IONIS PHARMACEUTICALS, INC. In this Report on Form 10-Q, unless the context requires otherwise, "Ionis,"
"Company," "we," "our," and "us," means
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 ofAkcea 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 endedDecember 31, 2019 , which is on file with theU.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 ofSeptember 30, 2020 , over 11,000 patients were on SPINRAZA therapy in markets around the world. Additionally, as ofSeptember 30, 2020 , SPINRAZA was approved in over 50 countries with formal reimbursement in over 40 countries. From inception throughSeptember 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 theU.S. , EU andCanada 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 theU.S. and EU in late 2018. As of the end ofOctober 2020 , TEGSEDI was commercially available in 15 countries. We plan to expand the global launch of TEGSEDI by launching in additional countries. InLatin America , PTC Therapeutics, or PTC, through its exclusive license from Akcea, is launching TEGSEDI inBrazil and is working towards access in additional Latin American countries. 32 -------------------------------------------------------------------------------- WAYLIVRA, a once weekly, self-administered, subcutaneous medicine, received conditional marketing authorization inMay 2019 from theEuropean Commission , or EC, as an adjunct to diet in adult patients with genetically confirmed familial chylomicronemia syndrome, orFCS , 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 inEurope to market WAYLIVRA. PTC, through its exclusive license agreement with Akcea, is working to expand access to WAYLIVRA acrossLatin America , beginning inBrazil . In the second quarter of 2020, PTC submitted the WAYLIVRA marketing application for approval inBrazil 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. InApril 2020 , Roche completed enrollment of the Phase 3 study for tominersen. Tominersen has been granted orphan drug designation in theU.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 theU.S. and EU. InJanuary 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.
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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
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
the largest provinces and with multiple private payers
o Won 2020
? 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
Third Quarter 2020 and Recent Pipeline Highlights
? Positive Phase 2 vupanorsen and AKCEA-APOCIII-LRx results presented at the
? 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
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
hereditary angioedema were reported in the
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
? Progressed multiple neurological disease medicines under Ionis' broad
collaboration with Biogen, earning more than
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
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 inthe 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. 34
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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
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 28,563Licensing 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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
8,646
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 endedSeptember 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 theU.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
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
Antisense drug discovery expenses increased for the three and nine months endedSeptember 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
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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
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.
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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 $ 203,368
Akcea Therapeutics, Inc. The following table sets forth information on operating expenses (in thousands)
for our
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 endedSeptember 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 endedSeptember 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
40--------------------------------------------------------------------------------
Gain on Investments
We recorded a gain on investments of$10.7 million for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 30, 2019 . We recorded an income tax benefit for the nine months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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
AtSeptember 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 endedSeptember 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 inOctober 2020 , we will no longer recognize any noncontrolling interest in Akcea on our statement of operations.
Net Income (Loss) Attributable to
We had a net loss attributable to our common stockholders' of
Our basic and diluted net income (loss) per share was as follows:
Three Months Ended September
30, Nine Months Ended
2020 2019 2020 2019
Basic 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 throughSeptember 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 throughSeptember 30, 2020 , we have raised net proceeds of approximately$2.0 billion from the sale of our equity securities. Additionally, we have borrowed approximately$1.5 billion under long-term debt arrangements to finance a portion of our operations over the same time period. Our key liquidity metrics and capital resources, including our cash, cash equivalents and short-term investments, working capital and debt obligations did not change significantly atSeptember 30, 2020 compared toDecember 31, 2019 . Our cash equivalents and short-term investments and working capital decreased inOctober 2020 with the Akcea Acquisition. 41 -------------------------------------------------------------------------------- The following table summarizes our contractual obligations as ofSeptember 30, 2020 . The table provides a breakdown of when obligations become due. We provide a more detailed description of the major components of our debt in the paragraphs following the table: Contractual Obligations Payments Due by Period (in millions) (selected balances described below) Total Less than 1 year 1-3 years 3-5 years After 5 years 0.125% Notes (principal and interest payable)$ 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
InDecember 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 theDecember 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, orDecember 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
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
InNovember 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. InDecember 2016 , we issued an additional$185.5 million of 1% Notes in exchange for the redemption of$61.1 million of our 2¾% Notes. InDecember 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
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
InJuly 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 inAugust 2027 .
Other Obligations
In addition to contractual obligations, we had outstanding purchase orders as ofSeptember 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.
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