UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
Commission file number 0-19125000-19125
Ionis Pharmaceuticals, Inc.
(Exact name of Registrant as specified in its charter)
| Delaware | | 33-0336973
33-0336973 |
(State or other jurisdiction of
incorporation or organization) | | (IRS Employer Identification No.) |
| 2855 Gazelle Court, Carlsbad, CA | | 92010 |
| (Address of Principal Executive Offices) | | (Zip Code) |
760-931-9200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | | Trading symbol | | Name of each exchange on which registered |
| Common Stock, $.001 Par Value | | “IONS” | | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Accelerated Filer ☒ | | Accelerated filer Filer ☐ |
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Non-accelerated filer (Do not check if a smaller reporting company)Filer ☐
| rr | Smaller reporting company Reporting Company ☐ |
| | | Emerging growth company Growth Company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒
The approximate aggregate market value of the voting common stock held by non-affiliates of the Registrant, based upon the last sale price of the common stock reported on The Nasdaq Global Select Market was $5,158,628,572$7,483,343,134 as of June 30, 2017.2019.*
The number of shares of voting common stock outstanding as of February 20, 20182020 was 125,403,219.139,219,800.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement to be filed on or about April 9, 201829, 2020 with the Securities and Exchange Commission in connection with the Registrant’s annual meeting of stockholders to be held on May 23, 2018June 4, 2020 are incorporated by reference into Part III of this Report.
| * | Excludes 22,738,28523,957,052 shares of common stock held by directors and officers and by stockholders whose beneficial ownership is known by the Registrant to exceed 10 percent of the common stock outstanding at June 30, 2017.2019. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or under common control with the Registrant.
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FORWARD-LOOKING STATEMENTS
This report on Form 10-K and the information incorporated herein by reference includes forward-looking statements regarding our business and the therapeutic and commercial potential of SPINRAZA inotersen, volanesorsen(nusinersen), TEGSEDI (inotersen), WAYLIVRA (volanesorsen) and our technologies and products in development, including the business of Akcea Therapeutics, Inc., our majority ownedmajority-owned affiliate. 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, particularly those inherent in the process of discovering, developing and commercializing drugsmedicines that are safe and effective for use as human therapeutics, and in the endeavor of building a business around such drugs.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 on Form 10-K, including those identified in Item 1A entitled “Risk Factors”. 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.
In this report, unless the context requires otherwise, “Ionis,” “Company,” “we,” “our,” and “us” refers to Ionis Pharmaceuticals, Inc. and its subsidiaries.
TRADEMARKS
"Ionis,"“Ionis,” the Ionis logo, and other trademarks or service marks of Ionis Pharmaceuticals, Inc. appearing in this report are the property of Ionis Pharmaceuticals, Inc. "Akcea,"“Akcea,” the Akcea logo, and other trademarks or service marks of Akcea Therapeutics, Inc. appearing in this report are the property of Akcea Therapeutics, Inc. This report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or TM symbols.
CORPORATE INFORMATION
We incorporated in California in 1989 and in January 1991 we changed our state of incorporation to Delaware. In December 2015, we changed our name to Ionis Pharmaceuticals, Inc. from Isis Pharmaceuticals, Inc. Our principal offices are in Carlsbad, California. We make available, free of charge, on our website, www.ionispharma.com, our reports on Forms 10-K, 10-Q, 8-K and amendments thereto, as soon as reasonably practical after we file such materials with the Securities and Exchange Commission. Any information that we include on or link to our website is not a part of this report or any registration statement that incorporates this report by reference. You may also read and copy our filings at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-732-0330. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
In December 2014, we formed Akcea Therapeutics, Inc., as a Delaware corporation, with its principal office in Cambridge,Boston, Massachusetts. Prior to Akcea’s initial public offering, or IPO, in July 2017, we owned 100 percent of Akcea’s stock. After Akcea’s IPO,At December 31, 2019, we owned approximately 6876 percent of Akcea.Akcea’s stock.
IONIS PHARMACEUTICALS, INC.
FORM 10-K
For the Fiscal Year Ended December 31, 20172019
| PART I | | |
| | | Page |
| Item 1. | Business | 4 |
| Item 1A. | Risk Factors | 3740 |
| Item 1B. | Unresolved Staff Comments | 4652 |
| Item 2. | Properties | 4652 |
| Item 3. | Legal Proceedings | 4652 |
| Item 4. | Mine Safety Disclosures | 4652 |
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| PART II | | |
| | | |
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 4653 |
| Item 6. | Selected Financial Data | 4755 |
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4856 |
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 6970 |
| Item 8. | Financial Statements and Supplementary Data | 6970 |
| Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 6970 |
| Item 9A. | Controls and Procedures | 6970 |
| Item 9B. | Other Information | 7173 |
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| PART III | | |
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| Item 10. | Directors, Executive Officers and Corporate Governance | 7173 |
| Item 11. | Executive Compensation | 7173 |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 7173 |
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 7173 |
| Item 14. | Principal Accounting Fees and Services | 7173 |
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| PART IV | | |
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| Item 15. | Exhibits, Financial Statement Schedules | 7274 |
| | | |
| Signatures | | 82 |
PART I
Item 1. Business
Overview
We are leadersa leader in discovering and developing RNA-targeted therapeutics. We have created an efficient and broadly applicable drug discovery platform leveraging our expertise in antisense oligonucleotide therapeutics. Using this platform,therapeutics that we have developed abelieve has fundamentally changed medicine and transformed the lives of people with devastating diseases. Our large, diverse and advancedadvancing pipeline of potentiallyhas over 40 potential first-in-class and/or best-in-class drugs that we believe can provide high value for patients with significant unmet medical needs. In this way, we believe we are fundamentally changing medicine with the goalmedicines designed to transform the lives of those suffering from severe, often life-threatening, diseases.
We made significant progress toward this goal with the commercial launch of SPINRAZA (nusinersen) for the treatment of spinal muscular atrophy, or SMA, in pediatric and adult patients. SMA is a leading genetic cause of death in infants marked by progressive, debilitating muscle weakness. SPINRAZA became the first and only approved drug to treat people with SMA and is now the standard of care for this debilitating disease. Our partner, Biogen, is responsible for global commercial activities. In January 2018, Biogen reported that SPINRAZA was available in over 30 global markets. Additionally, Biogen is continuing to purse regulatory approvals for SPINRAZA in countries around the world. In 2017, we earned $113 million in commercial revenue from SPINRAZA royalties. We also earned a $50 million milestone payment for the EU approval of SPINRAZA and a $40 million milestone payment for SPINRAZA pricing approval in Japan.
Our pipeline also contains two near-term, potentially transformative medicines for two different severe and rare diseases, each with significant commercial potential, inotersen and volanesorsen. We believe inotersen has the potential to become the preferred treatment option for many people with hereditary TTR amyloidosis, or hATTR. Our goal is to free these people from the burden of their disease. hATTR is a debilitating, progressive, fatal disease in which patients experience a progressive buildup of amyloid plaque deposits in tissues throughout the body. In May 2017, we reported positive top-line data from our Phase 3 study of inotersen, NEURO-TTR, in patients with hATTR with polyneuropathy. More than half of these patients also have cardiomyopathy. We are advancing inotersen to the market based on the positive data from our NEURO-TTR study. In November 2017, we filed for marketing authorization for inotersen to treat people with hATTR in the U.S. and EU. The Food and Drug Administration, or FDA, accepted the inotersen New Drug Application, or NDA, for Priority Review and set a Prescription Drug User Fee Act, or PDUFA, date of July 6, 2018. The European Medicines Agency, or EMA, also granted accelerated assessment to inotersen, which may reduce standard review time. We are on track in our pre-commercial preparations for a potential launch in mid-2018, if inotersen is approved. Our goals for inotersen are to maximize the commercial potential of the drug, maximize our commercial participation and continue to build our TTR franchise by moving IONIS-TTR-LRx forward rapidly. We plan to commercialize inotersen in North America ourselves and to seek a commercial partner in other geographic regions.
Akcea Therapeutics, Inc., or Akcea, our affiliate focused on developing and commercializing drugs for serious cardiometabolic diseases caused by lipid disorders, is working closely with us to develop volanesorsen to treat two severe and rare, genetically defined diseases, familial chylomicronemia syndrome, or FCS, and familial partial lipodystrophy, or FPL. FCS and FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms and a high risk of life-threatening pancreatitis. We estimate that FCS and FPL each affect 3,000 to 5,000 people globally. The clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. In the first quarter of 2017, we and Akcea reported positive Phase 3 data from the APPROACH study in patients with FCS. In December 2016, we and Akcea reported positive results from the Phase 3 COMPASS study in patients with triglycerides above 500 mg/dL. Based on the positive data from our Phase 3 studies, Akcea filed for marketing authorization for volanesorsen in the U.S., EU and Canada in the third quarter of 2017. The FDA set a PDUFA date of August 30, 2018 for volanesorsen and an advisory committee meeting is scheduled for May 10, 2018. Volanesorsen was granted Priority Review in Canada. Akcea is on track in its pre-commercial preparations for a potential launch in mid-2018, if volanesorsen is approved.
In addition to preparing to commercialize volanesorsen, Akcea is focused on developing and commercializing three other clinical-stage drugs for serious cardiometabolic diseases caused by lipid disorders: AKCEA-APO(a)-LRx, AKCEA-ANGPTL3-LRx and AKCEA-APOCIII-LRx, each of which could potentially treat multiple patient populations. Moving these drugs into Akcea allows us to retain substantial value from them and ensures our core focus remains on innovation. Akcea completed its initial public offering, or IPO, and a concurrent private placement with Novartis in July 2017, raising over $180 million in net proceeds. As a result of Akcea’s IPO and as of February 2018, we owned approximately 68 percent of Akcea.
We are addressingaddress a broad spectrum of diseases that affect millions of people,therapeutic areas, such as cardiovascular disease, clotting disorders, Alzheimer’sneurodegenerative diseases, cardiometabolic diseases, cancer and Parkinson’s disease.others. The medicines in our pipeline address patients with diseases ranging from rare to common.
In 2019, we achieved important goals across our business, including advancing four new medicines into pivotal studies. We also are addressing rare diseases,reported positive clinical proof-of-concept results from five medicines, four of which were LICA medicines. We advanced and grew our pipeline of unpartnered medicines, which we call our Ionis-owned pipeline. In addition, we made significant progress across the rest of our pipeline by advancing numerous medicines into earlier stages of development, six of which were Ionis-owned medicines. In 2019, we also broadened the scope of our antisense technology by investing in complementary technologies such as acromegaly, amyotrophic lateral sclerosis, beta-thalassemia new LICA strategies to address more organ systems and Huntington’s disease.cell types and technologies to potentially identify novel targets to ensure continued pipeline growth. These accomplishments enabled us to achieve revenues in excess of $1.1 billion, net income of nearly $300 million and a year-end cash balance of $2.5 billion.
This year we plan to use our financial strength to invest fully in those areas of the business that we believe have the greatest potential to create value for patients and shareholders. By the end of this year, we plan to have six pivotal studies underway and report clinical proof-of-concept data for six or more medicines. We also plan to expand the reach of our antisense technology by optimizing additional routes of administration, such as oral and pulmonary for which we expect clinical data this year. Additionally, this year, we are continuing to advance our mid-stage drugs in development, which haveprioritize the potential to enter late-stage clinical developmentgrowth and progress toward the market over the next several years, like IONIS-HTTRx. IONIS-HTTRx is the first drug in clinical development to target the cause of Huntington’s disease, or HD, by reducing the production of toxic mutant huntingtin, or mHTT, protein. In December 2017, following successful completion of the Phase 1/2 study in which IONIS-HTTRx demonstrated dose-dependent reductions of the mHTT protein in patients with HD, Roche licensed IONIS-HTTRx for $45 million. We plan to report data from this Phase 1/2 study in early 2018. We have also initiated an open-label extension, or OLE, study for people who participated in the Phase 1/2 study. Roche is now responsible for all IONIS-HTTRx development, regulatory and commercialization activities and costs.
The depthadvancement of our knowledgeIonis-owned pipeline. Building on our achievements in 2019, we believe that continued advances in our pipeline and expertise with antisense technology together withwill enable us to achieve our strong financial position, provides us withgoal of 10 or more new drug applications through the flexibilityend of 2025.
Our goal is to determine the optimal development and commercialization strategy for each medicine in our pipeline, while ensuring we remain focused on innovation and delivering substantial value for patients in need and shareholders. With this goal firmly in mind, this year we plan tofurther develop our commercial strategy and capabilities to ensure we maximize the near and longer-term value of each of our drugs.medicines.
By building on our strong foundation and continuing to focus on our strategic priorities, we believe we are achieving our vision of becoming one of the most successful and innovative companies in the healthcare industry. We have distinct partneringintend to continue to pursue our vision by executing on our strategic priorities: advancing our Ionis-owned pipeline, further developing our commercial strategies that we employ based onand capabilities, and expanding the specific drug, therapeutic area and expertise and resourcesreach of our potential partners may bring to the collaboration. For some drugs, we may choose to develop and commercialize them through wholly owned subsidiaries or majority owned affiliates like Akcea. In general, these are drugs, like volanesorsen, that we have the internal expertise to advance, that have a clear development path with manageable costs and that have the potential for initial rare disease indications. For other drugs, we may form partnerships that enable us to leverage our partner’s global expertise and resources needed to support large commercial opportunities, as we did with Bayer and Novartis.antisense technology.
We have established alliances with a cadre of leading global pharmaceutical companies that are working alongside usthree commercial medicines approved in developing our drugs, advancing our technologymajor markets around the world, SPINRAZA, TEGSEDI and preparing to commercialize our products. Our partners bring substantial resources and expertise that augment and build upon our internal capabilities.WAYLIVRA. We have strategic partnershipsfour drugs in pivotal studies, tominersen (formerly IONIS-HTTRx) for Huntington’s disease, tofersen for SOD1-ALS, AKCEA-APO(a)-LRx for cardiovascular disease, or CVD, and AKCEA-TTR-LRx for all forms of TTR amyloidosis, or ATTR. Our goal is to start up to five additional pivotal studies before the end of 2021.
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 December 31, 2019, more than 10,000 patients were on SPINRAZA therapy in markets around the world. Additionally, as of December 31, 2019, SPINRAZA is approved in over 50 countries with formal reimbursement in 40 countries. Through December 31, 2019, we have earned more than $1 billion in revenues from our SPINRAZA collaboration, including more than $640 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 AstraZenecaCanada for the treatment of patients with polyneuropathy caused by hereditary TTR amyloidosis, or hATTR, a debilitating, progressive, and fatal disease. Akcea, our majority-owned affiliate 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. TEGSEDI is commercially available in more than 10 countries. Akcea plans to expand the global launch of TEGSEDI by launching in additional countries. In Latin America, PTC Therapeutics, or PTC, through whichits exclusive license from Akcea, is launching TEGSEDI in Brazil and is working towards access in additional Latin American countries.
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. Akcea launched WAYLIVRA in the EU in the third quarter of 2019 and is leveraging its 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 with potential approval in 2020.
As a result of our business achievements, we can broadly expand our drug discovery efforts to new disease targetsgenerated more than $1 billion in specific therapeutic areas.revenues in 2019 and $294 million of net income. We also have partnerships with Bayer, GSK, Janssen,earned $352 million of commercial revenue and $770 million in research and development revenue, including significant license fees for two LICA medicines. First, we earned a $150 million license fee from Novartis and Roche. Eachwhen Akcea licensed AKCEA-APO(a)-LRx in the first quarter of these companies brings significant expertise and global resources to develop and potentially commercialize2019. Additionally, in the drugs under these partnerships. In January 2017, we andfourth quarter of 2019, Akcea initiated a collaboration with NovartisPfizer for the license of AKCEA-ANGPTL3-LRx to treat people with cardiovascular and metabolic diseases. Akcea received a $250 million upfront license fee, of which we recognized nearly all into revenue in the fourth quarter of 2019.
Our Marketed Medicines – Transformational Medicines Bringing Value to Patients Today
SPINRAZA – SPINRAZA (nusinersen) injection for intrathecal use is a survival motor neuron-2, or SMN2, directed antisense medicine indicated for the treatment of SMA in pediatric and adult patients.
SPINRAZA is a global foundation-of-care for the treatment of patients of all ages with SMA. Biogen, our partner responsible for commercializing SPINRAZA worldwide, reported that as of December 31, 2019, more than 10,000 patients were on SPINRAZA therapy in markets around the world. Additionally, as of December 31, 2019, SPINRAZA is approved in over 50 countries with formal reimbursement in 40 countries.
SMA is characterized by loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Ultimately, if untreated, individuals with the most severe type of SMA, infantile-onset, or Type 1, SMA, can become paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. Due to a loss of, or defect in, the SMN1 gene, people with SMA do not produce enough SMN protein, which is critical for the maintenance of motor neurons. The severity of SMA correlates with the amount of SMN protein a patient can produce on his/her own. Patients with Type 1 SMA produce very little SMN protein and do not achieve the ability to sit without support or live beyond two years without respiratory support. Patients with later-onset, or Type 2 or Type 3 SMA, suffer from less severe forms of the disease. These patients produce greater amounts of SMN protein, but also experience progressive degeneration due to the disease.
The approval of SPINRAZA was based on safety and efficacy data from multiple clinical studies, including two randomized, placebo-controlled Phase 3 studies, ENDEAR, in patients with infantile-onset SMA, and CHERISH, in patients with later-onset SMA as well as from SHINE, an ongoing OLE study for patients with SMA who participated in prior SPINRAZA studies.
For over five years, Biogen has been conducting the Phase 2 open-label NURTURE study, the first study investigating a treatment targeting the underlying cause of SMA in infants with the genetic diagnosis of SMA (most likely to develop SMA Type 1 or 2) treated pre-symptomatically.
Biogen is also conducting DEVOTE, a Phase 2/3 study evaluating the safety and commercialize AKCEA-APO(a)-LRxpotential to achieve increased efficacy with a higher dose of SPINRAZA compared to the currently approved dose. We and AKCEA-APOCIII-LRx. As a leaderBiogen believe that the favorable safety and tolerability profile of SPINRAZA that has been observed in over 10,000 patients now on SPINRAZA treatment supports the potential to evaluate higher dosing. Biogen plans to enroll SMA patients of all ages, including adults, in the cardiovascular disease space, Novartis brings significant resourcesDEVOTE study.
In all clinical studies, SPINRAZA demonstrated a favorable safety profile. The most common side effects of SPINRAZA included lower respiratory infection, fever, constipation, headache, vomiting, back pain, and expertisepost-lumbar puncture syndrome. For additional safety information, please see www.spinraza.com (Any information that should supportis included on or linked to this website is not part of this report or any registration statement or report that incorporates this report by reference).
TEGSEDI – TEGSEDI (inotersen) injection is an RNA-targeted medicine designed to reduce the development and commercializationproduction of these two drugs for significant high-risk patient populations. The collaboration with Novartis should enable usTTR protein that we licensed to accelerate the development of these drugs for broader patient populations as NovartisAkcea in March 2018.
TEGSEDI is commercially available in more than 10 countries. Akcea plans to conduct a cardiovascular outcomes study for each of these drugs following successful completion of Phase 2 dose-ranging studies. In addition, Akcea has the right to co-commercialize these drugs using its specialized sales force focused on lipid specialists in select markets. We also form early stage research and development partnerships that allow us to expand the applicationglobal launch of our technologyTEGSEDI, by launching in additional countries. In Latin America PTC is launching TEGSEDI in Brazil and is working towards access in additional Latin American countries. The FDA approved TEGSEDI for the treatment of the polyneuropathy of hereditary transthyretin-mediated amyloidosis in adults in October 2018. TEGSEDI is also approved in the EU, Canada and Brazil for the treatment of stage 1 or stage 2 polyneuropathy in adult patients with hereditary transthyretin amyloidosis.
TTR amyloidosis that is the result of inherited mutations in the TTR gene is referred to new therapeutic areas. as hereditary ATTR, or hATTR. There are an estimated 50,000 people worldwide with hATTR. There are two primary manifestations of hATTR: polyneuropathy and cardiomyopathy. Many people with hATTR often experience both manifestations, but often one manifestation or the other is diagnosed first and is more pronounced.
In people with hATTR, both the mutant and wild type, or wt, TTR protein builds up as fibrils in the tissues, such as peripheral nerves, heart, gastrointestinal system, eyes, kidneys, central nervous system, thyroid and bone marrow. The presence of TTR fibrils interferes with the normal function of these tissues. As the TTR protein fibrils enlarge, more tissue damage occurs and the disease worsens, resulting in poor quality of life and eventually death. We designed TEGSEDI to reduce the production of the TTR protein, the underlying cause of hATTR.
Polyneuropathy due to hATTR is caused by the accumulation of misfolded mutated TTR protein in the peripheral nerves. People with polyneuropathy due to hATTR experience ongoing debilitating nerve damage throughout their body resulting in the progressive loss of sensation in the extremities that advances centrally, and loss of motor functions, such as walking. These people also accumulate TTR in other major organs, which progressively compromises their function and eventually leads to death within five to 15 years of disease onset.
People without mutations in the TTR gene can also develop ATTR, often referred to as wild-type, or wt-ATTR. This non-hereditary form of the disease results from normal, non-mutant, TTR protein forming fibrils, primarily in the heart. It is estimated that more than 200,000 people worldwide have wt-ATTR. People with hATTR cardiomyopathy and wt-ATTR experience ongoing debilitating heart damage resulting in progressive heart failure, which results in death within three to five years from disease onset.
The approvals of TEGSEDI were based on results from the Phase 3 NEURO-TTR study in patients with hATTR amyloidosis with stage 1 and stage 2 polyneuropathy. Results from that study demonstrated that patients treated with TEGSEDI experienced significant benefit compared to patients treated with placebo across both co-primary endpoints: the Norfolk Quality of Life Questionnaire-Diabetic Neuropathy, or Norfolk QoL-DN, and modified Neuropathy Impairment Score +7, or mNIS+7, a measure of neuropathic disease progression. In July 2018, the final results from the NEURO-TTR pivotal study were published in The New England Journal of Medicine.
We identified thrombocytopenia and safety signals related to renal function during the study. We implemented enhanced monitoring during the study to support early detection and management of these issues. Serious platelet and renal events were infrequent and manageable with routine monitoring, which has proven effective since implementation.
We are also conducting an ongoing OLE study in patients with hATTR treated with TEGSEDI. This study is intended to evaluate the long-term efficacy and safety profile of TEGSEDI. We have observed that the benefits TEGSEDI demonstrated in the NEURO-TTR study continued in the OLE.
The product label for TEGSEDI in the U.S. has a boxed warning for thrombocytopenia and glomerulonephritis and requires periodic blood and urine monitoring. TEGSEDI has a Risk Evaluation and Mitigation Strategy, or REMS, program. For example, under our collaborationTEGSEDI’s full prescribing information, including boxed warnings, please see www.tegsedi.com (Any information that is included on or linked to this website is not part of this report or any registration statement or report that incorporates this report by reference).
WAYLIVRA – WAYLIVRA (volanesorsen) is an antisense medicine designed to treat people with Janssen,rare, hereditary diseases characterized by extremely elevated triglyceride levels and a high risk of life-threatening pancreatitis, such as FCS and familial partial lipodystrophy, or FPL, that we licensed to Akcea.
Akcea launched WAYLIVRA in the EU in the third quarter of 2019 and is leveraging its existing commercial infrastructure in Europe to market WAYLIVRA. Akcea also plans to launch WAYLIVRA in Latin America through its exclusive license agreement with PTC if WAYLIVRA is approved by ANVISA. WAYLIVRA received conditional marketing authorization from the EC in May 2019 as an adjunct to diet in adult patients with genetically confirmed FCS and at high risk for pancreatitis. In August 2019, Akcea launched WAYLIVRA in Germany and preparations are underway to launch in additional countries this year.
In August 2018, we received a complete response letter, or CRL, from the Division of Metabolism and Endocrinology Products of the FDA regarding the NDA for WAYLIVRA. In November 2018, we received a Notice of Noncompliance withdrawal letter, or NON-W, from Heath Canada for WAYLIVRA. Our goal is to refile the NDA for WAYLIVRA with the FDA this year.
FCS and FPL, are each estimated to affect 3,000 to 5,000 people worldwide. FCS can lead to many chronic health issues including severe, recurrent abdominal pain, fatigue, high risk of life-threatening pancreatitis and abnormal enlargement of the liver or spleen as a result of these patients’ severely elevated blood triglyceride levels. In addition, people with FCS are often unable to work, adding to their disease. In severe cases, patients can have bleeding into the pancreas, serious tissue damage, infection and cyst formation, as well as damage to other vital organs such as the heart, lungs and kidneys. People with FPL typically have diabetes and other metabolic abnormalities, including elevated triglycerides, which increases their risk of pancreatitis.
WAYLIVRA acts to reduce triglyceride levels by inhibiting the production of apolipoprotein C-III, or apoC-III, a protein that is a key regulator of triglyceride levels. People who have low levels of apoC-III or reduced apoC-III function have lower levels of triglycerides and a lower incidence of CVD. By inhibiting the production of apoC-III, WAYLIVRA is able to reduce triglyceride levels in people with high levels of triglycerides.
The conditional marketing authorization for WAYLIVRA is based on results from the Phase 3 APPROACH study and the ongoing APPROACH OLE study and supported by results from the Phase 3 COMPASS study. The pivotal APPROACH study was a one-year, randomized, placebo-controlled study in 66 patients with FCS (average baseline triglycerides of 2,209 mg/dL, or 25.0 mmol/L). The study achieved its primary endpoint of reduction in triglycerides at three months, with a 77 percent mean reduction in triglycerides, which translated into a 1,712 mg/dL (19.3 mmol/L) mean absolute triglyceride reduction in WAYLIVRA-treated patients. We observed 50 percent of treated patients achieved triglyceride levels below 500 mg/dL, a commonly accepted threshold for pancreatitis risk. In addition, treatment with WAYLIVRA was associated with a statistically significant reduced rate of pancreatitis attacks in the group of patients who had the highest incidence of pre-study pancreatitis and reduced abdominal pain in patients reporting pain before treatment in the study. In August 2019, the final results from the APPROACH pivotal study were published in The New England Journal of Medicine.
The most common adverse events in the APPROACH study were injection site reactions and reductions in platelet levels. For important safety information for WAYLIVRA, including method of administration, special warnings, drug interactions and adverse drug reactions, please see the European Summary of Product Characteristics at: www.waylivra.eu. (Any information that is included on or linked to this website is not part of this report or any registration statement or report that incorporates this report by reference).
In August 2019, we reported top line results from the BROADEN study of WAYLIVRA in FPL. BROADEN is a randomized, double blind, placebo-controlled study of 300mg of WAYLIVRA administered by a subcutaneous injection in patients with FPL. In the study, WAYLIVRA met its primary endpoint demonstrating a statistically significant reduction in triglyceride levels. WAYLIVRA also met a key secondary endpoint with a statistically significant reduction in liver fat. The most common adverse events observed in WAYLIVRA-treated patients were mild or moderate in severity and included injection site reactions, cold-like symptoms, urinary tract infection, and reductions in platelet levels. Patients in the BROADEN study were also eligible to enroll into an OLE study upon completing dosing in the pivotal study.
An OLE study is ongoing for patients with FCS who have completed or meet the study criteria for the APPROACH and COMPASS studies. Additionally, we have licensed IONIS-JBI1-2.5Rxexpanded access programs, or EAPs, for WAYLIVRA.
See our separate section below where we further discuss Akcea, our majority-owned affiliate focused on developing and IONIS-JBI2-2.5Rx, two antisense drugs we discoveredcommercializing medicines to treat autoimmune disorders in the gastrointestinal, or GI, tract. Our collaboration with Janssen combines our RNA-targeted technology platform and Janssen’s expertise in autoimmune disorders and therapeutic formulation. Lastly, we also work with a group of companies that can develop our drugs and utilize our technologies outside our primary areas of focus. We refer to these companies as satellite companies.
Through our partnerships, we have created a broad and sustaining base of research and development, or R&D, revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Our R&D revenue has consistently grown year over year since 2011. In 2017, we earned $386 million in R&D revenue. Moreover, we have the potential to earn over $13 billion in future milestone payments and licensing fees from our current partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through royalty arrangements. In late 2016, we began adding commercial revenue from SPINRAZA royalties to our existing R&D revenue base. Looking forward, we have the potential to increase our commercial revenue from SPINRAZA royalties from the continued growth we expect in the U.S., EU and in other markets globally. We also have the potential to further increase our commercial revenue with volanesorsen and inotersen. We believe we have the key elements in place to achieve sustained, long-term financial growth, with multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages our partner resources; and an innovative drug discovery technology platform that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.
Recent Pipeline and Technology Highlights
| ● | SPINRAZA for SMA – one of the most successful orphan drug launches in history
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| o | SPINRAZA, commercialized by Biogen, generated 2017 global sales of $884 million |
| o | Results from the ENDEAR study and CHERISH study, in which people with infantile-onset and later-onset SMA, respectively, were treated with SPINRAZA, were published in The New England Journal of Medicine
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| o | Prestigious 2017 Prix Galien USA Award for Best Biotechnology Product awarded to us and Biogen for SPINRAZA |
| o | New collaboration with Biogen initiated to discover new antisense drugs with enhanced properties to treat SMA |
| ● | Inotersen for hATTR – potential to transform the lives of people with hATTR |
| o | Marketing applications accepted, no FDA Advisory Committee recommended, Priority Review in the U.S. and Accelerated Assessment in the EU |
| o | Preparations for global launch, planned for mid-2018, progressing
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| o | Phase 3 NEURO-TTR study met both primary endpoints demonstrating benefit compared to placebo in multiple measures of quality of life and disease severity; 50 percent of inotersen-treated patients experienced improvement from baseline in quality of life |
| ● | Volanesorsen for FCS and FPL – potential first treatment for people with FCS |
| o | Marketing applications accepted in the U.S., EU and Canada with Promising Innovative Medicine designation in the UK and Priority Review in Canada |
| o | Preparations for global launch for FCS, planned for mid-2018, progressing |
| o | Phase 3 APPROACH study met primary endpoint of reducing triglyceride levels in people with FCS |
| ● | Pipeline Programs (early and mid-stage) – advancing wholly owned and partnered programs
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| o | Positive results from seven Phase 2 studies reported, including: |
o Positive data from Phase 1/2 study of IONIS-STAT3-2.5Rx in combination with AstraZeneca’s Imfinzi reported for people with headserious and neck cancerrare diseases.
| o | Robust, dose-dependent reductions of mHTT observed in people with Huntington’s disease treated with IONIS-HTTRx
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| o | Positive clinical data on five LICA drugs reported, demonstrating consistent, positive performance and sustained target reduction with potential for monthly or less frequent dosing |
| o | Positive results from six Phase 1 studies reported |
| o | Nine Phase 2 studies and four Phase 1 studies initiated across multiple therapeutic areas to treat people with both broad and rare diseases |
Drug Discovery and Development
Introduction to Drug Discovery
Proteins are essential working molecules in a cell. Almost all human diseases result from inappropriate protein production, improper protein activity or loss of a protein. Scientists use traditional drug discovery methods to design drugs to interact with the proteins in the body that are supporting or causing a disease. Antisense drugs are different from traditional small molecule or antibody drugs because antisense drugsmedicines can modify the production of proteins by targeting RNAs. In this way, antisense drugsmedicines can reduceinhibit the production of a disease-causing protein, modify the protein produced or increase the production of a protein that, when absent, causes disease.diseases. Antisense drugsmedicines also can treat diseasediseases by targeting and reducing RNAs that may be causing diseasediseases (so called “toxic RNAs”). RNAs are naturally occurring molecules in the body that primarily act as messengers that carry the information the cell needs to produce proteins from the DNA/genes to the protein making complex in the cell. When our antisense drugsmedicines bind to the specific RNAs of a particular gene, they will ultimately alter the production of the protein encoded in the target gene or, in the case of disease-causing RNAs, degrade the toxic RNA.RNAs.
Our Development Projects
We are thea leader in the discovery and development of an exciting class of RNA-targeted drugsmedicines called antisense oligonucleotide, or ASO, drugs,medicines, or just antisense drugs.medicines. With our proprietary drug discovery platform, we can rapidly identify drugsmedicines from a wealth of potential targets to treat a broad range of diseases. We focus our efforts in therapeutic areas in which our drugsmedicines will work best, efficiently screening many targets in parallel and carefully selecting the best drug candidates. By combining this efficiency with our rational approach to selecting disease targets, we have built a large and diverse portfolio of drugsmedicines we designed to treat a variety of health conditions, with an emphasis on severe andsuch as cardiometabolic diseases, neurodegenerative diseases, cancer, rare diseases including neurodegenerative diseases, cardiometabolic diseases, and cancer.others. We are developing antisense drugsmedicines for systemic and local delivery (e.g., subcutaneous, intrathecal, for CNS diseases, intraocular, for ophthalmic diseases, oral local for gastrointestinal diseases and aerosol for diseases of the lung)aerosol).
We expectplan to continue to add new drugsinvestigational medicines to our pipeline, building a broad proprietary portfolio of drugsmedicines to treat many diseases and creating opportunities to continue to generate substantial revenue. We also continue to improve our scientific understanding of our drugs,medicines, including how our drugsmedicines impact the biological processes of the diseases we target.
With our expertise in discovering and characterizing novel antisense drugs,medicines, our scientists can optimize the properties of our antisense drugs for use withmedicines against each particular targets.target. Our scientists have made significant advances in chemical modifications we use in our antisense drugs,medicines, such as with our Generation 2+ antisense drugs,medicines, which have increased potency and an improved side effect profile over our earlier generation drugs.medicines. Our scientists have further improved upon our second-generation chemistry with our Generation 2.5 chemistry, an advancement that further increases the potency of our drugs,medicines, which broadens the organs and tissues in which our drugsmedicines can work. We currently have nine19 Generation 2.5 drugsmedicines in development, and we expectanticipate that more of our future drugsmedicines will incorporate our Generation 2.5 chemistry.
In addition to improving the chemical foundation of our drugs,medicines, we have also created LIgand-Conjugated Antisense, or LICA, technology, which we design to enhance the effective uptake and activity of our drugsmedicines in particular tissues.
With our LICA technology we attachedattach specific chemical structures or molecules to our antisense drugs.medicines. With our first LICA conjugate, a complex sugar-like molecule called N-acetylgalactosamine, or GalNac, we have shown an increase in drugmedicinal potency from 20of up to over 30-fold for liver targets, compared to non-conjugated antisense drugs.medicines. We currently have 1216 LICA drugsmedicines in development, including IONIS-AZ4-2.5-Ltwo LICA medicines currently in Phase 3 studies, AKCEA-APO(a)-LRx a drug, for CVD and AKCEA-TTR-LRx, for all forms of ATTR. We also have four investigational medicines that combinescombine our Generation 2.5 chemistry and LICA technology.
We have utilized our chemistry advancements, such as Generation 2.5 and LICA, to expand the therapeutic and commercial opportunities of our pipeline. These advancements, along with the manufacturing and analytical processes that are the same for all of our drugs,medicines, shorten our timeline from initial concept to the first human dose, when compared to early development timelines for other drug modalities like small molecule and antibody drugs.medicines.
The above table lists the drugsmedicines in our pipeline that are in clinical trials, in registration for marketing authorization, or commercialized.pipeline. The table includes the disease indication, a partner (if the drugmedicine is partnered), and the development status of each drug. Typically,medicine.
Focusing on our key fundamental strategies has created a deep and broad pipeline of over 40 potentially first-in-class and/or best-in-class medicines that we believe have the names of our drugs incorporate the target of the drug. For example, with IONIS-HTTRx, the RNA produced from the huntingtin gene, representedpotential to deliver significant value to patients affected by the acronym HTT, is the targetdevastating diseases each medicine addresses, many of the drug. Unless indicated otherwise, the majority of the drugs in our pipeline are Generation 2+ antisense drugs. We differentiate drugs that Akcea is developing by using “AKCEA”, instead of “IONIS” at the beginning of the drug name, such as AKCEA-ANGPTL3-LRx. We differentiate our Generation 2.5 drugs by adding a “2.5” notation at the end of the drug name, such as IONIS-STAT3-2.5Rx. We differentiate our LICA drugs by adding an “L” at the end of the drug name, such as IONIS-PKK-LRx. In 2016, we added IONIS-AZ4-2.5-LRx, a drug that combines our Generation 2.5 chemistry and LICA technology, to our preclinical pipeline. As the drugs in our pipeline advance in clinical development, we will adopt nonproprietary names given to each drug from the United States Adopted Names Council. For example, volanesorsen is a nonproprietary name that we obtained for IONIS-APOCIIIRx. Once wewhich have limited or our partners establish a brand name, we will adopt the brand name. For example, SPINRAZA is the brand name for nusinersen.
no treatment options. With a pipeline as large and advanced as ours, we have a number of clinical events each year as we initiate new clinical studies, complete and report data from clinical studies, and add numerous new drugsmedicines to our pipeline. In 2018, we plan to initiate five Phase 2 studies, report data on six Phase 2 studies and multiple proof-of-concept initial clinical trials and add three to five new drugs into development.
Our Marketed DrugPhase 3 Medicines
SPINRAZA – SPINRAZA (nusinersen) injection, for intrathecal use is a survival motor neuron-2 (SMN2)-directed antisense oligonucleotide indicated for the treatment of SMA in pediatric and adult patients. In July 2016, Biogen licensed SPINRAZA from us. We have transitioned all SPINRAZA development activities to Biogen as they are now responsible for all global development, regulatory and commercialization activities and costs. In January 2018, Biogen reported that SPINRAZA was available in over 30 global markets.
SMA is characterized by loss of motor neurons in the spinal cord and lower brain stem, resulting in severe and progressive muscular atrophy and weakness. Ultimately, individuals with the most severe type of SMA, infantile-onset SMA, can become paralyzed and have difficulty performing the basic functions of life, like breathing and swallowing. Due to a loss of, or defect in, the SMN1 gene, people with SMA do not produce enough survival motor neuron, or SMN, protein, which is critical for the maintenance of motor neurons. The severity of SMA correlates with the amount of SMN protein a patient can produce on his/her own. Patients with infantile-onset, or Type 1, SMA, the most severe life-threatening formAs of the disease, produce very little SMN protein and do not achieve the ability to sit without support or live beyond two years without respiratory support. Patients with later-onset, or Type 2 or Type 3 SMA, produce greater amountsend of SMN protein and2019, we have less severe, but still life-altering, forms of SMA.
SPINRAZA is administered via intrathecal injection, which delivers therapies directly to the cerebrospinal fluid, or CSF, around the spinal cord, where motor neurons degeneratefour medicines in people with SMA due to insufficient levels of SMN protein.
The safety and efficacy of SPINRAZA has been evaluated from multiple clinical studies in more than 270 patients, including twopivotal Phase 3 studies: ENDEAR, a randomized controlled study evaluating SPINRAZA in patients with infantile-onset SMA, and CHERISH, a randomized controlled study evaluating SPINRAZA in patients with later-onset SMA; as well as open-label studies in pre-symptomatic and symptomatic patients with, or likely to develop, Types 1, 2 and 3 SMA.
In the ENDEAR end of study analysis, or EOS, a statistically significant greater percentage of children with infant-onset SMA achieved improvement in motor milestones compared to untreated patients, with some infants in the SPINRAZA group achieving full head control, the ability to roll, sitting, and standing. Additionally, infants treated with SPINRAZA demonstrated a statistically significant improvement in event-free survival compared to untreated patients. In November 2017, results from EOS analysis, from the ENDEAR study, including the pre-specified primary endpoint, time to death or permanent ventilation, were published in The New England Journal of Medicine. SPINRAZA met the pre-specified primary endpoint at the ENDEAR EOS, demonstrating a statistically significant 47 percent reduction in the risk of death or permanent ventilation (p<0.01). In October 2017, Biogen presented a new analysis from the Phase 3 ENDEAR study that showed infants with SMA who initiated treatment earlier in the disease demonstrated greater benefit and improvement in motor function outcomes.
In the CHERISH pre-specified interim analysis, there was a statistically significant and clinically meaningful improvement in motor function in children with later-onset SMA treated with SPINRAZA compared to untreated children. In an EOS analysis, children receiving SPINRAZA experienced a highly statistically significant improvement in motor function compared to those who did not receive treatment. The New England Journal of Medicine published these results in February 2018.
Additionally, Biogen conducted NURTURE, a Phase 2 open-label study in pre-symptomatic infants. In an interim analysis, SPINRAZA-treated pre-symptomatic infants with SMA achieved motor milestones in timelines more consistent with normal development than what is observed in the natural history of patients with Type 1 SMA. At the time of the interim analysis, all patients were alive and did not require respiratory intervention. Three infants experienced AEs considered possibly related to SPINRAZA, all of which were resolved.
Further, in open-label studies, some patients achieved milestones that they would not be expected to achieve, such as the ability to sit unassisted, stand or walk, and maintained milestones at ages that they would expect to lose. The overall findings in the combined clinical studies to date support the effectiveness of SPINRAZA across the range of patients with SMA, and appear to support the early initiation of treatment.
In all clinical studies, SPINRAZA demonstrated a favorable safety profile. The most common side effects of SPINRAZA included lower and upper respiratory infections, constipation, headache, back pain, and post-lumbar puncture syndrome. For additional safety information, please see www.spinraza.com.
Our Drugs Under Regulatory Review for Marketing Authorization
We have two drugs for which we successfully completed pivotal Phase 3 studies and are now under regulatory review for marketing authorization: inotersen and volanesorsen. These drugs are potentially transformative medicines for two different severe and rare diseases, each with significant commercial potential.
Inotersen – Inotersen is a Generation 2+ antisense drug we designed to treat people with hereditary TTR amyloidosis, or hATTR, a rare, progressive, fatal disease.
In people with hATTR, both the mutant and wild type, or wt, TTR protein builds up as fibrils in the tissues, such as peripheral nerves, heart, gastrointestinal system, eyes, kidneys, central nervous system, thyroid and bone marrow. The presence of TTR fibrils interferes with the normal function of these tissues. As the TTR protein fibrils enlarge, more tissue damage occurs and the disease worsens, resulting in poor quality of life and eventually death. We designed inotersen to reduce the production of the TTR protein, the underlying cause of ATTR. Inotersen is administered as a once weekly, self-administered, at-home, subcutaneous injection.
TTR amyloidosis that is the result of inherited mutations in the TTR gene is referred to as hATTR. There are an estimated 50,000 people worldwide with hATTR. There are two primary manifestations of hATTR: polyneuropathy and cardiomyopathy. Many people with hATTR often experience both manifestations, but often one symptom or the other is diagnosed first and is more pronounced. Polyneuropathy due to hATTR is caused by the accumulation of misfolded mutated TTR protein in the peripheral nerves. People with polyneuropathy due to hATTR experience ongoing debilitating nerve damage throughout their body resulting in the progressive loss of sensation in the extremities that progresses centrally, and progressive loss of motor functions, such as walking. These people also accumulate TTR in other major organs, which progressively compromise their function and eventually leads to death within five to fifteen years of disease onset. ATTR cardiomyopathy is caused by the accumulation of misfolded TTR protein in the cardiac muscle. ATTR can also result from normal, non-mutant, TTR protein forming fibrils, primarily in the heart. This form of the disease is referred to as wt-ATTR. It is estimated that more than 200,000 people worldwide have wt-ATTR. People with hATTR cardiomyopathy and wt-ATTR experience ongoing debilitating heart damage resulting in progressive heart failure, which results in death within 3 to 5 years from disease onset.
In May 2017, we completed the NEURO-TTR study, a randomized, double-blinded, placebo-controlled, international Phase 3 study in patients with polyneuropathy due to hATTR. Results from the study demonstrated benefit compared to placebo across both primary endpoints of the study: the Norfolk Quality of Life Questionnaire-Diabetic Neuropathy, or Norfolk QoL-DN, and the modified Neuropathy Impairment Score +7, or mNIS+7, at both eight and 15 months of treatment. In addition, consistent and significant benefit was observed in both the Norfolk-QoL-DN and mNIS+7, independent of disease stage, types of mutation, previous treatment with TTR protein stabilizers or presence of cardiomyopathy. Inotersen-treated patients benefited significantly in the quality of life primary endpoint with 50 percent demonstrating improvement from baseline. Inotersen-treated patients achieved a mean 11.68 point benefit in the Norfolk QoL-DN score at 15 months of treatment compared to placebo-treated patients (mean change from baseline of 0.99 vs. 12.67, p=0.0006). In addition, clinically meaningful benefit compared to placebo was observed in the SF-36 physical component score, a measure of general health and quality of life. Inotersen-treated patients also benefited significantly in the co-primary endpoint of disease control, mNIS+7, with a mean 19.73-point benefit observed after 15 months of treatment, compared to placebo-treated patients (p = 0.00000004).
Two key safety issues were identified during the study: thrombocytopenia and safety signals related to renal function. Enhanced monitoring was implemented during the study to support early detection and management of these issues. Serious platelet and renal events were infrequent and manageable with routine monitoring, which has proven effective since implementation. Other serious adverse events were observed in 24.1 percent of inotersen-treated patients and 21.7 percent of placebo-treated patients. No cumulative toxicities have been identified with long-term exposure.
Adverse events occurring in ≥ 10 percent of patients and twice as frequently in inotersen-treated patients compared with placebo-treated patients, included thrombocytopenia/platelet count decreases, nausea, pyrexia, chills, vomiting, and anemia. Injection site reactions accounted for less than 1 percent of all injections and were mild or moderate in severity. There were no discontinuations due to injection site reactions.
The overall mortality rate in the NEURO-TTR study was 2.9 percent and was lower than mortality rates reported in other studies in patients with hATTR. There was a total of five deaths in the study, five (4.7 percent) in the inotersen arm and zero in the placebo arm. Four deaths in the inotersen arm were associated with disease progression and considered unrelated to treatment. As previously reported, there was one fatal intracranial hemorrhage in conjunction with serious thrombocytopenia. No serious thrombocytopenia was observed following implementation of more frequent monitoring.
Inotersen is currently under regulatory review for marketing authorization in the U.S. and EU for the treatment of hATTR. Inotersen has been granted Priority Review by the FDA and has a PDUFA date of July 6, 2018. The EMA also granted accelerated assessment to inotersen, which may reduce standard review time. In addition, an open-label extension study, or OLE, is ongoing for patients who have completed the NEURO-TTR study, in which all patients are treated with inotersen. We have also opened an expanded access program, or EAP, for eligible patients, beginning with sites in the U.S.
We plan to commercialize inotersen in North America ourselves and to seek a commercial partner in other geographic regions.
Volanesorsen – Volanesorsen is a Generation 2+ antisense drug Akcea and we are developing to treat people with FCS and FPL, which are severe, rare, genetically defined diseases characterized by extremely elevated triglyceride levels and a high risk of life-threatening pancreatitis.
Due to the high levels of triglycerides in their blood, people with FCS may suffer from many chronic health issues including severe, recurrent abdominal pain, fatigue, high risk of life-threatening pancreatitis and abnormal enlargement of the liver or spleen. In addition, people with FCS have to adhere to a very strict, low-fat diet. As a result of these factors, people with FCS and FPL are often unable to work, adding to the burden of the disease. While all the complications of FCS or FPL cause patients to have a lower quality of life, pancreatitis is the most serious consequence of the disease. In severe cases, patients can have bleeding into the pancreas, serious tissue damage, infection and cyst formation, as well as damage to other vital organs such as the heart, lungs and kidneys. We estimate there are 3,000 to 5,000 people with FCS in treatable markets and an additional 3,000 to 5,000 people with FPL globally.
Volanesorsen acts to reduce triglyceride levels by inhibiting the production of apolipoprotein C-III, or apoC-III, a protein that is a key regulator of triglyceride clearance. People who have low levels of apoC-III or reduced apoC-III function have lower levels of triglycerides and a lower incidence of cardiovascular disease, or CVD. By inhibiting the production of apoC-III, volanesorsen is able to increase triglyceride clearance in people with FCS, reducing their triglyceride levels.
The marketing application for volanesorsen for the treatment of FCS is based on data from the Phase 3 APPROACH and COMPASS studies. The pivotal APPROACH study, a one-year, randomized, placebo-controlled study in 66 patients with FCS (average baseline triglycerides of 2,209 mg/dL, or 25.0 mmol/L), achieved its primary endpoint of reduction in triglycerides at three months, with a 77 percent mean reduction in triglycerides, which translated into a 1,712 mg/dL (19.3 mmol/L) mean absolute triglyceride reduction in volanesorsen-treated patients. Akcea observed 50 percent of treated patients achieved triglyceride levels below 500 mg/dL, a commonly accepted threshold for pancreatitis risk. In addition, in the APPROACH study, treatment with volanesorsen was associated with a statistically significant reduced rate of pancreatitis attacks in the group of patients who had the highest incidence of pre-study pancreatitis, and reduced abdominal pain in patients reporting pain before treatment in the study. The COMPASS study, a six-month randomized placebo-controlled study in 113 patients with very high triglycerides (>500 mg/dL), also achieved its primary endpoint of reduction in triglycerides at three months, with a 71 percent mean reduction in triglycerides. In the COMPASS study, treatment with volanesorsen was associated with a statistically significant reduction in on-study pancreatitis attacks.
The most common adverse event in the studies was injection site reactions, which were mostly mild. In addition, declines in platelet counts were observed in many patients and some patients discontinued the study because of platelet declines. These platelet declines were not clinically significant in most patients and were generally well managed with monitoring and dose adjustment. Some patients discontinued participation in the APPROACH study due to other non-serious adverse events, including sweating and chills, severe fatigue, rash and injection site reaction. In the APPROACH study and the open label extension study, the potentially treatment-related serious adverse events, or SAEs, observed were serious platelet events (grade 4 thrombocytopenia), which resolved without complication after cessation of dosing. Enhanced monitoring was implemented during the study to support early detection and management of these issues. Since implementation of the enhanced monitoring, serious platelet events have been infrequent. In the COMPASS study, the most common adverse event in the volanesorsen-treated group of patients was injection site reactions, which were mostly mild, and a potentially treatment-related SAE of serum sickness reaction, from which the patient fully recovered. There have been no deaths and no treatment-related bleeding or cardiovascular events in any volanesorsen clinical study.
Akcea and we continue to conduct the BROADEN study, a Phase 3 clinical trial in patients with FPL, which continues to enroll, with data expected in 2019.
An open-label extension study is ongoing for patients with FCS who have completed or meet the study criteria for the APPROACH and COMPASS studies. Patients in the BROADEN study are also eligible to roll over into an open-label extension study upon completing dosing in the pivotal study.
Volanesorsen for the treatment of FCS is currently under regulatory review for marketing authorization in the U.S., EU and Canada. Volanesorsen has a PDUFA date of August 30, 2018 and an advisory committee meeting is scheduled for May 10, 2018. Volanesorsen has been granted priority review in Canada and a Promising Innovative Medicine, or PIM, designation by the United Kingdom’s Medicines and Healthcare Products Regulatory Agency, or MHRA. The U.S. and European regulatory agencies have granted Orphan Drug Designation to volanesorsen for the treatment of people with FCS. The European regulatory agency has also granted Orphan Drug Designation to volanesorsen for the treatment of FPL. In addition, Akcea and we have an ongoing OLE study of volanesorsen in people with FCS, in which all patients are treated with volanesorsen. Akcea and we also opened an EAP for eligible patients. Our EAP program is being initiated on a country-by-country basis globally and is currently available in select countries in Europe.
Akcea plans to globally commercialize volanesorsen for both FCS and FPL, if approved.
See our separate section below where we further discuss Akcea, our commercial affiliate.
Neurological Disease Franchise
We are discovering and developing antisense drugs to treat people with inadequate treatment options for both rare and common neurological diseases. According to the National Institute of Neurological Disorders and Stroke, or NINDS, at the National Institutes of Health, or NIH, a third of the 7,000 known rare diseases are neurological disorders or thought to include a neurological component.
Ionis Neurological Disease Pipeline
SPINRAZA – See the drug description under “Our Marketed Drug” section above.
Inotersen – See the drug description under “Our Drugs Under Regulatory Review for Marketing Authorization” section above.
IONIS-HTTRx – IONIS-HTTtominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx.
Tominersen (IONIS-HTTRx or RG6042) – Tominersen is a Generation 2+an antisense drugmedicine we designed to target the underlying cause of Huntington’s Disease, or HD, by reducing the production of the toxic mHTT protein. We and Roche entered into a collaboration to develop and commercialize antisense drugs to treat HD in April 2013. Roche licensed IONIS-HTTRx from us in December 2017. Roche is now responsible for all IONIS-HTTRx development, regulatory and commercialization activities and costs, including managing the ongoing OLE and all future studies.
mutant huntingtin protein, or mHTT. HD is a rare, inherited, genetic brain disorder that results in the progressive deterioration of mental abilities and physical control. In the U.S., there are approximately 30,000 individuals with symptomatic HD and more than 200,000 people at risk of inheriting HD. The prevalence of HD is similar in other parts of the world. HD is a triplet repeat disorder and is one of a large family of genetic diseases in which the body mistakenly repeats certain gene sequences. The resulting mHTT protein is toxic and gradually damages neurons in the brain. Symptoms of HD usually appear between the ages of 30 to 50 years and continually worsen over a 10 to 25-year period. Ultimately, the weakened individual succumbs to pneumonia, heart failure or other complications. Presently, there isare no effective disease-modifying treatment, andtreatments available for HD patients, with current approachesmedicines only focus on managing the severity of some disease symptoms.
In December 2017, we announced that we hadWe completed a randomized, placebo-controlled, dose escalation, Phase 1/2a2 clinical study of IONIS-HTTRxtominersen in patients with early stage HD. Dose-dependentIn this study, we observed dose-dependent reductions of mHTT were observed among patients treated with IONIS-HTTRx, withtominersen and tominersen demonstrated a favorable safety and tolerability profile supportingprofile. In March 2018, we reported data from the study that demonstrated substantial reductions in the mHTT as observed in the cerebral spinal fluid, or CSF. The reductions in mHTT were in the target range that produced disease reversal in preclinical models of HD. The results from this study were the first to demonstrate disease-modifying potential by lowering the root cause of HD, the mHTT protein. There were no serious adverse events reported and no participants discontinued from the study. The data from this study were published in The New England Journal of Medicine in May 2019.
Following the results from the Phase 1/2 study, Roche initiated a broad clinical program including multiple studies of tominersen. Roche initiated a Phase 3 GENERATION HD1 study of tominersen. GENERATION HD1 is a randomized, multicenter, double-blind, placebo-controlled study in approximately 800 patients with HD. The GENERATION HD1 study is evaluating the efficacy and safety of bi-monthly and tri-annual dosing regimens of tominersen for 25 months of dosing. The global primary endpoint is the change from baseline in the composite Unified Huntington Disease Rating Scale, or cUHDRS, and the U.S. primary endpoint is the change from baseline in the Total Functional Capacity, or TFC.
In addition to the Phase 3 study, all participants who took part in the Phase 1/2 study continued development.to receive tominersen as part of an OLE study to assess the safety and tolerability of tominersen. In parallel with the OLE, Roche initiated a natural history study in a similar patient population to the OLE. The natural history study is planned as a 15-month natural study aimed at further understanding the role of mHTT in disease progression and includes approximately 100 participants. There is no drug treatment in the natural history study, as the goal is to understand the natural progression of HD.
In August 2018, the European Medicines Agency, or EMA, granted PRIority MEdicines scheme, or PRIME, designation to tominersen. EMA PRIME status is granted to medicines that may offer a major therapeutic advantage over existing treatments, or benefit patients without treatment options. The FDA and EMA have granted Orphan DrugMedicine Designation for IONIS-HTTRxtominersen to treat people with HD.
IONIS-SOD1Rx – We entered into a collaboration with Roche to develop and commercialize antisense medicines to treat HD in April 2013. In December 2017, Roche exercised its licensing option to develop and commercialize tominersen following the completion of a Phase 1/2 randomized, placebo-controlled, dose escalation study of tominersen in people with HD. Roche is responsible for all tominersen development, regulatory and commercialization activities and costs.
Tofersen (IONIS-SOD1Rxor BIIB067) – Tofersen is a Generation 2+an antisense drugmedicine we designed to reduceinhibit the production of superoxide dismutase 1, or SOD1, which is the besta well understood genetic cause of familial amyotrophic lateral sclerosis, or ALS. We are collaborating with Biogen to develop IONIS-SOD1Rx to treat people with an inherited form of ALS, SOD1-ALS.
ALS is a rare, fatal, neurodegenerative disorder. People with ALS suffer progressive degeneration of the motor neurons, which results in a declining quality of life and ultimately death. The second most common familial form of ALS is SOD1-ALS, in which people have a mutation in the SOD1 gene that causes a progressive loss of motor neurons. As a result, people with SOD1-ALS experience muscle weakness, loss of movement, difficulty in breathing and swallowing and eventually succumb to theirthe disease. Currently, treatment options for people with ALS are extremely limited, with no drugsmedicines that significantly slow disease progression.
Our partner Biogen conducted a Phase 1/2 study that demonstrated proof-of-biology and proof-of-concept. At the highest dose tested, treatment with tofersen over a three month period resulted in a statistically significant lowering of SOD1 protein levels in the CSF and positive numerical trends across three efficacy endpoints: slowing of clinical decline as measured by the Amyotrophic Lateral Sclerosis Functional Rating Scale, or ALSFRS, slowing of decline in respiratory function as measured by vital capacity and slowing of decline in muscle strength as measured by a handheld device, all compared to placebo. The safety and tolerability profile in this study supported the continued development of tofersen in ALS.
In March 2019, Biogen initiated and dosed the first patient in the VALOR Phase 3 clinical study of tofersen. VALOR is assessing the efficacy and safety of tofersen versus placebo. The primary endpoint of this study is an analysis based on the ALSFRS, which is a validated rating instrument that monitors the progression of disability in patients with ALS.
In December 2018, Biogen exercised its licensing option to develop and commercialize tofersen based on the positive interim analysis from the Phase 1/2 study. Following its licensing, Biogen is responsible for all tofersen development, regulatory and commercialization activities and costs.
AKCEA-TTR-LRx – AKCEA-TTR-LRxis a LICA medicine we designed to inhibit the production of transthyretin, the same protein inhibited by TEGSEDI (inotersen). There are two types of ATTR amyloidosis: hATTR amyloidosis and wt-ATTR amyloidosis. We are co-developing AKCEA-TTR-LRx with Akcea for the treatment of people with all forms of TTR amyloidosis as a once monthly self-administered subcutaneous injection. See the TEGSEDI summary under “Our Marketed Medicines” section for more information about hATTR amyloidosis and wt-ATTR amyloidosis.
In September 2019, we reported results from the Phase 1 study with AKCEA-TTR-LRx in healthy volunteers at the Heart Failure Society of America Annual Meeting. In this study, subjects treated with AKCEA-TTR-LRx achieved dose-dependent reductions of TTR protein of up to 94 percent and AKCEA-TTR-LRx demonstrated a favorable safety and tolerability profile, consistent with our other liver LICA medicines. There were no serious adverse events in AKCEA-TTR-LRx treated-subjects and no dosing interruptions due to an adverse event.
We and Akcea are evaluating IONIS-SOD1AKCEA-TTR-LRx in a broad Phase 3 program. The first of two indications we are pursuing is for the treatment of patients with polyneuropathy caused by hATTR amyloidosis. We initiated the global NEURO-TTRansform Phase 3 study for AKCEA-TTR-LRx in November 2019. NEURO-TTRansform is a multi-center, randomized, open-label study designed to evaluate the efficacy and safety of AKCEA-TTR-LRx in up to 140 patients with polyneuropathy due to hATTR amyloidosis. The current study will be compared to the historical placebo arm from the TEGSEDI (inotersen) NEURO-TTR Phase 3 study that was completed in 2017. The NEURO-TTRansform study includes multiple primary endpoints, including the percent change from baseline in serum TTR concentration, the change from baseline in the modified Neuropathy Impairment Score +7 (mNIS+7), and the change from baseline in Norfolk Quality of Life Questionnaire-Diabetic Neuropathy (Norfolk QoL-DN).
The second indication we and Akcea are pursuing is for the treatment of patients with cardiomyopathy caused by hereditary or wild-type TTR amyloidosis. In January 2020, we and Akcea initiated the global CARDIO-TTRansform Phase 3 cardiovascular outcome study. CARDIO-TTRansform is a randomized, double-blinded, placebo-controlled study in up to 750 patients with cardiomyopathy caused by hereditary or wild-type TTR amyloidosis. The CARDIO-TTRansform study includes co-primary outcome measures of cardiovascular death and frequency of cardiovascular clinical events.
AKCEA-APO(a)-LRx(TQJ230) – AKCEA-APO(a)-LRxis a LICA medicine we designed to inhibit the production of apolipoprotein(a), or Apo(a), protein in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). AKCEA-APO(a)-LRx inhibits the production of the Apo(a) protein, thereby reducing Lp(a). Elevated Lp(a) is recognized as an independent, genetic cause of CVD. It is estimated that there are more than eight million people living with CVD and elevated levels of Lp(a). Inhibiting the production of Apo(a) in the liver reduces the level of Lp(a) in blood, potentially slowing down or reversing cardiovascular disease in people with hyperlipoproteinemia(a), a condition in which individuals have levels of Lp(a) greater than 50 mg/dL.
Lp(a) is difficult to inhibit using other technologies, such as small molecules and antibodies. There are multiple genetically determined forms of the Apo(a) molecule and creating a small molecule or antibody that can interact with multiple targets is difficult. We believe antisense technology is well suited to address hyperlipoproteinemia(a) because antisense technology specifically targets the RNA that codes for all forms of the Apo(a) molecule. Furthermore, we believe addressing elevated Lp(a) is the next important horizon in lipid-focused treatment.
We reported results of the Phase 2 study with AKCEA-APO(a)-LRx in patients with hyperlipoproteinemia(a) at the American Heart Association, or AHA, annual meeting in November 2018. In this clinical study, we observed statistically significant and dose escalation, Phase 1/2dependent reductions from baseline in Lp(a) levels. Approximately 98 percent of patients who received the highest dose in the study demonstrated a reduction in Lp(a) levels to below 50 mg/dL, the recognized threshold for risk of CVD. This study of AKCEA-APO(a)-LRx was the longest and largest clinical study in patients with ALS, includingestablished CVD and elevated levels of Lp(a). This study was also the longest and largest clinical study of any of our LICA medicines. AKCEA-APO(a)-LRx demonstrated a favorable safety and tolerability profile in the study. Compliance in the study was almost 90 percent, which was higher than what we observed in the placebo group.
Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APO(a)-LRx.In February 2019, Novartis exercised its licensing option to develop and commercialize AKCEA-APO(a)-LRx. Following its licensing, Novartis is responsible for all AKCEA-APO(a)-LRx development, regulatory and commercialization activities and costs.
In December 2019,Novartis initiated the Phase 3 Lp(a)HORIZON study of AKCEA-APO(a)-LRx, a global, randomized, double-blinded, placebo-controlled outcomes study in approximately 7,500 patients with SOD1-ALS.
IONIS-MAPTelevated Lp(a) levels and a prior cardiovascular event. Patients will be treated with 80 mg of AKCEA-APO(a)-LRx administered monthly by subcutaneous injection. The primary endpoint in Lp(a)HORIZON is the time to occurrence of first major adverse cardiovascular event, or MACE.
Neurological Disease Medicines in Development
We are discovering and developing antisense medicines to treat people with inadequate treatment options for neurological diseases. Our antisense medicines aim to address both large and rare patient populations. We are currently investigating potential disease-modifying treatments for common neurological diseases including, Alzheimer’s disease and Parkinson’s disease. We have multiple investigational medicines in clinical trials for rare neurological diseases. According to the National Institute of Neurological Disorders and Stroke, or NINDS, at the National Institutes of Health, or NIH, a third of the 7,000 known rare diseases are neurological disorders or thought to include a neurological component.
IONIS’ Neurological Disease Clinical Pipeline
Tominersen – See the medicine description under “Our Phase 3 Medicines” section above.
Tofersen – See the medicine description under “Our Phase 3 Medicines” section above.
IONIS-MAPTRx (BIIB080) – IONIS-MAPTRx is a Generation 2+an antisense drugmedicine we designed to selectively reduceinhibit production of the microtubule-associated protein tau, or tau, protein in the brain. We are collaborating with Biogen to develop IONIS-MAPTRx to treat people with Alzheimer'sAlzheimer’s disease, or AD, and potentially other neurodegenerative disorders characterized by the deposition of abnormal tau protein in the brain, such as certain forms of frontotemporal dementia,degeneration, or FTD.
The tau protein tau, or MAPT, or tau, is thought to be a contributor or cause of certain neurodegenerative diseases, known as tauopathies, that are characterized by the deposition of abnormal tau protein in neurons and glianon-neuronal cells in the brain. These disorders include AD Progressive Supranuclear Palsy, or PSP, and some formsFTD are characterized predominantly by memory impairment and behavioral changes, resulting in a person’s inability to independently perform daily activities. AD generally occurs late in life and may progress to death in five to 20 years after the onset of FTD.the disease. FTD has a more rapid disease progression. There are approximately five million people living with AD in the U.S. and approximately 55,000 people affected by FTD in the U.S.
We and Biogen are evaluating IONIS-MAPTRx in a Phase 1/2a,2 double-blind, randomized, placebo-controlled, dose-escalation study to evaluate the safety and activity of once-monthly intrathecal injections of IONIS-MAPTRxin patients with mild AD. In January 2020, we completed enrollment in the Phase 1/2 study of IONIS-MAPTRx.
SevereIn December 2019, Biogen exercised its licensing option to develop and commercialize IONIS-MAPTRx. We are responsible for completing the Phase 1/2 in study patients with mild AD that we initiated in 2017 and a one-year long-term extension study that began in 2019. Biogen will have responsibility for all other studies and any further development, including regulatory and commercialization activities and costs.
IONIS-C9Rx (BIIB078) – IONIS-C9Rx is an antisense medicine we designed to selectively inhibit the production of the mutated chromosome 9 open reading frame 72, or C9ORF72, gene. A mutation in this gene results in an inherited form of ALS, referred to as C9ORF72-ALS, the most prevalent genetic cause of ALS worldwide. There is substantial evidence that this mutation can lead to rapid progressive loss of motor neurons in people with C9ORF72-ALS. This is a fatal disease characterized by muscle weakness, loss of movement, and difficulty breathing and swallowing.
We and Biogen are collaborating to develop IONIS-C9Rx to treat patients with this genetic form of ALS. In August 2018, Biogen initiated a Phase 1/2 clinical study evaluating IONIS-C9Rx in adult patients with C9ORF72-ALS. The current study is a randomized, blinded, placebo-controlled study designed to assess the safety, tolerability, and pharmacokinetics of multiple ascending doses of IONIS-C9Rx administered intrathecally. IONIS-C9Rx is the second medicine from our Biogen collaboration targeting a familial form of ALS. The first is tofersen, designed to treat SOD1 related ALS, caused by a mutation in the SOD1 gene.
ION859 (BIIB094) – ION859 is an antisense medicine we designed to inhibit the production of the Leucine Rich Repeat Kinase 2, or LRRK2, protein as a potential therapy for Parkinson’s disease, or PD. The exact cause of PD is unknown, but it is believed to be a combination of genetics and environmental factors. There are known hereditary mutations in the LRRK2 gene that cause Parkinson’s disease. The most common genetic mutation associated with PD is found in the LRRK2 gene. It is believed that increased LRRK2 protein activity could be one of the key drivers for developing PD.
PD is a progressive neurodegenerative disease characterized by loss of neurons in the motor system. Patient’s with PD can experience tremors, loss of balance and coordination, stiffness, slowing of movement, changes in speech and in some cases cognitive decline. PD is ultimately fatal. There are treatments that can relieve symptoms, but there is no disease modifying therapy.
We and Biogen are collaborating to develop ION859 to treat patients with PD. In August 2019, we initiated a Phase 1/2 clinical study evaluating ION859 in adult patients with PD. The current study is a randomized, blinded, placebo-controlled study designed to assess the safety, tolerability and pharmacokinetics of multiple ascending doses of ION859 administered intrathecally.
IONIS-DNM2-2.5Rx (DYN101) – IONIS-DNM2-2.5Rx is a Generation 2.5 antisense medicine we designed to inhibit the production of Dynamin 2, or DNM2, protein for the treatment of centronuclear myopathy, or CNM. CNM is a group of rare congenital myopathies where cell nuclei are abnormally located in the center of the skeletal muscle cells. It is characterized by muscle weakness, decreased muscle tone and muscle atrophy, ranging from severe to mild.
DNM2 reduction demonstrated improved muscle mass and muscle force, and extended lifespan in animal models of the most severe form of CNM.
We and Dynacure are collaborating to develop IONIS-DNM2-2.5Rx to treat patients with CNM. In November 2019, Dynacure initiated a Phase 1/2 clinical study evaluating IONIS-DNM2-2.5Rx in patients with CNM. The current study is an open-label study in 18 patients who are 16 years of age or older and is designed to assess the safety and tolerability of multiple doses of IONIS-DNM2-2.5Rx administered intravenously.
Cardiometabolic and Renal Disease Medicines in Development
CVD is an important area of focus for us. According to the World Health Organization, or WHO, CVD was the number one cause of death globally. An estimated 17.9 million people died from CVD in 2016, representing approximately 30 percent of all deaths globally. Our cardiovascular medicines target the key components of cardiovascular disease, including various atherogenic lipids, inflammation and thrombosis. Metabolic disorders, such as diabetes and nonalcoholic steatohepatitis, or NASH, are chronic diseases that affect tens of millions of people. According to the Centers for Disease Control and Prevention, diabetes affects more than 30 million people in the U.S., or nine percent of the population, with type 2 diabetes constituting 90 percent of those cases. There is a significant need for new therapies for these people. According to the American Liver Foundation, nonalcoholic fatty liver disease, or NAFLD, is the most common chronic liver condition in the U.S. It is estimated that about 25 percent of adults in the U.S. have NAFLD. Of those with NAFLD, about 20 percent have NASH or about 5% of adults in the U.S.
IONIS’ Cardiometabolic and Renal Disease Clinical Pipeline
AKCEA-TTR-LRx – See the medicine description under “Our Phase 3 Medicines” section above.
AKCEA-APO(a)-LRx – See the medicine description under “Our Phase 3 Medicines” section above.
AKCEA-ANGPTL3-LRx– AKCEA-ANGPTL3-LRxis a LICA medicine we designed to inhibit the production of the angiopoietin-like 3, or ANGPTL3, protein. People with elevated levels of the ANGPTL3, protein have high LDL-C and triglyceride levels. Studies show people with elevated levels of ANGPTL3 protein have an increased risk of premature heart attacks, increased arterial wall thickness and multiple metabolic disorders such as diseases resulting from increased liver fat. In contrast, people with lower levels of ANGPTL3 have lower LDL-C and triglyceride levels, and thus lower risk of heart attacks, lower prevalence of fatty liver and lower incidence of metabolic disorders.
In preclinical studies, treatment with an antisense medicine designed to inhibit the production of the ANGPTL3 protein in the liver resulted in lower liver fat accumulation and lower blood levels of LDL-C, triglycerides and very low-density lipoprotein cholesterol, or VLDL-C.
Results from a Phase 1/2 study of AKCEA-ANGPTL3-LRx in healthy volunteers with elevated triglycerides were published in The New England Journal of Medicine. In the study, we observed that the people with elevated triglycerides achieved dose-dependent, statistically significant mean reductions in ANGPTL3 of up to 83 percent. Treatment with AKCEA-ANGPTL3-LRx was also associated with statistically significant mean reductions in triglycerides of up to 66 percent, in LDL-C of up to 35 percent and in total cholesterol of up to 36 percent. In this study, AKCEA-ANGPTL3-LRx demonstrated a favorable safety and tolerability profile.
In January 2020, we reported positive results from a Phase 2 clinical study in patients with elevated levels of triglycerides, or hypertriglyceridemia, type 2 diabetes and NAFLD. Patients were treated with multiple doses of AKCEA-ANGPTL3-LRx administered weekly and monthly. AKCEA-ANGPTL3-LRx achieved statistically significant, dose-dependent reductions in the study’s primary endpoint of fasting triglycerides compared to placebo at all dose levels. AKCEA-ANGPTL3-LRx also achieved statistical significance in multiple secondary endpoints, including dose-dependent reductions in angptl3, apoC-III, very low-density lipoprotein (VLDL-C), non-HDL cholesterol and total cholesterol compared to placebo. AKCEA-ANGPTL3-LRx demonstrated a favorable safety and tolerability profile in the study.
In October 2019, we exclusively licensed AKCEA-ANGPTL3-LRxto Pfizer. Pfizer is responsible for all development and regulatory activities and costs beyond those associated with the above Phase 2 study. Akcea has the option prior to regulatory filing for marketing approval, to participate in certain commercialization activities in the future with Pfizer in the U.S. and certain additional markets on pre-defined terms and based on meeting pre-defined criteria.
AKCEA-APOCIII-LRx – AKCEA-APOCIII-LRx is a LICA medicine we designed to inhibit the production of apoC-III for patients who are at risk of disease due to elevated triglyceride levels. ApoC-III is a protein produced in the liver that regulates triglyceride metabolism in the blood. People with severely elevated triglycerides, such as people with FCS, a rare, hereditary disease characterized by extremely elevated triglyceride levels, are at high risk for acute pancreatitis and other serious conditions. ApoC-III is also the target of WAYLIVRA, the only medicine approved for the treatment of people with FCS. See the WAYLIVRA summary under “Our Marketed Medicines” section for more information about FCS.
We and Akcea plan to initiate a Phase 3 study this year in patients with FCS based on the Phase 2 data described below. We believe that the enhancements offered by our LICA technology can provide greater reductions in triglycerides and patient convenience by allowing for significantly lower doses and less frequent administration, compared to WAYLIVRA.
In October 2017, we reported positive results of a Phase 1/2 clinical study in healthy volunteers with elevated triglyceride levels. Patients in the study were treated with multiple doses at either weekly or monthly dosing intervals. Patients treated with AKCEA-APOCIII-LRx demonstrated significant dose-dependent reductions in apoC-III protein and triglycerides. In this study, AKCEA-APOCIII-LRx demonstrated a favorable safety and tolerability profile. No serious adverse events, platelet count reductions, changes in liver function or adverse events leading to treatment discontinuation were observed.
In January 2020, we reported positive results from a Phase 2 clinical study in patients with hypertriglyceridemia and at high risk of or with established CVD. Patients were treated with multiple doses of AKCEA-APOCIII-LRx administered weekly, bi-weekly, or monthly. AKCEA-APOCIII-LRx achieved statistically significant, dose-dependent reductions in fasting triglycerides compared to placebo at all dose levels. Additionally, at the highest monthly dose, more than 90 percent of patients achieved serum triglycerides of ≤ 150 mg/dL, the recognized threshold for cardiovascular risk, compared to less than 5 percent of patients in the placebo group. AKCEA-APOCIII-LRx also achieved statistical significance in numerous key secondary endpoints, including significant reductions in apoC-III, very low-density lipoprotein cholesterol, or VLDL-C, and remnant cholesterol, and a statistically significant increase in high-density lipoprotein cholesterol, or HDL-C. AKCEA-APOCIII-LRx demonstrated a favorable safety and tolerability profile in the study.
IONIS-GCGRRx – IONIS-GCGRRx is an antisense medicine designed to inhibit the production of the glucagon receptor, or GCGR, to treat patients with type 2 diabetes. GCGR is a receptor for the hormone glucagon. Glucagon is a hormone that opposes the action of insulin and stimulates the liver to produce glucose, particularly in type 2 diabetes. In patients with advanced diabetes, uncontrolled glucagon action can lead to significant increase in blood glucose level. In addition, reducing GCGR produces more active glucagon-like peptide, or GLP-1, a hormone that preserves pancreatic function and enhances insulin secretion.
Diabetes is a chronic disease in which the blood glucose levels are too high. Although glucose is an important source of energy for your body and is vital to your health, uncontrolled increases in glucose can lead to serious health problems, such as diabetes. Diabetes is separated into type 1 and type 2. In type 1 diabetes, the body does not make insulin. In type 2 diabetes, the more common type, the body does not respond properly to insulin and, therefore, blood glucose levels are not adequately controlled.
We and Suzhou-Ribo are collaborating to develop IONIS-GCGRRx to treat patients with type 2 diabetes. In October 2019, Suzhou-Ribo initiated a Phase 2 clinical study evaluating IONIS-GCGRRx in patients with type 2 diabetes.
IONIS-AGT-LRx– IONIS-AGT-LRx is a LICA medicine we designed to inhibit the production of angiotensinogen to decrease blood pressure in people with treatment resistant hypertension, or TRH. Despite the availability of antihypertensive agents, TRH is still a major contributor to cardiovascular and renal disease.
Approximately 75 million adults in the U.S. have hypertension, half of whom have uncontrolled hypertension. About 12-15 percent of patients with uncontrolled hypertension have resistant hypertension, defined as failure to achieve a blood pressure goal of 140/90 (systolic/diastolic) despite the use of three or more antihypertensive medications. People with TRH have been found to have a three-fold higher chance of having fatal and non-fatal cardiovascular events relative to those with controlled hypertension.
We are evaluating IONIS-AGT-LRx in a double-blinded, randomized, placebo-controlled, Phase 2 study in people with mild hypertension and in a second Phase 2 study in patients with TRH.
IONIS-AZ4-2.5-LRx – IONIS-AZ4-2.5-LRxis a Generation 2.5 LICA antisense medicine we designed to treat patients with CVD. We and AstraZeneca are collaborating to develop IONIS-AZ4-2.5-LRx to treat patients with CVD.
IONIS-FXI-LRx – IONIS-FXI-LRx is a LICA medicine we designed to inhibit the production of Factor XI. Factor XI is a clotting factor produced in the liver that is important in the growth of blood clots. High levels of Factor XI increase the risk of thrombosis. Thrombosis, characterized by the formation of a blood clot inside blood vessels, can cause heart attacks and strokes. People who are deficient in Factor XI have a lower incidence of thromboembolic events with minimal increase in bleeding risk. Although currently available anticoagulants reduce the risk of thrombosis, physicians associate these anticoagulants with increased bleeding, which can be fatal. By inhibiting Factor XI production, we believe that IONIS-FXI-LRx can be used broadly as an anti-thrombotic in many different therapeutic settings for which additional safe and well tolerated anti-thrombotic medicines are needed.
In November 2016, we completed a Phase 2 double-blinded, randomized, placebo-controlled study of the parent medicine, IONIS-FXIRx, in people with end-stage renal disease on hemodialysis. In this Phase 2 study, patients treated with IONIS-FXIRx achieved statistically significant, dose-dependent reductions in Factor XI activity. In this study, IONIS-FXIRx demonstrated a favorable safety and tolerability profile. There were no treatment-related major or clinically relevant non-major bleeding events.
We conducted a Phase 1, double-blind, randomized, placebo-controlled, dose-escalation study of IONIS-FXI-LRx in healthy volunteers. In this study, IONIS-FXI-LRx produced significant reductions in FXI activity and FXI antigen, without evidence of increased bleeding. Additionally, IONIS-FXI-LRx demonstrated a favorable safety and tolerability profile in this study. We and Bayer are planning to report the data from this Phase 1 study this year.
In February 2017, we licensed IONIS-FXI-LRx to Bayer. In October 2019, Bayer opted to continue to develop and commercialize IONIS-FXI-LRx following positive clinical results. Bayer plans to advance IONIS-FXI-LRx into a Phase 2 clinical trial. Bayer is responsible for all IONIS-FXI-LRx development, regulatory and commercialization activities and costs.
ION839 – ION839 (formerly IONIS-AZ6-2.5-LRx) is a Generation 2.5 LICA antisense medicine we designed to inhibit an undisclosed target. We and AstraZeneca are collaborating to develop ION839 to treat patients with NASH.
In October 2019, we initiated a Phase 1 clinical study evaluating ION839 in healthy volunteers. The current study is a randomized, blinded, placebo-controlled study designed to assess the safety and tolerability of multiple doses of ION839.
Rare Disease FranchiseMedicines in Development
Our severe and rare disease franchise is the largest franchise in our pipeline. We are discovering and developing antisense drugsmedicines to treat people with severe and rare diseases who need newhave limited or no treatment options. We believe our antisense technology could offer effective therapies for these people. According to the NIH there are approximately 5,000 to 8,0007,000 rare diseases, many life-threatening or fatal. Unfortunately, people with many of these severe and rare diseases have few or no effective therapies available. Since most of these diseases are genetic or have a genetic component, parents often pass the disease to their children creating a legacy of the disease resulting in profound effects on the family.
impacts through multiple generations. Due to the severe nature of these diseases and the lack of available treatments, there is often an opportunity for more flexible and efficient development paths to the market. This means that, in some cases, the studies necessary for us to demonstrate proof-of-concept with a particular drug may also be the studies that complete our marketing registration package, thereby providing us with a relatively rapid path to market for potential new treatments for these devastating and often fatal diseases. For example, SPINRAZA was approvedreceived FDA approval within five years after we beganfollowing the start of its first Phase 1 study for it.study.
IONIS’ Severe andIONIS’ Rare Disease Clinical Pipeline
Kynamro – Kynamro(mipomersen sodium) injection is an oligonucleotide inhibitor of apolipoprotein B-100 synthesis indicated as an adjunct to lipid-lowering medications and diet, to reduce low density lipoprotein-cholesterol, or LDL-C, apolipoprotein B, total cholesterol, and non-high density lipoprotein-cholesterol in patients with homozygous familial hypercholesterolemia, or HoFH. Kynamro is approved for use in people with HoFH in the U.S. and several other countries. In 2016 Kastle acquired the global rights to develop and commercialize Kynamro and also began marketing and selling Kynamro.
Inotersen AKCEA-TTR-LRx– See the drugmedicine description under “Our Drugs Under Regulatory Review for Marketing Authorization”Phase 3 Medicines” section above.
Volanesorsen AKCEA-APOCIII-LRx– See the drugmedicine description under “Our Drugs Under Regulatory Review for Marketing Authorization”“Ionis’ Cardiometabolic and Renal Disease Clinical Pipeline” section above.
AKCEA-ANGPTL3-LRx – See the drug description under the “Akcea Therapeutics” section below.
IONIS-GHR-LRx – IONIS-GHR-LRx is a LICA drugmedicine we designed to reduceinhibit the production of the growth hormone receptor, or GHr, to decrease the circulating level of insulin-like growth factor-1, or IGF-1. IGF-1 is a hormone primarily produced in the liver that plays an important role in childhood growth and has anabolic effects in adults. Several different diseases result from abnormally low or high levels of IGF-1, or an inappropriate response to this hormone. When produced
High levels of circulating GH and IGF-1 lead to multiple diseases characterized by organ overgrowth and physical disfigurement, such as enlarged hands, feet, and facial features. Patients with acromegaly also experience multiple chronic conditions, such as type 2 diabetes, hypertension, and respiratory complications, as well as premature mortality. Because IGF-1 mediates the majority of the growth-promoting action of GH, reducing GHr production could in excess,turn decrease levels of IGF-1 results in acromegaly,and provide a chronic, slowly progressing and life-threatening disease.potential treatment to patients with acromegaly. Current treatments to block IGF-1 include surgical removal of the pituitary gland, which is often unsuccessful. Drug treatments to normalize IGF-1 levels are also available but are associated with potentially serious side effects.
We have completed a Phase 1, double-blind, placebo-controlled, dose-escalation study of IONIS-GHR-LRx in healthy volunteers. Results fromIn this study, IONIS-GHR-LRx demonstrated a favorable safety and tolerability profile.
In November 2018, we initiated the Phase 12 proof-of-concept clinical study demonstrated an acceptable safety profile supportive of continued development.
IONIS-TMPRSS6-LIONIS-GHR-LRx in acromegaly patients. The study is a randomized, double-blind, placebo-controlled, multi-center study in acromegaly patients uncontrolled on select long-acting somatostatin receptor ligands.
IONIS-PKK-LRx– IONIS-TMPRSS6-LIONIS-PKK-LRx is a LICA
drugmedicine we designed to
reduce the production of transmembrane protease, serine 6, or TMPRSS6, to treat anemia and iron toxicity in people with β-thalassemia; a disease caused by mutations in the beta globin gene. TMPRSS6 is a protein produced in the liver that plays an important role in the regulation of the body's iron homeostasis through the control of the iron regulatory protein hepcidin. Inhibition of TMPRSS6 leads to increased production of hepcidin, which results in more effective red blood cell production in the bone marrow and reduced iron toxicity in the liver as a result of improved control of iron availability. Results from preclinical and clinical studies suggest that reducing levels of TMPRSS6 may be an effective strategy to control iron availability, improve liver iron toxicity and increase red blood cell production under conditions of β-thalassemia.
We are currently evaluating IONIS-TMPRSS6-LRx in a randomized, double-blind, placebo-controlled, dose-escalation Phase 1 study in healthy volunteers.
IONIS-PKKRx and IONIS-PKK-LRx – IONIS-PKKRx and IONIS-PKK-LRx are antisense drugs we designed to reduceinhibit the production of prekallikrein, or PKK, to treat people with hereditary angioedema, or HAE. HAEIt is a rare genetic disease that is characterized by rapid and painful attacks of inflammation in the hands, feet, limbs, face, abdomen, larynx and trachea and can be fatal if swelling occurs in the larynx. PKK plays an important role in the activation of inflammatory mediators associated with acute attacks of HAE. By inhibiting the production of PKK, IONIS-PKKRx and IONIS-PKK-LRx could be an effective prophylactic approachesapproach to preventing HAE attacks. In patients with frequent or severe attacks, doctors may use prophylactic treatment approaches to prevent or reduce the severity of HAE attacks. However, current prophylactic treatment approaches are very limited and have major tolerability issues due to challenging administration requirements leaving
In August 2019, we initiated a Phase 2 study evaluating IONIS-PKK-LRxin patients with few therapeutic options.
We have completedHAE. The current study is a Phase 1randomized, double-blinded, placebo-controlled study evaluating IONIS-PKKRx in healthy volunteersdesigned to assess the clinical efficacy, safety and we are exploring potential development options. We are currently evaluating tolerability of IONIS-PKK-LRx in a Phase 1, randomized, double-blind, placebo-controlled, dose-escalation study in healthy volunteers. The Phase 1 study is evaluating single and multiple doses of IONIS-PKK-Ladministered subcutaneously.
IONIS-TMPRSS6-LRx administered subcutaneously.
Cardiometabolic and Renal Disease Franchise
Cardiovascular disease, or CVD, is an important area of focus for us. According to the World Health Organization, or WHO, cardiovascular disease was the number 1 cause of death globally. An estimated 17.7 million people died from CVDs in 2015, representing 31 percent of all global deaths. The drugs in our cardiovascular franchise target the key components of cardiovascular disease, including various atherogenic lipids, inflammation and thrombosis. Metabolic disorders are chronic diseases that affect millions of people. There is a significant need for new therapies for these people. According to the Centers for Disease Control and Prevention, diabetes affects more than 29 million people in the U.S., or nine percent of the population, with type 2 diabetes constituting 90 to 95 percent of those cases.
