of what is
required to keep the medicines progressing in clinical development, not what
medicines we think are most important. For example, the number of people
required to start a new study is large, the number of people required to keep a
study going is modest and the number of people required to finish a study is
large. However, such fluctuations are not indicative of a shift in our emphasis
from one medicine to another and cannot be used to accurately predict future
costs for each medicine. And, because we always have numerous medicines in
preclinical and early stage clinical research, the fluctuations in expenses from
medicine to medicine, in large part, offset one another. If we partner a
medicine, it may affect the size of a trial, its timing, its total cost and the
timing of the related costs.

Manufacturing and Development Chemistry


Expenditures in our manufacturing and development chemistry function consist
primarily of personnel costs, specialized chemicals for oligonucleotide
manufacturing, laboratory supplies and outside services. Our manufacturing and
development chemistry function is responsible for providing drug supplies to
antisense drug development, Akcea and our collaboration partners. Our
manufacturing procedures include testing to satisfy good laboratory and good
manufacturing practice requirements.

Our manufacturing and development chemistry expenses were as follows (in
thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Manufacturing and development chemistry
expenses, excluding non-cash
compensation expense related to equity
awards                                     $   12,956$   9,582$   38,819$  29,064
Non-cash compensation expense related to
equity awards                                   2,519         2,441          8,183         7,022
Total manufacturing and development
chemistry expenses                         $   15,475$  12,023$   47,002$  36,086



Manufacturing and development chemistry expenses increased for the three and
nine months ended September 30, 2020, compared to the same periods in 2019. The
increase in manufacturing and development chemistry expenses was primarily
related to manufacturing API for AKCEA-TTR-LRx and AKCEA-APOCIII-LRx. All
amounts exclude non-cash compensation expense related to equity awards.

Our manufacturing and development chemistry expenses by segment were as follows
(in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Ionis Core                                 $   11,389$   8,059$   32,158$  24,919
Akcea Therapeutics                              1,567         7,038         11,941         9,659
Elimination of intercompany activity                -        (5,515 )       (5,280 )      (5,515 )
Subtotal                                       12,956         9,582         38,819        29,064
Non-cash compensation expense related to
equity awards                                   2,519         2,441          8,183         7,022
Total manufacturing and development
chemistry expenses                         $   15,475$  12,023$   47,002$  36,086



                                       38

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R&D Support


In our research, development and patent expenses, we include support costs such
as rent, repair and maintenance for buildings and equipment, utilities,
depreciation of laboratory equipment and facilities, amortization of our
intellectual property, informatics costs, procurement costs and waste disposal
costs. We call these costs R&D support expenses.

The following table sets forth information on R&D support expenses (in
thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Personnel costs                            $    3,448$   3,666$   10,791$  10,990
Occupancy                                       2,517         2,463          7,398         6,894
Patent expenses                                   971           600          2,202         1,796
Depreciation and amortization                     187           130            512           389
Insurance                                         595           498          1,824         1,321
Other                                           2,730         1,454          7,517         5,101
Total R&D support expenses, excluding
non-cash compensation expense related to
equity awards                                  10,448         8,811         30,244        26,491
Non-cash compensation expense related to
equity awards                                   4,269         4,897         11,975        14,364
Total R&D support expenses                 $   14,717$  13,708$   42,219$  40,855

R&D support expenses for the three and nine months ended September 30, 2020 increased compared to the same periods in 2019. All amounts exclude non-cash compensation expense related to equity awards.

Our R&D support expenses by segment were as follows (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Ionis Core                                 $    2,795$   7,097$   15,716$  21,961
Akcea Therapeutics                              7,696         1,757         14,656         4,659
Elimination of intercompany activity              (43 )         (43 )         (128 )        (129 )
Subtotal                                       10,448         8,811         30,244        26,491
Non-cash compensation expense related to
equity awards                                   4,269         4,897         11,975        14,364
Total R&D support expenses                 $   14,717$  13,708$   42,219$  40,855

Selling, General and Administrative Expenses


Selling, general and administrative, or SG&A, expenses include personnel and
outside costs associated with the pre-commercialization and commercialization
activities for our medicines and costs to support our company, our employees and
our stockholders including, legal, human resources, investor relations, and
finance. Additionally, we include in selling, general and administrative
expenses such costs as rent, repair and maintenance of buildings and equipment,
depreciation and utilities costs that we need to support the corporate functions
listed above. We also include fees we owe under our in-licensing agreements
related to SPINRAZA.