IONIS’ Cardiometabolic and Renal Disease Pipeline
Volanesorsen – See the drug description under “Our Drugs Under Regulatory Review for Marketing Authorization” section below.
AKCEA-ANGPTL3-LRx – See the drug description under the “Akcea Therapeutics” section below.
AKCEA-APO(a)-LRx, – See the drug description under the “Akcea Therapeutics” section below.
AKCEA-APOCIII-LRx – See the drug description under the “Akcea Therapeutics” section below.
IONIS-FXIRx – IONIS-FXIIONIS-TMPRSS6-LRx is a Generation 2+ antisense drugLICA medicine we designed to reduceinhibit the production of Factor XI. Factor XItransmembrane protease, serine 6, or TMPRSS6, to treat anemia and iron toxicity in people with β-thalassemia, a disease caused by mutations in the beta globin gene. TMPRSS6 is a clotting factorprotein produced in the liver that is important in the growthregulation of the body’s iron homeostasis through the control of the iron regulatory protein hepcidin. Inhibition of TMPRSS6 leads to increased production of hepcidin, which results in more effective red blood clots. Highcell production in the bone marrow and reduced iron toxicity in the liver as a result of improved control of iron availability.
Patients with β-thalassemia can experience severe anemia, marrow expansion, bone deformities, as well as iron toxicity. While the severity of anemia varies between patients, iron toxicity is a common complication leading to high rates of mortality as a result of iron accumulation in major organs, such as the heart and liver. The current standard of care is managing patients’ symptoms with blood transfusions, and iron chelation medicines designed to remove extra iron from blood.
β-thalassemia can be further subdivided into patients with transfusion-dependent thalassemia, or TDT, and non-transfusion dependent thalassemia, or NTDT, including β-thalassemia intermedia. Although transfusions are not needed to support life in patients with NTDT, the associated complications of the disease are severe and often fatal.
Results from preclinical and clinical studies suggest that reducing levels of Factor XITMPRSS6 may be an effective strategy to control iron availability, reduce liver iron toxicity and increase red blood cell production under conditions of β-thalassemia. In December 2018, we presented positive Phase 1 data at the riskASH Annual Meeting. In a randomized, double-blind, placebo-controlled, dose-escalation Phase 1 study in healthy volunteers, we demonstrated dose-dependent reductions of thrombosis, which is the formation of a blood clot inside blood vessels. Thrombosis can cause heart attacksserum iron and strokes. People who are deficient in Factor XI have a lower incidence of thromboembolic events with minimalserum transferrin saturation. Additionally, we observed an increase in bleeding risk. Although currently available anticoagulants reduce the risk of thrombosis, physicians associate these anticoagulants with increased bleeding, which can be fatal. Given the mechanism of Factor XI inhibition, we believe that our drug has the potentialserum hepcidin and predicted changes in hemoglobin. IONIS-TMPRSS6-LRx demonstrated a favorable safety and tolerability profile.
We are planning to
be used broadly as an anti-thrombotic in many different therapeutic settings for which additional safe and well tolerated anti-thrombotic drugs are needed.
We completedbegin a Phase 2 open-label, comparator-controlled global study evaluating IONIS-FXIof IONIS-TMPRSS6-LRx in people undergoing total knee replacement surgery. The study compared the safety and activity of IONIS-FXI2020 in patients with NTDT β-thalassemia.
IONIS-ENAC-2.5Rx to enoxaparin. In this study patients treated with 300 mg of IONIS-FXI – IONIS-ENAC-2.5Rx experienced a seven-fold lower rate of venous thromboembolic events, such as blood clots in a deep vein or in a lung, compared to those patients treated with enoxaparin. The data from this study were published in the New England Journal of Medicine in December 2014. In May 2015, we exclusively licensed IONIS-FXIRx to Bayer.
In November 2016, we completed a Phase 2 double-blinded, randomized, placebo-controlled study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis. In this Phase 2 study, patients treated with IONIS-FXIRx achieved statistically significant, dose-dependent reductions in Factor XI activity. There were no clinically meaningful reductions in platelets and no treatment-related major or clinically relevant non-major bleeding events.
We are currently evaluating IONIS-FXIRx in a Phase 2b study in approximately 200 people with end-stage renal disease on hemodialysis to finalize dose selection.
IONIS-GCGRRx – IONIS-GCGRRxis a Generation 2+2.5 antisense drugmedicine we designed to selectively reduce the production of glucagon receptors,epithelial sodium channel, or GCGR,ENaC, to treat people with type 2 diabetes. GCGRcystic fibrosis, or CF. CF is an autosomal recessive disorder caused by mutations in the gene that encodes the cystic fibrosis transmembrane conductance regulator, or CFTR. CFTR is a receptor forchloride channel expressed in epithelial cells, including those in the hormone glucagon. Glucagonlung. Targeting ENaC may enable treatment of all forms of CF due to various CFTR mutations, unlike existing therapeutics. CF is a hormonemultisystem disease that opposesmostly affects the actionlungs, clogging airways due to mucus build-up and resulting in inflammation and infection. This disease is characterized by a progressive decline in lung function with acute periods of insulin and stimulates the liver to produce glucose, particularly in type 2 diabetes. We are developing IONIS-GCGRRx to provide better glucose controlworsened symptoms, known as pulmonary exacerbations. Despite progress with other treatments, there remains a need for people with type 2 diabetes. In people with advanced diabetes, uncontrolled glucagon action can lead to significant increases in blood glucose level. In addition, reducing GCGR produces more active glucagon-like peptide-1, or GLP-1, a hormone that preserves pancreatic function and enhances insulin secretion. We are developing IONIS-GCGRRx with Suzhou Ribo Life Sciences Co., for theadditional effective treatment of diabetes in China.options.
In January 2017,preclinical studies in transgenic rodents, treatment with ENaC-targeting antisense medicines specifically suppressed ENaC expression, resulting in the reduction of markers of CF mucus pathology and improved lung function. Treatment not only prevented manifestations of the disease from occurring but also reversed existing manifestations of CF in the animal model.
In December 2018, we reported results frominitiated a Phase 1/2 dose optimizationdouble-blinded, placebo-controlled, dose-escalation study in which patients treated with IONIS-GCGRto evaluate the safety and efficacy of IONIS-ENAC-2.5Rx achieved robust. The study consists of three parts: a single ascending dose, or SAD, regimen and sustained, statistically significant improvementsa multiple ascending dose, or MAD, regimen in hemoglobin A1c,healthy volunteers, followed by a MAD regimen in patients with CF.
ION357 – ION357 (formerly IONIS-RHO-2.5Rx), is a Generation 2.5 antisense medicine we designed to treat patients with a genetic form of autosomal dominant retinitis pigmentosa by inhibiting the production of the rhodopsin P23H mutant protein in the eye while allowing normal protein to be expressed.
Retinitis pigmentosa, or HbA1c,RP, is a group of rare inherited eye disorders causing photoreceptor degeneration that leads to progressive vision loss. Photoreceptors are cells in the eye’s retina responsible for converting light into signals that are sent to the brain. Photoreceptors provide us our color and other measuresnight vision. Affected patients first experience defective dark adaptation during adolescence or young adulthood, followed by loss of glucose control after 26 weeksperipheral visual field when rod photoreceptor function declines. Patients eventually have limited residual central vision, which ultimately leads to complete blindness around the age of treatment. Additionally, IONIS-GCGRRx-treated60.
We and ProQR are collaborating to develop ION357 to treat patients experiencedwith RP. In November 2019, ProQR initiated a mean increasePhase 1/2 clinical study evaluating ION357 in total GLP-1 from baseline comparedpatients with RP. The current study is a randomized, masked, placebo-controlled study designed to a decline in placebo-treated patients. Theassess the safety and tolerability profile of IONIS-GCGRRx ION357in the Phase 2 program supports continued development.
In March 2017, we licensed IONIS-GCGRRx to Ribo to develop and commercialize the drug in China.
IONIS-DGAT2Rx – IONIS-DGAT2Rx is a Generation 2+ antisense drug we designed to reduce the production of DGAT2, or diacylglycerol acyltransferase 2, to treat people with nonalcoholic steatohepatitis, or NASH. NASH is a common liver disease characterized by excessive triglycerides in the liver with concurrent inflammation and cellular damage. As NASH progresses, scarring, or fibrosis, begins to accumulate in the liver. Ultimately, cirrhosis of the liver develops and the liver can no longer function normally. Currently, it is estimated that two to three percent of the general population have NASH. However, with the growing obesity epidemic, the number of people with NASH should also continue to rise. About 20 percent of people with NASH are reported to have a liver that does not function properly due to long-term damage, known as cirrhosis. Of those with NASH-related cirrhosis, 30 to 40 percent experience liver-related death. Currently, liver transplantation is the only treatment for advanced cirrhosis and liver failure. Because of the high prevalence of NASH, it has recently become the third most common indication for liver transplantation in the U.S.
DGAT2 is an enzyme that catalyzes the final step in triglyceride synthesis in the liver. Reducing the production of DGAT2 should therefore decrease triglyceride synthesis in the liver. In animal models of obesity and fatty liver disease, antisense inhibition of DGAT2 significantly improved non-alcoholic fatty liver disease, or NAFLD, lowered blood lipid levels and reversed diet-induced insulin resistance. NASH is a more severe form of NAFLD.
We are evaluating IONIS-DGAT2Rx in a Phase 2 randomized, placebo-controlled, dose-escalation study inadult patients with type 2 diabetes and NAFLD.RP.
IONIS-AGT-LRx – IONIS-AGT-LRx is a LICA drug we designed to reduce the production of angiotensinogen to decrease blood pressure in people with treatment resistant hypertension, or TRH. Despite availability of generic antihypertensive agents, TRH is a major contributor to cardiovascular and renal disease.
We are evaluating IONIS-AGT-LRx in a blinded, randomized, placebo-controlled, dose-escalation Phase 1/2a study in healthy volunteers.
Cancer FranchiseAnti-Cancer and Other DrugsMedicines in Development
Cancer is an area of significant unmet medical need. Cancer is an extremely complex disease that involves a large number of targets. Using our antisense technology, we can validate multiple potential cancer targets
fromfor a variety of different cancers, and rapidly identify anti-cancer
drugs, which in many cases are the same or similar sequences to those used to validate the target.medicines. We preferentially select anti-cancer targets that
can potentially provide a multi-faceted approach to treating cancer.
Our cancer franchiseanti-cancer pipeline consists of anti-cancer antisense drugsmedicines that act upon biological targets associated with cancer progression, treatment resistance, and/or treatment resistance. We have a strategic alliancethe tumor immune environment. Our alliances with AstraZeneca which includesinclude an anti-cancer collaboration that expands our anti-cancer efforts and supports a robust clinical development plan for IONIS-STAT3-2.5Rx and IONIS-KRAS-2.5Rx.efforts. AstraZeneca brings significant experience that enables the identification of novel genetic and epigenetic targets for cancer. Combining AstraZeneca’s expertise with our drug discovery technology, we plan to expand our cancer franchise with a number of promising new anti-cancer targets. We also have a collaboration agreementagreements with University of Texas MD Anderson Cancer Center and Oregon Health and Science University Knight Cancer Institute to identify cancer targets and create novel antisense drugsmedicines to treat cancer together.cancer.
In addition to oncology programs, we continue to advance other medicines in development that are outside of our core therapeutic areas, including IONIS-FB-LRx for complement-mediated diseases we and Roche are developing, and antiviral medicines IONIS-HBVRx and IONIS-HBV-LRx GSK is developing.
Our Generation 2.5 chemistry enhances the potency and effectiveness of our antisense drugs,medicines, and potentially allows us to extend the applicability of our technology to cancers that are difficult to treat. For instance, STAT3 is a protein known to be important in carcinogenesis,the formation of cancer, however, it has been difficult to approach with traditional drug modalities. Data from a Phase 1b/2 clinical study of IONIS-STAT3-2.5Rxdanvatirsen in combination with Imfinzi (durvalumab),durvalumab, AstraZeneca’s programmed death ligand, (PD-L1)or PD-L1, blocking antibody showed evidence of antitumor activity in people with advanced solid tumors and recurrent metastatic head and neck cancer.
In addition to cancer programs, we continue to advance other drugs in development that are outside of our core therapeutic areas, such as IONIS-FB-LIONIS’ Oncology/Other Clinical Pipeline
IONIS-AR-2.5Rx for compliment-mediated diseases, and the antiviral drugs we and GSK are developing.
IONIS’ Oncology/Other Pipeline
IONIS-STAT3-2.5 – IONIS-AR-2.5Rx – IONIS-STAT3-2.5Rx, also referred to as AZD9150, is a Generation 2.5 antisense drugmedicine we designed to reducetreat people with prostate cancer by reducing the production of all known forms of androgen receptor, or AR, including variants of the AR gene. Prostate cancer is the second leading cause of cancer deaths in American men. Prostate cancer growth, proliferation and progression are all androgen-dependent and AR function is involved in disease progression at all stages of prostate cancer. For patients diagnosed with metastatic prostate cancer, current treatments largely involve opposing the action of androgens by blocking the androgen receptor or removing circulating androgens. Resistance to current therapies is frequent and can occur through a variety of mechanisms including the activation of AR signaling in tumor cells through the amplification, overexpression and mutation of the AR gene.
An open-label, dose-escalation, Phase 1/2 clinical study of IONIS-AR-2.5Rx was completed in people with advanced tumors for which the androgen receptor pathway is potentially a contributing factor. The study was primarily conducted in prostate cancer patients and it showed durable responses in a number of those patients. Results from this study demonstrated a safety and tolerability profile supportive of continued development.
In March 2017, we licensed IONIS-AR-2.5Rx to Suzhou-Ribo to develop and commercialize the medicine in China.
Danvatirsen– Danvatirsen (formerly IONIS-STAT3-2.5Rx) is a Generation 2.5 antisense medicine we designed to inhibit the production of signal transducer and activator of transcription 3, or STAT3, to treat people with cancer. STAT3 is a protein involved in the translation of key factors critical for tumor cell growth and survival. STAT3 is over-active in a variety of cancers, including brain, lung, breast, bone, liver and multiple myeloma. Physicians believe that overactivity in STAT3 prevents cancer cell death and promotes tumor cell growth. IONIS-STAT3-2.5Rx is a part of our collaboration with AstraZeneca to discover and develop anti-cancer drugs. We believe the significant potency we observed in our preclinical studies with IONIS-STAT3-2.5Rx broadens the therapeutic opportunities for IONIS-STAT3-2.5Rx into many different types of cancer in which STAT3 is implicated.
In September 2017,October 2018, we and AstraZeneca announced data from a Phase 1b/1/2 study of IONIS-STAT3-2.5Rxdanvatirsen in combination with Imfinzi (durvalumab), AstraZeneca’s PD-L1 blocking antibody,durvalumab in people with advanced solid tumors and recurrent metastatic head and neck cancer. The combination treatment combination demonstratedresulted in seven percent of patients achieving a 29complete tumor response and 23 percent (8/28) objectiveachieving either a partial or complete tumor response. This response rate is estimated to be double that with four partial responses, or PR, and four complete responses, or CR, of which one was a CRdurvalumab alone, based on previous studies in target lesions only. An additional eight people on the treatment combination had stable disease, or SD, at 12 weeks, resulting in an overall disease control rate of 57 percent (16/28). A complete response was seen in a person with recurrent/metastatic squamous cell carcinoma of the head and neck that was refractorythis difficult to previous PD-L1 treatment. IONIS-STAT3-2.5Rx in combination with Imfinzitreat patient population. Results from this study demonstrated a safety and tolerability profile supportingsupportive of continued development.
IONIS-KRAS-2.5Rx - IONIS-KRAS-2.5Rx, also referred to as AZD4785, is a Generation 2.5 antisense drug designed to selectively inhibit KRAS, one of the most frequently mutated genes in cancer. KRAS mutations are thought to underlie the pathogenesis of up to 30 percent of human tumors. The KRAS protein is involved in regulating cell division and tumor cell survival. IONIS-KRAS-2.5Rx is a part of our collaboration with AstraZeneca to discover and develop anti-cancer drugs.
AstraZeneca is evaluating IONIS-KRAS-2.5Rxdanvatirsen in a Phase 1/2, open-label, multi-center, dose-escalation studyrange of cancer types as part of a broader oncology partnership evaluating Generation 2.5 antisense therapies against undruggable targets either alone or in peoplecombination with advanced solid tumors for whom KRAS may be an important driver of tumor survival.immuno-oncology agents, including in non-small cell lung cancer, bladder cancer and head and neck cancer.
IONIS-HBVRx and IONIS-HBV-LRx – IONIS-HBVRx and IONIS-HBV-LRxare antisense drugsmedicines we designed to reduceinhibit the production of viral proteins associated with hepatitis B virus, or HBV. These include proteins associated with infection and replication, including the hepatitis B surface antigen, or HBsAg, which is present in both acute and chronic infections and is associated with a poor prognosis in people with chronic HBV infection. IONIS-HBV-LRx is our first anti-infective drug in development that incorporates our LICA technology. Together with GSK, we are evaluating IONIS-HBVRx and IONIS-HBV-LRx to treat HBV infection.
HBV infection is a serious health problem that can lead to significant and potentially fatal health conditions, including cirrhosis, liver failure and liver cancer. Chronic HBV infection is one of the most common persistent viral infections in the world. Currently available therapies, although effective in reducing circulating HBV in the blood, do not effectively inhibit HBV antigen production and secretion, which are associated with poor prognosis and increased risk of liver cancer.
We and GSK are evaluating bothreported results of the Phase 2 studies with IONIS-HBVRx and IONIS-HBV-LRxin patients with chronic hepatitis B virus infection at the American Association for the Study of Liver Diseases annual meeting in November 2019. In the Phase 2 studies in peoplestudy with HBV infection.
IONIS-AR-2.5IONIS-HBVRx – IONIS-AR-2.5, the medicine demonstrated target engagement with dose dependent declines in HBsAg with up to 3-log reductions in HBsAg at 1 month, including two patients who achieved reductions in HBsAg and HBV DNA below levels of detection. In the Phase 2 study with IONIS-HBV-LRx, the medicine demonstrated efficacy similar to IONIS-HBVRx. In these studies, both IONIS-HBVRx and IONIS-HBV-LRxdemonstrated favorable safety and tolerability profiles.
In August 2019, GSK exercised its option to license our HBV program following the positive Phase 2 results described above. Following the licensing, GSK is responsible for all development, regulatory and commercialization activities and costs.
IONIS-FB-LRx– IONIS-FB-LRxis a Generation 2.5 antisense drugLICA medicine we designed to treat people with prostate cancer by reducing the production of all known forms of androgen receptor, or AR, including variants of the AR gene. Prostate cancer is the second leading cause of cancer deaths in American men. Prostate cancer growth, proliferation and progression are all androgen-dependent and AR function is involved in disease progression at all stages of prostate cancer. For people diagnosed with metastatic prostate cancer, current treatments largely involve opposing the action of androgens by blocking the AR or removing circulating androgens. Although androgen deprivation therapy approaches are initially effective in delaying disease progression, people with metastatic prostate cancer will progress in their disease. Resistance to current therapies is frequent and can occur through a variety of mechanisms, including the activation of AR signaling in tumor cells through the amplification, over expression and mutation of the AR gene. Because IONIS-AR-2.5Rx can inhibit the production of all known forms of AR, we believe that this drug has the potential to be useful in treating people with all stages of prostate cancer, including those who are resistant to current therapies.
AstraZeneca completed an open-label, dose-escalation, Phase 1/2 clinical study of IONIS-AR-2.5Rx in people with advanced tumors for which the androgen receptor pathway is potentially a contributing factor. The drug exhibited a good safety and tolerability profile supportive of continued development. In March 2017, we licensed IONIS-AR-2.5Rx to Ribo to develop and commercialize the drug in China.
IONIS-FB-LRx - IONIS-FB-LRx is a LICA drug we designed to reduce the production of complement factor B, or FB. FB is produced predominantly in the liver and circulates at high levels throughout the vascular system where it plays a pivotal role in an innate immunogenic cascade. Genetic association studies have shown that overactionoveractivity of this cascade has been associated with the development of several complement-mediated diseases, including dry age-related macular degeneration, or AMD. FB, which plays a pivotal roleAMD, and IgA nephropathy, or IgAN.
AMD is the leading cause of central vision loss in this cascade,developed countries. It is produced predominatelyestimated that the disease will affect more than three million people in the liver and circulatesU.S. by 2026. AMD is believed to be a systemic disease with local disease manifestation at high levels throughout the vascular system, including in capillariesaging retinal macula. AMD gradually destroys vision in the eye.center of the visual field due to progressive damage of the retina.
IgAN is one of the most common causes of inflammation that impairs the filtering ability of kidneys worldwide and is an important cause of chronic kidney disease and renal failure. Also known as Berger’s disease, IgAN is characterized by immunodeposits of IgA in the kidneys, resulting in inflammation and tissue damage. The clinical presentation, disease progression and histologic findings are highly variable.
In May 2017, we reported data from a randomized, placebo-controlled, dose-escalation Phase 1 study evaluating IONIS-FB-LRx in 54 healthy volunteers. Subjects treated with a single dose of IONIS-FB-LRx achieved dose-dependent reductions in plasma FB of up to 50 percent. Treatment with multiple doses of IONIS-FB-LRx during a six-week period resulted in greater reductions in circulating FB levels. TheIn this study, IONIS-FB-LRx demonstrated a favorable safety and tolerability profile ofprofile.
We and Roche are collaborating to develop IONIS-FB-LRx supports further clinical development.
We are currentlyfor the treatment of complement-mediated diseases. In June 2019, we initiated a Phase 2 study evaluating IONIS-FB-LRx in patients with geographic atrophy secondary to age-related macular degeneration. The current study is a randomized, blinded, placebo-controlled study designed to assess the safety, tolerability and pharmacokinetics of multiple ascending doses of IONIS-FB-LRx administered subcutaneously in adults with geographic atrophy.
In September 2019, we initiated a Phase 2 study of IONIS-FB-LRxin peoplepatients with dry AMD.IgA nephropathy. The current study is a single-arm, open-label study designed to assess the safety, tolerability and pharmacokinetics of IONIS-FB-LRx administered subcutaneously in adults with primary IgA nephropathy.
Preclinical DrugsMedicines in Development
TheThe efficiency and broad applicability of our technology providesenables us with nearly unlimited targets against which to develop drugs.medicines for a broad range of diseases. On average, it takes 12 to 18 monthsapproximately 1-2 years to complete the preclinical studies necessary to support clinical development. Over the last yearIn 2019, we added eight10 new drugsmedicines to our preclinical pipeline.
IONIS’IONIS’ Preclinical Pipeline
15
Akcea Therapeutics: Our Majority Owned Affiliate Focused on Developing and Commercializing DrugsMedicines to Treat People with Serious Cardiometabolicand Rare Diseases Caused by Lipid Disorders
We formed Akcea Therapeutics and Akcea began operations in 2015. Akcea is our development and commercialization affiliate that we formed in late 2014 to focusfocused on developing and commercializing drugsmedicines to treat people with serious cardiometabolic diseases caused by lipid disorders.and rare diseases. As part of its formation,December 31, 2019, we grantedowned approximately 76 percent of Akcea. Akcea exclusive rights to developis commercializing TEGSEDI and commercialize volanesorsen,WAYLIVRA, medicines we discovered and developed using our proprietary antisense technology. Additionally, Akcea has a mature pipeline of four of our novel medicines, including AKCEA-APO(a)-LRx, AKCEA-ANGPTL3-LRx, AKCEA-APOCIII-LRx, and AKCEA-ANGPTL3-LAKCEA-TTR-LRx. These four novel drugs are based on our antisense technology and have, with the potential to treat multiple indications. We describe each of these drugs in more detail below.
rare and common diseases. Akcea is assembling the global infrastructure to develop the drugs in its pipeline, to commercialize themco-developing these four medicines with a focus on lipid specialists as the primary call point and to create the specialized support required to address rare disease patient populations. Akcea and we entered into a collaboration, option and license agreement with Novartis, in which Akcea granted Novartis an exclusive option to license AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Both these drugs have the potential to treat people who are at high cardiovascular risk due to inadequately treated lipid disorders. After Akcea completes the Phase 2 development of each of these drugs, Novartis has the option to license each drug. If Novartis licenses one or both drugs, it plans to, for each licensed drug, use commercially reasonable efforts to conduct, at its expense, a Phase 3 cardiovascular outcome study in a high-risk patient population and will be responsible for the worldwide development and commercialization activities. Novartis brings significant resources and expertise that should support the development and commercialization of AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx for significant high-risk patient populations. Akcea also plans to co-commercialize any such drug through its specialized sales force focused on lipid specialists in selected markets.us.
This report includes financial information for thisAkcea as a separate business segment insegment. See Note 7, Segment Information and Concentration of Business Risk, in the Notes to the Consolidated Financial Statements.Statements for additional information.
VolanesorsenTEGSEDI – Volanesorsen is a Generation 2+ antisense drug under regulatory review for marketing authorization inSee the U.S., EU and Canada for the treatment of people with FCS. Akcea and we are also developing volanesorsen to treat people with FPL. For more information on the regulatory and development plan for volanesorsen, see the drugmedicine description under “Our Drugs under Regulatory Review for Marketing Authorization”Marketed Medicines” section above.
WAYLIVRA –See the medicine description under “Our Marketed Medicines” section above
AKCEA-APO(a)-LRx – AKCEA-APO(a)-LSee the medicine description under “Our Phase 3 Medicines” section above.
AKCEA-TTR-LRx is a LICA drug we designed to reduce– See the production of apolipoprotein(a), or Apo(a), protein in the liver to offer a direct approach for reducing lipoprotein(a), or Lp(a). Lp(a) is an independent risk factor for CVD that is composed of an apolipoprotein(a) protein bound to an LDL-cholesterol particle. Akcea initiated a collaboration with Novartis in January 2017 to advance AKCEA-APO(a)-LRx.medicine description under “Our Phase 3 Medicines” section above.
Akcea is developing AKCEA-APO(a)-LAKCEA-ANGPTL3-LRx for people who are at significant risk of CVD because of their elevated levels of Lp(a). AKCEA-APO(a)-L– See the medicine description under “Cardiometabolic and Renal Disease Pipeline” section above.
AKCEA-APOCIII-LRx inhibits– See the production of the Apo(a) protein, thereby reducing Lp(a). Lp(a) is a very atherogenicmedicine description under “Cardiometabolic and thrombogenic form of LDL. Elevated Lp(a) is recognized as an independent, genetic cause of coronary artery disease, heart attack, stroke and peripheral arterial disease. Inhibiting the production of Apo(a) in the liver reduces the level of Lp(a) in blood, potentially slowing down or reversing cardiovascular disease in people with hyperlipoproteinemia(a), a condition in which individuals have levels of Lp(a) greater than 60 mg/dL.Renal Disease Pipeline” section above.
Lp(a) is difficult to inhibit using other technologies, such as small molecules and antibodies; there are multiple genetically-determined forms of the Apo(a) molecule and creating a small molecule or antibody that can interact with multiple targets is difficult. We believe antisense technology is particularly well suited to address hyperlipoproteinemia(a) because it specifically targets the RNA that codes for all forms of the Apo(a) molecule. As a result, it can stop the production of all the forms of the protein. Furthermore, we believe addressing elevated Lp(a) is the next important horizon in lipid-focused treatment and, through Akcea’s collaboration with Novartis, it plans to develop AKCEA-APO(a)-LRx to treat people with established cardiovascular disease in whom hyperlipoproteinemia(a) likely plays a causal role.
Akcea and we completed a Phase 1/2a study with AKCEA-APO(a)-LRx in patients with hyperlipoproteinemia(a) and reported results at the American Heart Association, or AHA, annual meeting in November 2015. In this clinical study, we observed significant and sustained reductions in Lp(a) of up to 97 percent with a mean reduction of 79 percent after only a single, small volume dose of AKCEA-APO(a)-LRx. With multiple doses of AKCEA-APO(a)-LRx, we observed even greater reductions of Lp(a) of up to 99 percent with a mean reduction of 92 percent. Based on these results, Akcea started a Phase 2b dose-ranging study of AKCEA-APO(a)-LRx in patients with hyperlipoproteinemia(a) and established CVD. Akcea completed enrollment in this study in January 2018 and expects to report data from this study in the second half of 2018.
AKCEA-ANGPTL3-LRx – AKCEA-ANGPTL3-LRx is a LICA drug we designed to reduce the production of the angiopoietin-like 3, or ANGPTL3, protein. Akcea and we are developing AKCEA-ANGPTL3-LRx to treat multiple lipid disorders.
People with elevated levels of the angiopoietin-like 3, or ANGPTL3, protein have high LDL-C and triglyceride levels. Studies show this elevation is associated with an increased risk of premature heart attacks, increased arterial wall thickness, increased liver fat and multiple metabolic disorders, such as insulin resistance. In contrast, people with lower levels of ANGPTL3 have lower LDL-C and triglyceride levels, and thus lower risk of heart attacks, lower prevalence of fatty liver and lower incidence of metabolic disorders. In preclinical studies, an analog of AKCEA-ANGPTL3-LRx inhibited the production of the ANGPTL3 protein in the liver, resulting in lower liver fat accumulation and lower blood levels of LDL-C, triglycerides and very low density lipoprotein cholesterol, or VLDL-C. In addition, our preclinical data and initial Phase 1 data suggest that inhibiting the production of ANGPTL3 could improve other lipid parameters, including triglyceride levels and total cholesterol, as well as metabolic parameters, such as insulin sensitivity.
We and Akcea have completed a Phase 1/2 program for AKCEA-ANGPTL3-LRx in patients with elevated triglycerides. We and Akcea reported results for the initial cohort from this study at the AHA meeting in November 2016 and published the data in the New England Journal of Medicine. In the fourth quarter of 2017, we and Akcea initiated a study of AKCEA-ANGPTL3-LRx in patients with nonalcoholic fatty liver disease, or NAFLD, with metabolic complications, which include hypertriglyceridemia, type 2 diabetes or nonalcoholic steatohepatitis, or NASH. We expect data from this study in 2019. Further, in the fourth quarter of 2017, we and Akcea initiated a study of AKCEA-ANGPTL3-LRx in patients with rare hyperlipidemias, including patients with FCS. If we and Akcea find that AKCEA-ANGPTL3-LRx can effectively lower triglyceride levels in patients with rare hyperlipidemias, including patients with FCS, through a different mechanism of action from volanesorsen, it may represent an opportunity to expand our FCS franchise. As part of our exploratory rare hyperlipidemia clinical program, we and Akcea are also studying AKCEA-ANGPTL3-LRx in patients with FPL and in patients with HoFH. Additional potential indications for which we may consider developing AKCEA-ANGPTL3-LRx include other rare hyperlipidemias and lipodystrophies.
AKCEA-APOCIII-LRx – is a LICA drug we designed to inhibit the production of apoC-III, the same protein inhibited by volanesorsen, for the broad population of people who are at risk for cardiometabolic disease due to their elevated triglyceride levels. Akcea and we initiated a collaboration with Novartis in January 2017 to advance AKCEA-APOCIII-LRx.
ApoC-III impacts triglyceride levels and may also increase inflammatory processes. This combination of effects makes apoC-III a promising target for people with LDL-C already controlled on statin therapy, but for whom triglycerides remain poorly controlled. We believe that the enhancements offered by our LICA technology can provide greater patient convenience by allowing for significantly lower doses and less frequent administration, compared to volanesorsen. We and Akcea conducted a Phase 1/2 study of AKCEA-APOCIII-LRx in people with elevated triglycerides and reported results from this study in the fourth quarter of 2017.
Under our and Akcea’s collaboration with Novartis, we intend to complete the Phase 2 program required to define the appropriate dose and regimen to support a planned cardiovascular outcome study. We and Akcea initiated a Phase 2b dose-ranging study of AKCEA-APOCIII-LRx in patients with hypertriglyceridemia and established CVD in the first quarter of 2018 and plan to report data from this study in 2019.
Satellite Company Drugs in Development
We have successfully developed novel drugs we designed to treat many different diseases. In therapeutic areas that are outside of our core areas of development, we have licensed our drugs to highly focused satellite companies that have the specific expertise and resources to continue developing the drugs. For our satellite company drugs, we refer to the drug by the partner’s name or compound number, such as plazomicin or ATL1103. We have listed these drugs below in our Satellite Company pipeline.
IONIS’ Satellite Company Pipeline
* Named Patient Supply (see below).
Plazomicin – Plazomicin is an aminoglycoside drug that Achaogen is developing for the treatment of multi-drug resistant gram-negative bacterial infections. Aminoglycosides are a group of antibiotics that inhibit bacterial protein synthesis used to treat serious bacterial infections. In 2006, we licensed our proprietary aminoglycoside program to Achaogen. Achaogen discovered plazomicin based on technology licensed from us. Achaogen conducted two Phase 3 studies for plazomicin, CARE and EPIC. In December 2016, Achaogen announced that it completed two Phase 3 studies of plazomicin. The EPIC trial met its primary endpoint in patients with complicated urinary tract infections. The CARE trial demonstrated reduction in mortality in patients with serious multi-drug resistant infection due to carbapenem-resistant Enterobacteriaceae, or CRE compared with colistin, one of the few remaining antibiotics for treatment of infections due to CRE. Plazomicin was well tolerated in both Phase 3 studies.
Achaogen submitted an NDA to the FDA for plazomicin for the treatment of complicated urinary tract infections, including kidney infections and bloodstream infections due to certain Enterobacteriaceae in people who have limited to no alternative treatment options. FDA granted the NDA Priority Review and set a target action date under the PDUFA date of June 25, 2018. Achaogen plans to submit a MAA to the EMA in 2018.
The FDA has granted Fast Track Status for the development and regulatory review of plazomicin to treat serious and life-threatening CRE infections. In addition, plazomicin has received Qualified Infectious Disease Product, or QIDP, designation from the FDA. The QIDP designation provides certain incentives for the development of new antibiotics, including priority review and an additional five years of market exclusivity.
Alicaforsen – Alicaforsen is an antisense drug we designed to reduce the production of intercellular adhesion molecule 1, or ICAM-1. Ulcerative colitis, or UC, is an inflammatory bowel disease of the colon, a part of the large intestine, and pouchitis is an inflammation of the surgically constructed internal pouch created in people with UC who have had their diseased colons removed. In 2007, we licensed alicaforsen to Atlantic Pharmaceuticals for pouchitis, UC and other inflammatory diseases. Atlantic Pharmaceuticals is developing alicaforsen for the treatment of UC and currently supplies alicaforsen in response to physicians' requests under international Named Patient Supply regulations for people with inflammatory bowel disease. In 2017, under a rolling submission agreement with the FDA, Atlantic Pharmaceuticals filed the nonclinical data package of its NDA for alicaforsen to treat pouchitis. Alicaforsen has also been granted FDA Fast-Track designation, plus U.S. and European Orphan Drug designations for this indication.
ATL1103 – ATL1103 is an antisense drug we designed to reduce the production of the growth hormone receptor, or GHr, to treat people with acromegaly. Acromegaly is a serious, chronic, life-threatening disease triggered by excess secretion of GHr by benign pituitary tumors. In 2001, we licensed ATL1103 to Antisense Therapeutics Limited, or ATL. ATL conducted a successful Phase II trial of ATL1103 with the trial having met its primary efficacy endpoint by showing a statistically significant average reduction in sIGF-1 levels. ATL has also completed a high dose study of ATL1103 in adults with acromegaly in Australia.
RG-012 – RG-012 is an anti-miR, or an antisense oligonucleotide inhibitor of microRNA, targeting microRNA-21, or miR-21, to treat people with Alport syndrome, a life-threatening genetic kidney disease with no approved therapy. While there is little known information on the progression of this disease, researchers believe that miR-21 plays a critical role due to the observed increased miR-21 levels in animal models of Alport syndrome and in people with chronic kidney disease. Regulus is developing RG-012 in a strategic alliance with Genzyme, a Sanofi company, to treat Alport syndrome. In September 2017, Regulus initiated HERA, the Phase 2 randomized, double-blinded, placebo-controlled study evaluating the safety and efficacy of RG-012 in people with Alport syndrome.
RGLS4326 – RGLS4326 is an anti-miR, or an antisense oligonucleotide inhibitor of microRNA, designed to inhibit miR-17 to treat people with autosomal dominant polycystic kidney disease, or ADPKD, using a unique chemistry design to preferentially target the kidney. ADPKD, caused by the mutations in the PKD1 or PKD2 genes, is among the most common human monogenetic disorders and a leading genetic cause of end-stage renal disease. Approximately 1 in 1,000 people bear a mutation in either PKD1 or PKD2 genes worldwide. Preclinical studies with RGLS4326 have demonstrated a reduction in kidney cyst formation, improved kidney weight/body weight ratio, decreased cyst cell proliferation, and preserved kidney function in mouse models of ADPKD.
RGLS4326 is being studied in a Phase I randomized, double-blind, placebo-controlled, single ascending dose study designed to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of RGLS4326 administered subcutaneously in healthy volunteers.
ATL1102 – ATL1102 is an antisense drug we designed to reduce the production of CD49d, a sub-unit of Very Late Antigen-4, or VLA-4, for the treatment of people with multiple sclerosis, or MS. Results from preclinical studies demonstrated that inhibition of VLA-4 could positively affect a number of inflammatory diseases, including MS. In 2001, we licensed ATL1102 to ATL. ATL completed a chronic toxicology study in primates and a Phase 2a efficacy and safety trial. ATL1102 was shown by ATL to reduce MS lesions in the Phase 2a clinical trial and has also completed toxicology studies to support a potential future Phase 2b study in people with MS.
IONIS-DNM2-2.5Rx – IONIS-DNM2-2.5Rx is a Generation 2.5 antisense drug targeting dynamin 2 for the treatment of centronuclear myopathy, or CNM. CNM is a term for a group of rare, genetic, muscle disorders affecting children and young adults. These disorders are characterized by muscle weakness that can range from mild to profound. CNM, caused by mutations in the DNM2 gene, is highly variable in presentation and severity, presenting at birth, during childhood or in adulthood. When DNM2-related CNM occurs during infancy or early childhood, common symptoms include reduced muscle strength, generalized weakness, facial and eye muscle weakness and paralysis of muscles surrounding the eye. Affected children may exhibit delays in attaining motor milestones, such as holding their head up. Facial weakness can cause infants to have a weak sucking ability and/or experience difficulties swallowing, potentially resulting in feeding difficulties. Eventually, affected individuals can develop breathing complications, and sometimes infection of the lungs causes death in early infancy.
IONIS-DNM2-2.5Rx is currently in IND-enabling preclinical studies.
Antisense Technology
Our antisense technology is an innovative platform for discovering first-in-class and/or best-in-class drugsmedicines for treating disease. We believe this technology represents an important advance in the way we treat disease. Unlike most other drug technologies that work by affecting existing proteins in the body, antisense drugsmedicines target RNA, the intermediary that conveys genetic information from a gene to the protein synthesis machinery in the cell. By targeting RNA instead of proteins, we can use antisense technology to increase, decrease or alter the production of specific proteins. The unique properties of antisense technology provide several advantages over traditional drug discovery technologies.
These advantages include:
| ● | Direct intervention in the disease process at the genetic level by targeting RNA: antisense technology represents a direct route from gene to drug. The explosion in genomic information and RNA biology has led to the discovery of many new disease-causing proteins and RNAs and has created new opportunities that are onlyuniquely accessible to antisense technology. |
| ● | Precise specificity: we design antisense drugsmedicines to target a single RNA, which minimizes or eliminates the possibility our drugsmedicines will bind to unintended targets, which can cause unwanted side effects. |
| ● | Good drug properties: antisense drugsmedicines distribute well throughout the body without the need for special formulations or vehicles. They also have a relatively long half-life in the range of approximately twoweeks to four weeks in most tissues outside of the brain and spinal cord and three to four months, in brain and spinal cord, which means patients and/or healthcare providers can dose our drugsmedicines weekly, monthly or even less frequently depending on the drugmedicine and target tissue. |
| ● | Ability to combine with other drugs:medicines: because antisense drugsmedicines do not interact with the enzymes that metabolize or break down other drugs,medicines, physicians can use our drugsmedicines in combination with other drugs.medicines. |
| ● | Broad applications to multiple disease targets, multiple tissues and multiple mechanisms: there are virtually no “undruggable” targets with antisense technology. |
| ● | Efficient discovery and early development: because of the efficiency of our antisense technology, our drug discovery and early development costs and success rates compare favorably to small molecule or antibody drug discovery and development. |
We develop antisense drugsmedicines to potentially treat a wide range of diseases in a number of different therapeutic areas from severe and rare diseases to diseases that affect large patient populations. We focus our efforts on diseases in which there is a large unmet medical need with limited or no current treatments or in diseases for which we believe our drugsmedicines have a competitive advantage over existing therapies.
Technology Overview
We use our core technology platform to discover and develop drugsmedicines that affect targets in the body at the genetic level. Genes contain the information necessary to produce proteins. A gene is made up of nucleotides containing the nucleoside bases: adenine, thymine, guanine, and cytosine, commonly known as A, T, G and C, which are linked together to form a two-stranded structure that resembles a twisted ladder, known as deoxyribonucleic acid, or DNA. The nucleotides on one side of the ladder bind weakly to complementary nucleotides on the other strand according to specific rules; for example, A pairs with T and G pairs with C, creating the ladder’s rungs (Figure 1). Scientists call this highly specific nucleotide pairing hybridization. The sequence or order of these nucleotides establishes the cell’s recipes for making proteins. Each protein’s instructions reside in a corresponding segment of DNA known as a gene.
Figure 1: Illustration of DNA.
The instructions for making a protein are transcribed from a gene, or DNA into a different genetic molecule called messenger RNA. This process starts with the partial uncoiling of the two complementary strands of the DNA. One strand acts as a template and information stored in the DNA template strand is copied into a complementary RNA (Figure 2) by an enzyme called RNA polymerase, or RNAP. Messenger RNA, or mRNA, are mature, fully processed RNA that code for proteins.
Figure 2: Transcription of information contained in a gene, or DNA, to mRNA.RNA.
Ribosomes, the cell’s factories for manufacturing proteins, translate mRNA into proteins. The ribosome reads the encoded information, the mRNA’s nucleotide sequence, and in doing so, strings together amino acids to form a specific protein (Figure 3).
Figure 3: Translation of the protein-coding information contained in mRNA to protein.
We primarily use our antisense technology to interrupt the cell’s protein production process by preventing the mRNA instructions from reaching the ribosome, thus inhibiting the production of the protein. We can also design antisense drugsmedicines to increase protein production for diseases caused by the lack of a particular protein or modify the processing (or splicing) of the mRNA, which can alter the composition of the protein. The mRNA sequence of nucleotides that carries the information for protein production is called the ‘sense’ strand. Scientists call the complementary nucleotide chain that binds specifically to the sense strand the “antisense” strand. We use the information contained in mRNA to design chemical structures, that we call antisense oligonucleotides, or ASOs, or antisense drugs,medicines, which resemble DNA and RNA and are the complement of RNA. Our antisense drugsmedicines bind with high selectivity to the mRNA they were designed to target. Since each mRNA codes for a specific protein, this selectivity provides a level of specificity that is better than traditional drugs.medicines. As a result, we can design antisense drugsmedicines that selectively inhibit the disease-causing member of a protein family without interfering with other members of the protein family that might be necessary for normal cellular or bodily functions. This unique specificity means that antisense drugsmedicines may be less toxic than traditional drugsmedicines because we can design them to minimize the impact on unintended targets.
We have developed the majority of the drugsmedicines in our pipeline using our advanced screens to produce drugsmedicines with what we believe have the best possible safety and tolerability profiles. We refer to our drugsmedicines that have passed these advanced screens as Generation 2+ drugs.medicines. We continue to advance our antisense technology to create even more potent drugsmedicines that we can use in more tissues and against more targets. These advances allow us to expand the mechanisms through which we can use our drugs. These advancementsmedicines and provide us with greater opportunities to use our antisense drugsmedicines to treat a greater number of diseases and reach more patient populations. Today several of our early stage drugsmedicines and those entering our pipeline use our most advanced antisense technology, including our next generation chemistries, Generation 2.5, and our LICA technology.
Generation 2.5 chemistry is an Ionis advancement that we have demonstrated increases the potency of our drugsmedicines by up to ten-fold10-fold over our Generation 2+ drugs.medicines. This increase in potency enables our drugsmedicines to engage targets in a broader array of tissues. We have published data demonstrating that our Generation 2.5 drugsmedicines generally have enhanced potency over our Generation 2+ drugsmedicines and are broadly distributed throughout the body to multiple tissues including liver, kidney, lung, muscle, adipose, adrenal gland, peripheral nerves and tumor tissues. Our Generation 2.5 drugsmedicines constitute some of our recently added new drugsmedicines to our pipeline.
LICA (LIgand-Conjugated Antisense) is a chemical technology we developed at Ionis that involves the attachment ofattaching a molecule called a ligand that binds with receptors on the surfaces of cells in a highly specific manner. Because these receptors are often found only on certain cell types, LICA allows us to increase effective delivery of our antisense drugsmedicines with higher specificity to certain cell types that express these receptors relative to non-conjugated antisense drugs. Wemedicines. As of December 2019, we have demonstratedan integrated assessment of data from multiple LICA medicines and over 1,100 subjects who have been treated with multiple Generation 2+our LICA drugsmedicines. Our integrated assessment includes a substantial number of subjects on treatment for one year from randomized placebo-controlled dose-ranging studies. Our integrated assessment demonstrated that our LICA technology for liver targets can increase potency by up to more than thirty-fold30-fold over our non-LICA Generation 2+ drugs.antisense medicines.
In addition to the increase in potency, a favorable safety and tolerability profile was observed and was consistent across the LICA platform. For example, AKCEA-APO(a)-LRx exemplifies these improvements. We havedesigned this medicine to reduce the production of Apo(a), protein in the liver to offer a direct approach for reducing Lp(a). In the Phase 2 AKCEA-APO(a)-LRx study, AKCEA-APO(a)-LRx was the first and only medicine to selectively and robustly reduce Lp(a) levels below threshold levels associated with CVD in nearly all patients. This study included more than 280 patients, with 98 percent of patients in the high dose group achieving levels below 50 mg/dL, the recognized risk threshold for CVD. The safety and tolerability profile from this study was favorable and there were no safety concerns related to platelets, liver or kidney function.
We can also combinedcombine our LICA technology with our Generation 2.5 chemistry, drugsfurther increasing potency. This increase in potency may enable oral delivery of our antisense medicines. In addition to further increase potency. Although we designed our firstthe LICA drugs to inhibittechnology for liver targets, in the liver, we are also developing LICA conjugation technology that we can use to target other tissues, such as the pancreas, and initial results are promising.
Antisense Targets and Mechanisms
There are more than a dozen different antisense mechanisms that we can exploit with our antisense technology. The majority of the drugsmedicines in our pipeline bind to mRNAs and inhibit the production of disease-causing proteins. However, our antisense technology is broadly applicable to many different antisense mechanisms, including modulation of RNA splicing, RNA interference, or RNAi, and enhancing protein translation to increase protein production. We have also recently published research showing that we can use our proprietary oligonucleotide technology with CRISPR/Cas9, a gene editing system that uses RNA to activate, target and edit specific sites on DNA. Our work in this area provides an important step toward development of potential therapeutic applications for CRISPR technology.
When using antisense technology to inhibit the production of disease-causing proteins or reduce levels of harmful RNAs, our antisense drugsmedicines bind to the target RNA via highly specific nucleotide pairing, or hybridization, and recruit a cellular enzyme called ribonuclease H1, or RNase H1, to degrade the target RNA. The antisense drugmedicine itself remains intact during this process, so it can remain active against additional target RNA molecules and repeatedly trigger their degradation (Figure 4). Examples of our clinical development stage antisense drugsmedicines that use the RNase H1 mechanism to reduce disease protein production include, volanesorsen, inotersen, IONIS-FXIRx, IONIS-FXI-LRx, TEGSEDI, WAYLIVRA, tominersen, AKCEA-APO(a)-LRx, IONIS-HTTIONIS-FXI-LRx,, and others.
Figure 4: Antisense drugmedicine using the RNase H mechanism of action.
SPINRAZA is an example of an antisense drugmedicine that modulates RNA splicing to increase protein production of the SMN protein (Figure 5), which is critical to the health and survival of nerve cells in the spinal cord that are responsible for neuro-muscular function. The SMN protein is deficient in people with SMA. There are a number of other diseases, including cystic fibrosis and Duchenne muscular dystrophy, which may be treated by modulating splicing using antisense technology.
Figure 5: Antisense drugmedicine altering splicing of the SMN2 mRNA.
Another class of RNA targets for our antisense technology are microRNAs. To date, scientists have identified more than 700 microRNAs in the human genome, and have shown that the absence or presence of specific microRNAs in various cells is associated with specific human diseases, including cancer, viral infection, metabolic disorders and inflammatory disease. To fully exploit the therapeutic opportunities of targeting microRNAs, we co-founded Regulus Therapeutics as a company focused on the discovery, development and commercialization of microRNA-based therapeutics.
We are also making progress in designing antisense drugsmedicines to target long, non-coding RNAs, or lncRNAs and RNAs that possess a toxic function in human diseases. Many of these RNAs, such as lncRNAs, do not make proteins but often cause disease by regulating the function of other genes or proteins. In 2014, we published a paper in Nature in which we were the first to show that targeted reduction of ana lncRNA with an antisense compound can ameliorate certain cognitive deficits in a mouse model of Angelman syndrome, or AS. Moreover, these studies demonstrate the potential therapeutic benefits of an antisense drugsmedicines for the treatment of AS.
Because the efficiency of our core technology platform can support multiple target-based antisense research programs, without significantly increasing costs, we can develop antisense drugsmedicines to target a broad range of diseases, efficiently producing a large and broad proprietary portfolio of drugs.medicines. We are currently pursuing antisense drug discovery programs focused on various severe and rare diseases, cardiometabolic diseases, neurologic diseases, cancer and other diseases.
Collaborative Arrangements
We strive to find the optimum organization to develop and Licensing Agreements
commercialize each of our antisense medicines. We have established alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our drugs,medicines, advancing our technology, preparing to commercialize our drugsmedicines and selling our drugs.medicines. Our partners include the following companies, among others: AstraZeneca, Bayer, Biogen, Bayer, GSK, Janssen, Novartis, Pfizer and Roche. Our partners bring resources and expertise that augment and build upon our internal capabilities.capabilities and in many cases, add value by conducting development and regulatory activities and paying for these activities. The depth of our knowledge and expertise with antisense technology together with our strong financial position providesenables us the flexibility to partner our drugsmedicines at what we believe is the optimal time to maximize the near- and long-term value of our drugs.medicines. We have distinct partnering strategies that we employ based on the specific program, therapeutic area and the expertise and resources our potential partners may bring to the collaboration.
| ● | We have strategic partnerships through which we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas. Our partners provide expertise, tools and resources to complement our drug discovery efforts. For instance, we established a broad strategic alliance with Biogen that pairs Biogen’s extensive resources and expertise in neurodegenerative diseases with our antisense technology. Together we are creating a franchise of novel drugs for neurodegenerative diseases that has the potential to expand both our pipeline and Biogen’s pipeline with promising new drugs. Most recently, we entered into a new collaboration agreement with Biogen to identify new antisense drugs for the treatment of SMA.
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| ● | We have partnerships with companies that bring significant expertise and global resources to develop and potentially commercialize drugs for a particular therapeutic area. For example, in January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. As a leader in the cardiovascular disease space, Novartis brings significant resources and expertise that should support the development and commercialization of these two drugs for significant high-risk patient populations. The collaboration with Novartis should enable us to accelerate the development of these drugs for broader patient populations as Novartis plans to conduct a cardiovascular outcome study for each of these drugs.
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| ● | We also form early stage research and development partnerships that allow us to expand the application of our technology to new therapeutic areas. For example, we established a collaboration with Janssen in December 2014, which brings together our RNA-targeted technology platform and Janssen’s expertise in autoimmune disorders and therapeutic formulation to discover and develop antisense drugs to treat autoimmune disorders in the GI tract. Thus far, Janssen has licensed two drugs under our collaboration. |
| ● | We also work with a consortium of companies that can exploit our drugs and technologies outside our primary areas of focus. We refer to these companies as satellite companies. Through our satellite company collaborations, we expand the reach and potential of RNA-targeting therapeutics into disease areas that are outside of our core focus. For example, in October 2017, Achaogen submitted an NDA to the FDA for plazomicin. Plazomicin is an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen and we are eligible to earn milestone payments and royalties under our licensing agreement. |
Financial Impact of Our Partnerships
Through our partnerships, we have createdearned both commercial revenue and a broad and sustaining base of R&D revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Since 2007,payments. In 2019, we have receivedrecognized more than $2.4$1.1 billion in cash from upfront and licensing fees, equity purchase payments, milestone payments and research and development fundingrevenue, primarily from our partnerships. We have the potential to earn over $13more than $20 billion in future milestone payments, licensing fees and other payments from our current partnerships. We also havepartnerships, not including potential royalties. Below, we include the potential to sharesignificant terms of our collaboration agreements. For additional details, including other financial information, see Note 6, Collaborative Arrangements and Licensing Agreements, in the future commercial successNotes to the Consolidated Financial Statements.
Strategic Partnership
We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our inventionsexpertise in creating antisense medicines with Biogen’s expertise in developing therapies for neurological disorders. We developed and drugs resultinglicensed to Biogen SPINRAZA, our approved medicine to treat people with spinal muscular atrophy, or SMA. In December 2017, we entered into a collaboration with Biogen to identify new antisense medicines for the treatment of SMA. We and Biogen are currently developing eight medicines under our collaborations, including medicines to treat people with ALS, Alzheimer’s diseaseand Parkinson’s disease. In addition to these medicines, our collaborations with Biogen include a substantial research pipeline that addresses a broad range of neurological diseases. From inception through February 2020, we have generated more than $2.5 billion from our partnershipsBiogen collaborations, including $1 billion we received from Biogen in the second quarter of 2018 for our 2018 strategic neurology collaboration.
Spinal Muscular Atrophy Collaborations
SPINRAZA
In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA, an RNA-targeted therapy for the treatment of SMA. Biogen reported in January 2020 that SPINRAZA was approved in over 50 countries around the world. From inception through royalty arrangements. For example, during 2017December 2019, we earned $112.5generated more than $1 billion in total revenue under our SPINRAZA collaboration, including more than $640 million in commercial revenue from SPINRAZA sales, adding a significant revenue stream to our broad base ofroyalties and more than $435 million in R&D revenue. We are receiving tiered royalties ranging from 11 percent to 15 percent on sales of SPINRAZA. We have exclusively in-licensed patents related to SPINRAZA from Cold Spring Harbor Laboratory and the University of Massachusetts. We pay Cold Spring Harbor Laboratory and the University of Massachusetts a low single digit royalty on net sales of SPINRAZA. Biogen is responsible for global development, regulatory and commercialization activities and costs for SPINRAZA.
New antisense medicines for the treatment of SMA
In December 2017, we entered into a collaboration agreement with Biogen to identify new antisense medicines for the treatment of SMA. Biogen has the option to license therapies arising out of this collaboration following the completion of preclinical studies. Upon licensing, Biogen will be responsible for all further global development, regulatory and commercialization activities and costs for such therapies. Under the collaboration agreement, we received a $25 million upfront payment in December 2017. We will receive development and regulatory milestone payments from Biogen if new medicines advance towards marketing approval. In total over the term of our collaboration, we are eligible to receive up to $1.2 billion in license fees, milestone payments and other payments. In addition, we are eligible to receive tiered royalties from the mid-teens to mid-20 percent range on net sales.
Neurology Collaborations
2018 Strategic PartnershipsNeurology
In April 2018, we and Biogen entered into a strategic collaboration to develop novel antisense medicines for a broad range of neurological diseases and entered into a Stock Purchase Agreement, or SPA. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for these diseases for 10 years. We are responsible for the identification of antisense drug candidates based on selected targets. Biogen is responsible for conducting IND-enabling toxicology studies for the selected target. Biogen will have the option to license the selected target after it completes the IND-enabling toxicology study. If Biogen exercises its option to license a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. In the second quarter of 2018, we received $1 billion from Biogen, comprised of $625 million to purchase our stock at an approximately 25 percent cash premium and $375 million in an upfront payment. We are eligible to receive up to $270 million in milestone payments for each medicine that achieves marketing approval. In addition, we are eligible to receive tiered royalties up to the 20 percent range on net sales.Through December 2019, we have advanced six targets under this collaboration, including two new targets we advanced in the fourth quarter of 2019. We have generated over $1.05 billion in payments through February 2020, including $15 million we generated in the fourth quarter of 2019 for advancing two targets under this collaboration.
2013 Strategic Neurology
In September 2013, we and Biogen entered into a long-term strategic relationship focused on applying antisense technology to advance the treatment of neurodegenerative diseases. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for neurological diseases and has the option to license medicines resulting from this collaboration. We will usually be responsible for drug discovery and early development of antisense medicines and Biogen will have the option to license antisense medicines after Phase 2 proof-of-concept. In October 2016, we expanded our collaboration to include additional research activities we will perform. If Biogen exercises its option to license a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. We are currently advancing five medicines in development under this collaboration, including a medicine for Parkinson’s disease, two medicines for ALS and two medicines for undisclosed targets. In December 2018, Biogen exercised its option to license one of our ALS medicines, tofersen, and as a result Biogen is now responsible for all further global development, regulatory and commercialization activities and costs for tofersen.
Under the terms of the agreement, we received an upfront payment of $100 million and are eligible to receive milestone payments, license fees and royalty payments for all medicines developed under this collaboration, with the specific amounts dependent upon the modality of the molecule advanced by Biogen. For each antisense molecule that is chosen for drug discovery and development under this collaboration, we are eligible to receive up to approximately $260 million in a license fee and milestone payments per program. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any antisense medicines developed under this collaboration. We have generated over $240 million through February 2020, including $10 million we earned in the fourth quarter of 2019 when Biogen advanced IONIS-C9Rx in development.
2012 Neurology
In December 2012, we and Biogen entered into a collaboration agreement to develop and commercialize up to three novel antisense medicines to treat neurodegenerative diseases. We are responsible for the development of each of the medicines through the completion of the initial Phase 2 clinical study for such medicine. Biogen has the option to license a medicine from each of the programs through the completion of the first Phase 2 study for each program. Under this collaboration, we are currently advancing IONIS-MAPTRx for Alzheimer’s disease and ION581 for Angelman syndrome. If Biogen exercises its option to license a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. In December 2019, Biogen exercised its option to license IONIS-MAPTRx and as a result Biogen is now responsible for all further global development, regulatory and commercialization activities and costs for IONIS-MAPTRx.
Under the terms of the agreement, we received an upfront payment of $30 million. Over the term of the collaboration, we are eligible to receive up to $210 million in a license fee and milestone payments per program, plus a mark-up on the cost estimate of the Phase 1 and 2 studies. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales of any medicines resulting from each program under the agreement. We have generated over $130 million through February 2020, including $45 million we earned when Biogen licensed IONIS-MAPTRx and $10 million when Biogen advanced ION581, both of which occurred in the fourth quarter of 2019. We also achieved a $7.5 million milestone payment in the first quarter of 2020 for advancing IONIS-MAPTRx.
Research, Development and Commercialization Partners
AstraZeneca
CardiometabolicCardiovascular, Renal and RenalMetabolic Diseases Collaboration
In July 2015, we and AstraZeneca formed a strategic collaboration to discover and develop antisense therapies for treating cardiovascular, renal and metabolic diseases primarily focused on targets in the kidney, and renal diseases. As part of the agreement, we grantedUnder our collaboration, AstraZeneca an exclusive license tohas licensed three medicines from us: IONIS-AZ4-2.5-LRx, a drugmedicine we designed to treat cardiovascular disease and our first drugmedicine that combines our Generation 2.5 and LICA technology. We also granted AstraZeneca the option to licensetechnology, ION532, a drug for each additional target advanced under this research collaboration. In February 2018, AstraZeneca licensed a second drug under our collaboration, IONIS-AZ5-2.5Rx, a drugmedicine we designed to treat a genetically associated form of kidney disease and ION839, a medicine we designed to inhibit an undisclosed to treat patients with NASH. AstraZeneca is responsible for all further global development, regulatory and commercialization activities and costs for IONIS-AZ4-2.5-LRx andIONIS-AZ5-2.5Rxeach of the medicines it has licensed and any other future drug development candidatesmedicines AstraZeneca accepts.licenses in the future.
Under the terms of the agreement, we received a $65 million upfront payment. We are eligible to receive license fees and milestone payments of up to more than $4 billion as drugsmedicines under this collaboration advance. In addition, we are eligible to receive tiered royalties up to the low teens on net sales from any product that AstraZeneca successfully commercializes under this collaboration agreement. From inception through February 2018, weWe have generated over $120$175 million in payments under this collaboration,through February 2020, including $30a $10 million milestone payment we earned in the fourth quarter of 2019 when AstraZeneca licensed IONIS-AZ5-2.5Rx in February 2018.initiated a Phase 1 trial for ION839.
In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense drugsmedicines to treat cancer. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize IONIS-STAT3-2.5Rxdanvatirsen for the treatment of cancer and an option to license up to three anti-cancer drugs under separate research programs.cancer. AstraZeneca is responsible for all global development, regulatory and commercialization activities for IONIS-STAT3-2.5Rxdanvatirsen.We and AstraZeneca have evaluated IONIS-STAT3-2.5Rx in people with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5Rx in combination with Imfinzi (durvalumab), AstraZeneca’s anti-PD-L1 drug,danvatirsen in people with head and neck cancer, advanced lymphoma and advanced metastatic hepatocellular carcinoma. AstraZeneca is evaluating danvatirsen in combination with durvalumab, AstraZeneca’s PD-L1, blocking medicine, in people with diffuse large Bhead and neck cancer, metastatic bladder cancer and metastatic non-small cell lymphoma. Under thelung cancer. We and AstraZeneca also established an oncology research program, we are responsible for identifying a development candidate for each of the three anti-cancer research programs.program. AstraZeneca has the option to license drugsmedicines resulting from each of the three anti-cancer research programs,program, and if AstraZeneca exercises its option forto license a drug,medicine, it will be responsible for all further global development, regulatory and commercialization activities and costs for such drug. The first development candidate identifiedmedicine. In the fourth quarter of 2018, we added a second medicine under the anti-cancer research program was IONIS-KRAS-2.5our oncology collaboration,ION736, (formerly IONIS-AZ7-2.5Rx, which AstraZeneca licensed from us in December 2016. IONIS-KRAS-2.5Rx is a Generation 2.5 antisense drug we designed) to directly target KRAS, one of the most frequently mutated genes in cancer.our preclinical pipeline,.
Under the terms of thethis agreement, we received $31 million in upfront payments. We are eligible to receive milestone payments and license fees from AstraZeneca as programs advance in development. In addition, we are eligible to receive tiered royalties up to the low to mid-teens on sales from any drugs resulting from these programs. If AstraZeneca successfully develops IONIS-STAT3-2.5Rx,IONIS-KRAS-2.5Rxdanvatirsen and two other drugsION736 under the research program, we could receive license fees and milestone payments of up to more than $750$450 million. From inception through February 2018, we have generated more than $95 million in payments under this collaboration.
For additional details about our collaboration agreements with AstraZeneca, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.
Biogen
We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our expertise in creating antisense drugs with Biogen's expertise in developing therapies for neurological disorders. We developed and licensed to Biogen SPINRAZA, our approved drug to treat people with SMA. Additionally, we and Biogen are currently developing six other drugs to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1Rx for ALS, IONIS-MAPTRx (formerly IONIS-BIIB4Rx) for ADand IONIS-C9Rx (formerly IONIS-BIIB5Rx) for ALS, IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx to treat undisclosed neurodegenerative diseases. In addition to these drugs, we and Biogen are evaluating numerous additional targets to develop drugs to treat neurological diseases. Most recently, in December 2017 we entered into a collaboration with Biogen to identify new antisense drugs for the treatment of SMA. From inception through February 2018, we have generated over $810 million from our Biogen collaborations.
In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA, an RNA-targeted therapy for the treatment of SMA. In December 2016, the FDA approved SPINRAZA for the treatment of SMA in pediatric and adult patients. In January 2018, Biogen reported that SPINRAZA was available in over 30 markets. Through December 2017, we have earned $113.4 million in commercial revenue from SPINRAZA royalties. In addition to SPINRAZA royalties, from inception through February 2018, we have generated over $435 million in payments for SPINRAZA, including $90 million of milestone payments for the approval of SPINRAZA in the EU and Japan during 2017. We are receiving tiered royalties up to the mid-teens on any sales of SPINRAZA. We have exclusively in-licensed patents related to SPINRAZA from Cold Spring Harbor Laboratory and the University of Massachusetts. We paid Cold Spring Harbor Laboratory and the University of Massachusetts nominal amounts for license fees and milestone payments we received in 2017. We also pay a low single digit royalty on sales of SPINRAZA. Additionally, we owe a low single digit royalty on future sales of SPINRAZA. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.
New antisense drugs for the treatment of SMA
In December 2017, we entered into a collaboration agreement with Biogen to identify new antisense drugs for the treatment of SMA. Biogen will have the option to license therapies arising out of this collaboration following the completion of preclinical studies. Upon licensing, Biogen will be responsible for all further global development, regulatory and commercialization activities and costs for such therapies. Under the collaboration agreement, we received a $25 million upfront payment in December 2017. In total over the term of our collaboration, we are eligible to receive up to $1.2 billion in license fees, milestone payments and other payments. In addition, we are eligible to receive tiered royalties from the mid-teens to mid-20 percent range on net sales.
Neurology
In December 2012, we and Biogen entered into a collaboration agreement to develop and commercialize novel antisense drugs to up to three targets to treat neurodegenerative diseases. We are responsible for the development of each of the drugs through the completion of the initial Phase 2 clinical study for such drug. Biogen has the option to license a drug from each of the three programs through the completion of the first Phase 2 study for each program. We are currently advancing IONIS-MAPTRx (formerly IONIS-BIIB4Rx) for AD under this collaboration. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization activities and costs for that drug. Under the terms of the agreement, we received an upfront payment of $30 million. Over the term of the collaboration, we are eligible to receive up to an additional $210 million in a license fee and milestone payments per program, plus a mark-up of the cost estimate of the Phase 1 and 2 studies. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any drugsmedicines resulting from each of the threethese programs. From inception through February 2018, weWe have generated over $55$125 million in payments under this collaboration, including $10 million we received in 2017 for initiating a Phase 1/2a study of IONIS-MAPTRx.
Strategic Neurology
In September 2013, we and Biogen entered into a long-term strategic relationship focused on applying antisense technology to advance the treatment of neurodegenerative diseases. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for neurological diseases and has the option to license drugs resulting from this collaboration. The exclusivity for neurological diseases will last through September 2019, and may be extended for any drug development programs Biogen is pursuing under the collaboration. We will usually be responsible for drug discovery and early development of antisense drugs and Biogen will have the option to license antisense drugs after Phase 2 proof of concept. In October 2016, we expanded our collaboration to include additional research activities we will perform. If Biogen exercises its option for a drug, it will assume all further global development, regulatory and commercialization responsibilities and costs for that drug. We are currently advancing five drugs, IONIS-SOD1Rx for ALS, IONIS-C9Rx (formerly IONIS-BIIB5Rx), IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx under this collaboration. Biogen will be responsible for all of the drug discovery and development activities for drugs using other modalities.
Under the terms of the agreement, we received an upfront payment of $100 million and are eligible to receive milestone payments, license fees and royalty payments for all drugs developed through this collaboration, with the specific amounts dependent upon the modality of the molecule advanced by Biogen. For each antisense molecule that is chosen for drug discovery and development under this collaboration, we are eligible to receive up to approximately $260 million in a license fee and milestone payments. In addition, we are eligible to receive tiered royalties up to the mid-teens on sales from any antisense drugs developed under this collaboration. If other modalities are chosen, such as small molecules or monoclonal antibodies, we are eligible to receive up to $90 million in milestone payments. In addition, we are eligible to receive tiered single-digit royalties on sales from any drugs using non-antisense modalities developed under this collaboration. From inception through February 2018, we have generated2020, including nearly $170 million in payments under this collaboration, including $15$30 million in milestone payments we received in 2017 for validating two undisclosed neurological disease targets.
For additional details about our collaboration agreements with Biogen, including other financial informationachieved when AstraZeneca advanced danvatirsen and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements,ION736 in the Notes to the Consolidated Financial Statements.
fourth quarter of 2018.
Research, Development and Commercialization Partners
Bayer
In May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. We were responsible for completing a Phase 2 study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis. Under the terms of the agreement, we received a $100 million upfront payment in the second quarter of 2015. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx, which Bayer licensed. In conjunction with the decision to advance these programs, we received a $75 million payment from Bayer. We are conducting a Phase 2b study evaluating IONIS-FXIIn October 2019, Bayer decided it would advance IONIS-FXI-LRx in people with end-stage renal disease on hemodialysis to finalize dose selection. Additionally, we plan to develop IONIS-FXI-LRx through Phase 1. Following these studies and Bayer's decision to further advance these programs, following positive clinical results. Bayer will beis now responsible for all global development, regulatory and commercialization activities and costs for both drugs.the FXI program. We are eligible to receive additional milestone payments as each drugthe FXI program advances toward the market. In total overOver the term of ourthe collaboration, we are eligible to receive up to $385 million in license fees, milestone payments and other payments. In addition, we are eligible to receive tiered royalties in the low to high 20 percent range on gross margins of both drugsmedicines combined. From inception through February 2018, weWe have generated over $175$185 million under this collaboration.
For additional details about our collaboration agreement with Bayer,through February 2020, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements,a $10 million milestone payment we earned in the Notes to the Consolidated Financial Statements.fourth quarter of 2019 when Bayer decided it would advance IONIS-FXI-LRx.
In March 2010, we entered into an alliance with GSK using our antisense drug discovery platform to discover and develop new drugsmedicines against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. In August 2017, as partUnder the collaboration, we received upfront payments of a reprioritization of its pipeline and strategic review of its Rare Diseases business,$35 million. Our collaboration with GSK declined its options for inotersen, our Phase 3 drug to treat people with ATTR, and IONIS-FB-LRx (formerly IONIS-GSK4-LRx), an antisense drug to treat complement-mediated diseases. We are continuing to advance each of these drugs independently.
GSK, consistent with its focus on treatments for infectious diseases, continues to advanceincludes two drugsmedicines targeting hepatitis B virus, or HBV, under our collaboration:HBV: IONIS-HBVRx and IONIS-HBV-LRx. GSK is currently conducting Phase 2 studies for both of these drugs,, which we designed to reduce the production of viral proteins associated with HBV infection. In March 2016, we andthe third quarter of 2019, following positive Phase 2 results, GSK amended the development plan for IONIS-HBVRx to allow GSK to conduct all further development activities for thislicensed our HBV program. GSK hasis responsible for all global development, regulatory and commercialization activities and costs for the exclusive option to license the drugs resulting from this alliance at Phase 2 proof-of-concept for a license fee.
HBV program. Under our agreement, if GSK successfully develops these drugsmedicines and achieves pre-agreed sales targets, we could receive license fees and milestone payments of more thanup to $262 million. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any product that GSK successfully commercializes under this alliance. From inception through February 2018, weWe have generated more than $162over $185 million in payments under this alliance with GSK.
For additional details about our collaboration agreement with GSK,through February 2020, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements,a $25 million license fee we earned in the Notes tothird quarter of 2019 when GSK licensed the Consolidated Financial Statements.HBV program.
In December 2014, we entered into a collaboration agreement with Janssen Biotech, Inc. to discover and develop antisense drugsmedicines that can be locally administered, including oral delivery, to treat autoimmune disorders of the GI tract. Janssen hashad the option to license drugsmedicines from us through the designation of a development candidatecandidates for up to three programs. Under our collaboration, Janssen licensed ION253 in November 2017, which is currently in preclinical development. Prior to option exerciseJanssen’s license of ION253, we arewere responsible for the discovery activities to identify a development candidate. Ifcandidates. Under the license, Janssen exercises an option for one of the programs, it will beis responsible for the global development, regulatory and commercial activities under that program. Under our collaboration, Janssen licensed IONIS-JBI1-2.5Rx in July 2016 and IONIS-JBI2-2.5Rx in November 2017.for ION253. Under the terms of the agreement, we received $35 million in upfront payments. We are eligible to receive up to more than $800 million in milestone payments and license fees for these programs. In addition, we are eligible to receive tiered royalties up to the near teens on net sales from any drugsmedicines resulting from this collaboration. From inceptionWe are eligible to receive up to $285 million in milestone payments and license fees for ION253. We have generated over $75 million through February 2020.
Roche
Huntington’s Disease
In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for HD based on our antisense technology. Under the agreement, we discovered and developed tominersen, an antisense medicine targeting HTT protein. We developed tominersen through completion of our Phase 1/2 clinical study in people with early stage HD. In December 2017, upon completion of the Phase 1/2 study, Roche exercised its option to license tominersenand is now responsible for the global development, regulatory and commercialization activities and costs for tominersen. Under the terms of the agreement, we received an upfront payment of $30 million in April 2013. We are eligible to receive up to $365 million in a license fee and milestone payments as tominersen advances. In addition, we are eligible to receive up to $136.5 million in milestone payments for each additional medicine successfully developed. We are also eligible to receive tiered royalties up to the mid-teens on net sales from any product resulting from this alliance. We have generated over $145 million through February 2020, including $35 million in milestone payments we generated in the first quarter of 2019 when Roche dosed the first patient in a Phase 3 study for tominersen.
IONIS-FB-LRx for Complement-Mediated Diseases
In October 2018, we generated more than $70 million in payments under this collaboration, including $10 million in 2017 for the license of IONIS-JBI2-2.5Rx and the initiation ofentered into a Phase 1 study of IONIS-JBI1-2.5Rx.
For additional details about our collaboration agreement with Janssen, includingRoche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases. We are currently conducting Phase 2 studies in two disease indications for IONIS-FB-LRx, one for the treatment of patients with GA, the advanced stage of dry AMD, and a second for the treatment of patients with IgA nephropathy. Roche has the option to license IONIS-FB-LRx at the completion of these studies. Upon licensing, Roche will be responsible for all further global development, regulatory and commercialization activities and costs. Under the terms of this agreement, we received a $75 million upfront payment in October 2018. We are eligible to receive up to $684 million in milestone payments and license fees. In addition, we are also eligible to receive tiered royalties from the high teens to twenty percent on net sales.
Akcea Collaborations
The following collaboration agreements relate to Akcea, our majority owned affiliate. Our consolidated results include all the revenue earned, cash received and expenses incurred under these collaboration agreements. We reflect the noncontrolling interest attributable to other financial informationowners of Akcea’s common stock in a separate line on the statement of operations and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.a separate line within stockholders’ equity on our consolidated balance sheet.
In January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Under the collaboration agreement, Novartis has an exclusive option to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with the FDA and providing active pharmaceutical ingredient, or API, for each drug. If Novartis exercises an option for one of these drugs, Novartis will be responsible for all further global development, regulatory and commercialization activities and costs for such drug.
Akcea received a $75 million upfront payment in the first quarter of 2017,2017. In February 2019, Novartis licensed AKCEA-APO(a)-LRx and we earned a $150 million license fee. Novartis is responsible for conducting and funding all future development, regulatory and commercialization activities for AKCEA-APO(a)-LRx, including a global Phase 3 cardiovascular outcomes study, which Novartis initiated in December 2019.In connection with Novartis’ license of AKCEA-APO(a)-LRx, Akcea and Novartis established a more definitive framework under which it retained $60 million and paid us $15 million as a sublicense fee. Ifthe companies would negotiate the co-commercialization of AKCEA-APO(a)-LRx in selected markets. Included in this framework is an option by which Novartis exercisescould solely commercialize AKCEA-APO(a)-LRx in exchange for Novartis paying Akcea increased commercial milestone payments based on sales of AKCEA-APO(a)-LRx. When Novartis decided to not exercise its option for a drug, Novartis will payAKCEA-APOCIII-LRx, Akcea a license fee equalretained rights to $150 million for each drug it licenses. In addition,develop and commercial AKCEA-APOCIII-LRx.
Under the collaboration, Akcea is eligible to receive up to $600 million and $530$675 million in milestone payments related to AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx, respectively. Akcea plans to co-commercialize any licensed drug commercialized by Novartis in selected markets, under terms and conditions that it plans to negotiate with Novartis in the future, through the specialized sales force Akcea is building to commercialize volanesorsen.. Akcea is also eligible to receive tiered royalties in the mid-teens to low twenty20 percent range on net sales of AKCEA-APO(a)-LRx. We have generated approximately $345 million through February 2020 under this collaboration. Akcea paid us a portion of the upfront payment it received from Novartis in 2017 and AKCEA-APOCIII-LRx. Akcea50 percent of the license fee it received from Novartis in 2019 and will pay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee.fees.
In conjunction with this collaboration, we and Akcea entered into a Stock Purchase Agreement, or SPA with Novartis. As part of the SPA, Novartis purchased 1.6 million shares of our common stock for $100 million in the first quarter of 2017 and purchased $50 million of Akcea’s common stock at the IPO price concurrent with the IPO in July 2017.
For additional details about our and Akcea’s collaboration agreement with Novartis, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.Pfizer
In April 2013, we formed an allianceOctober 2019, Akcea initiated a collaboration with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatmentsPfizer for HD based on our antisense technology. Under the agreement, we discovered and developed IONIS-HTTlicense of AKCEA-ANGPTL3-LRx an antisense drug targeting HTT protein, through completion of our Phase 1/2a clinical study into treat people with early stage HD. In December 2017, upon completioncardiovascular and metabolic diseases. Akcea conducted a Phase 2 study of AKCEA-ANGPTL3-LRx for the Phase 1/2a study, Roche exercised its option to license IONIS-HTTRx andtreatment of non-alcoholic fatty liver disease, or NAFLD. Pfizer is now responsible for the globalall development and regulatory activities and commercialization activities for IONIS-HTTRx. costs beyond those associated with this recently completed Phase 2 study.
Under the terms of the agreement, Akcea received a $250 million upfront license fee. Akcea is also eligible to receive development, regulatory and sales milestone payments of up to $1.3 billion and tiered royalties in the mid-teens to low 20 percent range on annual worldwide net sales. Akcea has retained the rights to co-commercialize AKCEA-ANGPTL3-LRx in the U.S. and certain additional markets. The license fee, milestone payments and royalties will be split equally between us and Akcea. During the fourth quarter of 2019, we received an upfront 6.9 million shares of Akcea common stock for payment of $30the $125 million sublicense fee Akcea owed us.
PTC Therapeutics
In August 2018, Akcea entered into an exclusive license agreement with PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in April 2013. We areLatin America. Under the license agreement, Akcea is eligible to receive up to $365$26 million in a license fee and milestone payments. In addition, we areAkcea is eligible to receive uproyalties from PTC in the mid-20 percent range on net sales in Latin America for each medicine. PTC’s obligation to $137pay Akcea royalties begins on the earlier of 12 months after the first commercial sale of a product in Brazil or the date that PTC recognizes revenue of at least $10 million in milestoneLatin America. Consistent with the agreements between Ionis and Akcea, the companies will share all payments, for each additional drug successfully developed.including royalties. We are also eligible to receive tiered royalties up to the mid-teens on sales from any product resulting from this alliance. From inception through February 2018, we have generated over $105$20 million in payments under this alliance with Roche,through February 2020, including $48$6 million in 2017 primarily for the license of IONIS-HTTRx.
For additional details about our collaboration agreement with Roche, including other financial information and termination provisions, see Note 6, Collaborative Arrangements and Licensing Agreements,when WAYLIVRA was approved in the Notes toEU in the Consolidated Financial Statements.second quarter of 2019 and $4 million when PTC received approval for TEGSEDI in Brazil in the fourth quarter of 2019.
Satellite Company Partnerships
In 2006, we exclusively licensed to Achaogen, Inc. specific know-how, patents and patent applications relating to aminoglycosides. In connection with the license, Achaogen issued to us $1.5 million of Achaogen stock. Achaogen is developing plazomicin, an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen. If Achaogen successfully develops and commercializes two drugs under our agreement, we will receive payments totaling up to $49.3 million for the achievement of key clinical, regulatory and sales events. The FDA set a PDUFA date of June 25, 2018 for plazomicin. Achaogen also plans to submit an MAA to the EMA in 2018. Through February 2018, we have generated $7 million in milestone payments from Achaogen. We are also eligible to receive low single digit royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development, regulatory and commercialization activities of plazomicin.
Other Agreements
Alnylam Pharmaceuticals, Inc.
In March 2004, we entered into an alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of theour agreement with Alnylam, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees from Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. For each drug Alnylam develops under this alliance, we may receive up to $3.4 million in milestone payments. We also have the potential to earn a portion of payments that Alnylam receives from licenses of our technology it grants to its partners, plus royalties. We retained rights to a limited number of double-stranded RNAi therapeutic targets and all rights to single-stranded RNAi, or ssRNAi, therapeutics.
In turn, Alnylam nonexclusively licensed to us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize single-stranded antisense therapeutics, ssRNAi therapeutics, and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugsmedicines targeting a limited number of therapeutic targets on a nonexclusive basis. If we develop or commercialize an RNAi-based drug using Alnylam’s technology, we will pay Alnylam up to $3.4 millionAdditionally, in milestone payments for specified development and regulatory events, plus royalties. To date, we do not have an RNAi-based drug in development.
In 2015, we and Alnylam entered into an alliance in which we formed ancross-licensed intellectual property cross-license under whichproperty. Under this alliance, we and Alnylam each obtained exclusive license rights to four therapeutic programs. Alnylam granted us an exclusive, royalty-bearing license to its chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four targets, including FXI and Apo(a) and two other targets. In exchange, we granted Alnylam an exclusive, royalty-bearing license to our chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four other targets. Alnylam also granted us a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for single-stranded antisense therapeutics. In turn, we granted Alnylam a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for double-stranded RNAi therapeutics. Through February 2018, we have generated over $73 million from Alnylam.
Antisense Therapeutics Limited
In 2001, we licensed ATL1102 and ATL1103 to ATL, an Australian company publicly traded on the Australian Stock Exchange. ATL completed a Phase 2a efficacy and safety trial and has also completed a chronic toxicology study in primates to support a potential Phase 2b trial of ATL1102 in people with MS. In addition, ATL is currently developing ATL1103 for growth and sight disorders. We are eligible to receive royalties on sales of ATL1102 and ATL1103. We may also receive a portion of the fees ATL receives if it licenses ATL1102 or ATL1103.
Atlantic Pharmaceuticals Limited
In March 2007, we licensed alicaforsen to Atlantic Pharmaceuticals, a UK-based specialty pharmaceutical company founded in 2006. Atlantic Pharmaceuticals is developing alicaforsen for the treatment of UC and other inflammatory diseases. Atlantic Pharmaceuticals is initially developing alicaforsen for pouchitis, a UC indication, followed by UC and other inflammatory diseases. In 2017, under a rolling submission agreement with the FDA, Atlantic Pharmaceuticals filed the nonclinical data package of its NDA for alicaforsen to treat pouchitis. Alicaforsen has also been granted FDA Fast-Track designation, plus U.S. and European Orphan Drug designations for this indication. In exchange for the exclusive, worldwide license to alicaforsen, we received a $2 million upfront payment from Atlantic Pharmaceuticals in the form of equity. In 2010, Atlantic Pharmaceuticals began supplying alicaforsen under international named patient supply regulations for people with IBD for which we receive royalties. Under the agreement, we could receive milestone payments totaling up to $1.4 million for the achievement of regulatory milestones for multiple indications.
Dynacure, SAS
In October 2016, we entered into a collaboration with Dynacure to discover, develop and commercialize an antisense drug for the treatment of neuromuscular diseases. We and Dynacure shared research responsibilities to identify a drug candidate. In November 2017, Dynacure licensed IONIS-DNM2-2.5Rx, a drug targeting dynamin 2 for the treatment of centronuclear myopathy, from us. Upon licensing, Dynacure assumed all responsibility for development and commercialization for IONIS-DMN2-2.5Rx. Under the terms of the agreement, we obtained a 15 percent equity ownership in Dynacure upon the initiation of the collaboration. We received additional equity and convertible notes in Dynacure for the license of IONIS-DMN2-2.5Rx in 2017. We recorded a full valuation allowance for all of the equity and convertible debt we received from Dynacure because realization of value from the equity is uncertain. If Dynacure advances a target under this collaboration, we could receive cash or equity up to more than $210 million in a license fee and milestone payments for specified development, regulatory and sales events. In addition, we are eligible to receive royalties on future product sales of the drug under this collaboration.
Regulus Therapeutics Inc.
In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-targeting therapeutics. We and Alnylam retain rights to develop and commercialize, on pre-negotiated terms, microRNA therapeutic products that Regulus decides not to develop either by itself or with a partner. Regulus is addressing therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs may act as master regulators of the genome, affecting the expression of multiple genes in a disease pathway, microRNA therapeutics define a new platform for drug discovery and development. MicroRNAs may also prove to be an attractive new tool for characterizing diseases. Regulus’ focus is on drug discovery and development efforts for diseases with significant unmet medical need in organs to which we have been able to preferentially deliver oligonucleotide therapeutics effectively, such as the liver and kidney. Regulus currently has two drugs in clinical development. Regulus is studying RGLS4326 in a Phase 1 single ascending dose study designed to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of RGLS4326 administered subcutaneously in healthy volunteers. We are eligible to receive royalties on any future product sales of these drugs.
Suzhou Ribo Life Science Co., Ltd.
In April 2017, we entered into a collaboration with Ribo to develop and commercialize RNA-targeted therapeutics in China. We licensed IONIS-AR-2.5Rx, IONIS-GCGRRx and IONIS-EZH2-2.5Rx to Ribo under our collaboration to develop and commercialize these drugs in China.In addition, Ribo will be responsible for conducting a multi-year research and drug discovery program to identify drugs that utilize our ssRNAi technology. Following the identification of a development candidate, Ribo may exercise its option to license each drug by paying us a license fee. For each drug that Ribo licenses, Ribo will be responsible for all development and commercialization activities and costs in China. We retained the rights to develop and commercialize ssRNAi technology and all drugs under the collaboration outside of China. Ribo will provide us a royalty-free license to the data and intellectual property created under the collaboration.
Under the agreement, we received an up-front payment of $2 million. We also obtained a nine percent equity ownership in Ribo. We are eligible to receive up to $153 million in license fees and milestone payments. In addition, we are eligible to receive tiered royalties up to the mid-twenty percent range on sales from any drugs resulting from this collaboration. From inception through February 2018, we have generated $2 million in payments under this collaboration with Ribo.