The following table sets forth information on SG&A expenses (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019          2020          2019
Selling, general and administrative
expenses, excluding non-cash
compensation expense related to equity
awards                                     $   48,276$  59,781$ 158,211$ 164,122
Non-cash compensation expense related to
equity awards                                  20,171           255        57,244        39,246
Total selling, general and
administrative expenses                    $   68,447$  60,036$ 215,455$ 203,368



SG&A expenses were lower for the three and nine months ended September 30, 2020,
compared to the same periods in 2019, principally due to reductions in travel
and marketing events for Akcea as a result of the COVID-19 pandemic. All amounts
exclude non-cash compensation expense related to equity awards.

                                       39

--------------------------------------------------------------------------------

Our SG&A expenses by segment were as follows (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019          2020          2019
Ionis Core                                 $   18,856$  18,470$  58,790$  53,651
Akcea Therapeutics                             29,421        41,311        99,827       110,470
Elimination of intercompany activity               (1 )           -          (406 )           -
Subtotal                                       48,276        59,781       158,211       164,121
Non-cash compensation expense related to
equity awards                                  20,171           255        57,244        39,247
Total selling, general and
administrative expenses                    $   68,447$  60,036$ 215,455$ 203,368Akcea Therapeutics, Inc.

The following table sets forth information on operating expenses (in thousands) for our Akcea Therapeutics business segment:

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019          2020          2019
Cost of products sold                      $    5,051$   2,275$  14,289$  10,246
Development and patent expenses                22,551        21,983        64,804        60,388
Sublicense fee to Ionis                             -             -             -        75,000
Selling, general and administrative
expenses                                       29,421        41,311        99,827       110,470
Profit (loss) share for TEGSEDI
commercialization activities                   (1,586 )      (8,889 )     (12,084 )     (29,410 )
Total operating expenses, excluding
non-cash compensation expense related to
equity awards                                  55,437        56,680       166,836       226,694
Non-cash compensation expense related to
equity awards                                  13,846        (3,465 )      37,248        29,458
Total Akcea Therapeutics operating
expenses                                   $   69,283$  53,215$ 204,084$ 256,152

See discussion of fluctuations in Akcea operating expenses in the operating expense sections above.

All amounts exclude non-cash compensation expense related to equity awards.

Investment Income


Investment income for the three and nine months ended September 30, 2020 was
$6.5 million and $25.9 million, respectively, compared to $13.1 million and
$39.0 million for the same periods in 2019. The decrease in investment income
was primarily due to a decline in interest rates during the nine months
ended September 30, 2020 compared to the same periods in 2019.

Interest Expense


The following table sets forth information on interest expense (in thousands):

                                              Three Months Ended           Nine Months Ended
                                                September 30,                September 30,
                                              2020          2019           2020          2019
Convertible notes:
Non-cash amortization of the debt
discount and debt issuance costs           $    9,735$   9,558$   28,742$  28,140
Interest expense payable in cash                  946         1,714          2,838         5,141
Interest on mortgage for primary R&D and
manufacturing facilities                          607           607          1,808         1,790
Other                                              33           123             96           333
Total interest expense                     $   11,321$  12,002$   33,484$  35,404

Our interest expense payable in cash decreased in the three and nine months ended September 30, 2020, compared to the same periods in 2019 because we exchanged a significant portion of our 1% Notes for 0.125% Notes in December 2019.

                                       40

--------------------------------------------------------------------------------

Gain on Investments


We recorded a gain on investments of $10.7 million for the nine months ended
September 30, 2020. During the second quarter of 2020, we revalued our
investments in two privately held companies, Dynacure and Ribo because the
companies sold additional equity securities that were similar to those we own.
These observable price changes resulted in us recognizing a $6.3 million gain on
our investment in Dynacure and a $3 million gain on our investment in Ribo in
our condensed consolidated statement of operations during the second quarter of
2020.

Income Tax Benefit (Expense)

We recorded income tax expense of $2.6 million and income tax benefit of $1.0
million for the three and nine months ended September 30, 2020, respectively. We
recorded income tax expense of $14.9 million and an income tax benefit of $9.2
million for the three and nine months ended September 30, 2019. We recorded an
income tax benefit for the nine months ended September 30, 2020 primarily due to
Ionis' pre-tax loss for the period and a $1.7 million tax benefit related to
Akcea in the first quarter of 2020. We did not record an income tax benefit as a
result of Akcea's pre-tax loss for the nine months ended September 30,
2020 because Akcea maintains a full valuation allowance against its deferred tax
assets.

Net Income (Loss)

We generated a net loss of $43.1 million and $145.3 million for the three and
nine months ended September 30, 2020, respectively, compared to net income of
$18.4 million and $99.3 million for the same periods in 2019. Our net loss for
the nine months ended September 30, 2020 was primarily due to decreased revenue
year-over-year, as discussed above in the revenue section.

Net Loss Attributable to Noncontrolling Interest in Akcea Therapeutics, Inc.