The University of Texas MD Anderson Cancer Center
In May 2016, we entered into a collaboration agreement with the University of Texas MD Anderson Cancer Center to identify cancer targets and create novel antisense drugs to treat cancer together. In the collaboration, we and MD Anderson are working together to validate novel “undruggable” cancer targets selected based on human genomic data. We are leading the drug discovery efforts against mutually agreed upon novel targets and MD Anderson is leading development activities through clinical proof of concept. Following clinical proof of concept, we and MD Anderson plan to identify a partner to complete development and to commercialize each drug with us leading business development efforts. Under the five year collaboration, we and MD Anderson will evenly share costs specific to our collaboration.
For additional details about our satellite company arrangements, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.
External Project Funding
We are pursuing discovery and development projects that provide us with new therapeutic applications for antisense drugs. These programs represent opportunities for us and our technology. In some cases, we have funded these studies through support from our partners or disease advocacy groups and foundations.
Starting in November 2007, CHDI provided financial and scientific support to our Huntington’s disease drug discovery program through our development collaboration. In April 2013, we formed an alliance with Roche to develop treatments for Huntington’s disease. Under the terms of our agreement with CHDI, we will reimburse CHDI for a portion of its support of our Huntington’s disease program out of the payments we receive from Roche.
Cystic Fibrosis Foundation
In August 2016, we entered into a collaboration agreement with the Cystic Fibrosis Foundation to discover and advance a drug for the treatment of Cystic Fibrosis. Under this agreement, we received upfront payments of $1 million and we are eligible to receive additional milestone payments of up to $2 million. Under the agreement, we and the Cystic Fibrosis Foundation will evenly share the first $3 million of costs specific to our collaboration. We are obligated to pay the Cystic Fibrosis Foundation up to $18 million upon achieving specific regulatory and sales events if we advance a drug under our collaboration. From inception through February 2018, we generated nearly $3 million under this collaboration, including $1 million we earned in 2017 for advancing IONIS-ENAC-2.5Rx.
The Ludwig Institute; Center for Neurological Studies
In October 2005, we entered intoWe have a collaboration agreement with the Ludwig Institute, the Center for Neurological Studies and researchers from these institutions to discover and develop antisense drugsmedicines for ALS and other neurodegenerative diseases. Under this agreement, we agreed to pay the Ludwig Institute and the Center for Neurological Studies modest milestone payments and royalties on any antisense drugsmedicines resulting from the collaboration.
For additional details about our external project funding collaborations, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.
ManufacturingIntellectual Property Sale and Licensing Agreements
We have a broad patent portfolio coveringinternal capabilities to manufacture our products and technologies.medicines. We believe our patent estate represents the largest and most valuable nucleic acid therapeutics-oriented patent estate in the pharmaceutical industry. While the principal purpose of our intellectual property portfolio is to protect our products and those of our partners described above, our intellectual property is a strategic asset that we are exploiting to generate near-term revenues and that we expect will also provide us with revenue in the future. We have an active intellectual property sales and licensing program in which we sell or license aspects of our intellectual property to companies. Through this program, we also license our non-antisense patents. To date, we have generated more than $510 million from our intellectual property sale and licensing program that helps support our internal drug discovery and development programs.
In-Licensing Arrangements
University of Massachusetts
We have a license agreement with the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to SPINRAZA. We paid the University of Massachusetts nominal amounts for license fees and milestone payments we received. We also pay a low single digit royalty on sales of SPINRAZA.
Cold Spring Harbor Laboratory
We have a collaboration and license agreement with the Cold Spring Harbor Laboratory under which we acquired an exclusive license to the Cold Spring Harbor Laboratory’s patent rights related to SPINRAZA. We paid Cold Spring Harbor Laboratory nominal amounts for license fees and milestone payments we received in 2017 and a low single digit royalty on sales of SPINRAZA. Additionally, we owe a low single digit royalty on future sales of SPINRAZA.
For additional details about our Intellectual Property Sale and Licensing arrangements, see Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.
Manufacturing
In the past, except for small quantities, it was generally expensive and difficult to produce chemically modified oligonucleotides like the antisense drugs we use in our research and development programs. As a result, we have dedicated significant resources to develop ways to improve manufacturing efficiency and capacity. Since we can use variants of the same nucleotide building blocks and the same type of equipment to produce our oligonucleotide drugs,medicines, we found that the same techniques we used to efficiently manufacture one oligonucleotide drugmedicine could help improve the manufacturing processes for many other oligonucleotide drugs.medicines. By developing several proprietary chemical processes to scale up our manufacturing capabilities, we have greatly reduced the cost of producing oligonucleotide drugs.medicines. For example, we have significantly reduced the cost of raw materials through improved yield efficiency, while at the same time increasing our capacity to make the drugs.medicines. Through both our internal research and development programs and collaborations with outside vendors we may achieve even greater efficiency and further cost reductions.
Our drug substance manufacturing facility is located in a 28,700 square foot building in Carlsbad, California. We purchased this building in 2017. In addition, we have a 25,800 square foot building that houses support functions for our manufacturing activities. We lease this facility under a lease that has an initial term ending in June 2021 with an option to extend the lease for up to two additional five-year periods. Our manufacturing facility is subject to periodic inspections by the FDA and foreign equivalents to ensure that it is operating in compliance with current Good Manufacturing Practices, or cGMP, requirements.
As part of our collaborations we may agree to manufacture clinical trial materials and/or commercial supply for our partners. For example, in the past we have manufactured clinical supply materials for AstraZeneca, Bayer, Biogen, GSK and Novartis. We believe that with reasonably anticipated benefits from increases in scaleNovartis and improvements in chemistry, we can manufacture antisense drugs at commercially competitive prices.commercial supply materials for Biogen.
We believe we have sufficient manufacturing capacity at our own facility or at contract manufacturing organizations, or CMOs, to meet our current internal research, development and potential commercial needs, including the ongoing Phase 3 clinical trial we have for volanesorsen, as well as our current and future obligations under existing agreements with our partners for research, development and commercial needs. Specifically, we have the following in place for our approved drug, SPINRAZA and our drugs currently under regulatory review, volanesorsen and inotersen:
SPINRAZA
Pursuant to our collaboration with Biogen, Biogen is responsible for SPINRAZA drug supply. Biogen has contracted with us to manufacture API for SPINRAZA through September 2018.
Volanesorsen
We have supplied Akcea either through our manufacturing processes or through our outside vendors, including API and finished drug product to complete its ongoing clinical study for volanesorsen. We have also supplied the API and the finished drug product for volanesorsen’s launch. We believe the API and drug product is adequate for at least the first two years of volanesorsen’s launch. Akcea plans to leverage our relationships with contract manufacturing organizations, or CMO's, to procure its own long-term raw material and drug supplies at competitive prices in the future.
Inotersen
For inotersen’s commercial launch, we are using CMOs to produce custom raw materials, API and finished goods. Our CMO partners have extensive technical expertise and cGMP experience. We believe our current network of CMO partners are capable of providing sufficient quantities to meet anticipated commercial demands. Additionally, we continue to evaluate further relationships with additional suppliers to increase overall capacity as well as reduce further risks.and diversify our supply chain. While we believe that there are alternate sources of supply that can satisfy our commercial requirements, we cannot be certainit is possible that identifying and establishing relationships with such sources, if necessary, would not result in significant delay or material additional costs. We also cannot provide assurance that we will notcould experience a disruption in supply from our current CMO partners.
CMOs are subject to the FDA’s cGMP requirements and other rules and regulations prescribed by foreign regulatory authorities. We depend on our CMO partners for continued compliance with cGMP requirements and applicable foreign standards.
Specifically, we have the following in place for our approved medicines, SPINRAZA, TEGSEDI and WAYLIVRA and our medicines in Phase 3 development: tominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx:
SPINRAZA
Pursuant to our collaboration with Biogen, Biogen is responsible for SPINRAZA drug supply. We provided Biogen with API for SPINRAZA in 2018 under our manufacturing agreement with Biogen, which ended in September 2018. Biogen has an oligonucleotide synthesis manufacturing facility that gives it the capability to manufacture SPINRAZA.
TEGSEDI
For TEGSEDI’s commercial drug supply, Akcea is using CMOs to produce custom raw materials, API and finished goods. Akcea’s CMO partners have extensive technical expertise and cGMP experience. We believe Akcea’s current network of CMO partners are capable of providing sufficient quantities to meet anticipated commercial demands.
WAYLIVRA
We have supplied the API and the finished drug product for WAYLIVRA’s commercial launch. We believe Akcea has sufficient API and drug product for at least the first two years of WAYLIVRA’s commercial launch. Akcea plans to leverage its relationships with CMOs to procure its own long-term raw material and drug supplies at competitive prices in the future.
Tominersen
Pursuant to our collaboration with Roche, Roche is responsible for tominersen drug supply.
Tofersen
Pursuant to our collaboration with Biogen, Biogen is responsible for tofersen drug supply. We provided Biogen with the first batch of API for tofersen in 2015 to support the first in human studies under our collaboration agreement with Biogen. Biogen has an oligonucleotide synthesis manufacturing facility that gives it the capability to manufacture tofersen for all subsequent clinical studies and potential commercialization, including providing the API for the current Phase 3 study.
AKCEA-APO(a)-LRx
We have supplied the API and the finished drug product for AKCEA-APO(a)-LRx which Akcea sold to Novartis to use in its Phase 3 study. Pursuant to our collaboration with Novartis, Novartis is responsible for any further AKCEA-APO(a)-LRx drug supply.
AKCEA-TTR-LRx
We have supplied the API and the finished drug product for AKCEA-TTR-LRx that we believe will be sufficient through the completion of the Phase 3 program for AKCEA-TTR-LRx. Akcea plans to leverage its relationships with CMOs to procure its own long-term raw material and drug supplies at competitive prices in the future.
LICA Medicines
We have manufactured limited supplies of our LICA drugsmedicines for our preclinical and clinical studies. We have purchased additional supplies ofalso used CMOs to manufacture our LICA drugs through a CMO.medicines. LICA enables lower doses than unconjugated oligonucleotides. With our expertise in optimizing manufacturing of oligonucleotides, we believe we can develop new processes to scale up manufacturing of our LICA drugsmedicines at commercially competitive prices.prices or use CMO’s.
Patents and Proprietary Rights
Our success depends, in part, on our ability to obtain patent protection for our products in the United StatesU.S. and other countries. We own or have exclusively licensed a substantial patent estate with numerous issued patents worldwide protecting our products and, more generally, our platform for development and commercialization of oligonucleotide therapeutics. We focus our resources on patents and new patent applications that drive value for our company.
We own or control patents that provide exclusivity for products in our pipeline and patents that provide exclusivity for our core technology in the field of antisense more generally. Our core technology patents include claims to chemically modified nucleosides and oligonucleotides as well as antisense drugmedicine designs utilizing these chemically modified nucleosides. These core claims are each independent of specific therapeutic target, nucleic acid sequence, or clinical indication. We also own a large number of patents claiming antisense compounds having nucleic acid sequences complementary to therapeutic target nucleic acids, independent of the particular chemical modifications incorporated into the antisense compound. Most importantly, we seek and obtain issued patent claims to specifically protect each of our drugs.medicines. For example, we file and seek to obtain claims covering each drug’s nucleic acid sequence and precise drug design. In sum, we maintain our competitive advantage in the field of antisense technology by protecting our core platform technology which applies to most of our drugs, and by creating multiple layers of patent protection for each of our specific drugsmedicines in development.
Type of Patent Claim (Broadly Applicable to Specific) | | | | Description |
1.● Chemically Modified Nucleosides and Oligonucleotides (target and sequence independent)
2.● Antisense Drug Design Motifs (target and sequence independent)
3.● Therapeutic Methods (sequence and chemistry independent)
4.● Antisense Sequence (chemistry independent)
5. ●Drug Composition
| | | | 1. Target and sequence independent
2. Sequence independent
3. Chemistry independent
4. Specific claim to drug candidates
|
Chemically Modified Nucleosides and Oligonucleotides
The most broadly applicable of our patents are those that claim modified nucleosides and oligonucleotides comprising the modified nucleosides that we incorporate into our antisense drugsmedicines to increase their therapeutic efficacy. Nucleosides and chemically modified nucleosides are the basic building blocks of our antisense drugs,medicines, therefore claims that cover any oligonucleotide incorporating one of our proprietary modified nucleosides can apply to a wide array of antisense mechanisms of action as well as several therapeutic targets. Of particular note are our patents covering our proprietary 2’-O-(2-methoxy) ethyl, or “MOE,” modified nucleosides, incorporated into many of our second generation development compounds, as well as our constrained-ethyl nucleosides, or “cEt” nucleosides incorporated into our Generation 2.5 compounds.
The following are some of our patents in this category in key jurisdictions (U.S., Europe and Japan):
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 7,101,993 | | OLIGONUCLEOTIDES CONTAINING 2’O-MODIFIED PURINES | | 2023 | | Covers certain MOE nucleosides and oligonucleotides containing these nucleotides. | | 7,101,993 | | OLIGONUCLEOTIDES CONTAINING 2’O-MODIFIED PURINES | | 2023 | | Covers certain MOE nucleosides and oligonucleotides containing these nucleotides. |
| United States | | 7,399,845 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. | | 7,399,845 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. |
| United States | | 7,741,457 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. | | 7,741,457 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. |
| United States | | 8,022,193 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers oligonucleotides containing cEt nucleoside analogs. | | 8,022,193 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers oligonucleotides containing cEt nucleoside analogs. |
| United States | | 7,569,686 | | COMPOUNDS AND METHODS FOR SYNTHESIS OF BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers methods of synthesizing our cEt nucleosides. | | 7,569,686 | | COMPOUNDS AND METHODS FOR SYNTHESIS OF BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers methods of synthesizing our cEt nucleosides. |
| Europe | | EP1984381 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. | | 1984381 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. |
| Europe | | EP2314594 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt oligonucleotides and methods of use. | | 2314594 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt oligonucleotides and methods of use. |
| Japan | | JP5342881 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. | | 5342881 | | 6-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | Covers our cEt nucleosides and oligonucleotides containing these nucleoside analogs. |
Antisense Drug Design Motifs
Other of ourWe also have patents that claim oligonucleotides comprising antisense drug design motifs, or patterns of nucleoside modifications at specified positions in the oligonucleotide. Patent claims covering our antisense drug design motifs are independent of nucleic acid sequence, so they cover oligonucleotides having the recited motif, regardless of cellular target or clinical indication. The claimed motifs generally confer properties that optimize oligonucleotides for a particular antisense mechanism of action, such as ribonuclease H, or H(RNase H,H), RNAi, or splicing. We have designed oligonucleotides incorporating motifs, which we refer to as chimeric compounds or gapmers, to exploit the RNase H mechanism to achieve target RNA reduction. Almost all of our drugs,medicines, including volanesorsenTEGSEDI and inotersen,WAYLIVRA, but excluding SPINRAZA, contain this gapmer antisense drug design motif. We own a U.S. patent that covers all of our second generation MOE gapmer antisense drugsmedicines until March of 2023.
In addition, we have pursued patent claims to antisense drug design motifs incorporating bicyclic nucleoside analogs, which include both locked nucleic acids, or “LNA” and cEt. In Europe, we have been granted claims drawn to certain short gapmer oligonucleotides with bicyclic nucleosides, which include locked nucleic acids, in the wings for the treatment of cardiovascular or metabolic disorders. We have also successfully obtained issued patent claims covering our Generation 2.5 gapmer antisense drug design motifs that incorporate our cEt modified nucleosides. Santaris opposed granted European patents EP2092065 and EP2410053. In April 2015, the claims of EP2092065 were successfully upheld in amended form and in January 2017, EP2410053 was upheld with only minor amendment. The following patents are some examples of our issued patents in this category in key jurisdictions:
| Jurisdiction | | Patent/ Application No. | | Title | | Expiration | | Description of Claims |
| United States | | 7,015,315 | | GAPPED OLIGONUCLEOTIDES | | 2023 | | 2’-O-alkyl-O-alkyl gapmer oligonucleotides. |
| Europe | | EP2021472 | | COMPOUNDS AND METHODS FOR MODULATING GENE EXPRESSION | | 2027 | | Short gapmer oligonucleotides, having wings of 2 bicyclic nucleosides, and a gap of 10 deoxynucleotides for the treatment of cardiovascular or metabolic disorders |
| United States | | 7,750,131 | | 5’-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | 5’-Methy BNA containing gapmer compounds |
| Europe | | EP2092065 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having wings comprised of 2’-modifed and LNA nucleosides |
| Europe | | EP2410053 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having wings comprised of 2’-MOE and bicyclic nucleosides |
| Japan | | JP 5665317 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having wings comprised of 2’-MOE and bicyclic nucleosides |
| Europe | | EP2673361 | | OLIGOMERIC COMPOUNDS COMPRISING BICYCLIC NUCLEOTIDES AND USES THEREOF | | 2032 | | Gapmer having at least one bicyclic nucleoside, 2’-modified nucleoside, and 2’-deoxynucleoside in either the 5’- or 3’-wing. |
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 7,015,315 | | GAPPED OLIGONUCLEOTIDES | | 2023 | | 2’-O-alkyl-O-alkyl gapmer oligonucleotides. |
| Europe | | 2021472 | | COMPOUNDS AND METHODS FOR MODULATING GENE EXPRESSION | | 2027 | | Short gapmer oligonucleotides, having wings of 2 bicyclic nucleosides, and a gap of 10 deoxynucleotides for the treatment of cardiovascular or metabolic disorders |
| United States | | 7,750,131 | | 5’-MODIFIED BICYCLIC NUCLEIC ACID ANALOGS | | 2027 | | 5’-Methyl BNA containing gapmer compounds |
| United States | | 9,550,988 | | ANTISENSE COMPOUNDS | | 2028 | | Gapmer oligonucleotides having BNA nucleosides and 2’-MOE nucleosides |
| United States | | 10,493,092 | | ANTISENSE COMPOUNDS | | 2028 | | Gapmer oligonucleotides having BNA nucleosides and 2’-MOE nucleosides and/or 2’-OMe nucleosides |
| Europe | | 2092065 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having 2’-modifed and LNA nucleosides |
| Europe | | 2410053 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having wings comprised of 2’-MOE and bicyclic nucleosides |
| Europe | | 2410054 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer compounds having a 2’-modifed nucleoside in the 5’-wing and a bicyclic nucleoside in the 3’-wing |
| Japan | | 5665317 | | ANTISENSE COMPOUNDS | | 2027 | | Gapmer oligonucleotides having wings comprised of 2’-MOE and bicyclic nucleosides |
| Europe | | 3067421 | | OLIGOMERIC COMPOUNDS COMPRISING BICYCLIC NUCLEOTIDES AND USES THEREOF | | 2032 | | Gapmer oligonucleotides having at least one bicyclic, one 2’-modified nucleoside and on 2’-deoxynucleoside |
LIgand-Conjugated Antisense (LICA) Technology
We have also pursued patent claims to new chemistries created to enhance targeting of antisense drugsmedicines to specific tissues and cells in order to improve a drug’s properties. OurWe designed our N-acetyl-galactosamine, or GalNAc, LICA drugs are designedmedicines to provide an increase in potency for targets in the liver. We have successfully obtained issued patent claims covering our LICA technology conjugated to any modified oligonucleotide, including gapmers, double-stranded siRNA compounds, and fully modified oligonucleotides. The following patents are some examples of our issued patents in this category:
| Jurisdiction | | Patent/ Application No. | | Title | | Expiration | | Description of Claims | | Patent | | Title | | Expiration | | Description of Claims |
| United States | | 9,127,276 | | CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE | | 2034 | | Covers our primary THA LICA conjugated to any group of nucleosides, including gapmers, double-stranded siRNA compounds, and fully modified oligonucleotides | | 9,127,276 | | CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE | | 2034 | | Preferred THA LICA conjugated to any group of nucleosides, including gapmers, double-stranded siRNA compounds, and fully modified oligonucleotides |
| United States | | 9,181,549 | | CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE | | 2034 | | Covers our primary THA conjugate having our preferred linker and cleavable moiety conjugated to any oligomeric compound or any nucleoside having a 2’-MOE modification or a cEt modification | | 9,181,549 | | CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE | | 2034 | | Preferred THA conjugate having our preferred linker and cleavable moiety conjugated to any oligomeric compound or any nucleoside having a 2’-MOE modification or a cEt modification |
| Europe | | | 2991661 | | CONJUGATED ANTISENSE COMPOUNDS AND THEIR USE | | 2034 | | Preferred THA LICA conjugated to any group of nucleosides, including gapmers, double-stranded siRNA compounds, and fully modified oligonucleotides |
Therapeutic Methods of Treatment and Antisense Drug Sequences
In addition to our broad core patents, we also own hundreds of patents, worldwide, with claims to antisense compounds having particular sequences and compounds directed to particular therapeutically important targets or methods of achieving cellular or clinical endpoints using these antisense compounds. These “Target” patents also include claims reciting the specific nucleic acid sequences utilized by our products, independent of chemical modifications and motifs. In addition, our product specificproduct-specific patents typically include claims combining specific nucleic acid sequences with nucleoside modifications and motifs. In this way, we seek patent claims narrowly tailored to protect our productsproduct’s specifically, in addition to the broader core antisense patents described above.
SPINRAZA and Survival Motor Neuron and SPINRAZA
We believe SPINRAZA is protected from generic competition in the United StatesU.S. and Europe until at least 2030 and in Europe until 2026 by a suite of patents. These issued patents include: (i) the Bennett patent related to methods of altering mRNA processing (e.g., splicing, the mechanism of action of SPINRAZA) with a fully modified 2’MOE oligonucleotide, (ii) a patentpatents licensed from the University of Massachusetts drawn to antisense compounds having the sequence of SPINRAZA, independent of chemical modification and uses of such compounds for treating SMA, and (iii)(ii) joint patents with Cold Spring Harbor Laboratory claiming fully modified 2’MOE compositions targeting SMN2, including the precise composition of matter of SPINRAZA and methods of using such compositions. Those patents protect SPINRAZA from generic and antisense innovator competition in the United States until at least 2030. We have filed for patent term extension, to potentially extend the term beyond 2030. With Biogen’s license of SPINRAZA, we assigned our interest in these patents to Biogen. The table below lists thesome key U.S. and European issued patents protecting SPINRAZA:SPINRAZA in the U.S. and European:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 6,210,892 | | ALTERATION OF CELLULAR BEHAVIOR BY MODULATION OF MRNA PROCESSING | | 2018 | | Altering mRNA processing with a fully modified 2’MOE oligonucleotide. | | 8,361,977 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING | | 2030 | | Sequence and chemistry (full 2’-MOE) of SPINRAZA |
| United States | | 8,361,977 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING | | 2030 | | Sequence and chemistry (full 2’-MOE) of SPINRAZA | |
| Europe | | | 1910395 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING | | 2026 | | Sequence and chemistry (full 2’-MOE) of SPINRAZA |
| Europe | | 1910395 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING | | 2026 | | Sequence and chemistry (full 2’-MOE) of SPINRAZA | | 3308788 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING | | 2026 | | Pharmaceutical compositions that include SPINRAZA |
| United States | | 7,838,657 | | SPINAL MUSCULAR ATROPHY (SMA) TREATMENT VIA TARGETING OF SMN2 SPLICE SITE INHIBITORY SEQUENCES | | 2027 | | Oligonucleotides having sequence of SPINRAZA (chemistry independent) | | 7,838,657 | | SPINAL MUSCULAR ATROPHY (SMA) TREATMENT VIA TARGETING OF SMN2 SPLICE SITE INHIBITORY SEQUENCES | | 2027 | | Oligonucleotides having sequence of SPINRAZA |
| United States | | 8,110,560 | | SPINAL MUSCULAR ATROPHY (SMA) TREATMENT VIA TARGETING OF SMN2 SPLICE SITE INHIBITORY SEQUENCES | | 2025 | | Methods of using antisense oligonucleotides having sequence of SPINRAZA to alter splicing of SMN2 and/or to treat SMA | | 10,266,822 | | SPINAL MUSCULAR ATROPHY (SMA) TREATMENT VIA TARGETING OF SMN2 SPLICE SITE INHIBITORY SEQUENCES | | 2025 | | Methods of increasing exon-7 containing SMN2 mRNA in a cell using an oligonucleotide having the sequence of SPINRAZA |
| United States | | 8,980,853 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING IN A SUBJECT | | 2030 | | Methods of administering SPINRAZA | | 8,110,560 | | SPINAL MUSCULAR ATROPHY (SMA) TREATMENT VIA TARGETING OF SMN2 SPLICE SITE INHIBITORY SEQUENCES | | 2025 | | Methods of using antisense oligonucleotides having sequence of SPINRAZA to alter splicing of SMN2 and/or to treat SMA |
| United States | | | 8,980,853 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING IN A SUBJECT | | 2030 | | Methods of administering SPINRAZA |
| United States | | | 9,717,750 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING IN A SUBJECT | | 2030 | | Methods of administering SPINRAZA to a patient |
| Europe | | | 3449926 | | COMPOSITIONS AND METHODS FOR MODULATION OF SMN2 SPLICING IN A SUBJECT | | 2030 | | Antisense compounds including SPINRAZA for treating SMA |
TEGSEDI and Transthyretin
We obtained issued claims covering TEGSEDI in the U.S. and Europe. We believe the issued U.S. claims protect TEGSEDI from generic competition in the U.S. and Europe until at least 2031. We are also pursuing additional patent applications designed to protect TEGSEDI in other foreign jurisdictions. The table below lists some key issued patents protecting TEGSEDIin the U.S. and Europe:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 8,101,743 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2025 | | Antisense sequence and chemistry of TEGSEDI |
| United States | | 8,697,860 | | DIAGNOSIS AND TREATMENT OF DISEASE | | 2031 | | Composition of TEGSEDI |
| United States | | 9,061,044 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Sodium salt composition of TEGSEDI |
| United States | | 9,399,774 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Methods of treating transthyretin amyloidosis by administering TEGSEDI |
| Europe | | 2563920 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Composition of TEGSEDI |
WAYLIVRA and Apolipoprotein C-III and volanesorsen
We have obtained patent claims in the United StatesU.S. and Europe drawn to the use of antisense compounds complementary to a broad active region of human Apo C-III,ApoC-III, including the site targeted by volanesorsen. We have secured similar claims to compounds complementary to any site on human Apo C-III in Australia.WAYLIVRA. We have also obtained an issued patent claims toclaiming the specific antisense sequence and chemical composition of volanesorsenWAYLIVRA in the United States, Australia, Canada, Hong KongU.S. and Europe. TheWe believe the issued U.S. and Europe claims protect volanesorsenWAYLIVRA from generic competition in the United StatesU.S. and Europe until at least 2023.2023 and 2024, respectively. We are pursuing additional patent applications designed to protect WAYLIVRA worldwide. The table below lists some key issued patents protecting WAYLIVRA in the U.S. and Europe:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 9,624,496 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Antisense compounds specifically hybridizable within the nucleotide region of apoCIII targeted by WAYLIVRA |
| United States | | 7,598,227 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Methods of treating hyperlipidemia, lowering cholesterol levels or lowering triglyceride levels with WAYLIVRA |
| United States | | 7,750,141 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Antisense sequence and chemistry of WAYLIVRA |
| Europe | | 1622597 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2024 | | Antisense sequence and chemistry of WAYLIVRA |
| Europe | | 2441449 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2024 | | Antisense compounds specifically hybridizable within the nucleotide region of apoCIII targeted by WAYLIVRA |
| Europe | | 3002007 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2024 | | Compounds complementary to an apoCIII nucleic acid for use in therapy |
| United States | | 9,157,082 | | MODULATION OF APOLIPOPROTEIN CIII (APOCIII) EXPRESSION | | 2032 | | Methods of using APOCIII antisense oligonucleotides for reducing pancreatitis and chylomicronemia and increasing HDL |
Tominersen and Huntingtin
We obtained issued claims covering tominersen in the U.S. and Europe. We believe the issued U.S. and Europe claims protect tominersen from generic competition in the U.S. until at least 2030. We are also pursuing additional patent applications designed to protect tominersen in foreign jurisdictions. The table below lists some key issued patents protecting tominersenin U.S. and Europe:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 9,273,315 | | MODULATION OF HUNTINGTIN EXPRESSION | | 2030 | | Composition of tominersen |
| United States | | 8,906,873 | | MODULATION OF HUNTINGTIN EXPRESSION | | 2030 | | Methods of treating Huntington’s disease by administering tominersen |
| Europe | | 2475675 | | MODULATION OF HUNTINGTIN EXPRESSION | | 2030 | | Composition of tominersen |
| United States | | 7,951,934 | | COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN | | 2027 | | Antisense sequence of tominersen |
| United States | | 8,952,145 | | COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN | | 2027 | | Antisense compound specifically hybridizable within the nucleotide region of HTT targeted by tominersen |
| Europe | | 2161038 | | COMPOSITIONS AND THEIR USES DIRECTED TO HUNTINGTIN | | 2027 | | Antisense sequence of tominersen |
Tofersen and SOD-1
We believe tofersen is protected from generic competition in the U.S. until at least 2036. Additional patent protection designed to protect tofersen is being pursued in foreign jurisdictions. With Biogen’s license of tofersen, we assigned our interest in these patents to Biogen. The table below lists some key issued patents protecting tofersen in the U.S. and Europe:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 10,385,341 | | COMPOSITIONS FOR MODULATING SOD-1 EXPRESSION | | 2036 | | Composition of tofersen |
| United States | | 8,993,529 | | ANTISENSE MODULATION OF SUPEROXIDE DISMUTASE 1, SOLUBLE EXPRESSION | | 2021 | | Antisense compound specifically hybridizable within nucleotide region of SOD-1 targeted by tofersen |
| Europe | | EP2270024 | | ANTISENSE MODULATION OF SUPEROXIDE DISMUTASE 1, SOLUBLE EXPRESSION | | 2022 | | Antisense compound specifically hybridizable within nucleotide region of SOD-1 targeted by tofersen |
AKCEA-APO(a)-LRx
We believe AKCEA-APO(a)-LRx is protected from generic competition in the U.S. until at least 2034. In addition, upon approval of volanesorsenif AKCEA-APO(a)-LRx is approved by the FDA, we will seek patent term extension to recapture a portion of the term lost during FDA regulatory review, extending the term of this patent beyond 2023.2034. We are pursuing additional patent applications designed to protect volanesorsenAKCEA-APO(a)-LRx worldwide. The table below lists thesome key issued patents protecting AKCEA-APO(a)-LRxin key jurisdictions:the U.S.:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 9,624,496 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Antisense compound specifically hybridizable within the nucleotide region of apoCIII targeted by volanesorsen | | 9,574,193 | | METHODS AND COMPOSITIONS FOR MODULATING APOLIPOPROTEIN (A) EXPRESSION | | 2033 | | Compounds that include an oligonucleotide complementary to the region of the Apo(a) transcript where AKCEA-APO(a)-LRx binds |
| United States | | 7,598,227 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Methods of treating hyperlipidemia, lowering cholesterol levels or lowering triglyceride levels with volanesorsen | | 10,478,448 | | METHODS AND COMPOSITIONS FOR MODULATING APOLIPOPROTEIN (A) EXPRESSION | | 2033 | | Methods of treating hyberlipidemia using oligonucleotide complementary to the region of the Apo(a) transcript where AKCEA-APO(a)-LRx binds |
| United States | | 7,750,141 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2023 | | Antisense sequence and chemistry of volanesorsen | | 9,181,550 | | COMPOSITIONS AND METHODS FOR MODULATING APOLIPOPROTEIN (a) EXPRESSION | | 2034 | | The composition of AKCEA-APO(a)-LRx |
| Europe | | EP1622597 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2024 | | Antisense sequence and chemistry of volanesorsen | |
| Europe | | EP2441449 | | MODULATION OF APOLIPOPROTEIN C-III EXPRESSION | | 2024 | | Antisense compound specifically hybridizable within the nucleotide region of apoCIII targeted by volanesorsen | |
| United States | | 9,157,082 | | MODULATION OF APOLIPOPROTEIN CIII (APOCIII) EXPRESSION | | 2032 | | Methods of using APOCIII antisense oligonucleotides for reducing pancreatitis and chylomicronemia and increasing HDL | |
| Japan | | JP 6203707 | | MODULATION OF APOLIPOPROTEIN CIII (APOCIII) EXPRESSION | | 2032 | | Methods of using APOCIII antisense oligonucleotides having the sequence of volanesorsen for treating pancreatitis | |
| United States | | 9,593,333 | | MODULATION OF APOLIPOPROTEIN C-III (APOCIII) EXPRESSION IN LIPOPROTEIN LIPASE DEFICIENT (LPLD) POPULATIONS | | 2034 | | Methods of using APOCIII specific inhibitors for treating lipoprotein lipase deficiency | |
TransthyretinAKCEA-TTR-LRx and inotersenTransthyretin
We obtained issuedare pursuing claims covering inotersenAKCEA-TTR-LRx in the United States. The issued U.S. We believe the claims when granted will protect inotersenAKCEA-TTR-LRx from generic competition in the United StatesU.S. until at least 2031.2034. We are also pursuing additional patent applications designed to protect inotersenAKCEA-TTR-LRx in foreign jurisdictions. The table below lists the current issued patents protecting inotersenin key jurisdictions:
| Jurisdiction | | Patent No. | | Title | | Expiration | | Description of Claims |
| United States | | 8,101,743 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2025 | | Antisense sequence and chemistry of inotersen |
| United States | | 8,697,860 | | DIAGNOSIS AND TREATMENT OF DISEASE | | 2031 | | Composition of inotersen |
| United States | | 9,061,044 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Sodium salt composition of inotersen |
| United States | | 9,399,774 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Methods of treating transthyretin amyloidosis by administering inotersen |
| Japan | | JP5896175 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Composition of inotersen |
| Europe | | EP2563920 | | MODULATION OF TRANSTHYRETIN EXPRESSION | | 2031 | | Composition of inotersen |
We seek patent protection in significant markets and/or countries for each drugmedicine in development. We also seek to maximize patent term. In some cases, the patent term can be extended to recapture a portion of the term lost during FDA regulatory review. The patent exclusivity period for a drugmedicine will prevent generic drugsmedicines from entering the market. Patent exclusivity depends on a number of factors including initial patent term and available patent term extensions based upon delays caused by the regulatory approval process.
Manufacturing Patents
We also own patents claiming methods of manufacturing and purifying oligonucleotides. These patents claim methods for improving oligonucleotide drug manufacturing, including processes for large-scale oligonucleotide synthesis and purification. These methods allow us to manufacture oligonucleotides at lower cost by, for example, eliminating expensive manufacturing steps.
We also rely on trade secrets, proprietary know-how and continuing technological innovation to develop and maintain a competitive position in antisense therapeutics.
Government Regulation
Regulation by government authorities in the United StatesU.S. and other countries is a significant component in the development, manufacture and commercialization of pharmaceutical products and services. In addition to regulations enforced by the FDA and relevant foreign regulatory authorities, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state and local regulations.
Extensive regulation by United Statesthe U.S. and foreign governmental authorities governs the development, manufacture and sale of our drugs.medicines. In particular, our drugsmedicines are subject to a number of approval requirements by the FDA in the United StatesU.S. under the Federal Food, Drug and Cosmetic Act, or FDCA, and other laws and by comparable agencies in those foreign countries in which we conduct business. The FDCA and other various federal, state and foreign statutes govern or influence the research, testing, manufacture, safety, labeling, storage, recordkeeping, approval, promotion, marketing, distribution, post-approval monitoring and reporting, sampling, quality, and import and export of our drugs.medicines. State, local, and other authorities also regulate pharmaceutical manufacturing facilities and procedures.
Our manufacturing facility and our CMOs are subject to periodic inspection by the FDA and other foreign equivalents to ensure that they are operating in compliance with cGMP requirements. In addition, marketing authorization for each new drugmedicine may require a rigorous manufacturing pre-approval inspection by regulatory authorities. Post approval, there are strict regulations regarding changes to the manufacturing process, and, depending on the significance of the change, changes may require prior FDA approval. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decide to use.
The FDA must approve any new unapproved drugmedicine before a manufacturer can market it in the United States.U.S.. In order to obtain approval, we and our partners must complete clinical studies and prepare and submit an NDA to the FDA. If the FDA approves a drug,medicine, it will issue an approval letter authorizing commercial marketing of the drugmedicine and may require a risk evaluation and mitigation strategy, or REMS, to help ensure the benefits of the drugmedicine outweigh the potential risks. For example, TEGSEDI has a REMS program. The requirements for REMS can materially affect the potential market and profitability of our drugs.medicines. In foreign jurisdictions, the drug approval process is similarly demanding.
Numerous regulatory authorities in addition to the FDA, including, in the United States,U.S., the Centers for Medicare & Medicaid Services, other divisions of the U.S. Department of Health and Human Services, the U.S. Department of Justice, and similar foreign, state and local government authorities, regulate sales, promotion and other activities following drug approval. Only those claims relating to safety and efficacy that the FDA has approved may be used in labeling. PromotionalWe are only allowed to use promotional communications regarding a drug must bethat are consistent with the information in the drug’s approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
For any approved drug,medicine, domestic and foreign sales of the drugmedicine depend, in part, on the availability and amount of reimbursement by third party payors, including governments and private health plans. Private health plans may seek to manage cost and use of our drugsmedicines by implementing coverage and reimbursement limitations. Governments may also regulate or influence coverage, reimbursement and/or pricing of our drugsmedicines to control cost or affect use. Within the EU a variety of payors pay for drugs,medicines, with governments being the primary source of payment. Negotiating pricing with governmental authorities can delay commercialization. Such pricing and reimbursement factors could impact our ability, including Akcea, and that of our commercial partners including Akcea, to successfully commercialize approved drugs.medicines.
In the United StatesU.S. and foreign jurisdictions, the legislative landscape continues to evolve. There have been a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations. In particular, there have been and continue to be a number of initiatives at the United StatesU.S. federal and state levels and by foreign governments that seek to reduce healthcare costs. There has also been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in efforts to bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drugs.medicines.
Other healthcare laws that may affect our ability to operate include the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; analogous state laws governing the privacy and security of health information, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect; and the Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members.following:
| ● | The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; |
| ● | Foreign and state laws governing the privacy and security of health information, such as the General Data Protection Regulation, or GDPR, in the EU; |
| ● | The California Consumer Privacy Act, or CCPA, in California, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect; and |
| ● | The Physician Payments Sunshine Act, which requires manufacturers of medicines, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and their immediate family members. |
Our operations may be directly, or indirectly through our customers, distributors, or other business partners, subject to various federal and state fraud and abuse laws, including, without limitation, anti-kickback statutes and false claims statutes. These laws may impact, among other things, our, commercializationAkcea’s, and our partners’ proposed sales, marketing and education programs.
The U.S. Foreign Corrupt Practices Act, or FCPA, prohibits certain individuals and entities, including us, from promising, paying, offering to pay, or authorizing the payment of anything of value to any foreign government official, directly or indirectly, to obtain or retain business or an improper advantage. If we violate the FCPA, it could result in large civil and criminal penalties as well as an adverse effect on our reputation, operations, and financial condition. We could also face collateral consequences such as debarment and the loss of export privileges.
Competition
Our Business in General
Some of our drugsmedicines may compete with existing therapies for market share.share and some of our medicines in development may compete for patients in study trials. In addition, there are a number of companies pursuing the development of oligonucleotide-based technologies and the development of pharmaceuticals utilizing these technologies. These companies include specialized pharmaceutical firmsbiopharmaceutical companies and large pharmaceutical companies acting either independently or together with biopharmaceutical companies.together. Our drugsmedicines are differentiated from traditional small molecule drugsmedicines by their chemistry, how they move in the body, how they act in the body, delivery technology, and formulations.
Our approved products and our products under development address numerous markets. The diseases our drugsmedicines target for which we have or may receive marketing authorization will determine our competition. For some of our products, an important factor in competition may be the timing of market introduction of competitive products. Accordingly, the relative speed with which we can develop products, complete the clinical trials and marketing authorization processes and supply commercial quantities of the products to the market are important competitive factors. We expect to compete amongwith products approved for sale based on a variety of factors, including, among other things, product efficacy, safety, mechanism of action, dosing convenience, marketing and sales strategy and tactics, availability, price, and reimbursement.
The current key competitionBelow we have included what we believe to be the competitive landscape for SPINRAZA, our marketed drugmedicines and for the treatment of peoplemedicines we currently have in Phase 3 trials. We included competitors, potential competitors that are past Phase 1 development or potential competitors that plan to start a pivotal study this year. We do not believe that any medicines meet these criteria to compete with SMA, and volanesorsen and inotersen, our drugs currently under regulatory review for the treatment of people with FCS and hATTR, respectively, is set forth below.AKCEA-APO(a)-LRx.
SPINRAZA
We believe thatconsider the following drugs could compete withmedicines as competitors and potential future competitors to SPINRAZA:
DrugMedicine | | Company | Drug | Medicine Description (1) | Phase | Admin/DosingPhase (1) | Efficacy(1) | Safety(1)Route of Administration (1) | | Next Milestones (1) |
AVXS-101Zolgensma (AVXS-101) | AveXis | Novartis | | Gene therapy that correctsdesigned to target the genetic root cause of SMA by replacing the function of the missing or nonworking SMN1 gene using theAAV9 Vector
| Pivotal | Approved (U.S.) | | Infusion | As of January 20, 2017, | - Approval decision for EU expected in the Phase 1 OLE,first quarter of 2020 - Approval decision for Japan expected in the 12 patients taking the proposed therapeutic dosefirst half of AVXS-101 were event free and were a median age of 20.2 months at their last follow up appointment. Additionally, 10 out of the 12 patients achieved the ability to sit unassisted for at least 5 seconds, including one patient whose achievement of this milestone was confirmed after January 20, 2017. | Generally well tolerated to date, no new treatment-related SAEs or AEs observed2020 |
RG7916Risdiplam
(RG7916) | | PTC Therapeutics/ Roche/ SMA Foundation | | A small molecule drugmedicine that modulates splicing of the SMN2 gene | 2 | NDA Submitted | | Oral | None reported | Safe and well tolerated at all doses and had no drug-relatedPrescription Drug User Fee Act, or safety-related study withdrawals. |
LMI070 | Novartis | A small molecule drug that modulates splicing of the
SMN2 gene
| 1/2 | Oral | None reported | Study was placed on clinical hold inPDUFA, date set for May 2016 due to safety findings reported in animal studies. The clinical hold was removed in September 2017 and dosing resumed along with additional monitoring.2020 |
| (1) | Taken from public documents including respective company press releases, company presentations, and scientific presentations. |
We believe that SPINRAZA’s closest competitor is AVXS-101. AVXS-101 is currentlyIn May 2019, Zolgensma was approved for the treatment of pediatric patients less than 2 years of age with spinal muscular atrophy including those who are presymptomatic at diagnosis, becoming the first approved medicine to compete with SPINRAZA. In November 2019, the FDA accepted Roche and PTC’s NDA and granted priority review for risdiplam. The filing submission includes 12-month data from pivotal FIREFISH and SUNFISH trials in a pivotal study for infantsbroad population of people living with Type 1, SMA using natural history as a comparator. Avexis initiated this study in September 20172, or 3 SMA.
TEGSEDI and plans to enroll 15 patients. AveXis has incorporated EU specific Scientific Advice from the EMA into its European pivotal study. While the data released thus far on the AVXS-101 study is encouraging, it is still early in development, having just initiated its first of two pivotal studies. In addition, other gene therapies have had difficulty providing lasting therapeutic benefit. Also AveXis has stated it needs to scale its manufacturing capabilities to be able to manufacture larger quantities of AVXS-101 GMP drug for their pivotal studies in Type 1, ongoing Phase 1 studies in Type 2 patients, and future studies in patients with Type 3 SMA. Further, no company has yet to successfully commercialize a gene replacement therapy, which may create significant barriers for AVXS-101.AKCEA-TTR-LRx
Volanesorsen
We believe thatconsider the following drugs could compete with volanesorsen:medicines as competitors and potential future competitors to TEGSEDI and AKCEA-TTR-LRx for the indication of hATTR amyloidosis and/or ATTR cardiomyopathy:
DrugMedicine | | Company | Drug | Medicine Description (1) | Phase | Admin/DosingPhase (1) | Efficacy(1) | Safety(1)Route of Administration (1) | | Next Milestones (1) |
MetreleptinOnpattro | | Alnylam | | An RNAi medicine formulated with lipid nanoparticles to inhibit TTR mRNA | | Novelion TherapeuticsApproved (hATTR)/
Phase 3 (ATTR) | | Intravenous infusion with pre-treatment with steroids | | Topline data for the APOLLO-B (Phase 3 study) is expected in 2021 |
Vyndaqel & Vyndamax (Tafamidis) | | Pfizer | | A synthetic form ofsmall molecule medicine to stabilize TTR protein | | Commercially available in the hormone leptinU.S. for cardiomyopathy and in the EU for stage 1 polyneuropathy and cardiomyopathy | | Oral | | None reported |
| Vutrisiran | | Alnylam | | An RNAi medicine conjugated with GalNAC to inhibit TTR mRNA | | 3 | Reconstituted subcutaneous injection | 44.4% mean reductionSubcutaneous Injections | | Topline data expected for HELIOS-A (Phase 3) study in triglycerides at four months in patients with abnormal triglyceride levels | Anti-metreleptin antibodies, hypoglycemia, hypersensitivity, risk of T-cell lymphoma2021 |
GemcabeneAG10 | Gemphire Therapeutics | Monocalcium salt of a dialkyl ether dicarboxylic acidEidos | 2 | Oral, once-daily | In a post hoc analysis (n=9) of patients with triglycerides >500 mg/dl, reductions of 59%Small molecule that binds and 60% from 150mg and 300mg doses, respectively, were observed | In a recent study,stabilizes TTR in the gemcabene-treatment group,blood
| | 1 | | Oral | | Phase 3 study planned to begin in the most frequently occurring adverse events were headache and infection
first quarter of 2020 |
| (1) | Taken from public documents including respective company press releases, company presentations, and scientific presentations. |
Our main competition for Tegsedi is being testedOnpattro (patisiran), marketed by Alnylam Pharmaceuticals. Although ONPATTRO requires intravenous administration by a healthcare provider in peoplea clinical setting every three weeks and pre-treatment with FPL who alsosteroids, it does not have NASH. In December 2016, Novelion submitted a marketing authorization application toboxed warning or REMS as TEGSEDI does.
We believe that Alnylam’s Onpattro and vutrisiran could compete directly against AKCEA-TTR-LRx, given their transthyretin-silencing profile. Vyndaqel and Vyndamax, marketed by Pfizer, were approved in the EMA seeking approval for Metreleptin as replacement therapyU.S. and in the EU. They are two oral formulations of the transthyretin stabilizer, and currently the only medicines approved by the FDA to treat complications of leptin deficiency in a small subset of people with FPL and in people with generalized lipodystrophy, or GL. An investigator-sponsored study is currently ongoing with the support of Novelion to evaluate Metreleptin in people with FPL who also have NASH. Metreleptin does not affect apoC-III levels. ApoC-III levels have been shown to be elevated in people with FPL, and directly correlate to triglyceride levels.ATTR-CM.
Gemcabene is being studied in people with severe hypertriglyceridemia, defined as triglycerides above 500 mg/dL and Gemphire expects to report top-line results from its Phase 2 study in the second quarter of 2018.WAYLIVRA
Volanesorsen for the treatment of FCS is currently under regulatory review for marketing authorization in the U.S., EU and Canada. To date, volanesorsen has shown the highest percent of triglyceride reductions compared to existing treatments, such as fibrates, regardless of starting triglyceride levels prior to dosing with volanesorsen. Based on our broad Phase 2 data for the treatment of different patients including people with FCS, we believe that volanesorsen will work equally well as a single agent or in combination with other triglyceride-lowering drugs on the market. If regulatory authorities require us to implement platelet monitoring procedures in the commercial setting, which have yet to be determined, it could impact the future competitive profile of volanesorsen.
Inotersen
We believe that the following drugsmedicines could compete with inotersen:WAYLIVRA:
DrugMedicine | | Company | Drug Description | Phase | Admin/Dosing | Efficacy(1) | Safety(1) |
Patisiran | Alnylam | An RNAi drug formulated with lipid nanoparticles to inhibit TTR mRNA | Registration | Infusion every 3 weeks with pre-treatment with steroids | 84.3% mean reduction in TTR at 18 months | Most common adverse events more frequently observed in patisiran arm vs. placebo were peripheral edema (29.7% vs.Medicine Description (1)
| | 22.1%) and infusion-related reactions (18.9% vs. 9.1%)Phase (1)
| | Route of Administration (1) | | Next Milestones (1) |
TafamidisGemcabene | Pfizer | A small molecule drug to stabilize TTR ProteinNeuroBo Pharmaceuticals | 3 to support refiling in the U.S., Approved in the EU | Daily oral capsuleMonocalcium salt of a dialkyl ether dicarboxylic acid | In 45% of people taking Tafamidis, nerve function either improved or stabilized, compared with 30% of patients taking placebo | Urinary tract infection, vaginal infection, upper abdominal pain and diarrhea |
Diflunisal | N/A Generic | A non-steroid anti-inflammatory agent | Approved (but not for ATTR) | Daily oral capsule/doses | Improved nerve function as shown by lower Neuropathy Impairment Score plus 7 nerve tests, or NIS+7. The NIS+7 score increased by 25.0 points in the placebo group versus 8.7 points in the diflunisal group | In two studies repurposing diflunisal for use in TTR amyloidosis, drug-related adverse events that led to discontinuation were: gastrointestinal bleeding, low platelets, deterioration of renal function, congestive heart failure, glaucoma and nausea. |
Tolcapone | SOM Biotech | Small molecule repurposed generic drug | 2 | Daily oral dose | Shows binding and stabilization of TTROral | | Currently on partial clinical hold, which was issued by the FDA in humans2004 |
| Myalept (metreleptin) | No drug related adverse events | Amryt Pharma | | Leptin replacement therapy | | 2 | | Subcutaneous Injections | | None reported |
ALN-TTRsc02ARO-APOC3 | Alnylam | AnArrowhead Pharmaceuticals | | Targets APOCIII by utilizing Targeted RNAi drug conjugated with GalNAC to inhibit TTR mRNA in liver cellsMolecule Platform | | 1 | Monthly or quarterly | In healthy volunteers, a single dose showed mean max TTR knockdownSubcutaneous Injections | | Plans to initiate pivotal (Phase 3) study in 2020 |
| (1) | Taken from public documents including respective company press releases, company presentations, and scientific presentations. |
Tominersen
We believe that the following medicines could compete with tominersen:
| C | | Company | | Medicine Description (1) | | Phase (1) | | Route of 97%Administration (1) | Injection site reactions were | Next Milestones (1) |
| WVE-120101/ WVE-120102 | | Wave Life Sciences | | Antisense medicines targeting mHTT SNP-1 and SNP-2 | | 1b/2a | | Intrathecal Infusion | | Topline data from PRECISION-HD1 is expected in the second half of 2020 |
| Selisistat | | AOP Orphan | | An orally active, selective SIRT1 inhibitor | | 2 | | Oral | | None reported |
| VX15 | | Vaccinex | | A monoclonal antibody that blocks the activity of SEMA4D | | 2 | | Intravenous Infusion | | Phase 2 (SIGNAL) topline data is anticipated in second half of 2020 |
| (1) | Taken from public documents including respective company press releases, company presentations, and scientific presentations. Diflunisal efficacy and safety came from the published papers of two investigator sponsored studies, Berk JL, Suhr OB, Obici L, et al. Repurposing Diflunisal for Familial Amyloid Polyneuropathy: A Randomized Clinical Trial. JAMA. 2013;310(24):2658-2667 and Sekijima YS, Toja K, Morita H, et al. Safety and efficacy of long-term diflunisal administration in hereditary transthyretin (ATTR) amyloidosis. Amyloid. 2015;22(2):79-83. |
We believe that of the drugs that are in development or on the market, inotersen’s closest competitor is patisiran. Alnylam is developing patisiran for hATTR. Patisiran is an intravenously administered RNAi molecule that is formulatedfollowing medicine could compete with lipid nanoparticles to enable delivery of the drug to the liver. It is administered via an infusion by a healthcare provider in a clinical setting every three weeks. People receiving patisiran are pretreated with steroids to prevent infusion related reactions. In October 2016, Alnylam discontinued development of revusiran, its drug for the cardiomyopathy form of TTR amyloidosis, due to a safety finding in its Phase 3 study. Revusiran was a subcutaneously administered RNAi molecule that was Alnylam’s first generation GalNAcdrug and was dosed at 500 mg per week as two subcutaneous injections. Alnylam completed Phase 1 studies of its second generation GalNAC, ALN-TTRsc02. Because we have a PDUFA date of July 6, 2018 for inotersen and Alnylam’s PDUFA date for patisiran is August 11, 2018, we believe that inotersen could be the first RNA-targeted drug on the market for the treatment of people with hATTR. We also believe that the overall product profile of inotersen. as a once weekly, subcutaneous injection with no pretreatment has advantages to the drugs detailed above, however potential platelet and renal monitoring requirements in the commercial setting, which have yet to be determined, could impact the future competitive profile of inotersen.tofersen:
| C | | Company | | Medicine Description (1) | | Phase (1) | | Route of Administration (1) | | Next Milestones (1) |
| Arimoclomol | | Orphazyme | | Provides cellular protection from abnormal proteins by activating molecular “chaperone” proteins that can repair or degrade the damaged proteins | | 3 | | Oral | | Results of the Phase 3 trial in ALS are expected in the first half of 2021 |
| (1) | Taken from public documents including respective company press releases, company presentations, and scientific presentations. |
Employees
As of February 20, 2018,2020, we employed 547817 people, including 100294 Akcea employees. A significant number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical product companies. Collective bargaining agreements do not cover any of our employees, and management considers relations with our employees to be good.
Information about our Executive Officers of Ionis
The following sets forth certain information regarding our executive officers as of February 20, 2018:2020:
| Name | | Age | | Position |
| Stanley T. Crooke, M.D., Ph.D. | | 7274 | | Executive Chairman Chief Executive Officer and Presidentof the Board of Directors |
| Brett P. Monia, Ph.D. | | 5658 | | Chief OperatingExecutive Officer and Senior Vice President, Drug Discovery and Corporate Development |
| C. Frank Bennett, Ph.D. | | 61 | | Senior Vice President, Antisense Research |
Sarah Boyce | | 4663 | | Chief BusinessScientific Officer |
| Onaiza Cadoret-Manier | | 55 | | Chief Corporate Development and Commercial Officer |
| Richard S. Geary, Ph.D. | | 6062 | | Senior Vice President, Development |
| Elizabeth L. Hougen | | 5658 | | Senior Vice President, Finance and Chief Financial Officer |
| Patrick R. O’Neil, Esq. | | 4446 | | Senior Vice President, Legal, General Counsel, Chief Compliance Officer and Corporate Secretary |
| Eric E. Swayze, Ph.D. | | 54 | | Senior Vice President, Research |
Management Transitions
In January 2018 Brett2020, Dr. Crooke, our founder and Chief Executive Officer, transitioned from Chief Executive Officer to Executive Chairman of our Board of Directors. As Executive Chairman, Dr. Crooke is responsible for the activities of the board and will remain active in the company, providing strategic advice and continuing to participate in the scientific activities. Dr. Monia, a founder of Ionis, and head of Drug Discovery, and the inotersen program,who was promoted toour Chief Operating Officer. In his new role, in addition to continuing to play a key role in drug discoveryOfficer and development including taking responsibility for the research to development transition, Dr. Monia assumed responsibilities for the company’s regulatory, patient advocacy, human resources and business functions including corporate communications, investor relations, business development, alliance management and competitive intelligence. B. Lynne Parshall, who has been with Ionis for 27 years, became Senior Strategic Advisor to Ionis and remains a member of the Board of Directors of Ionis and Akcea. In addition to supporting Dr. Moniaour team since our founding over 30 years ago, began serving as our Chief Executive Officer in his transition, Ms. Parshall is continuing to be involved in strategic planning, business development, and with Ionis’ important relationships with Biogen and Akcea.January 2020.
STANLEY T. CROOKE, M.D., Ph.D.
Executive Chairman Chief Executive Officer and Presidentof Ionis’ Board of Directors
Dr. Crooke is a founder of Ionis and has beenbecame Executive Chairman of our board of directors in January 2020. Dr. Crooke served as Chief Executive Officer and a Director sincefrom January 1989.1989 to January 2020. He was elected Chairman of the Board in February 1991. Prior to founding Ionis, from 1980 until January 1989, Dr. Crooke was employed by SmithKline Beckman Corporation, a pharmaceutical company, where his titles included President of Research and Development of SmithKline and French Laboratories.
BRETT P. MONIA, Ph.D.
Chief OperatingExecutive Officer and Senior Vice President, Drug Discovery and Corporate Development
Dr. Monia was promoted to Chief OperatingExecutive Officer in January 2018 and2020. From January 2019 to December 2019, Dr. Monia served as Chief Operating Officer. From January 2012 to January 2019, Dr. Monia served as Senior Vice President, Drug Discovery and Corporate Development in January 2012.President. From February 2009 to January 2012, Dr. Monia served as our Vice President, Drug Discovery and Corporate Development and from October 2000 to February 2009, he served as our Vice President, Preclinical Drug Discovery. From October 1989 to October 2000 he held various positions within our Molecular Pharmacology department.
C. FRANK BENNETT, Ph.D.
Senior Vice President, Antisense ResearchChief Scientific Officer
Dr. Bennett was promoted to Chief Scientific Officer in January 2020. From January 2006 to December 2019, Dr. Bennett served as Senior Vice President, Antisense Research in January 2006.Research. From June 1995 to January 2006, Dr. Bennett served as our Vice President, Research. From March 1993 to June 1995, he was Director, Molecular Pharmacology, and from May 1992 to March 1993, he was an Associate Director in our Molecular and Cellular Biology department. Prior to joining Ionis in 1989, Dr. Bennett was employed by SmithKline and French Laboratories in various research positions. He is an external member of the Scientific Advisory Board of Experimental Therapeutics Center in Singapore.Singapore and the Hereditary Disease Foundation.
SARAH BOYCEONAIZA CADORET-MANIER
Chief BusinessCorporate Development and Commercial Officer
Ms. BoyceCadoret-Manier joined Ionis as Chief Corporate Development and Commercial Officer in January 2015 as our Chief Business Officer.2020. Prior to joining Ionis, from 2018 to 2019 Ms. BoyceCadoret-Manier was Vice President, Head of International Business Strategy and Operations at Forest Laboratories, Inc. from 2012 to 2014. She was Vice President, Global Head Nephrology Therapeutics Area of Alexion Pharmaceuticals from 2010 to 2011. She held various positions at Novartis Group AG, including Vice President, Global Program Head, Pediatric and Specialty from 2000 to 2010.the chief commercial officer for Grail Biosciences, an early detection genomics company. Prior to that,Grail, Ms. BoyceCadoret-Manier was vice president of the Respiratory Franchise at Genentech where she worked from 2011 to 2018. Ms. Cadoret-Manier also has held multiple senior management positions at Bayer Pharmaceuticalsoverseeing corporate strategy, alliances, and Roche.marketing and sales for numerous disease areas for Genentech, Pfizer and Amylin Pharmaceuticals.
RICHARD S. GEARY, Ph.D.
Senior Vice President, Development
Dr. Geary was promoted tohas served as Ionis’ Senior Vice President, Development insince August 2008. From August 2003 to August 2008, Dr. Geary served as our Vice President, Preclinical Development. From November 1995 to August 2003, he held various positions within the Preclinical Development department. Prior to joining Ionis in 1995, Dr. Geary was Senior Research Scientist and Group Leader for the bioanalytical and preclinical pharmacokinetics group in the Applied Chemistry Department at Southwest Research Institute.
ELIZABETH L. HOUGEN
Senior Vice President, Finance and Chief Financial Officer
Ms. Hougen was promoted tohas served as Ionis’ Senior Vice President, Finance and Chief Financial Officer insince January 2013. From January 2007 to December 2012, Ms. Hougen served as our Vice President, Finance and Chief Accounting Officer and from May 2000 to January 2007, she served as our Vice President, Finance. Prior to joining Ionis in 2000, Ms. Hougen was Executive Director, Finance and Chief Financial Officer for Molecular Biosystems, Inc., a public biotechnology company.
PATRICK R. O’NEIL, Esq.
Senior Vice President, Legal, General Counsel, Chief Compliance Officer and Corporate Secretary
Mr. O’Neil was promoted tohas served as Ionis’ Senior Vice President, Legal and General Counsel insince January 2013. Mr. O'NeilO’Neil also serves as our Chief Compliance Officer and Corporate Secretary. From September 2010 to January 2013, Mr. O’Neil served as our Vice President, Legal and General Counsel and from January 2009 to September 2010, he served as our Vice President, Legal and Senior Transactions Counsel. From October 2001 to January 2009 he held various positions within our Legal department. Prior to joining Ionis, Mr. O’Neil was an associate at Cooley LLP.
ERIC E. SWAYZE, Ph.D.
Senior Vice President, Research
Dr. Swayze was promoted to Senior Vice President of Research at Ionis Pharmaceuticals in January 2020. He is responsible for leading preclinical antisense drug discovery and antisense technology research. Previously, Dr. Swayze was Vice President of Chemistry and Neuroscience Drug Discovery at Ionis, overseeing the advancement of multiple programs to clinical development. He joined Ionis in 1994 and has contributed to key technology advancements, including Ionis' Generation 2.5 chemistry and LICA technology.
Item 1A. RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider carefully the following information about the risks described below, together with the other information contained in this report and in our other public filings in evaluating our business. If any of the following risks actually occur, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. As a result, the trading price of our securities could decline, and you might lose all or part of your investment.
Risks Associated with our Ionis Core and Akcea Therapeutics Businesses
If the market does not accept our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, and our medicines in development, we are not likely to generate substantial revenues or become consistently profitable.
Even if our drugsmedicines are authorized for marketing, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, our success will depend upon the medical community, patients and third partythird-party payors accepting our drugsmedicines as medically useful, cost-effective, safe and safe.convenient. Even when the FDA or foreign regulatory authorities authorize our or our partners' drugspartners’ medicines for commercialization, doctors may not prescribe our drugsmedicines to treat patients. We and our partners may not successfully commercialize additional drugs.medicines.
Additionally, in many of the markets where we or our partners may sell our drugsmedicines in the future, if we or our partners cannot agree with the government or other third-party payors regarding the price we can charge for our drugs,medicines, then we may not be able to sell our drugsmedicines in that market. Similarly, cost control initiatives by governments or third partythird-party payors could decrease the price received for our drugsmedicines or increase patient coinsurance to a level that makes our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen, unaffordable.WAYLIVRA, and our medicines in development, economically unviable.
The degree of market acceptance for our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, and our medicines in development, depends upon a number of factors, including the:
| ● | receipt and scope of marketing authorizations; |
| ● | establishment and demonstration in the medical and patient community of the efficacy and safety of our drugsmedicines and their potential advantages over competing products; |
| ● | cost and effectiveness of our drugsmedicines compared to other available therapies; |
| ● | patient convenience of the dosing regimen for our drugs;medicines; and |
| ● | reimbursement policies of government and third-party payors. |
Based on the profile of our drugs,medicines, physicians, patients, patient advocates, payors or the medical community in general may not accept and/or use any drugsmedicines that we may develop.
For example, in the clinical studies with volanesorsen and inotersen, declines in platelet counts were observed in many patients and some patients discontinued the studies because of platelet declines. In addition, in the inotersen NEURO-TTR study, safety signals related to renal function were observed. Therefore, we expect the product label for volanesorsenTEGSEDI in the U.S. has a boxed warning for thrombocytopenia and inotersen will requireglomerulonephritis, requires periodic plateletblood and urine monitoring, and TEGSEDI is only available through a Risk Evaluation and Mitigation Strategy, or REMS, program. Our main competition in the U.S. market for TEGSEDI is ONPATTRO (patisiran), marketed by Alnylam Pharmaceuticals, Inc. Although ONPATTRO requires intravenous administration and pre-treatment with steroids, it does not have a boxed warning or REMS. Additionally, the product label for inotersen will require periodic renal monitoring, whichWAYLIVRA in the EU requires regular blood monitoring. In each case, these label requirements could negatively affect our ability to attract and retain patients for these drugs.medicines. We believe that the enhanced monitoring we have implemented to support early detection and management of these issues can help manage these safety issues so that patients can continue treatment. Since implementation of the enhanced monitoring, serious platelet events have been infrequent. While we believe we and Akcea can better maintain patients on inotersenTEGSEDI and volanesorsenWAYLIVRA through our patient-centric commercial approachsapproach where we and Akcea plan to have greater involvement with physicians and patients, if we and Akcea cannot effectively maintain patients on inotersenTEGSEDI or volanesorsen,WAYLIVRA, we may not be able to generate substantial revenue from inotersenTEGSEDI or volanesorsenWAYLIVRA sales.
If we or our partners fail to compete effectively, our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, and our medicines in development, will not contribute significant revenues.
Our competitors engage in drug discovery throughout the world, are numerous, and include, among others, major pharmaceutical companies and specialized biopharmaceutical firms. Other companies engage in developing antisense technology. Our competitors may succeed in developing drugsmedicines that are:
| ● | priced lower than our drugs;medicines; |
| ● | reimbursed more favorably by government and other third-party payors than our drugs;medicines; |
| ● | safer than our drugs;medicines; |
| ● | more effective than our drugs;medicines; or |
| ● | more convenient to use than our drugs.medicines. |
These competitive developments could make our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, and our medicines in development, obsolete or non-competitive.
Certain of our partners are pursuing other technologies or developing other drugsmedicines either on their own or in collaboration with others, including our competitors, to treat the same diseases our own collaborative programs target. Competition may negatively impact a partner'spartner’s focus on and commitment to our drugsmedicines and, as a result, could delay or otherwise negatively affect the commercialization of our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen.WAYLIVRA.
Many of our competitors have substantially greater financial, technical and human resources than we do. In addition, many of these competitors have significantly greater experience than we do in conducting preclinical testing and human clinical studies of new pharmaceutical products, in obtaining FDA and other regulatory authorizations of such products and in commercializing such products. Accordingly, our competitors may succeed in obtaining regulatory authorization for products earlier than we do. Marketing and sales capability is another factor relevant to the competitive position of our drugs,medicines, and we will primarily rely on our partners and Akcea to provide this capability.
There are several pharmaceutical and biotechnology companies engaged in the development or commercialization of products against targets that are also targets of products in our development pipeline. For example, AVXS-101, RG7916, and LMI070example:
| ● | ZOLGENSMA (approved in the U.S. for the treatment of pediatric patients less than two years of age with SMA) and risdiplam (RG7916) could compete with SPINRAZA; |
| ● | ONPATTRO (approved in the U.S., Europe and Brazil for a similar indication as TEGSEDI), VYNDAQEL and VYNDAMAX (approved in the U.S. for patients with both hereditary and wild type ATTR cardiomyopathy and in the EU for stage 1 hATTR amyloidosis with polyneuropathy and cardiomyopathy), AG10 and vutrisiran could compete with TEGSEDI; |
| ● | ARO-APOC3, Myalept and gemcabene could compete with WAYLIVRA; |
| ● | WVE-120101/WVE-120102, Selistat and VX15 could compete with tominersen; |
| ● | Arimoclomol could compete with tofersen; and |
| ● | ONPATTRO, VYNDAQEL and VYNDAMAX, vutrisiran and AG10 could complete with AKCEA-TTR-LRx;. |
Certain of our medicines may compete with SPINRAZAour other medicines, which could reduce our expected revenues.
Certain of our medicines inhibit the production of the same protein. For example, WAYLIVRA inhibits the production of the same protein as AKCEA-APOCIII-LRx and
metreleptinTEGSEDI inhibits the production of the same protein as AKCEA-TTR-LRx. We believe the enhancements we incorporated into AKCEA-APOCIII-LRx and
Gemcabene could compete with volanesorsen; patisiran, tafamadis, diflunisal, tolcapone, PRX004AKCEA-TTR-LRx can provide greater patient convenience by allowing for significantly lower doses and
ALN-TTRsc02 could compete with inotersen.less frequent administration compared to WAYLIVRA and TEGSEDI, respectively. As such, to the extent physicians and patients elect to use AKCEA-APOCIII-LRx or AKCEA-TTR-LRx instead of WAYLIVRA or TEGSEDI, respectively, it will reduce the revenue we derive from those medicines. In addition, while AKCEA-ANGPTL3-LRx, AKCEA-APOCIII-LRx and WAYLIVRA use different mechanisms of action, if AKCEA-ANGPTL3-LRx can effectively lower triglyceride levels in FCS patients, it may likewise reduce the revenue we derive from WAYLIVRA and AKCEA-APOCIII-LRx.
Following approval, our drugs, including SPINRAZA, volanesorsen and inotersenOur medicines could be subject to regulatory limitations.limitations following approval.
Following approval of a drug,medicine, we and our partners must comply with comprehensive government regulations regarding the manufacture, marketing and distribution of drug products.medicines. Promotional communications regarding prescription medicines must be consistent with the information in the product’s approved labeling. We or our partners may not obtain the labeling claims necessary or desirable to successfully commercialize our drug products,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen.WAYLIVRA, and our medicines in development.
The FDA and foreign regulatory authoritiesbodies have the authority to impose significant restrictions on an approved drug productmedicine through the product label and on advertising, promotional and distribution activities. For example:
| ● | in the U.S., TEGSEDI’s label contains a boxed warning for thrombocytopenia and glomerulonephritis; |
| ● | TEGSEDI requires periodic blood and urine monitoring; |
| ● | in the U.S., TEGSEDI is available only through a Risk Evaluation and Mitigation Strategy, or REMS, program; and |
| ● | we expect WAYLIVRA will require periodic blood monitoring if approved in the U.S. |
Prescription medicines may be promoted only for the approved indications in accordance with the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label may be subject to significant liability.
In addition, when approved, the FDA or a foreign regulatory authority may condition approval on the performance of post-approval clinical studies or patient monitoring, which could be time consuming and expensive. For example, in connection with the conditional marketing approval for WAYLIVRA in the EU, we are required to conduct a post-authorization safety study to evaluate the safety of WAYLIVRA on thrombocytopenia and bleeding in FCS patients taking WAYLIVRA. If the results of such post-marketing studies are not satisfactory, the FDA, EC or aother foreign regulatory authority may withdraw marketing authorization or may condition continued marketing on commitments from us or our partners that may be expensive and/orand time consuming to fulfill.
If we or others identify side effects after any of our drug productsmedicines are on the market, or if manufacturing problems occur subsequent to regulatory approval, or if we, our manufacturers or our partners fail to comply with regulatory requirements, we or our partners may, among other things, lose regulatory approval or we or our partners mayand be forced to withdraw products from the market, need to conduct additional clinical studies, incur restrictions on the marketing, distribution or manufacturing of the product, and/or change the labeling of our drug productsmedicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen.WAYLIVRA.
We depend on our collaboration with Biogen for the development and commercialization of SPINRAZA.
We have entered into a collaborative arrangement with Biogen to develop and commercialize SPINRAZA. We entered into this collaboration primarily to:
| ● | fund our development activities for SPINRAZA; |
| ● | seek and obtain regulatory approvals for SPINRAZA; and |
| ● | successfully commercialize SPINRAZA. |
We are relying on Biogen to obtain additional regulatory approvals for SPINRAZA, and successfully commercialize SPINRAZA. In general, we cannot control the amount and timing of resources that Biogen devotes to our collaboration. If Biogen fails to further develop SPINRAZA, obtain additional regulatory approvals for SPINRAZA, or commercialize SPINRAZA, or if Biogen’s efforts are not effective, our business may be negatively affected.
Our collaboration with Biogen may not continue for various reasons. Biogen can terminate our collaboration at any time. If Biogen stops developing or commercializing SPINRAZA, we would have to seek or spend additional funding, and SPINRAZA's development andSPINRAZA’s commercialization may be harmed or delayed.
Our collaboration with Biogen may not result in the continued successful commercialization of SPINRAZA. If Biogen does not continue to successfully commercialize SPINRAZA, we will receive limited revenues for SPINRAZA.
If weAkcea cannot effectively buildoptimize and manage a distribution, medical affairs, market access,maintain effective marketing and sales infrastructure for inotersen,capabilities or have a commercial partner perform these functions, it could delay, harm or preclude the commercial launch of inotersen and the related product revenue.
We planenter into agreements with third parties to commercialize inotersen in North America ourselves and to seek a commercial partner in other geographic regions. We currently have a limited commercial infrastructure to distribute, market and sell inotersen. If approved, toTEGSEDI and WAYLIVRA, we may not generate significant product revenue from TEGSEDI or WAYLIVRA.
To successfully commercialize inotersen, weTEGSEDI and WAYLIVRA, Akcea must build theseeffectively manage its marketing, sales and distribution capabilities have a commercial partner perform these functions, or make arrangements with third parties to perform these services. ThereAkcea may not be successful in doing so. To commercialize WAYLIVRA in the initial indications Akcea is planning to pursue and to continue the commercialization of TEGSEDI, Akcea will need to optimize and maintain specialty sales forces in the global regions where it currently markets or expects to market TEGSEDI and WAYLIVRA, supported by case managers, reimbursement specialists, partnerships with specialty pharmacies, injection training, routine blood and urine monitoring and a medical affairs team.
Even though certain members of Akcea’s management team and other employees have experience commercializing medicines, as a company Akcea has limited experience marketing, selling and distributing medicines, and there are significant risks involved in building, tailoring, optimizing and managing a commercial infrastructure. We may not be successfulBeginning in doing so.September 2019, Akcea announced several changes to its senior leadership team, including the departure of its Chief Executive Officer, its President, and its Chief Operating Officer and the recent resignation of its Chief Financial Officer, whose resignation is to become effective on April 1, 2020, and the appointment of an interim Chief Executive Officer, a new Chief Commercial Officer and a new Chief Operating Officer. The effectiveness of the senior leadership team following these transitions, new leaders as they fill in these roles, and any further transition as a result of these changes could impair Akcea’s ability to manage its business.
We may contract with, and rely on, third party specialty pharmacies to distribute inotersen. A specialty pharmacyIt is a pharmacy that specializes in dispensing medications for complex or chronic conditions, a process that requires a high level of patient education and ongoing management. Absent a commercial partner, our management team will need to devote a significant amount of attention to building and managing this distribution network. The use of specialty pharmacies involves certain risks, including but not limited to risks that these organizations will not provide us with accurate or timely information, not effectively sell or support our drug products, not satisfy financial obligations to us, or cease operations.
We may also build a specialty sales force in each global region we expect to market inotersen, leverage the sales infrastructure of a commercial partner, or utilize a third-party marketing and sales organization. It will be expensive and time consuming for usAkcea to build and establish ourmaintain its own sales forceforces and related compliance protocols to market inotersen. WeTEGSEDI and WAYLIVRA, and it will be increasingly expensive and time consuming when Akcea commercially launches additional medicines, if approved. Akcea may never successfully optimize or manage this capability and any failure could harm the commercial launch of WAYLIVRA or adversely affect TEGSEDI sales. Additionally, Akcea and its partners, if any, will have to compete with other companies to recruit, hire, train, manage and retain marketing and sales personnel. As a result of Akcea’s receipt of a CRL from the FDA regarding the new drug application for WAYLIVRA, on September 6, 2018, Akcea enacted a plan to reorganize its workforce to better align with the immediate needs of the business. In connection with this reorganization plan, Akcea reduced its workforce by approximately 12% and will need to increase its operations and expand its use of third -party contractors if WAYLIVRA is approved in the United States.
Akcea incurred expenses prior to product launch to develop our distribution, medical affairs, market access,launching TEGSEDI in the EU, Canada and the U.S. and launching WAYLIVRA in the EU and building and managing the marketing and sales infrastructure. If there is a delayregulatory requirements or other factors cause the commercialization of TEGSEDI or WAYLIVRA to be less successful than expected in the commercial launch of inotersen, we willimportant markets, Akcea would incur additional expenses for having developedinvested in these capabilities earlier than required and prior to realizing any significant revenue from sales of inotersen.TEGSEDI or WAYLIVRA. Akcea’s sales force and marketing teams may not successfully commercialize TEGSEDI or WAYLIVRA.
To the extent we and Akcea decide to rely on third parties to commercialize TEGSEDI or WAYLIVRA in a particular geographic market, we may receive less revenue than if Akcea commercialized TEGSEDI or WAYLIVRA by itself. For example, in August 2018, Akcea granted PTC Therapeutics International Limited, or PTC Therapeutics, the exclusive right to commercialize TEGSEDI and WAYLIVRA in Latin America and certain Caribbean countries, and Akcea will continue to rely on PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in those geographic markets. In addition, in August 2018 Akcea entered into an agreement with Accredo Health Group, Inc., or Accredo, a subsidiary of Express Scripts, to be Akcea’s specialty pharmacy partner for distribution of TEGSEDI in the U.S. Further, Akcea has less control over the sales efforts of other third parties, including PTC Therapeutics and Accredo, involved in commercializing TEGSEDI or WAYLIVRA.
If weAkcea cannot effectively build and manage ourits distribution, medical affairs, market access, marketing and sales infrastructure, or find a suitable commercial partnerthird party to perform such functions, the commercial launch and sales of inotersenTEGSEDI and WAYLIVRA may be delayed, less successful or precluded. Suchadversely affected. Any such events may result in decreased sales and lower revenue, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
If government or other third-party payors fail to provide adequate coverage and payment rates for our drugs,medicines, including SPINRAZA, inotersenTEGSEDI and volanesorsen,WAYLIVRA, and our medicines in development, our revenue will be limited.
In both domestic and foreign markets, sales of our current and future products will depend in part upon the availability of coverage and reimbursement from third-party payors. The majority of peoplepatients in the United StatesU.S. who would fit within our target patient populations for our drugsmedicines have their healthcare supported by a combination of Medicare coverage, other government health programs such as Medicaid, managed care providers, private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug productsmedicines when more established or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resulting reimbursement payment rates might not be enough to make our drugsmedicines affordable. Accordingly, SPINRAZA, TEGSEDI and WAYLIVRA for FCS in the EU and, if approved, WAYLIVRA in the United States or Canada and for additional indications, and our medicines in development, will face competition from other therapies and medicines for limited financial resources. We or our partners may need to conduct post-marketing studies to demonstrate the cost-effectiveness of any future products to satisfy third-party payors. These studies might require us to commit a significant amount of management time and financial and other resources. Third-party payors may never consider our future products as cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States,U.S., no uniform policy of coverage and reimbursement for drug productsmedicines exists among third-party payors. Therefore, coverage and reimbursement for drug productsmedicines can differ significantly from payor to payor. For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the PPACA, was passed in March 2010, and substantially changed the way healthcare is financed by both governmental and private insurers, and continues to significantly impact the U.S. pharmaceutical industry. There remain judicial and Congressional challenges to certain aspects of the Affordable Care Act, as well as efforts by the Trump administration to repeal or replace certain aspects of the Affordable Care Act. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case back to the District Court to determine whether the remaining provisions of the Affordable Care Act are invalid as well. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.
Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the United States and in international markets. For example, in the United States, recent health reform measures have resulted in reductions in Medicare and other healthcare funding, and there have been several recent U.S. Congressional inquiries and proposed federal legislation designed to, among other things, reform government program reimbursement methodologies for drug productsmedicines and bring more transparency to drug pricing. At the federal level, the Trump administration’s budget proposal for fiscal year 2020 contains further drug price control measures that could be enacted during the budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain medicines under Medicare Part B, to allow some states to negotiate prices under Medicaid, and to eliminate cost sharing for generic medicines for low-income patients. Further, the Trump administration released a “Blueprint” to lower medicine prices and reduce out of pocket costs of medicines that contains additional proposals to increase drug manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of medicines paid by consumers. The Department of Health and Human Services has solicited feedback on some of these measures and, at the same time, has implemented others under its existing authority. While some of these and other measures may require additional authorization to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Third-party coverage and reimbursement for our products or drugsmedicines may not be available or adequate in either the United States or international markets, which would negatively affect the potential commercial success of our products, our revenue and our profits.
If Biogen cannot manufacture finished drug product for SPINRAZA or the post-launch supply of the active drug substance for SPINRAZA, SPINRAZA may not achieve or maintain commercial success.
Biogen is responsible for the long termlong-term supply of both SPINRAZA drug substance and finished drug product. Biogen may not be able to reliably manufacture SPINRAZA drug substance and drug product to support the long termlong-term commercialization of SPINRAZA. If Biogen cannot reliably manufacture SPINRAZA drug substance and drug product, SPINRAZA may not achieve or maintain commercial success, which will harm our ability to generate revenue.
If we or our partners fail to obtain regulatory approval for our drugs, including volanesorsen, inotersen,medicines and additional approvals for SPINRAZA, TEGSEDI and WAYLIVRA, and our medicines in development, we or our partners cannot sell them in the applicable markets.
We cannot guarantee that any of our drugs, including volanesorsen and inotersen,medicines will be considered safe and effective, or will be approved for commercialization. In addition, we cannot guaranteeit is possible that SPINRAZA, willTEGSEDI and WAYLIVRA may not be approved in additional markets or for additional indications. We and our partners must conduct time-consuming, extensive and costly clinical studies to showdemonstrate the safety and efficacy of each of our drugsmedicines before they can be approved or receive additional approvals for sale. We and our partners must conduct these studies in compliance with FDA regulations and with comparable regulations in other countries.
We and our partners may not obtain necessary regulatory approvals on a timely basis, if at all, for our drugs.medicines. It is possible that regulatory agencies will not approve our drugs including, volanesorsen and inotersenmedicines for marketing or SPINRAZA, TEGSEDI or WAYLIVRA in additional marketing authorizationsmarkets or for SPINRAZA.additional indications. If the FDA or another regulatory agency believes that we or our partners have not sufficiently demonstrated the safety or efficacy of any of our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, or our medicines in development, the agency will not approve the specific drugmedicine or will require additional studies, which can be time consuming and expensive and which will delay or harm commercialization of the drug.medicine. For example, in August 2018 Akcea received a CRL from the FDA regarding the new drug application for WAYLIVRA in which the FDA determined that the safety concerns identified with WAYLIVRA in Akcea’s clinical development program outweighed the expected benefits of triglyceride lowering in patients with FCS. Akcea also received a Non-W from Health Canada for WAYLIVRA in November 2018. We and Akcea are engaged with the FDA and plan to work with Health Canada to confirm a path forward for WAYLIVRA.
The FDA or other comparable foreign regulatory authorities could claim that we have not tested volanesorsen incan delay, limit or deny approval of a sufficient number of patients to demonstrate volanesorsen is safe and effective in patients with FCS or FPL to support an applicationmedicine for marketing authorization, especially since a small number of patients in the APPROACH FCS study experienced severe thrombocytopenia, a condition where the patient has severely low platelet levels. In such a case, we may need to conduct additional clinical studies before obtaining marketing authorization, which would be expensive and cause delays.many reasons, including:
The FDA’s Division of Metabolism and Endocrinology Products advisory committee is scheduled to discuss and advise the FDA on the risk-benefit profile of volanesorsen for the treatment of FCS on May 10, 2018. In advance of this advisory committee meeting, we, Akcea and the FDA will submit briefing documents for the committee’s review, and these briefing documents will be made available to the public and may include information from the volanesorsen development program that have not previously been disclosed. Historically, for some companies, disclosure of information in this manner has led to increased volatility in their stock price. The advisory committee and FDA may interpret nonclinical and clinical data differently than we and our experts have. Press coverage and public scrutiny of the materials that will be discussed at the advisory committee meeting may negatively affect the potential for the NDA for volanesorsen to receive approval or the trading price of our securities. Even if we and Akcea ultimately obtain approval for volanesorsen, the matters discussed at the advisory committee meeting could limit Akcea’s ability to successfully commercialize volanesorsen. | ● | such authorities may disagree with the design or implementation of our clinical studies; |
| ● | we or our partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities that a medicine is safe and effective for any indication; |
| ● | such authorities may not accept clinical data from studies conducted at clinical facilities that have deficient clinical practices or that are in countries where the standard of care is potentially different from the United States; |
| ● | we or our partners may be unable to demonstrate that our medicine's clinical and other benefits outweigh its safety risks to support approval; |
| ● | such authorities may disagree with the interpretation of data from preclinical or clinical studies; |
| ● | such authorities may find deficiencies in the manufacturing processes or facilities of third-party manufacturers who manufacture clinical and commercial supplies for our medicines; and |
| ● | the approval policies or regulations of such authorities or their prior guidance to us or our partners during clinical development may significantly change in a manner rendering our clinical data insufficient for approval. |
Failure to receive marketing authorization for our drugs, volanesorsen and inotersen,medicines, or failure to receive additional marketing authorizations for SPINRAZA, TEGSEDI or WAYLIVRA, and our medicines in development, or delays in these authorizations could prevent or delay commercial introduction of the drug,medicine, and, as a result, could negatively impact our ability to generate revenue from product sales.
If the results of clinical testing indicate that any of our drugsmedicines are not suitable for commercial use, we may need to abandon one or more of our drug development programs.
Drug discovery and development has inherent risks and the historical failure rate for drugs is high. Antisense drugsmedicines are a relatively new approach to therapeutics. If we cannot demonstrate that our drugsmedicines are safe and effective for human use in the intended indication, we may need to abandon one or more of our drug development programs.
In the past, we have invested in clinical studies of drugsmedicines that have not met the primary clinical end points in their Phase 3 studies. Similar results could occur in clinical studies for our drugs,medicines, including the studystudies of volanesorsen in patients with FPL.tominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx. If any of our drugsmedicines in clinical studies, including volanesorsen,tominersen, tofersen, AKCEA-APO(a)-LRx, and AKCEA-TTR-LRx, do not show sufficient efficacy in patients with the targeted indication, it could negatively impact our development and commercialization goals for the drugthese medicines and our stock price could decline.
Even if our drugsmedicines are successful in preclinical and human clinical studies, the drugsmedicines may not be successful in late-stage clinical studies.
Successful results in preclinical or initial human clinical studies, including the Phase 2 results for some of our drugsmedicines in development, may not predict the results of subsequent clinical studies, including the Phase 3 studystudies of volanesorsen in patients with FPL.tominersen,, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx. There are a number of factors that could cause a clinical study to fail or be delayed, including:
| ● | the clinical study may produce negative or inconclusive results; |
| ● | regulators may require that we hold, suspend or terminate clinical research for noncompliance with regulatory requirements; |
| ● | we, our partners, the FDA or foreign regulatory authorities could suspend or terminate a clinical study due to adverse side effects of a drugmedicine on subjects in the trial; |
| ● | we, or our partners, may decide, or regulators may require us, to conduct additional preclinical testing or clinical studies; |
| ● | enrollment in our clinical studies may be slower than we anticipate; |
| ● | we or our partners, including our independent clinical investigators, contract research organizations and other third-party service providers on which we rely, may not identify, recruit and train suitable clinical investigators at a sufficient number of study sites or timely enroll a sufficient number of study subjects in the clinical study; |
| ● | the institutional review board for a prospective site might withhold or delay its approval for the study; |
| ● | enrollment in our clinical studies may be slower than we anticipate; |
| ● | people who enroll in the clinical study may later drop out due to adverse events, a perception they are not benefiting from participating in the study, fatigue with the clinical study process or personal issues; |
| ● | a clinical study site may deviate from the protocol for the study; |
| ● | the cost of our clinical studies may be greater than we anticipate; |
| ● | our partners may decide not to exercise any existing options to license and conduct additional clinical studies for our medicines; and |
| ● | the supply or quality of our drugsmedicines or other materials necessary to conduct our clinical studies may be insufficient, inadequate or delayed. |
In addition, our current drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, are chemically similar to each other. As a result, a safety observation we encounter with one of our drugsmedicines could have, or be perceived by a regulatory authority to have, an impact on a different drugmedicine we are developing. This could cause the FDA and other regulators to ask questions or take actions that could harm or delay our ability to develop and commercialize our drugsmedicines or increase our costs. For example, the FDA or other regulatory agencies could request, among other things, any of the following regarding one of our drugs:medicines: additional information or commitments before we can start or continue a clinical study, protocol amendments, increased safety monitoring, additional product labeling information, and post-approval commitments. Similarly, we haveThis happened in connection with the conditional marketing approval for WAYLIVRA in the EU, as the EC is requiring Akcea to conduct a post-authorization safety study to evaluate the safety of WAYLIVRA on thrombocytopenia and bleeding in FCS patients taking WAYLIVRA. Akcea has an ongoing Phase 3 study of volanesorsen in patients with FPL, an ongoing open labelOLE extension study of volanesorsenWAYLIVRA in patients with FCS and an ongoing open label extensionOLE study of inotersen TEGSEDI in patients with hATTR, and expandedan early access programsprogram, or EAP, for each drug.both WAYLIVRA and TEGSEDI. Adverse events or results from these studies or the EAPs could negatively impact our currentAkcea’s pending or plannedfuture marketing approval applications for volanesorsenWAYLIVRA and TEGSEDI in patients with FCS for inotersenor hATTR amyloidosis or the commercial opportunity for each product.WAYLIVRA or TEGSEDI.
Any failure or delay in the clinical studies, including the Phase 3 study for volanesorsen in patients with FPL,studies of tominersen, tofersen, AKCEA-APO(a)-LRx and AKCEA-TTR-LRx, could reduce the commercial potential or viability of our drugs.medicines.
If we cannot manufacture our drugsmedicines or contract with a third party to manufacture our drugsmedicines at costs that allow us to charge competitive prices to buyers, we cannot market our products profitably.
To successfully commercialize any of our drugs,medicines, we or our partner would need to establishoptimize and manage large-scale commercial manufacturing capabilities either on our own or through a third partythird-party manufacturer. We and Akcea will rely on third partythird-party manufacturers to supply the drug substance and drug product for inotersenTEGSEDI and volanesorsen.WAYLIVRA. In addition, as our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. We have limited experience manufacturing pharmaceutical products of the chemical class represented by our drugs,medicines, called oligonucleotides, on a commercial scale for the systemic administration of a drug.medicine. There are a small number of suppliers for certain capital equipment and raw materials that we use to manufacture our drugs,medicines, and some of these suppliers will need to increase their scale of production to meet our projected needs for commercial manufacturing. Further, we must continue to improve our manufacturing processes to allow us to reduce our drug costs. We may not be able to manufacture our drugsmedicines at a cost or in quantities necessary to make commercially successful products.
Also, manufacturers, including us, must adhere to the FDA'sFDA’s current Good Manufacturing Practices regulations and similar regulations in foreign countries, which the applicable regulatory authorities enforce through facilities inspection programs. We, our partners and our contract manufacturers may not comply or maintain compliance with Good Manufacturing Practices, or similar foreign regulations. Non-compliance could significantly delay or prevent receipt of marketing authorizationauthorizations for our drugs,medicines, including authorizations for SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, and our medicines in development, or result in enforcement action after authorization that could limit the commercial success of our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen.WAYLIVRA, and our medicines in development.
We depend on third parties to conduct our clinical studies for our drugsmedicines and any failure of those parties to fulfill their obligations could adversely affect our development and commercialization plans.
We depend on independent clinical investigators, contract research organizations and other third-party service providers to conduct our clinical studies for our drugsmedicines and expect to continue to do so in the future. For example, we use clinical research organizations, such as Pharmaceutical Research Associates, Inc., Icon Clinical Research Limited, INC Research Toronto,Syneos Health, Inc., PPD and Medpace for the clinical studies for our drugs,medicines, including volanesorsentominersen, tofersen, AKCEA-APO(a)-LRx and inotersen.AKCEA-TTR-LRx. We rely heavily on these parties for successful execution of our clinical studies, but do not control many aspects of their activities. For example, the investigators are not our employees. However, we are responsible for ensuring that these third parties conduct each of our clinical studies in accordance with the general investigational plan and approved protocols for the study. Third parties may not complete activities on schedule or may not conduct our clinical studies in accordance with regulatory requirements or our stated protocols. The failure of these third parties to carry out their obligations or a termination of our relationship with these third parties could delay or prevent the development, marketing authorization and commercialization of our drugs, includingmedicines or additional marketing authorizations for volanesorsenSPINRAZA, TEGSEDI and inotersen or additional authorizations for SPINRAZA.WAYLIVRA.
Risks Associated with our Businesses as a Whole
We have incurred losses, and our business will suffer if we fail to consistently achieve profitability in the future.
Because drug discovery and development requires substantial lead-time and money prior to commercialization, our expenses have generally exceeded our revenue since we were founded in January 1989. As of December 31, 2017,2019, we had an accumulated deficit of approximately $1.2$0.7 billion and stockholders’ equity of approximately $418.7 million.$1.7 billion. Most of theour historical losses resulted from costs incurred in connection with our research and development programs and from selling, general and administrative costs associated with our operations. Most of our income has come from collaborative arrangements, including commercial revenue from royalties and R&D revenue, with additional income from research grants and the sale or licensing of our patents, as well as interest income. WeIf we do not continue to earn substantial revenue, we may incur additional operating losses overin the next several years, and these losses may increase if we cannot increase or sustain revenue.future. We may not successfully develop any additional products or achieve or sustain future profitability.
Our ability to use our net operating loss carryovers and certain other tax attributes may be limited.
As described above, we have incurred net losses. Under the Internal Revenue Code of 1986, as amended, or the Code, a corporation is generally allowed a deduction for net operating losses, or NOLs, carried over from a prior taxable year. Under that provision, we can carryforward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. The same is true of other unused tax attributes, such as tax credits.
As of December 31, 2017, we had federal and California net operating loss carryforwards of approximately $561.1 million and $887.1 million, respectively. The federal net operating loss carryforwards will begin to expire, if not utilized, beginning in 2024. These net operating loss carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under the Tax Cut and Jobs Act of 2017, or the Tax Act, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. Tax Act.
In addition, under Section 382 of the Internal Revenue Code, of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percent change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. It is possible that we have experienced an ownership change limitation. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards or other tax attributes is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
Since corporate partnering is a significant part of our strategy to fund the development and commercialization of our development programs, if any of our collaborative partners fail to fund our collaborative programs, or if we cannot obtain additional partners, we may have to delay or stop progress on our drug development programs.
To date, corporate partnering has played a significant role in our strategy to fund our development programs and to add key development resources. We plan to continue to rely on additional collaborative arrangements to develop and commercialize our unpartnered drugs.medicines. However, we may not be able to negotiate favorable collaborative arrangements for these drug programs. If we cannot continue to secure additional collaborative partners, our revenues could decrease and the development of our drugsmedicines could suffer.
Our corporate partners are developing and/or funding many of the drugsmedicines in our development pipeline. For example, we are relying on:
| ● | Roche for development and funding of tominersen; |
| ● | Novartis for development and funding of AKCEA-APO(a)-LRx; and |
| ● | Biogen for development and funding of tofersen. |
If any of these pharmaceutical companies stops developing and/or funding these drugs,medicines, our business could suffer and we may not have, or be willing to dedicate, the resources available to develop these drugsmedicines on our own.
Our collaborators can terminate their relationships with us under certain circumstances, many of which are outside of our control. For example, as part of a reprioritization of its pipeline and strategic review of its rare disease business, GSK declined its option on inotersento license TEGSEDI and IONIS-FB-LRx.
Even with funding from corporate partners, if our partners do not effectively perform their obligations under our agreements with them, it would delay or stop the progress of our drug development and commercial programs.
In addition to receiving funding, we enter into collaborative arrangements with third parties to:
| ● | conduct clinical studies; |
| ● | seek and obtain marketing authorization; and |
| ● | manufacture, market and sell our drugs.medicines. |
Once we have secured a collaborative arrangement to further develop and commercialize one of our drug development programs, such as our collaborations with AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis, Pfizer and Roche, these collaborations may not continue or result in commercialized drugs,medicines, or may not progress as quickly as we first anticipated.
For example, a collaborator such as AstraZeneca, Bayer, Biogen, GSK, Janssen, Novartis, Pfizer or Roche, could determine that it is in its financial interest to:
| ● | pursue alternative technologies or develop alternative products that may be competitive with the drugmedicine that is part of the collaboration with us; |
| ● | pursue higher-priority programs or change the focus of its own development programs; or |
| ● | choose to devote fewer resources to our drugsmedicines than it does for its own drugs.medicines. |
If any of these occur, it could affect our partner'spartner’s commitment to the collaboration with us and could delay or otherwise negatively affect the commercialization of our drugs,medicines, including SPINRAZA.SPINRAZA, tominersen, AKCEA-APO(a)-LRx and tofersen.
If we do not progress in our programs as anticipated, the price of our securities could decrease.
For planning purposes, we estimate and may disclose the timing of a variety of clinical, regulatory and other milestones, such as when we anticipate a certain drugmedicine will enter the clinic,clinical trials, when we anticipate completing a clinical study, or when we anticipate filing an application for, or obtaining, marketing authorization.authorization, or when our partners plan to commercially launch a medicine. We base our estimates on present facts and a variety of assumptions. Many underlying assumptions are outside of our control. If we do not achieve milestones in accordance with our or our investors'investors’ or securities analysts’ expectations, including milestones related to SPINRAZA, volanesorsenTEGSEDI, WAYLIVRA, tominersen, tofersen, AKCEA-APO(a)-LRx and inotersenAKCEA-TTR-LRx, the price of our securities could decrease.
If we cannot protect our patentspatent rights or our other proprietary rights, others may compete more effectively against us.
Our success depends to a significant degree upon whether we can continue to develop, secure and securemaintain intellectual property rights to proprietary products and services. However, we may not receive issued patents on any of our pending patent applications in the United StatesU.S. or in other countries.countries and we may not be able to obtain, maintain or enforce our patents and other intellectual property rights which could impact our ability to compete effectively. In addition, the scope of any of our issued patents may not be sufficiently broad to provide us with a competitive advantage. Furthermore, other partnersparties may successfully challenge, invalidate or circumvent our issued patents or patents licensed to us so that our patent rights do not create an effective competitive barrier or revenue source.
We cannot be certain that the U.S. Patent and Trademark Office, or U.S. PTO, and courts in the United States or the patent offices and courts in foreign countries will consider the claims in our patents and applications covering SPINRAZA, TEGSEDI, WAYLIVRA, or any of our medicines in development as patentable. Method-of-use patents protect the use of a product for the specified method. This type of patent does not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. Moreover, even if competitors do not actively promote their product for our targeted indications, physicians may prescribe these products off-label. Although off-label prescriptions may infringe or contribute to the infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent, including through legal action.
If we or any licensor partner loses or cannot obtain patent protection for SPINRAZA, TEGSEDI, WAYLIVRA, or any of our other medicines in development, it could have a material adverse impact on our business.
Intellectual property litigation could be expensive and prevent us from pursuing our programs.
From time to time we have to defend our intellectual property rights. If we are involved in an intellectual property dispute, we sometimesmay need to litigate to defend our rights or assert them against others. Disputes can involve arbitration, litigation or proceedings declared by the United States Patent and Trademark OfficeU.S. PTO or the International Trade Commission or foreign patent authorities. Intellectual property litigation can be extremely expensive, and this expense, as well as the consequences should we not prevail, could seriously harm our business. For example, in November 2013 we filed a patent infringement lawsuit against Gilead Sciences Inc. in the United States District Court of the Northern District of California. Intellectual property lawsuits may be costly and may not beEven if resolved in our favor.favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
If a third party claims that our drugsmedicines or technology infringe its patents or other intellectual property rights, we may have to discontinue an important product or product line, alter our products and processes, pay license fees or cease certain activities. We may not be able to obtain a license to needed intellectual property on favorable terms, if at all. There are many patents issued or applied for in the biotechnology industry, and we may not be aware of patents or patent applications held by others that relate to our business. This is especially true since patent applications in the United StatesU.S. are filed confidentially for the first 18 months. Moreover, the validity and breadth of biotechnology patents involve complex legal and factual questions for which important legal issues remain.
If we fail to obtain timely funding, we may need to curtail or abandon some of our programs.
Many of our drugsmedicines are undergoing clinical studies or are in the early stages of research and development. AllMost of our drug programs will require significant additional research, development, manufacturing, preclinical and/orand clinical testing, marketing authorization, and/orpreclinical activities and commitment of significant additional resources prior to their successful commercialization. These activities will require significant cash. As of December 31, 2017,2019, we had cash, cash equivalents and short-term investments equal to $1.0$2.5 billion. If we or our partners do not meet our goals to successfully commercialize our drugs,medicines, including SPINRAZA, volanesorsenTEGSEDI and inotersen,WAYLIVRA, or to license our drugscertain medicines and proprietary technologies, we will need additional funding in the future. Our future capital requirements will depend on many factors, such as the following:
| ● | successful commercialization for SPINRAZA;of SPINRAZA, TEGSEDI and WAYLIVRA; |
| ● | additional marketing approvals for volanesorsenWAYLIVRA and inotersen;TEGSEDI; |
| ● | the profile and launch timing of our drugs,medicines, including volanesorsenTEGSEDI and inotersen;WAYLIVRA; |
| ● | changes in existing collaborative relationships and our ability to establish and maintain additional collaborative arrangements; |
| ● | continued scientific progress in our research, drug discovery and development programs; |
| ● | the size of our programs and progress with preclinical and clinical studies; |
| ● | the time and costs involved in obtaining marketing authorizations; and |
| ● | competing technological and market developments, including the introduction by others of new therapies that address our markets. |
If we need additional funds, we may need to raise them through public or private financing. Additional financing may not be available at all or on acceptable terms. If we raise additional funds by issuing equity securities, the shares of existing stockholders will be diluted and the price, as well as the price of our other securities, may decline. If adequate funds are not available or not available on acceptable terms, we may have to cut back on one or more of our research, drug discovery or development programs. Alternatively, we may obtain funds through arrangements with collaborative partners or others, which could require us to give up rights to certain of our technologies or drugs.medicines.
If our planned management transition is not successful our business could suffer.
In January 2020, Dr. Crooke, our founder and Chief Executive Officer, transitioned from Chief Executive Officer to Executive Chairman of our Board of Directors. As Executive Chairman, Dr. Crooke will continue to be responsible for the activities of the board and will remain active in the company, providing strategic advice and continuing to participate in the scientific activities. Starting in January 2020, Dr. Monia, who had been our Chief Operating Officer for the last year and has been a member of our team since our founding over 30 years ago, serves as our Chief Executive Officer. If this transition is not successful, our business could suffer.
The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of success.
We are dependent on the principal members of our management and scientific staff. We do not have employment agreements with any of our executive officers that would prevent them from leaving us. The loss of our management and key scientific employees might slow the achievement of important research and development goals. It is also critical to our success that we recruit and retain qualified scientific personnel to perform research and development work. We may not be able to attract and retain skilled and experienced scientific personnel on acceptable terms because of intense competition for experienced scientists among many pharmaceutical and health care companies, universities and non-profit research institutions. In addition, failure to succeed in clinical studies may make it more challenging to recruit and retain qualified scientific personnel. Similarly, Akcea is dependent on the principal members of its staff responsible for marketing, sales and distribution activities. If Akcea is not able to recruit and retain qualified marketing and sales personnel, the sales of TEGSEDI and WAYLIVRA may be adversely affected.
If the price of our securities continues to be highly volatile, this could make it harder for you to liquidate your investment and could increase your risk of suffering a loss.
The market price of our common stock, like that of the securities of many other biopharmaceutical companies, has been and is likely to continue to be highly volatile. These fluctuations in our common stock price may significantly affect the trading price of our securities. During the 12 months preceding December 31, 2017,2019, the market price of our common stock ranged from $65.51$86.58 to $37.26$52.45 per share. Many factors can affect the market price of our securities, including, for example, fluctuations in our operating results, announcements of collaborations, clinical study results, technological innovations or new products being developed by us or our competitors, the commercial success of our approved medicines, governmental regulation, marketing authorization,authorizations, changes in payors'payors’ reimbursement policies, developments in patent or other proprietary rights and public concern regarding the safety of our drugs and general market conditions.medicines.
Additionally, broad market and industry factors may materially harm the market price of our common stock irrespective of our operating performance. The stock market in general, and NASDAQ and the market for biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of ours, may not be predictable. A loss of investor confidence in the market for biotechnology or pharmaceutical stocks or the stocks of other companies which investors perceive to be similar to us, the opportunities in the biotechnology and pharmaceutical market or the stock market in general, could depress our stock price regardless of our business, prospects, financial conditions or results of operations.
We are exposed to potential product liability claims, and insurance against these claims may not be available to us at a reasonable rate in the future or at all.
Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of therapeutic products, including potential product liability claims related to SPINRAZA, volanesorsenTEGSEDI and inotersen.WAYLIVRA, and our medicines in development. We have clinical study insurance coverage and commercial product liability insurance coverage. However, this insurance coverage may not be adequate to cover claims against us, or be available to us at an acceptable cost, if at all. Regardless of their merit or eventual outcome, productsproduct liability claims may result in decreased demand for our drug products,medicines, injury to our reputation, withdrawal of clinical study volunteers and loss of revenues. Thus, whether or not we are insured, a product liability claim or product recall may result in losses that could be material.
We are dependent on information technology systems, infrastructure and data, which exposes us to data security risks.
We are dependent upon our own and third-party information technology systems, infrastructure and data, including mobile technologies, to operate our business. The multitude and complexity of our computer systems may make them vulnerable to service interruption or destruction, disruption of data integrity, malicious intrusion, or random attacks. Likewise, data privacy or security incidents or breaches by employees or others may pose a risk that sensitive data, including our intellectual property, trade secrets or personal information of our employees, patients, customers or other business partners may be exposed to unauthorized persons or to the public. Cyber-attacks are increasing in their frequency, sophistication and intensity. Cyber-attacks could include the deployment of harmful malware, denial-of-service, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. Our business partners face similar risks and any security breach of their systems could adversely affect our security posture. A security breach or privacy violation that leads to disclosure or modification of or prevents access to patient information, including personally identifiable information or protected health information, could harm our reputation, compel us to comply with federal and state breach notification laws and foreign law equivalents, subject us to financial penalties and mandatory and costly corrective action, require us to verify the correctness of database contents and otherwise subject us to litigation or other liability under laws and regulations that protect personal data, any of which could disrupt our business and result in increased costs or loss of revenue. Moreover, the prevalent use of mobile devices that access confidential information increases the risk of data security breaches, which could lead to the loss of confidential information, trade secrets or other intellectual property. While we have invested, and continue to invest, in the protection of our data and information technology infrastructure, our efforts may not prevent service interruptions, or identify breaches in our systems, that could adversely affect our business and operations and result in the loss of critical or sensitive information, which could result in financial, legal, business or reputational harm to us. In addition, our liability insurance may not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and other related breaches.
Because we use biological materials, hazardous materials, chemicals and radioactive compounds, if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.
Our research, development and manufacturing activities involve the use of potentially harmful biological materials as well as materials, chemicals and various radioactive compounds that could be hazardous to human health and safety or the environment. We store most of these materials and various wastes resulting from their use at our facilities in Carlsbad, California pending ultimate use and disposal. We cannot completely eliminate the risk of contamination, which could cause:
| ● | interruption of our research, development and manufacturing efforts; |
| ● | injury to our employees and others; |
| ● | environmental damage resulting in costly clean up; and |
| ● | liabilities under federal, state and local laws and regulations governing health and human safety, as well as the use, storage, handling and disposal of these materials and resultant waste products. |
In such an event, we may be held liable for any resulting damages, and any liability could exceed our resources. Although we carry insurance in amounts and types that we consider commercially reasonable, we do not have insurance coverage for losses relating to an interruption of our research, development or manufacturing efforts caused by contamination, and the coverage or coverage limits of our insurance policies may not be adequate. If our losses exceed our insurance coverage, our financial condition would be adversely affected. We manufacture the finished drug product for volanesorsen and inotersen at third party contract manufacturers.
If a natural or man-made disaster strikes our research, development or manufacturing facilities or otherwise affects our business, it could delay our progress developing and commercializing our drugs.medicines.
We manufacture most of our research and clinical supplies in a manufacturing facility located in Carlsbad, California. We manufacture the finished drug product for TEGSEDI and WAYLIVRA at third-party contract manufacturers. Biogen manufactures the finished drug product for SPINRAZA. The facilities and the equipment we, our partners and our contract manufacturers use to research, develop and manufacture our drugsmedicines would be costly to replace and could require substantial lead time to repair or replace. Our facilities or those of our partners or contract manufacturers may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, fires, and acts of terrorism;terrorism and pandemics; and if oursuch facilities are affected by a disaster, our development and commercialization efforts would be delayed. Although we possess property damage and business interruption insurance for damage to our property and the disruption of our business from casualties,coverage, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, our development and commercialization activities could be harmed or delayed by a shutdown of the U.S. government, including the FDA.
Our business and operations would suffer in the event of computer system failures.
Despite the implementation of security measures, our internal computer systems, and those of our clinical research organizations, manufacturers, commercial partners and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If issues were to arise and cause interruptions in our operations, it could result in a material disruption of our drug programs. For example, the loss of clinical study data from completed or ongoing clinical studies could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development or commercialization of our drugs, including SPINRAZA, volanesorsen and inotersen could be harmed or delayed.
Provisions in our certificate of incorporation, other agreementsconvertible notes documents, call spread hedge transaction documents and Delaware law may prevent stockholders from receiving a premium for their shares.
Our certificate of incorporation provides for classified terms for the members of our board of directors. Our certificate also includes a provision that requires at least 66 2/3 percent of our voting stockholders to approve a merger or certain other business transactions with, or proposed by, any holder of 15 percent or more of our voting stock, except in cases where certain directors approve the transaction or certain minimum price criteria and other procedural requirements are met.
Our certificate of incorporation also requires that any action required or permitted to be taken by our stockholders must be taken at a duly called annual or special meeting of stockholders and may not be taken by written consent. In addition, only our board of directors, chairman of the board or chief executive officer can call special meetings of our stockholders. We have in the past, and may in the future, implement a stockholders'stockholders’ rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis. In addition, our board of directors has the authority to fix the rights and preferences of, and issue shares of preferred stock, which may have the effect of delaying or preventing a change in control of our company without action by our stockholders.
The provisions of our convertible senior notes could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a fundamental change, holders of the notes will have the right, at their option, to require us to repurchase all of their notes or a portion of their notes, which may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over the then current market prices.
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. Additionally, in connection with the pricing of our 0.125% Notes, we entered into call spread transactions in which we purchased note hedges and sold warrants. Terminating or unwinding the call spread transactions could require us to make substantial payments to the counterparties under those agreements or may increase our stock price. The costs or any increase in stock price that may arise from terminating or unwinding such agreements could make an acquisition of our company significantly more expensive to the purchaser.
These provisions, as well as Delaware law, including Section 203 of the Delaware General Corporation Law, and other of our agreements, may discourage certain types of transactions in which our stockholders might otherwise receive a premium for their shares over then current market prices, and may limit the ability of our stockholders to approve transactions that they think may be in their best interests.
Future sales of our common stock in the public market could adversely affect the trading price of our securities.
Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect trading prices of our securities. For example, we may issue approximately 10.311.2 million shares of our common stock upon conversion of our convertible senior notes.notes and up to 6.6 million shares may be issued in connection with the warrant transactions we entered into in connection with the issuance of our 0.125 percent convertible senior notes, in each case subject to customary anti-dilution adjustments. The addition of any of these shares into the public market may have an adverse effect on the price of our securities.
In addition, pursuant to the call spread transactions we entered into in connection with the pricing of our 0.125% notes, the counterparties are likely to modify their hedge positions from time to time at or prior to the conversion or maturity of the notes by purchasing and selling shares of our common stock, other of our securities, or other instruments, including over-the-counter derivative instruments, that they may wish to use in connection with such hedging, which may have a negative effect on the conversion value of those notes and an adverse impact on the trading price of our common stock. The call spread transactions are expected generally to reduce potential dilution to holders of our common stock upon any conversion of our 0.125% notes or offset any cash payments we are required to make in excess of the principal amount of the converted 0.125% notes, as the case may be. However, the warrant transactions could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the warrants.
Our business is subject to changing regulations for corporate governance and public disclosure that has increased both our costs and the risk of noncompliance.
Each year we are required to evaluate our internal controls systems in order to allow management to report on and our Independent Registered Public Accounting Firm to attest to, our internal controls as required by Section 404 of the Sarbanes-Oxley Act. As a result, we continue to incur additional expenses and divert our management'smanagement’s time to comply with these regulations. In addition, if we cannot continue to comply with the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC, the Public Company Accounting Oversight Board, or PCAOB, or The Nasdaq Global Select Market. Any such action could adversely affect our financial results and the market price of our common stock.
The SEC and other regulators have continued to adopt new rules and regulations and make additional changes to existing regulations that require our compliance. On July 21, 2010, the Dodd-Frank Wall Street Reform and Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Act that require the SEC to adopt, or where the SEC has adopted, additional rules and regulations in these areas such as "say“say on pay"pay” and proxy access. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business.
The recently passed comprehensiveChanges in tax reform billlaws, regulations and treaties could adversely affect our business and financial condition.future taxable income.
The Tax Act significantly revises the Internal Revenue CodeA change in tax laws, treaties or regulations, or their interpretation, of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80 percent of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reductionany country in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial conditionwhich we operate could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.materially affect us.
We could be subject to additional tax liabilities.
We are subject to U.S. federal, state, local and sales taxes in the U.S. and foreign income taxes, withholding taxes and transaction taxes in foreign jurisdictions. Significant judgment is required in evaluating our tax positions and our worldwide provision for taxes. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.
Negative conditions in the global credit markets and financial services and other industries may adversely affect our business.
The global credit markets, the financial services industry, the U.S. capital markets, and the U.S. economy as a whole have in the past experienced periods of substantial turmoil and uncertainty characterized by unprecedented intervention by the U.S. federal government and the failure, bankruptcy, or sale of various financial and other institutions. It is possible that a crisis in the global credit markets, the U.S. capital markets, the financial services industry or the U.S. economy may adversely affect our business, vendors and prospects, as well as our liquidity and financial condition. More specifically, our insurance carriers and insurance policies covering all aspects of our business may become financially unstable or may not be sufficient to cover any or all of our losses and may not continue to be available to us on acceptable terms, or at all.
The impact on us of the vote by the United Kingdom to leave the European Union cannot be predicted.
On June 23, 2016, the United Kingdom, or the U.K., voted to leave the EU in an advisory referendum, which is generally referred to as Brexit. In January 2020, the U.K. and the EU entered into a withdrawal agreement pursuant to which the U.K. formally withdrew from the EU on January 31, 2020. Following such withdrawal, the U.K. entered into a transition period scheduled to end on December 31, 2020, or the Transition Period. During the Transition Period, the U.K. will remain subject to EU law and maintain access to the EU single market and to the global trade deals negotiated by the EU on behalf of its members. Negotiations are expected to continue in relation to the customs and trading relationship between the U.K. and the EU following the expiry of the Transition Period.
In addition, as a result of Brexit, the EMA, formerly situated in London, relocated to Amsterdam. Following the Transition Period, there is a risk that the relocation will interrupt current administrative routines and occupy resources, which may generally adversely affect our dealings with the EMA. Further, there is considerable uncertainty resulting from a lack of precedent and the complexity of the U.K. and EU’s intertwined legal regimes as to how Brexit (following the Transition Period) will impact the life sciences industry in Europe, including our company, including with respect to ongoing or future clinical trials. The impact will largely depend on the model and means by which the U.K.’s relationship with the EU is governed post-Brexit. For example, following the Transition Period, the U.K. will no longer be covered by the centralized procedures for obtaining EU-wide marketing authorization from the EMA and, unless a specific agreement is entered into, a separate process for authorization of drug products, including our product candidates, will be required in the UK, the potential process for which is currently unclear. Brexit may adversely affect and delay our ability to commercialize, market and sell our product candidates in the U.K.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
As of February 20, 2018, we occupied2020, the following properties:are the primary facilities in which we operate:
| Property Description | | Location | | Square Footage | | Owned or Leased | | Initial Lease Term End Date | | Lease Extension Options | | Location | | Square Footage | | Owned or Leased | | Initial Lease Term End Date | | Lease Extension Options |
| Ionis laboratory and office space facility | | Carlsbad, CA | | 176,000 | | Owned | | | | | | Carlsbad, CA | | 176,000 | | Owned | | | | |
| Ionis manufacturing facility | | Carlsbad, CA | | 28,700 | | Owned | | | | | | Carlsbad, CA | | 28,700 | | Owned | | | | |
| Ionis manufacturing support facility | | Carlsbad, CA | | 25,800 | | Leased | | 2021 | | Two, five-year options to extend | | Carlsbad, CA | | 25,800 | | Leased | | 2021 | | Two, five-year options to extend |
| Ionis office space facility | | | Carlsbad, CA | | 5,800 | | Leased | | 2023 | | One, five-year option to extend |
| Akcea office space facility | | Cambridge, MA | | 6,100 | | Leased | | 2018 | | None | | Boston, MA | | 30,175 | | Leased | | 2028 | | One, five-year option to extend |
| Akcea office space facility | | Cambridge, MA | | 3,100 | | Leased | | 2020 | | None | |
| Akcea office and Ionis storage space facility | | | Carlsbad, CA | | 18,700 | | Leased | | 2023 | | One, five-year option to extend |
| | | | | 239,700 | | | | | | | | | | 285,175 | | | | | | |
We believe our existing facilities are adequate for our requirements in the foreseeable future and that we have sufficient manufacturing capacity to meet our current and future obligations under existing agreements with our partners for commercial, research and development needs and to produce launch quantities for volanesorsen and inotersen. Akcea will need additional space in the future as it continues to build its development, commercial and support teams. Akcea is currently searching for a new office facility and believes it can find suitable space on commercially reasonable terms.
Item 3. Legal Proceedings
Gilead Litigation
In August 2013, Gilead Sciences Inc.November 2019, a purported stockholder of Akcea filed a suitan action in the United States DistrictDelaware Court of Northern DistrictChancery, captioned City of California related to United States Patent Nos. 7,105,499Cambridge Retirement System v. Crooke, et al., C.A. No. 2019-0905, or the Delaware Action. The plaintiff in the Delaware Action asserts claims against (i) current and 8,481,712,former members of Akcea’s Board of Directors, and (ii) Ionis, or collectively, the Defendants. The plaintiff asserts derivative claims on behalf of Akcea, which are jointly owned by Merck Sharp & Dohme Corp.is a nominal defendant in the Delaware Action, as well as putatively direct claims on behalf of a purported class of Akcea stockholders. The plaintiff in the Delaware Action asserts that the Defendants breached their fiduciary duties in connection with the licensing transaction that Akcea and Ionis Pharmaceuticals, Inc. Inentered into regarding TEGSEDI and AKCEA-TTR-LRx. The plaintiff also asserts an unjust enrichment claim against Ionis. We and Akcea have moved to dismiss the suit Gilead asked the court to determine that Gilead's activities do not infringe any valid claim of the named patents andplaintiff’s complaint. We believe that the patentsclaims asserted in the Delaware Action are not valid. Wewithout merit. The results of litigation are uncertain and Merck Sharp & Dohme Corp. filed our answer denying Gilead's noninfringemententail risk of adverse outcomes, and invalidity contentions, contending that Gilead's commercial salelitigation is usually expensive and offer for sale of sofosbuvir priorcan be distracting to the expiration of the '499 and '712 patents infringes those patents, and requesting monetary damages to compensate for such infringement. In the trial for this case held in March 2016, the jury upheld all ten of the asserted claims of the patents-in-suit. The jury then decided that we and Merck are entitled to four percent of $5 billion in past sales of sofosbuvir. Gilead has stated it would appeal the jury’s finding of validity. In the meantime, Gilead asserted two additional non-jury defenses: waiver and unclean hands. Although the judge rejected the waiver defense, she granted Gilead’s motion claiming that the patents are unenforceable against it under the doctrine of unclean hands. We believe this ruling is contrary to the relevant law and the facts of the case. Accordingly, in July 2016, together with Merck we appealed the decision to the Court of Appeals for the Federal Circuit. Gilead cross-appealed on the issue of validity. Briefing on the appeals is now complete and oral arguments were held in February 2018. Under our agreement with Merck, Merck is responsible for the costs of this suit.management.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Dividends
Our common stock is traded publicly through The Nasdaq Global Select Market under the symbol “IONS.” The following table presents quarterly information on the price range of our common stock. This information indicates the high and low sale prices reported by The Nasdaq Global Select Market. These prices do not include retail markups, markdowns or commissions.
| | | HIGH | | | LOW | |
| 2017 | | | | | | |
| First Quarter | | $ | 56.91 | | | $ | 37.29 | |
| Second Quarter | | $ | 55.73 | | | $ | 37.26 | |
| Third Quarter | | $ | 60.01 | | | $ | 43.75 | |
| Fourth Quarter | | $ | 65.51 | | | $ | 50.02 | |
| 2016 | | | | | | | | |
| First Quarter | | $ | 62.68 | | | $ | 30.93 | |
| Second Quarter | | $ | 46.75 | | | $ | 19.59 | |
| Third Quarter | | $ | 40.82 | | | $ | 23.26 | |
| Fourth Quarter | | $ | 57.00 | | | $ | 24.58 | |
As of February 20, 2018,2020, there were approximately 560516 stockholders of record of our common stock. Because many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
We have never paid dividends and do not anticipate paying any dividends in the foreseeable future.
Purchases of Equity Securities
In September 2019, our board of directors approved an initial share repurchase program of up to $125 million of our common stock. Our stock repurchase program has no expiration date. We repurchased the following amounts of our common stock during the fourth quarter of 2019 (in thousands, except per share amounts). All of our repurchases were made under a 10b5-1 plan:
| | Total Number of Shares Purchased | | | Average Price Paid Per Share (1) | | | Approximate Dollar Value of Shares that May Yet Be Purchased under our Stock Repurchase Program | |
| October 2019 | | | - | | | $ | - | | | $ | 125,000 | |
| November 2019 | | | 75 | | | | 63.57 | | | | 120,230 | |
| December 2019 | | | 460 | | | | 64.40 | | | | 90,593 | |
| Total | | | 535 | | | | | | | | | |
| (1) | Average Price Paid Per Share excludes cash paid for commissions. |
In the first quarter of 2020, we used the remaining $90.6 million approved under the plan to repurchase additional shares.
Performance Graph (1)
Set forth below is a table and chart comparing the total return on an indexed basis of $100 invested on December 31, 20122014 in our common stock, the Nasdaq Composite Index (total return) and the Nasdaq Biotechnology Index. The total return assumes reinvestment of dividends.
Performance Graph (1)
*$100 $100 invested on December 31, 20122014 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Ionis Pharmaceuticals, Inc., the Nasdaq Composite Index,
and the Nasdaq Biotechnology Index
| | | Dec-12 | | | Dec-13 | | | Dec-14 | | | Dec-15 | | | Dec-16 | | | Dec-17 | | | Dec-14 | | | Dec-15 | | | Dec-16 | | | Dec-17 | | | Dec-18 | | | Dec-19 | |
| Ionis Pharmaceuticals, Inc. | | $ | 100.00 | | | $ | 381.61 | | | $ | 591.38 | | | $ | 593.20 | | | $ | 458.14 | | | $ | 481.80 | | | $ | 100.00 | | | $ | 100.31 | | | $ | 77.47 | | | $ | 81.47 | | | $ | 87.56 | | | $ | 97.85 | |
| Nasdaq Composite Index | | $ | 100.00 | | | $ | 141.63 | | | $ | 162.09 | | | $ | 173.33 | | | $ | 187.19 | | | $ | 242.29 | | | $ | 100.00 | | | $ | 106.96 | | | $ | 116.45 | | | $ | 150.96 | | | $ | 146.67 | | | $ | 200.49 | |
| Nasdaq Biotechnology Index | | $ | 100.00 | | | $ | 174.05 | | | $ | 230.33 | | | $ | 244.29 | | | $ | 194.95 | | | $ | 228.29 | | | $ | 100.00 | | | $ | 111.77 | | | $ | 87.91 | | | $ | 106.92 | | | $ | 97.45 | | | $ | 121.92 | |
| (1) | This section is not “soliciting material,” is not deemed “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act and is not to be incorporated by reference in any of our filings under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. |
Item 6. Selected Financial Data
This selected financial data should be read in conjunction with our audited consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K. Our historical consolidated financial information may not be indicative of our future
performance. Set forth below are our selected consolidated financial data (in thousands,millions, except per share amounts):
| | | Years Ended December 31, | | | Years Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 (1) | |
| Consolidated Statement of Operations Data: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revenue | | $ | 507,666 | | | $ | 346,620 | | | $ | 283,703 | | | $ | 214,161 | | | $ | 147,285 | | | $ | 1,122.6 | | | $ | 599.7 | | | $ | 514.2 | | | $ | 372.8 | | | $ | 283.7 | |
| Research, development and patent expenses | | $ | 374,644 | | | $ | 344,320 | | | $ | 322,292 | | | $ | 241,751 | | | $ | 184,033 | | | $ | 465.7 | | | $ | 414.6 | | | $ | 374.6 | | | $ | 344.3 | | | $ | 322.3 | |
| Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | (5,970 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) | | $ | (38,984 | ) | | $ | (60,644 | ) | |
| Selling, general and administrative expenses | | | $ | 286.6 | | | $ | 244.6 | | | $ | 108.5 | | | $ | 48.6 | | | $ | 37.2 | |
| Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders | | | $ | 294.1 | | | $ | 273.7 | | | $ | 0.3 | | | $ | (60.4 | ) | | $ | (88.3 | ) |
| Basic net income (loss) per share attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | 0.08 | | | $ | (0.72 | ) | | $ | (0.74 | ) | | $ | (0.33 | ) | | $ | (0.55 | ) | | $ | 2.12 | | | $ | 2.09 | | | $ | 0.15 | | | $ | (0.50 | ) | | $ | (0.74 | ) |
| Diluted net income (loss) per share attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | 0.08 | | | $ | (0.72 | ) | | $ | (0.74 | ) | | $ | (0.33 | ) | | $ | (0.55 | ) | | $ | 2.08 | | | $ | 2.07 | | | $ | 0.15 | | | $ | (0.50 | ) | | $ | (0.74 | ) |
| Shares used in computing basic net income (loss) per share | | | 124,016 | | | | 120,933 | | | | 119,719 | | | | 117,691 | | | | 110,502 | | | | 140.0 | | | | 132.3 | | | | 124.0 | | | | 120.9 | | | | 119.7 | |
| Shares used in computing diluted net income (loss) per share | | | 126,098 | | | | 120,933 | | | | 119,719 | | | | 117,691 | | | | 110,502 | | | | 142.9 | | | | 134.1 | | | | 126.1 | | | | 120.9 | | | | 119.7 | |
| | | As of December 31, | | | As of December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | �� | | 2013 | | | 2019 | | | 2018 | | | 2017 | | | 2016 (1) | | | 2015 (1) | |
| Consolidated Balance Sheet: | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheet Data: | | | | | | | | | | | | | | | | |
| Cash, cash equivalents and short-term investments | | $ | 1,022,715 | | | $ | 665,223 | | | $ | 779,183 | | | $ | 728,832 | | | $ | 656,761 | | | $ | 2,499.5 | | | $ | 2,084.1 | | | $ | 1,022.7 | | | $ | 665.2 | | | $ | 779.2 | |
| Working capital | | $ | 943,243 | | | $ | 664,148 | | | $ | 688,127 | | | $ | 721,265 | | | $ | 637,698 | | | $ | 2,447.6 | | | $ | 1,927.6 | | | $ | 925.1 | | | $ | 664.1 | | | $ | 688.1 | |
| Total assets | | $ | 1,322,024 | | | $ | 912,467 | | | $ | 947,900 | | | $ | 946,471 | | | $ | 843,267 | | | $ | 3,233.1 | | | $ | 2,667.8 | | | $ | 1,322.8 | | | $ | 912.5 | | | $ | 947.9 | |
| Long-term debt and other obligations, less current portion | | $ | 678,564 | | | $ | 679,118 | | | $ | 598,234 | | | $ | 588,896 | | | $ | 367,065 | | | $ | 1,275.6 | | | $ | 1,200.3 | | | $ | 713.9 | | | $ | 679.1 | | | $ | 598.2 | |
| Accumulated deficit | | $ | (1,187,398 | ) | | $ | (1,181,428 | ) | | $ | (1,094,872 | ) | | $ | (1,006,594 | ) | | $ | (967,610 | ) | | $ | (707.5 | ) | | $ | (967.3 | ) | | $ | (1,241.0 | ) | | $ | (1,181.4 | ) | | $ | (1,094.9 | ) |
| Stockholders’ equity | | $ | 418,719 | | | $ | 99,565 | | | $ | 200,790 | | | $ | 257,780 | | | $ | 378,390 | | | $ | 1,684.5 | | | $ | 1,187.2 | | | $ | 365.3 | | | $ | 99.6 | | | $ | 200.8 | |
| (1) | We adopted the new revenue recognition accounting standard in 2018 (Topic 606) and adjusted our 2017 results for the adoption. This change is not reflected in our consolidated statement of operations data for 2015 or in our consolidated balance sheet data for 2016 and 2015. |
Item 7. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
This financial review presents our operating results for each of the three years in the period ended December 31, 2017,2019, and our financial condition at December 31, 2017.2019. Except for the historical information contained herein, the following discussion contains forward-looking statements whichthat are subject to known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We discuss such risks, uncertainties and other factors throughout this report and specifically under Item 1A of Part I of this report, “Risk Factors.” In addition, the following review should be read in conjunction with the information presented in our consolidated financial statements and the related notes to our consolidated financial statements as indexed on page F-1.
Overview
We are leadersa leader in discovering and developing RNA-targeted therapeutics. We have created an efficient and broadly applicable drug discovery platform leveraging our expertise in antisense oligonucleotide therapeutics. Using this platform,therapeutics that we have developed abelieve has fundamentally changed medicine and transformed the lives of people with devastating diseases. Our large, diverse and advancedadvancing pipeline of potentiallyhas over 40 potential first-in-class and/or best-in-class drugsmedicines designed to address a broad spectrum of therapeutic areas, such as neurodegenerative diseases, cardiometabolic diseases, cancer and others. The medicines in our pipeline address patients with diseases ranging from rare to common.
In 2019, we achieved important goals across our business, including advancing four new medicines into pivotal studies. We also reported positive clinical proof-of-concept results from five medicines, four of which were LICA medicines. We advanced and grew our pipeline of unpartnered medicines, which we call our Ionis-owned pipeline. In addition, we made significant progress across the rest of our pipeline by advancing numerous medicines into earlier stages of development, six of which were Ionis-owned medicines. In 2019, we also broadened the scope of our antisense technology by investing in complementary technologies such as new LICA strategies to address more organ systems and cell types and technologies to potentially identify novel targets to ensure continued pipeline growth. These accomplishments enabled us to achieve revenues in excess of $1.1 billion, net income of nearly $300 million and a year-end cash balance of $2.5 billion.
This year we plan to use our financial strength to invest fully in those areas of the business that we believe can provide highhave the greatest potential to create value for patients with significant unmet medical needs. Inand shareholders. By the end of this way,year, we plan to have six pivotal studies underway and report clinical proof-of-concept data for six or more medicines. We also plan to expand the reach of our antisense technology by optimizing additional routes of administration, such as oral and pulmonary for which we expect clinical data this year. Additionally, this year, we are continuing to prioritize the growth and advancement of our Ionis-owned pipeline. Building on our achievements in 2019, we believe that continued advances in our pipeline and technology will enable us to achieve our goal of 10 or more new drug applications through the end of 2025.
Our goal is to determine the optimal development and commercialization strategy for each medicine in our pipeline, while ensuring we remain focused on innovation and delivering substantial value for patients in need and shareholders. With this goal firmly in mind, this year we plan to further develop our commercial strategy and capabilities to ensure we maximize the value of each of our medicines.
By building on our strong foundation and continuing to focus on our strategic priorities, we believe we are fundamentally changing medicine withachieving our vision of becoming one of the goalmost successful and innovative companies in the healthcare industry. We intend to transformcontinue to pursue our vision by executing on our strategic priorities: advancing our Ionis-owned pipeline, further developing our commercial strategies and capabilities, and expanding the livesreach of those suffering from severe, often life-threatening, diseases.our antisense technology.
We made significant progress toward thishave three commercial medicines approved in major markets around the world, SPINRAZA, TEGSEDI and WAYLIVRA. We have four drugs in pivotal studies, tominersen (formerly IONIS-HTTRx) for Huntington’s disease, tofersen for SOD1-ALS, AKCEA-APO(a)-LRx for cardiovascular disease, or CVD, and AKCEA-TTR-LRx for all forms of TTR amyloidosis, or ATTR. Our goal withis to start up to five additional pivotal studies before the commercial launchend of 2021.
SPINRAZA (nusinersen)is a global foundation-of-care for the treatment of patients of all ages with spinal muscular atrophy, or SMA, in pediatric and adult patients. SMA is a leading genetic cause of death in infants marked by progressive, debilitating muscle weakness. SPINRAZA became the first and only approved drug to treat people with SMA and is now the standard of care for this debilitatingoften fatal genetic disease. OurBiogen, our partner Biogen, is responsible for global commercial activities. In January 2018, Biogencommercializing SPINRAZA worldwide, reported that as of December 31, 2019, more than 10,000 patients were on SPINRAZA was availabletherapy in over 30 global markets. Additionally, Biogen is continuing to purse regulatory approvals for SPINRAZA in countriesmarkets around the world. In 2017,Additionally, as of December 31, 2019, SPINRAZA is approved in over 50 countries with formal reimbursement in 40 countries. Through December 31, 2019, we have earned $113more than $1 billion in revenues from our SPINRAZA collaboration, including more than $640 million in commercial revenue from SPINRAZA royalties. We also earnedroyalties on sales of SPINRAZA.
TEGSEDI, a $50 million milestone paymentonce weekly, self-administered subcutaneous medicine, was approved in 2018 in the U.S., EU and Canada for the EU approvaltreatment of SPINRAZA and a $40 million milestone payment for SPINRAZA pricing approval in Japan.
Our pipeline also contains two near-term, potentially transformative medicines for two different severe and rare diseases, eachpatients with significant commercial potential, inotersen and volanesorsen. We believe inotersen has the potential to become the preferred treatment option for many people withpolyneuropathy caused by hereditary TTR amyloidosis, or hATTR. Our goal is to free these people from the burden of their disease. hATTR, is a debilitating, progressive, and fatal disease in which patients experience a progressive buildup of amyloid plaque deposits in tissues throughout the body. In May 2017, we reported positive top-line data from our Phase 3 study of inotersen, NEURO-TTR, in patients with hATTR with polyneuropathy. More than half of these patients also have cardiomyopathy. We are advancing inotersen to the market based on the positive data from our NEURO-TTR study. In November 2017, we filed for marketing authorization for inotersen to treat people with hATTR in the U.S. and EU. The Food and Drug Administration, or FDA, accepted the inotersen New Drug Application, or NDA, for Priority Review and set a Prescription Drug User Fee Act, or PDUFA, date of July 6, 2018. The European Medicines Agency, or EMA, also granted accelerated assessment to inotersen, which may reduce standard review time. We are on track in our pre-commercial preparations for a potential launch in mid-2018, if inotersen is approved. Our goals for inotersen are to maximize the commercial potential of the drug, maximize our commercial participation and continue to build our TTR franchise by moving IONIS-TTR-LRx forward rapidly. We plan to commercialize inotersen in North America ourselves and to seek a commercial partner in other geographic regions.
Akcea Therapeutics, Inc., or disease. Akcea, our majority-owned affiliate focused on developing and commercializing drugs formedicines to treat patients with serious cardiometabolicand rare diseases, causedlaunched TEGSEDI in the U.S. and EU in late 2018. TEGSEDI is commercially available in more than 10 countries. Akcea plans to expand the global launch of TEGSEDI by lipid disorders,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 closelytowards access in additional Latin American countries.
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 us to develop volanesorsen to treat two severe and rare, genetically defined diseases,confirmed familial chylomicronemia syndrome, or FCS, and familial partial lipodystrophy, or FPL. FCS and FPL are orphan diseases characterized by severely high triglyceride levels that result in severe, daily symptoms and aat high risk of life-threateningfor pancreatitis. We estimate that FCS and FPL each affect 3,000 to 5,000 people globally. The clinical development program for volanesorsen consists of three Phase 3 studies called APPROACH, BROADEN and COMPASS. In the first quarter of 2017, we and Akcea reported positive Phase 3 data from the APPROACH study in patients with FCS. In December 2016, we and Akcea reported positive results from the Phase 3 COMPASS study in patients with triglycerides above 500 mg/dL. Based on the positive data from our Phase 3 studies, Akcea filed for marketing authorization for volanesorsenlaunched WAYLIVRA in the U.S., EU and Canada in the third quarter of 2017. The FDA set a PDUFA date of August 30, 2018 for volanesorsen2019 and an advisory committee meeting is scheduled for May 10, 2018. Volanesorsen was granted Priority Reviewleveraging its existing commercial infrastructure in Canada.Europe to market WAYLIVRA. PTC through its exclusive license agreement with Akcea is on trackworking to expand access to WAYLIVRA across Latin America, beginning in its pre-commercial preparations for aBrazil with potential launchapproval in mid-2018, if volanesorsen is approved.2020.
In addition to preparing to commercialize volanesorsen, Akcea is focused on developing and commercializing three other clinical-stage drugs for serious cardiometabolic diseases caused by lipid disorders: AKCEA-APO(a)-LRx, AKCEA-ANGPTL3-LRx and AKCEA-APOCIII-LRx, each of which could potentially treat multiple patient populations. Moving these drugs into Akcea allows us to retain substantial value from them and ensures our core focus remains on innovation. Akcea completed its initial public offering, or IPO, and a concurrent private placement with Novartis in July 2017, raising over $180 million in net proceeds. As a result of Akcea’s IPO and as of February 2018, we owned approximately 68 percent of Akcea.
We are addressing a broad spectrum of diseases that affect millions of people, such as cardiovascular disease, clotting disorders, Alzheimer’s and Parkinson’s disease. We also are addressing rare diseases, such as acromegaly, amyotrophic lateral sclerosis, beta-thalassemia and Huntington’s disease. We are continuing to advance our mid-stage drugs in development, which have the potential to enter late-stage clinical development and progress toward the market over the next several years, like IONIS-HTTRx. IONIS-HTTRx is the first drug in clinical development to target the cause of Huntington’s disease, or HD, by reducing the production of toxic mutant huntingtin, or mHTT, protein. In December 2017, following successful completion of the Phase 1/2 study in which IONIS-HTTRx demonstrated dose-dependent reductions of the mHTT protein in patients with HD, Roche licensed IONIS-HTTRx for $45 million. We plan to report data from this Phase 1/2 study in early 2018. We have also initiated an open-label extension, or OLE, study for people who participated in the Phase 1/2 study. Roche is now responsible for all IONIS-HTTRx development, regulatory and commercialization activities and costs.
We have established alliances with a cadre of leading global pharmaceutical companies that are working alongside us in developing our drugs, advancing our technology and preparing to commercialize our products. Our partners bring substantial resources and expertise that augment and build upon our internal capabilities. We have strategic partnerships with Biogen and AstraZeneca through which we can broadly expand our drug discovery efforts to new disease targets in specific therapeutic areas. We also have partnerships with Bayer, GSK, Janssen, Novartis and Roche. Each of these companies brings significant expertise and global resources to develop and potentially commercialize the drugs under these partnerships. Lastly, we also work with a group of companies that can develop our drugs and utilize our technologies outside our primary areas of focus. We refer to these companies as satellite companies.
Through our partnerships, we have created a broad and sustaining base of research and development, or R&D, revenue in the form of license fees, upfront payments and milestone payments while spending prudently to advance our pipeline and technology. Our R&D revenue has consistently grown year over year since 2011. In 2017, we earned $386 million in R&D revenue. Moreover, we have the potential to earn over $13 billion in future milestone payments and licensing fees from our current partnerships. We also have the potential to share in the future commercial success of our inventions and drugs resulting from our partnerships through royalty arrangements. In late 2016, we began adding commercial revenue from SPINRAZA royalties to our existing R&D revenue base. Looking forward, we have the potential to increase our commercial revenue from SPINRAZA royalties from the continued growth we expect in the U.S., EU and in other markets globally. We also have the potential to further increase our commercial revenue with volanesorsen and inotersen. We believe we have the key elements in place to achieve sustained, long-term financial growth, with multiple drivers of revenue; a mature, broad and rapidly-advancing clinical pipeline; a partnership strategy that leverages our partner resources; and an innovative drug discovery technology platform that we continue to deploy across a range of therapeutic areas to address both rare and large patient populations.
Financial Highlights
The following is a summary of our financial results (in thousands)millions):
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Total revenue | | $ | 507,666 | | | $ | 346,620 | | | $ | 283,703 | | | $ | 1,122.6 | | | $ | 599.7 | | | $ | 514.2 | |
| Total operating expenses | | $ | 483,132 | | | $ | 392,936 | | | $ | 359,465 | | | $ | 756.7 | | | $ | 661.0 | | | $ | 483.1 | |
| Income (loss) from operations | | $ | 24,534 | | | $ | (46,316 | ) | | $ | (75,762 | ) | | $ | 365.9 | | | $ | (61.4 | ) | | $ | 31.0 | |
| Net loss | | $ | (17,296 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) | |
| Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | (5,970 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) | |
| Net income (loss) | | | $ | 303.3 | | | $ | 215.0 | | | $ | (10.8 | ) |
| Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders | | | $ | 294.1 | | | $ | 273.7 | | | $ | 0.3 | |
| Cash, cash equivalents and short-term investments | | $ | 1,022,715 | | | $ | 665,223 | | | $ | 779,183 | | | $ | 2,499.5 | | | $ | 2,084.1 | | | $ | $1,022.7 | |
We had a net loss attributable to our common stockholders of $6 million for 2017,Our revenue in 2019 nearly doubled, compared to $87 million for 2016. Our net loss improved significantly2018, primarily due to the substantial revenuemore than doubling our R&D revenues including nearly $490 million in license fees we earned in 2017. During 2017, we added $113 million ofduring 2019. Additionally, commercial revenue increased more than 35 percent compared to 2018 primarily from SPRINRAZA royalties. Additionally, we earned R&D revenueincreases in SPINRAZA royalties and TEGSEDI product sales, along with the addition of $386 million, including $90 millionWAYLIVRA product sales in milestone payments related to SPINRAZA, a nearly 20 percent increase over 2016.2019.
Our operating expenses for 2017 were $483 million, and2019 increased compared to $393 million for 2016. The increase in operating expenses was primarily2018, principally due to higher SG&A expenses asour investments in the global launches of TEGSEDI and WAYLIVRA and advancing and expanding our pipeline.
We believe we preparehave the financial resources to commercialize volanesorsenexecute on our strategic priorities for 2020 and inotersen in 2018. Our SG&A expenses also increased in 2017 compared to 2016 because of fees we owed under our in-licensing agreements related to SPINRAZA. Additionally, stock-based compensation expense increased year over year primarily due to Akcea stock option grants made to new employees as Akcea continues to build out its organization and additional stock option and RSU grants under the Ionis plan.beyond. During each of the years above, we were conducting several Phase 3 studies for SPINRAZA, volanesorsen and inotersen along with advancing numerous earlier-stage drugs. We are projecting an increase in our operating expenses for 2018, compared to 2017 primarily due to the cost of preparing for the launch of inotersen and volanesorsen.
During 2017,2019 we received more than $580$900 million in payments from our partners, primarily from Novartis, Bayer and Biogen reflecting the successes of our partnered programs and drugs. In addition to cash and revenue, our partners provide expertise and additional resources, which we believe will maximize the commercial value of our partnered drugs. Additionally, our 2017 cash balance increased from the proceeds Akcea received from its IPO and Novartis’ concurrent strategic investment. We believe our strong financial position should enable us to continue to execute on our corporate goals throughout 2018 and beyond.partners.
Business Segments
In 2015, we began reporting our financial results inWe have two reportableoperating segments, Ionis Core, and Akcea Therapeutics. Segment income (loss) from operations includes revenue less operating expenses attributable to each segment.
In our Ionis Core segment we are exploiting a novel drug discovery platform we created to generate a broad pipeline of first-in-class or best-in-class drugs for us and our partners. Our Ionis Core segment generates revenue from a multifaceted partnering strategy and includes multiple streams of revenue including license fees, milestone payments and royalties, among others.
Akcea Therapeutics, our majority-owned affiliate. Akcea is a late-stage biopharmaceutical company focused on developing and commercializing drugsmedicines to treat peoplepatients with serious cardiometabolicand rare diseases caused by lipid disorders. Prior. We provide segment financial information and results for our Ionis Core segment and our Akcea Therapeutics segment based on the segregation of revenues and expenses that our chief decision maker reviews to Akcea’s IPO in July 2017,assess operating performance and to make operating decisions. We allocate a portion of Ionis’ development, R&D support and general and administrative expenses to Akcea for work Ionis performs on behalf of Akcea and we owned 100 percent of Akcea’s stock. After Akcea’s IPO, we owned approximately 68 percent of Akcea. We did not change our reportable segments as a result of Akcea’s IPO.bill Akcea for these expenses.
Critical Accounting PoliciesEstimates
We prepare our 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 policiesestimates and we caution that future events rarely develop exactly as one may expect, and that best estimates may require adjustment. Our significant accounting policies are outlined in Note 1, Organization and Significant Accounting Policies, in the Notes to the Consolidated Financial Statements.
The following are our significant accounting policies,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 proper valuation of investments in marketable securities; |
| ● | Determining the appropriate cost estimates for unbilled preclinical studies and clinical development activities; |
| | Estimating the impact of the Tax Act and our net deferred income tax asset valuation allowance; |
| ● | DeterminingIncome taxes; and |
| ● | Estimating the fair value of convertible debt without the conversion feature; andfeature. |
| | Valuing premiums under our and Akcea’s Novartis collaboration. |
DescriptionsThe following are descriptions of these critical accounting policies follow.
Additionally, in January 2018, we adopted the new revenue recognition accounting guidance. As a result, our critical accounting policy for revenue recognition and associated deferred revenue will be updated in our 2018 consolidated financial statements. We are adopting the new standard on a retrospective basis, which means that starting with our first quarter financial statements for 2018 we will begin showing all periods presented using the new standard. The primary impact to our revenue relates to when we recognize milestone payments. Through 2017 under the existing accounting guidance, we recognized milestone payments we earned for performing R&D activities in full when achieved. Under the new guidance starting in 2018, we will now amortize those milestone payments over the period of time we are obligated to perform R&D activities for our partners. For example, in 2017 we initiated a Phase 1/2a clinical study of IONIS-MAPTRx in patients with mild AD. We earned a $10 million milestone payment from Biogen related to the initiation of this study. In 2017, we recognized the entire $10 million as revenue. Under the new standard, we will recognize this milestone payment over the period we are providing R&D services for Biogen. We will continue to recognize milestone payments we earn based on our partner’s activities in full when the milestone is achieved. For example, in 2017 we earned a $50 million milestone payment from Biogen for the EU approval of SPINRAZA. Under both the new and old standard, we account for this milestone payment the same by recognizing the entire amount upon achievement of the event.estimates.
Revenue Recognition
We generally recognizeearn revenue whenfrom several sources. The judgements and estimates we have satisfied all contractual obligations and are reasonably assuredmake vary between each source of collectingour revenue. The following is a summary of the resulting receivable. We are often entitledcritical accounting estimates we make with respect to billeach of our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizingsignificant revenue we include the amounts in deferred revenue on our consolidated balance sheet.sources.
Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue
We often enter into agreementsestimate our commercial revenue from SPINRAZA royalties based on reporting we receive from Biogen each quarter. We use this reporting to license and sellcalculate our technologyroyalty revenue based on an exclusive or non-exclusive basis in exchangeour tiered contractual royalty rate for upfront fees, license fees, milestone payments and/or royalties.the given period based on annual cumulative net sales. We generally recognize as revenue immediately license payments with stand-alone value when the license is delivered and we are reasonably assured of collecting the resulting receivable. We recognizerecord our royalty revenue in the same period in which Biogen sells SPINRAZA.
Commercial Revenue: Product sales, net
We added product sales from TEGSEDI to our commercial revenue in the counterparty sellsfourth quarter of 2018 and we added product sales from WAYLIVRA to our commercial revenue in the relatedthird quarter of 2019. We recognize product unlesssales in the period when our customer obtains control of our products. We record product sales at our net sales price, which includes estimated reserves for discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that we offer under contracts between us and our customers, wholesalers, health care providers and other indirect customers. Actual amounts may vary from our estimates. Our historical reserve estimates have not been materially different from our actual amounts. The total reserves we estimated during 2018 and 2019 are unablenot material to obtain information to estimate the royalty. For example, in 2017 we recorded SPINRAZA royalty revenue of $112.5 million.our financial results.
Research and development revenue under collaborative agreements
Arrangements with multiple deliverables
We recognize R&D revenue from numerous collaboration agreements. Our collaboration agreements typically contain multiple elements, or deliverables,performance obligations, including technology licenses or options to obtain technology licenses, research and developmentR&D services, and in certain cases manufacturing services, andservices. Upon entering into a collaboration agreement, we allocateare required to make the consideration to each unitfollowing judgements:
| ● | Identifying the performance obligations contained in the agreement |
Our assessment of accounting based on the relative selling price of each deliverable.
Amendments to agreements
From time to time we amend our collaboration agreements. For these agreements, before we identify our deliverables and allocate consideration to each unit of accounting, we must determine if the amendment should be accounted for aswhat constitutes a separate agreement, or ifperformance obligation requires us to apply judgement. Specifically, we have to identify which goods and services we are required to provide under the amendment and any undelivered elements forcontract are distinct.
| ● | Determining the transaction price, including any variable consideration |
To determine the original agreement should be accounted for as a single new arrangement.
For example, in May 2015,transaction price, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx forreview the preventionamount of thrombosis. As part of the agreement, Bayer paid us a $100 million upfront payment. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXIRx in patients with end-stage renal disease on hemodialysis and for providing an initial supply of API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx, which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx and IONIS-FXI-LRx.
Under the 2017 amendment, there was a substantial increase in the consideration we are eligible to earn under the agreement. We do not typically include any payments we may receive and a significant change in the deliverables we will providefuture in our initial transaction price since the payments are typically not probable because they are contingent upon certain future events.
We are required to Bayer. As a result, we concluded thatreassess the amendment should be evaluated with the undelivered elements of the original agreement as a single new arrangement. Therefore, we evaluated our original and 2017 amended agreements with Bayer togethertotal transaction price at each reporting period to determine if we should include additional payments in the transaction price that have become probable. For example, in the fourth quarter of 2019, we achieved two milestone payments for $7.5 million each under our deliverables. We concluded that the 2017 amendment2018 strategic neurology collaboration with Biogen. Prior to achieving these milestone payments, we did not impactconsider the itemspayments probable. Upon achieving these milestone payments, we already delivered to Bayer.
Identifying deliverables and unitsreassessed the total transaction price of accounting
our 2018 strategic neurology collaboration. We evaluate the deliverables in our collaboration agreements to determine whether they meet the criteria to be accounted for as separate units of accounting or whether they should be combined with other deliverables and accounted for as a single unit of accounting. When the delivered items in an arrangement have "stand-alone value"added these two milestone payments to our customer, we account for the deliverables as separate units of accounting. Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the delivered items on a stand-alone basis. For example, our 2017 amended agreement with Bayer has multiple elements. We evaluated the deliverables in this arrangement when we entered into the 2017 amended agreement and determined that certain of the deliverables have stand-alone value. Below is a list of the three units of accountingtotal transaction price under our 2017 amended agreement:collaboration.
| ● | The exclusive license we grantedAllocating the transaction price to Bayer to develop and commercialize IONIS-FXI-LRx for the treatmenteach of thrombosis;
our performance obligations |
When we allocate the transaction price to more than one performance obligation, we make estimates of the relative stand-alone selling price of each performance obligation because we do not typically sell our goods or services on a stand-alone basis. The estimate of the relative stand-alone selling price requires us in some cases to make significant judgements. For example, when we deliver a license at the start of an agreement, we use valuation methodologies, such as the relief from royalty method, to value the license. Under this method we are required to make estimates including: future sales, royalties on future product sales, contractual milestones, expenses, income taxes and discount rates. Additionally, when we estimate the selling price for R&D services, we make estimates, including: the number of internal hours we will spend on the services, the cost of work we and third parties will perform and the cost of API we will use.
The R&D revenue we recognize each period is comprised of several types of revenue, including amortization from upfront payments, milestone payments, license fees and other services. Each of these types of revenue require us to make various judgements and estimates.
Amortization from Upfront Payments
We recognize revenue from the amortization of upfront payments as we perform R&D services. We use an input method to estimate the amount of revenue to recognize each period. This method requires us to make estimates of the total costs we expect to incur to complete our R&D services performance obligation or the total length of time it will take us to complete our R&D services performance obligation. If we change our estimates, we may have to adjust our revenue. For example, in the fourth quarter of 2019, we completed our R&D services performance obligation under our collaboration with Biogen for new antisense medicines for the treatment of SMA sooner than we anticipated. We were recognizing revenue as we performed services based on our effort to satisfy our performance obligation relative to the total effort expected to satisfy our performance obligation. As a result of completing our performance obligation earlier than our previous estimate, we recognized $8.3 million of additional revenue in the fourth quarter of 2019.
Milestone Payments
When recognizing revenue related to milestone payments we typically make the following judgements and estimates:
Whether the milestone payment is probable (discussed in detail above under “Determining the transaction price, including any variable consideration”); and
Whether the milestone payment relates to services we are performing or if our partner is performing the services:
| ● | The developmentIf we are performing services, we agreedrecognize revenue over our estimated period of performance in a similar manner to perform for IONIS-FXI-LRx and IONIS-FXIRx; and
the amortization of upfront payments (discussed above under “Amortization of Upfront payments”). |
| ● | The remaining undelivered IONIS-FXIRx APIConversely, we recognize in full those milestone payments that was part ofwe earn based on our partners’ activities when our partner achieves the original agreement.
milestone event and we do not have a performance obligation. |
License Fees
We determined that each of these three units of accounting have stand-alone value. The licensegenerally recognize as revenue the total amount we granteddetermine to Bayer has stand-alone value because it gives Bayer the exclusive right to develop IONIS-FXI-LRx or to sublicense its rights. The development services and the remaining undelivered supply of API each have stand-alone value because Bayer or another third party could provide these items without our assistance.
Measurement and allocation of arrangement consideration
Our collaborations may provide for various types of payments to us including upfront payments, funding of research and development, milestone payments, licensing fees and royalties on product sales. We initially allocate the amount of consideration that is fixed and determinable at the time the agreement is entered into and exclude contingent consideration. We allocate the consideration to each unit of accounting based onbe the relative stand-alone selling price of each deliverable.a license when we deliver the license to our partner. We usediscuss the following hierarchy of valuesestimates we make related to estimate the relative stand-alone selling price of each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of sellinga license in detail above under “Allocating the transaction price or BESP. BESP reflects our best estimate of what the selling price would be if we regularly sold the deliverable on a stand-alone basis. We recognize the revenue allocated to each unit of accounting as we deliver the related goods or services. If we determine that we should treat certain deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of performance.
We determined that the allocable arrangement consideration for the Bayer 2017 amended agreement was $76.3 million, comprised of the $75 million we received as part of the amendment and the remaining amount of the $100 million upfront payment we had not yet recognized into revenue, related to the undelivered API. We allocated the consideration based on the relative BESP of each unit of accounting. We engaged a third party, independent valuation specialist to assist us with determining BESP. We estimated the selling price of the license granted for IONIS-FXI-LRx by using the relief from royalty method. Under this method, we estimated the amount of income, net of taxes, for IONIS-FXI-LRx. We then discounted the projected income to present value. The significant inputs we used to determine the projected income of the license included:
| ● | Estimated future product sales; |
| ● | Estimated royalties on future product sales; |
| ● | Contractual milestone payments; |
| ● | Expenses we expect to incur; |
| ● | An appropriate discount rate. |
We estimated the selling price of the development services by using our internal estimates of the cost to perform the specific services and estimates of expected cash outflows to third parties for services and supplies over the expected period that we will perform the development services. The significant inputs we used to determine the selling price of the development services included:
| ● | The number of internal hours we will spend performing these services; |
| ● | The estimated cost of work we will perform; |
| ● | The estimated cost of work that we will contract with third parties to perform; and |
| ● | The estimated cost of API we will use. |
For purposes of determining BESP of the services we will perform and the API we will deliver in our 2017 amended Bayer transaction, accounting guidance required us to include a markup for a reasonable profit margin.
Based on the units of accounting under the 2017 amended agreement, we allocated the $76.3 million of allocable consideration as follows:
| ● | $64.9 million to the IONIS-FXI-LRx exclusive license;
|
| ● | $11.0 million for development services for IONIS-FXI-LRx and IONIS-FXIRx; and
|
| ● | $0.4 million for the remaining delivery of IONIS-FXIRx API.
|
Assuming a constant selling price for the other elements in the arrangement, if there was an assumed 10 percent increase or decrease in the estimated selling price of the IONIS-FXI-LRx license, we determined that the revenue we would have allocated to the IONIS-FXI-LRx license would change by approximately one percent, or $0.7 million, from the amount we recorded.
Timing of revenue recognition
We recognize revenue as we deliver each item under the arrangement and the related revenue is realizable and earned. For example, we recognized revenue for the exclusive license we granted Bayer for IONIS-FXI-LRx in the first quarter of 2017 because that was when we delivered the license. We also recognize revenue over time as we provide services. Our collaborative agreements typically include a research and/or development project plan outlining the activities the agreement requires each party to perform during the collaboration. We estimate our period of performance at the inception of the agreement when the agreements we enter into do not clearly define such information. We then recognize revenue from development services ratably over such period. In certain instances, the period of performance may change as the development plans for our drugs progress. If our estimates and judgments change over the course of our collaboration agreements, it may affect the timing and amount of revenue that we recognize in future periods. We recognize any changes in estimates on a prospective basis.
The following are the periods over which we are recognizing revenue for each of our units of accounting under our 2017 amended Bayer agreement:performance obligations”.
| ● | We recognized the portion of the consideration attributed to the IONIS-FXI-LRx license in the first quarter of 2017 because we delivered the license and earned the revenue;
|
| ● | We are recognizing the amount attributed to the development services for IONIS-FXI-LRx and IONIS-FXIRx over the period of time we are performing the services; and
|
| ● | We are recognizing the amount attributed to the remaining API supply as we deliver it to Bayer. |
Multiple agreements
From time to time, we may enter into separate agreements at or near the same time with the same partner. We evaluate such agreements to determine whether they should be accounted for individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement. We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whether the deliverables are interrelated or interdependent, whether fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement. Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part of a single arrangement. For example, in the first quarter of 2017, we and Akcea entered into two separate agreements with Novartis at the same time: a collaboration agreement and a SPA.
Akcea entered into a collaboration agreement with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Under the collaboration agreement, Akcea received a $75 million upfront payment. For each drug, Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with the FDA and delivering API. Under the collaboration agreement, Novartis has an exclusive option to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. If Novartis exercises an option for one of these drugs, Novartis will pay Akcea a $150 million license fee and will assume all further global development, regulatory and commercialization activities and costs for the licensed drug. Akcea is also eligible to receive a development milestone payment, milestone payments if Novartis achieves pre-specified regulatory milestones, commercial milestones and tiered royalties on net sales from each drug under the collaboration.
Under the SPA, Novartis purchased 1.6 million shares of Ionis’ common stock for $100 million in the first quarter of 2017 and paid a premium over the weighted average trading price at the time of purchase. Additionally, the SPA required Novartis to purchase $50 million of Akcea’s common stock in a concurrent private placement with Akcea’s IPO in July 2017.
We evaluated the Novartis agreements to determine whether we should treat the agreements separately or as a single arrangement. We considered that the agreements were negotiated concurrently and in contemplation of one another. Additionally, the same individuals were involved in the negotiations of both agreements. Based on these facts and circumstances, we concluded that we should treat both agreements as a single arrangement and evaluate the provisions of the agreements on a combined basis. Refer to Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements for further discussion of the accounting treatment for the Novartis collaboration.
Milestone payments
Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and/ or commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.
Prior to the first stage in the life-cycle of our drugs, we perform a significant amount of work using our proprietary antisense technology to design chemical compounds that interact with specific genes that are good targets for drug discovery. From these research efforts, we hope to identify a development candidate. The designation of a development candidate is the start of the development stage, which is the first stage in the life-cycle of our drugs. A development candidate is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to warrant further study in humans.
During the first step of the development stage, we or our partners study our drugs in Investigational New Drug, or IND,-enabling studies, which are animal studies intended to support an IND application and/or the foreign equivalent. An approved IND allows us or our partners to study our development candidate in humans. If the regulatory agency approves the IND, we or our partners initiate a Phase 1 clinical trial in which we typically enroll a small number of healthy volunteers to ensure the development candidate is safe for use in patients. If we or our partners determine that a development candidate is safe based on the Phase 1 data, we or our partners initiate Phase 2 studies that are generally larger studies in patients with the primary intent of determining the preliminary efficacy and safety of the development candidate.
The final step in the development stage is Phase 3 studies to gather the necessary safety and efficacy data to request marketing authorization from the FDA and/or foreign equivalents. Phase 3 studies typically involve larger numbers of patients and can take up to several years to complete.
If the data gathered during the Phase 3 trials demonstrates acceptable safety and efficacy results, we or our partner will submit an application to the FDA and/or its foreign equivalents for marketing authorization. This stage of the drug’s life-cycle is the regulatory stage.
If the FDA or a foreign equivalent grants marketing authorization for a drug, it moves into the commercialization stage. During this stage we or our partner will market and sell the drug to patients. Although our partner may ultimately be responsible for marketing and selling a partnered drug, our efforts to discover and develop a drug that is safe, effective and reliable contributes significantly to our partner’s ability to successfully sell the drug. The FDA and its foreign equivalents have the authority to impose significant restrictions on an approved drug through the product label and on advertising, promotional and distribution activities. Therefore, our efforts designing and executing the necessary animal and human studies are critical to obtaining claims in the product label from the regulatory agencies that would allow us or our partner to successfully commercialize our drug. Further, the patent protection afforded our drugs as a result of our initial patent applications and related prosecution activities in the United States and foreign jurisdictions are critical to our partner’s ability to sell our drugs without competition from generic drugs. The potential sales volume of an approved drug is dependent on several factors including the size of the patient population, market penetration of the drug, and the price charged for the drug.
Generally, the milestone events contained in our partnership agreements coincide with the progression of our drugs from development, to marketing authorization and then to commercialization. The process of successfully discovering a new development candidate, having it approved and ultimately selling it for a profit is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug progresses through the stages of its life-cycle, the value of the drug generally increases.
Development milestones in our partnerships may include the following types of events:
| ● | Designation of a development candidate. Following the designation of a development candidate, IND-enabling animal studies for a new development candidate generally take 12 to 18 months to complete. |
| ● | Initiation of a Phase 1 clinical trial. Generally, Phase 1 clinical trials take one to two years to complete. |
| ● | Initiation or completion of a Phase 2 clinical trial. Generally, Phase 2 clinical trials take one to three years to complete. |
| ● | Initiation or completion of a Phase 3 clinical trial. Generally, Phase 3 clinical trials take two to four years to complete. |
Regulatory milestones in our partnerships may include the following types of events:
| ● | Filing of regulatory applications for marketing authorization such as a New Drug Application, or NDA, in the United States or a Marketing Authorization Application, or MAA, in Europe. Generally, it takes six to twelve months to prepare and submit regulatory filings. |
| ● | Obtaining marketing authorization in a major market, such as the United States, Europe or Japan. Generally it takes one to two years after an application is submitted to obtain authorization from the applicable regulatory agency. |
Commercialization milestones in our partnerships may include the following types of events:
| ● | First commercial sale in a particular market, such as in the United States or Europe. |
| ● | Product sales in excess of a pre-specified threshold, such as annual sales exceeding $1 billion. The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product. |
We assess whether a substantive milestone exists at the inception of our agreements. When a substantive milestone is achieved, we recognize revenue related to the milestone payment immediately. For our licensing and collaboration agreements in which we are involved in the discovery and/or development of the related drug or provide the partner with access to new technologies we discover, we have determined that the majority of future development, regulatory and commercialization milestones are substantive. For example, we consider most of the milestones associated with our strategic alliance with Biogen substantive because we are using our antisense drug discovery platform to discover and develop new drugs against targets for neurological diseases. In evaluating if a milestone is substantive we consider whether:
| ● | Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement; |
| ● | The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance; |
| ● | The amount of the milestone payment appears reasonable either in relation to the effort expended or to the enhancement of the value of the delivered items; |
| ● | There is no future performance required to earn the milestone; and |
| ● | The consideration is reasonable relative to all deliverables and payment terms in the arrangement. |
If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it as revenue over our estimated period of performance, if any. Further information about our collaborative arrangements can be found in Note 6, Collaborative Arrangements and Licensing Agreements, in the Notes to the Consolidated Financial Statements.
Option to license
In several of our collaboration agreements, we provide our partner with an option to obtain a license to one or more of our drugs. When we have a multiple element arrangement that includes an option to obtain a license, we evaluate if the option is a deliverable at the inception of the arrangement. We do not consider the option to be a deliverable if we conclude that it is substantive and not priced at a significant and incremental discount. We consider an option substantive if, at the inception of the arrangement, we are at risk as to whether our collaboration partner will choose to exercise its option to obtain the license. In those circumstances, we do not include the associated license fee in the allocable consideration at the inception of the agreement. Rather, we account for the license fee when our partner exercises its option. For example, during 2017, we earned license fee revenue when three of our partners, Bayer, Janssen and Roche, exercised their options to license three of our drugs, which under the respective agreements we concluded to be substantive options at inception. As a result, in 2017 we recognized the related revenue immediately in research and development revenue under collaborative agreements on our statement of operations as these amounts relate to drugs in development under research and development collaboration arrangements.
Valuation of Investments in Marketable Securities
We consider all liquid investments with maturities of three months or less when we purchase them to be cash equivalents. Our short-term investments have initial maturities of greater than three months from date of purchase. We classify our short-term investments as “available-for-sale” and carry them at fair market value based upon prices for identical or similar items on the last day of the fiscal period. We record unrealized gains and losses as a separate component of comprehensive income (loss) and include net realized gains and losses in gain (loss) on investments. We use the specific identification method to determine the cost of securities sold.
We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify the majority of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices.
Estimated Liability for Clinical Development Costs
We record accrued liabilities related to expenseshave numerous medicines in preclinical studies and/or clinical trials at clinical sites throughout the world. On at least a quarterly basis, we estimate our liability for which service providerspreclinical and clinical development costs we have not yet billed us. These liabilities are for products orincurred and services that we have received specifically relatedbut for which we have not yet been billed and maintain an accrual to ongoing preclinical studies and clinical trials.cover these costs. These costs primarily relate to third-party clinical management costs, laboratory and analysis costs, toxicology studies and investigator grants. We have numerous drugs in concurrent preclinical studiesestimate our liability using assumptions about study and clinical trialspatient activities and the related expected expenses for those activities determined based on the contracted fees with our service providers. The assumptions we use represent our best estimates of the activity and expenses at several clinical sites throughout the world. In order to ensure that we have adequately provided for ongoing preclinicaltime of our accrual and clinical development costs duringinvolve inherent uncertainties and the period in which we incur such costs, we maintain an accrual to cover these costs. We updateapplication of our estimate for this accrual on at least a quarterly basis. The assessment of these costs is a subjective process that requires judgment. Upon settlement, these costs may differ materially from the amounts accrued in our consolidated financial statements. Our historical accrual estimates have not been materially different from our actual amounts.
Estimating the Impact of the Tax Cuts and Jobs Act of 2017 and Our Net Deferred Income Tax Asset Valuation AllowanceTaxes
On December 22, 2017, the Tax Act was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code. The changes include, but are not limited to, reducing theFor U.S. federal corporate tax rate from 35 percent to 21 percent, imposing a mandatory one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, introducing bonus depreciation that will allow for full expensing of qualified property, eliminating the corporate alternative minimum tax, or AMT, and changing how existing AMT credits can be realized, and modifying or repealing many business tax deductions and credits.
The SEC staff issued guidance to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effectspurposes, we are required to file separate U.S. federal income tax returns for Ionis and Akcea. We began deconsolidating Akcea for U.S. federal income tax purposes upon Akcea’s IPO. As a result, we are required to assess our Ionis stand-alone and Akcea’s valuation allowances separately even though we consolidate Akcea’s financial results in our consolidated financial statements. We continue to file combined state tax returns in most jurisdictions. As a result, we continue to assess the state portion of our valuation allowance for those jurisdictions on a consolidated basis.
We have historically recorded a valuation allowance against all our net deferred tax assets due to cumulative financial statement losses. However, in the Tax Act.
In accordance withfourth quarter of 2018, we reversed the SEC guidance, the amounts we presented are preliminaryvaluation allowance previously recorded against our Ionis stand-alone U.S. federal net deferred tax assets, resulting in a one-time non-cash tax benefit of $332.1 million. We reversed this valuation allowance in 2018 based on Ionis’ stand-alone pre-tax income in that period and our best estimateexpectation to generate sufficient stand-alone pre-tax income in future years to fully utilize our U.S. federal net operating loss carryforwards and our R& D and Orphan Drug tax credit carryforwards over the next three years. We utilized a significant portion of these carryforwards in 2019 to reduce our estimated federal tax liability for the year.
We continue to maintain a full valuation allowance of $197.0 million against all of Akcea’s net deferred tax assets and the net state deferred tax assets of Ionis at December 31, 2019 due to uncertainties related to our ability to realize the tax benefits associated with these assets. We maintain a full valuation allowance against Akcea's stand-alone net deferred tax assets primarily due to Akcea’s history of financial statement losses and the uncertainty of generating sufficient pre-tax income in future periods to realize the deferred tax benefits. We maintain a full valuation allowance against the net state deferred tax assets of Ionis as we file combined state tax returns with Akcea in most jurisdictions, which includes the impact of the Tax ActAkcea’s historical losses.
We generated combined state taxable income and recognized a combined state tax liability in the period ending December 31, 2017 based on our understanding of the Tax Act and guidance available as of the date of this filing.2019. We remeasured our existing net U.S.utilized Ionis’ state deferred tax assets, using the enactedprimarily California net operating loss carry forwards, to reduce our combined state tax rate and other known significant changes to the tax code. Thisliability by $59.1 million, which resulted in a total decrease in these assets by $107.3 million which was fully offset by a decrease incorresponding reduction to our combined state valuation allowance. In addition, we recorded a $7.7 million tax benefitWe have historically generated combined state net operating losses due primarily to Akcea’s net operating losses. However, Akcea generated net income in 2019. This was due to an increase in their research and development and license revenue, primarily related to non-recurring transactions in the first and fourth quarter from Novartis’ exercise of its option to license AKCEA-APO(a)-LRx and Pfizer’s license of AKCEA-ANGPTL3-LRx, respectively. Although Akcea generated net income in 2019, given their history of losses, there can be no assurance that they will achieve profitability in future periods. We expect Akcea to incur additional operating losses for the foreseeable future and therefore we continue to maintain a full valuation allowance against our cumulative prior year AMTremaining net deferred state tax credit carryovers, which are now included as part of a long-term income tax receivable because under the Tax Act, AMT credits are refundable from 2018 through 2021.assets.
We account forevaluate our deferred tax assets quarterly to determine whether adjustments to the valuation allowance are appropriate due to changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax law, interactions with taxing authorities and developments in case law. In making this evaluation, we rely on our recent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and the nature and timing of future deductions and income taxes usingrepresented by the asset and liability method, which requires the recognition of deferred tax assets and liabilities, forall of which involve the expected future tax consequencesexercise of events that have been recognized insignificant judgment. Although we believe our financial statements or tax returns. In addition, deferred tax assetsestimates are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized.
We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon ultimate settlement.
Wereasonable, we are required to use significant judgment in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcomeappropriate amount of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves for changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.
We are also required to use significant judgment in determining any valuation allowance recorded against our deferred tax assets.
Estimating the Fair Value of Convertible Debt Without the Conversion Feature
In assessing the need for a valuation allowance,December 2019, we consider all available evidence, including scheduled reversal of deferred tax liabilities, past operating results, the feasibility of tax planning strategies and estimates of future taxable income. Estimates of future taxable income are based on assumptions that are consistent with our plans. The assumptions we use represent our best estimates and involve inherent uncertainties and the application of our judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities we recognize could be materially impacted.
We record a valuation allowance to reduce the balance of our net deferred tax assets to the amount we believe is more-likely-than-not to be realized. We have incurred historical financial statement losses and as a result we have a full valuation allowance recorded against our net deferred tax assets. We regularly assess the future realization of our net deferred tax assets and will reduce the valuation allowance in any such period inissued new convertible senior notes, which we determine that all, or a portion, ofrefer to as our deferred tax assets are more-likely-than-not to be realized.
We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries.
Convertible Debt
We0.125% Notes. To account for our convertible debt instruments thatthe issuance of the 0.125% Notes, which may be settled in cash upon conversion (including partial cash settlement) by separating, we are required to separate the liability and equity components of the instruments0.125% Notes in a manner that reflects our nonconvertible debt borrowing rate. We determinerate at issuance. In reviewing recent debt issuances, we were not able to identify any comparable companies that recently issued non-convertible debt instruments. Therefore, we estimated the carrying amountfair value of the liability component by measuring the fair value of similar debt instruments that do not have the conversion feature. If a similar debt instrument does not exist, we estimate the fair valueour 0.125% Notes by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. DeterminingWe used the fair valueaverage of our estimated underlying credit rate and observable credit spreads for comparable companies with similar debt outstanding plus the debt component requiresLondon Inter-Bank Offered Rate, or LIBOR, swap rate for the use of accounting estimates and assumptions.same maturity time period as our 0.125% Notes (five years). These estimates and assumptions arewere judgmental in nature and could havehad a significant impact on the determination of the debtliability component and the associated non-cash interest expense.