At September 30, 2020, we owned approximately 76 percent of Akcea. The shares of
Akcea third parties owned represented an interest in Akcea's equity that we did
not control. However, because we continued to maintain overall control of Akcea
through our voting interest, we reflected the assets, liabilities and results of
operations of Akcea in our condensed consolidated financial statements. We
reflected the noncontrolling interest attributable to other owners of Akcea's
common stock in a separate line called "Net loss attributable to noncontrolling
interest in Akcea" on our statement of operations. Our noncontrolling interest
in Akcea on our statement of operations for the three and nine months
ended September 30, 2020, was a loss of $12.1 million and $34.3 million,
respectively, compared to a loss of $7.7 million and $10.4 million for the same
periods in 2019. After closing the Akcea Acquisition in October 2020, we will no
longer recognize any noncontrolling interest in Akcea on our statement of
operations.

Net Income (Loss) Attributable to Ionis Pharmaceuticals, Inc. Common Stockholders and Net Income (Loss) per Share

We had a net loss attributable to our common stockholders' of $30.9 million and $111.0 million for the three and nine months ended September 30, 2020, respectively. We had net income attributable to our common stockholders' of $26.2 million and $109.7 million for the same periods in 2019.

Our basic and diluted net income (loss) per share was as follows:


                                            Three Months Ended September 

30, Nine Months Ended September 30,

                                              2020                  2019                2020                    2019

Basic net income (loss) per share $ (0.22 ) $ 0.19 $ (0.80 ) $ 0.81 Diluted net income (loss) per share

              (0.22 )                 0.18                (0.80 )                 0.79



Liquidity and Capital Resources


We have financed our operations primarily from research and development
collaborative agreements. We also finance our operations from commercial revenue
from SPINRAZA royalties and product sales. From our inception through September
30, 2020, we have earned approximately $4.5 billion in revenue. We also financed
our operations through the sale of our equity securities and the issuance of
long-term debt. From the time we were founded through September 30, 2020, we
have raised net proceeds of approximately $2.0 billion from the sale of our
equity securities. Additionally, we have borrowed approximately $1.5 billion
under long-term debt arrangements to finance a portion of our operations over
the same time period.

Our key liquidity metrics and capital resources, including our cash, cash
equivalents and short-term investments, working capital and debt obligations did
not change significantly at September 30, 2020 compared to December 31, 2019.
Our cash equivalents and short-term investments and working capital decreased in
October 2020 with the Akcea Acquisition.

                                       41
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The following table summarizes our contractual obligations as of September 30,
2020. The table provides a breakdown of when obligations become due. We provide
a more detailed description of the major components of our debt in the
paragraphs following the table:

Contractual Obligations                                   Payments Due by Period (in millions)
(selected balances described
below)                              Total        Less than 1 year       1-3 years       3-5 years       After 5 years
0.125% Notes (principal and
interest payable)                 $    551.9     $             0.7     $       1.3$     549.9     $             -
1% Notes (principal and
interest payable)                 $    314.5     $             3.1     $     311.4     $         -     $             -
Building mortgage payments        $     76.5     $             2.4     $       5.9$       6.9     $          61.3
Operating leases                  $     21.0     $             3.2     $       5.4$       4.8     $           7.6
Other obligations (principal
and interest payable)             $      1.0     $             0.1     $       0.1$       0.1     $           0.7
Total                             $    964.9     $             9.5     $     324.1$     561.7     $          69.6



Our contractual obligations consist primarily of our convertible debt. In
addition, we also have facility mortgages, facility leases, equipment financing
arrangements and other obligations. Due to the uncertainty with respect to the
timing of future cash flows associated with our unrecognized tax benefits, we
are unable to make reasonably reliable estimates of the period of cash
settlement with the respective taxing authorities. Therefore, we have excluded
our gross unrecognized tax benefits from our contractual obligations table
above.

0.125 Percent Convertible Senior Notes and Call Spread


In December 2019, we entered into privately negotiated exchange and/or
subscription agreements with certain new investors and certain holders of our
existing 1% Notes to exchange $375.6 million of our 1% Notes for $439.3 million
of our 0.125% Notes, and to issue $109.5 million of our 0.125% Notes. We
completed this exchange to reduce our cash interest payments, increase our
conversion price and extend our maturity for a large portion of our debt.
Additionally, in conjunction with the December 2019 exchange, we entered into a
call spread transaction, which was comprised of purchasing note hedges and
selling warrants, to minimize the impact of potential economic dilution upon
conversion of our 0.125% Notes by increasing the conversion price on our 0.125%
even further.

The call spread cost us $52.6 million, of which $108.7 million was for the note
hedge purchase, offset by $56.1 million we received for selling the warrants. We
increased our effective conversion price to $123.38 with the same number of
underlying shares as our 0.125% Notes.

Similar to our 0.125% Notes, our note hedges are subject to adjustment.
Additionally, our note hedges are exercisable upon conversion of the 0.125%
Notes. The note hedges will expire upon maturity of 0.125% Notes, or December
2024. The note hedges and warrants are separate transactions and are not part of
the terms of our 0.125% Notes. The holders of the 0.125% Notes do not have any
rights with respect to the note hedges and warrants.

We recorded the aggregate amount paid for the note hedges and the aggregate
amount received for the warrants in additional paid-in capital in our condensed
consolidated balance sheet. We exclude any shares of our common stock receivable
by us under the note hedges from our calculation of diluted earnings per share
as they are antidilutive. We will include the shares issuable under the 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.

At September 30, 2020, we had the following 0.125% Notes outstanding (amounts in millions except price per share data):

                                                      0.125% Notes
Outstanding principal balance                        $        548.8
Maturity date                                         December 2024
Interest rate                                         0.125 percent
Conversion price per share                           $        83.28
Total shares of common stock subject to conversion              6.6



Interest is payable semi-annually for the 0.125% Notes. The 0.125% Notes are
convertible under certain conditions, at the option of the note holders. We can
settle conversions of the 0.125% Notes, at our election, in cash, shares of our
common stock or a combination of both. We may not redeem the 0.125% Notes prior
to maturity, and no sinking fund is provided for them. Holders of the 0.125%
Notes may require us to purchase some or all of their notes upon the occurrence
of certain fundamental changes, as set forth in the indenture governing the
0.125% Notes, at a purchase price equal to 100 percent of the principal amount
of the notes to be purchased, plus accrued and unpaid interest.

                                       42

--------------------------------------------------------------------------------

1 Percent Convertible Senior Notes


In November 2014, we completed a $500 million offering of convertible senior
notes, which mature in 2021 and bear interest at 1 percent. We used a
substantial portion of the net proceeds from the issuance of the 1% Notes to
repurchase $140 million in principal of our 2¾ percent convertible senior notes,
or 2¾% Notes. In December 2016, we issued an additional $185.5 million of 1%
Notes in exchange for the redemption of $61.1 million of our 2¾% Notes. In
December 2019, we exchanged a portion of our 1% Notes for new 0.125% Notes. As a
result, the principal balance of the 1% Notes following the exchange was $309.9
million.

At September 30, 2020, we had the following 1% Notes outstanding (amounts in millions except price per share data):

                                                        1% Notes
Outstanding principal balance                        $         309.9
Maturity date                                          November 2021
Interest rate                                              1 percent
Conversion price per share                           $         66.81
Total shares of common stock subject to conversion               4.6



Interest is payable semi-annually for the 1% Notes. The 1% Notes are convertible
under certain conditions, at the option of the note holders. We settle
conversions of the 1% Notes, at our election, in cash, shares of our common
stock or a combination of both. We may not redeem the 1% Notes prior to
maturity, and no sinking fund is provided for them. Holders of the 1% Notes may
require us to purchase some or all of their notes upon the occurrence of certain
fundamental changes, as set forth in the indenture governing the 1% Notes, at a
purchase price equal to 100 percent of the principal amount of the notes to be
purchased, plus accrued and unpaid interest.

Research and Development and Manufacturing Facilities


In July 2017, we purchased the building that houses our primary R&D facility for
$79.4 million and our manufacturing facility for $14.0 million. We financed the
purchase of these two facilities with mortgage debt of $60.4 million in total.
Our primary R&D facility mortgage has an interest rate of 3.88 percent. Our
manufacturing facility mortgage has an interest rate of 4.20 percent. During the
first five years of both mortgages, we are only required to make interest
payments. Both mortgages mature in August 2027.

Other Obligations


In addition to contractual obligations, we had outstanding purchase orders as of
September 30, 2020 for the purchase of services, capital equipment and materials
as part of our normal course of business.

We may enter into additional collaborations with partners which could provide
for additional revenue to us and we may incur additional cash expenditures
related to our obligations under any of the new agreements we may enter into. We
currently intend to use our cash, cash equivalents and short-term investments to
finance our activities. However, we may also pursue other financing
alternatives, like issuing additional shares of our common stock, issuing debt
instruments, refinancing our existing debt, or securing lines of credit. Whether
we use our existing capital resources or choose to obtain financing will depend
on various factors, including the future success of our business, the prevailing
interest rate environment and the condition of financial markets generally.

© Edgar Online, source Glimpses

Stocks mentioned in the article
ChangeLast1st jan.
AKCEA THERAPEUTICS, INC. 0.17% 18.17 End-of-day quote.0.00%
IONIS PHARMACEUTICALS, INC. 0.78% 61.75 Delayed Quote.9.21%
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