We assigned a value to the debt component of our convertible notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in us recording the debt at a discount. We are amortizing our debt issuance costs and our debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method. For additional information, see Note 3, Long-Term Obligations and Commitments, in the Notes to the Consolidated Financial Statements.
Valuation of Premiums under our and Akcea’s Novartis Collaboration
During the first quarter of 2017, we valued the premiums under the SPA agreement with Novartis. These premiums included the premium Novartis paid us related to its $100 million purchase of our stock in the first quarter of 2017 and the premium we could have received related to Novartis’ potential purchase of our stock. These valuations required us to use level 3 inputs, which we consider to be a critical accounting policy for our results for 2017.
We determined the fair value of the premium we received and the future premium we could have received by using the stated premium in the SPA and applying a lack of marketability discount. We included a lack of marketability discount in our valuation of the premiums because Novartis received unregistered shares as part of Novartis’ $100 million equity purchase and we would have issued unregistered shares to Novartis if it had purchased our common stock. Additionally, for the future potential stock purchase, we estimated the probability of an Akcea IPO. At the inception of the agreements, we calculated the following fair values:
| ● | $28.4 million for the premium paid by Novartis for its purchase of our common stock in the first quarter of 2017; and |
| ● | $5.0 million for the potential premium Novartis would have paid if it had purchased our common stock in the future at a premium. |
Because Akcea completed its IPO before April 2018, Novartis will not purchase additional shares of Ionis stock. Therefore, this asset no longer had any value and we wrote-off the remaining potential premium Novartis would have paid to us if an Akcea IPO did not occur. We wrote off the amount to other expenses on our consolidated statement of operations during the third quarter of 2017. See further discussion about our valuation of the potential premium in our Fair Value Measurements policy in Note 1, Organization and Significant Accounting Policies, in the Notes to the Consolidated Financial Statements.
Results of Operations
Below we have included our results of operations for 2019 compared to 2018. Refer to our 2018 Form 10-K for our results of operations for 2018 compared to 2017.
Years Ended December 31, 20172019 and December 31, 20162018
Revenue
Total revenue for 20172019 was $507.7 million,$1.1 billion, compared to $346.6$599.7 million for 2016. See below for our discussionin 2018 and was comprised of the changesfollowing (amounts in our revenue.thousands):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | |
| Revenue: | | | | | | |
| Commercial revenue: | | | | | | |
| SPINRAZA royalties | | $ | 292,992 | | | $ | 237,930 | |
| Product sales, net | | | 42,253 | | | | 2,237 | |
| Licensing and other royalty revenue | | | 17,205 | | | | 14,755 | |
| Total commercial revenue | | | 352,450 | | | | 254,922 | |
| R&D revenue: | | | | | | | | |
| Amortization from upfront payments | | | 146,246 | | | | 124,695 | |
| Milestone payments | | | 114,906 | | | | 82,771 | |
| License fees | | | 489,708 | | | | 102,053 | |
| Other services | | | 19,289 | | | | 35,233 | |
| Total R&D revenue | | | 770,149 | | | | 344,752 | |
| Total revenue | | $ | 1,122,599 | | | $ | 599,674 | |
Commercial Revenue
SPINRAZA Royalties
2017 was the first full yearWe significantly increased both commercial and R&D revenue in which we earned commercial revenue from SPINRAZA royalties.2019, compared to 2018. Commercial revenue from SPINRAZA royalties for 2017 was $112.5 million, compared to $0.9 million in 2016.
Licensing and Other Royalty Revenue
Our revenue from licensing activities and other royalties for 2017 was $9.5 million, compared to $19.8 million for 2016. During 2016 we earned $15 million from Kastle when it acquired the global rights to develop and commercialize Kynamro.
Research and Development Revenue Under Collaborative Agreements
Research and development revenue under collaborative agreements for 2017 was $385.6 million, compared to $325.9 million for 2016. The change in our R&D revenue wasincreased over 35 percent primarily due to increased amortization fromSPINRAZA royalties and TEGSEDI product sales. We launched WAYLIVRA in the upfront payment Akcea received in 2017 from the collaboration with Novartis. third quarter of 2019.
Our R&D revenue for 2017 primarily consisted of the following:more than doubled in 2019 compared to 2018. The most significant components were:
| ● | $118246 million in milestone paymentswe earned from Biogen, including $90 million in approval milestone payments for SPINRAZA, $15 million in milestone payments for validating two undisclosed neurological disease targets and $10 million for initiating a Phase 1/2a study of IONIS-MAPTPfizer when Pfizer licensed AKCEA-ANGPTL3-LRx; |
| ● | $65150 million we earned from Bayer for the license of IONIS-FXI-LNovartis when Novartis licensed AKCEA-APO(a)-LRx; |
| ● | $136 million we earned from Biogen for advancing several programs under our collaborations, including adding four targets under our 2018 strategic neurology collaboration; |
| ● | $4845 million we earned from Roche primarily for the license of IONIS-HTTBiogen when Biogen licensed IONIS-MAPTRx; |
| ● | $10 million from Janssen for the license of IONIS-JBI2-2.5Rx and initiation of a Phase 1 study of IONIS-JBI1-2.5Rx:
|
| ● | $11535 million we earned from Roche when Roche enrolled the amortizationfirst patient in the Phase 3 study of upfront fees; andtominersen in patients with Huntington's disease; |
| ● | $29.625 million primarilywe earned from services we performed forGSK when GSK licensed our partners.HBV program; and |
| ● | $20 million we earned from Alnylam when Alnylam licensed our technology to Regeneron. |
Our R&D revenue may fluctuate quarterly based on the nature and timing of payments under agreements with our partners and consists primarily of revenue from the amortization of upfront fees, milestone payments and license fees.
Operating Expenses
Operating expenses for 20172019 were $483.1$756.7 million, and increased compared to $392.9$661.0 million for 2016. Our operating2018. R&D expenses for 2019 increased compared to 2018 primarily from investments we made in our technology and advancing and expanding our pipeline. Additionally, our SG&A expenses increased year over yearin 2019 compared to 2018 principally due to higherour investment in the global launches of TEGSEDI and WAYLIVRA and various SG&A expenses as we prepare to commercialize volanesorsen and inotersen. Our SG&A expenses also increased in 2017 compared to 2016 because of fees we owed under our in-licensing agreementsincurred related to SPINRAZA.the growth in our business.
Our operating expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 305,352 | | | $ | 260,233 | | | $ | 374,014 | | | $ | 293,175 | |
| Akcea Therapeutics | | | 146,332 | | | | 73,363 | | | | 450,688 | | | | 251,408 | |
| Elimination of intercompany activity | | | (54,527 | ) | | | (12,768 | ) | | | (214,560 | ) | | | (14,849 | ) |
| Subtotal | | | 397,157 | | | | 320,828 | | | | 610,142 | | | | 529,734 | |
| Non-cash compensation expense related to equity awards | | | 85,975 | | | | 72,108 | | | | 146,574 | | | | 131,312 | |
| Total operating expenses | | $ | 483,132 | | | $ | 392,936 | | | $ | 756,716 | | | $ | 661,046 | |
Akcea’s operating expenses included $200 million of intercompany drug development expenses consisting of the $75 million sublicense fee for Novartis’ license of AKCEA-APO(a)-LRx and the $125 million sublicense fee for Pfizer’s license of AKCEA-ANGPTL3-LRx. We eliminated these expenses in our consolidated results.
In order 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 related to equity awards 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 (beginning in the third quarter of 2019) and certain associated period costs. We do not expect our fixed costs will increase in direct correlation to TEGSEDI and WAYLIVRA product sales. 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):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | |
| Ionis Core | | $ | — | | | $ | — | |
| Akcea Therapeutics | | | 12,820 | | | | 11,573 | |
| Elimination of intercompany activity | | | (8,873 | ) | | | (9,913 | ) |
| Subtotal | | | 3,947 | | | | 1,660 | |
| Non-cash compensation expense related to equity awards | | | 437 | | | | 160 | |
| Total cost of products sold | | $ | 4,384 | | | $ | 1,820 | |
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 2019 compared to 2018 primarily due to the increase in commercial product sales. We previously expensed $0.7 million and $0.1 million of costs to produce the TEGSEDI and WAYLIVRA we sold in 2019 and 2018, respectively. We recognized these costs in prior periods because we incurred these costs before we obtained regulatory approval. 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 operationsdevelopmental chemistry and R&D support expenses.
The following table sets forth information on research, development and patent expenses (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Research, development and patent expenses, excluding non-cash compensation expense related to equity awards | | $ | 310,123 | | | $ | 289,221 | | | $ | 370,340 | | | $ | 338,047 | |
| Non-cash compensation expense related to equity awards | | | 64,521 | | | | 55,099 | | | | 95,348 | | | | 76,557 | |
| Total research, development and patent expenses | | $ | 374,644 | | | $ | 344,320 | | | $ | 465,688 | | | $ | 414,604 | |
For 2017, our research, development and patent expenses were $310.1 million, compared to $289.2 million for 2016. Our research, development and patent expenses increased slightly primarily related to expenses such as regulatory filings, manufacturing initial launch supplies and medical affairs activities in support of inotersen and volanesorsen. If you exclude these expenses, our research, development and patent expenses decreased year-over-year; demonstrating we can prudently manage our research, development and patent expenses, even while advancing and expanding our pipeline, because of the efficiency of antisense technology and the contributions of our partners. All amounts exclude non-cash compensation expense related to equity awards.
Our research, development and patent expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 246,390 | | | $ | 238,106 | | | $ | 295,071 | | | $ | 222,528 | |
| Akcea Therapeutics | | | 118,260 | | | | 63,883 | | | | 280,956 | | | | 120,905 | |
| Elimination of intercompany activity | | | (54,527 | ) | | | (12,768 | ) | | | (205,687 | ) | | | (5,386 | ) |
| Subtotal | | | 310,123 | | | | 289,221 | | | | 370,340 | | | | 338,047 | |
| Non-cash compensation expense related to equity awards | | | 64,521 | | | | 55,099 | | | | 95,348 | | | | 76,557 | |
| Total research, development and patent expenses | | $ | 374,644 | | | $ | 344,320 | | | $ | 465,688 | | | $ | 414,604 | |
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. We anticipate that our existing relationships and collaborations, as well as prospective new partners, will continue to help fund our research programs and contribute to the advancement of the science by funding core antisense technology research.
Our antisense drug discovery expenses were as follows (in thousands) and are part of our Ionis Core business segment:segment and were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards | | $ | 56,160 | | | $ | 51,028 | | | $ | 83,506 | | | $ | 61,387 | |
| Non-cash compensation expense related to equity awards | | | 15,203 | | | | 13,589 | | | | 20,913 | | | | 17,530 | |
| Total antisense drug discovery expenses | | $ | 71,363 | | | $ | 64,617 | | | $ | 104,419 | | | $ | 78,917 | |
Antisense drug discovery expenses for 2017 were $56.2 million and were slightly higher in 2019, compared to $51.0 million for 2016,2018, due to expenses we incurred related to advancing our early stage research programs.programs and investments we made in complementary technologies to expand the reach of antisense technology. All amounts exclude non-cash compensation expense related to equity awards.
Antisense Drug Development
The following table sets forth research anddrug development expenses, including expenses for our major antisense drugmedicines in Phase 3 development projectsand/or commercialization for which we have incurred significant costs (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| SPINRAZA | | $ | 10,996 | | | $ | 43,868 | | |
| Volanesorsen | | | 22,524 | | | | 26,285 | | |
| Inotersen | | | 24,880 | | | | 22,939 | | |
AKCEA-TTR-LRx | | | $ | 14,061 | | | $ | 3,204 | |
| WAYLIVRA | | | | 7,435 | | | | 19,397 | |
| TEGSEDI | | | | 16,830 | | | | 19,204 | |
| Other antisense development projects | | | 70,009 | | | | 42,999 | | | | 94,188 | | | | 98,546 | |
| Development overhead expenses | | | 43,784 | | | | 39,398 | | | | 74,006 | | | | 63,940 | |
| Total antisense drug development, excluding non-cash compensation expense related to equity awards | | | 172,193 | | | | 175,489 | | | | 206,520 | | | | 204,291 | |
| Non-cash compensation expense related to equity awards | | | 25,737 | | | | 20,116 | | | | 45,898 | | | | 34,845 | |
| Total antisense drug development expenses | | $ | 197,930 | | | $ | 195,605 | | | $ | 252,418 | | | $ | 239,136 | |
Our development expenses were $172.2 million for 2017 and were essentially flat in 2019 compared to $175.5 million for 2016. As2018. In 2019, we projected,had increased expenses related to AKCEA-TTR-LRx and overhead expenses to support the expenses for SPINRAZA and volanesorsen declined in 2017. Specifically, we have transitioned all further development of SPINRAZA to Biogen andinvestments we are finishingmaking in advancing our Phase 3 volanesorsen trialpipeline, including our Ionis-owned pipeline. These increases were mostly offset by decreases in people with FCS. Additionally,expenses from WAYLIVRA, TEGSEDI and AKCEA-APO(a)-LRx. Expenses related to AKCEA-APO(a)-LRx decreased because we completed our Phase 3 inotersen trial in people with hATTR with polyneuropathy. Our 2017 expenses included $4.8 million of expenses related to regulatory filing activities2 study and Novartis is responsible for volanesorsen and inotersen. Additionally, during 2017, we made investments in our other antisenseall further development projects, including AKCEA-APO(a)-LRx and IONIS-FXIRx.activities. All amounts exclude non-cash compensation expense related to equity awards.
Our antisense drug development expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 122,163 | | | $ | 132,418 | | | $ | 145,062 | | | $ | 100,090 | |
| Akcea Therapeutics | | | 98,425 | | | | 43,071 | | | | 261,458 | | | | 104,201 | |
| Elimination of intercompany activity | | | (48,395 | ) | | | — | | | | (200,000 | ) | | | — | |
| Subtotal | | | 172,193 | | | | 175,489 | | | | 206,520 | | | | 204,291 | |
| Non-cash compensation expense related to equity awards | | | 25,737 | | | | 20,116 | | | | 45,898 | | | | 34,845 | |
| Total antisense drug development expenses | | $ | 197,930 | | | $ | 195,605 | | | $ | 252,418 | | | $ | 239,136 | |
Akcea’s development expenses included $200 million of intercompany drug development expenses consisting of the $75 million sublicense fee for Novartis’ license of AKCEA-APO(a)-LRx and the $125 million sublicense fee for Pfizer’s license of AKCEA-ANGPTL3-LRx. We eliminated these expenses in our consolidated results. Excluding these fees, Akcea's development expenses decreased primarily because Akcea transitioned all further development of AKCEA-APO(a)-LRx to Novartis.
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 productsmedicines 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 product.medicine. Although we may characterize a productmedicine as "in“in Phase 1"1” or "in“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 productsmedicines based on each product'smedicine’s particular needs at that time. This means we are constantly shifting resources among products.medicines. Therefore, what we spend on each productmedicine during a particular period is usually a function of what is required to keep the productsmedicines progressing in clinical development, not what productsmedicines 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 productmedicine to another and cannot be used to accurately predict future costs for each product.medicine. And, because we always have numerous drugsmedicines in preclinical and early stage clinical research, the fluctuations in expenses from drugmedicine to drug,medicine, in large part, offset one another. If we partner a drug,medicine, it may affect the size of a trial, its timing, its total cost and the timing of the related costs.
Medical Affairs
Our medical affairs function is responsible for performing further research regarding our drugs to ensure appropriate medical use. In addition, members of our medical affairs team educate the medical community about the diseases our drugs are designed to treat.
Expenditures in our medical affairs function include personnel costs and outside services.
Our medical affairs expenses were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | |
| Medical affairs expenses, excluding non-cash compensation expense related to equity awards | | $ | 9,097 | | | $ | 3,568 | |
| Non-cash compensation expense related to equity awards | | | 2,588 | | | | 1,264 | |
| Total medical affairs expenses | | $ | 11,685 | | | $ | 4,832 | |
Medical affairs expenses were $9.1 million for 2017 and were higher compared to $3.6 million for 2016. The increase was primarily due to the build-out of our medical affairs teams and associated activities to educate the medical community on FCS and hATTR. All amounts exclude non-cash compensation expense related to equity awards.
Our medical affairs expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | |
| Ionis Core | | $ | 1,771 | | | $ | — | |
| Akcea Therapeutics | | | 7,326 | | | | 3,568 | |
| Subtotal | | | 9,097 | | | | 3,568 | |
| Non-cash compensation expense related to equity awards | | | 2,588 | | | | 1,264 | |
| Total medical affairs expenses | | $ | 11,685 | | | $ | 4,832 | |
Manufacturing and OperationsDevelopmental Chemistry
Expenditures in our manufacturing and operationsdevelopmental chemistry function consist primarily of personnel costs, specialized chemicals for oligonucleotide manufacturing, laboratory supplies and outside services. Our manufacturing and operationsdevelopmental 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 operationsdevelopmental chemistry expenses were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | |
| Manufacturing and operations expenses, excluding non-cash compensation expense related to equity awards | | $ | 43,526 | | | $ | 30,148 | |
| Non-cash compensation expense related to equity awards | | | 6,904 | | | | 6,113 | |
| Total manufacturing and operations expenses | | $ | 50,430 | | | $ | 36,261 | |
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | |
| Manufacturing and developmental chemistry expenses, excluding non-cash compensation expense related to equity awards | | $ | 42,507 | | | $ | 39,806 | |
| Non-cash compensation expense related to equity awards | | | 9,569 | | | | 9,036 | |
| Total manufacturing and developmental chemistry expenses | | $ | 52,076 | | | $ | 48,842 | |
Manufacturing and operations expenses were $43.5 million for 2017 and were higher compared to $30.1 million for 2016. $11 million of the increase in manufacturing expenses was related to volanesorsen and inotersen to prepare for the planned launches in mid-2018, if approved. All amounts exclude non-cash compensation expense related to equity awards.
Our manufacturing and operationsdevelopmental chemistry expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 39,098 | | | $ | 27,341 | | | $ | 36,847 | | | $ | 32,277 | |
| Akcea Therapeutics | | | 10,440 | | | | 15,455 | | | | 11,174 | | | | 12,758 | |
| Elimination of intercompany activity | | | (6,012 | ) | | | (12,648 | ) | | | (5,515 | ) | | | (5,229 | ) |
| Subtotal | | | 43,526 | | | | 30,148 | | | | 42,507 | | | | 39,806 | |
| Non-cash compensation expense related to equity awards | | | 6,904 | | | | 6,113 | | | | 9,569 | | | | 9,036 | |
| Total manufacturing and operations expenses | | $ | 50,430 | | | $ | 36,261 | | |
| Total manufacturing and developmental chemistry expenses | | | $ | 52,076 | | | $ | 48,842 | |
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):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Personnel costs | | $ | 11,432 | | | $ | 11,560 | | | $ | 15,165 | | | $ | 12,968 | |
| Occupancy | | | 8,236 | | | | 7,891 | | | | 9,351 | | | | 8,567 | |
| Patent expenses | | | 2,095 | | | | 3,945 | | | | 4,209 | | | | 2,744 | |
| Depreciation and amortization | | | 249 | | | | 245 | | | | 519 | | | | 439 | |
| Insurance | | | 1,735 | | | | 1,344 | | | | 1,861 | | | | 1,622 | |
| Other | | | 5,400 | | | | 4,003 | | | | 6,703 | | | | 6,223 | |
| Total R&D support expenses, excluding non-cash compensation expense related to equity awards | | | 29,147 | | | | 28,988 | | | | 37,808 | | | | 32,563 | |
| Non-cash compensation expense related to equity awards | | | 14,089 | | | | 14,017 | | | | 18,968 | | | | 15,146 | |
| Total R&D support expenses | | $ | 43,236 | | | $ | 43,005 | | | $ | 56,776 | | | $ | 47,709 | |
R&D support expenses for 20172019 were $29.1 million and were flatslightly higher compared to $29.0 million for 2016.2018 primarily due to costs from the growth of Akcea’s business as they continued to expand. All amounts exclude non-cash compensation expense related to equity awards.
Our R&D support expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 27,198 | | | $ | 27,319 | | | $ | 29,656 | | | $ | 28,774 | |
| Akcea Therapeutics | | | 2,069 | | | | 1,789 | | | | 8,324 | | | | 3,946 | |
| Elimination of intercompany activity | | | (120 | ) | | | (120 | ) | | | (172 | ) | | | (157 | ) |
| Subtotal | | | 29,147 | | | | 28,988 | | | | 37,808 | | | | 32,563 | |
| Non-cash compensation expense related to equity awards | | | 14,089 | | | | 14,017 | | | | 18,968 | | | | 15,146 | |
| Total R&D support expenses | | $ | 43,236 | | | $ | 43,005 | | | $ | 56,776 | | | $ | 47,709 | |
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 drugsmedicines and costs to support our company, our employees and our stockholders. These costs include personnel and outside costs in the areas of pre-commercialization,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 owedowe under our in-licensing agreements related to SPINRAZA in our SG&A expenses.SPINRAZA.
The following table sets forth information on selling, general and administrativeSG&A expenses (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Selling, general and administrative expenses, excluding non-cash compensation expense related to equity awards | | $ | 87,034 | | | $ | 31,607 | | | $ | 235,856 | | | $ | 190,027 | |
| Non-cash compensation expense related to equity awards | | | 21,454 | | | | 17,009 | | | | 50,788 | | | | 54,595 | |
| Total selling, general and administrative expenses | | $ | 108,488 | | | $ | 48,616 | | | $ | 286,644 | | | $ | 244,622 | |
Selling, general and administrativeSG&A expenses were $87.0 millionhigher for 2017 and significantly increased2019 compared to $31.6 million for 2016. The increase in SG&A expenses was2018 principally due to the cost of preparing to commercialize volanesorsencommercializing TEGSEDI and inotersen in mid-2018WAYLIVRA and from fees we owed under our in-licensing agreementsvarious other expenses related to SPINRAZA. We projectthe growth in our expenses will increase if SPINRAZA sales continue to grow and as we continue to prepare to launch inotersen and Akcea continues to prepare to launch volanesorsen.business. All amounts exclude non-cash compensation expense related to equity awards.
Our selling, general and administrative expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Ionis Core | | $ | 58,962 | | | $ | 22,127 | | | $ | 78,943 | | | $ | 70,647 | |
| Akcea Therapeutics | | | 28,072 | | | | 9,480 | | | | 156,912 | | | | 118,930 | |
| Elimination of intercompany activity | | | | — | | | | 450 | |
| Subtotal | | | | 235,855 | | | | 190,027 | |
| Non-cash compensation expense related to equity awards | | | 21,454 | | | | 17,009 | | | | 50,789 | | | | 54,595 | |
| Total selling general and administrative expenses | | $ | 108,488 | | | $ | 48,616 | | | $ | 286,644 | | | $ | 244,622 | |
Akcea Therapeutics, Inc.
The following table sets forth information on operating expenses (in thousands) for our Akcea Therapeutics business segment:
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Cost of products sold | | | $ | 12,819 | | | $ | 11,573 | |
| Development and patent expenses | | $ | 118,260 | | | $ | 63,883 | | | | 80,956 | | | | 120,905 | |
| General and administrative expenses | | | 28,072 | | | | 9,480 | | |
| Sublicense fees to Ionis | | | | 200,000 | | | | — | |
| Selling, general and administrative expenses | | | | 156,912 | | | | 118,930 | |
| Profit (loss) share for TEGSEDI commercialization activities | | | | (37,332 | ) | | | — | |
| Total operating expenses, excluding non-cash compensation expense related to equity awards | | | 146,332 | | | | 73,363 | | | | 413,355 | | | | 251,408 | |
| Non-cash compensation expense related to equity awards | | | 17,539 | | | | 10,149 | | | | 37,111 | | | | 44,275 | |
| Total Akcea Therapeutics operating expenses | | $ | 163,871 | | | $ | 83,512 | | | $ | 450,466 | | | $ | 295,683 | |
Operating expenses for Akcea were $146.3 million for 2017 and increased compared to $73.4 million for 2016.
$48.4 million of the increase in Akcea’s development and patent expenses wasincreased in 2019 compared to 2018 as a result of sublicense fees totaling $200 million Akcea paid to Ionis in Akcea common stock for one-time sublicensing expenses related toIonis' portion of the license fee Akcea received from Novartis collaboration recorded in the first quarter of 2017. $33.4 million2019 and from Pfizer in the fourth quarter of 2019. We eliminated the sublicense fees Akcea paid Ionis in our consolidated results. Excluding these fees, Akcea's development expenses were non-cashdecreased primarily because Akcea transitioned all further development of AKCEA-APO(a)-LRx to Novartis.
Akcea’s SG&A expenses increased in 2019, compared to 2018, primarily due to Akcea’s commercialization of TEGSEDI and the remaining $15 million was paid to us.WAYLIVRA. For each period presented, we allocated a portion of Ionis’ R&D support expenses, which are included in development and patent expenses in the table above, to Akcea for work we performed on behalf of Akcea.
Akcea’s GSG&A expenses increased in 2017, compared to 2016, primarily due to Akcea continuing to build its commercial infrastructure and advance the pre-commercialization activities necessary to successfully launch volanesorsen in mid-2018, if approved. During the first quarter of 2017, we and Akcea reported positive results from the APPROACH Phase 3 study of volanesorsen in people with FCS. During the third quarter of 2017, Akcea, working closely with us, filed for marketing approval in the U.S., EU and Canada. For each period presented, we allocated a portion of Ionis' G&A expenses, which were included in Akcea’s G&A expenses in the table above, to Akcea for work we performed on Akcea’s behalf.behalf and we bill Akcea for these expenses. We included these allocated expenses in Akcea’s SG&A expenses in the table above. All amounts exclude non-cash compensation expense related to equity awards.
In the first quarter of 2019, we began sharing profits and losses for TEGSEDI with Akcea under our TTR licensing agreement. As Akcea is the principal for all commercial activities related to the TTR License Agreement, Akcea records all activities related to TEGSEDI on a gross basis in its statement of operations based on the nature of the activity, including revenues, cost of products sold and sales and marketing expenses. Ionis’ share of the net profit/loss from commercializing TEGSEDI is separately presented on Akcea’s statement of operations on the line titled “Profit (loss) share for TEGSEDI commercialization activities”. Since TEGSEDI is currently generating a loss, this represents the amount Ionis owes Akcea under the licensing agreement for Ionis’ share of the net loss of TEGSEDI commercialization activities during the period. In 2019, Ionis’ share of losses for TEGSEDI commercialization activities was $37 million. With the launch of WAYLIVRA in the third quarter of 2019, Akcea began paying Ionis royalties on WAYLIVRA product sales. We eliminate these amounts in our consolidated results.
All amounts exclude non-cash compensation expense related to equity awards.
Investment Income
Investment income for 20172019 was $7.8$52.2 million compared to $5.5$30.2 million for 2016.2018. Investment income increased primarily due to a significantly higher average cash balance and an improvement in the market conditions during 2017 compared to 2016.higher average returns.
Interest Expense
Interest expense for 2017 was $44.8 million, compared to $38.8 million for 2016. The increase was primarily non-cash expense related to amortization of debt issuance costs for our 1 percent notes.
Interest expense includes non-cash amortization of the debt discount and debt issuance costs plus interest expense payable in cash for our 1 percent and 2¾ percent notes, non-cash interest expense related to the long-term financing liability, which was replaced by mortgage debt for our primarily R&D and manufacturing facilities beginning in July 2017 and other miscellaneous debt.
In July 2017, we purchased the building that houses our primary R&D facility and the building that houses our manufacturing facility for $79.4 million and $14.0 million, respectively. As a result of the purchase of our primary R&D facility, we extinguished the financing liability we had previously recorded on our balance sheet. We financed the purchase of the buildings with mortgage debt of $51.3 million with an interest rate of 3.88 percent for our primary R&D facility and mortgage debt of $9.1 million with an interest rate of 4.2 percent for our manufacturing facility. Both mortgages mature in August 2027. The non-cash interest expense for our long-term financing liability was replaced with lower mortgage interest expense.
The following table sets forth information on interest expense (in thousands):
| | | Year Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Convertible notes: | | | | | | | |
| Non-cash amortization of the debt discount and debt issuance costs | | $ | 32,536 | | | $ | 25,115 | | |
| Convertible senior notes: | | | | | | | |
| Non-cash amortization of the debt discounts and debt issuance costs | | | $ | 39,280 | | | $ | 35,173 | |
| Interest expense payable in cash | | | 7,090 | | | | 6,684 | | | | 6,727 | | | | 6,855 | |
| Non-cash interest expense for long-term financing liability | | | 3,352 | | | | 6,693 | | |
| Interest on mortgage for primary R&D and manufacturing facilities | | | 1,103 | | | | — | | | | 2,397 | | | | 2,409 | |
| Other | | | 671 | | | | 303 | | | | 364 | | | | 352 | |
| Total interest expense | | $ | 44,752 | | | $ | 38,795 | | | $ | 48,768 | | | $ | 44,789 | |
Loss on Extinguishment of Financing Liability for Leased Facility
We recognized a loss on extinguishment of the financing liability for leased facility of $7.7 million in 2017. The loss represents the difference between the amount we previously recorded as a financing liability for the leased facility and the purchase price we paid for our primary R&D facility in July 2017. This loss was non-cash and nonrecurring.
Early Retirement of Debt
As a result of the debt exchange we completed in December 2016,2019, we recorded a $4.0$21.9 million non-cash loss on early retirement of debt, reflecting the early retirement of the majoritya portion of our remaining 2¾ percent convertible notes in December 2016. We did not recognize any1% Notes. The non-cash loss on the early retirement of our debt in 2017.
Other Expenses
Other expenses were $3.5 million for 2017is the difference between the amount paid to exchange our 1% Notes that we attributed to the liability component and primarily consistedthe net carrying balance of the previously capitalized fair value ofliability component at the potential premiumtime that we would have received from Novartis if Akcea had not completed its IPO. This expense was non-cash and nonrecurring.the debt exchange.
Income Tax Benefit (Expense)Expense (Benefit)
We are subjecthad income tax expense of $43.5 million for 2019, compared to U.S. federal, state and foreign taxes. In 2017, we recorded a netan income tax benefit of $6.0$291.1 million compared tofor 2018. Our income tax expense of $2.9 million in 2016. Our2019 relates primarily to our estimated U.S. federal and state tax expense flipped from an expense positionliabilities for the year. We recognized a significant tax benefit in 20162018 due largely to a one-time, non-cash tax benefit position in 2017 primarily due to a $7.7 million reduction in our valuation allowance. As a resultfrom the reversal of the Tax Act, we reduced our valuation allowance becausepreviously recorded against Ionis’ stand-alone U.S. federal net deferred tax assets of $332.1 million. We reversed the valuation allowance in 2018 as we are entitleddetermined it was more likely than not that we would utilize our deferred federal income tax assets, primarily net operating loss carryforwards and research and development and orphan drug credit carryforwards, in future years. We utilized a significant portion of these carryforwards in 2019 to receive areduce our estimated federal tax refundliability for our cumulative prior year alternative minimum tax credit carryforwards. At December 31, 2017 we retainedthe year. We continue to maintain a full valuation allowance against all of Akcea’s net deferred tax assets and the net balancestate deferred tax assets of Ionis at December 31, 2019 due to uncertainties related to our ability to realize the tax benefits associated with these assets. See discussion of our remaining deferred tax assets.valuation allowance under the section titled, Income Taxes, above in our discussion of our critical accounting estimates.
Net LossIncome
We had a net lossincome of $17.3$303.3 million for 2017,2019, compared to $86.6$215.0 million for 2016. Our2018. The increase in our net loss improved for 2017income in 2019, compared to 20162018 was primarily due to the addition of commercial revenue from SPINRAZA royalties and increased R&D revenue.our increasing revenues. Somewhat offsetting this increase was income tax expense we recognized in 2019 compared to a one-time non-cash tax benefit recognized in 2018 related to our deferred income taxes.
Net Operating Loss and Tax Credit Carryforwards
At December 31, 2017, we had federal and California tax net operating loss carryforwards of approximately $561.1 million and $887.1 million, respectively. Our federal tax loss carryforwards begin to expire in 2024. A portion of our California tax loss carryforwards continued to expire in 2017. At December 31, 2017, we also had federal and California research and development tax credit carryforwards of approximately $233.3 million and $56.2 million, respectively. Our Federal research and development tax credit carryforwards will begin to expire in 2018. Our California research and development tax credit carryforwards are available indefinitely.
Net LossIncome (Loss) Attributable to Noncontrolling Interest in Akcea Therapeutics, Inc.
As a result of Akcea’s IPO, beginning in July 2017,At December 31, 2019, we no longer own 100owned approximately 76 percent of Akcea. From the closingThe shares of Akcea’s IPO on July 19, 2017Akcea third parties own represent an interest in Akcea's equity that we do not control. However, because we continue to maintain overall control of Akcea through the end of 2017,our voting interest, we owned approximately 68 percent of Akcea. As a result, we adjusted our financial statements to reflect the portionassets, liabilities and results of operations of Akcea we no longer own, which was 32 percent at December 31, 2017. Accordingly,in our consolidated statementfinancial statements. We reflect the noncontrolling interest attributable to other owners of operations now includesAkcea's common stock in a newseparate line called “Net lossincome attributable to noncontrolling interestsinterest in Akcea”, on our statement of operations. Our noncontrolling interest in Akcea on our statement of operations for 20172019 was $11.3 million. We also addednet income of $9.1 million, compared to a corresponding account to our consolidated balance sheet called “Noncontrolling interestnet loss of $58.8 million for 2018.Akcea generated net income in Akcea Therapeutics, Inc.”2019 primarily because it earned significant license fee revenue from Novartis and Pfizer.
Net LossIncome Attributable to Ionis Pharmaceuticals, Inc. Common Stockholders and Net Income (Loss) per Share
We had a net lossincome attributable to our common stockholders’stockholders of $6.0$294.1 million for 2017,2019, compared to $86.6$273.7 million in 2016. 2018. Basic and diluted net income per share for 20172019 was $0.08$2.12 and $2.08, respectively compared to a net loss per share of $0.72$2.09 and $2.07 for 2016.
Years Ended December 31, 2016 and December 31, 2015
Revenue
Total revenue for 2016 was $346.6 million compared to $283.7 million for 2015.
Commercial Revenue
SPINRAZA Royalties
SPINRAZA was approved by the FDA in December 2017. Commercial revenue from SPINRAZA royalties for 2016 was $0.9 million.
Licensing and Other Royalty Revenue
Our revenue from licensing activities and royalties for 2016 was $19.8 million, compared to $2.3 million for 2015. Our revenue from licensing and royalties for 2016 primarily consisted of the $15 million we earned from Kastle when it acquired the global rights to develop and commercialize Kynamro.
Research and Development Revenue Under Collaborative Agreements
Research and development revenue under collaborative agreements for 2016 was $325.9 million compared to $281.4 million for 2015. We earned $115.7 million in milestone payments and $91.2 million when Bayer licensed IONIS-FXIRx during 2016 compared to milestone payments of $135.0 million in 2015. Our revenue in 2016 was primarily comprised of:
| | $170 million from Biogen for FDA approval, licensing and advancing the Phase 3 program for SPINRAZA; |
| | $53 million from AstraZeneca for advancing and licensing IONIS-KRAS-2.5Rx and selecting IONIS-AZ4-2.5-LRx to move into development;
|
| | $15 million from Janssen for licensing IONIS-JBI1-2.5Rx and selecting an additional development candidate;
|
| | $7.5 million from Biogen for advancing IONIS-SOD1Rx, IONIS-BIIB4Rx and IONIS-BIIB6Rx;
|
| | $61 million from the amortization of upfront fees; and |
| | $19.4 million primarily from the manufacturing services we performed for our partners. |
Operating Expenses
Operating expenses for 2016 were $392.9 million, and increased compared to $359.5 million for 2015.2018. The increase in operating expenses was primarily due to:
| | During 2016, we were conducting five Phase 3 studies and three open-label extension studies for SPINRAZA, inotersen and volanesorsen. We completed target enrollment in four of these Phase 3 studies at the end of 2015, and as a result, these studies were in their most expensive stage during 2016. |
| | Akcea’s operating expenses increased as it continued to build its commercial infrastructure and advance the pre-commercialization activities necessary to successfully launch volanesorsen, if approved for marketing. |
| | Our non-cash compensation expense related to equity awards increased due to an increase in the exercise price of the stock options we have granted over the past several years. |
Our operating expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 260,233 | | | $ | 256,674 | |
| Akcea Therapeutics | | | 73,363 | | | | 46,252 | |
| Elimination of intercompany activity | | | (12,768 | ) | | | (2,775 | ) |
| Subtotal | | | 320,828 | | | | 300,151 | |
| Non-cash compensation expense related to equity awards | | | 72,108 | | | | 59,314 | |
| Total operating expenses | | $ | 392,936 | | | $ | 359,465 | |
Research, Development and Patent Expenses
The following table sets forth information on research, development and patent expenses (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Research, development and patent expenses, excluding non-cash compensation expense related to equity awards | | $ | 289,221 | | | $ | 278,654 | |
| Non-cash compensation expense related to equity awards | | | 55,099 | | | | 43,638 | |
| Total research, development and patent expenses | | $ | 344,320 | | | $ | 322,292 | |
Our research, development and patent expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 238,106 | | | $ | 240,061 | |
| Akcea Therapeutics | | | 63,883 | | | | 41,368 | |
| Elimination of intercompany activity | | | (12,768 | ) | | | (2,775 | ) |
| Subtotal | | | 289,221 | | | | 278,654 | |
| Non-cash compensation expense related to equity awards | | | 55,099 | | | | 43,638 | |
| Total research, development and patent expenses | | $ | 344,320 | | | $ | 322,292 | |
For 2016, total research, development and patent expenses were $289.2 million,our net income attributable to our common stockholders in 2019, compared to $278.7 million for 2015, and were slightly higher primarily due to the progression of our drugs in Phase 3 development. All amounts exclude non-cash compensation expense related to equity awards.
Antisense Drug Discovery
Our antisense drug discovery expenses were as follows (in thousands) and are part of our Ionis Core business segment:
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Antisense drug discovery expenses, excluding non-cash compensation expense related to equity awards | | $ | 51,028 | | | $ | 49,331 | |
| Non-cash compensation expense related to equity awards | | | 13,589 | | | | 11,914 | |
| Total antisense drug discovery expenses | | $ | 64,617 | | | $ | 61,245 | |
Antisense drug discovery expenses for 2016 were $51.0 million and were slightly higher compared to $49.3 million for 2015, All amounts exclude non-cash compensation expense related to equity awards.
Antisense Drug Development
The following table sets forth research and development expenses for our major antisense drug development projects (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| SPINRAZA | | $ | 43,868 | | | $ | 35,164 | |
| Volanesorsen | | | 26,285 | | | | 21,348 | |
| Inotersen | | | 22,939 | | | | 19,560 | |
| Other antisense development products | | | 42,999 | | | | 59,599 | |
| Development overhead expenses | | | 39,398 | | | | 36,117 | |
| Total antisense drug development, excluding non-cash compensation expense related to equity awards | | | 175,489 | | | | 171,788 | |
| Non-cash compensation expense related to equity awards | | | 20,116 | | | | 16,108 | |
| Total antisense drug development expenses | | $ | 195,605 | | | $ | 187,896 | |
Antisense drug development expenditures were $175.5 million for 2016 compared to $171.8 million for 2015. Expenses in 2016 were slightly higher compared to 2015 primarily due to the progression of our drugs in Phase 3 development. As drugs move forward to more advanced stages of development, including into larger, longer clinical studies, the costs of development increase. Our other antisense development project expenses declined in 2016, compared to 2015, primarily due to completing the FOCUS FH Phase 3 study of Kynamro in 2015 and our shift to LICA drugs, which were in less expensive stages of development. All amounts exclude non-cash compensation expense related to equity awards.
Our antisense drug development expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 132,418 | | | $ | 137,092 | |
| Akcea Therapeutics | | | 43,071 | | | | 34,696 | |
| Non-cash compensation expense related to equity awards | | | 20,116 | | | | 16,108 | |
| Total antisense drug development expenses | | $ | 195,605 | | | $ | 187,896 | |
Medical Affairs
Our medical affairs expenses were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Medical affairs expenses, excluding non-cash compensation expense related to equity awards | | $ | 3,568 | | | $ | 429 | |
| Non-cash compensation expense related to equity awards | | | 1,264 | | | | 100 | |
| Total medical affairs expenses | | $ | 4,832 | | | $ | 529 | |
Medical affairs expenses were $3.6 million for 2016 and were higher compared to $0.4 million for 2015. The increase2018, was primarily due to the build-out of our medical affairs team and associated activitiesincreasing revenues. Somewhat offsetting this increase was income tax expense we recognized in 2019 compared to educate the medical community on FCS. All amounts excludea one-time non-cash compensation expense related to equity awards. All of our medical affairs expenses for 2016 and 2015tax benefit recognized in 2018 related to our Akcea segment.deferred income taxes.
Manufacturing and Operations
Our manufacturing and operations expenses were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Manufacturing and operations expenses, excluding non-cash compensation expense related to equity awards | | $ | 30,148 | | | $ | 28,588 | |
| Non-cash compensation expense related to equity awards | | | 6,113 | | | | 4,563 | |
| Total manufacturing and operations expenses | | $ | 36,261 | | | $ | 33,151 | |
Manufacturing and operations expenses for 2016 were $30.1 million and were slightly higher compared to $28.6 million for 2015. All amounts exclude non-cash compensation expense related to equity awards.
Our manufacturing and operations expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 27,341 | | | $ | 25,632 | |
| Akcea Therapeutics | | | 15,455 | | | | 5,611 | |
| Elimination of intercompany activity | | | (12,648 | ) | | | (2,655 | ) |
| Subtotal | | | 30,148 | | | | 28,588 | |
| Non-cash compensation expense related to equity awards | | | 6,113 | | | | 4,563 | |
| Total manufacturing and operations expenses | | $ | 36,261 | | | $ | 33,151 | |
R&D Support
The following table sets forth information on R&D support expenses (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Personnel costs | | $ | 11,560 | | | $ | 10,210 | |
| Occupancy | | | 7,891 | | | | 7,854 | |
| Patent expenses | | | 3,945 | | | | 2,785 | |
| Depreciation and amortization | | | 245 | | | | 2,911 | |
| Insurance | | | 1,344 | | | | 1,320 | |
| Other | | | 4,003 | | | | 3,438 | |
| Total R&D support expenses, excluding non-cash compensation expense related to equity awards | | | 28,988 | | | | 28,518 | |
| Non-cash compensation expense related to equity awards | | | 14,017 | | | | 10,953 | |
| Total R&D support expenses | | $ | 43,005 | | | $ | 39,471 | |
R&D support expenses for 2016 were $29.0 million, and were essentially flat compared to $28.5 million for 2015. All amounts exclude non-cash compensation expense related to equity awards.
Our R&D support expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 27,319 | | | $ | 28,005 | |
| Akcea Therapeutics | | | 1,789 | | | | 633 | |
| Elimination of intercompany activity | | | (120 | ) | | | (120 | ) |
| Subtotal | | | 28,988 | | | | 28,518 | |
| Non-cash compensation expense related to equity awards | | | 14,017 | | | | 10,953 | |
| Total R&D support expenses | | $ | 43,005 | | | $ | 39,471 | |
General and Administrative Expenses
The following table sets forth information on general and administrative expenses (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| General and administrative expenses, excluding non-cash compensation expense related to equity awards | | $ | 31,607 | | | $ | 21,497 | |
| Non-cash compensation expense related to equity awards | | | 17,009 | | | | 15,676 | |
| Total general and administrative expenses | | $ | 48,616 | | | $ | 37,173 | |
General and administrative expenses for 2016 were $31.6 million and increased compared to $21.5 million for 2015 primarily due to expenses associated with Akcea building its organization. All amounts exclude non-cash compensation expense related to equity awards.
Our general and administrative expenses by segment were as follows (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Ionis Core | | $ | 22,127 | | | $ | 16,613 | |
| Akcea Therapeutics | | | 9,480 | | | | 4,884 | |
| Non-cash compensation expense related to equity awards | | | 17,009 | | | | 15,676 | |
| Total general and administrative expenses | | $ | 48,616 | | | $ | 37,173 | |
Akcea Therapeutics, Inc.
The following table sets forth information on operating expenses (in thousands) for our Akcea Therapeutics business segment:
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Development and patent expenses | | $ | 63,883 | | | $ | 41,368 | |
| General and administrative expenses | | | 9,480 | | | | 4,884 | |
| Total operating expenses, excluding non-cash compensation expense related to equity awards | | | 73,363 | | | | 46,252 | |
| Non-cash compensation expense related to equity awards | | | 10,149 | | | | 6,496 | |
| Total Akcea Therapeutics operating expenses | | $ | 83,512 | | | $ | 52,748 | |
Akcea’s operating expenses were $73.4 million for 2016 and increased compared to $46.3 million for 2015. The increase in expenses was primarily because Akcea was conducting more and later-stage clinical studies in 2016 than it conducted in 2015, including the continuation of the Phase 3 studies for volanesorsen in people with FCS and FPL. In 2016, we began charging Akcea for Ionis’ internal development costs associated with the ongoing work we are performing for Akcea's drugs. For each period presented, we allocated a portion of Ionis' R&D support expenses, which are included in research and development expenses in the table above, to Akcea for work we performed on behalf of Akcea.
Akcea also incurred additional general and administrative costs as it continued to build its organization and advance the pre-commercialization activities necessary to launch volanesorsen, if approved for marketing. For each year presented, we allocated a portion of Ionis' general and administrative expenses, which are included in general and administrative expenses in the table above, to Akcea for work we performed on Akcea’s behalf. All amounts exclude non-cash compensation expense related to equity awards.
Investment Income
Investment income for 2016 totaled $5.5 million compared to $4.4 million for 2015. The increase in investment income was primarily due an improvement in the market conditions during 2016 compared to 2015.
Interest Expense
The following table sets forth information on interest expense (in thousands):
| | | Year Ended December 31, | |
| | | 2016 | | | 2015 | |
| Convertible notes: | | | | | | |
| Non-cash amortization of the debt discount and debt issuance costs | | $ | 25,115 | | | $ | 23,208 | |
| Interest expense payable in cash | | | 6,684 | | | | 6,683 | |
| Non-cash interest expense for long-term financing liability | | | 6,693 | | | | 6,665 | |
| Other | | | 303 | | | | 176 | |
| Total interest expense | | $ | 38,795 | | | $ | 36,732 | |
Interest expense for 2016 was $38.8 million, and was relatively flat compared to $36.7 million in 2015.
Gain on Investment in Regulus Therapeutics Inc.
In 2015, we recorded a gain on our investment in Regulus of $20.2 million related to our sale of a portion of our Regulus common stock.
Early Retirement of Debt
As a result of the debt exchange we completed in December 2016, we recorded a $4.0 million non-cash loss on early retirement of debt, reflecting the early retirement of the majority of our remaining 2¾ percent convertible notes in December 2016. We did not recognize any loss on early retirement of debt in 2015.
Income Tax Expense (Benefit)
In 2016, we recorded a net tax expense of $2.9 million, compared to $0.4 million in 2015. Our tax expense increased in 2016 compared to 2015 primarily due to the taxable income resulting from our strong financial performance in 2016 and excess tax benefits related to stock-based compensation. Included in our tax expense for 2015 is $4.3 million of tax benefit we recorded in 2015 related to a tax refund we received in 2015 from the State of California Franchise Tax Board related to the California franchise taxes we paid for the tax year ended December 31, 2009.
Net Loss and Net Loss Per Share
Net loss for 2016 was $86.6 million compared $88.3 million for 2015. Basic and diluted net loss per share for the year ended December 31, 2016 was $0.72 compared to $0.74 for 2015. We had a lower net loss in 2016 primarily due to the increase in revenue we earned in 2016 compared to 2015.
Liquidity and Capital Resources
We have financed our operations with revenue primarily from research and development collaborative agreements Beginning in December 2016 we addedagreements. We also finance our operations from commercial revenue from SPINRAZA royalties. royalties and product sales. From our inception through December 31, 2017,2019, we had earned approximately $2.6$4.3 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 December 31, 20172019, we had raised net proceeds of approximately $1.2 $1.8 billion from the sale of our equity securities, not including the $182.4 million Akcea received in net proceeds from its IPO in July 2017. Additionally, we had borrowed approximately $1.41.5 billion under long-term debt arrangements to finance a portion of our operations over the same time period.
At December 31, 2017,2019, we had cash, cash equivalents and short-term investments of $1.0$2.5 billion and stockholders’ equity of $418.7 million.$1.7 billion. In comparison, we had cash, cash equivalents and short-term investments of $665.2 million$2.1 billion and stockholders’ equity of $99.6 million$1.2 billion at December 31, 2016. During 2017,2018. Our cash, cash equivalents and short-term investments increased in 2019 primarily from payments we received more than $580from Biogen, Pfizer, Novartis and Roche. Our stockholders' equity increased in 2019 primarily from our net income and our stock-based compensation expense.
In September 2019, our board of directors approved an initial share repurchase program of up to $125 million of our common stock. Our stock repurchase program has no expiration date. Through December 31, 2019, we had repurchased 535,000 shares for $34.4 million in payments fromopen market transactions. See Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities for details of the purchases we made in 2019.During the first quarter of 2020, we repurchased the remaining amount authorized under our partners, primarily from Novartis, Bayer and Biogen. Additionally, our cash balance at December 31, 2017 included the proceeds from Akcea’s IPO and Novartis’ strategic investment receivedstock repurchase program. We may consider additional share repurchases in the third quarterfuture as part of 2017.our overall capital allocation strategy.
In July 2017, we purchased two buildings that house our primary R&D facility and our manufacturing facility for $79.4 million and $14.0 million, respectively. In conjunction with the purchase of the buildings we obtained a $51.4 million mortgage for our primary R&D facility and a $9.1 million mortgage for our manufacturing facility. Both mortgages mature in August 2027. We expect these transactions will result in cash and expense savings for us.
At December 31, 2017,2019, we had consolidated working capital of $943.2 million$2.4 billion compared to $664.1 million$1.9 billion at December 31, 2016. Working capital increased in 2017 primarily due to the increase in our cash, cash equivalents and short-term investments as a result of the substantial payments we received from partners and Akcea’s IPO during 2017.
2018. As of December 31, 2017,2019, our debt and other obligations totaled $759.8$936.2 million compared to $774.2$764.0 million at December 31, 2016.2018. In December 2019, we exchanged $375.6 million of our 1% notes for $439.3 million of new 0.125% notes and issued an additional $109.5 million of new 0.125% notes. Additionally, during 2019 our debt and other obligations increased from the operating lease liability we added to our balance sheet when we adopted the new accounting guidance for leases on January 1, 2019.
The following table summarizes our contractual obligations as of December 31, 2017.2019. 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:
| | | Payments Due by Period (in millions) | | | Payments Due by Period (in millions) | |
Contractual Obligations (selected balances described below) | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | After 5 years | | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | After 5 years | |
| Convertible senior notes (principal and interest payable) | | $ | 712.9 | | | $ | 6.9 | | | $ | 13.7 | | | $ | 692.3 | | | $ | — | | |
| 1% Notes (principal and interest payable) | | | $ | 316.1 | | | $ | 3.1 | | | $ | 313.0 | | | $ | — | | | $ | — | |
| 0.125% Notes (principal and interest payable) | | | $ | 552.3 | | | $ | 0.7 | | | $ | 1.4 | | | $ | 550.2 | | | $ | — | |
| Building mortgage payments | | $ | 83.2 | | | $ | 2.4 | | | $ | 4.8 | | | $ | 5.1 | | | $ | 70.9 | | | $ | 78.2 | | | $ | 2.4 | | | $ | 5.1 | | | $ | 6.9 | | | $ | 63.8 | |
| Financing arrangements (principal and interest payable) | | $ | 13.0 | | | $ | 0.3 | | | $ | 12.7 | | | $ | — | | | $ | — | | |
| Other obligations (principal and interest payable) | | $ | 1.1 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.8 | | | $ | 1.0 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.7 | |
| Operating leases | | $ | 2.1 | | | $ | 0.9 | | | $ | 1.1 | | | $ | 0.1 | | | $ | — | | | $ | 23.5 | | | $ | 3.3 | | | $ | 5.8 | | | $ | 4.9 | | | $ | 9.5 | |
| Total | | $ | 812.3 | | | $ | 10.6 | | | $ | 32.4 | | | $ | 697.6 | | | $ | 71.7 | | | $ | 971.1 | | | $ | 9.6 | | | $ | 325.4 | | | $ | 562.1 | | | $ | 74.0 | |
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 $78 million ofour gross unrecognized tax benefits from our contractual obligations table above.
670.125 Percent Convertible Senior Notes and Call Spread
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 percent convertible senior notes to repurchase $140 million in principal of our 2¾ percent convertible senior notes. As a result, the principal balance of the 2¾ percent notes following the repurchase in November 2014 was $61.2 million.
In December 2016,2019, we issued an additional $185.5 millionentered into privately negotiated exchange and/or subscription agreements with certain new investors and certain holders of 1 percent convertible senior notes inour existing 1% Notes to exchange for the redemption of $61.1$375.6 million of our 2¾ percent convertible senior notes. 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 consolidated balance sheet. We excluded shares under the note hedges from our calculation of diluted earnings per share as they were 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 December 31, 2017, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At December 31, 2017,2019, we had the following 1 percent convertible senior notes0.125% Notes outstanding (amounts in millions except price per share data):
| | | 1 Percent Convertible Senior Notes | | | 0.125% Notes | |
| Outstanding principal balance | | $ | 685.5 | | | $ | 548.8 | |
| Original issue date ($500 million of principal) | | November 2014 | | |
| Additional issue date ($185.5 million of principal) | | December 2016 | | |
| Maturity date | | November 2021 | | | December 2024 | |
| Interest rate | | 1 percent | | | 0.125 percent | |
| Conversion price per share | | $ | 66.81 | | | $ | 83.28 | |
| Total shares of common stock subject to conversion | | | 10.3 | | | | 6.6 | |
Interest is payable semi-annually for the 1 percent notes.0.125% Notes. The notes0.125% Notes are convertible under certain conditions, at the option of the note holders. We can settle conversions of the notes,0.125% Notes, at our election, in cash, shares of our common stock or a combination of both. We may not redeem the 1 percent notes0.125% Notes prior to maturity, and no sinking fund is provided for them. Holders of the 1 percent notes0.125% 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 1 percent notes,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.
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 December 31, 2019, 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.
Financing ArrangementsArrangement
In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. WeStanley, which we amended the credit agreement in February 2016 to increase the amount available for us to borrow.2016. Under the amended credit agreement, Morgan Stanley will provideprovided a maximum of $30 million of revolving credit for general working capital purposes. Any loansDuring the third quarter of 2019, we paid off our total outstanding borrowings of $12.5 million under the credit agreement have interest payable monthly in arrears at a borrowing rate based on our option of:
(i) | a floating rate equal toand subsequently terminated the one-month London Interbank Offered Rate, or LIBOR, in effect plus 1.25 percent per annum; |
(ii) | a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or |
(iii) | a fixed rate equal to the LIBOR swap rate during the period of the loan. |
Additionally, we pay 0.25 percent per annum, payable quarterly in arrears, for any amount unused under the credit facility. As of December 31, 2017, we had $12.5 million in outstanding borrowings under the credit facility with a 2.31 percent fixed interest rate and a maturity date of September 2019, which we used to fund our capital equipment needs consistent with our historical practice to finance these costs.
The credit agreement includes customary affirmative and negative covenants and restrictions. We are in compliance with all covenants of the credit agreement.
Research and Development and Manufacturing Facilities
In July 2017, we purchased the building that houses our primary R&D facility for $79.4 million. As a result of the purchase, we extinguished the financing liability we had previously recorded on our balance sheet. The difference between the purchase price of the facilitymillion and the carrying value of our financing liability at the time of the purchase was $7.7 million. We recognized this amount as a loss on extinguishment of financing liability for leased facility in our consolidated results of operations in the third quarter of 2017.
We purchased our manufacturing facility in July 2017 for $14.0 million. We previously accounted for the lease on this facility as an operating lease. We capitalized the purchase price of the building as a fixed asset in the third quarter of 2017.
We financed the purchase of our primary R&D facility and manufacturing facility,these two facilities with mortgage debt of $51.3$60.4 million and $9.1 million, respectively.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 December 31, 20172019 for the purchase of services, capital equipment and materials as part of our normal course of business.
We plan to continue tomay enter into additional collaborations with partners towhich 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.
Off-Balance Sheet Arrangements
We have not entered into, nor do we currently have, any off-balance sheet arrangements (as defined under SEC rules).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to changes in interest rates primarily from our long-term debt arrangements and, secondarily, investments in certain short-term investments. We primarily invest our excess cash in highly liquid short-term investments of the U.S. Treasury and reputable financial institutions, corporations, and U.S. government agencies with strong credit ratings. We typically hold our investments for the duration of the term of the respective instrument. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions to manage exposure to interest rate changes. Accordingly, we believe that, while the securities we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.
Item 8. Financial Statements and Supplementary Data
We filed our consolidated financial statements and supplementary data required by this item as exhibits hereto, and listed them under Item 15(a)(1) and (2), and incorporate them herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act) that are designed to ensure that information we are required to disclose in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We designed and evaluate our disclosure controls and procedures recognizing that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance and not absolute assurance of achieving the desired control objectives.
As of the end of the period covered by this report on Form 10-K, we carried out an evaluation of our disclosure controls and procedures under the supervision of, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017.2019.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f). Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with United StatesU.S. generally accepted accounting principles.
As of December 31, 2017,2019, we assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting under the 2013 “Internal Control—Integrated Framework,” issued by the Committee of Sponsoring Organizations, or COSO, of the Treadway Commission, under the supervision of, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based on that assessment, our management concluded that we maintained effective internal control over financial reporting as of December 31, 2017.2019.
Attestation Report of the Registered Public Accounting Firm
Ernst & Young LLP, an independent registered public accounting firm, audited the effectiveness of our internal control over financial reporting as of December 31, 2017,2019, as stated in their attestation report, which is included elsewhere herein.
Changes in Internal Control over Financial Reporting
The above assessment did not identify any change in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors and Stockholders of Ionis Pharmaceuticals, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Ionis Pharmaceuticals, Inc.’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-IntegratedControl — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework) (the COSO criteria). In our opinion, Ionis Pharmaceuticals, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Ionis Pharmaceuticals, Inc.the Company as of December 31, 20172019 and 2016,2018, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and our report dated February 28, 2018March 2, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.US federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNST & YOUNG LLP | |
| |
San Diego, California | |
February 28, 2018 | |
/s/ Ernst & Young LLP
San Diego, California
March 2, 2020
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We incorporate by reference the information required by this Item with respect to directors and the Audit Committee from the information under the caption “ELECTION OF DIRECTORS,” including in particular the information under “Nominating, Governance and Review Committee” and “Audit Committee,” contained in our definitive Proxy Statement, which we will file with the Securities and Exchange Commission within 120 days after the end of the fiscal year ended December 31, 20172019 (the “Proxy Statement”).
We incorporate by reference the required information concerning our Code of Ethics from the information under the caption “Code of Ethics and Business Conduct” contained in the Proxy Statement. Our Code of Ethics and Business Conduct is posted on our website at www.ionispharma.com(1). We intend to disclose future amendments to, or waivers from, our Code of Ethics and Business Conduct on our website.
Item 1, Part I of this Report contains information concerning our executive officers. We incorporate by reference the information required by this Item concerning compliance with Section 16(a) of the Exchange Act from the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” contained in the Proxy Statement.
________________
| (1) | Any information that is included on or linked to our website is not part of this Form 10-K. |
Item 11. Executive Compensation
We incorporate by reference the information required by this item to the information under the caption “EXECUTIVE COMPENSATION,” “Compensation Committee Interlocks and Insider Participation” and “COMPENSATION COMMITTEE REPORT” contained in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We incorporate by reference the information required by this item to the information under the captions “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” contained in the Proxy Statement.
Securities Authorized for Issuance under Equity Compensation Plans
The following table sets forth information regarding outstanding options and shares reserved for future issuance under our equity compensation plans as of December 31, 2017.2019.
| Plan Category | | Number of Shares
to be Issued
Upon Exercise of
Outstanding Options | | | Weighted Average
Exercise Price of
Outstanding Options | | | Number of Shares
Remaining
Available for
Future Issuance | | | | Number of Shares to be Issued Upon Exercise of Outstanding Options | | Weighted Average Exercise Price of Outstanding Options | | Number of Shares Remaining Available for Future Issuance | |
| Equity compensation plans approved by stockholders(a) | | | 9,396,796 | | | $ | 44.52 | | | | 8,158,366 | | (b) | |
| Equity compensation plans approved by stockholders (a) | | | 11,001,241 | | $ | 51.48 | | 8,335,635 | (b) |
| Total | | | 9,396,796 | | | $ | 44.52 | | | | 8,158,366 | | | | 11,001,241 | | $ | 51.48 | | 8,335,635 | |
________________
| (a) | Consists of four Ionis plans: 1989 Stock Option Plan, Amended and Restated 2002 Non-Employee Directors’ Stock Option Plan, 2011 Equity Incentive Plan and Employee Stock Purchase Plan, or ESPP. |
| (b) | Of these shares, 668,232725,930 remained available for purchase under the ESPP as of December 31, 2017. The ESPP incorporates an evergreen formula pursuant to which on January 1 of each year, we automatically increase the aggregate number of shares reserved for issuance under the plan by 150,000 shares.2019. |
For additional details about our equity compensation plans, including a description of each plan, see Note 4, Stockholders’ Equity, in the Notes to the Consolidated Financial Statements.
Item 13. Certain Relationships and Related Transactions, and Director Independence
We incorporate by reference the information required by this item to the information under the captions “Independence of the Board of Directors” and “Certain Relationships and Related Transactions” contained in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
We incorporate by reference the information required by this item to the information under the caption “Ratification of Selection of Independent Auditors” contained in the Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)(1) Index to Financial Statements
We submitted the consolidated financial statements required by this item in a separate section beginning on page F-1 of this Report.
(a)(2) Index to Financial Statement Schedules
We omitted these schedules because they are not required, or are not applicable, or the required information is shown in the consolidated financial statements or notes thereto.
(a)(3) Index to Exhibits
INDEX TO EXHIBITS
| Exhibit Number | | Description of Document |
| 3.1 | | |
| | | |
| 3.2 | | |
| | | |
| 3.3 | | |
| | | |
| 3.4 | | Amended and Restated Bylaws. - Filed, filed as an exhibit to the Registrant’s Current Report on Form 8-K filed December 18, 2015 and incorporated herein by reference. |
| | | |
| 4.1 | | |
| | | |
| 4.2 | | |
| | | |
| 4.3 | | |
| | | |
| 4.4 | | |
| | |
| 4.5 | | |
| | |
| 4.6 | | |
| | |
| 4.7 | | |
| | |
| 4.8 | | |
| | |
| | Description of the Registrant’s Securities. |
| | | |
| 10.1 | | |
| | | |
| 10.2* | | Registrant’s 1989 Stock Option Plan, as amended. - Filed, filed as an exhibit to Registrant’s Notice of Annual Meeting and Proxy Statement for the 2012 Annual Meeting of Stockholders, filed with the SEC on April 16, 2012, and incorporated herein by reference. |
| | | |
| 10.3* | | |
| | | |
| 10.4 | | |
| | |
10.5 | | |
| | |
10.610.5 | | Collaboration and License Agreement between the Registrant and Hybridon, Inc., dated May 24, 2001. Portions of this exhibit have been omitted and separately, filed with the SEC with a request for confidential treatment. - Filed as an exhibit to the Registrant’s report on Form 10-Q as amended for the quarter ended June 30, 2001 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment. |
| | | |
10.710.6 | | |
| | | |
10.810.7 | | |
| | |
10.9 | | |
10.10 | | Amended and Restated Strategic Neurology Drug Discovery and Development Collaboration, Option and License Agreement between the Registrant and Biogen MA Inc. dated October 20, 2017. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment. |
| | | |
10.1110.8 | | |
| | | |
10.1210.9 | | Amendment #1 between the Registrant and Bayer AG dated February 10, 2017. Portions of this exhibit have been omitted and separately, filed with the SEC with a request for confidential treatment. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment. |
| | | |
10.1310.10 | | |
| | | |
10.14*10.11* | | |
10.15*10.12* | | |
| | | |
10.16*10.13 | | |
| | |
| | Research Collaboration, Option and License Agreement between the Registrant and Biogen MA Inc. dated December 19, 2017.2017, filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment. |
| | | |
10.18*10.14* | | |
| | | |
10.19*10.15* | | |
| | | |
10.20*10.16* | | |
| | | |
10.2110.17 | | |
| | | |
10.22*10.18* | | |
| | | |
10.23*10.19* | | |
| | |
10.2410.20 | | |
| | | |
10.2510.21 | | |
| | | |
10.2610.22 | | Research Agreement dated August 10, 2011 between the Registrant and CHDI Foundation, Inc. Portions of this exhibit have been omitted and separately, filed with the SEC with a request for confidential treatment. - Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC with a request for confidential treatment. |
| | | |
10.2710.23 | | |
| | | |
10.2810.24 | | |
| | | |
10.2910.25 | | |
| | | |
10.3010.26 | | |
| | | |
10.3110.27 | | |
10.3210.28 | | |
| | | |
10.3310.29 | | |
| | |
10.34 | | |
| | |
| 10.30 | | |
| | |
10.35 | | |
| | |
| 10.31 | | |
| | |
10.36 | | |
| | |
10.3810.33 | | |
| | | |
10.3910.34 | | |
| | | |
10.4010.35 | | |
| | | |
10.4110.36 | | |
| | | |
10.4210.37 | | |
| | | |
10.4310.38 | | |
| | | |
10.4410.39 | | |
| | | |
10.4510.40 | | |
| | | |
10.4610.41 | | |
| | | |
10.4710.42 | | |
| | | |
10.4810.43 | | |
| | | |
10.4910.44 | | |
10.51 | | |
| | | |
10.5210.46 | | |
| | | |
10.5310.47 | | |
| | | |
10.54 | | |
| | |
10.55 | | |
| | |
10.5610.48 | | |
| | | |
10.5710.49 | | |
| | | |
10.5810.50 | | |
| | | |
10.5910.51 | | Letter Agreement between the Registrant and Biogen MA Inc. dated October 28, 2016., filed as an exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 and incorporated herein by reference. Portions of this exhibit have been omitted and separately filed with the SEC. Portions of this exhibit have been omitted and separately filedSEC with the SEC.a request for confidential treatment. |
| | | |
10.6010.52 | | |
| | | |
10.6110.53 | | |
| | | |
10.6210.54 | | |
| | | |
10.63*10.55* | | |
| | | |
14.110.56 | | |
| | | |
| 10.57 | | |
| | |
| 10.58 | | |
| | |
| 10.59 | | |
| 10.60 | | |
| | |
| 10.61 | | |
| | |
| 10.62 | | |
| | |
| 10.63 | | |
| | |
| 10.64 | | |
| | |
| 10.65 | | |
| | |
| 10.66 | | |
| | |
| 10.67 | | |
| | |
| 10.68 | | |
| | |
| 10.69 | | Consent to Collateral Addition and Amendment to Loan Documents between the Registrant, Ionis Gazelle, LLC, Wells Fargo Bank, National Association, as Trustee for the Benefit of the Registered Holders of UBS Commercial Mortgage Trust 2017-C3, Commercial Mortgage Pass-Through Certificates, Series 2017-C3, dated August 1, 2019, filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. |
| | |
| | Letter Agreement between the Registrant, Akcea Therapeutics, Inc., and Pfizer Inc., dated October 4, 2019. Portions of this exhibit have been omitted because they are both (i) not material and (ii) would be competitively harmful if publicly disclosed. |
| | |
| | List of Subsidiaries for the Registrant. |
| | | |
| | Consent of Independent Registered Public Accounting Firm. |
| | | |
| 24.1 | | Power of Attorney – Included on the signature page of this Annual Report on Form 10-K. |
| | | |
| | Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
32.1+ | | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
| 101 | | The following financial statements from the Ionis Pharmaceuticals, Inc. Annual Report on Form 10-K for the year ended December 31, 2016,2019, formatted in Extensive Business Reporting Language (XBRL): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income (loss), (iv) consolidated statements of stockholders’ equity (iv)(v) consolidated statements of cash flows, and (v)(vi) notes to consolidated financial statements (detail tagged). |
| | |
| 104 | | Cover Page Interactive Data File (formatted in iXBRL and included in exhibit 101) |
| * | Indicates management compensatory plans and arrangements as required to be filed as exhibits to this Report pursuant to Item 14(c). |
| + | This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 133, as amended, or the Securities Exchange Act of 1934, as amended. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on the 282thnd day of February, 2018.March, 2020.
| | IONIS PHARMACEUTICALS, INC. |
| | | |
| | By: | /s/ STANLEY T. CROOKEBRETT P. MONIA |
| | | Stanley T. Crooke, M.D.Brett P. Monia., Ph.D. |
| | | Chairman of the Board, President and Chief Executive Officer (Principal executive officer) |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stanley T. CrookeBrett P. Monia and Elizabeth L. Hougen, or any of them, his or her attorney-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Signatures | | Title | | Date |
| | | | | |
/s/ STANLEY T. CROOKEBRETT P. MONIA | | Chairman of the Board, President,Director and Chief Executive Officer | | February 28, 2018March 2, 2020 |
Stanley T. Crooke, M.D.,Brett P. MONIA, Ph.D. | | (Principal executive officer) | | |
| | | | | |
| /s/ ELIZABETH L. HOUGEN | | Senior Vice President, Finance and Chief Financial Officer | | February 28, 2018March 2, 2020 |
| Elizabeth L. Hougen | | (Principal financial and accounting officer) | | |
| | | | | |
| /s/ STANLEY T. CROOKE | | Executive Chairman of the Board | | March 2, 2020 |
| Stanley T. Crooke, M.D., Ph.D. | | | | |
| | | | |
| /s/ B. LYNNE PARSHALL | | Director and Senior Strategic Advisor | | February 28, 2018March 2, 2020 |
| B. Lynne Parshall, J.D. | | | | |
| | | | |
| | | | | |
| /s/ SPENCER R. BERTHELSEN | | Director | | February 28, 2018March 2, 2020 |
| Spencer R. Berthelsen, M.D. | | | | |
| | | | | |
| /s/ BREAUX CASTLEMAN | | Director | | February 28, 2018March 2, 2020 |
| Breaux Castleman | | | | |
| | | | |
| /s/ MICHAEL HAYDEN | | Director | | March 2, 2020 |
Michael Hayden, CM OBC MB ChB PhD FRCP(C) FRSC | | | | |
| /s/ JOAN E. HERMAN | | Director | | March 2, 2020 |
| Joan E. Herman | | | | |
| | | | | |
| /s/ JOSEPH KLEIN | | Director | | February 28, 2018March 2, 2020 |
| Joseph Klein, III | | | | |
| | | | | |
| /s/ JOSEPH LOSCALZO | | Director | | February 28, 2018March 2, 2020 |
| Joseph Loscalzo, M.D., Ph.D. | | | | |
| | | | | |
| /s/ FREDERICK T. MUTO | | Director | | February 28, 2018March 2, 2020 |
| Frederick T. Muto, Esq. | | | | |
| | | | |
| /s/ PETER N. REIKES | | Director | | March 2, 2020 |
| Peter N. Reikes | | | | |
| | | | | |
| /s/ JOSEPH H. WENDER | | Director | | February 28, 2018March 2, 2020 |
| Joseph H. Wender | | | | |
IONIS PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page |
| Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets at December 31, 20172019 and 20162018 | F-3F-4 |
Consolidated Statements of Operations for the years ended December 31, 2017, 20162019, 2018 and 20152017 | F-4F-5 |
Consolidated Statements of Comprehensive LossIncome (Loss) for the years ended December 31, 2017, 20162019, 2018 and 20152017 | F-5F-6 |
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 20162019, 2018 and 20152017 | F-6F-7 |
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162019, 2018 and 20152017 | F-7F-8 |
| Notes to Consolidated Financial Statements | F-9F-10 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors and Stockholders of Ionis Pharmaceuticals, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ionis Pharmaceuticals, Inc. (the Company)“Company“) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive loss,income (loss), stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2017,2019 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S.US generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework)framework), and our report dated February 28, 2018March 2, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includedinclude examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
/s/ ERNST & YOUNG LLP | | Revenue recognition for collaboration agreements |
| Description of the Matter | | For the year ended December 31, 2019, the Company’s reported research and development revenue under collaborative agreements was $770.1 million. As discussed in Note 1 to the consolidated financial statements, the Company enters into collaboration agreements that are often comprised of multiple performance obligations, including technology licenses or options to obtain technology licenses, research and development services, and manufacturing services. Auditing the Company’s revenue recognition for collaboration agreements is complex because significant judgment may be required to apply the authoritative accounting guidance at the outset of the arrangement, including the determination of performance obligations and transaction price, as well as the allocation of the transaction price among the performance obligations. For example, the allocation of the transaction price among the performance obligations involves the estimation of the standalone selling price of each performance obligation which is based upon various assumptions, which may include projected income, estimated costs and discount rate. |
| | |
| How We Addressed the Matter in Our Audit | | We evaluated and tested the design and operating effectiveness of key controls over the risks of material misstatement relating to the accounting for revenue recognition of collaboration agreements with multiple performance obligations. For example, we tested management’s controls over the allocation of the transaction price, particularly the review of the methodology and assumptions used in the valuation of standalone selling price mentioned above. Our audit procedures included, among others, evaluating the Company’s assessment of the authoritative guidance to its contracts, inspecting contracts entered into during the period, and evaluating management’s interpretation of certain contract provisions when identifying performance obligations and allocating the transaction price to the performance obligations. We also evaluated the Company’s key assumptions and judgments and tested the completeness and accuracy of the underlying data used to determine the standalone selling price of each performance obligation. In addition, we compared the significant assumptions mentioned above to current industry and market trends and performed sensitivity analyses to evaluate the changes to revenue recognized that would result from changes in the assumptions. |
| | |
| | Realizability of Deferred Tax Assets |
| Description of the Matter | | As discussed in Note 1 to the consolidated financial statements, the Company records a valuation allowance based on the assessment of the realizability of the Company’s deferred tax assets. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. For the year ended December 31, 2019, the Company had gross deferred tax assets of $514.5 million and a related valuation allowance of $197.0 million as described in Note 5. Auditing management’s assessment of the realizability of its deferred tax assets involved significant judgment because the assessment process is complex and is based upon assumptions that may be affected by future market or economic conditions. |
| | |
| How We Addressed the Matter in Our Audit | | We evaluated and tested the design and operating effectiveness of controls over the Company’s income tax process, including controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and projections of future taxable income. Among other audit procedures performed, we evaluated the assumptions used by the Company to develop the scheduling of the future reversal of existing taxable temporary differences, tax planning strategies, as well as current earnings and anticipated future earnings used in the Company’s analysis in determining the valuation allowance on a jurisdiction by jurisdiction basis. We tested the completeness and accuracy of the underlying data used in the Company’s projections. For example, we compared management’s forecasts to actual results for the current and historical periods. Furthermore, we evaluated the appropriateness of the assumptions underlying the future projected financial information, as well as management’s consideration of current operating, industry and economic trends. We also compared the projections of future taxable income with other forecasted financial information prepared by the Company. In addition, we involved our tax specialists to evaluate the application of tax law in the projections of future taxable income. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1989
San Diego, California
February 28, 2018March 2, 2020
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| ASSETS | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 129,630 | | | $ | 84,685 | | | $ | 683,287 | | | $ | 278,820 | |
| Short-term investments | | | 893,085 | | | | 580,538 | | | | 1,816,257 | | | | 1,805,252 | |
| Contracts receivable | | | 62,955 | | | | 108,043 | | | | 63,034 | | | | 12,759 | |
| Inventories | | | 9,982 | | | | 7,489 | | | | 18,180 | | | | 8,582 | |
| Other current assets | | | 72,332 | | | | 17,177 | | | | 139,839 | | | | 102,473 | |
| Total current assets | | | 1,167,984 | | | | 797,932 | | | | 2,720,597 | | | | 2,207,886 | |
| Property, plant and equipment, net | | | 121,907 | | | | 92,845 | | | | 153,651 | | | | 132,160 | |
| Patents, net | | | 22,004 | | | | 20,365 | | | | 25,674 | | | | 24,032 | |
| Long-term deferred tax assets | | | | 305,557 | | | | 290,796 | |
| Deposits and other assets | | | 10,129 | | | | 1,325 | | | | 27,633 | | | | 12,910 | |
| Total assets | | $ | 1,322,024 | | | $ | 912,467 | | | $ | 3,233,112 | | | $ | 2,667,784 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 24,886 | | | $ | 21,120 | | | $ | 16,067 | | | $ | 28,660 | |
| Accrued compensation | | | 25,151 | | | | 24,186 | | | | 37,357 | | | | 29,268 | |
| Accrued liabilities | | | 66,618 | | | | 36,013 | | | | 66,769 | | | | 47,503 | |
| Income taxes payable | | | | 32,514 | | | | 858 | |
| Current portion of long-term obligations | | | 1,621 | | | | 1,185 | | | | 2,026 | | | | 13,749 | |
| Current portion of deferred contract revenue | | | 106,465 | | | | 51,280 | | | | 118,272 | | | | 160,256 | |
| Total current liabilities | | | 224,741 | | | | 133,784 | | | | 273,005 | | | | 280,294 | |
| Long-term deferred contract revenue | | | 72,708 | | | | 91,198 | | | | 490,060 | | | | 567,359 | |
| 0.125 percent convertible senior notes | | | | 434,711 | | | | — | |
| 1 percent convertible senior notes | | | 533,111 | | | | 500,511 | | | | 275,333 | | | | 568,215 | |
| Long-term obligations, less current portion | | | 12,974 | | | | 15,050 | | | | 15,543 | | | | 4,914 | |
| Long-term financing liability for leased facility | | | — | | | | 72,359 | | |
| Long-term mortgage debt | | | 59,771 | | | | — | | | | 59,913 | | | | 59,842 | |
| Total liabilities | | | 903,305 | | | | 812,902 | | | | 1,548,565 | | | | 1,480,624 | |
| Stockholders’ equity: | | | | | | | | | | | | | | | | |
| Common stock, $0.001 par value; 300,000,000 shares authorized, 124,976,373 and 121,636,273 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | | | 125 | | | | 122 | | |
| Common stock, $0.001 par value; 300,000,000 shares authorized, 140,339,615 and 137,928,828 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | | | | 140 | | | | 138 | |
| Additional paid-in capital | | | 1,549,904 | | | | 1,311,229 | | | | 2,203,778 | | | | 2,047,250 | |
| Accumulated other comprehensive income (loss) | | | (31,759 | ) | | | (30,358 | ) | |
| Accumulated other comprehensive loss | | | | (25,290 | ) | | | (32,016 | ) |
| Accumulated deficit | | | (1,187,398 | ) | | | (1,181,428 | ) | | | (707,534 | ) | | | (967,293 | ) |
| Total Ionis stockholders' equity | | | 330,872 | | | | 99,565 | | |
| Total Ionis stockholders’ equity | | | | 1,471,094 | | | | 1,048,079 | |
| Noncontrolling interest in Akcea Therapeutics, Inc. | | | 87,847 | | | | — | | | | 213,453 | | | | 139,081 | |
| Total stockholders’ equity | | | 418,719 | | | | 99,565 | | | | 1,684,547 | | | | 1,187,160 | |
| Total liabilities and stockholders’ equity | | $ | 1,322,024 | | | $ | 912,467 | | | $ | 3,233,112 | | | $ | 2,667,784 | |
See accompanying notes.
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts)
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Revenue: | | | | | | | | | | | | | | | | | | |
| Commercial revenue: | | | �� | | | | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 112,540 | | | $ | 883 | | | $ | — | | | $ | 292,992 | | | $ | 237,930 | | | $ | 112,540 | |
| Product sales, net | | | | 42,253 | | | | 2,237 | | | | — | |
| Licensing and other royalty revenue | | | 9,519 | | | | 19,839 | | | | 2,343 | | | | 17,205 | | | | 14,755 | | | | 7,474 | |
| Total commercial revenue | | | 122,059 | | | | 20,722 | | | | 2,343 | | | | 352,450 | | | | 254,922 | | | | 120,014 | |
| Research and development revenue under collaborative agreements | | | 385,607 | | | | 325,898 | | | | 281,360 | | | | 770,149 | | | | 344,752 | | | | 394,165 | |
| Total revenue | | | 507,666 | | | | 346,620 | | | | 283,703 | | | | 1,122,599 | | | | 599,674 | | | | 514,179 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Cost of products sold | | | | 4,384 | | | | 1,820 | | | | — | |
| Research, development and patent | | | 374,644 | | | | 344,320 | | | | 322,292 | | | | 465,688 | | | | 414,604 | | | | 374,644 | |
| Selling, general and administrative | | | 108,488 | | | | 48,616 | | | | 37,173 | | | | 286,644 | | | | 244,622 | | | | 108,488 | |
| Total operating expenses | | | 483,132 | | | | 392,936 | | | | 359,465 | | | | 756,716 | | | | 661,046 | | | | 483,132 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income (loss) from operations | | | 24,534 | | | | (46,316 | ) | | | (75,762 | ) | | | 365,883 | | | | (61,372 | ) | | | 31,047 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income (expense): | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment income | | | 7,805 | | | | 5,472 | | | | 4,377 | | | | 52,205 | | | | 30,187 | | | | 8,179 | |
| Interest expense | | | (44,752 | ) | | | (38,795 | ) | | | (36,732 | ) | | | (48,768 | ) | | | (44,789 | ) | | | (44,752 | ) |
| Gain on investment in Regulus Therapeutics Inc. | | | 374 | | | | — | | | | 20,211 | | |
| Loss on extinguishment of financing liability for leased facility | | | (7,689 | ) | | | — | | | | — | | | | — | | | | — | | | | (7,689 | ) |
| Loss on early retirement of debt | | | — | | | | (3,983 | ) | | | — | | | | (21,865 | ) | | | — | | | | — | |
| Other expenses | | | (3,548 | ) | | | — | | | | — | | | | (686 | ) | | | (182 | ) | | | (3,548 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Loss before income tax benefit (expense) | | | (23,276 | ) | | | (83,622 | ) | | | (87,906 | ) | |
| Income (loss) before income tax benefit (expense) | | | | 346,769 | | | | (76,156 | ) | | | (16,763 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Income tax benefit (expense) | | | 5,980 | | | | (2,934 | ) | | | (372 | ) | | | (43,507 | ) | | | 291,141 | | | | 5,980 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | (17,296 | ) | | | (86,556 | ) | | | (88,278 | ) | |
| Net income (loss) | | | | 303,262 | | | | 214,985 | | | | (10,783 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss attributable to noncontrolling interest in Akcea Therapeutics, Inc. | | | 11,326 | | | | — | | | | — | | |
| Net (income) loss attributable to noncontrolling interest in Akcea Therapeutics, Inc. | | | | (9,116 | ) | | | 58,756 | | | | 11,129 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net loss attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | (5,970 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) | |
| Basic net income (loss) per share | | $ | 0.08 | | | $ | (0.72 | ) | | $ | (0.74 | ) | |
| Shares used in computing basic net income (loss) per share | | | 124,016 | | | | 120,933 | | | | 119,719 | | |
| Diluted net income (loss) per share | | $ | 0.08 | | | $ | (0.72 | ) | | $ | (0.74 | ) | |
| Shares used in computing diluted net income (loss) per share | | | 126,098 | | | | 120,933 | | | | 119,719 | | |
| Net income attributable to Ionis Pharmaceuticals, Inc. common stockholders | | | $ | 294,146 | | | $ | 273,741 | | | $ | 346 | |
| Basic net income per share | | | $ | 2.12 | | | $ | 2.09 | | | $ | 0.15 | |
| Shares used in computing basic net income per share | | | | 139,998 | | | | 132,320 | | | | 124,016 | |
| Diluted net income per share | | | $ | 2.08 | | | $ | 2.07 | | | $ | 0.15 | |
| Shares used in computing diluted net income per share | | | | 142,872 | | | | 134,056 | | | | 126,098 | |
See accompanying notes.
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(In thousands)
| | | Years Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | | |
| Net loss | | $ | (17,296 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) |
| Unrealized losses on investments, net of tax | | | (960 | ) | | | (17,219 | ) | | | (33,101 | ) |
| Reclassification adjustment for realized (gains) losses included in net loss | | | (374 | ) | | | 447 | | | | (20,211 | ) |
| Currency translation adjustment | | | (67 | ) | | | (21 | ) | | | — | |
| | | | | | | | | | | | | |
| Comprehensive loss | | | (18,697 | ) | | | (103,349 | ) | | | (141,590 | ) |
| Comprehensive loss attributable to noncontrolling interest in Akcea Therapeutics, Inc. | | | 11,421 | | | | — | | | | — | |
| Comprehensive loss attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | (7,276 | ) | | $ | (103,349 | ) | | $ | (141,590 | ) |
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | |
| Net income (loss) | | $ | 303,262 | | | $ | 214,985 | | | $ | (10,783 | ) |
| Unrealized gains (losses) on investments, net of tax | | | 6,633 | | | | (280 | ) | | | (960 | ) |
| Reclassification adjustment for realized gains included in net income (loss) | | | — | | | | — | | | | (374 | ) |
| Currency translation adjustment | | | 93 | | | | 23 | | | | (67 | ) |
| | | | | | | | | | | | | |
| Comprehensive income (loss) | | | 309,988 | | | | 214,728 | | | | (12,184 | ) |
| Comprehensive income (loss) attributable to noncontrolling interest in Akcea Therapeutics, Inc. | | | 9,118 | | | | (58,781 | ) | | | (11,224 | ) |
| Comprehensive income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | 300,870 | | | $ | 273,509 | | | $ | (960 | ) |
See accompanying notes.
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY
Years Ended December 31, 2017, 20162019, 2018 and 20152017
(In thousands)
| | | Common Stock | | | Additional Paid in | | | Accumulated Other Comprehensive | | | Accumulated | | | Total Ionis Stockholders' | | | Noncontrolling Interest in Akcea | | | Total Stockholders’ | | | Common Stock | | | Additional | | | Accumulated Other | | | Accumulated | | | Total Ionis Stockholders’ | | | Noncontrolling Interest in Akcea | | | Total Stockholders’ | |
| Description | | Shares | | | Amount | | | Capital | | | Income (Loss) | | | Deficit | | | Equity | | | Therapeutics, Inc. | | | Equity | | | Shares | | | Amount | | | Paid in Capital | | | Comprehensive Loss | | | Deficit | | | Equity | | | Therapeutics, Inc. | | | Equity | |
| Balance at December 31, 2014 | | | 118,443 | | | $ | 118 | | | $ | 1,224,509 | | | $ | 39,747 | | | $ | (1,006,594 | ) | | $ | 257,780 | | | $ | — | | | $ | 257,780 | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | (88,278 | ) | | | (88,278 | ) | | | — | | | | (88,278 | ) | |
| Change in unrealized gains (losses), net of tax | | | — | | | | — | | | | — | | | | (53,312 | ) | | | — | | | | (53,312 | ) | | | — | | | | (53,312 | ) | |
| Issuance of common stock in connection with employee stock plans | | | 1,908 | | | | 2 | | | | 24,888 | | | | — | | | | — | | | | 24,890 | | | | — | | | | 24,890 | | |
| Stock-based compensation expense | | | — | | | | — | | | | 59,314 | | | | — | | | | — | | | | 59,314 | | | | — | | | | 59,314 | | |
| Excess tax benefits from stock-based compensation awards | | | — | | | | — | | | | 396 | | | | — | | | | — | | | | 396 | | | | — | | | | 396 | | |
| Balance at December 31, 2015 | | | 120,351 | | | $ | 120 | | | $ | 1,309,107 | | | $ | (13,565 | ) | | $ | (1,094,872 | ) | | $ | 200,790 | | | $ | — | | | $ | 200,790 | | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | (86,556 | ) | | | (86,556 | ) | | | — | | | | (86,556 | ) | |
| Change in unrealized gains (losses), net of tax | | | — | | | | — | | | | — | | | | (16,772 | ) | | | — | | | | (16,772 | ) | | | — | | | | (16,772 | ) | |
| Foreign currency translation | | | — | | | | — | | | | — | | | | (21 | ) | | | — | | | | (21 | ) | | | — | | | | (21 | ) | |
| Issuance of common stock in connection with employee stock plans | | | 1,285 | | | | 2 | | | | 13,706 | | | | — | | | | — | | | | 13,708 | | | | — | | | | 13,708 | | |
| 2¾ percent convertible senior notes redemption, equity portion | | | — | | | | — | | | | (128,888 | ) | | | — | | | | — | | | | (128,888 | ) | | | — | | | | (128,888 | ) | |
| 1 percent convertible senior notes, equity portion, net of issuance costs | | | — | | | | — | | | | 43,335 | | | | — | | | | — | | | | 43,335 | | | | — | | | | 43,335 | | |
| Stock-based compensation expense | | | — | | | | — | | | | 72,108 | | | | — | | | | — | | | | 72,108 | | | | — | | | | 72,108 | | |
| Excess tax benefits from stock-based compensation awards | | | — | | | | — | | | | 1,861 | | | | — | | | | — | | | | 1,861 | | | | — | | | | 1,861 | | |
| Balance at December 31, 2016 | | | 121,636 | | | $ | 122 | | | $ | 1,311,229 | | | $ | (30,358 | ) | | $ | (1,181,428 | ) | | $ | 99,565 | | | $ | — | | | $ | 99,565 | | | | 121,636 | | | $ | 122 | | | $ | 1,311,229 | | | $ | (30,358 | ) | | $ | (1,241,380 | ) | | $ | 39,613 | | | $ | — | | | $ | 39,613 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | (5,970 | ) | | | (5,970 | ) | | | — | | | | (5,970 | ) | |
| Change in unrealized gains (losses), net of tax | | | — | | | | — | | | | — | | | | (1,334 | ) | | | — | | | | (1,334 | ) | | | — | | | | (1,334 | ) | |
| Net income | | | | — | | | | — | | | | — | | | | — | | | | 346 | | | | 346 | | | | — | | | | 346 | |
| Change in unrealized gains, net of tax | | | | — | | | | — | | | | — | | | | (1,334 | ) | | | — | | | | (1,334 | ) | | | — | | | | (1,334 | ) |
| Foreign currency translation | | | — | | | | — | | | | — | | | | (67 | ) | | | — | | | | (67 | ) | | | — | | | | (67 | ) | | | — | | | | — | | | | — | | | | (67 | ) | | | — | | | | (67 | ) | | | — | | | | (67 | ) |
| Novartis stock purchase | | | 1,631 | | | | 2 | | | | 71,737 | | | | — | | | | — | | | | 71,739 | | | | — | | | | 71,739 | | | | 1,631 | | | | 2 | | | | 71,737 | | | | — | | | | — | | | | 71,739 | | | | — | | | | 71,739 | |
| Issuance of common stock in connection with employee stock plans | | | 1,709 | | | | 1 | | | | 22,931 | | | | — | | | | — | | | | 22,932 | | | | — | | | | 22,932 | | | | 1,709 | | | | 1 | | | | 22,931 | | | | — | | | | — | | | | 22,932 | | | | — | | | | 22,932 | |
| Stock-based compensation expense | | | — | | | | — | | | | 85,975 | | | | — | | | | — | | | | 85,975 | | | | — | | | | 85,975 | | | | — | | | | — | | | | 85,975 | | | | — | | | | — | | | | 85,975 | | | | — | | | | 85,975 | |
| Issuance of Akcea Therapeutics, Inc. common stock in conjunction with initial public offering | | | — | | | | — | | | | 157,270 | | | | — | | | | — | | | | 157,270 | | | | — | | | | 157,270 | | | | — | | | | — | | | | 157,270 | | | | — | | | | — | | | | 157,270 | | | | — | | | | 157,270 | |
| Noncontrolling interest in Akcea Therapeutics, Inc. in conjunction with initial public offering | | | — | | | | — | | | | (90,351 | ) | | | — | | | | — | | | | (90,351 | ) | | | 90,381 | | | | 30 | | | | — | | | | — | | | | (90,351 | ) | | | — | | | | — | | | | (90,351 | ) | | | 90,381 | | | | 30 | |
| Noncontrolling interest in Akcea Therapeutics, Inc. | | | — | | | | — | | | | (8,887 | ) | | | — | | | | — | | | | (8,887 | ) | | | (2,534 | ) | | | (11,421 | ) | | | — | | | | — | | | | (5,110 | ) | | | — | | | | — | | | | (5,110 | ) | | | (6,114 | ) | | | (11,224 | ) |
| Balance at December 31, 2017 | | | 124,976 | | | $ | 125 | | | $ | 1,549,904 | | | $ | (31,759 | ) | | $ | (1,187,398 | ) | | $ | 330,872 | | | $ | 87,847 | | | $ | 418,719 | | | | 124,976 | | | $ | 125 | | | $ | 1,553,681 | | | $ | (31,759 | ) | | $ | (1,241,034 | ) | | $ | 281,013 | | | $ | 84,267 | | | $ | 365,280 | |
| Net income | | | | — | | | | — | | | | — | | | | — | | | | 273,741 | | | | 273,741 | | | | — | | | | 273,741 | |
| Change in unrealized losses, net of tax | | | | — | | | | — | | | | — | | | | (280 | ) | | | — | | | | (280 | ) | | | — | | | | (280 | ) |
| Foreign currency translation | | | | — | | | | — | | | | — | | | | 23 | | | | — | | | | 23 | | | | — | | | | 23 | |
| Biogen stock purchase | | | | 11,502 | | | | 11 | | | | 447,954 | | | | — | | | | — | | | | 447,965 | | | | — | | | | 447,965 | |
| Issuance of common stock in connection with employee stock plans | | | | 1,451 | | | | 2 | | | | 27,898 | | | | — | | | | — | | | | 27,900 | | | | — | | | | 27,900 | |
| Stock-based compensation expense | | | | — | | | | — | | | | 131,312 | | | | — | | | | — | | | | 131,312 | | | | — | | | | 131,312 | |
| Noncontrolling interest in Akcea Therapeutics, Inc. | | | | — | | | | — | | | | (113,595 | ) | | | — | | | | — | | | | (113,595 | ) | | | 54,814 | | | | (58,781 | ) |
| Balance at December 31, 2018 | | | | 137,929 | | | $ | 138 | | | $ | 2,047,250 | | | $ | (32,016 | ) | | $ | (967,293 | ) | | $ | 1,048,079 | | | $ | 139,081 | | | $ | 1,187,160 | |
| Net income | | | | — | | | | — | | | | — | | | | — | | | | 294,146 | | | | 294,146 | | | | — | | | | 294,146 | |
| Change in unrealized gains, net of tax | | | | — | | | | — | | | | — | | | | 6,633 | | | | — | | | | 6,633 | | | | — | | | | 6,633 | |
| Foreign currency translation | | | | — | | | | — | | | | — | | | | 93 | | | | — | | | | 93 | | | | — | | | | 93 | |
| Issuance of common stock in connection with employee stock plans | | | | 3,100 | | | | 3 | | | | 119,654 | | | | — | | | | — | | | | 119,657 | | | | — | | | | 119,657 | |
| 1 percent convertible senior notes retirement, equity portion, net of tax | | | | — | | | | — | | | | (77,331 | ) | | | — | | | | — | | | | (77,331 | ) | | | — | | | | (77,331 | ) |
| 0.125 percent convertible senior notes, equity portion, net of issuance costs and tax | | | | — | | | | — | | | | 81,877 | | | | — | | | | — | | | | 81,877 | | | | — | | | | 81,877 | |
| Issuance of warrants | | | | — | | | | — | | | | 56,110 | | | | — | | | | — | | | | 56,110 | | | | — | | | | 56,110 | |
| Purchase of note hedges, net of tax | | | | — | | | | — | | | | (85,860 | ) | | | — | | | | — | | | | (85,860 | ) | | | — | | | | (85,860 | ) |
| Repurchases and retirements of common stock | | | | (535 | ) | | | (1 | ) | | | — | | | | — | | | | (34,387 | ) | | | (34,388 | ) | | | — | | | | (34,388 | ) |
| Stock-based compensation expense | | | | — | | | | — | | | | 146,574 | | | | — | | | | — | | | | 146,574 | | | | — | | | | 146,574 | |
| Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options | | | | (154 | ) | | | — | | | | (19,242 | ) | | | — | | | | — | | | | (19,242 | ) | | | — | | | | (19,242 | ) |
| Noncontrolling interest in Akcea Therapeutics, Inc. | | | | — | | | | — | | | | (65,254 | ) | | | — | | | | — | | | | (65,254 | ) | | | 74,372 | | | | 9,118 | |
| Balance at December 31, 2019 | | | | 140,340 | | | $ | 140 | | | $ | 2,203,778 | | | $ | (25,290 | ) | | $ | (707,534 | ) | | $ | 1,471,094 | | | $ | 213,453 | | | $ | 1,684,547 | |
See accompanying notes.
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Operating activities: | | | | | | | | | | | | | | | | | | |
| Net loss | | $ | (17,296 | ) | | $ | (86,556 | ) | | $ | (88,278 | ) | |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | | | | | | | | | | |
| Net income (loss) | | | $ | 303,262 | | | $ | 214,985 | | | $ | (10,783 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | | | | | | | | |
| Depreciation | | | 6,708 | | | | 7,481 | | | | 6,984 | | | | 12,540 | | | | 10,706 | | | | 6,708 | |
| Amortization of right-of-use operating lease assets | | | | 1,542 | | | | — | | | | — | |
| Amortization of patents | | | 1,641 | | | | 1,552 | | | | 1,381 | | | | 1,912 | | | | 1,822 | | | | 1,641 | |
| Amortization of licenses | | | — | | | | — | | | | 1,873 | | |
| Amortization of premium on investments, net | | | 6,752 | | | | 6,813 | | | | 7,812 | | |
| Amortization of premium (discount) on investments, net | | | | (7,485 | ) | | | (1,013 | ) | | | 6,752 | |
| Amortization of debt issuance costs | | | 1,616 | | | | 1,225 | | | | 1,133 | | | | 1,942 | | | | 1,810 | | | | 1,616 | |
| Amortization of convertible senior notes discount | | | 30,920 | | | | 23,890 | | | | 22,075 | | | | 37,338 | | | | 33,363 | | | | 30,920 | |
| Amortization of long-term financing liability for leased facility | | | 3,659 | | | | 6,693 | | | | 6,665 | | | | — | | | | — | | | | 3,659 | |
| Stock-based compensation expense | | | 85,975 | | | | 72,108 | | | | 59,314 | | | | 146,574 | | | | 131,312 | | | | 85,975 | |
| Gain on investment in Regulus Therapeutics Inc. | | | (374 | ) | | | — | | | | (20,211 | ) | |
| Gain on investment in Regulus Therapeutics, Inc. | | | | — | | | | — | | | | (374 | ) |
| Loss on extinguishment of financing liability for leased facility | | | 7,689 | | | | — | | | | — | | | | — | | | | — | | | | 7,689 | |
| Loss on early retirement of debt | | | — | | | | 3,983 | | | | — | | | | 21,865 | | | | — | | | | — | |
| Non-cash losses related to patents, licensing, property, plant and equipment and strategic investments | | | 3,302 | | | | 2,297 | | | | 1,881 | | |
| Deferred income taxes (including benefit from valuation allowance release) | | | | (7,096 | ) | | | (290,516 | ) | | | — | |
| Non-cash losses related to patents, licensing, property, plant and equipment and investments | | | | 2,034 | | | | 1,012 | | | | 3,302 | |
| Changes in operating assets and liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Contracts receivable | | | 45,088 | | | | (96,687 | ) | | | (7,453 | ) | | | (47,674 | ) | | | 47,595 | | | | 45,088 | |
| Inventories | | | (2,493 | ) | | | (590 | ) | | | (609 | ) | | | (5,411 | ) | | | 1,400 | | | | (2,493 | ) |
| Other current and long-term assets | | | (58,367 | ) | | | 1,603 | | | | (4,394 | ) | | | (44,659 | ) | | | (29,348 | ) | | | (58,367 | ) |
| Long-term income tax receivable | | | (9,114 | ) | | | — | | | | — | | | | 8,418 | | | | (223 | ) | | | (9,114 | ) |
| Accounts payable | | | 1,784 | | | | (10,677 | ) | | | 9,211 | | | | (16,343 | ) | | | (655 | ) | | | 1,784 | |
| Income taxes | | | 435 | | | | 1,069 | | | | — | | | | 31,656 | | | | (710 | ) | | | 435 | |
| Accrued compensation | | | 965 | | | | 8,121 | | | | 3,763 | | | | 8,089 | | | | 4,117 | | | | 965 | |
| Accrued liabilities and deferred rent | | | 28,564 | | | | 4,720 | | | | (2,140 | ) | | | 16,499 | | | | (17,023 | ) | | | 28,564 | |
| Deferred contract revenue | | | 36,695 | | | | (59,150 | ) | | | 22,118 | | | | (119,283 | ) | | | 494,254 | | | | 30,182 | |
| Net cash provided by (used in) operating activities | | | 174,149 | | | | (112,105 | ) | | | 21,125 | | |
| Net cash provided by operating activities | | | | 345,720 | | | | 602,888 | | | | 174,149 | |
| Investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Purchases of short-term investments | | | (877,810 | ) | | | (300,912 | ) | | | (493,467 | ) | | | (1,946,726 | ) | | | (1,794,735 | ) | | | (877,810 | ) |
| Proceeds from the sale of short-term investments | | | 557,369 | | | | 364,572 | | | | 419,584 | | | | 1,951,734 | | | | 882,824 | | | | 557,369 | |
| Purchases of property, plant and equipment | | | (34,764 | ) | | | (7,107 | ) | | | (7,692 | ) | | | (30,905 | ) | | | (13,608 | ) | | | (34,764 | ) |
| Acquisition of licenses and other assets, net | | | (3,093 | ) | | | (4,421 | ) | | | (4,056 | ) | | | (5,377 | ) | | | (4,044 | ) | | | (3,093 | ) |
| Purchase of strategic investments | | | (2,500 | ) | | | — | | | | — | | | | (10,000 | ) | | | — | | | | (2,500 | ) |
| Proceeds from the sale of Regulus Therapeutics, Inc. | | | 2,507 | | | | 4,467 | | | | 25,527 | | | | — | | | | — | | | | 2,507 | |
| Proceeds from the sale of strategic investments | | | — | | | | — | | | | 52 | | |
| Net cash (used in) provided by investing activities | | | (358,291 | ) | | | 56,599 | | | | (60,052 | ) | | | (41,274 | ) | | | (929,563 | ) | | | (358,291 | ) |
| Financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Proceeds from equity, net | | | 22,931 | | | | 13,417 | | | | 24,888 | | | | 119,657 | | | | 27,900 | | | | 22,931 | |
| Proceeds from issuance of common stock in Akcea Therapeutics, Inc. from its initial public offering, net of underwriters' discount | | | 110,438 | | | | — | | | | — | | |
| Payments of tax withholdings related to vesting of employee stock awards and exercise of employee stock options | | | | (19,242 | ) | | | — | | | | — | |
| Proceeds from the issuance of 0.125 percent convertible senior notes | | | | 109,500 | | | | — | | | | — | |
| 0.125 percent convertible senior notes issuance costs | | | | (10,428 | ) | | | — | | | | — | |
| Proceeds from issuance of warrants | | | | 56,110 | | | | — | | | | — | |
| Purchase of note hedges | | | | (108,684 | ) | | | — | | | | — | |
| Repurchases and retirements of common stock | | | | (34,392 | ) | | | — | | | | — | |
| Principal payments on debt and capital lease obligations | | | | (12,500 | ) | | | — | | | | (3,599 | ) |
| Proceeds from issuance of common stock in Akcea Therapeutics, Inc. from its initial public offering, net of underwriters’ discount | | | | — | | | | — | | | | 110,438 | |
| Proceeds from building mortgage debt, net of issuance costs | | | 59,750 | | | | — | | | | — | | | | — | | | | — | | | | 59,750 | |
| Proceeds from the issuance of common stock to Biogen | | | | — | | | | 447,965 | | | | — | |
| Proceeds from the issuance of common stock to Novartis | | | 71,737 | | | | — | | | | — | | | | — | | | | — | | | | 71,737 | |
| Proceeds from borrowing on line of credit facility | | | — | | | | 4,000 | | | | 8,500 | | |
| Proceeds from the sale of Akcea Therapeutics, Inc. common stock to Novartis in a private placement | | | 50,000 | | | | — | | | | — | | | | — | | | | — | | | | 50,000 | |
| Offering costs paid | | | (2,037 | ) | | | (818 | ) | | | — | | | | — | | | | — | | | | (2,037 | ) |
| Payment to settle financing liability for leased facility | | | (80,133 | ) | | | — | | | | — | | | | — | | | | — | | | | (80,133 | ) |
| Excess tax benefits from stock-based compensation awards | | | — | | | | 1,861 | | | | 396 | | |
| Principal payments on debt and capital lease obligations | | | (3,599 | ) | | | (7,066 | ) | | | (9,058 | ) | |
| Net cash provided by financing activities | | | 229,087 | | | | 11,394 | | | | 24,726 | | | | 100,021 | | | | 475,865 | | | | 229,087 | |
| Net increase (decrease) in cash and cash equivalents | | | 44,945 | | | | (44,112 | ) | | | (14,201 | ) | |
| Net increase in cash and cash equivalents | | | | 404,467 | | | | 149,190 | | | | 44,945 | |
| Cash and cash equivalents at beginning of year | | | 84,685 | | | | 128,797 | | | | 142,998 | | | | 278,820 | | | | 129,630 | | | | 84,685 | |
| Cash and cash equivalents at end of year | | $ | 129,630 | | | $ | 84,685 | | | $ | 128,797 | | | $ | 683,287 | | | $ | 278,820 | | | $ | 129,630 | |
IONIS PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | Year Ended December 31, | |
| | | | 2019 | | | 2018 | | | 2017 | |
| Supplemental disclosures of cash flow information: | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | |
| Interest paid | | $ | 8,035 | | | $ | 7,313 | | | $ | 6,800 | | | $ | 9,870 | | | $ | 9,592 | | | $ | 8,035 | |
| Income taxes paid | | | $ | 9,041 | | | $ | — | | | $ | — | |
| Supplemental disclosures of non-cash investing and financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Right-of-use assets obtained in exchange for lease liabilities | | | $ | 14,178 | | | $ | — | | | $ | — | |
| Amounts accrued for capital and patent expenditures | | $ | 1,983 | | | $ | 3,439 | | | $ | 1,162 | | | $ | 3,126 | | | $ | 4,428 | | | $ | 1,983 | |
| 1 percent convertible senior notes principal issued related to our December 2016 debt exchange | | $ | — | | | $ | 185,450 | | | $ | — | | |
2¾ percent convertible senior notes principal extinguished related to our December 2016 debt exchange | | $ | — | | | $ | 61,099 | | | $ | — | | |
| Unpaid deferred offering costs | | $ | — | | | $ | 291 | | | $ | — | | |
| Purchases of property, plant and equipment included in long-term obligations | | | $ | — | | | $ | 3,350 | | | $ | — | |
| 0.125 percent convertible senior notes principal issued related to our December 2019 debt exchange/issuance | | | $ | 439,326 | | | $ | — | | | $ | — | |
| 1 percent convertible senior notes principal extinguished related to our December 2019 debt exchange | | | $ | 375,590 | | | $ | — | | | $ | — | |
See accompanying notes.
IONIS PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Basis of Presentation
In our consolidated financial statements we included the accounts of Ionis Pharmaceuticals, Inc. ("we"(“we”, "us"“us” or "our"“our”) and the consolidated results of our majority-owned affiliate, Akcea Therapeutics, Inc., which we formed in December 2014. In July 2017, Akcea completed an initial public offering, or IPO. Since Akcea’s IPO, and therefore beginning in July 2017, we no longer own 100 percent of Akcea. As of July 19, 2017, the closing of the IPO, we owned approximately our ownership has ranged from 68 percent to 77 percent. At December 31, 2019, our ownership was approximately 76 percent. We reflect changes in our ownership of Akcea. Akcea in our financial statements in the period the change occurs. For example, we reflected an increase in our ownership when we received 6.9 million shares of Akcea common stock as payment for the sublicense fee Akcea owed us for Pfizer’s license of AKCEA-ANGPTL3-LRx in the fourth quarter of 2019. Refer to the noncontrolling interestsection titled “Noncontrolling Interest in Akcea sectionAkcea” in this noteNote 2, Significant Accounting Policies, for further information related to our accounting for our investment in Akcea.
Organization and Business Activity
We incorporated in California on January 10, 1989. In conjunction with our IPO, we reorganized as a Delaware corporation in April 1991. We were organized principally to develop human therapeutic drugsmedicines using antisense technology. In December 2015, we changed our name from Isis Pharmaceuticals, Inc. to Ionis Pharmaceuticals, Inc.
Basic and Diluted Net Income (Loss) per Share
Basic net income per share
We compute basic net income (loss) per share by dividing the total net income (loss) attributable to our common stockholders by our weighted averageweighted-average number of common shares outstanding during the period.
The calculation of total net income (loss) attributable to our common stockholders for 2017each year considered our net income for Ionis on a stand-alone basis plus our share of Akcea’s net loss.income (loss) for the period. To calculate the portion of Akcea’s net lossincome (loss) attributable to our ownership for each year, we multiplied Akcea’s lossincome (loss) per share by the weighted average shares we owned in Akcea during the period. As a result of this calculation, our total net income available to Ionis common stockholders for the calculation of net income per share is different than net income attributable to Ionis Pharmaceuticals, Inc. common stockholders in our consolidated statements of operations for each year.
Our basic net income per share, was calculated as follows (in thousands, except per share amounts):
| Year Ended December 31, 2019 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Income Per Share | | | Ionis’ Portion of Akcea’s Net Income | |
| Common shares | | | 70,100 | | | $ | 0.49 | | | $ | 34,073 | |
| Akcea’s net income attributable to our ownership | | | | | | | | | | $ | 34,073 | |
| Ionis’ stand-alone net income | | | | | | | | | | | 262,490 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 296,563 | |
| Weighted average shares outstanding | | | | | | | | | | | 139,998 | |
| Basic net income per share | | | | | | | | | | $ | 2.12 | |
| Year Ended December 31, 2018 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 59,812 | | | $ | (2.74 | ) | | $ | (163,938 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (163,938 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 440,806 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 276,868 | |
| Weighted average shares outstanding | | | | | | | | | | | 132,320 | |
| Basic net income per share | | | | | | | | | | $ | 2.09 | |
We calculated our basic net income per share for 2017 as follows (in thousands, except per share amounts):
| Year Ended December 31, 2017 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 20,669 | | | $ | (3.08 | ) | | $ | (63,638 | ) |
| Preferred shares | | | 15,748 | | | | (1.80 | ) | | | (28,346 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (91,984 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 110,776 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 18,792 | |
| Weighted average shares outstanding | | | | | | | | | | | 124,016 | |
| Basic net income per share | | | | | | | | | | $ | 0.15 | |
Prior to Akcea’s IPO in July 2017, we owned Akcea Seriesseries A convertible preferred stock, which included a six percent cumulative dividend. Upon completion of Akcea’s IPO in July 2017, our preferred stock was converted into common stock on a 1:1 basis. The preferred stock dividend was not paid at the IPO because itthe IPO was not a liquidation event or a change in control. ForDuring 2017, Akcea used a two-class method to compute its net income (loss)loss per share because it had both common and preferred shares outstanding during the year.periods. The two-class method required Akcea to calculate its net income (loss)loss per share for each class of stock by dividing total distributable losses applicable to preferred and common stock, including the six percent cumulative dividend contractually due to Seriesseries A convertible preferred shareholders, by the weighted averageweighted-average of preferred and common shares outstanding during the requisite period. Since Akcea used the two-class method, accounting rules required us to include our portion of Akcea'sAkcea’s net income (loss)loss per share for both Akcea'sAkcea’s common and preferred shares whichthat we owned in our calculation of basic and diluted net income per share for 2017. As a result of this calculation, our total net income available to Ionis common stockholders for the calculation ofyear ended December 31, 2017.
Diluted net income per share is different than net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders in the consolidated statements of operations.
We calculated our basicdiluted net income per share for 2017 as follows (in(in thousands except per share amounts):
| Year Ended December 31, 2017 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 20,669 | | | $ | (2.82 | ) | | $ | (58,332 | ) |
| Preferred shares | | | 15,748 | | | | (1.55 | ) | | | (24,344 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (82,676 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 92,336 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 9,661 | |
| Weighted average shares outstanding | | | | | | | | | | | 124,016 | |
| Basic net income per share | | | | | | | | | | $ | 0.08 | |
| Year Ended December 31, 2019 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 296,563 | | | | 139,998 | | | $ | 2.12 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 2,090 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 766 | | | | | |
| Shares issuable related to our Employee Stock Purchase Plan | | | — | | | | 18 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 296,563 | | | | 142,872 | | | $ | 2.08 | |
| Year Ended December 31, 2018 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 276,868 | | | | 132,320 | | | $ | 2.09 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,216 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 514 | | | | | |
| Shares issuable related to our Employee Stock Purchase Plan | | | — | | | | 6 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 276,868 | | | | 134,056 | | | $ | 2.07 | |
| Year Ended December 31, 2017 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 18,792 | | | | 124,016 | | | $ | 0.15 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,619 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 459 | | | | | |
| Shares issuable related to our Employee Stock Purchase Plan | | | — | | | | 4 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 18,792 | | | | 126,098 | | | $ | 0.15 | |
For 2017, we had net income available to Ionis common stockholders. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during those periods. Diluted common equivalent shares for 2017 consisted of the following (in thousands except per share amounts):
| Year Ended December 31, 2017 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 9,661 | | | | 124,016 | | | $ | 0.08 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,619 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 459 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 4 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 9,661 | | | | 126,098 | | | $ | 0.08 | |
For 2017,each year presented, the calculation excluded the 1 percent and 2¾ percentour convertible senior notes because the effect on diluted earnings per share was anti-dilutive.
As we incurred a net loss for 2016 and 2015, we did not include dilutive common equivalent shares in the computation of diluted net loss per share because the effect would have been anti-dilutive. Common stock from the following would have had an anti-dilutive effect on net loss per share:
| | percent convertible senior notes;
|
| | 2¾ percent convertible senior notes; |
| | Unvested restricted stock units; and |
| | Employee Stock Purchase Plan, or ESPP. |
Revenue Recognition
Our Revenue Sources
We generally recognize revenue when we have satisfied all contractual obligations and are reasonably assured of collecting the resulting receivable. We are often entitled to bill our customers and receive payment from our customers in advance of recognizing the revenue. In the instances in which we have received payment from our customers in advance of recognizing revenue, we include the amounts in deferred revenue on our consolidated balance sheet.
Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue
We earn commercial revenue primarily in the form of royalty payments on net sales of SPINRAZA. We will also recognize as commercial revenue future sales milestone payments and royalties we earn under our partnerships.
Commercial Revenue: Product sales, net
We added product sales from TEGSEDI to our commercial revenue in the fourth quarter of 2018 and we added product sales from WAYLIVRA to our commercial revenue in the third quarter of 2019. In the U.S., we distribute TEGSEDI through an exclusive distribution agreement with a third-party logistics company, or 3PL, that takes title to TEGSEDI. The 3PL is our sole customer in the U.S. The 3PL then distributes TEGSEDI to a specialty pharmacy and a specialty distributor, which we collectively refer to as wholesalers, who then distribute TEGSEDI to health care providers and patients. In Europe, prior to the third quarter of 2019 we distributed TEGSEDI through a non-exclusive distribution model with a 3PL that took title to TEGSEDI. The 3PL was our sole customer in Europe. The 3PL in Europe then distributed TEGSEDI to hospitals and pharmacies. In the third quarter of 2019, we entered into a distribution arrangement with a 3PL and began to sell both TEGSEDI and WAYLIVRA directly to hospitals and pharmacies in Europe.
Research and development revenue under collaborative agreements
We often enter into collaboration agreements to license and sell our technology on an exclusive or non-exclusive basis in exchange for upfront fees, license fees, milestone payments and/or royalties. We generally recognize as revenue immediately license payments with stand-alone value when the license is delivered and we are reasonably assured of collecting the resulting receivable. We recognize royalty revenue in the period in which the counterparty sells the related product, unless we are unable to obtain information to estimate the royalty. For example, in 2017 we recorded SPINRAZA royalty revenue of $112.5 million.
Research and development revenue under collaborative agreements
Arrangements with multiple deliverables
basis. Our collaboration agreements typically contain multiple elements, or deliverables,performance obligations, including technology licenses or options to obtain technology licenses, research and development, or R&D, services, and manufacturing services.
Our collaboration agreements are detailed in certain cases manufacturing services,Note 6, Collaborative Arrangements and Licensing Agreements.Under each collaboration note we allocatediscuss our specific revenue recognition conclusions, including our significant performance obligations under each collaboration.
Steps to Recognize Revenue
We use a five-step process to determine the considerationamount of revenue we should recognize and when we should recognize it. The five step process is as follows:
Accounting rules require us to each unit of accounting based on the relative selling price of each deliverable.
Amendments to agreements
From time to time we amend our collaboration agreements. For these agreements, before we identify our deliverables and allocate consideration to each unit of accounting, we mustfirst determine if the amendment should be accounted for aswe have a separate agreement, or if the amendment and any undelivered elements for the original agreement should be accounted for as a single new arrangement.
For example, in May 2015,contract with our partner, including confirming that we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. As parthave met each of the following criteria:
| ● | We and our partner approved the contract and we are both committed to perform our obligations; |
| ● | We have identified our rights, our partner’s rights and the payment terms; |
| ● | We have concluded that the contract has commercial substance, meaning that the risk, timing, or amount of our future cash flows is expected to change as a result of the contract; and |
| ● | We believe collectability is probable. |
| 2. | Identify the performance obligations |
We next identify the distinct goods and services we are required to provide under the contract. Accounting rules refer to these as our performance obligations. We typically have only 1 performance obligation at the inception of a contract, which is to perform R&D services.
Often times we enter into a collaboration agreement Bayer paid usin which we provide our partner with an option to license a $100 million upfront payment. Atmedicine in the onset offuture. We may also provide our partner with an option to request that we provide additional goods or services in the agreement, we were responsible for completing a Phase 2 study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis and for providing an initial supply offuture, such as active pharmaceutical ingredient, or API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx, which Bayer licensed. As partWe evaluate whether these options are material rights at the inception of the 2017 amendment, Bayer paid us $75 million. We are also eligibleagreement. If we determine an option is a material right, we will consider the option a separate performance obligation. Historically, we have concluded that the options we grant to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx and IONIS-FXI-LRx.
Under the 2017 amendment, there waslicense a substantial increasemedicine in the future or to provide additional goods and services as requested by our partner are not material rights. These items are contingent upon future events that may not occur. When a partner exercises its option to license a medicine or requests additional goods or services, then we identify a new performance obligation for that item.
In some cases, we deliver a license at the start of an agreement. If we determine that our partner has full use of the license and we do not have any additional material performance obligations related to the license after delivery, then we consider the license to be a separate performance obligation.
| 3. | Determine the transaction price |
We then determine the transaction price by reviewing the amount of consideration we are eligible to receive and a significant change inearn under the deliverables we will provide to Bayer. As a result, we concluded that the amendment should be evaluated with the undelivered elements of the originalcollaboration agreement, as a single new arrangement. Therefore, we evaluated our original and 2017 amended agreements with Bayer together to determine our deliverables. We concluded that the 2017 amendment did not impact the items we already delivered to Bayer.
Identifying deliverables and units of accounting
We evaluate the deliverables inincluding any variable consideration. Under our collaboration agreements, consideration typically includes fixed consideration in the form of an upfront payment and variable consideration in the form of potential milestone payments, license fees and royalties. At the start of an agreement, our transaction price usually consists of only the upfront payment. We do not typically include any payments we may receive in the future in our initial transaction price because the payments are not probable and are contingent on certain future events. We reassess the total transaction price at each reporting period to determine whether they meetif we should include additional payments in the criteriatransaction price.
Milestone payments are our most common type of variable consideration. We recognize milestone payments using the most likely amount method because we will either receive the milestone payment or we will not, which makes the potential milestone payment a binary event. The most likely amount method requires us to be accounted for as separate unitsdetermine the likelihood of accountingearning the milestone payment. We include a milestone payment in the transaction price once it is probable we will achieve the milestone event. Most often, we do not consider our milestone payments probable until we or whether they should be combined with other deliverablesour partner achieve the milestone event because the majority of our milestone payments are contingent upon events that are not within our control and accounted for as a single unit of accounting. When the delivered items in an arrangement have "stand-alone value" to our customer, we account for the deliverables as separate units of accounting. Delivered items have stand-alone value if they are sold separately by any vendor or the customer could resell the delivered itemsusually based on a stand-alone basis.scientific progress. For example, our 2017 amended agreement with Bayer has multiple elements.in the fourth quarter of 2019, we earned a $10 million milestone payment from AstraZeneca when AstraZeneca initiated a Phase 1 trial for ION839. We evaluateddid not consider the deliverables in this arrangement when we entered intomilestone payments probable until AstraZeneca achieved the 2017 amended agreement and determined that certainmilestone event because the initiation of the deliverablesPhase 1 trial was a contingent event that was not within our control. We recognized the milestone payments in full in the period the milestone event was achieved because we did not have stand-alone value. Below is a list ofany remaining performance obligations related to the three units of accounting under our 2017 amended agreement:milestone payment.
| ●4. | The exclusive license we granted to Bayer to develop and commercialize IONIS-FXI-LRx forAllocate the treatment of thrombosis;
|
| ● | The development services we agreed to perform for IONIS-FXI-LRx and IONIS-FXIRx; and
|
| ● | The remaining undelivered IONIS-FXIRx API that was part of the original agreement.
transaction price |
We determined thatNext, we allocate the transaction price to each of these three units of accountingour performance obligations. When we have stand-alone value. The license we granted to Bayer has stand-alone value because it gives Bayer the exclusive right to develop IONIS-FXI-LRx or to sublicense its rights. The development services and the remaining undelivered supply of API each have stand-alone value because Bayer or another third party could provide these items without our assistance.
Measurement and allocation of arrangement consideration
Our collaborations may provide for various types of payments to us including upfront payments, funding of research and development, milestone payments, licensing fees and royalties on product sales. We initially allocate the amounttransaction price to more than one performance obligation, we make estimates of consideration that is fixed and determinable at the time the agreement is entered into and exclude contingent consideration. We allocate the consideration to each unit of accounting based on the relative stand-alone selling price of each deliverable. We use the following hierarchy of values to estimate the selling price of each deliverable: (i) vendor-specific objective evidence of fair value; (ii) third-party evidence of selling price; and (iii) best estimate of selling price,performance obligation because we do not typically sell our goods or BESP. BESP reflects our best estimate of what the selling price would be if we regularly sold the deliverableservices on a stand-alone basis. We recognizethen allocate the revenue allocatedtransaction price to each unit of accounting as we deliver the related goods or services. If we determine that we should treat certain deliverables as a single unit of accounting, then we recognize the revenue ratably over our estimated period of performance.
We determined that the allocable arrangement consideration for the Bayer 2017 amended agreement was $76.3 million, comprised of the $75 million we received as part of the amendment and the remaining amount of the $100 million upfront payment we had not yet recognized into revenue, related to the undelivered API. We allocated the considerationperformance obligation based on the relative BESP of each unit of accounting. stand-alone selling price.
We engagedmay engage a third party, independent valuation specialist to assist us with determining BESP.a stand-alone selling price for collaborations in which we deliver a license at the start of an agreement. We estimatedestimate the stand-alone selling price of the license granted for IONIS-FXI-LRx bythese licenses using valuation methodologies, such as the relief from royalty method. Under this method, we estimatedestimate the amount of income, net of taxes, for IONIS-FXI-LRx.the license. We then discounteddiscount the projected income to present value. The significant inputs we useduse to determine the projected income of thea license included:could include:
| ● | Estimated future product sales; |
| ● | Estimated royalties on future product sales; |
| ● | Contractual milestone payments; |
| ● | Expenses we expect to incur; |
| ● | An appropriateA discount rate. |
We estimatedtypically estimate the selling price of the developmentR&D services by using our internal estimates of the cost to perform the specific services and estimates of expected cash outflows to third parties for services and supplies over the expected period that we will perform the development services. The significant inputs we useduse to determine the selling price of the developmentour R&D services included:include:
| ● | The number of internal hours we estimate we will spend performing these services; |
| ● | The estimated cost of work we will perform; |
| ● | The estimated cost of work that we will contract with third parties to perform; and |
| ● | The estimated cost of API we will use. |
For purposes of determining BESPthe stand-alone selling price of the R&D services we will perform and the API we will deliver, in our 2017 amended Bayer transaction, accounting guidance requiredrequires us to include a markup for a reasonable profit margin.
Based on
We do not reallocate the unitstransaction price after the start of accounting under the 2017 amendedan agreement we allocated the $76.3 million of allocable consideration as follows:to reflect subsequent changes in stand-alone selling prices.
| ●5. | $64.9 million to the IONIS-FXI-LRx exclusive license;
Recognize revenue |
| ● | $11.0 million for development services for IONIS-FXI-LRx and IONIS-FXIRx; and
|
| ● | $0.4 million for the remaining delivery of IONIS-FXIRx API.
|
Assuming a constant selling price for the other elements in the arrangement, if there was an assumed 10 percent increase or decrease in the estimated selling price of the IONIS-FXI-LRx license, we determined that the revenue we would have allocated to the IONIS-FXI-LRx license would change by approximately one percent, or $0.7 million, from the amount we recorded.
Timing of revenue recognition
We recognize revenue as we deliver each item under the arrangement and the related revenue is realizable and earned. For example, we recognized revenue for the exclusive license we granted Bayer for IONIS-FXI-LRxin the first quarterone of 2017 because that was when we delivered the license.two ways, over time or at a point in time. We also recognize revenue over time aswhen we are executing on our performance obligation over time and our partner receives benefit over time. For example, we recognize revenue over time when we provide R&D services. Our collaborative agreements typically includeWe recognize revenue at a research and/point in time when our partner receives full use of an item at a specific point in time. For example, we recognize revenue at a point in time when we deliver a license or development project plan outliningAPI to a partner.
For R&D services that we recognize over time, we measure our progress using an input method. The input methods we use are based on the effort we expend or costs we incur toward the satisfaction of our performance obligation. We estimate the amount of effort we expend, including the time we estimate it will take us to complete the activities, or costs we incur in a given period, relative to the agreementestimated total effort or costs to satisfy the performance obligation. This results in a percentage that we multiply by the transaction price to determine the amount of revenue we recognize each period. This approach requires each partyus to perform during the collaboration. We estimate our period of performance at the inception of the agreement when the agreements we enter into do not clearly define such information. We then recognize revenue from development services ratably over such period. In certain instances, the period of performance may change as the development plans for our drugs progress.make numerous estimates and use significant judgement. If our estimates and judgments or judgements change over the course of ourthe collaboration, agreements, itthey may affect the timing and amount of revenue that we recognize in the current and future periods. For example, in the third quarter of 2019, we updated our estimate of the total effort we expected to expend to satisfy our performance obligation under our 2013 Strategic Neurology collaboration with Biogen. As of September 30, 2019, we had completed a significant portion of the research and development services. We expect to complete the remainder of our services in 2020. As a result of our change in estimate, in the third quarter of 2019, we recorded a cumulative catch up adjustment of $16.5 million to decrease revenue. Refer to Note 7, Collaborative Arrangements and Licensing Agreements, for further discussion of the cumulative catch up adjustment we made.
The following are examples of when we typically recognize revenue based on the types of payments we receive.
Commercial Revenue: SPINRAZA royalties and Licensing and other royalty revenue
We recognize any changesroyalty revenue, including royalties from SPINRAZA sales, in the period in which the counterparty sells the related product and recognizes the related revenue, which in certain cases may require us to estimate our royalty revenue.
Commercial Revenue: Product sales, net
We recognize product sales in the period when our customer obtains control of our products, which occurs at a point in time upon transfer of title to the customer. We classify payments to customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our consolidated statements of operations. Otherwise, payments to customers or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. We exclude from revenues taxes collected from customers relating to product sales and remitted to governmental authorities.
Reserves for Product sales
We record product sales at our net sales price, or transaction price. We include in our transaction price estimated reserves for discounts, returns, chargebacks, rebates, co-pay assistance and other allowances that we offer within contracts between us and our customers, wholesalers, health care providers and other indirect customers. We estimate our reserves using the amounts we have earned or what we can claim on the associated sales. We classify our reserves as a reduction of accounts receivable when we are not required to make a payment or as a current liability when we are required to make a payment. In certain cases, our estimates oninclude a prospective basis.range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, our reserves reflect our best estimates under the terms of our respective contracts. When calculating our reserves and related product sales, we only recognize amounts to the extent that we consider it probable that we would not have to reverse in a future period a significant amount of the cumulative sales we previously recognized. The actual amounts we receive may ultimately differ from our reserve estimates. If actual amounts in the future vary from our estimates, we will adjust these estimates, which would affect our net product sales in the respective period.
The following are the periodscomponents of variable consideration related to product sales:
Chargebacks: In the U.S., we estimate obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers at prices lower than the list prices charged to our U.S. customer. Our U.S. customer charges us for the difference between what it pays for the product and the selling price to the qualified healthcare providers. We also estimate the amount of chargebacks related to our estimated product remaining in the distribution channel at the end of the reporting period that we expect our customer to sell to healthcare providers in future periods. We record these reserves as an accrued liability on our consolidated balance sheet for the chargebacks related to product sales to our U.S. customer during the reporting period.
Government rebates: We are subject to discount obligations under government programs, including Medicaid and Medicare programs in the U.S. and we record reserves for government rebates based on statutory discount rates and estimated utilization. We estimate Medicaid and Medicare rebates based on a range of possible outcomes that are probability-weighted for the estimated payer mix. We record these reserves as an accrued liability on our consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.
Managed care rebates: We are subject to rebates in connection with a value-based agreement with one of our commercial payer’s. We record these rebates as an accrual on our consolidated balance sheet in the same period we recognize the related revenue. We estimate our managed care rebates based on our estimated payer mix and the applicable contractual rebate rate.
Trade discounts: We provide customary invoice discounts on product sales to our U.S. customer for prompt payment. We record this discount as a reduction of product sales in the period in which we recognize the related product revenue.
Distribution services: We receive and pay for various distribution services from our U.S. and EU customers and wholesalers in the U.S.. We classify the costs for services we receive that are either not distinct from the sale of the product or for which we cannot reasonably estimate the fair value as a reduction of product sales. To the extent that the services we receive are distinct from the sale of the product, we classify the costs for such services as selling, general and administration, or SG&A, expenses.
Product returns: Our U.S. customer has return rights and the wholesalers have limited return rights primarily related to the product’s expiration date. We estimate the amount of product sales that our customer may return. We record our return estimate as an accrued refund liability on our consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale. Based on our distribution model for product sales, contractual inventory limits with our customer and wholesalers and the price of the product, we have had minimal returns to date and we believe we will continue to have minimal returns. Our EU customers only take title to the product after they receive an order from a hospital or pharmacy and therefore they do not maintain excess inventory levels of our products. Accordingly, we have limited return risk in the EU and we do not estimate returns in the EU.
Other incentives: In the U.S., we estimate reserves for other incentives including co-payment assistance we provide to patients with commercial insurance who have coverage and reside in states that allow co-payment assistance. We record a reserve for the amount we estimate we will pay for co-payment assistance. We base our reserve on the number of estimated claims and our estimate of the cost per claim related to product sales that we have recognized as revenue. We record our other incentive reserve estimates as an accrued liability on our consolidated balance sheet with a corresponding offset reducing our product sales in the same period we recognize the related sale.
Research and development revenue under collaboration agreements:
Upfront payments
When we enter into a collaboration agreement with an upfront payment, we typically record the entire upfront payment as deferred revenue if our only performance obligation is for R&D services we will provide in the future. We amortize the upfront payment into revenue as we perform the R&D services. For example, under our collaboration agreement with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases, we received a $75 million upfront payment in the fourth quarter of 2018. We allocated the upfront payment to our single performance obligation, R&D services. We are amortizing the $75 million upfront payment using an input method over the estimated period of time we are providing R&D services.
Milestone payments
We are required to include additional consideration in the transaction price when it is probable. We typically include milestone payments for R&D services in the transaction price when they are achieved. We include these milestone payments when they are achieved because there is considerable uncertainty in the research and development processes that trigger these payments. Similarly, we include approval milestone payments in the transaction price once the medicine is approved by the applicable regulatory agency. We will recognize sales-based milestone payments in the period in which we achieve the milestone under the sales-based royalty exception allowed under accounting rules.
We recognize milestone payments that relate to an ongoing performance obligation over our period of performance. For example, in the fourth quarter of 2019, we achieved 2 $7.5 million milestone payments from Biogen when we advanced 2 new targets for undisclosed neurological diseases under our 2018 strategic neurology collaboration. We added these payments to the transaction price and allocated it to our R&D services performance obligation. We are recognizing revenue related to these milestone payments over our estimated period of performance.
Conversely, we recognize in full those milestone payments that we earn based on our partners’ activities when our partner achieves the milestone event and we do not have a performance obligation. For example, in the fourth quarter of 2019, we recognized a $10 million milestone payment when Biogen advanced the development candidate for each of our units of accountingan undisclosed target under our 2017 amended Bayer agreement:2012 neurology collaboration agreement. We concluded that the milestone payment was not related to our R&D services performance obligation. Therefore, we recognized the milestone payment in full in the fourth quarter of 2019.
License fees
We generally recognize as revenue the total amount we determine to be the relative stand-alone selling price of a license when we deliver the license to our partner. This is because our partner has full use of the license and we do not have any additional performance obligations related to the license after delivery. For example, in the fourth quarter of 2019, we earned a $45 million license fee when Biogen licensed IONIS-MAPTRx from us. We also recognized $246 million of license fee revenue related to Akcea’s license of AKCEA-ANGPTL3-LRx to Pfizer in the fourth quarter of 2019.
Sublicense fees
We recognize sublicense fee revenue in the period in which a party, who has already licensed our technology, further licenses the technology to another party because we do not have any performance obligations related to the sublicense. For example, in the second quarter of 2019, we earned a $20 million sublicense fee when Alnylam Pharmaceuticals sublicensed our technology to Regeneron Pharmaceuticals.
Amendments to Agreements
From time to time we amend our collaboration agreements. When this occurs, we are required to assess the following items to determine the accounting for the amendment:
| ●1) | We recognizedIf the portion ofadditional goods and/or services are distinct from the consideration attributed to the IONIS-FXI-LRx licenseother performance obligations in the first quarter of 2017 because we delivered the licenseoriginal agreement; and earned the revenue;
|
| ●2) | WeIf the goods and/or services are recognizing the amount attributed to the development services for IONIS-FXI-LRx and IONIS-FXIRx over the period of time we are performing the services; and
at a stand-alone selling price. |
| ● | We are recognizing the amount attributed to the remaining API supply as we deliver it to Bayer. |
If we conclude the goods and/or services in the amendment are distinct from the performance obligations in the original agreement and at a stand-alone selling price, we account for the amendment as a separate agreement. If we conclude the goods and/or services are not distinct and at their stand-alone selling price, we then assess whether the remaining goods or services are distinct from those already provided. If the goods and/or services are distinct from what we have already provided, then we allocate the remaining transaction price from the original agreement and the additional transaction price from the amendment to the remaining goods and/or services. If the goods and/or services are not distinct from what we have already provided, we update the transaction price for our single performance obligation and recognize any change in our estimated revenue as a cumulative adjustment.
For example, in May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. As part of the agreement, Bayer paid us a $100 million upfront payment. At the onset of the agreement, we were responsible for completing a Phase 2 study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis and for providing an initial supply of API. In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx, which Bayer licensed. As part of the 2017 amendment, Bayer paid us $75 million. We are also eligible to receive milestone payments and tiered royalties on gross margins of IONIS-FXIRx and IONIS-FXI-LRx. Under the 2017 amendment, we concluded we had a new agreement with 3 performance obligations. These performance obligations were to deliver the license of IONIS-FXI-LRx, to provide R&D services and to deliver API. We allocated the $75 million transaction price to these performance obligations. Refer to Note 7, Collaborative Arrangements and Licensing Agreements, for further discussion of our accounting treatment for our Bayer collaboration.
Multiple agreements
From time to time, we may enter into separate agreements at or near the same time with the same partner. We evaluate such agreements to determine whether theywe should be accountedaccount for them individually as distinct arrangements or whether the separate agreements are, in substance, a single multiple element arrangement.should be combined and accounted for together. We evaluate whether the negotiations are conducted jointly as part of a single negotiation, whetherfollowing to determine the deliverables are interrelated or interdependent, whether fees in one arrangement are tied to performance in another arrangement, and whether elements in one arrangement are essential to another arrangement. accounting for the agreements:
| ● | Whether the agreements were negotiated together with a single objective; |
| ● | Whether the amount of consideration in one contract depends on the price or performance of the other agreement; or |
| ● | Whether the goods and/or services promised under the agreements are a single performance obligation. |
Our evaluation involves significant judgment to determine whether a group of agreements might be so closely related that they are, in effect, part ofaccounting guidance requires us to account for them as a singlecombined arrangement.
For example, in the firstsecond quarter of 2017,2018, we and Akcea entered into two2 separate agreements with NovartisBiogen at the same time: a new strategic neurology collaboration agreement and a stock purchase agreement, or SPA.
Akcea entered into a collaboration agreement with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Under the collaboration agreement, Akcea received a $75 million upfront payment. For each drug, Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with the Food and Drug Administration, or FDA, and delivering API. Under the collaboration agreement, Novartis has an exclusive option to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. If Novartis exercises an option for one of these drugs, Novartis will pay Akcea a $150 million license fee and will assume all further global development, regulatory and commercialization activities and costs for the licensed drug. Akcea is also eligible to receive a development milestone payment, milestone payments if Novartis achieves pre-specified regulatory milestones, commercial milestones and tiered royalties on net sales from each drug under the collaboration.
Under the SPA, Novartis purchased 1.6 million shares of Ionis’ common stock for $100 million in the first quarter of 2017 and paid a premium over the weighted average trading price at the time of purchase. Additionally, the SPA required Novartis to purchase $50 million of Akcea’s common stock in a concurrent private placement with Akcea’s IPO in July 2017.
We evaluated the NovartisBiogen agreements to determine whether we should treat the agreements separately or as a single arrangement.combine them. We considered that the agreements were negotiated concurrently and in contemplation of one another. Additionally, the same individuals were involved in the negotiations of both agreements. Based on these facts and circumstances, we concluded that we should treat both agreements as a single arrangement and evaluate the provisions of the agreements on a combined basis. Refer to Note 6, Collaborative Arrangements
Contracts Receivable
Our contracts receivable balance represents the amounts we have billed our partners or customers and Licensing Agreements for further discussion of the accounting treatment for the Novartis collaboration.
Milestone payments
Our collaborations often include contractual milestones, which typically relate to the achievement of pre-specified development, regulatory and/ or commercialization events. These three categories of milestone events reflect the three stages of the life-cycle of our drugs, which we describe in more detail in the following paragraphs.
Prior to the first stage in the life-cycle of our drugs, we perform a significant amount of work using our proprietary antisense technology to design chemical compounds that interact with specific genes that are good targetsdue to us unconditionally for drug discovery. From these research efforts,goods we hope to identify a development candidate. The designation of a development candidate is the start of the development stage, which is the first stage in the life-cycle of our drugs. A development candidate is a chemical compound that has demonstrated the necessary safety and efficacy in preclinical animal studies to warrant further study in humans.
During the first step of the development stage,have delivered or services we orhave performed. When we bill our partners study our drugs in Investigational New Drug, or IND,-enabling studies, which are animal studies intended to support an IND application and/or the foreign equivalent. An approved IND allows us or our partners to study our development candidate in humans. If the regulatory agency approves the IND, we or our partners initiate a Phase 1 clinical trial in which we typically enroll a small number of healthy volunteers to ensure the development candidate is safe for use in patients. If we or our partners determine that a development candidate is safecustomers with payment terms based on the Phase 1 data,passage of time, we consider the contract receivable to be unconditional. We typically receive payment within one quarter of billing our partner or customer.
Unbilled SPINRAZA Royalties
Our unbilled SPINRAZA royalties represent our partners initiate Phase 2 studiesright to receive consideration from Biogen in advance of when we are eligible to bill Biogen for SPINRAZA royalties. We include these unbilled amounts in other current assets on our consolidated balance sheet.
Deferred Revenue
We are often entitled to bill our customers and receive payment from our customers in advance of our obligation to provide services or transfer goods to our partners. In these instances, we include the amounts in deferred revenue on our consolidated balance sheet. During the years ended December 31, 2019 and 2018, we recognized $159.5 million and $105.3 million of revenue from amounts that are generally larger studieswere in patientsour beginning deferred revenue balance for each respective period. For further discussion, refer to our revenue recognition policy above.
Cost of Products Sold
Our cost of products sold includes manufacturing costs, transportation and freight costs and indirect overhead costs associated with the primary intentmanufacturing and distribution of determining the preliminary efficacyour products. We also may include certain period costs related to manufacturing services and safetyinventory adjustments in cost of products sold. Prior to obtaining regulatory approval of TEGSEDI in July 2018 and WAYLIVRA in May 2019, we expensed as research and development expenses a significant portion of the development candidate.
The final step incosts we incurred to produce the development stage is Phase 3 studiesinitial commercial launch supply for each medicine. We previously expensed $0.7 million and $0.1 million of costs to gather the necessary safety and efficacy data to request marketing authorization from the FDA and/or foreign equivalents. Phase 3 studies typically involve larger numbers of patients and can take up to several years to complete.
If the data gathered during the Phase 3 trials demonstrates acceptable safety and efficacy results, we orproduce our partner will submit an application to the FDA and/or its foreign equivalents for marketing authorization. This stage of the drug’s life-cycle is the regulatory stage.
If the FDA or a foreign equivalent grants marketing authorization for a drug, it moves into the commercialization stage. During this stage we or our partner will market and sell the drug to patients. Although our partner may ultimately be responsible for marketing and selling a partnered drug, our efforts to discover and develop a drug that is safe, effective and reliable contributes significantly to our partner’s ability to successfully sell the drug. The FDA and its foreign equivalents have the authority to impose significant restrictions on an approved drug through the product label and on advertising, promotional and distribution activities. Therefore, our efforts designing and executing the necessary animal and human studies are critical to obtaining claims in the product label from the regulatory agencies that would allow us or our partner to successfully commercialize our drug. Further, the patent protection afforded our drugs as a result of our initial patent applications and related prosecution activities in the United States and foreign jurisdictions are critical to our partner’s ability to sell our drugs without competition from generic drugs. The potential sales volume of an approved drug is dependent on several factors including the size of the patient population, market penetration of the drug, and the price charged for the drug.
Generally, the milestone events contained in our partnership agreements coincide with the progression of our drugs from development, to marketing authorization and then to commercialization. The process of successfully discovering a new development candidate, having it approved and ultimately selling it for a profit is highly uncertain. As such, the milestone payments we may earn from our partners involve a significant degree of risk to achieve. Therefore, as a drug progresses through the stages of its life-cycle, the value of the drug generally increases.
Development milestones in our partnerships may include the following types of events:
| ● | Designation of a development candidate. Following the designation of a development candidate, IND-enabling animal studies for a new development candidate generally take 12 to 18 months to complete. |
| ● | Initiation of a Phase 1 clinical trial. Generally, Phase 1 clinical trials take one to two years to complete. |
| ● | Initiation or completion of a Phase 2 clinical trial. Generally, Phase 2 clinical trials take one to three years to complete. |
| ● | Initiation or completion of a Phase 3 clinical trial. Generally, Phase 3 clinical trials take two to four years to complete. |
Regulatory milestones in our partnerships may include the following types of events:
| ● | Filing of regulatory applications for marketing authorization such as a New Drug Application, or NDA, in the United States or a Marketing Authorization Application, or MAA, in Europe. Generally, it takes six to twelve months to prepare and submit regulatory filings. |
| ● | Obtaining marketing authorization in a major market, such as the United States, Europe or Japan. Generally it takes one to two years after an application is submitted to obtain authorization from the applicable regulatory agency. |
Commercialization milestones in our partnerships may include the following types of events:
| ● | First commercial sale in a particular market, such as in the United States or Europe. |
| ● | Product sales in excess of a pre-specified threshold, such as annual sales exceeding $1 billion. The amount of time to achieve this type of milestone depends on several factors including but not limited to the dollar amount of the threshold, the pricing of the product and the pace at which customers begin using the product. |
We assess whether a substantive milestone exists at the inception of our agreements. When a substantive milestone is achieved, we recognize revenueproducts related to the milestone payment immediately. For our licensing and collaboration agreements in which we are involved in the discovery and/or development of the related drug or provide the partner with access to new technologies we discover, we have determined that the majority of future development, regulatory and commercialization milestones are substantive. For example, we consider most of the milestones associated with our strategic alliance with Biogen substantive because we are using our antisense drug discovery platform to discover and develop new drugs against targets for neurological diseases. In evaluating if a milestone is substantive we consider whether:
| ● | Substantive uncertainty exists as to the achievement of the milestone event at the inception of the arrangement; |
| ● | The achievement of the milestone involves substantive effort and can only be achieved based in whole or in part on our performance or the occurrence of a specific outcome resulting from our performance; |
| ● | The amount of the milestone payment appears reasonable either in relation to the effort expended or to the enhancement of the value of the delivered items; |
| ● | There is no future performance required to earn the milestone; and |
| ● | The consideration is reasonable relative to all deliverables and payment terms in the arrangement. |
If any of these conditions are not met, we do not consider the milestone to be substantive and we defer recognition of the milestone payment and recognize it asproduct sales revenue over our estimated period of performance, if any. Further information about our collaborative arrangements can be found in Note 6, Collaborative Arrangements and Licensing Agreements.
Option to license
In several of our collaboration agreements, we provide our partner with an option to obtain a license to one or more of our drugs. When we have a multiple element arrangement that includes an option to obtain a license, we evaluate if the option is a deliverable at the inception of the arrangement. We do not consider the option to be a deliverable if we conclude that it is substantive and not priced at a significant and incremental discount. We consider an option substantive if, at the inception of the arrangement, we are at risk as to whether our collaboration partner will choose to exercise its option to obtain the license. In those circumstances, we do not include the associated license fee in the allocable consideration at the inception of the agreement. Rather, we account for the license fee when our partner exercises its option. For example, during 2017, we earned license fee revenue when three of our partners, Bayer, Janssen and Roche, exercised their options to license three of our drugs, which under the respective agreements we concluded to be substantive options at inception. As a result, in 2017 we recognized the related revenue immediately in research2019 and development revenue under collaborative agreements on our statement of operations as these amounts relate to drugs in development under research and development collaboration arrangements.2018, respectively.
Research, Development and Patent Expenses
Our research and development expenses include wages, benefits, facilities, supplies, external services, clinical trial and manufacturing costs and other expenses that are directly related to our research and development operations. We expense research and development costs as we incur them. When we make payments for research and development services prior to the services being rendered, we record those amounts as prepaid assets on our consolidated balance sheet and we expense them as the services are provided. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, research and development expenses were $372.5$461.5 million, $340.4$411.9 million and $319.5$372.5 million, respectively. A portion of the costs included in research and development expenses are costs associated with our partner agreements. For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, research and development costs of approximately $59.5$83.2 million, $187.1$58.7 million and $161.7$59.5 million, respectively, were related to our partner agreements.
We capitalize costs consisting principally of outside legal costs and filing fees related to obtaining patents. We amortize patent costs over the useful life of the patent, beginning with the date the United StatesU.S. Patent and Trademark Office, or foreign equivalent, issues the patent. The weighted average remaining amortizable life of our issued patents was 10.110.3 years at December 31, 2017.2019.
The cost of our patents capitalized on our consolidated balance sheet at December 31, 20172019 and 20162018 was $30.8$34.0 million and $28.8$32.7 million, respectively. Accumulated amortization related to patents was $8.8$8.3 million and $8.4$8.7 million at December 31, 20172019 and 2016,2018, respectively.
Based on our existing patents, we estimate amortization expense related to patents in each of the next five years to be the following:
| Years Ending December 31, | | Amortization (in millions) | | |
| 2018 | | $ | 1.6 | | |
| 2019 | | $ | 1.4 | | |
| Year Ending December 31, | | | Amortization (in millions) | |
| 2020 | | $ | 1.3 | | | $ | 1.8 | |
| 2021 | | $ | 1.3 | | | $ | 1.8 | |
| 2022 | | $ | 1.2 | | | $ | 1.7 | |
| 2023 | | | $ | 1.6 | |
| 2024 | | | $ | 1.4 | |
We review our capitalized patent costs regularly to ensure that they include costs for patents and patent applications that have future value. When we identify patents and patent applications that we are not actively pursuing, we write off any associated costs. In 2017, 20162019, 2018 and 2015,2017, patent expenses were $2.1$4.2 million, $3.9$2.6 million and $2.8$2.1 million, respectively, and included non-cash charges related to the write-down of our patent costs to their estimated net realizable values of $0.4$2.2 million, $2.3$0.8 million and $1.1$0.4 million, respectively.
Accrued Liabilities
Our accrued liabilities consisted of the following (in thousands):
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Clinical expenses | | $ | 16,347 | | | $ | 23,428 | | | $ | 24,461 | | | $ | 22,125 | |
| In-licensing expenses | | | 33,790 | | | | 6,430 | | | | 10,289 | | | | 12,298 | |
| Other miscellaneous expenses | | | 16,481 | | | | 6,155 | | | | 32,019 | | | | 13,080 | |
| Total accrued liabilities | | $ | 66,618 | | | $ | 36,013 | | | $ | 66,769 | | | $ | 47,503 | |
Noncontrolling Interest in Akcea Therapeutics, Inc.
In July 2017, Akcea completed an IPO. Akcea raised $193.8 million of aggregate gross proceeds from the IPO, including $50.0 million from a private placement by Novartis. Akcea’s net proceeds were $182.4 million. As part of Akcea’s IPO, we invested $25.0 million. In conjunction with the IPO, the shares of Akcea’s series A convertible preferred stock we owned converted into shares of Akcea’s common stock. Additionally, the amount outstanding under Akcea’s line of credit with us converted into shares of Akcea’s common stock.
Prior to Akcea’s IPO in July 2017, we owned 100 percent of Akcea. Since Akcea’s stock and consolidated 100IPO, our ownership has ranged from 68 percent of Akcea’s results to 77 percent. At December 31, 2019, our ownership was approximately 76 percent. We reflect changes in our ownership percentage in our financial statements. In connection with Akcea’s IPO,statements as an adjustment to noncontrolling interest in the period the change occurs. During 2019, we received the following additional shares of Akcea’sAkcea common stock were sold to third parties. We owned approximately 68 percent of Akcea after the IPO and at December 31, 2017. stock:
| ● | 2.8 million shares in the first quarter of 2019 as payment for the sublicense fee Akcea owed us for Novartis’s license of AKCEA-APO(a)-LRx, and; |
| ● | 6.9 million shares in the fourth quarter of 2019 as payment for the sublicense fee Akcea owed us for Pfizer’s license of AKCEA-ANGPTL3-LRx. |
The shares third parties own represent an interest in Akcea’s equity that is not controlled by us.we do control. However, as we continue to maintain overall control of Akcea through our voting interest, we reflect the assets, liabilities and results of operations of Akcea in our consolidated financial statements. TheWe reflect the noncontrolling interest attributable to other owners of Akcea’s common stock is reflected in a separate line on the statement of operations and a separate line within stockholders’ equity in our consolidated financial statements.balance sheet. In addition, we recordedrecord a noncontrolling interest adjustment to account for the stock options that Akcea grants, for its common stock, which if exercised, will dilute our ownership in Akcea. This adjustment was reflected asis a reclassification within stockholders’ equity from additional paid-in capital to noncontrolling interest in Akcea equal to the amount of stock-based compensation expense Akcea had recognized from inception through the IPO. Going forward, each period we will reclassify Akcea’s stock-based compensation expense in a similar fashion.recognized.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, short-term investments and receivables. We place our cash equivalents and short-term investments with reputable financial institutions. We primarily invest our excess cash in commercial paper and debt instruments of the U.S. Treasury, financial institutions, corporations, and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Moody’s, Standard & Poor’s, or S&P, or Fitch, respectively. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. We periodically review and modify these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity.
Cash, Cash Equivalents and Short-Term Investments
We consider all liquid investments with maturities of three months or less when we purchase them to be cash equivalents. Our short-term investments have initial maturities of greater than three months from date of purchase. We classify our short-term debt investments as “available-for-sale” and carry them at fair market value based upon prices for identical or similar items on the last day of the fiscal period.period for identical or similar items. We record unrealized gains and losses on debt securities as a separate component of comprehensive income (loss) and include net realized gains and losses in gain (loss) on investments. We use the specific identification method to determine the cost of securities sold.
We also have equity investments of less than 20 percent ownership in privatelypublicly and publiclyprivately held biotechnology companies that we received as part of a technology license or partner agreement. At December 31, 2017,2019, we held equity investments in one2 publicly held company,companies, ProQR Therapeutics N.V., or ProQR, and Antisense Therapeutics Limited, or ATL. Furthermore, weWe also held cost methodequity investments in five5 privately-held companies, Atlantic Pharmaceuticals Limited, Dynacure SAS, Kastle Therapeutics,Empirico, Inc., Seventh Sense Biosystems and Suzhou Ribo Life Science Co.,Co, Ltd.
We account for
In January 2018, we adopted the amended accounting guidance related to the recognition, measurement, presentation, and disclosure of certain financial instruments. The amended guidance requires us to measure and record our equity investments in publicly held companies at fair value. Additionally, the amended accounting guidance requires us to recognize the changes in fair value and record unrealized gains and losses relatedin our consolidated statement of operations, instead of through accumulated other comprehensive income. Prior to temporary increases and decreases in the stock as a separate component of comprehensive income (loss). We account2018, we accounted for our equity investments in privately held companies under the cost method of accounting becauseaccounting. Under the amended guidance we own less than 20 percent and doaccount for our equity investments in privately held companies at their cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Our adoption of this guidance did not have significant influence over their operations. Realization ofan impact on our equity position in these private companies is usually uncertain. When realization of our investment is uncertain, we record a full valuation allowance. In determining if and when a decrease in market value below our cost in our equity positions is temporary or other-than-temporary, we examine historical trends in the stock price, the financial condition of the company, near term prospects of the company and our current need for cash. If we determine that a decline in value in either a public or private investment is other-than-temporary, we recognize an impairment loss in the period in which the other-than-temporary decline occurs.results.
Inventory Valuation
We reflect our inventory on our consolidated balance sheet at the lower of cost or market value under the first-in, first-out method, or FIFO. We capitalize the costs of raw materials that we purchase for use in producing our drugsmedicines because until we use these raw materials, they have alternative future uses.uses, which we refer to as clinical raw materials. We include in inventory raw material costs for drugsmedicines that we manufacture for our partners under contractual terms and that we use primarily in our clinical development activities and drug products. We can use each of our raw materials in multiple products and, as a result, each raw material has future economic value independent of the development status of any single drug.medicine. For example, if one of our drugsmedicines failed, we could use the raw materials for that drugmedicine to manufacture our other drugs.medicines. We expense these costs as R&D expenses when we begin to manufacture API for a particular drug. medicine if the medicine has not been approved for marketing by a regulatory agency.
We reflectobtained the first regulatory approval for TEGSEDI in July 2018 and for WAYLIVRA in May 2019. At December 31, 2019, our physical inventory onfor TEGSEDI and WAYLIVRA included API that we produced prior to when we obtained regulatory approval. As such, this API has no cost basis as we had previously expensed the balance sheet at the lower of cost or market value under the first-in, first-out method, or FIFO. costs as R&D expenses.
We review our inventory periodically and reduce the carrying value of items we consider to be slow moving or obsolete to their estimated net realizable value.value based on forecasted demand compared to quantities on hand. We consider several factors in estimating the net realizable value, including shelf life of raw materials,our inventory, alternative uses for our drugs and clinical trial materials,medicines in development and historical write-offs. We recorded an insignificant amount of inventory write-offs during the year ended December 31, 2019. We did not0t record any inventory write-offs for the years ended December 31, 2017, 20162018 or 2015. Total2017.
Our inventory was $10.0 million and $7.5 million asconsisted of December 31, 2017 and 2016, respectively.the following (in thousands):
| | December 31, | |
| | | 2019 | | | 2018 | |
| Raw materials: | | | | | | |
| Raw materials- clinical | | $ | 9,363 | | | $ | 8,497 | |
| Raw materials- commercial | | | 6,520 | | | | — | |
| Total raw materials | | | 15,883 | | | | 8,497 | |
| Work in process | | | 2,039 | | | | — | |
| Finished goods | | | 258 | | | | 85 | |
| Total inventory | | $ | 18,180 | | | $ | 8,582 | |
Property, Plant and Equipment
We carry our property, plant and equipment at cost and depreciate it on the straight-line method over its estimated useful life, which consists of the following (in thousands):
| | | Estimated Useful Lives | | | December 31, | | | Estimated Useful Lives | | | December 31, | |
| | | (in years) | | | 2017 | | | 2016 | | | (in years) | | | 2019 | | | 2018 | |
| Computer software, laboratory, manufacturing and other equipment | | 3 to 10 | | | $ | 66,558 | | | $ | 63,287 | | | 3 to 10 | | | $ | 60,965 | | | $ | 53,496 | |
| Building, building improvements and building systems | | 15 to 40 | | | | 92,770 | | | | 48,909 | | | 15 to 40 | | | | 119,830 | | | | 97,528 | |
| Land improvements | | 20 | | | | 2,853 | | | | 2,853 | | | | 20 | | | | 2,853 | | | | 2,853 | |
| Leasehold improvements | | 5 to 15 | | | | 26,748 | | | | 41,736 | | | 5 to 15 | | | | 13,600 | | | | 18,981 | |
| Furniture and fixtures | | 5 to 10 | | | | 6,161 | | | | 5,937 | | | 5 to 10 | | | | 7,354 | | | | 6,283 | |
| | | | | | | | 195,090 | | | | 162,722 | | | | | | | | 204,602 | | | | 179,141 | |
| Less accumulated depreciation | | | | | | | (87,676 | ) | | | (80,075 | ) | | | | | | | (74,013 | ) | | | (61,474 | ) |
| | | | | | | | 107,414 | | | | 82,647 | | | | | | | | 130,589 | | | | 117,667 | |
| Land | | | | | | | 14,493 | | | | 10,198 | | | | | | | | 23,062 | | | | 14,493 | |
| Total | | | | | | $ | 121,907 | | | $ | 92,845 | | | | | | | $ | 153,651 | | | $ | 132,160 | |
We depreciate our leasehold improvements using the shorter of the estimated useful life or remaining lease term. As a result of the purchase of our primary manufacturing facility in 2017, we reclassed previously capitalized leasehold improvements to building, building improvements and building systems. Additionally, during 2017 we made additional improvements and expansions of our buildings to accommodate the growth in our business.
Fair Value of Financial Instruments
We have estimated the fair value of our financial instruments. The amounts reported for cash, accounts receivable, accounts payable and accrued expenses approximate the fair value because of their short maturities. We report our investment securities at their estimated fair value based on quoted market prices for identical or similar instruments.
Leases
Topic 842 Adoption
In February 2016, the Financial Accounting Standards Board, or FASB, issued amended accounting guidance related to lease accounting. This guidance supersedes the lease requirements we previously followed in Accounting Standards Codification, or ASC, Topic 840, Leases, or Topic 840, and created a new lease accounting standard, Topic 842, Leases, or Topic 842. Under Topic 842, an entity will record on its balance sheet all leases with a term longer than one year. Further, an entity will record a liability with a value equal to the present value of payments it will make over the life of the lease (lease liability) and an asset representing the underlying leased asset (right-of-use asset). The new accounting guidance requires entities to determine if its leases are operating or financing leases. Entities will recognize expense for operating leases on a straight-line basis as an operating expense. If an entity determines a lease is a financing lease, it will record both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease. We adopted Topic 842 on January 1, 2019 and adjusted our opening balance sheet on that date for our right-of-use operating lease assets and operating lease liabilities. At adoption, we recorded $13.5 million in right-of-use operating lease assets and $18.5 million in operating lease liabilities, of which we classified $2 million as a current liability. We adopted Topic 842 using the available practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification of those leases we had in place as of January 1, 2019. The adoption did not have an impact on our consolidated statement of operations.
Leases
We determine if an arrangement contains a lease at inception. We currently only have operating leases. We recognize a right-of-use operating lease asset and associated short- and long-term operating lease liability on our consolidated balance sheet for operating leases greater than one year. Our right-of-use assets represent our right to use an underlying asset for the lease term and our lease liabilities represent our obligation to make lease payments arising from the lease arrangement. We recognize our right-of-use operating lease assets and lease liabilities based on the present value of the future minimum lease payments we will pay over the lease term.We determined the lease term at the inception of the lease, and in certain cases our lease term could include renewal options if we concluded we were reasonably certain that we will exercise the renewal option.
As our current leases do not provide an interest rate implicit in the lease, we used our or Akcea’s incremental borrowing rate, based on the information available on the date we adopted Topic 842 or as of the lease inception date in determining the present value of future payments. Our right-of-use operating lease asset also includes any lease payments we made and excludes any tenant improvement allowances we received. We recognize rent expense for our minimum lease payments on a straight-line basis over the expected term of our lease. We recognize period expenses, such as common area maintenance expenses, in the period we incur the expense.
Long-Lived Assets
We evaluate long-lived assets, which include property, plant and equipment and patent costs, for impairment on at least a quarterly basis and whenever events or changes in circumstances indicate that we may not be able to recover the carrying amount of such assets. We recorded charges of $2.2 million, $0.8 million $2.3 million and $1.9$0.8 million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively, related primarily to the write-down of intangible assets.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United StatesU.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation Expense
We measure stock-based compensation expense for equity-classified awards, principally related to stock options, restricted stock units, or RSUs, and stock purchase rights under our ESPP based on the estimated fair value of the award on the date of grant. We recognize the value of the portion of the award that we ultimately expect to vest as stock-based compensation expense over the requisite service period in our Consolidated Statementsconsolidated statements of Operations.operations. We reduce stock-based compensation expense for estimated forfeitures at the time of grant and revise in subsequent periods if actual forfeitures differ from those estimates.
We use the Black-Scholes model as our methodto estimate the fair value of valuing option awardsstock options granted and stock purchase rights under our ESPP. On the grant date, we use our stock price and assumptions regarding a number of highly complex and subjective variables to determine the estimated fair value of stock-based payment awards. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation models may not provide an accurate measure of the fair value of our employee stock options. Although we determine the estimated fair value of employee stock options using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.
We recognize compensation expense for option awards and RSUs using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period.
The fair value of RSUs is based on the market price of our common stock on the date of grant. The RSUs we have granted vest annually over a four-year period.
See Note 4, Stockholders’ Equity, for additional information regarding our stock-based compensation plans.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive income (loss)
Accumulated other comprehensive income (loss)loss is primarily comprised of unrealized gains and losses on investments, net of taxes and adjustments we made to reclassify realized gains and losses on investments from other accumulated comprehensive income (loss)loss to our Consolidated Statement of Operations. The following table summarizes changes in accumulated other comprehensive income (loss)loss for the years ended December 31, 2017, 20162019, 2018 and 20152017 (in thousands):
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Beginning balance accumulated other comprehensive (loss) income | | $ | (30,358 | ) | | $ | (13,565 | ) | | $ | 39,747 | | |
| Unrealized losses on securities, net of tax (1) | | | (960 | ) | | | (17,219 | ) | | | (33,101 | ) | |
| Amounts reclassified from accumulated other comprehensive (loss) income (2) | | | (374 | ) | | | 447 | | | | (20,211 | ) | |
| Beginning balance accumulated other comprehensive loss | | | $ | (32,016 | ) | | $ | (31,759 | ) | | $ | (30,358 | ) |
| Unrealized gains (losses) on securities, net of tax (1) | | | | 6,633 | | | | (280 | ) | | | (960 | ) |
| Amounts reclassified from accumulated other comprehensive loss | | | | — | | | | — | | | | (374 | ) |
| Currency translation adjustment | | | (67 | ) | | | (21 | ) | | | — | | | | 93 | | | | 23 | | | | (67 | ) |
| Net other comprehensive loss for the period | | | (1,401 | ) | | | (16,793 | ) | | | (53,312 | ) | | | 6,726 | | | | (257 | ) | | | (1,401 | ) |
| Ending balance accumulated other comprehensive loss | | $ | (31,759 | ) | | $ | (30,358 | ) | | $ | (13,565 | ) | | $ | (25,290 | ) | | $ | (32,016 | ) | | $ | (31,759 | ) |
| (1) | ThereA tax benefit of $1.4 million and $0.3 million was no tax expense forincluded in other comprehensive loss for the years ended December 31, 2017, 20162019 and 2018, respectively. There was 0 tax benefit or 2015.expense for other comprehensive loss for the year ended December 31, 2017. |
(2) | Amounts for 2015 and 2017 are included in the separate line called “Gain on investment in Regulus Therapeutics Inc.” on our Consolidated Statement of Operations. |
Convertible Debt
We account
At issuance, we accounted for our convertible debt instruments, including our 0.125 percent senior convertible notes, or 0.125% Notes and 1 percent and 2¾ percentsenior convertible notes, or 1% Notes, that may be settled in cash upon conversion (including partial cash settlement) by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate. We determinerate on the carrying amountdate the notes were issued. In reviewing debt issuances, we were not able to identify any comparable companies that recently issued non-convertible debt instruments. Therefore, we estimated the fair value of the liability component by measuring the fair value of similar debt instruments that do not have the conversion feature. If no similar debt instrument exists, we estimate fair valueour notes by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.
We assigned a value to the debt component of our convertible notes equal to the estimated fair value of similar debt instruments without the conversion feature, which resulted in us recording our debt at a discount. We are amortizing our debt issuance costs and debt discount over the life of the convertible notes as additional non-cash interest expense utilizing the effective interest method. For additional information, see Note 3, Long-Term Obligations and Commitments.
Segment Information
We have two2 operating segments, our Ionis Core segment and Akcea Therapeutics. Prior to Akcea’s IPO in July 2017, we owned 100 percent of Akcea’s stock. After Akcea’s IPO, we owned approximately 68 percent of Akcea. We did not changeTherapeutics, our reportable segments as a result of Akcea’s IPO.majority-owned affiliate. Akcea is a late-stage biopharmaceutical company focused on developing and commercializing drugsmedicines to treat peoplepatients with serious cardiometabolicand rare diseases caused by lipid disorders.. We provide segment financial information and results for our Ionis Core segment and our Akcea Therapeutics segment based on the segregation of revenues and expenses that our chief decision maker reviews to assess operating performance and to make operating decisions. We allocate a portion of Ionis’ development, R&D support expenses and general and administrative expenses to Akcea for work we performedIonis performs on behalf of Akcea.Akcea and we bill Akcea for these expenses.
Fair Value Measurements
We use a three-tier fair value hierarchy to prioritize the inputs used in our fair value measurements. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets, which includes our money market funds and treasury securities classified as available-for-sale securities and our investment in equity securities in publicly heldpublicly-held biotechnology companies; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable, which includes our fixed income securities and commercial paper classified as available-for-sale securities; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring us to develop our own assumptions. We classify the majority of our securities as Level 2. We obtain the fair value of our Level 2 investments from our custodian bank or from a professional pricing service. We validate the fair value of our Level 2 investments by understanding the pricing model used by the custodian banks or professional pricing service provider and comparing that fair value to the fair value based on observable market prices. During 2017 and 2016, there were no transfers between our Level 1 and Level 2 investments. When we recognize transfers between levels of the fair value hierarchy, we recognize the transfer on the date the event or change in circumstances that caused the transfer occurs. When we recognize transfers between levels of the fair value hierarchy, we recognize the transfer on the date the event or change in circumstances that caused the transfer occurs. During 2017 and 2016 we did not have any investments that were classified as Level 3 investments.
The following tables present the major security types we held at December 31, 20172019 and 2016 2018 that arewe regularly measuredmeasure and carriedcarry at fair value.value. At December 31, 2019, a portion of our ProQR investment was subject to trading restrictions through the fourth quarter of 2020, as a result we included a lack of marketability discount in valuing this investment, which is a Level 3 input. At December 31, 2018, our ProQR investment was subject to trading restrictions through the fourth quarter of 2019, as a result we included a lack of marketability discount in valuing this investment, which is a Level 3 input. The tables segregate each security type by the level within the fair value hierarchy of the valuation techniques we utilized to determine the respective securities’ fair value (in thousands):
| | | At December 31, 2017 | | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | At December 31, 2019 | | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| Cash equivalents (1) | | $ | 86,262 | | | $ | 86,262 | | | $ | — | | | $ | 418,406 | | | $ | 418,406 | | | $ | — | | | $ | — | |
| Corporate debt securities (2) | | | 647,461 | | | | — | | | | 647,461 | | | | 1,102,568 | | | | — | | | | 1,102,568 | | | | — | |
| Debt securities issued by U.S. government agencies (3) | | | 136,325 | | | | — | | | | 136,325 | | | | 329,404 | | | | — | | | | 329,404 | | | | — | |
Debt securities issued by the U.S. Treasury (3)(4) | | | 30,818 | | | | 30,818 | | | | — | | | | 363,694 | | | | 363,694 | | | | — | | | | — | |
| Debt securities issued by states of the U.S. and political subdivisions of the states (4) | | | 93,932 | | | | — | | | | 93,932 | | | | 40,407 | | | | — | | | | 40,407 | | | | — | |
Investment in ProQR Therapeutics N.V. (5) | | | | 4,506 | | | | — | | | | — | | | | 4,506 | |
| Total | | $ | 994,798 | | | $ | 117,080 | | | $ | 877,718 | | | $ | 2,258,985 | | | $ | 782,100 | | | $ | 1,472,379 | | | $ | 4,506 | |
| | | At December 31, 2016 | | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | At December 31, 2018 | | | Quoted Prices in Active Markets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| Cash equivalents (1) | | $ | 54,137 | | | $ | 54,137 | | | $ | — | | | $ | 146,281 | | | $ | 146,281 | | | $ | — | | | $ | — | |
Corporate debt securities (3)(6) | | | 396,221 | | | | — | | | | 396,221 | | | | 1,252,960 | | | | — | | | | 1,252,960 | | | | — | |
Debt securities issued by U.S. government agencies (3)(4) | | | 55,179 | | | | — | | | | 55,179 | | | | 276,612 | | | | — | | | | 276,612 | | | | — | |
Debt securities issued by the U.S. Treasury (3)(7) | | | 29,286 | | | | 29,286 | | | | — | | | | 260,154 | | | | 260,154 | | | | — | | | | — | |
Debt securities issued by states of the U.S. and political subdivisions of the states (5)(4) | | | 109,111 | | | | — | | | | 109,111 | | | | 79,942 | | | | — | | | | 79,942 | | | | — | |
| Investment in Regulus Therapeutics Inc. | | | 2,414 | | | | 2,414 | | | | — | | |
Investment in ProQR Therapeutics N.V. (5) | | | | 1,349 | | | | — | | | | — | | | | 1,349 | |
| Total | | $ | 646,348 | | | $ | 85,837 | | | $ | 560,511 | | | $ | 2,017,298 | | | $ | 406,435 | | | $ | 1,609,514 | | | $ | 1,349 | |
________________
| (1) | Included in cash and cash equivalents on our consolidated balance sheet. |
| (2) | $11.919.0 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet. |
| (3) | Included in short-term investments on our consolidated balance sheet. |
(4) | $3.50.8 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet. |
| (4) | Included in short-term investments. |
| (5) | Included in other current assets on our consolidated balance sheet. |
| (6) | $9.350.2 million included in cash and cash equivalents on our consolidated balance sheet, with the difference included in short-term investments on our consolidated balance sheet. |
Novartis Future Stock Purchase
In January 2017, we and Akcea entered into a SPA with Novartis. As part of the SPA, Novartis was required to purchase $50 million of Akcea’s common stock at the IPO price or our common stock at a premium if an IPO did not occur by April 2018. Therefore, at the inception of the SPA, we recorded a $5.0 million asset representing the fair value of the potential future premium we could have received if Novartis purchased our common stock. We determined the fair value of the future premium by calculating the value based on the stated premium in the SPA and estimating the probability of an Akcea IPO. We also included a lack of marketability discount when we determined the fair value of the premium because we would have issued unregistered shares to Novartis if they had purchased our common stock. We measured this asset using Level 3 inputs and recorded it in other assets on our consolidated balance sheet. Because Akcea completed its IPO before April 2018, Novartis will not purchase additional shares of Ionis stock. Therefore, this asset no longer had any value and we wrote-off the remaining balance to other expenses on our third quarter 2017 consolidated statement of operations.
The following is a reconciliation of the potential premium we would have received if Akcea had not completed its IPO, measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for 2017 (in thousands):
| | Year Ended
December 31, 2017
| |
Beginning balance of Level 3 instruments | (7) | $ | — | |
Value of14.2 million included in cash and cash equivalents on our consolidated balance sheet, with the potential premium we will receive from Novartis at inception of the SPA (January 2017) | | | 5,035 | |
Write-off of premium to other expenses | | | (5,035 | ) |
Endingdifference included in short-term investments on our consolidated balance of Level 3 instruments | | $ | — | sheet. |
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act makes broad and complex changes to the U.S. tax code. The changes include, but are not limited to, reducing the U.S. federal corporate tax rate from 35 percent to 21 percent, imposing a mandatory one-time transition tax on certain unrepatriated earnings of foreign subsidiaries, introducing bonus depreciation that will allow for full expensing of qualified property, eliminating the corporate alternative minimum tax, or AMT, and changing how existing AMT credits can be realized, and modifying or repealing many business tax deductions and credits.
The SEC staff issued guidance to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act.
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. Valuation allowances are providedWe record a valuation allowance when necessary to reduce our net deferred tax assets to the amount expected to be realized.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or the Tax Act. The Tax Act created a new requirement on global intangible low-taxed income, or GILTI, earned by foreign subsidiaries for tax years beginning on or after January 1, 2018. The GILTI provisions require foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s assets to be included in our U.S. income tax return. Under U.S. GAAP, we are permitted to make an accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a current-period expense when incurred or to factor such amounts into our measurement of deferred taxes. We have made the election to account for GILTI as a component of current taxes incurred rather than as a component of deferred taxes.
We apply the authoritative accounting guidance prescribing a threshold and measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation settlement.processes, if any. The second step isrequires us to estimate and measure the tax benefit as the largest amount that is more than 50 percent likely to be realized upon ultimate settlement.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within other long-term liabilities in the consolidated balance sheets.
We are required to use significant judgment in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe our reserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historical income tax provisions and accruals. We adjust these reserves for changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences may impact the provision for income taxes in the period in which such determination is made.
We are also required to use significant judgment in determining any valuation allowance recorded against our deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including scheduled reversal of deferred tax liabilities, past operating results, the feasibility of tax planning strategies and estimates of future taxable income. EstimatesWe base our estimates of future taxable income are based on assumptions that are consistent with our plans. The assumptions we use represent our best estimates and involve inherent uncertainties and the application of our judgment. Should actual amounts differ from our estimates, the amount of our tax expense and liabilities we recognize could be materially impacted.
We record a valuation allowance to reduce the balance of our net deferred tax assets to the amount we believe is more-likely-than-not to be realized. We have incurred historical financial statement losses and as a result we had a full valuation allowance recorded against our net deferred tax assets for each of the years in these financial statements. We regularly assess the future realization of our net deferred tax assets and will reduce the valuation allowance in any such period in which we determine that all, or a portion, of our deferred tax assets are more-likely-than-not to be realized.
We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries.
Impact of Recently Issued Accounting Standards
In May 2014, the FASB issued accounting guidance on the recognition of revenue from customers. Under this guidance, an entity will recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects what the entity expects to receive in exchange for the goods or services. Further an entity will recognize revenue upon satisfying the performance obligation(s) under the related contract. Our performance obligation under our collaboration agreements is typically the research and development activities associated with the delivery of a drug candidate or drug to our partner. Under the current accounting guidance, we recognize revenue from milestone payments we earn under the milestone method from our collaboration agreements. Under the new guidance, the milestone method of revenue recognition is eliminated. Specifically, certain R&D milestone payments we previously recognized in full when we achieved a milestone will now be recognized over a period of time. If we achieve an R&D milestone payment related to activities we are performing under a collaboration agreement, we will recognize the associated revenue from the milestone payment over our estimated performance obligation period. For example, in 2017, we initiated a Phase 1/2a clinical study of IONIS-MAPTRx in patients with mild Alzheimer's disease. We earned a $10 million milestone payment from Biogen related to the initiation of this study. In 2017, we recognized the entire $10 million as revenue. Under the new standard, we will recognize this milestone payment over the period we are providing R&D services for Biogen. For milestones achieved for which we do not have a continuing performance obligation, we will continue to recognize the milestone payment in its entirety as revenue in the period in which our partner achieves the milestone. For example, in 2017, we earned a $50 million milestone payment from Biogen for the EU approval of SPINRAZA. Under both the new and old standard, we account for this milestone payment the same by recognizing the entire amount upon achievement of the event. This guidance does not change our recognition of commercial revenue from SPINRAZA royalties. We adopted this guidance on January 1, 2018 under the full retrospective approach, which requires us to recast our prior period amounts in the period of adoption.
Our adoption of the standard in 2018 will result in the recognition of additional revenue of approximately $17 million and approximately $27 million for 2017 and 2016, respectively. In addition, our adoption of the standard will result in an increase in our deferred revenue balance of approximately $39 million at December 31, 2017 and a corresponding adjustment to our accumulated deficit for the same amount. Since our collaboration revenue has no associated cost of sales, the impact to our net loss (income) is equal to our revenue adjustment for each period. Additionally, as a result of adopting this new guidance there is no impact to our income tax expense because we have a full valuation allowance. This new guidance also requires additional disclosures about the attributes of our revenue and balances associated with our contracts, which we will include in our first quarter of 2018 financial statements.
In January 2016, the FASB issued amended accounting guidance related to the recognition, measurement, presentation, and disclosure of certain financial instruments. The amended guidance requires us to measure and record equity investments, except those accounted for under the equity method of accounting that have a readily determinable fair value, at fair value and for us to recognize the changes in fair value in our net income (loss), instead of recognizing unrealized gains and losses through accumulated other comprehensive income, as we currently do under the existing guidance. The amended guidance also changes several disclosure requirements for financial instruments, including the methods and significant assumptions we use to estimate fair value. The guidance is effective for fiscal years, and interim periods within that year, beginning after December 15, 2017. We adopted this guidance on January 1, 2018. The adoption of this guidance did not have an impact on our financial results.
In February 2016, the FASB issued amended accounting guidance related to lease accounting, which will require us to record all leases with a term longer than one year on our balance sheet. When we record leases on our balance sheet under the new guidance, we will record a liability with a value equal to the present value of payments we will make over the life of the lease and an asset representing the underlying leased asset. The new accounting guidance requires us to determine if our leases are operating or financing leases. We will record expense for operating type leases on a straight-line basis as an operating expense. If we determine a lease is a financing lease, we will record both interest and amortization expense and generally the expense will be higher in the earlier periods of the lease. The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. We must adopt the new standard on a modified retrospective basis, which requires us to reflect our leases on our consolidated balance sheet for the earliest comparative period presented. We plan to adopt this guidance on January 1, 2019. We are currently assessing the effects the new guidance will have on our consolidated financial statements and disclosures.
In June 2016, the FASB issued guidance that changes the measurement of credit losses for most financial assets and certain other instruments. If we have credit losses, this updated guidance requires us to record allowances for these instruments under a new expected credit loss model. This model requires us to estimate the expected credit loss of an instrument over its lifetime, which represents the portion of the amortized cost basis we do not expect to collect. This change will result inThe new guidance requires us remeasuringto remeasure our allowance in each reporting period we have credit losses. The new standard is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for periods beginning after December 15, 2018. When we adoptWe adopted this the new standard, weguidance on January 1, 2020. We do not expect this guidance will make any adjustments to beginning balances through a cumulative-effect adjustment to accumulated deficit on that date. We are currently assessing the timing of adoption as well as the effects it will have an impact on our consolidated financial statements and disclosures.statements.
In May 2017,August 2018, the FASB issued clarifying guidance on how to account for implementation costs related to cloud-servicing arrangements. The guidance states that if these fees qualify to be capitalized and amortized over the service period, they need to be expensed in the same line item as the service expense and recognized in the same balance sheet category. The update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We adopted this guidance on January 1, 2020 on a prospective basis. We do not expect this guidance will have an impact on our consolidated financial statements.
In August 2018, the FASB updated its disclosure requirements related to Level 1, 2 and 3 fair value measurements. The update included deletion and modification of certain disclosure requirements and additional disclosure related to Level 3 measurements. The guidance is effective for fiscal years beginning after December 31, 2019 and early adoption is permitted. We adopted this updated guidance on January 1, 2019 and it did not have a significant impact on our disclosures.
In November 2018, the FASB issued clarifying guidance of the interaction between the collaboration accounting guidance and the new revenue recognition guidance we adopted on January 1, 2018 (Topic 606). Below is the clarifying guidance and how we will implement it (in italics):
| 1) | When a participant is considered a customer in a collaborative arrangement, all of the associated accounting under Topic 606 should be applied |
| ● | We will apply all of the associated accounting under Topic 606 when we determine a participant in a collaborative arrangement is a customer |
| 2) | Adds “unit of account” concept to collaboration accounting guidance to align with Topic 606. The “unit of account” concept is used to determine if revenue is recognized or if a contra expense is recognized from consideration received under a collaboration |
| ● | We will use the “unit of account” concept when we receive consideration under a collaborative arrangement to determine when we recognize revenue or a contra expense |
| 3) | The clarifying guidance precludes us from recognizing revenue under Topic 606 when we determine a transaction with a collaborative partner is not a customer and is not directly related to the sales to third parties |
| ● | When we conclude a collaboration partner is not a customer and is not directly related to the sales to third parties, we will not recognize revenue for the transaction |
We adopted this new guidance on January 1, 2020. We do not expect this guidance will have a significant impact on our consolidated financial statements.
In December 2019, the FASB issued guidance to simplify the accounting for modificationsincome taxes. The update includes removing several exceptions under the existing guidance and includes several simplification updates, none of stock-based payment awards.which apply to our current accounting for income taxes. The new guidance is meant to clarify when modification accountingeffective for fiscal years beginning after December 15, 2020 and early adoption is required.permitted. We early adopted this updated guidance in our financial statements for the fourth quarter ended June 30, 2017of 2019 and it did not have an effectimpact on our consolidated financial statements andor disclosures.
2. Investments
As of December 31, 2017, we had primarily invested our excess cash in debt instruments of the U.S. Treasury, financial institutions, corporations, and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1, P-1 or F-1 by Moody’s, Standard & Poor’s, or S&P, or Fitch, respectively. We have established guidelines relative to diversification and maturities that maintain safety and liquidity. We periodically review and modify these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity.
The following table summarizes the contract maturity of the available-for-sale securities we held as of December 31, 2017:2019:
| One year or less | | | 7170 | % |
| After one year but within two years | | | 2320 | % |
After two years but within three and onea half years | | | 610 | % |
| Total | | | 100 | % |
As illustrated above, at December 31, 2017, 942019, 90 percent of our available-for-sale securities had a maturity of less than two years.
All of our available-for-sale securities are available to us for use in our current operations. As a result, we categorize all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date.
At December 31, 2017,2019, we had an ownership interest of less than 20 percentin five5 private companies and one2 public companycompanies with which we conduct business. The privately-held companies are Atlantic Pharmaceuticals Limited, Dynacure SAS, Kastle Therapeutics,Empirico, Inc., Seventh Sense Biosystems and Suzhou Ribo Life Science CO. Co, Ltd.The publicly traded company is Antisense Therapeutics Limited, or ATL. We account for our equity investments in the privately-held companies under the cost method of accountingare ATL and we account for our equity investment in the publicly traded company at fair value. We record unrealized gains and losses as a separate component of comprehensive income (loss) and include net realized gains and losses in gain (loss) on investments.ProQR.
During 2015 and 2017, we realized a net gain on our investment in Regulus of $20.2 million and $0.4 million, respectively, when we sold our stock in Regulus.
The following is a summary of our investments (in thousands):
| | | | | | Gross Unrealized | | | Estimated | | | | | | Gross Unrealized | | | Estimated | |
| December 31, 2017 | | Cost (1) | | | Gains | | | Losses | | | Fair Value | | |
| December 31, 2019 | | | Cost (1) | | | Gains | | | Losses | | | Fair Value | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt securities (2) | | $ | 500,599 | | | $ | 2 | | | $ | (752 | ) | | $ | 499,849 | | | $ | 669,665 | | | $ | 1,451 | | | $ | (43 | ) | | $ | 671,073 | |
| Debt securities issued by U.S. government agencies | | | 83,926 | | | | — | | | | (212 | ) | | | 83,714 | | | | 188,216 | | | | 303 | | | | (43 | ) | | | 188,476 | |
Debt securities issued by the U.S. Treasury | | | 29,428 | | | | — | | | | (17 | ) | | | 29,411 | | | | 327,670 | | | | 232 | | | | (27 | ) | | | 327,875 | |
Debt securities issued by states of the U.S. and political subdivisions of the states (2) | | | 29,240 | | | | 4 | | | | (122 | ) | | | 29,122 | | | | 21,065 | | | | 26 | | | | (5 | ) | | | 21,086 | |
| Total securities with a maturity of one year or less | | | 643,193 | | | | 6 | | | | (1,103 | ) | | | 642,096 | | | | 1,206,616 | | | | 2,012 | | | | (118 | ) | | | 1,208,510 | |
| Corporate debt securities | | | 148,663 | | | | 8 | | | | (1,059 | ) | | | 147,612 | | | | 428,627 | | | | 2,911 | | | | (43 | ) | | | 431,495 | |
| Debt securities issued by U.S. government agencies | | | 52,779 | | | | — | | | | (168 | ) | | | 52,611 | | | | 140,988 | | | | 57 | | | | (117 | ) | | | 140,928 | |
| Debt securities issued by the U.S. Treasury | | | 1,409 | | | | — | | | | (2 | ) | | | 1,407 | | | | 35,822 | | | | 9 | | | | (12 | ) | | | 35,819 | |
| Debt securities issued by states of the U.S. and political subdivisions of the states | | | 65,550 | | | | — | | | | (740 | ) | | | 64,810 | | | | 19,309 | | | | 18 | | | | (6 | ) | | | 19,321 | |
| Total securities with a maturity of more than one year | | | 268,401 | | | | 8 | | | | (1,969 | ) | | | 266,440 | | | | 624,746 | | | | 2,995 | | | | (178 | ) | | | 627,563 | |
| Total available-for-sale securities | | $ | 911,594 | | | $ | 14 | | | $ | (3,072 | ) | | $ | 908,536 | | | $ | 1,831,362 | | | $ | 5,007 | | | $ | (296 | ) | | $ | 1,836,073 | |
| Equity securities: | | | | | | | | | | | | | | | | | |
| Total equity securities included in other current assets (3) | | | $ | 4,712 | | | $ | - | | | $ | (870 | ) | | $ | 3,842 | |
| Total equity securities included in deposits and other assets (4) | | | | 10,000 | | | | - | | | | - | | | | 10,000 | |
| Total equity securities | | | $ | 14,712 | | | $ | - | | | $ | (870 | ) | | $ | 13,842 | |
| Total available-for-sale and equity securities | | | $ | 1,846,074 | | | $ | 5,007 | | | $ | (1,166 | ) | | $ | 1,849,915 | |
| | | | | | Gross Unrealized | | | Estimated | | | | | | Gross Unrealized | | | Estimated | |
| December 31, 2016 | | Cost (1) | | | Gains | | | Losses | | | Fair Value | | |
| December 31, 2018 | | | Cost (1) | | | Gains | | | Losses | | | Fair Value | |
| Available-for-sale securities: | | | | | | | | | | | | | | | | | | | | | | | | |
Corporate debt securities | | $ | 195,087 | | | $ | 25 | | | $ | (161 | ) | | $ | 194,951 | | | $ | 956,879 | | | $ | 13 | | | $ | (1,858 | ) | | $ | 955,034 | |
| Debt securities issued by U.S. government agencies | | | 26,548 | | | | — | | | | (10 | ) | | | 26,538 | | | | 168,839 | | | | 3 | | | | (104 | ) | | | 168,738 | |
| Debt securities issued by the U.S. Treasury | | | 29,298 | | | | 2 | | | | (14 | ) | | | 29,286 | | | | 244,640 | | | | 15 | | | | (77 | ) | | | 244,578 | |
| Debt securities issued by states of the U.S. and political subdivisions of the states (2) | | | 72,775 | | | | 2 | | | | (134 | ) | | | 72,643 | | | | 63,572 | | | | — | | | | (323 | ) | | | 63,249 | |
| Total securities with a maturity of one year or less | | | 323,708 | | | | 29 | | | | (319 | ) | | | 323,418 | | | | 1,433,930 | | | | 31 | | | | (2,362 | ) | | | 1,431,599 | |
| Corporate debt securities | | | 202,408 | | | | 36 | | | | (1,174 | ) | | | 201,270 | | | | 299,018 | | | | 194 | | | | (1,286 | ) | | | 297,926 | |
| Debt securities issued by U.S. government agencies | | | 28,807 | | | | 1 | | | | (167 | ) | | | 28,641 | | | | 107,789 | | | | 194 | | | | (109 | ) | | | 107,874 | |
| Debt securities issued by the U.S. Treasury | | | | 15,600 | | | | — | | | | (24 | ) | | | 15,576 | |
| Debt securities issued by states of the U.S. and political subdivisions of the states | | | 36,816 | | | | 1 | | | | (349 | ) | | | 36,468 | | | | 16,980 | | | | — | | | | (287 | ) | | | 16,693 | |
| Total securities with a maturity of more than one year | | | 268,031 | | | | 38 | | | | (1,690 | ) | | | 266,379 | | | | 439,387 | | | | 388 | | | | (1,706 | ) | | | 438,069 | |
| Total available-for-sale securities | | $ | 591,739 | | | $ | 67 | | | $ | (2,009 | ) | | $ | 589,797 | | | $ | 1,873,317 | | | $ | 419 | | | $ | (4,068 | ) | | $ | 1,869,668 | |
| Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Regulus Therapeutics Inc. | | $ | 2,133 | | | $ | 281 | | | $ | — | | | $ | 2,414 | | |
| Total equity securities | | $ | 2,133 | | | $ | 281 | | | $ | — | | | $ | 2,414 | | |
| Total equity securities included in other current assets (3) | | | $ | 1,212 | | | $ | 137 | | | $ | — | | | $ | 1,349 | |
| Total available-for-sale and equity securities | | $ | 593,872 | | | $ | 348 | | | $ | (2,009 | ) | | $ | 592,211 | | | $ | 1,874,529 | | | $ | 556 | | | $ | (4,068 | ) | | $ | 1,871,017 | |
| (1) | OurWe hold our available-for-sale securities are held at amortized cost. |
| (2) | Includes investments classified as cash equivalents on our consolidated balance sheet. |
| (3) | Our equity securities included in other current assets consisted of our investment in ProQR, which is a public company. We recognize our public company equity securities at fair value. |
| (4) | Our equity securities included in deposits and other assets consisted of our investment in Empirico, which is a private company. We recognize our private company equity securities at cost minus impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on our consolidated balance sheet. |
Investments we consider to be temporarily impaired at December 31, 20172019 are as follows (in thousands):
| | | | | | Less than 12 Months of Temporary Impairment | | | More than 12 Months of Temporary Impairment | | | Total Temporary Impairment | | | | | | Less than 12 Months of Temporary Impairment | | | More than 12 Months of Temporary Impairment | | | Total Temporary Impairment | |
| | | Number of Investments | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Number of Investments | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | | | Estimated Fair Value | | | Unrealized Losses | |
| Corporate debt securities | | | 476 | | | $ | 551,446 | | | $ | (1,236 | ) | | $ | 74,987 | | | $ | (575 | ) | | $ | 626,433 | | | $ | (1,811 | ) | | | 49 | | | $ | 131,702 | | | $ | (75 | ) | | $ | 11,840 | | | $ | (11 | ) | | $ | 143,542 | | | $ | (86 | ) |
| Debt securities issued by U.S. government agencies | | | 45 | | | | 107,788 | | | | (262 | ) | | | 27,538 | | | | (118 | ) | | | 135,326 | | | | (380 | ) | | | 43 | | | | 149,731 | | | | (136 | ) | | | 37,041 | | | | (24 | ) | | | 186,772 | | | | (160 | ) |
| Debt securities issued by the U.S. Treasury | | | 7 | | | | 30,818 | | | | (19 | ) | | | — | | | | — | | | | 30,818 | | | | (19 | ) | | | 10 | | | | 84,270 | | | | (39 | ) | | | — | | | | — | | | | 84,270 | | | | (39 | ) |
| Debt securities issued by states of the U.S. and political subdivisions of the states | | | 60 | | | | 62,519 | | | | (545 | ) | | | 24,572 | | | | (317 | ) | | | 87,091 | | | | (862 | ) | | | 11 | | | | 10,241 | | | | (5 | ) | | | 10,303 | | | | (6 | ) | | | 20,544 | | | | (11 | ) |
| Total temporarily impaired securities | | | 588 | | | $ | 752,571 | | | $ | (2,062 | ) | | $ | 127,097 | | | $ | (1,010 | ) | | $ | 879,668 | | | $ | (3,072 | ) | | | 113 | | | $ | 375,944 | | | $ | (255 | ) | | $ | 59,184 | | | $ | (41 | ) | | $ | 435,128 | | | $ | (296 | ) |
We believe that the decline in value of our debt securities is temporary and primarily related to the change in market interest rates since purchase. We believe it is more likely than not that we will be able to hold these securities to maturity. Therefore, we anticipate full recovery of our debt securities’ amortized cost basis at maturity.
3. Long-Term Obligations and Commitments
The carrying value of our long-term obligations was as follows (in thousands):
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| 0.125 percent convertible senior notes | | | $ | 434,711 | | | $ | — | |
| 1 percent convertible senior notes | | $ | 533,111 | | | $ | 500,511 | | | | 275,333 | | | | 568,215 | |
| Long-term mortgage debt | | | 59,771 | | | | — | | | | 59,913 | | | | 59,842 | |
| Long-term financing liability for leased facility | | | — | | | | 72,359 | | |
Principal balance of fixed rate note with Morgan Stanley | | | 12,500 | | | | 12,500 | | | | — | | | | 12,500 | |
| Leases and other obligations | | | 2,095 | | | | 3,735 | | | | 17,569 | | | | 6,163 | |
| Total | | $ | 607,477 | | | $ | 589,105 | | | $ | 787,526 | | | $ | 646,720 | |
| Less: current portion | | | (1,621 | ) | | | (1,185 | ) | | | (2,026 | ) | | | (13,749 | ) |
| Total Long-Term Obligations | | $ | 605,856 | | | $ | 587,920 | | | $ | 785,500 | | | $ | 632,971 | |
| (1) | Our $12.5 million fixed rate note with Morgan Stanley was included in our current portion of long-term obligations on our consolidated balance sheet at December 31, 2018. We paid off our fixed rate note in the third quarter of 2019. |
Convertible Notes and Call Spread
0.125 PercentConvertible Senior Notes
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 $439.3million 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 effective conversion price even further.
Interest is payable semi-annually on June 15 and December 15 of each year for the 0.125% Notes. The 0.125% Notes are convertible at the option of the note holders prior to August 1, 2024 only under certain conditions. On or after August 1, 2024, the 0.125% Notes are initially convertible into approximately 6.6 million shares of common stock at a conversion price of approximately $83.28 per share. We will settle conversions of the 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. If we undergo a fundamental change, holders may require us to purchase for cash all or any portion of their 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 to, but excluding, the fundamental change purchase date.
At December 31, 2019, 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 15, 2024 | |
| Interest rate | | | 0.125 | % |
| Conversion price per share | | $ | 83.28 | |
| Total shares of common stock subject to conversion | | | 6.6 | |
The following table summarizes information about the equity and liability components of our outstanding 0.125% Notes (in millions). We measured the fair values of the convertible notes outstanding based on quoted market prices, which is a Level 2 measurement at December 31, 2019:
| | 0.125% Notes | |
| Fair value of outstanding notes | | $ | 558.7 | |
| Principal amount of convertible notes outstanding | | $ | 548.8 | |
| Unamortized portion of debt discount | | $ | 105.2 | |
| Long-term debt | | $ | 434.7 | |
| Carrying value of equity component | | $ | 105.8 | |
Call Spread
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 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 consolidated balance sheet. We excluded shares under the note hedges from our calculation of diluted earnings per share as they were 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.
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 raised $487 million of proceeds, net of issuance costs. We used a substantial portion of the net proceeds from the issuance of the 1 percent convertible senior notes1% Notes to repurchase $140 million in principal of our 2¾ percent convertible senior notes, at a price of $441.9 million, including accrued interest. As a result, the new principal balance of theor 2¾ percent notes was $61.2 million.
% Notes. In December 2016, we issued an additional $185.5 million of 1 percent convertible senior notes1% Notes in exchange for the redemption of $61.1 million of our 2¾ percent convertible senior notes.% Notes. In December 2019, we exchanged a portion of our 1% Notes for 0.125% Notes. As a result, the principal balance of the debt exchange we completed in December 2016,1% Notes was $309.9 million. Additionally, we recorded a $4.0$21.9 million non-cash loss on early retirement of debt, reflecting the early retirement of the majoritya significant portion of our remaining 2¾ percent convertible notes1% Notes in December 2016.2019.
At December 31, 2017, we had a nominal amount of our 2¾ percent convertible senior notes outstanding. At December 31, 20172019, we had the following 1 percent convertible senior notes1% Notes outstanding (amounts in millions except price per share data):
| | | 1 Percent Convertible Senior Notes | | | 1% Notes | |
| Outstanding balance | | $ | 685.5 | | |
| Original issue date ($500 million of principal) | | November 2014 | | |
| Additional issue date ($185.5 million of principal) | | December 2016 | | |
| Outstanding principal balance | | | $ | 309.9 | |
| Maturity date | | November 2021 | | | November 30, 2021 | |
| Interest rate | | 1 percent | | | 1 percent | |
| Conversion price per share | | $ | 66.81 | | | $ | 66.81 | |
| Total shares of common stock subject to conversion | | | 10.3 | | | | 4.6 | |
Interest is payable semi-annually in arrears on May 15 and November 15 of each year for the 1 percent notes.1% Notes. The 1 percent notes1% Notes are convertible at the option of the note holders prior to July 1, 2021 only under certain conditions. On or after July 1, 2021, the notes1% Notes are initially convertible into approximately 10.34.6 million shares of common stock at a conversion price of approximately $66.81 per share. We will settle conversions of the notes, at our election, in cash, shares of our common stock or a combination of both. We may not redeem the 1 percent notes1% Notes prior to maturity, and no sinking fund is provided for them. If we undergo a fundamental change, holders may require us to purchase for cash all or any portion of their 1 percent notes1% Notes at a purchase price equal to 100 percent of the principal amount of the notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change purchase date.
The following table summarizes information about the equity and liability components of our outstanding 1% Notes (in millions). We measured the fair values of the convertible notes outstanding based on quoted market prices, which is a Level 2 measurement at December 31, 2019:
| | December 31, | |
| | | 2019 | | | 2018 | |
| | | | | | | |
| Fair value of outstanding notes | | $ | 354.8 | | | $ | 725.0 | |
| Principal amount of convertible notes outstanding | | $ | 309.9 | | | $ | 685.5 | |
| Unamortized portion of debt discount | | $ | 32.8 | | | $ | 110.8 | |
| Long-term debt | | $ | 275.3 | | | $ | 568.2 | |
| Carrying value of equity component | | $ | 33.5 | | | $ | 219.0 | |
We account for our convertible notes using an accounting standard that requires us to assign a value to our convertible debt equal to the estimated fair value of similar debt instruments without the conversion feature and to record the remaining portion in equity. As a result, we recorded our convertible notes at a discount, which we are amortizing as additional non-cash interest expense over the expected life of the respective debt. We determined our nonconvertible debt borrowing rate using a combination of the present value of the debt’s cash flows and a Black-Scholes valuation model. The following table summarizes the nonconvertible borrowing rate, effective interest rate and amortization period of our debt discount for our convertible notes:
| 1 Percent
Convertible Senior
| 1% Notes Issued in November 2014
| | 1 Percent
Convertible Senior0.125% Notes
Issued in December 2016
|
| Nonconvertible debt borrowing rate | | 7.4 percent | | 6.84.4 percent |
| Effective interest rate (1) | 7.8 | 7.5 percent | | 7.24.9 percent |
| Amortization period of debt discount | | 7 years | | 5 years |
Interest
| (1) | For our 1% Notes, our effective interest rate represents our effective interest rate after our December 2019 debt exchange. |
Our total interest expense for our outstanding senior convertible notes for the yearyears ended December 31, 2019, 2018 and 2017 2016 and 2015 included $32.5$39.3 million, $25.1$35.2 million and $23.2$32.5 million, respectively, of non-cash interest expense related to the amortization of the debt discount and debt issuance costs for our convertible notes.
The following table summarizes information about the equity and liability components of our outstanding 1 percent convertible notes (in thousands). We measured the fair values of the convertible notes outstanding based on quoted market prices, which is a Level 2 measurement:
| | | December 31, | |
| | | 2017 | | | 2016 | |
| | | | | | | |
| Fair value of outstanding notes | | $ | 727,420 | | | $ | 700,969 | |
| Principal amount of convertible notes outstanding | | $ | 685,450 | | | $ | 685,450 | |
| Unamortized portion of debt discount | | $ | 144,112 | | | $ | 175,699 | |
| Long-term debt | | $ | 533,111 | | | $ | 500,511 | |
| Carrying value of equity component | | $ | 219,011 | | | $ | 219,011 | |
Financing Arrangements
Line of Credit Arrangement
In June 2015, we entered into a five-year revolving line of credit agreement with Morgan Stanley Private Bank, National Association, or Morgan Stanley. WeStanley, which we amended the credit agreement in February 2016 to increase the amount available for us to borrow.2016. Under the amended credit agreement, we can borrow up toMorgan Stanley provided a maximum of $30 million of revolving credit for general working capital purposes. UnderDuring the credit agreement interest is payable monthly in arrears on thethird quarter of 2019, we paid off our total outstanding principal at a borrowing rate based on our option of:
(i) | a floating rate equal to the one-month London Interbank Offered Rate, or LIBOR, in effect plus 1.25 percent per annum; |
(ii) | a fixed rate equal to LIBOR plus 1.25 percent for a period of one, two, three, four, six, or twelve months as elected by us; or |
(iii) | a fixed rate equal to the LIBOR swap rate during the period of the loan. |
Additionally, after June 1, 2016, we pay 0.25 percent per annum, payable quarterly in arrears, for any amount unusedborrowings of $12.5 million under the credit facility. As of December 31, 2017, we had $12.5 million in outstanding borrowings underagreement and subsequently terminated the credit facility with a 2.31 percent fixed interest rate and a maturity date of September 2019, which we used to fund our capital equipment needs and is consistent with our historical practice to finance these costs.
The credit agreement includes customary affirmative and negative covenants and restrictions. We are in compliance with all covenants of the credit agreement.
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.
As a result of the purchase, we extinguished the financing liability we had previously recorded on our balance sheet.sheet for our primary R&D facility. The difference between the purchase price of theour primary R&D facility and the carrying value of our financing liability at the time of the purchase was $7.7 million. We recognized this amount as a non-cash loss on extinguishment of financing liability for leased facility in our consolidated results of operations in the third quarter of 2017.
We also purchased our manufacturing facility in July 2017 for $14.0 million. We previously accounted for the lease on thisof our manufacturing facility as an operating lease. We capitalized the purchase price of the buildingmanufacturing facility as a fixed asset in the third quarter of 2017.
We financed the purchase of our primary R&D facility and our manufacturing facility, with mortgage debt of $51.3 million and $9.1 million, respectively. 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.
Maturity Schedules
Annual debt and other obligation maturities, including fixed and determinable interest, at December 31, 20172019 are as follows (in thousands):
| 2018 | | $ | 9,617 | | |
| 2019 | | | 22,082 | | |
| 2020 | | | 9,330 | | | $ | 6,260 | |
| 2021 | | | 694,774 | | | | 316,114 | |
| 2022 | | | 2,809 | | | | 3,495 | |
| 2023 | | | | 4,180 | |
| 2024 | | | | 553,006 | |
| Thereafter | | | 71,603 | | | | 64,429 | |
| Subtotal | | $ | 810,215 | | | $ | 947,484 | |
| Less: current portion | | | (53 | ) | | | (2,026 | ) |
| Less: fixed and determinable interest | | | (51,465 | ) | | | (28,014 | ) |
| Less: unamortized portion of debt discount | | | (144,791 | ) | | | (137,975 | ) |
| Plus: Deferred rent | | | 165 | | |
| Plus: lease liabilities | | | | 17,235 | |
| Total | | $ | 614,071 | | | $ | 796,704 | |
Operating Leases
Ionis Leases
We lease a facility adjacent to our manufacturing facility that has laboratory and office space that we use to support our manufacturing facility. We lease this space under a non-cancelable operating lease with an initial term ending in June 2021 and an option to extend the lease for up to two2 five-year periods. Additionally, Akcea leases office space in a building in Cambridge, Massachusetts. A portion of Akcea's operating lease expires in July 2018, with the other portion expiring in April 2020.
We also lease additional office equipmentspaces. We sublease a portion of one of these spaces to Akcea. We lease these spaces under non-cancelable operating leases with initial terms through January 2021.ending in 2023 with options to extend the leases for 1 five-year period. The sublease with Akcea is eliminated in our consolidated financial statements.
Annual future minimum payments
Akcea Lease
Akcea entered into an operating lease agreement for office space located in Boston, Massachusetts for its new corporate headquarters in the second quarter of 2018. The lease commencement date was in August 2018 and Akcea took occupancy in September 2018. Akcea is leasing this space under a non-cancelable operating lease with an initial term ending after 123 months and an option to extend the lease for an additional five-year term. Under the lease agreement, Akcea received a three-month free rent period, which commenced on August 15, 2018, and a tenant improvement allowance up to $3.8 million. Akcea provided the lessor with a letter of credit to secure its obligations under the lease in the initial amount of $2.4 million, to be reduced to $1.8 million on the third anniversary of the rent commencement date and to $1.2 million on the fifth anniversary of the rent commencement date if Akcea meets certain conditions set forth in the lease at each such time.
When we determined our lease term for our operating lease right-of-use assets and lease liabilities for these leases, we did not include the extension options for these leases.
Amounts related to our operating leases were as follows (dollar amounts in millions):
| | At December 31, 2019 | |
| Right-of-use operating lease assets (1) | | $ | 12.6 | |
| Operating lease liabilities (2) | | $ | 17.2 | |
| Weighted average remaining lease term | | 8.1 years | |
| Weighted average discount rate | | | 7.6 | % |
| (1) | Included in deposits and other assets on our consolidated balance sheet. |
| (2) | Current portion of $2.0 million was included in current portion of long-term obligations on our consolidated balance sheet, with the difference included in long-term obligations. |
During the year ended December 31, 2019, we paid $3.9 million of lease payments, which was included in operating activities in our consolidated statement of cash flows.
As of December 31, 20172019, the future payments for our operating lease liabilities are as follows (in thousands):
| | | Operating Leases | |
| 2018 | | $ | 864 | |
| 2019 | | | 636 | |
| 2020 | | | 477 | |
| 2021 | | | 147 | |
| Total minimum payments | | $ | 2,124 | |
| | Operating Leases | |
| Year ending December 31, | | $ | | |
| 2020 | | | 3,285 | |
| 2021 | | | 3,022 | |
| 2022 | | | 2,781 | |
| 2023 | | | 2,520 | |
| 2024 | | | 2,396 | |
| Thereafter | | | 9,465 | |
| Total minimum lease payments | | | 23,469 | |
| Less: | | | | |
| Imputed interest | | | (6,234 | ) |
| Total operating lease liabilities | | $ | 17,235 | |
Rent expense was $3.6 million, $2.6 million and $1.7 million for the year ended December 31, 2017. Rent expense was $2.0 million for each of the years ended December 31, 20162019, 2018 and 2015. We recognized rent expense on a straight line basis over the lease term for the lease on our manufacturing facility, the lease on our building adjacent to our manufacturing facility and Akcea’s office space, which resulted in a deferred rent balance of $0.1 million and $2.1 million at December 31, 2017, and 2016, respectively.
4. Stockholders’Stockholders’ Equity
Preferred Stock
We are authorized to issue up to 15,000,00015 million shares of “blank check” Preferred Stock. As of December 31, 2017,2019, there were no0 shares of Preferred Stock outstanding. We have designated Series C Junior Participating Preferred Stock but have no0 issued or outstanding shares as of December 31, 2017.2019.
Common Stock
At December 31, 20172019 and 2016,2018, we had 300,000,000300 million shares of common stock authorized, of which 124,976,373140.3 million and 121,636,273137.9 million were issued and outstanding, respectively. As of December 31, 2017,2019, total common shares reserved for future issuance were 18,419,727.26.2 million.
During the years ended December 31, 2017, 20162019, 2018 and 2015,2017, we issued 1,706,000, 1,285,0003.1 million, 1.5 million and 1,908,0001.7 million shares of common stock, respectively, for stock option exercises, vesting of restricted stock units, and ESPP purchases. We received net proceeds from these transactions of $119.7 million, $27.9 million and $22.9 million $13.7in 2019, 2018 and 2017, respectively.
Share Repurchase Program
In September 2019, our board of directors approved an initial share repurchase program of up to $125 million and $24.9of our common stock. Our stock repurchase program has no expiration date. Through December 31, 2019, we repurchased 535,000 shares for $34.4 million. In the first quarter of 2020, we repurchased an additional 1.5 million in 2017, 2016 and 2015, respectively.shares for $90.6 million.
Stock Plans
1989 Stock Option Plan
In June 1989, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that, as amended, provides for the issuance of non-qualified and incentive stock options for the purchase of up to 20,000,00020.0 million shares of common stock to our employees, directors, and consultants. The plan expires in January 2024. The 1989 Plan does not allow us to grant stock bonuses or restricted stock awards and prohibits us from repricing any options outstanding under the plan unless our stockholders approve the repricing. Options vest over a four-year period, with 25 percent exercisable at the end of one year from the date of the grant and the balance vesting ratably, on a monthly basis, thereafter and have a term of seven years. At December 31, 2017,2019, a total of 1,603,4030.1 million options were outstanding, of which options to purchase 1,553,2520.1 million shares were exercisable, and 31,8780.04 million shares were available for future grant under the 1989 Plan.
2011 Equity Incentive Plan
In March 2011, our Board of Directors adopted, and the stockholders subsequently approved, a stock option plan that provides for the issuance of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and performance cash awards to our employees, directors, and consultants. In June 2015, and in May 2017 and June 2019, after receiving approval from our stockholders, we amended our 2011 Equity Incentive Plan to increase the total number of shares reserved for issuance. We increased the shares available under our 2011 Equity Incentive Plan from 5,500,0005.5 million to 11,000,00011.0 million in June 2015, from 11.0 million to 16.0 million in May 2017 and from 11,000,00016.0 million to 16,000,00023.0 million in May 2017.June 2019. The plan expires in June 2021. The 2011 Plan does not allow us to reduce the exercise price of any outstanding stock options or stock appreciation rights or cancel any outstanding stock options or stock appreciation rights that have an exercise price or strike price greater than the current fair market value of the common stock in exchange for cash or other stock awards unless our stockholders approve such action. Currently we anticipate awarding only options and restricted stock unit awards to our employees, directors and consultants. Under the 2011 Plan, stock options cannot vest in a period of less than two years and restricted stock unit awards cannot vest in a period of less than three years. We have granted restricted stock unit awards to our employees under the 2011 Plan which vest annually over a four-year period. At December 31, 2017,2019, a total of 7,120,64310.0 million options were outstanding, of which 3,201,7175.4 million were exercisable, 821,7711.7 million restricted stock unit awards were outstanding, and 6,822,3897.4 million shares were available for future grant under the 2011 Plan.
Under the 2011 Plan, we may issue a stock award with additional acceleration of vesting and exercisability upon or after a change in control. In the absence of such provisions, no such acceleration will occur. The stock options and restricted stock unit awards we issue to ourDr. Stanley T. Crooke in his former role as chief executive officer and issued to B. Lynne Parshall in her former role as chief operating officer will accelerate upon a change of control, as defined in the 2011 Plan. In addition, we implemented a change of control and severance benefit plan that provides for change of control and severance benefits to our executive officers, including our chief executive officer and chief financial officer. If we terminate 1 of our executive officers or if an executive officer resigns for good reason during the period that begins three months before and ends twelve months following a change in control of the company, the impacted executive officers’ stock options and RSUs vesting will accelerate for options and RSUs outstanding as of the termination date.
Corporate Transactions and Change in Control under 2011 Plan
In the event of certain significant corporate transactions, our Board of Directors has the discretion to take one or more of the following actions with respect to outstanding stock awards under the 2011 Plan:
| ● | arrange for assumption, continuation, or substitution of a stock award by a surviving or acquiring entity (or its parent company); |
| ● | arrange for the assignment of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award to the surviving or acquiring corporation (or its parent company); |
| ● | accelerate the vesting and exercisability of a stock award followed by the termination of the stock award; |
| ● | arrange for the lapse of any reacquisition or repurchase rights applicable to any shares of our common stock issued pursuant to a stock award; |
| ● | cancel or arrange for the cancellation of a stock award, to the extent not vested or not exercised prior to the effective date of the corporate transaction, in exchange for cash consideration, if any, as the Board, in its sole discretion, may consider appropriate; and |
| ● | arrange for the surrender of a stock award in exchange for a payment equal to the excess of (a) the value of the property the holder of the stock award would have received upon the exercise of the stock award, over (b) any exercise price payable by such holder in connection with such exercise. |
2002 Non-Employee Directors’ Stock Option Plan
In September 2001, our Board of Directors adopted, and the stockholders subsequently approved, an amendment and restatement of the 1992 Non-Employee Directors’ Stock Option Plan, which provides for the issuance of non-qualified stock options and restricted stock units to our non-employee directors. The name of the resulting plan is the 2002 Non-Employee Directors’ Stock Option Plan, (theor the 2002 Plan).Plan. In June 2015, after receiving approval from our stockholders, we amended our 2002 Non-Employee Directors Stock Option Plan to increase the total number of shares reserved for issuance. We increased the shares available under our 2002 Non-Employee Directors Stock Option Plan from 1,200,0001.2 million to 2,000,000.2.0 million. Options under this plan expire ten10 years from the date of grant. Options granted become exercisable in four4 equal annual installments beginning one year after the date of grant. At December 31, 2017,2019, a total of 672,7500.9 million options were outstanding, of which 427,1250.5 million were exercisable, 40,9330.1 million restricted stock unit awards were outstanding, and 635,8670.1 million shares were available for future grant under the 2002 Plan.
Employee Stock Purchase Plan
In June 2009, our Board of Directors adopted, and the stockholders subsequently approved, the amendment and restatement of the ESPP and we reserved an additional 150,000 shares of common stock for issuance thereunder. In each of the subsequent years, we reserved an additional 150,000 shares of common stock for the ESPP resulting in a total of 3,524,5963.7 million shares authorized under the plan as of December 31, 2017.2019. The ESPP permits full-time employees to purchase common stock through payroll deductions (which cannot exceed 10 percent of each employee’s compensation) at the lower of 85 percent of fair market value at the beginning of the purchase period or the end of each six-month purchase period. Under the amended and restated ESPP, employees must hold the stock they purchase for a minimum of six months from the date of purchase. During 2017,2019, employees purchased and we issued to employees 67,4810.05 million shares under the ESPP at a weighted average price of $27.51$40.95 per share. At December 31, 2017,2019, there were 668,2320.7 million shares available for purchase under the ESPP.
Stock Option Activity
The following table summarizes the stock option activity under our stock plans for the year ended December 31, 20172019 (in thousands, except per share and contractual life data):
| | | Number of Shares | | | Weighted Average Exercise Price Per Share | | Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value | | | Number of Shares | | | Weighted Average Exercise Price Per Share | | | Average Remaining Contractual Term (Years) | | | Aggregate Intrinsic Value | |
| Outstanding at December 31, 2016 | | | 9,178 | | | $ | 40.48 | | | | | | |
| Outstanding at December 31, 2018 | | | | 11,311 | | | $ | 47.85 | | | | | | | |
| Granted | | | 3,274 | | | $ | 47.76 | | | | | | | | 2,543 | | | $ | 56.19 | | | | | | | |
| Exercised | | | (1,345 | ) | | $ | 15.74 | | | | | | | | (2,617 | ) | | $ | 40.48 | | | | | | | |
| Cancelled/forfeited/expired | | | (1,710 | ) | | $ | 51.71 | | | | | | | | (236 | ) | | $ | 50.11 | | | | | | | |
| Outstanding at December 31, 2017 | | | 9,397 | | | $ | 44.52 | | | | 4.42 | | | $ | 92,288 | | |
| Exercisable at December 31, 2017 | | | 5,182 | | | $ | 39.10 | | | | 3.33 | | | $ | 80,167 | | |
| Outstanding at December 31, 2019 | | | | 11,001 | | | $ | 51.48 | | | | 4.41 | | | $ | 104,029 | |
| Exercisable at December 31, 2019 | | | | 6,004 | | | $ | 50.95 | | | | 3.34 | | | $ | 59,780 | |
The weighted-average estimated fair values of options granted were $25.42, $26.72$28.76, $25.49 and $27.44$25.42 for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 2016 and 2015 were $49.5$83.8 million, $28.0$34.8 million and $84.7$49.5 million, respectively, which we determined as of the date of exercise. The amount of cash received from the exercise of stock options was $21.2$105.9 million, $12.6$18.9 million and $23.6$21.2 million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. For the year ended December 31, 2017,2019, the weighted-average fair value of options exercised was $52.53.$72.52. As of December 31, 2017,2019, total unrecognized compensation cost related to non-vested stock-based compensation plansstock options was $75.2$97.5 million. We will adjust the total unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize this cost over a weighted average period of 1.21.3 years.
Restricted Stock Unit Activity
The following table summarizes the RSU activity for the year ended December 31, 20172019 (in thousands, except per share data):
| | | Number of Shares | | | Weighted Average Grant Date Fair Value Per Share | | | Number of Shares | | | Weighted Average Grant Date Fair Value Per Share | |
| Non-vested at December 31, 2016 | | | 778 | | | $ | 47.68 | | |
| Non-vested at December 31, 2018 | | | | 1,246 | | | $ | 50.20 | |
| Granted | | | 420 | | | $ | 48.88 | | | | 1,114 | | | $ | 60.23 | |
| Vested | | | (296 | ) | | $ | 43.79 | | | | (422 | ) | | $ | 51.36 | |
| Cancelled/forfeited | | | (39 | ) | | $ | 48.90 | | | | (72 | ) | | $ | 53.39 | |
| Non-vested at December 31, 2017 | | | 863 | | | $ | 49.55 | | |
| Non-vested at December 31, 2019 | | | | 1,866 | | | $ | 55.80 | |
For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, the weighted-average grant date fair value of RSUs granted was $48.88, $41.79$60.23, $51.06 and $65.69$48.88 per RSU, respectively. As of December 31, 2017,2019, total unrecognized compensation cost related to RSUs was $16.5$56.5 million. We will adjust the total unrecognized compensation cost for future changes in estimated forfeitures. We expect to recognize this cost over a weighted average period of 1.21.5 years.
Stock-based Compensation Expense and Valuation Information
The following table summarizes stock-based compensation expense for the years ended December 31, 2017, 20162019, 2018 and 20152017 (in thousands), which was allocated as follows and includes $17.5$37.1 million, $10.1$44.3 million and $6.5$17.5 million of stock-based compensation expense for Akcea employees in 2017, 20162019, 2018 and 2015,2017, respectively:
| | Years Ended December 31, | | | Year Ended December 31, | |
| | 2017 | | 2016 | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Cost of products sold | | | $ | 438 | | | $ | 160 | | | $ | — | |
| Research, development and patent | | $ | 64,521 | | | $ | 55,099 | | | $ | 43,638 | | | | 95,348 | | | | 76,557 | | | | 64,521 | |
| Selling, general and administrative | | | 21,454 | | | | 17,009 | | | | 15,676 | | | | 50,788 | | | | 54,595 | | | | 21,454 | |
| Total | | $ | 85,975 | | | $ | 72,108 | | | $ | 59,314 | | | $ | 146,574 | | | $ | 131,312 | | | $ | 85,975 | |
In the third quarter of 2019, 3 Akcea executive officers terminated their employment and entered into separation agreements with Akcea. As a result, in the third quarter of 2019, Akcea reversed $19.1 million of stock-based compensation expense it had previously recognized related to the executive officers’ stock options and RSUs that were no longer going to vest. In the fourth quarter of 2019, Akcea adjusted its stock-based compensation expense for an additional executive officer who will terminate his employment in April 2020.
Determining Fair Value
Valuation. We measure stock-based compensation expense for equity-classified awards, principally related to stock options, RSUs, and stock purchase rights under the ESPP at the grant date, based on the estimated fair value of the award and we recognize the expense over the employee’s requisite service period. We value RSUs based on the market price of our common stock on the date of grant.
We use the Black-Scholes model to estimate the fair value of stock options granted and stock purchase rights under our ESPP. The expected term of stock options granted represents the period of time that we expect them to be outstanding. We estimate the expected term of options granted based on actual and projected exercise patterns. We recognize compensation expense for stock options granted, RSUs, and stock purchase rights under the ESPP using the accelerated multiple-option approach. Under the accelerated multiple-option approach (also known as the graded-vesting method), we recognize compensation expense over the requisite service period for each separately vesting tranche of the award as though the award were in substance multiple awards, which results in the expense being front-loaded over the vesting period.
For the years ended December 31, 2017, 20162019, 2018 and 2015,2017, we used the following weighted-average assumptions in our Black-Scholes calculations:
Ionis Employee Stock Options:
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 1.8 | % | | | 1.5 | % | | | 1.5 | % | | | 2.3 | % | | | 2.4 | % | | | 1.8 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 65.9 | % | | | 58.7 | % | | | 53.8 | % | | | 60.3 | % | | | 63.0 | % | | | 65.9 | % |
| Expected life | | 4.5 years | | | 4.5 years | | | 4.5 years | | | 4.8 years | | | 4.6 years | | | 4.5 years | |
Ionis Board of Director Stock Options:
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 2.2 | % | | | 1.3 | % | | | 2.1 | % | | | 1.9 | % | | | 2.8 | % | | | 2.2 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 61.2 | % | | | 53.1 | % | | | 52.2 | % | | | 60.7 | % | | | 61.5 | % | | | 61.2 | % |
| Expected life | | 6.6 years | | | 6.5 years | | | 6.9 years | | | 6.6 years | | | 6.6 years | | | 6.6 years | |
Ionis ESPP:
| | | December 31, | | | December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 0.8 | % | | | 0.4 | % | | | 0.1 | % | | | 2.4 | % | | | 1.8 | % | | | 0.8 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 59.9 | % | | | 86.4 | % | | | 51.7 | % | | | 45.6 | % | | | 47.3 | % | | | 59.9 | % |
| Expected life | | 6 months | | | 6 months | | | 6 months | | | 6 months | | | 6 months | | | 6 months | |
Risk-Free Interest Rate. We base the risk-free interest rate assumption on observed interest rates appropriate for the term of our stock option plans or ESPP.
Dividend Yield. We base the dividend yield assumption on our history and expectation of dividend payouts. We have not paid dividends in the past and do not expect to in the future.
Volatility. We use an average of the historical stock price volatility of our stock for the Black-Scholes model. We computed the historical stock volatility based on the expected term of the awards.
Expected Life. The expected term of stock options we have granted represents the period of time that we expect them to be outstanding. We estimated the expected term of options we have granted based on actual and projected exercise patterns.
Forfeitures. We reduce stock-based compensation expense for estimated forfeitures. We estimate forfeitures at the time of grant and revise, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate forfeitures based on historical experience. Our
In addition to our stock plans, Akcea has its own stock plan under which it grants options and RSUs and under which it derives its stock-based compensation expense. The following are the weighted-average Black-Scholes assumptions Akcea used under its plan for the years ended December 31, 2019, 2018 and 2017:
Akcea Employee Stock Options:
| | December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 2.2 | % | | | 2.8 | % | | | 1.9 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 75.4 | % | | | 77.1 | % | | | 79.5 | % |
| Expected life | | 6.09 years | | | 6.08 years | | | 6.06 years | |
Akcea Board of Director Stock Options:
| | December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 1.8 | % | | | 2.9 | % | | | 1.9 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 73.8 | % | | | 78.2 | % | | | 79.4 | % |
| Expected life | | 6.25 years | | | 6.42 years | | | 6.25 years | |
Akcea ESPP:
| | December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| Risk-free interest rate | | | 2.4 | % | | | 1.9 | % | | | 1.1 | % |
| Dividend yield | | | 0.0 | % | | | 0.0 | % | | | 0.0 | % |
| Volatility | | | 60.0 | % | | | 64.2 | % | | | 73.3 | % |
| Expected life | | 6 months | | | 6 months | | | 6 months | |
The following summarizes the Black-Scholes input methodology for Akcea options that differs from the methodology we use for Ionis options:
Volatility. Since Akcea does not have sufficient history to estimate the volatility of its common stock, Akcea calculates its expected volatility based on a blend of its historical forfeiture estimatesvolatility and reported data from selected publicly traded peer companies for which historical information is available. Akcea plans to continue to use this blend to calculate its volatility until the historical volatility of its common stock is sufficient to measure expected volatility for future option grants.
Expected Life. Since Akcea does not have not been materially different from our actual forfeitures.sufficient historical information, it uses the simplified method for estimating its expected term. Under the simplified method Akcea calculates its expected term as the average time-to-vesting and the contractual life of the options. As Akcea gains additional historical information, it will transition to calculating its expected term based on its exercise patterns.
5. Income Taxes
Loss
Income (loss) before income tax (benefit) expensetaxes is comprised of (in thousands):
| | Years Ended December 31, | |
| | 2017 | | 2016 | | 2015 | |
| United States | | $ | (11,802 | ) | | $ | (83,622 | ) | | $ | (87,906 | ) |
| Foreign | | | (11,474 | ) | | | — | | | | — | |
| Loss before income tax (benefit) expense | | $ | (23,276 | ) | | $ | (83,622 | ) | | $ | (87,906 | ) |
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| United States | | $ | 344,280 | | | $ | (69,576 | ) | | $ | (5,289 | ) |
| Foreign | | | 2,489 | | | | (6,580 | ) | | | (11,474 | ) |
| Income (loss) before income taxes | | $ | 346,769 | | | $ | (76,156 | ) | | $ | (16,763 | ) |
F-26
Our income tax expense (benefit) expense was as follows (in thousands):
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Current: | | | | | | | | | | | | | | | | | | |
| Federal | | $ | (7,460 | ) | | $ | 1,067 | | | $ | 379 | | | $ | 35,861 | | | $ | 438 | | | $ | (7,460 | ) |
| State | | | 1,246 | | | | 1,867 | | | | (7 | ) | | | 14,329 | | | | (1,442 | ) | | | 1,246 | |
| Foreign | | | 234 | | | | — | | | | — | | | | 413 | | | | 374 | | | | 234 | |
| Total current income tax (benefit) expense | | | (5,980 | ) | | | 2,934 | | | | 372 | | |
| Total current income tax expense (benefit) | | | | 50,603 | | | | (630 | ) | | | (5,980 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal | | | — | | | | — | | | | — | | | | (7,096 | ) | | | (290,511 | ) | | | — | |
| State | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | |
| Total deferred income tax (benefit) expense | | | — | | | | — | | | | — | | |
| Total income tax (benefit) expense | | $ | (5,980 | ) | | $ | 2,934 | | | $ | 372 | | |
| Total deferred income tax benefit | | | | (7,096 | ) | | | (290,511 | ) | | | — | |
| Total income tax expense (benefit) | | | $ | 43,507 | | | $ | (291,141 | ) | | $ | (5,980 | ) |
Our expense (benefit) for income taxes differs from the amount computed by applying the U.S. federal statutory rate to income (loss) before taxes. The reconciliation between our effectivesources and tax rate on loss from continuing operations andeffects of the statutory U.S. tax rate isdifferences are as follows (in thousands):
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Pre-tax loss | | $ | (23,276 | ) | | | | | $ | (83,622 | ) | | | | | $ | (87,906 | ) | | | | |
| Pre-tax income (loss) | | | $ | 346,769 | | | | | | $ | (76,156 | ) | | | | | $ | (16,763 | ) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Statutory rate | | | (8,147 | ) | | | 35.0 | % | | | (29,268 | ) | | | 35.0 | % | | | (30,767 | ) | | | 35.0 | % | | | 72,822 | | | | 21.0 | % | | | (15,993 | ) | | | 21.0 | % | | | (5,867 | ) | | | 35.0 | % |
| State income tax net of federal benefit | | | 722 | | | | (3.1 | )% | | | (276 | ) | | | 0.3 | % | | | 1 | | | | 0.0 | % | | | 49,119 | | | | 14.2 | % | | | (2,202 | ) | | | 2.9 | % | | | 820 | | | | (4.9 | )% |
| Foreign | | | 4,299 | | | | (18.3 | )% | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | 340 | | | | 0.1 | % | | | 1,735 | | | | (2.3 | )% | | | 4,299 | | | | (25.6 | )% |
| Net change in valuation allowance | | | (76,409 | ) | | | 328.3 | % | | | 55,927 | | | | (66.9 | )% | | | 69,499 | | | | (79.1 | )% | | | (37,765 | ) | | | (10.9 | )% | | | (277,924 | ) | | | 364.9 | % | | | (86,296 | ) | | | 514.8 | % |
| Net operating loss expiration | | | 3,987 | | | | (17.0 | )% | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | 8,864 | | | | (11.6 | )% | | | 3,987 | | | | (23.8 | )% |
| TEGSEDI licensing gain | | | | — | | | | 0.0 | % | | | 59,583 | | | | (78.2 | )% | | | — | | | | 0.0 | % |
| Impact from outside basis differences | | | | (16,344 | ) | | | (4.7 | )% | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % |
| Tax credits | | | (32,769 | ) | | | 140.8 | % | | | (26,954 | ) | | | 32.2 | % | | | (41,284 | ) | | | 47.0 | % | | | (22,296 | ) | | | (6.4 | )% | | | (73,362 | ) | | | 96.3 | % | | | (32,769 | ) | | | 195.5 | % |
| Deferred tax true-up | | | 4,848 | | | | (20.6 | )% | | | 2,591 | | | | (3.1 | )% | | | 1,496 | | | | (1.7 | )% | | | 646 | | | | 0.2 | % | | | 9,947 | | | | (13.1 | )% | | | 4,848 | | | | (28.9 | )% |
| Tax Cuts and Jobs Act | | | 107,323 | | | | (461.1 | )% | | | — | | | | | | | | — | | | | 0.0 | % | |
| Nondeductible items | | | 4,123 | | | | (17.9 | )% | | | 1,149 | | | | (1.4 | )% | | | 1,055 | | | | (1.2 | )% | |
| Tax rate change | | | | 1,811 | | | | 0.5 | % | | | (1,808 | ) | | | 2.4 | % | | | 114,832 | | | | (685.0 | )% |
| Non-deductible compensation | | | | 3,361 | | | | 1.0 | % | | | 3,154 | | | | (4.1 | )% | | | 1,575 | | | | (9.4 | )% |
| Other non-deductible items | | | | 329 | | | | 0.1 | % | | | (569 | ) | | | 0.7 | % | | | 2,548 | | | | (15.2 | )% |
| Akcea deconsolidation adjustment at IPO | | | 469 | | | | (2.0 | )% | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | | | 469 | | | | (2.8 | )% |
| Excess stock-based compensation | | | (14,337 | ) | | | 61.0 | % | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % | |
| Stock-based compensation | | | | (4,837 | ) | | | (1.4 | )% | | | (4,199 | ) | | | 5.5 | % | | | (14,337 | ) | | | 85.5 | % |
| Foreign-derived intangible income benefit | | | | (2,071 | ) | | | (0.6 | )% | | | — | | | | 0.0 | % | | | — | | | | 0.0 | % |
| Other | | | (89 | ) | | | 0.6 | % | | | (235 | ) | | | 0.4 | % | | | 372 | | | | (0.4 | )% | | | (1,608 | ) | | | (0.5 | )% | | | 1,633 | | | | (2.1 | )% | | | (89 | ) | | | 0.5 | % |
| Effective rate | | $ | (5,980 | ) | | | 25.7 | % | | $ | 2,934 | | | | (3.5 | )% | | $ | 372 | | | | (0.4 | )% | | $ | 43,507 | | | | 12.6 | % | | $ | (291,141 | ) | | | 382.3 | % | | $ | (5,980 | ) | | | 35.7 | % |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of our deferred tax assets and liabilities as of December 31, 20172019 and 20162018 are as follows (in thousands):
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2019 | | | 2018 | |
| Deferred Tax Assets: | | | | | | | | | | | | |
| Net operating loss carryovers | | $ | 153,575 | | | $ | 194,372 | | | $ | 20,191 | | | $ | 89,717 | |
| R&D credits | | | 240,290 | | | | 193,845 | | | | 210,455 | | | | 313,652 | |
| Deferred revenue | | | 42,055 | | | | 54,203 | | | | 127,763 | | | | 27,381 | |
| Stock-based compensation | | | 40,090 | | | | 48,209 | | | | 65,703 | | | | 61,027 | |
| Intangible and capital assets | | | 672 | | | | — | | | | 77,861 | | | | 49,007 | |
| Other | | | 12,164 | | | | 26,228 | | | | 12,510 | | | | 8,275 | |
| Total deferred tax assets | | $ | 488,846 | | | $ | 516,857 | | | $ | 514,483 | | | $ | 549,059 | |
| | | | | | | | | | | | | | | | | |
| Deferred Tax Liabilities: | | | | | | | | | | | | | | | | |
| Convertible debt | | $ | (32,391 | ) | | $ | (62,669 | ) | | $ | (6,110 | ) | | $ | (24,018 | ) |
| Intangible and capital assets | | | — | | | | (2,030 | ) | |
| Fixed assets | | | | (1,958 | ) | | | — | |
| Other | | | | (3,884 | ) | | | — | |
| Net deferred tax asset | | $ | 456,455 | | | $ | 452,158 | | | $ | 502,531 | | | $ | 525,041 | |
| Valuation allowance | | | (456,455 | ) | | | (452,158 | ) | | | (196,974 | ) | | | (234,245 | ) |
| | | | | | | | | | |
| Total net deferred tax assets and liabilities | | $ | — | | | $ | — | | | $ | 305,557 | | | $ | 290,796 | |
In accordance with the SEC guidance, we provided
We evaluate our best estimate of the impact of the Tax Act in the period ended December 31, 2017 based on our understanding of the Tax Act and guidance available as of the date of this filing. We remeasured our existing net U.S. deferred tax assets using the enacted rate and other known existing changesregularly to determine whether adjustments to the valuation allowance are appropriate due to changes in facts or circumstances, such as changes in expected future pre-tax earnings, tax code. Thislaw, interactions with taxing authorities and developments in case law. In making this evaluation, we rely on our recent history of pre-tax earnings. Our material assumptions are our forecasts of future pre-tax earnings and the nature and timing of future deductions and income represented by the deferred tax assets and liabilities, all of which involve the exercise of significant judgment. Although we believe our estimates are reasonable, we are required to use significant judgment in determining the appropriate amount of valuation allowance recorded against our deferred tax assets.
We have historically recorded a valuation allowance against all our net deferred tax assets due to cumulative financial statement losses. However, in the fourth quarter of 2018, we reversed the valuation allowance previously recorded against Ionis’ stand-alone U.S. federal net deferred tax assets, resulting in a one-time non-cash tax benefit of $332.1 million. We reversed the valuation allowance in 2018 as we expected to generate U.S. pre-tax income on an Ionis standalone basis in future periods at a level that would result in us fully utilizing our U.S. federal net operating loss carryforwards and our Research and Development and Orphan Drug tax credit carryforwards. We utilized a significant portion of these carryforwards in 2019 to partially offset our estimated federal tax liability for the year.
Our valuation allowance decreased by $37.3 million from December 31, 2018 to December 31, 2019. The decrease relates primarily to the current year utilization of a portion of our net deferred state tax assets, primarily California net operating loss carryovers, that had been fully reserved by the valuation allowance.
We continue to maintain a full valuation allowance of $197.0 million against all of Akcea’s net deferred tax assets and the net state deferred tax assets of Ionis at December 31, 2019 due to uncertainties related to our ability to realize the tax benefits associated with these assets.
We generated combined state taxable income and recognized a combined state tax liability in 2019. We utilized Ionis’ state deferred tax assets, primarily California net operating loss carry forwards, to reduce our combined state tax liability for the year by $59.1 million, which resulted in a total decreasecorresponding reduction to our combined state valuation allowance. We have historically generated combined state net operating losses due primarily to Akcea’s net operating losses. However, Akcea generated net income in these assets by $107.3 million which2019. This was fully offset by a decreasedue to an increase in their research and development and license revenue, primarily related to non-recurring transactions in the first and fourth quarter from Novartis’ exercise of its option to license AKCEA-APO(a)-LRx and Pfizer’s license of AKCEA-ANGPTL3-LRx, respectively. Although Akcea generated net income in 2019, given their history of losses, there can be no assurance that they will achieve profitability in future periods. We expect Akcea to incur additional operating losses for the foreseeable future and therefore we continue to maintain a full valuation allowance. In addition, we recorded a $7.7 millionallowance against our remaining net deferred state tax benefit related to our cumulative prior year AMT tax credit carryovers, which are now reflected as part of a long-term income tax receivable because under the Tax Act, AMT credits are refundable from 2018 through 2021.We also assessed the impact of the deemed repatriation of foreign earnings and the impact of the limitation on tax deductions for executive compensation under the applicable section of the tax code. We have recognized provisional amounts in our financial statements for these and other items. The ultimate impact may differ materially from these provisional amounts due to, among other things, additional analysis, changes in our interpretations and assumptions, additional regulatory guidance that may be issued, and other actions we may take as a result of the Tax Act.assets.
At December 31, 2017,2019, we had federal and state, primarily California, tax net operating loss carryforwards of approximately $561.1$99.5 million and $887.1$117.9 million, respectively. Our federal tax loss carryforwards are available indefinitely. Our California tax loss carryforwards will begin to expire in 2024, unless we use them before then. Our California loss carryforwards continued to expire in 2017.2033. At December 31, 20172019, we also had federal and California research and development tax credit carryforwards of approximately $233.3$198.8 million and $56.2$74.1 million, respectively. Our Federal research and development tax credit carryforwards will begin to expire in 2018.2034. Our California research and development tax credit carryforwards are available indefinitely.
Utilization of the net operating loss and tax credit carryforwards may be subject to an annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
We record a valuation allowance
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to reduceas the balanceTax Cuts and Jobs Act of our net deferred tax assets2017, or the Tax Act. The Tax Act made broad and complex changes to the amount we believe is more-likely-than-notU.S. tax code, including, but not limited to, reducing the U.S. federal corporate income tax rate to 21 percent, imposing a mandatory one-time transition tax on certain unrepatriated earnings of foreign subsidiaries subjecting certain foreign earnings to U.S. taxation through base erosion anti-abuse tax, or BEAT, and global intangible low-taxed income, or GILTI, eliminating the corporate alternative minimum tax, or AMT, and changing how existing AMT credits can be realized. We were required to recognize the tax effect of the tax law changes in the year of enactment. Our accounting for the elements of the Tax Act is complete. We have incurred historical financial statement losses since inception andmade an accounting policy election to treat taxes due on the GILTI inclusion as a result we have a full valuation allowance recorded against our net deferred tax assets. We regularly assess the future realization of our net deferred tax assets and will reduce the valuation allowance in any suchcurrent period in which we determine that all, or a portion, of our deferred tax assets are more-likely-than-not to be realized.expense.
Our valuation allowance increased by $4.3 million from December 31, 2016 to December 31, 2017. The net increase relates to increases from current year activity, offset by a decrease related to the remeasurement of our net deferred tax assets as required by the Tax Act.
Historically, we recognized excess tax benefits associated with stock-based compensation to stockholders' equity only when realized. We followed the with-and-without approach excluding any indirect effects of the excess tax deductions to determine when we should realize excess tax benefits relating to stock-based compensation. Under this approach, we did not realize our excess tax benefits related to stock-based compensation until after we utilize all our other tax benefits available to us. During the year ended December 31, 2016, we realized $1.9 million of such excess tax benefits, and accordingly, we recorded a corresponding credit to additional paid-in capital.
In March 2016, the FASB issued amended guidance to simplify certain aspects of accounting for stock-based payments. We adopted this amended guidance on January 1, 2017. Under the amended guidance, we recognize all excess tax benefits and tax deficiencies as income tax expense or benefit in the period in which they occur.
We analyze filing positions in all U.S. federal, state and foreign jurisdictions where we file income tax returns, and all open tax years in these jurisdictions to determine if we have any uncertain tax positions on any of our income tax returns. We recognize the impact of an uncertain tax position on an income tax return at the largest amount that the relevant taxing authority is more-likely-than not to sustain upon audit. We do not recognize uncertain income tax positions if they have less than 50 percent likelihood of the applicable tax authority sustaining our position.
The following table summarizes our gross unrecognized tax benefits (in thousands):
| | | Years Ended December 31, | | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2019 | | | 2018 | | | 2017 | |
| Beginning balance of unrecognized tax benefits | | $ | 66,999 | | | $ | 51,257 | | | $ | 27,365 | | | $ | 68,301 | | | $ | 78,014 | | | $ | 66,999 | |
| Settlement of prior period tax positions | | | — | | | | (4,033 | ) | | | — | | |
| Decrease for prior period tax positions | | | | (867 | ) | | | (12,814 | ) | | | — | |
| Increase for prior period tax positions | | | 1,520 | | | | 7,928 | | | | 215 | | | | 736 | | | | — | | | | 1,520 | |
| Increase for current period tax positions | | | 9,495 | | | | 11,847 | | | | 23,677 | | | | 1,614 | | | | 3,101 | | | | 9,495 | |
| Ending balance of unrecognized tax benefits | | $ | 78,014 | | | $ | 66,999 | | | $ | 51,257 | | | $ | 69,784 | | | $ | 68,301 | | | $ | 78,014 | |
Included in the balance of unrecognized tax benefits at December 31, 2017,2019, is $63.6$21.7 million that could impact our effective tax rate, if recognized. None of the unrecognized tax benefits currently impactsubject to our effective tax rate due to the fullremaining valuation allowance we have recorded against our deferred tax assets.allowance.
We do not foresee any material changes to our gross unrecognized tax benefits within the next twelve months.
We recognize interest and/or penalties related to income tax matters in income tax expense. We did not0t recognize any accrued interest and penalties related to gross unrecognized tax benefits during the year ended December 31, 2017.2019.
Due to the carryforward of unutilized net operating losses and research and development credits, we
We are subject to taxation in the United StatesU.S. and various state and foreign jurisdictions. Our tax years for 19981999 through 20162018 are subject to examination by the U.S. tax authoritiesfederal, state and our tax years for 2003 through 2016 are subject to examination by the Californiaforeign tax authorities.
We do not provide for a U.S. income tax liability and foreign withholding taxes on undistributed foreign earnings of our foreign subsidiaries.subsidiaries as we consider those earnings to be permanently reinvested. It is not practicable for us to calculate the amount of unrecognized deferred tax liabilities associated with these earnings.
6. Collaborative Arrangements and Licensing Agreements
Strategic PartnershipsPartnership
AstraZeneca
Cardiometabolic and Renal Diseases Collaboration
In July 2015, we and AstraZeneca formed a strategic collaboration to discover and develop antisense therapies for treating cardiovascular and metabolic diseases primarily focused on targets in the kidney and renal diseases. As part of the agreement, we granted AstraZeneca an exclusive license to IONIS-AZ4-2.5-LRx, a drug we designed to treat cardiovascular disease and our first drug that combines our Generation 2.5 and LIgand-Conjugated Antisense, or LICA, technology. We also granted AstraZeneca the option to license a drug for each additional target advanced under this research collaboration. In February 2018, AstraZeneca licensed a second drug under our collaboration, IONIS-AZ5-2.5Rx, a drug we designed to treat a genetically associated form of kidney disease. AstraZeneca is responsible for all further global development, regulatory and commercialization activities and costs for IONIS-AZ4-2.5-LRx andIONIS-AZ5-2.5Rx and any other future drug development candidates AstraZeneca accepts.
Under the terms of the agreement, we received a $65 million upfront payment. Since this agreement has multiple elements, we evaluated the deliverables in this arrangement and determined that none of the deliverables have stand-alone value because of the early stage of research for this collaboration. Therefore, we concluded there is one unit of accounting and we are amortizing the $65 million upfront payment through August 2021. We are eligible to receive license fees and substantive milestone payments of up to more than $4 billion as drugs under this collaboration advance, including up to $1.1 billion for the achievement of development milestones and up to $2.9 billion for regulatory milestones. From inception through December 2017, we have received $93 million in upfront fees, milestone payments, and other payments under this cardiometabolic and renal diseases collaboration, including a $25 million milestone payment we received when we moved the first development candidate into preclinical development, IONIS-AZ4-2.5-LRx in December 2016. Additionally, in February 2018, we earned $30 million when AstraZeneca licensed IONIS-AZ5-2.5Rx. We will earn the next milestone payment of $10 million under this collaboration if we advance a drug under our cardiometabolic research program with AstraZeneca. In addition, we are eligible to receive tiered royalties up to the low teens on sales from any product that AstraZeneca successfully commercializes under this collaboration agreement.
Oncology Collaboration
In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense drugs to treat cancer. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize IONIS-STAT3-2.5Rx for the treatment of cancer and an option to license up to three anti-cancer drugs under separate research programs. AstraZeneca is responsible for all global development, regulatory and commercialization activities for IONIS-STAT3-2.5Rx. We and AstraZeneca have evaluated IONIS-STAT3-2.5Rx in people with advanced metastatic hepatocellular carcinoma and advanced lymphoma. AstraZeneca is evaluating IONIS-STAT3-2.5Rx in combination with Imfinzi (durvalumab), AstraZeneca’s programmed death ligand (PD-L1) blocking drug, in people with head and neck cancer. Under the research program, we are responsible for identifying a development candidate for each of the three anti-cancer research programs. AstraZeneca has the option to license drugs resulting from each of the three anti-cancer research programs, and if AstraZeneca exercises its option for a drug, it will be responsible for all further global development, regulatory and commercialization activities and costs for such drug. The first development candidate identified under the anti-cancer research program was IONIS-KRAS-2.5Rx, which AstraZeneca licensed from us in December 2016. IONIS-KRAS-2.5Rx is a Generation 2.5 antisense drug we designed to directly target KRAS, one of the most frequently mutated genes in cancer.
Under the terms of the agreement, we received $31 million in upfront payments. We recorded revenue of $11.5 million upon receipt of these payments and we have amortized $11.9 million into revenue as we have performed development activities under this collaboration. We recognized the remaining $7.6 million related to the option to license three drugs under the research program through February 2018. In January 2016, we and AstraZeneca amended the agreement for the research program.Under the amended terms of the agreement, we can earn an additional $5 million in milestone payments for advancing a drug under our research program.
We are eligible to receive milestone payments and license fees from AstraZeneca as programs advance in development. In addition, we are eligible to receive tiered royalties up to the low to mid-teens on sales from any drugs resulting from these programs. If AstraZeneca successfully develops IONIS-STAT3-2.5Rx,IONIS-KRAS-2.5Rx and two other drugs under the research program, we could receive license fees and substantive milestone payments of up to more than $750 million, including up to $226 million for the achievement of development milestones and up to $485 million for the achievement of regulatory milestones. From inception through December 2017, we have received $97.8 million in upfront fees, milestone payments, and other payments under this oncology collaboration. We will earn the next milestone payment of $17.5 million if we advance a drug under our cancer research program with AstraZeneca.
Each of our agreements with AstraZeneca will continue until the expiration of all payment obligations under the applicable agreement. In addition, the agreement, or any program under the applicable agreement, may terminate early under the following situations:
| ● | AstraZeneca may terminate the agreement or any program at any time by providing written notice to us; |
| ● | AstraZeneca may terminate the agreement or any program by providing written notice if we undergo a change of control with a third party; and |
| ● | Either we or AstraZeneca may terminate the agreement or any program by providing written notice to the other party upon the other party's uncured failure to perform a material obligation under the agreement, or the entire agreement if the other party becomes insolvent. |
During 2017, 2016 and 2015 we earned revenue of $13.8 million, $64.9 million and $6.4 million, respectively, from our relationship with AstraZeneca, which represented three percent, 19 percent and two percent, respectively, of our total revenue for those periods. Our balance sheets at December 31, 2017 and 2016 included deferred revenue of $41.8 million and $51.5 million, respectively, related to our relationship with AstraZeneca.
Biogen
We have several strategic collaborations with Biogen focused on using antisense technology to advance the treatment of neurological disorders. These collaborations combine our expertise in creating antisense drugsmedicines with Biogen'sBiogen’s expertise in developing therapies for neurological disorders. We developed and licensed to Biogen SPINRAZA, our approved drugmedicine to treat people with spinal muscular atrophy, or SMA. Additionally, we and Biogen are currently developing six other drugs to treat neurodegenerative diseases under these collaborations, including IONIS-SOD1Rx for ALS, IONIS-MAPTRx (formerly IONIS-BIIB4Rx) for Alzheimer’s diseaseand IONIS-C9Rx (formerly IONIS-BIIB5Rx), IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx to treat undisclosed neurodegenerative diseases. In addition to these drugs, we and Biogen are evaluating numerous additional targets to develop drugs to treat neurological diseases. Most recently, in December 2017, we entered into a collaboration with Biogen to identify new antisense drugsmedicines for the treatment of SMA. We and Biogen are currently developing 8 medicines to treat neurodegenerative diseases under these collaborations, including medicines to treat people with ALS, Alzheimer’s diseaseand Parkinson’s disease. In addition to these medicines, our collaborations with Biogen include a substantial research pipeline that addresses a broad range of neurological diseases. From inception through December 2017,2019, we have received nearly $745 millionmore than $2.4 billion from our Biogen collaborations.collaborations, including $1 billion we received from Biogen in the second quarter of 2018 for our 2018 strategic neurology collaboration.
Spinal Muscular Atrophy Collaborations
SPINRAZA
In January 2012, we entered into a collaboration agreement with Biogen to develop and commercialize SPINRAZA, an RNA-targeted therapy for the treatment of SMA. In December 2016, the FDA approved SPINRAZA for the treatment of SMABiogen reported in pediatric and adult patients. In January 2018, Biogen reported2020 that SPINRAZA was availableapproved in over 30 global markets.
Our 201750 countries around the world. From inception through December 2019, we earned more than $1 billion in total revenue included $112.5under our SPINRAZA collaboration, including more than $640 million in commercial revenue from SPINRAZA royalties. In addition to SPINRAZA royalties from inception through December 2017, we have received $436and more than $435 million in payments for advancing SPINRAZA, including $90 million of milestone payments for the approval of SPINRAZA in the EU and Japan we earned during 2017.R&D revenue. We are receiving tiered royalties upranging from 11 percent to the mid-teens15 percent on anynet sales of SPINRAZA. We have exclusively in-licensed patents related to SPINRAZA from Cold Spring Harbor Laboratory and the University of Massachusetts. We paidpay Cold Spring Harbor Laboratory and the University of Massachusetts nominal amounts for license fees and milestone payments we received in 2017. We also pay a low single digit royalty on sales of SPINRAZA. Additionally, we owe a low single digit royalty on futurenet sales of SPINRAZA. Biogen is responsible for all further global development, regulatory and commercialization activities and costs for SPINRAZA.
We completed our performance obligations under our collaboration in 2016, including delivering the license to Biogen in July 2016. We also earned additional milestone payments subsequent to delivering the license to Biogen that we recognized in full in the period each milestone payment became probable because we did not have a performance obligation related to each milestone payment. For example, we received $90 million of milestone payments for the approval of SPINRAZA in the EU and Japan in 2017 and recognized the full amounts into revenue in the period Biogen achieved the milestone events.
New antisense drugsmedicines for the treatment of SMA
In December 2017, we entered into a collaboration agreement with Biogen to identify new antisense drugsmedicines for the treatment of SMA. SMA. Biogen will havehas the option to license therapies arising out of this collaboration following the completion of preclinical studies. Upon licensing, Biogen will be responsible for all further global development, regulatory and commercialization activities and costs for such therapies.therapies. Under the collaboration agreement, we received a $25 million upfront payment in December 2017, which we plan to amortize through December 2019.2017. We will earnreceive development and regulatory substantive milestone payments from Biogen if new drugsmedicines advance towards marketing approval. In total over the term of our collaboration, we are eligible to receive up to $1.2$1.2 billion in license fees, substantive milestone payments and other payments, including up to $80$80 million for the achievement of development milestones, up to $180$180 million for the achievement of commercialization milestones and $800up to $800 million for the achievement of sales milestones. In addition, we are eligible to receive tiered royalties from the mid-teens to mid-20mid-20 percent range on net sales. We will earnachieve the next milestone payment of up to $45$60 millionfor the initiationlicense of a Phase 3 study for a drugmedicine under this collaboration.
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for Biogen. We determined the transaction price to be the $25 million upfront payment we received when we entered into the collaboration. We allocated the transaction price to our single performance obligation. In the fourth quarter of 2019, we completed our R&D services performance obligation under this collaboration. We were recognizing revenue as we performed services based on our effort to satisfy our performance obligation relative to the total effort expected to satisfy our performance obligation. We completed our performance obligation earlier than we previously estimated, as a result, we recognized $8.3 million of additional revenue in the fourth quarter of 2019. We do not have any remaining performance obligations under this collaboration. We will receive development and regulatory milestone payments from Biogen if Biogen advances the development candidate under this collaboration toward marketing approval.
Neurology Collaborations
2018 Strategic Neurology
In December 2012,April 2018, we and Biogen entered into a strategic collaboration agreement to develop and commercialize novel antisense drugsmedicines for a broad range of neurological diseases and entered into a SPA. As part of the collaboration, Biogen gained exclusive rights to upthe use of our antisense technology to three targets to treat neurodegenerative diseases.develop therapies for these diseases for 10 years. We are responsible for the developmentidentification of each ofantisense drug candidates based on selected targets. Biogen is responsible for conducting IND-enabling toxicology studies for the drugs through the completion of the initial Phase 2 clinical study for such drug. selected target. Biogen haswill have the option to license a drug from each of the three programs throughselected target after it completes the completion of the first Phase 2 study for each program. We are currently advancing IONIS-MAPTRx (formerly IONIS-BIIB4Rx) for Alzheimer’s disease under this collaboration. IND-enabling toxicology study. If Biogen exercises its option forto license a drug,medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that drug. medicine.
Under
In the termssecond quarter of the agreement,2018, we received $1 billion from Biogen, comprised of $625 million to purchase our stock at an approximately 25 percent cash premium and $375 million in an upfront payment of $30 million, which we are amortizing through December 2020. Over the term of the collaboration, we are eligible to receive up to $210 million in a license fee and substantive milestone payments per program, plus a mark-up of the cost estimate of the Phase 1 and 2 studies. payment. We are eligible to receive up to $10 million in development milestone payments to support research and development of each program, plus a mark-up of the cost estimate of the Phase 1 and 2 studies. We are also eligible to receive up to $130$270 million in milestone payments per program if Biogenfor each medicine that achieves pre-specified regulatory milestones. marketing approval. In addition, we are eligible to receive tiered royalties up to the mid-teens 20 percent range on sales from any drugs resulting from each of the three programs.net sales. From inception through December 2017,2019, we have received $56over $1 billion in payments under this collaboration, excluding $15 million we generated in the fourth quarter of 2019 for advancing 2 targets under this collaboration. We will achieve the next payment of $7.5 million if Biogen designates another target under this collaboration.
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for Biogen. We determined our transaction price to be $552 million, comprised of $375 million from the upfront payment and $177 million for the premium paid by Biogen for its purchase of our common stock. We determined the fair value of the premium we received by using the stated premium in the SPA and applying a lack of marketability discount. We included a lack of marketability discount in our valuation of the premium because Biogen received restricted shares of our common stock. We allocated the transaction price to our single performance obligation. From inception through December 2019, we have included $597 million in milestone payments and upfront feesin the transaction price for our R&D services performance obligation under this collaboration, including $104 $7.5 million milestone paymentpayments we receivedachieved in 20172019 for advancing 4targets under this collaboration. These milestone payments did not create new performance obligations because they are part of our original R&D services performance obligation. Therefore, we included these amounts in our transaction price for our R&D services performance obligation in the initiation of a Phase 1/2a study of IONIS-MAPTRx.period we achieved the milestone payment. We are recognizing revenue for our R&D services performance obligation as we perform services based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation. We currently estimate we will earn the next milestone payment of $7.5 million if we continue to advance IONIS-MAPTRx.satisfy our performance obligation in June 2028.
2013 Strategic Neurology
In September 2013, we and Biogen entered into a long-term strategic relationship focused on applying antisense technology to advance the treatment of neurodegenerative diseases. As part of the collaboration, Biogen gained exclusive rights to the use of our antisense technology to develop therapies for neurological diseases and has the option to license drugsmedicines resulting from this collaboration. The exclusivity for neurological diseases will last through September 2019, and may be extended for any drug development programs Biogen is pursuing under the collaboration. We will usually be responsible for drug discovery and early development of antisense drugsmedicines and Biogen will have the option to license antisense drugsmedicines after Phase 2 proof of concept.proof-of-concept. In October 2016, we expanded our collaboration to include additional research activities we will perform. If Biogen exercises its option forto license a drug,medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that drug.medicine. We are currently advancing five drugs, IONIS-SOD1Rx, IONIS-C9Rx (formerly IONIS-BIIB5Rx), IONIS-BIIB6Rx, IONIS-BIIB7Rx and IONIS-BIIB8Rx5 medicines in development under this collaboration.collaboration, including a medicine for Parkinson’s disease, 2 medicines for ALS and 2 medicines for undisclosed targets. In December 2018, Biogen will beexercised its option to license 1 of our ALS medicines, tofersen, and as a result Biogen is now responsible for all of the drug discoveryfurther global development, regulatory and developmentcommercialization activities and costs for drugs using other modalities.tofersen.
Under the terms of the agreement, we received an upfront payment of $100 million and are eligible to receive milestone payments, license fees and royalty payments for all drugsmedicines developed throughunder this collaboration, with the specific amounts dependent upon the modality of the molecule advanced by Biogen. If we have a change of control during the first six years of the collaboration, we may be required to refund Biogen a portion of the $100 million upfront payment, with the amount of the potential refund decreasing ratably as we progress through the initial six-year term of the collaboration. We are amortizing the $100 million upfront payment through September 2019. Because the amortization period for the upfront payment will never be less than the initial six-year term of the collaboration, the amount of revenue we recognize from the upfront payment will never exceed the amount that Biogen could potentially require us to refund.
For each antisense molecule that is chosen for drug discovery and development under this collaboration, we are eligible to receive up to approximately $260 million in a license fee and substantive milestone payments. We are eligible to receive up topayments per program. The $260 million per program consists of approximately $60 million for the achievement of research andin development milestones, including amounts related to the cost of clinical trials, and up to $130 million in milestone payments if Biogen achieves pre-specified regulatory milestones. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any antisense medicines developed under this collaboration. From inception through December 2019, we have received over $240 million in upfront fees, milestone payments and other payments under this collaboration. We will achieve the next payment of up to $10 million if we advance a program under this collaboration.
At the commencement of our strategic neurology collaboration, we identified 1 performance obligation, which was to perform R&D services for Biogen. At inception, we determined the transaction price to be the $100 million upfront payment we received and allocated it to our single performance obligation. As we achieve milestone payments for our R&D services, we include these amounts in our transaction price for our R&D services performance obligation. We are recognizing revenue for our R&D services performance obligation based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation. In the third quarter of 2019, we updated our estimate of the total effort we expect to expend to satisfy our performance obligation. As of September 30, 2019, we had completed a significant portion of the research and development services. We expect to complete the remainder of our services in 2020. As a result, we recorded a cumulative catch up adjustment of $16.5 million to decrease revenue in the third quarter of 2019. We will recognize this amount over the estimated remaining period we will perform services. From inception through December 2019, we have included $145 million in total payments in the transaction price for our R&D services performance obligation.
Under this collaboration, we have also generated additional payments that we concluded were not part of our R&D services performance obligation. We recognized each of these payments in full in the respective quarter we generated the payment because we did not have any performance obligations for the respective payment. The following are the payments we generated in 2018 and 2019:
| ● | In the third quarter of 2018, we earned a $10 million milestone payment when Biogen initiated a Phase 1 study of IONIS-C9Rx. |
| ● | In the fourth quarter of 2018, we earned a $35 million license fee when Biogen licensed tofersen from us because Biogen had full use of the licenses without any continuing involvement from us. |
| ● | In the fourth quarter of 2018, we earned a $5 million milestone when Biogen initiated a Proof-of-Concept study for tofersen |
| ● | In the third quarter of 2019, we earned an $8 million milestone payment when Biogen initiated a Phase 1/2 study of ION859 (IONIS-LRRK2Rx) for the treatment of people with Parkinson’s disease under this collaboration. |
| ● | In the fourth quarter of 2019, we earned a $10 million milestone payment when Biogen advanced IONIS-C9Rx. |
2012 Neurology
In December 2012, we and Biogen entered into a collaboration agreement to develop and commercialize novel antisense medicines to up to 3 targets to treat neurodegenerative diseases. We are responsible for the development of each of the medicines through the completion of the initial Phase 2 clinical study for such medicine. Biogen has the option to license a medicine from each of the programs through the completion of the first Phase 2 study for each program. We are currently advancing IONIS-MAPTRx for Alzheimer’s disease and ION581 for Angelman syndrome under this collaboration. If Biogen exercises its option to license a medicine, it will assume all further global development, regulatory and commercialization responsibilities and costs for that medicine. In December 2019, Biogen exercised its option to license IONIS-MAPTRx and as a result Biogen is now responsible for all further global development, regulatory and commercialization activities and costs for IONIS-MAPTRx.
Under the terms of the agreement, we received an upfront payment of $30 million. Over the term of the collaboration, we are eligible to receive up to $210 million in a license fee and milestone payments per program, plus a mark-up on the cost estimate of the Phase 1 and 2 studies. The $210 million per program consists of up to $10 million in development milestone payments, plus a mark-up on the cost estimate of the Phase 1 and 2 studies and up to $130 million in milestone payments if Biogen achieves pre-specified regulatory milestones. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales of any medicines resulting from each of the 3 programs. From inception through December 2019, we have received $130 million in payments under this collaboration, including $45 million we earned when Biogen licensed IONIS-MAPTRx and $10 million when Biogen advanced ION581, both of which occurred in the fourth quarter of 2019. We also achieved a $7.5 million milestone payment in the first quarter of 2020 when we advanced IONIS-MAPTRx. We will achieve the next payment of $12million if we continue to advance IONIS-MAPTRx.
Under our collaboration, we determined we had a performance obligation to perform R&D services. We allocated $40 million in total payments to the transaction price for our R&D services performance obligation. In the third quarter of 2019, we completed our R&D services performance obligation when we designated a development candidate and Biogen accepted the development candidate. Biogen’s decision to accept the development candidate was not within our control. We were recognizing revenue as we performed services based on our effort to satisfy our performance obligation relative to the total effort expected to satisfy our performance obligation. Because Biogen accepted the development candidate earlier than when we were previously estimating, we recognized $6.3 million of accelerated revenue in the third quarter of 2019.
When we commenced development for IONIS-MAPTRx we identified our development work as a separate performance obligation. We are recognizing for our IONIS-MAPTRx development performance obligation based on the percentage of completion. From inception through December 2019, we have included $37.5 million in the transaction price for our IONIS-MAPTRx development performance obligation. We currently estimate we will satisfy our performance obligation in September 2020. Our total transaction price for our IONIS-MAPTRx development performance obligation includes the following payments we achieved in 2019 related to our development work:
| ● | In the second quarter of 2019, we achieved a $7.5 million milestone payment from Biogen when we advanced IONIS-MAPTRx for Alzheimer’s disease under this collaboration. |
| ● | In the fourth quarter of 2019, we achieved a $12 million milestone payment from Biogen when we entered into an agreement to conduct a long-term extension study for IONIS-MAPTRx. |
In the fourth quarter of 2019, we identified another performance obligation upon Biogen’s license of IONIS-MAPTRx because the license we granted to Biogen is distinct from our other performance obligations. We recognized the $45 million license fee for IONIS-MAPTRx as revenue at that time because Biogen had full use of the license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to Biogen.
In the fourth quarter of 2019, we earned a $10 million milestone payment when Biogen advanced ION581. We recognized this milestone payment in full in the fourth quarter of 2019 because we do not have any performance obligations related to this milestone payment.
During the years ended December 31, 2019, 2018 and 2017, we earned the following revenue from our relationship with Biogen (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| SPINRAZA royalties (commercial revenue) | | $ | 293.0 | | | $ | 237.9 | | | $ | 112.5 | |
| R&D revenue | | | 180.6 | | | | 137.1 | | | | 150.6 | |
| Total revenue from our relationship with Biogen | | $ | 473.6 | | | $ | 375.0 | | | $ | 263.1 | |
| Percentage of total revenue | | | 42 | % | | | 63 | % | | | 51 | % |
Our consolidated balance sheet at December 31, 2019 and 2018 included deferred revenue of $525.8 million and $580.9 million, respectively, related to our relationship with Biogen.
Research, Development and Commercialization Partners
AstraZeneca
Cardiovascular, Renal and Metabolic Diseases Collaboration
In July 2015, we and AstraZeneca formed a collaboration to discover and develop antisense therapies for treating cardiovascular, renal and metabolic diseases. Under our collaboration, AstraZeneca has licensed 3 medicines from us: IONIS-AZ4-2.5-LRx, a medicine we designed to treat cardiovascular disease and our first medicine that combines our Generation 2.5 and LICA technology, ION532, a medicine we designed to treat a genetically associated form of kidney disease and ION839, a medicine we designed to inhibit an undisclosed target to treat patients with nonalcoholic steatohepatitis, or NASH. AstraZeneca is responsible for all further global development, regulatory and commercialization activities and costs for each of the medicines it has licensed and any medicines AstraZeneca licenses in the future.
Under the terms of the agreement, we received a $65 million upfront payment. We are eligible to receive license fees and milestone payments of up to more than $4 billion as medicines under this collaboration advance, including up to $1.1 billion for the achievement of development milestones and up to $2.9 billion for regulatory milestones. In addition, we are eligible to receive tiered royalties up to the low teens on net sales from any product that AstraZeneca successfully commercializes under this collaboration agreement. We will achieve the next payment of $10 million under this collaboration if we advance a medicine under this collaboration. From inception through December 2019, we have received over $175 million in upfront fees, license fees, milestone payments, and other payments under this collaboration, including a $10 million milestone payment we earned in the fourth quarter of 2019 when AstraZeneca initiated a Phase 1 trial for ION839.
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for AstraZeneca. We determined the transaction price to be the $65 million upfront payment we received and we allocated it to our single performance obligation. We are recognizing revenue for our R&D services performance obligation as we perform services based on our effort to satisfy this performance obligation relative to our total effort expected to satisfy our performance obligation. We currently estimate we will satisfy this performance obligation in August 2021. As we achieve milestone payments for our R&D services, we include these amounts in our transaction price for our R&D services performance obligation. From inception through December 2019, we have included $90 million in payments in the transaction price for our R&D services performance obligation.
Under this collaboration, we have also generated additional payments that we concluded were not part of our R&D services performance obligation. We recognized each of these payments in full in the respective quarter we generated the payment because the payments were distinct and we did not have any performance obligations for the respective payment. The following are the payments we have earned:
| ● | In the first quarter of 2018, we earned 2$30 million license fees when AstraZeneca licensed ION532 and ION839 because AstraZeneca had full use of the licenses without any continuing involvement from us. |
| ● | In the third quarter of 2018, we earned a $10 million milestone payment when AstraZeneca initiated a Phase 1 study of IONIS-AZ4-2.5-LRx. |
| ● | In the fourth quarter of 2019, we earned a $10 million milestone payment when AstraZeneca initiated a Phase 1 study of ION839. |
Oncology Collaboration
In December 2012, we entered into a collaboration agreement with AstraZeneca to discover and develop antisense medicines to treat cancer. As part of the agreement, we granted AstraZeneca an exclusive license to develop and commercialize danvatirsen for the treatment of cancer. AstraZeneca is responsible for all global development, regulatory and commercialization activities for danvatirsen. We and AstraZeneca have evaluated danvatirsen in people with head and neck cancer, advanced lymphoma and advanced metastatic hepatocellular carcinoma. AstraZeneca is evaluating danvatirsen in combination with durvalumab, AstraZeneca’s PD-L1, blocking medicine, in people with head and neck cancer, metastatic bladder cancer and metastatic non-small cell lung cancer. We and AstraZeneca also established an oncology research program. AstraZeneca has the option to license medicines resulting from the program, and if AstraZeneca exercises its option to license a medicine, it will be responsible for all further global development, regulatory and commercialization activities and costs for such medicine. In the fourth quarter of 2018, we added ION736 (formerly IONIS-AZ7-2.5Rx) to our preclinical pipeline, a second medicine under our oncology collaboration.
Under the terms of this agreement, we received $31 million in upfront payments. We are eligible to receive milestone payments and license fees from AstraZeneca as programs advance in development. If AstraZeneca successfully develops danvatirsen and ION736 under the research program, we could receive license fees and milestone payments of up to more than $450 million, including up to $152 million for the achievement of development milestones and up to $275 million for the achievement of regulatory milestones. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any antisense drugs developed under this collaboration. If other modalities are chosen, such as small molecules or monoclonal antibodies, we are eligible to receive up to $90 million in substantive milestone payments, including up to $35 million for the achievement of research and development milestones and up to $55 million for the achievement of regulatory milestones. In addition, we are eligible to receive tiered single-digit royalties on salesmedicines resulting from any drugs using non-antisense modalities developed under this collaboration.these programs. From inception through December 2017,2019, we have received $165over $125 million in upfront fees, milestone payments, and other payments under this oncology collaboration, including $15nearly $30 million in milestone payments we receivedachieved when AstraZeneca advanced danvatirsen and ION736, in 2017 for validating two undisclosed neurological disease targets.the fourth quarter of 2018. We will earnachieve the next milestone payment of up to $10$25 million if we advance a medicine under our cancer research program with AstraZeneca.
At the commencement of this collaboration, we identified 4 performance obligations, 3 of which we completed in March 2014 and we completed the remaining R&D services performance obligation in February 2018. In the fourth quarter of 2018, we earned a $17.5 million milestone payment and a $10 million milestone payment when AstraZeneca advanced 2 programs under thisour collaboration. We recognized these milestone payments in full in the fourth quarter because we do not have any performance obligations related to these milestone payments.
Each of our agreements with Biogen will continue until
During the earlier of the date all of Biogen's options to obtain the exclusive licenses under the applicable agreement expire unexercised or, if Biogen exercises its option, until the expiration of all payment obligations under the applicable agreement. In addition, each agreement, or any program under an agreement, may terminate early underyears ended December 31, 2019, 2018 and 2017, we earned the following situations:
| ● | Biogen may terminate the agreement or any program at any time by providing written notice to us; |
| ● | Under specific circumstances, if we are acquired by a third party with a product that directly competes with a compound being developed under the agreement, Biogen may terminate the affected program by providing written notice to us; |
| ● | If, within a specified period of time, any required clearance of a transaction contemplated by an agreement under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, is not received, then either we or Biogen may terminate the affected program by providing written notice to the other party; and |
| ● | Either we or Biogen may terminate any program by providing written notice to the other party upon the other party's uncured failure to perform a material obligation under the agreement with respect to the affected program, or the entire agreement if the other party becomes insolvent. |
During 2017, 2016 and 2015, we earned revenue of $259.8 million, $207.9 million and $106.2 million, respectively, from our relationship with Biogen, which represented 51 percent, 60 percent and 37 percent, respectively, of our total revenue for those periods. AstraZeneca (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 28.1 | | | $ | 120.7 | | | $ | 21.6 | |
| Percentage of total revenue | | | 3 | % | | | 20 | % | | | 4 | % |
Our consolidated balance sheetssheet at December 31, 20172019 and 20162018 included deferred revenue of $69.3$25.0 million and $67.5$40.1 million, respectively, related to our relationship with Biogen.AstraZeneca.
Research, Development and Commercialization Partners
Bayer
In May 2015, we entered into an exclusive license agreement with Bayer to develop and commercialize IONIS-FXIRx for the prevention of thrombosis. We were responsible for completing a Phase 2 study of IONIS-FXIRx in people with end-stage renal disease on hemodialysis. Under the terms of the agreement, we received a $100 million upfront payment in the second quarter of 2015. We recorded revenue of $91.2 million related to the license for IONIS-FXIRx in June 2015 and we recognized the majority of the remaining amount related to development activities for IONIS-FXIRx through November 2016.
In February 2017, we amended our agreement with Bayer to advance IONIS-FXIRx and to initiate development of IONIS-FXI-LRx, which Bayer licensed. In conjunction with the decision to advance these programs, we received a $75 million payment from Bayer. We recorded revenue of $64.9 million related to the license forIn October 2019, Bayer decided it would advance IONIS-FXI-LRx in February 2017, and we are recognizing the remaining amount over the period we are performing the ongoing development activities for IONIS-FXI-LRx and IONIS-FXIRx through May 2019. We are conducting a Phase 2b study evaluating IONIS-FXIRx in people with end-stage renal disease on hemodialysis to finalize dose selection. Additionally, we plan to develop IONIS-FXI-LRx through Phase 1. Following these studies and Bayer's decision to further advance these programs, following positive clinical results. Bayer will beis now responsible for all global development, regulatory and commercialization activities and costs for both drugs. We are eligible to receive additional milestone payments as each drug advances toward the market. In total over the term of our collaboration, weFXI program.
We are eligible to receive up to $385 million in license fees, substantive milestone payments and other payments, including up to $125 million for the achievement of development milestones and up to $110 million for the achievement of commercialization milestones. In addition, we are eligible to receive tiered royalties in the low to high 20 percent range on gross margins of both drugsmedicines combined. From inception through December 2017,2019, we have received over $175$185 million from our Bayer collaboration.collaboration, including a $10 million milestone payment we earned in the fourth quarter of 2019 when Bayer decided it would advance IONIS-FXI-LRx. We will earnachieve the next payment of $20 million if Bayer initiates a Phase 3 study for the FXI program.
At the commencement of this collaboration, we identified 3 performance obligations, the license of IONIS-FXIRx, which we delivered in May 2016, R&D services and delivery of API, both of which we completed in November 2016.
In February 2017, when we amended our collaboration with Bayer, we identified 2 new performance obligations, 1 for the license of IONIS-FXI-LRx and 1 for R&D services. We determined the transaction price to be the $75 million payment. We allocated $64.9 million to the license of IONIS-FXI-LRx based on its estimated relative stand-alone selling price and recognized the associated revenue upon our delivery of the license in the first quarter of 2017. We allocated $10.1 million to our R&D services performance obligation based on an estimated relative stand-alone selling price. We recognized revenue for our R&D services performance obligation as we performed services based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation which we completed in the third quarter of 2019.
In the fourth quarter of 2019, we earned a $10 million milestone payment when Bayer decided it would advance IONIS-FXI-LRx. We recognized this milestone payment in full in the fourth quarter of $10 million if2019 because we advance a program underdo not have any performance obligations related to this collaboration.milestone payment.
Our agreement with Bayer will continue untilDuring the expiration of all payment obligations under the agreement. In addition, the agreement, or any program under the agreement, may terminate early underyears ended December 31, 2019, 2018 and 2017, we earned the following situations:
| ● | Bayer may terminate the agreement or any program at any time by providing written notice to us; |
| ● | Either we or Bayer may terminate the agreement or any program by providing written notice to the other party upon the other party’s uncured failure to perform a material obligation under the agreement, or the entire agreement if the other party becomes insolvent. |
During 2017, 2016 and 2015 we earned revenue of $69.2 million, $5.4 million and $93.4 million, respectively, from our relationship with Bayer which represented 14 percent, two percent and 33 percent, respectively, of our total revenue for those periods. (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 14.3 | | | $ | 5.0 | | | $ | 67.1 | |
| Percentage of total revenue | | | 1 | % | | | 1 | % | | | 13 | % |
Our consolidated balance sheet at December 31, 20172019 and 20162019 included deferred revenue of $7.3$2.4 million and $1.4$4.3 million, respectively, related to our relationship with Bayer.
GSK
In March 2010, we entered into an alliance with GSK using our antisense drug discovery platform to discover and develop new drugsmedicines against targets for rare and serious diseases, including infectious diseases and some conditions causing blindness. Under the terms of the agreement, we received $38 million in upfront and expansion payments which we amortized through September 2017.
In August 2017, as part of a reprioritization of its pipeline and strategic review of its Rare Diseases business,$35 million. Our collaboration with GSK declined its options for inotersen, our Phase 3 drug to treat people with TTR amyloidosis and IONIS-FB-LRx (formerly IONIS-GSK4-LRx), an antisense drug to treat complement-mediated diseases. We are continuing to advance each of these drugs independently.
GSK, consistent with its focus on treatments for infectious diseases, continues to advance two drugscurrently includes 2 medicines targeting hepatitis B virus, or HBV, under our collaboration:HBV: IONIS-HBVRx and IONIS-HBV-LRx. GSK is currently conducting Phase 2 studies for both of these drugs,, which we designed to reduce the production of viral proteins associated with HBV infection. In March 2016, we andthe third quarter of 2019, following positive Phase 2 results, GSK amended the development plan for IONIS-HBVRx to allow GSK to conduct all further development activities for thislicensed our HBV program. GSK hasis responsible for all global development, regulatory and commercialization activities and costs for the exclusive option to license the drugs resulting from this alliance at Phase 2 proof-of-concept for a license fee.HBV program.
Under our agreement, if GSK successfully develops these drugsmedicines and achieves pre-agreed sales targets, we could receive license fees and substantive milestone payments of up to $262 million, including up to $47.5 million for the achievement of development milestones, up to $120 million for the achievement of regulatory milestones and up to $70 million for the achievement of commercialization milestones. From inception through December 2017, we have received more than $162 million in payments under this alliance with GSK. We will earn the next milestone payment of up to $15 million for the initiation of a Phase 3 study for the HBV program. In addition, we are eligible to receive tiered royalties up to the mid-teens on net sales from any product that GSK successfully commercializes under this alliance.
Our From inception through December 2019, we have received more than $189 million in payments under this alliance with GSK, including a $25 million license fee we earned in the third quarter of 2019 when GSK licensed the HBV program. We will continue untilachieve the earliernext payment of $15 million when GSK initiates a Phase 3 study of a medicine under this program.
We completed our R&D services performance obligations under our collaboration in March 2015. We identified a new performance obligation when we granted GSK the license of the dateHBV program and assignment of related intellectual property rights in the third quarter of 2019 because the license is distinct from our other performance obligations. We recognized the $25 million license fee for the HBV program as revenue at that alltime because GSK had full use of GSK's optionsthe license without any continuing involvement from us. Additionally, we did not have any further performance obligations related to obtain the exclusive licenses under the agreement expire unexercised or, if GSK exercises its option, until the expiration of all paymentlicense after we delivered it to GSK.
We do not have any remaining performance obligations under our collaboration with GSK; however, we can still earn additional payments and royalties as GSK advances the agreement. In addition,HBV program.
During the agreement, or any program under the agreement, may terminate early underyears ended December 31, 2019, 2018 and 2017, we earned the following situations:
| ● | GSK may terminate any program, at any time by providing written notice to us; and |
| ● | Either we or GSK may terminate any program by providing written notice to the other party upon the other party's uncured failure to perform a material obligation under the agreement with respect to the affected program, or the entire agreement if the other party becomes insolvent. |
During 2017, 2016 and 2015, we earned revenue of $8.6 million, $12.3 million and $33.3 million respectively, from our relationship with GSK which represented two percent, four percent and 12 percent, respectively, of(in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 25.4 | | | $ | 1.6 | | | $ | 14.8 | |
| Percentage of total revenue | | | 2 | % | | | 0 | % | | | 3 | % |
We did 0t have any deferred revenue from our total revenue for those years. Our balance sheetrelationship with GSK at December 31, 2016 included deferred revenue of $2.1 million, related to our relationship with GSK.2019 and 2018.
Janssen Biotech, Inc.
In December 2014, we entered into a collaboration agreement with Janssen Biotech, Inc. to discover and develop antisense drugsmedicines that can be locally administered, including oral delivery, to treat autoimmune disorders of the gastrointestinalGI tract. Janssen hashad the option to license drugsmedicines from us through the designation of a development candidatecandidates for up to three3 programs. Under our collaboration, Janssen licensed ION253 in November 2017, which is currently in preclinical development. Prior to option exerciseJanssen’s license of ION253, we arewere responsible for the discovery activities to identify a development candidate. Ifcandidates. Under the license, Janssen exercises an option for one of the programs, it will beis responsible for the global development, regulatory and commercial activities under that program. for ION253.
Under the terms of the agreement, we received $35 million in upfront payments, which we amortized through November 2017.payments. We are eligible to receive up to more than $800$285 million in license fees and substantive milestone payments for these programs, including up to $175$65 million for the achievement of development milestones, up to $440$160 million for the achievement of regulatory milestones and up to $180$60 million for the achievement of commercialization milestones. From inception through December 2017,2019, we have received $61.8 million, including $15 million in license fees when Janssen licensed IONIS-JBI1-2.5Rx and IONIS-JBI2-2.5Rx from us in 2016 and 2017, respectively. We also received $5 million in January 2018 for the initiation of a Phase 1 study of IONIS-JBI1-2.5Rx in late 2017.over $75 million. In addition, we are eligible to receive tiered royalties up to the near teens on net sales from any drugsmedicines resulting from this collaboration. We will earnachieve the next milestone payment of $5 million if Janssen chooses another targetcontinues to advance a target under this collaboration.
F-32
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for Janssen. We determined the transaction price to be the $35 million upfront payments we received. We allocated the $35 million to our single performance obligation. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance, which ended in November 2017.
Our agreement
We identified separate performance obligation when Janssen licensed ION253 under our collaboration because the license we granted to Janssen was distinct from our other performance obligations. We recognized the $5 million license fee for ION253 in November 2017, because Janssen had full use of the licenses without any continuing involvement from us. Additionally, we did not have any further performance obligations related to the license after we delivered it to Janssen.
During the years ended December 31, 2019, 2018 and 2017, we earned the following revenue from our relationship with Janssen will continue until(in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 0.1 | | | $ | 6.6 | | | $ | 36.0 | |
| Percentage of total revenue | | | 0 | % | | | 1 | % | | | 7 | % |
We did 0t have any deferred revenue from our relationship with Janssen at December 31, 2019 and 2018.
Roche
Huntington’s Disease
In April 2013, we formed an alliance with Hoffman-La Roche Inc. and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for HD based on our antisense technology. Under the earlieragreement, we discovered and developed tominersen, an antisense medicine targeting HTT protein. We developed tominersen through completion of our Phase 1/2 clinical study in people with early stage HD. In December 2017, upon completion of the date that allPhase 1/2 study, Roche exercised its option to license tominersenand is now responsible for the global development, regulatory and commercialization activities and costs for tominersen.
Under the terms of Janssen’s options to obtain the exclusive licenses under the agreement, expire unexercised or, if Janssen exercises its option, untilwe received an upfront payment of $30 million in April 2013 and an additional $3 million payment in 2017. We are eligible to receive up to $365 million in a license fee and milestone payments including up to $70 million for the expirationachievement of all payment obligations underdevelopment milestones, up to $170 million for the agreement.achievement of regulatory milestones and up to $80 million for the achievement of commercialization milestones. In addition, we are eligible to receive up to $136.5 million in milestone payments for each additional medicine successfully developed. We are also eligible to receive tiered royalties up to the agreement, ormid-teens on any program undernet sales of any product resulting from this alliance. From inception through December 2019, we have received over $145 million in upfront fees, milestone payments and license fees for advancing tominersen, including $35 million in milestone payments we earned in the agreement, may terminate early underfirst quarter of 2019 when Roche dosed the first patient in a Phase 3 study for tominersen. We will achieve the next payment of $15 million if Roche advances tominersen.
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for Roche. We determined the transaction price to be the $30 million upfront payment we received and allocated it to our single performance obligation. As we achieved milestone payments for our R&D services, we included these amounts in our transaction price for our R&D services performance obligation. We recognized revenue for our R&D services performance obligation over our period of performance, which ended in September 2017.
Under this collaboration, we have also generated additional payments that we concluded were not part of our R&D services performance obligation. We recognized each of these payments in full in the respective quarter we generated the payment because the payments were distinct and we did not have any performance obligations for the respective payment. The following situations:are the payments we have earned:
| ● | Janssen may terminateIn the agreement orfourth quarter of 2017, we earned a $45 million license fee when Roche licensed tominersen because Roche had full use of the license without any program at any time by providing written notice to us; andcontinuing involvement from us. |
| ● | EitherIn the first quarter of 2019, we or Janssen may terminate any program by providing written notice toearned $35 million in milestone payments when Roche dosed the other party uponfirst patient in the other party’s uncured failure to perform a material obligation underPhase 3 study of tominersen in the agreement, or the entire agreement if the other party becomes insolvent.first quarter of 2019. |
We do not have any remaining performance obligations related to tominersen under this collaboration with Roche; however, we can still earn additional payments and royalties as Roche advances tominersen.
IONIS-FB-LRx for Complement-Mediated Diseases
In October 2018, we entered into a collaboration agreement with Roche to develop IONIS-FB-LRx for the treatment of complement-mediated diseases. We are currently conducting Phase 2 studies in two disease indications for IONIS-FB-LRx, one for the treatment of patients with geographic atrophy, or GA, the advanced stage of dry age-related macular degeneration, or AMD, and a second for the treatment of patients with IgA nephropathy. Roche has the option to license IONIS-FB-LRx at the completion of these studies. Upon licensing, Roche will be responsible for all further global development, regulatory and commercialization activities and costs.
Under the terms of this agreement, we received a $75 million upfront payment in October 2018. We are eligible to receive up to $684 million in development, regulatory and sales milestone payments and license fees. In addition, we are also eligible to receive tiered royalties from the high teens to 20 percent on net sales. We will achieve the next payment of $20 million when we advance the Phase 2 study in patients with dry AMD.
At the commencement of this collaboration, we identified 1 performance obligation, which was to perform R&D services for Roche. We determined the transaction price to be the $75 million upfront payment we received and allocated it to our single performance obligation. We are recognizing revenue for our R&D services performance obligation as we perform services based on our effort to satisfy our performance obligation relative to our total effort expected to satisfy our performance obligation. We currently estimate we will satisfy our performance obligation in December 2022.
During 2017, 2016the years ended December 31, 2019, 2018 and 20152017, we earned the following revenue of $33.5 million, $27.3 million and $8.9 million, respectively, from our relationship with Janssen. Roche (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 57.0 | | | $ | 8.3 | | | $ | 55.7 | |
| Percentage of total revenue | | | 5 | % | | | 1 | % | | | 11 | % |
Ourconsolidated balance sheet at December 31, 20162019 and 2018 included deferred revenue of $17.5$52.3 million and $72.6 million related to our relationship with Janssen.Roche, respectively.
Akcea Collaborations
The following collaboration agreements relate to Akcea, our majority owned affiliate. Akcea is responsible for the development activities under these collaborations. As such, Akcea recognizes the associated revenue earned, cash received and expenses incurred in its statement of operations, which we reflect in our consolidated results. We also reflect the noncontrolling interest attributable to other owners of Akcea’s common stock in a separate line on our statement of operations and a separate line within stockholders’ equity on our consolidated balance sheet.
For each of Akcea's collaborations Akcea pays us sublicense fees for payments that it receives and we recognize those fees as revenue in our Ionis Core operating segment results and Akcea recognizes the fees as R&D expense. In our consolidated results, we eliminate any sublicense revenue and expense.
Novartis
In January 2017, we and Akcea initiated a collaboration with Novartis to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx.Under the collaboration agreement, Novartis has an exclusive option to develop and commercialize AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Akcea is responsible for completing a Phase 2 program, conducting an end-of-Phase 2 meeting with the FDA and providing API for each drug. If Novartis exercises an option for one of these drugs, Novartis will be responsible for all further global development, regulatory and commercialization activities and costs for such drug.
Akcea received a $75 million upfront payment in the first quarter of 2017, of which it retained $60 million and paid us $15 million as a sublicense fee. IfIn February 2019, Novartis exercises its option forlicensed AKCEA-APO(a)-LRx and Akcea earned a drug, Novartis will pay Akcea a license fee equal to $150 million license fee. Akcea paid us $75 million as a sublicense fee in 2.8 million shares of Akcea common stock. Novartis is responsible for each drug it licenses. In addition,conducting and funding all future development, regulatory and commercialization activities for AKCEA-APO(a)-LRx, including a global Phase 3 cardiovascular outcomes study, which Novartis initiated in December 2019.In connection with Novartis’ license of AKCEA-APO(a)-LRx, Akcea and Novartis established a more definitive framework under which the companies would negotiate the co-commercialization of AKCEA-APO(a)-LRx in selected markets. Included in this framework is an option by which Novartis could solely commercialize AKCEA-APO(a)-LRx in exchange for Novartis paying Akcea increased commercial milestone payments based on sales of AKCEA-APO(a)-LRx. When Novartis decided to not exercise its option for AKCEA-APOCIII-LRx, Akcea retained rights to develop and commercial AKCEA-APOCIII-LRx.
Under the collaboration, Akcea is eligible to receive up to $600$675 million in substantive milestone payments, including $25 million for the achievement of a development milestone, up to $290 million for the achievement of regulatory milestones and up to $285$360 million for the achievement of commercialization milestones. In addition, for AKCEA-APOCIII-LRx, Akcea is eligible to receive up to $530 million in substantive milestone payments, including $25 million for the achievement of a development milestone, up to $240 million for the achievement of regulatory milestones and up to $265 million for the achievement of commercialization milestones. Akcea plans to co-commercialize any licensed drug commercialized by Novartis in selected markets, under terms and conditions that it plans to negotiate with Novartis in the future, through the specialized sales force Akcea is building to commercialize volanesorsen. Following Novartis’ exercise of its option for either drug, Akcea will earn the next milestone payment of $25 million if Novartis advances the Phase 3 study for either drug. Akcea is also eligible to receive tiered royalties in the mid-teens to low 20 percent range on net sales of AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx. Akcea will pay 50 percent of these license fees, milestone payments and royalties to us as a sublicense fee.fees.
The agreement with Novartis will continue until the earlier of the date that all of Novartis’ options to obtain the exclusive licenses under the agreement expire unexercised or, if Novartis exercises its options, until the expiration of all payment obligations under the agreement. In addition, the agreement as a whole or with respect to any drug under the agreement, may terminate early under the following situations:
| ● | Novartis may terminate the agreement as a whole or with respect to any drug at any time by providing written notice to us; |
| ● | Either we or Novartis may terminate the agreement with respect to any drug by providing written notice to the other party in good faith that we or Novartis has determined that the continued development or commercialization of the drug presents safety concerns that pose an unacceptable risk or threat of harm in humans or would violate any applicable law, ethical principles, or principles of scientific integrity; |
| ● | Either we or Novartis may terminate the agreement for a drug by providing written notice to the other party upon the other party’s uncured failure to perform a material obligation related to the drug under the agreement, or the entire agreement if the other party becomes insolvent; and |
| ● | We may terminate the agreement if Novartis disputes or assists a third party to dispute the validity of any of our patents. |
In conjunction with this collaboration, we and Akcea entered into a SPA with Novartis. As part of the SPA, Novartis purchased 1.6 million shares of our common stock for $100 million in the first quarter of 2017. As part of the SPA, Novartis was required to purchase $50 million of Akcea’s common stock at the IPO price or our common stock at a premium if an IPO did not occur by April 2018. Under the SPA, in July 2017, Novartis purchased $50 million of Akcea’s common stock in a separate private placement concurrent with the completion of Akcea's IPO at a price per share equal to the IPO price.
To determine
At the amountcommencement of revenue to recognize under our agreements with Novartis, we first concluded that we would account for thethis collaboration, and SPA agreements as a single multiple element arrangement. We nextAkcea identified four4 separate units of accounting under the arrangement, each with stand-alone value:performance obligations:
| ● | DevelopmentR&D services for AKCEA-APO(a)-LRx;
|
| ● | DevelopmentR&D services for AKCEA-APOCIII-LRx;
|
| ● | API for AKCEA-APO(a)-LRx; and |
| ● | API for AKCEA-APOCIII-LRx. |
Akcea determined that the total consideration underR&D services for each medicine and the arrangement was $180.0API for each medicine were distinct from its other performance obligations.
Akcea determined our transaction price to be $108.4 million, which includedcomprised of the following:
| ● | $75 million from the upfront payment; |
| ● | $100 million from our common stock Novartis purchased under the SPA, including $28.428.4 million for the premium paid by Novartis for its purchase of our common stock at a premium in the first quarter of 2017; and |
| ● | $5.0 million for the potential premium Novartis would have paid if they purchased our common stock in the future. |
We firstAkcea allocated $71.6 million of the consideration to equitytransaction price based on the fair value of our common stock Novartis purchased. Next, we allocated the remaining consideration of $108.4 million based on the relativeestimated stand-alone selling price of each unit of accountingperformance obligation as follows:
| ● | $64.0 million for the developmentR&D services for AKCEA-APO(a)-LRx; |
| ● | $40.1 million for the developmentR&D services for AKCEA-APOCIII-LRx; |
| ● | $1.5 million for the delivery of AKCEA-APO(a)-LRx API; and |
| ● | $2.8 million for the delivery of AKCEA-APOCIII-LRx API. |
We are recognizing
Akcea recognized revenue related to each of the performance obligations as follows:
| ● | Akcea completed its R&D services performance obligation for AKCEA-APO(a)-LRx in second quarter of 2019. As such, Akcea recognized all revenue it allocated to its AKCEA-APO(a)-LRx R&D services as of the end of the second quarter of 2019; |
| ● | Akcea completed its R&D services performance obligation for AKCEA-APOCIII-LRx in the fourth quarter of 2019 because Novartis elected to terminate the strategic collaboration for AKCEA-APOCIII-LRx during the period. As a result, Akcea was not required to provide any further R&D services, as such, Akcea recognized all revenue it allocated to its AKCEA-APOCIII-LRx LRx R&D services as of the end of the fourth quarter of 2019; |
| ● | Akcea recognized the amount attributed to AKCEA-APO(a)-LRx API when Akcea delivered it to Novartis in 2017; and |
| ● | Akcea recognized the amount attributed to AKCEA-APOCIII-LRx API when Akcea delivered it to Novartis in May 2018. |
Akcea recognized revenue related to the developmentR&D services for the AKCEA-APO(a)-LRx and AKCEA-APOCIII-LRx over performance obligations as Akcea performed services based on its effort to satisfy its performance obligation relative to Akcea's total effort expected to satisfy its performance obligation.
During the periodyears ended December 31, 2019 and 2018, Akcea earned the following revenue from its relationship with Novartis (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | | | 2017 | |
| R&D revenue | | $ | 187.4 | | | $ | 50.6 | | | $ | 43.4 | |
| Percentage of total revenue | | | 17 | % | | | 8 | % | | | 8 | % |
Our consolidated balance sheet at December 31, 2018 included deferred revenue of time we are performing the services, currently estimated$28.8 million related to be through November 2018 and June 2019, respectively. We recognized the amount attributed to the API supply for AKCEA-APOCIII-LRx when we delivered it to Novartis in 2017. We will recognize the amount attributed to the API supply for AKCEA-APO(a)-LRx as we deliver it toAkcea's relationship with Novartis. We determined at the inception that all milestones under its Novartis collaboration are substantive milestones and we will recognizedid 0t have any future exercise of an option to license a drug under the Novartis agreement in full in the period the option is exercised. Akcea is responsible for the development activities under this collaboration. As such, Akcea is recognizing the associateddeferred revenue in its statement of operations. Akcea pays us sublicense fees for payments that it receives under the collaboration and we recognize those fees as revenue and Akcea recognizes the fees as R&D expense. On a consolidated basis, we eliminate the sublicense fees.
During 2017, we earned revenue of $55.2 million from our relationship with Novartis which represented 11 percent of our total revenue for 2017. Our balance sheet at December 31, 2017 included deferred revenue2019.
Pfizer
AKCEA-ANGPTL3-LRx
In October 2019, Akcea initiated a collaboration with Pfizer for the license of $58.9 million relatedAKCEA-ANGPTL3-LRx, a medicine to our relationshiptreat people with Novartis.
Roche
In April 2013, we formed an alliancecardiovascular and metabolic diseases. Akcea recently completed a Phase 2 study of AKCEA-ANGPTL3-LRx in patients with Hoffman-La Roche Inc.elevated levels of triglycerides, or hypertriglyceridemia, type 2 diabetes and F. Hoffmann-La Roche Ltd., collectively Roche, to develop treatments for Huntington'snon-alcoholic fatty liver disease, or HD, based on our antisense technology. Roche has the option to license the drugs from us through the completion of the first Phase 1 trial. Under the agreement, we areNAFLD. Pfizer is responsible for the discoveryall development and development of an antisense drug targeting huntingtin, or HTT, protein. We evaluated a drug targeting HTT, IONIS-HTTRx, in a Phase 1/2a clinical study in peopleregulatory activities and costs beyond those associated with early stage HD.this study.
In December 2017, upon completion of the Phase 1/2a study, Roche exercised its option to license IONIS-HTTRx and is now responsible for the global development, regulatory and commercialization activities for IONIS-HTTRx.
Under the terms of the agreement, weAkcea received ana $250 million upfront payment of $30 million in April 2013, which we amortized through September 2017. In December 2016, we updated development activities for IONIS-HTTRx and as a result we are eligible for an additional $3 million payment, which we earned in 2017. We arepayment. Akcea is also eligible to receive development, regulatory and sales milestone payments of up to $365 million in a license fee and substantive milestone payments$1.3 billion, including up to $70$205 million for the achievement of development milestones, up to $170$250 million for the achievement of regulatory milestones and up to $80$850 million for the achievement of commercialization milestones. Akcea is also eligible to earn tiered royalties in the mid-teens to low 20 percent range on annual worldwide net sales. Akcea has retained the rights to co-commercialize AKCEA-ANGPTL3-LRx in the U.S. and certain additional markets. Akcea will achieve the next payment of $75 million when Pfizer advances AKCEA-ANGPTL3-LRx.
At the commencement of this collaboration, Akcea identified 3 separate performance obligations:
| ● | License of AKCEA-ANGPTL3-LRx; |
| ● | R&D services for AKCEA-ANGPTL3-LRx; and |
| ● | API for AKCEA-ANGPTL3-LRx. |
Akcea determined the transaction price to be $250 million, the upfront payment it received. Akcea allocated the transaction price based on the estimated stand-alone selling price of each performance obligation as follows:
| ● | $245.6 million for the license of AKCEA-ANGPTL3-LRx; |
| ● | $2.2 million for the R&D services for AKCEA-ANGPTL3-LRx; and |
| ● | $2.2 million for the delivery of AKCEA-ANGPTL3-LRx API. |
Akcea is recognizing revenue related to each of its performance obligations as follows:
| ● | Akcea recognized $245.6 million for the license of AKCEA-ANGPTL3-LRx in the fourth quarter of 2019 because Akcea determined the license Akcea granted to Pfizer was distinct from its other performance obligations and Pfizer had full use of the license without any continuing involvement from Akcea. |
| ● | Akcea is recognizing revenue related to the R&D services for AKCEA-ANGPTL3-LRx as Akcea performs services based on Akcea's effort to satisfy its performance obligation relative to Akcea's total effort expected to satisfy its performance obligation. Akcea expects to satisfy its R&D services performance obligation by mid-2020. |
| ● | Akcea recognized the amount attributed to the API supply for AKCEA-ANGPTL3-LRx when it delivered it to Pfizer in the fourth quarter of 2019. |
During the fourth quarter of 2019, we received 6.9 million shares of Akcea common stock for payment of the $125 million sublicense fee Akcea owed us.
During the year ended December 31, 2019, Akcea earned the following revenue from its relationship with Pfizer (in millions, except percentage amounts):
| | Year Ended December 31, 2019 | |
| R&D revenue | | $ | 248.7 | |
| Percentage of total revenue | | | 22 | % |
Our consolidated balance sheet at December 31, 2019 included deferred revenue of $1.3 million related to Akcea’s relationship with Pfizer.
PTC Therapeutics
In addition, we areAugust 2018, Akcea entered into an exclusive license agreement with PTC Therapeutics to commercialize TEGSEDI and WAYLIVRA in Latin America. Under the license agreement, Akcea is eligible to receive up to $136.5$26 million in payments, including $12 million it received in the third quarter of 2018, $6 million it received in the second quarter of 2019 following European Medicines Agency, or EMA, approval of WAYLIVRA, $4 million it received in the fourth quarter of 2019 when PTC received approval for TEGSEDI in Brazil, and up to $4 million in an additional regulatory milestone payments for each additional drug successfully developed. We are alsopayment. Akcea is eligible to receive tiered royalties upfrom PTC in the mid-20 percent range on net sales in Latin America for each medicine. PTC’s obligation to the mid-teenspay Akcea royalties begins on any sales of any product resulting from this alliance. From inception through December 2017, we have received $60 million in milestone payments and upfront fees under this alliance with Roche, not including the $45 million license fee we received in January 2018 for IONIS-HTTRx, which we recognized into revenue in 2017. We will earn the next milestone payment of $10 million if Roche initiates a Phase 2 trial for IONIS-HTTRx.
Our alliance with Roche will continue until the earlier of 12 months after the first commercial sale of a product in Brazil or the date Roche's optionthat PTC recognizes revenue of at least $10 million in Latin America. Consistent with the agreements between Ionis and Akcea, the companies will share all payments, including royalties.
At the commencement of this collaboration, Akcea identified 2 performance obligations, which were the licenses Akcea granted to obtainPTC to commercialize TEGSEDI and WAYLIVRA in Latin America in the exclusivethird quarter of 2018. Akcea recognized $12 million in license under the agreement expires unexercised or, if Roche exercises its option, until the expirationfee revenue at that time because PTC had full use of all paymentboth licenses without any continuing involvement from Akcea. Akcea does not have any remaining performance obligations under its collaboration with PTC. Akcea can still earn additional payments and royalties as PTC commercializes the agreement. medicines.
In addition, the agreement may terminate early undersecond quarter of 2019, Akcea earned a $6 million payment when WAYLIVRA was approved by the EMA. Akcea recognized this payment in full in the second quarter of 2019 because it does not have any performance obligations related to this payment. Additionally, in the fourth quarter of 2019, Akcea earned $4 million when TEGSEDI was approved in Brazil. Akcea recognized this payment in full in the fourth quarter of 2019 because it does not have any performance obligations related to this payment.
During the years ended December 31, 2019 and 2018, Akcea earned the following situations:
| ● | Roche may terminate the agreement at any time by providing written notice to us; and |
| ● | Either we or Roche may terminate the agreement by providing written notice to the other party upon the other party's uncured failure to perform a material obligation under the agreement or if the other party becomes insolvent. |
During 2017, 2016 and 2015, we earned revenue of $53.0 million, $7.1 million and $31.2 million, respectively from ourits relationship with Roche, which represented 10 percent, two percent and 11 percent, respectively, of our total revenue for those years. PTC (in millions, except percentage amounts):
| | Year Ended December 31, | |
| | | 2019 | | | 2018 | |
| Licensing and other royalty revenue (commercial revenue) | | $ | 10.2 | | | $ | 12.0 | |
| Percentage of total revenue | | | 1 | % | | | 2 | % |
Our consolidated balance sheet at December 31, 2016 included2019 and 2018 did 0t include any deferred revenue of $1.7 million related to ourAkcea’s relationship with Roche.PTC.
Satellite Company Partnerships
Achaogen, Inc.
In 2006, we exclusively licensed to Achaogen, Inc. specific know-how, patents and patent applications relating to aminoglycosides. In connection with the license, Achaogen issued to us $1.5 million of Achaogen stock. Achaogen is developing plazomicin, an aminoglycoside Achaogen discovered based on the technology we licensed to Achaogen. If Achaogen successfully develops and commercializes two drugs under our agreement, we will receive payments totaling up to $49.3 million for the achievement of key clinical, regulatory and sales events. The FDA set a Prescription Drug User Fee Act, or PDUFA, date of June 25, 2018 for plazomicin. Achaogen also plans to submit an MAA to the EMA in 2018. From inception through December 2017, we have earned $7 million in milestone payments from Achaogen. We will earn the next milestone payment of $7.5 million if Achaogen obtains regulatory approval for plazomicin in a major market. We are also eligible to receive low single digit royalties on sales of drugs resulting from the program. Achaogen is solely responsible for the continued development, regulatory and commercialization activities of plazomicin.
During 2017, 2016 and 2015, we did not earn any revenue from our relationship with Achaogen.
Alnylam Pharmaceuticals, Inc.
In March 2004, we entered into an alliance with Alnylam to develop and commercialize RNAi therapeutics. Under the terms of the agreement, we exclusively licensed to Alnylam our patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry for double-stranded RNAi therapeutics in exchange for a $5 million technology access fee, participation in fees from Alnylam’s partnering programs, as well as future milestone and royalty payments from Alnylam. For each drug Alnylam develops under this alliance, we may receive up to $3.4 million in milestone payments, including up to $1.1 million for the achievement of development milestones and $2.3 million for regulatory milestones. We will earn the next milestone payment of $0.8 million if Alnylam advances a drug in its pipeline. We also have the potential to earn royalties on drug sales and a portion of payments that Alnylam receives from licenses of our technology it grants to its partners, plus royalties. We retained rights to a limited number of double-stranded RNAi therapeutic targets and all rights to single-stranded RNAi, or ssRNAi, therapeutics.
In turn, Alnylam nonexclusively licensed to us its patent estate relating to antisense motifs and mechanisms and oligonucleotide chemistry to research, develop and commercialize single-stranded antisense therapeutics, ssRNAi therapeutics, and to research double-stranded RNAi compounds. We also received a license to develop and commercialize double-stranded RNAi drugs targeting a limited number of therapeutic targets on a nonexclusive basis. If we develop or commercialize an RNAi-based drug using Alnylam’s technology, we will pay Alnylam up to $3.4 million in milestone payments for specified development and regulatory events, plus royalties. To date, we do not have an RNAi-based drug in development.
In 2015, we and Alnylam entered into an alliance in which we formed an intellectual property cross-license under which we and Alnylam each obtained exclusive license rights to four therapeutic programs. Alnylam granted us an exclusive, royalty-bearing license to its chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four targets, including FXI and Apo(a) and two other targets. In exchange, we granted Alnylam an exclusive, royalty-bearing license to our chemistry, RNA targeting mechanism and target-specific intellectual property for oligonucleotides against four other targets. Alnylam also granted us a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for single-stranded antisense therapeutics. In turn, we granted Alnylam a royalty-bearing, non-exclusive license to new platform technology arising from May 2014 through April 2019 for double-stranded RNAi therapeutics. From inception through December 2017, we have received over $70 million from Alnylam.
During 2017, 2016 and 2015, we earned revenue from our relationship with Alnylam totaling $3.3 million, $1.1 million and $1.3 million, respectively.
Antisense Therapeutics Limited
In 2001, we licensed ATL1102 and ATL1103 to ATL, an Australian company publicly traded on the Australian Stock Exchange. ATL completed a Phase 2a efficacy and safety trial and has also completed a chronic toxicology study in primates to support a potential Phase 2b trial of ATL1102 in people with multiple sclerosis, or MS. In addition, ATL is currently developing ATL1103 for growth and sight disorders. We are eligible to receive royalties on sales of ATL1102 and ATL1103. We may also receive a portion of the fees ATL receives if it licenses ATL1102 or ATL1103. At December 31, 2017 and 2016, we owned less than 10 percent of ATL’s equity. During 2017, 2016 and 2015, we did not earn any revenue from our relationship with ATL.
Atlantic Pharmaceuticals Limited
In March 2007, we licensed alicaforsen to Atlantic Pharmaceuticals, a UK-based specialty pharmaceutical company founded in 2006. Atlantic Pharmaceuticals is developing alicaforsen for the treatment of ulcerative colitis, or UC, and other inflammatory diseases. Atlantic Pharmaceuticals is initially developing alicaforsen for pouchitis, a UC indication, followed by UC and other inflammatory diseases. In 2017, under a rolling submission agreement with the FDA, Atlantic Pharmaceuticals filed the nonclinical data package of its NDA for alicaforsen to treat pouchitis. Alicaforsen has also been granted FDA Fast-Track designation, plus U.S. and European Orphan Drug designations for this indication. In exchange for the exclusive, worldwide license to alicaforsen, we received a $2 million upfront payment from Atlantic Pharmaceuticals in the form of equity. Under the agreement, we could receive milestone payments totaling up to $1.4 million for the achievement of regulatory milestones for multiple indications. We will earn the next milestone payment of $0.6 million when Atlantic Pharmaceuticals completes its NDA submission for alicaforsen with the FDA. In 2010, Atlantic Pharmaceuticals began supplying alicaforsen under international named patient supply regulations for people with inflammatory bowel disease, or IBD, for which we receive royalties.
In 2010, 2013 and 2016, we agreed to sell Atlantic Pharmaceuticals alicaforsen drug substance in return for shares of Atlantic Pharmaceuticals’ common stock. Additionally, in 2013 we received an advance payment in the form of equity for the initial royalties that we will earn from Atlantic Pharmaceuticals. We recorded a full valuation allowance for all of the equity we received from Atlantic Pharmaceuticals, including the upfront payment, because realization of value from the equity is uncertain. At December 31, 2017 and 2016, we owned approximately 9 percent, respectively, of Atlantic Pharmaceuticals’ equity. Because the payments were made in equity, we did not record any revenue. During 2017 and 2016, we did not earn any revenue and during 2015, our revenue was negligible from our relationship with Atlantic Pharmaceuticals.
Dynacure, SAS
In October 2016, we entered into a collaboration with Dynacure to discover, develop and commercialize an antisense drug for the treatment of neuromuscular diseases. We and Dynacure shared research responsibilities and to identify a drug candidate. In November 2017, Dynacure licensed IONIS-DNM2-2.5Rx, a drug targeting dynamin 2 for the treatment of centronuclear myopathy, from us. Upon licensing, Dynacure assumed all responsibility for development and commercialization for IONIS-DMN2-2.5Rx. Under the terms of the agreement, we obtained a 15 percent equity ownership in Dynacure upon the initiation of the collaboration. We received additional equity and convertible notes in Dynacure for the license of IONIS-DMN2-2.5Rx in 2017. We recorded a full valuation allowance for all of the equity and convertible debt we received from Dynacure, because realization of value from the equity is uncertain. If Dynacure advances a target under this collaboration, we could receive cash or equity up to more than $210 million in a license fee and substantive milestone payments including up to $34.5 million for the achievement of development milestones, up to $111 million for the achievement of regulatory milestones and up to $60 million for the achievement of commercialization milestones. In addition, we are eligible to receive royalties on future product sales of the drug under this collaboration. We will receive additional equity or convertible notes in Dynacure if Dynacure initiates a Phase 1 study for a target under this collaboration. During 2017 and 2016, we did not earn any revenue from our relationship with Dynacure.
Regulus Therapeutics Inc.
In September 2007, we and Alnylam established Regulus as a company focused on the discovery, development and commercialization of microRNA-targeting therapeutics. We and Alnylam retain rights to develop and commercialize, on pre-negotiated terms, microRNA therapeutic products that Regulus decides not to develop either by itself or with a partner. Regulus is addressing therapeutic opportunities that arise from alterations in microRNA expression. Since microRNAs may act as master regulators of the genome, affecting the expression of multiple genes in a disease pathway, microRNA therapeutics define a new platform for drug discovery and development. MicroRNAs may also prove to be an attractive new tool for characterizing diseases. Regulus’ focus is on drug discovery and development efforts for diseases with significant unmet medical need in organs to which we have been able to preferentially deliver oligonucleotide therapeutics effectively, such as the liver and kidney. Regulus currently has two drugs in clinical development. In September 2017, Regulus initiated a Phase 2 study of RG-012, a drug to treat people with Alport syndrome. Regulus is studying RGLS4326 in a Phase 1 single ascending dose study designed to investigate the safety, tolerability, pharmacokinetics and pharmacodynamics of RGLS4326 administered subcutaneously in healthy volunteers. We are eligible to receive royalties on any future product sales of these drugs.
During 2017, 2016 and 2015, we did not earn any revenue from our relationship with Regulus. During 2015, we sold a portion of our Regulus stock, resulting in a gain of $20.2 million, and proceeds of $25.5 million. During 2016, we sold a portion of our Regulus stock for proceeds of $4.5 million. In January 2017, we sold our remaining investment in Regulus for proceeds of $2.5 million.
Suzhou Ribo Life Science Co., Ltd.
In April 2017, we entered into a collaboration with Ribo to develop and commercialize RNA-targeted therapeutics in China. We licensed IONIS-AR-2.5Rx, IONIS-GCGRRx and IONIS-EZH2-2.5Rx to Ribo under our collaboration to develop and commercialize these drugs in China. In addition, Ribo will be responsible for conducting a multi-year research and drug discovery program to identify drugs that utilize our ssRNAi technology. Following the identification of a development candidate, Ribo may exercise its option to license each drug by paying us a license fee. For each drug that Ribo licenses, Ribo will be responsible for all development and commercialization activities and costs in China. We retained the rights to develop and commercialize ssRNAi technology and all drugs under the collaboration outside of China. Ribo will provide us a royalty-free license to the data and intellectual property created under the collaboration.
Under the agreement, we received an up-front payment of $2 million, which we are amortizing through April 2020. We also obtained approximately nine percent equity ownership in Ribo. We are eligible to receive up to $152.9 million in substantive milestone and other payments, including $13.3 million for the achievement of development milestones and $138.4 million for the achievement of commercialization milestones. In addition, we are eligible to receive tiered royalties up to the mid-twenty percent range on sales from any drugs resulting from this collaboration. From inception through December 2017, we have received $2 million in milestone payments and upfront fees under this collaboration with Ribo. We will earn the next milestone payment of $3.3 million if Ribo advances a drug under this collaboration.
During 2017, we earned revenue of $0.7 million from our relationship with Ribo. Our balance sheet at December 31, 2017 included deferred revenue of $1.7 million related to our relationship with Ribo.
The University of Texas MD Anderson Cancer Center
In May 2016, we entered into a collaboration agreement with the University of Texas MD Anderson Cancer Center to identify cancer targets and create novel antisense drugs to treat cancer together. In the collaboration, we and MD Anderson are working together to validate novel “undruggable” cancer targets selected based on human genomic data. We are leading the drug discovery efforts against mutually agreed upon novel targets and MD Anderson is leading development activities through clinical proof of concept. Following clinical proof of concept, we and MD Anderson plan to identify a partner to complete development and to commercialize each drug with us leading business development efforts. Under the five-year collaboration, we and MD Anderson will evenly share costs specific to our collaboration.
External Project Funding
CHDI Foundation, Inc.
Starting in November 2007, CHDI provided financial and scientific support to our Huntington’s disease drug discovery program through our development collaboration. In April 2013, we formed an alliance with Roche to develop treatments for Huntington’s disease. Under the terms of our agreement with CHDI, we will reimburse CHDI for a portion of its support of our Huntington’s disease program out of the payments we receive from Roche. From inception through December 2017, we have made payments of $19.3 million to CHDI, associated with the progression of our Huntington’s disease program.
During 2017 and 2016, we did not earn any revenue from our relationship with CHDI. During 2015, our revenue earned from our relationship with CHDI was negligible.
Cystic Fibrosis Foundation
In August 2016, we entered into a collaboration agreement with the Cystic Fibrosis Foundation to discover and advance a drug for the treatment of Cystic Fibrosis. Under this agreement, we received upfront payments of $1 million, which we are amortizing through March 2018. We are eligible to receive additional milestone payments of up to $2 million. Under the agreement, we and the Cystic Fibrosis Foundation will evenly share the first $3 million of costs specific to our collaboration. We will pay the Cystic Fibrosis Foundation up to $18 million in payments upon achieving specific regulatory and sales events if we advance a drug under our collaboration. We will earn the next milestone payment of $0.8 million if we further advance IONIS-ENAC-2.5Rx. From inception through December 2017, we have received $2.7 million in milestone payments, upfront fees and other payments under this collaboration, including $1 million we received in 2017 for advancing IONIS-ENAC-2.5Rx.
During 2017 and 2016 we earned $1.9 million and $0.6 million, respectively, from our relationship with the Cystic Fibrosis Foundation.
The Ludwig Institute; Center for Neurological Studies
In October 2005, we entered into a collaboration agreement with the Ludwig Institute, the Center for Neurological Studies and researchers from these institutions to discover and develop antisense drugs for amyotrophic lateral sclerosis, or ALS, and other neurological diseases. Under this agreement, we agreed to pay the Ludwig Institute and Center for Neurological Studies modest milestone payments and royalties on any antisense drugs resulting from the collaboration.
In-Licensing Agreements
University of Massachusetts
We have a license agreement with the University of Massachusetts under which we acquired an exclusive license to the University of Massachusetts’ patent rights related to SPINRAZA. We paid the University of Massachusetts nominal amounts for license fees and milestone payments we received. We also pay a low single digit royalty on sales of SPINRAZA. During 2017 and 2016, we paid the University of Massachusetts $9.7 million and $0.4 million, respectively. The University of Massachusetts believes we owe them an additional amount pertaining to the license fees and milestones we received. At December 31, 2017, we had an accrued liability of $12.9 million, which reflects our estimate of the additional amount we could pay the University of Massachusetts for the license fees and milestones we received, assuming we reach agreement with the University of Massachusetts regarding the appropriate calculation of these sublicense fees.
Cold Spring Harbor Laboratory
We have a collaboration and license agreement with the Cold Spring Harbor Laboratory under which we acquired an exclusive license to the Cold Spring Harbor Laboratory’s patent rights related to SPINRAZA. We paid Cold Spring Harbor Laboratory nominal amounts for license fees and milestone payments we received in 2017 and a low single digit royalty on sales of SPINRAZA. Additionally, we owe a low single digit royalty on future sales of SPINRAZA. During 2017 and 2016, we paid Cold Spring Harbor Laboratory $13.1 million and $3.4 million, respectively.
7. Segment Information and Concentration of Business Risk
We have two2 reportable segments Ionis Core and Akcea Therapeutics. Prior to Akcea’s IPO in July 2017, we owned 100 percent of Akcea’s stock and consolidated 100 percent of Akcea’s results in our financial statements. After Akcea’s IPO,At December 31, 2019, we owned approximately 6876 percent of Akcea. As a result, beginning in the third quarter of 2017, we began adjusting our financial statements to reflect the noncontrolling interest that we no longer own in Akcea. Our reportable segments remain unchanged as a result of Akcea’s IPO. Segment income (loss) from operations includes revenue less operating expenses attributable to each segment.
In our Ionis Core segment we are exploiting a novel drug discovery platform we createdour antisense technology to generate a broad pipeline of first-in-class and/or best-in-class drugsmedicines for us and our partners. Our Ionis Core segment generates revenue from a multifaceted partnering strategy and includes multiple streams of revenue including license fees, milestone payments and royalties, among others.strategy.
Akcea is a late-stage biopharmaceutical company focused on developing and commercializing drugsmedicines to treat peoplepatients with serious cardiometabolicand rare diseases caused by lipid disorders. Akcea generates revenue from TEGSEDI and WAYLIVRA product sales and from its collaborations.
The following tables show our segment revenue and income (loss) from operations for 2017, 20162019, 2018 and 20152017 (in thousands), respectively.
| 2019 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| Commercial revenue: | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 292,992 | | | $ | — | | | $ | — | | | $ | 292,992 | |
| Product sales, net | | | — | | | | 42,253 | | | | — | | | | 42,253 | |
| Licensing and other royalty revenue | | | 12,616 | | | | 10,172 | | | | (5,583 | ) | | | 17,205 | |
| Total commercial revenue | | | 305,608 | | | | 52,425 | | | | (5,583 | ) | | | 352,450 | |
| R&D revenue under collaborative agreements | | | 553,038 | | | | 436,118 | | | | (219,007 | ) | | | 770,149 | |
| Total segment revenue | | $ | 858,646 | | | $ | 488,543 | | | $ | (224,590 | ) | | $ | 1,122,599 | |
| Total operating expenses | | $ | 523,207 | | | $ | 450,469 | | | $ | (216,960 | ) | | $ | 756,716 | |
| Income (loss) from operations | | $ | 335,439 | | | $ | 38,074 | | | $ | (7,630 | ) | | $ | 365,883 | |
| 2018 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| Commercial revenue: | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 237,930 | | | $ | — | | | $ | — | | | $ | 237,930 | |
| TEGSEDI product sales, net | | | — | | | | 2,237 | | | | — | | | | 2,237 | |
| Licensing and other royalty revenue | | | 2,755 | | | | 12,000 | | | | — | | | | 14,755 | |
| Total commercial revenue | | | 240,685 | | | | 14,237 | | | | — | | | | 254,922 | |
| R&D revenue under collaborative agreements | | | 401,259 | | | | 50,630 | | | | (107,137 | ) | | | 344,752 | |
| Total segment revenue | | $ | 641,944 | | | $ | 64,867 | | | $ | (107,137 | ) | | $ | 599,674 | |
| Total operating expenses | | $ | 380,212 | | | $ | 295,683 | | | $ | (14,849 | ) | | $ | 661,046 | |
| Income (loss) from operations | | $ | 261,732 | | | $ | (230,816 | ) | | $ | (92,288 | ) | | $ | (61,372 | ) |
| 2017 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| Commercial revenue: | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 112,540 | | | $ | — | | | $ | — | | | $ | 112,540 | |
| Licensing and other royalty revenue | | | 7,474 | | | | — | | | | — | | | | 7,474 | |
| Total commercial revenue | | | 120,014 | | | | — | | | | — | | | | 120,014 | |
| R&D revenue under collaborative agreements | | | 405,171 | | | | 43,401 | | | | (54,407 | ) | | | 394,165 | |
| Total segment revenue | | $ | 525,185 | | | $ | 43,401 | | | $ | (54,407 | ) | | $ | 514,179 | |
| Total operating expenses | | $ | 373,788 | | | $ | 163,871 | | | $ | (54,527 | ) | | $ | 483,132 | |
| Income (loss) from operations | | $ | 151,397 | | | $ | (120,470 | ) | | $ | 120 | | | $ | 31,047 | |
| 2017 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| Commercial revenue: | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 112,540 | | | $ | — | | | $ | — | | | $ | 112,540 | |
| Licensing and other royalty revenue | | | 9,519 | | | | — | | | | — | | | | 9,519 | |
| Total commercial revenue | | | 122,059 | | | | — | | | | — | | | | 122,059 | |
| R&D revenue under collaborative agreements | | | 384,805 | | | | 55,209 | | | | (54,407 | ) | | | 385,607 | |
| Total segment revenue | | $ | 506,864 | | | $ | 55,209 | | | $ | (54,407 | ) | | $ | 507,666 | |
| Total operating expenses | | $ | 373,788 | | | $ | 163,871 | | | $ | (54,527 | ) | | $ | 483,132 | |
| Income (loss) from operations | | $ | 133,076 | | | $ | (108,662 | ) | | $ | 120 | | | $ | 24,534 | |
| 2016 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| Commercial revenue: | | | | | | | | | | | | |
| SPINRAZA royalties | | $ | 883 | | | $ | — | | | $ | — | | | $ | 883 | |
| Licensing and other royalty revenue | | | 19,839 | | | | — | | | | — | | | | 19,839 | |
| Total commercial revenue | | | 20,722 | | | | — | | | | — | | | | 20,722 | |
| R&D revenue under collaborative agreements | | | 338,546 | | | | — | | | | (12,648 | ) | | | 325,898 | |
| Total segment revenue | | $ | 359,268 | | | $ | — | | | $ | (12,648 | ) | | $ | 346,620 | |
| Total operating expenses | | $ | 322,192 | | | $ | 83,512 | | | $ | (12,768 | ) | | $ | 392,936 | |
| Income (loss) from operations | | $ | 37,076 | | | $ | (83,512 | ) | | $ | 120 | | | $ | (46,316 | ) |
| 2015 | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| Revenue: | | | | | | | | | | | | |
| R&D revenue under collaborative agreements | | $ | 284,015 | | | $ | — | | | $ | (2,655 | ) | | $ | 281,360 | |
| Licensing and other royalty revenue | | | 2,343 | | | | — | | | | — | | | | 2,343 | |
| Total segment revenue | | $ | 286,358 | | | $ | — | | | $ | (2,655 | ) | | $ | 283,703 | |
| Total operating expenses | | $ | 309,492 | | | $ | 52,748 | | | $ | (2,775 | ) | | $ | 359,465 | |
| Income (loss) from operations | | $ | (23,134 | ) | | $ | (52,748 | ) | | $ | 120 | | | $ | (75,762 | ) |
The following table shows our total assets by segment at December 31, 20172019 and 20162018 (in thousands), respectively.
| Total Assets | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| December 31, 2017 | | $ | 1,341,828 | | | $ | 268,804 | | | $ | (288,608 | ) | | $ | 1,322,024 | |
| December 31, 2016 | | $ | 1,067,770 | | | $ | 10,684 | | | $ | (165,987 | ) | | $ | 912,467 | |
We have historically funded our operations from collaborations with corporate partners and a relatively small number of partners have accounted for a significant percentage of our revenue. Revenue from significant partners, which is defined as 10 percent or more of our total revenue, was as follows:
| Total Assets | | Ionis Core | | | Akcea Therapeutics | | | Elimination of Intercompany Activity | | | Total | |
| December 31, 2019 | | $ | 3,478,081 | | | $ | 599,250 | | | $ | (844,219 | ) | | $ | 3,233,112 | |
| December 31, 2018 | | $ | 2,975,491 | | | $ | 365,261 | | | $ | (672,968 | ) | | $ | 2,667,784 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Partner A | | | 51 | % | | | 60 | % | | | 37 | % |
| Partner B | | | 14 | % | | | 2 | % | | | 33 | % |
| Partner C | | | 10 | % | | | 2 | % | | | 11 | % |
| Partner D | | | 11 | % | | | 0 | % | | | 0 | % |
| Partner E | | | 3 | % | | | 19 | % | | | 2 | % |
| Partner F | | | 2 | % | | | 4 | % | | | 12 | % |
Contracts receivables at December 31, 20172019 and December 31, 20162018 were comprised of approximately 8475 percent and 9299 percent for each year from two1 and 4 significant partners, respectively.
8. Employment Benefits
We have an employee 401(k) salary deferral plan, covering all employees. Employees could make contributions by withholding a percentage of their salary up to the IRS annual limit $18,000$19,000 and $24,000$25,000 in 20172019 for employees under 50 years old and employees 50 years old or over, respectively. We made approximately $3.0$6.4 million, $1.7$5.7 million and $1.5$3.0 million in matching contributions for the years ended December 31, 2019, 2018 and 2017, 2016 and 2015, respectively.
9. Legal Proceedings
From time to time, we are involved in legal proceedings arising in the ordinary course of our business. Periodically, we evaluate the status of each legal matter and assess our potential financial exposure. If the potential loss from any legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. Significant judgment is required to determine the probability of a loss and whether the amount of the loss is reasonably estimable. The outcome of any proceeding is not determinable in advance. As a result, the assessment of a potential liability and the amount of accruals recorded are based only on the information available to us at the time. As additional information becomes available, we reassess the potential liability related to the legal proceeding, and may revise our estimates.
Gilead Litigation
In August 2013, Gilead Sciences Inc.November 2019, a purported stockholder of Akcea filed a suitan action in the United States DistrictDelaware Court of Northern DistrictChancery, captioned City of California related to United States Patent Nos. 7,105,499Cambridge Retirement System v. Crooke, et al., C.A. No. 2019-0905, or the Delaware Action. The plaintiff in the Delaware Action asserts claims against (i) current and 8,481,712,former members of Akcea’s Board of Directors, and (ii) Ionis, or collectively, the Defendants. The plaintiff asserts derivative claims on behalf of Akcea, which are jointly owned by Merck Sharp & Dohme Corp.is a nominal defendant in the Delaware Action, as well as putatively direct claims on behalf of a purported class of Akcea stockholders. The plaintiff in the Delaware Action asserts that the Defendants breached their fiduciary duties in connection with the licensing transaction that Akcea and Ionis Pharmaceuticals, Inc. Inentered into regarding TEGSEDI and AKCEA-TTR-LRx. The plaintiff also asserts an unjust enrichment claim against Ionis. We and Akcea have moved to dismiss the suit Gilead asked the court to determine that Gilead's activities do not infringe any valid claim of the named patents andplaintiff’s complaint. We believe that the patentsclaims asserted in the Delaware Action are not valid. We and Merck Sharp & Dohme Corp. filed our answer denying Gilead's noninfringement and invalidity contentions, contending that Gilead's commercial sale and offer for sale of sofosbuvir prior to the expiration of the '499 and '712 patents infringes those patents, and requesting monetary damages to compensate for such infringement. In the trial for this case held in March 2016, the jury upheld all ten of the asserted claims of the patents-in-suit. The jury then decided that we and Merck are entitled to four percent of $5 billion in past sales of sofosbuvir. Gilead has stated it would appeal the jury’s finding of validity. In the meantime, Gilead asserted two additional non-jury defenses: waiver and unclean hands. Although the judge rejected the waiver defense, she granted Gilead’s motion claiming that the patents are unenforceable against it under the doctrine of unclean hands. We believe this ruling is contrary to the relevant law and the facts of the case. Accordingly, in July 2016, together with Merck we appealed the decision to the Court of Appeals for the Federal Circuit. Gilead cross-appealed on the issue of validity. Briefing on the appeals is now complete and oral arguments were held in February 2018. Under our agreement with Merck, Merck is responsible for the costs of this suit.without merit.
10. Quarterly Financial Data (Unaudited)
The following financial information reflects all normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results of the interim periods. Summarized quarterly data for the years ended December 31, 20172019 and 20162018 are as follows (in thousands, except per share data).
| 2017 Quarters | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | |
| 2019 Quarters | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Revenue | | $ | 110,304 | | | $ | 104,152 | | | $ | 120,911 | | | $ | 172,299 | | | $ | 297,214 | | | $ | 163,813 | | | $ | 167,892 | | | $ | 493,680 | |
| Operating expenses | | $ | 96,315 | | | $ | 105,823 | | | $ | 107,002 | | | $ | 173,992 | | | $ | 175,679 | | | $ | 182,640 | | | $ | 165,369 | | | $ | 233,028 | |
| Income (loss) from operations | | $ | 13,989 | | | $ | (1,671 | ) | | $ | 13,909 | | | $ | (1,693 | ) | | $ | 121,535 | | | $ | (18,827 | ) | | $ | 2,523 | | | $ | 260,652 | |
| Net income (loss) | | $ | 3,468 | | | $ | (11,206 | ) | | $ | (4,896 | ) | | $ | (4,662 | ) | | $ | 90,884 | | | $ | (10,012 | ) | | $ | 18,432 | | | $ | 203,957 | |
| Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders | | $ | 3,468 | | | $ | (11,206 | ) | | $ | (976 | ) | | $ | 2,744 | | | $ | 84,443 | | | $ | (876 | ) | | $ | 26,163 | | | $ | 184,415 | |
| Basic net income (loss) per share (1) (2) | | $ | 0.03 | | | $ | (0.09 | ) | | $ | 0.00 | | | $ | 0.02 | | | $ | 0.63 | | | $ | (0.01 | ) | | $ | 0.19 | | | $ | 1.31 | |
| Diluted net income (loss) per share (1) (3) | | $ | 0.03 | | | $ | (0.09 | ) | | $ | 0.00 | | | $ | 0.02 | | | $ | 0.62 | | | $ | (0.01 | ) | | $ | 0.18 | | | $ | 1.28 | |
| 2016 Quarters | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | | |
| 2018 Quarters | | | First Quarter | | | Second Quarter | | | Third Quarter | | | Fourth Quarter | |
| Revenue | | $ | 36,874 | | | $ | 38,470 | | | $ | 110,927 | | | $ | 160,349 | | | $ | 144,419 | | | $ | 117,747 | | | $ | 145,395 | | | $ | 192,113 | |
| Operating expenses | | $ | 91,526 | | | $ | 87,397 | | | $ | 94,819 | | | $ | 119,194 | | | $ | 147,720 | | | $ | 168,028 | | | $ | 163,967 | | | $ | 181,331 | |
| Income (loss) from operations | | $ | (54,652 | ) | | $ | (48,927 | ) | | $ | 16,108 | | | $ | 41,155 | | | $ | (3,301 | ) | | $ | (50,281 | ) | | $ | (18,572 | ) | | $ | 10,782 | |
| Net income (loss) | | $ | (62,917 | ) | | $ | (56,855 | ) | | $ | 7,351 | | | $ | 25,865 | | | $ | (10,812 | ) | | $ | (56,573 | ) | | $ | (20,365 | ) | | $ | 302,735 | |
| Basic net income (loss) per share (1) | | $ | (0.52 | ) | | $ | (0.47 | ) | | $ | 0.06 | | | $ | 0.21 | | |
| Diluted net income (loss) per share (1) (4) (5) | | $ | (0.52 | ) | | $ | (0.47 | ) | | $ | 0.06 | | | $ | 0.21 | | |
| Net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders | | | $ | (1,420 | ) | | | (40,358 | ) | | | (4,559 | ) | | | 320,078 | |
| Basic net income (loss) per share (1) (2) | | | $ | (0.01 | ) | | $ | (0.29 | ) | | $ | (0.03 | ) | | $ | 2.32 | |
| Diluted net income (loss) per share (1) (3) | | | $ | (0.01 | ) | | $ | (0.29 | ) | | $ | (0.03 | ) | | $ | 2.21 | |
________________
| (1) | We computed net income (loss) per share independently for each of the quarters presented. Therefore, the sum of the quarterly net income (loss) per share will not necessarily equal the total for the year. |
| (2) | As discussed in Note 1, Organization and Significant Accounting Policies, we compute basic net income (loss) per share by dividing the total net income (loss) attributable to our common stockholders by our weighted-average number of common shares outstanding during the period. The calculation of totalOur basic net income (loss) attributable to our common stockholdersper share calculation for each of the three months ended December 31, 2017quarters in 2019 and September 30, 20172018 considered our net income for Ionis on a stand-alone basis plus our share of Akcea’s net loss for the periods.period. To calculate the portion of Akcea’s net loss attributable to our ownership, we multiplied Akcea’s income (loss)loss per share by the weighted average shares we owned in Akcea during the period. As a result of this calculation, our total net income (loss) available to Ionis common stockholders for the calculation of net income (loss) per share is different than net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders in the consolidated statements of operations. |
Our basic net income (loss) per share for the three months ended December 31, 2017,each quarter in 2019 was calculated as follows (in thousands, except per share amounts):
| Three Months Ended December 31, 2017 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | | |
| | | | | | | | | | | |
| Three Months Ended March 31 , 2019 | | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Income Per Share | | | Ionis’ Portion of Akcea’s Net Income | |
| Common shares | | | 45,448 | | | $ | (0.35 | ) | | $ | (15,955 | ) | | | 68,582 | | | $ | 0.35 | | | $ | 23,846 | |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (15,955 | ) | |
| Akcea’s net income attributable to our ownership | | | | | | | | | | | $ | 23,846 | |
| Ionis’ stand-alone net income | | | | | | | | | | | 18,672 | | | | | | | | | | | | 63,697 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 2,717 | | | | | | | | | | | $ | 87,543 | |
| Weighted average shares outstanding | | | | | | | | | | | 124,818 | | | | | | | | | | | | 138,582 | |
| Basic net income per share | | | | | | | | | | $ | 0.02 | | | | | | | | | | | $ | 0.63 | |
| Three Months Ended June 30 , 2019 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 70,221 | | | $ | (0.40 | ) | | $ | (28,244 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (28,244 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 27,311 | |
| Net loss available to Ionis common stockholders | | | | | | | | | | $ | (933 | ) |
| Weighted average shares outstanding | | | | | | | | | | | 140,247 | |
| Basic net loss per share | | | | | | | | | | $ | (0.01 | ) |
| Three Months Ended September 30 , 2019 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 70,221 | | | $ | (0.34 | ) | | $ | (23,772 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (23,772 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 49,930 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 26,158 | |
| Weighted average shares outstanding | | | | | | | | | | | 140,551 | |
| Basic net income per share | | | | | | | | | | $ | 0.19 | |
| Three Months Ended December 31 , 2019 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Income Per Share | | | Ionis’ Portion of Akcea’s Net Income | |
| Common shares | | | 71,342 | | | $ | 0.87 | | | $ | 62,243 | |
| Akcea’s net income attributable to our ownership | | | | | | | | | | $ | 62,243 | |
| Ionis’ stand-alone net income | | | | | | | | | | | 121,552 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 183,795 | |
| Weighted average shares outstanding | | | | | | | | | | | 140,583 | |
| Basic net income per share | | | | | | | | | | $ | 1.31 | |
For the three months ended December 31, 2017, we had net income available to Ionis common stockholders. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during those periods. Diluted common equivalent shares for the three months ended December 31, 2017 consisted of the following (in thousands except per share amounts):
| Three Months Ended December 31, 2017 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| | | | | | | | | | |
| Income available to common shareholders | | $ | 2,717 | | | | 124,818 | | | $ | 0.02 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,532 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 507 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 5 | | | | | |
| Income available to common shareholders, plus assumed conversions | | $ | 2,717 | | | | 126,862 | | | $ | 0.02 | |
For the three months ended December 31, 2017, the calculation excluded the 1 percent and 2¾ percent notes because the effect on diluted earnings per share was anti-dilutive.
Prior to Akcea’s IPO, we owned Akcea series A convertible preferred stock, which included a six percent cumulative dividend. Upon completion of Akcea’s IPO in July 2017, our preferred stock was converted into common stock on a 1:1 basis. The preferred stock dividend was not paid at the IPO because it was not a liquidation event or a change in control. During the three months ended September 30, 2017, Akcea used a two-class method to compute its net income (loss) per share because it had both common and preferred shares outstanding during the periods. The two-class method required Akcea to calculate its net income (loss) per share for each class of stock by dividing total distributable losses applicable to preferred and common stock, including the six percent cumulative dividend contractually due to series A convertible preferred shareholders, by the weighted-average of preferred and common shares outstanding during the requisite period. Since Akcea used the two-class method, accounting rules required us to include our portion of Akcea's net income (loss) per share for both Akcea's common and preferred shares which we owned in our calculation of basic and diluted net income (loss) per share for three months ended September 30, 2017. As a result of this calculation, our total net income (loss) available to Ionis common stockholders for the calculation of net income (loss) per share is different than net income (loss) attributable to Ionis Pharmaceuticals, Inc. common stockholders in the consolidated statements of operations.
Our basic net income (loss) per share for the three months ended September 30, 2017,each quarter in 2018 was calculated as follows (in thousands, except per share amounts):
| Three Months Ended September 30, 2017 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Income (Loss) Per Share | | | Ionis’ Portion of Akcea’s Net Loss | | |
| | | | | | | | | | | |
| Three Months Ended March 31 , 2018 | | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 36,556 | | | $ | (0.27 | ) | | $ | (9,870 | ) | | | 45,448 | | | $ | (0.44 | ) | | $ | (19,997 | ) |
| Preferred shares | | | 5,651 | | | | 0.05 | | | | 283 | | |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (9,587 | ) | | | | | | | | | | $ | (19,997 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 9,168 | | | | | | | | | | | | 18,785 | |
| Net loss available to Ionis common stockholders | | | | | | | | | | $ | (419 | ) | | | | | | | | | | $ | (1,212 | ) |
| Weighted average shares outstanding | | | | | | | | | | | 124,370 | | | | | | | | | | | | 125,330 | |
| Basic net income per share | | | | | | | | | | $ | 0.00 | | |
| Basic net loss per share | | | | | | | | | | | $ | (0.01 | ) |
| Three Months Ended June 30 , 2018 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 60,832 | | | $ | (0.72 | ) | | $ | (43,814 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (43,814 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 5,882 | |
| Net loss available to Ionis common stockholders | | | | | | | | | | $ | (37,932 | ) |
| Weighted average shares outstanding | | | | | | | | | | | 128,712 | |
| Basic net loss per share | | | | | | | | | | $ | (0.29 | ) |
| Three Months Ended September 30 , 2018 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 65,538 | | | $ | (0.73 | ) | | $ | (47,789 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (47,789 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 43,226 | |
| Net loss available to Ionis common stockholders | | | | | | | | | | $ | (4,563 | ) |
| Weighted average shares outstanding | | | | | | | | | | | 137,346 | |
| Basic net loss per share | | | | | | | | | | $ | (0.03 | ) |
| Three Months Ended December 31 , 2018 | | Weighted Average Shares Owned in Akcea | | | Akcea’s Net Loss Per Share | | | Ionis’ Portion of Akcea’s Net Loss | |
| Common shares | | | 67,130 | | | $ | (0.79 | ) | | $ | (53,219 | ) |
| Akcea’s net loss attributable to our ownership | | | | | | | | | | $ | (53,219 | ) |
| Ionis’ stand-alone net income | | | | | | | | | | | 372,913 | |
| Net income available to Ionis common stockholders | | | | | | | | | | $ | 319,694 | |
| Weighted average shares outstanding | | | | | | | | | | | 137,699 | |
| Basic net income per share | | | | | | | | | | $ | 2.32 | |
| (3) | For the three months ended March 31, 2017 weWe had net income.income available to Ionis common stockholders for the following periods. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Diluted common equivalent shares for the three months ended March 31, 2017 consisted of the following (in thousands):those periods. |
| Three Months Ended March 31, 2017 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| | | | | | | | | | |
| Income available to common shareholders | | $ | 3,468 | | | | 122,861 | | | $ | 0.03 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,674 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 377 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 60 | | | | | |
| Income available to common shareholders, plus assumed conversions | | $ | 3,468 | | | | 124,972 | | | $ | 0.03 | |
Diluted common equivalent shares for each of the periods consisted of the following (in thousands except per share amounts):
| Three Months Ended March 31, 2019 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 87,543 | | | | 138,582 | | | $ | 0.63 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 2,252 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 665 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 38 | | | | | |
| Shares issuable related to our 1 percent convertible notes | | | — | | | | — | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 87,543 | | | | 141,537 | | | $ | 0.62 | |
| Three Months Ended September 30, 2019 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 26,158 | | | | 140,551 | | | $ | 0.19 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,993 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 844 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 20 | | | | | |
| Shares issuable related to our 1 percent convertible notes | | | — | | | | — | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 26,158 | | | | 143,408 | | | $ | 0.18 | |
| Three Months Ended December 31, 2019 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 183,795 | | | | 140,583 | | | $ | 1.31 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,467 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 848 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 18 | | | | | |
| Shares issuable related to our 0.125 percent convertible notes | | | 644 | | | | 860 | | | | | |
| Shares issuable related to our 1 percent convertible notes | | | 12,046 | | | | 9,527 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 196,485 | | | | 153,303 | | | $ | 1.28 | |
| Three Months Ended December 31, 2018 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| Net income available to Ionis common stockholders | | $ | 319,694 | | | | 137,699 | | | $ | 2.32 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 1,254 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 636 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 7 | | | | | |
| Shares issuable related to our 1 percent convertible notes | | | 10,745 | | | | 10,260 | | | | | |
| Income available to Ionis common stockholders, plus assumed conversions | | $ | 330,439 | | | | 149,856 | | | $ | 2.21 | |
For the three months ended March 31, 2017,2019 and September 30, 2019, the calculation excludesexcluded the 1 percent and 2¾ percent notes because the effect on diluted earnings per share was anti-dilutive.
(4) | For the three months ended December 31, 2016, we had net income. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Diluted common equivalent shares for the three months ended December 31, 2016 consisted of the following (in thousands): |
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| Three Months Ended December 31, 2016 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| | | | | | | | | | |
| Income available to common shareholders | | $ | 25,865 | | | | 121,340 | | | $ | 0.21 | |
| Effect of diluted securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 2,189 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 403 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 21 | | | | | |
| Income available to common shareholders, plus assumed conversions | | $ | 25,865 | | | | 123,953 | | | $ | 0.21 | |
For the three months ended December 31, 2016, the calculation excludes the 1 percent and 2¾ percent notes because the effect on diluted earnings per share would be anti-dilutive.
(5) | For the three months ended September 30, 2016, we had net income. As a result, we computed diluted net income per share using the weighted-average number of common shares and dilutive common equivalent shares outstanding during the period. Diluted common equivalent shares for the three months ended September 30, 2016 consisted of the following (in thousands): |
| Three Months Ended September 30, 2016 | | Income (Numerator) | | | Shares (Denominator) | | | Per-Share Amount | |
| | | | | | | | | | |
| Income available to common shareholders | | $ | 7,351 | | | | 120,989 | | | $ | 0.06 | |
| Effect of diluted securities: | | | | | | | | | | | | |
| Shares issuable upon exercise of stock options | | | — | | | | 2,129 | | | | | |
| Shares issuable upon restricted stock award issuance | | | — | | | | 202 | | | | | |
| Shares issuable related to our ESPP | | | — | | | | 58 | | | | | |
| Income available to common shareholders, plus assumed conversions | | $ | 7,351 | | | | 123,378 | | | $ | 0.06 | |
For the three months ended September 30, 2016, the calculation excludes the 1 percent and 2¾ percent notes because the effect on diluted earnings per share would be anti-dilutive.
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